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UNIVERSAL INSURANCE HOLDINGS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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Unless the context otherwise requires, all references to "we," "us," "our," and
"Company" refer to Universal Insurance Holdings, Inc. ("UVE") and its
wholly-owned subsidiaries. You should read the following discussion together
with our unaudited condensed consolidated financial statements ("Financial
Statements") and the related notes thereto included in "Part I, Item 1-Financial
Statements," and our audited condensed consolidated financial statements and the
related notes thereto included in "Part II, Item 8-Financial Statements and
Supplementary Data" in our Annual Report on Form 10-K for the year ended
December 31, 2021. Operating results for any one quarter are not necessarily
indicative of results to be expected for any other quarter or for the year.


Cautionary Note Regarding Forward-Looking Statements


In addition to historical information, this report may contain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The forward-looking statements anticipate results based on our
estimates, assumptions and plans that are subject to uncertainty. These
forward-looking statements may be identified by their use of words like "plans,"
"seeks," "expects," "will," "should," "anticipates," "estimates," "intends,"
"believes," "likely," "targets," and other words with similar meanings. These
statements may address, among other things, our strategy for growth, catastrophe
exposure and other risk management, product development, investment results,
regulatory approvals, market position, expenses, financial results, litigation
and reserves. We believe that these statements are based on reasonable
estimates, assumptions and plans. However, if the estimates, assumptions or
plans underlying the forward-looking statements prove inaccurate or if other
risks or uncertainties arise, actual results could differ materially from those
communicated in these forward-looking statements as a result of the risks set
forth below, which are a summary of those set forth in our Annual Report on Form
10-K for the year ended December 31, 2021. We undertake no obligation to update
or revise publicly any forward-looking statements, whether as a result of new
information, future events, or otherwise.

Risks and uncertainties that may affect, or have affected, our financial
condition and operating results include, but are not limited to, the following:


•Unanticipated increases in the severity or frequency of claims, including those
relating to catastrophes, severe weather events and changing climate conditions,
which, in some instances, have exceeded, and in the future may exceed our
reserves established for claims;

•Failure of our risk mitigation strategies, including failure to accurately and
adequately price the risks we underwrite and to include effective exclusions and
other loss limitation provisions in our insurance policies;

•Loss of independent insurance agents and inability to attract new independent
agents;

•Reliance on models, which are inherently uncertain, as a tool to evaluate
risks;

•The continued availability of reinsurance at current levels and prices, and our
ability to collect payments due from our reinsurers;

•Changes in industry trends, including changes due to the cyclical nature of the
industry and increased competition;

•Geographic concentration of our business in Florida and the effectiveness of
our growth and diversification strategy in new markets;

•Loss of key personnel and inability to attract and retain talented employees;

•Failure to comply with existing and future guidelines, policies and legal and
regulatory standards;

•The ability of our claims professionals to effectively manage claims;

•Litigation or regulatory actions that could result in significant damages,
fines or penalties;

•A downgrade in our Financial Stability Rating® and its impact on our
competitive position, the marketability of our product offerings, our liquidity
and profitability;

•The impact on our business and reputation of data and security breaches due to
cyber-attacks or our inability to effectively adapt to changes in technology;

•Our dependence on the returns of our investment portfolio, which are subject to
market risk;

•Legal, regulatory or tax changes that increase our operating costs and decrease
our profitability, such as limitations on rate changes or requirements to
participate in loss sharing;

•Our dependence on dividends and permissible payments from our subsidiaries;

•The ability of our Insurance Entities to comply with statutory capital and
surplus minimums and other regulatory and licensing requirements; and

•The ongoing impact of the COVID-19 pandemic on our business and the economy in
general.

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OVERVIEW

We are a vertically integrated holding company offering property and casualty
insurance and value-added insurance services. We develop, market and underwrite
insurance products for consumers predominantly in the personal residential
homeowners' line of business and perform substantially all other
insurance-related services for our primary insurance entities, including risk
management, claims management, and distribution. Our primary insurance entities,
Universal Property & Casualty Insurance Company ("UPCIC") and American Platinum
Property and Casualty Insurance Company ("APPCIC" and together with UPCIC, the
"Insurance Entities"), offer insurance products through both our appointed
independent agent network and our online distribution channels across 19 states
(primarily in Florida), with licenses to write insurance in two additional
states. The Insurance Entities seek to produce an underwriting profit (defined
as earned premium minus losses, loss adjustment expense ("LAE"), policy
acquisition costs and other operating costs) over the long term; maintain a
conservative balance sheet to prepare for years in which the Insurance Entities
are not able to achieve an underwriting profit; and generate investment income
on assets.

The following Management's Discussion and Analysis ("MD&A") is intended to
assist in an understanding of our financial condition and results of operations.
This MD&A should be read in conjunction with our Financial Statements and
accompanying Notes appearing elsewhere in this Report (the "Notes"). In
addition, reference should be made to our audited Consolidated Financial
Statements and accompanying Notes to Consolidated Financial Statements and
"Item 7-Management's Discussion and Analysis of Financial Condition and Results
of Operations" included in our Annual Report on Form 10-K for the year ended
December 31, 2021. Except for the historical information contained herein, the
discussions in this MD&A contain forward-looking statements that involve risks
and uncertainties. Our future results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed above under "Cautionary Note
Regarding Forward-Looking Statements."

Trends

Florida Trends


We are currently working through a cycle to improve long-term rate adequacy and
earnings for the Insurance Entities by increasing rates and managing exposures,
while taking advantage of what we believe to be opportunities in a dislocated
market. The Florida personal lines homeowners' market currently can be
characterized as a "hard market", where insurance premium rates are escalating,
insurers are reducing coverages, and underwriting standards are tightening as
insurers closely monitor insurance rates and manage coverage capacity. Due to
conditions in the Florida market and factors more generally affecting the U.S.
and global reinsurance markets, reinsurance capacity in recent years has also
been subject to less favorable pricing and terms. These market forces decrease
competition among admitted insurers, and ultimately result in the increased use
of Citizens Property Insurance Corporation ("Citizens"), which was created to be
the State's residual property insurance market. In recent years, in response to
adverse behaviors and conditions in the Florida residential market, most
admitted market competitors have sought and often received approval for
significant rate increases. Meanwhile, Citizens' rate increases are limited by
law, resulting in its policies, in a hard market, becoming priced lower than
admitted market policies. This causes Citizens to become viewed as a desirable
alternative to the admitted market as admitted market insurers manage through
the hard market challenges. Our Insurance Entities likewise have taken and
continue to take action to manage through this hard market by increasing rates
and prudently managing exposures while also seeking to maintain their
competitive position in the market and supporting our current policyholders and
agents.

While addressing rate adequacy for the Insurance Entities, we continue to
experience increased costs for losses and LAE in the Florida market, where an
industry has developed around the solicitation, filing and litigation of
personal residential claims. These dynamics have been made worse by the
litigation financing industry, which in some cases, funds these actions. In
addition, rising inflation, as seen in the cost of labor and material supplies,
has further escalated costs associated with the settlement of claims. These
behaviors and related rising repair costs are a chief contributing factor for
the rate increases in this market. These behaviors result in a pattern of
continued increases in year-over-year levels of represented claims, the
increases in purported claim amounts, and increased demands for attorneys' fees.
Active solicitation of personal residential claims in Florida by policyholder
representatives, remediation companies and repair companies has led to an
increase in the frequency and severity of personal residential claims in
Florida, exceeding historical levels and levels seen in other jurisdictions.
Information prepared by the Florida Office of Insurance Regulation also shows
that claims in Florida are litigated at a substantially disproportionate rate
when compared to other states. This is largely due to a Florida statute
providing a one-way right of attorneys' fees against insurers which has, when
coupled with certain other statutes and judicial rulings, produced a legal
environment in Florida that encourages litigation, in many cases without regard
to the underlying merits of the claims. The one-way right to attorneys' fees
essentially means that unless an insurer's position is entirely upheld in
litigation, the insurer must pay the plaintiff's attorneys' fees in addition to
its own defense costs. This affects not only claims that are litigated to
resolution, but also the settlement discussions that take place with nearly all
litigated claims. This also affects a large number of claims from inception or
during the adjusting process as a substantial and growing percentage of
policyholders obtain representation early in the process, and sometimes even
before notifying insurers of their claims. These market conditions also add, and
will continue to add, complexity to efforts to efficiently and expeditiously
adjust claims. This is due to an increasing number of policyholders who have one
or more recent prior losses with the Insurance Entities or with other insurers,
which then require evaluation during subsequent claims and determinations
regarding whether property has been repaired consistently with the scope and
amount of damage previously asserted.

The one-way right to attorney fees creates a nearly risk-free environment, and
incentive, for attorneys to pursue litigation against insurers. The result has
been a substantial increase in represented and litigated claims in Florida, far
outpacing levels experienced in other states. In April 2021, the Florida
legislature passed a bill intending to curtail the adverse claim trends
impacting the
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Florida homeowners' insurance market. Most provisions of the bill went into
effect on July 1, 2021. Among its provisions, the bill creates a new pre-suit
notice requirement wherein an insured must make a formal monetary demand of a
residential property insurer before commencing suit. The Company has established
an internal team to review and respond to these pre-suit demands in a further
effort to resolve disputes before litigation ensues. Another provision of the
new law reduces the time period in which to file a new or reopened claim to two
years following the date of loss. In light of the recent enactment of these
reforms, it is premature to assess whether the reforms will have their intended
effect. Whether these changes are beneficial to consumers, insurers, insurance
company holding systems or the residential property insurance market as a whole
may not be fully known for some time.

In a further effort to alleviate concerns in the Florida property insurance
market, Florida's Governor called a special session of the legislature in May
2022. The legislature passed, and the Governor promptly signed into law, several
additional reforms intended to curtail litigation abuses. Among other things,
the new law precludes the assignment of policyholders' rights to attorneys'
fees, allows plaintiffs' attorneys to receive fee multipliers only in rare and
exceptional cases, and requires plaintiffs to establish breaches of the
insurance policy before pursuing related bad faith actions. Because the new law
only recently was adopted, its impact on claims and claims-related costs,
including litigation, will not be fully known for some time.

Despite our initiatives, such as those mentioned above, our costs to settle
claims in Florida have increased for the reasons noted herein. For example, the
Company continues to adjust its estimate of expected losses and has increased
its current year loss estimates and increased estimates associated with prior
years' claims. Over the past three years, even as we have increased our
estimates of prospective losses each year, we have recorded adverse claim
development on prior years' loss reserves and further strengthened current year
losses during the year to address the increasing impact Florida's market
disruptions, as well as the impact of rising costs of building materials and
labor, have had on the claims process and the establishment of reserves for
losses and LAE. The full extent and duration of these market disruptions and
inflationary pressures are unknown and still unfolding, and we will monitor the
impact of such disruptions on the recording and reporting of claim costs.

The Company has taken a series of steps over time to mitigate the financial
impact of these negative trends in the Florida market. We also have closely
monitored rate levels, especially in the Florida market, and have submitted rate
filings based upon evolving data. However, because rate filings rely upon past
loss and expense data and take time to develop, file and implement, we can
experience significant delays between identifying needed rate adjustments,
gaining approval of rate changes, and ultimately collecting and earning the
resulting increased premiums. This is particularly the case in an era of rising
costs such as the current Florida market, in which the costs of losses and loss
adjustment expenses continue to increase due to Florida's outsized claims
litigation environment and inflationary pressure. In addition, the Company has
implemented several initiatives in its claims department in response to the
adverse market trends. We utilize our process called Fast Track, which is an
initiative to handle straightforward, meritorious claims as promptly as possible
to mitigate the adverse impacts that can be seen with claims that remain open
for longer periods. In addition, we increased our emphasis on subrogation to
reduce our net losses while also recovering policyholders' deductibles when
losses are attributable to the actions of others. We have an internal staff of
trained water remediation experts to address the extraordinary number of
purported water damage claims filed by policyholders and vendors. We developed a
specialized in-house unit for responding to the unique aspects of represented
claims, and we have substantially increased our in-house legal staff in an
effort to address the increase in litigated or represented claims as
cost-effectively as possible.

Additionally, we have taken steps to implement claim settlement rules associated
with the Florida legislation passed in 2019 designed to reduce the negative
effects of claims involving assignments of benefits ("AOB"). See "Part I- Item
1-Business-Government Regulation" in our Annual Report on Form 10-K for the year
ended December 31, 2021. An AOB is a document signed by a policyholder that
allows a third party to be paid for services performed for an insured homeowner
who would normally be reimbursed by the insurance company directly after making
a claim. Prior to the AOB reform legislation, the Company experienced an
increase in AOB-related litigation initiated by vendors, in many cases
unbeknownst to policyholders. Claims paid under an AOB often involve unnecessary
litigation, with the Company required to pay both its own defense costs and
those of the plaintiff, and, as a result, cost the Company significantly more
than claims settled when an AOB is not involved. In 2019, the Florida
legislature passed legislation designed to increase consumer protections against
AOB abuses and reduce AOB-related litigation. The legislature added to these
AOB-related reforms in the recently concluded 2022 special legislative session,
during which it passed a new law precluding policyholders' assignments of
attorneys' fees. Prior to the recent 2022 law change, the overall impact of the
deterioration in claims-related tactics and behaviors, including other
first-party litigation, continued to outpace benefits arising from the 2019 AOB
reform legislation. Following the recent 2022 special legislative session, the
Company intends to adopt procedures reflecting the new AOB law and monitor its
effects. Due to the recent enactment of this law, its impact might not be fully
know for some time.

Following legislation adopted in Florida's 2021 legislative session, we also
have established procedures and dedicated personnel to a new pre-suit notice and
offer process. The new process requires policyholders or their attorneys to
notify insurers at least ten days before commencing litigation and allows
insurers an opportunity to make pre-suit settlement offers. The policyholders'
ability to recover attorneys' fees is determined according to a scale that
compares the ultimate outcomes of the cases to the insurers' pre-suit offers.
Although this new process is intended to reduce claims litigation and encourage
settlements, it is too early to evaluate whether it will be successful in
limiting the types of settlement demands and litigation that have plagued the
Florida market or in offsetting other factors adversely affecting the market
such as increased costs of building materials and labor.
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Summary of Rate Increases and Cost of Living Adjustments


Below is a summary of recent rate changes and cost of living adjustments that
are in the process of being implemented and earned as policies renew and new
business is written and earned under these new rates and insured values:

•Annual primary rate changes

?The following rate changes have been or are in the process of being
implemented:



•In May 2022, the Company filed a rate increase with the FLOIR for an overall
14.9% rate increase for UPCIC on Florida personal residential homeowners' line
of business which became effective June 1, 2022, for new business and November
4, 2022, for renewals.

•In September 2021, the FLOIR approved an overall 14.9% rate increase for UPCIC
on Florida personal residential homeowners’ line of business, effective
September 2021 for new business and November 2021 for renewals.


•In December 2020, the FLOIR approved an overall 7.0% rate increase for UPCIC on
Florida personal residential dwelling lines of business, effective December 2020
for new business and March 2021 for renewals.

•In May 2020, the FLOIR approved an overall 12.4% rate increase for UPCIC on
Florida personal residential homeowners' line of business, effective May 2020
for new business and July 2020 for renewals.

•In addition, during the past year, rate increases for UPCIC were approved in
Alabama, Georgia, Indiana, Minnesota, North Carolina, South Carolina,
Pennsylvania and Virginia.

•Annual reinsurance rate increases

?The following rate changes have been or are in the process of being
implemented:


•In December 2021, the FLOIR approved an overall 3.9% rate increase for UPCIC on
Florida personal residential homeowners' line of business, effective January
2022 for new business and March 2022 for renewals.

•In December 2020, the FLOIR approved an overall 7.0% rate increase for UPCIC on
Florida personal residential homeowners' line of business, effective December
2020 for new business and March 2021 for renewals.

•Inflationary coverage adjustments


?The following historical Inflation adjustments ("Inflation Guard") have been or
are in the process of being implemented. These are adjustments to policy
coverage amounts designed to facilitate the polices' adherence to
insurance-to-value requirements. The coverage adjustments provide a degree of
protection insureds have against inflationary pressures while also resulting in
additional premium to the Company to cover the increased claim costs driven by
inflation factors.

•July 1, 2022 was 1.119 (11.9% average increase)

•July 1, 2021 was 1.189 (18.9% average increase)

•July 1, 2020 was 1.054 (5.4% average increase)

•July 1, 2019 was 1.028 (2.8% average increase)

Impact of COVID-19


We have not seen a direct material impact from COVID-19 on our business, our
financial position, our liquidity, or our ability to service our policyholders
and maintain critical operations. Indirectly, inflationary pressures, in part
due to supply chain and labor constraints during the pandemic, have affected and
continue to affect claims costs and, to a lesser degree, other expenses. The
ultimate impact of the COVID-19 pandemic, or future pandemics, on our business
and on the economy in general cannot be predicted.
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KEY PERFORMANCE INDICATORS

The Company considers the measures and ratios in the following discussion to be
key performance indicators for its businesses. Management believes that these
indicators are helpful in understanding the underlying trends in the Company's
businesses. Some of these indicators are reported on a quarterly basis and
others on an annual basis.

These indicators may not be comparable to other performance measures used by the
Company's competitors and should only be evaluated together with our condensed
consolidated financial statements and accompanying notes.

In addition to our key performance indicators and other financial measures
presented in accordance with United States Generally Accepted Accounting
Principles ("GAAP"), management also uses certain non-GAAP financial measures to
evaluate the Company's financial performance and the overall growth in value
generated for the Company's common shareholders. Management believes that
non-GAAP financial measures, which may be defined differently by other
companies, help to explain the Company's results to investors in a manner that
allows for a more complete understanding of the underlying trends in the
Company's business. The non-GAAP measures should not be viewed as a substitute
for those determined in accordance with GAAP. The calculation of these key
financial measures including the reconciliation of non-GAAP measures to the
nearest GAAP measure are found below under - "Non-GAAP Financial Measures."

Definitions of Key Performance Indicators and GAAP and Non-GAAP Measures


Adjusted book value per common share - is a non-GAAP measure, that is calculated
as adjusted common stockholders' equity divided by common shares outstanding at
the end of the period. Management believes this metric is meaningful, as it
allows investors to evaluate underlying book value growth by excluding the
impact of interest rate volatility.

Adjusted common stockholders' equity - is a non-GAAP measure, that is calculated
by GAAP common stockholders' equity, excluding accumulated other comprehensive
income (loss). Management believes this metric is meaningful, as it allows
investors to evaluate underlying growth in stockholders' equity by excluding the
impact of interest rate volatility.

Adjusted net income (loss) attributable to common stockholders - is a non-GAAP
measure, that is calculated by GAAP net income (loss) attributable to common
stockholders, excluding net realized gains (losses) on investment and net
changes in unrealized gains (losses) of equity securities, net of tax.
Management believes this metric is meaningful, as it allows investors to
evaluate underlying profitability and enhances comparability across periods, by
excluding items that are heavily impacted by investment market fluctuations and
other economic factors and are not indicative of operating trends.

Adjusted operating income (loss) - is a non-GAAP measure, that is computed by
GAAP operating income (loss), excluding net realized gains (losses) on
investment and net changes in unrealized gains (losses) of equity securities.
Management believes this metric is meaningful, as it allows investors to
evaluate underlying profitability and enhances comparability across periods, by
excluding items that are heavily impacted by investment market fluctuations and
other economic factors and are not indicative of operating trends.

Adjusted operating income (loss) margin - is a non-GAAP measure, which is
computed by adjusted operating income (loss) divided by core revenue. Management
believes this metric is meaningful, as it allows investors to evaluate
underlying profitability and enhances comparability across periods, by excluding
items that are heavily impacted by investment market fluctuations and other
economic factors and are not indicative of operating trends.

Adjusted return on common equity (Adjusted "ROCE") - is a non-GAAP measure, that
is calculated by actual or annualized adjusted net income attributable to common
stockholders divided by average adjusted common stockholders' equity, with the
denominator excluding current period income statement net realized gains
(losses) on investments and net changes in unrealized gains (losses) of equity
securities, net of tax. Management believes this metric is meaningful, as it
allows investors to evaluate underlying profitability and enhances comparability
across periods, by excluding items that are heavily impacted by investment
market fluctuations and other economic factors and are not indicative of
operating trends.

Book Value Per Common Share - total stockholders' equity, adjusted for preferred
stock liquidation, divided by the number of common shares outstanding as of a
reporting period. Book value per common share is the excess of assets over
liabilities at a reporting period attributed to each share of stock. Changes in
book value per common share informs shareholders of retained equity in the
Company on a per share basis which may assist in understanding market value
trends for the Company's stock.

Combined Ratio - the combined ratio is a measure of underwriting profitability
for a reporting period and is calculated by dividing total operating costs and
expenses (which is made up of losses and LAE and general and administrative
expenses) by premiums earned, net, which is net of ceded premiums earned.
Changes to the combined ratio over time provide management with an understanding
of costs to operate its business in relation to net premiums it is earning and
the impact of rate, underwriting and other business management actions on
underwriting profitability. A combined ratio below 100% indicates underwriting
profit; a combined ratio above 100% indicates underwriting losses.

Core Loss Ratio - a common operational metric used in the insurance industry to
describe the ratio of current accident year expected losses and LAE to premiums
earned. Core loss ratio is an important measure identifying profitability trends
of premiums in force. Core losses consists of all other losses and LAE,
excluding weather events beyond those expected and prior years' reserve
development. The financial benefit from the management of claims, including
claim fees ceded to reinsurers, is recorded in the condensed consolidated
financial statements as a reduction to core losses.
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Core revenue - is a non-GAAP measure, that is calculated by total GAAP revenue,
excluding net realized gains (losses) on investments and net changes in
unrealized gains (losses) of equity securities. Management believes this metric
is meaningful, as it allows investors to evaluate underlying revenue trends and
enhances comparability across periods, by excluding items that are heavily
impacted by investment market fluctuations and other economic factors and are
not indicative of operating trends.

Debt-to-Equity Ratio – long-term debt divided by stockholders’ equity. This
ratio helps management measure the amount of financing leverage in place in
relation to equity and future leverage capacity.

Debt-to-Total Capital Ratio – long-term debt divided by the sum of total
stockholders’ equity and long-term debt (often referred to as total capital
resources). This ratio helps management measure the amount of financing leverage
in place (long-term debt) in relation to total capital resources and future
leverage capacity.


Diluted adjusted earnings per common share - is a non-GAAP measure, which is
calculated by adjusted net income available to common stockholders divided by
weighted average diluted common shares outstanding. Management believes this
metric is meaningful, as it allows investors to evaluate underlying revenue
trends and enhances comparability across periods, by excluding items that are
heavily impacted by investment market fluctuations and other economic factors
and are not indicative of operating trends.

Direct Premiums Written ("DPW") - reflects the total value of policies issued
during a period before considering premiums ceded to reinsurers. Direct premiums
written, comprised of renewal premiums, endorsements and new business, is
initially recorded as unearned premium in the balance sheet which is then earned
pro-rata over the next year or remaining policy term. Direct premiums written
reflects current trends in the Company's sale of property and casualty insurance
products and amounts that will be recognized as earned premiums in the future.

DPW (Florida) – includes only DPW in the state of Florida. This measure allows
management to analyze growth in our primary market and is also a measure of
business concentration risk.


Expense Ratio (Including Policy Acquisition Cost Ratio and Other Operating Cost
Ratio) - calculated as general and administrative expenses as a percentage of
premiums earned, net. General and administrative expenses is comprised of policy
acquisition costs and other operating costs, which includes such items as
underwriting costs, facilities and corporate overhead. The expense ratio,
including the sub-expense ratios of policy acquisition cost ratio and other
operating cost ratio, are indicators to management of the Company's cost
efficiency in acquiring and servicing its business and the impact of expense
items to overall profitability.

Losses and Loss Adjustment Expense Ratio or Loss and LAE Ratio - a measure of
the cost of claims and claim settlement expenses incurred in a reporting period
as a percentage of premiums earned in that same reporting period. Losses and LAE
incurred in a reporting period includes both amounts related to the current
accident year and prior accident years, if any, referred to as development.
Ultimate losses and LAE are based on actuarial estimates with changes in those
estimates recognized in the period the estimates are revised. Losses and LAE
consist of claim costs arising from claims occurring and settling in the current
period, an estimate of claim costs for reported but unpaid claims, an estimate
of unpaid claim costs for incurred-but-not-reported claims and an estimate of
claim settlement expenses associated with reported and unreported claims which
occurred during the reporting period. The loss and LAE ratio can be measured on
a direct basis, which includes losses and LAE divided by direct earned premiums,
or on a net basis, which includes losses and LAE after amounts have been ceded
to reinsurers divided by net earned premiums (i.e., direct premium earned less
ceded premium earned). The net loss and LAE ratio is a measure of underwriting
profitability after giving consideration to the effect of reinsurance. Trends in
the net loss and LAE ratio are an indication to management of current and future
profitability.

Monthly Weighted Average Renewal Retention Rate - measures the monthly average
of policyholders that renew their policies over the period of a calendar year.
This measure allows management to assess customer retention.

Premiums Earned, Net - the pro-rata portion of current and previously written
premiums that the Company recognizes as earned premium during the reporting
period, net of ceded premium earned. Ceded premiums are premiums paid or payable
by the Company for reinsurance protection. Written premiums are considered
earned and are recognized pro-rata over the policy coverage period. Premiums
earned, net is a measure that allows management to identify revenue trends.

Policies in Force - represents the number of active policies with coverage in
effect as of the end of the reporting period. The change in the number of
policies in force is a growth measure and provides management with an indication
of progress toward achieving strategic objectives. Inherent seasonality in our
business makes this measure more useful when comparing each quarter's balance to
the same quarter in prior years.

Premium in Force - is the amount of the annual direct written premiums
previously recorded by the Company for policies which are still active as of the
reporting date. This measure assists management in measuring the level of
insured exposure and progress toward meeting revenue goals for the current year,
and provides an indication of business available for renewal in the next twelve
months. Inherent seasonality in our business makes this measure more useful when
comparing each quarter's balance to the same quarter in prior years.

Return on Average Common Equity ("ROCE") - calculated by actual or annualized
net income attributable to common stockholders divided by average common
stockholders' equity. ROCE is a capital profitability measure of how efficiently
management creates profits.
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Total Insured Value - represents the amount of insurance limits available on a
policy for a single loss based on all policies active as of the reporting date.
This measure assists management in measuring the level of insured exposure.

Unearned Premiums - represents the portion of direct premiums corresponding to
the time period remaining on an insurance policy and available for future
earning by the Company. Trends in unearned premiums generally indicate
expansion, if growing, or contraction, if reducing, which are important
indicators to management. Inherent seasonality in our business makes this
measure more useful when comparing each quarter's balance to the same quarter in
prior years.

Weather events - an estimate of losses and LAE from weather events occurring
during the current accident year that exceed initial estimates of expected
weather events when establishing the core loss ratio for each accident year.
This metric informs management of factors impacting overall current year
profitability.

REINSURANCE


Reinsurance enables our Insurance Entities to limit potential exposures to
catastrophic events. Reinsurance contracts are typically classified as treaty or
facultative contracts. Treaty reinsurance provides coverage for all or a portion
of a specified group or class of risks ceded by the primary insurer, while
facultative reinsurance provides coverage for specific individual risks. Within
each classification, reinsurance can be further classified as quota share or
excess of loss. Quota-share reinsurance is where the primary insurer and the
reinsurer share proportionally or pro-rata in the direct premiums and losses of
the insurer. Excess-of-loss reinsurance indemnifies the direct insurer or
reinsurer for all or a portion of the loss in excess of an agreed upon amount or
retention.

Developing and implementing our reinsurance strategy to adequately protect our
balance sheet and Insurance Entities in the event of one or more catastrophes
while maintaining efficient reinsurance costs has been a key strategic priority
for us. In order to limit the Insurance Entities' potential exposure to
catastrophic events, we purchase significant reinsurance from third-party
reinsurers and the Florida Hurricane Catastrophe Fund ("FHCF"). The Florida
Office of Insurance Regulation ("FLOIR") requires the Insurance Entities, like
all residential property insurance companies doing business in Florida, to have
a certain amount of capital and reinsurance coverage in order to cover losses
upon the occurrence of a single catastrophic event and a series of catastrophic
events occurring in the same hurricane season. The Insurance Entities'
respective 2022-2023 reinsurance programs meet the FLOIR's requirements, which
are based on, among other things, successfully demonstrating cohesive and
comprehensive reinsurance programs that protect the policyholders of our
Insurance Entities as well as satisfying a series of stress test catastrophe
loss scenarios based on past historical events. Similarly, the Insurance
Entities' respective 2022-2023 reinsurance programs meet the stress test and
review requirements of Demotech, Inc., for maintaining Financial Stability
Ratings® of A (Exceptional).

We believe the Insurance Entities' retentions under their respective reinsurance
programs are appropriate and structured to protect policyholders. We test the
sufficiency of the reinsurance programs by subjecting the Insurance Entities'
personal residential exposures to statistical testing using a third-party
hurricane model, RMS RiskLink v18.1 (Build 1945). This model combines
simulations of the natural occurrence patterns and characteristics of
hurricanes, tornadoes, earthquakes and other catastrophes with information on
property values, construction types and occupancy classes. The model outputs
provide information concerning the potential for large losses before they occur,
so companies can prepare for their financial impact. Furthermore, as part of our
operational excellence initiatives, we continually look to enable new technology
to refine our data intelligence on catastrophe risk modeling.

Effective June 1, 2022, the Insurance Entities entered into multiple reinsurance
agreements comprising our 2022-2023 reinsurance program.
See “Item 1-Note 4 (Reinsurance).”

UPCIC’s 2022-2023 Reinsurance Program

•First event All States retention of $45 million.

•All States first event tower extends to $3.012 billion with no co-participation
in any of the layers, no limitation on loss adjustment expenses for the
non-catastrophe bond Cosaint Re Pte. Ltd. traditional reinsurance and no
accelerated deposit premiums.

•Assuming a first event completely exhausts the $3.012 billion tower, the second
event exhaustion point would be $1.183 billion.


•Full reinstatement available on $1.138 billion of the $1.288 billion of
non-FHCF first event catastrophe coverage for guaranteed second event coverage.
For all layers purchased between $111 million and the projected FHCF retention,
to the extent that all of our coverage or a portion thereof is exhausted in a
catastrophic event and reinstatement premium is due, we have purchased enough
reinstatement premium protection ("RPP") limit to pay the premium necessary for
the reinstatement of these coverages.

•First event layer of 100% of $66 million in excess of $45 million established
by UIH in captive insurance arrangement. While the Company retains the risk that
otherwise would be transferred to third party-reinsurers for this layer, the
additional risk is substantially offset by the savings in premiums that would
otherwise have been paid to third-party reinsurers.

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•Specific 2nd event private market excess of loss coverage of $66 million in
excess of $45 million sitting behind captive arrangement.


•Specific 3rd and 4th event private market catastrophe excess of loss coverage
of $86 million in excess of $25 million provides frequency protection for
multiple events during the treaty period including a $20 million reduction in
retention for a 3rd and 4th event.

•For the FHCF Reimbursement Contracts effective June 1, 2022, UPCIC has
continued the election of the 90% coverage level. We estimate the total
mandatory FHCF layer will provide approximately $1.679 billion of coverage for
UPCIC, which inures to the benefit of the open market coverage secured from
private reinsurers and Cosaint Re Pte. Ltd.


•To further insulate for future years, UPCIC has secured $383 million of
catastrophe capacity with contractually agreed limits that extend coverage to
include the 2022 and 2023 wind seasons and $277 million of the $383 million
extends through the 2024 wind season and is all capacity which sits below the
Florida Hurricane Catastrophe Fund. UPCIC's catastrophe bond, secured leading up
to the 2021-2022 renewal, Cosaint Re Pte. Ltd, continues to provide one limit of
$150 million in this year's program and it may also include the 2023 wind
season, depending on loss activity in the 2022 wind season.


Reinsurers

The table below provides the A.M. Best and S&P financial strength ratings for
each of the largest rated third-party reinsurers in UPCIC’s 2022-2023
reinsurance program:


Reinsurer                                        A.M. Best      S&P
Allianz Risk Transfer AG, Bermuda Branch            A+          AA-
Chubb Tempest Reinsurance Ltd.                      A++         AA
Everest Re                                          A+          A+
Munich Re                                           A+          AA-
Renaissance Re                                      A+          A+
Various Lloyd's of London Syndicates                 A          A+
Florida Hurricane Catastrophe Fund (1)              N/A         N/A


(1)No rating is available, because the fund is not rated.

APPCIC’s 2022-2023 Reinsurance Program

•First event All States retention of $3.5 million.

•All States first event tower of $50.5 million with no co-participation in any
of the layers, no limitation on loss adjustment expenses and no accelerated
deposit premiums.


•Full reinstatement available for all private market first event catastrophe
layers for guaranteed second event coverage. For the layer purchased between
$3.5 million and the projected FHCF retention, to the extent that all of our
coverage or a portion thereof is exhausted in a catastrophic event and
reinstatement premium is due, we have purchased enough RPP limit to pay the
premium necessary for the reinstatement of this coverage.

•APPCIC also purchases extensive multiple line excess per risk reinsurance with
various reinsurers due to the high-value risks it insures in both the personal
residential and commercial multiple peril lines of business. Under this multiple
line excess per risk contract, APPCIC has coverage of $8.5 million in excess of
$500 thousand ultimate net loss for each risk and each property loss, and $1
million in excess of $0.3 million for each casualty loss. A $19.5 million
aggregate limit applies to the term of the contract for property-related losses
and a $2.0 million aggregate limit applies to the term of the contract for
casualty-related losses. This contract also contains a profit-sharing feature if
specific performance measures are met.

•For the FHCF Reimbursement Contracts effective June 1, 2022, APPCIC has
continued the election of the 90% coverage level. We estimate the total
mandatory FHCF layer will provide approximately $24.2 million of coverage for
APPCIC, which inures to the benefit of the open market coverage secured from
private reinsurers.

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Reinsurers

The table below provides the A.M. Best and S&P financial strength ratings for
each of the largest rated third-party reinsurers in APPCIC’s 2022-2023
reinsurance program:


Reinsurer                                    A.M. Best      S&P
Chubb Tempest Reinsurance Ltd.                  A++         AA
DaVinci Reinsurance Limited                      A          A+
Lancashire Insurance Company Limited             A          A-
Renaissance Reinsurance Ltd.                    A+          A+
Various Lloyd's of London Syndicates             A          A+

Florida Hurricane Catastrophe Fund (1) N/A N/A

(1)No rating is available, because the fund is not rated.


The cost of the 2022-2023 reinsurance programs for UPCIC and APPCIC is projected
to be $696 million, representing approximately 37.6% of estimated direct premium
earned for the 12-month treaty period for UPCIC and APPCIC.
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RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION

Highlights for the quarter ended September 30, 2022


•In late September 2022, Hurricane Ian made landfall on the Gulf Coast of
Florida, continued across the state into the Atlantic Ocean, and then made a
second landfall in South Carolina. Current estimates for UVE's gross ultimate
loss is approximately $1 billion, well below its $3 billion reinsurance tower,
with projected net exposure limited to retentions at its insurance and captive
insurance entity subsidiaries. Estimated net losses and LAE exposure to the
Insurance Entities, after estimated reinsurance recoveries, is $45 million. The
Insurance Entities' reinsurance recoveries include losses and LAE recoveries of
$66 million from UVE's prefunded captive insurance arrangement which is
eliminated in consolidation. In total, net losses from Hurricane Ian, including
losses and LAE incurred under the funded captive insurance arrangement, is
currently estimated to be $111 million. In addition to net retention losses,
Hurricane Ian triggered reinstatement premiums and related reinsurance brokerage
commissions as well as revenues generated by our claims adjusting affiliate, as
discussed further in Results of Operations.

•Previously approved rate filings and inflation adjustments to policy insured
values are increasing written and earned premium as the new rates and property
insured values take effect on policy renewals and new business, and earn
prospectively over the policy period.

•Management is continuing its efforts to prudently manage new business risk
selection, improve risk exposure diversification and moderate new business
growth rates, compared to prior years, while rate increases are taking effect to
improve profitability. Renewal retention rates have declined year over year as
consumers react to higher renewal premiums. As a result, the number of total
policies in force is decreasing.

•Net investment income increased as market interest rates rise; however, rising
interest rates have lowered the market value of our investments, resulting in
unrealized losses.

•Losses and LAE, net were higher this quarter compared to the same period last
year primarily due to Hurricane Ian, and a higher level of estimated losses and
LAE for the current accident year as a result of emerging loss trends which have
increased, including higher claim inflation costs in Florida and in our other
markets.

•Other operating expense and acquisition cost management efforts have lowered
the expense ratio. In April 2021, the commission rate on policy renewals was
reduced 2 percentage points and further reduced on May 1, 2022 by another 2
percentage points, in response to premium rate increases during the past year.
The benefit of lower commission rates are realized over the next year as
policies renew under the lower commission rate structure.

•The Company continued to return shareholder value with quarterly dividends and
modest share repurchases.



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Third quarter of fiscal 2022 results of operations comparisons are
to third quarter of fiscal 2021 (unless otherwise specified).

Results of Operations – Three Months Ended September 30, 2022 Compared to Three
Months Ended September 30, 2021


Net loss for the three months ended September 30, 2022, was $72.3 million due
primarily to the impact from Hurricane Ian compared to net income of $20.2
million for the same period in 2021. Benefiting the quarter were increases in
premiums earned, net, an increase in net investment income and an increase in
commission revenue, offset by a decrease in realized gains, a decrease in policy
fees, an increase in unrealized losses and an increase in operating costs and
expenses. Direct premium earned and premiums earned, net were up 10.2% and 9.8%,
respectively, due to premium growth in the majority of states in which we are
licensed and writing during the past 12 months mostly as a result of rate
increases implemented during 2021 and 2022. The net loss and LAE ratio was
113.7% for the three months ended September 30, 2022, compared to 70.9% for the
same period in 2021 reflecting the impact of Hurricane Ian and higher core
losses partially offset by lower prior years' reserve development. As a result
of the above and further explained below, the combined ratio for the three
months ended September 30, 2022 was 139.2% compared to 98.5% for the three
months ended September 30, 2021. Also see the discussion above under
"Overview-Trends."

A detailed discussion of our results of operations follows the table below (in
thousands, except per share data).

                                                           Three Months Ended
                                                              September 30,                              Change
                                                         2022               2021                 $                   %
REVENUES
Direct premiums written                              $ 500,677          $ 432,984          $   67,693                 15.6  %
Change in unearned premium                             (48,227)           (22,363)            (25,864)               115.7  %
Direct premium earned                                  452,450            410,621              41,829                 10.2  %
Ceded premium earned                                  (161,819)          (145,967)            (15,852)                10.9  %
Premiums earned, net                                   290,631            264,654              25,977                  9.8  %
Net investment income                                    6,074              2,797               3,277                117.2  %
Net realized gains (losses) on investments                 292              4,319              (4,027)               (93.2) %
Net change in unrealized gains (losses) of equity
securities                                              (4,150)            (3,759)               (391)                10.4  %
Commission revenue                                      12,592             11,418               1,174                 10.3  %
Policy fees                                              5,272              5,859                (587)               (10.0) %
Other revenue                                            2,099              1,966                 133                  6.8  %
Total revenues                                         312,810            287,254              25,556                  8.9  %
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses                    330,444            187,581             142,863                 76.2  %
General and administrative expenses                     73,973             73,180                 793                  1.1  %
Total operating costs and expenses                     404,417            260,761             143,656                 55.1  %
Interest and amortization of debt issuance costs         1,630                 29               1,601              5,520.7  %

INCOME (LOSS) BEFORE INCOME TAXES                      (93,237)            26,464            (119,701)                     NM
Income tax expense (benefit)                           (20,962)             6,281             (27,243)                     NM
NET INCOME (LOSS)                                    $ (72,275)         $  20,183          $  (92,458)                     NM
Other comprehensive income (loss), net of taxes        (27,531)            (1,827)            (25,704)                     NM
COMPREHENSIVE INCOME (LOSS)                          $ (99,806)         $  18,356          $ (118,162)                     NM
DILUTED EARNINGS (LOSS) PER SHARE DATA:
Diluted earnings (loss) per common share             $   (2.36)         $    0.64          $    (3.00)                     NM
Weighted average diluted common shares outstanding      30,604             31,337                (733)                (2.3) %

NM - Not Meaningful


Direct premiums written increased by $67.7 million, or 15.6%, for the quarter
ended September 30, 2022, driven by premium growth within our Florida business
of $57.8 million, or 16.3%, and premium growth in our other states' business of
$9.9 million, or 12.7%, as compared to the same period of the prior year. Rate
increases approved in 2021 and 2022 for Florida and for certain other states,
were the principal driver of higher written premiums. In total policies in force
declined 70,667, or 7.5%, from
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943,593 at December 31, 2021 to 872,926 at September 30, 2022. A summary of the
recent rate increases which are driving increases in written premium are
discussed above under “Overview-Trends.”


Rate increases are applied on new business submissions and renewals from the
effective date of their renewal and then are earned subsequently over the policy
period. The recent rate increases in Florida are in response to rising claim
costs driven by higher costs of material and labor associated with claims, the
cost of weather events, the rising cost of catastrophe and other reinsurance
protecting policyholders and, more importantly, the impact of "social inflation"
on claims as claim settlements increasingly have involved inflated demands,
representation, and litigation. In addition, the Insurance Entities' policies
provide for coverage limits to be adjusted at renewal based on third-party data
sources that monitor factors such as changes in costs for residential building
materials and labor.

During 2022, management continued efforts to prudently manage policy counts and
exposures intended to slow the growth of exposures relating to new business
compared to prior years while the above rate increases are taking effect.
Reduced new business writings, declines in renewal retentions during 2022 and
the impact of selected policy non-renewals, have resulted in a decrease in
policies in force during the quarter of 21,692, or 2.4%, from 894,618 at
June 30, 2022 to 872,926 at September 30, 2022. Direct premiums written continue
to increase across the majority of states in which we conduct business. As a
result of our business strategy, policy premium rate increases, lower renewal
retention, fewer new business policies written and disciplined underwriting
initiatives, we have seen a decrease in policy count, but an increase in
in-force premium and total insured value in a majority of states for the past
three years. In total, we wrote policies in 19 states during both of the third
quarters of 2022 and 2021. In addition, we are authorized to do business in
Tennessee and Wisconsin and are proceeding with product filings in those states.
At September 30, 2022, policies in force decreased 94,895 policies, or 9.8%;
premium in force increased $183.5 million, or 11.1%; and total insured value
increased $5.3 billion, or 1.7%, compared to September 30, 2021.

The following table provides direct premiums written for Florida and Other
States for the three months ended September 30, 2022 and 2021 (dollars in
thousands):

                                                      For the Three Months Ended
                                                                                                                                  Growth
                                      September 30, 2022                          September 30, 2021                          year over year
                                                                              Direct
                                  Direct                                      Premiums
State                         Premiums Written               %                Written                %                    $                     %
Florida                    $     412,588                     82.4  %       $  354,799                81.9  %       $      57,789                16.3  %
Other states                      88,089                     17.6  %           78,185                18.1  %               9,904                12.7  %
Total                      $     500,677                    100.0  %       $  432,984               100.0  %       $      67,693                15.6  %



We seek to prudently grow and generate long-term rate adequate premium in each
state where we offer policies. Our diversification strategy seeks to increase
business outside of Florida and to improve geographical distribution within
Florida. Premium growth outside Florida is a measure monitored by management in
its efforts to meet that objective.

Direct premium earned increased by $41.8 million, or 10.2%, for the quarter
ended September 30, 2022, reflecting the earning of premiums written over the
past 12 months including the benefit of rate changes due to primary rate
filings, filings to cover increased reinsurance costs as well as policy premium
adjustments due to increases in insured values caused by inflation.

Reinsurance enables our Insurance Entities to limit potential exposures to
catastrophic events and other covered events. Ceded premium represents premiums
paid to reinsurers for this protection and is a cost which reduces net written
and net earned premiums. Hurricane Ian triggered reinstatement premiums,
increasing ceded premiums written by $24.6 million which will be earned
prospectively effective September 28, 2022 to May 31, 2023, increasing ceded
premiums earned for the quarter by $307 thousand. In total, ceded premiums
earned increased $15.9 million, or 10.9%, for the quarter ended September 30,
2022, as compared to the same period of the prior year. The increase in
reinsurance costs reflects an increase in the value of exposures we insure;
increased pricing when compared to the expired reinsurance program; and
differences in the structure and design of the respective programs. Reinsurance
costs, as a percentage of direct premium earned, increased from 35.5% for the
three months ended September 30, 2021 to 35.8% for the three months ended
September 30, 2022. Reinsurance costs associated with each year's reinsurance
program are earned over the annual policy period which typically runs from June
1st to May 31st. See the discussion above for the Insurance Entities' 2022-2023
reinsurance programs and "Item 1-Note 4 (Reinsurance)."

Premiums earned, net of ceded premium earned, grew by 9.8%, or $26.0 million, to
$290.6 million for the three months ended September 30, 2022, reflecting an
increase in direct premium earned partially offset by increased costs for
reinsurance.


Net investment income was $6.1 million for the three months ended September 30,
2022, compared to $2.8 million for the same period in 2021, an increase of $3.3
million, or 117.2%. In the fourth quarter of 2021, we saw increases in
investment yields as the Federal Reserve took action to address the market
concerns of inflation and employment. As a result, liquidity generated by our
portfolio from interest payments, principal repayments and new investments are
being invested at higher rates, resulting in overall increased investment
returns on our portfolio.
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Total invested assets were $1.08 billion as of September 30, 2022 compared to
$1.09 billion as of December 31, 2021. The decrease is attributable to increases
in unrealized losses. Unrealized losses reverse over time as debt instruments
are generally held to maturity. Cash and cash equivalents were $307.4 million at
September 30, 2022 compared to $250.5 million at December 31, 2021, an increase
of 22.7%. This increase is largely attributable to cash calls to reinsurers to
support Hurricane Ian claim settlement liquidity and changes in operational cash
flows since year end. Cash and cash equivalents are invested short term until
needed to settle loss and LAE payments, reinsurance premium payments and
operating cash needs or until they are deployed by our investment advisors.

Yields from cash and cash equivalents, short-term investments and the
available-for-sale debt portfolio are dependent on the composition of the
portfolio, future market forces, monetary policy and interest rate policy from
the Federal Reserve. During most of 2021, the Federal Reserve broadly maintained
lower interest rates, which impacted the effective yields on newly purchased
available-for-sale debt securities and overnight cash purchases and short-term
investments. This overall trend changed in late 2021 and into 2022 as inflation
worries began to impact the financial markets, including the markets' concern
over future Federal Reserve actions of rate hikes and other actions to address
inflation concerns. As a result, we saw increased yields on securities purchased
in late 2021 and 2022 and increased unrealized losses on our portfolio,
reflected after-tax in the equity section of our balance sheet as increased
market yields negatively impacted the fair value on much of our
available-for-sale debt securities.

Although we generally hold the vast majority of debt securities to maturity, we
sell investments, including securities, from our investment portfolio from time
to time to meet our investment objectives or take advantage of market
opportunities. During the three months ended September 30, 2022, sales of
available-for-sale debt securities resulted in net realized losses of $0.2
million and sales of equity securities resulted in net realized gains of $0.5
million, generating total net realized gains of $0.3 million during the third
quarter of 2022. During the three months ended September 30, 2021, sales of
available-for-sale debt securities resulted in net realized gain of $0.7
million, sales of equity securities resulted in net realized gains of $1.3
million, and the sale of an investment real estate property which was classified
as assets held for sale in the first quarter of 2021 resulted in a realized gain
of $2.3 million, thereby generating total net realized gains of $4.3 million
during the third quarter of 2021. See "Item 1-Note 3 (Investments)."

There was a $4.2 million net unrealized loss in equity securities during the
three months ended September 30, 2022, largely driven by macro inflationary
pressures and the uncertain recessionary outlook, which put pressure on domestic
equities broadly, compared to a $3.8 million net unrealized loss in equity
securities during the three months ended September 30, 2021. Net change in
unrealized gains or losses reflected on the income statement are the result of
changes in the fair market value of our equity securities during the period for
securities still held at the end of the reported period and the reversal of
unrealized gains or losses for securities sold during the period. See "Item
1-Note 3 (Investments)."

Commission revenue is comprised principally of brokerage commissions we earn
from third-party reinsurers (excluding the FHCF) on reinsurance placed for the
Insurance Entities. Commission revenue is earned pro-rata over the reinsurance
policy period which runs from June 1st to May 31st of the following year.
Reinstatement premiums for Hurricane Ian resulted in $13.1 million of additional
brokerage commissions which will be earned prospectively from September 28, 2022
to May 31, 2023, increasing brokerage commission revenue earned of $160 thousand
for the quarter. In total, for the three months ended September 30, 2022,
commission revenue was $12.6 million, compared to $11.4 million for the three
months ended September 30, 2021. The increase in commission revenue of $1.2
million, or 10.3%, for the three months ended September 30, 2022 was primarily
due to increased commissions from third-party reinsurers earned on increased
reinsurance premiums which is attributable to growth in our insured values for
this year's reinsurance program as well as the difference in pricing and
structure associated with our reinsurance program when compared to the prior
year.

Policy fees were $5.3 million for the three months ended September 30, 2022
compared to $5.9 million for the same period in 2021. The decrease of $0.6
million, or 10.0%, was the result of a decrease in the number of new and renewal
policies written during the three months ended September 30, 2022 compared to
the same period in 2021 in states where we are permitted to charge this fee.

Other revenue, representing revenue from policy installment fees, premium
financing and other miscellaneous income, was $2.1 million for the three months
ended September 30, 2022 compared to $2.0 million for the same period in 2021.


Core revenue, representing total GAAP revenue, excluding net realized gains
(losses) on investments and net changes in unrealized gains (losses) of equity
securities, was $316.7 million for the three months ended September 30, 2022
compared to $286.7 million for the same period in 2021.


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The following table presents losses and LAE incurred on a direct, ceded and net
basis expressed in dollars and as a percent of the respective amounts of
premiums earned. These amounts are further categorized as i) core losses, ii)
weather events for the current accident year and iii) prior years' reserve
development (dollars in thousands):


                                                                                     Three Months Ended September 30, 2022
                                             Direct                  Loss Ratio              Ceded              Loss Ratio               Net               Loss Ratio
Premiums earned                       $      452,450                                      $ 161,819                                  $ 290,631

Loss and loss adjustment expenses:
Core losses                           $      216,784                        47.9  %       $      55                       -  %       $ 216,729                    74.6  %
Weather events*                            1,026,200                       226.8  %         915,200                   565.6  %         111,000                    38.2  %
Prior years' reserve development              26,360                         5.9  %          23,645                    14.6  %           2,715                     0.9  %
Total losses and loss adjustment
expenses                              $    1,269,344                       280.6  %       $ 938,900                   580.2  %       $ 330,444         

113.7 %

*Includes only current year weather events beyond those expected.




                                                                                  Three Months Ended September 30, 2021
                                          Direct               Loss Ratio              Ceded              Loss Ratio               Net               Loss Ratio
Premiums earned                       $    410,621                                  $ 145,967                                  $ 264,654

Loss and loss adjustment expenses:
Core losses                           $    176,161                    42.9  %       $      69                       -  %       $ 176,092                    66.5  %
Weather events*                                  -                       -  %               -                       -  %               -                       -  %
Prior years' reserve development            87,907                    21.4  %          76,418                    52.4  %          11,489                     4.4  %
Total losses and loss adjustment
expenses                              $    264,068                    64.3  %       $  76,487                    52.4  %       $ 187,581                

70.9 %

*Includes only current year weather events beyond those expected.

See “Item 1-Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)”
for change in liability for unpaid losses and LAE.


Management looks at losses and LAE in three areas, as described below and
represented in the tables above, each of which has different drivers that impact
reported results. As a result, these components of losses and LAE are described
separately. Overall losses and LAE, net of reinsurance recoveries, were $330.4
million resulting in a 113.7% net loss and LAE ratio for the quarter ended
September 30, 2022. This compares to $187.6 million resulting in a 70.9% net
loss and LAE ratio for the quarter ended September 30, 2021.

The Company continues to monitor and adjust its estimate of expected losses and
has increased its current accident year loss estimates and increased estimates
associated with prior years' claims. Over the past three years, even as we have
increased our estimates of prospective losses each year, we have recorded
adverse claim development on prior years' loss reserves and further strengthened
current year losses during the year to address the increasing impact of
Florida's market disruptions, as well as the impact of inflation from building
material costs and labor costs on the reserving and claim settlement process.
The full extent and duration of these market disruptions and inflationary
pressures are unknown and still unfolding, and we continue to monitor the impact
of such disruptions on the recording and reporting of claim costs. See the
discussion above for the Insurance Entities' 2022-2023 reinsurance programs and
"Item 1 - Note 4 (Reinsurance)." Also see the discussion above under
"Overview-Trends."


The factors impacting losses and LAE are as follows:

•Core losses


•Our core losses consist of all losses and LAE for the current accident year
excluding both weather events for the current year beyond those anticipated in
our regular accrual process and prior years' reserve development. Core losses
were 47.9% of direct premium earned for the quarter ended September 30, 2022
compared to 42.9% for the same period in 2021. During the quarter ended
September 30, 2022 management increased the core loss ratio by approximately one
loss ratio point retroactive to January 1, 2022, with the cumulative impact
being recorded in the quarter, as a result of worsening trends in overall
weather not associated with named storms and in response to changes in estimated
losses caused by deteriorating loss trends and higher repair costs as a result
of material and labor inflation. The trend in core losses and LAE is increasing
year over year as the claims environment in Florida continues to deteriorate and
inflation continues to drive repair costs up. Also see the
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discussion above under “Overview-Trends.” Core losses also increase as premium
volume increases year over year.

•Weather events beyond those expected


•During the quarter ended September 30, 2022, Hurricane Ian resulted in direct
losses of $1.026 billion. Estimated net losses and LAE exposure to the Insurance
Entities, after estimated reinsurance recoveries, is $45 million. The Insurance
Entities' reinsurance recoveries include losses and LAE recoveries of $66.0
million from UVE's prefunded captive insurance arrangement which is eliminated
in consolidation. In total, net losses from Hurricane Ian including losses and
LAE incurred under the funded captive insurance arrangement, is currently
estimated to be $111.0 million.

•There were no other weather events beyond those expected during the quarter
ended September 30, 2021.

•Prior years’ reserve development

•Two drivers influence the amounts recorded as prior years’ reserve development,
namely: (i) changes to prior estimates of direct and net ultimate losses on
prior accident years excluding major hurricanes and (ii) changes to prior
estimates of direct and net ultimate losses on hurricanes.


?During the quarter ended September 30, 2022, prior years' reserve development
totaled $26.4 million of direct losses and $2.7 million of net unfavorable loss
development after the benefit of reinsurance.

•Prior year adverse development includes gross reserve development on Hurricane
Irma of $26.4 million, of which $23.7 million was ceded, resulting in net
unfavorable loss development on Hurricane Irma of $2.7 million in the quarter.

•Excluding hurricanes, there was no prior years’ reserve development for the
quarter ended September 30, 2022.

?For the quarter ended September 30, 2021, direct prior years’ reserve
development of $87.9 million, less $76.4 million ceded, resulted in $11.5
million
net unfavorable loss development after the benefit of reinsurance.



•For hurricanes, prior years' reserve development for the quarter ended
September 30, 2021 was the result of a direct increase in the ultimate losses of
$81.7 million offset by ceded hurricane losses of $76.4 million resulting in net
unfavorable development of $5.3 million. Direct losses increased for Hurricanes
Irma and Sally.

•Excluding hurricanes, there was $6.2 million of direct and net prior years'
reserve development for the quarter ended September 30, 2021. This development,
primarily from 2019 and prior accident years, resulted from the settlement on
litigated claims exceeding prior estimated amounts.

The financial benefit generated by our claims adjusting affiliate from the
management of claims, including claim fees ceded by our Insurance Entities to
reinsurers, was a benefit of $5.0 million for the three months ended September
30, 2022, compared to a benefit of $3.7 million during the three months ended
September 30, 2021, driven by the recoveries from reinsurers and internal claim
services. The increase for the current quarter is the result of claim activity
on Hurricane Ian. The impact was recorded in the condensed consolidated
financial statements as a reduction to losses and LAE.

For the three months ended September 30, 2022, general and administrative
expenses were $74.0 million compared to $73.2 million during the same period in
2021, as follows (dollars in thousands):

                                                                    Three Months Ended
                                                                       September 30,                                              Change
                                                        2022                                  2021                          $                 %
                                                $                Ratio                $                Ratio
Premiums earned, net                       $ 290,631                             $ 264,654                             $ 25,977               9.8  %
General and administrative expenses:
Policy acquisition costs                      54,609               18.8  %          57,062               21.5  %         (2,453)             (4.3) %
Other operating costs                         19,364                6.7  %          16,118                6.1  %          3,246              20.1  %
Total general and administrative expenses  $  73,973               25.5  %       $  73,180               27.6  %       $    793               1.1  %


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General and administrative expenses increased by $0.8 million, which was the
result of an increase in other operating costs of $3.2 million.offset by a
decrease in policy acquisition costs of $2.4 million. The total general and
administrative expense ratio was 25.5% for the three months ended September 30,
2022 compared to 27.6% for the same period in 2021.

•The increase of other operating costs of $3.2 million was primarily higher
performance bonus expenses, slightly offset by lower stock-based compensation
and policy related expenses. In the prior year quarter, the performance bonus
accrual was reduced, resulting in negative expense for performance bonus of $2.7
million for the three months ended September 30, 2021. As a result, the
comparison to the current year's accrual for performance bonus expense reflects
an increase of $3.3 million compared to the same period in 2021. The other
operating cost ratio was 6.7% for the three months ended September 30, 2022,
compared to 6.1% for the same period in 2021. This increase in the operating
cost ratio reflects several factors including the timing of adjustments to
accruals relating to annual expenses such as bonuses and other discretionary
expenditures.

•The decrease in policy acquisition costs of $2.4 million reflects a reduction
in the commission rate paid to agents on the renewal of Florida policies, which
was reduced by two percentage points to 8% effective May 1, 2022, which will
benefit future periods as the new rate structure applies prospectively. The
decrease in policy acquisition costs as a percentage of premiums earned, net
during the quarter is primarily due to the reduction in commissions paid to
agents.

As a result of the above, the combined ratio for the third quarter ended
September 30, 2022 was 139.2% compared to 98.5% for the same period in 2021. The
increase was the result of the impact of Hurricane Ian and higher core losses.


Interest and amortization of debt issuance costs increased by $1.6 million for
the three months ended September 30, 2022. The increase in interest and
amortization of debt issuance costs is the result of an increase in the
outstanding debt as a result of our fourth quarter of 2021 borrowing. See "Item
1-Note 7 (Long-term debt)" for additional details.

Income tax benefit was $21.0 million for the quarter ended September 30, 2022
compared to an income tax expense of $6.3 million for the quarter ended
September 30, 2021. Our effective tax rate ("ETR") decreased to 22.5% for the
three months ended September 30, 2022, as compared to 23.7% for the three months
ended September 30, 2021. The ETR decreased as a result of a higher ratio of
permanent items relative to the amount of loss before taxes, principally
non-deductible compensation, and a lower level of discrete tax benefits. As a
result of Hurricane Ian, the state tax benefit was reduced in the third quarter
of 2022 due to the VIE's absence of a state tax deduction. See "Item 1-Note 9
(Income Tax)" and "-Note 14 (Variable Interest Entities)" for additional
details.

Other comprehensive loss, net of taxes for the three months ended September 30,
2022, was $27.5 million compared to other comprehensive loss of $1.8 million for
the same period in 2021, reflecting after-tax changes in fair value of
available-for-sale debt securities held in our investment portfolio and
reclassifications out of accumulated other comprehensive income for
available-for-sale debt securities sold. We saw increased market yields on
securities purchased in late 2021 and 2022 and increased unrealized losses on
our portfolio, reflected after-tax in the equity section of our balance sheet as
increased market yields negatively impacted the fair value on much of our
available-for-sale debt securities. See the discussion above and "Item 1-Note 11
(Other Comprehensive Income (Loss))" for additional information about the
amounts comprising other comprehensive income (loss), net of taxes for these
periods.

Adjusted operating income (loss) represents GAAP operating income (loss),
excluding net realized gains (losses) on investment and net changes in
unrealized gains (losses) of equity securities. Adjusted operating loss was
$87.7 million for the three months ended September 30, 2022 compared to adjusted
operating income of $25.9 million for the same period in 2021.


Adjusted operating income (loss) margin, represents adjusted operating income
(loss) divided by core revenue. Adjusted operating loss margin was 27.7% for the
three months ended September 30, 2022 compared to adjusted operating income of
9.0% for the same period in 2021.

Adjusted net income (loss) attributable to common stockholders represents GAAP
net income (loss) attributable to common stockholders, excluding net realized
gains (losses) on investment and net changes in unrealized gains (losses) of
equity securities, net of tax. Adjusted net loss attributable to common
stockholders was $69.4 million for the three months ended September 30, 2022
compared to adjusted net income attributable to common stockholders of $19.8
million for the same period in 2021.

Diluted adjusted earnings (loss) per common share represents adjusted net income
(loss) available to common stockholders divided by weighted average diluted
common shares outstanding. Diluted adjusted loss per common share was $2.27 for
the three months ended September 30, 2022 compared to diluted adjusted earnings
per common share of $0.63 for the same period in 2021.


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All comparisons for the nine months ended September 30, 2022 results of
operations are to the corresponding prior year period (unless otherwise
specified).

Results of Operations – Nine Months Ended September 30, 2022 Compared to Nine
Months Ended September 30, 2021


Net loss was $47.4 million for the nine months ended September 30, 2022 due
primarily to the impact from Hurricane Ian compared to $68.5 million in net
income for the nine months ended September 30, 2021. Benefiting the nine months
ended September 30, 2022 were increases in premiums earned, net, an increase in
net investment income. and an increase in commission revenue, partially offset
by an increase in unrealized losses, a decrease in realized gains, and a
decrease in revenue from policy fees, and an increase in operating costs and
expenses. Direct premium earned and premiums earned, net were up 9.9% and 9.5%,
respectively, due to premium growth in the majority of states in which we are
licensed and writing during the past 12 months as a result of rate increases
implemented during 2021 and 2022, partially offset by higher costs for
reinsurance flowing through to premiums earned, net. The net loss and LAE ratio
was 85.5% for the nine months ended September 30, 2022, compared to 65.3% for
the same period in 2021 reflecting the impact of Hurricane Ian, higher core net
losses and an increase in excess other weather events beyond those expected
partially offset by lower prior years' reserve development. As a result of the
above and as further explained below, the combined ratio for the nine months
ended September 30, 2022 was 113.2% compared to 96.4% for the nine months ended
September 30, 2021. See "Overview - Trends."

A detailed discussion of our results of operations follows the table below (in
thousands, except per share data).

                                                         Nine Months Ended
                                                           September 30,                                Change
                                                     2022                 2021                  $                   %
REVENUES
Direct premiums written                         $ 1,429,685          $ 1,271,925          $  157,760                 12.4  %
Change in unearned premium                         (133,827)             (93,124)            (40,703)                43.7  %
Direct premium earned                             1,295,858            1,178,801             117,057                  9.9  %
Ceded premium earned                               (459,102)            (414,670)            (44,432)                10.7  %
Premiums earned, net                                836,756              764,131              72,625                  9.5  %
Net investment income                                15,337                8,641               6,696                 77.5  %
Net realized gains (losses) on investments             (375)               5,357              (5,732)                     NM
Net change in unrealized gains (losses) of
equity securities                                   (16,430)              (3,024)            (13,406)               443.3  %
Commission revenue                                   35,157               30,404               4,753                 15.6  %
Policy fees                                          15,991               17,821              (1,830)               (10.3) %
Other revenue                                         5,862                5,862                   -                    -  %
Total revenues                                      892,298              829,192              63,106                  7.6  %
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses                 715,854              498,765             217,089                 43.5  %
General and administrative expenses                 231,561              237,469              (5,908)                (2.5) %
Total operating costs and expenses                  947,415              736,234             211,181                 28.7  %
Interest and amortization of debt issuance
costs                                                 4,969                   84               4,885               5815.5  %
INCOME (LOSS) BEFORE INCOME TAXES                   (60,086)              92,874            (152,960)                     NM
Income tax expense (benefit)                        (12,718)              24,342             (37,060)                     NM
NET INCOME (LOSS)                               $   (47,368)         $    68,532          $ (115,900)                     NM
Other comprehensive income (loss), net of taxes    (100,097)             (10,741)            (89,356)                     NM
COMPREHENSIVE INCOME (LOSS)                     $  (147,465)         $    57,791          $ (205,256)                     NM

DILUTED EARNINGS (LOSS) PER SHARE DATA:
Diluted earnings (loss) per common share $ (1.54) $ 2.19 $ (3.73)

                     NM
Weighted average diluted common shares
outstanding                                          30,858               31,302                (444)                (1.4) %

NM - Not Meaningful



Direct premiums written increased by $157.8 million, or 12.4%, for the nine
months ended September 30, 2022, driven by premium growth within our Florida
business of $138.0 million, or 13.0%, and premium growth in our other states
business of $19.8 million, or 9.4%, as compared to the same period of the prior
year. Rate increases approved in 2021 and 2022 for Florida and for certain other
states were the principal driver of higher written premiums. In total, policies
in force declined 70,667, or
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7.5%, from 943,593 at December 31, 2021 to 872,926 at September 30, 2022. A
summary of the recent rate increases which are driving increases in written
premium is discussed above under “Overview-Trends.”


Rate increases are applied on new business submissions and renewals from the
effective date of their renewal, and then are earned subsequently over the
policy period. The recent rate increases in Florida are in response to rising
claim costs driven by higher costs of material and labor associated with claims,
the cost of weather events, the rising cost of catastrophe and other reinsurance
protecting policyholders and, more importantly, the impact of "social inflation"
on claims as claim settlements increasingly have involved inflated demands,
representation, and litigation. In addition, the Insurance Entities' policies
provide for coverage limits to be adjusted at renewal based on third-party data
sources that monitor factors such as changes in costs for residential building
materials and labor.

During 2022, management continued efforts to prudently manage policy counts and
exposures intended to slow the growth of exposures relating to new business
compared to prior years while the above rate increases are taking effect.
Reduced new business writings, declines in renewal retentions in 2022 and the
impact of selected policy non-renewals have resulted in a decrease in policies
in force of 70,667, or 7.5%, during 2022 from 943,593 at December 31, 2021 to
872,926 at September 30, 2022. Direct premiums written continue to increase
across the majority of states in which we conduct business. As a result of our
business strategy, rate changes and disciplined underwriting initiatives, we
have seen a decrease in policy count, but an increase in in-force premium and
total insured value in a majority of states for the past three years. We
actively wrote policies in 19 states during 2021 and 2022. In addition, we are
authorized to do business in Tennessee and Wisconsin and are proceeding with
product filings in those states. At September 30, 2022, policies in force
decreased 94,895 policies, or 9.8%, premium in force increased $183.5 million,
or 11.1%, and total insured value increased $5.3 billion, or 1.7%, compared to
September 30, 2021.

The following table provides direct premiums written for Florida and Other
States for the nine months ended September 30, 2022 and 2021 (dollars in
thousands):

                                                       For the Nine Months Ended
                                                                                                                                  Growth
                                     September 30, 2022                          September 30, 2021                            year over year
                            Direct Premiums                             Direct Premiums
State                           Written                   %                 Written                  %                     $                     %
Florida                    $     1,200,193                83.9  %       $   1,062,180                83.5  %       $      138,013                13.0  %
Other states                       229,492                16.1  %             209,745                16.5  %               19,747                 9.4  %
Total                      $     1,429,685               100.0  %       $   1,271,925               100.0  %       $      157,760                12.4  %


We seek to prudently grow and generate long-term rate adequate premium in each
state where we offer policies. Our diversification strategy seeks to increase
business outside of Florida and to improve geographical distribution within
Florida. Premium growth outside Florida is a measure monitored by management in
its efforts to meet that objective.

Direct premium earned increased by $117.1 million, or 9.9%, for the nine months
ended September 30, 2022, reflecting the earning of premiums written over the
past 12 months including the benefit of rate changes due to primary rate
filings, filings to cover increased reinsurance costs as well as policy premium
adjustments due to increases in insured values caused by inflation.

Reinsurance enables our Insurance Entities to limit potential exposures to
catastrophic events and other covered events. Ceded premium represents premiums
paid to reinsurers for this protection and is a cost which reduces net written
and net earned premiums. Hurricane Ian triggered reinstatement premiums,
increasing ceded premiums written by $24.6 million which will be earned
prospectively effective September 28, 2022 to May 31, 2023, increasing ceded
premiums earned for the quarter by $307 thousand. In total, ceded premium earned
increased $44.4 million, or 10.7%, for the nine months ended September 30, 2022
as compared to the same period of the prior year. The increase in reinsurance
costs reflects an increase in the value of exposures we insure; increased
pricing when compared to the expired reinsurance program and differences in the
structure and design of the respective programs. Reinsurance costs as a
percentage of direct premium earned increased from 35.2% in 2021 to 35.4% in
2022. Reinsurance costs associated with each year's reinsurance program are
earned over the annual policy period which typically runs from June 1st to May
31st. See the discussion above for the Insurance Entities' 2022-2023 reinsurance
programs and "Item 1- Note 4 (Reinsurance)."

Premiums earned, net of ceded premium earned, grew by 9.5%, or $72.6 million, to
$836.8 million for the nine months ended September 30, 2022, reflecting an
increase in direct premium earned offset by increased costs for reinsurance.


Net investment income was $15.3 million for the nine months ended September 30,
2022, compared to $8.6 million for the same period in 2021, an increase of $6.7
million, or 77.5%. In the fourth quarter of 2021, we saw increases in investment
yields as the Federal Reserve took action to address the market concerns of
inflation and employment. As a result, liquidity generated by our portfolio from
interest payments, principal repayments and new investments are being invested
at higher rates, resulting in overall increased investment returns on our
portfolio.
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Total invested assets were $1.08 billion as of September 30, 2022 compared to
$1.09 billion million as of December 31, 2021. The decrease is attributable to
increases in unrealized losses. Unrealized losses reverse over time as debt
instruments are generally held to maturity. Cash and cash equivalents were
$307.4 million at September 30, 2022 compared to $250.5 million at December 31,
2021, an increase of 22.7%. This increase is largely attributable to cash calls
to reinsurers to support Ian claim settlement liquidity and changes in
operational cash flows since year end. Cash and cash equivalents are invested
short term until needed to settle loss and LAE payments, reinsurance premium
payments and operating cash needs or until they are deployed by our investment
advisors.

Yields from cash and cash equivalents, short-term investments and the
available-for-sale debt portfolio are dependent on the composition of the
portfolio, future market forces, monetary policy and interest rate policy from
the Federal Reserve. During most of 2021, the Federal Reserve broadly maintained
lower interest rates, which impacted the effective yields on newly purchased
available-for-sale debt securities and overnight cash purchases and short-term
investments. This overall trend changed in late 2021 and into 2022 as inflation
worries began to impact the financial markets, including the markets' concern
over future Federal Reserve actions of rate hikes and other actions to address
inflation concerns. As a result, we saw increased yields on securities purchased
in late 2021 and 2022 and increased unrealized losses on our portfolio reflected
after-tax in the equity section of our balance sheet as increased market yields
negatively impacted the fair value of much of our available-for-sale debt
securities.

We sell investments, including securities, from our investment portfolio from
time to time to meet our investment objectives or take advantage of market
opportunities. During the nine months ended September 30, 2022, sales of
available-for-sale debt securities resulted in net realized losses of $1.4
million and sales of equity securities resulted in net realized gains of $1.0
million, generating total net realized losses of $0.4 million. During the nine
months ended September 30, 2021, sales of available-for-sale debt securities
resulted in net realized gains of $0.3 million, sales of equity securities
resulted in net realized gains of $2.4 million, and the sale of two investment
real estate property which included one classified as assets held for sale in
the first nine months of 2021, resulted in a realized gain of $2.7 million, in
total generating net realized gains of $5.4 million. See "Item 1-Note 3
(Investments)."

There was a $16.4 million net unrealized loss in equity securities during the
nine months ended September 30, 2022 compared to a $3.0 million net unrealized
loss in equity securities during the nine months ended September 30, 2021. Net
change in unrealized gains or losses reflected on the income statement are the
result of changes in the fair market value of our equity securities during the
period for securities still held at the end of the reported period and the
reversal of unrealized gains or losses for securities sold during the period.
See "Item 1-Note 3 (Investments)."

Commission revenue is comprised principally of brokerage commissions we earn
from third-party reinsurers (excluding the FHCF) on reinsurance placed for the
Insurance Entities. Commission revenue is earned pro-rata over the reinsurance
policy period which runs from June 1st to May 31st of the following year.
Reinstatement premiums for Hurricane Ian resulted in $13.1 million of additional
brokerage commissions which will be earned prospectively from September 28, 2022
to May 31, 2023, increasing brokerage commission revenue earned of $160 thousand
for the quarter. For the nine months ended September 30, 2022, commission
revenue was $35.2 million, compared to $30.4 million for the nine months ended
September 30, 2021. The increase in commission revenue of $4.8 million, or
15.6%, for the nine months ended September 30, 2022 was primarily due to
increased commissions from third-party reinsurers earned on increased
reinsurance premiums which is attributable to growth in our insured values as
well as the difference in pricing and structure associated with our reinsurance
program when compared to the prior year.

Policy fees for the nine months ended September 30, 2022 were $16.0 million
compared to $17.8 million for the same period in 2021. The decrease of $1.8
million, or 10.3%, was the result of a decrease in the combined total number of
new and renewal policies written during the nine months ended September 30, 2022
compared to the same period in 2021 in states where we are permitted to charge
this fee.

Other revenue, representing revenue from policy installment fees, premium
financing and other miscellaneous income for the nine months ended September 30,
2022
was relatively flat when compared to the same period in 2021.

Core revenue, representing total GAAP revenue, excluding net realized gains
(losses) on investments and net changes in unrealized gains (losses) of equity
securities, was $909.1 million for the nine months ended September 30, 2022
compared to $826.9 million for the same period in 2021.

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The following table presents losses and LAE incurred on a direct, ceded and net
basis expressed in dollars and as a percent of the respective amounts of
premiums earned. These amounts are further categorized as i) core losses, ii)
weather events for the current accident year and iii) prior years' reserve
development (dollars in thousands):

                                                                            

Nine Months Ended September 30, 2022

                                       Direct               Loss Ratio               Ceded               Loss Ratio               Net               Loss Ratio
Premiums earned                   $   1,295,858                                  $   459,102                                  $ 836,756

Loss and loss adjustment
expenses:
Core losses                       $     593,364                    45.8  %       $       135                       -  %       $ 593,229                    70.9  %
Weather events*                       1,030,745                    79.5  %           915,200                   199.3  %         115,545                    13.8  %
Prior years' reserve development        100,620                     7.8  %            93,540                    20.4  %           7,080                     0.8  %
Total losses and loss adjustment
expenses                          $   1,724,729                   133.1  %       $ 1,008,875                   219.7  %       $ 715,854                

85.5 %

*Includes only current year weather events beyond those expected.



                                                                                 Nine Months Ended September 30, 2021
                                         Direct                 Loss Ratio              Ceded              Loss Ratio               Net               Loss Ratio
Premiums earned                   $    1,178,801                                     $ 414,670                                  $ 764,131

Loss and loss adjustment
expenses:
Core losses                       $      480,801                       40.8  %       $      19                       -  %       $ 480,782                    62.9  %
Weather events*                                -                          -  %               -                       -  %               -                       -  %
Prior years' reserve development         296,867                       25.2  %         278,884                    67.3  %          17,983                     2.4  %
Total losses and loss adjustment
expenses                          $      777,668                       66.0  %       $ 278,903                    67.3  %       $ 498,765               

65.3 %

*Includes only current year weather events beyond those expected.

See “Item 1-Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)”
for change in liability for unpaid losses and LAE.


Management looks at losses and LAE in three areas, as described below and
represented in the tables above, each of which has different drivers that impact
reported results. As a result, these components of losses and LAE are described
separately. Overall losses and LAE, net of reinsurance recoveries, were $715.9
million resulting in an 85.5% net loss and LAE ratio for the nine months ended
September 30, 2022. This compares to $498.8 million resulting in a 65.3% net
loss and LAE ratio for the nine months ended September 30, 2021.

The Company continues to monitor and adjust its estimate of expected losses and
has increased its current year loss estimates and increased estimates associated
with prior years' claims. Over the past three years, even as we have increased
our estimates of prospective losses each year, we have recorded adverse claim
development on prior years' loss reserves and further strengthened current year
losses during the year to address the increasing impact of Florida's market
disruptions, as well as the impact that inflation from building material costs
and labor costs has on the reserving and claim settlement process. The full
extent and duration of these market disruptions and inflationary pressures are
unknown and still unfolding, and we continue to monitor the impact of such
disruptions on the recording and reporting of claim costs. See the discussion
above for the Insurance Entities' 2022-2023 reinsurance programs and "Item 1 -
Note 4 (Reinsurance)." Also see the discussion above under "Overview-Trends."

The factors impacting losses and LAE are as follows:

•Core losses


•Our core losses consist of all losses and LAE for the current accident year
excluding both weather events for the current year beyond those anticipated in
our regular accrual process and prior years' reserve development. Core losses
were 45.8% of direct premium earned for the nine months ended September 30, 2022
compared to 40.8% for the same period in 2021. During the quarter ended
September 30, 2022, management increased the core loss ratio by approximately
one loss ratio point retroactive to January 1, 2022, with the cumulative impact
being recorded in the quarter. This was done in response to worsening weather
experience during the quarter. Management elected to address this through an
increase in the current accident year loss pick rather than record specific
weather events given the overall trends in recent years for weather not
associated with named storms and in response to changes in estimated losses
caused by deteriorating loss trends and higher repair costs as a result of
material and labor inflation. The trend in core losses and LAE is increasing
year over year as the claims environment in Florida continues to deteriorate and
inflation continues to drive repair costs up. Also see the
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discussion above under “Overview-Trends.” Core losses also increase as premium
volume increases year over year.

•Weather events beyond those expected


•During the nine months ended September 30, 2022, Hurricane Ian resulted in
direct losses of $1.026 billion. Estimated net losses and LAE exposure to the
Insurance Entities, after estimated reinsurance recoveries, is $45.0 million.
The Insurance Entities reinsurance recoveries include losses and LAE recoveries
of $66.0 million from UVE's prefunded captive insurance arrangement which is
eliminated in consolidation. In total, net losses from Hurricane Ian including
losses and LAE incurred under the funded captive insurance arrangement, is
currently estimated to be $111.0 million. During the nine months ended September
30, 2022, in addition to the impact of Hurricane Ian, there were $4.5 million of
other weather events beyond those expected.
•There were no weather events beyond those expected during the nine months ended
September 30, 2021.

•Prior years’ reserve development

•Two drivers influence the amounts recorded as prior years’ reserve development,
namely: (i) changes to prior estimates of direct and net ultimate losses on
prior accident years excluding major hurricanes and (ii) changes to prior
estimates of direct and net ultimate losses on hurricanes.

?During the nine months ended September 30, 2022, prior years’ reserve
development totaled $100.6 million of direct losses and $7.1 million of net
unfavorable loss development after the benefit of reinsurance.


•For hurricanes, prior years' reserve development for the nine months ended
September 30, 2022 was the result of a direct increase in the ultimate losses
for several hurricanes of $100.6 million offset by ceded hurricane losses of
$93.5 million resulting in net unfavorable development of $7.1 million. Direct
losses increased for Hurricanes Irma, Sally, Michael and Matthew. Prior year
adverse development includes gross reserve development on Hurricane Irma of
$76.2 million, of which $69.2 million was ceded, resulting in net development on
Hurricane Irma of $7.0 million in the period. Additionally, the Company
concluded a favorable commutation during the quarter, increasing ceded prior
year loss payments which was offset by a provisory increase in direct prior year
IBNR amount, resulting in no net effect. Hurricane Matthew direct and net losses
increased $0.1 million.

•Excluding hurricanes, there was no direct and net prior years’ reserve
development for the nine months ended September 30, 2022.


?For the nine months ended September 30, 2021, prior years' reserve development
totaled $296.9 million of direct losses and $18.0 million of net unfavorable
loss development after the benefit of reinsurance.

•For hurricanes, prior years' reserve development for the nine months ended
September 30, 2021 was the result of a direct increase in the ultimate losses
for several hurricanes of $282.9 million offset by ceded hurricane losses of
$278.9 million resulting in net unfavorable development of $4.0 million. Direct
losses increased for Hurricanes Irma, Sally, Michael and Matthew.

•Excluding hurricanes, there was $14.0 million of direct and net prior years'
reserve development for the nine months ended September 30, 2021. This
development, primarily from the 2019 and prior accident years, resulted from the
settlement on litigated claims exceeding prior estimated amounts.


The financial benefit generated by our claims adjusting affiliate from the
management of claims, including claim fees ceded by our Insurance Entities to
reinsurers, was a benefit of $6.9 million for the nine months ended September
30, 2022, compared to $13.0 million during the nine months ended September 30,
2021, driven by the recoveries from reinsurers and internal claim services. The
amount recorded in the current quarter is the result of claim activity on
Hurricane Ian. The benefit was recorded in the condensed consolidated financial
statements as a reduction to losses and LAE.

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General and administrative expenses were $231.6 million for the nine months
ended September 30, 2022, compared to $237.5 million during the same period in
2021, as follows (dollars in thousands):

                                                                 Nine Months Ended
                                                                   September 30,                                               Change
                                                    2022                                   2021                          $                 %
                                           $                 Ratio                $                 Ratio
Premiums earned, net                  $ 836,756                              $ 764,131                              $ 72,625               9.5  %
General and administrative expenses:
Policy acquisition costs                163,432                19.5  %         170,287                22.3  %         (6,855)             (4.0) %
Other operating costs                    68,129                 8.2  %          67,182                 8.8  %            947               1.4  %

Total general and administrative
expenses                              $ 231,561                27.7  %       $ 237,469                31.1  %       $ (5,908)             (2.5) %


General and administrative expenses decreased by $5.9 million, which was the
result of a decrease in policy acquisition costs of $6.9 million offset by an
increase in other operating costs of $1.0 million. The total general and
administrative expense ratio was 27.7% for the nine months ended September 30,
2022 compared to 31.1% for the nine months ended September 30, 2021.

•The decrease in policy acquisition costs of $6.9 million reflects a reduction
in the commission rate paid to agents on the renewal of Florida policies which
was reduced by two percentage points to 10% effective April 1, 2021. The
commission rate paid to agents on the renewal of Florida policies was reduced by
an additional two percentage points to 8% effective May 1, 2022, which will
benefit future periods as the new rate structure applies prospectively. The
decrease in policy acquisition costs as a percentage of premiums earned, net
during the period is primarily due to the reduction in commissions paid to
agents.

•The increase in other operating costs of $1.0 million primarily reflects an
increase in performance bonus accruals partially offset by a decrease in stock
based compensation and policy costs. The other operating cost ratio was 8.2% for
the nine months ended September 30, 2022 compared to 8.8% in the nine months
ended September 30, 2021. This reduction reflects several factors including
economies of scale as we continue to grow premium, and efficiencies gained from
leveraging technology, and spending discipline.

As a result of the above, the combined ratio for the nine months ended September
30, 2022 was 113.2% compared to 96.4% for the same period in 2021. The increase
was the result of the impact of Hurricane Ian and higher core losses.

Interest and amortization of debt issuance costs increased by $4.9 million for
the nine months ended September 30, 2022. The increase in interest and
amortization of debt issuance costs is the result of an increase in the
outstanding debt as a result of our fourth quarter of 2021 borrowing. See "Item
1-Note 7 (Long-term debt)" for additional details.

Income tax benefit was $12.7 million for the nine months ended September 30,
2022, compared to income tax expense of $24.3 million for the nine months ended
September 30, 2021. Our ETR decreased to 21.2% for the nine months ended
September 30, 2022, as compared to 26.2% for the nine months ended September 30,
2021. The ETR decreased as a result of a lower ratio of permanent items relative
to the amount of loss before taxes, principally non-deductible compensation, and
a higher level of discrete tax benefits. As a result of Hurricane Ian, the state
tax benefit was reduced in Q3 2022 due to the VIE's absence of a state tax
deduction. See "Item 1-Note 9 (Income Tax)" and "-Note 14 (Variable Interest
Entities)" for additional details.

Other comprehensive loss, net of taxes for the nine months ended September 30,
2022, was $100.1 million compared to other comprehensive loss of $10.7 million
for the same period in 2021, reflecting after-tax changes in fair value of
available-for-sale debt securities held in our investment portfolio and
reclassifications out of accumulated other comprehensive income for
available-for-sale debt securities sold. We saw increased market yields on
securities purchased in late 2021 and 2022 and increased unrealized losses on
our portfolio, reflected after-tax in the equity section of our balance sheet as
increased market yields negatively impacted the fair value on much of our
available-for-sale debt securities. See see discussion above and "Item 1-Note 11
(Other Comprehensive Income (Loss))" for additional information about the
amounts comprising other comprehensive income (loss), net of taxes for these
periods.

Adjusted operating income (loss) represents GAAP operating income (loss),
excluding net realized gains (losses) on investment and net changes in
unrealized gains (losses) of equity securities. Adjusted operating loss as $38.3
million
for the nine months ended September 30, 2022 compared to adjusted
operating income of $90.6 million for the same period in 2021.


Adjusted operating income (loss) margin represents adjusted operating income
(loss) divided by core revenue. Adjusted operating loss was 4.2% for the nine
months ended September 30, 2022 compared to adjusted operating income of 11.0%
for the same period in 2021.
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Adjusted net income (loss) attributable to common stockholders represents GAAP
net income (loss) attributable to common stockholders, excluding net realized
gains (losses) on investment and net changes in unrealized gains (losses) of
equity securities, net of tax. Adjusted net loss attributable to common
stockholders was $34.7 million for the nine months ended September 30, 2022
compared to adjusted net income attributable to common stockholders of $66.7
million for the same period in 2021.

Diluted adjusted earnings (loss) per common share represents adjusted net income
(loss) available to common stockholders divided by weighted average diluted
common shares outstanding. Diluted adjusted loss per common share was $1.12 for
the nine months ended September 30, 2022 compared to diluted adjusted earnings
per share of $2.13 for the same period in 2021.
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Analysis of Financial Condition-As of September 30, 2022 Compared to
December 31, 2021


We believe that cash flows generated from operations will be sufficient to meet
our working capital requirements for at least the next twelve months. We invest
amounts considered to be in excess of current working capital requirements.

The following table summarizes, by type, the carrying values of investments as
of the dates presented (in thousands):


                                                   As of
                                      September 30,       December 31,
Type of Investment                         2022               2021

Available-for-sale debt securities $ 996,783 $ 1,040,455

Equity securities                            82,387            47,334

Investment real estate, net                   5,752             5,891
Total                                $    1,084,922      $  1,093,680

See “Item 1-Condensed Consolidated Statements of Cash Flows” and “Item 1-Note 3
(Investments)” for explanations on changes in investments.


Prepaid reinsurance premiums represent the portion of unearned ceded written
premium that will be earned pro-rata over the coverage period of our reinsurance
program, which runs from June 1st to May 31st of the following year. The
increase of $211.2 million to $452.2 million as of September 30, 2022 was
primarily due to additional ceded written premium reinsurance costs relating to
our new 2022-2023 catastrophe reinsurance program beginning June 1, 2022, less
amortization of ceded written premium for the reinsurance costs earned since the
beginning of the program.

Reinsurance recoverable represents the estimated amount of paid and unpaid
losses, LAE and other expenses that are expected to be recovered from
reinsurers. The increase of $750.2 million to $935.8 million as of September 30,
2022 was primarily due to Hurricane Ian covered by our reinsurance contracts and
amounts received in connection with a commutation received by UPCIC in the
second quarter of 2022.

Premiums receivable, net, represents amounts receivable from policyholders. The
increase in premiums receivable, net of $14.7 million to $79.6 million as of
September 30, 2022 relates to consumer payment behavior of our business. The
amount of direct premiums written during a calendar year tends to increase just
prior to the second quarter and tends to decrease approaching the fourth
quarter.

Deferred policy acquisition costs ("DPAC") increased by $3.0 million to $111.9
million as of September 30, 2022, which is consistent with the seasonal premium
trends of written premium. In addition DPAC was impacted by the reduction to
Florida renewal commissions implemented during 2022 and 2021 and other changes
to the Company's commission structure. See "Item 1-Note 5 (Insurance
Operations)" for a roll-forward in the balance of our DPAC.

Income taxes recoverable represents the difference between estimated tax
obligations and tax payments made to taxing authorities. As of September 30,
2022, the balance recoverable was $32.8 million, representing amounts due from
taxing authorities at that date, compared to a balance recoverable of $16.9
million as of December 31, 2021. Income taxes recoverable as of September 30,
2022 will either be refunded or applied to future periods to offset future
federal and state income tax obligations.

Deferred income taxes represent the estimated tax asset or tax liability caused
by temporary differences between the tax return basis of certain assets and
liabilities and amounts recorded in the financial statements. For the nine
months ended September 30, 2022, deferred tax assets increased by $33.3 million
to $49.7 million primarily due to an increase in unrealized losses on
investments. Deferred income taxes reverse in future years as the temporary
differences between book and tax reverse.

Other assets decreased by $5.0 million to $17.1 million as of September 30,
2022
, which was primarily attributable to receivables relating to sales of our
securities from our investment portfolio that settled after December 31, 2021.


See "Item 1-Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)"
for a roll-forward in the balance of our unpaid losses and LAE. Unpaid losses
and LAE increased by $807.4 million to $1,153.6 million as of September 30,
2022. The majority of the increase in 2022 was a result of losses recorded in
the third quarter of 2022 for Hurricane Ian. Overall, unpaid losses and LAE
increased, as new emerging claims exceeded settlements. Unpaid losses and LAE
are net of estimated subrogation recoveries.

Unearned premiums represent the portion of direct premiums written that will be
earned pro-rata in the future. The increase of $133.8 million from December 31,
2021 to $991.6 million as of September 30, 2022 reflects the seasonality of our
business, which varies from month to month.

Advance premium represents premium payments made by policyholders ahead of the
effective date of the policies. The increase of $24.6 million to $78.3 million
as of September 30, 2022 reflects customer payment behavior and the payment
behavior of mortgage escrow service providers.
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We maintain a short-term cash investment strategy sweep to maximize investment
returns on cash balances. Book overdraft totaled $3.1 million as of September
30, 2022 compared to book overdraft totaling $26.8 million as of December 31,
2021. The decrease of $23.7 million is the result of higher cash balances
available for offset as of September 30, 2022 compared to December 31, 2021. See
"-Liquidity and Capital Resources" for more information.

Reinsurance payable, net, represents the unpaid reinsurance premium installments
owed to reinsurers, unpaid reinstatement premiums due to reinsurers and cash
advances received from reinsurers, if any. On June 1st of each year, we renew
our core catastrophe reinsurance program and record the estimated annual cost of
our reinsurance program. These estimated annual costs are increased or decreased
during the year based on premium adjustments or as a result of new placements
during the year. The annual cost initially increases reinsurance payable, which
is then reduced as installment payments are made over the policy period of the
reinsurance, which typically runs from June 1st to May 31st. The balance
increased by $270.2 million to $458.9 million as of September 30, 2022 as a
result of the timing of the above items. See "-Liquidity and Capital Resources"
for more information about timing of reinsurance premium installment payments.

Other liabilities and accrued expenses increased by $28.7 million to $56.1
million as of September 30, 2022, primarily driven from an increase in other
liabilities due to the timing of payments and payables relating to purchases of
securities for our investment portfolio that settled after September 30, 2022.

Capital resources, net, decreased by $169.8 million for the nine months ended
September 30, 2022, reflecting a net decrease in total stockholders' equity and
long-term debt. The change in stockholders' equity was principally the result of
our 2022 net loss, declines in the after-tax changes in the fair value of our
available-for-sale debt securities, treasury share purchases and dividends to
shareholders offset by increases from share-based compensation.
Available-for-sale debt securities' decline in fair value of $132.8 million
(before tax) through the third quarter of 2022, caused the net unrealized loss
position of $20.2 million at December 31, 2021 to increase to $153.0 million at
September 30, 2022. Current market outlooks are signaling further Federal
Reserve tightening which could continue to have a negative impact on the
valuation of available-for-sale debt securities. See "Item 1-Condensed
Consolidated Statements of Stockholders' Equity" and "Item 1-Note 8
(Stockholders' Equity)" for explanation of changes in treasury stock.

The reduction in debt of $1.1 million was the result of principal payments on
debt during 2022. See “-Liquidity and Capital Resources” for more information.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity


Liquidity is a measure of a company's ability to generate sufficient cash flows
to meet its short and long-term obligations. Funds generated from operations
have been sufficient and we expect them to be sufficient to meet our current and
long term liquidity requirements.

The balance of cash and cash equivalents, excluding restricted cash, as of
September 30, 2022 was $307.4 million, compared to $250.5 million at
December 31, 2021. See "Item 1-Condensed Consolidated Statements of Cash Flows"
for a reconciliation of the balance of cash and cash equivalents between
September 30, 2022 and December 31, 2021. This increase is largely attributable
to cash calls to reinsurers to support Hurricane Ian claim settlement liquidity
and changes in operational cash flows since year end and was driven by cash
flows generated from operating activities in excess of cash flows used in
investing and financing activities. Our cash investment strategy at times
includes cash investments where the right of offset against other bank accounts
does not exist. A book overdraft occurs when aggregating the book balance of all
accounts at a financial institution, for accounts which have the right of
offset, and if the aggregation results in a net negative book balance, that
balance is reclassified from cash and cash equivalents in our Condensed
Consolidated Balance Sheet to book overdraft. Cash and cash equivalents balances
are available to settle book overdrafts, and to pay reinsurance premiums,
expenses and claims. Reinsurance premiums are paid in installments during the
reinsurance policy period, which runs from June 1st to May 31st of the following
year. The FHCF reimbursement premiums are paid in three installments on August
1st, October 1st, and December 1st, and third-party reinsurance premiums are
generally paid in four installments on July 1st, October 1st, January 1st and
April 1st, resulting in significant payments at those times. See "Item 1-Note 12
(Commitments and Contingencies)" and additional discussion below under the
caption "-Material Cash Requirements" for more information.

The balance of restricted cash and cash equivalents as of September 30, 2022 and
December 31, 2021 represents cash equivalents on deposit with certain regulatory
agencies in the various states in which our Insurance Entities do business.
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Liquidity is required at the holding company for us to cover the payment of
holding company general operating expenses and contingencies, dividends to
shareholders (if and when authorized and declared by our Board of Directors),
payment for the possible repurchase of our common stock (if and when authorized
by our Board of Directors), payment of our tax obligations to taxing
authorities, settlement of taxes between subsidiaries in accordance with our tax
sharing agreement, capital contributions to subsidiaries or surplus note
contributions to the Insurance Entities, if needed, and interest and principal
payments on outstanding debt obligations of the holding company. Effective in
2021 for UPCIC and 2022 for APPCIC, the holding company has put in place an
ongoing surplus note arrangement with the Insurance Entities, which has been
approved by the Florida Office of Insurance Regulation as the Insurance
Entities' domestic regulator. Surplus notes are unsecured debt issued by the
Insurance Entities that are subordinated to all claims by policyholders and
creditors, with interest and principal payments on the surplus notes to the
holding company being made only upon the FLOIR's express approval. Surplus notes
are considered bonds in function and payout structure, but are accounted for as
equity in the statutory reporting of the Insurance Entities. The holding company
has outstanding with the Insurance Entities $134.0 million in surplus notes.
Under the arrangement, interest accrues at a variable rate (currently 8.27%) on
the outstanding surplus note balances and, if approved by the FLOIR, is payable
annually to the holding company. In 2022, UPCIC received approval from its
Florida regulator to permit UPCIC to pay interest accruing from surplus notes
outstanding during 2021. The declaration and payment of future dividends to our
shareholders, and any future repurchases of our common stock, will be at the
discretion of our Board of Directors and will depend upon many factors,
including our operating results, financial condition, debt covenants and any
regulatory constraints. New regulations or changes to existing regulations
imposed on the Company and its affiliates may also impact the amount and timing
of future dividend payments to the parent. Principal sources of liquidity for
the holding company include dividends paid by our service entities generated
from income earned on fees paid by the Insurance Entities to affiliated
companies for general agency, inspections and claims adjusting services.
Dividends are also paid from income earned from brokerage commissions earned on
reinsurance contracts placed by our wholly-owned subsidiary, Blue Atlantic
Reinsurance Corporation, and policy fees. We also maintain high quality
investments in our portfolio as a source of liquidity along with ongoing
interest and dividend income from those investments. As discussed in "Item
1-Note 5 (Insurance Operations)," there are limitations on the dividends the
Insurance Entities may pay to their immediate parent company, Protection
Solutions, Inc. ("PSI", formerly known as Universal Insurance Holding Company of
Florida).

The maximum amount of dividends that can be paid by Florida insurance companies
without prior approval of the FLOIR is subject to restrictions as referenced
below and in "Item 1-Note 5 (Insurance Operations)." Dividends from the
Insurance Entities can only be paid from accumulated unassigned funds derived
from net operating profits and net realized capital gains. Subject to such
accumulated unassigned funds, the maximum dividend that may be paid by the
Insurance Entities to PSI without prior approval (an "ordinary dividend") is
further limited to the lesser of statutory net income from operations of the
preceding calendar year or statutory unassigned surplus as of the preceding year
end. During the nine months ended September 30, 2022 and the year ended
December 31, 2021, the Insurance Entities did not pay dividends to PSI. As of
September 30, 2022, the Insurance Entities did not have the capacity to pay
ordinary dividends.

In November 2021, we issued $100 million of 5.625% Senior Unsecured Notes due
2026. We are using the net proceeds to support the Insurance Entities' statutory
capital requirements and for general corporate purposes. If necessary, the
Company also has amounts available under our unsecured revolving loan as
discussed in "Item 1-Note 7 (Long-term debt)."

Liquidity for the Insurance Entities is primarily required to cover payments for
reinsurance premiums, claims payments including potential payments of
catastrophe losses (offset by recovery of any reimbursement amounts under our
reinsurance agreements), fees paid to affiliates for managing general agency
services, inspections and claims adjusting services, agent commissions, premium
and income taxes, regulatory assessments, general operating expenses, and
interest and principal payments on debt obligations. The principal source of
liquidity for the Insurance Entities consists of the revenue generated from the
collection of premiums earned, net, interest and dividend income from the
investment portfolio, the collection of reinsurance recoverable and financing
fees.

Our insurance operations provide liquidity as premiums are generally received
months or even years before potential losses are paid under the policies
written. In the event of catastrophic events, many of our reinsurance agreements
provide for "cash advance" whereby reinsurers advance or prepay amounts to us,
thereby providing liquidity, which we utilize in the claim settlement process.
In addition, the Insurance Entities maintain substantial investments in highly
liquid, marketable securities, which would generate funds upon sale. The average
credit rating on our available-for-sale securities was A+ as of September 30,
2022 and December 31, 2021. Credit ratings are a measure of collection risk on
invested assets. Credit ratings are provided by third party, nationally
recognized rating agencies and are periodically updated. Management establishes
guidelines for minimum credit rating and overall credit rating for all
investments. The duration of our available-for-sale securities was 4.2 years at
September 30, 2022 compared to 4.4 years at December 31, 2021. Duration is a
measure of a bond's sensitivity to interest rate changes and is used by
management to limit the potential impact of longer-term investments.

The Insurance Entities are responsible for losses related to catastrophic events
in excess of coverage provided by the Insurance Entities' reinsurance programs
and retentions before our reinsurance protection commences. Also, the Insurance
Entities are responsible for all other losses that otherwise may not be covered
by the reinsurance programs and any amounts arising in the event of a reinsurer
default. Losses or a default by reinsurers may have a material adverse effect on
either of the Insurance Entities, on our business, financial condition, results
of operations and liquidity.
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Capital Resources

Capital resources provide protection for policyholders, furnish the financial
strength to support the business of underwriting insurance risks and facilitate
continued business growth. The following table provides our stockholders'
equity, total long-term debt, total capital resources, debt-to-total capital
ratio and debt-to-equity ratio for the periods presented (dollars in thousands):

                                             As of
                               September 30,       December 31,
                                    2022               2021
Stockholders' equity          $     260,637       $    429,702
Total long-term debt                102,968            103,676
Total capital resources       $     363,605       $    533,378

Debt-to-total capital ratio            28.3  %            19.4  %
Debt-to-equity ratio                   39.5  %            24.1  %


The debt-to-total capital ratio is total long-term debt divided by total capital
resources, whereas the debt-to-equity ratio is total long-term debt divided by
stockholders' equity. These ratios help management measure the amount of
financing leverage in place in relation to equity and future leverage capacity.

Adjusted common stockholders' equity, representing GAAP common stockholders'
equity, excluding accumulated other comprehensive income (loss), was $376.2
million as of September 30, 2022, $501.6 million as of September 30, 2021 and
$445.2 million as of December 31, 2021.

Adjusted book value per share common share, representing adjusted common
stockholders’ equity divided by outstanding common shares at the end of the
reporting period, was $12.33 as of September 30, 2022, $16.09 as of
September 30, 2021 and $14.26 as of December 31, 2021.


Adjusted return on common equity representing actual or annualized adjusted net
income (loss) attributable to common stockholders divided by average adjusted
common stockholders' equity, with the denominator excluding current period
income statement net realized gains (losses) on investments and net changes in
unrealized gains (losses) of equity securities, net of tax, was 11.1% as of
September 30, 2022, 18.8% as of September 30, 2021 and 4.3% as of December 31,
2021.

As described in our Annual Report on Form 10-K for the year ended December 31,
2021, UPCIC entered into a surplus note with the State Board of Administration
of Florida under Florida's Insurance Capital Build-Up Incentive Program on
November 9, 2006. The surplus note has a twenty-year term, with quarterly
payments of principal and interest that accrue per the terms of the note
agreement. At September 30, 2022, UPCIC was in compliance with the terms of the
surplus note. Total adjusted capital and surplus, which includes the surplus
note, was in excess of regulatory requirements for both UPCIC and APPCIC.

As discussed in "Item 1-Note 7 (Long-term Debt)," the Company entered into a
364-day credit agreement and related revolving loan ("2021 Revolving Loan") with
JPMorgan Chase Bank, N.A. ("JPMorgan") in August 2021. The Company and JPMorgan
subsequently agreed during the term of the 2021 Revolving Loan to extend its
expiration date until October 31, 2022. As discussed in "Item 1-Note 15
(Subsequent Event)," the Company renewed this agreement on October 31, 2022,
increasing the credit facility to $37.5 million and modifying other terms. The
October 31, 2022 Revolving Loan agreement ("2022 Revolving Loan") makes
available to the Company an unsecured revolving credit facility with an
aggregate commitment not to exceed $37.5 million (previously $35.0 million) and
carries an interest rate of prime rate plus a margin of 2%. The Company must pay
an annual commitment of 0.50% of the unused portion of the commitment.
Borrowings under the 2022 Revolving Loan mature on October 30, 2023, 364 days
after the inception date of the 2022 Revolving Loan. The 2022 Revolving Loan is
subject to annual renewals. The 2022 Revolving Loan contains customary financial
and other covenants, with which the Company is in compliance. The Company did
not borrow any amount under the 2021 Revolving Loan, and as of October 31, 2022,
the Company has not borrowed any amount under the 2022 Revolving Loan.

In November 2021, we issued and sold $100 million of 5.625% Senior Unsecured
Notes due 2026 (the "Notes") to certain institutional accredited investors and
qualified institutional buyers. The Notes mature on November 26, 2026, at which
time the entire $100 million of principal is due and payable. At any time on or
after November 23, 2023, the Company may redeem all or part of the Notes. See
"Item 1-Note 7 (Long-term debt)" for additional details. As of September 30,
2022, we were in compliance with all applicable covenants.

We will also continue to evaluate opportunities to access the debt capital
markets to raise additional capital. We anticipate any proceeds would be used
for general corporate purposes, including investing in the capital and surplus
of the Insurance Entities.

In addition to the liquidity generally provided from operations, we maintain a
conservative, well-diversified investment portfolio, predominantly comprised of
fixed income securities with an average credit rating of A+, that focuses on
capital preservation and providing an adequate source of liquidity for potential
claim payments and other cash needs. The portfolio's secondary investment
objective is to provide a total rate of return with emphasis on investment
income. Historically, we have consistently generated funds from operations,
allowing our cash and invested assets to grow.
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Impact of the COVID-19 Pandemic


The impact of the COVID-19 pandemic on the economy and credit markets remains a
key risk as the United States and the world continue to navigate its
consequences and the efforts taken by governments to address financial recovery
and economic stability. We remain in regular contact with our advisors to
monitor the credit quality of the issuers of the securities in our portfolio and
discuss appropriate responses to credit downgrades or changes in companies'
credit outlook. We believe these measures, when combined with the inherent
liquidity generated by our business model and in our investment portfolio, will
allow us to continue to meet our short- and long-term obligations.

Looking Forward


We continue to monitor a range of financial metrics related to our business.
Although we have not experienced material adverse impacts on our business or
liquidity, conditions are subject to change depending on the extent of the
economic downturn and the pace and extent of an economic recovery. Significant
uncertainties exist with the potential long-term impact of the COVID-19
pandemic, including unforeseen newly emerging risks that could affect us and
future economic changes as the Federal Reserve addresses the economic concerns
of inflation, employment and recession. We will continue to monitor the broader
economic impacts of the COVID-19 pandemic.

Common Stock Repurchases


On November 3, 2020, we announced that our Board of Directors authorized a share
repurchase program under which we may repurchase in the open market up to $20
million of outstanding shares of our common stock through November 3, 2022. We
may repurchase shares from time to time at our discretion, based on ongoing
assessments of our capital needs, the market price of our common stock and
general market conditions. We will fund the share repurchase program with cash
from operations.

During the nine months ended September 30, 2022, we repurchased an aggregate of
806,324 shares of our common stock in the open market at an aggregate purchase
price of $9.8 million. Also, see "Part II, Item 2-Unregistered Sales of Equity
Securities and Use of Proceeds" for share repurchase activity during the three
months ended September 30, 2022.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that are reasonably
likely to have a material effect on the financial condition, results of
operations, liquidity, or capital resources of the Company, except for
multi-year reinsurance contract commitments for future years that will be
recorded at the commencement of the coverage period. See “Item 1-Note 12
(Commitments and Contingencies)” for more information.

Cash Dividends


The following table summarizes the dividends declared by the Company in 2022:

                                                                                                                            Cash Dividend
                                     Dividend                     Shareholders                    Dividend                Per Common Share
         2022                      Declared Date                   Record Date                  Payable Date                   Amount
First Quarter                        February 10, 2022                March 10, 2022                March 17, 2022       $           0.16
Second Quarter                          April 20, 2022                  May 13, 2022                  May 20, 2022       $           0.16
Third Quarter                            July 19, 2022                August 2, 2022                August 9, 2022       $           0.16



MATERIAL CASH REQUIREMENTS

The following table represents our material cash requirements for which cash
flows are fixed or determinable as of September 30, 2022 (in thousands):


                                                   Total              Next 12 Months           Beyond 12 Months
Reinsurance payable and multi-year
commitments (1)                               $    788,268          $       518,920          $         269,348
Unpaid losses and LAE, direct (2)                1,153,627                  650,645                    502,982
Long-term debt (3)                                 131,582                    7,261                    124,321
Total material cash requirements              $  2,073,477          $     

1,176,826 $ 896,651

(1)Amount represents the payment of reinsurance premiums payable under
multi-year commitments. See “Item 1-Note 12 (Commitments and Contingencies).”


(2)There are generally no notional or stated amounts related to unpaid losses
and LAE. Both the amounts and timing of future loss and LAE payments are
estimates and subject to the inherent variability of legal and market conditions
affecting the obligations and make the timing of cash outflows uncertain. The
ultimate amount and timing of unpaid losses and LAE could differ materially from
the amounts in the table above. Further, the unpaid losses and LAE do not
represent all the obligations that will arise under the contracts, but rather
only the estimated liability incurred through September 30, 2022. Unpaid losses
and LAE are net of estimated subrogation recoveries. In addition, these balances
exclude amounts recoverable from the Company's reinsurance program.
See "Item 1-Note 4 (Reinsurance)."

(3)Long-term debt consists of a Surplus note and 5.625% Senior unsecured notes.
See “Item 1-Note 7 (Long-term debt).”

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IMPACT OF INFLATION AND CHANGING PRICES


The financial statements and related data presented herein have been prepared in
accordance with GAAP, which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation. Our primary
assets are monetary in nature. As a result, interest rates have a more
significant impact on our performance than the effects of the general levels of
inflation. Interest rates do not necessarily move in the same direction or with
the same magnitude as the cost of paying losses and LAE.

Insurance premiums are established before we know the amount of loss and LAE and
the extent to which inflation may affect such expenses. Consequently, we attempt
to anticipate the future impact of inflation when establishing rate levels.
While we attempt to charge adequate rates, we may be limited in raising premium
levels for competitive and regulatory reasons. Inflation also affects the market
value of our investment portfolio and the investment rate of return. Any future
economic changes which result in prolonged and increasing levels of inflation
could cause increases in the dollar amount of incurred loss and LAE and thereby
materially adversely affect future liability requirements.

ARRANGEMENTS WITH VARIABLE INTEREST ENTITIES

We entered into a reinsurance captive arrangement with a VIE in the normal
course of business, and consolidated the VIE since we are the primary
beneficiary.

For a further discussion of our involvement with the VIE, see “Item 1-Note 14
(Variable Interest Entities).”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES


There have been no material changes during the period covered by this Quarterly
Report on Form 10-Q to Critical Accounting Policies and Estimates previously
disclosed in "Part II, Item 7-Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in our Annual Report on Form 10-K
for the year ended December 31, 2021.
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NON-GAAP FINANCIAL MEASURES

Non-GAAP financial measures should be considered in addition to, and not as a
substitute for or superior to, financial measures presented in accordance with
GAAP. For more information regarding our key performance indicators, please
refer to the section titled "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Key Performance Indicators."

The following table presents the reconciliation of GAAP revenue to core revenue,
which is a non-GAAP measure (in thousands):

                                                    Three Months Ended                     Nine Months Ended
                                                       September 30,                         September 30,
                                                  2022               2021               2022               2021
GAAP revenue                                  $ 312,810          $ 287,254          $ 892,298            829,192
less: Net realized gains (losses) on
investments                                         292              4,319               (375)             5,357
less: Net change in unrealized gains (losses)
of equity securities                             (4,150)            (3,759)           (16,430)            (3,024)
Core Revenue                                  $ 316,668          $ 286,694          $ 909,103          $ 826,859



The following table presents the reconciliation of GAAP income (loss) before
income taxes to adjusted operating income (loss), which is a non-GAAP measure
(in thousands):


                                                     Three Months Ended                    Nine Months Ended
                                                        September 30,                        September 30,
                                                   2022               2021               2022              2021

GAAP income (loss) before income taxes $ (93,237) $ 26,464

          $ (60,086)         $ 92,874
add: Interest and amortization of debt
issuance costs                                      1,630                29              4,969                84
GAAP operating income (loss)                      (91,607)           26,493            (55,117)           92,958
less: Net realized gains (losses) on
investments                                           292             4,319               (375)            5,357
less: Net changes in unrealized gains (losses)
of equity securities                               (4,150)           (3,759)           (16,430)           (3,024)
Adjusted operating income (loss)               $  (87,749)         $ 25,933 

$ (38,312) $ 90,625




The following table presents the reconciliation of GAAP operating income (loss)
margin to adjusted operating income (loss) margin, which is a non-GAAP measure
(in thousands):

                                              Three Months Ended              Nine Months Ended
                                                 September 30,                  September 30,
                                              2022           2021            2022           2021
GAAP operating income (loss)              $ (91,607)      $ 26,493       $ (55,117)      $ 92,958
GAAP revenue                                312,810        287,254         892,298        829,192
GAAP operating income (loss) margin           (29.3) %         9.2  %         (6.2) %        11.2  %
Adjusted operating income (loss)            (87,749)        25,933         (38,312)        90,625
Core revenue                                316,668        286,694         909,103        826,859
Adjusted operating income (loss) margin       (27.7) %         9.0  %         (4.2) %        11.0  %



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The following table presents the reconciliation of GAAP net income (loss)
available to common stockholders to adjusted net income (loss) available to
common stockholders, which is a non-GAAP measure (in thousands):


                                                     Three Months Ended                    Nine Months Ended
                                                        September 30,                        September 30,
                                                   2022               2021               2022              2021
GAAP net income (loss)                         $  (72,275)         $ 20,183          $ (47,368)         $ 68,532
less: Preferred dividends                               3                 3                  8                 8
GAAP net income (loss) available to common
stockholders                                      (72,278)           20,180            (47,376)           68,524
less: Net realized gains (losses) on
investments                                           292             4,319               (375)            5,357
less: Net changes in unrealized gains (losses)
of equity securities                               (4,150)           (3,759)           (16,430)           (3,024)

add: Income tax effect on above adjustments          (949)              131             (4,134)              545

Adjusted net income (loss) available to common
stockholders                                   $  (69,369)         $ 19,751 

$ (34,705) $ 66,736


Weighted average common shares outstanding -
Diluted                                            30,604            31,337             30,858            31,302

Diluted earnings (loss) per common share $ (2.36) $ 0.64

          $   (1.54)         $   2.19
Diluted adjusted earnings (loss) per common
share                                          $    (2.27)         $   0.63          $   (1.12)         $   2.13



The following table presents the reconciliation of GAAP stockholders' equity to
adjusted stockholders' equity and book value per common share to adjusted book
value per common share, which is a non-GAAP measure (in thousands):

                                                                          As of
                                                      September 30,           September 30,                       December 31,
                                                          2022                    2021                                2021
Stockholders' equity                                $      260,637          $      494,275                      $     429,702
less: Preferred equity                                         100                     100                                100
Common stockholders' equity                                260,537                 494,175                            429,602

less: Accumulated other comprehensive income (loss) (115,665)

         (7,398)                           (15,568)
Adjusted common stockholders' equity                $      376,202          $      501,573                      $     445,170

Common shares outstanding                                   30,513                  31,167                             31,221
Book value per common share                         $         8.54          $        15.86                      $       13.76
Adjusted book value per common share                $        12.33          $        16.09                      $       14.26



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The following table presents the reconciliation of GAAP ROCE to adjusted ROCE,
which is a non-GAAP measure (in thousands):

                                              Three Months Ended                    Nine Months Ended                Year Ended
                                                 September 30,                        September 30,                 December 31,
                                            2022               2021               2022              2021                2021
Actual or annualized net income (loss)
available to common stockholders        $ (289,112)         $ 80,720          $ (63,168)         $ 91,365          $   20,397
Average common stockholders' equity        313,494           487,459            345,070           471,669             439,382
ROCE                                         NM                 16.6  %           (18.3) %           19.4  %              4.6    %
Actual or annualized adjusted net
income (loss) available to common
stockholders                            $ (277,476)         $ 79,004          $ (46,273)         $ 88,981          $   18,959
Actual or adjusted average common
  stockholders' equity*                    416,848           493,729            417,022           472,802             444,775
Adjusted ROCE                                NM                 16.0  %           (11.1) %           18.8  %              4.3    %

– Not Meaningful, as it implies full first event hurricane retentions in the first
NM two quarters of the year, which in

actuality were hurricane free, and it similarly implies a full first event

retention in the fourth quarter of the year, which

would instead be subject to a smaller subsequent event retention on a consolidated

basis.

         Adjusted average common stockholders' equity excludes current period net realized
*        gains (losses) on investments and
         net changes in unrealized gains (losses) of equity securities, net of tax.


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