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Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2014
Mar. 02, 2015
Jun. 30, 2014
Document And Entity Information [Abstract]
Document Type 10-K
Amendment Flag false
Document Period End Date Dec 31, 2014
Document Fiscal Year Focus 2014
Document Fiscal Period Focus FY
Trading Symbol HCI
Entity Registrant Name HCI Group, Inc.
Entity Central Index Key 0001400810
Current Fiscal Year End Date --12-31
Entity Well-known Seasoned Issuer No
Entity Current Reporting Status Yes
Entity Voluntary Filers No
Entity Filer Category Accelerated Filer
Entity Common Stock, Shares Outstanding 10,761,107
Entity Public Float $ 379,970,934
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Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Assets
Fixed-maturity securities, available for sale, at fair value (amortized cost: $96,163 and $110,738, respectively) $ 97,084 $ 112,151
Equity securities, available for sale, at fair value (cost: $45,387 and $17,248, respectively) 45,550 17,649
Limited partnership investment, at equity 2,550
Investment in joint venture, at equity 4,477
Real estate investments 19,138 16,228
Total investments 168,799 146,028
Cash and cash equivalents 314,716 293,398
Accrued interest and dividends receivable 1,059 1,133
Income taxes receivable 2,624
Premiums receivable 15,824 14,674
Prepaid reinsurance premiums 34,096 28,066
Deferred policy acquisition costs 15,014 14,071
Property and equipment, net 12,292 13,132
Deferred income taxes, net 2,499
Other assets 35,287 15,814
Total assets 602,210 526,316
Liabilities and Stockholders' Equity
Losses and loss adjustment expenses 48,908 43,686
Unearned premiums 214,071 171,907
Advance premiums 4,380 4,504
Assumed reinsurance balances payable 218 4,660
Accrued expenses 4,826 4,032
Dividends payable 19
Income taxes payable 543
Deferred income taxes, net 2,740
Long-term debt 129,539 126,932
Other liabilities 17,683 6,772
Total liabilities 419,625 365,795
Commitments and contingencies (Note 17)      
Stockholders' equity:
Preferred stock      
Common stock (no par value, 40,000,000 shares authorized, 10,189,128 and 10,939,268 shares issued and outstanding in 2014 and 2013, respectively)      
Additional paid-in capital 20,465 48,966
Retained income 161,454 110,441
Accumulated other comprehensive income, net of taxes 666 1,114
Total stockholders' equity 182,585 160,521
Total liabilities and stockholders' equity 602,210 526,316
7% Series A Cumulative Convertible Preferred Stock [Member]
Stockholders' equity:
Preferred stock      
Series B Preferred Stock [Member]
Stockholders' equity:
Preferred stock      
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Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2014
Dec. 31, 2013
Available-for-sale Debt securities, Amortized cost $ 96,163 $ 110,738
Available-for-sale Equity securities, Amortized cost $ 45,387 $ 17,248
Preferred stock, no par value      
Preferred stock, authorized 18,100,000 18,100,000
Preferred stock, issued 0 0
Preferred stock, outstanding 0 0
Common stock, no par value      
Common stock, shares authorized 40,000,000 40,000,000
Common stock, shares issued 10,189,128 10,939,268
Common stock, outstanding 10,189,128 10,939,268
7% Series A Cumulative Convertible Preferred Stock [Member]
Preferred stock, liquidation preference, per share $ 10 $ 10
Preferred stock, no par value      
Preferred stock, authorized 1,500,000 1,500,000
Preferred stock, issued 0 110,684
Preferred stock, outstanding 0 110,684
Series B Preferred Stock [Member]
Preferred stock, no par value      
Preferred stock, authorized 400,000 400,000
Preferred stock, issued 0 0
Preferred stock, outstanding 0 0
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Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Revenue
Gross premiums earned $ 365,488 $ 337,113 $ 233,607
Premiums ceded (113,423) (102,865) (75,939)
Net premiums earned 252,065 234,248 157,668
Net investment income 4,781 1,469 980
Policy fee income 2,820 3,098 2,538
Net realized investment gains 4,735 80 276
Gain on bargain purchase 179
Other 1,707 2,193 1,424
Total revenue 266,108 241,088 163,065
Expenses
Losses and loss adjustment expenses 79,468 65,123 66,310
Policy acquisition and other underwriting expenses 37,952 31,619 25,930
Salaries and wages 16,483 14,714 10,545
Interest expense 10,453 3,607
Goodwill impairment loss 161
Other operating expenses 20,790 19,572 10,539
Total expenses 165,146 134,635 113,485
Income before income taxes 100,962 106,453 49,580
Income tax expense 38,298 40,891 19,423
Net income 62,664 65,562 30,157
Preferred stock dividends 4 (104) (322)
Income available to common stockholders $ 62,668 $ 65,458 $ 29,835
Basic earnings per common share $ 5.9 $ 5.82 $ 3.45
Diluted earnings per common share $ 5.36 $ 5.63 $ 3.02
Dividends per common share $ 1.1 $ 0.95 $ 0.88
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Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Statement of Comprehensive Income [Abstract]
Net income $ 62,664 $ 65,562 $ 30,157
Change in unrealized (loss) gain on investments:
Net unrealized gain (loss) arising during the period 3,870 (767) 2,571
Other-than-temporary impairment loss charged to investment income 107
Call and repayment losses charged to investment income 28 24 3
Reclassification adjustment for net realized gain (4,735) (80) (276)
Net change in unrealized (loss) gain (730) (823) 2,298
Deferred income taxes on above change 282 317 (886)
Total other comprehensive (loss) income, net of income taxes (448) (506) 1,412
Comprehensive income $ 62,216 $ 65,056 $ 31,569
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Consolidated Statements of Stockholders' Equity (USD $)
In Thousands, except Share data
Total
USD ($)
Share Repurchase Plan [Member]
USD ($)
Common Stock [Member]
Common Stock [Member]
Share Repurchase Plan [Member]
Additional Paid-In Capital [Member]
USD ($)
Additional Paid-In Capital [Member]
Share Repurchase Plan [Member]
USD ($)
Retained Income [Member]
USD ($)
Accumulated Other Comprehensive Income, Net of Tax [Member]
USD ($)
Series A Preferred Stock [Member]
Beginning Balance at Dec. 31, 2011 $ 63,830 $ 29,636 $ 33,986 $ 208
Beginning Balance, shares at Dec. 31, 2011 6,202,485 1,247,700
Net income 30,157 30,157
Total other comprehensive income, net of income taxes 1,412 1,412
Conversion of preferred stock to common stock, shares 1,006,518 (1,006,518)
Issuance of restricted stock, shares 246,320
Exercise of common stock options, value 283 283
Exercise of common stock options, shares 340,000 340,000
Shares surrendered upon exercising common stock options, shares (72,592)
Exercise of common stock warrants, value 11,869 11,869
Exercise of common stock warrants, shares 1,314,806
Common stock dividends (8,063) (8,063)
Preferred stock dividends (322) (322)
Tax benefits on stock-based compensation 1,161 1,161
Issuance of common stock (net of offering costs of $220) 20,082 20,082
Issuance of stock, shares 1,840,000
Stock-based compensation 844 844
Ending Balance at Dec. 31, 2012 121,253 63,875 55,758 1,620
Ending Balance, shares at Dec. 31, 2012 10,877,537 241,182
Net income 65,562 65,562
Total other comprehensive income, net of income taxes (506) (506)
Conversion of preferred stock to common stock, shares 130,498 (130,498)
Issuance of restricted stock, shares 612,000
Forfeiture of restricted stock, shares (29,670)
Repurchase and retirement of common stock (963) (963)
Repurchase and retirement of common stock, shares (28,346)
Repurchase of common stock under prepaid forward contract, value (29,923) (29,923)
Repurchase of common stock under prepaid forward contract, shares (622,751)
Equity component on 3.875% convertible senior notes (net of offering costs of $557) 15,900 15,900
Deferred taxes on debt discount (6,348) (6,348)
Common stock dividends (10,775) (10,775)
Preferred stock dividends (104) (104)
Tax benefits on stock-based compensation 1,060 1,060
Stock-based compensation 5,365 5,365
Ending Balance at Dec. 31, 2013 160,521 48,966 110,441 1,114
Ending Balance, shares at Dec. 31, 2013 10,939,268 110,684
Net income 62,664 62,664
Total other comprehensive income, net of income taxes (448) (448)
Conversion of preferred stock to common stock, shares 107,298 (107,298)
Issuance of restricted stock, shares 108,720
Exercise of common stock options, value 125 125
Exercise of common stock options, shares 50,000 50,000
Forfeiture of restricted stock, shares (10,840)
Repurchase and retirement of common stock (643) (38,354) (643) (38,354)
Repurchase and retirement of common stock, shares (990,701) (14,617) (990,701)
Redemption of Series A preferred stock (34) (34)
Redemption of Series A preferred stock, shares (3,386)
Deferred taxes on debt discount 215 215
Common stock dividends (11,655) (11,655)
Derecognition of preferred stock dividends payable 4 4
Tax benefits on stock-based compensation 2,080 2,080
Stock-based compensation 8,110 8,110
Ending Balance at Dec. 31, 2014 $ 182,585 $ 20,465 $ 161,454 $ 666
Ending Balance, shares at Dec. 31, 2014 10,189,128 0
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Consolidated Statements of Stockholders' Equity (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Stated interest rate on convertible senior notes 3.88%
Offering costs for convertible senior notes $ 557
Issuance of stock, offering costs 220
Common Stock [Member]
Issuance of stock, offering costs 220
Additional Paid-In Capital [Member]
Stated interest rate on convertible senior notes 3.88%
Offering costs for convertible senior notes 557
Issuance of stock, offering costs $ 220
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Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2014
Dec. 31, 2013
Dec. 31, 2012
Cash flows from operating activities:
Net income $ 62,664 $ 65,562 $ 30,157
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation 8,110 5,365 844
Net amortization of discounts and premiums on investments in fixed-maturity securities 782 336 279
Depreciation and amortization 4,958 2,103 1,591
Deferred income tax (benefit) expense (4,742) 557 (2,366)
Net realized investment gains (4,735) (80) (276)
Other-than-temporary impairment charge 107
Income from real estate investments (85)
Loss from joint venture 23
Loss from limited partnership interest 90
Gain on bargain purchase (179)
Goodwill impairment loss 161
(Gain) loss on sale of real estate investment (1) 20
Loss on disposal of real estate investment 6
Foreign currency remeasurement loss 29 69 23
Changes in operating assets and liabilities:
Premiums and reinsurance receivable (1,150) (4,032) 3,267
Advance premiums (124) 475 1,897
Prepaid reinsurance premiums (6,030) (18,954) 5,057
Accrued interest and dividends receivable 74 (758) 33
Other assets (19,845) (9,728) (803)
Assumed reinsurance balances payable (4,442) 3,283 1,377
Deferred policy acquisition costs (943) (4,039) 2,289
Losses and loss adjustment expenses 5,222 2,518 13,744
Unearned premiums 42,164 17,658 45,572
Income taxes (3,167) (8,270) 3,857
Accrued expenses and other liabilities 9,770 3,381 (258)
Net cash provided by operating activities 88,729 55,472 106,266
Cash flows from investing activities:
Cash consideration paid for acquired business, net of cash acquired (8,157)
Investment in real estate under acquisition, development, and construction arrangement (2,803)
Investment in limited partnership interest (2,640)
Investment in joint venture (4,500)
Purchase of property and equipment (453) (3,433) (1,196)
Purchase of real estate investments (413) (565) (1,600)
Purchase of fixed-maturity securities (83,365) (82,907) (10,128)
Purchase of equity securities (44,257) (11,308) (6,410)
Proceeds from sales of fixed-maturity securities 98,365 1,749 8,991
Proceeds from calls, repayments and maturities of fixed-maturity securities 4,603 3,607 3,127
Proceeds from sales of equity securities 16,810 2,809 1,735
Proceeds from sales of property and equipment 1
Proceeds from sales of real estate investments 1 7
Time deposits, net 12,427
Net cash used in investing activities (18,652) (90,040) (1,211)
Cash flows from financing activities:
Net proceeds from the issuance of common stock 20,082
Proceeds from the exercise of common stock options 125 283
Proceeds from the exercise of common stock warrants 11,869
Proceeds from the issuance of long-term debt 143,250
Cash dividends paid (12,355) (10,902) (8,561)
Cash dividends received under share repurchase forward contract 685
Repurchases of common stock (643) (30,886)
Repurchases of common stock under share repurchase plan (38,354)
Redemption of Series A preferred stock (34)
Debt issuance costs (234) (4,770) (35)
Tax benefits on stock-based compensation 2,080 1,060 1,161
Net cash (used) provided by financing activities (48,730) 97,752 24,799
Effect of exchange rate changes on cash (29) 5
Net (decrease) increase in cash and cash equivalents 21,318 63,184 129,859
Cash and cash equivalents at beginning of year 293,398 230,214 100,355
Cash and cash equivalents at end of year 314,716 293,398 230,214
Supplemental disclosure of cash flow information:
Cash paid for income taxes 43,902 47,435 16,710
Cash paid for interest 6,258 2,531
Non-cash investing and financing activities:
Unrealized (loss) gain on investments in available-for-sale securities, net of tax (448) (506) 1,412
Series A Preferred Stock [Member]
Non-cash investing and financing activities:
Conversion of Series A preferred stock to common stock $ 972 $ 1,170 $ 9,121
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Nature of Operations
12 Months Ended
Dec. 31, 2014
Accounting Policies [Abstract]
Nature of Operations

Note 1 — Nature of Operations

HCI Group, Inc. together with the insurance and non-insurance subsidiaries (“HCI” or the “Company”), is primarily engaged in the property and casualty insurance business through Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”), its principal operating subsidiary. HCPCI is authorized to underwrite various homeowners’ property and casualty insurance products in the state of Florida. HCPCI’s operations are supported by the following HCI subsidiaries:

 

    Homeowners Choice Managers, Inc. – acts as managing general agent and provides marketing, underwriting, claims settlement, accounting and financial services to HCPCI;

 

    Southern Administration, Inc. – provides policy administration services to HCPCI; and

 

    Claddaugh Casualty Insurance Company, Ltd. – participates in the reinsurance program to HCPCI.

Homeowners Choice Assurance Company, Inc. was organized and was approved and licensed by the Alabama Department of Insurance in August 2013. During 2014, HCPCI was also approved to underwrite excess and surplus lines insurance products in Maryland, New Jersey, South Carolina, and Virginia.

In addition, HCI has various subsidiaries primarily engaged in the businesses of owning and leasing real estate, operating marina facilities and one restaurant, and developing software.

The Company reports its operations under one business segment.

The Company obtained a majority of its policies through participation in a “take-out program” with Citizens Property Insurance Corporation (“Citizens”), a Florida state supported insurer. Policies were obtained in eleven separate assumption transactions with Citizens that took place from July 2007 through December 2014. The Company is required to offer renewals on the policies acquired for a period of three years subsequent to the initial expiration of the assumed policies. During the first full year after assumption, such renewals are required to have rates that are equivalent to or less than the rates charged by Citizens. The Company’s premium revenue since inception comes from these assumptions and one additional assumption from HomeWise Insurance Company (“HomeWise”) in November 2011 through which the Company acquired the Florida policies of HomeWise.

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Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2014
Accounting Policies [Abstract]
Summary of Significant Accounting Policies

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Principles of Consolidation. The accompanying consolidated financial statements include the accounts of HCI and its majority-owned and controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, the Company evaluates its relationships or investments for consolidation pursuant to authoritative accounting guidance related to the consolidation of variable interest entities (“VIE”) under the Variable Interest Model prescribed by the Financial Accounting Standards Board (“FASB”). A VIE is consolidated when the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. When a VIE is not consolidated, the Company uses the equity method to account for the investment. Under this method, the carrying value is generally the Company’s share of the net asset value of the unconsolidated entity, and changes in the Company’s share of the net asset value are recorded in net investment income.

Use of Estimates. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from these estimates. Material estimates that are particularly susceptible to significant change in the near term are primarily related to losses and loss adjustment expenses, reinsurance with retrospective provisions, deferred income taxes, and stock-based compensation expense.

Cash and Cash Equivalents. The Company considers all short-term highly liquid investments with original maturities of less than three months to be cash and cash equivalents. At December 31, 2014 and 2013, cash and cash equivalents consist of cash on deposit with financial institutions and securities brokerage firms and also includes a $300 statutory deposit held by the State of Florida for the benefit of all policyholders.

Investments in Available-for-Sale Securities. Investments consist of fixed-maturity and equity securities. Fixed-maturity securities include debt securities and redeemable preferred stock. Securities may be classified as either trading, held to maturity or available-for-sale. The Company’s available-for-sale securities are carried at fair value. Temporary changes in the fair value of available-for-sale securities are excluded from net investment income and reported in stockholders’ equity as a component of accumulated other comprehensive income, net of deferred income taxes. Realized investment gains and losses from sales are recorded on the trade date and are determined using the first-in first-out (FIFO) method. Investment income is recognized as earned and discounts or premiums arising from the purchase of debt securities are recognized in investment income using the interest method over the estimated remaining term of the security. Gains and losses from call redemptions and repayments are charged to investment income.

 

The Company reviews all securities for other-than-temporary impairment on a quarterly basis and more frequently when economic or market conditions warrant such review. When the fair value of any investment is lower than its cost, an assessment is made to determine whether the decline is temporary or other-than-temporary. If the decline is determined to be other-than-temporary, the investment is written down to fair value and an impairment charge is recognized in income in the period in which the Company makes such determination. For a debt security that the Company does not intend to sell nor is it more likely than not that the Company will be required to sell before recovery of its amortized cost, only the credit loss component of the impairment is recognized in income, while the impairment related to all other factors is recognized in other comprehensive income. The Company considers various factors in determining whether an individual security is other-than-temporarily impaired (see Note 4 — “Investments”).

Limited Partnership Investment. The Company has interest in a limited partnership that is not registered under the United Stated Securities Act of 1933, as amended, the securities laws of any state or the securities laws of any other jurisdictions. The partnership interest cannot be resold in the public market and any withdrawal is subject to the terms and conditions of the partnership agreement. The Company has no influence over partnership operating and financial policies. The Company did not elect the fair value option and, therefore, uses the equity method to account for this investment (see Note 4 — “Investments”). The Company will generally recognize its share of the limited partnership’s earnings on a three- to six-month lag.

Investment in Joint Venture. The Company has a 90% equity interest in a joint venture that was organized to acquire and develop land on which the joint venture partners plan to construct a retail shopping center (see Note 4 — “Investments”) for lease or for sale. The joint venture was determined to be a variable interest entity as it lacks sufficient equity to finance its activities without additional subordinated financial support. Despite having a majority equity interest, the Company does not have a controlling financial interest and, accordingly, is not required to consolidate the joint venture as its primary beneficiary.

In addition, the joint venture agreement contains an embedded purchase option the Company can exercise to purchase the entire interest of the other party to the joint venture after the expiration of a restricted period. The Company determined the embedded purchase option is not required to be bifurcated and fair value accounting at each reporting date is not applicable. Due to the lack of a controlling financial interest and until the embedded purchase option becomes exercisable, the Company uses the equity method rather than consolidation to account for its investment in the joint venture.

Real Estate Investments. Real estate investments consist of an acquisition, development and construction loan agreement (“ADC Arrangement”) and also real estate and the related assets purchased for investment purposes (see Note 4 — “Investments”).

Under the ADC Arrangement, the Company provides financing to a property developer for the acquisition, development, and construction of a retail shopping center. The Company also expects to participate in the residual profit resulting from the ultimate sale or other use of the property. Classification and accounting for the ADC Arrangement as a loan, an investment in real estate, or a joint venture is determined by the Company’s evaluation of the characteristics and the risks and rewards of the ADC Arrangement. If the Company expects to receive more than 50% of the residual profit from the ADC Arrangement and it has characteristics similar to a real estate investment, the costs of the real estate project will be capitalized and interest will be recognized in net investment income.

In addition, the Company considers any rights or features embedded in the ADC Arrangement that may require bifurcation and derivative accounting. Due to its participation in the expected residual profit, which is deemed a variable interest, the Company evaluates its involvements in the design and essential activities of the entity to which the Company provides financing for possible consolidation as the primary beneficiary under the Variable Interest Model.

Any subsequent changes in terms, rights or the developer’s equity interest that may result in a reclassification or a change in the accounting treatment of the ADC Arrangement will be evaluated. The Company will continually assess the collectability of principal, accrued interest and fees.

Real estate and the related depreciable assets are carried at cost, net of accumulated depreciation, which is included in net investment income and allocated over the estimated useful life of the asset using the straight-line method of depreciation. Real estate is evaluated for impairment when events or circumstances indicate the carrying value of the real estate may not be recoverable.

Deferred policy acquisition costs. Deferred policy acquisition costs (“DAC”) primarily represent commissions paid to outside agents at the time of collection of the policy premium and premium taxes and are amortized over the life of the related policy in relation to the amount of gross premiums earned.

The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value, which gives effect to the gross premium earned, related investment income, unpaid losses and LAE and certain other costs expected to be incurred as the premium is earned.

DAC is reviewed to determine if it is recoverable from future income, including investment income. If such costs are determined to be unrecoverable, they are expensed at the time of determination. The amount of DAC considered recoverable could be reduced in the near term if the estimates of total revenues discussed above are reduced or permanently impaired as a result of the disposition of a line of business. The amount of amortization of DAC could be revised in the near term if any of the estimates discussed above are revised.

Property and Equipment. Property and equipment is stated at cost less accumulated depreciation and amortization, which is included in other operating expenses. Depreciation is calculated on a straight-line basis over the estimated useful lives as follows: building 39 years; computer hardware and software 3 years; office and furniture equipment 3 to 7 years. Leasehold improvements are amortized over the shorter of the lease term or the asset’s useful life. Expenditures for improvements are capitalized to the property accounts. Replacements and maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred.

Impairment of Long-Lived Assets. Long-lived assets, such as property and equipment, are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of long-lived assets by determining whether the assets can be recovered from undiscounted future cash flows. Recoverability of long-lived assets is dependent upon, among other things, the Company’s ability to maintain profitability, so as to be able to meet its obligations when they become due. In the opinion of management, based upon current information and projections, long-lived assets will be recovered over the period of benefit.

Long-Term Debt. Long-term debt is generally classified as a liability and carried at amortized cost, net of any discount. At issuance, a debt instrument with embedded features such as conversion and redemption options is evaluated to determine whether bifurcation and derivative accounting is applicable. If such instrument is not subject to derivative accounting, it is further evaluated to determine if the Company is required to separately account for the liability and equity components.

To determine the carrying values of the liability and equity components at issuance, the Company measures the fair value of a similar liability, including any embedded features other than the conversion option, and assigns such value to the liability component. The liability component’s fair value is then subtracted from the initial proceeds to determine the carrying value of the debt instrument’s equity component, which is included in additional paid-in capital.

Any embedded feature other than the conversion option is evaluated at issuance to determine if it is probable that such embedded feature will be exercised. If the Company concludes that the exercisability of that embedded feature is not probable, the embedded feature is considered to be nonsubstantive and would not impact the initial measurement and expected life of the debt instrument’s liability component.

Transaction costs related to issuing a debt instrument that embodies both liability and equity components are allocated to the liability and equity components in proportion to the allocation of the proceeds and accounted for as debt issuance costs and equity issuance costs, respectively. Debt issuance costs are recognized in other assets. Both debt discount and deferred debt issuance costs are amortized to interest expense over the expected life of the debt instrument using the effective interest method. Equity issuance costs are a reduction to the proceeds allocated to the equity component.

Prepaid Share Repurchase Forward Contract. A prepaid share repurchase forward contract is generally a contract that allows the Company to buy from the counterparty a specified number of common shares at a specific time at a given forward price. The Company entered into such a contract in December 2013 and evaluated the characteristics of the forward contract to determine whether it met the definition of a derivative financial instrument pursuant to U.S. GAAP. The Company determined the forward contract is an equity contract on the Company’s common shares requiring physical settlement in common shares of the Company. As such, the transaction is recognized as a component of stockholders’ equity with a charge to additional paid-in capital equal to the prepayment amount, which represents the cash paid to the counterparty. There will be no recognition in earnings for changes in fair value in subsequent periods.

Losses and Loss Adjustment Expenses. Reserves for losses and loss adjustment expenses (“LAE”) are determined by establishing liabilities in amounts estimated to cover incurred losses and LAE. Such reserves are determined based on the assessment of claims reported and the development of pending claims. These reserves are based on individual case estimates for the reported losses and LAE and estimates of such amounts that are incurred but not reported. Changes in the estimated liability are charged or credited to income as the losses and LAE are settled.

 

The estimates of unpaid losses and LAE are subject to trends in claim severity and frequency and are continually reviewed. As part of the process, the Company reviews historical data and considers 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 LAE. 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.

Advance Premiums. Premium payments received prior to the policy effective date are recorded as advance premiums. Once the policy is in force, the premiums are recorded as described under “Premium Revenue” below.

Reinsurance. In the normal course of business, the Company seeks to reduce the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. The Company contracts with a number of reinsurers to secure its annual reinsurance coverage, which generally becomes effective June 1st each year. The Company purchases reinsurance each year taking into consideration probable maximum losses and reinsurance market conditions. Amounts recoverable from reinsurers would be estimated in a manner consistent with the applicable reinsurance contract(s). Reinsurance premiums and reserves related to reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums ceded to other companies have been reported as a reduction of gross premiums earned. Prepaid reinsurance premiums represent the unexpired portion of premiums ceded to reinsurers.

Certain of the Company’s current contracts contain retrospective provisions including terms and conditions that adjust premiums, increase the amount of future coverage, or result in profit commissions based on the loss experience under the contracts. In such cases, a with-and-without method is used to estimate the asset or liability amount to be recognized at each reporting date. The amount of the estimate is the difference between the net contract costs before and after the loss experience under the contract. Estimates related to premium adjustments, profit commissions and coverage changes are recognized in ceded premiums earned. These estimates are reviewed monthly based on the loss experience to date and as adjustments become necessary. Such adjustments are reflected in the Company’s current operations and recorded in other assets until received upon the expiration of the contracts.

Premium Revenue. Premium revenue is earned on a daily pro-rata basis over the term of the policies and is included in gross premiums earned. Unearned premiums represent the portion of the premium related to the unexpired policy term. The Company reviews its policy detail and establishes an allowance for any amount outstanding for more than 90 days. As of December 31, 2014 and 2013, there was no allowance required.

 

Policy Fees. Policy fees represent nonrefundable fees for insurance coverage, which are intended to reimburse a portion of the costs incurred to underwrite the policy. Effective October 1, 2013 on a prospective basis, policy fees are recognized ratably over the policy coverage period. Prior to October 1, 2013, the fees were recognized in income when the policy was written on the basis that the revenues were appropriately matched to the Company’s incremental direct costs related to policy underwriting.

Florida Insurance Guaranty Association Assessments. The Company may be assessed by the state guaranty association. The assessments are intended to be used for the payment of covered claims of insolvent insurance entities. The assessments are generally based on a percentage of premiums written during or following the year of insolvency. Liabilities are recognized when the assessments are probable to be imposed on the premiums on which they are expected to be based and the amounts can be reasonably estimated. The Company is permitted by Florida statutes to recover the entire amount of assessments from in-force and future policyholders through policy surcharges. U.S. GAAP provides that the Company should record an asset based on the amount of written or obligated-to-write premiums and limited to the amounts recoverable over the life of the in-force policies.

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

Income Taxes. The Company files consolidated federal and state income tax returns and allocates taxes among its wholly owned subsidiaries in accordance with a written tax-allocation agreement.

The Company accounts for income taxes in accordance with U.S. GAAP, resulting in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term “more likely than not” means a likelihood of more than fifty percent; the terms “examined” and “upon examination” also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. As of December 31, 2014, management is not aware of any uncertain tax positions that would have a material effect on the Company’s consolidated financial statements.

Fair Value of Financial Instruments. The carrying amounts for the Company’s cash and cash equivalents approximate their fair values at December 31, 2014 and 2013. Fair values for securities are based on the framework for measuring fair value established by U.S. GAAP (see Note 5 — “Fair Value Measurements”).

Stock-Based Compensation. The Company accounts for stock-based compensation under the fair value recognition provisions of U.S. GAAP which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and restricted stock issuances based on estimated fair values. In accordance with U.S. GAAP, the fair value of stock-based awards is generally recognized as compensation expense over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The Company uses a straight-line attribution method for all grants that include only a service condition. The Company’s restricted stock awards include service, market and performance conditions. As a result, restricted stock grants with market condition are expensed over the derived service period for each separately vesting tranche. For awards with performance conditions, the Company recognizes compensation expense over the requisite service period when it is probable that the performance condition will be achieved. Compensation expense related to all awards is included in other operating expense.

Basic and diluted earnings per common share. Basic earnings per common share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. U.S. GAAP requires the inclusion of restricted stock as participating securities since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. During periods of net income, participating securities are allocated a proportional share of net income determined by dividing total weighted-average participating securities by the sum of total weighted-average common shares and participating securities (the “two-class method”). Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted as well as participating equities. See Note 13 — “Earnings Per Share” for potentially dilutive securities at December 31, 2014, 2013 and 2012.

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

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Recent Accounting Pronouncements
12 Months Ended
Dec. 31, 2014
Accounting Changes and Error Corrections [Abstract]
Recent Accounting Pronouncements

Note 3 — Recent Accounting Pronouncements

Accounting Standards Update No. 2014-15. In August 2014, the FASB issued Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Presentation of Financial Statements – Going Concern (Subtopic 205-40). The purpose of this update is to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 applies to all reporting entities and is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. Adoption of this guidance is expected to have no effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2014-12. In June 2014, the FASB issued Accounting Standards Update No. 2014-12 (“ASU 2014-12”), Compensation – Stock Compensation (Topic 718). ASU 2014-12 applies to all reporting entities that grant employees share-based payments in which the terms of the award provide that a performance target affecting vesting could be achieved after the requisite service period. ASU 2014-12 is effective for all entities for reporting periods beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. Although the Company has share-based awards with performance targets, such awards do not permit vesting when a performance target is achieved after termination of an employee’s service. Adoption of this guidance had no effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2014-09. In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. ASU 2014-09 also amends the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer to be consistent with the guidance in this ASU. ASU 2014-09 is effective for public entities for reporting periods beginning after December 15, 2016. Early adoption is not permitted. While the guidance specifically excludes revenues from insurance contracts, investments and financial instruments from the scope of the new guidance, the guidance will be applicable to the Company’s other forms of revenue not specifically exempted from the guidance. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

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Investments
12 Months Ended
Dec. 31, 2014
Investments, Debt and Equity Securities [Abstract]
Investments

Note 4 — Investments

The Company holds investments in fixed-maturity securities and equity securities that are classified as available-for-sale. At December 31, 2014 and 2013, the cost or 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:

 

     Cost or
Amortized
Cost
     Gross
Unrealized
Gain
     Gross
Unrealized
Loss
     Estimated
Fair

Value
 

As of December 31, 2014

           

Fixed-maturity securities

           

U.S. Treasury and U.S. government agencies

   $ 3,747       $ 9       $ (8    $ 3,748   

Corporate bonds

     24,342         57         (430      23,969   

Mortgage-backed securities

     2,138         4         (3      2,139   

State, municipalities, and political subdivisions

     56,336         1,205         (38      57,503   

Redeemable preferred stock

     9,433         178         (54      9,557   

Other

     167         1         —           168   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  96,163      1,454      (533   97,084   

Equity securities

  45,387      1,694      (1,531   45,550   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

$ 141,550    $ 3,148    $ (2,064 $ 142,634   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2013

Fixed-maturity securities

U.S. Treasury and U.S. government agencies

$ 4,549    $ 37    $ (22 $ 4,564   

Corporate bonds

  25,139      484      (219   25,404   

Mortgage-backed securities

  10,929      499      (96   11,332   

State, municipalities, and political subdivisions

  69,715      917      (181   70,451   

Redeemable preferred stock

  406      5      (11   400   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  110,738      1,942      (529   112,151   

Equity securities

  17,248      920      (519   17,649   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

$ 127,986    $ 2,862    $ (1,048 $ 129,800   
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2014 and 2013, $113 and $105, respectively, of U.S. Treasury securities relate to a statutory deposit held in trust for the Treasurer of Alabama.

Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The scheduled contractual maturities of fixed-maturity securities at December 31, 2014 and 2013 are as follows:

 

     December 31,  
     2014      2013  
     Amortized
Cost
     Estimated
Fair
Value
     Amortized
Cost
     Estimated
Fair

Value
 

Available-for-sale

           

Due in one year or less

   $ 715       $ 721       $ 2,366       $ 2,381   

Due after one year through five years

     25,973         26,093         24,829         25,145   

Due after five years through ten years

     57,157         57,560         59,083         59,582   

Due after ten years

     10,180         10,571         13,531         13,711   

Mortgage-backed securities

     2,138         2,139         10,929         11,332   
  

 

 

    

 

 

    

 

 

    

 

 

 
$ 96,163    $ 97,084    $ 110,738    $ 112,151   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Sales of Available-for-Sale Securities

Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the years ended December 31, 2014, 2013 and 2012 were as follows:

 

     Proceeds      Gross
Realized
Gains
     Gross
Realized
Losses
 

Year ended December 31, 2014

        

Fixed-maturity securities

   $ 98,365       $ 4,096       $ (98
  

 

 

    

 

 

    

 

 

 

Equity securities

$ 16,810    $ 1,372    $ (635
  

 

 

    

 

 

    

 

 

 

Year ended December 31, 2013

Fixed-maturity securities

$ 1,749    $ 92    $ (4
  

 

 

    

 

 

    

 

 

 

Equity securities

$ 2,809    $ 155    $ (163
  

 

 

    

 

 

    

 

 

 

Year ended December 31, 2012

Fixed-maturity securities

$ 8,991    $ 421    $ (6
  

 

 

    

 

 

    

 

 

 

Equity securities

$ 1,735    $ 91    $ (230
  

 

 

    

 

 

    

 

 

 

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 December 31, 2014 and 2013, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:

 

     Less Than Twelve Months      Twelve Months or
Greater
     Total  
     Gross
Unrealized
Loss
    Estimated
Fair

Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
 

As of December 31, 2014

              

Fixed-maturity securities

              

U.S. treasury and U.S. government agencies

   $ (8   $ 2,485       $ —        $ —         $ (8   $ 2,485   

Corporate bonds

     (428     12,929         (2     998         (430     13,927   

Mortgage-backed securities

     (3     1,018         —          —           (3     1,018   

State, municipalities, and political subdivisions

     (19     3,144         (19     202         (38     3,346   

Redeemable preferred stock

     (54     2,586         —          —           (54     2,586   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total fixed-maturity securities

  (512   22,162      (21   1,200      (533   23,362   

Equity securities

  (1,449   18,848      (82   4,619      (1,531   23,467   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

$ (1,961 $ 41,010    $ (103 $ 5,819    $ (2,064 $ 46,829   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2014, there were 94 securities in an unrealized loss position. Of these securities, 9 securities had been in an unrealized loss position for 12 months or greater.

 

     Less Than Twelve Months      Twelve Months or
Greater
     Total  
     Gross
Unrealized
Loss
    Estimated
Fair

Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
 

As of December 31, 2013

              

Fixed-maturity securities

              

U.S. treasury and U.S. government agencies

   $ (22   $ 3,291       $ —        $ —         $ (22   $ 3,291   

Corporate bonds

     (212     9,502         (7     230         (219     9,732   

Mortgage-backed securities

     (96     2,179         —          —           (96     2,179   

State, municipalities, and political subdivisions

     (181     20,233         —          —           (181     20,233   

Redeemable preferred stock

     (11     239         —          —           (11     239   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total fixed-maturity securities

  (522   35,444      (7   230      (529   35,674   

Equity securities

  (273   10,742      (246   1,069      (519   11,811   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

$    (795 $ 46,186    $ (253 $ 1,299    $ (1,048 $ 47,485   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2013, there were 100 securities in an unrealized loss position. Of these securities, 8 securities had been in an unrealized loss position for 12 months or greater.

Based on the review, the Company believes the unrealized losses on investments in fixed-maturity securities were caused by interest rate changes. 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 these securities and it is not more likely than not that the Company will be required to sell these securities until a market price recovery or maturity, the Company does not consider any of its fixed-maturity securities to be other-than-temporarily impaired at December 31, 2014 and 2013.

 

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. In the fourth quarter of 2014, the Company determined that one equity security was other-than-temporarily impaired after considering the length of time this security had been in an unrealized loss position, the extent of the decline and its near term prospect of recovery. As a result, the Company recognized an impairment charge of $107 in net investment income.

Limited Partnership Investment

During the fourth quarter of 2014, the Company entered into a subscription agreement to invest up to a maximum of $12,500 for a 16.5% limited partnership interest. The primary investment strategy of the partnership is to invest in senior secured loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. Except under certain circumstances, the Company is not permitted to withdraw any amount of its capital investment for a minimum of 10 years. The Company’s involvement is limited to that of a passive investor. As such, the Company is not the primary beneficiary and does not consolidate the partnership. For the year ended December 31, 2014, the Company recognized a $90 investment loss in net investment income. At December 31, 2014, the Company’s contributed capital to the partnership is $2,640 and its carrying value and maximum exposure to loss is $2,550.

Investment in Joint Venture

In September 2014, Melbourne FMA, LLC, a wholly owned subsidiary, entered into a joint venture agreement with FMKT Sponsor, LLC to organize FMKT Mel JV, LLC (“FMJV”), a Florida limited liability company. Melbourne FMA and FMKT Sponsor contributed cash of $4,500 and $500, respectively, for equity interests in FMJV of 90% and 10%, respectively. The joint venture will acquire and develop land on which the joint venture partners plan to construct a retail shopping center for lease or for sale in Melbourne, Florida. FMJV is deemed a VIE due to its lack of sufficient equity to finance its operations without direct or indirect additional financial support from parties to the joint venture. Although Melbourne FMA holds a majority interest in FMJV, certain major economic decisions specified in the agreement are not under Melbourne FMA’s control. As a result, Melbourne FMA is not the primary beneficiary and is not required to consolidate FMJV.

In addition, FMJV is contractually required to engage affiliates of FMKT Sponsor to manage and develop the project, and also operate the property while the joint venture agreement is in effect. The agreement includes FMKT Sponsor’s right of sale and first offer as well as an embedded option under which Melbourne FMA can purchase the entire interest of FMKT Sponsor. Under the right of sale and first offer, Melbourne FMA can either choose to purchase the interest of FMKT Sponsor in the developed property or approve the sale of the developed property to a third party buyer. Either party can initiate these provisions after the expiration of a restricted period.

 

At December 31, 2014, the Company’s maximum exposure to loss relating to the VIE was $4,477 representing the carrying value of the investment. At December 31, 2014, an undistributed $23 loss from equity method investees was included in consolidated retained income. The joint venture partners received no distributions during 2014. The following tables provide summarized operating results and the financial position of FMJV:

 

     Year Ended
December 31, 2014
 
     (Unaudited)  

Operating results:

  

Revenue

   $ —     

Operating expenses

     25   
  

 

 

 

Net loss

$ (25
  

 

 

 

Melbourne FMA’s share of net loss*

$ (23

 

* Included in net investment income in the Company’s consolidated statements of income.

 

     December 31,
2014
 
     (Unaudited)  

Balance Sheet:

  

Construction in progress - real estate

   $ 3,612   

Cash

     1,323   

Other

     40   
  

 

 

 

Total assets

$ 4,975   
  

 

 

 

Other liabilities

  —     

Members’ capital

  4,975   
  

 

 

 

Total liabilities and members’ capital

$ 4,975   
  

 

 

 

Investment in joint venture, at equity

$ 4,477   

Real Estate Investments

Real estate investments consist of the ADC Arrangement and the Company’s real estate portfolio and the related assets of the marina and restaurant facilities. Operating activities related to the Company’s real estate investments include leasing of office and retail space to tenants, wet and dry boat storage, a restaurant, and fuel services with respect to marina clients and recreational boaters.

 

Real estate investments consist of the following as of December 31, 2014 and 2013:

 

     December 31,  
     2014      2013  

Land

   $ 11,476       $ 11,299   

Land improvements

     1,425         1,351   

Building

     3,097         3,022   

Other

     1,359         1,262   
  

 

 

    

 

 

 

Total, at cost

  17,357      16,934   

Less: accumulated depreciation and amortization

  (1,107   (706
  

 

 

    

 

 

 

Real estate, net

  16,250      16,228   

ADC Arrangement classified as real estate investment

  2,888      —     
  

 

 

    

 

 

 

Real estate investments

$ 19,138    $ 16,228   
  

 

 

    

 

 

 

Depreciation and amortization expense for other investments was $402, $388 and $279, respectively, for the years ended December 31, 2014, 2013 and 2012.

ADC Arrangement

In June 2014, the Company’s wholly owned subsidiary, Greenleaf Capital, LLC, entered into an ADC Arrangement under which it agreed to provide financing up to a maximum of $9,785 for the acquisition, development and construction of a retail shopping center and appurtenant facilities. Greenleaf Capital has an option to purchase the property when the construction project is completed contingent upon tenant rental commitments for at least 90% of rentable space being secured by the developer. The purchase price is calculated at maturity of the loan using a predetermined capitalization rate and the projected net operating income of the developed property. The loan has an initial term of 24 months and can be extended for an additional 12 months if the purchase option is not exercised by Greenleaf Capital. Prepayment is not permitted while the ADC Arrangement is in effect. The loan bears a fixed annual interest rate of 6% due monthly in arrears. The loan agreement is secured by a) a first mortgage on the land and improvements, b) assignment of all leases, rents, issues, and profits from the land and improvements, and c) personal guarantees.

Under this ADC Arrangement, Greenleaf Capital will provide substantially all necessary funds to complete the development and Greenleaf Capital will receive the entire residual profit of the developed property if it exercises the purchase option. The developer may make multiple draws on the credit facility as the construction progresses. Based on the characteristics of this ADC Arrangement which are similar to those of an investment, combined with the expected residual profit being greater than 50%, the arrangement is accounted for and reported in the balance sheet as a real estate investment. All project costs associated with the ADC Arrangement are capitalized. The loan commitment fee received by Greenleaf Capital is deferred and recognized in investment income on a straight-line basis over the term of the loan agreement.

Because of the purchase option and the substantial financial support provided by Greenleaf Capital, the developer who has no equity interest in the property is a VIE. However, Greenleaf Capital’s involvement is solely as the lender on the mortgage loan with protective rights as the lender. Greenleaf Capital does not have power to direct the activities that most significantly impact economic performance of the VIE. As a result, Greenleaf Capital is not the primary beneficiary and is not required to consolidate the VIE. At December 31, 2014, the Company’s maximum exposure to loss relating to the VIE was $2,888 representing the carrying value of the ADC Arrangement.

 

In addition, Greenleaf Capital determined that the option to purchase the entire developed property is not a derivative financial instrument pursuant to U.S. GAAP. As such, the embedded feature is not required to be bifurcated and the fair value accounting for the embedded feature at each reporting date is not applicable.

Net Investment Income (Loss)

Net investment income (loss), by source, is summarized as follows:

 

     Years Ended December 31,  
     2014      2013      2012  

Available-for-sale securities:

        

Fixed-maturity securities

   $ 3,339       $ 1,868       $ 1,464   

Equity securities

     2,364         499         492   

Other-than-temporary impairment charge

     (107      —           —     

Investment expense

     (436      (210      (150

Limited partnership investment

     (90      —           —     

Time deposits

     —           —           357   

Real estate investments

     (955      (1,045      (1,334

Cash and cash equivalents

     666         357         151   
  

 

 

    

 

 

    

 

 

 
$ 4,781    $ 1,469    $ 980   
  

 

 

    

 

 

    

 

 

 

At December 31, 2014, $234,025 or 74.4% of the Company’s cash and cash equivalents were deposited at three national banks and included $48,674 in three custodial accounts. At December 31, 2013, $241,378 or 82.3% of the Company’s cash and cash equivalents were deposited at three national banks and included $22,252 in two custodial accounts.

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Fair Value Measurements
12 Months Ended
Dec. 31, 2014
Fair Value Disclosures [Abstract]
Fair Value Measurements

Note 5 — Fair Value Measurements

The Company records and discloses certain financial assets at their estimated fair value. 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.

Valuation Methodology

Cash and cash equivalents

Cash and cash equivalents primarily consist of money-market funds. Their carrying value approximates fair value due to the short maturity and high liquidity of these funds.

 

Available-for-sale securities

Estimated fair values of the Company’s available-for-sale securities are determined in accordance with U.S. GAAP, 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 estimated fair values for 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.

ADC Arrangement Classified as Real Estate Investment

As described in Note 4 — “Investments” under ADC Arrangement, the ADC Arrangement represents a financing agreement with a purchase option between Greenleaf Capital and a property developer. Based on the characteristics of this ADC Arrangement which are similar to those of an investment, combined with the expected residual profit being greater than 50%, the arrangement is included in real estate investments at its carrying value in the balance sheet. Projected future cash inflows at maturity are discounted using a prevailing borrowing rate to estimate its fair value that relies on Level 3 inputs.

Limited Partnership Investment

As described in Note 4 — “Investments” under Limited Partnership Investment, the Company entered into a subscription agreement to invest up to a maximum of $12,500 for a 16.5% limited partnership interest. The initial contribution was made in December 2014. Valuation of the Company’s limited partnership interest will be based upon the net asset value provided by the fund manager. The net asset value will be on a three- to six-month lag and was not available as of December 31, 2014 as the partnership was newly formed during the quarter ended December 31, 2014.

 

Long-term debt

Long-term debt includes the Company’s 8% senior notes due 2020 and 3.875% convertible senior notes due 2019. The 8% senior notes were initially sold to the public in January 2013 and trade on the New York Stock Exchange. The estimated fair value of the 8% senior notes is based on the closing market price on December 31, 2014. The 3.875% convertible senior notes were sold in a private offering completed on December 30, 2013. The fair value of the 3.875% convertible senior notes is estimated using a discounted cash flow method that relies on Level 3 inputs.

Assets Measured at Estimated Fair Value on a Recurring Basis:

The following tables present information about the Company’s financial assets measured at estimated fair value on a recurring basis. The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of December 31, 2014 and 2013:

 

     Fair Value Measurements Using         
     (Level 1)      (Level 2)      (Level 3)      Total  

As of December 31, 2014

           

Financial Assets:

           

Cash and cash equivalents

   $ 314,716       $ —         $ —         $ 314,716   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed-maturity securities:

U.S. Treasury and U.S. government agencies

  1,069      2,679      —        3,748   

Corporate bonds

  22,274      1,695      —        23,969   

Mortgage-backed securities

  —        2,139      —        2,139   

State, municipalities, and political subdivisions

  —        57,503      —        57,503   

Redeemable preferred stock

  9,557      —        —        9,557   

Other

  —        168      —        168   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed-maturity securities

  32,900      64,184      —        97,084   

Equity securities

  45,550      —        —        45,550   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

  78,450      64,184      —        142,634   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 393,166    $ 64,184    $ —      $ 457,350   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements Using         
     (Level 1)      (Level 2)      (Level 3)      Total  

As of December 31, 2013

           

Financial Assets:

           

Cash and cash equivalents

   $ 293,398       $ —         $ —         $ 293,398   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed-maturity securities:

U.S. Treasury and U.S. government agencies

  3,520      1,044      —        4,564   

Corporate bonds

  24,476      928      —        25,404   

Mortgage-backed securities

  —        11,332      —        11,332   

State, municipalities, and political subdivisions

  —        70,451      —        70,451   

Redeemable preferred stock

  400      —        —        400   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed-maturity securities

  28,396      83,755      —        112,151   

Equity securities

  17,649      —        —        17,649   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

  46,045      83,755      —        129,800   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 339,443    $ 83,755    $ —      $ 423,198   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

There were no transfers between Level 1, 2 or 3 during the year ended December 31, 2014. During the second quarter of 2013, the Company analyzed its investment portfolio and determined the municipal bonds, which were previously classified as Level 1, should be classified as Level 2 based on the inputs used to measure fair value and the level of market activity in those instruments. As such, transfers into Level 2 from Level 1 were $10,684 during the year ended December 31, 2013.

Assets and Liabilities Carried at Other Than Fair Value

The following tables present fair value information for assets and liabilities that are carried on the balance sheet at amounts other than fair value as of December 31, 2014 and 2013:

 

     Fair Value Measurements Using         
     (Level 1)      (Level 2)      (Level 3)      Total  

As of December 31, 2014

           

Financial Assets:

           

ADC Arrangement classified as real estate investment

   $ —         $ —         $ 2,835       $ 2,835   

Financial Liabilities:

           

Long-term debt:

           

8% Senior notes

   $ —         $ 42,955       $ —         $ 42,955   

3.875% Convertible senior notes

     —           —           93,367         93,367   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

$ —      $ 42,955    $ 93,367    $ 136,322   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements Using         
     (Level 1)      (Level 2)      (Level 3)      Total  

As of December 31, 2013

           

Financial Liabilities:

           

Long-term debt:

           

8% Senior notes

   $ —         $ 43,390       $ —         $ 43,390   

3.875% Convertible senior notes

     —           —           86,630         86,630   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

$ —      $ 43,390    $ 86,630    $ 130,020   
  

 

 

    

 

 

    

 

 

    

 

 

 

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Deferred Policy Acquisition Costs
12 Months Ended
Dec. 31, 2014
Insurance [Abstract]
Deferred Policy Acquisition Costs

Note 6 — Deferred Policy Acquisition Costs

The following table summarizes the activity with respect to deferred policy acquisition costs:

 

     December 31,  
     2014      2013  

Beginning balance

   $ 14,071       $ 10,032   

Policy acquisition costs deferred

     33,861         31,097   

Amortization

     (32,918      (27,058
  

 

 

    

 

 

 

Ending balance

$   15,014    $   14,071   
  

 

 

    

 

 

 

The amount of policy acquisition costs amortized and included in policy acquisition and other underwriting expenses for the years ended December 31, 2014, 2013 and 2012 was $32,918, $27,058 and $18,273, respectively.

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Property and Equipment, net
12 Months Ended
Dec. 31, 2014
Property, Plant and Equipment [Abstract]
Property and Equipment, net

Note 7 — Property and Equipment, net

Property and equipment, net consists of the following:

 

     December 31,  
     2014      2013  

Land

   $ 1,642       $ 1,642   

Building

     7,622         7,596   

Computer hardware and software

     1,617         1,486   

Office furniture and equipment

     1,647         1,407   

Tenant and leasehold improvements

     3,093         3,093   

Other

     691         629   
  

 

 

    

 

 

 

Total, at cost

  16,312      15,853   

Less: accumulated depreciation and amortization

  (4,020   (2,721
  

 

 

    

 

 

 

Property and equipment, net

$   12,292    $   13,132   
  

 

 

    

 

 

 

In February 2013, the Company purchased real estate in Ocala, Florida for a total purchase price of $2,002. At acquisition, the real estate consisted of 1.6 acres of land and a vacant office building with rentable area of approximately 16,000 square feet. The facility is currently used by the Company’s insurance operations and, also, as an alternative location in the event a catastrophic event impacts the Company’s home office and other support operations.

Depreciation and amortization expense under property and equipment was $1,304, $1,151 and $848, respectively, for the years ended December 31, 2014, 2013 and 2012.

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Other Assets
12 Months Ended
Dec. 31, 2014
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Other Assets

Note 8 — Other Assets

The following table summarizes the Company’s other assets:

 

     December 31,  
     2014      2013  

Benefits receivable related to retrospective reinsurance contracts

   $ 28,123       $ 8,815   

Deferred costs related to retrospective reinsurance contracts

     473         194   

Deferred offering costs on senior notes issued in 2013

     3,653         4,305   

Prepaid expenses

     1,444         771   

Other

      1,594          1,729   
  

 

 

    

 

 

 

Total other assets

$   35,287    $   15,814   
  

 

 

    

 

 

 

In June 2014, the Company received $1,485 under the terms of one of the retrospective reinsurance contracts, which terminated May 31, 2014.

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Long-Term Debt
12 Months Ended
Dec. 31, 2014
Debt Disclosure [Abstract]
Long-Term Debt

Note 9 — Long-Term Debt

The following table summarizes the Company’s long-term debt:

 

     December 31,  
     2014      2013  

8% Senior Notes, due January 30, 2020

   $ 40,250       $ 40,250   

3.875% Convertible Senior Notes, due March 15, 2019*

      89,289          86,682   
  

 

 

    

 

 

 

Total long-term debt

$ 129,539    $ 126,932   
  

 

 

    

 

 

 

 

* net carrying value

8% Senior Notes

On January 17, 2013, the Company completed the sale of unsecured senior notes in a public offering for an aggregate principal amount of $35,000. In addition, effective January 25, 2013, the Company received an aggregate principal amount of $5,250 pursuant to the underwriters’ exercise of the over-allotment option. The offering was made pursuant to the Company’s effective registration statement on Form S-3, as amended (Registration Statement No. 333-185228) and the prospectus supplement dated January 10, 2013. The combined net proceeds were $38,690 after underwriting and issuance costs of approximately $1,560, of which $1,525 was paid during the year ended December 31, 2013. The notes will mature on January 30, 2020 and bear interest at a fixed annual rate of 8% payable quarterly on January 30, April 30, July 30 and October 30, commencing on April 30, 2013. The notes may be redeemed, in whole or in part, at any time on and after January 30, 2016 upon not less than 30 or more than 60 days’ notice. The redemption price will be equal to 100% of the principal amount redeemed plus accrued and unpaid interest. Additionally, the Company may, at any time, repurchase the senior notes at any price in the open market and may hold, resell or surrender the notes for cancellation.

The senior notes rank on parity with all of the Company’s other existing and future senior unsecured obligations. In addition, to the extent the senior notes are unsecured, they also rank junior in right of payment to any secured debt that the Company may have outstanding to the extent of the value of the assets securing such debt.

The senior notes contain customary restrictive covenants relating to merger, modification of the indenture, subordination, issuance of debt securities and sale of assets, the most significant of which include limitations with respect to certain designated subsidiaries on the incurrence of additional indebtedness or guarantees secured by any security interest on any shares of their capital stock. The senior note covenants also limit the Company’s ability to sell or otherwise dispose of any shares of capital stock of such designated subsidiaries. The senior note covenants do not contain any restrictions on the Company’s payment or declaration of dividends nor require a sinking fund to be established for the purpose of redemption.

Interest expense with respect to the senior notes was approximately $3,403 and $3,228, respectively, for the years ended December 31, 2014 and 2013 and included amortization of debt issuance costs of approximately $182 and $159, respectively. The effective interest rate, taking into account the stated interest expense and amortization of debt issuance costs, approximates 8.7%.

 

3.875% Convertible Senior Notes

On December 11, 2013, the Company issued 3.875% Convertible Senior Notes (the “Convertible Notes”) in a private offering for an aggregate principal amount of $100,000. In addition, pursuant to the over-allotment option exercised by the underwriters, the Company received an aggregate principal amount of $3,000 on December 30, 2013. The aggregate net proceeds of the Convertible Notes were $99,514, after $3,486 in related issuance and transaction costs. The Convertible Notes rank equally in right of payment to the Company’s existing and future unsecured and unsubordinated obligations. The Convertible Notes bear interest at a rate of 3.875% per year, payable semiannually in arrears on March 15 and September 15 of each year. The Convertible Notes will mature on March 15, 2019 unless repurchased or converted prior to such date. The Company may not redeem the Convertible Notes prior to maturity unless requested by the note holders under certain events specified in the indenture.

The Convertible Notes do not contain any financial or operating covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company or any of its subsidiaries. The Convertible Notes provide no protection to the note holders in the event of a fundamental change or other corporate transaction involving the Company except those described in the indenture to the Convertible Notes. The Convertible Notes do not require a sinking fund to be established for the purpose of redemption.

In conjunction with the issuance of the Convertible Notes, the Company entered into a prepaid stock repurchase forward contract and used $29,923 of the net proceeds from the Convertible Notes offering to repurchase the Company’s common stock. See Note 14 — “Stockholders’ Equity” for the effect of the repurchase forward contract on earnings per share.

For the years ended December 31, 2014 and 2013, interest expense applicable to the Convertible Notes included the contractual interest coupon, discount amortization and amortization of allocated issuance costs aggregating $7,050 and $379, respectively, the amounts of which included non-cash interest expense of $3,070 and $164. The effective interest rate, taking into account both cash and non-cash components, approximates 8.3%. As of December 31, 2014, the remaining amortization period of the debt discount was expected to be 4.2 years.

The following table summarizes information regarding the equity and liability components of the Convertible Notes:

 

     December 31,  
     2014      2013  

Principal amount

   $ 103,000       $ 103,000   

Unamortized discount

     (13,711      (16,318
  

 

 

    

 

 

 

Liability component – net carrying value

$ 89,289    $ 86,682   
  

 

 

    

 

 

 

Equity component – conversion, net of offering costs

$ 15,900    $ 15,900   
  

 

 

    

 

 

 

 

Embedded Conversion Feature

Each $1 of principal of the Convertible Notes will initially be convertible into 16.0090 shares of common stock, which is the equivalent of approximately $62.47 per share, subject to adjustment upon the occurrence of specified events but will not be adjusted for any accrued and unpaid interest. The note holders may convert all or a portion of their Convertible Notes during specified periods as follows: (1) during any calendar quarter commencing after the calendar quarter ending on March 31, 2014, if the last reported sale price of the Company’s common stock for at least 20 trading days during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than 130% of the conversion price on each applicable trading day; (2) during the five business-day period after any ten consecutive trading-day period in which the trading price per $1 principal amount of the Convertible Notes is less than 98% of the product of the last reported sale price and the conversion rate on each such trading day; (3) if specified corporate events, including a change in control, occur; or (4) at any time on or after January 1, 2019.

The note holders who elect to convert their Convertible Notes in connection with a fundamental change as described in the indenture will be entitled to a “make-whole” adjustment in the form of an increase in the conversion rate. Upon conversion, the Company has options to satisfy its conversion obligation by paying or delivering cash, shares of its common stock or a combination of cash and shares of its common stock. As of December 31, 2014, none of the conditions allowing the note holders to convert had been met.

The Company determined that the embedded conversion feature is not a derivative financial instrument but rather is required to be separately accounted for in equity because the Company may elect to settle the conversion option entirely or partially in cash. At issuance, the Company accounted for the equity component of the embedded conversion feature, which amounted to $16,457, as a reduction in the carrying amount of the debt and an increase in additional paid-in capital. The increase in additional paid-in capital was offset in part by $557 in related transaction costs.

Embedded Redemption Feature

The note holders also have the right to require the Company to repurchase for cash all or any portion of the Convertible Notes at par prior to the maturity date should any of the fundamental change events described in the indenture occur. The Company concluded that the embedded redemption feature is not a derivative financial instrument and that it is not probable at issuance that any of the specified fundamental change events will occur. Therefore, the embedded redemption feature is not substantive and will not affect the expected life of the liability component.

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Reinsurance
12 Months Ended
Dec. 31, 2014
Insurance [Abstract]
Reinsurance

Note 10 — 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 its reinsurers are unable to meet their obligations under the reinsurance agreements. Failure of reinsurers to honor their obligations could result in losses to the Company. 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 Company contracts with a number of reinsurers to secure its annual reinsurance coverage, which generally becomes effective June 1st each year. The Company purchases reinsurance each year taking into consideration maximum projected losses and reinsurance market conditions.

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

 

     Years Ended December 31,  
     2014      2013      2012  

Premiums Written:

        

Direct

   $ 341,685       $ 315,695       $ 205,839   

Assumed

     65,968         39,076         73,340   
  

 

 

    

 

 

    

 

 

 

Gross written

  407,653      354,771      279,179   

Ceded

  (113,423   (102,865   (75,939
  

 

 

    

 

 

    

 

 

 

Net premiums written

$ 294,230    $ 251,906    $ 203,240   
  

 

 

    

 

 

    

 

 

 

Premiums Earned:

Direct

$ 332,175    $ 273,037    $ 168,937   

Assumed

  33,313      64,076      64,670   
  

 

 

    

 

 

    

 

 

 

Gross earned

  365,488      337,113      233,607   

Ceded

  (113,423   (102,865   (75,939
  

 

 

    

 

 

    

 

 

 

Net premiums earned

$ 252,065    $ 234,248    $ 157,668   
  

 

 

    

 

 

    

 

 

 

During the years ended December 31, 2014, 2013 and 2012, there were no recoveries pertaining to reinsurance contracts that were deducted from losses incurred. There were 28 reinsurers at December 31, 2014 and 27 reinsurers at December 31, 2013, respectively, participating in the Company’s reinsurance program. There were no amounts receivable with respect to reinsurers at December 31, 2014 and 2013. Thus, there were no concentrations of credit risk associated with reinsurance receivables and prepaid reinsurance premiums as of December 31, 2014 and 2013. The ratio of assumed premiums earned to net premiums earned for the years ended December 31, 2014, 2013 and 2012 were 13.2%, 27.4%, and 41.0%, respectively.

Certain of the reinsurance contracts include retrospective provisions that adjust premiums, increase the amount of future coverage, or result in profit commissions in the event losses are minimal or zero. These adjustments are reflected in the statements of income as net reductions in ceded premiums of $23,543, $12,521 and $0, respectively, for the years ended December 31, 2014, 2013 and 2012. At December 31, 2014 and 2013, other assets included $28,596 and $9,009, respectively, and prepaid reinsurance premiums included $5,983 and $3,512, respectively, which are related to these adjustments.

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Losses and Loss Adjustment Expenses
12 Months Ended
Dec. 31, 2014
Insurance [Abstract]
Losses and Loss Adjustment Expenses

Note 11 — 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 losses and LAE is summarized as follows:

 

     Years Ended December 31,  
     2014      2013      2012  

Balance, beginning of year

   $ 43,686       $ 41,168       $ 27,424   
  

 

 

    

 

 

    

 

 

 

Incurred related to:

Current year

  75,810      67,579      66,425   

Prior years

  3,658      (2,456   (115
  

 

 

    

 

 

    

 

 

 

Total incurred

  79,468      65,123      66,310   
  

 

 

    

 

 

    

 

 

 

Paid related to:

Current year

  (47,650   (40,240   (36,914

Prior years

  (26,596   (22,365   (15,652
  

 

 

    

 

 

    

 

 

 

Total paid

  (74,246   (62,605   (52,566
  

 

 

    

 

 

    

 

 

 

Balance, end of year

$ 48,908    $ 43,686    $ 41,168   
  

 

 

    

 

 

    

 

 

 

The establishment of loss reserves is an inherently uncertain process and changes in loss reserve estimates are expected as such estimates are subject to the outcome of future events. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are made. During the year ended December 31, 2014, the Company experienced unfavorable development of $3,658 with respect to its net unpaid losses and loss adjustment expenses established for the year ended December 31, 2013. Factors attributable to this unfavorable development include a higher severity of claims and increased frequency of reported claims.

The Company writes insurance in the state of Florida, which could be exposed to hurricanes or other natural catastrophes. The occurrence of a major catastrophe could have a significant effect on the Company’s yearly results and cause a temporary disruption of the 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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Income Taxes
12 Months Ended
Dec. 31, 2014
Income Tax Disclosure [Abstract]
Income Taxes

Note 12 — Income Taxes

A summary of income tax expense is as follows:

 

     Years Ended December 31,  
     2014      2013      2012  

Current:

        

Federal

   $ 36,651       $ 34,372       $ 18,484   

State

     6,222         5,844         3,168   

Foreign

     167         118         137   
  

 

 

    

 

 

    

 

 

 

Total current taxes

  43,040      40,334      21,789   
  

 

 

    

 

 

    

 

 

 

Deferred:

Federal

  (4,060   514      (1,986

State

  (678   43      (380

Foreign

  (4   —        —     
  

 

 

    

 

 

    

 

 

 

Total deferred taxes

  (4,742   557      (2,366
  

 

 

    

 

 

    

 

 

 

Income tax expense

$ 38,298    $ 40,891    $ 19,423   
  

 

 

    

 

 

    

 

 

 

 

The reasons for the differences between the statutory Federal income tax rate and the effective tax rate are summarized as follows:

 

     Years Ended December 31,  
     2014     2013     2012  
     Amount     %     Amount     %     Amount      %  

Income taxes at statutory rate

   $ 35,337        35.0      $ 37,258        35.0      $ 17,353         35.0   

Increase (decrease) in income taxes resulting from:

             

State income taxes, net of federal tax benefits

     3,601        3.6        3,802        3.6        1,799         3.6   

Other

     (640     (0.7     (169     (0.2     271         0.6   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Income tax expense

$ 38,298      37.9    $ 40,891      38.4    $ 19,423      39.2   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

The Company has no uncertain tax positions or unrecognized tax benefits that, if recognized, would impact the effective income tax rate. The tax years ending December 31, 2013, 2012, and 2011 remain subject to examination by the Company’s major taxing jurisdictions. The Company elected to classify, if any, interest and penalties arising from uncertain tax positions as income tax expense as permitted by current accounting standards. There have been no material amounts of interest or penalties for the years ended December 31, 2014 and 2013. Effective October 20, 2014, the Internal Revenue Service notified the Company that the examination of the Company’s 2011 federal income tax return was completed with no change to the Company’s reported tax. In addition, as of April 18, 2014, the Florida Department of Revenue completed an audit of the state income tax returns filed for 2010, 2011, and 2012. The audit resulted in no material changes to the state income taxes originally reported.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

 

Significant components of the Company’s net deferred income tax (liabilities) assets are as follows:

 

     December 31,  
     2014      2013  

Deferred tax assets:

     

Unearned premiums

   $ 11,718       $ 8,829   

Losses and loss adjustment expenses

     866         885   

Organizational costs

     83         95   

Stock-based compensation

     3,081         2,026   

Accrued expenses

     175         163   

Deferred expenses

     —           —     

Unearned revenue

     381         52   

Bad debt reserve

     10         5   
  

 

 

    

 

 

 

Total deferred tax assets

  16,314      12,055   
  

 

 

    

 

 

 

Deferred tax liabilities:

Property and equipment

  (1,604   (1,748

Deferred policy acquisition costs

  (5,959   (5,600

Unrealized net gain on securities available-for-sale

  (418   (700

Basis difference related to convertible senior notes

  (5,110   (6,295

Prepaid expenses

  (464   (296

Other

  (260   (156
  

 

 

    

 

 

 

Total deferred tax liabilities

  (13,815   (14,795
  

 

 

    

 

 

 

Net deferred tax assets (liabilities)

$ 2,499    $ (2,740
  

 

 

    

 

 

 

A valuation allowance is established if, based upon the relevant facts and circumstances, management believes any portion of the deferred tax assets will not be realized. Although realization of deferred income tax assets is not certain, management believes it is more likely than not that deferred tax assets will be realized. As a result, the Company did not have a valuation allowance established as of December 31, 2014 or 2013.

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Earnings Per Share
12 Months Ended
Dec. 31, 2014
Earnings Per Share [Abstract]
Earnings Per Share

Note 13 — Earnings Per Share

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

 

A summary of the numerator and denominator of the basic and fully diluted earnings per common share is presented below:

 

     Income
(Numerator)
     Shares
(Denominator)
     Per Share
Amount
 
Year Ended December 31, 2014         

Net income

   $ 62,664         

Less: Preferred stock dividends

     4         

Less: Income attributable to participating securities

     (4,318      
  

 

 

       

Basic Earnings Per Share:

Income allocated to common stockholders

  58,350      9,888    $ 5.90   
        

 

 

 

Effect of Dilutive Securities:

Stock options

  —        137   

Convertible preferred stock

  (4   20   

Convertible senior notes

  4,343      1,649   
  

 

 

    

 

 

    

Diluted Earnings Per Share:

Income available to common stockholders and assumed conversions

$ 62,689      11,694    $ 5.36   
  

 

 

    

 

 

    

 

 

 
Year Ended December 31, 2013

Net income

$ 65,562   

Less: Preferred stock dividends

  (104

Less: Income attributable to participating securities

  (3,213
  

 

 

       

Basic Earnings Per Share:

Income allocated to common stockholders

  62,245      10,691    $ 5.82   
        

 

 

 

Effect of Dilutive Securities:

Stock options

  —        163   

Convertible preferred stock

  104      178   

Convertible senior notes

  237      90   
  

 

 

    

 

 

    

Diluted Earnings Per Share:

Income available to common stockholders and assumed conversions

$ 62,586      11,122    $ 5.63   
  

 

 

    

 

 

    

 

 

 
Year Ended December 31, 2012

Net income

$ 30,157   

Less: Preferred stock dividends

  (322

Less: Income attributable to participating securities

  (488
  

 

 

       

Basic Earnings Per Share:

Income available to common stockholders

  29,347      8,497    $ 3.45   
        

 

 

 

Effect of Dilutive Securities:

Stock options

  —        220   

Convertible preferred stock

  322      655   

Warrants

  —        441   
  

 

 

    

 

 

    

Diluted Earnings Per Share:

Income available to common stockholders and assumed conversions

$ 29,669      9,813    $ 3.02   
  

 

 

    

 

 

    

 

 

 

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Stockholders' Equity
12 Months Ended
Dec. 31, 2014
Equity [Abstract]
Stockholders' Equity

Note 14 — Stockholders’ Equity

Common Stock

Effective March 18, 2014, the Company’s Board of Directors authorized a plan to repurchase up to $40,000 of the Company’s common shares before commissions and fees. The repurchase plan allows the Company to repurchase shares from time to time through March 31, 2015. The shares may be purchased for cash in open market purchases, block transactions and privately negotiated transactions in accordance with applicable federal securities laws. The share repurchase plan may be modified, suspended, terminated or extended by the Company any time without prior notice. During the year ended December 31, 2014, the Company repurchased and retired a total of 990,701 shares at a weighted average price per share of $38.69 under this authorized repurchase plan. The total costs of shares repurchased, inclusive of fees and commissions, during the year ended December 31, 2014 were $38,354, or $38.71 per share. At December 31, 2014, a total of $1,666 is available in connection with this plan.

Series B Junior Participating Preferred Share Purchase Right

On October 17, 2013, the Company’s Board of Directors declared a dividend of one preferred share purchase right (“Right”) for each outstanding share of its common stock to shareholders of record at the close of business on November 15, 2013. Each Right entitles the common shareholder to purchase from the Company one one-hundredth of a share of Series B Junior Participating Preferred Stock, no par value, at a price of $125.00 per one one-hundredth of such preferred share, subject to adjustment for certain events. The Right is intended to prevent any unsolicited takeover attempt that is unfair and unfavorable to the Company’s shareholders. The Right will not interfere with any merger approved by the Company’s Board of Directors.

The Right will not be exercisable until ten days following a public announcement that a person or group has acquired beneficial ownership of 10% or more of the Company’s common stock or until ten business days after a person or group begins a tender or exchange offer that would result in beneficial ownership of 10% or more of the Company’s common stock. The Right may be redeemed or exchanged by the Company for $0.001 per Right at any time until the Right’s expiration date on October 18, 2018.

Prepaid Share Repurchase Forward Contract

Effective December 11, 2013, in conjunction with the issuance of the Convertible Notes, the Company entered into a prepaid share repurchase forward contract (the “forward contract”) with Deutsche Bank AG, London Branch (the “forward counterparty”). Pursuant to the forward contract, the Company prepaid $29,923 of the net proceeds of the offering to repurchase 622,751 shares of the Company’s common stock under which the shares will be delivered over a settlement period in 2019. The forward contract is subject to early settlement, in whole or in part, at any time prior to the final settlement date at the option of the forward counterparty, as well as early settlement or settlement with alternative consideration in the event of certain corporate transactions. In the event the Company pays any cash dividends on its common shares, the forward counterparty will pay an equivalent amount to the Company. The shares to be purchased under the prepaid forward contract will be treated as retired as of the effective date of the forward contract, but will remain outstanding for corporate law purposes, including for purposes of any future stockholders votes.

 

The Company determined that the forward contract does not meet the characteristic of a derivative instrument and, as such, the transaction resulted in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for both basic and diluted earnings per share.

Preferred Stock

Series A Cumulative Convertible Preferred Stock (“Series A Preferred”)

On February 4, 2014, the Company announced its Board of Directors fixed April 1, 2014 as the cancellation date for the conversion rights on its 7% Series A cumulative convertible preferred stock. The Company later extended the conversion privilege in April 2014. On June 2, 2014, 3,386 shares of Series A Preferred were redeemed at $10 per share, resulting in the derecognition of $4 in dividends payable. During the years ended December 31, 2014 and 2013, holders of 107,298 and 130,498 shares of Series A Preferred converted their Series A Preferred shares to 107,298 and 130,498 shares of common stock, respectively. As of December 31, 2014, no shares of Series A Preferred were outstanding.

Series B Junior Participating Preferred Stock (“Series B Preferred”)

On October 17, 2013, in connection with the declaration of the Right dividends, the Company’s Board of Directors established and fixed the rights and preferences of the Series B Preferred. Of the authorized shares, the Company designated 400,000 shares as Series B Preferred. Each Series B Preferred will be entitled to a minimum preferential quarterly dividend payment of $1.00 per share but will be entitled to an aggregate dividend of 100 times the dividend declared per common share of the Company. In the event of liquidation, the holders of the Series B Preferred will be entitled to a minimum preferential liquidation payment of $100 per share but will be entitled to an aggregate payment of 100 times the payment made per common share. Each Series B Preferred will have 100 votes per share, voting together as one class on all matters submitted to a vote of shareholders of the Company. Finally, in the event of any merger, consolidation or other transaction in which common shares are exchanged, each Series B Preferred will be entitled to receive 100 times the amount received per common share. The aforementioned rights of Series B Preferred are protected by customary anti-dilution provisions. As of December 31, 2014 and 2013, there were no Series B Preferred issued or outstanding.

Undesignated Preferred Stock

The Company is authorized to issue up to an additional 18,100,000 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 and Series B Preferred.

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Stock-Based Compensation
12 Months Ended
Dec. 31, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock-Based Compensation

Note 15 — Stock-Based Compensation

Incentive Plan

The Company currently has outstanding stock-based awards granted under the 2007 Stock Option and Incentive Plan and the 2012 Omnibus Incentive Plan. Only the 2012 Plan is available for future grants as the 2007 Plan was terminated in 2012. With respect to the 2012 Plan, the Company may grant stock-based awards to employees, directors, consultants, and advisors of the Company. At December 31, 2014, there were 4,246,470 shares available for grant under the 2012 Plan.

Stock Options

Stock options granted and outstanding under the incentive plan vest over periods ranging from immediately vested to five years and are exercisable over the contractual term of ten years.

A summary of the stock option activity for the years ended December 31, 2014, 2013 and 2012 is as follows (option amounts not in thousands):

 

     Number of
Options
     Weighted
Average
Exercise
Price
     Weighted
Average
Remaining
Contractual
Term
   Aggregate
Intrinsic
Value
 

Outstanding at January 1, 2012

     620,000       $ 2.97       5.7 years    $ 3,122   

Exercised

     (340,000    $ 3.03         
  

 

 

          

Outstanding at December 31, 2012

  280,000    $ 2.91    4.9 years $ 5,007   
  

 

 

          

Outstanding at December 31, 2013

  280,000    $ 2.91    3.9 years $ 14,166   
  

 

 

          

Exercised

  (50,000 $ 2.50   
  

 

 

          

Outstanding at December 31, 2014

  230,000    $ 3.00    3.0 years $ 9,256   
  

 

 

          

Exercisable at December 31, 2014

  230,000    $ 3.00    3.0 years $ 9,256   
  

 

 

          

The following table summarizes information about options exercised, and the fair value of vested options for the years ended December 31, 2014, 2013 and 2012 (option amounts not in thousands):

 

     2014      2013      2012  

Options exercised

     50,000         —           340,000   

Total intrinsic value of exercised options

   $ 1,970       $ —         $ 3,648   

Fair value of vested stock options

   $ 17       $ 17       $ 22   

Tax benefits realized

   $ 603       $ —         $ 1,161   

 

During the year ended December 31, 2012, a total of 340,000 options were exercised of which 227,003 options were net settled by surrender of 72,592 shares. Compensation expense recognized for the years ended December 31, 2014, 2013 and 2012 totaled approximately $6, $19 and $68, respectively, and is included in other operating expenses. At December 31, 2014 and 2013, there was approximately $0 and $6, respectively, of unrecognized compensation expense related to nonvested stock options granted under the plan. Deferred tax benefits related to stock options for the years ended December 31, 2014, 2013 and 2012 were immaterial.

Restricted Stock Awards

From time to time, the Company has granted and may grant restricted stock awards to certain executive officers, other employees and nonemployee directors in connection with their service to the Company. The terms of the Company’s outstanding restricted stock grants may include service, performance and market-based conditions. The fair value of the awards with market-based conditions is determined using a Monte Carlo simulation method, which calculates many potential outcomes for an award and then establishes fair value based on the most likely outcome. The determination of fair value with respect to the awards with only performance or service-based conditions is based on the value of the Company’s stock on the grant date.

Information with respect to the activity of unvested restricted stock awards during the years ended December 31, 2014, 2013 and 2012 is as follows (share amounts not in thousands):

 

     Number of
Restricted
Stock
Awards
     Weighted
Average
Grant Date
Fair Value
 

Nonvested at January 1, 2012

     —           —     

Granted

     246,320       $ 14.54   
  

 

 

    

Nonvested at December 31, 2012

  246,320    $ 14.54   
  

 

 

    

Granted

  612,000    $ 27.36   

Vested

  (93,000 $ 12.18   

Forfeited

  (29,670 $ 15.03   
  

 

 

    

Nonvested at December 31, 2013

  735,650    $ 25.48   
  

 

 

    

Granted

  108,720    $ 47.40   

Vested

  (193,825 $ 27.48   

Forfeited

  (10,840 $ 41.53   
  

 

 

    

Nonvested at December 31, 2014

  639,705    $ 28.33   
  

 

 

    

 

The Company recognized compensation expense, which is included in other operating expenses, of $8,104, $5,346 and $776, respectively, for the years ended December 31, 2014, 2013 and 2012. At December 31, 2014 and 2013, there was approximately $10,355 and $13,757, respectively, of total unrecognized compensation expense related to nonvested restricted stock arrangements. The Company expects to recognize the remaining compensation expense over a weighted-average period of 23 months. The following table summarizes information about deferred tax benefits recognized and tax benefits realized related to restricted stock awards as well as their paid dividends, and the fair value of vested restricted stock for the years ended December 31, 2014, 2013 and 2012.

 

     2014      2013      2012  

Deferred tax benefits recognized

   $ 3,126       $ 2,062       $ 299   

Tax benefits realized for restricted stock and paid dividends

   $ 1,477       $ 1,060       $ —     

Fair value of vested restricted stock

   $ 5,326       $ 1,133       $ —     

The following presents assumptions used in a Monte Carlo simulation model to determine the fair value of the awards with market-based conditions:

 

     2014    2013    2012

Expected dividends per share

   $1.10    $0.90    $0.80

Expected volatility

   42.1 – 46.6%    41.5 – 51.6%    36.7 – 50.0%

Risk-free interest rate

   0.1 – 1.5%    0.0 – 1.9%    0.1 – 1.2%

Estimated cost of capital

   11.5%    9.3 – 10.3%    11.9 – 12.1%

Expected life (in years)

   4.00    4.00 – 6.00    6.00

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Employee Benefit Plan
12 Months Ended
Dec. 31, 2014
Compensation and Retirement Disclosure [Abstract]
Employee Benefit Plan

Note 16 — Employee Benefit Plan

Effective July 1, 2013, the Company implemented a 401(k) Safe Harbor Profit Sharing Plan (“401(k) Plan”) that qualifies as a defined contribution plan under Section 401(k) of the Internal Revenue Code. Under the 401(k) Plan, participating employees are eligible for company matching and discretionary profit sharing contributions. Plan participants may elect to defer up to one hundred percent of their pre-tax gross wages, subject to annual limitations. The company matching contribution is limited to a maximum of four percent of the employee’s annual salary or wage and is fully vested when contributed. Eligibility and vesting of the Company’s discretionary profit sharing contribution is subject to the plan participant’s years of service. During the years ended December 31, 2014 and 2013, the Company contributed approximately $311 and $183, respectively, in matching contributions, which are included in other operating expenses. There has been no discretionary profit sharing contribution since the plan’s inception.

The Company also maintains benefit plans for its employees in India including a statutory post-employment benefit plan, or gratuity plan, providing defined, lump-sum benefits. The Company’s liability for the gratuity plan reflects the undiscounted benefit obligation payable as of the balance sheet date, which was based upon the employees’ salary and years of service. As of December 31, 2014 and 2013, the amounts accrued under the gratuity plan were $10 and $6, respectively. In addition, the Company provides matching contributions with respect to two defined contribution plans; the Provident Fund and the Employees State Insurance Fund, both of which are available to qualifying employees in India. Expense recognized by the Company for all benefit plans in India was $12 and $7, respectively, for the years ended December 31, 2014 and 2013. No expense was recognized for any benefit plan in India for the year ended December 31, 2012.

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Commitments and Contingencies
12 Months Ended
Dec. 31, 2014
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies

Note 17 — Commitments and Contingencies

Obligations under Multi-Year Reinsurance Contracts

As of December 31, 2014, the Company has contractual obligations related to two-year and three-year reinsurance contracts. These contracts have effective dates of either June 1, 2013 or June 1, 2014 and may be cancelable only with the other party’s consent. The future minimum aggregate amounts payable to the reinsurers for 2015 and 2016 are $66,451 and $22,989, respectively.

Lease Commitments

The Company currently leases 15,000 square feet of office space in Noida, India. The lease commenced January 15, 2013 and has an initial term of nine years with monthly rental payments of approximately $10 plus applicable service tax for the first year. Thereafter the monthly rental payment will increase by five percent every year. The Company is entitled to terminate the lease 36 months after the commencement date by providing 3 months’ written notice to the landlord.

Provided the lease is not early terminated, minimum future rental payments under operating leases after December 31, 2014 are as follows:

 

Year

   Amount  

2015

   $ 118   

2016

     123   

2017

     130   

2018

     136   

2019

     143   

Thereafter

     308   
  

 

 

 

Total minimum future payments

$ 958   
  

 

 

 

Rental expense under all facility leases was $222, $248 and $527, respectively, during the years ended December 31, 2014, 2013 and 2012. Expense in 2012 includes amounts related to a lease for the Company’s former corporate headquarters location.

 

Service Agreement

In connection with the lease for new office space in India as described in the lease commitments above, the Company signed a long-term contract with the landlord to receive maintenance and facility services. The agreement has the same initial term of nine years with monthly payments of approximately $2 plus applicable service tax for the first year. Thereafter, the monthly payment will increase by five percent every year. The Company is also entitled to terminate the agreement 36 months after the commencement date by providing 3 months’ written notice to the landlord.

Provided the agreement is not early terminated, minimum future payments under the service agreement after December 31, 2014 are as follows:

 

Year

   Amount  

2015

   $ 21   

2016

     22   

2017

     24   

2018

     24   

2019

     26   

Thereafter

     55   
  

 

 

 

Total minimum future payments

$ 172   
  

 

 

 

Rental Income

The Company owns real estate that consists of 3.5 acres of land, a building with gross area of 122,000 square feet, and a four-level parking garage. This facility is used by the Company and its subsidiaries. In addition, the Company leases space to non-affiliates.

Expected annual rental income due under non-cancellable operating leases for all properties and other investments owned at December 31, 2014 are as follows:

 

Year

   Amount  

2015

   $ 995   

2016

     698   

2017

     248   

2018

     86   

2019

     47   
  

 

 

 

Total

$  2,074   
  

 

 

 

 

Regulatory Assessments

 

  a) Regular Insurance Assessments and Surcharges

As a direct premium writer in the state of Florida, the Company is subject to mandatory assessments by Citizens and the Florida Hurricane Catastrophe Fund (“FHCF”). These assessments are paid based on a percentage of the Company’s direct written premium by line of business. For the years ended December 31, 2014, 2013 and 2012, HCPCI paid assessments to FHCF amounting to $4,481, $4,103 and $2,517, respectively. Additionally, HCPCI paid assessments to Citizens of $3,447, $3,156 and $1,936, respectively, for the years ended December 31, 2014, 2013 and 2012. As of December 31, 2014, the Company’s other liabilities included $349 and $453 payable to Citizens and FHCF, respectively. These assessments are recorded as a surcharge in premium billings to insureds. As of December 31, 2014, 2013 and 2012, the surcharge rates in effect for FHCF and Citizens were 1.3% and 1.0%, respectively, for each of these years.

Effective January 1, 2015, the FHCF assessment imposed on all property insurance policies was removed. In addition, the Citizens assessment will be eliminated effective June 1, 2015.

 

  b) Guaranty Fund

The Florida Insurance Guaranty Association may assess the Company to provide for the payment of covered claims of insolvent insurance entities. The assessments are generally based on a percentage of premiums written as of the end of the prior year in which the assessment is levied. Although the Company is permitted by Florida statutes to recover the entire amount of assessments from existing and future policyholders through policy surcharges, liabilities are recognized when the assessments are probable to be imposed on the premiums on which they are expected to be based and the amounts can be reasonably estimated. During 2012, the Company paid $1,139 of guaranty fund assessments, $482 of which was recognized as an asset recoverable from policyholders. The balance of $657 was charged to expense in 2012. As approved by the Florida Office of Insurance Regulation, the Company had recovered a total of $1,030 during 2013, $434 of which was credited to the asset recoverable from policyholders. The amount recovered in excess of $434 reduced the Company’s 2013 policy acquisition and other underwriting expenses and was offset by a $48 expense for the amount unrecovered from policyholders. At December 31, 2014 and 2013, the Company has no liability related to guaranty fund assessments.

Financing Commitment

As described in Note 4 — “Investments” under ADC Arrangement, the Company is contractually committed to provide financing for a real estate acquisition, development and construction project. At December 31, 2014, $6,981 of the available commitment was unused by the property developer.

 

Capital Commitment

As described in Note 4 — “Investments” under Limited Partnership Investment, the Company is contractually committed to a capital contribution for a limited partnership interest. At December 31, 2014, there was an unfunded balance of $9,860.

Premium Tax

In September 2013, the Company received a notice of intent to make audit adjustments from the Florida Department of Revenue in connection with the Department’s audit of the Company’s premium tax returns for the three-year period ended December 31, 2012. The auditor’s proposed adjustments primarily relate to the Department’s proposed disallowance of the entire amount of $1,754 in Florida salary credits applicable to that period. The proposed adjustment, which includes interest through September 10, 2013, approximates $1,913. The Company did not agree with the proposed adjustment and notified the Department of its intention to protest the Department’s position. While the Company remains confident in the merits of its position in claiming the Florida salary credits, management continued to hold discussions with Department staff throughout 2014 and believes the Company has reached an agreement in principle towards resolution of this matter. The pending resolution entails having certain subsidiaries individually file and pay state reemployment taxes plus interest covering the periods under audit through the second quarter of 2014. The Company believes the payroll of certain of these subsidiaries then will continue to qualify for substantially all of the salary tax credits claimed by the Company. The incremental reemployment taxes due to the Department as a result of the subsidiaries’ separate reemployment tax filings will be netted against amounts refundable to the parent for the same periods during which the parent filed and paid state reemployment taxes as a single payer. As such, and based on the current status and expected resolution, the Company has accrued a net amount of approximately $140 as of December 31, 2014 related to this contingency.

Litigation

The Company is party to claims and legal actions arising routinely in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material, adverse effect on the consolidated financial position or liquidity.

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Quarterly Results of Operations
12 Months Ended
Dec. 31, 2014
Quarterly Financial Information Disclosure [Abstract]
Quarterly Results of Operations

Note 18 — Quarterly Results of Operations (Unaudited)

The tables below summarize unaudited quarterly results of operations for 2014, 2013 and 2012.

 

     Three Months Ended  
     03/31/14      06/30/14      09/30/14      12/31/14  

Net premiums earned

   $ 66,380       $ 62,649       $ 61,260       $ 61,776   

Total revenue

     68,117         66,284         66,955         64,752   

Losses and loss adjustment expenses

     18,565         18,383         21,991         20,529   

Policy acquisition and other underwriting expenses

     9,129         9,559         9,986         9,278   

Interest expense

     2,574         2,609         2,626         2,644   

Total expenses

     39,807         39,901         44,180         41,258   

Income before income taxes

     28,310         26,383         22,775         23,494   

Net income

     17,620         16,430         14,052         14,562   

Net income available to common stockholders

     17,623         16,431         14,052         14,562   

Earnings per share:

           

Basic

   $ 1.60       $ 1.53       $ 1.34       $ 1.43   

Diluted

   $ 1.44       $ 1.39       $ 1.23       $ 1.30   

 

     Three Months Ended  
     03/31/13      06/30/13      09/30/13      12/31/13  

Net premiums earned

   $ 60,551       $ 57,335       $ 52,934       $ 63,428   

Total revenue

     61,811         59,333         54,692         65,252   

Losses and loss adjustment expenses

     15,872         17,414         14,489         17,348   

Policy acquisition and other underwriting expenses

     5,968         7,308         8,887         9,456   

Interest expense

     686         846         847         1,228   

Total expenses

     28,641         32,926         33,048         40,020   

Income before income taxes

     33,170         26,407         21,644         25,232   

Net income

     20,387         16,235         13,378         15,562   

Net income available to common stockholders

     20,353         16,203         13,356         15,546   

Earnings per share:

           

Basic

   $ 1.87       $ 1.44       $ 1.17       $ 1.36   

Diluted

   $ 1.81       $ 1.40       $ 1.13       $ 1.31   

 

     Three Months Ended  
     03/31/12      06/30/12      09/30/12      12/31/12  

Net premiums earned

   $ 40,431       $ 37,070       $ 30,603       $ 49,564   

Total revenue

     41,652         38,855         31,481         51,077   

Losses and loss adjustment expenses

     19,168         16,197         15,017         15,928   

Policy acquisition and other underwriting expenses

     6,836         6,243         6,611         6,240   

Total expenses

     30,271         26,846         26,356         30,012   

Income before income taxes

     11,381         12,009         5,125         21,065   

Net income

     6,968         7,262         2,826         13,101   

Net income available to common stockholders

     6,787         7,199         2,784         13,065   

Earnings per share:

           

Basic

   $ 1.07       $ 0.85       $ 0.30       $ 1.27   

Diluted

   $ 0.88       $ 0.74       $ 0.27       $ 1.19   

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Regulatory Requirements and Restrictions
12 Months Ended
Dec. 31, 2014
Text Block [Abstract]
Regulatory Requirements and Restrictions

Note 19 — Regulatory Requirements and Restrictions

The following briefly describes certain requirements and restrictions regulated by the states or jurisdiction in which the Company’s insurance subsidiaries are incorporated.

Florida

HCPCI, which is domiciled in Florida, prepares its statutory financial statements in accordance with accounting principles and practices prescribed or permitted by the Florida Department of Financial Services, Office of Insurance Regulation (the “FLOIR”), which Florida utilizes for determining solvency under the Florida Insurance Code (the “Code”). The commissioner of the FLOIR has the right to permit other practices that may deviate from prescribed practices. Prescribed statutory accounting practices are those practices that are incorporated directly or by reference in state laws, regulations, and general administrative rules applicable to all insurance enterprises domiciled in Florida. Permitted statutory accounting practices encompass all accounting practices that are not prescribed; such practices differ from state to state, may differ from entity to entity within a state, and may change in the future.

The Code requires HCPCI to maintain capital and surplus equal to the greater of 10% of its liabilities or a statutory minimum as defined in the Code. At December 31, 2014, HCPCI is required to maintain a minimum capital and surplus of $24,757.

U.S. GAAP differs in certain respects from the accounting practices prescribed or permitted by insurance regulatory authorities (statutory-basis). HCPCI’s statutory-basis financial statements are presented on the basis of accounting practices prescribed or permitted by the FLOIR. The FLOIR has adopted the National Association of Insurance Commissioner’s (“NAIC”) Accounting Practices and Procedures Manual as the basis of its statutory accounting practices. At December 31, 2014, 2013 and 2012, HCPCI’s statutory-basis capital and surplus was approximately $168,000, $116,900 and $69,800, respectively. HCPCI had statutory-basis net income of approximately $48,900, $45,700 and $13,200, respectively, for the years ended December 31, 2014, 2013 and 2012. Statutory-basis surplus differs from stockholders’ equity reported in accordance with U.S. GAAP primarily because policy acquisition costs are expensed when incurred. In addition, the recognition of deferred tax assets is based on different recoverability assumptions.

Since inception, HCPCI has maintained a cash deposit with the Insurance Commissioner of the state of Florida, in the amount of $300, to meet regulatory requirements.

 

Under Florida law, a domestic insurer 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. A Florida domestic insurer may not make dividend payments or distributions to stockholders without prior approval of the FLOIR 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.

Alternatively, a Florida domestic insurer may pay a dividend or distribution without the prior written approval of the FLOIR if (1) the dividend is equal to or less than the greater of (a) 10.0% of the insurer’s capital surplus as regards to policyholders derived from realized net operating profits on its business and net realized capital gains or (b) the insurer’s entire net operating profits and realized net capital gains derived during the immediately preceding calendar year, (2) the insurer will have policy holder capital surplus equal to or exceeding 115.0% of the minimum required statutory capital surplus after the dividend or distribution, (3) the insurer files a notice of the dividend or distribution with the FLOIR at least ten business days prior to the dividend payment or distribution and (4) the notice includes a certification by an officer of the insurer attesting that, after the payment of the dividend or distribution, the insurer will have at least 115% of required statutory capital surplus as to policyholders. Except as provided above, a Florida domiciled insurer may only pay a dividend or make a distribution (1) subject to prior approval by the FLOIR or (2) 30 days after the FLOIR has received notice of such dividend or distribution and has not disapproved it within such time.

As a result, HCPCI was qualified to make dividend payments at December 31, 2014 and 2013. At December 31, 2012, no dividends were available to be paid by HCPCI.

In addition, a Florida insurance company is required to adhere to prescribed premium-to-capital surplus ratios. Florida state law requires that the ratio of 90% of written premiums divided by surplus as to policyholders does not exceed 10 to 1 for gross written premiums or 4 to 1 for net written premiums. The ratio of gross and net written premium to surplus for the year ended December 31, 2014, was 2.21 to 1, and 1.50 to 1, respectively. The ratio of gross and net written premium to surplus for the year ended December 31, 2013, was 2.76 to 1, and 1.68 to 1, respectively. The ratio of gross and net written premium to surplus for the year ended December 31, 2012, was 3.63 to 1, and 2.27 to 1, respectively.

 

Alabama

Homeowners Choice Assurance Company, Inc. (“HCA”) is domiciled in Alabama and was organized in 2013. HCA is required to maintain minimum paid-in capital of $500. In addition, HCA must maintain a minimum deposit in trust of $100 with the Treasurer of Alabama. At December 31, 2014 and 2013, HCA’s statutory capital and surplus was $1,926 and $1,969, respectively. Similar to HCPCI in Florida, HCA is required to file statutory-basis financial statements with the Alabama Department of Insurance, which has also adopted the NAIC Accounting Practices and Procedures Manual as the basis of its statutory accounting practices.

Bermuda

The Bermuda Monetary Authority requires Claddaugh to maintain minimum capital and surplus of $2,000. At December 31, 2014, 2013 and 2012, Claddaugh’s statutory capital and surplus was $21,307, $15,526 and $10,313, respectively. Claddaugh’s statutory net profit was $1,980, $4,164 and $4,818, respectively, for the years ended December 31, 2014, 2013 and 2012. There was no cash dividend paid by Claddaugh during 2014. During the years ended December 31, 2013 and 2012, Claddaugh paid its parent, HCI, cash dividends of $4,000 and $6,000, respectively.

HCPCI and HCA are subject to risk-based capital (“RBC”) requirements as specified by the NAIC. Under those requirements, the amount of minimum capital and surplus maintained by a property and casualty insurance company is to be determined based on the various risks related to it. Pursuant to the RBC requirements, insurers having less statutory capital than required by the RBC calculation will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. At December 31, 2014, 2013 and 2012, the Company’s insurance subsidiaries exceeded any applicable minimum risk-based capital requirements and no corrective actions have been required

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Related Party Transactions
12 Months Ended
Dec. 31, 2014
Related Party Transactions [Abstract]
Related Party Transactions

Note 20 — Related Party Transactions

Claddaugh Casualty Insurance Company, Ltd. (“Claddaugh”), the Company’s Bermuda domiciled captive reinsurer has reinsurance treaties with Oxbridge Reinsurance Limited (“Oxbridge”) whereby a portion of the business assumed from the Company’s insurance subsidiary, HCPCI, is ceded by Claddaugh to Oxbridge. With respect to the period from June 1, 2013 through May 31, 2014, Oxbridge assumed $10,100 of the total covered exposure for approximately $4,900 in premiums. With respect to the period from June 1, 2014 through May 31, 2015, Oxbridge assumed $8,800 of the total covered exposure for approximately $3,720 in premiums. In addition, HCPCI has a reinsurance treaty with Oxbridge for the period from June 1, 2014 through May 31, 2015 under which Oxbridge assumed $9,000 of the total covered exposure for approximately $1,350 in premiums. The premiums charged by Oxbridge are at rates which management believes to be competitive with market rates available to Claddaugh. Oxbridge has deposited funds into trust accounts to satisfy certain collateral requirements under its reinsurance contracts with HCPCI and Claddaugh. Trust assets may be withdrawn by the trust beneficiary, which is either HCPCI or Claddaugh, in the event amounts are due under the Oxbridge reinsurance agreements. Among the Oxbridge shareholders are Paresh Patel, the Company’s chief executive officer, who is also chairman of the board of directors for Oxbridge, and members of his immediate family and three of the Company’s non-employee directors including Sanjay Madhu who serves as Oxbridge’s president and chief executive officer.

 

Prior to June 1, 2014, Claddaugh also had one reinsurance treaty with Moksha Re SPC Ltd. and multiple capital partners whereby a portion of the business assumed from HCPCI was ceded by Claddaugh to Moksha. With respect to the period from June 1, 2013 through May 31, 2014, Moksha assumed approximately $15,400 of the total covered exposure for approximately $4,300 in premiums, a rate which management believes to be competitive with market rates available to Claddaugh. The $4,300 premium was fully paid by Claddaugh on June 27, 2013. Moksha deposited funds into a trust account to satisfy certain collateral requirements under its reinsurance contract with Claddaugh. This contract also contained retrospective provisions resulting in a profit commission of $1,485, which was received by the Company in June 2014. Among the Moksha capital partner participants are the Company’s chief executive officer, Paresh Patel, and certain of his immediate family members and Sanjay Madhu, one of the Company’s non-employee directors. This agreement terminated effective May 31, 2014 and has not been renewed.

One of the Company’s directors is a partner at a law firm that manages certain of the Company’s corporate legal matters. Fees incurred with respect to this law firm for the years ended December 31, 2014, 2013 and 2012 were approximately $47, $450 and $335, respectively.

During 2012, the Company leased office space under an operating lease agreement with one director. The lease required annual base rental payments of approximately $150. The lease was terminated in December 2012 and the total payments during 2012 were $179.

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Condensed Financial Information of HCI Group, Inc.
12 Months Ended
Dec. 31, 2014
Condensed Financial Information of Parent Company Only Disclosure [Abstract]
Condensed Financial Information of HCI Group, Inc.

Note 21 — Condensed Financial Information of HCI Group, Inc.

Condensed financial information of HCI Group, Inc. is as follows:

Balance Sheets

 

     December 31,  
     2014      2013  

Assets

     

Cash and cash equivalents

   $ 32,082       $ 87,715   

Fixed-maturity securities, available for sale, at fair value

     4,652         56   

Equity securities, available for sale, at fair value

     8,802         6,581   

Limited partnership investment, at equity

     2,550         —     

Investment in subsidiaries

     298,726         214,958   

Property and equipment, net

     946         1,119   

Income tax receivable

     2,596         1,782   

Other assets

     4,699         5,705   
  

 

 

    

 

 

 

Total assets

$ 355,053    $ 317,916   
  

 

 

    

 

 

 

Liabilities and Stockholders’ Equity

Accrued expenses and other liabilities

$ 3,085    $ 1,863   

Deferred income taxes, net

  3,631      5,888   

Dividends payable

  —        19   

Long-term debt

  129,539      126,932   

Due to related parties

  36,213      22,693   
  

 

 

    

 

 

 

Total liabilities

  172,468      157,395   

Total stockholders’ equity

  182,585      160,521   
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

$ 355,053    $ 317,916   
  

 

 

    

 

 

 

 

Statements of Income

 

     Years Ended December 31,  
     2014     2013     2012  

Net investment income

   $ 739      $ 84      $ 8   

Net realized gain (loss) on investments

     309        (2     —     

Other income

     120        864        144   

Interest expense

     (10,453     (3,607     —     

Operating expenses

     (7,745     (4,865     (2,812
  

 

 

   

 

 

   

 

 

 

Loss before income tax benefit and equity in income of subsidiaries

  (17,030   (7,526   (2,660

Income tax benefit

  6,462      2,863      750   
  

 

 

   

 

 

   

 

 

 

Net loss before equity in income of subsidiaries

  (10,568   (4,663   (1,910

Equity in income of subsidiaries

  73,232      70,225      32,067   
  

 

 

   

 

 

   

 

 

 

Net income

$ 62,664    $ 65,562    $ 30,157   
  

 

 

   

 

 

   

 

 

 

 

Statements of Cash Flows

 

     Years Ended December 31,  
     2014     2013     2012  

Cash flows from operating activities:

      

Net income

   $ 62,664      $ 65,562      $ 30,157   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

      

Stock-based compensation

     5,502        2,362        237   

Net realized investment (gain) loss

     (309     2        —     

Depreciation and amortization

     3,712        1,000        788   

Loss from limited partnership investment

     90        —          —     

Equity in income of subsidiaries

     (73,232     (70,225     (32,067

Deferred income taxes

     (2,058     (914     763   

Changes in operating assets and liabilities:

      

Income taxes receivable

     (814     597        (2,379

Other assets

     629        (1,001     84   

Accrued expenses and other liabilities

     1,116        1,136        (1,051

Income taxes payable

     —          —          (1,605

Due to related parties

     11,520        (6,338     5,314   
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

  8,820      (7,819   241   
  

 

 

   

 

 

   

 

 

 

Cash flows from investing activities:

Investment in limited partnership interest

  (2,640   —        —     

Purchase of fixed-maturity securities

  (2,616   (64   —     

Purchase of equity securities

  (7,000   (6,835   —     

Purchases of property and equipment

  (277   (262   (668

Proceeds from sales of equity securities

  5,212      361      —     

Dividends received from subsidiary

  —        4,000      6,000   

Investment in subsidiaries

  (8,402   (5,735   (24,056
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

  (15,723   (8,535   (18,724
  

 

 

   

 

 

   

 

 

 

Cash flows from financing activities:

      

Net proceeds from the issuance of common stock

     —          —          20,082   

Repurchases of common stock

     (643     (30,886     —     

Repurchases of common stock under share repurchase plan

     (38,354     —          —     

Cash dividends paid to stockholders

     (12,355     (10,902     (8,561

Cash dividends received under share repurchase forward contract

     685        —          —     

Proceeds from exercise of stock options

     125        —          283   

Proceeds from exercise of stock warrants

     —          —          11,869   

Proceeds from issuance of long-term debt

     —          143,250        —     

Redemption of Series A preferred stock

     (34     —          —     

Debt issuance costs paid

     (234     (4,770     (35

Tax benefits on stock-based compensation

     2,080        1,060        1,161   
  

 

 

   

 

 

   

 

 

 

Net cash (used in) provided by financing activities

  (48,730   97,752      24,799   
  

 

 

   

 

 

   

 

 

 

Net (decrease) increase in cash and cash equivalents

  (55,633   81,398      6,316   

Cash and cash equivalents at beginning of year

  87,715      6,317      1   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of year

$ 32,082    $ 87,715    $ 6,317   
  

 

 

   

 

 

   

 

 

 

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Subsequent Events
12 Months Ended
Dec. 31, 2014
Subsequent Events [Abstract]
Subsequent Events

Note 22 — Subsequent Events

On January 19, 2015, the Company’s Board of Directors declared a quarterly dividend of $0.30 per common share. The dividends are scheduled for payment on March 20, 2015 to stockholders of record on February 20, 2015.

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Summary of Significant Accounting Policies (Policies)
12 Months Ended
Dec. 31, 2014
Accounting Policies [Abstract]
Basis of Presentation

Basis of Presentation. The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

Principles of Consolidation

Principles of Consolidation. The accompanying consolidated financial statements include the accounts of HCI and its majority-owned and controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, the Company evaluates its relationships or investments for consolidation pursuant to authoritative accounting guidance related to the consolidation of variable interest entities (“VIE”) under the Variable Interest Model prescribed by the Financial Accounting Standards Board (“FASB”). A VIE is consolidated when the Company has the power to direct activities that most significantly impact the economic performance of the VIE and has the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. When a VIE is not consolidated, the Company uses the equity method to account for the investment. Under this method, the carrying value is generally the Company’s share of the net asset value of the unconsolidated entity, and changes in the Company’s share of the net asset value are recorded in net investment income.

Use of Estimates

Use of Estimates. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as well as the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from these estimates. Material estimates that are particularly susceptible to significant change in the near term are primarily related to losses and loss adjustment expenses, reinsurance with retrospective provisions, deferred income taxes, and stock-based compensation expense.

Cash and Cash Equivalents

Cash and Cash Equivalents. The Company considers all short-term highly liquid investments with original maturities of less than three months to be cash and cash equivalents. At December 31, 2014 and 2013, cash and cash equivalents consist of cash on deposit with financial institutions and securities brokerage firms and also includes a $300 statutory deposit held by the State of Florida for the benefit of all policyholders.

Investments in Available-for-Sale Securities

Investments in Available-for-Sale Securities. Investments consist of fixed-maturity and equity securities. Fixed-maturity securities include debt securities and redeemable preferred stock. Securities may be classified as either trading, held to maturity or available-for-sale. The Company’s available-for-sale securities are carried at fair value. Temporary changes in the fair value of available-for-sale securities are excluded from net investment income and reported in stockholders’ equity as a component of accumulated other comprehensive income, net of deferred income taxes. Realized investment gains and losses from sales are recorded on the trade date and are determined using the first-in first-out (FIFO) method. Investment income is recognized as earned and discounts or premiums arising from the purchase of debt securities are recognized in investment income using the interest method over the estimated remaining term of the security. Gains and losses from call redemptions and repayments are charged to investment income.

 

The Company reviews all securities for other-than-temporary impairment on a quarterly basis and more frequently when economic or market conditions warrant such review. When the fair value of any investment is lower than its cost, an assessment is made to determine whether the decline is temporary or other-than-temporary. If the decline is determined to be other-than-temporary, the investment is written down to fair value and an impairment charge is recognized in income in the period in which the Company makes such determination. For a debt security that the Company does not intend to sell nor is it more likely than not that the Company will be required to sell before recovery of its amortized cost, only the credit loss component of the impairment is recognized in income, while the impairment related to all other factors is recognized in other comprehensive income. The Company considers various factors in determining whether an individual security is other-than-temporarily impaired (see Note 4 — “Investments”).

Limited Partnership Investment

Limited Partnership Investment. The Company has interest in a limited partnership that is not registered under the United Stated Securities Act of 1933, as amended, the securities laws of any state or the securities laws of any other jurisdictions. The partnership interest cannot be resold in the public market and any withdrawal is subject to the terms and conditions of the partnership agreement. The Company has no influence over partnership operating and financial policies. The Company did not elect the fair value option and, therefore, uses the equity method to account for this investment (see Note 4 — “Investments”). The Company will generally recognize its share of the limited partnership’s earnings on a three- to six-month lag.

Investment in Joint Venture

Investment in Joint Venture. The Company has a 90% equity interest in a joint venture that was organized to acquire and develop land on which the joint venture partners plan to construct a retail shopping center (see Note 4 — “Investments”) for lease or for sale. The joint venture was determined to be a variable interest entity as it lacks sufficient equity to finance its activities without additional subordinated financial support. Despite having a majority equity interest, the Company does not have a controlling financial interest and, accordingly, is not required to consolidate the joint venture as its primary beneficiary.

In addition, the joint venture agreement contains an embedded purchase option the Company can exercise to purchase the entire interest of the other party to the joint venture after the expiration of a restricted period. The Company determined the embedded purchase option is not required to be bifurcated and fair value accounting at each reporting date is not applicable. Due to the lack of a controlling financial interest and until the embedded purchase option becomes exercisable, the Company uses the equity method rather than consolidation to account for its investment in the joint venture.

Real Estate Investments

Real Estate Investments. Real estate investments consist of an acquisition, development and construction loan agreement (“ADC Arrangement”) and also real estate and the related assets purchased for investment purposes (see Note 4 — “Investments”).

Under the ADC Arrangement, the Company provides financing to a property developer for the acquisition, development, and construction of a retail shopping center. The Company also expects to participate in the residual profit resulting from the ultimate sale or other use of the property. Classification and accounting for the ADC Arrangement as a loan, an investment in real estate, or a joint venture is determined by the Company’s evaluation of the characteristics and the risks and rewards of the ADC Arrangement. If the Company expects to receive more than 50% of the residual profit from the ADC Arrangement and it has characteristics similar to a real estate investment, the costs of the real estate project will be capitalized and interest will be recognized in net investment income.

In addition, the Company considers any rights or features embedded in the ADC Arrangement that may require bifurcation and derivative accounting. Due to its participation in the expected residual profit, which is deemed a variable interest, the Company evaluates its involvements in the design and essential activities of the entity to which the Company provides financing for possible consolidation as the primary beneficiary under the Variable Interest Model.

Any subsequent changes in terms, rights or the developer’s equity interest that may result in a reclassification or a change in the accounting treatment of the ADC Arrangement will be evaluated. The Company will continually assess the collectability of principal, accrued interest and fees.

Real estate and the related depreciable assets are carried at cost, net of accumulated depreciation, which is included in net investment income and allocated over the estimated useful life of the asset using the straight-line method of depreciation. Real estate is evaluated for impairment when events or circumstances indicate the carrying value of the real estate may not be recoverable.

Deferred Policy Acquisition Costs

Deferred policy acquisition costs. Deferred policy acquisition costs (“DAC”) primarily represent commissions paid to outside agents at the time of collection of the policy premium and premium taxes and are amortized over the life of the related policy in relation to the amount of gross premiums earned.

The method followed in computing DAC limits the amount of such deferred costs to their estimated realizable value, which gives effect to the gross premium earned, related investment income, unpaid losses and LAE and certain other costs expected to be incurred as the premium is earned.

DAC is reviewed to determine if it is recoverable from future income, including investment income. If such costs are determined to be unrecoverable, they are expensed at the time of determination. The amount of DAC considered recoverable could be reduced in the near term if the estimates of total revenues discussed above are reduced or permanently impaired as a result of the disposition of a line of business. The amount of amortization of DAC could be revised in the near term if any of the estimates discussed above are revised.

Property and Equipment

Property and Equipment. Property and equipment is stated at cost less accumulated depreciation and amortization, which is included in other operating expenses. Depreciation is calculated on a straight-line basis over the estimated useful lives as follows: building 39 years; computer hardware and software 3 years; office and furniture equipment 3 to 7 years. Leasehold improvements are amortized over the shorter of the lease term or the asset’s useful life. Expenditures for improvements are capitalized to the property accounts. Replacements and maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets. Long-lived assets, such as property and equipment, are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of long-lived assets by determining whether the assets can be recovered from undiscounted future cash flows. Recoverability of long-lived assets is dependent upon, among other things, the Company’s ability to maintain profitability, so as to be able to meet its obligations when they become due. In the opinion of management, based upon current information and projections, long-lived assets will be recovered over the period of benefit.

Long-Term Debt

Long-Term Debt. Long-term debt is generally classified as a liability and carried at amortized cost, net of any discount. At issuance, a debt instrument with embedded features such as conversion and redemption options is evaluated to determine whether bifurcation and derivative accounting is applicable. If such instrument is not subject to derivative accounting, it is further evaluated to determine if the Company is required to separately account for the liability and equity components.

To determine the carrying values of the liability and equity components at issuance, the Company measures the fair value of a similar liability, including any embedded features other than the conversion option, and assigns such value to the liability component. The liability component’s fair value is then subtracted from the initial proceeds to determine the carrying value of the debt instrument’s equity component, which is included in additional paid-in capital.

Any embedded feature other than the conversion option is evaluated at issuance to determine if it is probable that such embedded feature will be exercised. If the Company concludes that the exercisability of that embedded feature is not probable, the embedded feature is considered to be nonsubstantive and would not impact the initial measurement and expected life of the debt instrument’s liability component.

Transaction costs related to issuing a debt instrument that embodies both liability and equity components are allocated to the liability and equity components in proportion to the allocation of the proceeds and accounted for as debt issuance costs and equity issuance costs, respectively. Debt issuance costs are recognized in other assets. Both debt discount and deferred debt issuance costs are amortized to interest expense over the expected life of the debt instrument using the effective interest method. Equity issuance costs are a reduction to the proceeds allocated to the equity component.

Prepaid Share Repurchase Forward Contract

Prepaid Share Repurchase Forward Contract. A prepaid share repurchase forward contract is generally a contract that allows the Company to buy from the counterparty a specified number of common shares at a specific time at a given forward price. The Company entered into such a contract in December 2013 and evaluated the characteristics of the forward contract to determine whether it met the definition of a derivative financial instrument pursuant to U.S. GAAP. The Company determined the forward contract is an equity contract on the Company’s common shares requiring physical settlement in common shares of the Company. As such, the transaction is recognized as a component of stockholders’ equity with a charge to additional paid-in capital equal to the prepayment amount, which represents the cash paid to the counterparty. There will be no recognition in earnings for changes in fair value in subsequent periods.

Losses and Loss Adjustment Expenses

Losses and Loss Adjustment Expenses. Reserves for losses and loss adjustment expenses (“LAE”) are determined by establishing liabilities in amounts estimated to cover incurred losses and LAE. Such reserves are determined based on the assessment of claims reported and the development of pending claims. These reserves are based on individual case estimates for the reported losses and LAE and estimates of such amounts that are incurred but not reported. Changes in the estimated liability are charged or credited to income as the losses and LAE are settled.

 

The estimates of unpaid losses and LAE are subject to trends in claim severity and frequency and are continually reviewed. As part of the process, the Company reviews historical data and considers 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 LAE. 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.

Advance Premiums

Advance Premiums. Premium payments received prior to the policy effective date are recorded as advance premiums. Once the policy is in force, the premiums are recorded as described under “Premium Revenue” below.

Reinsurance

Reinsurance. In the normal course of business, the Company seeks to reduce the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. The Company contracts with a number of reinsurers to secure its annual reinsurance coverage, which generally becomes effective June 1st each year. The Company purchases reinsurance each year taking into consideration probable maximum losses and reinsurance market conditions. Amounts recoverable from reinsurers would be estimated in a manner consistent with the applicable reinsurance contract(s). Reinsurance premiums and reserves related to reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums ceded to other companies have been reported as a reduction of gross premiums earned. Prepaid reinsurance premiums represent the unexpired portion of premiums ceded to reinsurers.

Certain of the Company’s current contracts contain retrospective provisions including terms and conditions that adjust premiums, increase the amount of future coverage, or result in profit commissions based on the loss experience under the contracts. In such cases, a with-and-without method is used to estimate the asset or liability amount to be recognized at each reporting date. The amount of the estimate is the difference between the net contract costs before and after the loss experience under the contract. Estimates related to premium adjustments, profit commissions and coverage changes are recognized in ceded premiums earned. These estimates are reviewed monthly based on the loss experience to date and as adjustments become necessary. Such adjustments are reflected in the Company’s current operations and recorded in other assets until received upon the expiration of the contracts.

Premium Revenue

Premium Revenue. Premium revenue is earned on a daily pro-rata basis over the term of the policies and is included in gross premiums earned. Unearned premiums represent the portion of the premium related to the unexpired policy term. The Company reviews its policy detail and establishes an allowance for any amount outstanding for more than 90 days. As of December 31, 2014 and 2013, there was no allowance required.

Policy Fees

Policy Fees. Policy fees represent nonrefundable fees for insurance coverage, which are intended to reimburse a portion of the costs incurred to underwrite the policy. Effective October 1, 2013 on a prospective basis, policy fees are recognized ratably over the policy coverage period. Prior to October 1, 2013, the fees were recognized in income when the policy was written on the basis that the revenues were appropriately matched to the Company’s incremental direct costs related to policy underwriting.

Florida Insurance Guaranty Association Assessments

Florida Insurance Guaranty Association Assessments. The Company may be assessed by the state guaranty association. The assessments are intended to be used for the payment of covered claims of insolvent insurance entities. The assessments are generally based on a percentage of premiums written during or following the year of insolvency. Liabilities are recognized when the assessments are probable to be imposed on the premiums on which they are expected to be based and the amounts can be reasonably estimated. The Company is permitted by Florida statutes to recover the entire amount of assessments from in-force and future policyholders through policy surcharges. U.S. GAAP provides that the Company should record an asset based on the amount of written or obligated-to-write premiums and limited to the amounts recoverable over the life of the in-force policies.

Foreign Currency

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

Income Taxes

Income Taxes. The Company files consolidated federal and state income tax returns and allocates taxes among its wholly owned subsidiaries in accordance with a written tax-allocation agreement.

The Company accounts for income taxes in accordance with U.S. GAAP, resulting in two components of income tax expense: current and deferred. Current income tax expense reflects taxes to be paid or refunded for the current period by applying the provisions of the enacted tax law to the taxable income or excess of deductions over revenues. The Company determines deferred income taxes using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is based on the tax effects of the differences between the book and tax bases of assets and liabilities, and enacted changes in tax rates and laws are recognized in the period in which they occur.

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term “more likely than not” means a likelihood of more than fifty percent; the terms “examined” and “upon examination” also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. As of December 31, 2014, management is not aware of any uncertain tax positions that would have a material effect on the Company’s consolidated financial statements.

Fair Value of Financial Instruments

Fair Value of Financial Instruments. The carrying amounts for the Company’s cash and cash equivalents approximate their fair values at December 31, 2014 and 2013. Fair values for securities are based on the framework for measuring fair value established by U.S. GAAP (see Note 5 — “Fair Value Measurements”).

Stock-Based Compensation

Stock-Based Compensation. The Company accounts for stock-based compensation under the fair value recognition provisions of U.S. GAAP which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and restricted stock issuances based on estimated fair values. In accordance with U.S. GAAP, the fair value of stock-based awards is generally recognized as compensation expense over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The Company uses a straight-line attribution method for all grants that include only a service condition. The Company’s restricted stock awards include service, market and performance conditions. As a result, restricted stock grants with market condition are expensed over the derived service period for each separately vesting tranche. For awards with performance conditions, the Company recognizes compensation expense over the requisite service period when it is probable that the performance condition will be achieved. Compensation expense related to all awards is included in other operating expense.

Basic and Diluted Earnings Per Common Share

Basic and diluted earnings per common share. Basic earnings per common share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. U.S. GAAP requires the inclusion of restricted stock as participating securities since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. During periods of net income, participating securities are allocated a proportional share of net income determined by dividing total weighted-average participating securities by the sum of total weighted-average common shares and participating securities (the “two-class method”). Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted as well as participating equities. See Note 13— “Earnings Per Share” for potentially dilutive securities at December 31, 2014, 2013 and 2012.

Reclassifications

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

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Investments (Tables)
12 Months Ended
Dec. 31, 2014
Investments, Debt and Equity Securities [Abstract]
Summary of Amortized Cost, Gross Unrealized Gains and Losses, and Estimated Fair Value of Available-for-Sale Securities

At December 31, 2014 and 2013, the cost or 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:

 

     Cost or
Amortized
Cost
     Gross
Unrealized
Gain
     Gross
Unrealized
Loss
     Estimated
Fair

Value
 

As of December 31, 2014

           

Fixed-maturity securities

           

U.S. Treasury and U.S. government agencies

   $ 3,747       $ 9       $ (8    $ 3,748   

Corporate bonds

     24,342         57         (430      23,969   

Mortgage-backed securities

     2,138         4         (3      2,139   

State, municipalities, and political subdivisions

     56,336         1,205         (38      57,503   

Redeemable preferred stock

     9,433         178         (54      9,557   

Other

     167         1         —           168   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  96,163      1,454      (533   97,084   

Equity securities

  45,387      1,694      (1,531   45,550   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

$ 141,550    $ 3,148    $ (2,064 $ 142,634   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2013

Fixed-maturity securities

U.S. Treasury and U.S. government agencies

$ 4,549    $ 37    $ (22 $ 4,564   

Corporate bonds

  25,139      484      (219   25,404   

Mortgage-backed securities

  10,929      499      (96   11,332   

State, municipalities, and political subdivisions

  69,715      917      (181   70,451   

Redeemable preferred stock

  406      5      (11   400   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

  110,738      1,942      (529   112,151   

Equity securities

  17,248      920      (519   17,649   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

$ 127,986    $ 2,862    $ (1,048 $ 129,800   
  

 

 

    

 

 

    

 

 

    

 

 

 

Scheduled Contractual Maturities of Fixed-Maturity Securities

The scheduled contractual maturities of fixed-maturity securities at December 31, 2014 and 2013 are as follows:

 

     December 31,  
     2014      2013  
     Amortized
Cost
     Estimated
Fair
Value
     Amortized
Cost
     Estimated
Fair

Value
 

Available-for-sale

           

Due in one year or less

   $ 715       $ 721       $ 2,366       $ 2,381   

Due after one year through five years

     25,973         26,093         24,829         25,145   

Due after five years through ten years

     57,157         57,560         59,083         59,582   

Due after ten years

     10,180         10,571         13,531         13,711   

Mortgage-backed securities

     2,138         2,139         10,929         11,332   
  

 

 

    

 

 

    

 

 

    

 

 

 
$ 96,163    $ 97,084    $ 110,738    $ 112,151   
  

 

 

    

 

 

    

 

 

    

 

 

 

Summary of Proceeds Received and Gross Realized Gains and Losses from Sales of Available for Sale Securities

Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the years ended December 31, 2014, 2013 and 2012 were as follows:

 

     Proceeds      Gross
Realized
Gains
     Gross
Realized
Losses
 

Year ended December 31, 2014

        

Fixed-maturity securities

   $ 98,365       $ 4,096       $ (98
  

 

 

    

 

 

    

 

 

 

Equity securities

$ 16,810    $ 1,372    $ (635
  

 

 

    

 

 

    

 

 

 

Year ended December 31, 2013

Fixed-maturity securities

$ 1,749    $ 92    $ (4
  

 

 

    

 

 

    

 

 

 

Equity securities

$ 2,809    $ 155    $ (163
  

 

 

    

 

 

    

 

 

 

Year ended December 31, 2012

Fixed-maturity securities

$ 8,991    $ 421    $ (6
  

 

 

    

 

 

    

 

 

 

Equity securities

$ 1,735    $ 91    $ (230
  

 

 

    

 

 

    

 

 

 

Summary of Securities with Gross Unrealized Loss Positions Aggregated by Investment Category

Securities with gross unrealized loss positions at December 31, 2014 and 2013, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:

 

     Less Than Twelve Months      Twelve Months or
Greater
     Total  
     Gross
Unrealized
Loss
    Estimated
Fair

Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
 

As of December 31, 2014

              

Fixed-maturity securities

              

U.S. treasury and U.S. government agencies

   $ (8   $ 2,485       $ —        $ —         $ (8   $ 2,485   

Corporate bonds

     (428     12,929         (2     998         (430     13,927   

Mortgage-backed securities

     (3     1,018         —          —           (3     1,018   

State, municipalities, and political subdivisions

     (19     3,144         (19     202         (38     3,346   

Redeemable preferred stock

     (54     2,586         —          —           (54     2,586   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total fixed-maturity securities

  (512   22,162      (21   1,200      (533   23,362   

Equity securities

  (1,449   18,848      (82   4,619      (1,531   23,467   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

$ (1,961 $ 41,010    $ (103 $ 5,819    $ (2,064 $ 46,829   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2014, there were 94 securities in an unrealized loss position. Of these securities, 9 securities had been in an unrealized loss position for 12 months or greater.

 

     Less Than Twelve Months      Twelve Months or
Greater
     Total  
     Gross
Unrealized
Loss
    Estimated
Fair

Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
 

As of December 31, 2013

              

Fixed-maturity securities

              

U.S. treasury and U.S. government agencies

   $ (22   $ 3,291       $ —        $ —         $ (22   $ 3,291   

Corporate bonds

     (212     9,502         (7     230         (219     9,732   

Mortgage-backed securities

     (96     2,179         —          —           (96     2,179   

State, municipalities, and political subdivisions

     (181     20,233         —          —           (181     20,233   

Redeemable preferred stock

     (11     239         —          —           (11     239   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total fixed-maturity securities

  (522   35,444      (7   230      (529   35,674   

Equity securities

  (273   10,742      (246   1,069      (519   11,811   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

$    (795 $ 46,186    $ (253 $ 1,299    $ (1,048 $ 47,485   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Summary of Operating Results and Financial Position

The joint venture partners received no distributions during 2014. The following tables provide summarized operating results and the financial position of FMJV:

 

     Year Ended
December 31, 2014
 
     (Unaudited)  

Operating results:

  

Revenue

   $ —     

Operating expenses

     25   
  

 

 

 

Net loss

$ (25
  

 

 

 

Melbourne FMA’s share of net loss*

$ (23

 

* Included in net investment income in the Company’s consolidated statements of income.

 

     December 31,
2014
 
     (Unaudited)  

Balance Sheet:

  

Construction in progress - real estate

   $ 3,612   

Cash

     1,323   

Other

     40   
  

 

 

 

Total assets

$ 4,975   
  

 

 

 

Other liabilities

  —     

Members’ capital

  4,975   
  

 

 

 

Total liabilities and members’ capital

$ 4,975   
  

 

 

 

Investment in joint venture, at equity

$ 4,477   

Summary of Real Estate Investment

Real estate investments consist of the following as of December 31, 2014 and 2013:

 

     December 31,  
     2014      2013  

Land

   $ 11,476       $ 11,299   

Land improvements

     1,425         1,351   

Building

     3,097         3,022   

Other

     1,359         1,262   
  

 

 

    

 

 

 

Total, at cost

  17,357      16,934   

Less: accumulated depreciation and amortization

  (1,107   (706
  

 

 

    

 

 

 

Real estate, net

  16,250      16,228   

ADC Arrangement classified as real estate investment

  2,888      —     
  

 

 

    

 

 

 

Real estate investments

$ 19,138    $ 16,228   
  

 

 

    

 

 

 

Investment Income Summarized

Net investment income (loss), by source, is summarized as follows:

 

     Years Ended December 31,  
     2014      2013      2012  

Available-for-sale securities:

        

Fixed-maturity securities

   $ 3,339       $ 1,868       $ 1,464   

Equity securities

     2,364         499         492   

Other-than-temporary impairment charge

     (107      —           —     

Investment expense

     (436      (210      (150

Limited partnership investment

     (90      —           —     

Time deposits

     —           —           357   

Real estate investments

     (955      (1,045      (1,334

Cash and cash equivalents

     666         357         151   
  

 

 

    

 

 

    

 

 

 
$ 4,781    $ 1,469    $ 980   
  

 

 

    

 

 

    

 

 

 

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Fair Value Measurements (Tables)
12 Months Ended
Dec. 31, 2014
Fair Value Disclosures [Abstract]
Available-for-Sale Securities Measured at Fair Value

The following tables present information about the Company’s financial assets measured at estimated fair value on a recurring basis. The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of December 31, 2014 and 2013:

 

     Fair Value Measurements Using         
     (Level 1)      (Level 2)      (Level 3)      Total  

As of December 31, 2014

           

Financial Assets:

           

Cash and cash equivalents

   $ 314,716       $ —         $ —         $ 314,716   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed-maturity securities:

U.S. Treasury and U.S. government agencies

  1,069      2,679      —        3,748   

Corporate bonds

  22,274      1,695      —        23,969   

Mortgage-backed securities

  —        2,139      —        2,139   

State, municipalities, and political subdivisions

  —        57,503      —        57,503   

Redeemable preferred stock

  9,557      —        —        9,557   

Other

  —        168      —        168   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed-maturity securities

  32,900      64,184      —        97,084   

Equity securities

  45,550      —        —        45,550   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

  78,450      64,184      —        142,634   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 393,166    $ 64,184    $ —      $ 457,350   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements Using         
     (Level 1)      (Level 2)      (Level 3)      Total  

As of December 31, 2013

           

Financial Assets:

           

Cash and cash equivalents

   $ 293,398       $ —         $ —         $ 293,398   
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed-maturity securities:

U.S. Treasury and U.S. government agencies

  3,520      1,044      —        4,564   

Corporate bonds

  24,476      928      —        25,404   

Mortgage-backed securities

  —        11,332      —        11,332   

State, municipalities, and political subdivisions

  —        70,451      —        70,451   

Redeemable preferred stock

  400      —        —        400   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed-maturity securities

  28,396      83,755      —        112,151   

Equity securities

  17,649      —        —        17,649   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

  46,045      83,755      —        129,800   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 339,443    $ 83,755    $ —      $ 423,198   
  

 

 

    

 

 

    

 

 

    

 

 

 

Schedule of Fair Value Information for Financial Assets and Liabilities Carried on Balance Sheet

The following tables present fair value information for assets and liabilities that are carried on the balance sheet at amounts other than fair value as of December 31, 2014 and 2013:

 

     Fair Value Measurements Using         
     (Level 1)      (Level 2)      (Level 3)      Total  

As of December 31, 2014

           

Financial Assets:

           

ADC Arrangement classified as real estate investment

   $ —         $ —         $ 2,835       $ 2,835   

Financial Liabilities:

           

Long-term debt:

           

8% Senior notes

   $ —         $ 42,955       $ —         $ 42,955   

3.875% Convertible senior notes

     —           —           93,367         93,367   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

$ —      $ 42,955    $ 93,367    $ 136,322   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Fair Value Measurements Using         
     (Level 1)      (Level 2)      (Level 3)      Total  

As of December 31, 2013

           

Financial Liabilities:

           

Long-term debt:

           

8% Senior notes

   $ —         $ 43,390       $ —         $ 43,390   

3.875% Convertible senior notes

     —           —           86,630         86,630   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

$ —      $ 43,390    $ 86,630    $ 130,020   
  

 

 

    

 

 

    

 

 

    

 

 

 

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Deferred Policy Acquisition Costs (Tables)
12 Months Ended
Dec. 31, 2014
Insurance [Abstract]
Summary of Activity with Respect to Deferred Policy Acquisition Costs

The following table summarizes the activity with respect to deferred policy acquisition costs:

 

     December 31,  
     2014      2013  

Beginning balance

   $ 14,071       $ 10,032   

Policy acquisition costs deferred

     33,861         31,097   

Amortization

     (32,918      (27,058
  

 

 

    

 

 

 

Ending balance

$   15,014    $   14,071   
  

 

 

    

 

 

 

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Property and Equipment, net (Tables)
12 Months Ended
Dec. 31, 2014
Property, Plant and Equipment [Abstract]
Summary of Property and Equipment, Net

Property and equipment, net consists of the following:

 

     December 31,  
     2014      2013  

Land

   $ 1,642       $ 1,642   

Building

     7,622         7,596   

Computer hardware and software

     1,617         1,486   

Office furniture and equipment

     1,647         1,407   

Tenant and leasehold improvements

     3,093         3,093   

Other

     691         629   
  

 

 

    

 

 

 

Total, at cost

  16,312      15,853   

Less: accumulated depreciation and amortization

  (4,020   (2,721
  

 

 

    

 

 

 

Property and equipment, net

$   12,292    $   13,132   
  

 

 

    

 

 

 

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Other Assets (Tables)
12 Months Ended
Dec. 31, 2014
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Summary of Other Assets

The following table summarizes the Company’s other assets:

 

     December 31,  
     2014      2013  

Benefits receivable related to retrospective reinsurance contracts

   $ 28,123       $ 8,815   

Deferred costs related to retrospective reinsurance contracts

     473         194   

Deferred offering costs on senior notes issued in 2013

     3,653         4,305   

Prepaid expenses

     1,444         771   

Other

      1,594          1,729   
  

 

 

    

 

 

 

Total other assets

$   35,287    $   15,814   
  

 

 

    

 

 

 

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Long-Term Debt (Tables)
12 Months Ended
Dec. 31, 2014
Debt Disclosure [Abstract]
Summary of Long-term Debt

The following table summarizes the Company’s long-term debt:

 

     December 31,  
     2014      2013  

8% Senior Notes, due January 30, 2020

   $ 40,250       $ 40,250   

3.875% Convertible Senior Notes, due March 15, 2019*

     89,289         86,682   
  

 

 

    

 

 

 

Total long-term debt

$ 129,539    $ 126,932   
  

 

 

    

 

 

 

*  net carrying value

Equity and Liability Components of the Convertible Notes

The following table summarizes information regarding the equity and liability components of the Convertible Notes:

 

     December 31,  
     2014      2013  

Principal amount

   $ 103,000       $ 103,000   

Unamortized discount

     (13,711      (16,318
  

 

 

    

 

 

 

Liability component – net carrying value

$ 89,289    $ 86,682   
  

 

 

    

 

 

 

Equity component – conversion, net of offering costs

$ 15,900    $ 15,900   
  

 

 

    

 

 

 
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Reinsurance (Tables)
12 Months Ended
Dec. 31, 2014
Insurance [Abstract]
Impact of Catastrophe Excess of Loss Reinsurance and Quota Share Treaties on Premiums Written and Earned

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

 

     Years Ended December 31,  
     2014      2013      2012  

Premiums Written:

        

Direct

   $ 341,685       $ 315,695       $ 205,839   

Assumed

     65,968         39,076         73,340   
  

 

 

    

 

 

    

 

 

 

Gross written

  407,653      354,771      279,179   

Ceded

  (113,423   (102,865   (75,939
  

 

 

    

 

 

    

 

 

 

Net premiums written

$ 294,230    $ 251,906    $ 203,240   
  

 

 

    

 

 

    

 

 

 

Premiums Earned:

Direct

$ 332,175    $ 273,037    $ 168,937   

Assumed

  33,313      64,076      64,670   
  

 

 

    

 

 

    

 

 

 

Gross earned

  365,488      337,113      233,607   

Ceded

  (113,423   (102,865   (75,939