• Filing Date: 2018-03-07
  • Form Type: 10-K
  • Description: Annual report
v3.8.0.1
Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2017
Feb. 27, 2018
Jun. 30, 2017
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2017    
Document Fiscal Year Focus 2017    
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   9,458,442  
Entity Public Float     $ 375,747,684
v3.8.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2017
Dec. 31, 2016
Assets    
Fixed-maturity securities, available for sale, at fair value (amortized cost: $235,830 and $167,231, respectively) $ 237,484 $ 166,248
Equity securities, available for sale, at fair value (cost: $53,132 and $47,750, respectively) 58,911 53,035
Equity securities, trading, at fair value (cost: $953 and $0, respectively) 1,045 0
Limited partnership investments, at equity 23,184 29,263
Investment in unconsolidated joint venture, at equity 1,304 2,102
Real estate investments (Note 4 - Consolidated Variable Interest Entity) 58,358 48,086
Total investments 380,286 298,734
Cash and cash equivalents (Note 4 - Consolidated Variable Interest Entity) 255,884 280,531
Accrued interest and dividends receivable 1,983 1,654
Income taxes receivable 16,192 2,811
Premiums receivable 17,807 17,276
Prepaid reinsurance premiums 22,286 24,554
Reinsurance recoverable:    
Paid losses and loss adjustment expenses 2,344  
Unpaid losses and loss adjustment expenses 100,760  
Deferred policy acquisition costs 16,712 16,639
Property and equipment, net 12,465 11,374
Intangible assets, net 4,995 4,899
Deferred income taxes, net   250
Other assets (Note 4 - Consolidated Variable Interest Entity) 10,550 11,342
Total assets 842,264 670,064
Liabilities and Stockholders' Equity    
Losses and loss adjustment expenses 198,578 70,492
Unearned premiums 164,896 175,803
Advance premiums 4,948 4,651
Assumed reinsurance balances payable 15 3,294
Accrued expenses (Note 4 - Consolidated Variable Interest Entity) 6,035 6,513
Reinsurance recovered in advance on unpaid losses 13,885  
Deferred income taxes, net 1,890  
Long-term debt 237,835 138,863
Other liabilities (Note 4 - Consolidated Variable Interest Entity) 20,207 26,702
Total liabilities 648,289 426,318
Commitments and contingencies (Note 22)
Stockholders' equity:    
Preferred stock
Common stock (no par value, 40,000,000 shares authorized, 8,762,416 and 9,662,761 shares issued and outstanding in 2017 and 2016, respectively) 0 0
Additional paid-in capital   8,139
Retained income 189,409 232,964
Accumulated other comprehensive income, net of taxes 4,566 2,643
Total stockholders' equity 193,975 243,746
Total liabilities and stockholders' equity (or members' capital) 842,264 670,064
7% Series A Cumulative Convertible Preferred Stock [Member]    
Stockholders' equity:    
Preferred stock
Series B Preferred Stock [Member]    
Stockholders' equity:    
Preferred stock
v3.8.0.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Dec. 31, 2017
Dec. 31, 2016
Available-for-sale Debt securities, Amortized cost $ 235,830 $ 167,231
Available-for-sale Equity securities, Amortized cost 53,132 47,750
Trading equity securities, cost $ 953 $ 0
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 8,762,416 9,662,761
Common stock, outstanding 8,762,416 9,662,761
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
v3.8.0.1
Consolidated Statements of Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Revenue      
Gross premiums earned $ 358,253 $ 378,678 $ 423,120
Premiums ceded (133,635) (135,051) (140,614)
Net premiums earned 224,618 243,627 282,506
Net investment income 11,439 9,087 3,978
Net realized investment gains (losses) 4,346 2,601 (608)
Net unrealized investment gains 92    
Net other-than-temporary impairment losses recognized in income:      
Total other-than-temporary impairment losses (1,116) (2,252) (5,275)
Portion of loss recognized in other comprehensive income, before taxes (351) (230) 594
Net other-than-temporary impairment losses (1,467) (2,482) (4,681)
Policy fee income 3,622 3,914 3,496
Gain on repurchases of convertible senior notes   153  
Gain on bargain purchase   2,071  
Gain on remeasurement of previously held interest   4,005  
Other 1,756 1,470 1,261
Total revenue 244,406 264,446 285,952
Expenses      
Losses and loss adjustment expenses 165,629 124,667 87,224
Policy acquisition and other underwriting expenses 39,663 42,642 41,984
General and administrative personnel expenses 25,127 26,200 28,276
Interest expense 16,767 11,079 10,754
Loss on repurchases of senior notes 743    
Impairment loss 38 388  
Other operating expenses 12,063 12,614 11,522
Total operating expenses 260,030 217,590 179,760
(Loss) income before income taxes (15,624) 46,856 106,192
Income tax (benefit) expense (8,731) 17,835 40,331
Net (loss) income $ (6,893) $ 29,021 $ 65,861
Basic (loss) earnings per share $ (0.75) $ 2.95 $ 6.51
Diluted (loss) earnings per share (0.75) 2.92 5.90
Dividends per share $ 1.40 $ 1.20 $ 1.20
v3.8.0.1
Consolidated Statements of Comprehensive (Loss) Income - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
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, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]                              
Net (loss) income $ 12,091 $ (40,546) $ 9,542 $ 12,020 $ 4,608 $ 11,333 $ 7,024 $ 6,056 $ 11,090 $ 7,371 $ 22,022 $ 25,378 $ (6,893) $ 29,021 $ 65,861
Change in unrealized gain (loss) on investments:                              
Net unrealized gain (loss) arising during the period                         5,996 7,317 (9,366)
Other-than-temporary impairment loss charged to investment income                         1,467 2,482 4,681
Call and repayment losses charged to investment income                         14 20 77
Reclassification adjustment for net realized (gain) loss                         (4,346) (2,601) 608
Net change in unrealized gain (loss)                         3,131 7,218 (4,000)
Deferred income taxes on above change                         (1,208) (2,784) 1,543
Total other comprehensive income (loss), net of income taxes                         1,923 4,434 (2,457)
Comprehensive (loss) income $ 11,914 $ (38,792) $ 8,959 $ 12,949 $ 2,380 $ 12,487 $ 10,742 $ 7,846 $ 11,516 $ 5,023 $ 19,856 $ 27,009 $ (4,970) $ 33,455 $ 63,404
v3.8.0.1
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Share Repurchase Plan [Member]
Common Stock [Member]
Common Stock [Member]
Share Repurchase Plan [Member]
Additional Paid-In Capital [Member]
Additional Paid-In Capital [Member]
Share Repurchase Plan [Member]
Retained Income [Member]
Accumulated Other Comprehensive (Loss) Income, Net of Tax [Member]
Beginning Balance at Dec. 31, 2014 $ 182,585       $ 20,465   $ 161,454 $ 666
Beginning Balance, shares at Dec. 31, 2014     10,189,128          
Net income (loss) 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
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
Forfeiture of restricted stock, shares     (42,757)          
Repurchase and retirement of common stock, value (792) $ (1,610)     (792) $ (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 (loss) 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
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
Forfeiture of restricted stock, shares     (13,298)          
Cancellation of restricted stock     (160,000)          
Repurchase and retirement of common stock, value (464) (20,026)     (464) (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          
Net income (loss) (6,893)           (6,893)  
Total other comprehensive income (loss), net of income taxes 1,923             1,923
Issuance of restricted stock 0   $ 0   0   0 0
Issuance of restricted stock, shares     154,936          
Exercise of common stock options, value $ 75       75      
Exercise of common stock options, shares 30,000   30,000          
Forfeiture of restricted stock, value $ 0   $ 0   0   0 0
Forfeiture of restricted stock, shares     (23,766)          
Repurchase and retirement of common stock, value (21,318) $ (15,154)     (21,318) $ (15,154)    
Repurchase and retirement of common stock, shares     (437,240) (433,175)        
Repurchase of common stock under prepaid forward contract, value (9,400)       (9,400)      
Repurchase of common stock under prepaid forward contract, shares     (191,100)          
Equity component on 4.25% convertible senior notes (net of offering costs of $543) 15,151       15,151      
Deferred taxes on debt discount (5,845)       (5,845)      
Common stock dividends (12,833)           (12,833)  
Stock-based compensation 4,523       4,523      
Additional paid-in capital shortfall allocated to retained income         $ 23,829   (23,829)  
Ending Balance at Dec. 31, 2017 $ 193,975           $ 189,409 $ 4,566
Ending Balance, shares at Dec. 31, 2017     8,762,416          
v3.8.0.1
Consolidated Statements of Stockholders' Equity (Parenthetical) - Additional Paid-In Capital [Member]
$ in Thousands
12 Months Ended
Dec. 31, 2017
USD ($)
Stated interest rate on convertible senior notes 4.25%
Offering costs for convertible senior notes $ 543
v3.8.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities:      
Net (loss) income $ (6,893) $ 29,021 $ 65,861
Adjustments to reconcile net (loss) income to net cash provided by operating activities:      
Stock-based compensation 4,523 4,198 5,212
Net amortization of premiums on investments in fixed-maturity securities 1,252 726 855
Depreciation and amortization 9,591 5,408 5,251
Deferred income tax (benefit) expense (4,913) 155 (1,101)
Net realized investment (gains) losses (4,346) (2,601) 608
Net unrealized investment gains (92)    
Other-than-temporary impairment losses 1,467 2,482 4,681
Income from real estate investment under acquisition, development and construction arrangement     (344)
Loss from unconsolidated joint venture 234   125
Distribution received from unconsolidated joint venture 147    
Gain on repurchases of convertible senior notes   (153)  
Gain on bargain purchase   (2,071)  
Loss on repurchases of senior notes 743    
Gain on remeasurement of previously held investment   (4,005)  
Impairment loss 38 388  
Net (income) loss from limited partnership interests (2,334) (1,207) 3,244
Distributions received from limited partnership interests 881 544 12
Foreign currency remeasurement (gain) loss (60) 29 66
Other 134 18 26
Changes in operating assets and liabilities:      
Accrued interest and dividends receivable (329) (300) (331)
Income taxes (13,381) (1,192) 766
Premiums receivable (531) 2,355 (3,807)
Prepaid reinsurance premiums 2,268 16,193 (6,651)
Reinsurance recoverable (103,104)    
Deferred policy acquisition costs (73) 1,963 (3,588)
Other assets 574 29,054 (7,230)
Losses and loss adjustment expenses 128,086 18,802 2,782
Unearned premiums (10,907) (11,487) (26,781)
Advance premiums 297 (332) 603
Assumed reinsurance balances payable (3,279) 2,210 866
Reinsurance recovered in advance on unpaid losses 13,885    
Accrued expenses and other liabilities 2,548 (2,223) 4,157
Net cash provided by operating activities 16,426 87,975 45,282
Cash flows from investing activities:      
Investment in real estate under acquisition, development, and construction arrangement     (6,968)
Proceeds from investment in real estate under acquisition, development and construction arrangement   10,200  
Acquisition of real estate business, net of cash acquired   (11,651)  
Investments in limited partnership interests (4,226) (4,670) (24,636)
Distributions received from limited partnership interests 11,758    
Investment in unconsolidated joint venture   (90) (435)
Distribution from unconsolidated joint venture 417    
Purchase of property and equipment (2,340) (865) (840)
Purchase of intangible assets (637)    
Purchase of real estate investments (11,878) (2,261) (4,871)
Purchase of fixed-maturity securities (114,743) (85,530) (98,501)
Purchase of equity securities - available for sale (46,909) (22,434) (32,878)
Purchase of equity securities - trading (3,544)    
Proceeds from sales of fixed-maturity securities 31,759 40,454 53,711
Proceeds from calls, repayments and maturities of fixed-maturity securities 14,897 4,692 9,344
Proceeds from sales of equity securities - available for sale 42,657 23,127 25,695
Proceeds from sales of equity securities - trading 2,625    
Proceeds from sales of real estate investments     5
Net cash used in investing activities (80,164) (49,028) (80,374)
Cash flows from financing activities:      
Net borrowing under revolving credit facility   1,238  
Proceeds from the exercise of common stock options 75 150 263
Cash dividends paid (13,906) (12,438) (12,428)
Cash dividends received under share repurchase forward contract 1,073 747 747
Proceeds from the issuance of long-term debt 143,859 18,200  
Repurchases of convertible senior notes   (11,347)  
Repurchases of senior notes (40,250)    
Repayment of long-term debt (974) (455)  
Repurchases of common stock (30,718) (464) (792)
Repurchases of common stock under share repurchase plan (15,154) (20,026) (1,610)
Purchase of non-controlling interest   (2,064)  
Debt issuance costs (4,975) (339)  
Tax benefits on stock-based compensation   641 2,295
Net cash provided by (used in) financing activities 39,030 (26,157) (11,525)
Effect of exchange rate changes on cash 61 3 (61)
Net (decrease) increase in cash and cash equivalents (24,647) 12,793 (46,678)
Cash and cash equivalents at beginning of year 280,531 267,738 314,416
Cash and cash equivalents at end of year 255,884 280,531 267,738
Supplemental disclosure of cash flow information:      
Cash paid for income taxes 11,506 18,857 38,371
Cash paid for interest 8,906 7,222 7,211
Non-cash investing and financing activities:      
Unrealized gain (loss) on investments in available-for-sale securities, net of tax 1,923 4,434 (2,457)
Details of business acquisition:      
Fair value of assets acquired   32,569  
Less: Purchase price   (14,514)  
Carrying value of previously held interest   (2,859)  
Gain on remeasurement of previously held interest   (4,005)  
Gain on bargain purchase   (2,071)  
Liabilities assumed   9,120  
Conversion of revolving credit facility to long-term debt 9,441    
Receivable from sales of available-for-sale securities 255 350  
Payable on purchases of available-for-sale securities $ 4 $ 50 $ 1
v3.8.0.1
Nature of Operations
12 Months Ended
Dec. 31, 2017
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 two Florida domiciled insurance companies, Homeowners Choice Property & Casualty Insurance Company, Inc. (“HCPCI”), its principal operating subsidiary, and TypTap Insurance Company (“TypTap”). 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 Florida customers. During 2017, HCPCI received regulatory approval to write residential property and casualty insurance in the states of Arkansas, California, Maryland, North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina and Texas. HCPCI has yet to commence operations in these states. TypTap, on the other hand, primarily offers standalone flood policies to Florida homeowners. HCPCI’s and TypTap’s operations are supported by HCI Group, Inc. and certain HCI subsidiaries.

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. See Note 16 — “Segment Information.”

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 December 2017. 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.

v3.8.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2017
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.

Effective January 1, 2017, the Company adopted Accounting Standards Update No. 2016-09, Compensation—Stock Compensation (Topic 718), which 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. Amendments related to the timing of when excess tax benefits are recognized, minimum statutory withholding requirements, and forfeitures, which is applied using a modified retrospective transition method, have no impact on the Company’s comparative consolidated financial statements. In addition, the retrospective application of the amendments related to the presentation of employee taxes paid does not have an impact on the Company’s comparative consolidated statement of cash flows. Upon adoption of this standard, the Company elected to account for forfeitures of share-based awards when they occur and apply the amendments related to the presentation of excess tax benefits on the statement of cash flows prospectively. Under the new standard, the Company is required to recognize any excess tax benefits and tax deficiencies in the Company’s consolidated statement of income.

In addition, The Company early adopted Accounting Standards Update No. 2017-01, Business Combinations (Topic 805), which clarifies the definition of business and provides guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The Company applied this standard prospectively. See Real Estate Investments in Note 4 — “Investments” for the application of this standard in the acquisition of a commercial property in Tampa, Florida.

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 a commercial property in Riverview, Florida. The Company consolidates this joint venture as its primary beneficiary (see Consolidated Variable Interest Entity in Note 4 — “Investments”).

 

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, reinsurance recoverable, 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.

Before the adoption of Accounting Standards Update No. 2017-01, acquisitions of income-producing real properties were typically considered business acquisitions. As such, the Company allocated 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.

After the adoption of the aforementioned guidance, the Company evaluates whether substantially all of the fair value of the gross assets acquired in a real estate transaction is concentrated in a single identifiable asset or group of similar identifiable assets. If such concentration is substantial, the transaction is accounted for as an asset acquisition. As a result, the cost of acquiring real estate is allocated to the individual assets based on the relative fair values of the individual assets. Acquisition related costs are capitalized and allocated among the assets acquired.

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, 2017 and 2016, cash and cash equivalents consisted of cash on deposit with financial institutions and securities brokerage firms and certificates of deposit.

 

Investments in Available-for-Sale SecuritiesAvailable-for-sale investments consist of fixed-maturity and equity securities. Fixed-maturity securities include debt securities and redeemable preferred stock. 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 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 accumulated 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 Available-for-Sale Securities in Note 4 — “Investments”).

Investments in Trading Securities. The Company holds certain equity securities with the intention of selling them in a short period of time to generate profits. As such, these equity securities are classified as trading and carried at fair value. Realized investment gains and losses from sales are recorded on the trade date and are determined using the FIFO method. Unrealized holding gains and losses from the changes in the fair value are reported in the consolidated statement of income as net unrealized investment gains or losses (see Trading Securities in 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 interests 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 Limited Partnership Investments in Note 4 — “Investments”). The Company will generally recognize its share of the limited partnership’s earnings or losses on a three-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 and 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.

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, the Company was party to an Acquisition, Development and Construction loan agreement (“ADC Arrangement”) whereby the Company provided financing to a property developer for the construction of a retail shopping center. 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.

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 contracts and consist of 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 loss adjustment expenses 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. The Company capitalizes both internal and external costs for internally developed software during the application development stage. During the preliminary project and post-implementation stage, internal-use software development costs are expensed as incurred. Capitalized software costs are depreciated on a straight-line basis over the estimated useful life of 7 years.

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 consumer 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.

 

Lease Acquisition Costs. Lease acquisition costs represent capitalized costs of finding and acquiring tenants such as leasing commissions, legal, and marketing expenses. The Company amortizes these costs in other operating expenses on a straight-line basis over the term of a lease.

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-incapital.

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. Losses and LAE ceded to or recovered from reinsurers are recorded as a reduction to losses and LAE on the consolidated statement of income.

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.

 

The Company receives ceding commissions from ceding gross written premiums to a third-party reinsurer under one flood quota share reinsurance contract. The ceding commissions represent the reimbursement of the Company’s policy acquisition, underwriting and other operating expenses. Ceding commissions received cover a portion of premium taxes and agent commissions capitalized by the Company and a portion of non-capitalizedacquisition costs and other underwriting expenses. Ceding commissions are recognized to income on a pro-rata basis over the terms of the policies reinsured, the amount of which is included in policy acquisition and other underwriting expenses in the 2017 consolidated statement of income. The unearned portion of ceding commissions that represents recovery of capitalized acquisition costs is classified as a reduction of deferred policy acquisition costs whereas the remaining unearned balance is classified as deferred revenue in other liabilities.

Reinsurance Recovered in Advance on Unpaid Losses. Reinsurance recovered in advance on unpaid losses represents cash received in advance from reinsurers under reinsurance contracts to reimburse the Company’s losses and LAE. The Company is contractually permitted to apply these funds to offset the paid portion of reinsurance recoverable 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, 2017 and 2016, 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, 2017, 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, 2017 and 2016. Fair values for securities or financial instruments 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 and market conditions. As a result, restricted stock grants with market conditions are expensed over the derived service period for each separately vesting tranche. Compensation expense related to all awards is included in general and administrative personnel expenses. The Company receives 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. The Company recognizes tax windfalls and shortfalls in the consolidated statement of income. Prior to January 1, 2017, the windfall tax benefit was recognized in additional paid-in-capital in the consolidated statements of stockholders’ equity whereas the shortfall was charged to additional paid-in-capital to the extent of the Company’s pool of windfall tax benefits with any remainder recognized in income tax expense. For 2016, all shortfall amounts were charged to additional paid-in-capital with no additional income tax expense recognized for these shortfalls.

 

Basic and diluted earnings (loss) per common share. Basic earnings (loss) per common share is computed by dividing net income (loss) 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. In addition, the intrinsic value of restricted stock declines when the Company experiences operating losses. As a result, holders of the Company’s restricted stock are allocated a proportional share of net income and loss determined by dividing total weighted-average shares of restricted stock by the sum of total weighted-average common shares and shares of restricted stock (the “two-class method”). Diluted earnings (loss) 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. During loss periods, common stock equivalents such as stock options and convertible debt are excluded from the calculation of diluted loss per share, as the inclusion would have an anti-dilutive effect. See Note 18 — “Earnings Per Share” for potentially dilutive securities at December 31, 2017, 2016 and 2015.

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. For example, certain payroll-related costs such as share-based compensation expense, payroll taxes and employee benefits, which were previously reported in other operating expenses totaling $7,163 and $8,136 for the years ended December 31, 2016 and 2015, respectively, were reclassified to general and administrative personnel expenses to conform with the 2017 presentation.

v3.8.0.1
Recent Accounting Pronouncements
12 Months Ended
Dec. 31, 2017
Accounting Changes and Error Corrections [Abstract]  
Recent Accounting Pronouncements

Note 3 — Recent Accounting Pronouncements

Accounting Standards Update No. 2017-09. In May 2017, the FASB issued Accounting Standards Update No. 2017-09 (“ASU 2017-09”), Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an application of modification accounting. ASU 2017-09 is effective for the Company beginning with the first quarter of 2018. Early adoption is permitted. This guidance will impact the Company’s accounting for any future modification of its existing share-based awards.

 

Accounting Standards Update No. 2017-08. In March 2017, the FASB issued Accounting Standards Update No. 2017-08 (“ASU 2017-08”), Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, which amends guidance on the amortization period of premiums on certain purchased callable debt securities. Specifically, this update shortens the amortization period of certain purchased callable debt securities to the earliest call date. ASU 2017-08 is effective for the Company beginning with the first quarter of 2019. Early adoption is permitted. The Company does not anticipate significant impact from this guidance.

Accounting Standards Update No. 2017-05. In February 2017, the FASB issued Accounting Standards Update No. 2017-05 (“ASU 2017-05”), Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20), which clarifies the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets. In addition, ASU 2017-15 eliminates the exception in the financial asset guidance for transfers of investments including equity method investments in real estate entities and supersedes the guidance in the Exchanges of a Nonfinancial Asset for a Noncontrolling Ownership Interest subsection (Topic 845). ASU 2017-05 is effective for the Company beginning with the first quarter of 2018. The Company does not anticipate significant impact from this guidance.

Accounting Standards Update No. 2017-03. In January 2017, the FASB issued Accounting Standards Update No. 2017-03 (“ASU 2017-03”), Accounting Changes and Error Corrections (Topic 250) and Investments—Equity Method and Joint Ventures (Topic 323), which adds and amends SEC paragraphs pursuant to SEC Staff Announcements at the September 22, 2016 and November 17, 2016 Emerging Issues Task Force meetings. The announcement made at the September 22, 2016 meeting provides the SEC staff view on the disclosure of the impact that recently issued accounting standards will have on a public entity’s financial statements when the standards are adopted in a future period. This announcement applies to ASU 2014-09, Revenue from Contracts with Customers (Topic 606); ASU 2016-02, Leases (Topic 842); ASU 2016-13, Financial Instruments—Credit Losses (Topic 326) and any subsequent amendments to guidance in the ASUs that are issued prior to the adoption of the aforementioned ASUs.

Accounting Standards Update No. 2017-01. In January 2017, the FASB issued Accounting Standards Update No. 2017-01 (“ASU 2017-01”), Business Combinations (Topic 805), which clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. If the screen is not met, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output to be considered a business. ASU 2017-01 is effective for the Company beginning with the first quarter of 2018. Early adoption is permitted under certain circumstances. When adopted, this guidance will impact how the Company determines whether a transaction should be accounted for as an acquisition (or disposal) of an asset or a business. The Company elected to adopt this standard in the fourth quarter of 2017.

 

Accounting Standards to be Adopted in Fiscal Year 2018

In February 2018, the FASB issued Accounting Standards Update No. 2018-02 (“ASU 2018-02”), Income Statement – Reporting Comprehensive Income (Topic 220), primarily allowing a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. Early adoption is permitted. The Company elected to early adopt this standard in the first quarter of 2018, which has no impact to the Company’s financial position.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01 (“ASU 2016-01”), Financial Instruments – Overall (Subtopic 825-10), primarily requiring all equity investments other than those accounted for under the equity method of accounting or those that result in consolidation of the investee to be measured at fair value with changes in the fair value recognized through net income. The application of ASU 2016-01 could cause the Company to experience significant volatility in earnings. Under current accounting policy, the Company recognizes unrealized holding gains and losses on available-for-sale equity securities in stockholders’ equity as a component of accumulated other comprehensive income. In the year of adoption, the unrealized holding gains and losses of available-for-sale equity securities reported in accumulated other comprehensive income at December 31, 2017 will be reclassified to beginning retained income. Any subsequent changes in fair value will be recognized in the consolidated statement of income. In addition, the classification of the Company’s equity securities with readily determinable fair values as “available-for-sale” in the consolidated balance sheet and related disclosures will be eliminated.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification. ASU 2014-09 also amends the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer to be consistent with the guidance in this ASU. ASU 2014-09 permits two methods of adoption: a full retrospective method or a modified retrospective method. The Company has identified and reviewed impacted revenue generating activities in accordance with the five-step revenue recognition model specified by this standard. The Company elects to use a modified retrospective method for transition to the new revenue recognition standard. Based on the Company’s assessment, the impact will be limited to the related disclosures of certain revenue generating activities as its primary source of revenue from insurance premiums is not within the scope of this new standard.

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Investments
12 Months Ended
Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]  
Investments

Note 4 — Investments

a) Available-for-Sale Securities

The Company holds investments in fixed-maturity securities and equity securities that are classified as available-for-sale. At December 31, 2017 and 2016, the cost or amortized cost, gross unrealized gains and losses, and estimated fair value of the Company’s available-for-sale securities by security type were as follows:

 

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

Value
 

As of December 31, 2017

           

Fixed-maturity securities

           

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

   $ 42,313      $ 1      $ (287    $ 42,027  

Corporate bonds

     106,897        1,110        (904      107,103  

State, municipalities, and political subdivisions

     78,954        1,816        (75      80,695  

Exchange-traded debt

     7,666        197        (204      7,659  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     235,830        3,124        (1,470      237,484  

Equity securities

     53,132        6,280        (501      58,911  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

   $ 288,962      $ 9,404      $ (1,971    $ 296,395  
  

 

 

    

 

 

    

 

 

    

 

 

 

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  
  

 

 

    

 

 

    

 

 

    

 

 

 

At December 31, 2017, fixed-maturity securities included $249 of U.S. Treasury securities related to a statutory deposit held in trust for the South Carolina Director of Insurance.

 

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, 2017 and 2016 are as follows:

 

     December 31,  
     2017      2016  
     Amortized
Cost
     Estimated
Fair

Value
     Amortized
Cost
     Estimated
Fair

Value
 

Available-for-sale

           

Due in one year or less

   $ 35,386      $ 35,364      $ 2,656      $ 2,662  

Due after one year through five years

     116,575        115,766        49,915        50,023  

Due after five years through ten years

     57,415        58,984        90,360        89,332  

Due after ten years

     26,454        27,370        24,300        24,231  
  

 

 

    

 

 

    

 

 

    

 

 

 
     $235,830      $237,484      $167,231      $166,248  
  

 

 

    

 

 

    

 

 

    

 

 

 

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, 2017, 2016 and 2015 were as follows:

 

     Proceeds      Gross
Realized
Gains
     Gross
Realized
Losses
 

Year ended December 31, 2017

        

Fixed-maturity securities

   $ 31,759      $ 2,176      $ (181
  

 

 

    

 

 

    

 

 

 

Equity securities

   $ 42,657      $ 3,882      $ (1,565
  

 

 

    

 

 

    

 

 

 

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
  

 

 

    

 

 

    

 

 

 

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

For the year ended December 31, 2017, the Company recognized impairment losses of $428 related to the sale of four intent-to-sell fixed-maturity securities in the consolidated statement of income. For the year ended December 31, 2016, the Company recognized $1,565 of impairment losses on four fixed-maturity securities, representing $1,335 of additional losses recorded during the period and $230 of the net change recorded in other comprehensive income. For the year ended December 31, 2015, the Company recorded $705 of impairment losses on two 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.

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:

 

     2017     2016     2015  

Balance at January 1

   $ 475     $ 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

     (475     (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  
  

 

 

   

 

 

   

 

 

 

During 2017, the Company sold two fixed-maturity securities with cumulative credit losses totaling $475. The decision to sell these securities before their maturity was primarily driven by the impact of the Tax Cut and Jobs Act signed into law in 2017. 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 during 2016.

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, 2017, the Company had one equity security that was other-than-temporarily impaired. This compared with nine and 17 equity securities that were other-than-temporarily impaired at December 31, 2016 and 2015, respectively. The Company recognized impairment losses of $1,039, $917 and $4,570 in the consolidated statement of income for the years ended December 31, 2017, 2016 and 2015, respectively.

 

Securities with gross unrealized loss positions at December 31, 2017 and 2016, 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  
As of December 31, 2017    Gross
Unrealized
Loss
    Estimated
Fair

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

Value
 

Fixed-maturity securities

              

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

   $ (246   $ 40,587      $ (41   $ 1,938      $ (287   $ 42,525  

Corporate bonds

     (174     40,627        (730     30,563        (904     71,190  

State, municipalities, and political subdivisions

     (30     9,775        (45     2,297        (75     12,072  

Exchange-traded debt

     (203     2,481        (1     36        (204     2,517  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total fixed-maturity securities

     (653     93,470        (817     34,834        (1,470     128,304  

Equity securities

     (449     12,812        (52     1,440        (501     14,252  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ (1,102   $ 106,282      $ (869   $ 36,274      $ (1,971   $ 142,556  
  

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

At December 31, 2017, there were 135 securities in an unrealized loss position. Of these securities, 22 securities had been in an unrealized loss position for 12 months or longer.

 

     Less Than Twelve
Months
     Twelve Months or
Longer
     Total  
As of December 31, 2016    Gross
Unrealized
Loss
    Estimated
Fair
Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
     Gross
Unrealized
Loss
    Estimated
Fair
Value
 

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.

 

b) Trading Securities

At December 31, 2017, the cost, net unrealized gains, and estimated fair value of the Company’s trading equity securities were $953, $92, and $1,045, respectively. There were no investments in trading equity securities at December 31, 2016.

Sales of Trading Securities

Proceeds received, and the gross realized gains and losses from sales of trading equity securities, for the year ended December 31, 2017 were as follows:

 

     Proceeds      Gross
Realized
Gains
     Gross
Realized
Losses
 

Year ended December 31, 2017

        

Equity securities

   $ 2,625      $ 111      $ (77
  

 

 

    

 

 

    

 

 

 

The Company did not hold any trading equity securities during 2016.

 

c) 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. In August 2017, the Company entered into a subscription agreement with another limited partnership. The following table provides information related to the Company’s investments in limited partnerships:

 

     December 31, 2017      December 31, 2016  
Investment Strategy    Carrying
Value
     Unfunded
Balance
     (%)(a)      Carrying
Value
     Unfunded
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)

   $ 7,276      $ 5,505        15.37      $ 6,246      $ 6,428        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)

     7,951        1,745        1.76        7,358        1,360        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  

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

     7,509        2,512        0.18        4,326        5,766        0.18  

Value-oriented investments in less liquid and mispriced senior and junior debts of private equity-backed companies. (b)(i)(j)

     448        4,566        0.47        —          —          —    
  

 

 

    

 

 

       

 

 

    

 

 

    

Total

   $ 23,184      $ 14,328         $ 29,263      $ 13,554     
  

 

 

    

 

 

       

 

 

    

 

 

    

 

(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) The withdrawal was effective on February 15, 2017. As a result, the Company’s investment in this limited partnership was terminated.
(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 of partners, the term of the fund may be extended for up to three additional one-year periods.
(i) Expected to have a six-year term from the commencement date, which can be extended for up to two additional one-year periods with the consent of either the advisory committee or a majority of limited partners.
(j) Unless extended or terminated for reasons specified in the agreement, the capital commitment is expected to expire on December 1, 2018.

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,  
     2017      2016      2015  

Operating results:

        

Total income

   $ 409,169      $ 310,998      $ 4,350  

Total expenses

     105,281        185,126        77,508  
  

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ 303,888      $ 125,872      $ (73,158
  

 

 

    

 

 

    

 

 

 

 

     December 31,  
     2017      2016  

Balance Sheet:

     

Total assets

   $ 4,381,321      $ 2,956,327  

Total liabilities

   $ 382,310      $ 63,813  

For the years ended December 31, 2017 and 2016, the Company recognized net investment income of $2,334 and $1,207, respectively, for these investments. For the year ended December 31, 2015, the Company recognized net investment loss of $3,244. At December 31, 2017 and 2016, the Company’s cumulative contributed capital to the partnerships existing at each respective balance sheet date totaled $21,172 and $31,946, respectively, and the Company’s maximum exposure to loss aggregated $23,184 and $29,263, respectively.

During the year ended December 31, 2017, the Company received total cash distributions of $12,639, representing $11,758 of returned capital and $881 of return on investment. Included in the return of capital was $11,626 from one limited partnership the Company withdrew from in February 2017. During the year ended December 31, 2016, the Company received in cash $544 of return on investment. There was a return on investment of $12 received by the Company during the year ended December 31, 2015.

For the years ended December 31, 2017, 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, 2017 and 2016.

d) Investment in Unconsolidated Joint Venture

Melbourne FMA, LLC, a wholly owned subsidiary, currently has a 90% equity interest in FMKT Mel JV, LLC (“FMJV”), a Florida limited liability company treated as a joint venture under U.S. GAAP. 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 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 its real estate development 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 the other member, each of which received 90% and 10%, respectively. In addition to operating a retail shopping center business, FMKT MGA owned land which included 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 represented 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 was 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.

In March 2017, FMJV sold a portion of its outparcel land for gross proceeds of $825 and recognized a $331 gain on sale of which $199 was allocated to the Company in accordance with the profit allocation specified in the operating agreement. During 2017, FMKT MGA was merged with Melbourne FMA, LLC.

At December 31, 2017 and 2016, the Company’s maximum exposure to loss relating to the variable interest entity was $1,304 and $2,102, respectively, representing the carrying value of the investment. At December 31, 2017, there was $0 of undistributed income from this equity method investment as compared with an undistributed loss, after an equity distribution, of $25 at December 31, 2016, the amounts of which were included in the Company’s consolidated retained income.

For the year ended December 31, 2017, the Company received a cash distribution of $564, representing a combined distribution of $147 in earnings and $417 in capital. The limited liability company members received no cash distributions during 2016 and 2015. The following tables provide FMJV’s summarized unaudited financial results and the unaudited financial positions:

 

     Years Ended December 31,  
     2017      2016      2015  

Operating results:

        

Total revenues

   $ 331      $ —        $ 118  

Total expenses

     483        —          257  
  

 

 

    

 

 

    

 

 

 

Net loss

   $ (152    $ —        $ (139
  

 

 

    

 

 

    

 

 

 

The Company’s share of net loss (a)

   $ (234    $ —        $ (125

 

(a) Included in net investment income in the Company’s consolidated statements of income. Gain from the sale of the outparcel during 2017 was allocated in accordance with the method specified in the operating agreement.

 

     December 31,  
     2017      2016  

Balance Sheet:

     

Construction in progress—real estate

   $ 27      $ 334  

Property and equipment, net

     1,199        1,654  

Cash

     236        179  

Other

     5        180  
  

 

 

    

 

 

 

Total assets

   $ 1,467      $ 2,347  
  

 

 

    

 

 

 

Accounts payable

   $      $ 11  

Other liabilities

     18        —    

Members’ capital

     1,449        2,336  
  

 

 

    

 

 

 

Total liabilities and members’ capital

   $ 1,467      $ 2,347  
  

 

 

    

 

 

 

Investment in unconsolidated joint venture, at equity*

   $ 1,304      $ 2,102  

 

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

FMJV’s assets at December 31, 2017 and 2016 included primarily three outparcels for sale or lease which have increased in value since the adjacent retail shopping center was completed. The Company determined that there was no impairment loss associated with these assets for the years ended December 31, 2017 and 2016. In the fourth quarter of 2017, FMJV decided to terminate its development plan for nearby land, thereby expensing $382 of deferred costs associated with the land feasibility study. The 2015 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 year ended December 31, 2015.

e) Real Estate Investments

Real estate investments include buildings with office and retail space for lease, outparcels, wet and dry boat storage, one restaurant, and two marinas. Real estate investments consist of the following as of December 31, 2017 and 2016:

 

     December 31,  
     2017      2016  

Land

   $ 26,315      $ 17,592  

Land improvements

     9,904        9,336  

Building

     21,284        16,154  

Tenant and leasehold improvements

     1,204        872  

Construction in progress*

     —          3,404  

Other

     3,050        2,683  
  

 

 

    

 

 

 

Total, at cost

     61,757        50,041  

Less: accumulated depreciation and amortization

     (3,399      (1,955
  

 

 

    

 

 

 

Real estate investments

   $ 58,358      $ 48,086  
  

 

 

    

 

 

 

 

* This project, which was developed by the Company’s consolidated variable interest entity, was completed in July 2017. The capitalized costs were reclassified to land, land improvement, and building.

 

On October 17, 2017, the Company, through a wholly owned subsidiary, acquired commercial real estate in Tampa, Florida for a purchase price of $9,100. The acquired assets primarily consisted of land, building and in-placelease agreements. The Company incurred approximately $115 of acquisition-related costs and accounted for this transaction as an asset acquisition in accordance with ASU 2017-01 which the Company early adopted in the fourth quarter of 2017. As a result, all transaction-related costs were allocated among the assets acquired. 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 $1,447, $531 and $370, respectively, for the years ended December 31, 2017, 2016 and 2015.

f) Consolidated Variable Interest Entity

The Company has a commercial property in Riverview, Florida. The development project of this property was completed in July 2017 through a limited liability company treated under U.S. GAAP as a joint venture in which the Company’s subsidiary had a controlling financial interest and, as a result, it was the primary beneficiary (See Note 27 — “Subsequent Events”). The real estate investments of this limited liability company primarily include a retail strip center with 8,400 square feet of net rentable space and an adjacent parcel of land which is currently leased in its entirety to a large gas station and convenience store chain. 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,  
     2017      2016  

Cash and cash equivalents

   $ —        $ 65  

Construction in progress included in real estate investments

   $ —        $ 3,404  

Real estate investments

   $ 4,680      $ —    

Other assets

   $ 152      $ —    

Accrued expenses

   $ 21      $ 68  

Other liabilities

   $ 160      $ 11  

g) Net Investment Income

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

 

     Years Ended December 31,  
     2017      2016      2015  

Available-for-sale securities:

        

Fixed-maturity securities

   $ 5,689      $ 4,589      $ 3,935  

Equity securities

     3,318        3,452        3,710  

Investment expense

     (726      (651      (673

Limited partnership investments

     2,334        1,207        (3,244

Real estate investments

     (1,018      (592      (343

Loss from unconsolidated joint venture

     (234      —          (125

Cash and cash equivalents

     2,069        1,036        661  

Other

     7        46        57  
  

 

 

    

 

 

    

 

 

 

Net investment income

   $ 11,439      $ 9,087      $ 3,978  
  

 

 

    

 

 

    

 

 

 

 

At December 31, 2017, $87,092 or 34.1% of the Company’s cash and cash equivalents were deposited at three national banks and included $38,543 in three custodial accounts. 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, 2017 and 2016, the Company’s cash deposits at any one bank generally exceed the Federal Deposit Insurance Corporation’s $250 coverage limit for insured deposit accounts.

v3.8.0.1
Comprehensive Income (Loss)
12 Months Ended
Dec. 31, 2017
Equity [Abstract]  
Comprehensive Income (Loss)

Note 5 — Comprehensive Income (Loss)

Comprehensive income (loss) includes net income (loss) 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, 2017  
     Before
Tax
     Income Tax
Expense
(Benefit)
     Net of
Tax
 

Unrealized gain arising during the period

   $ 5,996      $ 2,313      $ 3,683  

Other-than-temporary impairment loss

     1,467        566        901  

Call and repayment losses charged to investment income

     14        5        9  

Reclassification adjustment for realized gains

     (4,346      (1,676      (2,670
  

 

 

    

 

 

    

 

 

 

Total other comprehensive income

   $ 3,131      $ 1,208      $ 1,923  
  

 

 

    

 

 

    

 

 

 

 

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

 

 

    

 

 

    

 

 

 
v3.8.0.1
Business Acquisitions
12 Months Ended
Dec. 31, 2017
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 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 LandingsMelbourne, 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 the other member and pay $2,064 in cash in 2016, plus an additional $200 in January 2017 upon the execution of one lease agreement. 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 in 2016 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.

v3.8.0.1
Fair Value Measurements
12 Months Ended
Dec. 31, 2017
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 and certificates of deposit. Their carrying value approximates fair value due to the short maturity and high liquidity of these funds.

Available-for-sale and trading securities

Estimated fair values of the Company’s available-for-sale and trading 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, which are level 2 inputs. 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.

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 was periodically adjusted based on the London Interbank Offered Rate plus a spread. As a result, its carrying value at December 31, 2016 approximated fair value. In February 2017, this credit facility was converted into a 3.95% three-year promissory note. See Note 13 — “Long-Term Debt” under 3.95% Promissory Note.

 

Long-term debt

The following table summarizes components of the Company’s long-term debt and methods used in estimating their fair values:

 

     Maturity
Date
   Valuation Methodology

8% Senior Notes

   *    Closing price listed on the New York Stock Exchange

3.875% Convertible Senior Notes

   2019    Quoted price at January 3, 2018; Discounted cash flow method/Level 3 inputs at December 31, 2016

4.25% Convertible Senior Notes

   2037    Quoted price

3.95% Promissory Note

   2020    Discounted cash flow method/Level 3 inputs

4% Promissory Note

   2031    Discounted cash flow method/Level 3 inputs

3.75% Promissory Note

   2036    Discounted cash flow method/Level 3 inputs

 

* Redeemed on April 3, 2017.

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, 2017 and 2016:

 

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

As of December 31, 2017

           

Financial Assets:

           

Cash and cash equivalents

   $ 255,884      $ —        $ —        $ 255,884  
  

 

 

    

 

 

    

 

 

    

 

 

 

Fixed-maturity securities:

           

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

     40,527        1,500        —          42,027  

Corporate bonds

     106,109        994        —          107,103  

State, municipalities, and political subdivisions

     —          80,695        —          80,695  

Exchange-traded debt

     7,659        —          —          7,659  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total fixed-maturity securities

     154,295        83,189        —          237,484  

Equity securities

     58,911        —          —          58,911  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total available-for-sale securities

     213,206        83,189        —          296,395  
  

 

 

    

 

 

    

 

 

    

 

 

 

Trading equity securities

     1,045        —          —          1,045  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 470,135      $ 83,189      $ —        $ 553,324  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     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