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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________
FORM 10-Q
________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020

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 001-33251
________________________________________________________

UVE-20200331_G1.JPG
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., Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
(954) 958-1200
(Registrant’s telephone number, including area code)
________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.01 Par Value UVE New York Stock Exchange
        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      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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes     No   




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

        Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 32,403,137 shares of common stock, par value $0.01 per share, outstanding on April 28, 2020.



UNIVERSAL INSURANCE HOLDINGS, INC.
TABLE OF CONTENTS
Page No.
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4
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6
8
9

2

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 its wholly-owned subsidiaries (the “Company”) as of March 31, 2020 and the related condensed consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the three-month periods ended March 31, 2020 and 2019. These interim financial statements are the responsibility of the Company’s management.

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

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Universal Insurance Holdings, Inc. and Subsidiaries as of December 31, 2019 and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated March 2, 2020. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.


/s/ Plante & Moran, PLLC
Chicago, Illinois
May 1, 2020

3

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except per share data)

  As of
March 31, December 31,
2020 2019
ASSETS
Available-for-sale debt securities, at fair value, net of allowance for credit loss of $791, (amortized cost: $851,826 and $828,336)
$ 867,249    $ 855,284   
Equity securities, at fair value (cost: $53,673 and $43,523)
45,838    43,717   
Investment real estate, net 15,481    15,585   
Total invested assets 928,568    914,586   
Cash and cash equivalents 180,780    182,109   
Restricted cash and cash equivalents 2,635    2,635   
Prepaid reinsurance premiums 70,113    175,208   
Reinsurance recoverable 108,491    193,236   
Premium receivable, net 66,568    63,883   
Property and equipment, net 44,859    41,351   
Deferred policy acquisition costs 94,354    91,882   
Income taxes recoverable 17,115    34,283   
Deferred income tax asset, net 15,582    3,351   
Other assets 16,448    17,328   
Total assets $ 1,545,513    $ 1,719,852   
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $ 195,978    $ 267,760   
Unearned premiums 669,881    661,279   
Advance premium 55,763    30,975   
Accounts payable 3,134    2,099   
Book overdraft —    90,401   
Reinsurance payable, net 64,460    122,581   
Other liabilities and accrued expenses 52,450    40,930   
Long-term debt 9,559    9,926   
Total liabilities 1,051,225    1,225,951   
Commitments and Contingencies (Note 12)
STOCKHOLDERS’ EQUITY:
Cumulative convertible preferred stock, $0.01 par value
—    —   
Authorized shares - 1,000
Issued shares - 10 and 10
Outstanding shares - 10 and 10
Minimum liquidation preference, $9.99 and $9.99 per share
Common stock, $0.01 par value
468    467   
Authorized shares - 55,000
Issued shares - 46,766 and 46,707
Outstanding shares - 32,385 and 32,638
Treasury shares, at cost - 14,381 and 14,069
(203,172)   (196,585)  
Additional paid-in capital 97,110    96,036   
Accumulated other comprehensive income, net of taxes 12,015    20,364   
Retained earnings 587,867    573,619   
Total stockholders’ equity 494,288    493,901   
Total liabilities and stockholders’ equity $ 1,545,513    $ 1,719,852   

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
4

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share data)

Three Months Ended
March 31,
2020 2019
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written $ 334,553    $ 289,234   
Change in unearned premium (8,602)   6,143   
Direct premium earned 325,951    295,377   
Ceded premium earned (105,122)   (85,650)  
Premiums earned, net 220,829    209,727   
Net investment income 6,834    8,142   
Net realized gains (losses) on investments 299    (11,525)  
Net change in unrealized gains (losses) of equity securities (8,024)   18,032   
Commission revenue 7,015    5,505   
Policy fees 5,540    5,021   
Other revenue 2,782    1,684   
Total premiums earned and other revenues 235,275    236,586   
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses 135,048    113,094   
General and administrative expenses 72,643    69,748   
Total operating costs and expenses 207,691    182,842   
INCOME BEFORE INCOME TAXES 27,584    53,744   
Income tax expense 7,517    13,596   
NET INCOME $ 20,067    $ 40,148   
Basic earnings per common share $ 0.62    $ 1.16   
Weighted average common shares outstanding - Basic 32,591    34,741   
Diluted earnings per common share $ 0.61    $ 1.14   
Weighted average common shares outstanding - Diluted 32,731    35,206   
Cash dividend declared per common share $ 0.16    $ 0.16   


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Three Months Ended
March 31,
2020 2019
Net income $ 20,067    $ 40,148   
Other comprehensive income (loss), net of taxes (8,946)   11,984   
Comprehensive income $ 11,121    $ 52,132   
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
5

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 (unaudited)
(in thousands, except per share data)  


Treasury Shares Common
Shares
Issued
Preferred
Shares
Issued
Common
Stock
Amount
Preferred
Stock
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Shares,
at Cost
Total
Stockholders’
Equity
Balance, December 31, 2019 (14,069)   46,707    10    $ 467    $ —    $ 96,036    $ 573,619    $ 20,364    $ (196,585)   $ 493,901   
Cumulative effect of changes in accounting principle (ASU 2016-13) —    —    —    —    —    —    (597)   597    —    —   
Balance, January 1, 2020 (14,069)   46,707    10    467    —    96,036    573,022    20,961    (196,585)   493,901   
Vesting of performance share units (25)  
(1)
83    —      —    (1)   —    —    (646)   (646)  
Grant and issue of stock award —   
(1)
  —    —    —    30    —    —    —    30   
Retirement of treasury shares 25    (25)   —    —    —    (646)   —    —    646    —   
Purchases of treasury stock (312)   —    —    —    —    —    —    —    (6,587)   (6,587)  
Share-based compensation —    —    —    —    —    1,691    —    —    —    1,691   
Net income —    —    —    —    —    —    20,067    —    —    20,067   
Other comprehensive income, net of taxes —    —    —    —    —    —    —    (8,946)   —    (8,946)  
Declaration of dividends
($0.16 per common share and
$0.25 per preferred share)
—    —    —    —    —    —    (5,222)   —    —    (5,222)  
Balance, March 31, 2020 (14,381)   46,766    10    $ 468    $ —    $ 97,110    $ 587,867    $ 12,015    $ (203,172)   $ 494,288   

(1) All shares acquired represent shares tendered to cover the strike price for options and tax withholdings on the intrinsic value of stock options exercised, restricted stock vested, performance share units vested, or restricted stock units vested. These shares have been cancelled by the Company.


The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
6

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
(in thousands, except per share data)  


Treasury Shares Common
Shares
Issued
Preferred
Shares
Issued
Common
Stock
Amount
Preferred
Stock
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Shares,
at Cost
Total
Stockholders’
Equity
Balance, December 31, 2018 (11,731)   46,514    10    $ 465    $ —    $ 86,353    $ 553,224    $ (8,010)   $ (130,399)   $ 501,633   
Vesting of performance share units (56)  
(1)
148    —      —    (2)   —    —    (2,069)   (2,069)  
Grants and vesting of restricted stock (5)  
(1)
25    —    —    —    —    —    —    (166)   (166)  
Stock option exercises (36)  
(1)
84    —      —    1,438    —    —    (1,367)   72   
Retirement of treasury shares 97   
(1)
(97)   —    (1)   —    (3,601)   —    —    3,602    —   
Purchases of treasury stock (321)   —    —    —    —    —    —    —    (10,117)   (10,117)  
Share-based compensation
—    —    —    —    —    3,140    —    —    —    3,140   
Net income —    —    —    —    —    —    40,148    —    —    40,148   
Other comprehensive income, net of taxes —    —    —    —    —    —    —    11,984    —    11,984   
Declaration of dividends
($0.16 per common share and
$0.25 per preferred share)
—    —    —    —    —    —    (5,575)   —    —    (5,575)  
Balance, March 31, 2019 (12,052)   46,674    10    $ 467    $ —    $ 87,328    $ 587,797    $ 3,974    $ (140,516)   $ 539,050   

(1) All shares acquired represent shares tendered to cover the strike price for options and tax withholdings on the intrinsic value of options exercised, restricted stock vested, performance share units vested, or restricted stock units vested. These shares have been cancelled by the Company.


The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
7

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)

Three Months Ended
March 31,
2020 2019
Cash flows from operating activities:
Net cash provided by operating activities $ 45,643    $ 31,451   
Cash flows from investing activities:
Proceeds from sale of property and equipment 11     
Purchases of property and equipment (4,705)   (6,368)  
Purchases of equity securities (10,145)   (697)  
Purchases of available-for-sale debt securities (61,782)   (55,102)  
Purchases of investment real estate, net —    (734)  
Proceeds from sales of equity securities —    17,161   
Proceeds from sales of available-for-sale debt securities 9,979    14,550   
Maturities of available-for-sale debt securities 32,534    36,635   
Net cash provided by (used in) investing activities (34,108)   5,453   
Cash flows from financing activities:
Preferred stock dividend (3)   (3)  
Common stock dividend (5,261)   (5,620)  
Issuance of common stock for stock option exercises —    239   
Purchase of treasury stock (6,587)   (10,117)  
Payments related to tax withholding for share-based compensation (646)   (2,402)  
Repayment of debt (367)   (368)  
Net cash provided by (used in) financing activities (12,864)   (18,271)  
Cash and cash equivalents, and restricted cash and cash equivalents:
Net increase (decrease) during the period (1,329)   18,633   
Balance, beginning of period 184,744    169,063   
Balance, end of period $ 183,415    $ 187,696   
The following table summarizes our cash and cash equivalents and restricted cash and cash equivalents within the Condensed Consolidated Balance Sheets (in thousands):

  March 31, December 31,
2020 2019
Cash and cash equivalents $ 180,780    $ 182,109   
Restricted cash and cash equivalents (1) 2,635    2,635   
Total cash and cash equivalents and restricted cash and cash equivalents $ 183,415    $ 184,744   
(1)See “—Note 5 (Insurance Operations)” for a discussion of the nature of the restrictions for restricted cash and cash equivalents.
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
8

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Nature of Operations and Basis of Presentation
Nature of Operations
Universal Insurance Holdings, Inc. (“UVE”, and together with its wholly-owned subsidiaries, “the Company”) is a Delaware corporation incorporated in 1990. The Company is a vertically integrated insurance holding company performing all aspects of insurance underwriting, distribution and claims. Through its wholly-owned insurance company subsidiaries, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC”, and together with UPCIC, the “Insurance Entities”), the Company is principally engaged in the property and casualty insurance business offered primarily through its network of independent agents. Risk from catastrophic losses is managed through the use of reinsurance agreements. The Company’s primary product is residential homeowners’ insurance currently offered in 18 states as of March 31, 2020, including Florida, which comprises the majority of the Company’s policies in force. See “—Note 5 (Insurance Operations)” for more information regarding the Company’s insurance operations.
The Company generates revenues primarily from the collection of premiums and invests funds in excess of those retained and used for claims-paying obligations and insurance operations. Other significant sources of revenue include brokerage commissions collected from reinsurers on certain reinsurance programs placed on behalf of the Insurance Entities, policy fees collected from policyholders by our wholly-owned managing general agent subsidiary and payment plan fees charged to policyholders who choose to pay their premiums in installments. Our wholly-owned adjusting company receives claims-handling fees from the Insurance Entities. The Insurance Entities are reimbursed for these fees on claims that are subject to recovery under the Insurance Entities’ respective reinsurance programs. These fees, after expenses, are recorded in the Condensed Consolidated Financial Statements as an adjustment to losses and loss adjustment expense.
Basis of Presentation
The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, the Financial Statements do not include all of the information and footnotes required by United States Generally Accepted Accounting Principles (“U.S. GAAP”) for annual financial statements. Therefore, the Financial Statements should be read in conjunction with the audited Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 2, 2020. The condensed consolidated balance sheet at December 31, 2019 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included in the Financial Statements. The results for interim periods do not necessarily indicate the results that may be expected for any other interim period or for the full year.
To conform to the current period presentation, certain amounts in the prior periods’ condensed consolidated financial statements and notes have been reclassified. Such reclassifications were of an immaterial amount and had no effect on net income or stockholders’ equity.
The Financial Statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s primary use of estimates is in the recognition of liabilities for unpaid losses, loss adjustment expenses (“LAE”), subrogation recoveries and reinsurance recoveries. Actual results could differ from those estimates.

9

2. Significant Accounting Policies
The Company reported Significant Accounting Policies in its Annual Report on Form 10-K for the year ended December 31, 2019. The following are new or revised disclosures or disclosures required on a quarterly basis.

Recently Adopted Accounting Pronouncements

On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic ASC 326), that introduces a new process for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new ASU will apply to premiums receivable, reinsurance recoverable, available-for-sale debt securities and other specified financial assets. The ASU replaces the current practice of recording a permanent write down (other than temporary impairment) for probable credit losses with a new requirement that would estimate credit losses and record those estimated losses through a temporary allowance account that can be re-measured as estimates of credit losses change. The ASU further limited estimated credit losses relating to available-for-sale securities to the amount which fair value is below amortized cost. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. The Company recorded a decrease to retained earnings of $0.6 million as of January 1, 2020 for the cumulative effect of adopting ASC 326.

Accounting Policies

The following accounting policies have been updated to reflect the Company’s adoption of ASC 326 as described above.

Investment, Securities Available-for-Sale. The Company’s investments in debt securities and short-term investments are classified as available-for-sale with maturities of greater than three months. Available-for-sale debt securities and short-term investments are recorded at fair value in the condensed consolidated balance sheet. Unrealized gains and losses on available-for-sale debt securities and short-term investments are excluded from earnings and reported as a component of other comprehensive income (“OCI”), net of related deferred taxes until reclassified to earnings upon the consummation of sales transaction with an unrelated third party. Gains and losses realized on the disposition of available-for-sale debt securities are determined on the first-in, first-out (FIFO) basis and credited or charged to income. Premium and discount on investment securities are amortized and accreted using the interest method and charged or credited to investment income.

Investment, Equity Securities. The Company’s investment in equity securities are recorded at fair value in the condensed consolidated balance sheet with changes in the fair value of equity securities reported in current period earnings in the condensed consolidated statements of income within net change in unrealized gains (losses) of equity securities as they occur.

Allowance for Credit Losses-Available-For-Sale Securities: For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by rating agencies, market sentiment and trends and adverse conditions specifically related to the security, among other quantitative and qualitative factors utilized at establishing an estimate for credit losses. If the assessment indicates that a credit loss exists, the present values of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when management believes an available-for-sale debt security is confirmed as uncollected or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available-for-sale securities totaled $5.1 million at March 31, 2020 and is evaluated in the estimate for credit losses. Accrued interest receivable is included under Other Assets in the Condensed Consolidated Balance Sheet.

Premiums Receivable. Generally, premiums are collected prior to or during the policy period as permitted under the Insurance Entities’ payment plans. Credit risk is minimized through the effective administration of policy payment plans whereby the rules governing policy cancellation minimize circumstances in which the Company extends insurance coverage without having received the corresponding premiums. The Company performs a policy level evaluation to determine the extent the premiums receivable balance exceeds the unearned premiums balance. Under ASC 326 and given the short-term nature of these receivables, we employed the aging method to estimate credit losses by pooling receivables based on the levels of delinquency and evaluating current conditions and reasonable and supportable forecasts. As of March 31, 2020 and December 31, 2019, the Company recorded an estimate of credit losses of $0.8 million and an allowance for doubtful accounts of $0.7 million, respectively.


10


Reinsurance. Ceded written premium is recorded upon the effective date of the reinsurance contracts and earned over the contract period. Amounts recoverable from reinsurers are estimated in a manner consistent with the provisions of the reinsurance agreements and consistent with the establishment of the gross insurance liability to the Company. Under ASC 326 and given the short-term nature of these receivables, we considered the effects of credit enhancements (i.e. funds withheld liability, letters of credit and trust arrangements) and other qualitative factors that allowed us to conclude there was no material risk exposure. There is no estimated credit loss allowance as of March 31, 2020 and we did not have an allowance for uncollectible reinsurer accounts as of December 31, 2019.

11

3. Investments
Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP.

Securities Available for Sale
The following table provides the amortized cost and fair value of debt securities available for sale as of the dates presented (in thousands):

March 31, 2020
Amortized
Cost
Allowance for Expected Credit Losses Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Debt Securities:
  U.S. government obligations and agencies $ 59,090    $ —    $ 2,997    $ (3)   $ 62,084   
  Corporate bonds 464,387    (665)   11,412    (6,409)   468,725   
  Mortgage-backed and asset-backed securities 314,936    —    9,839    (1,393)   323,382   
  Municipal bonds 3,395    —    194    (3)   3,586   
  Redeemable preferred stock 10,018    (126)   90    (510)   9,472   
Total $ 851,826    $ (791)   $ 24,532    $ (8,318)   $ 867,249   

December 31, 2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Debt Securities:
  U.S. government obligations and agencies $ 53,688    $ 864    $ (188)   $ 54,364   
  Corporate bonds 457,180    19,179    (141)   476,218   
  Mortgage-backed and asset-backed securities 304,285    7,400    (606)   311,079   
  Municipal bonds 3,397    103    (4)   3,496   
  Redeemable preferred stock 9,786    427    (86)   10,127   
Total $ 828,336    $ 27,973    $ (1,025)   $ 855,284   
The following table provides the credit quality of available-for-sale debt securities with contractual maturities as of the dates presented (dollars in thousands):

March 31, 2020 December 31, 2019
Equivalent S&P Credit Ratings Fair Value % of Total
Fair Value
Fair Value % of Total
Fair Value
AAA $ 388,197    44.8  % $ 372,442    43.6  %
AA 95,823    11.0  % 99,103    11.6  %
A 242,406    28.0  % 238,766    27.9  %
BBB 136,794    15.8  % 143,889    16.8  %
BB and Below 242    —  % —    —   
No Rating Available 3,787    0.4  % 1,084    0.1  %
   Total $ 867,249    100.0  % $ 855,284    100.0  %

The table above includes credit quality ratings by Standard and Poor’s Rating Services, Inc. (“S&P”), Moody’s Investors Service, Inc. and Fitch Ratings, Inc. The Company has presented the highest rating of the three rating agencies for each investment position.
12

The following table summarizes the amortized cost and fair value of mortgage-backed and asset-backed securities as of the dates presented (in thousands):
March 31, 2020 December 31, 2019
Amortized
Cost
Fair Value Amortized
Cost
Fair Value
Mortgage-backed Securities:
Agency $ 154,253    $ 159,262    $ 143,723    $ 144,729   
Non-agency 69,919    74,088    71,140    75,896   
Asset-backed Securities:
Auto loan receivables 42,796    42,658    42,767    43,127   
Credit card receivables 20,677    20,594    21,145    21,487   
Other receivables 27,291    26,780    25,510    25,840   
Total $ 314,936    $ 323,382    $ 304,285    $ 311,079   
The following tables summarize debt securities available-for-sale for which an allowance for expected credit losses has not been recorded at March 31, 2020, and December 31, 2019 aggregated by major security type and length of time in a continuous unrealized loss position as of the dates presented (in thousands):
March 31, 2020
Less Than 12 Months 12 Months or Longer
Number of
Issues
Fair Value Unrealized
Losses
Number of
Issues
Fair Value Unrealized
Losses
Debt Securities:
U.S. government obligations and agencies —    $ —    $ —      $ 129    $ (3)  
Corporate bonds 75    63,401    (2,868)     215    (38)  
Mortgage-backed and asset-backed securities 58    66,017    (1,354)     3,534    (39)  
Municipal bonds —    —    —      277    (3)  
Redeemable preferred stock 16    1,149    (75)   —    —    —   
Total 149    $ 130,567    $ (4,297)     $ 4,155    $ (83)  

December 31, 2019
Less Than 12 Months 12 Months or Longer
Number of
Issues
Fair Value Unrealized
Losses
Number of
Issues
Fair Value Unrealized
Losses
Debt Securities:
U.S. government obligations and agencies   $ 3,836    $ (108)     $ 23,186    $ (80)  
Corporate bonds 18    16,808    (107)     5,866    (34)  
Mortgage-backed and asset-backed securities 42    58,023    (245)   26    34,985    (361)  
Municipal bonds —    —    —      276    (4)  
Redeemable preferred stock   630    (8)     1,489    (78)  
Total 68    $ 79,297    $ (468)   42    $ 65,802    $ (557)  

Unrealized losses on available-for-sale debt securities in the above chart as of March 31, 2020 have not been recognized into income as credit losses because the issuers are of high credit quality (rated AA or higher), management does not intend to sell and it is likely management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. There were no material factors impacting any one category or specific security requiring an accrual for credit loss. The issuers continue to make principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.

Results for reporting periods occurring before January 1, 2020 continue to be reported in accordance with previously applicable U.S. GAAP and not presented under ASC 326, which was adopted by the Company on January 1, 2020.

13

The following table presents the amortized cost and fair value of investments with maturities as of the date presented (in thousands):
March 31, 2020
Amortized Cost Fair Value
Due in one year or less $ 127,107    $ 127,033   
Due after one year through five years 423,886    433,632   
Due after five years through ten years 268,618    276,846   
Due after ten years 30,512    28,046   
Perpetual maturity securities 1,703    1,692   
Total $ 851,826    $ 867,249   

All securities, except those with perpetual maturities, were categorized in the table above utilizing years to effective maturity. Effective maturity takes into consideration all forms of potential prepayment, such as call features or prepayment schedules, that shorten the lifespan of contractual maturity dates.
The following table provides certain information related to available-for-sale debt securities and equity securities during the periods presented (in thousands):
Three Months Ended
March 31,
2020 2019
Proceeds from sales and maturities (fair value):
  Available-for-sale debt securities $ 42,513    $ 51,185   
  Equity securities $ —    $ 17,161   
Gross realized gains on sale of securities:
  Available-for-sale debt securities $ 346    $ 187   
  Equity securities $ —    $ 165   
Gross realized losses on sale of securities:
  Available-for-sale debt securities $ (47)   $ (42)  
  Equity securities $ —    $ (11,835)  
The following table presents the components of net investment income, comprised primarily of interest and dividends, for the periods presented (in thousands):
Three Months Ended
March 31,
2020 2019
Available-for-sale debt securities $ 6,015    $ 6,151   
Equity securities 545    1,042   
Cash and cash equivalents (1) 791    1,300   
Other (2) 254    259   
  Total investment income 7,605    8,752   
Less: Investment expenses (3) (771)   (610)  
  Net investment income $ 6,834    $ 8,142   

(1)  
Includes interest earned on restricted cash and cash equivalents.
(2)  
Includes investment income earned on real estate investments.
(3)  
Includes custodial fees, investment accounting and advisory fees, and expenses associated with real estate investments.

14

Equity Securities
The following table provides the unrealized gains and losses recorded during the periods presented on equity securities still held at the end of the reported period (in thousands):
Three Months Ended
March 31,
2020 2019
Unrealized gains and (losses) recognized during the reported
 period on equity securities still held at the end of the reported period
$ (8,024)   $ 2,400   
Investment Real Estate
Investment real estate consisted of the following as of the dates presented (in thousands):
March 31, December 31,
2020 2019
Income Producing:
Investment real estate $ 14,679    $ 14,679   
Less: Accumulated depreciation (1,388)   (1,284)  
13,291    13,395   
Non-Income Producing:          
Investment real estate 2,190    2,190   
Investment real estate, net $ 15,481    $ 15,585   

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

Three Months Ended
March 31,
  2020 2019
Depreciation expense on investment real estate $ 104    $ 103   

15

4. Reinsurance
The Company seeks to reduce its risk of loss by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers, generally as of the beginning of the hurricane season on June 1st of each year. The Company’s current reinsurance programs consist principally of catastrophe excess of loss reinsurance, subject to the terms and conditions of the applicable agreements. Notwithstanding the purchase of such reinsurance, the Company is responsible for certain retained loss amounts before reinsurance attaches and for insured losses related to catastrophes and other events that exceed coverage provided by the reinsurance programs. The Company remains responsible for the settlement of insured losses irrespective of whether any of the reinsurers fail to make payments otherwise due.
Amounts recoverable from reinsurers are estimated in a manner consistent with the provisions of the reinsurance contracts and consistent with the establishment of the gross liability for losses, LAE and other expenses. Reinsurance premiums, losses and LAE are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.
To reduce credit risk for amounts due from reinsurers, the Insurance Entities seek to do business with financially sound reinsurance companies and regularly evaluate the financial strength of all reinsurers used.
The following table presents ratings from rating agencies and the unsecured amounts due from the reinsurers whose aggregate balance exceeded 3% of the Company’s stockholders’ equity as of the dates presented (in thousands):

  Ratings as of March 31, 2020 Due from as of
Reinsurer AM Best
Company
Standard
and Poor’s
Rating
Services, Inc.
Moody’s
Investors Service, Inc.
March 31, 2020 December 31, 2019
Florida Hurricane Catastrophe Fund (1) n/a n/a n/a $ 97,694    $ 199,647   
Allianz Risk Transfer n/a n/a n/a —    19,269   
Total (2) $ 97,694    $ 218,916   
(1)No rating is available, because the fund is not rated.
(2)Amounts represent prepaid reinsurance premiums, reinsurance receivables and net recoverables for paid and unpaid losses, including incurred but not reported reserves, and loss adjustment expenses.
The Company’s reinsurance arrangements had the following effect on certain items in the Condensed Consolidated Statements of Income for the periods presented (in thousands):

Three Months Ended March 31,
2020 2019
Premiums
Written
Premiums
Earned
Losses and Loss
Adjustment
Expenses
Premiums
Written
Premiums
Earned
Losses and Loss
Adjustment
Expenses
Direct $ 334,553    $ 325,951    $ 173,243    $ 289,234    $ 295,377    $ 115,742   
Ceded (27)   (105,122)   (38,195)   —    (85,650)   (2,648)  
Net $ 334,526    $ 220,829    $ 135,048    $ 289,234    $ 209,727    $ 113,094   

The following prepaid reinsurance premiums and reinsurance recoverable are reflected in the Condensed Consolidated Balance Sheets as of the dates presented (in thousands):
March 31, December 31,
2020 2019
Prepaid reinsurance premiums $ 70,113    $ 175,208   
Reinsurance recoverable on paid losses and LAE $ 42,333    $ 70,015   
Reinsurance recoverable on unpaid losses and LAE 66,158    123,221   
Reinsurance recoverable $ 108,491    $ 193,236   

16

5. Insurance Operations
Deferred Policy Acquisition Costs
The Company defers certain costs in connection with written premium, called Deferred Policy Acquisition Costs (“DPAC”). DPAC is amortized over the effective period of the related insurance policies.
The following table presents the beginning and ending balances and the changes in DPAC for the periods presented (in thousands):
Three Months Ended
March 31,
2020 2019
DPAC, beginning of period $ 91,882    $ 84,686   
Capitalized Costs 48,508    41,520   
Amortization of DPAC (46,036)   (42,922)  
DPAC, end of period $ 94,354    $ 83,284   
Regulatory Requirements and Restrictions
The Insurance Entities are subject to regulations and standards of the Florida Office of Insurance Regulation (“FLOIR”). The Insurance Entities are also subject to regulations and standards of regulatory authorities in other states where they are licensed, although as Florida-domiciled insurers, their principal regulatory authority is the FLOIR. These standards require the Insurance Entities to maintain specified levels of statutory capital and restrict the timing and amount of dividends and other distributions that may be paid by the Insurance Entities to the parent company. Except in the case of extraordinary dividends, these standards generally permit dividends to be paid from statutory unassigned surplus of the regulated subsidiary and are limited based on the regulated subsidiary’s level of statutory net income and statutory capital and surplus. The maximum dividend that may be paid by the Insurance Entities to their immediate parent company, Protection Solutions, Inc. (“PSI”, formerly known as Universal Insurance Holding Company of Florida), without prior regulatory approval is limited by the provisions of the Florida Insurance Code. These dividends are referred to as “ordinary dividends.” However, if the dividend, together with other dividends paid within the preceding twelve months, exceeds this statutory limit or is paid from sources other than earned surplus, the entire dividend is generally considered an “extraordinary dividend” and must receive prior regulatory approval.
In accordance with Florida Insurance Code, and based on the calculations performed by the Company as of December 31, 2019, UPCIC has the capacity to pay ordinary dividends of $12.1 million during 2020. APPCIC, based on its accumulated earnings as of December 31, 2019, is unable to pay any ordinary dividends during 2020. For the three months ended March 31, 2020, no dividends were paid from the Insurance Entities to PSI.
The Florida Insurance Code requires an insurance company to maintain capitalization equivalent to the greater of ten percent of the insurer’s total liabilities or $10.0 million. The following table presents the amount of capital and surplus calculated in accordance with statutory accounting principles, which differ from U.S. GAAP, and an amount representing ten percent of total liabilities for the Insurance Entities as of the dates presented (in thousands):
March 31, 2020 December 31, 2019
Statutory capital and surplus
  UPCIC $ 296,467    $ 301,120   
  APPCIC $ 16,319    $ 16,433   
Ten percent of total liabilities
  UPCIC $ 101,715    $ 99,228   
  APPCIC $ 735    $ 621   

As of the dates in the table above, the Insurance Entities each exceeded the minimum statutory capitalization requirement. The Insurance Entities also met the capitalization requirements of the other states in which they are licensed as of March 31, 2020. The Insurance Entities are also required to adhere to prescribed premium-to-capital surplus ratios and have met those requirements at such dates. Statutory capital and surplus for UPCIC at December 31, 2019 includes a $30 million capital contribution funded in February 2020 by UVE through PSI, the Insurance Entities’ parent company, which is permitted to be included in UPCIC’s statutory capital and surplus at December 31, 2019 with the permission of the FLOIR under statutory accounting principles. This contribution was not recognized on a U.S. GAAP basis at December 31, 2019.
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Through PSI, the Insurance Entities’ parent company, UVE recorded contributions for the periods presented (in thousands):

Three Months Ended
March 31,
2020 2019
Capital contributions $ 30,000    $ —   
The following table summarizes combined net income (loss) for the Insurance Entities determined in accordance with statutory accounting practices for the periods presented (in thousands):
Three Months Ended
March 31,
  2020 2019
Combined net income (loss) $ (3,234)   $ 7,623   

The Insurance Entities are required by various state laws and regulations to maintain certain assets in depository accounts. The following table represents assets held by insurance regulators as of the dates presented (in thousands):
March 31, 2020 December 31, 2019
Restricted cash and cash equivalents $ 2,635    $ 2,635   
Investments $ 3,572    $ 3,419   

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6. Liability for Unpaid Losses and Loss Adjustment Expenses
Set forth in the following table is the change in liability for unpaid losses and LAE for the periods presented (in thousands):
Three Months Ended
March 31,
  2020 2019
Balance at beginning of period $ 267,760    $ 472,829   
Less: Reinsurance recoverable (123,221)   (393,365)  
Net balance at beginning of period 144,539    79,464   
Incurred (recovered) related to:          
Current year 130,707    113,279   
Prior years 4,341    (185)  
Total incurred 135,048    113,094   
Paid related to:          
Current year 61,778    34,549   
Prior years 87,989    60,724   
Total paid 149,767    95,273   
Net balance at end of period 129,820    97,285   
Plus: Reinsurance recoverable 66,158    269,071   
Balance at end of period $ 195,978    $ 366,356   

For the three months ended March 31, 2020, there was adverse prior year reserve development of $42.5 million gross, less $38.2 million ceded, resulting in $4.3 million net. The direct and net prior year reserve development for the quarter ended March 31, 2020 was principally due to increased ultimate losses and LAE for Hurricane Irma.





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7. Long-Term Debt
Long-term debt consists of the following as of the dates presented (in thousands):
March 31, December 31,