UNIVERSAL INSURANCE HOLDINGS INC

Previous wording

We are a vertically integrated holding company offering property and casualty insurance and value-added insurance services. In addition, we generate revenue from our investment portfolio, reinsurance brokerage services, the receipt of managing general agency fees from policy holders and from other sources of revenue (collectively “Other Revenue Sources”). We develop, market and underwrite insurance products for consumers predominantly in the personal residential homeowners’ line of business and perform substantially all insurance-related services for our insurance entities, including risk management, claims management, and distribution. Our insurance entities, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC” and together with UPCIC, the “Insurance Entities”), offer insurance products through both appointed independent agent network and our online distribution channels across 18 states with Florida representing 79.5% of our direct premiums written for the three months ended March 31, 2024, and with licenses to write insurance in two additional states. We seek to produce an underwriting profit (defined as earned premium-net minus losses, loss adjustment expense (“LAE”), policy acquisition costs and other operating costs) over the long term, along with growing our Other Revenue Sources.

Current wording

We are a vertically integrated holding company offering property and casualty insurance and value-added insurance services. In addition, we generate revenue from our investment portfolio, reinsurance brokerage services, the receipt of managing general agency fees from policy holders and from other sources of revenue (collectively “Other Revenue Sources”). We develop, market and underwrite insurance products for consumers predominantly in the personal residential homeowners’ line of business and perform substantially all insurance-related services for our insurance entities, including risk management, claims management, and distribution. Our insurance entities, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC” and together with UPCIC, the “Insurance Entities”), offer insurance products through both an appointed independent agent network and our online distribution channels across 18 states with Florida representing 79.7% of our direct premiums written for the three months ended June 30, 2024, and with licenses to write insurance in two additional states. We seek to produce an underwriting profit (defined as earned premium-net minus losses, loss adjustment expense (“LAE”), policy acquisition costs and other operating costs) over the long term, along with growing our Other Revenue Sources.

Previous wording

We seek to achieve long-term rate adequacy and earnings for the Insurance Entities while looking to take advantage of what we believe to be market opportunities. We have been adjusting rates, managing exposures, and implementing recently-enacted Florida legislation, which is intended to curtail claims-related abuses, address adverse Florida claim trends, and improve underwriting results. The Florida personal lines homeowners’ market in recent years has been operating under distressed conditions wherein insurance companies’ major costs items, such as losses, LAE and reinsurance, have been significantly increasing and have led to insurance companies’ striving to recover these costs through rate and underwriting action. The Florida market can be characterized as a “hard market,” where insurance premium rates have been escalating, insurers have been reducing coverages, and underwriting standards have tightened as insurers closely monitor insurance rates and manage coverage capacity. Due to conditions in the Florida market and factors more generally affecting the U.S. and global reinsurance markets, reinsurance capacity in recent years has also been subject to increases in pricing and less favorable terms. These market forces have decreased competition among admitted insurers, and ultimately resulted in the increased use of Citizens, which was created to be the “market of last resort” or residual property insurance market in Florida. In recent years, in response to rising claims costs and increased reinsurance costs. most admitted market competitors have implemented significant rate increases to address these trends. Meanwhile, Citizens’ rate increases are limited by law, resulting in its policies typically being priced lower than admitted market policies. This causes Citizens, for many policy types and areas of Florida, to become viewed as a desirable alternative to the admitted market. Our Insurance Entities likewise have taken and continue to take action to manage through this hard market by adjusting rates, managing exposures, and implementing Florida’s statutory reforms intended to curtail claims-related abuses, while also seeking to maintain their competitive position in the Florida market, supporting our current policyholders and agents.

Current wording

We seek to achieve long-term rate adequacy and earnings for the Insurance Entities while managing our risks through market cycles and looking to take advantage of what we believe to be market opportunities. The Florida personal lines homeowners’ market in recent years has operated under distressed conditions wherein insurance companies’ major costs items, such as losses, LAE and reinsurance, have significantly increased and have led to insurance companies’ striving to recover or mitigate these costs through rate and underwriting action. As a result, personal residential insurance premiums have been escalating, insurers have been reducing coverages, and underwriting standards have tightened as most admitted market insurers have been closely monitoring insurance rates and managing coverage capacity. Due to these conditions and factors more generally affecting the U.S. and global reinsurance markets, reinsurance capacity in recent years has also been subject to increases in pricing and less favorable terms. These market forces have combined to decrease insurance availability among admitted insurers, and consequently increase the policy count of Citizens. Although Citizens was created to be the “market of last resort” or residual property insurance market in Florida, its rate increases are limited by law, resulting in its policies typically being priced lower than admitted market policies. This causes Citizens, for many policy types and areas of Florida, to become viewed as a desirable alternative to the admitted market.

Previous wording

In December 2022, the Florida legislature enacted substantial reforms intended to mitigate rising claims costs and further premium increases while also enhancing service and service standards to policyholders. These laws have required insurers, including the Insurance Entities, to implement faster claims-response standards and to comply with additional regulatory oversight requirements intended to increase consumer protections. The reforms also seek to curtail certain claimants’ abusive claims practices against insurance carriers, which have contributed substantially to the Florida market’s recent problems of escalating claim costs. Among the reforms, the Florida legislature eliminated policyholders’ former one-way statutory right to attorneys’ fees reimbursement and eliminated the ability of policyholders to assign their insurance benefits to third parties. The Florida legislature also reduced the post-loss time period for submitting claims to one year as contrasted with prior laws permitting claims to be reported two years or even three years after loss events, which led to extended solicitations of claims by contractors, public adjusters, and attorneys and created challenges for insurers in evaluating the cause and amount of the late-reported claims.

Current wording

After several prior efforts at legal reforms that had limited effect, in December 2022 the Florida Legislature enacted substantial law changes intended to mitigate rising claims costs and further premium increases while also enhancing service standards for the benefit of policyholders. These laws have required insurers, including the Insurance Entities, to implement faster claims-response standards, increased penalties for non-compliance, enhanced regulatory oversight of insurers’ financial conditions and holding company systems, and added other consumer protections. The reforms also sought to curtail certain claimants’ abusive claims practices against insurance carriers, which have contributed substantially to the Florida market’s recent problems of escalating claim costs and decreased availability. Among the reforms, the Florida Legislature eliminated policyholders’ former one-way statutory right to attorneys’ fees reimbursement and eliminated the ability of policyholders to assign their insurance benefits to third parties. The Florida Legislature also reduced the post-loss time period for submitting claims to one year as contrasted with prior laws permitting claims to be reported two years or even three years after loss events, which led to extended solicitations of claims by contractors, public adjusters, and attorneys and created challenges for insurers in evaluating the cause and amount of the late-reported claims.

Previous wording

The most significant statutory reforms took effect for policies issued after December 16, 2022. Policies written before this date might benefit from procedural changes made by the legislature but remain subject to substantive laws previously in effect. Claims associated with policies issued prior to the reforms typically continue to be adversely impacted by the concerns that have plagued the market in recent years, including disproportionately high incidences of represented and litigated claims. As a result, losses and LAE associated with these claims remain high, exceeding historical patterns in Florida and in other states. Although the Insurance Entities’ number of remaining claims subject to pre-reform laws continues to decline, it will be several years before all of these claims are settled or brought to an adjudicated conclusion. We are optimistic that the legislative reforms will gradually improve the Florida claims environment as the number of claims associated with the pre-reform era continues to decline and more of the Insurance Entities’ claims benefit from the reforms.

Current wording

The most significant statutory reforms took effect for policies issued after December 16, 2022. Claims under policies written before this date might benefit from procedural changes made by the legislature but in many cases remain subject to substantive laws previously in effect. Remaining pre-reform claims typically reflect disproportionately high incidences of represented and litigated claims. As a result, losses and LAE associated with these claims remain high, exceeding historical patterns in Florida and in other states. Although the Insurance Entities’ number of remaining claims subject to pre-reform laws continues to decline, it will be several years before all of these claims are settled or brought to an adjudicated conclusion. We are optimistic that the legislative reforms will gradually improve the Florida claims environment as the number of claims associated with the pre-reform era continues to decline and more of the Insurance Entities’ claims benefit from the reforms.

Previous wording

The Company has taken a series of steps over time to mitigate the financial impact of these negative trends in the Florida market. We also have closely monitored rate levels, especially in the Florida market, and have submitted rate filings based upon evolving data. However, because rate filings rely upon past loss and expense data and take time to develop, file and implement, we can experience significant delays between identifying needed rate adjustments, filing the associated rate changes, and ultimately collecting and earning the resulting increased premiums. This is particularly the case in an era of rising costs such as the recent Florida market, in which the costs of losses and loss adjustment expenses increased due to Florida’s outsized claims litigation environment and inflationary pressure. Similarly, the Company evaluates and periodically adjusts its policy forms in response to market factors and competitive considerations. While policy form changes can be beneficial in the Company’s risk management initiatives, like with rate adjustments, we can experience delays between identifying desired changes, filing and gaining regulatory approval of the changes, and implementing the new forms.

Current wording

The Company has taken a series of steps over time to mitigate the financial impact of these negative trends in the Florida market. We also have closely monitored rate levels, especially in the Florida market, and have submitted rate filings based upon evolving data. However, because rate filings rely upon past loss and expense data and take time to develop, file and implement, we can experience significant delays between identifying needed rate adjustments, filing the associated rate changes, and ultimately collecting and earning the resulting increased premiums. This is particularly the case in an era of rising costs such as the recent Florida market. Similarly, the Company evaluates and periodically adjusts its policy forms in response to market factors and competitive considerations. While policy form changes can be beneficial in the Company’s risk management initiatives, like with rate adjustments, we can experience delays between identifying desired changes, filing and gaining regulatory approval of the changes, and implementing the new forms.

Previous wording

The Company also updates its claims-handling procedures over time in response to market trends. The Company has adopted initiatives to adjust and pay straightforward, meritorious claims as promptly as possible to mitigate the adverse impacts that can be seen with claims that remain open for longer periods. The Company also has increasingly used video and other technology to facilitate reviews of damaged property and improve efficiency in the claims process. In addition, we develop in-house expertise, often in the form of dedicated internal units, to respond to certain types of claims such as water damage claims, represented claims, and large-loss claims. The Company additionally has established significant in-house legal services to address the high volume of litigated or represented claims as cost-effectively as possible, as well as a subrogation unit that seeks to mitigate losses for the benefit of policyholders and the Company when damages are caused by third parties.

Current wording

The Company also updates its claims-handling procedures over time in response to market trends. The Company has adopted initiatives to adjust and pay straightforward, meritorious claims as promptly as possible to mitigate the adverse impacts that can be seen with claims that remain open for longer periods. The Company also has increasingly used video and other technology to facilitate reviews of damaged property and improve efficiency in the claims process. In addition, we develop in-house expertise, often in the form of dedicated internal units, to respond to certain types of claims such as water damage claims, represented claims, and large-loss claims. The Company additionally has established significant in-house legal services to address the high volume of litigated or represented claims as cost-effectively as possible, as well as a subrogation unit that seeks to mitigate losses for the benefit of policyholders and the Company when damages are caused by third parties. The full impact of the law changes and our operational initiatives on the claims settlement process and associated costs is unknown and still unfolding. We will continue to monitor these impacts and market conditions on recording and reporting of claims costs, rate levels, and competitive conditions.

Previous wording

In April 2023, UPCIC submitted and received approval for a rate decrease of 1.4% for Homeowners’, and a rate decrease of 1.6% for Dwelling Fire in the State of Florida, effective July 15, 2023, for new and renewal business. This filing resulted from UPCIC’s statutorily required participation in Florida’s Reinsurance to Assist Policyholders Program (“RAP”). This program is unrelated to the FHCF and allows insurers to access a layer of reinsurance coverage that is below the FHCF industry retention at no cost to the insurer. In exchange the Insurance Entities adopted a corresponding one-year rate reduction. Under current law, the RAP program expires with the reinsurance contract year ending May 31, 2024. Accordingly, the rate decrease that was temporarily implemented in response to the RAP coverage will expire one year from its effective date, on July 15, 2024.

Current wording

In April 2023, UPCIC submitted and received approval for a rate decrease of 1.4% for Homeowners’, and a rate decrease of 1.6% for Dwelling Fire in the State of Florida, effective July 15, 2023, for new and renewal business. This filing resulted from UPCIC’s statutorily required participation in Florida’s Reinsurance to Assist Policyholders Program (“RAP”). This program is unrelated to the FHCF and allowed insurers to access a layer of reinsurance coverage below the FHCF industry retention at no cost to the insurer. In exchange the Insurance Entities adopted a corresponding one-year rate reduction. The RAP program expired with the reinsurance contract year ending May 31, 2024. Accordingly, the rate decrease that was temporarily implemented in response to the RAP coverage expired one year from its effective date, on July 15, 2024.

Previous wording

In July 2023, UPCIC filed a 7.5% rate increase on Florida personal residential homeowners’ line of business, effective July 17, 2023, for new business and November 4, 2023, for renewal business. Additionally, in October 2023, UPCIC filed a 4.1% rate increase on Florida personal dwelling-fire lines of business, effective January 15, 2024, for both new and renewal business. Both of these rate increases were implemented under use and file rating laws and are pending review with regulators.

Current wording

In July 2023, UPCIC filed a 7.5% rate increase on Florida personal residential homeowners’ line of business, effective July 17, 2023, for new business and November 4, 2023, for renewal business. Additionally, in October 2023, UPCIC filed a 4.1% rate increase on Florida personal dwelling-fire lines of business, effective January 15, 2024, for both new and renewal business. Both of these rate increases were implemented under use and file rating laws and subsequently received regulatory approval.

Previous wording

Premiums Earned, Net ―the pro-rata portion of current and previously written premiums that the Company recognizes as earned premium during the reporting period, net of ceded premium earned. Ceded premiums are premiums paid or payable by the Company for reinsurance protection. Written premiums are considered earned and are recognized pro-rata over the policy coverage period. Premiums earned, net is a measure that allows management to identify revenue trends.

Current wording

Premiums Earned, Net ―the pro-rata portion of current and previously written premiums that the Company recognizes as earned premium during the reporting period, net of ceded premium earned. Ceded premiums are premiums paid or payable by the

Previous wording

Developing and implementing our reinsurance strategy to adequately protect our balance sheet and Insurance Entities in the event of one or more catastrophes while maintaining efficient reinsurance costs has been a key strategic priority for us. In order to limit the Insurance Entities’ potential exposure to catastrophic events, we purchase significant reinsurance from third-party reinsurers and the FHCF. The FLOIR requires the Insurance Entities, like all residential property insurance companies doing business in Florida, to have a certain amount of capital and reinsurance coverage in order to cover losses upon the occurrence of a single catastrophic event and a series of catastrophic events occurring in the same hurricane season. The Insurance Entities’ respective 2023-2024 reinsurance programs meet the FLOIR’s requirements, which are based on, among other things, successfully demonstrating cohesive and comprehensive reinsurance programs that protect the policyholders of our Insurance Entities as well as satisfying a series of stress test catastrophe loss scenarios based on past historical events. Similarly, the Insurance Entities’ respective 2023-2024 reinsurance programs meet the stress test and review requirements of Demotech, Inc., for maintaining Financial Stability Ratings® of A (Exceptional) and of Kroll for maintaining insurer financial strength ratings of “A-”.

Current wording

Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events. Developing and implementing our reinsurance strategy to adequately protect our policyholders, balance sheet, and Insurance Entities in the event of one or more catastrophes while maintaining efficient reinsurance costs has been our key strategic priority. To limit the Insurance Entities’ potential exposure to catastrophic events, we purchase significant reinsurance from third-party reinsurers and the FHCF. The FLOIR requires the Insurance Entities, like all residential property insurance companies doing business in Florida, to have a certain amount of capital and reinsurance coverage to cover losses upon the occurrence of a single catastrophic event and a series of catastrophic events occurring in the same hurricane season. The Insurance Entities’ 2024-2025 catastrophe reinsurance program meets the FLOIR’s requirements, which are based on, among other things, successfully demonstrating cohesive and comprehensive reinsurance coverages that protect the policyholders of our Insurance Entities under a series of stress test catastrophe loss scenarios. Similarly, the Insurance Entities’ 2024-2025 catastrophe reinsurance programs meet the stress test and review requirements of Demotech, Inc., for maintaining Financial Stability Ratings® of A (Exceptional) and of Kroll for maintaining insurer financial strength ratings of “A-”.

Previous wording

We believe the Insurance Entities’ retentions under their respective reinsurance programs are appropriate and structured to protect policyholders. We test the sufficiency of the reinsurance programs by subjecting the Insurance Entities’ personal residential exposures to statistical testing using a third-party hurricane model, RMS RiskLink v18.1 (Build 1945). This model combines simulations of the natural occurrence patterns and characteristics of hurricanes, tornadoes, earthquakes and other catastrophes with information on property values, construction types and occupancy classes. The model outputs provide information concerning the potential for large losses before they occur, so companies can prepare for their financial impact. Furthermore, as part of our operational excellence initiatives, we continually look to enable new technology to refine our data intelligence on catastrophe risk modeling.

Current wording

We believe the Insurance Entities’ retentions under the jointly shared reinsurance program is appropriate and structured to protect policyholders and the Insurance Entities’ capital structure. We test the sufficiency of the catastrophe reinsurance coverage by subjecting the Insurance Entities’ personal residential exposures to scenario testing using third-party catastrophe models. These models combine simulations of the natural occurrence patterns and characteristics of hurricanes, tornadoes, earthquakes, and other catastrophes with information on property values, construction types, and occupancy classes. These models’ outputs provide information concerning the potential for simulated large losses, which enables the Insurance Entities to limit the financial impact from catastrophic events. Refer to the risk factors disclosed in “Part I, Item 1A—Risk Factors,” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, for details of specific risks attributable to catastrophic losses and reinsurance.

Previous wording

UPCIC/APPCIC 2023-2024 All States Reinsurance Program

Current wording

Insurance Entities 2024-2025 All States Reinsurance Program (“All States”)

Previous wording

•First event All States retention of $45 million.

Current wording

•First event All States combined retention of $45 million.

Previous wording

•All States first event tower extends to $2.61 billion with no co-participation in any of the layers, no limitation on loss adjustment expenses for the non-catastrophe bond Cosaint Re Pte. Ltd. traditional reinsurance and no accelerated deposit premiums.

Current wording

•All States first event tower extends to $2.404 billion with no co-participation in any of the layers, no limitation on loss adjustment expenses and no accelerated deposit premiums.

Previous wording

•Assuming a first event completely exhausts the $2.61 billion tower, the second event exhaustion point would be $912 million.

Current wording

•Assuming a first event completely exhausts the $2.404 billion tower, the second event exhaustion point would be $1.134 billion.

Previous wording

•Full reinstatement available on $867 million of non-FHCF and non-RAP first event catastrophe coverage for guaranteed second event coverage. For all layers purchased between $45 million and the RAP layer, to the extent that all of our coverage or a portion thereof is exhausted in a catastrophic event and reinstatement premium is due, we have purchased enough reinstatement premium protection ("RPP") limit to pay the premium necessary for the reinstatement of these coverages or have secured a specific second event contract.

Current wording

•Full reinstatement is available on the combined $1.023 billion of the All States first-event catastrophe coverage for a guaranteed second-event coverage. For all layers purchased between $111 million and the projected attachment point of the FHCF layer, to the extent that all of our coverage or a portion thereof is exhausted in a first catastrophic event and reinstatement premium is due, we have purchased enough reinstatement premium protection coverage ("RPP") to fund the reinstatement premiums due on the reinstatement of these coverages. Losses exceeding the RPP limit would be subject to reinstatement premiums.

Previous wording

•Specific 2 nd event private market excess of loss coverage of $66 million in excess of $45 million sitting behind captive arrangement.

Current wording

•Additionally, a second event private market excess of loss coverage of $66 million in excess of $45 million succeeds the captive in the event of a loss from a second event, resulting in a $66 million reduction in retention on a consolidated basis for a second event.

Previous wording

•Specific 3 rd and 4 th event private market catastrophe excess of loss coverage of $86 million in excess of $25 million provides frequency protection for multiple events during the treaty period including a $20 million reduction in retention for a 3 rd and 4 th event.

Current wording

•Specific third and fourth event private market excess of loss coverage of $86 million in excess of $25 million provides frequency protection for multiple events during the treaty period, an incremental $20 million reduction in retention for a third and fourth event.

Previous wording

•For the FHCF Reimbursement Contracts effective June 1, 2023, both UPCIC and APPCIC have continued the election of the 90% coverage level. The total mandatory FHCF layer provides approximately $1.316 billion of coverage for UPCIC, which inures to the benefit of the open market coverage secured from private reinsurers and Cosaint Re Pte. Ltd (covers UPCIC only) and the total mandatory FHCF layer provides approximately $22.5 million of coverage for APPCIC, which inures to the benefit of the open market coverage secured from private reinsurers.

Current wording

•For the FHCF Reimbursement Contracts effective June 1, 2024, the Insurance Entities have continued the election at the 90% coverage level. We estimate the total mandatory FHCF coverage will provide approximately $1.251 billion of coverage for UPCIC, and $19.4 million for APPCIC which complements and inures to the benefit of the All States coverage secured from private market reinsurers and discussed above.

Previous wording

The table below provides the A.M. Best and S&P financial strength ratings for each of the largest rated third-party reinsurers in UPCIC’s/APPCIC’s 2023-2024 reinsurance program:

Current wording

The table below provides the A.M. Best and S&P financial strength ratings for each of the largest rated third-party reinsurers in the Insurance Entities’ 2024-2025 reinsurance program:

Previous wording

The cost of the 2023-2024 all states reinsurance programs for UPCIC and APPCIC is projected to be $620.6 million, prior to any potential reinstatement premiums due, and represents approximately 31.97% of projected direct premium earned for the 12-month treaty period.

Current wording

The catastrophe reinsurance program for the Insurance Entities, covering the period of June 1, 2024 to May 31, 2025, as described above, is projected to cost $676 million, prior to any potential reinstatement premiums due, and represents approximately 33.0% of projected direct premium earned for the 12-month treaty period.

Previous wording

•Rate filings and automatic policy inflation adjustments to policy insured values are increasing written and earned premium as the new rates and property insured values take effect on policy renewals and new business, and earn prospectively over the policy period.

Current wording

•Rate filings and automatic policy inflation adjustments to policy insured values are increasing written and earned premium as the new rates and property insured values take effect on policy renewals and new business, and earn prospectively over the policy period. There were 833,433 policies-in-force as of the end of June which represents an increase of 23,748 or 2.9% compared to June 30, 2023. Quarter to date policies-in-force increased by 13,355 or 1.63% and year to date, policies-in-force increased by 23,501 policies or 2.9%.

Previous wording

•Declared dividends per common share of $0.16 on February 8, 2024, paid on March 15, 2024, to shareholders of record as of the close of business on March 8, 2024.

Current wording

•Declared dividends per common share of $0.16 on April 10, 2024, payable on May 17, 2024.

Previous wording

First quarter of fiscal 2024 results of operations comparisons are to first quarter of fiscal 2023 (unless otherwise specified).

Current wording

Second quarter of fiscal 2024 results of operations comparisons are to second quarter of fiscal 2023 (unless otherwise specified).

Previous wording

Net income was $33.7 million for the three months ended March 31, 2024, compared to net income of $24.2 million for the same period in 2023. Benefiting the quarter were increases in premiums earned, net, an increase in net investment income, an increase in unrealized gains on investments, and an increase in policy fees, partially offset by an increase in operating costs and expenses, and a decrease in commission revenue. Direct premium earned and premiums earned, net were up 5.9% and 18.4%, respectively compared to direct premium earned and premiums earned in the first quarter of 2023, due to premium in force growth in 16 states in which we are licensed and writing during the past 12 months as a result of rate increases implemented during past years, in addition to an increase in policies in force in 12 states. Premiums earned, net, were also favorably impacted by a decrease in reinsurance expenses for the 2023-2024 contract year primarily due to the Insurance Entities’ mandatory participation in Florida’s RAP program, which allowed insurers to access a layer of reinsurance coverage below the FHCF industry retention at no cost to the insurers. The lower reinsurance costs, effective June 1 2023, have a favorable effect on financial ratios which are based on net earned premium. For the quarter ended March 31, 2024, the loss ratio declined to 71.9% from 73.1% for the same period in 2023 primarily due to an increase in premiums earned, net, a decrease in adverse prior year reserve development, partially offset by a higher direct loss ratio for the current accident year. See 2024 Reinsurance Ratio Benefit noted below. As a result of the above and as further explained below, the combined ratio for the three months ended March 31, 2024 was 95.5% compared to 100.0% for the three months ended March 31, 2023. See “Overview—Trends and Geographical Distribution—Florida Trends” regarding our response to the Florida market.

Current wording

Net income was $35.4 million for the three months ended June 30, 2024, compared to net income of $28.6 million for the same period in 2023. Benefiting the quarter were increases in premiums earned, net, an increase in net investment income and an increase in policy fees and other revenue, partially offset by an increase in operating costs and expenses, and a decrease in commission revenue. Direct premium earned and premiums earned, net were up 5.9% and 13.7%, respectively compared to direct premium earned and premiums earned in the second quarter of 2023, due to premium in force growth in 16 states in which we are licensed and writing during the past 12 months as a result of rate increases implemented during past years, in addition to an increase in policies in force in 12 states. Premiums earned, net, were also favorably impacted by a decrease in reinsurance expenses for the 2023-2024 contract year primarily due to the Insurance Entities’ mandatory participation in Florida’s RAP program, which allowed insurers to access a layer of reinsurance coverage below the FHCF industry retention at no cost to the insurers. The lower reinsurance costs, effective June 1 2023, through May 31, 2024, had a favorable effect on financial ratios which are based on net earned premium. For the quarter ended June 30, 2024, the net loss ratio declined to 70.6% from 73.8% for the same period in 2023 primarily due to an increase in premiums earned, net, a decrease in adverse prior year reserve development, partially offset by a higher loss pick for the current accident year. See Reinsurance section below for further information. As a result of the above and as further explained below, the combined ratio for the three months ended June 30, 2024 was 95.9% compared to 99.1% for the three months ended June 30, 2023. See “Overview—Trends and Geographical Distribution—Florida Trends” regarding our response to the Florida market.

Previous wording

Direct premiums written increased by $36.1 million, or 8.8%, for the quarter ended March 31, 2024, driven by premium growth within our Florida business of $17.5 million, or 5.2%, and premium growth in our other states business of $18.6 million, or 25.6%, as compared to the prior year. Rate increases approved in 2023 and 2024 for Florida and for certain other states and policy inflation adjustments were the principal driver of higher written premiums in addition to an increase in policies in force in 12 other states. In total, policies in force increased 10,146, or 1.3%, from 809,932 at December 31, 2023 to 820,078 at March 31, 2024. A summary of the recent rate increases which are driving increases in written premium is discussed above under “Overview—Trends and Geographical Distribution—Florida Trends.”

Current wording

Direct premiums written increased by $31.1 million, or 5.7%, for the quarter ended June 30, 2024, driven by premium growth within our Florida business of $4.0 million, or 0.9%, and premium growth in our other states business of $27.1 million, or 30.1%, as compared to the prior year. Rate increases approved in 2023 and 2024 for Florida and for certain other states and policy inflation adjustments were the principal driver of higher written premiums in addition to an increase in policies in force in 12 other states. In total, policies in force increased 13,355, or 1.6%, from 820,078 at March 31, 2024 to 833,433 at June 30, 2024. A summary of the recent rate increases which are driving increases in written premium is discussed above under “Overview—Trends and Geographical Distribution—Florida Trends.”

Previous wording

Management continues to manage policy counts and exposures intended to control the growth of exposures relating to new business. Rate increases continue to take effect, and new business underwriting rules are reviewed and updated as needed in the states we underwrite in. This quarter we saw an increase in policies in force of 10,146, or 1.3% during 2024 from 809,932 at December 31, 2023 to 820,078 at March 31, 2024. Direct premiums written continue to increase across the majority of states in which we conduct business. As a result of our business strategy, rate changes and disciplined underwriting initiatives, year over year we have seen an overall decrease in policies in force in the aggregate, but an increase in premium in force, and an increase in total insured value in a majority of states for the past two years. We actively wrote policies in 18 states during the first quarter of 2024. In addition, we are authorized to do business in Tennessee and Wisconsin. In 2023, UPCIC filed with its regulators in Hawaii to withdraw from the state, with the withdrawal and nonrenewal of policies expected to be completed by the end of 2024. Compared to March 31, 2023, at March 31, 2024, policies in force decreased by 7,903 policies, or 1.0%; premium in force increased $101.1 million, or 5.4%; and total insured value increased $8.5 billion, or 2.6%,

Current wording

Management continues to manage policy counts and exposures intended to control the growth of exposures relating to new business. Rate increases continue to take effect, and new business underwriting rules are reviewed and updated as needed in the states we underwrite in. This quarter we saw an increase in policies in force of 23,501, or 2.9% during 2024 from 809,932 at December 31, 2023 to 833,433 at June 30, 2024. Direct premiums written continue to increase across the majority of states in which we conduct business. As a result of our business strategy, rate changes and disciplined underwriting initiatives, year over year we have seen an overall increase in policies in force in the aggregate, as well as an increase in premium in force, and an increase in total insured value in a majority of states for the past two years. We actively wrote policies in 18 states during the second quarter of 2024. In addition, we are authorized to do business in Tennessee and Wisconsin. In 2023, UPCIC filed with its regulators in Hawaii to withdraw from the state, with the withdrawal and nonrenewal of policies expected to be completed by the end of 2024. Compared to June 30, 2023, at June 30, 2024, policies in force increased by 23,748 policies, or 2.9%; premium in force increased $120.7 million, or 6.4%; and total insured value increased $19.2 billion, or 6.0%.

Previous wording

Direct premium earned increased by $26.7 million, or 5.9%, for the quarter ended March 31, 2024, reflecting the earning of premiums written over the past 12 months, including the benefit of rate changes due to primary rate filings, filings to cover increased reinsurance costs as well as policy premium adjustments due to increases in insured values caused by inflation.

Current wording

Direct premium earned increased by $27.3 million, or 5.9%, for the quarter ended June 30, 2024, reflecting the earning of premiums written over the past 12 months, including the benefit of rate changes due to primary rate filings, filings to cover increased reinsurance costs as well as policy premium adjustments due to increases in insured values caused by inflation.

Previous wording

Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events and other covered events. Ceded premium represents premiums paid to reinsurers for this protection and is a cost which reduces net written and net earned premiums. In total, ceded premium earned decreased $25.1 million, or 14.5%, for the quarter ended March 31, 2024 as compared to the same period of the prior year. The decrease in reinsurance costs reflects several factors, including the Insurance Entities’ mandatory participation in the RAP program for the 2023/2024 reinsurance program, which allowed insurers to access a layer of reinsurance coverage that is below the FHCF industry retention at no cost to the insurer. In exchange, the Insurance Entities adopted a 1.4% one-year rate reduction. Also benefiting reinsurance costs in Q1 2024 was the absence of reinstatement premiums, In September 2022, reinstatement premiums totaling $24.6 million were written, and were earned prospectively through May 31, 2023, increasing reinsurance costs in the same quarter of the prior year. Reinsurance costs, as a percentage of direct premium earned, decreased from 38.0% in the first quarter of 2023 to 30.7% during the current quarter. Reinsurance costs associated with each year’s reinsurance program are earned over the annual policy period which typically runs from June 1 st to May 31 st. See the discussion above for the Insurance Entities’ 2023-2024 reinsurance programs and “Item 1— Note 4 (Reinsurance).”

Current wording

Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events and other covered events. Ceded premium represents premiums paid to reinsurers for this protection and is a cost which reduces net written and net earned premiums. In total, ceded premium earned decreased $14.4 million, or 9.0%, for the quarter ended June 30, 2024 as compared to the same period of the prior year. The decrease in reinsurance costs reflects several factors, including the Insurance Entities’ mandatory participation in the RAP program for the 2023/2024 reinsurance program, which allowed insurers to access a layer of reinsurance coverage that is below the FHCF industry retention at no cost to the insurer. In exchange, the Insurance Entities adopted a 1.4% one-year rate reduction. Also benefiting reinsurance costs in the second quarter of 2024 was the absence of reinstatement premiums. In September 2022, reinstatement premiums totaling $24.6 million were written, and were earned prospectively through May 31, 2023, increasing reinsurance costs in the same quarter of the prior year. Reinsurance costs, as a percentage of direct premium earned, decreased from 34.5% in the second quarter of 2023 to 29.7% during the current quarter. The lower reinsurance costs have a favorable effect on financial ratios that are based on net earned premium. Reinsurance costs associated with each year’s reinsurance program are earned over the annual policy period which typically runs from June 1 st to May 31 st. See the discussion above for the Insurance Entities’ 2024-2025 reinsurance programs and “Item 1— Note 4 (Reinsurance).”

Previous wording

Net investment income was $13.5 million for the three months ended March 31, 2024, compared to $10.7 million for the same period in 2023, an increase of $2.8 million, or 26.4%. Invested cash balances, along with liquidity generated by our investment portfolio from maturities, principal repayments, and interest payments received, were invested in higher rates, resulting in an increase in investment returns on our portfolio and cash balances.

Current wording

Net investment income was $14.7 million for the three months ended June 30, 2024, compared to $11.3 million for the same period in 2023, an increase of $3.4 million, or 29.9%. Invested cash balances, along with liquidity generated by our investment portfolio from maturities, principal repayments, and interest payments received, were invested in higher rates, resulting in an increase in investment returns on our portfolio and cash balances.

Previous wording

We look to optimize our investment portfolio on a rolling basis, which, from time-to-time, results in portfolio shaping opportunities. During the three months ended March 31, 2024, sales of available-for-sale debt securities and sales of equity securities resulted in net realized losses of $77.0 thousand.

Current wording

We look to optimize our investment portfolio on a rolling basis, which, from time-to-time, results in portfolio shaping opportunities. During the three months ended June 30, 2024, sales of available-for-sale debt securities and sales of equity securities resulted in net realized losses of $311.0 thousand, compared to net realized gains of $882.0 thousand during the three months ended June 30, 2023

Previous wording

There was a $3.1 million net unrealized gain on investments during the three months ended March 31, 2024, largely driven by our portfolio optimization efforts in the public equity markets, coupled with the overall domestic equity market appreciation tailwind during 2024, compared to a $1.0 million net unrealized gain on investments during the three months ended March 31, 2023.

Current wording

There was a $1.4 million net unrealized gain on investments during the three months ended June 30, 2024, largely driven by our portfolio optimization efforts in the public equity markets, coupled with the overall domestic equity market appreciation tailwind during 2024, compared to a $1.7 million net unrealized gain on investments during the three months ended June 30, 2023.

Previous wording

Commission revenue is comprised principally of brokerage commissions we earn from traditional open market third-party reinsurers, which excludes reinsurance provided by the State of Florida as well as catastrophe bond participants. Commission revenue is earned pro-rata over the reinsurance policy period which runs from June 1 st to May 31 st of the following year. For the three months ended March 31, 2024, commission revenue was $11.0 million, compared to $17.3 million for the three months ended March 31, 2023. The decrease in commission revenue of $6.2 million, or 36.2%, for the three months ended March 31, 2024 was primarily due to commissions on reinstatement premiums attributable to Hurricane Ian which were earned through May 31, 2023, which increased commission revenue in Q1 2023 compared to Q1 2024 where there were no reinstatement premiums.

Current wording

Commission revenue is comprised principally of brokerage commissions we earn from traditional open market third-party reinsurers, which excludes reinsurance provided by the FHCF and RAP as well as catastrophe bond participants. Commission revenue is earned pro-rata over the reinsurance policy period which runs from June 1 st to May 31 st of the following year. For the three months ended June 30, 2024, commission revenue was $11.7 million, compared to $15.0 million for the three months ended June 30, 2023. The decrease in commission revenue of $3.3 million, or 22.1%, for the three months ended June 30, 2024 was primarily due to commissions on reinstatement premiums attributable to Hurricane Ian which were higher during the second quarter of 2023 compared to the second quarter of 2024.

Previous wording

Policy fees for the three months ended March 31, 2024 were $4.4 million compared to $4.2 million for the same period in 2023. The decrease of $0.2 million, or 5.7%, was the result of an increase in the combined total number of policies written during the three months ended March 31, 2024 compared to the same period in 2023 in states in which we are permitted to charge this fee.

Current wording

Policy fees for the three months ended June 30, 2024 were $5.6 million compared to $5.4 million for the same period in 2023. The increase of $0.2 million, or 3.6%, was the result of an increase in the combined total number of policies written during the three months ended June 30, 2024 compared to the same period in 2023 in states in which we are permitted to charge this fee.

Previous wording

Other revenue, representing revenue from policy installment fees, premium financing, and other miscellaneous income, was $1.9 million for the three months ended March 31, 2024 compared to $2.0 million for the same period in 2023.

Current wording

Other revenue, representing revenue from policy installment fees, premium financing, and other miscellaneous income, was $2.3 million for the three months ended June 30, 2024 compared to $2.0 million for the same period in 2023.

Previous wording

Core revenue, representing total GAAP revenue, excluding net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments, was $364.9 million for the three months ended March 31, 2024 compared to $316.3 million for the same period in 2023.

Current wording

Core revenue, representing total GAAP revenue, excluding net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments, was $379.2 million for the three months ended June 30, 2024 compared to $337.0 million for the same period in 2023.

Previous wording

Losses and LAE, net of reinsurance recoveries was $240.2 million for the three months ended March 31, 2024, resulting in a net loss ratio of 71.9%, compared to $206.2 million, and 73.1%, respectively, for the three months ended March 31, 2023. For the three months ended March 31, 2024, the decline in net loss ratio was primarily due to an increase is direct earned premium driven by rate increases and reduced reinsurance costs which has resulted in improvements to the net loss ratio. See Reinsurance Ratio Benefit noted above.

Current wording

Losses and LAE, net of reinsurance recoveries was $243.6 million for the three months ended June 30, 2024, resulting in a net loss ratio of 70.6%, compared to $223.7 million, and 73.8% for the three months ended June 30, 2023. For the three months ended June 30, 2024, the decline in the net loss ratio was primarily due to an increase in direct earned premium driven by rate increases and reduced reinsurance costs, and the absence of net prior year development in the current period as compared to the same period last year. This was partially offset by a higher loss pick selected for 2024 compared to 2023 and a lower financial benefit from adjusting claims.

Previous wording

In recent years, we have strengthened reserves and increased our ratio for estimated losses as a result of adverse development due to Florida homeowners’, tenants’, and condominium owners’ coverages arising from non-weather and weather events. Similar to other carriers operating in the Florida homeowner’s marketplace, we have experienced deterioration in water and hurricane claims due to an unfavorable claims environment characterized by increases in policyholder demands related to roof repairs and significant attorney representation. In 2023, adverse development was due to represented and litigated claims, and Florida weather claims for accident years 2017 and later. One of management’s objectives is to strengthen reserves on those prior period claims, when needed, which do not benefit from the new legislation signed in late 2022 that eliminated the one-way attorneys’ fee statute and assignments of benefits, established a one-year reporting period for claims, and made other reforms intended to improve the Florida market. During the three months ended March 31, 2024, management did not find the need to strengthen prior year net reserves resulting in zero prior year net development, compared to $3.3 million for the same period in 2023, or 1.2 net loss ratio points. We continue to see favorable claim trends on Florida losses that occurred subsequent to the effective date of recent legislation (December 16, 2022) enacted in Florida, which was intended to curtail the impact of certain abusive claims practices. However, prior years' claims not covered by the new legislation have greater uncertainty, and as such those claims in the aggregate have the potential to experience adverse development, as claims have settled above previously estimated amounts.

Current wording

In recent years, we have strengthened reserves and increased our ratio for estimated losses as a result of adverse development due to Florida homeowners’, tenants’, and condominium owners’ coverages arising from non-weather and weather events. Similar to other carriers operating in the Florida homeowner’s marketplace, we have experienced deterioration in water and hurricane claims due to an unfavorable claims environment characterized by increases in policyholder demands related to roof repairs and significant attorney representation. One of management’s objectives is to strengthen reserves on those prior period claims, when needed, which do not benefit from the new legislation signed in late 2022 that eliminated the one-way attorneys’ fee statute and assignments of benefits, established a one-year reporting period for claims, and made other reforms intended to improve the Florida market.

Previous wording

All other losses and LAE-net, excluding prior year development, for the current accident year are estimated to be $240.2 million or 71.9% net loss ratio points for the three months ended March 31, 2024, compared to $202.8 million, or 71.9 net loss ratio points for the same period in 2023. See the 2024 ratio benefit noted above. This category also reflects savings from activities performed by affiliates within our holding company system on behalf of our Insurance Entities and our reinsurers when losses and LAE are ceded under our reinsurance contracts. When claims are adjusted by our claims team and files handled by our legal group in this litigious environment in Florida, there are synergies achieved by having these two functions within the same consolidated group that could not be achieved through third parties. This synergistic relationship results in more efficient handling and coordination of claims including represented claims handled by our legal group of close to 500 employees. By choosing not to outsource these activities, we also save money for the consolidated group by generating a potential financial benefit outside of the Insurance Entities that serves to reduce LAE at the consolidated level (contra LAE), particularly following catastrophes. During 2024 these claims-related activities generated a financial charge of $0.3 million compared to a financial benefit of $5.8 million during the three months ended March 31, 2023.

Current wording

Net losses and LAE also reflects savings from activities performed by affiliates within our holding company system on behalf of our Insurance Entities and our reinsurers when losses and LAE are ceded under our reinsurance contracts. When claims are adjusted by our claims team and files are handled by our legal group in this litigious environment in Florida, there are synergies achieved by having these two functions within the same consolidated group that could not be achieved through third parties. This synergistic relationship results in more efficient handling and coordination of claims including represented claims handled by our legal group. By choosing not to outsource these activities in most instances, we also save money for the consolidated group by generating a potential financial benefit outside of the Insurance Entities that serves to reduce LAE at the consolidated level (contra LAE), particularly following catastrophes. During the three months ended June 30, 2024, these claims-related activities generated a financial benefit of $0.6 million compared to a financial benefit of $25.0 million during the three months ended June 30, 2023.

Previous wording

For the three months ended March 31, 2024, general and administrative expenses were $78.7 million compared to $75.9 million during the same period in 2023, as follows (dollars in thousands):

Current wording

For the three months ended June 30, 2024, general and administrative expenses were $87.1 million compared to $76.7 million during the same period in 2023, as follows (dollars in thousands):