OF DOING BUSINESS FAIR PRICING FINANCIAL STABILITY
STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING
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FINANCIAL STABILITY EASE OF DO
NG BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERV
R PRICING FINANCIAL STABILITY PRODUCTS THAT WORK
F DOING BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WOR
F DOING BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WOR
NCIAL STABILITY PRODUCTS THAT WORK FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EA
NCIAL STABILITY PRODUCTS THAT WORK FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EA
CEK PRODUCTS THAT WORK FINANCIA
BUSINESS PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING
ODDUUCCTTS TTHHAATT WOORRKK SUPERIOR CLAIMS SERVICE EASE OF DOING
HATAT WWORK FIFINANCIAL STSTABABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EA
NCIAL STABILITY PRODUCTS THAT WORK FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EA
OF DOING BUSINESS FAIR PRICING FINANCIAL STABILITY
ESSSS FFAAIIRR PRICCIINNG FINANCIAL STABILITY
CINNGG FIINNAANCIAL SSTTAABILITY PRODUCTS THAT WOR
F DOING BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WOR
STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING B
SSUUPERIOORR CLAIMS SSEERVICE EASE OF DOING B
FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF
TTSS TTHAT WWOORK SUPERIIOORR CLAIMS SERVICE EASE OF
LLIITTYY SSUUPERIOORR CLAIMS SERV
R PRICING FINANCIAL STABILITY SUPERIOR CLAIMS SERV
AIMS SERVICE EASE OF DOING BUSINES
SSUPERIOORR CLAIMS SERVVIICE EASE OF
FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF
RICIC NG FINANANCIAL STABILITY Y PRODUCTS TH
NCIAL STABILITY PRODUCTS THAT WORK EASE OF DOING BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS TH
WORK SUPERIOR CLAIMS SERVICE EA
NNGG BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WWOORK SUUPPERIOR CLAIMSS SSERV
NG BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERV
LAAIIMMSS SERVICE EASE OF DOING BUSINESSS FAIIRR PRICINNGG
LAIMS SERVICE EASE OF DOING BUSINESS FAIR PRICING
FAIR PRICINNGG FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAAIIMMS SERVVIICCE EASE OF
FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF
RICING FFINANCIAL STABILITY PRODUCTS THHAAT WWOORK E
RICING FINANCIAL STABILITY PRODUCTS THAT WORK E
WORK SUPERIOORR CLAIMS SERVICE EASE OF DOING FINANCIAL SSTTABILITTYY PRO
WORK SUPERIOR CLAIMS SERVICE EASE OF DOING FINANCIAL STABILITY PRO
NCIAL STABILITY PRODUCTTS S THAT WORK FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLC AIMS SERRVICE EA
NCIAL STABILITY PRODUCTS THAT WORK FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EA
UPERIOR CLAIMS SERVICE FINANCIAL ST
NG BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERV
NG BUSINESS FAIR PRICING FFINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CCLAIMS SEERV
OF DOING BUSINESSSS FAIR PRICING FINANCIAL STAABBILITYY
OF DOING BUSINESS FAIR PRICING FINANCIAL STABILITY
AIR PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS S
AIR PRICING FINANCIAL STAABBILITY PRODUCTS THAT WORK SUPERIOR CLAAIMS S
T WORK FINANCIAL STABILITY PRODUCTS TTH
T WORK FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING BUSINESS
OF DOING BUSINESS PRODUCTS THAT
STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING
STABILITY PRODUCTS THAT WORKK SUPERIOR CLAIMS SERVICE EASE OF DOINNGG
NG BUSINESS FAIR PRICING FINANCIAL STAABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERRV
NG BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERV
RICING FINANCIAL STABILLITY EASE OF DOING BUSINESSS
RICING FINANCIAL STABILITY EASE OF DOING BUSINESS
F DOING BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WOR
F DOING BUSINESS FAIR PRICING FINN
FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CCL
FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EEASE OF DOING BUSINESS FINANCIAL STA
STABILITY FAIR PRICING PRODUCTS
STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING
STABILITY PRODUCTS THAT WORK SUPERRI
NCIAL STABILITY PRODUCTS THAT WORK FINANCIAL STABILITY
NCIAL STABILITY PRODUCTS THAT WORK FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EA
OF DOING BUSINESS
OF DOING BUSINESS
FAIR PRICCII
FAIR PRICING FINANCIAL STABILITY
FIVE FOUNDATIONS
P U T T I N G P R I N C I P L E S
C I P
(cid:22) (cid:10) (cid:13)
(cid:22) (cid:32) (cid:47) (cid:34) (cid:3) (cid:42) (cid:44) (cid:386) (cid:10) (cid:47) (cid:22) (cid:10) (cid:13) (cid:176)
FINANCIAL STABILITY
SUPERIOR CLAIMS SERVICE
(cid:54)(cid:75)(cid:79)(cid:71)(cid:78)(cid:91)(cid:14)(cid:2)(cid:72)(cid:67)(cid:75)(cid:84)(cid:2)(cid:84)(cid:71)(cid:85)(cid:81)(cid:78)(cid:87)(cid:86)(cid:75)(cid:81)(cid:80)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)(cid:2)
(cid:81)(cid:72)(cid:2)(cid:69)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)
(cid:55)(cid:105)(cid:3)(cid:171)(cid:192)(cid:156)(cid:86)(cid:105)(cid:195)(cid:195)(cid:3)(cid:86)(cid:143)(cid:62)(cid:136)(cid:147)(cid:195)(cid:3)(cid:213)(cid:195)(cid:136)(cid:152)(cid:125)(cid:3)(cid:171)(cid:192)(cid:156)(cid:118)(cid:105)(cid:195)(cid:195)(cid:136)(cid:156)(cid:152)(cid:62)(cid:143)(cid:3)(cid:136)(cid:152)(cid:135)(cid:133)(cid:156)(cid:213)(cid:195)(cid:105)(cid:3)
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(cid:105)(cid:221)(cid:86)(cid:105)(cid:143)(cid:143)(cid:105)(cid:152)(cid:86)(cid:105)(cid:176)(cid:3)(cid:32)(cid:156)(cid:3)(cid:147)(cid:62)(cid:204)(cid:204)(cid:105)(cid:192)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3)(cid:195)(cid:136)(cid:204)(cid:213)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:93)(cid:3)(cid:220)(cid:105)(cid:3)(cid:195)(cid:204)(cid:192)(cid:136)(cid:219)(cid:105)(cid:3)
(cid:204)(cid:156)(cid:3)(cid:171)(cid:192)(cid:156)(cid:219)(cid:136)(cid:96)(cid:105)(cid:3)(cid:62)(cid:143)(cid:143)(cid:3)(cid:171)(cid:156)(cid:143)(cid:136)(cid:86)(cid:222)(cid:133)(cid:156)(cid:143)(cid:96)(cid:105)(cid:192)(cid:195)(cid:3)(cid:62)(cid:3)(cid:204)(cid:136)(cid:147)(cid:105)(cid:143)(cid:222)(cid:3)(cid:192)(cid:105)(cid:195)(cid:171)(cid:156)(cid:152)(cid:195)(cid:105)(cid:3)
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(cid:62)(cid:192)(cid:105)(cid:3)(cid:171)(cid:192)(cid:156)(cid:147)(cid:171)(cid:204)(cid:3)(cid:192)(cid:105)(cid:195)(cid:204)(cid:156)(cid:192)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:3)(cid:156)(cid:192)(cid:3)(cid:192)(cid:105)(cid:171)(cid:143)(cid:62)(cid:86)(cid:105)(cid:147)(cid:105)(cid:152)(cid:204)(cid:3)(cid:156)(cid:118)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3)
(cid:171)(cid:192)(cid:156)(cid:171)(cid:105)(cid:192)(cid:204)(cid:222)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)(cid:133)(cid:136)(cid:125)(cid:133)(cid:3)(cid:86)(cid:213)(cid:195)(cid:204)(cid:156)(cid:147)(cid:105)(cid:192)(cid:3)(cid:195)(cid:62)(cid:204)(cid:136)(cid:195)(cid:118)(cid:62)(cid:86)(cid:204)(cid:136)(cid:156)(cid:152)(cid:176)(cid:3)
(cid:22)(cid:152)(cid:3)(cid:211)(cid:228)(cid:163)(cid:110)(cid:93)(cid:3)(cid:220)(cid:105)(cid:3)(cid:171)(cid:192)(cid:156)(cid:86)(cid:105)(cid:195)(cid:195)(cid:105)(cid:96)(cid:3)(cid:156)(cid:219)(cid:105)(cid:192)(cid:3)(cid:163)(cid:228)(cid:228)(cid:93)(cid:228)(cid:228)(cid:228)(cid:3)(cid:86)(cid:143)(cid:62)(cid:136)(cid:147)(cid:195)(cid:93)(cid:3)
(cid:76)(cid:222)(cid:3)(cid:118)(cid:62)(cid:192)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3)(cid:147)(cid:156)(cid:195)(cid:204)(cid:3)(cid:136)(cid:152)(cid:3)(cid:156)(cid:213)(cid:192)(cid:3)(cid:133)(cid:136)(cid:195)(cid:204)(cid:156)(cid:192)(cid:222)(cid:93)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)(cid:125)(cid:192)(cid:105)(cid:220)(cid:3)(cid:156)(cid:213)(cid:192)(cid:3)
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(cid:49)(cid:87)(cid:84)(cid:2)(cid:386)(cid:80)(cid:67)(cid:80)(cid:69)(cid:75)(cid:67)(cid:78)(cid:2)(cid:85)(cid:86)(cid:84)(cid:71)(cid:80)(cid:73)(cid:86)(cid:74)(cid:2)(cid:67)(cid:85)(cid:85)(cid:87)(cid:84)(cid:71)(cid:85)(cid:2)(cid:81)(cid:87)(cid:84)(cid:2)
(cid:67)(cid:68)(cid:75)(cid:78)(cid:75)(cid:86)(cid:91)(cid:2)(cid:86)(cid:81)(cid:2)(cid:82)(cid:67)(cid:91)(cid:2)(cid:69)(cid:78)(cid:67)(cid:75)(cid:79)(cid:85)
EASE OF DOING BUSINESS
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(cid:156)(cid:118)(cid:3)(cid:156)(cid:213)(cid:192)(cid:3)(cid:19)(cid:136)(cid:219)(cid:105)(cid:3)(cid:19)(cid:156)(cid:213)(cid:152)(cid:96)(cid:62)(cid:204)(cid:136)(cid:156)(cid:152)(cid:195)(cid:176)(cid:3)(cid:55)(cid:105)(cid:3)(cid:133)(cid:62)(cid:219)(cid:105)(cid:3)(cid:102)(cid:120)(cid:211)(cid:228)(cid:3)(cid:147)(cid:136)(cid:143)(cid:143)(cid:136)(cid:156)(cid:152)(cid:3)
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(cid:213)(cid:195)(cid:3)(cid:156)(cid:152)(cid:105)(cid:3)(cid:156)(cid:118)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3)(cid:143)(cid:62)(cid:192)(cid:125)(cid:105)(cid:195)(cid:204)(cid:3)(cid:171)(cid:213)(cid:192)(cid:86)(cid:133)(cid:62)(cid:195)(cid:105)(cid:192)(cid:195)(cid:3)(cid:156)(cid:118)(cid:3)(cid:49)(cid:176)(cid:45)(cid:176)(cid:3)(cid:171)(cid:192)(cid:156)(cid:171)(cid:105)(cid:192)(cid:204)(cid:222)(cid:3)
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(cid:119)(cid:219)(cid:105)(cid:3)(cid:133)(cid:213)(cid:192)(cid:192)(cid:136)(cid:86)(cid:62)(cid:152)(cid:105)(cid:195)(cid:3)(cid:147)(cid:62)(cid:142)(cid:136)(cid:152)(cid:125)(cid:3)(cid:143)(cid:62)(cid:152)(cid:96)(cid:118)(cid:62)(cid:143)(cid:143)(cid:3)(cid:136)(cid:152)(cid:3)(cid:156)(cid:213)(cid:192)(cid:3)(cid:143)(cid:62)(cid:192)(cid:125)(cid:105)(cid:195)(cid:204)(cid:3)
(cid:195)(cid:204)(cid:62)(cid:204)(cid:105)(cid:195)(cid:3)(cid:136)(cid:152)(cid:3)(cid:211)(cid:123)(cid:3)(cid:147)(cid:156)(cid:152)(cid:204)(cid:133)(cid:195)(cid:93)(cid:3)(cid:136)(cid:152)(cid:86)(cid:143)(cid:213)(cid:96)(cid:136)(cid:152)(cid:125)(cid:3)(cid:204)(cid:133)(cid:192)(cid:105)(cid:105)(cid:3)(cid:10)(cid:386)(cid:47)(cid:3)(cid:123)(cid:3)(cid:156)(cid:192)(cid:3)
(cid:133)(cid:136)(cid:125)(cid:133)(cid:105)(cid:192)(cid:3)(cid:105)(cid:219)(cid:105)(cid:152)(cid:204)(cid:195)(cid:93)(cid:3)(cid:220)(cid:105)(cid:3)(cid:213)(cid:195)(cid:105)(cid:96)(cid:3)(cid:156)(cid:152)(cid:143)(cid:222)(cid:3)(cid:62)(cid:76)(cid:156)(cid:213)(cid:204)(cid:3)(cid:62)(cid:3)(cid:204)(cid:133)(cid:136)(cid:192)(cid:96)(cid:3)(cid:156)(cid:118)(cid:3)
(cid:156)(cid:213)(cid:192)(cid:3)(cid:62)(cid:219)(cid:62)(cid:136)(cid:143)(cid:62)(cid:76)(cid:143)(cid:105)(cid:3)(cid:192)(cid:105)(cid:136)(cid:152)(cid:195)(cid:213)(cid:192)(cid:62)(cid:152)(cid:86)(cid:105)(cid:3)(cid:86)(cid:62)(cid:171)(cid:62)(cid:86)(cid:136)(cid:204)(cid:222)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)(cid:125)(cid:192)(cid:105)(cid:220)(cid:3)(cid:156)(cid:213)(cid:192)(cid:3)
(cid:204)(cid:62)(cid:152)(cid:125)(cid:136)(cid:76)(cid:143)(cid:105)(cid:3)(cid:76)(cid:156)(cid:156)(cid:142)(cid:3)(cid:219)(cid:62)(cid:143)(cid:213)(cid:105)(cid:176)(cid:3)(cid:47)(cid:133)(cid:62)(cid:204)(cid:189)(cid:195)(cid:3)(cid:119)(cid:152)(cid:62)(cid:152)(cid:86)(cid:136)(cid:62)(cid:143)(cid:3)(cid:195)(cid:204)(cid:192)(cid:105)(cid:152)(cid:125)(cid:204)(cid:133)(cid:3)(cid:204)(cid:156)(cid:3)
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PRODUCTS THAT WORK
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(cid:87)(cid:80)(cid:75)(cid:83)(cid:87)(cid:71)(cid:2)(cid:80)(cid:71)(cid:71)(cid:70)(cid:85)
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FAIR PRICING
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A LETTER TO
SHAREHOLDERS
PRESIDENT & CHIEF EXECUTIVE OFFICER JOHN FORNEY
2018 marked a second consecutive year of exceptionally high levels of global catastrophe
losses – according to Munich Re, 2017 and 2018, with $140 billion and $80 billion of cat
losses, respectively, were both far above the 2000–2017 annual average of $52 billion.
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months, three of them Cat 4 or above, and all of them impacting three of our largest states
of operation, not to mention non-hurricane cat losses in each year more than double what
models suggest should be our long-term annual average. For us, that meant another year of
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Your company has been building strength, and is poised to deliver continued growth,
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mean historical levels.
y
Here’s why
Financial Strength
Despite the historic levels of cat activity in 2017 and 2018, our reinsurance tower was never
threatened, and we grew tangible book value, allowing us to head into 2019 in a very strong
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that provide us good runway for continued growth without the need for external capital.
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lower risk of ruin. So, even with the infamous “Irma creep” that occurred across the industry
in 2018, only about a third of our tower was used. Our collateralized reinsurance programs
worked exactly as they were advertised to work, and we are grateful to all our reinsurance
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long-term win-win relationship with them.
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past two years – 11 in 2017 and 15 in 2018. The rate actions we have taken over the past
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since I have been at the company where we wrote fewer new business personal lines policies
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over 149,000 new business personal lines policies in 2018 companywide, not too shabby on
a book that ended the year at 576,725 policies in force, and especially considering the many
rate actions we have taken the past two years. Deepak Menon and his team continue to excel.
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salespeople that know how to articulate our compelling value proposition based on the Five
Foundations shown on the cover of this report.
Operational Initiatives
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That certainly kept us busy, but it did not distract us from moving forward on a series of
underwriting, claims and technology initiatives designed to improve the underlying margins in
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Technology
In the past couple years, we have moved aggressively to incorporate technology into
our underwriting processes. Two of the best examples are aerial imagery and our
Home Self-Inspection (“HSI”) program.
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score to the photo, which we combine with other factors (insurance score, age of home, etc.)
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further review, or further inspection needed. If the latter, we send a link to our HSI program
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involves our insured taking photos and videos of their home on their smartphone and sending
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properly in the event of a claim. These two initiatives have made our underwriting process
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(cid:118)
Predictive Analytics
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It’s an interesting and important initiative – at 2018’s average severity of $16,498 per claim, a
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backtesting and pilot programs we have run using the model, we believe that it has at least
that much upside potential.
Claims Initiatives
In addition to the underwriting and sales team efforts to improve our loss costs, the claims
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to reduce claims leakage. Most importantly, we started “UPC University,” a school using both
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of claims handled exclusively by UPC personnel has skyrocketed since Scott’s arrival, so that
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the claims process while paying customers fairly and timely. That provides us a competitive
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Noncat Loss Results
In combination, these initiatives and others have helped us improve our underwriting results.
The table below shows the trend in our personal lines noncat loss ratio across our entire book.
The bars represent gross earned premium and the line and numbers are our noncat loss
ratio. 2018 produced our lowest noncat loss percentage since 2014, and the trend is good,
even though we are expanding the amount of our personal lines business outside Florida,
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the progress we are making, especially considering the many initiatives we have – like aerial
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UIHC PL TOTAL
Earned Premium
ind Ult L+LAE
900,000,000
800,000,000
700,000,000
600,000,000
500,000,000
400,000,000
300,000,000
200,000,000
100,000,000
-
37.1%
37.2%
35.4%
35.0%
32.8%
40.0%
39.0%
38.0%
37.0%
36.0%
35.0%
34.0%
33.0%
32.0%
31.0%
2014
2015
2016
2017
2018
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Journey
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tuned for more on this exciting new initiative.
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have ever been during my tenure at the company, and I am happy about that! Your team has
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John Forney, CFA
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United Insurance Holdings Corp.
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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, 2018
Commission File Number 001-35761
United Insurance Holdings Corp.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State of Other Jurisdiction of Incorporation of Organization)
75-3241967
(IRS Employer Identification Number)
800 2nd Avenue S
St. Petersburg, Florida 33701
(Address of Principal Executive Offices, including Zip Code)
727-895-7737
(Telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.0001 par value per share
Nasdaq Stock Market LLC
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 every Interactive Data File required to be submitted
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 such files). Yes Í 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, a smaller
reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ‘
Non-accelerated filer ‘
Í
Accelerated filer
Smaller reporting company ‘
Emerging growth company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ‘ No Í
The aggregate market value of shares of the registrant’s common stock held by non–affiliates of the registrant was approximately
$393,570,120 as of June 29, 2018, calculated using the closing sales price reported for such date on the Nasdaq Stock Market. 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 affiliate status is not necessarily a conclusive determination for other purposes.
As of March 8, 2019, 42,983,953 shares of the registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from the Proxy Statement for the 2019 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, 2018.
UNITED INSURANCE HOLDINGS CORP.
Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Part I.
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Auditor’s Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income (Loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related
Item 12.
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.
5
16
29
30
30
30
31
34
36
54
58
58
60
61
62
63
64
112
112
114
117
117
117
117
117
Part IV.
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 16.
119
128
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
129
Throughout this Annual Report on Form 10-K (Form 10-K), we present amounts in all tables in
thousands, except for share amounts, per share amounts, policy and claim counts or where more specific
language or context indicates a different presentation. In the narrative sections of this Form 10-K, we show
full values rounded to the nearest thousand.
2
UNITED INSURANCE HOLDINGS CORP.
FORWARD-LOOKING STATEMENTS
Statements in this Form 10-K or in documents incorporated by reference contain or may contain “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, gross written premium, earnings per
share, estimated unpaid losses on insurance policies, investment returns, and diversification and expectations
about our liquidity, our ability to meet our investment objectives and our ability to manage and mitigate market
risk with respect to our investments. Without limiting the generality of the foregoing, words such as “may,”
“will,” “expect,” “endeavor,” “project,” “believe,” “plan,” “anticipate,” “intend,” “could,” “would,” “estimate,”
or “continue” or the negative variations thereof or comparable terminology are intended to identify forward-
looking statements. These statements are based on current expectations, estimates and projections about the
industry and market in which we operate, and management’s beliefs and assumptions. Forward-looking
statements are not guarantees of future performance and involve certain known and unknown risks and
uncertainties that could cause actual results to differ materially from those expressed or implied by such
statements. The risks and uncertainties include, without limitation:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
our exposure to catastrophic events and severe weather conditions;
the regulatory, economic and weather conditions present in Florida, the state in which we are most
concentrated;
our ability to cultivate and maintain agent relationships, particularly our relationship with AmRisc,
LLC (AmRisc);
the possibility that actual claims incurred may exceed our loss reserves for claims;
assessments charged by various governmental agencies;
our ability to implement and maintain adequate internal controls over financial reporting;
our ability to maintain information technology and data security systems, and to outsource
relationships;
our reliance on key vendor relationships, and the ability of our vendors to protect the personal
information of our customers;
our ability to attract and retain the services of senior management;
risks and uncertainties relating to our acquisitions, including our ability to successfully integrate the
acquired companies;
our ability to generate sufficient cash to service all of our indebtedness and comply with covenants
related to our indebtedness;
our ability to increase or maintain our market share;
changes in the regulatory environment present in the states in which we operate;
the impact of new federal or state regulations that affect the property and casualty insurance market;
the cost, viability and availability of reinsurance;
our ability to collect from our reinsurers on our reinsurance claims;
dependence on investment income and the composition of our investment portfolio and related market
risks;
the possibility of the pricing and terms for our products to decline due to the historically cyclical nature
of the property and casualty insurance and reinsurance industry;
3
UNITED INSURANCE HOLDINGS CORP.
•
•
•
•
•
•
the outcome of litigation pending against us, including the terms of any settlements;
downgrades in our financial strength ratings;
the impact of future transactions of substantial amounts of our common stock by us or our significant
stockholders on our stock price;
our ability to pay dividends in the future;
the ability of R. Daniel Peed and his affiliates to exert significant control over us due to substantial
ownership of our common stock, subject to certain restrictive covenants that may restrict our ability to
pursue certain opportunities; and
the other risks identified in this report, including under “Risk Factors” in Part I, Item 1A.
We caution you to not place reliance on these forward-looking statements, which are valid only as of the
date they were made. Except as may be required by applicable law, we undertake no obligation to update or
revise any forward-looking statements to reflect new information, the occurrence of unanticipated events or
otherwise.
4
UNITED INSURANCE HOLDINGS CORP.
PART I
Item 1.
Business
INTRODUCTION
Company Overview
United Insurance Holdings Corp. (referred to in this Form 10-K as we, our, us, the Company or UPC
Insurance) is a holding company primarily engaged in the residential personal and commercial property and
casualty insurance business in the United States. Our largest insurance subsidiary is United Property & Casualty
Insurance Company (UPC), and we also write business through American Coastal Insurance Company (ACIC),
Family Security Insurance Company (FSIC), Interboro Insurance Company (IIC), and Journey Insurance
Company (JIC). Our insurance subsidiaries provide personal residential and commercial property and casualty
insurance products that protect our policyholders against losses due to damages to structures and their contents.
Some of our insurance subsidiaries sell policies that protect against liability for accidents as well as property
damage. Our non-insurance subsidiaries support our insurance and investment operations.
As of December 31, 2018, approximately 41.2 % of our policies in-force were written in Florida. We also
write in Connecticut, Georgia, Hawaii, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode
Island, South Carolina, and Texas. We are licensed to write, but have not commenced writing business, in
Alabama, Delaware, Maryland, Mississippi, New Hampshire, and Virginia. A fundamental part of our strategy is
to diversify our operations outside of Florida and to write in multiple states where the perceived threat of natural
catastrophe has caused large national insurance carriers to reduce their concentration of policies. We believe an
opportunity exists for UPC Insurance to write profitable business in such areas.
We manage our risk of catastrophic loss primarily through sophisticated underwriting procedures and
pricing algorithms, avoidance of policy concentration, and the use of a comprehensive catastrophe reinsurance
program. UPC Insurance has been operating continuously since 1999, and has successfully managed its business
through various hurricanes, tropical storms, and other weather-related events. We believe our record of
successful risk management and experience in writing business in catastrophe-exposed areas provides us with a
competitive advantage as we grow our business in other states facing similar perceived threats.
On April 3, 2017, the Company acquired AmCo Holding Company (AmCo) and its subsidiaries through a
series of mergers that ultimately resulted in the Company issuing 20,956,355 shares of its common stock as
merger consideration to the equity holders of RDX Holding, LLC, the former parent company of AmCo.
On August 30, 2018, the Company, in strategic partnership with RJ Kiln & Co. (No. 3 Limited) (Kiln), a
subsidiary of Tokio Marine Kiln Group Limited, formed JIC. The Company owns 66.7% of JIC, while Kiln owns
33.3%.
Financial strength or stability ratings are important to insurance companies in establishing their competitive
position and may impact an insurance company’s ability to write policies. We are rated by Demotech, AM Best,
and Kroll Bond Rating Agency (Kroll). Demotech maintains a letter-scale financial stability rating system
ranging from A’’ (A double prime) to L (licensed by insurance regulatory authorities). AM Best maintains a
letter-scale financial strength rating system ranging from A++ (Superior) to S (suspended). Kroll maintains a
letter-scale financial strength rating system for insurance companies ranging from AAA (extremely strong
operations and no risk) to R (operating under regulatory supervision). The financial strength or stability ratings of
our insurance company subsidiaries as of December 31, 2018 are listed below. With these ratings, we expect our
property insurance policies will be acceptable to the secondary mortgage marketplace and mortgage lenders.
5
UNITED INSURANCE HOLDINGS CORP.
Subsidiary
Demotech Rating
AM Best
Kroll Rating
UPC . . . . . . . . . . . . . . . . . . . . .
ACIC . . . . . . . . . . . . . . . . . . . .
FSIC . . . . . . . . . . . . . . . . . . . .
IIC . . . . . . . . . . . . . . . . . . . . . .
JIC . . . . . . . . . . . . . . . . . . . . . .
A
A’
A
A
A-
A-
A-
A-
A-
As of December 31, 2018, we had 293 employees. We are not party to any collective bargaining agreements
and we have not experienced any work stoppages or strikes as a result of labor disputes. We believe we have
good working relationships with our employees.
Our Strategy
Our vision is to be the premier provider of property insurance in catastrophe exposed areas. Historically,
we have advanced our vision through strong organic growth complemented by strategic acquisitions. Going
forward, we plan to continue to diversify our exposure both by product and by geography.
Our emphasis on growing in areas with an ongoing threat of natural catastrophes exposes our company to
risk and volatility. We manage the inherent volatility associated with our risk profile in three primary ways:
strategically, financially and operationally.
Strategic Risk Management
UPC Insurance uses a strategic approach to manage inherent volatility through geographic and product
diversification. In 2018, we continued to grow our premium base in our existing states. Our gross written
premiums increased by 20% in 2018 compared to 2017. This is primarily a reflection of organic growth in new
and renewal business generated in all regions. We will continue to evaluate opportunities to expand our product
offerings into states where we can leverage existing distribution capabilities. Primary factors considered in the
evaluation of a potential new state include weather-related catastrophe history, the legal climate, and the
competitive state of the market. Refer to “Geographic Markets” below for further information on our
geographic distribution.
Financial Risk Management
We take a financial approach to manage risk using robust reinsurance programs, low financial leverage
and a conservative investment approach. UPC Insurance has several reinsurance programs in place including
quota share, catastrophe excess-of-loss, and aggregate catastrophe. During 2018, our excess-of-loss
reinsurance program covered all four of our wholly-owned insurance subsidiaries, gaining synergies in
reinsurance costs and increasing our coverage limits for the June 1, 2018 to May 31, 2019 program year. Refer
to Note 9 in our Notes to Consolidated Financial Statements in Part II, Item 8 of this report for further details
on our reinsurance program.
We also limit our financial leverage. In December 2017, the Company issued $150,000,000 of senior notes,
the proceeds of which we have used to support our growth initiatives, such as forming JIC. We have a debt
covenant in place which requires us to maintain a financial leverage of less than 30%, and we believe that this is
a conservative limit to our leverage. As of December 31, 2018, our financial leverage was 23%. Refer to Note 11
in our Notes to Consolidated Financial Statements in Part II, Item 8 of this report for further details on our debt
offerings.
6
UNITED INSURANCE HOLDINGS CORP.
We follow a conservative investment approach using two outside investment management companies. Each
manager has the authority and discretion to manage our investments, subject to the investment guidelines
established by the Investment Committee of our Board of Directors and the direction of management. Our
portfolio is primarily invested in short-term and intermediate-term, investment-grade fixed-income securities.
Our investment portfolio had a fair value of $951,836,000 at December 31, 2018, compared to $854,531,000 at
December 31, 2017 with approximately 87.2% of our fixed maturities invested in U.S. Treasuries, or corporate
bonds rated “A” or better. Refer to Note 3 in our Notes to Consolidated Financial Statements in Part II, Item 8 of
this report for further information on our investment policies.
Operational Risk Management
Finally, we use an operational approach to manage risk by in-sourcing key insurance functions and
establishing strong external distribution partnerships. During 2018, we continued to focus on the development of
our internal claims department function. In 2017, we created a robust “UPC University” training program for our
incoming claims adjusters, focused on providing world class service to our policyholders. In addition, we have
leveraged our investments in internally developed claims and policy administration systems and analytics to
manage exposure growth and improve profitability.
In addition, we have taken two initiatives to monitor our risk management strategy related to loss activity.
We have a five-person actuarial department whose primary focus is to manage risk for our company. Also, at the
end of 2017, we formed a new entity, Skyway Reinsurance Services, LLC to insource our reinsurance
intermediary function as part of our risk management strategy.
We have also leveraged our current partnerships and added new strategic external partnerships to expand
distribution and service capabilities in all states in which we operate. Refer to “Products and Distribution”
below for further details on our external partnerships.
PRODUCTS AND DISTRIBUTION
In 2017 and 2018, we continued to diversify our product mix, including through our merger with AmCo,
which resulted in an increase in our commercial products from 3% of our product mix at December 31, 2016 to
28% of our product mix at December 31, 2018.
2018 Product Mix
Personal Property: 70%
Commercial: 28%
Flood: 2%
7
UNITED INSURANCE HOLDINGS CORP.
2017 Product Mix
2016 Product Mix
2016 Product Mix
Personal Property: 75%
Personal Property: 95%
Commercial: 23%
Commercial: 3%
Flood: 2%
Flood: 2%
Personal Residential Products
Policies we issue under our homeowners’ program provide structure, content and liability coverage for
standard single-family homeowners, renters and condominium unit owners. Personal residential products are
offered in all states in which we write business.
In 2018, personal residential property policies (by which we mean both standard homeowners’, dwelling
fire, renters and condo owners’ policies) produced written premium of $871,307,000 and accounted for 70% of
our total gross written premium. Approximately 54% of the personal residential gross written premium was
written outside of Florida.
We have developed a unique and proprietary homeowners’ product. This product uses a granular approach
to pricing for catastrophe perils. Our objective is to create specific geographic areas such that within each area or
“catastrophe band” the expected losses are within a specified range of error or approximation from a central
estimate. These areas may have millions of data points that help us create distance-to-coast factors that provide a
sophisticated market segmentation that is highly correlated to our risk exposure and reinsurance costs.
Loss and loss adjustment expenses related to our personal residential products tend to be higher during
periods of severe or inclement weather, which varies from state to state.
Commercial Residential Products
We provide commercial multi-peril property insurance for residential condominium associations in Florida.
We include coverage to policyholders for loss or damage to buildings, inventory or equipment caused by covered
cause of loss such as fire, wind, hail, water, theft and vandalism.
In 2018, commercial policies produced written premium of $362,000,000 and accounted for 28% of our
total gross written premium.
Not-At-Risk Offerings
On our flood, equipment breakdown and identity theft policies, we earn a commission while retaining no
risk of loss, since all such risk is ceded to the federal government via the National Flood Insurance Program
(flood risk) and other private companies (other risks). We offer flood policies in all states in which we write
business. Flood policies produced written premium of $19,207,000 and accounted for 2% of our total gross
written premium at December 31, 2018.
8
UNITED INSURANCE HOLDINGS CORP.
Underwriting
We price our product at levels that we project will generate an acceptable underwriting profit. We aim to be
granular in our approach, so that our price can accurately reflect the risk and profitability of each potential
customer. In our proprietary pricing algorithm, we consider insurance credit scores (where allowable) and
historical attritional loss costs for the rating territory in which the customer resides, as well as projected
reinsurance costs based on the specific geographic and structural characteristics of the home. In addition to the
specific characteristics of the policy being priced, we also evaluate the reinsurance costs of each incremental
policy on our portfolio as a whole. In this regard, we seek to optimize our portfolio by diversifying our
geographic exposure in order to limit our probable maximum loss, total insured value and average annual loss.
As part of this optimization process, we use the output from third-party modeling software to analyze our risk
exposures, including wind exposures, by zip code or street address.
We have established underwriting guidelines designed to provide a uniform approach to our risk selection
and designed to achieve acceptable underwriting profitability. Our underwriters review the property inspection
report during their risk evaluation and, if the policy does not meet our underwriting criteria, we have the right to
cancel the policy within 90 days in Florida and within 60 days in all other states in which we operate.
We measure our underwriting profitability by the combined ratio, which is a sum of the ratios of losses, loss
adjustment expenses, and underwriting expenses to either gross or net earned premiums. A combined ratio under
100% indicates an underwriting profit. Refer to Management’s Discussion and Analysis of Financial Condition
and Results of Operations in Part II, Item 7 of this report for further details on our combined ratio.
Distribution Channels
As of December 31, 2018, we market and distribute our policies to consumers through approximately 9,000
independent agents representing over 6,300 agencies, with only one agency, Allstate, representing more than
10% of our revenue. UPC Insurance has focused on the independent agency distribution channel since its
inception, and we believe independent agents and agencies build relationships in their communities that can lead
to profitable business and policyholder satisfaction. We believe we have built significant credibility and loyalty
with the independent agent communities in the states in which we operate through (i) our extensive training for
full-service insurance agencies that distribute our products, (ii) periodic business reviews using established
benchmarks and goals for premium volume and profitability, and (iii) regular visits from the Company’s
executives to strengthen the personal relationships with our agents and agencies. Also, each state is assigned a
sales representative from UPC Insurance who lives in the community, recruits new agents and agencies, and
provides direct support for existing agents and agencies.
Typically, a full-service agency is small to medium in size and represents several insurance companies for
both personal and commercial product lines. We depend on our independent agents to produce new business for
us. We compensate our independent agents primarily with fixed-rate commissions that we believe are consistent
with those generally prevailing in the market. In 2018, we expanded our commission program in order to allow
agents and brokers to be eligible to earn a bonus commission based on the overall profitability of policies they
place with UPC Insurance in a particular year.
In addition to our relationships with individual agencies, we have important partnerships with other
insurance companies and industry associations. The largest of these relationships are with Allstate and GEICO.
In Florida, Allstate’s Ivantage program refers Allstate auto insurance customers to our company and other partner
companies to provide homeowners’ insurance. We partner with GEICO to underwrite homeowners’ policies for
some of their auto customers. We also have a partnership with the Florida Association of Insurance Agents
(FAIA) to serve as a conduit between UPC Insurance and many smaller insurance agencies in Florida with whom
we do not have direct relationships.
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UNITED INSURANCE HOLDINGS CORP.
GEOGRAPHIC MARKETS
The table below shows the geographic distribution of our policies in-force as of December 31, 2018, 2017
and 2016.
Policies In-Force By Region (1)
2018
2017
2016
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gulf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Northeast
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southeast
239,725
126,285
130,808
85,278
217,763
124,649
110,550
75,231
187,414
103,207
93,258
67,276
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
582,096
528,193
451,155
(1)
“Gulf” is comprised of Hawaii, Louisiana and Texas; “Northeast” is comprised of Connecticut, Massachusetts, New Jersey, New York
and Rhode Island; and “Southeast” is comprised of Georgia, North Carolina and South Carolina.
2018 Policies In-Force By Region
Northeast: 22.5%
Southeast: 14.7%
Gulf: 21.7%
Florida: 41.1%
2017 Policies In-Force By Region
2016 Policies In-Force By Region
Northeast: 20.9%
Southeast: 14.3%
Northeast: 20.7%
Southeast: 14.9%
Gulf: 23.6%
Gulf: 22.9%
Florida: 41.2%
Florida: 41.5%
10
UNITED INSURANCE HOLDINGS CORP.
The table below shows the geographic distribution of our total insured value (TIV) of all polices in-force as
of December 31, 2018, 2017 and 2016.
TIV By Region(1)
2018
2017
2016
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Northeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gulf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$160,406,387
85,296,121
51,219,071
37,913,396
$144,151,960
70,480,702
50,844,315
33,607,596
$ 80,444,296
61,327,280
40,411,989
31,931,399
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$334,834,975
$299,084,573
$214,114,964
(1)
“Gulf” is comprised of Hawaii, Louisiana and Texas; “Northeast” is comprised of Connecticut, Massachusetts, New Jersey, New York
and Rhode Island; and “Southeast” is comprised of Georgia, North Carolina and South Carolina.
2018 TIV By Region
Northeast: 25.5%
Gulf: 15.3%
Southeast: 11.3%
Florida: 47.9%
2017 TIV By Region
2016 TIV By Region
Northeast: 23.6%
Northeast: 28.6%
Gulf: 17.0%
Gulf: 18.9%
Florida: 48.2%
Southeast: 11.2%
Florida: 37.6%
Southeast: 14.9%
11
UNITED INSURANCE HOLDINGS CORP.
COMPETITION
Our target market for homeowners’ insurance, our primary product offering, includes the 18 states in which
we are currently licensed plus the state of Maine, where we plan to obtain a license at some point in the future.
The following table summarizes the homeowners’ insurance market countrywide for the year ended
December 31, 2018, the date for which the most current data is available (dollars in thousands):
Countrywide Property Insurance Market—2018 Homeowners DWP *
2018 Rank Company Name
Direct Written
Premium
Market
Share
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
State Farm Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allstate Insurance Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liberty Mutual Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
USAA Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Farmers Insurance Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Travelers Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
American Family Insurance Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nationwide Corp Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Chubb Ltd. Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Erie Insurance Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auto Owners Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Progressive Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
American International Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Universal Insurance Holding Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Metropolitan Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hartford Fire & Casualty Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CSAA Insurance Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amica Mutual Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Auto Club Enterprises Insurance Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
National Gen Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Insurance Holdings Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Heritage Insurance Holdings Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Country Insurance & Financial Services Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Automobile Club MI Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assurant Inc Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,177,462
8,262,445
6,655,452
6,170,558
5,795,044
3,766,277
3,276,280
3,184,627
2,832,082
1,675,976
1,571,704
1,403,095
1,153,294
1,116,377
1,102,128
983,754
924,000
909,196
827,909
792,392
786,377
783,541
698,990
684,538
672,055
18.5%
8.4%
6.8%
6.3%
5.9%
3.8%
3.3%
3.2%
2.9%
1.7%
1.6%
1.4%
1.2%
1.1%
1.1%
1.0%
0.9%
0.9%
0.8%
0.8%
0.8%
0.8%
0.7%
0.7%
0.7%
Total—Top 25 Insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total—All Insurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$74,205,553
$98,019,967
75.7%
100.0%
* The information displayed in the table above is compiled and published by the National Association of Insurance Commissioners (NAIC)
as of December 31, 2018 based on information filings submitted annually by all licensed insurance companies. The information above is
presented on a consolidated or aggregated basis for each insurance company group. The amounts shown in the table above are also on a
statutory basis and exclude non-Homeowners lines of business that are included in the Company’s total direct written premium for 2018.
We compete primarily on the basis of product features, the strength of our distribution network, the quality
of our services to our agents and policyholders, and our long-term financial stability. Our long and successful
track record writing homeowners’ insurance in catastrophe-exposed areas has enabled us to develop sophisticated
pricing techniques that endeavor to accurately reflect the risk of loss while allowing us to be competitive in our
target markets. This pricing segmentation approach allows us to offer products in areas that have a high demand
for property insurance yet are under-served by the national carriers. However, we face the risk that policyholders
may be able to obtain more favorable terms from competitors rather than renewing coverage with us.
12
UNITED INSURANCE HOLDINGS CORP.
REGULATION
We are subject to extensive regulation in the jurisdictions in which our insurance company subsidiaries are
domiciled and licensed to transact business, primarily at the state level. UPC, ACIC, and JIC are domiciled in
Florida, FSIC is domiciled in Hawaii, and IIC is domiciled in New York. UPC Insurance is also regulated by the
NAIC. In general, these regulations are designed to protect the interests of insurance policyholders.
Such regulations have a substantial effect on certain areas of our business, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
insurer solvency,
reserve adequacy,
insurance company licensing and examination,
agent and adjuster licensing,
rate setting,
investments,
assessments or other surcharges for guaranty funds,
transactions with affiliates,
the payment of dividends,
reinsurance,
protection of personal information,
risk solvency assessment and enterprise risk management,
cyber security,
statutory accounting methods, and
numerous requirements relating to other areas of insurance operations, including policy forms,
underwriting standards and claims practices.
Our insurance subsidiaries provide audited statutory financial statements to the various insurance regulatory
authorities. With regard to periodic examinations of an insurance company’s affairs, insurance regulatory
authorities, in general, defer to the insurance regulatory authority in the state in which an insurer is domiciled;
however, insurance regulatory authorities from any state in which we operate may conduct examinations at their
discretion. In 2018, the Hawaii Insurance Division of the Department of Commerce and Consumer Affairs
finished performing a regularly scheduled statutory examination of FSIC for the five years ended December 31,
2016. There were no significant findings resulting from this examination.
For a discussion of statutory financial information and regulatory contingencies, see Note 14 to our Notes to
Consolidated Financial Statements in Part II, Item 8 of this report.
Risk-Based Capital Requirements
To enhance the regulation of insurer solvency, the NAIC has published risk-based capital (RBC) 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,
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UNITED INSURANCE HOLDINGS CORP.
Hawaii and New York, 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 level of required risk-based capital is calculated and reported annually. The table below outlines each of
our subsidiary’s RBC ratios, all of which were in excess of minimum requirements, as of December 31, 2018.
Subsidiary
RBC Ratio
UPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ACIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FSIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
JIC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
301%
580%
306%
1,109%
20,345%
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.
Most states also have insurance laws requiring that rate schedules and other information be filed with the
insurance regulatory authority, either directly or through a rating organization with which the insurer is affiliated.
The insurance regulatory authority may disapprove a rate filing if it finds that the rates are inadequate, excessive
or unfairly discriminatory.
Most states require licensure or insurance 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, rates, forms and other financial and non-financial aspects of a company, such as the
character of its officers and directors. The insurance regulatory authorities may prohibit entry into a new market
by not granting a license or by withholding approval.
Limitations on Dividends by Insurance Subsidiaries
As a holding company with no significant business operations of our own, we rely on payments from our
insurance subsidiaries as one of the principal sources of cash to pay dividends and meet our obligations. Our
insurance affiliates are regulated as property and casualty insurance companies and their ability to pay dividends
is restricted by Florida, Hawaii and New York law.
The state laws of Florida, Hawaii, and New York permit an insurer to pay dividends or make distributions
out of that part of statutory surplus derived from net operating profit and net realized capital gains or adjusted net
investment income. The state laws further provide calculations to determine the amount of dividends or
distributions that can be made without the prior approval of the insurance regulatory authorities and the amount
of dividends or distributions that would require prior approval of the insurance regulatory authorities in those
states. Statutory risk-based capital requirements may further restrict our insurance subsidiaries’ ability to pay
dividends or make distributions if the amount of the intended dividend or distribution would cause statutory
surplus to fall below minimum risk-based capital requirements.
For additional information regarding those restrictions, see Part II, Item 5 and Part I, Item 1A of this report.
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UNITED INSURANCE HOLDINGS CORP.
Insurance Holding Company Regulation
As a holding company of insurance subsidiaries, we are subject to laws governing insurance holding
companies in Florida, Hawaii and New York. These laws, among other things: (i) require us to file periodic
information with the insurance regulatory authority, 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 insurance regulatory authority, upon application, determines otherwise.
Insurance holding company regulations also govern the amount any affiliate of the holding company may
charge our insurance affiliates for services (i.e., management fees and commissions). We have a long-term
management agreement among our managing company, United Insurance Management L.C., UPC and FSIC
which presently provides for monthly management fees. The Florida Office of Insurance Regulation and the
Hawaii Insurance Division must approve any changes to this agreement.
AmRisc, a managing general underwriter, handles the underwriting, claims processing and premium
collection for AmCo and JIC, for monthly management fees.
The Company does not utilize a managing general agent structure in New York. Instead, UPC Insurance
allocates a portion of relevant expenses to IIC for statutory accounting purposes at cost.
CORPORATE INFORMATION
United Insurance Holdings Corp. was incorporated in Delaware in 2012. Our principal executive offices are
located at 800 2nd Avenue S., St. Petersburg, FL 33701 and our telephone number at that location is (727) 895-7737.
We are listed on the Nasdaq stock exchange under ticker symbol “UIHC.”
Segments
We conduct our operations under one business segment.
Available Information
We make available, free of charge through our website, www.upcinsurance.com, our Annual Reports on
Form 10-K, 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 Securities and
Exchange Commission (SEC).
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.
15
UNITED INSURANCE HOLDINGS CORP.
Item 1A. Risk Factors
Many factors affect our business, financial condition and results of operations, some of which are beyond
our control. If any of the following risks or uncertainties occur, our business, financial condition or results of
operations may be materially and adversely affected. In that event, the trading price of our securities could
decline, and investors could lose all or part of their investment in our securities. Additional risks and
uncertainties we are unaware of, or we currently deem immaterial, may also become important factors that affect
us. Before making an investment in our securities, investors should carefully consider the risk factors discussed
below, together with the other information in this report, including the section entitled Forward-looking
Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations,
and the other reports and materials filed by us with the SEC.
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, the
incidence and severity of which could be affected by the unpredictability of future catastrophic events and
severe weather conditions.
Our property and casualty insurance operations expose us to risks arising from catastrophes. Catastrophes
can be caused by various natural events, including but not limited to hurricanes, tropical storms, tornadoes,
windstorms, earthquakes, hail, sinkholes, severe winter weather and fires, or man-made events, such as terrorist
attacks (including those involving nuclear, biological, chemical or radiological events), cybercrimes or
consequences of war or political instability. We may incur catastrophe losses that exceed the amount of:
•
•
•
•
catastrophe losses experienced in prior years;
catastrophe losses projected to be incurred, using third-party catastrophe modeling software;
catastrophe loss estimates used to develop prices for our products; or
our current reinsurance coverage (which would cause us to have to pay such excess losses).
The incidence and severity of weather conditions are inherently unpredictable, but the frequency and
severity of property claims generally increase when severe weather conditions occur. Florida, South Carolina and
Texas, all states in which we write policies, have experienced significant hurricanes in recent years, which some
weather analysts believe is consistent with a period of sustained greater hurricane activity. Climate change, to the
extent that it may affect weather patterns, may cause an increase in the frequency and/or the severity of
catastrophic events or severe weather conditions which, in addition to the attendant increase in claims-related
costs, may also cause an increase in our reinsurance costs and/or negatively impact our ability to provide
insurance to our policyholders in the future. Governmental entities may also respond to climate change by
enacting laws and regulations that may increase our cost of providing insurance in the future, which could
adversely affect demand.
Catastrophes could be more frequent or severe than contemplated in our pricing and risk management
models, and may have a material adverse effect on our results of operations during any reporting period due to
increases in our loss and loss adjustment expense. Catastrophes may also reduce liquidity and could impair our
ability to raise capital on acceptable terms or at all. In addition to catastrophes, the accumulation of losses from
several smaller weather-related events in any reporting period may have a similar impact to our results of
operations and financial condition.
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UNITED INSURANCE HOLDINGS CORP.
Because we conduct a significant portion of our business in Florida, our financial results substantially
depend on the regulatory, legal, economic, political, demographic, competitive and weather conditions
present in that state.
A significant portion of our policies in-force is concentrated in Florida. Therefore, the prevailing regulatory,
legal, economic, political, demographic, competitive, weather and other conditions in Florida will likely have a
more significant impact on our revenues and profitability compared to such conditions in other jurisdictions in
which we operate. Furthermore, changes in such conditions in Florida could make doing business in Florida less
attractive for us, which could have a more pronounced effect on us than it would on other insurance companies
that are more geographically diversified.
In addition, due to Florida’s climate, we are subject to increased exposure to certain catastrophic events such
as hurricanes, tropical storms and tornadoes, 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 disproportionately adverse effect
on our results of operations and financial condition.
Because we rely on insurance agents, the loss of these agent relationships, particularly our relationship
with AmRisc, LLC (“AmRisc”), or our inability to attract and incentivize new agents could have an
adverse impact on our business.
We market our policies to a broad range of prospective policyholders through approximately 9,000
independent agents representing over 6,300 agencies as of December 31, 2018. Many of these agents are
independent insurance agents that own their customer relationships, and our agency contracts with them limit our
ability to directly solicit business from our existing policyholders. Independent agents commonly represent other
insurance companies, including our competitors, and we do not control their activities. As a result, we must
compete with other insurers for independent agents’ business. Historically, we have used marketing relationships
with national insurance companies and associations of independent insurance agents to attract and retain agents
and agency groups. The loss of these marketing relationships could adversely impact our ability to attract new
agents or retain our agency network and policies in force. Failure to grow or maintain our agency relationships, a
failure to attract and incentivize new agents or the failure of agents to act as anticipated could adversely affect
sales of our insurance products.
Additionally, ACIC and JIC have managing agency contracts (the MGA contracts) with AmRisc, pursuant
to which AmRisc serves as ACIC’s and JIC’s managing general agent for binding and writing commercial
residential property lines for condominium, townhome and homeowners association insurance written in Florida
in accordance with ACIC’s and JIC’s underwriting guidelines. The contract between ACIC and AmRisc is
exclusive, while the contract between JIC and AmRisc is not. Under the MGA contracts, AmRisc must produce a
certain volume of business for ACIC. Therefore, failure of AmRisc to produce the required volume of business
could cause us to lose substantial premiums and could require us to seek one or more alternative managing
general agents. If we were unable to find a replacement managing general agent (because of AmRisc’s failure to
produce the required volume of business or otherwise) or otherwise increase the production of premiums, our
revenues could decrease, which could have a material adverse effect on our business, financial condition and
results of operations. Given the concentration of ACIC’s and JIC’s commercial business and operations with
AmRisc, AmRisc may have substantial leverage in negotiations with ACIC and JIC regarding the MGA
contracts, and amendments to the terms and conditions of the MGA contracts and other changes to the
commercial relationship between AmRisc and ACIC on the one hand, and AmRisc and JIC, on the other hand,
could have a material adverse effect on our business, financial condition and results of operations. Following the
termination or expiration of the MGA contracts (set to occur in 2022 for ACIC and 2023 for JIC), ACIC’s and
JIC’s ability to compete for and solicit renewals of business previously underwritten by AmRisc on their
respective behalves may be limited by legal, commercial and other impediments, including AmRisc’s
17
UNITED INSURANCE HOLDINGS CORP.
relationship with other insurance producers that control the business. Such impediments could have a material
adverse effect on our financial condition and results of operations due to the concentration of ACIC’s and JIC’s
business with AmRisc.
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. In addition, application of statistical and
actuarial methods in estimating our loss reserves may require the adjustment of overall reserves upward or
downward from time to time. Future loss experience substantially in excess of our loss reserves could
substantially harm our results of operations and financial condition.
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. If our reserves are inadequate, it may cause us to overstate our earnings for the periods
during which our reserves for expected losses was insufficient.
Our financial results may vary from period to period based on the timing of our collection of government-
levied assessments from our policyholders.
Our insurance subsidiaries are subject to assessments levied by various governmental and quasi-
governmental entities in the states in which we operate. While we may have the ability to recover these
assessments from policyholders through policy surcharges in some states in which we operate, 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 in a particular reporting period.
Our failure to implement and maintain adequate internal control over financial reporting in our business
could have a material adverse effect on our business, financial condition, results of operations and stock
price.
“Internal control over financial reporting” refers to those processes within a company that are designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements in accordance with generally accepted accounting principles. Section 404 of the Sarbanes-Oxley Act
of 2002 requires our management to annually assess the effectiveness of our internal control over financial
reporting.
If we fail to achieve and maintain adequate internal controls, or if we have material weaknesses in our
internal controls, in each case in accordance with applicable standards, we may be unable to conclude on an
ongoing basis that we have effective internal control over financial reporting in accordance with Section 404.
Because effective internal controls are necessary for us to produce reliable financial reports, 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 our internal controls are ineffective or if
material weaknesses in our internal controls are identified.
18
UNITED INSURANCE HOLDINGS CORP.
If we experience difficulties with our information technology or data security systems and/or outsourcing
relationships, our ability to conduct our business could be negatively impacted, which could adversely
affect our financial condition or results of operations.
We use computer systems to store, retrieve, evaluate and utilize customer, employee and company data and
information. 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 information
technology systems and upon our contractors’ and third-party administrators’ ability to perform necessary
business functions in an efficient and uninterrupted fashion, such as the processing of policies and the adjusting
of claims. Because our information technology and telecommunications systems interface with and often 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.
Despite our implementation of security measures, our information technology systems are vulnerable to
computer viruses, natural disasters, unauthorized access, cyber-attacks, system failures, human error and
negligence and similar disruptions. A material breach in the security of our information technology systems and
data could include the theft of our confidential or proprietary information, including trade secrets, and the
personal information of our customers, claimants and employees. From time to time, we have experienced threats
to our data and information technology systems, including malware and computer virus attacks, unauthorized
access, system failures and disruptions. To the extent that any disruptions or security breaches result in a loss or
damage to our data or inappropriate disclosure of proprietary or confidential information, it could cause
significant damage to our reputation, adversely affect our relationships with our customers, result in litigation,
increased costs and/or regulatory penalties, and ultimately harm our business. Third parties to whom we
outsource certain of our functions are also subject to the risks outlined above, any one of which may result in our
incurring substantial costs and other negative consequences, including a material adverse effect on our business,
financial condition and results of operations.
In addition, we may transmit, receive and store personal, confidential and proprietary information by any
number of standard data transmission methods or other electronic means. Although we attempt to keep such
information confidential, we may be unable to do so in all events, especially with clients, vendors, service
providers, counterparties and other third parties who may not have or use appropriate controls to protect
confidential information. Furthermore, we are subject to compliance with laws and regulations enacted by U.S.
federal and state governments, or enacted by various regulatory organizations or exchanges relating to the
privacy and security of the information of clients, employees or others. The compromise of personal, confidential
or proprietary information could result in remediation costs, legal liability, regulatory action and reputational
harm.
Loss of key vendor relationships or failure of a vendor to protect personal information of our customers,
claimants or employees could affect our operations.
We rely on services and products provided by many third-party vendors. These include, for example,
vendors of computer hardware and software and vendors of services such as claim adjustment services and
human resource benefits management services. In the event that one or more of our vendors suffers a bankruptcy
or otherwise becomes unable to continue to provide products or services, or fails to protect personal information
of our customers, claimants or employees, we may suffer operational impairments and financial losses.
Moreover, in the event of a data breach involving any of our third-party vendors, our customers’ data and
personal information could also be put at risk. Any such data breach involving our third-party vendors could
19
UNITED INSURANCE HOLDINGS CORP.
result in significant mitigation or legal expenses for us, which could materially and adversely affect our results of
operations and financial condition.
Our success has been and will continue to be greatly influenced by our ability to attract and retain the
services of senior management, the loss of any of whom could have an adverse effect on our business,
financial condition or results of operations.
Our senior executive officers play an integral role in the development and management of our business. Due
to the intense competition in our industry for senior executive officers with demonstrated ability, we cannot
guarantee that any such officers will continue their employment with us. Additionally, we do not maintain any
key person life insurance policies on any of our officers or employees. Losing any of our senior executive
officers could also have an adverse effect on our operations given their skills, knowledge of our business, years
of industry experience and the potential difficulty of promptly finding qualified replacement employees. Our
results of operations and financial condition could be adversely affected if we are unsuccessful in attracting and
retaining senior executive officers.
Our acquisitions and other strategic transactions may not be as successful as we anticipate, and could be
difficult to integrate, divert management resources, result in unanticipated costs or dilute our existing
stockholders.
Part of our continuing business strategy is to evaluate opportunities to merge with and acquire companies
that complement our business model or make other strategic transactions that facilitate or expedite the
accomplishment of our business goals. We may be unable to identify suitable counterparties to such a
transaction. Even if we enter into an agreement in respect of a merger with or acquisition of another business, we
may not be able to finalize a transaction after significant investment of time and resources due to, among other
things, a lack of regulatory approval or imposition of a burdensome condition by the regulator.
In connection with an acquisition or merger, we could incur debt, amortization expenses related to
intangible assets, large and immediate write-offs, assume liabilities or issue stock that would dilute our current
stockholders’ percentage of ownership. As a result, there is a risk of transaction-related litigation. Such strategic
transactions could pose numerous risks to our operations, including risks relating to:
•
•
•
•
•
•
incurring substantial unanticipated integration costs;
diverting significant management attention and financial resources from our other operations and
disrupting our ongoing business during the assimilations of such acquired businesses;
losing key employees, particularly those of the acquired operations;
retaining the acquired business’ customers;
failing to realize the strategic benefits or the potential cost savings or other financial benefits of the
acquisitions or mergers; and
incurring unanticipated liabilities or claims from the acquired businesses and contractually-based time
and monetary limitations on the seller’s obligation to indemnify us for such liabilities or claims.
We are also subject to a certain level of risk regarding the actual condition of the businesses that we acquire.
Until we actually assume operating control of such businesses and their assets and operations, we may not be
able to ascertain the actual value or understand the potential liabilities of the acquired entities and their
operations. As a result, we may not be able to complete acquisitions or mergers or integrate the operations,
products or personnel gained through any such acquisition or merger without a material adverse effect on our
business, financial condition and results of operations.
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UNITED INSURANCE HOLDINGS CORP.
Our Senior Notes place certain restrictions on our operations and our failure to comply with such
restrictions, including as a result of events beyond our control, could result in an event of default, which
could materially and adversely affect our financial condition and results of operations.
Our 6.25% Senior Notes due 2027 (Senior Notes) place certain restrictions on the Company’s financial
operations. Because we are a holding company, our assets consist primarily of the securities of our subsidiaries.
The negative pledge provisions in the Senior Notes limit our ability to pledge securities of our subsidiaries and
restrict dispositions of the capital stock of our subsidiaries. Our Senior Notes require us to maintain certain
financial ratios and to comply with various operational and other covenants, including limitations on our ability
to incur any indebtedness unless certain conditions are met. Our failure to comply with such restrictions,
including as a result of events beyond our control, could result in an event of default and an acceleration of the
maturity of the Senior Notes. We cannot assure you that our assets or cash flow would be sufficient to fully repay
the Senior Notes if accelerated, or that we would be able to restructure the payments on the Senior Notes. This
could have a material adverse impact on our financial condition and results of operations.
RISKS RELATED TO THE INSURANCE INDUSTRY
Because we are operating in a highly competitive market, we may lack the resources to increase or
maintain our market share, which could adversely impact our business and results of operations.
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,
coverage options, underwriting guidelines, commission structure and financial condition. We compete with other
property and casualty insurers that underwrite property and casualty insurance in the same geographic areas in
which we operate and some of those insurers have greater financial resources and have a longer operating history
than we do. In addition, our competitors may offer products for alternative forms of risk protection that we
presently do not offer or are not similarly regulated in the admitted market, which could adversely affect the sales
of our products. We also compete with new companies that continue to enter the insurance market. 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.
In addition, industry developments could further increase competition in our industry. These developments
could include:
•
•
•
•
an influx of new capital in the marketplace as existing companies attempt to expand their businesses
and new companies attempt to enter the insurance business as a result of better premium pricing and/or
policy terms;
an increase in programs in which state-sponsored entities provide property insurance in catastrophe-
prone areas;
changes in state regulatory climates; and
the passage of federal proposals for an optional federal charter that would allow some competing
insurers to operate under regulations different or less stringent than those applicable to us.
These developments and others could make the property and casualty insurance marketplace more
competitive by increasing the supply of insurance available. If competition limits our ability to write new
business at adequate rates, our future results of operations would be adversely affected.
Changes in state regulation may adversely affect our results of operation and financial condition.
As a holding company with operating insurance company subsidiaries, we are subject to the laws and
regulations of the various states in which our insurance subsidiaries operate. From time to time, states pass
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UNITED INSURANCE HOLDINGS CORP.
legislation, and regulators take action, that has the effect of limiting the ability of insurers to manage 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, legislative initiatives and court decisions can
seek to expand insurance coverage for insured losses beyond the original intent of the policies, which could cause
our actual loss and loss adjustment expense to exceed our estimates. Further, our ability to increase pricing to the
extent necessary to offset rising loss or operating costs requires approval of insurance 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 through our diversification
strategy, which may cause a material adverse effect on our results of operations, financial condition and cash
flows. We cannot predict whether and to what extent the adoption of new legislation and regulations would affect
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. Insurance regulatory authorities generally
design insurance rules and regulations to protect the interests of policyholders, and not necessarily the interests of
insurers, their stockholders, and other investors. This regulation relates to authorization for lines of business,
capital and surplus requirements, investment limitations, underwriting limitations, transactions with affiliates,
dividend limitations, changes in control, premium rates and a variety of other financial and non-financial
components of an insurance company’s business. We are subject to comprehensive regulation and supervision by
state insurance departments in all states in which our insurance subsidiaries are domiciled, as well as all states in
which they are licensed, sell insurance products, issue policies, or handle claims. The regulations of each state
are unique and complex and subject to change, and certain states may have regulations that conflict with the
regulations of other states in which we operate. As a result, we are subject to the risk that compliance with the
regulations in one state may not result in compliance with the regulations in another state.
We strive to maintain all required licenses and approvals. However, we may not fully comply with the wide
variety of applicable laws and regulations. The relevant authority’s interpretation of the laws and regulations also
may change from time to time. Regulatory authorities have relatively broad discretion to grant, renew or revoke
licenses and approvals. If we do not have the required licenses and approvals or do not comply with applicable
regulatory requirements, these authorities could preclude or temporarily suspend us from carrying on some or all
of our activities or impose substantial fines.
State statutes and administrative rules generally require each insurance company to register with the
department of insurance in its state of domicile and to furnish information concerning the operations of the
companies within the holding company system. Failure to comply with such requirements may materially affect
the operations, management or financial condition of the insurers. As part of its registration, each insurance
company must identify material agreements, relationships and transactions with affiliates, including loans,
investments, asset transfers, transactions outside of the ordinary course of business, certain management, service,
and cost sharing agreements, reinsurance transactions, dividends, and other financial and non-financial
components of an insurer’s business. Some states impose restrictions or require prior regulatory approval of
specific corporate actions, which may adversely affect our ability to operate, innovate, obtain necessary rate
adjustments in a timely manner or grow our business profitably. Our ability to comply with these laws and
regulations, and to obtain necessary regulatory action in a timely manner is, and will continue to be, critical to
our success.
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UNITED INSURANCE HOLDINGS CORP.
Currently, the federal government’s role in regulating or dictating the policies of insurance companies is
limited. However, from time to time Congress has considered and may in the future consider proposals that
would increase the role of the federal government in insurance regulation, either in addition to or in lieu of state
regulation. For example, the Dodd-Frank Act established a Federal Insurance Office (FIO) within the U.S.
Department of Treasury Department to collect data on the insurance industry, recommend changes to the state
system of insurance regulation and preempt certain state insurance laws. The potential impact on our business as
a result of the Dodd-Frank Act and the FIO’s current and future recommendations remains unclear; however, the
implementation of any federal insurance regulations that constrain our business opportunities or reduce
investment flexibility could negatively impact our business.
In recent years, the state insurance regulatory framework has come under increased federal scrutiny.
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 and us. 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. 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. 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.
As part of potential, or future, industry-wide investigations, we may from time to time receive 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 law 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 significantly increase our compliance costs, which could have a
material adverse effect 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 could result in significant fines or
penalties being levied against us and may cause a material adverse effect on our results of operations or financial
condition.
Our inability to obtain reinsurance on acceptable terms could increase our loss exposure or limit our
ability to underwrite policies, which could adversely affect our results of operations and financial
condition.
We use, and we expect to continue to use, reinsurance to help manage our exposure to property risks.
Reinsurance is insurance for insurers and is fundamentally a promise by the reinsurer to pay possible future
claims in exchange for the payment of a premium by the insurance company seeking reinsurance. Both the
availability of reinsurance and the cost of reinsurance are 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. Market conditions beyond our control determine the
availability and cost of reinsurance. For example, reinsurance may be more difficult or costly to obtain after a
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UNITED INSURANCE HOLDINGS CORP.
year with a large number of major catastrophes. We provide no assurance that we can obtain sufficient
reinsurance to cover losses resulting from one or more storms or other events 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 may have to reduce the amount of risk we underwrite or accept higher
reinsurance costs. Any of these alternatives may cause a material adverse effect on our results of operations and
our financial condition.
Our inability to collect from our reinsurers on our reinsurance claims could have a material adverse effect
on our business, results of operation, financial condition and cash flow.
We use reinsurance as a tool to manage risks associated with our business. However, we remain primarily
liable as the direct insurer on all risks for which we obtain reinsurance. Our reinsurance agreements do not
eliminate our obligation to pay claims to insureds. As a result, we are subject to counterparty 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 condition of our reinsurers and cause them to default on their obligations. Collectability of
reinsurance is subject to the solvency of the reinsurers, interpretation of contract language and other factors. A
reinsurer’s insolvency or inability to make payments under the terms of a reinsurance contract could have a
material adverse effect on our business, results of operations, financial condition and cash flow.
Our efforts to manage these risks through underwriting guidelines, collateral requirements and other
oversight mechanisms may not be successful. As a result, our exposure to counterparty risk under our reinsurance
agreements may have a material adverse effect on our results of operations, financial condition and cash flow.
Our investments are subject to market risks that may result in reduced returns or losses.
Our investment assets are invested by professional investment management firms under the direction of our
management team in accordance with investment guidelines approved by the Investment Committee of the Board
of Directors. Although our investment guidelines emphasize diversification of risks and conservation of principal
and liquidity, our investments are subject to market risks and risks inherent in individual securities. In particular,
interest rates are highly sensitive to many factors, including monetary and fiscal policy, domestic and
international economic and political issues and other factors beyond our control.
Our portfolio is primarily invested in fixed income securities and changes in the general interest rate
environment will affect our returns on, and the fair value of, our fixed maturity and short-term investments. A
decline in interest rates reduces the interest rate payable on new fixed income investments, thereby negatively
impacting our net investment income. Conversely, rising interest rates reduce the fair value of existing fixed
maturities. The volatility of any losses may force us to liquidate securities, which may cause us to incur capital
losses. Realized fixed income and equity and unrealized equity losses in our investment portfolio would
generally reduce our book value and, if significant, could affect our ability to conduct business. 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 could reduce our net investment income and net realized investment gains or
result in investment losses.
We are subject to risks associated with potential declines in credit quality related to specific issuers and a
general weakening in the economy. We may experience credit or default losses in our portfolio, including as a
result of the failure of the procedures we have implemented to monitor the credit risk of our invested assets,
which could adversely affect our results of operations and financial condition.
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UNITED INSURANCE HOLDINGS CORP.
We may decide to invest an additional portion of our assets in equity securities, private equity limited
partnership interests or other investments, which are subject to greater volatility than fixed maturity investments.
Moreover, our private equity limited partnership interests are subject to transfer restrictions and may be illiquid.
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 our realization of net
investment income. As a result of these factors, we may not realize an adequate return on our investments or we
may incur losses on sales 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 for these investments 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. Additionally, in the case of our private equity limited partnership interests, such valuations are determined
by outside managers.
Our determination of the amount of other-than-temporary impairment to record varies by investment type
and is based upon our periodic evaluation and assessment of known and inherent risks associated with the
respective investment type. We revise our evaluations and assessments as conditions change and new
information becomes available, and we reflect changes in other-than-temporary impairments in our Consolidated
Statements of Comprehensive Income (Loss). We base our assessment of whether other-than-temporary
impairments have occurred on our case-by-case evaluation of the underlying reasons for the decline in fair value.
However, we may not accurately assess whether the impairment of one or more of our investments is temporary
or other-than-temporary and the recorded amounts for other-than-temporary impairments in our financial
statements may be inadequate. Furthermore, historical trends may not be indicative of future impairments and
additional impairments may need to be recorded in the future.
Federal and/or state tax legislation could be enacted that would lessen or eliminate some or all of the tax
advantages we currently benefit from, including those governing received deductions and tax credits, which
could adversely affect the value of our investment portfolio.
The property and casualty insurance and reinsurance 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 and reinsurance 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 when such a period may occur or 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 condition.
Losses from legal actions may be material to our operating results, cash flows and financial condition.
Trends in the insurance industry regarding claims and coverage issues, such as increased litigation and the
willingness of courts to expand covered causes of loss, may contribute to increased litigation costs and increase
our loss exposure under the policies that we underwrite.
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UNITED INSURANCE HOLDINGS CORP.
As industry practices and legal, judicial, social and other environmental conditions change, unexpected and
unintended issues related to claims and coverage may emerge. Examples of emerging claims and coverage issues
include, but are not limited to:
•
•
judicial expansion of policy coverage and the impact of new theories of liability;
plaintiffs targeting property and casualty insurers in purported class-action litigation relating to claims-
handling and other practices.
Multiparty or class action claims may present additional exposure to substantial economic, non-economic or
punitive damage awards. The loss of even one of these claims, if it resulted in a significant award or a judicial
ruling that was otherwise detrimental, could create a precedent in our industry that could have a material adverse
effect on our results of operations and financial condition. This risk of potential liability may make reasonable
settlements of claims more difficult to obtain.
We may be named a defendant in a number of legal actions relating to those emerging claim and coverage
issues. The propensity of policyholders and third-party claimants to litigate and the willingness of courts to
expand causes of loss and the size of awards may result in increased costs associated with litigation, render our
loss reserves inadequate, and may be material to our operating results and cash flows for a particular quarter or
annual period and to our financial condition. In addition, claims and coverage 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.
A downgrade in our financial strength or stability ratings could adversely impact our business volume and
our ability to access additional debt or equity financing.
Financial strength or stability ratings are important to an insurer’s competitive position. Ratings measure an
insurance company’s ability to meet its obligation to contract holders and policyholders. High ratings help
maintain public confidence in a company’s products, facilitate the marketing of its products and enhance the
company’s competitive position. Rating agencies review their ratings periodically, and our current ratings may
not be maintained in the future. 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 our insurance affiliates, UPC, FSIC, IIC, ACIC and JIC will maintain their current
A (Exceptional) or higher ratings by Demotech, A- ratings by Kroll or A- rating by AM Best. Any downgrade of
these ratings could impact the acceptability of our products to mortgage lenders that require homeowners to buy
insurance, reduce our ability to retain and attract policyholders and agents and damage our ability to compete,
which may cause a material adverse effect on our results of operations and financial condition. These material
adverse effects could include, but are not limited to:
•
•
•
reducing demand for new sales of insurance products;
requiring us to modify our existing products or services, introduce new products or services or reduce
prices for our products and services, in order to remain competitive;
adversely affecting our relationships with our independent agents;
• materially increasing the number or amount of policy cancellations and non-renewals by policyholders;
•
requiring us to post additional collateral under certain of our financing transactions;
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UNITED INSURANCE HOLDINGS CORP.
•
•
•
limiting financial flexibility and access to capital markets;
adversely affecting our ability to obtain reinsurance at reasonable prices or at all; and
increasing the interest rates on our outstanding Senior Notes.
RISKS RELATED TO AN INVESTMENT IN OUR COMMON STOCK
Future sales of substantial amounts of our common stock by us or our existing stockholders could cause
our stock price to decrease.
As of December 31, 2018, we had registered up to $100,000,000 of our securities (including our common
stock) for sale from time to time in one or more offerings. Additional equity financings or other share issuances
by us could adversely affect the market price of our common stock. Additionally, we issued shares representing
approximately 49% of the issued and outstanding common stock of the Company as consideration in the merger
with AmCo, resulting in substantial dilution to our then-existing shareholders. Future share issuances in
connection with merger transactions or other acquisitions could result in substantial additional dilution to our
shareholders.
Dividend payments on our common stock in the future are uncertain, and our ability to pay dividends may
be constrained by our holding company structure.
We have paid dividends on our common stock in the past. However, the declaration and payment of
dividends will be at the discretion of our Board of Directors and will be dependent upon our profits, financial
requirements and other factors, including legal and regulatory restrictions on the payment of dividends from our
subsidiaries (as we are a holding company and do not have any significant operations or assets other than our
ownership of the shares of our operating subsidiaries), general business conditions and such other factors as our
Board of Directors deems relevant. Therefore, investors who purchase our common stock may only realize a
return on their investment if the value of our common stock appreciates.
The ability of our subsidiaries to pay dividends may affect our liquidity and ability to meet our obligations.
The Company is a holding company with no significant operations. The principal assets are the stock of its
subsidiaries and the holding company’s directly held investment portfolio. State insurance regulatory authorities
limit the payment of dividends by insurance subsidiaries, as described in Note 14 of our Consolidated Financial
Statements. The limitations are based on statutory income and surplus. In addition, competitive pressures
generally require the subsidiaries to maintain insurance financial strength ratings. These restrictions and other
regulatory requirements affect the ability of the subsidiaries to make dividend payments. Limits on the ability of
the subsidiaries to pay dividends could adversely affect holding company liquidity, including our ability to pay
dividends to shareholders and service our debt in the timeframe expected.
Management views enterprise economic capital as a combination of statutory surplus and invested assets at
the parent holding company level. Deterioration in statutory surplus or earnings, from developments such as
catastrophe losses, or changes in market conditions or interest rates, could adversely affect holding company
liquidity by impacting the amount of dividends from our subsidiaries or the utilization of invested assets at the
holding company to increase statutory surplus or for other corporate purposes.
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UNITED INSURANCE HOLDINGS CORP.
The substantial ownership of our common stock by R. Daniel Peed and his affiliates allows him to exert
significant control over us, and the Company and R. Daniel Peed are subject to certain restrictive
covenants that may restrict our ability to pursue certain opportunities.
R. Daniel Peed beneficially owned approximately 32% of our issued and outstanding common stock at
December 31, 2018. Mr. Peed also has a proxy from another member of RDX Holding, LLC, the former parent
company of AmCo, who beneficially owns approximately 8% of our issued and outstanding common stock. As a
result, Mr. Peed is able to exert substantial control over us. Moreover, Mr. Peed’s interests may conflict with the
interests of other holders of our common stock and he may take actions affecting us with which other
stockholders may disagree. Mr. Peed has the ability to 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.
Mr. Peed, AmCo and ACIC are also subject to restrictive covenant agreements that contain
non-competition, non-solicitation, confidentiality and other restrictive covenants that prohibit Mr. Peed, AmCo
and ACIC from engaging in certain activities, including activities customarily performed by managing general
agents and activities relating to segments of the commercial property insurance market for coastally exposed
risks in the United States. Additionally, in connection with our merger with AmCo, we agreed to be subject to a
restrictive covenant expiring on June 1, 2022 that will prohibit the formation, investment in or development,
acquisition or ownership of any managing general agent or entity that performs activities customarily performed
by managing general agents, or the engagement in customary managing general agent functions with respect to
the commercial property insurance business. These restrictive covenants may restrict us and Mr. Peed from
pursuing opportunities for expansion, including opportunities to act as or perform functions similar to a
managing general agent, and therefore may limit our overall growth potential.
Further, we entered into a stockholder’s agreement with Mr. Peed and certain affiliates of Mr. Peed, which
provides those stockholders with rights that our other stockholders do not have. Although the stockholder’s
agreement requires shares beneficially owned by Mr. Peed and his affiliates to be voted in proportion to the votes
cast by other stockholders on any proposal on which our stockholders are entitled to vote, this restriction will
terminate on the earlier of (i) April 3, 2022 and (ii) the date that Mr. Peed and his affiliates beneficially own less
than 25% of our voting securities.
Transactions by Mr. Peed and his affiliates involving our common stock may have an adverse effect on the
price of our common stock.
As noted above, Mr. Peed beneficially owned approximately 32% of our issued and outstanding common
stock as of December 31, 2018. The Company has granted Mr. Peed and his affiliates customary demand and
piggyback registration rights pursuant to which, subject to certain limitations, all of such shares eligible to be
registered under the Securities Act of 1933, as amended (the Securities Act), and may be offered and sold to the
public from time to time after the effectiveness of the related registration statement. Such shares may also be
resold into the public markets in accordance with an exemption from registration under the Securities Act,
including Rule 144, subject to the volume limitations, manner of sale requirements and notice requirements
thereof. Sales of our common stock by Mr. Peed and his affiliates could have the effect of lowering our stock
price. The perceived risk associated with the possible sale of a large number of shares by these stockholders
could cause some of our other stockholders to sell their stock, thus causing the price of our stock to decline. In
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UNITED INSURANCE HOLDINGS CORP.
addition, actual or anticipated downward pressure on our stock price due to actual or anticipated sales of stock by
Mr. Peed and his affiliates could cause other institutions or individuals to engage in short sales of our common
stock, which may further cause the price of our stock to decline.
Provisions in our charter documents may make it harder for others to obtain control of us even though
some stockholders 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.
Further, our Board of Directors has the ability to designate the terms of and issue one or more series of
preferred stock, which may discourage transactions that otherwise could involve payment of a premium over
prevailing market prices for our securities.
Item 1B. Unresolved Staff Comments
None.
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UNITED INSURANCE HOLDINGS CORP.
Item 2.
Properties
We use all of our owned and leased properties for office space. We own two buildings located in
St. Petersburg, Florida. Our principal executive office contains approximately 40,000 square feet of commercial
office space and associated property. Our second building contains approximately 7,800 square feet of
commercial office space. Both buildings are used as our principal executive offices.
We lease in total approximately 15,800 square feet of office space located in Florida, New York, Hawaii,
and Minnesota. These leases are generally short-term to medium-term leases of commercial office space.
Item 3.
Legal Proceedings
We are involved in routine 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.
At December 31, 2018, we were not involved in any material non-claims-related legal actions.
Item 4. Mine Safety Disclosures
Not applicable.
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UNITED INSURANCE HOLDINGS CORP.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
MARKET INFORMATION
Our common stock trades on the Nasdaq Capital Market (Nasdaq) under the symbol “UIHC”.
HOLDERS OF COMMON EQUITY
As of March 12, 2019, we had 4,283 holders of record of our common stock. The number of record holders
does not include stockholders who are beneficial owners, but whose shares are held in street name by brokers and
other nominees.
DIVIDENDS
During 2018, we paid a regular quarterly dividend of $0.06 per share of our common stock. While we
expect to continue to pay a regular quarterly dividend of $0.06 per share in 2019, any future dividend payments
will be at the discretion of our Board of Directors and will depend upon our profits, 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.
On November 6, 2018, ACIC and IIC paid dividends to the Company of $50,000,000 and $1,764,000,
respectively.
Under Florida law, Florida-domiciled insurers such as UPC, ACIC, and JIC may not pay any dividend or
distribute cash or other property to its shareholders except out of its available and accumulated surplus funds
which are derived from realized net operating profits on its business and net realized capital gains. Additionally,
Florida-domiciled insurers may not make dividend payments or distributions to shareholders without the prior
approval of the insurance regulatory authority if the dividend or distribution would exceed the larger of:
1.
the lesser of:
a.
b.
10% of the insurer’s capital surplus, or
100% of the insurer’s net income, not including realized capital gains, plus a two-year
carryforward
2.
10% of the insurer’s capital surplus with dividends payable constrained to unassigned funds minus
25% of unrealized capital gains, or
3.
the lesser of:
a.
b.
10% of the insurer’s capital surplus, or
100% of the insurer’s net investment income plus a three-year carryforward with dividends
payable constrained to unassigned funds minus 25% of unrealized capital gains.
Alternatively, UPC, ACIC, or JIC may pay a dividend or distribution without the prior written approval of
the insurance regulatory authority when:
1.
the dividend is equal to or less than the greater of:
a.
10% of the insurer’s surplus as to policyholders derived from realized net operating profits on its
business and net realized capital gains, or
31
UNITED INSURANCE HOLDINGS CORP.
b.
The insurer’s entire net operating profits and realized net capital gains derived during the
immediately preceding calendar year, and:
i.
The insurer will have surplus as to policyholders equal to or exceeding 115% of the
minimum required statutory surplus as to policyholders after the dividend or distribution is
made, and
ii. The insurer files a notice of the dividend or distribution with the insurance regulatory
authority at least ten business days prior to the dividend payment or distribution, and
iii. The notice includes a certification by an officer of the insurer attesting that, after the payment
of the dividend or distribution the insurer will have at least 115% of required statutory
surplus as to policyholders.
Except as provided above, Florida-domiciled insurers may only pay a dividend or make a distribution
(i) subject to prior approval by the insurance regulatory authority, or (ii) 30 days after the insurance regulatory
authority has received notice of intent to pay such dividend or distribution and has not disapproved it within such
time. As of December 31, 2018, we were in compliance with these requirements.
Under the insurance regulation of Hawaii, the maximum amount of dividends that a Hawaii-domiciled
insurer such as FSIC may pay to its parent company without prior approval from the Hawaii Insurance
Commissioner is:
1.
the lesser of:
a.
b.
10% of the insurer’s surplus as of December 31 of the preceding year, or
10% of the net income, not including realized capital gains, for the twelve-month period ending
December 31 of the preceding year.
In performing the net income test, property and casualty insurers may carry-forward income from the
previous two calendar years that has not already been paid out as dividends. This carry-forward is computed by
taking the net income from the second and third preceding calendar years, not including realized capital gains,
less dividends paid in the second and third immediately preceding calendar years. As of December 31, 2018, we
were in compliance with these requirements.
Under the insurance regulations of New York, a New York-domiciled insurer such as IIC may not declare or
distribute any dividend to shareholders which, together with all dividends declared or distributed by it during the
next preceding twelve months, exceeds:
1.
the lesser of:
a.
10% of the insurer’s surplus to policyholders as shown on its latest statement on file with the
Superintendent, or
b.
100% of “adjusted net investment income” during that period.
New York law defines “adjusted net investment income” to mean net investment income for the twelve
months immediately preceding the declaration or distribution of the current dividend increased by the excess, if
any, of net investment income over dividends declared or distributed during the period commencing 36 months
prior to the declaration or distribution of the current dividend and ending 12 months prior thereto.
Under an agreement with the New York Department of Financial Services, we were prohibited from issuing
dividends on behalf of IIC within two years of the acquisition date of April 29, 2016. As of December 31, 2018,
this agreement was no longer in effect.
32
UNITED INSURANCE HOLDINGS CORP.
See Note 14 to our Notes to Consolidated Financial Statements for further discussion of restrictions on
future payments of dividends by our insurance affiliates.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the dollar change in the cumulative total stockholder return on our
common stock from December 31, 2013 through December 31, 2018 as compared to the cumulative total return
of the Russell 2000 Index and the Nasdaq Insurance Index. The cumulative total stockholder return is a concept
used to compare the performance of a company’s stock over time and is the ratio of the stock price change plus
the cumulative amount of dividends over the specified time period (assuming dividend reinvestment), to the
stock price at the beginning of the time period. The chart depicts the value on each December 31 from 2013
through 2018 of a $100 investment made on December 31, 2013 with all dividends reinvested.
s
r
a
l
l
o
D
175
150
125
100
75
50
25
0
2013
2014
2015
2016
2017
2018
Year Ended December 31,
United Insurance Holdings Corp.
Nasdaq Insurance Index
Russell 2000 Index
United Insurance Holdings Corp.
. . . . . . . . . . . . .
Russell 2000 Index . . . . . . . . . . . . . . . . . . . . . . . .
Nasdaq Insurance Index . . . . . . . . . . . . . . . . . . . .
$100.00
100.00
100.00
$156.75
103.53
108.54
$123.26
97.62
115.55
$110.57
116.63
133.62
$127.66
131.96
137.87
$124.77
115.89
126.14
2013
2014
2015
2016
2017
2018
The foregoing performance graph and data shall not be deemed “filed” as part of this Form 10-K for
purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that
section and should not be deemed incorporated by reference into any other filing of the Company under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically
incorporates it by reference into such filing.
RECENT SALES OF UNREGISTERED SECURITIES
During 2018, we did not have any unregistered sales of our equity securities.
REPURCHASES OF EQUITY SECURITIES
During 2018, we did not repurchase any of our equity securities.
33
UNITED INSURANCE HOLDINGS CORP.
Item 6.
Selected Financial Data
The following selected consolidated financial data should be read in conjunction with Item 7—
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our
consolidated financial statements and the related notes appearing in Item 8—“Financial Statements and
Supplementary Data” of this Form 10-K. The consolidated statements of income data for the years ended
December 31, 2018, 2017 and 2016 and the consolidated balance sheet data at December 31, 2018 and 2017 are
derived from our audited financial statements appearing in Item 8 of this Form 10-K. The consolidated
statements of income data for the years ended December 31, 2015 and 2014 and the balance sheet data at
December 31, 2016, 2015 and 2014 are derived from our audited consolidated financial statements that are not
included in this Form 10-K. The historical results shown below are not necessarily indicative of the results to be
expected in any future period.
As of and for the Years Ended December 31,
2018
2017
2015
2016
2014
Income Statement Data:
Revenue:
Gross premiums written . . . . . . . . . . . . . . . . . . $1,252,401 $1,040,848 $708,156 $569,736 $436,753
400,695
Gross premiums earned . . . . . . . . . . . . . . . . . .
1,180,961
986,023
666,829
504,215
Net premiums earned . . . . . . . . . . . . . . . . . . . . $ 689,276 $ 585,490 $456,931 $335,958 $264,850
6,775
Net investment gain . . . . . . . . . . . . . . . . . . . . .
8,605
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . .
11,226
18,960
19,556
15,110
10,039
11,572
17,879
51,051
Total revenue . . . . . . . . . . . . . . . . . . . . . . $ 723,942 $ 654,420 $487,117 $357,569 $280,230
Expenses:
Loss and loss adjustment expenses . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . .
408,589
309,842
9,866
365,535
284,881
3,247
298,353
181,138
723
183,108
132,569
326
118,077
97,410
410
Total expenses . . . . . . . . . . . . . . . . . . . . . $ 728,297 $ 653,663 $480,214 $316,003 $215,897
64,410
23,397
Income (loss) before income taxes . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . .
(4,239)
(4,633)
910
(9,235)
41,860
14,502
7,003
1,305
Net income (loss) . . . . . . . . . . . . . . . $
394 $
10,145 $
5,698 $ 27,358 $ 41,013
Less: Net income attributable to noncontrolling
interests (NCI) . . . . . . . . . . . . . . . . . . . . . . . . . . .
104
—
—
—
—
Net Income attributable to UIHC . . . . . . . . . . . . . . . $
290 $
10,145 $
5,698 $ 27,358 $ 41,013
Earnings per share
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash dividends declared per share . . . . . . . . . . . . . . $
0.01 $
0.01 $
0.24 $
0.27 $
0.27 $
0.24 $
0.27 $
0.26 $
0.23 $
1.29 $
1.28 $
0.20 $
2.06
2.05
0.16
34
UNITED INSURANCE HOLDINGS CORP.
As of and for the Years Ended December 31,
2018
2016
2017
2015
2014
Other Data:
Return on equity (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded ratio (2)
Ratios to net premiums earned:
Loss and loss adjustment expenses . . . . . . . . .
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.1%
41.6%
59.3%
45.0%
2.2%
40.6%
62.4%
48.7%
2.4%
31.5%
65.3%
39.6%
Combined Ratio . . . . . . . . . . . . . . . . . . . . . . . .
104.3%
111.1% 104.9%
12.4%
33.4%
54.5%
39.5%
94.0%
27.2%
33.9%
44.6%
36.8%
81.4%
Effect of current year catastrophe losses
on combined ratio . . . . . . . . . . . . . . . . .
14.5%
19.8%
12.2%
8.5%
0.3%
Effect of prior year unfavorable
(favorable) development on combined
ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of ceding commission income on
combined ratio . . . . . . . . . . . . . . . . . . .
Underlying Combined Ratio(3) . . . . . . . . . . . . .
0.6%
(0.4)%
3.7%
(0.7)% (1.5)%
— %
89.2%
6.3%
1.5% — % — %
85.4%
87.5%
86.2%
82.6%
(1) Calculated by dividing the net income attributable to UIHC for the period by the average stockholders’ equity attributable to UIHC.
(2) Calculated as ceded premiums earned divided by gross premiums earned. We use this operating metric to analyze our ceding loss trends.
(3) Underlying combined ratio, a measure that is not based on accounting principles generally accepted in the United States of America
(GAAP), is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding
non-GAAP financial measures presented in this Form 10-K is in the “Definitions of Non-GAAP Measures” in Part II Item 7 of this
Form 10-K.
As of and for the Years Ended December 31, (1)
2018
2017
2016
2015
2014
Selected Balance Sheet Data:
Cash and invested assets . . . . . . . . . . . . . . . .
Ceded unearned premiums . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . .
$1,135,956
217,885
2,321,428
$1,130,806
201,904
2,059,921
Unpaid loss and loss adjustment expenses . . .
Unearned premiums . . . . . . . . . . . . . . . . . . . .
Reinsurance payable . . . . . . . . . . . . . . . . . . . .
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity attributable
to UIHC stockholders . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Noncontrolling Interest
Total Stockholders’ Equity . . . . . . . . . . . . . . .
Statutory Surplus . . . . . . . . . . . . . . . . . . . . . .
$679,335
132,564
999,686
$140,855
372,223
99,891
54,175
758,359
$537,500
79,399
740,021
$ 76,792
304,653
64,542
12,353
500,810
$443,018
63,827
584,169
$ 54,436
229,486
45,254
13,529
380,406
$ 661,203
627,313
175,272
160,118
1,781,059
$ 482,232
555,873
149,117
161,364
1,522,796
520,230
20,139
540,369
$ 437,449
537,125
—
537,125
$ 389,384
241,327
—
241,327
$212,298
239,211
—
239,211
$150,860
203,763
—
203,763
$126,249
(1) Comparability of periods impacted by the acquisition of AmCo, FSH, and IIC in 2017, 2016 and 2015, respectively.
35
UNITED INSURANCE HOLDINGS CORP.
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 in Part II, Item 8 of this
Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties
and assumptions. Actual results may differ materially from those expressed or implied in these forward-looking
statements as a result of certain known and unknown risks and uncertainties. See “Forward-Looking
Statements.”
OVERVIEW
United Insurance Holding Corp. is a holding company primarily engaged in residential personal and
commercial property and casualty insurance in the United States. We conduct our business principally through
four wholly-owned insurance subsidiaries and one majority-owned insurance subsidiary: United Property &
Casualty Insurance Company (UPC); American Coastal Insurance Company (ACIC); Family Security Insurance
Company (FSIC); Interboro Insurance Company (IIC); and Journey Insurance Company (JIC). Collectively, we
refer to the holding company and all our subsidiaries, including non-insurance subsidiaries, as “UPC Insurance,”
which is the preferred brand identification for our Company.
Our Company’s primary source of revenue is generated from writing insurance in Connecticut, Florida,
Georgia, Hawaii, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South
Carolina and Texas. We are also licensed to write property and casualty insurance in an additional six states;
however, we have not commenced writing in these states. Our target market in such areas consists of states where
the perceived threat of natural catastrophe has caused large national insurance carriers to reduce their
concentration of policies. We believe an opportunity exists for UPC Insurance to write profitable business in
such areas.
We have historically grown our business through strong organic growth complemented by strategic
acquisitions and partnerships, including our acquisitions of AmCo Holding Company (AmCo) and its
subsidiaries, including ACIC, in April 2017, IIC in April 2016, and Family Security Holdings, LLC (FSH),
including its subsidiary FSIC in February 2015, and our strategic partnership with a subsidiary of Tokio Marine
Kiln Group Limited (Kiln), which formed JIC in August 2018. As a result of these transactions, along with the
organic growth of premium in states in which we currently write premium, we have grown our policies in-force
by 10.2% from 528,193 policies in-force at December 31, 2017 to 582,096 policies in-force at December 31,
2018.
Our business is subject to the impact of weather-related catastrophes on our loss and loss adjustment
expenses (LAE). During the third quarter of 2017, Hurricane Harvey made landfall in Texas and Hurricane Irma
made landfall in Florida. In 2017, we retained $83,000,000 of pre-tax catastrophe losses, net of reinsurance
recoverable as a result of hurricanes. During the year ended December 31, 2018, we increased our loss and LAE
reserves as a result of development trends from Hurricane Irma that indicated our ultimate gross loss estimate
should be increased. There was no net change or impact to our 2018 results as a result of this reserve
re-estimation as it was 100% ceded under our catastrophe reinsurance program. During the third quarter of 2018,
Hurricane Florence made landfall in North Carolina, and during the fourth quarter of 2018, Hurricane Michael
made landfall in Florida. We estimate retention of $50,000,000 of pre-tax catastrophe losses, net of reinsurance
recoverable, as a result of these storms.
The following discussion highlights significant factors influencing the consolidated financial position and
results of operations of UPC Insurance. In evaluating our results of operations, we use premiums written and
earned, policies in-force and new and renewal policies by geographic concentration. We also consider the impact
36
UNITED INSURANCE HOLDINGS CORP.
of catastrophe losses and prior year development on our loss ratios, expense ratios and combined ratios. In
monitoring our investments, we use credit quality, investment income, cash flows, realized gains and losses,
unrealized gains and losses, asset diversification and portfolio duration. To evaluate our financial condition, we
consider our liquidity, financial strength, ratings, book value per share and return on equity.
Consolidated Net Income
Year Ended December 31,
2017
2018
2016
REVENUE:
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in gross unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,252,401
(71,440)
$1,040,848
(54,825)
$ 708,156
(41,327)
Gross premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,180,961
(491,685)
986,023
(400,533)
666,829
(209,898)
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized losses on equity securities . . . . . . . . . . . . . . . . .
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXPENSES:
Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . .
Policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Benefit) provision for income taxes . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to noncontrolling interests . . . . . . . . . . . . .
Net income attributable to UIHC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income per diluted share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Book value per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on equity based on GAAP net income . . . . . . . . . . . . . . . . . . . . . .
Loss ratio, net (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expense ratio (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined ratio (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of current year catastrophe losses on combined ratio . . . . . . .
Effect of prior year development on combined ratio . . . . . . . . . . . . .
Effect of ceding commission income on combined ratio (4) . . . . . . . .
Underlying combined ratio (5)(6)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
689,276
27,201
1,655
(9,300)
15,110
723,942
408,589
203,140
40,590
66,112
9,866
728,297
(4,355)
116
(4,239)
(4,633)
$
$
$
$
$
394
104
290
0.01
12.10
0.1%
59.3%
45.0%
104.3%
14.5%
0.6%
— %
89.2%
585,490
17,812
67
—
51,051
654,420
365,535
175,444
27,675
81,762
3,247
653,663
757
153
456,931
10,679
547
—
18,960
487,117
298,353
117,658
20,524
42,956
723
480,214
6,903
100
910
(9,235)
10,145
$
7,003
1,305
5,698
— $
—
10,145
0.27
12.56
$
$
$
2.2%
62.4%
48.7%
111.1%
19.8%
(0.4)%
6.3%
85.4%
5,698
0.26
11.15
2.4%
65.3%
39.6%
104.9%
12.2%
3.7%
1.5%
87.5%
(1)
Loss ratio, net is calculated as losses and LAE. net of losses ceded to reinsurers, relative to net premiums earned. We use this operating
metric to analyze our loss trends.
37
UNITED INSURANCE HOLDINGS CORP.
(2)
Expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned. We use this
operating metric to analyze our expense trends.
(3) Combined ratio is the sum of the loss ratio, net and expense ratio, net.
(4)
For the year ended December 31, 2018, we presented $42,416,000 of ceding commissions earned as a $9,323,000 decrease to ceded
earned premium and a $33,093,000 decrease in policy acquisition costs which reduced other revenue and removed the distortive impact
to our underlying combined ratio.
(5) Underlying combined ratio, a measure that is not based on GAAP, is reconciled above to the combined ratio, the most directly
comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found
in “Definitions of Non-GAAP Measures”, below.
Included in both the expense ratio and the combined ratio are merger professional fees and amortization expense predominately
associated with the AmCo, IIC, and FSH acquisitions, which cause comparative differences among periods.
(6)
DEFINITIONS OF NON-GAAP MEASURES
We believe that investors’ understanding of UPC Insurance’s performance is enhanced by our disclosure of
the following non-GAAP measures. Our methods for calculating these measures may differ from those used by
other companies and therefore comparability may be limited.
Combined ratio excluding the effects of current year catastrophe losses, prior year reserve
development and ceding commission income earned (underlying combined ratio) is a non-GAAP ratio,
which is computed by subtracting the effect of current year catastrophe losses, prior year development, and
ceding commission income earned related to our quota share reinsurance agreement from the combined ratio. We
believe that this ratio is useful to investors and it is used by management to reveal the trends in our business that
may be obscured by current year catastrophe losses, prior year development, and ceding commission income
earned. Current year catastrophe losses cause our loss trends to vary significantly between periods as a result of
their incidence of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year
development is caused by unexpected loss development on historical reserves. Ceding commission income
compensates the Company for expenses it incurs in generating the premium ceded under our quota share
reinsurance agreement. We believe it is useful for investors to evaluate these components separately and in the
aggregate when reviewing our performance. The most directly comparable GAAP measure is the combined ratio.
The underlying combined ratio should not be considered as a substitute for the combined ratio and does not
reflect the overall profitability of our business.
Net loss and LAE excluding the effects of current year catastrophe losses and prior year reserve
development (underlying loss and LAE) is a non-GAAP measure which is computed by subtracting the effect
of current year catastrophe losses and prior year reserve development from net loss and LAE. We use underlying
loss and LAE figures to analyze our loss trends that may be impacted by current year catastrophe losses and prior
year development on our reserves. As discussed previously, these two items can have a significant impact on our
loss trends in a given period. We believe it is useful for investors to evaluate these components separately and in
the aggregate when reviewing our performance. The most directly comparable GAAP measure is net loss and
LAE. The underlying loss and LAE measure should not be considered a substitute for net losses and LAE and
does not reflect the overall profitability of our business.
Operating expenses excluding the effects of ceding commission income earned, merger expenses, and
amortization of intangible assets (underlying expense) is a non-GAAP measure which is computed by
subtracting ceding income earned related to our quota share reinsurance agreement, merger expenses and
amortization of intangibles. Ceding commission income compensates the Company for expenses it incurs in
generating the premium ceded under our quota share reinsurance agreement. Merger expenses are directly related
to past mergers and are not reflective of current period operating performance. Similarly, amortization expense is
related to the amortization of intangible assets acquired through mergers and therefore the expense does not arise
through normal operations. We believe it is useful for investors to evaluate these components separately and in
38
UNITED INSURANCE HOLDINGS CORP.
the aggregate when reviewing our performance. The most directly comparable GAAP measure is operating
expenses. The underlying expense measure should not be considered a substitute for operating expenses and does
not reflect the overall profitability of our business.
RESULTS OF OPERATIONS—2018 COMPARED TO 2017
Net income attributable to UIHC for the year ended December 31, 2018 decreased by $9,855,000, or 97.1%
to $290,000, compared to net income of $10,145,000 for the year ended December 31, 2017. The decrease in net
income was primarily due to an increase in losses and LAE, as well as policy acquisition expenses.
Revenues
Our gross written premiums increased by $211,553,000, or 20.3%, to $1,252,401,000 for the year ended
December 31, 2018, from $1,040,848,000 for the year ended December 31, 2017, primarily reflecting organic
growth in new and renewal business generated in all regions. The breakdown of the year-over-year changes in
both direct and assumed written premiums by region and gross written premium by line of business are shown in
the table below.
Direct Written and Assumed Premium By Region (1)
2018
2017
Change
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gulf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Northeast
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southeast
$ 655,736
210,230
177,958
104,266
$ 540,796
201,475
154,502
92,753
$114,940
8,755
23,456
11,513
Total direct written premium by region . . . . . . . . . . . . . . . . . . . . . . . .
$1,148,190
$ 989,526
$158,664
Assumed premium (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
104,211
51,322
52,889
Total gross written premium by region . . . . . . . . . . . . . . . . . . . . . . . .
$1,252,401
$1,040,848
$211,553
Gross Written Premium by Line of Business
Personal property (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 890,515
361,886
$ 799,097
241,751
$ 91,418
120,135
Total gross written premium by line of business . . . . . . . . . . . . . . . . .
$1,252,401
$1,040,848
$211,553
(1)
“Gulf” is comprised of Hawaii, Louisiana and Texas; “Northeast” is comprised of Connecticut, Massachusetts, New Jersey, New York
and Rhode Island; and “Southeast” is comprised of Georgia, North Carolina and South Carolina.
(2) Assumed premium written for 2018 and 2017 primarily included commercial property business assumed from unaffiliated insurers.
(3)
Includes gross written premium from flood policies.
New and Renewal Policies (1) By Region (2)
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gulf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Northeast
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southeast
2018
249,033
131,896
135,835
89,718
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
606,482
2017
Change
226,136
131,334
115,709
79,763
552,942
22,897
562
20,126
9,955
53,540
(1) Only includes new and renewal homeowner, commercial and dwelling fire policies written during the year.
(2)
“Gulf” is comprised of Hawaii, Louisiana and Texas; “Northeast” is comprised of Connecticut, Massachusetts, New Jersey, New York
and Rhode Island; and “Southeast” is comprised of Georgia, North Carolina and South Carolina.
39
UNITED INSURANCE HOLDINGS CORP.
We expect our gross written premium growth to continue as we increase our policies in-force in the states in
which we currently write policies and as we expand into other states in which we are currently licensed to write
property and casualty insurance.
Expenses
Expenses for the year ended December 31, 2018 increased $74,634,000, or 11.4%, to $728,297,000 for the
year ended December 31, 2018, from $653,663,000 for 2017. The increase in expenses was primarily due to an
increase in losses and LAE combined with the change in presentation of ceding commission income in 2018 from
other revenue to policy acquisition costs. The calculations of our combined loss ratios and underlying loss ratios
are shown below.
($ in thousands)
Year Ended December 31,
2017
2018
Change
Net loss and LAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Gross earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Net earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$408,589
34.6%
59.3%
$365,535
$ 43,054
37.1% (2.5) pts
62.4% (3.1) pts
Less:
Current year catastrophe losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . .
Prior year reserve unfavorable (favorable) development
$ 99,988
4,318
$116,424
(2,613)
$ (16,436)
6,931
Underlying loss and LAE (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Gross earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Net earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$304,283
25.8%
44.1%
$251,724
$ 52,559
25.5% 0.3 pts
43.0% 1.1 pts
(1) Underlying loss and LAE is a non-GAAP financial measure and is reconciled above to net loss and LAE, the most directly comparable
GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in the
“Definitions of Non-GAAP Measures” section, above.
The calculations of our expense ratios and underlying expense ratios are shown below.
($ in thousands)
Policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating and underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Gross earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Net earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:
Year Ended December 31,
2017
2018
Change
$203,140
40,590
66,112
$309,842
26.2%
45.0%
$175,444
27,675
81,762
$ 27,696
12,915
(15,650)
$284,881
$ 24,961
28.9% (2.7) pts
48.7% (3.7) pts
Ceding commission income (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ 37,175
$ (37,175)
Underlying expense (2)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Gross earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Net earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$309,842
26.2%
45.0%
$247,706
$ 62,136
25.1% 1.1 pts
42.3% 2.7 pts
(1)
For the year ended December 31, 2018, we presented $42.4 million of ceding commissions earned as a $9.3 million decrease to ceded
earned premium and a $33.1 million decrease in policy acquisition costs, which reduced other revenue and remove the distortive impact
to our underlying expense ratio
(2) Underlying expense is a non-GAAP financial measure and is reconciled above to total operating expenses, the most directly comparable
GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in the
“Definitions of Non-GAAP Measures” section, above.
40
UNITED INSURANCE HOLDINGS CORP.
Loss and LAE increased by $43,054,000, or 11.8%, to $408,589,000 for the year ended December 31, 2018,
from $365,535,000 for the year ended December 31, 2017. Loss and LAE expense as a percentage of net earned
premiums decreased 3.1 points to 59.3% for the year ended December 31, 2018, compared to 62.4% for the year
ended December 31, 2017. Excluding catastrophe losses and reserve development, our gross underlying loss and
LAE ratio for the year ended December 31, 2018 would have been 25.8%, an increase of 0.3 points from 25.5%
during the year ended December 31, 2017.
Policy acquisition costs increased by $27,696,000, or 15.8%, to $203,140,000 for the year ended
December 31, 2018, from $175,444,000 for the year ended December 31, 2017. The primary drivers of the
increase in costs were the managing general agent fees paid to AmRisc in relation to AmCo commercial
premium which increased by approximately $50,401,000, along with an increase in agent commission costs of
approximately $12,264,000, which were generally consistent with our growth in premium production and higher
average market commission rates outside of Florida. These increases were partially offset by the approximately
$33,093,000 decrease in costs resulting from the change in presentation of ceding commission income as an
offset to policy acquisition costs in 2018.
Operating and underwriting expenses increased by $12,915,000, or 46.7%, to $40,590,000 for the year
ended December 31, 2018, from $27,675,000 for the year ended December 31, 2017, primarily due to
approximately $3,715,000 of increased agent incentive costs from our new contingent commission program,
along with approximately $3,070,000 in incurred expenses related to our investment in software and
approximately $1,464,000 of assessments incurred in Texas and North Carolina throughout the year.
General and administrative expenses decreased by $15,650,000, or 19.1%, to $66,112,000 for the year
ended December 31, 2018, from $81,762,000 for the year ended December 31, 2017, primarily due to higher
amortization costs related to the merger with AmCo incurred during the last three quarters of 2017 of
approximately $16,095,000 that were fully expensed at the end of the first quarter of 2018.
We experienced unfavorable reserve development in the current year and its historical impact on our net
loss and net underlying loss ratios is outlined in the following table.
($ in thousands, except ratios)
Historical Reserve Development
2014
2015
2016
2017
2018
Prior year reserve favorable (unfavorable) development
. . . . . .
Development as a % of earnings before interest and taxes . . . . .
$4,037
$2,368
$(16,988) $2,613
$(4,318)
6.2%
5.7% 219.9% 62.9% (76.7)%
Consolidated net loss and LAE ratio (LR) . . . . . . . . . . . . . . .
Prior year reserve unfavorable (favorable) development on
44.6% 54.5% 65.3% 62.4% 59.3%
LR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current year catastrophe losses on LR . . . . . . . . . . . . . . . . . . . .
(1.5)% (0.7)%
8.5%
0.3%
3.7% (0.4)%
0.6%
12.2% 19.8% 14.6%
Underlying net loss and LAE ratio (1) . . . . . . . . . . . . . . . . . . . .
45.8% 46.7% 49.4% 43.0% 44.1%
(1) Underlying net loss and LAE Ratio is a non-GAAP measure and is reconciled above to the Consolidated net loss and LAE Ratio, the
most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K
can be found in the “Definitions of Non-GAAP Measures” section, above.
41
UNITED INSURANCE HOLDINGS CORP.
RESULTS OF OPERATIONS—2017 COMPARED TO 2016
Net Income for the year ended December 31, 2017 was $10,145,000, or $0.27 per diluted share, compared
to net income of $5,698,000, or $0.26 per diluted share, for the year ended December 31, 2016. The increase in
net income was primarily due to an increase in gross premiums earned and improvement in our underlying loss
ratio, as well as the favorable impact of the Tax Cuts and Jobs Act of 2017.
Revenues
Our total gross written premium increased by $332,692,000, or 47.0%, to $1,040,848,000 for the year ended
December 31, 2017, from $708,156,000 for the year ended December 31, 2016, primarily reflecting our merger
with AmCo on April 3, 2017, as well as strong organic growth in new and renewal business generated in our Gulf
and Northeast regions. The breakdown of the year–over–year changes in both direct written and assumed
premiums by region and gross written premium by line of business is shown in the following table:
Direct Written and Assumed Premium By Region (1)
2017
2016
Change
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gulf . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Northeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southeast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 540,796
201,475
154,502
92,753
$336,591
160,520
123,964
87,176
$204,205
40,955
30,538
5,577
Total direct written premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 989,526
$708,251
$281,275
Assumed premium (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51,322
(95)
51,417
Total gross written premium by region . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,040,848
$708,156
$332,692
Gross Written Premium by Line of Business
Personal property (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 799,097
241,751
$685,402
22,754
$113,695
218,997
Total gross written premium by line of business . . . . . . . . . . . . . . . . . . . . . .
$1,040,848
$708,156
$332,692
(1)
“Gulf” is comprised of Hawaii, Louisiana and Texas; “Northeast” is comprised of Connecticut, Massachusetts, New Jersey, New York
and Rhode Island; and “Southeast” is comprised of Georgia, North Carolina and South Carolina.
(2) Assumed premiums written for 2017 primarily included commercial property business assumed from unaffiliated insurers and 2016
premium assumed included homeowners’ business from Citizens Property Insurance Corporation and Texas Windstorm Insurance
Association.
Includes gross written premium from flood policies.
(3)
New and Renewal Policies (1) By Region (2)
2017
2016
Change
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gulf
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Northeast
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Southeast
226,136
131,334
115,709
79,763
192,921
105,334
89,512
69,018
33,215
26,000
26,197
10,745
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
552,942
456,785
96,157
(1) Only includes new and renewal homeowner, commercial and dwelling fire policies written during the year.
(2)
“Gulf” is comprised of Hawaii, Louisiana and Texas; “Northeast” is comprised of Connecticut, Massachusetts, New Jersey, New York
and Rhode Island; and “Southeast” is comprised of Georgia, North Carolina and South Carolina.
42
UNITED INSURANCE HOLDINGS CORP.
Expenses
Expenses for the year ended December 31, 2017 increased $173,449,000, or 36.1%, to $653,663,000 for the
year ended December 31, 2017, from $480,214,000 for the year ended December 31, 2016, primarily due to
increased losses, policy acquisition costs, operating costs and general and administrative expenses. The
calculation of our combined and underlying loss ratios is shown below:
($ in thousands)
Year Ended December 31,
2016
2017
Change
Loss and LAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Gross earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Net earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$365,535
37.1%
62.4%
$298,353
$ 67,182
44.7% (7.6) pts
65.3% (2.9) pts
Less:
Current year catastrophe losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior year reserve unfavorable (favorable) development . . . . . . . . . . . . . .
$116,424
(2,613)
$ 55,842
16,988
$ 60,582
(19,601)
Underlying Loss and LAE (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Gross earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Net earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$251,724
25.5%
43.0%
$225,523
$ 26,201
33.8% (8.3) pts
49.4% (6.4) pts
(1) Underlying Loss and LAE is a non-GAAP financial measure and is reconciled above to Loss and LAE, the most directly comparable
GAAP measure. Additional information regarding non-GAAP financial measures presented can be found in this Form 10-K is in the
“Definitions of Non-GAAP Measures” section, above.
The calculations of the Company’s expense ratio and underlying expense ratios are shown below.
($ in thousands)
Policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating and underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Gross earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Net earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less:
Year Ended December 31,
2016
2017
Change
$175,444
27,675
81,762
$284,881
28.9%
48.7%
$117,658
20,524
42,956
$ 57,786
7,151
38,806
$181,138
$103,743
27.2% 1.7 pts
39.6% 9.1 pts
Ceding commission income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger expenses and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 37,175
38,104
$
6,882
11,108
$ 30,293
26,996
Underlying Expense (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Gross earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
% of Net earned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$209,602
21.3%
35.8%
$163,148
$ 46,454
24.5% (3.2) pts
35.7% 0.1 pts
(1) Underlying Expense is a non-GAAP financial measure and is reconciled above to total operating expenses, the most directly comparable
GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in the
“Definitions of Non-GAAP Measures” section, above.
Loss and LAE increased by $67,182,000, or 22.5%, to $365,535,000 for the year ended December 31, 2017
from $298,353,000 for the year ended December 31, 2016. Loss and LAE expense as a percentage of net earned
premiums decreased 2.9 points to 62.4% for the year, compared to 65.3% last year. Excluding catastrophe losses
and reserve development, our gross underlying loss and LAE ratio for the year was 25.5%, a decrease of
8.3 points from 33.8% during the year ended December 31, 2016.
43
UNITED INSURANCE HOLDINGS CORP.
During the third quarter of 2017, our catastrophe losses included claims from Hurricane Harvey, which
made landfall as a category 4 storm in Texas, and Hurricane Irma, which was also a category 4 storm making
landfall in Florida. Our catastrophe excess of loss reinsurance limits retained losses to $91,000,000 in total for
these two events, which was further reduced to $83,000,000 by our quota share reinsurance.
Policy acquisition costs increased by $57,786,000, or 49.1%, to $175,444,000 for the year ended
December 31, 2017, from $117,658,000 for the year ended December 31, 2016. The primary driver of the
increase in costs was the managing general agent fees paid to AmRisc in relation to AmCo commercial premium,
which was a cost increase anticipated with the acquisition of AmCo. The remaining change was the result of
policy acquisition costs varying directly with changes in gross premiums earned and were generally consistent
with our growth in premium production and higher average market commission rates outside of Florida.
Operating and underwriting expenses increased by $7,151,000 or 34.8%, to $27,675,000 for the year ended
December 31, 2017, from $20,524,000 for the year ended December 31, 2016, primarily due to increased costs
related to our ongoing growth, incurred expenses related to software improvements and costs related to the
increase in underwriting reports.
General and administrative expenses increased by $38,806,000, or 90.3%, to $81,762,000 for the year ended
December 31, 2017, from $42,956,000 for the year ended December 31, 2016, primarily due to amortization
costs related to the merger with AmCo.
ANALYSIS OF FINANCIAL CONDITION—DECEMBER 31, 2018 COMPARED TO DECEMBER 31,
2017
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our accompanying consolidated financial statements and related notes in Part II, Item 8 in this
Form 10-K.
Investments
The primary goals of our investment strategy are to preserve capital, maximize after-tax investment income,
maintain liquidity and minimize risk. To accomplish our goals, we purchase debt securities in sectors that
represent the most attractive relative value, and we maintain a moderate equity exposure. Limiting equity
exposure manages risks and helps to preserve capital for two reasons: first, bond market returns are less volatile
than stock market returns, and second, should the bond issuer enter bankruptcy liquidation, bondholders
generally have a higher priority than equityholders in a bankruptcy proceeding.
We must comply with applicable state insurance regulations that prescribe the type, quality and
concentrations of investments our insurance subsidiaries can make; therefore, our current investment policy
limits investment in non-investment-grade fixed maturities and limits total investment amounts in preferred
stock, common stock and mortgage notes receivable. We do not invest in derivative securities.
Two outside asset management companies, which have authority and discretion to buy and sell securities for
us, manage our investments subject to (i) the guidelines established by our Board of Directors and (ii) the
direction of management. The Investment Committee of our Board of Directors reviews and approves our
investment policy on a regular basis.
Our cash and investment portfolios totaled $1,135,956,000 at December 31, 2018 compared to
$1,130,806,000 at December 31, 2017.
44
UNITED INSURANCE HOLDINGS CORP.
The following table summarizes our investments, by type:
December 31, 2018
December 31, 2017
Estimated
Fair Value
Percent of
Total
Estimated
Fair Value
Percent of
Total
$
U.S. government and agency securities . . . . . . . . . . . . . . . .
Foreign governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
States, municipalities and political subdivisions . . . . . . . . .
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . .
Total fixed maturities . . . . . . . . . . . . . . . . . . . . . .
Mutual fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonredeemable preferred stocks . . . . . . . . . . . . . . . . . . . . .
Total equity securities . . . . . . . . . . . . . . . . . . . . .
Other long-term investments . . . . . . . . . . . . . . . .
Portfolio loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total investments . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Restricted Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
98,975
3,982
144,468
23,890
301,988
223,854
64,037
1,151
862,345
50,016
1,759
27,198
2,005
80,978
8,513
—
951,836
112,679
71,441
8.7% $
0.4%
12.7%
2.1%
26.6%
19.7%
5.6%
0.1%
75.9%
4.4%
0.2%
2.4%
0.2%
7.2%
0.7%
— %
83.8%
9.9%
6.3%
92,626
2,036
201,512
20,257
287,562
143,265
14,905
692
762,855
31,924
1,702
27,902
1,767
63,295
8,381
20,000
854,531
229,556
46,719
8.2%
0.2%
17.8%
1.8%
25.4%
12.7%
1.3%
0.1%
67.5%
2.8%
0.2%
2.5%
0.2%
5.7%
0.7%
1.8%
75.7%
20.3%
4.0%
Total cash and investments . . . . . . . . . . . . .
$1,135,956
100.0% $1,130,806
100.0%
We classify all of our investments as available-for-sale. Our investments at December 31, 2018 and 2017
consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions and
securities of investment-grade corporate issuers. Our equity holdings consisted mainly of securities issued by
companies in the energy, consumer products, financial, technology and industrial sectors. Most of the corporate
bonds we hold reflected a similar diversification. At December 31, 2018, approximately 87.2% of our fixed
maturities were U.S. Treasuries, or corporate bonds rated “A” or better, and 12.8% were corporate bonds rated
“BBB” or “BB”.
Reinsurance
We follow industry practice of reinsuring a portion of our risks. Reinsurance involves transferring, or
“ceding”, all or a portion of the risk exposure on policies we write to another insurer, known as a reinsurer. To
the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements,
we remain primarily liable for the entire insured loss under the policies we write.
Our reinsurance program is designed, utilizing our risk management methodology, to address our exposure
to catastrophes. According to the Insurance Service Office (ISO), a catastrophe loss is defined as a single
unpredictable incident or series of closely related incidents that result in $25,000,000 or more in U.S. industry-
wide direct insured losses to property and that affect a significant number of policyholders and insurers (ISO
catastrophes). In addition to ISO catastrophes, we also include as catastrophes those events (non-ISO
catastrophes), which may include losses, that we believe are, or will be, material to our operations which we
define as incidents that result in $1,000,000 or more in losses for multiple policyholders.
45
UNITED INSURANCE HOLDINGS CORP.
During the second quarter of 2018, we placed our reinsurance program for the 2018 hurricane season. We
purchased catastrophe excess of loss reinsurance protection of $3,100,000,000. The contracts reinsure for
personal and commercial lines property excess catastrophe losses caused by multiple perils including hurricanes,
tropical storms, and tornadoes. The agreements were effective as of June 1, 2018, for a one-year term and
incorporate the mandatory coverage required by and placed with the Florida Hurricane Catastrophe Fund.
Effective December 31, 2018, we extended our quota share reinsurance agreement that was set to expire on
December 31, 2018 for a period through May 31, 2019. This quota share reinsurance agreement has a cession
rate of 20% for all subject business. Effective January 1, 2019, we renewed the aggregate excess of loss
agreement to provide coverage against accumulated losses from specified catastrophe events, for a term of
12 months.
Excluding our flood business, for which we cede 100% of the risk of loss, reinsurance costs for 2018 were
40.1% of gross premiums earned compared to 38.6% of gross premiums earned for 2017. The increase in this
ratio was driven primarily by our quota share reinsurance program, which was in effect for eleven months during
2018, but for only one month during 2017.
We amortize our ceded unearned premiums over the annual agreement period, and we record that
amortization in ceded premiums earned on our Consolidated Statements of Comprehensive Income (Loss). The
table below summarizes the amounts of our ceded premiums written under the various types of agreements, as
well as the amortization of ceded unearned premiums:
Quota Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess-of-loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equipment & identity theft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Novation of Auto Policies (1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Flood . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (94,267) $ (88,379) $ (51,964)
(183,272)
(331,289)
(389,633)
(8,313)
(9,576)
(9,163)
(2,396)
—
—
(16,395)
(18,085)
(19,207)
Year Ended December 31,
2016
2017
2018
Ceded premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in ceded unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . .
$(512,270) $(447,329) $(262,340)
52,442
20,585
46,796
Ceded premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(491,685) $(400,533) $(209,898)
(1) Reflects ceding of auto policy premiums to Maidstone Insurance Company as part of the settlement of the novation agreement entered
into at the closing of the IIC transaction.
46
UNITED INSURANCE HOLDINGS CORP.
Current year catastrophe losses disaggregated between name and numbered storms and all other catastrophe
loss events are shown in the following table.
Number
of
Events
Incurred Loss
and
Loss adjustment
expense (LAE) (1)
Combined
Ratio
Impact
December 31, 2018
Current period catastrophe losses incurred
Named and numbered storms . . . . . . . . . . . . . . . . . . . . . . .
All other catastrophe loss events . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2017
Current period catastrophe losses incurred
Named and numbered storms . . . . . . . . . . . . . . . . . . . . . . .
All other catastrophe loss events . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2016
Current period catastrophe losses incurred
Named and numbered storms . . . . . . . . . . . . . . . . . . . . . . .
All other catastrophe loss events . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
27
32
6
16
22
4
15
19
$ 53,227
46,761
$ 99,988
$ 84,226
32,198
$116,424
$ 33,817
22,025
$ 55,842
7.7%
6.8%
14.5%
14.4%
5.5%
19.9%
7.4%
4.8%
12.2%
(1)
Incurred loss and LAE is equal to losses and LAE paid plus the change in case and incurred but not reported reserves. Shown net of losses
ceded to reinsurers. Incurred loss and LAE and number of events includes the development on storms during the year in which it occurred.
See Note 9 in our Notes to Consolidated Financial Statements for additional information regarding our
reinsurance program.
Unpaid Losses and Loss Adjustments
We generally use the term “loss(es)” to collectively refer to both loss and LAE. We establish reserves for
both reported and unreported 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, including provisions for claims that have been reported but are
unpaid at the balance sheet date and for obligations on claims that have been incurred but not reported at the
balance sheet date. Our policy is to establish these loss reserves after considering all information known to us at
each reporting period. At any given point in time, our loss reserve represents our best estimate of the ultimate
settlement and administration costs of our insured claims incurred and unpaid.
Unpaid losses and LAE totaled $661,203,000 and $482,232,000 as of December 31, 2018 and 2017,
respectively. The balance has increased year over year as a result of increased reserves for both weather-related
and non weather-related activity during 2018 compared to 2017.
Since the process of estimating loss reserves requires significant judgment due to a number of variables,
such as fluctuations in inflation, judicial decisions, legislative changes and changes in claims handling
procedures, our ultimate liability will likely differ from these estimates. We revise our reserve for unpaid losses
as additional information becomes available, and reflect adjustments, if any, in our earnings in the periods in
which we determine the adjustments as necessary.
See Note 10 in our Notes to Unaudited Consolidated Financial Statements for additional information
regarding our losses and LAE.
47
UNITED INSURANCE HOLDINGS CORP.
LIQUIDITY AND CAPITAL RESOURCES
We generate cash through premium collections, reinsurance recoveries, investment income, the sale or
maturity of invested assets, the issuance of debt and the issuance of additional shares of our stock. We use our
cash to pay reinsurance premiums, claims and related costs, policy acquisition costs, salaries and employee
benefits, other expenses and stockholder dividends, acquire subsidiaries and pay associated costs, as well as to
repay debts and purchase investments.
As a holding company, we do not conduct any business operations of our own and, as a result, we rely on
cash dividends or intercompany loans from our management subsidiaries to pay our general and administrative
expenses. Insurance regulatory authorities heavily regulate our insurance subsidiaries, including restricting any
dividends paid by our insurance subsidiaries and requiring approval of any management fees our insurance
subsidiaries pay to our management subsidiaries for services rendered; however, nothing restricts our
non-insurance company subsidiaries from paying us dividends other than state corporate laws regarding
solvency. Our management subsidiaries pay us dividends primarily using cash from the collection of
management fees from our insurance subsidiaries, pursuant to the management agreements in effect between
those entities. In accordance with state laws, our insurance subsidiaries may pay dividends or make distributions
out of that part of their statutory surplus derived from their net operating profit and their net realized capital
gains. The RBC guidelines published by the NAIC may further restrict our insurance subsidiaries’ ability to pay
dividends or make distributions if the amount of the intended dividend or distribution would cause their
respective surplus as it regards policyholders to fall below minimum RBC guidelines. See Note 14 in our Notes
to Consolidated Financial Statements and Part II, Item 5 for additional information.
During the years ended December 31, 2018 and 2017, we contributed $94,000,000, including our
contribution to form our new subsidiary as described below, and $30,000,000 of capital to our insurance
subsidiaries, respectively. We may make future contributions of capital to our insurance subsidiaries as
circumstances require.
On November 6, 2018 ACIC and IIC paid dividends to the Company of $50,000,000 and $1,764,000,
respectively.
During August 2018, we contributed $40,000,000 to fund a new subsidiary, JIC, and Kiln contributed
$20,000,000, for total funding of $60,000,000. JIC is owned 66.7% by the Company and 33.3% by Kiln.
On December 13, 2017, we issued $150,000,000 of senior notes (Senior Notes) that will mature on
December 15, 2027 and bear interest at a rate equal to 6.25% per annum payable semi-annually on each June 15
and December 15, commencing June 15, 2018. The Senior Notes are senior unsecured obligations of the
Company. We may redeem the Senior Notes at our option, at any time and from time to time in whole or in part,
at a redemption price equal to the greater of (i) 100% of the principal amount of the Senior Notes to be redeemed
and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon from
the date of redemption to the date that is three months prior to maturity. On and after that date, we may redeem
the Senior Notes at par.
On April 3, 2017, we successfully completed our acquisition of AmCo. The acquisition was completed
through a series of mergers that ultimately resulted in the Company issuing 20,956,355 shares of its common
stock as merger consideration to the equity holders of RDX Holding, LLC, the former parent company of AmCo.
As a result of the mergers, AmCo merged with and into a wholly-owned subsidiary of the Company. We incurred
$7,000,000 of merger-related expenses. Please refer to Note 4 in the Notes to Consolidated Financial Statements
for additional information on the merger transaction.
48
UNITED INSURANCE HOLDINGS CORP.
On December 5, 2016, we issued $30,000,000 of senior notes to private investors at an interest rate of
5.75% in excess of the three-month LIBOR. The notes were redeemed at par value on December 13, 2017
without a pre-payment penalty. Please refer to Note 11 in the Notes to Consolidated Financial Statements for a
discussion of the additional terms associated with these notes.
On May 26, 2016, we issued a $5,200,000, 15-year term note payable to Branch Banking & Trust (BB&T)
with the intent to use the funds to renovate, furnish and equip the principal location of our corporate executive
offices. The note bears interest at 1.65% in excess of the one-month LIBOR. The interest rate resets monthly and
was 4.00% at December 31, 2018. Please refer to Note 11 in the Notes to Consolidated Financial Statements for a
discussion of the additional terms associated with this note.
On April 29, 2016, we acquired all of the outstanding common stock of IIC for $60,471,000. We paid
$48,450,000 in cash at closing and issued a $8,550,000 promissory note to Interboro, LLC, the former parent
company of IIC, which matured and was paid in October 2017. The purchase price also included the assumption
of an accrued liability of $3,471,000, which was paid during July 2016. We incurred $224,000 of merger-related
expenses. Please refer to Note 4 in the Notes to Consolidated Financial Statements for additional information on
the acquisition transaction, and Note 11 in the Notes to Consolidated Financial Statements for a discussion of the
additional terms associated with this note.
Cash Flows for the Year Ended December 31, (in millions)
Operating
Investing
$65.7
$10.1
$14.3
Financing
$118.6
$23.4
$49.9
$(7.3)
$(49.8)
$(125.6)
2018
2017
2016
2018
2017
2016
2018
2017
2016
Operating Activities
The principal cash inflows from our operating activities come from premium collections, reinsurance
recoveries, and investment income. The principal cash outflows from our operating activities are the result of
claims and related costs, reinsurance premiums, policy acquisition costs, and salaries and employee benefits. A
primary liquidity concern with respect to these cash flows is the risk of large magnitude catastrophe events.
During the years ended December 31, 2018 and December 31, 2017, some changes in operating assets and
liabilities were significantly impacted by catastrophe losses associated with Hurricanes Florence and Michael in
2018, and Hurricanes Harvey and Irma in 2017. Unpaid losses and LAE increased significantly during the period
and, as a result, we expect a considerable increase in cash outflows related to the payment of catastrophe claims
in the near future. However, reinsurance recoverable on paid and unpaid losses also increased significantly
during the period. We expect that a considerable increase in cash inflows related to reinsurance recoveries in the
near future will largely offset the cash outflows from the payment of losses.
49
UNITED INSURANCE HOLDINGS CORP.
Investing Activities
The principal cash inflows from our investing activities come from repayments of principal, proceeds from
maturities and sales of investments. We closely monitor and manage these risks through our comprehensive
investment risk management process. The principal cash outflows relate to purchases of investments and cost of
property, equipment and capitalized software acquired. Additional cash outflows relate to purchases of
subsidiaries. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors
and market disruption. During the year ended December 31, 2018, cash used in investing activities increased
$118,298,000 as the result of $24,183,000 higher net purchases of investments in 2018 when compared to 2017
and $95,284,000 in cash provided by investing activities as a result of the merger with AmCo in 2017 that did not
recur during the year ended December 31, 2018.
Financing Activities
The principal cash inflows from our financing activities come from issuances of debt and other securities.
The principal cash outflows come from repayments of debt and payments of dividends. The primary liquidity
concern with respect to these cash flows is market disruption in the cost and availability of credit. We believe our
current capital resources, together with cash provided from our operations, are sufficient to meet currently
anticipated working capital requirements. During the year ended December 31, 2018, cash provided by financing
activities decreased by $95,253,000 due to the issuance of $150,000,000 in senior notes during 2017 that did not
recur in 2018 and the repayment of our $30,000,000 outstanding senior notes balance at the end of 2017 that did
not recur in 2018.
RECENT ACCOUNTING STANDARDS
Please refer to Note 2(s) in our Notes to Consolidated Financial Statements for a discussion of recent
accounting standards that may affect us.
APPLICATION OF CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to adopt accounting
policies and make estimates and assumptions that affect amounts reported in the consolidated financial
statements. The most critical estimates include those used in determining:
•
•
•
•
reserves for unpaid losses,
fair value of investments,
investment portfolio impairments, and
goodwill.
In making these determinations, management makes subjective and complex judgments that frequently
require estimates about matters that are inherently uncertain. Many of these policies, estimates and related
judgments are common in the insurance industry. It is reasonably likely that changes in these estimates could
occur from time to time and result in a material impact on our consolidated financial statements.
In addition, the preparation of our financial statements in accordance with GAAP prescribes when we may
reserve for particular risks, including litigation exposures. Accordingly, our results for a given reporting period
could be significantly affected if and when we establish a reserve for a major contingency. Therefore, the results
we report in certain accounting periods may appear to be volatile and past results may not be indicative of results
in future periods.
50
UNITED INSURANCE HOLDINGS CORP.
Reserves for Unpaid Losses and LAE
Reserves for unpaid losses and LAE 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.
As discussed in Note 10 in our Notes to Consolidated Financial Statements, we determine our ultimate
losses by using multiple actuarial methods to determine an actuarial estimate within a relevant range of
indications that we calculate using generally accepted actuarial techniques. Our selection of the actuarial estimate
is influenced by the analysis of our historical loss and claims experience since inception. For each accident year,
we estimate the ultimate incurred losses for both reported and unreported claims. In establishing this estimate, we
reviewed the results of various actuarial methods discussed in Note 10 in our Notes to Consolidated Financial
Statements.
Fair Value of Investments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. We are responsible for the
determination of fair value of financial assets and the supporting assumptions and methodologies. We use quoted
prices from active markets and we use an independent third-party valuation service to assist us in determining
fair value. We obtain only one single quote or price for each financial instrument.
As discussed in Note 3 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
have investments in limited partnerships that require us to use unobservable inputs.
Investment Portfolio Impairments
For investments classified as available for sale, the difference between fair value and cost or amortized cost
for fixed income securities is reported as a component of accumulated other comprehensive income (loss) on our
Consolidated Balance Sheet and is not reflected in our net income of any period until reclassified to net income
upon the consummation of a transaction with an unrelated third party or when a write-down is recorded due to an
other-than-temporary decline in fair value. We have a portfolio monitoring process to identify and evaluate each
fixed income security whose carrying value may be other-than-temporarily impaired.
For each fixed income security in an unrealized loss position, we assess whether management with the
appropriate authority has made the decision to sell or whether it is more likely than not we will be required to sell
the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory
purposes. If a security meets either of these criteria, the security’s decline in fair value is considered other-than-
temporary and is recorded in earnings.
If we have not made the decision to sell the fixed income security and it is not more likely than not we will
be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we
expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We use our best
estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s
original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss
exists. The determination of cash flow estimates is inherently subjective and methodologies may vary depending
51
UNITED INSURANCE HOLDINGS CORP.
on facts and circumstances specific to the security. All reasonably available information relevant to the
collectability of the security, including past events, current conditions, and reasonable and supportable
assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected.
That information generally includes, but is not limited to, the remaining payment terms of the security,
prepayment speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults,
expected recoveries, the value of underlying collateral, vintage, geographic concentration, available reserves or
escrows, current subordination levels, third party guarantees and other credit enhancements. Other information,
such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for
insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may
also be considered. The estimated fair value of collateral will be used to estimate recovery value if we determine
that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery
value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment
for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion
of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive
income (loss). If we determine that the fixed income security does not have sufficient cash flow or other
information to estimate a recovery value for the security, we may conclude that the entire decline in fair value is
deemed to be credit related and the loss is recorded in earnings.
Once assumptions and estimates are made, any number of changes in facts and circumstances could cause us
to subsequently determine that a fixed income security is other-than-temporarily impaired, including: (1) general
economic conditions that are worse than previously forecasted or that have a greater adverse effect on a
particular issue, issuer, or industry sector than originally estimated; (2) changes in the facts and circumstances
related to a particular issue or issuer’s ability to meet all of its contractual obligations; and (3) changes in facts
and circumstances that result in changes to management’s intent to sell or result in our assessment that it is more
likely than not we will be required to sell before recovery of the amortized cost basis of a fixed income security.
Changes in assumptions, facts and circumstances could result in additional charges to earnings in future periods
to the extent that losses are realized. The charge to earnings, while potentially significant to net income, would
not have a significant effect on stockholders’ equity, since our securities are designated as available for sale and
carried at fair value and as a result, any related unrealized loss, net of taxes would already be reflected as a
component of accumulated other comprehensive income (loss) in stockholders’ equity.
The determination of the amount of other-than-temporary impairment is an inherently subjective process
based on periodic evaluations of the following factors: (1) our ability and intent to hold the investment for a
period of time sufficient to allow for an anticipated recovery in value; (2) the length of time and extent to which
the fair value has been less than cost; (3) the financial condition, near-term and long-term prospects of the issue
or issuer, including relevant industry specific market conditions and trends, geographic location and implications
of rating agency actions and offering prices; and (4) the specific reasons that a security is in an unrealized loss
position, including overall market conditions which could affect liquidity. Such evaluations and assessments are
revised as conditions change and new information becomes available. We update our evaluations quarterly and
reflect changes in other-than-temporary impairments in results of operations as such evaluations are revised. The
use of different methodologies and assumptions in the determination of the amount of other-than-temporary
impairments may have a material effect on the amounts presented within the consolidated financial statements.
Due to the adoption of Accounting Standards Update (ASU) 2016-01 (ASU 2016-01) as of January 1, 2018,
equity securities are reported at fair value with changes in fair value recognized in valuation of equity
investments and are no longer included in impairment write-downs, change in intent write-downs and sales.
See Note 2(b) in our Notes to Consolidated Financial Statements for further information regarding our
impairment testing.
52
UNITED INSURANCE HOLDINGS CORP.
Measurement of Goodwill and Related Impairment
Goodwill is the excess of cost over the estimated fair value of net assets acquired. Goodwill is not amortized
but is tested for impairment at least annually or more frequently if events or circumstances, such as adverse
changes in the business climate, indicate that there may be justification for conducting an interim test. We test
goodwill for impairment by either performing a qualitative assessment or a two-step quantitative test and
goodwill is impaired when it is determined that carrying value of a reporting unit is in excess of the fair value of
that reporting unit. The valuation methodologies utilized are subject to key judgments and assumptions that are
sensitive to change. Estimates of fair value are inherently uncertain and represent only management’s reasonable
expectation regarding future developments.
As discussed in Note 2(i) in our Notes to Consolidated Financial Statements, the qualitative assessment is an
assessment of historical information and relevant events and circumstances to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. We may elect
not to perform the qualitative assessment and perform a two-step quantitative impairment test.
OFF-BALANCE SHEET ARRANGEMENTS
At December 31, 2018, we did not have any off-balance-sheet arrangements.
CONTRACTUAL OBLIGATIONS
The following table summarizes our expected payments for contractual obligations at December 31, 2018:
Leases (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service agreements (2)
. . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt (3)
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Employment agreements (4) . . . . . . . . . . . . . . . . . . . .
Unpaid loss and loss adjustment expenses (5) . . . . . . .
Payment Due by Period
4-5
1-3
Years
Years
Less than
1 Year
$
380
8,778
10,988
1,000
396,485
$
479
8,960
21,826
2,000
190,381
$
182
4,659
21,626
333
59,681
More than
5 Years
$
19
2,226
191,735
—
14,656
Total
$
1,060
24,623
246,175
3,333
661,203
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$936,394
$417,631
$223,646
$86,481
$208,636
(1) Represents operating and capital leases for our subsidiaries.
(2) Represents agreements entered into to purchase goods and services in the normal course of business.
(3) Represents repayment of $150,000,000 senior notes payable on December 15, 2027, principal payments totaling $8,824,000 over the
remaining life of the SBA note, and principal payments totaling $4,304,000 over the remaining life of the BB&T note. Additionally, all
future interest payments are calculated using the current rates provided at December 31, 2018, and are included. All future payments are
shown net of amortization of debt issuance costs. See Note 11 in our Notes to Consolidated Financial Statements for additional
information regarding our long-term debt.
(4) Represents base salary for the unfulfilled portion of the original employment agreements with certain executive officers.
(5) As of December 31, 2018, UPC, FSIC, IIC, ACIC, and BlueLine Cayman Holdings had unpaid loss and LAE of $661,203,000. The
specific amounts and timing of obligations related to known and unknown reserves and related LAE reserves are not set contractually,
and the amounts and timing of these obligations are unknown. Nonetheless, based upon our cumulative claims paid over the last
19 years, we estimate that the loss and LAE reserves will be paid in the periods shown above. While we believe that historical
performance of loss payment patterns is a reasonable source for projecting future claims payments, there is inherent uncertainty in this
estimated projected settlement of loss and LAE reserves, and as a result these estimates will differ, perhaps significantly, from actual
future payments.
53
UNITED INSURANCE HOLDINGS CORP.
RELATED PARTY TRANSACTIONS
See Note 15 in our Notes to Consolidated Financial Statements for a discussion of our related party
transactions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our investment objective is to preserve capital, maximize after-tax investment income, maintain liquidity
and minimize risk. Our current investment policy limits investment in non-investment grade debt securities, and
limits total investments in preferred stock, common stock and mortgage notes receivables. We also comply with
applicable laws and regulations that further restrict the type, quality and concentration of our investments. In
general, these laws and regulations permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds, and preferred and common equity
securities.
Our investment policy was established by the Investment Committee of our Board of Directors and is
reviewed regularly. Pursuant to this investment policy, our fixed-maturity portfolio is classified as available for
sale and we report any unrealized gains or losses, net of deferred income taxes, as a component of other
comprehensive income (loss) within our stockholders’ equity. We do not hold any securities that are classified as
held to maturity and we do not hold any securities for trading or speculation. We do not utilize any swaps,
options, futures or forward contracts to hedge or enhance our investment portfolio. The unrealized gains or losses
related to our equity securities are recorded on the income statement per the guidance in ASU 2016-01.
54
UNITED INSURANCE HOLDINGS CORP.
INTEREST RATE RISK
Fixed-maturity securities are sensitive to potential losses resulting from unfavorable changes in interest
rates. We manage the risk by analyzing anticipated movements in interest rates and considering our future capital
and liquidity requirements.
The following table illustrates the impact of hypothetical changes in interest rates on the fair value of our
fixed-maturity securities at December 31, 2018, and 2017:
Hypothetical Change in Interest Rates
2018
300 basis point increase . . . . . . . . . . . . . . . . . . . . . .
200 basis point increase . . . . . . . . . . . . . . . . . . . . . .
100 basis point increase . . . . . . . . . . . . . . . . . . . . . .
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100 basis point decrease . . . . . . . . . . . . . . . . . . . . .
200 basis point decrease . . . . . . . . . . . . . . . . . . . . .
300 basis point decrease . . . . . . . . . . . . . . . . . . . . .
2017
300 basis point increase . . . . . . . . . . . . . . . . . . . . . .
200 basis point increase . . . . . . . . . . . . . . . . . . . . . .
100 basis point increase . . . . . . . . . . . . . . . . . . . . . .
Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100 basis point decrease . . . . . . . . . . . . . . . . . . . . .
200 basis point decrease . . . . . . . . . . . . . . . . . . . . .
300 basis point decrease . . . . . . . . . . . . . . . . . . . . .
Estimated
Fair Value
Change in
Estimated
Fair Value
Percentage
Increase
(Decrease) in
Estimated
Fair Value
$771,039
$801,470
$831,905
$862,345
$892,786
$923,113
$949,490
$674,862
$704,201
$733,534
$762,855
$792,182
$820,638
$837,840
$(91,306)
$(60,875)
$(30,440)
$ —
$ 30,441
$ 60,768
$ 87,145
$(87,993)
$(58,654)
$(29,321)
$ —
$ 29,327
$ 57,783
$ 74,985
(10.6)%
(7.1)%
(3.5)%
— %
3.5%
7.0%
10.1%
(11.5)%
(7.7)%
(3.8)%
— %
3.8%
7.6%
9.8%
Our calculations of the potential effects of hypothetical interest rate changes are based on several
assumptions, including maintenance of the existing composition of fixed-maturity investments, and should not be
considered indicative of future results. Based on our analysis, a 300-basis point decrease or increase in interest
rates from the December 31, 2018 rates would not have a material impact on our results of operations or cash
flows. As was announced in July 2017, LIBOR is anticipated to be phased out by the end of 2021. We are unable
to predict the use of alternate reference rates and corresponding interest rate risk at this time.
55
UNITED INSURANCE HOLDINGS CORP.
CREDIT RISK
Credit risk can expose us to potential losses arising principally from adverse changes in the financial
condition of the issuer of our fixed-maturity securities. We mitigate this risk by generally investing in investment
grade securities and by diversifying our investment portfolio to avoid concentrations in any single issuer or
market sector.
The following table presents the composition of our fixed maturity security portfolio by rating at
December 31, 2018 and 2017:
Comparable Rating
Amortized
Cost
% of Total
Amortized
Cost
Fair Value
% of Total
Fair Value
2018
AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AA+, AA, AA- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A+, A, A- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BBB+, BBB, BBB- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$192,134
387,715
180,585
114,011
22.0%
44.3
20.7
13.0
$191,071
382,698
177,521
111,055
22.2%
44.3
20.6
12.9
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$874,445
100.0%
$862,345
100.0%
2017
AAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AA+, AA, AA- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A+, A, A- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BBB+, BBB, BBB- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BB+, BB, BB- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$127,722
366,056
167,123
101,237
1,296
16.7%
47.9
21.9
13.3
0.2
$127,980
364,753
167,093
101,736
1,293
16.8%
47.8
21.9
13.3
0.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$763,434
100.0%
$762,855
100.0%
In addition, we are exposed to credit risk through our reinsurance program. Reinsurance contracts do not
relieve us from our obligations to policyholders. Failure of reinsurers to honor their obligations could result in
losses to us. We evaluate the financial condition of our reinsurers and monitor concentrations of credit risk to
minimize our exposure to significant losses from reinsurer insolvencies.
56
UNITED INSURANCE HOLDINGS CORP.
EQUITY PRICE RISK
Our equity investment portfolio at December 31, 2018 consisted of common stocks and non-redeemable
preferred stocks. We may incur potential losses due to adverse changes in equity security prices. We manage this
risk primarily through industry and issuer diversification and asset allocation techniques.
The following table illustrates the composition of our equity portfolio at December 31, 2018 and 2017:
Stocks by Sector
Fair Value
% of Total
Fair Value
2018
Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer, Non-cyclical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer, Cyclical
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$50,015
8,386
7,737
3,905
2,573
2,063
1,958
1,744
1,600
997
61.7%
10.4
9.6
4.8
3.2
2.5
2.4
2.2
2.0
1.2
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$80,978
100.0%
2017
Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer, Non-cyclical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer, Cyclical
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$31,924
7,349
6,493
4,708
4,570
3,249
2,017
1,030
1,012
943
50.4%
11.7
10.3
7.4
7.2
5.1
3.2
1.6
1.6
1.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$63,295
100.0%
57
UNITED INSURANCE HOLDINGS CORP.
Item 8.
Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of the United Insurance Holdings Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of United Insurance Holdings Corp. and
subsidiaries (the “Company”) as of December, 31, 2018, the related consolidated statements of comprehensive
loss, stockholders’ equity, and cash flows, for the year then ended and the related notes and the schedules listed
in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018
and the results of its operations and its cash flows for the year then ended, in conformity with the accounting
principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of the
Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2019, expressed an
adverse opinion on the Company’s internal control over financial reporting as a result of a material weakness.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with the respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audit also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Tampa, Florida
March 15, 2019
We have served as the Company’s auditor since 2018.
58
UNITED INSURANCE HOLDINGS CORP.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors
United Insurance Holdings Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of United Insurance Holdings Corp. and its
subsidiaries (the Company) as of December 31, 2017, the related consolidated statements of comprehensive
income, stockholders’ equity and cash flows for each of the years in the two-year period ended December 31,
2017, and the related notes to the consolidated financial statements and schedules (collectively, the financial
statements). In our opinion, the financial statements present fairly, in all material respects, the financial position
of the Company as of December 31, 2017, and the results of its operations and its cash flows for each of the years
in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in
the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
Omaha, Nebraska
March 28, 2018
We served as the Company’s auditor from 2009 to 2017.
59
UNITED INSURANCE HOLDINGS CORP.
Consolidated Balance Sheets
December 31,
2018
2017
ASSETS
Investments, at fair value:
Fixed maturities, available-for-sale (amortized cost of $874,445 and $763,434,
respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments (amortized cost of $8,288 and $8,057, respectively) . . . . . . . . . . . . . .
Portfolio loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 862,345
80,978
8,513
—
$ 762,855
63,295
8,381
20,000
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premiums receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance recoverable on paid and unpaid losses . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred policy acquisition costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
951,836
112,679
71,441
184,120
6,017
17,137
95,816
625,998
217,885
73,045
105,582
31,351
12,641
854,531
229,556
46,719
276,275
5,577
17,291
75,275
395,774
201,904
73,045
103,882
45,271
11,096
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,321,428
$2,059,921
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 661,203
627,313
175,272
56,534
71,048
29,571
160,118
$ 482,232
555,873
149,117
41,786
46,594
85,830
161,364
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,781,059
$1,522,796
Commitments and contingencies (Note 12)
Stockholders’ Equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
—
Common stock, $0.0001 par value; 50,000,000 shares authorized; 43,029,845 and
42,965,137 issued; 42,984,578 and 42,753,054 outstanding, respectively . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares, at cost; 212,083 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
389,141
(431)
(9,030)
140,546
4
387,145
(431)
9,221
141,186
Total shareholders’ equity attributable to United Insurance Holdings Corp.
(UIHC) stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 520,230
$ 537,125
Noncontrolling interests (NCI) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,139
—
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 540,369
$ 537,125
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,321,428
$2,059,921
See accompanying notes to consolidated financial statements.
60
UNITED INSURANCE HOLDINGS CORP.
Consolidated Statements of Comprehensive Income (Loss)
Year Ended December 31,
2017
2018
2016
REVENUE:
Gross premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in gross unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,252,401
(71,440)
$ 1,040,848
(54,825)
$
708,156
(41,327)
Gross premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,180,961
(491,685)
986,023
(400,533)
666,829
(209,898)
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment gains . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized losses on equity securities . . . . . . . . . . . . . . . . . .
Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EXPENSES:
Losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . .
Policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative expenses . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision (benefit) for income taxes . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to NCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to UIHC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER COMPREHENSIVE INCOME (LOSS):
689,276
27,201
1,655
(9,300)
15,110
723,942
408,589
203,140
40,590
66,112
9,866
728,297
(4,355)
116
(4,239)
(4,633)
$
$
$
394
104
290
$
$
$
585,490
17,812
67
—
51,051
654,420
365,535
175,444
27,675
81,762
3,247
653,663
757
153
910
(9,235)
10,145
$
— $
456,931
10,679
547
—
18,960
487,117
298,353
117,658
20,524
42,956
723
480,214
6,903
100
7,003
1,305
5,698
—
10,145
$
5,698
Change in net unrealized gains (losses) on investments . . . . . . .
Reclassification adjustment for net realized investment gains . .
Income tax benefit (expense) related to items of other
(22,264)
(1,655)
10,647
(67)
comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,703
(2,181)
Total comprehensive income (loss) . . . . . . . . . . . . . . . . . . .
$
(17,822) $
18,544
$
Less: Comprehensive income attributable to NCI . . . . . . . . . . . . . . . . . . . .
139
—
(629)
(547)
378
4,900
—
Comprehensive income (loss) attributable to UIHC . . . . . . . . . . . . . . . . . .
$
(17,961) $
18,544
$
4,900
Weighted average shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,650,629
37,152,768
21,417,486
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,838,886
37,375,340
21,614,443
Earnings available to UIHC common stockholders per share
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.01
0.01
$
$
0.27
0.27
$
$
0.27
0.26
See accompanying notes to consolidated financial statements. Statements include related party transactions as
detailed in Note 15.
61
UNITED INSURANCE HOLDINGS CORP.
Consolidated Statements of Stockholders’ Equity
Common Stock
Shares Amount
Additional
Paid-in
Capital
Treasury
Stock
Accumulated
Other
Comprehensive
Income (loss)
December 31, 2015 . . . . . . . 21,524,348
—
Net income . . . . . . . . .
Other comprehensive
2
$
—
$ 97,163
—
$(431)
—
$ 1,620
—
Stockholders’
Equity
Attributable
to UIHC
Total
Stockholders’
Equity
NCI
$239,211
5,698
$ — $239,211
5,698
—
Retained
Earnings
$140,857
5,698
loss . . . . . . . . . . . . . .
Stock compensation . . .
Issuance of common
—
—
89,323 —
stock . . . . . . . . . . . .
32,943 —
—
1,677
513
—
—
—
(798)
—
—
—
—
—
(798)
1,677
513
Cash dividends on
common stock
($0.23 per common
share) . . . . . . . . . . . .
—
—
December 31, 2016 . . . . . . . 21,646,614
—
Net income . . . . . . . . .
Other comprehensive
2
—
—
—
—
99,353
—
—
income . . . . . . . . . . .
Reclassification due to
adoption of ASU
2018-02 . . . . . . . . . .
Stock compensation . . .
Issuance of common
—
—
150,085 —
—
2,326
stock . . . . . . . . . . . . 20,956,355
2
285,466
Cash dividends on
common stock
($0.24 per common
share) . . . . . . . . . . . .
—
—
—
December 31, 2017 . . . . . . . 42,753,054
—
Net income . . . . . . . . .
Other comprehensive
4
387,145
—
—
—
—
—
income (loss) . . . . . .
Reclassification due to
adoption of ASU
2016-01 . . . . . . . . . .
Stock compensation . . .
Cash dividends on
common stock
($0.24 per common
share) . . . . . . . . . . . .
Capital contribution . . .
—
—
231,524 —
—
1,996
—
—
—
—
—
—
—
(431)
—
—
—
—
—
—
(431)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(798)
1,677
513
(4,974)
241,327
10,145
6,850
—
2,326
285,468
—
822
—
(4,974)
(4,974)
141,581
10,145
241,327
10,145
6,850
—
6,850
(1,549)
—
—
2,326
—
285,468
1,549
—
—
—
9,221
—
(8,991)
(8,991)
141,186
290
537,125
290
—
—
104
(8,991)
537,125
394
(8,913)
—
(8,913)
35
(8,878)
(9,338)
—
9,338
—
—
1,996
—
—
—
1,996
—
—
(10,268)
—
(10,268)
—
—
20,000
(10,268)
20,000
December 31, 2018 . . . . . . . 42,984,578
$
4
$389,141
$(431)
$(9,030)
$140,546
$520,230
$20,139
$540,369
See accompanying notes to consolidated financial statements.
62
UNITED INSURANCE HOLDINGS CORP.
Consolidated Statements of Cash Flows
Year Ended December 31,
2018
2017
2016
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
$
394
$ 10,145
$
5,698
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bond amortization and accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized gains on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized losses on equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for uncollectible premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premiums receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance recoverable on paid and unpaid losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred policy acquisition costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18,482
5,005
(1,655)
9,300
358
(2,470)
2,414
(440)
(20,899)
(230,224)
(15,981)
(1,700)
(1,545)
178,971
71,440
26,155
(893)
24,454
(51,048)
37,532
5,073
(67)
—
494
(8,584)
2,613
(531)
(5,447)
(351,516)
(46,796)
(38,409)
4,051
280,848
54,825
26,820
(1,386)
15,905
28,739
11,713
3,677
(547)
—
64
2,210
1,947
(172)
5,409
(18,459)
(53,165)
(18,741)
(11,006)
39,096
41,327
36,391
—
8,005
12,300
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,118
14,309
65,747
INVESTING ACTIVITIES
Proceeds from sales, maturities and repayments of investments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of portfolio loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of subsidiary, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of property, equipment and capitalized software acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . .
250,600
(372,174)
—
—
—
(4,068)
128,329
(205,720)
(20,000)
95,284
—
(5,237)
187,522
(201,234)
—
—
(32,896)
(3,149)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(125,642)
(7,344)
(49,757)
FINANCING ACTIVITIES
Tax withholding payment related to net settlement of equity awards . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiary—NCI
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding checks in excess of funds on deposit
(418)
20,000
(1,523)
—
(63)
(10,268)
15,641
(287)
—
(40,075)
150,000
(3,264)
(8,991)
21,239
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,369
118,622
Increase (decrease) in cash, cash equivalents and restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(92,155)
276,275
125,587
150,688
(270)
—
(1,379)
35,200
(596)
(4,974)
21,931
49,912
65,902
84,786
Cash, cash equivalents and restricted cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 184,120
$ 276,275
$ 150,688
Supplemental Cash Flows Information
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash transactions
Issuance of common stock in connection with acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
9,861
4,673
$
$
3,407
3,896
— $ 285,468
$
$
$
285
7,194
—
See accompanying notes to consolidated financial statements.
63
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
1) ORGANIZATION, CONSOLIDATION AND PRESENTATION
(a) Business
United Insurance Holdings Corp. (referred to in this document as we, our, us, the Company or UPC
Insurance) is a property and casualty insurance holding company that sources, writes and services residential
personal and commercial property and casualty insurance policies using a network of agents, four wholly-owned
insurance subsidiaries, and one majority-owned insurance subsidiary. Our largest insurance subsidiary is United
Property & Casualty Insurance Company (UPC), which was formed in Florida in 1999 and has operated
continuously since that time. Our four other insurance subsidiaries are Family Security Insurance Company, Inc.
(FSIC), acquired via merger on February 3, 2015, Interboro Insurance Company (IIC), acquired via merger on
April 29, 2016, American Coastal Insurance Company (ACIC), acquired via merger on April 3, 2017, and
Journey Insurance Company (JIC). JIC was formed in strategic partnership with a subsidiary of Tokio Marine
Kiln Group Limited (Kiln) on August 30, 2018. The Kiln subsidiary holds a noncontrolling interest in JIC. See
Note 4 in these Notes to Consolidated Financial Statements for additional information regarding these
transactions.
Our other subsidiaries include United Insurance Management L.C. (UIM), a managing general agent that
manages substantially all aspects of UPC’s, and FSIC’s business; Skyway Claims Services, LLC, which provides
claims adjusting services to UPC, FSIC and IIC; AmCo Holding Company (AmCo) and Family Security
Holdings (FSH), which are holding company subsidiaries that consolidate their respective insurance companies;
BlueLine Cayman Holdings (BlueLine) which reinsures portfolios of excess and surplus policies; UPC Re which
provides a portion of the reinsurance protection purchased by our insurance subsidiaries when needed; and
Skyway Reinsurance Services which provides reinsurance brokerage services for our insurance companies.
Our primary product is homeowners’ insurance, which we currently offer in 12 states, under authorization
from the insurance regulatory authorities in each state. In addition, we write commercial residential insurance in
the state of Florida. We are also licensed to write property and casualty insurance in an additional six states;
however, we have not commenced writing in these states.
We conduct our operations under one reportable segment, property and casualty insurance policies. Our
chief operating decision maker is our Chief Executive Officer who makes decisions to allocate resources and
assesses performance at the corporate level.
(b) Consolidation and Presentation
We prepare our consolidated financial statements in conformity with U.S. generally accepted accounting
principles (GAAP). While preparing our consolidated financial statements, we make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the
date of the consolidated financial statements, as well as reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those estimates. Reported amounts that require us
to make extensive use of estimates include our reserves for unpaid losses and loss adjustment expenses,
investments and goodwill. Except for the captions on our Consolidated Balance Sheets and Consolidated
Statements of Comprehensive Income (Loss), we generally use the term loss(es) to collectively refer to both loss
and loss adjustment expenses.
We include all of our subsidiaries in our consolidated financial statements, eliminating intercompany
balances and transactions during consolidation.
64
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
We reclassified certain amounts in the 2017 and 2016 financial statements to conform to the 2018
presentation. These reclassifications had no impact on our results of operations or stockholders’ equity, as
previously reported.
2)
SIGNIFICANT ACCOUNTING POLICIES
(a) Cash, cash equivalents, and restricted cash
Our cash, cash equivalents, and restricted cash include demand deposits with financial institutions, cash that
is held in trust for assumed business, cash held in deposit accounts to satisfy state statutory deposit requirements,
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, other investments and short-term
investments as available-for-sale, and report them and our equity securities 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 comprehensive
income (loss). 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. As
of January 1, 2018, in accordance with Accounting Standards Update (ASU) 2016-01 (ASU 2016-01), we present
our unrealized gains or losses on equity investments on the income statement.
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 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 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 net 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 net income, and we record the amount of the
impairment related to all other factors in accumulated other comprehensive income (loss).
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
65
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
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
See Note 3 in our Notes to Consolidated Financial Statements for a discussion regarding the fair value
measurement of our investments at December 31, 2018.
(d) Premiums
We recognize premiums as revenue, net of ceded reinsurance 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
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 $362,000
and $384,000 at December 31, 2018 and 2017, 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.
We capitalize policy acquisition costs to the extent recoverable, then we amortize those costs over the contract
period of the related policy. Such costs include, but are not limited to: incremental direct costs of contract
acquisition, such as commissions; premium taxes; and other essential direct costs that would not have been
incurred had a policy not been acquired or renewed.
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 and record a liability to the extent the
deficiency exceeded the deferred policy acquisition costs. We did not have a premium deficiency at
December 31, 2018 and December 31, 2017.
(f) Debt Issuance Costs
We record our debt issuance costs associated with a recognized debt liability as a direct deduction from the
carrying amount of the corresponding debt liability. These costs are then amortized over the life of the liability
using the effective interest method.
66
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
(g) Long-lived Assets
i)
Property and Equipment
We record our property and equipment at cost less accumulated depreciation and amortization. We use the
straight-line method of calculating depreciation over the estimated useful lives of the assets. 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. We expect to amortize
the capitalized software costs related to our data warehouse and policy administration system over its expected
seven-year useful life.
See Note 7 in our Notes to Consolidated Financial Statements for a discussion of our property, equipment
and capitalized software that were held during 2018 and 2017.
iii)
Impairment of Long-lived Assets
We annually review our long-lived assets, or more frequently when impairment indicators exist, 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.
(h) 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.
We estimate our reserves for unpaid losses using individual case-basis estimates for reported claims and
actuarial estimates for incurred but not reported (IBNR) claims, 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 deficient or redundant, 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 Comprehensive Income (Loss),
we report losses net of amounts ceded to reinsurers. We do not discount our loss reserves for financial statement
purposes.
(i) Goodwill
Goodwill is the excess of cost over the estimated fair value of net assets acquired. We attribute all goodwill
associated with our acquisitions to two reporting units.
67
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
Goodwill is not amortized but is tested for impairment at least annually or more frequently if events or
circumstances, such as adverse changes in the business climate, indicate that there may be justification for
conducting an interim test. The goodwill impairment process requires a comparison of the estimated fair value of
a reporting unit to its carrying value. We test goodwill for impairment by either performing a qualitative
assessment or a two-step quantitative test. The qualitative assessment is an assessment of historical information
and relevant events and circumstances to determine whether it is more likely than not that the fair value of the
reporting unit is less than its carrying amount, including goodwill. We may elect not to perform the qualitative
assessment for our reporting units and perform a two-step quantitative impairment test. In performing the
two-step quantitative impairment test, we use a discounted cash flow valuation approach.
The discounted cash flow valuation approach requires judgments about revenues, operating earnings
projections, capital market assumptions and discount rates. The key inputs, judgments and assumptions necessary
in determining estimated fair value of the reporting units include projected operating earnings, current book
value, the level of economic capital required to support the mix of business, long-term growth rates, comparative
market multiples, control premium, the account value of in-force business, projections of new and renewal
business, as well as margins on such business, the level of interest rates, credit spreads, equity market levels, and
the discount rate that we believe is appropriate for the respective reporting unit.
When testing goodwill for impairment, we also consider our market capitalization in relation to the
aggregate estimated fair value of our reporting units. We apply significant judgment when determining the
estimated fair value of our reporting units and when assessing the relationship of market capitalization to the
aggregate estimated fair value of our reporting units.
The valuation methodology utilized is subject to key judgments and assumptions that are sensitive to
change. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation
regarding future developments. These estimates and the judgments and assumptions upon which the estimates are
based will, in all likelihood, differ in some respects from actual future results. Declines in the estimated fair value
of our reporting units could result in goodwill impairments in future periods which could materially adversely
affect our results of operations or financial position.
For the 2018 and 2017 annual goodwill impairment tests, we utilized the qualitative assessment for one of
our reporting units and determined it was not more likely than not that the fair value of the reporting units tested
using the applicable methods was less than their carrying amount and, therefore goodwill was not impaired for
either period. For our second reporting unit, we used the quantitative approach in 2018 and determined that the
goodwill was not impaired.
(j)
Intangible Assets
Identifiable intangible assets that are amortized generally represent the cost of client relationships, trade
names and agency agreements acquired. In valuing these assets, we make assumptions regarding useful lives and
projected growth rates, and significant judgment is required. We periodically review identifiable intangibles for
impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be
recoverable. If the carrying amounts of the assets exceed their respective fair values, additional impairment tests
are performed to measure the amount of the impairment loss, if any.
Non-amortizing intangible assets generally represent the cost of insurance licenses acquired.
Non-amortizing intangible assets are tested for impairment in the fourth quarter of each fiscal year by comparing
68
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
the fair value of the licenses acquired to their carrying values. We established fair value for purposes of
impairment testing using the income approach. If the carrying value of a license acquired exceeds its fair value,
an impairment loss is recognized equal to that excess. For 2018 and 2017, we determined that the fair values of
the intangible assets were not impaired.
(k) Portfolio Loans
Loan receivables that management has the intent and ability to hold for the foreseeable future or until
maturity or pay-off are reported at the principal balance outstanding, net of the allowance for loan losses.
(l)
Income Taxes
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. For example, we reflected the impact of the Tax Cuts and Jobs Act (2017 Tax Act) in the fourth quarter of
2017, the period when the legislation was enacted. Refer to Note 13 for additional information. Realization of our
deferred income tax assets depends upon our generation of sufficient future taxable income.
We recognize the financial statement benefit of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an audit. For tax positions meeting the more
likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that
has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority.
We record any income tax penalties and income-tax-related interest as income tax expense in the period
incurred. We did not incur any material tax penalties or income-tax-related interest during the years ended
December 31, 2018, 2017 or 2016.
(m) Advertising Costs
We expense all advertising costs as an operating expense when we incur those costs. For the years ended
December 31, 2018, 2017 and 2016, we incurred advertising costs of $1,674,000, $1,013,000, and $907,000,
respectively.
(n) Earnings Per Share (EPS)
We report both basic earnings per share and diluted earnings per share. To calculate basic earnings per
share, we divide net income attributable to UIHC common stockholders (net income less the net income
attributable to NCI) by the weighted-average number of shares of common stock outstanding during the period.
We calculate diluted earnings per share using the Treasury method by dividing net income attributable to UIHC
common stockholders by the weighted-average number of shares of common stock, common stock equivalents,
and restricted shares outstanding during the period. Common share equivalents are only included when they are
dilutive.
69
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
(o) Concentrations of Risk
Our current operations subject us to the following concentrations of risk:
•
•
•
•
a concentration of revenue because we write primarily homeowners policies;
a geographic concentration resulting from the fact that, though we now operate in 12 states, we still
write approximately 52% of our gross written premium in Florida in 2018;
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; and
a concentration of credit risk with regard to our cash, because we choose to deposit all of our cash at
six financial institutions.
We mitigate our geographic and group concentrations of risk by entering into reinsurance contracts with
financially-stable reinsurers, and by securing irrevocable letters of credit from reinsurers when necessary.
With regard to our cash balances held at financial institutions, we had $221,175,000 and $314,147,000 in
excess of Federal Deposit Insurance Corporation (FDIC) insurance limits at December 31, 2018 and 2017,
respectively. The $92,972,000 decrease in excess of FDIC insurance limits was the result of holding less cash in
liquid money market investments at the end of 2018 than we did in 2017.
(p) Managing General Agent Fees and Policy Fees
Our policy fees consist of the managing general agent (MGA) fee and a pay-plan fee. We defer MGA fees
as unearned revenue and recognize revenue on a pro rata basis over the term of the underlying policies. We
record pay-plan fees, which are charged to all policyholders that pay premium in more than one installment, as
income when collected. We report all policy-related fees as other revenue on our Consolidated Statements of
Comprehensive Income (Loss).
(q) Reinsurance
We follow industry practice of reinsuring a portion of our risks. Reinsurance involves transferring, or
“ceding”, all or a portion of the risk exposure on policies we write to another insurer, known as a reinsurer. To
the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements,
we remain liable for the entire insured loss.
Our reinsurance agreements are short-term, prospective contracts. We record an asset, ceded unearned
premiums, and a liability, reinsurance payable, for the entire contract amount upon commencement of our new
reinsurance agreements. We amortize our ceded unearned premiums over the 12-month contract period.
We record provisional ceding commissions that we receive in connection with our reinsurance contracts for
the 2018 underwriting year as an offset to deferred acquisition costs to the extent that they relate to compensation
for acquisitions costs that are incurred that are deferrable. The remaining provisional ceding commissions are
recorded as unearned reinsurance commission and are recognized as an offset to other acquisition costs based in
proportion to the premiums earned or coverage provided by the reinsurance contracts.
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
70
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
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.
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
bad debt expense related to reinsurance during the years ended December 31, 2018, 2017 or 2016.
(r) 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 Florida Insurance Guaranty Association (FIGA)
assessments, 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 an information only filing, pursuant to Florida Statute 631.57(3)(h), to the insurance regulatory authority
requesting formal approval of the policy FIGA 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 consolidated financial statements.
Where permitted by law or regulatory authority, 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. During 2018, we received a recoupable assessment for $570,000 from the
Texas Fair Plan Association, as well as an assessment for $894,000 from North Carolina Joint Underwriting
Association. We did not receive any additional significant assessments from regulatory authorities in the states in
which our insurance subsidiaries operate.
(s) Accounting Pronouncements
Recently Adopted Policies
In May 2017, the Financial Accounting Standards Board (FASB) issued ASU No. 2017-09, Compensation-
Stock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). This standard provides
guidance about which changes to the terms or conditions of a share-based payment award require an entity to
apply modification accounting in Topic 718. ASU 2017-09 is effective for annual periods beginning after
December 15, 2017, including interim periods within those annual periods, with early adoption permitted for
certain requirements. We did not early adopt and the new guidance did not impact the way in which we account
for share-based payment transactions. Therefore, the adoption as of January 1, 2018 had no impact on our results
of operations.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted
Cash (ASU 2016-18). This standard provides guidance on the presentation of restricted cash in the statement of
cash flows. We are required to explain the changes during a reporting period in the total of cash, cash equivalents
and amounts generally described as restricted cash or restricted cash equivalents in the statement of cash flows.
We retrospectively adopted this standard on April 1, 2018. The adoption of this new accounting standard
71
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
impacted the presentation of our Consolidated Statement of Cash Flows but had no effect on our results of
operations. The restricted cash on our Consolidated Balance Sheets at December 31, 2018 and December 31,
2017 represents cash that is held in trust for assumed business and cash held in deposit accounts to satisfy state
statutory deposit requirements.
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets
and Financial Liabilities (ASU 2016-01). This update substantially revises standards for the recognition,
measurement and presentation of financial instruments. This standard revised our accounting related to (1) the
classification and measurement of investments in equity securities and (2) the presentation of certain fair value
changes for financial liabilities measured at fair value. It also amended certain disclosure requirements associated
with the fair value of financial instruments. ASU 2016-01 is effective for annual periods beginning after
December 15, 2017, including interim periods within those annual periods, with early adoption permitted for
certain requirements. We adopted this standard as of January 1, 2018, which resulted in a reclassification of a
9,338,000 gain, net of tax, on equity securities from accumulated other comprehensive income (loss) to retained
earnings on our consolidated financial statements. Refer to Note 17 in these Notes to Consolidated Financial
Statements for a reconciliation.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09).
Insurance contracts are excluded from the scope of this standard. Under the standard, guidance is provided on
revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into
contracts for the transfer of nonfinancial assets. The transaction price is attributed to underlying performance
obligations in the contract and revenue is recognized as the entity satisfies the performance obligation and
transfers control of the good or service to the customer. ASU 2014-09 is effective beginning in the first quarter of
2018. We adopted this standard as of January 1, 2018. The adoption of this new accounting standard did not have
an impact on our consolidated financial statements and related disclosures.
Pending Policies
We have evaluated recent accounting pronouncements that have had or may have a significant effect on our
financial statements or on our disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13). This update
modifies the existing disclosure requirements on fair value measurements in Topic 820 by changing requirements
regarding Level 1, Level 2 and Level 3 investments. ASU 2018-13 is effective for annual reporting periods
beginning after December 15, 2019, including interim periods within those annual periods, with early adoption
permitted. Entities are permitted to early adopt any removed or modified disclosures of ASU 2018-13
immediately and delay the adoption of the additional disclosures until their effective date. We have early adopted
the guidance on removed and modified disclosures. We do not intend to early adopt the additional disclosures
and are assessing the impact of retrospectively adopting the additions from this new accounting standard on our
fair value disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350):
Simplifying the Test for Goodwill Impairment (ASU 2017-04). This update simplifies the manner in which an
entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. ASU
2017-04 is effective for annual periods beginning after December 15, 2019, including interim periods within
those annual periods, with early adoption permitted for certain requirements. We do not intend to early adopt and
72
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
are assessing the impact of prospectively adopting this new accounting standard on our consolidated financial
statements and related disclosures. Any impact of the standard on our consolidated financial statements and
related disclosures will be dependent on market conditions of the reporting units at the time of adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments- Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments (ASU 2016-13). This update is intended to replace the
incurred loss impairment methodology in current GAAP with a method that reflects expected credit losses and
requires consideration of a broader range of reasonable and supportable information to inform credit loss
estimates. ASU 2016-13 will provide users with more useful information regarding the expected credit losses on
financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. In
addition, credit losses on available-for-sale debt securities will now have to be presented as an allowance rather
than as a write-down. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including
interim periods within those fiscal years, with early adoption permitted for certain requirements. We do not
intend to early adopt and are assessing the impact of adopting this new accounting standard on our consolidated
financial statements and related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). This update is
intended to replace existing lease guidance by requiring a lessee to recognize substantially all leases (whether
operating or finance leases) on the balance sheet as a right-of-use asset and an associated lease liability. Short-
term leases of 12 months or less are excluded from this amendment. In July 2018, the FASB issued ASU
No. 2018-10, Codification Improvements to Topic 842 Leases, amending certain aspects of the new leases
standard. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years, with early adoption permitted. We have not early adopted and are assessing the impact
of adopting this new accounting standard on our consolidated financial statements and related disclosures using a
modified retrospective approach upon adoption. Based on the number and type of our leases, we expect that the
most significant impact will be the recognition of a right to use asset and a corresponding lease liability for our
real estate leases representing less than 0.05% of both our total assets and total liabilities. We have elected the
practical expedients permitted of excluding leases considered to be short-term and with a value that falls our
capitalization threshold. We have also elected the practical expedient of not segregating lease and nonlease
components for the leases on our office equipment.
73
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
3)
INVESTMENTS
The following table details fixed maturity available-for-sale securities, by major investment category, at
December 31, 2018 and 2017:
Cost or
Adjusted/
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
December 31, 2018
U.S. government and agency securities . . . . . . . . . . . .
Foreign government
. . . . . . . . . . . . . . . . . . . . . . . . . . .
States, municipalities and political subdivisions . . . . .
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable preferred stocks . . . . . . . . . . . . . . . . . . . .
$100,240
3,993
145,415
24,560
307,875
227,004
64,071
1,287
$
50
5
354
11
272
333
105
3
$ 1,315
16
1,301
681
6,159
3,483
139
139
$ 98,975
3,982
144,468
23,890
301,988
223,854
64,037
1,151
Total fixed maturities . . . . . . . . . . . . . . . . . . . . . .
$874,445
$1,133
$13,233
$862,345
December 31, 2017
U.S. government and agency securities . . . . . . . . . . . .
Foreign government
. . . . . . . . . . . . . . . . . . . . . . . . . . .
States, municipalities and political subdivisions . . . . .
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable preferred stocks . . . . . . . . . . . . . . . . . . . .
$ 93,827
2,022
200,706
20,215
287,025
143,982
14,902
755
$
40
14
1,929
127
1,746
235
23
11
$ 1,241
—
1,123
85
1,209
952
20
74
$ 92,626
2,036
201,512
20,257
287,562
143,265
14,905
692
Total fixed maturities . . . . . . . . . . . . . . . . . . . . . .
$763,434
$4,125
$ 4,704
$762,855
Equity securities are summarized as follows at:
December 31, 2018
December 31, 2017
Estimated
Fair Value
Percent of
Total
Estimated
Fair Value
Percent of
Total
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonredeemable preferred stocks . . . . . . . . . . . . . . . . . . . . .
$50,016
1,759
27,198
2,005
61.8%
2.2%
33.6%
2.4%
$31,924
1,702
27,902
1,767
50.4%
2.7
44.1
2.8
Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$80,978
100.0%
$63,295
100.0%
74
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
When we sell investments, we calculate the gain or loss realized on the sale by comparing the sales price
(fair value) to the cost or adjusted/amortized cost of the security sold. We determine the cost or adjusted/
amortized cost of the security sold using the specific-identification method. The following table details our
realized gains (losses) by major investment category for the years ended December 31, 2018, 2017, and 2016:
2018
2017
2016
Gains
(Losses)
Fair Value
at Sale
Gains
(Losses)
Fair Value
at Sale
Gains
(Losses)
Fair Value
at Sale
Fixed maturities . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . .
$
373
2,828
$ 41,776
6,073
$
268
847
$35,248
2,209
$ 1,811
64
$ 56,484
13,253
Total realized gains . . . . . . . . . . .
3,201
47,849
1,115
Fixed maturities . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . .
(1,376)
(170)
135,944
995
(890)
(158)
Total realized losses . . . . . . . . . .
(1,546)
136,939
(1,048)
37,457
53,194
1,749
54,943
1,875
(1,136)
(192)
(1,328)
69,737
24,464
37,790
62,254
Net realized investment gains . . . . . . .
$ 1,655
$184,788
$
67
$92,400
$
547
$131,991
The table below summarizes our fixed maturities at December 31, 2018 by contractual maturity periods.
Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties,
prior to the contractual maturities of those obligations.
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Due after one year through five years . . . . . . . . . . . . . . . . . . .
Due after five years through ten years . . . . . . . . . . . . . . . . . .
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset and mortgage backed securities . . . . . . . . . . . . . . . . . .
December 31, 2018
Cost or
Amortized
Cost
$ 73,378
347,550
149,013
13,429
291,075
Percent of
Total
Fair
Value
Percent of
Total
8.4% $ 73,030
342,999
39.8%
145,318
17.0%
13,107
1.5%
287,891
33.3%
8.5%
39.7%
16.9%
1.5%
33.4%
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$874,445
100.0% $862,345
100.0%
The following table summarizes our net investment income by major investment category:
Year Ended December 31,
2016
2017
2018
Fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22,043
2,206
1,953
942
57
$14,942
1,277
626
937
30
$ 9,170
996
141
352
20
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,201
(1,031)
17,812
(686)
10,679
(587)
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$26,170
$17,126
$10,092
75
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
Portfolio monitoring
We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income security
whose carrying value may be other-than-temporarily impaired.
For each fixed income security in an unrealized loss position, we determine if the loss is temporary or other-
than-temporary. If our management decides to sell the security or determines that it is more likely than not that
we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as
liquidity needs, contractual or regulatory requirements, then the security’s decline in fair value is considered
other-than-temporary and is recorded in earnings.
If we have not made the decision to sell the fixed income security and it is more likely than not that we will
be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we
expect the security to receive cash flows sufficient to recover the entire cost or amortized cost basis of the
security. We calculate the estimated recovery value by discounting the best estimate of future cash flows at the
security’s original or current effective rate, as appropriate, and compare this to the cost or amortized cost of the
security. If we do not expect to receive cash flows sufficient to recover the entire cost or amortized cost basis of
the fixed income security, the credit loss component of the impairment is recorded in earnings, with the
remaining amount of the unrealized loss related to other factors recognized in other comprehensive income
(loss).
Our portfolio monitoring process includes a quarterly review of all fixed-income securities to identify
instances where the fair value of a security compared to its cost or amortized cost is below established thresholds.
The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and
payment defaults. The securities identified, in addition to other securities for which we may have a concern, are
evaluated for potential other-than-temporary impairment using information relevant to the collectability or
recovery of the security that is reasonably available. Inherent in our evaluation of other-than-temporary
impairment for these fixed income securities are assumptions and estimates about the financial condition and
future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether
a decline in fair value is other-than-temporary are: (1) the financial condition, near-term and long-term prospects
of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and
implications of rating agency actions and offering prices; (2) the specific reasons that a security is in an
unrealized loss position, including overall market conditions which could affect liquidity; and (3) the length of
time and extent to which the fair value has been less than amortized cost or cost.
76
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
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 (1)
Gross
Unrealized
Losses
Fair
Value
Number of
Securities (1)
Gross
Unrealized
Losses
Fair
Value
December 31, 2018
U.S. government and agency
securities . . . . . . . . . . . . . . . . .
Foreign governments . . . . . . . . . .
States, municipalities and
political subdivisions . . . . . . . .
Public utilities . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . .
Mortgage-backed securities . . . .
Asset backed securities . . . . . . . .
Redeemable preferred stocks . . .
Total fixed maturities . . . . .
December 31, 2017
U.S. government and agency
securities . . . . . . . . . . . . . . . . .
States, municipalities and
political subdivisions . . . . . . . .
Public utilities . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . .
Mortgage-backed securities . . . .
Asset-backed securities . . . . . . . .
Redeemable preferred stocks . . .
Total fixed maturities . . . . .
45
5
49
30
351
87
67
8
642
40
106
16
263
89
18
—
532
$ 111
16
$ 28,464
2,978
272
374
3,149
1,303
136
62
38,469
13,685
144,769
88,754
41,871
711
$5,423
$359,701
$ 166
$ 26,979
734
44
871
475
20
—
91,245
7,052
134,755
76,349
11,682
—
$2,310
$348,062
55
—
91
19
208
135
7
2
517
73
31
5
52
50
—
3
214
$1,204
—
$ 61,264
—
1,029
307
3,010
2,180
3
77
68,115
7,805
117,351
70,510
1,372
8,377
$7,810
$334,794
$1,075
$ 58,980
389
41
338
477
—
74
19,718
1,016
16,476
15,210
—
303
$2,394
$111,703
(1)
This amount represents the actual number of discrete securities, not the number of shares or units of those securities. The numbers are not
presented in thousands.
During our quarterly evaluations of our securities for impairment, we determined that none of our
investments in fixed-income securities that reflected an unrealized loss position were other-than-temporarily
impaired. The issuers of our debt securities continue to make interest payments on a timely basis. We do not
intend to sell nor is it likely that we would be required to sell the debt securities before we recover our amortized
cost basis. Due to the adoption of ASU 2016-01 as of January 1, 2018, equity securities are reported at fair value
with changes in fair value recognized in valuation of equity investments and are no longer included in
impairment write-downs, change in intent write-downs and sales. During the years ended December 31, 2018,
2017, and 2016 we recorded no other-than-temporary impairment charges.
Fair value measurement
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The hierarchy for inputs used in
77
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by
requiring that observable inputs be used when available. Assets and liabilities recorded on our Consolidated
Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the
valuation techniques as follows:
Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or
liabilities in an active market that we can access.
Level 2: Assets and liabilities whose values are based on the following:
(a) Quoted prices for similar assets or liabilities in active markets;
(b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or
(c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term
of the asset or liability.
Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs
that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our
estimates of the assumptions that market participants would use in valuing the assets and liabilities.
We estimate the fair value of our investments using the closing prices on the last business day of the
reporting period, obtained from active markets such as the NYSE, Nasdaq and NYSE American. For securities
for which quoted prices in active markets are unavailable, we use a third-party pricing service that utilizes quoted
prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs
to estimate the fair value of those securities for which quoted prices are unavailable. Our estimates of fair value
reflect the interest rate environment that existed as of the close of business on December 31, 2018 and 2017.
Changes in interest rates subsequent to December 31, 2018 may affect the fair value of our investments.
The fair value of our fixed maturities is initially calculated by a third-party pricing service. Valuation
service providers typically obtain data about market transactions and other key valuation model inputs from
multiple sources and, through the use of proprietary models, produce valuation information in the form of a
single fair value for individual fixed income and other securities for which a fair value has been requested. The
inputs used by the valuation service providers include, but are not limited to, market prices from recently
completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads,
liquidity spreads, currency rates and other information, as applicable. Credit and liquidity spreads are typically
implied from completed transactions and transactions of comparable securities. Valuation service providers also
use proprietary discounted cash flow models that are widely accepted in the financial services industry and
similar to those used by other market participants to value the same financial information. The valuation models
take into account, among other things, market observable information as of the measurement date, as described
above, as well as the specific attributes of the security being valued, including its term, interest rate, credit rating,
industry sector and, where applicable, collateral quality and other issue or issuer specific information. Executing
valuation models effectively requires seasoned professional judgment and experience.
Any change in the estimated fair value of our fixed-income securities would impact the amount of
unrealized gain or loss we have recorded, which could change the amount we have recorded for our investments
and other comprehensive income (loss) on our Consolidated Balance Sheet as of December 31, 2018.
78
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
The following table presents the fair value of our financial instruments measured on a recurring basis by
level at December 31, 2018 and 2017:
Total
Level 1
Level 2
Level 3
December 31, 2018
U.S. government and agency securities . . . . . . . . . . . . . . . . . . . . . . . .
Foreign government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
States, municipalities and political subdivisions . . . . . . . . . . . . . . . . .
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 98,975
3,982
144,468
23,890
301,988
223,854
64,037
1,151
$ — $ 98,975
3,982
144,468
23,890
301,988
223,854
64,037
361
—
—
—
—
—
—
790
Total fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
862,345
790
861,555
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50,016
1,759
27,198
2,005
47,223
1,759
27,198
2,005
Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80,978
78,185
Other long-term investments (1) . . . . . . . . . . . . . . . . . . . . . . . . . .
300
300
2,793
—
—
—
2,793
—
$—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$943,623
$79,275
$864,348
$—
December 31, 2017
U.S. government and agency securities . . . . . . . . . . . . . . . . . . . . . . . .
Foreign government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
States, municipalities and political subdivisions . . . . . . . . . . . . . . . . .
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 92,626
2,036
201,512
20,257
287,562
143,265
14,905
692
$ — $ 92,626
2,036
201,512
20,257
287,562
143,265
14,905
—
—
—
—
—
—
—
692
Total fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
762,855
692
762,163
Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31,924
1,702
27,902
1,767
31,924
1,702
27,902
1,767
Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63,295
63,295
—
—
—
—
—
$—
—
—
—
—
—
—
—
—
—
—
—
—
—
Other long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,381
300
7,447
634
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$834,531
$64,287
$769,610
$634
(1) Other long-term investments included in the fair value hierarchy exclude these other limited partnership interests that are measured at
estimated fair value using the net asset value per share (or its equivalent) practical expedient.
79
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; this is,
the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in
certain circumstances (for example, when there is evidence of impairment). There were no financial instruments
measured on a non-recurring basis at December 31, 2018. The following table presents the fair value of our
financial instruments measured on a non-recurring basis by level at December 31, 2017.
December 31, 2017
Portfolio loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,000
$—
$20,000
$—
Total
Level 1 Level 2 Level 3
The carrying amounts for the following financial instrument categories approximate their fair values at
December 31, 2018 and 2017, because of their short-term nature: cash and cash equivalents, accrued investment
income, premiums receivable, reinsurance recoverable, reinsurance payable, other assets, and other liabilities.
The carrying amount of the notes payable to the Florida State Board of Administration, the Branch Banking &
Trust Corporation (BB&T) and our senior notes approximate fair value as the interest rates and terms are
variable.
We are responsible for the determination of fair value and the supporting assumptions and methodologies.
We have implemented a system of processes and controls designed to provide assurance that our assets and
liabilities are appropriately valued. For fair values received from third parties, our processes are designed to
provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the
assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are
accurately recorded.
At the end of each quarter, we determine whether we need to transfer the fair values of any securities
between levels of the fair value hierarchy and, if so, we report the transfer as of the end of the quarter. During
2018, we transferred no investments between levels.
For our investments in U.S. government securities that do not have prices in active markets, agency
securities, state and municipal governments, and corporate bonds, we obtain the fair values from our investment
custodians, which use a third-party valuation service. The valuation service calculates prices for our investments
in the aforementioned security types on a month-end basis by using several matrix-pricing methodologies that
incorporate inputs from various sources. The model the valuation service uses to price U.S. government
securities and securities of states and municipalities incorporates inputs from active market makers and inter-
dealer brokers. To price corporate bonds and agency securities, the valuation service calculates non-call yield
spreads on all issuers, uses option-adjusted yield spreads to account for any early redemption features, and adds
final spreads to the U.S. Treasury curve at 3 p.m. (ET) as of quarter end. Since the inputs the valuation service
uses in its calculations are not quoted prices in active markets, but are observable inputs, they represent Level 2
inputs.
Other investments
We acquired investments in limited partnerships, recorded in the other investments line of our Consolidated
Balance Sheets and these investments are currently being accounted for at fair value utilizing a net asset value
per share equivalent methodology. The estimated fair value of our investments in the limited partnership interests
at December 31, 2018 was $8,213,000.
80
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
The information presented in the table below is as of December 31, 2018 and 2017:
Book
Value
Unrealized
Gain
Unrealized
Loss
Fair
Value
December 31, 2018
Limited partnership investments (1)
Certificates of deposit
. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,988
300
Total other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,288
December 31, 2017
Limited partnership investments (1)
Certificates of deposit
. . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$7,757
300
Total other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,057
$225
—
$225
$324
—
$324
$—
—
$—
$—
—
$—
$8,213
300
$8,513
$8,081
300
$8,381
(1) Distributions will be generated from investment gains, from operating income, from underlying investments of the funds, and from
liquidation of the underlying assets of the funds. We estimate that the underlying assets of the funds will be liquidated over the next three
months to 10 years.
Portfolio loans
At December 31, 2017, we held commercial portfolio loans of $20,000,000. We believe that making sound
loans is a necessary and desirable means of employing funds available for investment. Recognizing our
obligation to our stockholders, management is expected to seek to develop and make sound, profitable loans that
resources permit and that opportunity affords. These were short-term collateralized loans (less than one year),
which were repaid in full in April 2018, primarily from cash flows of the borrowers.
Restricted Cash
We are required to maintain assets on deposit with various regulatory authorities to support our insurance
operations. The cash on deposit with state regulators is available to settle insurance liabilities. We also use trust
funds in certain reinsurance transactions.
The following table presents the components of restricted assets:
December 31,
2017
2018
Trust funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash on deposit (regulatory deposits) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$70,208
1,233
$45,791
928
Total restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$71,441
$46,719
4) ACQUISITIONS
We account for business acquisitions in accordance with the acquisition method of accounting, which
requires, among other things, that most assets acquired, liabilities assumed, and earn-out consideration be
recognized at their fair values as of the acquisition date. Measurement period adjustments to provisional purchase
price allocations are recognized in the period in which they are determined as if the accounting had been
competed on the acquisition date.
81
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
AmCo Holding Company
On April 3, 2017, the Company completed its acquisition of AmCo and its subsidiaries. The transaction was
completed through a series of mergers that ultimately resulted in the Company issuing 20,956,355 shares of its
common stock as merger consideration to the equity holders of RDX Holding, LLC, the former parent company
of AmCo. As a result of the mergers, AmCo merged with and into a wholly-owned subsidiary of the Company.
The acquisition of AmCo supported our growth strategy and further strengthened our overall position in the
commercial property and casualty insurance market. Goodwill recorded in the transaction, which reflected the
synergies expected from the acquisition and enhanced reinsurance opportunities, is not tax deductible.
The operations of AmCo are included in our Consolidated Statements of Comprehensive Income (Loss)
effective April 3, 2017. The final purchase price allocation was as follows:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium and agents’ receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contract asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 95,284
222,920
31,439
20,230
22,544
30,286
33,812
59,475
4,591
(60,529)
(128,824)
(22,406)
(17,093)
(6,261)
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 285,468
The unaudited pro forma financial information below has been prepared as if the AmCo merger had taken
place on January 1, 2016. The unaudited pro forma financial information is not necessarily indicative of the
results that we would have achieved had the transaction taken place on January 1, 2016, and the unaudited pro
forma information does not purport to be indicative of future financial operating results.
Year ended December 31,
As
Reported
2017
Pro Forma
Adjustments
Pro
Forma
As
Reported
2016
Pro Forma
Adjustments
Pro
Forma
Revenues . . . . . . . . . . . . . . . . . .
$654,420
$38,096
$692,516
$487,117
$175,032
$662,149
Net income . . . . . . . . . . . . . . . . .
$ 10,145
$ 6,712
$ 16,857
Diluted earnings per share . . . . .
$
0.27
$ —
$
0.39
$
$
5,698
$ 31,960
$ 37,658
0.26
$ —
$
0.88
(1) Adjustments are for the period from January 1, 2016 through April 3, 2017.
82
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
The following table summarizes the results of the acquired AmCo operations since the acquisition date that
have been included within our Consolidated Statements of Comprehensive Income (Loss).
January 1, 2018 to
December 31, 2018
April 3, 2017 to
December 31, 2017
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$193,168
18,673
$134,386
14,778
As of April 3, 2017, the fair value of AmCo’s premium and agents’ receivables and reinsurance
recoverables were $31,439,000 and $20,230,000, respectively. The cash flows not expected to be collected of
these acquired receivables were not material.
In connection with the acquisition, we paid an investment advisory fee of $7,000,000. This amount was
included in general and administrative expenses on the Company’s Consolidated Statements of Comprehensive
Income (Loss) during the year ended December 31, 2017.
Interboro Insurance Company
On April 29, 2016, we completed the acquisition of IIC. The purchase price for IIC consisted of
$48,450,000 in cash, $8,550,000 in a note payable that matured during October 2017 and an accrued liability for
$3,471,000 paid during July 2016. The acquisition of IIC supported our growth strategy and further strengthened
our overall position in the property and casualty insurance market in the state of New York.
For the year ended December 31, 2016, IIC recorded $28,573,000 of revenues and $14,202,000 of pre-tax
net income. These amounts are included in our results of operations for the year ended December 31, 2016.
The operations of IIC are included in our Consolidated Statements of Comprehensive Income (Loss)
effective April 29, 2016. The final purchase price allocation is as follows:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Premium and agents’ receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contract asset
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unpaid losses and loss adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advanced premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,554
66,527
3,186
1,042
5,877
8,334
10,157
3,980
575
(24,967)
(26,243)
(1,472)
(2,079)
Total purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 60,471
83
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
The unaudited pro forma financial information for 2016 has been prepared as if the IIC acquisition had
taken place on January 1, 2016. The unaudited pro forma information is not necessarily indicative of the results
that we would have achieved had the transaction taken place on January 1, 2016, and the unaudited pro forma
information does not purport to be indicative of future financial operating results.
For the Year Ended December 31,
2016
Pro Forma
Adjustments (1)
As
Reported
Pro
Forma
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$487,117
$18,963
$506,080
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
5,698
0.26
$ 8,187
$ 13,885
$
0.38
$
0.64
(1) Adjustments are for the period from January 1, 2016 through April 29, 2016.
The following table summarizes the results of the acquired IIC operations since the acquisition date that
have been included within our Consolidated Statements of Comprehensive Income (Loss).
January 1, 2018 to
December 31, 2018
January 1, 2017 to
December 31, 2017
April 29, 2016 to
December 31, 2016
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
$27,024
(2,906)
$31,780
385
$28,573
9,645
As of April 26, 2016, the fair value of IIC’s premium and agents’ receivables and reinsurance receivables
were $3,186,000 and $1,042,000, respectively. The cash flows not expected to be collected of these acquired
receivables were not material.
In connection with the acquisition, we paid an investment advisory fee of $224,000. This amount was
included in general and administrative expenses on the Company’s Consolidated Statements of Comprehensive
Income (Loss) during the year ended December 31, 2016.
84
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
5) EARNINGS PER SHARE
Basic EPS is based on the weighted average number of common shares outstanding for the period,
excluding any dilutive common share equivalents. Diluted EPS reflects the potential dilution resulting from the
vesting of restricted stock awards. The following table shows the computation of basic and diluted EPS for the
years ended December 31, 2018, 2017 and 2016:
Year Ended December 31,
2017
2016
2018
Numerator:
Net income attributable to UIHC common stockholders . . . . . .
$
290
$
10,145
$
5,698
Denominator:
Weighted-average shares outstanding . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42,650,629
188,257
37,152,768
222,572
21,417,486
196,957
Weighted-average diluted shares . . . . . . . . . . . . . . . . . . . . . . . .
42,838,886
37,375,340
21,614,443
Earnings available to UIHC common stockholders per share
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.01
0.01
$
$
0.27
0.27
$
$
0.27
0.26
See Note 19 for additional information on the stock grants related to dilutive securities.
6) 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned ceding commission reclassification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 103,882
244,136
(225,900)
(16,536)
$ 65,473
210,324
(171,915)
—
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 105,582
$ 103,882
2018
2017
85
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
7) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
Year Ended
December 31,
2017
2018
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building and building improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Computer hardware and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Office furniture and equipment (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,114
6,651
17,932
3,368
20
$ 2,114
5,695
18,985
3,413
—
Total, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,085
30,207
Less: accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12,948)
(12,916)
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,137
$ 17,291
(1)
Includes vehicles under capital leases. See Note 12 for further information on leases.
Depreciation and amortization expense under property and equipment was $4,222,000, $5,806,000 and
$2,424,000, respectively, for the years ended December 31, 2018, 2017 and 2016. During the years ended
December 31, 2018 and 2017, we incurred non-cash capitalized software write-off charges as a result of our
decision to discontinue the use of one of the software development projects that we previously developed and
capitalized.
8) GOODWILL AND INTANGIBLE ASSETS
Goodwill
The changes in the carrying amount of goodwill for the years ended December 31, 2018 and 2017 were as
follows:
December 31,
2017
2018
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment to finalize purchase price allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment
$73,045
—
—
—
$14,254
59,475
(684)
—
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$73,045
$73,045
We completed our most recent goodwill impairment testing during the fourth quarter of 2018 and
determined that there was no impairment in the value of our assets as of December 31, 2018. No impairment loss
in the value of goodwill was recognized during the years ended December 31, 2018 and 2017. Additionally, there
was no accumulated impairment related to goodwill at December 31, 2018 or 2017.
86
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
Intangible Assets
The following is a summary of intangible assets excluding goodwill recorded as other assets on our
Consolidated Balance Sheets at December 31, 2018 and 2017:
Intangible assets subject to amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indefinite-lived intangible assets (1)
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
December 31,
2017
$27,795
3,556
$31,351
$41,715
3,556
$45,271
(1)
Indefinite-lived intangible assets are comprised of state insurance and agent licenses, as well as perpetual software licenses.
Intangible assets subject to amortization consisted of the following:
Weighted-average
remaining
amortization
period (in years)
Gross carrying
amount
Accumulated
amortization
Net carrying
amount
2018
Amortizing intangible assets
Value of Business Acquired . . . . . .
Agency agreements acquired . . . . .
Trade names acquired . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . .
2017
Amortizing intangible assets
Value of Business Acquired . . . . . .
Agency agreements acquired . . . . .
Trade names acquired . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . .
—
7.3
5.2
0.3
8.0
6.0
$42,788
34,661
6,381
$83,830
$42,788
34,661
6,381
$83,830
$(42,788)
(11,164)
(2,083)
$(56,035)
$(34,335)
(6,669)
(1,111)
$(42,115)
$ —
23,497
4,298
$27,795
$ 8,453
27,992
5,270
$41,715
No impairment in the value of amortizing or non-amortizing intangible assets was recognized during the
years ended December 31, 2018 and 2017.
Amortization expense of our intangible assets was $13,920,000, $31,200,000 and $10,910,000 for the years
ended December 31, 2018, 2017 and 2016, respectively. The large increase in amortization expense in 2017 was
primarily due to the amortization of intangible assets and Value of Business Acquired acquired as part of the
AmCo acquisition.
87
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
Estimated amortization expense of our intangible assets to be recognized by the Company over the next five
years is as follows:
Year ending December 31,
Estimated Amortization Expense
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,355
4,267
3,555
3,246
3,246
9) REINSURANCE
Our reinsurance program is designed, utilizing our risk management methodology, to address our exposure
to catastrophes. Our program provides reinsurance protection for catastrophes including hurricanes, tropical
storms and tornadoes. These reinsurance agreements are part of our catastrophe management strategy, which is
intended to provide our stockholders an acceptable return on the risks assumed in our property business, and to
reduce variability of earnings, while providing protection to our policyholders. Although reinsurance agreements
contractually obligate our reinsurers to reimburse us for the agreed-upon portion of our gross paid losses, they do
not discharge our primary liability.
Our program includes excess of loss, aggregate excess of loss and quota share treaties. Our excess of loss
contract, in effect from June 1, 2018 through May 31, 2019, provides coverage for catastrophe losses from named
or numbered windstorms and earthquakes up to a $3,100,000,000 exhaustion point. In addition to this contract,
we have an aggregate excess of loss contract, effective January 1, 2018, which provides coverage for all
catastrophe perils other than hurricanes, tropical storms, tropical depressions and earthquakes. We ceded
$20,000,000 of catastrophe losses for this treaty for the year ended December 31, 2018. The quota share
agreement provides coverage for all catastrophe perils and attritional losses incurred by our insurance subsidiary,
UPC. For all catastrophe perils, the quota share agreement provides ground-up protection effectively reducing
our retention for catastrophe losses.
Reinsurance recoverable at the balance sheet dates consists of the following:
December 31,
2017
2018
Reinsurance recoverable on unpaid losses and LAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reinsurance recoverable on paid losses and LAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$477,870
148,128
$305,673
90,101
Reinsurance recoverable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$625,998
$395,774
We write flood insurance under an agreement with the National Flood Insurance Program. We cede 100% of
the premiums written and the related risk of loss to the federal government. We earn commissions for the
issuance of flood policies based upon a fixed percentage of net written premiums and the processing of flood
claims based upon a fixed percentage of incurred losses, and we can earn additional commissions by meeting
certain growth targets for the number of in-force policies. We recognized commission revenue from our flood
program of $1,575,000, $1,255,000, and $1,056,000 for the years ended December 31, 2018, 2017, and 2016,
respectively.
88
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
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 Comprehensive Income
(Loss):
Year ended December 31,
2017
2018
2016
Premium written:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,148,190
104,211
(512,270)
$ 989,525
51,323
(447,329)
$ 708,252
(96)
(262,340)
Net premium written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 740,131
$ 593,519
$ 445,816
Change in unearned premiums:
Direct
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (49,048) $ (49,386) $ (57,759)
16,432
52,442
(22,392)
20,585
(5,439)
46,796
Net decrease (increase) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (50,855) $
(8,029) $ 11,115
Premiums earned:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Direct
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,099,142
81,819
(491,685)
$ 940,139
45,884
(400,533)
$ 650,493
16,336
(209,898)
Net premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 689,276
$ 585,490
$ 456,931
Losses and LAE incurred:
Direct
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,101,328
97,444
(790,183)
$ 863,928
60,836
(559,229)
$ 335,542
3,747
(40,936)
Net losses and LAE incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 408,589
$ 365,535
$ 298,353
Ceded losses incurred increased by $230,954,000 during the year ended December 31, 2018, compared to
the year ended December 31, 2017, primarily because we incurred more ceded losses in 2018 than in 2017 as a
result of the development on Hurricane Irma, which occurred during 2017, and Hurricanes Florence and Michael,
which occurred during 2018. A portion of the losses we incurred in 2018, 2017, and 2016 exceeded our retained
loss thresholds; therefore, we received reinsurance recoveries for losses that we incurred on these storms and
expect to receive additional recoveries during 2019.
89
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
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,
2017
2016
2018
Unpaid losses and LAE:
Direct
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 579,710
81,493
$ 441,355
40,877
$ 138,345
2,510
Gross unpaid losses and LAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
661,203
(477,870)
482,232
(305,673)
140,855
(18,724)
Net unpaid losses and LAE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 183,333
$ 176,559
$ 122,131
Unearned premiums:
Direct
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 577,467
49,846
$ 528,419
27,454
$ 371,149
1,074
Gross unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
627,313
(217,885)
555,873
(201,904)
372,223
(132,564)
Net unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 409,428
$ 353,969
$ 239,659
10) LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSE (LAE)
We generally use the term loss(es) to collectively refer to both loss and LAE. We establish reserves for both
reported and unreported 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 the adjustments are necessary.
General Discussion of the Loss Reserving Process
Reserves for unpaid losses fall into two categories: case reserves and reserves for claims incurred but not
reported.
• Case reserves—When a claim is exported, 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.
90
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
• Reserves for losses incurred but not reported (IBNR reserves)—Our IBNR reserves include true IBNR
reserves plus “bulk” reserves. Bulk reserves represent additional amounts that cannot be allocated to
particular claims, but which are necessary to estimate ultimate losses on reported and unreported
claims. We estimate our IBNR reserves by projecting the ultimate losses using the methods discussed
below and then deducting 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,
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 interaction 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. However, in our judgment, we employ techniques and assumptions that are
appropriate, and the resulting reserve estimates are reasonable, given the information available at the balance
sheet date.
To determine our ultimate losses, we first use multiple actuarial techniques to establish a range of
reasonable estimates. These techniques are in line with actuarial standards of practice and actuarial literature. A
brief overview of each of these techniques is provided below. We then make additional qualitative considerations
for many of the previously mentioned factors and select a point within this range. These ultimate loss estimates
include reserves for both reported and unreported claims.
Estimation of the Reserves for Unpaid Losses and Allocated LAE
We calculate our estimate of ultimate losses with the following actuarial methods. The methods are applied
to paid and incurred loss data. Incurred losses are defined as paid losses plus case reserves. For our loss reserving
process, the word “segment” refers to a subgrouping of our claims data, such as by geographic area and/or by
particular line of business; it does not refer to operating segments.
• Development Method—The development method is based upon the assumption that the relative
change in a given year’s loss estimates from one evaluation point to the next is similar to the relative
change in prior years’ reported loss estimates at similar evaluation points. In utilizing this method,
actual annual historical loss data is evaluated. Loss development factors (LDFs) are calculated to
measure the change in cumulative losses from one evaluation point to the next. These historical LDFs
and comparable industry benchmark factors form the basis for selecting the LDFs used in projecting
the current valuation of losses to an ultimate basis. When applied to incurred loss data, the implicit
assumption is that the relative adequacy of case reserves has been consistent over time, and that there
have been no material changes in the rate at which claims have been reported. Applying this method to
paid losses avoids potential distortions in the data due to changes in case reserving methodology, but
also loses any potentially useful information contained in the current case reserves. The paid
development method’s implicit assumption is that the rate of payment of claims has been relatively
consistent over time.
91
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
• Expected Loss Method—Ultimate loss projections are based upon a prior measure of the anticipated
losses, usually relative to a measure of exposure (such as earned house years). An expected loss cost is
applied to each year’s measure of exposure to determine estimated ultimate losses for that year. Actual
losses are not considered in this calculation. Because the ultimate loss estimates do not change unless
the exposures or loss costs change, this method has the advantage of being stable over time. However,
the advantage of this stability is offset by a lack of responsiveness since this method does not consider
actual loss experience as it emerges. This method assumes that the loss cost per unit of exposure is a
good indication of ultimate losses. It can be entirely dependent on pricing assumptions (e.g., historical
experience adjusted for loss trend).
• Bornhuetter-Ferguson Method—The Bornhuetter-Ferguson (B-F) method is a credibility weighting
procedure that blends the responsiveness of the Development Method with the stability of the Expected
Loss Method by setting ultimate losses equal to actual losses plus the expected unreported losses which
are based on the Expected Loss Method. As an experience year matures, actual losses gradually move
closer to their ultimate levels so reliance on the Expected Loss Method can be reduced.
• Paid-to-Paid Development Method—In addition to the aforementioned methods, we also rely upon
the Paid-to-Paid Development Method to project ultimate unallocated loss adjustment expense
(ULAE). Ratios of paid ULAE to paid loss and allocated loss adjustment expense are compiled by
calendar year and a paid-to-paid ratio selection is made. The selected ratio is applied to the estimated
IBNR amounts and one half of this ratio is applied to case reserves. This method is derived from rule of
thumb that half of ULAE is incurred when a claim is opened and the other half is incurred over the
remaining life of the claim.
Reliance and Selection of Methods
Each of these methods has its own strengths and weaknesses that depend upon the circumstances of the
segment and the age of the claims experience we analyze. The nature of our book of business allows us to place
substantial, but not exclusive, reliance on the loss development methods, and the selected LDFs, represent the
most critical aspect of our loss reserving process. We use the same set of LDFs in the methods during our loss
reserving process that we also use to calculate the premium necessary 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 LDFs
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 condition 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.
On an annual basis, our consulting 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 analysis underlying the consulting actuary’s opinion and compare the projected ultimate losses to our own
estimates to ensure that the reserve for unpaid losses recorded at each annual balance sheet date is based upon all
internal and external factors related to known and unknown claims against us and to ensure our reserve is within
guidelines promulgated by the National Association of Insurance Commissioners (NAIC).
92
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
We maintain an in-house claims staff that monitors and directs all aspects of our claims process. We assign
the fieldwork to our wholly-owned claims subsidiary, or to third-party claims adjusting companies, none of
whom have the authority to settle or pay any claims on our behalf. The third-party claims adjusting companies
conduct inspection 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 in effect at the time that the policyholder incurs the loss. We maintain strategic
relationships with multiple claims adjusting companies that we can engage should we need additional
non-catastrophe claims servicing capacity. We believe the combination of our internal resources and
relationships with external claims servicing companies provide an adequate level of claims servicing in the event
catastrophes affect our policyholders.
The following is information about incurred claims development and paid claims development as of
December 31, 2018, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liability plus
expected development on reported claims included within the net incurred claims amounts. The incurred claims
development and paid claims development data reflect the acquisitions of FSIC, IIC, and AmCo in February
2015, April 2016, and April 2017, respectively, on a retrospective basis (includes FSIC, IIC and AmCo data for
years prior to our acquisition of the insurance affiliates). The information about incurred claims development and
paid claims development for the years ended December 31, 2009 to 2015 is presented as supplementary
information.
93
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
Personal Homeowners’ Insurance
$ In thousands (except number of reported claims)
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Unaudited
Audited
2009
2016
2013
2012
2011
2010
2015
2014
Accident
Year
2009 . . . . . . . $46,952 $46,089 $45,515 $45,583 $45,316 $ 45,116 $ 44,959 $ 44,996 $ 44,617 $
2010 . . . . . . .
2011 . . . . . . .
2012 . . . . . . .
2013 . . . . . . .
2014 . . . . . . .
2015 . . . . . . .
2016 . . . . . . .
2017 . . . . . . .
2018 . . . . . . .
51,836
60,288
69,064
92,792
— 130,090 130,488 131,402 132,096
— 181,609 195,902 195,864
—
— 249,276 250,774
—
—
— 208,537
—
—
—
—
—
—
—
—
— 51,144 51,292 51,862 52,239
— 53,878 56,840 57,670
—
— 65,112 69,438
—
—
— 98,461
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
51,674
60,215
69,000
92,702
51,685
58,047
68,923
94,755
51,841
59,517
68,388
93,041
2017
2018
44,574
51,796
60,522
67,934
66,709
104,222
196,549
236,050
165,375
268,275
As of December 31, 2018
Total of IBNR
Liabilities
Plus Expected
Development
on Reported
Claims
2
$
11
72
159
174
619
1,795
4,208
9,730
44,495
Cumulative
Number of
Reported
Claims
4,152
5,095
6,224
11,046
8,373
12,822
19,152
30,572
73,280
35,629
Total $1,262,006
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Unaudited
Accident Year
2009 . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . .
2009
$31,525
—
—
—
—
—
—
—
—
—
2010
$41,134
32,993
—
—
—
—
—
—
—
—
2011
$43,149
43,932
36,419
—
—
—
—
—
—
—
2012
$44,114
46,711
48,558
42,699
—
—
—
—
—
—
2013
$44,413
49,256
52,412
60,640
63,732
—
—
—
—
—
2014
$44,737
50,215
55,532
64,675
85,346
88,375
—
—
—
—
2015
$ 44,898
50,704
58,069
66,739
89,068
119,612
123,888
—
—
—
2016
$ 44,966
51,163
59,461
68,337
90,627
125,951
174,993
170,527
—
—
Audited
2017
$ 44,577
51,435
59,806
68,655
91,789
129,636
188,199
232,266
138,112
—
$
2018
44,572
51,484
60,289
67,487
65,989
102,550
192,065
227,052
158,114
195,168
Total
All outstanding liabilities before 2009, net of reinsurance
$1,164,770
2
Liabilities for claims and claim adjustment expenses, net of reinsurance
$
97,238
The following is supplementary information about average historical claims duration as of December 31,
2018.
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Unaudited
Years
1
2
3
4
5
6
7
8
9
10
74.4% 25.4% 6.2% 3.3% (2.5)% (6.9)% — % 0.5% (0.4)% — %
94
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
Commercial Residential Insurance
$ In thousands (except number of reported claims)
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Unaudited
Audited
2009
2013
2012
2015
2011
2010
2016
2014
Accident
Year
2009 . . . . . . $11,323 $ 5,233 $ 4,054 $ 3,853 $ 4,182 $ 3,459 $ 3,490 $ 3,489 $ 3,486 $
2010 . . . . . .
2011 . . . . . .
2012 . . . . . .
2013 . . . . . .
2014 . . . . . .
2015 . . . . . .
2016 . . . . . .
2017 . . . . . .
2018 . . . . . .
4,112
9,030
8,671
8,382
16,311
20,434
— 38,632
—
—
5,603
— 12,702
—
—
—
—
—
—
—
4,112
8,985
12,615
7,573
16,816
24,568
25,599
— 76,910
—
—
5,374
11,280
— 11,404
—
—
—
—
—
—
—
—
—
—
—
—
— 12,134
—
—
—
—
—
—
—
—
4,160
9,142
9,771
11,826
15,752
— 16,554
—
—
—
4,291
8,972
9,690
6,420
— 15,845
—
—
—
—
5,489
10,197
9,540
8,359
2017
2018
3,484
4,112
9,026
12,641
7,426
16,070
26,619
23,079
102,408
62,043
As of December 31, 2018
Total of IBNR
Liabilities
Plus Expected
Development
on Reported
Claims
$ —
—
54
65
163
686
2,039
2,591
4,254
14,004
Cumulative
Number of
Reported
Claims
383
580
757
802
740
679
836
1,194
4,254
3,218
Total $266,908
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Unaudited
Accident Year
2009 . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . .
2009
$1,639
—
—
—
—
—
—
—
—
—
2010
$3,616
1,968
—
—
—
—
—
—
—
—
2011
$3,410
3,127
3,541
—
—
—
—
—
—
—
2012
$3,415
3,461
6,241
4,583
—
—
—
—
—
—
2013
$3,920
3,966
7,605
6,942
2,958
—
—
—
—
—
2014
$3,446
3,909
7,846
6,893
5,127
6,379
—
—
—
—
2015
$ 3,471
3,909
8,825
7,543
5,317
9,452
10,188
—
—
—
2016
$ 3,485
4,112
8,851
8,552
7,248
13,212
17,139
10,917
—
—
Audited
2017
$ 3,484
4,112
8,933
12,575
7,254
14,420
20,645
16,687
42,744
—
$
2018
3,483
4,112
8,972
12,576
7,256
15,336
22,983
19,606
86,775
28,092
Total
All outstanding liabilities before 2009, net of reinsurance
$209,191
—
Liabilities for claims and claim adjustment expenses, net of reinsurance
$ 57,717
The following is supplementary information about average historical claims duration as of December 31,
2018.
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Unaudited
Years
1
2
3
4
5
6
7
8
9
10
41.5% 29.9% 7.8% 8.9% 6.3% 3.7% 1.6% 0.3% — % — %
95
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
Remaining Product Lines
$ In thousands (except number of reported claims)
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Unaudited
Audited
2012
2011
2009
2014
2015
2016
2013
2010
9,911
Accident Year
2009 . . . . . . . . $10,610 $10,135 $10,093 $10,026 $ 9,902 $ 9,844 $ 9,837 $10,009 $10,007 $ 10,007
11,072
2010 . . . . . . . .
10,741
2011 . . . . . . . .
9,140
2012 . . . . . . . .
5,843
2013 . . . . . . . .
7,936
2014 . . . . . . . .
19,340
2015 . . . . . . . .
18,222
2016 . . . . . . . .
2017 . . . . . . . .
77,864
— 30,601
2018 . . . . . . . .
11,072 11,072
10,740 10,741
9,138
9,147
5,857
5,736
7,956
8,016
19,723 19,352
— 17,053 17,898
— 46,892
—
—
—
11,105
10,575
9,412
5,401
7,927
— 19,669
—
—
—
10,733
11,022
— 10,760
—
—
—
—
—
—
—
—
—
—
—
—
11,042
— 11,126
—
—
—
—
—
—
—
11,126
10,896
9,651
6,657
—
—
—
—
—
11,020
10,630
9,350
5,817
9,073
—
—
—
—
—
—
—
—
—
2017
2018
As of December 31, 2018
Total of IBNR
Liabilities
Plus Expected
Development
on Reported
Claims
$ —
—
—
Cumulative
Number of
Reported
Claims
1,072
1,096
1,171
1,001
508
593
1,009
52
32
5
3
41
38
134
202
1,417
3,491
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Total $200,766
Accident Year
2009 . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . .
2009
$4,807
—
—
—
—
—
—
—
—
—
2010
$7,507
4,346
—
—
—
—
—
—
—
—
Unaudited
2011
$8,470
8,128
4,587
—
—
—
—
—
—
—
2012
$9,062
9,036
8,013
5,112
—
—
—
—
—
—
2013
$ 9,471
10,182
9,444
7,631
2,925
—
—
—
—
—
2014
$ 9,570
10,242
9,837
8,242
4,496
4,008
—
—
—
—
2015
$ 9,688
10,327
10,128
8,626
4,811
6,237
11,104
—
—
—
2016
$10,009
11,073
10,740
9,124
5,566
7,868
18,129
12,432
—
—
Audited
2017
$10,007
11,072
10,741
9,126
5,626
7,898
18,817
16,116
37,127
—
Total
All outstanding liabilities before 2009, net of reinsurance
2018
$ 10,007
11,072
10,741
9,137
5,802
7,898
18,970
17,111
68,994
24,105
$183,837
—
Liabilities for claims and claim adjustment expenses, net of reinsurance
$ 16,929
The following is supplementary information about average historical claims duration as of December 31,
2018.
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
Unaudited
Years
1
2
3
4
5
6
7
8
9
10
51.8% 28.3% 7.0% 5.5% 2.3% 2.1% 2.0% 1.0% — % — %
96
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
The reconciliation of the net incurred and paid claims development tables to the liability for claims and
claim adjustment expenses in the consolidated statement of financial position is as follows.
December 31,
2018
2017
Net outstanding liabilities
Personal Homeowners’ Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Residential Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other lines of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 97,238
57,717
16,929
$101,544
49,810
12,384
Liabilities for unpaid claims and claim adjustment expenses, net of
reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$171,884
$163,738
Reinsurance recoverable on unpaid claims
Personal Homeowners’ Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial Residential Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other lines of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$318,678
155,717
3,475
$131,581
165,313
8,779
Total reinsurance recoverable on unpaid claims . . . . . . . . . . . . . . . . . . . . . . . . . .
$477,870
$305,673
Unallocated claims adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,449
12,821
Total gross liability for unpaid claims and claims adjustment expense . . . . . . . . . . . . . . . .
$661,203
$482,232
97
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
The table below shows the analysis of our reserve for unpaid losses for each of our last three fiscal years on
a GAAP basis:
2018
2017
2016
Balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: reinsurance recoverable on unpaid losses . . . . . . . . . . . . . . . . . . . . . . . . .
$482,232
305,673
$140,855
18,724
$ 76,792
2,114
Net balance at January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$176,559
$122,131
$ 74,678
Acquired reserves, net of reinsurance recoverables (1) . . . . . . . . . . . . . . . . . . . .
Incurred related to:
—
40,299
22,576
Current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
404,271
4,318
368,148
(2,613)
281,365
16,988
Total incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$408,589
$365,535
$298,353
Paid related to:
Current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
283,821
117,994
256,134
95,272
210,970
62,506
Total paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$401,815
$351,406
$273,476
Net balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: reinsurance recoverable on unpaid losses . . . . . . . . . . . . . . . . . . . . . . . . .
$183,333
477,870
$176,559
305,673
$122,131
18,724
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$661,203
$482,232
$140,855
Composition of reserve for unpaid losses and LAE:
Case reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
IBNR reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$270,601
390,602
$236,253
245,979
$ 83,447
57,408
Balance at December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$661,203
$482,232
$140,855
(1) Acquired reserves, net of reinsurance recoverables of $19,945,000 for 2017 and $2,391,000 for 2016 related to our acquisitions of AmCo
and IIC, respectively.
Based upon our internal analysis and our review of the statement of actuarial opinion provided by our
actuarial consultants, we believe that the reserve for unpaid losses reasonably represents the amount necessary to
pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet
date.
As reflected by our losses incurred related to prior years, the unfavorable development experienced in 2018
was primarily the result of losses related to the 2017 accident year coming in worse than expected and the
favorable development in 2017 was primarily the result of losses related to the 2016 accident years coming in
better than expected. During 2016, we had a reserve deficiency. Since we place substantial reliance on loss-
development-based actuarial models when determining our estimate of ultimate losses, the deficiencies resulted
from additional development on prior accident years which caused our ultimate losses to increase.
98
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
11) LONG-TERM DEBT
Long-Term Debt
The table below presents all long-term debt outstanding as of December 31, 2018 and 2017:
$150M Senior Notes Payable . . . . . . . . . . . . . December 15, 2027
Florida State Board of Administration Note
Maturity
Effective
Interest
Rate
Carrying Value at
December 31,
2018
December 31,
2017
6.25%
$150,000
$150,000
Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BB&T Term Note Payable . . . . . . . . . . . . . . .
July 1, 2026
May 26, 2031
3.06%
4.00%
8,824
4,304
10,000
4,651
Total long-term debt
. . . . . . . . . . . . . . .
$163,128
$164,651
At December 31, 2018, the annual maturities of our long-term debt were as follows:
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount
$
1,523
1,523
1,523
1,523
1,523
155,513
Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$163,128
$150M Senior Notes Payable
On December 13, 2017, we issued $150,000,000 of senior notes ($150M senior notes) that will mature in
10 years on December 15, 2027 and bear interest at a rate equal to 6.25% per annum payable semi-annually on
each June 15 and December 15, commencing June 15, 2018. The $150M senior notes are senior unsecured
obligations of the Company. We may redeem the $150M senior notes at our option, at any time and from time to
time in whole or in part, at a redemption price equal to the greater of (i) 100% of the principal amount of the
notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and
interest thereon from the date of redemption to the date that is three months prior to maturity. On or after that
date, we may redeem the $150M senior notes at par.
$30M Senior Notes Payable
On December 5, 2016, we issued $30,000,000 of senior notes to private investors pursuant to an Indenture
dated as of December 5, 2016, by and between the Company and the trustee. The notes bore interest at a floating
rate equal to the three-month LIBOR plus 5.75% per annum, with interest payable quarterly in arrears. The notes
were redeemed at par value on December 13, 2017 without a pre-payment penalty.
Florida State Board of Administration Note Payable
On September 22, 2006, we issued a $20,000,000, 20-year note payable to the Florida State Board of
Administration (the SBA Note). For the first three years of the SBA note we were required to pay interest only.
99
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
On October 1, 2009, we began to repay the principal in addition to interest. The SBA Note bears an annual
interest rate equivalent to the 10-year U.S. Treasury Bond rate. The rate is adjusted quarterly for the term of the
SBA Note based on the 10-year Constant Maturity Treasury rate.
Interboro, LLC Promissory Note Payable
On April 29, 2016, we issued an $8,550,000 promissory note to Interboro, LLC, the former parent company
of IIC, as part of the purchase price paid to acquire our insurance subsidiary. The note matured and was paid in
October 2017.
BB&T Term Note Payable
On May 26, 2016, we issued a $5,200,000, 15-year term note payable to BB&T (the BB&T Note) with the
intent to use the funds to purchase, renovate, furnish and equip our principal executive office. The BB&T Note
bears interest at 1.65% in excess of the one-month LIBOR which resets monthly. In the event of default, BB&T,
may, among other things, declare its loan immediately due and payable, require us to pledge additional collateral
to the bank, and take possession of and foreclose upon our principal executive office which has been pledged to
the bank as security for the loan.
Financial Covenants
Senior Notes Payable—Our $150M senior notes provide that the Company and its subsidiaries shall not
incur any indebtedness unless no default exists and the Company’s leverage ratio as of the last day of any annual
or quarterly period (the balance sheet date) immediately preceding the date on which such additional
indebtedness is incurred would have been no greater than 0.3:1, determined on a pro forma basis as if the
additional indebtedness and all other indebtedness incurred since the immediately preceding balance sheet date
had been incurred and the proceeds therefrom applied as of such day. The Company and its subsidiaries also may
not create, assume, incur or permit to exist any indebtedness for borrowed money that is secured by a lien on the
voting stock of any significant subsidiary without securing the $150M senior notes equally. The Company may
not issue, sell, assign, transfer or otherwise dispose of, directly or indirectly, any of the capital stock of the
Company’s significant subsidiaries as of the issue date of the $150M senior notes (except to the Company or to
one or more of the Company’s other subsidiaries, or for the purpose of qualifying directors or as may be required
by law or regulation), subject to certain exceptions. At December 31, 2018, we were in compliance with the
covenants in the $150M senior notes.
Florida State Board of Administration Note Payable—Our $20,000,000, 20-year note payable to the Florida
State Board of Administration (the SBA note) requires that UPC maintain either a 2:1 ratio of net written
premium to surplus, or net writing ratio, or a 6:1 ratio of gross written premium to surplus, or gross writing ratio,
to avoid additional interest penalties. The SBA note agreement defines surplus for the purpose of calculating the
required ratios as the $20,000,000 of capital contributed to UPC under the agreement plus the outstanding
balance of the note. Should UPC fail to exceed either a net writing ratio of 1.5:1 or a gross writing ratio of 4.5:1,
UPC’s interest rate will increase by 450 basis points above the 10-year Constant Maturity Treasury rate (as
defined in the SBA note agreement), which was 2.69% at the end of December 2018. Any other writing ratio
deficiencies result in an interest rate penalty of 25 basis points above the stated rate of the note, which was 3.06%
at the end of December 2018. Our SBA note further provides that the Florida State Board of Administration may,
among other things, declare its loan immediately due and payable upon any default existing under the SBA note;
however, any payment is subject to approval by the insurance regulatory authority. At December 31, 2018, we
were in compliance with the covenants in the SBA note.
100
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
BB&T Term Note Payable—Our $5,200,000, 15-year term note payable to BB&T (the BB&T note) requires
that, at all times while there has been no losses from our insurance subsidiaries’ operations (non-recurring
losses), we will maintain a minimum cash flow coverage ratio of 1.2:1. The cash flow coverage ratio is defined
as the ratio of our cash flow to debt services. This ratio will be tested annually, based on our audited financial
statements. For the one-year period following a non-recurring loss, we are required to maintain a minimum cash
flow coverage ratio of 1.0:1. This covenant will only be effective if the pre non-recurring losses test is failed, and
is only available and effective for one annual test period. Thereafter, the non-recurring loss cash flow coverage
ratio of 1.2:1 will immediately apply. At December 31, 2018, we were in compliance with the covenants in the
BB&T note.
In addition, the BB&T note requires that we establish and maintain with BB&T at all times during the term
of the loan a noninterest bearing demand deposit account with a minimum balance of $500,000, and an interest-
bearing account with a minimum balance of $1,500,000. In the event of default, BB&T may, among other things,
declare its loan immediately due and payable, require us to pledge additional collateral to the bank, and take
possession of and foreclose upon our corporate headquarters, which has been pledged to the bank as security for
the loan. At December 31, 2018, we were in compliance with the covenants as specified in the BB&T note.
Debt Issuance Costs
The table below presents the rollforward of our debt issuance costs paid, in conjunction with the debt
instruments described above, during the years ended December 31, 2018 and 2017:
Balance at January 1, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,287
63
(340)
$ 549
3,264
(526)
Balance at December 31, . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,010
$3,287
2018
2017
12) COMMITMENTS AND CONTINGENCIES
Litigation
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 LAE during the period that we
determine an unfavorable outcome becomes probable and we can estimate the amounts. Management makes
revisions to our estimates based on its analysis of subsequent information that we receive regarding various
factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial
decisions and legal developments in the awarding of damages, and (iv) trends in general economic conditions,
including the effects of inflation.
At December 31, 2018, we were not involved in any material non-claims-related legal actions.
Commitments to fund partnership investments
We have fully funded two limited partnership investments and have committed to fund our remaining four
investments. The amount of unfunded commitments was $2,454,000 and $1,365,000 at December 31, 2018 and
2017, respectively.
101
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
Leases
We, as lessee, have entered into various short-term to medium-term leases of commercial office space. In
addition to office space, we lease office equipment and a parking lot under operating leases and vehicles under
capital leases. Lease expense amounted to $589,000, $290,000, and $205,000 for the years ended December 31,
2018, 2017, and 2016, respectively. At December 31, 2018, future minimum gross lease payments relating to
these non-cancellable operating and capital lease agreements are as follows:
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$380
265
214
138
24
Capital lease amortization expenses are included in depreciation expense in our Consolidated Statements of
Comprehensive Income (Loss). See Note 7 for information regarding depreciation expense. See Note 11 for
information regarding commitments related to long-term debt, and Note 14 for commitments related to
regulatory actions.
Amount
13) INCOME TAXES
The Company files a consolidated federal income tax return with all eligible subsidiaries. Since we have
less than an 80% interest in JIC, JIC is not eligible to file on a consolidated basis with UIHC.
The following table summarizes the provision for income taxes:
Year Ended December 31,
2016
2017
2018
Federal:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(1,510) $ (1,147) $(1,906)
1,920
(9,911)
(1,240)
(Benefit) provision for Federal income tax expense . . . . . . . . . . . . . . . .
(2,750)
(11,058)
14
State:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(654)
(1,229)
Provision for State income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,883)
496
1,327
1,823
1,001
290
1,291
(Benefit) provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(4,633) $ (9,235) $ 1,305
102
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
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,
2017
2018
2016
Expected income tax expense at federal rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
State tax expense, net of federal deduction benefit
Dividend received deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other permanent items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prior period adjustment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Municipal tax-exempt interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in enacted tax rate (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in Special Loss Discount Account
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ (875) $
(1,205)
(170)
564
—
(1,391)
(735)
—
(821)
—
319
366
(294)
128
(791)
(1,472)
(1,398)
(6,777)
—
684
$ 2,381
934
(217)
—
—
—
(1,011)
—
—
(782)
Reported income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(4,633) $(9,235) $ 1,305
(1)
Pursuant to the recently enacted 2017 Tax Act legislation.
On December 22, 2017, the 2017 Tax Act was signed into law. At the time it was enacted, the Tax Act was
subject to further clarification and interpretation by the U.S. Treasury Department and Internal Revenue Service.
For example, the 2017 Tax Act changed the methodology used by insurance companies to calculate their
insurance claims and reserves for tax purposes, including revaluing those tax basis liabilities as of January 1,
2018, based on a methodology and discount factors that had not been published. In November 2018, the U.S.
Treasury issued proposed regulations providing the interest rate to be used in determining the tax-related
discount on insurance claims and reserves. The 2017 Tax Act provided a transitional deferred tax liability (taxes
payable over an 8-year period). Since the established transition liability was completely offset by an increase in
related deferred tax asset, the adjustment to the final amount when the factors were published in 2018 did not
impact the Company’s effective tax rate. In accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 118 (SAB 118), all changes in deferred taxes resulting from clarification and
interpretation of the 2017 Tax Act were recorded in 2018, the period in which the guidance was published. As a
result, the Company’s implementation of the 2017 Tax Act is complete as of December 31, 2018.
Deferred income taxes, which are 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.
103
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
The table below summarizes the significant components of our net deferred tax liability:
December 31,
2018
2017
Deferred tax assets:
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax-related discount on loss reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other-than-temporary impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AMT credit carryforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 19,661
2,145
2,055
89
18
302
—
330
260
$ 17,459
—
1,113
90
16
304
226
—
89
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,860
19,297
Deferred tax liabilities:
Unrealized gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred acquisitions costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
(26,966)
—
(7,397)
(665)
(221)
(1,864)
—
(2,822)
(21,549)
(204)
(10,883)
(535)
(17)
(689)
(63)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(37,113)
(36,762)
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(12,253) $(17,465)
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 2014; therefore, only the 2015 through 2018 tax years remain
subject to examination by taxing authorities. No taxing authorities are currently examining any of our federal or
state income tax returns.
UPC Insurance’s reinsurance subsidiaries, which are based in the Cayman Islands and Bermuda, made an
irrevocable election under section 953(d) of the U.S. Internal Revenue Code of 1986, as amended, to be treated
as a domestic insurance company for U.S. Federal income tax purposes. As a result of this election, our
reinsurance subsidiaries are subject to United States income tax on its worldwide income as if it were a U.S.
corporation.
As of December 31, 2018, we have not taken any uncertain tax positions with regard to our tax returns.
104
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
14) STATUTORY ACCOUNTING AND REGULATION
The insurance industry is heavily regulated. State laws and regulations, as well as national regulatory agency
requirements, govern the operations of all insurers such as our insurance subsidiaries. The various laws and
regulations require that insurers maintain minimum amounts of statutory surplus and risk-based capital, restrict
insurers’ ability to pay dividends, specify allowable investment types and investment mixes, and subject insurers
to assessments. Our insurance subsidiaries, UPC, ACIC, and JIC are domiciled in Florida, while FSIC and IIC
are domiciled in Hawaii and New York, respectively. At December 31, 2018, and during the year then ended, our
insurance subsidiaries met all regulatory requirements of the states in which they operate. In March 2018, we
received a recoupable assessment for $570,000 from the Texas Fair Plan Association. In September 2018, we
received an assessment for $894,000 from North Carolina Joint Underwriting Association. We did not receive
any additional significant assessments from regulatory authorities in the states in which our insurance
subsidiaries operate.
The NAIC has RBC guidelines for insurance companies that are designed to assess capital adequacy and to
raise the level of protection that statutory surplus provides for policyholders. Most states, including Florida,
Hawaii and New York, have enacted statutory requirements adopting the NAIC RBC guidelines, and insurers
having less statutory surplus than required will be subject to varying degrees of regulatory action, depending on
the level of capital inadequacy. State insurance regulatory authorities could require an insurer to cease operations
in the event the insurer fails to maintain the required statutory capital.
The state laws of Florida, Hawaii and New York permit an insurer to pay dividends or make distributions
out of that part of statutory surplus derived from net operating profit and net realized capital gains. The state laws
further provide calculations to determine the amount of dividends or distributions that can be made without the
prior approval of the insurance regulatory authorities in those states and the amount of dividends or distributions
that would require prior approval of the insurance regulatory authorities in those states. Statutory RBC
requirements may further restrict our insurance subsidiaries’ ability to pay dividends or make distributions if the
amount of the intended dividend or distribution would cause statutory surplus to fall below minimum RBC
requirements.
Governmental agencies or certain quasi-governmental entities can levy assessments upon us in the states in
which we write policies. See Note 2(r) for a description of how we recover assessments imposed upon us. We
expense an assessment when the particular governmental agency or quasi-governmental entity levies it upon us;
therefore, expected recoveries are not assets and we will record the amounts as income when collected from
policyholders.
Governmental agencies or certain quasi-governmental entities 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. We currently collect assessments levied upon policyholders on behalf of Citizens Property
Insurance Corporation in the amount of 1.0%, and on behalf of FHCF in the amount of 1.3%. 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.
Our insurance subsidiaries must maintain capital and surplus ratios or balances as determined by the
regulatory authority of the states in which they are domiciled. At December 31, 2018, we met these requirements.
The amount of surplus as regards policyholders for our regulated entities at December 31, 2018 and 2017, was
$437,449,000, and $389,384,000 respectively.
105
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
The amount of restricted net assets of UPC, ACIC, FSIC, IIC, and JIC at December 31, 2018 was
$156,719,000, $143,699,000, $48,513,000, $40,890,000, and $60,130,000 respectively.
NAIC 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, 2018 and
2017.
The SBA Note is considered a surplus note pursuant to statutory accounting principles. As a result, UPC is
subject to the authority of the Insurance Commissioner of the State of Florida with regard to its ability to repay
principal and interest on the SBA note. Any payment of principal or interest requires permission from the
insurance regulatory authority.
We have reported our insurance subsidiaries’ assets, liabilities and results of operations in accordance with
GAAP, which varies from statutory accounting principles prescribed or permitted by state laws and regulations,
as well as by general industry practices. The following items are principal differences between statutory
accounting and GAAP:
•
•
•
•
•
•
•
•
Statutory accounting requires that we exclude certain assets, called non-admitted assets, from the
balance sheet.
Statutory accounting requires us to expense policy acquisition costs when incurred, while GAAP
allows us to defer to the extent realizable, and amortize policy acquisition costs over the estimated life
of the policies.
Statutory accounting requires that surplus notes, also known as surplus debentures, be recorded in
statutory surplus, while GAAP requires us to record surplus notes as a liability.
Statutory accounting allows certain investments to be carried at amortized cost or fair value based on
the rating received from the Securities Valuation Office of the NAIC, while they are recorded at fair
value for GAAP because the investments are held as available for sale.
Statutory accounting allows ceding commission income to be recognized when written if the cost of
acquiring and renewing the associated business exceeds the ceding commissions, but under GAAP
such income is deferred and recognized over the coverage period.
Statutory accounting requires that unearned premiums and loss reserves are presented net of related
reinsurance rather than on a gross basis under GAAP.
Statutory accounting requires a provision for reinsurance liability be established for reinsurance
recoverable on paid losses aged over ninety days and for unsecured amounts recoverable from
unauthorized reinsurers. Under GAAP there is no charge for uncollateralized amounts ceded to a
company not licensed in the insurance subsidiary’s domiciliary state and a reserve for uncollectable
reinsurance is charged through earnings rather than surplus or equity.
Statutory accounting requires an additional admissibility test and the change in deferred income tax is
reported directly in capital and surplus, rather than being reported as a component of income tax
expense under GAAP.
Our insurance subsidiaries must file with the various insurance regulatory authorities an “Annual
Statement” which reports, among other items, statutory net income (loss) and surplus as regards policyholders,
which is called stockholders’ equity under GAAP. For the year ended December 31, 2018, 2017 and 2016, our
combined recorded statutory net income (loss) was $(5,199,000), $832,000, and $6,083,000, respectively.
106
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
15) RELATED PARTY TRANSACTIONS
Groelle & Salmon, PA
One of our former executive officers who acted as an executive officer during the period covered by this
Form 10-K, Ms. Salmon, is also a former partner at the law firm of Groelle & Salmon, PA, where her spouse
remains partner and co-owner. Groelle & Salmon, PA provides legal representation to us related to our claims
litigation, and also provided representation to us for several years prior to Ms. Salmon joining UPC Insurance in
2014. During the years ended December 31, 2018 and 2017, while Ms. Salmon was employed at the Company,
Groelle & Salmon, PA billed us approximately $2,407,000 and $3,188,000, respectively. Ms. Salmon’s spouse
has a 50% interest in these billings, or approximately $1,204,000 and $1,594,000 for the years ended
December 31, 2018 and 2017, respectively. Effective September 7, 2018, Ms. Salmon stepped down from her
role at UPC Insurance.
AmRisc, LLC
AmRisc, a managing general agent, handles the underwriting, claims processing, premium collection and
reinsurance review for AmCo. R. Daniel Peed, Vice Chairman of our Board of Directors, beneficially owned
approximately 7.7% of AmRisc and was also the Chief Executive Officer of AmRisc during 2018. On
December 31, 2018, Mr. Peed sold his interest in AmRisc and effective January 1, 2019, became Non-Executive
Vice Chairman of AmRisc.
In accordance with the managing general agent underwriting contract with AmRisc, we recorded
$361,904,000 and $220,150,000 of gross written premiums for the year ended December 31, 2018 and 2017,
respectively, resulting in gross fees and commission (including a profit commission) of $95,920,000 and
$60,016,000 due to AmRisc, respectively. Receivables are stated net of the fees and commission due under the
contract.
In addition to the direct premiums written, we recorded $5,146,000 and $3,564,000 in ceded premiums to
AmRisc as a reinsurance intermediary for the year ended December 31, 2018 and 2017, respectively. We also
incurred $19,000 and $25,000, respectively, during those periods for rent under a sublease agreement with
AmRisc.
Net premiums receivable (net of commissions) of $48,264,000 were due from AmRisc as of December 31,
2018. These premiums were paid by AmRisc to our premium trust account by wire transfer within 15 days of
collection pursuant to the underwriting contract with AmRisc.
16) 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, 2018, 2017, and 2016, our contributions
to the plan on behalf of the participating employees were $861,000, $604,000, and $444,000, respectively.
17) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
We report changes in other comprehensive income items within comprehensive income (loss) on the
Consolidated Statements of Comprehensive Income (Loss), and we include accumulated other comprehensive
income (loss) as a component of stockholders’ equity on the Consolidated Balance Sheets.
107
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
The table below details the components of accumulated other comprehensive income (loss) at year end:
December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in net unrealized gain on investments . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for net realized gains . . . . . . . . . . . . . . . . . .
December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in net unrealized gain on investments . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for net realized gains . . . . . . . . . . . . . . . . . .
Reclassification due to adoption of ASU 2018-02 . . . . . . . . . . . . . . . . . .
Pre-Tax
Amount
$ 2,640
(629)
(547)
1,464
10,647
(67)
—
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification due to adoption of ASU 2016-01 . . . . . . . . . . . . . . . . . .
12,044
(12,300)
Adjusted balance at January 1, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in net unrealized gain on investments . . . . . . . . . . . . . . . . . . . .
Reclassification adjustment for net realized gains . . . . . . . . . . . . . . . . . .
(256)
(9,999)
(1,655)
Tax
(Expense)
Benefit
$(1,020)
167
211
Net-of-Tax
Amount
$ 1,620
(462)
(336)
(642)
(3,747)
17
1,549
(2,823)
2,962
139
2,327
414
822
6,900
(50)
1,549
9,221
(9,338)
(117)
(7,672)
(1,241)
December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(11,910)
$ 2,880
$(9,030)
18) STOCKHOLDERS’ EQUITY
Our Board of Directors declared dividends on our outstanding shares of common stock to stockholders of
record as follows for the periods presented (in thousands, except per share amounts):
2018
Year Ended December 31,
2017
2016
Per Share
Amount
Aggregate
Amount
Per Share
Amount
Aggregate
Amount
Per Share
Amount
Aggregate
Amount
First Quarter . . . . . . . . . . . . . . . . .
Second Quarter
. . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . .
$0.06
$0.06
$0.06
$0.06
$2,565
$2,565
$2,569
$2,569
$0.06
$0.06
$0.06
$0.06
$1,301
$2,561
$2,564
$2,565
$0.05
$0.06
$0.06
$0.06
$1,076
$1,300
$1,299
$1,299
On November 6, 2018, ACIC and IIC paid dividends of $50,000,000 and $1,764,000, respectively, to the
Company.
On April 3, 2017, we completed the acquisition of AmCo by issuing 20,956,355 shares of our common
stock as consideration for the final purchase price. See Note 4 for additional information on this acquisition.
See Note 19 for information regarding our stock-based compensation activity.
19) STOCK-BASED COMPENSATION
We account for stock-based compensation under the fair value recognition provisions of ASC Topic 718—
Compensation—Stock Compensation. We recognize stock-based compensation cost over the award’s requisite
service period on a straight-line basis for time-based restricted stock grants and performance-based restricted
stock grants. We record forfeitures as they occur for all stock-based compensation.
108
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
Under the Company’s 2013 Omnibus Incentive Plan, 1,000,000 shares were authorized for issuance at
December 31, 2018.
The following table presents our total stock-based compensation expense:
Year ended December 31,
2016
2017
2018
Employee stock-based compensation expense
Pre-tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-tax (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,095
865
$1,616
1,277
$ 877
693
Director stock-based compensation expense
Pre-tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-tax (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,319
1,042
996
787
1,070
845
(1)
The after tax amounts are determined using the 21% corporate federal tax rate.
We had approximately $2,932,000 of unrecognized stock compensation expense at December 31, 2018
related to non-vested stock-based compensation granted, which we expect to recognize over a weighted-average
period of approximately 2.51 years. We had approximately $527,000 of unrecognized director stock-based
compensation expense at December 31, 2018 related to non-vested director stock-based compensation granted,
which we expect to recognize over a weighted-average period of approximately 0.35 years.
Restricted stock, restricted stock units and performance stock units
Stock-based compensation cost for restricted stock awards, restricted stock units and performance stock
units is measured based on the closing fair market value of our common stock on the date of grant, which vest in
equal installments over the requisite service period of typically three years. Restricted stock awards granted to
non-employee directors vest over a one-year period. Each restricted stock unit and performance stock unit
represents our obligation to deliver to the holder one share of common stock upon vesting.
Performance-based restricted stock grants vest based on return on average equity compared to a defined
group of peer companies. On the grant date, we issue the target number of performance stock units. They are
subject to forfeitures if performance goals are not met. The actual number of performance stock units earned can
vary from zero to 150 percent of the target for the 2018 awards.
We granted 174,602, 167,622, and 115,405 shares of restricted common stock, which had a weighted-
average grant date fair value of $20.07, $15.62, and $16.90 per share during the years ended December 31, 2018,
2017, and 2016, respectively.
109
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
The following table presents certain information related to the activity of our non-vested common stock
grants:
Number of
Restricted Shares
Weighted Average
Grant Date Fair Value
Outstanding as of December 31, 2015 . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of December 31, 2016 . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of December 31, 2017 . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of December 31, 2018 . . . . . . . . . . . . . . . . . . . . . .
179,183
115,405
26,082
98,864
169,642
167,622
17,537
107,633
212,094
174,602
21,502
147,258
217,936
$16.67
16.90
17.44
16.39
$16.87
15.62
14.07
16.24
$16.44
20.07
18.82
16.68
$18.96
Stock options
Stock option fair value was estimated on the grant date using the Black-Scholes-Merton formula. Stock
options vest in equal installments over the requisite service period of typically three years. The following
weighted-average assumptions were used to value the stock options granted:
Expected annual dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
1.15%
41.18%
3.09%
6 years
Expected annual dividend yield is based on the current quarterly dividend of $0.06 per share and the stock
price on the grant date. The expected volatility is a historical volatility calculated based on the daily closing
prices over a period equal to the expected term. The risk-free interest rate is based on the U.S. Treasury yield
curve in effect at the grant date. Expected term takes into account the three-year graded vesting term and the
10-year contractual term of the option.
110
UNITED INSURANCE HOLDINGS CORP.
Notes to Consolidated Financial Statements
December 31, 2018
The following table presents certain information related to the activity of our non-vested stock option grants:
Number of
Stock Options
Weighted Average
Grant Date Fair Value
Weighted Average
Exercise Prices
Outstanding as of December 31, 2017 . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Forfeited . . . . . . . . . . . . . . . . . . . . .
Less: Vested . . . . . . . . . . . . . . . . . . . . . . .
Outstanding as of December 31, 2018 . . . . . . .
—
107,888
—
—
107,888
Exercisable as of December 31, 2018 . . . . . . .
—
20) QUARTERLY RESULTS (UNAUDITED)
$ —
8.26
—
—
$8.28
$ —
$ —
20.94
—
—
$20.44
$ —
Three Months Ended
March 31,
June 30, September 30, December 31,
(In thousands, except per share data)
2018
Revenues (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income attributable to NCI . . . . . . . . . . . . .
Net income (loss) attributable to UIHC . . . . . . . . . . .
Earnings per common share—Basic (2) . . . . . . . . . . . .
. . . . . . . . . .
Earnings per common share—Diluted (2)
2017
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income (loss) attributable to NCI . . . . . . . .
Net income (loss) attributable to UIHC . . . . . . . . . . .
Earnings per common share—Basic (2) . . . . . . . . . . . .
. . . . . . . . . .
Earnings per common share—Diluted (2)
$180,127
$183,148
$ 11,716
$ 19,332
$ 14,701
8,369
$
$ — $ —
$ 14,701
$
0.34
$
$
0.34
$
$
8,369
0.20
0.20
$122,633
$178,073
5,938
$
$ 12,650
7,257
3,899
$
$
$ — $ —
7,257
$
0.17
$
0.17
$
3,899
0.18
0.18
$
$
$
$187,652
$ (15,870)
$ (11,707)
$
1
$ (11,708)
(0.27)
$
(0.27)
$
$171,128
$ (45,487)
$ (28,012)
$ —
$ (28,012)
(0.66)
$
(0.66)
$
$181,089
$ (19,416)
$ (10,968)
$
103
$ (11,071)
(0.26)
$
(0.26)
$
$182,586
$ 27,809
$ 27,001
$ —
$ 27,001
0.63
$
0.63
$
(1)
(2)
The sum of the quarterly reported amounts does not equal the full year due to a presentation change in ceding commission income
incurred during the second quarter of 2018.
Earnings per common share is calculated based on the earnings attributable to UIHC. The sum of the quarterly reported amounts may not
equal the full year, as each is computed independently.
21) SUBSEQUENT EVENTS
We evaluate all subsequent events and transactions for potential recognition or disclosure in our financial
statements.
On February 20, 2019, our Board of Directors declared a $0.06 per share quarterly cash dividend which was
paid on March 13, 2019 to stockholders of record on March 6, 2019.
On February 25, 2019, the Company made capital contributions of $4,000,000 and $1,000,000 to UPC and
FSIC, respectively.
111
UNITED INSURANCE HOLDINGS CORP.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that information required to be
disclosed in reports we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act) is
recorded, processed, summarized and reported within the time periods specified in the SEC’s 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 Exchange Act, as of December 31, 2018, the end of the period covered by this report. Based on our
evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls
and procedures were not effective at the reasonable assurance level as a result of the material weakness discussed
below.
Management’s Annual 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 defined in Rules 13a-15(f) and 15d-15(f) promulgated under
the Exchange Act, as a process to provide reasonable assurance regarding the reliability of our financial reporting
and the preparation of financial statements for external purposes in 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
principles, 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, 2018. 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 in 2013. Based on the criteria set forth in the Internal Control-Integrated Framework, our
management concluded that, as of December 31, 2018, our internal control over our financial reporting is not
effective.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial
reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or
interim financial statements will not be prevented or detected or detected on a timely basis.
The Company did not perform ongoing monitoring to ascertain whether the components of internal control
are present and functioning. Specifically, given the timing of implementation of the new and or modified internal
112
UNITED INSURANCE HOLDINGS CORP.
controls that were implemented during 2018 to address the material weaknesses identified in the prior year, the
Company did not have an opportunity to fully execute monitoring activities over the new and or modified
internal controls.
Deloitte & Touche LLP, our independent registered public accounting firm that audited the consolidated
financial statements included in this Form 10K, has issued their attestation report on our internal control over
financial reporting, which is included herein.
Remediation of Material Weaknesses Identified in 2017
During the year ended December 31, 2017, we identified and disclosed material weaknesses in our internal
control over financial reporting relating to controls over (i) obtaining evidence of the design and operating
effectiveness of the general information technology controls intended to prevent unauthorized system access and
inappropriate change management to two third-party service organization’s professional services, systems and
information contained within (Service Organization Controls Weakness) and (ii) maintaining effective
accounting policies and procedural controls over the financial reporting for income taxes, acquisition purchase
accounting and investments to ensure accurate and consistent financial reporting in accordance with GAAP
(Accounting Procedures Weakness).
To remediate the material weaknesses identified in 2017, we strengthened our internal controls in the
following ways:
Service Organization Controls Weakness
• Hired a new Chief Information Officer and appointed a Vice President of Internal Audit whose roles
include establishing appropriate policies and procedures and to facilitate the development and
documentation of controls over financial reporting regarding service organization controls;
• Engaged external resources to evaluate the service organization controls and assist with the
documentation of related controls, including within Information Technology;
• Engaged outsourced internal audit to specifically test those controls related to in scope vendors who did
not have service organization control reports; and
• Enhanced testing procedures around security and access, change controls and computer operations for
vendors who are determined to be in scope for which a service organization control report is not
expected.
Accounting Procedures Weakness
• Designed and implemented controls to mitigate risks associated with manual processes and complex
accounting transactions;
•
Increased the number, experience level and skills of the personnel involved in our tax and financial
reporting functions through hiring and improved training;
• Added additional levels of review of our financial results and tax provision; and
• Enhanced and strengthened our documentation and review procedures relating to new, unique, unusual
and complex transactions.
113
UNITED INSURANCE HOLDINGS CORP.
Planned Remediation of 2018 Material Weakness
Management will work to ensure that all designed monitoring activities are executed appropriately in 2019.
Management believes that such activities will allow the Company to select, develop, and perform ongoing and or
separate evaluations to ascertain whether our components of internal control are present and functioning.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2018, in addition to the changes discussed above, we have made
changes that have materially affected our internal controls over financial reporting by including AmCo Holding
Company and its subsidiaries in our inventory of in scope controls for fiscal year 2018. Further, we have
expanded our controls over financial reporting to include additional controls over the reinsurance process. Other
than described above, there was no change in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) identified in connection with the evaluation of our internal
control performed during the fiscal quarter ended December 31, 2018, that has materially affected, or is
reasonably likely to materially affect, our internal controls 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.
114
UNITED INSURANCE HOLDINGS CORP.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of United Insurance Holdings Corp.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of United Insurance Holdings Corp. and
subsidiaries (the “Company”) as of December 31, 2018, based on criteria established in Internal Control—
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In our opinion, because of the effect of the material weakness identified below on the
achievement of the objectives of the control criteria, the Company has not maintained effective internal control
over financial reporting as of December 31, 2018, based on the criteria established in Internal Control—
Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2018,
of the Company and our report dated March 15, 2019, expressed an unqualified opinion on those consolidated
financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, including in the accompanying
Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material aspects. Our audit included obtaining and understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.
115
UNITED INSURANCE HOLDINGS CORP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Material Weakness
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of the company’s annual or interim
financial statements will not be prevented or detected on a timely basis. The following material weakness has
been identified and included in management’s assessment: The Company did not perform ongoing monitoring to
ascertain whether the components of internal control are present and functioning. Specifically, given the timing
of implementation of the new and or modified internal controls that were implemented during 2018 to address
the material weaknesses identified in the prior year, the Company did not have an opportunity to fully execute
monitoring activities over the new and or modified internal controls.
The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our
audit of the consolidated financial statements as of and for the year ended December 31, 2018, of the Company,
and this report does not affect our report on such consolidated financial statements.
/s/ DELOITTE & TOUCHE LLP
Tampa, Florida
March 15, 2019
116
UNITED INSURANCE HOLDINGS CORP.
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 2019 Annual
Meeting of our Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended
December 31, 2018 (the 2019 Proxy Statement).
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. This document may be reviewed by accessing our investor
relations site at investors.upcinsurance.com under the “Governance Documents” tab. 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@upcinsurance.com. We intend to post notice of any waiver from,
or amendment to, any provision in our Code of Conduct and Ethics applicable to our principal executive officer,
principal financial officer, principal accounting officer or controller on our website at www.upcinsurance.com.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to our 2019 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Information required by this Item is incorporated herein by reference to our 2019 Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to our 2019 Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated herein by reference to our 2019 Proxy Statement.
117
UNITED INSURANCE HOLDINGS CORP.
Item 15. Exhibits and Financial Statement Schedules
The following documents are filed as part of this Form 10-K:
PART IV
(1) Consolidated Financial Statements. In Part II, Item 8, we have included our consolidated
financial statements, the notes thereto and the report of the Independent Registered Public
Accounting Firm.
(2) Financial Statement Schedules. Schedule I—Summary of Investments, Schedule II—
Condensed Financial Information of Registrant, Schedule IV—Reinsurance, and Schedule V—
Valuation and Qualifying Accounts are filed as a part of this Form 10-K along with the related
report of the Independent Registered Public Accounting Firm 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 Form 10-K the exhibits listed in the following index.
118
UNITED INSURANCE HOLDINGS CORP.
EXHIBIT INDEX
Exhibit
Description
2.1
2.2
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
10.1
10.2
10.3
Stock Purchase Agreement, dated as of September 26, 2015, by and between United Insurance
Holdings Corp and Interboro LLC (included as exhibit 2.1 to the Form 8-K filed on September 28,
2015, and incorporated herein by reference).
Agreement and Plan of Merger, dated as of August 17, 2016, by and among United Insurance
Holdings Corp., Kilimanjaro Corp., Kili LLC, RDX Holding, LLC, certain equityholders of RDX
Holding, LLC party thereto and AmCo Holding Company (included as Exhibit 2.1 to the Form 8-K
filed on August 19, 2016, and incorporated herein by reference).
Second Amended and Restated Certificate of Incorporation (as amended to include the Certificate of
Designations, Powers, Preferences and Rights of Series A Junior Participating Preferred Stock of
United Insurance Holdings Corp.) (included as exhibit 3.1 to the Form 10-Q filed on August 8, 2012,
and incorporated herein by reference).
Certificate of Elimination of Series A Junior Participating Preferred Stock, dated as of January 10,
2018 (included as exhibit 3.1 to the Form 8-K filed January 12, 2018, 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).
Amendment to Bylaws (included as exhibit 3.1 to the Form 8-K filed on April 3, 2017, and
incorporated herein by reference).
Specimen Common Stock Certificate (included as exhibit 4.2 to Amendment No. 1 to Post-Effective
Amendment No. 1 on Form S-3 (Registration No. 333-150327), filed on December 23, 2008, 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 8-K, filed on October 12, 2007, and
incorporated herein by reference).
Indenture, dated as of December 13, 2017, by and between the Company and Deutsche Bank Trust
Company Americas, as trustee (included at exhibit 4.1 to the Form 8-K, filed on December 13, 2017,
and incorporated herein by reference).
First Supplemental Indenture, dated as of December 13, 2017, by and between the Company and
Deutsche Bank Trust Company Americas, as trustee (including form of Note) (included as exhibit 4.2
to the Form 8-K filed on December 13, 2017, 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 on 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 on 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 on June 13, 2008, and incorporated herein by
reference).
119
UNITED INSURANCE HOLDINGS CORP.
Exhibit
Description
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
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
on November 12, 2008, and incorporated herein by reference).
Federal Income Tax Allocation Agreement between United Insurance Holdings Corp., United
Insurance Management, L.C., Skyway Claims Services, LLC, United Property & Casualty Insurance
Company, UPC Re and amended to include Family Security Holdings, LLC and its subsidiaries dated
July 1, 2012 (included as exhibit 10.11 to the Form 10-Q filed on August 8, 2012, and incorporated
herein by reference).
Form of Indemnification Agreement between United Insurance Holdings Corp. and its Directors
(included as exhibit 10.1 to the Form 8-K, filed on October 10, 2012, and incorporated herein by
reference).
Form of Restricted Stock Award under the United Insurance Holdings Corp. 2013 Omnibus Incentive
Plan (included as exhibit 10.1 to the Form 8-K, filed on September 30, 2013, and incorporated herein
by reference).
United Insurance Holdings Corp. 2013 Omnibus Incentive Plan (included as Appendix A to the
Company’s Definitive Proxy statement for its 2013 Annual Meeting, filed on April 16, 2013, and
incorporated herein by reference).
Form of Restricted Stock Award Agreement (for Non-Employee Members of the Board of Directors)
under the United Insurance Holdings Corp. 2013 Omnibus Incentive Plan (included as exhibit 10.1 to
the Form 8-K filed on September 25, 2014, and incorporated herein by reference).
Form of Restricted Stock Award (for Employees) under the United Insurance Holdings Corp. 2013
Omnibus Incentive Plan (included as exhibit 10.2 to the Form 8-K filed on September 25, 2014, and
incorporated herein by reference).
Form of Restricted Stock Award Agreement (for Chairman of the Board) under the United Insurance
Holdings Corp. 2013 Omnibus Incentive Plan (included as exhibit 10.3 to the Form 8-K filed on
September 25, 2014, and incorporated herein by reference).
Form of Stock Option Award under the United Insurance Holdings Corp. 2013 Omnibus Incentive
Plan (included as exhibit 10.1 to the Form 10-Q, filed on November 7, 2018, and incorporated herein
by reference).
Form of Restricted Stock Unit Award under the United Insurance Holdings Corp. 2013 Omnibus
Incentive Plan (included as exhibit 10.2 to the Form 10-Q, filed on November 7, 2018, and
incorporated herein by reference).
Form of Performance Stock Unit Award under the United Insurance Holdings Corp. 2013 Omnibus
Incentive Plan (included as exhibit 10.3 to the Form 10-Q, filed on November 7, 2018, and
incorporated herein by reference).
Non-Executive Chairman Agreement, dated September 19, 2014, between United Insurance Holdings
Corp. and Gregory C. Branch (included as exhibit 10.4 to the Form 8-K filed on September 25, 2014,
and incorporated herein by reference).
Stockholders Agreement, dated as of August 17, 2016, by and among United Insurance Holdings
Corp., RDX Holding, LLC., R. Daniel Peed and Peed FLP1, Ltd., L.L.P (included as exhibit 10.1 to
the Form 8-K filed on August 19, 2016, and incorporated herein by reference).
120
UNITED INSURANCE HOLDINGS CORP.
Exhibit
Description
10.17
10.18
21.1
23.1
23.2
31.1
31.2
32.1
32.2
Amended and Restated Employment Agreement between United Insurance Holdings Corp. and
John Forney, dated April 21, 2017 (included as exhibit 10.1 to the Form 8-K, filed on April 24,
2017, and incorporated herein by reference).
Amendment to Employment Agreement, dated October 10, 2018, between United Insurance
Holdings Corp. and John Forney (included as exhibit 10.1 to the Form 8-K filed on October 16,
2018, and incorporated herein by reference)
Subsidiaries of United Insurance Holdings Corp.
Consent of Deloitte LLP.
Consent of RSM US LLP for prior year financial statements.
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
121
UNITED INSURANCE HOLDINGS CORP.
SCHEDULE I. SUMMARY OF INVESTMENTS
December 31, 2018
Cost or
Amortized
Cost
Fair
Value
Amount Shown in
Consolidated
Balance Sheet
Bonds:
U.S. government and agency securities . . . . . . . . . . . . . . . . .
Foreign governments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
States, municipalities and political subdivisions . . . . . . . . . .
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset backed securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Redeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . .
Total fixed maturities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stocks:
Public utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonredeemable preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$100,240
3,993
145,415
24,560
307,875
227,004
64,071
1,287
874,445
50,972
1,636
23,272
2,098
77,978
8,288
$ 98,975
3,982
144,468
23,890
301,988
223,854
64,037
1,151
862,345
50,016
1,759
27,198
2,005
80,978
8,513
$ 98,975
3,982
144,468
23,890
301,988
223,854
64,037
1,151
862,345
50,016
1,759
27,198
2,005
80,978
8,513
Total investments . . . . . . . . . . . . . . . . . . . . . . . . . .
$960,711
$951,836
$951,836
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UNITED INSURANCE HOLDINGS CORP.
SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Condensed Balance Sheets
December 31,
2017
2018
Assets
Fixed maturities, available for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities, available for sale, at fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 45,372
14,178
4,567
192
643,526
10,157
8,054
14,163
$ 26,583
—
79,331
—
579,313
10,157
7,761
12,439
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$740,209
$715,584
Liabilities
Intercompany payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 48,103
443
151,294
$ 26,128
967
151,364
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
199,840
178,459
Stockholders’ Equity
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
389,141
(431)
(9,030)
140,546
4
387,145
(431)
9,221
141,186
Total UIHC Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
520,230
537,125
Noncontrolling Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20,139
—
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
540,369
537,125
Total Liabilities and Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$740,209
$715,584
123
UNITED INSURANCE HOLDINGS CORP.
SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT, CONTINUED
Condensed Statements of Comprehensive Income (Loss)
Years Ended December 31,
2016
2017
2018
Revenues
Net income from subsidiaries (equity method) . . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net unrealized loss on equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 10,124
(160)
2,353
(1,223)
$14,000
—
53
—
$13,296
(14)
88
—
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,094
14,053
13,370
Expenses
Operating and underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Less: Net income attributable to NCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to UIHC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain (loss) on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification adjustments—losses (gains) . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit related to other items of comprehensive
198
3,416
9,557
13,171
(2,077)
11
(2,066)
(2,460)
348
9,078
2,939
12,365
1,688
75
337
11,805
496
12,638
732
60
1,763
(8,382)
792
(4,906)
394
104
290
$10,145
$ 5,698
—
—
10,145
5,698
(22,264)
(1,655)
10,647
(67)
(629)
(547)
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,703
(2,181)
378
Total comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(17,822) $18,544
$ 4,900
Less: Comprehensive income attributable to NCI . . . . . . . . . . . . . . . . . . . . . . . . .
139
—
—
Total comprehensive income (loss) attributable to UIHC . . . . . . . . . . . . . . . . . . .
$(17,961) $18,544
$ 4,900
124
UNITED INSURANCE HOLDINGS CORP.
SCHEDULE II. CONDENSED FINANCIAL INFORMATION OF REGISTRANT, CONTINUED
Condensed Statements of Cash Flows
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Year Ended December 31,
2016
2017
2018
$
394
$ 10,145
$ 5,698
Dividends received from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bond amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized loss on equities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net realized investment losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accrued investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . .
Intercompany payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
51,764
1,079
(6)
1,223
160
(570)
2,414
(192)
(908)
(524)
21,975
—
—
1,208
—
—
—
(777)
2,613
—
682
—
—
14
382
1,947
—
359
447
11,597
(1,905)
3
(22,553)
—
5,874
1,969
Net cash provided by (used in) operating activities . . . . . . . . . . . . . . . . . . . . .
76,809
23,687
(5,984)
INVESTING ACTIVITIES
Proceeds from sales of investments available for sale . . . . . . . . . . . . . . .
Purchases of investments available for sale . . . . . . . . . . . . . . . . . . . . . . .
Additional investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of property and equipment acquired . . . . . . . . . . . . . . . . . . . . . . . . .
37,315
(72,635)
(104,125)
(1,032)
—
(26,584)
(23,283)
(449)
34,551
(70)
(68,563)
(1,797)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(140,477)
(50,316)
(35,879)
FINANCING ACTIVITIES
Tax withholding payment related to net settlement of equity awards . . . .
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments of borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(418)
—
(347)
(63)
(10,268)
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . .
(11,096)
Increase in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . .
(74,764)
79,331
(287)
150,000
(38,897)
(3,264)
(8,991)
98,561
71,932
7,399
(270)
42,951
—
—
(4,974)
37,707
(4,156)
11,555
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
4,567
$ 79,331
$ 7,399
Notes to Condensed Financial Statements—Basis of Presentation
The Company’s investment in subsidiaries is stated at cost plus equity in the undistributed earnings of
subsidiaries since the date of acquisition. The Company’s share of net income of its subsidiaries is included in
income using the equity method. These financial statements should be read in conjunction with UPC Insurance’s
consolidated financial statements contained in Part II, Item 8 of this Form 10-K.
125
UNITED INSURANCE HOLDINGS CORP.
SCHEDULE IV. REINSURANCE
Property and Casualty Insurance
Direct
Premium
Written
Premiums
Ceded to
Other
Companies
Premiums
Assumed
from Other
Companies
Net
Premiums
Written
Percentage of
Premiums
Assumed to Net
Years Ended December 31,
2018 . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . .
$ 1,148,190
989,525
708,252
$ 512,270
447,329
262,340
$ 104,211
51,323
(96)
$ 740,131
593,519
445,816
14.1%
8.6%
— %
SCHEDULE V. VALUATION AND QUALIFYING ACCOUNTS
Uncollectible Premium Receivable
Balance at
Beginning
of Period
Charged to
Costs and
Expenses Deductions
Balance
at End of
Period
Years Ended December 31,
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
384
144
132
$
597
294
356
$(576)
(54)
(344)
$
405
384
144
126
UNITED INSURANCE HOLDINGS CORP.
SCHEDULE VI. SUPPLEMENTAL INFORMATION CONCERNING CONSOLIDATED PROPERTY
AND CASUALTY INSURANCE OPERATIONS
Year
As of December 31,
Reserves for Unpaid
Losses and LAE
For the Year Ended December 31,
Incurred Losses and
LAE Current Year
Incurred Losses and
LAE Prior Years
Paid Losses
and LAE
Net Investment
Income
$661,203
482,232
140,855
$404,271
368,148
281,365
$
4,318
(2,613)
16,988
$401,815
351,406
273,476
$ 26,170
17,126
10,092
2018 . . . . . .
2017 . . . . . .
2016 . . . . . .
Year
As of December 31,
Deferred Policy
Acquisition Costs
(DPAC)
Amortization of
DPAC, Net
Net Premiums
Written
For the Year Ended December 31,
Net
Premiums
Earned
$689,276
585,490
456,931
Unearned
Premiums
$627,313
555,873
372,223
2018 . . . . . .
2017 . . . . . .
2016 . . . . . .
$105,582
103,882
65,473
$225,900
171,915
115,847
$740,131
593,519
445,816
127
UNITED INSURANCE HOLDINGS CORP.
Item 16. Form 10-K Summary
Not applicable.
128
UNITED INSURANCE HOLDINGS CORP.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 15, 2019
UNITED INSURANCE HOLDINGS CORP.
/s/ John L. Forney
By:
Name: John L. Forney
Title: Chief Executive Officer
(principal executive officer and duly authorized
officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ John L. Forney
John L. Forney
/s/ B. Bradford Martz
B. Bradford Martz
/s/ Gregory C. Branch
Gregory C. Branch
/s/ R. Daniel Peed
R. Daniel Peed
/s/ Alec L. Poitevint, II
Alec L. Poitevint, II
/s/ Kern M. Davis, M.D.
Kern M. Davis, M.D.
/s/ Michael R. Hogan
Michael R. Hogan
/s/ William H. Hood, III
William H. Hood, III
/s/ Sherrill W. Hudson
Sherrill W. Hudson
/s/ Patrick F. Maroney
Patrick F. Maroney
/s/ Kent G. Whittemore
Kent G. Whittemore
President, Chief Executive Officer and Director
(principal executive officer)
Chief Financial Officer
(principal financial and accounting officer)
Chairman of the Board
Vice Chairman of the Board
Lead Director
Director
Director
Director
Director
Director
Director
129
March 15, 2019
March 15, 2019
March 15, 2019
March 15, 2019
March 15, 2019
March 15, 2019
March 15, 2019
March 15, 2019
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March 15, 2019
March 15, 2019
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CORPORATE HEADQUARTERS
United Insurance Holdings Corp.
800 2nd Avenue S.
St. Petersburg, FL 33701
TRANSFER AGENT
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
INDEPENDENT AUDITORS
Deloitte & Touche LLP
201 N Franklin Street
Suite 3600
Tampa, FL 33602
INVESTOR RELATIONS
The Equity Group, Inc.
800 Third Avenue
36th Floor
New York, NY 10022
STOCK LISTING
NASDAQ; symbol UIHC
ANNUAL MEETING
The 2019 Annual Meeting will be held on Tuesday, May 7, 2019 at 1:00 p.m. EDT at the corporate headquarters
of United Insurance Holdings Corp.
DIRECTORS
Gregory C. Branch, Chairman — Chairman and President of Branch Properties, Inc.
R. Daniel Peed, Vice Chairman — Non-Executive Vice Chairman of AmRisc, LLC
Alec L. Poitevint, II, Lead Director — Chairman and President of Southeastern Minerals, Inc.
Kern M. Davis, M.D. — President of Pathology Associates P.A.
Michael R. Hogan — President of Puckett, Sheets, and Hogan Insurance
William H. Hood, III — Managing member of Hall Capital Holdings LLC
Sherrill W. Hudson — Retired Chairman of TECO Energy, Inc.
Patrick F. Maroney — Professor Emeritas at Florida State University College of Business
Kent G. Whittemore — President and a shareholder of The Whittemore Law Group, P.A.
John Forney, CFA — President and Chief Executive Officer of United Insurance Holdings Corp.
EXECUTIVE OFFICERS
John Forney, CFA — President, Chief Executive Officer and Director
B. Bradford Martz, CPA — Chief Financial Officer
Paul DiFrancesco — Chief Underwriting Officer
Deepak Menon — Chief Revenue Officer
Brad Kalter — General Counsel, Chief Legal Officer and Corporate Secretary
Scott St John — Chief Claims Officer
Chris Griffith — Vice President and Chief Information Officer
KEEPING THE PROMISE IS SMART BUSINESS
MT
MT
18TH LAARGEST WWRITERIIT
MEOWNERRS A
OOF HOMEOWNERRS ANDA
OM
MEOWNERRS A
RELAATED LINNES SS
L
(cid:133)
(cid:136)(cid:152)(cid:3)(cid:204)(cid:133)(cid:105)(cid:3)(cid:49)(cid:176)(cid:45)(cid:176)(cid:3)(cid:118)(cid:156)(cid:192)(cid:3)(cid:211)(cid:211)(cid:228)(cid:163)(cid:110)(cid:110)(cid:110)
WYWY
WY
ND
ND
SD
SD
NE
NE
(cid:55)(cid:50)(cid:37)(cid:2)(cid:43)(cid:53)(cid:2)(cid:35)(cid:37)(cid:42)(cid:43)(cid:39)(cid:56)(cid:43)(cid:48)(cid:41)(cid:2)(cid:41)(cid:52)(cid:49)(cid:57)(cid:54)(cid:42)(cid:14)(cid:2)
(cid:41)(cid:39)(cid:49)(cid:41)(cid:52)(cid:35)(cid:50)(cid:42)(cid:43)(cid:37)(cid:2)(cid:38)(cid:43)(cid:56)(cid:39)(cid:52)(cid:53)(cid:43)(cid:40)(cid:43)(cid:37)(cid:35)(cid:54)(cid:43)(cid:49)(cid:48)(cid:14)(cid:2)
AND PROFITABILITY
(cid:49)(cid:42)(cid:10)(cid:3)(cid:136)(cid:195)(cid:3)(cid:143)(cid:136)(cid:86)(cid:105)(cid:152)(cid:195)(cid:105)(cid:96)(cid:3)(cid:136)(cid:152)(cid:3)(cid:163)(cid:110)(cid:3)(cid:86)(cid:156)(cid:62)(cid:195)(cid:204)(cid:62)(cid:143)
(cid:195)(cid:204)(cid:62)(cid:204)(cid:105)(cid:195)(cid:93)(cid:3)(cid:62)(cid:152)(cid:96)(cid:3)(cid:220)(cid:192)(cid:136)(cid:204)(cid:136)(cid:152)(cid:125)(cid:3)(cid:136)(cid:152)(cid:3)(cid:163)(cid:211)(cid:3)(cid:195)(cid:204)(cid:62)(cid:204)(cid:105)(cid:195)
MI
MN
WI
IA
(cid:120)(cid:135)(cid:222)(cid:105)(cid:62)(cid:192)(cid:3)(cid:62)(cid:152)(cid:152)(cid:213)(cid:62)(cid:143)(cid:136)(cid:226)(cid:105)(cid:96)(cid:3)(cid:192)(cid:105)(cid:204)(cid:213)(cid:192)(cid:152)(cid:3)(cid:156)(cid:152)
(cid:105)(cid:181)(cid:213)(cid:136)(cid:204)(cid:222)(cid:3)(cid:136)(cid:195)(cid:3)(cid:110)(cid:176)(cid:153)(cid:175)(cid:93)(cid:3)(cid:96)(cid:105)(cid:195)(cid:171)(cid:136)(cid:204)(cid:105)(cid:3)(cid:133)(cid:136)(cid:195)(cid:204)(cid:156)(cid:192)(cid:136)(cid:86)(cid:3)(cid:143)(cid:105)(cid:219)(cid:105)(cid:143)(cid:195)(cid:3)
IL
(cid:156)(cid:118)(cid:3)(cid:10)(cid:386)(cid:47)(cid:3)(cid:62)(cid:86)(cid:204)(cid:136)(cid:219)(cid:136)(cid:204)(cid:222)
OH
IN
VT
NH
MA
CT
NY
PA
NJ
DC
CO
NM
KS
MO
OK
TX
AR
LA
WV
VA
NC
KY
TN
MS
AL
GA
SC
FL
Writing
Licensed
HI
(cid:34)(cid:213)(cid:192)(cid:3)(cid:10)(cid:156)(cid:192)(cid:105)(cid:3)(cid:54)(cid:62)(cid:143)(cid:213)(cid:105)(cid:195)
(cid:85)(cid:3)(cid:47)(cid:105)(cid:62)(cid:147)(cid:220)(cid:156)(cid:192)(cid:142)
(cid:85)(cid:3)(cid:47)(cid:192)(cid:213)(cid:195)(cid:204)
(cid:85)(cid:3)(cid:386)(cid:86)(cid:86)(cid:156)(cid:213)(cid:152)(cid:204)(cid:62)(cid:76)(cid:136)(cid:143)(cid:136)(cid:204)(cid:222)
(cid:85)(cid:3)(cid:22)(cid:152)(cid:204)(cid:105)(cid:125)(cid:192)(cid:136)(cid:204)(cid:222)
(cid:85)(cid:3)(cid:9)(cid:136)(cid:62)(cid:195)(cid:3)(cid:47)(cid:156)(cid:3)(cid:386)(cid:86)(cid:204)(cid:136)(cid:156)(cid:152)
(cid:85)(cid:3)(cid:42)(cid:105)(cid:192)(cid:195)(cid:136)(cid:195)(cid:204)(cid:105)(cid:152)(cid:86)(cid:105)
(cid:34)(cid:213)(cid:192)(cid:3)(cid:54)(cid:136)(cid:195)(cid:136)(cid:156)(cid:152)
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ODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE O
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RODUCTS THAT WORK FAIR PRICING
PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOIN
PERIOR CLAIMS SERVICE EASE OF DOING BUSINESS FAIR
ANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE O
ANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE O
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PERIOR CLAIMS SERVICEE FFAIR PRICING FINANCIAL STABILITY EASE OF DOING B
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ODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE O
ODUCTS TTHHAT WORK SUPERIOR CLAIMS SERVICE EASE O
ANCIAL SSTTAABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE O
ANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE O
PERIOORR CLAIMS SERVICE EASE OF DOING BUSINESS FAIR PRICING FINANCIAL S
PERIOR CLAIMS SERVICE EASE OF DOING BUSINESS FAIR PRICING FINANCIAL S
ANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING BUSINESS
ANNCCIIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING BUSINESS
PERIOR CLAIMS SERVICE EASE OF DOING BUSINESS FAIR
PERIOR CLAIMS SERVICE EASE OF DOING BUSINESS FAIR
RODUCTS THAT WORK SUPERIOR CLA
ANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING BUSINESS
ANCIAL STABILITY PRODUCTS THAT WWOORRKK SSUPERIOR CLAIMS SERVICCEE EEAASSEE OF DOING BUSINESS
RIOR CLAIMS SERVICE FINANCIAL SSTATABIBILITY PRODUCTS THAT WORK EASE OF DOING BUSINESSS FAFAIR PRICING FINAN
RIOR CLAIMS SERVICE FINANCIAL STABILITY PRODUCTS THAT WORK EASE OF DOING BUSINESS FAIR PRICING FINAN
NANCIAL STABILITY PRODUCTS THAT
PRICING FFIINNANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOIINN
PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOIN
NANNCCIAL STABILITY PRODUCTS THAT WORK SUPERIOR C
NANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR C
ANNCCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING BUSINESS
ANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING BUSINESS
ODUCTS THAT WORK SUPERIOR CLAIMS SERVICE FAIR PR
ODUCTS THAT WORK SUPERIOR CLAIMS SERVICE FAIR PR
SE OF DOING BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT W
SE OF DOING BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT W
OF DOING BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE FINAN
OF DOING BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE FINAN
TABILITY PRODUCTS THAT WORK SU
PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOIN
PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOIN
ODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE O
ODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE O
ODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING BUSINESS FA
ODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOING BUSINESS FA
NG FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE FINANCIAL STABILITY PRODUCTS THAT
NG FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE FINANCIAL STABILITY PRODUCTS THAT
RICING FINANCIAL STABILITY EASE O
PERIOR CLAIMS SERVICE EASE OF DOING BUSINESS FAIR PRICING FINANCIAL S
PERIOR CLAIMS SERVICE EASE OF DOING BUSINESS FAIR PRICING FINANCIAL S
PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOIN
PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE OF DOIN
ODUCTS THAT WORK SUPERIOR CLAIMS SERVICE FAIR PR
ODUCTS THAT WORK SUPERIOR CLAIMS SERVICE FAIR PR
ANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE O
ANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE O
NCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE FINANCIAL STABILITY PRODUCTS THAT WORK F
NCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE FINANCIAL STABILITY PRODUCTS THAT WORK F
ASE OF DOING BUSINESS FINANCIAL
PERIOR CLAIMS SERVICE EASE OF DOING BUSINESS FAIR PRICING FINANCIAL S
PERIOR CLAIMS SERVICE EASE OF DOING BUSINESS FAIR PRICING FINANCIAL S
OF DOING BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE FINAN
OF DOING BUSINESS FAIR PRICING FINANCIAL STABILITY PRODUCTS THAT WORK SUPERIOR CLAIMS SERVICE FINAN
ODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE O
ODUCTS THAT WORK SUPERIOR CLAIMS SERVICE EASE O