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Insurance Operations

9 Months Ended

Sep. 30, 2011

Reinsurance and Insurance Operations [Abstract]

Insurance Operations

5.	Insurance Operations

The Company’s primary product is homeowners’ insurance currently offered by UPCIC in four states, including Florida, which represented 98% of policies-in-force as of September 30, 2011, and December 31, 2010. As of September 30, 2011 and December 31, 2010, 32% of the policies-in-force are in Miami-Dade, Broward and Palm Beach counties.

Deferred Policy Acquisition Costs

The following table provides the beginning and ending balances and the changes in deferred policy acquisition costs (“DPAC”), net of deferred ceding commission (“DCC”), for the periods presented (in thousands):


		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2011				2010				2011				2010
DPAC, beginning of period		$	59,129			$	58,151			$	50,128			$	43,971
Capitalized costs during the period			30,759				27,742				87,551				78,703
Amortization of DPAC during the period (1)			(30,332	)			(30,112	)			(78,123	)			(66,893	)

DPAC, end of period		$	59,556			$	55,781			$	59,556			$	55,781

DCC, beginning of period		$	(47,103	)		$	(44,109	)		$	(40,682	)		$	(34,506	)
Ceding commissions written during the period			(21,220	)			(18,912	)			(69,109	)			(64,554	)
Earned Ceding Commissions during the period			21,780				20,093				63,248				56,132

DCC, end of period		$	(46,543	)		$	(42,928	)		$	(46,543	)		$	(42,928	)

DPAC (DCC), net, beginning of period		$	12,026			$	14,042			$	9,446			$	9,465
Capitalized costs, net during the period			9,539				8,830				18,442				14,149
Amortization of DPAC (DCC), net during the period (1)			(8,552	)			(10,019	)			(14,875	)			(10,761	)

DPAC (DCC), net, end of period		$	13,013			$	12,853			$	13,013			$	12,853

(1)	Includes amortization of agent commissions of $22.8 million and $23.0 million for the three months ended September 30, 2011 and 2010 and $59.5 million and $53.5 million for the nine months ended September 30, 2011 and 2010, respectively.

Liability for Unpaid Losses and Loss Adjustment Expenses

Set forth in the following table is the change in liability for unpaid losses and LAE for the periods presented (in thousands):


		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2011				2010				2011				2010
Balance at beginning of period		$	155,375			$	128,903			$	158,929			$	127,198
Less reinsurance recoverable			76,307				63,451				79,114				62,901

Net balance at beginning of period		$	79,068			$	65,452			$	79,815			$	64,297

Incurred related to:
Current year		$	24,975			$	29,063			$	76,897			$	77,905
Prior years			4,368				307				4,483				(48	)

Total incurred		$	29,343			$	29,370			$	81,380			$	77,857

Paid related to:
Current year		$	15,244			$	17,091			$	30,119			$	34,614
Prior years			9,587				8,095				47,496				37,903

Total paid		$	24,831			$	25,186			$	77,615			$	72,517

Net balance at end of period			83,580				69,636				83,580				69,636
Plus reinsurance recoverable			79,374				67,221				79,374				67,221

Balance at end of period		$	162,954			$	136,857			$	162,954			$	136,857

As a result of changes in estimates of insured events in prior years, the provision of losses and LAE, net of related reinsurance recoverables increased principally as a result of actual loss development on prior year non-catastrophe losses. The Company has created a proprietary claims analysis tool (P2P) to analyze and calculate reserves. P2P is a custom built application by UPCIC that aggregates, analyzes and forecasts reserves based on historical data that spans more than a decade. It identifies historical claims data using the same “like kind and quality” variables that exist in present claims and sets forth appropriate, more accurate reserves on current claims. P2P is reviewed by UPCIC management on a weekly basis in reviewing the topography of existing and incoming claims. P2P will be analyzed at each quarter’s end and adjustments to reserves are made at an aggregate level when appropriate.

Regulatory Requirements

The Company’s regulated subsidiaries, UPCIC and American Platinum Property and Casualty Insurance Company (“APPCIC”), are subject to regulations and standards of the Florida Office of Insurance Regulation (“OIR”). These standards require the subsidiaries to maintain specified levels of statutory capital and restrict the timing and amount of dividends and other distributions that may be paid to the parent company. Except in the case of extraordinary dividends, these standards generally permit dividends to be paid from statutory unassigned surplus of the regulated subsidiary and are limited based on the regulated subsidiary’s level of statutory net income and statutory capital and surplus. These dividends are referred to as “ordinary dividends” and generally can be paid without prior regulatory approval. If the dividend, together with other dividends paid within the preceding twelve months, exceeds a specified statutory limit or is paid from sources other than earned surplus, the entire dividend is generally considered an “extraordinary dividend” and must receive prior regulatory approval.

In 2011, based on the 2010 statutory net income and statutory capital and surplus levels, the maximum amount of ordinary dividends which could be paid is $2.5 million from UPCIC and $1.2 million from APPCIC. For the nine months ended September 30, 2011, no dividends were paid from UPCIC or APPCIC to their parent company.

The Florida Insurance Code requires companies to maintain capitalization equivalent to the greater of ten percent of the insurer’s total liabilities or $5.0 million. Ten percent of UPCIC’s total liabilities were $42.9 million and $32.9 million at September 30, 2011, and December 31, 2010, respectively. Ten percent of APPCIC’s total liabilities were $64 thousand and $83 thousand at September 30, 2011 and December 31, 2010, respectively. UPCIC’s statutory capital and surplus was $95.6 million and $115.9 million at September 30, 2011, and December 31, 2010, respectively. APPCIC’s statutory capital and surplus was $9.4 million and $11.3 million at September 30, 2011, and December 31, 2010, respectively. At such dates, both UPCIC and APPCIC met the Florida capitalization requirement. UPCIC and APPCIC are also required to adhere to prescribed premium-to-capital surplus ratio and have met those requirements at such dates.

Through Universal Insurance Holdings Company of Florida, UPCIC’s parent company, UIH made capital contributions of $5.0 million and $12.0 million to UPCIC in June 2011, and September 2011, respectively.