Edgar Filing: UNIVERSAL INSURANCE HOLDINGS, INC.

form10q.htm

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 March 31, 2010

[ ] 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 r	Accelerated filer x
	Non-accelerated filer r (Do not check if a smaller reporting company)	Smaller reporting company r

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: 39,166,033 shares of common stock, par value $0.01 per share, outstanding on May 4, 2010.

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 March 31, 2010 and December 31, 2009	5

	Condensed Consolidated Statements of Operations for the Three-Month Periods Ended March 31, 2010 and 2009	6

	Condensed Consolidated Statements of Stockholders’ Equity for the Three-Month Periods Ended March 31, 2010 and 2009	7

	Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2010 and 2009	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44

Item 4.	Controls and Procedures	46

PART II:	OTHER INFORMATION

Item 1.	Legal Proceedings	46

Item 1A.	Risk Factors	46

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47

Item 3.	Defaults Upon Senior Securities	47

Item 4.	(Removed and Reserved)	47

Item 5.	Other Information	47

Item 6.	Exhibits	47

Signatures		49

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 March 31, 2010 and the related condensed consolidated statements of operations and cash flows for the three-month periods ended March 31, 2010 and 2009. 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

May 10, 2010

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	(Unaudited)
	March 31,			December 31,
ASSETS	2010			2009
Cash and cash equivalents	$	228,541,314		$	192,924,291
Investments
Fixed maturities available for sale, at fair value		66,368,800			41,389,008
Equity securities available for sale, at fair value		66,087,564			73,408,002
Real estate, net		3,293,582			3,289,893
Prepaid reinsurance premiums		221,022,592			200,294,241
Reinsurance recoverables		65,035,714			91,816,433
Premiums receivable, net		38,709,483			37,363,110
Receivable from securities		12,148,475			6,259,973
Other receivables		4,201,023			5,068,367
Income taxes recoverable		3,971,565			3,211,874
Property and equipment, net		1,256,876			1,245,858
Deferred policy acquisition costs, net		12,436,392			9,464,624
Deferred income taxes		12,046,948			11,894,289
Other assets		492,641			617,337
Total assets	$	735,612,969		$	678,247,300

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses	$	131,736,670		$	127,197,753
Unearned premiums		298,317,010			278,370,544
Advance premium		23,357,329			17,078,558
Accounts payable		3,974,070			3,172,626
Bank overdraft		25,460,302			20,297,061
Reinsurance payable, net		89,208,479			73,104,595
Income taxes payable		479,563			368,968
Dividends payable		4,699,927			-
Other accrued expenses		19,468,916			20,750,385
Long-term debt		24,264,706			24,632,353
Total liabilities		620,966,972			564,972,843

STOCKHOLDERS' EQUITY:
Cumulative convertible preferred stock, $.01 par value		1,077			1,087
Authorized shares - 1,000,000
Issued shares - 107,690 and 108,640
Outstanding shares - 107,690 and 108,640
Minimum liquidation preference - $287,240 and $288,190
Common stock, $.01 par value		408,772			402,146
Authorized shares - 55,000,000
Issued shares - 40,877,087 and 40,214,884
Outstanding shares - 39,166,033 and 37,774,765
Treasury shares, at cost - 1,711,054 and 1,809,119 shares		(7,389,416	)		(7,948,606	)
Common stock held in trust, at cost 0 and 631,000 shares		-			(511,110	)
Additional paid-in capital		36,595,977			36,666,914
Accumulated other comprehensive (loss) income, net of taxes		(2,672,839	)		563,654
Retained earnings		87,702,426			84,100,372
Total stockholders' equity		114,645,997			113,274,457
Total liabilities and stockholders' equity	$	735,612,969		$	678,247,300

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 Three
	Months Ended March 31,
	2010			2009
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$	160,099,645		$	145,212,145
Ceded premiums written		(127,567,966	)		(95,727,857
Net premiums written		32,531,679			49,484,288
Decrease (increase) in net unearned premium		781,884			(11,726,636
Premiums earned, net		33,313,563			37,757,652
Net investment income		192,953			324,589
Realized gains on investments		3,694,717			1,111,333
Foreign currency gains on investments		684,247			-
Commission revenue		8,737,871			7,444,849
Other revenue		1,004,253			1,479,377

Total premiums earned and other revenues		47,627,604			48,117,800

OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses		23,651,712			20,420,664
General and administrative expenses		10,377,818			7,515,228

Total operating costs and expenses		34,029,530			27,935,892

INCOME BEFORE INCOME TAXES		13,598,074			20,181,908

Income taxes, current		3,411,241			8,582,617
Income taxes, deferred		1,879,864			(838,539
Income taxes, net		5,291,105			7,744,078

NET INCOME	$	8,306,969		$	12,437,830

Basic net income per common share	$	0.21		$	0.33
Weighted average of common shares
outstanding - Basic		38,889,176			37,561,341

Fully diluted net income per share	$	0.21		$	0.31
Weighted average of common shares
outstanding - Diluted		40,434,042			39,921,929

Cash dividend declared per common share	$	0.12		$	0.22

	For the Three
	Months Ended March 31,
		2010			2009
Comprehensive Income:
Net income	$	8,306,969			$12,437,830
Change in net unrealized (losses) gains on investments, net of tax		(3,236,494	)		2,556,141
Comprehensive Income		$5,070,475			$14,993,971

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 THREE MONTHS ENDED MARCH 31, 2010 AND 2009

(Unaudited)

	For the Three Months Ended March 31, 2010
	Common Shares			Preferred Stock Shares			Common Stock Amount			Preferred Stock Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Stock Held in Trust			Treasury Stock			Total Stockholders' Equity
Balance,
December 31, 2009		40,214,884			108,640		$	402,146		$	1,087		$	36,666,914		$	84,100,372		$	563,654		$	(511,110	)	$	(7,948,606	)	$	113,274,457

Issuance of common shares		1,900,206						19,001						1,858,078												(4,715,261	)		(2,838,182	)
Preferred stock conversion		1,187			(950	)		12			(10	)		(2	)														-

Release of shares from SGT														939,900									511,110			(2,328,858	)		(877,848	)

Retirement of treasury shares		(1,239,190	)					(12,388	)					(7,591,863	)											7,603,310			(941	)

Stock compensation plans														477,779															477,779

Net income																	8,306,969												8,306,969

Tax benefit on exercise of stock options														4,020,789															4,020,789

Amortization of deferred compensation														224,382															224,382

Declaration of dividends																	(4,704,915	)											(4,704,915	)

Change in net unrealized loss on investment, net of tax effect of $2,032,523																				(3,236,494	)								(3,236,494	)


Balance, March 31, 2010		40,877,087			107,690		$	408,771		$	1,077		$	36,595,977		$	87,702,426		$	(2,672,839	)	$	-		$	(7,389,415	)	$	114,645,997
	For the Three Months Ended March 31, 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

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

Stock compensation plans														820,156															820,156

Net income																	12,437,830												12,437,830

Amortization of deferred compensation														162,519															162,519

Declaration of dividends																	(8,269,932	)											(8,269,932	)

Change in net unrealized gains on investment, net of tax effect of $1,595,467																				2,556,141									2,556,141

Balance, March 31, 2009		40,233,019			108,640		$	402,328		$	1,087		$	34,569,639		$	79,821,968		$	2,580,975		$	(733,860	)	$	(7,381,768	)	$	109,260,369

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)

	Three Months Ended			Three Months Ended
	March 31, 2010			March 31, 2009
Cash flows from operating activities:
Net Income	$	8,306,969		$	12,437,830
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense		201,523			380,427
Depreciation		146,812			101,424
Amortization of cost of stock options		477,781			820,156
Amortization of restricted stock grants		224,382			162,519
Realized gains on investments		(3,694,717	)		(1,111,333	)
Foreign currency gains (losses) on investments		(683,733	)		17,387
Amortization of premium / accretion of discount, net		107,000			21,520
Deferred income taxes		1,879,864			(838,539	)
Tax benefit on exercise of stock options		(3,174,153	)		-
Other		(15,035	)		130,119
Net change in assets and liabilities relating to operating activities:
Prepaid reinsurance premiums		(20,728,351	)		(5,193,314	)
Reinsurance recoverables		26,780,719			(1,339,673	)
Premiums receivable, net		(1,547,897	)		(6,589,909	)
Other receivables		864,550			409,604
Income taxes recoverable		3,261,097			2,482,923
Deferred policy acquisition costs, net		(2,971,768	)		60,022
Other assets		119,315			(105,603	)
Unpaid losses and loss adjustment expenses		4,538,917			1,728,768
Unearned premiums		19,946,466			16,919,952
Advance premium		6,278,770			4,376,045
Accounts payable		801,445			626,664
Reinsurance payable		16,103,884			28,036,181
Income taxes payable		110,595			5,989,694
Other accrued expenses		(1,281,469	)		2,947,858
Net cash provided by operating activities		56,052,966			62,470,722
Cash flows from investing activities:
Purchases of fixed maturities		(50,426,894	)		(103,439,593	)
Proceeds from sales of fixed maturities		25,322,048			-
Purchases of equity securities, available for sale		(35,879,591	)		(65,536,507	)
Proceeds from sales of equity securities, available for sale		36,447,190			9,609,255
Capital expenditures and building improvements		(146,484	)		(91,723	)
Net cash used in investing activities		(24,683,731	)		(159,458,568	)
Cash flows from financing activities:
Bank overdraft		5,163,241			1,981,436
Preferred stock dividend		(4,987	)		-
Common stock dividend		-			(3,754,217	)
Issuance of common stock		7,000			-
Treasury shares on option exercise		(3,723,972	)		-
Tax benefit on exercise of stock options		3,174,153			-
Repayments of loans payable		(367,647	)		-
Net cash provided by (used in) in financing activities		4,247,788			(1,772,781	)

Net increase (decrease) in cash and cash equivalents		35,617,023			(98,760,627	)
Cash and cash equivalents at beginning of period		192,924,291			256,964,637
Cash and cash equivalents at end of period	$	228,541,314		$	158,204,010

Non cash items:
Dividends accrued	$	4,699,926		$	4,515,715

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

MARCH 31, 2010

(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. The condensed consolidated financial statements should be read in conjunction with our annual audited consolidated financial statements and related notes. The condensed consolidated balance sheet at December 31, 2009 was derived from audited financial statements, but does not include all disclosures required by GAAP. 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.

To conform to the 2010 presentation, certain amounts in the prior periods’ consolidated financial statements and notes have been reclassified. Such reclassifications had no effect on net income or stockholders’ equity.

2. Significant Accounting Policies

The Company reported Significant Accounting Policies in our Annual Report on Form 10-K for the year ended December 31, 2009. The following are new or revised disclosures or disclosures required on a quarterly basis.

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 causes a change in our ability or intent to hold a security to maturity or until it recovers in value.

The company performed evaluations of its investments classified as available for sale and has determined it held no securities for which impairment is other-than-temporary as of March 31, 2010.

Fair Market Value of Financial Instruments. The Company’s long-term debt was held at a carrying value of $24,264,706 and $24,632,353 as of March 31, 2010 and December 31, 2009, respectively. The fair value of long-term debt as of March 31, 2010 was estimated based on discounted cash flows utilizing interest rates currently offered for similar products and was determined to be $17,370,433 and $18,299,889 as of March 31, 2010 and December 31, 2009, respectively.

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.

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. 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 March 31, 2010 and December 31, 2009, 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 March 31,		As of December 31,
Reinsurer	2010		2009
Everest Reinsurance Company	$	204,422,914	$	208,129,753
Florida Hurricane Catastrophe Fund		6,996,189		24,888,534

Total	$	211,419,103	$	233,018,287

As of March 31, 2010 and December 31, 2009, UPCIC did not have any unsecured recoverables from unauthorized reinsurers exceeding 3% of UPCIC’s statutory surplus.

Stock Compensation. The Company periodically issues restricted common stock and grants options to purchase common stock to its directors, officers and employees. These restricted stock awards and stock option grants are recorded as compensation expense ratably over their respective vesting periods.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board ("FASB ") issued new accounting guidance which expands disclosure requirements relating to fair value measurements. The guidance adds requirements for disclosing amounts of and reasons for significant transfers into and out of Levels 1 and 2 and requires gross rather than net disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. The guidance also provides clarification that fair value measurement disclosures are required for each class of assets and liabilities. Disclosures about the valuation techniques and inputs used to measure fair value for measurements that fall in either Level 2 or Level 3 are also required. The Company adopted the provisions of the new guidance as of March 31, 2010 except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which are required for fiscal years beginning after December 15, 2010. Disclosures are not required for earlier periods presented for comparative purposes. The new guidance affects disclosures only; and therefore, the adoption had no impact on the Company’s results of operations or financial position.

In February 2010, the FASB amended the subsequent events guidance issued in May 2009 to remove the requirement for SEC filers to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. The amendment was effective upon issuance. The adoption of this guidance did not have an impact on the Company's consolidated financial condition or results of operations.

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 March 31, 2010, UPCIC serviced approximately 544,000 homeowners’ and dwelling fire insurance policies with direct unearned premiums totaling $298,317,010 and in-force premiums of approximately $581,600,000. At December 31, 2009, UPCIC serviced 541,000 homeowners’ and dwelling fire insurance policies with direct unearned premiums totaling $278,370,544 and in-force premiums of approximately $567,100,000.

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 effect on UPCIC’s premium. The following table reflects the effect of wind mitigation credits received by UPCIC policyholders:

Wind Mitigation Credits
				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
6/1/2007		1.9	%	$	6,284,697	$	487,866,319		1.3	%
12/31/2007		11.8	%	$	31,951,623	$	500,136,287		6.0	%
3/31/2008		16.9	%	$	52,398,215	$	501,523,343		9.5	%
6/30/2008		21.3	%	$	74,185,924	$	508,411,721		12.7	%
9/30/2008		27.3	%	$	97,802,322	$	515,560,249		16.0	%
12/31/2008		31.1	%	$	123,524,911	$	514,011,138		19.4	%
3/31/2009		36.3	%	$	158,229,542	$	530,029,572		23.0	%
6/30/2009		40.4	%	$	188,053,342	$	544,646,437		25.7	%
9/30/2009		43.0	%	$	210,291,783	$	554,378,761		27.5	%
12/31/2009		45.2	%	$	219,974,130	$	556,577,449		28.3	%
3/31/2010		47.3	%	$	235,717,892	$	569,870,173		29.3	%

4. Reinsurance

On March 22, 2010, UPCIC and Segregated Account T25 – Universal Insurance Holdings of White Rock Insurance (SAC) Ltd. (“the T25”) mutually agreed to a Commutation and Settlement Agreement related to the Underlying Property Catastrophe Excess of Loss Reinsurance Contract originally effective June 12, 2009. A replacement contract was entered into between the parties on March 23, 2010 to maintain consistent and seamless coverage. In conjunction with the commutation, the T25 returned $12,735,734 to the Company that the Company then returned and contributed to UPCIC on March 23, 2010. The stock of T25 is 100% owned by the Company and the reinsurance transactions between it and UPCIC are eliminated in consolidation.

There have been no other material changes, during the period covered by this Report, to the Reinsurance note included in the Company’s Annual Report on Form 10-K, for the year ended December 31, 2009.

UPCIC’s in-force policyholder coverage for windstorm exposures as of March 31, 2010 was approximately $115 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 contracts. Reinsurance premiums, losses and loss adjustment expenses (“LAE”) 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 netted against policy acquisition costs and amortized over the effective period of the related insurance policies.

UPCIC limits the maximum net loss that can arise from large risks or risks in concentrated areas of exposure by reinsuring (ceding) certain levels of risks with other insurers or reinsurers on an automatic basis under reinsurance contracts. The reinsurance arrangements are intended to provide UPCIC with the ability to limit its exposure to losses 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”).

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

Three Months Ended March 31, 2010

	Premiums			Premiums			Loss and Loss
	Written			Earned			Adjustment
							Expenses
Direct	$	160,099,645		$	140,153,178		$	46,679,867
Ceded		(127,567,966	)		(106,839,615	)		(23,028,155	)

Net	$	32,531,679		$	33,313,563		$	23,651,712

Three Months Ended March 31, 2009

	Premiums				Premiums		Loss and Loss
	Written				Earned		Adjustment
							Expenses
Direct	$	145,212,145		$	128,292,195		$	41,324,392
Ceded		(95,727,857	)		(90,534,543	)		(20,903,728	)

Net	$	49,484,288		$	37,757,652		$	20,420,664

Other Amounts:

Prepaid reinsurance premiums and reinsurance recoverables as of March 31, 2010 and December 31, 2009 were as follows:

	As of March 31,		As of December 31,
	2010		2009

Prepaid reinsurance premiums	$	221,022,592	$	200,294,241

Reinsurance recoverable on unpaid losses and LAE	$	64,820,752	$	62,900,913
Reinsurance recoverable on paid losses		214,962		28,915,520
Reinsurance recoverables	$	65,035,714	$	91,816,433

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 March 31,			As of December 31,
		2010			2009
Reinsurance payable, net of ceding commissions due from reinsurers	$	138,195,918		$	105,536,847
Inuring premiums receivable		(48,987,439	)		(32,432,252	)
Reinsurance payable, net	$	89,208,479		$	73,104,595

5. Investments

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

	For the Three Months Ended March 31,
	2010			2009
Cash and cash equivalents	$	18,454		$	215,983
Fixed maturities		299,629			127,716
Equity securities		9,990			96,730
Total investment income		328,073			440,429
Less investment expenses		(135,120	)		(115,840	)
Net investment income	$	192,953		$	324,589

As of March 31, 2010 and December 31, 2009, the Company’s investments consisted of cash and cash equivalents, and investments with carrying values of $360,997,678 and $307,721,301, respectively.

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.

Cash and cash equivalents consisted of checking, repurchase and money market accounts with carrying values of $228,541,314 and $192,924,291 as of March 31, 2010 and December 31, 2009, respectively, held at the following financial institutions:

	As of March 31, 2010
Financial Institution	Cash		Money Market Funds		Total		%

U. S. Bank IT&C (1)	$	0	$	71,273,420	$	71,273,420		31.2	%
Evergreen Investment Management
Company, L.L.C.		0		2,909		2,909		0.0	%
SunTrust Bank		985,291		0		985,291		0.4	%
SunTrust Bank Institutional
Asset Services		0		146,812,557		146,812,557		64.3	%
Wachovia Bank, N.A.		1,004,452				1,004,452		0.4	%
Bank of New York Trust Fund		0		8,027,000		8,027,000		3.5	%
All Other Banking Institutions		435,685		0		435,685		0.2	%
	$	2,425,428	$	226,115,886	$	228,541,314		100.0	%

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


	As of December 31, 2009
Financial Institution	Cash		Money Market Funds			Total	%

U.S. Bank IT&C (1)	$	0	$	71,977,371	$	71,977,371		37.3	%
Evergreen Investment Management		0		26,909		26,909		0.0	%
Company, L.L.C.
SunTrust Bank		1,063,785		0		1,063,785		0.5	%
SunTrust Bank Institutional
Asset Services		0		102,257,833		102,257,833		53.0	%
Wachovia Bank, N.A.		489,051		0		489,051		0.3	%
Bank of New York Trust Fund		0		16,515,181		16,515,181		8.6	%
All Other Banking Institutions		594,161		0		594,161		0.3	%
	$	2,146,997	$	190,777,294	$	192,924,291		100.0	%

The Company’s investments are classified as available for sale. Available for sale securities are reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders’ equity, namely Other Comprehensive Income.

The following table shows the realized gains and losses for fixed maturities and equity securities for the three month periods ended March 31, 2010 and 2009. There were $3,694,717 and $1,111,333 of realized gains for the three-month periods ended March 31, 2010 and 2009, respectively.

	For the Three Months Ended
	March 31, 2010					March 31, 2009
	Realized Gains (Losses)			Fair Value at Sale		Realized Gains (Losses)		Fair Value at Sale
Fixed maturities, available for sale	$	60,742		$	5,961,804	$	-	$	-
Equity securities		4,109,683			36,486,448		1,111,333		9,683,316
Total Realized Gains	$	4,170,425		$	42,448,252	$	1,111,333	$	9,683,316

Fixed maturities, available for sale	$	(199,580	)	$	19,360,244	$	-	$	-
Equity securities		(224,128	)		5,849,244		-		-
Other Investments		(52,000	)
Total Realized Losses	$	(475,708	)	$	25,209,488	$	-	$	-

Net realized gains (losses) on investments	$	3,694,717		$	67,657,740	$	1,111,333	$	9,683,316

A summary of the amortized cost (fixed maturities), cost (equity securities), estimated fair value, gross unrealized gains, and gross unrealized losses of fixed maturities and equity securities at March 31, 2010 and December 31, 2009 follows. The company’s foreign obligations consist of government bonds of Norway and Switzerland.

	March 31, 2010
	Amortized Cost / Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Fixed maturities - available for sale:
US government and agency obligations	$	58,239,287	$	24,853	$	(1,374,277	)	$	56,889,863
Foreign obligations		9,563,143		20,897		(105,103	)		9,478,937
Total fixed maturities - available for sale	$	67,802,430	$	45,750	$	(1,479,380	)	$	66,368,800

Equity securities:
Common Stock	$	69,002,524	$	3,413,201	$	(6,328,161	)	$	66,087,564
Total equity securities	$	69,002,524	$	3,413,201	$	(6,328,161	)	$	66,087,564

	December 31, 2009
	Amortized Cost / Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Fixed maturities - available for sale:
US government and agency obligations	$	42,296,727	$	37,623	$	(945,342	)	$	41,389,008
Total fixed maturities - available for sale	$	42,296,727	$	37,623	$	(945,342	)	$	41,389,008

Equity securities:
Common Stock	$	71,536,033	$	4,278,432	$	(2,406,463	)	$	73,408,002
Total equity securities	$	71,536,033	$	4,278,432	$	(2,406,463	)	$	73,408,002

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 March 31, 2010.

	Unrealized Investment Losses
	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		5	$	53,781,866	$	1,374,277			-	$	-	$	-
Foreign obligations		5		4,318,781		37,966			-		-		-

Total fixed maturities, available for sale		10	$	58,100,647	$	1,412,243			-	$	-	$	-

Equity securities:
Common stocks		44	$	32,035,825	$	(6,328,161	)		-	$	-	$	-
Total equity securities		44	$	32,035,825	$	(6,328,161	)		-	$	-	$	-

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 other-than-temporary impairment adjustment to carrying value is warranted.

Below is a summary of fixed maturities at March 31, 2010 and December 31, 2009 by contractual or expected periods.

Available-for-Sale	March 31, 2010				December 31, 2009
Contractual or Expected Period:	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	897,310	$	896,192	$	-	$	-
Due after one year through five years		8,841,591		8,763,721		176,350		180,901
Due after five years through ten years		12,879,359		12,779,338		2,909,446		2,942,497
Due after ten years		45,184,170		43,929,549		39,210,931		38,265,610

Total	$	67,802,430	$	66,368,800	$	42,296,727	$	41,389,008

The Company has made an assessment of its invested assets for fair value measurement as further described in Note 16 – Fair Value Disclosure.

6. Loans Payable and Long-Term Debt

Surplus Note

In 2006, UPCIC entered into a $25 million surplus note with the Florida State Board of Administration (“SBA”) under Florida’s Insurance Capital Build-Up Incentive Program (“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 million that were earmarked for participation in the program. The $25 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 due in equal quarterly installments of $367,647.

As of March 31, 2010 and December 31, 2009, 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 $24,264,706 and $24,632,353, respectively.

Repayments of principal are estimated to be as follows as of March 31, 2010:

2010		735,294
2011		1,470,588
2012		1,470,588
2013		1,470,588
2014		1,470,588
Thereafter		17,647,060
Total	$	24,264,706

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 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, as amended, the net written premium to surplus requirement and gross written premium to surplus requirement have been modified. As of March 31, 2010, 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., (“Flatiron”) 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.

In September 2009, Atlas received notification that effective September 27, 2010 Flatiron will not be renewing the funding and servicing agreement with Atlas. Flatiron stated in the notice to Atlas that its business environment and goals had changed and it had made a strategic decision to exit this particular business activity. The Company is currently evaluating other types of finance services available to Atlas and does not believe this will have any material impact on the Company’s operations in 2010.

Interest Expense

Interest expense, comprised primarily of interest on the surplus note, was $247,474 and $139,778 for the three-month periods ended March 31, 2010 and 2009, respectively.

7. 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 the greater of 10% of its total liabilities or $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 March 31, 2010 is $111,343,158, which satisfies the minimum statutory surplus required under the Code.

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 the three-month periods ended March 31, 2010 and 2009, UPCIC did not pay dividends to the Company.

UPCIC is required annually to comply with the National Association of Insurance Commissioners (“NAIC”) Risk-Based Capital (“RBC”) requirements. RBC requirements prescribe a method of measuring the amount of capital appropriate for an insurance company to support its overall business operations in light of its size and risk profile. NAIC’s RBC requirements are used by regulators to determine appropriate regulatory actions relating to insurers who show signs of weak or deteriorating condition. As of December 31, 2009, based on calculations using the appropriate NAIC RBC formula, UPCIC’s reported total adjusted capital was in excess of the requirements.

8. 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 three-month periods ended March 31, 2010 and 2009, the Company expensed claims adjusting fees of $120,000 and $90,000, respectively, to Downes and Associates.

During the fourth quarter of 2009, the Company overpaid non-equity incentive plan compensation to the Chief Executive Officer and Chief Operating Officer in the amounts of $217,169 and $162,876, respectively. These amounts were repaid to the Company during February 2010.

9.	Income Tax Provision

Deferred income taxes as of March 31, 2010 and December 31, 2009 represent the temporary differences between the 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 March 31,			As of December 31,
	2010			2009
Deferred income tax assets:
Unearned premiums	$	5,963,264		$	6,023,587
Advanced premiums		1,679,214			1,266,152
Unpaid losses		1,914,727			1,836,061
Regulatory assessments		1,426,564			1,605,884
Executive compensation		-			181,992
Shareholder compensation		409,234			327,553
Stock option expense		2,948,017			3,037,961
Accrued wages		282,464			423,190
Allowance for uncollectible receivables		326,208			1,042,228
Additional tax basis of securities		119,610			140,878
Restricted stock grant		96,437			9,882
Unrealized losses on investments		1,678,547			-
Other		-			3,876

Total deferred income tax assets		16,844,286			15,899,244

Deferred income tax liabilities:
Deferred policy acquisition costs, net		(4,797,338	)		(3,650,979	)
Unrealized gains on investments		-			(353,976	)

Total deferred income tax liabilities		(4,797,338	)		(4,004,955	)

Net deferred income tax asset	$	12,046,948		$	11,894,289

A valuation allowance is deemed unnecessary as of March 31, 2010 and December 31, 2009, 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 2006 consolidated federal income tax return for Universal Insurance Holdings, Inc & Subsidiaries was examined by the Internal Revenue Service in 2009. The audit was completed and settled in October 2009 with no major issues. The combination of positive and negative adjustments resulted in an agreed upon assessment of $3,144 which was paid by the Company in January 2010.

The Company’s earliest open tax year for purposes of examination of its income tax liability due to taxing authorities is the year ended December 31, 2007.

10. Stockholders’ Equity

Cumulative Preferred Stock

During the three month period ended March 31, 2010, preferred stockholders converted 950 shares of Series M Preferred Stock into 1,187 shares of Common Stock. During the three month period ended March 31, 2009, preferred stockholders converted 30,000 shares of Series A Preferred Stock into 75,000 shares of Common Stock. As of March 31, 2010 the Company had 19,950 and 87,740 shares of issued and outstanding Series A and Series M Preferred Stock, respectively.

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.

Equity Compensation Plan

On October 13, 2009, the Company's Board of Directors approved, and recommended that the Company’s stockholders approve, the 2009 Omnibus Incentive Plan (“Incentive Plan”). On November 16, 2009, the Company’s stockholders approved the Incentive Plan by written consent.

An aggregate of 1,800,000 shares of the common stock, $0.01 par value per share (“Common Stock”) is reserved for issuance and available for awards under the Incentive Plan. Awards under the Incentive Plan may include incentive stock options, nonqualified stock options, stock appreciation rights, restricted shares of Common Stock, restricted stock units, performance share or unit awards, other stock-based awards and cash-based incentive awards. Awards under the Incentive Plan may be granted to employees, directors, consultants or other persons providing services to the Company or its affiliates. The Incentive Plan also provides for awards that are intended to qualify as “performance-based compensation” in order to preserve the deductibility of such compensation by the Company under Section 162(m) of the Internal Revenue Code. The Incentive Plan shall have a term of ten years expiring on November 16, 2019.

Stock Options

Summaries of the option activity for the three month periods ended March 31, 2010 and 2009 are presented below:

	Number			Option Price per Share						Intrinsic
	of Shares			Low		High		Weighted Avg.		Value

Outstanding January 1, 2010		6,345,000		$	0.50	$	6.50	$	3.21	$	17,888,900
Granted		350,000		$	5.84	$	5.84	$	5.84
Exercised		(2,230,000	)	$	0.70	$	3.90	$	1.49	$	10,423,300
Expired		-		$	-	$	-	$	-
Outstanding March 31, 2010		4,465,000		$	0.50	$	6.50	$	2.19	$	6,060,900

Outstanding January 1, 2009		6,650,000		$	0.50	$	6.50	$	3.15	$	3,795,250
Granted		-		$	-	$	-	$	-
Exercised		-		$	-	$	-	$	-
Expired		-		$	-	$	-	$	-
Outstanding March 31, 2009		6,650,000		$	0.50	$	6.50	$	3.15	$	8,574,600

On February 2, 2010, the Company granted non-qualified stock options for an aggregate 350,000 shares of Common Stock to Sean P. Downes, the Company’s Chief Operating Officer and Senior Vice President in consideration for services rendered pursuant to terms of an employment agreement and to provide to Mr. Downes with a continued incentive to share in the success of the Company. The exercise price of the options is $5.84; however, the options are only exercisable on such date or dates as the fair market value (as defined in their respective option agreements) of the Company’s Common Stock is and has been at least one hundred fifty percent (150%) of the exercise price for the previous twenty (20) consecutive trading days.

No options to purchase shares of Common Stock were granted during the three month period ended March 31, 2009.

The Company estimated the fair value of all stock options awards as of the grant date by applying the Black-Scholes-Merton option pricing model. The use of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense and include the expected life of the option, stock price volatility, risk-free interest rate, dividend yield, exercise price, and forfeiture rate.

Of the 2,230,000 aggregate number of options exercised during the three-month period ended March 31, 2010, options to purchase 10,000 shares of Common Stock were settled in cash and 2,220,000 were cashless exercises in which the Company retained treasury shares as settlement of the optionees’ cost of exercise and required payroll taxes.

As of March 31, 2010, there were 4,465,000 options outstanding with an aggregate intrinsic value of $6,060,900 and a weighted average remaining contractual life of 2.79 years. Of the total number of options outstanding, 3,935,000 options are fully vested and exercisable.

As of March 31, 2009, there were 6,650,000 options outstanding with an aggregate intrinsic value of $8,574,600 and a weighted average remaining contractual life of 2.84 years. Of the total number of options outstanding, 2,600,000 options were fully vested and exercisable.

Common Stock

As of March 31, 2010, the Company had 40,877,087 shares of issued Common Stock consisting of 1,711,054 treasury shares, and 39,166,033 shares outstanding.

The following table summarizes the activity relating to shares of the Company’s Common Stock during the three-month period ended March 31, 2010:

	Issued Shares	Treasury Shares	Shares Held in Trust	Outstanding Shares

Balance, January 1, 2010	40,214,883	(1,809,118)	(631,000)	37,774,765
Issued Shares	2,394	-	-