LONG-TERM DEBT

Our long-term debt at December 31, 2011 and 2010 consisted of a note payable to the Florida State Board of Administration. As of December 31, 2011 and 2010, we owed $17,059 and $18,235, respectively, on the note and the interest rate was 1.99% and 2.77%, respectively.

At December 31, 2011, the annual maturities of our long-term debt are as follows:



	Amount
2012	$	1,176
2013	1,176
2014	1,176
2015	1,176
2016	1,176
Thereafter	11,179
Total debt	17,059

We executed the 20-year, $20,000 note payable to the SBA under its Insurance Capital Build-Up Incentive Program, effective October 1, 2006. The stated rate for the SBA note is a rate equivalent to the 10-year U.S. Treasury Bond rate. We made quarterly interest-only payments for the first three years, then, as of October 1, 2009, we began making quarterly principal and interest payments.

We agreed to certain covenants, the violation of which could cause an event of default. Among others, these covenants include: 1) maintaining statutory surplus greater than or equal to $50,000 less repayments of principal on the note, catastrophic losses paid since the note incepted and any deferred acquisition costs related to Florida policies, calculated at December 31, 2011 as $41,966, 2) refraining from the payment of dividends when principal and/or interest payments related to the note are past due, and 3) maintaining a minimum writing ratio. The note permits us to meet either of the following ratios:


•	a writing ratio based on net written premium to surplus of 2:1 ratio for the year beginning January 1, 2010 and thereafter for the remaining term of the note agreement, or


•	a writing ratio based on gross written premium to surplus of 6:1 ratio for the year beginning January 1, 2010 and thereafter for the remaining term of the note agreement.

As part of the program, the SBA required that we contribute an equivalent amount of capital to UPC; therefore, UIM made a $20,000 capital contribution to UPC at the time we executed the note in 2006. For purposes of calculating the writing ratio on a quarterly basis, the amended note defines surplus as the sum of the $20,000 matching contribution of capital to UPC and the outstanding principal balance of the note. Should we fail to exceed either a net writing ratio of 1.5:1 or a gross writing ratio of 4.5:1, our interest rate will increase by 450 basis points above the stated rate of the note. Any other writing ratio deficiencies result in an interest rate penalty of 25 basis points above the stated rate of the note.

The SBA note states that if we fail to exceed either a net writing ratio of 1:1 or a gross writing ratio of 3:1 for three consecutive quarters, we will be obligated to repay a portion of the SBA note such that the appropriate minimum writing ratio will be obtained for the following quarter. Our SBA note further provides that the SBA may, among other things, declare its loan immediately due and payable for all defaults existing under the SBA note; however, the insurance regulatory authority in Florida would only authorize a payment to the SBA if such payment did not create a hazardous financial condition at UPC.

During 2011, and at December 31, 2011, we complied with all covenants as specified in the SBA note, though we paid some additional interest during the first quarter of 2011 as a result of violating the writing ratio covenant during the fourth quarter of 2010.