American Coastal Insurance Corporation - 10-Q quarterly report FY2017 Q3

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________________

FORM 10-Q

_______________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

Commission File Number 001-35761

_____________________

United Insurance Holdings Corp.

(Exact name of Registrant as specified in its charter)

_______________________



	Delaware		75-3241967
	(State of Incorporation)		(IRS Employer Identification Number)

800 2nd Avenue S

St. Petersburg, Florida 33701

(Address, including zip code, of principal executive offices)

727-895-7737

(Registrant's telephone number, including area code)

_______________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes R No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	£	Accelerated filer	þ
Non-accelerated filer	£	Smaller reporting company	£
		Emerging growth company	£

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

As of November 8, 2017; 42,753,504 shares of common stock, par value $0.0001 per share, were outstanding.

UNITED INSURANCE HOLDINGS CORP.



PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements	4
	Consolidated Balance Sheets	4
	Unaudited Consolidated Statements of Comprehensive Income	5
	Unaudited Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	31
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	44
	Item 4. Controls and Procedures	45
PART II. OTHER INFORMATION
	Item 1. Legal Proceedings	46
	Item 1A. Risk Factors	46
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	46
	Item 3. Defaults Upon Senior Securities	47
	Item 4. Mine Safety Disclosures	48
	Item 5. Other Information	48
	Item 6. Exhibits	48
Signatures		49

Throughout this Form 10-Q, we present amounts in all tables in thousands, except for share amounts, per share amounts, policy counts or where more specific language or context indicates a different presentation. In the narrative sections of this Quarterly Report, we show full values rounded to the nearest thousand.

UNITED INSURANCE HOLDINGS CORP.

FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q as of September 30, 2017 and for the three and nine months then ended or in documents incorporated by reference, contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about anticipated revenues, earnings per share, estimated unpaid losses on insurance policies, investment returns and expectations about our liquidity, and our ability to meet our investment objectives and to manage and mitigate market risk with respect to our investments. These statements are based on current expectations, estimates and projections about the industry and market in which we operate, and management’s beliefs and assumptions. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “endeavor,” “project,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” or “continue” or the negative variations there of, or comparable terminology are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. The risks and uncertainties include, without limitation:


•	the regulatory, economic and weather conditions in the states in which we operate;


•	the impact of new federal or state regulations that affect the property and casualty insurance market;


•	the cost, variability and availability of reinsurance;


•	assessments charged by various governmental agencies;


•	pricing competition and other initiatives by competitors;


•	our ability to attract and retain the services of senior management;


•	the outcome of litigation pending against us, including the terms of any settlements;


•	dependence on investment income and the composition of our investment portfolio and related market risks;


•	our exposure to catastrophic events and severe weather conditions;


•	downgrades in our financial strength ratings;


•	risks and uncertainties relating to our acquisitions including our ability to successfully integrate the acquired companies; and


•	other risks and uncertainties described in the section entitled "Risk Factors" in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2016.

We caution you not to place reliance on these forward-looking statements, which are valid only as of the date they were made. Except as may be required by applicable law, we undertake no obligation to update or revise any forward-looking statements to reflect new information, the occurrence of unanticipated events, or otherwise. In addition, we prepare our financial statements in accordance with U.S. generally accepted accounting principles (GAAP), which prescribes when we may reserve for particular risks, including litigation exposures. Accordingly, our results for a given reporting period could be significantly affected if and when we establish a reserve for a major contingency. Therefore, the results we report in certain accounting periods may appear to be volatile, and past results may not be indicative of results in future periods.

These forward-looking statements are subject to numerous risks, uncertainties and assumptions about us described in our filings with the Securities and Exchange Commission (SEC). The forward-looking events that we discuss in this Form 10-Q are valid only as of the date of this Form 10-Q and may not occur, or may have different consequences, in light of the risks, uncertainties and assumptions that we describe from time to time in our filings with the SEC. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from our forward-looking statements is included in the section entitled “RISK FACTORS” in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2016. Except as required by applicable law, we undertake no obligation and disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

UNITED INSURANCE HOLDINGS CORP.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets



	September 30, 2017			December 31, 2016
ASSETS	(Unaudited)
Investments available for sale, at fair value:
Fixed maturities (amortized cost of $715,374 and $497,616, respectively)	$	718,785		$	494,516
Equity securities (adjusted cost of $52,845 and $24,074, respectively)	61,639			28,398
Other investments (amortized cost of $7,835 and $5,493, respectively)	8,157			5,733
Total investments	$	788,581		$	528,647
Cash and cash equivalents	280,268			150,688
Accrued investment income	5,229			3,735
Property and equipment, net	19,344			17,860
Premiums receivable, net	70,019			38,883
Reinsurance recoverable on paid and unpaid losses	489,348			24,028
Prepaid reinsurance premiums	285,121			132,564
Goodwill	59,679			14,254
Deferred policy acquisition costs	101,314			65,473
Intangible assets	55,109			12,371
Other assets	29,210			11,183
Total Assets	$	2,183,222		$	999,686
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses	$	682,161		$	140,855
Unearned premiums	577,805			372,223
Reinsurance payable	241,768			99,891
Other liabilities	127,153			91,215
Notes payable	53,119			54,175
Total Liabilities	$	1,682,006		$	758,359
Commitments and contingencies (Note 11)
Stockholders' Equity:
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding	—			—
Common stock, $0.0001 par value; 50,000,000 shares authorized; 42,953,087 and 21,858,697 issued; 42,741,004 and 21,646,614 outstanding for 2017 and 2016, respectively	4			2
Additional paid-in capital	375,666			99,353
Treasury shares, at cost; 212,083 shares	(431		)	(431		)
Accumulated other comprehensive income	7,678			822
Retained earnings	118,299			141,581
Total Stockholders' Equity	$	501,216		$	241,327
Total Liabilities and Stockholders' Equity	$	2,183,222		$	999,686

See accompanying Notes to Unaudited Consolidated Financial Statements.

UNITED INSURANCE HOLDINGS CORP.

Consolidated Statements of Comprehensive Income

(Unaudited)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
REVENUE:
Gross premiums written	$	267,219		$	194,341		$	788,408		$	541,053
Decrease (increase) in gross unearned premiums	782			(20,821		)	(76,758		)	(56,446		)
Gross premiums earned	268,001			173,520			711,650			484,607
Ceded premiums earned	(115,507		)	(53,299		)	(292,355		)	(148,837		)
Net premiums earned	152,494			120,221			419,295			335,770
Investment income	4,901			2,663			12,489			7,786
Net realized gains (losses)	(71		)	106			(554		)	478
Other revenue	13,804			4,212			40,604			11,650
Total revenue	171,128			127,202			471,834			355,684
EXPENSES:
Losses and loss adjustment expenses	143,127			72,746			293,398			199,615
Policy acquisition costs	46,546			31,333			125,302			84,086
Operating expenses	6,891			5,558			19,020			15,326
General and administrative expenses	19,316			12,329			58,825			31,759
Interest expense	771			206			2,282			397
Total expenses	216,651			122,172			498,827			331,183
Income (loss) before other income	(45,523		)	5,030			(26,993		)	24,501
Other income	36			11			94			80
Income (loss) before income taxes	(45,487		)	5,041			(26,899		)	24,581
Provision for income taxes	(17,475		)	1,618			(10,043		)	8,366
Net income (loss)	$	(28,012	)	$	3,423		$	(16,856	)	$	16,215
OTHER COMPREHENSIVE INCOME:
Change in net unrealized gains (losses) on investments	2,672			(3,495		)	10,509			10,305
Reclassification adjustment for net realized investment losses (gains)	71			(106		)	554			(478		)
Income tax benefit (expense) related to items of other comprehensive income	(1,050		)	1,298			(4,207		)	(3,776		)
Total comprehensive income	$	(26,319	)	$	1,120		$	(10,000	)	$	22,266

Weighted average shares outstanding
Basic	42,524,400			21,448,892			35,341,994			21,406,599
Diluted	42,741,004			21,643,401			35,563,032			21,604,135

Earnings per share
Basic	$	(0.66	)	$	0.16		$	(0.48	)	$	0.76
Diluted	$	(0.66	)	$	0.16		$	(0.47	)	$	0.75

Dividends declared per share	$	0.06		$	0.06		$	0.18		$	0.17

See accompanying Notes to Unaudited Consolidated Financial Statements.

UNITED INSURANCE HOLDINGS CORP.

Consolidated Statements of Cash Flows

(Unaudited)



	Nine Months Ended September 30,
	2017			2016
OPERATING ACTIVITIES
Net income (loss)	$	(16,856	)	$	16,215
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	24,206			8,640
Bond amortization and accretion	3,663			2,621
Net realized gains (losses)	554			(478		)
Provision for uncollectable premiums/over and short	205			57
Deferred income taxes, net	380			1,575
Stock based compensation	1,931			1,429
Changes in operating assets and liabilities:
Accrued investment income	(183		)	155
Premiums receivable	98			2,260
Reinsurance recoverable on paid and unpaid losses	(445,090		)	(11,097		)
Prepaid reinsurance premiums	(130,013		)	(55,890		)
Deferred policy acquisition costs, net	(35,841		)	(18,164		)
Other assets	(12,354		)	(2,301		)
Unpaid losses and loss adjustment expenses	480,777			20,901
Unearned premiums	76,758			56,446
Reinsurance payable	119,471			59,036
Other liabilities	16,631			7,914
Net cash provided by operating activities	$	84,337		$	89,319
INVESTING ACTIVITIES
Proceeds from sales and maturities of investments available for sale	106,150			147,266
Purchases of investments available for sale	(136,319		)	(146,535		)
Cash from acquisition	95,284			—
Purchase of subsidiary, net of cash acquired	—			(32,840		)
Cost of property, equipment and capitalized software acquired	(4,243		)	(2,726		)
Net cash provided by (used in) investing activities	$	60,872		$	(34,835	)
FINANCING ACTIVITIES
Tax withholding payment related to net settlement of equity awards	—			(270		)
Proceeds from borrowings	—			5,200
Repayments of borrowings	(1,142		)	(969		)
Dividends	(6,426		)	(3,675		)
Bank overdrafts	(8,061		)	—
Net cash (used in) provided by financing activities	$	(15,629	)	$	286
Increase in cash	129,580			54,770
Cash and cash equivalents at beginning of period	150,688			84,786
Cash and cash equivalents at end of period	$	280,268		$	139,556
Supplemental Cash Flows Information
Interest paid	$	2,001		$	201
Income taxes paid	$	4,206		$	7,199
Non-cash transactions
Issuance of common stock in connection with acquisition	$	274,384		$	—

See accompanying Notes to Unaudited Consolidated Financial Statements.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

1) ORGANIZATION, CONSOLIDATION AND PRESENTATION

(a)Business

United Insurance Holdings Corp. (referred to in this document as we, our, us, the Company or UPC Insurance) is a property and casualty insurance holding company that sources, writes, and services residential and commercial property and casualty insurance policies using a network of agents and four wholly owned insurance subsidiaries. Our primary insurance subsidiary is United Property & Casualty Insurance Company (UPC), which was formed in Florida in 1999 and has operated continuously since that time. Our other subsidiaries include United Insurance Management, L.C. (UIM), (our managing general agent) that manages substantially all aspects of UPC's business; Skyway Claims Services, LLC (our claims adjusting affiliate) that provides services to our insurance affiliates; UPC Re (our reinsurance affiliate) that provides a portion of the reinsurance protection purchased by our insurance affiliates, Family Security Holdings, LLC (FSH), Family Security Insurance Company, Inc. (FSIC), Interboro Insurance Company (IIC), AmCo Holding Company (AmCo), American Coastal Insurance Company (ACIC) and BlueLine Cayman Holdings (BLUE).

On April 29, 2016, we acquired IIC via merger. On April 3, 2017, we merged with AmCo and its two wholly owned subsidiaries, ACIC and BLUE. See Note 4 in our Notes to Unaudited Consolidated Financial Statements for additional information regarding these acquisitions.

Our primary products are homeowners' and commercial insurance, which we currently offer in Connecticut, Florida, Georgia, Hawaii, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina, and Texas, under authorization from the insurance regulatory authorities in each state. We are also licensed to write property and casualty insurance in Alabama, Delaware, Maryland, Mississippi, New Hampshire, and Virginia; however, we have not commenced writing in these states.

We conduct our operations under one business segment.

(b)Consolidation and Presentation

We prepare our financial statements in conformity with U.S. generally accepted accounting principles (GAAP). While preparing our consolidated financial statements, we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, as well as reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Reported amounts that require us to make extensive use of estimates include our reserves for unpaid losses and loss adjustment expenses, reinsurance recoverable, deferred policy acquisition costs, investments and goodwill. Except for the captions on our Unaudited Consolidated Balance Sheets and Unaudited Consolidated Statements of Comprehensive Income, we generally use the term loss(es) to collectively refer to both loss and loss adjustment expenses.

We include all of our subsidiaries in our unaudited consolidated financial statements, eliminating all significant intercompany balances and transactions during consolidation.

We prepared the accompanying Unaudited Consolidated Balance Sheet as of September 30, 2017, with the Audited Consolidated Balance Sheet amounts as of December 31, 2016, presented for comparative purposes, and the related Unaudited Consolidated Statements of Comprehensive Income and Statements of Cash Flows in accordance with the instructions for Form 10-Q and Article 10-01 of Regulation S-X. In compliance with those instructions, we have omitted certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP, though management believes the disclosures made herein are sufficient to ensure that the information presented is not misleading.

Our results of operations and our cash flows as of the end of the interim periods reported herein do not necessarily indicate our results for the remainder of the year or for any other future period.

Management believes our unaudited consolidated interim financial statements include all the normal recurring adjustments necessary to fairly present our Unaudited Consolidated Balance Sheet as of September 30, 2017, our Unaudited Consolidated Statements of Comprehensive Income and our Unaudited Consolidated Statements of Cash Flows for all periods presented.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

Our unaudited consolidated interim financial statements and footnotes should be read in conjunction with our consolidated financial statements and footnotes in our Annual Report filed on Form 10-K for the year ended December 31, 2016.

2) SIGNIFICANT ACCOUNTING POLICIES

(a) Changes to significant accounting policies

We have made no changes to our significant accounting policies as reported in our 2016 Form 10-K.

(b) Fair value assumptions

The carrying amounts for the following financial instrument categories approximate their fair values at September 30, 2017 and December 31, 2016, because of their short-term nature: cash and cash equivalents, accrued investment income, premiums receivable, reinsurance recoverable, reinsurance payable, other assets, and other liabilities. The carrying amount of the notes payable to the Florida State Board of Administration, the Branch Banking & Trust Corporation (BB&T) and the senior notes payable approximate fair value as the interest rates are variable. The carrying amount of our note payable with Interboro, LLC approximates fair value due to the short-term nature of the loan.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). This update was intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 became effective for annual periods beginning after December 15, 2016. The new guidance did not impact the way in which we account for share-based payment transactions and therefore, the adoption as of January 1, 2017 had no impact on our results of operations or financial position.

(d) Pending Accounting Pronouncements

We have evaluated recent accounting pronouncements that have had or may have a significant effect on our financial statements or on our disclosures.

In May 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-09, Compensation-Stock Compensation (Topic 718)-Scope of Modification Accounting (ASU 2017-09). This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted for certain requirements. We do not intend to early adopt and are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.

In January 2017, the FASB issued Accounting Standards Update (ASU) No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). This update simplifies the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. ASU 2017-07 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted for certain requirements. We do not intend to early adopt and are assessing the impact of adopting this new accounting standard on our consolidated financial statements and related disclosures.

In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09). Insurance contracts are excluded from the scope of this guidance. Under the standard, guidance is provided on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The transaction price is attributed to underlying performance obligations in the contract and revenue is recognized as the entity satisfies the performance obligation and transfers control of the good or service to the customer. ASU 2014-09 is effective beginning in the first quarter of 2018, with early adoption permitted. We do not intend to early adopt and note that the standard is not applicable to our insurance contracts. We do not believe that the adoption

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

of this new accounting standard will have a material impact on our consolidated financial statements and related disclosures.

3) INVESTMENTS

The following table details the difference between cost or adjusted/amortized cost and estimated fair value, by major investment category, at September 30, 2017 and December 31, 2016:



	Cost or Adjusted/Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2017
U.S. government and agency securities	$	204,132	$	618	$	1,294	$	203,456
Foreign government	2,025		32		—		2,057
States, municipalities and political subdivisions	194,327		2,249		429		196,147
Public utilities	19,601		205		51		19,755
Corporate securities	277,481		2,692		580		279,593
Asset backed securities	16,711		11		8		16,714
Redeemable preferred stocks	1,097		29		63		1,063
Total fixed maturities	715,374		5,836		2,425		718,785
Mutual funds	28,949		858		—		29,807
Public utilities	1,342		300		—		1,642
Other common stocks	19,804		7,790		149		27,445
Non-redeemable preferred stocks	2,750		56		61		2,745
Total equity securities	52,845		9,004		210		61,639
Other long-term investments	7,835		322		—		8,157
Total investments	$	776,054	$	15,162	$	2,635	$	788,581

December 31, 2016
U.S. government and agency securities	$	151,656	$	189	$	1,893	$	149,952
Foreign government	2,031		30		—		2,061
States, municipalities and political subdivisions	170,636		1,027		2,551		169,112
Public utilities	7,687		116		73		7,730
Corporate securities	164,424		1,238		1,126		164,536
Redeemable preferred stocks	1,182		5		62		1,125
Total fixed maturities	497,616		2,605		5,705		494,516
Public utilities	1,343		164		—		1,507
Other common stocks	19,815		4,552		319		24,048
Non-redeemable preferred stocks	2,916		10		83		2,843
Total equity securities	24,074		4,726		402		28,398
Other long-term investments	5,493		267		27		5,733
Total investments	$	527,183	$	7,598	$	6,134	$	528,647

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

When we sell investments, we calculate the gain or loss realized on the sale by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. We determine the cost or adjusted/amortized cost of the security sold using the specific-identification method. The following table details our realized gains (losses) by major investment category for the three and nine month periods ended September 30, 2017 and 2016:



	2017					2016
	Gains (Losses)			Fair Value at Sale		Gains (Losses)			Fair Value at Sale
Three Months Ended September 30,
Fixed maturities	$	123		$	11,368	$	508		$	11,009
Equity securities	1			156		—			—
Total realized gains	124			11,524		508			11,009
Fixed maturities	(195		)	10,517		(396		)	7,635
Equity securities	—			—		(6		)	17
Total realized losses	(195		)	10,517		(402		)	7,652
Net realized investment gains (losses)	$	(71	)	$	22,041	$	106		$	18,661

Nine Months Ended September 30,
Fixed maturities	$	263		$	30,264	$	1,806		$	47,391
Equity securities	8			175		24			10,769
Total realized gains	271			30,439		1,830			58,160
Fixed maturities	(815		)	47,913		(1,170		)	20,663
Equity securities	(10		)	100		(182		)	17,025
Total realized losses	(825		)	48,013		(1,352		)	37,688
Net realized investment gains (losses)	$	(554	)	$	78,452	$	478		$	95,848

The table below summarizes our fixed maturities at September 30, 2017 by contractual maturity periods. Actual results may differ, as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturities of those obligations.



	September 30, 2017
	Cost or Amortized Cost		Percent of Total		Fair Value		Percent of Total
Due in one year or less	$	50,426	7.0	%	$	50,362	7.0	%
Due after one year through five years	332,620		46.5	%	334,135		46.5	%
Due after five years through ten years	192,314		26.9	%	194,266		27.0	%
Due after ten years	17,043		2.4	%	17,089		2.4	%
Asset and mortgage backed securities	122,971		17.2	%	122,933		17.1	%
Total	$	715,374	100.0	%	$	718,785	100.0	%

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

The following table summarizes our net investment income by major investment category:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Fixed maturities	$	4,111		$	2,251		$	10,696		$	6,693
Equity securities	375			259			940			726
Cash and cash equivalents	285			38			445			87
Other investments	124			110			385			266
Other assets	6			5			23			14
Investment income	4,901			2,663			12,489			7,786
Investment expenses	(213		)	(155		)	(482		)	(360		)
Net investment income	$	4,688		$	2,508		$	12,007		$	7,426

Portfolio monitoring

We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired.

For each fixed income security in an unrealized loss position, we determine if the loss is temporary or other-than-temporary. If our management decides to sell the security or determines that it is more likely than not that we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as liquidity needs, contractual or regulatory requirements, then the security's decline in fair value is considered other-than-temporary and is recorded in earnings.

If we have not made the decision to sell the fixed income security and it is more likely than not that we will be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we expect the security to receive cash flows sufficient to recover the entire cost or amortized cost basis of the security. We calculate the estimated recovery value by discounting the best estimate of future cash flows at the security's original or current effective rate, as appropriate, and compare this to the cost or amortized cost of the security. If we do not expect to receive cash flows sufficient to recover the entire cost or amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.

For equity securities, we consider various factors, including whether we have the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis. If we lack the intent or ability to hold to recovery, or if we believe the recovery period is extended, the equity security's decline in fair value is considered other-than-temporary and is recorded in earnings.

Our portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its cost or amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which we may have a concern, are evaluated for potential other-than-temporary impairment using information relevant to the collectability or recovery of the security that is reasonably available. Inherent in our evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other-than-temporary are: (1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; (2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and (3) the length of time and extent to which the fair value has been less than amortized cost or cost.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

The following table presents an aging of our unrealized investment losses by investment class:



	Less Than Twelve Months					Twelve Months or More
	Number of Securities⁽¹⁾	Gross Unrealized Losses		Fair Value		Number of Securities⁽¹⁾	Gross Unrealized Losses		Fair Value
September 30, 2017
U.S. government and agency securities	147	$	741	$	81,333	57	$	553	$	36,900
States, municipalities and political subdivisions	62	274		50,719		23	155		16,625
Public utilities	9	24		3,966		4	27		625
Corporate securities	152	515		77,334		21	65		3,531
Asset backed securities	16	8		10,367		—	—		—
Redeemable preferred stocks	—	—		—		3	63		308
Total fixed maturities	386	1,562		223,719		108	863		57,989
Other common stocks	9	87		765		4	62		429
Non-redeemable preferred stocks	5	6		347		6	55		877
Total equity securities	14	93		1,112		10	117		1,306
Total	400	$	1,655	$	224,831	118	$	980	$	59,295

December 31, 2016
U.S. government and agency securities	186	$	1,893	$	111,216	—	$	—	$	—
States, municipalities and political subdivisions	201	2,551		136,360		—	—		—
Public utilities	8	73		2,222		—	—		—
Corporate securities	215	1,100		88,605		1	26		1,021
Redeemable preferred stocks	7	62		764		—	—		—
Total fixed maturities	617	5,679		339,167		1	26		1,021
Other common stocks	16	140		2,450		17	179		1,732
Non-redeemable preferred stocks	12	52		1,830		7	31		369
Total equity securities	28	192		4,280		24	210		2,101
Other long-term investments	1	27		987		—	—		—
Total	646	$	5,898	$	344,434	25	$	236	$	3,122

⁽¹⁾ This amount represents the actual number of discrete securities, not the number of shares or units of those securities. The numbers are not presented in thousands.

During our quarterly evaluations of our securities for impairment, we determined that none of our investments in debt and equity securities that reflected an unrealized loss position were other-than-temporarily impaired. The issuers of our debt securities continue to make interest payments on a timely basis. We do not intend to sell nor is it likely that we would be required to sell the debt securities before we recover our amortized cost basis. The near-term prospects of all the issuers of the equity securities we own indicate we could recover our cost basis, and we also do not intend to sell these securities until their value equals or exceeds their cost.

During the three and nine months ended September 30, 2017 and 2016, we recorded no other-than-temporary impairment charges.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

Fair value measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Unaudited Consolidated Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:

Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we can access.

Level 2: Assets and liabilities whose values are based on the following:

(a) Quoted prices for similar assets or liabilities in active markets;

(b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or

(c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the assets and liabilities.

We estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the NYSE, NASDAQ, and NYSE MKT. For securities for which quoted prices in active markets are unavailable, we use a third-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable. Our estimates of fair value reflect the interest rate environment that existed as of the close of business on September 30, 2017 and December 31, 2016. Changes in interest rates subsequent to September 30, 2017 may affect the fair value of our investments.

The fair value of our fixed-maturities is initially calculated by a third-party pricing service. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed income and other securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates, and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial information. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector and, where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience.

For our Level 3 assets, our internal pricing methods are primarily based on models using discounted cash flow methodologies that determine a single best estimate of fair value for individual financial instruments. In addition, our models use a discount rate and internally assigned credit ratings as inputs (which are generally consistent with any external ratings) and those we use to report our holdings by credit rating. Market related inputs used in these fair values, which we believe are representative of inputs other market participants would use to determine fair value of the same instruments include: interest rate yield curves, quoted market prices of comparable securities, credit spreads, and other applicable market data. As a result of the significance of non-market observable inputs, including internally assigned credit ratings as described above, judgment is required in developing these fair values. The fair value of these financial assets may differ from the amount actually received if we were to sell the asset. Moreover, the use of different valuation assumptions may have a material effect on the fair values on the financial assets.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

Any change in the estimated fair value of our securities would impact the amount of unrealized gain or loss we have recorded, which could change the amount we have recorded for our investments and other comprehensive income on our Unaudited Consolidated Balance Sheet as of September 30, 2017.

The following table presents the fair value of our financial instruments measured on a recurring basis by level at September 30, 2017 and December 31, 2016:



	Total		Level 1		Level 2		Level 3
September 30, 2017
U.S. government and agency securities	$	203,456	$	—	$	203,456	$	—
Foreign government	2,057		—		2,057		—
States, municipalities and political subdivisions	196,147		—		196,147		—
Public utilities	19,755		—		19,755		—
Corporate securities	279,593		—		279,593		—
Asset backed securities	16,714		—		16,714		—
Redeemable preferred stocks	1,063		1,063		—		—
Total fixed maturities	718,785		1,063		717,722		—
Mutual funds	29,807		29,807		—		—
Public utilities	1,642		1,642		—		—
Other common stocks	27,445		27,445		—		—
Non-redeemable preferred stocks	2,745		2,745		—		—
Total equity securities	61,639		61,639		—		—
Other long-term investments	8,157		300		7,173		684
Total investments	$	788,581	$	63,002	$	724,895	$	684

December 31, 2016
U.S. government and agency securities	$	149,952	$	—	$	149,952	$	—
Foreign government	2,061		—		2,061		—
States, municipalities and political subdivisions	169,112		—		169,112		—
Public utilities	7,730		—		7,730		—
Corporate securities	164,536		—		164,536		—
Redeemable preferred stocks	1,125		1,125		—		—
Total fixed maturities	494,516		1,125		493,391		—
Public utilities	1,507		1,507		—		—
Other common stocks	24,048		24,048		—		—
Non-redeemable preferred stocks	2,843		2,843		—		—
Total equity securities	28,398		28,398		—		—
Other long-term investments	5,733		300		3,735		1,698
Total investments	$	528,647	$	29,823	$	497,126	$	1,698

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

The table below presents the rollforward of our Level 3 investments held at fair value during the nine months ended September 30, 2017:



	Other Investments
December 31, 2016	$	1,698
Transfers in	—
Transfers out	(990		)
Partnership income	35
Return of capital	(141		)
Unrealized gains in accumulated other comprehensive income	82
September 30, 2017	$	684

We are responsible for the determination of fair value and the supporting assumptions and methodologies. We have implemented a system of processes and controls designed to provide assurance that our assets and liabilities are appropriately valued. For fair values received from third parties, our processes are designed to provide assurance that the valuation methodologies and inputs are appropriate and consistently applied, the assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded.

At the end of each quarter, we determine whether we need to transfer the fair values of any securities between levels of the fair value hierarchy and, if so, we report the transfer as of the end of the quarter. During the first nine months of 2017, we transferred one investment from a Level 3 to a Level 2 investment, due to changes in the availability of market observable inputs. We used unobservable inputs to derive our estimated fair value for Level 3 investments, and the unobservable inputs are significant to the overall fair value measurement.

For our investments in U.S. government securities that do not have prices in active markets, agency securities, state and municipal governments, and corporate bonds, we obtain the fair values from our investment custodians, which use a third-party valuation service. The valuation service calculates prices for our investments in the aforementioned security types on a month-end basis by using several matrix-pricing methodologies that incorporate inputs from various sources. The model the valuation service uses to price U.S. government securities and securities of states and municipalities incorporates inputs from active market makers and inter-dealer brokers. To price corporate bonds and agency securities, the valuation service calculates non-call yield spreads on all issuers, uses option-adjusted yield spreads to account for any early redemption features, then adds final spreads to the U.S. Treasury curve at 3 p.m. (ET) as of quarter end. Since the inputs the valuation service uses in their calculations are not quoted prices in active markets, but are observable inputs, they represent Level 2 inputs.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

Other investments

We acquired investments in limited partnerships, recorded in the other investments line of our Unaudited Consolidated Balance Sheets, that are currently being accounted for at fair value utilizing a discounted cash flow methodology. The estimated fair value of our investments in the limited partnership interests was $7,857,000. We have fully funded our investments in DCR Mortgage Partners VI, L.P. (DCR VI) and DCR Mortgage Partners VII, L.P. (DCR VII); however, we are still obligated to fund an additional $316,000, $802,000, and $495,000 for our investments in Kayne Anderson Senior Credit Fund II, L.P. (Kayne II), Kayne Anderson Senior Credit Fund III, L.P. (Kayne III), and Blackstone Alternative Solutions 2015 Trust (Blackstone), respectively. The information presented in the table below is as of September 30, 2017.



	Initial Investment		Book Value		Unrealized Gain		Unrealized Loss		Fair Value
DCR Mortgage Partners VI, L.P.	$	301	$	362	$	322	$	—	$	684
Total Level 3 limited partnership investments	301		362		322		—		684
DCR Mortgage Partners VII, L.P.	4,000		4,056		—		—		4,056
Kayne Senior Credit Fund II, L.P.	1,684		1,444		—		—		1,444
Kayne Senior Credit Fund III, L.P.	1,198		1,198		—		—		1,198
Blackstone Alternative Solutions 2015 Trust	505		475		—		—		475
Total Level 2 limited partnership investments	7,387		7,173		—		—		7,173
Total limited partnership investments	$	7,688	$	7,535	$	322	$	—	$	7,857
Other short-term investments	300		300		—		—		300
Total other investments	$	7,988	$	7,835	$	322	$	—	$	8,157

The following table summarizes the quantitative impact that the significant unobservable inputs used to estimate the fair value of our Level 3 investment has on the estimated fair value on our investment shown in the tables above. Due to Kayne II, Kayne III, DCR VII, and Blackstone being carried at cost, we have excluded them from the table below. The DCR VI investment was valued using a duration of 60 months for both periods presented below.



	Fair Value			Valuation		Rate
	Impact			Technique	Unobservable Input	Adjustment
September 30, 2017
DCR VI	$	(44	)	Discounted cash flow	Discount rate based on D&B paydex scale	2.35%

December 31, 2016
DCR VI	$	(56	)	Discounted cash flow	Discount rate based on D&B paydex scale	2.35%
RCH	$	(341	)	Discounted cash flow	Discount rate based on D&B paydex scale	7.35%


4)	ACQUISITIONS AND MERGERS

We account for business acquisitions in accordance with the acquisition method of accounting, which requires, among other things, that most assets acquired, liabilities assumed and earn-out consideration be recognized at their fair values as of the acquisition date. Measurement period adjustments to provisional purchase price allocations are recognized in the period in which they are determined as if the accounting had been completed on the acquisition date.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

AmCo Holding Company

On April 3, 2017, the Company completed its merger with AmCo. The transaction was completed through a series of mergers that ultimately resulted in the Company issuing 20,956,355 shares of its common stock, $0.0001 par value per share, as merger consideration to the equity holders of RDX Holding, LLC, a Delaware limited liability company. The acquisition of AmCo supported the Company's growth strategy and further strengthened the Company's overall position in the commercial property and casualty insurance market.

The operations of AmCo are included in our Unaudited Consolidated Statements of Comprehensive Income effective April 3, 2017. We have one year from the acquisition date to finalize the allocation of the purchase price of AmCo and its subsidiaries. The preliminary purchase price allocation was as follows:



Cash and cash equivalents	$	95,284
Investments	222,920
Premium and agents' receivable	31,439
Reinsurance recoverable	20,230
Prepaid reinsurance premiums	22,544
Intangible assets	30,286
Insurance contract asset	33,812
Goodwill	46,109
Other assets	25,932
Unpaid losses and loss adjustment expenses	(60,529		)
Unearned premiums	(128,824		)
Reinsurance payable	(22,406		)
Deferred taxes	(15,046		)
Other liabilities	(27,367		)
Total purchase price	$	274,384

The unaudited pro forma financial information below has been prepared as if the AmCo merger had taken place on January 1, 2016. The unaudited pro forma financial information is not necessarily indicative of the results that we would have achieved had the transaction taken place on January 1, 2016, and the unaudited pro forma information does not purport to be indicative of future financial operating results.



	Nine Months Ended September 30,
	2017								2016
	As			Pro Forma					As		Pro Forma
	Reported			Adjustments		Pro Forma			Reported		Adjustments		Pro Forma
Revenues	$	471,834		$	38,096	$	509,930		$	355,684	$	135,087	$	490,771

Net income (loss)	$	(16,856	)	$	6,712	$	(10,144	)	$	16,215	$	30,187	$	46,402

Diluted earnings per share	$	(0.47	)	$	—	$	(0.24	)	$	0.75	$	—	$	1.09

Interboro Insurance Company

On April 29, 2016, we completed the acquisition of IIC. The purchase price for IIC consisted of $48,450,000 in cash, $8,550,000 in a note payable and an accrued liability for $3,471,000 paid during July 2016. The acquisition of IIC supported

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

the Company's growth strategy and further strengthened the Company's overall position in the property and casualty insurance market in the state of New York.

The operations of IIC are included in our Unaudited Consolidated Statements of Comprehensive Income effective April 29, 2016. The final purchase price allocation is as follows:



Cash and cash equivalents	$	15,554
Investments	66,527
Premium and agents' receivable	3,186
Reinsurance receivable	1,042
Intangible assets	5,877
Insurance contract asset	8,334
Goodwill	10,157
Other assets	3,980
Deferred taxes	575
Unpaid losses and loss adjustment expenses	(24,967		)
Unearned premiums	(26,243		)
Advanced premiums	(1,472		)
Other liabilities	(2,079		)
Total purchase price	$	60,471

5) EARNINGS PER SHARE

Basic earnings per share (EPS) is based on the weighted average number of common shares outstanding for the period, excluding any dilutive common share equivalents. Diluted EPS reflects the potential dilution resulting from vesting of restricted stock awards. The following table shows the computation of basic and diluted EPS for the three and nine month periods ended September 30, 2017 and September 30, 2016, respectively:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Numerator:
Net income (loss) attributable to common stockholders	$	(28,012	)	$	3,423	$	(16,856	)	$	16,215

Denominator:
Weighted-average shares outstanding	42,524,400			21,448,892		35,341,994			21,406,599
Effect of dilutive securities	216,604			194,509		221,038			197,536
Weighted-average diluted shares	42,741,004			21,643,401		35,563,032			21,604,135

Basic earnings per share	$	(0.66	)	$	0.16	$	(0.48	)	$	0.76
Diluted earnings per share	$	(0.66	)	$	0.16	$	(0.47	)	$	0.75

See Note 16 for additional information on the stock grants related to dilutive securities.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

6) PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:



	September 30, 2017			December 31, 2016
Land	$	2,114		$	2,114
Building and building improvements	5,502			5,502
Computer hardware and software	18,346			14,699
Office furniture and equipment	3,248			2,652
Total, at cost	29,210			24,967
Less: accumulated depreciation and amortization	(9,866		)	(7,107		)
Property and equipment, net	$	19,344		$	17,860

Depreciation and amortization expense under property and equipment was $723,000 and $605,000 for the three months ended September 30, 2017 and 2016, respectively, and $2,759,000 and $1,820,000 for the nine months ended September 30, 2017 and 2016, respectively.

7) GOODWILL AND INTANGIBLE ASSETS

Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2017 and 2016 are as follows:



	September 30,
	2017			2016
Balance at beginning of period	$	14,254		$	3,413
Acquisitions	46,109			10,841
Adjustments to finalize purchase price allocation	(684		)	—
Impairment	—			—
Balance at end of period	$	59,679		$	14,254

Using a qualitative assessment, we completed our most recent goodwill impairment testing during the fourth quarter of 2016 and determined that there was no impairment in the value of the asset as of December 31, 2016.

No impairment loss in the value of goodwill or goodwill amortization expense was recognized during the nine months ended September 30, 2017. Additionally, there was no accumulated impairment or accumulated amortization related to goodwill at September 30, 2017 or December 31, 2016.

Intangible Assets

The following is a summary of intangible assets excluding goodwill recorded as other assets at September 30, 2017 and December 31, 2016:

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017



	September 30, 2017		December 31, 2016
Intangible assets subject to amortization	$	51,554	$	9,064
Indefinite-lived intangible assets⁽¹⁾	3,555		3,307
Total	$	55,109	$	12,371

⁽¹⁾Indefinite-lived intangible assets are comprised of state insurance and agent licenses, as well as perpetual software licenses.

Intangible assets subject to amortization consisted of the following:



	Weighted-average remaining amortization period (in years)	Gross carrying amount		Accumulated amortization			Net carrying amount
September 30, 2017
Value of Business Acquired	0.5	$	42,788	$	(25,882	)	$	16,906
Agency agreements acquired	8.2	34,661		(5,546		)	29,115
Trade names acquired	6.2	6,381		(848		)	5,533
Total		$	83,830	$	(32,276	)	$	51,554

December 31, 2016
Value of Business Acquired	0.3	$	8,975	$	(7,867	)	$	1,108
Agency agreements acquired	3.8	10,284		(2,784		)	7,500
Trade names acquired	2.1	720		(264		)	456
Total		$	19,979	$	(10,915	)	$	9,064

No impairment in the value of amortizing or non-amortizing intangible assets was recognized during the three and nine months ended September 30, 2017 and September 30, 2016.

Amortization expense of our intangible assets was $9,839,000 and $21,361,000 for the three and nine months ended September 30, 2017, respectively. Amortization expense of our intangible assets was $3,439,000 and $6,791,000 for the three and nine months ended September 30, 2016, respectively.

Estimated amortization expense of our intangible assets to be recognized by the Company over the next five years is as follows:



Year ending December 31,	Estimated Amortization Expense
Remaining 2017	$	11,818
2018	13,920
2019	5,355
2020	4,267
2021	3,555
2022	3,246

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

8) REINSURANCE

Our reinsurance program is designed, utilizing our risk management methodology, to address our exposure to catastrophes. According to the Insurance Service Office (ISO), a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in $25,000,000 or more in U.S. industry-wide direct insured losses to property and that affect a significant number of policyholders and insurers (ISO catastrophes). In addition to ISO catastrophes, we also include as catastrophes those events (non-ISO catastrophes), which may include losses, that we believe are, or will be, material to our operations, either in amount or in number of claims made.

Our program provides reinsurance protection for catastrophes including hurricanes, tropical storms, and tornadoes. These reinsurance agreements are part of our catastrophe management strategy, which is intended to provide our shareholders an acceptable return on the risks assumed in our property business, and to reduce variability of earnings, while providing protection to our policyholders.

Effective June 1, 2017, UPC Insurance, through our wholly owned insurance subsidiaries UPC, ACIC, FSIC and IIC, entered into reinsurance agreements with several private reinsurers and with the Florida State Board of Administration (SBA), which administers the Florida Hurricane Catastrophe Fund (FHCF). These agreements provide coverage for catastrophe losses from named or numbered windstorms and earthquakes in all states UPC operates except for the FHCF agreement which only provides coverage in Florida against storms that the National Hurricane Center designates as hurricanes.

Highlights of the coverage embedded these contracts include:


•	More frequency and severity protection than in any prior year, with an overall program exhaustion point of $2,747,500,000;


◦	Sufficient coverage for a single 1-in-400 year event (AIR Touchstone v3.1 Standard Event Set);


◦	Sufficient coverage for a 1-in-100 year event followed by a 1-in-50 year event in the same season;


•	Group retention of $55,000,000 for a first event and $30,000,000 for a second and subsequent events including a $5,000,000 retention related to our captive reinsurer BlueLine Cayman Holding; this represents approximately 11% of group equity for a first event, lower than in any prior year for UPC Insurance;


•	Realized cost synergies by placing a combined program with American Coastal that surpassed our previously stated goal of $20,000,000 annually;


•	Coverage from 43 reinsurers with 70% of the open market limit placed on a fully collateralized basis to mitigate credit risk; carriers providing uncollateralized limit have minimum A.M. Best financial strength ratings of A-;


•	Approximately $87,500,000 of multi-year limit; and


•	Coverage expanded to include the entire life of a hurricane in lieu of an hours clause

For the FHCF Reimbursement Contracts effective June 1, 2017, UPC Insurance has elected a 45% coverage for all its insurance subsidiaries with Florida exposure. We estimate the mandatory FHCF layer will provide approximately $789,000,000 of aggregate coverage with varying retentions and limits among the three FHCF contracts that all inure to the benefit of the open market coverage secured from private reinsurers.

The $1,928,000,000 of aggregate open market catastrophe reinsurance coverage is structured into multiple layers with a cascading feature that all layers drop down as layers below them are exhausted. Any remaining unused layer protection drops down for subsequent events until exhausted, ensuring there are no potential gaps in coverage up to the $2,747,500,000 program exhaustion point.

The total cost of the 2017-18 catastrophe reinsurance program is estimated to be $314,169,000.

Effective December 1, 2016, UPC Insurance, through our wholly owned insurance subsidiary, UPC, entered into a quota share reinsurance agreement (the "quota share agreement") with private reinsurers. Also, effective January 1, 2017, we renewed our aggregate excess of loss reinsurance agreement (the "aggregate excess of loss agreement," and, together with the quota share agreement, the "agreements") with private reinsurers. These agreements provide coverage for in-force, new and renewal business. The quota share agreement provides coverage only for UPC, while the aggregate excess of loss agreement provides coverage for UPC, ACIC, FSIC, and IIC. These new reinsurance programs are designed to work in conjunction with our catastrophe excess of loss reinsurance program to provide us broad risk transfer protection and to lessen financial volatility.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

The quota share agreement includes a cession rate of 20% (15% on single year and 5% over a two-year period) for all subject business. The quota share agreement provides coverage for all catastrophe perils (e.g. hurricanes, tropical storms, tropical depressions and earthquakes), other-catastrophe perils (e.g. weather-related perils other than hurricanes, tropical storms, tropical depressions and earthquakes), and attritional losses. For other-catastrophe perils, the quota share agreement provides coverage alongside the aggregate excess of loss program described herein, after our retention has been satisfied. For catastrophe perils, the quota share agreement provides ground-up protection that effectively reduces our retention for catastrophe losses. Quota share agreement reinsurers' participation in paying attritional losses is subject to an attritional loss ratio cap.

The aggregate excess of loss agreement provides coverage only for other-catastrophe perils. Under this agreement, for other-catastrophe losses in excess of $1,000,000 but less than $15,000,000, UPC will retain, in the aggregate, 100% of those losses up to $30,000,000. The reinsurers will then be liable for all losses excess of $30,000,000 in the aggregate not to exceed an annual aggregate limit of $30,000,000. This program was placed at 85% rather than 100% because of the quota share agreement reinsurers' participation in paying other-catastrophe losses after the $30,000,000 retention. We have now met the $30,000,000 retention under this reinsurance program, which means the next $30,000,000 of catastrophe losses in excess of our $1,000,000 retention, other than from named windstorms or earthquakes, incurred during the remainder of 2017 will be ceded to third party reinsurers up to the $60,000,000 exhaustion point.

We amortize our prepaid reinsurance premiums over the annual agreement period, and we record that amortization in ceded premiums earned on our Unaudited Consolidated Statements of Comprehensive Income. The table below summarizes the amounts of our ceded premiums written under the various types of agreements, as well as the amortization of prepaid reinsurance premiums:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Excess-of-loss	$	(28,306	)	$	(476	)	$	(400,773	)	$	(182,503	)
Equipment & identity theft	(2,606		)	(2,359		)	(7,275		)	(6,136		)
Novation of auto policies ⁽¹⁾	—			—			—			(2,396		)
Flood	(5,559		)	(5,006		)	(14,319		)	(12,969		)
Ceded premiums written	$	(36,471	)	$	(7,841	)	$	(422,367	)	$	(204,004	)
Increase (decrease) in ceded unearned premiums	(79,036		)	(45,458		)	130,012			55,167
Ceded premiums earned	$	(115,507	)	$	(53,299	)	$	(292,355	)	$	(148,837	)

⁽¹⁾Reflects ceding of auto policy premiums to Maidstone Insurance Company as part of the settlement of the novation agreement entered into at the closing of the Interboro Insurance Company transaction.

Current year catastrophe losses disaggregated between named and numbered storms and all other catastrophe loss events are shown in the following table for the three and nine months ended September 30, 2017 and 2016.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017



	2017						2016
	Number of Events	Incurred Loss and LAE ⁽¹⁾			Combined Ratio Impact		Number of Events	Incurred Loss and LAE ⁽¹⁾		Combined Ratio Impact
Three Months Ended September 30,
Current period catastrophe losses incurred
Named and numbered storms	4	$	83,460		54.7	%	3	$	2,600	2.2	%
All other catastrophe loss events	15	(845		)	(0.6	)%	15	2,509		2.0	%
Total	19	$	82,615		54.1	%	18	$	5,109	4.2	%

Nine Months Ended September 30,
Current period catastrophe losses incurred
Named and numbered storms	4	$	83,724		20.0	%	3	$	4,069	1.2	%
All other catastrophe loss events	15	31,301			7.5	%	15	19,816		5.9	%
Total	19	$	115,025		27.5	%	18	$	23,885	7.1	%

⁽¹⁾ Incurred loss and LAE is equal to losses and LAE paid plus the change in case and incurred but not reported reserves. Shown net of losses ceded to reinsurers. Incurred loss and LAE and number of events includes the development on storms during both the three and nine months ended September 30, 2017. During the third quarter of 2017 we incurred losses and LAE from four new storms.

We collected cash recoveries under our reinsurance agreements totaling $20,419,000 and $9,747,000 for the three month periods ended September 30, 2017 and 2016, respectively, and $40,984,000 and $10,604,000 for the nine month periods ended September 30, 2017 and 2016, respectively.

We write flood insurance under an agreement with the National Flood Insurance Program. We cede 100% of the premiums written and the related risk of loss to the federal government. We earn commissions for the issuance of flood policies based upon a fixed percentage of net written premiums and the processing of flood claims based upon a fixed percentage of incurred losses, and we can earn additional commissions by meeting certain growth targets for the number of in-force policies. We recognized commission revenue from our flood program of $308,000 and $270,000 for the three month periods ended September 30, 2017 and 2016, respectively, and $905,000 and $772,000 for the nine month periods ended September 30, 2017 and 2016, respectively.

9) LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSE

We determine the reserve for unpaid losses on an individual-case basis for all incidents reported. The liability also includes amounts for incurred but not reported (IBNR) claims as of the balance sheet date.

The table below shows the analysis of our reserve for unpaid losses for the nine months ended September 30, 2017 and September 30, 2016 on a GAAP basis:

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017



	September 30,
	2017			2016
Balance at January 1	$	140,855		$	76,792
Less: reinsurance recoverable on unpaid losses	18,724			2,114
Net balance at January 1	$	122,131		$	74,678

Acquisition of IIC reserves	—			22,576
Acquisition of AMCO reserves (net of reinsurance recoverables of $19,945)	40,583			—

Incurred related to:
Current year	296,217			190,031
Prior years	(2,819		)	9,585
Total incurred	$	293,398		$	199,616
Paid related to:
Current year	160,952			129,927
Prior years	84,497			53,437
Total paid	$	245,449		$	183,364

Net balance at September 30	$	210,663		$	113,506
Plus: reinsurance recoverable on unpaid losses	471,498			9,154
Balance at September 30	$	682,161		$	122,660

Composition of reserve for unpaid losses and LAE:
Case reserves	$	289,938		$	75,305
IBNR reserves	392,223			47,355
Balance at September 30	$	682,161		$	122,660

Based upon our internal analysis and our review of the statement of actuarial opinion provided by our actuarial consultants, we believe that the reserve for unpaid losses reasonably represents the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.

As reflected by our losses incurred related to prior years, the favorable development experienced in 2017 was primarily the result of losses related to the 2016 and 2015 accident years coming in better than expected. During 2016, we had a reserve deficiency. Since we place substantial reliance on loss-development-based actuarial models when determining our estimate of ultimate losses, the deficiencies resulted from additional development on prior accident years which caused our ultimate losses to increase.

10) LONG-TERM DEBT

Long-Term Debt

The table below presents all long-term debt outstanding as of September 30, 2017 and December 31, 2016:

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017



		Effective Interest Rate	Carrying Value at
	Maturity	Effective Interest Rate	September 30, 2017		December 31, 2016
Senior Notes Payable	December 5, 2026	7.26%	$	30,000	$	30,000
Florida State Board of Administration Note Payable	July 1, 2026	2.27%	10,294		11,176
Interboro, LLC Promissory Note Payable	October 29, 2017	6.00%	8,550		8,550
BB&T Term Note Payable	May 26, 2031	2.94%	4,738		4,998
Total long-term debt			$	53,582	$	54,724

Senior Notes Payable

On December 5, 2016, we issued $30,000,000 of senior notes to private investors pursuant to an Indenture dated as of December 5, 2016, by and between the Company and the trustee. The notes bear interest at a floating rate equal to the three month LIBOR plus 5.75% per annum, with interest payable quarterly in arrears. The notes will mature 10 years after the issue date, have no scheduled amortization, and may be redeemed at par any time without a pre-payment penalty.

Florida State Board of Administration Note Payable

On September 22, 2006, we issued a $20,000,000, 20-year note payable to the Florida State Board of Administration (SBA note). For the first three years of the SBA note we were required to pay interest only. On October 1, 2009, we began to repay the principal in addition to interest. The note bears an annual interest rate equivalent to the 10-year U.S. Treasury Bond rate. The rate will be adjusted quarterly for the term of the SBA note based on the 10-year Constant Maturity Treasury rate.

Interboro, LLC Promissory Note Payable

On April 29, 2016, we issued an $8,550,000 promissory note to Interboro, LLC, the former parent company of IIC, as part of the purchase price paid to acquire our insurance affiliate. The note matured and was paid in October 2017.

BB&T Term Note Payable

On May 26, 2016, we issued a $5,200,000, 15-year term note payable to BB&T (the BB&T note) with the intent to use the funds to purchase, renovate, furnish and equip our home office. The note bears interest at 1.65% in excess of the one-month LIBOR. In the event of default, BB&T, may among other things, declare its loan immediately due and payable, require us to pledge additional collateral to the bank, and take possession of and foreclose upon our home office which has been pledged to the bank as security for the loan.

Financial Covenants

The SBA note, BB&T note, and senior notes contain representations and warranties, conditions and covenants. If these requirements were not met, all amounts outstanding or otherwise owed could become due and payable immediately and other limitations could be placed on our ability to use any available borrowing capacity. At September 30, 2017, we were in compliance with all covenants as specified in the notes. Refer to Part I; Item 2 for additional information regarding financial covenants.

Debt Issuance Costs

The table below presents the rollforward of our debt issuance costs paid, in conjunction with the debt instruments described above, during the year ended September 30, 2017:

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017



	2017
Balance at January 1,	$	549
Additions	—
Amortization	(86		)
Balance at September 30,	$	463

11) COMMITMENTS AND CONTINGENCIES

We are involved in claims-related legal actions arising in the ordinary course of business. We accrue amounts resulting from claims-related legal actions in unpaid losses and loss adjustment expenses during the period that we determine an unfavorable outcome becomes probable and we can estimate the amounts. Management makes revisions to our estimates based on its analysis of subsequent information that we receive regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the awarding of damages, and (iv) trends in general economic conditions, including the effects of inflation.

At September 30, 2017, we were not involved in any material non-claims-related legal actions.

See Note 10 for information regarding commitments related to long-term debt, and Note 12 for commitments related to regulatory actions.

12) 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 affiliates. 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. Our insurance affiliates, UPC and ACIC, are domiciled in Florida, while FSIC and IIC are domiciled in Hawaii and New York, respectively. At September 30, 2017, and during the three and nine months then ended, our insurance affiliates met all regulatory requirements of the states in which they operate, and they did not incur any material assessments.

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, Hawaii 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, Hawaii 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 affiliates' 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 surplus note. Any payment of principal or interest requires permission from the insurance regulatory authority.

We have reported our insurance affiliates' assets, liabilities and results of operations in accordance with GAAP, which varies from statutory accounting principles prescribed or permitted by state laws and regulations, as well as by general industry practices. The following items are principal differences between statutory accounting and GAAP:

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017


•	Statutory accounting requires that we exclude certain assets, called non-admitted assets, from the balance sheet.


•	Statutory accounting requires us to expense policy acquisition costs when incurred, while GAAP allows us to defer to the extent realizable, and amortize policy acquisition costs over the estimated life of the policies.


•	Statutory accounting requires that surplus notes, also known as surplus debentures, be recorded in statutory surplus, while GAAP requires us to record surplus notes as a liability.


•	Statutory accounting allows certain investments to be carried at amortized cost or fair value based on the rating received from the Securities Valuation Office of the National Association of Insurance Commissioners, while they are recorded at fair value for GAAP because the investments are held as available for sale.


•	Statutory accounting allows ceding commission income to be recognized when written if the cost of acquiring and renewing the associated business exceeds the ceding commissions, but under GAAP such income is deferred and recognized over the coverage period.


•	Statutory accounting requires that unearned premiums and loss reserves are presented net of related reinsurance rather than on a gross basis under GAAP.

•

Statutory accounting requires that a provision for reinsurance liability be established for reinsurance recoverable on paid losses aged over 90 days and for unsecured amounts recoverable from unauthorized reinsurers. Under GAAP there is no charge for uncollateralized amounts ceded to a company not licensed in the insurance affiliate's domiciliary state and a reserve for uncollectable reinsurance is charged through earnings rather than surplus or equity.


•	Statutory accounting requires an additional admissibility test and the change in deferred income tax is reported directly in capital and surplus, rather than being reported as a component of income tax expense under GAAP.

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 stockholder’s equity under GAAP. For the three and nine month periods ended September 30, 2017 and 2016, UPC, ACIC, FSIC and IIC recorded the following amounts of statutory net income (loss).



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
UPC	$	(14,852	)	$	(3,916	)	$	(26,831	)	$	(13,240	)
ACIC ⁽¹⁾	$	(2,248	)	N/A			$	9,566		N/A
FSIC	$	(2,700	)	$	(933	)	$	(1,963	)	$	(750	)
IIC	$	(5,028	)	986			$	(1,010	)	9,173

⁽¹⁾ There is not a reportable value for ACIC for the three and nine months ended September 30, 2016 as we did not own the company until April 2017.

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. The table below shows the minimum capital and surplus requirements, as well as the amount of surplus as regards policyholders for our regulated entities at September 30, 2017 and December 31, 2016, respectively.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017



	Minimum Requirement		September 30, 2017		December 31, 2016
UPC ⁽¹⁾	$	48,503	$	139,109	$	155,587
ACIC ⁽¹⁾⁽²⁾	$	16,891	$	154,743	N/A
FSIC	$	3,250	$	16,624	$	16,269
IIC	$	4,700	$	40,750	$	40,442

⁽¹⁾ UPC and ACIC are required to maintain capital and surplus equal to the greater of 10% of their total liabilities or $5,000,000.

⁽²⁾ There is not a reportable value for ACIC as of December 31, 2016 as we did not own the company until April 2017.

13) RELATED PARTY TRANSACTIONS

One of our executive officers, Ms. Salmon, is a former partner at the law firm of Groelle & Salmon, PA, where her spouse remains partner and co-owner. Groelle & Salmon, PA provides legal representation to us related to our claims litigation, and also provided representation to us for several years prior to Ms. Salmon joining UPC Insurance. During the three months ended September 30, 2017 and 2016, Groelle & Salmon, PA billed us approximately $871,000 and $756,000, respectively. During the nine months ended September 30, 2017 and 2016, Groelle & Salmon, PA billed us approximately $2,513,000 and $1,865,000, respectively. Ms. Salmon's spouse has a 50% interest in these billings, or approximately $436,000 and $378,000, for the three months ended September 30, 2017 and 2016, respectively, and approximately $1,257,000 and $933,000, for the nine months ended September 30, 2017 and 2016, respectively.

AmRisc, a Managing General Underwriter, handles the underwriting, claims processing, premium collection and reinsurance review for AmCo. R. Daniel Peed, Vice Chairman of our Board of Directors, beneficially owns approximately 7.7% of AmRisc and is also the Chief Executive Officer of AmRisc.

In accordance with the managing general agent underwriting contract with AmRisc, we recorded $41,311,000 and $151,621,000 of gross written premiums for the three and nine month periods ended September 30, 2017, resulting in fees and commission (including a profit commission) of $12,011,000 and $28,834,000, respectively, due to AmRisc. Receivables are stated net of the fees and commission due under the contract.

In addition to the direct premiums written, we recorded $640,000 and $2,412,000 in ceded premiums to AmRisc as a reinsurance intermediary for the three and nine month periods ended September 30, 2017. We also incurred $4,000 and $20,000, respectively, during those periods for rent under a sublease agreement with AmRisc.

Net premiums receivable (net of commissions) of $17,510,000 were due from AmRisc as of September 30, 2017. These premiums are paid by AmRisc to our premium trust account by wire transfer within 15 days of collection pursuant to the underwriting contract with AmRisc.

14) ACCUMULATED OTHER COMPREHENSIVE INCOME

We report changes in other comprehensive income items within comprehensive income on the Unaudited Consolidated Statements of Comprehensive Income, and we include accumulated other comprehensive income as a component of stockholders' equity on our Consolidated Balance Sheets.

The table below details the components of accumulated other comprehensive income at period end:



	Pre-Tax Amount		Tax (Expense)Benefit			Net-of-Tax Amount
December 31, 2016	$	1,464	$	(642	)	$	822
Changes in net unrealized gains on investments	10,509		(3,993		)	6,516
Reclassification adjustment for realized losses	554		(214		)	340
September 30, 2017	$	12,527	$	(4,849	)	$	7,678

15) STOCKHOLDERS' EQUITY

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

Our Board declared dividends on our outstanding shares of common stock to stockholders of record as follows for the periods presented (in thousands except per share amounts):



	Nine Months Ended September 30,
	2017				2016
	Per Share Amount		Aggregate Amount		Per Share Amount		Aggregate Amount
First Quarter	$	0.06	$	1,301	$	0.05	$	1,076
Second Quarter	$	0.06	$	2,561	$	0.06	$	1,300
Third Quarter	$	0.06	$	2,564	$	0.06	$	1,299

On April 3, 2017, we completed the acquisition of AmCo Holding Company by issuing 20,956,355 shares of our

common stock as payment of the initial purchase price. See Note 4 for additional information on this acquisition.

We are authorized to issue 875,000 shares of "blank check" preferred stock, which may be issued from time to time in one or more series upon authorization by our Board of Directors. Our Board, without further approval of the stockholders, is authorized to fix the designations, powers, including voting powers, preferences and the relative, participating optional or other special rights of the shares of each series and any qualifications, limitations and restrictions thereof. As of September 30, 2017, we had not issued any shares of preferred stock.

16) STOCK-BASED COMPENSATION

We account for stock-based compensation under the fair value recognition provisions of ASC Topic 718 - Compensation - Stock Compensation.

UNITED INSURANCE HOLDINGS CORP.

Notes to Unaudited Consolidated Financial Statements

September 30, 2017

Stock-based compensation cost for restricted stock grants is measured based on the closing fair market value of our common stock on the date of grant. We recognize stock-based compensation cost over the award’s requisite service period on a straight line basis for time-based restricted stock grants.

We granted zero shares of restricted common stock during the three month period ended September 30, 2017. We granted 155,122 shares of restricted common stock during the nine month period ended September 30, 2017, which had a weighted-average grant date fair value of $15.57 per share. We granted 1,200 and 112,405 shares of restricted common stock during the three and nine month periods ended September 30, 2016, respectively, which had weighted-average grant date fair values of $16.11 and $17.02 per share, respectively.

The following table presents certain information related to the activity of our non-vested common stock grants:



	Number of Restricted Shares	Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2016	169,642	$	16.87
Granted	155,122	15.57
Less: Forfeited	17,087	14.08
Less: Vested	105,083	16.34
Outstanding as of June 30, 2017	202,594	$	16.39

We had approximately $1,374,000 of unrecognized stock compensation expense on September 30, 2017 related to non-vested stock-based compensation granted, that we expect to recognize over the next three years. We recognized $393,000 and $1,179,000 of stock-based compensation expense during the three and nine month periods ended September 30, 2017, respectively. We recognized $226,000 and $631,000 of stock-based compensation expense during the three and nine month periods ended September 30, 2016, respectively.

We had approximately $587,000 of unrecognized director stock-based compensation expense at September 30, 2017 related to non-vested director stock-based compensation granted, that we expect to recognize ratably until the 2018 Annual Meeting of Stockholders. We recognized $244,000 and $752,000 of director stock-based compensation expense during the three and nine months ended September 30, 2017, respectively. We recognized $272,000 and $798,000 of director stock-based compensation expense during the three and nine months ended September 30, 2016, respectively.

17) SUBSEQUENT EVENTS

On October 27, 2017, our $8,550,000 promissory note payable to Interboro LLC matured and was paid, along with $767,000 in accrued interest.

On November 8, 2017, our Board of Directors declared a $0.06 per share quarterly cash dividend payable on November 29, 2017, to stockholders of record on November 22, 2017.

UNITED INSURANCE HOLDINGS CORP.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Consolidated Financial Statements and related notes appearing elsewhere in this Form 10-Q, as well as with the Consolidated Financial Statements and related footnotes under Part II. Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2016.

EXECUTIVE SUMMARY

Overview

United Insurance Holdings Corp. serves as the holding company for UPC and its affiliated companies. We conduct our business principally through ten wholly owned operating subsidiaries: UPC, ACIC, FSIC, IIC, United Insurance Management, L.C., AmCo, BlueLine Cayman Holdings, LLC, Skyway Claims Services, LLC (our claims adjusting affiliate), and UPC Re (our reinsurance affiliate). Collectively, including United Insurance Holdings Corp., we refer to these entities as “UPC Insurance,” which is the preferred brand identification we are establishing for our Company.

UPC Insurance is primarily engaged in the homeowners' and commercial property and casualty insurance business in the United States. We currently write in Connecticut, Florida, Georgia, Hawaii, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina and Texas, and we are licensed to write in Alabama, Delaware, Maryland, Mississippi, New Hampshire, and Virginia. Our target market currently consists of areas where the perceived threat of natural catastrophe has caused large national insurance carriers to reduce their concentration of policies. In such areas we believe an opportunity exists for UPC Insurance to write profitable business.

We manage our risk of catastrophic loss primarily through sophisticated pricing algorithms, avoidance of policy concentration, and the use of a comprehensive catastrophe reinsurance program. UPC Insurance has been operating continuously since 1999, and has successfully managed its business through various hurricanes, tropical storms, and other weather related events. We believe our record of successful risk management and experience in writing business in catastrophe-exposed areas provides us with a competitive advantage as we grow our business in other states facing similar perceived threats.

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of UPC Insurance. In evaluating our results of operations, we use premiums written and earned, policies in-force and new and renewal policies by geographic concentration. We also consider the impact of catastrophe losses and prior year development on our loss ratios, expense ratios and combined ratios. In monitoring our investments, we use credit quality, investment income, cash flows, realized gains and losses, unrealized gains and losses, asset diversification and portfolio duration. To evaluate our financial condition, we consider the following factors: liquidity, financial strength, ratings, book value per share and return on equity.

UNITED INSURANCE HOLDINGS CORP.

2017 Highlights



($ in thousands, except per share, ratios and policies in-force)	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016

Gross premiums written	$	267,219		$	194,341	$	788,408		$	541,053
Gross premiums earned	268,001			173,520		711,650			484,607
Net premiums earned	152,494			120,221		419,295			335,770
Total revenues	171,128			127,202		471,834			355,684
Earnings before income tax	(45,487		)	5,041		(26,899		)	24,581
Consolidated net income	(28,012		)	3,423		(16,856		)	16,215
Net income per diluted share	$	(0.66	)	$	0.16	(0.47		)	0.75

Reconciliation of net income to operating income:
Plus: Merger expenses, net of tax	8			300		4,489			747
Plus: Non-cash amortization of intangible assets, net of tax	6,736			2,510		15,309			5,220
Less: Realized gains (losses), net of tax	(46		)	69		(360		)	311
Operating income ⁽¹⁾	(21,222		)	6,164		3,302			21,871
Operating income per diluted share	(0.50		)	0.28		0.09			1.01

Book value per share						11.73			11.99
Policies in-force						511,471			431,731

⁽¹⁾ Operating income, a measure that is not based on U.S. generally accepted accounting principles (GAAP), is reconciled above to net income, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in "Definitions of Non-GAAP Measures" below.

UNITED INSURANCE HOLDINGS CORP.

Consolidated Net Income



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
REVENUE:
Gross premiums written	$	267,219		$	194,341		$	788,408		$	541,053
Decrease in gross unearned premiums	782			(20,821		)	(76,758		)	(56,446		)
Gross premiums earned	268,001			173,520			711,650			484,607
Ceded premiums earned	(115,507		)	(53,299		)	(292,355		)	(148,837		)
Net premiums earned	152,494			120,221			419,295			335,770
Investment income	4,901			2,663			12,489			7,786
Net realized gains (losses)	(71		)	106			(554		)	478
Other revenue	13,804			4,212			40,604			11,650
Total revenue	171,128			127,202			471,834			355,684
EXPENSES:
Losses and loss adjustment expenses	143,127			72,746			293,398			199,615
Policy acquisition costs	46,546			31,333			125,302			84,086
Operating expenses	6,891			5,558			19,020			15,326
General and administrative expenses	19,316			12,329			58,825			31,759
Interest expense	771			206			2,282			397
Total expenses	216,651			122,172			498,827			331,183
Income before other income	(45,523		)	5,030			(26,993		)	24,501
Other income	36			11			94			80
Income before income taxes	(45,487		)	5,041			(26,899		)	24,581
Provision for income taxes	(17,475		)	1,618			(10,043		)	8,366
Net income	$	(28,012	)	$	3,423		$	(16,856	)	$	16,215
Net income per diluted share	$	(0.66	)	$	0.16		$	(0.47	)	$	0.75
Book value per share							$	11.73		$	11.99
Return on equity based on GAAP net income							3.5		%	5.3		%
Loss ratio, net ⁽¹⁾	93.9		%	60.5		%	70.0		%	59.4		%
Expense ratio ⁽²⁾	47.7		%	40.9		%	48.4		%	39.1		%
Combined ratio (CR)⁽³⁾	141.6		%	101.4		%	118.4		%	98.5		%
Effect of current year catastrophe losses on CR	54.2		%	4.2		%	27.4		%	7.1		%
Effect of prior year development on CR	(0.7		)%	4.9		%	(0.7		)%	2.9		%
Effect of ceding commission income on CR	6.6		%	0.9		%	7.2		%	0.8		%
Underlying combined ratio ⁽⁴⁾	81.5		%	91.4		%	84.5		%	87.7		%

⁽¹⁾ Loss ratio, net is calculated as losses and loss adjustment expenses relative to net premiums earned.

⁽²⁾ Expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned.

⁽³⁾ Combined ratio is the sum of the loss ratio, net and the expense ratio, net.

⁽⁴⁾ Underlying combined ratio, a measure that is not based on U.S. generally accepted accounting principles (GAAP), is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in "Definitions of Non-GAAP Measures" below.

Definitions of Non-GAAP Measures

We believe that investors' understanding of UPC Insurance's performance is enhanced by our disclosure of the following non-GAAP measures. Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Combined ratio excluding the effects of current year catastrophe losses, prior year reserve development and ceding commission income earned (underlying combined ratio) is a non-GAAP ratio, which is computed by subtracting the effect of current year catastrophe losses, prior year development, and ceding commission income earned related to our quota share reinsurance agreement from the combined ratio. We believe that this ratio is useful to investors and it is used by management

UNITED INSURANCE HOLDINGS CORP.

to reveal the trends in our business that may be obscured by current year catastrophe losses, losses from lines in run-off, prior year development, and ceding commission income earned. Current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year development is caused by unexpected loss development on historical reserves. Ceding commission income compensates the Company for expenses it incurs in generating the premium ceded under our quota share agreement. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most direct comparable GAAP measure is the combined ratio. The underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of our business.

Net Loss and LAE excluding the effects of current year catastrophe losses and reserve development (underlying Loss and LAE) is a non-GAAP measure which is computed by subtracting current year catastrophe losses and prior year reserve development from Loss and LAE. We use underlying loss and LAE figures to analyze our loss trends that may be impacted by current year catastrophe losses and prior year development on our reserves. As discussed previously, these two items can have a significant impact on our loss trend in a given period. The most direct comparable GAAP measure is net loss and LAE. The underlying loss and LAE measure should not be considered a substitute for net losses and LAE and does not reflect the overall profitability of our business.

Operating Expense excluding the effects of ceding commission income earned, merger expenses, and amortization of intangible assets (underlying expense) is a non-GAAP measure which is computed by subtracting ceding income earned related to our quota share reinsurance agreement, merger expenses and amortization from operating expenses. Ceding commission income compensates the Company for expenses it incurs in generating the premium ceded under our quota share reinsurance agreement. Merger expenses are directly related to past mergers and are not reflective of current period operating performance. Similarly, amortization expense is related to the amortization of intangible assets acquired through merger and therefore the expense does not arise through normal operations. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most direct comparable GAAP measure is the expense ratio. The underlying expense measure should not be considered a substitute for the expense ratio and does not reflect the overall profitability of our business.

Net Income excluding the effects of merger expenses, non-cash amortization of intangible assets and realized gains (losses), net of tax (operating income) is a non-GAAP measure which is computed by adding merger expenses, net of tax, and amortization, net of tax, to net income and subtracting realized gains (losses) net of tax, from net income. Merger expenses are directly related to past mergers and are not reflective of current period operating performance. Similarly, amortization expense is related to the amortization of intangible assets acquired through merger and therefore the expense does not arise through normal operations. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most direct comparable GAAP measure is net income. The operating income measure should not be considered a substitute for net income and does not reflect the overall profitability of our business.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

When we prepare our consolidated financial statements and accompanying notes in conformity with U.S. GAAP, we must make estimates and assumptions about future events that affect the amounts we report. Certain of these estimates result from judgments that can be subjective and complex. As a result of that subjectivity and complexity, and because we continuously evaluate these estimates and assumptions based on a variety of factors, actual results could materially differ from our estimates and assumptions if changes in one or more factors require us to make accounting adjustments. During the three and nine months ended September 30, 2017, we reassessed our critical accounting policies and estimates as disclosed in our 2016 Form 10-K; however, we have made no material changes or additions with regard to those policies and estimates.

RECENT ACCOUNTING STANDARDS

Please refer to Note 2 in the Notes to Unaudited Consolidated Financial Statements for a discussion of recent accounting standards that may affect us.

UNITED INSURANCE HOLDINGS CORP.

ANALYSIS OF FINANCIAL CONDITION - SEPTEMBER 30, 2017 COMPARED TO DECEMBER 31, 2016

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying unaudited consolidated interim financial statements and related notes, and in conjunction with the section entitled MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS in our 2016 Form 10-K.

Investments

The primary goals of our investment strategy are to preserve capital, maximize after-tax investment income, maintain liquidity and minimize risk. To accomplish our goals, we purchase debt securities in sectors that represent the most attractive relative value, and we maintain a moderate equity exposure. Limiting equity exposure limits risk and helps to preserve capital for two reasons; first, bond market returns are less volatile than stock market returns, and second, should the bond issuer enter bankruptcy liquidation, bondholders generally have a higher priority than equityholders in a bankruptcy proceeding.

We must comply with applicable state insurance regulations that prescribe the type, quality and concentrations of investments our insurance affiliates can make; therefore, our current investment policy limits investment in non-investment-grade fixed maturities and limits total investment amounts in preferred stock, common stock and mortgage notes receivable. We do not invest in derivative securities.

Two outside asset management companies, which have authority and discretion to buy and sell securities for us, manage our investments subject to (i) the guidelines established by our Board of Directors, and (ii) the direction of management. The Investment Committee of our Board of Directors reviews and approves our investment policy on a regular basis.

Our cash, cash equivalents and investment portfolio totaled $1,068,849,000 at September 30, 2017, compared to $679,335,000 at December 31, 2016.

The following table summarizes our investments, by type:



	September 30, 2017				December 31, 2016
	Estimated Fair Value		Percent of Total		Estimated Fair Value		Percent of Total
U.S. government and agency securities	$	203,456	18.9	%	$	149,952	22.1	%
Foreign government	2,057		0.2	%	2,061		0.3	%
States, municipalities and political subdivisions	196,147		18.4	%	169,112		24.9	%
Public utilities	19,755		1.8	%	7,730		1.1	%
Corporate securities	279,593		26.1	%	164,536		24.2	%
Asset backed securities	16,714		1.6	%	—		—	%
Redeemable preferred stocks	1,063		0.1	%	1,125		0.2	%
Total fixed maturities	718,785		67.1	%	494,516		72.8	%
Mutual funds	29,807		2.8	%	—		—	%
Public utilities	1,642		0.2	%	1,507		0.2	%
Other common stocks	27,445		2.6	%	24,048		3.6	%
Non-redeemable preferred stocks	2,745		0.3	%	2,843		0.4	%
Total equity securities	61,639		5.9	%	28,398		4.2	%
Other long-term investments	8,157		0.8	%	5,733		0.8	%
Total investments	788,581		73.8	%	528,647		77.8	%
Cash and cash equivalents	280,268		26.2	%	150,688		22.2	%
Total cash, cash equivalents and investments	$	1,068,849	100.0	%	$	679,335	100.0	%

We classify all of our investments as available-for-sale. Our investments at September 30, 2017 and December 31, 2016 consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions and securities of investment-grade corporate issuers. Our equity holdings consisted mainly of securities issued by companies in the energy, consumer products, financial, technology and industrial sectors. Most of the corporate bonds we hold reflected a similar

UNITED INSURANCE HOLDINGS CORP.

investment profile. At September 30, 2017, approximately 86% of our fixed maturities were U.S. Treasuries or corporate bonds rated “A” or better, and 14% were corporate bonds rated “BBB” or "BB".

At September 30, 2017, securities in an unrealized loss position for a period of 12 months or longer reflected unrealized losses of $980,000; approximately $863,000 of the total related to 108 fixed maturities, while ten equity securities reflected an unrealized loss of $117,000. We currently have no plans to sell these 118 securities, and we expect to fully recover our cost basis. We reviewed all of our securities and determined that we did not need to record any impairment charges at September 30, 2017. Similarly, we did not record impairment charges at December 31, 2016.

Reinsurance Payable

We follow industry practice of reinsuring a portion of our risks. Reinsurance involves transferring, or "ceding", all or a

portion of the risk exposure on policies we write to another insurer, known as a reinsurer. To the extent that our reinsurers are

unable to meet the obligations they assume under our reinsurance agreements, we remain primarily liable for the entire insured loss under the policies we write.

During the second quarter of 2017, we placed our reinsurance program for the 2017 hurricane season. We purchased catastrophe excess of loss reinsurance protection of $2,747,500,000. The contracts reinsure for personal lines property excess catastrophe losses caused by various perils including hurricanes, tropical storms, and tornadoes. The agreements were effective as of June 1, 2017, for a one-year term and incorporate the mandatory coverage required by and placed with the FHCF. The private agreements provide coverage against severe weather events such as hurricanes, tropical storms and tornadoes. Effective January 1, 2017, we placed a reinsurance agreement to provide coverage against accumulated losses from specified catastrophe events, that will expire on December 31, 2017.

See Note 8 in our Notes to Unaudited Consolidated Financial Statements for additional information regarding our reinsurance program.

Unpaid Losses and Loss Adjustments

We generally use the term loss(es) to collectively refer to both loss and loss adjusting expenses. We establish reserves for both reported and unreported unpaid losses that have occurred at or before the balance sheet date in amounts that we estimate we will be required to pay in the future, including provisions for claims that have been reported but are unpaid at the balance sheet date and for obligations on claims that have been incurred but not reported at the balance sheet date. Our policy is to establish these loss reserves after considering all information known to us at each reporting period. At any given point in time, our loss reserve represents our best estimate of the ultimate settlement and administration costs of our insured claims incurred and unpaid.

Unpaid losses and loss adjustment expenses totaled $682,161,000 and $140,855,000 as of September 30, 2017 and December 31, 2016, respectively.

Since the process of estimating loss reserves requires significant judgment due to a number of variables, such as fluctuations in inflation, judicial decisions, legislative changes and changes in claims handling procedures, our ultimate liability will likely differ from these estimates. We periodically revise our reserve for unpaid losses as additional information becomes available, and reflect adjustments, if any, in our earnings in the periods in which we determine the adjustments as necessary.

See Note 9 in our Notes to Unaudited Consolidated Financial Statements for additional information regarding our losses and loss adjustments.

UNITED INSURANCE HOLDINGS CORP.

RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016

Revenue

Net earnings for the three months ended September 30, 2017 decreased $31,435,000, or 918.4%, to a net loss of $28,012,000 for the third quarter of 2017 from net income of $3,423,000 for the same period in 2016. The decrease in net earnings was primarily due to increases in catastrophe losses associated with hurricanes Harvey and Irma for the third quarter of 2017 compared to the third quarter of 2016.

Our gross written premiums increased $72,878,000, or 37.5%, to $267,219,000 for the third quarter ended September 30, 2017 from $194,341,000 for the same period in 2016, primarily reflecting our merger with AmCo, as well as organic growth in new and renewal business generated in our Gulf and Northeast regions. The breakdown of the quarter-over-quarter changes in both direct and assumed written premiums by region and gross written premium by line of business are shown in the table below.



($ in thousands)	Three Months Ended September 30,
	2017		2016			Change
Direct Written and Assumed Premium by Region ⁽¹⁾
Florida	$	130,309	$	83,816		$	46,493
Gulf	58,240		47,279			10,961
Northeast	43,652		39,265			4,387
Southeast	25,431		24,070			1,361
Total direct written premium by region	257,632		194,430			63,202
Assumed premium ⁽²⁾	9,587		(89		)	9,676
Total gross written premium by region	$	267,219	$	194,341		$	72,878

Gross Written Premium by Line of Business
Personal property	$	217,970	$	189,278		$	28,692
Commercial property	49,249		5,063			44,186
Total gross written premium by line of business	$	267,219	$	194,341		$	72,878

⁽¹⁾ Each region is comprised of the following states: Gulf includes Hawaii, Louisiana and Texas; Northeast includes Connecticut, Massachusetts, New Jersey, New York and Rhode Island; and Southeast includes Georgia, North Carolina and South Carolina.

⁽²⁾ Assumed premium for 2017 includes commercial property business assumed from an unaffiliated insurer and assumed premium for 2016 includes homeowners business from Citizens Property Insurance Corporation and Texas Windstorm Insurance Association.



	Three Months Ended September 30,
New and Renewal Policies By Region ⁽¹⁾	2017	2016	Change
Florida	59,298	48,388	10,910
Gulf	37,600	31,294	6,306
Northeast	32,202	27,499	4,703
Southeast	21,686	19,413	2,273
Total	150,786	126,594	24,192

⁽¹⁾Only includes new and renewal homeowner, commercial and dwelling fire policies written during the quarter.

We expect our gross written premium growth to continue as we increase our policies in-force in the states in which we currently write policies and as we expand into other states in which we are currently licensed to write property and casualty insurance.

UNITED INSURANCE HOLDINGS CORP.

Expenses

Expenses for the three months ended September 30, 2017 increased $94,479,000, or 77.3%, to $216,651,000 for the third quarter of 2017 from $122,172,000 for the same period in 2016. The increase in expenses was primarily due to increased losses and loss adjustment expense from hurricanes Harvey and Irma, policy acquisition costs, and general and administrative expenses. The calculations of our loss ratios and underlying loss ratios are shown below.



	Three Months Ended September 30,
	2017			2016			Change
Net Loss and LAE	$	143,127		$	72,746		$	70,381
% of Gross earned premiums	53.4		%	41.9		%	11.5 pts
% of Net earned premiums	93.9		%	60.5		%	33.4 pts
Less:
Current year catastrophe losses	$	82,615		$	5,109		$	77,506
Prior year reserve (favorable) development	(1,029		)	5,909			(6,938		)
Underlying loss and LAE ⁽¹⁾	$	61,541		$	61,728		$	(187	)
% of Gross earned premiums	23.0		%	35.6		%	(12.6) pts
% of Net earned premiums	40.4		%	51.4		%	(11.0) pts

⁽¹⁾Underlying Loss and LAE is a non-GAAP measure and is reconciled above to Net Loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this document.

The calculations of our expense ratio and underlying expense ratios are shown below.



	Three Months Ended June 30,
	2017			2016			Change
Policy acquisition costs	$	46,546		$	31,333		$	15,213
Operating and underwriting	6,891			5,558			1,333
General and administrative	19,316			12,329			6,987
Total Operating Expenses	$	72,753		$	49,220		$	23,533
% of Gross earned premiums	27.1		%	28.4		%	(1.3) pts
% of Net earned premiums	47.7		%	40.9		%	6.8 pts
Less:
Ceding commission income	$	10,091		$	1,031		9,060
Merger expenses and amortization	10,374			4,324			6,050
Underlying expense ⁽¹⁾	$	52,288		$	43,865		$	8,423
% of Gross earned premiums	19.5		%	25.3		%	(5.8) pts
% of Net earned premiums	34.3		%	36.5		%	(2.2) pts

⁽¹⁾Underlying Expense is a non-GAAP measure and is reconciled above to total operating expenses, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this document.

Loss and LAE increased $70,381,000, or 96.7%, to $143,127,000 for the third quarter of 2017 from $72,746,000 for the third quarter of 2016. Loss and LAE expense as a percentage of net earned premiums increased 33.4 points to 93.9% for the quarter, compared to 60.5% for the same period last year. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the quarter was 23.0%, a decrease of 12.6 points from 35.6% during the third quarter of 2016.

During the third quarter of 2017, catastrophe losses included claims from Hurricane Harvey, which made landfall as a category 4 storm in Texas, and Hurricane Irma, which was also a category 4 storm making landfall in Florida. Our catastrophe excess of loss reinsurance limits retained losses to $91,0000,000 in total for these two events, which was further reduced to $83,000,000 by our quota share reinsurance.

UNITED INSURANCE HOLDINGS CORP.

Policy acquisition costs increased $15,213,000, or 48.6%, to $46,546,000 for the third quarter of 2017 from $31,333,000 for the third quarter of 2016. The primary driver of the increase in costs was the result of the managing general agent fees paid to AmRisc in relation to AmCo commercial premium. The remaining change was the result of policy acquisition costs varing directly with changes in gross premiums earned and were generally consistent with our growth in premium production and higher average market commission rates outside of Florida.

Operating and underwriting expenses increased $1,333,000, or 24.0%, to $6,891,000 for the third quarter of 2016 from $5,558,000 for the third quarter of 2016, primarily due to increased costs related to our ongoing growth, incurred expenses related to software and costs related to the increase in underwriting reports.

General and administrative expenses increased $6,987,000, or 56.7%, to $19,316,000 for the third quarter of 2016 from $12,329,000 for the third quarter of 2016, primarily due to amortization costs related to the merger with AmCo which occurred during the second quarter of 2017.

RESULTS OF OPERATIONS - COMPARISON OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2017 AND 2016

Revenue

Net earnings for the nine months ended September 30, 2017 decreased $33,071,000, or 204.0%, to a net loss of $16,856,000 for the nine months ended September 30, 2017 from net income of $16,215,000 for the same period in 2016. The decrease in net earnings was primarily due to increases in catastrophe losses for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016.

Our gross written premiums increased $247,355,000, or 45.7%, to $788,408,000 for the nine months ended September 30, 2017 from $541,053,000 for the same period in 2016, primarily reflecting our merger with AmCo, as well as organic growth in new and renewal business generated in our Gulf and Northeast regions. The breakdown of the year-over-year changes in both direct and assumed written premiums by region and gross written premium by line of business are shown in the table below.



($ in thousands)	Nine Months Ended September 30,
	2017		2016			Change
Direct Written and Assumed Premium by Region ⁽¹⁾
Florida	$	405,409	$	267,895		$	137,514
Gulf	155,640		119,939			35,701
Northeast	115,631		88,613			27,018
Southeast	70,711		66,945			3,766
Total direct written premium by region	747,391		543,392			203,999
Assumed premium ⁽²⁾	41,017		(2,339		)	43,356
Total gross written premium by region	$	788,408	$	541,053		$	247,355

Gross Written Premium by Line of Business
Personal property	$	617,974	$	525,003		$	92,971
Commercial property	170,434		16,050			154,384
Total gross written premium by line of business	$	788,408	$	541,053		$	247,355

⁽¹⁾ Each region is comprised of the following states: Gulf includes Hawaii, Louisiana and Texas; Northeast includes Connecticut, Massachusetts, New Jersey, New York and Rhode Island' and Southeast includes Georgia, North Carolina and South Carolina.

UNITED INSURANCE HOLDINGS CORP.



	Nine Months Ended September 30,
New and Renewal Policies By Region ⁽¹⁾	2017	2016	Change
Florida	174,750	151,826	22,924
Gulf	100,231	78,976	21,255
Northeast	86,421	63,825	22,596
Southeast	59,875	51,954	7,921
Total	421,277	346,581	74,696

⁽¹⁾ Only includes new and renewal homeowner, commercial and dwelling fire policies written during the year.

Expenses

Expenses for the nine months ended September 30, 2017 increased $167,644,000, or 50.6%, to $498,827,000 for the nine months ended September 30, 2017 from $331,183,000 for the same period in 2016. The increase in expenses was primarily due to increased losses and loss adjustment expense, policy acquisition costs, operating costs and general and administrative expenses. The calculations of our loss ratios and underlying loss ratios are shown below.



	Nine Months Ended September 30,
	2017			2016			Change
Net Loss and LAE	$	293,398		$	199,615		$	93,783
% of Gross earned premiums	41.2		%	41.2		%	0.0 pts
% of Net earned premiums	70.0		%	59.4		%	10.6 pts
Less:
Current year catastrophe losses	$	115,025		$	23,885		$	91,140
Prior year reserve (favorable) development	(2,819		)	9,585			(12,404		)
Underlying loss and LAE ⁽¹⁾	$	181,192		$	166,145		$	15,047
% of Gross earned premiums	25.5		%	34.3		%	(8.8) pts
% of Net earned premiums	43.2		%	49.6		%	(6.4) pts

The calculations of our expense ratios and underlying expense ratios are shown below.

UNITED INSURANCE HOLDINGS CORP.



	Nine Months Ended September 30,
	2017			2016			Change
Policy acquisition costs	$	125,302		$	84,086		$	41,216
Operating and underwriting	19,020			15,326			3,694
General and administrative	58,825			31,759			27,066
Total Operating Expenses	$	203,147		$	131,171		$	71,976
% of Gross earned premiums	28.5		%	27.1		%	1.4 pts
% of Net earned premiums	48.4		%	39.1		%	9.3 pts
Less:
Ceding commission income	$	30,185		$	2,796		$	27,389
Merger expenses and amortization	30,457			9,181			21,276
Underlying expense ⁽¹⁾	$	142,505		$	119,194		$	23,311
% of Gross earned premiums	20.0		%	24.6		%	(4.6) pts
% of Net earned premiums	34.0		%	35.5		%	(1.5) pts

Loss and LAE increased $93,783,000, or 47.0%, to $293,398,000 for the nine months ended September 30, 2017 from $199,615,000 for the same period in 2016. Loss and LAE expense as a percentage of net earned premiums increased 10.6 points to 70.0% for the year, compared to 59.4% for the same period last year. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the quarter was 25.5%, a decrease of 8.8 points from 34.3% during the nine months ended September 30, 2016.

Policy acquisition costs increased $41,216,000, or 49.0%, to $125,302,000 for the nine months ended September 30, 2017 from $84,086,000 for the same period in 2016. The primary driver of the increase in costs was the result of the managing general agent fees paid to AmRisc in relation to AmCo commercial premium. The remaining change was the result of policy acquisition costs varying directly with changes in gross premiums earned and were generally consistent with our growth in premium production and higher average market commission rates outside of Florida.

Operating expenses increased $3,694,000, or 24.1%, to $19,020,000 for the nine months ended September 30, 2017 from $15,326,000 for the same period in 2016, primarily due to increased costs related to the Company's ongoing growth, incurred expenses related to software and costs related to the increase in underwriting reports.

General and administrative expenses increased $27,066,000, or 85.2%, to $58,825,000 for the nine months ended September 30, 2017 from $31,759,000 for the same period in 2016, primarily due to non-recurring merger expenses and amortization costs related to the merger with AmCo which occurred during the nine months ended September 30, 2017.

LIQUIDITY AND CAPITAL RESOURCES

We generate cash through premium collections, reinsurance recoveries, investment income, the sale or maturity of invested assets, the issuance of debt and the issuance of additional shares of our stock. We use our cash to pay reinsurance premiums, claims and related costs, policy acquisition costs, salaries and employee benefits, other expenses and stockholder dividends, as well as to repay debts and purchase investments.

As a holding company, we do not conduct any business operations of our own and as a result, we rely on cash dividends or intercompany loans from our management affiliates to pay our general and administrative expenses. Insurance regulatory authorities heavily regulate our insurance affiliates, including restricting any dividends paid by our insurance affiliates and requiring approval of any management fees our insurance affiliates pay to our management affiliates for services rendered; however, nothing restricts our non-insurance company subsidiaries from paying us dividends other than state corporate laws regarding solvency. Our management affiliates pay us dividends primarily using cash from the collection of management fees from our insurance affiliates, pursuant to the management agreements in effect between those entities. In accordance with state laws, our insurance affiliates may pay dividends or make distributions out of that part of their statutory surplus derived from their net operating profit and their net realized capital gains. The RBC guidelines published by the NAIC may further restrict

UNITED INSURANCE HOLDINGS CORP.

our insurance affiliates' ability to pay dividends or make distributions if the amount of the intended dividend or distribution would cause their respective surplus as regards policyholders to fall below minimum RBC guidelines. See Note 12 in our Notes to Unaudited Consolidated Financial Statements for additional information.

During the nine month periods ended September 30, 2017 and September 30, 2016 we contributed $450,000 and $11,000,000 of capital to our insurance affiliates. We may make future contributions of capital to our insurance affiliates as circumstances require.

On April 3, 2017, the Company successfully completed its merger with AmCo. The acquisition was completed through a series of mergers that ultimately resulted in the Company issuing 20,956,355 shares of its common stock, $0.0001 par value per share, as merger consideration to the equity holders of RDX Holding, LLC, a Delaware limited liability company. Please refer to Note 4 in the Notes to Unaudited Consolidated Financial Statements for additional information on the merger transaction.

On April 29, 2016, we acquired all of the outstanding common stock of IIC for $60,471,000. We paid $48,450,000 in cash at closing and issued an $8,550,000 promissory note to the Seller, which matured and was paid in October 2017. The purchase price also included the assumption of an accrued liability of $3,471,000 which was paid during July 2016.

On May 26, 2016, we issued a $5,200,000, 15-year term note payable to BB&T with the intent to use the funds to purchase, renovate, furnish and equip our home office. The note bears interest at 1.65% in excess of the one-month LIBOR. The interest rate resets monthly and was 2.94% at September 30, 2017. Please refer to Note 10 in the Notes to Unaudited Consolidated Financial Statements for a discussion on the additional terms associated with this note.

On December 5, 2016, we issued $30,000,000 of senior notes to private investors. The notes bear interest at 5.75% in excess of the three month LIBOR. The notes will mature ten years after the issue date, have no scheduled amortization, and may be redeemed at par value any time without a pre-payment penalty. Please refer to Note 10 in the Notes to Consolidated Financial Statements for a discussion on the additional terms associated with these notes.

Financial Covenants

Florida State Board of Administration Note Payable - Our SBA requires that UPC maintain either a 2:1 ratio of net written premium to surplus, or net writing ratio, or a 6:1 ratio of gross written premium to surplus, or gross writing ratio, to avoid additional interest penalties. The SBA note agreement defines surplus for the purpose of calculating the required ratios as the $20,000,000 of capital contributed to UPC under the agreement plus the outstanding balance of the note. Should UPC fail to exceed either a net writing ratio of 1.5:1 or a gross writing ratio of 4.5:1, UPC's interest rate will increase by 450 basis points above the 10-year Constant Maturity Treasury rate which was 2.33% at the end of September 2017. Any other writing ratio deficiencies result in an interest rate penalty of 25 basis points above the stated rate of the note, which was 2.27% at the end of September 2017. Our SBA note further provides that the SBA may, among other things, declare its loan immediately due and payable for all defaults existing under the SBA note; however, any payment is subject to approval by the insurance regulatory authority. At September 30, 2017, we were in compliance with the covenants as specified in the SBA note.

BB&T Term Note Payable - The BB&T note requires that at all times while there has been no "Non-Recurring Losses", UPC Insurance will maintain a minimum Cash Flow Coverage ratio of 1.2:1. The Cash Flow Coverage ratio is defined as UPC Insurance's cash flow to borrower's debt services. Cash flow is defined as earnings before taxes, plus depreciation and amortization and interest. Debt service is defined as prior year's current maturities of long term debt plus interest expense. This ratio will be tested annually, based on UPC Insurance's audited financial statements. For the annual period only following a "Non-Recurring Loss", UPC Insurance will maintain a minimum Cash Flow Coverage ratio of 1.0:1. For purposes of both of the foregoing, "Non-Recurring Losses" is defined as losses from our insurance subsidiaries' operations, as determined from time to time in the bank's sole discretion. This covenant will only be effective if the Pre Non-Recurring Losses test is failed, and is only available and effective for one (1) annual test period. Thereafter, the Non-Recurring Loss Cash Flow Coverage Ratio of 1.2:1 will immediately apply. At the time of the most recent annual test period, December 31, 2016, we were in compliance with the covenants as specified in the BB&T note.

In addition, the BB&T note requires that we establish and maintain with BB&T a noninterest bearing DDA account with a minimum balance of $500,000, and an interest bearing account with a minimum balance of $1,500,000, at all times during the term of the loan. In the event of default, BB&T, may among other things, declare its loan immediately due and payable, require us to pledge additional collateral to the bank, and take possession of and foreclose upon our home office which has been pledged to the bank as security for the loan. At September 30, 2017, we were in compliance with the covenants as specified in the BB&T note.

UNITED INSURANCE HOLDINGS CORP.

Senior Notes Payable - The Indenture contains customary event of default provisions. It also contains covenants that, among other things, restrict the Company's ability to incur indebtedness without first providing written notification and receiving approval from the majority of the holders of the notes, limit the Company's ability to create, incur or assume liens other than permitted liens that secure any indebtedness on any asset or property of the Company, require the Company to maintain reinsurance coverage during the life of the notes, and maintain a maximum debt to capital ratio of 20% beginning from December 31, 2017. At September 30, 2017, we were in compliance with the covenants as specified in the senior notes.

Cash Flows for the Nine Months Ended September 30, (in millions)

Operating Activities

The principal cash inflows from our operating activities come from premium collections, reinsurance recoveries, and investment income. The principal cash outflows from our operating activities are the result of claims and related costs, reinsurance premiums, policy acquisition costs, and salaries and employee benefits. A primary liquidity concern with respect to these cash flows is the risk of large magnitude catastrophe events.

During the nine months ended September 30, 2017, some changes in operating assets and liabilities were significantly impacted by catastrophe losses associated with hurricanes Harvey and Irma. Unpaid losses and loss adjustment expense increased significantly during the period and as a result we expect a considerable increase in cash outflows related to the payment of catastrophe claims in the near future. However, reinsurance recoverable on paid and unpaid losses also increased significantly during the period. We expect that a considerable increase in cash inflows related to reinsurance recoveries in the near future will largely offset the cash outflows from the payment of losses.

Investing Activities

The principal cash inflows from our investing activities come from repayments of principal, proceeds from maturities and sales of investments. We closely monitor and manage these risks through our comprehensive investment risk management process. The principal cash outflows relate to purchases of investments and cost of property, equipment and capitalized software acquired. Additional cash outflows relate to purchases of subsidiaries. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption.

Financing Activities

The principal cash inflows from our financing activities come from issuances of debt and other securities. The principal cash outflows come from repayments of debt and payments of dividends. The primary liquidity concern with respect to these cash flows is market disruption. We believe our current capital resources, together with cash provided from our operations, are sufficient to meet currently anticipated working capital requirements.

OFF-BALANCE SHEET ARRANGEMENTS

At September 30, 2017, we did not have any off-balance-sheet arrangements.

CONTRACTUAL OBLIGATIONS

The following table summarizes our expected payments for contractual obligations at September 30, 2017:

UNITED INSURANCE HOLDINGS CORP.



	Payment Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		More than 5 Years
Leases ⁽¹⁾	$	987	$	61	$	487	$	390	$	49
Service agreements ⁽²⁾	20,748		3,168		10,639		4,798		2,143
Long-term debt ⁽³⁾	53,119		8,913		2,945		2,947		38,314
Employment agreements ⁽⁴⁾	4,583		250		2,000		2,000		333
Unpaid loss and loss adjustment expenses⁽⁵⁾	682,161		313,856		256,087		62,743		49,475
Total	$	761,598	$	326,248	$	272,158	$	72,878	$	90,314


⁽¹⁾	Represents operating and capital leases for our insurance subsidiaries.

⁽²⁾ Represents agreements entered into to purchase goods and services in the normal course of business.


⁽³⁾	Represents principal payments over the life of the SBA Note debt. Also includes a note payable for $8,550,000 which we are obligated to pay as consideration for the IIC transaction, a $5,200,000 term note payable to BB&T, and $30,000,000 senior notes payable. See Note 11 in our Notes to Consolidated Financial Statements for additional information regarding our long-term debt.


⁽⁴⁾	Represents base salary for the unfulfilled portion of the original employment agreements with certain executive officers.

⁽⁵⁾

As of September 30, 2017, UPC, ACIC, FSIC, and IIC had unpaid loss and loss adjustment expenses (LAE) of $682,161,000. The specific amounts and timing of obligations related to known and unknown reserves and related LAE reserves are not set contractually, and the amounts and timing of these obligations are unknown. Nonetheless, based upon our cumulative claims paid over the last 17 years, we estimate that the loss and LAE reserves will be paid in the periods shown above. While we believe that historical performance of loss payment patterns is a reasonable source for projecting future claims payments, there is inherent uncertainty in this estimated projected settlement of loss and LAE reserves, and as a result these estimates will differ, perhaps significantly, from actual future payments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks, including risks related to changes in interest rates, the financial condition of the issuers of our fixed-maturities and equity security prices. These risks were disclosed in Part 1, Item 1A of our 2016 Form 10-K; we have material additions to that disclosure with the acquisition of AmCo Holding Company.

INTEREST RATE RISK

Our fixed-maturities are sensitive to potential losses resulting from unfavorable changes in interest rates. We manage the risk by analyzing anticipated movements in interest rates and considering our future capital and liquidity requirements.

The following table illustrates the impact of hypothetical changes in interest rates on the fair value of our fixed-maturities at September 30, 2017:



						Percentage
						Increase
			Change in			(Decrease) in
	Estimated		Estimated			Estimated
Hypothetical Change in Interest Rates	Fair Value		Fair Value			Fair Value
300 basis point increase	$	636,614	$	(82,171	)	(11.4	)%
200 basis point increase	$	664,003	$	(54,782	)	(7.6	)%
100 basis point increase	$	691,393	$	(27,392	)	(3.8	)%
Fair value	$	718,785	$	—		—	%
100 basis point decrease	$	746,175	$	27,390		3.8	%
200 basis point decrease	$	770,826	$	52,041		7.2	%
300 basis point decrease	$	783,329	$	64,544		9.0	%

Our calculations of the potential effects of hypothetical interest rate changes are based on several assumptions, including maintenance of the existing composition of fixed-maturity investments, and should not be indicative of future results. Based on our analysis, a 300 basis point decrease or increase in interest rates from the September 30, 2017 period end rates would not have a material impact on our results of operations or cash flows.

UNITED INSURANCE HOLDINGS CORP.

CREDIT RISK

Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuer of our fixed-maturities. We mitigate this risk by investing in fixed-maturities that are generally investment grade and by diversifying our investment portfolio to avoid concentrations in any single issuer or market sector.

The following table presents the composition of our fixed-maturity portfolio by rating at September 30, 2017:



			% of Total
	Amortized		Amortized				% of Total
Comparable Rating	Cost		Cost		Fair Value		Fair Value
AAA	$	131,352	18.4	%	$	132,311	18.4	%
AA+, AA, AA-	325,255		45.5		325,863		45.3
A+, A, A-	160,445		22.3		161,386		22.5
BBB+, BBB, BBB-	97,029		13.6		97,930		13.6
BB+, BB, BB-	1,293		0.2		1,295		0.2
Total	$	715,374	100.0	%	$	718,785	100.0	%

EQUITY PRICE RISK

Our equity investment portfolio at September 30, 2017 consists of common stocks, mutual funds and non-redeemable preferred stocks. We may incur potential losses due to adverse changes in equity security prices. We manage this risk primarily through industry and issuer diversification and asset allocation techniques.

The following table illustrates the composition of our equity portfolio at September 30, 2017:



			% of Total
Stocks by Sector	Fair Value		Fair Value
Funds	$	29,807	48.4	%
Consumer, Non-cyclical	8,798		14.3
Industrial	6,526		10.6
Financial	4,332		7.0
Technology	3,525		5.7
Consumer, Cyclical	3,230		5.2
Utilities	2,838		4.6
Basic Materials	958		1.6
Communications	887		1.4
Energy	738		1.2
Total	$	61,639	100.0	%

Item 4. Controls and Procedures

We maintain a set of disclosure controls and procedures designed to ensure that the information we must disclose in reports we file or submit under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. We designed our disclosure controls with the objective of ensuring we accumulate and communicate this information to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under Exchange Act, as of the end of the period covered by this report. Based on our evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

During the fiscal quarter ended September 30, 2017, we did not make any changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

UNITED INSURANCE HOLDINGS CORP.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are party to lawsuits arising out of the normal course of our business. In management's opinion, we are not party to any litigation or similar proceedings that would, individually or in the aggregate, be reasonably expected to have a material adverse effect on our consolidated results of operations, financial position, or cash flows.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should consider the factors discussed in Part 1, Item 1A "Risk Factors" in our 2016 Annual Report on Form 10-K, as updated in our subsequent quarterly reports. The risks described in our 2016 Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to use or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities. During the three and nine months ended September 30, 2017, we did not sell any unregistered equity securities.

Working Capital Restrictions and Other Limitations on Payment of Dividends. Under Florida law, a Florida-domiciled insurer like UPC or ACIC may not pay any dividend or distribute cash or other property to its shareholders except out of its available and accumulated surplus funds which are derived from realized net operating profits on its business and net realized capital gains. Additionally, Florida-domiciled insurers may not make dividend payments or distributions to shareholders without the prior approval of the insurance regulatory authority if the dividend or distribution would exceed the larger of:


1.	the lesser of:


a.	ten percent of capital surplus, or


b.	net gain from operations, or


c.	net income, not including realized capital gains, plus a two-year carryforward,


2.	ten percent of capital surplus with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains, or


3.	the lesser of:


a.	ten percent of capital surplus, or


b.	net investment income plus a three-year carryforward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains.

Alternatively, UPC may pay a dividend or distribution without the prior written approval of the insurance regulatory authority when:


1.	the dividend is equal to or less than the greater of:


a.	ten percent of the insurer’s surplus as to policyholders derived from realized net operating profits on its business and net realized capital gains, or


b.	the insurer’s entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, and:

UNITED INSURANCE HOLDINGS CORP.


i.	the insurer will have surplus as to policyholders equal to or exceeding 115% of the minimum required statutory surplus as to policyholders after the dividend or distribution is made, and


ii.	the insurer files a notice of the dividend or distribution with the insurance regulatory authority at least ten business days prior to the dividend payment or distribution, and


iii.	the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory surplus as to policyholders.

Except as provided above, a Florida-domiciled insurer may only pay a dividend or make a distribution (i) subject to prior approval by the insurance regulatory authority, or (ii) 30 days after the insurance regulatory authority has received notice of intent to pay such dividend or distribution and has not disapproved it within such time. At September 30, 2017, we were in compliance with these requirements.

Under the insurance regulations of Hawaii, the maximum amount of dividends that FSIC may pay to its parent company without prior approval from the Insurance Commissioner is:


1.	the lesser of:


a.	ten percent (10%) of FSIC's surplus as of December 31 of the preceding year, or


b.	ten percent (10%) of the net income, not including realized capital gains, for the twelve-month period ending December 31 of the preceding year.

In performing the net income test, property and casualty insurers may carry-forward income from the previous two calendar years that has not already been paid out as dividends. This carry-forward is computed by taking the net income from the second and third preceding calendar years, not including realized capital gains, less dividends paid in the second and third immediately preceding calendar years.

Under the insurance regulations of New York, no company may declare or distribute any dividend to shareholders which, together with all dividends declared or distributed by it during the next preceding twelve months, exceeds:

1.the lesser of:

a.ten percent (10%) of IIC's surplus to policyholders as shown on its

latest statement on file with the Superintendent, or

b.100% of "adjusted net investment income" during that period.

N.Y. Ins. Law 4105(a)(2) (McKinney 2000) defines "adjusted net investment income" to mean:

Net investment income for the twelve months immediately preceding

the declaration or distribution of the current dividend increased by the

excess, if any, of net investment income over dividends declared or

distributed during the period commencing thirty-six months prior to

the declaration or distribution of the current dividend and ending twelve

months prior thereto.

Under an agreement with the New York Department of Financial Services, we will not issue dividends on behalf of IIC within two years of the acquisition date.

Repurchases. During the three and nine months ended September 30, 2017, we did not repurchase any equity securities.

Item 3. Defaults Upon Senior Securities

None.

UNITED INSURANCE HOLDINGS CORP.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

The following exhibits are filed herewith or are incorporated herein by reference:



Exhibit		Description

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Taxonomy Extension Presentation Linkbase

UNITED INSURANCE HOLDINGS CORP.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		UNITED INSURANCE HOLDINGS CORP.

November 8, 2017	By:	/s/ John Forney
		John Forney, Chief Executive Officer (principal executive officer and duly authorized officer)



November 8, 2017	By:	/s/ B. Bradford Martz
		B. Bradford Martz, Chief Financial Officer (principal financial officer and principal accounting officer)

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