United Insurance Holdings Corp. Reports Financial Results for Its First Quarter Ended March 31, 2014

Company to Host Quarterly Conference Call at 9:00 A.M. on May 1, 2014

ST. PETERSBURG, Fla.--(BUSINESS WIRE)--United Insurance Holdings Corp. (NASDAQ:UIHC) (UPC Insurance or the Company), a property and casualty insurance holding company, today reported its financial results for the first quarter ended March 31, 2014.

($ in thousands, except per share and ratios)	Three Months Ended
	March 31,
	2014			2013			Change
Gross premiums written	$	89,001		$	87,746		1.4	%
Gross premiums earned	$	95,011		$	69,876		36.0	%
Ceded premiums earned	$	(30,977	)	$	(27,579	)	12.3	%
Net premiums earned	$	64,034		$	42,297		51.4	%
Total revenues	$	67,507		$	44,170		52.8	%
Earnings before income tax	$	17,696		$	7,084		149.8	%
Net income	$	11,389		$	4,351		161.8	%
Net income per diluted share	$	0.65		$	0.27		140.7	%
Book value per share	$	8.33		$	5.91		40.9	%
Return on average equity, ttm	25.0		%	13.7		%	11.3 pts
Loss ratio, net^1	43.2		%	48.6		%	-5.4 pts
Expense ratio, net^2	34.4		%	38.9		%	-4.5 pts
Combined ratio (CR)^3	77.6		%	87.5		%	-9.9 pts
Effect of current year catastrophe losses on CR	—		%	4.3		%	-4.3 pts
Effect of prior year development on CR	(0.2		)%	4.0		%	-4.2 pts
Underlying combined ratio^4	77.8		%	79.2		%	-1.4 pts

^1	Loss ratio, net is losses and loss adjustment expenses relative to net premiums earned.
^2	Expense ratio, net 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 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 press release is in the "Definitions of Non-GAAP Measures" section of this document.

“This was record quarter for UPC Insurance," said John Forney, President and CEO of UPC Insurance. "We produced more net earned premiums and more net income than in any quarter since the Company became publicly traded in 2008. From a strategic perspective, we continued our expansion outside Florida, with over 57% of our total new policies for the quarter coming from other states. I'm proud of the results we produced this quarter but even more excited about our future opportunities."

Quarterly Financial Results

Net income for the quarter was $11.4 million, or $0.65 per diluted share, compared to $4.4 million, or $0.27 per diluted share in the first quarter in 2013. The increase in net income was primarily due to lower ceded reinsurance premium percentage for the quarter compared to the prior period and gross earned premium growth in all states in 2014.

The Company's direct gross written premiums increased by $17.0 million, or 22.9%, primarily due to the organic growth in new and renewal business generated in the states in which the Company currently writes. The increase in direct written premiums was offset by a $15.7 million decrease in assumed premiums. In the first quarter of 2013, the Company assumed $13.7 million of premiums related to policies the Company assumed from Citizens Property Insurance Corporation (Citizens), whereas in the first quarter of 2014, the Company returned approximately $2.0 million of assumed premium to Citizens related to policyholder opt-outs from its November 2013 assumption. The quarter-over-quarter growth in gross written premiums by state is shown in the table below:

Direct Written and Assumed Premium By State	2014			2013		Growth			Growth %
Direct written premium
Florida	$	73,036		$	65,941	$	7,095		10.8	%
South Carolina	6,615			5,022		1,593			31.7
Massachusetts	5,391			1,783		3,608			202.4
Rhode Island	2,681			1,266		1,415			111.8
North Carolina	1,947			—		1,947			100.0
New Jersey	487			—		487			100.0
Texas	810			—		810			100.0
Total direct written premium by state	90,967			74,012		16,955			22.9
Assumed premium ^(1)	(1,966		)	13,734		(15,700		)	(114.3	)
Total gross written premium	$	89,001		$	87,746	$	1,255		1.4	%

^1	All assumed premiums are written in Florida due to the policy assumptions from Citizens.

Policy acquisition costs increased $3.9 million, or 34.5%, to $15.2 million for the first quarter of 2014 from $11.3 million for the first quarter of 2013. These costs vary directly with the growth in gross premiums earned which increased 36.0% over the first quarter of 2013.

Operating expenses increased to $2.5 million for the first quarter of 2014, from $2.1 million during the same period of last year due to increases in home inspection costs, agent costs, equipment and software expenditures, and computer services resulting from the Company's ongoing growth and continuing expansion into new states.

General and administrative expenses increased to $4.4 million for the first quarter of 2014, from $3.1 million for the first quarter of 2013 primarily due to increases in personnel costs and professional services related to the Company's growth.

Losses and loss adjustment expenses increased to $27.7 million for the first quarter of 2014, from $20.5 million for the same period last year. Prior year favorable development for the year ended March 31, 2014, was $0.1 million compared to adverse development of $1.7 million for the same period in 2013.

Combined Ratio Analysis

The Company's GAAP net combined ratio improved 9.9 points during the first quarter of 2014 compared to the same period in 2013. UPC Insurance’s underlying net combined ratio, which excludes losses from catastrophes and reserve development, also improved 1.4 points for the first quarter of 2014 signaling continued improvement in the Company’s core operating results over the same period a year ago. Both the combined and underlying combined ratios decreased primarily due to strong premium growth and a lower ceded reinsurance premium percentage for the quarter compared to the prior period. As a result of these factors, net premiums earned increased $21.7 million, or 51.4%, to $64.0 million in the first quarter of 2014 compared to $42.3 million for the first quarter of 2013. The increase in net premiums earned was partially offset by the increase in the Company's underlying loss costs, which increased approximately $10.8 million during the first quarter of 2014 compared to the same period a year ago. The increase in underlying loss costs for the three months ended March 31, 2014 was driven primarily by the growth of policies in-force and increased frequency and severity of water-related losses as shown below:

($ in thousands except ratios)	Three Months Ended
	March 31,
	2014			2013			Change
Net Loss and LAE	$	27,673		$	20,547		$	7,126
% of Gross earned premiums	29.1		%	29.4		%	-0.3 pts
% of Net earned premiums	43.2		%	48.6		%	-5.4 pts
Less:
Current year catastrophe losses	$	—		$	1,818		$	(1,818	)
Prior year reserve development	(142		)	1,718			(1,860		)
Underlying Loss and LAE^*	$	27,815		$	17,011		$	10,804
% of Gross earned premiums	29.3		%	24.4		%	4.9 pts
% of Net earned premiums	43.4		%	40.3		%	3.1 pts
Policy acquisition costs	$	15,180		$	11,283		$	3,897
Operating and underwriting	2,509			2,059			450
General and administrative	4,350			3,124			1,226
Total Operating Expenses	$	22,039		$	16,466		$	5,573
% of Gross earned premiums	23.2		%	23.6		%	-0.4 pts
% of Net earned premiums	34.4		%	38.9		%	-4.5 pts
Combined Ratio - as % of gross earned premiums	52.3		%	53.0		%	-0.7 pts
Underlying Combined Ratio - as % of gross earned premiums	52.5		%	48.0		%	4.5 pts
Combined Ratio - as % of net earned premiums	77.6		%	87.5		%	-9.9 pts
Underlying Combined Ratio - as % of net earned premiums	77.8		%	79.2		%	-1.4 pts

^*

Underlying Loss and LAE is a non-GAAP financial 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 press release is in the "Definitions of Non-GAAP Measures" section of this document.

The Company’s gross underlying loss ratio increased to 29.3% during the first quarter of 2014, which was up 4.9 points from 24.4% in the first quarter of 2013. The primary drivers of this change were increases in the frequency and severity of water-related losses in Florida, as well as water and freeze-related losses in Massachusetts and Rhode Island. Water-related losses and other loss causes in states outside of Florida accounted for approximately 2.5 points of the 4.9 point increase in the Company's gross underlying loss ratio. These negative changes in the gross loss ratio were partially offset by a lower ceded reinsurance premium percentage, which allowed the Company's net underlying loss ratio to increase by only 3.1 points.

Reinsurance Costs Decreased as a % of Earned Premium for the Quarter-to-Date

Excluding the Company's flood business, for which it cedes 100% of the risk of loss, reinsurance costs in the first quarter of 2014 were 27.7% of gross premiums earned compared to 36.4% of gross premiums earned for the first quarter of 2013.

Investment Portfolio Highlights

UPC Insurance's cash and investment holdings totaled $395.0 million at March 31, 2014, compared to $323.8 million at December 31, 2013. UPC Insurance's cash and investment holdings consist primarily of investments in high-quality money market instruments, U.S. Government and agency securities and high-quality corporate debt. Fixed maturities represented approximately 79.2% of total investments at March 31, 2014, and 94.5% at December 31, 2013. The decrease in the fixed maturities holdings is due to a $54.2 million investment in a short duration bond mutual fund during the quarter that is classified as an equity investment according to U.S. generally accepted accounting principles.

Book Value Analysis

Book value per share increased 25.5% from $6.64 at December 31, 2013, to $8.33 at March 31, 2014. The increase in the Company's book value per share was primarily driven by the $54.0 million of capital raised during the first quarter and due to the Company’s growth in net income. The Company's underlying book value per share increased 24.6% from $6.63 at December 31, 2013 to $8.26 at March 31, 2014 because accumulated other comprehensive income was $0.1 million at December 31, 2013 compared to a balance of $1.5 million at March 31, 2014. The Company’s large accumulated other comprehensive income balance at the end of the first quarter 2014 reduced the Company’s underlying book value per share by $0.07 per share compared to the balance at the end of 2013 which reduced the Company’s underlying book value per share by $0.01 per share.

($ in thousands, except for per share data)	March 31,		December 31,
	2014		2013
Book Value per Common Share
Numerator:
Common shareholders' equity	$	173,654	$	107,587
Denominator:
Total Shares Outstanding	20,847,471		16,209,315
Book Value Per Common Share	$	8.33	$	6.64
Book Value per Common Share, Excluding the Impact of Accumulated Other Comprehensive Income
Numerator:
Common shareholders' equity	$	173,654	$	107,587
Accumulated other comprehensive income	1,511		92
Shareholders' Equity, excluding AOCI	$	172,143	$	107,495
Denominator:
Total Shares Outstanding	20,847,471		16,209,315
Underlying Book Value Per Common Share*	$	8.26	$	6.63

^*

Underlying book value per common share is a non-GAAP financial measure and is reconciled above to book value per common share, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release is in the "Definitions of Non-GAAP Measures" section of this document.

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 development on lines in run-off and reserve development (underlying combined ratio) is a non-GAAP ratio, which is computed as the difference between four GAAP operating ratios: the combined ratio, the effect of current year catastrophe losses on the combined ratio, the effect of development from lines in run-off and prior year development on the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our business that may be obscured by current year catastrophe losses, losses from lines in run-off and prior year development. 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 from lines in run-off is caused by unexpected development from our commercial auto product that is no longer offered by the Company. Prior year development is caused by unexpected loss development on historical reserves. 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, prior year development on lines in run-off and reserve development (underlying Loss and LAE) is a non-GAAP measure which is computed as the difference between loss and LAE, current year catastrophe losses and prior year reserve development. 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 three 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.

Consolidated net loss ratio excluding the effects of current year catastrophe losses, reserve development (underlying loss ratio) is a non-GAAP ratio, which is computed as the difference between three GAAP operating ratios: the consolidated net loss ratio, the effect of current year catastrophe losses on the loss ratio, and the effect of prior year development on the loss ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our consolidated net loss ratio that may be obscured by current year catastrophe losses and prior year development. As discussed previously, these two items can have a significant impact on our consolidated net loss ratio in a given period. The most direct comparable GAAP ratio is our net consolidated Loss and LAE ratio. The underlying loss ratio should not be considered as a substitute for net consolidated loss ratio and does not reflect the overall profitability of our business.

Book value per common share, excluding the impact of accumulated other comprehensive income, is a ratio that uses a non-GAAP measure. It is calculated by dividing common shareholders' equity after excluding accumulated other comprehensive income by total common shares outstanding plus dilutive potential common shares outstanding. We use the trend in book value per common share, excluding the impact of accumulated other comprehensive income, in conjunction with book value per common share to identify and analyze the change in net worth attributable to management efforts between periods. We believe the non-GAAP ratio is useful to investors because it eliminates the effect of interest rates that can fluctuate significantly from period to period and are generally driven by economic developments, primarily capital market conditions, the magnitude and timing of which are generally not influenced by management, and we believe it enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers. We note that book value per common share, excluding the impact of accumulated other comprehensive income, is a measure commonly used by insurance investors as a valuation technique. Book value per common share is the most directly comparable GAAP measure. Book value per common share, excluding the impact of accumulated other comprehensive income, should not be considered a substitute for book value per common share, and does not reflect the recorded net worth of our business.

Conference Call Details
Date and Time:	May 1, 2014 - 9:00 A.M. ET
Participant Dial-In:	(United States): 877-407-8829
	(International): 201-493-6724
Webcast:	To listen to the live webcast, please go to www.upcinsurance.com (Investor Relations) and click on the conference call link, or go to: http://upcinsurance.equisolvewebcast.com/q1-2014

About UPC Insurance

Founded in 1999, UPC Insurance is an insurance holding company that sources, writes and services residential property and casualty insurance policies using a network of independent agents and a group of wholly owned insurance subsidiaries. United Property & Casualty Insurance Company, the primary operating subsidiary of UPC Insurance, writes and services property and casualty insurance in Florida, Massachusetts, New Jersey, North Carolina, Rhode Island, South Carolina and Texas and is licensed to write in Georgia, Louisiana and New Hampshire. From its headquarters in St. Petersburg, UPC Insurance's team of dedicated professionals manages a completely integrated insurance company, including sales, underwriting, customer service and claims.

Forward-Looking Statements

Statements in this press release that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “or “continue” or the other negative variations thereof or comparable terminology are intended to identify forward-looking statements. The forward-looking statements in this press release include statements regarding: the impact of our continued growth, and the expansion into other states. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation, the success of the Company's marketing initiatives, inflation and other changes in economic conditions (including changes in interest rates and financial markets); the impact of new Federal and State regulations that affect the property and casualty insurance market; the costs of reinsurance and the collectibility of reinsurance, assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; our ability to obtain regulatory approval for requested rate changes, and the timing thereof; legislative and regulatory developments; the outcome of litigation pending against us, including the terms of any settlements; risks related to the nature of our business; dependence on investment income and the composition of our investment portfolio; the adequacy of our liability for losses and loss adjustment expense; insurance agents; claims experience; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in loss trends; acts of war and terrorist activities; court decisions and trends in litigation, and health care; and other matters described from time to time by us in our filings with the Securities and Exchange Commission, including, but not limited to, the Company's Annual Report on Form 10-K filed on February 24, 2014. In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results may therefore, appear to be volatile in certain accounting periods. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.

Consolidated Statements of Comprehensive Income
In thousands, except share and per share amounts
	Three Months Ended
	March 31,
	2014			2013
REVENUE:
Gross premiums written	$	89,001		$	87,746
(Increase) decrease in gross unearned premiums	6,010			(17,870		)
Gross premiums earned	95,011			69,876
Ceded premiums earned	(30,977		)	(27,579		)
Net premiums earned	64,034			42,297
Net investment income	1,467			724
Net realized gains (losses)	14			(12		)
Other revenue	1,992			1,161
Total revenue	$	67,507		$	44,170
EXPENSES:
Losses and loss adjustment expenses	27,673			20,547
Policy acquisition costs	15,180			11,283
Operating expenses	2,509			2,059
General and administrative expenses	4,350			3,124
Interest expense	115			73
Total expenses	49,827			37,086
Income before other income	17,680			7,084
Other income	16			—
Income before income taxes	17,696			7,084
Provision for income taxes	6,307			2,733
Net income	$	11,389		$	4,351
OTHER COMPREHENSIVE INCOME:
Change in net unrealized gain on investments	2,327			369
Reclassification adjustment for net realized investment (gains) losses	(14		)	12
Income tax expense related to items of other comprehensive income	(894		)	(149		)
Total comprehensive income	$	12,808		$	4,583
Weighted average shares outstanding
Basic	17,458,136			16,028,516
Diluted	17,543,673			16,115,506
Earnings per share
Basic	$	0.65		$	0.27
Diluted	$	0.65		$	0.27
Dividends declared per share	$	0.04		$	0.03

Consolidated Balance Sheets
In thousands
				December 31,
	March 31, 2014			2013
ASSETS
Investments available for sale, at fair value:
Fixed maturities	$	267,420		$	273,024
Equity securities - common and preferred	15,897			15,602
Equity securities - mutual fund	54,197			—
Other long-term investments	300			300
Total investments	$	337,814		$	288,926
Cash and cash equivalents	57,146			34,888
Accrued investment income	1,499			1,752
Premiums receivable, net	25,063			26,076
Reinsurance recoverable on paid and unpaid losses	2,576			2,426
Prepaid reinsurance premiums	28,142			55,268
Deferred policy acquisition costs	25,123			25,186
Other assets	7,522			6,708
Total Assets	$	484,885		$	441,230
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses	$	47,187		$	47,451
Unearned premiums	187,418			193,428
Reinsurance payable	20,784			39,483
Other liabilities	41,430			38,575
Notes payable	14,412			14,706
Total Liabilities	$	311,231		$	333,643
Commitments and contingencies
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; 21,059,554 and
16,421,398 issued; 20,847,471 and 16,209,315 outstanding for 2014 and 2013, respectively	2			2
Additional paid-in capital	81,891			27,800
Treasury shares, at cost; 212,083 shares	(431		)	(431		)
Accumulated other comprehensive income	1,511			92
Retained earnings	90,681			80,124
Total Stockholders' Equity	$	173,654		$	107,587
Total Liabilities and Stockholders' Equity	$	484,885		$	441,230