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Significant Accounting Policies (Policies)
 6 Months Ended
Jun. 30, 2012
Significant Accounting Policies [Abstract]  
Nature of Operations

Nature of Operations

Universal Insurance Holdings, Inc. (“UIH”) is a Delaware corporation originally incorporated as Universal Heights, Inc. in November 1990. UIH, with its wholly-owned subsidiaries (the “Company”) is a vertically integrated insurance company performing all aspects of insurance underwriting, distribution and claims. Through its wholly-owned subsidiaries, including Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC”), collectively referred to as the (“Insurance Entities”), the Company is principally engaged in the property and casualty insurance business offered primarily through a network of independent agents. Risk from catastrophic losses is managed through the use of reinsurance agreements. The Company’s primary product is homeowners’ insurance offered in five states as of June 30, 2012, including Florida which comprises the vast majority of the Company’s in-force policies. See Note 5, Insurance Operations, for more information regarding the Company’s insurance operations.

The Company generates revenues primarily from the collection of premiums and the investment of available funds in excess of those retained for claims-paying obligations and insurance operations. Other significant sources of revenue include commissions collected from reinsurers and policy fees.

Basis of Presentation

Basis of Presentation

The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by United States Generally Accepted Accounting Principles (“GAAP”) for complete financial statements. Therefore, the Financial Statements should be read in conjunction with the audited Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, filed with the SEC on March 26, 2012. The condensed consolidated balance sheet at December 31, 2011, was derived from audited financial statements, but does not include all disclosures required by GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included in the Financial Statements. The results for interim periods do not necessarily indicate the results that may be expected for any other interim period or for the full year.

The Financial Statements include the accounts of the UIH and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.

Management must make estimates and assumptions that affect amounts reported in the Company’s Financial Statements and in disclosures of contingent assets and liabilities. Actual results could differ from those estimates.

To conform to the current period presentation, certain amounts in the prior periods’ consolidated financial statements and notes have been reclassified. Such reclassifications were of an immaterial amount and had no effect on net income or stockholders’ equity. The Company has adjusted its Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2011 to reflect the effect of a reclassification made to its Condensed Consolidated Balance Sheet as of June 30, 2011 related to reinsurance payables. This reclassification was made upon discovery that the Company was offsetting receivables and payables with non-affiliated reinsurers. This correction represents a change in the presentation only of the Company’s Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of Cash Flows and had no impact on earnings, equity or cash flows from operating, investing and financing activities.

 

The following line items were adjusted (in thousands):

 

                         
    Six Months Ended June 30, 2011  
    As Reported     Reclassification     Adjusted  

Condensed Consolidated Statements of Cash Flows:

                        

Net change in assets and liabilities relating to operating activities:

                        

Reinsurance receivable, net

   $ —       $ (10,419 )    $ (10,419 ) 

Reinsurance payable, net

   $ 54,558     $ 10,419     $ 64,977  

An adjustment has been made to the Company’s Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2011 to reflect the effect of a reclassification made to the Company’s Condensed Consolidated Balance Sheet as of June 30, 2011 related to restricted cash and cash equivalents. The Company reclassified amounts out of cash and cash equivalents that were restricted in terms of their use and withdrawal and has presented those amounts of restricted cash and cash equivalents as a separate line item on the face of the Condensed Consolidated Balance Sheets. The following line items were adjusted (in thousands):

 

                         
    Six Months Ended June 30, 2011  
    As Reported     Reclassification     Adjusted  

Condensed Consolidated Statements of Cash Flows:

                        

Net change in assets and liabilities relating to operating activities:

                        

Restricted cash and cash equivalents

   $ —       $ (19,689 )    $ (19,689 ) 

Net cash flows provided by (used in) operating activities

   $ 215,229     $ (19,689 )    $ 195,540  

Net increase in cash and cash equivalents

   $ 209,154     $ (19,689 )    $ 189,465  

Cash and cash equivalents at beginning of period

   $ 147,585     $ (13,940 )    $ 133,645  

Cash and cash equivalents at end of period

   $ 356,739     $ (33,629 )    $ 323,110  
Concentrations of Credit Risk

Concentrations of Credit Risk. The Company is exposed to concentrations of credit risk, consisting principally of cash and cash equivalents, restricted cash and cash equivalents, debt securities, premiums receivable, prepaid reinsurance premiums, reinsurance receivable and reinsurance recoverables.

Concentrations of credit risk with respect to cash on deposit are limited by the Company’s policy of investing excess cash with custodial institutions that invest primarily in money market accounts consisting of short-term U.S. Treasury securities. These accounts are held primarily by the Institutional Trust & Custody division of U.S. Bank and SunTrust Bank Escrow Services.

The Company maintains depository relationships with SunTrust Bank and Wells Fargo Bank N.A., and other banking institutions. It is the Company’s policy not to have a balance of more than $250 thousand for any of its affiliates at any institution on any given day to minimize exposure to a bank failure. Cash balances in excess of $250 thousand are transferred daily into custodial accounts with SunTrust Bank Escrow Services where cash is immediately invested into shares of money market funds.

Restricted cash and cash equivalents are maintained in money market accounts consisting of U.S. Treasury and government agency securities.

 

 

The following table presents the amount of cash and cash equivalents and restricted cash and cash equivalents as of the periods presented (in thousands):

 

                                                                 
    As of June 30, 2012  
    Cash and cash equivalents     Restricted cash and cash equivalents  

Institution

   Cash     Money
Market Funds		     Total     % by
institution		     Funds
held in
Trust (1)		     State
Deposits (2)		     Total     % by
institution		  

U. S. Bank IT&C

   $ —       $ 40,475     $ 40,475       11.4 %    $ —       $ 800     $ 800       1.1 % 

SunTrust Bank

     1,106       —         1,106       0.3 %      —         —         —         —    

SunTrust Bank Escrow Services

     —         311,029       311,029       87.3 %      —         —         —         —    

Wells Fargo Bank N.A.

     1,520       3       1,523       0.4 %      —         —         —         —    

Bank of New York Mellon Trust Co. (1)

     —         —         —         —         19,979       —         19,979       26.9 % 

Florida Department of Financial Services

     —         —         —         —         —         53,495       53,495       72.0 % 

All Other Banking Institutions

     2,033       159       2,192       0.6 %      —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 4,659     $ 351,666     $ 356,325       100.0 %    $ 19,979     $ 54,295     $ 74,274       100.0 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

                                                                 
    As of December 31, 2011  
    Cash and cash equivalents     Restricted cash and cash equivalents  

Institution

   Cash     Money
Market Funds		     Total     % by
institution		     Funds
held in
Trust (1)		     State
Deposits (2)		     Total     % by
institution		  

U. S. Bank IT&C

   $ —       $ 40,474     $ 40,474       17.6 %    $ —       $ 800     $ 800       1.0 % 

SunTrust Bank

     1,629       —         1,629       0.7 %      —         —         —         —    

SunTrust Bank Escrow Services

     —         182,701       182,701       79.5 %      —         —         —         —    

Wells Fargo Bank N.A.

     1,244       14       1,258       0.5 %      —         —         —         —    

Bank of New York Mellon Trust Co. (1)

     —         —         —         —         30,220       —         30,220       38.6 % 

Florida Department of Financial Services

     —         —         —         —         —         47,292       47,292       60.4 % 

All Other Banking Institutions

     1,739       1,884       3,623       1.6 %      —         —         —         —    
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

   $ 4,612     $ 225,073     $ 229,685       100.0 %    $ 30,220     $ 48,092     $ 78,312       100.0 % 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

(1) Amounts held in trust include collateral contributed by UIH in connection with reinsurance contracts entered into between UPCIC and a segregated account owned and maintained by UIH.
(2) State deposits represent amounts held with regulatory agencies in the various states in which our Insurance Entities do business. Applicable laws and regulations govern not only the amount, but also the type of securities that are eligible for deposit. State deposits also include amounts that UPCIC has voluntarily placed on deposit in connection with the reinsurance contract between UPCIC and UIH.

Concentrations of credit risk with respect to premiums receivable are limited due to the large number of individuals comprising the Company’s customer base. However, the majority of the Company’s revenues are currently derived from products and services offered to customers in Florida, which could be adversely affected by economic downturns, an increase in competition or weather-related events.

In order to reduce credit risk for amounts due from reinsurers, the Insurance Entities seek to do business with financially sound reinsurance companies and regularly evaluate the financial strength of all reinsurers used. Everest Reinsurance Company, the reinsurer to which the Insurance Entities ceded the most risk through May 31, 2012, has the following ratings from each of the rating agencies: A+ from A.M. Best Company; A+ from Standard and Poor’s Rating Services and; Aa3 from Moody’s Investors Service, Inc. Additionally, Odyssey Reinsurance Company, the reinsurer to which the Insurance Entities cede the most risk effective June 1, 2012, has the following ratings from each of the rating agencies: A from A.M. Best Company; A- from Standard and Poor’s Rating Services and; A3 from Moody’s Investors Service, Inc.

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) updated its guidance to the Balance Sheet Topic 210 of the FASB Accounting Standards Codification (“ASC”). This updated guidance requires entities that have financial instruments and derivative instruments that are offset, to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on an entity’s financial position. This guidance is to be applied for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Disclosure is required retrospectively for all comparative periods presented. The additional disclosures required by the updated guidance will not have an impact on the Company’s operating results, cash flows or financial position.

Comprehensive Income

In June 2011, the FASB updated its guidance related to the Comprehensive Income Topic 220 of the FASB ASC. This updated guidance increases the prominence of items reported in other comprehensive income by eliminating the option of presenting components of other comprehensive income as part of the statement of changes in stockholders’ equity. The guidance requires that total comprehensive income (including both the net income components and other comprehensive income components) be reported in either a single continuous statement of comprehensive income (the approach currently used in the Company’s financial statements), or two separate but consecutive statements. This guidance is to be applied retrospectively to fiscal years (and interim periods within those years) beginning after December 15, 2011. The Company adopted this guidance effective January 1, 2012. This guidance did not have an impact on the presentation of the Company’s financial statements and notes herein, as the Company did not have any amounts of other comprehensive income during the periods presented.

Fair Value Measurement

In May 2011, the FASB updated its guidance related to the Fair Value Measurement, Topic 820 of the ASC, to achieve common fair value measurement and disclosure requirements with International Financial Reporting Standards. The amendments change the wording used to describe many of the requirements under GAAP, to clarify the intent of application of existing fair value measurement and disclosure requirements, and to change particular principles or requirements for measuring and disclosing fair value measurements. The amendments are to be applied prospectively to interim and annual reporting periods beginning after December 15, 2011. The Company adopted this guidance effective January 1, 2012. The adoption of this guidance resulted in additional disclosure but did not impact the Company’s results of operations, cash flows or financial position.

Reinsurance Recoverable

In September 2010, the FASB issued guidance related to accounting for costs associated with acquiring or renewing insurance contracts.

Deferred Policy Acquisition Costs

This guidance defines allowable deferred policy acquisition costs as costs incurred by insurance entities for the successful acquisition of new and renewal contracts. Such costs result directly from and are essential to the contract transaction(s) and would not have been incurred by the insurance entity had the contract(s) not occurred. This guidance is effective for periods beginning after December 15, 2011, with early adoption permitted. The Company adopted this guidance prospectively effective January 1, 2012. Under the new guidance, the Company’s net deferred policy acquisition costs were reduced from $13.0 million to $11.4 million, a difference of 13%. The resulting $1.6 million difference was charged directly to earnings during the three months ended March 31, 2012. This charge represents a charge-off of capitalized costs existing at December 31, 2011, which would have been amortized to earnings within a twelve-month period under the old guidance.