10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

Form 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number

001-34126

Homeowners Choice, Inc.

(Exact name of Registrant as specified in its charter)

Florida	20-5961396
(State of Incorporation)	(IRS Employer Identification No.)

5300 West Cypress Street, Suite 100

Tampa, FL 33607

(Address, including zip code of principal executive offices)

(813) 405-3600

Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The aggregate number of shares of the Registrant’s Common Stock, no par value, outstanding on August 7, 2012 was 9,425,551.

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
ITEM 1	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets, June 30, 2012 (unaudited) and December 31, 2011	1
	Condensed Consolidated Statements of Income Three and six months ended June  30, 2012 and 2011 (unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income Three and Six months ended June  30, 2012 and 2011 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows Six months ended June  30, 2012 and 2011 (unaudited)	4-5
	Condensed Consolidated Statement of Stockholders’ Equity Six months ended June  30, 2012 and 2011 (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7-27
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	28-40
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	40
ITEM 4	CONTROLS AND PROCEDURES	40
PART II – OTHER INFORMATION
ITEM 1	LEGAL PROCEEDINGS	41
ITEM 1a	RISK FACTORS	41
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	41
ITEM 6	EXHIBITS	42-46
	SIGNATURES	47
	CERTIFICATIONS

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share amounts)

	At June 30, 2012		At December 31, 2011
	(Unaudited)
Assets
Investments:
Fixed-maturity securities, available-for-sale, at fair value (amortized cost $38,363 and $34,147)	$	40,141		34,642
Equity securities, available-for-sale, at fair value		8,669		5,207
Time deposits		7,184		12,427
Other investments		15,636		6,483
Total investments		71,630		58,759
Cash and cash equivalents		131,088		100,355
Accrued interest and dividends receivable		546		408
Premiums receivable		20,738		12,222
Assumed reinsurance balances receivable		—		1,687
Prepaid reinsurance premiums		26,484		14,169
Deferred policy acquisition costs		12,476		12,321
Property and equipment, net		10,586		10,499
Goodwill		161		161
Income taxes receivable		4,900		—
Deferred income taxes		—		2,368
Other assets		2,220		1,869
Total assets	$	280,829		214,818
Liabilities and Stockholders’ Equity
Losses and loss adjustment expenses		37,313		27,424
Unearned premiums		120,429		108,677
Advance premiums		9,004		2,132
Assumed reinsurance balances payable		1,389		—
Accrued expenses		4,439		3,478
Deferred income taxes		1,877		—
Dividends payable		104		218
Income taxes payable		—		4,956
Other liabilities		8,273		4,103
Total liabilities		182,828		150,988
Stockholders’ equity:
7% Series A cumulative convertible preferred stock (liquidation preference $10.00 per share), no par value, 1,500,000 shares authorized, 592,324 and 1,247,700 shares issued and outstanding in 2012 and 2011, respectively		—		—
Preferred stock (no par value, 18,500,000 shares authorized, no shares issued or outstanding)		—		—
Common stock, (no par value, 40,000,000 shares authorized, 9,205,097 and 6,202,485 shares issued and outstanding in 2012 and 2011, respectively)		—		—
Additional paid-in capital		51,742		29,636
Retained earnings		45,179		33,986
Accumulated other comprehensive income		1,080		208
Total stockholders’ equity		98,001		63,830
Total liabilities and stockholders’ equity	$	280,829		214,818

See accompanying Notes to Condensed Consolidated Financial Statements.

1

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)

(Dollars in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Revenue
Gross premiums earned	$	53,772			31,218			108,470			62,114
Premiums ceded		(17,497	)		(14,174	)		(31,826	)		(28,396	)
Net premiums earned		36,275			17,044			76,644			33,718
Net investment income		302			507			824			1,071
Policy fee income		1,028			667			1,543			854
Realized investment gains		9			140			30			293
Gain on bargain purchase		179			936			179			936
Other		1,062			187			1,287			658
Total revenue		38,855			19,481			80,507			37,530
Expenses
Losses and loss adjustment expenses		16,197			10,523			35,365			20,926
Policy acquisition and other underwriting expenses		5,915			2,780			12,500			7,043
Other operating expenses		4,734			2,357			9,252			4,484
Total expenses		26,846			15,660			57,117			32,453
Income before income taxes		12,009			3,821			23,390			5,077
Income taxes		4,747			1,520			9,160			1,983
Net income	$	7,262			2,301			14,230			3,094
Preferred stock dividends		(63	)		(361	)		(244	)		(378	)
Income available to common stockholders	$	7,199			1,940			13,986			2,716
Basic earnings per common share	$	.85			.32			1.89			.44
Diluted earnings per common share	$	.74			.30			1.60			.43
Dividends per common share	$	.20			.10			.35			.20

See accompanying Notes to Condensed Consolidated Financial Statements.

2

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(Dollars in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Net income	$	7,262			2,301			14,230			3,094
Other comprehensive income:
Change in unrealized gain (loss) on investments:
Unrealized gain arising during the period		175			285			1,449			267
Reclassification adjustment for realized gains		(9	)		(140	)		(30	)		(293	)
Net change in unrealized gain (loss)		166			145			1,419			(26	)
Deferred income taxes on above change		(64	)		(56	)		(547	)		10
Total other comprehensive income (loss)		102			89			872			(16	)
Comprehensive income	$	7,364			2,390			15,102			3,078

See accompanying Notes to Condensed Consolidated Financial Statements.

3

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

	Six Months Ended June 30,
	2012			2011
Cash flows from operating activities:
Net income	$	14,230			3,094
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		212			19
Net amortization of premiums on investments in fixed-maturity securities		111			61
Depreciation and amortization		637			158
Deferred income taxes		3,698			2,026
Realized gains on sales of investments		(30	)		(293	)
Gain on bargain purchase		(179	)		(936	)
Changes in operating assets and liabilities:
Premiums receivable		(8,516	)		(4,441	)
Assumed reinsurance balances receivable		1,687			26
Advance premiums		6,872			5,786
Prepaid reinsurance premiums		(12,315	)		8,921
Accrued interest and dividends receivable		(138	)		(6	)
Income taxes receivable		(4,900	)		(3,033	)
Other assets		(445	)		(476	)
Assumed reinsurance balances payable		1,389			51
Deferred policy acquisition costs		(155	)		(655	)
Losses and loss adjustment expenses		9,889			2,827
Unearned premiums		11,752			5,496
Income taxes payable		(4,956	)		(310	)
Accrued expenses and other liabilities		5,131			4,568
Net cash provided by operating activities		23,974			22,883
Cash flows from investing activities:
Cash consideration paid for acquired business, net of cash acquired		(8,157	)		(5,110	)
Purchase of property and equipment, net		(480	)		(1,843	)
Purchase of other investments		(967	)		—
Purchase of fixed-maturity securities		(6,710	)		(14,165	)
Purchase of equity securities		(4,844	)		(5,330	)
Proceeds from sales, calls and repayments of fixed-maturity securities		2,419			19,614
Proceeds from sales of equity securities		1,512			1,106
Decrease (increase) in time deposits, net		5,243			(273	)
Net cash used in investing activities		(11,984	)		(6,001	)
Cash flows from financing activities:
Net proceeds from the issuance of common stock		20,082			—
Net proceeds from the issuance of preferred stock		—			11,307
Proceeds from the exercise of common stock options		—			363
Proceeds from the exercise of common stock warrants		1,375			—
Cash dividends paid		(3,151	)		(1,382	)
Repurchases of common stock		—			(1,887	)
Excess tax benefit from common stock options exercised		437			124
Net cash provided by financing activities		18,743			8,525
Net increase in cash and cash equivalents		30,733			25,407
Cash and cash equivalents at beginning of period		100,355			54,849
Cash and cash equivalents at end of period	$	131,088			80,256

4

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows, continued

(Unaudited)

(Dollars in thousands)

	Six Months Ended June 30,
	2012		2011
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	14,880		3,176
Cash paid for interest	$	—		—
Non-cash investing activities:
Unrealized gain (loss) on investments in available for sale securities, net of tax	$	872		(16	)
Fair value of net assets acquired in connection with business acquisition	$	8,267		5,685

See accompanying Notes to Condensed Consolidated Financial Statements.

5

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity

Six Months Ended June 30, 2012

(Dollars in thousands, except share amounts)

	Preferred Stock					Common Stock				Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income		Total
	Shares			Amount		Shares		Amount
Balance at December 31, 2011		1,247,700		$	—		6,202,485	$	—		29,636		33,986			208		63,830
Net Income (unaudited)		—			—		—		—		—		14,230			—		14,230
Change in unrealized gain on available-for-sale securities, net of income taxes (unaudited)		—			—		—		—		—		—			872		872
Exercise of common stock options (unaudited)		—			—		145,594		—		—		—			—		—
Exercise of common stock warrants (unaudited)		—			—		161,642		—		1,375		—			—		1,375
Excess tax benefit from stock options exercised (unaudited)		—			—		—		—		437		—			—		437
Conversion of preferred stock to common stock (unaudited)		(655,376	)		—		655,376		—		—		—			—		—
Issuance of Restricted Stock (unaudited)		—			—		200,000		—		153		—			—		153
Issuance of Common Stock (unaudited)		—			—		1,840,000		—		20,082		—			—		20,082
Common stock dividends (unaudited)		—			—		—		—		—		(2,793	)		—		(2,793	)
Preferred stock dividends (unaudited)		—			—		—		—		—		(244	)		—		(244	)
Stock-based compensation (unaudited)		—			—		—		—		59		—			—		59
Balance at June 30, 2012 (unaudited)		592,324		$	—		9,205,097	$	—		51,742		45,179			1,080		98,001

See accompanying Notes to Condensed Consolidated Financial Statements.

6

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements for Homeowners Choice, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s financial position as of June 30, 2012 and the results of operations and cash flows for the periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2012. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011 included in the Company’s Form 10-K, which was filed with the SEC on March 30, 2012.

In preparing the interim unaudited condensed consolidated financial statements, management was required to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the periods being reported upon. Certain of the estimates result from judgments that can be subjective and complex and consequently actual results may differ from these estimates.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of loss and loss adjustment expenses, assumed reinsurance balances, the recoverability of deferred policy acquisition costs, and the determination of deferred income taxes. Although considerable variability is inherent in these estimates, management believes that the amounts provided are reasonable. These estimates are continually reviewed and adjusted as necessary. Such adjustments are reflected in current operations.

All significant intercompany balances and transactions have been eliminated.

Acquisition Accounting. The Company accounts for business combinations using the acquisition method, which requires an allocation of the purchase price of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired. In the event the net assets acquired exceed the purchase price, the Company will recognize a gain on bargain purchase.

(continued)

7

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 1 – Summary of Significant Accounting Policies, continued

Goodwill. Goodwill is not amortized. Rather, the Company is required to test goodwill for impairment at least annually or sooner in the event there are changes in circumstances indicating the asset may be impaired. The Company’s goodwill relates to a business acquisition completed in the fourth quarter of 2011. The Company plans to perform its goodwill impairment test in the fourth quarter of each year beginning with the fourth quarter in 2012. Thus, the Company did not recognize any impairment charges in the three and six months ended June 30, 2012.

Foreign Currency. The functional currency of the Company’s Indian subsidiary is the U.S. dollar. As such, the monetary assets and liabilities of this subsidiary are remeasured into U.S. dollars at the exchange rate in effect on the balance sheet date. Non-monetary assets and liabilities are remeasured using historical rates. Expenses recorded in the local currency are remeasured at the prevailing exchange rate. Exchange gains and losses resulting from these remeasurements are included in the results of operations.

Stock-based Compensation. The Company accounts for stock-based compensation under the fair value recognition provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 – “Compensation – Stock Compensation,” which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and restricted stock issuances based on estimated fair values. In accordance with ASC Topic 718, the fair value of stock-based awards is amortized over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The Company uses a straight-line attribution method for all grants that include only a service condition. The Company’s restricted stock awards include both service and market conditions. As a result, certain restricted stock grants are expensed over the derived service period for each separately vesting tranche.

Basic and diluted earnings per common share. Basic earnings per common share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. ASC Topic 260 requires the inclusion of restricted stock as participating securities since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. During periods of net income, participating securities are allocated a proportional share of net income determined by dividing total weighted-average participating securities by the sum of total weighted-average common shares and participating securities (the “two-class method”). Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Potentially dilutive securities at June 30, 2012 consisted of stock options, common stock warrants, restricted stock, and the 7.0% Series A cumulative convertible preferred stock issued March 25, 2011 (see Note 10 – Stockholders’ Equity).

Reclassifications. Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

(continued)

8

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 2 – Recent Accounting Pronouncements

Accounting Standards Update No. 2011-11. In December 2011, the FASB issued Accounting Standards Update No. 2011-11 (“ASU 2011-11”), Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities. The objective of ASU 2011-11 is to enhance disclosures required by GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. The amendments in ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by ASU 2011-11 retrospectively for all comparative periods presented. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2010-26. In October 2010, the FASB issued Accounting Standards Update No. 2010-26 (“ASU 2010-26”), Financial Services – Insurance (ASC Topic 944), Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of the amendments in ASU 2010-26 is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments in ASU 2010-26 specify which costs should be capitalized. The amendments in ASU 2010-26 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and can be applied prospectively upon adoption. Retrospective or prospective application is permitted. Early adoption is permitted, but only at the beginning of an entity’s annual reporting period. The Company adopted ASU 2010-26 effective January 1, 2012 on a prospective basis. As such, the Company recognized additional amortization expense of $1.2 million with a corresponding decrease in deferred acquisition costs as of the date of adoption. This one-time adjustment reduced our net income for the six months ended June 30, 2012 by approximately $741,000, or $0.09 earnings per diluted common share. In addition, certain direct marketing, compensation, and other administrative costs will no longer be deferred. Rather, such costs will be expensed as incurred beginning January 1, 2012.

(continued)

9

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 3 – Investments

The Company holds investments in fixed-maturity securities as well as equity securities, which are classified as available for sale. At June 30, 2012 and December 31, 2011, the amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows (in thousands):

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
June 30, 2012
Fixed-maturity Securities:
U.S. Treasury and U.S. government agencies	$	516		56		—			572
Corporate bonds		12,274		316		(104	)		12,486
Commercial mortgage-backed securities		10,797		627		(1	)		11,423
State, municipalities, and political subdivisions		10,279		698		—			10,977
Other		4,497		186		—			4,683
Total	$	38,363		1,883		(105	)		40,141
Equity securities	$	8,690		274		(295	)		8,669
December 31, 2011
Fixed-maturity Securities:
U.S. Treasury and U.S. government agencies	$	509		47		—			556
Corporate bonds		10,199		58		(417	)		9,840
Commercial mortgage-backed securities		10,574		314		(14	)		10,874
State, municipalities, and political subdivisions		9,982		393		(3	)		10,372
Other		2,883		117		—			3,000
Total	$	34,147		929		(434	)		34,642
Equity securities	$	5,364		133		(290	)		5,207

(continued)

10

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 3 – Investments, continued

The scheduled maturities of fixed-maturity securities at June 30, 2012 are as follows (in thousands):

	Amortized Cost		Fair Value
Available-for-sale
Due in one year or less	$	2,397		2,420
Due after one year through five years		9,408		9,517
Due after five years through ten years		10,895		11,392
Due after ten years		4,866		5,389
Commercial mortgage-backed securities		10,797		11,423
	$	38,363		40,141

Investment Sales

Proceeds received, and the gross realized gains and losses from sales of available for sale securities, for the three and six months ended June 30, 2012 and 2011 were as follows (in thousands):

	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended June 30, 2012
Fixed-maturity securities	$	1,197		11		—
Equity securities	$	1,412		8		(10	)
Three months ended June 30, 2011
Fixed-maturity securities	$	11,916		238		(15	)
Equity securities	$	574		53		(136	)
Six months ended June 30, 2012
Fixed-maturity securities	$	2,419		40		(3	)
Equity securities	$	1,512		8		(15	)
Six months ended June 30, 2011
Fixed-maturity securities	$	19,614		369		(38	)
Equity securities	$	1,106		105		(143	)

Amounts reported for the three and six months ended June 30, 2011 include the gross realized gains and losses from equity option contracts. During the three and six months ended June 30, 2011, the Company entered into equity contracts for exchange traded call and put options to meet certain investment objectives. With respect to these option contracts, the Company received net proceeds of $22,000 and $73,000 and realized gains of $22,000 and $73,000 for the three and six months ended June 30, 2011, respectively, which is included in the realized investment gains in the Condensed Consolidated Statements of Income. There were no open option contracts at June 30, 2011. The Company held no option contracts during the three and six months ended June 30, 2012.

(continued)

11

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 3 – Investments, continued

Other-than-temporary Impairment

The Company regularly reviews its individual investment securities for other-than-temporary impairment (“OTTI”). The Company considers various factors in determining whether each individual security is OTTI, including:

• the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings;

• the length of time and the extent to which the market value of the security has been below its cost or amortized cost;

• general market conditions and industry or sector specific factors;

• nonpayment by the issuer of its contractually obligated interest and principal payments; and

• the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.

Securities with gross unrealized loss positions at June 30, 2012, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows (in thousands):

	Less than Twelve Months					Twelve Months  or Greater					Total
	Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value
As of June 30, 2012
Fixed-maturity securities
Corporate Bonds	$	(5	)		839		(99	)		1,938		(104	)		2,777
Commercial mortgage-backed securities		(1	)		224		—			—		(1	)		224
Total fixed-maturity securities		(6	)		1,063		(99	)		1,938		(105	)		3,001
Equity securities		(123	)		2,559		(172	)		109		(295	)		2,668
Total available-for-sale securities	$	(129	)		3,622		(271	)		2,047		(400	)		5,669

(continued)

12

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 3 – Investments, continued

The Company believes there were no fundamental issues such as credit losses or other factors with respect to any of its available-for-sale securities. The unrealized losses on investments in fixed-maturity securities were caused by interest-rate changes. It is expected that the securities would not be settled at a price less than the par value of the investments. In determining whether equity securities are other than temporarily impaired, the Company considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost. Because the decline in fair value is attributable to changes in interest rates or market conditions and not credit quality, and because the Company has the ability and intent to hold its available-for-sale investments until a market price recovery or maturity, the Company does not consider any of its investments to be other-than-temporarily impaired at June 30, 2012.

Other Investments

Other investments consist primarily of real estate and the related assets and operations of the marina acquired in 2011 and the real estate and related assets of the marina and restaurant facilities acquired in 2012. Operating activities related to the Company’s real estate investments include leasing of office and retail space to tenants, wet and dry boat storage, a restaurant, and fuel services with respect to marina clients and other recreational boaters.

Other investments consist of the following as of June 30, 2012 and December 31, 2011 (in thousands):

	At June 30, 2012			At December 31, 2011
Building	$	2,788			1,418
Land		10,619			4,438
Land improvements		1,307			283
Other		1,076			404
Total, at cost		15,790			6,543
Less accumulated depreciation and amortization		(154	)		(60	)
Other investments	$	15,636			6,483

(continued)

13

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 4 – Fair Value Measurements

Fair values of the Company’s available-for-sale fixed-maturity securities are determined in accordance with ASC Topic 820, Fair Value Measurements and Disclosure, using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not available, fair values are measured using unobservable inputs. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.

The fair values for fixed-maturity securities that do not trade on a daily basis are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers. Management reviews the assumptions and methods utilized by the pricing service and then compares the relevant data and pricing to broker-provided data. The Company gains assurance of the overall reasonableness and consistent application of the assumptions and methodologies and compliance with accounting standards for fair value determination through ongoing monitoring of the reported fair values.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets.

Level 2 – Other inputs that are observable for the asset, either directly or indirectly.

Level 3 – Inputs that are unobservable.

(continued)

14

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 4 – Fair Value Measurements, continued

The following table presents information about the Company’s available-for-sale securities measured at fair value as of June 30, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
As of June 30, 2012
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	572		—		—		572
Corporate bonds		12,486		—		—		12,486
Commercial mortgage-backed securities		—		11,423		—		11,423
State, municipalities, and political subdivisions		10,977		—		—		10,977
Other		4,221		462		—		4,683
Total fixed-maturity securities		28,256		11,885		—		40,141
Equity securities		8,669		—		—		8,669
Total available-for-sale securities	$	36,925		11,885		—		48,810
As of December 31, 2011
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	556		—		—		556
Corporate bonds		9,840		—		—		9,840
Commercial mortgage-backed securities		—		10,874		—		10,874
State, municipalities, and political subdivisions		10,372		—		—		10,372
Other		2,735		265		—		3,000
Total fixed-maturity securities		23,503		11,139		—		34,642
Equity securities		5,207		—		—		5,207
Total available-for-sale securities	$	28,710		11,139		—		39,849

With respect to the Company’s business acquisition completed in April 2012 (see Note 5), all assets acquired and liabilities assumed were valued based on Level 3 measurements. Property, plant and equipment was valued based on an external appraisal using the sales comparison approach and other unobservable inputs. The carrying amounts of all other assets and liabilities approximated their fair values at the acquisition date.

There were no transfers between Level 1, 2 or 3 during the six months ended June 30, 2012 or the year ended December 31, 2011.

(continued)

15

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 5 – Business Acquisition

Effective April 2, 2012, the Company, through its subsidiary, HCI Holdings LLC, acquired the assets and operations of John’s Pass Marina, Inc. and Rice Family Holdings LLLP. The property consists primarily of ten acres of waterfront property and land improvements, which include a waterfront restaurant and a marina facility purchased for approximately $8.2 million. Operating activities at acquisition include the restaurant as well as wet boat storage for approximately 13 clients, and fuel services with respect to marina clients and other recreational boaters. The Treasure Island, Florida property and operations were acquired to further strengthen and diversify the Company’s property portfolio and business operations.

The fair value of the net assets acquired was approximately $8.3 million, which exceeded the $8.2 million purchase price. As a result, the Company recognized a gain on bargain purchase in the amount of $179,000 ($119,000 net of tax), which is included in operations for the three and six months ended June 30, 2012. The recorded gain is subject to adjustment as the Company will continue to evaluate the purchase price allocation during the measurement period. The following table summarizes the Company’s preliminary allocation of the net consideration paid to the fair value of the assets acquired, identifiable intangible assets acquired and liabilities assumed at April 2, 2012 (in thousands):

Property, plant and equipment	$	8,280
Other assets		56
Cash		9
Deferred tax liability		(60	)
Fair value of net assets acquired		8,285
Gain on bargain purchase, net of tax of $60		(119	)
Cash consideration paid	$	8,166

For the three and six months ended June 30, 2012, the effects of this acquisition were not material to the Company’s condensed consolidated financial statements and basic and diluted earnings per share and, as such, pro forma information has not been presented.

(continued)

16

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 6 – Reinsurance

The Company cedes a portion of its homeowners insurance exposure to other entities under catastrophe excess of loss reinsurance treaties. The Company remains liable with respect to claims payments in the event that any of the reinsurers are unable to meet their obligations under the reinsurance agreements. The Company 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.

The impact of the catastrophe excess of loss reinsurance treaties on premiums written and earned is as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Premiums Written
Direct	$	83,669			54,838			121,842			69,961
Assumed		(342	)		(157	)		(1,620	)		(2,351	)
Gross written		83,327			54,681			120,222			67,610
Ceded		(17,497	)		(14,174	)		(31,826	)		(28,396	)
Net premiums written	$	65,830			40,507			88,396			39,214
Premiums Earned
Direct	$	39,873			29,160			73,171			57,147
Assumed		13,899			2,058			35,299			4,967
Gross earned		53,772			31,218			108,470			62,114
Ceded		(17,497	)		(14,174	)		(31,826	)		(28,396	)
Net premiums earned	$	36,275			17,044			76,644			33,718

During the three and six months ended June 30, 2012 and 2011, there were no recoveries pertaining to reinsurance contracts that were deducted from losses incurred. At June 30, 2012 and December 31, 2011, prepaid reinsurance premiums related to 31 and 18 reinsurers, respectively, and there were no amounts receivable with respect to reinsurers. Thus, there were no concentrations of credit risk associated with reinsurance receivables and prepaid reinsurance premiums as of June 30, 2012 and December 31, 2011.

(continued)

17

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 7 – Losses and Loss Adjustment Expenses

The liability for losses and loss adjustment expenses (“LAE”) is determined on an individual case basis for all claims reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and losses incurred, but not reported.

Activity in the liability for unpaid losses and LAE is summarized as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Balance, beginning of period	$	33,476			24,050			27,424			22,146
Incurred related to:
Current period		15,995			6,696			34,401			15,432
Prior period		202			3,827			964			5,494
Total incurred		16,197			10,523			35,365			20,926
Paid related to:
Current period		(8,691	)		(6,475	)		(13,082	)		(8,128	)
Prior period		(3,669	)		(3,125	)		(12,394	)		(9,971	)
Total paid		(12,360	)		(9,600	)		(25,476	)		(18,099	)
Balance, end of period	$	37,313			24,973			37,313			24,973

The Company writes insurance in the state of Florida, which could be exposed to hurricanes or other natural catastrophes. Although the occurrence of a major catastrophe could have a significant effect on our monthly or quarterly results, the Company believes that such an event would not be so material as to disrupt the overall normal operations of the Company. However, the Company is unable to predict the frequency or severity of any such events that may occur in the near term or thereafter.

(continued)

18

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 8 – Income Taxes

During the three and six months ended June 30, 2012, the Company recorded approximately $4.7 million and $9.2 million, respectively, of income taxes, which resulted in estimated annual effective tax rates of approximately 40% and 39%, respectively. During the three and six months ended June 30, 2011, the Company recorded approximately $1.5 million and $2.0 million, respectively, of income taxes, which resulted in estimated annual effective tax rates of approximately 40% and 39%, respectively. The Company’s estimated annual effective tax rate differs from the statutory federal income tax rate due to state income taxes, stock-based compensation and other nondeductible items.

Note 9 – Earnings Per Share

Topic 260 of the FASB Accounting Standards Codification requires the Company to use the two-class method in computing basic earnings per share since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. These participating securities have the effect of diluting both basic and diluted earnings per share during periods of net income.

A summary of the numerator and denominator of the basic and fully diluted earnings per common share is presented below (dollars and shares in thousands, except per share amounts):

	For the Three Months Ended June 30, 2012							For the Three Months Ended June 30, 2011
	Income (Numerator)			Shares (Denominator)		Per-Share Amount		Income (Numerator)			Shares (Denominator)		Per-Share Amount
Net income	$	7,262			—			$	2,301			—
Less: Preferred stock dividends		(63	)		—				(361	)		—
Less: Income attributable to participating securities		(87	)		—				—			—
Basic Earnings Per Share
Income allocated to common stockholders – basic earnings per share		7,112			8,325	$	0.85		1,940			6,071	$	0.32
Effect of Dilutive Securities
Stock options		—			215				—			411
Convertible preferred stock		63			705				361			1,248
Warrants		—			406				—			—
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	7,175			9,651	$	0.74	$	2,301			7,730	$	0.30

(continued)

19

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 9 – Earnings Per Share, continued

	For the Six Months Ended June 30, 2012							For the Six Months Ended June 30, 2011
	Income (Numerator)			Shares (Denominator)		Per-Share Amount		Income (Numerator)			Shares (Denominator)		Per-Share Amount
Net income	$	14,230			—			$	3,094			—
Less: Preferred stock dividends		(244	)		—				(378	)		—
Less: Income attributable to participating securities		(105	)		—				—			—
Basic Earnings Per Share
Income allocated to common stockholders – basic earnings per share		13,881			7,326	$	1.89		2,716			6,121	$	0.44
Effect of Dilutive Securities
Stock options		—			229				—			425
Convertible preferred stock		244			956				378			669
Warrants		—			303				—			—
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	14,125			8,814	$	1.60	$	3,094			7,215	$	0.43

For the three and six months ended June 30, 2011, 1,738,335 warrants to purchase 905,001 shares of common stock were excluded from the computation of diluted earnings per share because the exercise price of $9.10 exceeded the average market price of the Company’s common stock.

Note 10 – Stockholders’ Equity

Common Stock

On April 19, 2012, the Company entered into an underwriting agreement (the “Underwriting Agreement”) pursuant to which the Company agreed to sell 1,600,000 shares of the Company’s common stock, no par value per share (the “Common Stock”), for $11.75 per share, less a 6.0% underwriting commission. Under the terms of the Underwriting Agreement, the Company granted the underwriter an option to purchase up to an additional 240,000 shares of Common Stock at the public offering price, less a 6.0% underwriting commission, within 45 days from the date of the Underwriting Agreement to cover over-allotments, if any. The offering was made pursuant to the Company’s effective registration statement on Form S-3, as amended (Registration Statement No. 333-180322), and the Prospectus Supplement dated April 19, 2012. On April 23, 2012, the underwriter elected to fully exercise its overallotment option. The closing of the sale of an aggregate of 1,840,000 shares of Common Stock occurred on April 25, 2012. The offering resulted in aggregate gross proceeds to the Company of approximately $21.6 million and net proceeds of approximately $20.1 million after underwriting commissions and offering expenses.

(continued)

20

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 10 – Stockholders’ Equity, continued

Effective March 18, 2009, the Company’s Board of Directors authorized a plan to repurchase up to $3.0 million (inclusive of commissions) of the Company’s common shares. The repurchase plan allowed the Company to repurchase shares from time to time through March 19, 2010. This repurchase plan was supplemented in December 2009 upon approval by the Board of Directors to extend the repurchase authority by an additional $3.0 million and continue until the repurchase plan is terminated by the Company or the maximum number of dollars has been expended. During the three months ended March 31, 2011, the Company repurchased and retired a total of 83,594 shares at an average price of $8.23 per share and a total cost, inclusive of fees and commissions, of $693,000, or $8.29 per share.

As of March 28, 2011, the maximum amount designated for repurchases under this plan was expended and the share repurchase program was terminated.

Common Stock Warrants

At June 30, 2012, the Company has reserved 1,187,237 shares of common stock for issuance upon the exercise of its common stock warrants. A summary of the warrants outstanding at June 30, 2012 is presented below:

	Number Of Warrants Outstanding			Number of Common Shares Issuable Upon Conversion of Warrants Outstanding
Warrants issued with IPO units		1,666,668			833,334
Warrants issued to the Company’s placement agents net of forfeitures and repurchases		71,667			71,667
Warrants issued in 2011*		1,000,000			500,000
Warrants outstanding at December 31, 2011		2,738,335			1,405,001
Exercise of warrants issued with IPO units		(302,194	)		(151,097	)
Exercise of placement agent warrants		(66,667	)		(66,667	)
Warrants outstanding at June 30, 2012		2,369,474			1,187,237

* In connection with the HomeWise assumption transaction in November 2011, the Company issued 1,000,000 warrants, which may be exercised to purchase 500,000 shares of the Company’s common stock at a per share exercise price of $9.10.

The warrants issued prior to 2011 may be exercised at an exercise price equal to $9.10 per share on or before July 30, 2013. At any time after January 30, 2009 and before the expiration of the warrants, the Company at its option may cancel the warrants in whole or in part, provided that the closing price per share of the Company’s common stock has exceeded $11.38 for at least ten trading days within any period of twenty consecutive trading days, including the last trading day of the period. The placement agents also have the option to effect a cashless exercise in which the warrants would be exchanged for the number of shares which is equal to the intrinsic value of the warrant divided by the current value of the underlying shares. During the six months ended June 30, 2012, 10,546 shares of common stock were issued upon the cashless exercise of 66,667 warrants in February.

(continued)

21

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 10 – Stockholders’ Equity, continued

The fair value of warrants issued in 2011 was estimated on the date of issuance using the following assumptions and the Black-Scholes option pricing model:

Expected volatility		52	%
Risk-free interest rate		.23	%
Expected dividend yield		5.00	%
Expected life (in years)		1.75
Per share grant date fair value of warrants issued	$	0.754

The Company is amortizing the $754,000 aggregate value of the warrants over the expected policy term of the policies assumed in the transaction. The warrants, the issuance of which is not registered or required to be registered under the Securities Act of 1933, are exercisable for a term beginning on November 1, 2011 through July 31, 2013 unless cancelled earlier at the Company’s option under the terms specified by the warrant agreement.

Preferred Stock

In March 2011 the Company designated 1,500,000 shares of the Company’s preferred stock as Series A cumulative convertible preferred stock (“Series A Preferred”).

On March 25, 2011, the Company closed its preferred stock offering under which a total of 1,247,700 shares of its Series A Preferred were sold for gross proceeds of approximately $12.5 million and net proceeds after offering costs of approximately $11.3 million. Dividends on the Series A Preferred will be cumulative from the date of original issue and will accrue on the last day of each month, at an annual rate of 7.0% of the $10 liquidation preference per share, equivalent to a fixed annual amount of $0.70 per share. Accrued but unpaid dividends will accumulate and earn additional dividends at 7.0%, compounded monthly.

Shareholders of Series A Preferred may convert all or any portion of their shares, at their option, at any time, into shares of the Company’s common stock at an initial conversion rate of one share of common stock for each share of Series A Preferred, which is equivalent to an initial conversion price of $10 per share; provided, however, that the Company may terminate this conversion right on or after March 31, 2014, if for at least twenty trading days within any period of thirty consecutive trading days, the market price of the Company’s common stock exceeds the conversion price of the Series A Preferred by more than 20% and our common stock is then traded on the New York Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or the NYSE Amex. Under certain circumstances, the Company will be required to adjust the conversion rate. The initial conversion price of $10 per share is subject to proportionate adjustment in the event of stock splits, reverse stock splits, stock dividends, or similar changes with respect to the Company’s common stock.

(continued)

22

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 10 – Stockholders’ Equity, continued

During the three and six months ended June 30, 2012, holders of 454,235 and 655,376 shares of Series A Preferred converted their Series A Preferred shares to 454,235 and 655,376 shares of common stock, respectively. There were no preferred stock conversions during the three and six months ended June 30, 2011. As of June 30, 2012, 592,324 shares of Series A Preferred remain outstanding.

Shareholders of record of the Company’s Series A Preferred at the close of business on a date for determining shareholders entitled to dividends will be entitled to receive the dividends payable on their Series A Preferred shares on the corresponding dividend payment date notwithstanding the conversion of such Series A Preferred shares before the dividend payment date. The Series A Preferred terms include a provision requiring such shareholders to pay an amount equal to the amount of the dividend payable. That requirement has been permanently waived by the Company.

Holders of the Series A Preferred shares generally have no voting rights, except under limited circumstances, and holders are entitled to receive cumulative preferential dividends when and as declared by the Company’s Board of Directors.

In addition, the Company is authorized to issue up to an additional 18,500,000 shares of preferred stock, no par value. The authorized but unissued and undesignated preferred stock may be issued in one or more series and the shares of each series shall have such rights as determined by the Company’s Board of Directors subject to the rights of the holders of the Series A Preferred.

On May 31, 2012, the Company’s Board of Directors declared a cash dividend on its Series A Preferred shares in the amount of $0.05833 per share for each of the months of July, August, and September 2012. The July 2012 dividend is payable July 27, 2012 to shareholders of record at the close of business on July 2, 2012. The August 2012 dividend is payable August 27, 2012 to shareholders of record at the close of business on August 1, 2012. The September 2012 dividend is payable September 27, 2012 to shareholders of record at the close of business on September 4, 2012.

(continued)

23

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 11 – Stock-Based Compensation

2007 Stock Option and Incentive Plan

The Company accounts for stock-based compensation under the fair value recognition provisions of ASC Topic 718 – “Compensation – Stock Compensation.”

The Company’s 2007 Stock Option and Incentive Plan (“2007 Plan”) provided for granting of stock-based compensation to employees, directors, consultants, and advisors of the Company. Under the 2007 Plan, an aggregate of 6,000,000 shares of the Company’s common stock could be granted to include stock options and restricted stock. On April 20, 2012, the Company’s Board of Directors adopted, subject to shareholder approval, the 2012 Omnibus Incentive Plan (the “2012 Plan”). The 2012 Plan was approved by Shareholders effective May 24, 2012 at which time the 2007 Plan was terminated and the remaining 4,604,800 shares reserved for future issuance were cancelled. The aggregate number of shares of the Company’s common stock reserved and available for issuance pursuant to awards granted under the 2012 Plan is 5,000,000 of which only 4,000,000 shares of our common stock may be issued upon the exercise of incentive stock options. At June 30, 2012, no shares have been granted and 5,000,000 shares are available for grant under the 2012 Plan.

Stock Options

Outstanding stock options granted under the 2007 Plan vest over periods ranging from immediately vested to five years and are exercisable over the contractual term of ten years.

A summary of the activity in the Company’s 2007 Plan is as follows (dollars in thousands, except per share amounts):

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2011		620,000		$	2.97
Exercised		(217,003	)		3.33
Outstanding at June 30, 2012		402,997			2.78		5.3 years	$	5,971
Exercisable at June 30, 2012		382,997		$	2.60		5.1 years	$	5,745

At June 30, 2012, there was approximately $35,000 of unrecognized compensation expense related to nonvested stock-based compensation related to stock options granted under the 2007 Plan, which the Company expects to recognize over a weighted-average period of 22 months. The total fair value of shares vesting and recognized as compensation expense was approximately $6,000 and $59,000, respectively, for the three and six month periods ended June 30, 2012. There was no associated income tax benefit recognized in 2012 with respect to the compensation expense related to

(continued)

24

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 11 – Stock-Based Compensation, continued

stock options. During the six months ended June 30, 2012, a total of 217,003 options were exercised and net settled by surrender of 71,409 shares. The total intrinsic value of the options exercised during the six months ended June 30, 2012 was $1,470,101 and the associated income tax benefit recognized was approximately $437,000. The total fair value of shares vesting and recognized as compensation expense was approximately $9,400 and $18,600, respectively, for the three and six month periods ended June 30, 2011. There was no associated income tax benefit recognized with respect to the share compensation expense in 2011. The total intrinsic value of the 145,200 options exercised during the six months ended June 30, 2011 was $684,220 and the income tax benefit recognized was $168,000.

No stock options were granted during the three and six month periods ended June 30, 2012 and 2011.

Restricted Stock Awards

During the three months ended June 30, 2012, the Company granted restricted stock awards to certain executive officers in connection with their service to the Company. The terms of the Company’s restricted stock grants include both service and market-based conditions. The fair value of the awards with market-based conditions is determined using a Monte Carlo simulation method which calculates many potential outcomes for an award and then establishes fair value based on the most likely outcome. The determination of fair value with respect to the awards with only service-based conditions is based on the value of the Company’s stock on the grant date.

Information with respect to unvested restricted stock awards, which were granted in April and May 2012 under the Company’s 2007 Plan, is as follows:

	Number of Restricted Stock Awards		Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2011		—		—
Issued		200,000	$	12.91
Outstanding at June 30, 2012		200,000	$	12.91

At June 30, 2012, there was approximately $2.4 million of total unrecognized compensation expense related to nonvested restricted stock arrangements granted under the Company’s 2007 Plan. The Company expects to recognize the remaining compensation expense over a weighted-average period of 42 months.

No restricted stock was granted during the three and six months ended June 30, 2011.

(continued)

25

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 12 – Commitments and Contingencies

In connection with the Company’s April 20, 2011 acquisition of the marina property located in Pinellas County, Florida, the Company assumed the liability to complete a site assessment and remediation of environmental contamination that resulted from a petroleum release at the marina site in late 2009. The Company and its environmental consultants have assumed the remedial action work plan developed by prior management and its environmental consultant, which consists of completing the site assessment, performing soil excavation, and installing wells for collection of groundwater and soil samples throughout the monitoring phase of the project. At acquisition, the Company recorded a liability of $150,000 with respect to the planned remedial action. Such liability was determined based on reasonably estimable costs of completing the actions defined in the existing ongoing work plan. As of June 30, 2012, a total of $32,000 has been expended with respect to the site assessment and the remaining $118,000 accrued at acquisition is included in other liabilities in the accompanying condensed consolidated balance sheets. Although the Company has accrued all reasonably estimable costs of completing the actions defined in the current ongoing work plan, it is possible that additional testing and additional environmental monitoring and remediation will be required in the near future as part of the Company’s ongoing discussions with the Florida Department of Health, the agency contracted by the Florida Department of Environmental Protection to administer cases of petroleum contamination in Pinellas County, in which case additional expenses could significantly exceed the current estimated liability. However, based on information known at June 30, 2012, the Company does not expect that such additional expenses would have a material adverse effect on the liquidity or financial condition of the Company.

Note 13 – Related Party Transaction

On June 1, 2012, Claddaugh Casualty Insurance Company, Ltd. (“Claddaugh”), the Company’s Bermuda-based captive reinsurer, entered into a reinsurance treaty with Moksha Re SPC Ltd. and multiple capital partners (“Moksha”) whereby a portion of the business assumed from the Company’s insurance subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPC”), is ceded by Claddaugh to Moksha. With respect to the 2012-2013 treaty year, which covers the period from June 1, 2012 through May 31, 2013, Moksha assumed $13.8 million of the total covered exposure for approximately $4.0 million in premiums, a rate which management believes to be competitive with market rates available to Claddaugh. The $4.0 million premium was fully paid by Claddaugh in June 2012. Moksha capital partners deposited an aggregate of $9.8 million into a trust account along with the $4.0 million premium paid by Claddaugh to fully collateralize Moksha’s exposure. Trust assets may be withdrawn by HCPC, the trust beneficiary, in the event amounts are due under the 2012-2013 Moksha reinsurance agreement. Among the Moksha capital partner participants, the Company’s chief executive officer and the Company’s vice president of investor relations contributed $700,000 and $200,000, respectively. In addition, members of the chief executive officer’s immediate family contributed $942,500. The remaining capital partner participants, who are multiple parties unrelated to the Company, contributed the balance of $7,960,000.

(continued)

26

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 14 – Subsequent Event

On July 25, 2012, the Company’s Board of Directors declared a quarterly dividend on its common shares of $0.20 per share. The dividend will be paid September 21, 2012 to shareholders of record at the close of business August 17, 2012.

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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes and information included under this Item 2 and elsewhere in this quarterly report on Form 10-Q and in our Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 30, 2012. Unless the context requires otherwise, as used in this Form 10-Q, the terms “HCI,” “we,” “us,” “our,” “the Company,” “our company,” and similar references refer to Homeowners Choice, Inc. and its subsidiaries.

Forward-Looking Statements

In addition to historical information, this quarterly report contains forward-looking statements as defined under federal securities laws. Such statements involve risks and uncertainties, such as statements about our plans, objectives, expectations, assumptions or future events. These statements involve estimates, assumptions, known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from any future results, performances or achievements expressed or implied by the forward-looking statements. Typically, forward-looking statements can be identified by terminology such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include but are not limited to the effect of governmental regulation; changes in insurance regulations; the frequency and extent of claims; uncertainties inherent in reserve estimates; catastrophic events; a change in the demand for, pricing of, availability or collectability of reinsurance; restrictions on our ability to change premium rates; increased rate pressure on premiums; changing rates of inflation; and other risks and uncertainties detailed herein and from time to time in our SEC reports.

OVERVIEW

General

Homeowners Choice, Inc. is a property and casualty insurance holding company incorporated in Florida in 2006. Through our subsidiaries, we provide property and casualty homeowners’ insurance, condominium-owners’ insurance, and tenants’ insurance to individuals owning property in Florida. We offer these insurance products at competitive rates, while pursuing profitability using selective underwriting criteria. Our principal revenues are earned premiums, which are reported net of reinsurance costs, and investment income. We cede a substantial portion of our earned premiums to reinsurers to mitigate risks primarily associated with hurricanes and other catastrophic events. Our principal expenses are claims from policyholders, policy acquisition costs, and other underwriting expenses. As of June 30, 2012, we had total assets of $280.8 million and stockholders’ equity of $98.0 million. Our net income was approximately $7.3 million and $14.2 million, respectively, for the three and six months ended June 30, 2012. Income available to common stockholders was approximately $7.2 million and $14.0 million, respectively, for the three and six months ended June 30, 2012.

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We began operations in June of 2007 by participating in a “take-out program” through which we assumed insurance policies held by Citizens Property Insurance Corporation (“Citizens”), a Florida state-supported insurer. The take-out program is a legislatively mandated program designed to reduce the state’s risk exposure by encouraging private companies to assume policies from Citizens. Policies were assumed in eight separate assumption transactions which took place from July 2007 through December 2010. In November 2011, we completed an assumption transaction with HomeWise Insurance Company (“HomeWise”) through which we acquired the Florida policies of HomeWise. Substantially all of our premium revenue since inception has come from the policies acquired in these assumption transactions. Our current policies in force represent approximately $220 million in annualized premiums. Through the Citizens assumptions and HomeWise acquisition, we have been able to increase our geographic diversification within the state of Florida.

We strive to retain these policies by offering competitive rates to our policyholders at premiums we consider commensurate with the risk.

We face various challenges to implementing our operating and growth strategies. Since our policies cover Florida homeowners, condominium owners, and tenants, we cover losses that may arise from, among other things, catastrophes such as hurricanes, tropical storms and tornadoes, which could have a significant effect on our business, results of operations, and financial condition. To mitigate our risk of such catastrophic losses, we cede a portion of our exposure to reinsurers under catastrophe excess of loss reinsurance treaties. Even without catastrophic events, we may incur losses and loss adjustment expenses that deviate substantially from our estimates and that may exceed our reserves, in which case our net income and capital would decrease. Our operating and growth strategies may also be impacted by regulation and supervision of our business by the state of Florida, which must approve our policy forms and premium rates as well as monitor our insurance subsidiary’s ability to meet all requirements for regulatory compliance. Additionally, we compete with large, well-established insurance companies as well as other specialty insurers that, in most cases, possess greater financial resources, larger agency networks, and greater name recognition. We believe recent trends in the competitive environment in Florida however, such as a de-emphasis of Florida property risk by large national insurers and efforts by the state of Florida to reduce exposure at Citizens, bode well for our competitive position in the market.

Recent Developments

Effective June 1, 2012, we entered into excess catastrophe reinsurance treaties, which provide approximately $531 million of coverage through non-affiliates for aggregate losses and loss adjustment expenses per event during the 2012-2013 hurricane season. We expect to be charged approximately $96.0 million in annual premiums with respect to these new reinsurance treaties, with such costs to be recognized over the reinsurance treaty period covering June 1, 2012 through May 31, 2013. In comparison, our reinsurance treaties covering the 2011-2012 hurricane season provided $345 million of coverage through non-affiliates for aggregate losses and loss adjustment expenses per event at a cost to us of approximately $55 million, which we recognized over the period from June 1, 2011 through May 31, 2012. The increase in reinsurance premiums applicable to the 2012-13 reinsurance treaty year primarily results from the increase in exposure as a result of our acquisition of the Florida HomeWise policies in November 2011. Our reinsurance costs are expected to be approximately 43% to 45% of gross earned premiums during the period from June 1, 2012 through May 31, 2013.

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RESULTS OF OPERATIONS

The following table summarizes our results of operations for the three and six months ended June 30, 2012 and 2011 (dollars in thousands, except per share amounts):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Operating Revenue
Gross premiums earned	$	53,772			31,218			108,470			62,114
Premiums ceded		(17,497	)		(14,174	)		(31,826	)		(28,396	)
Net premiums earned		36,275			17,044			76,644			33,718
Net investment income		302			507			824			1,071
Policy fee income		1,028			667			1,543			854
Realized investment gains		9			140			30			293
Gain on bargain purchase		179			936			179			936
Other Income		1,062			187			1,287			658
Total operating revenue		38,855			19,481			80,507			37,530
Operating Expenses
Losses and loss adjustment expenses		16,197			10,523			35,365			20,926
Policy acquisition and other underwriting expenses		5,915			2,780			12,500			7,043
Other operating expenses		4,734			2,357			9,252			4,484
Total operating expenses		26,846			15,660			57,117			32,453
Income before income taxes		12,009			3,821			23,390			5,077
Income taxes		4,747			1,520			9,160			1,983
Net income	$	7,262			2,301			14,230			3,094
Preferred stock dividends		(63	)		(361	)		(244	)		(378	)
Income available to common stockholders	$	7,199			1,940			13,986			2,716
Ratios to Net Premiums Earned:
Loss Ratio		44.65	%		61.74	%		46.14	%		62.06	%
Expense Ratio		29.36	%		30.14	%		28.38	%		34.19	%
Combined Ratio		74.01	%		91.88	%		74.52	%		96.25	%
Ratios to Gross Premiums Earned:
Loss Ratio		30.12	%		33.71	%		32.60	%		33.69	%
Expense Ratio		19.80	%		16.46	%		20.05	%		18.56	%
Combined Ratio		49.92	%		50.17	%		52.65	%		52.25	%
Per Share Data:
Basic earnings per common share	$	.85			.32			1.89			.44
Diluted earnings per common share	$	.74			.30			1.60			.43

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Comparison of the Three Months ended June 30, 2012 to the Three Months ended June 30, 2011

Our results of operations for the three months ended June 30, 2012 reflect income available to common stockholders of $7.2 million, or $0.74 earnings per diluted common share, compared to income available to common stockholders of $1.9 million, or $0.30 earnings per diluted common share, for the three months ended June 30, 2011.

Revenue

Gross Premiums Earned for the three months ended June 30, 2012 were $53.8 million and principally reflect the revenue from policies acquired from HomeWise and policies originally acquired from Citizens. The policies acquired from HomeWise in November 2011 contributed approximately $13.9 million to our gross premiums earned for the three months ended June 30, 2012. Gross premiums earned for the three months ended June 30, 2011 were $31.2 million and principally reflect the revenue from policies assumed from Citizens.

Premiums Ceded for the three months ended June 30, 2012 and 2011 were approximately $17.5 million and $14.2 million, respectively. Our premiums ceded represent amounts paid to reinsurers to cover losses from catastrophes that exceed the thresholds defined by our catastrophe excess of loss reinsurance treaties. Our reinsurance rates are based primarily on policy exposures reflected in gross premiums earned. Premiums ceded were 32.5% and 45.4% of gross premiums earned during the three months ended June 30, 2012 and 2011, respectively. The decrease in 2012 is primarily due to lower costs during the first two months of the quarter related to policies assumed from HomeWise in November 2011, which were subject to minimal reinsurance premiums. We anticipate our reinsurance cost will range from 43% to 45% of gross premiums earned for the reinsurance treaty year beginning in June 2012.

Net Premiums Earned for the three months ended June 30, 2012 and 2011 were $36.3 million and $17.0 million, respectively, and reflect the gross premiums earned less the appropriate reinsurance costs as described above. Net premiums earned increased by $19.3 million in 2012 as compared to 2011 as a result of the $22.6 million increase in gross premiums earned and the $3.3 million increase in premiums ceded.

Net Premiums Written during the three months ended June 30, 2012 and 2011 totaled $65.8 million and $40.5 million, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs.

The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the three months ended June 30, 2012 and 2011 (dollars in thousands):

	Three Months Ended June 30,
	2012			2011
Net Premiums Written	$	65,830			40,507
Increase in Unearned Premiums		(29,555	)		(23,463	)
Net Premiums Earned	$	36,275			17,044

Net Investment Income for the three months ended June 30, 2012 and 2011 was $0.3 million and $0.5 million, respectively. There were no other-than-temporary impairments recorded during the three months ended June 30, 2012 and 2011.

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Realized Investment Gains for the three months ended June 30, 2012 and 2011 of $9,000 and $140,000, respectively, reflect the net gain realized from sales of securities during the period.

Policy Fee Income for the three months ended June 30, 2012 and 2011 was $1.0 million and $0.7 million, respectively, and reflects the policy fee income we earn with respect to our issuance of renewal policies.

Gain on Bargain Purchase was $179,000 ($119,000 net of tax), or $0.02 diluted earnings per common share, for the three months ended June 30, 2012. The bargain purchase gain relates to our business acquisition completed in April 2012. In the prior year, we had a gain on bargain purchase of $936,000 ($575,000 net of tax), or $0.07 diluted earnings per common share, related to our business acquisition completed in April 2011.

Other Income for the three months ended June 30, 2012 and 2011 was $1.1 million and $0.2 million, respectively. During the three months ended June 30, 2012, other income is primarily related to approximately $0.2 million of rental income from our Tampa office building and approximately $0.9 million from nonrecurring items. During the three months ended June 30, 2011, other income is primarily related to rental income from our Tampa office building.

Expenses

Our Losses and Loss Adjustment Expenses amounted to $16.2 million and $10.5 million, respectively, during the three months ended June 30, 2012 and 2011. Our losses for the three months ended June 30, 2012 include approximately $2.0 million related to 274 claims from Tropical Storm Debby, which occurred in June 2012. Our losses and loss adjustment expense reserves are more fully described below under the “Expenses” comparative for the six months ended June 30, 2012 and 2011 and, additionally, under “Critical Accounting Policies and Estimates” below.

Policy Acquisition and Other Underwriting Expenses for the three months ended June 30, 2012 and 2011 of $5.9 million and $2.8 million, respectively, primarily reflect the amortization of deferred acquisition costs, commissions payable to agents for production and renewal of policies, and premium taxes and policy fees.

Other Operating Expenses for the three months ended June 30, 2012 and 2011 were $4.7 million and $2.4 million, respectively. The $2.3 million increase is primarily attributable to a $1.3 million increase in compensation and related expenses and a $1.0 million increase in our other administrative costs, which include a variety of professional service fees, license fees, corporate insurances, lease expense, information system expense, and other general expenses. As of June 30, 2012, we had 121 employees located at our headquarters in Tampa, Florida compared to 88 employees as of June 30, 2011. We also have 63 employees located in Noida, India at June 30, 2012 versus none at June 30, 2011.

Income Taxes for the three months ended June 30, 2012 and 2011 were $4.7 million and $1.5 million, respectively, for state and federal income taxes resulting in an effective tax rate of 39.5% for 2012 and 39.8% for 2011.

Ratios:

The loss ratio applicable to the three months ended June 30, 2012 (loss and loss adjustment expenses related to net premiums earned) was 44.7% compared to 61.7% for the three months ended June 30, 2011.

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The expense ratio applicable to the three months ended June 30, 2012 (policy acquisition and other underwriting expenses related to net premiums earned plus compensation, employee benefits, and other operating expenses) was 29.4% compared to 30.1% for the three months ended June 30, 2011.

The combined loss and expense ratio (total of all expenses related to net premiums earned) is the key measure of underwriting performance traditionally used in the property and casualty industry. A combined ratio under 100% generally reflects profitable underwriting results. A combined ratio over 100% generally reflects unprofitable underwriting results. Our combined ratio for the three months ended June 30, 2012 was 74.0% compared to 91.9% for the three months ended June 30, 2011.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined loss and expense ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined loss and expense ratio to gross premiums earned for the three months ended June 30, 2012 was 49.9% compared to 50.2% for the three months ended June 30, 2011.

Comparison of the Six Months ended June 30, 2012 to the Six Months ended June 30, 2011

Our results of operations for the six months ended June 30, 2012 reflect income available to common stockholders of $14.0 million, or $1.60 earnings per diluted common share, compared to income available to common stockholders of $2.7 million, or $0.43 earnings per diluted common share, for the six months ended June 30, 2011. Our results for the six months ended June 30, 2012 and 2011 include bargain purchase gains on acquisitions of $179,000 ($119,000 net of tax) and $936,000 ($575,000 net of tax), respectively, or $0.02 and $0.08 diluted earnings per common share, respectively.

Revenue

Gross Premiums Earned for the six months ended June 30, 2012 were $108.5 million and reflect the revenue from policies acquired from HomeWise and policies originally assumed from Citizens. The policies acquired from HomeWise in November 2011 contributed approximately $35.3 million to our gross premiums earned for the six months ended June 30, 2012. Gross premiums earned for the six months ended June 30, 2011 were $62.1 million and principally reflect the revenue from policies assumed from Citizens.

Premiums Ceded for the six months ended June 30, 2012 and 2011 were $31.8 million and $28.4 million, respectively. Our premiums ceded represent amounts paid to reinsurers to cover losses from catastrophes that exceed the thresholds defined by our catastrophe excess of loss reinsurance treaties. Our reinsurance rates are based primarily on policy exposures reflected in gross premiums earned. Premiums ceded were 29.3% and 45.7% of gross premiums earned during the six months ended June 30, 2012 and 2011, respectively. The decrease in 2012 is primarily due to lower costs during the first five months of 2012 related to policies assumed from HomeWise, which were subject to minimal reinsurance premiums. We anticipate our reinsurance cost will range from 43% to 45% of gross premiums earned for the reinsurance treaty year beginning in June 2012.

Net Premiums Earned for the six months ended June 30, 2012 and 2011 were $76.6 million and $33.7 million, respectively, and reflect the gross premiums earned less reinsurance costs as described above. Net premiums earned increased by $42.9 million in 2012 as compared to 2011 as a result of the $46.3 million increase in gross premiums earned and $3.4 million increase in premiums ceded.

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Net Premiums Written during the six months ended June 30, 2012 and 2011 totaled $88.4 million and $39.2 million, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less reinsurance costs.

The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the six months ended June 30, 2012 and 2011 (in thousands):

	Six Months Ended June 30,
	2012			2011
Net Premiums Written	$	88,396			39,214
Increase in Unearned Premiums		(11,752	)		(5,496	)
Net Premiums Earned	$	76,644			33,718

Net Investment Income for the six months ended June 30, 2012 and 2011 was $0.8 million and $1.1 million, respectively.

Policy Fee Income for the six months ended June 30, 2012 and 2011 was $1.5 million and $0.9 million, respectively, and reflects the policy fee income we earn with respect to our issuance of renewal policies.

Realized Investment Gains for the six months ended June 30, 2012 and 2011 of $30,000 and $293,000, respectively, reflects the net gain realized from sales of securities during the period.

Gain on Bargain Purchase was $179,000 ($119,000 net of tax), or $0.02 diluted earnings per common share, and $936,000 ($575,000 net of tax), or $0.08 diluted earnings per common share, for the six months ended June 30, 2012 and 2011, respectively. The bargain purchase gains relates to our business acquisitions completed in April 2012 and in April 2011.

Other Income for the six months ended June 30, 2012 and 2011 was $1.3 million and $0.7 million, respectively. During the six months ended June 30, 2012, other income is primarily related to approximately $0.4 million of rental income from our Tampa office building and approximately $0.9 million from nonrecurring items. During the six months ended June 30, 2011, other income is primarily related to rental income from our Tampa office building.

Expenses

Our Losses and Loss Adjustment Expenses amounted to $35.4 million and $20.9 million, respectively, during the six months ended June 30, 2012 and 2011. Our losses for the six months ended June 30, 2012 include approximately $2.0 million related to 274 claims from Tropical Storm Debby, which occurred in June 2012.

Our losses and loss adjustment expense reserves (“Reserves”), which are more fully described below under “Critical Accounting Policies and Estimates,” are specific to homeowners insurance, which is our only line of business. These Reserves include both case reserves on reported claims and our reserves for incurred but not reported (“IBNR”) losses. At each period-end date, the balance of our Reserves is based on our best estimate of the ultimate cost of each claim for those known cases and the IBNR loss reserves are estimated based primarily on our historical experience. Our Reserves increased from $27.4 million at December 31, 2011 to $37.3 million at June 30, 2012. The $9.9 million increase in our Reserves is comprised of $21.3 million in new reserves specific to the six months ended June 30, 2012 offset by reductions of $8.8 million and $2.6 million in our Reserves for

34

2011 and 2010 and prior accident years, respectively. The $21.3 million in Reserves established for 2012 claims is due to the increase in our policy exposure, which resulted in an increase in the amount of reported losses in 2012. The decrease of $11.4 million specific to our 2011 and 2010 and prior accident-year reserves is due to favorable development arising from lower than expected loss development during 2012 relative to expectations used to establish our Reserve estimates at the end of 2011. Factors that are attributable to this favorable development may include a lower severity of claims than the severity of claims considered in establishing our Reserves and actual case development may be more favorable than originally anticipated.

Policy Acquisition and Other Underwriting Expenses for the six months ended June 30, 2012 and 2011 were $12.5 million and $7.0 million, respectively, and primarily reflect the amortization of deferred acquisition costs, commissions payable to agents for production and renewal of policies, and premium taxes and policy fees. The $5.5 million increase in 2012 is primarily attributable to an increase in our commissions and premium taxes for policy renewals combined with the one-time, $1.2 million adjustment specific to our adoption in January 2012 of Financial Accounting Standards Board Accounting Standards Update No. 2010-26 (see Note 2 – “Recent Accounting Pronouncements” to the unaudited condensed consolidated financial statements).

Other Operating Expenses for the six months ended June 30, 2012 and 2011 were $9.3 million and $4.5 million, respectively. The $4.8 million increase is primarily attributable to a $2.4 million increase in compensation and related expenses and a $2.4 million increase in our administrative costs, which include a variety of professional service fees, license fees, corporate insurances, lease expense, information system expense, and other general expenses. As of June 30, 2012, we had 121 employees located at our headquarters in Tampa, Florida compared to 88 employees as of June 30, 2011. We also have 63 employees located in Noida, India at June 30, 2012 versus none at June 30, 2011.

Income Taxes for the six months ended June 30, 2012 and 2011 were $9.2 million and $2.0 million, respectively, for state and federal income taxes resulting in an effective tax rate of 39.2% for 2012 and 39.1% for 2011.

Ratios:

The loss ratio applicable to the six months ended June 30, 2012 (loss and loss adjustment expenses related to net premiums earned) was 46.1% compared to 62.1% for the six months ended June 30, 2011.

The expense ratio applicable to the six months ended June 30, 2012 (policy acquisition and other underwriting expenses related to net premiums earned plus compensation, employee benefits, and other operating expenses) was 28.4% compared to 34.2% for the six months ended June 30, 2011 (see Other Operating Expenses above).

The combined loss and expense ratio (total of all expenses related to net premiums earned) is the key measure of underwriting performance traditionally used in the property and casualty industry. A combined ratio under 100% generally reflects profitable underwriting results. A combined ratio over 100% generally reflects unprofitable underwriting results. Our combined ratio for the six months ended June 30, 2012 was 74.5% compared to 96.3% for the six months ended June 30, 2011.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined loss and expense ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined loss and expense ratio to gross premiums earned for the six months ended June 30, 2012 was 52.7% compared to 52.3% for the six months ended June 30, 2011.

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Seasonality of Our Business

Our insurance business is seasonal as hurricanes and tropical storms typically occur during the period from June 1 through November 30 each year. With our reinsurance treaty year effective June 1 each year, any variation in the cost of our reinsurance, whether due to changes in reinsurance rates or changes in the total insured value of our policy base, will occur and be reflected in our financial results beginning June 1 each year.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, our liquidity requirements have been met through issuance of our common and preferred stock and funds from operations. We expect our future liquidity requirements will be met by funds from operations, primarily the cash received by our insurance subsidiary from premiums written and investment income.

Our insurance subsidiary requires liquidity and adequate capital to meet ongoing obligations to policyholders and claimants and to fund operating expenses. In addition, we attempt to maintain adequate levels of liquidity and surplus to manage any differences between the duration of our liabilities and invested assets. In the insurance industry, cash collected for premiums from policies written is invested, interest and dividends are earned thereon, and loss and loss adjustment expenses are paid out over a period of years. This period of time varies by the circumstances surrounding each claim. A substantial portion of our losses and loss expenses are fully settled and paid within 90 days of the claim receipt date. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses.

We believe that we maintain sufficient liquidity to pay our insurance subsidiary’s claims and expenses, as well as satisfy commitments in the event of unforeseen events such as reinsurer insolvencies, inadequate premium rates, or reserve deficiencies. We maintain a comprehensive reinsurance program at levels management considers adequate to diversify risk and safeguard our financial position.

In the future, we anticipate our primary use of funds will be to pay claims and operating expenses.

Common Stock

On April 19, 2012, we entered into an underwriting agreement (the “Underwriting Agreement”) pursuant to which we agreed to sell 1,600,000 shares of the Company’s common stock, no par value per share (the “Common Stock”), for $11.75 per share, less a 6.0% underwriting commission. Under the terms of the Underwriting Agreement, we granted the underwriter an option to purchase up to an additional 240,000 shares of Common Stock at the public offering price, less a 6.0% underwriting commission, within 45 days from the date of the Underwriting Agreement to cover over-allotments, if any. The offering was made pursuant to our effective registration statement on Form S-3, as amended (Registration Statement No. 333-180322), and the Prospectus Supplement dated April 19, 2012. On April 23, 2012, the underwriter elected to fully exercise its overallotment option. The closing of the sale of an aggregate of 1,840,000 shares of Common Stock occurred on April 25, 2012. The offering resulted in aggregate gross proceeds to the Company of approximately $21.6 million and net proceeds of approximately $20.1 million after underwriting commissions and offering expenses.

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Preferred Stock

On March 25, 2011, we closed our preferred stock offering under which a total of 1,247,700 shares of our Series A cumulative convertible preferred stock (“Series A Preferred”) were sold for gross proceeds of approximately $12.5 million and net proceeds after offering costs of approximately $11.3 million. Dividends on the Series A Preferred are cumulative from the date of original issue and accrue on the last day of each month, at an annual rate of 7.0% of the $10.00 liquidation preference per share, equivalent to a fixed annual amount of $0.70 per share. Accrued but unpaid dividends accumulate and earn additional dividends at 7.0%, compounded monthly.

Shareholders of Series A Preferred may convert all or any portion of their shares, at their option, at any time, into shares of the Company’s common stock at an initial conversion rate of one share of common stock for each share of Series A Preferred, which is equivalent to an initial conversion price of $10.00 per share; provided, however, that we may terminate this conversion right on or after March 31, 2014, if for at least twenty trading days within any period of thirty consecutive trading days, the market price of our common stock exceeds the conversion price of the Series A Preferred by more than 20% and our common stock is then traded on the New York Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or the NYSE Amex. Under certain circumstances, we will be required to adjust the conversion rate. The initial conversion price of $10.00 per share is subject to proportionate adjustment in the event of stock splits, reverse stock splits, stock dividends, or similar changes with respect to our common stock. During the six months ended June 30, 2012, holders of 655,376 shares of Series A Preferred converted their Series A Preferred shares to 655,376 shares of common stock. As of June 30, 2012, 592,324 shares of Series A Preferred remain outstanding. Shareholders of record of our Series A Preferred at the close of business on a date for determining shareholders entitled to dividends will be entitled to receive the dividends payable on their Series A Preferred shares on the corresponding dividend payment date notwithstanding the conversion of such Series A Preferred shares before the dividend payment date. The Series A Preferred terms include a provision requiring such shareholders to pay an amount equal to the amount of the dividend payable. That requirement has been permanently waived by the Company.

The Series A Preferred is not redeemable prior to March 31, 2014. If the Company issues a conversion cancellation notice, the Series A Preferred will be redeemable on or after March 31, 2014 for cash, at our option, in whole or in part, at $10.00 per share, plus accrued and unpaid dividends to the redemption date. Otherwise, the Series A Preferred will be redeemable for cash, at our option, in whole or in part, at a redemption price equal to $10.40 per share for redemptions on or after March 31, 2014; $10.20 per share for redemptions on or after March 31, 2015; and $10.00 per share for redemptions on or after March 31, 2016 plus accrued and unpaid dividends to the redemption date.

The Series A Preferred shares have no stated maturity and are not subject to any sinking fund or mandatory redemption requirements.

Holders of the Series A Preferred shares generally have no voting rights, except under limited circumstances, and holders are entitled to receive cumulative preferential dividends when and as declared by our Board of Directors.

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Cash Flows

Our cash flows from operating, investing and financing activities for the six months ended June 30, 2012 and 2011 are summarized below.

Cash Flows for the Six months ended June 30, 2012

Net cash provided by operating activities for the six months ended June 30, 2012 was approximately $24.0 million, which consisted primarily of cash received from net written premiums less cash disbursed for operating expenses and losses and loss adjustment expenses. Net cash used in investing activities of $12.0 million was primarily due to our business acquisition completed in April 2012 of $8.2 million, the purchases of available-for-sale securities of $11.5 million, purchases of other investments of approximately $1.0 million, and the purchase of $0.5 million in property and equipment offset by redemptions of time deposits of $5.2 million, the proceeds from sales of available-for-sale securities of $3.9 million. Net cash provided by financing activities totaled $18.7 million, which was primarily due to $20.1 million from the issuance of common stock and $1.4 million from the exercise of common stock warrants offset by $3.2 million in cash dividends paid.

Cash Flows for the Six months ended June 30, 2011

Net cash provided by operating activities for the six months ended June 30, 2011 was approximately $22.9 million, which consisted primarily of cash received from net written premiums less cash disbursed for operating expenses and losses and loss adjustment expenses. Net cash used in investing activities of $6.0 million was primarily due to our business acquisition completed in April 2011. Net cash provided by financing activities totaled $8.5 million, which was primarily due to $11.3 million from the issuance of preferred stock offset by $1.4 million in cash dividends paid and $1.9 million used to repurchase our common shares.

Investments

The main objective of our investment policy is to maximize our after-tax investment income with a minimum of risk given the current financial market. Our excess cash is invested primarily in money market accounts, time deposits (i.e. CDs maturing in more than twelve months), and available-for-sale investments.

At June 30, 2012, we have $40.1 million of available-for-sale investments, which are carried at fair value. Changes in the general interest rate environment affect the returns available on new fixed-maturity investments. While a rising interest rate environment enhances the returns available on new investments, it reduces the market value of existing fixed-maturity investments and thus the availability of gains on disposition. A decline in interest rates reduces the returns available on new fixed-maturity investments but increases the market value of existing fixed-maturity investments, creating the opportunity for realized investment gains on disposition.

With the exception of large national banks, it is our current policy not to maintain cash deposits of more than an aggregate of $5.5 million in any one bank at any time. From time to time, we may have in excess of $5.5 million of cash designated for investment and on deposit at a single national brokerage firm. In the future, we may alter our investment policy to include or increase investments in federal, state and municipal obligations, preferred and common equity securities and real estate mortgages, as permitted by applicable law, including insurance regulations.

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OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2012 and December 31, 2011, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

CONTRACTUAL OBLIGATIONS

As a smaller reporting company as defined by Rule 229.10(f)(1) of the Exchange Act, we are not required to provide the information under this item.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have prepared our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments to develop amounts reflected and disclosed in our financial statements. Material estimates that are particularly susceptible to significant change in the near term are related to our losses and loss adjustment expenses (“Reserves”), which include amounts estimated for claims incurred but not yet reported. Reserves are determined by establishing liabilities in amounts estimated to cover incurred losses and loss adjustment expenses. Such Reserves are determined based on our assessment of claims reported and the development of pending claims. These Reserves are based on individual case estimates for the reported losses and loss adjustment expenses and estimates of such amounts that are incurred but not reported (“IBNR”). Changes in the estimated liability are charged or credited to operations as the losses and loss adjustment expenses are adjusted.

The IBNR reserves represent our estimate of the ultimate cost of all claims that have occurred but have not been reported to us and, in some cases, may not yet be known to the insured. Estimating the IBNR component of our Reserves involves considerable judgment on the part of management. At June 30, 2012, $17.3 million of the total $37.3 million we have reserved for losses and loss adjustment expenses is specific to our estimate of claims incurred but not reported. The remaining $20.0 million relates to known cases which have been reported but not yet fully settled in which case we have booked a reserve based on our best estimate of the ultimate cost of each claim. At June 30, 2012, $8.7 million of the $20.0 million in reserves for known cases relates to claims incurred during prior years.

Based on all information known to us, we believe our Reserves at June 30, 2012 are adequate to cover our claims for losses that had occurred as of that date including losses yet to be reported. However, these estimates are subject to trends in claim severity and frequency and must continually be reviewed by management. As part of the process, we review historical data and consider various factors, including known and anticipated regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the existing unpaid losses and loss adjustment expenses. Adjustments are reflected in the results of operations in the period in which they are made and the liabilities may deviate substantially from prior estimates.

In addition to Reserves, we believe our accounting policies specific to premium revenue recognition, losses and loss adjustment expenses, reinsurance, deferred policy acquisition costs, income taxes, and stock-based compensation expense involve our most significant judgments and estimates material to our consolidated financial statements. These accounting estimates and related risks that we consider to be our critical accounting estimates are more fully described in our Annual

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Report on Form 10-K, which we filed with the SEC on March 30, 2012. For the six months ended June 30, 2012, there have been no material changes with respect to any of our critical accounting policies.

RECENT ACCOUNTING PRONOUNCEMENTS

For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 2 to our Notes to Condensed Consolidated Financial Statements.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company as defined by Rule 229.10(f)(1) of the Exchange Act, we are not required to provide the information under this item.

ITEM 4 – CONTROLS AND PROCEDURES

Under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial officer), we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

There have been no changes in our internal controls over financial reporting during the quarter ended June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

The Company is a party to claims and legal actions arising routinely in the ordinary course of our business. Although we cannot predict with certainty the ultimate resolution of the claims and lawsuits asserted against us, we do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

ITEM 1a – RISK FACTORS

There have been no material changes from the risk factors previously disclosed in the section entitled “Risk Factors” in our Form 10-K, which was filed with the Securities and Exchange Commission on March  30, 2012.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds

None.

(c) Repurchases of Securities

None.

Working Capital Restrictions and Other Limitations on Payment of Dividends

We are not subject to working capital restrictions or other limitations on the payment of dividends. Our insurance subsidiary, however, is subject to restrictions on the dividends it may pay to our parent corporation, Homeowners Choice, Inc. Those restrictions could impact our ability to pay dividends if our Board of Directors determines to do so.

Under Florida law, a domestic insurer such as our insurance subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., may not pay any dividend or distribute cash or other property to its stockholder except out of that part of its available and accumulated capital and surplus funds which is derived from realized net operating profits on its business and net realized capital gains. Additionally, Florida statutes preclude our insurance subsidiary from making dividend payments or distributions to its stockholder, Homeowners Choice, Inc., without prior approval of the Florida Office of Insurance Regulation if the dividend or distribution would exceed the larger of (1) the lesser of (a) 10.0% of its capital surplus or (b) net income, not including realized capital gains, plus a two year carry forward, (2) 10.0% of capital surplus with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains or (3) the lesser of (a) 10.0% of capital surplus or (b) net investment income plus a three year carry forward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains.

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ITEM 6 – EXHIBITS

The following documents are filed as part of this report:

EXHIBIT NUMBER	DESCRIPTION
3.1	Articles of Incorporation, with amendments. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 29, 2011.
3.2	Bylaws as amended April 16, 2009. Incorporated by reference to the correspondingly numbered exhibit to our Current Report on Form 8-K filed April 23, 2009.
4.1	Form of Common Stock Certificate. Incorporated by reference to the correspondingly numbered exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 (File No. 333-150513) filed August 6, 2008.
4.2	Warrant Agreement dated July 30, 2008 between Homeowners Choice, Inc. and American Stock Transfer & Trust Company. Incorporated by reference to the correspondingly numbered exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 (File No. 333-150513) filed August 6, 2008.
4.3	Form of Warrant Certificate. Incorporated by reference to the correspondingly numbered exhibit Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 (File No. 333-150513) filed August 6, 2008.
4.4	Warrant Agreement dated July 30, 2008 between Homeowners Choice, Inc. and Anderson & Strudwick, Incorporated. Incorporated by reference to the correspondingly numbered exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 (File No. 333-150513) filed August 6, 2008.
4.5	Form of Warrant Certificate issued to Anderson & Strudwick. Incorporated. Incorporated by reference to the correspondingly numbered exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 (File No. 333-150513) filed August 6, 2008.
4.6	Form of Unit Certificate. Incorporated by reference to the correspondingly numbered exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 (File No. 333-150513) filed August 6, 2008.

4.7	Warrant Agreement dated July 30, 2008, between Homeowners Choice, Inc. and GunnAllen Financial, Inc. Incorporated by reference to the correspondingly numbered exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 (File No. 333-150513) filed August 6, 2008.
4.8	Letter Agreement dated August 1, 2008 among Homeowners Choice, Inc., Anderson & Strudwick, Incorporated and GunnAllen Financial, Inc., whereby we waive certain cancellation rights under warrants issued to the other parties. Incorporated by reference to the correspondingly numbered exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 (File No. 333-150513) filed August 6, 2008.
4.9	See Exhibits 3.1 and 3.2 of this report for provisions of the Articles of Incorporation, as amended, and our Bylaws, as amended, defining certain rights of security holders. See also Exhibits 10.5, 10.6 and 10.7 defining certain rights of the recipients of stock options and other equity-based awards.
4.10	Specimen 7% Series A Cumulative Preferred Stock Certificate Incorporated by reference to Exhibit 4.2 to Form 8-A filed March 25, 2011.
4.11	Warrant Agreement dated November 2, 2011 between Homeowners Choice, Inc. and Glencoe Acquisition , Inc. as to the issuance of 1,000,000 warrants.
10.1	Excess of Loss Retrocession Contract issued to Claddaugh Casualty Insurance Company, Ltd. Incorporated by reference to Exhibit 10.1 to Form 8-K Filed August 13, 2012.
10.2	Executive Agreement dated May 1, 2007 between Homeowners Choice, Inc. and Richard R. Allen. Incorporated by reference to the correspondingly numbered exhibit to our Registration Statement on Form S-1 (File No. 333-150513), originally filed April 30, 2008, effective July 24, 2008, as amended.
10.3	Placement Agreement dated March 25, 20111 between Homeowners Choice, Inc. and Anderson & Strudwick, Incorporated. Incorporated by reference to exhibit 1.1 to our Form 8-K filed March 31, 2011.
10.4	Executive Employment Agreement dated July 1, 2011 between Homeowners Choice, Inc. and Paresh Patel. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 12, 2011.
10.5	Homeowners Choice, Inc. 2012 Omnibus Incentive Plan. Incorporated by reference to Appendix A to our Definitive Proxy Statement on Schedule 14A filed April 27, 2012

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10.6	Homeowners Choice, Inc. 2007 Stock Option and Incentive Plan. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 29, 2008.
10.7	Form of Incentive Stock Option Agreement. Incorporated by reference to the correspondingly numbered exhibit to our Registration Statement on Form S-1 (File No. 333-150513), originally filed April 30, 2008, effective July 24, 2008, as amended.
10.10	PR-M Non-Bonus Assumption Agreement dated December 1, 2007 by and between Homeowners Choice Property & Casualty Insurance Company, Inc. and Citizens Property Insurance Corporation. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 30, 2010.
10.11	Reinstatement Premium Protection Agreement effective June 1, 2012 by Homeowners Choice Property and Casualty Insurance Company, Inc. and Subscribing Reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
10.12	Excess Catastrophe Reinsurance Contract effective June 1, 2012 by Homeowners Choice Property and Casualty Insurance Company, Inc. and Subscribing Reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
10.13	Excess Catastrophe Reinsurance Contract effective June 1, 2012 by Homeowners Choice Property and Casualty Insurance Company, Inc. and Subscribing Reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
10.14	Reinstatement Premium Protection Agreement effective June 1, 2012 by Homeowners Choice Property and Casualty Insurance Company, Inc. and Subscribing Reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
10.15	Aggregate Excess Catastrophe Reinsurance Agreement dated June 1, 2012 by Homeowners Choice Property and Casualty Insurance Company, Inc. and Subscribing Reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

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10.16	Aggregate Excess Catastrophe Reinsurance Agreement dated June 1, 2012 by Homeowners Choice Property & Casualty Insurance Company, Inc. and Subscribing Reinsurers (Layer B). Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
10.17	Form of indemnification agreement for our officers and directors. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 12, 2009.
10.18	Lease Agreement dated April 8, 2008 between 2340 Drew St, LLC and Homeowners Choice, Inc. Incorporated by reference to the correspondingly numbered exhibit to our Registration Statement on Form S-1 (File No. 333-150513), originally filed April 30, 2008, effective July 24, 2008, as amended.
10.19	Reimbursement Contract effective June 1, 2012 between Homeowners Choice Property and Casualty Insurance Company and the State Board of Administration which administers the Florida Hurricane Catastrophe Fund.
10.20	Per Occurrence Excess Of Loss Reinsurance contract dated June 1, 2012 by Homeowners Choice Property & Casualty Insurance Company, Inc. and subscribing reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
10.22	All other perils reinsurance agreement effective January 1, 2012 through May 31, 2012 by and between Homeowners Choice Property & Casualty Insurance Company, Inc. and various reinsurers. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 30, 2012.
10.23	Retention bonus agreement dated February 16, 2012 between Homeowners Choice, Inc. and Paresh Patel. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 30, 2012.
10.24	Executive Employment Agreement dated March 8, 2012 between Homeowners Choice, Inc. and Scott R. Wallace. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 30, 2012.
10.25	Assumption Agreement dated November 2, 2011 by and between Homeowners Choice Property & Casualty Insurance Company, Inc. and HomeWise Insurance Company. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 30, 2012.
10.26	Commercial Real Estate Contract dated March 9, 2012 among HCI Holdings LLC and Rice Family Holdings, LLLP, John’s Pass Marina, Inc. and Gators on the Pass, Inc. Incorporated by reference to Exhibit 10.26 of our Form 10-Q filed May 14, 2012.
10.27	Restricted Stock Agreement dated April 20, 2012 whereby the Company issued 100,000 shares of restricted common stock to Scott R. Wallace. Incorporated by reference to Exhibit 10.27 of our Form 10-Q filed May 14, 2012.
10.28	Restricted Stock Agreement dated May 8, 2012 whereby the Company issued 30,000 shares of restricted common stock to Richard R. Allen. Incorporated by reference to Exhibit 10.28 of our Form 8-K filed May 10, 2012.
10.29	Restricted Stock Agreement dated May 8, 2012 whereby the Company issued 30,000 shares of restricted common stock to Sanjay Madhu. Incorporated by reference to Exhibit 10.29 of our Form 8-K filed May 10, 2012.
10.30	Restricted Stock Agreement dated May 8, 2012 whereby the Company issued 20,000 shares of restricted common stock to Andrew L. Graham. Incorporated by reference to Exhibit 10.30 of our Form 8-K filed May 10, 2012.
31.1	Certification of the Chief Executive Officer
31.2	Certification of the Chief Financial Officer
32.1	Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C.ss.1350
32.2	Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C.ss.1350

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101.INS	XBRL Instance Document.(1)
101.SCH	XBRL Taxonomy Extension Schema.(1)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase.(1)
101.DEF	XBRL Definition Linkbase.(1)
101.LAB	XBRL Taxonomy Extension Label Linkbase.(1)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase.(1)

(1) Pursuant to Rule 406T of U.S. Securities and Exchange Commission Regulation S-T, the interactive data files on Exhibit 101 of this report are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, who has signed this report on behalf of the Company.

	HOMEOWNERS CHOICE, INC.
August 14, 2012	By	/s/ Paresh Patel
		Paresh Patel
		Chief Executive Officer
		(Principal Executive Officer)
August 14, 2012	By	/s/ Richard R. Allen
		Richard R. Allen
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

A signed original of this document has been provided to Homeowners Choice, Inc. and will be retained by Homeowners Choice, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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EX-4.11

Exhibit 4.11

WARRANT AGREEMENT

THE WARRANTS AND THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF A WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR UNDER THE SECURITIES LAWS OF ANY STATE. NEITHER THE WARRANTS NOR THE SECURITIES THAT MAY BE ACQUIRED UPON THE EXERCISE OF A WARRANT MAY BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAW IS NOT REQUIRED.

HOMEOWNERS CHOICE, INC.

STOCK PURCHASE WARRANTS

TO PURCHASE SHARES OF COMMON STOCK, NO PAR VALUE

This is to certify that, for value received, Glencoe Acquisition, Inc. (the “Holder”), or its successors, is the registered holder of One Million (1,000,000) warrants (“Warrants”), and is entitled, upon the due exercise hereof at any time, during the period commencing on the Commencement Date and terminating at 5:00 p.m., New York City time on the Termination Date (as defined herein) to purchase, per Warrant, one-half (1/2) of a share (a “Warrant Share”) of Common Stock of Homeowners Choice, Inc., a Florida corporation (the “Company”), subject to adjustment as provided herein, at a price per share as specified in Section 2 of this Warrant Agreement and to exercise the other rights, powers and privileges hereinafter provided, all on the terms and subject to the conditions specified herein.

Section 1. Certain Definitions. Unless the context otherwise requires, the following terms as used in this Warrant Agreement shall have the following meanings:

(a) “Commencement Date” shall mean November 2, 2011.

(b) “Common Stock” shall mean the common stock, no par value, of the Company, any security into which such common stock shall have been changed or any security resulting from reclassification of such common stock.

(c) “Company” shall mean Homeowners Choice, Inc., a Florida corporation, and its successors and assigns.

(d) “Exercise Date” shall mean the date on which the Company shall have received from the Holder all deliveries required by Section 3 of this Warrant Agreement.

(e) “Exercise Price” shall mean the price per share of common stock specified in Section 2 hereof, as the same shall be adjusted from time to time pursuant to the provisions of this Warrant Agreement.

(f) “Securities Act” means the Securities Act of 1933, as amended.

(g) “Termination Date” means the earlier to occur of (i) July 31, 2013 and the (ii) the day prior to the date fixed for cancellation of the Warrants as provided in Section 9 of this Warrant Agreement.

(h) “Warrant Agreement” means this Warrant Certificate, including any amendment or replacement hereof.

(i) “Warrants” shall mean the warrants to purchase the number of shares of Common Stock as specified herein.

Section 2. Exercise Price. Subject to the adjustments provided for in this Warrant, the exercise price per share shall be equal to $9.10 per share.

Section 3. Exercise of Warrant.

(a) Subject to the terms of this Warrant Agreement, following the Commencement Date the Warrants shall be exercisable, in the manner described under Section 3(b) below, with respect to all or part of the Warrant Shares, and it shall remain exercisable at any time and from time to time prior to the Termination Date as described herein. Each Warrant not exercised on or before the Termination Date shall become void, and all rights thereunder and in respect thereof under this Agreement shall cease at the close of business on the Termination Date. The Company in its sole discretion may extend the duration of the Warrants by delaying the Termination Date.

(b) The Warrants may be exercised by the Holder delivering to the Company (i) a written notice of exercise signed by the Holder in substantially the form attached hereto as Exhibit A (a “Notice of Exercise”) and which shall specify the number of Warrant Shares as to which the Warrant Agreement is being exercised and be accompanied by this original Warrant Agreement, and (ii) a check or wire transfer payable to the Company in the amount of the total Exercise Price for the Warrant Shares to be purchased pursuant to the Notice of Exercise. To be an effective exercise, the Holder’s Notice of Exercise and payment must be actually received by the Company prior to the time the Warrants terminate as described herein.

Within 10 business days after the exercise of a Warrant as provided in this Section 3(b), the Company shall deliver to the Holder a certificate or certificates for the total Warrant Shares being purchased, in such names and denominations as are requested by the Holder. In the event the Warrants are not exercised in full, the Warrant Shares shall be reduced by the number of Warrant Shares subject to such partial exercise, and the Company, at its expense, shall forthwith issue and deliver to Holder a new original copy of this Warrant Agreement signed by the Company reflecting the adjusted number of Warrants and/or Warrant Shares as to which the Warrants remains exercisable. Holder shall promptly execute a photocopy of such replacement copy and return it to the Company, but such replacement copy shall be deemed to be an original agreement fully executed and delivered by both parties despite any failure by Holder to do so.

Section 4. Warrant Registration. At all times while any of the Warrants remain outstanding and exercisable the Company shall keep and maintain at its principal offices a register in which the ownership and any exchange of the Warrants shall be recorded. The Company shall not at any time, except upon the dissolution, liquidation or winding up of the Company, close such register so as to result in the prevention or delay of the proper exercise of a Warrant.

2

Section 5. Exchange. This Warrant Agreement and the Warrants are exchangeable, upon the surrender of the Warrant Agreement by the Holder at the offices of the Company, for a new warrant agreement or warrants, in such denominations as Holder shall designate at the time of surrender for exchange, of like tenor and date, representing in the aggregate the right to subscribe for and purchase the number of shares which may be subscribed for and purchased hereunder, each of such new warrant agreements to represent the right to subscribe for and purchase not less than 100 shares of Common Stock (except to the extent necessary to reflect the balance of the number of shares purchasable hereunder).

Section 6. Representations and Covenants of Company.

(a) The Company hereby represents to the Holder as follows:

(i) The Company is a corporation duly organized and validly existing and in good standing under the laws of the State of Florida.

(ii) The Company has the corporate power and authority to execute and deliver this Warrant Agreement and to perform the terms hereof, including the issuance of shares of Common Stock issuable upon exercise hereof. The Company has taken all action necessary to authorize the execution, delivery and performance of this Warrant Agreement and the issuance of the Warrants and the shares of Common Stock issuable upon exercise hereof. This Warrant Agreement has been duly authorized and executed by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors’ rights generally.

(b) The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the Warrants will, upon issuance, be fully paid and nonassessable and free from all taxes, liens and charges (other than taxes in respect of any transfer occurring contemporaneously with such issuance).

(c) The Company shall at all times reserve and keep available a number of its authorized but unissued shares of Common Stock sufficient to permit the exercise in full of all outstanding Warrants issued pursuant to this Warrant Agreement.

Section 7. Representations and Covenants of Holder. Holder represents and warrants to the Company as follows:

(a) The Warrants and the securities to be acquired upon exercise or conversion of the Warrants by Holder will be acquired for investment for Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Securities Act. Holder also represents that Holder has not been formed for the specific purpose of acquiring the Warrants or the Warrant Shares.

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(b) Holder is an accredited investor as that term is defined in Rule 501 of Regulation D, promulgated by the Securities and Exchange Commission under the Securities Act, as presently in effect.

(c) Holder understands that the Warrants and the Warrant Shares issuable upon exercise or conversion hereof have not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Holder’s investment intent as expressed herein. Holder understands that the Warrants and the Warrant Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the Securities Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.

Section 8. Adjustments to Exercise Price and Number of Shares Purchasable. The Exercise Price and number of shares of Common Stock which may be purchased pursuant to this Warrant Agreement shall be subject to adjustment from time to time as follows:

(a) In the event the Company shall at any time exchange, as a whole, by subdivision or combination in any manner or by the making of a stock dividend, the number of shares of Common Stock then outstanding into a different number of shares, with or without par value, then thereafter the number of shares of Common Stock which the Holder shall be entitled to purchase pursuant to this Warrant Agreement, shall be increased or decreased, as the case may be, in direct proportion to the increase or decrease in the number of shares of outstanding Common Stock of the Company by reason of such change, and the Exercise Price after such change shall, in the event of an increase in the number of shares of Common Stock outstanding, be proportionately reduced, and, in the event of a decrease in the number of shares of Common Stock outstanding, be proportionately increased.

(b) In the event of any reclassification or change of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision, combination or stock dividend as provided for in Section 8(a)), or in the event of any consolidation of the Company with, or merger of the Company into, another corporation, or in the event of any sale of all or substantially all of the property, assets, business and goodwill of the Company, the Company, or such successor or purchasing corporation, as the case may be, shall provide that the Holder of the Warrants shall thereafter be entitled to purchase, by exercise of the Warrants, the kind and amount of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger or sale by a holder of the number of shares of Common Stock which this Warrant Agreement entitles the Holder to purchase immediately prior to such reclassification, change, consolidation, merger or sale. Any such successor corporation thereafter shall be substituted for the Company for purposes of this Warrant Agreement.

(c) The Company will not, by amendment of its certificate of incorporation or bylaws or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 8 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment.

4

Section 9. Cancellation of Warrants.

(a) The outstanding Warrants may be cancelled in whole or in part at the option of the Company, at any time before the expiration of the Warrants, upon the notice referred to in Section 9(b), provided that the closing price per share of the Common Stock has exceeded $11.38 for at least ten (10) trading days within any period of twenty (20) consecutive trading days, including the last trading day of the period.

(b) In the event that the Company shall elect to cancel all or a portion of the Warrants, the Company shall fix a date for the cancellation. The date of cancellation shall be a date which is more than thirty (30) calendar days, but less than sixty (60) calendar days, after a notice of cancellation is mailed by the Company by first class mail to the Holder in accordance with Section 11. Any notice mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the Holder receives such notice.

(c) The Warrants may be exercised at any time after notice of cancellation has been given by the Company pursuant to Section 9(b) hereof and prior to the close of business on the business day that is one day prior to the date fixed for cancellation. On and after the cancellation date, the Holder shall have no further rights under the Warrants or this Warrant Agreement.

Section 10. Holder’s Rights. Except as otherwise expressly set forth herein, this Warrant Agreement shall not entitle the Holder to any rights of a shareholder of the Company, except that if the Company, during the period in which the Warrants are exercisable, declares a dividend upon the Common Stock payable other than in cash out of earnings or earned surplus (computed in accordance with generally accepted accounting principles) or other than in Common Stock or securities convertible into Common Stock, then the Holder, upon exercise of a Warrant, shall receive the number of shares of Common Stock purchasable upon such exercise and, in addition and without further payment, the stock or other securities or property which the Holder would have received by way of dividends or other distribution if, continuously since the date hereof, such Holder: (a) had been the record holder of the number of shares of Common Stock then being purchased, and (b) had retained all such stock and other securities (other than Common Stock or securities convertible into Common Stock) and/or other property payable in respect of such Common Stock or in respect of any stock or securities paid as dividends and originating directly or indirectly from such Common Stock.

Section 11. Notices. If there shall be any adjustment to the shares, or if securities or property other than shares of Common Stock of the Company shall become purchasable in lieu of shares of Common Stock upon exercise of a Warrant, then the Company shall forthwith cause written notice thereof to be sent to the registered Holder of the Warrants at the address of such Holder shown on the books of the Company, which notice shall be accompanied by an explanation setting forth in reasonable detail the basis for the Holder’s becoming entitled to purchase such shares and the number of shares which may be purchased and the exercise price thereof, or the facts requiring any such adjustment and the exercise price and number of shares purchasable subsequent to such adjustment, or the kind and amount of any such securities or

5

property so purchasable upon the exercise of the Warrants. At the request of the Holder and upon surrender of this Warrant Agreement, the Company shall reissue the Warrants in a form conforming to such adjustments. Failure to give such notice, or any defect therein, shall not affect the legality or validity of such event.

Section 12. No Fractional Shares. Notwithstanding any provision contained in this Warrant Agreement to the contrary, the Company shall not issue fractional shares upon exercise of Warrants and no payment will be made with respect to any fractional share of Common Stock to which the Holder might otherwise be entitled upon exercise of Warrants.

Section 13. Lost, Stolen, Mutilated, or Destroyed Warrants. If this Warrant Agreement shall become lost, stolen, mutilated, or destroyed, the Company shall, on such terms as to indemnity or otherwise as it may in its reasonable discretion impose upon the registered Holder hereof (as shown on the register of Warrants maintained by the Company), issue a new warrant of like denomination, tenor, and date as the Warrant Agreement so lost, stolen, mutilated, or destroyed.

Section 14. Limitation of Liability. No provision hereof, in the absence of affirmative action by the Holder hereof to purchase shares of Common Stock, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of such Holder for the purchase price of the shares or as a shareholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

Section 15. Applicable Law. The laws of the State of Florida shall govern the validity, interpretation, and performance of this Warrant Agreement.

Section 16. Successors and Assigns. This Warrant Agreement, the Warrants and the rights evidenced hereby shall inure to the benefit of and be binding upon any successor of the Company and any transferees of the Warrants, including any creditors of the Holder.

Section 17. Headings. Headings of the paragraphs in this Warrant Agreement are for convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant Agreement.

Section 18. Legend. Neither the Warrants nor the shares issued on exercise hereof have been registered under the Securities Act, or under the securities laws of any state. Each certificate representing Warrant Shares issued upon the exercise of a Warrant, if required by law, shall bear the following legend or such other restrictive legend as shall, in the reasonable opinion of the Company’s legal counsel, be required by applicable law:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR UNDER THE SECURITIES LAWS OF ANY STATE IN RELIANCE ON EXEMPTIONS CONTAINED THEREIN, AND THE SHARES MAY NOT BE SOLD OR TRANSFERRED BY THE HOLDER THEREOF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION, AND COMPLIANCE WITH THE REQUIREMENTS OF APPLICABLE STATE SECURITIES LAWS.”

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IN WITNESS WHEREOF, the Company has caused this Warrant Agreement to be executed this 2nd day of November, 2011, by its duly authorized officers.

HOMEOWNERS CHOICE, INC.
By:
Name:	Paresh Patel
Title:	Chief Executive Officer

EXHIBIT A

[DATE]

Homeowners Choice, Inc.

Re: Exercise of Stock Purchase Warrant for Cash

Dear                     :

The undersigned, pursuant to that certain Stock Purchase Warrant, dated [                    ], by and between Homeowners Choice, Inc. and the undersigned (the “Agreement”), hereby exercises the Warrant granted under the Agreement to purchase for cash the following number of Warrant Shares, subject to the terms and conditions of the Agreement:

Number of Warrant Shares Being Purchased                     

Total Exercise Price and Amount Remitted                     

Very truly yours,

By:

8

EX-10.11

Exhibit 10.11

****** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

EFFECTIVE: JUNE 1, 2012

ISSUED TO

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Including any and all companies that are or may hereafter become affiliated therewith

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

TABLE OF CONTENTS

ARTICLE 1
BUSINESS COVERED	1
ARTICLE 2
TERM	1
ARTICLE 3
CONCURRENCY OF CONDITIONS	2
ARTICLE 4
RATE AND PREMIUM	2
ARTICLE 5
LOSS NOTICES AND SETTLEMENTS	3
ARTICLE 6
ACCESS TO RECORDS	4
ARTICLE 7
AGENCY	4
ARTICLE 8
ARBITRATION	5
ARTICLE 9
COLLATERAL	6
ARTICLE 10
COLLATERAL RELEASE	7
ARTICLE 11
CONFIDENTIALITY	7
ARTICLE 12
CURRENCY	8
ARTICLE 13
ENTIRE AGREEMENT	9
ARTICLE 14
ERRORS AND OMISSIONS	9
ARTICLE 15
FEDERAL EXCISE TAX	9
ARTICLE 16
GOVERNING LAW	9
ARTICLE 17
INSOLVENCY	10

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ARTICLE 18
LATE PAYMENTS	11
ARTICLE 19
LIMITED RECOURSE AND BERMUDA REGULATIONS	12
ARTICLE 20
NON-WAIVER	13
ARTICLE 21
NOTICES AND AGREEMENT EXECUTION	14
ARTICLE 22
OFFSET	14
ARTICLE 23
SERVICE OF SUIT	15
ARTICLE 24
SEVERABILITY	16
ARTICLE 25
TAXES	16
ARTICLE 26
INTERMEDIARY	16

ATTACHMENTS

Trust Agreement

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REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(hereinafter called the “Contract”)

EFFECTIVE: JUNE 1, 2012

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Including any and/or all companies that are or may hereafter become affiliated therewith

(hereinafter called the “Reinsured”)

by

THE SUBSCRIBING REINSURER(S) SPECIFIED IN THE INTERESTS AND LIABLITIES AGREEMENT ATTACHED TO THIS CONTRACT

(hereinafter called, with other participants, the “Reinsurer(s)”)

ARTICLE 1

BUSINESS COVERED

By this Contract the Reinsurer agrees to indemnity the Reinsured for 100% of any net reinstatement premium which the Reinsured pays or becomes liable to pay under the provisions of the second excess layer of the Reinsured’s Catastrophe Excess of Loss Reinsurance Contract, effective June 1, 2012 (hereinafter referred to as the “Original Contract”), subject to the terms, conditions and limitations hereinafter set forth.

ARTICLE 2

TERM

1. This Contract shall become effective at 12:01 a.m., Local Standard Time, June 1, 2012, with respect to reinstatement premium payable by the Reinsured under the provisions of the Original Contract, and shall remain in force until 12:01 a.m., Local Standard Time, June 1, 2013. “Local Standard Time” as used herein shall mean local standard time at the location where the Loss Occurrence commences.

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2. Notwithstanding the provisions of paragraph (1) above, the Reinsured may reduce or terminate a Reinsurer’s percentage share in this Contract at any time by giving written notice to the Reinsurer in the event any of the following circumstances occur. The effective date of reduction or termination shall be the date selected by the Reinsured, which may be a date that is retroactively applied to the date of public announcement for subparagraph (a) below or upon discovery for subparagraph (b) below, subject to the condition that such selected date must be the last day of a calendar month.

a. A State Insurance Department or other legal authority has ordered the Reinsurer to cease writing business; or

b. The Reinsurer has reinsured its entire liability under this Contract without the Reinsured’s prior written consent, except that this provision shall not apply to any intercompany reinsurance or intercompany pooling arrangements entered into by the Reinsurer.

ARTICLE 3

CONCURRENCY OF CONDITIONS

1. It is agreed that this Contract will follow those terms, conditions, exclusions, definitions, warranties and settlements of the Reinsured under the Original Contract, including any addenda thereto, which are not inconsistent with the provisions of this Contract.

2. The Reinsured shall advise the Reinsurer of any material changes in the Original Contract which may affect the liability of the Reinsurer under this Contract.

ARTICLE 4

RATE AND PREMIUM

1. As premium for the reinsurance coverage provided by this Contract, the Reinsured shall pay the Reinsurer the greater of the following:

a. ***% of $******* (minimum premium); or

b. The product of the following:

i. *******; times

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ii. The Final Adjusted Rate on Line for the second excess layer under the Original Contract; times

iii. ****% of an amount equal to the final adjusted premium paid by the Reinsured for the second excess layer under the Original Contract.

“Final Adjusted Rate on Line” as used herein shall mean an amount equal to the final adjusted premium paid by the Reinsured for the second excess layer under the Original Contract divided by the “Reinsurer’s Per Occurrence Limit” for the second excess layer.

2. The Reinsured shall pay the Reinsurer a deposit premium of $******** on June 1, 2012 and the Adjusted Deposit Installment, defined in paragraph (3) below, on January 1, 2013. No deposit premium shall be due to a Reinsurer hereunder until that Reinsurer has executed its Interests and Liabilities Agreement attached to and forming part of this Contract. Further, if this Contract is terminated, no deposit premium installments shall be due after the effective date of termination.

3. “Adjusted Deposit Installment” as used herein shall mean:

a. The premium due hereunder, computed in accordance with paragraph (1) above; less

b. $*********.

4. On or before January 1, 2013, the Reinsured shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with paragraph (1) above, and any amount due either party shall be remitted promptly.

5. “Contract Quarter” as used herein shall mean the period from June 1, 2012 through August 31, 2012, both days inclusive, and each respective three-month period (or portion thereof) thereafter during the term of this Contract.

ARTICLE 5

LOSS NOTICES AND SETTLEMENTS

1. Whenever reinstatement premium settlements are made by the Reinsured under the second excess layer of the Original Contract, the Reinsured shall notify the Reinsurer.

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2. All reinstatement premium settlements made by the Reinsured under the Original Contract, provided they are within the terms of the Original Contract and within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid (or schedules to be paid within 14 days) by the Reinsured.

3. As promptly as possible after the end of each Contract Quarter, the Reinsured shall report to the Reinsurer its reinstatement premiums paid during the Contract Quarter and its outstanding loss reserves (being the sum of all reinstatement premiums paid by the Reinsured under the Original Contract but not yet recovered from the Reinsurer, plus the Reinsured’s reserves for reinstatement premiums due under the Original Contract, if any) as of the end of the Contract Quarter on any reinstatement premiums reported to the Reinsurer in accordance with paragraph (1) above. This paragraph shall not apply to any Contract Quarter in which there were no loss payments subject to this Contract.

ARTICLE 6

ACCESS TO RECORDS

The Reinsurer or its designated representatives shall have access to the books and records of the Reinsured on matters relating to this reinsurance at all reasonable times, and at the location where such books and records are maintained in the ordinary course of business, for the purpose of obtaining information concerning this Contract or the subject matter thereof. Notification of a request for inspection of records shall be sent to the Reinsured by the Reinsurer in written form, and shall normally be given four weeks in advance. Notwithstanding the above, the Reinsurer shall not have any right of access to the records of the Reinsured if it is not current in all undisputed payments due the Reinsured.

ARTICLE 7

AGENCY

If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party.

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ARTICLE 8

ARBITRATION

1. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Reinsured, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Underwriters at Lloyd’s. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, the two Arbiters shall request the American Arbitration Association to appoint the Umpire. If the American Arbitration Association fails to appoint the Umpire within 30 days after it has been requested to do so, either party may request a justice of a Court of general jurisdiction of the state in which the arbitration is to be held to appoint the Umpire.

2. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

3. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Reinsured to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

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4. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

5. Any arbitration proceedings shall take place in Tampa, Florida; however, the location may be changed if mutually agreed upon by the parties of this Contract. Notwithstanding the location of arbitration, all proceedings pursuant hereto shall be governed by the law of the State of Florida.

ARTICLE 9

COLLATERAL

1. As promptly as possible following execution of this Contract, the Reinsurer (as Grantor) shall enter into a Trust Agreement (the “Trust Agreement”) with the Reinsured (as Beneficiary) and the trustee, pursuant to which the Reinsurer shall provide collateral in the form of eligible Assets deposited and held in a Trust Account, with such Assets having a market value greater than or equal to $8,613,000 (the “Collateral”) less earned premium (net of brokerage and applicable Federal Excise Tax). It is understood that deposit premium paid in accordance with the Rate and Premium Article shall be deposited into the Trust Account.

2. The Reinsured agrees that if the Reinsurer makes payment(s) to the Reinsured under this Contract, the Reinsurer may withdraw Assets from the Trust Account, reducing the market value of Assets in the Trust Account to an amount at least equal to the unused Reinsurance Limit, in accordance with the provisions of the Trust Agreement.

3. The Trust Fund may be drawn upon by the Reinsured at any time and the Assets may be used at the Reinsured’s option in accordance with the provisions of Section 5 of the Trust Agreement.

4. At any time prior to expiration or termination of this Contract, if the value of the Assets in the Trust Account are less than the Reinsurer’s Obligations hereunder, the Reinsurer shall promptly deposit the difference into the Trust Account.

5. Except as provided in the Collateral Release Article, the Reinsured agrees to release the Assets in the Trust Account required under this Article as promptly as provided in the Trust Agreement.

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ARTICLE 10

COLLATERAL RELEASE

1. At the expiration or termination of this Contract, if the Trust has not yet been terminated, the Reinsured shall calculate on a monthly basis, how much, if any, of the collateral shall be released from the Trust.

2. Notwithstanding the aforementioned, at December 31, 2012, the parties agree to consider the release of collateral. The intention is to release collateral for all limits for which there is essentially no possibility of reinstatement premium protection from past or future events before the expiration of this Contract. All collateral securing what the parties agree are unreachable limits will be released within three business days.

ARTICLE 11

CONFIDENTIALITY

1. The Reinsurer hereby acknowledges that the terms and conditions of this Contract, any materials provided in the course of audit or inspection and any documents, information and data provided to it by the Reinsured, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (hereinafter referred to as “confidential information”) are proprietary and confidential to the Reinsured. Confidential information shall not include documents, information or data that the Reinsurer can show:

a. Are publicly available or have become publicly available through no unauthorized act of the Reinsurer;

b. Have been rightfully received from a third person without obligation of confidentiality; or

c. Were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

2. Absent the written consent of the Reinsured, the Reinsurer shall not disclose any confidential information to any third parties, including any affiliated companies, except:

a. When required by retrocessionaires subject to the business ceded to this Contract;

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b. When required by regulators performing an audit of the Reinsurer’s records and/or financial condition;

c. When required by external auditors performing an audit of the Reinsurer’s records in the normal course of business; or

d. When required by attorneys or arbitrators in connection with an actual or potential dispute hereunder.

Further, the Reinsurer agrees not to use any confidential information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

3. Notwithstanding the above, in the event the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the confidential information, the Reinsurer agrees to provide the Reinsured with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Reinsured in maintaining the confidentiality provided for in this Article.

4. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 12

CURRENCY

1. Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

2. Amounts paid or received by the Reinsured in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Reinsured.

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ARTICLE 13

ENTIRE AGREEMENT

1. This Contract and any related trust agreement, Letter of Credit and/or special acceptance, shall constitute the entire agreement between the parties hereto with respect to the business being reinsured hereunder, and there are no understandings between the parties hereto other than as expressed in this Contract.

2. Any change or modification to this Contract shall be null and void unless made by an addendum and signed by the parties hereto.

ARTICLE 14

ERRORS AND OMISSIONS

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

ARTICLE 15

FEDERAL EXCISE TAX

1. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

2. In the event of any return of premium becoming due hereunder, the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Reinsured or its agent should take steps to recover the tax from the United States Government.

ARTICLE 16

GOVERNING LAW

This Contract shall be governed as to performance, administration and interpretation in accordance with the laws of the State of Florida, exclusive of the rules with respect to conflicts of law; however, with respect to credit for reinsurance, the applicable rules of all states shall apply.

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ARTICLE 17

INSOLVENCY

1. If more than one reinsured company is included within the definition of “Reinsured” hereunder, this Article shall apply individually to each such company.

2. In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the Reinsured or to its liquidator, receiver, conservator or statutory successor, with reasonable provision for verification, on the basis of the liability of the Reinsured or on the basis of claims files and allowed in the liquidation proceeding, whichever may be required by applicable stature, without diminution because of the insolvency of the Reinsured or because the liquidator, receiver, conservator or statutory successor of the Reinsured has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Reinsured shall give written notice to the Reinsurer of the pendency of a claim against the Reinsured indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Reinsured or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Reinsured as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Reinsured solely as a result of the defense undertaken by the Reinsurer.

3. Where two or more Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Reinsured.

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4. It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Reinsured or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee or other party as more specifically limited by any statute or regulation applicable hereto, of such reinsurance in the event of the insolvency of the Reinsured or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such Policy obligations of the Reinsured as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Reinsured to such payees. However, the exceptions provided in (1) and (2) above shall apply only to the extent that applicable statutes or regulations specifically permit such exceptions.

ARTICLE 18

LATE PAYMENTS

1. The interest penalties provided for in this Article shall apply to the Reinsurer or to the Reinsured in the following circumstances:

a. Payments due from the Reinsurer to the Reinsured shall have as a due date the date on which the agreed proof of loss is received by the Reinsurer, and shall be overdue 30 days thereafter. Payment to the Intermediary is deemed to be payment to the Reinsured for purposes of this Article.

b. Payments due from the Reinsured to the Reinsurer shall have as a due date the date specified in this Contract. Payments shall be overdue 30 days thereafter. Premium adjustments shall be overdue 30 days following the due date set forth under the terms of this Contract.

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c. The Reinsured shall provide a copy of the original insured’s proof of loss, and a copy of the claim adjuster’s report(s) or other evidence of indemnification for losses exceeding the excess limit on an incurred basis. If, subsequent to receipt of this evidence, the information contained therein is insufficient or not in accordance with the contractual conditions, then the payment due date as defined in subparagraph (a) shall be deemed to be the date upon which the Reinsurer received additional information necessary to approve payment of the claim or the claim is presented in an acceptable manner. Interest as stipulated in subparagraph (d) shall be payable should a disputed claim be ultimately settled and if the period set out in subparagraph (a) is exceeded, but only to the extent that the final loss payment exactly tracks with the original proof of loss.

d. Overdue amounts shall bear simple interest from the overdue date at the 90-day United States Treasury Bill rate set forth by the Federal Reserve Board for the first Monday of the calendar month in which the amount becomes overdue, as published in the Federal Reserve Statistical Release. If the interest generated for 100% in respect of any overdue payment as outlined in subparagraph (a) or (b) is $500 or less, then the interest penalty shall be waived.

e. For the purposes of this Article, reinsuring Underwriters at Lloyd’s shall be viewed as one entity. The provisions set forth herein shall not be applicable until the creditor party shall have manifested to the debtor party its intent to invoke the terms of this Article.

ARTICLE 19

LIMITED RECOURSE AND BERMUDA REGULATIONS

1. The Reinsured understands and accepts that the Segregated Accounts set forth in the Reinsurer’s Interests and Liabilities Agreement attached to this Contract (for purposes of this Article, individually the “Segregated Account” and collectively the “Segregated Accounts”), and that all corporate matters relating to the creation of the Segregated Accounts, including, but not limited to, capacity of each Segregated Account, the segregated nature of the Segregated Accounts and Aeolus Re Ltd., and the operation and liquidation of the Segregated Accounts shall be governed by, and construed in accordance with, the laws of Bermuda. The Reinsured has had the opportunity to take advice and to obtain all such additional information that it considers necessary to evaluate the terms, conditions and risks of entering into this Contract with Aeolus Re Ltd., on behalf of its Segregated Accounts.

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2. Notwithstanding any other provision of this Contract to the contrary, the liability of each Segregated Account for the performance and discharge of all of its obligations, however they may arise, in relation to this Contract (together the “SA Obligations”) shall be limited to and payable solely from the assets linked to the Segregated Account. Accordingly there shall be no recourse to any other assets of Aeolus Re Ltd. (including for the avoidance of doubt, any assets linked to any other segregated account of Aeolus Re Ltd. or to its general account). In the event that the assets linked to the Segregated Accounts are insufficient to meet all SA Obligations, any SA Obligations remaining after the application of such assets linked to the Segregated Accounts shall be extinguished, and the Reinsured undertakes in such circumstances to take no further action against the Segregated Accounts, Aeolus Re Ltd. or any other segregated accounts of Aeolus Re Ltd. in respect of any such Obligations. In particular, neither the Reinsured nor any party acting on its behalf shall petition or take any steps for the winding up or receivership of any of the Segregated Accounts, Aeolus Re Ltd. or any other segregated accounts of Aeolus Re Ltd.

3. The Reinsured also understands and accepts that two of the Reinsurers as set forth on the Reinsurer’s Interests and Liabilities Agreement are Aeolus Re J12 SPI Ltd. and Pendulum Re II Ltd. (for purposes of this Article, each referred to as an “SPI Reinsurer”). Notwithstanding any other provision of this Contract to the contrary, the liability of each SPI Reinsurer for the performance and discharge of all of its obligations, however they may arise, in relation to this Contract (together the “SPI Obligation”) shall be limited to and payable solely from the assets of each SPI Reinsurer. In the event that the assets available to each SPI Reinsurer are insufficient to meet all the SPI Obligations, any SPI Obligations remaining after the application of such assets available to each SPI Reinsurer shall be extinguished, and the Reinsured undertakes in such circumstances to take no further action against each SPI Reinsurer in respect of any such SPI Obligations. In particular, neither the Reinsured nor any party acting on its behalf shall petition or take any steps for the winding up or receivership of each SPI Reinsurer.

ARTICLE 20

NON-WAIVER

The failure of the Reinsured or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights or remedies contained herein nor stop either party from thereafter demanding full and complete compliance nor prevent either party from exercising such rights or remedies in the future.

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ARTICLE 21

NOTICES AND AGREEMENT EXECUTION

1. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable.

2. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

a. Paper documents with an original ink signature;

b. Facsimile or electronic copies of paper documents showing an original ink signature; and/or

c. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms “electronic record,” “electronic signature” and “electronic agent” shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto.

3. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

ARTICLE 22

OFFSET

The Reinsured and the Reinsurer, each at its option, may offset any balance or balances, whether on account of premiums, claims and losses, Loss Adjustment Expenses or salvages due from one party to the other under this Contract or under any other reinsurance agreement heretofore or hereafter entered into between the Reinsured and the Reinsurer, whether acting as assuming reinsurer or as ceding company; provided, however, that in the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with applicable statutes and regulations.

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ARTICLE 23

SERVICE OF SUIT

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory, or District of the United States where authorization is required by insurance regulatory authorities.)

1. This Article will not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

2. In the event the Reinsurer fails to pay any amount claimed to be due hereunder or fails to otherwise perform its obligations hereunder, the Reinsurer, at the request of the Reinsured, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is accepted by the Reinsurer or is determined by removal, transfer or otherwise, as provided for above, will comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against any of the Reinsurers upon this Contract, will abide by the final decision of such court or of any Appellate Court in the event of an appeal.

3. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his or her successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Reinsured or any beneficiary hereunder arising out of this Contract.

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ARTICLE 24

SEVERABILITY

If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

ARTICLE 25

TAXES

In consideration of the terms under which this Contract is issued, the Reinsured will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

ARTICLE 26

INTERMEDIARY

Advocate Reinsurance Partners, LLC is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including, but not limited to, notices, statements, premium, return premium, commissions, taxes, losses, Loss Adjustment Expense, salvages and loss settlements) relating thereto shall be transmitted to the Reinsured or the Reinsurer through Advocate Reinsurance Partners, LLC, 2501 North Harwood Street, Suite 1250, Dallas, TX 75201. Payments by the Reinsured to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Reinsured only to the extent that such payments are actually received by the Reinsured.

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TRUST AGREEMENT

(a copy to be included)

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EX-10.12

Exhibit 10.12

****** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission

CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE: JUNE 1, 2012

ISSUED TO

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Including any and all companies that are or may hereafter become affiliated therewith

CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS

ARTICLE 1
BUSINESS COVERED	1
ARTICLE 2
TERM	1
ARTICLE 3
EXCLUSIONS	2
ARTICLE 4
RETENTION AND LIMIT	4
ARTICLE 5
REINSTATEMENT	5
ARTICLE 6
FLORIDA HURRICANE CATASTROPHE FUND	6
ARTICLE 7
RATE AND PREMIUM	7
ARTICLE 8
DEFINITIONS	9
ARTICLE 9
LOSS OCCURRENCE DEFINITION	12
ARTICLE 10
ACCESS TO RECORDS	13
ARTICLE 11
AGENCY	13
ARTICLE 12
ARBITRATION	14
ARTICLE 13
CASH CALL	15
ARTICLE 14
COLLATERAL	15
ARTICLE 15
COLLATERAL RELEASE	16
ARTICLE 16
CONFIDENTIALITY	18
ARTICLE 17
CURRENCY	19
ARTICLE 18
ENTIRE AGREEMENT	19

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ARTICLE 19
ERROR AND OMISSIONS	20
ARTICLE 20
FEDERAL EXCISE TAX	20
ARTICLE 21
GOVERNING LAW	20
ARTICLE 22
INSOLVENCY	20
ARTICLE 23
LATE PAYMENTS	22
ARTICLE 24
LIABILITY OF THE REINSURER	23
ARTICLE 25
LIMITED RECOURSE AND BERMUDA REGULATIONS	23
ARTICLE 26
LOSS NOTICES AND SETTLEMENTS	24
ARTICLE 27
NET RETAINED LINES	25
ARTICLE 28
NON-WAIVER	25
ARTICLE 29
NOTICES AND AGREEMENT EXECUTION	26
ARTICLE 30
OFFSET	26
ARTICLE 31
OTHER REINSURANCE	27
ARTICLE 32
SALVAGE AND SUBROGATION	27
ARTICLE 33
SERVICE OF SUIT	27
ARTICLE 34
SEVERABILITY	28
ARTICLE 35
TAXES	28
ARTICLE 36
TERRITORY	29
ARTICLE 37
INTERMEDIARY	29

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ATTACHMENTS

Schedule A

Collateral Collection Table

Nuclear Incident Exclusion Clause - Physical Damage – Reinsurance U.S.A.

Trust Agreement

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CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(hereinafter called the “Contract”)

EFFECTIVE: JUNE 1, 2012

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Including any and/or all companies that are or may hereafter become affiliated therewith

(hereinafter called the “Reinsured”)

by

THE SUBSCRIBING REINSURER(S) SPECIFIED IN THE INTERESTS AND LIABLITIES AGREEMENT ATTACHED TO THIS CONTRACT

(hereinafter called, with other participants, the “Reinsurer(s)”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Reinsured in respect of its net excess liability as a result of any loss or losses which may occur during the Term of this Contract under any policies, contracts and binders of insurance or reinsurance (hereinafter called “Policies”) in force at the effective date hereof or issued or renewed on or after that date, covering direct and assumed business classified by the Reinsured as the property perils of Homeowners and Dwelling, subject to the terms, conditions and limitations set forth herein and in Schedule A attached to and forming part of this Contract.

ARTICLE 2

TERM

1. This Contract shall become effective at 12:01 a.m., Local Standard Time, June 1, 2012, with respect to losses arising out of Loss Occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Local Standard Time, June 1, 2013. “Local Standard Time” as used herein shall mean local standard time at the location where the Loss Occurrence commences.

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2. If this Contract is terminated or expires while a Loss Occurrence covered hereunder is in progress, the Reinsurer’s liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire Loss Occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such Loss Occurrence is claimed against any renewal or replacement of this Contract.

3. Notwithstanding the provisions of paragraph (1) above, the Reinsured may reduce or terminate a Reinsurer’s percentage share in this Contract at any time by giving written notice to the Reinsurer in the event any of the following circumstances occur. The effective date of reduction or termination shall be the date selected by the Reinsured, which may be a date that is retroactively applied to the date of public announcement for subparagraph (a) below or upon discovery for subparagraph (b) below, subject to the condition that such selected date must be the last day of a calendar month.

a. A State Insurance Department or other legal authority has ordered the Reinsurer to cease writing business; or

b. The Reinsurer has reinsured its entire liability under this Contract without the Reinsured’s prior written consent, except that this provision shall not apply to any intercompany reinsurance or intercompany pooling arrangements entered into by the Reinsurer.

ARTICLE 3

EXCLUSIONS

1. This Contract does not apply to and specifically excludes the following:

a. All excess of loss reinsurance assumed by the Reinsured.

b. Reinsurance assumed by the Reinsured under obligatory reinsurance agreements, except intercompany reinsurance between the Reinsured and its affiliates and agency reinsurance where the policies involved are to be re-underwritten in accordance with the underwriting standards of the Reinsured and reissued as policies of the Reinsured at the next anniversary or expiration date.

c. Financial guarantee and insolvency.

d. Insurance policies classified by the Reinsured as Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation, and Credit business.

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e. Flood and/or earthquake when written as such for standalone policies where flood and/or earthquake is the only named peril.

f. Nuclear risks as defined in the “Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance U.S.A.” attached to and forming part of this Contract.

g. Loss or damage caused by or resulting from war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority, but this exclusion shall not apply to loss or damage covered under a standard policy with a standard War Exclusion Clause.

h. Loss or liability from any Pool, Association or Syndicate and any assessment or similar demand for payment related to the Florida Hurricane Catastrophe Fund or Citizens Property Insurance Corporation.

i. All liability of the Reinsured arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency Fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

j. Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25% of the Reinsured’s property loss under the applicable original policy.

k. Loss, damage, cost or expense arising out of an act of terrorism involving the use of any biological, chemical, nuclear or radioactive agent, material, device or weapon.

l. All liability arising out of mold, spores and/or fungus, but this exclusion shall not apply to those losses which follow as a direct result of a loss caused by a peril otherwise covered hereunder.

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2. With the exception of subparagraphs (c), (f), (g) and (k) of paragraph (1) above, should any judicial, regulatory or legislative entity having legal jurisdiction invalidate any exclusion on the Reinsured’s policy, any amount of loss for which the Reinsured is liable because of such invalidation will not be excluded hereunder.

3. The Reinsured may submit to the Reinsurer, for special acceptance hereunder, business not covered by this Contract. Within seven days of receipt of such request, each Reinsurer shall accept such request, ask for additional information, or reject the request. If a Reinsurer fails to respond to a special acceptance request within seven days, the Reinsurer shall be deemed to have agreed to the special acceptance. If said business is accepted by the Reinsurer, it will be subject to the terms of this Contract, except as such terms are modified by such acceptance. Any special acceptance business covered under the reinsurance agreement being replaced by this Contract will be automatically covered hereunder. Further, in the event a Reinsurer becomes a party to this Contract subsequent to the special acceptance of any business not normally covered hereunder, the Reinsurer shall automatically accept the same as being a part of this Contract.

ARTICLE 4

RETENTION AND LIMIT

1. As respects each excess layer of reinsurance coverage provided by this Contract, the Reinsured shall retain and be liable for the first amount of Ultimate Net Loss, shown as “Reinsured’s Retention” for that excess layer in Schedule A attached hereto, arising out of each Loss Occurrence. The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such Ultimate Net Loss exceeds the Reinsured’s applicable retention, but the liability of the Reinsurer under each excess layer shall not exceed the amount, shown as “Reinsurer’s Per Occurrence Limit” for that excess layer in Schedule A attached hereto, as respects any one Loss Occurrence, nor shall it exceed the amount, shown as “Reinsurer’s Contract Limit” for that excess layer in Schedule A attached hereto as respects all loss or losses arising out of Loss Occurrences commencing during the Term of this Contract.

2. Notwithstanding the provisions above, no claim shall be made under any excess layer as respects losses arising out of Loss Occurrences commencing during the Term of this Contract unless at least two risks insured or reinsured by the Reinsured are involved in such Loss Occurrence. For purposes hereof, the Reinsured shall be the sole judge of what constitutes “one risk.”

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ARTICLE 5

REINSTATEMENT

1. In the event all or any portion of the reinsurance under the second excess layer of reinsurance coverage provided by this Contract is exhausted by loss, the amount so exhausted shall be reinstated immediately from the time the Loss Occurrence commences hereon. For each amount so reinstated the Reinsured agrees to pay additional premium equal to the product of the following:

a. The percentage of the loss occurrence limit for the second excess layer reinstated (based on the loss paid by the Reinsurer under that excess layer); times

b. The earned reinsurance premium for the second excess layer reinstated for the Term of this Contract (exclusive of reinstatement premium).

2. Whenever the Reinsured requests payment by the Reinsurer of any loss under the second excess layer hereunder, the Reinsured shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer for that excess layer. If the earned reinsurance premium for the second excess layer for the Term of this Contract has not been finally determined as of the date of any such statement, the calculation of reinstatement premium due for that excess layer shall be based on the deposit premium for that excess layer and shall be readjusted when the earned reinsurance premium for that excess layer for the Term of this Contract has been finally determined. Any reinstatement premium shown to be due the Reinsurer for the second excess layer as reflected by any such statement (less prior payments, if any, for that excess layer) shall be payable by the Reinsured concurrently with payment by the Reinsurer of the requested loss for that excess layer. Any return reinstatement premium shown to be due the Reinsured shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Reinsured’s statement.

3. Notwithstanding anything stated herein, the liability of the Reinsurer under the second excess layer of reinsurance coverage provided by this Contract shall not exceed either of the following:

a. The amount, shown as “Reinsurer’s Per Occurrence Limit” for the second excess layer in Schedule A attached hereto, as respects loss or losses arising out of any one Loss Occurrence; or

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b. The amount, shown as “Reinsurer’s Contract Limit” for the second excess layer in Schedule A attached hereto, in all during the Term of this Contract.

ARTICLE 6

FLORIDA HURRICANE CATASTROPHE FUND

1. The Reinsured shall provisionally purchase mandatory coverage from the Florida Hurricane Catastrophe Fund (FHCF) with the following limit and retention:

a. 90% of $277,000,000 excess of $108,000,000 (mandatory layer).

The provisional limits and retentions above may increase or decrease in accordance with the provisions of the reimbursement contract between the Reinsured and the State Board of Administration of the State of Florida (SBA).

2. Any loss reimbursement paid or payable to the Reinsured for the mandatory coverage layer provided by the FHCF, (“FHCF loss reimbursement”) and resulting from Loss Occurrences commencing during the Term of this Contract, shall inure to the benefit of this Contract. Further, any FHCF loss reimbursement shall be deemed paid to the Reinsured in accordance with the reimbursement contract between the Reinsured and the SBA at the full payout level set forth therein. It is further deemed that any loss reimbursement shall not be reduced by any reduction or exhaustion of the actual claims paying capacity of the FHCF and that the FHCF fund balance is deemed funded to the fullest extent allowable by Florida statute.

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3. Prior to final calculation of the Reinsured’s FHCF retention and payout for the mandatory layer provided by the reimbursement contract between the Reinsured and the SBA, the Reinsurer’s liability hereunder will provisionally be calculated based on the projected FHCF payout and in accordance with paragraph (2) above. Following the FHCF’s final calculation of the payout for the coverage layer provided by the reimbursement contract, the Ultimate Net Loss under this Contract will be recalculated. If, as a result of such calculation, the loss to the Reinsurer hereunder in any one Loss Occurrence is less than the amount previously paid by the Reinsurer hereunder, the Reinsured shall promptly remit the difference to the Reinsurer. If the loss to the Reinsurer in any one Loss Occurrence hereunder is greater than the amount previously paid by the Reinsurer, the Reinsurer shall promptly remit the difference to the Reinsured. For purposes of both the provisional and final calculation of Reinsurer liability referenced above, it is deemed that any FHCF loss reimbursement shall not be reduced by any reduction or exhaustion of the actual claims paying capacity of the FHCF and that the FHCF fund balance is deemed funded to the fullest extent allowable by Florida statute.

4. If an FHCF reimbursement amount is based on the Reinsured’s losses in more than one Loss Occurrence commencing during the Term of this Contract, and the FHCF does not designate the amount allocable to each Loss Occurrence, the FHCF reimbursement amount shall be prorated in the proportion that the Reinsured’s losses in each Loss Occurrence bear to the Reinsured’s total losses arising out of all Loss Occurrences to which the FHCF reimbursement applies.

ARTICLE 7

RATE AND PREMIUM

1. As premium for each excess layer of reinsurance coverage provided by this Contract, the Reinsured shall pay the Reinsurer the greater of the following:

a. The amount, shown as “Minimum Premium” for that excess layer in Schedule A attached hereto; or

b. The percentage, shown as “Exposure Rate” for that excess layer in Schedule A attached hereto, of ****% of the Reinsured’s Total Insured Value as of September 30, 2012 (the “adjusted premium”), subject to the provisions of paragraph (5) below.

2. “Total Insured Value” means the sum of Coverage A, B, C and D for Business Covered as defined in the Business Covered Article.

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3. The Reinsured shall pay the Reinsurer a deposit premium for each excess layer of the amount, shown as “Deposit Premium” for that excess layer in Schedule A attached hereto, payable in installment amounts and at the dates set forth in in the “Deposit Payment Schedule” for each excess layer in Schedule A attached hereto. No deposit premium installments shall be due to a Reinsurer hereunder until that Reinsurer has executed its Interests and Liabilities Agreement attached to and forming part of this Contract. Further, if this Contract is terminated, no deposit premium installments shall be due after the effective date of termination.

4. As respects any excess layer hereunder, if the Reinsured elects to reduce or terminate a Reinsurer’s participation percentage in accordance with paragraph (3) of the Term Article, the “Minimum Premium” as respects such excess layer shall not apply. Further, the earned reinsurance premium as otherwise determined in accordance with the provisions of subparagraph (b) of paragraph (1) above as respects each excess layer shall be replaced with the following:

a. In the event a loss occurs prior to the effective date of reduction or termination and the Reinsurer’s liability for such Loss Occurrence exceeds the “Deposit Premium” for such excess layer, the reinsurance premium for the Term of this Contract for such excess layer shall equal the “Deposit Premium” for such excess layer times the ratio the loss recoverable under such excess layer bears to the “Reinsurer’s Per Occurrence Limit” for such excess layer.

b. In the event no loss occurs prior to the effective date of reduction or termination or a loss occurs whereby the Reinsurer’s liability for such Loss Occurrence is less than the “Deposit Premium” applicable to such excess layer, the reinsurance premium for the Term of this Contract for such excess layer shall equal the pro rata portion of the reinsurance premium otherwise due hereunder for such excess layer based on the proportion the Term of this Contract bears to the original 12-month term of this Contract.

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5. No later than January 1, 2013 (or the effective date of termination in the event this Contract is terminated prior to January 1, 2013), the Reinsured shall provide a report to the Reinsurer setting forth the premium due under each excess layer hereunder, computed in accordance with paragraph (1) or (4) (as applicable) above, and any amounts due either party shall be remitted promptly. However, no return premium shall be due the Reinsured or additional premium due the Reinsurer as respects any excess layer hereunder unless the difference between the adjusted premium for such excess layer and the “Deposit Premium” for such excess layer is greater than ****%. In the event the adjusted premium for any excess layer hereunder is greater than the “Deposit Premium” for such excess layer by more than ***%, the premium due hereunder for such excess layer shall be equal to the deposit premium for such excess layer plus the difference between the adjusted premium for such excess layer and ****% of the deposit premium for such excess layer. Further, in the event the adjusted premium for any excess layer hereunder is less than the deposit premium for such excess layer by more than***%, the premium due hereunder for such excess layer shall be equal to the “Deposit Premium” for such excess layer less the difference between ***% of the deposit premium for such excess layer and the adjusted premium for such excess layer.

ARTICLE 8

DEFINITIONS

ULTIMATE NET LOSS

The term “Ultimate Net Loss” as used herein shall be defined as the sum or sums (including Loss in Excess of Policy Limits, Extra Contractual Obligations and Loss Adjustment Expense, as hereinafter defined) paid or payable by the Reinsured in settlement of claims and in satisfaction of judgments rendered on account of such claims after deduction of all salvage, all recoveries, and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Reinsured’s Ultimate Net Loss has been ascertained.

LOSS IN EXCESS OF POLICY LIMITS AND EXTRA CONTRACTUAL OBLIGATIONS

The terms “Loss in Excess of Policy Limits” and “Extra Contractual Obligations” as used herein shall be defined as follows:

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a. “Loss in Excess of Policy Limits” shall mean 90% of any amount paid or payable by the Reinsured in excess of its Policy limits, but otherwise within the terms of its Policy, such loss in excess of the Reinsured’s Policy limits having been incurred because of, but not limited to, failure by the Reinsured to settle within the Policy limits or by reason of the Reinsured’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.

b. “Extra Contractual Obligations” shall mean 90% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Reinsured, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Reinsured to settle within the Policy limits or by reason of the Reinsured’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. An Extra Contractual Obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

Notwithstanding anything stated herein, this Contract shall not apply to any Loss in Excess of Policy Limits or any Extra Contractual Obligation incurred by the Reinsured as a result of any fraudulent and/or criminal act by any officer or director of the Reinsured acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

Further, any Loss in Excess of Policy Limits and/or Extra Contractual Obligations that are made in connection with this Contract shall not exceed 25% of the contractual loss under all Policies involved in the Loss Occurrence as respects each excess layer hereunder.

Savings Clause (Applicable only if the Reinsurer is domiciled in the State of New York): In no event shall coverage be provided to the extent that such coverage is not permitted under New York law.

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LOSS ADJUSTMENT EXPENSE

The term “Loss Adjustment Expense” as used herein shall be defined as expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense, and/or appeal of claims, regardless of how such expenses are classified for statutory reporting purposes. Loss Adjustment Expense shall include, but not be limited to, interest on judgments, expenses of outside adjusters, expenses and a pro rata share of salaries of the Reinsured’s field employees and expenses of other employees of the Reinsured who have been temporarily diverted from their normal and customary duties and assigned to the adjustment of losses covered by this Contract, expenses of the Reinsured’s officials incurred in connection with losses covered by this Contract, and Declaratory Judgment Expenses or other legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto. Loss Adjustment Expense shall not include normal office expenses or salaries of the Reinsured’s employees or officials.

DECLARATORY JUDGMENT EXPENSE

The term “Declaratory Judgment Expense” as used herein shall be defined as the Reinsured’s own costs and legal expense incurred in direct connection with declaratory judgment actions brought to determine the Reinsured’s defense and/or indemnification obligations that are assignable to specific claims arising out of Policies reinsured by this Contract, regardless of whether the declaratory judgment action is successful or unsuccessful. Any Declaratory Judgment Expense shall be deemed to have been fully incurred by the Reinsured on the same date as the original loss (if any) giving rise to the action.

TERM OF THIS CONTRACT

“Term of this Contract” as used herein shall be defined as the period from 12:01 a.m., Local Standard Time, June 1, 2012 through 12:01 a.m., Local Standard Time, June 1, 2013. However, if this Contract is terminated, “Term of this Contract” as used herein shall mean the period from 12:01 a.m., Local Standard Time, June 1, 2012 until the effective time and date of termination.

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ARTICLE 9

LOSS OCCURRENCE DEFINITION

LOSS OCCURRENCE

1. The term “Loss Occurrence” shall mean the sum of 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 within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one Loss Occurrence shall be limited to all individual losses sustained by the Reinsured occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term Loss Occurrence shall be further defined as follows:

a. As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Reinsured occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. However, the event need not be limited to one state or province or states or provinces contiguous thereto.

b. As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Reinsured occurring during any period of 96 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses which occur beyond such 96 consecutive hours during the continued occupation of an assured’s premises by strikers, provided such occupation commenced during the aforesaid period.

c. As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the opening paragraph of this Article) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Reinsured’s Loss Occurrence.

d. As regards freeze, only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting of frozen pipes and tanks) may be included in the Reinsured’s Loss Occurrence.

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e. As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs (b) and (c) above), which spread through trees, grassland or other vegetation, all individual losses sustained by the Reinsured which occur during any period of 168 consecutive hours within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another may be included in the Reinsured’s Loss Occurrence.

2. For all Loss Occurrences the Reinsured may choose the date and time when any such period of consecutive hours commences provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Reinsured arising out of that disaster, accident or loss and provided that only one such period of 168 consecutive hours shall apply with respect to one event, except for any Loss Occurrence referred to in subparagraph (a) or (b) of paragraph (1) above where only one such period of 96 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

3. No individual losses occasioned by an event that would be covered by the 96 hours clauses may be included in any Loss Occurrence claimed under the 168 hours provision.

ARTICLE 10

ACCESS TO RECORDS

The Reinsurer or its designated representatives shall have access to the books and records of the Reinsured on matters relating to this reinsurance at all reasonable times, and at the location where such books and records are maintained in the ordinary course of business, for the purpose of obtaining information concerning this Contract or the subject matter thereof. Notification of a request for inspection of records shall be sent to the Reinsured by the Reinsurer in written form, and shall normally be given four weeks in advance. Notwithstanding the above, the Reinsurer shall not have any right of access to the records of the Reinsured if it is not current in all undisputed payments due the Reinsured.

ARTICLE 11

AGENCY

If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party.

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ARTICLE 12

ARBITRATION

1. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Reinsured, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Underwriters at Lloyd’s. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, the two Arbiters shall request the American Arbitration Association to appoint the Umpire. If the American Arbitration Association fails to appoint the Umpire within 30 days after it has been requested to do so, either party may request a justice of a Court of general jurisdiction of the state in which the arbitration is to be held to appoint the Umpire.

2. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

3. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Reinsured to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

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4. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

5. Any arbitration proceedings shall take place in Tampa, Florida; however, the location may be changed if mutually agreed upon by the parties of this Contract. Notwithstanding the location of arbitration, all proceedings pursuant hereto shall be governed by the law of the State of Florida.

ARTICLE 13

CASH CALL

In the event that at any time the Reinsured becomes obligated to make a payment or series of payments for losses which exceed the Reinsured’s retention, the Reinsured shall present to the Reinsurer an itemized statement of the amounts payable hereunder. The Reinsurer shall be obligated (subject to the terms and conditions of this Contract) to make a payment to the Reinsured of the amount requested within 10 days of receipt of the statement from the Reinsured.

ARTICLE 14

COLLATERAL

1. As promptly as possible following execution of this Contract, the Reinsurer (as Grantor) shall enter into a Trust Agreement (the “Trust Agreement”) with the Reinsured (as Beneficiary) and the trustee, pursuant to which the Reinsurer shall provide collateral in the form of eligible Assets deposited and held in a Trust Account, with such Assets having a market value greater than or equal to $6,525,000 (the “Collateral”) less earned premium (net of brokerage and applicable Federal Excise Tax). It is understood that deposit premium paid in accordance with the Rate and Premium Article shall be deposited into the Trust Account.

2. The Reinsured agrees that if the Reinsurer makes indemnity payment(s) to the Reinsured under this Contract, the Reinsurer may withdraw Assets from the Trust Account, reducing the market value of Assets in the Trust Account to an amount at least equal to the unused Reinsurance Limit, in accordance with the provisions of the Trust Agreement.

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3. The Trust Fund may be drawn upon by the Reinsured at any time and the Assets may be used at the Reinsured’s option in accordance with the provisions of Section 5 of the Trust Agreement.

4. At any time prior to expiration or termination of this Contract, if the value of the Assets in the Trust Account are less than the Reinsurer’s Obligations hereunder, the Reinsurer shall promptly deposit the difference into the Trust Account.

5. Except as provided in the Collateral Release Article, the Reinsured agrees to release the Assets in the Trust Account required under this Article as promptly as provided in the Trust Agreement.

ARTICLE 15

COLLATERAL RELEASE

1. At the expiration or termination of this Contract, if the Trust has not yet been terminated, the Reinsured shall calculate on a monthly basis, how much, if any, of the collateral shall be released from the Trust, as follows:

a. For each potentially covered Loss Occurrence, the Reinsured shall multiply the Loss Amount (being equal to the sum of losses and Loss Adjustment Expenses paid plus reserves for losses and Loss Adjustment Expense outstanding plus reserves for losses incurred but not yet reported) by the appropriate Buffer Loss Factor from the table below, based upon the type of Loss Occurrence and the number of months which have elapsed since the event. The product of this calculation shall be defined as the Buffered Loss Amount (“BLA”).

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Buffer Loss Factor Table
Number of Calendar Months Since Date of Loss Occurrence	Windstorm*/Bru shfire			Earthquake and Fire Following			Other
0 to 3		200	%		300	%		250	%
> 3 to 6		150	%		200	%		175	%
> 6 to 9		125	%		175	%		150	%
> 9 to 12		110	%		150	%		130	%
> 12 to 15		105	%		125	%		115	%
> 15 to 18		100	%		120	%		110	%
Thereafter		100	%		100	%		100	%

* For the purpose of this Article, the term “Windstorm” shall include Hurricane, Rainstorm, Storm, Tempest, Tornado, Cyclone, Typhoon and Hail.

b. The BLA will be reduced by the $27,500,000 retention and any inuring reinsurance recoveries to compute the Presumed Ultimate Net Loss. The Presumed Ceded Loss will be defined as the lesser of 29% of the Presumed Ultimate Net Loss and the limit of 29% of $22,500,000.

c. The Presumed Total Ceded Loss will equal the lesser of the limit of 29% of $22,500,000 and the Presumed Ceded Loss. An amount equal to the Presumed Total Ceded Loss less losses paid by the Reinsurer under this Contract shall be retained in the Trust and any excess in the Trust shall be released to the Reinsurer.

d. Notwithstanding the aforementioned, at December 31, 2012, the parties agree to consider the release of collateral. The intention is to release collateral for all limits for which there is essentially no possibility of loss from past or future events before the expiration of this Contract. All collateral securing what the parties agree are unreachable limits will be released within three business days.

e. Thirty-six months following the expiration of this Contract, the Reinsurer shall have the option to commute this Contract by sending the Reinsured written notice thereof. In such event, the Reinsurer shall pay to the Reinsured an amount equal to the loss and loss adjustment expense reserves hereunder, including reserves for incurred but not reported losses, as estimated by the Reinsured, which would be recoverable hereunder. Upon the Reinsurer’s payment of such amount, both parties shall be completely released from all liability under this Contract, whether known or unknown.

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2. So long as there is any security on deposit in the Trust, the Reinsured shall perform the calculation set forth above within 10 business days after the end of each month and deliver a report substantially in the form of the Collateral Calculation Table attached to this Contract to the Reinsurer and the Trustee named in the Trust Agreement. Collateral will be adjusted monthly based on this calculation. To the extent the calculation indicates that collateral may be reduced, the delivery of the report to the Trustee will constitute a directive to return excess collateral to the Reinsurer. In the event the calculation indicates additional collateral is required, the Reinsurer will have 10 business days from receipt of the report to deposit the required collateral into the Trust.

ARTICLE 16

CONFIDENTIALITY

1. The Reinsurer hereby acknowledges that the terms and conditions of this Contract, any materials provided in the course of audit or inspection and any documents, information and data provided to it by the Reinsured, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (hereinafter referred to as “confidential information”) are proprietary and confidential to the Reinsured. Confidential information shall not include documents, information or data that the Reinsurer can show:

a. Are publicly available or have become publicly available through no unauthorized act of the Reinsurer;

b. Have been rightfully received from a third person without obligation of confidentiality; or

c. Were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

2. Absent the written consent of the Reinsured, the Reinsurer shall not disclose any confidential information to any third parties, including any affiliated companies, except:

a. When required by retrocessionaires subject to the business ceded to this Contract;

b. When required by regulators performing an audit of the Reinsurer’s records and/or financial condition;

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c. When required by external auditors performing an audit of the Reinsurer’s records in the normal course of business; or

d. When required by attorneys or arbitrators in connection with an actual or potential dispute hereunder.

Further, the Reinsurer agrees not to use any confidential information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

3. Notwithstanding the above, in the event the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the confidential information, the Reinsurer agrees to provide the Reinsured with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Reinsured in maintaining the confidentiality provided for in this Article.

4. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 17

CURRENCY

1. Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

2. Amounts paid or received by the Reinsured in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Reinsured.

ARTICLE 18

ENTIRE AGREEMENT

1. This Contract and any related trust agreement, Letter of Credit and/or special acceptance, shall constitute the entire agreement between the parties hereto with respect to the business being reinsured hereunder, and there are no understandings between the parties hereto other than as expressed in this Contract.

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2. Any change or modification to this Contract shall be null and void unless made by an addendum and signed by the parties hereto.

ARTICLE 19

ERROR AND OMISSIONS

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

ARTICLE 20

FEDERAL EXCISE TAX

1. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

2. In the event of any return of premium becoming due hereunder, the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Reinsured or its agent should take steps to recover the tax from the United States Government.

ARTICLE 21

GOVERNING LAW

This Contract shall be governed as to performance, administration and interpretation in accordance with the laws of the State of Florida, exclusive of the rules with respect to conflicts of law; however, with respect to credit for reinsurance, the applicable rules of all states shall apply.

ARTICLE 22

INSOLVENCY

1. If more than one reinsured company is included within the definition of “Reinsured” hereunder, this Article shall apply individually to each such company.

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2. In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the Reinsured or to its liquidator, receiver, conservator or statutory successor, with reasonable provision for verification, on the basis of the liability of the Reinsured or on the basis of claims files and allowed in the liquidation proceeding, whichever may be required by applicable stature, without diminution because of the insolvency of the Reinsured or because the liquidator, receiver, conservator or statutory successor of the Reinsured has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Reinsured shall give written notice to the Reinsurer of the pendency of a claim against the Reinsured indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Reinsured or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Reinsured as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Reinsured solely as a result of the defense undertaken by the Reinsurer.

3. Where two or more Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Reinsured.

4. It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Reinsured or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee or other party as more specifically limited by any statute or regulation applicable hereto, of such reinsurance in the event of the insolvency of the Reinsured or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such Policy obligations of the Reinsured as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Reinsured to such payees. However, the exceptions provided in (1) and (2) above shall apply only to the extent that applicable statutes or regulations specifically permit such exceptions.

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ARTICLE 23

LATE PAYMENTS

1. The interest penalties provided for in this Article shall apply to the Reinsurer or to the Reinsured in the following circumstances:

a. With the exception of payments due from the Reinsurer in accordance with the Cash Call Article, payments due from the Reinsurer to the Reinsured shall have as a due date the date on which the agreed proof of loss is received by the Reinsurer, and shall be overdue 30 days thereafter. Payment to the Intermediary is deemed to be payment to the Reinsured for purposes of this Article.

b. Payments due from the Reinsured to the Reinsurer shall have as a due date the date specified in this Contract. Payments shall be overdue 30 days thereafter. Premium adjustments shall be overdue 30 days following the due date set forth under the terms of this Contract.

c. The Reinsured shall provide a copy of the original insured’s proof of loss, and a copy of the claim adjuster’s report(s) or other evidence of indemnification for losses exceeding the excess limit on an incurred basis. If, subsequent to receipt of this evidence, the information contained therein is insufficient or not in accordance with the contractual conditions, then the payment due date as defined in subparagraph (a) shall be deemed to be the date upon which the Reinsurer received additional information necessary to approve payment of the claim or the claim is presented in an acceptable manner. Interest as stipulated in subparagraph (d) shall be payable should a disputed claim be ultimately settled and if the period set out in subparagraph (a) is exceeded, but only to the extent that the final loss payment exactly tracks with the original proof of loss.

d. Overdue amounts shall bear simple interest from the overdue date at the 90-day United States Treasury Bill rate set forth by the Federal Reserve Board for the first Monday of the calendar month in which the amount becomes overdue, as published in the Federal Reserve Statistical Release. If the interest generated for 100% in respect of any overdue payment as outlined in subparagraph (a) or (b) is $500 or less, then the interest penalty shall be waived.

e. For the purposes of this Article, reinsuring Underwriters at Lloyd’s shall be viewed as one entity. The provisions set forth herein shall not be applicable until the creditor party shall have manifested to the debtor party its intent to invoke the terms of this Article.

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ARTICLE 24

LIABILITY OF THE REINSURER

1. The liability of the Reinsurer shall follow that of the Reinsured in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers, interpretations and modifications of the Reinsured’s Policies and any endorsements thereon. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

2. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

ARTICLE 25

LIMITED RECOURSE AND BERMUDA REGULATIONS

1. The Reinsured understands and accepts that the Segregated Accounts set forth in the Reinsurer’s Interests and Liabilities Agreement attached to this Contract (for purposes of this Article, individually the “Segregated Account” and collectively the “Segregated Accounts”), and that all corporate matters relating to the creation of the Segregated Accounts, including, but not limited to, capacity of each Segregated Account, the segregated nature of the Segregated Accounts and Aeolus Re Ltd., and the operation and liquidation of the Segregated Accounts shall be governed by, and construed in accordance with, the laws of Bermuda. The Reinsured has had the opportunity to take advice and to obtain all such additional information that it considers necessary to evaluate the terms, conditions and risks of entering into this Contract with Aeolus Re Ltd., on behalf of its Segregated Accounts.

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2. Notwithstanding any other provision of this Contract to the contrary, the liability of each Segregated Account for the performance and discharge of all of its obligations, however they may arise, in relation to this Contract (together the “SA Obligations”) shall be limited to and payable solely from the assets linked to the Segregated Account. Accordingly there shall be no recourse to any other assets of Aeolus Re Ltd. (including for the avoidance of doubt, any assets linked to any other segregated account of Aeolus Re Ltd. or to its general account). In the event that the assets linked to the Segregated Accounts are insufficient to meet all SA Obligations, any SA Obligations remaining after the application of such assets linked to the Segregated Accounts shall be extinguished, and the Reinsured undertakes in such circumstances to take no further action against the Segregated Accounts, Aeolus Re Ltd. or any other segregated accounts of Aeolus Re Ltd. in respect of any such Obligations. In particular, neither the Reinsured nor any party acting on its behalf shall petition or take any steps for the winding up or receivership of any of the Segregated Accounts, Aeolus Re Ltd. or any other segregated accounts of Aeolus Re Ltd.

3. The Reinsured also understands and accepts that two of the Reinsurers as set forth on the Reinsurer’s Interests and Liabilities Agreement are Aeolus Re J12 SPI Ltd. and Pendulum Re II Ltd. (for purposes of this Article, each referred to as an “SPI Reinsurer”). Notwithstanding any other provision of this Contract to the contrary, the liability of each SPI Reinsurer for the performance and discharge of all of its obligations, however they may arise, in relation to this Contract (together the “SPI Obligation”) shall be limited to and payable solely from the assets of each SPI Reinsurer. In the event that the assets available to each SPI Reinsurer are insufficient to meet all the SPI Obligations, any SPI Obligations remaining after the application of such assets available to each SPI Reinsurer shall be extinguished, and the Reinsured undertakes in such circumstances to take no further action against each SPI Reinsurer in respect of any such SPI Obligations. In particular, neither the Reinsured nor any party acting on its behalf shall petition or take any steps for the winding up or receivership of each SPI Reinsurer.

ARTICLE 26

LOSS NOTICES AND SETTLEMENTS

1. Whenever losses sustained by the Reinsured appear likely to result in a claim hereunder, the Reinsured shall notify the Reinsurer, and the Reinsurer shall have the right to participate in the adjustment of such losses at its own expense.

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2. All loss settlements made by the Reinsured, provided they are within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid (or scheduled to be paid within 14 days) by the Reinsured. Notwithstanding the foregoing, and subject to the provisions set forth under paragraph (2) of the Exclusions Article, should any judicial, regulatory, or legislative entity having legal jurisdiction require that the Reinsured be liable for any amounts that are otherwise outside the terms of the Reinsured’s original Policies, the Reinsurer agrees that such amounts shall be subject always to the terms and conditions of this Contract.

ARTICLE 27

NET RETAINED LINES

1. This Contract applies only to that portion of any Policy which the Reinsured retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any Policy which the Reinsured retains net for its own account shall be included.

2. The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Reinsured to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

ARTICLE 28

NON-WAIVER

The failure of the Reinsured or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights or remedies contained herein nor stop either party from thereafter demanding full and complete compliance nor prevent either party from exercising such rights or remedies in the future.

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ARTICLE 29

NOTICES AND AGREEMENT EXECUTION

1. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable.

2. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

a. Paper documents with an original ink signature;

b. Facsimile or electronic copies of paper documents showing an original ink signature; and/or

c. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms “electronic record,” “electronic signature” and “electronic agent” shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto.

3. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

ARTICLE 30

OFFSET

The Reinsured and the Reinsurer, each at its option, may offset any balance or balances, whether on account of premiums, claims and losses, Loss Adjustment Expenses or salvages due from one party to the other under this Contract or under any other reinsurance agreement heretofore or hereafter entered into between the Reinsured and the Reinsurer, whether acting as assuming reinsurer or as ceding company; provided, however, that in the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with applicable statutes and regulations.

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ARTICLE 31

OTHER REINSURANCE

The Reinsured shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Reinsured and be entirely disregarded in applying all of the provisions of this Contract.

ARTICLE 32

SALVAGE AND SUBROGATION

The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Reinsured, less the actual cost, excluding salaries of officials and employees of the Reinsured and sums paid to attorneys as a retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Reinsured for its primary loss. The Reinsured hereby agrees to enforce its rights to salvage and subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights if, in the Reinsured’s opinion, it is economically reasonable to do so. Should the Reinsured neglect or refuse to enforce such rights, the Reinsurer is hereby empowered and authorized to institute the appropriate action in the name of the Reinsured, at the Reinsurer’s expense.

ARTICLE 33

SERVICE OF SUIT

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory, or District of the United States where authorization is required by insurance regulatory authorities.)

1. This Article will not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

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2. In the event the Reinsurer fails to pay any amount claimed to be due hereunder or fails to otherwise perform its obligations hereunder, the Reinsurer, at the request of the Reinsured, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is accepted by the Reinsurer or is determined by removal, transfer or otherwise, as provided for above, will comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against any of the Reinsurers upon this Contract, will abide by the final decision of such court or of any Appellate Court in the event of an appeal.

3. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his or her successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Reinsured or any beneficiary hereunder arising out of this Contract.

ARTICLE 34

SEVERABILITY

If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

ARTICLE 35

TAXES

In consideration of the terms under which this Contract is issued, the Reinsured will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

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ARTICLE 36

TERRITORY

The liability of the Reinsurer shall be limited to losses under Policies covering property located within the territorial limits of the State of Florida; but this limitation shall not apply to moveable property if the Reinsured’s Policies provide coverage when said moveable property is outside the aforementioned territorial limits.

ARTICLE 37

INTERMEDIARY

Advocate Reinsurance Partners, LLC is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including, but not limited to, notices, statements, premium, return premium, commissions, taxes, losses, Loss Adjustment Expense, salvages and loss settlements) relating thereto shall be transmitted to the Reinsured or the Reinsurer through Advocate Reinsurance Partners, LLC, 2501 North Harwood Street, Suite 1250, Dallas, TX 75201. Payments by the Reinsured to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Reinsured only to the extent that such payments are actually received by the Reinsured.

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SCHEDULE A

CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE: JUNE 1, 2012

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

	Excess Layer 1	Excess Layer 2		Excess Layer 3
Reinsured’s Retention	$27,500,000	$	50,000,000	$	135,700,000
Reinsurer’s Per Occurrence Limit	29% of $22,500,000	$	58,000,000	$	155,000,000
Reinsurer’s Contract Limit	29% of $22,500,000	$	116,000,000	$	155,000,000
Exposure Rate	*****%		*****%		******%
Minimum Premium	***% of $*****
Deposit Premium	**% of $*******
Deposit Payment Schedule:
Installment Due June 1, 2012	**% of $******
Installment Due January 1, 2013	**% of $**** *

* plus applicable adjustment per Rate and Premium Article

The figures listed above for each excess layer shall apply to each Reinsurer in the percentage share for that excess layer expressed in its Interests and Liabilities Agreement attached hereto.

ARP-HCI-02-CAT-004-12 Schedule A  

DOC: June 1, 2012

COLLATERAL COLLECTION TABLE

CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE: JUNE 1, 2012

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Collateral Release Calculation as of [            ]
Line No.	Col. 1	Col. 2	Col. 3	Col. 4	Col. 5	Col. 6	Col. 7	Col. 8	Col. 9
	Date of Loss Event	Description	Loss Amount	Buffer Loss Factor	Buffer Loss Amount (Col. 3 x Col. 4)	Inuring Reinsurance Coverage	Buffered Loss Amount net of Inuring Reinsurance (Col. 5 -  Col. 6)	Less $[            ] Retention	Balance (Col. 7 - Col.8)
1A
1B
1C
1D
1E
1F

ARP-HCI-02-CAT-004-12 Collateral Collection Table   

DOC: June 1, 2012

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE – REINSURANCE U.S.A.

1. This Reinsurance does not cover any loss or liability accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

2. Without in any way restricting the operation of paragraph (1) of this clause, this Reinsurance does not cover any loss or liability accruing to the Reinsured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to:

I. Nuclear reactor power plants including all auxiliary property on the site, or

II. Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and “critical facilities” as such, or

III. Installations for fabricating complete fuel elements or for processing substantial quantities of “special nuclear material”, and for reprocessing, salvaging, chemically separating, storing or disposing of “spent” nuclear fuel or waste materials, or

IV. Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

3. Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate

(a) where Reinsured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b) where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof.

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4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against.

5. It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reinsured to be the primary hazard.

6. The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

7. Reinsured to be sole judge of what constitutes:

(a) substantial quantities, and

(b) the extent of installation, plant or site.

Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a) all Policies issued by the Reinsured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

(b) with respect to any risk located in Canada Policies issued by the Reinsured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

ARP-HCI-02-CAT-004-12 ARP 35B  

DOC: June 1, 2012

TRUST AGREEMENT

(copy to be included)

ARP-HCI-02-CAT-004-12 Trust Agreement  

DOC: June 1, 2012

EX-10.13

Exhibit 10.13

****** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission

CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE: JUNE 1, 2012

ISSUED TO

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Including any and all companies that are or may hereafter become affiliated therewith

CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS

ARTICLE 1
BUSINESS COVERED	1
ARTICLE 2
TERM	1
ARTICLE 3
EXCLUSIONS	3
ARTICLE 4
RETENTION AND LIMIT	5
ARTICLE 5
REINSTATEMENT	6
ARTICLE 6
FLORIDA HURRICANE CATASTROPHE FUND	7
ARTICLE 7
RATE AND PREMIUM	8
ARTICLE 8
DEFINITIONS	10
ARTICLE 9
LOSS OCCURRENCE DEFINITION	13
ARTICLE 10
ACCESS TO RECORDS	14
ARTICLE 11
AGENCY	14
ARTICLE 12
ARBITRATION	15
ARTICLE 13
CASH CALL	16
ARTICLE 14
CONFIDENTIALITY	16
ARTICLE 15
CURRENCY	17
ARTICLE 16
ENTIRE AGREEMENT	18
ARTICLE 17
ERROR AND OMISSIONS	18

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ARTICLE 18
FEDERAL EXCISE TAX	18
ARTICLE 19
FUNDING OF RESERVES	19
ARTICLE 20
GOVERNING LAW	21
ARTICLE 21
INSOLVENCY	22
ARTICLE 22
LATE PAYMENTS	23
ARTICLE 23
LIABILITY OF THE REINSURER	24
ARTICLE 24
LOSS NOTICES AND SETTLEMENTS	25
ARTICLE 25
NET RETAINED LINES	25
ARTICLE 26
NON-WAIVER	26
ARTICLE 27
NOTICES AND AGREEMENT EXECUTION	26
ARTICLE 28
OFFSET	26
ARTICLE 29
OTHER REINSURANCE	27
ARTICLE 30
SALVAGE AND SUBROGATION	27
ARTICLE 31
SERVICE OF SUIT	27
ARTICLE 32
SEVERABILITY	28
ARTICLE 33
TAXES	29
ARTICLE 34
TERRITORY	29
ARTICLE 35
INTERMEDIARY	29

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ATTACHMENTS

Schedule A

Nuclear Incident Exclusion Clause - Physical Damage – Reinsurance U.S.A.

ARP-HCI-02-CAT-001-12

DOC: June 1, 2012

CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

(hereinafter called the “Contract”)

EFFECTIVE: JUNE 1, 2012

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Including any and/or all companies that are or may hereafter become affiliated therewith

(hereinafter called the “Reinsured”)

by

THE SUBSCRIBING REINSURER(S) SPECIFIED IN THE INTERESTS AND LIABLITIES AGREEMENT ATTACHED TO THIS CONTRACT

(hereinafter called, with other participants, the “Reinsurer(s)”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Reinsured in respect of its net excess liability as a result of any loss or losses which may occur during the Term of this Contract under any policies, contracts and binders of insurance or reinsurance (hereinafter called “Policies”) in force at the effective date hereof or issued or renewed on or after that date, covering direct and assumed business classified by the Reinsured as the property perils of Homeowners and Dwelling, subject to the terms, conditions and limitations set forth herein and in Schedule A attached to and forming part of this Contract.

ARTICLE 2

TERM

1. This Contract shall become effective at 12:01 a.m., Local Standard Time, June 1, 2012, with respect to losses arising out of Loss Occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Local Standard Time, June 1, 2013. “Local Standard Time” as used herein shall mean local standard time at the location where the Loss Occurrence commences.

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2. If this Contract is terminated or expires while a Loss Occurrence covered hereunder is in progress, the Reinsurer’s liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire Loss Occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such Loss Occurrence is claimed against any renewal or replacement of this Contract.

3. Notwithstanding the provisions of paragraph (1) above, the Reinsured may reduce or terminate a Reinsurer’s percentage share in this Contract at any time by giving written notice to the Reinsurer in the event any of the following circumstances occur. The effective date of reduction or termination shall be the date selected by the Reinsured, which may be a date that is retroactively applied up to a maximum of 65 days prior to the date of public announcement for subparagraphs (a) through (e) below or upon discovery for subparagraphs (f) through (h) below, subject to the condition that such selected date must be the last day of a calendar month:

a. The Reinsurer’s policyholders’ surplus (or its equivalent under the Reinsurer’s accounting system) as reported in such financial statements of the Reinsurer as designated by the Reinsured, has been reduced by 20% of the amount of surplus (or the applicable equivalent) at any date during the prior 12-month period (including the 12-month period prior to the inception of this Contract); or

b. The Reinsurer’s A.M. Best’s rating has been assigned or downgraded below A- and/or its Standard & Poor’s rating has been assigned or downgraded below BBB+; or

c. The Reinsurer has become merged with, acquired by or controlled by any other entity or unaffiliated individual(s) not controlling the Reinsurer’s operations at the inception of this Contract; or

d. A State Insurance Department or other legal authority has ordered the Reinsurer to cease writing business; or

e. The Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or

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f. The Reinsurer has reinsured its entire liability under this Contract without the Reinsured’s prior written consent, except that this provision shall not apply to any intercompany reinsurance or intercompany pooling arrangements entered into by the Reinsurer; or

g. The Reinsurer has ceased assuming new or renewal property and casualty treaty reinsurance business; or

h. The Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid.

ARTICLE 3

EXCLUSIONS

1. This Contract does not apply to and specifically excludes the following:

a. All excess of loss reinsurance assumed by the Reinsured.

b. Reinsurance assumed by the Reinsured under obligatory reinsurance agreements, except intercompany reinsurance between the Reinsured and its affiliates and agency reinsurance where the policies involved are to be re-underwritten in accordance with the underwriting standards of the Reinsured and reissued as policies of the Reinsured at the next anniversary or expiration date.

c. Financial guarantee and insolvency.

d. Insurance policies classified by the Reinsured as Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation, and Credit business.

e. Flood and/or earthquake when written as such for standalone policies where flood and/or earthquake is the only named peril.

f. Nuclear risks as defined in the “Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance U.S.A.” attached to and forming part of this Contract.

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g. Loss or damage caused by or resulting from war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority, but this exclusion shall not apply to loss or damage covered under a standard policy with a standard War Exclusion Clause.

h. Loss or liability from any Pool, Association or Syndicate and any assessment or similar demand for payment related to the Florida Hurricane Catastrophe Fund or Citizens Property Insurance Corporation.

i. All liability of the Reinsured arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency Fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

j. Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25% of the Reinsured’s property loss under the applicable original policy.

k. Loss, damage, cost or expense arising out of an act of terrorism involving the use of any biological, chemical, nuclear or radioactive agent, material, device or weapon.

l. All liability arising out of mold, spores and/or fungus, but this exclusion shall not apply to those losses which follow as a direct result of a loss caused by a peril otherwise covered hereunder.

2. With the exception of subparagraphs (c), (f), (g) and (k) of paragraph (1) above, should any judicial, regulatory or legislative entity having legal jurisdiction invalidate any exclusion on the Reinsured’s policy, any amount of loss for which the Reinsured is liable because of such invalidation will not be excluded hereunder.

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3. The Reinsured may submit to the Reinsurer, for special acceptance hereunder, business not covered by this Contract. Within seven days of receipt of such request, each Reinsurer shall accept such request, ask for additional information, or reject the request. If a Reinsurer fails to respond to a special acceptance request within seven days, the Reinsurer shall be deemed to have agreed to the special acceptance. If said business is accepted by the Reinsurer, it will be subject to the terms of this Contract, except as such terms are modified by such acceptance. Any special acceptance business covered under the reinsurance agreement being replaced by this Contract will be automatically covered hereunder. Further, in the event a Reinsurer becomes a party to this Contract subsequent to the special acceptance of any business not normally covered hereunder, the Reinsurer shall automatically accept the same as being a part of this Contract.

ARTICLE 4

RETENTION AND LIMIT

1. As respects each excess layer of reinsurance coverage provided by this Contract, the Reinsured shall retain and be liable for the first amount of Ultimate Net Loss, shown as “Reinsured’s Retention” for that excess layer in Schedule A attached hereto, arising out of each Loss Occurrence. The Reinsurer shall then be liable, as respects each excess layer, for the amount by which such Ultimate Net Loss exceeds the Reinsured’s applicable retention, but the liability of the Reinsurer under each excess layer shall not exceed the amount, shown as “Reinsurer’s Per Occurrence Limit” for that excess layer in Schedule A attached hereto, as respects any one Loss Occurrence, nor shall it exceed the amount, shown as “Reinsurer’s Contract Limit” for that excess layer in Schedule A attached hereto as respects all loss or losses arising out of Loss Occurrences commencing during the Term of this Contract.

2. Notwithstanding the provisions above, no claim shall be made under any excess layer as respects losses arising out of Loss Occurrences commencing during the Term of this Contract unless at least two risks insured or reinsured by the Reinsured are involved in such Loss Occurrence. For purposes hereof, the Reinsured shall be the sole judge of what constitutes “one risk.”

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ARTICLE 5

REINSTATEMENT

1. In the event all or any portion of the reinsurance under the second excess layer of reinsurance coverage provided by this Contract is exhausted by loss, the amount so exhausted shall be reinstated immediately from the time the Loss Occurrence commences hereon. For each amount so reinstated the Reinsured agrees to pay additional premium equal to the product of the following:

a. The percentage of the loss occurrence limit for the second excess layer reinstated (based on the loss paid by the Reinsurer under that excess layer); times

b. The earned reinsurance premium for the second excess layer reinstated for the Term of this Contract (exclusive of reinstatement premium).

2. Whenever the Reinsured requests payment by the Reinsurer of any loss under the second excess layer hereunder, the Reinsured shall submit a statement to the Reinsurer of reinstatement premium due the Reinsurer for that excess layer. If the earned reinsurance premium for the second excess layer for the Term of this Contract has not been finally determined as of the date of any such statement, the calculation of reinstatement premium due for that excess layer shall be based on the deposit premium for that excess layer and shall be readjusted when the earned reinsurance premium for that excess layer for the Term of this Contract has been finally determined. Any reinstatement premium shown to be due the Reinsurer for the second excess layer as reflected by any such statement (less prior payments, if any, for that excess layer) shall be payable by the Reinsured concurrently with payment by the Reinsurer of the requested loss for that excess layer. Any return reinstatement premium shown to be due the Reinsured shall be remitted by the Reinsurer as promptly as possible after receipt and verification of the Reinsured’s statement.

3. Notwithstanding anything stated herein, the liability of the Reinsurer under the second excess layer of reinsurance coverage provided by this Contract shall not exceed either of the following:

a. The amount, shown as “Reinsurer’s Per Occurrence Limit” for the second excess layer in Schedule A attached hereto, as respects loss or losses arising out of any one Loss Occurrence; or

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b. The amount, shown as “Reinsurer’s Contract Limit” for the second excess layer in Schedule A attached hereto, in all during the Term of this Contract.

ARTICLE 6

FLORIDA HURRICANE CATASTROPHE FUND

1. The Reinsured shall provisionally purchase mandatory coverage from the Florida Hurricane Catastrophe Fund (FHCF) with the following limit and retention:

a. 90% of $277,000,000 excess of $108,000,000 (mandatory layer).

The provisional limits and retentions above may increase or decrease in accordance with the provisions of the reimbursement contract between the Reinsured and the State Board of Administration of the State of Florida (SBA).

2. Any loss reimbursement paid or payable to the Reinsured for the mandatory coverage layer provided by the FHCF, (“FHCF loss reimbursement”) and resulting from Loss Occurrences commencing during the Term of this Contract, shall inure to the benefit of this Contract. Further, any FHCF loss reimbursement shall be deemed paid to the Reinsured in accordance with the reimbursement contract between the Reinsured and the SBA at the full payout level set forth therein. It is further deemed that any loss reimbursement shall not be reduced by any reduction or exhaustion of the actual claims paying capacity of the FHCF and that the FHCF fund balance is deemed funded to the fullest extent allowable by Florida statute.

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3. Prior to final calculation of the Reinsured’s FHCF retention and payout for the mandatory layer provided by the reimbursement contract between the Reinsured and the SBA, the Reinsurer’s liability hereunder will provisionally be calculated based on the projected FHCF payout and in accordance with paragraph (2) above. Following the FHCF’s final calculation of the payout for the coverage layer provided by the reimbursement contract, the Ultimate Net Loss under this Contract will be recalculated. If, as a result of such calculation, the loss to the Reinsurer hereunder in any one Loss Occurrence is less than the amount previously paid by the Reinsurer hereunder, the Reinsured shall promptly remit the difference to the Reinsurer. If the loss to the Reinsurer in any one Loss Occurrence hereunder is greater than the amount previously paid by the Reinsurer, the Reinsurer shall promptly remit the difference to the Reinsured. For purposes of both the provisional and final calculation of Reinsurer liability referenced above, it is deemed that any FHCF loss reimbursement shall not be reduced by any reduction or exhaustion of the actual claims paying capacity of the FHCF and that the FHCF fund balance is deemed funded to the fullest extent allowable by Florida statute.

4. If an FHCF reimbursement amount is based on the Reinsured’s losses in more than one Loss Occurrence commencing during the Term of this Contract, and the FHCF does not designate the amount allocable to each Loss Occurrence, the FHCF reimbursement amount shall be prorated in the proportion that the Reinsured’s losses in each Loss Occurrence bear to the Reinsured’s total losses arising out of all Loss Occurrences to which the FHCF reimbursement applies.

ARTICLE 7

RATE AND PREMIUM

1. As premium for each excess layer of reinsurance coverage provided by this Contract, the Reinsured shall pay the Reinsurer the greater of the following:

a. The amount, shown as “Minimum Premium” for that excess layer in Schedule A attached hereto; or

b. The percentage, shown as “Exposure Rate” for that excess layer in Schedule A attached hereto, of the Reinsured’s Total Insured Value as of September 30, 2012 (the “adjusted premium”), subject to the provisions of paragraph (5) below.

2. “Total Insured Value” means the sum of Coverage A, B, C and D for Business Covered as defined in the Business Covered Article.

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3. The Reinsured shall pay the Reinsurer a deposit premium for each excess layer of the amount, shown as “Deposit Premium” for that excess layer in Schedule A attached hereto, payable in installment amounts and at the dates set forth in in the “Deposit Payment Schedule” for each excess layer in Schedule A attached hereto. No deposit premium installments shall be due to a Reinsurer hereunder until that Reinsurer has executed its Interests and Liabilities Agreement attached to and forming part of this Contract. Further, if this Contract is terminated, no deposit premium installments shall be due after the effective date of termination.

4. As respects any excess layer hereunder, if the Reinsured elects to reduce or terminate a Reinsurer’s participation percentage in accordance with paragraph (3) of the Term Article, the “Minimum Premium” as respects such excess layer shall not apply. Further, the earned reinsurance premium as otherwise determined in accordance with the provisions of subparagraph (b) of paragraph (1) above as respects each excess layer shall be replaced with the following:

a. In the event a loss occurs prior to the effective date of reduction or termination and the Reinsurer’s liability for such Loss Occurrence exceeds the “Deposit Premium” for such excess layer, the reinsurance premium for the Term of this Contract for such excess layer shall equal the “Deposit Premium” for such excess layer times the ratio the loss recoverable under such excess layer bears to the “Reinsurer’s Per Occurrence Limit” for such excess layer.

b. In the event no loss occurs prior to the effective date of reduction or termination or a loss occurs whereby the Reinsurer’s liability for such Loss Occurrence is less than the “Deposit Premium” applicable to such excess layer, the reinsurance premium for the Term of this Contract for such excess layer shall equal the pro rata portion of the reinsurance premium otherwise due hereunder for such excess layer based on the proportion the Term of this Contract bears to the original 12-month term of this Contract.

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5. No later than April 1, 2013 (or the effective date of termination in the event this Contract is terminated prior to April 1, 2013), the Reinsured shall provide a report to the Reinsurer setting forth the premium due under each excess layer hereunder, computed in accordance with paragraph (1) or (4) (as applicable) above, and any amounts due either party shall be remitted promptly. However, no return premium shall be due the Reinsured or additional premium due the Reinsurer as respects any excess layer hereunder unless the difference between the adjusted premium for such excess layer and the “Deposit Premium” for such excess layer is greater than **%. In the event the adjusted premium for any excess layer hereunder is greater than the “Deposit Premium” for such excess layer by more than **%, the premium due hereunder for such excess layer shall be equal to the deposit premium for such excess layer plus the difference between the adjusted premium for such excess layer and ***% of the deposit premium for such excess layer. Further, in the event the adjusted premium for any excess layer hereunder is less than the deposit premium for such excess layer by more than ***%, the premium due hereunder for such excess layer shall be equal to the “Deposit Premium” for such excess layer less the difference between ***% of the deposit premium for such excess layer and the adjusted premium for such excess layer.

ARTICLE 8

DEFINITIONS

ULTIMATE NET LOSS

The term “Ultimate Net Loss” as used herein shall be defined as the sum or sums (including Loss in Excess of Policy Limits, Extra Contractual Obligations and Loss Adjustment Expense, as hereinafter defined) paid or payable by the Reinsured in settlement of claims and in satisfaction of judgments rendered on account of such claims after deduction of all salvage, all recoveries, and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Reinsured’s Ultimate Net Loss has been ascertained.

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LOSS IN EXCESS OF POLICY LIMITS AND EXTRA CONTRACTUAL OBLIGATIONS

The terms “Loss in Excess of Policy Limits” and “Extra Contractual Obligations” as used herein shall be defined as follows:

a. “Loss in Excess of Policy Limits” shall mean 90% of any amount paid or payable by the Reinsured in excess of its Policy limits, but otherwise within the terms of its Policy, such loss in excess of the Reinsured’s Policy limits having been incurred because of, but not limited to, failure by the Reinsured to settle within the Policy limits or by reason of the Reinsured’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.

b. “Extra Contractual Obligations” shall mean 90% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Reinsured, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Reinsured to settle within the Policy limits or by reason of the Reinsured’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. An Extra Contractual Obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

Notwithstanding anything stated herein, this Contract shall not apply to any Loss in Excess of Policy Limits or any Extra Contractual Obligation incurred by the Reinsured as a result of any fraudulent and/or criminal act by any officer or director of the Reinsured acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

Further, any Loss in Excess of Policy Limits and/or Extra Contractual Obligations that are made in connection with this Contract shall not exceed 25% of the contractual loss under all Policies involved in the Loss Occurrence as respects each excess layer hereunder.

Savings Clause (Applicable only if the Reinsurer is domiciled in the State of New York): In no event shall coverage be provided to the extent that such coverage is not permitted under New York law.

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LOSS ADJUSTMENT EXPENSE

The term “Loss Adjustment Expense” as used herein shall be defined as expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense, and/or appeal of claims, regardless of how such expenses are classified for statutory reporting purposes. Loss Adjustment Expense shall include, but not be limited to, interest on judgments, expenses of outside adjusters, expenses and a pro rata share of salaries of the Reinsured’s field employees and expenses of other employees of the Reinsured who have been temporarily diverted from their normal and customary duties and assigned to the adjustment of losses covered by this Contract, expenses of the Reinsured’s officials incurred in connection with losses covered by this Contract, and Declaratory Judgment Expenses or other legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto. Loss Adjustment Expense shall not include normal office expenses or salaries of the Reinsured’s employees or officials.

DECLARATORY JUDGMENT EXPENSE

The term “Declaratory Judgment Expense” as used herein shall be defined as the Reinsured’s own costs and legal expense incurred in direct connection with declaratory judgment actions brought to determine the Reinsured’s defense and/or indemnification obligations that are assignable to specific claims arising out of Policies reinsured by this Contract, regardless of whether the declaratory judgment action is successful or unsuccessful. Any Declaratory Judgment Expense shall be deemed to have been fully incurred by the Reinsured on the same date as the original loss (if any) giving rise to the action.

TERM OF THIS CONTRACT

“Term of this Contract” as used herein shall be defined as the period from 12:01 a.m., Local Standard Time, June 1, 2012 through 12:01 a.m., Local Standard Time, June 1, 2013. However, if this Contract is terminated, “Term of this Contract” as used herein shall mean the period from 12:01 a.m., Local Standard Time, June 1, 2012 until the effective time and date of termination.

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ARTICLE 9

LOSS OCCURRENCE DEFINITION

LOSS OCCURRENCE

1. The term “Loss Occurrence” shall mean the sum of 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 within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one Loss Occurrence shall be limited to all individual losses sustained by the Reinsured occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term Loss Occurrence shall be further defined as follows:

a. As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Reinsured occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. However, the event need not be limited to one state or province or states or provinces contiguous thereto.

b. As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Reinsured occurring during any period of 96 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses which occur beyond such 96 consecutive hours during the continued occupation of an assured’s premises by strikers, provided such occupation commenced during the aforesaid period.

c. As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the opening paragraph of this Article) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Reinsured’s Loss Occurrence.

d. As regards freeze, only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting of frozen pipes and tanks) may be included in the Reinsured’s Loss Occurrence.

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e. As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs (b) and (c) above), which spread through trees, grassland or other vegetation, all individual losses sustained by the Reinsured which occur during any period of 168 consecutive hours within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another may be included in the Reinsured’s Loss Occurrence.

2. For all Loss Occurrences the Reinsured may choose the date and time when any such period of consecutive hours commences provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Reinsured arising out of that disaster, accident or loss and provided that only one such period of 168 consecutive hours shall apply with respect to one event, except for any Loss Occurrence referred to in subparagraph (a) or (b) of paragraph (1) above where only one such period of 96 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

3. No individual losses occasioned by an event that would be covered by the 96 hours clauses may be included in any Loss Occurrence claimed under the 168 hours provision.

ARTICLE 10

ACCESS TO RECORDS

The Reinsurer or its designated representatives shall have access to the books and records of the Reinsured on matters relating to this reinsurance at all reasonable times, and at the location where such books and records are maintained in the ordinary course of business, for the purpose of obtaining information concerning this Contract or the subject matter thereof. Notification of a request for inspection of records shall be sent to the Reinsured by the Reinsurer in written form, and shall normally be given four weeks in advance. Notwithstanding the above, the Reinsurer shall not have any right of access to the records of the Reinsured if it is not current in all undisputed payments due the Reinsured.

ARTICLE 11

AGENCY

If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party.

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ARTICLE 12

ARBITRATION

1. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Reinsured, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Underwriters at Lloyd’s. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, the two Arbiters shall request the American Arbitration Association to appoint the Umpire. If the American Arbitration Association fails to appoint the Umpire within 30 days after it has been requested to do so, either party may request a justice of a Court of general jurisdiction of the state in which the arbitration is to be held to appoint the Umpire.

2. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

3. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Reinsured to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

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4. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

5. Any arbitration proceedings shall take place in Tampa, Florida; however, the location may be changed if mutually agreed upon by the parties of this Contract. Notwithstanding the location of arbitration, all proceedings pursuant hereto shall be governed by the law of the State of Florida.

ARTICLE 13

CASH CALL

In the event that at any time the Reinsured becomes obligated to make a payment or series of payments for losses which exceed the Reinsured’s retention, the Reinsured shall present to the Reinsurer an itemized statement of the amounts payable hereunder. The Reinsurer shall be obligated (subject to the terms and conditions of this Contract) to make a payment to the Reinsured of the amount requested within 10 days of receipt of the statement from the Reinsured.

ARTICLE 14

CONFIDENTIALITY

1. The Reinsurer hereby acknowledges that the terms and conditions of this Contract, any materials provided in the course of audit or inspection and any documents, information and data provided to it by the Reinsured, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (hereinafter referred to as “confidential information”) are proprietary and confidential to the Reinsured. Confidential information shall not include documents, information or data that the Reinsurer can show:

a. Are publicly available or have become publicly available through no unauthorized act of the Reinsurer;

b. Have been rightfully received from a third person without obligation of confidentiality; or

c. Were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

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2. Absent the written consent of the Reinsured, the Reinsurer shall not disclose any confidential information to any third parties, including any affiliated companies, except:

a. When required by retrocessionaires subject to the business ceded to this Contract;

b. When required by regulators performing an audit of the Reinsurer’s records and/or financial condition;

c. When required by external auditors performing an audit of the Reinsurer’s records in the normal course of business; or

d. When required by attorneys or arbitrators in connection with an actual or potential dispute hereunder.

Further, the Reinsurer agrees not to use any confidential information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

3. Notwithstanding the above, in the event the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the confidential information, the Reinsurer agrees to provide the Reinsured with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Reinsured in maintaining the confidentiality provided for in this Article.

4. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 15

CURRENCY

1. Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

2. Amounts paid or received by the Reinsured in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Reinsured.

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ARTICLE 16

ENTIRE AGREEMENT

1. This Contract and any related trust agreement, Letter of Credit and/or special acceptance, shall constitute the entire agreement between the parties hereto with respect to the business being reinsured hereunder, and there are no understandings between the parties hereto other than as expressed in this Contract.

2. Any change or modification to this Contract shall be null and void unless made by an addendum and signed by the parties hereto.

ARTICLE 17

ERROR AND OMISSIONS

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

ARTICLE 18

FEDERAL EXCISE TAX

1. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

2. In the event of any return of premium becoming due hereunder, the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Reinsured or its agent should take steps to recover the tax from the United States Government.

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ARTICLE 19

FUNDING OF RESERVES

1. The Reinsurer agrees to fund its share of the Reinsured’s ceded unearned premium (including, but not limited to, the unearned portion of any deposit premium installment as calculated by the Reinsured) and outstanding loss and Loss Adjustment Expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known Loss Occurrences) by:

a. Clean, irrevocable and unconditional Letter of Credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of Letters of Credit and acceptable to said insurance regulatory authorities; and/or

b. Escrow accounts for the benefit of the Reinsured; and/or

c. Cash advances;

if the Reinsurer:

a. Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Reinsured and if, without such funding, a penalty would accrue to the Reinsured on any financial statement it is required to file with the insurance regulatory authorities involved; or

b. Has experienced any of the circumstances described in paragraph (3) of the Term Article. However, if such circumstance is rectified, then no special funding requirements shall apply and any such current funding in accordance with the provisions above shall be released to the Reinsurer.

For purposes of this Contract, the Lloyd’s United States Credit for Reinsurance Trust Fund shall be considered an acceptable funding instrument. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved.

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2. If a Reinsurer fails to fulfill its funding obligation (if any) under this Article, the Reinsured may, at its option, require the Reinsurer to pay, and the Reinsurer agrees to pay, any interest charge on the funding obligation calculated on the last business day of each month as follows:

a. The number of full days that have expired since the earliest of the applicable following dates:

i. As respects a Reinsurer that is unauthorized in any state of the United States of America or District of Columbia having jurisdiction over the Reinsured, December 31 of the calendar year in which the funding was required;

ii. As respects a Reinsurer that has experienced any of the circumstances described in paragraph (3) of the Term Article, the first date such circumstance occurs;

times:

b. 1/365ths of the sum of 2% and the U.S. prime rate as quoted in The Wall Street Journal on the first day of the month for which the calculation is made; times

c. The funding obligation, less the amount, if any, funded by the Reinsurer prior to the applicable date determined in subparagraph (a) above.

It is agreed that interest shall accumulate until the full interest charge amount as provided for in this paragraph and the funding obligation are paid.

If the interest rate provided under this Article exceeds the maximum interest rate allowed by any applicable law or is held unenforceable by an arbitrator or a court of competent jurisdiction, such interest rate shall be modified to the highest rate permitted by the applicable law, and all remaining provisions of this Article and Contract shall remain in full force and effect without being impaired or invalidated in any way.

3. With regard to funding in whole or in part by Letters of Credit, it is agreed that each Letter of Credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will involve an “Evergreen Clause,” which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Reinsured not less than 30 days prior to said expiration date. The Reinsured and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said Letter of Credit may be drawn upon by the Reinsured or its successors in interest at any time, without diminution because of the insolvency of the Reinsured or the Reinsurer, but only for one or more of the following purposes:

a. To reimburse itself for the Reinsurers’ share of losses and/or Loss Adjustment Expense paid under the terms of Policies reinsured hereunder, unless paid in cash by the Reinsurer;

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b. To reimburse itself for the Reinsurer’s share of any other amounts claims to be due hereunder, unless paid in cash by the Reinsurer;

c. To fund a cash account in an amount equal to the Reinsurer’s share of any ceded unearned premium and/or outstanding loss and Loss Adjustment Expense reserves (including all case reserves plus any reasonable amount estimated to be unreported for known Loss Occurrences) funded by means of a Letter of Credit which is under non-renewal notice, if said Letter of Credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date;

d. To refund to the Reinsurer any sums in excess of the actual amount required to fund the Reinsurer’s share of the Reinsured’s ceded unearned premium and/or outstanding loss and Loss Adjustment Expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known Loss Occurrences), if so requested by the Reinsurer; and

e. To reimburse itself for the Reinsurer’s portion of the unearned reinsurance premium paid to the Reinsurer hereunder.

In the event the amount drawn by the Reinsured on any Letter of Credit is in excess of the actual amount required for (3a), (3c), or (3e), or in the case of (3b), the actual amount determined to be due, the Reinsured shall promptly return to the Reinsurer the excess amount so drawn.

ARTICLE 20

GOVERNING LAW

This Contract shall be governed as to performance, administration and interpretation in accordance with the laws of the State of Florida, exclusive of the rules with respect to conflicts of law; however, with respect to credit for reinsurance, the applicable rules of all states shall apply.

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ARTICLE 21

INSOLVENCY

1. If more than one reinsured company is included within the definition of “Reinsured” hereunder, this Article shall apply individually to each such company.

2. In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the Reinsured or to its liquidator, receiver, conservator or statutory successor, with reasonable provision for verification, on the basis of the liability of the Reinsured or on the basis of claims files and allowed in the liquidation proceeding, whichever may be required by applicable stature, without diminution because of the insolvency of the Reinsured or because the liquidator, receiver, conservator or statutory successor of the Reinsured has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Reinsured shall give written notice to the Reinsurer of the pendency of a claim against the Reinsured indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Reinsured or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Reinsured as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Reinsured solely as a result of the defense undertaken by the Reinsurer.

3. Where two or more Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Reinsured.

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4. It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Reinsured or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee or other party as more specifically limited by any statute or regulation applicable hereto, of such reinsurance in the event of the insolvency of the Reinsured or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such Policy obligations of the Reinsured as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Reinsured to such payees. However, the exceptions provided in (1) and (2) above shall apply only to the extent that applicable statutes or regulations specifically permit such exceptions.

ARTICLE 22

LATE PAYMENTS

1. The interest penalties provided for in this Article shall apply to the Reinsurer or to the Reinsured in the following circumstances:

a. With the exception of payments due from the Reinsurer in accordance with the Cash Call Article, payments due from the Reinsurer to the Reinsured shall have as a due date the date on which the agreed proof of loss is received by the Reinsurer, and shall be overdue 30 days thereafter. Payment to the Intermediary is deemed to be payment to the Reinsured for purposes of this Article.

b. Payments due from the Reinsured to the Reinsurer shall have as a due date the date specified in this Contract. Payments shall be overdue 30 days thereafter. Premium adjustments shall be overdue 30 days following the due date set forth under the terms of this Contract.

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c. The Reinsured shall provide a copy of the original insured’s proof of loss, and a copy of the claim adjuster’s report(s) or other evidence of indemnification for losses exceeding the excess limit on an incurred basis. If, subsequent to receipt of this evidence, the information contained therein is insufficient or not in accordance with the contractual conditions, then the payment due date as defined in subparagraph (a) shall be deemed to be the date upon which the Reinsurer received additional information necessary to approve payment of the claim or the claim is presented in an acceptable manner. Interest as stipulated in subparagraph (d) shall be payable should a disputed claim be ultimately settled and if the period set out in subparagraph (a) is exceeded, but only to the extent that the final loss payment exactly tracks with the original proof of loss.

d. Overdue amounts shall bear simple interest from the overdue date at the 90-day United States Treasury Bill rate set forth by the Federal Reserve Board for the first Monday of the calendar month in which the amount becomes overdue, as published in the Federal Reserve Statistical Release. If the interest generated for 100% in respect of any overdue payment as outlined in subparagraph (a) or (b) is $500 or less, then the interest penalty shall be waived.

e. For the purposes of this Article, reinsuring Underwriters at Lloyd’s shall be viewed as one entity. The provisions set forth herein shall not be applicable until the creditor party shall have manifested to the debtor party its intent to invoke the terms of this Article.

ARTICLE 23

LIABILITY OF THE REINSURER

1. The liability of the Reinsurer shall follow that of the Reinsured in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers, interpretations and modifications of the Reinsured’s Policies and any endorsements thereon. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

2. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

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ARTICLE 24

LOSS NOTICES AND SETTLEMENTS

1. Whenever losses sustained by the Reinsured appear likely to result in a claim hereunder, the Reinsured shall notify the Reinsurer, and the Reinsurer shall have the right to participate in the adjustment of such losses at its own expense.

2. All loss settlements made by the Reinsured, provided they are within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid (or scheduled to be paid within 14 days) by the Reinsured. Notwithstanding the foregoing, and subject to the provisions set forth under paragraph (2) of the Exclusions Article, should any judicial, regulatory, or legislative entity having legal jurisdiction require that the Reinsured be liable for any amounts that are otherwise outside the terms of the Reinsured’s original Policies, the Reinsurer agrees that such amounts shall be subject always to the terms and conditions of this Contract.

ARTICLE 25

NET RETAINED LINES

1. This Contract applies only to that portion of any Policy which the Reinsured retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any Policy which the Reinsured retains net for its own account shall be included.

2. The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Reinsured to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

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ARTICLE 26

NON-WAIVER

The failure of the Reinsured or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights or remedies contained herein nor stop either party from thereafter demanding full and complete compliance nor prevent either party from exercising such rights or remedies in the future.

ARTICLE 27

NOTICES AND AGREEMENT EXECUTION

1. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable.

2. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

a. Paper documents with an original ink signature;

b. Facsimile or electronic copies of paper documents showing an original ink signature; and/or

c. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms “electronic record,” “electronic signature” and “electronic agent” shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto.

3. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

ARTICLE 28

OFFSET

The Reinsured and the Reinsurer, each at its option, may offset any balance or balances, whether on account of premiums, claims and losses, Loss Adjustment Expenses or salvages due

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from one party to the other under this Contract or under any other reinsurance agreement heretofore or hereafter entered into between the Reinsured and the Reinsurer, whether acting as assuming reinsurer or as ceding company; provided, however, that in the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with applicable statutes and regulations.

ARTICLE 29

OTHER REINSURANCE

The Reinsured shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Reinsured and be entirely disregarded in applying all of the provisions of this Contract.

ARTICLE 30

SALVAGE AND SUBROGATION

The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Reinsured, less the actual cost, excluding salaries of officials and employees of the Reinsured and sums paid to attorneys as a retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Reinsured for its primary loss. The Reinsured hereby agrees to enforce its rights to salvage and subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights if, in the Reinsured’s opinion, it is economically reasonable to do so. Should the Reinsured neglect or refuse to enforce such rights, the Reinsurer is hereby empowered and authorized to institute the appropriate action in the name of the Reinsured, at the Reinsurer’s expense.

ARTICLE 31

SERVICE OF SUIT

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory, or District of the United States where authorization is required by insurance regulatory authorities.)

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1. This Article will not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

2. In the event the Reinsurer fails to pay any amount claimed to be due hereunder or fails to otherwise perform its obligations hereunder, the Reinsurer, at the request of the Reinsured, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is accepted by the Reinsurer or is determined by removal, transfer or otherwise, as provided for above, will comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against any of the Reinsurers upon this Contract, will abide by the final decision of such court or of any Appellate Court in the event of an appeal.

3. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his or her successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Reinsured or any beneficiary hereunder arising out of this Contract.

ARTICLE 32

SEVERABILITY

If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

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ARTICLE 33

TAXES

In consideration of the terms under which this Contract is issued, the Reinsured will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

ARTICLE 34

TERRITORY

The liability of the Reinsurer shall be limited to losses under Policies covering property located within the territorial limits of the State of Florida; but this limitation shall not apply to moveable property if the Reinsured’s Policies provide coverage when said moveable property is outside the aforementioned territorial limits.

ARTICLE 35

INTERMEDIARY

Advocate Reinsurance Partners, LLC is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including, but not limited to, notices, statements, premium, return premium, commissions, taxes, losses, Loss Adjustment Expense, salvages and loss settlements) relating thereto shall be transmitted to the Reinsured or the Reinsurer through Advocate Reinsurance Partners, LLC, 2501 North Harwood Street, Suite 1250, Dallas, TX 75201. Payments by the Reinsured to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Reinsured only to the extent that such payments are actually received by the Reinsured.

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SCHEDULE A

CATASTROPHE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE: JUNE 1, 2012

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

	Excess Layer 1			Excess Layer 2			Excess Layer 3
Reinsured’s Retention	$	27,500,000		$	50,000,000		$	135,700,000
Reinsurer’s Per Occurrence Limit	$	22,500,000		$	58,000,000		$	155,000,000
Reinsurer’s Contract Limit	$	22,500,000		$	116,000,000		$	155,000,000
Exposure Rate		***	%		***	%		***	%
Minimum Premium	$	*****		$	******		$	******
Deposit Premium	$	******		$	******		$	*******
Deposit Payment Schedule:
Installment Due June 1, 2012	$	******		$	*******		$	*******
Installment Due September 1, 2012	$	*******		$	*******		$	*******
Installment Due January 1, 2013	$	*******		$	*******		$	*******
Installment Due April 1, 2013	$	***** *		$	***** *		$	***** *

* plus applicable adjustment per Rate and Premium Article

All figures listed above are at 100% for each excess layer shall apply to each Reinsurer in the percentage share for that excess layer expressed in its Interests and Liabilities Agreement attached hereto. The total placement of Excess Layer 3 shall equal 90%.

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NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE – REINSURANCE U.S.A.

1. This Reinsurance does not cover any loss or liability accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

2. Without in any way restricting the operation of paragraph (1) of this clause, this Reinsurance does not cover any loss or liability accruing to the Reinsured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to:

I. Nuclear reactor power plants including all auxiliary property on the site, or

II. Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and “critical facilities” as such, or

III. Installations for fabricating complete fuel elements or for processing substantial quantities of “special nuclear material”, and for reprocessing, salvaging, chemically separating, storing or disposing of “spent” nuclear fuel or waste materials, or

IV. Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

3. Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate

(a) where Reinsured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b) where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof.

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4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against.

5. It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reinsured to be the primary hazard.

6. The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

7. Reinsured to be sole judge of what constitutes:

(a) substantial quantities, and

(b) the extent of installation, plant or site.

Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a) all Policies issued by the Reinsured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

(b) with respect to any risk located in Canada Policies issued by the Reinsured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

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EX-10.14

Exhibit 10.14

****** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission.

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

EFFECTIVE: JUNE 1, 2012

ISSUED TO

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Including any and all companies that are or may hereafter become affiliated therewith

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

TABLE OF CONTENTS

ARTICLE 1
BUSINESS COVERED	1
ARTICLE 2
TERM	1
ARTICLE 3
CONCURRENCY OF CONDITIONS	3
ARTICLE 4
RATE AND PREMIUM	3
ARTICLE 5
LOSS NOTICES AND SETTLEMENTS	4
ARTICLE 6
ACCESS TO RECORDS	5
ARTICLE 7
AGENCY	5
ARTICLE 8
ARBITRATION	6
ARTICLE 9
CONFIDENTIALITY	7
ARTICLE 10
CURRENCY	8
ARTICLE 11
ENTIRE AGREEMENT	8
ARTICLE 12
ERRORS AND OMISSIONS	9
ARTICLE 13
FEDERAL EXCISE TAX	9
ARTICLE 14
FUNDING OF RESERVES	9
ARTICLE 15
GOVERNING LAW	12
ARTICLE 16
INSOLVENCY	12
ARTICLE 17
LATE PAYMENTS	14

ARTICLE 18
NON-WAIVER	15
ARTICLE 19
NOTICES AND AGREEMENT EXECUTION	15
ARTICLE 20
OFFSET	16
ARTICLE 21
SERVICE OF SUIT	16
ARTICLE 22
SEVERABILITY	17
ARTICLE 23
TAXES	17
ARTICLE 24
INTERMEDIARY	17

REINSTATEMENT PREMIUM PROTECTION REINSURANCE CONTRACT

(hereinafter called the “Contract”)

EFFECTIVE: JUNE 1, 2012

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Including any and/or all companies that are or may hereafter become affiliated therewith

(hereinafter called the “Reinsured”)

by

THE SUBSCRIBING REINSURER(S) SPECIFIED IN THE INTERESTS AND LIABLITIES AGREEMENT

ATTACHED TO THIS CONTRACT

(hereinafter called, with other participants, the “Reinsurer(s)”)

ARTICLE 1

BUSINESS COVERED

By this Contract the Reinsurer agrees to indemnity the Reinsured for 100% of any net reinstatement premium which the Reinsured pays or becomes liable to pay under the provisions of the second excess layer of the Reinsured’s Catastrophe Excess of Loss Reinsurance Contract, effective June 1, 2012 (hereinafter referred to as the “Original Contract”), subject to the terms, conditions and limitations hereinafter set forth.

ARTICLE 2

TERM

1. This Contract shall become effective at 12:01 a.m., Local Standard Time, June 1, 2012, with respect to reinstatement premium payable by the Reinsured under the provisions of the Original Contract, and shall remain in force until 12:01 a.m., Local Standard Time, June 1, 2013. “Local Standard Time” as used herein shall mean local standard time at the location where the Loss Occurrence commences.

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2. Notwithstanding the provisions of paragraph (1) above, the Reinsured may reduce or terminate a Reinsurer’s percentage share in this Contract at any time by giving written notice to the Reinsurer in the event any of the following circumstances occur. The effective date of reduction or termination shall be the date selected by the Reinsured, which may be a date that is retroactively applied up to a maximum of 65 days prior to the date of public announcement for subparagraphs (a) through (e) below or upon discovery for subparagraphs (f) through (h) below, subject to the condition that such selected date must be the last day of a calendar month:

a. The Reinsurer’s policyholders’ surplus (or its equivalent under the Reinsurer’s accounting system) as reported in such financial statements of the Reinsurer as designated by the Reinsured, has been reduced by 20% of the amount of surplus (or the applicable equivalent) at any date during the prior 12-month period (including the 12-month period prior to the inception of this Contract); or

b. The Reinsurer’s A.M. Best’s rating has been assigned or downgraded below A- and/or its Standard & Poor’s rating has been assigned or downgraded below BBB+; or

c. The Reinsurer has become merged with, acquired by or controlled by any other entity or unaffiliated individual(s) not controlling the Reinsurer’s operations at the inception of this Contract; or

d. A State Insurance Department or other legal authority has ordered the Reinsurer to cease writing business; or

e. The Reinsurer has become insolvent or has been placed into a liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Reinsurer for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or

f. The Reinsurer has reinsured its entire liability under this Contract without the Reinsured’s prior written consent, except that this provision shall not apply to any intercompany reinsurance or intercompany pooling arrangements entered into by the Reinsurer; or

g. The Reinsurer has ceased assuming new or renewal property and casualty treaty reinsurance business; or

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h. The Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid.

3. If the Reinsured elects to terminate this Contract in accordance with the provisions of paragraph (2) above, the premium due hereunder shall be prorated based on the Reinsurer’s period of participation under this Contract and shall be due as promptly as possible following determination of the final adjusted reinsurance premium paid by the Reinsured under the Original Contract.

ARTICLE 3

CONCURRENCY OF CONDITIONS

1. It is agreed that this Contract will follow those terms, conditions, exclusions, definitions, warranties and settlements of the Reinsured under the Original Contract, including any addenda thereto, which are not inconsistent with the provisions of this Contract.

2. The Reinsured shall advise the Reinsurer of any material changes in the Original Contract which may affect the liability of the Reinsurer under this Contract.

ARTICLE 4

RATE AND PREMIUM

1. As premium for the reinsurance coverage provided by this Contract, the Reinsured shall pay the Reinsurer the greater of the following:

a. $******* (minimum premium); or

b. The product of the following:

i. *****; times

ii. The Final Adjusted Rate on Line for the second excess layer under the Original Contract; times

iii. An amount equal to the final adjusted premium paid by the Reinsured for the second excess layer under the Original Contract.

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“Final Adjusted Rate on Line” as used herein shall mean an amount equal to the final adjusted premium paid by the Reinsured for the second excess layer under the Original Contract divided by the “Reinsurer’s Per Occurrence Limit” for the second excess layer.

2. The Reinsured shall pay the Reinsurer a deposit premium hereunder of $******* in four equal installments of $*********, due on June 1 and September 1 of 2012, and January 1 and April 1 of 2013. No deposit premium shall be due to a Reinsurer hereunder until that Reinsurer has executed its Interests and Liabilities Agreement attached to and forming part of this Contract. Further, if this Contract is terminated, no deposit premium installments shall be due after the effective date of termination.

3. On or before April 1, 2013, the Reinsured shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with paragraph (1) above, and any amount due either party shall be remitted promptly.

4. “Contract Quarter” as used herein shall mean the period from June 1, 2012 through August 31, 2012, both days inclusive, and each respective three-month period (or portion thereof) thereafter during the term of this Contract.

ARTICLE 5

LOSS NOTICES AND SETTLEMENTS

1. Whenever reinstatement premium settlements are made by the Reinsured under the second excess layer of the Original Contract, the Reinsured shall notify the Reinsurer.

2. All reinstatement premium settlements made by the Reinsured under the Original Contract, provided they are within the terms of the Original Contract and within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid (or schedules to be paid within 14 days) by the Reinsured.

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3. As promptly as possible after the end of each Contract Quarter, the Reinsured shall report to the Reinsurer its reinstatement premiums paid during the Contract Quarter and its outstanding loss reserves (being the sum of all reinstatement premiums paid by the Reinsured under the Original Contract but not yet recovered from the Reinsurer, plus the Reinsured’s reserves for reinstatement premiums due under the Original Contract, if any) as of the end of the Contract Quarter on any reinstatement premiums reported to the Reinsurer in accordance with paragraph (1) above. This paragraph shall not apply to any Contract Quarter in which there were no loss payments subject to this Contract.

ARTICLE 6

ACCESS TO RECORDS

The Reinsurer or its designated representatives shall have access to the books and records of the Reinsured on matters relating to this reinsurance at all reasonable times, and at the location where such books and records are maintained in the ordinary course of business, for the purpose of obtaining information concerning this Contract or the subject matter thereof. Notification of a request for inspection of records shall be sent to the Reinsured by the Reinsurer in written form, and shall normally be given four weeks in advance. Notwithstanding the above, the Reinsurer shall not have any right of access to the records of the Reinsured if it is not current in all undisputed payments due the Reinsured.

ARTICLE 7

AGENCY

If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party.

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ARTICLE 8

ARBITRATION

1. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Reinsured, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Underwriters at Lloyd’s. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, the two Arbiters shall request the American Arbitration Association to appoint the Umpire. If the American Arbitration Association fails to appoint the Umpire within 30 days after it has been requested to do so, either party may request a justice of a Court of general jurisdiction of the state in which the arbitration is to be held to appoint the Umpire.

2. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

3. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Reinsured to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

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4. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

5. Any arbitration proceedings shall take place in Tampa, Florida; however, the location may be changed if mutually agreed upon by the parties of this Contract. Notwithstanding the location of arbitration, all proceedings pursuant hereto shall be governed by the law of the State of Florida.

ARTICLE 9

CONFIDENTIALITY

1. The Reinsurer hereby acknowledges that the terms and conditions of this Contract, any materials provided in the course of audit or inspection and any documents, information and data provided to it by the Reinsured, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (hereinafter referred to as “confidential information”) are proprietary and confidential to the Reinsured. Confidential information shall not include documents, information or data that the Reinsurer can show:

a. Are publicly available or have become publicly available through no unauthorized act of the Reinsurer;

b. Have been rightfully received from a third person without obligation of confidentiality; or

c. Were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

2. Absent the written consent of the Reinsured, the Reinsurer shall not disclose any confidential information to any third parties, including any affiliated companies, except:

a. When required by retrocessionaires subject to the business ceded to this Contract;

b. When required by regulators performing an audit of the Reinsurer’s records and/or financial condition;

c. When required by external auditors performing an audit of the Reinsurer’s records in the normal course of business; or

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d. When required by attorneys or arbitrators in connection with an actual or potential dispute hereunder.

Further, the Reinsurer agrees not to use any confidential information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

3. Notwithstanding the above, in the event the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the confidential information, the Reinsurer agrees to provide the Reinsured with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Reinsured in maintaining the confidentiality provided for in this Article.

4. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 10

CURRENCY

1. Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

2. Amounts paid or received by the Reinsured in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Reinsured.

ARTICLE 11

ENTIRE AGREEMENT

1. This Contract and any related trust agreement, Letter of Credit and/or special acceptance, shall constitute the entire agreement between the parties hereto with respect to the business being reinsured hereunder, and there are no understandings between the parties hereto other than as expressed in this Contract.

2. Any change or modification to this Contract shall be null and void unless made by an addendum and signed by the parties hereto.

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ARTICLE 12

ERRORS AND OMISSIONS

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

ARTICLE 13

FEDERAL EXCISE TAX

1. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

2. In the event of any return of premium becoming due hereunder, the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Reinsured or its agent should take steps to recover the tax from the United States Government.

ARTICLE 14

FUNDING OF RESERVES

1. The Reinsurer agrees to fund its share of the Reinsured’s ceded unearned premium (including, but not limited to, the unearned portion of any deposit premium installment as calculated by the Reinsured) and outstanding loss and Loss Adjustment Expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known Loss Occurrences) by:

a. Clean, irrevocable and unconditional Letter of Credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of Letters of Credit and acceptable to said insurance regulatory authorities; and/or

b. Escrow accounts for the benefit of the Reinsured; and/or

c. Cash advances;

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if the Reinsurer:

a. Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Reinsured and if, without such funding, a penalty would accrue to the Reinsured on any financial statement it is required to file with the insurance regulatory authorities involved; or

b. Has experienced any of the circumstances described in paragraph (2) of the Term Article. However, if such circumstance is rectified, then no special funding requirements shall apply and any such current funding in accordance with the provisions above shall be released to the Reinsurer.

For purposes of this Contract, the Lloyd’s United States Credit for Reinsurance Trust Fund shall be considered an acceptable funding instrument. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved.

2. If a Reinsurer fails to fulfill its funding obligation (if any) under this Article, the Reinsured may, at its option, require the Reinsurer to pay, and the Reinsurer agrees to pay, any interest charge on the funding obligation calculated on the last business day of each month as follows:

a. The number of full days that have expired since the earliest of the applicable following dates:

i. As respects a Reinsurer that is unauthorized in any state of the United States of America or District of Columbia having jurisdiction over the Reinsured, December 31 of the calendar year in which the funding was required;

ii. As respects a Reinsurer that has experienced any of the circumstances described in paragraph (3) of the Term Article, the first date such circumstance occurs;

times:

b. 1/365ths of the sum of 2% and the U.S. prime rate as quoted in The Wall Street Journal on the first day of the month for which the calculation is made; times

c. The funding obligation, less the amount, if any, funded by the Reinsurer prior to the applicable date determined in subparagraph (a) above.

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It is agreed that interest shall accumulate until the full interest charge amount as provided for in this paragraph and the funding obligation are paid.

If the interest rate provided under this Article exceeds the maximum interest rate allowed by any applicable law or is held unenforceable by an arbitrator or a court of competent jurisdiction, such interest rate shall be modified to the highest rate permitted by the applicable law, and all remaining provisions of this Article and Contract shall remain in full force and effect without being impaired or invalidated in any way.

3. With regard to funding in whole or in part by Letters of Credit, it is agreed that each Letter of Credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will involve an “Evergreen Clause,” which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Reinsured not less than 30 days prior to said expiration date. The Reinsured and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said Letter of Credit may be drawn upon by the Reinsured or its successors in interest at any time, without diminution because of the insolvency of the Reinsured or the Reinsurer, but only for one or more of the following purposes:

a. To reimburse itself for the Reinsurer’s share of unearned premiums returned to insureds on account of policy cancellations, unless paid in cash by the Reinsurer;

b. To reimburse itself for the Reinsurer’s share of reinstatement premiums paid by the Reinsurer under the terms of the Original Contract, unless paid in cash by the Reinsurer;

c. To reimburse itself for the Reinsurer’s share of any other amounts claimed to be due hereunder, unless paid in cash by the Reinsurer;

d. To fund a cash account in an amount equal to the Reinsurer’s share of amounts, including but not limited to, any ceded unearned premium and/or outstanding loss reserves funded by means of a Letter of Credit which is under non-renewal notice, if said Letter of Credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date;

e. To refund to the Reinsurer any sums in excess of the actual amount required to fund the Reinsurer’s share of the Reinsured’s ceded unearned premium and/or outstanding loss, if so requested by the Reinsurer.

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In the event the amount drawn by the Reinsured on any Letter of Credit is in excess of the actual amount required for (3a), (3b), or (3d), or in the case of (3c), the actual amount determined to be due, the Reinsured shall promptly return to the Reinsurer the excess amount so drawn.

ARTICLE 15

GOVERNING LAW

This Contract shall be governed as to performance, administration and interpretation in accordance with the laws of the State of Florida, exclusive of the rules with respect to conflicts of law; however, with respect to credit for reinsurance, the applicable rules of all states shall apply.

ARTICLE 16

INSOLVENCY

1. If more than one reinsured company is included within the definition of “Reinsured” hereunder, this Article shall apply individually to each such company.

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2. In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the Reinsured or to its liquidator, receiver, conservator or statutory successor, with reasonable provision for verification, on the basis of the liability of the Reinsured or on the basis of claims files and allowed in the liquidation proceeding, whichever may be required by applicable stature, without diminution because of the insolvency of the Reinsured or because the liquidator, receiver, conservator or statutory successor of the Reinsured has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Reinsured shall give written notice to the Reinsurer of the pendency of a claim against the Reinsured indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Reinsured or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Reinsured as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Reinsured solely as a result of the defense undertaken by the Reinsurer.

3. Where two or more Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Reinsured.

4. It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Reinsured or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee or other party as more specifically limited by any statute or regulation applicable hereto, of such reinsurance in the event of the insolvency of the Reinsured or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such Policy obligations of the Reinsured as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Reinsured to such payees. However, the exceptions provided in (1) and (2) above shall apply only to the extent that applicable statutes or regulations specifically permit such exceptions.

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ARTICLE 17

LATE PAYMENTS

1. The interest penalties provided for in this Article shall apply to the Reinsurer or to the Reinsured in the following circumstances:

a. Payments due from the Reinsurer to the Reinsured shall have as a due date the date on which the agreed proof of loss is received by the Reinsurer, and shall be overdue 30 days thereafter. Payment to the Intermediary is deemed to be payment to the Reinsured for purposes of this Article.

b. Payments due from the Reinsured to the Reinsurer shall have as a due date the date specified in this Contract. Payments shall be overdue 30 days thereafter. Premium adjustments shall be overdue 30 days following the due date set forth under the terms of this Contract.

c. The Reinsured shall provide a copy of the original insured’s proof of loss, and a copy of the claim adjuster’s report(s) or other evidence of indemnification for losses exceeding the excess limit on an incurred basis. If, subsequent to receipt of this evidence, the information contained therein is insufficient or not in accordance with the contractual conditions, then the payment due date as defined in subparagraph (a) shall be deemed to be the date upon which the Reinsurer received additional information necessary to approve payment of the claim or the claim is presented in an acceptable manner. Interest as stipulated in subparagraph (d) shall be payable should a disputed claim be ultimately settled and if the period set out in subparagraph (a) is exceeded, but only to the extent that the final loss payment exactly tracks with the original proof of loss.

d. Overdue amounts shall bear simple interest from the overdue date at the 90-day United States Treasury Bill rate set forth by the Federal Reserve Board for the first Monday of the calendar month in which the amount becomes overdue, as published in the Federal Reserve Statistical Release. If the interest generated for 100% in respect of any overdue payment as outlined in subparagraph (a) or (b) is $500 or less, then the interest penalty shall be waived.

e. For the purposes of this Article, reinsuring Underwriters at Lloyd’s shall be viewed as one entity. The provisions set forth herein shall not be applicable until the creditor party shall have manifested to the debtor party its intent to invoke the terms of this Article.

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ARTICLE 18

NON-WAIVER

The failure of the Reinsured or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights or remedies contained herein nor stop either party from thereafter demanding full and complete compliance nor prevent either party from exercising such rights or remedies in the future.

ARTICLE 19

NOTICES AND AGREEMENT EXECUTION

1. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable.

2. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

a. Paper documents with an original ink signature;

b. Facsimile or electronic copies of paper documents showing an original ink signature; and/or

c. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms “electronic record,” “electronic signature” and “electronic agent” shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto.

3. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

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ARTICLE 20

OFFSET

The Reinsured and the Reinsurer, each at its option, may offset any balance or balances, whether on account of premiums, claims and losses, Loss Adjustment Expenses or salvages due from one party to the other under this Contract or under any other reinsurance agreement heretofore or hereafter entered into between the Reinsured and the Reinsurer, whether acting as assuming reinsurer or as ceding company; provided, however, that in the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with applicable statutes and regulations.

ARTICLE 21

SERVICE OF SUIT

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory, or District of the United States where authorization is required by insurance regulatory authorities.)

1. This Article will not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

2. In the event the Reinsurer fails to pay any amount claimed to be due hereunder or fails to otherwise perform its obligations hereunder, the Reinsurer, at the request of the Reinsured, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is accepted by the Reinsurer or is determined by removal, transfer or otherwise, as provided for above, will comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against any of the Reinsurers upon this Contract, will abide by the final decision of such court or of any Appellate Court in the event of an appeal.

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3. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his or her successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Reinsured or any beneficiary hereunder arising out of this Contract.

ARTICLE 22

SEVERABILITY

If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

ARTICLE 23

TAXES

In consideration of the terms under which this Contract is issued, the Reinsured will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

ARTICLE 24

INTERMEDIARY

Advocate Reinsurance Partners, LLC is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including, but not limited to, notices, statements, premium, return premium, commissions, taxes, losses, Loss Adjustment Expense, salvages and loss settlements) relating thereto shall be transmitted to the Reinsured or the Reinsurer through Advocate Reinsurance Partners, LLC, 2501 North Harwood Street, Suite 1250, Dallas, TX 75201. Payments by the Reinsured to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Reinsured only to the extent that such payments are actually received by the Reinsured.

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EX-10.15

Exhibit 10.15

****** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission

CATASTROPHE AGGREGATE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE: JUNE 1, 2012

ISSUED TO

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Including any and all companies that are or may hereafter become affiliated therewith

CATASTROPHE AGGREGATE EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS

ARTICLE 1
BUSINESS COVERED	5
ARTICLE 2
TERM	5
ARTICLE 3
EXCLUSIONS	6
ARTICLE 4
RETENTION AND LIMIT	8
ARTICLE 5
INURING REINSURANCE	9
ARTICLE 6
REINSURANCE PREMIUM	10
ARTICLE 7
DEFINITIONS	12
ARTICLE 8
LOSS OCCURRENCE DEFINITION	14
ARTICLE 9
ACCESS TO RECORDS	16
ARTICLE 10
AGENCY	16
ARTICLE 11
ARBITRATION	17
ARTICLE 12
CASH CALL	18
ARTICLE 13
COLLATERAL	18
ARTICLE 14
COLLATERAL RELEASE	19
ARTICLE 15
CONFIDENTIALITY	21
ARTICLE 16
CURRENCY	22

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ARTICLE 17
ENTIRE AGREEMENT	23
ARTICLE 18
ERRORS AND OMISSIONS	23
ARTICLE 19
FEDERAL EXCISE TAX	23
ARTICLE 20
GOVERNING LAW	23
ARTICLE 21
INSOLVENCY	24
ARTICLE 22
LATE PAYMENTS	25
ARTICLE 23
LIABILITY OF THE REINSURER	26
ARTICLE 24
LIMITED RECOURSE AND BERMUDA REGULATIONS	27
ARTICLE 25
LOSS NOTICES AND SETTLEMENTS	28
ARTICLE 26
NET RETAINED LINES	29
ARTICLE 27
NON-WAIVER	29
ARTICLE 28
NOTICES AND AGREEMENT EXECUTION	29
ARTICLE 29
OFFSET	30
ARTICLE 30
OTHER REINSURANCE	30
ARTICLE 31
SALVAGE AND SUBROGATION	30
ARTICLE 32
SERVICE OF SUIT	31
ARTICLE 33
SEVERABLILITY	32
ARTICLE 34
TAXES	32

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ARTICLE 35
TERRITORY	32
ARTICLE 36
INTERMEDIARY	33

ATTACHMENTS

Collateral Collection Tables

Nuclear Incident Exclusion Clause - Physical Damage – Reinsurance U.S.A.

Trust Agreement

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CATASTROPHE AGGREGATE EXCESS OF LOSS REINSURANCE CONTRACT

(hereinafter called the “Contract”)

EFFECTIVE: JUNE 1, 2012

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Including any and/or all companies that are or may hereafter become affiliated therewith

(hereinafter called the “Reinsured”)

by

THE SUBSCRIBING REINSURER(S) SPECIFIED IN THE INTERESTS AND LIABLITIES AGREEMENT ATTACHED TO THIS CONTRACT

(hereinafter called, with other participants, the “Reinsurer(s)”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Reinsured in respect of its net excess liability as a result of any loss or losses which may occur during the Term of this Contract under any policies, contracts and binders of insurance or reinsurance (hereinafter called “Policies”) in force at the effective date hereof or issued or renewed on or after that date, covering direct and assumed business classified by the Reinsured as the property perils of Homeowners and Dwelling, subject to the terms, conditions and limitations hereinafter set forth.

ARTICLE 2

TERM

1. This Contract shall become effective at 12:01 a.m., Local Standard Time, June 1, 2012, with respect to losses arising out of Loss Occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Local Standard Time, June 1, 2013. “Local Standard Time” as used herein shall mean local standard time at the location where the Loss Occurrence commences.

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2. If this Contract is terminated or expires while a Loss Occurrence covered hereunder is in progress, the Reinsurer’s liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire Loss Occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such Loss Occurrence is claimed against any renewal or replacement of this Contract.

3. Notwithstanding the provisions of paragraph (1) above, the Reinsured may reduce or terminate a Reinsurer’s percentage share in this Contract at any time by giving written notice to the Reinsurer in the event any of the following circumstances occur. The effective date of reduction or termination shall be the date selected by the Reinsured, which may be a date that is retroactively applied to the date of public announcement for subparagraph (a) below or upon discovery for subparagraph (b) below, subject to the condition that such selected date must be the last day of the calendar month.

a. A State Insurance Department or other legal authority has ordered the Reinsurer to cease writing business; or

b. The Reinsurer has reinsured its entire liability under this Contract without the Reinsured’s prior written consent, except that this provision shall not apply to any intercompany reinsurance or intercompany pooling arrangements entered into by the Reinsurer.

ARTICLE 3

EXCLUSIONS

1. This Contract does not apply to and specifically excludes the following:

a. All excess of loss reinsurance assumed by the Reinsured.

b. Reinsurance assumed by the Reinsured under obligatory reinsurance agreements, except intercompany reinsurance between the Reinsured and its affiliates and agency reinsurance where the policies involved are to be re-underwritten in accordance with the underwriting standards of the Reinsured and reissued as policies of the Reinsured at the next anniversary or expiration date.

c. Financial guarantee and insolvency.

d. Insurance policies classified by the Reinsured as Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation, and Credit business.

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e. Flood and/or earthquake when written as such for standalone policies where flood and/or earthquake is the only named peril.

f. Nuclear risks as defined in the “Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance U.S.A.” attached to and forming part of this Contract.

g. Loss or damage caused by or resulting from war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority, but this exclusion shall not apply to loss or damage covered under a standard policy with a standard War Exclusion Clause.

h. Loss or liability from any Pool, Association or Syndicate and any assessment or similar demand for payment related to the Florida Hurricane Catastrophe Fund or Citizens Property Insurance Corporation.

i. All liability of the Reinsured arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency Fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

j. Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25% of the Reinsured’s property loss under the applicable original policy.

k. Loss, damage, cost or expense arising out of an act of terrorism involving the use of any biological, chemical, nuclear or radioactive agent, material, device or weapon.

l. All liability arising out of mold, spores and/or fungus, but this exclusion shall not apply to those losses which follow as a direct result of a loss caused by a peril otherwise covered hereunder.

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2. With the exception of subparagraphs (c), (f), (g) and (k) of paragraph (1) above, should any judicial, regulatory or legislative entity having legal jurisdiction invalidate any exclusion on the Reinsured’s policy, any amount of loss for which the Reinsured is liable because of such invalidation with not be excluded hereunder.

3. The Reinsured may submit to the Reinsurer, for special acceptance hereunder, business not covered by this Contract. Within seven days of receipt of such request, each Reinsurer shall accept such request, ask for additional information, or reject the request. If a Reinsurer fails to respond to a special acceptance request within seven days, the Reinsurer shall be deemed to have agreed to the special acceptance. If said business is accepted by the Reinsurer, it will be subject to the terms of this Contract, except as such terms are modified by such acceptance. Any special acceptance business covered under the reinsurance agreement being replaced by this Contract will be automatically covered hereunder. Further, in the event a Reinsurer becomes a party to this Contract subsequent to the special acceptance of any business not normally covered hereunder, the Reinsurer shall automatically accept the same as being a part of this Contract.

ARTICLE 4

RETENTION AND LIMIT

1. The Reinsured shall retain and be liable for the first $5,000,000 of Ultimate Net Loss arising out of each Loss Occurrence. The Reinsurer shall then be liable for 77% of the amount by which such Ultimate Net Loss exceeds the Reinsured’s retention, but the liability of the Reinsurer shall not exceed 77% of $52,000,000 as respects any one Loss Occurrence, nor shall it exceed 77% of $52,000,000 as respects all Loss Occurrences commencing during the Term of this Contract.

2. Notwithstanding the provisions above, no claim shall be made hereunder as respects losses arising out of Loss Occurrences commencing during the Term of this Contract unless at least two risks insured or reinsured by the Reinsured are involved in such Loss Occurrence. For purposes hereof, the Reinsured shall be the sole judge of what constitutes “one risk.”

3. It is understood the Reinsured may maintain in force excess reinsurance, recoveries under which shall inure, unless otherwise stated in the Inuring Reinsurance Article, solely to the Reinsured’s benefit and be entirely disregarded in applying all of the provisions of this Contract.

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ARTICLE 5

INURING REINSURANCE

1. The Reinsured shall maintain property catastrophe excess of loss reinsurance, recoveries under which shall inure to the benefit of this Contract, for the following layers:

a. $20,000,000 in excess of $7,500,000 any one loss occurrence, subject to an annual limit of $40,000,000 and covering hurricane events only; and

b. $22,500,000 in excess of $27,500,000 any one Loss Occurrence, subject to an annual limit of $22,500,000; and

c. $58,000,000 in excess of $50,000,000 any one Loss Occurrence, subject to an annual limit of $116,000,000; and

d. 90% placement of $155,000,000 in excess of $135,700,000 any one Loss Occurrence, subject to an annual limit of $155,000,000; and

e. $2,500,000 in excess of $5,000,000 any one Loss Occurrence, subject to an annual limit of $5,000,000.

2. The Reinsured shall provisionally purchase mandatory coverage from the Florida Hurricane Catastrophe Fund (FHCF) with the following limit and retention:

a. 90% of $277,000,000 excess of $108,000,000;

The provisional limit and retention above may increase or decrease in accordance with the provisions of the reimbursement contract between the Reinsured and the State Board of Administration of the State of Florida (SBA).

Any loss reimbursement paid or payable to the Reinsured for the mandatory layer provided by the FHCF, and resulting from Loss Occurrences commencing during the Term of this Contract, shall inure to the benefit of this Contract. Further, any FHCF loss reimbursement shall be deemed paid to the Reinsured in accordance with the reimbursement contract between the Reinsured and the SBA at the full payout level set forth therein. It is further deemed that any loss reimbursement shall not be reduced by any reduction or exhaustion of the actual claims paying capacity of the FHCF and that the FHCF fund balance is deemed funded to the fullest extent allowable by Florida statute.

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Prior to final calculation of the Reinsured’s FHCF retention and payout for the mandatory layer provided by the reimbursement contract between the Reinsured and the SBA, the Reinsurer’s liability hereunder will provisionally be calculated based on the projected FHCF payout and in accordance with this paragraph (2). Following the FHCF’s final calculation of the payout for the coverage layer provided by the reimbursement contract, the Ultimate Net Loss under this Contract will be recalculated. If, as a result of such calculation, the loss to the Reinsurer under any excess layer in any one Loss Occurrence is less than the amount previously paid by the Reinsurer under the excess layer, the Reinsured shall promptly remit the difference to the Reinsurer. If the loss to the Reinsurer under any excess layer in any one Loss Occurrence is greater than the amount previously paid by the Reinsurer, the Reinsurer shall promptly remit the difference to the Reinsured. For purposes of both the provisional and final calculation of Reinsurer liability referenced above, it is deemed that any FHCF loss reimbursement shall not be reduced by any reduction or exhaustion of the actual claims paying capacity of the FHCF and that the FHCF fund balance is deemed funded to the fullest extent allowable by Florida statute.

If an FHCF reimbursement amount is based on the Reinsured’s losses in more than one Loss Occurrence commencing during the Term of this Contract, and the FHCF does not designate the amount allocable to each Loss Occurrence, the FHCF reimbursement amount shall be prorated in the proportion that the Reinsured’s losses in each Loss Occurrence bear to the Reinsured’s total losses arising out of all Loss Occurrences to which the FHCF reimbursement applies.

ARTICLE 6

REINSURANCE PREMIUM

1. As respects the reinsurance provided hereunder, the Reinsured shall pay the Reinsurer the greater of the following:

a. *****% of $********* (or a pro rata portion thereof in the event this Contract is terminated); or

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b. *******% of ***% of the Reinsured’s Total Insured Value as of September 30, 2012 (the “adjusted premium”). However, in the event the difference between the adjusted premium and the deposit premium is less than or equal to **% of the deposit premium, the premium due hereunder shall be **% of $********. Further, in the event the adjusted premium hereunder is greater than **% of $*******, the premium due hereunder shall be equal to the **% of $******** plus the difference between the adjusted premium and **% of $*********. Further, in the event the adjusted premium hereunder is less than **% of $*******, the premium due hereunder shall be equal to ***% $******** less the difference between **% of $******** and the adjusted premium.

2. The Reinsured shall pay the Reinsurer a deposit premium of $******* on June 1, 2012 and the Adjusted Deposit Installment, defined in paragraph (3) below, on January 1, 2013. No deposit premium installments shall be due to a Reinsurer hereunder until that Reinsurer has executed its Interests and Liabilities Agreement attached to and forming part of this Contract. Further, if this Contract is terminated, no deposit premium installments shall be due after the effective date of termination.

3. “Adjusted Deposit Installment” as used herein shall mean:

a. The premium due hereunder, computed in accordance with paragraph (1) above; less

b. $*******.

4. In the event this Contract is terminated in accordance with the provisions of paragraph (3) of the Term Article, the reinsurance premium due hereunder shall be prorated based on the period of the Reinsurer’s participation hereunder.

5. No later than January 1, 2013 (or as promptly as possible following termination in the event this Contract is terminated prior to January 1, 2013), the Reinsured shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with paragraph (1) or (4) above (as applicable) and the adjusted deposit installment, computed in accordance with paragraph (3) above. In the event this Contract is terminated prior to January 1, 2013, any additional premium due the Reinsurer or return premium due the Reinsured shall be remitted promptly.

6. The Reinsured shall furnish the Reinsurer with such information as the Reinsurer may require to complete its Annual Convention Statement.

7. “Total Insured Value” means the sum of Coverage A, B, C and D on Business Covered as defined in the Business Covered Article.

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ARTICLE 7

DEFINITIONS

ULTIMATE NET LOSS

The term “Ultimate Net Loss” as used herein shall be defined as the sum or sums (including Loss in Excess of Policy Limits, Extra Contractual Obligations and Loss Adjustment Expense, as hereinafter defined) paid or payable by the Reinsured in settlement of claims and in satisfaction of judgments rendered on account of such claims after deduction of all salvage, all recoveries, and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Reinsured’s Ultimate Net Loss has been ascertained.

LOSS IN EXCESS OF POLICY LIMITS AND EXTRA CONTRACTUAL OBLIGATIONS

The terms “Loss in Excess of Policy Limits” and “Extra Contractual Obligations” as used herein shall be defined as follows:

a. “Loss in Excess of Policy Limits” shall mean any amount paid or payable by the Reinsured in excess of its Policy limits, but otherwise within the terms of its Policy, such loss in excess of the Reinsured’s Policy limits having been incurred because of, but not limited to, failure by the Reinsured to settle within the Policy limits or by reason of the Reinsured’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.

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b. “Extra Contractual Obligations” shall mean any punitive, exemplary, compensatory or consequential damages paid or payable by the Reinsured, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Reinsured to settle within the Policy limits or by reason of the Reinsured’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. An Extra Contractual Obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

Notwithstanding anything stated herein, this Contract shall not apply to any Loss in Excess of Policy Limits or any Extra Contractual Obligation incurred by the Reinsured as a result of any fraudulent and/or criminal act by any officer or director of the Reinsured acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

Further, any Loss in Excess of Policy Limits and/or Extra Contractual Obligations that are made in connection with this Contract shall not exceed 25% of the contractual loss under all Policies involved in the Loss Occurrence as respects any one Coverage excess layer or any one Coverage Section hereunder.

Savings Clause (Applicable only if the Reinsurer is domiciled in the State of New York): In no event shall coverage be provided to the extent that such coverage is not permitted under New York law.

LOSS ADJUSTMENT EXPENSE

The term “Loss Adjustment Expense” as used herein shall be defined as expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense, and/or appeal of claims, regardless of how such expenses are classified for statutory reporting purposes. Loss Adjustment Expense shall include, but not be limited to, interest on judgments, expenses of outside adjusters, expenses and a pro rata share of salaries of the Reinsured’s field employees and expenses of other employees of the Reinsured who have been temporarily diverted from their normal and customary duties and assigned to the adjustment of losses covered by this Contract, expenses of the Reinsured’s officials incurred in connection with losses covered by this Contract, and Declaratory Judgment Expenses or other legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto. Loss Adjustment Expense shall not include normal office expenses or salaries of the Reinsured’s employees or officials.

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DECLARATORY JUDGMENT EXPENSE

The term “Declaratory Judgment Expense” as used herein shall be defined as the Reinsured’s own costs and legal expense incurred in direct connection with declaratory judgment actions brought to determine the Reinsured’s defense and/or indemnification obligations that are assignable to specific claims arising out of Policies reinsured by this Contract, regardless of whether the declaratory judgment action is successful or unsuccessful. Any Declaratory Judgment Expense shall be deemed to have been fully incurred by the Reinsured on the same date as the original loss (if any) giving rise to the action.

TERM OF THIS CONTRACT

“Term of this Contract” as used herein shall be defined as the period from 12:01 a.m., Local Standard Time, June 1, 2012 through 12:01 a.m., Local Standard Time, June 1, 2013. However, if this Contract is terminated, “Term of this Contract” as used herein shall mean the period from 12:01 a.m., Local Standard Time, June 1, 2012 until the effective time and date of termination.

ARTICLE 8

LOSS OCCURRENCE DEFINITION

LOSS OCCURRENCE

1. The term “Loss Occurrence” shall mean the sum of 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 within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one Loss Occurrence shall be limited to all individual losses sustained by the Reinsured occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term Loss Occurrence shall be further defined as follows:

a. As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Reinsured occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. However, the event need not be limited to one state or province or states or provinces contiguous thereto.

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b. As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Reinsured occurring during any period of 96 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses which occur beyond such 96 consecutive hours during the continued occupation of an assured’s premises by strikers, provided such occupation commenced during the aforesaid period.

c. As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the opening paragraph of this Article) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Reinsured’s Loss Occurrence.

d. As regards freeze, only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting of frozen pipes and tanks) may be included in the Reinsured’s Loss Occurrence.

e. As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs (b) and (c) above), which spread through trees, grassland or other vegetation, all individual losses sustained by the Reinsured which occur during any period of 168 consecutive hours within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another may be included in the Reinsured’s Loss Occurrence.

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2. For all Loss Occurrences the Reinsured may choose the date and time when any such period of consecutive hours commences provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Reinsured arising out of that disaster, accident or loss and provided that only one such period of 168 consecutive hours shall apply with respect to one event, except for any Loss Occurrence referred to in subparagraph (a) or (b) of paragraph (1) above where only one such period of 96 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

3. No individual losses occasioned by an event that would be covered by the 96 hours clauses may be included in any Loss Occurrence claimed under the 168 hours provision.

ARTICLE 9

ACCESS TO RECORDS

The Reinsurer or its designated representatives shall have access to the books and records of the Reinsured on matters relating to this reinsurance at all reasonable times, and at the location where such books and records are maintained in the ordinary course of business, for the purpose of obtaining information concerning this Contract or the subject matter thereof. Notification of a request for inspection of records shall be sent to the Reinsured by the Reinsurer in written form, and shall normally be given four weeks in advance. Notwithstanding the above, the Reinsurer shall not have any right of access to the records of the Reinsured if it is not current in all undisputed payments due the Reinsured.

ARTICLE 10

AGENCY

If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party.

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ARTICLE 11

ARBITRATION

1. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Reinsured, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Underwriters at Lloyd’s. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, the two Arbiters shall request the American Arbitration Association to appoint the Umpire. If the American Arbitration Association fails to appoint the Umpire within 30 days after it has been requested to do so, either party may request a justice of a Court of general jurisdiction of the state in which the arbitration is to be held to appoint the Umpire.

2. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

3. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Reinsured to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

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4. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

5. Any arbitration proceedings shall take place in Tampa, Florida; however, the location may be changed if mutually agreed upon by the parties of this Contract. Notwithstanding the location of arbitration, all proceedings pursuant hereto shall be governed by the law of the State of Florida.

ARTICLE 12

CASH CALL

In the event that at any time the Reinsured becomes obligated to make a payment or series of payments for losses which exceed the Reinsured’s retention, the Reinsured shall present to the Reinsurer an itemized statement of the amounts payable hereunder. The Reinsurer shall be obligated (subject to the terms and conditions of this Contract) to make a payment to the Reinsured of the amount requested within 10 days of receipt of the statement from the Reinsured.

ARTICLE 13

COLLATERAL

1. As promptly as possible following execution of this Contract, the Reinsurer (as Grantor) shall enter into a Trust Agreement (the “Trust Agreement”) with the Reinsured (as Beneficiary) and the trustee, pursuant to which the Reinsurer shall provide collateral in the form of eligible Assets deposited and held in a Trust Account, with such Assets having a market value greater than or equal to $40,040,000 (the “Collateral”) less earned premium (net of brokerage and applicable Federal Excise Tax). It is understood that deposit premium paid in accordance with the Reinsurance Premium Article shall be deposited into the Trust Account.

2. The Reinsured agrees that if the Reinsurer makes indemnity payment(s) to the Reinsured under this Contract, the Reinsurer may withdraw Assets from the Trust Account, reducing the market value of Assets in the Trust Account to an amount at least equal to the unused Reinsurance Limit, in accordance with the provisions of the Trust Agreement.

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3. The Trust Fund may be drawn upon by the Reinsured at any time and the Assets may be used at the Reinsured’s option in accordance with the provisions of Section 5 of the Trust Agreement.

4. At any time prior to expiration or termination of this Contract, if the value of the Assets in the Trust Account are less than the Reinsurer’s Obligations hereunder, the Reinsurer shall promptly deposit the difference into the Trust Account.

5. Except as provided in the Collateral Release Article, the Reinsured agrees to release the Assets in the Trust Account required under this Article as promptly as provided in the Trust Agreement.

ARTICLE 14

COLLATERAL RELEASE

1. At the expiration or termination of this Contract, if the Trust has not yet been terminated, the Reinsured shall calculate on a monthly basis, how much, if any, of the collateral shall be released from the Trust, as follows:

a. For each potentially covered Loss Occurrence, the Reinsured shall multiply the Loss Amount (being equal to the sum of losses and Loss Adjustment Expenses paid plus reserves for losses and Loss Adjustment Expense outstanding plus reserves for losses incurred but not yet reported) by the appropriate Buffer Loss Factor from the table below, based upon the type of Loss Occurrence and the number of months which have elapsed since the event. The product of this calculation shall be defined as the Buffered Loss Amount (“BLA”).

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Buffer Loss Factor Table
Number of Calendar Months Since Date of Loss Occurrence	Windstorm*/Brush fire			Earthquake and Fire Following			Other
0 to 3		200	%		300	%		250	%
> 3 to 6		150	%		200	%		175	%
> 6 to 9		125	%		175	%		150	%
> 9 to 12		110	%		150	%		130	%
> 12 to 15		105	%		125	%		115	%
> 15 to 18		100	%		120	%		110	%
Thereafter		100	%		100	%		100	%

* For the purpose of this Article, the term “Windstorm” shall include Hurricane, Rainstorm, Storm, Tempest, Tornado, Cyclone, Typhoon and Hail.

b. The BLA will be reduced by the $5,000,000 retention and any inuring reinsurance recoveries to compute the Presumed Ultimate Net Loss. The Presumed Ceded Loss will be defined as the lesser of 77% of the Presumed Ultimate Net Loss and the limit of 77% of $52,000,000.

c. The Presumed Total Ceded Loss will equal the lesser of the limit of 77% of $52,000,000 and the Presumed Ceded Loss. An amount equal to the Presumed Total Ceded Loss less losses paid by the Reinsurer under this Contract shall be retained in the Trust and any excess in the Trust shall be released to the Reinsurer.

d. Notwithstanding the aforementioned, at December 31, 2012, the parties agree to consider the release of collateral. The intention is to release collateral for all limits for which there is essentially no possibility of loss from past or future events before the expiration of this Contract. All collateral securing what the parties agree are unreachable limits will be released within three business days.

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e. Thirty-six months following the expiration of this Contract, the Reinsurer shall have the option to commute this Contract by sending the Reinsured written notice thereof. In such event, the Reinsurer shall pay to the Reinsured an amount equal to the loss and loss adjustment expense reserves hereunder, including reserves for incurred but not reported losses, as estimated by the Reinsured, which would be recoverable hereunder. Upon the Reinsurer’s payment of such amount, both parties shall be completely released from all liability under this Contract, whether known or unknown.

2. So long as there is any security on deposit in the Trust, the Reinsured shall perform the calculation set forth above within 10 business days after the end of each month and deliver a report substantially in the form of the Collateral Calculation Table attached to this Contract to the Reinsurer and the Trustee named in the Trust Agreement. Collateral will be adjusted monthly based on this calculation. To the extent the calculation indicates that collateral may be reduced, the delivery of the report to the Trustee will constitute a directive to return excess collateral to the Reinsurer. In the event the calculation indicates additional collateral is required, the Reinsurer will have 10 business days from receipt of the report to deposit the required collateral into the Trust.

ARTICLE 15

CONFIDENTIALITY

1. The Reinsurer hereby acknowledges that the terms and conditions of this Contract, any materials provided in the course of audit or inspection and any documents, information and data provided to it by the Reinsured, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (hereinafter referred to as “confidential information”) are proprietary and confidential to the Reinsured. Confidential information shall not include documents, information or data that the Reinsurer can show:

a. Are publicly available or have become publicly available through no unauthorized act of the Reinsurer;

b. Have been rightfully received from a third person without obligation of confidentiality; or

c. Were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

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2. Absent the written consent of the Reinsured, the Reinsurer shall not disclose any confidential information to any third parties, including any affiliated companies, except:

a. When required by retrocessionaires subject to the business ceded to this Contract;

b. When required by regulators performing an audit of the Reinsurer’s records and/or financial condition;

c. When required by external auditors performing an audit of the Reinsurer’s records in the normal course of business; or

d. When required by attorneys or arbitrators in connection with an actual or potential dispute hereunder.

Further, the Reinsurer agrees not to use any confidential information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

3. Notwithstanding the above, in the event the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the confidential information, the Reinsurer agrees to provide the Reinsured with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Reinsured in maintaining the confidentiality provided for in this Article.

4. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 16

CURRENCY

1. Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

2. Amounts paid or received by the Reinsured in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Reinsured.

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ARTICLE 17

ENTIRE AGREEMENT

1. This Contract and any related trust agreement, Letter of Credit and/or special acceptance, shall constitute the entire agreement between the parties hereto with respect to the business being reinsured hereunder, and there are no understandings between the parties hereto other than as expressed in this Contract.

2. Any change or modification to this Contract shall be null and void unless made by an addendum and signed by the parties hereto.

ARTICLE 18

ERRORS AND OMISSIONS

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

ARTICLE 19

FEDERAL EXCISE TAX

1. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

2. In the event of any return of premium becoming due hereunder, the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Reinsured or its agent should take steps to recover the tax from the United States Government.

ARTICLE 20

GOVERNING LAW

This Contract shall be governed as to performance, administration and interpretation in accordance with the laws of the State of Florida, exclusive of the rules with respect to conflicts of law; however, with respect to credit for reinsurance, the applicable rules of all states shall apply.

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ARTICLE 21

INSOLVENCY

1. If more than one reinsured company is included within the definition of “Reinsured” hereunder, this Article shall apply individually to each such company.

2. In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the Reinsured or to its liquidator, receiver, conservator or statutory successor, with reasonable provision for verification, on the basis of the liability of the Reinsured or on the basis of claims files and allowed in the liquidation proceeding, whichever may be required by applicable stature, without diminution because of the insolvency of the Reinsured or because the liquidator, receiver, conservator or statutory successor of the Reinsured has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Reinsured shall give written notice to the Reinsurer of the pendency of a claim against the Reinsured indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Reinsured or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Reinsured as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Reinsured solely as a result of the defense undertaken by the Reinsurer.

3. Where two or more Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Reinsured.

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4. It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Reinsured or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee or other party as more specifically limited by any statute or regulation applicable hereto, of such reinsurance in the event of the insolvency of the Reinsured or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such Policy obligations of the Reinsured as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Reinsured to such payees. However, the exceptions provided in (1) and (2) above shall apply only to the extent that applicable statutes or regulations specifically permit such exceptions.

ARTICLE 22

LATE PAYMENTS

1. The interest penalties provided for in this Article shall apply to the Reinsurer or to the Reinsured in the following circumstances:

a. With the exception of payments due from the Reinsurer in accordance with the Cash Call Article, payments due from the Reinsurer to the Reinsured shall have as a due date the date on which the agreed proof of loss is received by the Reinsurer, and shall be overdue 30 days thereafter. Payment to the Intermediary is deemed to be payment to the Reinsured for purposes of this Article.

b. Payments due from the Reinsured to the Reinsurer shall have as a due date the date specified in this Contract. Payments shall be overdue 30 days thereafter. Premium adjustments shall be overdue 30 days following the due date set forth under the terms of this Contract.

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c. The Reinsured shall provide a copy of the original insured’s proof of loss, and a copy of the claim adjuster’s report(s) or other evidence of indemnification for losses exceeding the excess limit on an incurred basis. If, subsequent to receipt of this evidence, the information contained therein is insufficient or not in accordance with the contractual conditions, then the payment due date as defined in subparagraph (a) shall be deemed to be the date upon which the Reinsurer received additional information necessary to approve payment of the claim or the claim is presented in an acceptable manner. Interest as stipulated in subparagraph (d) shall be payable should a disputed claim be ultimately settled and if the period set out in subparagraph (a) is exceeded, but only to the extent that the final loss payment exactly tracks with the original proof of loss.

d. Overdue amounts shall bear simple interest from the overdue date at the 90-day United States Treasury Bill rate set forth by the Federal Reserve Board for the first Monday of the calendar month in which the amount becomes overdue, as published in the Federal Reserve Statistical Release. If the interest generated for 100% in respect of any overdue payment as outlined in subparagraph (a) or (b) is $500 or less, then the interest penalty shall be waived.

e. For the purposes of this Article, reinsuring Underwriters at Lloyd’s shall be viewed as one entity. The provisions set forth herein shall not be applicable until the creditor party shall have manifested to the debtor party its intent to invoke the terms of this Article.

ARTICLE 23

LIABILITY OF THE REINSURER

1. The liability of the Reinsurer shall follow that of the Reinsured in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers, interpretations and modifications of the Reinsured’s Policies and any endorsements thereon. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

2. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

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ARTICLE 24

LIMITED RECOURSE AND BERMUDA REGULATIONS

1. The Reinsured understands and accepts that the Segregated Accounts set forth in the Reinsurer’s Interests and Liabilities Agreement attached to this Contract (for purposes of this Article, individually the “Segregated Account” and collectively the “Segregated Accounts”), and that all corporate matters relating to the creation of the Segregated Accounts, including, but not limited to, capacity of each Segregated Account, the segregated nature of the Segregated Accounts and Aeolus Re Ltd., and the operation and liquidation of the Segregated Accounts shall be governed by, and construed in accordance with, the laws of Bermuda. The Reinsured has had the opportunity to take advice and to obtain all such additional information that it considers necessary to evaluate the terms, conditions and risks of entering into this Contract with Aeolus Re Ltd., on behalf of its Segregated Accounts.

2. Notwithstanding any other provision of this Contract to the contrary, the liability of each Segregated Account for the performance and discharge of all of its obligations, however they may arise, in relation to this Contract (together the “SA Obligations”) shall be limited to and payable solely from the assets linked to the Segregated Account. Accordingly there shall be no recourse to any other assets of Aeolus Re Ltd. (including for the avoidance of doubt, any assets linked to any other segregated account of Aeolus Re Ltd. or to its general account). In the event that the assets linked to the Segregated Accounts are insufficient to meet all SA Obligations, any SA Obligations remaining after the application of such assets linked to the Segregated Accounts shall be extinguished, and the Reinsured undertakes in such circumstances to take no further action against the Segregated Accounts, Aeolus Re Ltd. or any other segregated accounts of Aeolus Re Ltd. in respect of any such Obligations. In particular, neither the Reinsured nor any party acting on its behalf shall petition or take any steps for the winding up or receivership of any of the Segregated Accounts, Aeolus Re Ltd. or any other segregated accounts of Aeolus Re Ltd.

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3. The Reinsured also understands and accepts that two of the Reinsurers as set forth on the Reinsurer’s Interests and Liabilities Agreement are Aeolus Re J12 SPI Ltd. and Pendulum Re II Ltd. (for purposes of this Article, each referred to as an “SPI Reinsurer”). Notwithstanding any other provision of this Contract to the contrary, the liability of each SPI Reinsurer for the performance and discharge of all of its obligations, however they may arise, in relation to this Contract (together the “SPI Obligation”) shall be limited to and payable solely from the assets of each SPI Reinsurer. In the event that the assets available to each SPI Reinsurer are insufficient to meet all the SPI Obligations, any SPI Obligations remaining after the application of such assets available to each SPI Reinsurer shall be extinguished, and the Reinsured undertakes in such circumstances to take no further action against each SPI Reinsurer in respect of any such SPI Obligations. In particular, neither the Reinsured nor any party acting on its behalf shall petition or take any steps for the winding up or receivership of each SPI Reinsurer.

ARTICLE 25

LOSS NOTICES AND SETTLEMENTS

1. Whenever losses sustained by the Reinsured appear likely to result in a claim hereunder, the Reinsured shall notify the Reinsurer, and the Reinsurer shall have the right to participate in the adjustment of such losses at its own expense.

2. All loss settlements made by the Reinsured, provided they are within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid (or scheduled to be paid within 14 days) by the Reinsured. Notwithstanding the foregoing, and subject to the provisions set forth under paragraph (2) of the Exclusions Article, should any judicial, regulatory, or legislative entity having legal jurisdiction require that the Reinsured be liable for any amounts that are otherwise outside the terms of the Reinsured’s original Policies, the Reinsurer agrees that such amounts shall be subject always to the terms and conditions of this Contract.

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ARTICLE 26

NET RETAINED LINES

1. This Contract applies only to that portion of any Policy which the Reinsured retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any Policy which the Reinsured retains net for its own account shall be included.

2. The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Reinsured to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

ARTICLE 27

NON-WAIVER

The failure of the Reinsured or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights or remedies contained herein nor stop either party from thereafter demanding full and complete compliance nor prevent either party from exercising such rights or remedies in the future.

ARTICLE 28

NOTICES AND AGREEMENT EXECUTION

1. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable.

2. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

a. Paper documents with an original ink signature;

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b. Facsimile or electronic copies of paper documents showing an original ink signature; and/or

c. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms “electronic record,” “electronic signature” and “electronic agent” shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto.

3. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

ARTICLE 29

OFFSET

The Reinsured and the Reinsurer, each at its option, may offset any balance or balances, whether on account of premiums, claims and losses, Loss Adjustment Expenses or salvages due from one party to the other under this Contract or under any other reinsurance agreement heretofore or hereafter entered into between the Reinsured and the Reinsurer, whether acting as assuming reinsurer or as ceding company; provided, however, that in the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with applicable statutes and regulations.

ARTICLE 30

OTHER REINSURANCE

The Reinsured shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Reinsured and be entirely disregarded in applying all of the provisions of this Contract.

ARTICLE 31

SALVAGE AND SUBROGATION

The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Reinsured, less the actual cost, excluding salaries of officials and employees of the Reinsured and sums paid to attorneys as a retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of

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their priority according to their participation before being used in any way to reimburse the Reinsured for its primary loss. The Reinsured hereby agrees to enforce its rights to salvage and subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights if, in the Reinsured’s opinion, it is economically reasonable to do so. Should the Reinsured neglect or refuse to enforce such rights, the Reinsurer is hereby empowered and authorized to institute the appropriate action in the name of the Reinsured, at the Reinsurer’s expense.

ARTICLE 32

SERVICE OF SUIT

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory, or District of the United States where authorization is required by insurance regulatory authorities.)

1. This Article will not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

2. In the event the Reinsurer fails to pay any amount claimed to be due hereunder or fails to otherwise perform its obligations hereunder, the Reinsurer, at the request of the Reinsured, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is accepted by the Reinsurer or is determined by removal, transfer or otherwise, as provided for above, will comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against any of the Reinsurers upon this Contract, will abide by the final decision of such court or of any Appellate Court in the event of an appeal.

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3. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his or her successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Reinsured or any beneficiary hereunder arising out of this Contract.

ARTICLE 33

SEVERABLILITY

If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

ARTICLE 34

TAXES

In consideration of the terms under which this Contract is issued, the Reinsured will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

ARTICLE 35

TERRITORY

The liability of the Reinsurer shall be limited to losses under Policies covering property located within the territorial limits of the State of Florida; but this limitation shall not apply to moveable property if the Reinsured’s Policies provide coverage when said moveable property is outside the aforementioned territorial limits.

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ARTICLE 36

INTERMEDIARY

Advocate Reinsurance Partners, LLC is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including, but not limited to, notices, statements, premium, return premium, commissions, taxes, losses, Loss Adjustment Expense, salvages and loss settlements) relating thereto shall be transmitted to the Reinsured or the Reinsurer through Advocate Reinsurance Partners, LLC, 2501 North Harwood Street, Suite 1250, Dallas, TX 75201. Payments by the Reinsured to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Reinsured only to the extent that such payments are actually received by the Reinsured.

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COLLATERAL COLLECTION TABLES

CATASTROPHE AGGREGATE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE: JUNE 1, 2012

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Collateral Release Calculation as of [            ]
Line No.	Col. 1	Col. 2	Col. 3	Col. 4	Col. 5	Col. 6	Col. 7	Col. 8	Col. 9
	Date of Loss Event	Description	Loss Amount	Buffer Loss Factor	Buffer Loss Amount (Col. 3 x Col. 4)	Inuring Reinsurance Coverage	Buffered Loss Amount net of Inuring Reinsurance (Col. 5 - Col. 6)	Less $[            ] Retention	Balance (Col. 7 - Col.8)
1A
1B
1C
1D
1E
1F

ARP-HCI-02-AGG-001-12 Collateral Collection Tables  

DOC: June 1, 2012

NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE – REINSURANCE U.S.A.

1. This Reinsurance does not cover any loss or liability accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

2. Without in any way restricting the operation of paragraph (1) of this clause, this Reinsurance does not cover any loss or liability accruing to the Reinsured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to:

I. Nuclear reactor power plants including all auxiliary property on the site, or

II. Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and “critical facilities” as such, or

III. Installations for fabricating complete fuel elements or for processing substantial quantities of “special nuclear material”, and for reprocessing, salvaging, chemically separating, storing or disposing of “spent” nuclear fuel or waste materials, or

IV. Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

3. Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate

(a) where Reinsured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b) where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof.

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4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against.

5. It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reinsured to be the primary hazard.

6. The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

7. Reinsured to be sole judge of what constitutes:

(a) substantial quantities, and

(b) the extent of installation, plant or site.

Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a) all Policies issued by the Reinsured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

(b) with respect to any risk located in Canada Policies issued by the Reinsured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

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DOC: June 1, 2012

TRUST AGREEMENT

(copy to be included)

ARP-HCI-02-AGG-001-12 Trust Agreement  

DOC: June 1, 2012

EX-10.16

Exhibit 10.16

****** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission

CATASTROPHE AGGREGATE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE: JUNE 1, 2012

ISSUED TO

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Including any and all companies that are or may hereafter become affiliated therewith

CATASTROPHE AGGREGATE EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS

ARTICLE 1
BUSINESS COVERED	1
ARTICLE 2
TERM	1
ARTICLE 3
EXCLUSIONS	3
ARTICLE 4
RETENTION AND LIMIT	5
ARTICLE 5
INURING REINSURANCE	5
ARTICLE 6
REINSURANCE PREMIUM	7
ARTICLE 7
DEFINITIONS	9
ARTICLE 8
LOSS OCCURRENCE DEFINITION	11
ARTICLE 9
ACCESS TO RECORDS	13
ARTICLE 10
AGENCY	13
ARTICLE 11
ARBITRATION	14
ARTICLE 12
CASH CALL	15
ARTICLE 13
CONFIDENTIALITY	15
ARTICLE 14
CURRENCY	16
ARTICLE 15
ENTIRE AGREEMENT	17
ARTICLE 16
ERRORS AND OMISSIONS	17
ARTICLE 17
FEDERAL EXCISE TAX	17

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DOC: June 1, 2012

ARTICLE 18
FUNDING OF RESERVES	18
ARTICLE 19
GOVERNING LAW	20
ARTICLE 20
INSOLVENCY	21
ARTICLE 21
LATE PAYMENTS	22
ARTICLE 22
LIABILITY OF THE REINSURER	23
ARTICLE 23
LOSS NOTICES AND SETTLEMENTS	24
ARTICLE 24
NET RETAINED LINES	24
ARTICLE 25
NON-WAIVER	24
ARTICLE 26
NOTICES AND AGREEMENT EXECUTION	25
ARTICLE 27
OFFSET	25
ARTICLE 28
OTHER REINSURANCE	26
ARTICLE 29
SALVAGE AND SUBROGATION	26
ARTICLE 30
SERVICE OF SUIT	26
ARTICLE 31
SEVERABLILITY	27
ARTICLE 32
TAXES	28
ARTICLE 33
TERRITORY	28
ARTICLE 34
INTERMEDIARY	28

ATTACHMENTS

Nuclear Incident Exclusion Clause - Physical Damage – Reinsurance U.S.A.

ARP-HCI-02-AGG-002-12

DOC: June 1, 2012

CATASTROPHE AGGREGATE EXCESS OF LOSS REINSURANCE CONTRACT

(hereinafter called the “Contract”)

EFFECTIVE: JUNE 1, 2012

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

TAMPA, FLORIDA

Including any and/or all companies that are or may hereafter become affiliated therewith

(hereinafter called the “Reinsured”)

by

THE SUBSCRIBING REINSURER(S) SPECIFIED IN THE INTERESTS AND LIABLITIES AGREEMENT

ATTACHED TO THIS CONTRACT

(hereinafter called, with other participants, the “Reinsurer(s)”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Reinsured in respect of its net excess liability as a result of any loss or losses which may occur during the Term of this Contract under any policies, contracts and binders of insurance or reinsurance (hereinafter called “Policies”) in force at the effective date hereof or issued or renewed on or after that date, covering direct and assumed business classified by the Reinsured as the property perils of Homeowners and Dwelling, subject to the terms, conditions and limitations hereinafter set forth.

ARTICLE 2

TERM

1. This Contract shall become effective at 12:01 a.m., Local Standard Time, June 1, 2012, with respect to losses arising out of Loss Occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Local Standard Time, June 1, 2013. “Local Standard Time” as used herein shall mean local standard time at the location where the Loss Occurrence commences.

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2. If this Contract is terminated or expires while a Loss Occurrence covered hereunder is in progress, the Reinsurer’s liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire Loss Occurrence had occurred prior to the termination or expiration of this Contract, provided that no part of such Loss Occurrence is claimed against any renewal or replacement of this Contract.

3. Notwithstanding the provisions of paragraph (1) above, the Reinsured may reduce or terminate a Reinsurer’s percentage share in this Contract at any time by giving written notice to the Reinsurer in the event any of the following circumstances occur:

a. The Reinsurer’s policyholders’ surplus (or its equivalent under the Reinsurer’s accounting system) as reported in such financial statements of the Reinsurer as designated by the Reinsured, has been reduced by 20.0% of the amount of surplus (or the applicable equivalent) at any date during the prior 12-month period (including the 12-month period prior to the inception of this Contract); or

b. The Reinsurer’s A.M. Best’s rating has been assigned or downgraded below A- and/or its Standard & Poor’s rating has been assigned or downgraded below BBB+; or

c. The Reinsurer has become merged with, acquired by or controlled by any other entity or unaffiliated individual(s) not controlling the Reinsurer’s operations at the inception of this Contract; or

d. A State Insurance Department or other legal authority has ordered the Reinsurer to cease writing business; or

e. The Reinsurer has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement, or similar proceedings (whether voluntary or involuntary) or proceedings have been instituted against the Reinsurer for the appointment or a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations; or

f. The Reinsurer has reinsured its entire liability under this Contract without the Reinsured’s prior written consent, except that this provision shall not apply to any intercompany reinsurance or intercompany pooling arrangements entered into by the Reinsurer; or

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g. The Reinsurer has ceased assuming new or renewal property and casualty treaty reinsurance business; or

h. The Reinsurer has hired an unaffiliated runoff claims manager that is compensated on a contingent basis or is otherwise provided with financial incentives based on the quantum of claims paid.

ARTICLE 3

EXCLUSIONS

1. This Contract does not apply to and specifically excludes the following:

a. All excess of loss reinsurance assumed by the Reinsured.

b. Reinsurance assumed by the Reinsured under obligatory reinsurance agreements, except intercompany reinsurance between the Reinsured and its affiliates and agency reinsurance where the policies involved are to be re-underwritten in accordance with the underwriting standards of the Reinsured and reissued as policies of the Reinsured at the next anniversary or expiration date.

c. Financial guarantee and insolvency.

d. Insurance policies classified by the Reinsured as Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation, and Credit business.

e. Flood and/or earthquake when written as such for standalone policies where flood and/or earthquake is the only named peril.

f. Nuclear risks as defined in the “Nuclear Incident Exclusion Clause - Physical Damage -Reinsurance U.S.A.” attached to and forming part of this Contract.

g. Loss or damage caused by or resulting from war, invasion, hostilities, acts of foreign enemies, civil war, rebellion, insurrection, military or usurped power, or martial law or confiscation by order of any government or public authority, but this exclusion shall not apply to loss or damage covered under a standard policy with a standard War Exclusion Clause.

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h. Loss or liability from any Pool, Association or Syndicate and any assessment or similar demand for payment related to the Florida Hurricane Catastrophe Fund or Citizens Property Insurance Corporation.

i. All liability of the Reinsured arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency Fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, however denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

j. Loss and/or damage and/or costs and/or expenses arising from seepage and/or pollution and/or contamination, other than contamination from smoke. Nevertheless, this exclusion does not preclude payment of the cost of removing debris of property damaged by a loss otherwise covered hereunder, subject always to a limit of 25% of the Reinsured’s property loss under the applicable original policy.

k. Loss, damage, cost or expense arising out of an act of terrorism involving the use of any biological, chemical, nuclear or radioactive agent, material, device or weapon.

l. All liability arising out of mold, spores and/or fungus, but this exclusion shall not apply to those losses which follow as a direct result of a loss caused by a peril otherwise covered hereunder.

2. The Reinsured may submit to the Reinsurer, for special acceptance hereunder, business not covered by this Contract. Within seven days of receipt of such request, each Reinsurer shall accept such request, ask for additional information, or reject the request. If a Reinsurer fails to respond to a special acceptance request within seven days, the Reinsurer shall be deemed to have agreed to the special acceptance. If said business is accepted by the Reinsurer, it will be subject to the terms of this Contract, except as such terms are modified by such acceptance. Any special acceptance business covered under the reinsurance agreement being replaced by this Contract will be automatically covered hereunder. Further, in the event a Reinsurer becomes a party to this Contract subsequent to the special acceptance of any business not normally covered hereunder, the Reinsurer shall automatically accept the same as being a part of this Contract.

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ARTICLE 4

RETENTION AND LIMIT

1. The Reinsured shall retain and be liable for the first $5,000,000 of Ultimate Net Loss arising out of each Loss Occurrence. The Reinsurer shall then be liable for the amount by which such Ultimate Net Loss exceeds the Reinsured’s retention, but the liability of the Reinsurer shall not exceed $52,000,000 as respects any one Loss Occurrence, nor shall it exceed $52,000,000 as respects all Loss Occurrences commencing during the Term of this Contract

2. Notwithstanding the provisions above, no claim shall be made hereunder as respects losses arising out of Loss Occurrences commencing during the Term of this Contract unless at least two risks insured or reinsured by the Reinsured are involved in such Loss Occurrence. For purposes hereof, the Reinsured shall be the sole judge of what constitutes “one risk.”

3. It is understood the Reinsured may maintain in force excess reinsurance, recoveries under which shall inure, unless otherwise stated in the Inuring Reinsurance Article, solely to the Reinsured’s benefit and be entirely disregarded in applying all of the provisions of this Contract.

ARTICLE 5

INURING REINSURANCE

1. The Reinsured shall maintain property catastrophe excess of loss reinsurance, recoveries under which shall inure to the benefit of this Contract, for the following layers:

a. $20,000,000 in excess of $7,500,000 any one Loss Occurrence, subject to an annual limit of $40,000,000 and covering hurricane events only; and

b. $22,500,000 in excess of $27,500,000 any one Loss Occurrence, subject to an annual limit of $22,500,000; and

c. $58,000,000 in excess of $50,000,000 any one Loss Occurrence, subject to an annual limit of $116,000,000; and

d. 90% placement of $155,000,000 in excess of $135,700,000 any one Loss Occurrence, subject to an annual limit of $155,000,000; and

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e. $2,500,000 in excess of $5,000,000 any one Loss Occurrence, subject to an annual limit of $5,000,000.

2. The Reinsured shall provisionally purchase mandatory coverage from the Florida Hurricane Catastrophe Fund (FHCF) with the following limit and retention:

a. 90% of $277,000,000 excess of $108,000,000.

The provisional limit and retention above may increase or decrease in accordance with the provisions of the reimbursement contract between the Reinsured and the State Board of Administration of the State of Florida (SBA).

Any loss reimbursement paid or payable to the Reinsured for the mandatory layer provided by the FHCF, and resulting from Loss Occurrences commencing during the Term of this Contract, shall inure to the benefit of this Contract. Further, any FHCF loss reimbursement shall be deemed paid to the Reinsured in accordance with the reimbursement contract between the Reinsured and the SBA at the full payout level set forth therein. It is further deemed that any loss reimbursement shall not be reduced by any reduction or exhaustion of the actual claims paying capacity of the FHCF and that the FHCF fund balance is deemed funded to the fullest extent allowable by Florida statute.

Prior to final calculation of the Reinsured’s FHCF retention and payout for the mandatory layer provided by the reimbursement contract between the Reinsured and the SBA, the Reinsurer’s liability hereunder will provisionally be calculated based on the projected FHCF payout and in accordance with this paragraph (2). Following the FHCF’s final calculation of the payout for the coverage layer provided by the reimbursement contract, the Ultimate Net Loss under this Contract will be recalculated. If, as a result of such calculation, the loss to the Reinsurer under any excess layer in any one Loss Occurrence is less than the amount previously paid by the Reinsurer under the excess layer, the Reinsured shall promptly remit the difference to the Reinsurer. If the loss to the Reinsurer under any excess layer in any one Loss Occurrence is greater than the amount previously paid by the Reinsurer, the Reinsurer shall promptly remit the difference to the Reinsured. For purposes of both the provisional and final calculation of Reinsurer liability referenced above, it is deemed that any FHCF loss reimbursement shall not be reduced by any reduction or exhaustion of the actual claims paying capacity of the FHCF and that the FHCF fund balance is deemed funded to the fullest extent allowable by Florida statute.

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If an FHCF reimbursement amount is based on the Reinsured’s losses in more than one Loss Occurrence commencing during the Term of this Contract, and the FHCF does not designate the amount allocable to each Loss Occurrence, the FHCF reimbursement amount shall be prorated in the proportion that the Reinsured’s losses in each Loss Occurrence bear to the Reinsured’s total losses arising out of all Loss Occurrences to which the FHCF reimbursement applies.

ARTICLE 6

REINSURANCE PREMIUM

1. As respects the reinsurance provided hereunder, the Reinsured shall pay the Reinsurer the greater of the following:

a. $**********; or

b. *********% of the Reinsured’s Total Insured Value as of September 30, 2012 (the “adjusted premium”). However, in the event the difference between the adjusted premium and the deposit premium is less than or equal to ***% of the deposit premium, the premium due hereunder shall be $**********. Further, in the event the adjusted premium hereunder is greater than $*********, the premium due hereunder shall be equal to the $************* plus the difference between the adjusted premium and $************. Further, in the event the adjusted premium hereunder is less than $************, the premium due hereunder shall be equal to $*************** less the difference between $************** and the adjusted premium.

2. The Reinsured shall pay the Reinsurer a deposit premium installment of $************ on June 1, 2012 and the Adjusted Deposit Installment, defined in paragraph (3) below, on January 1, 2013. However, if this Contract is terminated, no deposit premium installments shall be due after the effective date of termination.

3. “Adjusted Deposit Installment” as used herein shall mean:

a. The premium due hereunder, computed in accordance with paragraph (1) above; less

b. $**********.

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4. If the Reinsured elects to reduce or terminate a Reinsurer’s participation percentage in accordance with paragraph (3) of the Term Article, the minimum premium set forth in subparagraph (a) of paragraph (1) above shall not apply. Further, the earned reinsurance premium as otherwise determined in accordance with the provisions of subparagraph (b) of paragraph (1) above shall be replaced with the following:

a. In the event a loss occurs prior to the effective date of reduction or termination and the Reinsurer’s liability for such Loss Occurrence exceeds $************, the reinsurance premium for the Term of this Contract shall equal $************ times the ratio the loss recoverable hereunder bears to $52,000,000.

b. In the event no loss occurs prior to the effective date of reduction or termination or a loss occurs whereby the Reinsurer’s liability for such Loss Occurrence is less than $*************, the reinsurance premium for the Term of this Contract shall equal the pro rata portion of the reinsurance premium otherwise due hereunder based on the proportion the Term of this Contract bears to the original 12-month Term of this Contract.

5. No later than January 1, 2013 (or as promptly as possible following termination in the event this Contract is terminated prior to January 1, 2013), the Reinsured shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with paragraph (1) or (4) above (as applicable) and the adjusted deposit installment, computed in accordance with paragraph (3) above. In the event this Contract is terminated prior to January 1, 2013, any additional premium due the Reinsurer or return premium due the Reinsured shall be remitted promptly.

6. The Reinsured shall furnish the Reinsurer with such information as the Reinsurer may require to complete its Annual Convention Statement.

7. “Total Insured Value” means the sum of Coverage A, B, C and D on Business Covered as defined in the Business Covered Article.

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ARTICLE 7

definitions

ULTIMATE NET LOSS

The term “Ultimate Net Loss” as used herein shall be defined as the sum or sums (including Loss in Excess of Policy Limits, Extra Contractual Obligations and Loss Adjustment Expense, as hereinafter defined) paid or payable by the Reinsured in settlement of claims and in satisfaction of judgments rendered on account of such claims after deduction of all salvage, all recoveries, and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Reinsured’s Ultimate Net Loss has been ascertained.

LOSS IN EXCESS OF POLICY LIMITS AND EXTRA CONTRACTUAL OBLIGATIONS

The terms “Loss in Excess of Policy Limits” and “Extra Contractual Obligations” as used herein shall be defined as follows:

a. “Loss in Excess of Policy Limits” shall mean any amount paid or payable by the Reinsured in excess of its Policy limits, but otherwise within the terms of its Policy, such loss in excess of the Reinsured’s Policy limits having been incurred because of, but not limited to, failure by the Reinsured to settle within the Policy limits or by reason of the Reinsured’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.

b. “Extra Contractual Obligations” shall mean any punitive, exemplary, compensatory or consequential damages paid or payable by the Reinsured, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Reinsured to settle within the Policy limits or by reason of the Reinsured’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. An Extra Contractual Obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

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Notwithstanding anything stated herein, this Contract shall not apply to any Loss in Excess of Policy Limits or any Extra Contractual Obligation incurred by the Reinsured as a result of any fraudulent and/or criminal act by any officer or director of the Reinsured acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

Further, any Loss in Excess of Policy Limits and/or Extra Contractual Obligations that are made in connection with this Contract shall not exceed 25% of the contractual loss under all Policies involved in the Loss Occurrence as respects any one excess layer hereunder.

Savings Clause (Applicable only if the Reinsurer is domiciled in the State of New York): In no event shall coverage be provided to the extent that such coverage is not permitted under New York law.

LOSS ADJUSTMENT EXPENSE

The term “Loss Adjustment Expense” as used herein shall be defined as expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense, and/or appeal of claims, regardless of how such expenses are classified for statutory reporting purposes. Loss Adjustment Expense shall include, but not be limited to, interest on judgments, expenses of outside adjusters, expenses and a pro rata share of salaries of the Reinsured’s field employees and expenses of other employees of the Reinsured who have been temporarily diverted from their normal and customary duties and assigned to the adjustment of losses covered by this Contract, expenses of the Reinsured’s officials incurred in connection with losses covered by this Contract, and Declaratory Judgment Expenses or other legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto. Loss Adjustment Expense shall not include normal office expenses or salaries of the Reinsured’s employees or officials.

DECLARATORY JUDGMENT EXPENSE

The term “Declaratory Judgment Expense” as used herein shall be defined as the Reinsured’s own costs and legal expense incurred in direct connection with declaratory judgment actions brought to determine the Reinsured’s defense and/or indemnification obligations that are assignable to specific claims arising out of Policies reinsured by this Contract, regardless of whether the declaratory judgment action is successful or unsuccessful. Any Declaratory Judgment Expense shall be deemed to have been fully incurred by the Reinsured on the same date as the original loss (if any) giving rise to the action.

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TERM OF THIS CONTRACT

“Term of this Contract” as used herein shall be defined as the period from 12:01 a.m., Local Standard Time, June 1, 2012 through 12:01 a.m., Local Standard Time, June 1, 2013. However, if this Contract is terminated, “Term of this Contract” as used herein shall mean the period from 12:01 a.m., Local Standard Time, June 1, 2012 until the effective time and date of termination.

ARTICLE 8

LOSS OCCURRENCE DEFINITION

LOSS OCCURRENCE

1. The term “Loss Occurrence” shall mean the sum of 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 within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one Loss Occurrence shall be limited to all individual losses sustained by the Reinsured occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term Loss Occurrence shall be further defined as follows:

a. As regards windstorm, hail, tornado, hurricane, cyclone, including ensuing collapse and water damage, all individual losses sustained by the Reinsured occurring during any period of 96 consecutive hours arising out of and directly occasioned by the same event. However, the event need not be limited to one state or province or states or provinces contiguous thereto.

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b. As regards riot, riot attending a strike, civil commotion, vandalism and malicious mischief, all individual losses sustained by the Reinsured occurring during any period of 96 consecutive hours within the area of one municipality or county and the municipalities or counties contiguous thereto arising out of and directly occasioned by the same event. The maximum duration of 96 consecutive hours may be extended in respect of individual losses which occur beyond such 96 consecutive hours during the continued occupation of an assured’s premises by strikers, provided such occupation commenced during the aforesaid period.

c. As regards earthquake (the epicenter of which need not necessarily be within the territorial confines referred to in the opening paragraph of this Article) and fire following directly occasioned by the earthquake, only those individual fire losses which commence during the period of 168 consecutive hours may be included in the Reinsured’s Loss Occurrence.

d. As regards freeze, only individual losses directly occasioned by collapse, breakage of glass and water damage (caused by bursting of frozen pipes and tanks) may be included in the Reinsured’s Loss Occurrence.

e. As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs (b) and (c) above), which spread through trees, grassland or other vegetation, all individual losses sustained by the Reinsured which occur during any period of 168 consecutive hours within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another may be included in the Reinsured’s Loss Occurrence.

2. For all Loss Occurrences the Reinsured may choose the date and time when any such period of consecutive hours commences provided that it is not earlier than the date and time of the occurrence of the first recorded individual loss sustained by the Reinsured arising out of that disaster, accident or loss and provided that only one such period of 168 consecutive hours shall apply with respect to one event, except for any Loss Occurrence referred to in subparagraph (a) or (b) of paragraph (1) above where only one such period of 96 consecutive hours shall apply with respect to one event, regardless of the duration of the event.

3. No individual losses occasioned by an event that would be covered by the 96 hours clauses may be included in any Loss Occurrence claimed under the 168 hours provision.

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ARTICLE 9

ACCESS TO RECORDS

The Reinsurer or its designated representatives shall have access to the books and records of the Reinsured on matters relating to this reinsurance at all reasonable times, and at the location where such books and records are maintained in the ordinary course of business, for the purpose of obtaining information concerning this Contract or the subject matter thereof. Notification of a request for inspection of records shall be sent to the Reinsured by the Reinsurer in written form, and shall normally be given four weeks in advance. Notwithstanding the above, the Reinsurer shall not have any right of access to the records of the Reinsured if it is not current in all undisputed payments due the Reinsured.

ARTICLE 10

AGENCY

If more than one reinsured company is named as a party to this Contract, the first named company shall be deemed the agent of the other reinsured companies for purposes of sending or receiving notices required by the terms and conditions of this Contract, and for purposes of remitting or receiving any monies due any party.

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ARTICLE 11

ARBITRATION

1. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Reinsured, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Underwriters at Lloyd’s. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, the two Arbiters shall request the American Arbitration Association to appoint the Umpire. If the American Arbitration Association fails to appoint the Umpire within 30 days after it has been requested to do so, either party may request a justice of a court of general jurisdiction of the state in which the arbitration is to be held to appoint the Umpire.

2. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

3. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article and communications shall be made by the Reinsured to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

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4. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

5. Any arbitration proceedings shall take place in Tampa, Florida; however, the location may be changed if mutually agreed upon by the parties of this Contract. Notwithstanding the location of arbitration, all proceedings pursuant hereto shall be governed by the law of the State of Florida.

ARTICLE 12

CASH CALL

In the event that at any time the Reinsured becomes obligated to make a payment or series of payments for losses which exceed the Reinsured’s retention, the Reinsured shall present to the Reinsurer an itemized statement of the amounts payable hereunder. The Reinsurer shall be obligated (subject to the terms and conditions of this Contract) to make a payment to the Reinsured of the amount requested within 10 working days of receipt of the statement from the Reinsured.

ARTICLE 13

CONFIDENTIALITY

1. The Reinsurer hereby acknowledges that the terms and conditions of this Contract, any materials provided in the course of audit or inspection and any documents, information and data provided to it by the Reinsured, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (hereinafter referred to as “Confidential Information”) are proprietary and confidential to the Reinsured. Confidential Information shall not include documents, information or data that the Reinsurer can show:

a. Are publicly available or have become publicly available through no unauthorized act of the Reinsurer;

b. Have been rightfully received from a third person without obligation of confidentiality; or

c. Were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

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2. Absent the written consent of the Reinsured, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies, except:

a. When required by retrocessionaires subject to the business ceded to this Contract;

b. When required by regulators performing an audit of the Reinsurer’s records and/or financial condition;

c. When required by external auditors performing an audit of the Reinsurer’s records in the normal course of business; or

d. When required by attorneys or arbitrators in connection with an actual or potential dispute hereunder.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

3. Notwithstanding the above, in the event the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Reinsured with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Reinsured in maintaining the confidentiality provided for in this Article.

4. The provisions of this Article shall extend to the officers, directors and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

ARTICLE 14

CURRENCY

1. Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

2. Amounts paid or received by the Reinsured in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Reinsured.

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ARTICLE 15

ENTIRE AGREEMENT

1. This Contract and any related trust agreement, Letter of Credit and/or special acceptance, shall constitute the entire agreement between the parties hereto with respect to the business being reinsured hereunder, and there are no understandings between the parties hereto other than as expressed in this Contract.

2. Any change or modification to this Contract shall be null and void unless made by an addendum and signed by the parties hereto.

ARTICLE 16

ERRORS AND OMISSIONS

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

ARTICLE 17

FEDERAL EXCISE TAX

1. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

2. In the event of any return of premium becoming due hereunder, the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Reinsured or its agent should take steps to recover the tax from the United States Government.

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ARTICLE 18

FUNDING OF RESERVES

1. The Reinsurer agrees to fund its share of the Reinsured’s ceded unearned premium (including, but not limited to, the unearned portion of any deposit premium installment as calculated by the Reinsured) and outstanding loss and Loss Adjustment Expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known Loss Occurrences) by:

a. Clean, irrevocable and unconditional Letter of Credit issued and confirmed, if confirmation is required by the insurance regulatory authorities involved, by a bank or banks meeting the NAIC Securities Valuation Office credit standards for issuers of Letters of Credit and acceptable to said insurance regulatory authorities; and/or

b. Escrow accounts for the benefit of the Reinsured; and/or

c. Cash advances;

if the Reinsurer:

d. Is unauthorized in any state of the United States of America or the District of Columbia having jurisdiction over the Reinsured and if, without such funding, a penalty would accrue to the Reinsured on any financial statement it is required to file with the insurance regulatory authorities involved; or

e. Has experienced any of the circumstances described in paragraph (3) of the Term Article. However, if such circumstance is rectified, then no special funding requirements shall apply and any such current funding in accordance with the provisions above shall be released to the Reinsurer.

For purposes of this Contract, the Lloyd’s United States Credit for Reinsurance Trust Fund shall be considered an acceptable funding instrument. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved.

2. If a Reinsurer fails to fulfill its funding obligation (if any) under this Article, the Reinsured may, at its option, require the Reinsurer to pay, and the Reinsurer agrees to pay, any interest charge on the funding obligation calculated on the last business day of each month as follows:

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a. The number of full days that have expired since the earliest of the applicable following dates:

i. As respects a Reinsurer that is unauthorized in any state of the United States of America or District of Columbia having jurisdiction over the Reinsured, December 31 of the calendar year in which the funding was required;

ii. As respects a Reinsurer that has experienced any of the circumstances described in paragraph (3) of the Term Article, the first date such circumstance occurs;

times:

b. 1/365ths of the sum of 2% and the U.S. prime rate as quoted in The Wall Street Journal on the first day of the month for which the calculation is made; times

c. The funding obligation, less the amount, if any, funded by the Reinsurer prior to the applicable date determined in subparagraph (a) above.

It is agreed that interest shall accumulate until the full interest charge amount as provided for in this paragraph and the funding obligation are paid.

If the interest rate provided under this Article exceeds the maximum interest rate allowed by any applicable law or is held unenforceable by an arbitrator or a court of competent jurisdiction, such interest rate shall be modified to the highest rate permitted by the applicable law, and all remaining provisions of this Article and Contract shall remain in full force and effect without being impaired or invalidated in any way.

3. With regard to funding in whole or in part by Letters of Credit, it is agreed that each Letter of Credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will involve an “Evergreen Clause,” which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Reinsured not less than 30 days prior to said expiration date. The Reinsured and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said Letter of Credit may be drawn upon by the Reinsured or its successors in interest at any time, without diminution because of the insolvency of the Reinsured or the Reinsurer, but only for one or more of the following purposes:

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a. To reimburse itself for the Reinsurers’ share of losses and/or Loss Adjustment Expense paid under the terms of Policies reinsured hereunder, unless paid in cash by the Reinsurer;

b. To reimburse itself for the Reinsurer’s share of any other amounts claims to be due hereunder, unless paid in cash by the Reinsurer;

c. To fund a cash account in an amount equal to the Reinsurer’s share of any ceded unearned premium and/or outstanding loss and Loss Adjustment Expense reserves (including all case reserves plus any reasonable amount estimated to be unreported for known Loss Occurrences) funded by means of a Letter of Credit which is under non-renewal notice, if said Letter of Credit has not been renewed or replaced by the Reinsurer 10 days prior to its expiration date;

d. To refund to the Reinsurer any sums in excess of the actual amount required to fund the Reinsurer’s share of the Reinsured’s ceded unearned premium and/or outstanding loss and Loss Adjustment Expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known Loss Occurrences), if so requested by the Reinsurer; and

e. To reimburse itself for the Reinsurer’s portion of the unearned reinsurance premium paid to the Reinsurer hereunder.

In the event the amount drawn by the Reinsured on any Letter of Credit is in excess of the actual amount required for (3a), (3c), or (3e), or in the case of (3b), the actual amount determined to be due, the Reinsured shall promptly return to the Reinsurer the excess amount so drawn.

ARTICLE 19

GOVERNING LAW

This Contract shall be governed as to performance, administration and interpretation in accordance with the laws of the State of Florida, exclusive of the rules with respect to conflicts of law; however, with respect to credit for reinsurance, the applicable rules of all states shall apply.

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ARTICLE 20

INSOLVENCY

1. If more than one reinsured company is included within the definition of “Reinsured” hereunder, this Article shall apply individually to each such company.

2. In the event of the insolvency of one or more of the reinsured companies, this reinsurance shall be payable directly to the Reinsured or to its liquidator, receiver, conservator or statutory successor, with reasonable provision for verification, on the basis of the liability of the Reinsured or on the basis of claims filed and allowed in the liquidation proceeding, whichever may be required by applicable stature, without diminution because of the insolvency of the Reinsured or because the liquidator, receiver, conservator or statutory successor of the Reinsured has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Reinsured shall give written notice to the Reinsurer of the pendency of a claim against the Reinsured indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Reinsured or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Reinsured as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Reinsured solely as a result of the defense undertaken by the Reinsurer.

3. Where two or more Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Reinsured.

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4. It is further understood and agreed that, in the event of the insolvency of one or more of the reinsured companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Reinsured or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee or other party as more specifically limited by any statute or regulation applicable hereto, of such reinsurance in the event of the insolvency of the Reinsured or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such Policy obligations of the Reinsured as direct obligations of the Reinsurer to the payees under such Policies and in substitution for the obligations of the Reinsured to such payees. However, the exceptions provided in (1) and (2) above shall apply only to the extent that applicable statutes or regulations specifically permit such exceptions.

ARTICLE 21

LATE PAYMENTS

1. The interest penalties provided for in this Article shall apply to the Reinsurer or to the Reinsured in the following circumstances:

a. With the exception of payments due from the Reinsurer in accordance with the Cash Call Article, payments due from the Reinsurer to the Reinsured shall have as a due date the date on which the agreed proof of loss is received by the Reinsurer, and shall be overdue 30 days thereafter. Payment to the Intermediary is deemed to be payment to the Reinsured for purposes of this Article.

b. Payments due from the Reinsured to the Reinsurer shall have as a due date the date specified in this Contract. Payments shall be overdue 30 days thereafter. Premium adjustments shall be overdue 30 days following the due date set forth under the terms of this Contract.

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c. The Reinsured shall provide a copy of the original insured’s proof of loss, and a copy of the claim adjuster’s report(s) or other evidence of indemnification for losses exceeding the excess limit on an incurred basis. If, subsequent to receipt of this evidence, the information contained therein is insufficient or not in accordance with the contractual conditions, then the payment due date as defined in subparagraph (a) shall be deemed to be the date upon which the Reinsurer received additional information necessary to approve payment of the claim or the claim is presented in an acceptable manner. Interest as stipulated in subparagraph (d) shall be payable should a disputed claim be ultimately settled and if the period set out in subparagraph (a) is exceeded, but only to the extent that the final loss payment exactly tracks with the original proof of loss.

d. Overdue amounts shall bear simple interest from the overdue date at the 90-day United States Treasury Bill rate set forth by the Federal Reserve Board for the first Monday of the calendar month in which the amount becomes overdue, as published in the Federal Reserve Statistical Release. If the interest generated for 100% in respect of any overdue payment as outlined in subparagraph (a) or (b) is $500 or less, then the interest penalty shall be waived.

e. For the purposes of this Article, reinsuring Underwriters at Lloyd’s shall be viewed as one entity. The provisions set forth herein shall not be applicable until the creditor party shall have manifested to the debtor party its intent to invoke the terms of this Article.

ARTICLE 22

LIABILITY OF THE REINSURER

1. The liability of the Reinsurer shall follow that of the Reinsured in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers, interpretations and modifications of the Reinsured’s Policies and any endorsements thereon. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

2. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

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ARTICLE 23

LOSS NOTICES AND SETTLEMENTS

1. Whenever losses sustained by the Reinsured appear likely to result in a claim hereunder, the Reinsured shall notify the Reinsurer, and the Reinsurer shall have the right to participate in the adjustment of such losses at its own expense.

2. All loss settlements made by the Reinsured, provided they are within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid (or scheduled to be paid within 14 days) by the Reinsured. Notwithstanding the foregoing, should any judicial, regulatory, or legislative entity having legal jurisdiction require that the Reinsured be liable for any amounts that are otherwise outside the terms of the Reinsured’s original Policies, the Reinsurer agrees that such amounts shall be subject always to the terms and conditions of this Contract.

ARTICLE 24

NET RETAINED LINES

1. This Contract applies only to that portion of any Policy which the Reinsured retains net for its own account (prior to deduction of any underlying reinsurance specifically permitted in this Contract), and in calculating the amount of any loss hereunder and also in computing the amount or amounts in excess of which this Contract attaches, only loss or losses in respect of that portion of any Policy which the Reinsured retains net for its own account shall be included.

2. The amount of the Reinsurer’s liability hereunder in respect of any loss or losses shall not be increased by reason of the inability of the Reinsured to collect from any other reinsurer(s), whether specific or general, any amounts which may have become due from such reinsurer(s), whether such inability arises from the insolvency of such other reinsurer(s) or otherwise.

ARTICLE 25

NON-WAIVER

The failure of the Reinsured or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights or remedies contained herein nor stop either party from thereafter demanding full and complete compliance nor prevent either party from exercising such rights or remedies in the future.

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ARTICLE 26

NOTICES AND AGREEMENT EXECUTION

1. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable.

2. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

a. Paper documents with an original ink signature;

b. Facsimile or electronic copies of paper documents showing an original ink signature; and/or

c. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms “electronic record,” “electronic signature” and “electronic agent” shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto.

3. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

ARTICLE 27

OFFSET

The Reinsured and the Reinsurer, each at its option, may offset any balance or balances, whether on account of premiums, claims and losses, Loss Adjustment Expenses or salvages due from one party to the other under this Contract or under any other reinsurance agreement heretofore or hereafter entered into between the Reinsured and the Reinsurer, whether acting as assuming reinsurer or as ceding company; provided, however, that in the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with applicable statutes and regulations.

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ARTICLE 28

OTHER REINSURANCE

The Reinsured shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Reinsured and be entirely disregarded in applying all of the provisions of this Contract.

ARTICLE 29

SALVAGE AND SUBROGATION

The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Reinsured, less the actual cost, excluding salaries of officials and employees of the Reinsured and sums paid to attorneys as a retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Reinsured for its primary loss. The Reinsured hereby agrees to enforce its rights to salvage and subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights if, in the Reinsured’s opinion, it is economically reasonable to do so. Should the Reinsured neglect or refuse to enforce such rights, the Reinsurer is hereby empowered and authorized to institute the appropriate action in the name of the Reinsured, at the Reinsurer’s expense.

ARTICLE 30

SERVICE OF SUIT

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory, or District of the United States where authorization is required by insurance regulatory authorities.)

1. This Article will not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

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2. In the event the Reinsurer fails to pay any amount claimed to be due hereunder or fails to otherwise perform its obligations hereunder, the Reinsurer, at the request of the Reinsured, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is accepted by the Reinsurer or is determined by removal, transfer or otherwise, as provided for above, will comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against any of the Reinsurers upon this Contract, will abide by the final decision of such court or of any Appellate Court in the event of an appeal.

3. Service of process in such suit may be made upon Mendes and Mount, 750 Seventh Avenue, New York, New York 10019-6829. The above-named are authorized and directed to accept service of process on behalf of the Reinsurer in any such suit.

4. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his or her successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Reinsured or any beneficiary hereunder arising out of this Contract.

ARTICLE 31

SEVERABLILITY

If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

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ARTICLE 32

TAXES

In consideration of the terms under which this Contract is issued, the Reinsured will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America or the District of Columbia.

ARTICLE 33

TERRITORY

The liability of the Reinsurer shall be limited to losses under Policies covering property located within the territorial limits of the State of Florida; but this limitation shall not apply to moveable property if the Reinsured’s Policies provide coverage when said moveable property is outside the aforementioned territorial limits.

ARTICLE 34

INTERMEDIARY

Advocate Reinsurance Partners, LLC is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including, but not limited to, notices, statements, premium, return premium, commissions, taxes, losses, Loss Adjustment Expense, salvages and loss settlements) relating thereto shall be transmitted to the Reinsured or the Reinsurer through Advocate Reinsurance Partners, LLC, 2501 North Harwood Street, Suite 1250, Dallas, TX 75201. Payments by the Reinsured to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Reinsured only to the extent that such payments are actually received by the Reinsured.

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NUCLEAR INCIDENT EXCLUSION CLAUSE - PHYSICAL DAMAGE – REINSURANCE U.S.A.

1. This Reinsurance does not cover any loss or liability accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from any Pool of Insurers or Reinsurers formed for the purpose of covering Atomic or Nuclear Energy risks.

2. Without in any way restricting the operation of paragraph (1) of this clause, this Reinsurance does not cover any loss or liability accruing to the Reinsured, directly or indirectly and whether as Insurer or Reinsurer, from any insurance against Physical Damage (including business interruption or consequential loss arising out of such Physical Damage) to:

I. Nuclear reactor power plants including all auxiliary property on the site, or

II. Any other nuclear reactor installation, including laboratories handling radioactive materials in connection with reactor installations, and “critical facilities” as such, or

III. Installations for fabricating complete fuel elements or for processing substantial quantities of “special nuclear material”, and for reprocessing, salvaging, chemically separating, storing or disposing of “spent” nuclear fuel or waste materials, or

IV. Installations other than those listed in paragraph (2) III above using substantial quantities of radioactive isotopes or other products of nuclear fission.

3. Without in any way restricting the operations of paragraphs (1) and (2) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, from any insurance on property which is on the same site as a nuclear reactor power plant or other nuclear installation and which normally would be insured therewith except that this paragraph (3) shall not operate

(a) where Reinsured does not have knowledge of such nuclear reactor power plant or nuclear installation, or

(b) where said insurance contains a provision excluding coverage for damage to property caused by or resulting from radioactive contamination, however caused. However on and after 1st January 1960 this sub-paragraph (b) shall only apply provided the said radioactive contamination exclusion provision has been approved by the Governmental Authority having jurisdiction thereof.

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4. Without in any way restricting the operations of paragraphs (1), (2) and (3) hereof, this Reinsurance does not cover any loss or liability by radioactive contamination accruing to the Reinsured, directly or indirectly, and whether as Insurer or Reinsurer, when such radioactive contamination is a named hazard specifically insured against.

5. It is understood and agreed that this clause shall not extend to risks using radioactive isotopes in any form where the nuclear exposure is not considered by the Reinsured to be the primary hazard.

6. The term “special nuclear material” shall have the meaning given it in the Atomic Energy Act of 1954 or by any law amendatory thereof.

7. Reinsured to be sole judge of what constitutes:

(a) substantial quantities, and

(b) the extent of installation, plant or site.

Note: Without in any way restricting the operation of paragraph (1) hereof, it is understood and agreed that

(a) all Policies issued by the Reinsured on or before 31st December 1957 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

(b) with respect to any risk located in Canada Policies issued by the Reinsured on or before 31st December 1958 shall be free from the application of the other provisions of this Clause until expiry date or 31st December 1960 whichever first occurs whereupon all the provisions of this Clause shall apply.

ARP-HCI-02-AGG-002-12 ARP 35B  

DOC: June 1, 2012

EX-10.19

Exhibit 10.19

STATE BOARD OF ADMINISTRATION OF FLORIDA   1801 HERMITAGE BOULEVARD TALLAHASSEE, FLORIDA 32308 (850) 488-4406   POST OFFICE BOX 13300 32317-3300 RICK SCOTT GOVERNOR AS CHAIRMAN   JEFF ATWATER CHIEF FINANCIAL OFFICER AS TREASURER   PAM BONDI ATTORNEY GENERAL AS SECRETARY   ASH WILLIAMS EXECUTIVE DIRECTOR & CIO

REIMBURSEMENT CONTRACT

Effective: June 1, 2012

(Contract)

between

HOMEOWNERS CHOICE PROPERTY AND CASUALTY INSURANCE COMPANY

(Company)

NAIC # 12944

and

THE STATE BOARD OF ADMINISTRATION OF THE STATE OF FLORIDA (SBA)

WHICH ADMINISTERS THE FLORIDA HURRICANE CATASTROPHE FUND (FHCF)

PREAMBLE

The Legislature of the State of Florida has enacted Section 215.555, Florida Statutes “Statute”, which directs the SBA to administer the FHCF. This Contract, consisting of the principal document entitled Reimbursement Contract, addressing the mandatory FHCF coverage, and Addenda, is subject to the Statute and to any administrative rule adopted pursuant thereto, and is not intended to be in conflict therewith. All provisions in the principle document are equally applicable to each Addenda unless specifically superseded by one of the Addenda.

In consideration of the promises set forth in this Contract, the parties agree as follows:

ARTICLE I - SCOPE OF AGREEMENT

As a condition precedent to the SBA’s obligations under this Contract, the Company, an Authorized Insurer or an entity writing Covered Policies under Section 627.351, Florida Statutes, in the State of Florida, shall report to the SBA in a specified format the business it writes which is described in this Contract as Covered Policies.

The terms of this Contract shall determine the rights and obligations of the parties. This Contract provides reimbursement to the Company under certain circumstances, as described herein, and does not provide or extend insurance or reinsurance coverage to any person, firm, corporation or other entity. The SBA shall reimburse the Company for its Ultimate Net Loss on Covered Policies, which were in force and in effect at the time of the Covered Event causing the loss, in excess of the Company’s Retention as a result of each Loss Occurrence commencing during the Contract Year, to the extent funds are available, all as hereinafter defined.

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ARTICLE II - PARTIES TO THE CONTRACT

This Contract is solely between the Company and the SBA which administers the FHCF. In no instance shall any insured of the Company or any claimant against an insured of the Company, or any other third party, have any rights under this Contract, except as provided in Article XIV. The SBA will only disburse funds to the Company, except as provided for in Article XIV of this Contract. The Company shall not, without the prior approval of the Office of Insurance Regulation, sell, assign, or transfer to any third party, in return for a fee or other consideration any sums the FHCF pays under this Contract or the right to receive such sums.

ARTICLE III - TERM

This Contract shall apply to Loss Occurrences which commence during the period from 12:00:01 a.m., Eastern Time, June 1, 2012, to 12:00 midnight, Eastern Time, May 31, 2013 (Contract Year).

The Company must designate a coverage level, make the required selections, and return this fully executed Contract (two originals) to the FHCF Administrator so that the Contract is received by the FHCF Administrator no later than 5 p.m., Central Time, March 1, 2012. Failure to do so may result in a referral to the Office of Insurance Regulation within the Department of Financial Services for administrative action. Furthermore, the Company’s coverage level under this Contract will be deemed as follows:

(1) For Companies that are a member of a National Association of Insurance Commissioners (NAIC) group, the same coverage level selected by the other Companies of the same NAIC group shall be deemed. If executed Contracts for none of the members of an NAIC group have been received by the FHCF Administrator, the coverage level from the prior Contract Year shall be deemed.

(2) For Companies that are not a member of an NAIC. group under which other Companies are active participants in the FHCF, the coverage level from the prior Contract Year shall be deemed.

(3) For New Participants, as that term is defined in Article V(21), that are a member of an NAIC group, the same coverage level selected by the other Companies of the same NAIC group shall be deemed.

(4) For New Participants that are not a member of an NAIC group under which other Companies are active participants in the FHCF, the 45%, 75% or 90% coverage levels may be selected providing that the FHCF Administrator receives executed Contracts within 30 calendar days of the effective date of the first Covered Policy, otherwise, the 45% coverage level shall be deemed.

Pursuant to the terms of this Contract, the SBA shall not be liable for Loss Occurrences which commence after the effective time and date of expiration or termination. Should this Contract expire or terminate while a Loss Occurrence covered hereunder is in progress, the SBA shall be responsible for such Loss Occurrence in progress in the same manner and to the same extent it would have been responsible had the Contract expired the day following the conclusion of the Loss Occurrence in progress.

ARTICLE IV - LIABILITY OF THE FHCF

(1) The SBA shall reimburse the Company, with respect to each Loss Occurrence commencing during the Contract Year for the “Reimbursement Percentage” elected, this percentage times the amount of Ultimate Net Loss paid by the Company in excess of the Company’s Retention, as adjusted pursuant to Article V(28), plus 5% of the reimbursed losses for Loss Adjustment Expense Reimbursement.

(2) The Reimbursement Percentage will be 45% or 75% or 90%, at the Company’s option as elected under Article XVIII.

(3) The aggregate liability of the FHCF with respect to all Reimbursement Contracts covering this Contract Year shall not exceed the limit set forth under Section 215.555(4)(c)l., Florida Statutes. For specifics regarding loss reimbursement calculations, see section (3)(c) of Article X herein.

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(4) Upon the occurrence of a Covered Event, the SBA shall evaluate the potential losses to the FHCF and the FHCF’s capacity at the time of the event. The initial Projected Payout Multiple used to reimburse the Company for its losses shall not exceed the Projected Payout Multiple as calculated based on the capacity needed to provide the FHCF’s mandatory coverage. The SBA shall make adjustments to the Projected Payout Multiple in order to reimburse the optional Temporary Increase in Coverage Limit (TICL) Options coverage based on the SBA’s ongoing evaluation of potential losses and capacity. If it appears that the Estimated Claims-Paying Capacity may be exceeded, the SBA shall reduce the projected payout factors or multiples for determining each participating insurer’s projected payout uniformly among all insurers to reflect the Estimated Claims-Paying Capacity.

(5) Reimbursement amounts shall not be reduced by reinsurance paid or payable to the Company from other sources.

(6) After the end of the calendar year, the SBA shall notify insurers of the estimated Borrowing Capacity and the Balance of the Fund as of December 31. In May and October of each year, the SBA shall publish in the Florida Administrative Weekly a statement of the FHCF’s estimated Borrowing Capacity, Estimated Claims-Paying Capacity, and the projected Balance of the Fund as of December 31.

(7) The obligation of the SBA with respect to all Contracts covering a particular Contract Year shall not exceed the Balance of the Fund as of December 31 of that Contract Year, together with the maximum amount the SBA is able to raise through the issuance of revenue bonds or through other means available to the SBA under Section 215.555, Florida Statutes, up to the limit in accordance with Section 215.555(4)(c)l., Florida Statutes. The obligations and the liability of the SBA are more fully described in Rule 19-8.013, Florida Administrative Code (F.A.C.).

ARTICLE V - DEFINITIONS

(1) Actual Claims-Paying Capacity of the FHCF

This term means the sum of the Balance of the Fund as of December 31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the amount the SBA is able to raise through the issuance of revenue bonds, or through other means available by law to the SBA, up to the limit in accordance with Section 215.555(4)(c)l. and (6), Florida Statutes.

(2) Actuarially Indicated

This term means, with respect to Premiums paid by Companies for reimbursement provided by the FHCF, an amount determined in accordance with the definition provided in Section 215.555(2)(a), Florida Statutes.

(3) Additional Living Expense (ALE)

ALE losses covered by the FHCF are not to exceed 40 percent of the insured value of a Residential Structure or its contents based on the coverage provided in the policy. Fair rental value, loss of rents, or business interruption losses are not covered by the FHCF.

(4) Administrator

This term means the entity with which the SBA contracts to perform administrative tasks associated with the operations of the FHCF. The Administrator is Paragon Strategic Solutions Inc., 8200 Tower, 5600 West 83^rd Street, Suite 1100, Minneapolis, Minnesota 55437. The telephone number is (800) 689-3863, and the facsimile number is (800) 264-0492.

(5) Authorized Insurer

This term is defined in Section 624.09(1), Florida Statutes.

(6) Borrowing Capacity

This term means the amount of funds which are able to be raised by the issuance of revenue bonds or through other financing mechanisms, less bond issuance expenses and reserves.

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(7) Citizens Property Insurance Corporation (Citizens)

This term means the entity formed under Section 627.351(6), Florida Statutes, and refers to both Citizens Property Insurance Corporation Coastal Account and Citizens Property Insurance Corporation Personal Lines and Commercial Lines Accounts.

(8) Contract

This term means this Reimbursement Contract for the current Contract Year.

(9) Covered Event

This term means any one storm declared to be a hurricane by the National Hurricane Center which causes insured losses in Florida. A Covered Event begins when a hurricane causes damage in Florida while it is a hurricane and continues throughout any subsequent downgrades in storm status by the National Hurricane Center regardless of whether the hurricane makes landfall. Any storm, including a tropical storm, which does not become a hurricane is not a Covered Event.

(10) Covered Policy or Covered Policies

(a) Covered Policy, as defined in Section 215.555(2)(c), Florida Statutes, is further clarified to mean only that portion of a binder, policy or contract of insurance that insures real or personal property located in the State of Florida to the extent such policy insures a Residential Structure, as defined in definition (27) herein, or the contents of a Residential Structure, located in the State of Florida.

(b) Due to the specialized nature of the definition of Covered Policies, Covered Policies are not limited to only one line of business in the Company’s annual statement required to be filed by Section 624.424, Florida Statutes. Instead, Covered Policies are found in several lines of business on the Company’s annual statement. Covered Policies will at a minimum be reported in the Company’s statutory annual statement as:

1. Fire

2. Allied Lines

3. Farmowners Multiple Peril

4. Homeowners Multiple Peril

5. Commercial Multiple Peril (non liability portion, covering condominiums and apartments)

6. Inland Marine

Note that where particular insurance exposures, e.g., mobile homes, are reported on an annual statement is not dispositive of whether or not the exposure is a Covered Policy.

(c) This definition applies only to the first-party property section of a policy pertaining strictly to the structure, its contents, appurtenant structures, or ALE coverage.

(d) Covered Policy also includes any collateral protection insurance policy covering personal residences which protects both the borrower’s and the lender’s financial interest, in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowner’s policy, if such policy can be accurately reported as required in Section 215.555(5), Florida Statutes. A Company will be deemed to be able to accurately report data if the required data, as specified in the Premium Formula adopted in Section 215.555(5), Florida Statutes, is available.

(e) See Article VI of this Contract for specific exclusions.

(11) Deductible Buy-Back Policies

This term means a specific policy that provides coverage to a policyholder for some portion of the policyholder’s deductible under a policy issued by another insurer.

(12) Estimated Claims-Paying Capacity of the FHCF

This term means the sum of the projected Balance of the Fund as of December 31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the most recent estimate of the Borrowing Capacity of the FHCF, determined pursuant to Section 215.555(4)(c), Florida Statutes.

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(13) Excess Policies

This term, for the purposes of this Contract, means a policy that provides insurance protection for large commercial property risks that provides a layer of coverage above a primary layer (which is insured by a different insurer) that acts much the same as a very large deductible.

(14) Florida Department of Financial Services (Department)

This term means the Florida regulatory agency, created pursuant to Section 20.121, Florida Statutes, which is charged with regulating the Florida insurance market and administering the Florida Insurance Code.

(15) Florida Insurance Code

This term means those chapters identified in Section 624.01, Florida Statutes, which are designated as the Florida Insurance Code.

(16) Formula or the Premium Formula

This term means the Formula approved by the SBA for the purpose of determining the Actuarially Indicated Premium to be paid to the FHCF. The Premium Formula is defined as an approach or methodology which leads to the creation of premium rates. The resulting rates are therefore incorporated as part of the Premium Formula. The Formula, shall, pursuant to Section 215.555(5)(b), Florida Statutes, include a cash build-up factor in the amount specified therein.

(17) Fund Balance or Balance of the Fund as of December 31

These terms mean the amount of assets available to pay claims, not including any bonding proceeds, resulting from Covered Events which occurred during the Contract Year.

(18) Insurer Group

For purposes of the coverage option election in Section 215.555(4)(b), Florida Statutes, Insurer Group means the group designation assigned by the National Association of Insurance Commissioners (NAIC) for purposes of filing consolidated financial statements. A Company is a member of a group as designated by the NAIC until such Company is assigned another group designation or is no longer a member of a group recognized by the NAIC.

(19) Loss Occurrence

This term means the sum of individual insured Losses incurred under Covered Policies resulting from the same Covered Event. “Losses” means all incurred losses under Covered Policies, including Additional Living Expenses not to exceed 40 percent of the insured value of a Residential Structure or its contents and amounts paid as fees on behalf of or inuring to the benefit of a policyholder, and excludes allocated or unallocated Loss Adjustment Expenses.

(20) Loss Adjustment Expense Reimbursement

(a) Loss Adjustment Expense Reimbursement shall be 5% of the reimbursed losses under this Contract as provided in Article IV, pursuant to Section 215.555(4)(b)l., Florida Statutes.

(b) To the extent that loss reimbursements are limited to the Payout Multiple applied to each Company, the 5% Loss Adjustment Expense is included in the total Payout Multiple applied to each Company.

(21) New Participant(s)

This term means all Companies which begin writing Covered Policies on or after the beginning of the Contract Year. A Company that removes exposure from either Citizens entity, as that term is defined in (7) above, pursuant to an assumption agreement effective on or after June 1 and had written no other Covered Policies before June 1 is also considered a New Participant.

(22) Office of Insurance Regulation

This term means that office within the Department of Financial Services and which was created in Section 20.121(3), Florida Statutes.

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(23) Payout Multiple

This term means the multiple as calculated in accordance with Section 215.555(4)(c), Florida Statutes, which is derived by dividing the single season Claims-Paying Capacity of the FHCF by the total aggregate industry Reimbursement Premium for the FHCF for the Contract Year billed as of December 31 of the Contract Year. The final Payout Multiple is determined once Reimbursement Premiums have been billed as of December 31 and the amount of bond proceeds has been determined.

(24) Premium

This term means the same as Reimbursement Premium.

(25) Projected Payout Multiple

The Projected Payout Multiple is used to calculate a Company’s projected payout pursuant to Section 215.555(4)(d)2., Florida Statutes. The Projected Payout Multiple is derived by dividing the estimated single season Claims-Paying Capacity of the FHCF by the estimated total aggregate industry Reimbursement Premium for the FHCF for the Contract Year. The Company’s Reimbursement Premium as paid to the SBA for the Contract Year is multiplied by the Projected Payout Multiple to estimate the Company’s coverage from the FHCF for the Contract Year.

(26) Reimbursement Premium

This term means the Premium determined by multiplying each $1,000 of insured value reported by the Company in accordance with Section 215.555(5)(b), Florida Statutes, by the rate as derived from the Premium Formula, as described in Rule 19-8.028, F.A.C.

(27) Residential Structures

This term means dwelling units, including the primary structure and appurtenant structures insured under the same policy and any other structures covered under endorsements associated with a policy covering a residential structure. Covered Residential Structures do not include any structures listed under Article VI herein or structures used solely for non-residential purposes.

(28) Retention

The Company’s Retention means the amount of hurricane losses under Covered Policies which must be incurred by the Company before it is eligible for reimbursement from the FHCF.

(a) When the Company experiences covered losses from one or two Covered Events during the Contract Year, the Company’s full Retention shall be applied to each of the Covered Events.

(b) When the Company experiences covered losses from more than two Covered Events during the Contract Year, the Company’s full Retention shall be applied to each, of the two Covered Events causing the largest covered losses for the Company. For each other Covered Event resulting in covered losses, the Company’s Retention shall be reduced to one-third of its full Retention and applied to all other Covered Events.

1. All reimbursement of covered losses for each Covered Event shall be based on the Company’s full Retention until December 31 of the Contract Year. Adjustments to reflect a reduction to one-third of the full Retention shall be made on or after December 31 of the Contract Year provided the Company reports its losses as specified in this Contract.

2. Adjustments to the Company’s Retention shall be based upon its paid and outstanding losses as reported on the Company’s Proof of Loss Reports but shall not include incurred but not reported losses. The Company’s Proof of Loss Reports shall be used to determine which Covered Events constitute the Company’s two largest Covered Events, and the reduction to one-third of the full Retention shall be applied to all other Covered Events for the Contract Year. After this initial determination, any subsequent adjustments shall be made by the SBA only if the quarterly loss reports reveal that loss development patterns have resulted in a change in the order of Covered Events entitled to the reduction to one- third of the full Retention.

(c) The Company’s full Retention is established in accordance with the provisions of Section 215.555(2)(e), Florida Statutes, and shall be determined by multiplying the Retention Multiple by the Company’s Reimbursement Premium for the Contract Year.

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(d) Once the Company’s limit of coverage has been exhausted, the Company will not be entitled to further reimbursements.

(29) Retention Multiple

(a) The Retention Multiple is applied to the Company’s Reimbursement Premium to determine the Company’s Retention. The Retention Multiple for the 2012/2013 Contract Year shall be equal to $4.5 billion, adjusted based upon the reported exposure for the 2010/2011 Contract Year to reflect the percentage growth in exposure to the FHCF since 2004, divided by the estimated total industry Reimbursement Premium at the 90% reimbursement percentage level for the Contract Year as determined by the SBA.

(b) The Retention Multiple as determined under (29)(a) above shall be adjusted to reflect the reimbursement percentage elected by the Company under this Contract as follows:

1. If the Company elects a 90% reimbursement percentage, the adjusted Retention Multiple is 100% of the amount determined under (29)(a) above;

2. If the Company elects a 75% reimbursement percentage, the adjusted Retention Multiple is 120% of the amount determined under (29)(a) above; or

3. If the Company elects a 45% reimbursement percentage, the adjusted Retention Multiple is 200% of the amount determined under (29)(a) above.

(30) Ultimate Net Loss

(a) This term means all Losses of the Company under Covered Policies in force at the time of a Covered Event, as defined under (9) above, prior to the application of the Company’s FHCF Retention, as defined under (28) above, and reimbursement percentage, and excluding loss adjustment expense and any exclusions under Article VI herein, arising from each Loss Occurrence during the Contract Year, provided, however, that the Company’s Ultimate Net Loss shall be determined in accordance with the deductible level written under the policy sustaining the loss.

(b) Salvages and all other recoveries, excluding reinsurance recoveries, shall be first deducted from such loss to arrive at the amount of liability attaching hereunder.

(c) All salvages, recoveries or payments recovered or received subsequent to a loss settlement under this Contract shall be applied as if recovered or received prior to the aforesaid settlement and all necessary adjustments shall be made by the parties hereto.

(d) Nothing in this clause shall be construed to mean that losses under this Contract are not recoverable until the Company’s Ultimate Net Loss has been ascertained.

(e) The SBA shall be subrogated to the rights of the Company to the extent of its reimbursement of the Company. The Company agrees to assist and cooperate with the SBA in all respects as regards such subrogation. The Company further agrees to undertake such actions as may be necessary to enforce its rights of salvage and subrogation, and its rights, if any, against other insurers as respects any claim, loss, or payment arising out of a Covered Event.

ARTICLE VI - EXCLUSIONS

This Contract does not provide reimbursement for:

(1) Any losses not defined as being within the scope of a Covered Policy.

(2) Any policy which excludes wind or hurricane coverage.

(3) Any Excess Policy or Deductible Buy-Back Policy that requires individual ratemaking, as determined by the FHCF.

(4) Any policy for Residential Structures, as defined in Article V(27) herein, that provides a layer of coverage underneath an Excess Policy, as defined in Article V(13) herein, issued by a different insurer.

(5) Any liability of the Company attributable to losses for fair rental value, loss of rent or rental income, or business interruption.

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(6) Any collateral protection policy that does not meet the definition of Covered Policy as defined in Article V(10)(d) herein.

(7) Any reinsurance assumed by the Company.

(8) Any exposure for hotels, motels, timeshares, shelters, camps, retreats, and any other rental property used solely for commercial purposes.

(9) Any exposure for homeowner associations if no habitational structures are insured under the policy.

(10) Any exposure for homes and condominium structures or units that are non-owner occupied and rented for six (6) or more rental periods by different parties during the course of a twelve (12) month period.

(11) Commercial healthcare facilities and nursing homes; however, a nursing home which is an integral part of a retirement community consisting primarily of habitational structures that are not nursing homes will not be subject to this exclusion.

(12) Any exposure under commercial policies covering only appurtenant structures or structures that do not function as a habitational structure (e.g., a policy covering only the pool of an apartment complex).

(13) Personal contents in a commercial storage facility (including jewelry in an off-premises vault) covered under a policy that covers only those personal contents.

(14) Policies covering only Additional Living Expense.

(15) Any exposure for barns or barns with apartments.

(16) Any exposure for builders risk coverage or new Residential Structures still under construction.

(17) Any exposure for recreational vehicles, golf carts, or boats (including boat related equipment) requiring licensing and written on a separate policy or endorsement.

(18) Any liability of the Company for extra contractual obligations or liabilities in excess of original policy limits. This exclusion includes, but is not limited to, amounts paid as bad faith awards, punitive damages awards, or other court-imposed fines, sanctions, or penalties; or other amounts in excess of the coverage limits under the Covered Policy.

(19) Any losses paid in excess of a policy’s hurricane limit in force at the time of each Covered Event, including individual coverage limits (i.e., building, appurtenant structures, contents, and additional living expense), or other amounts paid as the result of a voluntary expansion of coverage by the insurer, including, but not limited to, a waiver of an applicable deductible. This exclusion includes overpayments of a specific individual coverage limit even if total payments under the policy are within the aggregate policy limit.

(20) Any losses paid under a policy for Additional Living Expense, written as a time element coverage, in excess of the Additional Living Expense exposure reported for that policy under the Data Call for the applicable Contract Year (unless policy limits have changed effective after June 30 of the Contract Year).

(21) Any losses for which the Company’s claims files do not adequately support. Claim file support shall be deemed adequate if in compliance with the Records Retention Requirements outlined on the Form FHCF-L1B (Proof of Loss Report) applicable to the Contract Year.

(22) Amounts paid to reimburse a policyholder for condominium association loss assessments or under similar coverages for contractual liabilities.

(23) Losses in excess of the sum of the Balance of the Fund as of December 31 of the Contract Year and the amount the SBA is able to raise through the issuance of revenue bonds or by the use of other financing mechanisms, up to the limit pursuant to Section 215.555(4)(c), Florida Statutes.

(24) Any liability assumed by the Company from Pools, Associations, and Syndicates. Exception: Covered Policies assumed from Citizens under the terms and conditions of an executed assumption agreement between the Authorized Insurer and Citizens are covered by this Contract.

(25) All liability of the Company arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. “Insolvency fund” includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment

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or assumption by the Company of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, which has been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

(26) Property losses that are proximately caused by any peril other than a Covered Event, including, but not limited to, fire, theft, flood or rising water, or windstorm that does not constitute a Covered Event, or any liability of the Company for loss or damage caused by or resulting from nuclear reaction, nuclear radiation, or radioactive contamination from any cause, whether direct or indirect, proximate or remote, and regardless of any other cause or event contributing concurrently or in any other sequence to the loss.

(27) The FHCF does not provide coverage for water damage which is generally excluded under property insurance contracts and has been defined to mean flood, surface water, waves, tidal water, overflow of a body of water, storm surge, or spray from any of these, whether or not driven by wind.

(28) Specialized Fine Arts Risks as defined in Rule 19-8.028(4)(d), F.A.C.

(29) Any losses under liability coverages.

ARTICLE VII - MANAGEMENT OF CLAIMS AND LOSSES

The Company shall investigate and settle or defend all claims and losses. All payments of claims or losses by the Company within the terms and limits of the appropriate coverage parts of Covered Policies shall be binding on the SBA, subject to the terms of this Contract, including the provisions in Article XIII relating to inspection of records and examinations.

ARTICLE VIII - LOSS REIMBURSEMENT ADJUSTMENTS

(1) Offsets

The SBA reserves the right to offset amounts payable to the SBA from the Company, including amounts payable under any Contract Year and the Company’s full Premium for the current Contract Year (regardless of installment due dates), against any reimbursement or advance amounts, or amounts agreed to in a commutation agreement, which are due and payable to the Company from the SBA as a result of the liability of the SBA.

(2) Reimbursement Adjustments

Section 215.555(4)(d) and (e), Florida Statutes, provides the SBA with the right to seek the return of excess loss reimbursements which have been paid to the Company along with interest thereon. Excess loss reimbursements are those payments made to the Company by the SBA that are in excess of the Company’s coverage under the Contract Year. Excess loss reimbursements may result from adjustments to the Projected Payout Multiple or the Payout Multiple, incorrect exposure (Data Call) submissions or resubmissions, incorrect calculations of Reimbursement Premiums or Retentions, incorrect Proof of Loss Reports, incorrect calculation of reinsurance recoveries, or subsequent readjustment of policyholder claims, including subrogation and salvage, or any combination of the foregoing. The Company will be sent an invoice showing the due date for adjustments along with the interest due thereon through the due date. The applicable interest rate for interest credits, and for interest charges for adjustments beyond the Company’s control, will be the average rate earned by the SBA for the FHCF for the first four months of the Contract Year. The applicable interest rate for interest charges on excess loss reimbursements due to adjustments resulting from incorrect exposure submissions or Proof of Loss Reports will accrue at this rate plus 5%. All interest will continue to accrue if not paid by the due date.

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ARTICLE IX - REIMBURSEMENT PREMIUM

(1) The Company shall, in a timely manner, pay the SBA its Reimbursement Premium for the Contract Year. The Reimbursement Premium for the Contract Year shall be calculated in accordance with Section 215.555, Florida Statutes, with any rules promulgated thereunder, and with Article X(2).

(2) Since the calculation of the Actuarially Indicated Premium assumes that the Companies will pay their Reimbursement Premiums timely, interest charges will accrue under the following circumstances. A Company may choose to estimate its own Premium installments. However, if the Company’s estimation is less than the provisional Premium billed, an interest charge will accrue on the difference between the estimated Premium and the final Premium. If a Company estimates its first installment, the Administrator shall bill that estimated Premium as the second installment as well, which will be considered as an estimate by the Company. No interest will accrue regarding any provisional Premium if paid as billed by the FHCF’s Administrator, except in the case of an estimated second installment as set forth in this Article. Also, if a Company makes an estimation that is higher than the provisional Premium billed but is less than the final Premium, interest will not accrue. If the Premium payment is not received from a Company when it is due, an interest charge will accrue on a daily basis until the payment is received. Interest will also accrue on Premiums resulting from submissions or resubmissions finalized after December 1 of the Contract Year. An interest credit will be applied for any Premium which is overpaid as either an estimate or as a provisional Premium. Interest shall not be credited past December 1 of the Contract Year. The applicable interest rate for interest credits will be the average rate earned by the SBA for the FHCF for the first four months of the Contract Year. The applicable interest rate for interest charges will accrue at this rate plus 5%.

ARTICLE X - REPORTS AND REMITTANCES

(1) Exposures

(a) If the Company writes Covered Policies before June 1 of the Contract Year, the Company shall report to the SBA, unless otherwise provided in Rule 19-8.029, F.A.C., no later than the statutorily required date of September 1 of the Contract Year, by ZIP Code or other limited geographical area as specified by the SBA, its insured values under Covered Policies as of June 30 of the Contract Year as outlined in the annual reporting of insured values form, FHCF- D1A (Data Call) adopted for the Contract Year under Rule 19-8.029, F.A.C., and other data or information in the format specified by the SBA.

(b) If the Company first begins writing Covered Policies on or after June 1 but prior to December 1 of the Contract Year, the Company shall report to the SBA, no later than March 1 of the Contract Year, by ZIP Code or other limited geographical area as specified by the SBA, its insured values under Covered Policies as of December 31 of the Contract Year as outlined in the Supplemental Instructions for New Participants section of the Data Call adopted for the Contract Year under Rule 19-8.029, F.A.C., and other data or information in the format specified by the SBA.

(c) If the Company first begins writing Covered Policies on December 1 through and including May 31 of the Contract Year, the Company shall not report its exposure data for the Contract Year to the SBA.

(d) The requirement that a report is due on a certain date means that the report shall be in the physical possession of the FHCF’s Administrator in Minneapolis no later than 5 p.m. Central Time on the due date. If the applicable due date is a Saturday, Sunday or legal holiday, then the actual due date will be the day immediately following the applicable due date which is not a Saturday, Sunday or legal holiday. For purposes of the timeliness of the submission, neither the United States Postal Service postmark nor a postage meter date is in any way determinative. Reports sent to the SBA in Tallahassee, Florida, will be returned to the sender. Reports not in the physical possession of the FHCF’s Administrator by 5 p.m., Central Time, on the applicable due date are late.

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(e) Pursuant to the provisions of Section 215.557, Florida Statutes, the reports of insured values under Covered Policies by ZIP Code submitted to the SBA pursuant to Section 215.555, Florida Statutes, are confidential and exempt from the provisions of Section 119.07(1), Florida Statutes, and Section 24(a), Art. I of the State Constitution.

(2) Reimbursement Premium

(a) If the Company writes Covered Policies before June 1 of the Contract Year, the Company shall pay the FHCF its Reimbursement Premium in installments due on or before August 1, October 1, and December 1 of the Contract Year in amounts to be determined by the FHCF. However, if the Company’s Reimbursement Premium for the prior Contract Year was less than $5,000, the Company’s full provisional Reimbursement Premium, in an amount equal to the Reimbursement Premium paid in the prior year, shall be due in full on or before August 1 of the Contract Year. The Company will be invoiced for amounts due, if any, beyond the provisional Reimbursement Premium payment, on or before December 1 of the Contract Year. In addition, if control of the Company has been transferred through any legal or regulatory proceeding to a state regulator or court appointed receiver or rehabilitator (referred to in the aggregate as “State action”), the full annual provisional Reimbursement Premium as billed and any outstanding balances will be due and payable on August 1, or the date that such State action occurs after August 1 of the Contract Year. Such acceleration will not apply when the receiver or rehabilitator provides a letter of assurance to the FHCF that the Company will have the resources to pay the premium in installments in accordance with the contractual provisions.

(b) A New Participant that first begins writing Covered Policies on or after June 1 but prior to December 1 of the Contract Year shall pay the FHCF a provisional Reimbursement Premium of $1,000 upon execution of this Contract. The Administrator shall calculate the Company’s actual Reimbursement Premium for the period based on its actual exposure as of December 31 of the Contract Year, as reported on or before March 1 of the Contract Year. To recognize that New Participants have limited exposure during this period, the actual Premium as determined by processing the Company’s exposure data shall then be divided in half, the provisional Premium shall be credited, and the resulting amount shall be the total Premium due for the Company for the remainder of the Contract Year. However, if that amount is less than $1,000, then the Company shall pay $1,000. The Premium payment is due no later than May 1 of the Contract Year. The Company’s Retention and coverage will be determined based on the total Premium due as calculated above.

(c) A New Participant that first begins writing Covered Policies on or after December 1 through and including May 31 of the Contract Year shall pay the FHCF a Reimbursement Premium of $1,000 upon execution of this Contract.

(d) The requirement that the Reimbursement Premium is due on a certain date means that the Premium shall be in the physical possession of the FHCF no later than 2 p.m., Eastern Time, on the due date applicable to the particular installment. If remitted by check to the FHCF’s Post Office Box, the check shall be physically in the Post Office Box 100822, Atlanta, GA 30384-0822, as set out on the invoice sent to the Company. If remitted by check by hand delivery, the check shall be physically on the premises of the FHCF’s bank in College Park, Georgia, as set out on the invoice sent to the Company. If remitted electronically, the wire transfer shall have been completed to the FHCF’s account at its bank in Atlanta, Georgia, as set out on the invoice sent to the Company. If the applicable due date is a Saturday, Sunday or legal holiday, then the actual due date will be the day immediately following the applicable due date which is not a Saturday, Sunday or legal holiday. For purposes of the timeliness of the remittance, neither the United States Postal Service postmark nor a postage meter date is in any way determinative. Premium checks sent to the SBA in Tallahassee, Florida, or to the FHCF’s Administrator in Minneapolis, Minnesota, will be returned to the sender. Reimbursement Premiums not in the physical possession of the FHCF by 2 p.m., Eastern Time, on the applicable due date are late.

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(e) Except as required by Section 215.555(7)(c), Florida Statutes, or as described in the following sentence, Reimbursement Premiums, together with earnings thereon, received in a given Contract Year will be used only to pay for losses attributable to Covered Events occurring in that Contract Year or for losses attributable to Covered Events in subsequent Contract Years and will not be used to pay for past losses or for debt service on revenue bonds. Pursuant to Section 215.555(6)(a)l., Florida Statutes, Reimbursement Premiums and earnings thereon may be used for payments relating to revenue bonds in the event emergency assessments are insufficient. If Reimbursement Premiums or earnings thereon are used for debt service on revenue bonds, then the amount of the Reimbursement Premiums or earnings thereon so used shall be returned, without interest, to the Fund when emergency assessments or other legally available funds remain available after making payment relating to the revenue bonds and any other purposes for which emergency assessments were levied.

(3) Claims and Losses

(a) In General

1. Claims and losses resulting from Loss Occurrences commencing during the Contract Year shall be reported by the Company and reimbursed by the FHCF as provided herein and in accordance with the Statute, this Contract, and any rules adopted pursuant to the Statute. For a Company participating in a quota share primary insurance agreements) with Citizens Property Insurance Corporation Coastal Account, Citizens and the Company shall report only their respective portion of losses under the quota share primary insurance agreement(s). Pursuant to Section 215.555(4)(c), Florida Statutes, the SBA is obligated to pay for losses not to exceed the Actual Claims-Paying Capacity of the FHCF, up to the limit in accordance with Section 215.555(4)(c)l., Florida Statutes, for any one Contract Year.

2. If the Company is in non-compliance with Section 215.555, Florida Statutes for any Contract Year, including deadlines for sending in Contracts, addenda or attachments to Contracts, Data Call submissions or resubmissions, loss reports, or in responding to SBA exam requirements, the SBA reserves the right to withhold any payments or advances until such time the Company becomes compliant.

(b) Loss Reports

1. At the direction of the SBA, the Company shall report its projected Ultimate Net Loss from each Loss Occurrence to provide information to the SBA in determining any potential liability for possible reimbursable losses under the Contract on the Interim Loss Report, Form FHCF-L1A, adopted for the Contract Year under Rule 19-8.029, F.A.C. Interim Loss Reports (including subsequent Interim Loss Reports if required by the SBA) will be due in no less than fourteen days from the date of the notice from the SBA that such a report is required.

2. FHCF loss reimbursements will be issued based on Ultimate Net Loss information reported by the Company on the Proof of Loss Report, Form FHCF-L1B, adopted for the Contract Year under Rule 19-8.029, F.A.C.

a. To qualify for reimbursement, the Proof of Loss Report must have the original signatures of two executive officers authorized by the Company to sign the report.

b. The Company must also submit a detailed claims listing (as outlined on the Proof of Loss Report) at the same time it submits its first Proof of Loss Report for a specific Covered Event that qualifies the Company for reimbursement under that Covered Event, and should be prepared to supply a detailed claims listing for any subsequent Proof of Loss Report upon request.

c. While a Company may submit a Proof of Loss Report requesting reimbursement at any time following a Loss Occurrence, all Companies shall submit a mandatory Proof of Loss Report for each Loss Occurrence no earlier than December 1 and no later than

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December 31 of the Contract Year during which the Covered Event(s) occurs using the most current data available, regardless of the amount of Ultimate Net Loss or the amount of loss reimbursements or advances already received. Reports may be faxed only if the Company does not qualify for a reimbursement,

d. For the Proof of Loss Reports due by December 31 of the Contract Year, and the required subsequent quarterly and annual reports required under subparagraphs 3. and 4. below, the Company shall submit its Proof of Loss Reports by each quarter-end or year-end using the most current data available. However, the date of such data shall not be more than sixty days prior to the applicable quarter-end or year-end date.

3. Updated Proof of Loss Reports for each Loss Occurrence are due quarterly thereafter until all claims and losses resulting from a Loss Occurrence are fully discharged including any adjustments to such losses due to salvage or other recoveries, or the Company has received its full coverage under the Contract Year in which the Loss Occurrence(s) occurred. Guidelines follow:

a. Quarterly Proof of Loss Reports are due by March 31 from an insurer whose losses exceed, or are expected to exceed, 50% of its FHCF Retention for a specific Loss Occurrence(s).

b. Quarterly Proof of Loss Reports are due by June 30 from an insurer whose losses exceed, or are expected to exceed, 75% of its FHCF Retention for a specific Loss Occurrence(s).

c. Quarterly Proof of Loss Reports are due by September 30 and quarterly thereafter from an insurer whose losses exceed, or are expected to exceed, its FHCF Retention for a specific Loss Occurrence(s).

If the Company’s Retention must be recalculated as the result of an exposure resubmission, and if the recalculated Retention changes the FHCF’s reimbursement obligations, then the Company shall submit additional Proof of Loss Reports for recalculation of the FHCF’s obligations.

4. Annually after December 31 of the Contract Year, all Companies shall submit a mandatory year-end Proof of Loss Report for each Loss Occurrence, as applicable, using the most current data available. This Proof of Loss Report shall be filed no earlier than December 1 and no later than December 31 of each year and shall continue until the earlier of the commutation process described in (3)(d) below or until all claims and losses resulting from the Loss Occurrence are fully discharged including any adjustments to such losses due to salvage or other recoveries.

5. The SBA, except as noted below, will determine and pay, within 30 days or as soon as practicable after receiving Proof of Loss Reports, the reimbursement amount due based on losses paid by the Company to date and adjustments to this amount based on subsequent quarterly information. The adjustments to reimbursement amounts shall require the SBA to pay, or the Company to return, amounts reflecting the most recent determination of losses.

a. The SBA shall have the right to consult with all relevant regulatory agencies to seek all relevant information, and shall consider any other factors deemed relevant, prior to the issuance of reimbursements.

b. The SBA shall require commercial self-insurance funds established under Section 624.462, Florida Statutes, to submit contractor receipts to support paid losses reported on a Proof of Loss Report, and the SBA may hire an independent consultant to confirm losses, prior to the issuance of reimbursements.

c. The SBA shall have the right to conduct a claims examination prior to the issuance of any advances or reimbursements submitted by Companies that have been placed under regulatory supervision by a State or where control has been transferred through any legal or regulatory proceeding to a state regulator or court appointed receiver or rehabilitator.

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6. All Proof of Loss Reports received will be compared with the FHCF’s exposure data to establish the facial reasonableness of the reports. The SBA may also review the results of current and prior Contract Year exposure and loss examinations to determine the reasonableness of the reported losses. Except as noted in paragraph 4. above, Companies meeting these tests for reasonableness will be scheduled for reimbursement. Companies not meeting these tests for reasonableness will be handled on a case-by-case basis and will be contacted to provide specific information regarding their individual book of business. The discovery of errors in a Company’s reported exposure under the Data Call may require a resubmission of the current Contract Year Data Call which, as the Data Call impacts the Company’s Premium, Retention, and coverage for the Contract Year, will be required before the Company’s request for reimbursement or an advance will be fully processed by the Administrator.

(c) Loss Reimbursement Calculations

1. In general, the Company’s paid Ultimate Net Losses must exceed its full FHCF Retention for a specific Covered Event before any reimbursement is payable from the FHCF for that Covered Event. As described in Article V(28)(b), Retention adjustments will be made on or after December 31 of the Contract Year. No interest is payable on additional payments to the Company due to this type of Retention adjustment. Each Company sustaining reimbursable losses will receive the amount of reimbursement due under the Contract up to the amount of the Company’s payout. If more than one Covered Event occurs in any one Contract Year, any reimbursements due from the FHCF shall take into account the Company’s Retention for each Covered Event. However, the Company’s reimbursements from the FHCF for all Covered Events occurring during the Contract Year shall not exceed, in aggregate, the Projected Payout Multiple or Payout Multiple, as applicable, times the individual Company’s Reimbursement Premium for the Contract Year.

2. In determining reimbursements under this Contract, the SBA shall reimburse each of the Companies, including entities created pursuant to Section 627.351(6), Florida Statutes, for the amount (if any) of reimbursement due under the individual Company’s Contract, but not to exceed for all Loss Occurrences, an amount equal to the Projected Payout Multiple or the Payout Multiple, as applicable, times the individual Company’s Reimbursement Premium for the Contract Year.

3. Reserve established. When a Covered Event occurs in a subsequent Contract Year when reimbursable losses are still being paid for a Covered Event in a previous Contract Year, the SBA will establish a reserve for the outstanding reimbursable losses for the previous Contract Year, based on the length of time the losses have been outstanding, the amount of losses already paid, the percentage of incurred losses still unpaid, and any other factors specific to the loss development of the Covered Events involved.

(d) Commutation

1. Not less than 36 months or more than 60 months after the end of the Contract Year, the Company shall file a final Proof of Loss Report(s), with the exception of Companies having no reportable losses as described in paragraph (3)(d)l.a. below. Otherwise, the final Proof of Loss Report(s) is required as specified in paragraph (3)(d)l.b. below. The Company and SBA may mutually agree to initiate commutation after 36 months and prior to 60 months after the end of the Contract Year. The commutation negotiations shall begin at the later of 60 months after the end of the Contract Year or upon completion of the FHCF loss examination for the Company and the resolution of all outstanding examination issues.

a. If the Company’s most recently submitted Proof of Loss Report(s) indicate that it has no losses resulting from a Loss Occurrence(s) during the Contract Year, the SBA shall after 36 months request that the Company execute a final commutation agreement. The final commutation agreement shall constitute a complete and final release of all obligations of the SBA with respect to all claims and losses. If the Company chooses not to execute a

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final commutation agreement, the SBA shall be released from all obligations 60 months following the end of the Contract Year if no Proof of Loss Report(s) indicating reimbursable losses have been filed and the commutation shall be deemed concluded. However during this time, if the Company determines that it does have losses to report for FHCF reimbursement, the Company must submit an updated Proof of Loss Report(s) prior to the end of 60 months after the Contract Year and the Company shall be required to follow the commutation provisions and time frames otherwise specified in this section.

b. If the Company has submitted a Proof of Loss Report(s) indicating that it does have losses resulting from a Loss Occurrence(s) during the Contract Year, the SBA may require the Company to submit within 30 days an updated, current Proof of Loss Report(s) for each Loss Occurrence during the Contract Year. The Proof of Loss Report(s) must include all paid losses as well as all outstanding losses and incurred but not reported losses, which are not finally settled and which may be reimbursable losses under this Contract, and must be accompanied by supporting documentation (at a minimum an adjuster’s summary report or equivalent details) and a copy of a written opinion on the present value of the outstanding losses and incurred but not reported losses by the Company’s certifying actuary. Failure of the Company to provide an updated current Proof of Loss Report(s), supporting documentation, and an opinion by the date requested by the SBA may result in referral to the Office of Insurance Regulation for a violation of the Contract. Increases in reported paid, outstanding, or incurred but not reported losses on original or corrected Proof of Loss Report filings received later than 60 months after the end of the Contract Year shall not be eligible for reimbursement or commutation.

2. Determining the present value of outstanding claims and losses.

a. If the Company exceeds or expects to exceed its Retention, the Company and the SBA or their respective representatives shall attempt, by mutual agreement, to agree upon the present value of all outstanding claims and losses, both reported and incurred but not reported, resulting from Loss Occurrences during the Contract Year. Payment by the SBA of its portion of any amount or amounts so mutually agreed and certified by the Company’s certifying actuary shall constitute a complete and final release of the SBA in respect of all claims and losses, both reported and unreported, under this Contract.

b. If agreement on present value cannot be reached within 90 days of the FHCF’s receipt of the final Proof of Loss Report(s) and supporting documentation, the Company and the SBA may mutually appoint an actuary, adjuster, or appraiser to investigate and determine such claims or losses. If both parties then agree, the SBA shall pay its portion of the amount so determined to be the present value of such claims or losses.

c. If the parties fail to agree, then any difference shall be settled by a panel of three actuaries, as provided in this paragraph.

i. One actuary shall be chosen by each party, and the third actuary shall be chosen by those two actuaries. If either party does not appoint an actuary within 30 days, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of an independent third actuary within 30 days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots.

ii. All of the actuaries shall be regularly engaged in the valuation of property claims and losses and shall be members of the Casualty Actuarial Society and of the American Academy of Actuaries.

iii. None of the actuaries shall be under the control of either party to this Contract.

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iv. Each party shall submit its case to the panel in writing on the 30^th day after the appointment of the third actuary. Following the submission of the case to the panel, the parties are prohibited from providing any further information or other communication except at the request of the panel. Such responses to requests from the panel must be in writing and simultaneously provided to the other party and all members of the panel, except that the panel may require the response to be provided in a meeting or teleconference attended by both parties and all members of the panel,

v. The decision in writing of any two actuaries, when filed with the parties hereto, shall be final and binding on both parties,

d. The reasonable and customary expense of the actuaries and of the commutation (as a result of b. and c. above) shall be equally divided between the two parties. Said commutation shall take place in Tallahassee, Florida, unless some other place is mutually agreed upon by the Company and the SBA.

(4) Advances

(a) In accordance with Section 215.555(4)(e), Florida Statutes, the SBA may make advances for loss reimbursements as defined herein, at market interest rates, to the Company in accordance with Section 215.555(4)(e), Florida Statutes. An advance is an early reimbursement which allows the Company to continue to pay claims in a timely manner. Advances will be made based on the Company’s paid and reported outstanding losses for Covered Policies (excluding all incurred but not reported [IBNR] losses) as reported on a Proof of Loss Report, and shall include Loss Adjustment Expense Reimbursement as calculated by the FHCF. In order to be eligible for an advance, the Company must submit its exposure data for the Contract Year as required under paragraph (1) of this Article. Except as noted below, advances, if approved, will be made as soon as practicable after the SBA receives a written request, signed by two officers of the Company, for an advance of a specific amount and any other information required for the specific type of advance under subparagraphs (c) and (e) below. All reimbursements due to a Company shall be offset against any_;, amount of outstanding advances plus the interest due thereon.

(b) For advances or excess advances, which are advances that are in excess of the amount to which the Company is entitled, the market interest rate shall be the prime rate as published in the Wall Street Journal on the first business day of the Contract Year. This rate will be adjusted annually on the first business day of each subsequent Contract Year, regardless of whether the Company executes subsequent Contracts. In addition to the prime rate, an additional 5% interest charge will apply on excess advances. All interest charged will commence on the date the SBA issues a check for an advance and will cease on the date upon which the FHCF has received the Company’s Proof of Loss Report(s) for the Covered Event(s) for which the Company qualifies for reimbursement(s). If such reimbursements) are less than the amount of outstanding advance(s) issued to the Company, interest will continue to accrue on the outstanding balance of the advance(s) until subsequent Proof of Loss Reports qualify the Company for reimbursement under any Covered Event equal to or exceeding the amount of any outstanding advance(s). Interest shall be billed on a periodic basis. If it is determined that the Company received funds in excess of those to which it was entitled, the interest as to those sums will not cease on the date of the receipt of the Proof of Loss Report but will continue until the Company reimburses the FHCF for the overpayment.

(c) If the Company has an outstanding advance balance as of December 31 of this or any other Contract Year, the Company is required to have an actuary certify outstanding and incurred but not reported losses as reported on the applicable December Proof of Loss Report.

(d) The specific type of advances enumerated in Section 215.555, Florida Statutes, follow.

1. Advances to Companies to prevent insolvency, as defined under Article XIV of this Contract.

a. Section 215.555(4)(e)l., Florida Statutes, provides that the SBA shall advance to the Company amounts necessary to maintain the solvency of the Company, up to 50 percent of the SBA’s estimate of the reimbursement due to the Company.

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b. In addition to the requirements outlined in subparagraph (4)(a) above, the requirements for an advance to a Company to prevent insolvency are that the Company demonstrates it is likely to qualify for reimbursement and that the immediate receipt of moneys from the SBA is likely to prevent the Company from becoming insolvent, and the Company provides the following information:

i. Current assets;

ii. Current liabilities other than liabilities due to the Covered Event;

iii. Current surplus as to policyholders;

iv. Estimate of other expected liabilities not due to the Covered Event; and Amount of reinsurance available to pay claims for the Covered Event under other reinsurance treaties.

c. The SBA’s final decision regarding an application for an advance to prevent insolvency shall be based on whether or not, considering the totality of the circumstances, including the SBA’s obligations to provide reimbursement for all Covered Events occurring during the Contract Year, granting an advance is essential to allowing the entity to continue to pay additional claims for a Covered Event in a timely manner.

2. Advances to entities created pursuant to Section 627.351(6), Florida Statutes.

a. Section 215.555(4)(e)2., Florida Statutes, provides that the SBA may advance to an entity created pursuant to Section 627.351(6), Florida Statutes, up to 90% of the lesser of the SBA’s estimate of the reimbursement due or the entity’s share of the actual aggregate Reimbursement Premium for that Contract Year, multiplied by the current available liquid assets of the FHCF.

b. In addition to the requirements outlined in subparagraph (4)(a) above, the requirements for an advance to entities created pursuant to Section 627.351(6), Florida Statutes, are that the entity must demonstrate to the SBA that the advance is essential to allow the entity to pay claims for a Covered Event.

3. Advances to limited apportionment companies.

Section 215.555(4)(e)3., Florida Statutes, provides that the SBA may advance the amount of estimated reimbursement payable to limited apportionment companies.

(e) In determining whether or not to grant an advance and the amount of an advance, the SBA:

1. Shall determine whether its assets available for the payment of obligations are sufficient and sufficiently liquid to fulfill its Obligations to other Companies prior to granting an advance;

2. Shall review and consider all the information submitted by such Companies;

3. Shall review such Companies’ compliance with all requirements of Section 215.555, Florida Statutes;

4. Shall consult with all relevant regulatory agencies to seek all relevant information;

5. Shall review the damage caused by the Covered Event and when that Covered Event occurred;

6. Shall consider whether the Company has substantially exhausted amounts previously advanced;

7. Shall consider any other factors deemed relevant; and

8. Shall require commercial self-insurance funds established under section 624.462, Florida Statutes, to submit a copy of written estimates of expenses in support of the amount of advance requested.

(f) Any amount advanced by the SBA shall be used by the Company only to pay claims of its policyholders for the Covered Event or Covered Events which have precipitated the immediate need to continue to pay additional claims as they become due.

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(5) Delinquent Payments

Failure to submit a payment when due is a violation of the terms of this Contract and Section 215.555, Florida Statutes. Interest on late payments shall be due as set forth in Article VIII(2) and Article IX(2) of this Contract.

(6) Inadequate Data Submissions

If exposure data or other information required to be reported by the Company under the terms of this Contract is not received by the FHCF in the format specified by the FHCF or is inadequate to the extent that the FHCF requires resubmission of data, the Company will be required to pay the FHCF a resubmission fee of $1,000 for resubmissions that are not a result of an examination by the SBA. If a resubmission is necessary as a result of an examination report issued by the SBA, the first resubmission fee will be $2,000. If the Company’s examination-required resubmission is inadequate and the SBA requires an additional resubmission(s), the resubmission fee for each subsequent resubmission shall be $2,000. A resubmission of exposure data may delay the processing of the Company’s request for reimbursement or an advance.

(7) Delinquent Submissions

Failure to submit an exposure submission, resubmission, loss report, or commutation documentation when due is a violation of the terms of this Contract and Section 215.555, Florida Statutes.

ARTICLE XI - TAXES

In consideration of the terms under which this Contract is issued, the Company agrees to make no deduction in respect of the Premium herein when making premium tax returns to the appropriate authorities. Should any taxes be levied on the Company in respect of the Premium herein, the Company agrees to make no claim upon the SBA for reimbursement in respect of such taxes.

ARTICLE XII - ERRORS AND OMISSIONS

Any inadvertent delay, omission, or error on the part of the SBA shall not be held to relieve the Company from any liability which would attach to it hereunder if such delay, omission, or error had not been made.

ARTICLE XIII - INSPECTION OF RECORDS

The Company shall allow the SBA to inspect, examine, and verify, at reasonable times, all records of the Company relating to the Covered Policies under this Contract, including Company files concerning claims, losses, or legal proceedings regarding subrogation or claims recoveries which involve this Contract, including premium, loss records and reports involving exposure data or losses under Covered Policies. This right by the SBA to inspect, examine, and verify shall survive the completion and closure of an exposure examination or loss examination file and the termination of the Contract. The Company shall have no right to re-open an exposure or loss reimbursement examination once closed and the findings have been accepted by the Company; any re-opening shall be at the sole discretion of the SBA. If the FHCF Finance Corporation has issued revenue bonds and relied upon the exposure and loss data submitted and certified by the Company as accurate to determine the amount of bonding needed, the SBA may choose not to require, or accept, a resubmission if the resubmission will result in additional reimbursements to the Company. The SBA may require any discovered errors, inadvertent omissions, and typographical errors associated with the data reporting of insured values, discovered prior to the closing of the file and acceptance of the examination findings by the Company, to be corrected to reflect the proper values. The Company shall retain its records in accordance with the requirements for records retention regarding exposure reports and claims reports outlined herein, and in any administrative rules adopted pursuant to Section 215.555, Florida Statutes. Companies writing covered collateral protection policies, as defined in definition (10)(d) of Article V herein, must be able to provide documentation that the policy covers personal residences, protects both the borrower’s and lender’s interest, and that the coverage is in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowner’s policy.

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(1) Examination Requirements for Exposure Verification

The Company shall retain complete and accurate records, in policy level detail, of all exposure data submitted to the SBA in any Contract Year until the SBA has completed its examination of the Company’s exposure submissions. The Company shall also retain complete and accurate records of any completed exposure examination for any Contract Year in which the Company incurred losses until the completion of the loss reimbursement examination for that Contract Year. The records to be retained shall include the exam file which supports the exposure reported to the SBA and any other information which would allow for a complete examination of the Company’s reported exposure data. The exam file shall be prepared according to the SBA Exam File Specifications outlined in the Data Call. The Company must also have available, at the time of the examination, a copy of its underwriting manual, a copy of its rating manual, and staff to respond to the questions of the SBA or its agents. The Company is also required to retain declarations pages and policy applications to support reported exposure. To meet the requirement that the application must be retained, the Company may retain either the actual application or may retain the actual application in an electronic format. A complete list of records to be retained is set forth in Form FHCF-EAP1, adopted for the Contract Year under Rule 19-8.030, F.A.C.

(2) Examination Requirements for Loss Reports

The Company shall retain complete and accurate records of all reported losses and/or advances submitted to the SBA until the SBA has completed its examination of the Company’s reimbursable losses and commutation for the Contract Year (if applicable) has been concluded. The records to be retained are set forth as part of the Proof of Loss Report, Form FHCF-L1B, adopted for the Contract Year under Rule 19-8.029, F.A.C., and Form FHCF-LAP1, adopted for the Contract Year under Rule 19-8.030, F.A.C. The Company must also retain the required exposure exam file for the Contract Year in which the loss occurred, and must have available any other information which would allow for a complete examination of the Company’s losses.

(3) Examination Procedures

(a) The FHCF will send an examination notice to the Company providing the commencement date of the examination, the site of the examination, any accommodation requirements of the examiner, and the reports and data which must be assembled by the Company and forwarded to the FHCF upon request. The Company shall be prepared to choose one location in which to be examined, unless otherwise specified by the SBA.

(b) The reports and data are required to be forwarded to the FHCF as set forth in an examination notice letter. The information is then forwarded to the examiner. If the FHCF receives accurate and complete records as requested, the examiner will contact the Company to inform the Company as to what policies or other documentation will be required once the examiner is on site. Any records not required to be provided to the examiner in advance shall be made available at the time the examiner arrives on site. Any records to support reported losses which are provided after the examiner has left the work-site will, at the SBA’s discretion, result in an additional examination of exposure and/or loss records or an extension or expansion of the examination already in progress. All costs associated with such additional examination or with the extension or expansion of the original examination shall be borne by the Company.

(c) At the conclusion of the examiner’s work and the management review of the examiner’s report, findings, recommendations, and work papers, the FHCF will forward an examination report to the Company and require a response from the Company by a date certain as to the examination findings and recommendations.

(d) If the Company accepts the examination findings and recommendations, and there is no recommendation for additional information, the examination report will be finalized and the exam file closed.

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(e) If the Company disputes the examiner’s findings, the areas in dispute will be resolved by a meeting or a conference call between the Company and FHCF management.

(f) 1. If the recommendation of the examiner is to resubmit the Company’s exposure data for the Contract Year in question, then the FHCF will send the Company a letter outlining the process for resubmission and including a deadline to resubmit. The resubmission will include a data file to be submitted to the FHCF’s Administrator and an exam file to be submitted to the offices of the SBA. The resubmission is also required to be accompanied by a detailed written description of the specific changes made to the resubmitted data. Once the resubmission is received by the FHCF’s Administrator, the FHCF’s Administrator calculates a revised Reimbursement Premium for the Contract Year which has been examined. The SBA shall then review the resubmission with respect to the examiner’s findings, and accept the resubmission or contact the Company with any questions regarding the resubmission. Once the SBA has accepted the resubmission as a sufficient response to the examiner’s findings, the exam is closed.

2. If the recommendation of the examiner is either to resubmit the Company’s exposure data for the Contract Year in question or giving the option to pay the estimated Premium difference, then the FHCF will send the Company a letter outlining the process for resubmission or for paying the estimated Premium difference and including a deadline for the resubmission or the payment to be received by the FHCF’s Administrator. If the Company chooses to resubmit, the same procedures outlined in Article XlH(3)(f)l. apply.

(g) If the recommendation of the examiner is to update the Company’s Proof of Loss Report(s) for the Contract Year under review, the FHCF will send the Company a letter outlining the process for submitting the Proof of Loss Report(s) and including a deadline to file. The updated Proof of Loss Report(s) will be submitted to the FHCF’s Administrator with a copy of the Proof of Loss Report(s) and a supporting detailed claims listing to be submitted to the offices of the SBA. The report is required to be accompanied by a detailed written description of the specific changes made. Once the Proof of Loss Report(s) is received by the FHCF Administrator, the FHCF’s Administrator will calculate a revised reimbursement. The SBA shall then review the submitted Proof of Loss Report(s) with respect to the examiner’s findings, and accept the Proof of Loss Report(s) as filed or contact the Company with any questions. Once the SBA has accepted the corrected Proof of Loss Report(s) as a sufficient response to the examiner’s findings, the exam is closed.

(h) If the Company continues to dispute the examiner’s findings and/or recommendations and no resolution of the disputed matters is obtained through discussions between the Company and FHCF management, then the process within the SBA is at an end and further administrative remedies may be pursued under Chapter 120, Florida Statutes.

(i) The examiner’s list of errors is made available in the examination report sent to the Company. Given that the examination was based on a sample of the Company’s policies or claims rather than the whole universe of the Company’s Covered Policies or reported claims, the error list is not intended to provide a complete list of errors but is intended to indicate what information needs to be reviewed and corrected throughout the Company’s book of Covered Policy business or claims information to ensure more complete and accurate reporting to the FHCF.

(4) Costs of the Examinations

The costs of the examinations shall be borne by the SBA. However, in order to remove any incentive for a Company to delay preparations for an examination, the SBA shall be reimbursed by the Company for any examination expenses incurred in addition to the usual and customary costs, which additional expenses were incurred as a result of the Company’s failure, despite proper notice, to be prepared for the examination or as a result of a Company’s failure to provide requested information. All requested information must be complete and accurate. The Company shall be notified of any administrative remedies which may be obtained under Chapter 120, Florida Statutes.

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ARTICLE XIV - INSOLVENCY OF THE COMPANY

Company shall notify the FHCF immediately upon becoming insolvent. Except as otherwise provided below, no covered loss reimbursements will be made until the FHCF has completed and closed its examination of the insolvent Company’s losses, unless an agreement is entered into by the court appointed receiver specifying that all data and computer systems required for FHCF exposure and loss examinations will be maintained until completion of the Company’s exposure and loss examinations. Except as otherwise provided below, in order to account for potential erroneous reporting, the SBA shall hold back 25% of requested loss reimbursements until the exposure and loss examinations for the Company are completed. Only those losses supported by the examination will be reimbursed. Pursuant to Section 215.555(4)(g), Florida Statutes, the FHCF is required to pay the “net amount of all reimbursement moneys” due an insolvent insurer to the Florida Insurance Guaranty Association (FIGA) for the benefit of Florida policyholders. For the purpose of this Contract, a Company is insolvent when an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction. In light of the need for an immediate infusion of funds to enable policyholders of insolvent companies to be paid for their claims, the SBA may enter into agreements with FIGA allowing exposure and loss examinations to take place immediately without the usual notice and response time limitations and allowing the FHCF to make loss reimbursements (net of any amounts payable to the SBA from the Company or FIGA) to FIGA before the examinations are completed and before the response time expires for claims filing by reinsurers and financial institutions, which have a priority interest in those funds pursuant to Section 215.555(4)(g), Florida Statutes. Such agreements must ensure the availability of the necessary records and adequate security must be provided so that if the FHCF determines that it overpaid FIGA on behalf of the Company, or if claims are filed by reinsurers or financial institutions having a priority interest in these funds, that the funds will be repaid to the FHCF by FIGA within a reasonable time.

ARTICLE XV - TERMINATION

The FHCF and the obligations of both parties under this Contract can be terminated only as may be provided by law or applicable rules.

ARTICLE XVI - VIOLATIONS

Pursuant to the provisions of Section 215.555(10), Florida Statutes, any violation of the terms of this Contract by the Company constitutes a violation of the Insurance Code of the State of Florida. Pursuant to the provisions of Section 215.555(11), Florida Statutes, the SBA is authorized to take any action necessary to enforce any administrative rules adopted pursuant to Section 215.555, Florida Statutes, and the provisions and requirements of this Contract.

ARTICLE XVII - APPLICABLE LAW

(1) Applicable Law: This Contract shall be governed by and construed according to the laws of the State of Florida in respect of any matter relating to or arising out of this Contract.

(2) Notice of Rights: Pursuant to Chapter 120, Florida Statutes, and the Uniform Rules of Procedure, codified as Chapters 28-101 through 28-111, F.A.C., a person whose substantial interests are affected by a decision of the SBA regarding the FHCF may request a hearing within 21 days shall have-waived his or her right to a hearing. The hearing may be a formal hearing or an informal hearing pursuant to the provisions of Sections 120.569 and 120.57, Florida Statutes. The petition must be filed (received) in the office of the Agency Clerk, General Counsel’s Office, State Board of Administration of Florida, P.O. Box 13300, Tallahassee, EL 32317-3300 or 1801 Hermitage Blvd., Suite 100, Tallahassee, FL 32308, within the 21 day period.

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ARTICLE XVIII - REIMBURSEMENT CONTRACT ELECTIONS

Reimbursement Percentage

For purposes of determining reimbursement (if any) due the Company under this Contract and in accordance with the Statute, the Company has the option to elect a 45% or 75% or 90% reimbursement percentage under this Contract. If the Company is a member of an NAIC group, all members must elect the same reimbursement percentage, and the individual executing this Contract on behalf of the Company, by placing his or her initials in the box under (a) below, affirms that the Company has elected the same reimbursement percentage as all members of its NAIC group. If the Company is an entity created pursuant to Section 627.351, Florida Statutes, the Company must elect the 90% reimbursement percentage. The Company shall not be permitted to change its reimbursement percentage during the Contract Year. The Company shall be permitted to change its reimbursement percentage at the beginning of a new Contract Year, but may not reduce its reimbursement percentage if a Covered Event required the issuance of revenue bonds, until the bonds have been fully repaid.

IMPORTANT NOTE: The FHCF has issued revenue bonds as a result of its liabilities for Covered Events under the Contract Year effective June 1, 2005. As those bonds have not been fully repaid, the Company may not select a Reimbursement Percentage that is less than its selection under the prior Contract Year effective June 1,2011.

The Reimbursement Percentage elected by the Company for the prior Contract Year effective June 1, 2011 was as follows: Homeowners Choice Property and Casualty Insurance Company - 90%

(a) NAIC Group Affirmation: Initial the following box if the Company is part of an NAIC Group:

(b) Reimbursement Percentage Election: The Company hereby elects the following Reimbursement Percentage for the Contract Year from 12:00:01 a.m., Eastern Time, June 1, 2012, to 12:00 a.m., Eastern Time, May 31, 2013, (the individual executing this Contract on behalf of the Company shall place his or her initials in the box to the left of the percentage elected for the Company):

45%    OR 75%    OR 90%                

Reporting Exposure for a Single Structure, with a Mix of Commercial Habitational and Commercial Non-Habitational Exposure, Written on a Commercial Policy

This section is applicable to all Companies which either have exposure for single structures with a mix of commercial habitational and commercial non-habitational exposure written under a Commercial Policy, or have the authority to write such policies. If the Company does not have the authority to write this type of exposure, this section does not apply; initial the N/A box on the next page, which completes this ARTICLE. If the Company does write, or has the authority to write, this type of exposure, please read and complete the remainder of this ARTICLE.

Commercial-Residential Class Code

If a single structure is used for both habitational and non-habitational purposes and the structure has a commercial-residential class code (based on a classification plan on file with and reviewed by the Administrator), the entire exposure for the structure should be reported to the FHCF under the Data Call, and the FHCF will reimburse losses for the entire structure as well.

Commercial Non-Residential/Business Class Code

If a single structure is used for both habitational and non-habitational purposes and the structure has a commercial non-residential or business class code (based on a classification plan on file with and reviewed by the Administrator), the habitational portion of that structure should be identified and reported to the FHCF under the Data Call.

However, in recognition of the unusual nature of commercial structures with incidental habitational exposure and the hardship some companies may face in having to carve out such incidental habitational exposure, as well as the losses to such structures, the FHCF will accommodate these companies by allowing them to exclude the entire exposure for the single structure from their Data Call submission, providing the following two conditions are met:

(1) The decision to not carve out and report the incidental habitational exposure shall apply to all such structures insured by the Company; and

(2) If the incidental habitational exposure is not reported to the FHCF, the Company agrees it shall not report losses to the structure and the FHCF shall not reimburse any losses to the structure.

Initial the CARVING box below if the Company is able to carve out and report its incidental habitational exposure, OR, if this requirement presents a hardship, the Company must communicate its decision to not carve out and to not report the incidental exposure by having the individual executing this Contract on behalf of the Company placing his or her initials in the NOT CARVING box below. If the Company does not currently write such policies, but has the authority to write such policies after the start date of this Contract, the decision to carve or not carve out the incidental habitational exposure must be indicated below.

	OR		OR
CARVING		NOT CARVING		NA

By initialing the CARVING or NOT CARVING box above, the Company is making an irrevocable decision for the corresponding Contract Year Data Call submission and any subsequent resubmissions.

Important  Note: Since this election will impact your Data Call submission, please share this decision with the individual(s)            responsible for compiling your Data Call submission.

Additional Living Expense (ALE) Written as Time Element Coverage

If your Company writes Covered Policies that provide ALE coverage on a time element basis (i.e., coverage is based on a specific period of time as opposed to a stated dollar limit), you must initial the ‘Yes – Time Element ALE’ box below. If your Company does not write time element ALE coverage, initial ‘No – Time Element ALE’ box below.

	OR
Yes – Time Element ALE		No – Time Elememnt ALE

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ARTICLE XIX - SIGNATURES

Approved by:

Florida Hurricane Catastrophe Fund

By: State Board of Administration of the State of Florida

By:	/s/ Ashbel C. Williams Date	6/14/12
	Ashbel C. Williams	Date
	Executive Director & CIO

Approved as to legality:

By:			6/14/12
			Date
	Homeowners Choice Property and Casualty Insurance Company
	Paresh Patel	CED
	Typed/Printed Name and Title
By:	/s/ Paresh Patel		2/29/2012
	Signature		Date

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EX-10.20

Exhibit 10.20

****** indicates material that has been omitted pursuant to a request for confidential treatment. The omitted material has been filed separately with the U.S. Securities and Exchange Commission

PER OCCURRENCE EXCESS OF LOSS REINSURANCE CONTRACT

EFFECTIVE: JUNE 1, 2012

ISSUED TO

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY

TAMPA, FLORIDA

Including any and all companies that are or may hereafter become affiliated therewith

PER OCCURRENCE EXCESS OF LOSS REINSURANCE CONTRACT

TABLE OF CONTENTS

ARTICLE 1
BUSINESS COVERED	4
ARTICLE 2
TERM	5
ARTICLE 3
SPECIAL TERMINATION	5
ARTICLE 4
TERRITORY	6
ARTICLE 5
EXCLUSIONS	6
ARTICLE 6
RETENTION AND LIMIT	8
ARTICLE 7
REINSURANCE PREMIUM	10
ARTICLE 8
DEFINITIONS	10
ARTICLE 9
PROFIT COMMISSION	14
ARTICLE 10
ADVANCES	14
ARTICLE 11
COMMUTATION	14
ARTICLE 12
WARRANTY	16
ARTICLE 13
ACCESS TO RECORDS	16
ARTICLE 14
ARBITRATION	16
ARTICLE 15
CONFIDENTIALITY	17
ARTICLE 16
CURRENCY	19

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ARTICLE 17
ENTIRE AGREEMENT	19
ARTICLE 18
ERROR AND OMISSIONS	19
ARTICLE 19
FEDERAL EXCISE TAX	19
ARTICLE 20
GOVERNING LAW	20
ARTICLE 21
INSOLVENCY	20
ARTICLE 22
LATE PAYMENTS	21
ARTICLE 23
LIABILITY OF THE REINSURER	23
ARTICLE 24
LOSS NOTICES AND SETTLEMENTS	23
ARTICLE 25
NO ASSIGNMENT	24
ARTICLE 26
NON-WAIVER	24
ARTICLE 27
NOTICES AND AGREEMENT EXECUTION	24
ARTICLE 28
OFFSET	25
ARTICLE 29
OTHER REINSURANCE	25
ARTICLE 30
SALVAGE AND SUBROGATION	25
ARTICLE 31
SERVICE OF SUIT	26
ARTICLE 32
SEVERABILITY	27
ARTICLE 33
TAXES	27
ARTICLE 34
THIRD PARTY RIGHTS	27
ARTICLE 35
INTERMEDIARY	27

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PER OCCURRENCE EXCESS OF LOSS REINSURANCE CONTRACT

(hereinafter called the “Contract”)

EFFECTIVE: JUNE 1, 2012

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY

Including any and/or all companies that are or may hereafter become affiliated therewith

(hereinafter called the “Reinsured”)

by

THE SUBSCRIBING REINSURER(S) SPECIFIED IN THE INTERESTS AND LIABLITIES AGREEMENT

ATTACHED TO THIS CONTRACT

(hereinafter called, with other participants, the “Reinsurers”)

ARTICLE 1

BUSINESS COVERED

This Contract is to indemnify the Reinsured in respect of the liability that may accrue to the Reinsured as a result of loss or losses under Policies classified by the Reinsured as Property, in force at the effective date of this Contract, or issued or renewed during the Term of this Contract, by or on behalf of the Reinsured, subject to the terms, conditions and limitations set forth herein.

“Policy” is further clarified to mean only that portion of a policy or contract of insurance that insures real or personal property located in the State of Florida to the extent such policy insures a Residential Structure, as defined in the Definitions Article herein, or the contents of a Residential Structure, located in the State of Florida. In addition, Policy as used herein shall only include, to the extent applicable, the first-party property section of a Policy pertaining strictly to the structure, its contents, appurtenant structures, and/or Additional Living Expense. Additional Living Expense losses covered by the Reinsurer are not to exceed 40% of the insured value of a Residential Structure or its contents based on the coverage provided in the Policy. Fair rental value, loss of rents, or business interruption losses are not covered by the Reinsurer.

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ARTICLE 2

TERM

1. This Contract shall become effective at 12:00:01 a.m., Eastern Time, June 1, 2012, with respect to losses arising out of Loss Occurrences which commence at or after that time and date, and shall remain in force until 11:59:59 p.m., Eastern Time, May 31, 2015, unless earlier terminated in accordance with the provisions of the Special Termination Article herein.

2. Pursuant to the terms of this Contract, the Reinsurer shall not be liable for Loss Occurrences which commence either prior to the effective time and date of this Contract or after the effective time and date of expiration or termination. In the event a Loss Occurrence covered hereunder is in progress at the end of any Contract Year, the Reinsurer’s liability hereunder shall, subject to the other terms and conditions of this Contract, be determined as if the entire Loss Occurrence had occurred prior to the end of such Contract Year, provided that no part of such Loss Occurrence is claimed in the subsequent Contract Year or against any renewal or replacement of this Contract.

ARTICLE 3

SPECIAL TERMINATION

1. The Reinsurer may terminate this Contract at the end of any Contract Year by giving the Reinsured written notice, in the event the Reinsured has become insolvent or has been placed into liquidation, receivership, supervision, administration, winding-up or under a scheme of arrangement or similar proceedings (whether voluntary or involuntary), or proceedings have been instituted against the Reinsured for the appointment of a receiver, liquidator, rehabilitator, supervisor, administrator, conservator or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations.

2. Notwithstanding the provisions above, the Reinsured and Reinsurer may terminate this Contract upon the written agreement of both parties.

3. In the event this Contract is terminated in accordance with the provisions above, the Reinsurer shall have no liability for losses arising out of Loss Occurrences commencing after the effective date of termination.

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ARTICLE 4

TERRITORY

The territorial limits of this Contract shall be identical with those of the Reinsured’s Policies issued in the State of Florida.

ARTICLE 5

EXCLUSIONS

This Contract does not apply to and specifically excludes the following:

1. Any losses not defined as being within the scope of a Policy as used herein.

2. Any losses which do not arise from a Covered Event.

3. Any policy which excludes wind or hurricane coverage.

4. Any Excess Policy or Deductible Buy-Back Policy, as defined in the Definitions Article herein, that requires individual ratemaking.

5. Any policy for Residential Structures, as defined in the Definitions Article herein, that provides a layer of coverage underneath an Excess Policy issued by a different insurer.

6. Any liability of the Reinsured attributable to losses for fair rental value, loss of rent or rental income, or business interruption.

7. Any collateral protection policy that does not meet the definition of Policy as used herein.

8. Any reinsurance assumed by the Reinsured, unless by prior mutual agreement.

9. Any exposure for hotels, motels, timeshares, shelters, camps, retreats, and any other rental property used solely for commercial purposes.

10. Any exposure for homeowner associations if no habitational structures are insured under the Policy.

11. Any exposure for homes and condominium structures or units that are non-owner occupied and rented for six or more rental periods by different parties during the course of a 12-month period.

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12. Commercial healthcare facilities and nursing homes; however, a nursing home which is an integral part of a retirement community consisting primarily of habitational structures that are not nursing homes will not be subject to this exclusion.

13. Any exposure under commercial Policies covering only appurtenant structures or structures that do not function as a habitational structure (e.g., a Policy covering only the pool of an apartment complex).

14. Personal contents in a commercial storage facility (including jewelry in an off-premises vault) covered under a Policy that covers only those personal contents.

15. Policies covering only Additional Living Expense.

16. Any exposure for barns or barns with apartments.

17. Any exposure for builders risk coverage or new Residential Structures still under construction.

18. Any exposure for recreational vehicles, golf carts, or boats (including boat related equipment) requiring licensing and written on a separate Policy or endorsement.

19. Any liability of the Reinsured for Extra Contractual Obligations or Loss in Excess of Policy Limits.

20. Any losses paid in excess of a Policy’s hurricane limit in force at the time of each Covered Event, including individual coverage limits (i.e., building, appurtenant structures, contents, and Additional Living Expense). This exclusion includes overpayments of a specific individual coverage limit even if total payments under the Policy are within the aggregate policy limit.

21. Any losses paid under a Policy for Additional Living Expense, written as a time element coverage, in excess of the Additional Living Expense exposure reported for that Policy under the data call for the applicable Contract Year (unless policy limits have changes after June 30 of the Contract Year).

22. Any losses for which the Reinsured’s claim files do not adequately support.

23. Any exposure for, or losses attributable to, loss assessment coverage.

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24. Any liability assumed by the Reinsured from Pools, Associations, and Syndicates, with the exception of Policies assumed from Citizens under the terms and conditions of an executed assumption agreement between the Reinsured and Citizens.

25. All liability of the Reinsured arising by contract, operation of law, or otherwise, from its participation or membership, whether voluntary or involuntary, in any insolvency fund. Insolvency Fund includes any guaranty fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or assumption by the Reinsured of part or all of any claim, debt, charge, fee, or other obligation of an insurer, or its successors or assigns, which have been declared by any competent authority to be insolvent, or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part.

26. Any liability of the Reinsured for loss or damage caused by or resulting from nuclear reaction, nuclear radiation, or radioactive contamination from any cause, whether direct or indirect, proximate or remote, and regardless of any other cause of event contributing concurrently or in any other sequence to the loss.

27. Coverage for water damage which is generally excluded under property insurance contracts and has been defined to mean flood, surface water, waves, tidal wave, overflow of a body of water, storm surge, or spray from any of these, whether or not driven by wind.

28. Specialized Fine Arts Risks.

ARTICLE 6

RETENTION AND LIMIT

1. As respects business subject to this Contract, the Reinsured shall retain and be liable for the first combined amount of Ultimate Net Loss and Loss Adjustment Expense Reimbursement as defined in the Definitions Article, equal to the applicable Reinsured’s Retention as defined in paragraph (4) of this Article, arising out of each Loss Occurrence.

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The Reinsurer shall then be liable for:

2. The combined amount by which such Ultimate Net Loss and Loss Adjustment Expense Reimbursement exceeds the applicable Reinsured’s Retention, but the liability of the Reinsurer shall not exceed the amount of the Reinsurer’s Per Occurrence Limit, as defined in paragraph (3) of this Article, as respects any one Loss Occurrence, nor shall it exceed the amount of Reinsurer’s Contract Year Limit, as defined in paragraph (3) of this Article, as respects all loss or losses arising out of Loss Occurrences commencing during any one Contract Year, nor shall it exceed the amount of Reinsurer’s Contract Limit, as defined in paragraph (3) of this Article, as respects all loss or losses arising out of Loss Occurrences commencing during the Term of this Contract;

3. Per the provisions of paragraph (2) above, the reinsurance limits are as follows:

a. “Reinsurer’s Per Occurrence Limit” shall be equal to $20,000,000.

b. “Reinsurer’s Contract Year Limit” shall be equal to $40,000,000.

c. “Reinsurer’s Contract Limit” shall be equal to $80,000,000.

4. “Reinsured’s Retention,” as respects all loss or losses arising out of Loss Occurrences commencing during any one Contract Year, shall equal the greater of the following:

i. $7,500,000; or

ii. 15% of the Reinsured’s Policyholders’ Surplus as of December 31 of the calendar year preceding the beginning of the then current Contract Year.

5. Notwithstanding the provisions above, no claim shall be made under the terms and conditions of this Contract in any one Loss Occurrence unless at least two risks insured or reinsured by the Reinsured are involved in such Loss Occurrence. For purposes hereof, the Reinsured shall be the sole judge of what constitutes “one risk.”

6. Recovery amounts shall not be reduced by reinsurance paid or payable to the Reinsured from other sources.

7. Once the Reinsurer’s Contract Limit has been exhausted, the Reinsured will not be entitled to further recovery, however the Reinsured will remain liable for any unpaid and remaining premium due the Reinsurer.

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ARTICLE 7

REINSURANCE PREMIUM

1. The Reinsured shall pay the Reinsurer a deposit premium of $********* payable in three equal installments of $********* on July 1, 2012, July 1, 2013 and July 1, 2014.

2. In the event of termination in accordance with the provisions of the Special Termination Article, and notwithstanding any other provision in this Contract, reinsurance premium shall be deemed earned in accordance with the deposit schedule defined in paragraph (1) of this Article, or in proportion to the exhaustion of the Reinsurer’s Contract Limit, whichever is greater.

ARTICLE 8

DEFINITIONS

DEDUCTIBLE BUY-BACK POLICY

“Deductible Buy-Back Policy” shall mean a specific Policy that provides coverage to a policyholder for some portion of the policyholder’s deductible under a Policy issued by another insurer.

EXCESS POLICY

“Excess Policy”, for the purposes of this Contract, shall mean a Policy that provides insurance protection for large commercial property risks that provides a layer of coverage above a primary layer (which is insured by a different insurer) that acts much the same as a very large deductible.

RESIDENTIAL STRUCTURES

“Residential Structures” are used herein shall be defined as dwelling units, including the primary structure and appurtenant structures insured under the same Policy and any other structures covered under endorsements associated with a Policy covering a residential structure. Covered Residential Structures do not include any structures listed under the Exclusions Article herein or structures used solely for non-residential purposes.

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COVERED EVENT

“Covered Event” shall mean any one storm declared to be a hurricane by the National Hurricane Center, including any storm that is declared to be a hurricane and is subsequently downgraded while in the State of Florida, which causes insured losses in Florida, regardless of whether the storm makes landfall as a hurricane. Furthermore, any storm, including a tropical storm, which does not become a hurricane, is not considered a Covered Event.

LOSS OCCURRENCE

“Loss Occurrence” shall mean the sum of all individual losses incurred under Policies directly resulting from any one disaster, accident or loss or series of disasters, accidents or losses occurring during any period of 96 consecutive hours arising out of the same Covered Event. The Reinsured may choose the time and date when any such period of consecutive hours commences provided that it is not earlier than the time and date of the occurrence of the first recorded individual loss sustained by the Reinsured arising out of that Covered Event provided that only one such period of 96 consecutive hours shall apply with respect to one Covered Event, regardless of the duration of the event.

ULTIMATE NET LOSS

“Ultimate Net Loss” as used herein shall be defined as the sum or sums (excluding Loss in Excess of Policy Limits, Extra Contractual Obligations and Loss Adjustment Expense, as hereinafter defined) paid or payable by the Reinsured in settlement of claims arising from Covered Events and in satisfaction of judgments rendered on account of such claims, after deduction of all salvage, all recoveries and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Reinsured’s Ultimate Net Loss has been ascertained.

LOSS ADJUSTMENT EXPENSE REIMBURSEMENT

“Loss Adjustment Expense Reimbursement” are used herein shall mean 5% of the amount of claim and loss paid by the Reinsurer under the terms and conditions of this Contract. Loss Adjustment Expense Reimbursement will be calculated by the Reinsured and submitted to the Reinsurer with any and all requests for claim and loss payment under the terms and conditions of this Contract.

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LOSS ADJUSTMENT EXPENSE

“Loss Adjustment Expense” as used herein shall be defined as expenses assignable to the investigation, appraisal, adjustment, settlement, litigation, defense and/or appeal of specific claims, regardless of how such expenses are classified for statutory reporting purposes. Loss Adjustment Expense shall include, but not be limited to:

1. Court costs;

2. Costs of supersedeas and appeal bonds;

3. Monitoring counsel expenses;

4. Legal expenses and costs incurred in connection with coverage questions and legal actions connected thereto, including but not limited to declaratory judgment actions (deemed to have been incurred by the Reinsured on the date of the actual or alleged loss giving rise to the action);

5. Post-judgment interest;

6. Pre-judgment interest, unless included as part of an award or judgment;

7. Expenses and a pro rata share of salaries of Reinsured field employees, calculated in accordance with the time occupied in adjusting such loss, and expenses of other Reinsured employees who have been temporarily diverted from their normal and customary duties and assigned to the field adjustment of losses covered by this Contract;

8. Subrogation, salvage and recovery expenses;

9. Advertising or other extraordinary communication expenses incurred as a result of a covered Loss Occurrence.

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LOSS IN EXCESS OF POLICY LIMITS & EXTRA CONTRACTUAL OBLIGATIONS

“Loss in Excess of Policy Limits” and “Extra Contractual Obligations” as used herein shall be defined as follows:

1. “Loss in Excess of Policy Limits” shall mean any amount paid or payable by the Reinsured in excess of its Policy limits, but otherwise within the terms of its Policy, such loss in excess of the Reinsured’s Policy limits having been incurred because of, but not limited to, failure by the Reinsured to settle within the Policy limits or by reason of the Reinsured’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.

2. “Extra Contractual Obligations” shall mean any punitive, exemplary, compensatory or consequential damages paid or payable by the Reinsured, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to , failure by the Reinsured to settle within the Policy limits or by reason of the Reinsured’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. An Extra Contractual Obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the Policy.

CONTRACT YEAR

“Contract Year” as used herein shall be defined as the period from 12:00:01 a.m., Eastern Time, June 1, 2012, through 11:59:59 p.m., Eastern Time, May 31, 2013, and each subsequent 12-month period thereafter that this Contract continues in force. However, if this Contract is terminated, the final Contract Year shall be from the beginning of the then current Contract Year to the effective time and date of termination.

TERM OF THIS CONTRACT

“Term of this Contract” as used herein shall be defined as the period from 12:00:01 a.m., Eastern Time, June 1, 2012, through 11:59:59 p.m., Eastern Time, May 31, 2015. However, if this Contract is terminated, Term of this Contract as used herein shall mean the period from 12:00:01 a.m., Eastern Time, June 1, 2012 to the effective time and date of termination.

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ARTICLE 9

PROFIT COMMISSION

1. The Reinsurer shall pay the Reinsured a Profit Commission, if any, during the Term of this Contract based on the combined premiums and losses of this Contract as computed as follows:

a. 100% of Deposit Premium paid, less

b. The amount of Ultimate Net Loss ceded to this Contract in accordance with the Retention and Limit Article, less

c. Loss Adjustment Expense Reimbursement, less

d. $24,000,000.

2. If the above computation yields a positive amount, such commission payment will be due within 30 days after all losses, if any, are paid or commuted. In any case, the Profit Commission shall only be payable upon the release of the Reinsurer by the Reinsured and the Reinsured hold harmless of the Reinsurer, from any further loss or liability whatsoever under the terms and conditions of this Contract

ARTICLE 10

ADVANCES

At the written request of the Reinsured, the Reinsurer may make advance payments to the Reinsured which allow the Reinsured to continue to pay claims in a timely manner. Advances will be made based on the Reinsured’s paid and reported outstanding losses (excluding all incurred but not reported losses) as reported per the provisions of the Loss Notices and Settlements Article, and shall include Loss Adjustment Expense Reimbursement.

ARTICLE 11

COMMUTATION

1. Within 90 days of the effective date of expiration or termination of the Contract, outstanding losses, if any, will be commuted.

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2. The present value of outstanding claims and losses will be determined as follows:

a. If the Reinsured exceeds, or expects to exceed, the applicable Reinsured’s Retention, the Reinsured and the Reinsurer or their respective representatives shall attempt, by mutual agreement, to agree upon the present value of all outstanding claims and losses, both reported and incurred but not reported, resulting from Loss Occurrences during each Contract Year. Payment by the Reinsurer of its portion of any amount or amounts so mutually agreed and certified by the Reinsured’s certifying actuary shall constitute a complete and final release of the Reinsurer in respect of all claims and losses, both reported and unreported, under this Contract.

b. If agreement on present value cannot be reached within 90 days of the Reinsurer’s receipt of the final loss notice and supporting documentation, the Reinsured and the Reinsurer may mutually appoint an actuary, adjuster, or appraiser to investigate and determine such claims or losses. If both parties then agree, the Reinsurer shall pay its portion of the amount so determined to be the present value of such claims or losses.

c. If the parties fail to agree, then any difference shall be settled by a panel of three actuaries, one to be chosen by each party and the third by the two so chosen. If either party does not appoint an actuary within 30 days, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of an independent third actuary within 30 days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots. All the actuaries shall be regularly engaged in the valuation of property claims and losses and shall be members of the Casualty Actuarial Society and of the American Academy of Actuaries. None of the actuaries shall be under the control of either party to this Contract. Each party shall submit its case to its actuary within 30 days of the appointment of the third actuary. The decision in writing of any two actuaries, when filed with the parties hereto, shall be final and binding on both parties.

d. The reasonable and customary expense of the actuaries and of the commutation (as a result of subparagraphs (b) and (c) above) shall be equally divided between the two parties. Said commutation shall take place in Tampa, Florida, unless some other place is mutually agreed upon by the Reinsured and the Reinsurer.

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ARTICLE 12

WARRANTY

It is warranted that Claddaugh Casualty Insurance Co., Ltd. will assume a 50% participation on this Contract. It is furthermore warranted that such line will be retained net and unreinsured by Claddaugh Casualty Insurance Co., Ltd.

ARTICLE 13

ACCESS TO RECORDS

The Reinsurer or its designated representatives shall have access to the books and records of the Reinsured on matters relating to this reinsurance at all reasonable times, and at the location where such books and records are maintained in the ordinary course of business, for the purpose of obtaining and making copies of information concerning this Contract or the subject matter thereof. Notification of a request for inspection of records shall be sent to the Reinsured by the Reinsurer in written form. The Reinsurer’s right of audit and inspection shall continue as long as either party has a claim against the other arising out of this Contract.

ARTICLE 14

ARBITRATION

1. As a condition precedent to any right of action hereunder, in the event of any dispute or difference of opinion hereafter arising with respect to this Contract, it is hereby mutually agreed that such dispute or difference of opinion shall be submitted to arbitration. One Arbiter shall be chosen by the Reinsured, the other by the Reinsurer, and an Umpire shall be chosen by the two Arbiters before they enter upon arbitration, all of whom shall be active or retired disinterested executive officers of insurance or reinsurance companies or Underwriters at Lloyd’s. In the event that either party should fail to choose an Arbiter within 30 days following a written request by the other party to do so, the requesting party may choose two Arbiters who shall in turn choose an Umpire before entering upon arbitration. If the two Arbiters fail to agree upon the selection of an Umpire within 30 days following their appointment, the two Arbiters shall request the American Arbitration Association to appoint the Umpire. If the American Arbitration Association fails to appoint the Umpire within 30 days after it has been requested to do so, either party may request a justice of a court of general jurisdiction of the state in which the arbitration is to be held to appoint the Umpire.

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2. Each party shall present its case to the Arbiters within 30 days following the date of appointment of the Umpire. The Arbiters shall consider this Contract as an honorable engagement rather than merely as a legal obligation and they are relieved of all judicial formalities and may abstain from following the strict rules of law. The decision of the Arbiters shall be final and binding on both parties; but failing to agree, they shall call in the Umpire and the decision of the majority shall be final and binding upon both parties. Judgment upon the final decision of the Arbiters may be entered in any court of competent jurisdiction.

3. If more than one reinsurer is involved in the same dispute, all such reinsurers shall, at the option of the Reinsured, constitute and act as one party for purposes of this Article and communications shall be made by the Reinsured to each of the reinsurers constituting one party, provided, however, that nothing herein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers participating under the terms of this Contract from several to joint.

4. Each party shall bear the expense of its own Arbiter, and shall jointly and equally bear with the other the expense of the Umpire and of the arbitration. In the event that the two Arbiters are chosen by one party, as above provided, the expense of the Arbiters, the Umpire and the arbitration shall be equally divided between the two parties.

5. Any arbitration proceedings shall take place at a location mutually agreed upon by the parties to this Contract. Notwithstanding the location of the arbitration, all proceedings pursuant hereto shall be governed by the law of the State of Florida.

ARTICLE 15

CONFIDENTIALITY

1. The Reinsurer hereby acknowledges that the terms and conditions of this Contract, any materials provided in the course of audit or inspection and any documents, information and data provided to it by the Reinsured, whether directly or through an authorized agent, in connection with the placement and execution of this Contract (hereinafter referred to as “Confidential Information”) are proprietary and confidential to the Reinsured. Confidential Information shall not include documents, information or data that the Reinsurer can show:

a. Are publicly available or have become publicly available through no unauthorized act of the Reinsurer;

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b. Have been rightfully received from a third person without obligation of confidentiality; or

c. Were known by the Reinsurer prior to the placement of this Contract without an obligation of confidentiality.

2. Absent the written consent of the Reinsured, the Reinsurer shall not disclose any Confidential Information to any third parties, including any affiliated companies (except to the extent necessary to enable affiliated companies or third parties engaged by the Reinsurer to perform services related to this Contract on behalf of the Reinsurer), except:

a. When required by retrocessionaires subject to the business ceded to this Contract;

b. When required by regulators performing an audit of the Reinsurer’s records and/or financial condition;

c. When required by external auditors performing an audit of the Reinsurer’s records in the normal course of business;

d. When required by attorneys in connection with an actual or potential dispute hereunder; or

e. When required for the Reinsurer’s internal operations directly related to carrying out the terms and conditions of this Contract.

Further, the Reinsurer agrees not to use any Confidential Information for any purpose not related to the performance of its obligations or enforcement of its rights under this Contract.

3. Notwithstanding the above, in the event that the Reinsurer is required by court order, other legal process or any regulatory authority to release or disclose any or all of the Confidential Information, the Reinsurer agrees to provide the Reinsured with written notice of same at least 10 days prior to such release or disclosure and to use its best efforts to assist the Reinsured in maintaining the confidentiality provided for in this Article.

4. The provisions of this Article shall extend to the officers, directors, shareholders and employees of the Reinsurer and its affiliates, and shall be binding upon their successors and assigns.

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ARTICLE 16

CURRENCY

1. Whenever the word “Dollars” or the “$” sign appears in this Contract, they shall be construed to mean United States Dollars and all transactions under this Contract shall be in United States Dollars.

2. Amounts paid or received by the Reinsured in any other currency shall be converted to United States Dollars at the rate of exchange at the date such transaction is entered on the books of the Reinsured.

ARTICLE 17

ENTIRE AGREEMENT

This Contract and any related trust agreement, Letter of Credit and/or special acceptance, shall constitute the entire agreement between the parties hereto with respect to the business being reinsured hereunder, and there are no understandings between the parties hereto other than as expressed in this Contract. Any change or modification to this Contract shall be null and void unless made by written amendment to this Contract and signed by a duly authorized officer of each of the parties hereto.

ARTICLE 18

ERROR AND OMISSIONS

Inadvertent delays, errors or omissions made in connection with this Contract or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery.

ARTICLE 19

FEDERAL EXCISE TAX

1. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax the applicable percentage of the premium payable hereon (as imposed under Section 4371 of the Internal Revenue Code) to the extent such premium is subject to the Federal Excise Tax.

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2. In the event of any return of premium becoming due hereunder, the Reinsurer will deduct the applicable percentage from the return premium payable hereon and the Reinsured or its agent should take steps to recover the tax from the United States Government.

ARTICLE 20

GOVERNING LAW

This Contract shall be governed by and construed in accordance with the laws of the State of Florida.

ARTICLE 21

INSOLVENCY

1. If more than one reinsured company is included within the definition of “Reinsured” hereunder, this Article shall apply individually to each such company.

2. In the event of the insolvency of one or more of the Reinsured’s companies, this reinsurance shall be payable directly to the Reinsured or to its liquidator, receiver, conservator or statutory successor, with reasonable provision for verification, on the basis of the liability of the Reinsured or on the basis of claims files and allowed in the liquidation proceeding, whichever may be required by applicable stature, without diminution because of the insolvency of the Reinsured or because the liquidator, receiver, conservator or statutory successor of the Reinsured has failed to pay all or a portion of any claim. It is agreed, however, that the liquidator, receiver, conservator or statutory successor of the Reinsured shall give written notice to the Reinsurer of the pendency of a claim against the Reinsured indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurer within a reasonable time after such claim is filed in the conservation or liquidation proceeding or in the receivership, and that during the pendency of such claim, the Reinsurer may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that it may deem available to the Reinsured or its liquidator, receiver, conservator or statutory successor. The expense thus incurred by the Reinsurer shall be chargeable, subject to the approval of the court, against the Reinsured as part of the expense of conservation or liquidation to the extent of a pro rata share of the benefit which may accrue to the Reinsured solely as a result of the defense undertaken by the Reinsurer.

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3. Where two or more Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense shall be apportioned in accordance with the terms of this Contract as though such expense had been incurred by the Reinsured.

4. It is further understood and agreed that, in the event of the insolvency of one or more of the Reinsured’s companies, the reinsurance under this Contract shall be payable directly by the Reinsurer to the Reinsured or to its liquidator, receiver or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (1) where this Contract specifically provides another payee or other party as more specifically limited by any statute or regulation applicable hereto, of such reinsurance in the event of the insolvency of the Reinsured or (2) where the Reinsurer with the consent of the direct insured or insureds has assumed such Policy obligations of the Reinsured as direct obligations of the Reinsurer to the payees under such policies and in substitution for the obligations of the Reinsured to such payees. However, the exceptions provided in (1) and (2) above shall apply only to the extent that applicable statutes or regulations specifically permit such exceptions.

ARTICLE 22

LATE PAYMENTS

1. The provisions of this Article shall not be implemented unless specifically invoked, in writing, by one of the parties to this Contract.

2. In the event any premium, loss or other payment due either party is not received by the payment due date, the party to whom payment is due may require the debtor party to pay, and the debtor party agrees to pay, an interest penalty on the amount past due calculated for each such payment on the last business day of each month as follows:

a. The number of full days which have expired since the due date or the last monthly calculation, whichever the lesser; times

b. 0.016%; times

c. The amount past due, including accrued interest.

It is agreed that interest shall accumulate until payment of the original amount due plus interest penalties have been received by the party to whom payment is due.

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3. If the interest rate provided under this Article exceeds the maximum interest rate allowed by any applicable law or is held unenforceable by an arbitrator or a court of competent jurisdiction, such interest rate shall be modified to the highest rate permitted by the applicable law, and all remaining provisions of this Article and Contract shall remain in full force and effect without being impaired or invalidated in any way.

4. The establishment of the due date shall, for purposes of this Article, be determined as follows:

a. As respects the payment of routine deposits and premiums due the Reinsurer, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days after the date of transmittal of the initial billing for each such payment.

b. Any claim or loss payment due the Reinsured hereunder shall be deemed due 30 days after the proof of loss or demand for payment is transmitted to the Reinsurer. If such loss or claim payment is not received within the 30 days, interest will accrue on the payment amount overdue in accordance with paragraphs (2) and (3) above, from the date the proof of loss or demand for payment was transmitted to the Reinsurer.

c. As respects any payment, adjustment or return due either party not otherwise provided for in subparagraphs (a) and (b) of this paragraph, the due date shall be as provided for in the applicable section of this Contract. In the event a due date is not specifically stated for a given payment, it shall be deemed due 30 days following transmittal of written notification that the provisions of this Article have been invoked.

5. Nothing herein shall be construed as limiting or prohibiting a Reinsurer from contesting the validity of any claim, or from participating in the defense of any claim or suit, or prohibiting either party from contesting the validity of any payment or from initiating any arbitration or other proceeding in accordance with the provisions of this Contract. If the debtor party prevails in an arbitration or other proceeding, then any interest penalties due hereunder on the amount in dispute shall be null and void. If the debtor party loses in such proceeding, then the interest penalty on the amount determined to be due hereunder shall be calculated in accordance with the provisions set forth above unless otherwise determined by such proceedings. If a debtor party advances payment of any amount it is contesting, and proves to be correct in its contestation, either in whole or in part, the other party shall reimburse the debtor party for any such excess payment made plus interest on the excess amount calculated in accordance with this Article.

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6. Interest penalties arising out of the application of this Article that are $1,000 or less from any party shall be waived unless there is a pattern of late payments consisting of three or more items over the course of any 12-month period.

ARTICLE 23

LIABILITY OF THE REINSURER

1. The liability of the Reinsurer shall follow that of the Reinsured in every case and be subject in all respects to all the general and specific stipulations, clauses, waivers, interpretations and modifications of the Reinsured’s Policies and any endorsements thereon. However, in no event shall this be construed in any way to provide coverage outside the terms and conditions set forth in this Contract.

2. Nothing herein shall in any manner create any obligations or establish any rights against the Reinsurer in favor of any third party or any persons not parties to this Contract.

ARTICLE 24

LOSS NOTICES AND SETTLEMENTS

1. Whenever losses sustained by the Reinsured appear likely to result in a claim hereunder, the Reinsured shall notify the Reinsurer, and the Reinsurer shall have the right to participate in the adjustment of such losses at its own expense. Inadvertent omission in dispatching the aforementioned notices will in no way affect the obligation of the Reinsurer under this Contract, provided the Reinsured informs the Reinsurer of such omission promptly upon discovery.

2. All loss settlements made by the Reinsured, provided they are within the terms of this Contract, shall be binding upon the Reinsurer, and the Reinsurer agrees to pay all amounts for which it may be liable upon receipt of reasonable evidence of the amount paid (or scheduled to be paid within 14 days) by the Reinsured. Notwithstanding the foregoing, and subject to the provisions set forth under paragraph (2) of the Exclusions Article, should any judicial, regulatory, or legislative entity having legal jurisdiction require that the Reinsured be liable for any amounts that are otherwise outside the terms of the Reinsured’s original Policies, the Reinsurer agrees that such amounts shall be subject always to the terms and conditions of this Contract.

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ARTICLE 25

NO ASSIGNMENT

Neither party shall assign its rights or obligations hereunder to any other entity, whether or not an affiliate, without the express written consent of the other party, and any purported assignment in violation of this provision shall be deemed to not have occurred for the purposes of this Contract.

ARTICLE 26

NON-WAIVER

The failure of the Reinsured or the Reinsurer to insist on compliance with this Contract or to exercise any right or remedy hereunder shall not constitute a waiver of any rights or remedies contained herein nor prevent either party from thereafter demanding full and complete compliance nor prevent either party from exercising such rights or remedies in the future.

ARTICLE 27

NOTICES AND AGREEMENT EXECUTION

1. Whenever a notice, statement, report or any other written communication is required by this Contract, unless otherwise specified, such notice, statement, report or other written communication may be transmitted by certified or registered mail, nationally or internationally recognized express delivery service, personal delivery, electronic mail, or facsimile. With the exception of notices of termination, first class mail is also acceptable.

2. The use of any of the following shall constitute a valid execution of this Contract or any amendments thereto:

a. Paper documents with an original ink signature;

b. Facsimile or electronic copies of paper documents showing an original ink signature; and/or

c. Electronic records with an electronic signature made via an electronic agent. For the purposes of this Contract, the terms “electronic record”, “electronic signature” and “electronic agent” shall have the meanings set forth in the Electronic Signatures in Global and National Commerce Act of 2000 or any amendments thereto.

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3. This Contract may be executed in one or more counterparts, each of which, when duly executed, shall be deemed an original.

ARTICLE 28

OFFSET

The Reinsured and the Reinsurer shall have the right to offset any balance or amounts due from one party to the other under the terms of this Contract, including any balance or amounts due under a previous Contract Year for the current Contract Year. The party asserting the right of offset may exercise such right any time whether the balances due are on account of premiums or losses or otherwise.

In the event of insolvency, any unpaid premium due the Reinsurer can be offset against loss recoveries.

ARTICLE 29

OTHER REINSURANCE

The Reinsured shall be permitted to carry other reinsurance, recoveries under which shall inure solely to the benefit of the Reinsured and be entirely disregarded in applying all of the provisions of this Contract.

ARTICLE 30

SALVAGE AND SUBROGATION

The Reinsurer shall be credited with salvage (i.e., reimbursement obtained or recovery made by the Reinsured, less the actual cost, excluding salaries of officials and employees of the Reinsured and sums paid to attorneys as retainer, of obtaining such reimbursement or making such recovery) on account of claims and settlements involving reinsurance hereunder. Salvage thereon shall always be used to reimburse the excess carriers in the reverse order of their priority according to their participation before being used in any way to reimburse the Reinsured for its primary loss. The Reinsured hereby agrees to enforce its rights to salvage or subrogation relating to any loss, a part of which loss was sustained by the Reinsurer, and to prosecute all claims arising out of such rights if, in the Reinsured’s opinion, it is economically reasonable to do so.

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ARTICLE 31

SERVICE OF SUIT

(Applicable if the Reinsurer is not domiciled in the United States of America, and/or is not authorized in any State, Territory or District of the United States where authorization is required by insurance regulatory authorities.)

1. This Article will not be read to conflict with or override the obligations of the parties to arbitrate their disputes as provided for in the Arbitration Article. This Article is intended as an aid to compelling arbitration or enforcing such arbitration or arbitral award, not as an alternative to the Arbitration Article for resolving disputes arising out of this Contract.

2. In the event the Reinsurer fails to pay any amount claimed to be due hereunder or fails to otherwise perform its obligations hereunder, the Reinsurer, at the request of the Reinsured, will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this Article constitutes or should be understood to constitute a waiver of the Reinsurer’s rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another court as permitted by the laws of the United States or of any state in the United States. The Reinsurer, once the appropriate court is accepted by the Reinsurer or is determined by removal, transfer or otherwise, as provided for above, will comply with all requirements necessary to give said court jurisdiction and, in any suit instituted against any of the Reinsurers upon this Contract, will abide by the final decision of such court or of any Appellate Court in the event of an appeal.

3. Further, pursuant to any statute of any state, territory or district of the United States which makes provision therefor, the Reinsurer hereby designates the party named in its Interests and Liabilities Agreement, or if no party is named therein, the Superintendent, Commissioner or Director of Insurance or other officer specified for that purpose in the statute, or his successor or successors in office, as its true and lawful attorney upon whom may be served any lawful process in any action, suit or proceeding instituted by or on behalf of the Reinsured or any beneficiary hereunder arising out of this Contract.

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ARTICLE 32

SEVERABILITY

If any provision of this Contract shall be rendered illegal or unenforceable by the laws, regulations or public policy of any state, such provision shall be considered void in such state, but this shall not affect the validity or enforceability of any other provision of this Contract or the enforceability of such provision in any other jurisdiction.

ARTICLE 33

TAXES

In consideration of the terms under which this Contract is issued, the Reinsured will not claim a deduction in respect of the premium hereon when making tax returns, other than income or profits tax returns, to any state or territory of the United States of America of the District of Columbia.

ARTICLE 34

THIRD PARTY RIGHTS

This Contract is solely between the Reinsured and the Reinsurer, and in no instance shall any other party have any rights under this Contract except as expressly provided otherwise in the Insolvency Article.

ARTICLE 35

INTERMEDIARY

Advocate Reinsurance Partners, LLC, is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including but not limited to notices, reports and statements) relating to this Contract will be transmitted to the Reinsured or the Reinsurer through Advocate Reinsurance Partners, LLC, 2501 North Harwood Street, Suite 1250, Dallas, Texas 75201. All payments (including but not limited to premium, return premium, commissions, taxes, losses, Loss Adjustment Expense Reimbursement, salvages and loss settlements) under this Contract shall be made directly between the Reinsured and the Reinsurer.

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EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Paresh Patel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Homeowners Choice, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ PARESH PATEL
August 14, 2012	Paresh Patel
	Chief Executive Officer (Principal Executive Officer)

A signed original of this document has been provided to Homeowners Choice, Inc. and will be retained by Homeowners Choice, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

48

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard R. Allen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Homeowners Choice, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ RICHARD R. ALLEN
August 14, 2012	Richard R. Allen
	Chief Financial Officer (Principal Financial and Accounting Officer)

A signed original of this document has been provided to Homeowners Choice, Inc. and will be retained by Homeowners Choice, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

49

EX-32.1

Exhibit 32.1

Written Statement of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350

Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Chief Executive Officer of Homeowners Choice, Inc. (the “Company”), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2012 as filed with the Securities and Exchange Commission on August 14, 2012 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ PARESH PATEL

Paresh Patel

Chief Executive Officer

August 14, 2012

A signed original of this document has been provided to Homeowners Choice, Inc. and will be retained by Homeowners Choice, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

50

EX-32.2

Exhibit 32.2

Written Statement of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Chief Financial Officer of Homeowners Choice, Inc. (the “Company”), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2012 as filed with the Securities and Exchange Commission on August 14, 2012 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ RICHARD R. ALLEN

Richard R. Allen

Chief Financial Officer

August 14, 2012

A signed original of this document has been provided to Homeowners Choice, Inc. and will be retained by Homeowners Choice, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

51

XML

Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Available-for-sale securities measured at fair value
Total available-for-sale securities	$ 48,810	$ 39,849
Equity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	8,669	5,207
Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	40,141	34,642
U.S. Treasury and U.S. government agencies [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	572	556
Corporate bonds [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	12,486	9,840
Commercial mortgage-backed securities [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	11,423	10,874
State, municipalities, and political subdivisions [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	10,977	10,372
Other [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	4,683	3,000
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	36,925	28,710
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Equity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	8,669	5,207
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	28,256	23,503
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | U.S. Treasury and U.S. government agencies [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	572	556
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Corporate bonds [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	12,486	9,840
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Commercial mortgage-backed securities [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | State, municipalities, and political subdivisions [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	10,977	10,372
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Other [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	4,221	2,735
Significant Other Observable Inputs (Level 2) [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	11,885	11,139
Significant Other Observable Inputs (Level 2) [Member] | Equity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities
Significant Other Observable Inputs (Level 2) [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	11,885	11,139
Significant Other Observable Inputs (Level 2) [Member] | U.S. Treasury and U.S. government agencies [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities
Significant Other Observable Inputs (Level 2) [Member] | Corporate bonds [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities
Significant Other Observable Inputs (Level 2) [Member] | Commercial mortgage-backed securities [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	11,423	10,874
Significant Other Observable Inputs (Level 2) [Member] | State, municipalities, and political subdivisions [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities
Significant Other Observable Inputs (Level 2) [Member] | Other [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities	462	265
Significant Unobservable Inputs (Level 3) [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities
Significant Unobservable Inputs (Level 3) [Member] | Equity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities
Significant Unobservable Inputs (Level 3) [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities
Significant Unobservable Inputs (Level 3) [Member] | U.S. Treasury and U.S. government agencies [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities
Significant Unobservable Inputs (Level 3) [Member] | Corporate bonds [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities
Significant Unobservable Inputs (Level 3) [Member] | Commercial mortgage-backed securities [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities
Significant Unobservable Inputs (Level 3) [Member] | State, municipalities, and political subdivisions [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities
Significant Unobservable Inputs (Level 3) [Member] | Other [Member] | Fixed-maturity securities [Member]
Available-for-sale securities measured at fair value
Total available-for-sale securities

XML

Commitments and Contingencies (Details Textual) (USD $)	3 Months Ended
	Jun. 30, 2012
Commitments and Contingencies (Additional Textual) [Abstract]
Total expended with respect to the assessment	$ 32,000
Other liabilities, accrued at acquisition, net	118,000
Environmental Remediation Expense [Member]
Commitments and Contingencies (Textual) [Abstract]
Recorded liability, at acquisition	$ 150,000

XML

Stockholders' Equity (Details)			6 Months Ended		6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 Warrants issued with IPO units [Member]	Dec. 31, 2011 Warrants issued with IPO units [Member]	Jun. 30, 2012 Placement agent warrants [Member]	Dec. 31, 2011 Placement agent warrants [Member]	Dec. 31, 2011 HomeWise 2011 [Member]	Nov. 30, 2011 HomeWise 2011 [Member]
Summary of the warrants outstanding
Number of Warrants Outstanding	2,369,474	2,738,335		1,666,668		71,667	1,000,000
Number of Common Shares Issuable Upon Conversion of Warrants Outstanding	1,187,237	1,405,001		833,334		71,667	500,000	1,000,000
Class of Warrant or Right Exercised			(302,194)		(66,667)
Class of Warrant or Right Number of Securities Called by Warrants or Rights Exercised Price			(151,097)		(66,667)

XML

Related Party Transaction (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Related Party Transaction (Textual) [Abstract]
Assumed Total Covered Exposure	$ 13,800,000
Premiums Paid	4,000,000
Amount Deposited to Trust Account to Fully Collateralize Moksha's Exposure	9,800,000
Chief Executive Officer [Member]
Related Party Transaction [Line Items]
Capital Partner Contribution	700,000
Vice President [Member]
Related Party Transaction [Line Items]
Capital Partner Contribution	200,000
Immediate Family Member of Management or Principal Owner [Member]
Related Party Transaction [Line Items]
Capital Partner Contribution	942,500
General Partner [Member]
Related Party Transaction [Line Items]
Capital Partner Contribution	$ 7,960,000

XML

Earnings Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Summary of numerator and denominator of the basic and fully diluted earnings per common share
Net Income, shares (Numerator)	$ 7,262	$ 2,301	$ 14,230	$ 3,094
Net Income, shares (Denominator)
Preferred stock dividends	(63)	(361)	(244)	(378)
Preferred stock dividends, shares (Denominator)
Less: Income attributable to participating, income (Numerator)	(87)		105
Basic Earnings Per Share
Income allocated to common stockholders, income (Numerator)	7,199	1,940	13,986	2,716
Income allocated to common stockholders, shares (Denominator)	8,325	6,071	7,326	6,121
Income allocated to common stockholders -basic earning per share	$ 0.85	$ 0.32	$ 1.89	$ 0.44
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions, income (Numerator)	7,175	2,301	14,125	3,094
Income available to common stockholders and assumed conversions, shares (Denominator)	9,651	7,730	8,814	7,215
Diluted earnings per common share	$ 0.74	$ 0.30	$ 1.60	$ 0.43
Warrant [Member]
Effect of Dilutive Securities
Dilutive Securities, shares (Denominator)	406		303
Stock options [Member]
Effect of Dilutive Securities
Dilutive Securities, income (Numerator)
Dilutive Securities, shares (Denominator)	215	411	229	425
Convertible preferred stock [Member]
Effect of Dilutive Securities
Dilutive Securities, income (Numerator)	$ 63	$ 361	$ 244	$ 378
Dilutive Securities, shares (Denominator)	705	1,248	956	669

XML

Investments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of amortized cost, gross unrealized gains and losses, and estimated fair value available-for-sale securities
Amortized Cost	$ 38,363	$ 34,147
Gross Unrealized Gain	1,883	929
Available-for-sale Securities, Gross Unrealized Loss	105	434
Fair Value	40,141	34,642
U.S. Treasury and U.S. government agencies [Member]
Summary of amortized cost, gross unrealized gains and losses, and estimated fair value available-for-sale securities
Amortized Cost	516	509
Gross Unrealized Gain	56	47
Available-for-sale Securities, Gross Unrealized Loss
Fair Value	572	556
Commercial mortgage-backed securities [Member]
Summary of amortized cost, gross unrealized gains and losses, and estimated fair value available-for-sale securities
Amortized Cost	10,797	10,574
Gross Unrealized Gain	627	314
Available-for-sale Securities, Gross Unrealized Loss	1	14
Fair Value	11,423	10,874
Corporate bonds [Member]
Summary of amortized cost, gross unrealized gains and losses, and estimated fair value available-for-sale securities
Amortized Cost	12,274	10,199
Gross Unrealized Gain	316	58
Available-for-sale Securities, Gross Unrealized Loss	104	417
Fair Value	12,486	9,840
State, municipalities, and political subdivisions [Member]
Summary of amortized cost, gross unrealized gains and losses, and estimated fair value available-for-sale securities
Amortized Cost	10,279	9,982
Gross Unrealized Gain	698	393
Available-for-sale Securities, Gross Unrealized Loss		3
Fair Value	10,977	10,372
Other [Member]
Summary of amortized cost, gross unrealized gains and losses, and estimated fair value available-for-sale securities
Amortized Cost	4,497	2,883
Gross Unrealized Gain	186	117
Available-for-sale Securities, Gross Unrealized Loss
Fair Value	4,683	3,000
Equity securities [Member]
Summary of amortized cost, gross unrealized gains and losses, and estimated fair value available-for-sale securities
Amortized Cost	8,690	5,364
Gross Unrealized Gain	274	133
Available-for-sale Securities, Gross Unrealized Loss	295	290
Fair Value	$ 8,669	$ 5,207

XML

Business Acquisition (Tables)

6 Months Ended

Jun. 30, 2012

Business Combinations [Abstract]

Preliminary allocation of net consideration paid to fair value of assets acquired

The following table summarizes the Company’s preliminary allocation of the net consideration paid to the fair value of the assets acquired, identifiable intangible assets acquired and liabilities assumed at April 2, 2012 (in thousands):

Property, plant and equipment	$	8,280
Other assets		56
Cash		9
Deferred tax liability		(60	)
Fair value of net assets acquired		8,285
Gain on bargain purchase, net of tax of $60		(119	)
Cash consideration paid	$	8,166

XML

Stockholders' Equity (Details Textual) (USD $)	1 Months Ended			3 Months Ended		6 Months Ended			6 Months Ended			6 Months Ended			1 Months Ended	3 Months Ended	6 Months Ended			6 Months Ended		6 Months Ended
	Dec. 31, 2009	Mar. 18, 2009	Jan. 31, 2009	Jun. 30, 2012	Mar. 31, 2011	Jun. 30, 2012 Warrants	Jun. 30, 2011	Dec. 31, 2011	Jun. 30, 2012 HomeWise 2011 [Member]	Dec. 31, 2011 HomeWise 2011 [Member]	Nov. 30, 2011 HomeWise 2011 [Member]	Jun. 30, 2012 Common Stock [Member]	Apr. 25, 2012 Common Stock [Member]	Apr. 19, 2012 Common Stock [Member]	Mar. 25, 2011 Series A Preferred Stock [Member]	Jun. 30, 2012 Series A Preferred Stock [Member]	Jun. 30, 2012 Series A Preferred Stock [Member]	Mar. 31, 2011 Series A Preferred Stock [Member]	May 31, 2012 July [Member] Series A Preferred Stock [Member]	Jun. 30, 2012 August [Member]	May 31, 2012 August [Member] Series A Preferred Stock [Member]	Jun. 30, 2012 September [Member]	May 31, 2012 September [Member] Series A Preferred Stock [Member]
Stockholders Equity (Textual) [Abstract]
Number of Common Shares Issuable Upon Conversion of Warrants Outstanding				1,187,237		1,187,237		1,405,001		500,000	1,000,000
Shares issued on assumption transaction exercised to purchase											500,000
Shares issued on assumption transaction											9.10
Common stock closing price per share			$ 11.38
Amortizing aggregate value of warrants				$ 754,000
Preferred Stock, Shares Authorized				18,500,000		18,500,000		18,500,000										1,500,000
Preferred Stock, Shares Issued				0		0		0							1,247,700
Preferred stock Gross value From Sales															12,500,000
Preferred stock Net value From Sales															11,300,000
Preferred stock Dividends rate															7.00%
Preferred stock liquidation preference per share															$ 10.00
Preferred stock equivalent to a fixed annual amount liquidation preference per share															$ 0.70
Initial conversion price of preferred stock																	$ 10
Shares of Series A Preferred converted																454,235	655,376
Shares of preferred stock, conversion												0
Shares of Series A Preferred, outstanding				0		0		0								592,324	592,324
Declared cash dividend on Series A Preferred shares																			$ 0.05833		$ 0.05833		$ 0.05833
Recorded Date of Dividend Payable				Aug. 17, 2012		Jul. 27, 2012														Aug. 27, 2012		Sep. 27, 2012
Date of Dividend Payable						Jul. 02, 2012														Aug. 01, 2012		Sep. 04, 2012
Warrant expiry date									Jul. 30, 2013
Cancellation date of warrants issued									after January 30, 2009
Cancellation condition									The Company at its option may cancel the warrants in whole or in part, provided that the closing price per share of the Company’s common stock has exceeded $11.38 for at least ten trading days within any period of twenty consecutive trading days, including the last trading day of the period.
Additional dividends compounded															7.00%
Underwriting Commission Period														45 days
Common stock, issued				9,205,097		9,205,097		6,202,485						1,600,000
Underwriting commission														6.00%
Additional common stock												240,000
Common stock aggregate closing balance				9,205,097		9,205,097		6,202,485					1,840,000
Common stock per share														$ 11.75
Gross proceeds from sales of equity securities						1,512,000	1,106,000					21,600,000
Net proceeds after Underwriting commission												20,100,000
Common stock, no par value				$ 0		$ 0		$ 0						$ 0
Stockholders Equity (Additional Textual) [Abstract]
Repurchase of common shares		3,000,000
Additional repurchase of common shares	3,000,000
Repurchase of common stock shares					83,594
Average price repurchase of common stock					$ 8.23
Fees and commissions repurchase of common stock					$ 693,000
Fees and commissions average price repurchase common stock					$ 8.29
Reserved shares of common stock for issuance				1,187,237		1,187,237
Common stock issued upon cashless exercise						10,546
Number of warrants						66,667
Termination date of conversion right						on or after March 31, 2014
Conversion Condition						If for at least twenty trading days within any period of thirty consecutive trading days, the market price of the Company’s common stock exceeds the conversion price of the Series A Preferred by more than 20%
Market price of common stock exceeds percentage						20.00%
Additional shares of preferred stock authorized to issue, no par value						18,500,000

XML

Reinsurance (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Premiums Written
Direct	$ 83,669	$ 54,838	$ 121,842	$ 69,961
Assumed	(342)	(157)	(1,620)	(2,351)
Gross written	83,327	54,681	120,222	67,610
Premiums ceded	(17,497)	(14,174)	(31,826)	(28,396)
Net premiums written	65,830	40,507	88,396	39,214
Premiums Earned
Direct	39,873	29,160	73,171	57,147
Assumed	13,899	2,058	35,299	4,967
Gross earned	53,772	31,218	108,470	62,114
Ceded	(17,497)	(14,174)	(31,826)	(28,396)
Net premiums earned	$ 36,275	$ 17,044	$ 76,644	$ 33,718

XML

Investments (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of other invested assets
Total, at cost	$ 15,790	$ 6,543
Less accumulated depreciation and amortization	(154)	(60)
Other investments	15,636	6,483
Building [Member]
Summary of other invested assets
Total, at cost	2,788	1,418
Land [Member]
Summary of other invested assets
Total, at cost	10,619	4,438
Land improvements [Member]
Summary of other invested assets
Total, at cost	1,307	283
Other [Member]
Summary of other invested assets
Total, at cost	$ 1,076	$ 404

XML

Stock-Based Compensation (Details 1) (Restricted Stock [Member], USD $)	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Restricted Stock [Member]
Information with respect to unvested restricted stock awards Stock Option and Incentive Plan
Outstanding at December 31, 2011, Weighted-Average Grant Date Fair Value
Issued, Number of Restricted Stock Awards	200,000
Issued, Weighted-Average Grant Date Fair Value	$ 12.91
Outstanding at June 30, 2012, Number of Restricted Stock Awards	200,000
Outstanding at June 30, 2012, Weighted-Average Grant Date Fair Value	$ 12.91

XML

Earnings Per Share (Details Textual)	3 Months Ended	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2011
Common Stock [Member]
Earnings Per Share (Textual) [Abstract]
Securities excluded from the calculation of earnings per share	905,001	905,001
Warrant [Member]
Earnings Per Share (Textual) [Abstract]
Securities excluded from the calculation of earnings per share	1,738,335	1,738,335
Warrants, exercise price	9.10	9.10

XML

Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2012

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 2 – Recent Accounting Pronouncements

Accounting Standards Update No. 2011-11. In December 2011, the FASB issued Accounting Standards Update No. 2011-11 (“ASU 2011-11”), Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities. The objective of ASU 2011-11 is to enhance disclosures required by GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45. This information will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements on an entity’s financial position. The amendments in ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by ASU 2011-11 retrospectively for all comparative periods presented. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2010-26. In October 2010, the FASB issued Accounting Standards Update No. 2010-26 (“ASU 2010-26”), Financial Services – Insurance (ASC Topic 944), Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of the amendments in ASU 2010-26 is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments in ASU 2010-26 specify which costs should be capitalized. The amendments in ASU 2010-26 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and can be applied prospectively upon adoption. Retrospective or prospective application is permitted. Early adoption is permitted, but only at the beginning of an entity’s annual reporting period. The Company adopted ASU 2010-26 effective January 1, 2012 on a prospective basis. As such, the Company recognized additional amortization expense of $1.2 million with a corresponding decrease in deferred acquisition costs as of the date of adoption. This one-time adjustment reduced our net income for the six months ended June 30, 2012 by approximately $741,000, or $0.09 earnings per diluted common share. In addition, certain direct marketing, compensation, and other administrative costs will no longer be deferred. Rather, such costs will be expensed as incurred beginning January 1, 2012.

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Reinsurance (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012 Reinsurers	Jun. 30, 2011	Jun. 30, 2012 Reinsurers	Jun. 30, 2011	Dec. 31, 2011 Reinsurers
Reinsurance (Textual) [Abstract]
Recoveries pertaining to reinsurance contracts	$ 0	$ 0	$ 0	$ 0
Number of reinsurers	31		31		18

XML

Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2012

Stockholders' Equity [Abstract]

Summary of the warrants outstanding

At June 30, 2012, the Company has reserved 1,187,237 shares of common stock for issuance upon the exercise of its common stock warrants. A summary of the warrants outstanding at June 30, 2012 is presented below:

	Number Of Warrants Outstanding			Number of Common Shares Issuable Upon Conversion of Warrants Outstanding
Warrants issued with IPO units		1,666,668			833,334
Warrants issued to the Company’s placement agents net of forfeitures and repurchases		71,667			71,667
Warrants issued in 2011*		1,000,000			500,000
Warrants outstanding at December 31, 2011		2,738,335			1,405,001
Exercise of warrants issued with IPO units		(302,194	)		(151,097	)
Exercise of placement agent warrants		(66,667	)		(66,667	)
Warrants outstanding at June 30, 2012		2,369,474			1,187,237

* In connection with the HomeWise assumption transaction in November 2011, the Company issued 1,000,000 warrants, which may be exercised to purchase 500,000 shares of the Company’s common stock at a per share exercise price of $9.10.

Estimated assumptions of fair value warrants issued

The fair value of warrants issued in 2011 was estimated on the date of issuance using the following assumptions and the Black-Scholes option pricing model:

Expected volatility		52	%
Risk-free interest rate		.23	%
Expected dividend yield		5.00	%
Expected life (in years)		1.75
Per share grant date fair value of warrants issued	$	0.754

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Summary of numerator and denominator of the basic and fully diluted earnings per common share

A summary of the numerator and denominator of the basic and fully diluted earnings per common share is presented below (dollars and shares in thousands, except per share amounts):

	For the Three Months Ended June 30, 2012							For the Three Months Ended June 30, 2011
	Income (Numerator)			Shares (Denominator)		Per-Share Amount		Income (Numerator)			Shares (Denominator)		Per-Share Amount
Net income	$	7,262			—			$	2,301			—
Less: Preferred stock dividends		(63	)		—				(361	)		—
Less: Income attributable to participating securities		(87	)		—				—			—
Basic Earnings Per Share
Income allocated to common stockholders – basic earnings per share		7,112			8,325	$	0.85		1,940			6,071	$	0.32
Effect of Dilutive Securities
Stock options		—			215				—			411
Convertible preferred stock		63			705				361			1,248
Warrants		—			406				—			—
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	7,175			9,651	$	0.74	$	2,301			7,730	$	0.30

	For the Six Months Ended June 30, 2012							For the Six Months Ended June 30, 2011
	Income (Numerator)			Shares (Denominator)		Per-Share Amount		Income (Numerator)			Shares (Denominator)		Per-Share Amount
Net income	$	14,230			—			$	3,094			—
Less: Preferred stock dividends		(244	)		—				(378	)		—
Less: Income attributable to participating securities		(105	)		—				—			—
Basic Earnings Per Share
Income allocated to common stockholders – basic earnings per share		13,881			7,326	$	1.89		2,716			6,121	$	0.44
Effect of Dilutive Securities
Stock options		—			229				—			425
Convertible preferred stock		244			956				378			669
Warrants		—			303				—			—
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	14,125			8,814	$	1.60	$	3,094			7,215	$	0.43

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Subsequent Event (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Subsequent Event (Textual) [Abstract]
Dividends per common share	$ 0.20	$ 0.10	$ 0.35	$ 0.20
Date of Dividend Payable	Sep. 21, 2012
Dividends Payable, Date of Record	Aug. 17, 2012		Jul. 27, 2012

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Losses and Loss Adjustment Expenses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Liability for losses and loss adjustment expenses
Balance, beginning of period	$ 33,476	$ 24,050	$ 27,424	$ 22,146
Incurred related to:
Current period	15,995	6,696	34,401	15,432
Prior period	202	3,827	964	5,494
Total incurred	16,197	10,523	35,365	20,926
Paid related to:
Current period	(8,691)	(6,475)	(13,082)	(8,128)
Prior period	(3,669)	(3,125)	(12,394)	(9,971)
Total paid	(12,360)	(9,600)	(25,476)	(18,099)
Balance, end of period	$ 37,313	$ 24,973	$ 37,313	$ 24,973

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2012

Stock-Based Compensation [Abstract]

Summary of the activity in the Company's Prior Plan

A summary of the activity in the Company’s 2007 Plan is as follows (dollars in thousands, except per share amounts):

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2011		620,000		$	2.97
Exercised		(217,003	)		3.33
Outstanding at June 30, 2012		402,997			2.78		5.3 years	$	5,971
Exercisable at June 30, 2012		382,997		$	2.60		5.1 years	$	5,745

Information with respect to unvested restricted stock awards Stock Option and Incentive Plan

Information with respect to unvested restricted stock awards, which were granted in April and May 2012 under the Company’s 2007 Plan, is as follows:

	Number of Restricted Stock Awards		Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2011		—		—
Issued		200,000	$	12.91
Outstanding at June 30, 2012		200,000	$	12.91

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Summary of Significant Accounting Policies (Details) (Series A [Member])	Mar. 25, 2011
Series A [Member]
Summary of Significant Accounting Policies (Textual) [Abstract]
Series A cumulative convertible preferred stock	7.00%

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2012

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements for Homeowners Choice, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s financial position as of June 30, 2012 and the results of operations and cash flows for the periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2012. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011 included in the Company’s Form 10-K, which was filed with the SEC on March 30, 2012.

In preparing the interim unaudited condensed consolidated financial statements, management was required to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the financial reporting date and throughout the periods being reported upon. Certain of the estimates result from judgments that can be subjective and complex and consequently actual results may differ from these estimates.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of loss and loss adjustment expenses, assumed reinsurance balances, the recoverability of deferred policy acquisition costs, and the determination of deferred income taxes. Although considerable variability is inherent in these estimates, management believes that the amounts provided are reasonable. These estimates are continually reviewed and adjusted as necessary. Such adjustments are reflected in current operations.

All significant intercompany balances and transactions have been eliminated.

Acquisition Accounting. The Company accounts for business combinations using the acquisition method, which requires an allocation of the purchase price of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired. In the event the net assets acquired exceed the purchase price, the Company will recognize a gain on bargain purchase.

Goodwill. Goodwill is not amortized. Rather, the Company is required to test goodwill for impairment at least annually or sooner in the event there are changes in circumstances indicating the asset may be impaired. The Company’s goodwill relates to a business acquisition completed in the fourth quarter of 2011. The Company plans to perform its goodwill impairment test in the fourth quarter of each year beginning with the fourth quarter in 2012. Thus, the Company did not recognize any impairment charges in the three and six months ended June 30, 2012.

Foreign Currency. The functional currency of the Company’s Indian subsidiary is the U.S. dollar. As such, the monetary assets and liabilities of this subsidiary are remeasured into U.S. dollars at the exchange rate in effect on the balance sheet date. Non-monetary assets and liabilities are remeasured using historical rates. Expenses recorded in the local currency are remeasured at the prevailing exchange rate. Exchange gains and losses resulting from these remeasurements are included in the results of operations.

Stock-based Compensation. The Company accounts for stock-based compensation under the fair value recognition provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 – “Compensation – Stock Compensation,” which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and restricted stock issuances based on estimated fair values. In accordance with ASC Topic 718, the fair value of stock-based awards is amortized over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The Company uses a straight-line attribution method for all grants that include only a service condition. The Company’s restricted stock awards include both service and market conditions. As a result, certain restricted stock grants are expensed over the derived service period for each separately vesting tranche.

Basic and diluted earnings per common share. Basic earnings per common share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. ASC Topic 260 requires the inclusion of restricted stock as participating securities since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. During periods of net income, participating securities are allocated a proportional share of net income determined by dividing total weighted-average participating securities by the sum of total weighted-average common shares and participating securities (the “two-class method”). Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Potentially dilutive securities at June 30, 2012 consisted of stock options, common stock warrants, restricted stock, and the 7.0% Series A cumulative convertible preferred stock issued March 25, 2011 (see Note 10 – Stockholders’ Equity).

Reclassifications. Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

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Recent Accounting Pronouncements (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Recent Accounting Pronouncements (Textual) [Abstract]
Additional amortization expense	$ 1,200,000
Net income	$ 741,000
Earnings per diluted common share	$ 0.09

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Business Acquisition (Details) (USD $)	Jun. 30, 2012	Apr. 02, 2012
Preliminary allocation of net consideration paid to fair value of assets acquired
Cash		$ 9,000
John's Pass Marina, Inc. and Rice Family Holdings LLLP [Member]
Preliminary allocation of net consideration paid to fair value of assets acquired
Property, plant and equipment		8,280,000
Other assets		56,000
Deferred tax liability		(60,000)
Fair value of net assets acquired		8,285,000
Gain on bargain purchase	179,000	(119,000)
Cash consideration paid		$ 8,166,000

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Stock Based Compensation (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Stock-Based Compensation (Textual) [Abstract]
Common shares available for grant	5,000,000		5,000,000
Common stock reserved for issuance upon exercise of incentive stock options	382,997		382,997
Restricted stock granted		0		0
Stock options granted, vesting period, high end of range			5 years 1 month 6 days
Recognition of remaining compensation expense over a weighted-average period			22 months
Stock-Based Compensation (Additional Textual) [Abstract]
Unrecognized compensation expense	$ 3,500,000		$ 3,500,000
Fair value of shares vesting	6,000,000	9,400,000	59,000,000	18,600,000
Exercised, Number of Stock options			217,003	145,200
Surrender of shares			71,409
Income tax benefit recognized stock based compensation	0	0	0	0
Total intrinsic value of the options exercised			1,470,101,000	684,220,000
Total intrinsic value of the options exercised, Income tax benefit recognized			437,000,000	168,000,000
Maximum [Member]
Stock-Based Compensation (Textual) [Abstract]
Stock options granted, vesting period, high end of range			10 years
Minimum [Member]
Stock-Based Compensation (Textual) [Abstract]
Stock options granted, vesting period range			5 years
2007 Stock Option and Incentive Plan (Prior Plan) [Member]
Stock-Based Compensation (Textual) [Abstract]
Common shares available for grant	6,000,000		6,000,000
Cancelled shares, reserved for future issuance			4,604,800
Total unrecognized compensation expense, nonvested restricted stock arrangements granted			$ 2,400,000
Omnibus Incentive Plan New Plan 2012 [Member]
Stock-Based Compensation (Textual) [Abstract]
Common shares available for grant	5,000,000		5,000,000
Common stock reserved for issuance upon exercise of incentive stock options	4,000,000		4,000,000
Number of shares granted			0
Stock options [Member]
Stock-Based Compensation (Textual) [Abstract]
Number of shares granted	0	0	0	0
Restricted Stock [Member]
Stock-Based Compensation (Textual) [Abstract]
Recognition of remaining compensation expense over a weighted-average period			42 months

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Investments:
Fixed-maturity securities, available-for-sale, at fair value (amortized cost $38363 and $34,147)	$ 40,141	$ 34,642
Equity securities, available-for-sale, at fair value	8,669	5,207
Time deposits	7,184	12,427
Other investments	15,636	6,483
Total investments	71,630	58,759
Cash and cash equivalents	131,088	100,355
Accrued interest and dividends receivable	546	408
Premiums receivable	20,738	12,222
Assumed reinsurance balances receivable		1,687
Prepaid reinsurance premiums	26,484	14,169
Deferred policy acquisition costs	12,476	12,321
Property and equipment, net	10,586	10,499
Goodwill	161	161
Income Taxes Receivable	4,900
Deferred income taxes		2,368
Other assets	2,220	1,869
Total assets	280,829	214,818
Liabilities and Stockholders' Equity
Losses and loss adjustment expenses	37,313	27,424
Unearned premiums	120,429	108,677
Advance premiums	9,004	2,132
Assumed reinsurance balances payable	1,389
Accrued expenses	4,439	3,478
Deferred income taxes	1,877
Dividends payable	104	218
Income taxes payable		4,956
Other liabilities	8,273	4,103
Total liabilities	182,828	150,988
Stockholders' equity:
Preferred stock (no par value 18500000 shares authorized, no shares issued or outstanding)
Common stock, (no par value, 40000000 shares authorized, 9205097 and 6,202,485 shares issued and outstanding in 2012 and 2011)
Additional paid-in capital	51,742	29,636
Retained earnings	45,179	33,986
Accumulated other comprehensive income	1,080	208
Total stockholders' equity	98,001	63,830
Total liabilities and stockholders' equity	280,829	214,818
7% Series A Cumulative Convertible Preferred Stock [Member]
Stockholders' equity:
Preferred stock (no par value 18500000 shares authorized, no shares issued or outstanding)

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Income Taxes (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Income Taxes (Textual) [Abstract]
Income taxes	$ 4,747	$ 1,520	$ 9,160	$ 1,983
Estimated effective tax rates	40.00%	40.00%	39.00%	39.00%

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Cash flows from operating activities:
Net Income (Unaudited)	$ 14,230	$ 3,094
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	212	19
Net amortization of premiums on investments in fixed maturity securities	111	61
Depreciation and amortization	637	158
Deferred income taxes	3,698	2,026
Realized gains on sales of investments	(30)	(293)
Gain on bargain purchase	(179)	(936)
Changes in operating assets and liabilities:
Premiums receivable	(8,516)	(4,441)
Assumed reinsurance balances receivable	1,687	26
Advance premiums	6,872	5,786
Prepaid reinsurance premiums	(12,315)	8,921
Accrued interest and dividends receivable	(138)	(6)
Income taxes receivable	(4,900)	(3,033)
Other assets	(445)	(476)
Assumed reinsurance balances payable	1,389	51
Deferred policy acquisition costs	(155)	(655)
Losses and loss adjustment expenses	9,889	2,827
Unearned premiums	11,752	5,496
Income taxes payable	(4,956)	(310)
Accrued expenses and other liabilities	5,131	4,568
Net cash provided by operating activities	23,974	22,883
Cash flows from investing activities:
Cash consideration paid for acquired business	(8,157)	(5,110)
Purchase of property and equipment, net	(480)	(1,843)
Purchase of other investments	(967)
Purchase of fixed maturity securities	(6,710)	(14,165)
Purchase of equity securities	(4,844)	(5,330)
Proceeds from sales, calls, and repayments of fixed maturity securities	2,419	19,614
Proceeds from sales of equity securities	1,512	1,106
Decrease (Increase) in time deposits, net	5,243	(273)
Net cash used in investing activities	(11,984)	(6,001)
Cash flows from financing activities:
Net proceeds from the issuance of common stock	20,082
Net proceeds from the issuance of preferred stock		11,307
Proceeds from the exercise of common stock options		363
Proceeds from the exercise of common stock warrants	1,375
Cash dividends paid	(3,151)	(1,382)
Repurchases of common stock		(1,887)
Excess tax benefit from common stock options exercised	437	124
Net cash provided by financing activities	18,743	8,525
Net increase in cash and cash equivalents	30,733	25,407
Cash and cash equivalents at beginning of period	100,355	58,849
Cash and cash equivalents at end of period	131,088	80,256
Supplemental disclosure of cash flow information:
Cash paid for income taxes	14,880	3,176
Cash paid for interest
Non-cash investing activities:
Unrealized (loss) gain on investments in available for sale securities, net of tax	872	(16)
Fair value of net assets acquired in connection with business acquisition	$ 8,267	$ 5,685

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Investments (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Fixed-maturity securities [Member]
Summary of proceeds received and the gross realized gains and losses from sales of available for sale securities
Proceeds	$ 1,197	$ 11,916	$ 2,419	$ 19,614
Gross Realized Gains	11	238	40	369
Gross Realized Losses		(15)	(3)	(38)
Equity securities [Member]
Summary of proceeds received and the gross realized gains and losses from sales of available for sale securities
Proceeds	1,412	574	1,512	1,106
Gross Realized Gains	8	53	8	105
Gross Realized Losses	$ (10)	$ (136)	$ (15)	$ (143)

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Summary of Significant Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements for Homeowners Choice, Inc. and its subsidiaries (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s financial position as of June 30, 2012 and the results of operations and cash flows for the periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2012. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011 included in the Company’s Form 10-K, which was filed with the SEC on March 30, 2012.

Acquisition Accounting

Acquisition Accounting. The Company accounts for business combinations using the acquisition method, which requires an allocation of the purchase price of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired. In the event the net assets acquired exceed the purchase price, the Company will recognize a gain on bargain purchase.

Goodwill

Goodwill. Goodwill is not amortized. Rather, the Company is required to test goodwill for impairment at least annually or sooner in the event there are changes in circumstances indicating the asset may be impaired. The Company’s goodwill relates to a business acquisition completed in the fourth quarter of 2011. The Company plans to perform its goodwill impairment test in the fourth quarter of each year beginning with the fourth quarter in 2012. Thus, the Company did not recognize any impairment charges in the three and six months ended June 30, 2012.

Foreign Currency

Foreign Currency. The functional currency of the Company’s Indian subsidiary is the U.S. dollar. As such, the monetary assets and liabilities of this subsidiary are remeasured into U.S. dollars at the exchange rate in effect on the balance sheet date. Non-monetary assets and liabilities are remeasured using historical rates. Expenses recorded in the local currency are remeasured at the prevailing exchange rate. Exchange gains and losses resulting from these remeasurements are included in the results of operations.

Stock-based Compensation

Stock-based Compensation. The Company accounts for stock-based compensation under the fair value recognition provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 – “Compensation – Stock Compensation,” which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and restricted stock issuances based on estimated fair values. In accordance with ASC Topic 718, the fair value of stock-based awards is amortized over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The Company uses a straight-line attribution method for all grants that include only a service condition. The Company’s restricted stock awards include both service and market conditions. As a result, certain restricted stock grants are expensed over the derived service period for each separately vesting tranche.

Basic and diluted earnings per common share

Basic and diluted earnings per common share. Basic earnings per common share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. ASC Topic 260 requires the inclusion of restricted stock as participating securities since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. During periods of net income, participating securities are allocated a proportional share of net income determined by dividing total weighted-average participating securities by the sum of total weighted-average common shares and participating securities (the “two-class method”). Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Potentially dilutive securities at June 30, 2012 consisted of stock options, common stock warrants, restricted stock, and the 7.0% Series A cumulative convertible preferred stock issued March 25, 2011 (see Note 10 – Stockholders’ Equity).

Reclassifications

Reclassifications. Certain reclassifications of prior period amounts have been made to conform to the current period presentation.

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Investments (Details 3) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Summary of securities with gross unrealized loss positions aggregated by investment category
Gross Unrealized Loss, Less than Twelve Months	$ (129)
Fair Value, Less than Twelve Months	3,622
Gross Unrealized Loss, Twelve Months or Greater	(271)
Fair Value, Twelve Months or Greater	2,047
Gross Unrealized Loss, Total	(400)
Fair Value, Total	5,669
Equity securities [Member]
Summary of securities with gross unrealized loss positions aggregated by investment category
Gross Unrealized Loss, Less than Twelve Months	(123)
Fair Value, Less than Twelve Months	2,559
Gross Unrealized Loss, Twelve Months or Greater	(172)
Fair Value, Twelve Months or Greater	109
Gross Unrealized Loss, Total	(295)
Fair Value, Total	2,668
Fixed-maturity securities [Member]
Summary of securities with gross unrealized loss positions aggregated by investment category
Gross Unrealized Loss, Less than Twelve Months	(6)
Fair Value, Less than Twelve Months	1,063
Gross Unrealized Loss, Twelve Months or Greater	(99)
Fair Value, Twelve Months or Greater	1,938
Gross Unrealized Loss, Total	(105)
Fair Value, Total	3,001
Corporate Bonds [Member]
Summary of securities with gross unrealized loss positions aggregated by investment category
Gross Unrealized Loss, Less than Twelve Months	(5)
Fair Value, Less than Twelve Months	839
Gross Unrealized Loss, Twelve Months or Greater	(99)
Fair Value, Twelve Months or Greater	1,938
Gross Unrealized Loss, Total	(104)
Fair Value, Total	2,777
Commercial mortgage-backed securities [Member]
Summary of securities with gross unrealized loss positions aggregated by investment category
Gross Unrealized Loss, Less than Twelve Months	(1)
Fair Value, Less than Twelve Months	224
Gross Unrealized Loss, Twelve Months or Greater
Fair Value, Twelve Months or Greater
Gross Unrealized Loss, Total	(1)
Fair Value, Total	$ 224

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value Measurements [Abstract]

Available-for-sale securities measured at fair value

The following table presents information about the Company’s available-for-sale securities measured at fair value as of June 30, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
As of June 30, 2012
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	572		—		—		572
Corporate bonds		12,486		—		—		12,486
Commercial mortgage-backed securities		—		11,423		—		11,423
State, municipalities, and political subdivisions		10,977		—		—		10,977
Other		4,221		462		—		4,683
Total fixed-maturity securities		28,256		11,885		—		40,141
Equity securities		8,669		—		—		8,669
Total available-for-sale securities	$	36,925		11,885		—		48,810
As of December 31, 2011
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	556		—		—		556
Corporate bonds		9,840		—		—		9,840
Commercial mortgage-backed securities		—		10,874		—		10,874
State, municipalities, and political subdivisions		10,372		—		—		10,372
Other		2,735		265		—		3,000
Total fixed-maturity securities		23,503		11,139		—		34,642
Equity securities		5,207		—		—		5,207
Total available-for-sale securities	$	28,710		11,139		—		39,849

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Condensed Consolidated Statement of Stockholders' Equity (USD $) In Thousands, except Share data	Total USD ($)	Preferred Stock [Member] USD ($)	Common Stock [Member] USD ($)	Common Stock [Member] Restricted Stock [Member]	Additional Paid-In Capital [Member] USD ($)	Retained Earnings [Member] USD ($)	Accumulated Other Comprehensive Income [Member] USD ($)
Balance at December 31, 2011 at Dec. 31, 2011	$ 63,830				$ 29,636	$ 33,986	$ 208
Balance at December 31, 2011, shares at Dec. 31, 2011		1,247,700	6,202,485
Net Income (Unaudited)	14,230					14,230
Change in unrealized gain on available-for-sale securities, net of income taxes (unaudited)	872						872
Exercise of stock options (unaudited), shares	217,003		145,594
Exercise of common stock warrants (unaudited), value	1,375				1,375
Exercise of common stock warrants (unaudited), shares			161,642
Excess tax benefit from common stock options exercised (unaudited)	437				437
Conversion of preferred stock to common stock (unaudited)		(655,376)	655,376
Issuance of Restricted Stock (unaudited)	153				153
Stock Issued During Period, Shares, Share-based Compensation			1,840,000	200,000
issuance of common stock (unaudited)	20,082				20,082
Common stock dividends (unaudited)	(2,793)					(2,793)
Preferred stock dividends (unaudited)	(244)					(244)
Stock-based compensation (unaudited)	59				59
Balance at June 30, 2012 (unaudited) at Jun. 30, 2012	$ 98,001		$ 0		$ 51,742	$ 45,179	$ 1,080
Ending Balance, shares (unaudited) at Jun. 30, 2012		592,324	9,205,097

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Fixed-maturity securities, available-for-sale, amortized cost	$ 38,363	$ 34,147
Preferred stock, no par value	$ 0	$ 0
Preferred stock, authorized	18,500,000	18,500,000
Preferred stock, issued	0	0
Shares of Series A Preferred, outstanding	0	0
Common stock, no par value	$ 0	$ 0
Common stock, authorized	40,000,000	40,000,000
Common stock, issued	9,205,097	6,202,485
Common stock, outstanding	9,205,097	6,202,485
7% Series A Cumulative Convertible Preferred Stock [Member]
Preferred stock, liquidation preference, per share	$ 10.00	$ 10.00
Preferred stock, no par value	$ 0	$ 0
Preferred stock, authorized	1,500,000	1,500,000
Preferred stock, issued	592,324	1,247,700
Shares of Series A Preferred, outstanding	592,324	1,247,700

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Stockholders' Equity

6 Months Ended

Jun. 30, 2012

Stockholders' Equity [Abstract]

Stockholders' Equity

Note 10 – Stockholders’ Equity

Common Stock

On April 19, 2012, the Company entered into an underwriting agreement (the “Underwriting Agreement”) pursuant to which the Company agreed to sell 1,600,000 shares of the Company’s common stock, no par value per share (the “Common Stock”), for $11.75 per share, less a 6.0% underwriting commission. Under the terms of the Underwriting Agreement, the Company granted the underwriter an option to purchase up to an additional 240,000 shares of Common Stock at the public offering price, less a 6.0% underwriting commission, within 45 days from the date of the Underwriting Agreement to cover over-allotments, if any. The offering was made pursuant to the Company’s effective registration statement on Form S-3, as amended (Registration Statement No. 333-180322), and the Prospectus Supplement dated April 19, 2012. On April 23, 2012, the underwriter elected to fully exercise its overallotment option. The closing of the sale of an aggregate of 1,840,000 shares of Common Stock occurred on April 25, 2012. The offering resulted in aggregate gross proceeds to the Company of approximately $21.6 million and net proceeds of approximately $20.1 million after underwriting commissions and offering expenses.

Effective March 18, 2009, the Company’s Board of Directors authorized a plan to repurchase up to $3.0 million (inclusive of commissions) of the Company’s common shares. The repurchase plan allowed the Company to repurchase shares from time to time through March 19, 2010. This repurchase plan was supplemented in December 2009 upon approval by the Board of Directors to extend the repurchase authority by an additional $3.0 million and continue until the repurchase plan is terminated by the Company or the maximum number of dollars has been expended. During the three months ended March 31, 2011, the Company repurchased and retired a total of 83,594 shares at an average price of $8.23 per share and a total cost, inclusive of fees and commissions, of $693,000, or $8.29 per share.

As of March 28, 2011, the maximum amount designated for repurchases under this plan was expended and the share repurchase program was terminated.

Common Stock Warrants

At June 30, 2012, the Company has reserved 1,187,237 shares of common stock for issuance upon the exercise of its common stock warrants. A summary of the warrants outstanding at June 30, 2012 is presented below:

	Number Of Warrants Outstanding			Number of Common Shares Issuable Upon Conversion of Warrants Outstanding
Warrants issued with IPO units		1,666,668			833,334
Warrants issued to the Company’s placement agents net of forfeitures and repurchases		71,667			71,667
Warrants issued in 2011*		1,000,000			500,000
Warrants outstanding at December 31, 2011		2,738,335			1,405,001
Exercise of warrants issued with IPO units		(302,194	)		(151,097	)
Exercise of placement agent warrants		(66,667	)		(66,667	)
Warrants outstanding at June 30, 2012		2,369,474			1,187,237

* In connection with the HomeWise assumption transaction in November 2011, the Company issued 1,000,000 warrants, which may be exercised to purchase 500,000 shares of the Company’s common stock at a per share exercise price of $9.10.

The warrants issued prior to 2011 may be exercised at an exercise price equal to $9.10 per share on or before July 30, 2013. At any time after January 30, 2009 and before the expiration of the warrants, the Company at its option may cancel the warrants in whole or in part, provided that the closing price per share of the Company’s common stock has exceeded $11.38 for at least ten trading days within any period of twenty consecutive trading days, including the last trading day of the period. The placement agents also have the option to effect a cashless exercise in which the warrants would be exchanged for the number of shares which is equal to the intrinsic value of the warrant divided by the current value of the underlying shares. During the six months ended June 30, 2012, 10,546 shares of common stock were issued upon the cashless exercise of 66,667 warrants in February.

The fair value of warrants issued in 2011 was estimated on the date of issuance using the following assumptions and the Black-Scholes option pricing model:

Expected volatility		52	%
Risk-free interest rate		.23	%
Expected dividend yield		5.00	%
Expected life (in years)		1.75
Per share grant date fair value of warrants issued	$	0.754

The Company is amortizing the $754,000 aggregate value of the warrants over the expected policy term of the policies assumed in the transaction. The warrants, the issuance of which is not registered or required to be registered under the Securities Act of 1933, are exercisable for a term beginning on November 1, 2011 through July 31, 2013 unless cancelled earlier at the Company’s option under the terms specified by the warrant agreement.

Preferred Stock

In March 2011 the Company designated 1,500,000 shares of the Company’s preferred stock as Series A cumulative convertible preferred stock (“Series A Preferred”).

On March 25, 2011, the Company closed its preferred stock offering under which a total of 1,247,700 shares of its Series A Preferred were sold for gross proceeds of approximately $12.5 million and net proceeds after offering costs of approximately $11.3 million. Dividends on the Series A Preferred will be cumulative from the date of original issue and will accrue on the last day of each month, at an annual rate of 7.0% of the $10 liquidation preference per share, equivalent to a fixed annual amount of $0.70 per share. Accrued but unpaid dividends will accumulate and earn additional dividends at 7.0%, compounded monthly.

Shareholders of Series A Preferred may convert all or any portion of their shares, at their option, at any time, into shares of the Company’s common stock at an initial conversion rate of one share of common stock for each share of Series A Preferred, which is equivalent to an initial conversion price of $10 per share; provided, however, that the Company may terminate this conversion right on or after March 31, 2014, if for at least twenty trading days within any period of thirty consecutive trading days, the market price of the Company’s common stock exceeds the conversion price of the Series A Preferred by more than 20% and our common stock is then traded on the New York Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or the NYSE Amex. Under certain circumstances, the Company will be required to adjust the conversion rate. The initial conversion price of $10 per share is subject to proportionate adjustment in the event of stock splits, reverse stock splits, stock dividends, or similar changes with respect to the Company’s common stock.

During the three and six months ended June 30, 2012, holders of 454,235 and 655,376 shares of Series A Preferred converted their Series A Preferred shares to 454,235 and 655,376 shares of common stock, respectively. There were no preferred stock conversions during the three and six months ended June 30, 2011. As of June 30, 2012, 592,324 shares of Series A Preferred remain outstanding.

Shareholders of record of the Company’s Series A Preferred at the close of business on a date for determining shareholders entitled to dividends will be entitled to receive the dividends payable on their Series A Preferred shares on the corresponding dividend payment date notwithstanding the conversion of such Series A Preferred shares before the dividend payment date. The Series A Preferred terms include a provision requiring such shareholders to pay an amount equal to the amount of the dividend payable. That requirement has been permanently waived by the Company.

Holders of the Series A Preferred shares generally have no voting rights, except under limited circumstances, and holders are entitled to receive cumulative preferential dividends when and as declared by the Company’s Board of Directors.

In addition, the Company is authorized to issue up to an additional 18,500,000 shares of preferred stock, no par value. The authorized but unissued and undesignated preferred stock may be issued in one or more series and the shares of each series shall have such rights as determined by the Company’s Board of Directors subject to the rights of the holders of the Series A Preferred.

On May 31, 2012, the Company’s Board of Directors declared a cash dividend on its Series A Preferred shares in the amount of $0.05833 per share for each of the months of July, August, and September 2012. The July 2012 dividend is payable July 27, 2012 to shareholders of record at the close of business on July 2, 2012. The August 2012 dividend is payable August 27, 2012 to shareholders of record at the close of business on August 1, 2012. The September 2012 dividend is payable September 27, 2012 to shareholders of record at the close of business on September 4, 2012.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 07, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	Homeowners Choice, Inc.
Entity Central Index Key	0001400810
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		9,425,551
Trading Symbol	HCII

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 11 – Stock-Based Compensation

2007 Stock Option and Incentive Plan

The Company accounts for stock-based compensation under the fair value recognition provisions of ASC Topic 718 – “Compensation – Stock Compensation.”

The Company’s 2007 Stock Option and Incentive Plan (“2007 Plan”) provided for granting of stock-based compensation to employees, directors, consultants, and advisors of the Company. Under the 2007 Plan, an aggregate of 6,000,000 shares of the Company’s common stock could be granted to include stock options and restricted stock. On April 20, 2012, the Company’s Board of Directors adopted, subject to shareholder approval, the 2012 Omnibus Incentive Plan (the “2012 Plan”). The 2012 Plan was approved by Shareholders effective May 24, 2012 at which time the 2007 Plan was terminated and the remaining 4,604,800 shares reserved for future issuance were cancelled. The aggregate number of shares of the Company’s common stock reserved and available for issuance pursuant to awards granted under the 2012 Plan is 5,000,000 of which only 4,000,000 shares of our common stock may be issued upon the exercise of incentive stock options. At June 30, 2012, no shares have been granted and 5,000,000 shares are available for grant under the 2012 Plan.

Stock Options

Outstanding stock options granted under the 2007 Plan vest over periods ranging from immediately vested to five years and are exercisable over the contractual term of ten years.

A summary of the activity in the Company’s 2007 Plan is as follows (dollars in thousands, except per share amounts):

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2011		620,000		$	2.97
Exercised		(217,003	)		3.33
Outstanding at June 30, 2012		402,997			2.78		5.3 years	$	5,971
Exercisable at June 30, 2012		382,997		$	2.60		5.1 years	$	5,745

At June 30, 2012, there was approximately $35,000 of unrecognized compensation expense related to nonvested stock-based compensation related to stock options granted under the 2007 Plan, which the Company expects to recognize over a weighted-average period of 22 months. The total fair value of shares vesting and recognized as compensation expense was approximately $6,000 and $59,000, respectively, for the three and six month periods ended June 30, 2012. There was no associated income tax benefit recognized in 2012 with respect to the compensation expense related to

stock options. During the six months ended June 30, 2012, a total of 217,003 options were exercised and net settled by surrender of 71,409 shares. The total intrinsic value of the options exercised during the six months ended June 30, 2012 was $1,470,101 and the associated income tax benefit recognized was approximately $437,000. The total fair value of shares vesting and recognized as compensation expense was approximately $9,400 and $18,600, respectively, for the three and six month periods ended June 30, 2011. There was no associated income tax benefit recognized with respect to the share compensation expense in 2011. The total intrinsic value of the 145,200 options exercised during the six months ended June 30, 2011 was $684,220 and the income tax benefit recognized was $168,000.

No stock options were granted during the three and six month periods ended June 30, 2012 and 2011.

Restricted Stock Awards

During the three months ended June 30, 2012, the Company granted restricted stock awards to certain executive officers in connection with their service to the Company. The terms of the Company’s restricted stock grants include both service and market-based conditions. The fair value of the awards with market-based conditions is determined using a Monte Carlo simulation method which calculates many potential outcomes for an award and then establishes fair value based on the most likely outcome. The determination of fair value with respect to the awards with only service-based conditions is based on the value of the Company’s stock on the grant date.

Information with respect to unvested restricted stock awards, which were granted in April and May 2012 under the Company’s 2007 Plan, is as follows:

	Number of Restricted Stock Awards		Weighted- Average Grant Date Fair Value
Outstanding at December 31, 2011		—		—
Issued		200,000	$	12.91
Outstanding at June 30, 2012		200,000	$	12.91

At June 30, 2012, there was approximately $2.4 million of total unrecognized compensation expense related to nonvested restricted stock arrangements granted under the Company’s 2007 Plan. The Company expects to recognize the remaining compensation expense over a weighted-average period of 42 months.

No restricted stock was granted during the three and six months ended June 30, 2011.

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Condensed Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Revenue
Gross premiums earned	$ 53,772	$ 31,218	$ 108,470	$ 62,114
Premiums ceded	(17,497)	(14,174)	(31,826)	(28,396)
Net premiums earned	36,275	17,044	76,644	33,718
Net investment income	302	507	824	1,071
Policy fee income	1,028	667	1,543	854
Realized investment gains	9	140	30	293
Gain on bargain purchase	179	936	179	936
Other	1,062	187	1,287	658
Total revenue	38,855	19,481	80,507	37,530
Expenses
Losses and loss adjustment expenses	16,197	10,523	35,365	20,926
Policy acquisition and other underwriting expenses	5,915	2,780	12,500	7,043
Other operating expenses	4,734	2,357	9,252	4,484
Total expenses	26,846	15,660	57,117	32,453
Income before income taxes	12,009	3,821	23,390	5,077
Income taxes	4,747	1,520	9,160	1,983
Net Income	7,262	2,301	14,230	3,094
Preferred stock dividends	(63)	(361)	(244)	(378)
Income available to common stockholders	$ 7,199	$ 1,940	$ 13,986	$ 2,716
Basic earnings per common share	$ 0.85	$ 0.32	$ 1.89	$ 0.44
Diluted earnings per common share	$ 0.74	$ 0.30	$ 1.60	$ 0.43
Dividends per common share	$ 0.20	$ 0.10	$ 0.35	$ 0.20

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Business Acquisitions

6 Months Ended

Jun. 30, 2012

Business Combinations [Abstract]

Business Acquisition

Note 5 – Business Acquisition

Effective April 2, 2012, the Company, through its subsidiary, HCI Holdings LLC, acquired the assets and operations of John’s Pass Marina, Inc. and Rice Family Holdings LLLP. The property consists primarily of ten acres of waterfront property and land improvements, which include a waterfront restaurant and a marina facility purchased for approximately $8.2 million. Operating activities at acquisition include the restaurant as well as wet boat storage for approximately 13 clients, and fuel services with respect to marina clients and other recreational boaters. The Treasure Island, Florida property and operations were acquired to further strengthen and diversify the Company’s property portfolio and business operations.

The fair value of the net assets acquired was approximately $8.3 million, which exceeded the $8.2 million purchase price. As a result, the Company recognized a gain on bargain purchase in the amount of $179,000 ($119,000 net of tax), which is included in operations for the three and six months ended June 30, 2012. The recorded gain is subject to adjustment as the Company will continue to evaluate the purchase price allocation during the measurement period. The following table summarizes the Company’s preliminary allocation of the net consideration paid to the fair value of the assets acquired, identifiable intangible assets acquired and liabilities assumed at April 2, 2012 (in thousands):

Property, plant and equipment	$	8,280
Other assets		56
Cash		9
Deferred tax liability		(60	)
Fair value of net assets acquired		8,285
Gain on bargain purchase, net of tax of $60		(119	)
Cash consideration paid	$	8,166

For the three and six months ended June 30, 2012, the effects of this acquisition were not material to the Company’s condensed consolidated financial statements and basic and diluted earnings per share and, as such, pro forma information has not been presented.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 4 – Fair Value Measurements

Fair values of the Company’s available-for-sale fixed-maturity securities are determined in accordance with ASC Topic 820, Fair Value Measurements and Disclosure, using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not available, fair values are measured using unobservable inputs. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.

The fair values for fixed-maturity securities that do not trade on a daily basis are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers. Management reviews the assumptions and methods utilized by the pricing service and then compares the relevant data and pricing to broker-provided data. The Company gains assurance of the overall reasonableness and consistent application of the assumptions and methodologies and compliance with accounting standards for fair value determination through ongoing monitoring of the reported fair values.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:

Level 1 – Unadjusted quoted prices in active markets for identical assets.

Level 2 – Other inputs that are observable for the asset, either directly or indirectly.

Level 3 – Inputs that are unobservable.

The following table presents information about the Company’s available-for-sale securities measured at fair value as of June 30, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
As of June 30, 2012
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	572		—		—		572
Corporate bonds		12,486		—		—		12,486
Commercial mortgage-backed securities		—		11,423		—		11,423
State, municipalities, and political subdivisions		10,977		—		—		10,977
Other		4,221		462		—		4,683
Total fixed-maturity securities		28,256		11,885		—		40,141
Equity securities		8,669		—		—		8,669
Total available-for-sale securities	$	36,925		11,885		—		48,810
As of December 31, 2011
Fixed-maturity securities
U.S. Treasury and U.S. government agencies	$	556		—		—		556
Corporate bonds		9,840		—		—		9,840
Commercial mortgage-backed securities		—		10,874		—		10,874
State, municipalities, and political subdivisions		10,372		—		—		10,372
Other		2,735		265		—		3,000
Total fixed-maturity securities		23,503		11,139		—		34,642
Equity securities		5,207		—		—		5,207
Total available-for-sale securities	$	28,710		11,139		—		39,849

With respect to the Company’s business acquisition completed in April 2012 (see Note 5), all assets acquired and liabilities assumed were valued based on Level 3 measurements. Property, plant and equipment was valued based on an external appraisal using the sales comparison approach and other unobservable inputs. The carrying amounts of all other assets and liabilities approximated their fair values at the acquisition date.

There were no transfers between Level 1, 2 or 3 during the six months ended June 30, 2012 or the year ended December 31, 2011.

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Investments (Tables)

6 Months Ended

Jun. 30, 2012

Investments [Abstract]

Summary of amortized cost, gross unrealized gains and losses, and estimated fair value available-for-sale securities

The Company holds investments in fixed-maturity securities as well as equity securities, which are classified as available for sale. At June 30, 2012 and December 31, 2011, the amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows (in thousands):

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
June 30, 2012
Fixed-maturity Securities:
U.S. Treasury and U.S. government agencies	$	516		56		—			572
Corporate bonds		12,274		316		(104	)		12,486
Commercial mortgage-backed securities		10,797		627		(1	)		11,423
State, municipalities, and political subdivisions		10,279		698		—			10,977
Other		4,497		186		—			4,683
Total	$	38,363		1,883		(105	)		40,141
Equity securities	$	8,690		274		(295	)		8,669
December 31, 2011
Fixed-maturity Securities:
U.S. Treasury and U.S. government agencies	$	509		47		—			556
Corporate bonds		10,199		58		(417	)		9,840
Commercial mortgage-backed securities		10,574		314		(14	)		10,874
State, municipalities, and political subdivisions		9,982		393		(3	)		10,372
Other		2,883		117		—			3,000
Total	$	34,147		929		(434	)		34,642
Equity securities	$	5,364		133		(290	)		5,207

Scheduled maturities of fixed-maturity securities

The scheduled maturities of fixed-maturity securities at June 30, 2012 are as follows (in thousands):

	Amortized Cost		Fair Value
Available-for-sale
Due in one year or less	$	2,397		2,420
Due after one year through five years		9,408		9,517
Due after five years through ten years		10,895		11,392
Due after ten years		4,866		5,389
Commercial mortgage-backed securities		10,797		11,423
	$	38,363		40,141

Summary of proceeds received and gross realized gains and losses from sales of available for sale securities

Proceeds received, and the gross realized gains and losses from sales of available for sale securities, for the three and six months ended June 30, 2012 and 2011 were as follows (in thousands):

	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended June 30, 2012
Fixed-maturity securities	$	1,197		11		—
Equity securities	$	1,412		8		(10	)
Three months ended June 30, 2011
Fixed-maturity securities	$	11,916		238		(15	)
Equity securities	$	574		53		(136	)
Six months ended June 30, 2012
Fixed-maturity securities	$	2,419		40		(3	)
Equity securities	$	1,512		8		(15	)
Six months ended June 30, 2011
Fixed-maturity securities	$	19,614		369		(38	)
Equity securities	$	1,106		105		(143	)

Summary of securities with gross unrealized loss positions aggregated by investment category

Securities with gross unrealized loss positions at June 30, 2012, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows (in thousands):

	Less than Twelve Months					Twelve Months  or Greater					Total
	Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value
As of June 30, 2012
Fixed-maturity securities
Corporate Bonds	$	(5	)		839		(99	)		1,938		(104	)		2,777
Commercial mortgage-backed securities		(1	)		224		—			—		(1	)		224
Total fixed-maturity securities		(6	)		1,063		(99	)		1,938		(105	)		3,001
Equity securities		(123	)		2,559		(172	)		109		(295	)		2,668
Total available-for-sale securities	$	(129	)		3,622		(271	)		2,047		(400	)		5,669

Summary of other invested assets

Other investments consist of the following as of June 30, 2012 and December 31, 2011 (in thousands):

	At June 30, 2012			At December 31, 2011
Building	$	2,788			1,418
Land		10,619			4,438
Land improvements		1,307			283
Other		1,076			404
Total, at cost		15,790			6,543
Less accumulated depreciation and amortization		(154	)		(60	)
Other investments	$	15,636			6,483

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 12 – Commitments and Contingencies

In connection with the Company’s April 20, 2011 acquisition of the marina property located in Pinellas County, Florida, the Company assumed the liability to complete a site assessment and remediation of environmental contamination that resulted from a petroleum release at the marina site in late 2009. The Company and its environmental consultants have assumed the remedial action work plan developed by prior management and its environmental consultant, which consists of completing the site assessment, performing soil excavation, and installing wells for collection of groundwater and soil samples throughout the monitoring phase of the project. At acquisition, the Company recorded a liability of $150,000 with respect to the planned remedial action. Such liability was determined based on reasonably estimable costs of completing the actions defined in the existing ongoing work plan. As of June 30, 2012, a total of $32,000 has been expended with respect to the site assessment and the remaining $118,000 accrued at acquisition is included in other liabilities in the accompanying condensed consolidated balance sheets. Although the Company has accrued all reasonably estimable costs of completing the actions defined in the current ongoing work plan, it is possible that additional testing and additional environmental monitoring and remediation will be required in the near future as part of the Company’s ongoing discussions with the Florida Department of Health, the agency contracted by the Florida Department of Environmental Protection to administer cases of petroleum contamination in Pinellas County, in which case additional expenses could significantly exceed the current estimated liability. However, based on information known at June 30, 2012, the Company does not expect that such additional expenses would have a material adverse effect on the liquidity or financial condition of the Company.

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Income Taxes

6 Months Ended

Jun. 30, 2012

Income Taxes [Abstract]

Income Taxes

Note 8 – Income Taxes

During the three and six months ended June 30, 2012, the Company recorded approximately $4.7 million and $9.2 million, respectively, of income taxes, which resulted in estimated annual effective tax rates of approximately 40% and 39%, respectively. During the three and six months ended June 30, 2011, the Company recorded approximately $1.5 million and $2.0 million, respectively, of income taxes, which resulted in estimated annual effective tax rates of approximately 40% and 39%, respectively. The Company’s estimated annual effective tax rate differs from the statutory federal income tax rate due to state income taxes, stock-based compensation and other nondeductible items.

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Reinsurance

6 Months Ended

Jun. 30, 2012

Reinsurance [Abstract]

Reinsurance

Note 6 – Reinsurance

The Company cedes a portion of its homeowners insurance exposure to other entities under catastrophe excess of loss reinsurance treaties. The Company remains liable with respect to claims payments in the event that any of the reinsurers are unable to meet their obligations under the reinsurance agreements. The Company 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.

The impact of the catastrophe excess of loss reinsurance treaties on premiums written and earned is as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Premiums Written
Direct	$	83,669			54,838			121,842			69,961
Assumed		(342	)		(157	)		(1,620	)		(2,351	)
Gross written		83,327			54,681			120,222			67,610
Ceded		(17,497	)		(14,174	)		(31,826	)		(28,396	)
Net premiums written	$	65,830			40,507			88,396			39,214
Premiums Earned
Direct	$	39,873			29,160			73,171			57,147
Assumed		13,899			2,058			35,299			4,967
Gross earned		53,772			31,218			108,470			62,114
Ceded		(17,497	)		(14,174	)		(31,826	)		(28,396	)
Net premiums earned	$	36,275			17,044			76,644			33,718

During the three and six months ended June 30, 2012 and 2011, there were no recoveries pertaining to reinsurance contracts that were deducted from losses incurred. At June 30, 2012 and December 31, 2011, prepaid reinsurance premiums related to 31 and 18 reinsurers, respectively, and there were no amounts receivable with respect to reinsurers. Thus, there were no concentrations of credit risk associated with reinsurance receivables and prepaid reinsurance premiums as of June 30, 2012 and December 31, 2011.

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Losses and Loss Adjustment Expenses

6 Months Ended

Jun. 30, 2012

Losses and Loss Adjustment Expenses [Abstract]

Losses and Loss Adjustment Expenses

Note 7 – Losses and Loss Adjustment Expenses

The liability for losses and loss adjustment expenses (“LAE”) is determined on an individual case basis for all claims reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and losses incurred, but not reported.

Activity in the liability for unpaid losses and LAE is summarized as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Balance, beginning of period	$	33,476			24,050			27,424			22,146
Incurred related to:
Current period		15,995			6,696			34,401			15,432
Prior period		202			3,827			964			5,494
Total incurred		16,197			10,523			35,365			20,926
Paid related to:
Current period		(8,691	)		(6,475	)		(13,082	)		(8,128	)
Prior period		(3,669	)		(3,125	)		(12,394	)		(9,971	)
Total paid		(12,360	)		(9,600	)		(25,476	)		(18,099	)
Balance, end of period	$	37,313			24,973			37,313			24,973

The Company writes insurance in the state of Florida, which could be exposed to hurricanes or other natural catastrophes. Although the occurrence of a major catastrophe could have a significant effect on our monthly or quarterly results, the Company believes that such an event would not be so material as to disrupt the overall normal operations of the Company. However, the Company is unable to predict the frequency or severity of any such events that may occur in the near term or thereafter.

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Earnings Per Share

6 Months Ended

Jun. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share

Note 9 – Earnings Per Share

Topic 260 of the FASB Accounting Standards Codification requires the Company to use the two-class method in computing basic earnings per share since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. These participating securities have the effect of diluting both basic and diluted earnings per share during periods of net income.

A summary of the numerator and denominator of the basic and fully diluted earnings per common share is presented below (dollars and shares in thousands, except per share amounts):

	For the Three Months Ended June 30, 2012							For the Three Months Ended June 30, 2011
	Income (Numerator)			Shares (Denominator)		Per-Share Amount		Income (Numerator)			Shares (Denominator)		Per-Share Amount
Net income	$	7,262			—			$	2,301			—
Less: Preferred stock dividends		(63	)		—				(361	)		—
Less: Income attributable to participating securities		(87	)		—				—			—
Basic Earnings Per Share
Income allocated to common stockholders – basic earnings per share		7,112			8,325	$	0.85		1,940			6,071	$	0.32
Effect of Dilutive Securities
Stock options		—			215				—			411
Convertible preferred stock		63			705				361			1,248
Warrants		—			406				—			—
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	7,175			9,651	$	0.74	$	2,301			7,730	$	0.30

	For the Six Months Ended June 30, 2012							For the Six Months Ended June 30, 2011
	Income (Numerator)			Shares (Denominator)		Per-Share Amount		Income (Numerator)			Shares (Denominator)		Per-Share Amount
Net income	$	14,230			—			$	3,094			—
Less: Preferred stock dividends		(244	)		—				(378	)		—
Less: Income attributable to participating securities		(105	)		—				—			—
Basic Earnings Per Share
Income allocated to common stockholders – basic earnings per share		13,881			7,326	$	1.89		2,716			6,121	$	0.44
Effect of Dilutive Securities
Stock options		—			229				—			425
Convertible preferred stock		244			956				378			669
Warrants		—			303				—			—
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	14,125			8,814	$	1.60	$	3,094			7,215	$	0.43

For the three and six months ended June 30, 2011, 1,738,335 warrants to purchase 905,001 shares of common stock were excluded from the computation of diluted earnings per share because the exercise price of $9.10 exceeded the average market price of the Company’s common stock.

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Investments (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Available for Sale
Due in one year or less, Amortized Cost	$ 2,397
Due in one year or less, Fair Value	2,420
Due after one year through five years, Amortized Cost	9,408
Due after one year through five years, Fair Value	9,517
Due after five years through ten years, Amortized Cost	10,895
Due after five years through ten years, Fair Value	11,392
Due after ten years, Amortized Cost	4,866
Due after ten years, Fair Value	5,389
Amortized Cost Total	38,363
Fair Value Total	40,141
Commercial mortgage-backed securities [Member]
Available for Sale
Commercial mortgage-backed securities, Amortized Cost	10,797
Commercial mortgage-backed securities, Fair Value	$ 11,423

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Stock-Based Compensation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Summary of the activity in the Company's Prior Plan
Outstanding at December 31,2011, Number of Options	620,000
Outstanding at December 31,2011, Weighted Average Exercise price	$ 2.97
Exercised, Number of stock options	(217,003)	(145,200)
Exercised, Weighted-Average Exercise Price	$ 3.33
Outstanding at June 30, 2012, Number of Options	402,997
Outstanding at June 30, 2012, Weighted-Average Exercise Price	$ 2.78
Outstanding at June 30, 2012, Weighted-Average Remaining Contractual Term	5 years 3 months 18 days
Outstanding at June 30, 2012, Aggregate Intrinsic Value	$ 5,971
Exercisable at June 30, 2012, Number of Options	382,997
Exercisable at June 30, 2012, Weighted-Average Exercise Price	$ 2.60
Exercisable at June 30, 2012, Weighted-Average Remaining Contractual Term	5 years 1 month 6 days
Exercisable at June 30, 2012, Aggregate Intrinsic Value	$ 5,745

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Subsequent Events

6 Months Ended

Jun. 30, 2012

Subsequent Events [Abstract]

Subsequent Events

Note 14 – Subsequent Event

On July 25, 2012, the Company’s Board of Directors declared a quarterly dividend on its common shares of $0.20 per share. The dividend will be paid September 21, 2012 to shareholders of record at the close of business August 17, 2012.

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Reinsurance (Tables)

6 Months Ended

Jun. 30, 2012

Reinsurance [Abstract]

Impact of catastrophe excess of loss reinsurance treaties on premiums written and earned

The impact of the catastrophe excess of loss reinsurance treaties on premiums written and earned is as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Premiums Written
Direct	$	83,669			54,838			121,842			69,961
Assumed		(342	)		(157	)		(1,620	)		(2,351	)
Gross written		83,327			54,681			120,222			67,610
Ceded		(17,497	)		(14,174	)		(31,826	)		(28,396	)
Net premiums written	$	65,830			40,507			88,396			39,214
Premiums Earned
Direct	$	39,873			29,160			73,171			57,147
Assumed		13,899			2,058			35,299			4,967
Gross earned		53,772			31,218			108,470			62,114
Ceded		(17,497	)		(14,174	)		(31,826	)		(28,396	)
Net premiums earned	$	36,275			17,044			76,644			33,718

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Stockholders' Equity (Details 1) (Warrant [Member], USD $)	6 Months Ended
	Jun. 30, 2012
Warrant [Member]
Estimated assumptions of fair value warrants issued
Expected volatility	52.00%
Risk-free interest rate	0.23%
Expected dividend yield	5.00%
Expected life (in years)	1 year 9 months
Per share grant date fair value of warrants issued	$ 0.754

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Business Acquisition (Details Textual) (USD $)	Jun. 30, 2012	Apr. 02, 2012
Business Acquisition (Textual) [Abstract]
Operating activities at acquisition client		13
John's Pass Marina, Inc. and Rice Family Holdings LLLP [Member]
Business Acquisition (Textual) [Abstract]
Purchase price allocation		$ 8,285,000
Fair value of net assets acquired		8,300,000
Purchase price		8,166,000
Gain on bargain purchase	179,000	(119,000)
Gain on bargain purchase, net of tax	$ 119,000

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Statement of Other Comprehensive Income [Abstract]
Net Income (Unaudited)	$ 7,262	$ 2,301	$ 14,230	$ 3,094
Change in unrealized gain (loss) on investments:
Unrealized gain arising during the period	175	285	1,449	267
Reclassification adjustment for realized gains	(9)	(140)	(30)	(293)
Net change in unrealized gain (loss)	166	145	1,419	(26)
Deferred income taxes on above change	(64)	(56)	(547)	10
Total other comprehensive income (loss)	102	89	872	(16)
Comprehensive income	$ 7,364	$ 2,390	$ 15,102	$ 3,078

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Investments

6 Months Ended

Jun. 30, 2012

Investments [Abstract]

Investments

Note 3 – Investments

The Company holds investments in fixed-maturity securities as well as equity securities, which are classified as available for sale. At June 30, 2012 and December 31, 2011, the amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows (in thousands):

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
June 30, 2012
Fixed-maturity Securities:
U.S. Treasury and U.S. government agencies	$	516		56		—			572
Corporate bonds		12,274		316		(104	)		12,486
Commercial mortgage-backed securities		10,797		627		(1	)		11,423
State, municipalities, and political subdivisions		10,279		698		—			10,977
Other		4,497		186		—			4,683
Total	$	38,363		1,883		(105	)		40,141
Equity securities	$	8,690		274		(295	)		8,669
December 31, 2011
Fixed-maturity Securities:
U.S. Treasury and U.S. government agencies	$	509		47		—			556
Corporate bonds		10,199		58		(417	)		9,840
Commercial mortgage-backed securities		10,574		314		(14	)		10,874
State, municipalities, and political subdivisions		9,982		393		(3	)		10,372
Other		2,883		117		—			3,000
Total	$	34,147		929		(434	)		34,642
Equity securities	$	5,364		133		(290	)		5,207

The scheduled maturities of fixed-maturity securities at June 30, 2012 are as follows (in thousands):

	Amortized Cost		Fair Value
Available-for-sale
Due in one year or less	$	2,397		2,420
Due after one year through five years		9,408		9,517
Due after five years through ten years		10,895		11,392
Due after ten years		4,866		5,389
Commercial mortgage-backed securities		10,797		11,423
	$	38,363		40,141

Investment Sales

Proceeds received, and the gross realized gains and losses from sales of available for sale securities, for the three and six months ended June 30, 2012 and 2011 were as follows (in thousands):

	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended June 30, 2012
Fixed-maturity securities	$	1,197		11		—
Equity securities	$	1,412		8		(10	)
Three months ended June 30, 2011
Fixed-maturity securities	$	11,916		238		(15	)
Equity securities	$	574		53		(136	)
Six months ended June 30, 2012
Fixed-maturity securities	$	2,419		40		(3	)
Equity securities	$	1,512		8		(15	)
Six months ended June 30, 2011
Fixed-maturity securities	$	19,614		369		(38	)
Equity securities	$	1,106		105		(143	)

Amounts reported for the three and six months ended June 30, 2011 include the gross realized gains and losses from equity option contracts. During the three and six months ended June 30, 2011, the Company entered into equity contracts for exchange traded call and put options to meet certain investment objectives. With respect to these option contracts, the Company received net proceeds of $22,000 and $73,000 and realized gains of $22,000 and $73,000 for the three and six months ended June 30, 2011, respectively, which is included in the realized investment gains in the Condensed Consolidated Statements of Income. There were no open option contracts at June 30, 2011. The Company held no option contracts during the three and six months ended June 30, 2012.

Other-than-temporary Impairment

The Company regularly reviews its individual investment securities for other-than-temporary impairment (“OTTI”). The Company considers various factors in determining whether each individual security is OTTI, including:

• the financial condition and near-term prospects of the issuer, including any specific events that may affect its operations or earnings;

• the length of time and the extent to which the market value of the security has been below its cost or amortized cost;

• general market conditions and industry or sector specific factors;

• nonpayment by the issuer of its contractually obligated interest and principal payments; and

• the Company’s intent and ability to hold the investment for a period of time sufficient to allow for the recovery of costs.

Securities with gross unrealized loss positions at June 30, 2012, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows (in thousands):

	Less than Twelve Months					Twelve Months  or Greater					Total
	Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value		Gross Unrealized Loss			Fair Value
As of June 30, 2012
Fixed-maturity securities
Corporate Bonds	$	(5	)		839		(99	)		1,938		(104	)		2,777
Commercial mortgage-backed securities		(1	)		224		—			—		(1	)		224
Total fixed-maturity securities		(6	)		1,063		(99	)		1,938		(105	)		3,001
Equity securities		(123	)		2,559		(172	)		109		(295	)		2,668
Total available-for-sale securities	$	(129	)		3,622		(271	)		2,047		(400	)		5,669

The Company believes there were no fundamental issues such as credit losses or other factors with respect to any of its available-for-sale securities. The unrealized losses on investments in fixed-maturity securities were caused by interest-rate changes. It is expected that the securities would not be settled at a price less than the par value of the investments. In determining whether equity securities are other than temporarily impaired, the Company considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost. Because the decline in fair value is attributable to changes in interest rates or market conditions and not credit quality, and because the Company has the ability and intent to hold its available-for-sale investments until a market price recovery or maturity, the Company does not consider any of its investments to be other-than-temporarily impaired at June 30, 2012.

Other Investments

Other investments consist primarily of real estate and the related assets and operations of the marina acquired in 2011 and the real estate and related assets of the marina and restaurant facilities acquired in 2012. Operating activities related to the Company’s real estate investments include leasing of office and retail space to tenants, wet and dry boat storage, a restaurant, and fuel services with respect to marina clients and other recreational boaters.

Other investments consist of the following as of June 30, 2012 and December 31, 2011 (in thousands):

	At June 30, 2012			At December 31, 2011
Building	$	2,788			1,418
Land		10,619			4,438
Land improvements		1,307			283
Other		1,076			404
Total, at cost		15,790			6,543
Less accumulated depreciation and amortization		(154	)		(60	)
Other investments	$	15,636			6,483

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Losses and Loss Adjustment Expenses (Tables)

6 Months Ended

Jun. 30, 2012

Losses and Loss Adjustment Expenses [Abstract]

Liability for losses and loss adjustment expenses

Activity in the liability for unpaid losses and LAE is summarized as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
Balance, beginning of period	$	33,476			24,050			27,424			22,146
Incurred related to:
Current period		15,995			6,696			34,401			15,432
Prior period		202			3,827			964			5,494
Total incurred		16,197			10,523			35,365			20,926
Paid related to:
Current period		(8,691	)		(6,475	)		(13,082	)		(8,128	)
Prior period		(3,669	)		(3,125	)		(12,394	)		(9,971	)
Total paid		(12,360	)		(9,600	)		(25,476	)		(18,099	)
Balance, end of period	$	37,313			24,973			37,313			24,973

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Investments (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012 Contract	Jun. 30, 2011 Contract	Jun. 30, 2012 Contract	Jun. 30, 2011 Contract
Investments (Textual) [Abstract]
Gross realized gains and losses from equity option contracts		$ 22,000		$ 73,000
Net Proceeds from Equity Option Contracts		$ 22,000		$ 73,000
Option Contract at Balance Sheet Date		0		0
Number of Option Contract held during the year	0		0

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Related Party Transactions

6 Months Ended

Jun. 30, 2012

Related Party Transactions [Abstract]

Related Party Transactions

Note 13 – Related Party Transaction

On June 1, 2012, Claddaugh Casualty Insurance Company, Ltd. (“Claddaugh”), the Company’s Bermuda-based captive reinsurer, entered into a reinsurance treaty with Moksha Re SPC Ltd. and multiple capital partners (“Moksha”) whereby a portion of the business assumed from the Company’s insurance subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPC”), is ceded by Claddaugh to Moksha. With respect to the 2012-2013 treaty year, which covers the period from June 1, 2012 through May 31, 2013, Moksha assumed $13.8 million of the total covered exposure for approximately $4.0 million in premiums, a rate which management believes to be competitive with market rates available to Claddaugh. The $4.0 million premium was fully paid by Claddaugh in June 2012. Moksha capital partners deposited an aggregate of $9.8 million into a trust account along with the $4.0 million premium paid by Claddaugh to fully collateralize Moksha’s exposure. Trust assets may be withdrawn by HCPC, the trust beneficiary, in the event amounts are due under the 2012-2013 Moksha reinsurance agreement. Among the Moksha capital partner participants, the Company’s chief executive officer and the Company’s vice president of investor relations contributed $700,000 and $200,000, respectively. In addition, members of the chief executive officer’s immediate family contributed $942,500. The remaining capital partner participants, who are multiple parties unrelated to the Company, contributed the balance of $7,960,000.