Edgar Filing: UNIVERSAL INSURANCE HOLDINGS, INC.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

COMMISSION FILE NUMBER 0-20848

UNIVERSAL INSURANCE HOLDINGS, INC.
(Name of small business issuer in its charter)

Delaware 65-0231984
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

1110 West Commercial Boulevard, Suite 100 33309
Fort Lauderdale, Florida (Zip Code)
(Address of principal executive offices)

Company's telephone number, including area code: (954) 958-1200

Securities registered pursuant to Section 12(g) of the Exchange Act:

Common Stock, $.01 Par Value OTC BULLETIN BOARD
Redeemable Common Stock Purchase Warrants OTC BULLETIN BOARD
(Title of each class) (Name of exchange where registered)

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. [ ]

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days: YES X NO ___

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

Indicate by checkmark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act):
YES ___ NO X

State issuer's revenues for its most recent fiscal year: $65,147,750

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold as of February 1, 2007: $73,146,187

State the number of shares of Common Stock of Universal Insurance Holdings, Inc.
outstanding as of March 1, 2007: 38,057,103

Transitional Small Business Disclosure Format: YES ___ NO X

PART I

ITEM 1. DESCRIPTION OF BUSINESS

THE COMPANY

Universal Insurance Holdings, Inc. ("UIH" or the "Company") was
originally organized as Universal Heights, Inc. in 1990. The Company changed its
name to Universal Insurance Holdings, Inc. on January 12, 2001. In April 1997,
the Company organized a subsidiary, Universal Property & Casualty Insurance
Company ("UPCIC"), as part of its strategy to take advantage of what management
believed to be profitable business and growth opportunities in the marketplace.
UPCIC was formed to participate in the transfer of homeowners' insurance
policies from the Florida Residential Property and Casualty Joint Underwriting
Association ("JUA"). The Company has since evolved into a vertically integrated
insurance holding company, which through its various subsidiaries, covers
substantially all aspects of insurance underwriting, distribution and claims
processing.

The Company was incorporated under the laws of the State of Delaware on
November 13, 1990 and its principal executive offices are located at 1110 West
Commercial Boulevard, Suite 100, Fort Lauderdale, Florida 33309, and its
telephone number is (954) 958-1200.

INSURANCE BUSINESS

On October 29, 1997, the Office of Insurance Regulation ("OIR") approved
UPCIC's application for a permit to organize as a domestic property and casualty
insurance company in the State of Florida. On December 4, 1997, UIH raised
approximately $6.7 million in a private placement of common stock with various
institutional and other accredited investors. The proceeds of the offering were
used to meet the minimum regulatory capitalization requirements ($5.0 million)
of the OIR to obtain an insurance company license and for general working
capital purposes. UPCIC received a license to engage in underwriting homeowners'
insurance in the State of Florida on December 31, 1997. In 1998, UPCIC began
operations through the assumption of homeowners' insurance policies issued by
the JUA.

The JUA was established in 1992 as a temporary measure to provide
insurance coverage for individuals who could not obtain coverage from private
carriers because of the impact on the private insurance market of Hurricane
Andrew in 1992. Rather than serving as a temporary source of emergency insurance
coverage as was originally intended, the JUA became a major provider of original
and renewal insurance coverage for Florida residents. In an attempt to reduce
the number of policies in the JUA, and thus the exposure of the program to
liability, the Florida legislature approved a number of initiatives to
depopulate the JUA. The Florida legislature subsequently approved, and the JUA
implemented, a Market Challenge/Takeout Bonus Program ("Takeout Program"), which
provided additional incentives to private insurance companies to acquire
policies from the JUA.

UPCIC's initial business and operations consisted of providing property
and casualty coverage through homeowners' insurance policies acquired from the
JUA. The insurance business acquired from the JUA provided a base for renewal
premiums. The majority of these policies renewed with UPCIC. In an effort to
further grow its insurance operations, in 1998, UPCIC also began to solicit
business actively in the open market through independent agents. Through renewal
of the JUA business combined with business solicited in the market through
independent agents, UPCIC is currently servicing approximately 268,000
homeowners' insurance policies covering homes and condominium units.

The Company's primary product is homeowners' insurance. The Company's
criteria for selecting insurance policies includes, but is not limited to, the
use of specific policy forms, coverage amounts on buildings and contents and
required compliance with local building codes. Also, to improve underwriting and
manage risk, the Company utilizes standard industry modeling techniques for
hurricane and windstorm exposure. UPCIC's portfolio as of December 31, 2006
includes approximately 262,500 policies with coverage for wind risks and 5,500
policies without wind risks. The average premium for a policy with wind coverage
is approximately $1,402 and the average premium for a policy without wind
coverage is approximately $657. Approximately 24.3% of the policies are located
in Miami-Dade, Broward and Palm Beach counties.

OPERATIONS

All underwriting, rating, policy issuance, reinsurance negotiations and
certain administration functions for UPCIC are performed by UPCIC, Universal
Risk Advisors, Inc., a wholly owned subsidiary of the Company, and unaffiliated
third parties.

Claims handling functions for UPCIC were initially administered by an
independent claims adjustment firm licensed in Florida. In 1999, the Company
formed Universal Adjusting Corporation, a wholly owned subsidiary, which
currently performs claims adjustment for UPCIC. This gives the Company greater
command over its loss control and expenditures.

The earnings of UPCIC from policy premiums are supplemented to an extent
by the generation of investment income from investment policies adopted by the
Board of Directors of UPCIC. UPCIC's principal investment goals are to maintain
safety and liquidity, enhance equity values and achieve an increased rate of
return consistent with regulatory requirements.

MANAGEMENT OPERATIONS

The Company has developed into a vertically integrated insurance holding
company performing various aspects of insurance underwriting, distribution and
claims. Universal Risk Advisors, Inc., the Company's wholly owned Managing
General Agent ("MGA"), was incorporated in Florida on July 2, 1998 and became
licensed by the OIR on August 17, 1998 and contracted with UPCIC on September
28, 1998. Through the MGA, the Company has underwriting, reinsurance negotiation
and claims authority for UPCIC as well as third-party insurance companies. The
MGA seeks to generate revenue through policy fee income and other administrative
fees from the marketing of UPCIC as well as third-party insurance products
through the Company's distribution network. The Company markets and distributes
UPCIC's products and services in Florida through a network of approximately
2,400 active independent agents.

AGENCY OPERATIONS

Universal Florida Insurance Agency was incorporated in Florida on July
2, 1998 and Coastal Homeowners Insurance Specialists, Inc. was incorporated in
Florida on July 2, 2001, each as wholly owned subsidiaries of the Company to
solicit voluntary business. These entities are a part of the Company's agency
operations, which seek to generate income from commissions, premium financing
referral fees and the marketing of ancillary services.

DIRECT SALES OPERATIONS

The Company formed subsidiaries that specialize in selling insurance and
generating insurance leads via the Internet. Tigerquote.com Insurance &
Financial Services Group, Inc. ("Tigerquote.com") and Tigerquote.com Insurance
Solutions, Inc. were incorporated in Delaware on June 6, 1999 and August 23,
1999, respectively. Tigerquote.com is an Internet insurance lead generating
network while Tigerquote.com Insurance Solutions, Inc. is a network of Internet
insurance agencies. These entities seek to generate income from the selling of
leads and commissions on policies written. To date, insurance agencies have been
established in 22 states. Separate legal entities have been formed for each
state and are governed by the respective states' departments of insurance. None
of the agencies are currently active as the Company changed its focus to sell
leads to other companies and independent agents. During 2006, the Company
decided to discontinue its direct sales operations and focus on its core
operations.

In the Consolidated Statements of Operations and Consolidated Statements
of Cash Flows, the Company has separately disclosed results relating to its
discontinued operations, which in prior periods had not been separately
disclosed. The disclosure for discontinued operations relates to the operating
segment previously reported as the Company's on-line commerce segment.

OTHER OPERATIONS

Universal Inspection Corporation was incorporated in Florida on January
3, 2000 as a subsidiary of UIH. Universal Inspection Corporation performs
property inspections for homeowners' policies underwritten by UPCIC.

During 2001, the Company formed Tiger Home Services, Inc., which
furnished pool services to homeowners until the operation was sold during the
second quarter of 2005.

FACTORS AFFECTING OPERATION RESULTS AND MARKET PRICE OF STOCK

The Company and its subsidiaries operate in a rapidly changing
environment that involves a number of uncertainties, some of which are beyond
the Company's control. This report contains in addition to historical
information, forward-looking statements that involve risks and uncertainties.
The words "expect," "estimate," "anticipate," "believe," "intend," "plan" and
similar expressions and variations thereof are intended to identify
forward-looking statements. The Company's actual results could differ materially
from those set forth in or implied by any forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those uncertainties discussed below as well as those discussed elsewhere in
this report.

NATURE OF THE COMPANY'S BUSINESS

Factors affecting the sectors of the insurance industry in which the
Company operates may subject the Company to significant fluctuations in
operating results. These factors include competition, catastrophe losses and
general economic conditions including interest rate changes, as well as
legislative initiatives, the regulatory environment, the frequency of
litigation, the size of judgments, severe weather conditions and the
availability and cost of reinsurance. Specifically the homeowners' insurance
market, which comprises the bulk of the Company's current operations, is
influenced by many factors, including state and federal laws, market conditions
for homeowners' insurance and residential plans. Additionally, an economic
downturn could result in fewer home sales and less demand for new homeowners
seeking insurance.

Historically, the financial performance of the property and casualty
insurance industry has tended to fluctuate in cyclical patterns of soft markets
followed by hard markets. Although an individual insurance company's financial
performance is dependent on its own specific business characteristics, the
profitability of most property and casualty insurance companies tends to follow
this cyclical market pattern.

The Company believes that a substantial portion of its future growth
will depend on its ability, among other things, to successfully implement its
business strategy, including expanding the Company's product offering by
underwriting and marketing additional insurance products and programs through
its distribution network and further penetrating the Florida market by
establishing relationships with additional independent agents in order to expand
its distribution network. Any future growth is contingent on various factors,
including the availability of adequate capital, the Company's ability to hire
and train additional personnel, regulatory requirements and rating agency
considerations. There is no assurance that the Company will be successful in
expanding its business, that the existing infrastructure will be able to support
additional expansion or that any new business will be profitable. Moreover, as
the Company expands its insurance products and programs and the Company's mix of
business changes, there can be no assurance that the Company will be able to
improve its profit margins or other operating results. There can also be no
assurance that the Company will be able to obtain the required regulatory
approvals to offer additional insurance products. UPCIC also is required to
maintain minimum surplus to support its underwriting program. The surplus
requirement affects UPCIC's potential growth.

MANAGEMENT OF EXPOSURE TO CATASTROPHIC LOSSES

UPCIC is exposed to potentially numerous insured losses arising out of
single or multiple occurrences, such as natural catastrophes. As with all
property and casualty insurers, UPCIC expects to and will incur some losses
related to catastrophes and will price its policies accordingly. UPCIC's
exposure to catastrophic losses arises principally out of hurricanes and
windstorms. Through the use of standard industry modeling techniques that are
susceptible to change, UPCIC manages its exposure to such losses on an ongoing
basis from an underwriting perspective. In addition, UPCIC protects itself
against the risk of catastrophic loss by obtaining reinsurance coverage up to
approximately the "100 year Probable Maximum Loss" ("PML"). UPCIC's reinsurance
program consists of excess of loss, quota share and catastrophe reinsurance for
multiple hurricanes. However, UPCIC may not buy enough reinsurance to cover
multiple storms going forward or be able to timely obtain reinsurance. During
2004, Florida experienced four windstorm catastrophes (Hurricanes Charley,
Frances, Ivan and Jeanne), which resulted in losses. As a result of these
storms, the Company currently estimates it incurred $182,666,020 in losses prior

to reinsurance and $22,497,312 net of reinsurance. During 2005, Florida
experienced three windstorm catastrophes (Hurricanes Dennis, Katrina and Wilma),
which resulted in losses. As a result of these storms, the Company currently
estimates it incurred $93,125,571 in losses prior to reinsurance and $4,139,304
net of reinsurance. During 2006, UPCIC did not incur any losses due to
catastrophic events.

RELIANCE ON THIRD PARTIES AND REINSURERS

UPCIC is dependent upon third parties to perform certain functions
including, but not limited to the purchase of reinsurance and risk management
analysis. UPCIC also relies on reinsurers to limit the amount of risk retained
under its policies and to increase its ability to write additional risks.
UPCIC's intention is to limit its exposure and therefore protect its capital,
even in the event of catastrophic occurrences, through reinsurance agreements
that currently transfer the risk of loss in excess of $1,875,000 for the first
and second events and $3,500,000 for the third event up to approximately the 100
year PML as of the beginning of hurricane season on June 1 of each year. This
amount may change in the future.

REINSURANCE

The property and casualty reinsurance industry is subject to the same
market conditions as the direct property and casualty insurance market, and
there can be no assurance that reinsurance will be available to UPCIC to the
same extent and at the same cost as currently in place for UPCIC. In light of
the four windstorm catastrophes Florida experienced in 2004, and three windstorm
catastrophes Florida experienced in 2005, an increase in catastrophe reinsurance
costs for the current year renewal is possible and could adversely affect
UPCIC's results. Reinsurance does not legally discharge an insurer from its
primary liability for the full amount of the risks it insures, although it does
make the reinsurer liable to the primary insurer. Therefore, UPCIC is subject to
credit risk with respect to its reinsurers. Management evaluates the financial
condition of its reinsurers and monitors concentrations of credit risk arising
from similar geographic regions, activities, or economic characteristics of the
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies. A reinsurer's insolvency or inability to make payments under a
reinsurance treaty could have a material adverse effect on the financial
condition and profitability of UPCIC. In addition, while ceding premiums to
reinsurers reduces the Company's risk of exposure in the event of catastrophic
losses, it also reduces the Company's potential for greater profits should such
catastrophic events fail to occur. The Company believes that the extent of its
reinsurance is typical of a company of its size in the homeowners insurance
industry.

ADEQUACY OF LIABILITIES FOR LOSSES

The liabilities for losses and loss adjustment expenses periodically
established by UPCIC are estimates of amounts needed to pay reported and
unreported claims and related loss adjustment expenses. The estimates
necessarily will be based on certain assumptions related to the ultimate cost to
settle such claims. There is an inherent degree of uncertainty involved in the
establishment of liabilities for losses and loss adjustment expenses and there
may be substantial differences between actual losses and UPCIC's liabilities
estimates. In the case of UPCIC, this uncertainty is compounded by UPCIC's
limited historical claims experience. UPCIC relies on industry data, as well as
the expertise and experience of independent actuaries in an effort to establish
accurate estimates and adequate liabilities. Furthermore, factors such as storms
and weather conditions, inflation, claim settlement patterns, legislative
activity and litigation trends may have an impact on UPCIC's future loss
experience. Accordingly, there can be no assurance that UPCIC's liabilities will
be adequate to cover ultimate loss developments. UPCIC's profitability and
financial condition could be adversely affected to the extent that its
liabilities are inadequate.

UPCIC is directly liable for loss and loss adjustment expenses ("LAE")
payments under the terms of the insurance policies that it writes. In many
cases, several years may elapse between the occurrence of an insured loss and
the Company's payment of that loss. As required by insurance regulations and
accounting rules, the Company reflects its liability for the ultimate payment of
all incurred losses and LAE by establishing a liability for those unpaid losses
and LAE for both reported and unreported claims, which represent estimates of
future amounts needed to pay claims and related expenses.

When a claim involving a probable loss is reported, the Company
establishes a liability for the estimated amount of the Company's ultimate loss
and LAE payments. The estimate of the amount of the ultimate loss is based upon
such factors as the type of loss, jurisdiction of the occurrence, knowledge of
the circumstances surrounding the claim, severity of injury or damage, potential
for ultimate exposure, estimate of liability on the part of the insured, past
experience with similar claims and the applicable policy provisions.

All newly reported claims received are set up with an initial average
liability. That claim is then evaluated and the liability is adjusted upward or
downward according to the facts and damages of that particular claim.

In addition, management provides for a liability on an aggregate basis
to provide for losses incurred but not reported ("IBNR"). The Company utilizes
independent actuaries to help establish its liability for unpaid losses and LAE.
The Company does not discount the liability for unpaid losses and LAE for
financial statement purposes.

The estimates of the liability for unpaid losses and LAE are subject to
the effect of trends in claims severity and frequency and are continually
reviewed. As part of this process, the Company reviews historical data and
considers various factors, including known and anticipated legal developments,
changes in social attitudes, inflation and economic conditions. As experience
develops and other data become available, these estimates are revised, as
required, resulting in increases or decreases to the existing liability for
unpaid losses and LAE. Adjustments are reflected in results of operations in the
period in which they are made and the liabilities may deviate substantially from
prior estimates.

Among the classes of insurance underwritten by the Company, the
homeowners' liability claims historically tend to have longer time lapses
between the occurrence of the event, the reporting of the claim to the Company
and the final settlement than do homeowners' property claims. Liability claims
often involve third parties filing suit and the ensuing litigation. By
comparison, property damage claims tend to be reported in a relatively shorter
period of time with the vast majority of these claims resulting in an adjustment
without litigation.

There can be no assurance that the Company's liability for unpaid losses
and LAE will be adequate to cover actual losses. If the Company's liability for
unpaid losses and LAE proves to be inadequate, the Company will be required to
increase the liability with a corresponding reduction in the Company's net
income in the period in which the deficiency is identified. Future loss
experience substantially in excess of established liability for unpaid losses
and LAE could have a material adverse effect on the Company's business, results
of operations and financial condition.

The following table sets forth a reconciliation of beginning and ending
liability for unpaid losses and LAE as shown in the Company's consolidated
financial statements for the periods indicated.

Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------
(Dollars in Thousands)

Balance at beginning of year $ 67,000 $ 57,872

Less reinsurance recoverable (60,859) (56,292)
----------- -----------

Net balance at beginning of year 6,141 1,580
----------- -----------
Incurred related to:
Current year 9,247 7,049
Prior years 15,694 2,549
----------- -----------
Total incurred 24,941 9,598
----------- -----------
Paid related to:
Current year 4,454 3,822
Prior years 9,433 1,215
----------- -----------
Total paid 13,887 5,037
----------- -----------

Net balance at end of year 17,195 6,141
Plus reinsurance recoverable 32,369 60,859
----------- -----------
Balance at end of year $ 49,564 $ 67,000
=========== ===========

sheet date. This unfavorable loss emergence resulted principally from higher
than expected hurricane losses in 2004. The Company's liabilities for unpaid
losses and LAE, net of related reinsurance recoverables, as of December 31, 2005
were increased during 2005 by $2,549,050 for claims that had occurred on or
before the previous year balance sheet date. This unfavorable loss emergence
resulted principally from higher than expected hurricane losses in 2004. There
can be no assurance that the Company's unpaid losses and LAE will not develop
redundancies or deficiencies and possibly differ materially from the Company's
unpaid losses and LAE as of December 31, 2006. In the future, if the unpaid
losses and LAE develop redundancies or deficiencies, such redundancy or
deficiency would have a favorable or adverse impact, respectively, on future
results of operations.

Based upon consultations with the Company's independent actuarial
consultants and their statement of opinion on losses and LAE, the Company
believes that the liability for unpaid losses and LAE is currently adequate to
cover all claims and related expenses which may arise from incidents reported
and IBNR.

The following table presents total unpaid loss and LAE, net, and the
corresponding reinsurance recoverables shown in the Company's consolidated
financial statements for the periods indicated.

Years Ended
December 31, 2006 December 31, 2005
----------------- -----------------
(Dollars in Thousands)

Unpaid Loss and LAE, net $ 6,814 $ 2,130
IBNR loss and LAE, net 10,381 4,011
------------ -----------
Total unpaid loss and LAE, net $ 17,195 $ 6,141
============ ===========

Reinsurance recoverable on unpaid loss and LAE $ 15,418 $ 47,302
Reinsurance recoverable on IBNR loss and LAE 16,951 13,557
------------ -----------
Total reinsurance recoverable on unpaid loss
and LAE $ 32,369 $ 60,859
============ ===========

The following table presents the liability for unpaid losses and LAE for
the Company since inception. The top line of the table shows the estimated net
liabilities for unpaid losses and LAE at the balance sheet date for each of the
periods indicated. These figures represent the estimated amount of unpaid losses
and LAE for claims arising in all prior years that were unpaid at the balance
sheet date, including losses that had been incurred but not yet reported. The
portion of the table labeled "Cumulative paid as of" shows the net cumulative
payments for losses and LAE made in succeeding years for losses incurred prior
to the balance sheet date. The lower portion of the table shows the re-estimated
amount of the previously recorded liability based on experience as of the end of
each succeeding year.

Years Ended December 31,
2006 2005 2004 2003 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)

Balance Sheet liability $17,195 $6,141 $1,580 $1,351 $1,591 $2,893 $1,372 $1,532 $1,588

Cumulative paid as of:

One year later - 12,897 1,216 950 667 3,660 1,308 897 939
Two years later - - 11,514 1,153 992 3,667 1,635 1,081 904
Three years later - - - 1,330 1,115 3,899 1,693 1,155 1,010
Four years later - - - - 1,260 3,998 1,811 1,191 1,024
Five years later - - - - - 4,082 1,833 1,206 999
Six years later - - - - - - 1,849 1,212 1,006
Seven years later - - - - - - - 1,223 1,009
Eight years later - - - - - - - - 1,010

Balance Sheet liability 17,195 6,141 1,580 1,351 1,591 2,893 1,372 1,532 1,588
One year later - 25,312 4,129 1,480 1,249 4,237 1,797 1,344 1,067
Two years later - - 22,727 1,297 1,369 3,974 1,944 1,269 1,089
Three years later - - - 1,482 1,229 4,158 1,926 1,286 1,071
Four years later - - - - 1,377 4,096 1,940 1,270 1,024
Five years later - - - - - 4,147 1,904 1,229 1,013
Six years later - - - - - - 1,904 1,279 1,019
Seven years later - - - - - - - 1,278 1,016
Eight years later - - - - - - - - 1,016
Cumulative redundancy (deficiency) - (19,171) (21,147) (131) 214 (1,254) (532) 254 572

The cumulative redundancy or deficiency represents the aggregate change
in the estimates over all prior years. A deficiency indicates that the latest
estimate of the liability for losses and LAE is higher than the liability that
was originally estimated and a redundancy indicates that such estimate is lower.
It should be emphasized that the table presents a run-off of balance sheet
liability for the periods indicated rather than accident or policy loss
development for those periods. Therefore, each amount in the table includes the
cumulative effects of changes in liability for all prior periods. Conditions and
trends that have affected liabilities in the past may not necessarily occur in
the future.

Underwriting results of insurance companies are frequently measured by
their combined ratios. However, investment income, federal income taxes and
other non-underwriting income or expense are not reflected in the combined
ratio. The profitability of property and casualty insurance companies depends on
income from underwriting, investment and service operations. Underwriting
results are considered profitable when the combined ratio is under 100% and
unprofitable when the combined ratio is over 100%.

The following table sets forth the statutory loss ratios, expense ratios
and combined ratios for the periods indicated for UPCIC. The ratios, net of
reinsurance and inclusive of loss adjustment expenses, are shown in the table
below and are computed based upon Statutory Accounting Principles. The expense
ratio includes management fees and commissions paid to the Company in the amount
of $16,645,351 in 2006 and $5,536,002 in 2005.

Years Ended
December 31, 2006 December 31, 2005
----------------- -----------------

Loss Ratio 54% 73%
Expense Ratio 19 13
----------------- -----------------
Combined Ratio 73% 86%
================= =================

In order to reduce losses and thereby reduce the loss ratio and the
combined ratio, the Company has taken several steps. These steps include
implementing rate increases for new and renewal business, restructuring the
homeowners' coverage offered, restructuring the catastrophic reinsurance
coverage to reduce cost, and working to reduce general and administrative
expenses.

GOVERNMENT REGULATION

Florida insurance companies are subject to regulation and supervision by
the OIR. The OIR has broad regulatory, supervisory and administrative powers.
Such powers relate, among other things, to the granting and revocation of
licenses to transact business; the licensing of agents (through the Department
of Financial Services); the standards of solvency to be met and maintained; the
nature of, and limitations on, investments; approval of policy forms and rates;
review of reinsurance contracts; periodic examination of the affairs of
insurance companies; and the form and content of required financial statements.
Such regulation and supervision are primarily for the benefit and protection of
policyholders and not for the benefit of investors.

In addition, the Florida legislature and the National Association of
Insurance Commissioners from time to time consider proposals that may affect,
among other things, regulatory assessments and reserve requirements. UPCIC
cannot predict the effect that any proposed or future legislation or regulatory
or administrative initiatives may have on the financial condition or operations
of UPCIC.

DEPENDENCE ON KEY INDIVIDUALS

UPCIC's operations depend in large part on the efforts of Bradley I.
Meier, who serves as President of UPCIC. Mr. Meier has also served as President,
Chief Executive Officer and Director of the Company since its inception in
November 1990. In addition, UPCIC's operations have become materially dependent
on the efforts of Sean P. Downes, who serves as Chief Operating Officer of
UPCIC. Mr. Downes has also served as Chief Operating Officer, Senior Vice
President and Director of the Company since January 2005 and as a Director of
UPCIC since May 2003. The loss of the services provided by Mr. Meier or Mr.
Downes could have a material adverse effect on UPCIC's financial condition and
results of operations.

COMPETITION

The insurance industry is highly competitive and many companies
currently write homeowners' property and casualty insurance. Additionally, the
Company and its subsidiaries must compete with companies that have greater
capital resources and longer operating histories. Increased competition from
other insurance companies could adversely affect the Company's ability to do
business profitably. Although the Company's pricing is inevitably influenced to
some degree by that of its competitors, management of the Company believes that
it is generally not in the Company's best interest to compete solely on price,
choosing instead to compete on the basis of underwriting criteria, its
distribution network and high quality service to its agents and insureds.

EMPLOYEES

As of March 1, 2007, the Company had 118 full-time employees. None of
the Company's employees is represented by a labor union. The Company also
utilized the services of several temporary employees during the year to assist
with the increased workload related to the hurricanes Florida had experienced.
The Company has an employment agreement with Bradley I. Meier, President and
Chief Executive Officer of the Company and Sean P. Downes, Senior Vice President
and Chief Operating Officer of the Company. See "Executive
Compensation--Employment Agreements."

ITEM 2. DESCRIPTION OF PROPERTY

On July 31, 2004, the Company purchased a modern building located in
Fort Lauderdale, Florida that became its home office on July 1, 2005. The
Company believes that the new building is suitable for its intended use and
adequate to meet the Company's current needs. The building is 100% utilized by
the Company. There is no mortgage or lease arrangement. The building is
adequately covered by insurance.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in certain lawsuits. In the opinion of
management, except as described below, none of these lawsuits (1) involve claims
for damages exceeding 10% of the current assets of the Company, (2) involve
matters that are not routine litigation incidental to the claims aspect of its
business, (3) involve bankruptcy, receivership or similar proceedings, (4)
involve material Federal, state, or local environmental laws, (5) potentially
involve more than $100,000 in sanctions and a governmental authority is a party,
or (6) are material proceedings to which any director, officer, affiliate of the

Company, beneficial owner of more than 5% of any class of voting securities of
the Company, or security holder is a party adverse to the Company or has a
material interest adverse to the Company.

On February 7, 2005, Marty Steinberg as a court appointed receiver for
the entities consisting of Lancer Management Group LLC, Lancer Management Group
II LLC, Lancer Offshore Inc., Omnifund Ltd., LSPV Inc., LSPV LLC, Alpha Omega
Group Inc. and G.H. Associates LLC (collectively the "Lancer Entities") filed
suit against Alfred Taubman, Anthony Cullen, British American Racing, Centrack
International, Inc., Kuwait & Middle East Financial Investment Co., Liberty
International Asset Management, Macroview Investments Limited, Opus Portfolio
Ltd., Reva Stocker, Roger Dodger, LLC, Signet Management Limited, Thornhill
Group Inc. Trust, World Class Boxing and the Company (collectively the
"Defendants") in the United States District Court for the Southern District of
Florida. The Company received the notice of suit by mail on September 8, 2005.
The suit alleged that the Lancer Entities fraudulently transferred funds to the
Defendants and that the transfers unduly enriched the Defendants. The receiver
asked the Company to pay $658,108. The Company had no record of the alleged
transfers and vigorously defended the suit. The lawsuit has since been dismissed
with prejudice by the receiver.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the Company's shareholders
during the fourth quarter ended December 31, 2006.

PART II

ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

The Company's Common Stock is quoted on the OTC Bulletin Board under the
symbol UVIH. The following table sets forth prices of the Common Stock, as
reported by the OTC Bulletin Board. The following data reflects inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.

For year ended December 31, 2005 High Low
-------------------------------- ---- ---
First Quarter $ 0.08 $ 0.04
Second Quarter 0.09 0.05
Third Quarter 0.07 0.04
Fourth Quarter 0.95 0.05

For year ended December 31, 2006 High Low
-------------------------------- ---- ---
First Quarter $ 1.40 $0.85
Second Quarter 1.65 0.93
Third Quarter 2.46 1.12
Fourth Quarter 3.97 2.31

At March 1, 2007, transfer agent records indicate 45 shareholders of
record of the Company's Common Stock. There were approximately 425 beneficial
owners of its Common Stock. In addition, there were 3 shareholders of the
Company's Series A and Series M Preferred Stock ("Preferred Stock").

During 2005 and 2006, respectively, the Company declared and paid
aggregate dividends of $49,950 on the Company's Series A Preferred Stock and
Series M Preferred Stock.

Applicable provisions of the Delaware General Corporation Law may affect
the ability of the Company to declare and pay dividends on its Common Stock. In
particular, pursuant to the Delaware General Corporation Law, a company may pay

dividends out of its surplus, as defined, or out of its net profits, for the
fiscal year in which the dividend is declared and/or the preceding year. Surplus
is defined in the Delaware General Corporation Law to be the excess of net
assets of the company over capital. Capital is defined to be the aggregate par
value of shares issued. Moreover, the ability of the Company to pay dividends,
if and when declared by its Board of Directors, may be restricted by regulatory
limits on the amount of dividends, which UPCIC is permitted to pay the Company.
Section 628.371 of the Florida Statutes sets forth limitations, based on net
income and statutory capital, on the amount of dividends that UPCIC may pay to
the Company without approval from the Department.

On October 24, 2006, the Company declared a dividend of $.05 per share
on its outstanding Common Stock of the Company to be paid on April 9, 2007 to
the shareholders of record of the Company at the close of business on March 19,
2007. The dividend payable amount of $1,902,855 for this dividend is accrued in
the December 31, 2006 balance sheet. At December 31, 2006, the Company recorded
a dividend payable in the amount of $1,902,855 for this dividend and a net
reduction to retained earnings in the amount of $1,747,423, which represents the
total dividend net of the dividends on the shares held in treasury stock and in
the Stock Grantor Trust described in Note 11 - Stockholders' Equity. During the
fourth quarter, the Company paid a dividend of $0.05 per share that was accrued
at the end of third quarter. The aggregate amount of the dividend was
$1,747,423. During the third quarter, the Company paid a dividend of $0.04 per
share of outstanding Common Stock that was accrued at the end of the second
quarter. The aggregate amount of the dividend was $1,393,938. During the second
quarter, the Company paid a dividend of $0.04 per share of outstanding Common
Stock that was accrued at the end of first quarter. The aggregate amount of the
dividend was $1,364,506.

On March 15, 2007, the Company declared a dividend of $.07 per share on
its outstanding Common Stock of the Company to be paid on August 10, 2007 to the
shareholders of record of the Company at the close of business on July 20, 2007.
The dividend payable amount is $2,446,392.

STOCK ISSUANCES

In February 2006, the Company issued 325,000 shares of restricted
Common Stock at a price of $.05 per share to a private investor pursuant to the
exercise of warrants to purchase restricted Common Stock. In April 2006, the
Company issued 200,000 shares of Common Stock at a price of $.05 per share to a
vendor pursuant to the exercise of warrants to purchase restricted Common Stock.
Also in April 2006, the Company issued 200,000 shares of restricted Common Stock
at a price of $.04 per share to Sean P. Downes, COO of the Company, pursuant to
Mr. Downes' exercise of stock options and 123,077 shares of restricted Common
Stock at a price of $.93 per share pursuant to Mr. Downes' election to receive
such shares in lieu of accrued vacation. Also in April 2006, the Company issued
10,000 shares of restricted Common Stock at a price of $.50 per share to Reed J.
Slogoff, a director of the Company, pursuant to the exercise of options to
purchase restricted Common Stock. In May 2006, the Company issued 400,000 shares
of restricted Common Stock to one employee at $1.23 per share and 25,000 to a
second employee at $1.30 per share in conjunction with employment agreements.
Also in May 2006, the Company issued 10,000 shares of restricted Common Stock at
a price of $.50 per share to an employee of the Company pursuant to the exercise
of options to purchase restricted Common Stock. In June 2006, the Company issued
25,000 shares of restricted Common Stock at a price of $1.52 per share to each
of the then outside directors of the Company (Norman M. Meier, Reed Slogoff, and
Joel Wilentz) and 200,000 shares of restricted Common Stock at a price of $1.52
per share to Sean P. Downes, COO of the Company, as a bonus. Also in June 2006,
the Company issued James M. Lynch, CFO of the Company, 25,807 shares of Common
Stock at a price of $1.65 per share as a bonus. Unless otherwise specified, such
as in the case of the exercise of stock options or warrants, the per share
prices were determined using the closing price of the Company's Common Stock as
quoted on the OTC Bulletin Board and the shares were issued in private
transactions pursuant Section 4(2) of the Securities Act of 1933, as amended.

EQUITY COMPENSATION PLANS

See Item 11, "Security Ownership of Certain Beneficial Owners and
Management - Equity Compensation Plan Information," for a discussion of shares
of Common Stock issued under the Company's equity compensation plans.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

A NUMBER OF STATEMENTS CONTAINED IN THIS REPORT ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN THE APPLICABLE STATEMENTS.
THESE RISKS AND UNCERTAINTIES INCLUDE BUT ARE NOT LIMITED TO THE COSTS AND THE

UNCERTAINTIES ASSOCIATED WITH THE RISK FACTORS SET FORTH IN ITEM 1 ABOVE.
INVESTORS ARE CAUTIONED THAT THESE FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES
OF FUTURE PERFORMANCE OR RESULTS.

OVERVIEW

UPCIC's application to become a Florida licensed property and casualty
insurance company was filed with the OIR on May 14, 1997 and approved on October
29, 1997. UPCIC's proposal to begin operations through the acquisition of
homeowners' insurance policies issued by the JUA was approved by the JUA on May
21, 1997, subject to certain minimum capitalization and other requirements. One
of the requirements imposed by the OIR was to limit the number of policies UPCIC
could assume from the JUA to 30,000.

The OIR requires applicants to have a minimum capitalization of $5.0
million to be eligible to operate as an insurance company in the State of
Florida. Upon being issued an insurance license, companies must maintain
capitalization of at least $4.0 million. If an insurance company's
capitalization falls below $4.0 million, then the company will be deemed out of
compliance with OIR requirements, which could result in revocation of the
participant's license to operate as an insurance company in the State of
Florida.

The Company has continued to implement its plan to become a financial
services company and, through its wholly-owned insurance subsidiaries, has
sought to position itself to take advantage of what management believes to be
profitable business and growth opportunities in the marketplace.

The Company entered into an agreement with the JUA whereby during 1998,
UPCIC assumed approximately 30,000 policies from the JUA. In addition, UPCIC
received bonus incentive funds from the JUA for assuming the policies. The bonus
funds were maintained in an escrow account for three years. These bonus payments
were not included in the Company's assets until receipt at the end of the
three-year period. UPCIC could not cancel the policies from the JUA for this
three-year period at which point UPCIC received the bonus funds. The Company
will not be receiving any additional bonus payments.

The Company expects that premiums from policy renewals and new business
will be sufficient to meet the Company's working capital requirements beyond the
next twelve months.

The policies obtained from the JUA provided the opportunity for UPCIC to
solicit future renewal premiums. The majority of the policies obtained from the
JUA renewed with UPCIC. In an effort to further grow its insurance operations,
in 1998 the Company began to solicit business actively in the open market.
Through renewal of JUA business combined with business solicited in the market
through independent agents, UPCIC is currently servicing approximately 268,000
homeowners' insurance policies. To improve underwriting and manage risk, the
Company utilizes standard industry modeling techniques for hurricane and
windstorm exposure. To diversify UPCIC's product lines, UPCIC underwrites inland
marine policies. Management may consider underwriting other types of policies in
the future. Any such program will require OIR approval. See Item 1, COMPETITION
under "Factors Affecting Operation Results and Market Price of Stock" for a
discussion of the material conditions and uncertainties that may affect UPCIC's
ability to obtain additional policies.

CRITICAL ACCOUNTING POLICIES

USE OF ESTIMATES. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. The Company's primary
areas of estimate are described below.

INSURANCE LIABILITIES. Claims and claim adjustment expenses are provided for as
claims are incurred. The provision for unpaid claims and claim adjustment
expenses includes: (1) the accumulation of individual case estimates for claims
and claim adjustment expenses reported prior to the close of the accounting
period; (2) estimates for unreported claims based on industry data; and (3)

estimates of expenses for investigating and adjusting claims based on the
experience of the Company and the industry.

Inherent in the estimates of ultimate claims are expected trends in claim
severity, frequency and other factors that may vary as claims are settled. The
amount of uncertainty in the estimates for casualty coverage is significantly
affected by such factors as the amount of claims experience relative to the
development period, knowledge of the actual facts and circumstances and the
amount of insurance risk retained. In the case of UPCIC, this uncertainty is
compounded by UPCIC's limited history of claims experience. In addition, UPCIC's
policyholders are currently concentrated in South Florida, which is periodically
subject to adverse weather conditions such as hurricanes and tropical storms.
The methods for making such estimates and for establishing the resulting
liability are continually reviewed, and any adjustments are reflected in
earnings currently.

DEFERRED POLICY ACQUISITION COSTS/DEFERRED CEDING COMMISSIONS. Commissions and
other costs of acquiring insurance that vary with and are primarily related to
the production of new and renewal business are deferred and amortized over the
terms of the policies or reinsurance treaties to which they are related.
Determination of costs other than commissions that vary with and are primarily
related to the production of new and renewal business requires estimates to
allocate certain operating expenses. As of December 31, 2006, deferred policy
acquisition costs were $34,082,701 and deferred ceding commissions were
$31,976,585. Deferred policy acquisition costs were reduced by deferred ceding
commissions and shown net on the Consolidated Balance Sheet in the amount of
$2,106,116.

PROVISION FOR PREMIUM DEFICIENCY. It is the Company's policy to evaluate and
recognize losses on insurance contracts when estimated future claims and
maintenance costs under a group of existing contracts will exceed anticipated
future premiums and investment income. The determination of the provision for
premium deficiency requires estimation of the costs of losses, catastrophic
reinsurance and policy maintenance to be incurred and investment income to be
earned over the remaining policy period. The Company has determined that a
provision for premium deficiency was not warranted as of December 31, 2006.

REINSURANCE. In the normal course of business, the Company seeks to reduce the
risk of loss that may arise from catastrophes or other events that cause
unfavorable underwriting results by reinsuring certain levels of risk in various
areas of exposure with other insurance enterprises or reinsurers. While ceding
premiums to reinsurers reduces the Company's risk of exposure in the event of
catastrophic losses, it also reduces the Company's potential for greater profits
should such catastrophic events fail to occur. The Company believes that the
extent of its reinsurance is typical of a company of its size in the homeowners
insurance industry. Amounts recoverable from reinsurers are estimated in a
manner consistent with the provisions of the reinsurance agreement and
consistent with the establishment of the liability of the Company. The Company's
reinsurance policies do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. No such allowance was deemed necessary as of December 31,
2006.

OFF-BALANCE SHEET ARRANGEMENTS

The Company had no off-balance sheet arrangements during 2006.

RELATED PARTIES

All underwriting, rating, policy issuance, reinsurance negotiations and certain
administration functions for UPCIC are performed by UPCIC, Universal Risk
Advisors and unaffiliated third parties. Claims adjusting functions are
performed by Universal Adjusting Corporation, a wholly owned subsidiary of the
Company and unaffiliated third parties.

Downes and Associates, a multi-line insurance adjustment corporation based in
Deerfield Beach, Florida performs certain claims adjusting work for UPCIC.
Downes and Associates is owned by Dennis Downes, who is the father of Sean P.
Downes, COO and Senior Vice President of the Company. During 2006 and 2005, the
Company expensed claims adjusting fees of $829,208 and $1,075,188, respectively,
to Downes and Associates.

During 2005, Sean P. Downes filed a claim on his homeowners' policy issued by
UPCIC as a result of damage incurred during Hurricane Wilma. UPCIC handled the
claim in the ordinary course of its business and made a loss payment to Mr.
Downes in the amount of $214,409.

In July 2004, the Company borrowed monies from a private investor in the amount
of $175,000 for working capital. In August 2005, this individual's son, Michael
P. Moran, became UPCIC's Vice President of Claims. The loan was paid off in
January 2006.

RESULTS OF OPERATIONS

FOR YEAR ENDED DECEMBER 31, 2006 AND FOR YEAR ENDED DECEMBER 31, 2005.

The fiscal year ended December 31, 2006 marked a significant improvement
in the Company's operating results over recent past fiscal years. This
improvement was primarily attributable to volume and rate increases,
restructuring the homeowners' coverage offered, restructuring the Company's
reinsurance coverage and working to control general and administrative expenses.
In addition, Florida did not experience any windstorm catastrophes during 2006.

Gross premiums written increased 319.1% to $371,754,514 for the year
ended December 31, 2006 from $88,701,123 for the year ended December 31, 2005.
The increase in gross premiums written is primarily attributable to an increase
in new business as well as premium rate increases. The increase in new business
is partly attributable to the recent Florida windstorm catastrophes, which have
provided an opportunity in the otherwise competitive marketplace as certain
companies are not accepting new business, as well as marketing initiatives the
Company has undertaken.

Net premiums written increased 552.7% to $141,035,805 for the year ended
December 31, 2006 from $21,606,878 for the year ended December 31, 2005. The
increase in net premiums written reflects the impact of reinsurance, since
$230,718,709 or 62.1% of premiums written were ceded to reinsurers for the year
ended December 31, 2006 as compared to $67,094,245 or 75.6% for the year ended
December 31, 2005. The increase in net premiums written is attributable to an
increase in new business, premium rate increases and changes to the Company's
reinsurance program. Under the Company's quota share reinsurance treaty, the
Company elected to cede 80% of gross written premiums, losses and loss
adjustment expenses during the first five months of 2005 for all policies with
coverage for wind risk versus 55% of policies with coverage for wind risk during
the subsequent six months of 2005 and 80% of policies with coverage for wind
risk during the remaining month of 2005. The Company continued to cede 80% of
policies with coverage for wind risk during the first five months of 2006 versus
50% of policies with coverage for wind risk during the remaining seven months of
2006. The Company believes that the extent of its reinsurance is typical of a
company of its size in the homeowners' insurance industry.

Net premiums earned increased 242.1% to $54,135,952 for the year ended
December 31, 2006 from $15,825,982 for the year ended December 31, 2005. The
increase in net premiums earned is attributable to an increase in new business,
premium rate increases and changes in the reinsurance program noted above.

Commission revenue increased 166.0% to $6,714,511 for the year ended
December 31, 2006 from $2,523,861 for the year ended December 31, 2005.
Commission income is comprised mainly of the Managing General Agent's policy fee
income on all new and renewal insurance policies and commissions generated from
agency operations. The increase is primarily due to increased policy fee income
attributable to an increase in new and renewal business.

Investment income consists of net investment income and net realized
gains (losses). Investment income increased 484.4% to $3,986,414 for the year
ended December 31, 2006 from $682,085 for the year ended December 31, 2005. The
increase is primarily due to higher investment balances during 2006.

Other revenue decreased 4.4% to $310,873 for the year ended December 31,
2006 from $325,272 for the year ended December 31, 2005. Other revenue is
comprised of fee revenue from direct sales and service revenue from other
operations. The decrease is primarily attributable to the fact that there was
less activity in the direct sales and service operations in 2006.

Losses and loss adjustment expenses ("LAE"), net incurred increased
159.9% to $24,940,879 for the year ended December 31, 2006 from $9,597,984 for
the year ended December 31, 2005 as compared to net premiums earned which

increased 242.1% to $54,135,952 for the year ended December 31, 2006 from
$15,825,982 for the year ended December 31, 2005. Losses and LAE, the Company's
most significant expense, represent actual payments made and changes in
estimated future payments to be made to or on behalf of its policyholders,
including expenses required to settle claims and losses. Losses and LAE, net are
influenced by loss severity and frequency. Losses and LAE, net increased due to
an increase in insured exposures and changes to the Company's reinsurance
program discussed above. The Company's direct loss ratio for the year ended
December 31, 2006 was 36.8% compared to 148.4% for the year ended December 31,
2005. The Company's direct loss ratio decreased principally due to the lower
frequency and severity of claims in 2006. During 2006, the Company did not
experience any catastrophic events. During 2005, Florida experienced three
windstorm catastrophes (Hurricanes Dennis, Katrina and Wilma), which resulted in
losses. As a result of these storms, the Company currently estimates it incurred
$93,125,571 in losses prior to reinsurance and $4,139,304 net of reinsurance.
Except for catastrophe claims, the Company believes that the severity and
frequency of claims remained relatively stable for the periods under comparison.
The Company's net loss ratio for the year ended December 31, 2006 was 46.1%
compared to 60.6% for the year ended December 31, 2005. The net loss ratio
decreased due to the decrease in net losses incurred and premium rate increases.

Catastrophes are an inherent risk of the property-liability insurance
business, particularly in the geographic area where the Company does business,
which may contribute to material year-to-year fluctuations in UPCIC's results of
operations and financial position. The level of catastrophe loss experienced in
any year cannot be predicted and could be material to the results of operations
and financial position. While management believes its catastrophe management
strategies will reduce the severity of future losses, UPCIC continues to be
exposed to similar or greater catastrophes as those experienced in prior years.

The reserve for direct unpaid losses and LAE at December 31, 2006 is
$49,564,514. Based upon consultations with the Company's independent actuarial
consultants and their statement of opinion on losses and LAE, the Company
believes that the liability for unpaid losses and LAE is adequate to cover all
claims and related expenses which may arise from incidents reported. The range
of direct loss reserve estimates as determined by the Company's independent
actuarial consultants is a low of $37,274,555 and a high of $59,959,974. The key
assumption used to arrive at management's best estimate of loss reserves in
relation to the actuary's range and the specific factors that led to
management's best estimate is that the liability is based on management's
estimate of the ultimate cost of settling each loss and an amount for losses
incurred but not reported. However, if losses exceed direct loss reserve
estimates there could be a material adverse effect on the Company's financial
statements. Also, if there are regulatory initiatives, legislative enactments or
case law precedents, which change the basis for policy coverage, in any of these
events, there could be an effect on direct loss reserve estimates having a
material adverse effect on the Company's financial statements.

As a result of the Company's review of its liability for losses and loss
adjustment expenses, which includes a re-evaluation of the adequacy of reserve
levels for prior year claims, the Company's liabilities for unpaid losses and
LAE, net of related reinsurance recoverables, as of December 31, 2006 were
increased in the current year by $15,693,957 for claims that had occurred on or
before the prior year balance sheet date. This unfavorable loss emergence
resulted principally from higher than expected hurricane losses in 2004. The
Company's liabilities for unpaid losses and LAE, net of related reinsurance
recoverables, as of December 31, 2005 were increased during 2005 by $2,549,050
for claims that had occurred on or before the previous year balance sheet date.
This unfavorable loss emergence resulted principally from settling homeowners'
losses established in the prior year for amounts that were more than expected.
There can be no assurance concerning future adjustments of reserves, positive or
negative, for claims through December 31, 2006.

General and administrative expenses increased 279.8% to $13,485,562 for
the year ended December 31, 2006 from $3,551,117 for the year ended December 31,
2005. General and administrative expenses have increased primarily due to a
decrease in ceding commissions associated with changing policy retention from
20% to 50% at June 1, 2006.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of cash flow are premium revenues,
commission income and investment income.

For the year ended December 31, 2006, cash flows provided by operating
activities were $153,384,209. Cash flows from operating activities are expected
to be positive in both the short-term and reasonably foreseeable future. In

addition, the Company's investment portfolio is highly liquid as it consists
entirely of cash and cash equivalents of which $1,500,000 is held by the State
of Florida Department of Financial Services for the benefit of UPCIC's
policyholders. Cash flows from investing activities are primarily comprised of
purchases of building improvements and other capital expenditures. Cash flows
used in financing activities primarily relate to Company borrowings and payment
of dividends to shareholders.

During 2003, the Company purchased software for $520,000. Management
believes the software will assist it in reducing overall management expenses
versus the previous outside vendor agreement. The final installment payment on
the software of $150,000 was paid in March 2005. In addition, the Company has
outstanding loans in the amount of $119,186 to finance several vehicles and a
boat, all acquired for business use and marketing of the Company's products, and
in the amount of $1,032,901 for working capital needs. The amounts will become
due during the years 2006 through 2011.

In July 2004 the Company borrowed monies from a vendor and two private
investors in the amounts of $175,000, $150,000 and $100,000 for working capital.
The terms of the notes evidencing such loans require interest payments at a rate
of 10% through January 2005 with equal monthly payments of principal plus
interest thereafter until January 2006, the maturity date of the notes. The
notes were paid off in January 2006. In connection with the loans, in July 2004,
the Company granted to the vendor and two private investors warrants to purchase
175,000, 150,000 and 100,000, shares of restricted Common Stock each at an
exercise price of $.05 per share. The warrants vested over the payment terms and
each expires in July 2009. These transactions were approved by the Company's
Board of Directors.

In June 2005, the Company borrowed monies from two private investors and
issued two promissory notes for the aggregate principal sum of $1,000,000
payable in five monthly installments of $200,000. Payment on one note commenced
on June 30, 2006 and commenced on the other note on November 30, 2006. The loan
amount subsequently was contributed to UPCIC as additional paid-in-capital. In
conjunction with the notes, the Company granted a warrant to one of the
investors to purchase 200,000 shares of restricted Common Stock at an exercise
price of $.05 per share, expiring in June 2010. These transactions were approved
by the Company's Board of Directors. The aggregate remaining principal balance
on the promissory notes is $300,000.

On November 9, 2006, UPCIC entered into a $25.0 million surplus note
with the Florida State Board of Administration under Florida's Insurance Capital
Build-Up Incentive Program. Under the program, which was implemented by the
Florida legislature to encourage insurance companies to write additional
residential insurance coverage in Florida, the State Board of Administration
matched UPCIC's funds of $25.0 million that were earmarked for participation in
the program.

The surplus note brings the current capital and surplus of UPCIC to
approximately $62 million. Under Florida law, the current surplus will allow
UPCIC to write up to approximately $600 million in gross written premiums in the
2007 calendar year.

The surplus note has a twenty-year term and accrues interest at a rate
equivalent to the 10-year U.S. Treasury Bond Rate, adjusted quarterly based on
the 10-year Constant Maturity Treasury rate. For the first three years of the
term of the surplus note, UPCIC is required to pay interest only, although
principal payments can be made during this period. Any payment of principal or
interest by UPCIC on the surplus note must be approved by the Commissioner of
Florida Insurance Regulation.

An event of default will occur under the surplus note if UPCIC: (i)
defaults in the payment of the surplus note; (ii) fails to meet at least a 2:1
ratio of net premium to surplus ("Minimum Writing Ratio") requirement by June 1,
2007; (iii) fails to submit quarterly filings to the OIR; (iv) fails to maintain
at least $50 million of surplus during the term of the surplus note, except for
certain situations; (v) misuses proceeds of the surplus note; (vi) makes any
misrepresentations in the application for the program; or (vii) pays any
dividend when principal or interest payments are past due under the surplus
note. As of December 31, 2006, the Company is in compliance with each of the
aforementioned loan covenants.

If UPCIC fails to increase its writing ratio for two consecutive
quarters prior to June 1, 2007, fails to obtain the 2:1 Minimum Writing Ratio by
June 1, 2007, or drops below the 2:1 Minimum Writing Ratio once it is obtained
for two consecutive quarters, the interest rate on the surplus note will
increase during such deficiency by 25 basis points if the resulting writing
ratio is between 1.5:1 and 2:1 and the interest rate will increase by 450 basis
points if the writing ratio is below 1.5:1. If the writing ratio remains below
1.5:1 for three consecutive quarters after June 1, 2007, UPCIC must repay a

portion of the surplus note so that the Minimum Writing Ratio will be obtained
for the following quarter. The Company expects to maintain the 2:1 Minimum
Writing Ratio throughout the term of the surplus note.

To meet its matching obligation under the Insurance Capital Build-Up
Incentive Program, on November 3, 2006, the Company entered into a Secured
Promissory Note with Benfield Greig (Holdings), Inc. in the aggregate principal
amount of $12 million. Interest on the note will accrue at the market rate of
12.75% per annum. The outstanding principal is due in six monthly installments
of $1.5 million and a final seventh monthly installment of the remaining balance
plus all accrued interest under the terms of the Note starting on January 31,
2007 and ending on July 31, 2007. In connection with the loan, the Company and
its subsidiaries appointed Benfield Inc. as their reinsurance intermediary for
all of their reinsurance placements for the year beginning on June 1, 2007. As
of March 30, 2007, all amounts due on the Note have been paid.

The following table represents the Company's total contractual
obligations for which cash flows are fixed or determinable.

Total 2007 2008 2009 2010 2011 Thereafter
----- ---- ---- ---- ---- ---- ----------
(Thousands of dollars)
Contractual obligations

Long-term debt $ 25,058 $ - $ 15 $ 14 $ 1,008 $ 1,051 $ 22,970
Loans payable 12,324 12,324 - - - - -
Operating leases 396 227 137 32 - - -
-------- ------- ------- ------ ------- ------- --------

Total contractual obligations $ 37,778 $12,551 $ 152 $ 46 $ 1,008 $ 1,051 $ 22,970
======== ======= ======= ====== ======= ======= ========

The balance of cash and cash equivalents as of December 31, 2006 was
$232,890,297. Most of this amount is available to pay claims in the event of a
catastrophic event pending reimbursement for any aggregate amount in excess of
$1,875,000 up to the 100 year PML which would be currently covered by
reinsurers. Catastrophic reinsurance is recoverable upon presentation to the
reinsurer of evidence of claim payment.

Accounting principles generally accepted in the United States of America
differ in some respects from reporting practices prescribed or permitted by the
Florida Office of Insurance Regulation. To retain its certificate of authority,
the Florida insurance laws and regulations require that UPCIC maintain capital
and surplus equal to the statutory minimum capital and surplus requirement
defined in the Florida Insurance Code. The Company is also required to adhere to
prescribed premium-to-capital surplus ratios. The Company is in compliance with
these requirements.

The maximum amount of dividends, which can be paid by Florida insurance
companies without prior approval of the Florida Commissioner, is subject to
restrictions relating to statutory surplus. The maximum dividend that may be
paid by UPCIC to the Company without prior approval is limited to the lesser of
statutory net income from operations of the preceding calendar year or 10.0% of
statutory unassigned capital surplus as of the preceding year end. During 2005
and 2006, UPCIC did not pay dividends to the Company.

IMPACT OF INFLATION AND CHANGING PRICES

The consolidated financial statements and related data presented herein
have been prepared in accordance with generally accepted accounting principles
which require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation. The primary assets of the
Company are monetary in nature. As a result, interest rates have a more
significant impact on the Company's performance than the effects of the general
levels of inflation. Interest rates do not necessarily move in the same
direction or with the same magnitude as the cost of paying losses and LAE.

Insurance premiums are established before the Company knows the amount
of loss and LAE and the extent to which inflation may affect such expenses.
Consequently, the Company attempts to anticipate the future impact of inflation
when establishing rate levels. While the Company attempts to charge adequate
rates, the Company may be limited in raising its premium levels for competitive

and regulatory reasons. Inflation also affects the market value of the Company's
investment portfolio and the investment rate of return. Any future economic
changes which result in prolonged and increasing levels of inflation could cause
increases in the dollar amount of incurred loss and LAE and thereby materially
adversely affect future liability requirements.

ITEM 7. FINANCIAL STATEMENTS

The financial statements of the Company are annexed to this report and
are referenced as pages F-1 to F-26.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 8A. CONTROLS AND PROCEDURES

The Company carried out an evaluation under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the
period covered by this report. Based on that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer have concluded that disclosure
controls and procedures were effective as of the end of the period covered by
this report to ensure that information required to be disclosed by the Company
in its reports that it files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules and forms. There was
no change in the Company's internal controls over financial reporting that
occurred during the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.

ITEM 8B. OTHER INFORMATION

On January 11, 2007, the Company applied for listing of its Common Stock
on the American Stock Exchange LLC ("AMEX"). AMEX is currently reviewing the
Company's listing application, and although no assurances can be given, the
Company believes it will be able to meet the listing requirements. The Company
meets the definition of "controlled company" set forth in Section 801(a) of the
AMEX Company Guide in that greater than fifty percent (50%) of the voting power
of the Company's Common Stock is held by Bradley I. Meier.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The directors and executive officers of the Company as of December 31,
2006 are as follows:

Name Age Position
---- --- --------
Bradley I. Meier 39 President, Chief Executive Officer and
Director
Norman M. Meier 68 Director, Secretary
Reed J. Slogoff 38 Director
Joel M. Wilentz, M.D. 73 Director
James M. Lynch 52 Executive Vice President and Chief Financial
Officer
Sean P. Downes 37 Senior Vice President, Chief Operating Officer
and Director

BRADLEY I. MEIER has been President, Chief Executive Officer and a
Director of the Company since its inception in November 1990. He has served as
President of UPCIC, a wholly-owned subsidiary of the Company, since its
formation in April 1997. In 1990, Mr. Meier graduated from the Wharton School of
Business with a B.S. in Economics.

NORMAN M. MEIER has been a Director of the Company since July 1992. From
December 1986 until November 1999, Mr. Meier was President, Chief Executive
Officer and a Director of Columbia Laboratories, Inc., a publicly-traded
corporation in the pharmaceuticals business. From 1971 to 1977, Mr. Meier was
Vice President of Sales and Marketing for Key Pharmaceuticals. From 1977 until
1986, Mr. Meier served as a consultant to Key Pharmaceuticals.

REED J. SLOGOFF has been a Director of the Company since March 1997. Mr.
Slogoff is currently a principal with Pearl Properties Commercial Management,
LLC, a commercial real estate investment and management firm based in
Philadelphia, Pennsylvania. Mr. Slogoff was formerly with Entercom
Communications Corp., a publicly traded radio broadcasting company and was
previously a member of the corporate and real estate group of the law firm of
Dilworth, Paxson, LLP. Mr. Slogoff received a B.A. with Honors from the
University of Pennsylvania in 1990, and a J.D. from the University of Miami
School of Law in 1993.

JOEL M. WILENTZ, M.D. has been a Director of the Company since March
1997. Dr. Wilentz is one of the founding members of Dermatology Associates in
Florida, founded in 1970. He is a former member of the boards of the
Neurological Injury Compensation Associate for Florida and the Broward County
Florida Medical Association. He is a member of the board of directors of the
American Arm of the Israeli Emergency Medical Service for the southeastern
United States, of which he is also a past President. Dr. Wilentz is a past
member of the Board of Overseers of the Nova Southeastern University School of
Pharmacy.

JAMES M. LYNCH CPA, CPCU has been Executive Vice President and Chief
Financial Officer of the Company since August 1998. Before joining the Company
in August 1998, Mr. Lynch was Chief Financial Officer of Florida Administrators,
Inc., an organization specializing in property and casualty insurance. Prior to
working at Florida Administrators, Inc., Mr. Lynch held the position of Senior
Vice President of Finance and Comptroller of Trust Group, Inc., which also
specialized in property and casualty insurance. Before his position at Trust
Group, Mr. Lynch was a Manager with the accounting and auditing firm of Coopers
& Lybrand, which later became PricewaterhouseCoopers LLC.

SEAN P. DOWNES has been Senior Vice President, Chief Operating Officer
and a Director of the Company since January 2005. He has served as Chief
Operating Officer and a Director of UPCIC since July 2003. Mr. Downes was Chief
Operating Officer of Universal Adjusting Corporation from July 1999 to July
2003. During that time Mr. Downes created the Company's claims operation. Before
joining the Company in July 1999, Mr. Downes was Vice President of Downes and
Associates, a multi-line insurance adjustment corporation.

Effective January 9, 2007, the Board of Directors of the Company
appointed Ozzie A. Schindler to the Board of Directors. Mr. Schindler will serve
on the Company's Audit Committee. Mr. Schindler is a partner with the law firm
of Greenberg Traurig and specializes in international tax, trusts and succession
and planning. He has an LL.M. in Taxation from New York University School of Law
and graduated with honors from the University of Florida School of Law. Mr.
Schindler graduated with high honors from the University of Florida Fisher
School of Accounting. He is admitted to both the Florida and New York bars.

Norman M. Meier and Bradley I. Meier are father and son, respectively.
There are no other family relationships among the Company's executive officers
and directors. Eric Meier who is the brother of Bradley I. Meier, also works for
a subsidiary of the Company.

All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Currently, the Company
does not have a procedure by which shareholders may recommend nominees to the
Company's Board of Directors. Officers are elected annually by the Board of
Directors and serve at the discretion of the Board.

The Company has entered into indemnification agreements with its
executive officers and directors pursuant to which the Company has agreed to
indemnify such individuals, to the fullest extent permitted by law, for claims
made against them in connection with their positions as officers, directors or
agents of the Company.

AUDIT COMMITTEE

The Company has a separately designated Audit Committee, whose members
during 2005 and 2006 were Bradley I. Meier and Reed J. Slogoff. In order to have
an Audit Committee composed entirely of independent directors, Mr. Meier
voluntarily resigned from the Audit Committee on January 9, 2007, and the Board
of Directors unanimously appointed Ozzie A. Schindler and Joel M. Wilentz to the

Audit Committee. Mr. Slogoff remained on the Audit Committee. Each member of the
Audit Committee has been determined by the Board of Directors to be independent
under the applicable rules of the Securities and Exchange Commission ("SEC") and
the National Association of Securities Dealers. The Company's Board of Directors
has determined that Ozzie A. Schindler is an "audit committee financial expert"
as defined by Item 401(e) of Regulation S-B promulgated by the SEC.

CODE OF BUSINESS CONDUCT AND ETHICS

The Company adopted a Code of Business Conduct and Ethics on January 9,
2007 that is applicable to all directors, officers and employees of the Company.
The code is publicly available at the Company's headquarters in Fort Lauderdale,
Florida. Upon completion of the build-out of the Company's website, the code
will be posted there. A copy of the Company's Code of Business Conduct and
Ethics may be obtained free of charge by written request to James M. Lynch, 1110
West Commercial Boulevard, Suite 100, Fort Lauderdale, FL 33309.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's directors,
executive officers, and persons who own more than 10% of the Company's Common
Stock to file initial reports of ownership and reports of changes in ownership
with the SEC. Directors, executive officers and greater than 10% shareholders
(collectively, "Reporting Persons") are required by SEC regulations to furnish
the Company with copies of all Section 16(a) forms they file.

Sean P. Downes failed to file a Form 4 in connection with an acquisition
of the Common Stock in fiscal year 2006, but subsequently filed a Form 5 on
February 1, 2007 reflecting this transaction. Except for Mr. Downes'
transaction, and based solely on review of the copies of such forms provided to
the Company and written representations by the Reporting Persons, the Company
believes that, for the year ended December 31, 2006, all Section 16(a) filing
requirements applicable to the Reporting Persons were met.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the compensation paid to or earned by the
Company's President and Chief Executive Officer and the Company's two other most
highly compensated executive officers (collectively, the "Named Executive
Officers") during each of the Company's last two fiscal years.

----------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------

Non-Equity
Name and Stock Incentive Plan
Principal Position Year Salary Bonus Awards Compensation Total
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------

Bradley I. Meier,
President & CEO 2006 $830,324 $ - $ - $1,075,310(1) $1,905,634
----------------------------------------------------------------------------------------------
2005 $527,365 $ - $21,500 $191,556 $740,421
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
James M. Lynch,
EVP & CFO 2006 $251,250 $90,000 $42,582 $ - $383,832
----------------------------------------------------------------------------------------------
2005 $279,525 $3,846 $3,000 $ - $286,371
----------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
Sean P. Downes,
SVP & COO 2006 $537,678 $ - $418,462 $843,982(2) $1,800,122
----------------------------------------------------------------------------------------------
2005 $366,923 $ - $35,000 $181,167 $583,090
----------------------------------------------------------------------------------------------

(1) As of March 30, 2007, $591,811 of which had not been paid and is subject to
shareholder approval.

(2) As of March 30, 2007, $443,859 of which had not yet been paid and is subject
to shareholder approval.

EMPLOYMENT AGREEMENTS

The Company's employment agreement with Mr. Meier is dated as of August
11, 1999. The Company and Mr. Meier have amended the employment agreement, with
the most recent amendment dated March 21, 2007 (the employment agreement and the
amendments are collectively referred to as the "Meier Agreement"). Under the
terms of the Meier Agreement, Mr. Meier will serve as the Company's President
and Chief Executive Officer. Mr. Meier received a base salary of $830,324 in
2006, and he is entitled to a twenty percent (20%) increase in base salary each
year. Additionally, pursuant to the Meier Agreement, Mr. Meier is entitled to an
annual performance bonus equal to three percent (3%) of the pretax income of the
Company up to $5 million, and four percent (4%) of the pretax income of the
Company in excess of $5 million; provided, however, that any such bonus is
contingent upon the Company's shareholders approving such bonus formula. Should
the Company's shareholders fail to approve the formula, Mr. Meier forfeits his
right to the bonus. Mr. Meier is also eligible for other benefits customarily
provided by the Company to its executive employees, and the Meier Agreement
contains noncompete and nondisclosure provisions. In addition, in the event of a
Change in Control of the Company (as defined in the Meier Agreement), the
Company shall pay Mr. Meier an amount equal to 48 months base salary, plus two
times any bonus paid for the preceding fiscal year. Further, in the event of a
Change in Control, all options held by Mr. Meier vest and become immediately
exercisable. Also, in the event that the Company terminates the Meier Agreement,
the Company shall pay Mr. Meier 48 months total compensation. The Meier
Agreement expires on December 31, 2008; however, the agreement is automatically
extended each year thereafter unless the Company or Mr. Meier provides written
notice that the agreement is being terminated 60 days in advance of the
anniversary date of the Meier Agreement.

The Company's employment agreement with Mr. Downes is dated as of
January 1, 2005 and provides that Mr. Downes will serve as Chief Operating
Officer and Senior Vice President of the Company. The Company and Mr. Downes
have amended the employment agreement, with the most recent amendment dated
March 21, 2007 (the employment agreement and the amendments are collectively
referred to as the "Downes Agreement"). Mr. Downes received a base salary of
$527,678 in 2006, and he is entitled to a twenty percent (20%) increase in base
salary each year. Additionally, pursuant to the Downes Agreement, Mr. Downes is
entitled to an annual performance bonus equal to three percent (3%) of the
pre-tax profits of the Company; provided, however, that any such bonus is
contingent upon the Company's shareholders approving such bonus formula. Should
the Company's shareholders fail to approve the formula, Mr. Downes forfeits his
right to the bonus. Under the Downes Agreement, the Company may grant Mr. Downes
options or warrants to purchase the Company's Common Stock. Mr. Downes is also
eligible for other benefits customarily provided by the Company to its executive
employees and the Downes Agreement contains noncompete and nondisclosure
provisions. In addition, in the event of a Change in Control of the Company (as
defined in the Downes Agreement), the Company shall pay Mr. Downes an amount
equal to 12 months base salary, plus the annual bonus paid for the preceding
fiscal year. Further, in the event of a Change in Control, all options held by
Mr. Downes vest and become immediately exercisable. The Downes Agreement expires
on December 31, 2008 unless extended in writing by the Company. During the year
ended December 31, 2006, Mr. Downes converted bonus and accrued vacation into
323,077 shares of Common Stock. The shares were issued to Mr. Downes in private
transactions performed in accordance with the terms of the Downes Agreement and
pursuant to Section 4(2) of the Securities Act of 1933, as amended.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table sets forth information regarding outstanding equity
awards held by each Named Executive Officer at fiscal year ended December 31,
2006.

---------------------------------------------------------------------------------------
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
---------------------------------------------------------------------------------------
OPTIONS AWARDS
---------------------------------------------------------------------------------------

Number of Securities Option Option
Underlying Unexercised Exercise Expiration
Name Options Exercisable Price Date
---------------------------------------------------------------------------------------

Bradley Meier 1,500,000 $1.06 01/15/2010 (1)
---------------------------------------------------------------------------------------
Bradley Meier 250,000 $1.06 01/15/2010 (1)
---------------------------------------------------------------------------------------
Bradley Meier 250,000 $1.63 05/07/2008
---------------------------------------------------------------------------------------
Bradley Meier 150,000 $1.10 01/26/2010
---------------------------------------------------------------------------------------
Bradley Meier 20,000 $0.70 12/12/2010
---------------------------------------------------------------------------------------
Bradley Meier 325,000 $0.70 12/12/2010
---------------------------------------------------------------------------------------
Bradley Meier 150,000 $0.60 12/21/2011
---------------------------------------------------------------------------------------
Bradley Meier 1,000,000 $0.06 03/04/2014
---------------------------------------------------------------------------------------
James Lynch 50,000 $1.87 08/03/2008
---------------------------------------------------------------------------------------
James Lynch 25,000 $1.10 01/26/2010
---------------------------------------------------------------------------------------
James Lynch 15,000 $0.70 12/12/2010
---------------------------------------------------------------------------------------
James Lynch 100,000 $0.50 12/21/2011
---------------------------------------------------------------------------------------
Sean Downes 15,000 $1.10 01/26/2010
---------------------------------------------------------------------------------------
Sean Downes 100,000 $0.50 12/21/2011
---------------------------------------------------------------------------------------

(1) Expires on earlier of January 15, 2010 or a Change in Control of the
Company, as defined in the Option Agreement.

DIRECTOR COMPENSATION

The following table sets forth the total compensation paid to
non-employee members of the Board of Directors during the fiscal year ended
December 31, 2006.

--------------------------------------------------------------------
DIRECTOR COMPENSATION
--------------------------------------------------------------------
Fees
Earned or
Paid In Stock
Name Cash Awards Total
--------------------------------------------------------------------
--------------------------------------------------------------------
Joel Wilentz $45,000 $38,000 $83,000
--------------------------------------------------------------------
Norman Meier $45,000 $38,000 $83,000
--------------------------------------------------------------------
Reed Slogoff $45,000 $38,000 $83,000
--------------------------------------------------------------------

In addition, the Company periodically reimburses the non-employee
members of the Board of Directors for reasonable expenses incurred in attending
meetings of the Board of Directors.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information with respect to all
of the Company's equity compensation plans in effect as of fiscal year ended
December 31, 2006.

---------------------------------------------------------------------------------------------------------
Number of securities
remaining available for
Number of securities to Weighted-average issuance under equity
be issued upon exercise of exercise price of compensation plans
outstanding options, outstanding options (excluding securities
Plan Category warrants and rights warrants and rights reflected in first column)

----------------------------------------------------------------------------------------------------------

Equity compensation
plans approved by 7,295,000 $0.89 N/A
security holders
----------------------------------------------------------------------------------------------------------
Equity compensation
plans not approved by - - -
security holders
----------------------------------------------------------------------------------------------------------
Total 7,295,000 $0.89 N/A
----------------------------------------------------------------------------------------------------------

Descriptions of the plans are contained in Note 11 to the Consolidated Financial
Statements.

SERIES M PREFERRED STOCK OWNED BY MANAGEMENT

As of March 1, 2007, directors and named executive officers,
individually and as a group, beneficially owned Series M Preferred Stock as
follows:

Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Ownership Percent of Class
-------------------- -------------------- ----------------

Bradley I. Meier*(2) 48,890 48.0%
Norman M. Meier*(3) 53,000 52.0%
Officers and directors
as a group (2 persons)(4) 86,890 98.0%

* Director

(1) Unless otherwise indicated, the Company believes that each person has
sole voting and investment rights with respect to the shares of Series M
Preferred Stock of the Company specified opposite his name. Unless
otherwise indicated, the mailing address of each shareholder is c/o
Universal Insurance Holdings, Inc., 1110 W. Commercial Blvd., Suite 100,
Fort Lauderdale, FL 33309.

(2) Consists of (i) 33,890 shares of Series M Preferred Stock and (ii)
15,000 shares of Series M Preferred Stock beneficially owned by Belmer
Partners, a Florida General Partnership ("Belmer"), of which Mr. Meier
is a general partner. Excludes all shares of Series M Preferred Stock
owned by Norman M. Meier and Phylis R. Meier, Mr. Meier's father and
mother, respectively, as to which Mr. Meier disclaims beneficial
ownership.

(3) Consists of (i) 38,000 shares of Series M Preferred Stock and (ii)
15,000 shares of Series M Preferred Stock beneficially owned by Belmer,
of which Mr. Meier is a general partner. Excludes all shares of Series M
Preferred Stock owned by Bradley I. Meier and Phylis R. Meier, Mr.
Meier's son and former spouse, respectively, as to which Mr. Meier
disclaims beneficial ownership.

(4) See footnotes (1) - (3) above.

SERIES A PREFERRED STOCK OWNED BY MANAGEMENT

As of March 1, 2007, directors and named executive officers,
individually and as a group, beneficially owned Series A Preferred Stock as
follows:

Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Ownership Percent of Class
-------------------- -------------------- ----------------

Norman M. Meier* (2) 9,975 20%
Officers and directors 9,975 20%
as a group (1 person) (3)

* Director

(2) Consists of 9,975 shares of Series A Preferred Stock beneficially owned
by Belmer, of which Mr. Meier is a general partner. Excludes all shares
of Series A Preferred Stock owned by Phylis R. Meier, Mr. Meier's former
spouse, as to which Mr. Meier disclaims beneficial ownership.

(3) See footnotes (1)-(2) above.

COMMON STOCK OWNED BY MANAGEMENT

As of March 1, 2007, directors and Named Executive Officers,
individually and as a group, beneficially owned Common Stock as follows:

Name and Address of Amount and Nature of
Beneficial Owner (1) Beneficial Ownership (2) Percent of Class
-------------------- ------------------------ ----------------

Bradley I. Meier (3) 23,164,226 60.8%
Sean P. Downes (4) 4,226,121 11.1%
Norman M. Meier (5) 504,246 1.3%
Reed J. Slogoff (6) 290,000 .8%
Joel M. Wilentz (7) 290,000 .8%
James M. Lynch (8) 290,807 .8%
Ozzie A. Schindler (9) 35,000 .1%
Officers and directors 28,800,400 75.7%
as a group (7 people) (10)

(1) Unless otherwise indicated, the Company believes that each person has
sole voting and investment rights with respect to the shares of Common
Stock of the Company specified opposite his name. Unless otherwise
indicated, the mailing address of each shareholder is c/o Universal
Insurance Holdings, Inc., 1110 West Commercial Boulevard, Suite 100,
Fort Lauderdale, Florida 33309.

(2) A person is deemed to be the beneficial owner of Common Stock that can
be acquired by such person within 60 days of the date hereof upon the
exercise of warrants or stock options or conversion of Series A
Preferred Stock, Series M Preferred Stock or convertible debt. Except as
otherwise specified, each beneficial owner's percentage ownership is
determined by assuming that warrants, stock options, Series A Preferred
Stock, Series M Preferred Stock and convertible debt that is held by
such person (but not those held by any other person) and that are
exercisable or convertible within 60 days from the date hereof, have
been exercised or converted.

(3) Includes (i) options to purchase an aggregate of 3,645,000 shares of
Common Stock; (ii) 169,450 shares of Common Stock issuable upon
conversion of Series M Preferred Stock; (iii) an aggregate of 331,761
shares of Common Stock (including shares of Common Stock issuable upon
exercise of warrants and conversion of Series A and Series M Preferred
Stock) beneficially owned by Belmer, of which Mr. Meier is a general
partner; and (iv) the following shares of Common Stock which are subject
to proxies granting voting power to Mr. Meier: (A) 416,666 shares owned

by Lynda Meier, Mr. Meier's sister, (B) 250,225 shares owned by Eric
Meier, Mr. Meier's brother, (C) 333,792 shares owned by Phylis Meier,
Mr. Meier's mother, (D) 504,246 shares owned by Norman Meier, Mr.
Meier's father, and (E) an additional 207,916 shares over which Mr.
Meier has voting power; and (F) options to purchase an aggregate of
1,115,000 shares of Common Stock owned by Norman Meier, Mr. Meier's
father, which are subject to a proxy granting voting power to Mr. Meier.

(4) Includes options to purchase an aggregate of 465,000 shares of Common
Stock.

(5) Includes (i) 214,938 shares of Common Stock issuable upon conversion of
Series A and Series M Preferred Stock, and (ii) an aggregate of 331,761
shares of Common Stock (including shares of Common Stock issuable upon
exercise of warrants and conversion of Series A and Series M Preferred
Stock) beneficially owned by Belmer, of which Norman Meier is a general
partner. Excludes (i) all securities owned by Bradley I. Meier or
Phyllis Meier, Norman Meier's son and former spouse, respectively, as to
which Norman Meier disclaims beneficial ownership, and (ii) all
securities owned by Norman Meier for which Norman Meier has granted
voting power to his son, Bradley Meier.

(6) Includes options to purchase an aggregate of 230,000 shares of Common
Stock, of which 50,000 are held in a custodial account for Mr. Slogoff's
minor son.

(7) Includes options to purchase an aggregate of 240,000 shares of Common
Stock.

(8) Includes options to purchase an aggregate of 215,000 shares of Common
Stock.

(9) Consists of an option to purchase 35,000 shares of Common Stock.

(10) See footnotes (1) - (9) above.

SERIES M PREFERRED STOCK HELD BY OTHERS

As of March 1, 2007, the following table sets forth information
regarding the number and percentage of Series M Preferred Stock held by all
persons, other than those persons listed immediately above, who are known by the
Company to beneficially own or exercise voting or dispositive control over 5% or
more of the Company's outstanding Series M Preferred Stock:

Amount and Nature of
Name and Address (1) Beneficial Ownership Percent of Class
---------------- -------------------- ----------------

Phyllis R. Meier (2) 16,800 18.9%
Universal Insurance Holdings, Inc.
1110 West Commercial Boulevard
Fort Lauderdale, Florida 33309

Belmer Partners (3) 15,000 16.9%
c/o Phyllis R. Meier
Managing General Partner
Universal Insurance Holdings, Inc.
1110 West Commercial Boulevard
Fort Lauderdale, Florida 33309

(1) Unless otherwise indicated, the Company believes that each person has
sole voting and investment rights with respect to the shares of Series M
Preferred Stock specified opposite her or its name.

(2) Consists of (i) 1,800 shares of Series M Preferred Stock and (ii) 15,000
shares of Series M Preferred Stock beneficially owned by Belmer, of
which Ms. Meier is the managing general partner. Excludes all securities
owned by Bradley I. Meier and Norman M. Meier, the son and former
spouse, respectively, as to which Ms. Meier disclaims beneficial
ownership.

(3) Belmer Partners is a Florida general partnership in which Phylis R.
Meier is managing general partner and Bradley I. Meier and Norman M.
Meier are general partners.

SERIES A PREFERRED STOCK HELD BY OTHERS

As of March 1, 2007, the following table sets forth information
regarding the number and percentage of Series A Preferred Stock held by all
persons, other than those persons listed immediately above, who are known by the
Company to beneficially own or exercise voting or dispositive control over 5% or
more of the Company's outstanding Series A Preferred Stock:

Amount and Nature of
Name and Address (1) Beneficial Ownership Percent of Class
---------------- -------------------- ----------------
Phyllis R. Meier (2) 9,975 20.0%
Universal Insurance Holdings, Inc.
1110 West Commercial Boulevard
Fort Lauderdale, Florida 33309

Belmer Partners (3) 30,000 60.0%
c/o Phyllis R. Meier
Managing General Partner
Universal Insurance Holdings, Inc.
1110 West Commercial Boulevard
Fort Lauderdale, Florida 33309

(1) Unless otherwise indicated, the Company believes that each person has
sole voting and investment rights with respect to the shares of Series A
Preferred Stock specified opposite her or its name.

(2) Consists of 9,975 shares of Series A Preferred Stock beneficially owned.
Excludes all shares of Series A Preferred Stock owned by Norman M.
Meier, Ms. Meier's former spouse, as to which Ms. Meier disclaims
beneficial ownership.

(3) Belmer Partners is a Florida general partnership in which Phylis R.
Meier is managing general partner and Bradley I. Meier and Norman M.
Meier are general partners.

COMMON STOCK HELD BY OTHERS

As of March 1, 2007, the following table sets forth information
regarding the number and percentage of Common Stock held by all persons, other
than those persons listed immediately above, who are known by the Company to
beneficially own or exercise voting or dispositive control over 5% or more of
the Company's outstanding Common Stock:

Amount and Nature of
Name and Address (1) Beneficial Ownership (2) Percent of Class
---------------- -------------------- ----------------

Martin Steinberg, Esq., as the 6,518,004 17.1 %
receiver for Lancer Offshore
Inc. (3)
c/o David E. Wells, Esq.
Hunton & Williams LLP
1111 Brickell Avenue, Suite 2500
Miami, FL 33131

(1) Unless otherwise indicated, the Company believes that each person has
sole voting and investment rights with respect to the shares of Common
Stock of the Company specified opposite its name.

(2) A person is deemed to be the beneficial owner of Common Stock that can
be acquired by such person within 60 days of the date hereof upon the
exercise of warrants or stock options or conversion of Series A and
Series M Preferred Stock or convertible debt. Except as otherwise
specified, each beneficial owner's percentage ownership is determined by
assuming that warrants, stock options, Series A and Series M Preferred
Stock and convertible debt that are held by such a person (but not those
held by any other person) and that are exercisable within 60 days from
the date hereof, have been exercised or converted.

(3) Consists of 6,518,004 shares of Common Stock as indicated on Schedule
13D dated July 10, 2003 filed with the Securities and Exchange
Commission on March 5, 2004.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Downes and Associates, a multi-line insurance adjustment corporation based in
Deerfield Beach, Florida performs certain claims adjusting work for UPCIC.
Downes and Associates is owned by Dennis Downes, who is the father of Sean P.
Downes, COO and Senior Vice President of the Company. During 2006 and 2005,
the Company expensed claims adjusting fees of $829,208 and $1,075,188,
respectively, to Downes and Associates.

During 2005, Sean P. Downes filed a claim on his homeowners' policy issued by
UPCIC as a result of damage incurred during Hurricane Wilma. UPCIC handled
the claim in the ordinary course of its business and made a loss payment to
Mr. Downes in the amount of $214,409.

In July 2004, the Company borrowed monies from a private investor in the
amount of $175,000 for working capital. In August 2005, this individual's
son, Michael P. Moran, became UPCIC's Vice President of Claims. The loan was
paid off in January 2006.

Transactions between the Company and its affiliates are on terms no less
favorable to the Company than can be obtained from third parties on an arms'
length basis. Transactions between the Company and any of its executive
officers or directors require the approval of a majority of disinterested
directors.

ITEM 13. EXHIBITS

EXHIBITS

3.1 Registrant's Restated Amended and Restated Certificate of Incorporation
(1)

3.2 Registrant's Bylaws (1)

3.3 Certificate of Designation for Series A Convertible Preferred Stock
dated October 11, 1994 (4)

3.4 Certificate of Designations, Preferences, and Rights of Series M
Convertible Preferred Stock dated August 13, 1997 (2)

3.5 Certificate of Amendment of Amended and Restated Certificate of
Incorporation dated October 19, 1998 (4)

3.6 Certificate of Amendment of Amended and Restated Certificate of
Incorporation dated December 18, 2000 (4)

3.7 Certificate of Amendment of Certificate of Designations of the Series A
Convertible Preferred Stock dated October 29, 2001 (4)

4.1 Form of Common Stock Certificate (1)

4.2 Form of Warrant Certificate (1)

4.3 Form of Warrant Agency Agreement (1)

4.4 Form of Underwriter Warrant (1)

4.5 Affiliate Warrant (1)

4.6 Form of Warrant to purchase 100,000 shares of Common Stock at an
exercise price of $2.00 per share issued to Steven Guarino dated as of
April 24, 1997. (Substantially similar in form to two additional
warrants to purchase 100,000 shares of Common Stock issued to Mr.
Guarino dated as of April 24, 1997, with exercise prices of $2.75 and
$3.50 per share, respectively) (2)

10.1 Registrant's 1992 Stock Option Plan (1)

10.2 Form of Indemnification Agreement between the Registrant and each of its
directors and executive officers (1)

10.5 Management Agreements by and between Universal Property & Casualty
Insurance Company and Universal P&C Management, Inc. dated as of June 2,
1997 (2)

10.6 Employment Agreement dated as of May 1, 1997 between Universal Heights,
Inc. and Bradley I. Meier (2)

11.1 Statement Regarding Computation of Per Share Income

14.1 Code of Business Conduct and Ethics

16.1 Letter on change in certifying accountants from Millward & Co. CPA's
dated February 12, 1999, and as amended February 26, 1999 (3)

16.2 Letter on change in certifying accountants from Deloitte & Touche LLP
dated October 7, 2002(5)

16.3 Letter on change in certifying accountants from Deloitte & Touche LLP
dated March 27, 2003(6)

21 List of Subsidiaries

31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002

32 Certifications of Chief Executive Officer and Chief Financial Officer
Pursuant to Title 18, United States Code, Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1) Incorporated by reference to the Registrant's Registration Statement on
Form S-1 (File No. 33-51546) declared effective on December 14, 1992

(2) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the year ended April 30, 1997 filed with the Securities and
Exchange Commission on August 13, 1997, as amended

(3) Incorporated by reference to the Registrant's Current Report on Form 8-K
and Current Report on Form 8-K/A, filed with the Securities and Exchange
Commission on February 12, 1999 and February 26, 1999, respectively

(4) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB for the year ended December 31, 2002 filed with the Securities
and Exchange Commission on April 9, 2003

(5) Incorporated by reference to the Registrant's Current Report on Form
8-K, filed with the Securities and Exchange Commission on October 7,
2002

(6) Incorporated by reference to the Registrant's Current Report on Form
8-K, filed with the Securities and Exchange Commission on April 2, 2003

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

AUDIT FEES

Audit fees for the fiscal years ended December 31, 2006 and December 31,
2005 were $260,000 and $176,000, respectively.

AUDIT RELATED FEES

Audit related fees for the fiscal years ended December 31, 2006 and
December 31, 2005 were $0.

TAX FEES

Tax fees for the fiscal years ended December 31, 2006 and December 31, 2005
were $33,500 and $31,500, respectively.

ALL OTHER FEES

All other fees for products and services provided by the Company's
principal accountant for the fiscal years ended December 31, 2006 and
December 31, 2005 were $0.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF THE INDEPENDENT AUDITOR

All audit related services were pre-approved by the Audit Committee, which
concluded that the provision of such services by Blackman Kallick
Bartelstein LLP was compatible with the maintenance of that firm's
independence in the conduct of its auditing functions.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.

UNIVERSAL INSURANCE HOLDINGS, INC.

Dated: March 30, 2007 By: /s/ Bradley I. Meier
----------------------------------------
Bradley I. Meier, President and Chief
Executive Officer

/s/ James M. Lynch
----------------------------------------
James M. Lynch, Chief Financial Officer

In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

/s/ Bradley I. Meier President, Chief Executive Officer March 30, 2007
-------------------- and Director
Bradley I. Meier

/s/ Sean P. Downes Senior Vice President, Chief Operating March 30, 2007
------------------ Officer and Director
Sean P. Downes

/s/ James M. Lynch Executive Vice President and Chief March 30, 2007
------------------ Financial Officer
James M. Lynch

/s/ Norman M. Meier Director March 30, 2007
-------------------
Norman M. Meier

/s/ Ozzie A. Schindler Director March 30, 2007
----------------------
Ozzie A. Schindler

/s/ Reed J. Slogoff Director March 30, 2007
-------------------
Reed J. Slogoff

/s/ Joel M. Wilentz Director March 30, 2007
-------------------
Joel M. Wilentz

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----

Report of Independent Registered Public Accounting Firm......................F-2

Consolidated Balance Sheet - December 31, 2006...............................F-3

Consolidated Statements of Operations for the Years
Ended December 31, 2006 and 2005 ............................................F-4

Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2006 and 2005.............................................F-5

Consolidated Statements of Cash Flows for the Years
Ended December 31, 2006 and 2005.............................................F-6

Notes to Consolidated Financial Statements............................F-7 - F-26

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
Universal Insurance Holdings, Inc.
Fort Lauderdale, Florida

We have audited the accompanying consolidated balance sheet of Universal
Insurance Holdings, Inc. and Subsidiaries (the "Company") as of December 31,
2006, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended December 31,
2006. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, 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. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Universal Insurance
Holdings, Inc. and Subsidiaries as of December 31, 2006, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2006, in conformity with accounting principles generally accepted
in the United States of America.

As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting for stock-based compensation effective January
1, 2006.

/s/ Blackman Kallick Bartelstein LLP

Chicago, Illinois
March 30, 2007

F-2

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2006

ASSETS

Cash and cash equivalents $ 232,890,297
Real estate, net 3,253,064
Reinsurance recoverables 209,757,903
Premiums and other receivables, net 24,294,652
Deferred policy acquisition costs, net 2,106,116
Property and equipment, net 618,912
Deferred income taxes 8,671,756
Other assets 17,724
--------------
Total assets $ 481,610,424
==============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Unpaid losses and loss adjustment expenses $ 49,564,514
Unearned premiums 230,346,266
Accounts payable 2,726,049
Reinsurance payable 102,857,079
Federal and state income taxes payable 14,969,270
Dividends payable 1,902,855
Other accrued expenses 15,285,829
Other liabilities 4,529,100
Loans payable 12,324,278
Long-term debt 25,057,266
--------------
Total liabilities 459,562,506
--------------

COMMITMENTS AND CONTINGENCIES (Notes 12-13)

STOCKHOLDERS' EQUITY:
Cumulative convertible preferred stock, $.01 par value,
1,000,000 shares authorized, 138,640 shares issued
and outstanding, minimum liquidation preference of
$1,419,700 1,387
Common stock, $.01 par value, 50,000,000 shares authorized,
38,057,103 shares issued and 34,948,458 shares outstanding 380,572
Common stock in treasury, at cost - 208,645 shares (101,820)
Common stock held in trust, at cost - 2,900,000 shares (Note 11) (2,349,000)
Additional paid-in capital 18,726,387
Retained earnings 5,390,392
--------------
Total stockholders' equity 22,047,918
--------------
Total liabilities and stockholders' equity $ 481,610,424
==============

The accompanying notes are an integral part of the consolidated
financial statements.

F-3

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended
December 31, 2006 December 31, 2005
----------------- -----------------

PREMIUMS EARNED AND OTHER REVENUES:
Direct premiums written $ 371,754,514 $ 88,701,123
Ceded premiums written (230,718,709) (67,094,245)
------------- ------------
Net premiums written 141,035,805 21,606,878
Increase in unearned premiums (86,899,853) (5,780,896)
------------- ------------
Premiums earned net 54,135,952 15,825,982
Net investment income 3,986,414 682,085
Commission revenue 6,714,511 2,523,861
Other revenue 310,873 325,272
------------- ------------
Total premiums earned and other revenues 65,147,750 19,357,200
------------- ------------

OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses, net 24,940,879 9,597,984
General and administrative expenses 13,485,562 3,551,117
------------- ------------
Total operating costs and expenses 38,426,441 13,149,101
------------- ------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $ 26,721,309 $ 6,208,099
------------- ------------
Income taxes, current 17,541,697 140,238
Income taxes, deferred (8,064,457) (607,299)
------------- ------------
Income taxes, net 9,477,240 (467,061)
------------- ------------

INCOME FROM CONTINUING OPERATIONS $ 17,244,069 $ 6,675,160
------------- ------------

DISCONTINUED OPERATIONS:
Loss from discontinued operations (93,136) (156,657)
Provision for income tax expense 35,927 (11,906)
------------- ------------
Total loss from discontinued operations (57,209) (168,563)
------------- ------------
NET INCOME $ 17,186,860 $ 6,506,597
============= ============

INCOME PER COMMON SHARE:
Basic income from continuing operations $ 0.50 $ 0.20
============= ============
Basic income from discontinued operations $ - $ -
============= ============
Basic net income per share $ 0.50 $ 0.20
============= ============

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING-BASIC 34,409,415 32,807,521
============= ============

INCOME PER COMMON SHARE
Diluted income from continuing operations $ 0.44 $ 0.19
============= ============
Diluted income from discontinued operations $ - $ -
============= ============
Diluted net income per share $ 0.44 $ 0.19
============= ============

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING-DILUTED 39,078,643 33,945,639
============= ============

CASH DIVIDEND DECLARED PER COMMON SHARE $ 0.18 $ -
============= ============

The accompanying notes are an integral part of the consolidated
financial statements.

F-4

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years Ended
December 31, 2006 December 31, 2005
----------------- -----------------

Shares Amount Shares Amount
------ ------ ------ ------

PREFERRED STOCK
Balance, beginning of period 138,640 $ 1,387 138,640 $ 1,387

------------ ------------- ----------- ------------
Balance, end of period 138,640 1,387 138,640 1,387
============ ------------- =========== ------------
COMMON STOCK
Balance, beginning of period 36,463,219 315,037 34,408,775 294,493
Issuance of common stock 1,593,884 65,535 2,054,444 20,544
------------ ------------- ----------- ------------
Balance, end of period 38,057,103 380,572 36,463,219 315,037
============ ------------- =========== ------------
TREASURY STOCK
Balance, beginning of period 208,645 (101,820) 208,645 (101,820)

------------ ------------- ----------- ------------
Balance, end of period 208,645 (101,820) 208,645 (101,820)
============ ------------- =========== ------------
STOCK GRANTOR TRUST
Balance, beginning of period 2,900,000 (2,349,000) 2,900,000 (2,349,000)

------------ ------------- ----------- ------------
Balance, end of period 2,900,000 (2,349,000) 2,900,000 (2,349,000)
============ ------------- =========== ------------
ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period 17,504,331 17,434,407
Issuance of common stock 1,222,056 69,924

------------- ------------
Balance, end of period 18,726,387 17,504,331
------------- ------------
MINORITY INTEREST
Balance, beginning of period 35,000 -
Net income (loss) attributable to minority interest 4,421 (4,421)
Minority interest (39,421) 39,421

------------- ------------
Balance, end of period - 35,000
------------- ------------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance, beginning of period (5,488,807) (11,949,875)
Net income attributable to retained earnings 17,182,439 6,511,018
(Accumulated Deficit)
Preferred stock dividend (49,950) (49,950)
Common stock dividend (6,253,290) -
------------- ------------
Balance, end of period 5,390,392 (5,488,807)
------------- ------------

Total stockholders' equity $ 22,047,918 $ 9,916,128
============= ============

The accompanying notes are an integral part of the consolidated
financial statements.

F-5

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended Year Ended
December 31, 2006 December 31, 2005
------------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 17,186,860 $ 6,506,597

Adjustments to reconcile net income to cash
provided by operations:
Amortization and depreciation 373,533 377,748
Issuance of common stock as compensation 1,238,338 90,468
Net change in assets and liabilities relating
to operating activities:
Reinsurance recoverable (87,820,035) (34,464,485)
Premiums and other receivables (19,238,882) (4,956,387)
Allowance for doubtful accounts 568,766 -
Deferred taxes (8,064,457) (607,299)
Deferred acquisition costs, net (2,106,116) -
Other assets 925,946 31,246
Reinsurance payable 58,404,726 21,379,423
Deferred ceding commission (1,043,544) 1,043,544
Other liabilities 3,521,271 525,806
Accounts payable 1,846,604 (2,104,954)
Taxes payable 15,285,828 -
Other accrued expenses 10,340,148 3,024,756
Unpaid losses and loss adjustment expenses (17,435,442) 9,128,004
Unearned premiums 179,456,261 27,000,144
---------------- ---------------
Net cash provided by operating activities -
continuing operations 153,439,805 26,974,611
Net cash used in operating activities -
discontinued operations (55,596) -
---------------- ---------------
Net cash provided by operating activities 153,384,209 26,974,611
---------------- ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (36,706) (302,907)
Building improvements (230,936) (1,514,226)
---------------- ---------------
Net cash used in investing activities -
continuing operations (267,642) (1,817,133)
Net cash provided by investing activities -
discontinued operations 51,524 -
---------------- ---------------
Net cash used in investing activities (216,118) (1,817,133)
---------------- ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend (49,950) (49,950)
Common stock dividend (4,505,867) -
Issuance of common stock 49,251 -
Payments on loans payable (770,543) (591,730)
Proceeds from loans payable 37,000,000 1,039,938
Minority interest (39,421) 39,421
---------------- ---------------

Net cash provided by financing activities -
continuing operations 31,683,470 437,679
---------------- ---------------
Net cash provided by financing activities 31,683,470 437,679
---------------- ---------------

NET INCREASE IN CASH AND CASH 184,851,561 25,595,157
EQUIVALENTS

CASH AND CASH EQUIVALENTS, Beginning of year 48,038,736 22,443,579
---------------- ---------------

CASH AND CASH EQUIVALENTS, End of year $ 232,890,297 $ 48,038,736
================ ===============

The accompanying notes are an integral part of the consolidated
financial statements.

F-6

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION

NATURE OF OPERATIONS

Universal Insurance Holdings, Inc. (the "Company") was originally incorporated
as Universal Heights, Inc. in Delaware in November 1990. The Company changed its
name to Universal Insurance Holdings, Inc. on January 12, 2001. The Company,
through its wholly owned subsidiary, Universal Insurance Holding Company of
Florida, formed Universal Property & Casualty Insurance Company ("UPCIC") in
1997.

To conform to the 2006 presentation, certain amounts in the prior year's
consolidated financial statements and notes have been reclassified.

INSURANCE OPERATIONS

UPCIC's application to become a Florida licensed property and casualty insurance
company was filed in May 1997 with the Florida Office of Insurance Regulation
("OIR") and was approved on October 29, 1997. In 1998, UPCIC began operations
through the acquisition of homeowner insurance policies issued by the Florida
Residential Property and Casualty Joint Underwriting Association ("JUA"). The
JUA was established in 1992 as a temporary measure to provide insurance coverage
for individuals who could not obtain coverage from private carriers because of
the impact on the private insurance market of Hurricane Andrew in 1992. Rather
than serving as a temporary source of emergency insurance coverage as was
originally intended, the JUA became a major provider of original and renewal
insurance coverage for Florida residents. In an attempt to reduce the number of
policies in the JUA, and thus the exposure of the program to liability, the
Florida legislature approved a number of initiatives to depopulate the JUA,
which resulted in policies being acquired by private insurers and provided
additional incentives to private insurance companies to acquire policies from
the JUA.

On December 4, 1997, the Company raised approximately $6,700,000 in a private
offering with various institutional and/or otherwise accredited investors
pursuant to which the Company issued, in the aggregate, 11,208,996 shares of its
common stock at a price of $.60 per share. The proceeds of this transaction were
used partially for working capital purposes and to meet the minimum regulatory
capitalization requirements of $5,000,000 required by the Florida Department of
Insurance to engage in this type of homeowners' insurance company business.

In February 1998, the Company commenced its insurance business. Since then the
Company has developed into a vertically integrated insurance holding company
performing all aspects of insurance underwriting, distribution and claims.
Universal Risk Advisors, Inc. was incorporated in Florida on July 2, 1998, and
became licensed by the Florida Department of Insurance on August 17, 1998 and
contracted with UPCIC on September 28, 1998 as the Company's wholly owned
managing general agent ("MGA"). Through the MGA, the Company has underwriting
and claims authority for UPCIC as well as third-party insurance companies. The
MGA seeks to generate revenue through policy fee income and other administrative
fees from the marketing of UPCIC and third-party insurance products through the
Company's distribution network and UPCIC.

Universal Florida Insurance Agency was incorporated in Florida on July 2, 1998,
and Coastal Homeowners Insurance Specialists, Inc. was incorporated in Florida
on July 2, 2001, each as wholly owned subsidiaries of Universal Insurance
Holdings, Inc. to solicit voluntary business and to generate commission revenue.
These entities are a part of the Company's agency operations, which seek to
generate income from commissions, premium financing referral fees and the
marketing of ancillary services. In addition, Capital Resources Group, LTD. was
incorporated in the British Virgin Islands on June 2, 2000 as a subsidiary of
the Company to participate in contingent capital products. The Company has also
formed a claims adjusting company, Universal Adjusting Corporation, which was
incorporated in Delaware on August 9, 1999. Universal Adjusting Corporation
currently has claims authority for UPCIC.

F-7

ONLINE COMMERCE OPERATIONS

The Company had also formed subsidiaries that specialize in selling insurance
and generating insurance leads via the Internet. Tigerquote.com Insurance &
Financial Services Group, Inc. ("Tigerquote.com") and Tigerquote.com Insurance
Solutions, Inc. were incorporated in Delaware on June 6, 1999 and August 23,
1999, respectively. Tigerquote.com was an Internet insurance lead generating
network while Tigerquote.com Insurance Solutions, Inc. was a network of Internet
insurance agencies. Insurance agencies had been established in 22 states. None
of these agencies are currently active as the Company changed its focus to
selling leads to other companies and independent agents. During 2006, the
Company decided to discontinue online commerce operations and focus on its core
operations.

CORPORATE AND OTHER OPERATIONS

During 2001, the Company formed Tiger Home Services, Inc., which furnished pool
services to homeowners until the operation was sold during the second quarter of
2005.

BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
Universal Insurance Holdings, Inc., its wholly owned subsidiary, Universal
Property & Casualty Insurance Co. and other wholly owned entities, Atlas Florida
Financial Corporation, parent of Sterling Premium Finance Company, Sterling
Premium Finance Company, and the Universal Insurance Holdings, Inc. Stock
Grantor Trust. All intercompany accounts and transactions have been eliminated
in consolidation. The consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America ("GAAP") that differ from statutory accounting practices prescribed or
permitted for insurance companies by regulatory authorities. Prior to the
Company's decision to discontinue online commerce operations, the Company and
its subsidiaries operated principally in two business segments consisting of
insurance and online commerce during each period reported in the accompanying
consolidated financial statements, based upon management reporting.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies followed by the Company are summarized as
follows:

USE OF ESTIMATES. The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting periods. The
Company's primary areas of estimate are the recognition of premium revenues,
insurance liabilities, deferred policy acquisition costs and reinsurance. Actual
results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts, after intercompany eliminations, of the Company and its subsidiaries.
Prior to being a wholly owned subsidiary of the Company in 2006, Sterling
Premium Finance Company, was consolidated in accordance with Financial
Accounting Standards Board ("FASB") Interpretation No. 46(R), CONSOLIDATION OF
VARIABLE INTEREST ENTITIES ("FIN 46R"). FIN 46R requires the consolidation of
certain entities considered to be variable interest entities ("VIEs"). An entity
is considered to be a VIE when it has equity investors who lack the
characteristics of having a controlling financial interest, or its capital is
insufficient to permit it to finance its activities without additional
subordinated financial support. Consolidation of a VIE by an investor is
required when it is determined that the investor will absorb a majority of the
VIE's expected losses if they occur, received a majority of the entity's
expected residual returns if they occur, or both.

CASH AND CASH EQUIVALENTS. The Company includes in cash equivalents all
short-term, highly liquid investments that are readily convertible to known
amounts of cash and have an original maturity of three months or less.

PREMIUMS RECEIVABLE. Written premiums are earned into income on a pro rata basis
over the policy term. Accordingly, unearned premiums represent the portion of
written premiums that is applicable to the unexpired risk. Generally, premiums
are collected prior to providing risk coverage, minimizing the Company's
exposure to credit risk. The Company performs a policy level evaluation to
determine the extent the premiums receivable balance exceeds the unearned
premiums balance. The Company then ages this exposure to establish an allowance
for doubtful accounts based on prior experience. As of December 31, 2006, the

F-8

Company had recorded an allowance for doubtful accounts in the amount of
$568,766.

SECURITIES HELD TO MATURITY. Debt securities which the Company has the intent
and ability to hold to maturity are reported at amortized cost, adjusted for
amortization of premiums or accretion of discounts and other-than-temporary
declines in fair value. The Company had no such securities during 2005 or 2006.

INVESTMENTS IN REAL ESTATE. Investments in real estate are carried at cost less
depreciation. Real estate represents a building purchased by UPCIC that the
Company uses as its home office. Depreciation is provided on the straight-line
basis over twenty-seven-and-one-half years. The Company reviews its real estate
annually and whenever changes in circumstances indicate that the carrying amount
may not be recoverable.

SECURITIES AVAILABLE FOR SALE. Equity securities are reported at fair value,
with unrealized gains and losses reported net of applicable deferred tax as a
separate component of stockholders' equity. Realized gains and losses are
determined on the specific identification method. The Company had no such
securities during 2005 or 2006.

PROPERTY AND EQUIPMENT. Property and equipment is recorded at cost. Depreciation
is provided on the straight-line basis over the estimated useful life of the
assets. Estimated useful life of all property and equipment ranges from three to
five years. Routine repairs and maintenance are expensed as incurred. Website
development costs are capitalized and amortized over their estimated useful
life. The Company reviews its property and equipment annually and whenever
changes in circumstances indicate that the carrying amount may not be
recoverable.

RECOGNITION OF PREMIUM REVENUES. Property and liability premiums are recognized
as revenue on a pro rata basis over the policy term. The portion of premiums
that will be earned in the future is deferred and reported as unearned premiums.
The Company believes that its revenue recognition policies conform to Staff
Accounting Bulletin 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS. In the
event policyholders cancel their policies, unearned premiums represent amounts
that UPCIC would refund policyholders. Accordingly, UPCIC determines unearned
premiums by calculating the pro rata amount that would be due to the
policyholders at a given point in time based upon the premiums owed over the
life of each policy. As of December 31, 2006, the Company has direct unearned
premiums of $230,346,266.

RECOGNITION OF COMMISSION REVENUE. Commission revenue, which is comprised of the
MGA's policy fee income on all new and renewal insurance policies and
commissions generated from agency operations is recognized as income upon policy
inception. The Company believes that its revenue recognition policies conform to
Staff Accounting Bulletin 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS.

RECOGNITION OF TRANSACTION FEE REVENUE. Transaction fee revenue, which is
comprised of revenue from the selling of insurance leads is recognized as income
upon sale of the lead. Effective November 2004, for most customers payment was
required in advance of distribution of the leads. The Company believes that its
revenue recognition policies conform to Staff Accounting Bulletin 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS.

DEFERRED POLICY ACQUISITION COSTS. Commissions and other costs of acquiring
insurance that vary with and are primarily related to the production of new and
renewal business, net of reinsurance commissions, are deferred and amortized
over the terms of the policies or reinsurance treaties to which they are
related.

INSURANCE LIABILITIES. Unpaid losses and loss adjustment expenses ("LAE") are
provided for as claims are incurred. The provision for unpaid losses and loss
adjustment expenses includes: (1) the accumulation of individual case estimates
for claims and claim adjustment expenses reported prior to the close of the
accounting period; (2) estimates for unreported claims based on industry data;
and (3) estimates of expenses for investigating and adjusting claims based on
the experience of the Company and the industry.

F-9

The methods for making such estimates and for establishing the resulting
liability are continually reviewed, and any adjustments are reflected in current
earnings.

INCOME TAXES. Income tax provisions are based on the asset and liability method.
Deferred federal and state income taxes have been provided for temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the consolidated financial statements, net of valuation allowance.
The Company reviews its deferred tax assets for recoverability. At December 31,
2006, the Company determined that the benefit of its deferred tax assets was
fully realizable and, therefore, no valuation allowance was recorded.

INCOME (LOSS) PER SHARE OF COMMON STOCK. Basic earnings per share is computed by
dividing the Company's net income (loss) less cumulative Preferred Stock
dividends by the weighted-average number of shares of Common Stock outstanding
during the period. Diluted earnings per share is computed by dividing the
Company's net income (loss) minus Preferred Stock dividends by the weighted
average number of shares of Common Stock outstanding during the period and the
impact of all dilutive potential common shares, primarily Preferred Stock,
options and warrants. The dilutive impact of stock options and warrants is
determined by applying the treasury stock method and the dilutive impact of the
Preferred Stock is determined by applying the "if converted" method.

FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS. Statement of Financial Accounting
Standards ("SFAS") No. 107, DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS, requires disclosure of the estimated fair value of all financial
instruments, including both assets and liabilities unless specifically exempted.
The Company uses the following methods and assumptions in estimating the fair
value of financial instruments.

Cash and cash equivalents: the carrying amount reported in the
consolidated balance sheet for cash and cash equivalents
approximates fair value due to the short-term nature of those
items.

Premiums and other receivables, reinsurance recoverables and
accounts payable: the carrying amounts reported in the
consolidated balance sheet for premiums and other receivables,
reinsurance recoverables and accounts payable approximate their
fair value due to their short-term nature.

Long-term debt and loans payable are held at carrying value,
which approximates fair value as of December 31, 2006.

CONCENTRATIONS OF CREDIT RISK. Financial instruments, which potentially subject
the Company to concentrations of credit risk, consist principally of cash,
investments, premiums receivable and reinsurance recoverables. Concentrations of
credit risk with respect to cash on deposit are limited by the Company's policy
of investing excess cash in a money market account and overnight repurchase
agreements of US Government and US Government Agency securities with major
national banks. These accounts are held by Wachovia Bank, N.A. and SunTrust
Banks, Inc. Concentrations of credit risk with respect to premiums receivable
are limited due to the large number of individuals comprising the Company's
customer base. However, the majority of the Company's revenues are currently
derived from products and services offered to customers in Florida, which could
be adversely affected by economic downturns, an increase in competition or other
environmental changes. In order to reduce credit risk for amounts due from
reinsurers, the Company seeks to do business with financially sound reinsurance
companies and regularly evaluates the financial strength of all reinsurers used.

F-10

STOCK OPTIONS. The Company grants options for a fixed number of shares to
employees and outside directors with an exercise price equal to the fair value
of the shares as of the grant date. Prior to January 1, 2006 the Company elected
to apply Accounting Principles Board ("APB") No. 25, ACCOUNTING FOR STOCK ISSUED
TO EMPLOYEES, and related interpretations in accounting for its stock options
granted to employees and directors, and SFAS No. 123 ACCOUNTING FOR STOCK-BASED
COMPENSATION, for its stock options granted to non-employees. Under APB No. 25,
because the exercise price of the Company's employee and director stock options
equal the market price of underlying stock on the date of the grant, no
compensation expense was recognized. The Company expensed the fair value
(determined as of the grant date) of options and warrants granted to
non-employees in accordance with SFAS No. 123. SFAS 123 (R) was adopted using
the modified prospective transition method. Under this transition method,
compensation cost recognized in the periods after adoption includes (i)
compensation cost for all share-based payments granted prior to, but not yet
vested as of January 1, 2006 based on the grant-date fair value estimated in
accordance with the original provision of SFAS 123, and (ii) compensation cost
for all share-based payments granted subsequent to January 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS 123
(R). Results from prior periods have not been restated. As a result of adopting
SFAS 123 (R), the Company's income before income taxes and net income for the
year ended December 31, 2006 are $24,212 and $15,738 lower, respectively, than
if it had continued to account for share-based compensation under APB 25. In
addition, during the year ended December 31, 2006, the Company issued common
stock valued at $1,102,014 as compensation.

The following table illustrates the effects on net income and earnings per share
if the Company had applied the fair value recognition provisions of SFAS 123 to
options granted under the Company's stock option plans for all periods
presented. For purposes of this pro forma disclosure, the value of the options
is estimated using a Black-Scholes-Merton option pricing model and amortized to
expense over the options' vesting periods.

Year Ended
December 31,2006 December 31, 2005
---------------- -----------------

Net income reported $ 17,186,860 $ 6,506,597
Add:
Total stock-based compensation expense
included in reported net income, net of
related tax effects 15,738 -
Deduct:
Total stock-based compensation expense
determined under fair value based method,
net of related tax effects (15,738) (32,775)

--------------- ---------------
SFAS No. 123 (R) pro forma net income $ 17,186,860 $ 6,473,822
=============== ===============

Pro forma earnings per share
Basic $0.50 $0.20
================= ===============
Fully diluted $0.44 $0.19
================= ===============
Earnings per share, as reported
Basic $0.50 $0.20
================= ===============
Fully diluted $0.44 $0.19
================= ===============

STATUTORY ACCOUNTING. UPCIC prepares its statutory financial statements in
conformity with accounting practices prescribed or permitted by the Office of
Insurance Regulation of the State of Florida. Effective January 1, 2001, the
Office of Insurance Regulation of the State of Florida required that insurance
companies domiciled in the State of Florida prepare their statutory financial
statements in accordance with the National Association of Insurance
Commissioners' ("NAIC") Accounting Practices and Procedures Manual (the
"Manual"), as modified by the Office of Insurance Regulation of the State of

F-11

Florida. Accordingly, the admitted assets, liabilities and capital and surplus
of UPCIC as of December 31, 2006, and the results of its operations and its cash
flow, for the year then ended have been determined in accordance with statutory
accounting principles, but adjusted to accounting principles generally accepted
in the United States of America (GAAPUSA) for purposes of these financial
statements. These principles are designed primarily to demonstrate the ability
to meet obligations to policyholders and claimants and, consequently, differ in
some respects from GAAPUSA.

NEW ACCOUNTING PRONOUNCEMENTS. SFAS No.123 (Revised 2004), Share-Based Payments,
issued in December 2004, is a revision of FASB Statement 123, Accounting for
Stock-Based Compensation and supersedes APB Opinion No. 25, Accounting for Stock
Issued to Employees, and its related implementation guidance. The Statement
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payments transactions. SFAS No. 123 (Revised
2004) requires a public entity to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair
value of the award (with limited exceptions) with the cost recognized over the
period during which an employee is required to provide service in exchange for
the award. This statement is effective as of the beginning of the first interim
or annual reporting period of the company's first fiscal year that begins on or
after December 15, 2005 and the Company adopted the standard in the first
quarter of fiscal year 2006.

On March 29, 2005, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. (SAB 107) regarding the Staff's interpretation of SFAS
123(R). This interpretation expresses the views of the Staff regarding the
interaction between SFAS 123(R) and certain SEC rules and regulations and
provides the Staff's views regarding the valuation of share-based payments
arrangements by public companies. In particular, this SAB provides guidance
related to share-based payments transactions with non-employees, the transition
from nonpublic to public entity status, valuation methods, the accounting for
certain redeemable financial instruments issued under shared-based payments
arrangements, the classification of compensation expense, non-GAAP financial
measures, first-time adoption of SFAS 123(R) in an interim period,
capitalization of compensation cost related to share-based payments
arrangements, the accounting for income tax effects of share-based payments
arrangements upon adoption of SFAS 123(R), the modification of employee share
options prior to adoption of SFAS 123(R) and disclosures in Management's
Discussion and Analysis subsequent to adoption of SFAS 123(R). The Company
adopted SAB 107 in connection with its adoption of SFAS 123(R).

In May 2005, FASB issued SFAS No. 154, Accounting Changes and Error Corrections,
which establishes, unless impracticable, retrospective application as the
required method for reporting a change in accounting principle in absence of
explicit transition requirements specific to the newly adopted accounting
principle. The statement provides guidance for determining whether retrospective
application of a change in accounting principle is impracticable. The statement
also addresses the reporting of a correction of error by restating previously
issued financial statements. SFAS No. 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 14,
2005. The Company adopted SFAS No. 154 in the first quarter of 2006. The impact
of such adoption did not have an effect on the Company's consolidated financial
statements.

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes -- an Interpretation of FASB Statement No. 109"
("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an entity's financial statements in accordance with FASB Statement
No. 109, "Accounting for Income Taxes." FIN 48 prescribes that a company should
use a more-likely-than-not recognition threshold based on the technical merits
of the tax position taken. Tax positions that meet the more-likely-than-not
threshold should be measured in order to determine the tax benefit to be
recognized in the financial statements. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company is currently evaluating the
impact of FIN 48 on our results of operations, financial position and cash
flows.

In September 2006, the FASB issued SFAS No. 157 which redefines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles ("GAAP"), and expands disclosures about fair value
measurements. SFAS No. 157 applies where other accounting pronouncements require
or permit fair value measurements. SFAS No. 157 is effective for fiscal years
beginning after November 15, 2007. The effects of adoption will be determined by
the types of instruments carried at fair value in the Company's financial
statements at the time of adoption as well as the method utilized to determine
their fair values prior to adoption. Based on the Company's current use of fair
value measurements, SFAS No. 157 is not expected to have a material effect on
the results of operations or financial position of the Company.

F-12

RECLASSIFICATIONS. Certain prior year amounts in the consolidated financial
statements have been reclassified to conform to the current year presentation.

NOTE 3 - REINSURANCE

UPCIC's in-force policyholder coverage for windstorm exposures as of December
31, 2006 was approximately $52.0 billion. In the normal course of business,
UPCIC also seeks to reduce the risk of loss that may arise from catastrophes or
other events that cause unfavorable underwriting results by reinsuring certain
levels of risk in various areas of exposure with other insurance enterprises or
reinsurers.

Amounts recoverable from reinsurers are estimated in a manner consistent with
the reinsurance policy. Reinsurance premiums, losses and loss adjustment
expenses are accounted for on a basis consistent with those used in accounting
for the original policies issued and the terms of the reinsurance contracts.
Reinsurance ceding commissions received are deferred and amortized over the
effective period of the related insurance policies.

UPCIC limits the maximum net loss that can arise from large risks or risks in
concentrated areas of exposure by reinsuring (ceding) certain levels of risks
with other insurers or reinsurers, either on an automatic basis under general
reinsurance contracts known as "treaties" or by negotiation on substantial
individual risks. The reinsurance arrangements are intended to provide UPCIC
with the ability to maintain its exposure to loss within its capital resources.
Such reinsurance includes quota share, excess of loss and catastrophe forms of
reinsurance.

QUOTA SHARE

Effective June 1, 2006, UPCIC entered into a quota share reinsurance treaty and
excess per risk agreements with various reinsurers. Under the quota share
treaty, through May 31, 2007, UPCIC cedes 50% of its gross written premiums,
losses and LAE for policies with coverage for wind risk with a ceding commission
equal to 28% of ceded gross written premiums. In addition, the quota share
treaty has a limitation for any one occurrence of $25,000,000 and a limitation
of $55,000,000 from losses arising out of events that are assigned a catastrophe
serial number by the Insurance Services Office, Inc.'s (ISO) Property Claims
Services unit. For the year ended December 31, 2005, UPCIC ceded 80% of gross
written premiums, losses and loss adjustment expenses during the first five
months of 2005 for policies with coverage for wind risk with a ceding commission
equal to 28% of ceded gross premiums written versus 55% of policies with
coverage for wind risk with a ceding commission equal to 31% of ceded gross
premiums written during the remaining seven months of 2005 and the first five
months of 2006. Effective December 1, 2005, UPCIC entered into a second quota
share reinsurance treaty with one of the reinsurers on the earlier treaty. Under
the second quota share treaty, UPCIC ceded an additional 25% of its gross
written premiums, losses and loss adjustment expenses for policies with coverage
for wind risk with a ceding commission equal to 35% of ceded gross written
premiums through May 31, 2006. In addition, the quota share treaties effective
June 1, 2005 and December 1, 2005 had a limitation for any one occurrence of
$3,000,000.

EXCESS PER RISK

Effective June 1, 2006 through May 31, 2007 and June 1, 2005 through May 31,
2006, UPCIC entered into a multiple line excess per risk agreement with various
reinsurers. Under the multiple line excess per risk agreement, UPCIC obtained
coverage of $1,300,000 in excess of $500,000 ultimate net loss for each risk and
each property loss, and $1,000,000 in excess of $300,000 for each casualty loss.
A $5,200,000 aggregate limit applies to the term of the contract.

Effective June 1, 2006 through May 31, 2007 and June 1, 2005 through May 31,
2006, UPCIC entered into a property per risk excess agreement covering ex-wind
only policies. Under the property per risk excess agreement, UPCIC obtained
coverage of $300,000 in excess of $200,000 for each property loss. A $2,100,000
aggregate limit applies to the term of the contract.

EXCESS CATASTROPHE

UPCIC's excess catastrophe reinsurance agreement provides four layers of excess
catastrophe coverage of $46,000,000 in excess of $3,000,000 as of June 1, 2005
as follows:

F-13

First Layer Second Layer Third Layer Fourth Layer
----------- ------------ ----------- ------------

Coverage $13,000,000 $9,500,000 $10,000,000 $13,500,000
in excess of in excess of in excess of in excess of
$3,000,000 $16,000,000 $25,500,000 $35,500,000
each loss each loss each loss each loss
occurrence occurrence occurrence occurrence

Deposit premium $4,290,000 $2,090,000 $1,400,000 $1,012,500

Minimum premium $3,432,000 $1,672,000 $1,120,000 $810,000

Premium rate -% of total
insured value 0.050% 0.024% 0.016% 0.012%

Effective June 1, 2006, UPCIC revised and enhanced its catastrophe reinsurance
program. UPCIC's excess catastrophe reinsurance agreement provides three layers
of excess catastrophe coverage of $76,000,000 in excess of $25,000,000 as of
December 31, 2006 as follows:

First Layer Second Layer Third Layer
----------- ------------ -----------

Coverage $32,000,000 in $18,000,000 in $26,000,000 in
excess of excess of excess of
$25,000,000 each $57,000,000 $75,000,000
each loss each loss each loss
occurrence occurrence occurrence
(placed 100%) (placed 100%) (placed 100%)

Deposit premium (100%) $14,720,000 $6,210,000 $6,240,000

Minimum premium (100%) $13,248,000 $5,589,000 $5,616,000

Premium rate -% of total insured value 0.074% 0.031% 0.031%

Loss occurrence is defined as all individual losses directly occasioned by any
one disaster, accident or loss or series of disasters, accidents or losses
arising out of one event, which occurs in the State of Florida. The contract
contains a provision for one reinstatement in the event coverage is exhausted.
An additional premium will be calculated pro rata as to amount and 100% as to
time.

Effective June 1, 2006 through May 31, 2007, UPCIC purchased a reinstatement
premium protection contract which reimburses the Company for its cost to
reinstate the catastrophe coverage of $76,000,000 in excess of $25,000,000.

Also, effective June 1, 2006, UPCIC obtained subsequent catastrophe event excess
of loss reinsurance to cover certain levels of the Company's net retention
through three catastrophe events, including hurricanes, as follows:

F-14

2nd Event 2nd/3rd Event 3rd Event 2nd Layer 3rd
--------- ------------- --------- --------------
Event
-----

Coverage $11,250,000 $11,250,000 in $6,750,000 $11,250,000 in
in excess of excess of in excess of excess of
$13,750,000 $13,750,000 each $7,000,000 $13,750,000
each loss loss occurrence each loss each loss
occurrence subject to an occurrence occurrence
subject otherwise subject to subject to an
to an recoverable an otherwise otherwise
otherwise amount of recoverable recoverable
recoverable $11,250,000 amount of amount of
amount of (placed 12.5%) $13,500,000 $22,500,000
$11,250,000 (placed 50%) (placed 37.5%)
(placed 17.5%)

Deposit premium (100%) $1,800,000 $3,037,500 $1,012,500 $1,518,750

Minimum premium (100%) $1,620,000 $2,733,750 $911,250 $1,366,875

Premium rate -% of total
insured value 0.009% 0.015% 0.005% 0.00759%

UPCIC also obtained coverage from the Florida Hurricane Catastrophe Fund
("FHCF"), which is administered by the Florida State Board of Administration.
Under the reimbursement agreement, FHCF would reimburse the Company, with
respect to each loss occurrence during the contract year for 90% of the ultimate
loss paid by the Company in excess of the Company's retention plus 5% of the
reimbursed losses to cover loss adjustment expenses. A covered event means any
one storm declared to be a hurricane by the National Hurricane Center for losses
incurred in Florida, both while it is a hurricane and through subsequent
downgrades. For the contract year June 1, 2005 to May 31, 2006, FHCF provided
coverage of $85,333,000 in excess of $26,827,000. The premium for this coverage
was $4,266,662. For the contract year June 1, 2006 to May 31, 2007, the Fund has
provided coverage of $217,480,380 in excess of $81,363,626. The premium for this
coverage was $15,432,459.

Also at June 1, 2006, the FHCF made available, and the Company obtained,
$10,000,000 of additional catastrophe excess of loss coverage with one free
reinstatement of coverage to carriers qualified as Limited Apportionment
Companies, such as UPCIC. This particular layer of coverage is $10,000,000 in
excess of $3,750,000. The premium for this coverage was $5,000,000.

Amounts recoverable from reinsurers are estimated in accordance with the
reinsurance contract. Reinsurance premiums, losses and LAE are accounted for on
bases consistent with those used in accounting for the original policies issued
and the terms of the reinsurance contracts.

The preceding reinsurance arrangements had the following effect on certain items
in the accompanying consolidated financial statements:

Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------

PREMIUMS PREMIUMS LOSS AND LOSS PREMIUMS PREMIUMS LOSS AND LOSS
WRITTEN EARNED ADJUSTMENT WRITTEN EARNED ADJUSTMENT
EXPENSES EXPENSES

Direct $ 371,754,514 $ 192,298,253 $ 70,704,156 $ 88,701,123 $ 61,700,978 $ 91,540,103
Ceded (230,718,709) (138,162,301) (45,763,277) (67,094,245) (45,874,996) (81,942,119)
-------------- -------------- ------------- ------------- ------------- -------------
Net $ 141,035,805 $ 54,135,952 $ 24,940,879 $ 21,606,878 $ 15,825,982 $ 9,597,984
============== ============== ============= ============= ============= =============

F-15

Other amounts:

December 31, 2006
-----------------

Reinsurance recoverable on unpaid losses and loss
adjustment expenses $32,369,503
Reinsurance recoverable on paid losses 13,106,236
Other reinsurance receivables 30,078,990
Prepaid reinsurance premiums 134,203,174
-----------
Reinsurance recoverable $209,757,903
============

Reinsurance payable $102,857,079
============

Reinsurance payable, as of December 31, 2006, has been reduced by $18,912,852
which represents ceding commissions due from reinsurers. The Company has
determined that a right of offset, as defined in FASB Interpretation No. 39,
"Offsetting of Amounts Related to Certain Contracts", exists between the Company
and its reinsurers, under its quota share reinsurance treaties.

UPCIC's reinsurance contracts do not relieve UPCIC from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to UPCIC; consequently, allowances are established for amounts deemed
uncollectible. UPCIC evaluates the similar geographic regions, activities, or
economic characteristics of the reinsurers to minimize its exposure to
significant losses from reinsurer insolvencies. UPCIC currently has reinsurance
contracts with various reinsurers located throughout the United States and
internationally. UPCIC believes that ceding risks to reinsurers whom it
considers to be financially sound combined with the distribution of reinsurance
contracts to an array of reinsurers adequately minimizes UPCIC's risk from any
potential operating difficulties of its reinsurers.

The Company may also be subject to assessments by Citizens Property Insurance
Corporation, the state-run insurer of last resort and the FHCF as a result of
operating deficiencies related to windstorm catastrophes. In addition, the
Company is subject to assessments by the Florida Insurance Guaranty Association,
as a result of other company insolvencies. Under current regulations, insurers
may recoup the amount of their assessments from policyholders, or in some cases
collect the amount of the assessments from policyholders as surcharges for the
benefit of the assessing entity.

On August 17, 2005 the Board of Governors of Citizens Property Insurance
Corporation ("Citizens") authorized the levying of a regular assessment on
assessable insurers to recoup the 2004 Plan Year Deficit incurred in the High
Risk Account. The assessment is based upon the Company's share of direct written
premium for the subject lines of business in the State of Florida for the
calendar year preceding the plan year in which the deficit occurred. UPCIC's
participation in this assessment totaled $203,300. Pursuant to Florida statutes,
insurers are permitted to recoup the assessment by adding a surcharge to
policies in an amount not to exceed the amount paid by the insurer to Citizens.
UPCIC completed the recoupment of this assessment in 2006.

On June 12, 2006, the Florida Office of Insurance Regulation ("OIR") ordered an
emergency FHCF assessment of 1% of direct premiums written for policies with
effective dates beginning January 1, 2007, which the Company will collect from
policyholders, as the assessment is to policyholders, not the Company. This
assessment was a result of catastrophe losses Florida experienced in 2004 and
2005.

During its meeting on June 16, 2006, the Board of Directors of Florida Insurance
Guaranty Association ("FIGA") determined the need for an assessment upon its
member companies. FIGA decided on an assessment on member companies of 2% of the
Florida net direct premiums for the calendar year 2005. Based on the 2005 net
direct premium of $11.2 billion, this would generate approximately $225 million.
UPCIC's participation in this assessment totaled $1,772,861. Pursuant to Florida
statutes, insurers are permitted to recoup the assessment by adding a surcharge

F-16

to policies in an amount not to exceed the amount paid by the insurer to FIGA.
UPCIC recouped this assessment in 2006.

On September 14, 2006 the Board of Governors of Citizens authorized the levying
of a regular assessment on assessable insurers to recoup the 2005 Plan Year
Deficit incurred in the High Risk Account. The assessment is based upon the
Company's share of direct written premium for the subject lines of business in
the State of Florida for the calendar year preceding the plan year in which the
deficit occurred. UPCIC's participation in this assessment totaled $263,650.
Pursuant to Florida statutes, insurers are permitted to recoup the assessment by
adding a surcharge to policies in an amount not to exceed the amount paid by the
insurer to Citizens. UPCIC recouped this assessment in 2006.

During its meeting on December 14, 2006 the Board of Directors of FIGA
determined the need for an emergency assessment upon its member companies. The
Board decided on an emergency assessment on member companies of 2% of the
Florida net direct premiums for the calendar year 2005. Based on the 2005 net
direct premium of $11.2 billion, this would generate approximately $225 million.
UPCIC's participation in this assessment totaled $1,772,861. Pursuant to Florida
statutes, insurers are permitted to recoup the assessment by adding a surcharge
to policies in an amount not to exceed the amount paid by the insurer to FIGA.
As a result, UPCIC recorded this assessment as an expense during the year ended
December 31, 2006 and will be underwriting the recoupment in connection with
this assessment in 2007.

NOTE 4 - INVESTMENTS

Major categories of net investment income are summarized as follows:

Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------

Investment income on cash and cash
equivalents $ 4,259,399 $ 925,387
Investment expenses 272,985 243,302
----------- -----------
Net investment income $ 3,986,414 $ 682,085
=========== ===========

As of December 31, 2006, the Company's investments consisted entirely of cash
and cash equivalents with a value of $232,890,297. Cash is comprised of accounts
with an aggregate carrying value $205,957,796 as of December 31, 2006, which is
primarily invested daily in overnight repurchase agreements of U.S. government
and U.S. government agency securities. Cash equivalents is comprised of a money
market account with carrying value of $25,432,501 and short-term investment with
a carrying value of $1,500,000 on deposit with regulatory authorities.

As of December 31, 2006, the Company had no available-for-sale or
held-to-maturity securities.

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment, as of December 31, 2006, consisted of the following:

Computers $ 50,041
Furniture 290,147
Automobiles and equipment 261,928
Boat 160,371
Software 668,057
----------
Total cost 1,430,544
Less: Accumulated depreciation and amortization (811,632)
----------
Property and equipment, net $ 618,912
==========

F-17

Depreciation and amortization of property and equipment was $373,533 and
$377,748 during 2006 and 2005, respectively.

Real estate, as of December 31, 2006 consisted of the following:

Land $ 270,000
Building 1,410,000
Capital Improvements 1,745,164
--------------
Total cost 3,425,164
Less: Accumulated depreciation (172,100)
--------------
Real estate, net $ 3,253,064
==============

Depreciation of real estate was $118,932 and $53,168 during 2006 and 2005,
respectively.

NOTE 6 - LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

As described in Note 2, UPCIC establishes liabilities for unpaid losses and loss
adjustment expenses on reported and unreported claims of insured losses. These
liability estimates are based on known facts and interpretation of factors such
as claim payment patterns, loss payments, pending levels of unpaid claims,
product mix and industry experience. The establishment of appropriate
liabilities, including liabilities for catastrophes, is an inherently uncertain
process. This uncertainty is compounded by UPCIC's limited history of claims
experience. UPCIC regularly updates its estimates as new facts become known and
further events occur which may impact the resolution of unsettled claims.

The level of catastrophe loss experienced in any year cannot be predicted and
could be material to results of operations and financial position. UPCIC's
policyholders are concentrated in South Florida, which is periodically subject
to adverse weather conditions, such as hurricanes and tropical storms. During
2006, the Company did not experience any catastrophic events. During 2005,
Florida experienced three windstorms catastrophes (Hurricanes Dennis, Katrina
and Wilma) which resulted in losses. During 2004, Florida experienced four
windstorm catastrophes (Hurricanes Charley, Frances, Ivan, and Jeanne) which
resulted in losses. UPCIC's in-force policyholder coverage for windstorm
exposures as of December 31, 2006 was approximately $52 billion. UPCIC
continuously evaluates alternative business strategies to more effectively
manage its exposure to catastrophe losses, including the maintenance of
catastrophic reinsurance coverage as discussed in Note 3.

Management believes that the liabilities for claims and claims expense as of
December 31, 2006 are appropriately established in the aggregate and adequate to
cover the ultimate cost of reported and unreported claims arising from losses
which had occurred by that date. However, if losses exceeded direct loss reserve
estimates there could be a material adverse effect on the Company's financial
statements. Also, if there are regulatory initiatives, legislative enactments or
case law precedents which change the basis for policy coverage, in any of these
events, there could be an effect on direct loss reserve estimates having a
material adverse effect on the Company's financial statements.

F-18

Activity in the liability for unpaid losses and loss adjustment expenses is
summarized as follows:

Year Ended Year Ended
December 31, 2006 December 31, 2005
----------------- -----------------

Balance at beginning of year $ 66,999,956 $ 57,871,952
Less reinsurance recoverable (60,859,231) (56,292,041)
------------ ------------
Net balance at beginning of year 6,140,725 1,579,911
------------ ------------
Incurred related to:
Current year 9,246,922 7,048,934
Prior years 15,693,957 2,549,050
------------ ------------
Total incurred 24,940,879 9,597,984
------------ ------------
Paid related to:
Current year 4,453,684 3,821,743
Prior years 9,432,910 1,215,427
------------ ------------
Total paid 13,886,594 5,037,170
------------ ------------

Net balance at end of year 17,195,010 6,140,725
Plus reinsurance recoverable 32,369,504 60,859,231
------------ ------------

Balance at end of year $ 49,564,514 $ 66,999,956
============= ============

The Company's liabilities for unpaid losses and LAE, net of related reinsurance
recoverables, as of December 31, 2006 were increased in the current year by
$15,693,957 for claims that had occurred on or before the prior year balance
sheet date. This unfavorable loss emergence resulted principally from higher
than expected hurricane losses in 2004. The Company's liabilities for unpaid
losses and LAE, net of related reinsurance recoverables, as of December 31, 2005
were increased during 2005 by $2,549,050 for claims that had occurred on or
before the previous year balance sheet date. This unfavorable loss emergence
resulted principally from higher than expected hurricane losses in 2004. There
can be no assurance that the Company's unpaid losses and LAE will not develop
redundancies or deficiencies and possibly differ materially from the Company's
unpaid losses and LAE as of December 31, 2006. In the future, if the unpaid
losses and LAE develop redundancies or deficiencies, such redundancy or
deficiency would have a positive or adverse impact, respectively, on future
results of operations.

NOTE 7 - LOANS PAYABLE

Loans payable as of December 31, 2006 also consists of the following bank loans
secured by the respective assets: a boat loan for $65,549 principal due in May
2011, with interest paid monthly at 8.8%, and several vehicle loans totaling
$16,015 principal due from January 2005 to March 2008, with interest paid
monthly ranging from 5.6% to 10%. Other loans with vendors and private investors
amounted to $37,300,000 as of December 31, 2006. Loans with vendors and private
investors are primarily short-term loans utilized for working capital. As noted
in "Management's Discussion and Analysis--Liquidity and Capital Resources," two
promissory notes from two private investors with an aggregate remaining
principal balance of $300,000 are guaranteed under a financial protection
contract. In addition, the Company granted certain vendors and private investors
warrants in connection with the short-term loans (see Note 11).

On November 9, 2006, UPCIC entered into a $25.0 million surplus note with the
Florida State Board of Administration under Florida's Insurance Capital Build-Up
Incentive Program. Given the proximity of the loan origination date to the
balance sheet date, the carrying value of the note deemed to approximate its
fair value as of December 31, 2006. Under the program. which was implemented by
the Florida legislature to encourage insurance companies to write additional
residential insurance coverage in Florida, the State Board of Administration
matched UPCIC's funds of $25.0 million that were earmarked for participation in
the program.

F-19

An event of default will occur under the surplus note if UPCIC: (i) defaults in
the payment of the surplus note; (ii) fails to meet at least a 2:1 ratio of net
premium to surplus ("Minimum Writing Ratio") requirement by June 1, 2007; (iii)
fails to submit quarterly filings to the OIR; (iv) fails to maintain at least
$50 million of surplus during the term of the surplus note, except for certain
situations; (v) misuses proceeds of the surplus note; (vi) makes any
misrepresentations in the application for the program; or (vii) pays any
dividend when principal or interest payments are past due under the surplus
note. As of December 31, 2006, the Company is in compliance with each of the
aforementioned loans covenants.

If UPCIC fails to increase its writing ratio for two consecutive quarters prior
to June 1, 2007, fails to obtain the 2:1 Minimum Writing Ratio by June 1, 2007,
or drops below the 2:1 Minimum Writing Ratio once it is obtained for two
consecutive quarters, the interest rate on the surplus note will increase during
such deficiency by 25 basis points if the resulting writing ratio is between
1.5:1 and 2:1 and the interest rate will increase by 450 basis points if the
writing ratio is below 1.5:1. If the writing ratio remains below 1.5:1 for three
consecutive quarters after June 1, 2007, UPCIC must repay a portion of the
surplus note so that the Minimum Writing Ratio will be obtained for the
following quarter. The Company expects to maintain the 2:1 Minimum Writing Ratio
throughout the term of the surplus note.

To meet its matching obligation under the Insurance Capital Build-Up Incentive
Program, on November 3, 2006, the Company entered into a Secured Promissory Note
with Benfield Greig (Holdings), Inc. in the aggregate principal amount of $12
million. Interest on the note will accrue at the market rate of 12.75% per
annum. The outstanding principal is due in six monthly installments of $1.5
million and a final seventh monthly installment of the remaining balance plus
all accrued interest under the terms of the Note starting on January 31, 2007
and ending on July 31, 2007. Given the short duration of the note, the carrying
value was deemed to approximate its fair value as of December 31, 2006. In
connection with the loan, the Company and its subsidiaries appointed Benfield
Inc. as their reinsurance intermediary for all of their reinsurance placements
for the year beginning on June 1, 2007. As of March 30, 2007, all amounts due on
the Note have been paid.

Loan repayments are due as follows as of December 31, 2006:

2007 $12,324,278
2008 15,334
2009 14,118
2010 1,007,968
2011 1,050,826
Thereafter 22,969,020
-----------
$37,381,544
===========

Interest expense was $412,729 and $37,228 for the twelve months ended December
31, 2006 and 2005, respectively.

NOTE 8 - REGULATORY REQUIREMENTS AND RESTRICTIONS

UPCIC is subject to comprehensive regulation by the OIR. The Florida Insurance
Code (the "Code") requires that UPCIC maintain minimum statutory surplus of
$4,000,000. UPCIC is also required to adhere to prescribed premium-to-surplus
ratios under the Code and to maintain approved securities on deposit with the
state of Florida. UPCIC's statutory surplus as of December 31, 2006 is
$62,018,676. During 2005 and 2006, UPCIC did not pay dividends to the Company.

F-20

The maximum amount of dividends which can be paid by Florida insurance companies
without prior approval of the Florida Commissioner is subject to restrictions
relating to statutory surplus. The maximum dividend that may be paid by UPCIC to
the Company without prior approval is limited to the lesser of statutory net
income from operations of the preceding calendar year or 10.0% of statutory
unassigned capital surplus as of the preceding year end. During 2005 and 2006,
UPCIC did not pay dividends to the Company.

NOTE 9 - RELATED PARTY TRANSACTIONS

All underwriting, rating, policy issuance, reinsurance negotiations and
administration functions for UPCIC are performed by UPCIC, Universal Risk
Advisors, Inc., a wholly owned subsidiary of the Company, and unaffiliated third
parties. Claims adjusting functions are performed by Universal Adjusting
Corporation, a wholly owned subsidiary of the Company and unaffiliated third
parties.

Downes and Associates, Inc., a multi-line insurance adjustment corporation based
in Deerfield Beach, Florida performs certain claims adjusting work for UPCIC.
Downes and Associates, Inc. is owned by Dennis Downes, who is the father of Sean
P. Downes, COO and Senior Vice President of UPCIC. During 2006 and 2005, the
Company expensed claims adjusting fees of $829,208 and $1,075,188, respectively,
to Downes and Associates.

During 2005, Sean P. Downes filed a claim on his homeowners' policy issued by
UPCIC as a result of damage incurred during Hurricane Wilma. UPCIC handled the
claim in the ordinary course of its business and has made a loss payment to Mr.
Downes in the amount of $214,409.

In September 2006, the Company acquired Sterling Premium Finance Company, Inc.
("Sterling") for the purchase price of $50,000 from the Company's CEO and COO,
who joint owned Sterling. The purchase price was equal to Sterling's book value
at the time of acquisition.

NOTE 10- INCOME TAX PROVISION

The following table reconciles the statutory federal income tax rate to the
Company's effective tax rate for the years ended December 31, 2006 and 2005:

2006 2005
-----------------------------
Statutory federal income tax rate 35.0% 35.0%
Increases (decreases) resulting from:
Utilization of net operating loss 0% (28.5%)
carry forward
Change in valuation allowance (6.5%) (15.6%)
Alternative minimum tax 0% 2.5%
Disallowed executive compensation 2.9% 0%
Disallowed meals & entertainment .7% 0%
State income tax 6.1% 0%
Other (2.7%) (1.0%)
----------- ---------------
Effective tax rate 35.5% (7.6)%

Deferred income taxes as of December 31, 2006 are provided for the temporary
differences between financial reporting basis and the tax basis of the Company's
assets and liabilities under SFAS 109. The tax effects of temporary differences
are as follows:

F-21

Deferred income tax assets:
Unearned premiums $ 7,417,440
Unpaid losses 576,770
Regulatory assessments 785,584
Executive compensation 472,645
Allowance for uncollectible receivables 219,401
Property and equipment 12,351
-------------
9,484,191
Deferred income tax liabilities:
Deferred policy acquisition costs (812,435)
-------------

Net deferred income tax asset $ 8,671,756
=============

A valuation allowance is deemed unnecessary as of December 31, 2006 because
management believes it is probable that the Company will generate substantial
taxable income sufficient to realize the tax benefits associated with the net
deferred income tax asset shown above in the near future. A valuation allowance
of $607,299 associated with the utilization of net operating loss carryforwards
had been recorded as of December 31, 2005.

As of December 31, 2006, the Company has no remaining net operating loss
available to carry forward to offset future taxable income.

Included in the income tax is Florida income tax at a rate of 5.5%.

NOTE 11 - STOCKHOLDERS' EQUITY

CUMULATIVE PREFERRED STOCK

Each share of Series A and M Preferred Stock is convertible by the Company into
2.5 shares of Common Stock and 5 shares of Common Stock, respectively, into an
aggregate of 568,326 common shares. The Series A Preferred Stock pays a
cumulative dividend of $.25 per share per quarter.

STOCK OPTIONS

The Company adopted a 1992 Stock Option Plan (the "Plan") under which new shares
of Common Stock are reserved for issuance upon the exercise of the options. The
Plan is designed to serve as an incentive for attracting and retaining qualified
and competent employees, officers, directors and consultants of the Company. All
employees, officers, directors and consultants of the Company or any subsidiary
are eligible to participate in the Plan. The Plan does not specify the number of
shares for which options are available for grant. The stock options may be
granted over a period not to exceed 10 years and generally vest as of the date
of grant or upon certain goals attained. The Plan has no provisions for the
exercising of options other than paying the cash exercise price.

F-22

A summary of the option activity for the years ended December 31, 2006 and 2005
is presented below:

Options Exercisable
------------------- Weighted
Average Aggregate
Number Option Price per Share Number Exercise Intrinsic
of Shares Low High Weighted of Shares Price Value
--------- --- ---- -------- --------- ----- -----

Outstanding January 1, 2005 8,032,999 $ 0.04 $ 3.88 $ 1.00 8,032,999 $ 1.00
Cancelled (517,999) $ 0.50 $ 3.88 $ 1.66
--------------
Outstanding December 31, 2005 7,515,000 $ 0.04 $ 1.87 $ 0.95 7,515,000 $ 0.95
Exercised (220,000) $ 0.04 $ 0.50 $ 0.08
Cancelled (850,000) $ 1.00 $ 1.25 $ 1.24
--------------
Outstanding December 31, 2006 6,445,000 $ 0.04 $ 1.87 $ 0.91 6,445,000 $ 0.91 $4,517,644
==============

The total intrinsic value of options exercised in 2006 was $9,480. The total
cash received in 2006 for the exercise of stock options was $18,000.

The weighted average remaining contractual life on the 6,445,000 options
outstanding and exercisable as of December 31, 2006 was 2.4 years. All options
are exercisable and fully vested.

There were no options granted in 2006 or 2005.

The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, such models require the input of highly subjective
assumptions including the expected stock price volatility. Because the Company's
stock options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its stock
options.

WARRANTS

A summary of the warrant activity for the years ended December 31, 2006 and 2005
is presented below:

Warrants Exercisable
--------------------
Weighted Weighted
Average Average Aggregate
Number Warrant Price per Share Number Exercise Intrinsic
of Shares Low High Weighted of Shares Price Value
--------- --- ---- -------- --------- ----- -----

Outstanding January 1, 2005 3,068,652 $ 0.03 $ 4.25 $ 1.27 3,068,652 $ 1.27
Granted 200,000 $ 0.05 $ 0.05 $ 0.05
Cancelled (1,336,646) $ 1.00 $ 4.25 $ 2.29
--------------
Outstanding December 31, 2005 1,932,006 $ 0.03 $ 3.00 $ 1.11 1,932,006 $ 1.11
Exercised (625,000) $ 0.05 $ 0.05 $ 0.05
Cancelled (457,006) $ 0.75 $ 3.00 $ 1.20
--------------
Outstanding December 31, 2006 850,000 $ 0.03 $ 1.00 $ 0.72 850,000 $ 0.72 $482,870
==============

The total intrinsic value of warrants exercised in 2006 was $24,305. The total
cash received in 2006 for the exercise of stock warrants was $31,250.

The weighted average remaining contractual life on the 850,000 options
outstanding and exercisable as of December 31, 2006 was 1.9 years. All warrants
are exercisable and fully vested.

The actual tax benefit realized for the tax deductions from option and warrant
exercise of the share-based payment arrangements totaled $376,747 for the year
ended December 31, 2006.

OTHER STOCK ISSUANCES

F-23

Company issued 200,000 shares of Common Stock at a price of $.05 per share to a
vendor pursuant to the exercise of warrants to purchase restricted Common Stock.
Also in April 2006, the Company issued 200,000 shares of restricted Common Stock
at a price of $.04 per share to Sean P. Downes, COO of the Company, pursuant to
Mr. Downes' exercise of stock options and 123,077 shares of restricted Common
Stock at a price of $.93 per share pursuant to Mr. Downes' election to receive
such shares in lieu of accrued vacation. Also in April 2006, the Company issued
10,000 shares of restricted Common Stock at a price of $.50 per share to Reed J.
Slogoff, a director of the Company, pursuant to the exercise of options to
purchase restricted Common Stock. In May 2006, the Company issued 400,000 shares
of restricted Common Stock to one employee at $1.23 per share and 25,000 to a
second employee at $1.30 per share in conjunction with employment agreements.
Also in May 2006, the Company issued 10,000 shares of restricted Common Stock at
a price of $.50 per share to an employee of the Company pursuant to the exercise
of options to purchase the restricted Common Stock. In June 2006, the Company
issued 25,000 shares of restricted Common Stock at a price of $1.52 per share to
each of the then outside directors of the Company (Norman M. Meier, Reed
Slogoff, and Joel Wilentz) and 200,000 shares of restricted Common Stock at a
price of $1.52 per share to Sean P. Downes, COO of the Company, as a bonus. Also
in June 2006, the Company issued James M. Lynch, CFO of the Company, 25,807
shares of Common Stock at a price of $1.65 per share as a bonus. Unless
otherwise specified, such as in the case of the exercise of stock options or
warrants, the per share prices were determined using the closing price of the
Company's Common Stock as quoted on the OTC Bulletin Board and the shares were
issued in private transactions pursuant Section 4(2) of the Securities Act of
1933, as amended.

On October 24, 2006, the Company declared a dividend of $.05 per share on its
outstanding Common Stock of the Company to be paid on April 9, 2007 to the
shareholders of record of the Company at the close of business on March 19,
2007. The dividend payable amount of $1,902,855 for this dividend is accrued in
the December 31, 2006 balance sheet. At December 31, 2006, the Company recorded
a dividend payable in the amount of $1,902,855 for this dividend and a net
reduction to retained earnings in the amount of $1,747,423, which represents the
total dividend net of the dividends on the shares held in treasury stock and in
the Stock Grantor Trust described in Note 11 - Stockholders' Equity. During the
fourth quarter, the Company paid a dividend of $0.05 per share that was accrued
at the end of third quarter. The aggregate amount of the dividend was
$1,747,423. During the third quarter, the Company paid a dividend of $0.04 per
share of outstanding Common Stock that was accrued at the end of the second
quarter. The aggregate amount of the dividend was $1,393,938. During the second
quarter, the Company paid a dividend of $0.04 per share of outstanding Common
Stock that was accrued at the end of first quarter. The aggregate amount of the
dividend was $1,364,506.

At the Company's Annual Meeting of Shareholders held on December 7, 2005, the
shareholders voted to amend the Company's certificate of incorporation to
increase the number of authorized shares of Common Stock from 40,000,000 to
50,000,000 shares.

STOCK GRANTOR TRUST

On April 3, 2000, the Company established the Universal Insurance Holdings, Inc.
Stock Grantor Trust ("SGT") to fund its obligations arising from its various
stock option agreements. The Company funded the SGT with 2,900,000 shares of
Company Common Stock. In exchange, the SGT delivered $29,000 and a promissory
note to the Company for approximately $2,320,000 which together represents the
purchase price of the shares. Amounts owed by the SGT to the Company will be
repaid by cash received by the SGT, which will result in the SGT releasing
shares to satisfy Company obligations for stock options. The assets of the SGT
are subject to the claims of the Company's general creditors under federal and
state law. The consolidated financial statements include the accounts of the
SGT. Dividends paid by the Company and received by the SGT on shares of Common
Stock held in trust are eliminated in consolidation and shown net in the
Consolidated Financial Statements.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

EMPLOYMENT AGREEMENTS

F-24

right to the bonus. Mr. Meier is also eligible for other benefits customarily
provided by the Company to its executive employees, and the Meier Agreement
contains noncompete and nondisclosure provisions. In addition, in the event of a
Change in Control of the Company (as defined in the Meier Agreement), the
Company shall pay Mr. Meier an amount equal to 48 months base salary, plus two
times any bonus paid for the preceding fiscal year. Further, in the event of a
Change in Control, all options held by Mr. Meier vest and become immediately
exercisable. Also, in the event that the Company terminates the Meier Agreement,
the Company shall pay Mr. Meier 48 months total compensation. The Meier
Agreement expires on December 31, 2008; however, the agreement is automatically
extended each year thereafter unless the Company or Mr. Meier provides written
notice that the agreement is being terminated 60 days in advance of the
anniversary date of the Meier Agreement.

OPERATING LEASE

The Company has leased certain computer equipment and software under a master
equipment lease agreement with Relational Funding, Inc. with an original
equipment cost of $743,442. The following is a schedule of future minimum rental
payments required under the non-cancelable operating lease as of December 31,
2006:

2007 $ 227,076
2008 136,581
2009 32,042
------------
$ 395,699
============

NOTE 13 - LITIGATION

Certain lawsuits have been filed against the Company. In the opinion of
management, none of these lawsuits are material and they are all adequately
reserved for or covered by insurance or, if not so covered, are without merit or
involve such amounts that if disposed of unfavorably would not have a material
adverse effect on the Company's financial position or results of operations.

On February 7, 2005, Marty Steinberg as a court appointed receiver for the
entities consisting of Lancer Management Group LLC, Lancer Management Group II
LLC, Lancer Offshore Inc., Omnifund Ltd., LSPV Inc., LSPV LLC, Alpha Omega Group
Inc. and G.H. Associates LLC (collectively the "Lancer Entities") filed suit
against Alfred Taubman, Anthony Cullen, British American Racing, Centrack
International, Inc., Kuwait & Middle East Financial Investment Co., Liberty
International Asset Management, Macroview Investments Limited, Opus Portfolio
Ltd., Reva Stocker, Roger Dodger, LLC, Signet Management Limited, Thornhill
Group Inc. Trust, World Class Boxing and the Company (collectively the
"Defendants") in the United States District Court for the Southern District of
Florida. The Company received the notice of suit by mail on September 8, 2005.
The suit alleged that the Lancer Entities fraudulently transferred funds to the
Defendants and that the transfers unduly enriched the Defendants. The receiver

F-25

asked the Company to pay $658,108. The Company had no record of the alleged
transfers and vigorously defended the suit. The lawsuit has since been dismissed
with prejudice by the receiver.

NOTE 14 - EARNINGS PER SHARE

The following table reconciles the numerator (earnings) and denominator (shares)
of the basic and diluted earnings per share computations for net income for the
years ended December 31, 2006 and 2005.

For year ended For year ended
December 31, 2006 December 31, 2005
----------------- -----------------
Income Income
Available to Available to
Common Common
Stockholders Per Share Stockholders Per Share
Amount Shares Amount Amount Shares Amount
------ ------ ------ ------ ------ ------

Net income $17,186,860 $ 6,506,597
Less: Preferred stock dividends (49,950) (49,950)
----------- -----------
Income available
to common stockholders 17,136,910 34,409,415 $ 0.50 6,456,647 32,807,521 $ 0.20
====== ======

Effect of dilutive securities:
Stock options and warrants - 4,100,903 (0.06) - 569,793 (0.01)
Preferred stock 49,950 568,325 - 49,950 568,325 -
----------- ---------- ------ ----------- ---------- ------

Income available to common
stockholders and assumed
conversion $17,186,860 39,078,643 $ 0.44 $ 6,506,597 33,945,639 $ 0.19
=========== ========== ====== =========== ========== ======

NOTE 15 - SUPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest and income taxes during the years ended December 31,
2006 and 2005 were as follows:

For the years ended
-------------------
December 31, 2006 December 31, 2005
----------------- -----------------
Interest 178,529 37,228
Income Taxes 2,696,500 80,000

NOTE 16 - SUBSEQUENT EVENTS

On March 15, 2007, the Company declared a dividend of $.07 per share on its
outstanding Common Stock of the Company to be paid on August 10, 2007 to the
shareholders of record of the Company at the close of business on July 20, 2007.
The dividend payable amount is $2,446,392.

F-26