• Filing Date: 2017-02-22
  • Form Type: 10-K
  • Description: Annual report
v3.6.0.2
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2016
Feb. 14, 2017
Jun. 30, 2016
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2016    
Document Fiscal Year Focus 2016    
Document Fiscal Period Focus FY    
Trading Symbol HCI    
Entity Registrant Name HCI Group, Inc.    
Entity Central Index Key 0001400810    
Current Fiscal Year End Date --12-31    
Entity Well-known Seasoned Issuer No    
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Filer Category Accelerated Filer    
Entity Common Stock, Shares Outstanding   10,282,438  
Entity Public Float     $ 234,690,386
v3.6.0.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2016
Dec. 31, 2015
Assets    
Fixed-maturity securities, available for sale, at fair value (amortized cost: $167,231 and $128,614, respectively) $ 166,248 $ 125,009
Equity securities, available for sale, at fair value (cost: $47,750 and $47,548, respectively) 53,035 48,237
Limited partnership investments, at equity 29,263 23,930
Investment in unconsolidated joint venture, at equity 2,102 4,787
Real estate investments (Note 4 - Consolidated Variable Interest Entity) 48,086 30,954
Total investments 298,734 232,917
Cash and cash equivalents (Note 4 - Consolidated Variable Interest Entity) 280,531 267,738
Accrued interest and dividends receivable 1,654 1,390
Income taxes receivable 2,811 1,858
Premiums receivable 17,276 19,631
Prepaid reinsurance premiums 24,554 40,747
Deferred policy acquisition costs 16,639 18,602
Property and equipment, net 11,374 11,786
Intangible assets, net 4,899  
Deferred income taxes, net 250 3,189
Other assets 11,342 39,128
Total assets 670,064 636,986
Liabilities and Stockholders' Equity    
Losses and loss adjustment expenses 70,492 51,690
Unearned premiums 175,803 187,290
Advance premiums 4,651 4,983
Assumed reinsurance balances payable 3,294 1,084
Accrued expenses (Note 4 - Consolidated Variable Interest Entity) 6,513 6,316
Long-term debt 138,863 129,429
Other liabilities 26,702 18,472
Total liabilities 426,318 399,264
Commitments and contingencies (Note 22)
Stockholders' equity:    
Preferred stock
Common stock (no par value, 40,000,000 shares authorized, 9,662,761 and 10,292,256 shares issued and outstanding in 2016 and 2015, respectively) 0 0
Additional paid-in capital 8,139 23,879
Retained income 232,964 215,634
Accumulated other comprehensive income (loss), net of taxes 2,643 (1,791)
Total stockholders' equity 243,746 237,722
Total liabilities and stockholders' equity (or members' capital) 670,064 636,986
7% Series A Cumulative Convertible Preferred Stock [Member]    
Stockholders' equity:    
Preferred stock
Series B Preferred Stock [Member]    
Stockholders' equity:    
Preferred stock
v3.6.0.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2016
Dec. 31, 2015
Available-for-sale Debt securities, Amortized cost $ 167,231 $ 128,614
Available-for-sale Equity securities, Amortized cost $ 47,750 $ 47,548
Preferred stock, no par value
Preferred stock, authorized 18,100,000 18,100,000
Preferred stock, issued 0 0
Preferred stock, outstanding 0 0
Common stock, no par value
Common stock, shares authorized 40,000,000 40,000,000
Common stock, shares issued 9,662,761 10,292,256
Common stock, outstanding 9,662,761 10,292,256
7% Series A Cumulative Convertible Preferred Stock [Member]    
Preferred stock, no par value
Preferred stock, authorized 1,500,000 1,500,000
Preferred stock, issued 0 0
Preferred stock, outstanding 0 0
Series B Preferred Stock [Member]    
Preferred stock, no par value
Preferred stock, authorized 400,000 400,000
Preferred stock, issued 0 0
Preferred stock, outstanding 0 0
v3.6.0.2
Consolidated Statements of Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Revenue      
Gross premiums earned $ 378,678 $ 423,120 $ 365,488
Premiums ceded (135,051) (140,614) (113,423)
Net premiums earned 243,627 282,506 252,065
Net investment income 9,087 3,978 4,888
Net realized investment gains (losses) 2,601 (608) 4,735
Net other-than-temporary impairment losses recognized in income:      
Total other-than-temporary impairment losses (2,252) (5,275) (107)
Portion of loss recognized in other comprehensive income, before taxes (230) 594  
Net other-than-temporary impairment losses (2,482) (4,681) (107)
Policy fee income 3,914 3,496 2,820
Gain on repurchases of convertible senior notes 153    
Gain on bargain purchase 2,071    
Gain on remeasurement of previously held interest 4,005    
Other 1,470 1,261 1,707
Total revenue 264,446 285,952 266,108
Expenses      
Losses and loss adjustment expenses 124,667 87,224 79,468
Policy acquisition and other underwriting expenses 42,642 41,984 37,952
Salaries and wages 19,037 20,140 16,483
Interest expense 11,079 10,754 10,453
Impairment loss 388    
Other operating expenses 19,777 19,658 20,790
Total expenses 217,590 179,760 165,146
Income before income taxes 46,856 106,192 100,962
Income tax expense 17,835 40,331 38,298
Net income 29,021 65,861 62,664
Preferred stock dividends     4
Income available to common stockholders $ 29,021 $ 65,861 $ 62,668
Basic earnings per common share $ 2.95 $ 6.51 $ 5.90
Diluted earnings per common share 2.92 5.90 5.36
Dividends per common share $ 1.20 $ 1.20 $ 1.10
v3.6.0.2
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Dec. 31, 2016
Sep. 30, 2016
Jun. 30, 2016
Mar. 31, 2016
Dec. 31, 2015
Sep. 30, 2015
Jun. 30, 2015
Mar. 31, 2015
Dec. 31, 2014
Sep. 30, 2014
Jun. 30, 2014
Mar. 31, 2014
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Statement of Comprehensive Income [Abstract]                              
Net income $ 4,608 $ 11,333 $ 7,024 $ 6,056 $ 11,090 $ 7,371 $ 22,022 $ 25,378 $ 14,562 $ 14,052 $ 16,430 $ 17,620 $ 29,021 $ 65,861 $ 62,664
Change in unrealized gain (loss) on investments:                              
Net unrealized gain (loss) arising during the period                         7,317 (9,366) 3,870
Other-than-temporary impairment loss charged to investment income                         2,482 4,681 107
Call and repayment losses charged to investment income                         20 77 28
Reclassification adjustment for net realized (gain) loss                         (2,601) 608 (4,735)
Net change in unrealized gain (loss)                         7,218 (4,000) (730)
Deferred income taxes on above change                         (2,784) 1,543 282
Total other comprehensive income (loss), net of income taxes                         4,434 (2,457) (448)
Comprehensive income $ 2,380 $ 12,487 $ 10,742 $ 7,846 $ 11,516 $ 5,023 $ 19,856 $ 27,009 $ 14,199 $ 11,084 $ 17,889 $ 19,044 $ 33,455 $ 63,404 $ 62,216
v3.6.0.2
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Income [Member]
Accumulated Other Comprehensive (Loss) Income, Net of Tax [Member]
Share Repurchase Plan [Member]
Share Repurchase Plan [Member]
Common Stock [Member]
Share Repurchase Plan [Member]
Additional Paid-In Capital [Member]
Series A Preferred Stock [Member]
Beginning Balance at Dec. 31, 2013 $ 160,521   $ 48,966 $ 110,441 $ 1,114        
Beginning Balance, shares at Dec. 31, 2013   10,939,268             110,684
Net income 62,664     62,664          
Total other comprehensive income (loss), net of income taxes (448)       (448)        
Conversion of preferred stock to common stock   107,298             (107,298)
Issuance of restricted stock 0 $ 0 0 0 0       $ 0
Issuance of restricted stock, shares   108,720              
Exercise of common stock options, value $ 125   125            
Exercise of common stock options, shares 50,000 50,000              
Forfeiture of restricted stock, value $ 0 $ 0 0 0 0       $ 0
Forfeiture of restricted stock, shares   (10,840)              
Repurchase and retirement of common stock, value (643)   (643)     $ (38,354)   $ (38,354)  
Repurchase and retirement of common stock, shares   (14,617)         (990,701)    
Redemption of Series A preferred stock, value (34)   (34)            
Redemption of Series A preferred stock, shares                 (3,386)
Deferred taxes on debt discount 215   215            
Common stock dividends (11,655)     (11,655)          
Derecognition of preferred stock dividends payable 4     4          
Tax benefits on stock-based compensation 2,080   2,080            
Stock-based compensation 8,110   8,110            
Ending Balance at Dec. 31, 2014 182,585   20,465 161,454 666        
Ending Balance, shares at Dec. 31, 2014   10,189,128              
Net income 65,861     65,861          
Total other comprehensive income (loss), net of income taxes (2,457)       (2,457)        
Issuance of restricted stock 0 $ 0 0 0 0       $ 0
Issuance of restricted stock, shares   83,260              
Exercise of common stock options, value $ 263   263            
Exercise of common stock options, shares 120,000 120,000              
Shares surrendered upon exercising common stock options   (2,013)              
Forfeiture of restricted stock, value $ 0 $ 0 0 0 0       0
Forfeiture of restricted stock, shares   (42,757)              
Repurchase and retirement of common stock, value (792)   (792)     (1,610)   (1,610)  
Repurchase and retirement of common stock, shares   (17,493)         (37,869)    
Common stock dividends (11,681)     (11,681)          
Tax benefits on stock-based compensation 2,295   2,295            
Tax shortfalls on stock-based compensation (1,954)   (1,954)            
Stock-based compensation 5,212   5,212            
Ending Balance at Dec. 31, 2015 237,722   23,879 215,634 (1,791)        
Ending Balance, shares at Dec. 31, 2015   10,292,256              
Net income 29,021     29,021          
Total other comprehensive income (loss), net of income taxes 4,434       4,434        
Issuance of restricted stock 0 $ 0 0 0 0       0
Issuance of restricted stock, shares   142,440              
Exercise of common stock options, value $ 150   150            
Exercise of common stock options, shares 60,000 60,000              
Forfeiture of restricted stock, value $ 0 $ 0 0 0 0       $ 0
Forfeiture of restricted stock, shares   (13,298)              
Cancellation of restricted stock   (160,000)              
Repurchase and retirement of common stock, value (464)   (464)     $ (20,026)   $ (20,026)  
Repurchase and retirement of common stock, shares   (14,934)         (643,703)    
Common stock dividends (11,691)     (11,691)          
Tax benefits on stock-based compensation 641   641            
Tax shortfalls on stock-based compensation (239)   (239)            
Stock-based compensation 4,198   4,198            
Ending Balance at Dec. 31, 2016 $ 243,746   $ 8,139 $ 232,964 $ 2,643        
Ending Balance, shares at Dec. 31, 2016   9,662,761              
v3.6.0.2
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Cash flows from operating activities:      
Net income $ 29,021,000 $ 65,861,000 $ 62,664,000
Adjustments to reconcile net income to net cash provided by operating activities:      
Stock-based compensation 4,198,000 5,212,000 8,110,000
Net amortization of discounts and premiums on investments in fixed-maturity securities 726,000 855,000 782,000
Depreciation and amortization 5,408,000 5,251,000 4,958,000
Deferred income tax expense (benefit) 155,000 (1,101,000) (4,742,000)
Net realized investment (gains) losses (2,601,000) 608,000 (4,735,000)
Other-than-temporary impairment losses 2,482,000 4,681,000 107,000
Income from real estate investment under acquisition, development and construction arrangement   (344,000) (85,000)
Gain on repurchases of convertible senior notes (153,000)    
Gain on bargain purchase (2,071,000)    
Gain on remeasurement of previously held investment (4,005,000)    
Impairment loss 388,000    
Loss from unconsolidated joint venture   125,000 23,000
Net (income) loss from limited partnership interests (1,207,000) 3,244,000 90,000
Distributions received from limited partnership interests 544,000 12,000 0
Foreign currency remeasurement loss 29,000 66,000 29,000
Other 18,000 26,000 (1,000)
Changes in operating assets and liabilities:      
Accrued interest and dividends receivable (300,000) (331,000) 74,000
Income taxes (1,192,000) 766,000 (3,167,000)
Premiums receivable 2,355,000 (3,807,000) (1,150,000)
Prepaid reinsurance premiums 16,193,000 (6,651,000) (6,030,000)
Deferred policy acquisition costs 1,963,000 (3,588,000) (943,000)
Other assets 29,054,000 (7,230,000) (20,086,000)
Losses and loss adjustment expenses 18,802,000 2,782,000 5,222,000
Unearned premiums (11,487,000) (26,781,000) 42,164,000
Advance premiums (332,000) 603,000 (124,000)
Assumed reinsurance balances payable 2,210,000 866,000 (4,442,000)
Accrued expenses and other liabilities (2,223,000) 4,157,000 10,011,000
Net cash provided by operating activities 87,975,000 45,282,000 88,729,000
Cash flows from investing activities:      
Investment in real estate under acquisition, development, and construction arrangement   (6,968,000) (2,803,000)
Acquisition of real estate business, net of cash acquired (11,651,000)    
Investments in limited partnership interests (4,670,000) (24,636,000) (2,640,000)
Investment in unconsolidated joint venture (90,000) (435,000) (4,500,000)
Purchase of property and equipment (865,000) (840,000) (453,000)
Purchase of real estate investments (2,261,000) (4,871,000) (413,000)
Purchase of fixed-maturity securities (85,530,000) (98,501,000) (83,365,000)
Purchase of equity securities (22,434,000) (32,878,000) (44,257,000)
Proceeds from investment in real estate under acquisition, development and construction arrangement 10,200,000    
Proceeds from sales of fixed-maturity securities 40,454,000 53,711,000 98,365,000
Proceeds from calls, repayments and maturities of fixed-maturity securities 4,692,000 9,344,000 4,603,000
Proceeds from sales of equity securities 23,127,000 25,695,000 16,810,000
Proceeds from sales of real estate investments   5,000 1,000
Net cash used in investing activities (49,028,000) (80,374,000) (18,652,000)
Cash flows from financing activities:      
Net borrowing under revolving credit facility 1,238,000    
Proceeds from the exercise of common stock options 150,000 263,000 125,000
Cash dividends paid (12,438,000) (12,428,000) (12,355,000)
Cash dividends received under share repurchase forward contract 747,000 747,000 685,000
Proceeds from the issuance of long-term debt 18,200,000    
Repurchases of convertible senior notes (11,347,000)    
Repayment of debt (455,000)    
Repurchases of common stock (464,000) (792,000) (643,000)
Repurchases of common stock under share repurchase plan (20,026,000) (1,610,000) (38,354,000)
Redemption of Series A preferred stock     (34,000)
Purchase of non-controlling interest (2,064,000)    
Debt issuance costs (339,000)   (234,000)
Tax benefits on stock-based compensation 641,000 2,295,000 2,080,000
Net cash used in financing activities (26,157,000) (11,525,000) (48,730,000)
Effect of exchange rate changes on cash 3,000 (61,000) (29,000)
Net increase (decrease) in cash and cash equivalents 12,793,000 (46,678,000) 21,318,000
Cash and cash equivalents at beginning of year 267,738,000 314,416,000 293,098,000
Cash and cash equivalents at end of year 280,531,000 267,738,000 314,416,000
Supplemental disclosure of cash flow information:      
Cash paid for income taxes 18,857,000 38,371,000 43,902,000
Cash paid for interest 7,222,000 7,211,000 6,258,000
Non-cash investing and financing activities:      
Unrealized gain (loss) on investments in available-for-sale securities, net of tax 4,434,000 (2,457,000) (448,000)
Details of business acquisition:      
Fair value of assets acquired 32,569,000    
Less:Purchase price (14,514,000)    
Carrying value of previously held interest (2,859,000)    
Gain on remeasurement of previously held interest (4,005,000)    
Gain on bargain purchase (2,071,000)    
Liabilities assumed 9,120,000    
Receivable from sales of available-for-sale securities 350,000   34,000
Payable on purchases of available-for-sale securities $ 50,000 $ 1,000 1,908,000
Series A Preferred Stock [Member]      
Non-cash investing and financing activities:      
Conversion of Series A preferred stock to common stock     $ 972,000
v3.6.0.2
Nature of Operations
12 Months Ended
Dec. 31, 2016
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Nature of Operations

Note 1— Nature of Operations

HCI Group, Inc., together with its subsidiaries (“HCI” or the “Company”), is primarily engaged in the property and casualty insurance business through Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”), its principal operating subsidiary. HCPCI is authorized to underwrite various homeowners’ property and casualty insurance products and allied lines business in the state of Florida. HCPCI also offers flood-endorsed and wind-only policies to new and pre-existing Florida customers. HCPCI’s operations are supported by HCI Group, Inc. and the following HCI subsidiaries:

 

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

 

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

 

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

The Company’s insurance subsidiaries also include TypTap Insurance Company (“TypTap”), a Florida insurance company approved by the Florida Office of Insurance Regulation (“FLOIR”) in January 2016. TypTap offers standalone flood policies to Florida homeowners. In 2016, the Company’s Alabama insurance subsidiary, Homeowners Choice Assurance Company, Inc. (“HCA”) voluntarily surrendered its certificate of authority to the Alabama Department of Insurance and, as a result, formally terminated its plan to conduct business in the state of Alabama. Since its organization, HCA had no operations. The withdrawal was effective on June 30, 2016 and HCA was dissolved in December 2016.

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

The Company reports its operations under one business segment.

The Company obtained a majority of its policies through participation in a “take-out program” with Citizens Property Insurance Corporation (“Citizens”), a Florida state supported insurer. Policies were obtained in separate assumption transactions with Citizens that took place from July 2007 through November 2016. 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. Substantially all of the Company’s premium revenue since inception comes from these assumptions and one additional assumption through which the Company acquired the Florida policies of another Florida insurance carrier.

v3.6.0.2
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2016
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

Note 2 — Summary of Significant Accounting Policies

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

Adoption of New Accounting Standards.

In December 2016, the Company early adopted Accounting Standards Update No. 2016-15, Statement of Cash Flows (Topic 230), which provides guidance on how certain cash receipts and cash payments, specifically distributions received from equity method investees, are presented and classified. The Company elects to classify these distributions received using the cumulative earnings approach. Under this approach, distributions received are considered returns on investments and classified as cash inflows from operating activities, unless the Company’s cumulative distributions received less distributions received in prior periods that were determined to be returns of investments exceed the cumulative equity in earnings recognized by the Company. When such an excess occurs, the current period distribution up to this excess is considered a return of investment and classified as cash inflows from investing activities. As a result of adopting this standard, the Company reclassified $544 and $12 of cash received from limited partnership interests during 2016 and 2015, respectively, from investing activities to operating activities. The change to the Company’s net cash provided by (used in) operating activities and net cash used in investing activities at each reporting date has been applied retrospectively for the year ended December 31, 2015 and in all periods thereafter. The Company had no distributions from limited partnership interests during 2014. The adoption of this standard had no effect on the prior consolidated results of the Company’s operations, comprehensive income, stockholders’ equity and financial position.

As of December 31, 2016, the Company adopted Accounting Standards Update No. 2015-09, Financial Services – Insurance (Topic 944), which improves disclosure requirements for all insurance entities that issue short-duration contracts. The amendments in this update were applied retrospectively with supplementary information for each prior period presented, except for those requirements applying only to the current period which were applied prospectively. The adoption of this standard had no effect on the Company’s consolidated results of operations and comprehensive income.

In addition, The Company adopted Accounting Standards Update No. 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40), which provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and requirements for related footnote disclosures. The adoption of this standard in December 2016 had no effect on the Company’s consolidated financial statements.

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

The Company has a 100% equity interest in one venture (treated as a joint venture under U.S. GAAP) that owns land in Riverview, Florida on which a retail center is being constructed for lease or for sale. The Company consolidates this joint venture as its primary beneficiary (see Note 4 — “Investments” under Consolidated Variable Interest Entity).

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

Business Acquisitions. The Company accounts for business acquisitions using the acquisition method, which requires it to measure and recognize the assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at their acquisition date fair values. In the event that the fair value of net assets acquired exceeds the purchase price, a bargain purchase gain is recorded. In a step acquisition in which there is a change in ownership interest and control is obtained when there is a previously held equity interest, a gain or loss from remeasurement of the previously held equity interest to fair value is recorded.

Acquisitions of income-producing real properties are typically considered business acquisitions. As such, the Company allocates the purchase price to land, land improvements, buildings, tenant improvements, intangibles such as the value of significant tenant (i.e. anchor tenant) relationships, in-place leases, and assumed liabilities, if any. Tangible assets are presented as real estate investments on the Company’s consolidated balance sheet. Buildings subject to leases are valued as if vacant. The value attributable to in-place leases reflects the costs we would have incurred to lease the property to the occupancy level that existed at the acquisition date. These costs include leasing commissions, tenant improvement allowances, and other direct costs required to lease the property. In addition, the estimated fair value of in-place leases reflects the value of base rental revenues that would have been earned during the assumed periods of vacancy and the related carrying costs that would have been incurred to lease the vacant property to its existing occupancy. The Company also reviews terms of the assumed leases to evaluate whether the terms are favorable or unfavorable relative to the market at the acquisition date. In the event the assumed leases are not at market terms, the Company recognizes an intangible asset for a lease with favorable terms and a liability if the terms of the lease are unfavorable.

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, 2016 and 2015, cash and cash equivalents consisted of cash on deposit with financial institutions and securities brokerage firms.

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

The Company reviews all securities for other-than-temporary impairment on a monthly basis. 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 loss is recognized in income in the period in which the Company makes such determination.

When reviewing impaired fixed-maturity securities, the Company considers its ability and intent to hold these securities and whether it is probable that the Company will be required to sell these securities prior to their anticipated recovery or maturity. For the fixed-maturity securities that the Company intends to sell or it is probable that the Company will have to sell the fixed-maturity securities before recovery or maturity, the unrealized losses are recognized as other-than-temporary losses in income. In instances where there are credit related losses associated with the impaired fixed-maturity securities for which the Company asserts that it does not have the intent to sell, and it is probable that the Company will not be required to sell until a market price recovery or maturity, the amount of the other-than-temporary impairment loss related to credit losses is recognized in income, and the amount of the other-than-temporary impairment loss related to other non-credit factors such as changes in interest rates or market conditions is recorded as a component of other comprehensive income.

When determining impairment due to a credit related loss, the Company carefully considers factors such as the issuer’s financial ratios and condition, the security’s current ratings and maturity date, and overall market conditions in estimating the cash flows expected to be collected. The expected cash flows discounted at the effective interest rate of the security implicit at the date of acquisition is then compared with the security’s amortized cost at the measurement date. A credit loss is incurred when the present value of the expected cash flows is less than the security’s amortized cost. The Company considers various factors in determining whether an individual security is other-than-temporarily impaired (see Note 4 — “Investments”).

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

Pursuant to U.S. GAAP, these limited partnerships which are private equity funds must measure their investments at fair value and reflect the unrealized gains or losses in the fair value of their investments on their statement of income. As a result, the carrying value of limited partnership investments at each reporting date approximates their estimated fair value.

Investment in Unconsolidated Joint Venture. The Company has a 90% equity interest in a limited liability company (treated as a joint venture under U.S. GAAP) that owns land for lease or for sale and, until December 2016, owned and operated a retail shopping center. The joint venture was determined to be a variable interest entity as it lacks sufficient equity to finance its activities without additional subordinated financial support. Despite having a majority equity interest, the Company does not have the power to direct the activities that most significantly impact the economic performance of the joint venture and, accordingly, is not required to consolidate the joint venture as its primary beneficiary. As a result, the Company uses the equity method to account for this investment.

Ownership of the retail shopping center was distributed to members of the limited liability company in December 2016. The operating agreement also contained an embedded purchase option which allowed the Company to purchase the entire interest of the other party to the venture after the expiration of a restricted period. The Company purchased the other member’s interest in December 2016 (see Note 4 — “Investments”).

When evidence indicates an impairment may occur, the Company evaluates whether a decline in value is other than temporary. Evidence may include continuing operating losses of the joint venture, a declining occupancy rate, a decrease in real estate value, and an oversupply of rental property in close vicinity to the investment property. Should available evidence indicate the recovery of the initial investment is less likely, the Company would compare the carrying value of the investment with its expected residual value and recognize an impairment loss in earnings.

Real Estate Investments. Real estate investments include real estate and the related assets purchased for investment purposes (see Note 4 — “Investments”).

Prior to August 16, 2016, there was one Acquisition, Development and Construction loan agreement (“ADC Arrangement”). Under the ADC Arrangement, the Company provided financing to the property developer for the acquisition, development, and construction of a retail shopping center. The Company also expected to participate in the residual profit resulting from the ultimate sale or other use of the property. Classification and accounting for the ADC Arrangement as a loan, an investment in real estate, or a joint venture was determined by the Company’s evaluation of the characteristics and the risks and rewards of the ADC Arrangement. Because the Company expected to receive more than 50% of the residual profit from the ADC Arrangement which had characteristics similar to a real estate investment, the costs of the real estate project were capitalized and interest was recognized in net investment income.

In addition, the Company considered any rights or features embedded in the ADC Arrangement that might require bifurcation and derivative accounting. Due to its participation in the expected residual profit, which was deemed a variable interest, the Company evaluated if the Company had the power to direct the activities that significantly impact the economic performance of the entity to which the Company provided financing for possible consolidation as the primary beneficiary under the Variable Interest Model as prescribed by FASB (see ADC Arrangement in Note 4 — “Investments”).

Real estate and the related depreciable assets are carried at cost, net of accumulated depreciation, which is included in net investment income and allocated over the estimated useful life of the asset using the straight-line method of depreciation. Land is not depreciated. 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”) represent direct costs to acquire insurance contacts including premium taxes and commissions paid to outside agents at the time of collection of the policy premium. DAC is amortized over the life of the related policy in relation to the amount of gross premiums earned.

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

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

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

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

Intangible Assets. Intangibles consist of the value attributable to the acquired in-place leases and the primary, or anchor, tenant relationships. The value attributable to the anchor tenant relationship represents the economic benefits of having a nationally recognized retailer as the lead tenant, which draws traffic and other tenants to the retail center. These intangibles are amortized to expense over the related lease term. Amortization of the intangibles related to real estate investments is reflected in net investment income in the consolidated statement of income. The Company reviews these intangible assets for impairment annually or when events or changes in circumstances indicate the carrying value may not be recoverable. In the event the Company determines the carrying value is not recoverable, an impairment loss is recorded in the Company’s consolidated statement of income.

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

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

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

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

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

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

The estimates of unpaid losses and LAE are subject to trends in claim severity and frequency and are continually reviewed. As part of the process, the Company reviews historical data and considers various factors, including known and anticipated regulatory and legal developments, changes in social attitudes, inflation and economic conditions. As experience develops and other data becomes available, these estimates are revised, as required, resulting in increases or decreases to the existing unpaid losses and LAE. Adjustments are reflected in the results of operations in the period in which they are made and the liabilities may deviate substantially from prior estimates.

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

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

Certain of the Company’s current reinsurance contracts contain retrospective provisions including terms and conditions that adjust premiums, increase the amount of future coverage, or result in profit commissions based on the loss experience under the contracts. In such cases, a with-and-without method is used to estimate the asset or liability amount to be recognized at each reporting date. The amount of the estimate is the difference between the net contract costs before and after the loss experience under the contract. Estimates related to premium adjustments, profit commissions and coverage changes are recognized in ceded premiums earned. These estimates are reviewed monthly based on the loss experience to date and as adjustments become necessary. Such adjustments are reflected in the Company’s current operations and recorded in other assets until received upon the expiration of the contracts. Effective June 1, 2016, retrospective provisions include premium adjustments only.

Premium Revenue. Premium revenue is earned on a daily pro-rata basis over the term of the policies and is included in gross premiums earned. Unearned premiums represent the portion of the premiums attributable to the unexpired policy term. The Company reviews its policy detail and establishes an allowance for any amount outstanding for more than 90 days. As of December 31, 2016 and 2015, there was no allowance required.

Policy Fees. Policy fees represent nonrefundable fees for insurance coverage, which are intended to reimburse a portion of the costs incurred to underwrite the policy. Policy fees are recognized ratably over the policy coverage period.

Florida Insurance Guaranty Association Assessments. The Company’s Florida insurance subsidiaries 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 insurer is permitted by Florida statutes to recover the entire amount of assessments from in-force and future policyholders through policy surcharges. U.S. GAAP provides that the Company should record an asset based on the amount of written or obligated-to-write premiums and limited to the amounts recoverable over the life of the in-force policies.

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

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

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

 

Deferred income tax expense results from changes in deferred tax assets and liabilities between periods. Deferred tax assets are recognized if it is more likely than not, based on the technical merits, that the tax position will be realized or sustained upon examination. The term “more likely than not” means a likelihood of more than fifty percent; the terms “examined” and “upon examination” also include resolution of the related appeals or litigation processes, if any. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement with a taxing authority that has full knowledge of all relevant information. The determination of whether or not a tax position has met the more-likely-than-not recognition threshold considers the facts, circumstances, and information available at the reporting date and is subject to management’s judgment. Deferred tax assets are reduced by a valuation allowance if, based on the weight of evidence available, it is more likely than not that some portion or all of a deferred tax asset will not be realized. As of December 31, 2016, 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, 2016 and 2015. Fair values for securities are based on the framework for measuring fair value established by U.S. GAAP (see Note 7 — “Fair Value Measurements”).

Stock-Based Compensation. The Company accounts for stock-based compensation under the fair value recognition provisions of U.S. GAAP which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options and restricted stock issuances based on estimated fair values. In accordance with U.S. GAAP, the fair value of stock-based awards to employees is generally recognized as compensation expense over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The Company uses a straight-line attribution method for all grants that include only a service condition. The Company’s restricted stock awards include service, market and performance conditions. As a result, restricted stock grants with market conditions are expensed over the derived service period for each separately vesting tranche. For awards with performance conditions, the Company recognizes compensation expense over the requisite service period when it is probable that the performance condition will be achieved. Compensation expense related to all awards is included in other operating expense. In addition, the Company receives and recognizes in additional paid-in capital a windfall tax benefit for certain stock option exercises during the period of exercise and for restricted stock awards if these awards vest at a higher value than the value used to recognize compensation expense. In the event the restricted stock awards vest at a lower value than the value used to recognize compensation expense, the Company experiences a tax shortfall. This shortfall is charged to additional paid-in-capital in the consolidated statements of stockholders’ equity to the extent of the Company’s pool of windfall tax benefits with any remainder recognized in income tax expense. For 2016 and 2015, all shortfall amounts were charged to additional paid-in-capital with no additional income tax expense recognized for these shortfalls.

 

Basic and diluted earnings per common share. Basic earnings per common share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding for the period. U.S. GAAP requires the inclusion of restricted stock as participating securities since holders of the Company’s restricted stock have the right to share in dividends, if declared, equally with common stockholders. During periods of net income, participating securities are allocated a proportional share of net income determined by dividing total weighted-average participating securities by the sum of total weighted-average common shares and participating securities (the “two-class method”). Diluted earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted as well as participating equities. See Note 18 — “Earnings Per Share” for potentially dilutive securities at December 31, 2016, 2015 and 2014.

Statutory Accounting Practices. The Company’s U.S. insurance subsidiaries comply with statutory accounting practices prescribed by the National Association of Insurance Commissioners. There are no state prescribed or permitted practices that have been adopted by the Company’s U.S. subsidiaries. In addition, the Company’s Bermuda insurance subsidiary prepares and files financial statements in accordance with the prescribed regulatory accounting practices of the Bermuda Monetary Authority.

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

v3.6.0.2
Recent Accounting Pronouncements
12 Months Ended
Dec. 31, 2016
Accounting Changes and Error Corrections [Abstract]  
Recent Accounting Pronouncements

Note 3 — Recent Accounting Pronouncements

Accounting Standards Update No. 2016-18. In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-18 (“ASU 2016-18”), Statement of Cash Flows – Restricted Cash (Topic 230), which amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. Under the new standard, the Company should include in its cash and cash equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. Appropriate disclosures and reconciliations pertaining to restricted cash should continue to be provided. ASU 2016-18 is effective beginning with the first quarter of 2018. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s consolidated financial position.

Accounting Standards Update No. 2016-17. In October 2016, the FASB issued Accounting Standards Update No. 2016-17 (“ASU 2016-17”), Consolidation – Interests Held Through Related Parties that are Under Common Control (Topic 810), which amends the consolidation requirements that apply to a single decision maker’s evaluation of interests held through related parties that are under common control when determining whether it is the primary beneficiary of a variable interest entity. Under this new guidance, a single decision maker of a variable interest entity evaluating whether it is the primary beneficiary of a variable interest entity will need to consider its proportionate indirect interests in the variable interest entity held through a common control party as indirect interests. These interests were previously to be treated as the equivalent of direct interests. ASU 2016-17 is effective beginning with the first quarter of 2017. Early adoption is permitted. Application of this guidance is not expected to have any effect on the Company’s consolidated financial statements.

 

Accounting Standards Update No. 2016-16. In October 2016, the FASB issued Accounting Standards Update No. 2016-16 (“ASU 2016-16”), Income Taxes – Intra-Entity Transfers of Assets Other Than Inventory (Topic 740), which removes the existing exception that prohibits the recognition of income tax consequences of intercompany sales and transfers of assets other than inventory in the period in which the transfer occurs. Under this new guidance, the Company will be required to defer the income tax effects of only intercompany transfers of inventory, recognizing all other income tax consequences of other intercompany transfers of assets. ASU 2016-16 is effective for the Company beginning with the first quarter of 2018. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on the Company’s consolidated financial statements.

Accounting Standards Update No. 2016-15. In August 2016, the FASB issued Accounting Standards Update No. 2016-15 (“ASU 2016-15”), Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (Topic 230), which clarifies or provides specific guidance on how certain cash receipts and cash payments are presented and classified. Some of the guidelines that may have potential impact on the Company’s consolidated statements of cash flows are cash payments for debt prepayment, distributions received from equity method investments, and proceeds from the settlement of insurance claims. ASU 2016-15 is effective beginning with the first quarter of 2018. Early adoption is permitted, including adoption in an interim period. The Company did elect to early adopt ASU 2016-15 and has applied this new guidance retrospectively to each prior period presented. The adoption did not have a significant impact on the Company’s consolidated statements of cash flows.

Accounting Standards Update No. 2016-13. In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (“ASU 2016-13”), Financial Instruments - Credit Losses (Topic 326), which requires the measurement of credit losses for financial assets at each reporting date based on reasonable and supportable information. ASU 2016-13 also requires enhanced qualitative and quantitative disclosures on significant estimates and judgments used in estimating credit losses. ASU 2016-13 is effective for the Company beginning with the first quarter of 2020. The Company is currently evaluating the impact of this guidance on the Company’s financial statements.

Accounting Standards Update No. 2016-12. In May 2016, the FASB issued Accounting Standards Update No. 2016-12 (“ASU 2016-12”), Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which affects all entities that enter into contracts with customers to transfer goods or services in exchange for consideration. ASU 2016-12 addresses certain issues on assessing collectability, presentation of sales taxes, noncash consideration, completed contracts and contract modification at transition. The amendments in this update will become effective for the Company beginning with the first quarter of 2018. The Company is currently evaluating the impact of this guidance on the Company’s financial statements.

Accounting Standards Update No. 2016-10. In April 2016, the FASB issued Accounting Standards Update No. 2016-10 (“ASU 2016-10”), Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarifies the standard on identifying performance obligations and improves the licensing implementation guidance. ASU 2016-10 is effective for the Company beginning with the first quarter of 2018. The Company is currently evaluating the impact of this guidance on the Company’s financial statements.

 

Accounting Standards Update No. 2016-09. In March 2016, the FASB issued Accounting Standards Update No. 2016-09 (“ASU 2016-09”), Compensation-Stock Compensation (Topic 718), which affects all entities that issue share-based awards to their employees. ASU 2016-09 amends the accounting for share-based payment transactions including the related income taxes, classification of awards as either equity or liabilities, and classification on the statement of cash flows. In addition, ASU 2016-09 allows for an accounting policy election to either estimate the number of awards that are expected to vest (current U.S. GAAP) or account for forfeitures when they occur. ASU 2016-09 is effective for the Company beginning with the first quarter of 2017. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on the Company’s financial statements.

Accounting Standards Update No. 2016-02. In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), Leases (Topic 842), which supersedes Topic 840 and creates the new lease accounting standards for lessees and lessors, primarily related to the recognition of lease assets and liabilities by lessees for leases classified as operating leases. ASU 2016-02 is effective for the Company beginning with the first quarter of 2019. Early adoption is permitted. The Company is currently evaluating the impact of this guidance on the Company’s financial statements.

Accounting Standards Update No. 2016-01. In January 2016, the FASB issued Accounting Standards Update No. 2016-01 (“ASU 2016-01”), Financial Instruments (Subtopic 825-10), which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. One of the changes is to require certain equity investments to be measured at fair value with changes in fair value recognized in net income. ASU 2016-01 is effective for the Company beginning with the first quarter of 2018. Early adoption is permitted for financial statements that have not been previously issued. The Company is currently evaluating the impact of this guidance on the Company’s financial statements.

v3.6.0.2
Investments
12 Months Ended
Dec. 31, 2016
Investments, Debt and Equity Securities [Abstract]  
Investments

Note 4 — Investments

The Company holds investments in fixed-maturity securities and equity securities that are classified as available-for-sale. At December 31, 2016 and 2015, the cost or amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows:

 

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

As of December 31, 2016

           

Fixed-maturity securities

           

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

   $ 1,975       $ —         $ (36    $ 1,939   

Corporate bonds

     75,538         607         (1,641      74,504   

State, municipalities, and political subdivisions

     78,018         776         (488      78,306   

Exchange-traded debt

     11,463         36         (237      11,262   

Redeemable preferred stock

     237         3         (3      237   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     167,231         1,422         (2,405      166,248   

Equity securities

     47,750         5,769         (484      53,035   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 214,981       $ 7,191       $ (2,889    $ 219,283   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of December 31, 2015

           

Fixed-maturity securities

           

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

   $ 108       $ 5       $ —         $ 113   

Corporate bonds

     42,560         74         (4,815      37,819   

State, municipalities, and political subdivisions

     75,812         1,632         (120      77,324   

Exchange-traded debt

     9,817         177         (565      9,429   

Redeemable preferred stock

     317         8         (1      324   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     128,614         1,896         (5,501      125,009   

Equity securities

     47,548         2,139         (1,450      48,237   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 176,162       $ 4,035       $ (6,951    $ 173,246   
  

 

 

    

 

 

    

 

 

    

 

 

 

In June 2016, the Company’s Alabama subsidiary, Homeowners Choice Assurance Company, Inc., voluntarily surrendered its certificate of authority to the Alabama Department of Insurance and formally terminated its plan to conduct business in the state of Alabama. As a result, a statutory deposit held in trust for the Treasurer of Alabama was released to the Company in July 2016. At December 31, 2015, the $113 of U.S. Treasury securities noted in the table above was held as a statutory deposit.

Expected maturities will differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without penalties. The scheduled contractual maturities of fixed-maturity securities at December 31, 2016 and 2015 are as follows:

 

     December 31,  
     2016      2015  
            Estimated             Estimated  
     Amortized      Fair      Amortized      Fair  
     Cost      Value      Cost      Value  

Available-for-sale

           

Due in one year or less

   $ 2,656       $ 2,662       $ 3,282       $ 3,292   

Due after one year through five years

     49,915         50,023         32,833         32,651   

Due after five years through ten years

     90,360         89,332         71,120         67,113   

Due after ten years

     24,300         24,231         21,379         21,953   
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 167,231       $ 166,248       $ 128,614       $ 125,009   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Sales of Available-for-Sale Securities

Proceeds received, and the gross realized gains and losses from sales of available-for-sale securities, for the years ended December 31, 2016, 2015 and 2014 were as follows:

 

            Gross
Realized
     Gross
Realized
 
     Proceeds      Gains      Losses  

Year ended December 31, 2016

        

Fixed-maturity securities

   $ 40,454       $ 604       $ (79
  

 

 

    

 

 

    

 

 

 

Equity securities

   $ 23,127       $ 2,656       $ (580
  

 

 

    

 

 

    

 

 

 

Year ended December 31, 2015

        

Fixed-maturity securities

   $ 53,711       $ 253       $ (470
  

 

 

    

 

 

    

 

 

 

Equity securities

   $ 25,695       $ 1,327       $ (1,718
  

 

 

    

 

 

    

 

 

 

Year ended December 31, 2014

        

Fixed-maturity securities

   $ 98,365       $ 4,096       $ (98
  

 

 

    

 

 

    

 

 

 

Equity securities

   $ 16,810       $ 1,372       $ (635
  

 

 

    

 

 

    

 

 

 

Other-than-temporary Impairment

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

 

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

 

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

 

    general market conditions and industry or sector specific factors and other qualitative 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.

Fixed-maturity Securities

Of two fixed-maturity securities with credit related losses existing at December 31, 2015, one matured with full payment of principal and interest and one was sold due to uncertainties surrounding the issuer’s restructuring plan. Prior to sale, the sold security’s remaining $202 of impairment loss was reclassified from comprehensive income and recognized in total other-than-temporary impairment losses in the Company’s consolidated statement of income. During 2016, three additional fixed-maturity securities were considered other-than-temporarily impaired, one of which the Company intends to sell in the near future. The Company intends to hold until maturity both of the remaining two fixed-maturity securities, each considered to have credit related losses. For the year ended December 31, 2016, the Company recognized $1,565 of impairment losses in the consolidated statement of income, representing $1,335 of additional losses recorded during the period and $230 of the net change recorded in other comprehensive income.

 

At December 31, 2015, the Company held two fixed-maturity securities with credit related losses that it intended to hold until maturity. For the year ended December 31, 2015, the Company recorded $705 of impairment losses on these fixed-maturity securities, of which $111 was considered other-than-temporarily impaired due to credit related losses, with the remaining amount of $594 related to non-credit factors. For the year ended December 31, 2014, there was no other-than-temporary loss related to fixed-maturity securities. The Company did not consider any of its fixed-maturity securities to be other-than-temporarily impaired at December 31, 2014.

The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments recognized in income for available for sale fixed-maturity securities:

 

     2016      2015  

Balance at January 1

   $ 111       $ —     

Credit impairments on impaired securities

     475         111   

Additional credit impairments on previously impaired securities

     293         —     

Credit impaired security fully disposed of for which there was no prior intent or requirement to sell

     (385      —     

Reduction due to increase in expected cash flows recognized over the remaining life of the previously impaired security

     (19      —     
  

 

 

    

 

 

 

Balance at December 31

   $ 475       $ 111   
  

 

 

    

 

 

 

Equity Securities

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, the length of time each security has been in an unrealized loss position, the extent of the decline and the near term prospect for recovery. At December 31, 2016, the Company had nine equity securities that were other-than-temporarily impaired. This compares to 17 equity securities and one equity security that were other-than-temporarily impaired at December 31, 2015 and 2014, respectively. The Company recognized impairment losses of $917, $4,570 and $107 in the consolidated statement of income for the years ended December 31, 2016, 2015 and 2014, respectively.

 

Securities with gross unrealized loss positions at December 31, 2016 and 2015, aggregated by investment category and length of time the individual securities have been in a continuous loss position, are as follows:

 

     Less Than Twelve Months      Twelve Months or Longer      Total  
     Gross     Estimated      Gross     Estimated      Gross     Estimated  
     Unrealized     Fair      Unrealized     Fair      Unrealized     Fair  
     Loss     Value      Loss     Value      Loss     Value  

As of December 31, 2016

              

Fixed-maturity securities

              

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

   $ (36   $ 1,939       $ —        $ —         $ (36   $ 1,939   

Corporate bonds

     (1,546     43,859         (95     2,814         (1,641     46,673   

State, municipalities, and political subdivisions

     (441     26,029         (47     3,036         (488     29,065   

Exchange-traded debt

     (191     4,980         (46     1,954         (237     6,934   

Redeemable preferred stock

     (3     47         —          —           (3     47   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total fixed-maturity securities

     (2,217     76,854         (188     7,804         (2,405     84,658   

Equity securities

     (293     10,042         (191     3,209         (484     13,251   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ (2,510   $ 86,896       $ (379   $ 11,013       $ (2,889   $ 97,909   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2016, there were 134 securities in an unrealized loss position. Of these securities, 20 securities had been in an unrealized loss position for 12 months or longer. The gross unrealized loss of corporate bonds in an unrealized loss position for twelve months or more included $76 of other-than-temporary impairment losses related to non-credit factors.

 

     Less Than Twelve Months      Twelve Months or Longer      Total  
     Gross     Estimated      Gross     Estimated      Gross     Estimated  
     Unrealized     Fair      Unrealized     Fair      Unrealized     Fair  
     Loss     Value      Loss     Value      Loss     Value  

As of December 31, 2015

              

Fixed-maturity securities

              

Corporate bonds

   $ (3,667   $ 24,196       $ (1,148   $ 3,278       $ (4,815   $ 27,474   

State, municipalities, and political subdivisions

     (107     6,587         (13     184         (120     6,771   

Exchange-traded debt

     (565     5,559         —          —           (565     5,559   

Redeemable preferred stock

     (1     129         —          —           (1     129   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total fixed-maturity securities

     (4,340     36,471         (1,161     3,462         (5,501     39,933   

Equity securities

     (1,350     15,748         (100     1,460         (1,450     17,208   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ (5,690   $ 52,219       $ (1,261   $ 4,922       $ (6,951   $ 57,141   
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2015, there were 101 securities in an unrealized loss position. Of these securities, 10 securities had been in an unrealized loss position for 12 months or longer. The gross unrealized loss of corporate bonds in an unrealized loss position for twelve months or more included $581 of other-than-temporary impairment losses related to non-credit factors.

Limited Partnership Investments

The Company has interests in limited partnerships that are not registered or readily tradeable on a securities exchange. These partnerships are private equity funds managed by general partners who make decisions with regard to financial policies and operations. As such, the Company is not the primary beneficiary and does not consolidate these partnerships. The following table provides information related to the Company’s investments in limited partnerships:

 

     December 31, 2016      December 31, 2015  
     Carrying      Unfunded             Carrying      Unfunded         
Investment Strategy    Value      Balance      (%)(a)      Value      Balance      (%)(a)  

Primarily in senior secured loans and, to a limited extent, in other debt and equity securities of private U.S. lower-middle-market companies. (b)(c)(e)

   $ 6,246       $ 6,428         16.50       $ 4,774       $ 7,888         16.50   

Value creation through active distressed debt investing primarily in bank loans, public and private corporate bonds, asset-backed securities, and equity securities received in connection with debt restructuring. (b)(d)(e)

     7,358         1,360         1.76         4,713         3,320         1.76   

Maximum long-term capital appreciation through long and short positions in equity and/or debt securities of publicly traded U.S. and non-U.S. issuers, derivative instruments and certain other financial instruments. (f)

     11,333         —           66.58         11,689         —           65.79   

High returns and long-term capital appreciation through investments in the power, utility and energy industries, and in the infrastructure sector. (b)(g)(h)

     4,326         5,766         0.18         2,754         7,016         0.18   
  

 

 

    

 

 

       

 

 

    

 

 

    

Total

   $ 29,263       $ 13,554          $ 23,930       $ 18,224      
  

 

 

    

 

 

       

 

 

    

 

 

    

 

(a) Represents the Company’s percentage investment in the fund at each balance sheet date.
(b) Except under certain circumstances, withdrawals from the funds or any assignments are not permitted. Distributions, except income from late admission of a new limited partner, will be received when underlying investments of the funds are liquidated.
(c) Expected to have a 10-year term and the capital commitment is expected to expire on September 3, 2019.
(d) Expected to have a three-year term from the end of the capital commitment period, which is March 31, 2018.
(e) At the fund manager’s discretion, the term of the fund may be extended for up to two additional one-year periods.
(f) Withdrawal is permitted upon at least 45 days’ written notice to the general partner. In December 2016, the Company provided notice of its intent to withdraw from this fund. Such withdrawal will be effective February 15, 2017.
(g) Expected to have a 10-year term and the capital commitment is expected to expire on June 30, 2020.
(h) With the consent of a super majority, the term of the fund may be extended for up to three additional one-year periods.

The following is the aggregated summarized unaudited financial information of limited partnerships included in the investment strategy table above, which in certain cases is presented on a three-month lag due to the unavailability of information at the Company’s respective balance sheet dates. In applying the equity method of accounting, the Company uses the most recently available financial information provided by the general partner of each of these partnerships. The financial statements of these limited partnerships are audited annually.

 

     Years Ended December 31,  
     2016      2015  

Operating results:

     

Total income

   $ 310,998       $ 4,350   

Total expenses

     185,126         77,508   
  

 

 

    

 

 

 

Net income (loss)

   $ 125,872       $ (73,158
  

 

 

    

 

 

 
     December 31,  
     2016      2015  

Balance Sheet:

     

Total assets

   $ 2,956,327       $ 288,351   

Total liabilities

   $ 63,813       $ 28,105   

For the year ended December 31, 2016, the Company recognized net investment income of $1,207 for these investments. For the year ended December 31, 2015, the Company recognized net investment loss of $3,244. At December 31, 2016 and 2015, the Company’s cumulative contributed capital to the partnerships totaled $31,946 and $27,276, respectively, and the Company’s maximum exposure to loss aggregated $29,263 and $23,930, respectively. During the year ended December 31, 2016, the Company received total cash distributions of $544. There were no cash distributions received by the Company during the year ended December 31, 2015.

For the years ended December 31, 2016 and 2015, the Company recognized its share of earnings or losses based on the respective partnership’s statement of income. The carrying value of these investments approximates the amount the Company expected to recover at December 31, 2016 and 2015.

Investment in Unconsolidated Joint Venture

In 2014, Melbourne FMA, LLC, a wholly owned subsidiary, entered into an agreement with FMKT Sponsor, LLC to organize FMKT Mel JV, LLC (“FMJV”), a Florida limited liability company treated as a joint venture under U.S. GAAP to construct a retail shopping center for lease or for sale in Melbourne, Florida. Melbourne FMA and FMKT Sponsor initially contributed cash of $4,500 and $500, respectively, for equity interests in FMJV of 90% and 10%, respectively. The Company subsequently contributed additional cash of $525 to FMJV. FMJV is deemed a variable interest entity due to its lack of sufficient equity to finance its operations without direct or indirect additional financial support from parties to the joint venture. Although Melbourne FMA holds a majority interest in FMJV, certain major economic decisions specified in the agreement are not under Melbourne FMA’s control. As a result, Melbourne FMA is not the primary beneficiary and is not required to consolidate FMJV.

In addition, the agreement included FMKT Sponsor’s right of sale and first offer as well as an embedded option under which Melbourne FMA could purchase the entire interest of FMKT Sponsor. Under the right of sale and first offer, Melbourne FMA could either choose to purchase the interest of FMKT Sponsor in the developed property or approve the sale of the developed property to a third party buyer. Either party could initiate these provisions after the expiration of a restricted period.

In January 2016, FMJV sold a portion of its outparcel land for gross proceeds of $829, of which $515 was used to repay a portion of the construction loan obtained for this project. FMJV recognized a $404 gain on the outparcel sale of which $383 was allocated to the Company in accordance with the profit allocation specified in the operating agreement. On December 15, 2016, FMJV distributed its entire equity interest in FMKT Mel Manager, LLC (“FMKT MGA”), its wholly owned subsidiary, to Melbourne FMA and FMKT Sponsor, each of which received 90% and 10%, respectively. In addition to operating a retail shopping center business, FMKT MGA owns land which includes two outparcels. Melbourne FMA accounted for this transaction as a business step acquisition using the fair value method and, as a result, recognized a $4,005 gain on remeasurement of previously held interest. The gain represents the difference between the fair value of the 90% equity interest and its carrying value under the equity method. The fair value of the equity interest is comprised of the fair value of FMKT MGA’s underlying assets primarily determined by an independent appraiser offset by the fair value of liabilities assumed on the date of distribution. Inputs used by the appraiser included, but were not limited to, information about market and surrounding environments, demographics, and the sale or rent of similar types of property within the vicinity. Due to their short-term nature, the carrying value of current assets and assumed liabilities, including a variable interest rate revolving credit line, approximated fair value. See Pineda Landings - Melbourne, Florida in Note 6 — “Business Acquisitions” for additional information. Subsequent to this distribution, both limited liability company members agreed to amend the operating agreement and remove the provisions with regard to Melbourne FMA’s purchase option as described above. As a result, Melbourne FMA does not have the purchase option with respect to certain outparcels that continue to be owned by the limited liability company.

At December 31, 2016 and 2015, the Company’s maximum exposure to loss relating to the variable interest entity was $2,102 and $4,787, respectively, representing the carrying value of the investment. At December 31, 2016 and 2015, there were undistributed losses of $147 and $148, respectively, from this equity method investment, the amounts of which were included in the Company’s consolidated retained income. The limited liability company members received no cash distributions during 2016, 2015 and 2014. The following tables provide FMJV’s summarized unaudited financial results and the unaudited financial positions:

 

     Years Ended December 31,  
     2016      2015      2014  

Operating results:

        

Total revenues

   $ —         $ 118       $ —     

Total expenses

     —           257         25   
     

 

 

    

 

 

 

Net income (loss)

   $ —         $ (139    $ (25
     

 

 

    

 

 

 

The Company’s share of net loss(a)

   $ —         $ (125    $ (23

 

(a) Included in net investment income in the Company’s consolidated statements of income.
     December 31,  
     2016      2015  

Balance Sheet:

     

Construction in progress - real estate

   $ 334       $ 277   

Property and equipment, net

     1,654         11,806   

Cash

     179         570   

Accounts receivable

     —           3   

Other

     180         1,008   
  

 

 

    

 

 

 

Total assets

   $ 2,347       $ 13,664   
  

 

 

    

 

 

 

Accounts payable

   $ 11       $ 125   

Construction loan

     —           8,063   

Other liabilities

     —           157   

Members’ capital

     2,336         5,319   
  

 

 

    

 

 

 

Total liabilities and members’ capital

   $ 2,347       $ 13,664   
  

 

 

    

 

 

 

Investment in unconsolidated joint venture, at equity*

   $ 2,102       $ 4,787   

 

* Included the 90% share of FMKT Mel JV’s operating results.

After the aforementioned distribution, FMJV’s assets at December 31, 2016 included primarily outparcels for lease or sale which has increased in value since the retail shopping center was completed. The Company determined that there was no impairment loss associated with these assets for the year ended December 31, 2016. The 2015 and 2014 results reflected expenses incurred during the initial development stage. Because the Company expected to incur such expenses during development of the property and prior to its occupancy, the Company determined there was no impairment loss for the years ended December 31, 2015 and 2014.

Real Estate Investments

Real estate investments include office and retail space that is leased to tenants, wet and dry boat storage, one restaurant, and fuel services with respect to marina clients and recreational boaters. There was one ADC Arrangement which terminated August 16, 2016. Real estate investments consist of the following as of December 31, 2016 and 2015:

 

     December 31,  
     2016      2015  

Land

   $ 17,592       $ 13,134   

Land improvements

     9,336         1,505   

Building

     16,154         3,116   

Tenant and leasehold improvements

     872         —     

Construction in progress*

     3,404         2,906   

Other

     2,683         1,523   
  

 

 

    

 

 

 

Total, at cost

     50,041         22,184   

Less: accumulated depreciation and amortization

     (1,955      (1,430
  

 

 

    

 

 

 

Real estate, net

     48,086         20,754   

ADC Arrangement classified as real estate investment

     —           10,200   
  

 

 

    

 

 

 

Real estate investments

   $ 48,086       $ 30,954   
  

 

 

    

 

 

 

 

* The project is being developed by the Company’s consolidated variable interest entity.

During 2016, the Company acquired properties through two business acquisitions. See Note 6 — “Business Acquisitions” for additional information. Depreciation and amortization expense related to real estate investments was $531, $370 and $402, respectively, for the years ended December 31, 2016, 2015 and 2014.

ADC Arrangement

In June 2014, the Company’s wholly owned subsidiary, Greenleaf Capital, LLC, entered into the ADC Arrangement under which it agreed to provide financing up to a maximum of $9,785 for the acquisition, development and construction of a retail shopping center and appurtenant facilities. The loan amount was later increased from $9,785 to $10,200. Greenleaf Capital had an option to purchase the property upon the completion of the project with tenant rental commitments for at least 90% of the rentable space being secured. The purchase price would be calculated at maturity of the loan using a predetermined capitalization rate and the projected net operating income of the developed property. The loan had an initial term of 24 months and was extended until August 2016. The loan bore a fixed annual interest rate of 6% due monthly in arrears.

Under this ADC Arrangement, Greenleaf Capital provided substantially all funds necessary to complete the development and Greenleaf Capital would receive the entire residual profit of the developed property if it exercised the purchase option. Based on the characteristics of this ADC Arrangement, which were similar to those of an investment, combined with the expected residual profit being greater than 50%, the arrangement was accounted for and reported in the balance sheet at December 31, 2015 as a real estate investment.

Because of the purchase option and the substantial financial support provided by Greenleaf Capital, the developer, who had no equity interest in the property, was a variable interest entity. However, Greenleaf Capital’s involvement was solely as the lender on the mortgage loan with protective rights as the lender. Greenleaf Capital did not have power to direct the activities that most significantly impact economic performance of the variable interest entity. As a result, Greenleaf Capital was not the primary beneficiary and was not required to consolidate the variable interest entity. At December 31, 2015, the Company’s maximum exposure to loss relating to the variable interest entity was $10,200 representing the carrying value of the ADC Arrangement. There was no credit loss allowance established as of December 31, 2015 as management believed the credit risk associated with the ADC Arrangement was mitigated by the collateral used to secure the loan.

On August 16, 2016, the Company exercised the purchase option and acquired the retail shopping center and its appurtenant facilities. The transaction was accounted for as a business acquisition. See Sorrento Hills Village - Sorrento, Florida in Note 6 — “Business Acquisitions” for additional information. In addition, the Company received $10,200 plus accrued investment income of $74 in full settlement of the note receivable associated with the ADC Arrangement.

Consolidated Variable Interest Entity

The Company has an ongoing real estate development project in Riverview, Florida through a limited liability company treated under U.S. GAAP as a joint venture in which the Company’s subsidiary has a controlling financial interest and, as a result, it is the primary beneficiary. In addition, the Company is the sole source of funding for the development project. The following table summarizes the assets and liabilities related to this variable interest entity which are included in the accompanying consolidated balance sheets.

 

     December 31,  
     2016      2015  

Cash and cash equivalents

   $ 65       $ 57   

Construction in progress included in real estate investments

   $ 3,404       $ 2,906   

Accrued expenses

   $ 68       $ 21   

Net Investment Income

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

 

     Years Ended December 31,  
     2016      2015      2014  

Available-for-sale securities:

        

Fixed-maturity securities

   $ 4,641       $ 3,946       $ 3,343   

Equity securities

     3,452         3,710         2,364   

Investment expense

     (651      (673      (436

Limited partnership investments

     1,207         (3,244      (90

Real estate investments

     (592      (343      (932

Loss from unconsolidated joint venture

     —           (125      (23

Cash and cash equivalents

     984         650         662   

Other

     46         57         —     
  

 

 

    

 

 

    

 

 

 

Net investment income

   $ 9,087       $ 3,978       $ 4,888   
  

 

 

    

 

 

    

 

 

 

At December 31, 2016, $203,139 or 72.6% of the Company’s cash and cash equivalents were deposited at three national banks and included $28,431 in three custodial accounts. At December 31, 2015, $150,048 or 56.0% of the Company’s cash and cash equivalents were deposited at three national banks and included $65,291 in three custodial accounts. At December 31, 2016 and 2015, the Company’s cash deposits at any one bank generally exceed the Federal Deposit Insurance Corporation’s $250 coverage limit for insured deposit accounts.

v3.6.0.2
Comprehensive Income (Loss)
12 Months Ended
Dec. 31, 2016
Equity [Abstract]  
Comprehensive Income (Loss)

Note 5 — Comprehensive Income (Loss)

Comprehensive income (loss) includes net income and other comprehensive income or loss, which for the Company includes changes in unrealized gains or losses of investments carried at fair value and changes in the unrealized other-than-temporary impairment losses related to these investments. Reclassification adjustments for realized (gains) losses are reflected in net realized investment gains (losses) on the consolidated statements of income. The components of other comprehensive income or loss and the related tax effects allocated to each component were as follows:

 

     Year Ended December 31, 2016  
     Income Tax  
     Before      Expense      Net of  
     Tax      (Benefit)      Tax  

Unrealized gain arising during the period

   $ 7,317       $ 2,823       $ 4,494   

Other-than-temporary impairment loss

     2,482         957         1,525   

Call and repayment losses charged to investment income

     20         8         12   

Reclassification adjustment for realized gains

     (2,601      (1,004      (1,597
  

 

 

    

 

 

    

 

 

 

Total other comprehensive income

   $ 7,218       $ 2,784       $ 4,434   
  

 

 

    

 

 

    

 

 

 

 

     Year Ended December 31, 2015  
     Income Tax  
     Before      Expense      Net of  
     Tax      (Benefit)      Tax  

Unrealized loss arising during the period

   $ (9,366    $ (3,613    $ (5,753

Other-than-temporary impairment loss

     4,681         1,806         2,875   

Call and repayment losses charged to investment income

     77         29         48   

Reclassification adjustment for realized losses

     608         235         373   
  

 

 

    

 

 

    

 

 

 

Total other comprehensive loss

   $ (4,000    $ (1,543    $ (2,457
  

 

 

    

 

 

    

 

 

 

 

     Year Ended December 31, 2014  
     Income Tax  
     Before      Expense      Net of  
     Tax      (Benefit)      Tax  

Unrealized gain arising during the period

   $ 3,870       $ 1,493       $ 2,377   

Other-than-temporary impairment loss

     107         41         66   

Call and repayment losses charged to investment income

     28         11         17   

Reclassification adjustment for realized gains

     (4,735      (1,827      (2,908
  

 

 

    

 

 

    

 

 

 

Total other comprehensive loss

   $ (730    $ (282    $ (448
  

 

 

    

 

 

    

 

 

 
v3.6.0.2
Business Acquisitions
12 Months Ended
Dec. 31, 2016
Business Combinations [Abstract]  
Business Acquisitions

Note 6 — Business Acquisitions

Sorrento Hills Village - Sorrento, Florida

On August 16, 2016, the Company’s wholly owned subsidiary, Greenleaf Capital, LLC, assigned the right to purchase the developed property in the ADC Arrangement to its subsidiary, Sorrento PBX, LLC. Sorrento PBX simultaneously exercised the purchase option and acquired the property from Sorrento Retail Investments, LLC. The acquired assets included a retail shopping center and appurtenant facilities in Sorrento, Florida as well as existing tenant lease agreements to use the property. The acquisition is part of the Company’s strategic plan to diversify its operations and investment portfolio. The purchase price was $12,250, which was determined using a predetermined capitalization rate and the projected net operating income of the property. The Company recognized a $2,071 gain on bargain purchase, resulting primarily from a favorable fair value at the date of acquisition as compared with the Company’s purchase price. The Company relied on an independent appraisal report, which is based on the weighted results of two valuation approaches, in determining the estimated fair values of the significant assets acquired. This acquisition was financed in part by the proceeds from the issuance of a 3.75% promissory note. See Note 13 — “Long-Term Debt” for additional information.

The table below presents an allocation of the purchase price to the net assets acquired based on their fair values at the acquisition date:

 

Identifiable assets acquired and liabilities assumed:

  

Cash

   $ 194   

Land

     1,600   

Land improvements

     3,045   

Buildings

     7,120   

Intangibles

     2,580   

Tenant improvements

     76   

Building improvement

     29   

Other assets

     33   

Other liabilities

     (356
  

 

 

 

Total net assets acquired

     14,321   

Less: Gain on bargain purchase

     (2,071
  

 

 

 

Purchase price

   $ 12,250   
  

 

 

 

Pineda Landings - Melbourne, Florida

With regard to the 90% equity interest in FMKT MGA distributed by FMJV as described in Investment in Unconsolidated Joint Venture in Note 4 — “Investments,” the transaction was accounted for as a business step acquisition resulting in the assets acquired and liabilities assumed being recorded at fair value. Immediately following FMJV’s distribution of the 90% equity interest, the Company elected to purchase the remaining 10% noncontrolling interest from FMKT Sponsor, LLC and pay $2,064 in cash, plus an additional $200 upon the execution of one lease agreement that was not finalized as of the acquisition date. That lease agreement was executed in January 2017. The Company funded the consideration paid with $871 of its own cash and $1,193 of additional borrowing from FMKT MGA’s revolving credit facility.

The table below presents the fair values of the net assets acquired at the acquisition date:

 

Identifiable assets acquired and liabilities assumed:

  

Cash

   $ 502   

Land

     2,857   

Land improvements

     4,671   

Buildings

     5,480   

Intangibles

     2,619   

Tenant improvements

     403   

Building improvement

     403   

Other property and equipment

     17   

Other assets

     940   

Construction loan

     (8,214

Other liabilities

     (550
  

 

 

 

Total net assets acquired

     9,128   

Less:Carrying value of 90% equity method investment

     (2,859

Gain on remeasurement of previously held interest

     (4,005

Payable to the 10% joint venture partner

     (200
  

 

 

 

Cash paid to the 10% joint venture partner

   $ 2,064   
  

 

 

 

Subsequent to the acquisition date, the Company incurred an impairment loss of $388 resulting from the write-down of lease intangibles and other assets associated with the unexpected closure of one tenant’s business at this property.

The acquired businesses, in aggregate, contributed $426 of rental income and $460 of net loss to the Company for the period from the acquisition date to December 31, 2016. Pro forma results of operations are not presented as the effects of the acquisition were not material to the Company’s consolidated results of operations.

v3.6.0.2
Fair Value Measurements
12 Months Ended
Dec. 31, 2016
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 7 — 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 assets, either directly or indirectly such as quoted prices for identical assets that are not observable throughout the full term of the asset.
Level 3   -    Inputs that are unobservable.

Valuation Methodology

Cash and cash equivalents

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

 

Available-for-sale securities

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

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

ADC Arrangement Classified as Real Estate Investment

As described in Note 4 — “Investments” under ADC Arrangement, the ADC Arrangement represented a financing agreement with a purchase option between Greenleaf Capital and a property developer. Based on the characteristics of this ADC Arrangement which are similar to those of an investment, combined with the expected residual profit being greater than 50%, the arrangement was included in real estate investments at its carrying value in the consolidated balance sheet as of December 31, 2015. Projected future cash inflows at maturity are discounted using a prevailing borrowing rate to estimate its fair value that relies on Level 3 inputs. This ADC Arrangement was terminated at the time the Company exercised the purchase option to acquire the related property in August 2016. This property was included in real estate investments at December 31, 2016.

Limited Partnership Investments

As described in Note 4 — “Investments” under Limited Partnership Investments, the Company has interests in limited partnerships which are private equity funds. Pursuant to U.S. GAAP, these funds are required to use fair value accounting; therefore, the estimated fair value approximates the carrying value of these funds.

Revolving Credit Facility

The interest rate on the Company’s revolving credit facility is periodically adjusted based on the LIBOR rate plus a spread. As a result, its carrying value approximates fair value. See Note 12 — “Revolving Credit Facility.”

 

Long-term debt

Long-term debt includes the Company’s 8% senior notes due 2020, 3.875% convertible senior notes due 2019, one promissory note due 2031 and one promissory note due in 2036. The 8% senior notes trade on the New York Stock Exchange. The estimated fair value of the 8% senior notes is based on the closing market price at each balance sheet date. The 3.875% convertible senior notes were sold in a private offering. The fair values of the 3.875% convertible senior notes and the promissory notes are estimated using a discounted cash flow method that relies on Level 3 inputs.

Assets Measured at Estimated Fair Value on a Recurring Basis:

The following tables present information about the Company’s financial assets measured at estimated fair value on a recurring basis. The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of December 31, 2016 and 2015:

 

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

As of December 31, 2016

           

Financial Assets:

           

Cash and cash equivalents

   $ 280,531      $ —        $ —        $ 280,531  
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed-maturity securities:

           

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

     1,939        —          —          1,939  

Corporate bonds

     73,519        985        —          74,504  

State, municipalities, and political subdivisions

     —          78,306        —          78,306  

Exchange-traded debt

     11,262        —          —          11,262  

Redeemable preferred stock

     237        —          —          237  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed-maturity securities

     86,957        79,291        —          166,248  

Equity securities

     53,035        —          —          53,035  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

     139,992        79,291        —          219,283  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 420,523      $ 79,291      $ —        $ 499,814  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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

As of December 31, 2015

           

Financial Assets:

           

Cash and cash equivalents

   $ 267,738      $ —        $ —        $ 267,738  
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed-maturity securities:

           

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

     113        —          —          113  

Corporate bonds

     36,836        983        —          37,819  

State, municipalities, and political subdivisions

     —          77,324        —          77,324  

Exchange-traded debt

     9,429        —          —          9,429  

Redeemable preferred stock

     324        —          —          324  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed-maturity securities

     46,702        78,307        —          125,009  

Equity securities

     48,237        —          —          48,237  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

     94,939        78,307        —          173,246  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 362,677      $ 78,307      $ —        $ 440,984  
  

 

 

    

 

 

    

 

 

    

 

 

 

There were no transfers between Level 1, 2 or 3 during the years ended December 31, 2016 and 2015.

 

Assets and Liabilities Carried at Other Than Fair Value

The following tables present fair value information for assets and liabilities that are carried on the balance sheet at amounts other than fair value as of December 31, 2016 and 2015:

 

     Carrying      Fair Value Measurements Using      Estimated  
     Value      (Level 1)      (Level 2)      (Level 3)      Fair Value  

As of December 31, 2016

              

Financial Assets:

              

Limited partnership investments

   $ 29,263       $ —         $ —         $ 29,263       $ 29,263   

Financial Liabilities:

              

Revolving credit facility

   $ 9,463       $ —         $ —         $ 9,463       $ 9,463   

Long-term debt:

              

8% Senior notes

   $ 39,448       $ —         $ 41,618       $ —         $ 41,618   

3.875% Convertible senior notes

     81,988         —           —           84,696         84,696   

4% Promissory note

     8,660         —           —           8,664         8,664   

3.75% Promissory note

     8,767         —           —           8,506         8,506   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

   $ 138,863       $ —         $ 41,618       $ 101,866       $ 143,484   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Carrying      Fair Value Measurements Using      Estimated  
     Value      (Level 1)      (Level 2)      (Level 3)      Fair Value  

As of December 31, 2015

              

Financial Assets:

              

Limited partnership investments

   $ 23,930       $ —         $ —         $ 23,930       $ 23,930   

ADC Arrangement classified as real estate investment

   $ 10,200       $ —         $ —         $ 10,140       $ 10,140   

Financial Liabilities:

              

Long-term debt:

              

8% Senior notes

   $ 39,231       $ —         $ 41,103       $ —         $ 41,103   

3.875% Convertible senior notes

     90,198         —           —           92,782         92,782   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term debt

   $ 129,429       $ —         $ 41,103       $ 92,782       $ 133,885   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
v3.6.0.2
Deferred Policy Acquisition Costs
12 Months Ended
Dec. 31, 2016
Insurance [Abstract]  
Deferred Policy Acquisition Costs

Note 8 — Deferred Policy Acquisition Costs

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

 

     December 31,  
     2016      2015  

Beginning balance

   $ 18,602       $ 15,014   

Policy acquisition costs deferred

     35,905         39,812   

Amortization

     (37,868      (36,224
  

 

 

    

 

 

 

Ending balance

   $ 16,639       $ 18,602   
  

 

 

    

 

 

 

The amount of policy acquisition costs amortized and included in policy acquisition and other underwriting expenses for the years ended December 31, 2016, 2015 and 2014 was $37,868, $36,224 and $32,918, respectively.

v3.6.0.2
Property and Equipment, net
12 Months Ended
Dec. 31, 2016
Property, Plant and Equipment [Abstract]  
Property and Equipment, net

Note 9 — Property and Equipment, net

Property and equipment, net consists of the following:

 

     December 31,  
     2016      2015  

Land

   $ 1,642       $ 1,642   

Building

     7,932         7,804   

Computer hardware and software

     2,294         1,997   

Office furniture and equipment

     1,940         1,879   

Tenant and leasehold improvements

     3,250         3,144   

Other

     940         672   
  

 

 

    

 

 

 

Total, at cost

     17,998         17,138   

Less: accumulated depreciation and amortization

     (6,624      (5,352
  

 

 

    

 

 

 

Property and equipment, net

   $ 11,374       $ 11,786   
  

 

 

    

 

 

 

Depreciation and amortization expense under property and equipment was $1,272, $1,338 and $1,304, respectively, for the years ended December 31, 2016, 2015 and 2014.

v3.6.0.2
Intangible Assets, net
12 Months Ended
Dec. 31, 2016
Intangible Assets Disclosure [Abstract]  
Intangible Assets, net

Note 10 — Intangible Assets, net

The Company’s intangible assets, net consist of the following:

 

     December 31,  
     2016      2015  

Anchor tenants relationships

   $ 1,761       $ —     

In-place leases

     3,214         —     
  

 

 

    

 

 

 

Total, at cost

     4,975         —     

Less: accumulated amortization

     (76      —     
  

 

 

    

 

 

 

Intangible assets, net

   $ 4,899