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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________________________
FORM 10-Q
________________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-33251
________________________________________________________

uve-20200930_g1.jpg
UNIVERSAL INSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________
Delaware65-0231984
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
1110 W. Commercial Blvd., Fort Lauderdale, Florida 33309
(Address of principal executive offices) (Zip Code)
(954) 958-1200
(Registrant’s telephone number, including area code)
________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par ValueUVENew York Stock Exchange
    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      No   

    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes     No   




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    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer  
Smaller reporting company
Emerging growth company
                
    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

    Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 31,334,080 shares of common stock, par value $0.01 per share, outstanding on October 26, 2020.




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UNIVERSAL INSURANCE HOLDINGS, INC.
TABLE OF CONTENTS
Page No.

2


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and Stockholders of
Universal Insurance Holdings, Inc. and Subsidiaries
Fort Lauderdale, Florida

RESULTS OF REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We have reviewed the accompanying condensed consolidated balance sheet of Universal Insurance Holdings, Inc. and its wholly-owned subsidiaries (the “Company”) as of September 30, 2020 and the related condensed consolidated statements of income, and comprehensive income for the three-month and nine-month periods ended September 30, 2020 and 2019 and the related condensed consolidated statement of stockholders’ equity and statement of cash flows for the nine-month periods ended September 30, 2020 and 2019. Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of Universal Insurance Holdings, Inc. and Subsidiaries as of December 31, 2019 and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the year then ended (not presented herein) and we expressed an unqualified audit opinion on those consolidated financial statements in our report dated March 2, 2020. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2019, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

BASIS FOR REVIEW RESULTS

These interim financial statements are the responsibility of the Company’s management. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.


We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

/s/ Plante & Moran, PLLC
Chicago, Illinois
October 30, 2020

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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except per share data)
 As of
September 30,December 31,
20202019
ASSETS
Available-for-sale debt securities, at fair value, net of allowance for credit loss of $470 (amortized cost: $840,646 and $828,336)
$842,574 $855,284 
Equity securities, at fair value (cost: $54,668 and $43,523)
52,700 43,717 
Investment real estate, net15,280 15,585 
Total invested assets910,554 914,586 
Cash and cash equivalents405,132 182,109 
Restricted cash and cash equivalents21,115 2,635 
Prepaid reinsurance premiums333,062 175,208 
Reinsurance recoverable95,078 193,236 
Premiums receivable, net76,800 63,883 
Property and equipment, net52,300 41,351 
Deferred policy acquisition costs111,295 91,882 
Income taxes recoverable26,383 34,283 
Deferred income tax asset, net1,473 3,351 
Other assets16,992 17,328 
Total assets$2,050,184 $1,719,852 
LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses$202,720 $267,760 
Unearned premiums789,137 661,279 
Advance premium55,334 30,975 
Payable for securities purchased98,177  
Book overdraft 90,401 
Reinsurance payable, net351,255 122,581 
Other liabilities and accrued expenses69,975 43,029 
Long-term debt8,823 9,926 
Total liabilities1,575,421 1,225,951 
Commitments and Contingencies (Note 12)
STOCKHOLDERS’ EQUITY:
Cumulative convertible preferred stock, $0.01 par value
  
Authorized shares - 1,000
Issued shares - 10 and 10
Outstanding shares - 10 and 10
Minimum liquidation preference, $9.99 and $9.99 per share
Common stock, $0.01 par value
468 467 
Authorized shares - 55,000
Issued shares - 46,821 and 46,707
Outstanding shares - 31,334 and 32,638
Treasury shares, at cost - 15,487 and 14,069
(223,086)(196,585)
Additional paid-in capital101,438 96,036 
Accumulated other comprehensive income, net of taxes1,662 20,364 
Retained earnings594,281 573,619 
Total stockholders’ equity474,763 493,901 
Total liabilities and stockholders’ equity$2,050,184 $1,719,852 

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share data)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written$409,418 $342,872 $1,148,656 $990,066 
Change in unearned premium(52,210)(29,807)(127,858)(78,516)
Direct premium earned357,208 313,065 1,020,798 911,550 
Ceded premium earned(123,017)(106,466)(339,408)(284,867)
Premiums earned, net234,191 206,599 681,390 626,683 
Net investment income4,557 7,613 17,570 23,165 
Net realized gains (losses) on investments53,827 (22)54,294 (13,152)
Net change in unrealized gains (losses) of equity securities1,991 573 (2,162)22,364 
Commission revenue8,997 7,380 23,770 18,933 
Policy fees6,167 5,569 18,253 16,587 
Other revenue1,935 1,929 6,529 5,369 
Total premiums earned and other revenues311,665 229,641 799,644 699,949 
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses238,477 132,571 524,870 358,961 
General and administrative expenses76,980 69,174 223,544 208,418 
Total operating costs and expenses315,457 201,745 748,414 567,379 
INCOME (LOSS) BEFORE INCOME TAXES(3,792)27,896 51,230 132,570 
Income tax expense (benefit)(623)7,750 14,450 34,983 
NET INCOME (LOSS)$(3,169)$20,146 $36,780 $97,587 
Basic earnings (loss) per common share$(0.10)$0.60 $1.14 $2.85 
Weighted average common shares outstanding - Basic31,659 33,649 32,116 34,230 
Diluted earnings (loss) per common share$(0.10)$0.59 $1.14 $2.82 
Weighted average common shares outstanding - Diluted31,659 33,930 32,202 34,565 
Cash dividend declared per common share$0.16 $0.16 $0.48 $0.48 


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

Three Months Ended
September 30,
Nine Months Ended
September 30,
2020201920202019
Net income (loss)$(3,169)$20,146 $36,780 $97,587 
Other comprehensive income (loss), net of taxes(36,421)5,160 (19,299)29,099 
Comprehensive income (loss)$(39,590)$25,306 $17,481 $126,686 
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019 (unaudited)
(in thousands, except per share data)  


Treasury SharesCommon
Shares
Issued
Preferred
Shares
Issued
Common
Stock
Amount
Preferred
Stock
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Shares,
at Cost
Total
Stockholders’
Equity
Balance, December 31, 2019(14,069)46,707 10 $467 $— $96,036 $573,619 $20,364 $(196,585)$493,901 
Cumulative effect of changes in accounting principle (ASU 2016-13)
— — — — — — (597)597 —  
Balance, January 1, 2020(14,069)46,707 10 467 — 96,036 573,022 20,961 (196,585)493,901 
Vesting of performance share units(25)
(1)
83 — 1 — (1)— — (646)(646)
Grant and issue of stock award— 1 — — — 30 — — — 30 
Retirement of treasury shares25 
(1)
(25)— — — (646)— — 646  
Purchases of treasury stock(312)— — — — — — — (6,587)(6,587)
Share-based compensation— — — — — 1,691 — — — 1,691 
Net income— — — — — — 20,067 — — 20,067 
Other comprehensive loss, net of taxes— — — — — — — (8,946)— (8,946)
Declaration of dividends
($0.16 per common share and
$0.25 per preferred share)
— — — — — — (5,222)— — (5,222)
Balance, March 31, 2020(14,381)46,766 10 468 — 97,110 587,867 12,015 (203,172)494,288 
Vesting of restricted stock units(25)
(1)
65 — — — — — — (424)(424)
Retirement of treasury shares25 
(1)
(25)— — — (424)— — 424  
Purchases of treasury stock(572)— — — — — — — (10,029)(10,029)
Share-based compensation— — — — — 3,082 — — — 3,082 
Net income— — — — — — 19,882 — — 19,882 
Other comprehensive income, net of taxes— — — — — — — 26,068 — 26,068 
Declaration of dividends
($0.16 per common share and
$0.25 per preferred share)
— — — — — — (5,166)— — (5,166)
Balance, June 30, 2020(14,953)46,806 10 468 — 99,768 602,583 38,083 (213,201)527,701 
Vesting of restricted stock units(10)
(1)
25 — — — — — — (184)(184)
Retirement of treasury shares10 
(1)
(10)— — — (184)— — 184  
Purchases of treasury stock(534)— — — — — — — (9,885)(9,885)
Share-based compensation— — — — — 1,854 — — — 1,854 
Net loss— — — — — — (3,169)— — (3,169)
Other comprehensive loss , net of taxes— — — — — — — (36,421)— (36,421)
Declaration of dividends
($0.16 per common share and
$0.25 per preferred share)
— — — — — — (5,133)— — (5,133)
Balance, September 30, 2020(15,487)46,821 10 $468 $— $101,438 $594,281 $1,662 $(223,086)$474,763 

(1) All shares acquired represent shares tendered to cover the strike price for options and tax withholdings on the intrinsic value of options exercised, restricted stock vested, performance share units vested, or restricted stock units vested. These shares have been cancelled by the Company.

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
(in thousands, except per share data)  


Treasury SharesCommon
Shares
Issued
Preferred
Shares
Issued
Common
Stock
Amount
Preferred
Stock
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Shares,
at Cost
Total
Stockholders’
Equity
Balance, December 31, 2018(11,731)46,514 10 $465 $— $86,353 $553,224 $(8,010)$(130,399)$501,633 
Vesting of performance share units(56)
(1)
148 — 2 — (2)— — (2,069)(2,069)
Grants and vesting of restricted stock(5)
(1)
25 — — — — — — (166)(166)
Stock option exercises(36)
(1)
84 — 1 — 1,438 — — (1,367)72 
Retirement of treasury shares97 
(1)
(97)— (1)— (3,601)— — 3,602  
Purchases of treasury stock(321)— — — — — — — (10,117)(10,117)
Share-based compensation— — — — — 3,140 — — — 3,140 
Net income— — — — — — 40,148 — — 40,148 
Other comprehensive income, net of taxes— — — — — — — 11,984 — 11,984 
Declaration of dividends
($0.16 per common share and
$0.25 per preferred share)
— — — — — — (5,575)— — (5,575)
Balance, March 31, 2019(12,052)46,674 10 467 — 87,328 587,797 3,974 (140,516)539,050 
Grants and vesting of restricted stock(14)
(1)
25 — — — — — — (402)(402)
Stock option exercises(14)
(1)
27 — — — 403 — — (414)(11)
Retirement of treasury shares28 
(1)
(28)— — — (816)— — 816  
Purchases of treasury stock(486)— — — — — — — (14,107)(14,107)
Share-based compensation— — — — — 3,311 — — — 3,311 
Net income— — — — — — 37,293 — — 37,293 
Other comprehensive income, net of taxes— — — — — — — 11,955 — 11,955 
Declaration of dividends
($0.16 per common share and
$0.25 per preferred share)
— — — — — — (5,547)— — (5,547)
Declaration of dividends
($0.16 per common share)
— — — — — — (5,476)— — (5,476)
Balance, June 30, 2019(12,538)46,698 10 467 — 90,226 614,067 15,929 (154,623)566,066 
Vesting of restricted stock units(10)
(1)
25 — — — — — — (259)(259)
Stock option exercises(2)
(1)
2 — — — 54 — — (59)(5)
Retirement of treasury shares12 
(1)
(12)— — — (318)— — 318  
Purchases of treasury stock(964)— — — — — — — (25,708)(25,708)
Share-based compensation— — — — — 3,584 — — — 3,584 
Net income— — — — — — 20,146 — — 20,146 
Other comprehensive income, net of taxes— — — — — — — 5,160 — 5,160 
Declaration of dividends
($0.25 per preferred share)
— — — — — — (3)— — (3)
Balance, September 30, 2019(13,502)46,713 10 $467 $— $93,546 $634,210 $21,089 $(180,331)$568,981 

(1) All shares acquired represent shares tendered to cover the strike price for options and tax withholdings on the intrinsic value of options exercised, restricted stock vested, performance share units vested, or restricted stock units vested. These shares have been cancelled by the Company.

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)

Nine Months Ended
September 30,
20202019
Cash flows from operating activities:
Net cash provided by operating activities$173,545 $56,589 
Cash flows from investing activities:
Proceeds from sale of property and equipment141 27 
Purchases of property and equipment(14,580)(9,723)
Purchases of equity securities(11,145)(1,091)
Purchases of available-for-sale debt securities(735,426)(194,228)
Purchases of investment real estate, net(6)(883)
Proceeds from sales of equity securities 29,137 
Proceeds from sales of available-for-sale debt securities757,812 73,041 
Proceeds from sales of investment real estate 10,537 
Maturities of available-for-sale debt securities115,543 100,304 
Net cash provided by investing activities112,339 7,121 
Cash flows from financing activities:
Preferred stock dividend(8)(8)
Common stock dividend(15,516)(16,618)
Issuance of common stock for stock option exercises 239 
Purchase of treasury stock(26,501)(49,932)
Payments related to tax withholding for share-based compensation(1,253)(3,078)
Repayment of debt(1,103)(1,103)
Net cash provided by (used in) financing activities(44,381)(70,500)
Cash and cash equivalents, and restricted cash and cash equivalents:
Net increase (decrease) during the period241,503 (6,790)
Balance, beginning of period184,744 169,063 
Balance, end of period$426,247 $162,273 

The following table summarizes our cash and cash equivalents and restricted cash and cash equivalents within the Condensed Consolidated Balance Sheets (in thousands):
 September 30,December 31,
20202019
Cash and cash equivalents$405,132 $182,109 
Restricted cash and cash equivalents (1)21,115 2,635 
Total cash and cash equivalents and restricted cash and cash equivalents$426,247 $184,744 
(1)See “—Note 5 (Insurance Operations)” for a discussion of the nature of the restrictions for restricted cash and cash equivalents and “—Note 14 (Variable Interest Entities)” for a discussion of restricted cash held in a trust account.




The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
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UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Nature of Operations and Basis of Presentation
Nature of Operations
Universal Insurance Holdings, Inc. (“UVE”, and together with its wholly-owned subsidiaries, “the Company”) is a Delaware corporation incorporated in 1990. The Company is a vertically integrated insurance holding company performing all aspects of insurance underwriting, distribution and claims. Through its wholly-owned insurance company subsidiaries, Universal Property & Casualty Insurance Company (“UPCIC”) and American Platinum Property and Casualty Insurance Company (“APPCIC”, and together with UPCIC, the “Insurance Entities”), the Company is principally engaged in the property and casualty insurance business offered primarily through its network of independent agents. Risk from catastrophic losses is managed through the use of reinsurance agreements. The Company’s primary product is residential homeowners’ insurance currently offered in 18 states as of September 30, 2020, including Florida, which comprises the majority of the Company’s policies in force. See “—Note 5 (Insurance Operations)” for more information regarding the Company’s insurance operations.
The Company generates revenues primarily from the collection of premiums and investment returns on funds invested on cash flows in excess of those retained and used for claims-paying obligations and insurance operations. Other significant sources of revenue include brokerage commissions collected from reinsurers on certain reinsurance programs placed on behalf of the Insurance Entities, policy fees collected from policyholders by our wholly-owned managing general agent subsidiary and payment plan fees charged to policyholders who choose to pay their premiums in installments. Our wholly-owned adjusting company receives claims-handling fees from the Insurance Entities. The Insurance Entities are reimbursed for these fees on claims that are subject to recovery under the Insurance Entities’ respective reinsurance programs. These fees, after expenses, are recorded in the Condensed Consolidated Financial Statements as an adjustment to losses and loss adjustment expense (“LAE”).
Basis of Presentation
The Company has prepared the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, the Financial Statements do not include all of the information and footnotes required by United States Generally Accepted Accounting Principles (“U.S. GAAP”) for annual financial statements. Therefore, the Financial Statements should be read in conjunction with the audited Consolidated Financial Statements contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 2, 2020. The Condensed Consolidated Balance Sheet at December 31, 2019 was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP. In the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation have been included in the Financial Statements. The results for interim periods do not necessarily indicate the results that may be expected for any other interim period or for the full year.
To conform to the current period presentation, certain amounts in the prior periods’ condensed consolidated financial statements and notes have been reclassified. Such reclassifications were of an immaterial amount and had no effect on net income or stockholders’ equity.
The Financial Statements include the accounts of the Company and its wholly-owned subsidiaries, as well as variable interest entities (“VIE”) in which the Company is determined to be the primary beneficiary. All material intercompany balances and transactions have been eliminated in consolidation.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s primary use of estimates is in the recognition of liabilities for unpaid losses, loss adjustment expenses, subrogation recoveries and reinsurance recoveries. Actual results could differ from those estimates.

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2. Significant Accounting Policies
The Company reported Significant Accounting Policies in its Annual Report on Form 10-K for the year ended December 31, 2019. The following are new or revised disclosures or disclosures required on a quarterly basis.

Recently Adopted Accounting Pronouncements

On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic ASC 326), which introduces a new process for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. The new ASU applies to premiums receivable, reinsurance recoverable and available-for-sale debt securities. The ASU replaces the current practice of recording a permanent write down (other than temporary impairment) for probable credit losses with a new requirement that would estimate credit losses and record those estimated losses through a temporary allowance account that can be re-measured as estimates of credit losses change. The ASU further limited estimated credit losses relating to available-for-sale securities to the amount which fair value is below amortized cost. The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost. Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP. The Company recorded a decrease to retained earnings of $0.6 million as of January 1, 2020 for the cumulative after-tax effect of adopting ASC 326.

Accounting Policies

Consolidation Policy: The Financial Statements include the accounts of the Company, its wholly-owned subsidiaries and VIEs in which the Company is determined to be the primary beneficiary. This analysis includes a review of the VIE’s capital structure, related contractual relationships and terms, nature of the VIE’s operations and purpose, nature of the VIE’s interests issued and the Company’s involvement with the entity. When assessing the need to consolidate a VIE, the Company evaluates the design of the VIE as well as the related risks to which the entity was designed to expose the variable interest holders. The primary beneficiary is the entity that has both (i) the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. While also considering these factors, the consolidation conclusion depends on the Company’s decision-making ability and its ability to influence activities that significantly affect the economic performance of the VIE.

Restricted Cash and Cash Equivalents: The Company classifies amounts of cash and cash equivalents that are restricted in terms
of their use and withdrawal separately in the face of the Condensed Consolidated Balance Sheet. See “—Note 5 (Insurance Operations)” and “—Note 14 (Variable Interest Entities)” for discussions on the nature of the restrictions.

Investment, Securities Available-for-Sale: The Company’s investments in debt securities and short-term investments are classified as available-for-sale with maturities of greater than three months. Available-for-sale debt securities and short-term investments are recorded at fair value in the Condensed Consolidated Balance Sheet, net of any allowance for credit losses, if any. Unrealized gains and losses, excluding the credit loss portion, on available-for-sale debt securities and short-term investments are excluded from earnings and reported as a component of other comprehensive income (“OCI”), net of related deferred taxes until reclassified to earnings upon the consummation of a sales transaction with an unrelated third party. Gains and losses realized on the disposition of available-for-sale debt securities are determined on the first-in, first-out (“FIFO”) basis and credited or charged to income. Premium and discount on investment securities are amortized and accreted using the interest method and charged or credited to investment income.

Allowance for Credit Losses-Available-For-Sale Securities: For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by rating agencies, market sentiment and trends and adverse conditions specifically related to the security, among other quantitative and qualitative factors utilized at establishing an estimate for credit losses. If the assessment indicates that a credit loss exists, the present values of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in OCI.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense and are reported as general and administrative expenses. Losses are charged against the allowance when management believes an available-for-sale debt security is confirmed as uncollected or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available-for-sale securities totaled $3.6 million at September 30, 2020 and is evaluated in the estimate for credit losses. Accrued interest receivable is included under Other Assets in the Condensed Consolidated Balance Sheet.

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Investment, Equity Securities. The Company’s investments in equity securities are recorded at fair value in the Condensed Consolidated Balance Sheet with changes in the fair value of equity securities reported in current period earnings (loss) in the Condensed Consolidated Statements of Income within net change in unrealized gains (losses) of equity securities as they occur.

Premiums Receivable. Generally, premiums are collected prior to or during the policy period as permitted under the Insurance Entities’ payment plans. Credit risk is minimized through the effective administration of policy payment plans whereby the rules governing policy cancellation minimize circumstances in which the Company extends insurance coverage without having received the corresponding premiums. The Company performs a policy-level evaluation to determine the extent the premiums receivable balance exceeds the unearned premiums balance. Under ASC 326 and given the short-term nature of these receivables, the Company employed the aging method to estimate credit losses by pooling receivables based on the levels of delinquency and evaluating current conditions and reasonable and supportable forecasts. As of September 30, 2020 and December 31, 2019, the Company recorded an estimate of credit losses of $0.6 million and an allowance for doubtful accounts of $0.7 million, respectively.

Reinsurance. Ceded written premium is recorded upon the effective date of the reinsurance contracts and earned over the contract period. Amounts recoverable from reinsurers are estimated in a manner consistent with the provisions of the reinsurance agreements and consistent with the establishment of the gross insurance liability to the Company. Under ASC 326 and given the short-term nature of these receivables, the Company considered the effects of credit enhancements (i.e. funds withheld liability, letters of credit and trust arrangements) and other qualitative factors that allowed it to conclude there was no material risk exposure. There is no estimated credit loss allowance as of September 30, 2020 established under ASC 326 and the Company did not have an allowance for uncollectible amounts due from reinsurers as of December 31, 2019.

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3. Investments
Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable U.S. GAAP.

Available-for-Sale Securities
The following table provides the amortized cost and fair value of available-for-sale debt securities as of the dates presented (in thousands):

September 30, 2020
Amortized
Cost
Allowance for Expected Credit LossesGross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Debt Securities:
  U.S. government obligations and agencies$135,087 $ $247 $(6)$135,328 
  Corporate bonds436,033 (412)2,014 (1,937)435,698 
  Mortgage-backed and asset-backed securities251,199  2,299 (496)253,002 
  Municipal bonds7,086  53  7,139 
  Redeemable preferred stock11,241 (58)301 (77)11,407 
Total$840,646 $(470)$4,914 $(2,516)$842,574 

December 31, 2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Debt Securities:
  U.S. government obligations and agencies$53,688 $864 $(188)$54,364 
  Corporate bonds457,180 19,179 (141)476,218 
  Mortgage-backed and asset-backed securities304,285 7,400 (606)311,079 
  Municipal bonds3,397 103 (4)3,496 
  Redeemable preferred stock9,786 427 (86)10,127 
Total$828,336 $27,973 $(1,025)$855,284 

The following table provides the credit quality of available-for-sale debt securities with contractual maturities as of the dates presented (dollars in thousands):

September 30, 2020December 31, 2019
Equivalent S&P Credit RatingsFair Value% of Total
Fair Value
Fair Value% of Total
Fair Value
AAA$368,845 43.8 %$