Edgar Filing: UNIVERSAL INSURANCE HOLDINGS, INC.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

OR

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

For the transition period from ______________ to ______________

Commission File Number 000-20848

UNIVERSAL INSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

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

1110 W. Commercial Blvd., Suite 100, Fort Lauderdale, Florida 33309

(Address of principal executive offices)

(954) 958-1200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such 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 ____

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ____ No ____

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of “large accelerated filer” and “accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer __ Accelerated filer x Non-accelerated filer __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ___ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 38,505,036 shares of common stock, par value $0.01 per share, outstanding on November 6, 2009.

UNIVERSAL INSURANCE HOLDINGS, INC.
TABLE OF CONTENTS

Page No.

PART I: FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Report of Independent Registered Public Accounting Firm	4

	Condensed Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008	5

	Condensed Consolidated Statements of Operations for the Nine-Month and Three-Month Periods Ended September 30, 2009 and 2008	6

	Condensed Consolidated Statements of Stockholders’ Equity for the Nine-Month Periods Ended September 30, 2009 and 2008	7

	Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2009 and 2008	9

	Notes to Condensed Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49

Item 4.	Controls and Procedures	51

PART II:	OTHER INFORMATION

Item 1.	Legal Proceedings	51

Item 1A.	Risk Factors	51

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 3.	Defaults Upon Senior Securities	52

Item 4.	Submission of Matters to a Vote of Security Holders	52

Item 5.	Other Information	52

Item 6.	Exhibits	52

Signatures		52

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Board of Directors and Stockholders of
Universal Insurance Holdings, Inc. and Subsidiaries

Fort Lauderdale, Florida

We have reviewed the accompanying Condensed Consolidated Balance Sheet of Universal Insurance Holdings, Inc. and Subsidiaries as of September 30, 2009 and the related Condensed Consolidated Statements of Operations for the nine-month and three-month periods ended September 30, 2009 and 2008 and Cash Flows for each of the nine-month periods ended September 30, 2009 and 2008. These interim financial statements are the responsibility of the Company’s management.

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

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

/s/ Blackman Kallick LLP


Chicago, Illinois

November 6, 2009

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	September 30,	December 31,
ASSETS	2009	2008
Cash and cash equivalents	$ 275,042,884	$ 256,964,637
Investments
Fixed maturities held to maturity, at amortized cost	-	4,334,405
Fixed maturities available for sale, at fair value	18,575,023	-
Equity securities available for sale, at fair value	70,785,948	1,314,370
Real estate, net	3,322,298	3,399,609
Prepaid reinsurance premiums	207,851,243	173,046,776
Reinsurance recoverables	48,631,361	44,009,847
Premiums receivable, net	44,307,299	40,358,720
Receivable from securities	5,386,709	-
Accrued investment income	96,092	102,187
Other receivables	5,232,569	2,545,292
Income taxes recoverable	907,597	2,482,923
Property and equipment, net	1,114,877	864,125
Deferred policy acquisition costs, net	9,116,132	407,946
Deferred income taxes	7,783,514	14,113,463
Other assets	823,134	692,612
Total assets	$ 698,976,680	$ 544,636,912

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses	$ 98,263,500	$ 87,947,774
Unearned premiums	293,494,305	258,489,460
Accounts payable	3,205,674	3,147,260
Bank overdraft	20,258,937	15,699,930
Payable for securities	8,182,205	1,273,941
Reinsurance payable, net	79,948,331	23,984,248
Income taxes payable	235,571	-
Dividends payable	4,516,460	-
Other accrued expenses	22,960,397	14,680,443
Advance premium	16,016,282	12,860,201
Long-term debt	25,000,000	25,000,000
Total liabilities	572,081,662	443,083,257

STOCKHOLDERS' EQUITY:
Cumulative convertible preferred stock, $.01 par value	1,087	1,387
Authorized shares - 1,000,000
Issued shares - 108,640 and 138,640
Outstanding shares - 108,640 and 138,640
Minimum liquidation preference - $288,190 and $1,419,700
Common stock, $.01 par value	402,528	401,578
Authorized shares - 55,000,000
Issued shares - 40,253,019 and 40,158,019
Outstanding shares - 37,644,036 and 37,542,172
Treasury shares, at cost - 1,747,983 and 1,709,847 shares	(7,571,305)	(7,381,768)
Common stock held in trust, at cost - 861,000 and 906,000 shares	(697,410)	(733,860)
Additional paid-in capital	35,706,602	33,587,414
Accumulated other comprehensive income, net of taxes	4,615,739	24,834
Retained earnings	94,437,777	75,654,070
Total stockholders' equity	126,895,018	101,553,655
Total liabilities and stockholders' equity	$ 698,976,680	$ 544,636,912

The accompanying notes to Condensed Consolidated financial statements are an integral part of these statements.

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

(Unaudited)

	For the Nine		For the Three
	Months Ended September 30,		Months Ended September 30,
	2009	2008	2009	2008
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$ 436,610,689	$ 394,304,531	$ 134,626,400	$ 124,718,631
Ceded premiums written	(328,518,186)	(275,284,862)	(104,152,022)	(91,295,102)
Net premiums written	108,092,503	119,019,669	30,474,378	33,423,529
(Increase) decrease in net unearned premium	(200,377)	(9,679,531)	2,283,358	4,659,359
Premiums earned, net	107,892,126	109,340,138	32,757,736	38,082,888
Net investment income	1,385,007	3,628,472	586,525	1,109,770
Realized gains on investments	13,588,681	-	12,136,072	-
Foreign currency gains on investments	6,156,945	-	6,084,629	-
Commission revenue	23,413,086	20,526,922	8,105,468	6,677,703
Other revenue	4,214,347	3,658,373	1,312,617	1,304,663

Total premiums earned and other revenues	156,650,192	137,153,905	60,983,047	47,175,024

OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses	68,695,552	53,861,445	23,768,729	23,619,417
General and administrative expenses	36,789,168	29,316,796	18,674,744	11,832,474

Total operating costs and expenses	105,484,720	83,178,241	42,443,473	35,451,891

INCOME BEFORE INCOME TAXES	51,165,472	53,975,664	18,539,574	11,723,133

Income taxes, current	16,127,712	22,006,536	7,178,058	3,968,670
Income taxes, deferred	3,446,852	(909,992)	(153,004)	381,809
Income taxes, net	19,574,564	21,096,544	7,025,054	4,350,479

NET INCOME	$ 31,590,908	$ 32,879,120	$ 11,514,520	$ 7,372,654

Basic net income per common share	$ 0.84	$ 0.88	$ 0.31	$ 0.20
Weighted average of common shares
outstanding - Basic	37,601,409	37,448,000	37,625,013	37,500,000

Fully diluted net income per share	$ 0.78	$ 0.81	$ 0.28	$ 0.19
Weighted average of common shares
outstanding - Diluted	40,374,409	40,530,000	40,671,509	39,926,000

Cash dividend declared per common share	$ 0.34	$ 0.20	$ -	$ 0.10


	For the Nine		For the Three
	Months Ended September 30,		Months Ended September 30,
	2009	2008	2009	2008
Comprehensive Income:
Net income	$ 31,590,908	$ 32,879,120	$ 11,514,520	$ 7,372,654
Change in net unrealized gains on investments, net of tax	4,590,905	-	(3,638,071)	-

Comprehensive Income	$ 36,181,813	$ 32,879,120	$ 7,876,449	$ 7,372,654

The accompanying notes to Condensed Consolidated financial statements are an integral part of these statements.

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(Unaudited)

	Common Shares	Preferred Stock Shares	Common Stock Amount	Preferred Stock Amount	Additional Paid-In Capital	Retained Earnings	Accumulated Other Comprehensive Income	Stock Held in Trust	Treasury Stock	Total Stockholders' Equity
	For the Nine Months Ended September 30, 2009
Balance,
December 31, 2008	$40,158,019	$138,640	$ 401,578	$ 1,387	$33,587,414	$75,654,070	$ 24,834	$ (733,860)	$(7,381,768)	$ 101,553,655

Issuance of common
shares	20,000		200		21,800					22,000

Preferred stock
conversion	75,000	(30,000)	750	(300)	(450)					-

Release of shares
from SGT					136,550			36,450	(189,537)	(16,537)

Stock compensation
plans					1,421,332					1,421,332

Net income						31,590,908				31,590,908

Tax benefit on exercise
of stock options					49,549					49,549

Amortization of deferred
compensation					490,407					490,407

Declaration of dividends						(12,807,201)				(12,807,201)

Net unrealized gains on
investments, net of
tax effect of $2,883,096							4,590,905			4,590,905

Balance,
September 30, 2009	$40,253,019	$108,640	$ 402,528	$ 1,087	$35,706,602	$94,437,777	$ 4,615,739	$ (697,410)	$(7,571,305)	$ 126,895,018

	For the Nine Months Ended September 30, 2008
Balance,
December 31, 2007	$39,307,103	$138,640	$ 393,072	$ 1,387	$24,779,798	$50,724,674		$(2,349,000)	$ (974,746)	$ 72,575,185

Issuance of common
shares	1,516,000		15,157		2,505,370				(3,407,234)	(886,707)

Release of shares
from SGT					25,330			1,615,140	(4,041,705)	(2,401,235)

Repurchase of common
vshares									(2,999,788)	(2,999,788)

Retirement of treasury
shares	(965,084)		(9,651)		(4,032,054)				4,041,705	-

Stock compensation
plans					3,372,832					3,372,832

Net income						32,879,120				32,879,120

Tax benefit on exercise
of stock options					5,706,780					5,706,780

Amortization of deferred
compensation					231,245					231,245

Declaration of dividends						(7,647,004)				(7,647,004)

Balance,
September 30, 2008	$39,858,019	$138,640	$ 398,578	$ 1,387	$32,589,301	$75,956,790		$ (733,860)	$(7,381,768)	$ 100,830,428

The accompanying notes to Condensed Consolidated financial statements are an integral part of these statements.

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

(Unaudited)

	Nine Months Ended	Nine Months Ended
	September 30, 2009	September 30, 2008
Cash flows from operating activities
Net Income	$ 31,590,908	$ 32,879,120
Adjustments to reconcile net income to net cash provided by operating activities:
Allowance for doubtful accounts	1,056,636	1,184,144
Depreciation	336,075	352,877
Amortization of cost of stock options	1,421,332	3,372,831
Amortization of restricted stock grant	490,407	231,246
Realized gains on investments	(13,588,681)	-
Foreign currency gains on investments	(6,108,112)	-
Net amortization of premium / accretion of discount	203,653	20,911
Deferred taxes	3,446,852	(909,991)
Tax benefit on exercise of stock options	(13,531)	(4,677,743)
Other	130,121	-
Net change in assets and liabilities relating to operating activities:
Prepaid reinsurance premiums	(34,804,467)	(6,344,061)
Reinsurance recoverables	(4,621,514)	(3,346,013)
Premiums receivable	(5,005,214)	(8,509,666)
Accrued investment income	7,113	(196,404)
Other receivables	(2,817,396)	(1,811,946)
Income taxes recoverable	1,624,875	841,597
Deferred acquisition costs, net	(8,708,186)	-
Deferred ceding commission, net	-	253,280
Other assets	(171,583)	(253,224)
Unpaid losses and loss adjustment expenses	10,315,726	6,375,956
Unearned premiums	35,004,845	16,023,592
Accounts payable	58,414	(830,894)
Reinsurance payable	55,964,083	31,616,636
Taxes payable	235,571	-
Other accrued expenses	8,279,954	2,822,272
Advance premium	3,156,081	3,925,117
Net cash provided by operating activities	77,483,962	73,019,637
Cash flows from investing activities
Purchases of fixed maturities	(206,473,797)	(4,369,500)
Proceeds from sales of fixed maturities	203,451,919	-
Purchases of equity securities, available for sale	(131,231,211)	-
Proceeds from sales of equity securities, available for sale	79,069,631	-
Capital expenditures and building improvements	(509,517)	(443,314)
Net cash used in investing activities	(55,692,975)	(4,812,814)
Cash flows from financing activities
Bank overdraft	4,559,007	16,972,799
Preferred stock dividend	(22,462)	(37,462)
Common stock dividend	(8,268,279)	(7,126,470)
Issuance of common stock	22,000	130,530
Acquisition of treasury stock	(16,537)	(6,418,257)
Tax benefit on exercise of stock options	13,531	4,677,743
Repayments of loans payable	-	(2,820)
Net cash (used in) provided by financing activities	(3,712,740)	8,196,063

Net increase in cash and cash equivalents	18,078,247	76,402,886
Cash and cash equivalents at beginning of period	256,964,637	216,685,954
Cash and cash equivalents at end of period	$ 275,042,884	$ 293,088,840
Non cash items:
Dividends accrued	$ 4,516,460	$ 3,724,218

The accompanying notes to Condensed Consolidated financial statements are an integral part of these statements.

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009

(Unaudited)

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.

Basis of Presentation

Our unaudited Condensed Consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of Universal Insurance Holdings, Inc. and its subsidiaries. We have made all adjustments that, in our opinion, are necessary for a fair statement of results of the interim periods, and all such adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. Such reclassifications were of an immaterial amount and had no effect on net income or stockholders’ equity. The Condensed Consolidated financial statements should be read in conjunction with our annual audited consolidated financial statements and related notes. Certain financial information that is included in annual financial statements prepared in accordance with GAAP is not required for interim reporting and has been condensed or omitted.

Management must make estimates and assumptions that affect amounts reported in our Condensed Consolidated financial statements and in disclosures of contingent assets and liabilities. Actual results could differ from those estimates.

2. Significant Accounting Policies

We reported Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2008. The following are new or revised policies.

Securities Held to Maturity. Investments for which the Company has the ability and intent to hold to maturity are reported at amortized cost, adjusted for amortization of premiums or discounts and other-than-temporary declines in fair value. Realized gains and losses are determined using the first in, first out (“FIFO”) method.

Securities Available for Sale. Investments available for sale are stated at fair value on the balance sheet. Unrealized gains and losses are excluded from earnings and are reported as a component of other comprehensive income within stockholders’ equity, net of related deferred income taxes. Realized gains and losses are determined using the FIFO method.

Impairment of Securities. For investments classified as available for sale, the difference between fair value and amortized cost for fixed income securities and cost for equity securities, net of deferred income taxes (as disclosed in Note 5), is reported as a component of accumulated other comprehensive income on the Condensed Consolidated Balance Sheet and is not reflected in the operating results of any period until reclassified to net income upon the consummation of a transaction with an unrelated third party or when the decline in fair value is deemed other-than-temporary. The assessment of whether the impairment of a security’s fair value is other-than-temporary is performed using a portfolio review as well as a case-by-case review considering a wide range of factors.

There are a number of assumptions and estimates inherent in evaluating impairments and determining if they are other-than-temporary, including: 1) the Company’s ability and intent to hold the investment for a period of time sufficient to allow for an anticipated recovery in value; 2) the expected recoverability of principal and interest; 3) the length of time and extent to which the fair value has been less than amortized cost for fixed income securities or cost for equity securities; 4) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry conditions and trends, and implications of rating agency actions and offering prices; and 5) the specific reasons that a security is in a significant unrealized loss position, including market conditions which could affect liquidity. Additionally, once assumptions and estimates are made, any number of changes in facts and circumstances could cause us to subsequently determine that an impairment is other-than-temporary, including: 1) general economic conditions that are worse than previously forecasted or that have a greater adverse effect on a particular issuer or industry sector than originally estimated; 2) changes in the facts and circumstances related to a particular issue or issuer’s ability to meet all of its contractual obligations; and 3) changes in facts and circumstances obtained that cause a change in our ability or intent to hold a security to maturity or until it recovers in value.

The Company performed an evaluation of its investments classified as available for sale and has determined that as of September 30, 2009, it held equity securities with unrealized losses in the aggregate amount of $577,379 and fixed maturities with unrealized losses in the aggregate amount of $15,800. The Company held no securities for which impairment is other-than-temporary.

Fair Market Value of Financial Instruments. The Company uses the following methods and assumptions in estimating the fair value of financial instruments.

	Cash equivalents: the carrying amount approximates fair value because of the short maturity of those instruments.
	Fixed maturities: the carrying amount for fixed maturities classified as held to maturity securities reported in the Condensed Consolidated Balance Sheet represents amortized cost. The carrying amount for fixed maturities classified as available for sale represents fair value, which is determined using unadjusted quoted market prices, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders’ equity, namely, Accumulated Other Comprehensive Income.
	Equity securities: the Company’s equity securities are classified as “available for sale” and are, therefore, carried on the Condensed Consolidated Balance Sheet at fair value using unadjusted quoted market prices.
	Long-term debt: The Company’s long-term debt was held at a carrying value of $25,000,000 as of September 30, 2009 and December 31, 2008. The fair value of long-term debt as of September 30, 2009 was estimated based on discounted cash flows

utilizing interest rates currently offered for similar products and determined to be $17,728,045.

Concentrations of Credit Risk. Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, 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 money market accounts and repurchase agreements backed by the US Government and US Government Agency Securities with major national banks. These accounts are held by the Institutional Trust & Custody division of U.S. Bank, the Trust Department of SunTrust Bank and Evergreen Investment Management Company, LLC.

The Company maintains depository relationships with SunTrust Bank and Wachovia Bank, N.A. It is the Company’s policy not to have a balance of more than $250,000 for any of its affiliates at either institution on any given day to minimize exposure to a bank failure. Both banks participate in FDIC’s Temporary Liquidity Guarantee Program, which provides unlimited deposit insurance coverage through December 31, 2009 for non-interest bearing transaction accounts. Cash balances in excess of FDIC–insured limits are transferred daily into custodial accounts with SunTrust Bank where cash is immediately invested into shares of Ridgeworth Institutional US Treasury Securities Money Market.

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, UPCIC and American Platinum Property & Casualty Insurance Company (“APPCIC”) seek to do business with financially sound reinsurance companies and regularly evaluate the financial strength of all reinsurers used. UPCIC’s largest reinsurer, Everest Reinsurance Company, has the following ratings from each of the rating agencies: A+ from A.M. Best Company, A+ from Standard and Poor’s Rating Services and Aa3 from Moody’s Investors Service, Inc. As of September 30, 2009 and December 31, 2008, UPCIC’s reinsurance portfolio contained the following authorized reinsurers that had unsecured recoverables for paid and unpaid losses, including incurred but not reported (“IBNR”) reserves, loss adjustment expenses and unearned premiums whose aggregate balance exceeded 3% of UPCIC’s statutory surplus:

	As of September 30,	As of December 31,
Reinsurer	2009	2008
Everest Reinsurance Company	$ 193,874,970	$ 168,444,284
Florida Hurricane Catastrophe Fund	-	31,445,808

Total	$ 193,874,970	$ 199,890,092

As of September 30, 2009 and December 31, 2008, UPCIC did not have any unsecured recoverables from unauthorized reinsurers exceeding 3% of UPCIC’s statutory surplus.

Stock Compensation. The compensation expense for the stock compensation plans that has been charged against income before income taxes was $1,421,332 and $3,372,832 for the nine-month periods ended September 30, 2009 and 2008, respectively, with a corresponding deferred income tax benefit of $548,279 and $1,301,070, respectively. As of September 30, 2009 the total unrecognized compensation cost related to nonvested share-based compensation granted under the stock compensation plans was

$341,661. The cost is expected to be recognized over a weighted average period of 1.0 years. The Company periodically issues restricted common stock as compensation. These restricted stock awards are expensed ratably over their respective vesting periods.

Recent Accounting Pronouncements

In April 2009, the Financial Accounting Standards Board (“FASB”) issued guidance on “Recognition and Presentation of Other-than-Temporary Impairments”, which amends the criteria for the recognition of other-than-temporary impairments (“OTTI”) for debt securities and requires that credit losses be recognized in earnings and losses resulting from factors other than credit of the issuer be recognized in other comprehensive income. Prior to adoption, all OTTI was recorded in earnings in the period of recognition. This guidance is effective for interim and annual periods ending after June 15, 2009, and requires a cumulative effect adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income. The Company adopted this guidance in the second quarter of 2009. The adoption of this guidance did not have an effect on the results of operations or financial position of the Company.

In April 2009, the FASB issued guidance on “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” Under this guidance, if an entity determines that there has been a significant decrease in the volume and level of activity for the asset or the liability in relation to the normal market activity for the asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value. In addition, if there is evidence that the transaction for the asset or liability is not orderly, the entity shall place little, if any, weight on that transaction price as an indicator of fair value. This guidance is effective for interim and annual periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted this guidance in the second quarter of 2009. The adoption of this guidance did not have an effect on the results of operations or financial position of the Company.

In April 2009, the FASB issued guidance on “Interim Disclosures about Fair Value of Financial Instruments”, which requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance requires fair value disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. This guidance is effective for interim reporting periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009. The adoption of this guidance did not have an effect on the results of operations or financial position of the Company.

In May 2009, the FASB issued guidance on “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued, and requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date – that is, whether that date represents the date the financial statements were issued or were available to be issued. This guidance is effective for interim and annual periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009. The adoption of this guidance did not have an effect on the results of operations or financial position of the Company.

In June 2009, the FASB issued guidance on “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, which establishes the FASB Accounting Standards Codification as the sole source of authoritative U.S. GAAP recognized by the FASB to be applied to nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) promulgated under the authority of the federal securities laws are also sources of

authoritative GAAP for SEC registrants. This guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009 and was adopted by the Company in the third quarter of 2009. The FASB Accounting Standards Codification supersedes all existing non-SEC accounting and reporting standards. The adoption of this guidance changed the Company’s references to U.S. GAAP accounting standards but did not have an effect on the results of operations or financial position of the Company.

3. Insurance Operations

Unearned premiums represent amounts that UPCIC would be required to refund policyholders if their policies were canceled. 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 due for the full policy term. At September 30, 2009, UPCIC was servicing approximately 536,000 homeowners’ and dwelling fire insurance policies with direct unearned premiums totaling $293,494,305 and in-force premiums of approximately $563,000,000. At December 31, 2008, UPCIC was servicing 461,000 homeowners’ and dwelling fire insurance policies with direct unearned premiums totaling $258,489,460 and in-force premiums of approximately $518,200,000.

The wind mitigation discounts mandated by the Florida legislature to be effective June 1, 2007 for new business and August 1, 2007 for renewal business have had a significant negative effect on UPCIC’s premiums and net income. The following table reflects the effect of wind mitigation credits received by UPCIC policyholders:

		Reduction of in-force premium (only policies including wind coverage)
Date	Percentage of UPCIC policyholders receiving credits	Total credits	In-force premium	Percentage reduction of in-force premium
06/01/2007	1.90%	$ 6,284,697	$ 487,866,319	1.27%
12/31/2007	11.80%	$ 31,951,623	$ 500,136,287	6.00%
03/31/2008	16.90%	$ 52,398,215	$ 501,523,343	9.46%
06/30/2008	21.30%	$ 74,185,924	$ 508,411,721	12.73%
09/30/2008	27.28%	$ 97,802,322	$ 515,560,249	15.95%
12/31/2008	31.10%	$ 123,524,911	$ 514,011,138	19.38%
03/31/2009	36.30%	$ 158,229,542	$ 530,029,572	22.99%
06/30/2009	40.40%	$ 188,053,342	$ 544,646,437	25.67%
09/30/2009	43.04%	$ 210,291,783	$ 554,378,761	27.50%

4. Reinsurance

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

UPCIC limits the maximum net loss that can arise from large risks or risks in concentrated geographic areas of exposure by reinsuring (ceding) certain levels of risks with other insurers or reinsurers on an automatic basis under general reinsurance contracts known as “treaties.” 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.

The Company submits the UPCIC reinsurance program for regulatory review to the Florida Office of Insurance Regulation (“OIR”).

UPCIC’s in-force policyholder coverage for windstorm exposures as of September 30, 2009 was approximately $114.7 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.

2009 Reinsurance Program

Quota Share

Effective June 1, 2009, UPCIC entered into a quota share reinsurance treaty with Everest Reinsurance Company (“Everest Re”). Everest Re has the following ratings from each of the rating agencies: A+ from A.M. Best Company, A+ from Standard and Poor’s Rating Services and Aa3 from Moody’s Investors Service, Inc. Under the quota share treaty, through May 31, 2010, UPCIC cedes 50% of its gross written premiums, losses and LAE for policies with coverage for wind risk, with a ceding commission payable to UPCIC equal to 25% of ceded gross written premiums. In addition, the quota share treaty has a limitation for any one occurrence of 58% of gross premiums earned, not to exceed $160,000,000 (of which UPCIC’s net liability in a first event scenario is $50,000,000 ($75,000,000 net of $25,000,000 retained by the Company under the excess catastrophe contract, effective June 12, 2009, described in the “Excess Catastrophe” section below), in a second event scenario is $16,000,000 and in a third event scenario is $16,000,000) and a limitation from losses arising out of events that are assigned a catastrophe serial number by the Property Claims Services (“PCS”) office of 175% of gross premiums earned, not to exceed $480,000,000.

Excess Per Risk

Effective June 1, 2009 through May 31, 2010, 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 $1,400,000 in excess of $600,000 ultimate net loss for each risk and each property loss, and $1,000,000 in excess of $300,000 for each casualty loss. A $7,000,000 aggregate limit applies to the term of this agreement.

Effective June 1, 2009 through May 31, 2010, 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 $400,000 in excess of $200,000 for each property loss. A $2,400,000 aggregate limit applies to the term of the contract.

The total cost of UPCIC’s multiple line excess reinsurance program effective June 1, 2009 through May 31, 2010 is $3,000,000 of which UPCIC’s cost is 50%, or $1,500,000, and the quota share reinsurers’ cost is the remaining 50%. The total cost of UPCIC’s property per risk reinsurance program effective June 1, 2009 through May 31, 2010 is $400,000.

Excess Catastrophe

Effective June 1, 2009 through May 31, 2010, under excess catastrophe contracts, UPCIC obtained catastrophe coverage of $627,000,000 in excess of $160,000,000 covering certain loss occurrences including hurricanes. The coverage of $627,000,000 in excess of $160,000,000 has a second full limit

available to UPCIC; additional premium is calculated pro rata as to amount and 100% as to time, as applicable.

Effective June 1, 2009 through May 31, 2010, UPCIC purchased a reinstatement premium protection contract which reimburses UPCIC for its cost to reinstate the catastrophe coverage of the first $352,000,000 (part of $627,000,000) in excess of $160,000,000.

Effective June 12, 2009 through May 31, 2010, under an excess catastrophe contract, UPCIC obtained catastrophe coverage of $50,000,000 in excess of $110,000,000 (placed 50%) covering certain loss occurrences including hurricanes. 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 Company is the reinsurer under this contract through a segregated account set up by an unrelated company. Accordingly, the Company’s aggregate net liability in a first event scenario is UPCIC’s $50,000,000 (as noted above in the “Quota Share” section) and the $25,000,000 coverage provided by the Company. The intercompany transactions relating to the contract have been eliminated in consolidation.

Effective June 1, 2009 through May 31, 2010, UPCIC also obtained subsequent catastrophe event excess of loss reinsurance to cover certain levels of UPCIC’s net retention through two catastrophe events including hurricanes, as follows:

	2^nd Event	3^rd Event
Coverage	$118,000,000 in excess of $42,000,000 each loss occurrence subject to an otherwise recoverable amount of $118,000,000 (placed 50%)	$128,000,000 in excess of $32,000,000 each loss occurrence subject to an otherwise recoverable amount of $256,000,000 (placed 100%)
Deposit premium (100%)	$21,240,000	$10,240,000
Minimum premium (100%)	$16,992,000	$8,192,000
Premium rate -% of total insured value	0.019309%	0.009309%

UPCIC also obtained coverage from the Florida Hurricane Catastrophe Fund (“FHCF”), which is administered by the Florida State Board of Administration (“SBA”). Under the reimbursement agreement, FHCF would reimburse UPCIC, for each loss occurrence during the contract year for 90% of the ultimate loss paid by UPCIC in excess of its 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, 2009 to May 31, 2010, UPCIC purchased the traditional FHCF coverage and did not purchase the Temporary Increase in Coverage Limit Option offered to insurers by the FHCF. The

estimated coverage is 90% of $1,134,600,000 in excess of $429,000,000. The estimated premium for this coverage is $64,232,626.

Also at June 1, 2009, the FHCF made available, and UPCIC obtained, $10,000,000 of additional catastrophe excess of loss coverage with one free reinstatement of coverage to carriers qualified as Limited Apportionment Companies or companies that participated in the Insurance Capital Build-Up Incentive Program (the “ICBUI Program”) offered by the FHCF, such as UPCIC. This particular layer of coverage at June 1, 2009 is $10,000,000 in excess of $28,200,000. The premium for this coverage is $5,000,000.

On October 30, 2009, the SBA published its most recent estimate of the FHCF’s loss reimbursement capacity in the Florida Administrative Weekly. The SBA estimated that the FHCF’s total loss reimbursement capacity under current market conditions for the 2009 - 2010 contract year is projected to be $18.998 billion over the 12-month period following the estimate. The SBA also referred to its report entitled, “October 2009 Estimated Claims Paying Capacity Report” (“Report”) as providing greater detail regarding the FHCF’s loss reimbursement capacity. The Report estimated that the FHCF’s minimum 12-month loss reimbursement capacity is $14.998 billion and its maximum 12-month loss reimbursement capacity is $21.998 billion. UPCIC elected to purchase the FHCF Mandatory Layer of Coverage for the 2009 - 2010 contract year, which corresponds to FHCF loss reimbursement capacity of $17.175 billion. By law, the FHCF’s obligation to reimburse insurers is limited to its actual claims-paying capacity. In addition, the cost of UPCIC’s reinsurance program may increase should UPCIC deem it necessary to purchase additional private market reinsurance due to reduced estimates of the FHCF’s loss reimbursement capacity.

The total cost of UPCIC’s private catastrophe reinsurance program effective June 1, 2009 through May 31, 2010 is $155,258,800 of which UPCIC’s cost is 50%, or $77,629,400, and the quota share reinsurers’ cost is the remaining 50%. The total cost of UPCIC’s private catastrophe reinsurance layer effective June 12, 2009 through May 31, 2010 is $17,500,000 which is eliminated in consolidation. In addition, UPCIC purchases reinstatement premium protection as described above which amounts to $22,312,747. The cost of subsequent event catastrophe reinsurance is $15,740,000. The estimated premium UPCIC plans to cede to the FHCF for the 2009 hurricane season is $64,232,626 of which UPCIC’s cost is 50%, or $32,116,313, and the quota share reinsurers’ cost is the remaining 50%. UPCIC is also participating in the additional coverage option for Limited Apportionment Companies or companies that participated in the ICBUI Program, the premium for which is $5,000,000, of which UPCIC’s cost is 50%, or $2,500,000, and the quota share reinsurers’ cost is the remaining 50%.

Effective June 1, 2009 through December 31, 2009, the Company obtained $60,000,000 of coverage via a catastrophe risk-linked transaction contract in the event UPCIC’s catastrophe coverage is exhausted. The total cost of the Company’s risk-linked transaction contract is $11,100,000.

UPCIC is responsible for losses related to catastrophic events with incurred losses in excess of coverage provided by UPCIC’s reinsurance program and for losses that otherwise are not covered by the reinsurance program, which could have a material adverse effect on UPCIC’s and the Company’s business, financial condition and results of operations. As of June 30, 2009, UPCIC had coverage to approximately the 114-year Probable Maximum Loss (PML). PML is a general concept applied in the insurance industry for defining high loss scenarios that should be considered when underwriting insurance risk. Catastrophe models produce loss estimates that are qualified in terms of dollars and probabilities. Probability of exceedance or the probability that the actual loss level will exceed a particular threshold is a standard catastrophe model output. For example, the 100-year PML represents a 1.00% Annual Probability of Exceedance (the 114-year PML represents a 0.877% Annual Probability of Exceedance). It

is estimated that the 100-year PML is likely to be equaled or exceeded in one year out of 100 on average, or 1 percent of the time. It is the 99th percentile of the annual loss distribution.

2008 Reinsurance Program

Quota Share

Effective June 1, 2008, UPCIC entered into a quota share reinsurance treaty with Everest Re. Under the quota share treaty, through May 31, 2009, UPCIC ceded 50% of its gross written premiums, losses and LAE for policies with coverage for wind risk, with a ceding commission payable to UPCIC equal to 31% of ceded gross written premiums. In addition, the quota share treaty has a limitation for any one occurrence of 55% of gross premiums earned, not to exceed $150,000,000 (of which UPCIC’s net liability in a first event scenario is $70,000,000, in a second event scenario is $14,800,000 and in a third event scenario is $15,000,000) and a limitation from losses arising out of events that are assigned a catastrophe serial number by the PCS office of 164% of gross premiums earned, not to exceed $450,000,000.

Excess Per Risk

Effective June 1, 2008 through May 31, 2009, 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 $7,800,000 aggregate limit applies to the term of this agreement. Additionally under this agreement, no property claim shall be made until UPCIC has retained the first $1,300,000 of potential recovery.

Effective June 1, 2008 through May 31, 2009, 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.

The total cost of UPCIC’s multiple line excess reinsurance program effective June 1, 2008 through May 31, 2009 is $2,058,270 of which UPCIC’s cost is 50%, or $1,029,135, and the quota share reinsurers’ cost is the remaining 50%. The total cost of UPCIC’s property per risk reinsurance program effective June 1, 2008 through May 31, 2009 is $394,562.

Excess Catastrophe

Effective June 1, 2008 through May 31, 2009, under an excess catastrophe contract, UPCIC obtained catastrophe coverage of $399,000,000 in excess of $150,000,000 covering certain loss occurrences including hurricanes.

	First Layer	Second Layer	Third Layer
Coverage	$140,000,000 in excess of $150,000,000 each loss occurrence (placed 100%)	$134,000,000 in excess of $290,000,000 each loss occurrence (placed 100%)	$125,000,000 in excess of $424,000,000 each loss occurrence (placed 100%)
Deposit premium	$48,300,000	$24,120,000	$14,375,000

Minimum premium	$38,640,000	$19,296,000	$11,500,000
Premium rate -% of total insured value	0.050837%	0.025387%	0.015130%

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, 2008 through May 31, 2009, UPCIC purchased a reinstatement premium protection contract which reimburses UPCIC for its cost to reinstate the catastrophe coverage of the first $274,000,000 in excess of $150,000,000.

Also, effective June 1, 2008, UPCIC also obtained subsequent catastrophe event excess of loss reinsurance to cover certain levels of UPCIC’s net retention through two catastrophe events including hurricanes, as follows:

	2^nd Event	3^rd Event
Coverage	$110,400,000 in excess of $39,600,000 each loss occurrence subject to an otherwise recoverable amount of $110,400,000 (placed 50%)	$120,000,000 in excess of $30,000,000 each loss occurrence subject to an otherwise recoverable amount of $240,000,000 (placed 50%)
Deposit premium (100%)	$16,560,000	$7,800,000
Minimum premium (100%)	$13,248,000	$6,240,000
Premium rate -% of total insured value	0.017430%	0.008210%

UPCIC also obtained coverage from the FHCF, which is administered by the SBA. Under the reimbursement agreement, FHCF would reimburse UPCIC, with respect to each loss occurrence during the contract year for 90% of the ultimate loss paid by UPCIC in excess of its 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, 2008 to May 31, 2009, the SBA made available through the 2007 passage of House Bill 1A an additional $12 billion (Temporary Increase in Coverage Limit - TICL) of Florida Hurricane Catastrophe Fund coverage for the 2008 wind season. UPCIC purchased both the traditional FHCF coverage as well as the TICL FHCF coverage for the contract year June 1, 2008 to May 31, 2009. As of December 31, 2008, the estimated coverage is 90% of $1,514,348,584 in excess of $305,438,476. The premium for this coverage is $59,077,813.

Also at June 1, 2008, the FHCF made available, and UPCIC obtained, $10,000,000 of additional catastrophe excess of loss coverage with one free reinstatement of coverage to carriers qualified as Limited Apportionment Companies or companies that participated in the UCBUI Program offered by the FHCF, such as UPCIC. This particular layer of coverage at June 1, 2008 is $10,000,000 in excess of $29,600,000. The premium for this coverage is $5,000,000.

The total cost of UPCIC’s underlying catastrophe private reinsurance program effective June 1, 2008 through May 31, 2009 is $86,795,000 of which UPCIC’s cost is 50%, or $43,397,500, and the quota share reinsurers’ cost is the remaining 50%. In addition, UPCIC purchases reinstatement premium protection as described above which amounts to $12,266,483. The cost of subsequent event catastrophe reinsurance is $12,180,000. The estimated premium UPCIC plans to cede to the FHCF for the 2008 hurricane season is $59,077,813 of which UPCIC’s cost is 50%, or $29,538,907, and the quota share reinsurers’ cost is the remaining 50%. UPCIC is also participating in the additional coverage option for Limited Apportionment Companies or companies that participated in the ICBUI Program, the premium for which is $5,000,000, of which UPCIC’s cost is 50%, or $2,500,000, and the quota share reinsurers’ cost is the remaining 50%.

Effective June 1, 2008 through December 31, 2008, the Company obtained $60,000,000 of coverage via a catastrophe risk-linked transaction contract in the event UPCIC’s catastrophe coverage is exhausted or UPCIC is unable to successfully collect from the FHCF for losses involving the Temporary Increase in Coverage Limits. The total cost of the Company’s risk-linked transaction contract is $10,260,000.

Effective July 1, 2008 through May 31, 2009, under an excess catastrophe contract, UPCIC obtained an additional $90,000,000 of catastrophe coverage via a new top layer of 90% of $100,000,000 in excess of $549,000,000 covering certain loss occurrences including hurricanes. The contract contains a provision for one reinstatement in the event coverage is exhausted; additional premium is calculated pro rata as to amount and 100% as to time. The total cost of this new top layer is $7,200,000 of which UPCIC’s cost is 50%, or $3,600,000, and the quota share reinsurers’ cost is the remaining 50%.

Also effective July 1, 2008 through May 31, 2009, UPCIC secured an additional $80,000,000 of third event catastrophe coverage via a new layer of 80% of $100,000,000. The total cost of this new layer is $4,000,000 of which UPCIC’s cost is 50%, or $2,000,000, and the quota share reinsurers’ cost is the remaining 50%.

UPCIC is responsible for losses related to catastrophic events with incurred losses in excess of coverage provided by UPCIC’s reinsurance program and for losses that otherwise are not covered by the reinsurance program, which could have a material adverse effect on UPCIC’s and the Company’s business, financial condition and results of operations. At the start of the hurricane season on June 1, 2008, UPCIC had coverage to approximately the 133-year PML. With the additional catastrophic coverage via the new top layer effective July 1, 2008, UPCIC would have had coverage to approximately the 145-year PML. PML is a general concept applied in the insurance industry for defining high loss scenarios that should be considered when underwriting insurance risk. Catastrophe models produce loss estimates that are qualified in terms of dollars and probabilities. Probability of exceedance or the probability that the actual loss level will exceed a particular threshold is a standard catastrophe model output. For example, the 100-year PML represents a 1.00% Annual Probability of Exceedance (the 133-year PML represents a 0.752% Annual Probability of Exceedance and the 145-year PML represents a 0.690% Annual Probability of Exceedance). It is estimated that the 100-year PML is likely to be equaled or exceeded in one year out of 100 on average, or 1 percent of the time. It is the 99th percentile of the annual loss distribution.

The Company’s reinsurance arrangements had the following effect on certain items in the Condensed Consolidated Statements of Operations:

	Nine Months Ended September 30, 2009			Nine Months Ended September 30, 2008

	Premiums	Premiums	Loss and Loss	Premiums	Premiums	Loss and Loss
	Written	Earned	Adjustment	Written	Earned	Adjustment
			Expenses			Expenses
Direct	$436,610,689	$401,605,845	$139,259,179	$394,304,531	$378,280,937	$107,105,622
Ceded	(328,518,186)	(293,713,719)	(70,563,627)	(275,284,862)	(268,940,799)	(53,244,177)

Net	$108,092,503	$107,892,126	$ 68,695,552	$119,019,669	$109,340,138	$ 53,861,445

	Three Months Ended September 30, 2009			Three Months Ended September 30, 2008

	Premiums	Premiums	Loss and Loss	Premiums	Premiums	Loss and Loss
	Written	Earned	Adjustment	Written	Earned	Adjustment
			Expenses			Expenses
Direct	$ 134,626,400	$139,207,538	$ 48,330,038	$124,718,631	$128,626,371	$ 46,907,087
Ceded	(104,152,022)	(106,449,802)	(24,561,309)	(91,295,102)	(90,543,483)	(23,287,670)
Net	$ 30,474,378	$ 32,757,736	$ 23,768,729	$ 33,423,529	$ 38,082,888	$ 23,619,417

Other Amounts:

Prepaid reinsurance premiums and reinsurance recoverables as of September 30, 2009 and December 31, 2008 were as follows:

	As of September 30,	As of December 31,
	2009	2008

Prepaid reinsurance premiums	$ 207,851,243	$ 173,046,776

Reinsurance recoverable on unpaid losses and LAE	$ 48,223,623	$ 43,228,416
Reinsurance recoverable on paid losses	407,738	781,431
Reinsurance recoverables	$ 48,631,361	$ 44,009,847

The Company has determined that a right of offset exists between UPCIC and its reinsurers, under its quota share reinsurance treaties. Reinsurance payable to reinsurers has been offset by ceding commissions and inuring premiums receivable from reinsurers as follows:

	As of September 30,	As of December 31,
	2009	2008
Reinsurance payable, net of ceding commissions
due from reinsurers	$ 134,622,833	$ 60,099,512
Inuring premiums receivable	(54,674,502)	(36,115,264)
Reinsurance payable, net	$ 79,948,331	$ 23,984,248

5. Investments

Major sources of net investment income, are summarized as follows:

	For the Nine Months Ended September 30,
	2009	2008
Cash and cash equivalents	$ 253,073	$ 3,757,365
Fixed maturities	1,136,568	38,889
Equity securities	634,362	-
Total investment income	2,024,003	3,796,254
Less investment expenses	(638,996)	(167,782)

Net investment income	$ 1,385,007	$ 3,628,472

As of September 30, 2009 and December 31, 2008, the Company’s investments consisted of cash, cash equivalents, and investments with carrying values of $364,403,855 and $262,613,412, respectively.

Cash and cash equivalents consisted of checking, repurchase and money market accounts with carrying values of $275,042,884 and $256,964,637 as of September 30, 2009 and December 31, 2008, respectively, held at the following financial institutions:

	As of September 30, 2009
Financial Institution	Cash	Money Market Funds	Total	%

U. S. Bank IT&C (1)	0	38,800,321	38,800,321	43.9%
Evergreen Investment Management
Company, L.L.C.	0	401,901	401,901	2.1%
SunTrust Bank	425,436	0	425,436	0.5%
SunTrust Bank Institutional
Asset Services	0	217,151,927	217,151,927	47.3%
Wachovia Bank, N.A.	893,392	0	893,392	0.3%
The Bank of New York Mellon	0	12,269,581	12,269,581	4.8%
All Other Banking Institutions	501,312	4,599,014	5,100,326	1.1%
	1,820,140	273,222,744	275,042,884	100.0%

(1) Funds invested with Evergreen Investment Management Company, L.L.C.

	As of December 31, 2008
Financial Institution	Cash	Money Market Funds	Total	%

U. S. Bank IT&C (1)	0	161,072,107	161,072,107	62.7%
Evergreen Investment Management	0	10,575,615	10,575,615	4.1%
Company, L.L.C.
SunTrust Bank Institutional
Asset Services	0	81,703,268	81,703,268	31.8%
All Other Banking Institutions	417,830	3,195,817	3,613,647	1.4%
	417,830	256,546,807	256,964,637	100.0%

(1) Funds invested with Evergreen Investment Management Company, L.L.C.

Investments are classified into three categories: held to maturity, trading securities or available for sale. Investments classified as held to maturity include debt securities that the Company has the positive intent and ability to hold to maturity. Held to maturity securities are reported at amortized cost. Investments classified as available for sale include debt and equity securities that are not classified as held to maturity or as trading security investments. Available for sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders’ equity, namely Other Comprehensive Income. The Company did not hold any trading securities at September 30, 2009 or December 31, 2008.

During the nine-month period ended September 30, 2009, the Company sold US Treasury Notes, originally intended to be held to maturity, and purchased US Treasury Inflation Index Bonds in order to reduce the effects of inflation on the Company’s overall investment portfolio. These US Treasury Notes had a carrying value of $4,170,864, were sold for $4,244,851 and a gain of $73,987 was recognized. The Company reclassified its held to maturity securities being carried at an amortized cost of $57,773,720 to available for sale securities and recorded net unrealized losses of $85,965 concurrently with the sale of the US Treasury Notes.

The following table shows the realized gains for fixed maturities and equity securities for the nine-month and three-month periods ended September 30, 2009. There were no realized gains for the nine-month and three-month periods ended September 30, 2008.

	Nine Months Ended
	September 30, 2009
	Gains (Losses)	Fair Value at Sale
Fixed maturities, available for sale	$ 5,369,899	$ 203,451,920
Equity securities	12,284,782	56,425,089
Total realized gains	$ 17,654,681	$ 259,877,009

Equity securities	(4,066,000)	28,031,251
Total realized losses	$ (4,066,000)	$ 28,031,251

Net realized gains on investments	$ 13,588,681	$ 287,908,260

	Three Months Ended
	September 30, 2009
	Gains (Losses)	Fair Value at Sale
Fixed maturities, available for sale	$ 5,295,912	$ 199,207,068
Equity securities	10,906,160	45,028,907
Total realized gains	$ 16,202,072	$ 244,235,975

Equity securities	(4,066,000)	28,031,251
Total realized losses	$ (4,066,000)	$ 28,031,251

Net realized gains on investments	$ 12,136,072	$ 272,267,226

A summary of the amortized cost, estimated fair value, gross unrealized gains and losses of fixed maturities and equity securities at September 30, 2009 and December 31, 2008 follows.

	September 30, 2009
	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
Fixed maturities - available for sale:
US government and agency obligations	$ 18,554,508	$ 36,315	$ (15,800)	$ 18,575,023
Total fixed maturities - available for sale	$ 18,554,508	$ 36,315	$ (15,800)	$ 18,575,023

Equity securities	$ 63,251,989	$ 8,111,338	$ (577,379)	$ 70,785,948


	December 31, 2008
	Amortized Cost	Gross Unrealized Gains	Gross Unrealized Losses	Estimated Fair Value
Fixed maturities - held to maturity:
US government and agency obligations	$ 4,334,405	$ 125,760	$ -	$ 4,460,165
Total fixed maturities - held to maturity	$ 4,334,405	$ 125,760	$ -	$ 4,460,165

Equity securities	$ 1,273,941	$ 40,738	$ (309)	$ 1,314,370

The table below reflects the Company’s unrealized investment losses by investment class, aged for length of time in an unrealized loss position as of September 30, 2009.

	Less than 12 months			12 months or longer
	Number of issues	Fair value	Unrealized losses	Number of issues	Fair value	Unrealized losses
Fixed maturities, available for sale:
US government and agency obligations	1	$ 8,098,015	$ 15,800	-	$ -	$ -

Total fixed maturities, available for sale	1	$ 8,098,015	$ 15,800	-	$ -	$ -

Equity securities:
Common stocks	30	$ 19,662,342	$ 577,379	-	$ -	$ -

Total equity securities	30	$ 19,662,342	$ 577,379	-	$ -	$ -

Unrealized losses on fixed maturities, available for sale, are principally related to rising interest rates and changes in credit spreads. Unrealized losses on equity securities are primarily related to equity market fluctuations. The Company has performed an evaluation of its investment portfolio and concluded that it holds no securities for which an other-than-temporary impairment adjustment to carrying value is warranted.

Below is a summary of fixed maturities at September 30, 2009 and December 31, 2008 by contractual or expected periods.

	September 30, 2009		December 31, 2008
Held-to-maturity	Amortized Cost	Estimated Fair Value	Amortized Cost	Estimated Fair Value
Due in one year or less	$ -	$ -	$ 2,626,958	$ 2,674,230
Due after one year through five years	-	-	1,707,447	1,785,935
Due after five years through ten years	-	-	-	-
Due after ten years	-	-	-	-

Total	$ -	$ -	$ 4,334,405	$ 4,460,165

	September 30, 2009		December 31, 2008
Available-for-Sale	Amortized Cost	Estimated Fair Value	Amortized Cost	Estimated Fair Value
Due in one year or less	$ -	$ -	$ -	$ -
Due after one year through five years	176,944	182,589	-	-
Due after five years through ten years	18,377,564	18,392,434	-	-
Due after ten years	-	-	-	-

Total	$ 18,554,508	$ 18,575,023	$ -	$ -

The Company has made an assessment of its invested assets for fair value measurement as further described in Note 12 – Fair Value Disclosure.

6. Loans Payable and Long-Term Debt

Surplus Note

On November 9, 2006, UPCIC entered into a $25.0 million surplus note with the SBA under the ICBUI Program. Under the ICBUI Program, which was implemented by the Florida legislature to encourage insurance companies to write additional residential insurance coverage in Florida, the SBA 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 $102.7 million. The $25.0 million is invested in a U.S. treasury money market account.

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 the OIR. Principal repayments are scheduled to be made in equal quarterly installments of $367,647. The first scheduled principal payment is due January 1, 2010.

As of September 30, 2009 and December 31, 2008, the balances due under the surplus note are shown in the Company’s Condensed Consolidated Balance Sheets as Long-Term Debt with carrying values of $25,000,000.

Repayments of the principal balance of the surplus note are due as follows:

	2009	$ 0
	2010	1,470,588
	2011	1,470,588
	2012	1,470,588
	2013	1,470,588
	Thereafter	19,117,648
	Total	$25,000,000

In May 2008, the Florida legislature passed a law providing participants in the Program an opportunity to amend the terms of their surplus notes based on law changes. The new law contains methods for calculating compliance with the writing ratio requirements that are more favorable to UPCIC than prior law and the prior terms of the existing surplus note. On November 6, 2008, UPCIC and the SBA executed an addendum to the surplus note (“the addendum”) that reflects these law changes. The terms of the addendum were effective July 1, 2008. In addition to other less significant changes, the addendum modifies the definitions of Minimum Required Surplus, Minimum Writing Ratio, Surplus, and Gross Written Premium, respectively, as defined in the original surplus note.

Prior to the effective date of the addendum, UPCIC was in compliance with each of the loan’s covenants as implemented by rules promulgated by the SBA. UPCIC currently remains in compliance with each of the loan’s covenants as implemented by rules promulgated by the SBA. An event of default will occur under the surplus note, as amended, if UPCIC: (i) defaults in the payment of the surplus note; (ii) drops below a net written premium to surplus of 1:1 for three consecutive quarters beginning January 1, 2010 and drops below a gross written premium to surplus ratio of 3:1 for three consecutive quarters beginning January 1, 2010; (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; (vii) pays any dividend when principal or interest payments are past due under the surplus note; or (viii) fails to maintain a level of surplus and reinsurance sufficient to cover in excess of UPCIC’s 1-in-100 year

probable maximum loss as determined by a hurricane loss model accepted by the Florida Commission on Hurricane Loss Projection Methodology as certified by the OIR annually.

The original surplus note provided for increases in interest rates for failure to meet the Minimum Writing Ratio. Under the terms of the surplus note agreement, at December 31, 2007, the interest rate on the note was increased by 450 basis points. As of June 30, 2008, the additional interest rate on the note was decreased from 450 basis points to 25 basis points. Under the terms of the surplus note, as amended, the net written premium to surplus requirement and gross written premium to surplus requirement have been modified. As of September 30, 2009, UPCIC’s net written premium to surplus ratio and gross written premium to surplus ratio were in excess of the required minimums and, therefore, UPCIC was not subject to increases in interest rates.

Finance Facility

In November 2007, the Company commenced offering premium finance services through Atlas Premium Finance Company, a wholly-owned subsidiary. To fund its operations, Atlas agreed to a Sale and Assignment Agreement with Flatiron Capital Corp., a premier funding partner to the commercial property and casualty insurance industry owned by Wells Fargo Bank, N.A. The agreement provides for Atlas’ sale of eligible premium finance receivables to Flatiron.

Interest Expense

Interest expense, comprised primarily of interest on the surplus note, was $573,323 and $1,338,993, respectively, for the nine-month periods ended September 30, 2009 and 2008, and $235,786 and $283,774, respectively, for the three-month periods ended September 30, 2009 and 2008.

7.     Related Party 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, Chief Operating Officer and Senior Vice President of UPCIC. During the nine-month periods ended September 30, 2009 and 2008, the Company expensed claims adjusting fees of $345,000 and $200,000, respectively, to Downes and Associates.

8.     Income Tax Provision

Deferred income taxes as of September 30, 2009 and December 31, 2008 represent the temporary differences between financial reporting basis and the tax basis of the Company’s assets and liabilities. The tax effects of temporary differences are as follows:

		As of September 30,	As of December 31,
		2009	2008
Deferred income tax assets:
	Unearned premiums	$ 6,607,362	$ 6,591,903
	Advanced premiums	1,172,728	886,088
	Unpaid losses	1,475,535	1,290,615
	Regulatory assessments	151,165	1,662,854
	Executive compensation	-	269,942
	Shareholder compensation	312,005	409,351
	Stock option expense	3,037,700	2,519,346
	Accrued wages	414,493	251,948
	Allowance for uncollectible receivables	947,646	540,049
	Restricted stock grant	80,120	-

Total deferred income tax assets		14,198,754	14,422,096

Deferred income tax liabilities:
	Property and equipment	-	(26,617)
	Deferred policy acquisition costs, net	(3,516,548)	(157,365)
	Restricted stock grant	-	(109,056)
	Unrealized gains on investments	(2,898,692)	(15,595)

Total deferred income tax liabilities		(6,415,240)	(308,633)

Net deferred income tax asset		$ 7,783,514	$ 14,113,463

A valuation allowance is deemed unnecessary as of September 30, 2009 and December 31, 2008, respectively 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.
Included in income tax is State of Florida income tax at a statutory tax rate of 5.5%.

The Company’s earliest open tax year for purposes of examination of its Federal and State of Florida income tax liability due to taxing authorities is the year ended December 31, 2006. The Company’s U.S. Corporation Income Tax Return for the 2006 tax year is currently undergoing examination by the Internal Revenue Service.

9. Stockholders’ Equity

Cumulative Preferred Stock

Each share of Series A Preferred Stock is convertible by the Company into 2.5 shares of Common Stock, into an aggregate of 49,875 common shares. Each share of Series M Preferred Stock is convertible by the Company into 1.25 shares of Common Stock, into an aggregate of 110,863 common shares. The Series A Preferred Stock pays a cumulative dividend of $.25 per share per quarter.

Stock Options

A summary of the option activity for the nine-month period ended September 30, 2009 is presented below:

		Options Exercisable
					Aggregate
	Number	Option Price per Share			Intrinsic
	of Shares	Low	High	Weighted	Value
Outstanding December 31, 2008	6,650,000	$ 0.50	$ 6.50	$ 3.15	$ 3,795,250
Granted	-
Exercised	(65,000)			$ 3.00
Expired	-
Outstanding September 30, 2009	6,585,000	$ 0.50	$ 6.50	$ 3.15	$ 14,685,300

Common Stock
The following table summarizes the activity relating to shares of the Company’s common stock during the nine-month period ended September 30, 2009:

	Issued	Treasury	Shares	Outstanding
	Shares	Shares	held in trust	Shares
Balance, as of December 31, 2008	40,158,019	(1,709,847)	(906,000)	37,542,172
Options exercised	20,000		45,000	65,000
Shares applied to exercise price and/or income taxes		(38,136)		(38,136)
Preferred stock conversion	75,000			75,000
Balance, as of September 30, 2009	40,253,019	(1,747,983)	(861,000)	37,644,036

Stock Issuances

On March 9, 2009, preferred stockholders converted 30,000 shares of Series A Preferred Stock into 75,000 shares of Common Stock.

On August 26, 2009, the Company issued 20,000 shares of restricted common stock at a price of $1.10 per share to Reed Slogoff, a Director of the Company, pursuant to Mr. Slogoff’s exercise of stock options.

On September 25, 2009, the Company released from the Stock Grantor Trust (“SGT”) 25,000 and 20,000 shares of restricted common stock at prices of $3.80 and $3.90 per share, respectively, to an employee of the Company, pursuant to an exercise of stock options on a “cashless” basis. Of the 45,000 common shares released from the SGT, 6,864 shares of common stock were issued to the individual exercising stock options and 38,136 shares of common stock were retained by the Company as treasury shares.

10.     Earnings Per Share

Basic earnings per share (“EPS”) is based on the weighted average number of shares outstanding for the period, excluding any dilutive common share equivalents. Diluted EPS reflects the potential dilution that could occur if securities to issue common stock were exercised.

The following table reconciles the numerator (i.e., income) and denominator (i.e., shares) of the basic and diluted earnings per share computations for net income for the nine-month and three-month periods ended September 30, 2009 and 2008.

	Nine Months Ended			Nine Months Ended
	September 30, 2009			September 30, 2008
	Income Available to Common Stockholders	Shares	Per-Share Amount	Income Available to Common Stockholders	Shares	Per-Share Amount

Net income	$31,590,908			$32,879,120
Less: preferred stocks dividends	(22,463)			(37,463)
Income available to common stockholders	$31,568,445	37,601,409	$0.84	$32,841,657	37,448,000	$0.88

Effect of dilutive securities:

Stock options and warrants	-	2,593,855	(0.05)	-	2,514,000	(0.06)
Preferred stock	22,463	179,145	(0.01)	37,463	568,000	(0.01)
Income available to common stockholders and assumed conversion	$31,590,908	40,374,409	$0.78	$32,879,120	40,530,000	$0.81

	Three Months Ended			Three Months Ended
	September 30, 2009			September 30, 2008
	Income Available to Common Stockholders	Shares	Per-Share Amount	Income Available to Common Stockholders	Shares	Per-Share Amount

Net income	$11,514,520			$ 7,372,654
Less: preferred stocks dividends	(4,988)			(12,488)
Income available to common stockholders	$11,509,532	37,625,013	$ 0.31	$ 7,360,166	37,500,000	$0.20

Effect of dilutive securities:

Stock options and warrants	-	2,885,758	(0.03)	-	1,858,000	(0.01)
Preferred stock	4,988	160,738	-	12,488	568,000	0.00
Income available to common stockholders and assumed conversion	$11,514,520	40,671,509	$ 0.28	$ 7,372,654	39,926,000	$0.19

11. Other Comprehensive Income

The components of other comprehensive income on a pretax and after-tax basis for the nine-month and three-month periods ended September 30, 2009 are as follows:

For the Nine Months

For the Three Months

Ended September 30, 2009

Pretax

Tax

After-tax