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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 2022 as compared to 2021. Discussion regarding our results of operations and financial condition for 2021 as compared to 2020 is included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021. 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. During the periods presented, we conducted our business principally through three wholly-owned insurance subsidiaries: United Property & Casualty Insurance Company (UPC); American Coastal Insurance Company (ACIC); and Interboro Insurance Company (IIC). 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. With UPC in receivership effective February 27, 2023 and IIC available for sale, the Company will be moving away from the “UPC Insurance” name and re-branding in support of American Coastal’s commercial operations during 2023.

Our Company’s primary source of revenue is generated from writing insurance in Florida and New York. Effective December 1, 2022, we no longer write in the state of North Carolina. Effective October 1, 2022, we no longer write in the state of Georgia. Effective June 1, 2022, we no longer write in the state of South Carolina. Effective April 1, 2022, we no longer write in the state of Massachusetts, and effective January 15, 2022, we no longer write in the state of New Jersey. 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 or no longer write 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.

On August 25, 2022, we announced that UPC had filed plans for withdrawal in the states of Florida, Louisiana, and Texas and intended to file a plan for withdrawal in the state of New York. All filed plans entail non-renewing personal lines policies in these states. Additionally, we announced that Demotech, Inc. (Demotech), an insurance rating agency, notified UPC of its intent to withdraw UPC's Financial Stability Rating On December 5, 2022, the Florida Office of Insurance Regulation ("FLOIR") issued Consent Order No. 303643-22- CO that provides for the administrative supervision and approval of the plan of run-off for UPC (the "Consent Order"). The Consent Order provides formal approval of UPC's Plan of Run-Off (the "Plan") to facilitate a solvent wind down of its affairs in an orderly fashion. Additionally, in connection with the Plan, IIC has agreed to not pay ordinary dividends without the prior approval of the New York Department of Financial Services until January 1, 2025. On February 10, 2023, we announced that a solvent run-off for UPC was unlikely and on February 27, 2023, UPC was placed into receivership with the Florida Department of Financial Services (DFS) which divested our ownership of UPC.

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 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. Effective June 1, 2022, we began the transition of South Carolina policies to HCPCI and effective October 1, 2022, we transitioned Georgia Policies in connection with our renewal rights agreement. The sale was consummated on December 30, 2021.

UNITED INSURANCE HOLDINGS CORP.

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 all states was completed as

of June 30, 2022.

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 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.

We have historically grown our business through 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. Effective June 1, 2022, we merged JIC into ACIC, with ACIC being the surviving entity. Effective May 31, 2022, we merged FSIC into UPC, with UPC being the surviving entity.

As a result of underwriting actions implemented during 2022, as well as the transfer of Rhode Island, Connecticut, New Jersey, Massachusetts, North Carolina, South Carolina and Georgia policies to HCPCI, our policies in-force decreased by 46.1% from 471,724 policies in-force at December 31, 2021 to 254,275 policies in-force at December 31, 2022.

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, 2022, 2021 and 2020, two, seven, and thirteen named storms, respectively, made landfall in our geographic footprint, resulting in retained pre-tax catastrophe losses of $203,896,000, $35,872,000, and $208,157,000, 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 Loss

Year Ended December 31,

REVENUE:

Net unrealized gains (losses) on equity securities (6,585) 3,237 (27,562)

EXPENSES:

Net loss per diluted share $ (10.91) $ (1.35) $ (2.25)

Return on equity based on GAAP net loss (307.4) % (16.9) % (20.2) %

Effect of current year catastrophe losses on combined ratio 61.2 % 19.3 % 38.5 %

Effect of prior year development on combined ratio 24.3 % 4.7 % (0.9) %

(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, 2022 increased by $411,936,000 to $469,855,000, compared to $57,919,000 for the year ended December 31, 2021. The increase in net losses was primarily driven by an increase in loss & LAE expense for the year, as a result of Hurricane Ian making landfall in Florida as a category four hurricane and exhausting our personal lines reinsurance coverage for the event. In addition, our provision for income taxes increased from the recognition of a valuation allowance against our deferred tax asset in 2022. Total revenues also decreased, driven by decreased gross written premiums and realized losses on investments, as described below. These factors were partially offset by lower policy acquisition costs and decreased ceded premium earned, as described below.

Revenues

Our gross written premiums decreased by $205,382,000, or 15.4%, to $1,124,063,000 for the year ended December 31, 2022, from $1,329,445,000 for the year ended December 31, 2021, driven by the transition of the Northeast business to HCPCI in the fourth quarter of 2021 and the first half of 2022, and the transition of the Southeast business to HCPCI in the second half of 2022. In addition, we experienced a decline in written premiums across the personal lines business, due to underwriting actions taken throughout 2021 and 2022. 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) 2022 2021 Change

Gross Written Premium by Line of Business

(1) "Gulf" is comprised of Louisiana and Texas; "Northeast" is comprised of Massachusetts, New Jersey and New York in 2022 and Connecticut, Massachusetts, New Jersey, New York and Rhode Island in 2021; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. We are no longer writing in New Jersey as of January 15, 2022, Massachusetts as of April 1, 2022, South Carolina as of June 1, 2022, Georgia as of October 1, 2022 and North Carolina as of December 1, 2022 as the policies have transitioned to HCPCI.

(2) Assumed premium written for 2022 and 2021 primarily included commercial property business assumed from unaffiliated insurers.

(3) Includes gross written premium from flood policies.

(4) Commercial written premium for 2022 and 2021 was primarily written in Florida.

New and Renewal Policies(1) By Region(2) 2022 2021 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; "Northeast" is comprised of Massachusetts, New Jersey and New York in 2022 and Connecticut, Massachusetts, New Jersey, New York and Rhode Island in 2021; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. We are no longer writing in New Jersey as of January 15, 2022, Massachusetts as of April 1, 2022, South Carolina as of June 1, 2022, Georgia as of October 1, 2022 and North Carolina as of December 1, 2022 as the policies have transitioned to HCPCI.

UNITED INSURANCE HOLDINGS CORP.

Ceded premiums earned decreased by $58,125,000, or 7.1%, to $760,557,000 for the year ended December 31, 2022 from $818,682,000 for 2021. The decrease is primarily driven by a $57,134,000 decrease in ceded premiums earned from our quota share agreements. This decrease can be attributed to the transition of our Northeast and Southeast business to HCPCI, resulting in lower cessions to the associated quota share contracts in 2022. In addition, our cessions to our external contracts decreased in 2022 as the result of the decrease in personal lines gross written premium described above.

Net investment income remained relatively flat in 2022, decreasing by $239,000, or 1.7%, to $14,011,000 for the year ended December 31, 2022 from $13,772,000 for 2021.

Net realized investment gains (losses) and net unrealized gains (losses) on equity securities decreased by $45,471,000, or 668.3%, to a net loss of $38,667,000 for the year ended December 31, 2022 from a net gain of $6,804,000 for the year ended December 31, 2021, driven by $22,718,000 of impairment losses realized on the fixed maturity portfolio attributable to our personal lines operating segment. The remainder of this change can be attributed to rising interest rates and unfavorable market conditions in 2022 resulting in unrealized losses on our investment portfolio.

Expenses

Expenses for the year ended December 31, 2022 increased $191,730,000, or 26.7%, to $910,298,000, from $718,568,000 for 2021. The increase in expenses was primarily due to an increase in loss and LAE as a result of Hurricane Ian making landfall in Florida as a category four hurricane and exhausting our personal lines reinsurance coverage for the event. The calculations of our combined loss ratios and underlying loss ratios are shown below.

($ in thousands) Year ended

December 31,

% of Gross earned premiums 52.1 % 30.0 % 22.1 pts

Less:

% of Gross earned premiums 19.8 % 19.9 % (0.1) pts

% of Net earned premiums 52.3 % 47.6 % 4.7 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 21.5 % 20.4 % 1.1 pts

% of Net earned premiums 56.9 % 48.7 % 8.2 pts

Loss and LAE increased by $215,513,000, or 51.1%, to $637,647,000 for the year ended December 31, 2022, from $422,134,000 for the year ended December 31, 2021. Loss and LAE expense as a percentage of net earned premiums increased 66.2 points to 137.8% for the year ended December 31, 2022, compared to 71.6% for the year ended December 31, 2021. During the year ended December 31, 2022, we experienced increased catastrophe losses as a result of the severity of Hurricane Ian in 2022. In addition, during the year ended December 31, 2022 prior year reserve unfavorable development was higher on

UNITED INSURANCE HOLDINGS CORP.

both catastrophe and non-catastrophe losses. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the year ended December 31, 2022 would have been 19.8%, a decrease of 0.1 points from 19.9% during the year ended December 31, 2021.

Policy acquisition costs decreased by $17,485,000, or 10.1%, to $156,089,000 for the year ended December 31, 2022, from $173,574,000 for the year ended December 31, 2021. The primary driver of the decrease in expense was a decrease in agent commissions, premium taxes and policy administration fees of $24,871,000, $4,958,000 and $4,077,000, respectively, all of which fluctuated in conjunction with the year-over-year decrease in personal lines gross written premium. This was partially offset by a $8,071,000 increase in external management fees incurred as a result of an increased volume of commercial written premium year-over-year. In addition, ceding commission income decreased $9,783,000 due to changes in the terms of our quota share reinsurance agreements.

Operating and underwriting expenses decreased by $12,625,000, or 22.4%, to $43,632,000 for the year ended December 31, 2022, from $56,257,000 for the year ended December 31, 2021, primarily due to decreased expenses related to our investment in technology of $10,606,000. In addition, underwriting expenses decreased $2,888,000, driven by the decrease in personal lines premiums described above.

General and administrative expenses increased by $6,105,000, or 10.7%, to $63,317,000 for the year ended December 31, 2022, from $57,212,000 for the year ended December 31, 2021, primarily due to the impairment of goodwill attributable to our personal lines operating segment totaling $13,569,000. This was partially offset by a decrease in salary related expenses of $8,547,000 attributable to a reduction in payroll taxes attributable to an employee retention tax credit refund for taxes previously paid and recognized as an expense by the company, as well as a reduction in headcount in 2022.

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 losses attributable to our personal lines operating segment for the year ended December 31, 2022 increased by $376,597,000 to a pretax loss of $481,153,000, compared to a pretax loss of $104,556,000 for the year ended December 31, 2021. The increase in pretax net loss was primarily due to a $291,387,000 decrease in gross written premiums, as described below, and a $183,088,000 increase in losses and LAE during 2022, driven by the impact of Hurricane Ian making landfall in Florida as a category four hurricane and exhausting our personal lines reinsurance coverage for the event. We also experienced a $29,172,000 decrease in realized investment gains, as described below. These drivers were partially offset by a $18,283,000 decrease in policy acquisition costs and $11,734,000 decrease in operating costs year-over-year, as described below.

Revenues

Our gross written premiums attributable to our personal lines operating segment decreased by $291,387,000, or 32.1%, to $615,820,000 for the year ended December 31, 2022, from $907,207,000 for the year ended December 31, 2021, primarily reflecting the transition of the Northeast business to HCPCI in the fourth quarter of 2021 and first half of 2022, and the transition of the Southeast business to HCPCI in the second half of 2022. In addition, decreases across all regions are seen due to the underwriting actions taken during 2021 and 2022. The breakdown of the year-over-year changes in direct written premiums by region are shown in the table below.

Direct Written Premium By Region(1) 2022 2021 Change

New and Renewal Policies(1) By Region(2) 2022 2021 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 decreased by $66,362,000, or 11.4%, to $515,264,000 for the year ended December 31, 2022 from $581,626,000 for the year ended December 31, 2021. The decrease is primarily driven by a $65,755,000 decrease in ceded premiums earned from our quota share agreements. This decrease can be attributed to the transition of our Northeast and Southeast business to HCPCI, resulting in lower cessions to the associated quota share contracts in 2022. In addition, our cessions to our external contracts decreased in 2022 as the result of the decrease in gross written premium described above.

Net investment income attributable to our personal lines operating segment decreased by $865,000, or 9.7%, to $8,097,000 for the year ended December 31, 2022 from $8,962,000 for the year ended December 31, 2021. The decrease is driven by a $3,304,000 decrease in income from our fixed maturity investment portfolio as a result of a decrease in the size of our fixed maturity portfolio in 2022. This was partially offset by increased income on our cash equivalents of $1,976,000 as a result of increased holdings, and a decrease in investment related expenses of $292,000.

UNITED INSURANCE HOLDINGS CORP.

Net realized investment gains (losses) and net unrealized gains (losses) on equity securities attributable to our personal lines operating segment decreased by $35,555,000, or 662.5%, to a net loss of $30,188,000 for the year ended December 31, 2022 from a net gain of $5,367,000 for the year ended December 31, 2021, primarily driven by $22,718,000 of impairment losses realized on our fixed maturity portfolio. The remainder of this change can be attributed to rising interest rates and unfavorable market conditions in 2022 resulting in unrealized losses on our investment portfolio still held of $4,617,000 during 2022 and realized losses on our portfolio sold during 2022 of $2,853,000.

Expenses

Expenses attributable to our personal lines operating segment for the year ended December 31, 2022 increased $157,504,000, or 28.1%, to $717,316,000 for the year ended December 31, 2022, from $559,812,000 for the year ended December 31, 2021. The increase in expenses was primarily due to an increase in loss and LAE as a result of Hurricane Ian making landfall in Florida as a category four hurricane and exhausting our personal lines reinsurance coverage for the event. This was partially offset by decreased policy acquisition and operating costs, described below. The calculations of our combined loss ratios and underlying loss ratios are shown below.

($ in thousands) Year ended

December 31,

% of Gross earned premiums 72.5 % 36.8 % 35.7 pts

Less:

% of Gross earned premiums 25.1 % 23.1 % 2.0 pts

% of Net earned premiums 78.0 % 55.5 % 22.5 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 22.0 % 19.3 % 2.7 pts

% of Net earned premiums 68.4 % 46.2 % 22.2 pts

Loss and LAE attributable to our personal lines operating segment increased by $183,088,000, or 49.8%, to $550,504,000 for the year ended December 31, 2022, from $367,416,000 for the year ended December 31, 2021. Loss and LAE expense as a percentage of net earned premiums increased 137.7 points to 225.9% for the year ended December 31, 2022, compared to 88.2% for the year ended December 31, 2021. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the year ended December 31, 2022 would have been 25.1%, an increase of 2.0 points from 23.1% during the year ended December 31, 2021.

Policy acquisition costs attributable to our personal lines operating segment decreased by $18,283,000, or 19.6%, to $75,093,000 for the year ended December 31, 2022, from $93,376,000 for the year ended December 31, 2021. The primary driver of the decrease in costs was decreased agent commissions, premium taxes, and policy administration fees of $22,455,000, $7,427,000 and $4,042,000, respectively, which fluctuated in conjunction with the year-over-year decrease in

UNITED INSURANCE HOLDINGS CORP.

written premium described above. This was partially offset by decreased ceding commission income of $17,075,000 related primarily to our quota share reinsurance agreements.

Operating and underwriting expenses attributable to our personal lines operating segment decreased by $11,734,000, or 23.0%, to $39,270,000 for the year ended December 31, 2022, from $51,004,000 for the year ended December 31, 2021, primarily due to decreased expenses related to our investment in technology of $9,413,000. In addition, underwriting expenses decreased $2,692,000, driven by the decrease in written premiums described above.

General and administrative expenses attributable to our personal lines operating segment increased by $4,391,000, or 9.2%, to $52,318,000 for the year ended December 31, 2022, from $47,927,000 for the year ended December 31, 2021, as the result of impairment of goodwill attributable to our personal lines operating segment of $13,569,000. This was partially offset by a decrease in salary related expenses of $9,244,000 attributable to a reduction in payroll taxes attributable to an employee retention tax credit refund for taxes previously paid and recognized as an expense by the company, as well as a reduction in headcount in 2022.

Commercial Lines Operating Segment Results

Pretax earnings attributable to our commercial lines operating segment for the year ended December 31, 2022 increased by $3,820,000 to pretax income of $35,841,000, compared to pretax income of $32,021,000 for the year ended December 31, 2021. The increase in pretax earnings was primarily due to an increase in revenue driven by increased gross written premium described below. This increase was partially offset by increased loss & LAE expense for the year as a result of Hurricane Ian making landfall in Florida as a category four hurricane.

Revenues

Our gross written premiums attributable to our commercial lines operating segment increased by $86,005,000, or 20.4%, to $508,243,000 for the year ended December 31, 2022, from $422,238,000 for the year ended December 31, 2021, primarily reflecting the impact of rate increases on renewal business generated in the state of Florida, as we focus on increasing commercial written premiums and transitioning to a specialty commercial lines underwriter. These increases were partially offset by a decrease in premiums written in Texas and South Carolina as we are no longer writing business in these states. 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 2022 2021 Change

(1) Assumed premium written for 2022 and 2021 primarily included commercial property business assumed from unaffiliated insurers.

New and Renewal Policies(1) By State 2022 2021 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 $8,237,000 or 3.5%, to $245,293,000 for the year ended December 31, 2022 from $237,056,000 for the year ended December 31, 2021. The increase is primarily driven by a $8,621,000 increase in ceded premiums earned from our quota share agreements, driven by the increase in gross written premium, described above resulting in increased cessions to these contracts during 2022.

UNITED INSURANCE HOLDINGS CORP.

Net investment income attributable to our commercial lines operating segment increased by $1,097,000, or 23.0%, to $5,861,000 for the year ended December 31, 2022 from $4,764,000 for 2021. This increase is driven by a $999,000 increase in income from our cash and cash equivalent holdings, as a result of increased holdings year-over-year.

Net realized investment gains and net unrealized gains (losses) on equity securities attributable to our commercial lines operating segment decreased by $9,914,000, or 689.9%, to a net loss of $8,477,000 for the year ended December 31, 2022 from a net gain of $1,437,000 for 2021, primarily driven by the disposal of fixed maturities to meet liquidity needs during an unfavorable price environment, resulting in realized losses of $6,511,000 in 2022. The remainder of this change can be attributed to unrealized losses as a result of unfavorable market conditions experienced in 2022.

Expenses

Expenses attributable to our commercial lines operating segment for the year ended December 31, 2022 increased $34,256,000, or 23.2%, to $181,644,000 for the year ended December 31, 2022, from $147,388,000 for the year ended December 31, 2021. The increase in expenses was primarily due to an increase in loss and LAE as a result of Hurricane Ian making landfall in Florida as a category four hurricane. In addition, general and administrative costs increased $1,980,000 in 2022, as described below.

($ in thousands) Year ended

December 31,

% of Gross earned premiums 18.8 % 13.3 % 5.5 pts

% of Net earned premiums 39.8 % 31.6 % 8.2 pts

Less:

Prior year reserve favorable development (7,899) (4,353) (3,546)

% of Gross earned premiums 11.1 % 12.1 % (1.0) pts

% of Net earned premiums 23.6 % 28.6 % (5.0) 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 20.4 % 22.6 % (2.2) pts

% of Net earned premiums 43.2 % 53.5 % (10.3) pts

Loss and LAE attributable to our commercial lines operating segment increased by $32,425,000, or 59.3%, to $87,143,000 for the year ended December 31, 2022, from $54,718,000 for the year ended December 31, 2021. Loss and LAE expense as a percentage of net earned premiums increased 8.2 points to 39.8% for the year ended December 31, 2022, compared to 31.6% for the year ended December 31, 2021. Excluding catastrophe losses and reserve development, our gross underlying loss and LAE ratio for the year ended December 31, 2022 would have been 11.1%, a decrease of 1.0 point from 12.1% during the year ended December 31, 2021.

UNITED INSURANCE HOLDINGS CORP.

Policy acquisition costs attributable to our commercial lines operating segment remained relatively flat, increasing by $798,000, or 1.0%, to $80,996,000 for the year ended December 31, 2022, from $80,198,000 for the year ended December 31, 2021.

Operating and underwriting expenses attributable to our commercial lines operating segment decreased by $947,000, or 19.4%, to $3,926,000 for the year ended December 31, 2022, from $4,873,000 for the year ended December 31, 2021, primarily due to decreased expenses related to our investment in technology of $1,164,000.

General and administrative expenses attributable to our commercial lines operating segment increased by $1,980,000, or 26.1%, to $9,579,000 for the year ended December 31, 2022, from $7,599,000 for the year ended December 31, 2021. This increase was driven by a $1,131,000 increase of allocated external fees related to legal, audit, actuarial and tax services provided during the year. In addition, we incurred an additional $698,000 in allocated salary expenses in 2022 compared to 2021.

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. Large catastrophe losses such as Hurricane Ian in 2022 can present significant liquidity demands to the Company stemming from higher than normal frequency and severity of insurance claims. This can lead to the selling of securities that we intended to hold until maturity and realizing untimely gains or losses.

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 $715,721,000 at December 31, 2022 compared to $964,844,000 at December 31, 2021.

The following table summarizes our investments, by type:

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

States, municipalities and political subdivisions 51,779 7.2 % 79,896 8.3 %

Public utilities 551 0.1 % — — %

We classify all of our investments as available-for-sale. Our investments at December 31, 2022 and 2021 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 2022 and 2021 consisted mainly of securities issued by

UNITED INSURANCE HOLDINGS CORP.

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, 2022, approximately 84.4% of our fixed maturities were U.S. Treasuries, or corporate bonds rated “A” or better, and 15.6% were corporate bonds rated “BBB” or “BB”.

During the year ended December 31, 2022, as a result of UPC’s plan of run-off, management determined that it was more likely than not that we would be required to sell a portion or all of our fixed-income securities attributable to the entity before recovery of their amortized cost basis. These securities were evaluated and none of the unrealized loss position was the result of a credit loss. As a result, we realized impairment losses of $22,718,000 on these securities. Total shareholders’ equity (deficit) was not impacted by such charge; however, our net loss for the year ended December 31, 2022 worsened and other comprehensive income improved by $22,718,000, before tax impacts, in offsetting amounts. The remainder of our fixed-income securities remain in an unrealized position as of December 31, 2022, with net unrealized losses on the portfolio totaling $33,054,000 as of December 31, 2022.

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.

During the second quarter of 2022, we placed our reinsurance program for the 2022 hurricane season. We purchased catastrophe excess of loss reinsurance protection of $2,500,000,000 in the aggregate. 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, 2022, for a one-year term and incorporate the mandatory coverage required by and placed with the Florida Hurricane Catastrophe Fund (FHCF) and coverage required under the Reinsurance to Assist Policyholders Program (RAP Program). The FHCF and RAP Program covers Florida risks only and we participate at 90%. Under our core catastrophe excess of loss treaty, retention on a first and second event is $16,400,000. During the third quarter, one of our reinsurer's participating on the $25,000,000 excess of $20,000,000 layer of the core catastrophe program exercised a contractual right to terminate their participation due to Demotech's downgrade of UPC's Financial Stability Rating. We were unsuccessful in replacing this coverage in the open market so our captive reinsurer, UPC Re, stepped into the $25,000,000 excess of $20,000,000 layer which was subsequently impacted by Hurricane Ian resulting in an additional retained loss of $20,100,000 million. The exhaustion point of IIC's catastrophe reinsurance program is approximately $200,000,000 in the aggregate, with a retention of $3,000,000 per occurrence, covering all perils.

During the third quarter of 2022, the Company's core catastrophe reinsurance program was impacted by Hurricane Ian. As a result, the Company has approximately $508 million of occurrence limit remaining for Ian, all of which is attributable to ACIC only. After reinstatement premiums of approximately $15.4 million, the Company has approximately $993 million of aggregate limit remaining after Ian, based on our estimated ultimate net loss subject to the core catastrophe reinsurance program.

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.

UNITED INSURANCE HOLDINGS CORP.

During the third quarter of 2022, one of our private reinsurers who held a 100% share of the $15,000,000 in excess of $15,000,000 layer on our all other perils catastrophe excess of loss agreement notified us of their intent to terminate the agreement due to the contractual provision regarding the change in UPC's statutory surplus being greater than 25%. We agreed to a termination and commutation date of September 30, 2022 for this contract. This change resulted in approximately $1,300,000 of ceded premium savings that would have otherwise been due in the fourth quarter of 2022 and the Company retaining all the risk for any non-hurricane catastrophe losses up to $30,000,000, excluding any quota share recoveries.

The table below outlines our quota share agreements in effect for the years ended December 31, 2022 and 2021.

Reinsurer Companies in Scope (1) Effective Dates Cession Rate States in Scope

(1) Effective May 31, 2022, FSIC was merged into UPC, with UPC being the surviving entity.

(2) This treaty provides coverage for all catastrophe perils and attritional losses incurred. For all catastrophe perils, the quota share agreement provides ground-up protection effectively reducing our retention for catastrophe losses.

(3) This treaty provides coverage on our in-force, new and renewal policies until these states are transitioned to HCPCI or TypTap upon renewal.

(4) This treaty provides coverage on non-catastrophe losses on policies in-force on the effective date of the agreement.

(5) Cessions are split 50% to HCPCI and 50% to TypTap.

(6) This treaty was amended effective December 31, 2020 to include ACIC.

Reinsurance costs as a percent of gross earned premium during the years ended December 31, 2022 and 2021 were as follows:

Non-at-Risk (2.2) % (2.1) %

Total Ceding Ratio (62.1) % (58.2) %

UNITED INSURANCE HOLDINGS CORP.

Reinsurance costs as a percent of gross earned premium for our commercial lines and personal lines operating segments during the years ended December 31, 2022 and 2021 were as follows:

Personal Commercial

Non-at-Risk (3.3) % (2.9) % (0.5) % (0.2) %

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,

Equipment, identity theft, and cyber security (4,023) (1,562) (13,801)

(1) 2022 and 2021 quota share ceded written premium includes our quota share agreements with HCPCI and Typtap.

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 (1,754) (811) (11,724)

(1) 2022 and 2021 quota share ceded written premium includes our quota share agreements with HCPCI and Typtap.

UNITED INSURANCE HOLDINGS CORP.

Commercial Lines Operating Segment Impact

Year Ended December 31,

Equipment, identity theft, and cyber security (2,269) (751) (2,077)

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

(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

Commercial Lines Operating Segment Impact

Current period catastrophe losses incurred

All other catastrophe loss events 7 212 0.1 %

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 %

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

UNITED INSURANCE HOLDINGS CORP.

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 $1,946,938,000 and $1,084,450,000 as of December 31, 2022 and 2021, respectively. Of this total, $816,489,000 and $230,377,000 is related to our commercial lines operating segment, respectively. The remaining $1,130,449,000 and $854,073,000 is related to our personal lines operating segment, respectively. On a consolidated basis, this balance has increased year over year, driven by Hurricane Ian which made landfall in Florida as a category four hurricane during the third quarter of 2022. While we did have a higher frequency of storms in 2021, the severity of Hurricane Ian resulted in a year over year increase. Reinsurance recoverables also increased year over year due to the cession of these Hurricane Ian losses to our core catastrophe reinsurance program.

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.

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, 2022, we contributed $81,000,000 and $11,200,000 to our insurance subsidiaries, UPC and FSIC, respectively. The contribution made to FSIC was made prior to the merging of FSIC into UPC. In addition, we contributed $9,574,000 to our reinsurance subsidiary, UPC Re. 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. We may make future contributions of capital to our insurance subsidiaries as circumstances require.

During 2022, we received a dividend of $26,000,000 from ACIC. 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.

UNITED INSURANCE HOLDINGS CORP.

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. On December 8, 2022, the Kroll Bond Rating Agency, LLC announced a downgrade of our issuer and debt ratings BBB- to BB+. As a result, pursuant to our agreement, the interest rate of our Senior notes increased from 6.25% to 7.25% effective on the next Interest Payment date of June 15, 2023.

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, 2022, our total obligation related to these claim payments was $1,946,938,000, of which we estimate $874,255,000 to be short-term in nature (due in less than twelve months), based upon our cumulative claims paid over the last 22 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, 2022 we have outstanding debt obligations related to our notes payable totaling $154,118,000. This is exclusive of interest costs, which we estimate will total $54,669,000 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 $1,176,000 in principal payments and $11,015,000 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 $1,285,000, $2,200,000, and $6,250,000, respectively. Of these obligations, $597,000, $1,763,000, and $1,250,000, respectively are short-term in nature.

As described in Note 1 in the Notes to the Consolidated Financial Statements below, substantial doubt exists about the Company’s ability to continue as a going concern within the twelve-month period subsequent to the date that these consolidated financial statements are issued. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liability and commitments in the ordinary course of business.

Management’s strategic plans include the following:

•Working with the DFS to finalize a memorandum of understanding on how to allocate all shared reinsurance recoveries between UPCIC and ACIC;

•Providing additional information to our rating agencies for the affirmation of the Company’s current financial ratings;

•Successfully renewing our catastrophe reinsurance programs for ACIC and IIC effective June 1, 2023; and

•Exploring raising additional capital for ACIC, including in the form of surplus note contributions, to strengthen its statutory risk-based capital if necessary.

If the Company is unable to implement these actions, there is no assurance that the Company will be able to obtain the necessary amounts of additional capital to continue as a going concern. As of the date of this report we do not have any commitments from any source to provide such additional capital. Even if we are able to secure debt or equity financing, it may be unavailable in the amounts or time when we require. Furthermore, such financing would likely take the form of bank loans, surplus notes, private placement of debt or equity securities or some combination of these. The issuance of additional equity securities would dilute the stock ownership of current investors while incurring loans, surplus notes or other debt would increase our capital requirements and a possible loss of valuable assets if such obligations were not repaid in accordance with their terms.

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, 2022, several balance sheet items were impacted by Hurricane Ian, which made landfall in the state of Florida as a category four hurricane. Unpaid losses and loss adjustment expense increased during the period, driven by the severity of Hurricane Ian. This was partially offset by increased reinsurance recoverable on paid and unpaid losses during the period, as these losses were ceded to our core catastrophe reinsurance contracts. However, the severity of Hurricane Ian resulted in the exhausting of our personal lines operating segment reinsurance coverage for the event, resulting in a net increase of $228,240,000 year-over-year. In addition to this event, unearned premiums, ceded unearned premiums, and reinsurance payable on premiums all decreased year over year, driven by the transition of our northeast and southeast business in 2022, and continued underwriting actions taken in 2022. These actions resulted in lower gross written premiums and premiums ceded to our quota share contracts.

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, 2022, cash provided by investing activities decreased $14,562,000 as the result of net sales of investments totaling $218,646,000 in 2022, compared to $256,648,000 in 2021. This was partially offset by $21,236,000 in proceeds from the sale of assets in 2022.

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, 2022, cash used in financing activities increased by $13,184,000 due to a return of capital to Kiln of $18,335,000 as a result of the stock re-purchase agreement and termination agreements effective June 30, 2022. Additionally, during the third quarter of 2022 we repaid our Truist note in full, resulting in a $3,004,000 increase in repayments for the year. These increases were partially offset by a decrease in dividend payments of $7,761,000 since no dividends were declared in the second, third or fourth quarter of 2022.

UNITED INSURANCE HOLDINGS CORP.

RECENT ACCOUNTING STANDARDS

Please refer to Note 2(u) 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.

As of September 30, 2022, very little paid loss or case loss information was available related to Hurricane Ian. As a result, actuarial methodologies relied upon catastrophe model estimates as provided by catastrophe model vendors. The Company selected within the reasonable range of catastrophe model estimates at September 30, 2022. However, as of December 31, 2022, paid loss and case loss information was sufficient to establish additional methodologies, including paid loss & loss adjustment expense development, reported loss & loss adjustment expense development, case reserve development, claims decay analysis, paid loss and allocated loss adjustment expense B-F method, and reported loss & loss adjustment expense B-F method. These additional methodologies at December 31, 2022 supplemented the original catastrophe model estimates and pointed to a larger range of outcomes than considered at September 30, 2022. The Company adjusted the selection at December 31, 2022 in consideration of the larger range considering all available methodologies.

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

UNITED INSURANCE HOLDINGS CORP.

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.

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 loss on our Consolidated Balance Sheet and is not reflected in our net loss of any period until reclassified to net 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 loss.

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 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

quantitative assessment. Goodwill is impaired when it is determined that the carrying value of a reporting segment is in excess of the fair value of that reporting segment. 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.

UNITED INSURANCE HOLDINGS CORP.

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

There were no related party transactions for the years ended December 31, 2022, 2021 and 2020.

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 loss within our stockholders’ equity (deficit). 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, 2022 and 2021:

UNITED INSURANCE HOLDINGS CORP.

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, 2022 rates would have a material impact on our results of operations and cash flows in the event divesting of these holdings was necessary. However, we do not anticipate the need to sell securities in an unrealized loss position as of December 31, 2022. 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.

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, 2022 and 2021:

UNITED INSURANCE HOLDINGS CORP.

% 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, 2022 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 2022, we increased our equity portfolio from 5.4% of our total investments (excluding cash, restricted cash and cash equivalents) at December 31, 2021 to 9.0% of our total investments (excluding cash, restricted cash and cash equivalents) at December 31, 2022.

UNITED INSURANCE HOLDINGS CORP.

The following table illustrates the composition of our equity portfolio at December 31, 2022 and 2021:

% 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 sheets of United Insurance Holdings Corp. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income (loss), stockholders' equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered significant underwriting losses and no longer controls or consolidates United Property & Casualty Insurance Company (“UPC”) subsequent to February 27, 2023. There is uncertainty regarding the Company’s ability to obtain existing reinsurance recoveries and the subsequent placement of reinsurance contracts. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

Management's evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

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 audits 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits 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 audits 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 audits provide a reasonable basis for our opinion.

Emphasis of Matter

As discussed in Note 20 to the financial statements, on February 27, 2023, UPC was ordered into receivership for purposes of liquidation, with the Florida Department of Financial Services appointed as the receiver, which deconsolidated UPC from the group.

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, 2022, 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

April 17, 2023

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 283,610 245,278

Deferred policy acquisition costs, net 58,933 38,520

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Liabilities:

Accounts payable and accrued expenses 74,503 76,258

Commitments and contingencies (Note 12)

Stockholders’ Equity (Deficit):

Accumulated other comprehensive loss (30,947) (6,531)

Noncontrolling interests (NCI) — 19,551

Total Liabilities and Stockholders’ Equity (Deficit) $ 2,837,496 $ 2,698,573

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 (6,585) 3,237 (27,562)

EXPENSES:

Less: Net income (loss) attributable to NCI (111) (1,949) 956

OTHER COMPREHENSIVE LOSS:

Change in net unrealized gains (losses) on investments (56,600) (18,267) 64,726

Income tax benefit related to items of other comprehensive loss 49 5,264 502

Less: Comprehensive income (loss) attributable to NCI (164) (2,295) 1,119

Weighted average shares outstanding

Earnings available to UIHC common stockholders per share

See accompanying notes to consolidated financial statements.

UNITED INSURANCE HOLDINGS CORP.

Consolidated Statements of Stockholders’ Equity (Deficit)

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

Adjustments to reconcile net loss to net cash used in operating activities:

Net unrealized losses (gains) on equity securities 6,585 (3,237) 27,562

Provision for uncollectible premiums (37) 108 (140)

Provision for uncollectible reinsurance recoverables (40) (177) (386)

Provision for uncollectible notes receivable — 20 (20)

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

Gain on sale of property and equipment (12,888) — —

Fixed asset and intangible asset disposals 2,884 21 2,949

Changes in operating assets and liabilities:

INVESTING ACTIVITIES

Proceeds from sales, maturities and repayments of:

Purchases of:

Proceeds from sale of property and equipment 21,236 — —

FINANCING ACTIVITIES

Supplemental Cash Flows Information

See accompanying notes to consolidated financial statements.

UNITED INSURANCE HOLDINGS CORP.

Notes to Consolidated Financial Statements

December 31, 2022

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 and wholly-owned insurance subsidiaries. Our original insurance subsidiary is United Property & Casualty Insurance Company (UPC), which was formed in Florida in 1999. Our two other insurance subsidiaries are Interboro Insurance Company (IIC), acquired via merger on April 29, 2016; and American Coastal Insurance Company (ACIC), acquired via merger on April 3, 2017.

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

substantially all aspects of UPC's business; Skyway Claims Services, LLC, which provides claims adjusting services to UPC, and ACIC; AmCo Holding Company, LLC (AmCo), which is a holding company subsidiary that consolidates its respective insurance company; 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. In 2022 we offered personal residential insurance in six states, under authorization from the insurance regulatory authorities in each state. In addition, we write commercial residential insurance in Florida. During 2022, we also wrote commercial residential insurance in South Carolina, and Texas, however, effective May 1, 2022, we no longer write in these states. We are also licensed to write property and casualty insurance in an additional twelve states; however, we have not commenced writing or no longer write in these states.

On August 25, 2022, we announced that UPC had filed plans for withdrawal in the states of Florida, Louisiana, and Texas and intended to file a plan for withdrawal in the state of New York. All filed plans entail non-renewing personal lines policies in these states. Additionally, we announced that Demotech, Inc. (Demotech), an insurance rating agency, notified UPC of its intent to withdraw UPC's Financial Stability Rating. On December 5, 2022, the Florida Office of Insurance Regulation ("FLOIR") issued Consent Order No. 303643-22- CO that provides for the administrative supervision and approval of the plan of run-off for UPC (the "Consent Order"). The Consent Order provides formal approval of UPC's Plan of Run-Off (the "Plan") to facilitate a solvent wind down of its affairs in an orderly fashion. Additionally, in connection with the Plan, IIC has agreed to not pay ordinary dividends without the prior approval of the New York Department of Financial Services until January 1, 2025. On February 10, 2023, we announced that a solvent run-off of UPC was unlikely and on February 27, 2023, UPC was placed into receivership with the Florida Department of Financial Services which divested our ownership of UPC.

Effective June 1, 2022, we merged our majority-owned insurance subsidiary, Journey Insurance Company (JIC) into ACIC, with ACIC being the surviving entity. JIC was formed in strategic partnership with a subsidiary of Tokio Marine Kiln Group Limited (Kiln) on August 30, 2018, and operated independently from ACIC prior to the merging of the entities. The Kiln subsidiary held a noncontrolling interest in JIC, which was terminated prior to the merger.

Effective June 1, 2022, we entered into a quota share reinsurance agreement with TypTap Insurance Company (Typtap). Under the terms of this agreement, we cede 100% of our in-force, new, and renewal policies in the states of Georgia, North Carolina and South Carolina. Effective June 1, 2022, we began the transition of South Carolina policies to Homeowners Choice Property and Casualty, Inc (HCPCI) in connection with our renewal rights agreement. Effective October 1, 2022, transitioned Georgia policies to HCPCI in connection with our renewal rights agreement. Effective December 1, 2022, we began the transition of North Carolina policies to HCPCI in connection with our renewal rights agreement. As a result, these policies will no longer be covered under this agreement upon their renewal. This agreement replaces the 85% quota share agreement with HCPCI effective December 31, 2021.

Effective May 31, 2022, we merged Family Security Insurance Company, Inc. (FSIC) into UPC, with UPC being the surviving entity. FSIC was acquired via merger on February 3, 2015, and operated independently from UPC prior to the merging of the entities. In conjunction with the merger, we dissolved Family Security Holdings (FSH), a holding company subsidiary that consolidated its respective insurance company, FSIC.

UNITED INSURANCE HOLDINGS CORP.

Notes to Consolidated Financial Statements

December 31, 2022

Effective June 1, 2021, we entered into a quota share reinsurance agreement with HCPCI and TypTap. Under the terms of this agreement, we ceded 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 was 50% to HCPCI and 50% to TypTap. HCPCI is responsible for processing all claims as a part of this agreement. As of April 1, 2022, we completed the transition of all policies in these four states to HCPCI in connection with our renewal rights agreement (Northeast Renewal Agreement) to sell UPC's personal lines homeowners business in these states.

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.

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

In accordance with ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern (“ASC 205-40”), the Company has the responsibility to evaluate whether conditions and/or events raise substantial doubt about its ability to meet its obligations as they become due within one year after the date that the financial statements are issued. As required under ASC 205-40, management’s evaluation should initially not take into consideration the potential mitigating effects of management’s plans that have not been fully implemented as of the date the financial statements are issued. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

In performing this evaluation, we concluded that under the standards of ASC 205-40 the following conditions raised substantial doubt about our ability to continue as a going concern:

(1) the ability to obtain reinsurance recoveries allocated to ACIC under the catastrophe treaties covering Hurricane Ian where ACIC’s affiliate, United Property & Casualty Insurance Company (“UPC”) is also a party, and (2) the ability to obtain adequate reinsurance to meet the requirements of the FLOIR and Demotech, the rating agency, for future reinsurance periods.

Upon completion of the Company’s year-end review of unpaid loss and loss adjustment reserves with our independent actuarial firm, our insurance entity, UPC, increased its gross loss estimate related to Hurricane Ian to $864 million. UPC’s loss estimate of $864 million fully exhausts all reinsurance available to UPC for this specific event, based on the reinsurance allocation agreement discussed below. As a result of this development, the Company immediately notified the FLOIR that UPC was expected to be insolvent as of December 31, 2022. On February 27, 2023, UPC was ordered into receivership for purposes of liquidation, with the Florida Department of Financial Services (the “DFS”) appointed as the receiver, which deconsolidated UPC from the group.

The Company’s other insurance subsidiaries are not parties to the receivership and continue to operate. However, ACIC’s catastrophe reinsurance coverage is a part of a combined reinsurance program with UPC.

To properly allocate the reinsurance recoverables under the shared catastrophe treaties, UPC and ACIC entered a reinsurance allocation agreement that became effective on June 1, 2022 (the “Allocation Agreement”). The Allocation Agreement was filed with and approved by the FLOIR on December 5, 2022. However, ACIC now believes there is uncertainty

UNITED INSURANCE HOLDINGS CORP.

Notes to Consolidated Financial Statements

December 31, 2022

regarding the timing of receipt of both recoveries currently held by UPC that are allocated to ACIC and future recoverables now that UPC has been placed into receivership. As of December 31, 2022, UPC held recoveries due to ACIC totaling $31,306,000.

On April 5, 2023, the Company filed a Motion for Release of Property of ACIC in the Circuit Court of the Second Judicial Circuit for Leon County, Florida, requesting that UPC immediately remit to ACIC reinsurance recoveries currently held by UPC and reinsurance recoveries recovered by UPC in the future in accordance with the Company’s Allocation Agreement. Alternatively, ACIC requested reinsurance recoveries remitted to UPC be placed into a segregated account for future reconciliation and remittance to ACIC. On April 13, 2023, the DFS filed a response to the Company’s motion, objecting to ACIC’s position. On April 14, 2023, the Court denied ACIC’s motion without prejudice. As a result of the foregoing, management believes substantial doubt exists regarding the Company’s ability to continue as a going concern.

As of December 31, 2022, ACIC calculates it is due approximately $273 million from the private reinsurance program described above in accordance with the Allocation Agreement approved by the FLOIR, related to its ultimate gross Hurricane Ian loss. To the extent that these reinsurance recoverables are not received timely and treated as a nonadmitted asset of ACIC, which would be excluded from regulatory capital and surplus, the Company may not have sufficient liquidity to continue to operate. Management believes that the ability for ACIC to obtain adequate reinsurance to meet its needs for the June 1, 2023 to May 31, 2024 catastrophe cover can only be accomplished assuming that recoveries due to ACIC pursuant to the Allocation Agreement can be resolved in short order. Such conditions raise substantial doubt regarding the Company’s ability to continue as a going concern for one year following the issuance of the financial statements.

The Company intends to continue to work towards a fair and equitable resolution regarding these recoveries, however no assurance can be given that it will receive all or any portion of the reinsurance recoverables that it believes are due to ACIC.

(d) Impact of COVID-19 and Financial Status

We did not experience a material impact from COVID-19 on our business operations, financial position, liquidity or our ability to service our policyholders during the year ended December 31, 2022. In addition, 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, 2022.

Additionally, during the fourth quarter of 2021 we implemented our new flexible work policy. This policy allows all

employees to work remotely permanently, with the return to our offices being completely voluntary at this time. 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 loss. We include realized gains and losses, which we calculate using the specific-identification method for determining the cost of securities sold, in net loss. 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

UNITED INSURANCE HOLDINGS CORP.

Notes to Consolidated Financial Statements

December 31, 2022

reasons such as liquidity needs, contractual or regulatory requirements, the security’s entire decline in fair value is recorded in earnings.