UNIVERSAL INSURANCE HOLDINGS, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations

Unless the context otherwise requires, all references to "we," "us," "our," and
"Company" refer to Universal Insurance Holdings, Inc. ("UVE") and its
wholly-owned subsidiaries. You should read the following discussion together
with our unaudited condensed consolidated financial statements ("Financial
Statements") and the related notes thereto included in "Part I, Item 1-Financial
Statements," and our audited condensed consolidated financial statements and the
related notes thereto included in "Part II, Item 8-Financial Statements and
Supplementary Data" in our Annual Report on Form 10-K for the year ended
December 31, 2022. Operating results for any one quarter are not necessarily
indicative of results to be expected for any quarter or for the year.

Cautionary Note Regarding Forward-Looking Statements

In addition to historical information, this report may contain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The forward-looking statements anticipate results based on our
estimates, assumptions and plans that are subject to uncertainty. These
forward-looking statements may be identified by their use of words like "plans,"
"seeks," "expects," "will," "should," "anticipates," "estimates," "intends,"
"believes," "likely," "targets," and other words with similar meanings. These
statements may address, among other things, our strategy for growth, catastrophe
exposure and other risk management, product development, investment results,
regulatory approvals, market position, expenses, financial results, litigation
and reserves. We believe that these statements are based on reasonable
estimates, assumptions and plans. However, if the estimates, assumptions or
plans underlying the forward-looking statements prove inaccurate or if other
risks or uncertainties arise, actual results could differ materially from those
communicated in these forward-looking statements. A detailed discussion of the
risks and uncertainties that could cause actual results and events to differ
materially from such forward-looking statements is set forth below, which are a
summary of those in the section titled "Risk Factors" (Part I, Item 1A) of our
Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no
obligation to update or revise publicly any forward-looking statements, whether
as a result of new information, future events, or otherwise.

Risks and uncertainties that may affect, or have affected, our financial
condition and operating results include, but are not limited to, the following:

•As a property and casualty insurer, we may face significant losses, and our
financial results may vary from period to period, due to exposure to
catastrophic events and severe weather conditions, the frequency and severity of
which could be affected by climate change.

•Changing climate conditions may adversely affect our financial condition,
profitability or cash flows.

•Because we conduct the majority of our business in Florida, our financial
results depend on the regulatory, economic and weather conditions in Florida.

•Actual claims incurred have exceeded, and in the future may exceed, reserves
established for claims, adversely affecting our operating results and financial
condition.

•If we fail to adequately price the risks we underwrite, or if emerging trends
outpace our ability to adjust prices timely, or if we lose desirable exposures
to competitors by overpricing our risks, we may experience underwriting losses
depleting surplus at the Insurance Entities and capital at the holding company.

•Unanticipated increases in the severity or frequency of claims adversely affect
our profitability and financial condition.

•The failure of the risk mitigation strategies we utilize could have a material
adverse effect on our financial condition or results of operations.

•Pandemics, including COVID-19 and other outbreaks of disease, could impact our
business, financial results, and growth.

•Because we rely on independent insurance agents, the loss of these independent
agent relationships and the business they control or our ability to attract new
independent agents could have an adverse impact on our business.

•We rely on models as a tool to evaluate risk, and those models are inherently
uncertain and may not accurately predict existing or future losses.

•Reinsurance may be unavailable in the future at reasonable levels and prices or
on reasonable terms, which may limit our ability to write new business or to
adequately mitigate our exposure to loss.

•Reinsurance subjects us to the credit risk of our reinsurers, which could have
a material adverse effect on our operating results and financial condition.

•Our financial condition and operating results are subject to the cyclical
nature of the property and casualty insurance business.

•We have entered new markets and expect that we will continue to do so, but
there can be no assurance that our diversification and growth strategy will be
effective.

•Our success depends, in part, on our ability to attract and retain talented
employees, and the loss of any one of our key personnel could adversely impact
our operations.

•We could be adversely affected if our controls designed to ensure compliance
with guidelines, policies and legal and regulatory standards are not effective.

•The failure of our claims professionals to effectively manage claims could
adversely affect our insurance business and financial results.

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•Litigation or regulatory actions could result in material settlements,
judgments, fines or penalties and consequently have a material adverse impact on
our financial condition and reputation.

•Our future results are dependent in part on our ability to successfully operate
in a highly competitive insurance industry.

•A downgrade in our financial strength or stability ratings may have an adverse
effect on our competitive position, the marketability of our product offerings,
and our liquidity, operating results and financial condition.

•Breaches of our information systems or denial of service on our website could
have an adverse impact on our business and reputation.

•We may not be able to effectively implement or adapt to changes in technology,
which may result in interruptions to our business or a competitive disadvantage.

•Lack of effectiveness of exclusions and other loss limitation methods in the
insurance policies we write or changes in laws and/or potential regulatory
approaches relating to them could have a material adverse effect on our
financial condition or our results of operations.

•We are subject to market risk, which may adversely affect investment income.

•Our overall financial performance depends in part on the returns on our
investment portfolio.

•We are subject to extensive regulation and potential further restrictive
regulation may increase our operating costs and limit our growth and
profitability.

•UVE is a holding company and, consequently, its cash flow is dependent on
dividends and other permissible payments from its subsidiaries.

•Regulations limiting rate changes and requiring us to participate in loss
sharing or assessments may decrease our profitability.

•The amount of statutory capital and surplus that each of the Insurance Entities
has and the amount of statutory capital and surplus it must hold vary and are
sensitive to a number of factors outside of our control, including market
conditions and the regulatory environment and rules.

•To service our debt, we will require a significant amount of cash. Our ability
to generate cash depends on many factors.

•Our indebtedness could adversely affect our financial results and prevent us
from fulfilling our obligations under the Notes.

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OVERVIEW

We are a vertically integrated holding company offering property and casualty
insurance and value-added insurance services. In addition, we generate revenue
from our investment portfolio, reinsurance brokerage services, the receipt of
managing general agency fees from policy holders and from other sources of
revenue (collectively "Other Revenue Sources"). We develop, market and
underwrite insurance products for consumers predominantly in the personal
residential homeowners' line of business and perform substantially all
insurance-related services for our primary insurance entities, including risk
management, claims management, and distribution. Our primary insurance entities,
Universal Property & Casualty Insurance Company ("UPCIC") and American Platinum
Property and Casualty Insurance Company ("APPCIC" and together with UPCIC, the
"Insurance Entities"), offer insurance products through both appointed
independent agent network and our online distribution channels across 19 states
with Florida representing as of March 31, 2023 82.3% of our direct premiums
written, and with licenses to write insurance in two additional states. We seek
to produce an underwriting profit (defined as earned premium-net minus losses,
loss adjustment expense ("LAE"), policy acquisition costs and other operating
costs) over the long term, along with growing our Other Revenue Sources.

The following Management's Discussion and Analysis ("MD&A") is intended to
assist in an understanding of our financial condition and results of operations.
This MD&A should be read in conjunction with our Financial Statements and
accompanying Notes appearing elsewhere in this Report (the "Notes"). In
addition, reference should be made to our audited Consolidated Financial
Statements and accompanying Notes to Consolidated Financial Statements and "Part
II, Item 7-Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in our Annual Report on Form 10-K for the year
ended December 31, 2022. Except for the historical information contained herein,
the discussions in this MD&A contain forward-looking statements that involve
risks and uncertainties. Our future results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed above under "-Cautionary Note
Regarding Forward-Looking Statements."

Trends

Florida Trends

We are currently working through a cycle to improve long-term rate adequacy and
earnings for the Insurance Entities by increasing rates and managing exposures,
while taking advantage of what we believe to be opportunities in a dislocated
market. The Florida personal lines homeowners' market currently can be
characterized as a "hard market", where insurance premium rates are escalating,
insurers are reducing coverages, and underwriting standards are tightening as
insurers closely monitor insurance rates and manage coverage capacity. Due to
conditions in the Florida market and factors more generally affecting the U.S.
and global reinsurance markets, reinsurance capacity in recent years has also
been subject to less favorable pricing and terms. These market forces decrease
competition among admitted insurers, and ultimately result in the increased use
of Citizens Property Insurance Corporation ("Citizens"), which was created to be
Florida's residual property insurance market. In recent years, in response to
rising claims, increased reinsurance costs and deteriorating conditions in the
Florida residential market, most admitted market competitors have implemented
significant rate increases. Meanwhile, Citizens' rate increases are limited by
law, resulting in its policies, in a hard market, becoming priced lower than
admitted market policies. This causes Citizens to become viewed as a desirable
alternative to the admitted market as admitted market insurers manage through
the hard market challenges. Our Insurance Entities likewise have taken and
continue to take action to manage through this hard market by increasing rates
and prudently managing exposures while also seeking to maintain their
competitive position in the Florida market supporting our current policyholders
and agents.

While addressing rate adequacy for the Insurance Entities, we continue to
experience increased costs for losses and LAE in the Florida market, where an
industry has developed around the solicitation, filing and litigation of
personal residential claims. These dynamics have been made worse by the
litigation financing industry, which in some cases funds these actions. In
addition, rising inflation, as seen in the cost of labor and material supplies,
has further escalated costs associated with the settlement of claims. These
conditions and the resulting increases in losses and LAE are chief contributing
factors for the rate increases in this market. Adverse actions by public
adjusters and attorneys have resulted in a pattern of continued increases in
year-over-year levels of represented claims, increases in purported claim
amounts, and increased demands for attorneys' fees. Active solicitation of
personal residential claims in Florida by policyholder representatives,
remediation companies and repair companies has led to an increase in the
frequency and severity of personal residential claims in Florida, exceeding
historical levels and levels seen in other jurisdictions. Information prepared
by the Florida Office of Insurance Regulation ("FLOIR") show that claims in
Florida are litigated at a substantially disproportionate rate when compared to
other states. This is largely due to a Florida statute in effect prior to
December 16, 2022, providing a one-way right of attorneys' fees against insurers
which has, when coupled with certain other statutes and judicial rulings,
produced a legal environment in Florida that encourages litigation, in many
cases without regard to the underlying merits of the claims. The one-way right
to attorneys' fees essentially means that unless an insurer's position is
substantially upheld in litigation, the insurer must pay the plaintiff's
attorneys' fees in addition to its own defense costs. This affects not only
claims that are litigated to resolution, but also the settlement discussions
that take place with nearly all litigated claims. This also affects a large
number of claims from inception or during the adjusting process as a substantial
and growing percentage of policyholders obtain representation early in the
process, and sometimes even before notifying insurers of their claims. These
market conditions also add, and will continue to add, complexity to efforts to
efficiently and expeditiously adjust claims. This is due to an increasing number
of policyholders who have one or more recent prior losses with the Insurance
Entities or with other insurers, which then require evaluation during subsequent
claims and determinations regarding whether property has been repaired
consistently with the scope and amount of damage previously asserted.
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The one-way right to attorney fees creates a nearly risk-free environment, and
incentive, for attorneys to pursue litigation against insurers. The Florida
legislature attempted to curtail these abuses through a series of law changes
beginning in 2019. However, the reforms passed in 2019 and thereafter have not
proven to be effective in reversing or even significantly moderating the trend
of increased losses and loss adjustments expenses and the resulting impact on
premiums for consumers. More recently, in December 2022, the Florida legislature
took more definitive steps to address the primary underlying causes of abuses in
the Florida market. The legislature eliminated the statutory one-way right to
attorneys' fees; prohibited assignments of post-loss benefits under insurance
policies; improved the usefulness of offers of judgment as a means of fostering
resolutions of disputed claims; made incremental adjustments to reduce Citizens'
competitiveness with the private market; and adopted several other related
measures. Governor Ron DeSantis signed the bill into law on December 16, 2022.
Because some of the changes will affect only future policies, the impact of the
new laws on claims and claims-related costs, including litigation, will not be
fully known for some time.

Despite our initiatives in implementing prior law changes and responding to
adverse claims behaviors and trends, our costs to settle claims in Florida have
increased for the reasons noted herein. Over the past three years, even as we
have increased our estimates of prospective losses each year, we have recorded
adverse claim development on prior years' loss reserves and further strengthened
current year losses during the year to address the increasing impact that
Florida's market disruptions, as well as the impact of rising costs of building
materials and labor, have had on the claims process and the establishment of
reserves for losses and LAE. The full extent and duration of these market
disruptions and inflationary pressures are unknown and still unfolding, and we
will monitor the impact of such disruptions on the recording and reporting of
claim costs.

The Company has taken a series of steps over time to mitigate the financial
impact of these negative trends in the Florida market. We also have closely
monitored rate levels, especially in the Florida market, and have submitted rate
filings based upon evolving data. However, because rate filings rely upon past
loss and expense data and take time to develop, file and implement, we can
experience significant delays between identifying needed rate adjustments,
filing the associated rate changes, and ultimately collecting and earning the
resulting increased premiums. This is particularly the case in an era of rising
costs such as the current Florida market, in which the costs of losses and loss
adjustment expenses have increased in recent years due to Florida's outsized
claims litigation environment and inflationary pressure. In addition, the
Company has implemented several initiatives in its claims department in response
to the adverse market trends. We utilize our process called Fast Track, which is
an initiative to handle straightforward, meritorious claims as promptly as
possible to mitigate the adverse impacts that can be seen with claims that
remain open for longer periods. In addition, we increased our emphasis on
subrogation to reduce our net losses while also recovering policyholders'
deductibles when losses are attributable to the actions of others. We have an
internal staff of trained water remediation experts to address the extraordinary
number of purported water damage claims filed by policyholders and vendors. We
developed a specialized in-house unit for responding to the unique aspects of
represented claims, and we have substantially increased our in-house legal staff
in an effort to address the increase in litigated or represented claims as
cost-effectively as possible.

Additionally, we have taken steps to implement claim settlement rules associated
with the Florida legislation passed in 2019 and subsequently. Following
legislation enacted in Florida's December 2022 special session, we have analyzed
the changes and have initiated efforts to implement the new provisions that the
legislature intends will curtail abuses in the market. Although the recent law
changes mark the legislature's most definitive effort to find effective
solutions to Florida's market problems, it is too early to evaluate the extent
to which the changes will be successful or the time period over which any
benefits will materialize.

Summary of Recent Rate Increases and Cost of Living Adjustments

In May 2022, the Company filed a rate increase with the FLOIR for an overall
14.9% rate increase for UPCIC on Florida personal residential homeowners' line
of business which became effective June 1, 2022, for new business and November
4, 2022, for renewals.

In addition, in November 2022, UPCIC filed a 3.7% rate increase on Florida
personal residential homeowners' line of business, effective February 15, 2023,
for new business and April 1, 2023, for renewals.

During 2022 inflation adjustments averaging 11.9% have been implemented. These
are adjustments to policy coverage amounts designed to facilitate the policies'
adherence to insurance-to-value requirements. The coverage adjustments provide a
degree of protection insureds have against inflationary pressures while also
resulting in additional premium to the Company to cover the increased claim
costs driven by inflation factors.

Changing Climate Conditions

Severe weather events over the last two decades underscore the unpredictability
of climate trends, and changing climate conditions have added to the frequency
and severity of natural disasters and created additional uncertainty as to
future trends and exposures. The insurance industry has experienced increased
catastrophe losses due to a number of potential causal factors, including, in
addition to weather/climate variability, aging infrastructure; more people
living in high-risk areas; population growth in areas with weaker enforcement of
building codes; urban expansion; an increase in the number of amenities included
in, and average size of, a home; and increased inflation, including as a result
of post-pandemic demand surge. Climate studies by government agencies, academic
institutions, catastrophe modeling organizations and other groups indicate that
we are experiencing, and are expected to continue to experience over time, an
increase in frequency and/or intensity of hurricanes, heavy precipitation
events, flash flooding, sea level rise, droughts, heat waves and wildfires.
Developing an awareness of the potential impacts of changing climate conditions
is important to the Company's business.
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Impact of COVID-19

We have not seen a direct material impact from COVID-19 on our business, our
financial position, our liquidity, or our ability to service our policyholders
and maintain critical operations. Indirectly, inflationary pressures, in part
due to supply chain and labor constraints during the pandemic, have affected and
continue to affect claims costs and, to a lesser degree, other expenses. The
ultimate impact of the COVID-19 pandemic, or future pandemics, on our business
and on the economy in general cannot be predicted.

KEY PERFORMANCE INDICATORS

The Company considers the measures and ratios in the following discussion to be
key performance indicators for its businesses. Management believes that these
indicators are helpful in understanding the underlying trends in the Company's
businesses. Some of these indicators are reported on a quarterly basis and
others on an annual basis. Please also refer to "Part II, Item 8-Note 2 (Summary
of Significant Accounting Policies)" of our Annual Report on Form 10-K for the
year ended December 31, 2022 for definitions of certain other terms we use when
describing our financial results.

These indicators may not be comparable to other performance measures used by the
Company's competitors and should only be evaluated together with our condensed
consolidated financial statements and accompanying notes.

In addition to our key performance indicators and other financial measures
presented in accordance with United States Generally Accepted Accounting
Principles ("GAAP"), management also uses certain non-GAAP financial measures to
evaluate the Company's financial performance and the overall growth in value
generated for the Company's common shareholders. Management believes that
non-GAAP financial measures, which may be defined differently by other
companies, help to explain the Company's results to investors in a manner that
allows for a more complete understanding of the underlying trends in the
Company's business. The non-GAAP measures should not be viewed as a substitute
for those determined in accordance with GAAP. The calculation of these key
financial measures including the reconciliation of non-GAAP measures to the
nearest GAAP measure are found below under "-Non-GAAP Financial Measures."

Definitions of Key Performance Indicators and GAAP and Non-GAAP Measures

Adjusted book value per common share - is a non-GAAP measure that is calculated
as adjusted common stockholders' equity divided by common shares outstanding at
the end of the period. Management believes this metric is meaningful, as it
allows investors to evaluate underlying book value growth by excluding the
impact of unrealized gains and losses due to interest rate volatility.

Adjusted common stockholders' equity - is a non-GAAP measure that is calculated
as GAAP common stockholders' equity less accumulated other comprehensive income
(loss). Management believes this metric is meaningful, as it allows investors to
evaluate underlying growth in stockholders' equity by excluding the impact of
unrealized gains and losses due to interest rate volatility.

Adjusted net income (loss) attributable to common stockholders - is a non-GAAP
measure that is calculated as GAAP net income (loss) attributable to common
stockholders, less net realized gains (losses) on investments and net changes in
unrealized gains (losses) of equity securities, net of tax. Management believes
this metric is meaningful, as it allows investors to evaluate underlying
profitability and enhances comparability across periods by excluding items that
are heavily impacted by investment market fluctuations and other economic
factors and are not indicative of operating trends.

Adjusted operating income (loss) - is a non-GAAP measure that is calculated as
GAAP operating income (loss), less net realized gains (losses) on investments
and net changes in unrealized gains (losses) of equity securities. Management
believes this metric is meaningful, as it allows investors to evaluate
underlying profitability and enhances comparability across periods by excluding
items that are heavily impacted by investment market fluctuations and other
economic factors and are not indicative of operating trends.

Adjusted operating income (loss) margin - is a non-GAAP measure that is computed
as adjusted operating income (loss) divided by core revenue. Management believes
this metric is meaningful, as it allows investors to evaluate underlying
profitability and enhances comparability across periods by excluding items that
are heavily impacted by investment market fluctuations and other economic
factors and are not indicative of operating trends.

Adjusted return on common equity (Adjusted "ROCE") - is a non-GAAP measure that
is calculated as actual or annualized adjusted net income attributable to common
stockholders divided by average adjusted common stockholders' equity, with the
denominator excluding current period income statement net realized gains
(losses) on investments and net changes in unrealized gains (losses) of equity
securities, net of tax. Management believes this metric is meaningful, as it
allows investors to evaluate underlying profitability and enhances comparability
across periods by excluding items that are heavily impacted by investment market
fluctuations and other economic factors and are not indicative of operating
trends.

Book Value Per Common Share - total stockholders' equity, adjusted for preferred
stock liquidation, divided by the number of common shares outstanding as of a
reporting period. Book value per common share is the excess of assets over
liabilities at a reporting period attributed to each share of common stock.
Changes in book value per common share informs shareholders of retained equity
in the Company on a per share basis, which may assist in understanding market
value trends for the Company's stock.

Combined Ratio - the combined ratio is a measure of underwriting profitability
for a reporting period and is calculated by dividing total operating costs and
expenses (which is made up of losses and LAE and general and administrative
expenses) by premiums earned, net, which is net of ceded premium earned. Changes
to the combined ratio over time provide management with
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an understanding of costs to operate its business in relation to net premiums it
is earning and the impact of rate, underwriting and other business management
actions on underwriting profitability. A combined ratio below 100% indicates an
underwriting profit; a combined ratio above 100% indicates an underwriting loss.

Core Loss Ratio - a common operational metric used in the insurance industry to
describe the ratio of current accident year expected losses and LAE, excluding
current accident year weather events beyond those expected, to premiums earned.
Core loss ratio is an important measure identifying profitability trends of
premiums in force. Core losses consists of losses and LAE excluding current
accident year weather events beyond those expected and prior years' reserve
development. The financial benefit from the management of claims, including
claim fees ceded to reinsurers, is recorded in the condensed consolidated
financial statements as a reduction to core losses. The core loss ratio can be
measured on a direct basis, using direct earned premiums, or on a net basis,
using premiums earned, net (i.e., direct premiums earned less ceded premiums
earned).

Core revenue - is a non-GAAP measure that is calculated as total GAAP revenue,
less net realized gains (losses) on investments and net changes in unrealized
gains (losses) of equity securities. Management believes this metric is
meaningful, as it allows investors to evaluate underlying revenue trends and
enhances comparability across periods by excluding items that are heavily
impacted by investment market fluctuations and other economic factors and are
not indicative of operating trends.

Debt-to-Equity Ratio - long-term debt divided by stockholders' equity. This
ratio helps management measure the amount of financing leverage in place in
relation to equity and allows investors to evaluate future leverage capacity.

Debt-to-Total Capital Ratio - long-term debt divided by the sum of total
stockholders' equity and long-term debt (often referred to as total capital
resources). This ratio helps management measure the amount of financing leverage
in place (long-term debt) in relation to total capital resources and allows
investors to evaluate future leverage capacity.

Diluted adjusted earnings per common share - is a non-GAAP measure, which is
calculated as adjusted net income available to common stockholders divided by
weighted average diluted common shares outstanding. Management believes this
metric is meaningful, as it allows investors to evaluate underlying
profitability and enhances comparability across periods by excluding items that
are heavily impacted by investment market fluctuations and other economic
factors and are not indicative of operating trends.

Direct Premiums Written ("DPW") - reflects the total value of policies issued
during a period before considering premiums ceded to reinsurers. Direct premiums
written, comprised of renewal premiums, endorsements, and new business, is
initially recorded as unearned premium in the balance sheet, which is then
earned pro-rata over the next year or remaining policy term. Direct premiums
written reflect current trends in the Company's sale of property and casualty
insurance products and amounts that will be recognized as earned premiums in the
future.

DPW (Florida) - includes only DPW in the state of Florida. This measure allows
management to analyze growth in our primary market and is also a measure of
business concentration risk.

Expense Ratio (Including Policy Acquisition Cost Ratio and Other Operating Cost
Ratio) - calculated as general and administrative expenses as a percentage of
premiums earned, net. General and administrative expenses are comprised of
policy acquisition costs and other operating costs, which includes such items as
underwriting costs, facilities, and corporate overhead. The expense ratio,
including the sub-expense ratios of policy acquisition cost ratio and other
operating cost ratio, are indicators to management of the Company's cost
efficiency in acquiring and servicing its business and the impact of expense
items to overall profitability.

Losses and Loss Adjustment Expense Ratio or Loss and LAE Ratio - a measure of
the cost of claims and claim settlement expenses incurred in a reporting period
as a percentage of premiums earned in that same reporting period. Losses and LAE
incurred in a reporting period includes both amounts related to the current
accident year and prior accident years, if any, referred to as development.
Ultimate losses and LAE are based on actuarial estimates with changes in those
estimates recognized in the period the estimates are revised. Losses and LAE
consist of claim costs arising from claims occurring and settling in the current
period, an estimate of claim costs for reported but unpaid claims, an estimate
of unpaid claim costs for incurred-but-not-reported claims and an estimate of
claim settlement expenses associated with reported and unreported claims which
occurred during the reporting period. The loss and LAE ratio can be measured on
a direct basis, which includes losses and LAE divided by direct earned premiums,
or on a net basis, which includes losses and LAE divided by premiums earned, net
(i.e., direct premium earned less ceded premium earned). The net loss and LAE
ratio is a measure of underwriting profitability after giving consideration to
the effect of reinsurance. Trends in the net loss and LAE ratio are an
indication to management of current and future profitability.

Monthly Weighted Average Renewal Retention Rate - measures the monthly average
of policyholders that renew their policies over the period of a calendar year.
This measure allows management to assess customer retention.

Premiums Earned, Net - the pro-rata portion of current and previously written
premiums that the Company recognizes as earned premium during the reporting
period, net of ceded premium earned. Ceded premiums are premiums paid or payable
by the Company for reinsurance protection. Written premiums are considered
earned and are recognized pro-rata over the policy coverage period. Premiums
earned, net is a measure that allows management to identify revenue trends.

Policies in Force - represents the number of active policies with coverage in
effect as of the end of the reporting period. The change in the number of
policies in force is a growth measure and provides management with an indication
of progress toward achieving strategic objectives. Inherent seasonality in our
business makes this measure more useful when comparing each quarter's balance to
the same quarter in prior years.

Premium in Force - is the amount of the annual direct written premiums
previously recorded by the Company for policies which are still active as of the
reporting date. This measure assists management in measuring the level of
insured exposure and progress toward meeting revenue goals for the current year,
and provides an indication of business available for renewal in the
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next twelve months. Inherent seasonality in our business makes this measure more
useful when comparing each quarter's balance to the same quarter in prior years.

Return on Average Common Equity ("ROCE") - calculated as actual net income
(loss) attributable to common stockholders divided by average common
stockholders' equity. ROCE is a capital profitability measure of how efficiently
management creates profits.

Total Insured Value - represents the amount of insurance limits available on a
policy for a single loss based on all policies active as of the reporting date.
This measure assists management in measuring the level of insured exposure.

Unearned Premiums - represents the portion of direct premiums corresponding to
the time period remaining on an insurance policy and available for future
earning by the Company. Trends in unearned premiums generally indicate
expansion, if growing, or contraction, if declining, which are important
indicators to management. Inherent seasonality in our business makes this
measure more useful when comparing each quarter's balance to the same quarter in
prior years.

Weather events - an estimate of losses and LAE from weather events occurring
during the current accident year that exceed initial estimates of expected
weather events when establishing the core loss ratio for each accident year.
This metric informs management of factors impacting overall current year
profitability.

REINSURANCE

Reinsurance enables our Insurance Entities to limit potential exposures to
catastrophic events. Reinsurance contracts are typically classified as treaty or
facultative contracts. Treaty reinsurance provides coverage for all or a portion
of a specified group or class of risks ceded by the primary insurer, while
facultative reinsurance provides coverage for specific individual risks. Within
each classification, reinsurance can be further classified as quota share or
excess of loss. Quota-share reinsurance is where the primary insurer and the
reinsurer share proportionally or pro-rata in the direct premiums and losses of
the insurer. Excess-of-loss reinsurance indemnifies the direct insurer or
reinsurer for all or a portion of the loss in excess of an agreed upon amount or
retention.

Developing and implementing our reinsurance strategy to adequately protect our
balance sheet and Insurance Entities in the event of one or more catastrophes
while maintaining efficient reinsurance costs has been a key strategic priority
for us. In order to limit the Insurance Entities' potential exposure to
catastrophic events, we purchase significant reinsurance from third-party
reinsurers and the Florida Hurricane Catastrophe Fund ("FHCF"). The FLOIR
requires the Insurance Entities, like all residential property insurance
companies doing business in Florida, to have a certain amount of capital and
reinsurance coverage in order to cover losses upon the occurrence of a single
catastrophic event and a series of catastrophic events occurring in the same
hurricane season. The Insurance Entities' respective 2022-2023 reinsurance
programs meet the FLOIR's requirements, which are based on, among other things,
successfully demonstrating cohesive and comprehensive reinsurance programs that
protect the policyholders of our Insurance Entities as well as satisfying a
series of stress test catastrophe loss scenarios based on past historical
events. Similarly, the Insurance Entities' respective 2022-2023 reinsurance
programs meet the stress test and review requirements of Demotech, Inc., for
maintaining Financial Stability Ratings® of "A" (Exceptional) and of Kroll for
maintaining insurer financial strength ratings of "A-".

We believe the Insurance Entities' retentions under their respective reinsurance
programs are appropriate and structured to protect policyholders. We test the
sufficiency of the reinsurance programs by subjecting the Insurance Entities'
personal residential exposures to statistical testing using a third-party
hurricane model, RMS RiskLink v18.1 (Build 1945). This model combines
simulations of the natural occurrence patterns and characteristics of
hurricanes, tornadoes, earthquakes and other catastrophes with information on
property values, construction types and occupancy classes. The model outputs
provide information concerning the potential for large losses before they occur,
so companies can prepare for their financial impact. Furthermore, as part of our
operational excellence initiatives, we continually look to enable new technology
to refine our data intelligence on catastrophe risk modeling.

Effective June 1, 2022, the Insurance Entities entered into multiple reinsurance
agreements comprising our 2022-2023 reinsurance program.
See "Item 1-Note 4 (Reinsurance)."

UPCIC's 2022-2023 Reinsurance Program

•First event All States retention of $45 million.

•All States first event tower extends to $3.012 billion with no co-participation
in any of the layers, no limitation on loss adjustment expenses for the
non-catastrophe bond Cosaint Re Pte. Ltd. traditional reinsurance and no
accelerated deposit premiums.

•Assuming a first event completely exhausts the $3.012 billion tower, the second
event exhaustion point would be $1.183 billion.

•Full reinstatement available on $1.138 billion of the $1.288 billion of
non-FHCF first event catastrophe coverage for guaranteed second event coverage.
For all layers purchased between $111 million and the projected FHCF retention,
to the extent that all of our coverage or a portion thereof is exhausted in a
catastrophic event and reinstatement premium is due, we have purchased enough
reinstatement premium protection ("RPP") limit to pay the premium necessary for
the reinstatement of these coverages.

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•First event layer of 100% of $66 million in excess of $45 million established
by UIH in a captive insurance arrangement. While the Company retains the risk
that otherwise would be transferred to third-party reinsurers for this layer,
the additional risk is substantially offset by the savings in premiums that
would otherwise have been paid to third-party reinsurers.

•Specific 2nd event private market excess of loss coverage of $66 million in
excess of $45 million sitting behind captive arrangement. Effective January 1,
2023, UPCIC commuted a portion of this coverage to recognize the benefit of a
return premium mechanism. Fifty-five percent (55%) of $66 million in excess of
$45 million remains available until the natural expiration of the coverage,
which is May 31, 2023.

•Specific 3rd and 4th event private market catastrophe excess of loss coverage
of $86 million in excess of $25 million provides frequency protection for
multiple events during the treaty period including a $20 million reduction in
retention for a 3rd and 4th event.

•For the FHCF Reimbursement Contracts effective June 1, 2022, UPCIC has
continued the election of the 90% coverage level. We estimate the total
mandatory FHCF layer will provide approximately $1.679 billion of coverage for
UPCIC, which inures to the benefit of the open market coverage secured from
private reinsurers and Cosaint Re Pte. Ltd.

•To further insulate for future years, UPCIC has secured $383 million of
catastrophe capacity with contractually agreed limits that extend coverage to
include the 2022 and 2023 wind seasons and $277 million of the $383 million
extends through the 2024 wind season and is all capacity which sits below the
FHCF. UPCIC's catastrophe bond, secured leading up to the 2021-2022 renewal,
Cosaint Re Pte. Ltd, continues to provide one limit of $150 million in this
year's program and it may also include the 2023 wind season, depending on loss
activity in the 2022 wind season.

Reinsurers

The table below provides the A.M. Best and S&P financial strength ratings for
each of the largest rated third-party reinsurers in UPCIC's 2022-2023
reinsurance program:

Reinsurer                                        A.M. Best      S&P
Allianz Risk Transfer AG, Bermuda Branch            A+          AA-
Chubb Tempest Reinsurance Ltd.                      A++         AA
Everest Re                                          A+          A+
Munich Re                                           A+          AA-
Renaissance Reinsurance Ltd.                        A+          A+
Various Lloyd's of London Syndicates                 A          A+
Florida Hurricane Catastrophe Fund (1)              N/A         N/A

(1)No rating is available, because the fund is not rated.

APPCIC's 2022-2023 Reinsurance Program

•First event All States retention of $3.5 million.

•All States first event tower of $50.5 million with no co-participation in any
of the layers, no limitation on loss adjustment expenses and no accelerated
deposit premiums.

•Full reinstatement available for all private market first event catastrophe
layers for guaranteed second event coverage. For the layer purchased between
$3.5 million and the projected FHCF retention, to the extent that all of our
coverage or a portion thereof is exhausted in a catastrophic event and
reinstatement premium is due, we have purchased enough RPP limit to pay the
premium necessary for the reinstatement of this coverage.

•APPCIC also purchases extensive multiple line excess per risk reinsurance with
various reinsurers due to the high-value risks it insures in both the personal
residential and commercial multiple peril lines of business. Under this multiple
line excess per risk contract, APPCIC has coverage of $8.5 million in excess of
$0.5 million ultimate net loss for each risk and each property loss, and $1
million in excess of $0.3 million for each casualty loss. A $19.5 million
aggregate limit applies to the term of the contract for property-related losses
and a $2.0 million aggregate limit applies to the term of the contract for
casualty-related losses. This contract also contains a profit-sharing feature if
specific performance measures are met.

•For the FHCF Reimbursement Contracts effective June 1, 2022, APPCIC has
continued the election of the 90% coverage level. We estimate the total
mandatory FHCF layer will provide approximately $24.2 million of coverage for
APPCIC, which inures to the benefit of the open market coverage secured from
private reinsurers.

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Reinsurers

The table below provides the A.M. Best and S&P financial strength ratings for
each of the largest rated third-party reinsurers in APPCIC's 2022-2023
reinsurance program:

Reinsurer                                    A.M. Best      S&P
Chubb Tempest Reinsurance Ltd.                  A++         AA
DaVinci Reinsurance Limited                      A          A+
Lancashire Insurance Company Limited             A          A-
Renaissance Reinsurance Ltd.                    A+          A+
Various Lloyd's of London Syndicates             A          A+

Florida Hurricane Catastrophe Fund (1) N/A N/A

(1)No rating is available, because the fund is not rated.

The cost of the 2022-2023 reinsurance programs for UPCIC and APPCIC is projected
to be $696 million, prior to any potential reinstatement premiums due and
represents approximately 37.6% of estimated direct premium earned for the
12-month treaty period for UPCIC and APPCIC.

Commutations

Each insurance company participating in the FHCF is required by Florida
regulations and its contract with the FHCF to begin the process of commuting the
parties' respective contractual obligations no later than sixty (60) months
after the end of a contract year. The commutation process for the FHCF's 2017-18
contract year must begin by June 1, 2023. The Insurance Entities have had, and
continue to have, covered losses subject to reimbursement by the FHCF due to
Hurricane Irma's occurring in the 2017-18 FHCF contract year. The Insurance
Entities also expect to have outstanding covered losses and covered losses that
are incurred but not yet reported ("IBNR," and together with paid and
outstanding losses the "Ultimate Incurred Loss") as of June 1, 2023. The
commutation process will result in a final evaluation and estimate of the
Ultimate Incurred Loss, leading to the Insurance Entities' and the FHCF's
settlement and release of obligations arising from the 2017-18 FHCF contract.

The FHCF's commutation process includes an insurer's submitting a final proof of
loss by June 1, 2023, verifying the amount of its paid losses previously
reimbursed or to be reimbursed by the FHCF. The insurer also must submit an
estimate of its covered losses on then-outstanding claims and an estimate of its
covered IBNR losses. The FHCF's procedure provides for the insurer and the FHCF
to then discuss the estimates and seek to agree on the present value of the
expected outstanding losses and IBNR. If these discussions do not result in an
agreement, the determination will be made by a three-member panel of actuaries
in accordance with a procedure set forth in the FHCF contract.

The amount of the Insurance Entities Ultimate Incurred Loss attributable to
2017-18 FHCF contract year is not fully known and is subject to uncertainties.
The Insurance Entities have long maintained and periodically update claims and
data procedures for reporting covered losses to the FHCF. In anticipation of
submitting their final proofs of loss as of June 1, 2023, the Insurance Entities
continue to review and refine these procedures and the resulting data in
accordance with FHCF requirements, including areas identified by the FHCF to
participating insurers as common reporting errors observed in its examinations
(which, according to FHCF reports, includes more than 80 examinations of
participating insurers' Hurricane Irma loss reports). This review has resulted
and will continue to result in adjustments to the Insurance Entities' procedures
and data. Additionally, the Insurance Entities' estimates of Ultimate Incurred
Loss depend on factors that are inherently difficult to quantify, including
considerations unique to Hurricane Irma and the Florida property insurance
market that have caused and might continue to cause losses attributable to the
2017-18 contract year to differ from historical patterns, experience in other
states, and experience in prior private market or FHCF commutations. There is no
assurance that the Insurance Entities will be able to accurately estimate the
Ultimate Incurred Loss, that the Insurance Entities and the FHCF will agree on
the present value of the Ultimate Incurred Loss, or that the Ultimate Incurred
Loss will develop in an amount equal to or less than the amount for which the
Insurance Entities is reimbursed.

The Insurance Entities commute FHCF contracts as and when required by their FHCF
contracts and related regulations. The Insurance Entities also from time to time
commute private market reinsurance contracts, such as the commutation as of
January 1, 2023, summarized above in the description of UPCIC's reinsurance
program. The Insurance Entities currently do not anticipate having covered
losses from Hurricane Michael exceeding their applicable FHCF attachment points
and therefore do not currently expect that commutation of their respective
2018-19 FHCF contract will involve the processes described above to the same
extent. Although the Insurance Entities also do not currently have paid losses
from Hurricane Ian exceeding their respective FHCF attachment points in their
2022-23 FHCF contracts, UPCIC has projected that its Ultimate Incurred Loss will
exceed its FHCF attachment point. Accordingly, assuming its paid losses
ultimately exceed its FHCF attachment point, and subject to any intervening
changes in FHCF regulations or procedures, UPCIC will commute its 2022-23 FHCF
contract in a process similar to that described above beginning not later than
June 1, 2028.
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RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION

Highlights for the quarter ended March 31, 2023

•Rate filings and inflation adjustments to policy insured values are increasing
written and earned premium as the new rates and property insured values take
effect on policy renewals and new business, and earn prospectively over the
policy period.

•Management is continuing its efforts to prudently manage new and renewal
business risk selection, improve risk exposure diversification and moderate new
business growth rates, compared to prior years, while rate increases are taking
effect to improve profitability. As a result of management's efforts to manage
exposures and declining retention rates, the number of total policies in force
is decreasing partially offsetting increases in written and earned premium
driven by rate increases and inflation increases to insured values.

•Net investment income increased as maturing capital is redeployed into higher
interest rates.

•The losses and LAE, net ratio was higher this quarter compared to the same
period last year primarily due to increases in management's estimated losses and
LAE for the current accident year in the first quarter in addition to the higher
cost of reinsurance.

•Other operating expenses and acquisition cost management efforts have lowered
the expense ratio. In April 2021, the commission rate on policy renewals was
reduced two percentage points and further reduced on May 1, 2022 by another two
percentage points, in response to premium rate increases during the past year.
The benefit of lower commission rates is realized over the next year as policies
are renewed under the lower commission rate structure.

•The Company continued to return shareholder value with quarterly dividends.

•In December 2022, the Florida legislature enacted new legislation intended to
improve the Florida insurance market by making changes to the property insurance
claims process, including the repeal of policyholders' statutory one-way right
to attorneys' fees in property insurance claims and the elimination of the
assignment of benefits, which have been driving up claims costs and loss
adjustment expenses over the past several years. We are optimistic these changes
will improve the claims environment in Florida as the changes become effective.


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First quarter of fiscal 2023 results of operations comparisons are
to first quarter of fiscal 2022 (unless otherwise specified).

Results of Operations - Three Months Ended March 31, 2023 Compared to Three
Months Ended March 31, 2022

Net income for the three months ended March 31, 2023 was $24.2 million compared
to net income of $17.5 million for the same period in 2022. Benefiting the
quarter were increases in premiums earned, net, an increase in net investment
income, an increase in commission revenue, an increase in unrealized gains
during the first quarter of 2023 compared to unrealized losses in the prior
year, an increase in other revenue and a reduction in general and administrative
expenses offset by an increase in realized losses during the first quarter of
2023 compared to modest realized gains in the prior year, a decrease in policy
fees, and an increase in losses and LAE. Direct premium earned and premiums
earned, net were up 9.8% and 4.9%, respectively, due to premium growth in the
majority of states in which we are licensed and writing during the past 12
months mostly as a result of rate increases implemented during 2022 and 2023.
The net loss and LAE ratio was 73.1% for the three months ended March 31, 2023,
compared to 68.8% for the same period in 2022 reflecting higher core losses and
prior years' reserve development offset by lower weather events. As a result of
the above and further explained below, the combined ratio for the three months
ended March 31, 2023 was 100.0% compared to 97.9% for the three months ended
March 31, 2022. Also see the discussion above under "Overview-Trends" regarding
our response to the Florida market.

A detailed discussion of our results of operations follows the table below (in
thousands, except per share data).

                                                           Three Months Ended
                                                                March 31,                              Change
                                                         2023               2022                $                  %
REVENUES
Direct premiums written                              $ 410,102          $ 396,481          $ 13,621                 3.4  %
Change in unearned premium                              45,266             18,122            27,144               149.8  %
Direct premium earned                                  455,368            414,603            40,765                 9.8  %
Ceded premium earned                                  (173,144)          (145,539)          (27,605)               19.0  %
Premiums earned, net                                   282,224            269,064            13,160                 4.9  %
Net investment income                                   10,698              4,042             6,656               164.7  %
Net realized gains (losses) on investments                (788)                58              (846)                    NM
Net change in unrealized gains (losses) of equity
securities                                                 957             (3,396)            4,353                     NM
Commission revenue                                      17,282             11,161             6,121                54.8  %
Policy fees                                              4,167              4,779              (612)              (12.8) %
Other revenue                                            1,968              1,774               194                10.9  %
Total revenues                                         316,508            287,482            29,026                10.1  %
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses                    206,154            185,106            21,048                11.4  %
General and administrative expenses                     75,927             78,297            (2,370)               (3.0) %
Total operating costs and expenses                     282,081            263,403            18,678                 7.1  %
Interest and amortization of debt issuance costs         1,636              1,608                28                 1.7  %

INCOME (LOSS) BEFORE INCOME TAXES                       32,791             22,471            10,320                45.9  %
Income tax expense (benefit)                             8,618              4,934             3,684                74.7  %
NET INCOME (LOSS)                                    $  24,173          $  17,537          $  6,636                37.8  %
Other comprehensive income (loss), net of taxes         13,791            (42,910)           56,701                     NM
COMPREHENSIVE INCOME (LOSS)                          $  37,964          $ (25,373)         $ 63,337                     NM
DILUTED EARNINGS (LOSS) PER SHARE DATA:
Diluted earnings (loss) per common share             $    0.79          $    0.56          $   0.23                41.1  %
Weighted average diluted common shares outstanding      30,626             31,227              (601)               (1.9) %

NM - Not Meaningful



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Revenues

Direct premiums written increased by $13.6 million, or 3.4%, for the quarter
ended March 31, 2023, driven by premium growth within our Florida business of
$2.9 million, or 0.9%, and premium growth in our other states business of $10.7
million, or 17.2%, as compared to the same period during the prior year. Rate
increases approved in 2022 and 2023 for Florida and for certain other states and
policy inflation adjustments were the principal driver of higher written
premiums. The slower rate of growth in Q1 2023 compared to prior quarters
reflects management's intent to effectively manage new and renewal business as
well as the competitive effects of Citizens' premium levels being lower than
those of the admitted market. In total, policies in force declined 20,875, or
2.5%, from 848,856 at December 31, 2022 to 827,981 at March 31, 2023. A summary
of the recent rate increases which are driving increases in written premium, the
Florida marketplace and competition from lower cost policies offered by Citizens
is discussed above under "-Overview-Trends."

Rate changes are applied on new business submissions and renewals from the
effective date of their renewal, and then are earned subsequently over the
policy period. The recent rate and inflation increases in Florida are in
response to rising claim costs in recent years driven by higher costs of
material and labor associated with claims, the cost of weather events, the
rising cost of catastrophe and other reinsurance protecting policyholders and,
more importantly, the prevalence of represented and litigated claims in Florida.
Due to the time associated with analyzing data, preparing, and submitting rate
filings, implementing new rate levels and earning the corresponding premiums,
the Insurance Entities' rate adjustments typically lag behind their experience
by months or even years. In addition, the Insurance Entities' policies provide
for coverage limits to be adjusted at renewal which adjust insured value
coverage limits for the impact of changes in inflation occurring since the prior
renewal. This is based on third-party industry data sources that monitor
inflation factors such as changes in costs for residential building materials
and labor.

During 2023, management continued efforts to prudently manage policy counts and
exposures intended to slow the growth of certain exposures relating to new
business compared to prior years while filed rate increases are taking effect.
Reduced new business writings, declines in renewal retentions during 2023 and
the impact of selected policy non-renewals have resulted in a decline in
policies in force during the quarter of 20,875, or 2.46%, from 848,856 at
December 31, 2022 to 827,981 at March 31, 2023. Direct premiums written continue
to increase across the majority of states in which we conduct business due to
rate increases. As a result of our business strategy, rate changes and
disciplined underwriting initiatives, we have seen a decrease in policies in
force, but an increase in premium in force and an increase in total insured
value in a majority of states for the past two years. We were authorized to
write policies in 19 states during both of the first quarters of 2023 and 2022.
In addition, we are authorized to do business in Tennessee and Wisconsin and are
proceeding with product filings in those states. At March 31, 2023, policies in
force decreased 88,764 policies, or 9.7%; premium in force increased $159.6
million, or 9.4%; and total insured value increased $1.6 billion, or 0.5%,
compared to March 31, 2022.

The following table provides direct premiums written for Florida and Other
States for the three months ended March 31, 2023 and 2022 (dollars in
thousands):

                                   For the Three Months Ended
                                                                                                Growth
                         March 31, 2023                     March 31, 2022                  year over year
                                                          Direct
                      Direct                             Premiums
State             Premiums Written          %            Written             %               $              %
Florida        $     337,365              82.3  %    $      334,437        84.4  %    $       2,928        0.9  %
Other states          72,737              17.7  %            62,044        15.6  %           10,693       17.2  %
Total          $     410,102             100.0  %    $      396,481       100.0  %    $      13,621        3.4  %



We seek to prudently grow and generate long-term rate adequate premium in each
state where we offer policies. Our diversification strategy seeks to increase
business outside of Florida and to improve geographical distribution within
Florida.

Direct premium earned increased by $40.8 million, or 9.8%, for the quarter ended
March 31, 2023, reflecting the earning of premiums written over the past 12
months, including the benefit of rate changes due to primary rate filings,
filings to cover increased reinsurance costs as well as policy premium
adjustments due to increases in insured values caused by inflation.

Reinsurance enables our Insurance Entities to limit potential exposures to
catastrophic events and other covered events. Ceded premium represents premiums
paid to reinsurers for this protection and is a cost which reduces net written
and net earned premiums. Hurricane Ian triggered reinstatement premiums,
increasing ceded premium written by $24.6 million which is earned from September
28, 2022 through May 31, 2023, increasing ceded premium earned for the first
quarter of 2023 by $9.1 million. In total, ceded premium earned increased $27.6
million, or 19.0%, for the quarter ended March 31, 2023, as compared to the same
period of the prior year. The increase in reinsurance costs reflects the
reinstatement premium for Hurricane Ian and an increase in the value of
exposures we insure; increased pricing when compared to the expired reinsurance
program and differences in the structure and design of the respective programs.
Reinsurance costs, as a percentage of direct premium earned, increased from
35.1% for the three months ended March 31, 2022 to 38.0% for the three months
ended March 31, 2023. Reinsurance costs associated with each year's reinsurance
program are earned over the annual policy period which typically runs from June
1st to May 31st. See the discussion above for the Insurance Entities' 2022-2023
reinsurance programs and "Item 1-Note 4 (Reinsurance)."
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Premiums earned, net of ceded premium earned, grew by 4.9%, or $13.2 million, to
$282.2 million for the three months ended March 31, 2023, reflecting an increase
in direct premium earned partially offset by increased costs for reinsurance.

Net investment income was $10.7 million for the three months ended March 31,
2023, compared to $4.0 million for the same period in 2022, an increase of $6.7
million, or 164.7%. Liquidity generated by our investment portfolio from new
deposits in 2023 and maturities, principal repayments, and interest received
throughout 2022 and into 2023 was invested at higher rates, resulting in an
increase in investment returns on our portfolio.

Total invested assets were $1.13 billion as of March 31, 2023 compared to $1.11
billion as of December 31, 2022. The increase is primarily attributable to an
increase in investment income and bond prices appreciation. We continue to
monitor closely the banking turmoil seen in the first quarter of 2023, including
any demand from banks to increase liquidity through asset sales, tightening
lending standards, and any impacts those actions may have on the marketplace and
our investment portfolio. Cash and cash equivalents were $330.2 million at March
31, 2023 compared to $388.7 million at December 31, 2022, a decrease of $58.6
million, or 15.1%. This decrease is largely attributable to Hurricane Ian claim
settlements from previous cash calls from reinsurers. See below "-Analysis of
Financial Condition" for more information. Cash and cash equivalents are
invested short-term until needed to settle loss and LAE payments, reinsurance
premium payments, and operating cash needs or until they are deployed by our
investment advisors.

Yields from cash and cash equivalents, short-term investments and the
available-for-sale debt portfolio are dependent on the composition of the
portfolio, future market forces, monetary policy and interest rate policy from
the Federal Reserve. During most of 2021, the Federal Reserve broadly maintained
lower interest rates, which impacted the effective yields on newly purchased
available-for-sale debt securities and overnight cash purchases and short-term
investments. This overall trend changed in late 2021, and into 2022, as
inflation worries began to impact the financial markets, including the markets'
concern over future Federal Reserve actions of rate hikes and other actions to
address inflation concerns. As a result, we saw increased yields on securities
purchased in late 2021, and throughout 2022, and increased unrealized losses on
our portfolio, reflected after-tax in the equity section of our balance sheet as
increased market yields negatively impacted the fair value on much of our
available-for-sale debt securities, which we generally hold to maturity. We
continued to invest in securities bearing higher interest rates throughout the
first quarter of 2023, but we have seen a noticeable pause, and at times, lower
interest rates during the first quarter of 2023 when compared to the fourth
quarter of 2022. The lower unrealized loss in our fixed income portfolio during
the first quarter of 2023 was driven by the move in slightly lower market
interest rates when compared to the fourth quarter of 2022, as well as older
investments amortizing towards par as those investments move closer to their
redemption dates.

We sell invested assets from our investment portfolio from time to time to meet
our investment objectives or to take advantage of market opportunities. During
the three months ended March 31, 2023, sales of available-for-sale debt
securities resulted in net realized losses of $0.7 million and sales of equity
securities resulted in net realized losses of $0.1 million, in total generating
net realized losses of $0.8 million during the first quarter of 2023. During the
three months ended March 31, 2022, sales of available-for-sale debt securities
resulted in net realized losses of $0.2 million and sales of equity securities
resulted in net realized gains of $0.3 million, in total generating a net
realized gain of $0.1 million during the first quarter of 2022. See "Item 1-Note
3 (Investments)."

There was a $1.0 million net unrealized gain in equity securities during the
three months ended March 31, 2023, largely driven by the overall equity markets
appreciation, compared to a $3.4 million net unrealized loss in equity
securities during the three months ended March 31, 2022. Net change in
unrealized gains or losses for equity securities still held at the end of the
reported period are recorded at fair value in the Condensed Consolidated Balance
Sheet with changes in the fair value of equity securities reported in current
period earnings in the Condensed Consolidated Statements of Income within net
change in unrealized gains (losses) of equity securities as they occur. See
"Item 1-Note 3 (Investments)."

Commission revenue is comprised principally of brokerage commissions we earn
from traditional open market third-party reinsurers, which excludes reinsurance
provided by the State of Florida and reinsurance provided by Cosaint Re
(catastrophe bond). Commission revenue is earned pro-rata over the reinsurance
policy period which runs from June 1st to May 31st of the following year.
Reinstatement premiums for Hurricane Ian resulted in $13.1 million of additional
brokerage commissions which is earned from September 28, 2022 through May 31,
2023, increasing brokerage commission revenue earned by $4.9 million for the
first quarter of 2023. For the three months ended March 31, 2023, commission
revenue was $17.3 million, compared to $11.2 million for the three months ended
March 31, 2022. The increase in commission revenue of $6.1 million, or 54.8%,
for the three months ended March 31, 2023 was primarily due additional
commissions from Hurricane Ian reinstatement premiums and to increased
commissions from third-party reinsurers earned on increased reinsurance premiums
which is attributable to growth in our insured values, as well as the difference
in pricing and structure associated with our reinsurance program when compared
to the prior year.

Policy fees for the three months ended March 31, 2023 were $4.2 million compared
to $4.8 million for the same period in 2022. The decrease of $0.6 million, or
12.8%, was the result of a decrease in the combined total number of new and
renewal policies written during the three months ended March 31, 2023 compared
to the same period in 2022 in states where we are permitted to charge this fee.

Other revenue, representing revenue from policy installment fees, premium
financing and other miscellaneous income, was $2.0 million for the three months
ended March 31, 2023 compared to $1.8 million for the same period in 2022.

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Non-GAAP

Core revenue, representing total GAAP revenue, excluding net realized gains
(losses) on investments and net changes in unrealized gains (losses) of equity
securities, was $316.3 million for the three months ended March 31, 2023
compared to $290.8 million for the same period in 2022.

Operating Costs and Expenses

Losses and Loss Adjustment Expenses

Losses and LAE, net of reinsurance recoveries was $206.2 million for three
months ended March 31, 2023, resulting in a net loss ratio of 73.1%, compared to
$185.1 million, and 68.8%, respectively for three months ended March 31, 2022.

Losses and LAE experience in recent years including the first quarter of 2023,
reflects an adverse litigation environment and other market conditions in
Florida that the Florida Legislature has been attempting to address with the
passage of legislation spanning several years with the most significant changes
made during a special session held in December 2022.

Losses and LAE, net for the current accident year is estimated to be $202.8
million or 71.9 net loss ratio points for the three months ended March 31, 2023,
compared to $179.9 million, or 66.9 net loss ratio points for the three months
ended March 31, 2022. Management began with a 44% core loss pick for UPCIC in
the first quarter of 2022 and continued to increase it throughout the year.
Management has selected a core UPCIC loss pick of 46% for the first quarter of
2023, while considering several factors including historical experience and rate
filings implemented to help mitigate recent loss experience. The increase in
losses and LAE for the first quarter of 2023 compared to the same period in 2022
is largely due to this increase in loss pick for UPCIC. There were no
incremental weather losses reported in the first quarter of 2023 compared to
$4.5 million reported for the same period in 2022. Current-accident year losses
and LAE also reflect savings from activities performed by the claims affiliate
within our holding company system on behalf of our Insurance Entities and our
reinsurers when losses and LAE are ceded under our reinsurance contracts. These
savings serve to offset LAE at the consolidated level (contra LAE). During the
three months ended March 31, 2023, these claims related activities generated a
profit margin of $5.8 million compared to $2.1 million during the three months
ended March 31, 2022.

Prior year development includes changes in estimated losses and LAE for all
events occurring in prior years including hurricanes and other weather. Prior
year development was $3.3 million, or 1.2 net loss ratio points for the quarter
ended March 31, 2023, compared to $0.7 million, or 0.2 net loss ratio points for
the quarter ended March 31, 2022.

The overall net losses and LAE ratio also increased as a result of an increase
in the cost of reinsurance relative to direct premiums earned for the quarter
ended March 31, 2023 compared to the same period in 2022. This cost includes the
reinstatement premium for Hurricane Ian.

Our net losses and LAE experience has been largely mitigated by ceding losses
from hurricanes on certain events to the FHCF, including Hurricane Irma. See
discussion in "-REINSURANCE" section above for a discussion about the pending
commutation with the FHCF for the 2017-2018 treaty period. As such, during 2023
we will begin the commutation process which ultimately will result in a final
determination of and payment for known, unknown or unreported claims on
Hurricane Irma effective as of the commutation date with the potential for gain
or loss on the commutation. The Florida litigation environment has made it
difficult to determine an ultimate liability on Irma claims, and as a result the
amount agreed upon or determined in commutation may not be sufficient to fund
claim settlements on all Hurricane Irma claims as those claims settle in the
future.

General and Administrative Expenses

For the three months ended March 31, 2023, general and administrative expenses
were $75.9 million compared to $78.3 million during the same period in 2022, as
follows (dollars in thousands):

                                                                    Three Months Ended
                                                                         March 31,                                                Change
                                                        2023                                  2022                          $                 %
                                                $                Ratio                $                Ratio
Premiums earned, net                       $ 282,224                             $ 269,064                             $ 13,160               4.9  %
General and administrative expenses:
Policy acquisition costs                      51,691               18.3  %          54,723               20.3  %         (3,032)             (5.5) %
Other operating costs                         24,236                8.6  %          23,574                8.8  %            662               2.8  %
Total general and administrative expenses  $  75,927               26.9  %       $  78,297               29.1  %       $ (2,370)             (3.0) %


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General and administrative expenses decreased by $2.4 million, which was the
result of a decrease in policy acquisition costs of $3.1 million offset by an
increase in other operating costs of $0.7 million. The total general and
administrative expense ratio was 26.9% for the three months ended March 31, 2023
compared to 29.1% for the same period in 2022.

•The decrease in policy acquisition costs of $3.1 million reflects a reduction
in the commission rate paid to agents on the renewal of Florida policies, which
was reduced by two percentage points from 10% to 8% effective May 1, 2022, which
benefits future periods as the new rate structure applies prospectively and a
lower level of new business that pays a higher commission rate. The decrease in
the Florida renewal commission rate paid to agents also reduced the ratio of
policy acquisition costs to net premiums earned.

•The increase in other operating costs of $0.7 million was primarily driven by
higher salaries, stock based compensation, and employee related expenses,
partially offset by lower policy related expenses. The other operating cost
ratio was 8.6% for the three months ended March 31, 2023, compared to 8.8% for
the same period in 2022 due to economies of scale as the premium base increases
from rate increases.

As a result of the trends discussed above for losses and LAE and general and
administrative expenses, the combined ratio for the first quarter ended March
31, 2023 was 100.0% compared to 97.9% for the same period in 2022.

Interest and Amortization of Debt Issuance Costs

Interest and amortization of debt issuance costs was $1.6 million for each of
the three months ended March 31, 2023 and 2022. Interest and amortization of
debt issuance costs represents amounts we incur on our outstanding long-term
debt at the applicable interest rates and amortization of debt issuance costs on
our 5.625% Senior Unsecured Notes. See "Item 1-Note 7 (Long-term debt)" for
additional details.

Income Tax Expense/(Benefit)

Income tax expense was $8.6 million for the quarter ended March 31, 2023
compared to an income tax expense of $4.9 million for the quarter ended
March 31, 2022. Our effective tax rate ("ETR") increased to 26.3% for the three
months ended March 31, 2023, as compared to 22.0% for the three months ended
March 31, 2022. The ETR for the period ending March 31, 2023 increased as a
result of a higher ratio of permanent items relative to pre-tax book income,
principally non-deductible compensation and a reduction in state tax benefit in
the first quarter of 2022 compared to the same period in 2023. See "Item 1-Note
9 (Income Taxes)" for additional details.

Other Comprehensive Income (Loss)

Other comprehensive income, net of taxes for the three months ended March 31,
2023, was $13.8 million compared to other comprehensive loss of $42.9 million
for the same period in 2022, reflecting after-tax changes in fair value of
available-for-sale debt securities held in our investment portfolio and
reclassifications out of accumulated other comprehensive income (loss) for
available-for-sale debt securities sold. We saw increased market yields on
securities purchased in late 2021 and 2022 and increased unrealized losses on
our portfolio during those periods, reflected after-tax in the equity section of
our balance sheet as increased interest rates negatively impacted the fair value
on much of our available-for-sale debt securities. Unrealized losses declined
during the first quarter of 2023 in response to: i) interest fluctuations and
credit spreads favorably increasing valuations; ii) maturities and principal pay
downs on below market securities during the period and; iii) generally a shorter
period-to-maturity for the below market securities as the maturity horizon
shortens over time on these older securities. See the discussion above under
"-Revenues" and "Item 1-Note 11 (Other Comprehensive Income (Loss))" for
additional information about the amounts comprising other comprehensive income
(loss), net of taxes for these periods.

Non-GAAP

Adjusted operating income (loss) represents GAAP operating income (loss),
excluding net realized gains (losses) on investments and net changes in
unrealized gains (losses) of equity securities. Adjusted operating income was
$34.3 million for the three months ended March 31, 2023 compared to adjusted
operating income of $27.4 million for the same period in 2022.

Adjusted operating income (loss) margin, represents adjusted operating income
(loss) divided by core revenue. Adjusted operating loss margin was 10.8% for the
three months ended March 31, 2023 compared to adjusted operating income margin
of 9.4% for the same period in 2022.

Adjusted net income (loss) attributable to common stockholders represents GAAP
net income (loss) attributable to common stockholders, less after-tax net
realized gains (losses) on investments and net changes in unrealized gains
(losses) of equity securities. Adjusted net income attributable to common
stockholders was $24.0 million for the three months ended March 31, 2023
compared to adjusted net income attributable to common stockholders of $20.0
million for the same period in 2022.

Diluted adjusted earnings (loss) per common share represents adjusted net income
(loss) available to common stockholders divided by weighted average diluted
common shares outstanding. Diluted adjusted earnings per common share was $0.79
for the three months ended March 31, 2023 compared to diluted adjusted earnings
per common share of $0.64 for the same period in 2022.


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Analysis of Financial Condition-As of March 31, 2023 Compared to December 31,
2022

We believe that the cash flows generated from operations will be sufficient to
meet our working capital requirements for at least the next twelve months. We
invest amounts considered to be in excess of current working capital
requirements.

The following table summarizes, by type, the carrying values of investments as
of the dates presented (in thousands):

                                                  As of
                                       March 31,       December 31,
Type of Investment                       2023              2022

Available-for-sale debt securities $ 1,026,555 $ 1,014,626

Equity securities                         92,906            85,469

Investment real estate, net                5,665             5,711
Total                                $ 1,125,126      $  1,105,806

See "Item 1-Condensed Consolidated Statements of Cash Flows" and "Item 1-Note 3
(Investments)" for explanations on changes in investments.

Prepaid reinsurance premiums represent the portion of unearned ceded written
premium that will be earned pro-rata over the coverage period of our reinsurance
program, which runs from June 1st to May 31st of the following year.
Additionally, prepaid reinsurance includes reinstatement premiums recorded in
2022 related to Hurricane Ian, net of amortizations. The decrease of $158.1
million to $124.3 million as of March 31, 2023 was primarily due to the
amortization of ceded written premium for the reinsurance costs earned during
the period.

Reinsurance recoverable represents the estimated amount of paid and unpaid
losses, LAE and other expenses that are expected to be recovered from
reinsurers. The decrease of $130.8 million to $678.1 million as of March 31,
2023 was primarily due to the settlement and collection of Hurricane Ian claims
and amounts recoverable from reinsurers relating to other ceded events.

Premiums receivable, net represents amounts receivable from policyholders. The
decrease in premiums receivable, net of $4.7 million to $64.8 million as of
March 31, 2023 is consistent with premium trends including seasonality and
consumer behaviors.

Deferred policy acquisition costs ("DPAC") decreased by $5.8 million to $97.9
million as of March 31, 2023, and is consistent with written premium trends and
changes in commissions paid to agents. In addition, DPAC was affected by the
reductions to Florida renewal commissions implemented during 2022 and other
changes to the Company's commission structure. See "Item 1-Note 5 (Insurance
Operations)" for a roll-forward in the balance of our DPAC.

Deferred income taxes represent the estimated tax assets or tax liabilities
caused by temporary differences between the tax return basis of certain assets
and liabilities and amounts recorded in the financial statements. During the
three months ended March 31, 2023, net deferred income tax assets increased by
$1.5 million to $58.8 million primarily due to an increase in unearned premiums
and advanced premiums. Deferred income taxes reverse in future years as the
temporary differences between book and tax reverse.

See "Item 1-Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)"
for a roll-forward in the balance of our unpaid losses and LAE. Unpaid losses
and LAE decreased by $168.4 million to $870.4 million as of March 31, 2023. The
majority of the decrease is the settlement of losses from Hurricane Ian and
prior hurricanes and prior large weather events. Overall, unpaid losses and LAE
decreased, as claims settlements exceeded new emerging claims. Unpaid losses and
LAE are net of estimated subrogation recoveries.

Unearned premiums represent the portion of direct premiums written that will be
earned pro-rata in the future. The decrease of $45.3 million from December 31,
2022 to $898.6 million as of March 31, 2023 reflects premium trends and the
seasonality of our business, which varies from month to month.

Advance premium represents premium payments made by policyholders ahead of the
effective date of the policies. The increase of $37.3 million from December 31,
2022 to $92.2 million as of March 31, 2023 reflects customer payment behavior
and the payment behavior of mortgage escrow service providers as well as premium
trends.

We exclude net negative cash balances, if any, from cash and cash equivalents
that we have with any single financial institution based on aggregating the book
balance of all accounts at the institution which have the right of offset. If
the aggregation results in a net negative book balance, that balance is
reclassified from cash and cash equivalents in our Consolidated Balance Sheet to
book overdraft. These amounts represent outstanding checks or drafts not yet
presented to the financial institution in excess of amounts on deposit at the
financial institutions. We maintain a short-term cash investment strategy sweep
to maximize investment returns on cash balances. Book overdraft totaled $77.7
million as of March 31, 2023 compared to no book overdraft as of December 31,
2022. The increase of $77.7 million is the result of lower cash balances
available for offset as of March 31, 2023 compared to December 31, 2022. See
"-Liquidity and Capital Resources" for more information.
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Reinsurance payable, net, represents the unpaid reinsurance premium installments
owed to reinsurers, unpaid reinstatement premiums due to reinsurers and cash
advances received from reinsurers, if any. On June 1st of each year, we renew
our core catastrophe reinsurance program and record the estimated annual cost of
our reinsurance program. These estimated annual costs are increased or decreased
during the year based on premium adjustments or as a result of new placements
during the year. The annual cost initially increases reinsurance payable, which
is then reduced as installment payments are made over the policy period of the
reinsurance, which typically runs from June 1st to May 31st. The balance
decreased by $292.6 million to $91.9 million as of March 31, 2023 as a result of
timing of the above items and the timing and settlement of the final reinsurance
installment typically settled in the second quarter. The balance at March 31,
2023 principally represents funds held from reinsurers on claims not yet settled
on Hurricane Ian. See "-Liquidity and Capital Resources" for more information
about timing of reinsurance premium installment payments.

Income taxes payable represents amounts due to taxing jurisdictions within one
year and arise when income tax liabilities exceed tax payments. As of March 31,
2023, the income taxes payable was $13.1 million, compared to a balance
recoverable of $1.5 million as of December 31, 2022.

Other liabilities and accrued expenses increased by $4.2 million to $63.0
million as of March 31, 2023, primarily driven from increases in accrued taxes,
licenses and fees when compared to December 31, 2022.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Liquidity is a measure of a company's ability to generate sufficient cash flows
to meet its short- and long-term obligations. Funds generated from operations
have been sufficient and we expect them to be sufficient to meet our current and
long term liquidity requirements.

The balance of cash and cash equivalents, excluding restricted cash, as of March
31, 2023 was $330.2 million, compared to $388.7 million at December 31, 2022.
See "Item 1-Condensed Consolidated Statements of Cash Flows" for a
reconciliation of the balance of cash and cash equivalents between March 31,
2023 and December 31, 2022. This decrease is largely attributable to the
settlement of Hurricane Ian claims and changes in operational cash flows since
year end and was driven by cash flows used in operating, investing, and
financing activities. Our cash investment strategy at times includes cash
investments where the right of offset against other bank accounts does not
exist. A book overdraft occurs when aggregating the book balance of all accounts
at a financial institution for accounts which have the right of offset, and if
the aggregation results in a net negative book balance, that balance is
reclassified from cash and cash equivalents in our Condensed Consolidated
Balance Sheet to book overdraft. Cash and cash equivalents balances are
available to settle book overdrafts, and to pay reinsurance premiums, expenses
and claims. Reinsurance premiums are paid in installments during the reinsurance
policy period, which runs from June 1st to May 31st of the following year. The
FHCF reimbursement premiums are paid in three installments on August 1st,
October 1st and December 1st, and third-party reinsurance premiums are paid in
four installments typically on July 1st, October 1st, January 1st and April 1st,
resulting in significant payments at those times. This year the April 1st
installments were paid during the first quarter. See "Item 1-Note 12
(Commitments and Contingencies)" and additional discussion below under the
caption "-Material Cash Requirements" for more information.

The balance of restricted cash and cash equivalents as of March 31, 2023 and
December 31, 2022 represents cash equivalents on deposit with certain regulatory
agencies in the various states in which our Insurance Entities do business.

Liquidity is required at the holding company for us to cover the payment of
holding company general operating expenses, provide for contingencies if needed,
dividends to shareholders (if and when authorized and declared by our Board of
Directors), payment for the possible repurchase of our common stock (if and when
authorized by our Board of Directors), payment of our tax obligations to taxing
authorities, settlement of taxes between subsidiaries in accordance with our tax
sharing agreement, capital contributions to subsidiaries or surplus note
contributions to the Insurance Entities, if needed, and interest and principal
payments on outstanding debt obligations of the holding company. Effective in
2021 for UPCIC and 2022 for APPCIC, the holding company has put in place an
ongoing surplus note arrangement with the Insurance Entities, which has been
approved by FLOIR as the Insurance Entities' domestic regulator. Surplus notes
are unsecured debt issued by the Insurance Entities that are subordinated to all
claims by policyholders and creditors, with interest and principal payments on
the surplus notes to the holding company being made only upon the FLOIR's
express approval. Surplus notes are considered bonds in function and payout
structure, but are accounted for as equity in the statutory reporting of the
Insurance Entities. The holding company has outstanding with the Insurance
Entities $147.3 million in surplus notes and accrued interest as of March 31,
2023. Under the terms of the surplus notes, interest accrues at a variable rate
which resets annually (currently 10.54% for 2023). The declaration and payment
of future dividends to our shareholders, and any future repurchases of our
common stock, will be at the discretion of our Board of Directors and will
depend upon many factors, including our operating results, financial condition,
debt covenants and any regulatory constraints. New regulations or changes to
existing regulations imposed on the Company and its affiliates may also impact
the amount and timing of future dividend payments to the parent. Principal
sources of liquidity for the holding company include dividends paid by our
service entities generated from income earned on fees paid by the Insurance
Entities to affiliated companies for general agency, inspections and claims
adjusting services. Dividends are also paid from income earned from brokerage
commissions paid by third party reinsurers earned on reinsurance contracts
placed by our wholly-owned subsidiary, Blue Atlantic Reinsurance Corporation,
and policy fees charged to policyholders. An additional source of liquidity is
interest income on the intercompany surplus notes are paid by the Insurance
Entities to the holding company. We also maintain high quality investments in
our portfolio as a source of liquidity along with ongoing interest and dividend
income from those investments.
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The maximum amount of dividends that can be paid by Florida insurance companies
without prior approval of the FLOIR is subject to restrictions as referenced
below and in "Item 1-Note 5 (Insurance Operations)." Dividends from the
Insurance Entities can only be paid from accumulated unassigned funds derived
from net operating profits and net realized capital gains. Subject to such
accumulated unassigned funds, the maximum dividend that may be paid by the
Insurance Entities to Protection Solutions, Inc. ("PSI", formerly known as
Universal Insurance Holding Company of Florida), without prior approval (an
"ordinary dividend") is further limited to the lesser of statutory net income
from operations of the preceding calendar year or statutory unassigned surplus
as of the preceding year end. During the three months ended March 31, 2023 and
the year ended December 31, 2022, the Insurance Entities did not pay dividends
to PSI. As of March 31, 2023, the Insurance Entities did not have the capacity
to pay ordinary dividends.

On November 23, 2021, we issued $100 million of 5.625% Senior Unsecured Notes
due 2026. We used the net proceeds to support the Insurance Entities' statutory
capital requirements and for general corporate purposes. If necessary, the
Company also has amounts available under our unsecured revolving loan as
discussed in "Item 1-Note 7 (Long-term debt)."

Liquidity for the Insurance Entities is primarily required to cover payments for
reinsurance premiums, claims payments including potential payments of
catastrophe losses (offset by recovery of any reimbursement amounts under our
reinsurance agreements), fees paid to affiliates for managing general agency
services, inspections and claims adjusting services, agent commissions, premium
and income taxes, regulatory assessments, general operating expenses, and
interest and principal payments on debt obligations. The principal source of
liquidity for the Insurance Entities consists of the revenue generated from the
collection of premiums earned, net, interest and dividend income from the
investment portfolio, the collection of reinsurance recoverable and financing
fees.

Our insurance operations provide liquidity as premiums are generally received
months or even years before potential losses are paid under the policies
written. In the event of catastrophic events, many of our reinsurance agreements
provide for "cash advance" whereby reinsurers advance or prepay amounts to us,
thereby providing liquidity, which we utilize in the claim settlement process.
In addition, the Insurance Entities maintain substantial investments in highly
liquid, marketable securities, which would generate funds upon sale. The average
credit rating on our available-for-sale securities was A+ as of March 31, 2023
and December 31, 2022. Credit ratings are a measure of collection risk on
invested assets. Credit ratings are provided by third party nationally
recognized rating agencies and are periodically updated. Management establishes
guidelines for minimum credit rating and overall credit rating for all
investments. The duration of our available-for-sale securities was 4.0 years at
March 31, 2023 compared to 4.0 years at December 31, 2022. Duration is a measure
of a bond's sensitivity to interest rate changes and is used by management to
limit the potential impact of longer-term investments.

The Insurance Entities are responsible for losses related to catastrophic events
in excess of coverage provided by the Insurance Entities' reinsurance programs
and retentions before our reinsurance protection commences. Also, the Insurance
Entities are responsible for all other losses that otherwise may not be covered
by the reinsurance programs and any amounts arising in the event of a reinsurer
default. Losses or a default by reinsurers may have a material adverse effect on
either of the Insurance Entities or on our business, financial condition,
results of operations and liquidity. See "Item 1-Note 4 (Reinsurance)" for more
information.

Capital Resources

Capital resources provide protection for policyholders, furnish the financial
strength to support the business of underwriting insurance risks and facilitate
continued business growth. The following table provides our stockholders'
equity, total long-term debt, total capital resources, debt-to-total capital
ratio, debt-to-equity ratio, book value and ROCE for the periods presented
(dollars in thousands):

                                           As of
                               March 31,       December 31,
                                  2023             2022
Stockholders' equity          $ 321,806       $    287,896
Total long-term debt            102,578            102,769
Total capital resources       $ 424,384       $    390,665

Debt-to-total capital ratio        24.2  %            26.3  %
Debt-to-equity ratio               31.9  %            35.7  %

Book Value                    $   10.57       $       9.47
ROCE                               31.7  %            (6.2) %


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Capital resources, net increased by $33.7 million for the three months ended
March 31, 2023, reflecting a net increase in total stockholders' equity and
long-term debt. The change in stockholders' equity was principally the result of
our 2023 net income, increases in the after-tax changes in the fair value of our
available-for-sale debt securities, and increases from share-based compensation
offset by dividends to shareholders. Available-for-sale debt securities
increased in fair value by $18.3 million (before tax) during the first quarter
of 2023, resulting in the pre-tax net unrealized loss position of $137.3 million
at December 31, 2022 to decrease to $119.0 million at March 31, 2023. Current
market outlooks are signaling further Federal Reserve tightening which could
continue to have a negative impact on the valuation of available-for-sale debt
securities.

The reduction in long-term debt was primarily the result of principal payments
on long-term debt of $0.4 million offset by amortization of debt issuance costs
of $0.2 million on our 5.625% Senior Unsecured Notes due 2026 during 2023. See
"-Liquidity and Capital Resources" for more information.

The debt-to-total capital ratio is total long-term debt divided by total capital
resources, whereas the debt-to-equity ratio is total long-term debt divided by
stockholders' equity. These ratios help management measure the amount of
financing leverage in place in relation to equity and allows investors to
evaluate future leverage capacity.

Book value is total stockholders' equity, adjusted for preferred stock
liquidation, divided by the number of common shares outstanding as of a
reporting period. Book value per common share is the excess of assets over
liabilities at a reporting period attributed to each share of common stock.

ROCE is calculated by actual net income (loss) attributable to common
stockholders divided by average common stockholders' equity. ROCE is a capital
profitability measure of how efficiently management creates profits.

Non-GAAP

Adjusted common stockholders' equity, representing GAAP common stockholders'
equity, less accumulated other comprehensive income (loss), was $411.7 million
as of March 31, 2023, $454.7 million as of March 31, 2022 and $391.6 million as
of December 31, 2022.

Adjusted book value per common share, representing adjusted common stockholders'
equity divided by outstanding common shares at the end of the reporting period,
was $13.52 as of March 31, 2023, $14.69 as of March 31, 2022 and $12.89 as of
December 31, 2022.

Adjusted return on common equity representing actual or annualized adjusted net
income (loss) attributable to common stockholders divided by average adjusted
common stockholders' equity, with the denominator excluding current period
income statement after-tax net realized gains (losses) on investments and net
changes in unrealized gains (losses) of equity securities, was 23.9% as of March
31, 2023, 17.8% as of March 31, 2022 and (3.0)% as of December 31, 2022.

Surplus Note

As described in our Annual Report on Form 10-K for the year ended December 31,
2022, UPCIC entered into a $25.0 million surplus note with the State Board of
Administration of Florida ("SBA") under Florida's Insurance Capital Build-Up
Incentive Program on November 9, 2006. The surplus note has a twenty-year term,
with quarterly payments of principal and interest based on the 10-year Constant
Maturity Treasury Index. As of December 31, 2022, UPCIC's net written premium to
surplus ratio and gross written premium to surplus ratio were in excess of the
required minimums and, therefore, UPCIC is not subject to increases in interest
rates. See "Item 1-Note 7 (Long-term debt)" for additional details. As of March
31, 2023, UPCIC was in compliance with the terms of the surplus note and with
each of the loan's covenants as implemented by rules promulgated by the SBA.
Total adjusted capital and surplus, which includes the surplus note, was in
excess of regulatory requirements for both UPCIC and APPCIC.

Long-term Debt

In November 2021, we issued and sold $100 million of 5.625% Senior Unsecured
Notes due 2026 (the "Notes") to certain institutional accredited investors and
qualified institutional buyers. The Notes mature on November 26, 2026, at which
time the entire $100 million of principal is due and payable. At any time on or
after November 23, 2023, the Company may redeem all or part of the Notes. See
"Item 1-Note 7 (Long-term debt)" for additional details. As of March 31, 2023,
we were in compliance with all applicable covenants.

Revolving Loan

As discussed in "Item 1-Note 7 (Long-term Debt)," the Company entered into a
364-day credit agreement and related revolving loan ("2021 Revolving Loan") with
JPMorgan Chase Bank, N.A. ("JPMorgan") in August 2021. The Company and JPMorgan
subsequently agreed during the term of the 2021 Revolving Loan to extend its
expiration date until October 31, 2022. The Company renewed this agreement on
October 31, 2022, increasing the credit facility to $37.5 million and modifying
other terms. The October 31, 2022 Revolving Loan agreement ("2022 Revolving
Loan") makes available to the Company an unsecured revolving credit facility
with an aggregate commitment not to exceed $37.5 million (previously $35.0
million) and carries an interest rate of prime rate plus a margin of 2%. The
Company must pay an annual commitment of 0.50% of the unused portion of the
commitment. Borrowings under the 2022 Revolving Loan mature on October 30, 2023,
364 days after the inception date of the 2022 Revolving Loan. The 2022 Revolving
Loan is subject to annual renewals. The 2022 Revolving Loan contains customary
financial and other covenants with which the Company is in compliance. The
Company did not borrow any amount under the 2021 Revolving Loan and as of March
31, 2023, the Company has not borrowed any amount under the 2022 Revolving Loan.
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We will also continue to evaluate opportunities to access the capital markets to
raise additional capital. We anticipate any proceeds will be used for general
corporate purposes, including investing in the capital and surplus of the
Insurance Entities.

In addition to the liquidity generally provided from operations, we maintain a
conservative, well-diversified investment portfolio, predominantly comprised of
fixed income securities with an average credit rating of A+, that focuses on
capital preservation and providing an adequate source of liquidity for potential
claim payments and other cash needs. The portfolio's secondary investment
objective is to provide a total rate of return with emphasis on investment
income. Historically, we have consistently generated funds from operations,
allowing our cash and invested assets to grow. We have not had to liquidate
investment holdings to fund either operations or financing activities.

Common Stock Repurchases

On December 15, 2022, our Board of Directors authorized a successor share
repurchase program under which we may repurchase up to $8.0 million of shares of
our common stock through December 15, 2024, which represents the unused portion
of the November 2022 Share Repurchase Program authorization announced on
November 3, 2020. We may repurchase shares from time to time at our discretion,
based on ongoing assessments of our capital needs, the market price of our
common stock and general market conditions.

We did not repurchase any shares of our common stock during the three months
ended March 31, 2023. Also, see "Part II, Item 2-Unregistered Sales of Equity
Securities and Use of Proceeds" for more information.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that are reasonably
likely to have a material effect on the financial condition, results of
operations, liquidity, or capital resources of the Company, except for
multi-year reinsurance contract commitments for future years that will be
recorded at the commencement of the coverage period. See "Item 1-Note 12
(Commitments and Contingencies)" for more information.

Cash Dividends

The following table summarizes the dividends declared and paid by the Company
during the three months ended March 31, 2023:

                                                                                                                            Cash Dividend
                                     Dividend                     Shareholders                    Dividend                Per Common Share
         2023                      Declared Date                   Record Date                  Payable Date                   Amount
First Quarter                         February 9, 2023                 March 9, 2023                March 16, 2023       $           0.16



MATERIAL CASH REQUIREMENTS

The following table represents our material cash requirements for which cash
flows are fixed or determinable as of March 31, 2023 (in thousands):

                                                   Total              Next 12 Months           Beyond 12 Months
Reinsurance payable and multi-year
commitments (1)                               $    406,848          $       183,069          $         223,779
Unpaid losses and LAE, direct (2)                  870,407                  499,614                    370,793
Long-term debt (3)                                 128,017                    7,272                    120,745
Total material cash requirements              $  1,405,272          $       

689,955 $ 715,317

(1)The amount represents the payment of reinsurance premiums payable under
multi-year commitments. See "Item 1-Note 12 (Commitments and Contingencies)."

(2)There are generally no notional or stated amounts related to unpaid losses
and LAE. Both the amounts and timing of future loss and LAE payments are
estimates and subject to the inherent variability of legal and market conditions
affecting the obligations and make the timing of cash outflows uncertain. The
ultimate amount and timing of unpaid losses and LAE could differ materially from
the amounts in the table above. Further, the unpaid losses and LAE do not
represent all the obligations that will arise under the contracts, but rather
only the estimated liability incurred through March 31, 2023. Unpaid losses and
LAE are net of estimated subrogation recoveries. In addition, these balances
exclude amounts recoverable from our reinsurance program.
See "Item 1-Note 4 (Reinsurance)" and "-Note 6 (Liability for Unpaid Losses and
Loss Adjustment Expenses)."

(3)Long-term debt consists of a Surplus note and 5.625% Senior unsecured notes.
See "Item 1-Note 7 (Long-term debt)."

IMPACT OF INFLATION AND CHANGING PRICES

The financial statements and related data presented herein have been prepared in
accordance with GAAP, which require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation. Our primary
assets are monetary in nature. As a result, interest rates have a more
significant impact on our performance than the effects of the general levels of
inflation. Interest rates do not necessarily move in the same direction or of
the same magnitude as the cost of paying losses and LAE.
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Insurance premiums are established before we know the amount of loss and LAE and
the extent to which inflation may affect such expenses. Consequently, we attempt
to anticipate the future impact of inflation when establishing rate levels.
While we attempt to charge adequate rates, we may be limited in raising premium
levels for competitive and regulatory reasons. Inflation also affects the market
value of our investment portfolio and the investment rate of return. Any future
economic changes which result in prolonged and increasing levels of inflation
could cause increases in the dollar amount of incurred loss and LAE and thereby
materially adversely affect future liability requirements.

ARRANGEMENTS WITH VARIABLE INTEREST ENTITIES

We entered into a reinsurance captive arrangement with a VIE in the normal
course of business, and consolidated the VIE since we are the primary
beneficiary.

For a further discussion of our involvement with the VIE, see "Item 1-Note 14
(Variable Interest Entities)."

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no material changes during the period covered by this Quarterly
Report on Form 10-Q to Critical Accounting Policies and Estimates previously
disclosed in "Part II, Item 7-Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in our Annual Report on Form 10-K
for the year ended December 31, 2022.
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NON-GAAP FINANCIAL MEASURES

Non-GAAP financial measures should be considered in addition to, and not as a
substitute for or superior to, financial measures presented in accordance with
GAAP. For more information regarding our key performance indicators, please
refer to the section titled "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Key Performance Indicators."

The following table presents the reconciliation of GAAP revenue to core revenue,
which is a non-GAAP measure (in thousands):

                                                                        Three Months Ended
                                                                             March 31,
                                                                      2023               2022
GAAP revenue                                                      $ 316,508          $ 287,482
less: Net realized gains (losses) on investments                       (788)                58
less: Net change in unrealized gains (losses) of equity
securities                                                              957             (3,396)
Core Revenue                                                      $ 316,339          $ 290,820



The following table presents the reconciliation of GAAP operating income (loss)
to adjusted operating income (loss), which is a non-GAAP measure (in thousands):


                                                                          Three Months Ended
                                                                              March 31,
                                                                       2023                2022
GAAP income (loss) before income tax expense (benefit)             $   32,791          $  22,471
add: Interest and amortization of debt issuance costs                   1,636              1,608
GAAP operating income (loss)                                           34,427             24,079
less: Net realized gains (losses) on investments                         (788)                58

less: Net changes in unrealized gains (losses) of equity
securities

                                                                957             (3,396)
Adjusted operating income (loss)                                   $   

34,258 $ 27,417

The following table presents the reconciliation of GAAP operating income (loss)
margin to adjusted operating income (loss) margin, which is a non-GAAP measure
(in thousands):

                                              Three Months Ended
                                                  March 31,
                                             2023           2022
GAAP operating income (loss)              $ 34,427       $ 24,079
GAAP revenue                               316,508        287,482
GAAP operating income (loss) margin           10.9  %         8.4  %
Adjusted operating income (loss)            34,258         27,417
Core revenue                               316,339        290,820

Adjusted operating income (loss) margin 10.8 % 9.4 %

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The following table presents the reconciliation of GAAP net income (loss)
available to common stockholders to adjusted net income (loss) available to
common stockholders, which is a non-GAAP measure (in thousands):

                                                                          Three Months Ended
                                                                              March 31,
                                                                       2023                2022
GAAP net income (loss)                                             $   24,173          $  17,537
less: Preferred dividends                                                   3                  3
GAAP net income (loss) available to common stockholders                24,170             17,534
less: Net realized gains (losses) on investments                         (788)                58

less: Net changes in unrealized gains (losses) of equity
securities

                                                                957             (3,396)

add: Income tax effect on above adjustments                                42               (823)

Adjusted net income (loss) available to common stockholders $ 24,043 $ 20,049

Weighted average common shares outstanding - Diluted                   30,626             31,227
Diluted earnings (loss) per common share                           $     0.79          $    0.56
Diluted adjusted earnings (loss) per common share                  $     

0.79 $ 0.64

The following table presents the reconciliation of GAAP stockholders' equity to
adjusted stockholders' equity and book value per common share to adjusted book
value per common share, which is a non-GAAP measure (in thousands):

                                                                      As of
                                                      March 31,           March 31,                       December 31,
                                                        2023                2022                              2022
Stockholders' equity                                $  321,806          $  396,341                      $     287,896
less: Preferred equity                                     100                 100                                100
Common stockholders' equity                            321,706             396,241                            287,796
less: Accumulated other comprehensive income (loss)    (89,991)            (58,478)                          (103,782)
Adjusted common stockholders' equity                $  411,697          $  454,719                      $     391,578

Common shares outstanding                               30,440              30,946                             30,389
Book value per common share                         $    10.57          $    12.80                      $        9.47
Adjusted book value per common share                $    13.52          $    14.69                      $       12.89



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The following table presents the reconciliation of GAAP ROCE to adjusted ROCE,
which is a non-GAAP measure (in thousands):

                                                           Three Months Ended
                                                                March 31,                     Year Ended December 31,
                                                         2023              2022                                                   2022

Actual or annualized net income (loss) available to
common stockholders

                                   $ 96,680          $ 70,136                                              $ (22,267)
Average common stockholders' equity                    304,751           412,922                                                358,699
ROCE                                                      31.7  %           17.0  %                                                (6.2) %
Actual or annualized adjusted net income (loss)
available to common stockholders                      $ 96,172          $ 80,196                                              $ (12,618)

Actual or adjusted average common

  stockholders' equity*                                401,574           451,202                                                423,199
Adjusted ROCE                                             23.9  %           17.8  %                                                (3.0) %

Adjusted average common stockholders' equity excludes current period after-tax net
* realized gains (losses) on

investments and net changes in unrealized gains (losses) of equity securities.

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