Edgar Filing: UNIVERSAL INSURANCE HOLDINGS, INC.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

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

COMMISSION FILE NUMBER 0-20848

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

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

1110 WEST COMMERCIAL BOULEVARD, SUITE 100 33309
FORT LAUDERDALE, FLORIDA (Zip Code)
(Address of principal executive offices)

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

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

(Title of each class) (Name of exchange where registered)

COMMON STOCK, $.01 PAR VALUE American Stock Exchange

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

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days:
YES X NO
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

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

State issuer's revenues for its most recent fiscal year: $188,514,481

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold as of December 31, 2007: $133,558,788

State the number of shares of Common Stock of Universal Insurance Holdings, Inc.
outstanding as of March 1, 2008: 39,891,157

Transitional Small Business Disclosure Format: YES NO X
--- ---

PART I

ITEM 1. DESCRIPTION OF BUSINESS

THE COMPANY

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

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

INSURANCE BUSINESS

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

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

UPCIC's initial business and operations consisted of providing property
and casualty coverage through homeowners' insurance policies acquired from the
JUA. The insurance business acquired from the JUA provided a base for renewal
premiums. The majority of these policies renewed with UPCIC. In an effort to
further grow its insurance operations, in 1998, UPCIC also began to solicit
business actively in the open market through independent agents. Through renewal
of the JUA business combined with business solicited in the market through
independent agents, UPCIC is currently servicing approximately 374,000
homeowners' insurance policies covering homes and condominium units.

The Company's primary product is homeowners' insurance. The Company's
criteria for selecting insurance policies includes, but is not limited to, the
use of specific policy forms, coverage amounts on buildings and contents and
required compliance with local building codes. Also, to improve underwriting
and manage risk, the Company utilizes standard industry modeling techniques for
hurricane and windstorm exposure. UPCIC's portfolio as of December 31, 2007
includes approximately 367,000 policies with coverage for wind risks and 7,000
policies without wind risks. The average premium for a policy with wind
coverage is approximately $1,358 and the average premium for a policy without
wind coverage is approximately $625. Approximately 25.3% of the policies are
located in Miami-Dade, Broward and Palm Beach counties. UPCIC had in-force
premiums of approximately $504.5 million as of December 31, 2007.

OPERATIONS

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

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

MANAGEMENT OPERATIONS

The Company is a vertically integrated insurance holding company. The
Company, through its subsidiaries, is currently engaged in insurance
underwriting, distribution and claims. UPCIC generates revenue from the
collection and investment of premiums. The Company's agency operations, which
include Universal Florida Insurance Agency and Coastal Homeowners Insurance
Specialists, Inc., generate income from commissions. Universal Risk Advisors,
Inc., the Company's managing general agent, generates revenue through policy fee
income and other administrative fees from the marketing of UPCIC's insurance
products through the Company's distribution network and UPCIC. Universal Risk
Life Advisors, Inc. was formed to be the Company's managing general agent for
life insurance products, but is not currently conducting business. In addition,
the Company has formed a claims adjusting company, Universal Adjusting
Corporation, which adjusts UPCIC claims, and an inspection company, Universal
Inspection Corporation, which performs property inspections for homeowners'
insurance policies underwritten by UPCIC.

UPCIC has applied for expansion to write homeowners insurance policies in
five additional states. Those states are Texas, Hawaii, Georgia, South Carolina
and North Carolina. In addition, UPCIC has filed to offer flood insurance
through the National Flood Insurance Program ("NFIP").

DIRECT SALES OPERATIONS

During 2006, the Company decided to discontinue its on-line commerce
segment and focus on its core operations.

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

AGENCY OPERATIONS

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

Blue Atlantic Reinsurance Corporation ("BAR") was incorporated in Florida
on November 9, 2007 as a wholly owned subsidiary of the Company to be a
reinsurance intermediary broker. BAR became licensed as a reinsurance
intermediary broker by the OIR on January 4, 2008.

OTHER OPERATIONS

Universal Inspection Corporation was incorporated in Florida on January 3,
2000 as a wholly owned subsidiary of the Company. Universal Inspection
Corporation performs property inspections for homeowners' insurance policies
underwritten by UPCIC. In September 2006, the Company initiated the process of
acquiring all of the outstanding common stock of Atlas Florida Financial
Corporation, which owned all of the outstanding common stock of Sterling Premium

Finance Company, Inc. ("Sterling"). Sterling has been renamed Atlas Premium
Finance Company and commenced offering premium finance services in November
2007.

FACTORS AFFECTING OPERATION RESULTS AND MARKET PRICE OF STOCK

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

NATURE OF THE COMPANY'S BUSINESS

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

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

The Company believes that a substantial portion of its future growth will
depend on its ability, among other things, to successfully implement its
business strategy, including expanding the Company's product offering by
underwriting and marketing additional insurance products and programs through
its distribution network, further penetrating the Florida market by establishing
relationships with additional independent agents in order to expand its
distribution network and to further disperse its geographic risk by expanding
into other geographical areas outside the state of Florida. Any future growth is
contingent on various factors, including the availability of adequate capital,
the Company's ability to hire and train additional personnel, regulatory
requirements, the competitive environment, and rating agency considerations.
There is no assurance that the Company will be successful in expanding its
business, that the Company's existing infrastructure will be able to support
additional expansion or that any new business will be profitable. Moreover, as
the Company expands its insurance products and programs and the Company's mix of
business changes, there can be no assurance that the Company will be able to
maintain or improve its profit margins or other operating results. In addition,
Florida is currently experiencing an economic downturn and diminution of real
estate values that could affect the premium rates the Company charges for
homeowner's insurance. There can also be no assurance that the Company will be
able to obtain the required regulatory approvals to offer additional insurance
products. UPCIC also is required to maintain minimum surplus to support its
underwriting program. The surplus requirement affects UPCIC's potential growth.
In addition, there can be no assurance that current state or federal laws
applicable to the Company's business will not be amended in the future. Any
such amendment could have an adverse effect on the Company's financial condition
or operations.

MANAGEMENT OF EXPOSURE TO CATASTROPHIC LOSSES

UPCIC is exposed to potentially numerous insured losses arising out of
single or multiple occurrences, such as natural catastrophes. As with all
property and casualty insurers, UPCIC expects to and will incur some losses
related to catastrophes and will price its policies accordingly. UPCIC's
exposure to catastrophic losses arises principally out of hurricanes and
windstorms. Through the use of standard industry modeling techniques that are
susceptible to change, UPCIC manages its exposure to such losses on an ongoing
basis from an underwriting perspective. UPCIC also protects itself against the
risk of catastrophic loss by obtaining reinsurance coverage as of the beginning
of hurricane season on June 1 of each year. For the 2007 hurricane season,
UPCIC purchased reinsurance coverage up to approximately the "150 year Probable
Maximum Loss" ("PML"). UPCIC's reinsurance program consists of excess of loss,

quota share and catastrophe reinsurance for multiple hurricanes. UPCIC's
catastrophe reinsurance program currently covers three events up to amounts that
will vary depending on the coverage exhausted in the prior event(s). However,
UPCIC may not buy enough reinsurance to cover multiple storms going forward or
be able to timely or cost-effectively obtain reinsurance. In addition, UPCIC is
responsible for losses related to catastrophic events with incurred losses in
excess of coverage provided by UPCIC's reinsurance program such as losses beyond
approximately the 150 year PML, which could have a material adverse effect on
the business, financial condition and results of operations of UPCIC and the
Company.

RELIANCE ON THIRD PARTIES AND REINSURERS

UPCIC is dependent upon third parties to perform certain functions
including, but not limited to the purchase of reinsurance and risk management
analysis. UPCIC also relies on reinsurers to limit the amount of risk retained
under its policies and to increase its ability to write additional risks.
UPCIC's intention is to limit its exposure and therefore protect its capital,
even in the event of catastrophic occurrences, through reinsurance agreements.
For the 2007 hurricane season, UPCIC's reinsurance agreements transfer the risk
of loss in excess of $45,000,000 up to approximately the 150 year PML as of the
beginning of the hurricane season on June 1 for the first event and $9,300,000
for each of the second and third events up to an amount that will vary depending
on the coverage exhausted in the prior event(s). These amounts may change in the
future. There is no assurance UPCIC will be able to obtain reinsurance at these
levels in the future, which could potentially result in a material adverse
effect to the Company should a catastrophic event occur.

REINSURANCE

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

ADEQUACY OF LIABILITIES FOR LOSSES

The liabilities for losses and loss adjustment expenses periodically
established by UPCIC are estimates of amounts needed to pay reported and
unreported claims and related loss adjustment expenses. The estimates
necessarily will be based on certain assumptions related to the ultimate cost to
settle such claims. There is an inherent degree of uncertainty involved in the
establishment of liabilities for losses and loss adjustment expenses and there
may be substantial differences between actual losses and UPCIC's liabilities
estimates. The inherent degree of uncertainty involved in the establishment of
liabilities for losses and loss adjustment expenses can be more pronounced
during periods of rapid growth in written premiums such as UPCIC experienced
during 2007 and 2006. UPCIC relies on industry data, as well as the expertise
and experience of independent actuaries in an effort to establish accurate
estimates and adequate liabilities. Furthermore, factors such as storms and
weather conditions, inflation, claim settlement patterns, legislative activity
and litigation trends may have an impact on UPCIC's future loss experience.
Accordingly, there can be no assurance that UPCIC's liabilities will be adequate
to cover ultimate loss developments. The profitability and financial condition
of UPCIC and the Company could be adversely affected to the extent that its
liabilities are inadequate.

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

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

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

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

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

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

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

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

Year Ended Year Ended
December 31, 2007 December 31, 2006
----------------- -----------------
(Dollars in Thousands)

Balance at beginning of year $ 49,564 $ 67,000

Less reinsurance recoverable (32,369) (60,859)
----------- ----------

Net balance at beginning of year 17,195 6,141
----------- ----------

Incurred related to:
Current year 47,794 9,247
Prior years 12,006 15,694
----------- ----------
Total incurred 59,800 24,941
----------- ----------

Paid related to:
Current year 25,714 4,454
Prior years 20,053 9,433
----------- ----------
Total paid 45,767 13,887
----------- ----------

Net balance at end of year 31,228 17,195
Plus reinsurance recoverable 37,588 32,369
----------- ----------

Balance at end of year $ 68,816 $ 49,564
=========== ==========

The Company's liabilities for unpaid losses and LAE, net of related reinsurance
recoverables, as of December 31, 2007 were increased in the current year by
$12,006,332 for claims that had occurred on or before the prior year balance
sheet date. This unfavorable loss emergence resulted principally from higher
than expected hurricane losses in 2004 and as a result of actual loss
development on prior year non-catastrophe losses emerging less favorably than
expected. The Company's liabilities for unpaid losses and LAE, net of related
reinsurance recoverables, as of December 31, 2006 were increased during 2006 by
$15,693,957 for claims that had occurred on or before the prior year balance
sheet date. This unfavorable loss emergence resulted principally from higher
than expected hurricane losses in 2004. There can be no assurance that the
Company's unpaid losses and LAE will not develop redundancies or deficiencies
and possibly differ materially from the Company's unpaid losses and LAE as of
December 31, 2007. In the future, if the unpaid losses and LAE develop
redundancies or deficiencies, such redundancies or deficiencies would have a
favorable or adverse impact, respectively, on future results of operations.

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

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

Years Ended
December 31, 2007 December 31, 2006
----------------- -----------------
(Dollars in Thousands)

Unpaid Loss and LAE, net $ 9,595 $ 6,814
IBNR loss and LAE, net 21,633 10,381
----------------- -----------------
Total unpaid loss and LAE, net $ 31,228 $ 17,195
================= =================

Reinsurance recoverable on unpaid
loss and LAE $ 11,399 $ 15,418
Reinsurance recoverable on IBNR
loss and LAE 26,189 16,951
----------------- -----------------
Total reinsurance recoverable on
unpaid loss and LAE $ 37,588 $ 32,369
================= =================

The following table presents the liability for unpaid losses and LAE for
UPCIC since inception. The top line of the table shows the estimated net
liabilities for unpaid losses and LAE at the balance sheet date for each of the

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

Years Ended December 31,
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998
(Dollars in Thousands)

Balance Sheet liability $31,228 $17,195 $6,141 $1,580 $1,351 $1,591 $2,893 $1,372 $1,532 $1,588

Cumulative paid as of:

One year later - 20,052 12,897 1,216 950 667 3,660 1,308 897 939

Two years later - - 23,835 11,514 1,153 992 3,667 1,635 1,081 904

Three years later - - - 21,778 1,330 1,115 3,899 1,693 1,155 1,010

Four years later - - - - 1,468 1,260 3,998 1,811 1,191 1,024

Five years later - - - - - 1,329 4,082 1,833 1,206 999

Six years later - - - - - - 4,108 1,849 1,212 1,006

Seven years later - - - - - - - 1,897 1,223 1,009

Eight years later - - - - - - - - 1,252 1,010

Nine years later - - - - - - - - - 3,834

Balance Sheet liability 31,229 17,195 6,141 1,580 1,351 1,591 2,893 1,372 1,532 1,588

One year later - 29,201 25,312 4,129 1,480 1,249 4,237 1,797 1,344 1,067

Two years later - - 30,988 22,727 1,297 1,369 3,974 1,944 1,269 1,089

Three years later - - - 28,220 1,482 1,229 4,158 1,926 1,286 1,071

Four years later - - - - 1,548 1,377 4,096 1,940 1,270 1,024

Five years later - - - - - 1,395 4,147 1,904 1,229 1,013

Six years later - - - - - - 4,152 1,904 1,279 1,019

Seven years later - - - - - - - 1,916 1,278 1,016

Eight years later - - - - - - - - 1,257 1,015

Nine years later - - - - - - - - - 1,018

Cumulative redundancy (deficiency) - (12,006) (24,847) (26,640) (197) 196 (1,259) (544) 275 570

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

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

The following table sets forth the statutory loss ratios, expense ratios
and combined ratios for the periods indicated for UPCIC. The ratios are net of
reinsurance, including catastrophe reinsurance premiums which comprise a
significant cost, and inclusive of loss adjustment expenses. The ratios shown
in the table below and are computed based upon statutory accounting principles.
The expense ratio includes management fees and commissions paid by UPCIC to an
affiliate in the amount of $43,871,705 in 2007 and $16,645,351 in 2006.

Years Ended
December 31, 2007 December 31, 2006
----------------- ------------------

Loss Ratio 39% 54%
Expense Ratio 38 19
----------------- ------------------
Combined Ratio 77% 73%
================= ==================

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

GOVERNMENT REGULATION

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

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

UPCIC will become subject to other states' laws and regulations as it
seeks authority to transact business in states other than Florida. In addition,
UPCIC's participation in the NFIP's Write Your Own ("WYO") Program of the NFIP
will be governed by federal laws and regulations.

LEGISLATIVE INITIATIVES

The State of Florida operates the Citizens Property Insurance Corporation
("Citizens") to provide insurance to Florida homeowners in high-risk areas and
to others without private insurance options. In May 2007, the State of Florida
passed legislation that freezes property insurance rates for Citizens customers
at December 2006 levels through December 31, 2008, and permits insurance
customers to opt into Citizens when the price of a privately-offered insurance
policy is 15% more than the Citizens rate, compared to the previous opt-in
threshold of 25%. These initiatives, together with any future initiatives that
seek to further relax eligibility requirements or reduce premium rates for
Citizens customers, could adversely affect the ability of UPCIC and the Company
to do business profitably. In addition, the Florida legislature in 2007
expanded the capacity of the Florida Hurricane Catastrophe Fund ("FHCF"), with
the intent of reducing the cost of reinsurance otherwise purchased by
residential property insurers. If the expanded FHCF coverage expires or if the
law providing for the expanded coverage is otherwise modified, the cost of
UPCIC's reinsurance program may increase, which could affect UPCIC's
profitability until such time as UPCIC can obtain approval of appropriate rate
changes. State and federal legislation relating to insurance is affected by a
number of political and economic factors that are beyond the control of UPCIC
and the Company. The Florida legislature and the National Association of
Insurance Commissioners from time to time consider proposals that may affect,
among other things, regulatory assessments and reserve requirements. The
Company cannot predict the effect that any proposed or future federal or state
legislation or initiatives may have on the financial condition or operations of
the Company or the Company's ability to expand its business.

DEPENDENCE ON KEY INDIVIDUALS

UPCIC's operations depend in large part on the efforts of Bradley I.
Meier, who serves as President of UPCIC. Mr. Meier has also served as
President, Chief Executive Officer and Director of the Company since its

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

COMPETITION

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

FINANCIAL STABILITY RATING

Financial stability ratings are an important factor in establishing the
competitive position of insurance companies and may impact an insurance
company's sales. Demotech, Inc. maintains a letter scale financial stability
rating system ranging from A** (A double prime) to L (licensed by state
regulatory authorities). In October 2007, Demotech, Inc. assigned UPCIC a
financial stability rating of A, which is the fourth highest of six rating
levels. According to Demotech, Inc., A ratings are assigned to insurers that
have "{ellipsis} exceptional ability to maintain liquidity of invested assets,
quality reinsurance, acceptable financial leverage and realistic pricing while
simultaneously establishing loss and loss adjustment expense reserves at
reasonable levels." With a financial stability rating of A, the Company expects
that UPCIC's property insurance policies will be acceptable to the secondary
mortgage marketplace and mortgage lenders. The rating of UPCIC is subject to at
least annual review by, and may be revised downward or revoked at the sole
discretion of, Demotech, Inc.

UPCIC's failure to maintain a commercially acceptable financial stability
rating could have a material adverse effect on the Company's ability to retain
and attract policyholders and agents. Many of the Company's competitors have
ratings higher than that of UPCIC. A downgrade in the financial stability
rating of UPCIC could have a material adverse impact on its ability to
effectively compete with other insurers with higher ratings. Additionally, a
withdrawal of the rating could cause UPCIC's insurance policies to no longer be
acceptable to the secondary marketplace and mortgage lenders, which could cause
a material adverse effect of the Company's results of operations and financial
position.

Demotech, Inc. bases its ratings on factors that concern policyholders and
not upon factors concerning investor protection. Such ratings are subject to
change and are not recommendations to buy, sell or hold securities.

EMPLOYEES

As of March 1, 2008, the Company had 151 full-time employees. None of the
Company's employees is represented by a labor union. The Company has an
employment agreement with Bradley I. Meier, President and Chief Executive
Officer of the Company, Sean P. Downes, Senior Vice President and Chief
Operating Officer of the Company and James M. Lynch, Executive Vice President
and Chief Financial Officer of the Company. See "Executive
Compensation--Employment Agreements." The Company also has employment
agreements with certain employees that do not serve in an executive capacity at
the Company.

ITEM 2. DESCRIPTION OF PROPERTY

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

ITEM 3. LEGAL PROCEEDINGS

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

On February 7, 2005, Marty Steinberg as a court appointed receiver for the
entities consisting of Lancer Management Group LLC, Lancer Management Group II
LLC, Lancer Offshore Inc., Omnifund Ltd., LSPV Inc., LSPV LLC, Alpha Omega Group
Inc. and G.H. Associates LLC (collectively the "Lancer Entities") filed suit
against Alfred Taubman, Anthony Cullen, British American Racing, Centrack
International, Inc., Kuwait & Middle East Financial Investment Co., Liberty
International Asset Management, Macroview Investments Limited, Opus Portfolio
Ltd., Reva Stocker, Roger Dodger, LLC, Signet Management Limited, Thornhill
Group Inc. Trust, World Class Boxing and the Company (collectively the
"Defendants") in the United States District Court for the Southern District of
Florida. The Company received the notice of suit by mail on September 8, 2005.
The suit alleged that the Lancer Entities fraudulently transferred funds to the
Defendants and that the transfers unduly enriched the Defendants. The receiver
asked the Company to pay $658,108. The Company had no record of the alleged
transfers and vigorously defended the suit. The lawsuit was dismissed with
prejudice by the receiver in 2006.

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

There were no matters submitted to a vote of the Company's shareholders
during the fourth quarter ended December 31, 2007.

PART II

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

The Company's Common Stock is quoted on the American Stock Exchange
("AMEX") under the symbol UVE. The following table sets forth prices of the
Common Stock, as reported by the AMEX.

For year ended December 31, 2007 High Low
-------------------------------- ---- ---

First Quarter $ 4.48 $2.40
Second Quarter 7.41 3.15
Third Quarter 7.28 4.55
Fourth Quarter 10.15 5.93

For year ended December 31, 2006 High Low
-------------------------------- ---- ---

First Quarter $ 1.40 $0.85
Second Quarter 1.65 0.93
Third Quarter 2.46 1.12
Fourth Quarter 3.97 2.31

At March 1, 2008, transfer agent records indicate 40 shareholders of
record of the Company's Common Stock. There were approximately 425 beneficial
owners of its Common Stock. In addition, there were 3 shareholders of the
Company's Series A and Series M Preferred Stock ("Preferred Stock").

During 2007 and 2006, respectively, the Company declared and paid
aggregate dividends of $49,950 on the Company's Series A Preferred Stock and
Series M Preferred Stock.

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

On October 24, 2006, the Company declared a dividend of $.05 per share on
its outstanding Common Stock of the Company to be paid on April 9, 2007 to the
shareholders of record of the Company at the close of business on March 19,
2007. The dividend payable amount of $1,902,855 for this dividend was accrued
in the December 31, 2006 balance sheet. At December 31, 2006, the Company
recorded a dividend payable in the amount of $1,902.855 for this dividend and a
net reduction to retained earnings in the amount of $1,747,423, which
represented the total dividend net of the dividends on the shares held in
treasury stock and in the Stock Grantor Trust described in Note 11 -
Stockholders' Equity. During the fourth quarter of 2006, the Company paid a
dividend of $0.05 per share that was accrued at the end of third quarter of
2006. The aggregate amount of the dividend was $1,747,423. During the third
quarter of 2006, the Company paid a dividend of $0.04 per share of outstanding
Common Stock that was accrued at the end of the second quarter of 2006. The
aggregate amount of the dividend was $1,393,938. During the second quarter of
2006, the Company paid a dividend of $0.04 per share of outstanding Common Stock
that was accrued at the end of first quarter of 2006. The aggregate amount of
the dividend was $1,364,506.

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

On October 4, 2007, the Company declared a dividend of $.09 per share on
its outstanding Common Stock to be paid on April 8, 2008 to the shareholders of
record of the Company at the close of business on March 10, 2008. The Company
recorded a dividend payable in the amount of $3,537,639 for this dividend and a
net reduction to retained earnings in the amount of $3,241,145, which represents
the total dividend net of the dividends on the shares held in treasury stock and
in the Stock Grantor Trust described in Note 11 - Stockholders' Equity. During
the fourth quarter, the Company paid a dividend of $0.08 per share of
outstanding Common Stock that was accrued at the end of third quarter. The
aggregate amount of the dividend was $2,861,018. During the third quarter, the
Company paid a dividend of $0.07 per share of outstanding Common Stock that was
accrued at the end of the first quarter. The aggregate amount of the dividend
was $2,503,391. During the second quarter, the Company paid a dividend of $0.05
per share of outstanding Common Stock that was accrued in December 31, 2006. The
aggregate amount of the dividend was $1,759,922.

On January 23, 2008, the Company declared a dividend of $.10 per share on
its outstanding Common Stock to be paid on August 7, 2008 to the shareholders of
record of the Company at the close of business on July 9, 2008. The Company
expects to pay an aggregate dividend of approximately $3,601,273.

STOCK ISSUANCES

On March 14, 2007, the Company issued 250,000 shares of restricted common
stock at a price of $3.70 per share to an employee in consideration for services
rendered pursuant to the terms of an employment agreement. The shares will vest
over a three year period. On May 1, 2007, the Company issued 22,143 shares of
restricted common stock at a price of $1.87 per share, on a "cashless" basis, to
James M. Lynch, Executive Vice President and Chief Financial Officer of the
Company, pursuant to Mr. Lynch's exercise of stock options. Also on May 1, 2007,
the Company issued 387,234 shares of restricted common stock at a price of $1.06
per share, on a "cashless" basis, to Norman M. Meier, a director of the Company,
pursuant to Mr. Meier's exercise of stock options. Also on May 1, 2007, the
Company issued 77,447 shares of restricted common stock at a price of $1.06 per
share, on a "cashless" basis, to Joel Wilentz, a director of the Company,
pursuant to Mr. Wilentz's exercise of stock options. Also on May 1, 2007, the
Company issued 77,447 shares of restricted common stock at a price of $1.06 per
share, on a "cashless" basis, to Reed Slogoff, a director of the Company,
pursuant to Mr. Slogoff's exercise of stock options. On November 29, 2007, the
Company issued 100,000 and 150,000 shares of restricted common stock at a price
of $.03 and $.05 respectively to a private investor pursuant to the exercise of
warrants to purchase restricted common stock. Unless otherwise specified, such

as in the case of the exercise of stock options or warrants, the per share
prices were determined using the closing price of the Company's common stock as
quoted on the OTC Bulletin Board or the AMEX and the shares were issued in
private transactions pursuant to Section 4(2) of the Securities Act of 1933, as
amended.

EQUITY COMPENSATION PLANS

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

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

A NUMBER OF STATEMENTS CONTAINED IN THIS REPORT ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995 THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN THE APPLICABLE STATEMENTS.
THESE RISKS AND UNCERTAINTIES INCLUDE BUT ARE NOT LIMITED TO THE COSTS AND THE
UNCERTAINTIES ASSOCIATED WITH THE RISK FACTORS SET FORTH IN ITEM 1 ABOVE.
INVESTORS ARE CAUTIONED THAT THESE FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES
OF FUTURE PERFORMANCE OR RESULTS.

OVERVIEW

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

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

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

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

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

The policies obtained from the JUA provided the opportunity for UPCIC to
solicit future renewal premiums. The majority of the policies obtained from the
JUA renewed with UPCIC. In an effort to further grow its insurance operations,
in 1998 the Company began to solicit business actively in the open market.
Through renewal of JUA business combined with business solicited in the market
through independent agents, UPCIC is currently servicing approximately 374,000
homeowners' insurance policies. To improve underwriting and manage risk, the
Company utilizes standard industry modeling techniques for hurricane and
windstorm exposure. To diversify UPCIC's product lines, UPCIC underwrites inland
marine policies. In February 2008, UPCIC filed a request with the National Flood
Insurance Program to become authorized to write and service flood insurance
policies under the WYO Program. Management may consider underwriting other types
of policies in the future. Any such program will require OIR approval. See Item
1, Competition under "Factors Affecting Operation Results and Market Price of
Stock" for a discussion of the material conditions and uncertainties that may
affect UPCIC's ability to obtain additional policies.

CRITICAL ACCOUNTING POLICIES

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

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

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

DEFERRED POLICY ACQUISITION COSTS/DEFERRED CEDING COMMISSIONS. Commissions and
other costs of acquiring insurance that vary with and are primarily related to
the production of new and renewal business are deferred and amortized over the
terms of the policies or reinsurance treaties to which they are related.
Determination of costs other than commissions that vary with and are primarily
related to the production of new and renewal business requires estimates to
allocate certain operating expenses. As of December 31, 2007, deferred policy
acquisition costs were $37,018,747 and deferred ceding commissions were
$39,141,016. Deferred ceding commissions were reduced by deferred policy
acquisition costs and shown net on the Consolidated Balance Sheet in the amount
of $2,122,269.

PROVISION FOR PREMIUM DEFICIENCY. It is the Company's policy to evaluate and
recognize losses on insurance contracts when estimated future claims and
maintenance costs under a group of existing contracts will exceed anticipated
future premiums and investment income. The determination of the provision for
premium deficiency requires estimation of the costs of losses, catastrophic
reinsurance and policy maintenance to be incurred and investment income to be
earned over the remaining policy period. The Company has determined that a
provision for premium deficiency was not warranted as of December 31, 2007.

REINSURANCE. In the normal course of business, the Company seeks to reduce the
risk of loss that may arise from catastrophes or other events that cause
unfavorable underwriting results by reinsuring certain levels of risk in various
areas of exposure with other insurance enterprises or reinsurers. While ceding
premiums to reinsurers reduces the Company's risk of exposure in the event of
catastrophic losses, it also reduces the Company's potential for greater profits
should such catastrophic events fail to occur. The Company believes that the
extent of its reinsurance is typical of a company of its size in the homeowners'
insurance industry. Amounts recoverable from reinsurers are estimated in a
manner consistent with the provisions of the reinsurance agreement and
consistent with the establishment of the liability of the Company. The Company's
reinsurance policies do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. No such allowance was deemed necessary as of December 31,
2007.

OFF-BALANCE SHEET ARRANGEMENTS

The Company had no off-balance sheet arrangements during 2007.

RELATED PARTIES

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

Downes and Associates, a multi-line insurance adjustment corporation based in
Deerfield Beach, Florida performs certain claims adjusting work for UPCIC.
Downes and Associates is owned by Dennis Downes, who is the father of Sean P.
Downes, Chief Operating Officer and Senior Vice President of UPCIC. During 2007
and 2006, the Company expensed claims adjusting fees of $675,237 and $829,208,
respectively, to Downes and Associates.

In September 2006, the Company initiated the process of acquiring all of the
outstanding common stock of Atlas Florida Financial Corporation, which owned all
of the outstanding common stock of Sterling Premium Finance Company, Inc.
("Sterling"), from the Company's Chief Executive Officer and Chief Operating
Officer for $50,000, which approximated Sterling's book value. The Company
received approval of the acquisition from the OIR. Sterling has been renamed
Atlas Premium Finance Company and commenced offering premium finance services in
November 2007.

RESULTS OF OPERATIONS

FOR YEAR ENDED DECEMBER 31, 2007 AND FOR YEAR ENDED DECEMBER 31, 2006.

The fiscal year ended December 31, 2007 marked a significant improvement
in the Company's operating results over recent past fiscal years. This
improvement was primarily attributable to volume and rate increases,
restructuring the homeowners' insurance coverage offered, restructuring the
Company's reinsurance coverage and working to control general and administrative
expenses. In addition, Florida did not experience any windstorm catastrophes
during 2007.

Gross premiums written increased 34.2% to $498,748,778 for the year ended
December 31, 2007 from $371,754,514 for the year ended December 31, 2006. The
increase in gross premiums written is primarily attributable to an increase in
new business as well as premium rate increases which were mitigated by a decline
in premium rates. Although rates have recently decreased, the number of policies
written has continued to increase. The increase in new business is partly
attributable to the Florida windstorm catastrophes in 2004 and 2005, which have
provided an opportunity in the otherwise competitive marketplace as certain
companies are not accepting new business, as well as marketing initiatives the
Company has undertaken.

Net premiums written decreased 0.5% to $140,343,762 for the year ended
December 31, 2007 from $141,035,805 for the year ended December 31, 2006. The
decrease in net premiums written reflects the impact of premiums ceded to
reinsurers during the year ended December 31, 2007 of $358,405,016, or 71.9% of
premiums written, as compared to $230,718,709, or 62.1% of premiums written, for
the year ended December 31, 2006. The decrease in net premiums written is
attributable to changes to the Company's reinsurance program. Catastrophe
reinsurance costs as a percentage of gross premiums written were greater in
2007. Under the Company's quota share reinsurance treaty, the Company elected to
cede 80% of gross written premiums, losses and loss adjustment expenses during
the first five months of 2006 for all policies with coverage for wind risk
versus 50% of policies with coverage for wind risk during the subsequent seven
months of 2006. The Company continued to cede 50% of its gross written premiums,
losses and loss adjustments expenses for policies with coverage for wind risk
during 2007. The Company believes that the extent of its reinsurance is typical
of a company of its size in the homeowners' insurance industry.

Net premiums earned increased 185.2% to $154,418,452 for the year ended
December 31, 2007 from $54,135,952 for the year ended December 31, 2006. The
increase in net premiums earned is attributable to an increase in new business,
premium rate increases and changes in the reinsurance program noted above.

Commission revenue increased 231.0% to $22,222,007 for the year ended
December 31, 2007 from $6,714,511 for the year ended December 31, 2006.
Commission income is comprised mainly of the Company's managing general agent's
policy fee income on all new and renewal insurance policies, reinsurance
commission sharing agreements and commissions generated from agency operations.
The increase is primarily due to greater reinsurance commission sharing and an
increase in managing general agent's policy fee income.

Investment income consists of net investment income and net realized gains
(losses). Investment income increased 161.2% to $10,410,259 for the year ended
December 31, 2007 from $3,986,414 for the year ended December 31, 2006. The
increase is primarily due to higher investment balances during 2007.

Other revenue increased 370.9% to $1,463,763 for the year ended December
31, 2007 from $310,873 for the year ended December 31, 2006. Other revenue is
comprised of fee revenue from direct sales and service revenue from other
operations. The increase is primarily attributable to fees earned on the
Company's new program of offering payments plans to policyholders.

Losses and LAE net incurred increased 139.8% to $59,799,670 for the year
ended December 31, 2007 from $24,940,879 for the year ended December 31, 2006 as
compared to net premiums earned which increased 185.2% to $154,418,452 for the
year ended December 31, 2007 from $54,135,952 for the year ended December 31,
2006. Losses and LAE, the Company's most significant expense, represent actual
payments made and changes in estimated future payments to be made to or on
behalf of its policyholders, including expenses required to settle claims and
losses. Losses and LAE, net are influenced by loss severity and frequency.
Losses and LAE, net increased due to an increase in insured exposures and
changes to the Company's reinsurance program discussed above. The Company's
direct loss ratio for the year ended December 31, 2007 was 23.8% compared to
36.8% for the year ended December 31, 2006. The Company's direct loss ratio
decreased principally due to the lower frequency and severity of claims in 2007.
During 2007 and 2006, the Company did not experience any catastrophic events.
Except for catastrophe claims, the Company believes that the severity and
frequency of claims remained relatively stable for the periods under comparison.
The Company's net loss ratio for the year ended December 31, 2007 was 38.7%
compared to 46.1% for the year ended December 31, 2006. The net loss ratio
decreased due to the decrease in net losses incurred and premium rate increases.

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

The reserve for direct unpaid losses and LAE at December 31, 2007 is
$68,815,500. Based upon consultations with the Company's independent actuarial
consultants and their statement of opinion on losses and LAE, the Company
believes that the liability for unpaid losses and LAE is adequate to cover all
claims and related expenses which may arise from incidents reported. The range
of direct loss reserve estimates as determined by the Company's independent
actuarial consultants is a low of $49,302,105 and a high of $69,993,764. The key
assumption used to arrive at management's best estimate of loss reserves in
relation to the actuary's range and the specific factors that led to
management's best estimate is that the liability is based on management's
estimate of the ultimate cost of settling each loss and an amount for IBNR
losses. However, if losses exceed direct loss reserve estimates there could be a
material adverse effect on the Company's financial statements. Also, if there
are regulatory initiatives, legislative enactments or case law precedents, which
change the basis for policy coverage, there could be an effect on direct loss
reserve estimates having a material adverse effect on the Company's financial
statements.

As a result of the Company's review of its liability for losses and loss
adjustment expenses, which includes a re-evaluation of the adequacy of reserve
levels for prior year claims, the Company's liabilities for unpaid losses and
LAE, net of related reinsurance recoverables, as of December 31, 2007 were
increased in the current year by $12,006,332 for claims that had occurred on or
before the prior year balance sheet date. This unfavorable loss emergence
resulted principally from higher than expected hurricane losses in 2004 and as a
result of actual loss development on prior year non-catastrophe losses emerging
less favorably than expected. The Company's liabilities for unpaid losses and
LAE, net of related reinsurance recoverables, as of December 31, 2006 were
increased during 2006 by $15,693,957 for claims that had occurred on or before
the previous year balance sheet date. This unfavorable loss emergence resulted
principally from higher than expected hurricane losses in 2004. There can be no
assurance concerning future adjustments of reserves, positive or negative, for
claims through December 31, 2007.

General and administrative expenses increased 190.4% to $39,165,022 for
the year ended December 31, 2007 from $13,485,562 for the year ended December
31, 2006. General and administrative expenses have increased primarily due to
the increase in direct written premium as well as changes in UPCIC's reinsurance
program.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary sources of cash flow are the receipt of premiums,
commissions, policy fees investment income, reinsurance recoverables and short-
term loans.

For the year ended December 31, 2007, cash flows provided by operating
activities were $537,343. Cash flows from operating activities are expected to
be positive in both the short-term and reasonably foreseeable future. In
addition, the Company's investment portfolio is highly liquid as it consists
entirely of cash and cash equivalents of which $1,500,000 is held by the State
of Florida Department of Financial Services for the benefit of UPCIC's
policyholders. Cash flows used in investing activities are primarily comprised
of purchases of building improvements and other capital expenditures. Cash flows
used in financing activities primarily relate to Company borrowings and payment
of dividends to shareholders.

In June 2005, the Company borrowed monies from two private investors and
issued two promissory notes for the aggregate principal sum of $1,000,000
payable in 10 monthly installments of $100,000. Payment on one note commenced
on June 30, 2006 and commenced on the other note on November 30, 2006. As of
March 28, 2007, these loans were fully paid. The loan proceeds were subsequently
contributed to UPCIC as additional paid-in-capital. In conjunction with the
notes, the Company granted a warrant to one of the investors to purchase 200,000
shares of restricted common stock at an exercise price of $.05 per share,
expiring in June 2010. These transactions were approved by the Company's Board
of Directors.

On November 9, 2006, UPCIC entered into a $25.0 million surplus note with
the Florida State Board of Administration under Florida's Insurance Capital
Build-Up Incentive Program. Under the program, which was implemented by the
Florida legislature to encourage insurance companies to write additional
residential insurance coverage in Florida, the State Board of Administration
matched UPCIC's funds of $25.0 million that were earmarked for participation in
the program. The surplus note brings the current capital and surplus of UPCIC to
approximately $98.7 million. The $25.0 million is invested in a treasury money
market account.

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

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

If UPCIC failed to increase its writing ratio for two consecutive
quarters prior to June 1, 2007, failed to obtain the 2:1 Minimum Writing Ratio
by June 1, 2007, or drops below the 2:1 Minimum Writing Ratio once it is
obtained for two consecutive quarters, the interest rate on the surplus note
will increase during such deficiency by 25 basis points if the resulting writing
ratio is between 1.5:1 and 2:1 and the interest rate will increase by 450 basis
points if the writing ratio is below 1.5:1. If the writing ratio remains below
1.5:1 for three consecutive quarters after June 1, 2007, UPCIC must repay a
portion of the surplus note so that the Minimum Writing Ratio will be obtained
for the following quarter. As of September 30, 2007 and December 31, 2007, the
Company's net written premium to surplus ratios were 1.83:1 and 1.42:1
respectively, as defined under the terms of the surplus note agreement. Under
the terms of the surplus note agreement, at December 31, 2007, the interest rate
on the note was increased by 450 basis points. As of December 31, 2007, the
Company's net written premium to surplus ratio, as defined under the surplus
note agreement, was below 1.5:1. If the Company's net written premium to surplus
ratio remains below 1.5:1 for two additional calendar quarters (i.e., through
June 30, 2008), the Company will be required to repay a portion of the principal
balance under the surplus note agreement. The Company expects to meet or exceed
a ratio of 1.5:1 by June 30, 2008 and, therefore, does not expect to repay any
portion of the $25,000,000 principal balance of the surplus note during 2008.

subsidiaries appointed Benfield as their reinsurance intermediary for all of
their reinsurance placements for the contract year beginning on June 1, 2007.
The Company made all payments under the note in a timely manner and paid the
final installment on July 18, 2007. Under the terms of the note, Benfield Greig
(Holdings), Inc. agreed to refund a portion of the interest paid on the note if
the Company fulfilled all its material obligations under the related broker
agreements. On July 27, 2007, the Company received a refund of interest from
Benfield Greig (Holdings), Inc. in the amount of $280,500 that reduced the
effective interest rate on the note to 8.25% per annum.

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

Total 2008 2009 2010 2011 2012 Thereafter
----- ---- ---- ---- ---- ---- ----------
(Dollars in thousands)

Contractual obligations
Long-term debt $25,000 $ - $ - $ - $992 $1,039 $22,969
Loans payable 3 3 - - - - -
Operating leases 507 217 142 82 66 - -
Total contractual obligations $25,510 $220 $142 $82 $1,058 $1,039 $22,969
======= ==== ==== === ====== ====== =======

The balance of cash and cash equivalents as of December 31, 2007 was
$214,745,606. Most of this amount is available to pay claims in the event of a
catastrophic event pending reimbursement for any aggregate amount in excess of
specific limits set forth in UPCIC's reinsurance agreements. For the 2007
hurricane season, UPCIC's reinsurance agreements transfer the risk of loss in
excess of $45,000,000 up to approximately the 150 year PML as of the beginning
of the hurricane season on June 1 for the first event and $9,300,000 for each of
the second and third events up to an amount that will vary depending on the
coverage exhausted in the prior event(s). Catastrophic reinsurance is
recoverable upon presentation to the reinsurer of evidence of claim payment.

GAAP differs in some respects from reporting practices prescribed or
permitted by the OIR. To retain its certificate of authority, the Florida
insurance laws and regulations require that UPCIC maintain capital and surplus
equal to the statutory minimum capital and surplus requirement defined in the
Florida Insurance Code as the greater of 10% of the insurer's total liabilities
or $4,000,000. UPCIC's statutory capital and surplus was $98,686,993 at December
31, 2007 and exceeded the minimum capital and surplus requirements. UPCIC is
also required to adhere to prescribed premium-to-capital surplus ratios.

The maximum amount of dividends, which can be paid by Florida insurance
companies without prior approval of the Florida Commissioner, is subject to
restrictions relating to statutory surplus. The maximum dividend that may be
paid by UPCIC to the Company without prior approval is limited to the lesser of
statutory net income from operations of the preceding calendar year or statutory
unassigned surplus as of the preceding year end. During 2007 and 2006, UPCIC did
not pay dividends to the Company.

IMPACT OF INFLATION AND CHANGING PRICES

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

Insurance premiums are established before the Company knows the amount of
loss and LAE and the extent to which inflation may affect such expenses.
Consequently, the Company attempts to anticipate the future impact of inflation
when establishing rate levels. While the Company attempts to charge adequate
rates, the Company may be limited in raising its premium levels for competitive
and regulatory reasons. Inflation also affects the market value of the Company's
investment portfolio and the investment rate of return. Any future economic
changes which result in prolonged and increasing levels of inflation could cause
increases in the dollar amount of incurred loss and LAE and thereby materially
adversely affect future liability requirements.

ITEM 7. FINANCIAL STATEMENTS

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

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

None.

ITEM 8A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the reports that the
Company files or submit under the Securities Exchange Act of 1934 ("Exchange
Act") is recorded, processed, summarized and reported within the time periods
specified in the Security and Exchange Commission's rules and forms, and that
such information is accumulated and communicated to the Company's management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of its
principal executive officer and principal financial officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Rule 13a-15 under the Exchange Act. Based on that
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
concluded that disclosure controls and procedures were effective as of December
31, 2007.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting. The Company's
internal control system was designed to provide reasonable assurance to the
Company's management and Board of Directors regarding the preparation and fair
presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.

Management assessed the effectiveness of the Company's internal control
over financial reporting as of December 31, 2007. In making this assessment,
management used the criteria set forth in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Based on this assessment, management believes that, as of
December 31, 2007, the Company's internal control over financial reporting is
effective based on those criteria.

This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission ("SEC") that permit the Company to provide only
management's report in this annual report.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

There were no changes in the Company's internal control over financial
reporting that occurred during the Company's fourth fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.

ITEM 8B. OTHER INFORMATION

UPCIC has applied to write homeowners' insurance policies in five
additional states. Those states are Texas, Hawaii, Georgia, South Carolina and
North Carolina. In addition, UPCIC filed a request with the NFIP to become
authorized to write and service WYO flood insurance policies. The WYO Program
began in 1983 and is a cooperative undertaking of the insurance industry and the
Federal Emergency Management Agency (FEMA). The WYO Program allows participating
property and casualty insurance companies to write and service the Standard
Flood Insurance Policy in their own names. The companies receive an expense
allowance for policies written and claims processed while the federal government
retains responsibility for underwriting losses. The WYO Program operates as part
of the NFIP.

PART III

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

The directors and executive officers of the Company as of December 31,
2007 are as follows:

Name Age Position
---- --- --------

Bradley I. Meier 40 President, Chief Executive Officer and Director
Norman M. Meier 69 Director, Secretary
Reed J. Slogoff 39 Director
Joel M. Wilentz, M.D. 74 Director
James M. Lynch 53 Executive Vice President and Chief Financial Officer
Sean P. Downes 38 Senior Vice President, Chief Operating Officer
and Director
Ozzie A. Schindler 39 Director

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

NORMAN M. MEIER has been a Director of the Company since July 1992.
Presently Mr. Meier serves as Executive Chairman of DermWorx Incorporated, a
privately held dermatologic specialty pharmaceutical company. From February 2000
until January 2006, Mr. Meier was President and Chief Executive Officer of
PharmaMatrix, Inc., a medical marketing and advertising company. From December
1986 until November 1999, Mr. Meier was President, Chief Executive Officer and a
Director of Columbia Laboratories, Inc., a publicly-traded corporation in the
pharmaceuticals business. From 1977 until 1986, Mr. Meier served as a
consultant to Key Pharmaceuticals. From 1971 to 1977, Mr. Meier was Vice
President of Sales and Marketing for Key Pharmaceuticals.

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

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

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

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

OZZIE A. SCHINDLER has been a Director of the Company since January 2007.
Mr. Schindler serves as Chairman of the Company's Audit Committee. Mr. Schindler
is a partner with the law firm of Greenberg Traurig and specializes in
international tax, trusts and succession and planning. He has an LL.M. in
Taxation from New York University School of Law and graduated with honors from
the University of Florida School of Law. Mr. Schindler graduated with high
honors from the University of Florida Fisher School of Accounting. He is
admitted to both the Florida and New York bars.

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

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

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

AUDIT COMMITTEE

The Company has a separately designated Audit Committee, whose members
since January 9, 2007 have been Ozzie A. Schinder, Reed J. Slogoff and Joel M.
Wilentz. In order to have an Audit Committee composed entirely of independent
directors, Mr. Meier voluntarily resigned from the Audit Committee on January 9,
2007. Each member of the Audit Committee has been determined by the Board of
Directors to be independent under the applicable rules of the SEC and the
National Association of Securities Dealers. The Company's Board of Directors
has determined that Ozzie A. Schindler is an "audit committee financial expert"
as defined by Item 407(d)(5) of Regulation S-B promulgated by the SEC.

CODE OF BUSINESS CONDUCT AND ETHICS

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

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

Based solely on the review of copies of Forms 3, 4 and 5 provided to the
Company and written representations by the Reporting Persons, the Company
believes that, for the year ended December 31, 2007, all Section 16(a) filing
requirements applicable to the Reporting Persons were met.

ITEM 10. EXECUTIVE COMPENSATION

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

SUMMARY COMPENSATION TABLE

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

Bradley I. Meier, 2007 $977,228 $ - $ - $1,920,800 $3,835,271 $6,733,299
President & CEO ----------------------------------------------------------------------------------------------------
2006 $830,324 $ - $ - $ - $1,091,899 $1,922,223
-------------------------------------------------------------------------------------------------------------------------
James M. Lynch, 2007 $349,385 $100,000 $141,500 $145,134 $ - $736,019
EVP & CFO ----------------------------------------------------------------------------------------------------
2006 $251,250 $90,000 $42,582 $ - $ - $383,832
-------------------------------------------------------------------------------------------------------------------------
Sean P. Downes, 2007 $691,500 $ - $ - $2,454,445 $2,913,953 $6,059,898
SVP & COO ----------------------------------------------------------------------------------------------------
2006 $537,678 $ - $418,462 $ - $856,424 $1,812,564
-------------------------------------------------------------------------------------------------------------------------

EMPLOYMENT AGREEMENTS

The Company's employment agreement with Bradley Meier is dated as of
August 11, 1999. The Company and Mr. Meier have amended the employment
agreement, with the most recent amendment dated July 12, 2007 (the employment
agreement and the amendments are collectively referred to as the "Meier
Agreement"). Under the terms of the Meier Agreement, Mr. Meier will serve as
the Company's President and Chief Executive Officer. Mr. Meier received a base
salary of $977,228 in 2007, and he is entitled to a twenty percent (20%)
increase in base salary each year. Additionally, pursuant to the Meier
Agreement, Mr. Meier is entitled to an annual performance bonus equal to three
percent (3%) of the pretax income of the Company up to $5 million, and four
percent (4%) of the pretax income of the Company in excess of $5 million;
provided, however, that any such bonus is contingent upon the Company's
shareholders approving such bonus formula, which they have done. Mr. Meier is
also eligible for other benefits customarily provided by the Company to its
executive employees, and the Meier Agreement contains noncompete and
nondisclosure provisions. In addition, in the event of a Change in Control of
the Company (as defined in the Meier Agreement), the Company shall pay Mr. Meier
an amount equal to 48 months base salary, plus two times any bonus paid for the
preceding fiscal year. Further, in the event of a Change in Control, all
options held by Mr. Meier vest and become immediately exercisable. Also, in the
event that the Company terminates the Meier Agreement, the Company shall pay Mr.
Meier 24 months total compensation. The Meier Agreement expires on December 31,
2009; however, the agreement is automatically extended each year thereafter
unless the Company or Mr. Meier provides written notice that the agreement is
being terminated 60 days in advance of the anniversary date of the Meier
Agreement.

The Company's employment agreement with Sean Downes is dated as of January
1, 2005 and provides that Mr. Downes will serve as Chief Operating Officer and
Senior Vice President of the Company. The Company and Mr. Downes have amended
the employment agreement, with the most recent amendment dated July 12, 2007
(the employment agreement and the amendments are collectively referred to as the
"Downes Agreement"). Mr. Downes received a base salary of $691,500 in 2007, and
he is entitled to a twenty percent (20%) increase in base salary each year.
Additionally, pursuant to the Downes Agreement, Mr. Downes is entitled to an
annual performance bonus equal to three percent (3%) of the pre-tax profits of
the Company; provided, however, that any such bonus is contingent upon the
Company's shareholders approving such bonus formula, which they have done.
Under the Downes Agreement, the Company may grant Mr. Downes options or warrants
to purchase the Company's Common Stock. Mr. Downes is also eligible for other
benefits customarily provided by the Company to its executive employees and the
Downes Agreement contains noncompete and nondisclosure provisions. In addition,
in the event of a Change in Control of the Company (as defined in the Downes
Agreement), the Company shall pay Mr. Downes an amount equal to 12 months base
salary, plus the annual bonus paid for the preceding fiscal year. Also,
effective January 1, 2009, if a Change in Control occurs, the Company shall pay
Mr. Downes an amount equal to 2.99 times Mr. Downes' "base amount," as defined
in Section 280G(b)(3) of the Internal Revenue Code. Further, in the event of a
Change in Control, all options held by Mr. Downes vest and become immediately
exercisable. The Downes Agreement expires on December 31, 2009 unless extended
in writing by the Company.

On October 11, 2006, the Company entered into an employment agreement (the
"Lynch Agreement") with James M. Lynch, who has served as the Company's
Executive Vice President and Chief Financial Officer since August 1998. Under
the terms of the Lynch Agreement, Mr. Lynch will continue to serve in such
capacity. Mr. Lynch received a base salary of $349,385 in 2007, and he is
entitled to a twenty percent (20%) increase in base salary each year.
Additionally, pursuant to the Lynch Agreement, Mr. Lynch is entitled to an
annual performance bonus determined at the discretion of the Board of Directors
of the Company; provided, however, that such bonus shall be no less than
$50,000. Mr. Lynch is also eligible for other benefits customarily provided by
the Company to its executive employees. The Lynch Agreement contains noncompete
and nondisclosure provisions. If Mr. Lynch's employment is terminated (i) by
the Company or a succeeding entity without Cause (as defined in the Lynch
Agreement) or (ii) by Mr. Lynch for Good Reason (as defined in the Lynch
Agreement) within one year following a Change in Control of the Company (as
defined in the Lynch Agreement), then the Company shall pay Mr. Lynch an amount
equal to the greater of Mr. Lynch's current base salary (x) through December 31,
2009 or (y) for period of twelve (12) months, and Mr. Lynch will also be
entitled to receive payment for COBRA premiums. The Lynch Agreement expires on
December 31, 2009.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

The following table sets forth information regarding outstanding equity
awards held by each Named Executive Officer at fiscal year ended December 31,
2007.

--------------------------------------------------------------------------------
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
--------------------------------------------------------------------------------
OPTIONS AWARDS
--------------------------------------------------------------------------------
Number of Securities Option
Underlying Unexercised Exercise Option Expiration
Name Options Exercisable Price Date
--------------------------------------------------------------------------------
Bradley Meier 250,000 $1.63 5/7/08
--------------------------------------------------------------------------------
Bradley Meier 1,500,000 $1.06 1/15/10(1)
--------------------------------------------------------------------------------
Bradley Meier 250,000 $1.06 1/15/10(1)
--------------------------------------------------------------------------------
Bradley Meier 150,000 $1.10 1/26/10
--------------------------------------------------------------------------------
Bradley Meier 20,000 $0.70 12/12/10
--------------------------------------------------------------------------------
Bradley Meier 325,000 $0.70 12/12/10
--------------------------------------------------------------------------------
Bradley Meier 150,000 $0.60 12/21/11
--------------------------------------------------------------------------------
Bradley Meier 700,000 $6.50 7/12/12
--------------------------------------------------------------------------------
Bradley Meier 1,000,000 $0.06 3/4/14
--------------------------------------------------------------------------------
James Lynch 25,000 $1.10 1/26/10
--------------------------------------------------------------------------------
James Lynch 15,000 $0.70 12/12/10
--------------------------------------------------------------------------------
James Lynch 100,000 $0.50 12/21/11
--------------------------------------------------------------------------------
James Lynch 35,000 $6.50 7/12/12
--------------------------------------------------------------------------------
James Lynch 25,000 $3.80 2/14/12
--------------------------------------------------------------------------------
Sean Downes 15,000 $1.10 1/26/10
--------------------------------------------------------------------------------
Sean Downes 100,000 $0.50 12/21/11
--------------------------------------------------------------------------------
Sean Downes 350,000 $3.80 2/14/12
--------------------------------------------------------------------------------
Sean Downes 700,000 $6.50 7/12/12
--------------------------------------------------------------------------------

(1) Expires on earlier of January 15, 2010 or is exercisable upon a Change in
Control of the Company, as defined in the Option Agreement between Mr. Meier
and the Company.

DIRECTOR COMPENSATION

The following table sets forth the total compensation paid to non-employee
members of the Board of Directors during the fiscal year ended December 31,
2007.

--------------------------------------------------------------------------
DIRECTOR COMPENSATION
--------------------------------------------------------------------------
Name Fees Earned or Paid in Option Awards Total
Cash
--------------------------------------------------------------------------
Joel M. Wilentz $80,000 $107,016 $187,016
--------------------------------------------------------------------------
Norman M. Meier $80,000 $107,016 $187,016
--------------------------------------------------------------------------
Reed J. Slogff $80,000 $107,016 $187,016
--------------------------------------------------------------------------
Ozzie A. Schindler $80,000 $142,632 $222,632
--------------------------------------------------------------------------

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

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

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information with respect to all of
the Company's equity compensation plans in effect as of fiscal year ended
December 31, 2007.

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

Equity compensation plans 7,705,000 $2.22 N/A
approved by security holders
------------------------------------------------------------------------------------------------------------------------------------
Equity compensation plans
not approved by security - - -
holders
------------------------------------------------------------------------------------------------------------------------------------
Total 7,705,000 $2.22 N/A
------------------------------------------------------------------------------------------------------------------------------------

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

SERIES M PREFERRED STOCK OWNED BY MANAGEMENT

As of March 1, 2008, directors and named executive officers, individually
and as a group, beneficially owned Series M Preferred Stock as follows:

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

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

* Director

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

(2) Consists of (i) 33,890 shares of Series M Preferred Stock and (ii) 15,000
shares of Series M Preferred Stock beneficially owned by Belmer Partners,
a dissolved Florida General Partnership ("Belmer"), of which Mr. Meier was
a general partner. (See Item 11, "Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters - Equity
Compensation Plan Information," and the section entitled "Series M
Preferred Stock Held By Others" for a discussion of Belmer.) Excludes all
shares of Series M Preferred Stock owned by Norman M. Meier and Phylis R.
Meier, Mr. Meier's father and mother, respectively, as to which Mr. Meier
disclaims beneficial ownership.

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

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

SERIES A PREFERRED STOCK OWNED BY MANAGEMENT

As of March 1, 2008, directors and named executive officers, individually
and as a group, beneficially owned Series A Preferred Stock as follows:

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

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

* Director

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

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

COMMON STOCK OWNED BY MANAGEMENT

As of March 1, 2008, directors and Named Executive Officers, individually
and as a group, beneficially owned Common Stock as follows:

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

Bradley I. Meier (3) 20,781,106 52.1%
Sean P. Downes (4) 3,437,490 8.6%
Norman M. Meier (5) 443,666 1.1%
Reed J. Slogoff (6) 282,447 0.7%
Joel M. Wilentz (7) 344,447 0.9%
James M. Lynch (8) 232,925 0.6%
Ozzie A. Schindler (9) 70,000 0.2%
Officers and directors
as a group
(7 people)(10) 25,247,634 63.3%

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

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

(3) Includes (i) options to purchase an aggregate of 4,345,000 shares of
Common Stock; (ii) 169,450 shares of Common Stock issuable upon conversion
of Series M Preferred Stock; (iii) an aggregate of 228,728 shares of

Common Stock issuable upon conversion of Series A and Series M Preferred
Stock beneficially owned by Belmer, of which Mr. Meier was a general
partner; and (iv) the following shares of Common Stock which are subject
to proxies granting voting power to Mr. Meier: (A) 333,792 shares owned by
Phylis Meier, Mr. Meier's mother, (B) 666,540 shares owned by Norman
Meier, Mr. Meier's father; (C) an additional 17,900 shares over which Mr.
Meier has voting power; and (D) options to purchase an aggregate of
650,000 shares of Common Stock owned by Norman Meier, Mr. Meier's father,
which are subject to a proxy granting voting power to Mr. Meier.

(4) Includes options to purchase an aggregate of 700,000 shares of Common
Stock.

(5) Includes (i) 214,938 shares of Common Stock issuable upon conversion of
Series A and Series M Preferred Stock, and (ii) an aggregate of 228,728
shares of Common Stock issuable upon conversion of Series A and Series M
Preferred Stock beneficially owned by Belmer, of which Norman Meier was a
general partner. Excludes (i) all securities owned by Bradley I. Meier or
Phylis Meier, Norman Meier's son and former spouse, respectively, as to
which Norman Meier disclaims beneficial ownership, and (ii) all securities
owned by Norman Meier for which Norman Meier has granted voting power to
his son, Bradley Meier.

(6) Includes options to purchase an aggregate of 165,000 shares of Common
Stock, of which 50,000 are held in a custodial account for Mr. Slogoff's
minor son.

(7) Includes options to purchase an aggregate of 175,000 shares of Common
Stock.

(8) Includes options to purchase an aggregate of 35,000 shares of Common
Stock.

(9) Consists of an option to purchase 70,000 shares of Common Stock.

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

SERIES M PREFERRED STOCK HELD BY OTHERS

As of March 1, 2008, the following table sets forth information regarding
the number and percentage of Series M Preferred Stock held by all persons, other
than those persons listed immediately above, who are known by the Company to
beneficially own or exercise voting or dispositive control over 5% or more of
the Company's outstanding Series M Preferred Stock:

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

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

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

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

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

(3) Belmer was a Florida general partnership that was dissolved effective as
of May 31, 2007. Phylis R. Meier was the managing general partner, and
Bradley I. Meier, Norman M. Meier, Eric Meier and Lynda Meier were general
partners, of Belmer. The 15,000 shares of the Company's Series M Preferred
Stock beneficially owned by Belmer are currently being held by Phylis R.
Meier in constructive trust for Phylis R. Meier, Bradley I. Meier, Norman
M. Meier, Eric Meier and Lynda Meier, the former general partners of
Belmer, until such shares are distributed to them.

SERIES A PREFERRED STOCK HELD BY OTHERS

As of March 1, 2008, the following table sets forth information regarding
the number and percentage of Series A Preferred Stock held by all persons, other
than those persons listed immediately above, who are known by the Company to
beneficially own or exercise voting or dispositive control over 5% or more of
the Company's outstanding Series A Preferred Stock:

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

Phylis R. Meier (2) 9,975 20.0%
Universal Insurance Holdings, Inc.
1110 West Commercial Boulevard
Fort Lauderdale, Florida 33309

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

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

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

(3) Belmer was a Florida general partnership that was dissolved effective as
of May 31, 2007. Phylis R. Meier was the managing general partner, and
Bradley I. Meier, Norman M. Meier, Eric Meier and Lynda Meier were general
partners, of Belmer. The 30,000 shares of the Company's Series A Preferred
Stock beneficially owned by Belmer are currently being held by Phylis R.
Meier in constructive trust for Phylis R. Meier, Bradley I. Meier, Norman
M. Meier, Eric Meier and Lynda Meier, the former general partners of
Belmer, until such shares are distributed to them.

COMMON STOCK HELD BY OTHERS

As of March 1, 2008, the following table sets forth information regarding
the number and percentage of Common Stock held by all persons, other than those
persons listed immediately above, who are known by the Company to beneficially
own or exercise voting or dispositive control over 5% or more of the Company's
outstanding Common Stock:

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

Martin Steinberg, Esq., as the
receiver for Lancer Offshore Inc.(2) 3,926,235 9.7 %
c/o David E. Wells, Esq.
Hunton & Williams LLP
1111 Brickell Avenue, Suite 2500
Miami, FL 33131

Invesco Ltd. (3) 2,950,555 7.4%
1360 Peachtree Street NE
Atlanta, GA 30309

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

(2) Consists of 3,926,235 shares of Common Stock as indicated on stockholders
list as of February 29, 2008 obtained from stock transfer agent.

(3) Based on information contained in a report on Schedule 13G that Invesco
Ltd. filed with the SEC, which contained information as of December 31,
2007. According to such filing, Invesco Ltd. through its subsidiaries
provides investment management services to institutional and individual
investors.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Downes and Associates, a multi-line insurance adjustment corporation based in
Deerfield Beach, Florida performs certain claims adjusting work for UPCIC.
Downes and Associates is owned by Dennis Downes, who is the father of Sean P.
Downes, COO and Senior Vice President of the Company. During 2007 and 2006, the
Company expensed claims adjusting fees of $675,237 and $829,208, respectively,
to Downes and Associates.

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

ITEM 13. EXHIBITS

EXHIBITS

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

3.2 Registrant's Bylaws (1)

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

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

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

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

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

4.1 Form of Common Stock Certificate (1)

4.2 Form of Warrant Certificate (1)

4.3 Form of Warrant Agency Agreement (1)

4.4 Form of Underwriter Warrant (1)

4.5 Affiliate Warrant (1)

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

10.1 Registrant's 1992 Stock Option Plan (1)

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

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

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

10.7 Employment Agreement, dated October 11, 2006, between James M. Lynch and
Universal Insurance Holdings, Inc. (8)

10.8 Employment Agreement, dated as of January 1, 2005, between Sean Downes and
Universal Insurance Holdings, Inc.

11.1 Statement Regarding Computation of Per Share Income

14.1 Code of Business Conduct and Ethics (7)

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

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

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

21 List of Subsidiaries

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

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

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

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

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

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

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

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

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

(7) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB, filed with the Securities and Exchange Commission on March 30,
2007.

(8) Incorporated by reference to the Registrant's Annual Report on Form
10-KSB/A for the year ended December 31, 2006 filed with the Securities
and Exchange Commission on August 24, 2007

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

Audit fees for the fiscal years ended December 31, 2007 and December 31, 2006
were $341,000 and $260,000, respectively.

AUDIT RELATED FEES

Audit related fees for the fiscal years ended December 31, 2007 and December 31,
2006 were $28,000 and $0, respectively.

TAX FEES

Tax fees for the fiscal years ended December 31, 2007 and December 31, 2006 were
$37,000 and $33,500, respectively.

ALL OTHER FEES

All other fees for products and services provided by the Company's principal
accountant for the fiscal years ended December 31, 2007 and December 31, 2006
were $0.

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

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

SIGNATURES

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

UNIVERSAL INSURANCE HOLDINGS, INC.

Dated: March 14, 2008 By: /s/ Bradley I. Meier
-------------------------------------------
Bradley I. Meier, President and
Chief Executive Officer

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

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

/s/ Bradley I. Meier President, Chief Executive March 14, 2008
--------------------
Bradley I. Meier Officer and Director

/s/ Sean P. Downes Senior Vice President, Chief March 14, 2008
------------------
Sean P. Downes Operating Officer and Director

/s/ James M. Lynch Executive Vice President and March 14, 2008
------------------
James M. Lynch Chief Financial Officer

/s/ Norman M. Meier Director March 14, 2008
-------------------
Norman M. Meier

/s/ Ozzie A. Schindler Director March 14, 2008
----------------------
Ozzie A. Schindler

/s/ Reed J. Slogoff Director March 14, 2008
-------------------
Reed J. Slogoff

/s/ Joel M. Wilentz Director March 14, 2008
-------------------
Joel M. Wilentz

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

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

Consolidated Balance Sheet - December 31, 2007...............................F-3

Consolidated Statements of Operations for the Years Ended
December 31, 2007 and 2006...................................................F-4

Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2007 and 2006.............................................F-5

Consolidated Statements of Cash Flows for the Years Ended
December 31, 2007 and 2006...................................................F-6

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

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheet of UNIVERSAL
INSURANCE HOLDINGS, INC. AND SUBSIDIARIES (the "Company") as of December 31,
2007, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended December 31,
2007. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of UNIVERSAL INSURANCE
HOLDINGS, INC. AND SUBSIDIARIES as of December 31, 2007, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 2007, in conformity with accounting principles generally accepted
in the United States of America.

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

/s/ Blackman Kallick LLP

Chicago, Illinois
March 14, 2008

F-2

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2007
(Unaudited)

ASSETS
Cash and cash equivalents $214,745,606
Real estate, net 3,392,827
Prepaid reinsurance premiums 172,672,795
Reinsurance recoverables 46,399,265
Premiums and other receivables, net 38,045,097
Property and equipment, net 874,430
Deferred income taxes 14,202,956
Other assets 400,164
------------
Total assets $490,733,140
============

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:
Unpaid losses and loss adjustment expenses $68,815,500
Unearned premiums 254,741,198
Deferred ceding commission, net 2,122,269
Accounts payable 2,972,147
Reinsurance payable, net 33,888,350
Dividends payable 3,241,145
Other accrued expenses 16,339,082
Other liabilities 11,035,444
Loans payable 2,820
Long-term debt 25,000,000
------------
Total liabilities 418,157,955
============

STOCKHOLDERS' EQUITY:
Cumulative convertible preferred stock,
$.01 par value, 1,000,000 shares
authorized, 138,640 shares issued and
outstanding, minimum liquidation
preference of $1,419,700 1,387
Common stock, $.01 par value, 55,000,000
shares authorized, 39,307,103
shares issued and 36,012,729
shares outstanding 393,072
Common stock in treasury, at cost - 394,374 shares (974,746)
Common stock held in trust, at cost - 2,900,000 shares (2,349,000)
Additional paid-in capital 24,779,798
Retained earnings 50,724,674
------------
Total stockholders' equity 72,575,185
------------
Total liabilities and stockholders' equity $490,733,140
============

The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.

F-3

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

Year Ended

December 31, 2007 December 31, 2006

PREMIUMS EARNED AND OTHER REVENUES
Direct premiums written $ 498,748,778 $ 371,754,514
Ceded premiums written (358,405,016) (230,718,709)
-------------------------- ------------------------
Net premiums written 140,343,762 141,035,805
Decrease (increase) in net unearned premiums 14,074,690 (86,899,853)
-------------------------- ------------------------
Premiums earned, net 154,418,452 54,135,952
Net investment income 10,410,259 3,986,414
Commission revenue 22,222,007 6,714,511
Other revenue 1,463,763 310,873
-------------------------- ------------------------
Total premiums earned and other revenues 188,514,481 65,147,750
-------------------------- ------------------------

OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses 59,799,670 24,940,879
General and administrative expenses 39,165,022 13,485,562
-------------------------- ------------------------
Total operating costs and expenses 98,964,692 38,426,441
-------------------------- ------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES $ 89,549,789 $ 26,721,309
-------------------------- ------------------------
Income taxes, current 41,078,701 17,541,697
Income taxes, deferred (5,531,200) (8,064,457)
-------------------------- ------------------------
Income taxes, net 35,547,501 9,477,240
-------------------------- ------------------------

INCOME FROM CONTINUING OPERATIONS $ 54,002,288 $ 17,244,069

DISCONTINUED OPERATIONS:
Loss from discontinued operations - (93,136)
Provision for income tax expense - 35,927
Total loss from discontinued operations - (57,209)
-------------------------- ------------------------

NET INCOME $ 54,002,288 $ 17,186,860
========================== ========================

INCOME PER COMMON SHARE:
Basic net income from continuing operations $ 1.52 $ 0.50
Basic net income from discontinued operations $ - $ -
-------------------------- ------------------------
Basic net income per share $ 1.52 $ 0.50
========================== ========================

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 35,550,503 34,409,415
========================== ========================

INCOME PER COMMON SHARE
Diluted net income from continuing operations $ 1.31 $ 0.44
Diluted net income from discontinued operations $ - $ -
-------------------------- ------------------------
Diluted net income per share $ 1.31 $ 0.44
========================== ========================

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 41,360,020 39,078,643
========================== ========================

CASH DIVIDEND DECLARED PER COMMON SHARE $ 0.24 $ 0.18
========================== ========================

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

F-4

UNIVERSAL INSURANCE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Year Ended December 31, 2007 Year Ended December 31, 2006
---------------------------- ----------------------------
Shares Amount Shares Amount
------ ------ ------ ------

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

--------------- ----------------- -------------- ----------------
Balance, end of period 138,640 1,387 138,640 1,387
=============== ----------------- ============== ----------------
COMMON STOCK

Balance, beginning of period 38,057,103 380,572 36,463,219 315,037
Issuance of common stock 1,250,000 12,500 1,593,884 65,535

--------------- ----------------- -------------- ----------------
Balance, end of period 39,307,103 393,072 38,057,103 380,572
=============== ----------------- ============== -----------------
TREASURY STOCK
Balance, beginning of period 208,645 (101,820) 208,645 (101,820)
Acquisition of treasury stock 185,729 (872,926) 0 0

--------------- ----------------- -------------- ----------------
Balance, end of period 394,374 (974,746) 208,645 (101,820)
=============== ----------------- ============== -----------------

STOCK GRANTOR TRUST
Balance, beginning of period 2,900,000 (2,349,000) 2,900,000 (2,349,000)

--------------- ----------------- -------------- ----------------
Balance, end of period 2,900,000 (2,349,000) 2,900,000 (2,349,000)
=============== ================= ============== ================

ADDITIONAL PAID-IN CAPITAL
Balance, beginning of period 18,726,387 17,504,331
Issuance of common stock 3,922,851 1,222,056
Tax benefit on exercise of stock options 2,130,560 0
----------------- ----------------
Balance, end of period 24,779,798 18,726,387
----------------- ----------------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance, beginning of period 5,390,392 (5,488,807)

Net income 54,002,288 17,182,439
Preferred stock dividend (49,950) (49,950)
Common stock dividend (8,618,056) (6,253,290)

----------------- ----------------
Balance, end of period 50,724,674 5,390,392
----------------- ----------------

Total stockholders' equity $ 72,575,185 $22,047,918
================= =================

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

F-5

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended Year Ended
December 31, 2007 December 31, 2006
----------------- -----------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 54,002,288 $ 17,186,860
Adjustments to reconcile net income to cash provided by operations:
Allowance for doubful accounts 223,681 568,766
Amortization and depreciation 371,663 358,411
Loss on disposal of assets 37,629 15,122
Issuance of common stock 3,089,351 1,238,338
Deferred taxes (5,531,200) (8,064,457)
Tax benefit on exercise of stock options (1,857,907) -
Net change in assets and liabilities relating to operating activities:
Reinsurance recoverables 29,155,464 4,736,379
Prepaid reinsurance premiums (38,469,621) (92,556,414)
Premiums and other receivables (13,974,125) (19,238,882)
Deferred acquisition costs, net 2,106,116 (2,106,116)
Other assets (382,440) 925,946
Reinsurance payable (68,968,729) 58,404,726
Deferred ceding commission, net 2,122,269 (1,043,544)
Other liabilities 6,506,344 3,521,271
Accounts payable 246,098 1,846,604
Taxes payable (13,298,935) 15,285,828
Other accrued expenses 1,513,479 10,340,148
Unpaid losses and loss adjustment expenses 19,250,986 (17,435,442)
Unearned premiums 24,394,932 179,456,261
---------------- -----------------
Net cash provided by operating activities - continuing operations 537,343 153,439,805
Net cash used in operating activities - discontinued operations - (55,596)
---------------- -----------------
Net cash provided by operating activities 537,343 153,384,209
---------------- -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (545,364) (36,706)
Building improvements (259,210) (230,936)
---------------- -----------------
Net cash used in investing activities - continuing operations (804,574) (267,642)
Net cash provided by investing activities - discontinued operations - 51,524
---------------- -----------------
Net cash used in investing activities (804,574) (216,118)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend (49,950) (49,950)
Common stock dividend (7,279,767) (4,505,867)
Issuance of common stock 846,000 49,251
Acquisition of treasury stock (872,926) -
Tax benefit on exercise of stock options 1,857,907 -
Repayments of loans payable (12,378,724) (770,543)
Proceeds from loans payable - 37,000,000
Minority interest - (39,421)
---------------- -----------------
Net cash (used in) provided by financing activities - continuing operations (17,877,460) 31,683,470
---------------- -----------------
Net cash (used in) provided by financing activities (17,877,460) 31,683,470
---------------- -----------------
NET INCREASE IN CASH AND CASH (18,144,691) 184,851,561
EQUIVALENTS

CASH AND CASH EQUIVALENTS, Beginning of year 232,890,297 48,038,736
---------------- -----------------
CASH AND CASH EQUIVALENTS, End of year $214,745,606 $232,890,297
================ =================
Non-cash items:
Dividends payable $ 3,241,145 $1,902,855
=============== =================

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

F-6

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION

NATURE OF OPERATIONS

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

INSURANCE OPERATIONS

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

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

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

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

Blue Atlantic Reinsurance Corporation ("BAR") was incorporated in Florida
on November 9, 2007 as a wholly owned subsidiary of the Company to be a
reinsurance intermediary broker. BAR became licensed by the OIR as a reinsurance
intermediary broker on January 4, 2008.

F-7

("Sterling"), from the Company's Chief Executive Officer and Chief Operating
Officer for $50,000, which approximated Sterling's book value. The Company
received approval of the acquisition from the OIR. Sterling has been renamed
Atlas Premium Finance Company and commenced offering premium finance services in
November 2007.

ONLINE COMMERCE OPERATIONS

During 2006, the Company decided to discontinue its online commerce operations
and focus on its core operations.

BASIS OF PRESENTATION

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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

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

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts, after intercompany eliminations, of the Company and its subsidiaries.

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

PREMIUMS RECEIVABLE. Written premiums are earned into income on a pro rata
basis over the policy term. Accordingly, unearned premiums represent the
portion of written premiums that is applicable to the unexpired risk.
Generally, premiums are collected prior to providing risk coverage, minimizing
the Company's exposure to credit risk. The Company performs a policy level
evaluation to determine the extent the premiums receivable balance exceeds the
unearned premiums balance. The Company then ages this exposure to establish an
allowance for doubtful accounts based on prior experience. As of December 31,
2007, the Company had recorded an allowance for doubtful accounts in the amount
of $832,660.

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

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

F-8

RECOGNITION OF PREMIUM REVENUES. Property and liability premiums are recognized
as revenue on a pro rata basis over the policy term. The portion of premiums
that will be earned in the future is deferred and reported as unearned premiums.
The Company believes that its revenue recognition policies conform to Staff
Accounting Bulletin 101, Revenue Recognition in Financial Statements. In the
event policyholders cancel their policies, unearned premiums represent amounts
that UPCIC would refund policyholders. Accordingly, UPCIC determines unearned
premiums by calculating the pro rata amount that would be due to the
policyholders at a given point in time based upon the premiums owed over the
life of each policy. As of December 31, 2007, the Company has direct unearned
premiums of $254,741,198.

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

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

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

INCOME TAXES. Income tax provisions are based on the asset and liability
method. Deferred federal and state income taxes have been provided for
temporary differences between the tax basis of assets and liabilities and their
reported amounts in the consolidated financial statements, net of valuation
allowance. The Company reviews its deferred tax assets for recoverability. At
December 31, 2007, the Company determined that the benefit of its deferred tax
assets was fully realizable and, therefore, no valuation allowance was recorded.

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

F-9

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

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

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

Long-term debt and loans payable are held at carrying value, which
approximates fair value as of December 31, 2007.

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

STOCK OPTIONS. The Company grants options for a fixed number of shares to
employees and outside directors with an exercise price equal to the fair value
of the shares as of the grant date. Prior to January 1, 2006 the Company elected
to apply Accounting Principles Board ("APB") No. 25, Accounting for Stock Issued
to Employees, and related interpretations in accounting for its stock options
granted to employees and directors, and SFAS No. 123 Accounting for Stock-Based
Compensation, for its stock options granted to non-employees. Under APB No. 25,
because the exercise price of the Company's employee and director stock options
equal the market price of underlying stock on the date of the grant, no
compensation expense was recognized. The Company expensed the fair value
(determined as of the grant date) of options and warrants granted to non-
employees in accordance with SFAS No. 123. SFAS 123 (R) was adopted using the
modified prospective transition method. Under this transition method,
compensation cost recognized in the periods after adoption includes (i)
compensation cost for all share-based payments granted prior to, but not yet
vested as of January 1, 2006 based on the grant-date fair value estimated in
accordance with the original provision of SFAS 123, and (ii) compensation cost
for all share-based payments granted subsequent to January 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS 123
(R). Results from prior periods have not been restated. As a result of adopting
SFAS 123 (R), the Company's income before income taxes and net income for the
year ended December 31, 2007 are $2,781,017 and $1,708,240 lower, respectively,
than if it had continued to account for share-based compensation under APB 25.
In addition, during the year ended December 31, 2007, the Company issued
restricted common stock valued at $925,000 as compensation. This expense is
being recognized over a three-year vesting period which commenced March 14,
2007.

STATUTORY ACCOUNTING. UPCIC prepares its statutory financial statements in
conformity with accounting practices prescribed or permitted by the Office of
Insurance Regulation of the State of Florida. Effective January 1, 2001, the
Office of Insurance Regulation of the State of Florida required that insurance
companies domiciled in the State of Florida prepare their statutory financial
statements in accordance with the National Association of Insurance
Commissioners' ("NAIC") Accounting Practices and Procedures Manual (the
"Manual"), as modified by the Office of Insurance Regulation of the State of
Florida. Accordingly, the admitted assets, liabilities and capital and surplus
of UPCIC as of December 31, 2007, and the results of its operations and its cash
flow, for the year then ended have been determined in accordance with statutory
accounting principles, but adjusted to accounting principles generally accepted
in the United States of America (GAAPUSA) for purposes of these financial
statements. These principles are designed primarily to demonstrate the ability
to meet obligations to policyholders and claimants and, consequently, differ in
some respects from GAAPUSA.

F-10

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

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

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

In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" ("FIN
48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an entity's financial statements in accordance with FASB Statement No. 109,
"Accounting for Income Taxes." FIN 48 prescribes that a company should use a
more-likely-than-not recognition threshold based on the technical merits of the
tax position taken. Tax positions that meet the more-likely-than-not threshold
should be measured in order to determine the tax benefit to be recognized in the
financial statements. This Interpretation also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company adopted FIN 48 as of January 1,
2007 and the adoption had a negligible impact on the Company's results of
operation and financial position. The Company accrued interest and penalties for
the underpayment of estimated federal and state income tax in accordance with
the provisions of the relevant tax law. Interest and penalties are classified in
the financial statements as income taxes.

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

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159") which permits entities
to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. SFAS 159
will become effective for the Company on January 1, 2008. The Company is

F-11

currently evaluating the impact of adopting SFAS 159 on its financial position,
cash flows and results of operations.

NOTE 3 - REINSURANCE

UPCIC's in-force policyholder coverage for windstorm exposures as of December
31, 2007 was approximately $75.3 billion. In the normal course of business,
UPCIC also seeks to reduce the risk of loss that may arise from catastrophes or
other events that cause unfavorable underwriting results by reinsuring certain
levels of risk in various areas of exposure with other insurance enterprises or
reinsurers.

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

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

QUOTA SHARE

Effective June 1, 2006, UPCIC entered into a quota share reinsurance treaty with
Everest Re. Under the quota share treaty, through May 31, 2007, UPCIC cedes 50%
of its gross written premiums, losses and LAE for policies with coverage for
wind risk with a ceding commission equal to 28% of ceded gross written premiums.
In addition, the quota share treaty has a limitation for any one occurrence of
$25,000,000 and a limitation of $55,000,000 for losses arising out of events
that are assigned a catastrophe serial number by the Property Claims Services
("PCS").

Effective June 1, 2007, UPCIC entered into a quota share reinsurance treaty
agreement with Everest Re. Under the quota share treaty, through May 31, 2008,
UPCIC cedes 50% of its gross written premiums, losses and LAE for policies with
coverage for wind risk with a ceding commission equal to 31% of ceded gross
written premiums. In addition, the quota share treaty has a limitation for any
one occurrence of 40% of Gross Premiums Earned, not to exceed $100,000,000, and
a limitation of 112% of Gross Premiums Earned, not to exceed $280,000,000, for
losses arising out of events that are assigned a catastrophe serial number by
the PCS.

EXCESS PER RISK

Effective June 1, 2007 through May 31, 2008 and June 1, 2006 through May 31,
2007, UPCIC entered into a multiple line excess per risk agreement with various
reinsurers. Under the multiple line excess per risk agreement, UPCIC obtained
coverage of $1,300,000 in excess of $500,000 ultimate net loss for each risk and
each property loss, and $1,000,000 in excess of $300,000 for each casualty loss.
A $5,200,000 aggregate limit applies to the term of the contract.

Effective June 1, 2007 through May 31, 2008 and June 1, 2006 through May 31,
2007, UPCIC entered into a property per risk excess agreement covering ex-wind
only policies. Under the property per risk excess agreement, UPCIC obtained
coverage of $300,000 in excess of $200,000 for each property loss. A $2,100,000
aggregate limit applies to the term of the contract.

EXCESS CATASTROPHE

Effective June 1, 2006 through May 31, 2007, UPCIC's excess catastrophe
reinsurance agreement provides three layers of excess catastrophe coverage of
$76,000,000 in excess of $25,000,000 as follows:

F-12

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

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

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

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

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

Effective June 1, 2007 through May 31, 2008, UPCIC's excess catastrophe
reinsurance program provide five layers of excess catastrophe coverage of
$576,000,000 in excess of $100,000,000 as follows:

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

Coverage $102,300,000 in excess of $58,800,000 in excess of $44,500,000 $220,400,000 in excess of $150,000,000 in excess of
$100,000,000 each loss $202,300,000 each loss in excess of $305,600,000 each loss $526,000,000 each loss
occurrence occurrence $261,100,000 occurrence occurrence
(placed 100%) (placed 100%) each loss (placed 100%) (placed 100%)
occurrence
(placed 100%)
Deposit $40,920,000 $14,994,000 $6,675,000 $29,754,000 $20,833,332
premium

Minimum $36,828,000 $13,494,600 $6,007,500 $26,778,600 $20,833,332
premium

Premium 0.054891% 0.020113% 0.008954% 0.039913% 0.027946%
rate -% of
total
insurance
value

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

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

Effective June 1, 2007 through May 31, 2008, UPCIC purchased a reinstatement
premium protection contract which reimburses the Company for its cost to
reinstate the first $426,000,000 (part of $576,000,000) of catastrophe coverage
in excess of $100,000,000.

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

F-13

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

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

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

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

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

Also, effective June 1, 2007, UPCIC also obtained subsequent catastrophe event
excess of loss reinsurance to cover certain levels of the Company's net
retention through three catastrophe events including hurricanes, in three
separate contracts, as follows:

2[nd] Event 3[rd] Event - Contract #1 3[rd] Event - Contract #2
----------- ------------------------- -------------------------

Coverage $71,400,000 in excess of $28,600,000 each loss $81,400,000 in excess of $81,400,000 in excess of
occurrence subject to an otherwise recoverable $18,600,000 each loss occurrence $18,600,000 each loss occurrence
amount of $71,400,000 (placed 50%) subject to an otherwise recoverable subject to an otherwise recoverable
amount of $162,800,000 amount of $162,800,000
(placed 25%) (placed 25%)

Deposit $13,923,000 $7,936,500 $8,954,000
premium
(100%)

Minimum $12,530,000 $7,142,850 $8,058,600
premium
(100%)

Premium 0.018677% 0.010646% 0.012011%
rate -% of
total
insurance
value

UPCIC also obtained coverage from the Florida Hurricane Catastrophe Fund
("FHCF"), which is administered by the Florida State Board of Administration
(SBA). Under the reimbursement agreement, FHCF would reimburse the Company,
with respect to each loss occurrence during the contract year for 90% of the
ultimate loss paid by the Company in excess of the Company's retention plus 5%
of the reimbursed losses to cover loss adjustment expenses. A covered event
means any one storm declared to be a hurricane by the National Hurricane Center
for losses incurred in Florida, both while it is a hurricane and through
subsequent downgrades. For the contract year June 1, 2006 to May 31, 2007, the
Fund has provided coverage of 90% of $241,644,867 in excess of $81,363,626. The
premium for this coverage was $15,432,459. For the contract year June 1, 2007
to May 31, 2008, the SBA made available through the 2007 passage of House Bill
1A an additional $12 billion (Temporary Increase in Coverage Limit - TICL) of
Florida Hurricane Catastrophe Fund coverage for the 2007 wind season. UPCIC
purchased both the traditional FHCF coverage as well as the TICL FHCF coverage
for the contract year June 1, 2007 to May 31, 2008 which provided coverage of
90% of $1,065,387,373 in excess of $208,693,813. The premium for this coverage
was $42,838,076.

F-14

Also at June 1, 2006 and June 1, 2007, the FHCF made available, and the Company
obtained, $10,000,000 of additional catastrophe excess of loss coverage with one
free reinstatement of coverage to carriers qualified as Limited Apportionment
Companies or companies that participated in the Insurance Capital Build-Up
Incentive Program, such as UPCIC. This particular layer of coverage at June 1,
2006 was $10,000,000 in excess of $3,750,000. The premium for this coverage was
$5,000,000. This particular layer of coverage at June 1, 2007 was $10,000,000 in
excess of $18,600,000. The premium for this coverage was $5,000,000.

In 2007, UPCIC also purchased Florida Hurricane Catastrophe Fund Recovery
Shortfall Reinsurance in the event the Florida Hurricane Catastrophe Fund cannot
fulfill its payment obligations for the 2007-2008 Hurricane Season.

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

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

Year Ended December 31, 2007 Year Ended December 31, 2006
---------------------------- ----------------------------

Premiums Premiums Loss and Loss Premiums Premiums Loss and Loss
Written Earned Adjustment Written Earned Adjustment
------- ------ ---------- ------- ------ ----------
Expenses Expenses
-------- --------

Direct $498,748,778 $474,353,847 $112,937,522 $371,754,514 $192,298,253 $70,704,156
Ceded (358,405,016) (319,935,395) (53,137,852) (230,718,709) (138,162,301) (45,763,277)
------------- ------------- ------------ ------------- ------------- ------------
Net $140,343,762 $154,418,452 $59,799,670 $141,035,805 $54,135,952 $24,940,879
============= ============= ============ ============= ============= ============

Other amounts:

December 31, 2007
-----------------

Reinsurance recoverable on unpaid losses and loss adjustment expenses $37,587,445
Reinsurance recoverable on paid losses 8,811,820
---------------------
Reinsurance recoverables $46,399,265
=====================

Prepaid reinsurance premiums $172,672,795
=====================
Reinsurance payable, net $33,888,350
=====================

Reinsurance payable, as of December 31, 2007, has been reduced by $5,602,526
which represents ceding commissions due from reinsurers and $42,290,644 which
represents inuring premiums receivable. The Company has determined that a right
of offset, as defined in FASB Interpretation No. 39, "Offsetting of Amounts
Related to Certain Contracts," exists between the Company and its reinsurers,
under its quota share reinsurance treaties.

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

The Company may also be subject to assessments by Citizens Property Insurance
Corporation ("Citizens"), the state-run insurer of last resort and the FHCF as a
result of operating deficiencies related to windstorm catastrophes. In addition,

F-15

the Company is subject to assessments by the Florida Insurance Guaranty
Association, as a result of other company insolvencies. Under current
regulations, insurers may recoup the amount of their assessments from
policyholders, or in some cases collect the amount of the assessments from
policyholders as surcharges for the benefit of the assessing entity.

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

On June 12, 2006, the OIR ordered an emergency FHCF assessment of 1% of direct
premiums written for policies with effective dates beginning January 1, 2007,
which UPCIC is currently collecting from policyholders, as the assessment is to
policyholders, not UPCIC. This assessment was a result of catastrophe losses
Florida experienced in 2004 and 2005. The assessments collected from
policyholders are remitted to FHCF quarterly.

On September 14, 2006, the Board of Governors of Citizens authorized the levying
of a regular assessment on assessable insurers to recoup the 2005 Plan Year
Deficit incurred in the High Risk Account. The assessment is based upon UPCIC's
share of direct written premium for the subject lines of business in the State
of Florida for the calendar year preceding the plan year in which the deficit
occurred. UPCIC's participation in this assessment totaled $263,650. Pursuant
to Florida statutes, insurers are permitted to recoup the assessment by adding a
surcharge to policies in an amount not to exceed the amount paid by the insurer
to Citizens. As a result, UPCIC recorded this assessment as an expense during
the year ended December 31, 2006 and began implementing the recoupment in
connection with this assessment in 2007.

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

During its meeting on October 11, 2007, the Board of Directors of FIGA again
determined the need for an assessment upon its member companies, which the OIR
approved on October 29, 2007. The Board decided on an assessment on member
companies of 2% of the Florida net direct premiums for the calendar year 2006.
UPCIC's participation in this assessment totaled $7,435,090. Pursuant to Florida
statutes, insurers are permitted to recoup the assessment by adding a surcharge
to policies in an amount not to exceed the amount paid by the insurer to FIGA.
As a result, UPCIC recorded this assessment as an expense during the quarter
ended September 30, 2007 and will implement the recoupment in connection with
this assessment in 2008, making this, ultimately, a revenue-neutral event.

NOTE 4 - INVESTMENTS

Major categories of net investment income are summarized as follows:

Year Ended Year Ended
December 31, 2007 December 31, 2006
----------------- -----------------

Investment income on cash and cash equivalents $10,606,881 $4,259,399
Investment expense 196,622 272,985
------- -------
Net investment income $10,410,259 $3,986,414
=========== ==========

F-16

As of December 31, 2007, the Company's investments consisted entirely of cash
and cash equivalents with a value of $214,745,606. Cash is comprised of accounts
with an aggregate carrying value $176,350,298 as of December 31, 2007, which is
primarily invested daily in overnight repurchase agreements of U.S. government
and U.S. government agency securities. Cash equivalents is comprised of a money
market account with carrying value of $36,895,308 and short-term investment with
a carrying value of $1,500,000 on deposit with regulatory authorities.

As of December 31, 2007, the Company had no available-for-sale or held-to-
maturity securities.

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment, as of December 31, 2007, consisted of the following:

Computers $22,321
Furniture 276,372
Automobiles 437,369
Software 1,075,922
---------
Total cost 1,811,984

Less: accumulated depreciation (937,554)
---------
Property plant and equipment, net $874,430
=========

Depreciation and amortization of property and equipment was $348,611 and
$373,533 during 2007 and 2006, respectively.

Real estate, as of December 31, 2007, consisted of the following:

Land $270,000
Building 1,410,000
Capital improvements 2,004,373
---------
Total cost 3,684,373

Less: accumulated depreciation (291,546)
---------
Property plant and equipment, net $3,392,827
=========

Depreciation of real estate was $119,446 and $118,932 during 2007 and 2006,
respectively.

NOTE 6 - LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

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

The level of catastrophe loss experienced in any year cannot be predicted and
could be material to results of operations and financial position. UPCIC's
policyholders are concentrated in South Florida, which is periodically subject
to adverse weather conditions, such as hurricanes and tropical storms. During
2007 and 2006, the Company did not experience any catastrophic events. UPCIC's
in-force policyholder coverage for windstorm exposures as of December 31, 2007
was approximately $75.3 billion. UPCIC continuously evaluates alternative
business strategies to more effectively manage its exposure to catastrophe
losses, including the maintenance of catastrophic reinsurance coverage as
discussed in Note 3.

Management believes that the liabilities for claims and claims expense as of
December 31, 2007 are appropriately established in the aggregate and adequate to
cover the ultimate cost of reported and unreported claims arising from losses
which had occurred by that date. However, if losses exceeded direct loss reserve
estimates there could be a material adverse effect on the Company's financial

F-17

statements. Also, if there are regulatory initiatives, legislative enactments or
case law precedents which change the basis for policy coverage, in any of these
events, there could be an effect on direct loss reserve estimates having a
material adverse effect on the Company's financial statements.

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

Year Ended Year Ended
December 31, 2007 December 31, 2006
----------------- -----------------

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

Less reinsurance recoverable (32,369,504) (60,859,231)

Net balance at beginning of year 17,195,010 6,140,725
--------------- ---------------

Incurred related to:
Current year 47,793,338 9,246,922
Prior years 12,006,332 15,693,957
--------------- ---------------
Total incurred 59,799,670 24,940,879
--------------- ---------------

Paid related to:
Current year 25,713,314 4,453,684
Prior years 20,053,311 9,432,910
--------------- ---------------
Total paid 45,766,625 13,886,594

Net balance at end of year 31,228,055 17,195,010
Plus reinsurance recoverable 37,587,445 32,369,504

Balance at end of year $68,815,500 $49,564,514
=============== ===============

The Company's liabilities for unpaid losses and LAE, net of related reinsurance
recoverables, as of December 31, 2007 were increased in the current year by
$12,006,332 for claims that had occurred on or before the prior year balance
sheet date. This unfavorable loss emergence resulted principally from higher
than expected hurricane losses in 2004 and as a result of actual loss
development on prior year non-catastrophe losses emerging less favorably than
expected. The Company's liabilities for unpaid losses and LAE, net of related
reinsurance recoverables, as of December 31, 2006 were increased during 2006 by
$15,693,957 for claims that had occurred on or before the previous year balance
sheet date. This unfavorable loss emergence resulted principally from higher
than expected hurricane losses in 2004. There can be no assurance that the
Company's unpaid losses and LAE will not develop redundancies or deficiencies
and possibly differ materially from the Company's unpaid losses and LAE as of
December 31, 2007. In the future, if the unpaid losses and LAE develop
redundancies or deficiencies, such redundancy or deficiency would have a
positive or adverse impact, respectively, on future results of operations.

NOTE 7 - LOANS PAYABLE

On November 9, 2006, UPCIC entered into a $25.0 million surplus note with the
Florida State Board of Administration under Florida's Insurance Capital Build-Up
Incentive Program. Given the proximity of the loan origination date to the
balance sheet date, the carrying value of the note was deemed to approximate its
fair value as of December 31, 2007. Under the program, which was implemented by
the Florida legislature to encourage insurance companies to write additional
residential insurance coverage in Florida, the State Board of Administration
matched UPCIC's funds of $25.0 million that were earmarked for participation in
the program. The surplus note brings the current capital and surplus of UPCIC to
approximately $98.7 million. The $25.0 million is invested in a treasury money
market account.

F-18

interest by UPCIC on the surplus note must be approved by the Commissioner of
Florida Insurance Regulation.

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

To meet its matching obligation under the Insurance Capital Build-Up Incentive
Program, on November 3, 2006, the Company entered into a Secured Promissory Note
with Benfield Greig (Holdings), Inc. in the aggregate principal amount of $12
million. Interest on the note accrued at the rate of 12.75% per annum. The
outstanding principal was due in six monthly installments of $1.5 million and a
final seventh monthly installment of the remaining balance plus all accrued
interest under the terms of the note starting on January 31, 2007 and ending on
July 31, 2007. In connection with the loan, the Company and its subsidiaries
appointed Benfield as their reinsurance intermediary for all of their
reinsurance placements for the contract year beginning on June 1, 2007. The
Company made all payments under the note in a timely manner and paid the final
installment on July 18, 2007. Under the terms of the note, Benfield Greig
(Holdings), Inc. agreed to refund a portion of the interest paid on the note if
the Company fulfilled all its material obligations under the related broker
agreements. On July 27, 2007, the Company received a refund of interest from
Benfield Greig (Holdings), Inc. in the amount of $280,500 that reduced the
effective interest rate on the note to 8.25% per annum.

In November 2007, the Company commenced offering premium finance services
through Atlas Premium Finance Company. To fund its operations, Atlas agreed to
an initial finance facility of $12 million with Flatiron Capital Corp., a
premier funding partner to the commercial property and casualty insurance
industry owned by TD Banknorth, N.A. The interest rate is equal to the prime
rate ("Money Rate" section of The Wall Street Journal) plus twenty-five basis
points (0.25%).

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

Loan repayments are due as follows as of December 31, 2007:

2008 $ 0
2009 0
2010 0
2011 992,121
2012 1,038,859
Thereafter 22,969,020
----------
Total $25,000,000
===========

Interest expense was $1,525,814 and $412,729 for the twelve months ended
December 31, 2007 and 2006, respectively.

F-19

NOTE 8 - REGULATORY REQUIREMENTS AND RESTRICTIONS

UPCIC is subject to comprehensive regulation by the OIR. The Florida Insurance
Code (the "Code") requires that UPCIC maintain minimum statutory surplus of
$4,000,000. UPCIC is also required to adhere to prescribed premium-to-surplus
ratios under the Code and to maintain approved securities on deposit with the
state of Florida. UPCIC's statutory surplus as of December 31, 2007 is
$98,686,993.

The maximum amount of dividends which can be paid by Florida insurance companies
without prior approval of the Florida Commissioner is subject to restrictions
relating to statutory surplus. The maximum dividend that may be paid by UPCIC to
the Company without prior approval is limited to the lesser of statutory net
income from operations of the preceding calendar year or 10.0% of statutory
unassigned capital surplus as of the preceding year end. During 2007 and 2006,
UPCIC did not pay dividends to the Company.

NOTE 9 - RELATED PARTY TRANSACTIONS

NOTE 10- INCOME TAX PROVISION

The following table reconciles the statutory federal income tax rate to the
Company's effective tax rate for the years ended December 31, 2007 and 2006:

2007 2006
Statutory federal income tax rate 35.0% 35.0%
Increases (decreases) resulting from:
Change in valuation allowance 0.0% (6.5%)
Disallowed executive compensation 0.0% 2.9%
Disallowed meals & entertainment 0.0% .7%
State income tax, net of federal tax benefit 3.6% 6.1%
Other, net 1.1% (2.7%)
------------ ---------
Effective tax rate 39.7% 35.5%
============ =========

Deferred income taxes as of December 31, 2007 are provided for the temporary
differences between financial reporting basis and the tax basis of the Company's
assets and liabilities under SFAS 109. The tax effects of temporary differences
are as follows:

F-20

Deferred income tax assets:
Unearned premiums $6,331,577
Advanced premiums 792,319
Unpaid losses 851,138
Regulatory assessments 3,423,250
Executive compensation 1,652,458
Allowance for uncollectible receivables 321,199
Property and equipment 12,350
Deferred ceding commission, net 818,665
--------------
Deferred income taxes $14,202,956
==============

A valuation allowance is deemed unnecessary as of December 31, 2007 and December
31, 2006, respectively because management believes it is probable that the
Company will generate substantial taxable income sufficient to realize the tax
benefits associated with the net deferred income tax asset shown above in the
near future.

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

NOTE 11 - STOCKHOLDERS' EQUITY

CUMULATIVE PREFERRED STOCK

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

STOCK OPTIONS

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

A summary of the option activity for the years ended December 31, 2007 and 2006
is presented below:

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

Outstanding January 1, 2006 7,515,000 $0.04 $1.87 $0.95 7,515,000 $0.95
Exercised (220,000) $0.04 $0.50 $0.08
Cancelled (850,000) $1.00 $1.25 $1.24
------------
Outstanding December 31, 2006 6,445,000 $0.04 $1.87 $0.91 6,445,000 $0.91 $4,517,644
Granted 2,010,000 $2.60 $6.50 $5.89
Exercised (750,000) $1.06 $1.87 $1.11
Expired (600,000) $0.63 $1.06 $0.70
------------
Outstanding December 31, 2007 7,105,000 $0.06 $6.50 $2.32 7,105,000 $2.32 $36,172,050
============

The total intrinsic value of options exercised in 2007 was $666,058, which
options were exercised on a cashless basis. A total of 185,729 shares of Common
Stock were issued in 2007 for the cashless exercise of stock options, valued at
$872,926.

F-21

The weighted average remaining contractual life on the options outstanding and
exercisable as of December 31, 2007 was 3.22 years. All options are exercisable
and fully vested.

Options to purchase 2,010,000 shares of Common Stock were granted during 2007 at
a weighted average exercise price of $5.89. Options to purchase 750,000 shares
of Common Stock were exercised during 2007 at a weighted average exercise price
of $1.11. On July 12, 2007, the Company granted options to purchase an aggregate
of 1,575,000 shares of common stock to the Company's directors and executive
officers. All of the options granted on July 12, 2007 vest on July 12, 2008,
have an exercise price of $6.50 per share, and expire on July 12, 2012. The
options granted to Bradley I. Meier, the Company's President and Chief Executive
Officer, and to Sean P. Downes, the Company's Chief Operating Officer and Senior
Vice President, are only exercisable on such date or dates as the fair market
value (as defined in their respective option agreements) of the Company's common
stock is and has been at least one hundred fifty percent (150%) of the exercise
price for the previous twenty (20) consecutive trading days.

The Company estimated the fair value of all stock options awards as of the grant
date by applying the Black-Scholes-Merton option pricing model. The use of this
valuation model involves assumptions that are judgmental and highly sensitive in
the determination of compensation expense and include the expected life of the
option, stock price volatility, risk-free interest rate, dividend yield,
exercise price, and forfeiture rate. Under SFAS 123(R), forfeitures are
estimated at the time of valuation and reduce expense ratably over the vesting
period. The forfeiture rate is adjusted periodically based on the extent to
which actual forfeitures differ, or are expected to differ, from the previous
estimate. Under SFAS 123 and APB 25, the Company elected to account for
forfeitures when awards were actually forfeited and reflect the forfeitures as a
cumulative adjustment to the pro forma expense.

The fair value of options granted in 2007 was estimated assuming the following:
weighted average expected life of 2.45 years, dividend yield of 4.0 percent,
risk-free interest rate of 4.86 percent, and expected volatility of 70.0
percent. In accordance with SFAS 123(R), fair values of options granted prior to
adoption and determined for purposes of disclosure under SFAS 123 have not been
changed. The fair value of options granted prior to adoption of SFAS 123(R) was
estimated assuming the following: weighted average expected life of five years,
dividend yield of 0.0 percent, risk-free interest rate of 6.5 percent, and
expected volatility of 154.5 percent and 126.3 percent for grants issued in 2004
and 2002, respectively.

WARRANTS

A summary of the warrant activity for the years ended December 31, 2007 and 2006
is presented below:

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

Outstanding January 1, 2006 1,932,006 $0.03 $4.25 $1.27 1,932,006 $1.27 $482,870
Exercised (625,000) $0.05 $0.05 $0.05
Cancelled (457,006) $0.75 $3.00 $1.20
-----------
Outstanding December 31, 2006 850,000 $0.03 $1.00 $0.72 850,000 $0.72
Exercised (250,000) $0.03 $0.05 $0.04
-----------
Outstanding December 31, 2007 600,000 $1.00 $1.00 $1.00 600,000 $1.00 $3,846,000
===========

F-22

The total intrinsic value of warrants exercised in 2007 was $4,552. The total
cash received in 2007 and 2006 for the exercise of stock warrants was $10,500
and $31,250 respectively.

The weighted average remaining contractual life on the options outstanding and
exercisable as of December 31, 2007 was .96 years. All warrants are exercisable
and fully vested.

The actual tax benefit realized for the tax deductions from option and warrant
exercise of the share-based payment arrangements totaled $1,753,812 for the year
ended December 31, 2007 and $376,747 for the year ended December 31, 2006.

OTHER STOCK ISSUANCES

On March 14, 2007, the Company issued 250,000 shares of restricted common stock
at a price of $3.70 per share to an employee in consideration for services
rendered pursuant to the terms of an employee agreement. The shares will vest
over a three year period. On May 1, 2007, the Company issued 22,143 shares of
restricted common stock at a price of $1.87 per share, on a "cashless" basis, to
James M. Lynch, Executive Vice President and Chief Financial Officer of the
Company, pursuant to Mr. Lynch's exercise of stock options. Also on May 1, 2007,
the Company issued 387,234 shares of restricted common stock at a price of $1.06
per share, on a "cashless" basis, to Norman M. Meier, a director of the Company,
pursuant to Mr. Meier's exercise of stock options. Also on May 1, 2007, the
Company issued 77,447 shares of restricted common stock at a price of $1.06 per
share, on a "cashless" basis, to Joel Wilentz, a director of the Company,
pursuant to Mr. Wilentz's exercise of stock options. Also on May 1, 2007, the
Company issued 77,447 shares of restricted common stock at a price of $1.06 per
share, on a "cashless" basis, to Reed Slogoff, a director of the Company,
pursuant to Mr. Slogoff's exercise of stock options. On November 29, 2007, the
Company issued 100,000 and 150,000 shares of restricted common stock at a price
of $.03 and $.05 respectively to a private investor pursuant to the exercise of
warrants to purchase restricted common stock. Unless otherwise specified, such
as in the case of the exercise of stock options or warrants, the per share
prices were determined using the closing price of the Company's common stock as
quoted on the OTC Bulletin Board or the AMEX and the shares were issued in
private transactions pursuant to Section 4(2) of the Securities Act of 1933, as
amended.

On October 4, 2007, the Company declared a dividend of $.09 per share on its
outstanding Common Stock to be paid on April 8, 2008 to the shareholders of
record of the Company at the close of business on March 10, 2008. At December
31, 2007, the Company recorded a dividend payable in the amount of $3,537,639
for this dividend and a net reduction to retained earnings in the amount of
$3,241,145, which represents the total dividend net of the dividends on the
shares held in treasury stock and in the Stock Grantor Trust described in Note
11 - Stockholders' Equity. During the fourth quarter, the Company paid a
dividend of $0.08 per share of outstanding Common Stock that was accrued at the
end of third quarter. The aggregate amount of the dividend was $2,861,018.
During the third quarter, the Company paid a dividend of $0.07 per share of
outstanding Common Stock that was accrued at the end of the first quarter. The
aggregate amount of the dividend was $2,503,391. During the second quarter, the
Company paid a dividend of $0.05 per share of outstanding Common Stock that was
accrued in December 31, 2006. The aggregate amount of the dividend was
$1,759,922.

STOCK GRANTOR TRUST

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

F-23

NOTE 12 - COMMITMENTS AND CONTINGENCIES

EMPLOYMENT AGREEMENTS

The Company's employment agreement with Bradley Meier is dated as of August 11,
1999. The Company and Mr. Meier have amended the employment agreement, with the
most recent amendment dated March 21, 2007 (the employment agreement and the
amendments are collectively referred to as the "Meier Agreement"). Under the
terms of the Meier Agreement, Mr. Meier will serve as the Company's President
and Chief Executive Officer. Mr. Meier received a base salary of $830,324 in
2006, and he is entitled to a twenty percent (20%) increase in base salary each
year. Additionally, pursuant to the Meier Agreement, Mr. Meier is entitled to
an annual performance bonus equal to three percent (3%) of the pretax income of
the Company up to $5 million, and four percent (4%) of the pretax income of the
Company in excess of $5 million; provided, however, that any such bonus is
contingent upon the Company's shareholders approving such bonus formula, which
they have done. Mr. Meier is also eligible for other benefits customarily
provided by the Company to its executive employees, and the Meier Agreement
contains noncompete and nondisclosure provisions. In addition, in the event of
a Change in Control of the Company (as defined in the Meier Agreement), the
Company shall pay Mr. Meier an amount equal to 48 months base salary, plus two
times any bonus paid for the preceding fiscal year. Further, in the event of a
Change in Control, all options held by Mr. Meier vest and become immediately
exercisable. Also, in the event that the Company terminates the Meier
Agreement, the Company shall pay Mr. Meier 24 months total compensation. The
Meier Agreement expires on December 31, 2009; however, the agreement is
automatically extended each year thereafter unless the Company or Mr. Meier
provides written notice that the agreement is being terminated 60 days in
advance of the anniversary date of the Meier Agreement.

The Company's employment agreement with Sean Downes is dated as of January 1,
2005 and provides that Mr. Downes will serve as Chief Operating Officer and
Senior Vice President of the Company. The Company and Mr. Downes have amended
the employment agreement, with the most recent amendment dated July 12, 2007
(the employment agreement and the amendments are collectively referred to as the
"Downes Agreement"). Mr. Downes received a base salary of $691,500 in 2007, and
he is entitled to a twenty percent (20%) increase in base salary each year.
Additionally, pursuant to the Downes Agreement, Mr. Downes is entitled to an
annual performance bonus equal to three percent (3%) of the pre-tax profits of
the Company; provided, however, that any such bonus is contingent upon the
Company's shareholders approving such bonus formula, which they have done.
Under the Downes Agreement, the Company may grant Mr. Downes options or warrants
to purchase the Company's Common Stock. Mr. Downes is also eligible for other
benefits customarily provided by the Company to its executive employees and the
Downes Agreement contains noncompete and nondisclosure provisions. In addition,
in the event of a Change in Control of the Company (as defined in the Downes
Agreement), the Company shall pay Mr. Downes an amount equal to 12 months base
salary, plus the annual bonus paid for the preceding fiscal year. Also,
effective January 1, 2009, if a Change of Control occurs, the Company shall pay
Mr. Downes an amount equal to 2.99 times Mr. Downes' "base amount" as defined in
Section 280G of the Internal Revenue Code. Further, in the event of a Change in
Control, all options held by Mr. Downes vest and become immediately exercisable.
The Downes Agreement expires on December 31, 2009 unless extended in writing by
the Company.

F-24

OPERATING LEASE

The Company has leased certain computer equipment and software under a master
equipment lease agreement with Relational Funding, Inc. with an original
equipment cost of $1,019,295. The following is a schedule of future minimum
rental payments required under the non-cancelable operating lease as of December
31, 2007:

2008 $ 216,692
2009 141,820
2010 82,298
2011 65,695
----------
$ 506,505
=======

NOTE 13 - LITIGATION

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

NOTE 14 - EARNINGS PER SHARE

The following table reconciles the numerator (earnings) and denominator (shares)
of the basic and diluted earnings per share computations for net income for the
years ended December 31, 2007 and 2006.

For year ended For year ended
December 31, 2007 December 31, 2006
----------------- -----------------
Income Income
Available to Available to
Common Common
Stockholders Per Share Stockholders Per Share
Amount Shares Amount Amount Shares Amount
------ ------ ------ ------ ------ ------

Net income (loss) $54,002,288 $17,186,860
Less: Preferred stock dividends (49,950) (49,950)
---------- ----------

Income (loss) available
to common stockholders 53,952,338 35,550,503 $1.52 17,136,910 34,409,415 $0.50
------- --------

Effect of dilutive securities:
Stock options and warrants - 5,241,192 (0.02) - 4,100,903 (0.06)
Preferred stock 49,950 568,325 - 49,950 568,325 -
----------- ---------- ------- ----------- ---------- --------

Income (loss) available to common
stockholders and assumed
conversion $54,002,288 41,360,020 $1.31 $17,186,860 39,078,643 $0.44
----------- ---------- ------- ----------- ---------- --------

F-25

NOTE 15 - SUPLEMENTAL CASH FLOW INFORMATION

Cash payments for interest and income taxes during the years ended December 31,
2007 and 2006 were as follows:

For the years ended
-------------------
December 31, 2007 December 31, 2006
----------------- -----------------
Interest $1,524,223 $178,529
Income Taxes $54,200,673 $2,696,500

NOTE 16 - SUBSEQUENT EVENTS

On January 23, 2008, the Company declared a dividend of $.10 per share on its
outstanding Common Stock of the Company to be paid on August 7, 2008 to the
shareholders of record of the Company at the close of business on July 9, 2008.
The Company expects to pay an aggregate dividend of approximately $3,601,273.

F-26