Edgar Filing: UNIVERSAL INSURANCE HOLDINGS, INC.

a10q-a.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A (Amendment No. 1)

(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, 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 001-33251

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: 39,387,998 shares of common stock, par value $0.01 per share, outstanding on February 18, 2011.

UNIVERSAL INSURANCE HOLDINGS, INC.

TABLE OF CONTENTS

Page No.

PART I: FINANCIAL INFORMATION
	Explanatory Note	3

	Report of Independent Registered Public Accounting Firm	4

Item 1.	Financial Statements (Unaudited)	5

	Condensed Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009	5

	Condensed Consolidated Statements of Operations for the Nine-Month and Three-Month Periods Ended September 30, 2010 and 2009	6

	Condensed Consolidated Statements of Stockholders’ Equity for the Nine-Month and Three-Month Periods Ended September 30, 2010 and 2009	7

	Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 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	35

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	55

Item 4.	Controls and Procedures	57

PART II:	OTHER INFORMATION

Item 1.	Legal Proceedings	59

Item 1A.	Risk Factors	59

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59

Item 3.	Defaults Upon Senior Securities	59

Item 4.	(Removed and Reserved)	59

Item 5.	Other Information	59

Item 6.	Exhibits	59

Signatures		59

Explanatory Note

Universal Insurance Holdings, Inc. (“Company”) is filing this amendment of its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 (“Amended Report”) to restate its Condensed Consolidated Financial Statements for the three- and nine-month periods ended September 30, 2010. The Company is issuing this restatement to correct a third-party clerical error in the coding of a single investment security that resulted in an overstatement of unrealized gains on investments of $2,316,041 and realized gains on investments of $100,039 included in earnings for the three- and nine-month periods ended September 30, 2010. Through its internal review, management discovered that its external provider of investment accounting services incorrectly coded a series of purchases of a commodity security held by Universal Insurance Holdings, Inc. As a result, the provider reported to the Company that the security had gained value during the quarter ended September 30, 2010, when in fact it had lost value. The amount of actual unrealized loss on that single investment was $62,510. In addition, as a result of the overstatement, certain accruals for unpaid incentive bonus compensation payments have been reduced by $189,828.

The net effect resulting from this clerical error on income before income taxes, net income and diluted earnings per share for the three- and nine-month periods ended September 30, 2010, and on stockholders’ equity at September 30, 2010, is as follows:

●

Income before income taxes decreased by $2,226,252

●

Net income decreased by $1,367,475

●

Diluted earnings per share decreased by $0.04

●

Stockholders’ equity decreased by $1,367,475

Notes 1 and 15 to the Condensed Consolidated Financial Statements included herein also contain information regarding the nature and effect of the restatement.

For the convenience of the reader, this Amended Report sets forth the Form 10-Q in its entirety. Other than amending the disclosures relating to the restatement, no attempt has been made in this Amended Report to amend or update other disclosures presented in the original Form 10-Q. Forward-looking statements made in the original Form 10-Q have not been revised to reflect events that occurred or facts that became known to the Company after the filing of the original Form 10-Q and such forward-looking statements should be read in their historical context.

The following items of the original Form 10-Q are being amended in this Amended Report as a result of this restatement:

Part I – Item 1 – Financial Statements

Part I – Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part I – Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Part I – Item 4 – Controls and Procedures

Exhibit 99.1 – Schedule of Investments

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, 2010 and the related condensed consolidated statements of operations for the nine-month and three-month periods ended September 30, 2010 and 2009 and cash flows for each of the nine-month periods ended September 30, 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

November 9, 2010, except for the portions of Notes 1, 2, 5, 9, 13 and 15 addressing the error correction as to which the date is March 21, 2011

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

Unaudited

	(Restated See Note 1)
	September 30,			December 31,
ASSETS	2010			2009
Cash and cash equivalents	$	294,972,027		$	192,924,291
Investments:
Trading securities, at fair value		101,939,932			-
Available-for-sale securities, at fair value		-			114,797,010
Real estate, net		4,100,539			3,289,893
Prepaid reinsurance premiums		228,363,400			200,294,241
Reinsurance recoverables		67,336,233			91,816,433
Premiums receivable, net		48,516,258			37,363,110
Receivable from securities		13,061,387			6,259,973
Other receivables		2,805,825			5,068,367
Income taxes recoverable		-			3,211,874
Property and equipment, net		1,280,798			1,245,858
Deferred policy acquisition costs, net		12,852,849			9,464,624
Deferred income taxes		11,359,983			11,894,289
Other assets		900,239			617,337
Total assets	$	787,489,470		$	678,247,300

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses	$	136,857,850		$	127,197,753
Unearned premiums		346,304,445			278,370,544
Advance premium		20,957,517			17,078,558
Accounts payable		3,496,095			3,172,626
Bank overdraft		24,778,730			20,297,061
Reinsurance payable, net		67,932,331			73,104,595
Income taxes payable		3,498,896			368,968
Payable for securities		379,473			-
Other accrued expenses		22,481,959			20,750,385
Long-term debt		23,529,412			24,632,353
Total liabilities		650,216,708			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		408,771			402,146
Authorized shares - 55,000,000
Issued shares - 40,877,088 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		(7,389,414	)		(7,948,606	)
Common stock held in trust, at cost - 0 and 631,000 shares		-			(511,110	)
Additional paid-in capital		37,568,052			36,666,914
Accumulated other comprehensive income, net of taxes		5,437			563,654
Retained earnings		106,678,839			84,100,372
Total stockholders' equity		137,272,762			113,274,457
Total liabilities and stockholders' equity	$	787,489,470		$	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)

	(Restated see Note 1)						(Restated see Note 1)
	For the Nine						For the Three
	Months Ended September 30,						Months Ended September 30,
	2010			2009			2010			2009
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written	$	520,781,570		$	436,610,689		$	152,662,238		$	134,626,400
Ceded premiums written		(357,411,323	)		(328,518,186	)		(108,539,124	)		(104,152,022	)
Net premiums written		163,370,247			108,092,503			44,123,114			30,474,378
(Increase) decrease in net unearned premium		(39,864,743	)		(200,377	)		4,708,040			2,283,358
Premiums earned, net		123,505,504			107,892,126			48,831,154			32,757,736
Net investment income		376,575			1,385,007			66,004			586,525
Realized gains on investments		11,893,320			13,588,681			6,148,976			12,136,072
Unrealized gains on investments		6,281,192			-			6,281,192			-
Foreign currency transaction gains		800,990			6,156,945			(8,060	)		6,084,629
Commission revenue		25,469,318			23,413,086			7,948,019			8,105,468
Other revenue		3,488,748			4,214,347			1,468,416			1,312,617

Total premiums earned and other revenues		171,815,647			156,650,192			70,735,701			60,983,047

OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses		77,856,730			68,695,552			29,370,125			23,768,729
General and administrative expenses		43,631,008			36,789,168			20,053,028			18,674,744

Total operating costs and expenses		121,487,738			105,484,720			49,423,153			42,443,473

INCOME BEFORE INCOME TAXES		50,327,909			51,165,472			21,312,548			18,539,574

Income taxes, current		19,015,441			16,127,712			7,359,297			7,178,058
Income taxes, deferred		524,281			3,446,852			876,041			(153,004	)
Income taxes, net		19,539,722			19,574,564			8,235,338			7,025,054

NET INCOME	$	30,788,187		$	31,590,908		$	13,077,210		$	11,514,520

Basic net income per common share	$	0.78		$	0.84		$	0.33		$	0.31
Weighted average of common shares outstanding - Basic		39,075,571			37,601,409			39,167,241			37,625,013

Fully diluted net income per share	$	0.76		$	0.78		$	0.32		$	0.28
Weighted average of common shares outstanding - Diluted		40,386,445			40,374,409			40,276,276			40,671,509

Cash dividend declared per common share	$	0.22		$	0.34		$	-		$	-


	For the Nine						For the Three
	Months Ended September 30,						Months Ended September 30,
		2010			2009			2010			2009
Comprehensive Income:
Net income	$	30,788,187		$	31,590,908		$	13,077,210		$	11,514,520
Change in net unrealized (losses) gains on investments, net of tax		(558,217	)		4,590,905			408,684			(3,638,071	)

Comprehensive Income	$	30,229,970		$	36,181,813		$	13,485,894		$	7,876,449

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, 2010 AND 2009

(Unaudited)

For the Nine Months Ended September 30, 2010 (Restated - see Note 1)



	Common Shares			Preferred Stock Shares			Common Stock Amount			Preferred Stock Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive (Loss) Income			Stock Held in Trust			Treasury Stock			Total Stockholders' Equity
Balance, Dec. 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

Common shares issued		1,900,207						19,002						1,858,078												(4,715,261	)		(2,838,181	)
Preferred stock conversion		1,187			(950	)		12			(10	)		(2	)														-

Release of shares from SGT														939,900									511,110			(2,328,859	)		(877,849	)

Retirement of treasury shares		(1,239,190	)					(12,389	)					(7,591,863	)											7,603,312			(940	)

Stock compensation plans														1,766,346															1,766,346

Net income (Restated - see Note 1)																	30,788,187												30,788,187

Excess tax benefits from stock-based compensation														3,660,201															3,660,201

Reclassification of excess tax benefits from stock- based compensation														(421,894	)		421,894												-

Amortization of deferred compensation														690,372															690,372

Declaration of dividends																	(8,631,614	)											(8,631,614	)


Reclassification of investments to trading portfolio, net of tax effect of $253,170																				403,137									403,137

Change in net unrealized loss on invest., net of tax effect of $(603,732)																				(961,354	)								(961,354	)

Balance Sept. 30, 2010		40,877,088			107,690		$	408,771		$	1,077		$	37,568,052		$	106,678,839		$	5,437		$	-		$	(7,389,414	)	$	137,272,762

For the Nine Months Ended September 30, 2009
Balance Dec. 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

Common shares issued		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

Excess tax benefits from stock-based compensation														49,549															49,549

Amortization of deferred compensation														490,407															490,407

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

Change in net unrealized gain on invest., net of tax effect of $2,883,096																				4,590,905									4,590,905

Balance Sept. 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

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)

	(Restated see Note 1) Nine Months Ended September 30, 2010			Nine Months Ended September 30, 2009
Cash flows from operating activities:
Net Income	$	30,788,187		$	31,590,908
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debt expense		1,665,919			1,056,636
Depreciation		731,817			336,075
Amortization of cost of stock options		1,766,349			1,421,332
Amortization of restricted stock grants		690,372			490,407
Realized gains on investments		(11,893,320	)		(13,588,681	)
Unrealized gains on investments		(6,281,192	)		-
Foreign currency gains on investments		(834,529	)		(6,108,112	)
Amortization of premium / accretion of discount, net		404,822			203,653
Deferred income taxes		884,868			3,427,227
Other		(20,935	)		130,121
Net change in assets and liabilities relating to operating activities:
Prepaid reinsurance premiums		(28,069,159	)		(34,804,467	)
Reinsurance recoverables		24,480,200			(4,621,514	)
Premiums receivable, net		(12,819,067	)		(5,005,214	)
Other receivables		2,035,488			(2,817,396	)
Income taxes recoverable		3,211,874			1,624,875
Deferred policy acquisition costs, net		(3,388,225	)		(8,708,186	)
Purchases of fixed maturities, trading		(287,865,409	)		-
Proceeds from sales of fixed maturities, trading		338,319,461			-
Purchases of equity securities, trading		(60,245,223	)		-
Proceeds from sale of equity securities, trading		56,968,340			-
Other assets		(150,404	)		(164,470	)
Unpaid losses and loss adjustment expenses		9,660,097			10,315,726
Unearned premiums		67,933,901			35,004,845
Accounts payable		323,469			58,414
Reinsurance payable		(5,172,264	)		55,964,083
Income taxes payable		3,129,928			235,571
Other accrued expenses		1,731,574			8,279,954
Advance premium		3,878,959			3,156,081
Net cash provided by operating activities		131,865,898			77,477,868
Cash flows from investing activities:
Proceeds from sale of property		32,608			-
Purchase of real estate		(1,016,921	)		-
Purchases of fixed maturities, available-for-sale		(129,140,469	)		(206,473,797	)
Proceeds from sales of fixed maturities, available-for-sale		116,237,712			203,451,919
Purchases of equity securities, available-for-sale		(80,730,225	)		(131,231,211	)
Proceeds from sales of equity securities, available-for-sale		70,680,944			79,069,631
Capital expenditures and building improvements		(572,155	)		(509,517	)
Net cash used in investing activities		(24,508,506	)		(55,692,975	)
Cash flows from financing activities:
Bank overdraft		4,481,669			4,559,007
Preferred stock dividend		(14,962	)		(22,462	)
Common stock dividend		(8,616,650	)		(8,268,279	)
Issuance of common stock		7,000			22,000
Treasury shares on option exercise		(3,723,972	)		(16,537	)
Excess tax benefits from stock-based compensation		3,660,200			19,625
Repayments of loans payable		(1,102,941	)		-
Net cash used in financing activities		(5,309,656	)		(3,706,646	)

Net increase in cash and cash equivalents		102,047,736			18,078,247
Cash and cash equivalents at beginning of period		192,924,291			256,964,637
Cash and cash equivalents at end of period	$	294,972,027		$	275,042,884

Non cash items:
Dividends accrued	$	-		$	4,516,460

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, 2010

(Unaudited)

1. Nature of Operations and Basis of Presentation

Restatement of Condensed Consolidated Financial Statements

Subsequent to filing its Quarterly Report on Form 10-Q, for the quarter ended September 30, 2010, the Company determined that a third-party clerical error in the coding of a single investment security resulted in an overstatement of unrealized gains on investments of $2,316,041 and realized gains on investments of $100,039 included in earnings for the three- and nine-month periods ended September 30, 2010. Through its internal review, management discovered that its external provider of investment accounting services incorrectly coded a series of purchases of a commodity security held by the Company. As a result, the provider reported to the Company that the security had gained value during the quarter ended September 30, 2010, when in fact it had lost value. The amount of actual unrealized loss on that single investment was $62,510. In addition, as a result of the overstatement, certain accruals for unpaid incentive bonus compensation payments have been reduced by $189,828.

The effect of the restatement on the condensed consolidated financial statements is as follows:

Consolidated Balance Sheet as of September 30,2010
	As Reported		Adjustment			Restated
Trading securites	$	104,356,012	$	(2,416,080	)	$	101,939,932
Deferred income taxes	$	10,466,570	$	893,413		$	11,359,983
Total assets	$	789,012,137	$	(1,522,667	)	$	787,489,470
Income taxes payable	$	3,464,260	$	34,636		$	3,498,896
Other accrued expenses	$	22,671,787	$	(189,828	)	$	22,481,959
Total liabilities	$	650,371,900	$	(155,192	)	$	650,216,708
Retained earnings	$	108,046,314	$	(1,367,475	)	$	106,678,839
Total stockholders equity	$	138,640,237	$	(1,367,475	)	$	137,272,762

Consolidated Statement of Operations	For the nine months ended September 30, 2010
	As Reported		Adjustment			Restated
Net realized gains on investments	$	11,993,359	$	(100,039	)	$	11,893,320
Net urealized gains on investments	$	8,597,233	$	(2,316,041	)	$	6,281,192
Total premiums earned and other revenues	$	174,231,727	$	(2,416,080	)	$	171,815,647
General and administrative expenses	$	43,820,836	$	(189,828	)	$	43,631,008
Total operating costs and expenses	$	121,677,566	$	(189,828	)	$	121,487,738
INCOME BEFORE INCOME TAXES	$	52,554,161	$	(2,226,252	)	$	50,327,909
Income taxes, current	$	18,980,805	$	34,636		$	19,015,441
Income taxes, deferred	$	1,417,694	$	(893,413	)	$	524,281
Income taxes, net	$	20,398,499	$	(858,777	)	$	19,539,722
Net income	$	32,155,662	$	(1,367,475	)	$	30,788,187
Basic net income per common share	$	0.82	$	(0.04	)	$	0.78
Fully diluted net income per share	$	0.80	$	(0.04	)	$	0.76

Comprehensive Income	For the nine months ended September 30, 2010
	As Reported		Adjustment			Restated
Net income	$	32,155,662	$	(1,367,475	)	$	30,788,187
Comprehensive income	$	31,597,445	$	(1,367,475	)	$	30,229,970

Consolidated Statement of Operations	For the three months ended September 30, 2010
	As Reported		Adjustment			Restated
Net realized gains on investments	$	6,249,015	$	(100,039	)	$	6,148,976
Net urealized gains on investments	$	8,597,233	$	(2,316,041	)	$	6,281,192
Total premiums earned and other revenues	$	73,151,781	$	(2,416,080	)	$	70,735,701
General and administrative expenses	$	20,242,856	$	(189,828	)	$	20,053,028
Total operating costs and expenses	$	49,612,981	$	(189,828	)	$	49,423,153
INCOME BEFORE INCOME TAXES	$	23,538,800	$	(2,226,252	)	$	21,312,548
Income taxes, current	$	7,324,661	$	34,636		$	7,359,297
Income taxes, deferred	$	1,769,454	$	(893,413	)	$	876,041
Income taxes, net	$	9,094,115	$	(858,777	)	$	8,235,338
Net income	$	14,444,685	$	(1,367,475	)	$	13,077,210
Basic net income per common share	$	0.37	$	(0.04	)	$	0.33
Fully diluted net income per share	$	0.36	$	(0.04	)	$	0.32

Comprehensive Income	For the three months ended September 30, 2010
	As Reported		Adjustment			Restated
Net income	$	14,444,685	$	(1,367,475	)	$	13,077,210
Comprehensive income	$	14,853,369	$	(1,367,475	)	$	13,485,894

Consolidated Statement of Cash Flows	For the nine months ended September 30, 2010
	As Reported			Adjustment			Restated
Net income	$	32,155,662		$	(1,367,475	)	$	30,788,187
Realized gains on investments	$	(11,993,359	)	$	100,039		$	(11,893,320	)
Unealized gains on investments	$	(8,597,233	)	$	2,316,041		$	(6,281,192	)
Deferred income taxes	$	1,778,281		$	(893,413	)	$	884,868
Income taxes payable	$	3,095,292		$	34,636		$	3,129,928
Other accrued expenses	$	1,921,402		$	(189,828	)	$	1,731,574

Additional disclosures are provided in the accompanying notes to condensed consolidated financial statements primarily in Note 2 – “Significant Accounting Policies Trading Securities”, Note 5 – “Investments”, Note 9 – “Income Tax Provision”, Note 13 – “Earning Per Share” and Note 15 – “Subsequent Events”. Disclosures have also been modified in Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, Item 4 – “Controls and Procedures” and Exhibit 99.1 “Schedule of Investments.”

Nature of Operations

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. The Company has since evolved into a vertically integrated insurance holding company, which through its various subsidiaries, covers substantially all aspects of insurance underwriting, distribution and claims processing. The Company’s primary product is homeowners’ insurance.

Basis of Presentation

The Company’s 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 for the year ended December 31, 2009. 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 may 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 its 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.

Trading Securities. The Company’s trading securities include marketable fixed maturity and equity securities with readily determinable fair values that the Company intends to trade. The securities are carried at fair value and all applicable interest and dividends, realized gains and losses, and unrealized gains and losses on changes in fair value are included in income.

During the three-month period ended September 30, 2010, the Company evaluated the trading activity in its investment portfolio, its investing strategy, and its overall investment program, and concluded that its investment activities throughout the quarter were more consistent with the trading classification. As a result of this evaluation, the Company reclassified its available-for-sale portfolio as a trading portfolio effective July 1, 2010. As a result of the reclassification, pre-tax net unrealized losses in the amount of $656,307 on the available-for-sale portfolio, as of July 1, 2010, were recognized in current period revenues as a reduction of unrealized gains on investments. During the three-month period ended September 30, 2010, the market value of the Company’s trading portfolio increased by $6,937,499 before income taxes. The increase in market value was recorded in current period revenues as unrealized gains on investments.

The Company’s reclassification of its available-for-sale investments to a trading portfolio had the following effect on items reporting in the Condensed Consolidated Financial Statements:

Increase (decrease) in:	For the nine months ended September 30, 2010	For the three months ended September 30, 2010
Unrealized gains on investments	$6,281,192	$6,281,192
Net income	$3,858,222	$3,858,222
Basic net income per common share	$0.10	$0.10
Fully diluted net income per common share	$0.10	$0.10
Cash flows from operating activities	$47,177,169	not presented
Cash flows from investing activities	$(47,177,169)	not presented

The Company will continue to record future changes in the market value of its trading portfolio directly to revenues as unrealized gains or losses on investments.

Fair Market of Financial Instruments. The Company’s long-term debt was held at a carrying value of $23,529,412 and $24,632,353 as of September 30, 2010 and December 31, 2009, respectively. The fair value of long-term debt as of September 30, 2010 was estimated based on discounted cash flows utilizing interest rates currently offered for similar products and was determined to be $18,175,475 and $18,299,889 as of September 30, 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 and reinsurance recoverables.

In order to reduce credit risk for amounts due from reinsurers, the Company’s primary insurance subsidiary, UPCIC, 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 September 30, 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:

Reinsurer	As of September 30, 2010	As of December 31, 2009
Everest Reinsurance Company	$233,742,057	$ 208,129,753
Florida Hurricane Catastrophe Fund	n/a	24,888,534

Total

$233,742,057

$ 233,018,287

As of September 30, 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

The Company’s primary business consists of transacting homeowners’ insurance through UPCIC. UPCIC collects premiums from policyholders for coverage provided under its insurance policies. 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, 2010, UPCIC serviced approximately 576,000 homeowners’ and dwelling fire insurance policies with direct unearned premiums totaling $346,304,445 and in-force premiums of approximately $651,200,000. 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 insurance premiums charged by UPCIC are subject to various statutory and regulatory requirements. Among these, UPCIC must offer wind mitigation discounts in accordance with a program mandated by the Florida legislature and implemented by the Florida Office of Insurance Regulation (“OIR”). The level of 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:

				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	%
l2/31/2008		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		47.8	%	$	235,717,892	$	569,870,173		29.3	%
6/30/2010		50.9	%	$	281,386,124	$	620,276,858		31.2	%
9/30/2010		52.4	%	$	291,306,407	$	634,285,246		31.5	%

4. Reinsurance

UPCIC seeks to protect against the risk of catastrophic loss by obtaining reinsurance coverage as of the beginning of the hurricane season on June 1 of each year. UPCIC’s reinsurance program consists of excess of loss, quota share and catastrophe reinsurance, subject to the terms and conditions of the applicable agreements.

On May 31, 2010, UPCIC and Segregated Account T25 – Universal Insurance Holdings of White Rock Insurance (SAC) Ltd. (“T25”) mutually agreed to a Commutation and Settlement Agreement related to the Underlying Property Catastrophe Excess of Loss Reinsurance Contract effective March 23, 2010. A replacement contract was entered into between the parties on June 1, 2010 as part of UPCIC’s reinsurance program in effect for the period June 1, 2010, through May 31, 2011. In conjunction with the commutation and entering into a new contract, the Company contributed additional capital to T25 due to the increased reinsurance coverage and collateral requirements of the replacement contract, effective June 1, 2010. The Company is the account owner of T25 under Bermuda law, and the reinsurance transactions between T25 and UPCIC are eliminated in consolidation.

UPCIC’s in-force policyholder coverage for windstorm exposures as of September 30, 2010 was approximately $124.2 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.

2010 Reinsurance Program

Quota Share

Effective June 1, 2010, UPCIC entered into a quota share reinsurance contract with 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 contract, through May 31, 2011, UPCIC cedes 50% of its gross written premiums, losses and LAE for policies with coverage for wind risk with a ceding commission equal to 25% of ceded gross written premiums. In addition, the quota share contract has a limitation for any one occurrence of 56% of Gross Premiums Earned, not to exceed $160,000,000 (of which UPCIC's net liability on the first $160,000,000 of losses in a first event scenario is $22,500,000, in a second event scenario is $13,150,000 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 Property Claims Services ("PCS") office of 140% of Gross Premiums Earned, not to exceed $400,000,000.

Excess Per Risk

Effective June 1, 2010 through May 31, 2011, UPCIC entered into a multiple line excess per risk contract with various reinsurers. Under the multiple line excess per risk contract, 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 the contract.

Effective June 1, 2010 through May 31, 2011, UPCIC entered into a property per risk excess contract covering ex-wind only policies. Under the property per risk excess contract, UPCIC obtained coverage of $400,000 in excess of $200,000 for each property loss. A $2,000,000 aggregate limit applies to the term of the contract.

The total cost of the Company's multiple line excess reinsurance program effective June 1, 2010 through May 31, 2011 is $3,500,000 of which the Company's cost is 50%, or $1,750,000, and the quota share reinsurers' cost is the remaining 50%. The total cost of the Company's property per risk reinsurance program effective June 1, 2010 through May 31, 2011 is $475,000.

Excess Catastrophe

Effective June 1, 2010 through May 31, 2011, under excess catastrophe contracts, UPCIC obtained catastrophe coverage of $660,500,000 in excess of $160,000,000 covering certain loss occurrences including hurricanes. The coverage of $660,500,000 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, 2010 through May 31, 2011, UPCIC purchased reinstatement premium protection which reimburses UPCIC for its cost to reinstate the catastrophe coverage of the first $310,500,000 (part of $660,500,000) in excess of $160,000,000.

Effective June 1, 2010 through May 31, 2011, under an underlying excess catastrophe contract, UPCIC obtained catastrophe coverage of 50% of $105,000,000 in excess of $55,000,000 covering certain loss occurrences including hurricanes. UPCIC entered into this contract with a segregated account that was established by a third-party reinsurer in accordance with Bermuda law. The Company has secured the obligations of the segregated account by contributing the amount of the segregated account’s liability for losses, net of UPCIC’s required premium payments, to a trust account.

Effective June 1, 2010 through May 31, 2011, under an excess catastrophe contract specifically covering risks located in North Carolina and South Carolina, UPCIC obtained catastrophe coverage of 50% of $40,000,000 in excess of $10,000,000 covering certain loss occurrences including hurricanes. The coverage of 50% of $40,000,000 in excess of $10,000,000 has a second full limit available to UPCIC; additional premium is calculated pro rata as to amount and 100% as to time, as applicable. The cost of UPCIC’s excess catastrophe contract specifically covering risks located in North Carolina and South Carolina is $2,025,000.

Effective June 1, 2010 through May 31, 2011, UPCIC also obtained subsequent catastrophe event excess of loss reinsurance to cover certain levels of UPCIC's net retention through three catastrophe events including hurricanes, as follows:

	2ndEvent	3rdEvent
Coverage	$123,700,000 in excess of $36,300,000 each loss occurrence subject to an otherwise recoverable amount of $123,700,000 (placed 50%)	$130,000,000 in excess of $30,000,000 each loss occurrence subject to an otherwise recoverable amount of $260,000,000 (placed 100%)
Deposit premium (100%)	$22,266,000	$9,100,000
Minimum premium (100%)	$17,812,800	$7,280,000
Premium rate -% of total insured value	0.020088%	0.00821%

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, the 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, subject to an aggregate contract limit. 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, 2010 to May 31, 2011, UPCIC purchased the traditional FHCF coverage and did not purchase the Temporary Increase in Coverage Limit Option offered to insurers by the FHCF. UPCIC’s estimate of its traditional FHCF coverage is based upon UPCIC’s exposure in-force as of June 30, 2010, as reported by UPCIC to the FHCF on September 1, 2010 and is 90% of $1,118,744,624 in excess of $422,612,828. The estimated premium for this coverage is $68,296,648.

Also at June 1, 2010, 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 (“ICBUI”) Program offered by the FHCF, such as UPCIC. This particular layer of coverage at June 1, 2010 is $10,000,000 in excess of $26,300,000. The premium for this coverage is $5,000,000.

On October 29, 2010, 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 claims-paying capacity under current market conditions for the 2010 - 2011 contract year is projected to be $18.776 billion over the 12-month period following the estimate. The SBA also referred to its report entitled, “October 2010 Estimated Claims Paying Capacity Report” (“Report”) as providing greater detail regarding the FHCF’s claims-paying capacity. The Report estimated that the FHCF’s minimum 12-month claims-paying capacity is $19.414 billion and its maximum 12-month claims-paying capacity is $35.414 billion with an average claims-paying capacity of $25.414 billion. This projected claims-paying capacity exceeds the FHCF’s maximum statutory obligation for 2010 of $18.776 billion. Claims-paying capacity exceeding the FHCF’s maximum statutory obligation for a single contract year may be available for insurer reimbursements in future contract years. UPCIC purchased the FHCF Mandatory Layer of Coverage for the 2010 - 2011 contract year, which corresponds to FHCF loss reimbursement capacity of $17 billion. In the event the aggregate amount of reimbursement coverage requested by insurers for a particular contract year exceeds the FHCF’s actual claims-paying capacity, the FHCF’s obligation to reimburse insurers is limited by law to its actual claims-paying capacity. The aggregate 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 multiple line excess and property per risk reinsurance program effective June 1, 2010 through May 31, 2011 is $3,975,000 of which UPCIC's cost is $2,225,000, and the quota share reinsurers cost is the remaining $1,750,000. The cost of UPCIC’s underlying excess catastrophe contract is $42,000,000, subject to a potential return premium of up to $31,458,000. The total cost of UPCIC's private catastrophe reinsurance program effective June 1, 2010 through May 31, 2011 is $134,538,000 of which UPCIC's cost is 50%, or $67,269,000, and the quota share reinsurers cost is the remaining 50%. In addition, UPCIC purchases reinstatement premium protection as described above, the cost of which is $16,210,064. UPCIC’s cost of the subsequent catastrophe event excess of loss reinsurance is $15,683,000. The estimated premium that UPCIC plans to cede to the FHCF for the 2010 hurricane season is $68,296,648 of which UPCIC's cost is 50%, or $34,148,324 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 offered by the FHCF, 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%. The Company is responsible for losses related to catastrophic events with incurred losses in excess of coverage provided by UPCIC's reinsurance program which could have a material adverse effect on the Company's business, financial condition and results of operations. UPCIC’s private market reinsurance costs are subject to increases or decreases if changes in its earned premiums or the

total insured value under its in-force policies as of August 31, 2010, are outside of ranges specified in certain of its reinsurance contracts.

Effective June 1, 2010 through December 31, 2010, 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 $8,250,000.

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. UPCIC estimates based upon its in-force exposures as of September 30, 2010, that it had coverage to approximately the 125-year Probable Maximum Loss (PML), modeled using AIR CLASIC/2 v.11.0, long term, without demand surge and without loss amplification. 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 125-year PML represents a 0.800% 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.

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. UPCIC submits the reinsurance program for regulatory review to the OIR.

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

	Nine Months Ended September 30, 2010									Nine Months Ended September 30, 2009

	Premiums Written			Premiums Earned			Loss and Loss Adjustment Expenses			Premiums Written			Premiums Earned			Loss and Loss Adjustment Expenses
Direct	$	520,781,570		$	452,847,668		$	156,537,023		$	436,610,689		$	401,605,845		$	139,259,179
Ceded		(357,411,323	)		(329,342,164	)		(78,680,293	)		(328,518,186	)		(293,713,719	)		(70,563,627	)
Net	$	163,370,247		$	123,505,504		$	77,856,730		$	108,092,503		$	107,892,126		$	68,695,552

	Three Months Ended September 30, 2010									Three Months Ended September 30, 2009

	Premiums Written			Premiums Earned			Loss and Loss Adjustment Expenses			Premiums Written			Premiums Earned			Loss and Loss Adjustment Expenses
Direct	$	152,662,238		$	162,093,491		$	59,511,679		$	134,626,400		$	139,207,538		$	48,330,038
Ceded		(108,539,124	)		(113,262,337	)		(30,141,553	)		(104,152,022	)		(106,449,802	)		(24,561,309	)
Net	$	44,123,114		$	48,831,154		$	29,370,126		$	30,474,378		$	32,757,736		$	23,768,729

Other Amounts:

Prepaid reinsurance premiums and reinsurance recoverables as of September 30, 2010 and December 31, 2009 were as follows:

	As of Sept. 30, 2010		As of December 31, 2009

Prepaid reinsurance premiums	$	228,363,400	$	200,294,241

Reinsurance recoverable on unpaid losses and LAE	$	67,151,722	$	62,900,913
Reinsurance recoverable on paid losses		184,511		28,915,520
Reinsurance recoverables	$	67,336,233	$	91,816,433

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

	As of Sept. 30,			As of December 31,
	2010			2009
Reinsurance payable, net of ceding commissions due from reinsurers	$	109,972,621		$	105,536,847
Inuring premiums receivable		(42,040,290	)		(32,432,252	)

Reinsurance payable, net	$	67,932,331		$	73,104,595

5. Investments

During the three-month period ended September 30, 2010, the Company evaluated the trading activity in its investment portfolio, its investing strategy, and its overall investment program. As a result of this evaluation, the Company reclassified its available-for-sale portfolio as a trading portfolio effective July 1, 2010. As a result of the reclassification, pre-tax net unrealized losses in the amount of $656,307 on the available-for-sale portfolio, as of July 1, 2010, were recognized in current period revenues as a reduction of unrealized gains on investments. During the three-month period ended September 30, 2010, the market value of the Company’s trading portfolio increased by $6,937,499 before income taxes. The increase in market value was recorded in current period revenues as unrealized gains on investments. The Company will continue to record future changes in the market value of its trading portfolio directly to revenues as unrealized gains or losses on investments. The net unrealized gain on investments relating to the trading portfolio of $6,281,192 is recorded in the Condensed Consolidated Statement of Operations caption "Unrealized Gains on Investments.”

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

	For the Nine Months Ended September 30,
	2010			2009
Cash and cash equivalents	$	109,150		$	253,073
Fixed maturities		710,325			1,136,568
Equity securities		36,530			634,362
Total investment income		856,005			2,024,003
Less investment expenses		(479,430	)		(638,996	)

Net investment income	$	376,575		$	1,385,007

As of September 30, 2010 and December 31, 2009, the Company’s investments consisted of cash and cash equivalents, and investments with carrying values of $396,911,959 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 $294,972,027 and $192,924,291 as of September 30, 2010 and December 31, 2009, respectively, held at the following financial institutions:

			As of September 30, 2010
Financial Institution	Cash		Money Market Funds		Total		%

U. S. Bank IT&C (1)	$	0	$	71,454,904	$	71,454,904		24.2	%
Evergreen Investment Management
Company, L.L.C.		0		2,909		2,909		0.0	%
SunTrust Bank		1,203,993		0		1,203,993		0.4	%
SunTrust Bank Institutional