• Filing Date: 2013-03-14
  • Form Type: 10-K
  • Description: Annual report
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Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2012
Mar. 01, 2013
Jun. 29, 2012
Document and Entity Information [Abstract]      
Entity Registrant Name Homeowners Choice, Inc.    
Entity Central Index Key 0001400810    
Document Type 10-K    
Document Period End Date Dec. 31, 2012    
Amendment Flag false    
Document Fiscal Year Focus 2012    
Document Fiscal Period Focus FY    
Current Fiscal Year End Date --12-31    
Entity Filer Category Accelerated Filer    
Trading Symbol HCI    
Entity Well-known Seasoned Issuer No    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Public Float     $ 137,935,846
Entity Common Stock, Shares Outstanding   10,907,144  
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Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2012
Dec. 31, 2011
Assets    
Fixed-maturity securities, available-for-sale, at fair value $ 35,953 $ 35,788
Equity securities, available-for-sale, at fair value 8,876 4,061
Time deposits   12,427
Other investments 16,087 6,483
Total investments 60,916 58,759
Cash and cash equivalents 230,214 100,355
Accrued interest and dividends receivable 375 408
Premiums and reinsurance receivable 10,642 13,909
Prepaid reinsurance premiums 9,112 14,169
Deferred policy acquisition costs 10,032 12,321
Property and equipment, net 10,853 10,499
Goodwill   161
Deferred income taxes 3,848 2,368
Other assets 2,296 1,869
Total assets 338,288 214,818
Liabilities and Stockholders' Equity    
Losses and loss adjustment expenses 41,168 27,424
Unearned premiums 154,249 108,677
Advance premiums 4,029 2,132
Assumed reinsurance balances payable 1,377  
Accrued expenses 3,041 3,478
Dividends payable 42 218
Income taxes payable 8,813 4,956
Other liabilities 4,316 4,103
Total liabilities 217,035 150,988
Stockholders' equity:    
Preferred stock      
Common stock, (no par value, 40,000,000 shares authorized, 10,877,537 and 6,202,485 shares issued and outstanding in 2012 and 2011, respectively)      
Additional paid-in capital 63,875 29,636
Retained income 55,758 33,986
Accumulated other comprehensive income 1,620 208
Total stockholders' equity 121,253 63,830
Total liabilities and stockholders' equity 338,288 214,818
7% Series A Cumulative Convertible Preferred Stock
   
Stockholders' equity:    
Preferred stock      
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Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2012
Dec. 31, 2011
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 10,877,537 6,202,485
Common stock, outstanding 10,877,537 6,202,485
7% Series A Cumulative Convertible Preferred Stock
   
Preferred stock, liquidation preference, per share $ 10.00 $ 10.00
Preferred stock, no par value      
Preferred stock, authorized 1,500,000 1,500,000
Preferred stock, issued 241,182 1,247,700
Preferred stock, outstanding 241,182 1,247,700
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Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Revenue      
Gross premiums earned $ 233,607 $ 143,606 $ 119,757
Premiums ceded (75,939) (55,525) (57,322)
Net premiums earned 157,668 88,081 62,435
Net investment income 980 2,061 1,962
Policy fee income 2,538 1,438 1,464
Realized investment gains 276 290 2,003
Gain on bargain purchase 179 936  
Other 1,424 1,003 751
Total revenue 163,065 93,809 68,615
Expenses      
Losses and loss adjustment expenses 66,310 48,243 37,667
Policy acquisition and other underwriting expenses 25,930 18,129 14,878
Goodwill impairment loss 161    
Other operating expenses 21,084 11,032 7,484
Total expenses 113,485 77,404 60,029
Income before income taxes 49,580 16,405 8,586
Income taxes 19,423 6,441 3,164
Net income 30,157 9,964 5,422
Preferred stock dividends (322) (815)  
Income available to common stockholders $ 29,835 $ 9,149 $ 5,422
Basic earnings per common share $ 3.45 $ 1.49 $ 0.88
Diluted earnings per common share $ 3.02 $ 1.34 $ 0.81
Dividends per common share $ 0.88 $ 0.53 $ 0.30
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Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Consolidated Statements of Comprehensive Income [Abstract]      
Net income $ 30,157 $ 9,964 $ 5,422
Change in unrealized gain on investments:      
Unrealized gain arising during the period 2,571 674 2,431
Call and repayment losses charged to investment income 3 23  
Reclassification adjustment for realized gains (276) (290) (2,003)
Net change in unrealized gain 2,298 407 428
Deferred income taxes on above change (886) (157) (164)
Total other comprehensive income 1,412 250 264
Comprehensive income $ 31,569 $ 10,214 $ 5,686
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Consolidated Statements of Stockholders' Equity (USD $)
In Thousands, except Share data
Total
Preferred Stock
Common Stock
Additional Paid In Capital
Retained Income
Accumulated Other Comprehensive Income
Beginning Balance at Dec. 31, 2009 $ 45,378       $ 21,164 $ 24,520 $ (306)
Beginning 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
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    
Ending Balance at Dec. 31, 2010 46,629       18,606 28,065 (42)
Ending 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
Exercise of common stock options, shares     245,883      
Exercise of common stock options, value 564     564    
Issuance of common stock / Proceeds from sale of preferred stock, Share   1,247,700        
Proceeds from sale of preferred stock (net of offering costs of $1,170), value 11,307     11,307    
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    
Ending Balance at Dec. 31, 2011 63,830       29,636 33,986 208
Ending Balance, shares at Dec. 31, 2011   1,247,700 6,202,485      
Net income 30,157       30,157  
Change in unrealized loss on available-for-sale securities, net of income taxes 1,412         1,412
Exercise of common stock options, shares     267,408      
Exercise of common stock options, value 283     283    
Issuance of common stock / Proceeds from sale of preferred stock, Share     1,840,000      
Exercise of common stock warrants, shares     1,314,806      
Exercise of common stock warrants, value 11,869     11,869    
Excess tax benefit from stock options exercised 1,161     1,161    
Conversion of preferred stock to common stock, Share   (1,006,518) 1,006,518      
Issuance of restricted stock, Shares     246,320      
Issuance of common stock (net of offering costs of $220) 20,082     20,082    
Common stock dividends (8,063)       (8,063)  
Preferred stock dividends (322)       (322)  
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   241,182 10,877,537      
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Consolidated Statements of Stockholders' Equity (Parenthetical) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Preferred stock offering costs $ 220 $ 1,170
Preferred Stock
   
Preferred stock offering costs 220 1,170
Additional Paid In Capital
   
Preferred stock offering costs $ 220 $ 1,170
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Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2012
Dec. 31, 2011
Dec. 31, 2010
Cash flows from operating activities:      
Net income $ 30,157 $ 9,964 $ 5,422
Adjustments to reconcile net income to net cash provided by operating activities:      
Stock-based compensation 844 27 87
Net amortization of premiums on investments in fixed maturity securities 279 195 (28)
Depreciation and amortization 1,591 576 178
Deferred income taxes (benefit) (2,366) (1,984) 1,690
Net realized investment gains (276) (290) (2,003)
Gain on bargain purchase (179) (936)  
Goodwill impairment loss 161    
Foreign currency remeasurement loss 23    
Changes in operating assets and liabilities:      
Premiums and reinsurance receivable 3,267 (8,061) 18,576
Advance premiums 1,897 1,018 401
Prepaid reinsurance premiums 5,057 3,618 (10,582)
Accrued interest and dividends receivable 33 (228) (4)
Other assets (803) 82 (99)
Assumed reinsurance balances payable 1,377    
Deferred policy acquisition costs 2,289 (2,914) 1,089
Losses and loss adjustment expenses 13,744 5,278 2,968
Unearned premiums 45,572 43,643 (3,475)
Income taxes payable 3,857 4,646 143
Accrued expenses and other liabilities (258) 1,399 1,768
Net cash provided by operating activities 106,266 56,033 16,131
Cash flows from investing activities:      
Cash consideration paid for acquired business, net of cash acquired (8,157) (5,309)  
Purchase of property and equipment (1,196) (3,144) (7,534)
Purchase of other investments (1,600) (205)  
Purchase of fixed maturity securities (10,128) (31,170) (31,921)
Purchase of equity securities (6,410) (6,625) (5,384)
Proceeds from sales of fixed-maturity securities 8,991 24,904 29,116
Proceeds from calls repayments and maturities of fixed-maturity securities 3,127 1,327  
Proceeds from sales of equity securities 1,735 1,665 4,515
Decrease in short-term investments, net     11,521
Decrease (increase) in time deposits, net 12,427 1,606 (526)
Net cash used in investing activities (1,211) (16,951) (213)
Cash flows from financing activities:      
Net proceeds from the issuance of common stock 20,082    
Net proceeds from the issuance of preferred stock   11,307  
Proceeds from the exercise of common stock options 283 564 650
Proceeds from the exercise of common stock warrants 11,869    
Cash dividends paid (8,561) (3,825) (1,877)
Repurchases of common stock   (1,887) (3,596)
Debt issuance costs paid (35)    
Excess tax benefit from common stock options exercised 1,161 265 301
Net cash provided by (used in) financing activities 24,799 6,424 (4,522)
Effect of exchange rate changes on cash 5    
Net increase in cash and cash equivalents 129,859 45,506 11,396
Cash and cash equivalents at beginning of year 100,355 54,849 43,453
Cash and cash equivalents at end of year 230,214 100,355 54,849
Supplemental disclosure of cash flow information:      
Cash paid for income taxes 16,710 3,451 790
Non-cash investing and financing activities:      
Unrealized gain on investments in available-for-sale securities, net of tax 1,412 250 264
Common stock warrants issued for outside services   754  
Transfer of securities held-to-maturity to securities available-for-sale     1,900
Series A Preferred Stock
     
Conversion of Stock [Line Items]      
Conversion of Series A Preferred Stock to common stock $ 9,121    
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Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2012
Summary of Significant Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Note 1 — Summary of Significant Accounting Policies

The accompanying consolidated financial statements of Homeowners Choice, Inc. (“HCI” or the “Company”) include the accounts of HCI, Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”), HCI’s property and casualty insurance company, and certain other insurance and non-insurance subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Through its subsidiaries, the Company is primarily engaged in the property and casualty insurance business. HCPCI is authorized to underwrite homeowners’ property and casualty insurance in the State of Florida. HCPCI’s operations are supported by the following HCI subsidiaries:

 

   

Homeowners Choice Managers, Inc. (“HCM”) – 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.

In addition, while not material to the consolidated financial statements, HCI has various subsidiaries primarily engaged in the businesses of owning and leasing real estate, operating marina facilities and one restaurant and developing software.

Prior to November 2011, nearly all of the Company’s customers were obtained through participation in a “take-out program” with Citizens Property Insurance Corporation (“Citizens”), a Florida state supported insurer. The customers were obtained in nine separate assumption transactions which took place from July 2007 through November 2012. 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 (“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 related to losses 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, 2012 and 2011, cash and cash equivalents consist of cash on deposit with financial institutions and securities brokerage firms.

Time Deposits. Time deposits consisted of certificates of deposit with original maturities ranging from one to five years.

Investments. 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 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 specific identification 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 (“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 income 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 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 3 – “Investments”).

 

Other investments consist primarily of real estate and the related assets purchased during 2011 and 2012 (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 year ended December 31, 2012 primarily represent commissions paid to outside agents at the time of collection of the policy premium, 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.

In addition to the foregoing expenses, DAC for the year ended December 31, 2011 included certain salaries and other policy acquisition expenses, which were deferred pursuant to the accounting standard then in effect (see Accounting Standards Update No. 2010-26 under Note 2 – “Recent Accounting Pronouncements” to the consolidated financial statements). 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. 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 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 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.

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 1 st 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 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.

 

Premium-Based Assessments. From time to time, 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 the results of operations.

Income Taxes. 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, 2012, 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, 2012 and 2011. Fair value for securities are based on the framework for measuring fair value established by U.S. GAAP (see Note 3 – “Investments”).

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 amortized 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 both service and market conditions. As a result, certain restricted stock grants are expensed over the derived service period for each separately vesting tranche.

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. Potentially dilutive securities at December 31, 2012 consisted of stock options and the 7.0% Series A cumulative convertible preferred stock issued March 25, 2011 (see Note 11 – Stockholders’ Equity).

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, 2012
Recent Accounting Pronouncements [Abstract]  
Recent Accounting Pronouncements

Note 2 — Recent Accounting Pronouncements

Accounting Standards Update No. 2013-02. In February 2013, the FASB issued Accounting Standards Update No. 2013-02 (“ASU 2013-02”), Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 does not change the current requirements for reporting net income or other comprehensive income in the financial statements. However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required that provide additional detail about those amounts. ASU 2013-02 is effective prospectively for public entities for reporting periods beginning after December 15, 2012. Early adoption is permitted. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2013-01. In January 2013, the FASB issued Accounting Standards Update No. 2013-01 (“ASU 2013-01”), Balance Sheet (Topic 210), Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 clarifies that the scope of Update 2011-11 applies to derivatives accounted for in accordance with Topic 815, Derivatives and Hedging, including bifurcated embedded derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with Section 210-20-45 or Section 815-10-45 or subject to an enforceable master netting arrangement or similar agreement. ASU 2013-01 is effective for fiscal years beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the required disclosures retrospectively for all comparative periods presented. The adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2012-02. In July 2012, the FASB issued Accounting Standard Update No. 2012-12 (“ASU 2012-12”), Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. The objective of ASU 2012-02 is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets by simplifying how an entity tests those assets for impairment and to improve consistency in impairment testing guidance among long-lived asset categories. The amendments permit an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles—Goodwill and Other—General intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. The amendments in ASU 2012-12 are effective for annual and interim impairment tests performed for the fiscal years beginning after September 15, 2012. Early adoption is permitted. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements.

 

Accounting Standards Update No. 2011-11. In December 2011, the FASB issued Accounting Standards Update No. 2011-11 (“ASU 2011-11”), Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires entities to disclose information about offsetting and related arrangements of financial and derivative instruments. ASU 2011-11 is 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 adoption of this guidance is not expected to have a material effect on the Company’s consolidated financial statements.

Accounting Standards Update No. 2010-26. In October 2010, the FASB issued Accounting Standards Update No. 2010-26 (“ASU 2010-26”), Financial Services – Insurance (ASC Topic 944), Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts. The objective of the amendments in ASU 2010-26 is to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. The amendments in ASU 2010-26 specify which costs should be capitalized. The amendments in ASU 2010-26 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011 and 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 adopted ASU 2010-26 effective January 1, 2012 on a prospective basis. As such, the Company recognized additional amortization expense of $1.2 million with a corresponding decrease in deferred acquisition costs as of the date of adoption. This one-time adjustment reduced our net income for the year ended December 31, 2012 by approximately $741,000, or $0.08 earnings per diluted common share. In addition, certain direct marketing, compensation, and other administrative costs are no longer deferred. Rather, such costs are expensed as incurred beginning January 1, 2012.

 

v2.4.0.6
Investments
12 Months Ended
Dec. 31, 2012
Investments [Abstract]  
Investments

Note 3 — Investments

The Company holds investments in fixed-maturity securities as well as equity securities, which are classified as available-for-sale. At December 31, 2012 and 2011, 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     Gross
Unrealized
    Gross
Unrealized
    Estimated
Fair
 
    Cost     Gain     Loss     Value  

As of December 31, 2012

                               

Fixed-maturity securities

                               

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

  $ 1,359       88       —         1,447  

Corporate bonds

    10,298       572       (10     10,860  

Commercial mortgage-backed securities

    10,708       936       —         11,644  

State, municipalities, and political subdivisions

    10,152       914       —         11,066  

Redeemable preferred stock

    919       18       (1     936  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 33,436       2,528       (11     35,953  
   

 

 

   

 

 

   

 

 

   

 

 

 

Equity securities

  $ 8,756       303       (183     8,876  
   

 

 

   

 

 

   

 

 

   

 

 

 
         

As of 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  

Redeemable preferred stock

    1,144       12       (10     1,146  

Other

    2,883       117       —         3,000  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 35,291       941       (444     35,788  
   

 

 

   

 

 

   

 

 

   

 

 

 

Equity securities

  $ 4,220       121       (280     4,061  
   

 

 

   

 

 

   

 

 

   

 

 

 

The scheduled maturities of fixed-maturity securities at December 31, 2012 and 2011 are as follows (in thousands):

 

                                 
    December 31,  
    2012     2011  
          Estimated           Estimated  
    Amortized     Fair     Amortized     Fair  
    Cost     Value     Cost     Value  

Available-for-sale

                               

Due in one year or less

  $ 1,258       1,264       1,009       1,010  

Due after one year through five years

    8,387       8,728       10,523       10,169  

Due after five years through ten years

    8,045       8,612       6,835       7,075  

Due after ten years

    5,038       5,705       6,350       6,660  

Commercial mortgage-backed securities

    10,708       11,644       10,574       10,874  
   

 

 

   

 

 

   

 

 

   

 

 

 
    $ 33,436       35,953       35,291       35,788  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the years ended December 31, 2012, 2011 and 2010 were as follows (in thousands):

 

                         
          Gross
Realized
    Gross
Realized
 
    Proceeds     Gains     Losses  

Year ended December 31, 2012

                       

Fixed-maturity securities

  $ 8,991       421       (6
   

 

 

   

 

 

   

 

 

 

Equity securities

  $ 1,735       91       (230
   

 

 

   

 

 

   

 

 

 
       

Year ended December 31, 2011

                       

Fixed-maturity securities

  $ 24,904       545       (96
   

 

 

   

 

 

   

 

 

 

Equity securities*

  $ 1,665       121       (280
   

 

 

   

 

 

   

 

 

 
       

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 Income. 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 income;

 

   

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, 2012 and 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, 2012   Gross
Unrealized
Loss
    Estimated
Fair

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

Fixed-maturity securities

                                               

Corporate bonds

  $ (2     444       (8     981       (10     1,425  

Redeemable preferred stock

    (1     66       —         —         (1     66  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed-maturity securities

    (3     510       (8     981       (11     1,491  

Equity securities

    (136     3,019       (47     201       (183     3,220  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

  $ (139     3,529       (55     1,182       (194     4,711  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

                                                 
    Less Than Twelve Months     Twelve Months or
Greater
    Total  
As of December 31, 2011   Gross
Unrealized
Loss
    Estimated
Fair

Value
    Gross
Unrealized
Loss
    Estimated
Fair
Value
    Gross
Unrealized
Loss
    Estimated
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  

Redeemable preferred stock

    (10     232       —         —         (10     232  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed-maturity securities

    (444     8,405       —         —         (444     8,405  

Equity securities

    (191     2,464       (89     87       (280     2,551  
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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, 2012 and 2011.

Other Investments

Other investments consist primarily of real estate and the related assets and operations of the marina acquired in 2011 and the real estate and related assets of the marina and restaurant facilities acquired in April 2012 (see Note 5 – Business Acquisitions). 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.

Other investments consist of the following as of December 31, 2012 and 2011 (in thousands):

 

                 
    December 31,  
    2012     2011  

Land

  $ 10,993       4,438  

Land improvements

    1,326       283  

Building

    2,869       1,418  

Other

    1,238       404  
   

 

 

   

 

 

 

Total, at cost

    16,426       6,543  

Less: accumulated depreciation and amortization

    (339     (60
   

 

 

   

 

 

 

Other investments

  $ 16,087       6,483  
   

 

 

   

 

 

 

 

Depreciation and amortization expense under other investments was $279,000 and $60,000, respectively, for the years ended December 31, 2012 and 2011.

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

 

                         
    Years Ended December 31,  
    2012     2011     2010  

Available-for-sale securities

  $ 1,806       1,494       1,112  

Time deposits

    357       538       530  

Other investments

    (1,334     (96     —    

Cash and cash equivalents

    151       125       226  

Short-term investments

    —         —         94  
   

 

 

   

 

 

   

 

 

 
    $ 980       2,061       1,962  
   

 

 

   

 

 

   

 

 

 

At December 31, 2012, deposits at two national banks totaled $208.9 million, representing 90.7% of the Company’s cash and cash equivalents. In addition, at December 31, 2011, cash and cash equivalents included $62.8 million on deposit at one national bank. At December 31, 2012 and 2011, the Company also had an aggregate of $23.0 million and $18.0 million, respectively, in money market funds at two custodial firms.

v2.4.0.6
Fair Value Measurements
12 Months Ended
Dec. 31, 2012
Fair Value Measurements [Abstract]  
Fair Value Measurements

Note 4 — 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.

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.

Time deposits:

Time deposits consisted of certificates of deposit. Their carrying value approximated fair value due to the short maturity of these investments.

 

Assets Measured at Estimated Fair Value on a Recurring Basis:

The following table presents information about the Company’s financial assets measured at estimated fair value on a recurring basis as of December 31, 2012 and December 31, 2011, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value (in thousands):

 

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

As of December 31, 2012

                               

Cash and cash equivalents

  $ 230,214       —         —         230,214  
   

 

 

   

 

 

   

 

 

   

 

 

 

Fixed-maturity securities:

                               

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

    583       864       —         1,447  

Corporate bonds

    10,860       —         —         10,860  

Commercial mortgage-backed securities

    —         11,644       —         11,644  

State, municipalities, and political subdivisions

    11,066       —         —         11,066  

Redeemable preferred stock

    936       —         —         936  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed-maturity securities

    23,445       12,508       —         35,953  

Equity securities

    8,876       —         —         8,876  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

    32,321       12,508       —         44,829  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 262,535       12,508           —         275,043  
   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

As of December 31, 2011

                               

Cash and cash equivalents

  $ 100,355       —         —         100,355  
   

 

 

   

 

 

   

 

 

   

 

 

 

Time deposits

    —         —         12,427       12,427  
   

 

 

   

 

 

   

 

 

   

 

 

 

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  

Redeemable preferred stock

    1,146       —         —         1,146  

Other

    2,735       265       —         3,000  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed-maturity securities

    24,649       11,139       —         35,788  

Equity securities

    4,061       —         —         4,061  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

    28,710       11,139       —         39,849  
   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 129,065       11,139       12,427       152,631  
   

 

 

   

 

 

   

 

 

   

 

 

 

Assets Measured at Estimated Fair Value on a Nonrecurring Basis:

The Company used a discounted cash flow method which relies on Level 3 inputs in valuing goodwill at November 30, 2012. The Company did not identify the existence of goodwill and, as a result, goodwill was eliminated resulting in an impairment loss of $161,000 for the year ended December 31, 2012.

There were no transfers between Level 1, 2 or 3 during the years ended December 31, 2012 and 2011.

 

With respect to the Company’s business acquisitions completed in 2012 and 2011 (see Note 5 – “Business Acquisitions”), all assets acquired, aside from cash which was valued based on Level 1 measurements, and liabilities assumed were valued based on Level 3 measurements. Property, plant and equipment acquired in April 2012 was valued based on an external appraisal using the sales comparison approach and other unobservable inputs. The carrying amounts of all other acquired assets and assumed liabilities approximated their fair values at the acquisition date. 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.

v2.4.0.6
Business Acquisitions
12 Months Ended
Dec. 31, 2012
Business Acquisitions [Abstract]  
Business Acquisition

Note 5 — Business Acquisitions

The Company completed three acquisitions during the years ended December 31, 2012 and 2011.

2012 Acquisition

Effective April 2, 2012, the Company, through its subsidiary, HCI Holdings LLC, acquired the assets and operations of John’s Pass Marina, Inc. and Rice Family Holdings LLLP. The real estate consists primarily of ten acres of waterfront property and land improvements, which include a waterfront restaurant and a marina facility purchased for approximately $8.2 million. Operating activities at acquisition include the restaurant as well as wet boat storage for approximately 13 clients, and fuel services with respect to marina clients and recreational boaters. The Treasure Island, Florida real estate and operations were acquired to further strengthen and diversify the Company’s investment portfolio.

The fair value of the net assets acquired was approximately $8.3 million, which exceeded the $8.2 million purchase price. As a result, the Company recognized a gain on bargain purchase in the amount of $179,000 ($119,000 net of tax), which is included in operations for the year ended December 31, 2012. The recorded gain is subject to adjustment as the Company will continue to evaluate the purchase price allocation during the measurement period. The following table summarizes the Company’s preliminary allocation of the net consideration paid to the fair value of the assets acquired, identifiable intangible assets acquired and liabilities assumed at April 2, 2012 (in thousands):

 

         

Property, plant and equipment

  $ 8,280  

Other assets

    56  

Cash

    9  

Deferred tax liability

    (60
   

 

 

 

Fair value of net assets acquired

    8,285  

Gain on bargain purchase, net of tax of $60

    (119
   

 

 

 

Cash consideration paid

  $ 8,166  
   

 

 

 

 

For the year ended December 31, 2012, the effects of the acquisition was not material to the Company’s consolidated financial statements and basic and diluted earnings per share and, as such, pro forma information has not been presented. The acquired assets are included in other investments of the consolidated balance sheet. For the year ended December 31, 2012, the acquired business contributed approximately $4.5 million in revenues and $698,000 of net loss inclusive of the net gain on bargain purchase.

2011 Acquisition

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 real estate 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 real estate 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 investment 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. There were no intangibles acquired with respect to this acquisition. The acquired assets are included in other investments of the consolidated balance sheet.

Effective November 18, 2011, the Company, through its subsidiary, HCI Technical Resources Inc., acquired 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, was not 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 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 13)

    (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 year ended December 31, 2011, the effects of the acquisitions were not material to the Company’s 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 approximately $1.9 million in revenues and $0.4 million of net income inclusive of the net gain on bargain purchase. Based on an impairment test performed in November 2012, the Company eliminated the entire $161,000 of goodwill.

v2.4.0.6
Property and Equipment, net
12 Months Ended
Dec. 31, 2012
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):

 

                 
    December 31,  
    2012     2011  

Land

  $ 1,241       1,241  

Building

    5,955       5,883  

Computer hardware and software

    1,089       729  

Office and furniture and equipment

    1,131       778  

Tenant and leasehold improvements

    2,767       2,418  

Other

    251       184  
   

 

 

   

 

 

 

Total, at cost

    12,434       11,233  

Less: accumulated depreciation and amortization

    (1,581     (734
   

 

 

   

 

 

 

Property and equipment, net

  $ 10,853       10,499  
   

 

 

   

 

 

 

Depreciation and amortization expense under property and equipment was $848,000, $466,000 and $178,000, respectively, for the years ended December 31, 2012, 2011 and 2010.

 

v2.4.0.6
Reinsurance
12 Months Ended
Dec. 31, 2012
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 1 st 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):

 

                         
    Years Ended December 31,  
    2012     2011     2010  

Premiums Written:

                       

Direct

  $ 205,839       125,145       114,599  

Assumed

    73,340       62,104       1,683  
   

 

 

   

 

 

   

 

 

 

Gross written

    279,179       187,249       116,282  

Ceded

    (75,939     (55,525     (57,322
   

 

 

   

 

 

   

 

 

 

Net premiums written

  $ 203,240       131,724       58,960  
   

 

 

   

 

 

   

 

 

 
       

Premiums Earned:

                       

Direct

  $ 168,937       119,756       104,621  

Assumed

    64,670       23,850       15,136  
   

 

 

   

 

 

   

 

 

 

Gross earned

    233,607       143,606       119,757  

Ceded

    (75,939     (55,525     (57,322
   

 

 

   

 

 

   

 

 

 

Net premiums earned

  $ 157,668       88,081       62,435  
   

 

 

   

 

 

   

 

 

 

During the years ended December 31, 2012, 2011 and 2010, there were no recoveries pertaining to reinsurance contracts that were deducted from losses incurred. Prepaid reinsurance premiums related to 31 reinsurers at December 31, 2012 and 18 reinsurers at December 31, 2011, respectively. There were no amounts receivable with respect to reinsurers at December 31, 2012 and 2011. Thus, there were no concentrations of credit risk associated with reinsurance receivables and prepaid reinsurance premiums as of December 31, 2012 and 2011. The percentages of assumed premiums earned to net premiums earned for the years ended December 31, 2012, 2011 and 2010 were 41.0%, 27.1% and 24.2%, respectively.