form-nq.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 000-20848
UNIVERSAL INSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
|
65-0231984
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
1110 W. Commercial Blvd., Suite 100, Fort Lauderdale, Florida 33309
(Address of principal executive offices)
(954) 958-1200
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such 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 x No ___
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ____ No ___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of “large accelerated filer” and “accelerated filer” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer o
|
Accelerated filer x
|
|
Non-accelerated filer o (Do not check if a smaller reporting company)
|
Smaller reporting company o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ___ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 39,166,033 shares of common stock, par value $0.01 per share, outstanding on November 5, 2010.
UNIVERSAL INSURANCE HOLDINGS, INC.
TABLE OF CONTENTS
Page No.
PART I: FINANCIAL INFORMATION
Item 1.
|
Financial Statements (Unaudited)
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
4
|
|
|
|
|
Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009
|
5
|
|
|
|
|
Condensed Consolidated Statements of Operations for the Nine-Month and Three-Month Periods Ended September 30, 2010 and 2009
|
6
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|
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Condensed Consolidated Statements of Stockholders’ Equity for the Nine-Month and Three-Month Periods Ended September 30, 2010 and 2009
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7
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|
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|
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Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2010 and 2009
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8
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|
|
|
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Notes to Condensed Consolidated Financial Statements
|
9
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|
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
33
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|
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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53
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|
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Item 4.
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Controls and Procedures
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55
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|
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PART II:
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OTHER INFORMATION
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|
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Item 1.
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Legal Proceedings
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55
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Item 1A.
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Risk Factors
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56
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|
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
|
56
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Item 3.
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Defaults Upon Senior Securities
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56
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|
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Item 4.
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(Removed and Reserved)
|
56
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|
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Item 5.
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Other Information
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56
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Item 6.
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Exhibits
|
56
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Signatures
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57
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of
Universal Insurance Holdings, Inc. and Subsidiaries
Fort Lauderdale, Florida
We have reviewed the accompanying condensed consolidated balance sheet of Universal Insurance Holdings, Inc. and Subsidiaries as of September 30, 2010 and the related condensed consolidated statements of operations for the nine-month and three-month periods ended September 30, 2010 and 2009 and cash flows for each of the nine-month periods ended September 30, 2010 and 2009. These interim financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
/s/ Blackman Kallick LLP
Chicago, Illinois
November 9, 2010
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
|
|
(Unaudited)
September 30,
2010
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
294,972,027 |
|
|
$ |
192,924,291 |
|
Investments:
|
|
|
|
|
|
|
|
|
Trading securities, at fair value
|
|
|
104,356,012 |
|
|
|
- |
|
Available-for-sale securities, at fair value
|
|
|
- |
|
|
|
114,797,010 |
|
Real estate, net
|
|
|
4,100,539 |
|
|
|
3,289,893 |
|
Prepaid reinsurance premiums
|
|
|
228,363,400 |
|
|
|
200,294,241 |
|
Reinsurance recoverables
|
|
|
67,336,233 |
|
|
|
91,816,433 |
|
Premiums receivable, net
|
|
|
48,516,258 |
|
|
|
37,363,110 |
|
Receivable from securities
|
|
|
13,061,387 |
|
|
|
6,259,973 |
|
Other receivables
|
|
|
2,805,825 |
|
|
|
5,068,367 |
|
Income taxes recoverable
|
|
|
- |
|
|
|
3,211,874 |
|
Property and equipment, net
|
|
|
1,280,798 |
|
|
|
1,245,858 |
|
Deferred policy acquisition costs, net
|
|
|
12,852,849 |
|
|
|
9,464,624 |
|
Deferred income taxes
|
|
|
10,466,570 |
|
|
|
11,894,289 |
|
Other assets
|
|
|
900,239 |
|
|
|
617,337 |
|
Total assets
|
|
$ |
789,012,137 |
|
|
$ |
678,247,300 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
Unpaid losses and loss adjustment expenses
|
|
$ |
136,857,850 |
|
|
$ |
127,197,753 |
|
Unearned premiums
|
|
|
346,304,445 |
|
|
|
278,370,544 |
|
Advance premium
|
|
|
20,957,517 |
|
|
|
17,078,558 |
|
Accounts payable
|
|
|
3,496,095 |
|
|
|
3,172,626 |
|
Bank overdraft
|
|
|
24,778,730 |
|
|
|
20,297,061 |
|
Reinsurance payable, net
|
|
|
67,932,331 |
|
|
|
73,104,595 |
|
Income taxes payable
|
|
|
3,464,260 |
|
|
|
368,968 |
|
Payable for securities
|
|
|
379,473 |
|
|
|
- |
|
Other accrued expenses
|
|
|
22,671,787 |
|
|
|
20,750,385 |
|
Long-term debt
|
|
|
23,529,412 |
|
|
|
24,632,353 |
|
Total liabilities
|
|
|
650,371,900 |
|
|
|
564,972,843 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
|
Cumulative convertible preferred stock, $.01 par value
|
|
|
1,077 |
|
|
|
1,087 |
|
Authorized shares - 1,000,000
|
|
|
|
|
|
|
|
|
Issued shares - 107,690 and 108,640
|
|
|
|
|
|
|
|
|
Outstanding shares - 107,690 and 108,640
|
|
|
|
|
|
|
|
|
Minimum liquidation preference - $287,240 and $288,190
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value
|
|
|
408,771 |
|
|
|
402,146 |
|
Authorized shares - 55,000,000
|
|
|
|
|
|
|
|
|
Issued shares - 40,877,088 and 40,214,884
|
|
|
|
|
|
|
|
|
Outstanding shares - 39,166,033 and 37,774,765
|
|
|
|
|
|
|
|
|
Treasury shares, at cost - 1,711,054 and 1,809,119 shares
|
|
|
(7,389,414 |
) |
|
|
(7,948,606 |
) |
Common stock held in trust, at cost - 0 and 631,000 shares
|
|
|
- |
|
|
|
(511,110 |
) |
Additional paid-in capital
|
|
|
37,568,052 |
|
|
|
36,666,914 |
|
Accumulated other comprehensive income, net of taxes
|
|
|
5,437 |
|
|
|
563,654 |
|
Retained earnings
|
|
|
108,046,314 |
|
|
|
84,100,372 |
|
Total stockholders' equity
|
|
|
138,640,237 |
|
|
|
113,274,457 |
|
Total liabilities and stockholders' equity
|
|
$ |
789,012,137 |
|
|
$ |
678,247,300 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine
|
|
|
For the Three
|
|
|
|
Months Ended September 30,
|
|
|
Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
PREMIUMS EARNED AND OTHER REVENUES
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct premiums written
|
|
$ |
520,781,570 |
|
|
$ |
436,610,689 |
|
|
$ |
152,662,238 |
|
|
$ |
134,626,400 |
|
Ceded premiums written
|
|
|
(357,411,323 |
) |
|
|
(328,518,186 |
) |
|
|
(108,539,124 |
) |
|
|
(104,152,022 |
) |
Net premiums written
|
|
|
163,370,247 |
|
|
|
108,092,503 |
|
|
|
44,123,114 |
|
|
|
30,474,378 |
|
(Increase) decrease in net unearned premium
|
|
|
(39,864,743 |
) |
|
|
(200,377 |
) |
|
|
4,708,040 |
|
|
|
2,283,358 |
|
Premiums earned, net
|
|
|
123,505,504 |
|
|
|
107,892,126 |
|
|
|
48,831,154 |
|
|
|
32,757,736 |
|
Net investment income
|
|
|
376,575 |
|
|
|
1,385,007 |
|
|
|
66,004 |
|
|
|
586,525 |
|
Realized gains on investments
|
|
|
11,993,359 |
|
|
|
13,588,681 |
|
|
|
6,249,015 |
|
|
|
12,136,072 |
|
Unrealized gains on investments
|
|
|
8,597,233 |
|
|
|
- |
|
|
|
8,597,233 |
|
|
|
- |
|
Foreign currency transaction gains
|
|
|
800,990 |
|
|
|
6,156,945 |
|
|
|
(8,060 |
) |
|
|
6,084,629 |
|
Commission revenue
|
|
|
25,469,318 |
|
|
|
23,413,086 |
|
|
|
7,948,019 |
|
|
|
8,105,468 |
|
Other revenue
|
|
|
3,488,748 |
|
|
|
4,214,347 |
|
|
|
1,468,416 |
|
|
|
1,312,617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums earned and other revenues
|
|
|
174,231,727 |
|
|
|
156,650,192 |
|
|
|
73,151,781 |
|
|
|
60,983,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses
|
|
|
77,856,730 |
|
|
|
68,695,552 |
|
|
|
29,370,125 |
|
|
|
23,768,729 |
|
General and administrative expenses
|
|
|
43,820,836 |
|
|
|
36,789,168 |
|
|
|
20,242,856 |
|
|
|
18,674,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
121,677,566 |
|
|
|
105,484,720 |
|
|
|
49,612,981 |
|
|
|
42,443,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
52,554,161 |
|
|
|
51,165,472 |
|
|
|
23,538,800 |
|
|
|
18,539,574 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, current
|
|
|
18,980,805 |
|
|
|
16,127,712 |
|
|
|
7,324,661 |
|
|
|
7,178,058 |
|
Income taxes, deferred
|
|
|
1,417,694 |
|
|
|
3,446,852 |
|
|
|
1,769,454 |
|
|
|
(153,004 |
) |
Income taxes, net
|
|
|
20,398,499 |
|
|
|
19,574,564 |
|
|
|
9,094,115 |
|
|
|
7,025,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$ |
32,155,662 |
|
|
$ |
31,590,908 |
|
|
$ |
14,444,685 |
|
|
$ |
11,514,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income per common share
|
|
$ |
0.82 |
|
|
$ |
0.84 |
|
|
$ |
0.37 |
|
|
$ |
0.31 |
|
Weighted average of common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding - Basic
|
|
|
39,075,571 |
|
|
|
37,601,409 |
|
|
|
39,167,241 |
|
|
|
37,625,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fully diluted net income per share
|
|
$ |
0.80 |
|
|
$ |
0.78 |
|
|
$ |
0.36 |
|
|
$ |
0.28 |
|
Weighted average of common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding - Diluted
|
|
|
40,386,445 |
|
|
|
40,374,409 |
|
|
|
40,276,276 |
|
|
|
40,671,509 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividend declared per common share
|
|
$ |
0.22 |
|
|
$ |
0.34 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine
|
|
|
For the Three
|
|
|
|
Months Ended September 30,
|
|
|
Months Ended September 30,
|
|
|
|
|
2010 |
|
|
|
2009 |
|
|
|
2010 |
|
|
|
2009 |
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
32,155,662 |
|
|
$ |
31,590,908 |
|
|
$ |
14,444,685 |
|
|
$ |
11,514,520 |
|
Change in net unrealized (losses) gains on investments, net of tax
|
|
|
(558,217 |
) |
|
|
4,590,905 |
|
|
|
408,684 |
|
|
|
(3,638,071 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$ |
31,597,445 |
|
|
$ |
36,181,813 |
|
|
$ |
14,853,369 |
|
|
$ |
7,876,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(Unaudited)
|
|
For the Nine Months Ended September 30, 2010 |
|
|
|
Common Shares
|
|
|
Preferred Stock Shares
|
|
|
Common Stock Amount
|
|
|
Preferred Stock Amount
|
|
|
Additional Paid-In Capital
|
|
|
Retained Earnings
|
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
|
Stock Held in Trust
|
|
|
Treasury Stock
|
|
|
Total Stockholders’ Equity
|
|
Balance, Dec. 31, 2009
|
|
|
40,214,884 |
|
|
|
108,640 |
|
|
$ |
402,146 |
|
|
$ |
1,087 |
|
|
$ |
36,666,914 |
|
|
$ |
84,100,372 |
|
|
$ |
563,654 |
|
|
$ |
(511,110 |
) |
|
$ |
(7,948,606 |
) |
|
$ |
113,274,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued
|
|
|
1,900,207 |
|
|
|
|
|
|
|
19,002 |
|
|
|
|
|
|
|
1,858,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,715,261 |
) |
|
|
(2,838,181 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock conversion
|
|
|
1,187 |
|
|
|
(950 |
) |
|
|
12 |
|
|
|
(10 |
) |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of shares from SGT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
939,900 |
|
|
|
|
|
|
|
|
|
|
|
511,110 |
|
|
|
(2,328,859 |
) |
|
|
(877,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of treasury shares
|
|
|
(1,239,190 |
) |
|
|
|
|
|
|
(12,389 |
) |
|
|
|
|
|
|
(7,591,863 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,603,312 |
|
|
|
(940 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,766,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,766,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,155,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,155,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,660,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,660,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(421,894 |
) |
|
|
421,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
690,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
690,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration of dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,631,614 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,631,614 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of investments to trading portfolio, net of tax effect of $253,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
403,137 |
|
|
|
|
|
|
|
|
|
|
|
403,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain on invest, net of tax effect of $(603,732)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(961,354 |
) |
|
|
|
|
|
|
|
|
|
|
(961,354 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Sept. 30, 2010
|
|
|
40,877,088 |
|
|
|
107,690 |
|
|
$ |
408,771 |
|
|
$ |
1,077 |
|
|
$ |
37,568,052 |
|
|
$ |
108,046,314 |
|
|
$ |
5,437 |
|
|
$ |
- |
|
|
$ |
(7,389,414 |
) |
|
$ |
138,640,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended September 30, 2009
|
|
Balance Dec. 31, 2008
|
|
|
40,158,019 |
|
|
|
138,640 |
|
|
$ |
401,578 |
|
|
$ |
1,387 |
|
|
$ |
33,587,414 |
|
|
$ |
75,654,070 |
|
|
$ |
24,834 |
|
|
$ |
(733,860 |
) |
|
$ |
(7,381,768 |
) |
|
$ |
101,553,655 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued
|
|
|
20,000 |
|
|
|
|
|
|
|
200 |
|
|
|
|
|
|
|
21,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock conversion
|
|
|
75,000 |
|
|
|
(30,000 |
) |
|
|
750 |
|
|
|
(300 |
) |
|
|
(450 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of shares from SGT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136,550 |
|
|
|
|
|
|
|
|
|
|
|
36,450 |
|
|
|
(189,537 |
) |
|
|
(16,537 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock compensation plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,421,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,421,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,590,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,590,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefits from stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
490,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration of dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,807,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,807,201 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net unrealized gain on invest, net of tax effect of $2,883,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,590,905 |
|
|
|
|
|
|
|
|
|
|
|
4,590,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, Sept. 30, 2009
|
|
|
40,253,019 |
|
|
|
108,640 |
|
|
$ |
402,528 |
|
|
$ |
1,087 |
|
|
$ |
35,706,602 |
|
|
$ |
94,437,777 |
|
|
$ |
4,615,739 |
|
|
$ |
(697,410 |
) |
|
$ |
(7,571,305 |
) |
|
$ |
128,895,018 |
|
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net Income
|
|
$ |
32,155,662 |
|
|
$ |
31,590,908 |
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
Bad debt expense
|
|
|
1,665,919 |
|
|
|
1,056,636 |
|
Depreciation
|
|
|
731,817 |
|
|
|
336,075 |
|
Amortization of cost of stock options
|
|
|
1,766,349 |
|
|
|
1,421,332 |
|
Amortization of restricted stock grants
|
|
|
690,372 |
|
|
|
490,407 |
|
Realized gains on investments
|
|
|
(11,993,359 |
) |
|
|
(13,588,681 |
) |
Unrealized gains on investments
|
|
|
(8,597,233 |
) |
|
|
- |
|
Foreign currency gains on investments
|
|
|
(834,529 |
) |
|
|
(6,108,112 |
) |
Amortization of premium / accretion of discount, net
|
|
|
404,822 |
|
|
|
203,653 |
|
Deferred income taxes
|
|
|
1,778,281 |
|
|
|
3,427,227 |
|
Other
|
|
|
(20,935 |
) |
|
|
130,121 |
|
Net change in assets and liabilities relating to operating activities:
|
|
|
|
|
|
|
|
|
Prepaid reinsurance premiums
|
|
|
(28,069,159 |
) |
|
|
(34,804,467 |
) |
Reinsurance recoverables
|
|
|
24,480,200 |
|
|
|
(4,621,514 |
) |
Premiums receivable, net
|
|
|
(12,819,067 |
) |
|
|
(5,005,214 |
) |
Other receivables
|
|
|
2,035,488 |
|
|
|
(2,817,396 |
) |
Income taxes recoverable
|
|
|
3,211,874 |
|
|
|
1,624,875 |
|
Deferred policy acquisition costs, net
|
|
|
(3,388,225 |
) |
|
|
(8,708,186 |
) |
Purchases of fixed maturities, trading
|
|
|
(287,865,409 |
) |
|
|
- |
|
Proceeds from sales of fixed maturities, trading
|
|
|
338,319,461 |
|
|
|
- |
|
Purchases of equity securities, trading
|
|
|
(60,245,223 |
) |
|
|
- |
|
Proceeds from sale of equity securities, trading
|
|
|
56,968,340 |
|
|
|
- |
|
Other assets
|
|
|
(150,404 |
) |
|
|
(164,470 |
) |
Unpaid losses and loss adjustment expenses
|
|
|
9,660,097 |
|
|
|
10,315,726 |
|
Unearned premiums
|
|
|
67,933,901 |
|
|
|
35,004,845 |
|
Accounts payable
|
|
|
323,469 |
|
|
|
58,414 |
|
Reinsurance payable
|
|
|
(5,172,264 |
) |
|
|
55,964,083 |
|
Income taxes payable
|
|
|
3,095,292 |
|
|
|
235,571 |
|
Other accrued expenses
|
|
|
1,921,402 |
|
|
|
8,279,954 |
|
Advance premium
|
|
|
3,878,959 |
|
|
|
3,156,081 |
|
Net cash provided by operating activities
|
|
|
131,865,898 |
|
|
|
77,477,868 |
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of property
|
|
|
32,608 |
|
|
|
- |
|
Purchase of real estate
|
|
|
(1,016,921 |
) |
|
|
- |
|
Purchases of fixed maturities, available-for-sale
|
|
|
(129,140,469 |
) |
|
|
(206,473,797 |
) |
Proceeds from sales of fixed maturities, available-for-sale
|
|
|
116,237,712 |
|
|
|
203,451,919 |
|
Purchases of equity securities, available-for-sale
|
|
|
(80,730,225 |
) |
|
|
(131,231,211 |
) |
Proceeds from sales of equity securities, available-for-sale
|
|
|
70,680,944 |
|
|
|
79,069,631 |
|
Capital expenditures and building improvements
|
|
|
(572,155 |
) |
|
|
(509,517 |
) |
Net cash used in investing activities
|
|
|
(24,508,506 |
) |
|
|
(55,692,975 |
) |
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Bank overdraft
|
|
|
4,481,669 |
|
|
|
4,559,007 |
|
Preferred stock dividend
|
|
|
(14,962 |
) |
|
|
(22,462 |
) |
Common stock dividend
|
|
|
(8,616,650 |
) |
|
|
(8,268,279 |
) |
Issuance of common stock
|
|
|
7,000 |
|
|
|
22,000 |
|
Treasury shares on option exercise
|
|
|
(3,723,972 |
) |
|
|
(16,537 |
) |
Excess tax benefits from stock-based compensation
|
|
|
3,660,200 |
|
|
|
19,625 |
|
Repayments of loans payable
|
|
|
(1,102,941 |
) |
|
|
- |
|
Net cash used in financing activities
|
|
|
(5,309,656 |
) |
|
|
(3,706,646 |
) |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
102,047,736 |
|
|
|
18,078,247 |
|
Cash and cash equivalents at beginning of period
|
|
|
192,924,291 |
|
|
|
256,964,637 |
|
Cash and cash equivalents at end of period
|
|
$ |
294,972,027 |
|
|
$ |
275,042,884 |
|
|
|
|
|
|
|
|
|
|
Non cash items:
|
|
|
|
|
|
|
|
|
Dividends accrued
|
|
$ |
- |
|
|
$ |
4,516,460 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2010
(Unaudited)
1. Nature of Operations and Basis of Presentation
Nature of Operations
The Company was originally incorporated as Universal Heights, Inc. in Delaware in November 1990. The Company changed its name to Universal Insurance Holdings, Inc. on January 12, 2001. The Company, through its wholly owned subsidiary, Universal Insurance Holding Company of Florida, formed Universal Property & Casualty Insurance Company (“UPCIC”) in 1997. The Company has since evolved into a vertically integrated insurance holding company, which through its various subsidiaries, covers substantially all aspects of insurance underwriting, distribution and claims processing. The Company’s primary product is homeowners’ insurance.
Basis of Presentation
The Company’s unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of Universal Insurance Holdings, Inc. and its subsidiaries. We have made all adjustments that, in our opinion, are necessary for a fair statement of results of the interim periods, and all such adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements should be read in conjunction with our annual audited consolidated financial statements and related notes for the year ended December 31, 2009. The condensed consolidated balance sheet at December 31, 2009 was derived from audited financial statements, but does not include all disclosures required by GAAP. Certain financial information that is included in annual financial statements prepared in accordance with GAAP is not required for interim reporting and has been condensed or omitted.
Management must make estimates and assumptions that affect amounts reported in our condensed consolidated financial statements and in disclosures of contingent assets and liabilities. Actual results may differ from those estimates.
To conform to the 2010 presentation, certain amounts in the prior periods’ consolidated financial statements and notes have been reclassified. Such reclassifications had no effect on net income or stockholders’ equity.
2. Significant Accounting Policies
The Company reported Significant Accounting Policies in its Annual Report on Form 10-K for the year ended December 31, 2009. The following are new or revised disclosures or disclosures required on a quarterly basis.
Trading Securities. The Company’s trading securities include marketable fixed maturity and equity securities with readily determinable fair values that the Company intends to trade. The securities are carried at fair value and all applicable interest and dividends, realized gains and losses, and unrealized gains and losses on changes in fair value are included in income.
During the three-month period ended September 30, 2010, the Company evaluated the trading activity in its investment portfolio, its investing strategy, and its overall investment program, and concluded that its investment activities throughout the quarter were more consistent with the trading classification. As a result of this evaluation, the Company reclassified its available-for-sale portfolio as a trading portfolio effective July 1, 2010. As a result of the reclassification, pre-tax net unrealized losses in the amount of $656,307 on the available-for-sale portfolio, as of July 1, 2010, were recognized in current period revenues as a reduction of unrealized gains on investments. During the three-month period ended September 30, 2010, the market value of the Company’s trading portfolio increased by $9,253,540 before income taxes. The increase in market value was recorded in current period revenues as unrealized gains on investments.
The Company’s reclassification of its available-for-sale investments to a trading portfolio had the following effect on items reporting in the Condensed Consolidated Financial Statements:
Increase (decrease) in:
|
For the nine months ended
September 30, 2010
|
For the three months ended
September 30, 2010
|
Unrealized gains on investments
|
$8,597,233
|
$8,597,233
|
Net income
|
$5,280,850
|
$5,280,850
|
Basic net income per common share
|
$0.13
|
$0.13
|
Fully diluted net income per common share
|
$0.13
|
$0.13
|
Cash flows from operating activities
|
$47,177,169
|
not presented
|
Cash flows from investing activities
|
$(47,177,169)
|
|
The Company will continue to record future changes in the market value of its trading portfolio directly to revenues as unrealized gains or losses on investments.
Fair Value of Financial Instruments. The Company’s long-term debt was held at a carrying value of $23,529,412 and $24,632,353 as of September 30, 2010 and December 31, 2009, respectively. The fair value of long-term debt as of September 30, 2010 was estimated based on discounted cash flows utilizing interest rates currently offered for similar products and was determined to be $18,175,475 and $18,299,889 as of September 30, 2010 and December 31, 2009, respectively.
Concentrations of Credit Risk. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and reinsurance recoverables.
In order to reduce credit risk for amounts due from reinsurers, the Company’s primary insurance subsidiary, UPCIC, seeks to do business with financially sound reinsurance companies and regularly evaluates the financial strength of all reinsurers used. UPCIC’s largest reinsurer, Everest Reinsurance Company, has the following ratings from each of the rating agencies: A+ from A.M. Best Company, A+ from Standard and Poor’s Rating Services and Aa3 from Moody’s Investors Service, Inc. As of
September 30, 2010 and December 31, 2009, UPCIC’s reinsurance portfolio contained the following authorized reinsurers that had unsecured recoverables for paid and unpaid losses, including incurred but not reported (“IBNR”) reserves, loss adjustment expenses and unearned premiums whose aggregate balance exceeded 3% of UPCIC’s statutory surplus:
Reinsurer
|
As of September 30,
2010
|
|
As of December 31,
2009
|
Everest Reinsurance Company
|
$233,742,057
|
|
$ 208,129,753
|
Florida Hurricane Catastrophe Fund
|
n/a
|
|
24,888,534
|
|
|
|
|
Total
|
$233,742,057
|
|
$ 233,018,287
|
As of September 30, 2010 and December 31, 2009, UPCIC did not have any unsecured recoverables from unauthorized reinsurers exceeding 3% of UPCIC’s statutory surplus.
Stock Compensation. The Company periodically issues restricted common stock and grants options to purchase common stock to its directors, officers and employees. These restricted stock awards and stock option grants are recorded as compensation expense ratably over their respective vesting periods.
Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board ("FASB ") issued new accounting guidance which expands disclosure requirements relating to fair value measurements. The guidance adds requirements for disclosing amounts of and reasons for significant transfers into and out of Levels 1 and 2 and requires gross rather than net disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. The guidance also provides clarification that fair value measurement disclosures are required for each class of assets and liabilities. Disclosures about the valuation techniques and inputs used to measure fair value for measurements that fall in either Level 2 or Level 3 are also required. The Company adopted the provisions of the new guidance as of March 31, 2010 except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which are required for fiscal years beginning after December 15, 2010. Disclosures are not required for earlier periods presented for comparative purposes. The new guidance affects disclosures only; and therefore, the adoption had no impact on the Company’s results of operations or financial position.
In February 2010, the FASB amended the subsequent events guidance issued in May 2009 to remove the requirement for SEC filers to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. The amendment was effective upon issuance. The adoption of this guidance did not have an impact on the Company's consolidated financial condition or results of operations.
3. Insurance Operations
The Company’s primary business consists of transacting homeowners’ insurance through UPCIC. UPCIC collects premiums from policyholders for coverage provided under its insurance policies. Unearned premiums represent amounts that UPCIC would be required to refund policyholders if their policies were canceled. UPCIC determines unearned premiums by calculating the pro-rata amount that would be due to the policyholders at a given point in time based upon the premiums due for the full policy term. At September 30, 2010, UPCIC serviced approximately 576,000 homeowners’ and dwelling fire insurance
policies with direct unearned premiums totaling $346,304,445 and in-force premiums of approximately $651,200,000. At December 31, 2009, UPCIC serviced 541,000 homeowners’ and dwelling fire insurance policies with direct unearned premiums totaling $278,370,544 and in-force premiums of approximately $567,100,000.
The insurance premiums charged by UPCIC are subject to various statutory and regulatory requirements. Among these, UPCIC must offer wind mitigation discounts in accordance with a program mandated by the Florida legislature and implemented by the Florida Office of Insurance Regulation (“OIR”). The level of wind mitigation discounts mandated by the Florida legislature to be effective June 1, 2007 for new business and August 1, 2007 for renewal business have had a significant effect on UPCIC’s premium. The following table reflects the effect of wind mitigation credits received by UPCIC policyholders:
|
|
|
|
Reduction of in-force premium (only policies including wind coverage)
|
Date
|
|
Percentage of UPCIC
policyholders receiving
credits
|
|
Total credits
|
|
|
In-force premium
|
|
|
Percentage reduction of
in-force premium
|
06/01/2007
|
|
1.9% |
|
$ |
6,284,697 |
|
|
$ |
487,866,319 |
|
|
1.3% |
12/31/2007
|
|
11.8% |
|
$ |
31,951,623 |
|
|
$ |
500,136,287 |
|
|
6.0% |
03/31/2008
|
|
16.9% |
|
$ |
52,398,215 |
|
|
$ |
501,523,343 |
|
|
9.5% |
06/30/2008
|
|
21.3% |
|
$ |
74,185,924 |
|
|
$ |
508,411,721 |
|
|
12.7% |
09/30/2008
|
|
27.3% |
|
$ |
97,802,322 |
|
|
$ |
515,560,249 |
|
|
16.0% |
12/31/2008
|
|
31.1% |
|
$ |
123,524,911 |
|
|
$ |
514,011,138 |
|
|
19.4% |
03/31/2009
|
|
36.3% |
|
$ |
158,229,542 |
|
|
$ |
530,029,572 |
|
|
23.0% |
06/30/2009
|
|
40.4% |
|
$ |
188,053,342 |
|
|
$ |
544,646,437 |
|
|
25.7% |
09/30/2009
|
|
43.0% |
|
$ |
210,291,783 |
|
|
$ |
554,378,761 |
|
|
27.5% |
12/31/2009
|
|
45.2% |
|
$ |
219,974,130 |
|
|
$ |
556,577,449 |
|
|
28.3% |
03/31/2010
|
|
47.8% |
|
$ |
235,717,892 |
|
|
$ |
569,870,173 |
|
|
29.3% |
06/30/2010
|
|
50.9% |
|
$ |
281,386,124 |
|
|
$ |
620,276,858 |
|
|
31.2% |
09/30/2010
|
|
52.4% |
|
$ |
291,306,407 |
|
|
$ |
634,285,246 |
|
|
31.5% |
4. Reinsurance
UPCIC seeks to protect against the risk of catastrophic loss by obtaining reinsurance coverage as of the beginning of the hurricane season on June 1 of each year. UPCIC’s reinsurance program consists of excess of loss, quota share and catastrophe reinsurance, subject to the terms and conditions of the applicable agreements.
On May 31, 2010, UPCIC and Segregated Account T25 – Universal Insurance Holdings of White Rock Insurance (SAC) Ltd. (“T25”) mutually agreed to a Commutation and Settlement Agreement related to the Underlying Property Catastrophe Excess of Loss Reinsurance Contract effective March 23, 2010. A replacement contract was entered into between the parties on June 1, 2010 as part of UPCIC’s reinsurance program in effect for the period June 1, 2010, through May 31, 2011. In conjunction with the commutation and entering into a new contract, the Company contributed additional capital to T25 due to the increased reinsurance coverage and collateral requirements of the replacement contract, effective June 1, 2010. The Company is the account owner of T25 under Bermuda law, and the reinsurance transactions between T25 and UPCIC are eliminated in consolidation.
UPCIC’s in-force policyholder coverage for windstorm exposures as of September 30, 2010 was approximately $124.2 billion. In the normal course of business, UPCIC also seeks to reduce the risk of
loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers.
Amounts recoverable from reinsurers are estimated in a manner consistent with the reinsurance contracts. Reinsurance premiums, losses and loss adjustment expenses (“LAE”) are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Reinsurance ceding commissions received are deferred and netted against policy acquisition costs and amortized over the effective period of the related insurance policies.
2010 Reinsurance Program
Quota Share
Effective June 1, 2010, UPCIC entered into a quota share reinsurance contract with Everest Re. Everest Re has the following ratings from each of the rating agencies: A+ from A.M. Best Company, A+ from Standard and Poor’s Rating Services and Aa3 from Moody’s Investors Service, Inc. Under the quota share contract, through May 31, 2011, UPCIC cedes 50% of its gross written premiums, losses and LAE for policies with coverage for wind risk with a ceding commission equal to 25% of ceded gross written premiums. In addition, the quota share contract has a limitation for any one occurrence of 56% of Gross Premiums Earned, not to exceed $160,000,000 (of which UPCIC's net liability on the first $160,000,000 of losses in a first event scenario is $22,500,000, in a second event scenario is $13,150,000 and in a third event scenario is $15,000,000) and a limitation from losses arising out of events that are assigned a catastrophe serial number by the Property Claims Services ("PCS") office of 140% of Gross Premiums Earned, not to exceed $400,000,000.
Excess Per Risk
Effective June 1, 2010 through May 31, 2011, UPCIC entered into a multiple line excess per risk contract with various reinsurers. Under the multiple line excess per risk contract, UPCIC obtained coverage of $1,400,000 in excess of $600,000 ultimate net loss for each risk and each property loss, and $1,000,000 in excess of $300,000 for each casualty loss. A $7,000,000 aggregate limit applies to the term of the contract.
Effective June 1, 2010 through May 31, 2011, UPCIC entered into a property per risk excess contract covering ex-wind only policies. Under the property per risk excess contract, UPCIC obtained coverage of $400,000 in excess of $200,000 for each property loss. A $2,000,000 aggregate limit applies to the term of the contract.
The total cost of the Company's multiple line excess reinsurance program effective June 1, 2010 through May 31, 2011 is $3,500,000 of which the Company's cost is 50%, or $1,750,000, and the quota share reinsurers' cost is the remaining 50%. The total cost of the Company's property per risk reinsurance program effective June 1, 2010 through May 31, 2011 is $475,000.
Excess Catastrophe
Effective June 1, 2010 through May 31, 2011, under excess catastrophe contracts, UPCIC obtained catastrophe coverage of $660,500,000 in excess of $160,000,000 covering certain loss occurrences including hurricanes. The coverage of $660,500,000 in excess of $160,000,000 has a second full limit available to UPCIC; additional premium is calculated pro rata as to amount and 100% as to time, as applicable.
Effective June 1, 2010 through May 31, 2011, UPCIC purchased reinstatement premium protection which reimburses UPCIC for its cost to reinstate the catastrophe coverage of the first $310,500,000 (part of $660,500,000) in excess of $160,000,000.
Effective June 1, 2010 through May 31, 2011, under an underlying excess catastrophe contract, UPCIC obtained catastrophe coverage of 50% of $105,000,000 in excess of $55,000,000 covering certain loss occurrences including hurricanes. UPCIC entered into this contract with a segregated account that was established by a third-party reinsurer in accordance with Bermuda law. The Company has secured the obligations of the segregated account by contributing the amount of the segregated account’s liability for losses, net of UPCIC’s required premium payments, to a trust account.
Effective June 1, 2010 through May 31, 2011, under an excess catastrophe contract specifically covering risks located in North Carolina and South Carolina, UPCIC obtained catastrophe coverage of 50% of $40,000,000 in excess of $10,000,000 covering certain loss occurrences including hurricanes. The coverage of 50% of $40,000,000 in excess of $10,000,000 has a second full limit available to UPCIC; additional premium is calculated pro rata as to amount and 100% as to time, as applicable. The cost of UPCIC’s excess catastrophe contract specifically covering risks located in North Carolina and South Carolina is $2,025,000.
Effective June 1, 2010 through May 31, 2011, UPCIC also obtained subsequent catastrophe event excess of loss reinsurance to cover certain levels of UPCIC's net retention through three catastrophe events including hurricanes, as follows:
|
|
2ndEvent
|
|
3rdEvent
|
|
|
|
|
|
|
Coverage
|
$123,700,000 in excess of $36,300,000 each loss occurrence subject to an otherwise recoverable amount of $123,700,000 (placed 50%)
|
$130,000,000 in excess of $30,000,000 each loss occurrence subject to an otherwise
recoverable amount of $260,000,000
(placed 100%)
|
|
|
|
|
|
Deposit premium (100%)
|
$22,266,000
|
$9,100,000
|
|
Minimum premium (100%)
|
$17,812,800
|
$7,280,000
|
|
Premium rate -% of
total insured value
|
0.020088%
|
0.00821%
|
UPCIC also obtained coverage from the Florida Hurricane Catastrophe Fund (“FHCF”), which is administered by the Florida State Board of Administration (“SBA”). Under the reimbursement agreement, the FHCF would reimburse UPCIC, for each loss occurrence during the contract year, for 90% of the ultimate loss paid by UPCIC in excess of its retention plus 5% of the reimbursed losses to cover loss
adjustment expenses, subject to an aggregate contract limit. A covered event means any one storm declared to be a hurricane by the National Hurricane Center for losses incurred in Florida, both while it is a hurricane and through subsequent downgrades. For the contract year June 1, 2010 to May 31, 2011, UPCIC purchased the traditional FHCF coverage and did not purchase the Temporary Increase in Coverage Limit Option offered to insurers by the FHCF. UPCIC’s estimate of its traditional FHCF coverage is based upon UPCIC’s exposure in-force as of June 30, 2010, as reported by UPCIC to the FHCF on September 1, 2010 and is 90% of $1,118,744,624 in excess of $422,612,828. The estimated premium for this coverage is $68,296,648.
Also at June 1, 2010, the FHCF made available, and UPCIC obtained, $10,000,000 of additional catastrophe excess of loss coverage with one free reinstatement of coverage to carriers qualified as Limited Apportionment Companies or companies that participated in the Insurance Capital Build-Up Incentive (“ICBUI”) Program offered by the FHCF, such as UPCIC. This particular layer of coverage at June 1, 2010 is $10,000,000 in excess of $26,300,000. The premium for this coverage is $5,000,000.
On October 29, 2010, the SBA published its most recent estimate of the FHCF’s loss reimbursement capacity in the Florida Administrative Weekly. The SBA estimated that the FHCF’s total claims-paying capacity under current market conditions for the 2010 - 2011 contract year is projected to be $18.776 billion over the 12-month period following the estimate. The SBA also referred to its report entitled, “October 2010 Estimated Claims Paying Capacity Report” (“Report”) as providing greater detail regarding the FHCF’s claims-paying capacity. The Report estimated that the FHCF’s minimum 12-month claims-paying capacity is $19.414 billion and its maximum 12-month claims-paying capacity is $35.414 billion with an average claims-paying capacity of $25.414 billion. This projected claims-paying capacity exceeds the FHCF’s maximum statutory obligation for 2010 of $18.776 billion. Claims-paying capacity exceeding the FHCF’s maximum statutory obligation for a single contract year may be available for insurer reimbursements in future contract years. UPCIC purchased the FHCF Mandatory Layer of Coverage for the 2010 - 2011 contract year, which corresponds to FHCF loss reimbursement capacity of $17 billion. In the event the aggregate amount of reimbursement coverage requested by insurers for a particular contract year exceeds the FHCF’s actual claims-paying capacity, the FHCF’s obligation to reimburse insurers is limited by law to its actual claims-paying capacity. The aggregate cost of UPCIC’s reinsurance program may increase should UPCIC deem it necessary to purchase additional private market reinsurance due to reduced estimates of the FHCF’s loss reimbursement capacity.
The total cost of UPCIC's multiple line excess and property per risk reinsurance program effective June 1, 2010 through May 31, 2011 is $3,975,000 of which UPCIC's cost is $2,225,000, and the quota share reinsurers cost is the remaining $1,750,000. The cost of UPCIC’s underlying excess catastrophe contract is $42,000,000, subject to a potential return premium of up to $31,458,000. The total cost of UPCIC's private catastrophe reinsurance program effective June 1, 2010 through May 31, 2011 is $134,538,000 of which UPCIC's cost is 50%, or $67,269,000, and the quota share reinsurers cost is the remaining 50%. In addition, UPCIC purchases reinstatement premium protection as described above, the cost of which is $16,210,064. UPCIC’s cost of the subsequent catastrophe event excess of loss reinsurance is $15,683,000. The estimated premium that UPCIC plans to cede to the FHCF for the 2010 hurricane season is $68,296,648 of which UPCIC's cost is 50%, or $34,148,324 and the quota share reinsurers' cost is the remaining 50%. UPCIC is also participating in the additional coverage option for Limited Apportionment Companies or companies that participated in the ICBUI Program offered by the FHCF, the premium for which is $5,000,000 of which UPCIC's cost is 50%, or $2,500,000, and the quota share reinsurers' cost is the remaining 50%. The Company is responsible for losses related to catastrophic events with incurred losses in excess of coverage provided by UPCIC's reinsurance program which could have a material adverse effect on the Company's business, financial condition and results of operations. UPCIC’s private market reinsurance costs are subject to increases or decreases if changes in its earned premiums or the
total insured value under its in-force policies as of August 31, 2010, are outside of ranges specified in certain of its reinsurance contracts.
Effective June 1, 2010 through December 31, 2010, the Company obtained $60,000,000 of coverage via a catastrophe risk-linked transaction contract in the event UPCIC’s catastrophe coverage is exhausted. The total cost of the Company’s risk-linked transaction contract is $8,250,000.
UPCIC is responsible for losses related to catastrophic events with incurred losses in excess of coverage provided by UPCIC’s reinsurance program and for losses that otherwise are not covered by the reinsurance program, which could have a material adverse effect on UPCIC’s and the Company’s business, financial condition and results of operations. UPCIC estimates based upon its in-force exposures as of September 30, 2010, that it had coverage to approximately the 125-year Probable Maximum Loss (PML), modeled using AIR CLASIC/2 v.11.0, long term, without demand surge and without loss amplification. PML is a general concept applied in the insurance industry for defining high loss scenarios that should be considered when underwriting insurance risk. Catastrophe models produce loss estimates that are qualified in terms of dollars and probabilities. Probability of exceedance or the probability that the actual loss level will exceed a particular threshold is a standard catastrophe model output. For example, the 100-year PML represents a 1.00% Annual Probability of Exceedance (the 125-year PML represents a 0.800% Annual Probability of Exceedance). It is estimated that the 100-year PML is likely to be equaled or exceeded in one year out of 100 on average, or 1 percent of the time. It is the 99th percentile of the annual loss distribution.
UPCIC limits the maximum net loss that can arise from large risks or risks in concentrated areas of exposure by reinsuring (ceding) certain levels of risks with other insurers or reinsurers on an automatic basis under reinsurance contracts. The reinsurance arrangements are intended to provide UPCIC with the ability to limit its exposure to losses within its capital resources. Such reinsurance includes quota share, excess of loss and catastrophe forms of reinsurance. UPCIC submits the reinsurance program for regulatory review to the OIR.
The Company’s reinsurance arrangements had the following effect on certain items in the condensed consolidated Statements of Operations:
|
|
Nine Months Ended September 30, 2010
|
|
|
Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and Loss
Adjustment
Expenses
|
|
|
|
|
|
|
|
|
Loss and Loss
Adjustment
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$ |
520,781,570 |
|
|
$ |
452,847,668 |
|
|
$ |
156,537,023 |
|
|
$ |
436,610,689 |
|
|
$ |
401,605,845 |
|
|
$ |
139,259,179 |
|
Ceded
|
|
|
(357,411,323 |
) |
|
|
(329,342,164 |
) |
|
|
(78,680,293 |
) |
|
|
(328,518,186 |
) |
|
|
(293,713,719 |
) |
|
|
(70,563,627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$ |
163,370,247 |
|
|
$ |
123,505,504 |
|
|
$ |
77,856,730 |
|
|
$ |
108,092,503 |
|
|
$ |
107,892,126 |
|
|
$ |
68,695,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2010
|
|
|
Three Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss and Loss
Adjustment
Expenses
|
|
|
|
|
|
|
|
|
Loss and Loss
Adjustment
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$ |
152,662,238 |
|
|
$ |
162,093,491 |
|
|
$ |
59,511,679 |
|
|
$ |
134,626,400 |
|
|
$ |
139,207,538 |
|
|
$ |
48,330,038 |
|
Ceded
|
|
|
(108,539,124 |
) |
|
|
(113,262,337 |
) |
|
|
(30,141,553 |
) |
|
|
(104,152,022 |
) |
|
|
(106,449,802 |
) |
|
|
(24,561,309 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$ |
44,123,114 |
|
|
$ |
48,831,154 |
|
|
$ |
29,370,126 |
|
|
$ |
30,474,378 |
|
|
$ |
32,757,736 |
|
|
$ |
23,768,729 |
|
Other Amounts:
Prepaid reinsurance premiums and reinsurance recoverables as of September 30, 2010 and December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid reinsurance premiums
|
|
$ |
228,363,400 |
|
|
$ |
200,294,241 |
|
|
|
|
|
|
|
|
|
|
Reinsurance recoverable on unpaid losses and LAE
|
|
$ |
67,151,722 |
|
|
$ |
62,900,913 |
|
Reinsurance recoverable on paid losses
|
|
|
184,511 |
|
|
|
28,915,520 |
|
Reinsurance recoverables
|
|
$ |
67,336,233 |
|
|
$ |
91,816,433 |
|
|
|
|
|
|
|
|
|
|
The Company has determined that a right of offset exists between UPCIC and its reinsurers. Reinsurance payable to reinsurers has been offset by ceding commissions and inuring premiums receivable from reinsurers as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance payable, net of ceding commissions due from reinsurers
|
|
$ |
109,972,621 |
|
|
$ |
105,536,847 |
|
Inuring premiums receivable
|
|
|
(42,040,290 |
) |
|
|
(32,432,252 |
) |
|
|
|
|
|
|
|
|
|
Reinsurance payable, net
|
|
$ |
67,932,331 |
|
|
$ |
73,104,595 |
|
|
|
|
|
|
|
|
|
|
5. Investments
During the three-month period ended September 30, 2010, the Company evaluated the trading activity in its investment portfolio, its investing strategy, and its overall investment program. As a result of this evaluation, the Company reclassified its available-for-sale portfolio as a trading portfolio effective July 1, 2010. As a result of the reclassification, pre-tax net unrealized losses in the amount of $656,307 on the available-for-sale portfolio, as of July 1, 2010, were recognized in current period revenues as a reduction of unrealized gains on investments. During the three-month period ended September 30, 2010, the market value of the Company’s trading portfolio increased by $9,253,540 before income taxes. The increase in market value was recorded in
current period revenues as unrealized gains on investments. The Company will continue to record future changes in the market value of its trading portfolio directly to revenues as unrealized gains or losses on investments. The net unrealized gain on investments relating to the trading portfolio of $8,597,233 is recorded in the Condensed Consolidated Statement of Operations caption "Unrealized Gains on Investments.”
Major sources of net investment income, are summarized as follows:
|
|
For the Nine Months Ended September 30,
|
|
|
|
2010
|
|
|
2009
|
|
Cash and cash equivalents
|
|
$ |
109,150 |
|
|
$ |
253,073 |
|
Fixed maturities
|
|
|
710,325 |
|
|
|
1,136,568 |
|
Equity securities
|
|
|
36,530 |
|
|
|
634,362 |
|
Total investment income
|
|
|
856,005 |
|
|
|
2,024,003 |
|
Less investment expenses
|
|
|
(479,430 |
) |
|
|
(638,996 |
) |
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$ |
376,575 |
|
|
$ |
1,385,007 |
|
|
|
|
|
|
|
|
|
|
As of September 30, 2010 and December 31, 2009, the Company’s investments consisted of cash and cash equivalents, and investments with carrying values of $399,328,039 and $307,721,301, respectively.
Concentrations of credit risk with respect to cash on deposit are limited by the Company’s policy of investing excess cash in money market accounts and repurchase agreements backed by the US Government and US Government Agency Securities with major national banks. These accounts are held by the Institutional Trust & Custody division of U.S. Bank, the Trust Department of SunTrust Bank and Evergreen Investment Management Company, LLC.
Cash and cash equivalents consisted of checking, repurchase, and money market accounts with carrying values of $294,972,027 and $192,924,291 as of September 30, 2010 and December 31, 2009, respectively, held at the following financial institutions:
|
As of September 30, 2010
|
Financial Institution
|
Cash
|
Money Market Funds
|
Total
|
%
|
|
|
|
|
|
U. S. Bank IT&C (1)
|
$0
|
$71,454,904
|
$71,454,904
|
24.2%
|
Evergreen Investment Management
|
|
|
|
|
Company, L.L.C.
|
0
|
2,909
|
2,909
|
0.0%
|
SunTrust Bank
|
1,203,993
|
0
|
1,203,993
|
0.4%
|
SunTrust Bank Institutional
|
|
|
|
|
Asset Services
|
0
|
197,938,069
|
197,938,069
|
67.2%
|
Wachovia Bank, N.A.
|
660,389
|
|
660,389
|
0.2%
|
Bank of New York Trust Fund
|
0
|
23,276,955
|
23,276,955
|
7.9%
|
All Other Banking Institutions
|
434,808
|
0
|
434,808
|
0.1%
|
|
$2,299,190
|
$292,672,837
|
$294,972,027
|
100.0%
|
|
|
|
|
|
(1) Funds invested with Evergreen Investment Management Company, L.L.C.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
Financial Institution
|
Cash
|
Money Market Funds
|
Total
|
%
|
|
|
|
|
|
U. S. Bank IT&C (1)
|
$0
|
$71,977,371
|
$71,977,371
|
37.3%
|
Evergreen Investment Management
|
0
|
26,909
|
26,909
|
0.0%
|
Company, L.L.C.
|
|
|
|
|
SunTrust Bank
|
1,063,785
|
0
|
1,063,785
|
0.5%
|
SunTrust Bank Institutional
|
|
|
|
|
Asset Services
|
0
|
102,257,833
|
102,257,833
|
53.0%
|
Wachovia Bank, N.A.
|
489,051
|
0
|
489,051
|
0.3%
|
Bank of New York Trust Fund
|
0
|
16,515,181
|
16,515,181
|
8.6%
|
All Other Banking Institutions
|
594,161
|
0
|
594,161
|
0.3%
|
|
$2,146,997
|
$190,777,294
|
$192,924,291
|
100.0%
|
|
|
|
|
|
(1) Funds invested with Evergreen Investment Management Company, L.L.C.
|
|
Effective July 1, 2010, the Company’s investments are classified as trading securities. These securities are reported at fair value, with unrealized gains and losses included in earnings.
The following table shows the realized gains and losses for fixed maturities and equity securities, for the nine-month and three-month periods ended September 30, 2010.
|
|
|
For the Nine Months Ended
|
|
|
|
For the Three Months Ended
|
|
|
|
|
September 30, 2010
|
|
|
|
September 30, 2010
|
|
Fixed maturities
|
|
$ |
4,498,755 |
|
|
$ |
2,602,654 |
|
Equity securities
|
|
|
11,187,280 |
|
|
|
3,993,320 |
|
Total realized gains
|
|
$ |
15,686,035 |
|
|
$ |
6,595,974 |
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
$ |
(365,171 |
) |
|
$ |
(81,269 |
) |
Equity securities
|
|
|
(3,177,480 |
) |
|
|
(167,665 |
) |
Other Investments
|
|
|
(150,025 |
) |
|
|
(98,025 |
) |
Total realized losses
|
|
$ |
(3,692,676 |
) |
|
$ |
(346,959 |
) |
|
|
|
|
|
|
|
|
|
Net realized gains on investments
|
|
$ |
11,993,359 |
|
|
$ |
6,249,015 |
|
The Company’s investment portfolio as of September 30, 2010 consisted of trading securities carried at fair value. A summary of the available-for-sale amortized cost (fixed maturities), cost (equity securities), estimated fair value, gross unrealized gains, and gross unrealized losses of fixed maturities and equity securities at December 31, 2009 follows.
|
|
December 31, 2009
|
|
|
|
Amortized Cost
/ Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Estimated Fair Value
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
US government and agency obligations
|
|
$ |
42,296,727 |
|
|
$ |
37,623 |
|
|
$ |
(945,342 |
) |
|
$ |
41,389,008 |
|
Total fixed maturities
|
|
$ |
42,296,727 |
|
|
$ |
37,623 |
|
|
$ |
(945,342 |
) |
|
$ |
41,389,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
|
$ |
53,098,484 |
|
|
$ |
4,079,387 |
|
|
$ |
(216,691 |
) |
|
$ |
56,961,180 |
|
Common stock
|
|
|
18,437,549 |
|
|
|
199,045 |
|
|
|
(2,189,772 |
) |
|
|
16,446,822 |
|
Total equity securities
|
|
$ |
71,536,033 |
|
|
$ |
4,278,432 |
|
|
$ |
(2,406,463 |
) |
|
$ |
73,408,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize, by type, the Company’s investments as of September 30, 2010 and December 31, 2009:
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
Percent
|
|
|
Carrying
|
|
|
Percent
|
|
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
Available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
US government and agency obligations
|
|
$ |
- |
|
|
|
0.0 |
% |
|
$ |
41,389,008 |
|
|
|
36.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodities
|
|
|
- |
|
|
|
0.0 |
% |
|
|
56,961,180 |
|
|
|
49.6 |
% |
Common stock
|
|
|
- |
|
|
|
0.0 |
% |
|
|
16,446,822 |
|
|
|
14.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$ |
- |
|
|
|
0.00 |
% |
|
$ |
114,797,010 |
|
|
|
100.00 |
% |
|
|
September 30, 2010
|
|
|
December 31, 2009
|
|
|
|
Carrying
|
|
|
Percent
|
|
|
Carrying
|
|
|
Percent
|
|
|
|
Amount
|
|
|
of Total
|
|
|
Amount
|
|
|
of Total
|
|
Trading
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
US government and agency obligations
|
|
$ |
3,465,332 |
|
|
|
3.3 |
% |
|
$ |
- |
|
|
|
0.0 |
% |
Foreign obligations
|
|
|
6,173,911 |
|
|
|
5.9 |
% |
|
|
- |
|
|