5. Insurance Operations

Deferred Policy Acquisition Costs, net

The Company defers certain costs in connection with written policies, called Deferred Policy Acquisition Costs (“DPAC”), net of corresponding amounts of ceded reinsurance commissions, called Deferred Reinsurance Ceding Commissions (“DRCC”). Net DPAC is amortized over the effective period of the related insurance policies.

The following table presents the beginning and ending balances and the changes in DPAC, net of DRCC, for the periods presented (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
DPAC, beginning of period	$	61,158		$	56,183		$	60,019		$	54,603
Capitalized Costs		36,825			31,722			67,411			60,289
Amortization of DPAC		(30,793	)		(25,724	)		(60,240	)		(52,711	)
DPAC, end of period	$	67,190		$	62,181		$	67,190		$	62,181
DRCC, beginning of period	$	—		$	29,988		$	—		$	28,943
Ceding Commissions Written		—			(22,938	)		—			(5,276	)
Earned Ceding Commissions		—			(7,050	)		—			(23,667	)
DRCC, end of period	$	—		$	—		$	—		$	—
DPAC (DRCC), net, beginning of period	$	61,158		$	26,195		$	60,019		$	25,660
Capitalized Costs, net		36,825			54,660			67,411			65,565
Amortization of DPAC (DRCC), net		(30,793	)		(18,674	)		(60,240	)		(29,044	)
DPAC (DRCC), net, end of period	$	67,190		$	62,181		$	67,190		$	62,181

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):

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Balance at beginning of period	$	84,975		$	125,161		$	98,840		$	134,353
Less: Reinsurance recoverable		(7,709	)		(42,713	)		(13,540	)		(47,350	)
Net balance at beginning of period		77,266			82,448			85,300			87,003
Incurred (recovered) related to:
Current year		60,084			39,637			126,185			73,200
Prior years		(1	)		67			15			94
Total incurred		60,083			39,704			126,200			73,294
Paid related to:
Current year		54,041			23,830			72,659			30,623
Prior years		26,122			17,982			81,655			49,334
Total paid		80,163			41,812			154,314			79,957
Net balance at end of period		57,186			80,340			57,186			80,340
Plus: Reinsurance recoverable		2,958			31,777			2,958			31,777
Balance at end of period	$	60,144		$	112,117		$	60,144		$	112,117

Regulatory Requirements and Restrictions

The Insurance Entities are subject to regulations and standards of the Florida Office of Insurance Regulation (“FLOIR”). UPCIC also is subject to regulations and standards of regulatory authorities in other states where it is licensed, although as a Florida-domiciled insurer its principal regulatory authority is the FLOIR. These standards require the Insurance Entities to maintain specified levels of statutory capital and restrict the timing and amount of dividends and other distributions that may be paid by the Insurance Entities 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. The maximum dividend that may be paid by UPCIC and APPCIC to their immediate parent company, Universal Insurance Holding Company of Florida (“UVECF”), without prior regulatory approval is limited by the provisions of Florida Statutes. These dividends are referred to as “ordinary dividends.” However, if the dividend, together with other dividends paid within the preceding twelve months, exceeds this 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 accordance with Florida Statutes, and based on the calculations performed by the Company as of December 31, 2015, UPCIC has the capacity to pay ordinary dividends of $52.9 million during 2016. APPCIC does not have the capacity to pay ordinary dividends during 2016. For the six months ended June 30, 2016, no dividends were paid from UPCIC or APPCIC to UVECF. Dividends paid to the shareholders of UVE in 2016 have been paid from the earnings of UVE and its non-insurance subsidiaries.

The Florida Insurance Code requires insurance companies to maintain capitalization equivalent to the greater of ten percent of the insurer’s total liabilities or $5.0 million. The following table presents the amount of capital and surplus calculated in accordance with statutory accounting principles, which differ from U.S. GAAP, and an amount representing ten percent of total liabilities for both UPCIC and APPCIC as of the dates presented (in thousands):

	June 30,		December 31,
	2016		2015
Ten percent of total liabilities
UPCIC	$	67,311	$	55,928
APPCIC	$	566	$	463
Statutory capital and surplus
UPCIC	$	294,165	$	256,987
APPCIC	$	14,804	$	14,777

As of the dates in the table above, both UPCIC and APPCIC met the capitalization requirement. UPCIC also met the capitalization requirements of the other states in which it is licensed as of June 30, 2016. UPCIC and APPCIC are also required to adhere to prescribed premium-to-capital surplus ratios and have met those requirements at such dates.

The Insurance Entities are required by various state laws and regulations to maintain certain assets in depository accounts. The following table represents assets held by insurance regulators as of the dates presented (in thousands):

	June 30,		December 31,
	2016		2015
Restricted cash and cash equivalents	$	2,635	$	2,635
Investments	$	3,986	$	3,876