• Filing Date: 2015-03-10
  • Form Type: 10-K
  • Description: Annual report
v2.4.1.9
Commitments and Contingencies
12 Months Ended
Dec. 31, 2014
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 17 — Commitments and Contingencies

Obligations under Multi-Year Reinsurance Contracts

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

Lease Commitments

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

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

 

Year

   Amount  

2015

   $ 118   

2016

     123   

2017

     130   

2018

     136   

2019

     143   

Thereafter

     308   
  

 

 

 

Total minimum future payments

$ 958   
  

 

 

 

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

 

Service Agreement

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

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

 

Year

   Amount  

2015

   $ 21   

2016

     22   

2017

     24   

2018

     24   

2019

     26   

Thereafter

     55   
  

 

 

 

Total minimum future payments

$ 172   
  

 

 

 

Rental Income

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

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

 

Year

   Amount  

2015

   $ 995   

2016

     698   

2017

     248   

2018

     86   

2019

     47   
  

 

 

 

Total

$  2,074   
  

 

 

 

 

Regulatory Assessments

 

  a) Regular Insurance Assessments and Surcharges

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

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

 

  b) Guaranty Fund

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

Financing Commitment

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

 

Capital Commitment

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

Premium Tax

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

Litigation

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