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United Insurance Holdings Corp. Reports Financial Results for Its Fourth Quarter and Year Ended December 31, 2014

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United Insurance Holdings Corp. (NASDAQ:UIHC) (UPC Insurance or the Company), a property and casualty insurance holding company, today reported its financial results for the fourth quarter and year ended December 31, 2014.

($ in thousands, except per share and ratios) Three Months Ended Twelve Months Ended
December 31, December 31,
2014 2013 Change 2014 2013 Change
Gross premiums written $ 113,767 $ 106,702 6.6 % $ 436,753 $ 381,352 14.5 %
Gross premiums earned $ 107,610 $ 91,794 17.2 % $ 400,695 $ 316,708 26.5 %
Ceded premiums earned $ (36,088 ) $ (31,505 ) 14.5 % $ (135,845 ) $ (119,330 ) 13.8 %
Net premiums earned $ 71,522 $ 60,289 18.6 % $ 264,850 $ 197,378 34.2 %
Total revenues $ 76,172 $ 63,441 20.1 % $ 280,230 $ 208,080 34.7 %
Earnings before income tax $ 17,781 $ 13,433 32.4 % $ 64,410 $ 34,487 86.8 %
Net income $ 11,394 $ 7,351 55.0 % $ 41,013 $ 20,342 101.6 %
Net income per diluted share $ 0.55 $ 0.45 22.2 % $ 2.05 $ 1.26 62.7 %
Book value per share $ 9.75 $ 6.64 46.8 %
Return on average equity, ttm 27.2 % 20.8 % 6.4 pts
Loss ratio, net1 44.0 % 49.2 % -5.2 pts 44.6 % 50.0 % -5.4 pts
Expense ratio, net2 37.6 % 33.5 % 4.1 pts 36.8 % 37.7 % -0.9 pts
Combined ratio (CR)3 81.6 % 82.7 % -1.1 pts 81.4 % 87.7 % -6.3 pts
Effect of current year catastrophe losses on CR (0.2 )% (0.2 )% 0.0 pts 0.3 % 1.8 % -1.5 pts
Effect of prior year (favorable) development on CR (1.9 )% 2.7 % -4.6 pts (1.5 )% 2.1 % -3.6 pts
Underlying combined ratio4 83.7 % 80.2 % 3.5 pts 82.6 % 83.8 % -1.2 pts
1 Loss ratio, net is calculated as losses and loss adjustment expenses (LAE) relative to net premiums earned.
2 Expense ratio, net is calculated as the sum of all operating expenses less interest expense relative to net premiums earned.
3 Combined ratio is the sum of the loss ratio, net and expense ratio, net.
4

Underlying combined ratio, a measure that is not based on U.S. generally accepted accounting principles (GAAP), is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release is in the “Definitions of Non-GAAP Measures” section of this document.

“We ended the year with a strong quarter which capped a terrific year. During 2014, we gained licenses in seven additional states, bringing the total number of states in which we are licensed to 16. Since the end of the year, we added our 17th and 18th states – Hawaii and New York – to that list. In the fourth quarter of 2014, over 72% of our new policies came from outside Florida, compared to 47% for the fourth quarter of 2013. While Florida remains our largest state, this geographic diversification is a fundamental part of our strategy and investment thesis, and we believe it provides us a much stronger and longer growth trajectory than if we were limited to one or a handful of states,” said John Forney, President and Chief Executive Officer of UPC Insurance.

Quarterly Financial Results

Net income for the quarter was $11.4 million, or $0.55 per diluted share, compared to $7.4 million, or $0.45 per diluted share in the fourth quarter of 2013. The increase in net income was primarily due to strong growth in gross premiums earned and a decline in losses as a percentage of gross premium earned.

The Company’s direct written premiums increased by $13.5 million, or 17.2%, primarily due to the strong organic growth in new and renewal business generated in all states outside of Florida. UPC Insurance augmented its Florida production by assuming policies from Citizens Property Insurance Corporation (Citizens). Assumed written premium was $21.6 million in the current quarter compared to $28.1 million in the same period a year ago. The quarter-over-quarter growth in total gross written premiums of $7.1 million, or 6.6%, is shown by state in the table below.

Three Months Ended
December 31,

Direct Written and Assumed Premium By State 2014 2013 Growth Growth %
Direct written premium
Florida $ 59,599 $ 61,385 $ (1,786 ) (2.9 )%
Massachusetts 8,337 5,750 2,587 45.0
South Carolina 7,699 6,013 1,686 28.0
Rhode Island 4,722 3,015 1,707 56.6
North Carolina 5,018 1,793 3,225 179.9
Texas 4,911 150 4,761 3,174.0
New Jersey 1,833 502 1,331 265.1
Louisiana 26 26 100.0
Total direct written premium by state 92,145 78,608 13,537 17.2
Assumed premium (1) 21,622 28,094 (6,472 ) (23.0 )
Total gross written premium $ 113,767 $ 106,702 $ 7,065 6.6 %
1 All assumed premiums are written in Florida due to policy assumptions from Citizens.

Losses and LAE increased $1.8 million, or 6.0%, to $31.5 million for the fourth quarter of 2014 from $29.7 million for the fourth quarter of 2013 primarily due to the growth of policies in-force.

Policy acquisition costs increased $2.9 million, or 20.9%, to $17.0 million for the fourth quarter of 2014 from $14.1 million for the fourth quarter of 2013. These costs vary directly with changes in gross premiums earned.

Operating expenses increased to $3.3 million for the fourth quarter of 2014, from $2.3 million during the same period of last year due to increases in home inspections, underwriting report costs, licensing costs and systems costs resulting from the Company’s ongoing growth and continuing expansion into new states.

General and administrative expenses increased to $6.6 million for the fourth quarter of 2014, from $3.9 million for the fourth quarter of 2013 primarily due to increases in personnel costs, information technology investments and professional services related to the Company’s continued growth. In addition, the Company began insourcing critical systems and processes for claims and policy administration which resulted in some cost redundancy.

Year-to-Date Financial Results

Net income for the year ended December 31, 2014 was $41.0 million, or $2.05 per diluted share, compared to $20.3 million, or $1.26 per diluted share for the same period last year. The increase was driven primarily by continued strong premium growth, a decrease in the ceded reinsurance premium percentage compared to the prior period and a decline in losses as a percentage of gross premium earned.

The Company’s direct gross written premiums increased by $78.0 million, or 23.0%, primarily due to the strong organic growth in new and renewal business generated in all states in which we currently write policies, but especially outside Florida which represented nearly 73% of the total growth in direct written premiums. Assumed written premium for the 2014 was $19.0 million compared to $41.6 million during 2013. Our year-over-year growth in total gross written premiums of $55.4 million, or 14.5%, is shown by state in the following table.

Year Ended December 31,
Direct Written and Assumed Premium By State 2014 2013 Growth Growth %
Direct written premium
Florida $ 304,604 $ 283,460 $ 21,144 7.5 %
Massachusetts 32,001 24,666 7,335 29.7
South Carolina 30,716 16,156 14,560 90.1
Rhode Island 17,951 11,381 6,570 57.7
North Carolina 14,782 3,386 11,396 336.6
Texas 13,008 150 12,858 8,572.0
New Jersey 4,681 565 4,116 728.5
Louisiana 26 26 100.0
Total direct written premium by state 417,769 339,764 78,005 23.0
Assumed premium (1) 18,984 41,588 (22,604 ) (54.4 )
Total gross written premium $ 436,753 $ 381,352 $ 55,401 14.5 %
1 All assumed premiums are written in Florida due to policy assumptions from Citizens.

Losses and LAE increased to $118.1 million for the year ended December 31, 2014, from $98.8 million for the same period last year primarily due to the growth of policies in-force.

Policy acquisition costs increased to $65.7 million for the year ended December 31, 2014 from $50.6 million for the same period of 2013, or 29.7%. These costs vary directly with changes in gross premiums earned.

Operating expenses increased to $11.7 million for the year from $9.2 million during the same period of last year due to increased costs for home inspections, underwriting reports, licensing costs, and systems costs resulting from the Company’s ongoing growth and continuing expansion into new states.

General and administrative expenses increased to $20.0 million for the year ended December 31, 2014, from $14.6 million for the same period in 2013 primarily due to an increase in personnel costs and infrastructure development related to the Company’s continued growth and planned migration away from certain outsourced vendors.

Combined Ratio Analysis

The Company’s GAAP net combined ratio improved 1.1 points to 81.6% for the three months ended December 31, 2014 compared to 82.7% for the same period in 2013. The Company’s underlying net combined ratio, which excludes losses from catastrophes and all effects of reserve development, declined 3.5 points to 83.7% for the fourth quarter of 2014 compared to 80.2% for the same period in 2013. The net combined ratio decreased primarily due to a lower gross loss ratio and a lower ceded reinsurance premium percentage for the three months ended December 31, 2014 compared to the same period in 2013 whereas the underlying combined ratio increased primarily due to the effect of favorable loss development on prior accident years in 2014 compared to unfavorable development on prior accident years in the same period in 2013.

The Company’s GAAP net combined ratio improved 6.3 points to 81.4% for the year ended December 31, 2014 compared to 87.7% for the same period in 2013. The Company’s underlying net combined ratio improved 1.2 points to 82.6% for the year ended December 31, 2014 compared to 83.8% for the same period in 2013. Both the net combined and underlying combined ratios decreased primarily due to a lower ceded reinsurance premium percentage for the year ended December 31, 2014 compared to the same period in 2013.

The calculation of the Company’s underlying loss and combined ratios is shown below.

($ in thousands except ratios) Three Months Ended Twelve Months Ended
December 31, December 31,
2014 2013 Change 2014 2013 Change
Loss and LAE $ 31,472 $ 29,698 $ 1,774 $ 118,077 $ 98,830 $ 19,247
% of Gross earned premiums 29.2 % 32.4 % -3.2 pts 29.5 % 31.2 % -1.7 pts
% of Net earned premiums 44.0 % 49.2 % -5.2 pts 44.6 % 50.0 % -5.4 pts
Less:
Current year catastrophe losses $ (145 ) $ (120 ) $ (25 ) $ 829 $ 3,602 $ (2,773 )
Prior year reserve (favorable) development (1,329 ) 1,635 (2,964 ) (4,037 ) 4,078 (8,115 )
Underlying Loss and LAE* $ 32,946 $ 28,183 $ 4,763 $ 121,285 $ 91,150 $ 30,135
% of Gross earned premiums 30.6 % 30.7 % -0.1 pts 30.3 % 28.8 % 1.5 pts
% of Net earned premiums 46.1 % 46.7 % -0.6 pts 45.8 % 46.1 % -0.3 pts
Policy acquisition costs $ 16,989 $ 14,056 $ 2,933 $ 65,657 $ 50,623 $ 15,034
Operating and underwriting 3,293 2,278 1,015 11,746 9,222 2,524
General and administrative 6,613 3,864 2,749 20,007 14,552 5,455
Total Operating Expenses $ 26,895 $ 20,198 $ 6,697 $ 97,410 $ 74,397 $ 23,013
% of Gross earned premiums 25.0 % 22.0 % 3.0 pts 24.3 % 23.5 % 0.8 pts
% of Net earned premiums 37.6 % 33.5 % 4.1 pts 36.8 % 37.7 % -0.9 pts
Combined Ratio – as % of gross earned premiums 54.2 % 54.4 % -0.2 pts 53.8 % 54.7 % -0.9 pts
Underlying Combined Ratio – as % of gross earned premiums 55.6 % 52.7 % 2.9 pts 54.6 % 52.3 % 2.3 pts
Combined Ratio – as % of net earned premiums 81.6 % 82.7 % -1.1 pts 81.4 % 87.7 % -6.3 pts
Underlying Combined Ratio – as % of net earned premiums 83.7 % 80.2 % 3.5 pts 82.6 % 83.8 % -1.2 pts
*

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 press release is in the “Definitions of Non-GAAP Measures” section of this document.

The Company’s gross underlying loss ratio for the fourth quarter of 2014 remained relatively flat at 30.6% compared to 30.7% in the fourth quarter of 2013. The Company’s gross underlying loss ratio for the year ended 2014 increased to 30.3% from 28.8% for the year ended 2013. This increase was driven primarily by a shift in the mix toward business outside of Florida, where non-catastrophe loss costs as a percentage of gross earned premium tend to be higher. The shift in exposure mix impacting our gross underlying loss ratio is being offset by lower reinsurance costs outside Florida as evidenced by the net underlying loss ratio declining from 46.1% for 2013 to 45.8% for 2014. UPC Insurance continued to experience favorable reserve development in the current quarter and its historical impact on our net loss and net underlying loss ratios is outline in the following table.

Historical Reserve Development
($ in thousands, except ratios) 2009 2010 2011 2012 2013 2014
Prior year reserve development (unfavorable) $ 2,976 $ (1,006 ) $ 4,158 $ (670 ) $ (4,078 ) $ 4,037

Development as a % of earnings before interest and
taxes

47.4 % 71.0 % 32.3 % 4.3 % 11.7 % 6.2 %
Consolidated net loss ratio (LR) 52.1 % 63.6 % 43.1 % 47.9 % 50.0 % 44.6 %

Prior year reserve unfavorable (favorable)
development on LR

(3.8 )% 1.5 % (3.9 )% 0.6 % 2.1 % (1.5 )%
Current year catastrophe losses on LR 0.2 % % % 3.0 % 1.8 % 0.3 %
Underlying net loss ratio* 55.7 % 62.1 % 47.0 % 44.3 % 46.1 % 45.8 %

*

Underlying Net Loss Ratio is a non-GAAP measure and is reconciled above to the Consolidated Net Loss Ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the “Definitions of Non-GAAP Measures” section of this document.

Consistent with our narrative related to the calendar year gross loss ratios above, the Company’s expected ultimate gross loss and LAE ratio by accident year excluding catastrophes has also been trending upwards for the last two accident years. This is primarily due to higher overall frequency and severity of water related losses and lower premiums per unit of exposure resulting from our growth outside of Florida as shown in the following table:

($ in thousands, except ratios and per exposure amounts) Expected Expected
Case Expected Ultimate Gross Ultimate Premium
Accident Paid Loss & LAE IBNR Ultimate Loss & LAE Loss & LAE per
Year Loss & LAE Reserves Reserves Loss & LAE Ratio per Exposure(1) Exposure(2)
2006 $ 29,551 $ $ $ 29,551 22.0 % $ 392 $ 1,781
2007 $ 26,353 $ 161 $ 33 $ 26,547 18.5 % $ 400 $ 2,160
2008 $ 26,720 $ $ $ 26,720 20.7 % $ 376 $ 1,820
2009 $ 42,827 $ 205 $ 35 $ 43,067 29.9 % $ 472 $ 1,577
2010 $ 40,644 $ 841 $ 165 $ 41,650 28.5 % $ 476 $ 1,670
2011 $ 44,463 $ 1,031 $ 468 $ 45,962 26.9 % $ 482 $ 1,793
2012 $ 52,611 $ 1,763 $ 1,297 $ 55,671 25.8 % $ 478 $ 1,851
2013 $ 79,773 $ 3,735 $ 4,447 $ 87,955 28.9 % $ 516 $ 1,786
2014 $ 84,910 $ 21,466 $ 16,365 $ 122,741 31.8 % $ 563 $ 1,770
1 Defined as the total sum we expect to pay for fully developed losses and LAE (i.e. paid losses, incurred losses and incurred but not reported (IBNR) losses) divided by earned house years.
2 Defined as gross earned premiums divided by earned house years.

As indicated above, our case loss & LAE and IBNR reserves by accident year (AY) excluding catastrophes are $29.2 million and $22.8 million, respectively, and a reconciliation of these reserves to our total reserves is as follows:

Case
Loss & LAE IBNR Total
Reserves Reserves Reserves
Total loss reserves from table above $ 29,202 $ 22,810 $ 52,012
Catastrophe reserves 288 144 432
Flood reserves and other reserve adjustments 236 1,756 1,992
Total case and IBNR reserves $ 29,726 $ 24,710 $ 54,436

Reinsurance Costs Decreased as a % of Earned Premium for both the Quarter and Year-to-Date

Excluding the Company’s flood business, for which it cedes 100% of the risk of loss, reinsurance costs in the fourth quarter of 2014 were 30.6% of gross premiums earned compared to 31.1% of gross premiums earned for the fourth quarter of 2013. Reinsurance costs for the year ended December 31, 2014 were 30.7% of gross premiums earned compared to 34.5% for the same period last year.

Investment Portfolio Highlights

UPC Insurance’s cash and investment holdings totaled $443.0 million at December 31, 2014 compared to $326.5 million at December 31, 2013. UPC Insurance’s cash and investment holdings consist of investments in 100% investment grade money market instruments, U.S. Government and agency securities and corporate debt. Fixed maturities represented approximately 92.4% of total investments at December 31, 2014 with a modified duration of 3.8 years compared to 93.6% at December 31, 2013 and a modified duration of 3.5 years.

Book Value Analysis

Book value per share increased 46.8% from $6.64 at December 31, 2013, to $9.75 at December 31, 2014 and underlying book value per share increased 44.2% from $6.63 at December 31, 2013 to $9.56 at December 31, 2014. The increase in the Company’s book value per share and underlying book value per share was primarily driven by the $54.0 million of equity capital raised during the first quarter of 2014 and the Company’s growth in net income. The Company’s underlying book value per share growth was impacted by the increase in accumulated other comprehensive income as shown in the table below.

($ in thousands, except for per share data) December 31, December 31,
2014 2013
Book Value per Common Share
Numerator:
Common shareholders’ equity $ 203,763 $ 107,587
Denominator:
Total Shares Outstanding 20,904,414 16,209,315
Book Value Per Common Share $ 9.75 $ 6.64

Book Value per Common Share, Excluding the Impact of Accumulated Other
Comprehensive Income

Numerator:
Common shareholders’ equity $ 203,763 $ 107,587
Accumulated other comprehensive income 4,011 92
Shareholders’ Equity, excluding AOCI $ 199,752 $ 107,495
Denominator:
Total Shares Outstanding 20,904,414 16,209,315
Underlying Book Value Per Common Share* $ 9.56 $ 6.63

*

Underlying book value per common share is a non-GAAP financial measure and is reconciled above to book value per common share, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release is in the “Definitions of Non-GAAP Measures” section of this document.

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 reserve development (underlying combined ratio) is a non-GAAP ratio, which is computed as the difference between four GAAP operating ratios: the combined ratio, the effect of current year catastrophe losses on the combined ratio and prior year development on the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our business that may be obscured by current year catastrophe losses, losses from lines in run-off and prior year development. Current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence 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 direct 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 reserve development (underlying Loss and LAE) is a non-GAAP measure which is computed as the difference between loss and LAE, current year catastrophe losses and prior year reserve development. 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 three items can have a significant impact on our loss trend in a given period. The most direct comparable GAAP measure is net loss and LAE. The underlying loss and LAE measure should not be considered a substitute for net losses and LAE and does not reflect the overall profitability of our business.

Consolidated net loss ratio excluding the effects of current year catastrophe losses, reserve development (underlying loss ratio) is a non-GAAP ratio, which is computed as the difference between three GAAP operating ratios: the consolidated net loss ratio, the effect of current year catastrophe losses on the loss ratio, and the effect of prior year development on the loss ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our consolidated net loss ratio that may be obscured by current year catastrophe losses and prior year development. As discussed previously, these two items can have a significant impact on our consolidated net loss ratio in a given period. The most direct comparable GAAP ratio is our net consolidated Loss and LAE ratio. The underlying loss ratio should not be considered as a substitute for net consolidated loss ratio and does not reflect the overall profitability of our business.

Consolidated net loss ratio excluding the effects of current year catastrophe losses, reserve development (underlying loss ratio) is a non-GAAP ratio, which is computed as the difference between three GAAP operating ratios: the consolidated net loss ratio, the effect of current year catastrophe losses on the loss ratio, and the effect of prior year development on the loss ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our consolidated net loss ratio that may be obscured by current year catastrophe losses and prior year development. As discussed previously, these two items can have a significant impact on our consolidated net loss ratio in a given period. The most direct comparable GAAP ratio is our net consolidated Loss and LAE ratio. The underlying loss ratio should not be considered as a substitute for net consolidated loss ratio and does not reflect the overall profitability of our business.

Book value per common share, excluding the impact of accumulated other comprehensive income, is a ratio that uses a non-GAAP measure. It is calculated by dividing common shareholders’ equity after excluding accumulated other comprehensive income by total common shares outstanding plus dilutive potential common shares outstanding. We use the trend in book value per common share, excluding the impact of accumulated other comprehensive income, in conjunction with book value per common share to identify and analyze the change in net worth attributable to management efforts between periods. We believe the non-GAAP ratio is useful to investors because it eliminates the effect of interest rates that can fluctuate significantly from period to period and are generally driven by economic developments, primarily capital market conditions, the magnitude and timing of which are generally not influenced by management, and we believe it enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers. Book value per common share is the most directly comparable GAAP measure. Book value per common share, excluding the impact of accumulated other comprehensive income, should not be considered a substitute for book value per common share, and does not reflect the recorded net worth of our business.

Conference Call Details

Date and Time:

February 19, 2015 – 9:00 A.M. ET

Participant Dial-In:

(United States): 877-407-8829

(International): 201-493-6724

Webcast:

To listen to the live webcast, please go to www.upcinsurance.com (Investor Relations) and click on the conference call link, or go to: http://upcinsurance.equisolvewebcast.com/q4-2014

About UPC Insurance

Founded in 1999, UPC Insurance is an insurance holding company that sources, writes and services residential and commercial property and casualty insurance policies using a network of independent agents and a group of wholly owned insurance subsidiaries. Our insurance affiliates write and service property and casualty insurance in Florida, Louisiana, Massachusetts, New Jersey, North Carolina, Rhode Island, South Carolina and Texas and are licensed to write in Alabama, Connecticut, Delaware, Georgia, Hawaii, Maryland, Mississippi, New Hampshire, New York and Virginia. From its headquarters in St. Petersburg, UPC Insurance’s team of dedicated professionals manages a completely integrated insurance company, including sales, underwriting, customer service and claims.

Forward-Looking Statements

Statements in this press release that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “or “continue” or the other negative variations thereof or comparable terminology are intended to identify forward-looking statements. The forward-looking statements in this press release include statements regarding: the impact of our continued growth, and the expansion into other states. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation, the success of the Company’s marketing initiatives, inflation and other changes in economic conditions (including changes in interest rates and financial markets); the impact of new Federal and State regulations that affect the property and casualty insurance market; the costs of reinsurance and the collectibility of reinsurance, assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; our ability to obtain regulatory approval for requested rate changes, and the timing thereof; legislative and regulatory developments; the outcome of litigation pending against us, including the terms of any settlements; risks related to the nature of our business; dependence on investment income and the composition of our investment portfolio; the adequacy of our liability for losses and loss adjustment expense; insurance agents; claims experience; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in loss trends; acts of war and terrorist activities; court decisions and trends in litigation, and health care; and other matters described from time to time by us in our filings with the Securities and Exchange Commission, including, but not limited to, the Company’s Annual Report on Form 10-K filed on February 24, 2014. In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results may therefore, appear to be volatile in certain accounting periods. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.

Consolidated Statements of Comprehensive Income

In thousands, except share and per share amounts

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2014 2013 2014 2013
REVENUE:
Gross premiums written $ 113,767 $ 106,702 $ 436,753 $ 381,352
Increase in gross unearned premiums (6,157 ) (14,908 ) (36,058 ) (64,644 )
Gross premiums earned 107,610 91,794 400,695 316,708
Ceded premiums earned (36,088 ) (31,505 ) (135,845 ) (119,330 )
Net premiums earned 71,522 60,289 264,850 197,378
Investment income 1,904 1,227 6,795 3,871
Net realized gains (losses) 4 70 (20 ) (129 )
Other revenue 2,742 1,855 8,605 6,960
Total revenue $ 76,172 $ 63,441 $ 280,230 $ 208,080
EXPENSES:
Losses and loss adjustment expenses 31,472 29,698 118,077 98,830
Policy acquisition costs 16,989 14,056 65,657 50,623
Operating expenses 3,293 2,278 11,746 9,222
General and administrative expenses 6,613 3,864 20,007 14,552
Interest expense 85 112 410 367
Total expenses 58,452 50,008 $ 215,897 $ 173,594
Income before other income 17,720 13,433 64,333 34,486
Other income 61 77 1
Income before income taxes 17,781 13,433 $ 64,410 $ 34,487
Provision for income taxes 6,387 6,082 23,397 14,145
Net income $ 11,394 $ 7,351 $ 41,013 $ 20,342
OTHER COMPREHENSIVE INCOME:
Change in net unrealized gains (losses) on investments 1,966 (222 ) 6,367 (4,233 )

Reclassification adjustment for net realized investment
(gains) losses

(4 ) (70 ) 20 129

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

(758 ) 113 (2,468 ) 1,583
Total comprehensive income $ 12,598 $ 7,172 $ 44,932 $ 17,821
Weighted average shares outstanding
Basic 20,751,031 16,129,247 19,933,652 16,100,882
Diluted 20,904,956 16,209,315 20,045,907 16,183,098
Earnings per share
Basic $ 0.55 $ 0.46 $ 2.06 $ 1.26
Diluted $ 0.55 $ 0.45 $ 2.05 $ 1.26
Dividends declared per share $ 0.04 $ 0.03 $ 0.16 $ 0.12

Consolidated Balance Sheets

In thousands

December 31,
2014

December 31,
2013

ASSETS
Investments available for sale, at fair value:
Fixed maturities $ 352,630 $ 273,024
Equity securities – common and preferred 25,987 15,602
Other investments 3,010 3,034
Total investments $ 381,627 $ 291,660
Cash and cash equivalents 61,391 34,888
Accrued investment income 2,239 1,752
Property and equipment, net 8,022 2,408
Premiums receivable, net 31,369 26,076
Reinsurance recoverable on paid and unpaid losses 2,068 2,426
Prepaid reinsurance premiums 63,827 55,268
Deferred policy acquisition costs 31,925 25,186
Other assets 1,701 1,566
Total Assets $ 584,169 $ 441,230
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Unpaid losses and loss adjustment expenses $ 54,436 $ 47,451
Unearned premiums 229,486 193,428
Reinsurance payable 45,254 39,483
Other liabilities 37,701 38,575
Notes payable 13,529 14,706
Total Liabilities $ 380,406 $ 333,643
Commitments and contingencies
Stockholders’ Equity:

Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or
outstanding

Common stock, $0.0001 par value; 50,000,000 shares authorized; 21,116,497
and 16,421,398 issued; 20,904,414 and 16,209,315 outstanding, respectively

2 2
Additional paid-in capital 82,380 27,800
Treasury shares, at cost; 212,083 shares (431 ) (431 )
Accumulated other comprehensive income 4,011 92
Retained earnings 117,801 80,124
Total Stockholders’ Equity $ 203,763 $ 107,587
Total Liabilities and Stockholders’ Equity $ 584,169 $ 441,230

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