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Nature of Operations and Basis of Presentation (Policies) | 9 Months Ended
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Sep. 30, 2013
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 and its wholly-owned subsidiaries (collectively, the “Company”) are a vertically integrated insurance holding 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 seven states as of September 30, 2013, 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 collected from policyholders through the Company’s affiliated managing general agent.
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, 2012, filed with the SEC on March 8, 2013. The condensed consolidated balance sheet at December 31, 2012, 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 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.
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 recoverable. The Company maintains depository relationships with SunTrust Bank, Wells Fargo Bank N.A., Deutsche Bank Securities, Inc., and State Street Bank and Trust Company and invests excess cash with custodial institutions that invest primarily in money market accounts consisting of or collateralized by short-term U.S. Treasury securities and other U.S. government guaranteed securities. These accounts are held primarily by SunTrust Bank, Deutsche Bank Securities, Inc., and State Street Bank and Trust Company. The Company regularly evaluates the financial strength of the institutions with which it maintains depository relationships. The following table presents the ratings from each of the rating agencies:
|  | Current Ratings
Institution |  | Standard and Poor’s Rating Services |  | Moody’s Investors Service, Inc.
Sun Trust Bank |  | BBB+ |  | A3
Wells Fargo Bank N.A. |  | AA- |  | Aa3
Deutsche Bank Securities, Inc. |  | A |  | A2
State Street Bank and Trust Company |  | AA- |  | Aa2
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 as of the periods presented (in thousands):
|  | Cash and cash equivalents |
|  | As of September 30, 2013 |  |  | As of December 31, 2012 |
Institution |  | Cash |  |  | Money Market Funds |  |  | Total |  |  | % by institution |  |  | Cash |  |  | Money Market Funds |  |  | Total |  |  | % by institution |
U.S. Bank IT&C |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  | — |  |  | $ | — |  |  | $ | 40,463 |  |  | $ | 40,463 |  |  |  | 11.6 | %
SunTrust Bank |  |  | 528 |  |  |  | 3,696 |  |  |  | 4,224 |  |  |  | 3.1 | % |  |  | 773 |  |  |  | 1,055 |  |  |  | 1,828 |  |  |  | 0.5 | %
SunTrust Bank Escrow Services |  |  | — |  |  |  | 93,794 |  |  |  | 93,794 |  |  |  | 68.3 | % |  |  | — |  |  |  | 300,843 |  |  |  | 300,843 |  |  |  | 86.6 | %
Wells Fargo Bank N.A. |  |  | 2,701 |  |  |  | — |  |  |  | 2,701 |  |  |  | 2.0 | % |  |  | 1,991 |  |  |  | 3 |  |  |  | 1,994 |  |  |  | 0.6 | %
Deutsche Bank Securities, Inc. |  |  | — |  |  |  | 21,042 |  |  |  | 21,042 |  |  |  | 15.3 | % |  |  | 1,796 |  |  |  | 468 |  |  |  | 2,264 |  |  |  | 0.7 | %
State Street Bank and Trust Company |  |  | — |  |  |  | 14,800 |  |  |  | 14,800 |  |  |  | 10.8 | % |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
All Other Banking Institutions |  |  | 725 |  |  |  | — |  |  |  | 725 |  |  |  | 0.5 | % |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | 3,954 |  |  | $ | 133,332 |  |  | $ | 137,286 |  |  |  | 100.0 | % |  | $ | 4,560 |  |  | $ | 342,832 |  |  | $ | 347,392 |  |  |  | 100.0 | %
The following table presents the amount of restricted cash and cash equivalents as of the periods presented (in thousands):
|  | Restricted cash and cash equivalents |
|  | As of September 30, 2013 |  |  | As of December 31, 2012 |
Institution |  | State Deposits |  |  | % by institution |  |  | State Deposits |  |  | % by institution |
U.S. Bank IT&C |  | $ | 800 |  |  |  | 30.8 | % |  | $ | 800 |  |  |  | 2.4 | %
Florida Department of Financial Services |  |  | 1,800 |  |  |  | 69.2 | % |  |  | 32,209 |  |  |  | 97.6 | %
Total |  | $ | 2,600 |  |  |  | 100.0 | % |  | $ | 33,009 |  |  |  | 100.0 | %
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 other environmental changes. 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. The following table presents the unsecured amounts due from the Company’s reinsurers whose aggregate balance exceeded 3% of the Company’s stockholders’ equity as of the periods presented (in thousands):
|  | Current Ratings |  | As of |
Reinsurer |  | AM Best Company |  | Standard and Poor’s Rating Services |  | Moody’s Investors Service, Inc. |  | September 30, 2013 |  |  | December 31, 2012 |
Everest Reinsurance Company |  | A+ |  | A+ |  | A1 |  | $ | 84,387 |  |  | $ | 44,392 |
Florida Hurricane Catastrophe Fund |  | n/a |  | n/a |  | n/a |  |  | — |  |  |  | 31,970 |
Odyssey Reinsurance Company |  | A |  | A- |  | A3 |  |  | 151,600 |  |  |  | 192,096 |
Total (1) |  |  |  |  |  |  |  | $ | 235,987 |  |  | $ | 268,458 |
(1) | Amounts represent prepaid reinsurance premiums, reinsurance receivables, and net recoverables for paid and unpaid losses, including incurred but not reported reserves, loss adjustment expenses, and offsetting reinsurance payables.
n/a—No rating available
Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements In July 2013, the Financial Accounting Standards Board (FASB) issued accounting guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. Under this guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should generally be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward. This guidance is effective for fiscal years and interim periods beginning after December 15, 2013, but earlier adoption is permitted. We plan to adopt the standard prospectively on its required effective date of January 1, 2014 and are assessing the effect of adopting the standard on our Condensed Consolidated Balance Sheets, Statements of Income and Statements of Cash Flows. In June 2011, the FASB updated its guidance to the Comprehensive Income Topic 220 of the FASB Accounting Standards Codification (“ASC”) and in February 2013, the FASB further amended such topic. This February 2013 guidance requires disclosure about amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. This guidance is to be applied prospectively to interim and annual reporting periods beginning after December 15, 2012. The Company adopted this guidance effective January 1, 2013. The adoption of this guidance will result in additional disclosure but did not impact the Company’s results of operations, cash flows or financial position. The updated guidance provided by the FASB in June 2011 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. The adoption did not have an impact on the presentation of the Company’s financial statements and notes herein, as the Company has presented amounts of other comprehensive income consistent with this updated guidance. 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. In September 2010, the FASB issued guidance related to accounting for costs associated with acquiring or renewing insurance contracts. 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% at December 31, 2011. 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.

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