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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 June 30, 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-20200630_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   

1


        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: 31,852,829 shares of common stock, par value $0.01 per share, outstanding on July 27, 2020.

2

UNIVERSAL INSURANCE HOLDINGS, INC.
TABLE OF CONTENTS
Page No.
4
4
5
5
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 June 30, 2020 and the related condensed consolidated statements of income, comprehensive income, and stockholders’ equity, for the three-month and six-month periods ended June 30, 2020 and 2019 and the related condensed consolidated statement of cash flows for the six-month periods ended June 30, 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
July 31, 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
June 30, December 31,
2020 2019
ASSETS
Available-for-sale debt securities, at fair value, net of allowance for credit loss of $455 (amortized cost: $819,166 and $828,336)
$ 869,418    $ 855,284   
Equity securities, at fair value (cost: $53,667 and $43,523)
49,708    43,717   
Investment real estate, net 15,377    15,585   
Total invested assets 934,503    914,586   
Cash and cash equivalents 331,716    182,109   
Restricted cash and cash equivalents 2,945    2,635   
Prepaid reinsurance premiums 453,018    175,208   
Reinsurance recoverable 46,860    193,236   
Premiums receivable, net 76,885    63,883   
Property and equipment, net 49,159    41,351   
Deferred policy acquisition costs 103,527    91,882   
Income taxes recoverable 29,009    34,283   
Deferred income tax asset, net —    3,351   
Other assets 19,277    17,328   
Total assets $ 2,046,899    $ 1,719,852   
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $ 147,659    $ 267,760   
Unearned premiums 736,927    661,279   
Advance premium 55,640    30,975   
Accounts payable 3,176    2,099   
Book overdraft —    90,401   
Reinsurance payable, net 499,656    122,581   
Deferred income tax liability, net 13,665    —   
Other liabilities and accrued expenses 53,284    40,930   
Long-term debt 9,191    9,926   
Total liabilities 1,519,198    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 - 46,806 and 46,707
Outstanding shares - 31,853 and 32,638
Treasury shares, at cost - 14,953 and 14,069
(213,201)   (196,585)  
Additional paid-in capital 99,768    96,036   
Accumulated other comprehensive income, net of taxes 38,083    20,364   
Retained earnings 602,583    573,619   
Total stockholders’ equity 527,701    493,901   
Total liabilities and stockholders’ equity $ 2,046,899    $ 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
June 30,
Six Months Ended
June 30,
2020 2019 2020 2019
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written $ 404,685    $ 357,960    $ 739,238    $ 647,194   
Change in unearned premium (67,046)   (54,852)   (75,648)   (48,709)  
Direct premium earned 337,639    303,108    663,590    598,485   
Ceded premium earned (111,269)   (92,751)   (216,391)   (178,401)  
Premiums earned, net 226,370    210,357    447,199    420,084   
Net investment income 6,179    7,410    13,013    15,552   
Net realized gains (losses) on investments 168    (1,605)   467    (13,130)  
Net change in unrealized gains (losses) of equity securities 3,871    3,759    (4,153)   21,791   
Commission revenue 7,758    6,048    14,773    11,553   
Policy fees 6,546    5,997    12,086    11,018   
Other revenue 1,812    1,756    4,594    3,440   
Total premiums earned and other revenues 252,704    233,722    487,979    470,308   
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses 151,345    113,296    286,393    226,390   
General and administrative expenses 73,921    69,496    146,564    139,244   
Total operating costs and expenses 225,266    182,792    432,957    365,634   
INCOME BEFORE INCOME TAXES 27,438    50,930    55,022    104,674   
Income tax expense 7,556    13,637    15,073    27,233   
NET INCOME $ 19,882    $ 37,293    $ 39,949    $ 77,441   
Basic earnings per common share $ 0.62    $ 1.09    $ 1.23    $ 2.24   
Weighted average common shares outstanding - Basic 32,102    34,311    32,347    34,525   
Diluted earnings per common share $ 0.62    $ 1.08    $ 1.23    $ 2.22   
Weighted average common shares outstanding - Diluted 32,170    34,612    32,440    34,903   
Cash dividend declared per common share $ 0.16    $ 0.16    $ 0.32    $ 0.32   


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Three Months Ended
June 30,
Six Months Ended
June 30,
2020 2019 2020 2019
Net income $ 19,882    $ 37,293    $ 39,949    $ 77,441   
Other comprehensive income, net of taxes 26,068    11,955    17,122    23,939   
Comprehensive income $ 45,950    $ 49,248    $ 57,071    $ 101,380   
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 AND SIX MONTHS ENDED JUNE 30, 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 —      —    —    —    30    —    —    —    30   
Retirement of treasury shares 25   
(1)
(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 loss, 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   
Vesting of restricted stock units (25)  
(1)
65    —    —    —    —    —    —    (424)   (424)  
Retirement of treasury shares 25   
(1)
(25)   —    —    —    (424)   —    —    424    —   
Purchases of treasury stock (572)   —    —    —    —    —    —    —    (10,029)   (10,029)  
Share-based compensation —    —    —    —    —    3,082    —    —    —    3,082   
Net income —    —    —    —    —    —    19,882    —    —    19,882   
Other comprehensive income, net of taxes —    —    —    —    —    —    —    26,068    —    26,068   
Declaration of dividends for second quarter
($0.16 per common share and
$0.25 per preferred share)
—    —    —    —    —    —    (5,166)   —    —    (5,166)  
Balance, June 30, 2020 (14,953)   46,806    10    $ 468    $ —    $ 99,768    $ 602,583    $ 38,083    $ (213,201)   $ 527,701   

(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.
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   
Grants and vesting of restricted stock (14)  
(1)
25    —    —    —    —    —    —    (402)   (402)  
Stock option exercises (14)  
(1)
27    —    —    —    403    —    —    (414)   (11)  
Retirement of treasury shares 28   
(1)
(28)   —    —    —    (816)   —    —    816    —   
Purchases of treasury stock (486)   —    —    —    —    —    —    —    (14,107)   (14,107)  
Share-based compensation —    —    —    —    —    3,311    —    —    —    3,311   
Net income —    —    —    —    —    —    37,293    —    —    37,293   
Other comprehensive income, net of taxes —    —    —    —    —    —    —    11,955    —    11,955   
Declaration of dividends for second quarter
($0.16 per common share and
$0.25 per preferred share)
—    —    —    —    —    —    (5,547)   —    —    (5,547)  
Declaration of dividends for third quarter
($0.16 per common share)
—    —    —    —    —    —    (5,476)   —    —    (5,476)  
Balance, June 30, 2019 (12,538)   46,698    10    $ 467    $ —    $ 90,226    $ 614,067    $ 15,929    $ (154,623)   $ 566,066   

(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)

Six Months Ended
June 30,
2020 2019
Cash flows from operating activities:
Net cash provided by operating activities $ 190,847    $ 55,988   
Cash flows from investing activities:
Proceeds from sale of property and equipment 22    18   
Purchases of property and equipment (10,213)   (8,030)  
Purchases of equity securities (10,145)   (890)  
Purchases of available-for-sale debt securities (91,445)   (143,728)  
Purchases of investment real estate, net —    (883)  
Proceeds from sales of equity securities —    29,137   
Proceeds from sales of available-for-sale debt securities 28,468    43,205   
Proceeds from sales of investment real estate —    10,537   
Maturities of available-for-sale debt securities 71,214    68,525   
Net cash provided by (used in) investing activities (12,099)   (2,109)  
Cash flows from financing activities:
Preferred stock dividend (5)   (5)  
Common stock dividend (10,405)   (11,153)  
Issuance of common stock for stock option exercises —    239   
Purchase of treasury stock (16,616)   (24,224)  
Payments related to tax withholding for share-based compensation (1,070)   (2,815)  
Repayment of debt (735)   (735)  
Net cash provided by (used in) financing activities (28,831)   (38,693)  
Cash and cash equivalents, and restricted cash and cash equivalents:
Net increase during the period 149,917    15,186   
Balance, beginning of period 184,744    169,063   
Balance, end of period $ 334,661    $ 184,249   
The following table summarizes our cash and cash equivalents and restricted cash and cash equivalents within the Condensed Consolidated Balance Sheets (in thousands):

  June 30, December 31,
2020 2019
Cash and cash equivalents $ 331,716    $ 182,109   
Restricted cash and cash equivalents (1) 2,945    2,635   
Total cash and cash equivalents and restricted cash and cash equivalents $ 334,661    $ 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 June 30, 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 (“LAE”).
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 condensed 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, 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), which introduces a new process for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new ASU applies to premiums receivable, reinsurance recoverable and available-for-sale debt securities. 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 after-tax 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, net of any allowance for credit losses. 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 a 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.

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 OCI.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense and are reported as general and administrative expenses. 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 $5.0 million at June 30, 2020 and is evaluated in the estimate for credit losses. Accrued interest receivable is included under Other Assets in the Condensed Consolidated Balance Sheet.

Investment, Equity Securities. The Company’s investments 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.

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 June 30, 2020 and December 31, 2019, the Company recorded an estimate of credit losses of $0.5 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 June 30, 2020 established under ASC 326 and we did not have an allowance for uncollectible amounts due from reinsurers 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):

June 30, 2020
Amortized
Cost
Allowance for Expected Credit Losses Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Debt Securities:
  U.S. government obligations and agencies $ 53,762    $ —    $ 2,766    $ (7)   $ 56,521   
  Corporate bonds 457,532    (313)   35,008    (864)   491,363   
  Mortgage-backed and asset-backed securities 295,075    —    13,959    (316)   308,718   
  Municipal bonds 3,113    —    161    —    3,274   
  Redeemable preferred stock 9,684    (142)   191    (191)   9,542   
Total $ 819,166    $ (455)   $ 52,085    $ (1,378)   $ 869,418   

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):

June 30, 2020 December 31, 2019
Equivalent S&P Credit Ratings Fair Value % of Total
Fair Value
Fair Value % of Total
Fair Value
AAA $ 364,007    41.9  % $ 372,442    43.6  %
AA 100,331    11.5  % 99,103    11.6  %
A 249,591    28.7  % 238,766    27.9  %
BBB 151,828    17.5  % 143,889    16.8  %
BB and Below 1,234    0.1  % —    —   
No Rating Available 2,427    0.3  % 1,084    0.1  %
   Total $ 869,418    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):
June 30, 2020 December 31, 2019
Amortized
Cost
Fair Value Amortized
Cost
Fair Value
Mortgage-backed Securities:
Agency $ 145,725    $ 150,150    $ 143,723    $ 144,729   
Non-agency 69,523    77,248    71,140    75,896   
Asset-backed Securities:
Auto loan receivables 38,453    39,030    42,767    43,127   
Credit card receivables 18,676    19,370    21,145    21,487   
Other receivables 22,698    22,920    25,510    25,840   
Total $ 295,075    $ 308,718    $ 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 June 30, 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):
June 30, 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   $ 1,995    $ (5)     $ 129    $ (2)  
Corporate bonds 14    7,463    (520)     223    (31)  
Mortgage-backed and asset-backed securities 20    24,546    (308)     2,151    (8)  
Redeemable preferred stock   34    —    —    —    —   
Total 37    $ 34,038    $ (833)     $ 2,503    $ (41)  

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 table as of June 30, 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 a reconciliation of the beginning and ending balances for expected credit losses on debt securities classified as available for sale (in thousands):

Corporate Bonds Redeemable Preferred Shares Total
Balance, December 31, 2019 $ —    $ —    $ —   
Cumulative effect adjustment as of January 1, 2020 665    126    791   
Increase (decrease) (352)   16    (336)  
Balance, June 30, 2020 $ 313    $ 142    $ 455   

See “—Note 2 (Summary of Significant Accounting Policies — Recently Adopted Accounting Pronouncements)” for more information about the methodology and significant inputs used to measure the amount related to expected credit losses on debt securities classified as available for sale.
The following table presents the amortized cost and fair value of investments with maturities as of the date presented (in thousands):
June 30, 2020
Amortized Cost Fair Value
Due in one year or less $ 124,808    $ 125,912   
Due after one year through five years 400,137    420,146   
Due after five years through ten years 278,719    308,072   
Due after ten years 14,639    14,403   
Perpetual maturity securities 863    885   
Total $ 819,166    $ 869,418   

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
June 30,
Six Months Ended
June 30,
2020 2019 2020 2019
Proceeds from sales and maturities (fair value):
  Available-for-sale debt securities $ 57,169    $ 60,545    $ 99,682    $ 111,730   
  Equity securities $ —    $ 11,976    $ —    $ 29,137   
Gross realized gains on sale of securities:
  Available-for-sale debt securities $ 540    $ 112    $ 886    $ 299   
  Equity securities $ —    $ 170    $ —    $ 335   
Gross realized losses on sale of securities: