Attached files

file filename
EX-32.2 - EXHIBIT 32.2 - UNITED INSURANCE HOLDINGS CORP.exh32230jun17.htm
EX-32.1 - EXHIBIT 32.1 - UNITED INSURANCE HOLDINGS CORP.exh32130jun17.htm
EX-31.2 - EXHIBIT 31.2 - UNITED INSURANCE HOLDINGS CORP.exh31230jun17.htm
EX-31.1 - EXHIBIT 31.1 - UNITED INSURANCE HOLDINGS CORP.exh31130jun17.htm
 
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 June 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 August 9, 2017; 42,741,004 shares of common stock, par value $0.0001 per share, were outstanding.

 


UNITED INSURANCE HOLDINGS CORP.



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

2

UNITED INSURANCE HOLDINGS CORP.



FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q as of June 30, 2017, and for the three and six months ended June 30, 2017 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 growth in 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 or 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.

3

UNITED INSURANCE HOLDINGS CORP.


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets


June 30,
2017

December 31, 2016
ASSETS

(Unaudited)

 
Investments available for sale, at fair value:

 

 
Fixed maturities (amortized cost of $713,524 and $497,616, respectively)

$
716,183


$
494,516

Equity securities (adjusted cost of $52,648 and $24,074, respectively)

59,431


28,398

Other investments (amortized cost of $7,506 and $5,493, respectively)

7,848


5,733

Total investments

$
783,462


$
528,647

Cash and cash equivalents

254,171


150,688

Accrued investment income

5,142


3,735

Property and equipment, net
 
19,623

 
17,860

Premiums receivable, net

93,401


38,883

Reinsurance recoverable on paid and unpaid losses

69,824


24,028

Prepaid reinsurance premiums

364,156


132,564

Goodwill
 
59,679

 
14,254

Deferred policy acquisition costs

94,865


65,473

Intangible assets
 
64,948

 
12,371

Other assets

12,000


11,183

Total Assets

$
1,821,271


$
999,686

LIABILITIES AND STOCKHOLDERS' EQUITY




Liabilities:




Unpaid losses and loss adjustment expenses

$
204,694


$
140,855

Unearned premiums

578,587


372,223

Reinsurance payable

332,011


99,891

Other liabilities

122,752


91,215

Notes payable

53,765

 
54,175

Total Liabilities

$
1,291,809


$
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

375,029


99,353

Treasury shares, at cost; 212,083 shares

(431
)

(431
)
Accumulated other comprehensive income

5,985


822

Retained earnings

148,875


141,581

Total Stockholders' Equity

$
529,462


$
241,327

Total Liabilities and Stockholders' Equity

$
1,821,271


$
999,686







See accompanying Notes to Unaudited Consolidated Financial Statements.

4

UNITED INSURANCE HOLDINGS CORP.


Consolidated Statements of Comprehensive Income
(Unaudited)


Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,


2017

2016
 
2017
 
2016
REVENUE:




 
 
 
 
Gross premiums written

$
352,347

 
$
210,756

 
$
521,189

 
$
346,712

Increase in gross unearned premiums

(90,763
)
 
(46,171
)
 
(77,540
)
 
(35,625
)
Gross premiums earned

261,584

 
164,585

 
443,649

 
311,087

Ceded premiums earned

(101,966
)
 
(50,406
)
 
(176,848
)
 
(95,538
)
Net premiums earned

159,618

 
114,179

 
266,801

 
215,549

Investment income

4,637

 
2,727

 
7,588

 
5,123

Net realized gains (losses)

(132
)
 
102

 
(483
)
 
372

Other revenue

13,950

 
3,913

 
26,800

 
7,438

Total revenue

178,073

 
120,921

 
300,706

 
228,482

EXPENSES:




 
 
 
 
Losses and loss adjustment expenses

86,938

 
62,611

 
150,271

 
126,869

Policy acquisition costs

43,320

 
25,721

 
78,756

 
52,753

Operating expenses

6,257

 
5,814

 
12,129

 
9,768

General and administrative expenses

28,176

 
11,497

 
39,509

 
19,430

Interest expense

752

 
116

 
1,511

 
191

Total expenses

165,443

 
105,759

 
282,176

 
209,011

Income before other income

12,630

 
15,162

 
18,530

 
19,471

Other income

20

 
48

 
58

 
69

Income before income taxes

12,650

 
15,210

 
18,588

 
19,540

Provision for income taxes

5,393

 
5,369

 
7,432

 
6,748

Net income

$
7,257

 
$
9,841

 
$
11,156

 
$
12,792

OTHER COMPREHENSIVE INCOME:




 
 
 
 
Change in net unrealized gains on investments

4,106

 
7,420

 
7,837

 
13,800

Reclassification adjustment for net realized investment losses (gains)

132

 
(102
)
 
483

 
(372
)
Income tax expense related to items of other comprehensive income

(1,615
)
 
(2,713
)
 
(3,157
)
 
(5,074
)
Total comprehensive income

$
9,880

 
$
14,446

 
$
16,319

 
$
21,146






 
 
 
 
Weighted average shares outstanding




 
 
 
 
Basic

41,799,041

 
21,423,739

 
31,691,267

 
21,385,220

Diluted
 
42,028,013

 
21,631,077

 
31,914,559

 
21,584,287






 
 
 
 
Earnings per share




 
 
 
 
Basic

$
0.17

 
$
0.46

 
$
0.35

 
$
0.60

Diluted
 
$
0.17

 
$
0.45

 
$
0.35

 
$
0.59



 
 
 
 
 
 
 
Dividends declared per share

$
0.06

 
$
0.06

 
$
0.12

 
$
0.11






See accompanying Notes to Unaudited Consolidated Financial Statements.

5

UNITED INSURANCE HOLDINGS CORP.


Consolidated Statements of Cash Flows
(Unaudited)
 
 
Six Months Ended
June 30,
 
 
2017
 
2016
OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
11,156

 
$
12,792

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
13,613

 
4,578

Bond amortization and accretion
 
2,320

 
1,611

Net realized gains
 
483

 
(372
)
Provision for uncollectable premiums/over and short
 
144

 
241

Deferred income taxes, net
 
1,323

 
(204
)
Stock based compensation
 
1,294

 
931

Changes in operating assets and liabilities:
 
 
 
 
Accrued investment income
 
(96
)
 
(76
)
Premiums receivable
 
(23,224
)
 
(266
)
Reinsurance recoverable on paid and unpaid losses
 
(25,566
)
 
(16,560
)
Prepaid reinsurance premiums
 
(209,048
)
 
(101,348
)
Deferred policy acquisition costs, net
 
(29,392
)
 
(12,054
)
Other assets
 
4,963

 
(2,297
)
Unpaid losses and loss adjustment expenses
 
3,310

 
15,254

Unearned premiums
 
77,540

 
35,625

Reinsurance payable
 
209,714

 
106,818

Other liabilities
 
19,852

 
7,846

Net cash provided by operating activities
 
$
58,386

 
$
52,519

INVESTING ACTIVITIES
 
 
 
 
Proceeds from sales and maturities of investments available for sale
 
81,998

 
111,924

Purchases of investments available for sale
 
(108,376
)
 
(79,737
)
Cash from acquisition
 
95,284

 

Purchase of subsidiary, net of cash acquired
 

 
(32,840
)
Cost of property, equipment and capitalized software acquired
 
(3,797
)
 
(2,379
)
Net cash provided by (used in) investing activities
 
$
65,109

 
$
(3,032
)
FINANCING ACTIVITIES
 
 
 
 
Tax withholding payment related to net settlement of equity awards
 

 
(271
)
Proceeds from borrowings
 

 
5,200

Repayments of borrowings
 
(468
)
 
(617
)
Dividends
 
(3,862
)
 
(2,376
)
Bank overdrafts
 
(15,682
)
 

Net cash (used in) provided by financing activities
 
$
(20,012
)
 
$
1,936

Increase in cash
 
103,483

 
51,423

Cash and cash equivalents at beginning of period
 
150,688

 
84,786

Cash and cash equivalents at end of period
 
$
254,171

 
$
136,209

Supplemental Cash Flows Information
 
 
 
 
Interest paid
 
$
1,292

 
$
137

Income taxes paid
 
$
3,917

 
$
6,312

Non-cash transactions
 
 
 
 
Issuance of common stock
 
$
274,384

 
$


See accompanying Notes to Unaudited Consolidated Financial Statements.

6

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 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., (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), Family Security Underwriters, LLC (FSU), Interboro Insurance Company (IIC), AmCo Holding Company (AmCo), American Coastal Insurance Company (ACIC) and BlueLine Cayman Holdings (BLUE).

On February 3, 2015, we acquired FSH and its two wholly owned subsidiaries, FSIC and FSU, via merger. 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 June 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 the results we may experience 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 June 30, 2017, our Unaudited Consolidated

7

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 30, 2017



Statements of Comprehensive Income and our Unaudited Consolidated Statements of Cash Flows for all periods presented. 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 June 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.

(c) 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 has 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 has 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.


8

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 30, 2017



3)    INVESTMENTS

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

 
Cost or Adjusted/Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
June 30, 2017
 
 
 
 
 
 
 
U.S. government and agency securities
$
199,665

 
$
561

 
$
1,343

 
$
198,883

Foreign government
2,027

 
35

 

 
2,062

States, municipalities and political subdivisions
197,408

 
2,154

 
547

 
199,015

Public utilities
19,079

 
175

 
46

 
19,208

Corporate securities
273,613

 
2,298

 
618

 
275,293

Asset backed securities
20,541

 
22

 
7

 
20,556

Redeemable preferred stocks
1,191

 
30

 
55

 
1,166

Total fixed maturities
713,524

 
5,275

 
2,616

 
716,183

Mutual funds
28,696

 
75

 
223

 
28,548

Public utilities
2,591

 
270

 
49

 
2,812

Other common stocks
19,804

 
6,739

 
110

 
26,433

Non-redeemable preferred stocks
1,557

 
81

 

 
1,638

Total equity securities
52,648

 
7,165

 
382

 
59,431

Other long-term investments
7,506

 
342

 

 
7,848

Total investments
$
773,678

 
$
12,782

 
$
2,998

 
$
783,462

 
 
 
 
 
 
 
 
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



9

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 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 six month periods ended June 30, 2017 and 2016:

 
2017
 
2016
 
Gains
(Losses)
 
Fair Value at Sale
 
Gains
(Losses)
 
Fair Value at Sale
Three Months Ended June 30,
 
 
 
 
 
 
 
Fixed maturities
$
41

 
$
6,310

 
$
243

 
$
11,040

Equity securities
7

 
19

 
24

 
10,769

Total realized gains
48

 
6,329

 
267

 
21,809

Fixed maturities
(170
)
 
13,848

 
(96
)
 
3,866

Equity securities
(10
)
 
100

 
(69
)
 
10,999

Total realized losses
(180
)
 
13,948

 
(165
)
 
14,865

Net realized investment gains (losses)
$
(132
)
 
$
20,277

 
$
102

 
$
36,674

 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
 
 
 
Fixed maturities
$
140

 
$
18,896

 
$
1,298

 
$
36,382

Equity securities
7

 
19

 
24

 
10,769

Total realized gains
147

 
18,915

 
1,322

 
47,151

Fixed maturities
(620
)
 
37,396

 
(774
)
 
13,028

Equity securities
(10
)
 
100

 
(176
)
 
17,008

Total realized losses
(630
)
 
37,496

 
(950
)
 
30,036

Net realized investment gains (losses)
$
(483
)
 
$
56,411

 
$
372

 
$
77,187


The table below summarizes our fixed maturities at June 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.

 
June 30, 2017
 
Cost or Amortized Cost
 
Percent of Total
 
Fair Value
 
Percent of Total
Due in one year or less
$
69,381

 
9.7
%
 
$
69,331

 
9.7
%
Due after one year through five years
393,536

 
55.2
%
 
394,736

 
55.1
%
Due after five years through ten years
234,739

 
32.9
%
 
236,103

 
33.0
%
Due after ten years
15,868

 
2.2
%
 
16,013

 
2.2
%
Total
$
713,524

 
100.0
%
 
$
716,183

 
100.0
%


10

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 30, 2017



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

 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Fixed maturities
$
4,087

 
$
2,343

 
$
6,585

 
$
4,442

Equity securities
345

 
204

 
565

 
467

Cash and cash equivalents
90

 
32

 
160

 
49

Other investments
109

 
143

 
261

 
156

Other assets
6

 
5

 
17

 
9

Investment income
4,637

 
2,727

 
7,588

 
5,123

Investment expenses
(19
)
 
(131
)
 
(269
)
 
(205
)
Net investment income
$
4,618

 
$
2,596

 
$
7,319

 
$
4,918


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 and 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 all reasonably available information relevant to the collectability or recovery of the security. 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.

11

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 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
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency securities
168

 
$
1,154

 
$
102,522

 
21

 
$
189

 
$
5,858

States, municipalities and political subdivisions
102

 
483

 
74,197

 
4

 
64

 
4,717

Public utilities
12

 
46

 
3,080

 

 

 

Corporate securities
195

 
601

 
83,816

 
1

 
17

 
1,025

Asset backed securities
19

 
7

 
13,848

 

 

 

Redeemable preferred stocks

 

 

 
3

 
55

 
310

Total fixed maturities
496

 
2,291

 
277,463

 
29

 
325

 
11,910

Mutual Fund
1

 
223

 
24,767

 

 

 

Public utilities
5

 
22

 
594

 
5

 
27

 
381

Other common stocks
11

 
61

 
1,463

 
4

 
49

 
442

Total equity securities
17

 
306

 
26,824

 
9

 
76

 
823

Total
513

 
$
2,597

 
$
304,287

 
38

 
$
401

 
$
12,733

 
 
 
 
 
 
 
 
 
 
 
 
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

* This amount represents the actual number of discrete securities, not the number of shares 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 six months ended June 30, 2017 and 2016, we recorded no other-than-temporary impairment charges.


12

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 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 June 30, 2017 and December 31, 2016. Changes in interest rates subsequent to June 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.



13

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 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 June 30, 2017.

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

 
Total
 
Level 1
 
Level 2
 
Level 3
June 30, 2017
 
 
 
 
 
 
 
U.S. government and agency securities
$
198,883

 
$

 
$
198,883

 
$

Foreign government
2,062

 

 
2,062

 

States, municipalities and political subdivisions
199,015

 

 
199,015

 

Public utilities
19,208

 

 
19,208

 

Corporate securities
275,293

 

 
275,293

 

Asset backed securities
20,556

 

 
20,556

 

Redeemable preferred stocks
1,166

 
1,166

 

 

Total fixed maturities
716,183

 
1,166

 
715,017

 

Mutual funds
28,548

 
28,548

 

 

Public utilities
2,812

 
2,812

 

 

Other common stocks
26,433

 
26,433

 

 

Non-redeemable preferred stocks
1,638

 
1,638

 

 

Total equity securities
59,431

 
59,431

 

 

Other long-term investments
7,848

 
300

 
6,852

 
696

Total investments
$
783,462

 
$
60,897

 
$
721,869

 
$
696

 
 
 
 
 
 
 
 
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





14

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 30, 2017



The table below presents the rollforward of our Level 3 investments held at fair value during the six months ended June 30, 2017:
 
 
Other Investments
December 31, 2016
 
$
1,698

Transfers in
 

Transfers out
 
(990
)
Partnership income
 
25

Return of capital
 
(139
)
Unrealized gains in accumulated other comprehensive income
 
102

June 30, 2017
 
$
696



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 six 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.


15

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 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 $7,548,000. We have fully funded our investments in DCR Mortgage Partners VI, L.P. (DCR VI), DCR Mortgage Partners VII, L.P. (DCR VII), and RCH Mortgage Fund VI Investors, L.P. (RCH); however, we are still obligated to fund an additional $342,000 and $665,000 for our investments in Kayne Anderson Senior Credit Fund II, L.P. (Kayne) and Blackstone Alternative Solutions 2015 Trust (Blackstone), respectively. The information presented in the table below is as of June 30, 2017.

 
 
Initial Investment
 
Book Value
 
Unrealized Gain
 
Unrealized Loss
 
Fair Value
DCR Mortgage Partners VI, L.P.
 
$
310

 
$
354

 
$
342

 
$

 
$
696

         Total Level 3 limited partnership investments
 
310

 
354

 
342

 

 
696

Kayne Senior Credit Fund II, L.P.
 
1,658

 
1,491

 

 

 
1,491

DCR Mortgage Partners VII, L.P.
 
4,000

 
4,036

 

 

 
4,036

RCH Mortgage Fund VI Investors, LP
 
1,000

 
990

 

 

 
990

Blackstone Alternative Solutions 2015 Trust
 
365

 
335

 

 

 
335

         Total Level 2 limited partnership investments
 
7,023

 
6,852

 

 

 
6,852

Total limited partnership investments
 
$
7,333

 
$
7,206

 
$
342

 
$

 
$
7,548

Other short-term investments
 
300

 
300

 

 

 
300

Total other investments
 
$
7,633

 
$
7,506

 
$
342

 
$

 
$
7,848


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, DCR VII, RCH, 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
June 30, 2017
 
 
 
 
 
 
 
 
DCR VI
 
$
(46
)
 
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 they accounting had been completed on the acquisition date.







16

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 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 is 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, 2017 and January 1, 2016, respectively. 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, 2017 or January 1, 2016, and the unaudited pro forma information does not purport to be indicative of future financial operating results.

 
Six Months Ended June 30,
 
2017
 
2016
 
As
 
Pro Forma
 
 
 
As
 
Pro Forma
 
 
 
Reported
 
Adjustments
 
Pro Forma
 
Reported
 
Adjustments
 
Pro Forma
Revenues
$
300,706

 
$
38,096

 
$
338,802

 
$
228,482

 
$
98,384

 
$
326,866

 
 
 
 
 
 
 
 
 
 
 
 
Net income
$
11,156

 
$
6,712

 
$
17,868

 
$
12,792

 
$
21,686

 
$
34,478

 
 
 
 
 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.35

 
$

 
$
0.42

 
$
0.59

 
$

 
$
0.81


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

17

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 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. We had one year from the acquisition date to finalize the allocation of the purchase price of IIC. 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 six month periods ended June 30, 2017 and June 30, 2016, respectively:

 
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
 
2017
 
2016
 
2017
 
2016
Numerator:
 
 
 
 
 
 
 
 
Net income attributable to common stockholders
 
$
7,257

 
$
9,841

 
$
11,156

 
$
12,792

 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted-average shares outstanding
 
41,799,041

 
21,423,739

 
31,691,267

 
21,385,220

Effect of dilutive securities
 
228,972

 
207,338

 
223,292

 
199,067

Weighted-average diluted shares
 
42,028,013

 
21,631,077

 
31,914,559

 
21,584,287

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.17

 
$
0.46

 
$
0.35

 
$
0.60

Diluted earnings per share
 
$
0.17

 
$
0.45

 
$
0.35

 
$
0.59


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





18

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 30, 2017



6)    PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:
 
 
June 30,
2017
 
December 31,
2016
Land
 
$
2,114

 
$
2,114

Building and building improvements
 
5,502

 
5,502

Computer hardware and software
 
18,029

 
14,699

Office furniture and equipment
 
3,121

 
2,652

Total, at cost
 
28,766

 
24,967

Less: accumulated depreciation and amortization
 
(9,143
)
 
(7,107
)
Property and equipment, net
 
$
19,623

 
$
17,860


Depreciation and amortization expense under property and equipment was $1,421,000 and $593,000 for the three months ended June 30, 2017 and 2016, respectively, and $2,036,000 and $1,215,000 for the six months ended June 30, 2017 and 2016, respectively.


7) GOODWILL AND INTANGIBLE ASSETS

Goodwill

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

 
 
June 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 six months ended June 30, 2017. Additionally, there was no accumulated impairment or accumulated amortization related to goodwill at June 30, 2017 or December 31, 2016.


Intangible Assets

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

19

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 30, 2017



 
 
Weighted-average remaining amortization period (in years)
 
Gross carrying amount
 
Accumulated amortization
 
Net carrying amount
June 30, 2017
 
 
 
 
 
 
 
 
Amortizing intangible assets
 
 
 
 
 
 
 
 
      VOBA
 
0.8
 
$
42,788

 
$
(17,428
)
 
$
25,360

      Agency agreements acquired
 
8.4
 
34,661

 
(4,422
)
 
30,239

      Trade names acquired
 
6.5
 
6,381

 
(587
)
 
5,794

Non-amortizing intangible assets
 
 
 
 
 
 
 
 
      Licenses acquired
 
 
 
3,555

 

 
3,555

Total
 
 
 
$
87,385

 
$
(22,437
)
 
$
64,948

 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
Amortizing intangible assets
 
 
 
 
 
 
 
 
      VOBA
 
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

Non-amortizing intangible assets
 
 
 
 
 
 
 
 
      Licenses acquired
 
 
 
3,307

 

 
3,307

Total
 
 
 
$
23,286

 
$
(10,915
)
 
$
12,371


No impairment in the value of amortizing or non-amortizing intangible assets was recognized during the three and six months ended June 30, 2017 and June 30, 2016.
Amortization expense of our intangible assets was $10,167,000 and $11,522,000 for the three and six months ended June 30, 2017, respectively. Amortization expense of our intangible assets was $3,066,000 and $3,352,000 for the three and six months ended June 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
 
$
20,232

2018
 
13,920

2019
 
5,355

2020
 
4,267

2021
 
3,555

2022
 
3,246



20

UNITED INSURANCE HOLDINGS CORP.
Notes to Unaudited Consolidated Financial Statements
June 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 bel