UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2006
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 000-20848
UNIVERSAL INSURANCE HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 65-0231984
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1110 W. Commercial Blvd.
Suite 100
Fort Lauderdale, Florida 33309
(Address of principal executive offices)
(954) 958-1200
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the last practicable date: 38,057,103 shares of common
stock as of November 14, 2006.
Transitional Small Business Disclosure Format Yes __ No X
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of
Universal Insurance Holdings, Inc. and Subsidiaries
Fort Lauderdale, Florida
We have reviewed the accompanying condensed consolidated balance sheet of
Universal Insurance Holdings, Inc. and Subsidiaries as of September 30, 2006 and
the related condensed consolidated statements of income for the three and nine-
month periods ended September 30, 2006 and 2005 and cash flows for the
nine-month periods ended September 30, 2006 and 2005. These interim financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Blackman Kallick Bartelstein, LLP
Chicago, Illinois
November 14, 2006
2
UNIVERSAL INSURANCE HOLDINGS, INC.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
------- --------------------
The following unaudited consolidated financial statements of Universal
Insurance Holdings, Inc. have been prepared in accordance with the instructions
to Form 10-QSB and, therefore, omit or condense certain footnotes and other
information normally included in financial statements prepared in conformity
with accounting principles generally accepted in the United States of America.
In the opinion of management, all adjustments (consisting primarily of normal
recurring accruals) necessary for a fair presentation of the financial
information for the interim periods reported have been made. Results of
operations for the three and nine-months ended September 30, 2006 are not
necessarily indicative of the results for the year ending December 31, 2006.
3
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2006
(Unaudited)
ASSETS
Cash and cash equivalents $ 143,730,591
Reinsurance recoverables 174,213,999
Premiums and other receivables 30,374,142
Deferred acquisition costs 1,017,567
Real estate 3,159,181
Property and equipment, net 729,274
Deferred income tax 4,682,582
Other assets 29,113
-------------
Total assets $ 357,936,449
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $ 39,274,177
Unearned premiums 166,301,342
Advanced premiums 4,689,166
Accounts payable 350,463
Reinsurance payable 112,607,018
Income taxes payable 7,006,677
Dividends payable 1,902,855
Other accrued expenses 9,932,592
Loans payable 690,790
-------------
Total liabilities $ 342,755,080
=============
STOCKHOLDERS' EQUITY:
Cumulative convertible preferred stock, $.01 par value,
1,000,000 shares authorized, 138,640 shares issued and
outstanding, minimum liquidation preference of $1,419,700 1,387
Common stock, $.01 par value, 50,000,000 shares authorized,
38,057,103 shares issued and 34,948,458 shares outstanding 301,977
Common stock in treasury, at cost - 208,645 shares (101,820)
Minority interest 35,000
Additional paid-in capital 16,319,655
Accumulated deficit (1,374,830)
-------------
Total stockholders' equity 15,181,369
-------------
Total liabilities and stockholders' equity $357,936,449
=============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
4
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
2006 2005 2006 2005
---- ---- ---- ----
PREMIUMS EARNED AND OTHER REVENUES:
Direct premiums written $ 230,431,095 $ 61,040,560 $ 116,427,419 $26,507,558
Ceded premiums written (148,517,735) (37,341,229) (70,571,961) (16,458,314)
------------- ------------ ------------- -----------
Net premiums written 81,913,360 23,699,331 45,855,458 10,049,244
Increase in unearned premiums (54,805,591) (13,846,231) (29,726,155) (4,171,204)
------------- ------------ ------------- -----------
Premiums earned, net 27,107,769 9,853,100 16,129,303 5,878,040
Net investment income 2,047,374 655,018 1,078,191 328,449
Commission revenue 4,525,861 1,839,828 1,995,396 703,435
Transaction fees - 272,872 - 112,720
Other revenue 303,307 257,174 101,978 165,187
------------- ------------ ------------- -----------
Total premiums earned and other revenues 33,984,311 12,877,992 19,304,868 7,187,831
------------- ------------ ------------- -----------
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses 11,276,805 3,690,294 6,243,606 3,244,879
General and administrative expenses 10,253,685 5,251,968 7,270,889 1,026,093
------------- ------------ ------------- -----------
Total operating costs and expenses 21,530,490 8,942,262 13,514,495 4,270,972
------------- ------------ ------------- -----------
INCOME BEFORE FEDERAL INCOME TAXES 12,453,821 3,935,730 5,790,373 2,916,859
------------- ------------ ------------- -----------
Federal income taxes current 7,479,177 78,715 4,863,244 78,715
Federal income taxes deferred (4,075,283) - (2,836,613) -
------------- ------------ ------------- -----------
Federal income taxes, net 3,403,894 78,715 2,026,631 78,715
------------- ------------ ------------- -----------
NET INCOME $ 9,049,927 $ 3,857,015 $ 3,763,742 $ 2,838,144
============= ============ ============= ===========
INCOME PER COMMON SHARE
Basic $ 0.26 $ 0.12 $ 0.11 $ 0.08
============= ============ ============= ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 34,409,000 32,808,000 34,891,000 33,355,000
============= ============ ============= ===========
INCOME PER COMMON SHARE
Diluted $ 0.24 $ 0.11 $ 0.10 $ 0.08
============= ============ ============= ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 37,170,000 33,563,000 38,194,000 34,151,000
============= ============ ============= ===========
CASH DIVIDEND DECLARED PER
COMMON SHARE $ 0.13 $ - $ 0.05 $ -
============= ============ ============= ===========
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
5
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, 2006 September 30, 2005
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Net income $ 9,061,431 $ 3,857,015
Minority interest (11,504) -
--------------- ---------------
Net income 9,049,927 3,857,015
Adjustments to reconcile net income to cash
provided by operations:
Amortization and depreciation 185,062 235,343
Issuance of common stock as compensation 1,102,014 90,466
Net change in assets and liabilities relating
to operating activities:
Reinsurance recoverables (52,276,131) 35,897,545
Premiums and other receivables (24,900,247) (3,665,873)
Deferred taxes (4,075,283) -
Reinsurance payable 68,154,665 (183,923)
Deferred acquisition costs (1,017,567) -
Deferred ceding commission (1,043,544) -
Advanced premiums 3,681,337 1,204,113
Accounts payable (585,071) (2,343,111)
Taxes payable 7,006,677 657,937
Other accrued expenses 5,296,594 (241,900)
Unpaid losses and loss adjustment expenses (27,725,779) (39,095,817)
Unearned premiums 115,411,337 19,891,968
Other assets 917,133 (128,538)
--------------- ---------------
Net cash provided by operating activities 99,181,124 16,175,225
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures 27,164 (321,181)
Building Improvements (71,290) -
Purchase of real estate - (1,489,321)
--------------- ---------------
Net cash used in investing activities (44,126) (1,810,502)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Referred stock dividend (37,464) (37,464)
Common stock dividend paid (3,007,135) -
Issuance of common stock 45,249 -
Repayments of loans payable (461,297) (480,905)
Proceeds from loans payable - 1,039,933
Minority interest 15,504 -
--------------- ---------------
Net cash (used in) provided by financing
activities (3,445,143) 521,564
--------------- ---------------
NET INCREASE IN CASH AND CASH 95,691,855 14,886,287
EQUIVALENTS
CASH AND CASH EQUIVALENTS, Beginning of period 48,038,736 22,443,579
--------------- ---------------
CASH AND CASH EQUIVALENTS, End of period $ 143,730,591 $ 37,329,866
=============== ===============
Non-cash items
Declared dividends payable $ 1,902,855 $ -
=============== ===============
The accompanying notes to condensed consolidated financial statements are an integral part of
these statements.
6
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2006
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements include the
accounts of Universal Insurance Holdings, Inc. ("Company"), its wholly owned
subsidiary, Universal Property & Casualty Insurance Company ("UPCIC"), and other
wholly owned entities; Sterling Premium Finance Company, which is wholly owned
by Atlas Florida Financial Corporation which is wholly owned by certain officers
of the Company; and the Universal Insurance Holdings, Inc. Stock Grantor Trust.
All intercompany accounts and transactions have been eliminated in
consolidation.
To conform to the 2006 presentation, certain amounts in the prior year's
consolidated financial statements and notes have been reclassified.
The condensed consolidated balance sheet of the Company as of September 30,
2006, the related condensed consolidated statements of income for the three and
nine months ended September 30, 2006 and 2005 and cash flows for the nine months
ended September 30, 2006 and 2005 are unaudited. There were no items comprising
comprehensive income for the nine months ended September 30, 2006 and 2005.
Accordingly, consolidated statements of comprehensive income are not presented.
The accounting policies followed for quarterly financial reporting are the same
as those disclosed in the Notes to Consolidated Financial Statements included in
the Company's Annual Report on Form 10-KSB for the year ended December 31, 2005
except for the adoption of new accounting pronouncements as noted below. The
interim financial statements reflect all adjustments (consisting primarily of
normal and recurring accruals and adjustments) which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented. The Company's operating results for any particular interim
period may not be indicative of results for the full year and thus should be
read in conjunction with the Company's annual statements.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
OFF-BALANCE SHEET ARRANGEMENTS. There were no off-balance sheet arrangements
during the first nine months of 2006.
NEW ACCOUNTING PRONOUNCEMENTS. SFAS No.123 (Revised 2004), Share-Based Payments,
issued in December 2004, is a revision of FASB Statement 123, Accounting for
Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and its related implementation guidance. The Statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payments transactions. SFAS No. 123 (Revised
2004) requires a public entity to measure the cost of employee services received
7
in exchange for an award of equity instruments based on the grant-date fair
value of the award (with limited exceptions) with the cost recognized over the
period during which an employee is required to provide service in exchange for
the award. This statement is effective as of the beginning of the first interim
or annual reporting period of the company's first fiscal year that begins on or
after December 15, 2005 and the Company adopted the standard in the first
quarter of fiscal year 2006.
On March 29, 2005, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. (SAB 107) regarding the Staff's interpretation of SFAS
123(R). This interpretation expresses the views of the Staff regarding the
interaction between SFAS 123(R) and certain SEC rules and regulations and
provides the Staff's views regarding the valuation of share-based payments
arrangements by public companies. In particular, this SAB provides guidance
related to share-based payments transactions with non-employees, the transition
from nonpublic to public entity status, valuation methods, the accounting for
certain redeemable financial instruments issued under shared-based payments
arrangements, the classification of compensation expense, non-GAAP financial
measures, first-time adoption of SFAS 123(R) in an interim period,
capitalization of compensation cost related to share-based payments
arrangements, the accounting for income tax effects of share-based payments
arrangements upon adoption of SFAS 123(R), the modification of employee share
options prior to adoption of SFAS 123(R) and disclosures in Management's
Discussion and Analysis subsequent to adoption of SFAS 123(R). The Company
adopted SAB 107 in connection with its adoption of SFAS 123(R).
In May 2005, FASB issued SFAS No. 154, Accounting Changes and Error Corrections,
which establishes, unless impracticable, retrospective application as the
required method for reporting a change in accounting principle in absence of
explicit transition requirements specific to the newly adopted accounting
principle. The statement provides guidance for determining whether retrospective
application of a change in accounting principle is impracticable. The statement
also addresses the reporting of a correction of error by restating previously
issued financial statements. SFAS No. 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 14,
2005. The Company adopted SFAS No. 154 in the first quarter of 2006. The impact
of such adoption did not have an effect on the Company's consolidated financial
statements.
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109" ("FIN 48"). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an entity's financial
statements in accordance with FASB Statement No. 109, "Accounting for Income
Taxes." FIN 48 prescribes that a company should use a more-likely-than-not
recognition threshold based on the technical merits of the tax position taken.
Tax positions that meet the more-likely-than-not threshold should be measured in
order to determine the tax benefit to be recognized in the financial statements.
FIN 48 is effective for fiscal years beginning after December 15, 2006. We are
currently evaluating the impact of FIN 48 on our results of operations,
financial position and cash flows.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES. Management has reassessed the
critical accounting policies as disclosed in our 2005 Annual Report to
Stockholders on Form 10-KSB and determined that no changes, additions or
deletions are needed to the policies as disclosed. Also there were no
significant changes in our estimates associated with those policies.
RISKS AND UNCERTAINTIES. The Company's business could be affected by regulatory
and competitive restrictions on pricing for new and renewal business, the
availability and cost of catastrophic reinsurance, adverse loss experience and
federal and state legislation or governmental regulations of insurance
companies. Changes in these areas could adversely affect the Company's
operations in the future.
Management continues to take action to improve and strengthen UPCIC's financial
condition. Premium rate increases have been implemented. UPCIC changed the
geographic and coverage mix of the property insurance it writes, which is a key
determinant in the amount and pricing of reinsurance procured by UPCIC. In light
8
of the four windstorm catastrophes Florida experienced in 2004, and three
windstorm catastrophes Florida experienced in 2005, there was a significant
increase in catastrophe reinsurance cost for the June 1, 2006 renewal which the
Company had planned and factored into its original policy pricing. Effective May
1, 2004 the Company brought in house the system it utilizes for policy issuance
and administration. This has enhanced UPCIC's operating results through its
ability to improve and better control underwriting and loss adjusting
activities. Management believes the implementation of, and results attributable
to, the actions described above will continue to maintain UPCIC's surplus.
However, there can be no assurance of the ultimate success of these plans, or
that the Company will be able to maintain profitability.
The Company is currently involved in efforts to bring additional capital into
the Company. UPCIC has been approved by the State Board of Administration of
Florida for a $25 million surplus note in connection with Florida's Insurance
Capital Build-Up Incentive Program. The program was implemented by the Florida
legislature to encourage insurance companies to write additional residential
insurance coverage in the wake of the 2004 and 2005 hurricane seasons. UPCIC's
approval under the program was contingent upon it matching funds in the amount
of $25 million. The Company has finalized the financing necessary to meet the
matching obligation under the program and on November 9, 2006 received $25
million from the State Board of Administration of Florida. (See Note 10)
Effective June 1, 2006, the Company reduced the rate of cession on its quota
share reinsurance. Quota share reinsurance is used primarily to increase the
Company's underwriting capacity and to reduce exposure to losses. Quota share
reinsurance refers to a form of reinsurance under which the reinsurer
participates in a specified percentage of the premiums and losses on all
reinsured policies in a given class of business. As a result of this reduction
of the Company's quota share reinsurance from 80% to 50%, the Company will
retain and earn more premiums the Company writes, but will also retain more
related losses. The Company's increased exposure to potential losses could have
a material adverse effect on the Company's business, financial condition and
results of operations.
NOTE 2 - RESULTS OF OPERATIONS
INSURANCE OPERATIONS
UPCIC commenced its insurance activity in February 1998 by assuming policies
from the Florida Residential Property and Casualty Joint Underwriting
Association ("JUA"). UPCIC received the unearned premiums and began servicing
such policies. Since then, UPCIC has been renewing these policies as well as
soliciting business actively in the open market through independent agents.
Unearned premiums represent amounts that UPCIC would refund policyholders if
their policies were canceled. UPCIC determines unearned premiums by calculating
the pro-rata amount that would be due to the policyholder at a given point in
time based upon the premiums owed over the life of each policy. At September
30, 2006, the Company had unearned premiums totaling $166,301,342.
9
Premiums earned are included in earnings evenly over the terms of the policies.
UPCIC does not have policies that provide for retroactive premium adjustments.
Policy acquisition costs, consisting of commissions and other costs that vary
with and are directly related to the production of business, net of ceding
commissions, are deferred and amortized over the terms of the policies, but only
to the extent that unearned premiums are sufficient to cover all related costs
and expenses. At September 30, 2006, deferred policy acquisition costs amounted
to $1,017,567.
An allowance for uncollectible premiums receivable is established when it
becomes evident that collection is doubtful, typically after 90 days past due.
No allowance is deemed necessary at September 30, 2006.
Loss and loss adjustment expenses ("LAE"), less related reinsurance, are
provided for as claims are incurred. The provision for unpaid loss and LAE
includes: (1) the accumulation of individual case estimates for loss and LAE
reported prior to the close of the accounting period; (2) estimates for
unreported claims based on past experience modified for current trends; and (3)
estimates of expenses for investigating and adjusting claims based on past
experience. During 2005, Florida experienced three windstorm catastrophes
(Hurricanes Dennis, Katrina and Wilma) which resulted in losses. As a result of
these storms, the Company currently estimates that it incurred $79,661,543 in
losses prior to reinsurance and $4,121,253 net of reinsurance.
Liabilities for unpaid claims and claims adjustment expenses are based on
estimates of ultimate cost of settlement. Changes in claims estimates resulting
from the continuous review process and differences between estimates and
ultimate payments are reflected in expense for the period in which the revision
of these estimates first becomes known. UPCIC estimates claims and claims
expenses based on its historical experience and payment and reporting patterns
for the type of risk involved. These estimates are continuously reviewed by
UPCIC's management professionals and any resulting adjustments are reflected in
operations for the period in which they are determined.
Inherent in the estimates of ultimate claims are expected trends in claims
severity, frequency and other factors that may vary as claims are settled. The
amount of uncertainty in the estimates for casualty coverage is significantly
affected by such factors as the amount of historical claims experience relative
to the development period, knowledge of the actual facts and circumstances, and
the amount of insurance risk retained.
ONLINE COMMERCE OPERATIONS
The Company has formed subsidiaries that were to specialize in selling insurance
and generating insurance leads via the Internet. Tigerquote.com Insurance &
Financial Services Group, Inc. ("Tigerquote.com") and Tigerquote.com Insurance
Solutions, Inc. were incorporated in Delaware on June 6, 1999 and August 23,
1999, respectively. Tigerquote.com was an Internet insurance lead generating
network while Tigerquote.com Insurance Solutions, Inc. was a network of Internet
insurance agencies. None of the agencies are currently active as the Company
changed its focus to sell leads to other companies and independent agents.
10
During the fourth quarter of 2005, the Company decided to stop generating new
business on its online commerce operations and focus on its core operations.
CORPORATE AND OTHER OPERATIONS
Operating segments that are not individually reportable based on the current
operations in such segments, are included in Corporate and Other. The segment
currently includes the operations of Universal Insurance Holdings, Inc., Tiger
Home Services, Inc. and other entities. During 2001, the Company formed Tiger
Home Services, Inc., which furnished pool services to homeowners until the
operation was sold during the second quarter of 2005.
NOTE 3 - REINSURANCE
In the normal course of business, UPCIC seeks to reduce the loss that may arise
from catastrophes or other events that cause unfavorable underwriting results by
reinsuring certain levels of risk in various areas of exposure with other
insurance enterprises or reinsurers. Amounts recoverable from reinsurers are
estimated in a manner consistent with the reinsurance contracts. Reinsurance
premiums, losses and loss adjustment expenses are accounted for on bases
consistent with those used in accounting for the original policies issued and
the terms of the reinsurance contracts. Reinsurance ceding commissions received
are deferred and netted against policy acquisition costs and amortized over the
effective period of the related insurance policies.
UPCIC limits the maximum net loss that can arise from large risks or risks in
concentrated areas of exposure by reinsuring (ceding) certain levels of risks
with other insurers or reinsurers, either on an automatic basis under general
reinsurance contracts known as "treaties" or by negotiation on substantial
individual risks. The reinsurance arrangements are intended to provide UPCIC
with the ability to maintain its exposure to loss within its capital resources.
Such reinsurance includes quota share, excess of loss and catastrophe forms of
reinsurance. While ceding premiums to reinsurers reduces the Company's risk of
exposure in the event of catastrophic losses, it also reduces the Company's
potential for greater profits should such catastrophic events fail to occur.
The Company believes that the extent of its reinsurance is at least typical for
a company of its size in the Florida homeowner's insurance industry.
Effective June 1, 2006, UPCIC entered into a quota share reinsurance treaty and
excess per risk agreements with various reinsurers. Under the quota share
treaty, through May 31, 2007, UPCIC cedes 50% of its gross written premiums,
losses and LAE for policies with coverage for wind risk with a ceding commission
equal to 28% of ceded gross written premiums. In addition, the quota share
treaty has a limitation for any one occurrence of $25,000,000 and a limitation
from losses arising out of events that are assigned a catastrophe serial number
by the Property Claims Services ("PCS") office of $55,000,000. Effective June
1, 2006 through May 31, 2007, UPCIC entered into a multiple line excess per risk
agreement with various reinsurers. Under the multiple line excess per risk
agreement, UPCIC obtained coverage of $1,300,000 in excess of $500,000 ultimate
net loss for each risk and each property loss, and $1,000,000 in excess of
$300,000 for each casualty loss. A $5,200,000 aggregate limit applies to the
term of the contract. Effective June 1, 2006 through May 31, 2007, UPCIC entered
into a property per risk excess agreement covering ex-wind only policies. Under
the property per risk excess agreement, UPCIC obtained coverage of $300,000 in
11
excess of $200,000 for each property loss. A $2,100,000 aggregate limit applies
to the term of the contract.
Effective June 1, 2006 through May 31, 2007, under an excess catastrophe
contract, UPCIC obtained catastrophe coverage of $76,000,000 in excess of
$25,000,000 covering certain loss occurrences including hurricanes. The contract
contains a provision for one reinstatement in the event coverage is exhausted;
additional premium is calculated pro rata as to amount and 100% as to time.
Effective June 1, 2006 through May 31, 2007, UPCIC purchased a reinstatement
premium protection contract which reimburses the Company for its cost to
reinstate the catastrophe coverage of $76,000,000 in excess of $25,000,000.
Effective June 1, 2006, UPCIC also obtained subsequent catastrophe event excess
of loss reinsurance to cover certain levels of the Company's net retention
through three catastrophe events including hurricanes. UPCIC also obtained
coverage from the Florida Hurricane Catastrophe Fund ("FHCF"). The approximate
coverage is estimated to be for $231,382,000 in excess of $81,364,000. Also at
June 1, 2006, the FHCF made available $10,000,000 of additional catastrophe
excess of loss coverage with one free reinstatement of coverage to carriers
qualified as Limited Apportionment Companies, such as UPCIC. This particular
layer of coverage is $10,000,000 in excess of $3,750,000.
The estimated total cost of the Company's underlying catastrophe private
reinsurance program at June 1, 2006 is $46,920,000 of which the Company's
estimated cost is 50%, or $23,460,000, and the quota share reinsurers cost is
the remaining 50%. In addition, the Company purchases reinsurance premium
protection as described above which amounts to $10,785,563. The estimated cost
of the subsequent catastrophe event excess of loss reinsurance is $3,034,706.
The estimated premium the Company plans to cede to the FHCF for the 2006
hurricane season is $15,432,459, which includes the 25% surcharge the FHCF is
dictating for the 2006 hurricane season, of which the Company's estimated cost
is 50%, or $7,716,230, and the quota share reinsurers estimated cost is the
remaining 50%. The Company is also participating in the additional coverage
option for Limited Apportionment Companies offered by the FHCF, the premium for
which is estimated to be $5,000,000 of which the Company's estimated cost is
50%, or $2,500,000, and the quota share reinsurers estimated cost is the
remaining 50%.
The ceded reinsurance arrangements had the following effect on certain items in
the accompanying consolidated financial statements:
Nine Months Ended Nine Months Ended
September 30, 2006 September 30, 2005
------------------------------------------------------- -----------------------------------------------------
Loss and Loss Loss and Loss
Premiums Premiums Adjustment Premiums Premiums Adjustment
Written Earned Expenses Written Earned Expenses
------- ------ -------- ------- ------ --------
Direct $230,431,095 $115,019,758 $43,582,331 $61,040,560 $41,148,592 $28,299,109
Ceded (148,517,735) (87,911,989) (32,305,526) (37,341,229) (31,295,492) (24,608,815)
------------ ----------- ----------- ----------- ----------- -----------
Net $81,913,360 $27,107,769 $11,276,805 $23,699,331 $9,853,100 $3,690,294
=========== =========== =========== =========== ========== ==========
12
Three Months Ended Three Months Ended
September 30, 2006 September 30, 2005
------------------------------------------------------- -----------------------------------------------------
Loss and Loss Loss and Loss
Premiums Premiums Adjustment Premiums Premiums Adjustment
Written Earned Expenses Written Earned Expenses
------- ------ -------- ------- ------ --------
Direct $116,427,419 $55,698,634 $15,392,134 $26,507,558 $17,193,370 $15,535,551
Ceded (70,571,961) (39,569,331) (9,148,528) (16,458,314) (11,315,330) (12,290,672)
----------- ----------- ----------- ----------- ----------- -----------
Net $45,855,458 $16,129,303 $6,243,606 $10,049,244 $5,878,040 $3,244,879
=========== =========== =========== =========== =========== ===========
OTHER AMOUNTS:
September 30, 2006
------------------
Reinsurance recoverable on paid and unpaid losses and loss adjustment
expenses $ 41,100,945
Unearned premiums ceded 102,252,511
Other reinsurance receivable 30,860,543
---------------
Reinsurance recoverable $ 174,213,999
UPCIC's reinsurance contracts do not relieve UPCIC from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to UPCIC; consequently, allowances are established for amounts deemed
uncollectible. No allowance is deemed necessary at September 30, 2006. UPCIC
evaluates the financial condition of its reinsurers and monitors concentrations
of credit risk arising from similar geographic regions, activities, or economic
characteristics of the reinsurers to minimize its exposure to significant losses
from reinsurer insolvencies. UPCIC currently has reinsurance contracts with
various reinsurers located throughout the United States and internationally.
UPCIC believes that ceding risks to reinsurers whom it considers to be
financially sound combined with the distribution of reinsurance contracts to an
array of reinsurers adequately minimizes UPCIC's risk from any potential
operating difficulties of its reinsurers. In addition, UPCIC does not have any
unauthorized reinsurers which have recoverable balances that are not secured by
a letter of credit or that have ceded balances payable that are greater than the
amount of the recoverable.
In light of the four windstorm catastrophes Florida experienced in 2004, and
three windstorm catastrophes Florida experienced in 2005, there was a
significant increase in catastrophe reinsurance cost for the June 1, 2006
renewal which the Company had planned and factored into its original policy
pricing.
Effective June 1, 2006, the Company reduced the rate of cession on its quota
share reinsurance. Quota share reinsurance is used primarily to increase the
Company's underwriting capacity and to reduce exposure to losses. Quota share
reinsurance refers to a form of reinsurance under which the reinsurer
participates in a specified percentage of the premiums and losses on all
reinsured policies in a given class of business. As a result of this reduction
of the Company's quota share reinsurance from 80% to 50%, the Company will
retain and earn more premiums the Company writes, but will also retain more
related losses. The Company's increased exposure to potential losses could have
a material adverse effect on the Company's business, financial condition and
results of operations.
The Company may also be subject to assessments by Citizens Property Insurance
Corporation, the state-run insurer of last resort and the FHCF as a result of
13
operating deficiencies related to windstorm catastrophes. In addition, the
Company is subject to assessments by the Florida Insurance Guaranty Association,
as a result of other company insolvencies. Under current regulations, insurers
may recoup the amount of their assessments from policyholders, or in some cases
collect the amount of the assessments from policyholders as surcharges for the
benefit of the assessing entity.
On June 12, 2006, the Florida Office of Insurance Regulation ("OIR") ordered an
emergency FHCF assessment of 1% of direct premiums written effective January 1,
2007, which the Company will collect from policyholders, as the assessment is to
policyholders, not the Company. This assessment was a result of catastrophe
losses Florida experienced in 2004 and 2005.
During its meeting on June 16, 2006 the Board of Directors of Florida Insurance
Guaranty Association ("FIGA") determined the need for an assessment upon its
member companies. The Board decided on an assessment on member companies of 2%
of the Florida net direct premiums for the calendar year 2005. Based on the 2005
net direct premium of $11.2 billion, this would generate approximately $225
million. UPCIC's participation in this assessment totaled $1,772,861. Pursuant
to Florida statutes, insurers are permitted to recoup the assessment by adding a
surcharge to policies in an amount not to exceed the amount paid by the insurer
to FIGA. As a result, UPCIC is currently underwriting the recoupment in
connection with this assessment.
NOTE 4 - EARNINGS PER SHARE
Earnings per share ("EPS") amounts are calculated in accordance with SFAS No.
128, EARNINGS PER SHARE. Basic EPS is based on the weighted average number of
shares outstanding for the period, excluding any dilutive common share
equivalents. Diluted EPS reflects the potential dilution that could occur if
securities to issue common stock were exercised.
A reconciliation of shares used in calculating basic and diluted EPS for the
nine month periods ended September 30, 2006 and September 30, 2005,
respectively, follows:
Nine Months Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Basic EPS 34,409,000 32,808,000
Effect of assumed conversion of common stock 2,761,000 755,000
equivalents ------------------ ------------------
Diluted EPS 37,170,000 33,563,000
Options and warrants totaling approximately 3,940,000 shares of common stock and
839,000 shares of common stock respectively, were excluded from the calculation
of diluted earnings per share as their effect was anti-dilutive for the nine
months ended September 30, 2006. Options and warrants totaling approximately
7,684,000 shares of common stock and 3,297,000 shares of common stock
respectively, were excluded from the calculation of diluted earnings per share
as their effect was anti-dilutive for the nine months ended September 30, 2005.
Such options and warrants could potentially dilute basic EPS in the future but
14
were excluded from the computation of diluted earnings per share due to being
anti-dilutive.
A reconciliation of shares used in calculating basic and diluted EPS for the
three month periods ended September 30, 2006 and September 30, 2005,
respectively, follows:
Three Months Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Basic EPS 34,891,000 33,355,000
Effect of assumed conversion of common stock 3,303,000 796,000
equivalents ------------------ ------------------
Diluted EPS 38,194,000 34,151,000
Options and warrants totaling approximately 3,515,844 shares of common stock and
721,000 shares of common stock respectively, were excluded from the calculation
of diluted earnings per share as their effect was anti-dilutive for the three
months ended September 30, 2006. Options and warrants totaling approximately
7,441,000 shares of common stock and 3,499,000 shares of common stock
respectively, were excluded from the calculation of diluted earnings per share
as their effect was anti-dilutive for the three months ended September 30, 2005.
Such options and warrants could potentially dilute basic EPS in the future but
were excluded from the computation of diluted earnings per share due to being
anti-dilutive.
NOTE 5 - STOCK-BASED COMPENSATION PLANS AND WARRANTS
Effective January, 2006, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123 (R), "Share-Based Payments," and began recognizing
compensation expense in its Consolidated Statements of Income for its stock
option grants based on the fair value of the awards. Prior to January 1, 2006,
the Company accounted for stock options grants under the recognition and
measurement of APB Opinion 25, "Accounting for Stock Issued to Employees," and
related Interpretations, as permitted by SFAS No. 123, "Accounting for Stock-
Based Compensation." No stock-based compensation expense was reflected in the
net income prior to adopting SFAS 123 (R) as all options were granted at an
exercise price equal to or greater than the market value of the underlying
common stock on the date of grant. SFAS 123 (R) was adopted using the modified
prospective transition method. Under this transition method, compensation cost
recognized in the periods after adoption includes (i) compensation cost for all
share-based payments granted prior to, but not yet vested as of January 1, 2006,
based on the grant-date fair value estimated in accordance with the original
provision of SFAS 123, and (ii) compensation cost for all share-based payments
granted subsequent to January 1, 2006, based on the grant-date fair value
estimated in accordance with the provisions of SFAS 123 (R). Results from prior
periods have not been restated. As a result of adopting SFAS 123 (R), the
Company's income before income taxes and net income for the nine months ended
September 30, 2006 are $18,524 and $11,114 lower, respectively, and for the
three months ended September 30, 2006 are $6,053 and $3,632 lower, respectively,
than if it had continued to account for share-based compensation under APB 25.
In addition, during the nine months ended September 30, 2006, the Company issued
common stock valued at $1,102,014 as compensation.
15
The following table illustrates the effects on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS 123 to
options granted under the Company's stock option plans for all periods
presented. For purposes of this pro forma disclosure, the value of the options
is estimated using a Black-Scholes-Merton option pricing model and amortized to
expense over the options' vesting periods.
For the Nine Months Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Net income reported $9,049,927 $ 3,857,015
Add:
Total stock-based compensation expense
included in reported net income, net of related
tax effects 11,114 -
Deduct:
Total stock-based compensation expense
determined under fair value based method, net
of related tax effects (11,114) (26,357)
------------------ ------------------
SFAS No. 123 (R) pro forma net income $9,049,927 $3,830,658
================== ==================
Pro forma earnings per share
Basic $0.26 $0.12
================== ==================
Fully diluted $0.24 $0.11
================== ==================
Earnings per share, as reported
Basic $0.26 $0.12
================== ==================
Fully diluted $0.24 $0.11
================== ==================
For the Three Months Ended
September 30, 2006 September 30, 2005
------------------ ------------------
Net income reported $3,763,742 $2,838,144
Add:
Total stock-based compensation expense
included in reported net income, net of related
tax effects 3,632 -
Deduct:
Total stock-based compensation expense
determined under fair value based method, net
of related tax effects (3,632) (6,418)
------------------ ------------------
SFAS No. 123 (R) pro forma net income $3,763,742 $2,831,726
================== ==================
16
Pro forma earnings per share
Basic $0.11 $0.08
================== ==================
Fully diluted $0.10 $0.08
================== ==================
Earnings per share, as reported
Basic $0.11 $0.08
================== ==================
Fully diluted $0.10 $0.08
================== ==================
At September 30, 2006, there were options outstanding and currently exercisable
to purchase 5,990,000 shares of common stock with a weighted average remaining
contract term of 2.70 years and a weighted exercise price of $0.92. There were
options to purchase 220,000 shares of common stock exercised during the nine
months ended September 30, 2006.
At September 30, 2006, there were warrants outstanding and currently exercisable
to purchase 981,700 shares of common stock with a weighted average remaining
contract term of 1.80 years and a weighted exercise price of $0.72. There were
warrants to purchase 625,000 shares of common stock exercised during the nine
months ended September 30, 2006.
The Company estimated the fair value of all stock options awards as of the grant
date by applying the Black-Scholes-Merton option pricing model. The use of this
valuation model involves assumptions that are judgmental and highly sensitive in
the determination of compensation expense and include the expected life of the
option, stock price volatility, risk-free interest rate, dividend yield,
exercise price, and forfeiture rate. Under SFAS 123 (R), forfeitures are
estimated at the time of valuation and reduce expense ratably over the vesting
period. The forfeiture rate is adjusted periodically based on the extent to
which actual forfeitures differ, or are expected to differ, from the previous
estimate. Under SFAS 123 and APB 25, the Company elected to account for
forfeitures when awards were actually forfeited and reflect the forfeitures as a
cumulative adjustment to the pro forma expense.
In accordance with SFAS 123 (R), fair values of options granted prior to
adoption and determined for purposes of disclosure under SFAS 123 have not been
changed. The fair values of options granted prior to adoption of SFAS 123 (R),
of which a portion is unvested, was estimated assuming the following: weighted
average expected life of five years, dividend yield of 0.0 percent, risk-free
interest rate of 6.5 percent, and expected volatility of 154.5 percent and 126.3
percent for grants issued in 2004 and 2002, respectively. No options were
granted in the first nine months of 2006.
NOTE 6 - SEGMENT INFORMATION
The Company and its subsidiaries operate principally in two business segments
consisting of insurance and online commerce. The insurance segment consists
primarily of underwriting through UPCIC, managing general agent operations
through Universal Risk Advisors, Inc., claims processing through Universal
Adjusting Corporation, property inspections through Universal Inspection
Corporation and marketing and distribution through Coastal Homeowners Insurance
17
Specialists, Inc. and Universal Florida Insurance Agency, Inc. The insurance
segment sells homeowner's insurance and includes substantially all aspects of
the insurance, distribution and claims process. The online commerce segment
consists of Internet insurance leads generated through Tigerquote.com and
commissions on policies placed by Tigerquote.com Insurance Solutions, Inc.
The accounting policies of the segments are the same as those described in the
summary of the significant accounting policies and practices. The Company
evaluates its business segments based on GAAP pretax operating earnings.
Corporate overhead expenses are allocated to business segments. Transactions
between reportable segments are accounted for at fair value.
Operating segments that are not individually reportable, based on the extent of
the current operations in such segments, are included in the "All Other"
category. The "All Other" category currently includes the operations of
Universal Insurance Holdings, Inc., and other entities.
Information regarding components of operations for the three months and nine
months ended September 30, 2006 and 2005 follows:
18
Nine months ended September 30,
2006 2005
---- ----
Total Revenue
Insurance segment $33,975,511 $12,560,629
Online commerce segment 444 278,891
Corporate and other 84,200 38,472
--------------------- --------------------
Total operating segments 34,060,155 12,877,992
Intercompany eliminations (75,844) 0
--------------------- --------------------
Total revenues $33,984,311 $12,877,992
===================== ====================
Earnings (loss) before income taxes
Insurance segment $14,796,324 $5,080,228
Online commerce segment (76,504) (81,593)
Corporate and other (2,265,999) (1,062,905)
--------------------- --------------------
Total earnings before income taxes $12,453,821 $3,935,730
===================== ====================
Three months ended September 30,
2006 2005
---- ----
Total revenue
Insurance segment $19,315,158 $11,675,875
Online commerce segment 74 117,877
Corporate and other 14,937 (13,903)
--------------------- --------------------
Total operating segments 19,330,169 11,779,849
Intercompany eliminations (25,301) (4,592,018)
--------------------- --------------------
Total revenues $19,304,868 $7,187,831
===================== ====================
Earnings (loss) before income taxes
Insurance segment $7,189,031 $3,230,266
Online commerce segment (21,047) 12,768
Corporate and other (1,377,611) (326,175)
--------------------- --------------------
Total earnings before income taxes $5,790,373 $2,916,859
===================== ====================
Information regarding total assets as of September 30, 2006:
19
Information regarding total assets as of September 30, 2006:
September 30, 2006
------------------
Total assets
Insurance segment $348,817,744
Online commerce segment 76,377
Corporate and other 11,850,051
------------------
Total operating segments 360,744,172
Intercompany eliminations (2,807,723)
------------------
Total assets $357,936,449
==================
NOTE 7 - RELATED PARTY TRANSACTIONS
Dennis Downes and Associates, a multi-line insurance adjustment corporation
based in Deerfield Beach, Florida performs certain claims adjusting work for
UPCIC. Dennis Downes and Associates is owned by Dennis Downes, who is the
father of Sean P. Downes, Chief Operating Officer, Senior Vice President and a
Director of the Company. During the nine months ended September 30, 2006 and
2005, the Company expensed claims adjusting fees of $630,429 and $538,978,
respectively, to Dennis Downes and Associates.
In July 2004, the Company borrowed monies from a private investor in the amount
of $175,000 for working capital. In August 2005, this individual's son, Michael
P. Moran, became UPCIC's Vice President of Claims. The loan was paid off in
January 2006.
NOTE 8 - STOCK ISSUANCES
In February 2006, pursuant to section 4(2) of the Securities Act of 1933, as
amended ("Securities Act"), the Company issued 325,000 shares of restricted
common stock at a price of $.05 per share to a private investor pursuant to the
exercise of warrants. In April 2006, pursuant to section 4(2) of the Securities
Act, the Company issued 200,000 shares of common stock at a price of $.05 per
share to a vendor pursuant to the exercise of warrants. Also in April 2006, the
Company issued 200,000 shares of restricted common stock at a price of $.04 per
share to Sean P. Downes, COO of the Company, pursuant to Mr. Downes' exercise of
stock options and 123,077 shares of restricted common stock at a price of $.93
per share pursuant to Mr. Downes' election to receive such shares in lieu of
accrued vacation. The shares were issued to Mr. Downes in a private transaction
pursuant to section 4(2) of the Securities Act. Also in April 2006, pursuant to
section 4(2) of the Securities Act, the Company issued 10,000 shares of
restricted common stock at a price of $.50 per share to Reed J. Slogoff, a
director of the Company, pursuant to the exercise of options. In May 2006, the
Company issued 400,000 shares of restricted common stock to one employee at
$1.23 per share and 25,000 to a second employee at $1.30 per share in
conjunction with employment agreements. Also in May 2006, pursuant to section
4(2) of the Securities Act, the Company issued 10,000 shares of restricted
common stock at a price of $.50 per share to an employee of the Company pursuant
to the exercise of options. In June 2006, pursuant to section 4(2) of the
Securities Act, the Company issued 25,000 shares of restricted common stock at a
20
price of $1.52 per share to each of the outside directors of the Company (Norman
M. Meier, Reed Slogoff, and Joel Wilentz) and 200,000 shares of restricted
common stock at a price of $1.52 per share to Sean P. Downes, COO of the
Company, as a bonus. Also in June 2006, pursuant to section 4(2) of the
Securities Act, the Company issued James M. Lynch, CFO of the Company, 25,807
shares of restricted common stock at a price of $1.65 per share as a bonus. In
August 2006, pursuant to section 4(2) of the Securities Act, the Company issued
100,000 shares of restricted common stock at a price of $.05 per share to a
private investor pursuant to the exercise of warrants. Unless otherwise
specified, such as in the case of the exercise of stock options or warrants, the
per share prices were determined using the closing price of the Company's common
stock as quoted on the OTC Bulletin Board.
NOTE 9 - PROVISION FOR INCOME TAX EXPENSE
A provision for income tax expense of $3,403,894 is recorded for the nine months
ended September 30, 2006 as a result of utilization of operating loss carry-
forwards and current profitable operations. A provision for income tax expense
of $78,715 was recorded for the nine months ended September 30, 2005 due to the
substantial operating loss carry-forwards and corresponding valuation allowance
that existed at that time.
NOTE 10 - SUBSEQUENT EVENTS
On October 24, 2006, the Company declared a dividend of $.05 per share on the
outstanding common stock of the Company to be paid on April 9, 2007 to the
shareholders of record of the Company at the close of business on March 19,
2007.
On November 9, 2006 UPCIC entered into a $25 million surplus note with the
Florida State Board of Administration under Florida's Insurance Capital Build-Up
Incentive Program. Under the program, which was implemented by the Florida
legislature to encourage insurance companies to write additional residential
insurance coverage in Florida, the State Board of Administration matched UPCIC's
funds of $25 million that were earmarked for participation in the program.
The surplus note brings the current capital and surplus of UPCIC to
approximately $57 million. Under Florida law, the current surplus will allow
UPCIC to write up to approximately $500 million in gross written premiums in the
2007 calendar year.
The surplus note has a twenty-year term and accrues interest at a rate
equivalent to the 10-year U.S. Treasury Bond Rate, adjusted quarterly based on
the 10-year Constant Maturity Treasury rate. For the first three years of the
term of the surplus note, UPCIC is required to pay interest only although
principal payments can be made during this period. Any payment of principal or
interest by UPCIC on the surplus note must be approved by the Commissioner of
Florida Insurance Regulation.
An event of default will occur under the surplus note if UPCIC: (i) defaults in
the payment of the surplus note; (ii) fails to meet at least a 2:1 ratio of net
premium to surplus ("Minimum Writing Ratio") requirement by June 1, 2007; (iii)
fails to submit quarterly filings to the OIR; (iv) fails to maintain at least
$50 million of surplus during the term of the surplus note, except for certain
situations; (v) misuses proceeds of the surplus note; (vi) makes any
misrepresentations in the application for the program; or (vii) pays any
dividend when principal or interest payments are past due under the surplus
note.
21
If UPCIC fails to increase its writing ratio for two consecutive quarters prior
to June 1, 2007, fails to obtain the 2:1 Minimum Writing Ratio by June 1, 2007,
or drops below the 2:1 Minimum Writing Ratio once it is obtained for two
consecutive quarters, the interest rate on the surplus note will increase during
such deficiency by 25 basis points if the resulting writing ratio is between
1.5:1 and 2:1 and the interest rate will increase by 450 basis points if the
writing ratio is below 1.5:1. If the writing ratio remains below 1.5:1 for
three consecutive quarters after June 1, 2007, UPCIC must repay a portion of the
surplus note so that the Minimum Writing Ratio will be obtained for the
following quarter.
To meet its matching obligation under the Insurance Capital Build-Up Incentive
Program, on November 3, 2006, the Company entered into a Secured Promissory Note
with Benfield Greig (Holdings), Inc. in the aggregate principal amount of $12
million. Interest on the note will accrue at the market rate of 12.75% per
annum. The outstanding principal is due in six monthly installments of $1.5
million and a final seventh monthly installment of the remaining balance plus
all accrued interest under the terms of the Note starting on January 31, 2007
and ending on July 31, 2007. In connection with the loan, the Company and its
subsidiaries appointed Benfield Inc. as their reinsurance intermediary for all
of their reinsurance placements for the year beginning on June 1, 2007.
Item 2. Management's Discussion and Analysis or Plan of Operation
------- ---------------------------------------------------------
The following discussion and analysis by management of the Company's
consolidated financial condition and results of operations should be read in
conjunction with the Company's Condensed Consolidated Financial Statements and
Notes thereto.
FORWARD-LOOKING STATEMENTS
Certain statements made by the Company's management may be considered to be
"forward-looking statements" within the meaning of the Private Securities Reform
Litigation Act of 1995. Forward-looking statements are based on various factors
and assumptions that include known and unknown risks and uncertainties. The
words "believe," "expect," "anticipate," and "project," and similar expressions,
identify forward-looking statements, which speak only as of the date the
statement was made. Such statements may include, but not be limited to,
projections of revenues, income or loss, expenses, plans, as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
results could differ materially from those described in forward-looking
statements as a result of the risks set forth in the following discussion, among
others.
OVERVIEW
The Company is a vertically integrated insurance holding company. The Company,
through its subsidiaries, is currently engaged in insurance underwriting,
distribution and claims. UPCIC generates revenue from the collection and
investment of premiums. The Company's agency operations, which include Universal
Florida Insurance Agency and Coastal Homeowners Insurance Specialists, Inc.,
generate income from commissions. Universal Risk Advisors, Inc., the Company's
managing general agent, generates revenue through policy fee income and other
22
administrative fees from the marketing of UPCIC's and third-party insurance
products through the Company's distribution network and UPCIC. Universal Risk
Life Advisors, Inc. was formed to be the Company's managing general agent for
life insurance products. In addition, the Company has formed an independent
claims adjusting company, Universal Adjusting Corporation, which adjusts UPCIC
claims, and an inspection company, Universal Inspection Corporation, which
performs property inspections for homeowners' policies underwritten by UPCIC.
The Company has formed subsidiaries that were to specialize in selling insurance
and generating insurance leads via the Internet. Tigerquote.com Insurance &
Financial Services Group, Inc. was to be an Internet insurance lead generating
network, and Tigerquote.com Insurance Solutions, Inc., was to be a network of
Internet insurance agencies. None of the agencies are currently active as the
Company changed its focus to sell leads to other companies and independent
agents. During the fourth quarter of 2005, the Company decided to stop
generating new business on its direct sales operation and focus on its core
operations.
The Company also formed Tiger Home Services, Inc., which furnished pool services
to homeowners until the operation was sold during the second quarter of 2005.
FINANCIAL CONDITION
Cash and cash equivalents at September 30, 2006 aggregated $143,730,591. The
source of liquidity for possible claims payments consists of net premiums after
deductions for expenses, reinsurance recoverables and short-term loans.
UPCIC believes that premiums will be sufficient to meet UPCIC's working capital
requirements for at least the next twelve months. The Company's policy is to
invest amounts considered to be in excess of current working capital
requirements. At September 30, 2006, the Company's investments were comprised of
$143,730,591 in cash and overnight repurchase agreements and $3,159,181 in real
estate consisting of a building purchased by UPCIC that the Company is currently
using as its home office.
Policies originally obtained from the Florida Residential Property and Casualty
Joint Underwriting Association ("JUA") provided the opportunity for UPCIC to
solicit future renewal premiums. Less than 15% of the policies obtained from
the JUA are currently renewed with the Company. UPCIC does not expect to
participate in takeouts of additional policies from the JUA. In 1998 the Company
began to solicit business actively in the open market in an effort to further
grow its insurance operations. UPCIC is currently servicing approximately
210,000 homeowners and dwelling fire insurance policies.
The Company, as noted above, diversified its operations by establishing online
commerce and other ancillary operations. However, the Company is currently
contemplating the sale of the online commerce division in order to further focus
on the core property and casualty insurance business.
23
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2006 VERSUS NINE MONTHS
ENDED SEPTEMBER 30, 2005
Gross premiums written increased 277.5% to $230,431,095 for the nine-month
period ended September 30, 2006 from $61,040,560 for the nine-month period ended
September 30, 2005. The increase in gross premiums written is primarily
attributable to an increase in new business as well as premium rate increases.
The increase in new business is attributable to improving relationships with
existing agents, an increase in new agents due to increased marketing efforts to
agents, a new web-based policy administration platform and the disruption in the
marketplace as a result of the windstorm catastrophes in 2004 and 2005.
Net premiums earned increased 175.1% to $27,107,769 for the nine-month period
ended September 30, 2006 from $9,853,100 for the nine-month period ended
September 30, 2005. The increase is due to an increase in new business, premium
rate increases and changes in the reinsurance program.
Investment income increased 212.6% to $2,047,374 for the nine-month period ended
September 30, 2006 from $655,018 for the nine-month period ended September 30,
2005. The increase is primarily due to higher investment balances and a higher
interest rate environment during the nine-month period ended September 30, 2006.
Transaction fee revenue decreased 100.0% to $0 for the nine-month period ended
September 30, 2006 from $272,872 for the nine-month period ended September 30,
2005. The decrease is primarily due to the discontinuance of sales of on-line
insurance leads to insurance agents during the nine-month period ended September
30, 2006.
Other revenue increased 17.9% to $303,307 for the nine-month period ended
September 30, 2006 from $257,174 for the nine-month period ended September 30,
2005. The increase is primarily attributable to an increase in miscellaneous
revenues during the nine-month period ended September 30, 2006.
Commission income increased 146.0% to $4,525,861 for nine-month period ended
September 30, 2006 from $1,839,828 for the nine-month period ended September 30,
2005. Commission income is comprised principally of the managing general
agent's policy fee income on all new and renewal insurance policies and
commissions generated from agency operations. The increase is primarily
attributable to an increase in commissions generated from agency operations on
new policies.
Net losses and LAE incurred increased 205.6% to $11,276,805 for the nine-month
period ended September 30, 2006 from $3,690,294 for the nine-month period ended
September 30, 2005. Losses and LAE incurred increased as a result of increased
premium volume, changes in the Company's reinsurance program and additional
losses related to 2004 catastrophes. The Company's net loss ratio for the nine-
month period ended September 30, 2006 was 41.6% compared to 37.5% for the nine-
month period ended September 30, 2005. Losses and LAE are influenced by loss
severity and frequency. The Company's net loss ratio increased principally due
to additional net losses of $5,251,968 related to 2004 catastrophes recognized
in the nine-month period ended September 30, 2006. Losses and LAE, the Company's
most significant expenses, represent actual payments made net of reinsurance and
24
changes in estimated future net payments to be made to or on behalf of its
policyholders, including expenses required to settle claims and losses.
Catastrophes are an inherent risk of the property-liability insurance business
which may contribute to material year-to-year fluctuations in UPCIC's and the
Company's results of operations and financial position. During 2005, Florida
experienced three windstorm catastrophes (Hurricanes Dennis, Katrina and Wilma)
which resulted in losses. As a result of these storms, the Company currently
estimates it incurred $79,661,543 in losses prior to reinsurance and $4,121,253
net of reinsurance. The level of catastrophe loss experienced in any year cannot
be predicted and could be material to the results of operations and financial
position. While management believes UPCIC's and the Company's catastrophe
management strategies will reduce the severity of future losses, UPCIC and the
Company continue to be exposed to catastrophic losses.
General and administrative expenses increased 95.2% to $10,253,685 for the nine-
month period ended September 30, 2006 from $5,251,968 for the nine-month period
ended September 30, 2005. General and administrative expenses increased
primarily due to a decrease in ceding commissions associated with the dollar
amount of ceded premiums written to quota share reinsurers related to changing
policy retention from 20% to 50% at June 1, 2006.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2006 VERSUS THREE
MONTHS ENDED SEPTEMBER 30, 2005
Gross premiums written increased 339.2% to $116,427,419 for the three-month
period ended September 30, 2006 from $26,507,558 for the three-month period
ended September 30, 2005. The increase in gross premiums written is primarily
attributable to an increase in new business as well as premium rate increases.
The increase in new business is attributable to improving relationships with
existing agents, an increase in new agents due to increased marketing efforts to
agents, a new web-based policy administration platform and the disruption in the
marketplace as a result of the windstorm catastrophes in 2004 an 2005.
Net premiums earned increased 174.4% to $16,129,303 for the three-month period
ended September 30, 2006 from $5,878,040 for the three-month period ended
September 30, 2005. The increase is due to an increase in new business, premium
rate increases and changes in the reinsurance program effective June 1, 2005.
Investment income increased 228.3% to $1,078,191 for the three-month period
ended September 30, 2006 from $328,449 for the three-month period ended
September 30, 2005. The increase is primarily due to higher investment balances
and a higher interest rate environment during the three-month period ended
September 30, 2006.
Transaction fee revenue decreased to $0 for the three-month period ended
September 30, 2006 from $112,721 for the three-month period ended September 30,
2005. The decrease is primarily due to the decreased sales of on-line insurance
leads to insurance agents.
Other revenue decreased 38.3% to $101,978 for the three-month period ended
September 30, 2006 from $165,187 for the three-month period ended September 30,
25
2005. The decrease is primarily attributable to a decrease in miscellaneous
revenues during the three-month period ended September 30, 2006.
Commission income increased 183.7% to $1,995,396 for the three-month period
ended September 30, 2006 from $703,435 for the three-month period ended
September 30, 2005. Commission income is comprised principally of the managing
general agent's policy fee income on all new and renewal insurance policies and
commissions generated from agency operations. The increase is primarily
attributable to an increase in commissions generated from agency operations on
new policies.
Net losses and LAE incurred increased 92.4% to $6,243,606 for the three-month
period ended September 30, 2006 from $3,244,879 for the three-month period ended
September 30, 2005. Losses and LAE incurred increased as a result of increased
premium volume, changes in the Company's reinsurance program and additional
losses related to 2004 catastrophes. The Company's net loss ratio for the three-
month period ended September 30, 2006 was 38.7% compared to 55.2% for the three-
month period ended September 30, 2005. Losses and LAE are influenced by loss
severity and frequency. The Company's net loss ratio decreased due to a decrease
in claim frequency and severity, premium rate increases and a greater percentage
of the Company's new business being written on a policy form on which the
Company is experiencing favorable loss experience. This was mitigated by
additional net losses of $3,031,968 related to 2004 catastrophes recognized in
the three-month period ended September 30, 2006. Losses and LAE, the Company's
most significant expenses, represent actual payments made net of reinsurance and
changes in estimated future net payments to be made to or on behalf of its
policyholders, including expenses required to settle claims and losses.
Catastrophes are an inherent risk of the property-liability insurance business
which may contribute to material year-to-year fluctuations in UPCIC's and the
Company's results of operations and financial position. During 2005, Florida
experienced three windstorm catastrophes (Hurricanes Dennis, Katrina and Wilma)
which resulted in losses. As a result of these storms, the Company currently
estimates it incurred $79,661,543 in losses prior to reinsurance and $4,121,253
net of reinsurance. The level of catastrophe loss experienced in any year cannot
be predicted and could be material to the results of operations and financial
position. While management believes UPCIC's and the Company's catastrophe
management strategies will reduce the severity of future losses, UPCIC and the
Company continue to be exposed to catastrophic losses.
General and administrative expenses increased 608.6% to $7,270,889 for the
three-month period ended September 30, 2006 from $1,026,093 for the three-month
period ended September 30, 2005. General and administrative expenses increased
primarily due to a decrease in ceding commissions associated with the dollar
amount of ceded premiums written to quota share reinsurers related to changing
policy retention from 20% to 50% at June 1, 2006.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash flow are premium revenues, commissions,
policy fees, investment income and reinsurance recoverables and short-term
loans.
26
For the nine-month period ended September 30, 2006, cash flows provided by
operating activities were $99,181,124. Cash flows from operating activities are
expected to be positive in both the short-term and reasonably foreseeable
future. In addition, the Company's investment portfolio is highly liquid as it
consists almost entirely of cash and readily marketable securities.
In June 2005, the Company borrowed monies from two private investors and issued
two promissory notes for the aggregate principal sum of $1,000,000 payable in 10
monthly installments of $100,000. Payment on one note commenced in July 31, 2006
and commences on the other note on November 30, 2006. The loan proceeds were
subsequently contributed to UPCIC as additional paid-in-capital. In conjunction
with the notes, the Company granted a warrant to one of the investors to
purchase 200,000 shares of restricted common stock at an exercise price of $.05
per share, expiring in June 2010. These transactions were approved by the
Company's Board of Directors.
In order to improve the Company's financial position and achieve profitable
operations, management has implemented rate increases for new and renewal
business, has restructured the homeowners' coverage offered, has restructured
its catastrophic reinsurance coverage to reduce cost, and has worked to control
future general and administrative expenses. However, there can be no assurance
of the ultimate success of these plans, or that the Company will be able to
maintain profitability.
The Company is currently involved in efforts to bring additional capital into
the Company. UPCIC has been approved by the State Board of Administration of
Florida for a $25 million surplus note in connection with Florida's Insurance
Capital Build-Up Incentive Program. The program was implemented by the Florida
legislature to encourage insurance companies to write additional residential
insurance coverage in the wake of the 2004 and 2005 hurricane seasons. UPCIC's
approval under the program was contingent upon it matching funds in the amount
of $25 million. The Company has finalized the financing necessary to meet the
matching obligation under the program and on November 9, 2006 received $25
million from the State Board of Administration of Florida. See Part II, Item 5
- "Other Information" for additional information regarding the Florida program
and surplus note.
Management believes that the continued implementation of these plans will be
successful over the next twelve months. However, there can be no assurance that
successful implementation of these plans will be achieved or will be sufficient
to ensure UPCIC's future compliance with Florida insurance regulations, or that
the Company will be able to maintain profitability. Failure by UPCIC to
maintain the required level of statutory capital and surplus could result in the
suspension of UPCIC's authority to write new or renewal business, other
regulatory actions or ultimately, in the revocation of UPCIC's certificate of
authority by the OIR.
The Company believes that its current capital resources together with
management's plan as described above will be sufficient to support current
operations and expected growth for at least twelve months.
On October 24, 2006 the Company declared a dividend of $.05 per share on the
outstanding common stock of the Company to be paid on April 9, 2007 to the
shareholders of record of the Company at the close of business on March 19,
2007. On August 22, 2006, the Company declared a dividend of $.05 per share on
27
the outstanding common stock of the Company to be paid on November 8, 2006 to
the shareholders of record of the Company at the close of business on October
25, 2006. The dividend payable amount of $1,902,855 for the dividend declared
on August 22, 2006 is accrued in the September 30, 2006 balance sheet. During
the quarter the Company paid a dividend of $0.04 per share that was accrued at
the end of the quarter ended June 30, 2006. The aggregate amount of the dividend
was $1,518,284. During the quarter ended June 30, 2006, the Company paid a
dividend of $0.04 per share that was accrued at the end of first quarter. The
aggregate amount of the dividend was $1,488,851.
The property and casualty reinsurance industry is subject to the same market
conditions as the direct property and casualty insurance market, and there can
be no assurance that reinsurance will be available to UPCIC to the same extent
and at the same cost as currently in place for UPCIC. Future increases in
catastrophe reinsurance costs are possible and could adversely affect UPCIC's
results.
The balance of cash and cash equivalents at September 30, 2006 is $143,730,591.
Most of this amount is available to pay claims in the event of catastrophic
events pending reimbursement by reinsurers. Catastrophic reinsurance is
recoverable upon presentation to the reinsurer of evidence of claim payment.
Generally accepted accounting principles differ in some respects from reporting
practices prescribed or permitted by the OIR. To retain its certificate of
authority, the Florida insurance laws and regulations require that UPCIC
maintain capital and surplus equal to the statutory minimum capital and surplus
requirement defined in the Florida Insurance Code. UPCIC's statutory capital
and surplus exceeded the minimum capital and surplus requirements of $4,000,000
as of September 30, 2006. UPCIC is also required to adhere to prescribed
premium-to-capital surplus ratios.
The maximum amount of dividends which can be paid by Florida insurance companies
without prior approval of the OIR Commissioner is subject to restrictions
relating to statutory surplus. The maximum dividend that may be paid by UPCIC
without prior approval is limited to the lesser of statutory net income from
operations of the preceding calendar year or 10.0% of statutory unassigned
surplus as of the preceding year end. Statutory unassigned surplus (deficit) at
December 31, 2005 was $(1,995,376).
The Company is required to comply with the National Association of Insurance
Commissioner's ("NAIC") Risk-Based Capital ("RBC") requirements. RBC
requirements prescribe a method of measuring the amount of capital appropriate
for an insurance company to support its overall business operations in light of
its size and risk profile. NAIC's RBC requirements are used by regulators to
determine appropriate regulatory actions relating to insurers who show signs of
weak or deteriorating condition. As of December 31, 2005, based on calculations
using the appropriate NAIC RBC formula, the Company's reported total adjusted
capital was in excess of the requirements.
OFF-BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements during the first nine months of
2006.
28
Item 3. Controls and Procedures
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The Company carried out an evaluation under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the
period covered by this report. Based on that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that disclosure
controls and procedures were effective as of the end of the period covered by
this report to ensure that information required to be disclosed by the Company
in its reports that it files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms. There was
no change in the Company's internal controls over financial reporting that
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
------- -----------------
The Company did not have any reportable legal proceedings during the nine months
ending September 30, 2006. Certain claims and complaints have been filed or are
pending against the Company with respect to various matters. In the opinion of
management, none of these lawsuits is material, and they are adequately provided
for or covered by insurance or, if not so covered, are without any or have
little merit or involve such amounts that if disposed of unfavorably would not
have a material adverse effect on the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
------- -----------------------------------------------------------
In February 2006, pursuant to section 4(2) of the Securities Act, the Company
issued 325,000 shares of restricted common stock at a price of $.05 per share to
a private investor pursuant to the exercise of warrants. In April 2006,
pursuant to section 4(2) of the Securities Act, the Company issued 200,000
shares of common stock at a price of $.05 per share to a vendor pursuant to the
exercise of warrants. Also in April 2006, the Company issued 200,000 shares of
restricted common stock at a price of $.04 per share to Sean P. Downes, COO of
the Company, pursuant to Mr. Downes' exercise of stock options and 123,077
shares of restricted common stock at a price of $.93 per share pursuant to Mr.
Downes' election to receive such shares in lieu of accrued vacation. The shares
were issued to Mr. Downes in a private transaction pursuant to Section 4(2) of
the Securities Act. Also in April 2006, pursuant to section 4(2) of the
Securities Act, the Company issued 10,000 shares of restricted common stock at a
price of $.50 per share to Reed J. Slogoff, a director of the Company, pursuant
to the exercise of options. In May 2006, the Company issued 400,000 shares of
restricted common stock to one employee at $1.23 per share and 25,000 to a
second employee at $1.30 per share in conjunction with employment agreements.
Also in May 2006, pursuant to section 4(2) of the Securities Act, the Company
issued 10,000 shares of restricted common stock at a price of $.50 per share to
an employee of the Company pursuant to the exercise of options. In June 2006,
pursuant to section 4(2) of the Securities Act, the Company issued 25,000 shares
29
of restricted common stock at a price of $1.52 per share to each of the outside
directors of the Company (Norman M. Meier, Reed Slogoff, and Joel Wilentz) and
200,000 shares of restricted common stock at a price of $1.52 per share to Sean
P. Downes, COO of the Company, as a bonus. Also in June 2006, pursuant to
section 4(2) of the Securities Act, the Company issued James M. Lynch, CFO of
the Company, 25,807 shares of restricted common stock at a price of $1.65 per
share as a bonus. In August 2006, pursuant to section 4(2) of the Securities
Act, the Company issued 100,000 shares of restricted common stock at a price of
$.05 per share to a private investor pursuant to the exercise of warrants.
Unless otherwise specified, such as in the case of the exercise of stock options
or warrants, the per share prices were determined using the closing price of the
Company's common stock as quoted on the OTC Bulletin Board.
Item 3. Defaults upon Senior Securities
------- -------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
------- ---------------------------------------------------
None.
Item 5. Other Information
------- -----------------
Effective May 1, 2006, the terms of the employment agreements of Bradley I.
Meier, President and Chief Executive Officer of the Company and Sean P. Downes,
COO of the Company were amended to provide for an increase in base salary of
$150,000 per annum.
On November 9, 2006 UPCIC entered into a $25 million surplus note with the
Florida State Board of Administration under Florida's Insurance Capital Build-Up
Incentive Program. Under the program, which was implemented by the Florida
legislature to encourage insurance companies to write additional residential
insurance coverage in Florida, the State Board of Administration matched UPCIC's
funds of $25 million that were earmarked for participation in the program.
The surplus note brings the current capital and surplus of UPCIC to
approximately $57 million. Under Florida law, the current surplus will allow
UPCIC to write up to approximately $500 million in gross written premiums in the
2007 calendar year.
The surplus note has a twenty-year term and accrues interest at a rate
equivalent to the 10-year U.S. Treasury Bond Rate, adjusted quarterly based on
the 10-year Constant Maturity Treasury rate. For the first three years of the
term of the surplus note, UPCIC is required to pay interest only although
principal payments can be made during this period. Any payment of principal or
interest by UPCIC on the surplus note must be approved by the Commissioner of
Florida Insurance Regulation.
An event of default will occur under the surplus note if UPCIC: (i) defaults in
the payment of the surplus note; (ii) fails to meet at least a 2:1 ratio of net
premium to surplus ("Minimum Writing Ratio") requirement by June 1, 2007; (iii)
fails to submit quarterly filings to the OIR; (iv) fails to maintain at least
$50 million of surplus during the term of the surplus note, except for certain
situations; (v) misuses proceeds of the surplus note; (vi) makes any
misrepresentations in the application for the program; or (vii) pays any
30
dividend when principal or interest payments are past due under the surplus
note.
If UPCIC fails to increase its writing ratio for two consecutive quarters prior
to June 1, 2007, fails to obtain the 2:1 Minimum Writing Ratio by June 1, 2007,
or drops below the 2:1 Minimum Writing Ratio once it is obtained for two
consecutive quarters, the interest rate on the surplus note will increase during
such deficiency by 25 basis points if the resulting writing ratio is between
1.5:1 and 2:1 and the interest rate will increase by 450 basis points if the
writing ratio is below 1.5:1. If the writing ratio remains below 1.5:1 for
three consecutive quarters after June 1, 2007, UPCIC must repay a portion of the
surplus note so that the Minimum Writing Ratio will be obtained for the
following quarter.
To meet its matching obligation under the Insurance Capital Build-Up Incentive
Program, on November 3, 2006, the Company entered into a Secured Promissory Note
with Benfield Greig (Holdings), Inc. in the aggregate principal amount of $12
million. Interest on the note will accrue at the market rate of 12.75% per
annum. The outstanding principal is due in six monthly installments of $1.5
million and a final seventh monthly installment of the remaining balance plus
all accrued interest under the terms of the Note starting on January 31, 2007
and ending on July 31, 2007. In connection with the loan, the Company and its
subsidiaries appointed Benfield Inc. as their reinsurance intermediary for all
of their reinsurance placements for the year beginning on June 1, 2007.
Item 6. Exhibits
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Exhibit No. Exhibit
----------- -------
10.1 Note Purchase Agreement by and between the Company and
Benfield Greig (Holdings), Inc., dated November 3, 2006
10.2 Secured Promissory Note dated November 3, 2006
10.3 Insurance Capital Build-Up Incentive Program Surplus
Note dated November 9, 2006
11.1 Statement Regarding Computation of Per Share Income
31.1 Certification of Chief Executive Officer Pursuant to
Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to
Rule 13a-14(a)/15d-14(a), as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to Title 18, United States
Code, Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
31
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNIVERSAL INSURANCE HOLDINGS, INC.
Date: November 14, 2006 /s/ Bradley I. Meier
-------------------------------------------------------
Bradley I. Meier, President and Chief Executive Officer
/s/ James M. Lynch
-------------------------------------------------------
James M. Lynch, Chief Financial Officer
32