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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing in Part II, Item 8 of this Form 10-K. The following discussion provides an analysis of our results of operations and financial condition for 2021 as compared to 2020. Discussion regarding our results of operations and financial condition for 2020 as compared to 2019 is included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed or implied in these forward-looking statements as a result of certain known and unknown risks and uncertainties. See “Forward-Looking Statements.”

OVERVIEW

United Insurance Holding Corp. is a holding company primarily engaged in residential personal and commercial property and casualty insurance business with investments in the United States. We conduct our business principally through four wholly-owned insurance subsidiaries and one majority-owned insurance subsidiary: United Property & Casualty Insurance Company (UPC); American Coastal Insurance Company (ACIC); Family Security Insurance Company, Inc. (FSIC); Interboro Insurance Company (IIC); and Journey Insurance Company (JIC). Collectively, we refer to the holding company and all our subsidiaries, including non-insurance subsidiaries, as “UPC Insurance,” which is the preferred brand identification for our Company.

Our Company’s primary source of revenue is generated from writing insurance in Florida, Louisiana, New York and Texas. The Company also writes policies in Georgia, Massachusetts, New Jersey, North Carolina and South Carolina where renewal rights have been sold and all premiums and losses are ceded. Effective January 1, 2021, we no longer write in the state of Hawaii. Effective December 1, 2021, we no longer write in the states of Connecticut or Rhode Island. We are also licensed to write property and casualty insurance in an additional six states; however, we have not commenced writing in these states. Our target market in such areas consists of states where the perceived threat of natural catastrophe has caused large national insurance carriers to reduce their concentration of policies. We believe an opportunity exists for UPC Insurance to write profitable business in such areas.

Our Company, together with wholly-owned subsidiaries UPC and United Insurance Management, L.C. (UIM), entered into a Renewal Rights Agreement (Southeast Renewal Agreement), dated as of December 30, 2021 with Homeowners Choice Property and Casualty, Inc. (HCPCI), pursuant to which our Company, UPC and UIM agreed to sell, and HCPCI agreed to purchase, the renewal rights to UPC’s personal lines homeowners business in Georgia, South Carolina and North Carolina. The transfer of policies is subject to regulatory approval. The sale was consummated on December 30, 2021.

Effective December 31, 2021, we entered into a quota share reinsurance agreement with HCPCI in connection with the Southeast Renewal Agreement. Under the terms of this agreement, we will cede 85% of our in-force, new, and renewal policies in the states of Georgia, North Carolina and South Carolina. When coupled with the 15% cessions from our third-party quota share reinsurance agreement, we will no longer retain any risk associated with these states.

Our Company, together with wholly-owned subsidiaries UPC and UIM, entered into a Renewal Rights Agreement (Northeast Renewal Agreement), dated as of January 18, 2021 with HCPCI and HCI Group, Inc. (HCI), pursuant to which our Company, UPC and UIM agreed to sell, and HCPCI agreed to purchase, the renewal rights to UPC’s personal lines homeowners business in Connecticut, Massachusetts, New Jersey and Rhode Island. The transfer of Massachusetts and New Jersey policies is subject to regulatory approval. The sale was consummated on January 18, 2021. The transfer of Rhode Island and Connecticut policies was completed as of December 31, 2021.

Effective June 1, 2021, we entered into a quota share reinsurance agreement with HCPCI and TypTap Insurance Company (TypTap) in connection with the Northeast Renewal Agreement. Under the terms of this agreement, we will cede 100% of our in-force, new, and renewal policies in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island. The cession of these policies is 50% to HCPCI and 50% to TypTap. As the transfer of each state is completed under the Northeast Renewal Agreement, the quota share coverage for the transitioned state will no longer be in effect.

We have historically grown our business through strong organic growth complemented by strategic acquisitions and partnerships, including our acquisitions of AmCo Holding Company (AmCo) and its subsidiaries, including ACIC, in April 2017, IIC in April 2016, and Family Security Holdings, LLC (FSH), including its subsidiary FSIC in February 2015, and our strategic partnership with a subsidiary of Tokio Marine Kiln Group Limited (Kiln), which formed JIC in August 2018. During

UNITED INSURANCE HOLDINGS CORP.

2021, our policies in-force has decreased by 25.2% from 630,991 policies in-force at December 31, 2020 to 471,724 policies in-force at December 31, 2021.

Our business is subject to the impact of weather-related catastrophes on our loss and loss adjustment expenses (LAE). Over the last three years, the frequency of these catastrophes has increased. As a result, we have experienced increased catastrophe losses incurred during the prior three years. During the years ended December 31, 2021, 2020 and 2019, seven, thirteen, and five named storms, respectively, made landfall in our geographic footprint, resulting in retained pre-tax catastrophe losses of $35,872,000, $208,157,000, and $32,170,000, respectively. In addition, during each of the three years we increased our loss and LAE reserves as a result of development trends from 2017’s Hurricane Irma, that indicated our ultimate gross loss estimate should be increased.

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

UNITED INSURANCE HOLDINGS CORP.

Consolidated Net Income (Loss)

Year Ended December 31,

REVENUE:

Net unrealized gains (losses) on equity securities 3,237 (27,562) 24,761

EXPENSES:

Less: Net income (loss) attributable to noncontrolling interests (1,949) 956 387

Net loss per diluted share $ (1.35) $ (2.25) $ (0.70)

Return on equity based on GAAP net loss (16.9) % (20.2) % (5.6) %

Effect of prior year development on combined ratio 4.7 % (0.9) % 4.4 %

(1) Loss ratio, net is calculated as losses and LAE net of losses ceded to reinsurers, relative to net premiums earned. Management uses this operating metric to analyze our loss trends and believes it is useful for investors to evaluate this component separately from our other operating expenses.

(2) Expense ratio is calculated as the sum of all operating expenses less interest expense relative to net premiums earned. Management uses this operating metric to analyze our expense trends and believes it is useful for investors to evaluate these components separately from our loss expenses.

(3) Combined ratio is the sum of the loss ratio, net and expense ratio. Management uses this operating metric to analyze our total expense trends and believes it is a key indicator for investors when evaluating the overall profitability of our business.

(4) Underlying combined ratio, a measure that is not based on GAAP, is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in “Definitions of Non-GAAP Measures”, below.

(5) Included in both the expense ratio and the combined ratio is amortization expense predominately associated with the AmCo, IIC, and FSH acquisitions, which cause comparative differences among periods.

UNITED INSURANCE HOLDINGS CORP.

DEFINITIONS OF NON-GAAP MEASURES

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

Combined ratio excluding the effects of current year catastrophe losses and prior year reserve development (underlying combined ratio) is a non-GAAP measure, that is computed by subtracting the effect of current year catastrophe losses and prior year development from the combined ratio. We believe that this ratio is useful to investors, and it is used by management to highlight the trends in our business that may be obscured by current year catastrophe losses and prior year development. Current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their frequency of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year development is caused by unexpected loss development on historical reserves. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is the combined ratio. The underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of our business.

Net loss and LAE excluding the effects of current year catastrophe losses and prior year reserve development (underlying loss and LAE) is a non-GAAP measure that is computed by subtracting the effect of current year catastrophe losses and prior year reserve development from net loss and LAE. We use underlying loss and LAE figures to analyze our loss trends that may be impacted by current year catastrophe losses and prior year development on our reserves. As discussed previously, these two items can have a significant impact on our loss trends in a given period. We believe it is useful for investors to evaluate these components both separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is net loss and LAE. The underlying loss and LAE measure should not be considered a substitute for net loss and LAE and does not reflect the overall profitability of our business.

UNITED INSURANCE HOLDINGS CORP.

RESULTS OF OPERATIONS

Consolidated Results

Net loss attributable to UIHC for the year ended December 31, 2021 decreased by $38,535,000 to $57,919,000, compared to $96,454,000 for the year ended December 31, 2020. The decrease in net losses was primarily driven by a $186,182,000 decrease in loss & LAE expense for the year. This was driven by our decision to lower the retention related of our Core Catastrophe reinsurance program for the 2021-2022 hurricane season coupled with a lower frequency of catastrophic weather activity when compared to 2020 and an increase in ceded losses to our quota share reinsurance program. This was partially offset by a decrease in revenue, driven by a $127,418,000 decrease in gross written premiums as described below. In addition, the company experienced a $177,365,000 increase in ceded premium earned as the result of the changes to the Company’s quota share reinsurance agreements described below, as well as a decrease in realized investments gains in 2021.

Revenues

Our gross written premiums decreased by $127,418,000, or 8.7%, to $1,329,445,000 for the year ended December 31, 2021, from $1,456,863,000 for the year ended December 31, 2020, driven primarily by a decline in written premiums across our personal lines business, due to underwriting actions taken at the end of 2020 and throughout 2021. In addition, we experienced a decrease in assumed premiums due to the termination of a contract which included commercial property business assumed from unaffiliated insurers. The breakdown of the year-over-year changes in both direct and assumed written premiums by region and gross written premium by line of business are shown in the table below.

Direct Written and Assumed Premium By Region (1) 2021 2020 Change

Gross Written Premium by Line of Business

(1) "Gulf" is comprised of Louisiana and Texas in 2021 and Hawaii, Louisiana, and Texas in 2020; "Northeast" is comprised of Connecticut, Massachusetts, New Jersey, New York and Rhode Island; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. As of December 1, 2021, we are no longer writing in Connecticut or Rhode Island as the policies have transitioned to HCPCI.

(2) Assumed premium written for 2021 and 2020 primarily included commercial property business assumed from unaffiliated insurers.

(3) Includes gross written premium from flood policies.

New and Renewal Policies(1) By Region(2) 2021 2020 Change

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

(2) "Gulf" is comprised of Louisiana and Texas in 2021 and Hawaii, Louisiana, and Texas in 2020; "Northeast" is comprised of Connecticut, Massachusetts, New Jersey, New York and Rhode Island; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. As of December 1, 2021, we are no longer writing in Connecticut or Rhode Island as the policies have transitioned to HCPCI.

Ceded premiums earned increased by $177,365,000, or 27.7%, to $818,682,000 for the year ended December 31, 2021 from $641,317,000 for 2020. The increase is primarily driven by a $163,713,000 increase in ceded premiums earned from our

UNITED INSURANCE HOLDINGS CORP.

quota share agreements. We entered into additional quota share reinsurance agreements effective December 31, 2020, which increased our ceding percentage overall and was modified to provide coverage to ACIC. In addition, effective December 31, 2020 we entered into a quota share reinsurance agreement with HCPCI for our Northeast business, excluding New York, as a part of our renewal rights agreement.

Net investment income decreased by $10,353,000, or 42.9%, to $13,772,000 for the year ended December 31, 2021 from $24,125,000 for 2020. The decrease is driven by a $8,905,000 decrease in income from our fixed maturity investment portfolio as a result of lower yields as well as a decrease in the size of our fixed maturity portfolio in 2021. Our equity securities have also produced lower returns during the year ended December 31, 2021, driven by decreased holdings during 2021, as the result of our decision to dispose of our equity portfolio at the end of 2020, causing a $1,460,000 decrease in net investment income.

Net realized investment gains and net unrealized gains (losses) on equity securities decreased by $32,325,000, or 82.6%, to a net gain of $6,804,000 for the year ended December 31, 2021 from a net gain of $39,129,000 for the year ended December 31, 2020, primarily driven by the disposal of our equity portfolio and the sale and reinvestment of our fixed maturity portfolio in 2020, during a favorable price environment, in efforts to mitigate potential surplus declines from market volatility for each of our insurance subsidiaries.

Expenses

Expenses for the year ended December 31, 2021 decreased $260,265,000, or 26.6%, to $718,568,000 for the year ended December 31, 2021, from $978,833,000 for 2020. The decrease in expenses was primarily due to a decrease in loss and LAE as a result of increased cessions in 2021 to our Core Catastrophe and quota share reinsurance programs, as well as a lower frequency of catastrophe activity during 2021. The calculations of our combined loss ratios and underlying loss ratios are shown below.

($ in thousands) Year ended

December 31,

% of Gross earned premiums 30.0 % 43.2 % (13.2) pts

% of Net earned premiums 71.6 % 79.4 % (7.8) pts

Less:

% of Gross earned premiums 19.9 % 22.8 % (2.9) pts

% of Net earned premiums 47.6 % 41.8 % 5.8 pts

(1) Underlying loss and LAE is a non-GAAP financial measure and is reconciled above to net loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in the “Definitions of Non-GAAP Measures” section, above.

The calculations of the Company’s expense ratios are shown below.

($ in thousands) Year ended

December 31,

% of Gross earned premiums 20.4 % 25.7 % (5.3) pts

% of Net earned premiums 48.7 % 47.1 % 1.6 pts

Loss and LAE decreased by $186,182,000, or 30.6%, to $422,134,000 for the year ended December 31, 2021, from $608,316,000 for the year ended December 31, 2020. Loss and LAE expense as a percentage of net earned premiums

UNITED INSURANCE HOLDINGS CORP.

decreased 7.8 points to 71.6% for the year ended December 31, 2021, compared to 79.4% for the year ended December 31, 2020. During the year ended December 31, 2021, we experienced increased non-catastrophe cessions as a result of the changes to our quota share agreements at the end of 2020 and during 2021. In addition, during the year ended December 31, 2020 there was a higher frequency of catastrophe events when compared to 2021. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the year ended December 31, 2021 would have been 19.9%, a decrease of 2.9 points from 22.8% during the year ended December 31, 2020.

Policy acquisition costs decreased by $62,428,000, or 26.5%, to $173,574,000 for the year ended December 31, 2021, from $236,002,000 for the year ended December 31, 2020. The primary driver of the decrease in expense was an increase in ceding commission income of $63,661,000 related to our quota share reinsurance agreements. In addition, there was a $11,678,000 decrease in expenses incurred, such as premium taxes and agent commission expenses, which fluctuate in conjunction with the year over year decrease in written premium. This was partially offset by an $18,576,000 increase in external management fees incurred during 2021 as the result of an increased volume of commercial written premium year over year.

Operating and underwriting expenses increased by $3,381,000, or 6.4%, to $56,257,000 for the year ended December 31, 2021, from $52,876,000 for the year ended December 31, 2020, primarily due to increased expenses related to our investment in technology of $7,271,000. This was partially offset by a $3,092,000 decrease in agent incentive costs in 2021 as we have discontinued our agent incentive program. We also experienced decreases in travel expenses of $289,000 due to the lack of company travel during 2021 as a result of the continued effects of the coronavirus pandemic and decreases in office overhead expenses of $378,000 in 2021 driven by our shift to a remote work environment.

General and administrative expenses decreased by $14,845,000, or 20.6%, to $57,212,000 for the year ended December 31, 2021, from $72,057,000 for the year ended December 31, 2020, primarily due to a $8,215,000 decrease in salary related expenses driven by an increase in the allocation of claims adjustment payroll related costs to loss & LAE from general and administrative expenses in 2021. In addition, in 2020 we incurred $2,763,000 in expenses related to the discontinuation of plans to build new headquarters, an expense which is non-recurring in 2021.

We experienced adverse reserve development in the current year and its historical impact on our net loss and net underlying loss ratios is outlined in the following table.

Historical Reserve Development

(1) Underlying net loss and LAE Ratio is a non-GAAP measure and is reconciled above to the Consolidated net loss and LAE Ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this Form 10-K can be found in the “Definitions of Non-GAAP Measures” section, above.

UNITED INSURANCE HOLDINGS CORP.

Personal Lines Operating Segment Results

Pretax earnings attributable to our personal lines operating segment for the year ended December 31, 2021 increased by $30,541,000 to a pretax loss of $104,556,000, compared to a pretax loss of $135,097,000 for the year ended December 31, 2020. The decrease in pretax net loss was primarily due to a $148,803,000 decrease in losses and LAE during 2021, driven by increased cessions to our core catastrophe reinsurance program and quota share reinsurance agreements. We also experienced a $44,350,000 decrease in policy acquisition costs year over year due to increased ceding commission income. This was partially offset by a $153,778,000 decrease in net premiums earned, driven by decreases in gross written premiums as well as increased ceded premiums earned in 2021.

Revenues

Our gross written premiums attributable to our personal lines operating segment decreased by $156,393,000, or 14.7%, to $907,207,000 for the year ended December 31, 2021, from $1,063,600,000 for the year ended December 31, 2020, primarily reflecting the impact of our underwriting actions taken at the end of 2020 and during 2021. The breakdown of the year-over-year changes in both direct and assumed written premiums by region are shown in the table below.

Direct Written and Assumed Premium By Region(1) 2021 2020 Change

Assumed premium — — —

New and Renewal Policies(1) By Region(2) 2021 2020 Change

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

Ceded premiums earned attributable to our personal lines operating segment increased by $134,786,000, or 30.2%, to $581,626,000 for the year ended December 31, 2021 from $446,840,000 for the year ended December 31, 2020. The increase is primarily driven by a $101,722,000 increase in ceded premiums earned from our quota share agreements. Effective December 31, 2020, we modified our existing and entered into a new quota share agreement which increased our overall ceding percentage. In addition, effective December 31, 2020 we entered into a quota share reinsurance agreement with HCPCI for our northeast business, excluding New York, as a part of our renewal rights agreement. In addition to these quota share changes, we also experienced an increase in our ceded earned premiums related to our catastrophe reinsurance agreements of $35,957,000 as we added more coverage to the program.

Net investment income attributable to our personal lines operating segment decreased by $6,761,000, or 43.0%, to $8,962,000 for the year ended December 31, 2021 from $15,723,000 for the year ended December 31, 2020. The decrease is driven by a $6,049,000 decrease in income from our fixed maturity investment portfolio as a result of lower yields as well as a decrease in the size of our fixed maturity portfolio in 2021. In addition to this decrease we also experienced lower returns from our equity securities driven by a decrease in our holdings during 2021, causing a $946,000 decrease in net investment income.

UNITED INSURANCE HOLDINGS CORP.

Net realized investment gains and net unrealized gains (losses) on equity securities attributable to our personal lines operating segment decreased by $17,349,000, or 76.4%, to a net gain of $5,367,000 for the year ended December 31, 2021 from a net gain of $22,716,000 for the year ended December 31, 2020, primarily driven by the disposal of our equity portfolio and the sale and reinvestment of our fixed maturity portfolio in 2020, during a favorable price environment, in efforts to mitigate potential surplus declines from market volatility for each of our insurance subsidiaries.

Expenses

Expenses attributable to our personal lines operating segment for the year ended December 31, 2021 decreased $201,862,000, or 26.5%, to $559,812,000 for the year ended December 31, 2021, from $761,674,000 for the year ended December 31, 2020. The decrease in expenses was primarily due to a decrease in loss and LAE of $148,803,000, as a result of increased cessions to our core catastrophe and quota share reinsurance programs, as well as a lower frequency of catastrophe activity during 2021. The calculations of our combined loss ratios and underlying loss ratios are shown below.

($ in thousands) Year ended

December 31,

% of Gross earned premiums 36.8 % 50.8 % (14.0) pts

% of Net earned premiums 88.2 % 90.5 % (2.3) pts

Less:

Prior year reserve unfavorable (favorable) development 32,209 (7,587) 39,796

% of Gross earned premiums 23.1 % 25.0 % (1.9) pts

% of Net earned premiums 55.5 % 44.5 % 11.0 pts

The calculations of the Company’s personal lines operating segment expense ratios are shown below.

($ in thousands) Year ended

December 31,

% of Gross earned premiums 19.3 % 24.1 % (4.8) pts

% of Net earned premiums 46.2 % 43.0 % 3.2 pts

Loss and LAE attributable to our personal lines operating segment decreased by $148,803,000, or 28.8%, to $367,416,000 for the year ended December 31, 2021, from $516,219,000 for the year ended December 31, 2020. Loss and LAE expense as a percentage of net earned premiums decreased 2.3 points to 88.2% for the year ended December 31, 2020, compared to 90.5% for the year ended December 31, 2020. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the year ended December 31, 2021 would have been 23.1%, a decrease of 1.9 points from 25.0% during the year ended December 31, 2020.

Policy acquisition costs attributable to our personal lines operating segment decreased by $44,350,000, or 32.2%, to $93,376,000 for the year ended December 31, 2021, from $137,726,000 for the year ended December 31, 2020. The primary driver of the decrease in costs was an increase in ceding commission income related primarily to our quota share reinsurance agreements of $28,507,000. In addition, we also experienced decreases in various other expenses such as agent commissions and policy admin fees due to decreased written premiums year over year, as described above.

UNITED INSURANCE HOLDINGS CORP.

Operating and underwriting expenses attributable to our personal lines operating segment increased by $1,749,000, or 3.6%, to $51,004,000 for the year ended December 31, 2021, from $49,255,000 for the year ended December 31, 2020, primarily due to increased expenses related to our investment in technology of $6,680,000, partially offset by a decrease in agent costs of $3,087,000, driven by the discontinuation of our agent incentive program in 2021, as well as a $2,452,000 decrease in underwriting expenses such as inspection costs and underwriting reports, driven by the decrease in our written premiums in 2021.

General and administrative expenses attributable to our personal lines operating segment decreased by $10,458,000, or 17.9%, to $47,927,000 for the year ended December 31, 2021, from $58,385,000 for the year ended December 31, 2020, primarily due to decreased salary and benefit related costs of $8,361,000 driven by an increase in the allocation of claims adjustment payroll related costs to loss & LAE from general and administrative expenses in 2021.

Commercial Lines Operating Segment Results

Pretax earnings attributable to our commercial lines operating segment for the year ended December 31, 2021 increased by $16,073,000 to pretax income of $32,021,000, compared to pretax income of $15,948,0000 for the year ended December 31, 2020. The increase in pretax earnings was primarily due to a decrease in our loss & LAE expense in 2021 of 37,379,000, driven by increased cessions to our core catastrophe reinsurance program in 2021 compared to 2020 and cessions to our quote share reinsurance agreements which were modified to include ACIC effective December 31, 2020. In addition, we also experienced an $18,078,000 decrease in policy acquisition costs, which can be attributed to ceding commission income in 2021 from our quota share agreements. These decreases were offset by a $22,123,000 decrease in net premiums earned in 2021 driven by increased ceded premium earned year over year.

Revenues

Our gross written premiums attributable to our commercial lines operating segment increased by $28,975,000, or 7.4%, to $422,238,000 for the year ended December 31, 2021, from $393,263,000 for the year ended December 31, 2020, primarily reflecting the impact of rate increases as well as organic growth in renewal business generated. These increases were partially offset by a decrease in assumed premiums of $44,989,000 or 99.3%, due to the termination of a contract which included commercial property business assumed from unaffiliated insurers. The breakdown of the year-over-year changes in both direct and assumed written premiums by state are shown in the table below.

Direct Written and Assumed Premium By State 2021 2020 Change

(1) Assumed premium written for 2021 and 2020 primarily included commercial property business assumed from unaffiliated insurers.

New and Renewal Policies(1) By State 2021 2020 Change

(1) Only includes new and renewal commercial policies written during the year.

Ceded premiums earned attributable to our commercial lines operating segment increased by $42,579,000 or 21.9%, to $237,056,000 for the year ended December 31, 2021 from $194,477,000 for the year ended December 31, 2020. The increase is primarily driven by a $61,991,000 increase in ceded premiums earned from adding ACIC to our quota share agreements, offset by a decrease in our catastrophe reinsurance agreements ceded premiums earned of $18,050,000. Effective December 31, 2020, our quota share agreements were modified to increase our ceding percentage and include ACIC. In the prior year we had no ceded premium earned related to quota share reinsurance agreements.

UNITED INSURANCE HOLDINGS CORP.

Net investment income attributable to our commercial lines operating segment decreased by $3,118,000, or 39.6%, to $4,764,000 for the year ended December 31, 2021 from $7,882,000 for 2020. The decrease is driven by a $2,544,000 decrease in income from our fixed maturity investment portfolio as a result of lower yields, as well as a decrease in the size of our fixed maturity portfolio in 2021. Our equity securities also produced lower returns during the year ended December 31, 2021, driven by a decrease in our holdings during 2021, causing a $219,000 decrease in net investment income.

Net realized investment gains and net unrealized gains (losses) on equity securities attributable to our commercial lines operating segment decreased by $12,817,000, or 89.9%, to a net gain of $1,437,000 for the year ended December 31, 2021 from a net gain of $14,254,000 for 2020, primarily driven by the disposal of our equity portfolio and the sale and reinvestment of our fixed maturity portfolio in 2020, during a favorable price environment, in an effort to mitigate potential surplus declines from market volatility for each of our insurance subsidiaries.

Expenses

Expenses attributable to our commercial lines operating segment for the year ended December 31, 2021 decreased $54,138,000, or 26.9%, to $147,388,000 for the year ended December 31, 2021, from $201,526,000 for the year ended December 31, 2020. The decrease in expenses was primarily due to a decrease in loss and LAE as a result of increased cessions in 2021 to our core catastrophe reinsurance program and cessions to our quote share reinsurance agreements which were modified to include ACIC effective December 31, 2020. In addition, we also experienced a lower frequency of catastrophe activity during 2021. The calculations of our combined loss ratios and underlying loss ratios are shown below.

($ in thousands) Year ended

December 31,

% of Gross earned premiums 13.3 % 23.6 % (10.3) pts

% of Net earned premiums 31.6 % 47.1 % (15.5) pts

Less:

Prior year reserve favorable development (4,353) 801 (5,154)

% of Gross earned premiums 12.1 % 17.1 % (5.0) pts

% of Net earned premiums 28.6 % 34.1 % (5.5) pts

The calculations of the Company’s commercial lines operating segment expense ratios are shown below.

($ in thousands) Year ended

December 31,

% of Gross earned premiums 22.6 % 28.1 % (5.5) pts

% of Net earned premiums 53.5 % 56.0 % (2.5) pts

Loss and LAE attributable to our commercial lines operating segment decreased by $37,379,000, or 40.6%, to $54,718,000 for the year ended December 31, 2021, from $92,097,000 for the year ended December 31, 2020. Loss and LAE expense as a percentage of net earned premiums decreased 15.5 points to 31.6% for the year ended December 31, 2021, compared to 47.1% for the year ended December 31, 2020. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the year ended December 31, 2021 would have been 12.1%, a decrease of 5.0 points from 17.1% during the year ended December 31, 2020.

UNITED INSURANCE HOLDINGS CORP.

Policy acquisition costs attributable to our commercial lines operating segment decreased by $18,078,000, or 18.4%, to $80,198,000 for the year ended December 31, 2021, from $98,276,000 for the year ended December 31, 2020. The primary driver of the decrease in costs was an increase of $24,159,000 in ceding commission income related to our quota share reinsurance agreements. In addition, we experienced a decrease in ceding commission expenses related to our assumed premiums of $11,053,000 in 2021. This was offset by an increase in our external management fees paid of $18,606,000 as a result of increased written premium in 2021.

Operating and underwriting expenses attributable to our commercial lines operating segment increased by $1,433,000, or 41.7%, to $4,873,000 for the year ended December 31, 2021, from $3,440,000 for the year ended December 31, 2020, primarily due to increased expenses related to our investment in technology of $1,226,000.

General and administrative expenses attributable to our commercial lines operating segment remained relatively flat, decreasing by $86,000, or 1.1%, to $7,599,000 for the year ended December 31, 2021, from $7,685,000 for the year ended December 31, 2020.

UNITED INSURANCE HOLDINGS CORP.

ANALYSIS OF FINANCIAL CONDITION

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and related notes in Part II, Item 8 in this Form 10-K.

Investments

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

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

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

Our cash and investment portfolios totaled $964,844,000 at December 31, 2021 compared to $1,296,549,000 at December 31, 2020.

The following table summarizes our investments, by type:

Estimated Fair Value Percent of Total Estimated Fair Value Percent of Total

We classify all of our investments as available-for-sale. Our investments at December 31, 2021 and 2020 consisted mainly of U.S. government and agency securities, states, municipalities and political subdivisions, mortgage-backed securities and securities of investment-grade corporate issuers. Our equity holdings in 2021 and 2020 consisted mainly of securities issued by companies in the financial, utilities and industrial sectors or mutual funds. Most of the corporate bonds we hold reflected a similar diversification. At December 31, 2021, approximately 83.2% of our fixed maturities were U.S. Treasuries, or corporate bonds rated “A” or better, and 16.8% were corporate bonds rated “BBB” or “BB”.

UNITED INSURANCE HOLDINGS CORP.

The most significant impact of COVID-19 on our business occurred during the year ended December 31, 2020, where we saw fluctuations in our investment portfolio due to volatility in the equity securities markets that we were unable to predict. During the second half of the year ended December 31, 2020, we decreased our equity portfolio from 9.1% of our total invested assets (including cash, restricted cash and cash equivalents) at June 30, 2020 to 0.6% of our total invested assets (including cash, restricted cash and cash equivalents) at December 31, 2020. As a result of this decrease, we experienced a decreased impact from fluctuations in the equity securities markets on our financial statements for the second half of the year ended December 31, 2020. In the first quarter of 2021, we began to increase our investments in the equities market. Management is working closely with our investment managers to monitor the fluctuations in the markets and the corresponding impact to our portfolios.

Reinsurance

We follow industry practice of reinsuring a portion of our risks. Reinsurance involves transferring, or “ceding”, all or a portion of the risk exposure on policies we write to another insurer, known as a reinsurer. To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain primarily liable for the entire insured loss under the policies we write.

Our reinsurance program is designed, utilizing our risk management methodology, to address our exposure to catastrophes. According to the Insurance Service Office (ISO), a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in $25,000,000 or more in U.S. industry-wide direct insured losses to property and that affect a significant number of policyholders and insurers (ISO catastrophes). In addition to ISO catastrophes, we also include as catastrophes those events (non-ISO catastrophes), which may include losses, that we believe are, or will be, material to our operations which we define as incidents that result in $1,000,000 or more in losses for multiple policyholders.

Effective December 31, 2021, we entered into a structured quota share agreement. This structured quota share reinsurance agreement has a cession rate of 25% and covers UPC and FSIC’s non-catastrophe losses on policies in-force on the effective date of the agreement.

Effective December 31, 2021, we entered into a quota share reinsurance agreement with HCPCI. Under the terms of this agreement, we will cede 85% of our in-force, new, and renewal policies in the states of Georgia, North Carolina and South Carolina. As a result, our 8% quota share agreement was modified to exclude these states, effective December 31, 2021.

Effective December 13, 2021, we renewed our all other perils (AOP) catastrophe excess of loss agreement. The agreement provides protection from catastrophe loss events other than named windstorms and earthquakes up to $110,000,000. During the year ended December 31, 2021, we ceded $91,223,000 under the contract period effective January 1, 2021 through December 31, 2021.

Effective June 1, 2021, we entered into a quote share reinsurance agreement with HCPCI and TypTap. Under the terms of this agreement, we will cede 100% of our in-force, new, and renewal policies in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island. The cession of these policies is 50% to HCPCI and 50% to TypTap. As a result, our 15% quota share and excess of loss agreements were modified to exclude policies in these states effective June 1, 2021. As the transfer of states is completed, the quota share coverage for the transitioned state will no longer be in effect.

During the second quarter of 2021, we placed our reinsurance program for the 2021 hurricane season. We purchased catastrophe excess of loss reinsurance protection of $2,900,000,000. The treaties reinsure personal and commercial lines property excess catastrophe losses caused by multiple perils including hurricanes and tropical storms. The agreements were effective as of June 1, 2021, for a one-year term and incorporate the mandatory coverage required by and placed with the Florida Hurricane Catastrophe Fund (FHCF). The FHCF covers Florida risks only and we participate at 90%. Under our core catastrophe excess of loss treaty and excess of loss aggregate treaty, retention on a first and second event is $15,000,000 each and retention on subsequent events total $1,000,000, resulting in a maximum retention of $31,000,000. Retentions for JIC are $4,000,000 for a first event and $1,000,000 for subsequent events, covering all perils. Retention for IIC is $3,000,000 per occurrence, covering all perils.

Effective December 31, 2020, we extended our quota share agreement that was set to expire on May 31, 2021. This quota share reinsurance agreement had a cession rate of 15% and 7.5% for all subject business and provides coverage for all catastrophe perils and attritional losses. The cession rate is comprised of a quota share cession of 15% which was renewed through May 31, 2022, which covers UPC, FSIC, and ACIC, a quota share cession of 8% which was renewed effective December 31, 2021 through December 31, 2022, with the remaining 7.5% covering UPC and FSIC only, which was

UNITED INSURANCE HOLDINGS CORP.

nonrenewed at June 1, 2021. For all catastrophe perils, the quota share agreements provide ground-up protection effectively reducing our retention for catastrophe losses.

In addition, effective June 1, 2021 our quota share agreements were modified to exclude policies in New York. This modification was made as the result of our 100% internal quota share agreement, effective June 1, 2021, which cedes 100% of UPC's in-force, new, and renewal policies in the state of New York to our subsidiary, IIC.

Effective December 31, 2020, we entered into a quota share reinsurance agreement with HCPCI, effective as of December 31, 2020. According to the terms of this reinsurance contract, UPC Insurance ceded and HCPCI assumed a 69.5% quota share of our personal lines homeowners business in Connecticut, Massachusetts, New Jersey, and Rhode Island on an in-force, new and renewal basis for the period from December 31, 2020 through May 31, 2021. This agreement was replaced by the 100% quota share agreement with HCPCI and TypTap.

Reinsurance costs as a percent of gross earned premium during the years ended December 31, 2021 and 2020 were as follows:

Non-at-Risk (2.1) % (2.4) %

Total Ceding Ratio (58.2) % (45.6) %

Reinsurance costs as a percent of gross earned premium for our commercial lines and personal lines operating segments during the years ended December 31, 2021 and 2020 were as follows:

Personal Commercial

Non-at-Risk (2.9) % (3.1) % (0.2) % (0.6) %

Please note that the sum of the percentages above will not reconcile to the consolidated percentages as they are calculated using each operating segments’ gross earned premium rather than our consolidated gross earned premium.

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

Year Ended December 31,

(1) We began writing cyber security and inland flood policies in 2020.

UNITED INSURANCE HOLDINGS CORP.

The breakdown of our ceded premiums written under the various types of agreements, as well as the amortization of ceded unearned premiums for our commercial lines and personal lines operating segments can be seen in the tables below. These values can be reconciled to the table above.

Personal Lines Operating Segment

Year Ended December 31,

Equipment, identity theft, and cyber security (1) (811) (11,724) (11,036)

(1) We began writing cyber security and inland flood policies in 2020.

Commercial Lines Operating Segment Impact

Year Ended December 31,

Equipment, identity theft, and cyber security (1) (751) (2,077) (2,342)

(1) We began writing cyber security in 2020.

UNITED INSURANCE HOLDINGS CORP.

Current year catastrophe losses disaggregated between named and numbered storms and all other catastrophe loss events are shown in the following table.

Current period catastrophe losses incurred

Named and numbered storms 7 $ 35,872 6.1 %

Current period catastrophe losses incurred

Named and numbered storms 5 $ 32,170 4.3 %

All other catastrophe loss events 32 64,705 8.6 %

(1) Incurred loss and LAE is equal to losses and LAE paid plus the change in case and incurred but not reported reserves. Shown net of losses ceded to reinsurers. Incurred loss and LAE and number of events includes the development on storms during the year in which it occurred.

The impact of the current year catastrophes to our commercial lines and personal lines operating segments can be seen in the table below. Please note that the catastrophe events may have impacted both operating segments. As a result, the sum of the number of events in the tables below will not reconcile to the consolidated number of events above. In addition, the combined ratio impact is calculated and sum of the ratios in the tables below will not reconcile to the ratios above.

UNITED INSURANCE HOLDINGS CORP.

Personal Lines Operating Segment Impact

Current period catastrophe losses incurred

Named and numbered storms 7 $ 35,715 8.6 %

Current period catastrophe losses incurred

Named and numbered storms 5 $ 29,477 5.5 %

All other catastrophe loss events 32 48,217 9.1 %

UNITED INSURANCE HOLDINGS CORP.

Commercial Lines Operating Segment Impact

Current period catastrophe losses incurred

Named and numbered storms 4 $ 158 0.1 %

All other catastrophe loss events 4 9,372 5.4 %

Current period catastrophe losses incurred

Named and numbered storms 8 $ 16,684 8.5 %

All other catastrophe loss events 9 7,978 4.1 %

Current period catastrophe losses incurred

Named and numbered storms 1 $ 2,693 1.2 %

All other catastrophe loss events 3 16,488 7.5 %

See Note 9 in our Notes to Consolidated Financial Statements for additional information regarding our reinsurance program.

Unpaid Losses and Loss Adjustments

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

Unpaid losses and LAE totaled $1,084,450,000 and $1,089,966,000 as of December 31, 2021 and 2020, respectively. Of this total, $230,377,000 and $349,882,000 is related to our commercial lines operating segment, respectively. The remaining $854,073,000 and $740,084,000 is related to our personal lines operating segment, respectively. On a consolidated basis, this balance has remained relatively flat year over year, despite decreased current year catastrophe losses incurred in 2021, driven by a decrease in the frequency of catastrophe activity in 2021. This decrease in activity is offset by the increase in severity of current year losses, driven primarily by Hurricane Ida which made landfall in the third quarter of 2021. Despite unpaid losses and LAE remaining flat year over year, we have seen an increase in our reinsurance recoverables year over year due to the decrease in our core catastrophe reinsurance program’s retention levels in 2021 and our increase in quota share cessions in 2021..

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

See Note 10 in our Notes to Consolidated Financial Statements for additional information regarding our losses and LAE.

UNITED INSURANCE HOLDINGS CORP.

LIQUIDITY AND CAPITAL RESOURCES

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

As a holding company, we do not conduct any business operations of our own and, as a result, we rely on cash dividends or intercompany loans from our management subsidiaries to pay our general and administrative expenses. Insurance regulatory authorities heavily regulate our insurance subsidiaries, including restricting any dividends paid by our insurance subsidiaries and requiring approval of any management fees our insurance subsidiaries pay to our management subsidiaries for services rendered; however, nothing restricts our non-insurance company subsidiaries from paying us dividends other than state corporate laws regarding solvency. Our management subsidiaries pay us dividends primarily using cash from the collection of management fees from our insurance subsidiaries, pursuant to the management agreements in effect between those entities. In accordance with state laws, our insurance subsidiaries may pay dividends or make distributions out of that part of their statutory surplus derived from their net operating profit and their net realized capital gains. The RBC guidelines published by the NAIC may further restrict our insurance subsidiaries’ ability to pay dividends or make distributions if the amount of the intended dividend or distribution would cause their respective surplus as it regards policyholders to fall below minimum RBC guidelines. See Note 15 in our Notes to Consolidated Financial Statements and Part II, Item 5 for additional information.

During the year ended December 31, 2021, we contributed $17,000,000, $8,000,000 and $17,500,000 to our insurance subsidiaries, UPC, FSIC, and ACIC, respectively. During the year ended December 31, 2020, we contributed $12,000,000 and $3,000,000 to our insurance subsidiary, UPC, and reinsurance subsidiary, UPC Re, respectively. We may make future contributions of capital to our insurance subsidiaries as circumstances require.

During February 2021, we received a dividend of $3,500,000 from IIC. During February 2020, we received a dividend of $12,000,000 from IIC. During August 2019, we received a dividend of $13,579,000 from our insurance subsidiary ACIC. In 2019, the $1,764,000 dividend paid by IIC in 2018 was returned by UIHC.

On December 13, 2017, we issued $150,000,000 of senior notes (Senior Notes) that will mature on December 15, 2027 and bear interest at a rate equal to 6.25% per annum payable semi-annually on each June 15 and December 15, commencing June 15, 2018. The Senior Notes are senior unsecured obligations of the Company. We may redeem the Senior Notes at our option, at any time and from time to time in whole or in part, at a redemption price equal to the greater of (i) 100% of the principal amount of the Senior Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest thereon from the date of redemption to the date that is three months prior to maturity. On and after that date, we may redeem the Senior Notes at par.

As a result of claim activity from the current and prior years, we have an obligation related to the unpaid policyholder losses and unpaid loss adjustment expenses associated with the settling of these claims. As of December 31, 2021, our total obligation related to these claim payments was $1,084,450,000, of which we estimate $608,615,000 to be short-term in nature (due in less than twelve months), based upon our cumulative claims paid over the last 21 years. While we believe that historical performance of loss payment patterns is a reasonable source for projecting future claim payments, there is inherent uncertainty in this estimated projected settlement, and as a result these estimates will differ, perhaps significantly, from actual future payments.

In addition to our unpaid loss and loss adjustment expenses, as of December 31, 2021 we have outstanding debt obligations related to our notes payable totaling $158,559,000. This is exclusive of interest costs, which we estimate will total $65,629,000 over the life of the debt, based on the current fixed and variable interest rates of these notes. Our short-term obligation related to these notes payable total $1,523,000 in principal payments and $9,506,000 in estimated interest payments. For more information regarding these outstanding notes, please see Note 11.

In connection with entering into contracts with our outside vendors, we have minimum obligations due to our vendors over the life of the contracts. Our main vendor obligations are related to underwriting tools, claims and policy administration systems, and software used by our information technology department in their daily operations. Our total obligation related to these three categories of obligations are $2,370,000, $8,031,000, and $6,250,000, respectively. Of these obligations, $1,257,000, $5,940,000, and $1,250,000, respectively are short-term in nature.

UNITED INSURANCE HOLDINGS CORP.

Cash Flows for the Year Ended December 31, (in millions)

Operating Activities

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

During the year ended December 31, 2021, several balance sheet items were impacted by our increased reinsurance coverage entered into at the end of 2020 and in 2021. Reinsurance recoverable on paid and unpaid losses increased during the period, driven by our increased ceding on catastrophe losses related primarily to Hurricane Ida and increased quota share cessions. Ceded unearned premiums also increased, driven by the increase in ceded written premiums associated with these additional agreements. In addition to these items, we also saw a decrease in our unearned premium balance at December 31, 2021, driven by our decreased personal lines written premium in 2021 as the result of underwriting actions taken by the Company at the end of 2020 and throughout 2021.

Investing Activities

The principal cash inflows from our investing activities come from repayments of principal, proceeds from maturities and sales of investments. We closely monitor and manage these risks through our comprehensive investment risk management process. The principal cash outflows relate to purchases of investments and cost of property, equipment and capitalized software acquired. Additional cash outflows relate to the purchase of fixed assets. The primary liquidity concerns with respect to these cash flows are the risk of default by debtors and market disruption. During the year ended December 31, 2021, cash provided by investing activities increased $214,811,000 as the result of net sales of investments totaling $256,648,000 in 2021, compared to $47,414,000 in 2020.

Financing Activities

The principal cash inflows from our financing activities come from issuances of debt and other securities. The principal cash outflows come from repayments of debt and payments of dividends. The primary liquidity concern with respect to these cash flows is market disruption in the cost and availability of credit. We believe our current capital resources, together with cash provided from our operations, are sufficient to meet currently anticipated working capital requirements. During the year ended December 31, 2021, cash used in financing activities increased by $552,000 due to a $588,000 increase year over year in cash outflows related to our repayment of our outstanding debt, offset by a $73,000 decrease year over year in our tax withholding payments related to the net settlement of equity awards.

UNITED INSURANCE HOLDINGS CORP.

RECENT ACCOUNTING STANDARDS

Please refer to Note 2(v) in our Notes to Consolidated Financial Statements for a discussion of recent accounting standards that may affect us.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements. The most critical estimates include those used in determining:

•reserves for unpaid losses,

•fair value of investments,

•investment portfolio credit allowances, and

•goodwill.

In making these determinations, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance industry. It is reasonably likely that changes in these estimates could occur from time to time and result in a material impact on our consolidated financial statements.

In addition, the preparation of our financial statements in accordance with GAAP prescribes when we may reserve for particular risks, including litigation exposures. Accordingly, our results for a given reporting period could be significantly affected if and when we establish a reserve for a major contingency. Therefore, the results we report in certain accounting periods may appear to be volatile and past results may not be indicative of results in future periods.

Reserves for Unpaid Losses and LAE

Reserves for unpaid losses and LAE represent the most significant accounting estimate inherent in the preparation of our financial statements. These reserves represent management’s best estimate of the amount we will ultimately pay for losses and we base the amount upon the application of various actuarial reserve estimation techniques as well as considering other material facts and circumstances known at the balance sheet date.

As discussed in Note 10 in our Notes to Consolidated Financial Statements, we determine our ultimate losses by using multiple actuarial methods to determine an actuarial estimate within a relevant range of indications that we calculate using generally accepted actuarial techniques. Our selection of the actuarial estimate is influenced by the analysis of our historical loss and claims experience since inception. For each accident year, we estimate the ultimate incurred losses for both reported and unreported claims. In establishing this estimate, we reviewed the results of various actuarial methods discussed in Note 10 in our Notes to Consolidated Financial Statements.

Fair Value of Investments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are responsible for the determination of fair value of financial assets and the supporting assumptions and methodologies. We use quoted prices from active markets and we use an independent third-party valuation service to assist us in determining fair value. We obtain only one single quote or price for each financial instrument.

As discussed in Note 4 in our Notes to Consolidated Financial Statements, we value our investments at fair value using quoted prices from active markets, to the extent available. For securities for which quoted prices in active markets are unavailable, we use observable inputs such as quoted prices in inactive markets, quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs. We also have investments in limited partnerships that require us to use the net asset value per share method of valuation to determine fair value.

See “Item 7a. Quantitative and Qualitative Disclosures about Market Risk” for more information regarding the sensitivity of our fixed maturity portfolio to changes in interest rates.

UNITED INSURANCE HOLDINGS CORP.

Investment Portfolio Credit Allowances

For investments classified as available for sale, the difference between fair value and cost or amortized cost for fixed income securities is reported as a component of accumulated other comprehensive income (loss) on our Consolidated Balance Sheet and is not reflected in our net income (loss) of any period until reclassified to net income (loss) upon the consummation of a transaction with an unrelated third party. We have a portfolio monitoring process to identify and evaluate each fixed income security whose carrying value may be impaired as the result of a credit loss.

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

If our management decides not to sell the fixed-income security and it is more likely than not that we will not be required

to sell the fixed-income security before recovery of its amortized cost basis, we evaluate whether the decline in fair value has

resulted from credit losses or other factors. This is typically indicated by a change in the rating of the security assigned by a

rating agency, and any adverse conditions specifically related to the security or industry, among other factors. If the assessment

indicates that a credit loss may exist, the present value of cash flows expected to be collected from the security are compared to

the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized

cost basis, a credit loss exists and an allowance for credit losses will be recorded in earnings. Credit loss is limited to the

difference between a security's amortized cost basis and its fair value. Any additional impairment not recorded through an

allowance for credit losses is recognized in other comprehensive income.

If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an allowance for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income (loss). If we determine that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, we may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.

Due to the adoption of Accounting Standards Update (ASU) 2016-01 (ASU 2016-01) as of January 1, 2018, equity securities are reported at fair value with changes in fair value, including impairment write-downs, being recognized in the revenue section of our Consolidated Statements of Comprehensive Loss.

See Note 2(b) in our Notes to Consolidated Financial Statements for further information regarding our credit loss testing.

Measurement of Goodwill and Related Impairment

Goodwill is the excess of cost over the estimated fair value of net assets acquired. Goodwill is not amortized but is tested

for impairment at least annually or more frequently if events or circumstances, such as adverse changes in the business climate,

indicate that there may be justification for conducting an interim test. We test goodwill for impairment by performing a

qualitative assessment. If the assessment indicates that an impairment may exist, a quantitative assessment is performed. Goodwill is impaired when it is determined that the carrying value of a reporting unit is in excess of the fair value of that reporting unit. The valuation methodologies utilized are subject to key judgments and assumptions that are sensitive to change. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation regarding future developments.

Please refer to Note 2(k) and Note 8 in our Notes to Consolidated Financial Statements for further information regarding our measurement of Goodwill and Related Impairment.

RELATED PARTY TRANSACTIONS

Please refer to Note 16 in our Notes to Consolidated Financial Statements for a discussion of our related party transactions.

UNITED INSURANCE HOLDINGS CORP.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Our investment objective is to preserve capital, maximize after-tax investment income, maintain liquidity and minimize risk. Our current investment policy limits investment in non-investment grade debt securities, and limits total investments in preferred stock, common stock and mortgage notes receivables. We also comply with applicable laws and regulations that further restrict the type, quality and concentration of our investments. In general, these laws and regulations permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, and preferred and common equity securities.

Our investment policy was established by the Investment Committee of our Board of Directors and is reviewed regularly. Pursuant to this investment policy, our fixed-maturity portfolio is classified as available for sale and we report any unrealized gains or losses, net of deferred income taxes, as a component of other comprehensive income (loss) within our stockholders’ equity. We do not hold any securities that are classified as held to maturity and we do not hold any securities for trading or speculation. We do not utilize any swaps, options, futures or forward contracts to hedge or enhance our investment portfolio. The unrealized gains or losses related to our equity securities are recorded on the income statement per the guidance in ASU 2016-01.

INTEREST RATE RISK

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

The following table illustrates the impact of hypothetical changes in interest rates on the fair value of our fixed-income securities at December 31, 2021 and 2020:

Percentage

Increase

Change in (Decrease) in

Estimated Estimated Estimated

Hypothetical Change in Interest Rates Fair Value Fair Value Fair Value

Our calculations of the potential effects of hypothetical interest rate changes are based on several assumptions, including maintenance of the existing composition of fixed-income investments, and should not be considered indicative of future results. Based on our analysis, a 300-basis point decrease or increase in interest rates from the December 31, 2021 rates would not have a material impact on our results of operations or cash flows. In line with the anticipated LIBOR phase out, the last one-week and two-month LIBOR settings were published on December 31, 2021. However, the Intercontinental Exchange will continue to publish one-month, three-month, six-month and twelve-month LIBOR settings through 2023. We are unable to predict the use of alternate reference rates and corresponding interest rate risk at this time.

UNITED INSURANCE HOLDINGS CORP.

CREDIT RISK

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

The following table presents the composition of our fixed-income security portfolio by rating at December 31, 2021 and 2020:

% of Total

Amortized Amortized % of Total

Comparable Rating Cost Cost Fair Value Fair Value

In addition, we are exposed to credit risk through our reinsurance program. Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to us. We evaluate the financial condition of our reinsurers and monitor concentrations of credit risk to minimize our exposure to significant losses from reinsurer insolvencies.

We also are exposed to credit risk through our outstanding premiums receivable balances. We evaluate the age of our premium receivables to minimize our exposure to significant losses due to nonpayment.

After our evaluation of all credit risks described above, if we feel it is necessary, we record a credit loss allowance to address these credit risks. For more information regarding our credit loss allowance, please refer to Note 13.

EQUITY PRICE RISK

Our equity investment portfolio at December 31, 2021 consisted of common stocks and non-redeemable preferred stocks. We may incur potential losses due to adverse changes in equity security prices. We manage this risk primarily through industry and issuer diversification and asset allocation techniques.

During 2021, we increased our equity portfolio from 0.7% of our total investments (excluding cash, restricted cash and cash equivalents) at December 31, 2020 to 5.4% of our total investments (excluding cash, restricted cash and cash equivalents) at December 31, 2021.

UNITED INSURANCE HOLDINGS CORP.

The following table illustrates the composition of our equity portfolio at December 31, 2021 and 2020:

% of Total

Stocks by Sector Fair Value Fair Value

UNITED INSURANCE HOLDINGS CORP.

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of United Insurance Holdings Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of United Insurance Holdings Corp. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income (loss), stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSE (LAE)- Refer to Notes 2 and 10 to the Financial Statements

Critical Audit Matter Description

As a provider of both residential and commercial property and casualty insurance, the Company establishes reserves for both reported and unreported unpaid losses that have occurred at or before the balance sheet date for amounts estimated which they will be required to pay in the future, including provisions for claims that have been reported but are unpaid at the balance sheet date and for obligations on claims that have been incurred but not reported at the balance sheet date (herein “loss reserves”). Due to the nature and unpredictability in both the severity and frequency of these events and their related claims, the Company uses a significant amount of judgment in estimating the loss reserves, including analyzing historical and industry loss data, claims frequency and severity, claims processing procedures, legislative enactments, judicial decisions and legal developments in imposition of damages, and general economic conditions, including inflation. Additionally, the Company engages independent actuarial specialists in order to assist management in establishing appropriate loss reserves.

Given the subjectivity of estimating the projected losses to be incurred by the Company as it relates to both reported and unreported claims, performing audit procedures to evaluate whether the Company’s loss reserves were appropriately recorded

as of December 31, 2021, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our actuarial specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the loss reserves included the following, among others:

•We tested the effectiveness of controls related to loss reserves, including management’s controls over the projection of settlement value of reported and unreported claims.

•We evaluated the methods and assumptions used by management to estimate the loss reserves by:

–Testing the underlying data that served as the basis for the actuarial analysis, including historical claims, to test that the inputs to the actuarial estimate were reasonable.

–Holding discussions with management to discuss the Company’s ultimate recorded reserve actions and understand any trends that have been observed in the Company’s claims data.

–Comparing management’s prior-year assumptions of expected development and ultimate loss to actuals incurred during the current year to identify potential bias in the determination of the loss reserves.

•With the assistance of our actuarial specialists, we developed independent estimates of the loss reserves, including loss data, significant drivers, and claim development factors, and compared our estimates to management’s estimates.

/s/ DELOITTE & TOUCHE LLP

Tampa, Florida

March 15, 2022

We have served as the Company's auditor since 2018.

UNITED INSURANCE HOLDINGS CORP.

Consolidated Balance Sheets

December 31,

ASSETS

Investments, at fair value:

Total cash, cash equivalents and restricted cash 245,278 301,498

Deferred policy acquisition costs, net 38,520 74,414

Other assets, net (credit allowance of $0 and $20, respectively) 62,015 51,053

LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:

Accounts payable and accrued expenses 76,258 91,173

Commitments and contingencies (Note 12)

Stockholders’ Equity:

Accumulated other comprehensive income (loss) (6,531) 9,693

See accompanying notes to consolidated financial statements.

UNITED INSURANCE HOLDINGS CORP.

Consolidated Statements of Comprehensive Loss

Year Ended December 31,

REVENUE:

Net unrealized gains (losses) on equity securities 3,237 (27,562) 24,761

EXPENSES:

Less: Net income (loss) attributable to NCI (1,949) 956 387

OTHER COMPREHENSIVE LOSS:

Change in net unrealized gains (losses) on investments (18,267) 64,726 28,366

Less: Comprehensive income (loss) attributable to NCI (2,295) 1,119 588

Comprehensive loss attributable to UIHC $ (74,143) $ (98,080) $ (9,523)

Weighted average shares outstanding

Earnings available to UIHC common stockholders per share

See accompanying notes to consolidated financial statements. Statements include related party transactions as detailed in Note 16.

UNITED INSURANCE HOLDINGS CORP.

Consolidated Statements of Stockholders’ Equity

Common Stock

Shares Amount

Reclassification due to adoption of ASU 2016-13 — — — — — (262) (262) — (262)

See accompanying notes to consolidated financial statements.

UNITED INSURANCE HOLDINGS CORP.

Consolidated Statements of Cash Flows

Year Ended December 31,

OPERATING ACTIVITIES

Net unrealized losses (gains) on equity securities (3,237) 27,562 (24,761)

Provision (benefit) for uncollectible premiums 108 (140) 553

Benefit for uncollectible reinsurance recoverables (177) (386) —

Benefit for uncollectible notes receivable 20 (20) —

Payment receivable in connection with HCI renewal rights agreement (3,800) — —

Stock issued in connection with HCI renewal rights agreement (5,007) — —

Fixed asset disposals 21 2,949 —

Changes in operating assets and liabilities:

INVESTING ACTIVITIES

Proceeds from sales, maturities and repayments of:

Purchases of:

FINANCING ACTIVITIES

Supplemental Cash Flows Information

See accompanying notes to consolidated financial statements.

UNITED INSURANCE HOLDINGS CORP.

Notes to Consolidated Financial Statements

December 31, 2021

1) ORGANIZATION, CONSOLIDATION AND PRESENTATION

(a)Business

United Insurance Holdings Corp. (referred to in this document as we, our, us, the Company or UPC Insurance) is a property and casualty insurance holding company that sources, writes and services residential personal and commercial property and casualty insurance policies using a network of agents, four wholly-owned insurance subsidiaries, and one majority-owned insurance subsidiary. Our largest insurance subsidiary is United Property & Casualty Insurance Company (UPC), which was formed in Florida in 1999 and has operated continuously since that time. Our four other insurance subsidiaries are Family Security Insurance Company, Inc. (FSIC), acquired via merger on February 3, 2015, Interboro Insurance Company (IIC), acquired via merger on April 29, 2016, American Coastal Insurance Company (ACIC), acquired via merger on April 3, 2017, and Journey Insurance Company (JIC). JIC was formed in strategic partnership with a subsidiary of Tokio Marine Kiln Group Limited (Kiln) on August 30, 2018. The Kiln subsidiary holds a noncontrolling interest in JIC.

Our other subsidiaries include United Insurance Management, L.C. (UIM), a managing general agent that manages

substantially all aspects of UPC and FSIC's business, as well as JIC's personal residential business; Skyway Claims Services,

LLC, which provides claims adjusting services to UPC, FSIC, ACIC and JIC; AmCo Holding Company, LLC (AmCo) and

Family Security Holdings, LLC (FSH), which are holding company subsidiaries that consolidate their respective insurance

companies; BlueLine Cayman Holdings (BlueLine), which reinsures portfolios of excess and surplus policies; UPC Re, which

provides a portion of the reinsurance protection purchased by our insurance subsidiaries when needed; Skyway Reinsurance

Services, LLC, which provides reinsurance brokerage services for our insurance companies; Skyway Legal Services, LLC,

which provides claims litigation services to our insurance companies; and Skyway Technologies, LLC, a managing general agent that provides technological and distribution services to our insurance companies.

Our primary products are homeowners' and commercial residential property insurance. We currently offer personal residential insurance in 11 states, under authorization from the insurance regulatory authorities in each state. In addition, we write commercial residential insurance in three states: Florida, South Carolina and Texas. We are also licensed to write property and casualty insurance in an additional six states; however, we have not commenced writing in these states.

Effective December 31, 2021, we entered into a quota share reinsurance agreement with Homeowners Choice Property and Casualty, Inc. (HCPCI). Under the terms of this agreement, we will cede 85% of our in-force, new, and renewal policies in the states of Georgia, North Carolina and South Carolina.

Effective June 1, 2021, we entered into a quota share reinsurance agreement with HCPCI and TypTap Insurance Company (TypTap). Under the terms of this agreement, we will cede 100% of our in-force, new, and renewal policies in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island. The cession of these policies is 50% to HCPCI and 50% to TypTap. HCPCI is responsible for processing all claims as a part of this agreement. As the transfer of each state is completed, the quota share coverage for the transitioned state will no longer be in effect. As of December 31, 2021, we have completed the transfer of our Rhode Island and Connecticut policies.

We conduct our operations under two reportable segments, personal residential property and casualty insurance policies and commercial residential property and casualty insurance policies. Our chief operating decision maker is our President, who makes decisions to allocate resources and assesses performance at both segment levels as well as the corporate level.

(b)Consolidation and Presentation

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

UNITED INSURANCE HOLDINGS CORP.

Notes to Consolidated Financial Statements

December 31, 2021

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

We are committed to maintaining a stable and secure business for our employees, agents, customers and stockholders. During the second half of 2020, we were able to resume hiring activities, despite the limits on in-person interviews and on-boarding procedures resulting from COVID-related protocols. In addition, we have converted to virtual sales processes to enable our agents to continue their activities. We believe these activities, collectively, help ensure the health and safety of our employees through adherence to CDC, state and local government work guidelines.

We have not experienced a material impact from COVID-19 on our business operations, financial position, liquidity or our ability to service our policyholders to date, with the exceptions of fluctuations in our investment portfolios due to volatility of the equity securities markets, as further described in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K. The COVID-19 pandemic and resulting global disruptions did not have a material impact on our access to credit and capital markets needed to maintain sufficient liquidity for our continued operating needs during the year ended December 31, 2021.

We did not incur material claims or significant disruptions to our business for the year ended December 31, 2021 as a result of COVID-19. At this time, it is not possible to reasonably estimate the extent of the impact of the economic uncertainties on our business, results of operations and financial condition in future periods, due to uncertainty regarding the duration of the COVID-19 pandemic, but we will continue to respond to the COVID-19 pandemic and take reasonable measures to make sure customers continue to be served without interruption.

2) SIGNIFICANT ACCOUNTING POLICIES

(a)Cash, cash equivalents, and restricted cash

Our cash, cash equivalents, and restricted cash include demand deposits with financial institutions, cash that is held in trust for assumed business, cash held in deposit accounts to satisfy state statutory deposit requirements, and short-term, highly liquid instruments with original maturities of three months or less when purchased.

(b)Investments

We currently classify all of our investments in fixed maturities and short-term investments as available-for-sale, and report them, our equity securities and limited partnership investments at fair value. Subsequent to our acquisition of available-for-sale securities, we record changes in value through the date of disposition as unrealized holding gains and losses, net of tax effects, and include them as a component of comprehensive income (loss). We include realized gains and losses, which we calculate using the specific-identification method for determining the cost of securities sold, in net income. We amortize any premium or discount on fixed maturities over the remaining maturity period of the related securities using the effective interest method, and we report the amortization in net investment income. We recognize dividends and interest income when earned.

Quarterly, we perform an assessment of our investments to determine if any are impaired as the result of a credit loss. An investment is impaired when the fair value of the investment declines to an amount less than the cost or amortized cost of that investment. For each fixed-income security in an unrealized loss position, if we determine that we intend to sell the security or that it is more likely than not that we will be required to sell the security before recovery of the cost or amortized cost basis for reasons such as liquidity needs, contractual or regulatory requirements, the security’s entire decline in fair value is recorded in earnings.