UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

     [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

   [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                         COMMISSION FILE NUMBER 0-20848

                       UNIVERSAL INSURANCE HOLDINGS, INC.
                 (Name of small business issuer in its charter)

               Delaware                                 65-0231984
   (State or other jurisdiction of          (I.R.S. Employer Identification No.)
   incorporation or organization)

1110 West Commercial Boulevard, Suite 100                  33309
         Fort Lauderdale, Florida                        (Zip Code)
 (Address of principal executive offices)

         Company's telephone number, including area code: (954) 958-1200

      Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, $.01 Par Value                         OTC BULLETIN BOARD
Redeemable Common Stock Purchase Warrants            OTC BULLETIN BOARD
     (Title of each class)                   (Name of exchange where registered)


Check whether the issuer is not required to file reports  pursuant to Section 13
or 15(d) of the Exchange Act. [ ]

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act  during the  preceding  12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days: YES X  NO ___

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ ]

Indicate by checkmark  whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act):
YES ___ NO X

State issuer's revenues for its most recent fiscal year: $65,147,750

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold as of February 1, 2007: $73,146,187

State the number of shares of Common Stock of Universal Insurance Holdings, Inc.
outstanding as of March 1, 2007: 38,057,103

Transitional Small Business Disclosure Format: YES ___ NO X



                                     PART I

ITEM 1.   DESCRIPTION OF BUSINESS

THE COMPANY

        Universal  Insurance  Holdings,   Inc.  ("UIH"  or  the  "Company")  was
originally organized as Universal Heights, Inc. in 1990. The Company changed its
name to Universal Insurance  Holdings,  Inc. on January 12, 2001. In April 1997,
the Company  organized a  subsidiary,  Universal  Property & Casualty  Insurance
Company ("UPCIC"),  as part of its strategy to take advantage of what management
believed to be profitable business and growth  opportunities in the marketplace.
UPCIC  was  formed to  participate  in the  transfer  of  homeowners'  insurance
policies from the Florida  Residential  Property and Casualty Joint Underwriting
Association ("JUA"). The Company has since evolved into a vertically  integrated
insurance  holding  company,  which  through  its various  subsidiaries,  covers
substantially  all aspects of insurance  underwriting,  distribution  and claims
processing.

        The Company was incorporated  under the laws of the State of Delaware on
November 13, 1990 and its principal  executive  offices are located at 1110 West
Commercial  Boulevard,  Suite  100,  Fort  Lauderdale,  Florida  33309,  and its
telephone number is (954) 958-1200.

INSURANCE BUSINESS

        On October 29, 1997, the Office of Insurance Regulation ("OIR") approved
UPCIC's application for a permit to organize as a domestic property and casualty
insurance  company in the State of  Florida.  On  December  4, 1997,  UIH raised
approximately  $6.7 million in a private  placement of common stock with various
institutional and other accredited investors.  The proceeds of the offering were
used to meet the minimum regulatory  capitalization  requirements ($5.0 million)
of the OIR to  obtain an  insurance  company  license  and for  general  working
capital purposes. UPCIC received a license to engage in underwriting homeowners'
insurance  in the State of Florida on December 31,  1997.  In 1998,  UPCIC began
operations  through the assumption of homeowners'  insurance  policies issued by
the JUA.

        The  JUA was  established  in 1992 as a  temporary  measure  to  provide
insurance  coverage for  individuals  who could not obtain coverage from private
carriers  because of the impact on the  private  insurance  market of  Hurricane
Andrew in 1992. Rather than serving as a temporary source of emergency insurance
coverage as was originally intended, the JUA became a major provider of original
and renewal insurance  coverage for Florida  residents.  In an attempt to reduce
the number of  policies  in the JUA,  and thus the  exposure  of the  program to
liability,   the  Florida  legislature  approved  a  number  of  initiatives  to
depopulate the JUA. The Florida legislature  subsequently  approved, and the JUA
implemented, a Market Challenge/Takeout Bonus Program ("Takeout Program"), which
provided  additional  incentives  to  private  insurance  companies  to  acquire
policies from the JUA.

        UPCIC's initial business and operations  consisted of providing property
and casualty coverage through  homeowners'  insurance policies acquired from the
JUA. The  insurance  business  acquired from the JUA provided a base for renewal
premiums.  The majority of these  policies  renewed with UPCIC.  In an effort to
further  grow its  insurance  operations,  in 1998,  UPCIC also began to solicit
business actively in the open market through independent agents. Through renewal
of the JUA business  combined  with  business  solicited  in the market  through
independent  agents,   UPCIC  is  currently  servicing   approximately   268,000
homeowners' insurance policies covering homes and condominium units.

        The Company's  primary product is homeowners'  insurance.  The Company's
criteria for selecting  insurance policies includes,  but is not limited to, the
use of specific  policy  forms,  coverage  amounts on buildings and contents and
required compliance with local building codes. Also, to improve underwriting and
manage risk, the Company  utilizes  standard  industry  modeling  techniques for
hurricane  and  windstorm  exposure.  UPCIC's  portfolio as of December 31, 2006
includes  approximately  262,500 policies with coverage for wind risks and 5,500
policies without wind risks. The average premium for a policy with wind coverage
is  approximately  $1,402 and the  average  premium  for a policy  without  wind
coverage is approximately $657.  Approximately 24.3% of the policies are located
in Miami-Dade, Broward and Palm Beach counties.

                                       2


OPERATIONS

        All underwriting,  rating, policy issuance, reinsurance negotiations and
certain  administration  functions for UPCIC are  performed by UPCIC,  Universal
Risk Advisors,  Inc., a wholly owned subsidiary of the Company, and unaffiliated
third parties.

        Claims  handling  functions for UPCIC were initially  administered by an
independent  claims  adjustment  firm licensed in Florida.  In 1999, the Company
formed  Universal  Adjusting  Corporation,  a  wholly  owned  subsidiary,  which
currently  performs claims  adjustment for UPCIC. This gives the Company greater
command over its loss control and expenditures.

        The earnings of UPCIC from policy premiums are supplemented to an extent
by the generation of investment  income from investment  policies adopted by the
Board of Directors of UPCIC.  UPCIC's principal investment goals are to maintain
safety and  liquidity,  enhance  equity values and achieve an increased  rate of
return consistent with regulatory requirements.

MANAGEMENT OPERATIONS

        The Company has developed into a vertically integrated insurance holding
company performing various aspects of insurance  underwriting,  distribution and
claims.  Universal  Risk  Advisors,  Inc.,  the Company's  wholly owned Managing
General Agent ("MGA"),  was  incorporated  in Florida on July 2, 1998 and became
licensed by the OIR on August 17, 1998 and  contracted  with UPCIC on  September
28, 1998. Through the MGA, the Company has underwriting, reinsurance negotiation
and claims authority for UPCIC as well as third-party  insurance companies.  The
MGA seeks to generate revenue through policy fee income and other administrative
fees  from the  marketing  of UPCIC as well as  third-party  insurance  products
through the Company's  distribution network. The Company markets and distributes
UPCIC's  products  and  services in Florida  through a network of  approximately
2,400 active independent agents.

AGENCY OPERATIONS

        Universal  Florida  Insurance Agency was incorporated in Florida on July
2, 1998 and Coastal Homeowners Insurance  Specialists,  Inc. was incorporated in
Florida on July 2, 2001,  each as wholly  owned  subsidiaries  of the Company to
solicit  voluntary  business.  These entities are a part of the Company's agency
operations,  which seek to generate income from  commissions,  premium financing
referral fees and the marketing of ancillary services.

DIRECT SALES OPERATIONS

        The Company formed subsidiaries that 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  is an Internet  insurance lead  generating
network while Tigerquote.com Insurance Solutions,  Inc. is a network of Internet
insurance  agencies.  These entities seek to generate income from the selling of
leads and commissions on policies written. To date, insurance agencies have been
established  in 22 states.  Separate  legal  entities  have been formed for each
state and are governed by the respective states' departments of insurance.  None
of the agencies are  currently  active as the Company  changed its focus to sell
leads to other  companies  and  independent  agents.  During  2006,  the Company
decided  to  discontinue  its  direct  sales  operations  and  focus on its core
operations.

        In the Consolidated Statements of Operations and Consolidated Statements
of Cash Flows,  the Company has  separately  disclosed  results  relating to its
discontinued  operations,  which  in  prior  periods  had  not  been  separately
disclosed.  The disclosure for discontinued  operations relates to the operating
segment previously reported as the Company's on-line commerce segment.

OTHER OPERATIONS

        Universal Inspection  Corporation was incorporated in Florida on January
3,  2000 as a  subsidiary  of UIH.  Universal  Inspection  Corporation  performs
property inspections for homeowners' policies underwritten by UPCIC.

                                       3


        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.

FACTORS AFFECTING OPERATION RESULTS AND MARKET PRICE OF STOCK

        The  Company  and  its  subsidiaries   operate  in  a  rapidly  changing
environment  that involves a number of  uncertainties,  some of which are beyond
the  Company's   control.   This  report  contains  in  addition  to  historical
information,  forward-looking  statements that involve risks and  uncertainties.
The words "expect,"  "estimate,"  "anticipate,"  "believe," "intend," "plan" and
similar   expressions   and   variations   thereof  are   intended  to  identify
forward-looking statements. The Company's actual results could differ materially
from those set forth in or implied by any  forward-looking  statements.  Factors
that could cause or contribute to such differences  include, but are not limited
to, those uncertainties  discussed below as well as those discussed elsewhere in
this report.

NATURE OF THE COMPANY'S BUSINESS

        Factors  affecting  the sectors of the  insurance  industry in which the
Company  operates  may  subject  the  Company  to  significant  fluctuations  in
operating  results.  These factors include  competition,  catastrophe losses and
general  economic  conditions  including  interest  rate  changes,  as  well  as
legislative   initiatives,   the  regulatory   environment,   the  frequency  of
litigation,   the  size  of  judgments,   severe  weather   conditions  and  the
availability  and cost of reinsurance.  Specifically  the homeowners'  insurance
market,  which  comprises  the  bulk of the  Company's  current  operations,  is
influenced by many factors,  including state and federal laws, market conditions
for  homeowners'  insurance and  residential  plans.  Additionally,  an economic
downturn  could  result in fewer home sales and less  demand for new  homeowners
seeking insurance.

        Historically,  the  financial  performance  of the property and casualty
insurance  industry has tended to fluctuate in cyclical patterns of soft markets
followed by hard markets.  Although an individual  insurance company's financial
performance  is  dependent  on its own specific  business  characteristics,  the
profitability of most property and casualty insurance  companies tends to follow
this cyclical market pattern.

        The Company  believes  that a  substantial  portion of its future growth
will depend on its ability,  among other things,  to successfully  implement its
business  strategy,  including  expanding  the  Company's  product  offering  by
underwriting and marketing  additional  insurance  products and programs through
its  distribution   network  and  further  penetrating  the  Florida  market  by
establishing relationships with additional independent agents in order to expand
its  distribution  network.  Any future growth is contingent on various factors,
including the availability of adequate  capital,  the Company's  ability to hire
and train  additional  personnel,  regulatory  requirements  and  rating  agency
considerations.  There is no assurance  that the Company will be  successful  in
expanding its business, that the existing infrastructure will be able to support
additional expansion or that any new business will be profitable.  Moreover,  as
the Company expands its insurance products and programs and the Company's mix of
business  changes,  there can be no  assurance  that the Company will be able to
improve  its profit  margins or other  operating  results.  There can also be no
assurance  that the  Company  will be able to  obtain  the  required  regulatory
approvals  to offer  additional  insurance  products.  UPCIC also is required to
maintain  minimum  surplus to support  its  underwriting  program.  The  surplus
requirement affects UPCIC's potential growth.

MANAGEMENT OF EXPOSURE TO CATASTROPHIC LOSSES

        UPCIC is exposed to potentially  numerous  insured losses arising out of
single  or  multiple  occurrences,  such as  natural  catastrophes.  As with all
property  and  casualty  insurers,  UPCIC  expects to and will incur some losses
related  to  catastrophes  and will  price  its  policies  accordingly.  UPCIC's
exposure  to  catastrophic  losses  arises  principally  out of  hurricanes  and
windstorms.  Through the use of standard industry  modeling  techniques that are
susceptible  to change,  UPCIC manages its exposure to such losses on an ongoing
basis from an  underwriting  perspective.  In addition,  UPCIC  protects  itself
against the risk of catastrophic  loss by obtaining  reinsurance  coverage up to
approximately the "100 year Probable Maximum Loss" ("PML").  UPCIC's reinsurance
program consists of excess of loss, quota share and catastrophe  reinsurance for
multiple  hurricanes.  However,  UPCIC may not buy enough  reinsurance  to cover
multiple  storms going forward or be able to timely obtain  reinsurance.  During
2004,  Florida  experienced  four windstorm  catastrophes  (Hurricanes  Charley,
Frances,  Ivan and  Jeanne),  which  resulted  in  losses.  As a result of these
storms, the Company currently estimates it incurred $182,666,020 in losses prior

                                       4


to  reinsurance  and  $22,497,312  net  of  reinsurance.  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  $93,125,571 in losses prior to reinsurance and $4,139,304
net of  reinsurance.  During  2006,  UPCIC  did  not  incur  any  losses  due to
catastrophic events.

RELIANCE ON THIRD PARTIES AND REINSURERS

        UPCIC is  dependent  upon third  parties to  perform  certain  functions
including,  but not limited to the purchase of reinsurance  and risk  management
analysis.  UPCIC also relies on  reinsurers to limit the amount of risk retained
under its  policies  and to  increase  its  ability to write  additional  risks.
UPCIC's  intention is to limit its exposure and  therefore  protect its capital,
even in the event of catastrophic  occurrences,  through reinsurance  agreements
that  currently  transfer the risk of loss in excess of $1,875,000 for the first
and second events and $3,500,000 for the third event up to approximately the 100
year PML as of the  beginning of hurricane  season on June 1 of each year.  This
amount may change in the future.

REINSURANCE

        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.  In light of
the four windstorm catastrophes Florida experienced in 2004, and three windstorm
catastrophes Florida experienced in 2005, an increase in catastrophe reinsurance
costs for the  current  year  renewal is  possible  and could  adversely  affect
UPCIC's  results.  Reinsurance  does not legally  discharge  an insurer from its
primary liability for the full amount of the risks it insures,  although it does
make the reinsurer liable to the primary insurer. Therefore, UPCIC is subject to
credit risk with respect to its reinsurers.  Management  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.  A reinsurer's  insolvency  or inability to make payments  under a
reinsurance  treaty  could  have a  material  adverse  effect  on the  financial
condition and  profitability  of UPCIC.  In addition,  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  typical of a company  of its size in the  homeowners  insurance
industry.

ADEQUACY OF LIABILITIES FOR LOSSES

        The  liabilities for losses and loss  adjustment  expenses  periodically
established  by UPCIC  are  estimates  of  amounts  needed to pay  reported  and
unreported   claims  and  related  loss  adjustment   expenses.   The  estimates
necessarily will be based on certain assumptions related to the ultimate cost to
settle such claims.  There is an inherent degree of uncertainty  involved in the
establishment  of liabilities for losses and loss adjustment  expenses and there
may be substantial  differences  between  actual losses and UPCIC's  liabilities
estimates.  In the case of UPCIC,  this  uncertainty  is  compounded  by UPCIC's
limited historical claims experience.  UPCIC relies on industry data, as well as
the expertise and experience of independent  actuaries in an effort to establish
accurate estimates and adequate liabilities. Furthermore, factors such as storms
and  weather  conditions,  inflation,  claim  settlement  patterns,  legislative
activity  and  litigation  trends  may have an impact  on  UPCIC's  future  loss
experience. Accordingly, there can be no assurance that UPCIC's liabilities will
be adequate to cover  ultimate  loss  developments.  UPCIC's  profitability  and
financial  condition  could  be  adversely  affected  to  the  extent  that  its
liabilities are inadequate.

        UPCIC is directly liable for loss and loss adjustment  expenses  ("LAE")
payments  under the terms of the  insurance  policies  that it  writes.  In many
cases,  several years may elapse  between the  occurrence of an insured loss and
the  Company's  payment of that loss. As required by insurance  regulations  and
accounting rules, the Company reflects its liability for the ultimate payment of
all incurred  losses and LAE by establishing a liability for those unpaid losses
and LAE for both reported and unreported  claims,  which represent  estimates of
future amounts needed to pay claims and related expenses.

        When a  claim  involving  a  probable  loss  is  reported,  the  Company
establishes a liability for the estimated amount of the Company's  ultimate loss
and LAE payments.  The estimate of the amount of the ultimate loss is based upon
such factors as the type of loss,  jurisdiction of the occurrence,  knowledge of
the circumstances surrounding the claim, severity of injury or damage, potential
for ultimate  exposure,  estimate of liability on the part of the insured,  past
experience with similar claims and the applicable policy provisions.

                                       5


        All newly reported  claims  received are set up with an initial  average
liability.  That claim is then evaluated and the liability is adjusted upward or
downward according to the facts and damages of that particular claim.

        In addition,  management  provides for a liability on an aggregate basis
to provide for losses incurred but not reported  ("IBNR").  The Company utilizes
independent actuaries to help establish its liability for unpaid losses and LAE.
The  Company  does not  discount  the  liability  for unpaid  losses and LAE for
financial statement purposes.

        The  estimates of the liability for unpaid losses and LAE are subject to
the  effect of  trends in claims  severity  and  frequency  and are  continually
reviewed.  As part of this  process,  the Company  reviews  historical  data and
considers various factors,  including known and anticipated legal  developments,
changes in social attitudes,  inflation and economic  conditions.  As experience
develops  and other data become  available,  these  estimates  are  revised,  as
required,  resulting in increases  or  decreases to the existing  liability  for
unpaid losses and LAE. Adjustments are reflected in results of operations in the
period in which they are made and the liabilities may deviate substantially from
prior estimates.

        Among  the  classes  of  insurance  underwritten  by  the  Company,  the
homeowners'  liability  claims  historically  tend to have  longer  time  lapses
between the  occurrence of the event,  the reporting of the claim to the Company
and the final settlement than do homeowners'  property claims.  Liability claims
often  involve  third  parties  filing  suit  and  the  ensuing  litigation.  By
comparison,  property damage claims tend to be reported in a relatively  shorter
period of time with the vast majority of these claims resulting in an adjustment
without litigation.

        There can be no assurance that the Company's liability for unpaid losses
and LAE will be adequate to cover actual losses. If the Company's  liability for
unpaid losses and LAE proves to be  inadequate,  the Company will be required to
increase the  liability  with a  corresponding  reduction in the  Company's  net
income  in the  period  in which  the  deficiency  is  identified.  Future  loss
experience  substantially  in excess of established  liability for unpaid losses
and LAE could have a material adverse effect on the Company's business,  results
of operations and financial condition.

        The following table sets forth a reconciliation  of beginning and ending
liability  for  unpaid  losses  and LAE as shown in the  Company's  consolidated
financial statements for the periods indicated.

                                          Year Ended           Year Ended
                                       December 31, 2006    December 31, 2005
                                       -----------------    -----------------
                                               (Dollars in Thousands)

    Balance at beginning of year          $   67,000            $   57,872

    Less reinsurance recoverable             (60,859)              (56,292)
                                          -----------           -----------

    Net balance at beginning of year           6,141                 1,580
                                          -----------           -----------
    Incurred related to:
      Current year                             9,247                 7,049
      Prior years                             15,694                 2,549
                                          -----------           -----------
    Total incurred                            24,941                 9,598
                                          -----------           -----------
    Paid related to:
      Current year                             4,454                 3,822
      Prior years                              9,433                 1,215
                                          -----------           -----------
    Total paid                                13,887                 5,037
                                          -----------           -----------

    Net balance at end of year                17,195                 6,141
      Plus reinsurance recoverable            32,369                60,859
                                          -----------           -----------
    Balance at end of year                $   49,564              $ 67,000
                                          ===========           ===========

The Company's  liabilities for unpaid losses and LAE, net of related reinsurance
recoverables,  as of December  31, 2006 were  increased  in the current  year by
$15,693,957  for claims that had  occurred  on or before the prior year  balance

                                       6


sheet date. This  unfavorable  loss emergence  resulted  principally from higher
than expected  hurricane  losses in 2004. The Company's  liabilities  for unpaid
losses and LAE, net of related reinsurance recoverables, as of December 31, 2005
were  increased  during 2005 by  $2,549,050  for claims that had  occurred on or
before the previous year balance sheet date.  This  unfavorable  loss  emergence
resulted  principally from higher than expected  hurricane losses in 2004. There
can be no assurance  that the  Company's  unpaid losses and LAE will not develop
redundancies or deficiencies  and possibly differ  materially from the Company's
unpaid  losses and LAE as of December  31,  2006.  In the future,  if the unpaid
losses  and  LAE  develop  redundancies  or  deficiencies,  such  redundancy  or
deficiency  would have a favorable or adverse  impact,  respectively,  on future
results of operations.

        Based  upon  consultations  with  the  Company's  independent  actuarial
consultants  and their  statement  of  opinion on losses  and LAE,  the  Company
believes that the  liability for unpaid losses and LAE is currently  adequate to
cover all claims and related  expenses which may arise from  incidents  reported
and IBNR.

        The  following  table  presents  total unpaid loss and LAE, net, and the
corresponding  reinsurance  recoverables  shown  in the  Company's  consolidated
financial statements for the periods indicated.



                                                                    Years Ended
                                                       December 31, 2006   December 31, 2005
                                                       -----------------   -----------------
                                                              (Dollars in Thousands)
                                                                   
Unpaid Loss and LAE, net                                 $   6,814       $  2,130
IBNR loss and LAE, net                                      10,381          4,011
                                                        ------------    -----------
Total unpaid loss and LAE, net                           $  17,195       $  6,141
                                                        ============    ===========

Reinsurance recoverable on unpaid loss and LAE           $  15,418       $ 47,302
Reinsurance recoverable on IBNR loss and LAE                16,951         13,557
                                                        ------------    -----------
Total reinsurance recoverable on unpaid loss
and LAE                                                  $  32,369       $ 60,859
                                                        ============    ===========


        The following table presents the liability for unpaid losses and LAE for
the Company since  inception.  The top line of the table shows the estimated net
liabilities  for unpaid losses and LAE at the balance sheet date for each of the
periods indicated. These figures represent the estimated amount of unpaid losses
and LAE for claims  arising in all prior  years that were  unpaid at the balance
sheet date,  including  losses that had been incurred but not yet reported.  The
portion of the table labeled  "Cumulative  paid as of" shows the net  cumulative
payments for losses and LAE made in succeeding  years for losses  incurred prior
to the balance sheet date. The lower portion of the table shows the re-estimated
amount of the previously recorded liability based on experience as of the end of
each succeeding year.

                                       7




                                                                       Years Ended December 31,
                                        2006       2005      2004      2003      2002      2001      2000      1999      1998
                                        ----       ----      ----      ----      ----      ----      ----      ----      ----
                                                                        (Dollars in Thousands)

                                                                                             
Balance Sheet liability               $17,195     $6,141    $1,580    $1,351    $1,591    $2,893    $1,372    $1,532    $1,588

Cumulative paid as of:

One year later                              -     12,897     1,216       950       667     3,660     1,308       897       939
Two years later                             -          -    11,514     1,153       992     3,667     1,635     1,081       904
Three years later                           -          -         -     1,330     1,115     3,899     1,693     1,155     1,010
Four years later                            -          -         -         -     1,260     3,998     1,811     1,191     1,024
Five years later                            -          -         -         -         -     4,082     1,833     1,206       999
Six years later                             -          -         -         -         -         -     1,849     1,212     1,006
Seven years later                           -          -         -         -         -         -         -     1,223     1,009
Eight years later                           -          -         -         -         -         -         -         -     1,010

Balance Sheet liability                17,195      6,141     1,580     1,351     1,591     2,893     1,372     1,532     1,588
One year later                              -     25,312     4,129     1,480     1,249     4,237     1,797     1,344     1,067
Two years later                             -          -    22,727     1,297     1,369     3,974     1,944     1,269     1,089
Three years later                           -          -         -     1,482     1,229     4,158     1,926     1,286     1,071
Four years later                            -          -         -         -     1,377     4,096     1,940     1,270     1,024
Five years later                            -          -         -         -         -     4,147     1,904     1,229     1,013
Six years later                             -          -         -         -         -         -     1,904     1,279     1,019
Seven years later                           -          -         -         -         -         -         -     1,278     1,016
Eight years later                           -          -         -         -         -         -         -         -     1,016
Cumulative redundancy (deficiency)          -   (19,171)  (21,147)     (131)       214   (1,254)     (532)       254       572



        The cumulative  redundancy or deficiency represents the aggregate change
in the estimates  over all prior years.  A deficiency  indicates that the latest
estimate of the liability  for losses and LAE is higher than the liability  that
was originally estimated and a redundancy indicates that such estimate is lower.
It should be  emphasized  that the table  presents a run-off  of  balance  sheet
liability  for the  periods  indicated  rather  than  accident  or  policy  loss
development for those periods.  Therefore, each amount in the table includes the
cumulative effects of changes in liability for all prior periods. Conditions and
trends that have affected  liabilities in the past may not necessarily  occur in
the future.

        Underwriting  results of insurance  companies are frequently measured by
their combined  ratios.  However,  investment  income,  federal income taxes and
other  non-underwriting  income or expense  are not  reflected  in the  combined
ratio. The profitability of property and casualty insurance companies depends on
income  from  underwriting,  investment  and  service  operations.  Underwriting
results are  considered  profitable  when the  combined  ratio is under 100% and
unprofitable when the combined ratio is over 100%.

        The following table sets forth the statutory loss ratios, expense ratios
and combined  ratios for the periods  indicated  for UPCIC.  The ratios,  net of
reinsurance  and inclusive of loss adjustment  expenses,  are shown in the table
below and are computed based upon Statutory Accounting  Principles.  The expense
ratio includes management fees and commissions paid to the Company in the amount
of $16,645,351 in 2006 and $5,536,002 in 2005.

                                                     Years Ended
                                        December 31, 2006   December 31, 2005
                                        -----------------   -----------------

Loss Ratio                                      54%                 73%
Expense Ratio                                   19                  13
                                        -----------------   -----------------
Combined Ratio                                  73%                 86%
                                        =================   =================

        In order to reduce  losses  and  thereby  reduce  the loss ratio and the
combined  ratio,  the  Company has taken  several  steps.  These  steps  include
implementing  rate  increases for new and renewal  business,  restructuring  the
homeowners'  coverage  offered,   restructuring  the  catastrophic   reinsurance
coverage  to reduce  cost,  and  working to reduce  general  and  administrative
expenses.

                                       8


GOVERNMENT REGULATION

        Florida insurance companies are subject to regulation and supervision by
the OIR. The OIR has broad regulatory,  supervisory and  administrative  powers.
Such powers  relate,  among other  things,  to the  granting and  revocation  of
licenses to transact  business;  the licensing of agents (through the Department
of Financial Services); the standards of solvency to be met and maintained;  the
nature of, and limitations on, investments;  approval of policy forms and rates;
review  of  reinsurance  contracts;  periodic  examination  of  the  affairs  of
insurance companies;  and the form and content of required financial statements.
Such  regulation and supervision are primarily for the benefit and protection of
policyholders and not for the benefit of investors.

        In addition,  the Florida  legislature  and the National  Association of
Insurance  Commissioners  from time to time consider  proposals that may affect,
among other  things,  regulatory  assessments  and reserve  requirements.  UPCIC
cannot predict the effect that any proposed or future  legislation or regulatory
or administrative  initiatives may have on the financial condition or operations
of UPCIC.

DEPENDENCE ON KEY INDIVIDUALS

        UPCIC's  operations  depend in large  part on the  efforts of Bradley I.
Meier, who serves as President of UPCIC. Mr. Meier has also served as President,
Chief  Executive  Officer and  Director of the Company  since its  inception  in
November 1990. In addition,  UPCIC's operations have become materially dependent
on the  efforts  of Sean P.  Downes,  who serves as Chief  Operating  Officer of
UPCIC.  Mr.  Downes has also  served as Chief  Operating  Officer,  Senior  Vice
President  and Director of the Company  since  January 2005 and as a Director of
UPCIC since May 2003.  The loss of the  services  provided  by Mr.  Meier or Mr.
Downes could have a material adverse effect on UPCIC's  financial  condition and
results of operations.

COMPETITION

        The  insurance   industry  is  highly  competitive  and  many  companies
currently write homeowners' property and casualty insurance.  Additionally,  the
Company and its  subsidiaries  must  compete  with  companies  that have greater
capital  resources and longer operating  histories.  Increased  competition from
other insurance  companies could  adversely  affect the Company's  ability to do
business profitably.  Although the Company's pricing is inevitably influenced to
some degree by that of its competitors,  management of the Company believes that
it is generally not in the Company's  best interest to compete  solely on price,
choosing  instead  to  compete  on  the  basis  of  underwriting  criteria,  its
distribution network and high quality service to its agents and insureds.

EMPLOYEES

        As of March 1, 2007,  the Company had 118 full-time  employees.  None of
the  Company's  employees  is  represented  by a labor  union.  The Company also
utilized the services of several  temporary  employees during the year to assist
with the increased  workload related to the hurricanes  Florida had experienced.
The Company has an  employment  agreement  with Bradley I. Meier,  President and
Chief Executive Officer of the Company and Sean P. Downes, Senior Vice President
and   Chief    Operating    Officer    of   the    Company.    See    "Executive
Compensation--Employment Agreements."

ITEM 2.   DESCRIPTION OF PROPERTY

        On July 31, 2004,  the Company  purchased a modern  building  located in
Fort  Lauderdale,  Florida  that  became its home  office on July 1,  2005.  The
Company  believes  that the new  building is suitable  for its  intended use and
adequate to meet the Company's  current needs.  The building is 100% utilized by
the  Company.  There  is no  mortgage  or lease  arrangement.  The  building  is
adequately covered by insurance.

ITEM 3.   LEGAL PROCEEDINGS

        The  Company  is  involved  in  certain  lawsuits.  In  the  opinion  of
management, except as described below, none of these lawsuits (1) involve claims
for damages  exceeding  10% of the current  assets of the  Company,  (2) involve
matters that are not routine  litigation  incidental to the claims aspect of its
business,  (3) involve  bankruptcy,  receivership  or similar  proceedings,  (4)
involve material Federal,  state, or local  environmental  laws, (5) potentially
involve more than $100,000 in sanctions and a governmental authority is a party,
or (6) are material proceedings to which any director, officer, affiliate of the

                                       9


Company,  beneficial owner of more than 5% of any class of voting  securities of
the  Company,  or  security  holder is a party  adverse to the  Company or has a
material interest adverse to the Company.

        On February 7, 2005,  Marty Steinberg as a court appointed  receiver for
the entities  consisting of Lancer Management Group LLC, Lancer Management Group
II LLC,  Lancer  Offshore Inc.,  Omnifund Ltd., LSPV Inc., LSPV LLC, Alpha Omega
Group Inc. and G.H.  Associates LLC (collectively  the "Lancer  Entities") filed
suit against Alfred Taubman,  Anthony Cullen, British American Racing,  Centrack
International,  Inc.,  Kuwait & Middle East Financial  Investment  Co.,  Liberty
International Asset Management,  Macroview  Investments Limited,  Opus Portfolio
Ltd., Reva Stocker,  Roger Dodger,  LLC, Signet  Management  Limited,  Thornhill
Group  Inc.  Trust,  World  Class  Boxing  and  the  Company  (collectively  the
"Defendants")  in the United States District Court for the Southern  District of
Florida.  The Company  received the notice of suit by mail on September 8, 2005.
The suit alleged that the Lancer Entities fraudulently  transferred funds to the
Defendants and that the transfers  unduly enriched the Defendants.  The receiver
asked the  Company to pay  $658,108.  The  Company  had no record of the alleged
transfers and vigorously defended the suit. The lawsuit has since been dismissed
with prejudice by the receiver.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        There were no matters submitted to a vote of the Company's  shareholders
during the fourth quarter ended December 31, 2006.

                                     PART II

ITEM  5.  MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
          BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

        The Company's Common Stock is quoted on the OTC Bulletin Board under the
symbol  UVIH.  The  following  table sets forth prices of the Common  Stock,  as
reported by the OTC Bulletin  Board.  The following  data reflects  inter-dealer
prices, without retail mark-up,  mark-down or commission and may not necessarily
represent actual transactions.

For year ended December 31, 2005                 High                    Low
--------------------------------                 ----                    ---
    First Quarter                              $ 0.08                  $ 0.04
    Second Quarter                               0.09                    0.05
    Third Quarter                                0.07                    0.04
    Fourth Quarter                               0.95                    0.05


For year ended December 31, 2006                 High                    Low
--------------------------------                 ----                    ---
    First Quarter                              $ 1.40                   $0.85
    Second Quarter                               1.65                    0.93
    Third Quarter                                2.46                    1.12
    Fourth Quarter                               3.97                    2.31


        At March 1, 2007,  transfer agent records  indicate 45  shareholders  of
record of the Company's Common Stock.  There were  approximately  425 beneficial
owners of its  Common  Stock.  In  addition,  there were 3  shareholders  of the
Company's Series A and Series M Preferred Stock ("Preferred Stock").

        During  2005 and  2006,  respectively,  the  Company  declared  and paid
aggregate  dividends of $49,950 on the  Company's  Series A Preferred  Stock and
Series M Preferred Stock.

        Applicable provisions of the Delaware General Corporation Law may affect
the ability of the Company to declare and pay dividends on its Common Stock.  In
particular,  pursuant to the Delaware General Corporation Law, a company may pay

                                       10


dividends  out of its surplus,  as defined,  or out of its net profits,  for the
fiscal year in which the dividend is declared and/or the preceding year. Surplus
is  defined  in the  Delaware  General  Corporation  Law to be the excess of net
assets of the company over  capital.  Capital is defined to be the aggregate par
value of shares issued.  Moreover,  the ability of the Company to pay dividends,
if and when declared by its Board of Directors,  may be restricted by regulatory
limits on the amount of dividends,  which UPCIC is permitted to pay the Company.
Section  628.371 of the Florida  Statutes sets forth  limitations,  based on net
income and statutory  capital,  on the amount of dividends that UPCIC may pay to
the Company without approval from the Department.

        On October 24, 2006,  the Company  declared a dividend of $.05 per share
on its  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. The dividend  payable amount of $1,902,855 for this dividend is accrued in
the December 31, 2006 balance sheet. At December 31, 2006, the Company  recorded
a dividend  payable  in the amount of  $1,902,855  for this  dividend  and a net
reduction to retained earnings in the amount of $1,747,423, which represents the
total  dividend net of the dividends on the shares held in treasury stock and in
the Stock Grantor Trust described in Note 11 - Stockholders'  Equity. During the
fourth quarter,  the Company paid a dividend of $0.05 per share that was accrued
at  the  end of  third  quarter.  The  aggregate  amount  of  the  dividend  was
$1,747,423.  During the third quarter,  the Company paid a dividend of $0.04 per
share of  outstanding  Common  Stock  that was  accrued at the end of the second
quarter. The aggregate amount of the dividend was $1,393,938.  During the second
quarter,  the Company paid a dividend of $0.04 per share of  outstanding  Common
Stock that was accrued at the end of first quarter.  The aggregate amount of the
dividend was $1,364,506.

        On March 15, 2007, the Company  declared a dividend of $.07 per share on
its outstanding Common Stock of the Company to be paid on August 10, 2007 to the
shareholders of record of the Company at the close of business on July 20, 2007.
The dividend payable amount is $2,446,392.

STOCK ISSUANCES

         In February  2006,  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 to purchase  restricted  Common Stock.  In April 2006,  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 to purchase restricted Common Stock.
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.  Also in April 2006, 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 to
purchase restricted Common Stock. 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, 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 to purchase restricted Common Stock. In June 2006, the Company issued
25,000 shares of  restricted  Common Stock at a price of $1.52 per share to each
of the then 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,
the Company issued James M. Lynch,  CFO of the Company,  25,807 shares of Common
Stock at a price of $1.65 per share as a bonus. 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  and  the  shares  were  issued  in  private
transactions pursuant Section 4(2) of the Securities Act of 1933, as amended.

EQUITY COMPENSATION PLANS

        See Item 11,  "Security  Ownership  of  Certain  Beneficial  Owners  and
Management - Equity  Compensation Plan  Information," for a discussion of shares
of Common Stock issued under the Company's equity compensation plans.

ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS

        A NUMBER OF  STATEMENTS  CONTAINED  IN THIS  REPORT ARE  FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 THAT INVOLVE  RISKS AND  UNCERTAINTIES  THAT COULD CAUSE ACTUAL  RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN THE APPLICABLE  STATEMENTS.
THESE RISKS AND  UNCERTAINTIES  INCLUDE BUT ARE NOT LIMITED TO THE COSTS AND THE

                                       11


UNCERTAINTIES  ASSOCIATED  WITH  THE  RISK  FACTORS  SET  FORTH IN ITEM 1 ABOVE.
INVESTORS ARE CAUTIONED THAT THESE FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES
OF FUTURE PERFORMANCE OR RESULTS.

OVERVIEW

        UPCIC's  application to become a Florida licensed  property and casualty
insurance company was filed with the OIR on May 14, 1997 and approved on October
29,  1997.  UPCIC's  proposal to begin  operations  through the  acquisition  of
homeowners'  insurance policies issued by the JUA was approved by the JUA on May
21, 1997, subject to certain minimum capitalization and other requirements.  One
of the requirements imposed by the OIR was to limit the number of policies UPCIC
could assume from the JUA to 30,000.

        The OIR requires  applicants  to have a minimum  capitalization  of $5.0
million  to be  eligible  to  operate  as an  insurance  company in the State of
Florida.  Upon  being  issued an  insurance  license,  companies  must  maintain
capitalization   of  at  least  $4.0   million.   If  an   insurance   company's
capitalization falls below $4.0 million,  then the company will be deemed out of
compliance  with OIR  requirements,  which  could  result in  revocation  of the
participant's  license  to  operate  as an  insurance  company  in the  State of
Florida.

        The Company has  continued to  implement  its plan to become a financial
services  company and,  through its  wholly-owned  insurance  subsidiaries,  has
sought to position  itself to take advantage of what  management  believes to be
profitable business and growth opportunities in the marketplace.

        The Company  entered into an agreement with the JUA whereby during 1998,
UPCIC assumed  approximately  30,000  policies from the JUA. In addition,  UPCIC
received bonus incentive funds from the JUA for assuming the policies. The bonus
funds were maintained in an escrow account for three years. These bonus payments
were not  included  in the  Company's  assets  until  receipt  at the end of the
three-year  period.  UPCIC could not cancel the  policies  from the JUA for this
three-year  period at which point UPCIC  received the bonus  funds.  The Company
will not be receiving any additional bonus payments.

        The Company  expects that premiums from policy renewals and new business
will be sufficient to meet the Company's working capital requirements beyond the
next twelve months.

        The policies obtained from the JUA provided the opportunity for UPCIC to
solicit future renewal premiums.  The majority of the policies obtained from the
JUA renewed with UPCIC.  In an effort to further grow its insurance  operations,
in 1998 the  Company  began to solicit  business  actively  in the open  market.
Through renewal of JUA business  combined with business  solicited in the market
through independent agents, UPCIC is currently servicing  approximately  268,000
homeowners'  insurance  policies.  To improve  underwriting and manage risk, the
Company  utilizes  standard  industry  modeling  techniques  for  hurricane  and
windstorm exposure. To diversify UPCIC's product lines, UPCIC underwrites inland
marine policies. Management may consider underwriting other types of policies in
the future. Any such program will require OIR approval.  See Item 1, COMPETITION
under  "Factors  Affecting  Operation  Results and Market  Price of Stock" for a
discussion of the material  conditions and uncertainties that may affect UPCIC's
ability to obtain additional policies.

CRITICAL ACCOUNTING POLICIES

USE OF ESTIMATES.  The  preparation of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
("GAAP")  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  periods.  The Company's  primary
areas of estimate are described below.

RECOGNITION OF PREMIUM REVENUES.  Property and liability premiums are recognized
as revenue on a pro rata basis over the policy  term.  The  portion of  premiums
that will be  earned  in the  future  are  deferred  and  reported  as  unearned
premiums.  The Company believes that its revenue recognition policies conform to
Staff Accounting Bulletin 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS.

INSURANCE LIABILITIES.  Claims and claim adjustment expenses are provided for as
claims  are  incurred.  The  provision  for unpaid  claims and claim  adjustment
expenses includes:  (1) the accumulation of individual case estimates for claims
and claim  adjustment  expenses  reported  prior to the close of the  accounting
period;  (2) estimates for  unreported  claims based on industry  data;  and (3)

                                       12


estimates  of expenses  for  investigating  and  adjusting  claims  based on the
experience of the Company and the industry.

Inherent  in the  estimates  of  ultimate  claims are  expected  trends in claim
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 claims  experience  relative  to the
development  period,  knowledge  of the actual facts and  circumstances  and the
amount of insurance risk  retained.  In the case of UPCIC,  this  uncertainty is
compounded by UPCIC's limited history of claims experience. In addition, UPCIC's
policyholders are currently concentrated in South Florida, which is periodically
subject to adverse weather  conditions  such as hurricanes and tropical  storms.
The  methods  for making  such  estimates  and for  establishing  the  resulting
liability  are  continually  reviewed,  and any  adjustments  are  reflected  in
earnings currently.

DEFERRED POLICY ACQUISITION  COSTS/DEFERRED CEDING COMMISSIONS.  Commissions and
other costs of acquiring  insurance that vary with and are primarily  related to
the  production of new and renewal  business are deferred and amortized over the
terms  of the  policies  or  reinsurance  treaties  to which  they are  related.
Determination  of costs other than  commissions that vary with and are primarily
related to the  production  of new and renewal  business  requires  estimates to
allocate certain operating  expenses.  As of December 31, 2006,  deferred policy
acquisition  costs  were  $34,082,701  and  deferred  ceding   commissions  were
$31,976,585.  Deferred policy  acquisition costs were reduced by deferred ceding
commissions  and shown net on the  Consolidated  Balance  Sheet in the amount of
$2,106,116.

PROVISION FOR PREMIUM  DEFICIENCY.  It is the  Company's  policy to evaluate and
recognize  losses on  insurance  contracts  when  estimated  future  claims  and
maintenance  costs under a group of existing  contracts will exceed  anticipated
future premiums and investment  income.  The  determination of the provision for
premium  deficiency  requires  estimation  of the costs of losses,  catastrophic
reinsurance  and policy  maintenance to be incurred and investment  income to be
earned over the  remaining  policy  period.  The Company has  determined  that a
provision for premium deficiency was not warranted as of December 31, 2006.

REINSURANCE.  In the normal course of business,  the Company seeks to reduce the
risk of loss  that may  arise  from  catastrophes  or other  events  that  cause
unfavorable underwriting results by reinsuring certain levels of risk in various
areas of exposure with other insurance  enterprises or reinsurers.  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 typical of a company of its size in the homeowners
insurance  industry.  Amounts  recoverable  from  reinsurers  are estimated in a
manner  consistent  with  the  provisions  of  the  reinsurance   agreement  and
consistent with the establishment of the liability of the Company. The Company's
reinsurance  policies  do not  relieve  the  Company  from  its  obligations  to
policyholders.  Failure of reinsurers to honor their obligations could result in
losses to the Company;  consequently,  allowances  are  established  for amounts
deemed uncollectible.  No such allowance was deemed necessary as of December 31,
2006.

OFF-BALANCE SHEET ARRANGEMENTS

The Company had no off-balance sheet arrangements during 2006.

RELATED PARTIES

All underwriting,  rating, policy issuance, reinsurance negotiations and certain
administration  functions  for UPCIC are  performed  by  UPCIC,  Universal  Risk
Advisors  and  unaffiliated  third  parties.   Claims  adjusting  functions  are
performed by Universal Adjusting  Corporation,  a wholly owned subsidiary of the
Company and unaffiliated third parties.

Downes and Associates,  a multi-line insurance  adjustment  corporation based in
Deerfield  Beach,  Florida  performs  certain  claims  adjusting work for UPCIC.
Downes and  Associates is owned by Dennis  Downes,  who is the father of Sean P.
Downes, COO and Senior Vice President of the Company.  During 2006 and 2005, the
Company expensed claims adjusting fees of $829,208 and $1,075,188, respectively,
to Downes and Associates.

                                       13


During 2005,  Sean P. Downes filed a claim on his  homeowners'  policy issued by
UPCIC as a result of damage incurred during Hurricane  Wilma.  UPCIC handled the
claim in the  ordinary  course of its  business  and made a loss  payment to Mr.
Downes in the amount of $214,409.

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.

RESULTS OF OPERATIONS

FOR YEAR ENDED DECEMBER 31, 2006 AND FOR YEAR ENDED DECEMBER 31, 2005.

        The fiscal year ended December 31, 2006 marked a significant improvement
in  the  Company's  operating  results  over  recent  past  fiscal  years.  This
improvement   was  primarily   attributable   to  volume  and  rate   increases,
restructuring  the homeowners'  coverage  offered,  restructuring  the Company's
reinsurance coverage and working to control general and administrative expenses.
In addition, Florida did not experience any windstorm catastrophes during 2006.

        Gross premiums  written  increased  319.1% to $371,754,514  for the year
ended December 31, 2006 from  $88,701,123  for the year ended December 31, 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 partly attributable to the recent Florida windstorm catastrophes,  which have
provided an  opportunity  in the otherwise  competitive  marketplace  as certain
companies are not accepting new business,  as well as marketing  initiatives the
Company has undertaken.

        Net premiums written increased 552.7% to $141,035,805 for the year ended
December 31, 2006 from  $21,606,878  for the year ended  December 31, 2005.  The
increase in net  premiums  written  reflects  the impact of  reinsurance,  since
$230,718,709 or 62.1% of premiums  written were ceded to reinsurers for the year
ended  December 31, 2006 as compared to $67,094,245 or 75.6% for  the year ended
December 31, 2005. The increase in net premiums  written is  attributable  to an
increase in new  business,  premium rate  increases and changes to the Company's
reinsurance  program.  Under the Company's quota share reinsurance  treaty,  the
Company  elected  to  cede  80% of  gross  written  premiums,  losses  and  loss
adjustment  expenses  during the first five months of 2005 for all policies with
coverage for wind risk versus 55% of policies with coverage for wind risk during
the  subsequent  six months of 2005 and 80% of policies  with  coverage for wind
risk during the remaining  month of 2005.  The Company  continued to cede 80% of
policies with coverage for wind risk during the first five months of 2006 versus
50% of policies with coverage for wind risk during the remaining seven months of
2006.  The Company  believes that the extent of its  reinsurance is typical of a
company of its size in the homeowners' insurance industry.

        Net premiums earned  increased  242.1% to $54,135,952 for the year ended
December 31, 2006 from  $15,825,982  for the year ended  December 31, 2005.  The
increase in net premiums  earned is attributable to an increase in new business,
premium rate increases and changes in the reinsurance program noted above.

        Commission  revenue  increased  166.0% to $6,714,511  for the year ended
December  31,  2006  from  $2,523,861  for the year  ended  December  31,  2005.
Commission income is comprised mainly 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 due to increased policy fee income
attributable to an increase in new and renewal business.

        Investment  income  consists of net  investment  income and net realized
gains (losses).  Investment  income  increased 484.4% to $3,986,414 for the year
ended  December 31, 2006 from $682,085 for the year ended December 31, 2005. The
increase is primarily due to higher investment balances during 2006.

        Other revenue decreased 4.4% to $310,873 for the year ended December 31,
2006 from  $325,272  for the year ended  December  31,  2005.  Other  revenue is
comprised  of fee revenue  from  direct  sales and  service  revenue  from other
operations.  The decrease is primarily  attributable  to the fact that there was
less activity in the direct sales and service operations in 2006.

        Losses  and  loss  adjustment  expenses ("LAE"), net  incurred increased
159.9% to $24,940,879  for the year ended December 31, 2006 from  $9,597,984 for
the year ended  December  31,  2005 as  compared to net  premiums  earned  which

                                       14


increased  242.1% to  $54,135,952  for the year  ended  December  31,  2006 from
$15,825,982 for the year ended December 31, 2005.  Losses and LAE, the Company's
most  significant  expense,  represent  actual  payments  made  and  changes  in
estimated  future  payments  to be made to or on  behalf  of its  policyholders,
including expenses required to settle claims and losses. Losses and LAE, net are
influenced by loss severity and frequency.  Losses and LAE, net increased due to
an  increase  in insured  exposures  and  changes to the  Company's  reinsurance
program  discussed  above.  The  Company's  direct loss ratio for the year ended
December 31, 2006  was 36.8% compared  to 148.4% for the year ended December 31,
2005. The Company's  direct loss ratio  decreased  principally  due to the lower
frequency  and  severity  of claims in 2006.  During  2006,  the Company did not
experience any  catastrophic  events.  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
$93,125,571  in losses prior to reinsurance  and $4,139,304 net of  reinsurance.
Except for  catastrophe  claims,  the Company  believes  that the  severity  and
frequency of claims remained relatively stable for the periods under comparison.
The  Company's  net loss ratio for the year ended  December  31,  2006 was 46.1%
compared  to 60.6% for the year  ended  December  31,  2005.  The net loss ratio
decreased due to the decrease in net losses incurred and premium rate increases.

        Catastrophes  are an inherent risk of the  property-liability  insurance
business,  particularly  in the geographic area where the Company does business,
which may contribute to material year-to-year fluctuations in UPCIC's results of
operations and financial position.  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 its catastrophe  management
strategies  will reduce the  severity of future  losses,  UPCIC  continues to be
exposed to similar or greater catastrophes as those experienced in prior years.

        The reserve  for direct  unpaid  losses and LAE at December  31, 2006 is
$49,564,514.  Based upon consultations with the Company's  independent actuarial
consultants  and their  statement  of  opinion on losses  and LAE,  the  Company
believes  that the  liability for unpaid losses and LAE is adequate to cover all
claims and related expenses which may arise from incidents  reported.  The range
of direct loss reserve  estimates as  determined  by the  Company's  independent
actuarial consultants is a low of $37,274,555 and a high of $59,959,974. The key
assumption  used to arrive at  management's  best  estimate of loss  reserves in
relation  to  the  actuary's  range  and  the  specific   factors  that  led  to
management's  best  estimate  is that the  liability  is  based on  management's
estimate of the  ultimate  cost of  settling  each loss and an amount for losses
incurred  but not  reported.  However,  if losses  exceed  direct  loss  reserve
estimates  there could be a material  adverse effect on the Company's  financial
statements. Also, if there are regulatory initiatives, legislative enactments or
case law precedents, which change the basis for policy coverage, in any of these
events,  there  could be an effect on direct  loss  reserve  estimates  having a
material adverse effect on the Company's financial statements.

        As a result of the Company's review of its liability for losses and loss
adjustment  expenses,  which includes a re-evaluation of the adequacy of reserve
levels for prior year claims,  the Company's  liabilities  for unpaid losses and
LAE,  net of related  reinsurance  recoverables,  as of  December  31, 2006 were
increased in the current year by $15,693,957  for claims that had occurred on or
before the prior year  balance  sheet  date.  This  unfavorable  loss  emergence
resulted  principally  from higher than expected  hurricane  losses in 2004. The
Company's  liabilities  for unpaid  losses and LAE,  net of related  reinsurance
recoverables,  as of December 31, 2005 were increased  during 2005 by $2,549,050
for claims that had occurred on or before the previous  year balance sheet date.
This unfavorable loss emergence resulted  principally from settling  homeowners'
losses  established  in the prior year for amounts that were more than expected.
There can be no assurance concerning future adjustments of reserves, positive or
negative, for claims through December 31, 2006.

        General and administrative  expenses increased 279.8% to $13,485,562 for
the year ended December 31, 2006 from $3,551,117 for the year ended December 31,
2005.  General and  administrative  expenses have  increased  primarily due to a
decrease in ceding  commissions  associated with 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,
commission income and investment income.

        For the year ended  December 31, 2006,  cash flows provided by operating
activities were $153,384,209.  Cash flows from operating activities are expected
to be positive in both the  short-term  and reasonably  foreseeable  future.  In

                                       15


addition,  the  Company's  investment  portfolio is highly liquid as it consists
entirely of cash and cash  equivalents of which  $1,500,000 is held by the State
of  Florida  Department  of  Financial  Services  for  the  benefit  of  UPCIC's
policyholders.  Cash flows from investing  activities are primarily comprised of
purchases of building  improvements and other capital  expenditures.  Cash flows
used in financing  activities primarily relate to Company borrowings and payment
of dividends to shareholders.

        During 2003,  the Company  purchased  software for $520,000.  Management
believes the software  will assist it in reducing  overall  management  expenses
versus the previous outside vendor agreement.  The final installment  payment on
the  software of $150,000 was paid in March 2005.  In addition,  the Company has
outstanding  loans in the amount of $119,186 to finance  several  vehicles and a
boat, all acquired for business use and marketing of the Company's products, and
in the amount of $1,032,901 for working  capital needs.  The amounts will become
due during the years 2006 through 2011.

        In July 2004 the Company  borrowed  monies from a vendor and two private
investors in the amounts of $175,000, $150,000 and $100,000 for working capital.
The terms of the notes evidencing such loans require interest payments at a rate
of 10%  through  January  2005 with equal  monthly  payments of  principal  plus
interest  thereafter  until  January 2006,  the maturity date of the notes.  The
notes were paid off in January 2006. In connection with the loans, in July 2004,
the Company granted to the vendor and two private investors warrants to purchase
175,000,  150,000 and  100,000,  shares of  restricted  Common  Stock each at an
exercise price of $.05 per share. The warrants vested over the payment terms and
each expires in July 2009.  These  transactions  were  approved by the Company's
Board of Directors.

        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 five monthly installments of $200,000.  Payment on one note commenced
on June 30, 2006 and commenced on the other note on November 30, 2006.  The loan
amount subsequently was 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.  The aggregate  remaining principal balance
on the promissory notes is $300,000.

        On November 9, 2006,  UPCIC  entered into a $25.0  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 $25.0 million that were earmarked for  participation in
the program.

        The  surplus  note  brings the  current  capital and surplus of UPCIC to
approximately  $62 million.  Under  Florida law, the current  surplus will allow
UPCIC to write up to approximately $600 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.  As of December 31, 2006,  the Company is in  compliance  with each of the
aforementioned loan covenants.

        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

                                       16


portion of the surplus note so that the Minimum  Writing  Ratio will be obtained
for the  following  quarter.  The Company  expects to  maintain  the 2:1 Minimum
Writing Ratio throughout the term of the surplus note.

        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. As
of March 30, 2007, all amounts due on the Note have been paid.

        The  following  table   represents  the  Company's   total   contractual
obligations for which cash flows are fixed or determinable.



                                  Total      2007      2008      2009      2010      2011    Thereafter
                                  -----      ----      ----      ----      ----      ----    ----------
                                                   (Thousands of dollars)
Contractual obligations
                                                                        
        Long-term debt          $ 25,058   $     -   $    15    $   14   $ 1,008   $ 1,051   $ 22,970
        Loans payable             12,324    12,324         -         -         -         -          -
        Operating leases             396       227       137        32         -         -          -
                                --------   -------   -------    ------   -------   -------   --------

Total contractual obligations   $ 37,778   $12,551   $   152      $ 46   $ 1,008   $ 1,051   $ 22,970
                                ========   =======   =======    ======   =======   =======   ========


        The balance of cash and cash  equivalents  as of  December  31, 2006 was
$232,890,297.  Most of this amount is  available to pay claims in the event of a
catastrophic  event pending  reimbursement for any aggregate amount in excess of
$1,875,000  up to  the  100  year  PML  which  would  be  currently  covered  by
reinsurers.  Catastrophic  reinsurance is recoverable  upon  presentation to the
reinsurer of evidence of claim payment.

        Accounting principles generally accepted in the United States of America
differ in some respects from reporting practices  prescribed or permitted by the
Florida Office of Insurance Regulation.  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. The Company is also required to adhere to
prescribed  premium-to-capital surplus ratios. The Company is in compliance with
these requirements.

        The maximum amount of dividends,  which can be paid by Florida insurance
companies  without  prior  approval of the Florida  Commissioner,  is subject to
restrictions  relating to statutory  surplus.  The maximum  dividend that may be
paid by UPCIC to the Company  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  capital surplus as of the preceding year end. During 2005
and 2006, UPCIC did not pay dividends to the Company.

IMPACT OF INFLATION AND CHANGING PRICES

        The consolidated  financial statements and related data presented herein
have been prepared in accordance with generally accepted  accounting  principles
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.  The primary assets of the
Company  are  monetary  in  nature.  As a  result,  interest  rates  have a more
significant impact on the Company's  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 the Company knows the amount
of loss and LAE and the  extent to which  inflation  may affect  such  expenses.
Consequently,  the Company attempts to anticipate the future impact of inflation
when  establishing  rate levels.  While the Company  attempts to charge adequate
rates,  the Company may be limited in raising its premium levels for competitive

                                       17


and regulatory reasons. Inflation also affects the market value of the Company's
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.

ITEM 7.   FINANCIAL STATEMENTS

        The  financial  statements of the Company are annexed to this report and
are referenced as pages F-1 to F-26.

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

        None.

ITEM 8A.  CONTROLS AND PROCEDURES

        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.

ITEM 8B.  OTHER INFORMATION

        On January 11, 2007, the Company applied for listing of its Common Stock
on the American  Stock  Exchange LLC ("AMEX").  AMEX is currently  reviewing the
Company's  listing  application,  and although no assurances  can be given,  the
Company believes it will be able to meet the listing  requirements.  The Company
meets the definition of "controlled  company" set forth in Section 801(a) of the
AMEX Company  Guide in that greater than fifty percent (50%) of the voting power
of the Company's Common Stock is held by Bradley I. Meier.

                                               PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

        The directors  and executive  officers of the Company as of December 31,
2006 are as follows:

Name                      Age     Position
----                      ---     --------
Bradley I. Meier          39      President, Chief Executive Officer and
                                  Director
Norman M. Meier           68      Director, Secretary
Reed J. Slogoff           38      Director
Joel M. Wilentz, M.D.     73      Director
James M. Lynch            52      Executive Vice President and Chief Financial
                                  Officer
Sean P. Downes            37      Senior Vice President, Chief Operating Officer
                                  and Director


        BRADLEY I.  MEIER has been  President,  Chief  Executive  Officer  and a
Director of the Company since its  inception in November  1990. He has served as
President  of  UPCIC,  a  wholly-owned  subsidiary  of the  Company,  since  its
formation in April 1997. In 1990, Mr. Meier graduated from the Wharton School of
Business with a B.S. in Economics.

                                       18


        NORMAN M. MEIER has been a Director of the Company since July 1992. From
December 1986 until  November 1999,  Mr. Meier was  President,  Chief  Executive
Officer  and a  Director  of  Columbia  Laboratories,  Inc.,  a  publicly-traded
corporation in the  pharmaceuticals  business.  From 1971 to 1977, Mr. Meier was
Vice President of Sales and Marketing for Key  Pharmaceuticals.  From 1977 until
1986, Mr. Meier served as a consultant to Key Pharmaceuticals.

        REED J. SLOGOFF has been a Director of the Company since March 1997. Mr.
Slogoff is currently a principal with Pearl  Properties  Commercial  Management,
LLC,  a  commercial  real  estate   investment  and  management  firm  based  in
Philadelphia,   Pennsylvania.   Mr.   Slogoff   was   formerly   with   Entercom
Communications  Corp.,  a publicly  traded  radio  broadcasting  company and was
previously  a member of the  corporate  and real estate group of the law firm of
Dilworth,  Paxson,  LLP.  Mr.  Slogoff  received  a B.A.  with  Honors  from the
University of  Pennsylvania  in 1990,  and a J.D.  from the  University of Miami
School of Law in 1993.

        JOEL M.  WILENTZ,  M.D.  has been a Director of the Company  since March
1997.  Dr. Wilentz is one of the founding  members of Dermatology  Associates in
Florida,  founded  in  1970.  He  is a  former  member  of  the  boards  of  the
Neurological  Injury  Compensation  Associate for Florida and the Broward County
Florida  Medical  Association.  He is a member of the board of  directors of the
American  Arm of the Israeli  Emergency  Medical  Service  for the  southeastern
United  States,  of which he is also a past  President.  Dr.  Wilentz  is a past
member of the Board of Overseers of the Nova  Southeastern  University School of
Pharmacy.

        JAMES M. LYNCH CPA,  CPCU has been  Executive  Vice  President and Chief
Financial  Officer of the Company since August 1998.  Before joining the Company
in August 1998, Mr. Lynch was Chief Financial Officer of Florida Administrators,
Inc., an organization specializing in property and casualty insurance.  Prior to
working at Florida  Administrators,  Inc., Mr. Lynch held the position of Senior
Vice  President  of Finance and  Comptroller  of Trust Group,  Inc.,  which also
specialized  in property  and casualty  insurance.  Before his position at Trust
Group,  Mr. Lynch was a Manager with the accounting and auditing firm of Coopers
& Lybrand, which later became PricewaterhouseCoopers LLC.

        SEAN P. DOWNES has been Senior Vice President,  Chief Operating  Officer
and a  Director  of the  Company  since  January  2005.  He has  served as Chief
Operating  Officer and a Director of UPCIC since July 2003. Mr. Downes was Chief
Operating  Officer of  Universal  Adjusting  Corporation  from July 1999 to July
2003. During that time Mr. Downes created the Company's claims operation. Before
joining the Company in July 1999,  Mr.  Downes was Vice  President of Downes and
Associates, a multi-line insurance adjustment corporation.

        Effective  January  9,  2007,  the  Board of  Directors  of the  Company
appointed Ozzie A. Schindler to the Board of Directors. Mr. Schindler will serve
on the Company's Audit  Committee.  Mr. Schindler is a partner with the law firm
of Greenberg Traurig and specializes in international tax, trusts and succession
and planning. He has an LL.M. in Taxation from New York University School of Law
and  graduated  with honors from the  University  of Florida  School of Law. Mr.
Schindler  graduated  with high honors  from the  University  of Florida  Fisher
School of Accounting. He is admitted to both the Florida and New York bars.

        Norman M. Meier and  Bradley I. Meier are father and son,  respectively.
There are no other family  relationships  among the Company's executive officers
and directors. Eric Meier who is the brother of Bradley I. Meier, also works for
a subsidiary of the Company.

        All directors hold office until the next annual meeting of  stockholders
and the election and qualification of their successors.  Currently,  the Company
does not have a procedure by which  shareholders  may recommend  nominees to the
Company's  Board of  Directors.  Officers  are elected  annually by the Board of
Directors and serve at the discretion of the Board.

        The  Company  has  entered  into  indemnification  agreements  with  its
executive  officers  and  directors  pursuant to which the Company has agreed to
indemnify such  individuals,  to the fullest extent permitted by law, for claims
made against them in connection with their  positions as officers,  directors or
agents of the Company.

AUDIT COMMITTEE

        The Company has a separately  designated Audit Committee,  whose members
during 2005 and 2006 were Bradley I. Meier and Reed J. Slogoff. In order to have
an Audit  Committee  composed  entirely  of  independent  directors,  Mr.  Meier
voluntarily  resigned from the Audit Committee on January 9, 2007, and the Board
of Directors unanimously appointed Ozzie A. Schindler and Joel M. Wilentz to the

                                       19


Audit Committee. Mr. Slogoff remained on the Audit Committee. Each member of the
Audit  Committee has been determined by the Board of Directors to be independent
under the applicable rules of the Securities and Exchange Commission ("SEC") and
the National Association of Securities Dealers. The Company's Board of Directors
has determined that Ozzie A. Schindler is an "audit committee  financial expert"
as defined by Item 401(e) of Regulation S-B promulgated by the SEC.

CODE OF BUSINESS CONDUCT AND ETHICS

        The Company adopted a Code of Business  Conduct and Ethics on January 9,
2007 that is applicable to all directors, officers and employees of the Company.
The code is publicly available at the Company's headquarters in Fort Lauderdale,
Florida.  Upon  completion of the build-out of the Company's  website,  the code
will be posted  there.  A copy of the  Company's  Code of  Business  Conduct and
Ethics may be obtained free of charge by written request to James M. Lynch, 1110
West Commercial Boulevard, Suite 100, Fort Lauderdale, FL 33309.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        Section  16(a) of the Exchange Act  requires  the  Company's  directors,
executive  officers,  and persons who own more than 10% of the Company's  Common
Stock to file initial  reports of ownership  and reports of changes in ownership
with the SEC.  Directors,  executive  officers and greater than 10% shareholders
(collectively,  "Reporting  Persons") are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.

        Sean P. Downes failed to file a Form 4 in connection with an acquisition
of the Common  Stock in fiscal  year 2006,  but  subsequently  filed a Form 5 on
February  1,  2007   reflecting  this   transaction.   Except  for  Mr.  Downes'
transaction,  and based solely on review of the copies of such forms provided to
the Company and written  representations by the Reporting  Persons,  the Company
believes  that,  for the year ended  December 31, 2006, all Section 16(a) filing
requirements applicable to the Reporting Persons were met.

ITEM 10.  EXECUTIVE COMPENSATION

        The following table sets forth the compensation paid to or earned by the
Company's President and Chief Executive Officer and the Company's two other most
highly  compensated  executive  officers  (collectively,  the  "Named  Executive
Officers") during each of the Company's last two fiscal years.



----------------------------------------------------------------------------------------------
                                    SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------

                                                                    Non-Equity
     Name and                                             Stock   Incentive Plan
Principal Position       Year       Salary      Bonus    Awards    Compensation       Total
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
                                                                  
Bradley I. Meier,
President & CEO          2006     $830,324    $      -   $     -    $1,075,310(1)   $1,905,634
----------------------------------------------------------------------------------------------
                         2005     $527,365    $      -   $21,500      $191,556        $740,421
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
James M. Lynch,
EVP & CFO                2006     $251,250     $90,000   $42,582    $        -        $383,832
----------------------------------------------------------------------------------------------
                         2005     $279,525      $3,846    $3,000    $        -        $286,371
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Sean P. Downes,
SVP & COO                2006     $537,678    $      -  $418,462      $843,982(2)   $1,800,122
----------------------------------------------------------------------------------------------
                         2005     $366,923    $      -   $35,000      $181,167        $583,090
----------------------------------------------------------------------------------------------


(1) As of March 30, 2007,  $591,811 of which had not been paid and is subject to
shareholder approval.

(2) As of March 30, 2007, $443,859 of which had not yet been paid and is subject
to shareholder approval.

                                               20


EMPLOYMENT AGREEMENTS

        The Company's  employment agreement with Mr. Meier is dated as of August
11, 1999. The Company and Mr. Meier have amended the employment agreement,  with
the most recent amendment dated March 21, 2007 (the employment agreement and the
amendments are  collectively  referred to as the "Meier  Agreement").  Under the
terms of the Meier  Agreement,  Mr. Meier will serve as the Company's  President
and Chief  Executive  Officer.  Mr. Meier  received a base salary of $830,324 in
2006,  and he is entitled to a twenty percent (20%) increase in base salary each
year. Additionally, pursuant to the Meier Agreement, Mr. Meier is entitled to an
annual performance bonus equal to three percent (3%) of the pretax income of the
Company up to $5  million,  and four  percent  (4%) of the pretax  income of the
Company  in excess of $5  million;  provided,  however,  that any such  bonus is
contingent upon the Company's shareholders approving such bonus formula.  Should
the Company's  shareholders fail to approve the formula,  Mr. Meier forfeits his
right to the bonus.  Mr. Meier is also eligible for other  benefits  customarily
provided  by the Company to its  executive  employees,  and the Meier  Agreement
contains noncompete and nondisclosure provisions. In addition, in the event of a
Change in Control  of the  Company  (as  defined  in the Meier  Agreement),  the
Company  shall pay Mr. Meier an amount equal to 48 months base salary,  plus two
times any bonus paid for the preceding fiscal year.  Further,  in the event of a
Change in Control,  all options  held by Mr.  Meier vest and become  immediately
exercisable. Also, in the event that the Company terminates the Meier Agreement,
the  Company  shall  pay Mr.  Meier 48  months  total  compensation.  The  Meier
Agreement expires on December 31, 2008; however,  the agreement is automatically
extended each year thereafter  unless the Company or Mr. Meier provides  written
notice  that  the  agreement  is  being  terminated  60 days in  advance  of the
anniversary date of the Meier Agreement.

        The  Company's  employment  agreement  with  Mr.  Downes  is dated as of
January 1, 2005 and  provides  that Mr.  Downes  will  serve as Chief  Operating
Officer and Senior Vice  President  of the Company.  The Company and Mr.  Downes
have amended the  employment  agreement,  with the most recent  amendment  dated
March 21, 2007 (the  employment  agreement and the amendments  are  collectively
referred to as the "Downes  Agreement").  Mr.  Downes  received a base salary of
$527,678 in 2006,  and he is entitled to a twenty percent (20%) increase in base
salary each year. Additionally,  pursuant to the Downes Agreement, Mr. Downes is
entitled  to an annual  performance  bonus  equal to three  percent  (3%) of the
pre-tax  profits  of the  Company;  provided,  however,  that any such  bonus is
contingent upon the Company's shareholders approving such bonus formula.  Should
the Company's  shareholders fail to approve the formula, Mr. Downes forfeits his
right to the bonus. Under the Downes Agreement, the Company may grant Mr. Downes
options or warrants to purchase the Company's  Common Stock.  Mr. Downes is also
eligible for other benefits customarily provided by the Company to its executive
employees  and  the  Downes  Agreement  contains  noncompete  and  nondisclosure
provisions.  In addition, in the event of a Change in Control of the Company (as
defined in the Downes  Agreement),  the Company  shall pay Mr.  Downes an amount
equal to 12 months base  salary,  plus the annual  bonus paid for the  preceding
fiscal year. Further,  in the event of a Change in Control,  all options held by
Mr. Downes vest and become immediately exercisable. The Downes Agreement expires
on December 31, 2008 unless extended in writing by the Company.  During the year
ended December 31, 2006, Mr. Downes  converted  bonus and accrued  vacation into
323,077 shares of Common Stock.  The shares were issued to Mr. Downes in private
transactions  performed in accordance with the terms of the Downes Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

        The following table sets forth information  regarding outstanding equity
awards held by each Named  Executive  Officer at fiscal year ended  December 31,
2006.

                                       21




---------------------------------------------------------------------------------------
                      OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
---------------------------------------------------------------------------------------
                           OPTIONS AWARDS
---------------------------------------------------------------------------------------

                        Number of Securities             Option           Option
                        Underlying Unexercised          Exercise        Expiration
        Name            Options Exercisable              Price             Date
---------------------------------------------------------------------------------------
                                                               
Bradley Meier                       1,500,000             $1.06         01/15/2010 (1)
---------------------------------------------------------------------------------------
Bradley Meier                         250,000             $1.06         01/15/2010 (1)
---------------------------------------------------------------------------------------
Bradley Meier                         250,000             $1.63         05/07/2008
---------------------------------------------------------------------------------------
Bradley Meier                         150,000             $1.10         01/26/2010
---------------------------------------------------------------------------------------
Bradley Meier                          20,000             $0.70         12/12/2010
---------------------------------------------------------------------------------------
Bradley Meier                         325,000             $0.70         12/12/2010
---------------------------------------------------------------------------------------
Bradley Meier                         150,000             $0.60         12/21/2011
---------------------------------------------------------------------------------------
Bradley Meier                       1,000,000             $0.06         03/04/2014
---------------------------------------------------------------------------------------
James Lynch                            50,000             $1.87         08/03/2008
---------------------------------------------------------------------------------------
James Lynch                            25,000             $1.10         01/26/2010
---------------------------------------------------------------------------------------
James Lynch                            15,000             $0.70         12/12/2010
---------------------------------------------------------------------------------------
James Lynch                           100,000             $0.50         12/21/2011
---------------------------------------------------------------------------------------
Sean Downes                            15,000             $1.10         01/26/2010
---------------------------------------------------------------------------------------
Sean Downes                           100,000             $0.50         12/21/2011
---------------------------------------------------------------------------------------


(1)  Expires  on  earlier  of  January  15,  2010 or a Change in  Control of the
     Company, as defined in the Option Agreement.


DIRECTOR COMPENSATION

        The  following  table  sets  forth  the  total   compensation   paid  to
non-employee  members of the Board of  Directors  during  the fiscal  year ended
December 31, 2006.

      --------------------------------------------------------------------
                              DIRECTOR COMPENSATION
      --------------------------------------------------------------------
                               Fees
                            Earned or
                              Paid In          Stock
           Name                Cash           Awards          Total
      --------------------------------------------------------------------
      --------------------------------------------------------------------
      Joel Wilentz            $45,000         $38,000         $83,000
      --------------------------------------------------------------------
      Norman Meier            $45,000         $38,000         $83,000
      --------------------------------------------------------------------
      Reed Slogoff            $45,000         $38,000         $83,000
      --------------------------------------------------------------------

        In  addition,  the  Company  periodically  reimburses  the  non-employee
members of the Board of Directors for reasonable  expenses incurred in attending
meetings of the Board of Directors.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

EQUITY COMPENSATION PLAN INFORMATION

        The following table sets forth certain  information  with respect to all
of the  Company's  equity  compensation  plans in effect as of fiscal year ended
December 31, 2006.

                                       22




---------------------------------------------------------------------------------------------------------
                                                                                Number of  securities
                                                                                remaining available for
                        Number of  securities  to       Weighted-average        issuance under equity
                        be issued upon exercise of      exercise  price of      compensation plans
                        outstanding  options,           outstanding  options    (excluding securities
Plan Category           warrants and rights             warrants and rights     reflected in first column)

----------------------------------------------------------------------------------------------------------
                                                                                  
Equity compensation
plans approved by               7,295,000                      $0.89                       N/A
security holders
----------------------------------------------------------------------------------------------------------
Equity compensation
plans not approved by                  -                         -                          -
security holders
----------------------------------------------------------------------------------------------------------
Total                           7,295,000                      $0.89                       N/A
----------------------------------------------------------------------------------------------------------


Descriptions of the plans are contained in Note 11 to the Consolidated Financial
Statements.

SERIES M PREFERRED STOCK OWNED BY MANAGEMENT

        As  of  March  1,  2007,   directors  and  named   executive   officers,
individually  and as a group,  beneficially  owned  Series M Preferred  Stock as
follows:

Name and Address of             Amount and Nature of
Beneficial Owner (1)            Beneficial Ownership           Percent of Class
--------------------            --------------------           ----------------

Bradley I. Meier*(2)                   48,890                        48.0%
Norman M. Meier*(3)                    53,000                        52.0%
Officers and directors
as a group (2 persons)(4)              86,890                        98.0%

*       Director

(1)     Unless  otherwise  indicated,  the Company believes that each person has
        sole voting and investment rights with respect to the shares of Series M
        Preferred  Stock of the  Company  specified  opposite  his name.  Unless
        otherwise  indicated,  the mailing  address of each  shareholder  is c/o
        Universal Insurance Holdings, Inc., 1110 W. Commercial Blvd., Suite 100,
        Fort Lauderdale, FL 33309.

(2)     Consists  of (i)  33,890  shares  of Series M  Preferred  Stock and (ii)
        15,000 shares of Series M Preferred Stock  beneficially  owned by Belmer
        Partners, a Florida General Partnership  ("Belmer"),  of which Mr. Meier
        is a general  partner.  Excludes all shares of Series M Preferred  Stock
        owned by Norman M. Meier and Phylis R.  Meier,  Mr.  Meier's  father and
        mother,  respectively,  as  to  which  Mr.  Meier  disclaims  beneficial
        ownership.

(3)     Consists  of (i)  38,000  shares  of Series M  Preferred  Stock and (ii)
        15,000 shares of Series M Preferred Stock  beneficially owned by Belmer,
        of which Mr. Meier is a general partner. Excludes all shares of Series M
        Preferred  Stock  owned by Bradley I.  Meier and  Phylis R.  Meier,  Mr.
        Meier's  son and  former  spouse,  respectively,  as to which Mr.  Meier
        disclaims beneficial ownership.

(4)     See footnotes (1) - (3) above.

                                       23


SERIES A PREFERRED STOCK OWNED BY MANAGEMENT

        As  of  March  1,  2007,   directors  and  named   executive   officers,
individually  and as a group,  beneficially  owned  Series A Preferred  Stock as
follows:

Name and Address of             Amount and Nature of
Beneficial Owner (1)            Beneficial Ownership           Percent of Class
--------------------            --------------------           ----------------

Norman M. Meier* (2)                    9,975                         20%
Officers and directors                  9,975                         20%
as a group (1 person) (3)

*       Director

(1)     Unless  otherwise  indicated,  the Company believes that each person has
        sole voting and investment rights with respect to the shares of Series M
        Preferred  Stock of the  Company  specified  opposite  his name.  Unless
        otherwise  indicated,  the mailing  address of each  shareholder  is c/o
        Universal Insurance Holdings, Inc., 1110 W. Commercial Blvd., Suite 100,
        Fort Lauderdale, FL 33309.

 (2)    Consists of 9,975 shares of Series A Preferred Stock  beneficially owned
        by Belmer, of which Mr. Meier is a general partner.  Excludes all shares
        of Series A Preferred Stock owned by Phylis R. Meier, Mr. Meier's former
        spouse, as to which Mr. Meier disclaims beneficial ownership.

(3)     See footnotes (1)-(2) above.

COMMON STOCK OWNED BY MANAGEMENT

        As  of  March  1,  2007,   directors  and  Named   Executive   Officers,
individually and as a group, beneficially owned Common Stock as follows:

Name and Address of             Amount and Nature of
Beneficial Owner (1)            Beneficial Ownership (2)       Percent of Class
--------------------            ------------------------       ----------------

Bradley I. Meier (3)                   23,164,226                    60.8%
Sean P. Downes (4)                      4,226,121                    11.1%
Norman M. Meier (5)                       504,246                     1.3%
Reed J. Slogoff (6)                       290,000                      .8%
Joel M. Wilentz (7)                       290,000                      .8%
James M. Lynch (8)                        290,807                      .8%
Ozzie A. Schindler (9)                     35,000                      .1%
Officers and directors                 28,800,400                    75.7%
as a group (7 people) (10)

(1)     Unless  otherwise  indicated,  the Company believes that each person has
        sole voting and  investment  rights with respect to the shares of Common
        Stock of the  Company  specified  opposite  his name.  Unless  otherwise
        indicated,  the mailing  address of each  shareholder  is c/o  Universal
        Insurance  Holdings,  Inc., 1110 West Commercial  Boulevard,  Suite 100,
        Fort Lauderdale, Florida 33309.

(2)     A person is deemed to be the  beneficial  owner of Common Stock that can
        be acquired  by such  person  within 60 days of the date hereof upon the
        exercise  of  warrants  or  stock  options  or  conversion  of  Series A
        Preferred Stock, Series M Preferred Stock or convertible debt. Except as
        otherwise  specified,  each beneficial owner's  percentage  ownership is
        determined by assuming that warrants,  stock options, Series A Preferred
        Stock,  Series M Preferred  Stock and  convertible  debt that is held by
        such  person  (but not  those  held by any  other  person)  and that are
        exercisable  or  convertible  within 60 days from the date hereof,  have
        been exercised or converted.

(3)     Includes (i) options to purchase an  aggregate  of  3,645,000  shares of
        Common  Stock;  (ii)  169,450  shares  of  Common  Stock  issuable  upon
        conversion  of Series M Preferred  Stock;  (iii) an aggregate of 331,761
        shares of Common Stock  (including  shares of Common Stock issuable upon
        exercise of warrants and  conversion  of Series A and Series M Preferred
        Stock)  beneficially  owned by Belmer,  of which Mr.  Meier is a general
        partner; and (iv) the following shares of Common Stock which are subject
        to proxies  granting voting power to Mr. Meier: (A) 416,666 shares owned

                                       24


        by Lynda Meier,  Mr.  Meier's  sister,  (B) 250,225 shares owned by Eric
        Meier,  Mr. Meier's  brother,  (C) 333,792 shares owned by Phylis Meier,
        Mr.  Meier's  mother,  (D) 504,246  shares  owned by Norman  Meier,  Mr.
        Meier's  father,  and (E) an  additional  207,916  shares over which Mr.
        Meier has voting  power;  and (F) options to purchase  an  aggregate  of
        1,115,000  shares of Common  Stock owned by Norman  Meier,  Mr.  Meier's
        father, which are subject to a proxy granting voting power to Mr. Meier.

(4)     Includes  options  to purchase an aggregate of 465,000  shares of Common
        Stock.

(5)     Includes (i) 214,938 shares of Common Stock issuable upon  conversion of
        Series A and Series M Preferred  Stock, and (ii) an aggregate of 331,761
        shares of Common Stock  (including  shares of Common Stock issuable upon
        exercise of warrants and  conversion  of Series A and Series M Preferred
        Stock)  beneficially owned by Belmer, of which Norman Meier is a general
        partner.  Excludes  (i) all  securities  owned by  Bradley  I.  Meier or
        Phyllis Meier, Norman Meier's son and former spouse, respectively, as to
        which  Norman  Meier  disclaims  beneficial  ownership,   and  (ii)  all
        securities  owned by Norman  Meier for which  Norman  Meier has  granted
        voting power to his son, Bradley Meier.

(6)     Includes  options to purchase an aggregate  of 230,000  shares of Common
        Stock, of which 50,000 are held in a custodial account for Mr. Slogoff's
        minor son.

(7)     Includes  options to  purchase an aggregate of 240,000  shares of Common
        Stock.

(8)     Includes  options to  purchase an aggregate of 215,000  shares of Common
        Stock.

(9)     Consists of an option to purchase 35,000 shares of Common Stock.

(10)    See footnotes (1) - (9) above.

SERIES M PREFERRED STOCK HELD BY OTHERS

        As of  March  1,  2007,  the  following  table  sets  forth  information
regarding  the number and  percentage  of Series M  Preferred  Stock held by all
persons, other than those persons listed immediately above, who are known by the
Company to beneficially own or exercise voting or dispositive control over 5% or
more of the Company's outstanding Series M Preferred Stock:

                                    Amount and Nature of
Name and Address (1)                Beneficial Ownership       Percent of Class
----------------                    --------------------       ----------------

Phyllis R. Meier (2)                       16,800                    18.9%
Universal Insurance Holdings, Inc.
1110 West Commercial Boulevard
Fort Lauderdale, Florida 33309

Belmer Partners (3)                        15,000                    16.9%
c/o Phyllis R. Meier
Managing General Partner
Universal Insurance Holdings, Inc.
1110 West Commercial Boulevard
Fort Lauderdale, Florida 33309

                                       25


(1)     Unless  otherwise  indicated,  the Company believes that each person has
        sole voting and investment rights with respect to the shares of Series M
        Preferred Stock specified opposite her or its name.

(2)     Consists of (i) 1,800 shares of Series M Preferred Stock and (ii) 15,000
        shares of Series M  Preferred  Stock  beneficially  owned by Belmer,  of
        which Ms. Meier is the managing general partner. Excludes all securities
        owned by  Bradley  I.  Meier and  Norman M.  Meier,  the son and  former
        spouse,  respectively,  as  to  which  Ms.  Meier  disclaims  beneficial
        ownership.

(3)     Belmer  Partners is a Florida  general  partnership  in which  Phylis R.
        Meier is  managing  general  partner  and Bradley I. Meier and Norman M.
        Meier are general partners.

SERIES A PREFERRED STOCK HELD BY OTHERS

        As of  March  1,  2007,  the  following  table  sets  forth  information
regarding  the number and  percentage  of Series A  Preferred  Stock held by all
persons, other than those persons listed immediately above, who are known by the
Company to beneficially own or exercise voting or dispositive control over 5% or
more of the Company's outstanding Series A Preferred Stock:

                                    Amount and Nature of
Name and Address (1)                Beneficial Ownership       Percent of Class
----------------                    --------------------       ----------------
Phyllis R. Meier (2)                       9,975                     20.0%
Universal Insurance Holdings, Inc.
1110 West Commercial Boulevard
Fort Lauderdale, Florida 33309

Belmer Partners (3)                        30,000                    60.0%
c/o Phyllis R. Meier
Managing General Partner
Universal Insurance Holdings, Inc.
1110 West Commercial Boulevard
Fort Lauderdale, Florida 33309


(1)     Unless  otherwise  indicated,  the Company believes that each person has
        sole voting and investment rights with respect to the shares of Series A
        Preferred Stock specified opposite her or its name.

(2)     Consists of 9,975 shares of Series A Preferred Stock beneficially owned.
        Excludes  all  shares of  Series A  Preferred  Stock  owned by Norman M.
        Meier,  Ms.  Meier's  former  spouse,  as to which Ms.  Meier  disclaims
        beneficial ownership.

(3)     Belmer  Partners is a Florida  general  partnership  in which  Phylis R.
        Meier is  managing  general  partner  and Bradley I. Meier and Norman M.
        Meier are general partners.

COMMON STOCK HELD BY OTHERS

        As of  March  1,  2007,  the  following  table  sets  forth  information
regarding the number and  percentage of Common Stock held by all persons,  other
than those persons  listed  immediately  above,  who are known by the Company to
beneficially  own or exercise  voting or dispositive  control over 5% or more of
the Company's outstanding Common Stock:

                                       26


                                       Amount and Nature of
   Name and Address (1)                Beneficial Ownership (2) Percent of Class
   ----------------                    --------------------     ----------------

   Martin Steinberg, Esq., as the            6,518,004                17.1 %
   receiver for Lancer Offshore
   Inc. (3)
   c/o David E. Wells, Esq.
   Hunton & Williams LLP
   1111 Brickell Avenue,  Suite 2500
   Miami, FL 33131

   (1)  Unless  otherwise  indicated,  the Company believes that each person has
        sole voting and  investment  rights with respect to the shares of Common
        Stock of the Company specified opposite its name.

   (2)  A person is deemed to be the  beneficial  owner of Common Stock that can
        be acquired  by such  person  within 60 days of the date hereof upon the
        exercise  of  warrants or stock  options or  conversion  of Series A and
        Series M  Preferred  Stock or  convertible  debt.  Except  as  otherwise
        specified, each beneficial owner's percentage ownership is determined by
        assuming that warrants,  stock options,  Series A and Series M Preferred
        Stock and convertible debt that are held by such a person (but not those
        held by any other person) and that are  exercisable  within 60 days from
        the date hereof, have been exercised or converted.

   (3)  Consists of  6,518,004  shares of Common  Stock as indicated on Schedule
        13D  dated  July  10,  2003  filed  with  the  Securities  and  Exchange
        Commission on March 5, 2004.

   ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   Downes and Associates, a multi-line insurance adjustment corporation based in
   Deerfield  Beach,  Florida  performs certain claims adjusting work for UPCIC.
   Downes and Associates is owned by Dennis Downes, who is the father of Sean P.
   Downes,  COO and Senior Vice President of the Company.  During 2006 and 2005,
   the  Company  expensed  claims  adjusting  fees of $829,208  and  $1,075,188,
   respectively, to Downes and Associates.

   During 2005, Sean P. Downes filed a claim on his homeowners' policy issued by
   UPCIC as a result of damage incurred during  Hurricane  Wilma.  UPCIC handled
   the claim in the  ordinary  course of its business and made a loss payment to
   Mr. Downes in the amount of $214,409.

   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.

   Transactions  between  the Company  and its  affiliates  are on terms no less
   favorable to the Company than can be obtained  from third parties on an arms'
   length  basis.  Transactions  between the  Company  and any of its  executive
   officers or  directors  require the  approval of a majority of  disinterested
   directors.

   ITEM 13. EXHIBITS

   EXHIBITS

3.1     Registrant's  Restated Amended and Restated Certificate of Incorporation
        (1)

3.2     Registrant's Bylaws (1)

3.3     Certificate  of  Designation  for Series A Convertible  Preferred  Stock
        dated October 11, 1994 (4)

3.4     Certificate  of  Designations,  Preferences,  and  Rights  of  Series  M
        Convertible Preferred Stock dated August 13, 1997 (2)

3.5     Certificate  of  Amendment  of  Amended  and  Restated   Certificate  of
        Incorporation dated October 19, 1998 (4)

                                       27


3.6     Certificate  of  Amendment  of  Amended  and  Restated   Certificate  of
        Incorporation dated December 18, 2000 (4)

3.7     Certificate of Amendment of Certificate of  Designations of the Series A
        Convertible Preferred Stock dated October 29, 2001 (4)

4.1     Form of Common Stock Certificate (1)

4.2     Form of Warrant Certificate (1)

4.3     Form of Warrant Agency Agreement (1)

4.4     Form of Underwriter Warrant (1)

4.5     Affiliate Warrant (1)

4.6     Form of  Warrant  to  purchase  100,000  shares  of  Common  Stock at an
        exercise  price of $2.00 per share issued to Steven  Guarino dated as of
        April  24,  1997.  (Substantially  similar  in  form  to two  additional
        warrants  to  purchase  100,000  shares  of Common  Stock  issued to Mr.
        Guarino dated as of April 24, 1997,  with  exercise  prices of $2.75 and
        $3.50 per share, respectively) (2)

10.1    Registrant's 1992 Stock Option Plan (1)

10.2    Form of Indemnification Agreement between the Registrant and each of its
        directors and executive officers (1)

10.5    Management  Agreements  by and  between  Universal  Property  & Casualty
        Insurance Company and Universal P&C Management, Inc. dated as of June 2,
        1997 (2)

10.6    Employment  Agreement dated as of May 1, 1997 between Universal Heights,
        Inc. and Bradley I. Meier (2)

11.1    Statement Regarding Computation of Per Share Income

14.1    Code of Business Conduct and Ethics

16.1    Letter on change in  certifying  accountants  from  Millward & Co. CPA's
        dated February 12, 1999, and as amended February 26, 1999 (3)

16.2    Letter on change in  certifying  accountants  from Deloitte & Touche LLP
        dated October 7, 2002(5)

16.3    Letter on change in  certifying  accountants  from Deloitte & Touche LLP
        dated March 27, 2003(6)

21      List of Subsidiaries

31.1    Certification of Chief Executive  Officer Pursuant to Section 302 of the
        Sarbanes-Oxley Act of 2002

31.2    Certification of Chief Financial  Officer Pursuant to Section 302 of the
        Sarbanes-Oxley Act of 2002

32      Certifications  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

(1)     Incorporated by reference to the Registrant's  Registration Statement on
        Form S-1 (File No. 33-51546) declared effective on December 14, 1992

(2)     Incorporated  by reference  to the  Registrant's  Annual  Report on Form
        10-KSB for the year ended April 30, 1997 filed with the  Securities  and
        Exchange Commission on August 13, 1997, as amended

(3)     Incorporated by reference to the Registrant's Current Report on Form 8-K
        and Current Report on Form 8-K/A, filed with the Securities and Exchange
        Commission on February 12, 1999 and February 26, 1999, respectively

                                       28


(4)     Incorporated  by reference  to the  Registrant's  Annual  Report on Form
        10-KSB for the year ended  December  31, 2002 filed with the  Securities
        and Exchange Commission on April 9, 2003

(5)     Incorporated  by reference to the  Registrant's  Current  Report on Form
        8-K,  filed with the  Securities  and Exchange  Commission on October 7,
        2002

(6)     Incorporated  by reference to the  Registrant's  Current  Report on Form
        8-K, filed with the Securities and Exchange Commission on April 2, 2003


     ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

     AUDIT FEES

     Audit fees for the fiscal  years ended  December  31, 2006 and December 31,
     2005 were $260,000 and $176,000, respectively.

     AUDIT RELATED FEES

     Audit  related  fees for the  fiscal  years  ended  December  31,  2006 and
     December 31, 2005 were $0.

     TAX FEES

     Tax fees for the fiscal years ended December 31, 2006 and December 31, 2005
     were $33,500 and $31,500, respectively.

     ALL OTHER FEES

     All  other  fees  for  products  and  services  provided  by the  Company's
     principal  accountant  for the fiscal  years  ended  December  31, 2006 and
     December 31, 2005 were $0.

     POLICY ON AUDIT COMMITTEE  PRE-APPROVAL OF AUDIT AND PERMISSIBLE  NON-AUDIT
     SERVICES OF THE INDEPENDENT AUDITOR

     All audit related services were pre-approved by the Audit Committee,  which
     concluded  that  the  provision  of  such  services  by  Blackman   Kallick
     Bartelstein  LLP  was  compatible  with  the  maintenance  of  that  firm's
     independence in the conduct of its auditing functions.

                                       29



                                   SIGNATURES

        In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.


                       UNIVERSAL INSURANCE HOLDINGS, INC.


Dated: March 30, 2007          By:  /s/ Bradley I. Meier
                                    ----------------------------------------
                                    Bradley I. Meier, President and Chief
                                    Executive Officer

                                    /s/ James M. Lynch
                                    ----------------------------------------
                                    James M. Lynch, Chief Financial Officer


        In  accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.


/s/ Bradley I. Meier     President, Chief Executive Officer       March 30, 2007
--------------------     and Director
Bradley I. Meier

/s/ Sean P. Downes       Senior Vice President, Chief Operating   March 30, 2007
------------------       Officer and Director
Sean P. Downes

/s/ James M. Lynch       Executive Vice President and Chief       March 30, 2007
------------------       Financial Officer
James M. Lynch

/s/ Norman M. Meier      Director                                 March 30, 2007
-------------------
Norman M. Meier

/s/ Ozzie A. Schindler   Director                                 March 30, 2007
----------------------
Ozzie A. Schindler

/s/ Reed J. Slogoff      Director                                 March 30, 2007
-------------------
Reed J. Slogoff

/s/ Joel M. Wilentz      Director                                 March 30, 2007
-------------------
Joel M. Wilentz

                                       30


               UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                            Page
                                                                            ----

Report of Independent Registered Public Accounting Firm......................F-2

Consolidated Balance Sheet - December 31, 2006...............................F-3

Consolidated Statements of Operations for the Years
Ended December 31, 2006 and 2005 ............................................F-4

Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2006 and 2005.............................................F-5

Consolidated Statements of Cash Flows for the Years
Ended December 31, 2006 and 2005.............................................F-6

Notes to Consolidated Financial Statements............................F-7 - F-26

                                       F-1


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors
Universal Insurance Holdings, Inc.
Fort Lauderdale, Florida


We have  audited  the  accompanying  consolidated  balance  sheet  of  Universal
Insurance  Holdings,  Inc. and  Subsidiaries  (the "Company") as of December 31,
2006,  and the related  consolidated  statements  of  operations,  stockholders'
equity and cash flows for each of the two years in the period ended December 31,
2006. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated financial statements are free of material misstatement. The Company
is not  required  to  have,  nor were we  engaged  to  perform,  an audit of its
internal control over financial reporting.  Our audit included  consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the Company's  internal  control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the consolidated  financial statements,  assessing the accounting
principles  used  and  significant  estimates  made  by  management,  as well as
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Universal Insurance
Holdings,  Inc. and Subsidiaries as of December 31, 2006, and the results of its
operations  and its cash  flows  for each of the two years in the  period  ended
December 31, 2006, in conformity with accounting  principles  generally accepted
in the United States of America.

As discussed in Note 2 to the  consolidated  financial  statements,  the Company
changed its method of accounting for stock-based  compensation effective January
1, 2006.


/s/ Blackman Kallick Bartelstein LLP

Chicago, Illinois
March 30, 2007

                                      F-2


               UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2006


                                     ASSETS

Cash and cash equivalents                                        $  232,890,297
Real estate, net                                                      3,253,064
Reinsurance recoverables                                            209,757,903
Premiums and other receivables, net                                  24,294,652
Deferred policy acquisition costs, net                                2,106,116
Property and equipment, net                                             618,912
Deferred income taxes                                                 8,671,756
Other assets                                                             17,724
                                                                 --------------
Total assets                                                     $  481,610,424
                                                                 ==============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Unpaid losses and loss adjustment expenses                       $   49,564,514
Unearned premiums                                                   230,346,266
Accounts payable                                                      2,726,049
Reinsurance payable                                                 102,857,079
Federal and state income taxes payable                               14,969,270
Dividends payable                                                     1,902,855
Other accrued expenses                                               15,285,829
Other liabilities                                                     4,529,100
Loans payable                                                        12,324,278
Long-term debt                                                       25,057,266
                                                                 --------------
Total liabilities                                                   459,562,506
                                                                 --------------

COMMITMENTS AND CONTINGENCIES (Notes 12-13)

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            380,572
Common stock in treasury, at cost - 208,645 shares                     (101,820)
Common stock held in trust, at cost - 2,900,000 shares (Note 11)     (2,349,000)
Additional paid-in capital                                           18,726,387
Retained earnings                                                     5,390,392
                                                                 --------------
Total stockholders' equity                                           22,047,918
                                                                 --------------
Total liabilities and stockholders' equity                        $ 481,610,424
                                                                 ==============

         The accompanying notes are an integral part of the consolidated
                              financial statements.

                                      F-3




               UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                       Years Ended
                                                                         December 31, 2006   December 31, 2005
                                                                         -----------------   -----------------
                                                                                         
PREMIUMS EARNED AND OTHER REVENUES:
     Direct premiums written                                               $ 371,754,514       $ 88,701,123
     Ceded premiums written                                                 (230,718,709)       (67,094,245)
                                                                           -------------       ------------
     Net premiums written                                                    141,035,805         21,606,878
     Increase in unearned premiums                                           (86,899,853)        (5,780,896)
                                                                           -------------       ------------
     Premiums earned net                                                      54,135,952         15,825,982
    Net investment income                                                      3,986,414            682,085
    Commission revenue                                                         6,714,511          2,523,861
    Other revenue                                                                310,873            325,272
                                                                           -------------       ------------
            Total premiums earned and other revenues                          65,147,750         19,357,200
                                                                           -------------       ------------

OPERATING COSTS AND EXPENSES
    Losses and loss adjustment expenses, net                                  24,940,879          9,597,984
    General and administrative expenses                                       13,485,562          3,551,117
                                                                           -------------       ------------
            Total operating costs and expenses                                38,426,441         13,149,101
                                                                           -------------       ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES                      $  26,721,309       $  6,208,099
                                                                           -------------       ------------
    Income taxes, current                                                     17,541,697            140,238
    Income taxes, deferred                                                    (8,064,457)          (607,299)
                                                                           -------------       ------------
            Income taxes, net                                                  9,477,240           (467,061)
                                                                           -------------       ------------

INCOME FROM CONTINUING OPERATIONS                                          $  17,244,069       $  6,675,160
                                                                           -------------       ------------

DISCONTINUED OPERATIONS:
     Loss from discontinued operations                                           (93,136)          (156,657)
     Provision for income tax expense                                             35,927            (11,906)
                                                                           -------------       ------------
            Total loss from discontinued operations                              (57,209)          (168,563)
                                                                           -------------       ------------
NET INCOME                                                                 $  17,186,860       $  6,506,597
                                                                           =============       ============

INCOME PER COMMON SHARE:
            Basic income from continuing operations                        $        0.50       $       0.20
                                                                           =============       ============
            Basic income from discontinued operations                      $         -         $        -
                                                                           =============       ============
            Basic net income per share                                     $        0.50       $       0.20
                                                                           =============       ============

WEIGHTED AVERAGE COMMON SHARES
  OUTSTANDING-BASIC                                                           34,409,415         32,807,521
                                                                           =============       ============

INCOME PER COMMON SHARE
            Diluted income from continuing operations                      $        0.44       $       0.19
                                                                           =============       ============
            Diluted income from discontinued operations                    $         -         $        -
                                                                           =============       ============
            Diluted net income per share                                   $        0.44       $       0.19
                                                                           =============       ============

WEIGHTED AVERAGE COMMON SHARES
  OUTSTANDING-DILUTED                                                         39,078,643         33,945,639
                                                                           =============       ============

CASH DIVIDEND DECLARED PER COMMON SHARE                                    $        0.18       $        -
                                                                           =============       ============


         The accompanying notes are an integral part of the consolidated
                              financial statements.

                                      F-4


               UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY



                                                             Years Ended
                                         December 31, 2006                 December 31, 2005
                                         -----------------                 -----------------

                                      Shares             Amount         Shares           Amount
                                      ------             ------         ------           ------
                                                                         
PREFERRED STOCK
Balance, beginning of period         138,640        $     1,387         138,640      $     1,387

                                 ------------      -------------    -----------      ------------
Balance, end of period               138,640              1,387         138,640            1,387
                                 ============      -------------    ===========      ------------
COMMON STOCK
Balance, beginning of period      36,463,219            315,037      34,408,775          294,493
Issuance of common stock           1,593,884             65,535       2,054,444           20,544
                                 ------------      -------------    -----------      ------------
Balance, end of period            38,057,103            380,572      36,463,219          315,037
                                 ============      -------------    ===========      ------------
TREASURY STOCK
Balance, beginning of period         208,645           (101,820)        208,645         (101,820)

                                 ------------      -------------    -----------      ------------
Balance, end of period               208,645           (101,820)        208,645         (101,820)
                                 ============      -------------    ===========      ------------
STOCK GRANTOR TRUST
Balance, beginning of period       2,900,000         (2,349,000)      2,900,000       (2,349,000)

                                 ------------      -------------    -----------      ------------
Balance, end of period             2,900,000         (2,349,000)      2,900,000       (2,349,000)
                                 ============      -------------    ===========      ------------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period                         17,504,331                       17,434,407
Issuance of common stock                              1,222,056                           69,924

                                                   -------------                     ------------
Balance, end of period                               18,726,387                       17,504,331
                                                   -------------                     ------------
MINORITY INTEREST
Balance, beginning of period                             35,000                                -
Net income (loss) attributable to minority interest       4,421                           (4,421)
Minority interest                                       (39,421)                          39,421

                                                   -------------                     ------------
Balance, end of period                                        -                           35,000
                                                   -------------                     ------------
RETAINED  EARNINGS (ACCUMULATED DEFICIT)
Balance, beginning of period                         (5,488,807)                     (11,949,875)
Net income attributable to retained earnings         17,182,439                        6,511,018
 (Accumulated Deficit)
Preferred stock dividend                                (49,950)                         (49,950)
Common stock dividend                                (6,253,290)                               -
                                                   -------------                     ------------
Balance, end of period                                5,390,392                       (5,488,807)
                                                   -------------                     ------------

Total stockholders' equity                         $ 22,047,918                      $ 9,916,128
                                                   =============                     ============


         The accompanying notes are an integral part of the consolidated
                              financial statements.

                                      F-5


               UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS



                                                            Year Ended                    Year Ended
                                                        December 31, 2006             December 31, 2005
                                                       -------------------           ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
                                                                                
Net income                                             $     17,186,860               $     6,506,597

Adjustments to reconcile net income to cash
provided by operations:
  Amortization and depreciation                                 373,533                       377,748
  Issuance of common stock as compensation                    1,238,338                        90,468
Net change in assets and liabilities relating
to operating activities:
  Reinsurance recoverable                                   (87,820,035)                  (34,464,485)
  Premiums and other receivables                            (19,238,882)                   (4,956,387)
  Allowance for doubtful accounts                               568,766                           -
  Deferred taxes                                             (8,064,457)                     (607,299)
  Deferred acquisition costs, net                            (2,106,116)                          -
  Other assets                                                  925,946                        31,246
  Reinsurance payable                                        58,404,726                    21,379,423
  Deferred ceding commission                                 (1,043,544)                    1,043,544
  Other liabilities                                           3,521,271                       525,806
  Accounts payable                                            1,846,604                    (2,104,954)
  Taxes payable                                              15,285,828                           -
  Other accrued expenses                                     10,340,148                     3,024,756
  Unpaid losses and loss adjustment expenses                (17,435,442)                    9,128,004
  Unearned premiums                                         179,456,261                    27,000,144
                                                       ----------------               ---------------
Net cash provided by operating activities -
continuing operations                                       153,439,805                    26,974,611
Net cash used in operating activities -
discontinued operations                                         (55,596)                          -
                                                       ----------------               ---------------
Net cash provided by operating activities                   153,384,209                    26,974,611
                                                       ----------------               ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                          (36,706)                     (302,907)
  Building improvements                                        (230,936)                   (1,514,226)
                                                       ----------------               ---------------
Net cash used in investing activities -
continuing operations                                          (267,642)                   (1,817,133)
Net cash provided by investing activities -
discontinued operations                                          51,524                           -
                                                       ----------------               ---------------
Net cash used in investing activities                          (216,118)                   (1,817,133)
                                                       ----------------               ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Preferred stock dividend                                      (49,950)                      (49,950)
  Common stock dividend                                      (4,505,867)                          -
  Issuance of common stock                                       49,251                           -
  Payments on loans payable                                    (770,543)                     (591,730)
  Proceeds from loans payable                                37,000,000                     1,039,938
  Minority interest                                             (39,421)                       39,421
                                                       ----------------               ---------------

Net cash provided by financing activities -
continuing operations                                        31,683,470                       437,679
                                                       ----------------               ---------------
Net cash provided by financing activities                    31,683,470                       437,679
                                                       ----------------               ---------------

NET INCREASE IN CASH AND CASH                               184,851,561                    25,595,157
EQUIVALENTS

CASH AND CASH EQUIVALENTS, Beginning of year                 48,038,736                    22,443,579
                                                       ----------------               ---------------

CASH AND CASH EQUIVALENTS, End of year                 $    232,890,297               $    48,038,736
                                                       ================               ===============


         The accompanying notes are an integral part of the consolidated
                              financial statements.

                                      F-6


               UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION

NATURE OF OPERATIONS

Universal Insurance Holdings,  Inc. (the "Company") was originally  incorporated
as Universal Heights, Inc. in Delaware in November 1990. The Company changed its
name to Universal  Insurance  Holdings,  Inc. on January 12, 2001.  The Company,
through its wholly owned  subsidiary,  Universal  Insurance  Holding  Company of
Florida,  formed Universal  Property & Casualty  Insurance  Company ("UPCIC") in
1997.

To  conform  to the 2006  presentation,  certain  amounts  in the  prior  year's
consolidated financial statements and notes have been reclassified.

INSURANCE OPERATIONS

UPCIC's application to become a Florida licensed property and casualty insurance
company was filed in May 1997 with the Florida  Office of  Insurance  Regulation
("OIR") and was approved on October 29, 1997.  In 1998,  UPCIC began  operations
through the  acquisition of homeowner  insurance  policies issued by the Florida
Residential  Property and Casualty Joint Underwriting  Association  ("JUA"). The
JUA was established in 1992 as a temporary measure to provide insurance coverage
for individuals who could not obtain coverage from private  carriers  because of
the impact on the private  insurance market of Hurricane Andrew in 1992.  Rather
than  serving as a  temporary  source of  emergency  insurance  coverage  as was
originally  intended,  the JUA became a major  provider of original  and renewal
insurance coverage for Florida residents.  In an attempt to reduce the number of
policies in the JUA,  and thus the  exposure of the  program to  liability,  the
Florida  legislature  approved a number of  initiatives  to depopulate  the JUA,
which  resulted in policies  being  acquired by private  insurers  and  provided
additional  incentives to private  insurance  companies to acquire policies from
the JUA.

On December 4, 1997,  the Company raised  approximately  $6,700,000 in a private
offering  with  various  institutional  and/or  otherwise  accredited  investors
pursuant to which the Company issued, in the aggregate, 11,208,996 shares of its
common stock at a price of $.60 per share. The proceeds of this transaction were
used partially for working capital  purposes and to meet the minimum  regulatory
capitalization  requirements of $5,000,000 required by the Florida Department of
Insurance to engage in this type of homeowners' insurance company business.

In February 1998, the Company commenced its insurance  business.  Since then the
Company has developed into a vertically  integrated  insurance  holding  company
performing  all  aspects of  insurance  underwriting,  distribution  and claims.
Universal Risk Advisors,  Inc. was  incorporated in Florida on July 2, 1998, and
became  licensed by the Florida  Department  of Insurance on August 17, 1998 and
contracted  with UPCIC on  September  28,  1998 as the  Company's  wholly  owned
managing  general agent ("MGA").  Through the MGA, the Company has  underwriting
and claims authority for UPCIC as well as third-party  insurance companies.  The
MGA seeks to generate revenue through policy fee income and other administrative
fees from the marketing of UPCIC and third-party  insurance products through the
Company's distribution network and UPCIC.

Universal  Florida Insurance Agency was incorporated in Florida on July 2, 1998,
and Coastal Homeowners Insurance  Specialists,  Inc. was incorporated in Florida
on July 2,  2001,  each as wholly  owned  subsidiaries  of  Universal  Insurance
Holdings, Inc. to solicit voluntary business and to generate commission revenue.
These  entities are a part of the  Company's  agency  operations,  which seek to
generate  income  from  commissions,  premium  financing  referral  fees and the
marketing of ancillary services. In addition,  Capital Resources Group, LTD. was
incorporated  in the British  Virgin  Islands on June 2, 2000 as a subsidiary of
the Company to participate in contingent capital products.  The Company has also
formed a claims adjusting company,  Universal Adjusting  Corporation,  which was
incorporated  in Delaware  on August 9, 1999.  Universal  Adjusting  Corporation
currently has claims authority for UPCIC.

                                      F-7


ONLINE COMMERCE OPERATIONS

The Company had also formed  subsidiaries  that 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.  Insurance agencies had been established in 22 states. None
of these  agencies  are  currently  active as the  Company  changed its focus to
selling  leads to other  companies  and  independent  agents.  During 2006,  the
Company decided to discontinue online commerce  operations and focus on its core
operations.

CORPORATE AND OTHER OPERATIONS

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.

BASIS OF PRESENTATION

The  accompanying  consolidated  financial  statements  include the  accounts of
Universal  Insurance  Holdings,  Inc.,  its wholly owned  subsidiary,  Universal
Property & Casualty Insurance Co. and other wholly owned entities, Atlas Florida
Financial  Corporation,  parent of Sterling  Premium Finance  Company,  Sterling
Premium  Finance  Company,  and the Universal  Insurance  Holdings,  Inc.  Stock
Grantor Trust. All intercompany  accounts and transactions  have been eliminated
in consolidation.  The consolidated  financial  statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America ("GAAP") that differ from statutory  accounting  practices prescribed or
permitted  for  insurance  companies  by  regulatory  authorities.  Prior to the
Company's  decision to discontinue online commerce  operations,  the Company and
its subsidiaries  operated  principally in two business  segments  consisting of
insurance and online commerce  during each period  reported in the  accompanying
consolidated financial statements, based upon management reporting.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

The significant  accounting  policies  followed by the Company are summarized as
follows:

USE OF ESTIMATES.  The  preparation of financial  statements in conformity  with
GAAP requires  management  to make  estimates  and  assumptions  that affect the
reported  amounts of assets and liabilities and disclosure of contingent  assets
and liabilities as of the date of the consolidated  financial statements and the
reported  amounts of revenues and expenses  during the  reporting  periods.  The
Company's  primary areas of estimate are the  recognition  of premium  revenues,
insurance liabilities, deferred policy acquisition costs and reinsurance. Actual
results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION.  The consolidated  financial statements include the
accounts, after intercompany eliminations,  of the Company and its subsidiaries.
Prior  to being a wholly  owned  subsidiary  of the  Company  in 2006,  Sterling
Premium  Finance   Company,   was  consolidated  in  accordance  with  Financial
Accounting Standards Board ("FASB")  Interpretation No. 46(R),  CONSOLIDATION OF
VARIABLE  INTEREST  ENTITIES ("FIN 46R"). FIN 46R requires the  consolidation of
certain entities considered to be variable interest entities ("VIEs"). An entity
is  considered  to  be  a  VIE  when  it  has  equity  investors  who  lack  the
characteristics of having a controlling  financial  interest,  or its capital is
insufficient  to  permit  it  to  finance  its  activities   without  additional
subordinated  financial  support.  Consolidation  of a  VIE  by an  investor  is
required when it is  determined  that the investor will absorb a majority of the
VIE's  expected  losses if they  occur,  received  a  majority  of the  entity's
expected residual returns if they occur, or both.

CASH  AND  CASH  EQUIVALENTS.  The  Company  includes  in cash  equivalents  all
short-term,  highly liquid  investments  that are readily  convertible  to known
amounts of cash and have an original maturity of three months or less.

PREMIUMS RECEIVABLE. Written premiums are earned into income on a pro rata basis
over the policy term.  Accordingly,  unearned premiums  represent the portion of
written premiums that is applicable to the unexpired risk.  Generally,  premiums
are  collected  prior to  providing  risk  coverage,  minimizing  the  Company's
exposure to credit  risk.  The Company  performs a policy  level  evaluation  to
determine  the extent the  premiums  receivable  balance  exceeds  the  unearned
premiums balance.  The Company then ages this exposure to establish an allowance
for doubtful  accounts based on prior  experience.  As of December 31, 2006, the

                                      F-8


Company  had  recorded  an  allowance  for  doubtful  accounts  in the amount of
$568,766.

SECURITIES HELD TO MATURITY.  Debt  securities  which the Company has the intent
and ability to hold to maturity  are reported at  amortized  cost,  adjusted for
amortization  of premiums or  accretion of  discounts  and  other-than-temporary
declines in fair value. The Company had no such securities during 2005 or 2006.

INVESTMENTS IN REAL ESTATE.  Investments in real estate are carried at cost less
depreciation.  Real estate  represents  a building  purchased  by UPCIC that the
Company uses as its home office.  Depreciation is provided on the  straight-line
basis over twenty-seven-and-one-half  years. The Company reviews its real estate
annually and whenever changes in circumstances indicate that the carrying amount
may not be recoverable.

SECURITIES  AVAILABLE FOR SALE.  Equity  securities  are reported at fair value,
with unrealized  gains and losses  reported net of applicable  deferred tax as a
separate  component  of  stockholders'  equity.  Realized  gains and  losses are
determined  on the  specific  identification  method.  The  Company  had no such
securities during 2005 or 2006.

PROPERTY AND EQUIPMENT. Property and equipment is recorded at cost. Depreciation
is provided on the  straight-line  basis over the  estimated  useful life of the
assets. Estimated useful life of all property and equipment ranges from three to
five years.  Routine repairs and  maintenance are expensed as incurred.  Website
development  costs are  capitalized  and amortized over their  estimated  useful
life.  The Company  reviews its  property  and  equipment  annually and whenever
changes  in  circumstances   indicate  that  the  carrying  amount  may  not  be
recoverable.

RECOGNITION OF PREMIUM REVENUES.  Property and liability premiums are recognized
as revenue on a pro rata basis over the policy  term.  The  portion of  premiums
that will be earned in the future is deferred and reported as unearned premiums.
The Company  believes  that its revenue  recognition  policies  conform to Staff
Accounting  Bulletin 101, REVENUE  RECOGNITION IN FINANCIAL  STATEMENTS.  In the
event policyholders  cancel their policies,  unearned premiums represent amounts
that UPCIC would refund  policyholders.  Accordingly,  UPCIC determines unearned
premiums  by  calculating  the  pro  rata  amount  that  would  be  due  to  the
policyholders  at a given  point in time based upon the  premiums  owed over the
life of each policy.  As of December 31, 2006,  the Company has direct  unearned
premiums of $230,346,266.

RECOGNITION OF COMMISSION REVENUE. Commission revenue, which is comprised of the
MGA's  policy  fee  income  on  all  new  and  renewal  insurance  policies  and
commissions generated from agency operations is recognized as income upon policy
inception. The Company believes that its revenue recognition policies conform to
Staff Accounting Bulletin 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS.

RECOGNITION  OF  TRANSACTION  FEE REVENUE.  Transaction  fee  revenue,  which is
comprised of revenue from the selling of insurance leads is recognized as income
upon sale of the lead.  Effective  November 2004, for most customers payment was
required in advance of distribution of the leads.  The Company believes that its
revenue  recognition  policies conform to Staff Accounting Bulletin 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS.

DEFERRED  POLICY  ACQUISITION  COSTS.  Commissions  and other costs of acquiring
insurance that vary with and are primarily  related to the production of new and
renewal  business,  net of reinsurance  commissions,  are deferred and amortized
over  the  terms of the  policies  or  reinsurance  treaties  to which  they are
related.

INSURANCE  LIABILITIES.  Unpaid losses and loss adjustment  expenses ("LAE") are
provided for as claims are  incurred.  The  provision for unpaid losses and loss
adjustment expenses includes:  (1) the accumulation of individual case estimates
for  claims and claim  adjustment  expenses  reported  prior to the close of the
accounting  period;  (2) estimates for unreported claims based on industry data;
and (3) estimates of expenses for  investigating  and adjusting  claims based on
the experience of the Company and the industry.

Inherent  in the  estimates  of  ultimate  claims are  expected  trends in claim
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 claims  experience  relative  to the
development  period,  knowledge  of the actual facts and  circumstances  and the
amount of insurance risk  retained.  In the case of UPCIC,  this  uncertainty is
compounded by UPCIC's limited history of claims experience. In addition, UPCIC's
policyholders are currently concentrated in South Florida, which is periodically
subject to adverse weather  conditions,  such as hurricanes and tropical storms.

                                      F-9


The  methods  for making  such  estimates  and for  establishing  the  resulting
liability are continually reviewed, and any adjustments are reflected in current
earnings.

PROVISION FOR PREMIUM  DEFICIENCY.  It is the  Company's  policy to evaluate and
recognize  losses on  insurance  contracts  when  estimated  future  claims  and
maintenance  costs under a group of existing  contracts will exceed  anticipated
future premiums.  No accrual for premium deficiency was considered  necessary as
of December 31, 2006.

REINSURANCE.  In the normal course of business,  the Company seeks to reduce the
risk of loss  that may  arise  from  catastrophes  or other  events  that  cause
unfavorable underwriting results by reinsuring certain levels of risk in various
areas of  exposure  with other  insurance  enterprises  or  reinsurers.  Amounts
recoverable  from  reinsurers  are  estimated  in a manner  consistent  with the
provisions of the reinsurance agreement and consistent with the establishment of
the liability of the Company.

INCOME TAXES. Income tax provisions are based on the asset and liability method.
Deferred  federal  and state  income  taxes  have been  provided  for  temporary
differences  between the tax basis of assets and  liabilities and their reported
amounts in the consolidated  financial  statements,  net of valuation allowance.
The Company reviews its deferred tax assets for recoverability.  At December 31,
2006,  the Company  determined  that the benefit of its  deferred tax assets was
fully realizable and, therefore, no valuation allowance was recorded.

INCOME (LOSS) PER SHARE OF COMMON STOCK. Basic earnings per share is computed by
dividing  the  Company's  net income  (loss)  less  cumulative  Preferred  Stock
dividends by the  weighted-average  number of shares of Common Stock outstanding
during the period.  Diluted  earnings  per share is  computed  by  dividing  the
Company's  net income  (loss) minus  Preferred  Stock  dividends by the weighted
average number of shares of Common Stock  outstanding  during the period and the
impact of all dilutive  potential  common  shares,  primarily  Preferred  Stock,
options and  warrants.  The  dilutive  impact of stock  options and  warrants is
determined by applying the treasury stock method and the dilutive  impact of the
Preferred Stock is determined by applying the "if converted" method.

FAIR MARKET VALUE OF FINANCIAL  INSTRUMENTS.  Statement of Financial  Accounting
Standards   ("SFAS")  No.  107,   DISCLOSURE   ABOUT  FAIR  VALUE  OF  FINANCIAL
INSTRUMENTS,  requires  disclosure of the estimated  fair value of all financial
instruments, including both assets and liabilities unless specifically exempted.
The Company uses the following  methods and  assumptions  in estimating the fair
value of financial instruments.

        Cash and cash  equivalents:  the carrying amount reported in the
        consolidated   balance  sheet  for  cash  and  cash  equivalents
        approximates  fair value due to the  short-term  nature of those
        items.

        Premiums and other  receivables,  reinsurance  recoverables  and
        accounts   payable:   the  carrying   amounts  reported  in  the
        consolidated  balance sheet for premiums and other  receivables,
        reinsurance  recoverables and accounts payable approximate their
        fair value due to their short-term nature.

        Long-term  debt and loans  payable are held at  carrying  value,
        which approximates fair value as of December 31, 2006.

CONCENTRATIONS OF CREDIT RISK. Financial instruments,  which potentially subject
the Company to  concentrations  of credit  risk,  consist  principally  of cash,
investments, premiums receivable and reinsurance recoverables. Concentrations of
credit risk with respect to cash on deposit are limited by the Company's  policy
of investing  excess cash in a money  market  account and  overnight  repurchase
agreements  of US  Government  and US Government  Agency  securities  with major
national  banks.  These  accounts are held by Wachovia  Bank,  N.A. and SunTrust
Banks, Inc.  Concentrations  of credit risk with respect to premiums  receivable
are limited due to the large  number of  individuals  comprising  the  Company's
customer  base.  However,  the majority of the Company's  revenues are currently
derived from products and services offered to customers in Florida,  which could
be adversely affected by economic downturns, an increase in competition or other
environmental  changes.  In order to reduce  credit  risk for  amounts  due from
reinsurers,  the Company seeks to do business with financially sound reinsurance
companies and regularly evaluates the financial strength of all reinsurers used.

                                      F-10


STOCK  OPTIONS.  The  Company  grants  options  for a fixed  number of shares to
employees and outside  directors  with an exercise price equal to the fair value
of the shares as of the grant date. Prior to January 1, 2006 the Company elected
to apply Accounting Principles Board ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES,  and related  interpretations  in accounting for its stock options
granted to employees and directors,  and SFAS No. 123 ACCOUNTING FOR STOCK-BASED
COMPENSATION, for its stock options granted to non-employees.  Under APB No. 25,
because the exercise price of the Company's  employee and director stock options
equal  the  market  price  of  underlying  stock on the  date of the  grant,  no
compensation  expense  was  recognized.  The  Company  expensed  the fair  value
(determined  as  of  the  grant  date)  of  options  and  warrants   granted  to
non-employees  in  accordance  with SFAS No. 123. 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
year ended December 31, 2006 are $24,212 and $15,738 lower,  respectively,  than
if it had  continued to account for  share-based  compensation  under APB 25. In
addition,  during the year ended  December 31, 2006,  the Company  issued common
stock valued at $1,102,014 as compensation.

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.



                                                                  Year Ended
                                                    December 31,2006       December 31, 2005
                                                    ----------------       -----------------
                                                                      
Net income reported                                   $ 17,186,860            $  6,506,597
         Add:
         Total stock-based compensation expense
         included in reported net income, net of
         related tax effects                                15,738                   -
         Deduct:
         Total stock-based compensation expense
         determined under fair value based method,
         net of related tax effects                        (15,738)                (32,775)

                                                    ---------------         ---------------
         SFAS No. 123 (R) pro forma net income       $  17,186,860            $  6,473,822
                                                    ===============         ===============

Pro forma earnings per share
         Basic                                               $0.50                   $0.20
                                                    =================       ===============
         Fully diluted                                       $0.44                   $0.19
                                                    =================       ===============
Earnings per share, as reported
         Basic                                               $0.50                   $0.20
                                                    =================       ===============
         Fully diluted                                       $0.44                   $0.19
                                                    =================       ===============


STATUTORY  ACCOUNTING.  UPCIC  prepares its  statutory  financial  statements in
conformity  with accounting  practices  prescribed or permitted by the Office of
Insurance  Regulation of the State of Florida.  Effective  January 1, 2001,  the
Office of Insurance  Regulation of the State of Florida  required that insurance
companies  domiciled in the State of Florida prepare their  statutory  financial
statements   in   accordance   with  the  National   Association   of  Insurance
Commissioners'   ("NAIC")  Accounting   Practices  and  Procedures  Manual  (the
"Manual"),  as modified by the Office of  Insurance  Regulation  of the State of


                                      F-11


Florida.  Accordingly,  the admitted assets, liabilities and capital and surplus
of UPCIC as of December 31, 2006, and the results of its operations and its cash
flow, for the year then ended have been  determined in accordance with statutory
accounting principles,  but adjusted to accounting principles generally accepted
in the United  States of  America  (GAAPUSA)  for  purposes  of these  financial
statements.  These principles are designed  primarily to demonstrate the ability
to meet obligations to policyholders and claimants and, consequently,  differ in
some respects from GAAPUSA.

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
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 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.  The Company is  currently  evaluating  the
impact of FIN 48 on our  results  of  operations,  financial  position  and cash
flows.

In  September  2006,  the FASB issued SFAS No. 157 which  redefines  fair value,
establishes  a  framework  for  measuring  fair  value  in  generally   accepted
accounting  principles  ("GAAP"),  and  expands  disclosures  about  fair  value
measurements. SFAS No. 157 applies where other accounting pronouncements require
or permit fair value  measurements.  SFAS No. 157 is effective  for fiscal years
beginning after November 15, 2007. The effects of adoption will be determined by
the  types of  instruments  carried  at fair  value in the  Company's  financial
statements  at the time of adoption as well as the method  utilized to determine
their fair values prior to adoption.  Based on the Company's current use of fair
value  measurements,  SFAS No. 157 is not expected to have a material  effect on
the results of operations or financial position of the Company.

                                      F-12


RECLASSIFICATIONS.  Certain  prior year  amounts in the  consolidated  financial
statements have been reclassified to conform to the current year presentation.

NOTE 3 - REINSURANCE

UPCIC's in-force  policyholder  coverage for windstorm  exposures as of December
31, 2006 was  approximately  $52.0  billion.  In the normal  course of business,
UPCIC also seeks to reduce the risk of loss that may arise from  catastrophes or
other events that cause unfavorable  underwriting  results by reinsuring certain
levels of risk in various areas of exposure with other insurance  enterprises or
reinsurers.

Amounts  recoverable  from reinsurers are estimated in a manner  consistent with
the  reinsurance  policy.  Reinsurance  premiums,  losses  and  loss  adjustment
expenses are accounted for on a basis  consistent  with those used in accounting
for the original  policies  issued and the terms of the  reinsurance  contracts.
Reinsurance  ceding  commissions  received are deferred and  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.

QUOTA SHARE

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
of $55,000,000 from losses arising out of events that are assigned a catastrophe
serial number by the Insurance  Services  Office,  Inc.'s (ISO) Property  Claims
Services unit.  For the year ended  December 31, 2005,  UPCIC ceded 80% of gross
written  premiums,  losses and loss  adjustment  expenses  during the first five
months of 2005 for policies with coverage for wind risk with a ceding commission
equal to 28% of  ceded  gross  premiums  written  versus  55% of  policies  with
coverage  for wind risk  with a ceding  commission  equal to 31% of ceded  gross
premiums  written  during the remaining  seven months of 2005 and the first five
months of 2006.  Effective  December 1, 2005,  UPCIC entered into a second quota
share reinsurance treaty with one of the reinsurers on the earlier treaty. Under
the second  quota  share  treaty,  UPCIC  ceded an  additional  25% of its gross
written premiums, losses and loss adjustment expenses for policies with coverage
for wind  risk  with a ceding  commission  equal to 35% of ceded  gross  written
premiums through May 31, 2006. In addition,  the quota share treaties  effective
June 1, 2005 and December 1, 2005 had a  limitation  for any one  occurrence  of
$3,000,000.

EXCESS PER RISK

Effective  June 1, 2006  through May 31,  2007 and June 1, 2005  through May 31,
2006,  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 and June 1, 2005  through May 31,
2006, 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 excess of $200,000 for each property  loss. A $2,100,000
aggregate limit applies to the term of the contract.

EXCESS CATASTROPHE

UPCIC's excess catastrophe  reinsurance agreement provides four layers of excess
catastrophe  coverage of  $46,000,000 in excess of $3,000,000 as of June 1, 2005
as follows:

                                      F-13




                                 First Layer    Second Layer    Third Layer    Fourth Layer
                                 -----------    ------------    -----------    ------------
                                                                   
Coverage                         $13,000,000    $9,500,000     $10,000,000     $13,500,000
                                 in excess of   in excess of   in excess of    in excess of
                                 $3,000,000     $16,000,000    $25,500,000     $35,500,000
                                 each loss      each loss      each loss       each loss
                                 occurrence     occurrence     occurrence      occurrence

Deposit premium                  $4,290,000     $2,090,000     $1,400,000      $1,012,500

Minimum premium                  $3,432,000     $1,672,000     $1,120,000      $810,000

Premium rate -% of  total
insured value                    0.050%         0.024%         0.016%          0.012%


Effective June 1, 2006,  UPCIC revised and enhanced its catastrophe  reinsurance
program.  UPCIC's excess catastrophe reinsurance agreement provides three layers
of excess  catastrophe  coverage of  $76,000,000  in excess of $25,000,000 as of
December 31, 2006 as follows:



                                         First Layer         Second Layer      Third Layer
                                         -----------         ------------      -----------
                                                                      
Coverage                                 $32,000,000 in      $18,000,000 in    $26,000,000 in
                                         excess of           excess of         excess of
                                         $25,000,000 each    $57,000,000       $75,000,000
                                         each loss           each loss         each loss
                                         occurrence          occurrence        occurrence
                                         (placed 100%)       (placed 100%)     (placed 100%)

Deposit premium (100%)                   $14,720,000         $6,210,000        $6,240,000

Minimum premium (100%)                   $13,248,000         $5,589,000        $5,616,000

Premium rate -% of  total insured value  0.074%              0.031%            0.031%



Loss occurrence is defined as all individual  losses directly  occasioned by any
one  disaster,  accident  or loss or series of  disasters,  accidents  or losses
arising out of one event,  which  occurs in the State of Florida.  The  contract
contains a provision for one  reinstatement  in the event coverage is exhausted.
An additional  premium will be  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.

Also, effective June 1, 2006, UPCIC obtained subsequent catastrophe event excess
of loss  reinsurance  to cover  certain  levels of the  Company's  net retention
through three catastrophe events, including hurricanes, as follows:

                                      F-14




                                 2nd Event       2nd/3rd Event      3rd Event      2nd  Layer 3rd
                                 ---------       -------------      ---------      --------------
                                                                                   Event
                                                                                   -----
                                                                       
Coverage                         $11,250,000     $11,250,000 in     $6,750,000     $11,250,000 in
                                 in excess of    excess of          in excess of   excess of
                                 $13,750,000     $13,750,000 each   $7,000,000     $13,750,000
                                 each loss       loss occurrence    each loss      each loss
                                 occurrence      subject to an      occurrence     occurrence
                                 subject         otherwise          subject to     subject to an
                                 to an           recoverable        an otherwise   otherwise
                                 otherwise       amount of          recoverable    recoverable
                                 recoverable     $11,250,000        amount of      amount of
                                 amount of       (placed 12.5%)     $13,500,000    $22,500,000
                                 $11,250,000                        (placed 50%)   (placed 37.5%)
                                 (placed 17.5%)

Deposit premium (100%)          $1,800,000       $3,037,500         $1,012,500     $1,518,750

Minimum premium (100%)          $1,620,000       $2,733,750         $911,250       $1,366,875

Premium rate -% of total
insured value                   0.009%           0.015%             0.005%         0.00759%


UPCIC  also  obtained  coverage  from the  Florida  Hurricane  Catastrophe  Fund
("FHCF"),  which is administered  by the Florida State Board of  Administration.
Under the  reimbursement  agreement,  FHCF would  reimburse  the  Company,  with
respect to each loss occurrence during the contract year for 90% of the ultimate
loss paid by the  Company in excess of the  Company's  retention  plus 5% of the
reimbursed losses to cover loss adjustment  expenses.  A covered event means any
one storm declared to be a hurricane by the National Hurricane Center for losses
incurred  in  Florida,  both  while it is a  hurricane  and  through  subsequent
downgrades.  For the contract  year June 1, 2005 to May 31, 2006,  FHCF provided
coverage of $85,333,000 in excess of $26,827,000.  The premium for this coverage
was $4,266,662. For the contract year June 1, 2006 to May 31, 2007, the Fund has
provided coverage of $217,480,380 in excess of $81,363,626. The premium for this
coverage was $15,432,459.

Also at June 1,  2006,  the  FHCF  made  available,  and the  Company  obtained,
$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 premium for this coverage was $5,000,000.

Amounts  recoverable  from  reinsurers  are  estimated  in  accordance  with the
reinsurance contract.  Reinsurance premiums, losses and LAE are accounted for on
bases consistent with those used in accounting for the original  policies issued
and the terms of the reinsurance contracts.

The preceding reinsurance arrangements had the following effect on certain items
in the accompanying consolidated financial statements:



                                  Year Ended                                  Year Ended
                               December 31, 2006                           December 31, 2005
                               -----------------                           -----------------

                    PREMIUMS       PREMIUMS    LOSS AND LOSS     PREMIUMS       PREMIUMS      LOSS AND LOSS
                     WRITTEN        EARNED      ADJUSTMENT       WRITTEN         EARNED        ADJUSTMENT
                                                 EXPENSES                                       EXPENSES
                                                                             
Direct            $ 371,754,514  $ 192,298,253  $ 70,704,156   $ 88,701,123      $ 61,700,978  $ 91,540,103
Ceded              (230,718,709)  (138,162,301)  (45,763,277)   (67,094,245)      (45,874,996)  (81,942,119)
                  -------------- -------------- -------------  -------------     ------------- -------------
Net               $ 141,035,805  $  54,135,952  $ 24,940,879   $ 21,606,878      $ 15,825,982  $  9,597,984
                  ============== ============== =============  =============     ============= =============

                                                      F-15


Other amounts:

                                                               December 31, 2006
                                                               -----------------

Reinsurance recoverable on unpaid losses and loss
  adjustment expenses                                             $32,369,503
Reinsurance recoverable on paid losses                             13,106,236
Other reinsurance receivables                                      30,078,990
Prepaid reinsurance premiums                                      134,203,174
                                                                  -----------
Reinsurance recoverable                                          $209,757,903
                                                                 ============



Reinsurance payable                                              $102,857,079
                                                                 ============


Reinsurance  payable,  as of December 31, 2006,  has been reduced by $18,912,852
which  represents  ceding  commissions  due from  reinsurers.  The  Company  has
determined  that a right of offset,  as defined in FASB  Interpretation  No. 39,
"Offsetting of Amounts Related to Certain Contracts", exists between the Company
and its reinsurers, under its quota share reinsurance treaties.

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.  UPCIC evaluates the 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.

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
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 August  17,  2005 the  Board of  Governors  of  Citizens  Property  Insurance
Corporation  ("Citizens")  authorized  the  levying of a regular  assessment  on
assessable  insurers to recoup the 2004 Plan Year  Deficit  incurred in the High
Risk Account. The assessment is based upon the Company's share of direct written
premium  for the  subject  lines of  business  in the State of  Florida  for the
calendar  year  preceding the plan year in which the deficit  occurred.  UPCIC's
participation in this assessment totaled $203,300. 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  Citizens.
UPCIC completed the recoupment of this assessment in 2006.

On June 12, 2006, the Florida Office of Insurance  Regulation ("OIR") ordered an
emergency  FHCF  assessment of 1% of direct  premiums  written for policies with
effective dates beginning  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. FIGA 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

                                      F-16


to  policies  in an amount not to exceed the amount paid by the insurer to FIGA.
UPCIC recouped this assessment in 2006.

On September 14, 2006 the Board of Governors of Citizens  authorized the levying
of a regular  assessment  on  assessable  insurers  to recoup the 2005 Plan Year
Deficit  incurred in the High Risk  Account.  The  assessment  is based upon the
Company's  share of direct written  premium for the subject lines of business in
the State of Florida for the calendar year  preceding the plan year in which the
deficit  occurred.  UPCIC's  participation in this assessment  totaled $263,650.
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 Citizens. UPCIC recouped this assessment in 2006.

During  its  meeting  on  December  14,  2006  the  Board of  Directors  of FIGA
determined the need for an emergency  assessment upon its member companies.  The
Board  decided  on an  emergency  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 recorded this assessment as an expense during the year ended
December 31, 2006 and will be  underwriting  the  recoupment in connection  with
this assessment in 2007.

NOTE 4 - INVESTMENTS

Major categories of net investment income are summarized as follows:

                                           Year Ended            Year Ended
                                        December 31, 2006     December 31, 2005
                                        -----------------     -----------------

Investment income on cash and cash
  equivalents                              $ 4,259,399           $   925,387
Investment expenses                            272,985               243,302
                                           -----------           -----------
  Net investment income                    $ 3,986,414           $   682,085
                                           ===========           ===========


As of December 31, 2006, the Company's  investments  consisted  entirely of cash
and cash equivalents with a value of $232,890,297. Cash is comprised of accounts
with an aggregate  carrying value $205,957,796 as of December 31, 2006, which is
primarily invested daily in overnight  repurchase  agreements of U.S. government
and U.S. government agency securities.  Cash equivalents is comprised of a money
market account with carrying value of $25,432,501 and short-term investment with
a carrying value of $1,500,000 on deposit with regulatory authorities.

As  of  December   31,   2006,   the  Company  had  no   available-for-sale   or
held-to-maturity securities.

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment, as of December 31, 2006, consisted of the following:

        Computers                                          $   50,041
        Furniture                                             290,147
        Automobiles and equipment                             261,928
        Boat                                                  160,371
        Software                                              668,057
                                                           ----------
        Total cost                                          1,430,544
        Less: Accumulated depreciation and amortization      (811,632)
                                                           ----------
        Property and equipment, net                        $  618,912
                                                           ==========

                                      F-17


Depreciation  and  amortization  of property  and  equipment  was  $373,533  and
$377,748 during 2006 and 2005, respectively.

Real estate, as of December 31, 2006 consisted of the following:


           Land                                         $    270,000
           Building                                        1,410,000
           Capital Improvements                            1,745,164
                                                       --------------
           Total cost                                      3,425,164
           Less: Accumulated depreciation                   (172,100)
                                                       --------------
           Real estate, net                             $  3,253,064
                                                       ==============


Depreciation  of real  estate was  $118,932  and  $53,168  during 2006 and 2005,
respectively.

NOTE 6 - LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

As described in Note 2, UPCIC establishes liabilities for unpaid losses and loss
adjustment  expenses on reported and unreported claims of insured losses.  These
liability  estimates are based on known facts and interpretation of factors such
as claim payment  patterns,  loss  payments,  pending  levels of unpaid  claims,
product  mix  and  industry   experience.   The   establishment  of  appropriate
liabilities,  including liabilities for catastrophes, is an inherently uncertain
process.  This  uncertainty is compounded by UPCIC's  limited  history of claims
experience.  UPCIC regularly updates its estimates as new facts become known and
further events occur which may impact the resolution of unsettled claims.

The level of  catastrophe  loss  experienced in any year cannot be predicted and
could be material  to results of  operations  and  financial  position.  UPCIC's
policyholders are concentrated in South Florida,  which is periodically  subject
to adverse weather  conditions,  such as hurricanes and tropical storms.  During
2006,  the Company did not  experience  any  catastrophic  events.  During 2005,
Florida experienced three windstorms  catastrophes  (Hurricanes Dennis,  Katrina
and Wilma) which  resulted in losses.  During  2004,  Florida  experienced  four
windstorm  catastrophes  (Hurricanes Charley,  Frances,  Ivan, and Jeanne) which
resulted  in  losses.  UPCIC's  in-force  policyholder  coverage  for  windstorm
exposures  as  of  December  31,  2006  was  approximately  $52  billion.  UPCIC
continuously  evaluates  alternative  business  strategies  to more  effectively
manage  its  exposure  to  catastrophe  losses,  including  the  maintenance  of
catastrophic reinsurance coverage as discussed in Note 3.

Management  believes that the  liabilities  for claims and claims  expense as of
December 31, 2006 are appropriately established in the aggregate and adequate to
cover the ultimate cost of reported and  unreported  claims  arising from losses
which had occurred by that date. However, if losses exceeded direct loss reserve
estimates  there could be a material  adverse effect on the Company's  financial
statements. Also, if there are regulatory initiatives, legislative enactments or
case law precedents which change the basis for policy coverage,  in any of these
events,  there  could be an effect on direct  loss  reserve  estimates  having a
material adverse effect on the Company's financial statements.

                                      F-18


Activity in the  liability  for unpaid  losses and loss  adjustment  expenses is
summarized as follows:

                                            Year Ended            Year Ended
                                         December 31, 2006     December 31, 2005
                                         -----------------     -----------------

      Balance at beginning of year         $ 66,999,956           $ 57,871,952
      Less reinsurance recoverable          (60,859,231)           (56,292,041)
                                           ------------           ------------
      Net balance at beginning of year        6,140,725              1,579,911
                                           ------------           ------------
      Incurred related to:
        Current year                          9,246,922              7,048,934
        Prior years                          15,693,957              2,549,050
                                           ------------           ------------
      Total incurred                         24,940,879              9,597,984
                                           ------------           ------------
      Paid related to:
        Current year                          4,453,684              3,821,743
        Prior years                           9,432,910              1,215,427
                                           ------------           ------------
      Total paid                             13,886,594              5,037,170
                                           ------------           ------------

      Net balance at end of year             17,195,010              6,140,725
        Plus reinsurance recoverable         32,369,504             60,859,231
                                           ------------           ------------

      Balance at end of year               $ 49,564,514           $ 66,999,956
                                           =============          ============

The Company's  liabilities for unpaid losses and LAE, net of related reinsurance
recoverables,  as of December  31, 2006 were  increased  in the current  year by
$15,693,957  for claims that had  occurred  on or before the prior year  balance
sheet date. This  unfavorable  loss emergence  resulted  principally from higher
than expected  hurricane  losses in 2004. The Company's  liabilities  for unpaid
losses and LAE, net of related reinsurance recoverables, as of December 31, 2005
were  increased  during 2005 by  $2,549,050  for claims that had  occurred on or
before the previous year balance sheet date.  This  unfavorable  loss  emergence
resulted  principally from higher than expected  hurricane losses in 2004. There
can be no assurance  that the  Company's  unpaid losses and LAE will not develop
redundancies or deficiencies  and possibly differ  materially from the Company's
unpaid  losses and LAE as of December  31,  2006.  In the future,  if the unpaid
losses  and  LAE  develop  redundancies  or  deficiencies,  such  redundancy  or
deficiency  would have a positive  or adverse  impact,  respectively,  on future
results of operations.

NOTE 7 - LOANS PAYABLE

During 2003, the Company purchased  software for $520,000.  Management  believes
the software will assist it in reducing overall  management  expenses versus the
previous outside vendor agreement. The final installment payment on the software
of $150,000 was paid in March 2005.

Loans payable as of December 31, 2006 also consists of the following  bank loans
secured by the respective  assets: a boat loan for $65,549  principal due in May
2011,  with interest paid monthly at 8.8%,  and several  vehicle loans  totaling
$16,015  principal  due from  January  2005 to March 2008,  with  interest  paid
monthly ranging from 5.6% to 10%. Other loans with vendors and private investors
amounted to $37,300,000 as of December 31, 2006.  Loans with vendors and private
investors are primarily  short-term loans utilized for working capital. As noted
in "Management's  Discussion and Analysis--Liquidity and Capital Resources," two
promissory  notes  from  two  private  investors  with  an  aggregate  remaining
principal  balance of  $300,000  are  guaranteed  under a  financial  protection
contract. In addition, the Company granted certain vendors and private investors
warrants in connection with the short-term loans (see Note 11).

On November 9, 2006,  UPCIC entered into a $25.0  million  surplus note with the
Florida State Board of Administration under Florida's Insurance Capital Build-Up
Incentive  Program.  Given the  proximity  of the loan  origination  date to the
balance sheet date,  the carrying  value of the note deemed to  approximate  its
fair value as of December 31, 2006. 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 $25.0 million that were earmarked for  participation in
the program.

                                      F-19


The  surplus   note  brings  the  current   capital  and  surplus  of  UPCIC  to
approximately  $62 million.  Under  Florida law, the current  surplus will allow
UPCIC to write up to approximately $600 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.  As of December 31, 2006,  the Company is in  compliance  with each of the
aforementioned loans covenants.

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. The Company expects to maintain the 2:1 Minimum Writing Ratio
throughout the term of the surplus note.

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.  Given the short duration of the note, the carrying
value was deemed to  approximate  its fair value as of  December  31,  2006.  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. As of March 30, 2007, all amounts due on
the Note have been paid.

Loan repayments are due as follows as of December 31, 2006:

               2007           $12,324,278
               2008                15,334
               2009                14,118
               2010             1,007,968
               2011             1,050,826
         Thereafter            22,969,020
                              -----------
                              $37,381,544
                              ===========

Interest  expense was $412,729 and $37,228 for the twelve months ended  December
31, 2006 and 2005, respectively.

NOTE 8 - REGULATORY REQUIREMENTS AND RESTRICTIONS

UPCIC is subject to comprehensive  regulation by the OIR. The Florida  Insurance
Code (the "Code")  requires that UPCIC  maintain  minimum  statutory  surplus of
$4,000,000.  UPCIC is also required to adhere to  prescribed  premium-to-surplus
ratios under the Code and to maintain  approved  securities  on deposit with the
state  of  Florida.  UPCIC's  statutory  surplus  as of  December  31,  2006  is
$62,018,676. During 2005 and 2006, UPCIC did not pay dividends to the Company.

                                      F-20


The maximum amount of dividends which can be paid by Florida insurance companies
without prior approval of the Florida  Commissioner  is subject to  restrictions
relating to statutory surplus. The maximum dividend that may be paid by UPCIC to
the Company  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  capital  surplus as of the preceding year end. During 2005 and 2006,
UPCIC did not pay dividends to the Company.

NOTE 9 - RELATED PARTY TRANSACTIONS

All  underwriting,   rating,  policy  issuance,   reinsurance  negotiations  and
administration  functions  for UPCIC are  performed  by  UPCIC,  Universal  Risk
Advisors, Inc., a wholly owned subsidiary of the Company, and unaffiliated third
parties.  Claims  adjusting  functions  are  performed  by  Universal  Adjusting
Corporation,  a wholly owned  subsidiary of the Company and  unaffiliated  third
parties.

Downes and Associates, Inc., a multi-line insurance adjustment corporation based
in Deerfield  Beach,  Florida  performs certain claims adjusting work for UPCIC.
Downes and Associates, Inc. is owned by Dennis Downes, who is the father of Sean
P. Downes,  COO and Senior Vice  President of UPCIC.  During 2006 and 2005,  the
Company expensed claims adjusting fees of $829,208 and $1,075,188, respectively,
to Downes and Associates.

During 2005,  Sean P. Downes filed a claim on his  homeowners'  policy issued by
UPCIC as a result of damage incurred during Hurricane  Wilma.  UPCIC handled the
claim in the ordinary  course of its business and has made a loss payment to Mr.
Downes in the amount of $214,409.

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.

In September 2006, the Company acquired  Sterling Premium Finance Company,  Inc.
("Sterling")  for the purchase  price of $50,000 from the Company's CEO and COO,
who joint owned Sterling.  The purchase price was equal to Sterling's book value
at the time of acquisition.

NOTE 10- INCOME TAX PROVISION

The following  table  reconciles  the statutory  federal  income tax rate to the
Company's effective tax rate for the years ended December 31, 2006 and 2005:

                                            2006            2005
                                         -----------------------------
Statutory federal income tax rate           35.0%           35.0%
Increases (decreases) resulting from:
Utilization of  net operating loss             0%          (28.5%)
carry forward
Change in valuation allowance               (6.5%)         (15.6%)
Alternative minimum tax                        0%            2.5%
Disallowed executive compensation            2.9%              0%
Disallowed meals & entertainment              .7%              0%
State income tax                             6.1%              0%
Other                                       (2.7%)          (1.0%)
                                         -----------   ---------------
Effective tax rate                          35.5%           (7.6)%


Deferred  income taxes as of December  31, 2006 are  provided for the  temporary
differences between financial reporting basis and the tax basis of the Company's
assets and liabilities under SFAS 109. The tax effects of temporary  differences
are as follows:

                                      F-21


   Deferred income tax assets:
                Unearned premiums                       $ 7,417,440
                Unpaid losses                               576,770
                Regulatory assessments                      785,584
                Executive compensation                      472,645
                Allowance for uncollectible receivables     219,401
                Property and equipment                       12,351
                                                       -------------
                                                          9,484,191
      Deferred income tax liabilities:
                Deferred policy acquisition costs          (812,435)
                                                       -------------

      Net deferred income tax asset                     $ 8,671,756
                                                       =============

A valuation  allowance  is deemed  unnecessary  as of December  31, 2006 because
management  believes it is probable that the Company will  generate  substantial
taxable income  sufficient to realize the tax benefits  associated  with the net
deferred income tax asset shown above in the near future. A valuation  allowance
of $607,299  associated with the utilization of net operating loss carryforwards
had been recorded as of December 31, 2005.

As of December  31,  2006,  the  Company has no  remaining  net  operating  loss
available to carry forward to offset future taxable income.

Included in the income tax is Florida income tax at a rate of 5.5%.

NOTE 11 - STOCKHOLDERS' EQUITY

CUMULATIVE PREFERRED STOCK

Each share of Series A and M Preferred  Stock is convertible by the Company into
2.5 shares of Common Stock and 5 shares of Common Stock,  respectively,  into an
aggregate  of  568,326  common  shares.  The  Series A  Preferred  Stock  pays a
cumulative dividend of $.25 per share per quarter.

STOCK OPTIONS

The Company adopted a 1992 Stock Option Plan (the "Plan") under which new shares
of Common Stock are reserved for issuance upon the exercise of the options.  The
Plan is designed to serve as an incentive for attracting and retaining qualified
and competent employees, officers, directors and consultants of the Company. All
employees,  officers, directors and consultants of the Company or any subsidiary
are eligible to participate in the Plan. The Plan does not specify the number of
shares for which  options  are  available  for grant.  The stock  options may be
granted over a period not to exceed 10 years and  generally  vest as of the date
of grant or upon certain  goals  attained.  The Plan has no  provisions  for the
exercising of options other than paying the cash exercise price.

                                      F-22


A summary of the option  activity for the years ended December 31, 2006 and 2005
is presented below:



                                                       Options Exercisable
                                                       -------------------                   Weighted
                                                                                              Average     Aggregate
                                    Number           Option Price per Share       Number     Exercise     Intrinsic
                                   of Shares       Low       High     Weighted   of Shares     Price        Value
                                   ---------       ---       ----     --------   ---------     -----        -----
                                                                                       
Outstanding January 1, 2005          8,032,999      $ 0.04    $ 3.88     $ 1.00   8,032,999    $ 1.00
Cancelled                             (517,999)     $ 0.50    $ 3.88     $ 1.66
                                 --------------
Outstanding December 31, 2005        7,515,000      $ 0.04    $ 1.87     $ 0.95   7,515,000    $ 0.95
Exercised                             (220,000)     $ 0.04    $ 0.50     $ 0.08
Cancelled                             (850,000)     $ 1.00    $ 1.25     $ 1.24
                                 --------------
Outstanding December 31, 2006        6,445,000      $ 0.04    $ 1.87     $ 0.91   6,445,000    $ 0.91       $4,517,644
                                 ==============


The total  intrinsic  value of options  exercised in 2006 was $9,480.  The total
cash received in 2006 for the exercise of stock options was $18,000.

The  weighted  average  remaining  contractual  life  on the  6,445,000  options
outstanding and  exercisable as of December 31, 2006 was 2.4 years.  All options
are exercisable and fully vested.

There were no options granted in 2006 or 2005.

The  Black-Scholes  option pricing model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  such models require the input of highly  subjective
assumptions including the expected stock price volatility. Because the Company's
stock options have characteristics  significantly different from those of traded
options,  and because changes in the subjective input assumptions can materially
affect the fair value estimate,  in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
options.

WARRANTS

A summary of the warrant activity for the years ended December 31, 2006 and 2005
is presented below:



                                                      Warrants Exercisable
                                                      --------------------
                                                                                 Weighted    Weighted
                                                                                  Average     Average    Aggregate
                                    Number           Warrant Price per Share      Number     Exercise    Intrinsic
                                   of Shares       Low       High     Weighted   of Shares     Price       Value
                                   ---------       ---       ----     --------   ---------     -----       -----
                                                                                      
Outstanding January 1, 2005          3,068,652      $ 0.03    $ 4.25     $ 1.27   3,068,652    $  1.27
Granted                                200,000      $ 0.05    $ 0.05     $ 0.05
Cancelled                           (1,336,646)     $ 1.00    $ 4.25     $ 2.29
                                 --------------
Outstanding December 31, 2005        1,932,006      $ 0.03    $ 3.00     $ 1.11   1,932,006    $  1.11
Exercised                             (625,000)     $ 0.05    $ 0.05     $ 0.05
Cancelled                             (457,006)     $ 0.75    $ 3.00     $ 1.20
                                 --------------
Outstanding December 31, 2006          850,000      $ 0.03    $ 1.00     $ 0.72     850,000    $  0.72     $482,870
                                 ==============

The total  intrinsic  value of warrants exercised in 2006 was $24,305. The total
cash received in 2006 for the exercise of stock warrants was $31,250.

The  weighted  average  remaining   contractual  life  on  the  850,000  options
outstanding and exercisable as of December 31, 2006 was 1.9 years.  All warrants
are exercisable and fully vested.

The actual tax benefit  realized for the tax deductions  from option and warrant
exercise of the share-based payment  arrangements  totaled $376,747 for the year
ended December 31, 2006.

OTHER STOCK ISSUANCES

         In February  2006,  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 to purchase  restricted  Common Stock.  In April 2006,  the

                                      F-23


Company  issued 200,000 shares of Common Stock at a price of $.05 per share to a
vendor pursuant to the exercise of warrants to purchase restricted Common Stock.
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.  Also in April 2006, 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 to
purchase restricted Common Stock. 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, 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 to purchase the  restricted  Common Stock.  In June 2006, the Company
issued 25,000 shares of restricted Common Stock at a price of $1.52 per share to
each of the then  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,  the Company  issued James M. Lynch,  CFO of the  Company,  25,807
shares  of  Common  Stock  at a price  of $1.65  per  share  as a bonus.  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 and the shares were
issued in private  transactions  pursuant  Section 4(2) of the Securities Act of
1933, as amended.

On October 24, 2006,  the Company  declared a dividend of $.05 per share on its
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. The dividend  payable amount of $1,902,855 for this dividend is accrued in
the December 31, 2006 balance sheet. At December 31, 2006, the Company  recorded
a dividend  payable  in the amount of  $1,902,855  for this  dividend  and a net
reduction to retained earnings in the amount of $1,747,423, which represents the
total  dividend net of the dividends on the shares held in treasury stock and in
the Stock Grantor Trust described in Note 11 - Stockholders'  Equity. During the
fourth quarter,  the Company paid a dividend of $0.05 per share that was accrued
at  the  end of  third  quarter.  The  aggregate  amount  of  the  dividend  was
$1,747,423.  During the third quarter,  the Company paid a dividend of $0.04 per
share of  outstanding  Common  Stock  that was  accrued at the end of the second
quarter. The aggregate amount of the dividend was $1,393,938.  During the second
quarter,  the Company paid a dividend of $0.04 per share of  outstanding  Common
Stock that was accrued at the end of first quarter.  The aggregate amount of the
dividend was $1,364,506.

At the Company's  Annual Meeting of  Shareholders  held on December 7, 2005, the
shareholders  voted to amend  the  Company's  certificate  of  incorporation  to
increase  the number of  authorized  shares of Common Stock from  40,000,000  to
50,000,000 shares.

STOCK GRANTOR TRUST

On April 3, 2000, the Company established the Universal Insurance Holdings, Inc.
Stock  Grantor Trust  ("SGT") to fund its  obligations  arising from its various
stock option  agreements.  The Company funded the SGT with  2,900,000  shares of
Company Common Stock.  In exchange,  the SGT delivered  $29,000 and a promissory
note to the Company for approximately  $2,320,000 which together  represents the
purchase  price of the shares.  Amounts  owed by the SGT to the Company  will be
repaid by cash  received  by the SGT,  which  will  result in the SGT  releasing
shares to satisfy Company  obligations for stock options.  The assets of the SGT
are subject to the claims of the Company's  general  creditors under federal and
state law. The  consolidated  financial  statements  include the accounts of the
SGT.  Dividends  paid by the Company and received by the SGT on shares of Common
Stock  held in trust  are  eliminated  in  consolidation  and  shown  net in the
Consolidated Financial Statements.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

EMPLOYMENT AGREEMENTS

        The Company's  employment agreement with Mr. Meier is dated as of August
11, 1999. The Company and Mr. Meier have amended the employment agreement,  with
the most recent amendment dated March 21, 2007 (the employment agreement and the
amendments are  collectively  referred to as the "Meier  Agreement").  Under the
terms of the Meier  Agreement,  Mr. Meier will serve as the Company's  President
and Chief  Executive  Officer.  Mr. Meier  received a base salary of $830,324 in
2006,  and he is entitled to a twenty percent (20%) increase in base salary each
year. Additionally, pursuant to the Meier Agreement, Mr. Meier is entitled to an
annual performance bonus equal to three percent (3%) of the pretax income of the
Company up to $5  million,  and four  percent  (4%) of the pretax  income of the
Company  in excess of $5  million;  provided,  however,  that any such  bonus is
contingent upon the Company's shareholders approving such bonus formula.  Should
the Company's  shareholders fail to approve the formula,  Mr. Meier forfeits his

                                      F-24


right to the bonus.  Mr. Meier is also eligible for other  benefits  customarily
provided  by the Company to its  executive  employees,  and the Meier  Agreement
contains noncompete and nondisclosure provisions. In addition, in the event of a
Change in Control  of the  Company  (as  defined  in the Meier  Agreement),  the
Company  shall pay Mr. Meier an amount equal to 48 months base salary,  plus two
times any bonus paid for the preceding fiscal year.  Further,  in the event of a
Change in Control,  all options  held by Mr.  Meier vest and become  immediately
exercisable. Also, in the event that the Company terminates the Meier Agreement,
the  Company  shall  pay Mr.  Meier 48  months  total  compensation.  The  Meier
Agreement expires on December 31, 2008; however,  the agreement is automatically
extended each year thereafter  unless the Company or Mr. Meier provides  written
notice  that  the  agreement  is  being  terminated  60 days in  advance  of the
anniversary date of the Meier Agreement.

        The  Company's  employment  agreement  with  Mr.  Downes  is dated as of
January 1, 2005 and  provides  that Mr.  Downes  will  serve as Chief  Operating
Officer and Senior Vice  President  of the Company.  The Company and Mr.  Downes
have amended the  employment  agreement,  with the most recent  amendment  dated
March 21, 2007 (the  employment  agreement and the amendments  are  collectively
referred to as the "Downes  Agreement").  Mr.  Downes  received a base salary of
$527,678 in 2006,  and he is entitled to a twenty percent (20%) increase in base
salary each year. Additionally,  pursuant to the Downes Agreement, Mr. Downes is
entitled  to an annual  performance  bonus  equal to three  percent  (3%) of the
pre-tax  profits  of the  Company;  provided,  however,  that any such  bonus is
contingent upon the Company's shareholders approving such bonus formula.  Should
the Company's  shareholders fail to approve the formula, Mr. Downes forfeits his
right to the bonus. Under the Downes Agreement, the Company may grant Mr. Downes
options or warrants to purchase the Company's  Common Stock.  Mr. Downes is also
eligible for other benefits customarily provided by the Company to its executive
employees  and  the  Downes  Agreement  contains  noncompete  and  nondisclosure
provisions.  In addition, in the event of a Change in Control of the Company (as
defined in the Downes  Agreement),  the Company  shall pay Mr.  Downes an amount
equal to 12 months base  salary,  plus the annual  bonus paid for the  preceding
fiscal year. Further,  in the event of a Change in Control,  all options held by
Mr. Downes vest and become immediately exercisable. The Downes Agreement expires
on December 31, 2008 unless extended in writing by the Company.  During the year
ended December 31, 2006, Mr. Downes  converted  bonus and accrued  vacation into
323,077 shares of Common Stock.  The shares were issued to Mr. Downes in private
transactions  performed in accordance with the terms of the Downes Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended.

OPERATING LEASE

The Company has leased  certain  computer  equipment and software under a master
equipment  lease  agreement  with  Relational  Funding,  Inc.  with an  original
equipment cost of $743,442. The following is a schedule of future minimum rental
payments  required under the  non-cancelable  operating lease as of December 31,
2006:

        2007             $ 227,076
        2008               136,581
        2009                32,042
                       ------------
                         $ 395,699
                       ============

NOTE 13 - LITIGATION

Certain  lawsuits  have been  filed  against  the  Company.  In the  opinion  of
management,  none of these  lawsuits are  material  and they are all  adequately
reserved for or covered by insurance or, if not so covered, are without merit or
involve such amounts that if disposed of  unfavorably  would not have a material
adverse effect on the Company's financial position or results of operations.

On February 7, 2005,  Marty  Steinberg  as a court  appointed  receiver  for the
entities  consisting of Lancer  Management Group LLC, Lancer Management Group II
LLC, Lancer Offshore Inc., Omnifund Ltd., LSPV Inc., LSPV LLC, Alpha Omega Group
Inc. and G.H.  Associates LLC  (collectively  the "Lancer  Entities") filed suit
against Alfred  Taubman,  Anthony  Cullen,  British  American  Racing,  Centrack
International,  Inc.,  Kuwait & Middle East Financial  Investment  Co.,  Liberty
International Asset Management,  Macroview  Investments Limited,  Opus Portfolio
Ltd., Reva Stocker,  Roger Dodger,  LLC, Signet  Management  Limited,  Thornhill
Group  Inc.  Trust,  World  Class  Boxing  and  the  Company  (collectively  the
"Defendants")  in the United States District Court for the Southern  District of
Florida.  The Company  received the notice of suit by mail on September 8, 2005.
The suit alleged that the Lancer Entities fraudulently  transferred funds to the
Defendants and that the transfers  unduly enriched the Defendants.  The receiver

                                      F-25


asked the  Company to pay  $658,108.  The  Company  had no record of the alleged
transfers and vigorously defended the suit. The lawsuit has since been dismissed
with prejudice by the receiver.

NOTE 14 - EARNINGS PER SHARE

The following table reconciles the numerator (earnings) and denominator (shares)
of the basic and diluted earnings per share  computations for net income for the
years ended December 31, 2006 and 2005.



                                             For year ended                       For year ended
                                            December 31, 2006                    December 31, 2005
                                            -----------------                    -----------------
                                    Income                               Income
                                 Available to                         Available to
                                    Common                               Common
                                 Stockholders              Per Share  Stockholders              Per Share
                                    Amount       Shares      Amount      Amount       Shares     Amount
                                    ------       ------      ------      ------       ------     ------
                                                                               
Net  income                       $17,186,860                         $ 6,506,597
  Less: Preferred stock dividends     (49,950)                            (49,950)
                                  -----------                         -----------
Income available
  to common stockholders           17,136,910   34,409,415   $ 0.50     6,456,647   32,807,521   $ 0.20
                                                             ======                              ======

Effect of dilutive securities:
  Stock options and warrants              -      4,100,903    (0.06)          -        569,793    (0.01)
  Preferred stock                      49,950      568,325      -          49,950      568,325      -
                                  -----------   ----------   ------   -----------   ----------   ------

Income  available to common
  stockholders and assumed
  conversion                      $17,186,860   39,078,643   $ 0.44   $ 6,506,597   33,945,639   $ 0.19
                                  ===========   ==========   ======   ===========   ==========   ======


NOTE 15 - SUPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest and income taxes during the years ended  December 31,
2006 and 2005 were as follows:

                                                  For the years ended
                                                  -------------------
                                       December 31, 2006      December 31, 2005
                                       -----------------      -----------------
Interest                                     178,529                37,228
Income Taxes                               2,696,500                80,000


NOTE 16 - SUBSEQUENT EVENTS

On March 15,  2007,  the  Company  declared a dividend  of $.07 per share on its
outstanding  Common  Stock of the  Company to be paid on August 10,  2007 to the
shareholders of record of the Company at the close of business on July 20, 2007.
The dividend payable amount is $2,446,392.

                                      F-26