• Filing Date: 2012-03-30
  • Form Type: 10-K
  • Description: Annual report
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Document And Entity Information (USD $)
12 Months Ended
Dec. 31, 2011
Mar. 18, 2012
Jun. 30, 2011
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2011    
Document Fiscal Year Focus 2011    
Document Fiscal Period Focus FY    
Entity Registrant Name Homeowners Choice, Inc.    
Entity Central Index Key 0001400810    
Current Fiscal Year End Date --12-31    
Entity Filer Category Smaller Reporting Company    
Entity Common Stock, Shares Outstanding   6,473,925  
Trading Symbol HCII    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Public Float     $ 33,577,402
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Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Assets    
Fixed maturity securities, available-for-sale, at fair value (amortized cost $34,147 and $28,456) $ 34,642 $ 28,564
Equity securities, available-for-sale, at fair value 5,207 884
Time deposits 12,427 14,033
Other investments 6,483  
Total investments 58,759 43,481
Cash and cash equivalents 100,355 54,849
Accrued interest and dividends receivable 408 180
Premiums receivable 12,222 5,822
Assumed reinsurance balances receivable 1,687 26
Prepaid reinsurance premiums 14,169 17,787
Deferred policy acquisition costs 12,321 9,407
Property and equipment, net 10,499 7,755
Goodwill 161  
Deferred income taxes 2,368 584
Other assets 1,869 1,057
Total assets 214,818 140,948
Liabilities and Stockholders' Equity    
Losses and loss adjustment expenses 27,424 22,146
Unearned premiums 108,677 65,034
Advance premiums 2,132 1,114
Accrued expenses 3,478 2,385
Income taxes payable 4,956 310
Dividends payable 218  
Other liabilities 4,103 3,330
Total liabilities 150,988 94,319
Commitments and contingencies (Notes 1, 6, 14 and 15)      
Stockholders' equity:    
Preferred stock (no par value, 18,500,000 shares authorized, no shares issued or outstanding)      
Common stock, (no par value, 40,000,000 shares authorized, 6,202,485 and 6,205,396 shares issued and outstanding in 2011 and 2010)      
Additional paid-in capital 29,636 18,606
Retained earnings 33,986 28,065
Accumulated other comprehensive income (loss) 208 (42)
Total stockholders' equity 63,830 46,629
Total liabilities and stockholders' equity 214,818 140,948
7% Series A Cumulative Convertible Preferred Stock [Member]
   
Stockholders' equity:    
Preferred stock (no par value, 18,500,000 shares authorized, no shares issued or outstanding)      
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Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Amortized Cost $ 34,147 $ 28,456
Preferred stock, no par value      
Preferred stock, authorized 18,500,000 18,500,000
Preferred stock, issued 0 0
Preferred stock, outstanding 0 0
Common stock, no par value      
Common stock, authorized 40,000,000 40,000,000
Common stock, issued 6,202,485 6,205,396
Common stock, outstanding 6,202,485 6,205,396
7% Series A Cumulative Convertible Preferred Stock [Member]
   
Convertible preferred stock, liquidation preference $ 10  
Preferred stock, no par value      
Preferred stock, authorized 1,500,000  
Preferred stock, issued 1,247,700  
Preferred stock, outstanding 1,247,700  
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Consolidated Statements Of Earnings (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Revenue    
Gross premiums earned $ 143,606 $ 119,757
Premiums ceded (56,360) (57,322)
Net premiums earned 87,246 62,435
Net investment income 2,180 1,962
Realized investment gains 267 2,003
Policy fee income 1,438 1,464
Gain on bargain purchase 936  
Other 2,772 751
Total revenue 94,839 68,615
Expenses    
Losses and loss adjustment expenses 48,243 37,667
Policy acquisition and other underwriting expenses 18,129 14,878
Other operating expenses 12,062 7,484
Total expenses 78,434 60,029
Income before income taxes 16,405 8,586
Income taxes 6,441 3,164
Net income 9,964 5,422
Preferred stock dividends (815)  
Income available to common stockholders $ 9,149 $ 5,422
Basic earnings per common share $ 1.49 $ 0.88
Diluted earnings per common share $ 1.34 $ 0.81
Dividends per common share $ 0.53 $ 0.30
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Consolidated Statements Of Stockholders' Equity (USD $)
In Thousands, except Share data
Preferred Stock [Member]
Common Stock [Member]
Additional Paid-In Capital [Member]
USD ($)
Retained Earnings [Member]
USD ($)
Accumulated Other Comprehensive Income (Loss) [Member]
USD ($)
Total
USD ($)
Balance, value at Dec. 31, 2009     $ 21,164 $ 24,520 $ (306) $ 45,378
Balance, shares at Dec. 31, 2009   6,456,635        
Net Income       5,422   5,422
Change in unrealized loss on available-for-sale securities, net of income taxes         264 264
Comprehensive income           5,686
Exercise of common stock options,shares   260,000        
Exercise of common stock options,value     650     650
Excess tax benefit from stock options exercised     301     301
Common stock dividends       (1,877)   (1,877)
Repurchases and retirement of common stock, shares   (511,239)        
Repurchases and retirement of common stock, value     (3,596)     (3,596)
Stock-based compensation     87     87
Balance, value at Dec. 31, 2010     18,606 28,065 (42) 46,629
Balance, shares at Dec. 31, 2010    6,205,396        
Net Income       9,964   9,964
Change in unrealized loss on available-for-sale securities, net of income taxes         250 250
Comprehensive income           10,214
Proceeds from sale of preferred stock (net of offering costs of $1,170)     11,307     11,307
Proceeds from sale of preferred stock (net of offering costs of $1,170), shares 1,247,700          
Exercise of common stock options,shares   245,883        
Exercise of common stock options,value     564     564
Excess tax benefit from stock options exercised     265     265
Common stock dividends       (3,229)   (3,229)
Preferred stock dividends       (814)   (814)
Repurchases and retirement of common stock, shares   (248,794)        
Repurchases and retirement of common stock, value     (1,887)     (1,887)
Warrants issued in connection with assumption transaction     754     754
Stock-based compensation     27     27
Balance, value at Dec. 31, 2011     $ 29,636 $ 33,986 $ 208 $ 63,830
Balance, shares at Dec. 31, 2011 1,247,700 6,202,485        
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Consolidated Statements Of Stockholders' Equity (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Consolidated Statements Of Stockholders' Equity [Abstract]  
Preferred stock, offering costs $ 1,170
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Consolidated Statements Of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities:    
Net income $ 9,964 $ 5,422
Adjustments to reconcile net income to net cash provided by operating activities:    
Stock-based compensation 27 87
Amortization of premiums (discounts) on investments in fixed maturity securities 172 (28)
Depreciation and amortization 576 178
Deferred income taxes (benefit) (1,984) 1,690
Realized gains on sales of investments (267) (2,003)
Gain on bargain purchase (936)  
Changes in operating assets and liabilities:    
Premiums receivable (6,400) (923)
Assumed reinsurance balances receivable (1,661) 19,499
Advance premiums 1,018 401
Prepaid reinsurance premiums 3,618 (10,582)
Accrued interest and dividends receivable (228) (4)
Other assets 82 (99)
Deferred policy acquisition costs (2,914) 1,089
Losses and loss adjustment expenses 5,278 2,968
Unearned premiums 43,643 (3,475)
Income taxes payable 4,646 143
Accrued expenses and other liabilities 1,399 1,768
Net cash provided by operating activities 56,033 16,131
Cash flows from investing activities:    
Cash consideration paid for acquired business (5,309)  
Purchase of other investments (205)  
Purchase of property and equipment, net (3,144) (7,534)
Purchase of fixed maturity securities (31,170) (31,921)
Purchase of equity securities (6,625) (5,384)
Proceeds from sales of fixed maturity securities 25,741 29,116
Proceeds from sales of equity securities 2,155 4,515
Redemption of time deposits, net 1,606 (526)
Decrease in short-term investments, net   11,521
Net cash used in investing activities (16,951) (213)
Cash flows from financing activities:    
Net proceeds from the issuance of preferred stock 11,307  
Proceeds from the exercise of common stock options 564 650
Cash dividends paid (3,825) (1,877)
Repurchases of common stock (1,887) (3,596)
Excess tax benefit from common stock options exercised 265 301
Net cash provided by (used in) financing activities 6,424 (4,522)
Net increase in cash and cash equivalents 45,506 11,396
Cash and cash equivalents at beginning of year 54,849 43,453
Cash and cash equivalents at end of year 100,355 54,849
Supplemental disclosure of cash flow information:    
Cash paid for income taxes 3,451 790
Cash paid for interest      
Non-cash operating, financing and investing activities:    
Unrealized gain on investments in available for sale securities, net of tax 250 264
Common stock warrants issued for outside services 754  
Fair value of net assets acquired in connection with business acquisition 5,723  
Transfer of securities held-to-maturity to securities available-for-sale   $ 1,900
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Summary Of Significant Accounting Policies
12 Months Ended
Dec. 31, 2011
Summary Of Significant Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

Note 1 – Summary of Significant Accounting Policies

Organization and Business. The accompanying consolidated financial statements include the accounts of Homeowners Choice, Inc. and its wholly-owned subsidiaries (collectively, the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation.

Homeowners Choice, Inc. is an insurance holding company, which through its subsidiaries and contractual relationships with independent agents controls substantially all aspects of the insurance underwriting, distribution and claims process. The Company is authorized to underwrite homeowners' property and casualty insurance in the state of Florida through its wholly-owned subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc. (HCPC).

Homeowners Choice Managers, Inc. (HCM), a wholly-owned subsidiary, acts as HCPC's exclusive managing general agent in the state of Florida. HCM currently provides underwriting policy administration, marketing, accounting and financial services to HCPC, and participates in the negotiation of reinsurance contracts. Southern Administration, Inc., a wholly-owned subsidiary, provides policy administration services. Claddaugh Casualty Insurance Company Ltd. ("Claddaugh"), a wholly-owned subsidiary, provides reinsurance coverage to HCPC. Homeowners Choice, Inc. subsidiaries also include TV Investment Holdings LLC, which is owned by HCI Holdings LLC, a wholly-owned subsidiary of Homeowners Choice, Inc. TV Investment Holdings LLC owns and operates a marina facility located in Florida. HCI Technical Resources, Inc., a wholly-owned subsidiary, owns Unthink Technologies Private Limited, the Company's Indian subsidiary, which provides software development services to the Company. HCPCI Holdings LLC, a wholly-owned subsidiary of HCPC, owns and manages the Company's real estate holdings.

Prior to November 2011, nearly all of the Company's customers were obtained through participation in a "takeout program" with Citizens Property Insurance Corporation ("Citizens"), a Florida state supported insurer. The customers were obtained in eight separate assumption transactions completed in July and November 2007, February, June, October and December 2008, December 2009, and December 2010. 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. In November 2011, the Company completed an assumption transaction with HomeWise Insurance Company, Inc. ("HomeWise") through which the Company assumed the Florida policies of HomeWise. Substantially all of the Company's premium revenue since inception comes from these assumptions.

Acquisition Accounting. The Company accounts for business combinations using the acquisition method, which requires an allocation of the purchase price of an acquired entity to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. Goodwill represents the excess of the purchase price over the net tangible and intangible assets acquired. In the event the net assets acquired exceed the purchase price, the Company will recognize a gain on bargain purchase.

Use of Estimates. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 related to loss and loss adjustment expenses.

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, 2011 and 2010, cash and cash equivalents consist of cash on deposit with financial institutions and securities brokerage firms.

Time Deposits. Time deposits consist of certificates of deposit with initial maturities ranging from one to five years.

Short-term Investments. Short-term investments consist of certificates of deposit with maturities less than one year.

Investments. Securities may be classified as either trading, held to maturity or available for sale. Held-to-maturity securities are reported at amortized cost. 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 earnings and reported in stockholders' equity as a component of accumulated other comprehensive income (loss), net of deferred income taxes. Realized investment gains and losses are recorded on the trade date and are determined using the specific identification method. Investment income is recognized as earned and discounts or premiums arising from the purchase of securities are recognized in investment income using the interest method over the estimated remaining term of the security.

As part of the Company's investment strategy, put and call options are purchased or sold on various equity securities the Company is willing to buy or sell. The premiums received are recorded as a liability until such time as the options are exercised or expire. Upon exercise, the value of the premium will adjust the basis of the underlying security bought or sold. Options that expire are recorded as income in the period they expire. With respect to these written option contracts, the Company includes the net gain or loss in the amount reported for realized investments gains in the Consolidated Statements of Earnings. In accordance with the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 815, "Derivatives and Hedging," in the event the Company has open option contracts at the end of the reporting period, these options are marked to fair value through earnings. There were no option contracts outstanding at December 31, 2011 or 2010.

The Company reviews all securities for other-than-temporary impairment ("OTTI") at least 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 earnings in the period in which the Company makes such determination. For a debt security that the Company does not intend to sell and it is not 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 earnings, 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 3 – "Investments").

Other investments consist primarily of real estate purchased during 2011 (see Note 3 – "Investments" and Note 5 – "Business Acquisitions"). Real estate and the related depreciable assets are carried at cost, net of accumulated depreciation, which is 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") for the years ended December 31, 2011 and 2010 primarily represent commissions paid to outside agents at the time of collection of the policy premium, salaries, premium taxes, and commissions with respect to assumed reinsurance 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 premium earned, related investment income, unpaid loss 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 (see Accounting Standards Update No. 2010-26 under Note 2 – "Recent Accounting Pronouncements").

Property and Equipment. Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. 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.

Goodwill. Goodwill is not amortized. Rather, the Company is required to test goodwill for impairment at least annually or sooner in the event there are changes in circumstances indicating the asset may be impaired. The Company's goodwill relates to a business acquisition completed in the fourth quarter of 2011 for which the allocation of the purchase price is preliminary at December 31, 2011. The Company plans to perform its goodwill impairment test in the fourth quarter of each year beginning with the fourth quarter in 2012. Thus, the Company did not recognize any impairment charges in the years ended December 31, 2011 or 2010.

Impairment of Long-Lived Assets. Long-lived assets, such as property and equipment, are reviewed for impairment 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.

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 earnings 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.

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 well-known and rated reinsurers to secure its annual reinsurance coverage, which becomes effective June 1st each year. We purchase reinsurance each year taking into consideration maximum projected losses and reinsurance market conditions. Amounts recoverable from reinsurers are estimated in a manner consistent with the reinsured policy. 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 premium income. Prepaid reinsurance premiums represent the unexpired portion of premiums ceded to reinsurers.

Premium Revenue. Premium revenue is earned on a daily pro-rata basis over the term of the policies. Unearned premiums represent the portion of the premium related to the unexpired policy term.

Policy Fees. Policy fees represent nonrefundable application fees for insurance coverage, which are intended to reimburse a portion of the costs incurred to underwrite the policy. The fees and related costs are recognized when the policy is written.

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 the results of operations.

Income Taxes. The Company accounts for income taxes in accordance with ASC Topic 740 – "Income Taxes" ("ASC 740"). ASC 740 results 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, 2011, management is not aware of any uncertain tax positions that would have a material effect on the Company's consolidated financial statements.

The Company has elected to classify interest and penalties as income tax expense as permitted by current accounting standards.

Fair Value of Financial Instruments. The carrying amounts for the Company's cash and cash equivalents and short-term investments approximate their fair values at December 31, 2011 and 2010 due to their short-term nature. Fair value for securities are based on the framework for measuring fair value established by ASC Topic 820, Fair Value Measurements and Disclosures (see Note 3 – "Investments").

Stock-Based Compensation. The Company accounts for stock-based compensation under the fair value recognition provisions of ASC Topic 718 – "Compensation – Stock Compensation," 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 ASC Topic 718, the Company recognizes stock-based compensation in the consolidated statements of earnings on a straight-line basis over the vesting period.

Earnings Per Share. Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding. Diluted earnings per share is computed based on the weighted-average number of shares outstanding plus the effect of outstanding stock options and warrants, computed using the treasury stock method, and preferred stock using the if-converted method.

 

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, 2011
Recent Accounting Pronouncements [Abstract]  
Recent Accounting Pronouncements

Note 2 – Recent Accounting Pronouncements

Accounting Standards Update No. 2011-12. In December 2011, the FASB issued Accounting Standards Update ("ASU") No. 2011-12 ("ASU 2011-12"), Comprehensive Income (Topic 220), Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 ("ASU 2011-05"). Stakeholders raised concerns that the new presentation requirements about reclassifications of items out of accumulated other comprehensive income would be difficult for preparers and may add unnecessary complexity to financial statements. In addition, it is difficult for some stakeholders to change systems in time to gather the information for the new presentation requirements by the effective date of Update 2011-05. All other requirements in ASU 2011-05 are not affected by this update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. The amendments in ASU 2011-12 are effective on a retrospective basis for public entities for annual periods beginning after December 15, 2011, and interim periods within those years. An entity should provide the disclosures required by ASU 2011-12 retrospectively for all comparative periods presented. The Company does not expect the adoption of ASU 2011-12 will have a material impact on its consolidated financial statements.

Accounting Standards Update No. 2011-11. In December 2011, the FASB issued ASU No. 2011-11 ("ASU 2011-11"), Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities. The objective of ASU 2011-11 is to enhance disclosures required by U.S. GAAP by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or Section 815-10-45. This information will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements on an entity's financial position. The amendments in ASU 2011-11 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by ASU 2011-11 retrospectively for all comparative periods presented. The Company does not expect the adoption of ASU 2011-11 will have a material impact on its consolidated financial statements.

 

Accounting Standards Update No. 2011-09.   In September 2011, the FASB issued ASU No. 2011-09 ("ASU 2011-09"), Compensation – Retirement Benefits – Multiemployer Plans (Subtopic 715-80), Disclosure about an Employer's Participation in a Multiemployer Plan. The objective of ASU 2011-09 is to improve the transparency of financial reporting with respect to an employer's participation in a multiemployer pension plan or other multiemployer postretirement benefit plan by requiring each participating employer to provide additional separate, quantitative and qualitative disclosures. The additional disclosures will increase awareness about the commitments that an employer has made to a multiemployer pension plan and the potential future cash flow implications of an employer's participation in the plan. For public entities, the amendments in ASU 2011-09 are effective for annual periods for fiscal years ending after December 15, 2011, with early adoption permitted. The amendments in ASU 2011-09 should be applied retrospectively for all periods presented. The Company does not expect the adoption of ASU 2011-09 will have a material impact on its consolidated financial statements.

Accounting Standards Update No. 2011-08.   In September 2011, the FASB issued ASU No. 2011-08 ("ASU 2011-08"), Intangibles – Goodwill and Other (Topic 350), Testing Goodwill for Impairment. The objective of ASU 2011-08 is to simplify how entities test goodwill for impairment. The amendments in ASU 2011-08 permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Under the amendments in ASU 2011-08, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments in ASU 2011-08 are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company does not expect the adoption of ASU 2011-08 will have a material impact on its consolidated financial statements.

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

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

Accounting Standards Update No. 2010-26.   In October 2010, the FASB issued ASU No. 2010-26 ("ASU 2010-26"), Financial Services – Insurance (ASC Topic 944), Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of the amendments in ASU 2010-26 is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments in ASU 2010-26 specify which costs should be capitalized. The amendments in ASU 2010-26 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and can be applied prospectively upon adoption. Retrospective or prospective application is permitted. Early adoption is permitted, but only at the beginning of an entity's annual reporting period. The Company will adopt ASU 2010-26 in January 2012 and expects to adopt this standard prospectively. As such, the Company expects to recognize additional amortization expense in the first quarter of 2012 of between $1.0 and $1.4 million pre-tax with a corresponding decrease in deferred acquisition costs.

v2.4.0.6
Investments
12 Months Ended
Dec. 31, 2011
Investments [Abstract]  
Investments

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

 

                                 
     Amortized
Cost
     Gross
Unrealized
Gain
     Gross
Unrealized
Loss
    Fair
Value
 

December 31, 2011

                                  

Fixed Maturity Securities:

                                  

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

     $     509         47         --        556   

Corporate bonds

     10,199         58         (417     9,840   

Commercial mortgage-backed securities

     10,574         314         (14     10,874   

State, municipalities, and political subdivisions

     9,982         393         (3     10,372   

Other

       2,883         117             --          3,000   

Total

     $34,147         929         (434     34,642   
         

Equity securities

     $  5,364         133         (290       5,207   
         

December 31, 2010

                                  

Fixed Maturity Securities:

                                  

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

     $8,044         88         (37     8,095   

Corporate bonds

     12,192         149         (75     12,266   

Commercial mortgage-backed securities

     7,756         40         (53     7,743   

Other

          464             5           (9          460   

Total

     $28,456         282         (174     28,564   
         

Equity securities

     $  1,061           12         (189         884   

 

            The scheduled maturities of fixed maturity securities at December 31, 2011 are as follows (in thousands):

 

                     
    Amortized Cost    Fair Value

Available-for-sale

                    

Due in one year or less

      $  1,009          1,010  

Due after one year through five years

      10,148          9,793  

Due after five years through ten years

      6,835          7,075  

Due after ten years

      5,581          5,890  

Commercial mortgage-backed securities

      10,574          10,874  
        $34,147          34,642  

Proceeds received, and the gross realized gains and losses from sales of available for sale securities, for the year ended December 31, 2011 and 2010 were as follows (in thousands):

 

                         
     Proceeds      Gross Realized
Gains
     Gross Realized
Losses
 

Year ended December 31, 2011

                          

Fixed maturity securities

   $ 25,741            545         (110

Equity securities*

   $ 2,155            122         (290
       

Year ended December 31, 2010

                          

Fixed maturity securities

   $ 29,116         1,828         (17

Equity securities*

   $ 4,515            369         (177

*Amounts reported for the year ended December 31, 2011 and 2010 include the gross realized gains and losses from equity option contracts. During the years ended December 31, 2011 and 2010, the Company entered into equity contracts for exchange traded call and put options to meet certain investment objectives. With respect to these option contracts, the Company received net proceeds of $89,000 and $391,000, respectively, and realized gains of $49,000 and $327,000, respectively, during the years ended December 31, 2011 and 2010. Such gains are included in the realized investment gains in the Consolidated Statements of Earnings. There were no open option contracts at December 31, 2011 and 2010.

Other-than-temporary Impairment ("OTTI")

The Company regularly reviews its individual investment securities for OTTI. 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, 2011, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows (in thousands):

 

                                                                 
   

Less than Twelve Months

 

Twelve Months

or Greater

 

Total

As of December 31, 2011

 

Gross

Unrealized

Loss

 

Fair

Value

 

Gross

Unrealized

Loss

 

Fair

Value

 

Gross

Unrealized

Loss

 

Fair

Value

Fixed maturity securities

                                                                

Corporate Bonds

           $(417)         5,112         --         --         (417)         5,112  
               

States, municipalities and political
    subdivisions

           (3)         2,449         --         --         (3)         2,449  

Commercial mortgage-backed securities

           (14)            612         --         --         (14)            612  

Total fixed maturity securities

           (434)         8,173         --         --         (434)         8,173  

Equity securities

           (201)           2,696         (89)         87         (290)           2,783  

Total available-for-sale securities

           $(635)         10,869         (89)         87         (724)         10,956  

The Company believes there were no fundamental issues such as credit losses or other factors with respect to any of its available-for-sale securities. The unrealized losses on investments in fixed maturity securities were caused by interest rate changes. It is expected that the securities would not be settled at a price less than the par value of the investments. In determining whether equity securities are other than temporarily impaired, the Company considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost. Because the decline in fair value is attributable to changes in interest rates or market conditions and not credit quality, and because the Company has the ability and intent to hold its available-for-sale investments until a market price recovery or maturity, the Company does not consider any of its investments to be other-than-temporarily impaired at December 31, 2011.

 

Other investments consist primarily of real estate and the related assets and operations of the marina facility acquired in 2011 (see Note 5 – "Business Acquisitions"). Operating activities related to the Company's real estate investment include leasing of office and retail space to tenants, wet and dry boat storage, and fuel services with respect to marina clients and other recreational boaters.

Other invested assets consist of the following as of December 31, 2011 (in thousands):

 

         

Building

     $1,418   

Land

     4,438   

Land improvements

     283   

Other

        404   

Total, at cost

     6,543   

Less accumulated depreciation and amortization

       (60)   

Other investments

     $6,483   

Investment income is summarized as follows (in thousands):

 

                 
    

Year ended December 31,

 
     2011     

2010

 
     

Time deposits

     $538         530   

Short-term investments

     --         94   

Fixed maturity securities

     1,517         1,112   

Cash and cash equivalents

       125           226   
       $2,180         1,962   

The following time deposits and short-term investments exceeded 10% of consolidated stockholders' equity at December 31, 2010 (in thousands):

 

         

Name of Financial Institution

      
   

Paradise Bank

     $    5,260   

Regions Bank

       8,773   
       $  14,033   

At December 31, 2011, the Company had $7.0 million in time deposits at Regions Bank which exceeded 10% of consolidated stockholders' equity at December 31, 2011. At December 31, 2010, the Company had one single investment in U.S. Treasury notes exceeding 10% of consolidated stockholders' equity. This investment was carried at its $4.7 million fair value and included in investments in fixed maturity securities at December 31, 2010.

In addition, at December 31, 2011 and 2010, cash and cash equivalents included $62.8 million and $14.7 million, respectively, on deposit at one national bank. At December 31, 2011 and 2010, the Company also had an aggregate of $18.0 million and $16.4 million, respectively, in cash on deposit at two custodial firms.

v2.4.0.6
Fair Value Measurements
12 Months Ended
Dec. 31, 2011
Fair Value Measurements [Abstract]  
Fair Value Measurements

Note 4 – Fair Value Measurements

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

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

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

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

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

Level 3 – Inputs that are unobservable.

 

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

 

                                 
    

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

    

Significant
Other
Observable
Inputs
(Level 2)

    

Significant
Unobservable
Inputs

(Level 3)

    

Total

 

As of December 31, 2011

                                   

Fixed maturity securities

                                   

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

     $      556         --         --         556   

Corporate bonds

     9,840         --         --         9,840   

Commercial mortgage-backed securities

     --         10,874         --         10,874   

State, municipalities, and political subdivisions

     10,372         --         --         10,372   

Other

       2,735              265         --           3,000   

Total fixed maturity securities

     23,503         11,139         --         34,642   

Equity securities

       5,207                 --         --           5,207   

Total available-for-sale securities

     $28,710         11,139         --         39,849   

 

                                 
    

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

    

Significant
Other
Observable
Inputs
(Level 2)

    

Significant
Unobservable
Inputs

(Level 3)

    

Total

 

As of December 31, 2010

                                   

Fixed maturity securities

                                   

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

     $ 8,095         --         --         8,095   

Corporate bonds

     12,266         --         --         12,266   

Commercial mortgage-backed securities

     --         7,743         --         7,743   

Other

             --            460         --              460   

Total fixed maturity securities

     20,361         8,203         --         28,564   

Equity securities

          884               --         --              884   

Total available-for-sale securities

     $21,245         8,203         --         29,448   

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

There were no transfers between Level 1, 2 or 3 during the years ended December 31, 2011 and 2010.

v2.4.0.6
Business Acquisitions
12 Months Ended
Dec. 31, 2011
Business Acquisitions [Abstract]  
Business Acquisitions

Note 5 -- Business Acquisitions

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

The fair value of the net assets acquired was approximately $5.7 million, which exceeded the $5.1 million purchase price. As a result, the Company recognized a gain on bargain purchase in the amount of $936,000 ($575,000 net of tax), which is included in operations for the year ended December 31, 2011. The recorded gain is subject to adjustment as the Company will continue to evaluate the purchase price allocation with respect to certain of the liabilities assumed at acquisition. There were no intangibles acquired with respect to this acquisition.

Effective November 18, 2011, the Company, through its subsidiary, HCI Technical Resources LLC, acquired 99.9% of Unthink Technologies Private Ltd. ("Unthink"), a software development company located in India, for $199,000 in cash. The fair value of the net assets acquired was $38,000. The Company recorded $161,000 of goodwill in connection with this acquisition. The goodwill, which is attributable to the workforce of the acquired business, is not expected to be deductible for tax purposes. Management believes this acquisition will provide the Company with additional system design expertise that strengthens the Company's ability to develop, enhance and maintain software applications for our insurance operations.

The following table summarizes the Company's preliminary allocation of the net consideration paid to the fair value of the assets acquired and liabilities assumed at April 20, 2011 for the acquisition of TVMH and at November 18, 2011 for the acquisition of Unthink (in thousands):

 

                         
    

TVMH

    Unthink     Total  
       

Property, plant and equipment

   $ 6,338        66        6,404   

Other assets

     132        15        147   

Environmental liability (Note 14)

     (150     --        (150

Deferred tax liability

     (361     --        (361

Other liabilities

      (274     (43       (317

Fair value of net assets acquired

     5,685        38        5,723   

Gain on bargain purchase, net of tax of $361

     (575     --        (575

Goodwill

           --        161            161   

Cash consideration paid

   $ 5,110        199        5,309   

 

For the years ended December 31, 2011 and 2010, the effects of the acquisitions were not material to the Company's condensed consolidated financial statements and basic and diluted earnings per share and, as such, pro forma information has not been presented.

For the year ended December 31, 2011, the acquired businesses contributed a combined $1.9 million in revenues and $0.4 million of net income inclusive of the net gain on bargain purchase.

v2.4.0.6
Property And Equipment, Net
12 Months Ended
Dec. 31, 2011
Property And Equipment, Net [Abstract]  
Property And Equipment, Net

Note 6 -- Property and Equipment, net

Property and equipment, net consists of the following (in thousands):

 

                 
    

At December 31,

 
    

2011

   

2010

 
     

Building

     $5,883        5,883   

Land

     1,241        1,241   

Computer hardware and software

     729        508   

Office and furniture and equipment

     778        253   

Tenant and leasehold improvements

     2,418        --   

Other

         184           138   

Total, at cost

     11,233        8,023   

Less accumulated depreciation and amortization

        (734       (268

Property and equipment, net

     $10,499        7,755   

The Company has a lease for office space located in Clearwater, Florida. This lease commenced in July 2008 and requires the Company to make monthly rent payments of $12,500, which includes $2,500 for common area maintenance, to an entity owned by one of the Company's directors. The initial term of this agreement is for five years ending on July 15, 2013 and the lease may be extended for up to three additional five-year periods. In addition to this location, the Company leases office space in Noida, India effective with the Company's acquisition of Unthink in November 2011. This non-cancelable lease, which was assumed by the Company at acquisition, requires the Company to pay base rent of approximately $3,200 per month throughout the lease term ending February 6, 2013. Rental expense under all facility leases was $239,000 and $191,000 during the years ended December 31, 2011 and 2010, respectively.

Lease commitments at December 31, 2011 are as follows:

 

         
      

Amount

 

Year Ended December 31,

    

(in thousands)

 
   

2012

       189   

2013

         98   

Total:

       $287   

 

On June 1, 2010, the Company purchased property in Tampa, Florida for a total purchase price of $7.1 million. The property consists of 3.5 acres of land, a building with gross area of 122,000 square feet, and a three-story parking garage valued at $1.2 million, $5.3 million, and $0.6 million, respectively. This facility is used by the Company and its subsidiaries. In addition, the Company leases space to non-affiliates, which includes space occupied by tenants under lease agreements assumed by the Company at acquisition.

Rental income due under non-cancellable operating leases for all properties and other investments owned at December 31, 2011 are as follows:

 

               
          

Amount

Year Ended December 31,

         (in thousands)
     

2012

             825  

2013

             734  

2014

             527  

2015

             393  

2016

                253  

Total:

             $2,732  
v2.4.0.6
Reinsurance
12 Months Ended
Dec. 31, 2011
Reinsurance [Abstract]  
Reinsurance

Note 7 -- Reinsurance

The Company cedes a portion of its homeowners insurance exposure to other entities under reinsurance agreements called catastrophe excess of loss reinsurance treaties. The Company remains liable with respect to claims payments in the event that any of the reinsurers are unable to meet their obligations under the reinsurance agreements. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. The Company contracts with a number of well-known and rated reinsurers to secure its annual reinsurance coverage, which becomes effective June 1st each year. We purchase 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 (in thousands):

 

                     
         

Year Ended December 31,

 
         

2011

   

2010

 

Premiums Written

                     

Direct

   $125,145        114,599   

Assumed

            62,104            1,683   

Gross written

          187,249        116,282   

Ceded

          (56,360     (57,322

Net premiums written

          130,889        58,960   
       

Premiums Earned

                     

Direct

   $119,756        104,621   

Assumed

            23,850          15,136   

Gross earned

          143,606        119,757   

Ceded

          (56,360     (57,322

Net premiums earned

   $ 87,246        62,435   

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

v2.4.0.6
Losses And Loss Adjustment Expenses
12 Months Ended
Dec. 31, 2011
Losses And Loss Adjustment Expenses [Abstract]  
Losses And Loss Adjustment Expenses

Note 8 -- Losses and Loss Adjustment Expenses

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

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

 

                     
         

Year Ended December 31,

 
         

2011

   

2010

 
     

Balance, beginning of year

   $22,146        19,178   

Incurred related to:

                     

Current year

          43,613        37,432   

Prior years

            4,630             235   

Total incurred

          48,243        37,667   

Paid related to:

                     

Current year

          (26,132     (19,477

Prior years

          (16,833     (15,222

Total paid

          (42,965     (34,699

Balance, end of year

   $27,424        22,146   

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

v2.4.0.6
Income Taxes
12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes

Note 9 -- Income Taxes

A summary of income taxes is as follows (in thousands):

 

                     
         

Year Ended December 31,

 
         

2011

   

2010

 
       

Current:

                     

Federal

   $7,220        1,238   

State

          1,196        236   

Foreign

                 9               --   
       

Total current taxes

          8,425        1,474   
       

Deferred:

                     

Federal

          (1,715     1,449   

State

            (269        241   
       

Total deferred taxes

          (1,984     1,690   
     

Income taxes

   $ 6,441        3,164   

The reasons for the differences between the statutory Federal income tax rate and the effective tax rate are summarized as follows (dollars in thousands):

 

                                         
          Years Ended December 31,  
          2011          2010  
          Amount      %          Amount     %  
         

Income taxes at statutory rate

   $5,785         35.0   $3,005        35.0

Increase (decrease) in income taxes resulting from:

                                           

State income taxes, net of federal tax benefit

          599         3.6             313        3.6   

Stock-based compensation

          7         --             13        .2   

Other

                50               .7               (167      (1.9
         

Income taxes

   $6,441         39.3   $3,164        36.9

 

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, 2010, 2009, and 2008 remain subject to examination by our major taxing jurisdictions. There have been no interest or penalties recognized for the years ended December 31, 2011 and 2010.

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 our net deferred income tax asset are as follows (in thousands):

 

                 
    

At December 31,

 
    

2011

   

2010

 

Deferred income tax assets:

                

Unearned premiums

   $ 6,768        3,262   

Losses and loss adjustment expenses

     756        610   

Organizational costs

     118        129   

Stock-based compensation

     252        355   

Accrued expenses

     466        19   

Unrealized net loss on securities available for sale

           --             27   

Deferred tax assets

     8,360        4,402   
     

Deferred tax liabilities:

                

Property and equipment

     (943     (123

Deferred policy acquisition costs

     (4,870     (3,690

Unrealized net gain on securities available for sale

     (131     --   

Other

         (48           (5

Deferred tax liabilities

     (5,992     (3,818

Net deferred income tax asset

   $ 2,368        584   

 

A valuation allowance is established if, based upon the relevant facts and circumstances, management believes any portion of the 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, 2011 or 2010.

v2.4.0.6
Net Earnings Per Share
12 Months Ended
Dec. 31, 2011
Net Earnings Per Share [Abstract]  
Net Earnings Per Share

Note 10 -- Net Earnings Per Share

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

 

                                                             
    

For the Year Ended

  

For the Year Ended

 
    

December 31, 2011

  

December 31, 2010

 
    

Income

(Numerator)

   

Shares

(Denominator)

         

Per-Share

Amount

         

Income

(Numerator)

    

Shares

(Denominator)

         

Per-Share

Amount

 

Net income

     $9,964        --                            $5,422         --                 
                   

Less: Preferred stock dividends

     (815 )      --                                --         --                 

Basic Earnings Per Share

                                                                   

Income available to common stockholders

     9,149        6,132              $1.49              5,422         6,179              $0.88   
                   

Effect of Dilutive Securities

                                                                   

Common stock options

     --        352                            --         495                 

Convertible preferred stock

     815        961                            --         --                 
                   

Diluted Earnings Per Share

                                                                   
Income available to common stockholders and assumed conversions      $9,964        7,445              $1.34              $5,422         6,674              $0.81   

For the years ended December 31, 2011 and 2010, 2,738,335 and 1,738,335 warrants to purchase 1,405,001 and 905,001 shares of common stock, respectively, were excluded from the computation of diluted earnings per share because the exercise price of $9.10 exceeded the average market price of the Company's common stock. There were no preferred shares outstanding in 2010.

v2.4.0.6
Stockholders' Equity
12 Months Ended
Dec. 31, 2011
Stockholders' Equity [Abstract]  
Stockholders' Equity

Note 11 -- Stockholders' Equity

Common Stock

Effective March 18, 2009, the Company's Board of Directors authorized a plan to repurchase up to $3.0 million (inclusive of commissions) of the Company's common shares. The repurchase plan allowed the Company to repurchase shares from time to time through March 19, 2010. This repurchase plan was supplemented in December 2009 upon approval by the Board of Directors to extend the repurchase authority by an additional $3.0 million and continue until the repurchase plan is terminated by the Company or the maximum number of dollars has been expended. During the year ended December 31, 2011, the Company repurchased and retired a total of 83,594 shares at an average price of $8.23 per share and a total cost, inclusive of fees and commissions, of $693,000, or $8.29 per share. During the year ended December 31, 2010, the Company repurchased and retired a total of 311,239 shares at an average price of $7.00 per share and a total cost, inclusive of fees and commissions, of $2,196,392, or $7.06 per share. As of March 28, 2011, the maximum amount designated for repurchases under this plan was expended and the share repurchase program was terminated. The Company also repurchased 165,200 shares of common stock during the year ended December 31, 2011 from certain related parties (see Note 16 – "Related Party Transactions").

Common Stock Warrants

At December 31, 2011, the Company has reserved 1,405,001 shares of common stock for issuance upon the exercise of its common stock warrants. A summary of the warrants outstanding at December 31, 2011 is presented below:

 

                     
     Number
Of Warrants
    Issued    
   Number of Common Shares
Issuable Upon Conversion
    of Warrants    
     

Warrants issued with IPO units

       1,666,668          833,334  

Warrants issued to the Company's placement agents net of forfeitures and repurchases

       71,667          71,667  
      

 

 

      

 

 

 

Warrants outstanding at December 31, 2010

       1,738,335          905,001  

Warrants issued in 2011

       1,000,000          500,000  
      

 

 

      

 

 

 

Warrants outstanding at December 31, 2011

       2,738,335          1,405,001  
      

 

 

      

 

 

 

The warrants issued prior to 2011 may be exercised at an exercise price equal to $9.10 per share on or before July 30, 2013. At any time after January 30, 2009 and before the expiration of the warrants, the Company at its option may cancel the warrants in whole or in part, provided that the closing price per share of the Company's common stock has exceeded $11.38 for at least ten trading days within any period of twenty consecutive trading days, including the last trading day of the period. The placement agents also have the option to effect a cashless exercise in which the warrants would be exchanged for the number of shares which is equal to the intrinsic value of the warrant divided by the current value of the underlying shares. In connection with the HomeWise assumption transaction in November 2011, the Company issued 1,000,000 warrants, which may be exercised to purchase 500,000 shares of the Company's common stock at a per share exercise price of $9.10.

 

The fair value of warrants issued in 2011 was estimated on the date of issuance using the following assumptions and the Black-Scholes option pricing model:

 

         

Expected volatility

     52

Risk-free interest rate

     .23

Dividend yield

     5.00

Expected life (in years)

     1.75   

Per share grant date fair value of warrants issued

   $ 0.754   

The $754,000 aggregate value of the warrants is a policy acquisition cost, which the Company is amortizing over the expected policy term of the policies assumed in the transaction. The warrants, the issuance of which is not registered or required to be registered under the Securities Act of 1933, are exercisable for a term beginning on November 1, 2011 through July 31, 2013 unless cancelled earlier at the Company's option under the terms specified by the warrant agreement.

Preferred Stock

During the year ended December 31, 2011, the Company designated 1,500,000 shares of the Company's preferred stock as Series A cumulative convertible preferred stock ("Series A Preferred").

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

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

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

 

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

On December 14, 2011, the Company's Board of Directors declared a cash dividend on its Series A Preferred shares in the amount of $0.05833 per share for each of the months of December 2011, and January and February 2012. The December 2011 dividend is payable January 27, 2012 to shareholders of record at the close of business on January 3, 2012. The January 2012 dividend is payable February 27, 2012 to shareholders of record at the close of business on February 2, 2012. The February 2012 dividend is payable March 27, 2012 to shareholders of record at the close of business on March 1, 2012.

v2.4.0.6
Comprehensive Income
12 Months Ended
Dec. 31, 2011
Comprehensive Income [Abstract]  
Comprehensive Income

Note 12 -- Comprehensive Income

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

 

                 
    

Year Ended December 31,

 
    

2011

   

2010

 

Net income

     $9,964        5,422   

Other comprehensive income:

                

Change in unrealized gain on investments:

                

Unrealized gain arising during the year

     674        2,431   

Reclassification adjustment for realized gains

     (267     (2,003

Net change in unrealized gain

     407        428   

Deferred income taxes on above changes

     (157       (164

Other comprehensive income

         250           264   

Comprehensive income

     $10,214        5,686   
v2.4.0.6
Stock-Based Compensation
12 Months Ended
Dec. 31, 2011
Stock-Based Compensation [Abstract]  
Stock-Based Compensation

Note 13 -- Stock-Based Compensation

Stock Option Plan

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

The Company's 2007 Stock Option and Incentive Plan (the "Plan") provides for granting of stock options to employees, directors, consultants, and advisors of the Company. Under the Plan, options may be granted to purchase a total of 6,000,000 shares of the Company's common stock. At December 31, 2011, options to purchase 4,804,800 shares are available for grant under the Plan. The options vest over periods ranging from immediately vested to five years and are exercisable over the contractual term of ten years.

 

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

 

                                 
    

Number

of

Options

    Weighted-
Average
Exercise
Price
     Weighted-
Average
Remaining
Contractual
Term
     Aggregate
Intrinsic
Value
 

Outstanding at December 31, 2009

     1,130,000        $2.66                     

Exercised

     (260,000     2.50                     

Outstanding at December 31, 2010

     870,000        $2.71         6.5 years         $4,675   

Issued

     30,000        6.30                     

Forfeited

     (24,800     2.50                     

Exercised

     (255,200     2.50                     

Outstanding at December 31, 2011

     620,000        $2.97         5.7 years         $3,122   

Exercisable at December 31, 2011

     586,800        $2.81         5.5 years         $3,053   

At December 31, 2011 and 2010, there was approximately $46,000 and $50,000, respectively, of total unrecognized compensation expense related to nonvested stock-based compensation arrangements granted under the plan. The Company expects to recognize the remaining compensation expense over a
weighted-average period of twenty five (25) months. During the year ended December 31, 2011, a total of 255,200 options were exercised, which includes 30,000 options exercised and net settled by surrender of 9,317 shares. During the year ended December 31, 2010, a total of 260,000 options were exercised. The total fair value of shares vesting and recognized as compensation expense was approximately $27,000 and $87,000, respectively, for the years ended December 31, 2011 and 2010. There were no associated income tax benefits recognized in the years ended December 31, 2011 and 2010. The total intrinsic value of options exercised during the years ended December 31, 2011 and 2010 was $1,184,000 and $1,097,000, respectively, and the income tax benefit recognized was $265,000 and $301,000, respectively.

No options were granted during the year ended December 31, 2010. In 2011, 30,000 options were granted on August 26, 2011, with fair value estimated on the date of grant using the following assumptions and the Black-Scholes option pricing model:

 

         

Dividend yield

     6.3

Expected volatility

     53.3

Risk-free interest rate

     .97

Expected life (in years)

     5   

Per share grant date fair value of options issued

   $ 1.70   
v2.4.0.6
Commitments And Contingencies
12 Months Ended
Dec. 31, 2011
Commitments And Contingencies [Abstract]  
Commitments And Contingencies

Note 14 -- Commitments and Contingencies

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.

As a direct premium writer in the state of Florida, the Company is required to participate in certain insurer pools and associations under Florida statutes 631.57(3) (A). Participation in these pools is based on written premium by line of business to total premiums written statewide by all insurers. Participation may result in assessments against the Company. For the years ended December 31, 2011 and 2010, HCPC paid assessments to the Florida Hurricane Catastrophe Fund (FHCF) amounting to $1,592,000 and $987,000, respectively. Additionally, HCPC paid assessments to Citizens of $1,604,000 and $1,382,000, respectively, for the years ended December 31, 2011 and 2010. These assessments are recorded as a surcharge in premium billings to insureds. As of December 31, 2011 and 2010, the surcharge rate in effect for FHCF was 1.3% and 1.0%, respectively. As of December 31, 2011 and 2010, the surcharge rate in effect for Citizens was 1.0% and 1.4%, respectively.

In connection with the Company's April 20, 2011 acquisition of the marina property located in Pinellas County, Florida (see Note 5 – "Business Acquisitions"), the Company assumed the liability to complete a site assessment and remediation of environmental contamination that resulted from a petroleum release at the marina site in late 2009. The Company and its environmental consultants have assumed the remedial action work plan developed by prior management and its environmental consultant, which consists of completing the site assessment, performing soil excavation, and installing wells for collection of groundwater and soil samples throughout the monitoring phase of the project. At acquisition, the Company recorded a liability of $150,000 with respect to the planned remedial action. Such liability was determined based on reasonably estimable costs of completing the actions defined in the existing ongoing work plan. As of December 31, 2011, a total of $28,000 has been expended with respect to the site assessment and the remaining $122,000 accrued at acquisition is included in other liabilities in the accompanying condensed consolidated balance sheets. Although the Company has accrued all reasonably estimable costs of completing the actions defined in the current ongoing work plan, it is possible that additional testing and additional environmental monitoring and remediation will be required in the near future as part of the Company's ongoing discussions with the Florida Department of Health, the agency contracted by the Florida Department of Environmental Protection to administer cases of petroleum contamination in Pinellas County, in which case additional expenses could significantly exceed the current estimated liability. However, based on information known at December 31, 2011, the Company does not expect that such additional expenses would have a material adverse effect on the liquidity or financial condition of the Company.

v2.4.0.6
Regulatory Requirements And Restrictions
12 Months Ended
Dec. 31, 2011
Regulatory Requirements And Restrictions [Abstract]  
Regulatory Requirements And Restrictions

Note 15 -- Regulatory Requirements and Restrictions

The Florida Insurance Code (the "Code") requires HCPC 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, 2011, HCPC is required to maintain a minimum capital and surplus of $12.0 million. At December 31, 2011 and 2010, HCPC's statutory capital and surplus was $46.5 million and $31.1 million, respectively. For the years ended December 31, 2011 and 2010, HCPC had a statutory net loss of $4.3 million and $2.3 million, respectively. Statutory surplus differs from stockholders' equity reported in accordance with generally accepted accounting principles primarily because policy acquisition costs are expensed when incurred. In addition, the recognition of deferred tax assets is based on different recoverability assumptions.

As of December 31, 2011 and 2010, HCPC had a cash deposit with the Insurance Commissioner of the state of Florida, in the amount of $300,000, to meet regulatory requirements. At December 31, 2011 and 2010, there were no material permitted statutory accounting practices utilized by HCPC.

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 Florida Office of Insurance Regulation if the dividend or distribution would exceed the larger of (1) the lesser of (a) 10.0% of its capital surplus or (b) net income, not including realized capital gains, plus a two year carry forward, (2) 10.0% of capital surplus with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains or (3) the lesser of (a) 10.0% of capital surplus or (b) net investment income plus a three year carry forward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains. At December 31, 2011 and 2010, no dividends are available to be paid by HCPC.

The Bermuda Monetary Authority requires Claddaugh to maintain minimum capital and surplus of $2.0 million. At December 31, 2011 and 2010, Claddaugh's statutory capital and surplus was $8.8 million and $4.5 million, respectively. Claddaugh's statutory net profit was $4.3 million and $4.9 million, respectively, for the years ended December 31, 2011 and 2010.

v2.4.0.6
Related Party Transactions
12 Months Ended
Dec. 31, 2011
Related Party Transactions [Abstract]  
Related Party Transactions

Note 16 -- Related Party Transactions

One of the Company's directors received a consulting fee and software license fees for development and use of the Company's premium administration application software. Under this arrangement, the Company incurred fees of $181,000 and $359,000 for the years ended December 31, 2011 and 2010, respectively. Effective June 30, 2011, all rights to the software license were assigned to the Company in exchange for a one-time payment of $50,000. Such payment was made to the Company's director who developed and licensed the software to the Company. The related software license and consulting agreements were terminated coincident with this exchange.

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, 2011 and 2010 were approximately $232,000 and $266,000, respectively.

As discussed in Note 6, the Company leases office space under an operating lease agreement with one director. The lease requires annual base rental payments of approximately $150,000. Lease payments on this property for each of the years ended December 31, 2011 and 2010 totaled $160,000.

Effective January 20, 2010, the Company repurchased and retired a total of 200,000 shares of the Company's common stock at a price of $7.00 per share for a total cost of $1,400,000. Such shares were repurchased under a stock purchase agreement with one of the Company's directors at a price below the $7.95 market value of the Company's common stock on the date of the transaction. Such repurchases were not part of a publicly announced plan or program. In addition, the Company paid a $10,000 consulting fee during 2010 to this director for investment advisory services.

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

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