10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

Form 10-Q

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

For the quarterly period ended June 30, 2011

OR

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

Commission File Number

001-34126

Homeowners Choice, Inc.

(Exact name of Registrant as specified in its charter)

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

5300 West Cypress Street, Suite 100

Tampa, FL 33607

(Address, including zip code of principal executive offices)

(813) 403-3600

Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨    (The registrant has not yet been phased into the interactive data requirements)

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

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

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

The aggregate number of shares of the Registrant’s Common Stock, no par value, outstanding on August 5, 2011 was 6,111,802.

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

	PART I – FINANCIAL INFORMATION
ITEM 1	FINANCIAL STATEMENTS	Page
	Condensed Consolidated Balance Sheets, June 30, 2011 (unaudited) and December 31, 2010		1
	Condensed Consolidated Statements of Earnings Three and Six Months Ended June  30, 2011 and 2010 (unaudited)		2
	Condensed Consolidated Statements of Cash Flows Six Months Ended June  30, 2011 and 2010 (unaudited)		3-4
	Condensed Consolidated Statement of Stockholders’ Equity Six Months Ended June  30, 2011 (unaudited)		5
	Notes to Condensed Consolidated Financial Statements (unaudited)		6-23
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		24-36
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		36
ITEM 4	CONTROLS AND PROCEDURES		37
	PART II – OTHER INFORMATION
ITEM 1	LEGAL PROCEEDINGS		37
ITEM 1a	RISK FACTORS		37
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		38
ITEM 6	EXHIBITS		39-42
	SIGNATURES		43
	CERTIFICATIONS

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share amounts)

	At June 30, 2011			At December 31, 2010
	(Unaudited)
Assets
Investments:
Fixed maturity securities, available-for-sale, at fair value (amortized cost $23,276 and $28,456)	$	23,404			28,564
Equity securities, available-for-sale, at fair value		5,025			884
Time deposits		14,306			14,033
Total investments		42,735			43,481
Cash and cash equivalents		80,256			54,849
Accrued interest and dividends receivable		186			180
Premiums receivable		10,263			5,822
Assumed reinsurance balances receivable		—			26
Prepaid reinsurance premiums		8,866			17,787
Deferred policy acquisition costs		10,062			9,407
Income taxes receivable		3,033			—
Property and equipment, net		15,778			7,755
Deferred income taxes		—			584
Other assets		1,665			1,057
Total assets	$	172,844			140,948
Liabilities and Stockholders’ Equity
Losses and loss adjustment expenses		24,973			22,146
Unearned premiums		70,530			65,034
Advance premiums		6,900			1,114
Deferred income taxes		1,432			—
Payable for securities purchased		3,002			—
Accrued expenses		2,848			2,385
Assumed reinsurance balances payable		51			—
Dividends payable		218			—
Income taxes payable		—			310
Other liabilities		4,857			3,330
Total liabilities		114,811			94,319
Stockholders’ equity:
7% Series A cumulative convertible preferred stock (liquidation preference $10.00 per share), no par value, 1,500,000 shares authorized, 1,247,700 shares issued and outstanding in 2011		—			—
Preferred stock (no par value 18,500,000 shares authorized, no shares issued or outstanding)		—			—
Common stock, (no par value, 40,000,000 shares authorized, 6,101,802 and 6,205,396 shares issued and outstanding in 2011 and 2010)		—			—
Additional paid-in capital		28,532			18,606
Retained earnings		29,559			28,065
Accumulated other comprehensive loss		(58	)		(42	)
Total stockholders’ equity		58,033			46,629
Total liabilities and stockholders’ equity	$	172,844			140,948

See accompanying Notes to Condensed Consolidated Financial Statements.

1

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings

(Unaudited)

(Dollars in thousands, except per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Revenue
Gross premiums earned	$	31,218			29,978			62,114			60,322
Premiums ceded		(14,174	)		(14,333	)		(28,396	)		(28,436	)
Net premiums earned		17,044			15,645			33,718			31,886
Net investment income		509			569			1,073			1,100
Realized investment gains		140			505			293			505
Gain on bargain purchase		936			—			936			—
Other		1,155			692			1,813			908
Total revenue		19,784			17,411			37,833			34,399
Expenses
Losses and loss adjustment expenses		10,523			10,863			20,926			20,676
Policy acquisition and other underwriting expenses		2,780			2,668			7,043			6,960
Other operating expenses		2,660			1,886			4,787			3,583
Total expenses		15,963			15,417			32,756			31,219
Income before income taxes		3,821			1,994			5,077			3,180
Income taxes		1,520			712			1,983			1,200
Net income	$	2,301			1,282			3,094			1,980
Preferred stock dividends		(361	)		—			(378	)		—
Income available to common stockholders	$	1,940			1,282			2,716			1,980
Basic earnings per common share	$	.32			.21			.44			.32
Diluted earnings per common share	$	.30			.19			.43			.29
Dividends per common share	$	.10			—			.20			—

See accompanying Notes to Condensed Consolidated Financial Statements.

2

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollars in thousands)

	Six Months Ended June 30,
	2011			2010
Cash flows from operating activities:
Net income	$	3,094			1,980
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		19			68
Net amortization of premiums (discounts) on investments in fixed maturity securities		61			(39	)
Depreciation and amortization		158			57
Deferred income taxes (benefit)		2,026			(136	)
Realized gains on sales of investments		(293	)		(505	)
Gain on bargain purchase		(936	)		—
Changes in operating assets and liabilities:
Premiums receivable		(4,441	)		(5,130	)
Assumed reinsurance balances receivable		26			19,525
Advance premiums		5,786			5,948
Prepaid reinsurance premiums		8,921			(488	)
Accrued interest and dividends receivable		(6	)		10
Income taxes receivable		(3,033	)		—
Other assets		(476	)		(463	)
Assumed reinsurance balances payable		51			658
Deferred policy acquisition costs		(655	)		542
Losses and loss adjustment expenses		2,827			3,939
Unearned premiums		5,496			(2,369	)
Income taxes payable		(310	)		457
Accrued expenses and other liabilities		4,568			3,664
Net cash provided by operating activities		22,883			27,718
Cash flows from investing activities:
Cash consideration paid for acquired business		(5,110	)		—
Purchase of property and equipment, net		(1,843	)		(7,298	)
Purchase of fixed maturity securities		(14,165	)		(4,546	)
Purchase of equity securities		(5,330	)		—
Proceeds from sales of fixed maturity securities		19,614			12,242
Proceeds from sales of equity securities		1,106			—
Increase in time deposits, net		(273	)		(256	)
Decrease in short-term investments, net		—			7,443
Net cash (used in) provided by investing activities		(6,001	)		7,585
Cash flows from financing activities:
Net proceeds from the issuance of preferred stock		11,307			—
Proceeds from the exercise of common stock options		363			100
Cash dividends paid		(1,382	)		—
Repurchases of common stock		(1,887	)		(2,595	)
Excess tax benefit from common stock options exercised		124			39
Net cash provided by (used in) financing activities		8,525			(2,456	)
Net increase in cash and cash equivalents		25,407			32,847
Cash and cash equivalents at beginning of period		54,849			43,453
Cash and cash equivalents at end of period	$	80,256			76,300

See accompanying Notes to Condensed Consolidated Financial Statements.

3

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows, continued

(Unaudited)

(Dollars in thousands)

	Six Months Ended June 30,
	2011			2010
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	3,176			600
Cash paid for interest	$	—			—
Non-cash investing activities:
Unrealized (loss) gain on investments in available for sale securities, net of tax	$	(16	)		832
Fair value of net assets acquired in connection with business acquisition	$	5,685			—

See accompanying Notes to Condensed Consolidated Financial Statements.

4

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Stockholders’ Equity

Six Months Ended June 30, 2011

(Dollars in thousands, except share amounts)

	Preferred Stock				Common Stock					Additional Paid-In			Retained			Accumulated Other Comprehensive
	Shares		Amount		Shares			Amount		Capital			Earnings			Loss			Total
Balance at December 31, 2010		—	$	—		6,205,396			—		18,606			28,065			(42	)		46,629
Net Income (unaudited)		—		—		—			—		—			3,094			—			3,094
Change in unrealized loss on available-for-sale securities, net of income tax benefit (unaudited)		—		—		—			—		—			—			(16	)		(16	)
Comprehensive income (unaudited)																				3,078
Proceeds from sale of preferred stock (net of offering costs of $1,170) (unaudited)		1,247,700		—		—			—		11,307			—			—			11,307
Exercise of stock options (unaudited)		—		—		145,200			—		363			—			—			363
Excess tax benefit from stock options exercised (unaudited)		—		—		—			—		124			—			—			124
Common stock dividends (unaudited)		—		—		—			—		—			(1,222	)		—			(1,222	)
Preferred stock dividends (unaudited)		—		—		—			—		—			(378	)		—			(378	)
Repurchases and retirement of common stock (unaudited)				—		(248,794	)		—		(1,887	)		—			—			(1,887	)
Stock-based compensation (unaudited)		—		—		—			—		19			—			—			19
Balance at June 30, 2011 (unaudited)		1,247,700	$	—		6,101,802			—		28,532			29,559			(58	)		58,033

See accompanying Notes to Condensed Consolidated Financial Statements.

5

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements for Homeowners Choice, Inc. and its subsidiaries (collectively, the “Company”), which consist of Homeowners Choice Managers, Inc., Southern Administration, Inc., Claddaugh Casualty Insurance Company, Ltd., HCI Holdings LLC and its subsidiary, TV Investment Holdings, LLC, and Homeowners Choice Property & Casualty Insurance Company, Inc. and its subsidiary, HCPCI Holdings LLC, have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information, and the Securities and Exchange Commission (“SEC”) rules for interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying financial statements reflect all normal recurring adjustments necessary to present fairly the Company’s financial position as of June 30, 2011 and the results of operations and cash flows for the periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2011. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2010 included in the Company’s Form 10-K, which was filed with the SEC on March 29, 2011.

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

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

All significant intercompany balances and transactions have been eliminated.

(continued)

6

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 1 – Summary of Significant Accounting Policies, continued

Basic and diluted earnings per common share. Basic earnings per common share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Potentially dilutive securities at June 30, 2011 consisted of stock options, common stock warrants, and the 7.0% Series A cumulative convertible preferred stock issued March 25, 2011. Each share of preferred stock is convertible into one share of the Company’s common stock (see Note 10).

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

Note 2 – Recent Accounting Pronouncements

Accounting Standards Update No. 2011-05. In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05 (“ASU 2011-05”), Comprehensive Income (Topic 220), Presentation of Comprehensive Income. The objective of ASU 2011-05 is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To achieve this goal and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the consolidated statement of changes in stockholders’ equity. The amendments in ASU 2011-05 require that all nonowner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in ASU 2011-05 should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. The Company does not expect the adoption of ASU 2011-05 will have a material impact on its consolidated financial statements.

(continued)

7

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 2 – Recent Accounting Pronouncements, continued

Accounting Standards Update No. 2011-04. In May 2011, the FASB issued Accounting Standards Update No. 2011-04 (“ASU 2011-04”), Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” The objective of ASU 2011-04 is to provide clarification of Topic 820 and, also, to ensure that fair value has the same meaning in U.S. generally accepted accounting principles (“GAAP”) and in international financial reporting standards (“IFRSs”) and that their respective fair value measurement and disclosure requirements are generally the same. Thus, this update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. The amendment is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively. Early application is not permitted. The Company does not expect the adoption of ASU 2011-04 will have a material impact on its consolidated financial statements.

Accounting Standards Update No. 2010-26. In October 2010, the FASB issued Accounting Standards Update No. 2010-26 (“ASU 2010-26”), Financial Services – Insurance (ASC Topic 944), Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of the amendments in ASU 2010-26 is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments in ASU 2010-26 specify which costs should be capitalized. The amendments in ASU 2010-26 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and should be applied prospectively upon adoption. Retrospective application to all prior periods presented upon the date of adoption is permitted, but not required. Early adoption is permitted, but only at the beginning of an entity’s annual reporting period. Management is currently evaluating the impact of ASU 2010-26 and the effect adoption of this guidance will have on the Company’s consolidated financial statements.

(continued)

8

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 3 – Investments

The Company holds investments in fixed maturity securities as well as equity securities, which are classified as available for sale. At June 30, 2011 and December 31, 2010, the amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows (in thousands):

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
June 30, 2011
Fixed Maturity Securities:
U.S. Treasury and U.S. government agencies	$	587		17		(2	)		602
Corporate bonds		12,114		152		(110	)		12,156
Commercial mortgage-backed securities		10,310		96		(26	)		10,380
Other		265		1		—			266
Total	$	23,276		266		(138	)		23,404
Equity securities	$	5,248		104		(327	)		5,025
December 31, 2010
Fixed Maturity Securities:
U.S. Treasury and U.S. government agencies	$	8,044		88		(37	)		8,095
Corporate bonds		12,192		149		(75	)		12,266
Commercial mortgage-backed securities		7,756		40		(53	)		7,743
Other		464		5		(9	)		460
Total	$	28,456		282		(174	)		28,564
Equity securities	$	1,061		12		(189	)		884

(continued)

9

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

Note 3 – Investments, continued

The scheduled maturities of fixed maturity securities at June 30, 2011 are as follows (in thousands):

	Amortized Cost		Fair Value
Available-for-sale
Due after one year through five years	$	8,469		8,519
Due after five years through ten years		4,378		4,384
Due after ten years		119		121
Commercial mortgage-backed securities		10,310		10,380
	$	23,276		23,404

Investment Sales – 2011 and 2010

Proceeds received, and the gross realized gains and losses from sales of available for sale securities, for the three and six months ended June 30, 2011 and 2010 were as follows (in thousands):

	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended June 30, 2011
Fixed maturity securities	$	11,916		238		(15	)
Equity securities*	$	574		53		(136	)
Three months ended June 30, 2010
Fixed maturity securities	$	12,242		505		—
Six months ended June 30, 2011
Fixed maturity securities	$	19,614		369		(38	)
Equity securities*	$	1,106		105		(143	)
Six months ended June 30, 2010
Fixed maturity securities	$	12,242		505		—

* Amounts reported for the three and six months ended June 30, 2011 include the gross realized gains and losses from equity option contracts. During the three and six months ended June 30, 2011, the Company entered into equity contracts for exchange traded call and put options to meet certain investment objectives. With respect to these option contracts, the Company received net proceeds of $22,000 and $73,000 and realized gains of $22,000 and $73,000 for the three and six months ended June 30, 2011, respectively, which is included in the realized investment gains in the Condensed Consolidated Statements of Earnings. There were no open option contracts at June 30, 2011. There were no equity option contracts during the three and six month periods ended June 30, 2010.

(continued)

10

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

Note 3 – Investments, continued

Other-than-temporary Impairment

The Company regularly reviews its individual investment securities for other-than-temporary impairment. The Company considers various factors in determining whether each individual security is other-than-temporarily impaired, including:

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

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

• general market conditions and industry or sector specific factors;

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

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

Securities with gross unrealized loss positions at June 30, 2011, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows (in thousands):

	Less Than twelve months
	Gross Unrealized Loss			Fair Value
U.S. Treasury and U.S. government agencies	$	(2	)		77
Corporate bonds		(110	)		7,007
Commercial mortgage-backed securities		(26	)		3,952
Total fixed maturity securities	$	(138	)		11,036
Equity securities	$	(327	)		1,144

(continued)

11

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

Note 3 – Investments, continued

The Company believes there were no fundamental issues such as credit losses or other factors with respect to any of its available-for-sale securities. The unrealized losses on investments in fixed maturity securities were caused by interest rate changes. It is expected that the securities would not be settled at a price less than the par value of the investments. In determining whether equity securities are other than temporarily impaired, the Company considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost. Because the decline in fair value is attributable to changes in interest rates or market conditions and not credit quality, and because the Company has the ability and intent to hold its available-for-sale investments until a market price recovery or maturity, the Company does not consider any of its investments to be other-than-temporarily impaired at June 30, 2011.

Note 4 – Fair Value Measurements

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

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

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

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

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

Level 3 – Inputs that are unobservable.

(continued)

12

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 4 – Fair Value Measurements, continued

The following table presents information about the Company’s available-for-sale fixed maturity securities measured at fair value as of June 30, 2011 and December 31, 2010, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
As of June 30, 2011
Fixed maturity securities
U.S. Treasury and U.S. government agencies	$	525		77		—		602
Corporate bonds		12,156		—		—		12,156
Commercial mortgage-backed securities		—		10,380		—		10,380
Other		—		266		—		266
Total fixed maturity securities		12,681		10,723		—		23,404
Equity securities		5,025		—		—		5,025
Total available-for-sale securities	$	17,706		10,723		—		28,429
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
As of December 31, 2010
Fixed maturity securities
U.S. Treasury and U.S. government agencies	$	8,095		—		—		8,095
Corporate bonds		12,266		—		—		12,266
Commercial mortgage-backed securities		—		7,743		—		7,743
Other		—		460		—		460
Total fixed maturity securities		20,361		8,203		—		28,564
Equity securities		884		—		—		884
Total available-for-sale securities	$	21,245		8,203		—		29,448

With respect to the Company’s business acquisition completed in April 2011 (see Note 5), all assets acquired and liabilities assumed were valued based on Level 3 measurements. Property, plant and equipment was valued based on an external appraisal using the sales comparison approach and other unobservable inputs. The environmental liability was valued based on third party estimates to complete the site assessment and remediation plan. The carrying amounts of all other assets and liabilities approximated their fair values at the acquisition date.

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

(continued)

13

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 5 – Business Acquisition

Effective April 20, 2011, the Company, through its subsidiary, TV Investment Holdings LLC, acquired the assets and operations of Tierra Verde Marina Holdings. The property consists primarily of land and improvements, retail buildings, and a marina facility purchased for $5.1 million. Operating activities at acquisition include leasing of office and retail space to 11 tenants, wet and dry boat storage for approximately 150 clients, and fuel services with respect to marina clients and other recreational boaters. The Tierra Verde, Florida property and operations were acquired through a foreclosure sale conducted by the Pinellas County Clerk of the Circuit Court. The Company’s primary reason for the acquisition was to strengthen its property portfolio through diversification and quality of assets owned.

The fair value of the net assets acquired was approximately $5.7 million, which exceeds the $5.1 million purchase price. As a result, the Company recognized a gain on bargain purchase in the amount of $936,000 ($575,000 net of tax), which is included in operations for the three and six months ended June 30, 2011. The recorded gain is subject to adjustment as the Company will continue to evaluate the purchase price allocation with respect to certain of the liabilities assumed at acquisition. There were no intangibles acquired with respect to this acquisition. The following table summarizes the Company’s preliminary allocation of the net consideration paid to the fair value of the assets acquired and liabilities assumed at April 20, 2011 (in thousands):

Property, plant and equipment	$	6,338
Other assets		132
Tenant deposits		(96	)
Environmental liability (Note 13)		(150	)
Deferred tax liability		(361	)
Other liabilities		(178	)
Fair value of net assets acquired		5,685
Gain on bargain purchase, net of tax of $361		(575	)
Cash consideration paid	$	5,110

For the three and six months ended June 30, 2011 and 2010, the effects of this acquisition were not material to the Company’s condensed consolidated financial statements and basic and diluted earnings per share and, as such, pro forma information has not been presented.

(continued)

14

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Note 6 – Reinsurance

The Company cedes a portion of its homeowners insurance exposure to other entities under catastrophe excess of loss reinsurance treaties. The Company remains liable with respect to claims payments in the event that any of the reinsurers are unable to meet their obligations under the reinsurance agreements. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Premiums Written
Direct	$	54,838			49,854			69,961			64,729
Assumed		(157	)		(666	)		(2,351	)		(6,776	)
Gross written		54,681			49,188			67,610			57,953
Ceded		(14,174	)		(14,333	)		(28,396	)		(28,436	)
Net premiums written	$	40,507			34,855			39,214			29,517
Premiums Earned
Direct	$	29,160			25,024			57,147			48,342
Assumed		2,058			4,954			4,967			11,980
Gross earned		31,218			29,978			62,114			60,322
Ceded		(14,174	)		(14,333	)		(28,396	)		(28,436	)
Net premiums earned	$	17,044			15,645			33,718			31,886

During the three and six months ended June 30, 2011 and 2010, there were no recoveries pertaining to reinsurance contracts that were deducted from losses incurred. At June 30, 2011 and December 31, 2010, prepaid reinsurance premiums related to 18 reinsurers and there were no amounts receivable with respect to reinsurers. Thus, there were no concentrations of credit risk associated with reinsurance receivables and prepaid reinsurance premiums as of June 30, 2011 and December 31, 2010.

(continued)

15

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 7 – Losses and Loss Adjustment Expenses

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

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Balance, beginning of period	$	24,050			20,805			22,146			19,178
Incurred related to:
Current period		6,696			11,629			15,432			21,050
Prior period		3,827			(766	)		5,494			(374	)
Total incurred		10,523			10,863			20,926			20,676
Paid related to:
Current period		(6,475	)		(6,689	)		(8,128	)		(9,647	)
Prior period		(3,125	)		(1,862	)		(9,971	)		(7,090	)
Total paid		(9,600	)		(8,551	)		(18,099	)		(16,737	)
Balance, end of period	$	24,973			23,117			24,973			23,117

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

Note 8 – Income Taxes

During the three and six months ended June 30, 2011, the Company recorded approximately $1.5 million and $2.0 million, respectively, of income taxes, which resulted in estimated annual effective tax rates of approximately 40% and 39%, respectively. During the three and six months ended June 30, 2010, the Company recorded approximately $0.7 million and $1.2 million, respectively, of income taxes, which resulted in estimated annual effective tax rates of approximately 36% and 38%, respectively. The Company’s estimated annual effective tax rate differs from the statutory federal income tax rate due to state income taxes, stock-based compensation and other nondeductible items. In February 2011, the Company received notice from the Internal Revenue Service with respect to an examination of the Company’s 2008 and 2009 federal income tax returns. The examination commenced during the second quarter of 2011 and is still ongoing at June 30, 2011.

(continued)

16

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 9 – Earnings Per Share

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

	For the Three Months Ended June 30, 2011							For the Three Months Ended June 30, 2010
	Income (Numerator)			Shares (Denominator)		Per-Share Amount		Income (Numerator)		Shares (Denominator)		Per-Share Amount
Net income	$	2,301			—			$	1,282		—
Less: Preferred stock dividends		(361	)		—				—		—
Basic Earnings Per Share
Income available to common stockholders		1,940			6,071	$	0.32		1,282		6,153	$	0.21
Effect of Dilutive Securities
Stock Options		—			411				—		499
Convertible preferred stock		361			1,248				—		—
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	2,301			7,730	$	0.30	$	1,282		6,652	$	0.19
	For the Six Months Ended June 30, 2011							For the Six Months Ended June 30, 2010
	Income (Numerator)			Shares (Denominator)		Per-Share Amount		Income (Numerator)		Shares (Denominator)		Per-Share Amount
Net income	$	3,094			—			$	1,980		—
Less: Preferred stock dividends		(378	)		—				—		—
Basic Earnings Per Share
Income available to common stockholders		2,716			6,121	$	0.44		1,980		6,219	$	0.32
Effect of Dilutive Securities
Stock Options		—			425				—		515
Convertible preferred stock		378			669				—		—
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	3,094			7,215	$	0.43	$	1,980		6,734	$	0.29

(continued)

17

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 9 — Earnings Per Share, continued

For each of the three and six months ended June 30, 2011 and 2010, 1,738,335 warrants to purchase 905,001 shares of common stock were excluded from the computation of diluted earnings per share because the exercise price of $9.10 exceeded the average market price of the Company’s common stock. There were no preferred shares outstanding in 2010.

Note 10 – Stockholders’ Equity

Common Stock

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

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

Common Stock Warrants

At June 30, 2011, the Company has reserved 905,001 shares of common stock for issuance upon the exercise of its common stock warrants, all of which were issued coincident with the Company’s initial public offering (“IPO”). A summary of the warrants outstanding at June 30, 2011 is presented below:

	Number Of Warrants Issued		Number of Common Shares Issuable Upon Conversion of Warrants
Warrants issued with IPO units		1,666,668		833,334
Warrants issued to the Company’s placement agents net of forfeitures and repurchases		71,667		71,667
Warrants outstanding at June 30, 2011		1,738,335		905,001

(continued)

18

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 10 — Stockholders’ Equity, continued

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

Preferred Stock

During the three months ended March 31, 2011, the Company designated 1,500,000 shares of the Company’s preferred stock as Series A cumulative convertible preferred stock (“Series A Preferred”).

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

Shareholders of Series A Preferred may convert all or any portion of their shares, at their option, at any time, into shares of the Company’s common stock at an initial conversion rate of one share of common stock for each share of Series A Preferred, which is equivalent to an initial conversion price of $10.00 per share; provided, however, that the Company may terminate this conversion right on or after March 31, 2014, if for at least twenty trading days within any period of thirty consecutive trading days, the market price of the Company’s common stock exceeds the conversion price of the Series A Preferred by more than 20% and our common stock is then traded on the New York Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or the NYSE Amex. Under certain circumstances, the Company will be required to adjust the conversion rate. The initial conversion price of $10.00 per share is subject to proportionate adjustment in the event of stock splits, reverse stock splits, stock dividends, or similar changes with respect to the Company’s common stock.

(continued)

19

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 10 – Stockholders’ Equity, continued

Preferred Stock, continued

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

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

On June 8, 2011, the Company’s Board of Directors declared a cash dividend on its Series A Preferred shares in the amount of $0.5833 per share for each of the months of June, July and August 2011. The June 2011 dividend is payable July 27, 2011 to shareholders of record at the close of business on July 1, 2011. The July 2011 dividend is payable August 29, 2011 to shareholders of record at the close of business on August 1, 2011. The August 2011 dividend is payable September 27, 2011 to shareholders of record at the close of business on September 1, 2011.

Note 11 – Comprehensive Income

The components of comprehensive income are as follows (dollars in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net income	$	2,301			1,282			3,094			1,980
Other comprehensive income:
Change in unrealized gain on investments:
Unrealized gain arising during the period		285			1,230			267			1,859
Reclassification adjustment for realized gains		(140	)		(505	)		(293	)		(505	)
Net change in unrealized gain (loss)		145			725			(26	)		1,354
Deferred income taxes on above changes		(56	)		(280	)		10			(522	)
Other comprehensive income (loss)		89			445			(16	)		832
Comprehensive income	$	2,390			1,727			3,078			2,812

(continued)

20

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 12 – Stock-Based Compensation

Stock Option Plan

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

The Company’s 2007 Stock Option and Incentive Plan (the “Plan”) provides for granting of stock options to employees, directors, consultants, and advisors of the Company. Under the Plan, options may be granted to purchase a total of 6,000,000 shares of the Company’s common stock. At June 30, 2011, options to purchase 4,874,800 shares are available for grant under the Plan. The outstanding options vest over periods ranging from immediately vested to five years and are exercisable over the contractual term of ten years.

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

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2010		830,000		$	2.50
Forfeited		(24,800	)		2.50
Exercised		(145,200	)		2.50
Outstanding at June 30, 2011		660,000			2.50		6.0 years	$	2,746
Exercisable at June 30, 2011		656,800		$	2.50		6.0 years	$	2,732

At June 30, 2011, there was approximately $3,600 of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under the Plan, which the Company expects to recognize over a weighted-average period of ten months. The total fair value of shares vesting and recognized as compensation expense was approximately $9,400 and $18,600, respectively, for the three and six month periods ended June 30, 2011. There was no associated income tax benefit recognized with respect to the share compensation expense in 2011. The total intrinsic value of the 145,200 options exercised during the six months ended June 30, 2011 was $684,220 and the income tax benefit recognized was $168,000. The total fair value of shares vesting and recognized as compensation expense was approximately $24,000 and $68,000, respectively, for the three and six month periods ended June 30, 2010 and the associated income tax benefit recognized was $6,000 and $19,000, respectively. The total intrinsic value of the 40,000 options exercised during the six months ended June 30, 2010 was $147,000 and the income tax benefit recognized was $39,000.

No options were granted during the three and six month periods ended June 30, 2011 and 2010.

(continued)

21

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 13 – Commitments and Contingencies

In connection with the Company’s April 20, 2011 acquisition of the marina property located in Pinellas County, Florida (see Note 5), the Company assumed the liability to complete a site assessment and remediation of environmental contamination that resulted from a petroleum release at the marina site in late 2009. The contamination occurred during the process of removing fuel tanks from the property. The Company and its environmental consultants have assumed the remedial action work plan developed by prior management and its environmental consultant, which consists of completing the site assessment, performing soil excavation, and installing wells for collection of groundwater and soil samples throughout the monitoring phase of the project. At acquisition, the Company recorded a liability of $150,000 with respect to the planned remedial action. Such liability was determined based on reasonably estimable costs of completing the actions defined in the existing ongoing work plan. As of June 30, 2011, the $150,000 accrued at acquisition is included in other liabilities in the accompanying condensed consolidated balance sheet. Although the Company has accrued all reasonably estimable costs of completing the actions defined in the current ongoing work plan, it is possible that additional testing and additional environmental monitoring and remediation will be required in the near future as part of the Company’s ongoing discussions with the Florida Department of Health, the agency contracted by the Florida Department of Environmental Protection to administer cases of petroleum contamination in Pinellas County, in which case additional expenses could significantly exceed the current estimated liability. However, based on information known at June 30, 2011, the Company does not expect that such additional expenses would have a material adverse effect on the liquidity or financial condition of the Company.

Note 14 – Related Party Transaction

Effective April 4, 2011, the Company repurchased and retired a total of 80,000 shares of the Company’s common stock at a price of $8.00 per share for a total cost of $640,000. Such shares were repurchased under a stock purchase agreement with one of the Company’s directors at a price below the $8.20 market value of the Company’s common stock on the date of the transaction. Such repurchases were not part of a publicly announced plan or program.

Effective June 27, 2011, the Company repurchased and retired a total of 85,200 shares of the Company’s common stock at a price of $6.50 per share for a total cost of $553,800. Such shares were repurchased under a stock purchase agreement with the Company’s Chief Executive Officer at a price below the $6.96 market value of the Company’s common stock on the date of the transaction. Such repurchases were not part of a publicly announced plan or program.

Effective June 30, 2011, all rights to the software license related to the Company’s premium administration application software were assigned to the Company in exchange for a one-time payment of $50,000. Such payment was made to the Company’s director who developed and licensed the software to the Company. The related software license and consulting agreements were terminated coincident with this exchange.

(continued)

22

HOMEOWNERS CHOICE, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements, Continued

(unaudited)

Note 15 – Subsequent Event

On July 26, 2011, the Company’s Board of Directors declared a quarterly dividend on its common shares of $0.10 per share. The dividends will be paid September 16, 2011 to shareholders of record at the close of business August 19, 2011.

23

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

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes and information included under this Item 2 and elsewhere in this quarterly report on Form 10-Q and in our Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 29, 2011. Unless the context requires otherwise, as used in this Form 10-Q, the terms “HCI,” “we,” “us,” “our,” “the Company,” “our company,” and similar references refer to Homeowners Choice, Inc. and its subsidiaries.

Forward-Looking Statements

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

OVERVIEW

General

Homeowners Choice, Inc. is a property and casualty insurance holding company incorporated in Florida in 2006. Through our subsidiaries, we provide property and casualty homeowners’ insurance, condominium-owners’ insurance, and tenants’ insurance to individuals owning property in Florida. We offer these insurance products at competitive rates, while pursuing profitability using selective underwriting criteria. Our principal revenues are gross earned premiums and investment income. We cede a substantial portion of our gross earned premiums to reinsurers to mitigate risks primarily associated with hurricanes and other catastrophic events. Our principal expenses are claims from policyholders, expenses associated with investigating and settling policyholder claims, policy acquisition costs, and other underwriting expenses. As of June 30, 2011, we had total assets of $172.8 million and stockholders’ equity of $58.0 million. Our net income was approximately $2.3 million and $3.1 million, respectively, for the three and six months ended June 30, 2011. Income available to common stockholders was approximately $1.9 million and $2.7 million, respectively, for the three and six months ended June 30, 2011.

24

We began operations in June of 2007 by participating in a “take-out program” through which we assumed insurance policies held by Citizens Property Insurance Corporation (“Citizens”), a Florida state-supported insurer. The take-out program is a legislatively mandated program designed to reduce the state’s risk exposure by encouraging private companies to assume policies from Citizens. Policies were assumed in eight separate assumption transactions which took place in July and November 2007, February, June, October and December 2008, December 2009, and December 2010. Substantially all of our premium revenue since inception comes from these assumptions. We currently have approximately 59,500 policies in force. Of those policies assumed, approximately 86% are homeowners’ insurance policies, and the remaining 14% are a combination of policies written for condominium-owners and tenants. Our current policies in force represent approximately $130 million in annualized premiums.

Citizens requires us to offer renewals on the policies we acquire for a period of three years subsequent to the initial expiration of the assumed policies. The policyholders have the option to renew with us or they may ask their agent to place their coverage with another insurance company. With respect to the assumptions through December 31, 2009, policyholders could also elect to return to Citizens, i.e. opt out, prior to the policy renewal date. With respect to the December 31, 2010 assumption, the opt-out provision was limited to thirty days from the assumption date. We strive to retain these policies by offering competitive rates to our policyholders.

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

25

Recent Developments

Effective June 1, 2011, we entered into excess catastrophe reinsurance treaties, which provide approximately $345 million of coverage through non-affiliates for aggregate losses and loss adjustment expenses per event during the 2011-2012 hurricane season. We expect to be charged approximately $55 million in annual premiums with respect to these new reinsurance treaties, with such costs to be recognized over the reinsurance treaty period covering June 1, 2011 through May 31, 2012. In comparison, our reinsurance treaties covering the 2010-2011 hurricane season provided $390 million of coverage through non-affiliates for aggregate losses and loss adjustment expenses per event at a cost to us of approximately $59 million, which we recognized over the period from June 1, 2010 through May 31, 2011. The slight decrease in reinsurance premiums applicable to the 2011 reinsurance treaty year primarily results from use of current catastrophe models approved by the Florida Office of Insurance Regulation. Our reinsurance costs are expected to be approximately 42% of gross earned premiums during the period from June 1, 2011 through May 31, 2012 compared to 45% during the same period in 2010-2011.

Effective July 1, 2011, we entered into an executive employment agreement with our Chairman, Paresh Patel, to serve as our chief executive officer. Mr. Patel replaces Frank McCahill who had notified us in April 2011 of his intention to resign effective June 30, 2011.

Effective July 12, 2011, our financial stability rating of “A Exceptional” was reaffirmed by Demotech, Inc.

26

RESULTS OF OPERATIONS

The following table summarizes our results of operations for the three and six months ended June 30, 2011 and 2010 (dollars in thousands, except per share amounts):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Operating Revenue
Gross premiums earned	$	31,218			29,978			62,114			60,322
Premiums ceded		(14,174	)		(14,333	)		(28,396	)		(28,436	)
Net premiums earned		17,044			15,645			33,718			31,886
Net investment income		509			569			1,073			1,100
Realized investment gains		140			505			293			505
Gain on bargain purchase		936			—			936			—
Other Income		1,155			692			1,813			908
Total operating revenue		19,784			17,411			37,833			34,399
Operating Expenses
Losses and loss adjustment expenses		10,523			10,863			20,926			20,676
Policy acquisition and other underwriting expenses		2,780			2,668			7,043			6,960
Other operating expenses		2,660			1,886			4,787			3,583
Total operating expenses		15,963			15,417			32,756			31,219
Income before income taxes		3,821			1,994			5,077			3,180
Income taxes		1,520			712			1,983			1,200
Net income	$	2,301			1,282			3,094			1,980
Preferred stock dividends		(361	)		—			(378	)		—
Income available to common stockholders	$	1,940			1,282			2,716			1,980
Ratios to Net Premiums Earned:
Loss Ratio		61.74	%		69.43	%		62.06	%		64.84	%
Expense Ratio		31.92	%		29.11	%		35.09	%		33.07	%
Combined Ratio		93.66	%		98.54	%		97.15	%		97.91	%
Ratios to Gross Premiums Earned:
Loss Ratio		33.71	%		36.24	%		33.69	%		34.28	%
Expense Ratio		17.43	%		15.19	%		19.05	%		17.48	%
Combined Ratio		51.14	%		51.43	%		52.74	%		51.76	%
Per Share Data:
Basic earnings per common share	$	.32			.21			.44			.32
Diluted earnings per common share	$	.30			.19			.43			.29

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Comparison of the Three Months Ended June 30, 2011 to the Three Months Ended June 30, 2010

Our results of operations for the three months ended June 30, 2011 reflect income available to common stockholders of $1.9 million, or $0.30 earnings per diluted common share, compared to income available to common stockholders of $1.3 million, or $0.19 earnings per diluted common share, for the three months ended June 30, 2010. Our results for the three months ended June 30, 2011 include a bargain purchase gain of $936,000 ($575,000 net of tax), or $0.07 diluted earnings per common share. The bargain purchase gain relates to our business acquisition completed in April 2011.

Revenue

Gross Premiums Earned for the three months ended June 30, 2011 were $31.2 million and reflect the revenue from policies assumed from Citizens in connection with the eight assumption transactions through December 2010 and the revenue on the renewal of these policies. Gross premiums earned for the three months ended June 30, 2010 were $30.0 million and reflect the revenue from policies assumed from Citizens in connection with the seven assumption transactions through December 2009 and the revenue on the renewal of these policies.

Premiums Ceded for the three months ended June 30, 2011 and 2010 were approximately $14.2 million and $14.3 million, respectively. Our premiums ceded represent amounts paid to reinsurers to cover losses from catastrophes that exceed the thresholds defined by our catastrophe excess of loss reinsurance treaties. Our reinsurance rates are based primarily on policy exposures reflected in gross premiums earned. Premiums ceded were 45.4% and 47.8% of gross premiums earned during the three months ended June 30, 2011 and 2010, respectively.

Net Premiums Earned for the three months ended June 30, 2011 and 2010 were $17.0 million and $15.6 million, respectively, and reflect the gross premiums earned less the appropriate reinsurance costs as described above. Net premiums earned increased by $1.4 million in 2011 as compared to 2010 as a result of the $1.2 million increase in gross premiums earned and the $0.2 million decrease in premiums ceded.

Net Premiums Written during the three months ended June 30, 2011 and 2010 totaled $40.5 million and $34.9 million, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less any applicable reinsurance costs.

The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the three months ended June 30, 2011 and 2010 (dollars in thousands):

	Three Months Ended June 30,
	2011			2010
Net Premiums Written	$	40,507			34,855
Increase in Unearned Premiums		(23,463	)		(19,210	)
Net Premiums Earned	$	17,044			15,645

Net Investment Income for the three months ended June 30, 2011 and 2010 was $509,000 and $569,000, respectively.

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Realized Investment Gains for the three months ended June 30, 2011 and 2010 of $140,000 and $505,000 reflects the net gain realized from sales of securities during the period.

Gain on Bargain Purchase was $936,000 ($575,000 net of tax), or $0.07 diluted earnings per common share, for the three months ended June 30, 2011. The bargain purchase gain relates to our business acquisition completed in April 2011. We had no business acquisitions in 2010.

Other Income for the three months ended June 30, 2011 and 2010 was $1,155,000 and $692,000, respectively. During the three months ended June 30, 2011, other income includes income from our marina operations, rental income from our Tampa office building, and policy fee income we earn with respect to our issuance of renewal policies. In comparison, our other income for the three months ended June 30, 2010 primarily reflects policy fee income.

Expenses

Our Losses and Loss Adjustment Expenses amounted to $10.5 million and $10.9 million, respectively, during the three months ended June 30, 2011 and 2010. Our losses and loss adjustment expense reserves are more fully described below under the “Expenses” comparative for the six months ended June 30, 2011 and 2010 and, additionally, under “Critical Accounting Policies and Estimates” below.

Policy Acquisition and Other Underwriting Expenses for the three months ended June 30, 2011 and 2010 of $2.8 million and $2.7 million, respectively, primarily reflect the amortization of deferred acquisition costs, commissions payable to agents for production and renewal of policies, and premium taxes and policy fees.

Other Operating Expenses for the three months ended June 30, 2011 and 2010 were $2.7 million and $1.9 million, respectively. Such expenses include administrative compensation and related benefits, corporate insurance, professional fees, office lease and related expenses, information system expense, and other general, administrative, and operational costs. The $0.8 million increase is primarily attributable to increases in compensation and related expenses, professional fees, and expenses related to our real estate and marina operations of $0.2 million, $0.1 million, and $0.4 million, respectively. As of June 30, 2011, we had 88 employees compared to 69 employees as of June 30, 2010.

Income Taxes for the three months ended June 30, 2011 and 2010 were $1.5 million and $0.7 million, respectively, for state and federal income taxes resulting in an effective tax rate of 40% for 2011 and 36% for 2010.

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Ratios:

The loss ratio applicable to the three months ended June 30, 2011 (loss and loss adjustment expenses related to net premiums earned) was 61.7% compared to 69.4% for the three months ended June 30, 2010.

The expense ratio applicable to the three months ended June 30, 2011 (policy acquisition and other underwriting expenses related to net premiums earned plus compensation, employee benefits, and other operating expenses) was 31.9% compared to 29.1% for the three months ended June 30, 2010 due to the increase in our expense ratio with respect to our other operating expenses (see Other Operating Expenses above).

The combined loss and expense ratio (total of all expenses related to net premiums earned) is the key measure of underwriting performance traditionally used in the property and casualty industry. A combined ratio under 100% generally reflects profitable underwriting results. A combined ratio over 100% generally reflects unprofitable underwriting results. Our combined ratio for the three months ended June 30, 2011 was 93.7% compared to 98.5% for the three months ended June 30, 2010.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined loss and expense ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined loss and expense ratio to gross premiums earned for the three months ended June 30, 2011 was 51.1% compared to 51.4% for the three months ended June 30, 2010.

Comparison of the Six Months Ended June 30, 2011 to the Six Months Ended June 30, 2010

Our results of operations for the six months ended June 30, 2011 reflect income available to common stockholders of $2.7 million, or $0.43 earnings per diluted common share, compared to income available to common stockholders of $2.0 million, or $0.29 earnings per diluted common share, for the six months ended June 30, 2010. Our results for the six months ended June 30, 2011 include a bargain purchase gain of $936,000 ($575,000 net of tax), or $0.08 diluted earnings per common share. The bargain purchase gain relates to our business acquisition completed in April 2011.

Revenue

Gross Premiums Earned for the six months ending June 30, 2011 were $62.1 million and reflect the revenue from policies assumed from Citizens in connection with the eight separate assumption transactions through December 2010 and the revenue on the renewal of these policies. Gross premiums earned for the six months ending June 30, 2010 were $60.3 million and reflect the revenue from policies assumed from Citizens in connection with the seven separate assumption transactions through December 2009 and the revenue on the renewal of these policies.

Premiums Ceded for each of the six months ending June 30, 2011 and 2010 were $28.4 million. Our premiums ceded represent amounts paid to reinsurers to cover losses from catastrophes that exceed the thresholds defined by our catastrophe excess of loss reinsurance treaties. Our reinsurance rates are based primarily on policy exposures reflected in gross premiums earned. Premiums ceded were 45.7% and 47.1% of gross premiums earned during the six months ending June 30, 2011 and 2010, respectively.

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Net Premiums Earned for the six months ending June 30, 2011 and 2010 were $33.7 million and $31.9 million, respectively, and reflect the gross premiums earned less reinsurance costs as described above. Net premiums earned increased by $1.8 million in 2011 as compared to 2010 as a result of the $1.8 million increase in gross premiums earned.

Net Premiums Written during the six months ending June 30, 2011 and 2010 totaled $39.2 million and $29.5 million, respectively. Net premiums written represent the premiums charged on policies issued during a fiscal period less reinsurance costs.

The following is a reconciliation of our total Net Premiums Written to Net Premiums Earned for the six months ended June 30, 2011 and 2010 (in thousands):

	Six Months Ended June 30,
	2011			2010
Net Premiums Written	$	39,214			29,517
(Increase) Decrease in Unearned Premiums		(5,496	)		2,369
Net Premiums Earned	$	33,718			31,886

Net Investment Income for the six months ending June 30, 2011 and 2010 was $1,073,000 and $1,100,000, respectively.

Realized Investment Gains for the six months ending June 30, 2011 and 2010 of $293,000 and $505,000, respectively, reflects the net gain realized from sales of securities during the period.

Gain on Bargain Purchase was $936,000 ($575,000 net of tax), or $0.08 diluted earnings per common share, for the six months ended June 30, 2011. The bargain purchase gain relates to our business acquisition completed in April 2011. We had no business acquisitions in 2010.

Other Income for the six months ending June 30, 2011 and 2010 of $1,813,000 and $908,000, respectively. During the six months ended June 30, 2011, other income includes income from our marina operations, rental income from our Tampa office building, and policy fee income we earn with respect to our issuance of renewal policies. In comparison, our other income for the six months ended June 30, 2010 primarily reflects policy fee income.

Expenses

Our Losses and Loss Adjustment Expenses amounted to $20.9 million and $20.7 million, respectively, during the six months ended June 30, 2011 and 2010.

Our losses and loss adjustment expense reserves (“Reserves”), which are more fully described below under “Critical Accounting Policies and Estimates,” are specific to homeowners insurance, which is our only line of business. These Reserves include both case reserves on reported claims and our reserves for incurred but not reported (“IBNR”) losses. At each period-end date, the balance of our Reserves is based on our best estimate of the ultimate cost of each claim for those known cases and the IBNR loss reserves are estimated based primarily on our historical experience. Our Reserves increased from $22.1 million at December 31, 2010 to $25.0 million at June 30, 2011. The $2.9 million increase in our Reserves is comprised of $13.1 million in new reserves specific to the six months ended June 30, 2011 offset by reductions of $8.1 million and $2.1 million in our Reserves for 2010 and 2009 and prior accident years, respectively. The $13.1 million in Reserves established for 2011 claims is due to the increase in our policy exposure, which resulted in an increase in the amount of reported losses in 2011. The decrease of $10.2 million specific to our 2010 and 2009 and prior accident-year reserves is due to favorable development arising from lower than expected loss development during 2011 relative to expectations used to establish our Reserve estimates at the end of 2010. Factors that are attributable to this favorable development may include a lower severity of claims than the severity of claims considered in establishing our Reserves and actual case development may be more favorable than originally anticipated.

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Policy Acquisition and Other Underwriting Expenses for each of the six months ending June 30, 2011 and 2010 of $7.0 million primarily reflect the amortization of deferred acquisition costs, commissions payable to agents for production and renewal of policies, and premium taxes and policy fees.

Other Operating Expenses for the six months ending June 30, 2011 and 2010 were $4.8 million and $3.6 million, respectively. Such expenses include administrative compensation and related benefits, corporate insurance, professional fees, office lease and related expenses, information system expense, and other general, administrative, and operational costs. The $1.2 million increase is primarily attributable to increases in compensation and related expenses, professional fees, and expenses related to our real estate and marina operations of $0.4 million, $0.2 million, and $0.6 million, respectively. As of June 30, 2011, we had 88 employees compared to 69 employees as of June 30, 2010.

Income Taxes for the six months ended June 30, 2011 and 2010 were $2.0 million and $1.2 million, respectively, for state and federal income taxes resulting in an effective tax rate of 39% for 2011 and 38% for 2010.

Ratios:

The loss ratio applicable to the six months ending June 30, 2011 (loss and loss adjustment expenses related to net premiums earned) was 62.1% compared to 64.8% for the six months ended June 30, 2010.

The expense ratio applicable to the six months ending June 30, 2011 (policy acquisition and other underwriting expenses related to net premiums earned plus compensation, employee benefits, and other operating expenses) was 35.1% compared to 33.1% for the six months ending June 30, 2010 due to the increase in our expense ratio with respect to our other operating expenses (see Other Operating Expenses above).

The combined loss and expense ratio (total of all expenses related to net premiums earned) is the key measure of underwriting performance traditionally used in the property and casualty industry. A combined ratio under 100% generally reflects profitable underwriting results. A combined ratio over 100% generally reflects unprofitable underwriting results. Our combined ratio for the six months ending June 30, 2011 was 97.2% compared to 97.9% for the six months ending June 30, 2010.

Due to the impact our reinsurance costs have on net premiums earned from period to period, our management believes the combined loss and expense ratio measured to gross premiums earned is more relevant in assessing overall performance. The combined loss and expense ratio to gross premiums earned for the six months ending June 30, 2011 was 52.7% compared to 51.8% for the six months ending June 30, 2010.

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Seasonality of Our Business

We expect to experience increases in our losses and loss adjustment expenses during the period from June 1 through November 30 each year as this is typically the period during which hurricanes and other tropical storms may occur. As a result of such seasonal variations in our reported losses, we anticipate our operating profits during the period from June 1 through November 30 each year may be negatively impacted by an increase in losses and loss adjustment expenses.

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

Preferred Stock

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

Shareholders of Series A Preferred may convert all or any portion of their shares, at their option, at any time, into shares of the Company’s common stock at an initial conversion rate of one share of common stock for each share of Series A Preferred, which is equivalent to an initial conversion price of $10.00 per share; provided, however, that we may terminate this conversion right on or after March 31, 2014, if for at least twenty trading days within any period of thirty consecutive trading days, the market price of our common stock exceeds the conversion price of the Series A Preferred by more than 20% and our common stock is then traded on the New York Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or the NYSE Amex. Under certain circumstances, we will be required to adjust the conversion rate. The initial conversion price of $10.00 per share is subject to proportionate adjustment in the event of stock splits, reverse stock splits, stock dividends, or similar changes with respect to our common stock.

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

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

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

Cash Flows

Our cash flows from operating, investing and financing activities for the six months ended June 30, 2011 and 2010 are summarized below.

Cash Flows for the Six Months Ended June 30, 2011

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

Cash Flows for the Six Months Ended June 30, 2010

Net cash provided by operating activities for the six months ended June 30, 2010 was approximately $27.7 million, which resulted primarily from the collection of $19.5 million from Citizens in connection with our December 2009 assumption transaction and $6.0 million in advance premiums offset by cash disbursed for operating expenses and losses and loss adjustment expenses. Net cash provided by investing activities of $7.6 million was primarily due to the receipt of $12.2 million in proceeds from the sale of securities and $7.4 million from the redemption of short-term investments offset by $4.5 million used for new investments in fixed maturity securities and $7.3 million used to purchased assets, primarily the $7.1 million used for the purchase of our Tampa office building. Net cash used in financing activities totaled $2.5 million, which was due to the repurchases during the period of our shares and warrants.

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Investments

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

At June 30, 2011, we have $28.4 million of available-for-sale investments, which are carried at fair value. Changes in the general interest rate environment affect the returns available on new fixed maturity investments. While a rising interest rate environment enhances the returns available on new investments, it reduces the market value of existing fixed maturity investments and thus the availability of gains on disposition. A decline in interest rates reduces the returns available on new fixed maturity investments but increases the market value of existing fixed maturity investments, creating the opportunity for realized investment gains on disposition.

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

OFF-BALANCE SHEET ARRANGEMENTS

As of December 31, 2010 and June 30, 2011, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

CONTRACTUAL OBLIGATIONS

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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The IBNR reserves represent our estimate of the ultimate cost of all claims that have occurred but have not been reported to us and, in some cases, may not yet be known to the insured. Estimating the IBNR component of our Reserves involves considerable judgment on the part of management. At June 30, 2011, $9.4 million of the total $25.0 million we have reserved for losses and loss adjustment expenses is specific to our estimate of claims incurred but not reported. The remaining $15.6 million relates to known cases which have been reported but not yet fully settled in which case we have booked a reserve based on our best estimate of the ultimate cost of each claim. At June 30, 2011, $9.4 million of the $15.6 million in reserves for known cases relates to claims incurred during prior years.

Based on all information known to us, we believe our Reserves at June 30, 2011 are adequate to cover our claims for losses that had occurred as of that date including losses yet to be reported. However, these estimates are subject to trends in claim severity and frequency and must continually be reviewed by management. As part of the process, we review historical data and consider various factors, including known and anticipated regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the existing unpaid losses and loss adjustment expenses. Adjustments are reflected in the results of operations in the period in which they are made and the liabilities may deviate substantially from prior estimates.

In addition to Reserves, we believe our accounting policies specific to premium revenue recognition, losses and loss adjustment expenses, reinsurance, deferred policy acquisition costs, income taxes, and stock-based compensation expense involve our most significant judgments and estimates material to our consolidated financial statements. These accounting estimates and related risks that we consider to be our critical accounting estimates are more fully described in our Annual Report on Form 10-K, which we filed with the SEC on March 29, 2011. For the six months ended June 30, 2011, there have been no material changes with respect to any of our critical accounting policies.

RECENT ACCOUNTING PRONOUNCEMENTS

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

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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ITEM 4 – CONTROLS AND PROCEDURES

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

There have been no changes in our internal controls over financial reporting during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

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

ITEM 1a – RISK FACTORS

There have been no material changes from the risk factors previously disclosed in the section entitled “Risk Factors” in our Form 10-K, which was filed with the Securities and Exchange Commission on March 29, 2011.

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

(a) Sales of Unregistered Securities

None.

(b) Use of Proceeds

None.

(c) Repurchases of Securities

During the quarter ended March 31, 2011, the maximum amount designated for repurchases under the Company’s formal repurchase plan was expended and the share repurchase program was terminated. The following table provides information with respect to shares repurchased during the quarter ended June 30, 2011 all of which were not part of a publicly announced plan:

	Total Number Of Shares Repurchased		Average Price  Paid Per Share
Period
April 1-30, 2011		80,000		8.00
May 1-31, 2011		—		—
June 1-30, 2011		85,200		6.50
Total		165,200	$	7.23

Working Capital Restrictions and Other Limitations on Payment of Dividends

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

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

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ITEM 6 – EXHIBITS

The following documents are filed as part of this report:

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

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4.6	Form of Unit Certificate. Incorporated by reference to the correspondingly numbered exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 (File No. 333-150513) filed August 6, 2008.
4.7	Warrant Agreement dated July 30, 2008, between Homeowners Choice, Inc. and GunnAllen Financial, Inc. Incorporated by reference to the correspondingly numbered exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 (File No. 333-150513) filed August 6, 2008.
4.8	Letter Agreement dated August 1, 2008 among Homeowners Choice, Inc., Anderson & Strudwick, Incorporated and GunnAllen Financial, Inc., whereby we waive certain cancellation rights under warrants issued to the other parties. Incorporated by reference to the correspondingly numbered exhibit to our Post-Effective Amendment No. 1 to our Registration Statement on Form S-1 (File No. 333-150513) filed August 6, 2008.
4.9	See Exhibits 3.1 and 3.2 of this report for provisions of the Articles of Incorporation, as amended, and our Bylaws, as amended, defining certain rights of security holders. See also Exhibits 10.6 and 10.7 defining certain rights of the recipients of stock options and other equity-based awards.
4.10	Specimen 7% Series A Cumulative Preferred Stock Certificate Incorporated by reference to Exhibit 4.2 to Form 8-A filed March 25, 2011.
10.1	Executive Agreement dated May 1, 2007 between Homeowners Choice, Inc. and Francis X. McCahill, III. Incorporated by reference to the correspondingly numbered exhibit to our Registration Statement on Form S-1 (File No. 333-150513), originally filed April 30, 2008, effective July 24, 2008, as amended.
10.2	Executive Agreement dated May 1, 2007 between Homeowners Choice, Inc. and Richard R. Allen. Incorporated by reference to the correspondingly numbered exhibit to our Registration Statement on Form S-1 (File No. 333-150513), originally filed April 30, 2008, effective July 24, 2008, as amended.
10.3	Placement Agreement dated March 25, 2011 between Homeowners Choice, Inc. and Anderson & Strudwick, Incorporated. Incorporated by reference to exhibit 1.1 to our Form 8-K filed March 31, 2011.
10.4	Executive Agreement date July 1, 2011 between Homeowners Choice, Inc. and Paresh Patel

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10.5	Consulting Agreement dated June 1, 2007 between Homeowners Choice, Inc. and Scorpio Systems, Inc. Incorporated by reference to the correspondingly numbered exhibit to our Registration Statement on Form S-1 (File No. 333-150513), originally filed April 30, 2008, effective July 24, 2008, as amended. See amendment to Consulting Agreement at Exhibit 10.12.
10.6	Homeowners Choice, Inc. 2007 Stock Option and Incentive Plan. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 29, 2008.
10.7	Form of Incentive Stock Option Agreement. Incorporated by reference to the correspondingly numbered exhibit to our Registration Statement on Form S-1 (File No. 333-150513), originally filed April 30, 2008, effective July 24, 2008, as amended.
10.9	Software License Agreement executed April 8, 2008 with an effective date of November 1, 2007 by and between Homeowners Choice, Inc. and Scorpio Systems, Inc. Incorporated by reference to the correspondingly numbered exhibit to our Registration Statement on Form S-1 (File No. 333-150513), originally filed April 30, 2008, effective July 24, 2008, as amended.
10.10	PR-M Non-Bonus Assumption Agreement dated December 1, 2007 by and between Homeowners Choice Property & Casualty Insurance Company, Inc. and Citizens Property Insurance Corporation. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-K filed March 30, 2010.
10.12	Amendment dated August 21, 2008 to Consulting Agreement dated June 1, 2007 between Homeowners Choice, Inc. and Scorpio Systems, Inc. Incorporated by reference to Exhibit 10.12 to Form 8-K filed August 21, 2008.
10.13	Excess Catastrophe Reinsurance Contract effective June 1, 2011 by Homeowners Choice Property & Casualty Insurance Company, Inc. and Subscribing Reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
10.14	Reinstatement Premium Protection Agreement effective June 1, 2011 by Homeowners Choice Property & Casualty Insurance Company, Inc. and Subscribing Reinsurers. Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

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10.15	Aggregate Excess Catastrophe Reinsurance Agreement dated June 1, 2011 by Homeowners Choice Property & Casualty Insurance Company, Inc. and Subscribing Reinsurers (Layer A). Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
10.16	Aggregate Excess Catastrophe Reinsurance Agreement dated June 1, 2011 by Homeowners Choice Property & Casualty Insurance Company, Inc. and Subscribing Reinsurers (Layer B). Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
10.17	Form of indemnification agreement for our officers and directors. Incorporated by reference to the correspondingly numbered exhibit to our Form 10-Q filed August 12, 2009.
10.18	Lease Agreement dated April 8, 2008 between 2340 Drew St, LLC and Homeowners Choice, Inc. Incorporated by reference to the correspondingly numbered exhibit to our Registration Statement on Form S-1 (File No. 333-150513), originally filed April 30, 2008, effective July 24, 2008, as amended.
10.19	Reimbursement Contract effective June 1, 2011 between Homeowners Choice Property & Casualty Insurance Company and the State Board of Administration which administers the Florida Hurricane Catastrophe Fund.
10.20	Separation Agreement dated June 17, 2011 between Francis X. McCahill, III and Homeowners Choice, Inc.
10.21	Bill of Sale and Assignment dated July 1, 2011 by Scorpio Systems, Inc. to Homeowners Choice, Inc.
31.1	Certification of the Chief Executive Officer
31.2	Certification of the Chief Financial Officer
32.1	Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C.ss.1350
32.2	Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C.ss.1350
101.INS	XBRL Instance Document. (1)
101.SCH	XBRL Taxonomy Extension Schema. (1)
101.CAL	XBRL Taxonomy Extension Calculation Linkbase. (1)
101.DEF	XBRL Taxonomy Definition Linkbase. (1)
101.LAB	XBRL Taxonomy Extension Label Linkbase. (1)
101.PRE	XBRL Taxonomy Extension Presentation Linkbase. (1)

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

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SIGNATURES

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

	HOMEOWNERS CHOICE, INC.
August 12, 2011	By	/s/ Paresh Patel
		Paresh Patel
		Chief Executive Officer
		(Principal Executive Officer)
August 12, 2011	By	/s/ Richard R. Allen
		Richard R. Allen
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

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

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EX-10.4

Exhibit 10.4

EXECUTIVE EMPLOYMENT AGREEMENT

THIS AGREEMENT, dated July 1, 2011, is by and between Homeowners Choice, Inc. (the “Company”), a Florida corporation having its principal place of business at 5300 West Cypress Street, Suite 100, Tampa, Florida 33607, and Paresh Patel (the “Executive”).

BACKGROUND STATEMENT

The Company, through its Affiliates (as defined in this Agreement), is principally engaged in the business of providing homeowners insurance. An integral part of its insurance business is the investment of surplus and reserve funds. The Company contemplates that it may engage in other insurance lines of business and other business activities as well. (All such business and investment activities, present and future, whether engaged in by the Company or an Affiliate are referred to in this Agreement as the “Business”). The Company has developed and expects to develop trade secrets, methods of doing business, business plans, computer software and other items, all of which are worthy of protection. The Company considers it to be in its best interests to have the benefit of the Executive’s services as provided in this Agreement and the Executive is willing to render such services to the Company in accordance with the provisions of this Agreement.

NOW THEREFORE, in consideration of and reliance upon the foregoing background statement and the representations and warranties contained in this Agreement, the Company and the Executive agree to the following terms and conditions:

TERMS AND CONDITIONS

1. Employment and Title. Commencing July 1, 2011, the Company agrees to employ the Executive, and the Executive agrees to serve, as the Company’s president and chief executive officer, upon the terms and conditions set forth in this Agreement.

2. Duties, Responsibilities and Authority. During the term of his employment under this Agreement, the Executive will have the duties, responsibilities and authorities assigned to him by the Company’s board of directors, which duties, responsibilities and authorities will not be inconsistent with the Executive’s role as the Company’s president and chief executive officer. The Executive will report solely to the Company’s board of directors. The Executive agrees to devote his best efforts and substantially all of his full business time, energies and abilities, diligently and in good faith, to perform his duties, fulfill his responsibilities, and exercise his authority hereunder for the exclusive benefit of the Company. This provision will not be construed as preventing the Executive from participating in charitable and community affairs, managing his investment, investing in or engaging in other ventures, or maintaining a directorship related to First Home Bank, provided such activities do not interfere with the performance of his duties under this Agreement are not inconsistent with his role as the Company’s president and chief executive officer. The Executive agrees to serve on the Company’s board of directors, if elected. In promoting the interests of the Company and without additional compensation, the Executive will serve any of the Company’s Affiliates, including subsidiary corporations, partnerships, limited liability corporations and joint ventures, in such capacities as the Company’s board of directors may from time to time direct. The Executive will read and abide by any policy, code or practice the Company has or may hereafter adopt that is applicable to executives or executive officers in general, including policies and rules contained in the Company’s employee handbook and code of conduct.

3. Board Elections. During the Executive’s term of employment under this Agreement, the Company will use its best efforts to cause the Executive to be elected to the Board of Directors of Company (or its successor in interest), and to nominate the Executive as a member of the management slate at each annual meeting of shareholders at which the Executive’s director class comes up for election.

4. Location. The Executive’s principal place of employment will 5300 West Cypress Street in Tampa, Florida or such other place to which the parties agree, but in no event more than 20 miles from Tampa, Florida.

5. Term. The initial term of the Executive’s employment hereunder will commence on July 1, 2011 and continue for a period of three years, unless earlier terminated pursuant to the terms of this Agreement. The Executive’s employment hereunder will continue and automatically renew for additional one-year terms unless either party delivers written notice of non-renewal at least 90 days before expiration of the initial term or any renewal term. The initial term and any renewal term are hereinafter collectively referred to as the “Term.”

6. Compensation.

6.1. Base Salary. As compensation for the services to be rendered by the Executive hereunder, the Company will pay the Executive, during the Term, an annual base salary of $500,000, which base salary will accrue and be paid in accordance with the Company’s standard payroll practices.

6.2. Bonus Compensation. The Executive will be entitled to any additional compensation provided for by resolution of the Company’s board of directors or applicable committee of the board of directors.

6.3. Benefits. During the Term, the Executive will be entitled to (i) medical, dental, life, disability and retirement benefits, if any, upon substantially the same terms and conditions generally applicable to all of the Company’s executives; and (ii) three weeks paid vacation plus other paid time generally available to the other executive officers of the Company.

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6.4. Reimbursement of Expenses. The Company will reimburse the Executive for all reasonable travel and other business expenses incurred by the Executive in the performance of the Executive’s duties hereunder, subject to, and in accordance with, any expense reimbursement policies and expense documentation requirements of the Company that may be in effect from time to time.

6.6. Withholding. Any and all amounts payable under this Agreement will be subject to any federal, state and local tax and other withholdings or deductions required by applicable law, rule or regulation.

7. Working Facilities. The Company will provide the Executive with an office at the Executive’s principal work location or at such other location as agreed to by the Executive and the Company, and other working facilities and secretarial and other assistance suitable to his position and reasonably required for the performance of his duties hereunder.

8. Incapacity.

8.1 Right to Terminate. Notwithstanding anything else to the contrary contained in this Agreement, except as provided by this Section 8 the Company will have no right to terminate the Executive’s employment while the Executive suffers Incapacity (as defined below). If the Executive suffers Incapacity for a period exceeding six consecutive months then the Company will have the right to terminate the Executive’s employment hereunder 30 days after delivery of written notice of termination. A termination of employment under this Section 8 will be deemed a termination without “Good Cause” as described in Section 9.4 hereof.

8.2 Right to Replace. If the Executive suffers Incapacity for 30 or more consecutive days, the Company will have the right to designate a person to temporarily perform the Executive’s duties.

8.3 Rights Prior to Termination. During a period of Incapacity the Executive will be entitled to his full base salary under Section 6.1 hereof and full benefits under Section 6.3 hereof until employment is terminated as described in Section 9.1. The Executive will be entitled to reasonable accommodations from the Company so that the Executive is not prevented from performing his duties by illness or injury.

8.4 Incapacity Defined. For purposes of this Section 8, the term “Incapacity” means the Executive’s inability to perform his duties hereunder substantially on a full-time basis because of physical or mental illness or physical injury as determined by the Company’s board of directors, in its reasonable discretion, based upon competent medical evidence. Upon the Company’s written request, the Executive will submit to reasonable medical and other examinations to provide the evidence required hereunder.

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9. Termination of Employment.

9.1 Termination by the Company. The Company may terminate the Executive’s employment under this Agreement without Good Cause anytime not fewer than 30 days nor more than 45 days after delivering written notice of termination to the Executive. The Company may terminate the Executive’s employment hereunder for Good Cause anytime by delivery of written notice of termination. Termination will be effective upon the date set forth in the notice of termination. Good Cause will be limited to the following circumstances:

(i) The Executive commits any fraud, dishonesty, misappropriation or similar act against the Company or others;

(ii) The Executive materially defaults in the performance of his obligations, services or duties hereunder;

(iii) The Executive commits any public or private act that the Company’s board of directors finds, in good faith, to be materially inimical to the best interests of the Company or would tend to discredit, dishonor, embarrass, reflect adversely upon or in any manner injure the reputation of the Company, an Affiliate or the products or services of the Company or an Affiliate, or subject the Company or an Affiliate to potential material liability;

(iv) The Executive is grossly negligent or commits willful misconduct in the performance of his duties hereunder; and

(v) The Executive has been adjudicated guilty by, or enters a plea of guilty or no contest before, a court of competent jurisdiction of illegal activities or found by a court of competent jurisdiction to have engaged in other wrongful conduct and such illegal activities or wrongful conduct, individually or in the aggregate, has (or could be reasonably expected to have) a material adverse effect on the Company, its prospects, earnings or financial condition.

9.2 Effect of Termination for Good Cause. If the Executive’s employment is terminated by the Company for Good Cause—

(i) the Executive will be entitled to accrued base salary under Section 6.1 and accrued vacation pay and other paid time off, each through the date of termination; and

(ii) the Executive will be entitled to reimbursement for expenses accrued through the date of termination in accordance with the provisions of Section 6.4 hereof; and

9.3 Effect of Termination without Good Cause. If the Company terminates the Executive’s employment without Good Cause—

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(i) the Executive will be entitled to accrued base salary under Section 6.1 and accrued vacation pay and other time off, each through the date of termination;

(ii) the Executive will be entitled to reimbursement for expenses accrued through the date of termination in accordance with the provisions of Section 6.4 hereof;

(iii) the Executive will be entitled to receive all amounts of base salary that would have been payable under Section 6.1 (provided that the Executive will receive not less than 12 months of base salary) through the Term (excluding future automatic renewals) (the “Scheduled Termination Date”) if employment had not been terminated, which amounts will be paid as and when such base salary would have been paid;

(iv) if the termination is within three years of a Change of Control (as defined herein), the Executive will be entitled to receive a one-time, lump sum severance payment (due upon termination) equal to 2.9 times the total amount of the annual base salary payable under the terms of Section 6.1 of this Agreement of this Agreement; and

(vii) The provisions of Section 13 will no longer apply to the Executive.

9.4 Deemed Termination without Good Cause. The Executive’s death will be deemed a termination without Good Cause as of the date of death. Termination by reason of the Executive’s Incapacity as set forth in Section 8.1 will be deemed a termination without Good Cause. The expiration of the Term after the Company delivers written notice of non-renewal as described in Section 5 will be deemed a termination without Good Cause. In addition, after the occurrence of any of the following events, the Executive, at his sole option, may declare by 30 days written notice to the Company that his employment hereunder has been terminated by the Company, and such termination will for all purposes of this Agreement be deemed a termination by the Company without Good Cause:

(i) The Company materially changes the Executive’s reporting requirements;

(ii) The Executive is removed from or fails to win election to the Company’s board of directors;

(iii) The Company fails to afford the Executive the power and authority generally commensurate with the position of a president and chief executive officer;

(iv) The Company moves the Executive’s principal place of employment beyond 20 miles from Tampa, Florida; or

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(v) The Company breaches any material provision of this Agreement.

9.5 Termination by Executive. The Executive may terminate his employment hereunder by delivery of not less than 30 days written notice to the Company.

9.6 Effect of Termination by Executive. If the Executive terminates his employment pursuant to Section 9.5 hereof —

(i) the Executive will be entitled to accrued base salary under Section 6.1 and accrued vacation pay and other paid time off, each through the date of termination; and

(ii) the Executive will be entitled to reimbursement for expenses accrued through the date of termination in accordance with the provisions of Section 6.4 hereof.

9.7 Change of Control. For purposes of Section 9.3 of this Agreement, a “Change of Control” will be deemed to have occurred in the event of—

(i) The acquisition by any person or entity, or group thereof acting in concert, of “beneficial” ownership (as such term is defined in Securities and Exchange Commission (“SEC”) Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), of securities of the Company which, together with securities previously owned, confer upon such person, entity or group the voting power, on any matters brought to a vote of shareholders, of 30% or more of the then outstanding shares of capital stock of the Company;

(ii) The sale, assignment or transfer of assets of the Company in a transaction or series of transactions, if the aggregate consideration received or to be received by the Company in connection with such sale, assignment or transfer is greater than 50% of the book value, determined by the Company in accordance with generally accepted accounting principles, of the Company’s assets determined on a consolidated basis immediately before such transaction or the first of such transactions;

(iii) The merger, consolidation, share exchange or reorganization of the Company as a result of which the holders of all of the shares of capital stock of the Company as a group would receive less than 50% of the voting power of the capital stock or other interests of the surviving or resulting corporation or entity;

(iv) The adoption of a plan of liquidation or the approval of the dissolution of the Company;

(v) A determination by the Company’s board of directors, in view of then current circumstances or impending events, that a Change of Control has occurred or is imminent, which determination will be made for the specific purpose of triggering the operative provisions of this Agreement; or

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(vi) The Company’s board of directors is not comprised of a majority of directors who were either directors as of the date of this Agreement (the “Initial Directors”) or whose nomination or election was approved by at least a majority of the Initial Directors or by a majority of directors whose nomination or election was approved by the Initial Directors.

9.8 Certain Additional Payments by the Company.

(a) If it will be determined that any payment, distribution or benefit received or to be received by the Executive from the Company (“Payments”) would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code (the “Excise Tax”), then the Executive will be entitled to receive an additional payment (the “Excise Tax Gross-Up Payment”) in an amount such that the net amount retained by the Executive, after the calculation and deduction of any Excise Tax on the Payments and any federal, state and local income taxes and excise tax on the Excise Tax Gross-Up Payment provided for in this Section 9.8, will be equal to the Payments. In determining this amount, the amount of the Excise Tax Gross-Up Payment attributable to federal income taxes will be reduced by the maximum reduction in federal income taxes that could be obtained by the deduction of the portion of the Excise Tax Gross-Up Payment attributable to state and local income taxes. Finally, the Excise Tax Gross-Up Payment will be reduced by income or excise tax withholding payments made by the Company or any Affiliate to any federal, state or local taxing authority with respect to the Excise Tax Gross-Up Payment that was not deducted from compensation payable to the Executive.

(b) All determinations required to be made under this Section 9.8, including whether and when an Excise Tax Gross-Up Payment is required and the amount of such Excise Tax Gross-Up Payment and the assumptions to be utilized in arriving at such determination, except as specified in Section 9.8(a) above, will be made by the independent tax or accounting (the “Accounting Firm”), which will provide detailed supporting calculations both to the Company and the Executive within 15 business days after the Executive provides the Company with notice that a Payment has been or will be made or such earlier time as may be required by the Company. The determination of tax liability made by the Accounting Firm will be subject to review by the Executive’s tax advisors and, if the Executive’s tax advisors do not agree with the determination reached by the Accounting Firm, then the Accounting Firm and the Executive’s tax advisor will jointly designate a nationally recognized public accounting firm, which will make the determination. All fees and expenses of the accountants and tax advisors retained by either the Executive or the Company will be borne by the Company. Any Excise Tax Gross-Up Payment, as determined pursuant to this Section 9.8, with respect to a Payment will be paid by the Company to the Executive at such time as the Executive is entitled to receive the Payment. Any determination by a jointly designated public accounting firm will be binding upon the Company and the Executive.

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(c) As a result of the uncertainty in the application of Section 4999 of the Internal Revenue Code at the time of the initial determination hereunder, it is possible that Excise Tax Gross-Up Payments will not have been made by the Company that should have been made consistent with the calculations required to be made hereunder (“Underpayment”). In the event that the Executive thereafter is required to make a payment of any Excise Tax, any such Underpayment calculated in accordance with and in the same manner as the Excise Tax Gross-Up Payment in Section 9.8(a) above will be promptly paid by the Company to or for the benefit of the Executive. In the event that the Excise Tax Gross-Up Payment exceeds the amount subsequently determined to be due, such excess will constitute a loan from the Company to the Executive payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Internal Revenue Code).

10. Certain Board Actions. The Executive will not vote on any matter involving the Executive’s own compensation, matters involving Incapacity under Section 8 hereof or any motion involving termination of the Executive’s employment under this Agreement. Notwithstanding the foregoing sentence the Executive may vote on compensation-related plans involving officers, directors or employees as a group, including bonus, stock, and option plans.

11. Trade Secrets.

11.1. Confidential Information. For the purposes of this Agreement, “Confidential Information” means information or materials that, in the Company’s view, provide advantage to the Company (or an Affiliate) over others not having such information or materials and includes (i) customer information, supplier information, sales channel and distributor information, material terms of any contracts, marketing philosophies, strategies, techniques and objectives (including service roll-out dates and volume estimates), legal and regulatory positions and strategies, advertising and promotional copy, competitive advantages and disadvantages, non-published financial data, network configurations, product or service plans, designs, costs, prices and names, inventions, discoveries, improvements, technological developments, know-how, software code, business opportunities (including planned or proposed financings, mergers, acquisitions, ventures and partnerships) and methodologies and processes (including the look and feel of computer screens and reports) for customer assistance, order acceptance and tracking, repairs, and commissions; (ii) information designated in writing or conspicuously marked as “confidential” or “proprietary” or likewise designated or marked with words of similar import; (iii) information for which the Company has an obligation of confidentiality so long as such obligation is known to the Executive; and (iv) information that by its nature or the circumstances of its delivery or disclosure a reasonable person would conclude that it is confidential or proprietary. The Executive is specifically aware of the legal obligations of confidentiality afforded to customers of financial institutions, including obligations to insurance policyholders.

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11.2. Confidentiality. The Executive will hold Confidential Information in confidence and trust and limit disclosure of Confidential Information strictly to persons who have a need to know such Confidential Information in connection with the Business. The Executive will not disclose, use, or permit the use or disclosure of Confidential Information, except in satisfying his obligations under this Agreement. The Executive will use reasonable care to protect Confidential Information from inappropriate disclosure, whether inadvertent or intentional. The Executive understands that the misappropriation of a trade secret is a criminal offense under state and federal laws. Notwithstanding the foregoing, the Executive may disclose Confidential Information if such disclosure is required by a court order or an order of a similar judicial or administrative body; provided, however, that the Executive notifies the Company of such requirement immediately and in writing, and cooperates reasonably with the Company in obtaining a protective or similar order with respect thereto.

11.3. Notification of Third Party Disclosure Requests. If the Executive receives any written or oral third party request, order, instruction or solicitation for the disclosure of Confidential Information not in conformance with this Agreement or if the Executive becomes aware of any attempt by a third party to improperly gain Confidential Information, the Executive will immediately notify the Company’s general counsel and the Company’s board of directors of such request, order, instruction or solicitation or of such attempt and fully disclose the details surrounding such request, order, instruction or solicitation or such attempt.

11.4. Non-Removal of Records. All documents, files, records, data, papers, materials, notes, books, correspondence, drawings and other written, graphic or electronic records of the Business and all computer software of the Company which the Executive will prepare or use, or come into contact with, will be and remain the exclusive property of the Company, in its discretion, and will not be physically, electronically, telephonically or otherwise removed from the Company’s premises without the Company’s prior written consent.

11.5. Return or Destruction of Confidential Information. Confidential Information gained, received or developed by the Executive or in which the Executive participated in developing will remain the exclusive property of the Company, in its sole discretion. The Executive will promptly return to the Company or destroy or erase all records, books, documents or any other materials whatsoever (including all copies thereof) containing such Confidential Information in his possession or control upon the earlier of (i) the receipt of a written request from the Company for return or destruction of Confidential Information or (ii) the termination of the Executive’s employment hereunder.

11.6. Trade Secrets of Others. In the course of his employment hereunder the Executive will not use any information or materials that belong to any former employer or any other person or entity and for which he has a duty of confidentiality; nor will the Executive use or allow the use of any illegally obtained confidential or secret information or materials.

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12. Intellectual Property. All Confidential Information, computer software, video and sound recordings, scripts, creations, inventions, improvements, designs and discoveries conceived, created, invented, authored, developed, produced or discovered by the Executive while employed by the Company, whether alone or with others, whether during or after regular work hours, whether before or during the term of employment under this Agreement, are and will be the Company’s property exclusively, in its sole discretion. All such items were and will be produced as “work for hire.” The Executive hereby assigns to the Company all copyrights, trademarks and other rights of authorship or ownership he may have with respect to such items. Moreover, at any time, without additional consideration, the Executive will execute and deliver any documents or instruments that the Company may request in order to effectively convey and transfer good title and right to, and put the Company in possession of, such items.

13. Restrictions on Competition and Solicitation.

13.1. Noncompetition. The Executive agrees that during the course of his employment with the Company and for a period of one year after termination of that employment, the Executive will not, directly or indirectly, as an executive, agent, independent contractor, consultant, partner, joint venturer or otherwise, within any state in the United States within which the Company or an Affiliate has conducted the Business within the 12 months preceding the date of the termination of the Executive’s employment with the Company, enter into, engage in, be employed by or consult with (or solicit to enter into, engage in, be employed by or consult with) any business which competes with the Company or an Affiliate by providing products or services of the same nature or type as those provided by the Company or an Affiliate within the 12 month period preceding the termination of the Executive’s employment with the Company, including (a) participating as an officer, director, stockholder, member, employee, agent, independent contractor, consultant, representative or partner of, or having any direct or indirect financial interest (including the interest of a creditor) in, any such competitor or (b) assisting any other individual or business entity, of whatever type or description, in providing any such competing services. The provisions of this section will not apply to the ownership by the Executive of less than 5% of any publicly traded corporation or other business entity solely as an investor and under circumstances in which the Executive neither provides services nor assists anyone else to provide any services to or on behalf of any such entity. The Executive further agrees that upon a violation of this section of this Agreement, the period during which the Executive’s covenants in this section apply will be extended by the number of days equal to the period of such violation.

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13.2. Non-Solicitation/Non-Acceptance. The Executive agrees, during the course of his employment with the Company and for a period of one year after termination of that employment, the Executive will refrain from and will not, directly or indirectly, as employee, agent, independent contractor, consultant, partner, joint venturer or otherwise (a) solicit or counsel any third person, partnership, joint venture, company, corporation, association, or other organization that is or was a current or prospective customer of the Company or an Affiliate within the 12 months preceding the termination of the Executive’s employment with the Company and with which the Executive had a substantial relationship within such preceding 12 month period, regardless of such person’s or entity’s location, to terminate any existing or prospective business relationship with the Company or an Affiliate or commence a similar business relationship with any other individual or business entity; (b) accept, with or without solicitation, any business from any third person, partnership, joint venture, company, corporation, association or other organization that is or was a current or prospective customer of the Company or an Affiliate with which the Executive had a substantial relationship within the preceding 12 month period, regardless of such person’s or entity’s location; or (c) solicit any of the employees, agents, independent contractors or consultants of the Company or an Affiliate, regardless of such person’s or entity’s location, to terminate any business relationship with the Company or an Affiliate. The Executive further agrees that upon a violation of this section of this Agreement, the period during which the Executive’s covenants in this section apply will be extended by the number of days equal to the period of such violation.

13.3. No Circumvention. The Executive will not make any attempt, or use any artifice, scheme or device, including the use of any agent, representative, associate, advisor, relative or business entity, to circumvent the purposes of the restrictive covenants contained in Section 13.

13.4. Acknowledgements. The Executive acknowledges that the foregoing restrictive covenants are reasonable and necessary in light of the circumstances, including the Company’s interest in protecting the Confidential Information to which he has been exposed and the business relationships with the customers, partners, and others he has helped develop. The Executive further acknowledges that the foregoing restrictive covenants are a material inducement for the Company to enter into this Agreement, and that the covenants are given as an integral part of this Agreement.

13.5. Counterclaims. The existence of any claim or cause of action the Executive may have against the Company will not at any time constitute a defense to the enforcement by the Company of the restrictions or rights provided by this Section 13.

14. Equitable Remedies. The Executive and the Company agree that the services to be rendered by the Executive pursuant to this Agreement, and the rights and interests granted and the obligations to be performed by the Executive to the Company pursuant to this Agreement, are of a special, unique, extraordinary and intellectual character, which gives them a peculiar value, the loss of which cannot be reasonably or adequately compensated in damages in any action at law, and that a breach by the Executive of any of the terms of this Agreement will cause the Company great and irreparable injury and damage. The Executive hereby expressly recognizes and agrees that the Company has the right to seek entry of a temporary restraining order, preliminary injunction and permanent injunction, and that such orders and injunctions may be issued against the Executive, to prevent or address a breach of Sections 11 through 13 of this Agreement. The existence of any claim or cause of action the Executive may have against the Company will not at any time constitute a defense to the request for such relief.

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15. Compliance with Other Agreements. The Executive represents and warrants to the Company that he is free to enter this Agreement and that the execution of this Agreement and the performance of the obligations under this Agreement will not, as of the date of this Agreement or with the passage of time, conflict with, cause a breach of or constitute a default under any agreement to which the Executive is a party or by which he may be bound.

16. Severability. Every provision of this Agreement is intended to be severable. If any provision or portion of a provision is illegal, invalid or unenforceable, including as to geographic or temporal scope, then the remainder of this Agreement will not be affected. Moreover, any provision or portion of a provision of this Agreement which is determined to be unreasonable, arbitrary or against public policy, including as to geographic or temporal scope, will be modified by a court or arbitrator as appropriate so that it is not unreasonable, arbitrary or against public policy.

17. Rights and Remedies Preserved. Nothing in this Agreement will limit any right or remedy the Company or the Executive may have under this Agreement or pursuant to law for any breach of this Agreement by the other party. The rights granted to the parties herein are cumulative, and the election of one will not constitute a waiver of such party’s right to assert all other legal remedies available under the circumstances.

18. Waiver. No failure or delay on the of part either party to this Agreement in the exercise of any right, power or remedy the party may have will operate as a waiver, nor will any single or partial exercise of any right, power or remedy by either party preclude any other or further exercise of that right, power or remedy or the exercise of any other right, power or remedy. No express waiver or assent by any party to any breach of or default in any term or condition of this Agreement will constitute a waiver of or assent to any succeeding breach of or default in the same or any other term or conditions of this Agreement.

19. Notices. Any notices or deliveries permitted or required by this Agreement will be deemed given (i) when delivered in person or by messenger, if a receipt is obtained for delivery, (ii) when delivered by Federal Express, United Parcel Service, Airborne Express, U.S. Express Mail or similar nationally recognized overnight delivery service, if a confirmation of delivery is obtained, or (iii) five days after mailing, if mailed via certified or registered U.S. mail, return receipt requested, provided the notice is delivered or mailed to the party’s address as set forth below:

If to the Company:

Homeowners Choice, Inc.

Suite 100

5300 West Cypress Street

Tampa, FL 33607

ATT: General Counsel

12

If to the Executive:

The Executive’s most recent address on file with the Company.

The parties may change addresses to which notices are to be delivered by giving notice of the change of address in the manner set forth above; except, however, that notwithstanding the foregoing provision, notice of a change of address will be deemed made upon actual receipt of the notice by the other party. Notices deemed given or delivered as set forth above on a Saturday, Sunday, or legal holiday will instead be deemed given or delivered on the next succeeding day which is not a Saturday, Sunday or legal holiday.

20. Successors and Assigns. The rights and obligations of the Company under this Agreement will inure to the benefit of and be binding upon the successors and assigns of the Company, including the survivor upon any merger, consolidation, share exchange or combination of the Company. The Executive will not have the right to assign this Agreement or to assign, delegate or otherwise transfer any duty or obligation to be performed by him hereunder.

21. Entire Agreement. With respect to its subject matter, this Agreement contains all the understandings and agreements of the parties and supersedes all previous and all contemporaneous agreements, understandings, discussions and negotiations between the parties, whether written or oral. The parties agree that no previous drafts of this Agreement will be admissible as evidence (whether in any arbitration or court of law) in any proceeding which involves the interpretation of any provisions of this Agreement.

22. Amendments. Except as otherwise provided herein as to terms that are unreasonable, arbitrary or against public policy, this Agreement will not be modified or amended except by an instrument in writing signed by the parties.

23. Governing Law. This Agreement will be governed by and construed in accordance with the internal laws of the State of Florida without reference to conflicts of law principles.

24. Further Assurances. Each party hereto will cooperate and will take such further action and will execute and deliver such further documents as may be reasonably requested by the other party in order to carry out the provisions and purposes of this Agreement.

13

25. Construction. This Agreement was negotiated at arm’s-length, with each party having the assistance of independent legal counsel. No court, arbitrator or finder of fact should construe this Agreement more strongly against either party on the basis of which party was responsible for the Agreement’s preparation. Wherever from the context it appears appropriate, each term stated in either the singular or the plural will include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender will include the other genders. The words “Agreement,” “hereof,” “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole, including Exhibits, and not to any particular provision of this Agreement. Whenever the word “include,” “includes” or “including” is used in this Agreement, it will be deemed to be followed by the words “without limitation.” The various headings contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of any of the provisions of this Agreement.

26. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together will be deemed one original.

27. Affiliate. For the purposes of this Agreement, the capitalized term “Affiliate” means (i) any association or entity directly or indirectly controlling the Company and (ii) any association or entity controlled by or under common control with the Company.

28. Confidential Arbitration. The parties hereto agree that any dispute concerning or arising out of the provisions of this Agreement, the Executive’s employment or the termination of the Executive’s employment will be resolved by confidential arbitration in accordance with the rules of the American Arbitration Association. Such confidential arbitration will be held in Tampa, Florida and the decision of the arbitrator or arbitrators will be conclusive and binding on the parties and will be enforceable in any court of competent jurisdiction. In rendering a decision, the arbitrator will have the discretion to award attorneys fees and costs. Notwithstanding the foregoing, if any dispute arises hereunder as to which a party desires to exercise any equitable rights or remedies under this Agreement, such party may, in its discretion, in lieu of submitting the matter to arbitration, bring an action thereon in any court of competent jurisdiction in Florida, which court may grant any and all relief available in equity or at law for any and all claims made by such party based on or arising from the provisions of this Agreement. In any such action, the prevailing party will be entitled to reasonable attorneys’ fees and costs as may be awarded by the court.

29. Survival. The warranties and representations in this Agreement will survive the execution of this Agreement and continue without limitation. The Executive has incurred the obligations set forth in Sections 11 through 13 solely in consideration of the Company’s execution of this Agreement and such obligations and this Section 29 will survive and continue notwithstanding the termination, rescission or expiration of this Agreement or any provision of this Agreement.

30. Exhibits. All exhibits, schedules and other attachments to this Agreement are hereby incorporated by this reference as integral parts of this Agreement.

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31. Saturday, Sunday or Legal Holiday. When the last day of a period during which an act may be performed under this Agreement falls on a Saturday, Sunday, or legal holiday that period will be deemed to end on the next succeeding day which is not a Saturday, Sunday or legal holiday.

32. Electronic Signatures. Signed copies of this Agreement, addenda, attachments and exhibits delivered electronically via Internet (e-mail) or telephone (fax) will legally bind the parties to the same extent as original documents.

IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first set forth above.

	EXECUTIVE
	Homeowners Choice, Inc.
By:
Its:

15

EX-10.13

Exhibit 10.13

EXCESS CATASTROPHE REINSURANCE CONTRACT

Effective: June 1, 2011

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

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

and

any other insurance companies which are now or

hereafter come under the ownership, control or management of

Homeowners Choice, Inc.

Effective: June 1, 2011

TABLE OF CONTENTS

1.	BUSINESS COVERED	1
2.	TERM	1
3.	EXCLUSIONS	3
4.	RETENTION AND LIMIT	4
5.	REINSTATEMENT	5
6.	FLORIDA HURRICANE CATASTROPHE FUND	6
7.	RATE AND PREMIUM	7
8.	DEFINITIONS	8
9.	LOSS OCCURRENCE DEFINITION	10
10.	ACCESS TO RECORDS	11
11.	AGENCY (BRMA 73A)	11
12.	ARBITRATION	12
13.	CONFIDENTIALITY	13
14.	CURRENCY (BRMA 12A)	14
15.	ENTIRE AGREEMENT	14
16.	ERRORS AND OMISSIONS (BRMA 14F)	14
17.	FEDERAL EXCISE TAX (BRMA 17D)	14
18.	FUNDING OF RESERVES	15
19.	GOVERNING LAW	17
20.	INSOLVENCY	17
21.	LATE PAYMENTS	18
22.	LIABILITY OF THE REINSURER	19
23.	LOSS NOTICE AND SETTLEMENTS	19
24.	NET RETAINED LINES (BRMA 32E)	20
25.	NON-WAIVER	20
26.	NOTICES AND CONTRACT EXECUTION	20
27.	OFFSET (BRMA 36E)	21
28.	OTHER REINSURANCE	21
29.	SALVAGE AND SUBROGATION	21
30.	SERVICE OF SUIT	21
31.	SEVERABILITY (BRMA 72E)	22
32.	TAXES	22
33.	TERRITORY	22
34.	INTERMEDIARY (BRMA 23A)	23

ATTACHMENTS

Schedule A

Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance (USA)

Effective: June 1, 2011

EXCESS CATASTROPHE REINSURANCE CONTRACT

Effective: June 1, 2011

(hereinafter referred to as the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

and

any other insurance companies which are now or

hereafter come under the ownership, control or management of

Homeowners Choice, Inc.

(hereinafter referred to collectively as the “Company”)

by

THE SUBSCRIBING REINSURER(S)

EXECUTING THE INTERESTS AND LIABILITIES

AGREEMENT(S) ATTACHED HERETO

(hereinafter referred to as the “Reinsurer”)

ARTICLE 1 - BUSINESS COVERED

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

ARTICLE 2 - TERM

A. This Contract shall become effective at 12:01 a.m., Local Standard Time, June 1, 2011, with respect to losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Local Standard Time, June 1, 2012. “Local Standard Time” as used herein shall mean local standard time at the location where the loss occurrence commences.

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

Effective: June 1, 2011

Page 1

C. Notwithstanding the provisions of paragraph A above, the Company may reduce or terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur. The effective date of reduction or termination shall be the date selected by the Company, which may be a date that is retroactively applied up to a maximum of 65 days prior to the date of public announcement for subparagraphs 1 through 5 below or upon discovery for subparagraphs 6 through 8 below, subject to the condition that such selected date must be the last day of a calendar month:

1. The Subscribing Reinsurer’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20.0% of the amount of surplus (or the applicable equivalent) at any date during the prior 12-month period (including the 12-month period prior to the inception of this Contract); or

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

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

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

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

6. The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent, except that this provision shall not apply to any inter-company reinsurance or inter-company pooling arrangements entered into by the Subscribing Reinsurer; or

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

Effective: June 1, 2011

Page 2

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

ARTICLE 3 - EXCLUSIONS

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

1. All excess of loss reinsurance assumed by the Company.

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

3. Financial guarantee and insolvency.

4. All Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation, and Credit business.

5. Flood and/or earthquake when written as such for stand alone policies where flood and/or earthquake is the only named peril.

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

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

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

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

Effective: June 1, 2011

Page 3

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

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

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

B. With the exception of subparagraphs 3, 6, 7 and 11 of paragraph A above, should any judicial, regulatory or legislative entity having legal jurisdiction invalidate any exclusion on the Company’s policy, any amount of loss for which the Company is liable because of such invalidation will not be excluded hereunder.

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

ARTICLE 4 - RETENTION AND LIMIT

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

Effective: June 1, 2011

Page 4

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

ARTICLE 5 - REINSTATEMENT

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

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

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

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

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

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

Effective: June 1, 2011

Page 5

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

ARTICLE 6 - FLORIDA HURRICANE CATASTROPHE FUND

A. The Company shall provisionally purchase mandatory and optional coverage from the FHCF with the following limits and retentions:

1. 90% of $182,800,000 excess of $71,300,000 (mandatory layer);

2. 90% of $64,500,000 excess of $254,100,000 (optional Temporary Increase in Coverage Limit).

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

B. Any loss reimbursement paid or payable to the Company for the mandatory coverage layer or the optional layer coverage provided by the FHCF, (“FHCF loss reimbursement”) and resulting from loss occurrences commencing during the term of this Contract, shall inure to the benefit of this Contract. Further, any FHCF loss reimbursement shall be deemed paid to the Company in accordance with the reimbursement contract between the Company and the SBA at the full payout level set forth therein as respects the first and second excess layers hereof, but shall be deemed paid at 100% of the mandatory coverage layer and 100% of the optional coverage layer as respects the third excess layer hereof. It is further deemed that any loss reimbursement shall not be reduced by any reduction or exhaustion of the actual claims-paying capacity of the FHCF and that the FHCF fund balance is deemed funded to the fullest extent allowable by Florida statute.

C. The Company may also purchase optional Limited Apportionment Companies coverage from the FHCF. Any loss reimbursement paid or payable to the Company for such coverage as a result of loss occurrences commencing during the term of this Contract shall inure solely to the benefit of the Company and shall be entirely disregarded in applying all of the provisions of this Contract.

Effective: June 1, 2011

Page 6

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

E. If an FHCF reimbursement amount is based on the Company’s losses in more than one loss occurrence commencing during the term of this Contract, and the FHCF does not designate the amount allocable to each loss occurrence, the FHCF reimbursement amount shall be prorated in the proportion that the Company’s losses in each loss occurrence bear to the Company’s total losses arising out of all loss occurrences to which the FHCF reimbursement applies.

ARTICLE 7 - RATE AND PREMIUM

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

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

2. The percentage, shown as “Exposure Rate” for that excess layer in Schedule A attached hereto, of the Company’s total insured value as of September 30, 2011 (the “adjusted premium”), subject to the provisions of paragraph D below.

B. The Company shall pay the Reinsurer a deposit premium for each excess layer of the amount, shown as “Deposit Premium” for that excess layer in Schedule A attached hereto, payable in installment amounts and at the dates set forth in the “Deposit Payment Schedule” for each excess layer in Schedule A attached hereto.

C. As respects any excess layer hereunder, if the Company elects to reduce or terminate a Subscribing Reinsurer’s participation percentage in accordance with paragraph C of the Term Article, the “Minimum Premium” as respects such excess layer shall not apply. Further, the earned reinsurance premium as otherwise determined in accordance with the provisions of subparagraph 2 of paragraph A above as respects each excess layer shall be replaced with the following:

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

Effective: June 1, 2011

Page 7

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

D. No later than April 1, 2012 (or the effective date of termination in the event this Contract is terminated prior to April 1, 2012), the Company shall provide a report to the Reinsurer setting forth the premium due under each excess layer hereunder, computed in accordance with paragraph A or C (as applicable) above, and any amounts due either party shall be remitted promptly. However, no return premium shall be due the Company or additional premium due the Reinsurer as respects any excess layer hereunder unless the difference between the adjusted premium for such excess layer and the deposit premium for such excess layer is greater than 5.0%. Further, in the event the adjusted premium for any excess layer hereunder is greater than the deposit premium for such excess layer by more than 5%, the premium due hereunder for such excess layer shall be equal to the deposit premium for such excess layer plus the difference between the adjusted premium for such excess layer and 105% of the deposit premium for such excess layer. Further, in the event the adjusted premium for any excess layer hereunder is less than the deposit premium for such excess layer by more than 5%, the premium due hereunder for such excess layer shall be equal to the deposit premium for such excess layer less the difference between 95% of the deposit premium for such excess layer and the adjusted premium for such excess layer.

ARTICLE 8 - DEFINITIONS

A. The term “ultimate net loss” as used herein shall be defined as the sum or sums (including loss in excess of policy limits, extra contractual obligations and loss adjustment expense, as hereinafter defined) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims after deduction of all salvage, all recoveries, and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company’s ultimate net loss has been ascertained.

B. The terms “loss in excess of policy limits” and “extra contractual obligations” as used herein shall be defined as follows:

Effective: June 1, 2011

Page 8

1. “Loss in excess of policy limits” shall mean 90.0% of any amount paid or payable by the Company in excess of its policy limits, but otherwise within the terms of its policy, such loss in excess of the Company’s policy limits having been incurred because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action.

2. “Extra contractual obligations” shall mean 90.0% of any punitive, exemplary, compensatory or consequential damages paid or payable by the Company, not covered by any other provision of this Contract and which arise from the handling of any claim on business subject to this Contract, such liabilities arising because of, but not limited to, failure by the Company to settle within the policy limits or by reason of the Company’s alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of an action against its insured or reinsured or in the preparation or prosecution of an appeal consequent upon such an action. An extra contractual obligation shall be deemed, in all circumstances, to have occurred on the same date as the loss covered or alleged to be covered under the policy.

Notwithstanding anything stated herein, this Contract shall not apply to any loss in excess of policy limits or any extra contractual obligation incurred by the Company as a result of any fraudulent and/or criminal act by any officer or director of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder.

Further, any loss in excess of policy limits and/or extra contractual obligations that are made in connection with this Contract shall not exceed 25.0% of the contractual loss under all policies involved in the loss occurrence as respects each excess layer hereunder.

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

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

Effective: June 1, 2011

Page 9

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

E. “Term of this Contract” as used herein shall be defined as the period from 12:01 a.m., Local Standard Time, June 1, 2011 through 12:01 a.m., Local Standard Time, June 1, 2012. However, if this Contract is terminated, “term of this Contract” as used herein shall mean the period from 12:01 a.m., Local Standard Time, June 1, 2011 until the effective time and date of termination.

ARTICLE 9 - LOSS OCCURRENCE DEFINITION

A. The term “loss occurrence” shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one loss occurrence shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term loss occurrence shall be further defined as follows:

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

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

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

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

5. As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs 2 and 3 above), which spread through trees, grassland or other vegetation, all individual losses sustained by the Company which occur during any period of 168 consecutive hours within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another may be included in the Company’s loss occurrence.

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

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

ARTICLE 10 - ACCESS TO RECORDS

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

ARTICLE 11 - AGENCY (BRMA 73A)

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

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ARTICLE 12 - ARBITRATION

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

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

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

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

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

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ARTICLE 13 - CONFIDENTIALITY

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE 14 - CURRENCY (BRMA 12A)

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

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

ARTICLE 15 - ENTIRE AGREEMENT

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

B. Any change to or modification of this Contract shall be null and void unless made by an addendum signed by both parties.

ARTICLE 16 - ERRORS AND OMISSIONS (BRMA 14F)

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

ARTICLE 17 - FEDERAL EXCISE TAX (BRMA 17D)

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

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

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ARTICLE 18 - FUNDING OF RESERVES

A. The Reinsurer agrees to fund its share of the Company’s ceded unearned premium (including but not limited to the unearned portion of any deposit premium installment as calculated by the Company) and outstanding loss and loss adjustment expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known loss occurrences) by:

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

2. Escrow accounts for the benefit of the Company; and/or

3. Cash advances;

if the Reinsurer:

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

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

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

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

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

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

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b. As respects a Subscribing Reinsurer that has experienced any of the circumstances described in paragraph C of the Term Article, the first date such circumstance occurs;

times:

2. 1/365ths of the sum of 2.0% and the U.S. prime rate as quoted in The Wall Street Journal on the first day of the month for which the calculation is made; times

3. The funding obligation, less the amount, if any, funded by the Subscribing Reinsurer prior to the applicable date determined in subparagraph 1 above.

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

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

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

1. To reimburse itself for the Reinsurers’ share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer;

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

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

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

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

In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for C(1), C(3), or C(5), or in the case of C(2), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn.

ARTICLE 19 - GOVERNING LAW

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

ARTICLE 20 - INSOLVENCY

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

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

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

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

ARTICLE 21 - LATE PAYMENTS

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

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

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

3. The Company shall provide a copy of the original insured’s proof of loss, and a copy of the claim adjuster’s report(s) or other evidence of indemnification for losses exceeding the excess limit on an incurred basis. If, subsequent to receipt of this evidence, the information contained therein is insufficient or not in accordance with the contractual conditions, then the payment due date as defined in subparagraph 1 shall be deemed to be the date upon which the Reinsurer received additional information necessary to approve payment of the claim or the claim is presented in an acceptable manner. Interest as stipulated in subparagraph 4 shall be payable should a disputed claim be ultimately settled and if the period set out in subparagraph 1 is exceeded, but only to the extent that the final loss payment exactly tracks with the original proof of loss.

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4. Overdue amounts shall bear simple interest from the overdue date at the 90-day United States Treasury Bill rate set forth by the Federal Reserve Board for the first Monday of the calendar month in which the amount becomes overdue, as published in the Federal Reserve Statistical Release. If the interest generated for 100% in respect of any overdue payment as outlined in subparagraph 1 or 2 is $500 or less, then the interest penalty shall be waived.

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

ARTICLE 22 - LIABILITY OF THE REINSURER

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

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

ARTICLE 23 - LOSS NOTICE AND SETTLEMENTS

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

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

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ARTICLE 24 - NET RETAINED LINES (BRMA 32E)

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

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

ARTICLE 25 - NON-WAIVER

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

ARTICLE 26 - NOTICES AND CONTRACT EXECUTION

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

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

1. Paper documents with an original ink signature;

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

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

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

ARTICLE 27 - OFFSET (BRMA 36E)

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

ARTICLE 28 - OTHER REINSURANCE

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

ARTICLE 29 - SALVAGE AND SUBROGATION

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

ARTICLE 30 - SERVICE OF SUIT

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

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

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

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

ARTICLE 31 - SEVERABILITY (BRMA 72E)

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

ARTICLE 32 - TAXES

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

ARTICLE 33 - TERRITORY

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

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ARTICLE 34 - INTERMEDIARY (BRMA 23A)

TigerRisk Partners LLC is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including, but not limited to, notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through TigerRisk Partners LLC, 7601 France Avenue South, Suite 200, Edina, MN 55435. Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

IN WITNESS WHEREOF, the Company has confirmed its review of the Interests and Liabilities Agreement(s) attached to and forming part of this Contract and its agreement to be bound by the terms and conditions thereof, and has executed this Contract by its duly authorized representative on:

this                      day of                                     , in the year                 .

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY (for and on behalf of the “Company”)

Effective: June 1, 2011

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SCHEDULE A

EXCESS CATASTROPHE

REINSURANCE CONTRACT

EFFECTIVE: June 1, 2011

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

	First Excess Layer	Second Excess Layer	Third Excess Layer
Company’s Retention	$19,300,000	$45,300,000	$71,300,000
Reinsurer’s Per Occurrence Limit	$26,000,000	$26,000,000	$16,800,000
Reinsurer’s Contract Limit	$26,000,000	$52,000,000	$16,800,000
Minimum Premium	$ ******	$ ******	$ ******
Deposit Premium	$ ******	$ ******	$ ******
Deposit Payment Schedule	$ ****** payable on June 1, 2011; $****** payable on October 1, 2011	$ ****** payable on June 1 and September 1, 2011, and January 1 and April 1, 2012	$ ****** payable on June 1 and September 1, 2011, and January 1 and April 1, 2012
Exposure Rate	******%	******%	******%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

7. Reassured to be sole judge of what constitutes:

(a) substantial quantities, and

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

Effective: June 1, 2011

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

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

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

12/12/57

N.M.A. 1119

BRMA 35B

Effective: June 1, 2011

EX-10.14

Exhibit 10.14

REINSTATEMENT PREMIUM PROTECTION CONTRACT

Effective: June 1, 2011

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

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

and

any other insurance companies which are now or

hereafter come under the ownership, control or management of

Homeowners Choice, Inc.

Effective: June 1, 2011

TABLE OF CONTENTS

1.	BUSINESS COVERED	1
2.	TERM	1
3.	CONCURRENCY OF CONDITIONS	3
4.	RATE AND PREMIUM	3
5.	LOSS NOTICES AND SETTLEMENTS	3
6.	ACCESS TO RECORDS	4
7.	AGENCY (BRMA 73A)	4
8.	ARBITRATION	4
9.	CONFIDENTIALITY	5
10.	CURRENCY (BRMA 12A)	6
11.	ENTIRE AGREEMENT	7
12.	ERRORS AND OMISSIONS (BRMA 14F)	7
13.	FEDERAL EXCISE TAX (BRMA 17D)	7
14.	FUNDING OF RESERVES	7
15.	GOVERNING LAW	9
16.	INSOLVENCY	9
17.	LATE PAYMENTS	10
18.	NON-WAIVER	11
19.	NOTICES AND CONTRACT EXECUTION	11
20.	OFFSET	11
21.	SERVICE OF SUIT	12
22.	SEVERABILITY (BRMA 72E)	12
23.	TAXES	12
24.	INTERMEDIARY (BRMA 23A)	13

Effective: June 1, 2011

REINSTATEMENT PREMIUM PROTECTION CONTRACT

Effective: June 1, 2011

(hereinafter referred to as the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

and

any other insurance companies which are now or

hereafter come under the ownership, control or management of

Homeowners Choice, Inc.

(hereinafter referred to collectively as the “Company”)

by

THE SUBSCRIBING REINSURER(S)

EXECUTING THE INTERESTS AND LIABILITIES

AGREEMENT(S) ATTACHED HERETO

(hereinafter referred to as the “Reinsurer”)

ARTICLE 1 - BUSINESS COVERED

By this Contract the Reinsurer agrees to indemnify the Company for 100% of any net reinstatement premium which the Company pays or becomes liable to pay under the provisions of the second excess layer of the Company’s Excess Catastrophe Reinsurance Contract, effective June 1, 2011 (hereinafter referred to as the “Original Contract”), subject to the terms, conditions and limitations hereinafter set forth.

ARTICLE 2 - TERM

A. This Contract shall become effective at 12:01 a.m., Local Standard Time, June 1, 2011, with respect to reinstatement premium payable by the Company under the provisions of the Original Contract, and shall remain in force until 12:01 a.m., Local Standard Time, June 1, 2012. “Local Standard Time” as used herein shall mean local standard time at the location where the loss occurrence commences.

B. Notwithstanding the provisions of paragraph A above, the Company may reduce or terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur. The effective date of reduction or termination shall be the date selected by the Company, which may be a date that is retroactively applied up to a maximum of 65 days prior to the date of public announcement for subparagraphs 1 through 5 below or upon discovery for subparagraphs 6 through 8 below, subject to the condition that such selected date must be the last day of a calendar month:

Effective: June 1, 2011

Page 1

1. The Subscribing Reinsurer’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20.0% of the amount of surplus (or the applicable equivalent) at any date during the prior 12-month period (including the 12-month period prior to the inception of this Contract); or

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

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

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

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

6. The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent, except that this provision shall not apply to any inter-company reinsurance or inter-company pooling arrangements entered into by the Subscribing Reinsurer; or

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

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

C. If the Company elects to terminate this Contract in accordance with the provisions of paragraph B above, the premium due hereunder shall be pro rated based on the Reinsurer’s period of participation under this Contract and shall be due as promptly as possible following determination of the final adjusted reinsurance premium paid by the Company under the Original Contract.

Effective: June 1, 2011

Page 2

ARTICLE 3 - CONCURRENCY OF CONDITIONS

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

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

ARTICLE 4 - RATE AND PREMIUM

A. As premium for the reinsurance coverage provided by this Contract, the Company shall pay the Reinsurer the product of the following:

1. ******; times

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

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

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

B. The Company shall pay the Reinsurer a deposit premium hereunder of $****** on June 1, 2011. No deposit premium shall be due to a Subscribing Reinsurer hereunder until that Subscribing Reinsurer has executed its Interests and Liabilities Agreement attached to and forming part of this Contract.

C. On or before April 1, 2012, the Company shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with paragraph A above, and any amount due either party shall be remitted promptly.

D. “Contract quarter” as used herein shall mean the period from June 1, 2011 through August 31, 2011, both days inclusive, and each respective three-month period (or portion thereof) thereafter during the term of this Contract.

ARTICLE 5 - LOSS NOTICES AND SETTLEMENTS

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

Effective: June 1, 2011

Page 3

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

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

ARTICLE 6 - ACCESS TO RECORDS

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

ARTICLE 7 - AGENCY (BRMA 73A)

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

ARTICLE 8 - ARBITRATION

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

Effective: June 1, 2011

Page 4

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

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

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

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

ARTICLE 9 - CONFIDENTIALITY

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

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

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

Effective: June 1, 2011

Page 5

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

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

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

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

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

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

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

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

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

ARTICLE 10 - CURRENCY (BRMA 12A)

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

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

Effective: June 1, 2011

Page 6

ARTICLE 11 - ENTIRE AGREEMENT

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

B. Any change to or modification of this Contract shall be null and void unless made by an addendum signed by both parties.

ARTICLE 12 - ERRORS AND OMISSIONS (BRMA 14F)

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

ARTICLE 13 - FEDERAL EXCISE TAX (BRMA 17D)

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

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

ARTICLE 14 - FUNDING OF RESERVES

A. The Reinsurer agrees to fund its share of the Company’s ceded unearned premium (including, but not limited to, the unearned portion of any deposit premium installment as calculated by the Company) and outstanding loss reserves (being the sum of all reinstatement premiums paid by the Company under the Original Contract but not yet recovered from the Reinsurer, plus the Company’s reserves for reinstatement premiums due under the Original Contract, if any) by:

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

2. Escrow accounts for the benefit of the Company; and/or

Effective: June 1, 2011

Page 7

3. Cash advances;

if the Reinsurer:

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

2. Has an A.M. Best’s rating equal to or below B++.

3. The Reinsurer, at its sole option, may fund in other than cash if its method and form of funding are acceptable to the insurance regulatory authorities involved.

B. With regard to funding in whole or in part by letters of credit, it is agreed that each letter of credit will be in a form acceptable to insurance regulatory authorities involved, will be issued for a term of at least one year and will include an “evergreen clause,” which automatically extends the term for at least one additional year at each expiration date unless written notice of non-renewal is given to the Company not less than 30 days (or 60 days if required by applicable regulatory authorities) prior to said expiration date. The Company and the Reinsurer further agree, notwithstanding anything to the contrary in this Contract, that said letters of credit may be drawn upon by the Company or its successors in interest at any time, without diminution because of the insolvency of the Company or the Reinsurer, but only for one or more of the following purposes:

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

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

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

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

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

Effective: June 1, 2011

Page 8

In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for B(1), B(2) or B(4), or in the case of B(3), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn.

ARTICLE 15 - GOVERNING LAW

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

ARTICLE 16 - INSOLVENCY

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

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

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

Effective: June 1, 2011

Page 9

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

ARTICLE 17 - LATE PAYMENTS

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

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

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

3. The Company shall provide a copy of the original insured’s proof of loss, and a copy of the claim adjuster’s report(s) or other evidence of indemnification for losses exceeding the excess limit on an incurred basis. If, subsequent to receipt of this evidence, the information contained therein is insufficient or not in accordance with the contractual conditions, then the payment due date as defined in subparagraph 1 shall be deemed to be the date upon which the Reinsurer received additional information necessary to approve payment of the claim or the claim is presented in an acceptable manner. Interest as stipulated in subparagraph 4 shall be payable should a disputed claim be ultimately settled and if the period set out in subparagraph 1 is exceeded, but only to the extent that the final loss payment exactly tracks with the original proof of loss.

4. Overdue amounts shall bear simple interest from the overdue date at the 90-day United States Treasury Bill rate set forth by the Federal Reserve Board for the first Monday of the calendar month in which the amount becomes overdue, as published in the Federal Reserve Statistical Release. If the interest generated for 100% in respect of any overdue payment as outlined in subparagraph 1 or 2 is $500 or less, then the interest penalty shall be waived.

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

Effective: June 1, 2011

Page 10

ARTICLE 18 - NON-WAIVER

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

ARTICLE 19 - NOTICES AND CONTRACT EXECUTION

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

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

1. Paper documents with an original ink signature;

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

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

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

ARTICLE 20 - OFFSET

The Company and the Reinsurer may offset any balance or amount due from one party to the other under the terms of this Contract or any other contract heretofore or hereafter entered into by and between them, whether acting as ceding company or assuming reinsurer. However, in the event of the insolvency of a party hereto, offsets shall be allowed only in accordance with applicable statutes and regulations.

Effective: June 1, 2011

Page 11

ARTICLE 21 - SERVICE OF SUIT

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

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

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

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

ARTICLE 22 - SEVERABILITY (BRMA 72E)

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

ARTICLE 23 - TAXES

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

Effective: June 1, 2011

Page 12

ARTICLE 24 - INTERMEDIARY (BRMA 23A)

TigerRisk Partners LLC is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including, but not limited to, notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through TigerRisk Partners LLC, 7601 France Avenue South, Suite 200, Edina, MN 55435. Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

IN WITNESS WHEREOF, the Company has confirmed its review of the Interests and Liabilities Agreement(s) attached to and forming part of this Contract and its agreement to be bound by the terms and conditions thereof, and has executed this Contract by its duly authorized representative on:

this              day of                             , in the year             .

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY (for and on behalf of the “Company”)

Effective: June 1, 2011

Page 13

EX-10.15

Exhibit 10.15

AGGREGATE EXCESS CATASTROPHE REINSURANCE CONTRACT

Effective: June 1, 2011

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

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY

Tampa, Florida

and

any other insurance companies which are now or

hereafter come under the ownership, control or management of

Homeowners Choice, Inc.

Effective: June 1, 2011

TABLE OF CONTENTS

1.	BUSINESS COVERED	1
2.	TERM	1
3.	EXCLUSIONS	2
4.	RETENTION AND LIMIT	4
5.	INURING REINSURANCE	5
6.	REINSURANCE PREMIUM	7
7.	DEFINITIONS	9
8.	LOSS OCCURRENCE DEFINITION	11
9.	ACCESS TO RECORDS	12
10.	AGENCY (BRMA 73A)	13
11.	ARBITRATION	13
12.	COLLATERAL	14
13.	COLLATERAL RELEASE	14
14.	CONFIDENTIALITY	17
15.	CURRENCY (BRMA 12A)	18
16.	ENTIRE AGREEMENT	18
17.	ERRORS AND OMISSIONS (BRMA 14F)	18
18.	FEDERAL EXCISE TAX (BRMA 17D)	18
19.	GOVERNING LAW	19
20.	INSOLVENCY	19
21.	LATE PAYMENTS	20
22.	LIABILITY OF THE REINSURER	21
23.	LIMITED RECOURSE AND BERMUDA REGULATIONS	21
24.	LOSS NOTICE AND SETTLEMENTS	22
25.	NET RETAINED LINES (BRMA 32E)	22
26.	NON-WAIVER	22
27.	NOTICES AND CONTRACT EXECUTION	23
28.	OFFSET	23
29.	OTHER REINSURANCE	23
30.	SALVAGE AND SUBROGATION	24
31.	SERVICE OF SUIT	24
32.	SEVERABILITY (BRMA 72E)	25
33.	TAXES	25
34.	TERRITORY	25
35.	INTERMEDIARY (BRMA 23A)	25

ATTACHMENTS

Schedule A – Collateral Collection Tables

Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance (USA)

Effective: June 1, 2011

AGGREGATE EXCESS CATASTROPHE REINSURANCE CONTRACT

Effective: June 1, 2011

(hereinafter referred to as the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY

Tampa, Florida

and

any other insurance companies which are now or

hereafter come under the ownership, control or management of

Homeowners Choice, Inc.

(hereinafter referred to collectively as the “Company”)

by

THE SUBSCRIBING REINSURER(S)

EXECUTING THE INTERESTS AND LIABILITIES

AGREEMENT(S) ATTACHED HERETO

(hereinafter referred to as the “Reinsurer”)

ARTICLE 1 - BUSINESS COVERED

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

ARTICLE 2 - TERM

A. This Contract shall become effective at 12:01 a.m., Local Standard Time, June 1, 2011, with respect to losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Local Standard Time, June 1, 2012. “Local Standard Time” as used herein shall mean local standard time at the location where the loss occurrence commences.

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

Effective: June 1, 2011

Page 1

C. Notwithstanding the provisions of paragraph A above, the Company may reduce or terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur. The effective date of reduction or termination shall be the date selected by the Company, which may be a date that is retroactively applied to the date of public announcement, subject to the condition that such selected date must be the last day of a calendar month:

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

2. The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent, except that this provision shall not apply to any inter-company reinsurance or inter-company pooling arrangements entered into by the Subscribing Reinsurer.

ARTICLE 3 - EXCLUSIONS

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

1. All excess of loss reinsurance assumed by the Company.

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

3. Financial guarantee and insolvency.

4. All Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation, and Credit business.

5. Flood and/or earthquake when written as such for stand alone policies where flood and/or earthquake is the only named peril.

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

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

Effective: June 1, 2011

Page 2

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

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

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

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

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

B. With the exception of subparagraphs 3, 6, 7 and 11 of paragraph A above, should any judicial, regulatory or legislative entity having legal jurisdiction invalidate any exclusion on the Company’s policy, any amount of loss for which the Company is liable because of such invalidation will not be excluded hereunder.

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

Effective: June 1, 2011

Page 3

ARTICLE 4 - RETENTION AND LIMIT

A. Coverage A - Section 1: The Company shall retain and be liable for the first $19,300,000 of ultimate net loss arising out of each loss occurrence. The Reinsurer shall then be liable for 41.5% of the amount by which such ultimate net loss exceeds the Company’s retention, but the liability of the Reinsurer shall not exceed 41.5% of $26,000,000 as respects any one loss occurrence, nor shall it exceed 41.5% of $26,000,000 as respects all loss occurrences commencing during the term of this Contract.

Coverage A - Section 2: The Company shall retain and be liable for the first $71,300,000 of ultimate net loss arising out of each loss occurrence. The Reinsurer shall then be liable for 90% of the amount by which such ultimate net loss exceeds the Company’s retention, but the liability of the Reinsurer shall not exceed 90% of $51,000,000 as respects any one loss occurrence.

B. Coverage B: The Company shall retain and be liable for the first $6,000,000 of subject excess ultimate net loss in the aggregate as respects all loss occurrences commencing during the term of this Contract. The Reinsurer shall then be liable for 90% of the amount by which such subject excess ultimate net loss exceeds the Company’s aggregate retention, but the liability of the Reinsurer shall not exceed 90% of $51,000,000 in the aggregate as respects all loss occurrences commencing during the term of this Contract.

“Subject excess ultimate net loss” as used herein is defined as the amount by which the Company’s ultimate net loss arising out of any one loss occurrence exceeds $2,000,000, but said amount shall not exceed 90% of $51,000,000 as respects any one loss occurrence.

C. Coverage C: As respects any loss occurrence involving a peril not covered by the Florida Hurricane Catastrophe Fund Optional Limited Apportionment Companies Coverage Layer, the Company shall retain and be liable for $9,300,000 of ultimate net loss as respects such loss occurrence. The Reinsurer shall then be liable for 90% of the amount by which such ultimate net loss exceeds the Company’s retention, but the liability of the Reinsurer shall not exceed 90% of $10,000,000 as respects any one loss occurrence, nor shall it exceed 90% of $20,000,000 as respects all loss occurrences commencing during the term of this Contract.

D. Notwithstanding the provisions of paragraphs A, B and C above, the liability of the Reinsurer under Coverage A - Section 2, Coverage B and Coverage C combined shall not exceed 90% of $51,000,000 in the aggregate as respects all loss occurrences commencing during the term of this Contract.

Effective: June 1, 2011

Page 4

E. Notwithstanding the provisions above, no claim shall be made hereunder as respects losses arising out of loss occurrences commencing during the term of this Contract unless at least two risks insured or reinsured by the Company are involved in such loss occurrence. For purposes hereof, the Company shall be the sole judge of what constitutes “one risk.”

F. It is understood that recoveries under Coverage A and Coverage C shall inure to the benefit of Coverage B hereunder.

G. It is understood the Company may maintain in force excess reinsurance, recoveries under which shall inure solely to the Company’s benefit and be entirely disregarded in applying all of the provisions of this Contract.

ARTICLE 5 - INURING REINSURANCE

A. The Company shall maintain property catastrophe excess of loss reinsurance, recoveries under which shall inure to the benefit of Coverage B of this Contract, for the following layers:

1. $5,800,000 in excess of $3,500,000 any one loss occurrence, subject to an annual limit of $11,600,000; and

2. $26,000,000 in excess of $19,300,000 any one loss occurrence, subject to no reinstatements of the limit; and

3. $26,000,000 in excess of $45,300,000 any one loss occurrence, subject to an annual limit of $52,000,000; and

4. 90% of $16,800,000 in excess of $71,300,000 any one loss occurrence, subject to no reinstatements of the limit.

B. The Company shall maintain property catastrophe excess of loss reinsurance for the layer 90% of $16,800,000 in excess of $71,300,000 any one loss occurrence, subject to no reinstatements of the limit, recoveries under which shall inure to the benefit of Coverage A, Section 2 of this Contract.

C. The Company shall provisionally purchase mandatory and optional coverage from the Florida Hurricane Catastrophe Fund (FHCF) with the following limits and retentions:

1. 100% of $10,000,000 excess of $9,300,000 any one loss occurrence (optional Limited Apportionment Companies coverage);

2. 90% of $182,800,000 excess of $71,300,000 (mandatory layer);

Effective: June 1, 2011

Page 5

3. 90% of $64,500,000 excess of $254,100,000 (optional Temporary Increase in Coverage Limit).

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

Any loss reimbursement paid or payable to the Company for the mandatory layer and the optional Temporary Increase in Coverage Limit layer provided by the FHCF, and resulting from loss occurrences commencing during the term of this Contract, shall inure to the benefit of this Contract. Any loss reimbursement paid or payable to the Company for the optional Limited Apportionment Companies layer provided by the FHCF shall inure to the benefit of Coverage B of this Contract. Further, any FHCF loss reimbursement shall be deemed paid to the Company in accordance with the reimbursement contract between the Company and the SBA at the full payout level set forth therein. It is further deemed that any loss reimbursement shall not be reduced by any reduction or exhaustion of the actual claims-paying capacity of the FHCF and that the FHCF fund balance is deemed funded to the fullest extent allowable by Florida statute.

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

If an FHCF reimbursement amount is based on the Company’s losses in more than one loss occurrence commencing during the term of this Contract, and the FHCF does not designate the amount allocable to each loss occurrence, the FHCF reimbursement amount shall be prorated in the proportion that the Company’s losses in each loss occurrence bear to the Company’s total losses arising out of all loss occurrences to which the FHCF reimbursement applies.

Effective: June 1, 2011

Page 6

ARTICLE 6 - REINSURANCE PREMIUM

A. As respects the reinsurance provided under Coverage A - Section 2, Coverage B and Coverage C, the following shall apply:

1. As premium hereunder, the Company shall pay the Reinsurer the greater of the following:

a. $****** (or a pro rata portion thereof in the event this Contract is terminated); or

b. ******% of the Company’s total insured value as of September 30, 2011 (the “adjusted premium”). However, in the event the difference between the adjusted premium and the deposit premium is less than or equal to ******% of the deposit premium, the premium due hereunder shall be $******. Further, in the event the adjusted premium hereunder is greater than $******, the premium due hereunder shall be equal to the $****** plus the difference between the adjusted premium and $******. Further, in the event the adjusted premium hereunder is less than $******, the premium due hereunder shall be equal to $****** less the difference between $****** and the adjusted premium.

2. The Company shall pay the Reinsurer a deposit premium of $****** in three equal installments of $****** on June 1, September 1 and December 1, 2011 and in one adjusted deposit installment. The adjusted deposit installment shall be computed in accordance with subparagraph 3 below and is due on April 1, 2012. No deposit premium installments shall be due to a Subscribing Reinsurer hereunder until that Subscribing Reinsurer has executed its Interests and Liabilities Agreement attached to and forming part of this Contract. Further, if this Contract is terminated, no deposit premium installments shall be due after the effective date of termination;

3. “Adjusted deposit installment” as used herein shall mean:

a. The premium due hereunder, computed in accordance with subparagraph 1 above; less

b. The first, second and third installments paid in accordance with subparagraph 2 above.

4. In the event this Contract is terminated in accordance with the provisions of paragraph C of the Term Article, the reinsurance premium due hereunder shall be prorated based on the period of the Reinsurer’s participation hereunder;

Effective: June 1, 2011

Page 7

5. No later than April 1, 2012 (or as promptly as possible following termination in the event this Contract is terminated prior to April 1, 2012), the Company shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with subparagraph 1 or 4 above (as applicable) and the adjusted deposit installment, computed in accordance with subparagraph 3 above. In the event this Contract is terminated prior to April 1, 2012, any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly.

B. As respects the reinsurance provided under Coverage A - Section 1, the following shall apply:

1. As premium hereunder, the Company shall pay the Reinsurer the greater of the following:

a. $****** (or a pro rata portion thereof in the event this Contract is terminated); or

b. ******% of the Company’s total insured value as of September 30, 2011 (the “adjusted premium”). However, in the event the difference between the adjusted premium and the deposit premium is less than or equal to ******% of the deposit premium, the premium due hereunder shall be $******. Further, in the event the adjusted premium hereunder is greater than $******, the premium due hereunder shall be equal to the $****** plus the difference between the adjusted premium and $******. Further, in the event the adjusted premium hereunder is less than $******, the premium due hereunder shall be equal to $****** less the difference between $****** and the adjusted premium.

2. The Company shall pay the Reinsurer a deposit premium of $****** in three equal installments of $****** on June 1, September 1 and December 1 of 2011 and in one adjusted deposit installment. The adjusted deposit installment shall be computed in accordance with subparagraph 3 below and is due on April 1, 2012. No deposit premium installments shall be due to a Subscribing Reinsurer hereunder until that Subscribing Reinsurer has executed its Interests and Liabilities Agreement attached to and forming part of this Contract. Further, if this Contract is terminated, no deposit premium installments shall be due after the effective date of termination.

3. “Adjusted deposit installment” as used herein shall mean:

a. The premium due hereunder, computed in accordance with subparagraph 1 above; less

Effective: June 1, 2011

Page 8

b. The first, second and third installments paid in accordance with subparagraph 2 above.

4. If the Company elects to reduce or terminate a Subscribing Reinsurer’s participation percentage in accordance with paragraph C of the Term Article, the Minimum Premium shall not apply. Further, the earned reinsurance premium as otherwise determined in accordance with the provisions of subparagraph 1 above shall be replaced with the following:

a. In the event a loss occurs prior to the effective date of reduction or termination and the Reinsurer’s liability for such loss occurrence exceeds $******, the reinsurance premium for the term of this Contract shall equal $****** times the ratio the loss recoverable bears to ******% of $******.

b. In the event no loss occurs prior to the effective date of reduction or termination or a loss occurs whereby the Reinsurer’s liability for such loss occurrence is less than $******, the reinsurance premium for the term of this Contract shall equal the pro rata portion of the reinsurance premium otherwise due hereunder based on the proportion the term of this Contract bears to the original 12-month term of this Contract.

5. No later than April 1, 2012 (or as promptly as possible following termination in the event this Contract is terminated prior to April 1, 2012), the Company shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with subparagraph 1 or 4 above (as applicable) and the adjusted deposit installment, computed in accordance with subparagraph 3 above. In the event this Contract is terminated prior to April 1, 2012, any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly.

C. The Company shall furnish the Reinsurer with such information as the Reinsurer may require to complete its Annual Convention Statement.

ARTICLE 7 - DEFINITIONS

A. The term “ultimate net loss” as used herein shall be defined as the sum or sums (including loss in excess of policy limits, extra contractual obligations and loss adjustment expense, as hereinafter defined) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims after deduction of all salvage, all recoveries, and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company’s ultimate net loss has been ascertained.

Effective: June 1, 2011

Page 9

B. The terms “loss in excess of policy limits” and “extra contractual obligations” as used herein shall be defined as follows:

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

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

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

Further, any loss in excess of policy limits and/or extra contractual obligations that are made in connection with this Contract shall not exceed 25.0% of the contractual loss under all policies involved in the loss occurrence as respects any one Coverage Section or any one excess layer under Coverage A hereunder.

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

Effective: June 1, 2011

Page 10

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

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

E. “Term of this Contract” as used herein shall be defined as the period from 12:01 a.m., Local Standard Time, June 1, 2011 through 12:01 a.m., Local Standard Time, June 1, 2012. However, if this Contract is terminated, “term of this Contract” as used herein shall mean the period from 12:01 a.m., Local Standard Time, June 1, 2011 until the effective time and date of termination.

ARTICLE 8 - LOSS OCCURRENCE DEFINITION

A. The term “loss occurrence” shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one loss occurrence shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term loss occurrence shall be further defined as follows:

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

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

Effective: June 1, 2011

Page 11

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

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

5. As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs 2 and 3 above), which spread through trees, grassland or other vegetation, all individual losses sustained by the Company which occur during any period of 168 consecutive hours within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another may be included in the Company’s loss occurrence.

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

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

ARTICLE 9 - ACCESS TO RECORDS

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

Effective: June 1, 2011

Page 12

ARTICLE 10 - AGENCY (BRMA 73A)

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

ARTICLE 11 - ARBITRATION

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

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

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

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

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Page 13

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

ARTICLE 12 - COLLATERAL

A. As promptly as possible following execution of this Contract, the Reinsurer (as Grantor) shall enter into a Trust Agreement (the “Trust Agreement”) with the Company (as Beneficiary) and the trustee, pursuant to which the Reinsurer shall provide collateral in the form of eligible Assets deposited and held in a Trust Account, with such Assets having a market value greater than or equal to $56,690,000 (the “Collateral”) less earned premium (net of brokerage and applicable federal excise tax) of $******. It is understood that deposit premium paid in accordance with the Reinsurance Premium Article shall be deposited into the Trust Account.

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

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

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

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

ARTICLE 13 - COLLATERAL RELEASE

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

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

Effective: June 1, 2011

Page 14

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

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

2. As respects Coverage A – Section 1, the BLA will be reduced by the $19,300,000 retention and any inuring reinsurance recoveries to compute its contribution to the Presumed Coverage A – Section 1 ultimate net loss. The Presumed Coverage A – Section 1 ultimate net loss will equal the sum of these contributions. The Presumed Coverage A – Section 1 Ceded Loss will be defined as the lesser of 41.5% of the Presumed Coverage A – Section 1 ultimate net loss and the Coverage A – Section 1 limit of 41.5% of $26,000,000.

3. As respects Coverage A – Section 2, the BLA will be reduced by the $71,300,000 retention and any inuring reinsurance recoveries to compute its contribution to the Presumed Coverage A – Section 2 ultimate net loss. The Presumed Coverage A – Section 2 ultimate net loss will equal the sum of these contributions. The Presumed Coverage A – Section 2 Ceded Loss will be defined as the lesser of the Presumed Coverage A – Section 2 ultimate net loss and the Coverage A – Section 2 limit of 90% of $51,000,000.

4. As respects Coverage B, the BLA will be reduced by all inuring reinsurance recoveries, including Coverages A and C of this Contract, and by the $2,000,000 deductible per loss occurrence to compute its contribution to the Presumed Coverage B ultimate net loss. The Presumed Coverage B ultimate net loss will equal the sum of these contributions. The Presumed Coverage B Ceded Loss will be defined as the Presumed Coverage B ultimate net loss minus the aggregate retention of $6,000,000, subject to a minimum of nil and a maximum of 90% of $51,000,000.

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5. As respects Coverage C, as respects potentially covered loss occurrences covered under Coverage C, the BLA will be reduced by all inuring reinsurance recoveries, and by the $9,300,000 retention. The Presumed Coverage C ultimate net loss will equal the sum of these contributions. The Presumed Coverage C Ceded Loss will be defined as the lesser of the Presumed Coverage C ultimate net loss and the Coverage C occurrence limit of 90% of $10,000,000, subject to an annual limit of 90% of $20,000,000.

6. The Presumed Total Ceded Loss will equal the lesser of the Contract limit of $56,690,000 and the sum of the Presumed Coverage A – Section 1 Ceded Loss, Presumed Coverage A – Section 2 Ceded Loss, Presumed Coverage B Ceded Loss and Presumed Coverage C Ceded Loss. An amount equal to the Presumed Total Ceded Loss less losses paid by the Reinsurer under this Contract shall be retained in the Trust and any excess in the Trust shall be released to the Reinsurer.

7. Notwithstanding the aforementioned, at December 31, 2011, the parties agree to consider the release of collateral. The intention is to release collateral for all limits for which there is essentially no possibility of loss from past or future events before the expiration of this Contract. All collateral securing what the parties agree are unreachable limits will be released within three business days.

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

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

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ARTICLE 14 - CONFIDENTIALITY

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

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

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

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

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

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

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

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

4. When requested by attorneys or arbitrators in connection with an actual or potential dispute hereunder.

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

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

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

ARTICLE 15 - CURRENCY (BRMA 12A)

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

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

ARTICLE 16 - ENTIRE AGREEMENT

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

B. Any change to or modification of this Contract shall be null and void unless made by an addendum signed by both parties.

ARTICLE 17 - ERRORS AND OMISSIONS (BRMA 14F)

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

ARTICLE 18 - FEDERAL EXCISE TAX (BRMA 17D)

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

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

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ARTICLE 19 - GOVERNING LAW

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

ARTICLE 20 - INSOLVENCY

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

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

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

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

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ARTICLE 21 - LATE PAYMENTS

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

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

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

3. The Company shall provide a copy of the original insured’s proof of loss, and a copy of the claim adjuster’s report(s) or other evidence of indemnification for losses exceeding the excess limit on an incurred basis. If, subsequent to receipt of this evidence, the information contained therein is insufficient or not in accordance with the contractual conditions, then the payment due date as defined in subparagraph 1 shall be deemed to be the date upon which the Reinsurer received additional information necessary to approve payment of the claim or the claim is presented in an acceptable manner. Interest as stipulated in subparagraph 4 shall be payable should a disputed claim be ultimately settled and if the period set out in subparagraph 1 is exceeded, but only to the extent that the final loss payment exactly tracks with the original proof of loss.

4. Overdue amounts shall bear simple interest from the overdue date at the 90-day United States Treasury Bill rate set forth by the Federal Reserve Board for the first Monday of the calendar month in which the amount becomes overdue, as published in the Federal Reserve Statistical Release. If the interest generated for 100% in respect of any overdue payment as outlined in subparagraph 1 or 2 is $500 or less, then the interest penalty shall be waived.

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

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ARTICLE 22 - LIABILITY OF THE REINSURER

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

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

ARTICLE 23 - LIMITED RECOURSE AND BERMUDA REGULATIONS

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

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

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C. The Company also understands and accepts that one of the Subscribing Reinsurers as set forth on the Reinsurer’s Interests and Liabilities Agreement is Aeolus Re MY11 SPI Ltd. (for purposes of this Article, the “SPI Reinsurer”). Notwithstanding any other provision of this Contract to the contrary, the liability of the SPI Reinsurer for the performance and discharge of all of its obligations, however they may arise, in relation to this Contract (together the “SPI Obligations”) shall be limited to and payable solely from the assets of the SPI Reinsurer. In the event that the assets available to the SPI Reinsurer are insufficient to meet all SPI Obligations, any SPI Obligations remaining after the application of such assets available to the SPI Reinsurer shall be extinguished, and the Company undertakes in such circumstances to take no further action against the SPI Reinsurer in respect of any such SPI Obligations. In particular, neither the Company nor any party acting on its behalf shall petition or take any steps for the winding up or receivership of the SPI Reinsurer.

ARTICLE 24 - LOSS NOTICE AND SETTLEMENTS

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

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

ARTICLE 25 - NET RETAINED LINES (BRMA 32E)

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

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

ARTICLE 26 - NON-WAIVER

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

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ARTICLE 27 - NOTICES AND CONTRACT EXECUTION

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

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

1. Paper documents with an original ink signature;

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

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

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

ARTICLE 28 - OFFSET

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

ARTICLE 29 - OTHER REINSURANCE

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

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ARTICLE 30 - SALVAGE AND SUBROGATION

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

ARTICLE 31 - SERVICE OF SUIT

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

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

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

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

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ARTICLE 32 - SEVERABILITY (BRMA 72E)

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

ARTICLE 33 - TAXES

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

ARTICLE 34 - TERRITORY

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

ARTICLE 35 - INTERMEDIARY (BRMA 23A)

TigerRisk Partners LLC is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including, but not limited to, notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through TigerRisk Partners LLC, 7601 France Avenue South, Suite 200, Edina, MN 55435. Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

IN WITNESS WHEREOF, the Company has confirmed its review of the Interests and Liabilities Agreement(s) attached to and forming part of this Contract and its agreement to be bound by the terms and conditions thereof, and has executed this Contract by its duly authorized representative on:

this                      day of                                         , in the year             .

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY (for and on behalf of the “Company”)

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Page 25

SCHEDULE A – COLLATERAL COLLECTION TABLES

attached to the

AGGREGATE EXCESS CATASTROPHE REINSURANCE CONTRACT

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY

Coverage A – Section 1

	Collateral Release Calculation as of [INSERT REPORTING PERIOD]
Line No.	Col 1	Col. 2	Col. 3	Col. 4	Col. 5	Col. 6	Col. 7	Col. 8	Col. 9
	Date of Loss Event	Description	Loss Amount	Buffer Loss Factor	Buffer Loss 1Amount (Col. 3 x Col. 4)	Inuring Reinsurance Coverage	Buffered Loss Amount, net of Inuring Reinsurance (Col. 5 - Col. 6)	Less: $19,300,000 Retention	Balance1 (Col. 7 – Col. 8)
1A
1B
1C
1D
1E
1F
2	Presumed Section A ultimate net loss (sum of Col. 9)
3	Presumed Section A Ceded Loss = 41.5% of Line 2 NOTE: If the amount equals 41.5% of $26,000,000 or more, insert policy limit of 41.5% of $26,000,000. If amount is less than Zero, insert Zero.

¹  If the Balance is zero or a negative number, put zero since such Loss Occurrence does not contribute to the aggregate loss.

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Coverage A – Section 2

	Collateral Release Calculation as of [INSERT REPORTING PERIOD]
Line No.	Col 1	Col. 2	Col. 3	Col. 4	Col. 5	Col. 6	Col. 7	Col. 8	Col. 9
	Date of Loss Event	Description	Loss Amount	Buffer Loss Factor	Buffer Loss 2Amount (Col. 3 x Col. 4)	Inuring Reinsurance Coverage	Buffered Loss Amount, net of Inuring Reinsurance (Col. 5 - Col. 6)	Less: $71,300,000 Retention	Balance1 (Col. 7 – Col. 8)
1A
1B
1C
1D
1E
1F
4	Presumed Section A ultimate net loss (sum of Col. 9)
5	Presumed Section A Ceded Loss = 100% of Line 4 NOTE: If the amount equals 90% of $51,000,000 or more, insert policy limit of 90% of $51,000,000. If amount is less than Zero, insert Zero.

²  If the Balance is zero or a negative number, put zero since such Loss Occurrence does not contribute to the aggregate loss.

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Coverage B

	Collateral Release Calculation as of [INSERT REPORTING PERIOD]
Line No.	Col 1	Col. 2	Col. 3	Col. 4	Col. 5	Col. 6	Col. 7	Col. 8			Col. 9
	Date of Loss Event	Description	Loss Amount	Buffer Loss Factor	Buffer Loss Amount (Col. 3 x Col. 4)	Inuring Reinsurance Coverage (including Sections A & C)	Buffered Loss Amount, net of Inuring Reinsurance (Col. 5 - Col. 6)	Less: Flat Deductible of $2,000,000			Balance (Col. 7  – Col. 8)
1A								($	2,000,000	)
1B								($	2,000,000	)
1C								($	2,000,000	)
1D								($	2,000,000	)
1E								($	2,000,000	)
1F								($	2,000,000	)
6	Presumed Section B ultimate net loss (sum of Col. 9)
7	Less: Aggregate Retention										($	6,000,000	)
8	Presumed Section B Ceded Loss = 100% of Line 6 minus Line 7. NOTE: If the amount equals 90% of $51,000,000 or more, insert policy limit of 90% of $51,000,000. If amount is less than Zero, insert Zero.

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Coverage C

	Collateral Release Calculation as of [INSERT REPORTING PERIOD]
Line No.	Col 1	Col. 2	Col. 3	Col. 4	Col. 5	Col. 6	Col. 7	Col. 8			Col. 9
	Date of Loss Event	Description	Loss Amount	Buffer Loss Factor	Buffer Loss Amount (Col. 3 x Col. 4)	Inuring Reinsurance Coverage	Buffered Loss Amount, net of Inuring Reinsurance (Col. 5 - Col. 6)	Less: $9,300,000 Retention			Balance, capped at $10,000,000 each Loss Event (Col. 7 – Col. 8)
1A								($	9,300,000	)
1B								($	9,300,000	)
1C								($	9,300,000	)
1D								($	9,300,000	)
1E								($	9,300,000	)
1F								($	9,300,000	)
9	Presumed Section C ultimate net loss (sum of Col. 9)
10	Presumed Section C Ceded Loss = 100% of Line 9 NOTE: If the amount equals 90% of $20,000,000 or more, insert policy limit of 90% of $20,000,000
11	Presumed Total Ceded Loss = (Line 3, but not greater than 41.5% of $26,000,000) plus (Line 5 plus Line 8 plus Line 10, but not greater than 90% of $51,000,000)
12	Losses paid under this Contract
13	Reinsurer’s Obligation
14	Collateral in the trust
15	Collateral Adjustment

Effective: June 1, 2011

Page 29

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

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

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

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

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

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

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

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

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

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

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

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

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

7. Reassured to be sole judge of what constitutes:

(a) substantial quantities, and

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

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

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

Effective: June 1, 2011

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

12/12/57

N.M.A. 1119

BRMA 35B

Effective: June 1, 2011

EX-10.16

Exhibit 10.16

AGGREGATE EXCESS CATASTROPHE REINSURANCE CONTRACT

Effective: June 1, 2011

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

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

and

any other insurance companies which are now or

hereafter come under the ownership, control or management of

Homeowners Choice, Inc.

Effective: June 1, 2011

TABLE OF CONTENTS

1.	BUSINESS COVERED	1
2.	TERM	1
3.	EXCLUSIONS	3
4.	RETENTION AND LIMIT	4
5.	INURING REINSURANCE	5
6.	REINSURANCE PREMIUM	7
7.	DEFINITIONS	8
8.	LOSS OCCURRENCE DEFINITION	10
9.	ACCESS TO RECORDS	11
10.	AGENCY (BRMA 73A)	12
11.	ARBITRATION	12
12.	CONFIDENTIALITY	13
13.	CURRENCY (BRMA 12A)	14
14.	ENTIRE AGREEMENT	14
15.	ERRORS AND OMISSIONS (BRMA 14F)	14
16.	FEDERAL EXCISE TAX (BRMA 17D)	14
17.	FUNDING OF RESERVES	15
18.	GOVERNING LAW	17
19.	INSOLVENCY	17
20.	LATE PAYMENTS	18
21.	LIABILITY OF THE REINSURER	19
22.	LOSS NOTICE AND SETTLEMENTS	19
23.	NET RETAINED LINES (BRMA 32E)	20
24.	NON-WAIVER	20
25.	NOTICES AND CONTRACT EXECUTION	20
26.	OFFSET	21
27.	OTHER REINSURANCE	21
28.	SALVAGE AND SUBROGATION	21
29.	SERVICE OF SUIT	21
30.	SEVERABILITY (BRMA 72E)	22
31.	TAXES	22
32.	TERRITORY	22
33.	INTERMEDIARY (BRMA 23A)	23

ATTACHMENTS

Nuclear Incident Exclusion Clause – Physical Damage – Reinsurance (USA)

Effective: June 1, 2011

AGGREGATE EXCESS CATASTROPHE REINSURANCE CONTRACT

Effective: June 1, 2011

(hereinafter referred to as the “Contract”)

issued to

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY

Clearwater, Florida

and

any other insurance companies which are now or

hereafter come under the ownership, control or management of

Homeowners Choice, Inc.

(hereinafter referred to collectively as the “Company”)

by

THE SUBSCRIBING REINSURER(S)

EXECUTING THE INTERESTS AND LIABILITIES

AGREEMENT(S) ATTACHED HERETO

(hereinafter referred to as the “Reinsurer”)

ARTICLE 1 - BUSINESS COVERED

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

ARTICLE 2 - TERM

A. This Contract shall become effective at 12:01 a.m., Local Standard Time, June 1, 2011, with respect to losses arising out of loss occurrences commencing at or after that time and date, and shall remain in force until 12:01 a.m., Local Standard Time, June 1, 2012. “Local Standard Time” as used herein shall mean local standard time at the location where the loss occurrence commences.

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

Effective: June 1, 2011

Page 1

C. Notwithstanding the provisions of paragraph A above, the Company may reduce or terminate a Subscribing Reinsurer’s percentage share in this Contract at any time by giving written notice to the Subscribing Reinsurer in the event any of the following circumstances occur. The effective date of reduction or termination shall be the date selected by the Company, which may be a date that is retroactively applied up to a maximum of 65 days prior to the date of public announcement for subparagraphs 1 through 5 below or upon discovery for subparagraphs 6 through 8 below, subject to the condition that such selected date must be the last day of a calendar month:

1. The Subscribing Reinsurer’s policyholders’ surplus (or its equivalent under the Subscribing Reinsurer’s accounting system) as reported in such financial statements of the Subscribing Reinsurer as designated by the Company, has been reduced by 20.0% of the amount of surplus (or the applicable equivalent) at any date during the prior 12-month period (including the 12-month period prior to the inception of this Contract); or

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

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

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

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

6. The Subscribing Reinsurer has reinsured its entire liability under this Contract without the Company’s prior written consent, except that this provision shall not apply to any inter-company reinsurance or inter-company pooling arrangements entered into by the Subscribing Reinsurer; or

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

Effective: June 1, 2011

Page 2

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

ARTICLE 3 - EXCLUSIONS

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

1. All excess of loss reinsurance assumed by the Company.

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

3. Financial guarantee and insolvency.

4. All Accident and Health, Fidelity and Surety, Boiler and Machinery, Workers’ Compensation, and Credit business.

5. Flood and/or earthquake when written as such for stand alone policies where flood and/or earthquake is the only named peril.

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

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

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

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

Effective: June 1, 2011

Page 3

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

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

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

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

ARTICLE 4 - RETENTION AND LIMIT

A. Coverage A: The Company shall retain and be liable for the first $71,300,000 of ultimate net loss arising out of each loss occurrence. The Reinsurer shall then be liable for the amount by which such ultimate net loss exceeds the Company’s retention, but the liability of the Reinsurer shall not exceed $51,000,000 as respects any one loss occurrence.

B. Coverage B: The Company shall retain and be liable for the first $3,000,000 of subject excess ultimate net loss in the aggregate as respects all loss occurrences commencing during the term of this Contract. The Reinsurer shall then be liable for the amount by which such subject excess ultimate net loss exceeds the Company’s aggregate retention, but the liability of the Reinsurer shall not exceed $51,000,000 in the aggregate as respects all loss occurrences commencing during the term of this Contract.

Effective: June 1, 2011

Page 4

“Subject excess ultimate net loss” as used herein is defined as the amount by which the Company’s ultimate net loss arising out of any one loss occurrence exceeds $2,000,000, but said amount shall not exceed $51,000,000 as respects any one loss occurrence.

C. Coverage C: As respects any loss occurrence involving a peril not covered by the Florida Hurricane Catastrophe Fund Optional Limited Apportionment Companies Coverage Layer, the Company shall retain and be liable for $9,300,000 of ultimate net loss as respects such loss occurrence. The Reinsurer shall then be liable for the amount by which such ultimate net loss exceeds the Company’s retention, but the liability of the Reinsurer shall not exceed $10,000,000 as respects any one loss occurrence, nor shall it exceed $20,000,000 as respects all loss occurrences commencing during the term of this Contract.

D. Notwithstanding the provisions of paragraphs A, B and C above, the liability of the Reinsurer under Coverage A, Coverage B and Coverage C combined shall not exceed $51,000,000 in the aggregate as respects all loss occurrences commencing during the term of this Contract.

E. Notwithstanding the provisions above, no claim shall be made hereunder as respects losses arising out of loss occurrences commencing during the term of this Contract unless at least two risks insured or reinsured by the Company are involved in such loss occurrence. For purposes hereof, the Company shall be the sole judge of what constitutes “one risk.”

F. It is understood that recoveries under Coverage A and Coverage C shall inure to the benefit of Coverage B hereunder.

G. It is understood the Company may maintain in force excess reinsurance, recoveries under which shall inure solely to the Company’s benefit and be entirely disregarded in applying all of the provisions of this Contract.

ARTICLE 5 - INURING REINSURANCE

A. The Company shall maintain property catastrophe excess of loss reinsurance, recoveries under which shall inure to the benefit of Coverage B of this Contract, for the following layers:

1. $5,800,000 in excess of $3,500,000 any one loss occurrence, subject to an annual limit of $11,600,000; and

2. $26,000,000 in excess of $19,300,000 any one loss occurrence, subject to no reinstatements of the limit; and

3. $26,000,000 in excess of $45,300,000 any one loss occurrence, subject to an annual limit of $52,000,000; and

Effective: June 1, 2011

Page 5

4. 90% of $16,800,000 in excess of $71,300,000 any one loss occurrence, subject to no reinstatements of the limit.

B. The Company shall maintain property catastrophe excess of loss reinsurance for the layer 90% of $16,800,000 in excess of $71,300,000 any one loss occurrence, subject to no reinstatements of the limit, recoveries under which shall inure to the benefit of Coverage A of this Contract.

C. The Company shall provisionally purchase mandatory and optional coverage from the Florida Hurricane Catastrophe Fund (FHCF) with the following limits and retentions:

1. 100% of $10,000,000 excess of $9,300,000 any one loss occurrence (optional Limited Apportionment Companies coverage);

2. 90% of $182,800,000 excess of $71,300,000 (mandatory layer);

3. 90% of $64,500,000 excess of $254,100,000 (optional Temporary Increase in Coverage Limit).

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

Any loss reimbursement paid or payable to the Company for the mandatory layer and the optional Temporary Increase in Coverage Limit layer provided by the FHCF, and resulting from loss occurrences commencing during the term of this Contract, shall inure to the benefit of this Contract. Any loss reimbursement paid or payable to the Company for the optional Limited Apportionment Companies layer provided by the FHCF shall inure to the benefit of Coverage B of this Contract. Further, any FHCF loss reimbursement shall be deemed paid to the Company in accordance with the reimbursement contract between the Company and the SBA at the full payout level set forth therein. It is further deemed that any loss reimbursement shall not be reduced by any reduction or exhaustion of the actual claims-paying capacity of the FHCF and that the FHCF fund balance is deemed funded to the fullest extent allowable by Florida statute.

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

Effective: June 1, 2011

Page 6

If an FHCF reimbursement amount is based on the Company’s losses in more than one loss occurrence commencing during the term of this Contract, and the FHCF does not designate the amount allocable to each loss occurrence, the FHCF reimbursement amount shall be prorated in the proportion that the Company’s losses in each loss occurrence bear to the Company’s total losses arising out of all loss occurrences to which the FHCF reimbursement applies.

ARTICLE 6 - REINSURANCE PREMIUM

A. As respects the reinsurance provided hereunder, the Company shall pay the Reinsurer the greater of the following:

1. $******; or

2. ******% of the Company’s total insured value as of September 30, 2011 (the “adjusted premium”). However, in the event the difference between the adjusted premium and the deposit premium is less than or equal to ******% of the deposit premium, the premium due hereunder shall be $******. Further, in the event the adjusted premium hereunder is greater than $******, the premium due hereunder shall be equal to the $****** plus the difference between the adjusted premium and $******. Further, in the event the adjusted premium hereunder is less than $******, the premium due hereunder shall be equal to $****** less the difference between $****** and the adjusted premium.

B. The Company shall pay the Reinsurer a deposit premium of $****** in three equal installments of $****** on June 1, September 1 and December 1, 2011 and in one adjusted deposit installment. The adjusted deposit installment shall be computed in accordance with paragraph C below and is due on April 1, 2012. However, if this Contract is terminated, no deposit premium installments shall be due after the effective date of termination.

C. “Adjusted deposit installment” as used herein shall mean:

1. The premium due hereunder, computed in accordance with paragraph A above; less

Effective: June 1, 2011

Page 7

2. The first, second and third installments paid in accordance with paragraph B above.

D. If the Company elects to reduce or terminate a Subscribing Reinsurer’s participation percentage in accordance with paragraph C of the Term Article, the minimum premium set forth in subparagraph 1 of paragraph A above shall not apply. Further, the earned reinsurance premium as otherwise determined in accordance with the provisions of subparagraph 2 of paragraph A above shall be replaced with the following:

1. In the event a loss occurs prior to the effective date of reduction or termination and the Reinsurer’s liability for such loss occurrence exceeds $******, the reinsurance premium for the term of this Contract shall equal $****** times the ratio the loss recoverable hereunder bears to $******.

2. In the event no loss occurs prior to the effective date of reduction or termination or a loss occurs whereby the Reinsurer’s liability for such loss occurrence is less than $******, the reinsurance premium for the term of this Contract shall equal the pro rata portion of the reinsurance premium otherwise due hereunder based on the proportion the term of this Contract bears to the original 12-month term of this Contract.

E. No later than April 1, 2012 (or as promptly as possible following termination in the event this Contract is terminated prior to April 1, 2012), the Company shall provide a report to the Reinsurer setting forth the premium due hereunder, computed in accordance with paragraph A or D above (as applicable) and the adjusted deposit installment, computed in accordance with paragraph C above. In the event this Contract is terminated prior to April 1, 2012, any additional premium due the Reinsurer or return premium due the Company shall be remitted promptly.

F. The Company shall furnish the Reinsurer with such information as the Reinsurer may require to complete its Annual Convention Statement.

ARTICLE 7 - DEFINITIONS

A. The term “ultimate net loss” as used herein shall be defined as the sum or sums (including loss in excess of policy limits, extra contractual obligations and loss adjustment expense, as hereinafter defined) paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims after deduction of all salvage, all recoveries, and all claims on inuring insurance or reinsurance, whether collectible or not. Nothing herein shall be construed to mean that losses under this Contract are not recoverable until the Company’s ultimate net loss has been ascertained.

B. The terms “loss in excess of policy limits” and “extra contractual obligations” as used herein shall be defined as follows:

Effective: June 1, 2011

Page 8

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

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

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

Further, any loss in excess of policy limits and/or extra contractual obligations that are made in connection with this Contract shall not exceed 25.0% of the contractual loss under all policies involved in the loss occurrence as respects any one Coverage Section hereunder.

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

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

Effective: June 1, 2011

Page 9

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

E. “Term of this Contract” as used herein shall be defined as the period from 12:01 a.m., Local Standard Time, June 1, 2011 through 12:01 a.m., Local Standard Time, June 1, 2012. However, if this Contract is terminated, “term of this Contract” as used herein shall mean the period from 12:01 a.m., Local Standard Time, June 1, 2011 until the effective time and date of termination.

ARTICLE 8 - LOSS OCCURRENCE DEFINITION

A. The term “loss occurrence” shall mean the sum of all individual losses directly occasioned by any one disaster, accident or loss or series of disasters, accidents or losses arising out of one event which occurs within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another. However, the duration and extent of any one loss occurrence shall be limited to all individual losses sustained by the Company occurring during any period of 168 consecutive hours arising out of and directly occasioned by the same event except that the term loss occurrence shall be further defined as follows:

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

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

Effective: June 1, 2011

Page 10

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

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

5. As regards firestorms, brush fires and any other fires or series of fires, irrespective of origin (except as provided in subparagraphs 2 and 3 above), which spread through trees, grassland or other vegetation, all individual losses sustained by the Company which occur during any period of 168 consecutive hours within the area of one state of the United States or province of Canada and states or provinces contiguous thereto and to one another may be included in the Company’s loss occurrence.

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

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

ARTICLE 9 - ACCESS TO RECORDS

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

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ARTICLE 10 - AGENCY (BRMA 73A)

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

ARTICLE 11 - ARBITRATION

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

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

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

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

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

ARTICLE 12 - CONFIDENTIALITY

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

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

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

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

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

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

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

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

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

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

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

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

ARTICLE 13 - CURRENCY (BRMA 12A)

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

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

ARTICLE 14 - ENTIRE AGREEMENT

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

B. Any change to or modification of this Contract shall be null and void unless made by an addendum signed by both parties.

ARTICLE 15 - ERRORS AND OMISSIONS (BRMA 14F)

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

ARTICLE 16 - FEDERAL EXCISE TAX (BRMA 17D)

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

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

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ARTICLE 17 - FUNDING OF RESERVES

A. The Reinsurer agrees to fund its share of the Company’s ceded unearned premium (including but not limited to the unearned portion of any deposit premium installment as calculated by the Company) and outstanding loss and loss adjustment expense reserves (including all case reserves plus any reasonable amount estimated to be unreported from known loss occurrences) by:

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

2. Escrow accounts for the benefit of the Company; and/or

3. Cash advances;

if the Reinsurer:

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

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

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

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

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

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

b. As respects a Subscribing Reinsurer that has experienced any of the circumstances described in paragraph C of the Term Article, the first date such circumstance occurs;

times:

2. 1/365ths of the sum of 2.0% and the U.S. prime rate as quoted in The Wall Street Journal on the first day of the month for which the calculation is made; times

3. The funding obligation, less the amount, if any, funded by the Subscribing Reinsurer prior to the applicable date determined in subparagraph 1 above.

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

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

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

1. To reimburse itself for the Reinsurers’ share of losses and/or loss adjustment expense paid under the terms of policies reinsured hereunder, unless paid in cash by the Reinsurer;

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

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

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

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

In the event the amount drawn by the Company on any letter of credit is in excess of the actual amount required for C(1), C(3), or C(5), or in the case of C(2), the actual amount determined to be due, the Company shall promptly return to the Reinsurer the excess amount so drawn.

ARTICLE 18 - GOVERNING LAW

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

ARTICLE 19 - INSOLVENCY

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

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

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

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

ARTICLE 20 - LATE PAYMENTS

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

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

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

3. The Company shall provide a copy of the original insured’s proof of loss, and a copy of the claim adjuster’s report(s) or other evidence of indemnification for losses exceeding the excess limit on an incurred basis. If, subsequent to receipt of this evidence, the information contained therein is insufficient or not in accordance with the contractual conditions, then the payment due date as defined in subparagraph 1 shall be deemed to be the date upon which the Reinsurer received additional information necessary to approve payment of the claim or the claim is presented in an acceptable manner. Interest as stipulated in subparagraph 4 shall be payable should a disputed claim be ultimately settled and if the period set out in subparagraph 1 is exceeded, but only to the extent that the final loss payment exactly tracks with the original proof of loss.

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4. Overdue amounts shall bear simple interest from the overdue date at the 90-day United States Treasury Bill rate set forth by the Federal Reserve Board for the first Monday of the calendar month in which the amount becomes overdue, as published in the Federal Reserve Statistical Release. If the interest generated for 100% in respect of any overdue payment as outlined in subparagraph 1 or 2 is $500 or less, then the interest penalty shall be waived.

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

ARTICLE 21 - LIABILITY OF THE REINSURER

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

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

ARTICLE 22 - LOSS NOTICE AND SETTLEMENTS

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

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

Effective: June 1, 2011

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ARTICLE 23 - NET RETAINED LINES (BRMA 32E)

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

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

ARTICLE 24 - NON-WAIVER

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

ARTICLE 25 - NOTICES AND CONTRACT EXECUTION

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

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

1. Paper documents with an original ink signature;

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

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

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

ARTICLE 26 - OFFSET

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

ARTICLE 27 - OTHER REINSURANCE

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

ARTICLE 28 - SALVAGE AND SUBROGATION

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

ARTICLE 29 - SERVICE OF SUIT

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

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

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

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

ARTICLE 30 - SEVERABILITY (BRMA 72E)

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

ARTICLE 31 - TAXES

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

ARTICLE 32 - TERRITORY

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

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ARTICLE 33 - INTERMEDIARY (BRMA 23A)

TigerRisk Partners LLC is hereby recognized as the Intermediary negotiating this Contract for all business hereunder. All communications (including, but not limited to, notices, statements, premium, return premium, commissions, taxes, losses, loss adjustment expense, salvages and loss settlements) relating thereto shall be transmitted to the Company or the Reinsurer through TigerRisk Partners LLC, 7601 France Avenue South, Suite 200, Edina, MN 55435. Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed to constitute payment to the Company only to the extent that such payments are actually received by the Company.

IN WITNESS WHEREOF, the Company has confirmed its review of the Interests and Liabilities Agreement(s) attached to and forming part of this Contract and its agreement to be bound by the terms and conditions thereof, and has executed this Contract by its duly authorized representative on:

this              day of             , in the year             .

________________________________________________________

HOMEOWNERS CHOICE PROPERTY & CASUALTY

INSURANCE COMPANY (for and on behalf of the “Company”)

Effective: June 1, 2011

Page 23

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

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

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

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

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

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

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

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

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

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

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

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

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

7. Reassured to be sole judge of what constitutes:

(a) substantial quantities, and

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

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

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

Effective: June 1, 2011

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

12/12/57

N.M.A. 1119

BRMA 35B

Effective: June 1, 2011

EX-10.19

Exhibit 10.19

STATE BOARD OF ADMINISTRATION OF FLORIDA   1801 HERMITAGE BOULEVARD TALLAHASSEE, FLORIDA 32308 (850) 488-4406   POST OFFICE BOX 13300 32317-3300 RICK SCOTT   GOVERNOR AS CHAIRMAN   JEFF ATWATER CHIEF FINANCIAL OFFICER AS TREASURER   PAM BONDI ATTORNEY GENERAL AS SECRETARY   ASH WILLIAMS EXECUTIVE DIRECTOR & CIO

REIMBURSEMENT CONTRACT

Effective: June 1, 2011

(Contract)

between

HOMEOWNERS CHOICE PROPERTY & CASUALTY INSURANCE COMPANY, INC.

(Company)

NAIC #12944

and

THE STATE BOARD OF ADMINISTRATION OF THE STATE OF FLORIDA (SBA)

WHICH ADMINISTERS THE FLORIDA HURRICANE CATASTROPHE FUND (FHCF)

PREAMBLE

The Legislature of the State of Florida has enacted Section 215.555, Florida Statutes “Statute”, which directs the SBA to administer the FHCF. This Contract, consisting of the principal document entitled Reimbursement Contract, addressing the mandatory FHCF coverage, and Addenda, is subject to the Statute and to any administrative rule adopted pursuant thereto, and is not intended to be in conflict therewith. All provisions in the principle document are equally applicable to each Addenda unless specifically superseded by one of the Addenda.

In consideration of the promises set forth in this Contract, the parties agree as follows:

ARTICLE I - SCOPE OF AGREEMENT

As a condition precedent to the SBA’s obligations under this Contract, the Company, an Authorized Insurer or an entity writing Covered Policies under Section 627.351, Florida Statutes, in the State of Florida, shall report to the SBA in a specified format the business it writes which is described in this Contract as Covered Policies.

The terms of this Contract shall determine the rights and obligations of the parties. This Contract provides reimbursement to the Company under certain circumstances, as described herein, and does not provide or extend insurance or reinsurance coverage to any person, firm, corporation or other entity. The SBA shall reimburse the Company for its Ultimate Net Loss on Covered Policies, which were in force and in effect at the time of the loss, in excess of the Company’s Retention as a result of each Loss Occurrence commencing during the Contract Year, to the extent funds are available, all as hereinafter defined.

ARTICLE II - PARTIES TO THE CONTRACT

This Contract is solely between the Company and the SBA which administers the FHCF. In no instance shall any insured of the Company or any claimant against an insured of the Company, or any other third party, have any rights under this Contract, except as provided in Article XIV. The SBA will only disburse funds to the Company, except as provided for in Article XIV of this Contract. The Company shall not, without the prior approval of the Office of Insurance Regulation, sell, assign, or transfer to any third party, in return for a fee or other consideration any sums the FHCF pays under this Contract or the right to receive such sums.

ARTICLE III - TERM

This Contract shall apply to Loss Occurrences which commence during the period from 12:00:01 a.m., Eastern Time, June 1, 2011, to 12:00 midnight, Eastern Time, May 31, 2012 (Contract Year).

The Company must designate a coverage level, make the required selections, and return this fully executed Contract (two originals) to the FHCF Administrator so that the Contract is received by the FHCF Administrator no later than 5 p.m., Central Time, March 1, 2011. Failure to do so may result in a referral to the Office of Insurance Regulation within the Department of Financial Services for administrative action. Furthermore, the Company’s coverage level under this Contract will be deemed as follows:

(1) For Companies that are a member of a National Association of Insurance Commissioners (NAIC) group, the same coverage level selected by the other Companies of the same NAIC group shall be deemed. If executed Contracts for none of the members of an NAIC group have been received by the FHCF Administrator, the coverage level from the prior Contract Year shall be deemed.

(2) For Companies that are not a member of an NAIC group under which other Companies are active participants in the FHCF, the coverage level from the prior Contract Year shall be deemed.

(3) For New Participants, as that term is defined in Article V(21), that are a member of an NAIC group, the same coverage level selected by the other Companies of the same NAIC group shall be deemed.

(4) For New Participants that are not a member of an NAIC group under which other Companies are active participants in the FHCF, the 45%, 75% or 90% coverage levels may be selected providing that the FHCF Administrator receives executed Contracts within 30 calendar days of the effective date of the first Covered Policy, otherwise, the 45% coverage level shall be deemed.

Pursuant to the terms of this Contract, the SBA shall not be liable for Loss Occurrences which commence after the effective time and date of expiration or termination. Should this Contract expire or terminate while a Loss Occurrence covered hereunder is in progress, the SBA shall be responsible for such Loss Occurrence in progress in the same manner and to the same extent it would have been responsible had the Contract expired the day following the conclusion of the Loss Occurrence in progress.

ARTICLE IV - LIABILITY OF THE FHCF

(1) The SBA shall reimburse the Company, with respect to each Loss Occurrence commencing during the Contract Year for the “Reimbursement Percentage” elected, this percentage times the amount of Ultimate Net Loss paid by the Company in excess of the Company’s Retention, as adjusted pursuant to Article V(28), plus 5% of the reimbursed losses for Loss Adjustment Expense Reimbursement.

FHCF-2011K

Rule 19-8.010 F.A.C.

(2) The Reimbursement Percentage will be 45% or 75% or 90%, at the Company’s option as elected under Article XVIII.

(3) The aggregate liability of the FHCF with respect to all Reimbursement Contracts covering this Contract Year shall not exceed the limit set forth under Section 215.555(4)(c)1., Florida Statutes. For specifics regarding loss reimbursement calculations, see section (3)(c) of Article X herein.

(4) Upon the occurrence of a Covered Event, the SBA shall evaluate the potential losses to the FHCF and the FHCF’s capacity at the time of the event. The initial Projected Payout Multiple used to reimburse the Company for its losses shall not exceed the Projected Payout Multiple as calculated based on the capacity needed to provide the FHCF’s mandatory coverage and the Additional Coverage Option (up to $10 million) pursuant to Section 215.555(4)(b)4., Florida Statutes, as provided under Addendum No. 1. to this Contract. The SBA shall make adjustments to the Projected Payout Multiple in order to reimburse the optional Temporary Increase in Coverage Limit (TICL) Options coverage based on the SBA’s ongoing evaluation of potential losses and capacity. If it appears that the Estimated Claims-Paying Capacity may be exceeded, the SBA shall reduce the projected payout factors or multiples for determining each participating insurer’s projected payout uniformly among all insurers to reflect the Estimated Claims-Paying Capacity.

(5) Reimbursement amounts shall not be reduced by reinsurance paid or payable to the Company from other sources.

(6) After the end of the calendar year, the SBA shall notify insurers of the estimated Borrowing Capacity and the Balance of the Fund as of December 31. In May and October of each year, the SBA shall publish in the Florida Administrative Weekly a statement of the FHCF’s estimated Borrowing Capacity, Estimated Claims-Paying Capacity, and the projected Balance of the Fund as of December 31.

(7) The obligation of the SBA with respect to all Contracts covering a particular Contract Year shall not exceed the Balance of the Fund as of December 31 of that Contract Year, together with the maximum amount the SBA is able to raise through the issuance of revenue bonds or through other means available to the SBA under Section 215.555, Florida Statutes, up to the limit in accordance with Section 215.555(4)(c)1., Florida Statutes. The obligations and the liability of the SBA are more fully described in Rule 19-8.013, Florida Administrative Code (F.A.C.).

ARTICLE V - DEFINITIONS

(1) Actual Claims-Paying Capacity of the FHCF

This term means the sum of the Balance of the Fund as of December 31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the amount the SBA is able to raise through the issuance of revenue bonds, or through other means available by law to the SBA, up to the limit in accordance with Section 215.555(4)(c)1. and (6), Florida Statutes.

(2) Actuarially Indicated

This term means, with respect to Premiums paid by Companies for reimbursement provided by the FHCF, an amount determined in accordance with the definition provided in Section 215.555(2)(a), Florida Statutes.

(3) Additional Living Expense (ALE)

ALE losses covered by the FHCF are not to exceed 40 percent of the insured value of a Residential Structure or its contents based on the coverage provided in the policy. Fair rental value, loss of rents, or business interruption losses are not covered by the FHCF.

(4) Administrator

This term means the entity with which the SBA contracts to perform administrative tasks associated with the operations of the FHCF. The Administrator is Paragon Strategic Solutions Inc., 8200 Tower, 5600 West 83^rd Street, Suite 1100, Minneapolis, Minnesota 55437. The telephone number is (800) 689-3863, and the facsimile number is (800) 264-0492.

FHCF-2011K

Rule 19-8.010 F.A.C.

(5) Authorized Insurer

This term is defined in Section 624.09(1), Florida Statutes.

(6) Borrowing Capacity

This term means the amount of funds which are able to be raised by the issuance of revenue bonds or through other financing mechanisms, less bond issuance expenses and reserves.

(7) Citizens Property Insurance Corporation (Citizens)

This term means the entity formed under Section 627.351(6), Florida Statutes, and refers to both Citizens Property Insurance Corporation High Risk Account and Citizens Property Insurance Corporation Personal Lines and Commercial Lines Accounts.

(8) Contract

This term means this Reimbursement Contract for the current Contract Year.

(9) Covered Event

This term means any one storm declared to be a hurricane by the National Hurricane Center which causes insured losses in Florida. A Covered Event begins when a hurricane causes damage in Florida while it is a hurricane and continues throughout any subsequent downgrades in storm status by the National Hurricane Center regardless of whether the hurricane makes landfall. Any storm, including a tropical storm, which does not become a hurricane is not a Covered Event.

(10) Covered Policy or Covered Policies

(a) Covered Policy, as defined in Section 215.555(2)(c), Florida Statutes, is further clarified to mean only that portion of a binder, policy or contract of insurance that insures real or personal property located in the State of Florida to the extent such policy insures a Residential Structure, as defined in definition (27) herein, or the contents of a Residential Structure, located in the State of Florida.

(b) Due to the specialized nature of the definition of Covered Policies, Covered Policies are not limited to only one line of business in the Company’s annual statement required to be filed by Section 624.424, Florida Statutes. Instead, Covered Policies are found in several lines of business on the Company’s annual statement. Covered Policies will at a minimum be reported in the Company’s statutory annual statement as:

1. Fire

2. Allied Lines

3. Farmowners Multiple Peril

4. Homeowners Multiple Peril

5. Commercial Multiple Peril (non liability portion, covering condominiums and apartments)

6. Inland Marine

Note that where particular insurance exposures, e.g., mobile homes, are reported on an annual statement is not dispositive of whether or not the exposure is a Covered Policy.

(c) This definition applies only to the first-party property section of a policy pertaining strictly to the structure, its contents, appurtenant structures, or ALE coverage.

(d) Covered Policy also includes any collateral protection insurance policy covering personal residences which protects both the borrower’s and the lender’s financial interest, in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowner’s policy, if such policy can be accurately reported as required in Section 215.555(5), Florida Statutes. A Company will be deemed to be able to accurately report data if the required data, as specified in the Premium Formula adopted in Section 215.555(5), Florida Statutes, is available.

(e) See Article VI of this Contract for specific exclusions.

(11) Deductible Buy-Back Policies

This term means a specific policy that provides coverage to a policyholder for some portion of the policyholder’s deductible under a policy issued by another insurer.

FHCF-2011K

Rule 19-8.010 F.A.C.

(12) Estimated Claims-Paying Capacity of the FHCF

This term means the sum of the projected Balance of the Fund as of December 31 of a Contract Year, plus any reinsurance purchased by the FHCF, plus the most recent estimate of the Borrowing Capacity of the FHCF, determined pursuant to Section 215.555(4)(c), Florida Statutes.

(13) Excess Policies

This term, for the purposes of this Contract, means a policy that provides insurance protection for large commercial property risks that provides a layer of coverage above a primary layer (which is insured by a different insurer) that acts much the same as a very large deductible.

(14) Florida Department of Financial Services (Department)

This term means the Florida regulatory agency, created pursuant to Section 20.121, Florida Statutes, which is charged with regulating the Florida insurance market and administering the Florida Insurance Code.

(15) Florida Insurance Code

This term means those chapters identified in Section 624.01, Florida Statutes, which are designated as the Florida Insurance Code.

(16) Formula or the Premium Formula

This term means the Formula approved by the SBA for the purpose of determining the Actuarially Indicated Premium to be paid to the FHCF. The Premium Formula is defined as an approach or methodology which leads to the creation of premium rates. The resulting rates are therefore incorporated as part of the Premium Formula. The Formula, shall, pursuant to Section 215.555(5)(b), Florida Statutes, include a cash build-up factor in the amount specified therein.

(17) Fund Balance or Balance of the Fund as of December 31

These terms mean the amount of assets available to pay claims, not including any bonding proceeds, resulting from Covered Events which occurred during the Contract Year.

(18) Insurer Group

For purposes of the coverage option election in Section 215.555(4)(b), Florida Statutes, Insurer Group means the group designation assigned by the National Association of Insurance Commissioners (NAIC) for purposes of filing consolidated financial statements. A Company is a member of a group as designated by the NAIC until such Company is assigned another group designation or is no longer a member of a group recognized by the NAIC.

(19) Loss Occurrence

This term means the sum of individual insured losses incurred under Covered Policies resulting from the same Covered Event. “Losses” means direct incurred losses under Covered Policies and excludes Loss Adjustment Expenses.

(20) Loss Adjustment Expense Reimbursement

(a) Loss Adjustment Expense Reimbursement shall be 5% of the reimbursed losses under this Contract as provided in Article IV, pursuant to Section 215.555(4)(b)1., Florida Statutes.

(b) To the extent that loss reimbursements are limited to the Payout Multiple applied to each Company, the 5% Loss Adjustment Expense is included in the total Payout Multiple applied to each Company.

(21) New Participant(s)

This term means all Companies which begin writing Covered Policies on or after the beginning of the Contract Year. A Company that removes exposure from either Citizens entity, as that term is defined in (7) above, pursuant to an assumption agreement effective on or after June 1 and had written no other Covered Policies before June 1 is also considered a New Participant.

(22) Office of Insurance Regulation

This term means that office within the Department of Financial Services and which was created in Section 20.121(3), Florida Statutes.

FHCF-2011K

Rule 19-8.010 F.A.C.

(23) Payout Multiple

This term means the multiple as calculated in accordance with Section 215.555(4)(c), Florida Statutes, which is derived by dividing the single season Claims-Paying Capacity of the FHCF by the total aggregate industry Reimbursement Premium for the FHCF for the Contract Year billed as of December 31 of the Contract Year. The final Payout Multiple is determined once Reimbursement Premiums have been billed as of December 31 and the amount of bond proceeds has been determined.

(24) Premium

This term means the same as Reimbursement Premium.

(25) Projected Payout Multiple

The Projected Payout Multiple is used to calculate a Company’s projected payout pursuant to Section 215.555(4)(d)2., Florida Statutes. The Projected Payout Multiple is derived by dividing the estimated single season Claims-Paying Capacity of the FHCF by the estimated total aggregate industry Reimbursement Premium for the FHCF for the Contract Year. The Company’s Reimbursement Premium as paid to the SBA for the Contract Year is multiplied by the Projected Payout Multiple to estimate the Company’s coverage from the FHCF for the Contract Year.

(26) Reimbursement Premium

This term means the Premium determined by multiplying each $1,000 of insured value reported by the Company in accordance with Section 215.555(5)(b), Florida Statutes, by the rate as derived from the Premium Formula, as described in Rule 19-8.028, F.A.C.

(27) Residential Structures

This term means dwelling units, including the primary structure and appurtenant structures insured under the same policy and any other structures covered under endorsements associated with a policy covering a residential structure. Covered Residential Structures do not include any structures listed under Article VI herein or structures used solely for non-residential purposes.

(28) Retention

The Company’s Retention means the amount of hurricane losses under Covered Policies which must be incurred by the Company before it is eligible for reimbursement from the FHCF.

(a) When the Company experiences covered losses from one or two Covered Events during the Contract Year, the Company’s full Retention shall be applied to each of the Covered Events.

(b) When the Company experiences covered losses from more than two Covered Events during the Contract Year, the Company’s full Retention shall be applied to each of the two Covered Events causing the largest covered losses for the Company. For each other Covered Event resulting in covered losses, the Company’s Retention shall be reduced to one-third of its full Retention and applied to all other Covered Events.

1. All reimbursement of covered losses for each Covered Event shall be based on the Company’s full Retention until December 31 of the Contract Year. Adjustments to reflect a reduction to one-third of the full Retention shall be made on or after December 31 of the Contract Year provided the Company reports its losses as specified in this Contract.

2. Adjustments to the Company’s Retention shall be based upon its paid and outstanding losses as reported on the Company’s Proof of Loss Reports but shall not include incurred but not reported losses. The Company’s Proof of Loss Reports shall be used to determine which Covered Events constitute the Company’s two largest Covered Events, and the reduction to one-third of the full Retention shall be applied to all other Covered Events for the Contract Year. After this initial determination, any subsequent adjustments shall be made by the SBA only if the quarterly loss reports reveal that loss development patterns have resulted in a change in the order of Covered Events entitled to the reduction to one-third of the full Retention.

(c) The Company’s full Retention is established in accordance with the provisions of Section 215.555(2)(e), Florida Statutes, and shall be determined by multiplying the Retention Multiple by the Company’s Reimbursement Premium for the Contract Year.

FHCF-2011K

Rule 19-8.010 F.A.C.

(d) Once the Company’s limit of coverage has been exhausted, the Company will not be entitled to further reimbursements.

(29) Retention Multiple

(a) The Retention Multiple is applied to the Company’s Reimbursement Premium to determine the Company’s Retention. The Retention Multiple for the 2011/2012 Contract Year shall be equal to $4.5 billion, adjusted based upon the reported exposure for the 2009/2010 Contract Year to reflect the percentage growth in exposure to the FHCF since 2004, divided by the estimated total industry Reimbursement Premium at the 90% reimbursement percentage level for the Contract Year as determined by the SBA.

(b) The Retention Multiple as determined under (29)(a) above shall be adjusted to reflect the reimbursement percentage elected by the Company under this Contract as follows:

1. If the Company elects a 90% reimbursement percentage, the adjusted Retention Multiple is 100% of the amount determined under (29)(a) above;

2. If the Company elects a 75% reimbursement percentage, the adjusted Retention Multiple is 120% of the amount determined under (29)(a) above; or

3. If the Company elects a 45% reimbursement percentage, the adjusted Retention Multiple is 200% of the amount determined under (29)(a) above.

(30) Ultimate Net Loss

(a) This term means all direct incurred losses of the Company under Covered Policies in force at the time of a Covered Event, as defined under (9) above, prior to the application of the Company’s FHCF Retention, as defined under (28) above, and reimbursement percentage, and excluding loss adjustment expense and any exclusions under Article VI herein, arising from each Loss Occurrence during the Contract Year, provided, however, that the Company’s loss shall be determined in accordance with the deductible level written under the policy sustaining the loss.

(b) Salvages and all other recoveries, excluding reinsurance recoveries, shall be first deducted from such loss to arrive at the amount of liability attaching hereunder.

(c) All salvages, recoveries or payments recovered or received subsequent to a loss settlement under this Contract shall be applied as if recovered or received prior to the aforesaid settlement and all necessary adjustments shall be made by the parties hereto.

(d) Nothing in this clause shall be construed to mean that losses under this Contract are not recoverable until the Company’s Ultimate Net Loss has been ascertained.

(e) The SBA shall be subrogated to the rights of the Company to the extent of its reimbursement of the Company. The Company agrees to assist and cooperate with the SBA in all respects as regards such subrogation. The Company further agrees to undertake such actions as may be necessary to enforce its rights of salvage and subrogation, and its rights, if any, against other insurers as respects any claim, loss, or payment arising out of a Covered Event.

ARTICLE VI - EXCLUSIONS

This Contract does not provide reimbursement for:

(1) Any losses not defined as being within the scope of a Covered Policy.

(2) Any policy which excludes wind or hurricane coverage.

(3) Any Excess Policy or Deductible Buy-Back Policy that requires individual ratemaking.

(4) Any policy for Residential Structures, as defined in Article V(27) herein, that provides a layer of coverage underneath an Excess Policy, as defined in Article V(13) herein, issued by a different insurer.

(5) Any liability of the Company attributable to losses for fair rental value, loss of rent or rental income, or business interruption.

(6) Any collateral protection policy that does not meet the definition of Covered Policy as defined in Article V(10)(d) herein.

FHCF-2011K

Rule 19-8.010 F.A.C.

(7) Any reinsurance assumed by the Company.

(8) Any exposure for hotels, motels, timeshares, shelters, camps, retreats, and any other rental property used solely for commercial purposes.

(9) Any exposure for homeowner associations if no habitational structures are insured under the policy.

(10) Any exposure for homes and condominium structures or units that are non-owner occupied and rented for six (6) or more rental periods by different parties during the course of a twelve (12) month period.

(11) Commercial healthcare facilities and nursing homes; however, a nursing home which is an integral part of a retirement community consisting primarily of habitational structures that are not nursing homes will not be subject to this exclusion.

(12) Any exposure under commercial policies covering only appurtenant structures or structures that do not function as a habitational structure (e.g., a policy covering only the pool of an apartment complex).

(13) Personal contents in a commercial storage facility (including jewelry in an off-premises vault) covered under a policy that covers only those personal contents.

(14) Policies covering only Additional Living Expense.

(15) Any exposure for barns or barns with apartments.

(16) Any exposure for builders risk coverage or new Residential Structures still under construction.

(17) Any exposure for recreational vehicles, golf carts, or boats (including boat related equipment) requiring licensing and written on a separate policy or endorsement.

(18) Any liability of the Company for extra contractual obligations or liabilities in excess of original policy limits.

(19) Any losses paid in excess of a policy’s hurricane limit in force at the time of each Covered Event, including individual coverage limits (i.e., building, appurtenant structures, contents, and additional living expense). This exclusion includes overpayments of a specific individual coverage limit even if total payments under the policy are within the aggregate policy limit.

(20) Any losses paid under a policy for Additional Living Expense, written as a time element coverage, in excess of the Additional Living Expense exposure reported for that policy under the Data Call for the applicable Contract Year (unless policy limits have changed effective after June 30 of the Contract Year).

(21) Any losses for which the Company’s claims files do not adequately support. Claim file support shall be deemed adequate if in compliance with the Records Retention Requirements outlined on the Form FHCF-L1B (Proof of Loss Report) applicable to the Contract Year.

(22) Any exposure for, or losses attributable to, loss assessment coverage.

(23) Losses in excess of the sum of the Balance of the Fund as of December 31 of the Contract Year and the amount the SBA is able to raise through the issuance of revenue bonds or by the use of other financing mechanisms, up to the limit pursuant to Section 215.555(4)(c), Florida Statutes.

(24) Any liability assumed by the Company from Pools, Associations, and Syndicates. Exception: Covered Policies assumed from Citizens under the terms and conditions of an executed assumption agreement between the Authorized Insurer and Citizens are covered by this Contract.

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

(26) Any liability of the Company for loss or damage caused by or resulting from nuclear reaction, nuclear radiation, or radioactive contamination from any cause, whether direct or indirect, proximate or remote, and regardless of any other cause or event contributing concurrently or in any other sequence to the loss.

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Rule 19-8.010 F.A.C.

(27) The FHCF does not provide coverage for water damage which is generally excluded under property insurance contracts and has been defined to mean flood, surface water, waves, tidal water, overflow of a body of water, storm surge, or spray from any of these, whether or not driven by wind.

(28) Specialized Fine Arts Risks as defined in Rule 19-8.028(4)(d), F.A.C.

ARTICLE VII - MANAGEMENT OF CLAIMS AND LOSSES

The Company shall investigate and settle or defend all claims and losses. All payments of claims or losses by the Company within the terms and limits of the appropriate coverage parts of Covered Policies shall be binding on the SBA, subject to the terms of this Contract, including the provisions in Article XIII relating to inspection of records and examinations.

ARTICLE VIII - LOSS REIMBURSEMENT ADJUSTMENTS

(1) Offsets

The SBA reserves the right to offset amounts payable to the SBA from the Company, including amounts payable under previous Contract Years and the Company’s full Premium for the current Contract Year (regardless of installment due dates), against any reimbursement or advance amounts, or amounts agreed to in a commutation agreement, which are due and payable to the Company from the SBA as a result of the liability of the SBA.

(2) Reimbursement Adjustments

Section 215.555(4)(d) and (e), Florida Statutes, provides the SBA with the right to seek the return of excess loss reimbursements which have been paid to the Company along with interest thereon. Excess loss reimbursements are those payments made to the Company by the SBA that are in excess of the Company’s coverage under the Contract Year. Excess loss reimbursements may result from adjustments to the Projected Payout Multiple or the Payout Multiple, incorrect exposure (Data Call) submissions or resubmissions, incorrect calculations of Reimbursement Premiums or Retentions, incorrect Proof of Loss Reports, incorrect calculation of reinsurance recoveries, or subsequent readjustment of policyholder claims, including subrogation and salvage, or any combination of the foregoing. The Company will be sent an invoice showing the due date for adjustments along with the interest due thereon through the due date. The applicable interest rate for interest credits, and for interest charges for adjustments beyond the Company’s control, will be the average rate earned by the SBA for the FHCF for the first four months of the Contract Year. The applicable interest rate for interest charges on excess loss reimbursements due to adjustments resulting from incorrect exposure submissions or Proof of Loss Reports will accrue at this rate plus 5%. All interest will continue to accrue if not paid by the due date.

ARTICLE IX - REIMBURSEMENT PREMIUM

(1) The Company shall, in a timely manner, pay the SBA its Reimbursement Premium for the Contract Year. The Reimbursement Premium for the Contract Year shall be calculated in accordance with Section 215.555, Florida Statutes, with any rules promulgated thereunder, and with Article X(2).

(2) Since the calculation of the Actuarially Indicated Premium assumes that the Companies will pay their Reimbursement Premiums timely, interest charges will accrue under the following circumstances. A Company may choose to estimate its own Premium installments. However, if the Company’s estimation is less than the provisional Premium billed, an interest charge will accrue on the difference between the estimated Premium and the final Premium. If a Company estimates its first installment, the Administrator shall bill that estimated Premium as the second installment as well, which will be considered as an estimate by the Company. No interest will accrue regarding any provisional Premium if paid as billed by the FHCF’s Administrator, except in the case of an estimated second installment as set forth in this Article. Also, if a Company makes an estimation that is higher than the provisional Premium billed but is less than the final Premium, interest will not accrue. If the Premium payment is not received from a Company when it is due, an interest charge will accrue on a daily basis until the payment is received. Interest will also accrue on Premiums resulting from submissions or resubmissions finalized after December 1 of the Contract Year. An interest credit will be applied for any Premium which is overpaid as either an estimate or as a provisional Premium. Interest shall not be credited past December 1 of the Contract Year. The applicable interest rate for interest credits will be the average rate earned by the SBA for the FHCF for the first four months of the Contract Year. The applicable interest rate for interest charges will accrue at this rate plus 5%.

FHCF-2011K

Rule 19-8.010 F.A.C.

ARTICLE X - REPORTS AND REMITTANCES

(1) Exposures

(a) If the Company writes Covered Policies before June 1 of the Contract Year, the Company shall report to the SBA, unless otherwise provided in Rule 19-8.029, F.A.C., no later than the statutorily required date of September 1 of the Contract Year, by ZIP Code or other limited geographical area as specified by the SBA, its insured values under Covered Policies as of June 30 of the Contract Year as outlined in the annual reporting of insured values form, FHCF-D1A (Data Call) adopted for the Contract Year under Rule 19-8.029, F.A.C., and other data or information in the format specified by the SBA.

(b) If the Company first begins writing Covered Policies on or after June 1 but prior to December 1 of the Contract Year, the Company shall report to the SBA, no later than March 1 of the Contract Year, by ZIP Code or other limited geographical area as specified by the SBA, its insured values under Covered Policies as of December 31 of the Contract Year as outlined in the Supplemental Instructions for New Participants section of the Data Call adopted for the Contract Year under Rule 19-8.029, F.A.C., and other data or information in the format specified by the SBA.

(c) If the Company first begins writing Covered Policies on December 1 through and including May 31 of the Contract Year, the Company shall not report its exposure data for the Contract Year to the SBA.

(d) The requirement that a report is due on a certain date means that the report shall be in the physical possession of the FHCF’s Administrator in Minneapolis no later than 5 p.m. Central Time on the due date. If the applicable due date is a Saturday, Sunday or legal holiday, then the actual due date will be the day immediately following the applicable due date which is not a Saturday, Sunday or legal holiday. For purposes of the timeliness of the submission, neither the United States Postal Service postmark nor a postage meter date is in any way determinative. Reports sent to the SBA in Tallahassee, Florida, will be returned to the sender. Reports not in the physical possession of the FHCF’s Administrator by 5 p.m., Central Time, on the applicable due date are late.

(e) Pursuant to the provisions of Section 215.557, Florida Statutes, the reports of insured values under Covered Policies by ZIP Code submitted to the SBA pursuant to Section 215.555, Florida Statutes, are confidential and exempt from the provisions of Section 119.07(1), Florida Statutes, and Section 24(a), Art. I of the State Constitution.

(2) Reimbursement Premium

(a) If the Company writes Covered Policies before June 1 of the Contract Year, the Company shall pay the FHCF its Reimbursement Premium in installments due on or before August 1, October 1, and December 1 of the Contract Year in amounts to be determined by the FHCF. However, if the Company’s Reimbursement Premium for the prior Contract Year was less than $5,000, the Company’s full provisional Reimbursement Premium, in an amount equal to the Reimbursement Premium paid in the prior year, shall be due in full on or before August 1 of the Contract Year. The Company will be invoiced for amounts due, if any, beyond the provisional Reimbursement Premium payment, on or before December 1 of the Contract Year. In addition, if control of the Company has been transferred through any legal or regulatory proceeding to a state regulator or court appointed receiver or rehabilitator (referred to in the aggregate as “State action”), the full annual provisional Reimbursement Premium as billed and any outstanding balances will be due and payable on August 1, or the date that such State action occurs after August 1 of the Contract Year. Such acceleration will not apply when the receiver or rehabilitator provides a letter of assurance to the FHCF that the Company will have the resources to pay the premium in installments in accordance with the contractual provisions.

FHCF-2011K

Rule 19-8.010 F.A.C.

(b) A New Participant that first begins writing Covered Policies on or after June 1 but prior to December 1 of the Contract Year shall pay the FHCF a provisional Reimbursement Premium of $1,000 upon execution of this Contract. The Administrator shall calculate the Company’s actual Reimbursement Premium for the period based on its actual exposure as of December 31 of the Contract Year, as reported on or before March 1 of the Contract Year. To recognize that New Participants have limited exposure during this period, the actual Premium as determined by processing the Company’s exposure data shall then be divided in half, the provisional Premium shall be credited, and the resulting amount shall be the total Premium due for the Company for the remainder of the Contract Year. However, if that amount is less than $1,000, then the Company shall pay $1,000. The Premium payment is due no later than May 1 of the Contract Year. The Company’s Retention and coverage will be determined based on the total Premium due as calculated above.

(c) A New Participant that first begins writing Covered Policies on or after December 1 through and including May 31 of the Contract Year shall pay the FHCF a Reimbursement Premium of $1,000 upon execution of this Contract.

(d) The requirement that the Reimbursement Premium is due on a certain date means that the Premium shall be in the physical possession of the FHCF no later than 2 p.m., Eastern Time, on the due date applicable to the particular installment. If remitted by check to the FHCF’s Post Office Box, the check shall be physically in the Post Office Box 100822, Atlanta, GA 30384-0822, as set out on the invoice sent to the Company. If remitted by check by hand delivery, the check shall be physically on the premises of the FHCF’s bank in College Park, Georgia, as set out on the invoice sent to the Company. If remitted electronically, the wire transfer shall have been completed to the FHCF’s account at its bank in Atlanta, Georgia, as set out on the invoice sent to the Company. If the applicable due date is a Saturday, Sunday or legal holiday, then the actual due date will be the day immediately following the applicable due date which is not a Saturday, Sunday or legal holiday. For purposes of the timeliness of the remittance, neither the United States Postal Service postmark nor a postage meter date is in any way determinative. Premium checks sent to the SBA in Tallahassee, Florida, or to the FHCF’s Administrator in Minneapolis, Minnesota, will be returned to the sender. Reimbursement Premiums not in the physical possession of the FHCF by 2 p.m., Eastern Time, on the applicable due date are late.

(e) Except as required by Section 215.555(7)(c), Florida Statutes, or as described in the following sentence, Reimbursement Premiums, together with earnings thereon, received in a given Contract Year will be used only to pay for losses attributable to Covered Events occurring in that Contract Year or for losses attributable to Covered Events in subsequent Contract Years and will not be used to pay for past losses or for debt service on revenue bonds. Pursuant to Section 215.555(6)(a)1., Florida Statutes, Reimbursement Premiums and earnings thereon may be used for payments relating to revenue bonds in the event emergency assessments are insufficient. If Reimbursement Premiums or earnings thereon are used for debt service on revenue bonds, then the amount of the Reimbursement Premiums or earnings thereon so used shall be returned, without interest, to the Fund when emergency assessments or other legally available funds remain available after making payment relating to the revenue bonds and any other purposes for which emergency assessments were levied.

FHCF-2011K

Rule 19-8.010 F.A.C.

(3) Claims and Losses

(a) In General

1. Claims and losses resulting from Loss Occurrences commencing during the Contract Year shall be reported by the Company and reimbursed by the FHCF as provided herein and in accordance with the Statute, this Contract, and any rules adopted pursuant to the Statute. For a Company participating in a quota share primary insurance agreement(s) with Citizens Property Insurance Corporation High Risk Account, Citizens and the Company shall report only their respective portion of losses under the quota share primary insurance agreement(s). Pursuant to Section 215.555(4)(c), Florida Statutes, the SBA is obligated to pay for losses not to exceed the Actual Claims-Paying Capacity of the FHCF, up to the limit in accordance with Section 215.555(4)(c)1., Florida Statutes, for any one Contract Year.

2. If the Company is in non-compliance with Section 215.555, Florida Statutes for any Contract Year, including deadlines for sending in Contracts, addenda or attachments to Contracts, Data Call submissions or resubmissions, loss reports, or in responding to SBA exam requirements, the SBA reserves the right to withhold reimbursements or advances until such time the Company becomes compliant.

(b) Loss Reports

1. At the direction of the SBA, the Company shall report its projected Ultimate Net Loss from each Loss Occurrence to provide information to the SBA in determining any potential liability for possible reimbursable losses under the Contract on the Interim Loss Report, Form FHCF-L1A, adopted for the Contract Year under Rule 19-8.029, F.A.C. Interim Loss Reports (including subsequent Interim Loss Reports if required by the SBA) will be due in no less than fourteen days from the date of the notice from the SBA that such a report is required.

2. FHCF loss reimbursements will be issued based on Ultimate Net Loss information reported by the Company on the Proof of Loss Report, Form FHCF-L1B, adopted for the Contract Year under Rule 19-8.029, F.A.C.

a. To qualify for reimbursement, the Proof of Loss Report must have the original signatures of two executive officers authorized by the Company to sign the report.

b. The Company must also submit a detailed claims listing (as outlined on the Proof of Loss Report) at the same time it submits its first Proof of Loss Report for a specific Covered Event that qualifies the Company for reimbursement under that Covered Event, and should be prepared to supply a detailed claims listing for any subsequent Proof of Loss Report upon request.

c. While a Company may submit a Proof of Loss Report requesting reimbursement at any time following a Loss Occurrence, all Companies shall submit a mandatory Proof of Loss Report for each Loss Occurrence no earlier than December 1 and no later than December 31 of the Contract Year during which the Covered Event(s) occurs using the most current data available, regardless of the amount of Ultimate Net Loss or the amount of loss reimbursements or advances already received. Reports may be faxed only if the Company does not qualify for a reimbursement.

d. For the Proof of Loss Reports due by December 31 of the Contract Year, and the required subsequent quarterly and annual reports required under subparagraphs 3. and 4. below, the Company shall submit its Proof of Loss Reports by each quarter-end or year-end using the most current data available. However, the date of such data shall not be more than sixty days prior to the applicable quarter-end or year-end date.

3. Updated Proof of Loss Reports for each Loss Occurrence are due quarterly thereafter until all claims and losses resulting from a Loss Occurrence are fully discharged including any adjustments to such losses due to salvage or other recoveries, or the Company has received its full coverage under the Contract Year in which the Loss Occurrence(s) occurred. Guidelines follow:

a. Quarterly Proof of Loss Reports are due by March 31 from an insurer whose losses exceed, or are expected to exceed, 50% of its FHCF Retention for a specific Loss Occurrence(s).

FHCF-2011K

Rule 19-8.010 F.A.C.

b. Quarterly Proof of Loss Reports are due by June 30 from an insurer whose losses exceed, or are expected to exceed, 75% of its FHCF Retention for a specific Loss Occurrence(s).

c. Quarterly Proof of Loss Reports are due by September 30 and quarterly thereafter from an insurer whose losses exceed, or are expected to exceed, its FHCF Retention for a specific Loss Occurrence(s).

If the Company’s Retention must be recalculated as the result of an exposure resubmission, and if the recalculated Retention changes the FHCF’s reimbursement obligations, then the Company shall submit additional Proof of Loss Reports for recalculation of the FHCF’s obligations.

4. Annually after December 31 of the Contract Year, all Companies shall submit a mandatory year-end Proof of Loss Report for each Loss Occurrence, as applicable, using the most current data available. This Proof of Loss Report shall be filed no earlier than December 1 and no later than December 31 of each year and shall continue until the earlier of the commutation process described in (3)(d) below or until all claims and losses resulting from the Loss Occurrence are fully discharged including any adjustments to such losses due to salvage or other recoveries.

5. The SBA, except as noted below, will determine and pay, within 30 days or as soon as practicable after receiving Proof of Loss Reports, the reimbursement amount due based on losses paid by the Company to date and adjustments to this amount based on subsequent quarterly information. The adjustments to reimbursement amounts shall require the SBA to pay, or the Company to return, amounts reflecting the most recent determination of losses.

a. The SBA shall have the right to consult with all relevant regulatory agencies to seek all relevant information, and shall consider any other factors deemed relevant, prior to the issuance of reimbursements.

b. The SBA shall require commercial self-insurance funds established under Section 624.462, Florida Statutes, to submit contractor receipts to support paid losses reported on a Proof of Loss Report, and the SBA may hire an independent consultant to confirm losses, prior to the issuance of reimbursements.

c. The SBA shall have the right to conduct a claims examination prior to the issuance of any advances or reimbursements submitted by Companies that have been placed under regulatory supervision by a State or where control has been transferred through any legal or regulatory proceeding to a state regulator or court appointed receiver or rehabilitator.

6. All Proof of Loss Reports received will be compared with the FHCF’s exposure data to establish the facial reasonableness of the reports. The SBA may also review the results of current and prior Contract Year exposure and loss examinations to determine the reasonableness of the reported losses. Except as noted in paragraph 4. above, Companies meeting these tests for reasonableness will be scheduled for reimbursement. Companies not meeting these tests for reasonableness will be handled on a case-by-case basis and will be contacted to provide specific information regarding their individual book of business. The discovery of errors in a Company’s reported exposure under the Data Call may require a resubmission of the current Contract Year Data Call which, as the Data Call impacts the Company’s Premium, Retention, and coverage for the Contract Year, will be required before the Company’s request for reimbursement or an advance will be fully processed by the Administrator.

FHCF-2011K

Rule 19-8.010 F.A.C.

(c) Loss Reimbursement Calculations

1. In general, the Company’s paid Ultimate Net Losses must exceed its full FHCF Retention for a specific Covered Event before any reimbursement is payable from the FHCF for that Covered Event. As described in Article V(28)(b), Retention adjustments will be made on or after December 31 of the Contract Year. No interest is payable on additional payments to the Company due to this type of Retention adjustment. Each Company sustaining reimbursable losses will receive the amount of reimbursement due under the Contract up to the amount of the Company’s payout. If more than one Covered Event occurs in any one Contract Year, any reimbursements due from the FHCF shall take into account the Company’s Retention for each Covered Event. However, the Company’s reimbursements from the FHCF for all Covered Events occurring during the Contract Year shall not exceed, in aggregate, the Projected Payout Multiple or Payout Multiple, as applicable, times the individual Company’s Reimbursement Premium for the Contract Year.

2. In determining reimbursements under this Contract, the SBA shall reimburse each of the Companies, including entities created pursuant to Section 627.351(6), Florida Statutes, for the amount (if any) of reimbursement due under the individual Company’s Contract, but not to exceed for all Loss Occurrences, an amount equal to the Projected Payout Multiple or the Payout Multiple, as applicable, times the individual Company’s Reimbursement Premium for the Contract Year.

3. Reserve established. When a Covered Event occurs in a subsequent Contract Year when reimbursable losses are still being paid for a Covered Event in a previous Contract Year, the SBA will establish a reserve for the outstanding reimbursable losses for the previous Contract Year, based on the length of time the losses have been outstanding, the amount of losses already paid, the percentage of incurred losses still unpaid, and any other factors specific to the loss development of the Covered Events involved.

(d) Commutation

1. Not less than 36 months or more than 60 months after the end of the Contract Year, the Company shall file a final Proof of Loss Report(s), with the exception of Companies having no reportable losses as described in paragraph (3)(d)1.a. below. Otherwise, the final Proof of Loss Report(s) is required as specified in paragraph (3)(d)1.b. below. The Company and SBA may mutually agree to initiate commutation after 36 months and prior to 60 months after the end of the Contract Year. The commutation negotiations shall begin at the later of 60 months after the end of the Contract Year or upon completion of the FHCF loss examination for the Company and the resolution of all outstanding examination issues.

a. If the Company’s most recently submitted Proof of Loss Report(s) indicate that it has no losses resulting from a Loss Occurrence(s) during the Contract Year, the SBA shall after 36 months request that the Company execute a final commutation agreement. The final commutation agreement shall constitute a complete and final release of all obligations of the SBA with respect to all claims and losses. If the Company chooses not to execute a final commutation agreement, the SBA shall be released from all obligations 60 months following the end of the Contract Year if no Proof of Loss Report(s) indicating reimbursable losses have been filed and the commutation shall be deemed concluded. However during this time, if the Company determines that it does have losses to report for FHCF reimbursement, the Company must submit an updated Proof of Loss Report(s) prior to the end of 60 months after the Contract Year and the Company shall be required to follow the commutation provisions and time frames otherwise specified in this section.

b. If the Company has submitted a Proof of Loss Report(s) indicating that it does have losses resulting from a Loss Occurrence(s) during the Contract Year, the SBA may require the Company to submit within 30 days an updated, current Proof of Loss Report(s) for each Loss Occurrence during the Contract Year. The Proof of Loss Report(s) must include all paid losses as well as all outstanding losses and incurred but not reported losses, which are not finally settled and which may be reimbursable losses under this Contract, and must be accompanied by supporting documentation (at a minimum an adjuster’s summary report or equivalent details) and a copy of a written opinion on the present value of the outstanding losses and incurred but not reported losses by the Company’s certifying actuary. Failure of the Company to provide an updated current Proof of Loss Report(s), supporting documentation, and an opinion by the date requested by the SBA may result in referral to the Office of Insurance Regulation for a violation of the Contract. Increases in reported paid, outstanding, or incurred but not reported losses on original or corrected Proof of Loss Report filings received later than 60 months after the end of the Contract Year shall not be eligible for reimbursement or commutation.

FHCF-2011K

Rule 19-8.010 F.A.C.

2. Determining the present value of outstanding claims and losses.

a. If the Company exceeds or expects to exceed its Retention, the Company and the SBA or their respective representatives shall attempt, by mutual agreement, to agree upon the present value of all outstanding claims and losses, both reported and incurred but not reported, resulting from Loss Occurrences during the Contract Year. Payment by the SBA of its portion of any amount or amounts so mutually agreed and certified by the Company’s certifying actuary shall constitute a complete and final release of the SBA in respect of all claims and losses, both reported and unreported, under this Contract.

b. If agreement on present value cannot be reached within 90 days of the FHCF’s receipt of the final Proof of Loss Report(s) and supporting documentation, the Company and the SBA may mutually appoint an actuary, adjuster, or appraiser to investigate and determine such claims or losses. If both parties then agree, the SBA shall pay its portion of the amount so determined to be the present value of such claims or losses.

c. If the parties fail to agree, then any difference shall be settled by a panel of three actuaries, one to be chosen by each party and the third by the two so chosen. If either party does not appoint an actuary within 30 days, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of an independent third actuary within 30 days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots. All the actuaries shall be regularly engaged in the valuation of property claims and losses and shall be members of the Casualty Actuarial Society and of the American Academy of Actuaries. None of the actuaries shall be under the control of either party to this Contract. Each party shall submit its case to its actuary within 30 days of the appointment of the third actuary. The decision in writing of any two actuaries, when filed with the parties hereto, shall be final and binding on both parties.

d. The reasonable and customary expense of the actuaries and of the commutation (as a result of b. and c. above) shall be equally divided between the two parties. Said commutation shall take place in Tallahassee, Florida, unless some other place is mutually agreed upon by the Company and the SBA.

(4) Advances

(a) In accordance with Section 215.555(4)(e), Florida Statutes, the SBA may make advances for loss reimbursements as defined herein, at market interest rates, to the Company in accordance with Section 215.555(4)(e), Florida Statutes. An advance is an early reimbursement which allows the Company to continue to pay claims in a timely manner. Advances will be made based on the Company’s paid and reported outstanding losses for Covered Policies (excluding all incurred but not reported [IBNR] losses) as reported on a Proof of Loss Report, and shall include Loss Adjustment Expense Reimbursement as calculated by the FHCF. In order to be eligible for an advance, the Company must submit its exposure data for the Contract Year as required under paragraph (1) of this Article. Except as noted below, advances, if approved, will be made as soon as practicable after the SBA receives a written request, signed by two officers of the Company, for an advance of a specific amount and any other information required for the specific type of advance under subparagraphs (c) and (e) below. All reimbursements due to a Company shall be offset against any amount of outstanding advances plus the interest due thereon.

FHCF-2011K

Rule 19-8.010 F.A.C.

(b) For advances or excess advances, which are advances that are in excess of the amount to which the Company is entitled, the market interest rate shall be the prime rate as published in the Wall Street Journal on the first business day of the Contract Year. This rate will be adjusted annually on the first business day of each subsequent Contract Year, regardless of whether the Company executes subsequent Contracts. In addition to the prime rate, an additional 5% interest charge will apply on excess advances. All interest charged will commence on the date the SBA issues a check for an advance and will cease on the date upon which the FHCF has received the Company’s Proof of Loss Report(s) for the Covered Event(s) for which the Company qualifies for reimbursement(s). If such reimbursement(s) are less than the amount of outstanding advance(s) issued to the Company, interest will continue to accrue on the outstanding balance of the advance(s) until subsequent Proof of Loss Reports qualify the Company for reimbursement under any Covered Event equal to or exceeding the amount of any outstanding advance(s). Interest shall be billed on a periodic basis. If it is determined that the Company received funds in excess of those to which it was entitled, the interest as to those sums will not cease on the date of the receipt of the Proof of Loss Report but will continue until the Company reimburses the FHCF for the overpayment.

(c) If the Company has an outstanding advance balance as of December 31 of this or any other Contract Year, the Company is required to have an actuary certify outstanding and incurred but not reported losses as reported on the applicable December Proof of Loss Report.

(d) The specific type of advances enumerated in Section 215.555, Florida Statutes, follow.

1. Advances to Companies to prevent insolvency, as defined under Article XIV of this Contract.

a. Section 215.555(4)(e)1., Florida Statutes, provides that the SBA shall advance to the Company amounts necessary to maintain the solvency of the Company, up to 50 percent of the SBA’s estimate of the reimbursement due to the Company.

b. In addition to the requirements outlined in subparagraph (4)(a) above, the requirements for an advance to a Company to prevent insolvency are that the Company demonstrates it is likely to qualify for reimbursement and that the immediate receipt of moneys from the SBA is likely to prevent the Company from becoming insolvent, and the Company provides the following information:

i. Current assets;

ii. Current liabilities other than liabilities due to the Covered Event;

iii. Current surplus as to policyholders;

iv. Estimate of other expected liabilities not due to the Covered Event; and

v. Amount of reinsurance available to pay claims for the Covered Event under other reinsurance treaties.

c. The SBA’s final decision regarding an application for an advance to prevent insolvency shall be based on whether or not, considering the totality of the circumstances, including the SBA’s obligations to provide reimbursement for all Covered Events occurring during the Contract Year, granting an advance is essential to allowing the entity to continue to pay additional claims for a Covered Event in a timely manner.

2. Advances to entities created pursuant to Section 627.351(6), Florida Statutes.

a. Section 215.555(4)(e)2., Florida Statutes, provides that the SBA may advance to an entity created pursuant to Section 627.351(6), Florida Statutes, up to 90% of the lesser of the SBA’s estimate of the reimbursement due or the entity’s share of the actual aggregate Reimbursement Premium for that Contract Year, multiplied by the current available liquid assets of the FHCF.

FHCF-2011K

Rule 19-8.010 F.A.C.

b. In addition to the requirements outlined in subparagraph (4)(a) above, the requirements for an advance to entities created pursuant to Section 627.351(6), Florida Statutes, are that the entity must demonstrate to the SBA that the advance is essential to allow the entity to pay claims for a Covered Event.

3. Advances to limited apportionment companies.

Section 215.555(4)(e)3., Florida Statutes, provides that the SBA may advance the amount of estimated reimbursement payable to limited apportionment companies.

(e) In determining whether or not to grant an advance and the amount of an advance, the SBA:

1. Shall determine whether its assets available for the payment of obligations are sufficient and sufficiently liquid to fulfill its obligations to other Companies prior to granting an advance;

2. Shall review and consider all the information submitted by such Companies;

3. Shall review such Companies’ compliance with all requirements of Section 215.555, Florida Statutes;

4. Shall consult with all relevant regulatory agencies to seek all relevant information;

5. Shall review the damage caused by the Covered Event and when that Covered Event occurred;

6. Shall consider whether the Company has substantially exhausted amounts previously advanced;

7. Shall consider any other factors deemed relevant; and

8. Shall require commercial self-insurance funds established under section 624.462, Florida Statutes, to submit a copy of written estimates of expenses in support of the amount of advance requested.

(f) Any amount advanced by the SBA shall be used by the Company only to pay claims of its policyholders for the Covered Event or Covered Events which have precipitated the immediate need to continue to pay additional claims as they become due.

(5) Delinquent Payments

Failure to submit a payment when due is a violation of the terms of this Contract and Section 215.555, Florida Statutes. Interest on late payments shall be due as set forth in Article VIII(2) and Article IX(2) of this Contract.

(6) Inadequate Data Submissions

If exposure data or other information required to be reported by the Company under the terms of this Contract is not received by the FHCF in the format specified by the FHCF or is inadequate to the extent that the FHCF requires resubmission of data, the Company will be required to pay the FHCF a resubmission fee of $1,000 for resubmissions that are not a result of an examination by the SBA. If a resubmission is necessary as a result of an examination report issued by the SBA, the first resubmission fee will be $2,000. If the Company’s examination-required resubmission is inadequate and the SBA requires an additional resubmission(s), the resubmission fee for each subsequent resubmission shall be $2,000. A resubmission of exposure data may delay the processing of the Company’s request for reimbursement or an advance.

(7) Delinquent Submissions

Failure to submit an exposure submission, resubmission, loss report, or commutation documentation when due is a violation of the terms of this Contract and Section 215.555, Florida Statutes.

ARTICLE XI - TAXES

In consideration of the terms under which this Contract is issued, the Company agrees to make no deduction in respect of the Premium herein when making premium tax returns to the appropriate authorities. Should any taxes be levied on the Company in respect of the Premium herein, the Company agrees to make no claim upon the SBA for reimbursement in respect of such taxes.

FHCF-2011K

Rule 19-8.010 F.A.C.

ARTICLE XII - ERRORS AND OMISSIONS

Any inadvertent delay, omission, or error on the part of the SBA shall not be held to relieve the Company from any liability which would attach to it hereunder if such delay, omission, or error had not been made.

ARTICLE XIII - INSPECTION OF RECORDS

The Company shall allow the SBA to inspect, examine, and verify, at reasonable times, all records of the Company relating to the Covered Policies under this Contract, including Company files concerning claims, losses, or legal proceedings regarding subrogation or claims recoveries which involve this Contract, including premium, loss records and reports involving exposure data or losses under Covered Policies. This right by the SBA to inspect, examine, and verify shall survive the completion and closure of an exposure examination or loss examination file and the termination of the Contract. The Company shall have no right to re-open an exposure or loss reimbursement examination once closed and the findings have been accepted by the Company; any re-opening shall be at the sole discretion of the SBA. If the FHCF Finance Corporation has issued revenue bonds and relied upon the exposure and loss data submitted and certified by the Company as accurate to determine the amount of bonding needed, the SBA may choose not to require, or accept, a resubmission if the resubmission will result in additional reimbursements to the Company. The SBA may require any discovered errors, inadvertent omissions, and typographical errors associated with the data reporting of insured values, discovered prior to the closing of the file and acceptance of the examination findings by the Company, to be corrected to reflect the proper values. The Company shall retain its records in accordance with the requirements for records retention regarding exposure reports and claims reports outlined herein, and in any administrative rules adopted pursuant to Section 215.555, Florida Statutes. Companies writing covered collateral protection policies, as defined in definition (10)(d) of Article V herein, must be able to provide documentation that the policy covers personal residences, protects both the borrower’s and lender’s interest, and that the coverage is in an amount at least equal to the coverage for the dwelling in place under the lapsed homeowner’s policy.

(1) Examination Requirements for Exposure Verification

The Company shall retain complete and accurate records, in policy level detail, of all exposure data submitted to the SBA in any Contract Year until the SBA has completed its examination of the Company’s exposure submissions. The Company shall also retain complete and accurate records of any completed exposure examination for any Contract Year in which the Company incurred losses until the completion of the loss reimbursement examination for that Contract Year. The records to be retained shall include the exam file which supports the exposure reported to the SBA and any other information which would allow for a complete examination of the Company’s reported exposure data. The exam file shall be prepared according to the SBA Exam File Specifications outlined in the Data Call. The Company must also have available, at the time of the examination, a copy of its underwriting manual, a copy of its rating manual, and staff to respond to the questions of the SBA or its agents. The Company is also required to retain declarations pages and policy applications to support reported exposure. To meet the requirement that the application must be retained, the Company may retain either the actual application or may retain the actual application in an electronic format. A complete list of records to be retained is set forth in Form FHCF-EAP1, adopted for the Contract Year under Rule 19-8.030, F.A.C.

(2) Examination Requirements for Loss Reports

The Company shall retain complete and accurate records of all reported losses and/or advances submitted to the SBA until the SBA has completed its examination of the Company’s reimbursable losses and commutation for the Contract Year (if applicable) has been concluded. The records to be retained are set forth as part of the Proof of Loss Report, Form FHCF-L1B, adopted for the Contract Year under Rule 19-8.029, F.A.C., and Form FHCF-LAP1, adopted for the Contract Year under Rule 19-8.030, F.A.C. The Company must also retain the required exposure exam file for the Contract Year in which the loss occurred, and must have available any other information which would allow for a complete examination of the Company’s losses.

FHCF-2011K

Rule 19-8.010 F.A.C.

(3) Examination Procedures

(a) The FHCF will send an examination notice to the Company providing the commencement date of the examination, the site of the examination, any accommodation requirements of the examiner, and the reports and data which must be assembled by the Company and forwarded to the FHCF upon request. The Company shall be prepared to choose one location in which to be examined, unless otherwise specified by the SBA.

(b) The reports and data are required to be forwarded to the FHCF as set forth in an examination notice letter. The information is then forwarded to the examiner. If the FHCF receives accurate and complete records as requested, the examiner will contact the Company to inform the Company as to what policies or other documentation will be required once the examiner is on site. Any records not required to be provided to the examiner in advance shall be made available at the time the examiner arrives on site. Any records to support reported losses which are provided after the examiner has left the work-site will, at the SBA’s discretion, result in an additional examination of exposure and/or loss records or an extension or expansion of the examination already in progress. All costs associated with such additional examination or with the extension or expansion of the original examination shall be borne by the Company.

(c) At the conclusion of the examiner’s work and the management review of the examiner’s report, findings, recommendations, and work papers, the FHCF will forward a preliminary draft of the examination report to the Company and require a response from the Company by a date certain as to the examination findings and recommendations.

(d) If the Company accepts the examination findings and recommendations, and there is no recommendation for additional information, the examination report will be finalized and the exam file closed.

(e) If the Company disputes the examiner’s findings, the areas in dispute will be resolved by a meeting or a conference call between the Company and FHCF management.

(f) 1. If the recommendation of the examiner is to resubmit the Company’s exposure data for the Contract Year in question, then the FHCF will send the Company a letter outlining the process for resubmission and including a deadline to resubmit. The resubmission will include a data file to be submitted to the FHCF’s Administrator and an exam file to be submitted to the offices of the SBA. The resubmission is also required to be accompanied by a detailed written description of the specific changes made to the resubmitted data. Once the resubmission is received by the FHCF’s Administrator, the FHCF’s Administrator calculates a revised Reimbursement Premium for the Contract Year which has been examined. The SBA shall then review the resubmission with respect to the examiner’s findings, and accept the resubmission or contact the Company with any questions regarding the resubmission. Once the SBA has accepted the resubmission as a sufficient response to the examiner’s findings, the FHCF’s Administrator will send the Company an invoice for any Reimbursement Premium and interest due or to refund Reimbursement Premium, as the case may be. Once the resubmission has been approved, the exam file is closed.

2. If the recommendation of the examiner is either to resubmit the Company’s exposure data for the Contract Year in question or giving the option to pay the estimated Premium difference, then the FHCF will send the Company a letter outlining the process for resubmission or for paying the estimated Premium difference and including a deadline for the resubmission or the payment to be received by the FHCF’s Administrator. If the Company chooses to resubmit, the same procedures outlined in Article XIII(3)(f)1. apply.

FHCF-2011K

Rule 19-8.010 F.A.C.

(g) If the recommendation of the examiner is to update the Company’s Proof of Loss Report(s) for the Contract Year under review, the FHCF will send the Company a letter outlining the process for submitting the Proof of Loss Report(s) and including a deadline to file. The updated Proof of Loss Report(s) will be submitted to the FHCF’s Administrator with a copy of the Proof of Loss Report(s) and a supporting detailed claims listing to be submitted to the offices of the SBA. The report is required to be accompanied by a detailed written description of the specific changes made. Once the Proof of Loss Report(s) is received by the FHCF Administrator, the FHCF’s Administrator will calculate a revised reimbursement. The SBA shall then review the submitted Proof of Loss Report(s) with respect to the examiner’s findings, and accept the Proof of Loss Report(s) as filed or contact the Company with any questions. Once the SBA has accepted the corrected Proof of Loss Report(s) as a sufficient response to the examiner’s findings, the FHCF’s Administrator will send the Company an invoice for any overpayments and interest due. Once the Proof of Loss Report(s) is approved, the exam file is closed.

(h) If the Company continues to dispute the examiner’s findings and/or recommendations and no resolution of the disputed matters is obtained through discussions between the Company and FHCF management, then the process within the SBA is at an end and further administrative remedies may be pursued under Chapter 120, Florida Statutes.

(i) The examiner’s list of errors is made available in the examination report sent to the Company. Given that the examination was based on a sample of the Company’s policies or claims rather than the whole universe of the Company’s Covered Policies or reported claims, the error list is not intended to provide a complete list of errors but is intended to indicate what information needs to be reviewed and corrected throughout the Company’s book of Covered Policy business or claims information to ensure more complete and accurate reporting to the FHCF.

(4) Costs of the Examinations

The costs of the examinations shall be borne by the SBA. However, in order to remove any incentive for a Company to delay preparations for an examination, the SBA shall be reimbursed by the Company for any examination expenses incurred in addition to the usual and customary costs, which additional expenses were incurred as a result of the Company’s failure, despite proper notice, to be prepared for the examination or as a result of a Company’s failure to provide requested information. All requested information must be complete and accurate. The Company shall be notified of any administrative remedies which may be obtained under Chapter 120, Florida Statutes.

ARTICLE XIV - INSOLVENCY OF THE COMPANY

Company shall notify the FHCF immediately upon becoming insolvent. Except as otherwise provided below, no covered loss reimbursements will be made until the FHCF has completed and closed its examination of the insolvent Company’s losses, unless an agreement is entered into by the court appointed receiver specifying that all data and computer systems required for FHCF exposure and loss examinations will be maintained until completion of the Company’s exposure and loss examinations. Except as otherwise provided below, in order to account for potential erroneous reporting, the SBA shall hold back 25% of requested loss reimbursements until the exposure and loss examinations for the Company are completed. Only those losses supported by the examination will be reimbursed. Pursuant to Section 215.555(4)(g), Florida Statutes, the FHCF is required to pay the “net amount of all reimbursement moneys” due an insolvent insurer to the Florida Insurance Guaranty Association (FIGA) for the benefit of Florida policyholders. For the purpose of this Contract, a Company is insolvent when an order of liquidation with a finding of insolvency has been entered by a court of competent jurisdiction. In light of the need for an immediate infusion of funds to enable policyholders of insolvent companies to be paid for their claims, the SBA may enter into agreements with FIGA allowing exposure and loss examinations to take place immediately without the usual notice and response time limitations and allowing the FHCF to make loss reimbursements (net of any amounts payable to the SBA from the Company or FIGA) to FIGA before the examinations are completed and before the response time expires for claims filing by reinsurers and financial institutions, which have a priority interest in those funds pursuant to Section 215.555(4)(g), Florida Statutes. Such agreements must ensure the availability of the necessary records and adequate security must be provided so that if the FHCF determines that it overpaid FIGA on behalf of the Company, or if claims are filed by reinsurers or financial institutions having a priority interest in these funds, that the funds will be repaid to the FHCF by FIGA within a reasonable time.

FHCF-2011K

Rule 19-8.010 F.A.C.

ARTICLE XV - TERMINATION

The FHCF and the obligations of both parties under this Contract can be terminated only as may be provided by law or applicable rules.

ARTICLE XVI - VIOLATIONS

Pursuant to the provisions of Section 215.555(10), Florida Statutes, any violation of the terms of this Contract by the Company constitutes a violation of the Insurance Code of the State of Florida. Pursuant to the provisions of Section 215.555(11), Florida Statutes, the SBA is authorized to take any action necessary to enforce any administrative rules adopted pursuant to Section 215.555, Florida Statutes, and the provisions and requirements of this Contract.

ARTICLE XVII - APPLICABLE LAW

(1) Applicable Law: This Contract shall be governed by and construed according to the laws of the State of Florida in respect of any matter relating to or arising out of this Contract.

(2) Notice of Rights: Pursuant to Chapter 120, Florida Statutes, and the Uniform Rules of Procedure, codified as Chapters 28-101 through 28-111, F.A.C., a person whose substantial interests are affected by a decision of the SBA regarding the FHCF may request a hearing within 21 days shall have waived his or her right to a hearing. The hearing may be a formal hearing or an informal hearing pursuant to the provisions of Sections 120.569 and 120.57, Florida Statutes. The petition must be filed (received) in the office of the Agency Clerk, General Counsel’s Office, State Board of Administration of Florida, P.O. Box 13300, Tallahassee, FL 32317-3300 or 1801 Hermitage Blvd., Suite 100, Tallahassee, FL 32308, within the 21 day period.

FHCF-2011K

Rule 19-8.010 F.A.C.

ARTICLE XVIII - REIMBURSEMENT CONTRACT ELECTIONS

Reimbursement Percentage

For purposes of determining reimbursement (if any) due the Company under this Contract and in accordance with the Statute, the Company has the option to elect a 45% or 75% or 90% reimbursement percentage under this Contract. If the Company is a member of an NAIC group, all members must elect the same reimbursement percentage, and the individual executing this Contract on behalf of the Company, by placing his or her initials in the box under (a) below, affirms that the Company has elected the same reimbursement percentage as all members of its NAIC group. If the Company is an entity created pursuant to Section 627.351, Florida Statutes, the Company must elect the 90% reimbursement percentage. The Company shall not be permitted to change its reimbursement percentage during the Contract Year. The Company shall be permitted to change its reimbursement percentage at the beginning of a new Contract Year, but may not reduce its reimbursement percentage if a Covered Event required the issuance of revenue bonds, until the bonds have been fully repaid.

IMPORTANT NOTE: The FHCF has issued revenue bonds as a result of its liabilities for Covered Events under the Contract Year effective June 1, 2005. As those bonds have not been fully repaid, the Company may not select a Reimbursement Percentage that is less than its selection under the prior Contract Year effective June 1, 2010.

The Reimbursement Percentage elected by the Company for the prior Contract Year effective June 1, 2010 was as follows: «Legal_Name» - «Coverage_Option»

(a) NAIC Group Affirmation: Initial the following box if the Company is part of an NAIC Group:

(b) Reimbursement Percentage Election: The Company hereby elects the following Reimbursement Percentage for the Contract Year from 12:00:01 a.m., Eastern Time, June 1, 2011, to 12:00 a.m., Eastern Time, May 31, 2012, (the individual executing this Contract on behalf of the Company shall place his or her initials in the box to the left of the percentage elected for the Company):

45% OR 75% OR 90%

Reporting Exposure for a Single Structure, with a Mix of Commercial Habitational and Commercial Non-Habitational Exposure, Written on a Commercial Policy

This section is applicable to all Companies which either have exposure for single structures with a mix of commercial habitational and commercial non-habitational exposure written under a Commercial Policy, or have the authority to write such policies. If the Company does not have the authority to write this type of exposure, this section does not apply; initial the N/A box on the next page, which completes this ARTICLE. If the Company does write, or has the authority to write, this type of exposure, please read and complete the remainder of this ARTICLE.

FHCF-2011K

Rule 19-8.010 F.A.C.

Commercial-Residential Class Code

If a single structure is used for both habitational and non-habitational purposes and the structure has a commercial-residential class code (based on a classification plan on file with and reviewed by the Administrator), the entire exposure for the structure should be reported to the FHCF under the Data Call, and the FHCF will reimburse losses for the entire structure as well.

Commercial Non-Residential/Business Class Code

If a single structure is used for both habitational and non-habitational purposes and the structure has a commercial non-residential or business class code (based on a classification plan on file with and reviewed by the Administrator), the habitational portion of that structure should be identified and reported to the FHCF under the Data Call.

However, in recognition of the unusual nature of commercial structures with incidental habitational exposure and the hardship some companies may face in having to carve out such incidental habitational exposure, as well as the losses to such structures, the FHCF will accommodate these companies by allowing them to exclude the entire exposure for the single structure from their Data Call submission, providing the following two conditions are met:

(1) The decision to not carve out and report the incidental habitational exposure shall apply to all such structures insured by the Company; and

(2) If the incidental habitational exposure is not reported to the FHCF, the Company agrees it shall not report losses to the structure and the FHCF shall not reimburse any losses to the structure.

Initial the CARVING box below if the Company is able to carve out and report its incidental habitational exposure, OR, if this requirement presents a hardship, the Company must communicate its decision to not carve out and to not report the incidental exposure by having the individual executing this Contract on behalf of the Company placing his or her initials in the NOT CARVING box below. If the Company does not currently write such policies, but has the authority to write such policies after the start date of this Contract, the decision to carve or not carve out the incidental habitational exposure must be indicated below.

	OR		OR
CARVING		NOT CARVING		NA

By initialing the CARVING or NOT CARVING box above, the Company is making an irrevocable decision for the corresponding Contract Year Data Call submission and any subsequent resubmissions.

Important Note: Since this election will impact your Data Call submission, please share this decision with the individual(s) responsible for compiling your Data Call submission.

Additional Living Expense (ALE) Written as Time Element Coverage

If your Company writes Covered Policies that provide ALE coverage on a time element basis (i.e., coverage is based on a specific period of time as opposed to a stated dollar limit), you must initial the ‘Yes – Time Element ALE’ box below. If your Company does not write time element ALE coverage, initial ‘No – Time Element ALE’ box below.

	OR
Yes – Time Element ALE		No – Time Element ALE

FHCF-2011K

Rule 19-8.010 F.A.C.

ARTICLE XIX - SIGNATURES

Approved by:

Florida Hurricane Catastrophe Fund

By: State Board of Administration of the State of Florida

By:
	Ashbel C. Williams	Date
	Executive Director & CIO
Approved as to legality:
By:
	Gary A. Moreland	Date
	Assistant General Counsel FL Bar ID#0702765

Homeowners Choice Property & Casualty Insurance Company, Inc.

F.X. McCahill III, Chief Executive Officer

By:
	Signature	Date

FHCF-2011K

Rule 19-8.010 F.A.C.

EX-10.20

Exhibit 10.20

SEPARATION AGREEMENT

This Agreement, dated June 17, 2011, is by and between Homeowners Choice, Inc. (the “Company”), a Florida corporation having its principal place of business at 5300 West Cypress Street, Suite 100, Tampa, Florida 33607, and Francis X. McCahill III (the “Executive”).

BACKGROUND STATEMENT

The Executive serves as the Company’s chief executive officer. The Executive and the Company have entered into several contracts in connection with the Executive’s employment, including (1) Executive Agreement dated May 1, 2007, attached as Exhibit A (the “Executive Agreement”); (2) Incentive Stock Option Agreement dated June 1, 2007, as adjusted to reflect a 2.5 for 1 stock split, attached as Exhibit B (the “Option Agreement”); and (3) Retention Bonus Agreement, dated February 17, 2011, attached as Exhibit C (the “Bonus Agreement”). The Executive has indicated his desire to sever his employment relationship with the Company. This Agreement sets forth certain terms regarding that severance and supplements and amends the Executive Agreement, the Option Agreement and the Bonus Agreement.

NOW THEREFORE, in consideration of and reliance upon the statements contained in the foregoing background statement and the representations and warranties contained in this Agreement, the Executive and the Company agree to the following terms and conditions:

TERMS AND CONDITIONS

1. Separation Date. The Executive’s final day of employment by the Company will be June 30, 2011 (the “Separation Date”). The Executive hereby resigns effective as of the Separation Date from each directorship, office and position held within the Company and within any Company Affiliate. The Executive and the Company agree the Executive is voluntarily electing to terminate the Executive’s employment under the Executive Agreement and the parties have mutually agreed to the Separation Date.

2. Compensation. The Company will pay and provide the Executive’s normal salary and benefits up and to and including the Separation Date, less all deductions legally required or otherwise authorized by the Executive. The Company hereby waives its rights of reimbursement under the Bonus Agreement.

3. Restrictive Covenants. The Executive and the Company acknowledge and agree that the Executive is leaving the Company on his own accord and consequently the non-competition provisions of Section 5 of the Executive Agreement will have no force and effect after the Separation Date. However, notwithstanding the foregoing, the Executive agrees that during the period commencing on the date of this Agreement and ending one year after the Separation Date the Executive will not directly or indirectly solicit or induce any of the Company’s employees to terminate employment by the Company. In addition, the Executive will not perform any act or make any statement, public or private, legal or illegal, that would tend to dishonor or embarrass the Company or its Affiliates, disparage, discredit, reflect adversely upon or in any manner injure the reputation of Company or its Affiliates or their products or services or subject the Company or its Affiliates to potential liability or legal or administrative process.

4. Stock and Stock Options.

4.1 Vesting. Vesting under the Option Agreement will cease on the Separation Date. The Company and the Executive agree that under the Option Agreement the Executive has a vested right to purchase 125,200 shares of the Company’s common stock at an exercise price of $2.50 per share.

4.2. Exercise. The Executive does hereby exercise his right to purchase 125,200 shares under the Option Agreement (the “Shares”).

4.3. Sale of Shares. The Company hereby purchases from the Executive and the Executive hereby sells to the Company 85,200 of the Shares at a price of $6.50 per Share.

4.4. Deliveries. Upon execution of this Agreement, the Company will deliver to the Executive $240,800 by wire transfer representing $553,800 in full payment for the purchase of 85,200 Shares minus the Executive’s aggregate exercise price of $313,000 (125,200 times $2.50) and promptly direct its transfer agent to issue to the Executive a certificate representing the remaining 40,000 Shares.

4.5. Right of First Refusal. If any time after the execution of this Agreement, the Executive proposes to sell or transfer any of the Shares, then the Executive will deliver written notice to the Company (the “Offer to Sell”) (i) stating the number of shares of the proposed to be sold or transferred, the name and address the proposed purchaser or transferee, the nature of the proposed transfer (e.g. sale, gift, or encumbrance) and terms of the proposed sale or transfer, including the price or amount of encumbrance, payment terms and the closing date and (ii) offering to sell those shares to the Company upon the terms provided by this Agreement. The Offer to Sell shall be accompanied by a copy of the written offer, proposal or contract, if any, associated with the proposed sale or transfer. The Company will have the first right, but not the obligation, to purchase all or any number of the Shares offered pursuant to the Offer to Sell at a price equal to 95% of the closing price on the NASDAQ Global Select Market (or other applicable public market upon the which shares of the Company’s common stock trade) on the day previous to the date the Offer to Sell is received by the Company To exercise this purchase right, the Company must deliver written notice of acceptance to the Executive—stating the number of shares to be purchased—within three business days of receiving the Offer to Sell. The closing on the sale will take place within five days of the Company’s acceptance of the Offer to Sell.

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5. Cooperation. The Executive agrees to cooperate and participate reasonably with the Company in any legal or regulatory proceedings for which the Company reasonably requests his participation.

6. Release and Waiver. Acting for himself, his heirs, personal representatives, administrators and anyone claiming by or through him, the Executive unconditionally and irrevocably releases, acquits and discharges the Company and its past and present Affiliates, from any and all Claims, whether known or unknown, that the Executive may have against the Company or its Affiliates as of the date of this Agreement, or that any person or entity claiming through the Executive may have or claim to have against the Company or its Affiliates.

The Executive expressly waives and relinquishes all waivable rights and benefits afforded to him by Title VII of the Civil Rights Act of 1964 (“Title VII”), as amended; the Age Discrimination in Employment Act of 1967 (“ADEA”), as amended; the Americans with Disabilities Act of 1990 (“ADA”), 42 U.S.C. §12101, et seq.; the Family and Medical Leave Act (“FMLA”), 42 U.S.C. §12101, et seq.; the Fair Labor Standards Act (“FLSA”); the Florida Civil Rights Act of 1992 (“FCRA”) (Fla. Stat. 760 et seq.); Fla. Stat. §448.101 - 448.105; the Florida Human Rights Act of 1977 (“FHRA”) (Fla. Stat. 760 et. seq.); the Older Workers’ Benefit Protection Act (“OWBPA”); or any other local, state or federal acts dealing with discrimination associated with employment or workplace policies, “whistle-blower” claims, all employment related causes of action, as well as claims for breach of contract, wrongful termination, retaliation, intentional infliction of emotional distress, negligent hiring, invasion of privacy, defamation, slander, or any other tort arising out of the employment relationship. Title VII prohibits discrimination and retaliation based on sex, race, color, national origin and religion. ADEA prohibits discrimination on the basis of age. ADA prohibits discrimination against qualified individuals with a disability. FMLA provides for leaves of absence in certain circumstances. FLSA provides for minimum and overtime wages. FCRA and FHRA prohibit discrimination and retaliation in all aspects of employment on the basis of race, sex, religion, national origin, age, handicap or marital status. OWBPA prohibits discrimination against older workers in connection with employee benefits except when age-based reductions in employee benefit plans are justified by significant cost considerations.

The Executive has been given at least seven days following the execution of this Agreement to revoke this Agreement and the releases and waivers it contains, and understands that this the releases and waivers contained in this Agreement do not become effective until after the revocation period expires.

The Executive has been given at least 21 days to consider this Agreement and the releases and waivers it contains, but is not prevented from considering and signing this Agreement in less time.

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7. Notices. Any notices or deliveries permitted or required by this Agreement will be deemed given (i) when delivered in person or by messenger, if a receipt is obtained for delivery, (ii) when delivered by Federal Express, United Parcel Service, Airborne Express, U.S. Express Mail or similar nationally recognized overnight delivery service, if a confirmation of delivery is obtained, or (iii) five days after mailing, if mailed via certified or registered U.S. mail, return receipt requested, provided the notice is delivered or mailed to the party’s address as set forth below:

If to the Company:

Homeowners Choice, Inc.

Suite 100

5300 West Cypress

Tampa, FL 33607

ATT: General Counsel

If to the Executive:

Executive’s most recent address on file with the Company.

The parties may change addresses to which notices are to be delivered by giving notice of the change of address in the manner set forth above; except, however, that notwithstanding the foregoing provision, notice of a change of address will be deemed made upon actual receipt of the notice by the other party. Notices deemed given or delivered as set forth above on a Saturday, Sunday, or legal holiday will instead be deemed given or delivered on the next succeeding day which is not a Saturday, Sunday or legal holiday.

8. Entire Agreement. With respect to its subject matter, this Agreement contains all the understandings and agreements of the parties and supersedes all previous and all contemporaneous agreements, understandings, discussions and negotiations between the parties, whether written or oral. The parties agree that no previous drafts of this Agreement will be admissible as evidence (whether in any arbitration or court of law) in any proceeding which involves the interpretation of any provisions of this Agreement.

9. Amendments. Except as otherwise provided herein as to terms that are unreasonable, arbitrary or against public policy, this Agreement will not be modified or amended except by an instrument in writing signed by the parties.

10. Governing Law. This Agreement will be governed by and construed in accordance with the internal laws of the State of Florida without reference to conflicts of law principles.

11. Further Assurances. Each party hereto will cooperate and will take such further action and will execute and deliver such further documents as may be reasonably requested by the other party in order to carry out the provisions and purposes of this Agreement.

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12. Construction. This Agreement was negotiated at arms’-length, with each party having the assistance of independent legal counsel. No court, arbitrator or finder of fact should be construe this Agreement more strongly against either party on the basis of which party was responsible for the Agreement’s preparation. Wherever from the context it appears appropriate, each term stated in either the singular or the plural will include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender will include the other genders. The words “Agreement,” “hereof,” “herein” and “hereunder” and words of similar import referring to this Agreement refer to this Agreement as a whole, including Exhibits, and not to any particular provision of this Agreement. Whenever the word “include,” “includes” or “including” is used in this Agreement, it will be deemed to be followed by the words “without limitation.” The various headings contained in this Agreement are inserted only as a matter of convenience and in no way define, limit or extend the scope or intent of any of the provisions of this Agreement.

13. Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together will be deemed one original.

14. Affiliate. For the purposes of this Agreement, the capitalized term “Affiliate” means any corporation, limited liability company, partnership or other association or entity controlled by the Company and any office or director of any of the foregoing.

15. Claims. For the purposes of this Agreement, the capitalized term “Claims” means and includes any lawsuits, causes of action, obligations, promises, agreements, controversies, damages, debts, demands, liabilities, and losses of every kind (including third-party claims for indemnity or contribution against the Company or any of its Affiliates), which are known and unknown to Employee at the time this Agreement is executed.

16. Exhibits. All exhibits, schedules and other attachments to this Agreement are hereby incorporated by this reference as integral parts of this Agreement.

17. Saturday, Sunday or Legal Holiday. When the last day of a period during which an act may be performed under this Agreement falls on a Saturday, Sunday, or legal holiday that period will be deemed to end on the next succeeding day which is not a Saturday, Sunday or legal holiday.

18. Electronic Signatures. Signed versions of this Agreement, addenda, attachments and exhibits delivered by telephonically or electronically will legally bind the parties to the same extent as original documents.

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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date first set forth above.

	EXECUTIVE
	Francis X. McCahill III
	Homeowners Choice, Inc.
By:	Paresh Patel Chairman of the Board

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EX-10.21

Exhibit 10.21

BILL OF SALE AND ASSIGNMENT

THIS BILL OF SALE AND ASSIGNMENT, effective July 1, 2011, is by SCORPIO SYSTEMS, INC., a Florida corporation (the “Assignor”), to HOMEOWNERS CHOICE, INC., a Florida corporation (the “Assignee”).

The Assignor and the Assignee have agreed to the purchase and sale of certain software and intellectual property licensed by Assignor to Assignee under Software License and Maintenance Agreement, dated November 1, 2007 (the “License Contract”).

NOW THEREFORE, the Assignor, for consideration of $50,000, hereby makes the following assignment, agreements, warranties and representations:

1. The Assignor hereby sells, grants, assigns, conveys, transfers and sets over to the Assignee, its successors and assigns, all of its right, title and interest in the License Contract and to the software described therein, including Derivative Works, Licensed Software, Object Code and Source Code as defined in the License Contract, but excluding any accrued and unpaid license fees as of June 30, 2011.

2. This is an assignment of rights only, not an assignment of obligations. The Assignee does not assume hereby any obligations, duties or liabilities of anyone in connection with the properties assigned hereunder.

3. The Assignor hereby warrants and represents to the Assignee that the Assignor owns and has good and valid title to the properties assigned hereunder; that the Assignor has full right, power and authority to assign such properties; and that such properties are subject to no liens, encumbrances or restrictions, except for statutory liens for current taxes or assessments not yet due, and Assignor has not granted any licensed to such properties to any other individual or entity.

4. The properties are assigned “AS IS, WHERE IS.”

5. At any time, after the date of this Bill of Sale and Assignment, at the Assignee’s request and without additional consideration, the Assignor will execute and deliver any documents or instruments that the Assignee may reasonably require in order to effectively convey and transfer good title and put the Assignee in possession of the Assets.

6. This Assignment is binding upon the Assignor’s and the Assignee’s respective assigns, successors, personal representatives, executors, devisees and heirs.

7. The warranties and representations contained herein will survive the execution of this Assignment and continue without limitation.

IN WITNESS WHEREOF, the Assignor has executed this Bill of Sale and Assignment effective as of the date first set forth above.

SCORPIO SYSTEMS, INC.

/s/ Paresh Patel

Paresh Patel

President

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EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Paresh Patel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Homeowners Choice, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ PARESH PATEL
August 12, 2011	Paresh Patel
	Chief Executive Officer (Principal Executive Officer)

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

44

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard R. Allen, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Homeowners Choice, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

	/s/ RICHARD R. ALLEN
August 12, 2011	Richard R. Allen
	Chief Financial Officer (Principal Financial and Accounting Officer)

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

45

EX-32.1

Exhibit 32.1

Written Statement of the Chief Executive Officer

Pursuant to 18 U.S.C. Section 1350

Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Chief Executive Officer of Homeowners Choice, Inc. (the “Company”), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on August 12, 2011 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ PARESH PATEL

Paresh Patel

Chief Executive Officer

August 12, 2011

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

46

EX-32.2

Exhibit 32.2

Written Statement of the Chief Financial Officer

Pursuant to 18 U.S.C. Section 1350

Solely for the purposes of complying with 18 U.S.C. ss.1350, I, the undersigned Chief Financial Officer of Homeowners Choice, Inc. (the “Company”), hereby certify, based on my knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended June 30, 2011 as filed with the Securities and Exchange Commission on August 12, 2011 (the “Report”), fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ RICHARD R. ALLEN

Richard R. Allen

Chief Financial Officer

August 12, 2011

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

47

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data	Jun. 30, 2011	Dec. 31, 2010
Fixed maturity securities, available-for-sale, amortized cost	$ 23,276	$ 28,456
Preferred stock, no par value
Preferred stock, authorized	18,500,000	18,500,000
Preferred stock, issued	0	0
Preferred stock, outstanding	0	0
Common stock, no par value
Common stock, authorized	40,000,000	40,000,000
Common stock, issued	6,101,802	6,205,396
Common stock, outstanding	6,101,802	6,205,396
7% Series A Cumulative Convertible Preferred Stock [Member]
Convertible preferred stock, liquidation preference	$ 10
Preferred stock, no par value
Preferred stock, authorized	1,500,000
Preferred stock, issued	1,247,700
Preferred stock, outstanding	1,247,700

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Condensed Consolidated Statements Of Earnings (USD $) In Thousands, except Per Share data	3 Months Ended		6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010
Revenue
Gross premiums earned	$ 31,218	$ 29,978	$ 62,114	$ 60,322
Premiums ceded	(14,174)	(14,333)	(28,396)	(28,436)
Net premiums earned	17,044	15,645	33,718	31,886
Net investment income	509	569	1,073	1,100
Realized investment gains	140	505	293	505
Gain on bargain purchase	936		936
Other	1,155	692	1,813	908
Total revenue	19,784	17,411	37,833	34,399
Expenses
Losses and loss adjustment expenses	10,523	10,863	20,926	20,676
Policy acquisition and other underwriting expenses	2,780	2,668	7,043	6,960
Other operating expenses	2,660	1,886	4,787	3,583
Total expenses	15,963	15,417	32,756	31,219
Income before income taxes	3,821	1,994	5,077	3,180
Income taxes	1,520	712	1,983	1,200
Net income	2,301	1,282	3,094	1,980
Preferred stock dividends	(361)		(378)
Income available to common stockholders	$ 1,940	$ 1,282	$ 2,716	$ 1,980
Basic earnings per common share	$ 0.32	$ 0.21	$ 0.44	$ 0.32
Diluted earnings per common share	$ 0.30	$ 0.19	$ 0.43	$ 0.29
Dividends per common share	$ 0.10		$ 0.20

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Document And Entity Information	6 Months Ended
	Jun. 30, 2011	Aug. 05, 2011
Document And Entity Information
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q2
Entity Registrant Name	Homeowners Choice, Inc.
Entity Central Index Key	0001400810
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		6,111,802
Trading Symbol	HCII

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Business Acquisition

6 Months Ended

Jun. 30, 2011

Business Acquisition

Business Acquisition

Note 5 – Business Acquisition

Effective April 20, 2011, the Company, through its subsidiary, TV Investment Holdings LLC, acquired the assets and operations of Tierra Verde Marina Holdings. The property consists primarily of land and improvements, retail buildings, and a marina facility purchased for $5.1 million. Operating activities at acquisition include leasing of office and retail space to 11 tenants, wet and dry boat storage for approximately 150 clients, and fuel services with respect to marina clients and other recreational boaters. The Tierra Verde, Florida property and operations were acquired through a foreclosure sale conducted by the Pinellas County Clerk of the Circuit Court. The Company's primary reason for the acquisition was to strengthen its property portfolio through diversification and quality of assets owned.

The fair value of the net assets acquired was approximately $5.7 million, which exceeds the $5.1 million purchase price. As a result, the Company recognized a gain on bargain purchase in the amount of $936,000 ($575,000 net of tax), which is included in operations for the three and six months ended June 30, 2011. The recorded gain is subject to adjustment as the Company will continue to evaluate the purchase price allocation with respect to certain of the liabilities assumed at acquisition. There were no intangibles acquired with respect to this acquisition. The following table summarizes the Company's preliminary allocation of the net consideration paid to the fair value of the assets acquired and liabilities assumed at April 20, 2011 (in thousands):

Property, plant and equipment	$	6,338
Other assets		132
Tenant deposits		(96	)
Environmental liability (Note 13)		(150	)
Deferred tax liability		(361	)
Other liabilities		(178	)
Fair value of net assets acquired		5,685
Gain on bargain purchase, net of tax of $361		(575	)
Cash consideration paid	$	5,110

For the three and six months ended June 30, 2011 and 2010, the effects of this acquisition were not material to the Company's condensed consolidated financial statements and basic and diluted earnings per share and, as such, pro forma information has not been presented.

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Stockholders' Equity

6 Months Ended

Jun. 30, 2011

Stockholders' Equity

Stockholders' Equity

Note 10 – Stockholders' Equity

Common Stock

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

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

Common Stock Warrants

At June 30, 2011, the Company has reserved 905,001 shares of common stock for issuance upon the exercise of its common stock warrants, all of which were issued coincident with the Company's initial public offering ("IPO"). A summary of the warrants outstanding at June 30, 2011 is presented below:

	Number Of Warrants Issued		Number of Common Shares Issuable Upon Conversion of Warrants
Warrants issued with IPO units		1,666,668		833,334
Warrants issued to the Company's placement agents net of forfeitures and repurchases		71,667		71,667
Warrants outstanding at June 30, 2011		1,738,335		905,001

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

Preferred Stock

During the three months ended March 31, 2011, the Company designated 1,500,000 shares of the Company's preferred stock as Series A cumulative convertible preferred stock ("Series A Preferred").

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

Shareholders of Series A Preferred may convert all or any portion of their shares, at their option, at any time, into shares of the Company's common stock at an initial conversion rate of one share of common stock for each share of Series A Preferred, which is equivalent to an initial conversion price of $10.00 per share; provided, however, that the Company may terminate this conversion right on or after March 31, 2014, if for at least twenty trading days within any period of thirty consecutive trading days, the market price of the Company's common stock exceeds the conversion price of the Series A Preferred by more than 20% and our common stock is then traded on the New York Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or the NYSE Amex. Under certain circumstances, the Company will be required to adjust the conversion rate. The initial conversion price of $10.00 per share is subject to proportionate adjustment in the event of stock splits, reverse stock splits, stock dividends, or similar changes with respect to the Company's common stock.

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

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

On June 8, 2011, the Company's Board of Directors declared a cash dividend on its Series A Preferred shares in the amount of $0.5833 per share for each of the months of June, July and August 2011. The June 2011 dividend is payable July 27, 2011 to shareholders of record at the close of business on July 1, 2011. The July 2011 dividend is payable August 29, 2011 to shareholders of record at the close of business on August 1, 2011. The August 2011 dividend is payable September 27, 2011 to shareholders of record at the close of business on September 1, 2011.

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Summary Of Significant Accounting Policies

6 Months Ended

Jun. 30, 2011

Summary Of Significant Accounting Policies

Summary Of Significant Accounting Policies

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements for Homeowners Choice, Inc. and its subsidiaries (collectively, the "Company"), which consist of Homeowners Choice Managers, Inc., Southern Administration, Inc., Claddaugh Casualty Insurance Company, Ltd., HCI Holdings LLC and its subsidiary, TV Investment Holdings, LLC, and Homeowners Choice Property & Casualty Insurance Company, Inc. and its subsidiary, HCPCI Holdings LLC, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information, and the Securities and Exchange Commission ("SEC") rules for interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying financial statements reflect all normal recurring adjustments necessary to present fairly the Company's financial position as of June 30, 2011 and the results of operations and cash flows for the periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2011. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2010 included in the Company's Form 10-K, which was filed with the SEC on March 29, 2011.

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

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

All significant intercompany balances and transactions have been eliminated.

Basic and diluted earnings per common share. Basic earnings per common share is computed by dividing net income attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted. Potentially dilutive securities at June 30, 2011 consisted of stock options, common stock warrants, and the 7.0% Series A cumulative convertible preferred stock issued March 25, 2011. Each share of preferred stock is convertible into one share of the Company's common stock (see Note 10).

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

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Losses And Loss Adjustment Expenses

6 Months Ended

Jun. 30, 2011

Losses And Loss Adjustment Expenses

Losses And Loss Adjustment Expenses

Note 7 – Losses and Loss Adjustment Expenses

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

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Balance, beginning of period	$	24,050			20,805			22,146			19,178
Incurred related to:
Current period		6,696			11,629			15,432			21,050
Prior period		3,827			(766	)		5,494			(374	)
Total incurred		10,523			10,863			20,926			20,676
Paid related to:
Current period		(6,475	)		(6,689	)		(8,128	)		(9,647	)
Prior period		(3,125	)		(1,862	)		(9,971	)		(7,090	)
Total paid		(9,600	)		(8,551	)		(18,099	)		(16,737	)
Balance, end of period	$	24,973			23,117			24,973			23,117

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

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

Note 12 – Stock-Based Compensation

Stock Option Plan

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

The Company's 2007 Stock Option and Incentive Plan (the "Plan") provides for granting of stock options to employees, directors, consultants, and advisors of the Company. Under the Plan, options may be granted to purchase a total of 6,000,000 shares of the Company's common stock. At June 30, 2011, options to purchase 4,874,800 shares are available for grant under the Plan. The outstanding options vest over periods ranging from immediately vested to five years and are exercisable over the contractual term of ten years.

A summary of the activity in the Company's stock option plan is as follows (dollars in thousands, except per share amounts):

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2010		830,000		$	2.50
Forfeited		(24,800	)		2.50
Exercised		(145,200	)		2.50
Outstanding at June 30, 2011		660,000			2.50		6.0 years	$	2,746
Exercisable at June 30, 2011		656,800		$	2.50		6.0 years	$	2,732

At June 30, 2011, there was approximately $3,600 of unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under the Plan, which the Company expects to recognize over a weighted-average period of ten months. The total fair value of shares vesting and recognized as compensation expense was approximately $9,400 and $18,600, respectively, for the three and six month periods ended June 30, 2011. There was no associated income tax benefit recognized with respect to the share compensation expense in 2011. The total intrinsic value of the 145,200 options exercised during the six months ended June 30, 2011 was $684,220 and the income tax benefit recognized was $168,000. The total fair value of shares vesting and recognized as compensation expense was approximately $24,000 and $68,000, respectively, for the three and six month periods ended June 30, 2010 and the associated income tax benefit recognized was $6,000 and $19,000, respectively. The total intrinsic value of the 40,000 options exercised during the six months ended June 30, 2010 was $147,000 and the income tax benefit recognized was $39,000.

No options were granted during the three and six month periods ended June 30, 2011 and 2010.

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Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

Note 8 – Income Taxes

During the three and six months ended June 30, 2011, the Company recorded approximately $1.5 million and $2.0 million, respectively, of income taxes, which resulted in estimated annual effective tax rates of approximately 40% and 39%, respectively. During the three and six months ended June 30, 2010, the Company recorded approximately $0.7 million and $1.2 million, respectively, of income taxes, which resulted in estimated annual effective tax rates of approximately 36% and 38%, respectively. The Company's estimated annual effective tax rate differs from the statutory federal income tax rate due to state income taxes, stock-based compensation and other nondeductible items. In February 2011, the Company received notice from the Internal Revenue Service with respect to an examination of the Company's 2008 and 2009 federal income tax returns. The examination commenced during the second quarter of 2011 and is still ongoing at June 30, 2011.

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Reinsurance

6 Months Ended

Jun. 30, 2011

Reinsurance

Reinsurance

Note 6 – Reinsurance

The Company cedes a portion of its homeowners insurance exposure to other entities under catastrophe excess of loss reinsurance treaties. The Company remains liable with respect to claims payments in the event that any of the reinsurers are unable to meet their obligations under the reinsurance agreements. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Premiums Written
Direct	$	54,838			49,854			69,961			64,729
Assumed		(157	)		(666	)		(2,351	)		(6,776	)
Gross written		54,681			49,188			67,610			57,953
Ceded		(14,174	)		(14,333	)		(28,396	)		(28,436	)
Net premiums written	$	40,507			34,855			39,214			29,517
Premiums Earned
Direct	$	29,160			25,024			57,147			48,342
Assumed		2,058			4,954			4,967			11,980
Gross earned		31,218			29,978			62,114			60,322
Ceded		(14,174	)		(14,333	)		(28,396	)		(28,436	)
Net premiums earned	$	17,044			15,645			33,718			31,886

During the three and six months ended June 30, 2011 and 2010, there were no recoveries pertaining to reinsurance contracts that were deducted from losses incurred. At June 30, 2011 and December 31, 2010, prepaid reinsurance premiums related to 18 reinsurers and there were no amounts receivable with respect to reinsurers. Thus, there were no concentrations of credit risk associated with reinsurance receivables and prepaid reinsurance premiums as of June 30, 2011 and December 31, 2010.

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Condensed Consolidated Statement Of Stockholders' Equity (USD $) In Thousands, except Share data	Preferred Stock [Member]	Common stock [Member]	Additional Paid-In Capital [Member] USD ($)	Retained Earnings [Member] USD ($)	Accumulated Other Comprehensive Loss [Member] USD ($)	Total USD ($)
Balance, value at Dec. 31, 2010			$ 18,606	$ 28,065	$ (42)	$ 46,629
Balance, shares at Dec. 31, 2010		6,205,396
Net income				3,094		3,094
Change in unrealized loss on available-for-sale securities, net of income tax benefit					(16)	(16)
Comprehensive income						3,078
Proceeds from sale of preferred stock (net of offering costs of $1,170), value			11,307			11,307
Proceeds from sale of preferred stock (net of offering costs of $1,170), shares	1,247,700
Exercise of stock options, shares		145,200
Exercise of stock options, value			363			363
Excess tax benefit from common stock options exercised			124			124
Common stock dividends				(1,222)		(1,222)
Preferred stock dividends				(378)		(378)
Repurchases and retirement of common stock, shares		(248,794)
Repurchases and retirement of common stock, value			(1,887)			(1,887)
Stock-based compensation			19			19
Balance, value at Jun. 30, 2011			$ 28,532	$ 29,559	$ (58)	$ 58,033
Balance, shares at Jun. 30, 2011	1,247,700	6,101,802

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2011

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Note 2 – Recent Accounting Pronouncements

Accounting Standards Update No. 2011-05. In June 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2011-05 ("ASU 2011-05"), Comprehensive Income (Topic 220), Presentation of Comprehensive Income. The objective of ASU 2011-05 is to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. To achieve this goal and to facilitate convergence of U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS), the FASB decided to eliminate the option to present components of other comprehensive income as part of the consolidated statement of changes in stockholders' equity. The amendments in ASU 2011-05 require that all nonowner changes in stockholders' equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In the two-statement approach, the first statement should present total net income and its components followed consecutively by a second statement that should present total other comprehensive income, the components of other comprehensive income, and the total of comprehensive income. The amendments in ASU 2011-05 should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted, because compliance with the amendments is already permitted. The amendments do not require any transition disclosures. The Company does not expect the adoption of ASU 2011-05 will have a material impact on its consolidated financial statements.

Accounting Standards Update No. 2011-04. In May 2011, the FASB issued Accounting Standards Update No. 2011-04 ("ASU 2011-04"), Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." The objective of ASU 2011-04 is to provide clarification of Topic 820 and, also, to ensure that fair value has the same meaning in U.S. generally accepted accounting principles ("GAAP") and in international financial reporting standards ("IFRSs") and that their respective fair value measurement and disclosure requirements are generally the same. Thus, this update results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRSs. The amendment is effective for interim and annual periods beginning after December 15, 2011 and is to be applied prospectively. Early application is not permitted. The Company does not expect the adoption of ASU 2011-04 will have a material impact on its consolidated financial statements.

Accounting Standards Update No. 2010-26. In October 2010, the FASB issued Accounting Standards Update No. 2010-26 ("ASU 2010-26"), Financial Services – Insurance (ASC Topic 944), Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of the amendments in ASU 2010-26 is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments in ASU 2010-26 specify which costs should be capitalized. The amendments in ASU 2010-26 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and should be applied prospectively upon adoption. Retrospective application to all prior periods presented upon the date of adoption is permitted, but not required. Early adoption is permitted, but only at the beginning of an entity's annual reporting period. Management is currently evaluating the impact of ASU 2010-26 and the effect adoption of this guidance will have on the Company's consolidated financial statements.

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Investments

6 Months Ended

Jun. 30, 2011

Investments

Investments

Note 3 – Investments

The Company holds investments in fixed maturity securities as well as equity securities, which are classified as available for sale. At June 30, 2011 and December 31, 2010, the amortized cost, gross unrealized gains and losses, and estimated fair value of the Company's available-for-sale securities by security type were as follows (in thousands):

	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
June 30, 2011
Fixed Maturity Securities:
U.S. Treasury and U.S. government agencies	$	587		17		(2	)		602
Corporate bonds		12,114		152		(110	)		12,156
Commercial mortgage-backed securities		10,310		96		(26	)		10,380
Other		265		1		—			266
Total	$	23,276		266		(138	)		23,404
Equity securities	$	5,248		104		(327	)		5,025
December 31, 2010
Fixed Maturity Securities:
U.S. Treasury and U.S. government agencies	$	8,044		88		(37	)		8,095
Corporate bonds		12,192		149		(75	)		12,266
Commercial mortgage-backed securities		7,756		40		(53	)		7,743
Other		464		5		(9	)		460
Total	$	28,456		282		(174	)		28,564
Equity securities	$	1,061		12		(189	)		884

The scheduled maturities of fixed maturity securities at June 30, 2011 are as follows (in thousands):

	Amortized Cost		Fair Value
Available-for-sale
Due after one year through five years	$	8,469		8,519
Due after five years through ten years		4,378		4,384
Due after ten years		119		121
Commercial mortgage-backed securities		10,310		10,380
	$	23,276		23,404

Investment Sales – 2011 and 2010

Proceeds received, and the gross realized gains and losses from sales of available for sale securities, for the three and six months ended June 30, 2011 and 2010 were as follows (in thousands):

	Proceeds		Gross Realized Gains		Gross Realized Losses
Three months ended June 30, 2011
Fixed maturity securities	$	11,916		238		(15	)
Equity securities*	$	574		53		(136	)
Three months ended June 30, 2010
Fixed maturity securities	$	12,242		505		—
Six months ended June 30, 2011
Fixed maturity securities	$	19,614		369		(38	)
Equity securities*	$	1,106		105		(143	)
Six months ended June 30, 2010
Fixed maturity securities	$	12,242		505		—

* Amounts reported for the three and six months ended June 30, 2011 include the gross realized gains and losses from equity option contracts. During the three and six months ended June 30, 2011, the Company entered into equity contracts for exchange traded call and put options to meet certain investment objectives. With respect to these option contracts, the Company received net proceeds of $22,000 and $73,000 and realized gains of $22,000 and $73,000 for the three and six months ended June 30, 2011, respectively, which is included in the realized investment gains in the Condensed Consolidated Statements of Earnings. There were no open option contracts at June 30, 2011. There were no equity option contracts during the three and six month periods ended June 30, 2010.

Other-than-temporary Impairment

The Company regularly reviews its individual investment securities for other-than-temporary impairment. The Company considers various factors in determining whether each individual security is other-than-temporarily impaired, including:

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

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

• general market conditions and industry or sector specific factors;

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

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

Securities with gross unrealized loss positions at June 30, 2011, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows (in thousands):

	Less Than twelve months
	Gross Unrealized Loss			Fair Value
U.S. Treasury and U.S. government agencies	$	(2	)		77
Corporate bonds		(110	)		7,007
Commercial mortgage-backed securities		(26	)		3,952
Total fixed maturity securities	$	(138	)		11,036
Equity securities	$	(327	)		1,144

The Company believes there were no fundamental issues such as credit losses or other factors with respect to any of its available-for-sale securities. The unrealized losses on investments in fixed maturity securities were caused by interest rate changes. It is expected that the securities would not be settled at a price less than the par value of the investments. In determining whether equity securities are other than temporarily impaired, the Company considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost. Because the decline in fair value is attributable to changes in interest rates or market conditions and not credit quality, and because the Company has the ability and intent to hold its available-for-sale investments until a market price recovery or maturity, the Company does not consider any of its investments to be other-than-temporarily impaired at June 30, 2011.

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Comprehensive Income

6 Months Ended

Jun. 30, 2011

Comprehensive Income

Comprehensive Income

Note 11 – Comprehensive Income

The components of comprehensive income are as follows (dollars in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Net income	$	2,301			1,282			3,094			1,980
Other comprehensive income:
Change in unrealized gain on investments:
Unrealized gain arising during the period		285			1,230			267			1,859
Reclassification adjustment for realized gains		(140	)		(505	)		(293	)		(505	)
Net change in unrealized gain (loss)		145			725			(26	)		1,354
Deferred income taxes on above changes		(56	)		(280	)		10			(522	)
Other comprehensive income (loss)		89			445			(16	)		832
Comprehensive income	$	2,390			1,727			3,078			2,812

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Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

Fair Value Measurements

Note 4 – Fair Value Measurements

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

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

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

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

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

Level 3 – Inputs that are unobservable.

The following table presents information about the Company's available-for-sale fixed maturity securities measured at fair value as of June 30, 2011 and December 31, 2010, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
As of June 30, 2011
Fixed maturity securities
U.S. Treasury and U.S. government agencies	$	525		77		—		602
Corporate bonds		12,156		—		—		12,156
Commercial mortgage-backed securities		—		10,380		—		10,380
Other		—		266		—		266
Total fixed maturity securities		12,681		10,723		—		23,404
Equity securities		5,025		—		—		5,025
Total available-for-sale securities	$	17,706		10,723		—		28,429
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
As of December 31, 2010
Fixed maturity securities
U.S. Treasury and U.S. government agencies	$	8,095		—		—		8,095
Corporate bonds		12,266		—		—		12,266
Commercial mortgage-backed securities		—		7,743		—		7,743
Other		—		460		—		460
Total fixed maturity securities		20,361		8,203		—		28,564
Equity securities		884		—		—		884
Total available-for-sale securities	$	21,245		8,203		—		29,448

With respect to the Company's business acquisition completed in April 2011 (see Note 5), all assets acquired and liabilities assumed were valued based on Level 3 measurements. Property, plant and equipment was valued based on an external appraisal using the sales comparison approach and other unobservable inputs. The environmental liability was valued based on third party estimates to complete the site assessment and remediation plan. The carrying amounts of all other assets and liabilities approximated their fair values at the acquisition date.

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

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Related Party Transaction

6 Months Ended

Jun. 30, 2011

Related Party Transaction

Related Party Transaction

Note 14 – Related Party Transaction

Effective April 4, 2011, the Company repurchased and retired a total of 80,000 shares of the Company's common stock at a price of $8.00 per share for a total cost of $640,000. Such shares were repurchased under a stock purchase agreement with one of the Company's directors at a price below the $8.20 market value of the Company's common stock on the date of the transaction. Such repurchases were not part of a publicly announced plan or program.

Effective June 27, 2011, the Company repurchased and retired a total of 85,200 shares of the Company's common stock at a price of $6.50 per share for a total cost of $553,800. Such shares were repurchased under a stock purchase agreement with the Company's Chief Executive Officer at a price below the $6.96 market value of the Company's common stock on the date of the transaction. Such repurchases were not part of a publicly announced plan or program.

Effective June 30, 2011, all rights to the software license related to the Company's premium administration application software were assigned to the Company in exchange for a one-time payment of $50,000. Such payment was made to the Company's director who developed and licensed the software to the Company. The related software license and consulting agreements were terminated coincident with this exchange.

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Condensed Consolidated Statements Of Cash Flows (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011	Jun. 30, 2010
Cash flows from operating activities:
Net income	$ 3,094	$ 1,980
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation	19	68
Net amortization of premiums (discounts) on investments in fixed maturity securities	61	(39)
Depreciation and amortization	158	57
Deferred income taxes (benefit)	2,026	(136)
Realized gains on sales of investments	(293)	(505)
Gain on bargain purchase	(936)
Changes in operating assets and liabilities:
Premiums receivable	(4,441)	(5,130)
Assumed reinsurance balances receivable	26	19,525
Advance premiums	5,786	5,948
Prepaid reinsurance premiums	8,921	(488)
Accrued interest and dividends receivable	(6)	10
Income taxes receivable	(3,033)
Other assets	(476)	(463)
Assumed reinsurance balances payable	51	658
Deferred policy acquisition costs	(655)	542
Losses and loss adjustment expenses	2,827	3,939
Unearned premiums	5,496	(2,369)
Income taxes payable	(310)	457
Accrued expenses and other liabilities	4,568	3,664
Net cash provided by operating activities	22,883	27,718
Cash flows from investing activities:
Cash consideration paid for acquired business	(5,110)
Purchase of property and equipment, net	(1,843)	(7,298)
Purchase of fixed maturity securities	(14,165)	(4,546)
Purchase of equity securities	(5,330)
Proceeds from sales of fixed maturity securities	19,614	12,242
Proceeds from sales of equity securities	1,106
Increase in time deposits, net	(273)	(256)
Decrease in short-term investments, net		7,443
Net cash (used in) provided by investing activities	(6,001)	7,585
Cash flows from financing activities:
Net proceeds from the issuance of preferred stock	11,307
Proceeds from the exercise of common stock options	363	100
Cash dividends paid	(1,382)
Repurchases of common stock	(1,887)	(2,595)
Excess tax benefit from common stock options exercised	124	39
Net cash provided by (used in) financing activities	8,525	(2,456)
Net increase in cash and cash equivalents	25,407	32,847
Cash and cash equivalents at beginning of period	54,849	43,453
Cash and cash equivalents at end of period	80,256	76,300
Supplemental disclosure of cash flow information:
Cash paid for income taxes	3,176	600
Cash paid for interest
Non-cash investing activities:
Unrealized (loss) gain on investments in available for sale securities, net of tax	(16)	832
Fair value of net assets acquired in connection with business acquisition	$ 5,685

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Subsequent Event

6 Months Ended

Jun. 30, 2011

Subsequent Event

Subsequent Event

Note 15 – Subsequent Event

On July 26, 2011, the Company's Board of Directors declared a quarterly dividend on its common shares of $0.10 per share. The dividends will be paid September 16, 2011 to shareholders of record at the close of business August 19, 2011.

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Condensed Consolidated Statement Of Stockholders' Equity (Parenthetical) (USD $) In Thousands	6 Months Ended
	Jun. 30, 2011
Condensed Consolidated Statement Of Stockholders' Equity
Preferred stock, offering costs	$ 1,170

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Earnings Per Share

6 Months Ended

Jun. 30, 2011

Earnings Per Share

Earning Per Share

Note 9 – Earnings Per Share

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

	For the Three Months Ended June 30, 2011							For the Three Months Ended June 30, 2010
	Income (Numerator)			Shares (Denominator)		Per-Share Amount		Income (Numerator)		Shares (Denominator)		Per-Share Amount
Net income	$	2,301			—			$	1,282		—
Less: Preferred stock dividends		(361	)		—				—		—
Basic Earnings Per Share
Income available to common stockholders		1,940			6,071	$	0.32		1,282		6,153	$	0.21
Effect of Dilutive Securities
Stock Options		—			411				—		499
Convertible preferred stock		361			1,248				—		—
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	2,301			7,730	$	0.30	$	1,282		6,652	$	0.19
	For the Six Months Ended June 30, 2011							For the Six Months Ended June 30, 2010
	Income (Numerator)			Shares (Denominator)		Per-Share Amount		Income (Numerator)		Shares (Denominator)		Per-Share Amount
Net income	$	3,094			—			$	1,980		—
Less: Preferred stock dividends		(378	)		—				—		—
Basic Earnings Per Share
Income available to common stockholders		2,716			6,121	$	0.44		1,980		6,219	$	0.32
Effect of Dilutive Securities
Stock Options		—			425				—		515
Convertible preferred stock		378			669				—		—
Diluted Earnings Per Share
Income available to common stockholders and assumed conversions	$	3,094			7,215	$	0.43	$	1,980		6,734	$	0.29

For each of the three and six months ended June 30, 2011 and 2010, 1,738,335 warrants to purchase 905,001 shares of common stock were excluded from the computation of diluted earnings per share because the exercise price of $9.10 exceeded the average market price of the Company's common stock. There were no preferred shares outstanding in 2010.

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Commitments And Contingencies

6 Months Ended

Jun. 30, 2011

Commitments And Contingencies

Commitments And Contingencies

Note 13 – Commitments and Contingencies

In connection with the Company's April 20, 2011 acquisition of the marina property located in Pinellas County, Florida (see Note 5), the Company assumed the liability to complete a site assessment and remediation of environmental contamination that resulted from a petroleum release at the marina site in late 2009. The contamination occurred during the process of removing fuel tanks from the property. The Company and its environmental consultants have assumed the remedial action work plan developed by prior management and its environmental consultant, which consists of completing the site assessment, performing soil excavation, and installing wells for collection of groundwater and soil samples throughout the monitoring phase of the project. At acquisition, the Company recorded a liability of $150,000 with respect to the planned remedial action. Such liability was determined based on reasonably estimable costs of completing the actions defined in the existing ongoing work plan. As of June 30, 2011, the $150,000 accrued at acquisition is included in other liabilities in the accompanying condensed consolidated balance sheet. Although the Company has accrued all reasonably estimable costs of completing the actions defined in the current ongoing work plan, it is possible that additional testing and additional environmental monitoring and remediation will be required in the near future as part of the Company's ongoing discussions with the Florida Department of Health, the agency contracted by the Florida Department of Environmental Protection to administer cases of petroleum contamination in Pinellas County, in which case additional expenses could significantly exceed the current estimated liability. However, based on information known at June 30, 2011, the Company does not expect that such additional expenses would have a material adverse effect on the liquidity or financial condition of the Company.

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Condensed Consolidated Balance Sheets (USD $) In Thousands	Jun. 30, 2011	Dec. 31, 2010
Assets
Fixed maturity securities, available-for-sale, at fair value (amortized cost $23,276 and $28,456)	$ 23,404	$ 28,564
Equity securities, available-for-sale, at fair value	5,025	884
Time deposits	14,306	14,033
Total investments	42,735	43,481
Cash and cash equivalents	80,256	54,849
Accrued interest and dividends receivable	186	180
Premiums receivable	10,263	5,822
Assumed reinsurance balances receivable		26
Prepaid reinsurance premiums	8,866	17,787
Deferred policy acquisition costs	10,062	9,407
Income taxes receivable	3,033
Property and equipment, net	15,778	7,755
Deferred income taxes		584
Other assets	1,665	1,057
Total assets	172,844	140,948
Liabilities and Stockholders' Equity
Losses and loss adjustment expenses	24,973	22,146
Unearned premiums	70,530	65,034
Advance premiums	6,900	1,114
Deferred income taxes	1,432
Payable for securities purchased	3,002
Accrued expenses	2,848	2,385
Assumed reinsurance balances payable	51
Dividends payable	218
Income taxes payable		310
Other liabilities	4,857	3,330
Total liabilities	114,811	94,319
Stockholders' equity:
Preferred stock
Common stock, (no par value, 40,000,000 shares authorized, 6,101,802 and 6,205,396 shares issued and outstanding in 2011 and 2010)
Additional paid-in capital	28,532	18,606
Retained earnings	29,559	28,065
Accumulated other comprehensive loss	(58)	(42)
Total stockholders' equity	58,033	46,629
Total liabilities and stockholders' equity	172,844	140,948
7% Series A Cumulative Convertible Preferred Stock [Member]
Stockholders' equity:
Preferred stock