Effective June 1, 2011 through May 31, 2012, UPCIC also obtained subsequent catastrophe event excess of loss reinsurance to cover certain levels of UPCIC’s net retention through three catastrophe events including hurricanes, as follows:
would increase the cost of UPCIC’s private market reinsurance program. It is unclear whether the Florida legislature will adopt the position advanced by the FHCF.
We continually evaluate strategies to more effectively manage our exposure to catastrophe losses, including the maintenance of catastrophic reinsurance coverage. Effective January 1, 2012, the T25 contract was subsequently replaced, at identical limits and retentions as the prior agreement, with an unaffiliated third-party reinsurer as an open market purchase. Effective January 1, 2012 through May 31, 2012, under an excess catastrophe contract, the Insurance Entities obtained catastrophe coverage of $140.2 million, in excess of $44.8 million, covering certain loss occurrences including hurricanes. The total cost of this reinsurance coverage is $4.4 million. In the event of a non-hurricane loss subject to this contract, the Insurance Entities will pay to the reinsurer 20.0% of the ultimate net loss ceded to the reinsurer arising out of such non-hurricane loss. For further discussion of risks associated with our reinsurance programs, see “Item 1A. RISK FACTORS - Reinsurance may be unavailable at current levels and prices, which may limit our ability to write new business.”
As loss experience for the current year develops for each type of loss, it is monitored relative to initial assumptions until it is judged to have sufficient statistical credibility. From that point in time and forward, reserves are re-estimated using statistical actuarial processes to reflect the impact loss trends have on development factors incorporated into the actuarial estimation processes. Statistical credibility is usually
Direct premiums earned increased 13.6% in the year ended December 31, 2010 compared to the same period in 2009 as a result of an increase in the number of in-force policies and average premiums on those policies. The average premium of in-force policies for 2010 increased 9.0% to $1,143 compared to $1,048 for 2009 due to premium rate increases that went into effect during the fourth quarter of 2009, partially offset by the increase in wind mitigation discounts in 2010 versus 2009.
The table below illustrates the change over time of the direct reserves established for unpaid losses and LAE for the Insurance Entities (Liability for Unpaid Losses and LAE “re-estimates”) at the end of the last eleven calendar years through December 31, 2011 (in thousands):
We have audited the accompanying consolidated balance sheets of Universal Insurance Holdings, Inc. and Subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2011. We also have audited the Company’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Report on Internal Control over Financial Reporting.” Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.
(2) State deposits represent amounts held with regulatory agencies in the various states in which our Insurance Entities do business. Applicable laws and regulations govern not only the amount, but also the type of securities that are eligible for deposit. State deposits also include amounts that the Company has voluntarily placed on deposit in connection with the T25 arrangement. See Note 4- REINSURANCE for a discussion of the T25 arrangement.
All debt securities owned by the Company as of December 31, 2011 and 2010 are direct obligations of the United States Treasury.
(1) Amounts represent prepaid reinsurance premiums, reinsurance receivables, and recoverables for paid and unpaid losses, including incurred but not reported (“IBNR”) reserves, loss adjustment expenses and unearned premiums.
(1) This table represents the alternative quantitative disclosures permitted for derivatives that are not used as hedging instruments and are included in the trading portfolio.
As a result of management’s analysis of loss reserves and trends, the provision for losses and LAE, net of related reinsurance recoverables, increased by $11.5 million and $5.9 million in 2011 and 2010, respectively, These increases were recorded in response to reserve development in prior accident years. Some of the increase in reserves is attributable to development on the small number of hurricane claims that remain open. Adjustments relating to older accident years also reflect increases in certain types of activities in UPCIC’s non-catastrophe claims that are more typically associated with catastrophe claims. Examples include insureds re-opening claims, seeking payments without corresponding repairs, and using public adjusters. These activities were prevalent in the catastrophe claims arising from 2004 and 2005 hurricane seasons but subsequently increased in non-catastrophe claims as the number of remaining hurricane claims subsided. In addition, certain changes to Florida law in recent years have adversely affected claims payout patterns. Florida laws relating to sinkhole claims also have generated claims in older accident years as insureds seek to establish that sinkhole activity occurred in policy periods pre-dating legislative changes.
Through Universal Insurance Holding Company of Florida, UPCIC’s parent company, UIH recorded capital contributions of $5.0 million, $12.0 million and $32.0 million to UPCIC in June 2011, September 2011 and December 2011, respectively.
The following table provides the amount of unrecognized compensation expense as of the most recent balance sheet date and the weighted average period over which those expenses will be recorded for both stock options and restricted stock (dollars in thousand):
Derivatives: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that are not active or highly active.