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 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.

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 76.6% of our direct premiums written for the three months ended September 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 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.

Current wording

As a result of market conditions in Florida, personal residential insurance premiums have risen significantly, many insurers have reduced coverages, and underwriting standards have tightened. Due to these conditions and factors more generally affecting the U.S. and global reinsurance markets, reinsurance for Florida property insurance risk also has been subject to increases in pricing and less favorable terms in recent years. These market forces combined to decrease insurance availability among admitted insurers, and consequently to 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 lower-cost alternative to the admitted market.

Previous 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.

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 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 contributed substantially to the Florida market’s recent problems. Among the reforms, the Florida Legislature eliminated policyholders’ former one-way statutory right to attorneys’ fees 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. 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.

Current wording

The most significant statutory reforms took effect for policies issued after December 16, 2022. 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

We seek to achieve rate adequacy for the Insurance Entities, recognizing the effects of the recent Florida claims environment on losses, LAE and expenses, while also taking into account potential benefits associated with the reforms. We have continued to experience elevated costs for losses and LAE in the Florida market, where an industry has developed around the solicitation of personal residential claims. Some areas of Florida such as Miami-Dade, Broward and Palm Beach Counties continue to experience disproportionately high incidences of represented and litigated claims as compared to other areas of the state and other jurisdictions. These dynamics are compounded by the litigation financing industry and other types of third-party financing, which in some cases fund the solicitation and litigation of claims. In addition, inflation, as seen in the cost of labor and materials, remains a contributing factor in elevated costs associated with the settlement of claims. These conditions and the resulting increases in losses and LAE are chief contributing factors for the rate increases in this market. In addition, over the past five years, even as we have increased our estimates of expected losses each year, we have recorded adverse claim development on prior years’ loss reserves and further strengthened current year losses during the year to address the increasing impact that Florida’s market disruptions had on claim cost trends.

Current wording

We seek to achieve rate adequacy for the Insurance Entities, recognizing the effects of the recent Florida claims environment on losses, LAE and expenses, while also taking into account potential benefits associated with the reforms. The favorable impact of the reforms has led many insurers in Florida, including the Insurance Entities, to submit rate filings in 2024 reflecting overall average rates equal to or even slightly lower than their prior year’s rates. Even so, some areas of Florida such as Miami-Dade,

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. 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

Rate filings rely upon past loss and expense data and take time to develop, file and implement. We therefore can experience significant delays between identifying needed rate adjustments, filing the associated rate changes, and ultimately collecting and earning the resulting increased premiums. Further, the ultimate effectiveness of Florida’s reforms is still unknown and difficult to quantify, especially because future market conditions or claims patterns might differ from recent or past experience. 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. 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.

Current wording

The Company 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.

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 subsequently received regulatory approval.

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. In August 2024, UPCIC implemented new homeowners rates for new policies, resulting in an average rate decrease of 1.5% compared to previous rates. The implementation of these rates for renewal business was initially scheduled for November 2024 but has been postponed due to a tolling period for regulatory reviews adopted by the Florida Office of Insurance Regulation following Hurricanes Helene and Milton. UPCIC will seek to implement the filed rates after the expiration of the tolling period.

Previous wording

The pending New York and Maryland rate filings are use and file rates, but prior approval for forms, so the effect in their cases is prior approval.

Current wording

The pending New York and Michigan rate filings are use and file rates, but prior approval for forms, so the effect in their cases is prior 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

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 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.

Previous wording

Premium in Force ―is the amount of the annual direct written premiums previously recorded by the Company for policies which are still active as of the reporting date. This measure assists management in measuring the level of insured exposure and progress toward meeting revenue goals for the current year, and provides an indication of business available for renewal in the next twelve months. Inherent seasonality in our business makes this measure more useful when comparing each quarter’s balance to the same quarter in prior years.

Current wording

Premium in Force ―is the amount of the annual direct premiums written previously recorded by the Company for policies which are still active as of the reporting date. This measure assists management in measuring the level of insured exposure and progress toward meeting revenue goals for the current year, and provides an indication of business available for renewal in the next twelve months. Inherent seasonality in our business makes this measure more useful when comparing each quarter’s balance to the same quarter in prior years.

Previous 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-”.

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 rating of “A-”.

Previous 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.

Current wording

•All States first event tower extends to $2.415 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 $2.404 billion tower, the second event exhaustion point would be $1.134 billion.

Current wording

•Assuming a first event completely exhausts the $2.415 billion tower, the second event exhaustion point would be $1.134 billion.

Previous 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.

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 $1.26 billion of coverage for UPCIC, and $20.4 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

•To further insulate future years, the Insurance Entities have secured certain multi-treaty treaties, providing $240 million of capacity that extends portions of the catastrophe coverage to include the 2025-2026 treaty year.

Current wording

•To further insulate future years, the Insurance Entities have secured certain multi-year treaties, providing $240 million of capacity that extends portions of the catastrophe coverage to include the 2025-2026 treaty year.

Previous wording

•Written premium increased 5.7% for the second quarter of 2024 totaling $578.3 million. Year to date written premium increased 7% totaling $1.024 billion for the six months ended June 30, 2024.

Current wording

•Written premium increased 8.0% for the three months ended September 30, 2024 totaling $574.4 million. Year to date written premium increased 7.4% totaling $1.6 billion for the nine months ended September 30, 2024.

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. 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%.

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 844,539 policies-in-force as of the end of September 30, 2024 which represents an increase of 36,986 or 4.6% compared to September 30, 2023. For the three months ended September 30, 2024 policies-in-force increased by 11,106 or 1.3% and for the nine months ended September 30, 2024, policies-in-force increased by 34,607 or 4.3%.

Previous wording

•Net investment income increased to $14.7 million, or 29.9% in the second quarter of 2024 compared to $11.3 million in the second quarter of 2023.

Current wording

•Net investment income increased to $15.4 million, or 20.8%, in the three months ended September 30, 2024 compared to $12.8 million for the three months ended September 30, 2023.

Previous wording

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

Current wording

•Declared dividends per common share of $0.16 on July 11, 2024, paid on August 9, 2024.

Previous wording

•In the quarter ended June 30, 2024, the Company repurchased 274,320 shares, at an average share price of $19.47, for a total of $5.3 million. As of June 30, 2024, $14.7 million remains available under this program, which runs until March 11, 2026.

Current wording

•In the three months ended September 30, 2024, the Company repurchased 226,498 shares, at an average share price of $19.39, for a total of $4.4 million. As of September 30, 2024, $10.3 million remains available under this program, which runs until March 11, 2026.

Previous wording

Net income was $69.1 million for the six months ended June 30, 2024, compared to net income of $52.7 million for the same period in 2023. Benefiting 2024 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 16.0%, respectively compared to direct premium earned and premiums earned, net in the same period in 2023, due to premium in force growth in 17 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 13 states. For six months ended June 30, 2024, the net loss ratio declined to 71.2% from 73.4% 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 Reinsurance section below for further information. As a result of the above and as further explained below, the combined ratio for the six months ended June 30, 2024 was 95.7% compared to 99.5% for the six months ended June 30, 2023. See “Overview—Trends and Geographical Distribution—Florida Trends” regarding our response to the Florida market.

Current wording

Net loss was $16.2 million for the three months ended September 30, 2024, compared to net loss of $5.9 million for the three months ended September 30, 2023. Hurricane Helene’s retained losses of $111.0 million was a significant impact to the three months ended September 30, 2024 compared to Hurricane Idalia’s $45 million retention for the three months ended September 30, 2023. Benefiting the three months ended September 30, 2024 were increases in premiums earned, net, an increase in net investment income, an increase in commission revenue, and an increase in policy fees and other revenue, offset by an increase in operating costs and expenses. In the three months ended September 30, 2024, direct premium earned and premiums earned, net were up 7.0% and 4.4%, respectively, compared to direct premium earned and premiums earned, net in the three months ended September 30, 2023. The changes were due to premium in force growth in 17 states in which we are licensed and writing during the past 12 months as a result of rate increases implemented during prior years, in addition to an increase in policies in force in 15 states.

Previous wording

Direct premiums written increased by $67.2 million, or 7.0%, for the six months ended June 30, 2024, driven by premium growth within our Florida business of $21.5 million, or 2.7%, and premium growth in our other states business of $45.7 million, or 28.1%, 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 states. In total, policies in force increased 23,501, or 2.9%, from 809,932 at December 31, 2023 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.”

Current wording

Direct premiums written increased by $42.4 million, or 8.0%, for the three months ended September 30, 2024, driven by premium growth within our Florida business of $9.1 million, or 2.1%, and premium growth in our other states business of $33.3 million, or 32.9%, as compared to the three months ended September 30, 2023. Rate changes 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 15 states. In total, policies in force increased 11,106, or 1.3%, from 833,433 at June 30, 2024 to 844,539 at September 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

Rate changes are applied on new business submissions at policy inception and on renewals from the effective date of their renewal, and then are earned subsequently over the policy period. The rate and inflation increases in Florida and other markets are in response to rising claim costs in recent years driven by higher costs of material and labor associated with claims, the cost of weather events, the rising cost of catastrophe and other reinsurance protecting policyholders and, more importantly, the prevalence of represented and litigated claims in Florida. Due to the time associated with analyzing data, preparing and submitting rate filings, implementing new rate levels and earning the corresponding premiums, the Insurance Entities’ rate adjustments typically lag behind their experience by months or even years. In addition, the Insurance Entities’ policies provide for coverage limits to be adjusted at renewal which adjust insured value coverage limits for the impact of changes in inflation occurring since the prior renewal. This is based on third-party industry data sources that monitor inflation factors such as changes in costs for residential building materials and labor.

Current wording

Rate changes are applied on new business submissions at policy inception and on renewals from the effective date of their renewal, and then are earned subsequently over the policy period. The rate changes in Florida and other markets are in response to claim costs in recent years driven by costs of material and labor associated with claims, the cost of weather events, the cost of catastrophe and other reinsurance protecting policyholders and, more importantly, the prevalence of represented and litigated claims in Florida. Due to the time associated with analyzing data, preparing and submitting rate filings, implementing new rate levels and earning the corresponding premiums, the Insurance Entities’ rate adjustments typically lag behind their experience by months or even years. In addition, the Insurance Entities’ policies provide for coverage limits to be adjusted at renewal which adjust insured value coverage limits for the impact of changes in inflation occurring since the prior renewal. This is based on third-party industry data sources that monitor inflation factors such as changes in costs for residential building materials and labor.

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 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%.

Current wording

Management continues to manage policy counts and exposures intended to control the growth of exposures relating to new business. Rate changes continue to take effect, and new business underwriting rules are reviewed and updated as needed in the states we underwrite in. For the nine months ended September 30, 2024, we saw an increase in policies in force of 34,607, or 4.3%, during 2024 from 809,932 at December 31, 2023 to 844,539 at September 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 have policies in force in 18 states at September 30, 2024. In addition, we are authorized to do business in Tennessee and Wisconsin. In 2023, UPCIC received approval from its regulators in Hawaii to withdraw from the state and non-renew all policies in Hawaii. As of September 30, 2024, no policies are in force in Hawaii, and UPCIC is in the process of completing its remaining administrative tasks to finalize its withdrawal from the state. As of September 30, 2024, policies in force increased by 36,986 policies, or 4.6%, premium in force increased $131.8 million, or 6.9%; and total insured value increased $27.4 billion, or 8.6%, compared to September 30, 2023.

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 $39.5 million, or 11.8%, for the six months 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 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 first six months 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 in the six months of 2024 to 30.2% in 2024 as compared to 36.3% during the same period in 2023. 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).”

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 increased $18.7 million, or 13.1%, for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase in reinsurance costs in Q3 2024 is attributable to higher costs for the 2024/2025 reinsurance contract period compared to the 2023/2024 period, as well as reinstatement premiums incurred in the third quarter of 2024, which were not present in the equivalent period of 2023. The lower costs during the 2023/2024 reinsurance contract period were due to the mandatory participation of the Insurance Entities in the Florida RAP program, which provided certain reinsurance protection at no cost. Reinsurance costs, as a percentage of direct premium earned, increased to 31.9% in the three months ended September 30, 2024 compared to 30.2% in the three months ended September 30, 2023. The lower reinsurance costs in 2023 had 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

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

Current wording

We look to optimize our investment portfolio on a rolling basis, which, from time-to-time, results in portfolio shaping opportunities.

Previous 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.

Current wording

There was a $7.3 million net unrealized gain on equity investments during the three months ended September 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 $1.3 million net unrealized loss on equity investments during the three months ended September 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 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.

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. 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 September 30, 2024, commission revenue was $13.0 million, compared to $10.8 million for the three months ended September 30, 2023. The increase in commission revenue of $2.1 million, or 19.7%, for the three months ended September 30, 2024 was due to increased ceded premiums during the 2024-2025 reinsurance program year.

Previous 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.

Current wording

Policy fees for the three months ended September 30, 2024 were $5.2 million compared to $5.1 million for the three months ended September 30, 2023. The increase of $0.1 million, or 1.6%, was the result of an increase in the combined total number of policies written during the three months ended September 30, 2024 compared to the three months ended September 30, 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 $2.3 million for the three months ended June 30, 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 $2.1 million for the three months ended September 30, 2024 compared to $2.0 million for the three months ended September 30, 2023.

Previous wording

We believe the legislation passed in late 2022 represents a positive step towards reducing claim costs in Florida and management is optimistic about its eventual benefits. However, the full transition to these new laws will take many years. Many of the reforms apply only prospectively and provide only marginal benefit for claims filed on policies issued prior to the new laws’ effective date. As for prior policy periods, with respect to some aspects of the reforms, insurers must continue to adjust claims under the prior laws that were subject to abuse while awaiting the expiration of claim reporting periods and statute of limitations periods applicable to those policies. Therefore, it will be several years until the abusive claim practices permitted under the prior laws are fully extinguished and the full benefit of the legislation can be realized.

Current wording

We believe the legislation passed in late 2022 represents a positive step towards reducing claim costs in Florida and management is optimistic about its eventual benefits. The Company is beginning to realize some of those benefits in 2024 for policies fully subject to this legislation. However, the full transition to these new laws will take several years. Many of the reforms apply only to policies written or renewed after the effective date of the legislation and provide marginal benefit for claims filed on policies issued prior to the new laws’ effective date. As for prior policy periods, with respect to some aspects of the reforms, insurers must continue to adjust claims under the prior laws that were subject to abuse while awaiting the expiration of claim reporting periods and statute of limitations periods applicable to those policies. Therefore, it will be several years until the abusive claim practices permitted under the prior laws are fully extinguished and the full benefit of the legislation can be realized.

Previous wording

During the three months ended June 30, 2024, net prior year development was zero, compared to $13.8 million for the same period in 2023, or 4.6 net loss ratio points in 2023. We continue to see favorable claim trends on Florida losses that occurred subsequent to the effective date of the Florida reform legislation (December 16, 2022). However, claims under policies that pre-date the reforms 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

During the three months ended September 30, 2024, net prior year development was favorable on prior year hurricanes, lowering losses in 2024 by $2.2 million, compared to unfavorable prior year development of $17.7 million for the three months ended September 30, 2023. We continue to see favorable claim trends on Florida losses that occurred after the effective date of the Florida reform legislation (December 16, 2022). However, claims under policies that pre-date the reforms have greater uncertainty, and as such, those claims in the aggregate have the potential to experience adverse development, as claims settlements vary from previously estimated amounts.

Previous 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.

Current wording

Consolidated net losses and LAE also reflect the net results from activities performed by the adjusting company within our holding company system. These activities can provide potential savings when adjusting claims on behalf of our Insurance Entities and our reinsurers. When claims are adjusted by our claims team and files are handled by our legal group in this litigious environment in Florida, synergies are achieved by having these two functions within the same consolidated group, which 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 reduces LAE at the consolidated level (contra LAE), particularly following catastrophes. During the three months ended September 30, 2024, claims related activities generated a modest charge of $0.4 million as we scale resources to match the non-catastrophe claims and litigation activity in the new litigation environment, compared to a financial benefit of $18.7 million generated during the three months ended September 30, 2023.

Previous 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):

Current wording

For the three months ended September 30, 2024, general and administrative expenses were $87.1 million compared to $78.3 million during the three months ended September 30, 2023, as follows (dollars in thousands):

Previous wording

General and administrative expenses increased by $10.4 million, which was the result of an increase in policy acquisition costs of $4.6 million and an increase in other operating costs of $5.8 million. The total general and administrative expense ratio was 25.3% for the three months ended June 30, 2024 and 2023. See Reinsurance section above for further information.

Current wording

For the three months ended September 30, 2024, general and administrative expenses increased by $8.8 million from the three months ended September 30, 2023. This was the result of an increase in policy acquisition costs of $5.5 million and an increase in other operating costs of $3.3 million. The total general and administrative expense ratio was 25.2% for the three months ended September 30, 2024 compared to 23.7% for the three months ended September 30, 2023. The ratio was partially impacted by higher reinsurance costs in 2024. See― “Reinsurance” section above for further information.

Previous wording

•The increase in other operating costs was largely driven by employee related expenses including stock-based compensation, and employee benefits and welfare. The other operating cost ratio was 8.9% for the three months ended June 30, 2024, compared to 8.1% for the same period in 2023.

Current wording

•The increase in other operating costs was largely driven by employee related expenses including stock-based compensation, and employee benefits and welfare. The other operating cost ratio was 8.2% for the three months ended September 30, 2024, compared to 7.6% for the three months ended September 30, 2023.

Previous wording

As a result of the trends discussed above for losses and LAE and general and administrative expenses, the combined ratio for the second quarter ended June 30, 2024 was 95.9% compared to 99.1% for the same period in 2023.

Current wording

As a result of the trends discussed above for the cost of reinsurance, losses and LAE and general and administrative expenses, the combined ratio for the three months ended September 30, 2024 was 116.9% compared to 110.7% for the three months ended September 30, 2023.

Previous wording

Income tax expense was $12.5 million for the quarter ended June 30, 2024, compared to an income tax expense of $9.0 million for the quarter ended June 30, 2023. Our effective tax rate (“ETR”) increased to 26.1% for the quarter ended June 30, 2024, as compared to 23.9% for the quarter ended June 30, 2023. See “Item 1—Note 9 (Income Taxes)” for a table of items reconciling statutory rates to the effective rate for three months ended 2024 and 2023.

Current wording

Income tax benefit was $2.0 million for each of the three months ended September 30, 2024 and 2023. Our effective tax rate (“ETR”) decreased to 10.8% for the three months ended September 30, 2024, as compared to 24.9% for the three months ended September 30, 2023. See “Item 1—Note 9 (Income Taxes)” for a table of items reconciling statutory rates to the effective rate for three months ended September 30, 2024 and 2023.

Previous wording

Other comprehensive loss, net of taxes for the six months ended June 30, 2024 was $1.5 million compared to other comprehensive income of $7.9 million for the same period in 2023, reflecting after-tax changes in fair value of available-for-sale debt securities held in our investment portfolio and reclassifications out of accumulated other comprehensive income for available-for-sale debt securities sold. The deterioration in 2024 reflects relative shifts in market prices during 2024 compared to 2023. During 2024, maturing securities and investment returns were reinvested at market rates, reducing unrealized losses on maturing securities. The maturity of the remaining securities in an unrealized loss position has also reduced during the year. Over time, unrealized losses on securities in an unrealized loss position lessens as the remaining maturity shortens and securities approach their maturity or par value. See discussion above and “Item 1—Note 11 (Other Comprehensive Income (Loss))” for additional information about the amounts comprising other comprehensive income (loss), net of taxes for these periods.

Current wording

Other comprehensive income, net of taxes for the three months ended September 30, 2024 was $30.1 million compared to other comprehensive loss of $11.3 million for the three months ended September 30, 2023, reflecting after-tax changes in fair value of available-for-sale debt securities held in our investment portfolio and reclassifications out of accumulated other comprehensive income for available-for-sale debt securities sold. The improvement in the three months ended September 30, 2024 reflects favorable relative shifts in market prices during 2024 compared to 2023. During 2024, maturing securities and investment returns were reinvested at market rates, reducing unrealized losses on maturing securities. The maturity of the remaining securities in an unrealized loss position has also reduced during the year. Over time, unrealized losses on securities in an unrealized loss position lessen as the remaining maturity shortens and securities approach their maturity or par value. See the discussion above and “Item