Statutory Accounting and Regulation

9 Months Ended

Sep. 30, 2022

STATUTORY ACCOUNTING AND REGULATION

The insurance industry is heavily regulated. State laws and regulations, as well as national regulatory agency requirements, govern the operations of all insurers such as our insurance subsidiaries. The various laws and regulations require that insurers maintain minimum amounts of statutory surplus and risk-based capital, restrict insurers' ability to pay dividends, specify allowable investment types and investment mixes, and subject insurers to assessments. Effective June 1, 2022, our insurance subsidiaries JIC and ACIC were merged, with ACIC being the surviving entity. Effective May 31, 2022, our insurance subsidiaries UPC and FSIC were merged, with UPC being the surviving entity. Both UPC and ACIC are domiciled in Florida, while IIC is domiciled in New York. At September 30, 2022, and during the three and nine months then ended, our insurance subsidiaries met all regulatory requirements of the states in which they operate.

During 2022, we received an assessment notice from the Florida Insurance Guaranty Association (FIGA). This assessment will be 1.3% on direct written premium of all covered lines of business in Florida to cover the cost of an insurance company

facing insolvency. This assessment is in addition to FIGA's 0.7% assessment, described below, and is recoupable from policyholders. During 2021, we received an assessment notice from FIGA of 0.7% on all direct written premium of Florida lines of business during 2022. In addition, during 2021, we received an assessment notice from the Louisiana Insurance Guarantee Association (LIGA). LIGA is assessing property and casualty insurers $100,000,000 in the aggregate to cover the cost of two regional insurance companies facing insolvency.

The National Association of Insurance Commissioners (NAIC) has Risk-Based Capital (RBC) guidelines for insurance companies that are designed to assess capital adequacy and to raise the level of protection that statutory surplus provides for policyholders. Most states, including Florida and New York, have enacted statutory requirements adopting the NAIC RBC guidelines, and insurers having less statutory surplus than required will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. State insurance regulatory authorities could require an insurer to cease operations in the event the insurer fails to maintain the required statutory capital.

The state laws of Florida and New York permit an insurer to pay dividends or make distributions out of that part of statutory surplus derived from net operating profit and net realized capital gains. The state laws further provide calculations to determine the amount of dividends or distributions that can be made without the prior approval of the insurance regulatory authorities in those states and the amount of dividends or distributions that would require prior approval of the insurance regulatory authorities in those states. Statutory RBC requirements may further restrict our insurance subsidiaries' ability to pay dividends or make distributions if the amount of the intended dividend or distribution would cause statutory surplus to fall below minimum RBC requirements.

The SBA Note is considered a surplus note pursuant to statutory accounting principles. As a result, UPC is subject to the authority of the Insurance Commissioner of the State of Florida with regard to its ability to repay principal and interest on the SBA Note. Any payment of principal or interest requires permission from the insurance regulatory authority.

Our insurance subsidiaries must each file with the various insurance regulatory authorities an “Annual Statement” which reports, among other items, statutory net income (loss) and surplus as regards policyholders, which is called stockholders' equity under GAAP. The table below details the statutory net income (loss) for each of our regulated entities for the three and nine months ended September 30, 2022 and 2021.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
UPC(2)	$	(42,257)	$	1,607	$	(169,090)	$	(59,314)
ACIC(3)	14,314		(3,484)		25,000		(39,882)
IIC	(1,833)		(4,037)		(4,429)		(5,488)
Total	$	(29,776)	$	(5,914)	$	(148,519)	$	(104,684)

(1) All values included in the table are estimated as of November 9, 2022.

(2) UPC results are inclusive of FSIC as these entities were merged effective May 31, 2022.

(3) ACIC results are inclusive of JIC as these entities were merged effective June 1, 2022.

Our insurance subsidiaries must maintain capital and surplus ratios or balances as determined by the regulatory authority of the states in which they are domiciled. At September 30, 2022, we met these requirements. The table below details the amount of surplus as regards policyholders for each of our regulated entities at September 30, 2022 and December 31, 2021.


	September 30, 2022		December 31, 2021
UPC(2)	$	50,880	$	169,244
ACIC(3)	90,604		142,138
IIC	25,422		30,248
Total	$	166,906	$	341,630

(1) All values included in the table are estimated as of November 9, 2022.

(2) UPC results are inclusive of FSIC as these entities were merged effective May 31, 2022.

(3) ACIC results are inclusive of JIC as these entities were merged effective June 1, 2022.