Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2016 | Nov. 09, 2016 | |
Document and Entity Information | ||
Entity Registrant Name | State National Companies, Inc. | |
Entity Central Index Key | 1,610,793 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 41,924,440 | |
Document Fiscal Year Focus | 2,016 | |
Document Fiscal Period Focus | Q3 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Sep. 30, 2016 | Dec. 31, 2015 |
Investments: | ||
Fixed-maturity securities – available-for-sale, at fair value (amortized cost – $327,823, $327,764, respectively) | $ 337,568 | $ 329,522 |
Equity securities – available-for-sale, at fair value (cost – $3,266, $4,796, respectively) | 3,276 | 5,544 |
Total investments | 340,844 | 335,066 |
Cash and cash equivalents | 79,762 | 51,770 |
Restricted cash and investments | 2,837 | 3,717 |
Accounts receivable from agents, net | 32,541 | 23,913 |
Reinsurance recoverable on paid losses | 1,237 | 1,187 |
Deferred acquisition costs | 1,091 | 1,075 |
Reinsurance recoverables | 2,291,175 | 1,911,660 |
Property and equipment, net (includes land held for sale – $1,034, $1,034, respectively) | 16,489 | 17,163 |
Interest receivable | 1,928 | 2,158 |
Income taxes receivable | 3,330 | |
Deferred income taxes, net | 25,207 | 26,208 |
Goodwill and intangible assets, net | 12,768 | 5,958 |
Other assets | 4,759 | 4,353 |
Total assets | 2,810,638 | 2,387,558 |
Liabilities | ||
Unpaid losses and loss adjustment expenses | 1,654,905 | 1,364,774 |
Unearned premiums | 673,677 | 585,448 |
Allowance for policy cancellations | 64,742 | 59,610 |
Deferred ceding fees | 32,700 | 29,119 |
Accounts payable to agents | 2,550 | 2,458 |
Accounts payable to insurance companies | 12,254 | 3,801 |
Debt, net | 43,772 | 43,740 |
Income taxes payable | 1,320 | |
Other liabilities | 33,086 | 35,151 |
Total liabilities | 2,519,006 | 2,124,101 |
Shareholders' equity | ||
Common stock, $.001 par value (150,000,000 shares authorized; 42,196,683 and 42,699,550 shares issued at September 30, 2016 and December 31, 2015, respectively) | 42 | 43 |
Preferred stock, $.001 par value (10,000,000 shares authorized; no shares issued and outstanding at September 30, 2016 and December 31, 2015) | ||
Additional paid-in capital | 227,817 | 224,719 |
Retained earnings | 57,574 | 37,322 |
Accumulated other comprehensive income | 6,199 | 1,373 |
Total shareholders' equity | 291,632 | 263,457 |
Total liabilities and shareholders' equity | $ 2,810,638 | $ 2,387,558 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2016 | Dec. 31, 2015 |
Condensed Consolidated Balance Sheets | ||
Fixed-maturity securities - available-for-sale, amortized cost | $ 327,823 | $ 327,764 |
Equity securities - available-for-sale, cost | 3,266 | 4,796 |
Property and equipment, net - land held for sale | $ 1,034 | $ 1,034 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 150,000,000 | 150,000,000 |
Common stock, shares issued | 42,196,683 | 42,699,550 |
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Income - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Revenues: | ||||
Premiums earned | $ 33,700 | $ 30,156 | $ 94,293 | $ 85,145 |
Commission income | 389 | 340 | 1,015 | 1,074 |
Ceding fees | 19,263 | 18,837 | 52,424 | 49,360 |
Net investment income | 2,001 | 2,008 | 6,141 | 5,961 |
Realized net investment gains (losses) | 2,063 | (571) | 1,707 | 880 |
Other income | 501 | 381 | 1,416 | 1,228 |
Total revenues | 57,917 | 51,151 | 156,996 | 143,648 |
Expenses: | ||||
Losses and loss adjustment expenses | 13,755 | 14,773 | 42,587 | 40,955 |
Commissions | 1,408 | 1,207 | 4,235 | 3,964 |
Taxes, licenses, and fees | 960 | 910 | 2,466 | 2,185 |
General and administrative | 17,235 | 14,456 | 51,377 | 46,649 |
Interest expense | 565 | 510 | 1,655 | 1,515 |
Total expenses | 33,923 | 31,856 | 102,320 | 95,268 |
Income (loss) before income taxes | 23,994 | 19,295 | 54,676 | 48,380 |
Income taxes: | ||||
Current tax expense (benefit) | 10,801 | 8,864 | 21,292 | 21,878 |
Deferred tax expense (benefit) | (2,130) | (1,965) | (1,597) | (4,250) |
Total income tax expense (benefit) | 8,671 | 6,899 | 19,695 | 17,628 |
Net income (loss) | $ 15,323 | $ 12,396 | $ 34,981 | $ 30,752 |
Net income (loss) per share attributable to common shareholders: | ||||
Basic earnings per share (in dollars per share) | $ 0.37 | $ 0.28 | $ 0.83 | $ 0.70 |
Diluted earnings per share (in dollars per share) | 0.37 | 0.28 | 0.83 | 0.70 |
Dividends, per share | $ 0.06 | $ 0.06 | $ 0.18 | $ 0.08 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Condensed Consolidated Statements of Comprehensive Income | ||||
Net income (loss) | $ 15,323 | $ 12,396 | $ 34,981 | $ 30,752 |
Unrealized gains (losses) on securities: | ||||
Unrealized holding gains (losses) during the period | (1,771) | 370 | 6,744 | (1,393) |
Tax effect on unrealized holding gains (losses) during the period | 620 | (130) | (2,360) | 491 |
Less: reclassification adjustments for realized gains included in net income | 626 | 393 | 680 | (630) |
Tax effect on reclassification adjustments for realized gains included in net income | (219) | (137) | (238) | 217 |
Other comprehensive income (loss) | (744) | 496 | 4,826 | (1,315) |
Total comprehensive income (loss) | $ 14,579 | $ 12,892 | $ 39,807 | $ 29,437 |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Shareholders' Equity - USD ($) $ in Thousands | Common stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total |
Balance at Dec. 31, 2014 | $ 44 | $ 220,577 | $ 16,108 | $ 4,143 | $ 240,872 |
Increase (decrease) in shareholder's equity | |||||
Stock-based compensation expense | 4,142 | 4,142 | |||
Dividends declared | (6,196) | (6,196) | |||
Repurchase of common stock | (1) | (17,256) | (17,257) | ||
Net income (loss) | 44,666 | 44,666 | |||
Other comprehensive income (loss), net of tax | (2,770) | (2,770) | |||
Balance at Dec. 31, 2015 | 43 | 224,719 | 37,322 | 1,373 | 263,457 |
Increase (decrease) in shareholder's equity | |||||
Stock-based compensation expense | 3,098 | 3,098 | |||
Dividends declared | (7,623) | (7,623) | |||
Repurchase of common stock | (1) | (7,106) | (7,107) | ||
Net income (loss) | 34,981 | 34,981 | |||
Other comprehensive income (loss), net of tax | 4,826 | 4,826 | |||
Balance at Sep. 30, 2016 | $ 42 | $ 227,817 | $ 57,574 | $ 6,199 | $ 291,632 |
Condensed Consolidated Stateme7
Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Operating activities | ||
Net cash provided by (used in) operating activities | $ 48,938 | $ 40,843 |
Investing activities | ||
Purchase of investments | (60,754) | (73,598) |
Proceeds from sale of investments | 55,120 | 22,141 |
Proceeds from maturities and principal receipts | 17,679 | 23,734 |
Proceeds from dispositions of property and equipment | 78 | 448 |
Purchase of property and equipment | (724) | (644) |
Acquisition of consolidated subsidiaries, net of cash obtained | (17,320) | |
Net cash provided by (used in) investing activities | (5,921) | (27,919) |
Financing activities | ||
Dividends paid | (5,077) | (3,540) |
Repurchase of common stock | (9,948) | |
Net cash provided by (used in) financing activities | (15,025) | (3,540) |
Net change in cash and cash equivalents | 27,992 | 9,384 |
Cash and cash equivalents at beginning of period | 51,770 | 38,348 |
Cash and cash equivalents at end of period | $ 79,762 | $ 47,732 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2016 | |
Summary of Significant Accounting Policies | |
Summary of Significant Accounting Policies | 1. Summary of Significant Accounting Policies Description of Business State National Companies, Inc. (the “Company”) refers to a group of companies that conducts insurance-related activities along two major segments. The Company’s Program Services segment generates fee income, in the form of ceding fees, by offering issuing carrier capacity to both specialty general agents and other producers (“GAs”), who sell, control, and administer books of insurance business that are supported by third parties that assume reinsurance risk. Substantially all of the underwriting risk associated with the Program Services segment is ceded to unaffiliated, highly rated reinsurance companies or other reinsurers that provide collateral. The Company’s Lender Services segment generates premiums primarily from the sale of collateral protection insurance (“CPI”), which insures automobiles or other vehicles held as collateral for loans made by credit unions, banks and specialty finance companies. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company includes the results of operations of an acquired business in its consolidated financial statements from the date of the acquisition. Basis of Presentation The unaudited condensed consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and all subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the years ended December 31, 2015 and 2014. The interim financial data as of September 30, 2016 and 2015 is unaudited. However, in the opinion of the Company’s management (“Management”), the interim data includes all adjustments, consisting of normal recurring adjustments, necessary to fairly state the results for the interim period. The results of operations for the period ended September 30, 2016 and 2015 are not necessarily indicative of the operating results to be expected for the full year. Refer to “Summary of Significant Accounting Policies” in the consolidated financial statements for the years ended December 31, 2015, 2014 and 2013 for information on accounting policies that we consider critical in preparing consolidated financial statements. Estimates The preparation of financial statements in conformity with GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from these estimates. Earnings Per Share The computation of earnings per share is based upon the weighted average number of common shares outstanding during the period plus the effect of common shares potentially issuable (in periods in which they have a dilutive effect). Income Taxes For any uncertain tax positions not meeting the “more likely than not” recognition threshold, accounting standards require recognition, measurement, and disclosure in the financial statements. There were no uncertain tax positions at September 30, 2016 and December 31, 2015. Stock-based Compensation Compensation expense for stock-based payments is recognized based on the measurement-date fair value for awards that will settle in shares. Compensation expense for restricted stock grants and stock option awards that contain a service condition are recognized on a straight line pro rata basis over the vesting period. For restricted stock awards that contain a performance condition, the expense is recognized based on the awards expected to vest and the cumulative expense is adjusted whenever the estimate of the number of awards to vest changes. See Note 7 — “Stock-based Payments” for related disclosures. Recent Accounting Pronouncements In May 2014, the FASB issued an accounting standards update (ASU 2014-09), “Revenue from Contracts with Customers” (Topic 606). The core guidance of the ASU presents a comprehensive revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The ASU provides a five-step analysis of transactions to determine when and how revenue is recognized and requires additional disclosures sufficient to describe the nature, amount, timing and uncertainty of revenue and cash flows for these transactions. In August 2015, the FASB issued ASU 2015-14 to defer the effective date to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. As insurance contracts are excluded from this ASU, the Company is currently evaluating what impact, if any, this ASU will have on financial results and disclosures and which adoption method to apply. In April 2015, the FASB issued an accounting standards update (ASU 2015-03), “Interest – Imputation of Interest” (Topic 835). The new guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance in ASU 2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. The FASB therefore issued ASU 2015-15 “Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” which clarified that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. For public business entities, the guidance is effective for annual and interim periods beginning after December 15, 2015. The Company adopted ASU 2015-03 on January 1, 2016. In May 2015, the FASB issued an accounting standards update (ASU 2015-09), “Disclosures about Short-Duration Contracts” (Topic 944) intended to make targeted improvements to disclosure requirements for insurance companies that issue short-duration contracts. The amendments in this update are expected to increase transparency of significant estimates made in measuring those liabilities, improve comparability by requiring consistent disclosure of information, and provide financial statement users with additional information to facilitate analysis of the amount, timing, and uncertainty of cash flows arising from contracts issued by insurance entities and the development of loss reserve estimates. This ASU will be effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. The Company is currently evaluating what impact this ASU will have on disclosures. In September 2015, the FASB issued an accounting standards update (ASU 2015-16), “Business Combinations - Simplifying the Accounting for Measurement-Period Adjustments” (Topic 805) which applies to all entities that have reported provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and during the measurement period have an adjustment to provisional amounts recognized. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, and should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The only disclosures required at transition will be the nature of and reason for the change in accounting principle. An entity should disclose that information in the first annual period of adoption and in the interim periods within the first annual period if there is a measurement-period adjustment during the first annual period in which the changes are effective. The Company adopted the provisions of this ASU on January 1, 2016. In January 2016, the FASB issued an accounting standards update (ASU 2016-01), “Recognition and Measurement of Financial Assets and Financial Liabilities” (Sub-Topic 825-10). The amendments in this update supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities to be measured at fair value with changes in the fair value recognized through net income. The amendments are expected to improve financial reporting by providing relevant information about an entity’s equity investments and reducing the number of items that are recognized in other comprehensive income. This ASU is effective for annual and interim periods beginning after December 15, 2017. The Company is currently evaluating what impact this ASU will have on financial results and disclosures. In February 2016, the FASB issued an accounting standards update (ASU 2016-02), “Leases” (Topic 842) that requires lessees to put most leases on their balance sheets but recognize expenses on their income statements. The FASB is issuing this update to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company does not plan to early adopt and is currently evaluating what impact this ASU will have on financial results and disclosures. In March 2016, the FASB issued an accounting standards update (ASU 2016-08), “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” The new standard requires an entity to determine whether it is a principal or an agent in a transaction in which another party is involved in providing goods or services to a customer by evaluating the nature of its promise to the customer. An entity is a principal and therefore records revenue on a gross basis if it controls the promised good or service before transferring the good or service to the customer. An entity is an agent and records as revenue the net amount it retains for its agency services if its role is to arrange for another entity to provide the goods or services. The amendments clarify how an entity should identify the unit of accounting for the principal versus agent evaluation, and how it should apply the control principle to certain types of arrangements, such as service transactions, by explaining what a principal controls before the specified good or service is transferred to the customer. This ASU’s effective date and transition requirements are the same as those of the new revenue recognition standard which is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. The Company is currently evaluating what impact, if any, this ASU will have on financial results and disclosures. In March 2016, the FASB issued an accounting standards update (ASU 2016-09), “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under the new guidance, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (APIC). Instead, companies will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. For interim reporting purposes, companies will account for excess tax benefits and tax deficiencies as discrete items in the period in which they occur. In addition, the guidance eliminates the requirement that excess tax benefits be realized before companies can recognize them. The guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company prospectively adopted the provisions of this ASU on January 1, 2016 and the impact was immaterial to financial results. There would have been no impact to prior periods. In May 2016, the FASB issued an accounting standards update (ASU 2016-12), “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” The amendments clarify that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. The amendments also clarify how an entity should evaluate the collectibility threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. This ASU’s effective date and transition requirements are the same as those of the new revenue recognition standard which is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. The Company will be evaluating what impact, if any, this ASU will have on financial results and disclosures. In June 2016, the FASB issued an accounting standards update (ASU 2016-13), “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available-for-sale (AFS) debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment (OTTI) model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This ASU is effective for annual and interim periods beginning after December 15, 2019. The Company will be evaluating what impact this ASU will have on financial results and disclosures. In August 2016, the FASB issued an accounting standards update (ASU 2016-14), “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU amends guidance related to debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims and corporate-owned life insurance, distributions received from equity method investees and beneficial interests in securitization transactions. The guidance will generally be applied retrospectively and is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years. The Company does not expect financial results and disclosures to be significantly impacted by this ASU. Reclassifications The Company adopted ASU 2015-03, “Interest – Imputation of Interest” on January 1, 2016. Presentation of “Other Assets” and “Debt, net” on the prior year balance sheet have been retrospectively adjusted to reflect the adoption of this ASU. The 2015 presentation of each line was adjusted by $760 thousand to reflect the netting of unamortized debt issuance costs. |
Investments
Investments | 9 Months Ended |
Sep. 30, 2016 | |
Investments | |
Investments | 2. Investments The following table summarizes information on the amortized cost, gross unrealized gains and losses, and the fair value of investment securities by class: Cost or Gross Gross September 30, 2016 Amortized Unrealized Unrealized Fair ($ in thousands) Cost Gains Losses Value Fixed-maturity securities Government $ $ $ — $ Government agency — State and municipality Industrial and miscellaneous Residential mortgage-backed Commercial mortgage-backed Redeemable preferred stock — Total fixed-maturity securities Equity securities Non-redeemable preferred stock Total equity securities Total investments $ $ $ $ Cost or Gross Gross December 31, 2015 Amortized Unrealized Unrealized Fair ($ in thousands) Cost Gains Losses Value Fixed-maturity securities Government $ $ $ $ Government agency State and municipality Industrial and miscellaneous Residential mortgage-backed Commercial mortgage-backed Redeemable preferred stock Total fixed-maturity securities Equity securities Non-redeemable preferred stock Common stock Total equity securities Total investments $ $ $ $ Investment securities are exposed to various risks such as interest rate, market, and credit risk. Fair values of securities fluctuate based on the magnitude of changing market conditions; significant changes in market conditions could materially affect the portfolio fair value in the near term. The following tables show the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position: Less than 12 Months 12 Months or More Total September 30, 2016 Fair Unrealized Fair Unrealized Fair Unrealized ($ in thousands) Value Losses Value Losses Value Losses Fixed-maturity securities State and municipality $ $ $ — $ — $ $ Industrial and miscellaneous Residential mortgage-backed Commercial mortgage-backed Total fixed-maturity securities Equity securities Non-redeemable preferred stock Total equity securities $ $ $ $ $ $ Less than 12 Months 12 Months or More Total December 31, 2015 Fair Unrealized Fair Unrealized Fair Unrealized ($ in thousands) Value Losses Value Losses Value Losses Fixed-maturity securities Government $ $ $ $ $ $ Government agency — — State and municipality Industrial and miscellaneous Residential mortgage-backed Commercial mortgage-backed Redeemable preferred stock Total fixed-maturity securities Equity securities Non-redeemable preferred stock — — Common stock — — Total equity securities — — $ $ $ $ $ $ The determination that a security has incurred an other-than-temporary decline in fair value and the associated amount of any loss recognition requires the judgment of Management and a regular review of the Company’s investments. Management reviewed all securities with unrealized losses in accordance with the Company’s impairment policy described in Note 1 — “Summary of Significant Accounting Policies” in the consolidated financial statements for the years ended December 31, 2015, 2014 and 2013. Management believes that the temporary impairments are primarily the result of widening credit spreads, and that despite the wider credit spreads, the securities are only temporarily impaired due to the strength of the issuing companies’ balance sheets, as well as their available liquidity options. For structured securities, future cash flow projections were used to determine potential impairment. For those securities where cash flow projections showed less than 100% principal recovery, a net present value test was done to determine any credit related losses. There were 70 securities in an unrealized loss position at September 30, 2016. Over 66% of these investments were investment-grade at September 30, 2016. We do not intend to sell or believe we will be required to sell any of our temporarily-impaired fixed maturities before recovery of their amortized cost basis. Management has the intent and ability to hold the equity securities in an unrealized loss position until the recovery of their fair value. Therefore, Management does not consider these investments to be other-than-temporarily impaired at September 30, 2016. Proceeds from sales of investments in fixed-maturity, equity and short-term securities for the nine months ended September 30, 2016 and 2015 were $55.1 million and $22.1 million, respectively. The Company holds convertible securities with embedded derivatives. The embedded derivative is bifurcated from the host contract if all of the following criteria are met: the combined instrument is not accounted for in its entirety at fair value with changes in fair value recorded in earnings; the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract; and a separate instrument with the same terms as the embedded derivative would qualify as a derivative instrument. These embedded derivatives are presented together with the host contract and carried at estimated fair value. Changes in the estimated fair value of the embedded derivatives are reflected in “Realized net investment gains” in the condensed consolidated statements of income, while changes in the estimated fair value of the underlying fixed maturity securities are reflected in “Unrealized holding gains (losses)” in the condensed consolidated statements of comprehensive income. The following table presents the Company’s gross realized gains (losses) for the periods ended September 30: Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, ($ in thousands) 2016 2015 2016 2015 Realized gains: Fixed-maturity securities $ $ $ $ Equity securities Gross realized gains Realized losses: Fixed-maturity securities Equity securities — — Other-than-temporary impairment losses on fixed-maturity securities — — — Gross realized losses Change in fair value of embedded derivatives Net realized investment gains (losses) $ $ $ $ The Company had two non-cash exchanges of investment securities for the nine months ended September 30, 2016 and four non-cash exchanges for the nine months ended September 30, 2015. Non-cash consideration received for these exchanges was $533 thousand and $1.6 million for the nine months ended September 30, 2016 and September 30, 2015 respectively. Gains of $153 thousand and $72 thousand were recognized on these exchanges and are reflected in “Realized net investment gains” on the condensed consolidated statements of income. The following schedule details the maturities of the Company’s fixed-maturity securities, available-for-sale, as of September 30, 2016: Fair ($ in thousands) Amortized Cost Value Due in one year or less $ $ Due after one year through five years Due after five years through ten years Due after ten years Residential mortgage-backed securities Commercial mortgage-backed securities $ $ Expected maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. The Company’s investment portfolio includes $0.9 million of mortgage-backed securities collateralized by subprime residential loans, which represent approximately 0.26% of the Company’s total investments as of September 30, 2016. The Company does not own mortgage derivatives. Net investment income for the periods ended September 30, consists of the following: Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, ($ in thousands) 2016 2015 2016 2015 Interest on investments $ $ $ $ Dividends Gross investment income Investment expenses Net investment income $ $ $ $ The Company’s insurance subsidiaries, State National Insurance Company, Inc. (“SNIC”), National Specialty Insurance Company (“NSIC”), United Specialty Insurance Company (“USIC”) and United National Specialty Insurance Company (“UNSIC”) are required to maintain deposits in various states where they are licensed to operate. These deposits consisted of fixed-maturity securities at fair values totaling $76.9 million and $53.5 million at September 30, 2016 and December 31, 2015, respectively. |
Income Tax Provision
Income Tax Provision | 9 Months Ended |
Sep. 30, 2016 | |
Income Taxes | |
Income Tax Provision | 3. Income Tax Provision The Company computes its provision for income taxes in interim periods by applying its estimated annual effective tax rate against income (loss) before income taxes for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur. The magnitude of the impact that discrete items have on the Company’s quarterly effective tax rate is dependent on the level of income in the period. A reconciliation of federal income tax expense computed by applying the federal statutory tax rate to income (loss) before income taxes for the nine month periods ended September 30 is as follows: 2016 2015 Effective Effective ($ in thousands) Amount Tax Rate Amount Tax Rate Expected tax expense (benefit) $ % $ % Tax-exempt income State income taxes Other Total income tax expense (benefit) $ % $ % |
Reinsurance
Reinsurance | 9 Months Ended |
Sep. 30, 2016 | |
Reinsurance | |
Reinsurance | 4. Reinsurance Through unaffiliated general agents, the Company’s insurance subsidiaries write property and casualty lines of business in the Program Services segment. This business is written and reinsured pursuant to quota share and excess of loss reinsurance contracts and general agency agreements that are tripartite agreements executed by the Company’s insurance subsidiaries, the reinsurer, and the general agent. Substantially all of the underwriting risk associated with this business is borne by the reinsurer. As compensation for writing this business, the Company’s insurance subsidiaries receive ceding fees from the producers and, accordingly, the related ceding fees receivable are reflected as accounts receivable from agents. In most instances, if the producer defaults on its obligation to pay these fees (or any other amount due), the reinsurer is obligated to make the payment under the guarantee contained in the contracts. Certain insurance subsidiaries write business in the Lender Services segment through an affiliated general agent. The Company is party to a reinsurance agreement in which it cedes 30% of certain CPI policies to CUMIS Insurance Society, Inc. (“CUNA Mutual”) and receives a ceding commission related to these policies. The Company earns minimum ceding fees on certain programs based on estimates of annual premiums to be written for those programs that are subject to minimum premium levels and related ceding fees. The Company re-estimated its 2015 annual projection for such programs during the third quarter 2015, which resulted in an additional $1.9 million of minimum ceding fees earned for the three and nine month periods ended September 30, 2015. The Company re-estimated its 2016 annual projection for such programs during the third quarter 2016, which resulted in an additional $0.6 million of minimum ceding fees earned for the three and nine month periods ended September 30, 2016. The Company’s insurance subsidiaries remain liable for unearned premiums and unpaid losses and loss adjustment expenses with respect to reinsurance ceded should the reinsurer be unable to meet its obligations. Management considers the possibility of a reinsurer becoming unable to meet its obligations as remote due to the reinsurers’ financial stability, A.M. Best Company rating, size, security funds available, and other factors as appropriate. Following is a summary of these balances: September 30, December 31, ($ in thousands) 2016 2015 Ceded unearned premiums $ $ Ceded loss and loss adjustment expense reserves Total reinsurance recoverables Secured reinsurance recoverables Unsecured reinsurance recoverables $ $ The fair value of all collateral held by the Company’s insurance subsidiaries for reinsurers for whom we require collateral is approximately 135% of the related reinsurance recoverables as of September 30, 2016, with the lowest ratio for any such reinsurer being 103%. |
Fair Value Measurements
Fair Value Measurements | 9 Months Ended |
Sep. 30, 2016 | |
Fair Value Measurements | |
Fair Value Measurements | 5. Fair Value Measurements Assets and liabilities reported in the condensed consolidated financial statements at fair value are required to be classified according to a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into three levels. The hierarchy gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset’s or liability’s classification is based on the lowest level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Level 1 and 2) and unobservable (Level 3). The levels of the fair value hierarchy are as follows: · Level 1: Inputs are quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date. · Level 2: Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. These inputs include market interest rates and volatilities, spreads, and yield curves. · Level 3: Inputs are unobservable. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. A description of the Company’s valuation techniques used to measure its assets at fair value is as follows: · Available-for-sale, fixed-maturity securities: All fixed-maturity investments are currently reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from either an independent pricing service using quoted prices or from its third-party investment managers. These Level 2 inputs are valued by either the pricing service or the investment managers utilizing observable data that may include dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus, prepayment speeds, credit information, and the security’s terms and conditions, among other things. · Available-for-sale equity securities: Equity securities are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service using quoted prices or from its third-party investment managers. These Level 2 inputs are valued by either the pricing service or the investment managers utilizing observable data that may include dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus, prepayment speeds, credit information, and the security’s terms and conditions, among other things. · Embedded derivatives: The Company invests in convertible securities that have embedded derivatives. Embedded derivatives are recorded at estimated fair value with changes in estimated fair value reported in the consolidated statements of net income. The estimated fair value of the embedded derivatives is calculated by the Company’s third-party investment managers using observable inputs. Management has reviewed the processes used by the pricing services and has determined that they result in fair values consistent with requirements for Level 2 investment securities. Based on an analysis of the inputs, the Company’s investments measured at fair value on a recurring basis have been categorized as follows: September 30, 2016 ($ in thousands) Level 1 Level 2 Level 3 Total Fixed-maturity securities Government $ — $ $ — $ Government agency — — State and municipality — — Industrial and miscellaneous — — Residential mortgage-backed — — Commercial mortgage-backed — — Redeemable preferred stock — — Total fixed-maturity securities — — Equity securities Non-redeemable preferred stock — — Total equity securities — — Total investments $ — $ $ — $ December 31, 2015 ($ in thousands) Level 1 Level 2 Level 3 Total Fixed-maturity securities Government $ — $ $ — $ Government agency — — State and municipality — — Industrial and miscellaneous — — Residential mortgage-backed — — Commercial mortgage-backed — — Redeemable preferred stock — — Total fixed-maturity securities — — Equity securities Non-redeemable preferred stock — — Common stock — — Total equity securities — — Total investments $ — $ $ — $ The fair value of embedded derivatives included in Level 2 securities was $8.6 million at September 30, 2016 and December 31, 2015, respectively. There was no Level 3 activity including gains or losses recognized, purchases, or sales transaction during the periods ending September 30, 2016 and December 31, 2015. Transfers between levels are recognized at the end of the reporting period. There were no transfers between Level 1, Level 2, and Level 3 at September 30, 2016 and December 31, 2015. |
401(k) Profit-Sharing Plan and
401(k) Profit-Sharing Plan and Trust | 9 Months Ended |
Sep. 30, 2016 | |
401(k) Profit-Sharing Plan and Trust | |
401(k) Profit-Sharing Plan and Trust | 6. 401(k) Profit-Sharing Plan and Trust The Company has a 401(k) profit-sharing plan for employees that covers all officers and employees who are at least 18 years of age. The Company is required to make a matching contribution of 100% of the first 1% and 50% of the next 5% of employees’ contributions. Also, the Company may make additional matching and profit-sharing contributions that are discretionary and are determined at the end of each plan year. The employer contribution expense included in general and administrative expenses for the three months ended September 30, 2016 was $347 thousand (2015 - $226 thousand) and the nine months ended September 30, 2016 was $1.1 million (2015 - $901 thousand). |
Stock-based Payments
Stock-based Payments | 9 Months Ended |
Sep. 30, 2016 | |
Stock-based Payments | |
Stock-based Payments | 7. Stock-based Payments On May 29, 2014, the Company’s shareholders approved the 2014 Long-Term Incentive Plan (“2014 Plan”), which provides for an aggregate of 4.4 million shares of common stock that may be issued to employees and non-employee directors. Awards under the 2014 Plan may be in the form of stock options (including incentive stock options that meet the requirements of Section 422 of the Internal Revenue Code and non-statutory stock options), restricted stock, restricted stock units, stock appreciation rights and performance units. The fair value of the restricted shares granted is determined based on the most recent trading price of the stock as of the grant date. The fair value of each stock option grant is established on the grant date using the Black-Scholes option pricing model. There were no options granted during the nine month period ended September 30, 2015. The Company granted 575,000 options during the nine month period ended September 30, 2016. The following table summarizes the assumptions used to value these options: Grant Date February 8, 2016 June 22, 2016 Options granted Risk-free rate of return % % Expected dividend yields % % Expected volatility % % Expected award life (years) A summary of the Company’s restricted shares and stock options activity for the nine months ended September 30, 2016 and 2015 is shown below: Weighted-Average Weighted-Average Restricted Grant Date Fair Value Stock Grant Date Fair Value September 30, 2016 Shares per Restricted Share Options per Stock Option Nonvested at beginning of period $ $ Granted Forfeited — — — — Vested Nonvested at end of period Weighted-Average Weighted-Average Restricted Grant Date Fair Value Stock Grant Date Fair Value September 30, 2015 Shares per Restricted Share Options per Stock Option Nonvested at beginning of period $ $ Granted — — Forfeited — — — — Vested Nonvested at end of period Compensation expense for all share-based compensation was $1.2 million for the three months ended September 30, 2016 and $942 thousand for the three months ended September 30, 2015. Compensation expense for all share-based compensation was $3.1 million for the nine months ended September 30, 2016 and $2.9 million for the nine months ended September 30, 2015. |
Concentration of Risk
Concentration of Risk | 9 Months Ended |
Sep. 30, 2016 | |
Concentration of Risk | |
Concentration of Risk | 8. Concentration of Risk The Company maintains cash and cash equivalents in accounts with financial institutions in excess of the amount insured by the Federal Deposit Insurance Corporation. The Company monitors the financial stability of these institutions regularly, and Management does not believe there is significant credit risk associated with deposits in excess of federally insured amounts. The Company’s writings in California, Texas, Florida and New York comprised 57% and 56% of gross premiums written for the periods ending September 30, 2016 and 2015, respectively. The four largest reinsurers with unsecured reinsurance recoverables, all of which are rated A or higher by A.M. Best, accounted for approximately 17%, 13%, 7%, and 6% of the Company’s unsecured reinsurance recoverables at September 30, 2016. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2016 | |
Commitments and Contingencies | |
Commitments and Contingencies | 9 . Commitments and Contingencies The Company is involved in various legal proceedings incidental to its normal business activities. Management of the Company does not anticipate that the outcome of such legal actions will have a material effect on the Company’s consolidated financial position or results of operations. The Company’s insurance subsidiaries are subject to assessments from various insurance regulatory agencies related to insurance company insolvencies. Management is not aware of any material assessments for which notice has not yet been received. However, to the extent that such assessments are made, the Company has the contractual right to recover these amounts from the underlying reinsurers. The Company has a Collateral Protection Alliance (the “Alliance”) with CUMIS Insurance Society, Inc., a subsidiary of CUNA Mutual, to administer and write CPI business for CUNA Mutual’s customers. The Alliance includes an agency agreement and a reinsurance agreement whereby the Company cedes a portion of the business back to CUNA Mutual. In connection with the Alliance, the Company has a purchase option and CUNA Mutual has a put option, whereby the Company is obligated to purchase CUNA Mutual’s right to participate in future program business at a specified price in the event of termination of the Alliance. The Company entered into an agreement to acquire an excess and surplus lines, or non-admitted, shell company for $2.3 million plus the fair value of investments. The agreement is subject to regulatory approvals and customary closing conditions. |
Earnings Per Share
Earnings Per Share | 9 Months Ended |
Sep. 30, 2016 | |
Earnings Per Share | |
Earnings Per Share | 10. Earnings Per Share A reconciliation of the numerators and denominators of the basic and diluted per share calculations is presented below: Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, ($ in thousands, except for per share amounts) 2016 2015 2016 2015 Numerator for both basic and diluted earnings per share: Net income (loss) $ $ $ $ Denominator for both basic and diluted earnings per share: Weighted-average common shares outstanding Dilutive effect of outstanding securities (determined using the treasury stock method) Weighted-average common shares outstanding and potential common shares outstanding |
Segment Information
Segment Information | 9 Months Ended |
Sep. 30, 2016 | |
Segment Information | |
Segment Information | 11. Segment Information The following is business segment information for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, ($ in thousands) 2016 2015 2016 2015 Revenues: Program $ $ $ $ Lender Corporate Consolidated revenues $ $ $ $ Income (loss) before income taxes: Program $ $ $ $ Lender Corporate Consolidated income (loss) before income taxes $ $ $ $ The following table summarizes the financial assets of the Company’s segments as of the periods indicated: September 30, December 31, ($ in thousands) 2016 2015 Assets: Program $ $ Lender Corporate $ $ |
Common Stock
Common Stock | 9 Months Ended |
Sep. 30, 2016 | |
Common Stock. | |
Common Stock | 12. Common Stock On October 12, 2015, the Company announced a share repurchase program authorizing the repurchase of up to $50 million in shares of the Company's common stock through December 31, 2016. Repurchases are made in accordance with the guidelines specified under Rule 10b-18 and may be made pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934. During the nine months ended September 30, 2016, the Company purchased 697,098 shares of its common stock at an aggregate purchase price including commissions of $7.1 million. The excess cost of the repurchased shares over par value was charged to retained earnings. A summary of common stock repurchases for the period October 1, 2016 through November 9, 2016 (subsequent to September 30, 2016) and for the period ended September 30, 2016 is as follows: October 1 - Nine months ended ($ in thousands, except share and per share data) November 9, 2016 September 30, 2016 Shares repurchased Average price per share $ $ Aggregate cost $ $ Authorization remaining at end of period $ $ |
Debt
Debt | 9 Months Ended |
Sep. 30, 2016 | |
Debt | |
Debt | 13. Debt The Company has three statutory business trusts (the “Trusts”) that were formed between 2002 and 2004, for the sole purpose of issuing $44.5 million of trust preferred securities in private offering transactions. The Trusts used the proceeds from these offerings, together with the equity proceeds received from the Company upon their initial formation to purchase variable-rate subordinated debentures issued by the Company. All voting securities of the Trusts are owned by the Company, and the debentures are the sole assets of the trusts. The Trusts meet the obligations of the trust preferred securities with the interest and principal paid on the debentures. The Company does not have a variable interest in the Trusts and therefore does not consolidate the Trusts. These debentures’ interest rates range from 3.80% to 4.10% plus the 3-month LIBOR. All of the debentures mature between 2032 and 2034 and are reflected net of debt issuance costs in the condensed consolidated balance sheets. On March 31, 2016, the Company, through its subsidiary T.B.A. Insurance Group, Ltd. (“TBA”), entered into a loan agreement (“credit agreement”), which provides for a secured revolving credit facility in an aggregate principal amount of $15 million. The credit agreement matures on April 30, 2018. Under the credit agreement, TBA may request advances up to the aggregate amount of the unused commitment under the credit facility, on a revolving basis, prior to the maturity of the credit agreement. Borrowings under the credit agreement will bear interest at a variable rate equal to LIBOR plus 1.85% per annum; provided, however, that LIBOR shall be subject to a floor of 0.15%. TBA shall also pay a commitment fee on the daily average unused commitment amount for the period running from the closing date to the maturity date at a rate of 0.125% per annum. The credit agreement contains customary representations, warranties, covenants, and events of default, as well as a financial covenant requiring TBA and the Company to maintain a consolidated tangible net worth of at least $150 million. TBA’s obligations under the credit agreement are guaranteed by the Company and are secured by a securities account in the name of TBA and maintained with the creditor, in which TBA must maintain assets with a market value of at least $25 million. |
Business Combinations
Business Combinations | 9 Months Ended |
Sep. 30, 2016 | |
Business Combinations [Abstract] | |
Business Combinations | 14. Business Combinations On September 30, 2016 (“the acquisition date”), the Company acquired 100% of the outstanding common shares of United National Specialty Insurance Company, an admitted shell company with licenses in 49 states. The purpose of the acquisition is to provide exclusive capacity for one of our programs. The acquisition date fair value of the consideration transferred totaled $18.6 million in cash. The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the acquisition date. The estimated fair values of assets acquired and liabilities assumed are provisional and are subject to change. September 30, ($ in thousands) 2016 Fixed-maturity securities $ Cash and cash equivalents Reinsurance recoverables Interest receivable Goodwill and intangible assets, net Total identifiable assets acquired $ Unpaid losses and loss adjustment expenses $ Unearned premiums Total liabilities assumed Net assets acquired $ There is no goodwill to assign to reporting segments. The indefinite lived intangible asset is assigned to the Program Services segment. The Company recognized $117 thousand of acquisition related costs that were expensed in the current period. These costs are included in the condensed consolidated statements of income as “General and administrative” expenses. |
Summary of Significant Accoun22
Summary of Significant Accounting Policies (Policy ) | 9 Months Ended |
Sep. 30, 2016 | |
Summary of Significant Accounting Policies | |
Description of Business | Description of Business State National Companies, Inc. (the “Company”) refers to a group of companies that conducts insurance-related activities along two major segments. The Company’s Program Services segment generates fee income, in the form of ceding fees, by offering issuing carrier capacity to both specialty general agents and other producers (“GAs”), who sell, control, and administer books of insurance business that are supported by third parties that assume reinsurance risk. Substantially all of the underwriting risk associated with the Program Services segment is ceded to unaffiliated, highly rated reinsurance companies or other reinsurers that provide collateral. The Company’s Lender Services segment generates premiums primarily from the sale of collateral protection insurance (“CPI”), which insures automobiles or other vehicles held as collateral for loans made by credit unions, banks and specialty finance companies. |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company includes the results of operations of an acquired business in its consolidated financial statements from the date of the acquisition. |
Basis of Presentation | Basis of Presentation The unaudited condensed consolidated financial statements included herein have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and include the accounts of the Company and all subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the years ended December 31, 2015 and 2014. The interim financial data as of September 30, 2016 and 2015 is unaudited. However, in the opinion of the Company’s management (“Management”), the interim data includes all adjustments, consisting of normal recurring adjustments, necessary to fairly state the results for the interim period. The results of operations for the period ended September 30, 2016 and 2015 are not necessarily indicative of the operating results to be expected for the full year. Refer to “Summary of Significant Accounting Policies” in the consolidated financial statements for the years ended December 31, 2015, 2014 and 2013 for information on accounting policies that we consider critical in preparing consolidated financial statements. |
Estimates | Estimates The preparation of financial statements in conformity with GAAP requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from these estimates. |
Earnings Per Share | Earnings Per Share The computation of earnings per share is based upon the weighted average number of common shares outstanding during the period plus the effect of common shares potentially issuable (in periods in which they have a dilutive effect). |
Income Taxes | Income Taxes For any uncertain tax positions not meeting the “more likely than not” recognition threshold, accounting standards require recognition, measurement, and disclosure in the financial statements. There were no uncertain tax positions at September 30, 2016 and December 31, 2015. |
Stock-based Compensation | Stock-based Compensation Compensation expense for stock-based payments is recognized based on the measurement-date fair value for awards that will settle in shares. Compensation expense for restricted stock grants and stock option awards that contain a service condition are recognized on a straight line pro rata basis over the vesting period. For restricted stock awards that contain a performance condition, the expense is recognized based on the awards expected to vest and the cumulative expense is adjusted whenever the estimate of the number of awards to vest changes. See Note 7 — “Stock-based Payments” for related disclosures. |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In May 2014, the FASB issued an accounting standards update (ASU 2014-09), “Revenue from Contracts with Customers” (Topic 606). The core guidance of the ASU presents a comprehensive revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. The ASU provides a five-step analysis of transactions to determine when and how revenue is recognized and requires additional disclosures sufficient to describe the nature, amount, timing and uncertainty of revenue and cash flows for these transactions. In August 2015, the FASB issued ASU 2015-14 to defer the effective date to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. As insurance contracts are excluded from this ASU, the Company is currently evaluating what impact, if any, this ASU will have on financial results and disclosures and which adoption method to apply. In April 2015, the FASB issued an accounting standards update (ASU 2015-03), “Interest – Imputation of Interest” (Topic 835). The new guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance in ASU 2015-03 does not address presentation or subsequent measurement of debt issuance costs related to line-of-credit arrangements. The FASB therefore issued ASU 2015-15 “Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” which clarified that the SEC staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. For public business entities, the guidance is effective for annual and interim periods beginning after December 15, 2015. The Company adopted ASU 2015-03 on January 1, 2016. In May 2015, the FASB issued an accounting standards update (ASU 2015-09), “Disclosures about Short-Duration Contracts” (Topic 944) intended to make targeted improvements to disclosure requirements for insurance companies that issue short-duration contracts. The amendments in this update are expected to increase transparency of significant estimates made in measuring those liabilities, improve comparability by requiring consistent disclosure of information, and provide financial statement users with additional information to facilitate analysis of the amount, timing, and uncertainty of cash flows arising from contracts issued by insurance entities and the development of loss reserve estimates. This ASU will be effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. The Company is currently evaluating what impact this ASU will have on disclosures. In September 2015, the FASB issued an accounting standards update (ASU 2015-16), “Business Combinations - Simplifying the Accounting for Measurement-Period Adjustments” (Topic 805) which applies to all entities that have reported provisional amounts for items in a business combination for which the accounting is incomplete by the end of the reporting period in which the combination occurs and during the measurement period have an adjustment to provisional amounts recognized. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this update require that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. This ASU is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years, and should be applied prospectively to adjustments to provisional amounts that occur after the effective date with earlier application permitted for financial statements that have not been issued. The only disclosures required at transition will be the nature of and reason for the change in accounting principle. An entity should disclose that information in the first annual period of adoption and in the interim periods within the first annual period if there is a measurement-period adjustment during the first annual period in which the changes are effective. The Company adopted the provisions of this ASU on January 1, 2016. In January 2016, the FASB issued an accounting standards update (ASU 2016-01), “Recognition and Measurement of Financial Assets and Financial Liabilities” (Sub-Topic 825-10). The amendments in this update supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities to be measured at fair value with changes in the fair value recognized through net income. The amendments are expected to improve financial reporting by providing relevant information about an entity’s equity investments and reducing the number of items that are recognized in other comprehensive income. This ASU is effective for annual and interim periods beginning after December 15, 2017. The Company is currently evaluating what impact this ASU will have on financial results and disclosures. In February 2016, the FASB issued an accounting standards update (ASU 2016-02), “Leases” (Topic 842) that requires lessees to put most leases on their balance sheets but recognize expenses on their income statements. The FASB is issuing this update to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This ASU is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company does not plan to early adopt and is currently evaluating what impact this ASU will have on financial results and disclosures. In March 2016, the FASB issued an accounting standards update (ASU 2016-08), “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net).” The new standard requires an entity to determine whether it is a principal or an agent in a transaction in which another party is involved in providing goods or services to a customer by evaluating the nature of its promise to the customer. An entity is a principal and therefore records revenue on a gross basis if it controls the promised good or service before transferring the good or service to the customer. An entity is an agent and records as revenue the net amount it retains for its agency services if its role is to arrange for another entity to provide the goods or services. The amendments clarify how an entity should identify the unit of accounting for the principal versus agent evaluation, and how it should apply the control principle to certain types of arrangements, such as service transactions, by explaining what a principal controls before the specified good or service is transferred to the customer. This ASU’s effective date and transition requirements are the same as those of the new revenue recognition standard which is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. The Company is currently evaluating what impact, if any, this ASU will have on financial results and disclosures. In March 2016, the FASB issued an accounting standards update (ASU 2016-09), “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” Under the new guidance, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (APIC). Instead, companies will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. For interim reporting purposes, companies will account for excess tax benefits and tax deficiencies as discrete items in the period in which they occur. In addition, the guidance eliminates the requirement that excess tax benefits be realized before companies can recognize them. The guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. This ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company prospectively adopted the provisions of this ASU on January 1, 2016 and the impact was immaterial to financial results. There would have been no impact to prior periods. In May 2016, the FASB issued an accounting standards update (ASU 2016-12), “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients.” The amendments clarify that, for a contract to be considered completed at transition, all (or substantially all) of the revenue must have been recognized under legacy GAAP. The amendments also clarify how an entity should evaluate the collectibility threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. This ASU’s effective date and transition requirements are the same as those of the new revenue recognition standard which is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that period. The Company will be evaluating what impact, if any, this ASU will have on financial results and disclosures. In June 2016, the FASB issued an accounting standards update (ASU 2016-13), “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The standard will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available-for-sale (AFS) debt securities rather than reduce the carrying amount, as they do today under the other-than-temporary impairment (OTTI) model. It also simplifies the accounting model for purchased credit-impaired debt securities and loans. This ASU is effective for annual and interim periods beginning after December 15, 2019. The Company will be evaluating what impact this ASU will have on financial results and disclosures. In August 2016, the FASB issued an accounting standards update (ASU 2016-14), “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU amends guidance related to debt prepayment or extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims and corporate-owned life insurance, distributions received from equity method investees and beneficial interests in securitization transactions. The guidance will generally be applied retrospectively and is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years. The Company does not expect financial results and disclosures to be significantly impacted by this ASU. |
Reclassification | Reclassifications The Company adopted ASU 2015-03, “Interest – Imputation of Interest” on January 1, 2016. Presentation of “Other Assets” and “Debt, net” on the prior year balance sheet have been retrospectively adjusted to reflect the adoption of this ASU. The 2015 presentation of each line was adjusted by $760 thousand to reflect the netting of unamortized debt issuance costs. |
Investments (Tables)
Investments (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Investments | |
Summary of amortized cost, gross unrealized gains and losses, and the fair value of investment securities by class | Cost or Gross Gross September 30, 2016 Amortized Unrealized Unrealized Fair ($ in thousands) Cost Gains Losses Value Fixed-maturity securities Government $ $ $ — $ Government agency — State and municipality Industrial and miscellaneous Residential mortgage-backed Commercial mortgage-backed Redeemable preferred stock — Total fixed-maturity securities Equity securities Non-redeemable preferred stock Total equity securities Total investments $ $ $ $ Cost or Gross Gross December 31, 2015 Amortized Unrealized Unrealized Fair ($ in thousands) Cost Gains Losses Value Fixed-maturity securities Government $ $ $ $ Government agency State and municipality Industrial and miscellaneous Residential mortgage-backed Commercial mortgage-backed Redeemable preferred stock Total fixed-maturity securities Equity securities Non-redeemable preferred stock Common stock Total equity securities Total investments $ $ $ $ |
Schedule of gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position | Less than 12 Months 12 Months or More Total September 30, 2016 Fair Unrealized Fair Unrealized Fair Unrealized ($ in thousands) Value Losses Value Losses Value Losses Fixed-maturity securities State and municipality $ $ $ — $ — $ $ Industrial and miscellaneous Residential mortgage-backed Commercial mortgage-backed Total fixed-maturity securities Equity securities Non-redeemable preferred stock Total equity securities $ $ $ $ $ $ Less than 12 Months 12 Months or More Total December 31, 2015 Fair Unrealized Fair Unrealized Fair Unrealized ($ in thousands) Value Losses Value Losses Value Losses Fixed-maturity securities Government $ $ $ $ $ $ Government agency — — State and municipality Industrial and miscellaneous Residential mortgage-backed Commercial mortgage-backed Redeemable preferred stock Total fixed-maturity securities Equity securities Non-redeemable preferred stock — — Common stock — — Total equity securities — — $ $ $ $ $ $ |
Schedule of gross realized gains (losses) | Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, ($ in thousands) 2016 2015 2016 2015 Realized gains: Fixed-maturity securities $ $ $ $ Equity securities Gross realized gains Realized losses: Fixed-maturity securities Equity securities — — Other-than-temporary impairment losses on fixed-maturity securities — — — Gross realized losses Change in fair value of embedded derivatives Net realized investment gains (losses) $ $ $ $ |
Schedule detailing the maturities of the Company's fixed-maturity securities, available-for-sale | Fair ($ in thousands) Amortized Cost Value Due in one year or less $ $ Due after one year through five years Due after five years through ten years Due after ten years Residential mortgage-backed securities Commercial mortgage-backed securities $ $ |
Schedule of net investment income | Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, ($ in thousands) 2016 2015 2016 2015 Interest on investments $ $ $ $ Dividends Gross investment income Investment expenses Net investment income $ $ $ $ |
Income Tax Provision (Tables)
Income Tax Provision (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Income Taxes | |
Schedule of reconciliation of federal income tax expense computed by applying the federal statutory tax rate to income (loss) before federal income tax | 2016 2015 Effective Effective ($ in thousands) Amount Tax Rate Amount Tax Rate Expected tax expense (benefit) $ % $ % Tax-exempt income State income taxes Other Total income tax expense (benefit) $ % $ % |
Reinsurance (Tables)
Reinsurance (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Reinsurance | |
Summary of balances | September 30, December 31, ($ in thousands) 2016 2015 Ceded unearned premiums $ $ Ceded loss and loss adjustment expense reserves Total reinsurance recoverables Secured reinsurance recoverables Unsecured reinsurance recoverables $ $ |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Fair Value Measurements | |
Schedule of investments measured at fair value on recurring basis | September 30, 2016 ($ in thousands) Level 1 Level 2 Level 3 Total Fixed-maturity securities Government $ — $ $ — $ Government agency — — State and municipality — — Industrial and miscellaneous — — Residential mortgage-backed — — Commercial mortgage-backed — — Redeemable preferred stock — — Total fixed-maturity securities — — Equity securities Non-redeemable preferred stock — — Total equity securities — — Total investments $ — $ $ — $ December 31, 2015 ($ in thousands) Level 1 Level 2 Level 3 Total Fixed-maturity securities Government $ — $ $ — $ Government agency — — State and municipality — — Industrial and miscellaneous — — Residential mortgage-backed — — Commercial mortgage-backed — — Redeemable preferred stock — — Total fixed-maturity securities — — Equity securities Non-redeemable preferred stock — — Common stock — — Total equity securities — — Total investments $ — $ $ — $ |
Stock-based Payments (Tables)
Stock-based Payments (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Stock-based Payments | |
Schedule summarizes the assumptions used to value the options | Grant Date February 8, 2016 June 22, 2016 Options granted Risk-free rate of return % % Expected dividend yields % % Expected volatility % % Expected award life (years) |
Schedule of nonvested stock activity | Weighted-Average Weighted-Average Restricted Grant Date Fair Value Stock Grant Date Fair Value September 30, 2016 Shares per Restricted Share Options per Stock Option Nonvested at beginning of period $ $ Granted Forfeited — — — — Vested Nonvested at end of period Weighted-Average Weighted-Average Restricted Grant Date Fair Value Stock Grant Date Fair Value September 30, 2015 Shares per Restricted Share Options per Stock Option Nonvested at beginning of period $ $ Granted — — Forfeited — — — — Vested Nonvested at end of period |
Earnings Per Share (Tables)
Earnings Per Share (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Earnings Per Share | |
Schedule of reconciliation of the numerators and denominators of the basic and diluted per share calculations | Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, ($ in thousands, except for per share amounts) 2016 2015 2016 2015 Numerator for both basic and diluted earnings per share: Net income (loss) $ $ $ $ Denominator for both basic and diluted earnings per share: Weighted-average common shares outstanding Dilutive effect of outstanding securities (determined using the treasury stock method) Weighted-average common shares outstanding and potential common shares outstanding |
Segment Information (Tables)
Segment Information (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Segment Information | |
Schedule of business segment information | Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, ($ in thousands) 2016 2015 2016 2015 Revenues: Program $ $ $ $ Lender Corporate Consolidated revenues $ $ $ $ Income (loss) before income taxes: Program $ $ $ $ Lender Corporate Consolidated income (loss) before income taxes $ $ $ $ |
Schedule of the financial assets of the Entity's segments | September 30, December 31, ($ in thousands) 2016 2015 Assets: Program $ $ Lender Corporate $ $ |
Common Stock (Tables)
Common Stock (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Common Stock. | |
Summary of common stock repurchases | October 1 - Nine months ended ($ in thousands, except share and per share data) November 9, 2016 September 30, 2016 Shares repurchased Average price per share $ $ Aggregate cost $ $ Authorization remaining at end of period $ $ |
Business Combinations (Tables)
Business Combinations (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Business Combinations [Abstract] | |
Schedule summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date | September 30, ($ in thousands) 2016 Fixed-maturity securities $ Cash and cash equivalents Reinsurance recoverables Interest receivable Goodwill and intangible assets, net Total identifiable assets acquired $ Unpaid losses and loss adjustment expenses $ Unearned premiums Total liabilities assumed Net assets acquired $ |
Summary of Significant Accoun32
Summary of Significant Accounting Policies (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2016USD ($) | Sep. 30, 2015USD ($) | Sep. 30, 2016USD ($)item | Sep. 30, 2015USD ($) | Dec. 31, 2015USD ($) | |
Income Taxes | |||||
Uncertain tax positions | $ 0 | $ 0 | $ 0 | ||
Income tax expense (benefit) | $ 8,671 | $ 6,899 | 19,695 | $ 17,628 | |
New Accounting Pronouncements and Changes in Accounting Principles | |||||
Adjustment to other assets and debt to reflect the netting of unamortized debt issuance costs | $ 760 | ||||
Number of major segments | item | 2 |
Investments - Amortized Cost, G
Investments - Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value (Details) - USD ($) $ in Thousands | Sep. 30, 2016 | Dec. 31, 2015 |
Investments | ||
Cost or Amortized Cos | $ 331,089 | $ 332,560 |
Gross Unrealized Gains | 11,191 | 6,322 |
Gross Unrealized Losses | (1,436) | (3,816) |
Total investments | 340,844 | 335,066 |
Fixed-maturity securities | ||
Investments | ||
Cost or Amortized Cos | 327,823 | 327,764 |
Gross Unrealized Gains | 11,075 | 5,486 |
Gross Unrealized Losses | (1,330) | (3,728) |
Total investments | 337,568 | 329,522 |
Government | ||
Investments | ||
Cost or Amortized Cos | 28,024 | 18,890 |
Gross Unrealized Gains | 468 | 124 |
Gross Unrealized Losses | (35) | |
Total investments | 28,492 | 18,979 |
Government agency | ||
Investments | ||
Cost or Amortized Cos | 1,532 | 2,025 |
Gross Unrealized Gains | 35 | 31 |
Gross Unrealized Losses | (7) | |
Total investments | 1,567 | 2,049 |
State and municipality | ||
Investments | ||
Cost or Amortized Cos | 57,008 | 68,461 |
Gross Unrealized Gains | 2,683 | 1,895 |
Gross Unrealized Losses | (13) | (14) |
Total investments | 59,678 | 70,342 |
Industrial and miscellaneous | ||
Investments | ||
Cost or Amortized Cos | 148,897 | 132,797 |
Gross Unrealized Gains | 5,198 | 2,139 |
Gross Unrealized Losses | (1,101) | (2,618) |
Total investments | 152,994 | 132,318 |
Residential mortgage-backed | ||
Investments | ||
Cost or Amortized Cos | 54,558 | 80,566 |
Gross Unrealized Gains | 1,259 | 1,213 |
Gross Unrealized Losses | (169) | (793) |
Total investments | 55,648 | 80,986 |
Commercial mortgage-backed | ||
Investments | ||
Cost or Amortized Cos | 34,801 | 22,235 |
Gross Unrealized Gains | 1,134 | 68 |
Gross Unrealized Losses | (47) | (150) |
Total investments | 35,888 | 22,153 |
Redeemable preferred stock | ||
Investments | ||
Cost or Amortized Cos | 3,003 | 2,790 |
Gross Unrealized Gains | 298 | 16 |
Gross Unrealized Losses | (111) | |
Total investments | 3,301 | 2,695 |
Equity securities | ||
Investments | ||
Cost or Amortized Cos | 3,266 | 4,796 |
Gross Unrealized Gains | 116 | 836 |
Gross Unrealized Losses | (106) | (88) |
Total investments | 3,276 | 5,544 |
Non-redeemable preferred stock | ||
Investments | ||
Cost or Amortized Cos | 3,266 | 4,012 |
Gross Unrealized Gains | 116 | 422 |
Gross Unrealized Losses | (106) | (69) |
Total investments | $ 3,276 | 4,365 |
Common stock | ||
Investments | ||
Cost or Amortized Cos | 784 | |
Gross Unrealized Gains | 414 | |
Gross Unrealized Losses | (19) | |
Total investments | $ 1,179 |
Investments - Gross Unrealized
Investments - Gross Unrealized Losses, Fair Value and Length of Time Securities in Continuous Unrealized Loss Position (Details) $ in Thousands | 9 Months Ended | ||
Sep. 30, 2016USD ($)item | Sep. 30, 2015USD ($) | Dec. 31, 2015USD ($) | |
Fair Value | |||
Less Than 12 Months | $ 22,032 | $ 126,856 | |
12 Months or More | 11,636 | 18,031 | |
Total | 33,668 | 144,887 | |
Unrealized Losses | |||
Less Than 12 Months | (540) | (2,714) | |
12 Months or More | (896) | (1,102) | |
Total | $ (1,436) | (3,816) | |
Percentage principal recovery of securities for a present value test done | 100.00% | ||
Number of securities in unrealized loss position | item | 70 | ||
Proceeds from sales of investments in fixed-maturity, equity and short-term securities | $ 55,100 | $ 22,100 | |
Fixed-maturity securities | |||
Fair Value | |||
Less Than 12 Months | 21,386 | 124,036 | |
12 Months or More | 10,722 | 18,031 | |
Total | 32,108 | 142,067 | |
Unrealized Losses | |||
Less Than 12 Months | (520) | (2,626) | |
12 Months or More | (810) | (1,102) | |
Total | (1,330) | (3,728) | |
Government | |||
Fair Value | |||
Less Than 12 Months | 2,757 | ||
12 Months or More | 1,290 | ||
Total | 4,047 | ||
Unrealized Losses | |||
Less Than 12 Months | (23) | ||
12 Months or More | (12) | ||
Total | (35) | ||
Government agency | |||
Fair Value | |||
Less Than 12 Months | 665 | ||
Total | 665 | ||
Unrealized Losses | |||
Less Than 12 Months | (7) | ||
Total | (7) | ||
State and municipality | |||
Fair Value | |||
Less Than 12 Months | 361 | 405 | |
12 Months or More | 369 | ||
Total | 361 | 774 | |
Unrealized Losses | |||
Less Than 12 Months | (13) | (1) | |
12 Months or More | (13) | ||
Total | (13) | (14) | |
Industrial and miscellaneous | |||
Fair Value | |||
Less Than 12 Months | 11,629 | 74,782 | |
12 Months or More | 5,366 | 2,440 | |
Total | 16,995 | 77,222 | |
Unrealized Losses | |||
Less Than 12 Months | (413) | (2,139) | |
12 Months or More | (688) | (479) | |
Total | (1,101) | (2,618) | |
Residential mortgage-backed | |||
Fair Value | |||
Less Than 12 Months | 7,135 | 31,090 | |
12 Months or More | 4,571 | 13,227 | |
Total | 11,706 | 44,317 | |
Unrealized Losses | |||
Less Than 12 Months | (65) | (258) | |
12 Months or More | (104) | (535) | |
Total | (169) | (793) | |
Commercial mortgage-backed | |||
Fair Value | |||
Less Than 12 Months | 2,261 | 13,317 | |
12 Months or More | 785 | 413 | |
Total | 3,046 | 13,730 | |
Unrealized Losses | |||
Less Than 12 Months | (29) | (147) | |
12 Months or More | (18) | (3) | |
Total | (47) | (150) | |
Redeemable preferred stock | |||
Fair Value | |||
Less Than 12 Months | 1,020 | ||
12 Months or More | 292 | ||
Total | 1,312 | ||
Unrealized Losses | |||
Less Than 12 Months | (51) | ||
12 Months or More | (60) | ||
Total | (111) | ||
Equity securities | |||
Fair Value | |||
Less Than 12 Months | 646 | 2,820 | |
12 Months or More | 914 | ||
Total | 1,560 | 2,820 | |
Unrealized Losses | |||
Less Than 12 Months | (20) | (88) | |
12 Months or More | (86) | ||
Total | (106) | (88) | |
Non-redeemable preferred stock | |||
Fair Value | |||
Less Than 12 Months | 646 | 2,067 | |
12 Months or More | 914 | ||
Total | 1,560 | 2,067 | |
Unrealized Losses | |||
Less Than 12 Months | (20) | (69) | |
12 Months or More | (86) | ||
Total | $ (106) | (69) | |
Common stock | |||
Fair Value | |||
Less Than 12 Months | 753 | ||
Total | 753 | ||
Unrealized Losses | |||
Less Than 12 Months | (19) | ||
Total | $ (19) | ||
Investment-grade | |||
Unrealized Losses | |||
Percentage of investments in unrealized loss position | 66.00% |
Investments - Gross Realized Ga
Investments - Gross Realized Gains (Losses) (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016USD ($) | Sep. 30, 2015USD ($) | Sep. 30, 2016USD ($)item | Sep. 30, 2015USD ($)item | |
Realized gains: | ||||
Fixed-maturity securities | $ 1,134 | $ 159 | $ 2,146 | $ 1,307 |
Equity securities | 497 | 13 | 573 | 170 |
Gross realized gains | 1,631 | 172 | 2,719 | 1,477 |
Realized losses: | ||||
Fixed-maturity securities | (205) | (434) | (615) | (561) |
Equity securities | (35) | (133) | ||
Other-than-temporary impairment losses on fixed-maturity securities | (90) | |||
Gross realized losses | (240) | (434) | (838) | (561) |
Change in fair value of embedded derivatives | 672 | (309) | (174) | (36) |
Net realized investment gains (losses) | $ 2,063 | $ (571) | $ 1,707 | $ 880 |
Number of non-cash exchanges of an investment security | item | 2 | 4 | ||
Non-cash consideration received for exchanges | $ 533 | $ 1,600 | ||
Gains recognized on exchanges | $ 153 | $ 72 |
Investments - Maturities of Fix
Investments - Maturities of Fixed-Maturity Securities (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2016 | Dec. 31, 2015 | |
Amortized Cost | ||
Due in one year or less | $ 13,278 | |
Due after one year through five years | 127,022 | |
Due after five years through ten years | 83,800 | |
Due after ten years | 14,364 | |
Total amortized cost for fixed maturity securities | 327,823 | $ 327,764 |
Fair value | ||
Due in one year or less | 13,437 | |
Due after one year through five years | 130,139 | |
Due after five years through ten years | 86,968 | |
Due after ten years | 15,489 | |
Total fixed maturity securities | 337,568 | $ 329,522 |
Mortgage-backed securities | ||
Fair value | ||
Mortgage-backed securities collateralized by subprime residential loans | $ 900 | |
Percentage of total investments which are collateralized by subprime residential loans | 0.26% | |
Residential mortgage-backed | ||
Amortized Cost | ||
Residential mortgage-backed securities and Commercial mortgage-backed securities | $ 54,558 | |
Fair value | ||
Residential mortgage-backed securities and Commercial mortgage-backed securities | 55,647 | |
Commercial mortgage-backed | ||
Amortized Cost | ||
Residential mortgage-backed securities and Commercial mortgage-backed securities | 34,801 | |
Fair value | ||
Residential mortgage-backed securities and Commercial mortgage-backed securities | $ 35,888 |
Investments - Net Investment In
Investments - Net Investment Income (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | |
Net investment income | |||||
Interest on investments | $ 2,074 | $ 2,087 | $ 6,409 | $ 6,256 | |
Dividends | 148 | 77 | 387 | 176 | |
Gross investment income | 2,222 | 2,164 | 6,796 | 6,432 | |
Investment expenses | (221) | (156) | (655) | (471) | |
Net investment income | 2,001 | $ 2,008 | 6,141 | $ 5,961 | |
Fair value of fixed-maturity securities on deposit | $ 76,900 | $ 76,900 | $ 53,500 |
Income Tax Provision (Details)
Income Tax Provision (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Federal And State Income Tax Expense Benefit Abstract | ||||
Total income tax expense (benefit) | $ 8,671 | $ 6,899 | $ 19,695 | $ 17,628 |
Federal graduated rates | 35.00% | 35.00% | ||
Amount | ||||
Expected tax expense (benefit) | $ 19,137 | $ 16,933 | ||
Tax-exempt income | (332) | (347) | ||
State income taxes | 948 | 1,234 | ||
Other | (58) | (192) | ||
Total income tax expense (benefit) | $ 8,671 | $ 6,899 | $ 19,695 | $ 17,628 |
Effective Tax Rate | ||||
Expected tax expense (benefit) (as a percent) | 35.00% | 35.00% | ||
Tax-exempt income (as a percent) | (0.60%) | (0.70%) | ||
State income taxes (as a percent) | 1.70% | 2.60% | ||
Other (as a percent) | 0.10% | 0.50% | ||
Total income tax expense (benefit) (as a percent) | 36.00% | 36.40% |
Reinsurance (Details)
Reinsurance (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | |
Additional minimum ceding fees | $ 600 | $ 1,900 | $ 600 | $ 1,900 | |
Ceded unearned premiums | 647,724 | 647,724 | $ 559,638 | ||
Ceded loss and loss adjustment expense reserves | 1,643,451 | 1,643,451 | 1,352,022 | ||
Total reinsurance recoverables | 2,291,175 | 2,291,175 | 1,911,660 | ||
Secured reinsurance recoverables | (1,651,068) | (1,651,068) | (1,527,335) | ||
Unsecured reinsurance recoverables | $ 640,107 | $ 640,107 | $ 384,325 | ||
Fair value of the collateral held by SNIC, NISC and USIC as a percentage of the secured reinsurance recoverables | 135.00% | ||||
Minimum | |||||
Fair value of the collateral held by SNIC, NISC and USIC as a percentage of the secured reinsurance recoverables | 103.00% | ||||
CUMIS Insurance Society Inc Member | |||||
Percentage of certain CPI policies ceded | 30.00% |
Fair Value Measurements (Detail
Fair Value Measurements (Details) - USD ($) $ in Thousands | 9 Months Ended | 12 Months Ended |
Sep. 30, 2016 | Dec. 31, 2015 | |
Fair Value Measurements | ||
Fixed-maturity securities | $ 337,568 | $ 329,522 |
Equity securities | 3,276 | 5,544 |
Level 3 activity | 0 | 0 |
Transfers between Level 1, Level 2, and Level 3 | 0 | 0 |
Level 2 | ||
Fair Value Measurements | ||
Fair value of embedded derivatives | 8,600 | |
Recurring basis | ||
Fair Value Measurements | ||
Total | 340,844 | 335,066 |
Recurring basis | Fixed-maturity securities | ||
Fair Value Measurements | ||
Fixed-maturity securities | 337,568 | 329,522 |
Recurring basis | Government | ||
Fair Value Measurements | ||
Fixed-maturity securities | 28,492 | 18,979 |
Recurring basis | Government agency | ||
Fair Value Measurements | ||
Fixed-maturity securities | 1,567 | 2,049 |
Recurring basis | State and municipality | ||
Fair Value Measurements | ||
Fixed-maturity securities | 59,678 | 70,342 |
Recurring basis | Industrial and miscellaneous | ||
Fair Value Measurements | ||
Fixed-maturity securities | 152,994 | 132,318 |
Recurring basis | Residential mortgage-backed | ||
Fair Value Measurements | ||
Fixed-maturity securities | 55,648 | 80,986 |
Recurring basis | Commercial mortgage-backed | ||
Fair Value Measurements | ||
Fixed-maturity securities | 35,888 | 22,153 |
Recurring basis | Redeemable preferred stock | ||
Fair Value Measurements | ||
Fixed-maturity securities | 3,301 | 2,695 |
Recurring basis | Equity securities | ||
Fair Value Measurements | ||
Equity securities | 3,276 | 5,544 |
Recurring basis | Non-redeemable preferred stock | ||
Fair Value Measurements | ||
Equity securities | 3,276 | 4,365 |
Recurring basis | Common stock | ||
Fair Value Measurements | ||
Equity securities | 1,179 | |
Recurring basis | Level 2 | ||
Fair Value Measurements | ||
Total | 340,844 | 335,066 |
Recurring basis | Level 2 | Fixed-maturity securities | ||
Fair Value Measurements | ||
Fixed-maturity securities | 337,568 | 329,522 |
Recurring basis | Level 2 | Government | ||
Fair Value Measurements | ||
Fixed-maturity securities | 28,492 | 18,979 |
Recurring basis | Level 2 | Government agency | ||
Fair Value Measurements | ||
Fixed-maturity securities | 1,567 | 2,049 |
Recurring basis | Level 2 | State and municipality | ||
Fair Value Measurements | ||
Fixed-maturity securities | 59,678 | 70,342 |
Recurring basis | Level 2 | Industrial and miscellaneous | ||
Fair Value Measurements | ||
Fixed-maturity securities | 152,994 | 132,318 |
Recurring basis | Level 2 | Residential mortgage-backed | ||
Fair Value Measurements | ||
Fixed-maturity securities | 55,648 | 80,986 |
Recurring basis | Level 2 | Commercial mortgage-backed | ||
Fair Value Measurements | ||
Fixed-maturity securities | 35,888 | 22,153 |
Recurring basis | Level 2 | Redeemable preferred stock | ||
Fair Value Measurements | ||
Fixed-maturity securities | 3,301 | 2,695 |
Recurring basis | Level 2 | Equity securities | ||
Fair Value Measurements | ||
Equity securities | 3,276 | 5,544 |
Recurring basis | Level 2 | Non-redeemable preferred stock | ||
Fair Value Measurements | ||
Equity securities | $ 3,276 | 4,365 |
Recurring basis | Level 2 | Common stock | ||
Fair Value Measurements | ||
Equity securities | $ 1,179 |
401(k) Profit-Sharing Plan an41
401(k) Profit-Sharing Plan and Trust (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Minimum age of officers and employees covered under plan | 18 years | |||
Employer contribution expense | $ 347 | $ 226 | $ 1,100 | $ 901 |
First One Percent Member | ||||
Contribution required to made by employer which match with employees contribution (as a percent) | 100.00% | |||
Next Five Percent Member | ||||
Contribution required to made by employer which match with employees contribution (as a percent) | 50.00% |
Stock-based Payments - Assumpti
Stock-based Payments - Assumptions (Details) - shares | Jun. 22, 2016 | Feb. 08, 2016 | Sep. 30, 2016 | Sep. 30, 2015 | May 29, 2014 |
Stock-based Payments | |||||
Granted (in shares) | 75,000 | 500,000 | 575,000 | 0 | |
Average assumptions used to value stock-based payments | |||||
Volatility (as a percent) | 26.66% | 26.53% | |||
Expected award life | 5 years 6 months | 5 years 6 months | |||
Risk-free interest rate (as a percent) | 1.27% | 1.25% | |||
Dividend yield (as a percent) | 2.30% | 2.44% | |||
Long-Term Incentive Plan 2014 | Employee and non-employee director | |||||
Stock-based Payments | |||||
Shares issued | 4,400,000 |
Stock-based Payments - Restrict
Stock-based Payments - Restricted Shares and Stock Options Activity (Details) - USD ($) $ / shares in Units, $ in Millions | Jun. 22, 2016 | Feb. 08, 2016 | Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 |
Stock Options | ||||||
Granted (in shares) | 75,000 | 500,000 | 575,000 | 0 | ||
Weighted-Average Grant Date Fair Value per Stock Option | ||||||
Compensation expense for all share-based compensation | $ 1.2 | $ 942 | $ 3.1 | $ 2.9 | ||
Restricted Shares | ||||||
Restricted Shares | ||||||
Nonvested (in shares) | 144,362 | 12,000 | ||||
Granted (in shares) | 211,383 | 241,088 | ||||
Vested (in shares) | (11,028) | (12,000) | ||||
Nonvested (in shares) | 344,717 | 241,088 | 344,717 | 241,088 | ||
Weighted-Average Grant Date Fair Value per Restricted Share | ||||||
Nonvested (in dollars per share) | $ 10.05 | $ 10 | ||||
Granted (in dollars per share) | 12 | 10.02 | ||||
Vested (in dollars per share) | 10.88 | 10 | ||||
Nonvested (in dollars per share) | $ 11.22 | $ 10.02 | $ 11.22 | $ 10.02 | ||
Stock Options | ||||||
Stock Options | ||||||
Nonvested (in shares) | 1,855,918 | 2,783,873 | ||||
Granted (in shares) | 575,000 | |||||
Vested (in shares) | (927,955) | (927,955) | ||||
Nonvested (in shares) | 1,502,963 | 1,855,918 | 1,502,963 | 1,855,918 | ||
Weighted-Average Grant Date Fair Value per Stock Option | ||||||
Nonvested (in dollars per share) | $ 3.22 | $ 3.22 | ||||
Granted (in dollars per share) | 1.93 | |||||
Vested (in dollars per share) | 3.22 | 3.22 | ||||
Nonvested (in dollars per share) | $ 2.73 | $ 3.22 | $ 2.73 | $ 3.22 |
Concentration of Risk (Details)
Concentration of Risk (Details) - item | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Gross premiums written | California Texas New York and Florida | ||
Concentration of Risk | ||
Concentration of risk (as a percent) | 57.00% | 56.00% |
Reinsurer | Unsecured reinsurance recoverables | ||
Concentration of Risk | ||
Number of reinsurers | 4 | |
Reinsurer | Unsecured reinsurance recoverables | One reinsurer | ||
Concentration of Risk | ||
Concentration of risk (as a percent) | 17.00% | |
Reinsurer | Unsecured reinsurance recoverables | Two reinsurer | ||
Concentration of Risk | ||
Concentration of risk (as a percent) | 13.00% | |
Reinsurer | Unsecured reinsurance recoverables | Three reinsurer | ||
Concentration of Risk | ||
Concentration of risk (as a percent) | 7.00% | |
Reinsurer | Unsecured reinsurance recoverables | Four reinsurer | ||
Concentration of Risk | ||
Concentration of risk (as a percent) | 6.00% |
Commitments and Contingencies (
Commitments and Contingencies (Details) $ in Millions | 9 Months Ended |
Sep. 30, 2016USD ($) | |
Non-admitted Shell Company | |
Commitments and Contingencies | |
Purchase price | $ 2.3 |
Earnings Per Share (Details)
Earnings Per Share (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | Dec. 31, 2015 | |
Numerator for both basic and diluted earnings per share: | |||||
Net income (loss) | $ 15,323 | $ 12,396 | $ 34,981 | $ 30,752 | $ 44,666 |
Denominator for both basic and diluted earnings per share: | |||||
Weighted-average common shares outstanding (in shares) | 41,937,467 | 44,247,102 | 42,196,075 | 44,239,410 | |
Dilutive effect of outstanding securities (determined using the treasury stock method) (in shares) | 3,451 | 725 | 19,771 | 4,837 | |
Weighted-average common shares outstanding and potential common shares outstanding (in shares) | 41,940,918 | 44,247,827 | 42,215,846 | 44,244,247 |
Segment Information - Revenues
Segment Information - Revenues and Income Loss Before Taxes (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016USD ($) | Sep. 30, 2015USD ($) | Sep. 30, 2016USD ($)item | Sep. 30, 2015USD ($) | |
Business segment information | ||||
Number of Operating Segments | item | 2 | |||
Revenues [Abstract] | ||||
Revenues | $ 57,917 | $ 51,151 | $ 156,996 | $ 143,648 |
Income (loss) before income taxes: | ||||
Income (loss) before income taxes | 23,994 | 19,295 | 54,676 | 48,380 |
Corporate | ||||
Revenues [Abstract] | ||||
Revenues | 4,074 | 1,437 | 7,854 | 6,966 |
Income (loss) before income taxes: | ||||
Income (loss) before income taxes | 217 | (1,122) | (2,981) | (2,527) |
Operating segment | Program segment | ||||
Revenues [Abstract] | ||||
Revenues | 19,266 | 18,841 | 52,427 | 49,350 |
Income (loss) before income taxes: | ||||
Income (loss) before income taxes | 15,485 | 14,895 | 40,608 | 38,293 |
Operating segment | Lender segment | ||||
Revenues [Abstract] | ||||
Revenues | 34,577 | 30,873 | 96,715 | 87,332 |
Income (loss) before income taxes: | ||||
Income (loss) before income taxes | $ 8,292 | $ 5,522 | $ 17,049 | $ 12,614 |
Segment Information - Assets (D
Segment Information - Assets (Details) - USD ($) $ in Thousands | Sep. 30, 2016 | Dec. 31, 2015 |
Assets | ||
Total assets | $ 2,810,638 | $ 2,387,558 |
Program segment | ||
Assets | ||
Total assets | 2,328,952 | 1,935,104 |
Lender segment | ||
Assets | ||
Total assets | 15,923 | 15,834 |
Corporate | ||
Assets | ||
Total assets | $ 465,763 | $ 436,620 |
Common Stock (Details)
Common Stock (Details) - USD ($) $ / shares in Units, $ in Thousands | 1 Months Ended | 9 Months Ended | |
Nov. 09, 2016 | Sep. 30, 2016 | Oct. 12, 2015 | |
Common Stock. | |||
Value of shares authorized for repurchase | $ 50,000 | ||
Share repurchase agreement | |||
Shares repurchased | 272,243 | 697,098 | |
Average price per share | $ 10.71 | $ 10.16 | |
Aggregate cost | $ 2,924 | $ 7,107 | |
Authorization remaining at end of period | $ 22,795 | $ 25,711 |
Debt (Details)
Debt (Details) $ in Millions | Dec. 31, 2004USD ($)item | Sep. 30, 2016USD ($) |
Credit Facility | ||
Number of statutory business trusts | item | 3 | |
Trust Preferred Securities | ||
Credit Facility | ||
Proceeds from trust preferred securities | $ 44.5 | |
Trust Preferred Securities | Subordinated debentures | London Interbank Offered Rate (LIBOR) [Member] | ||
Credit Facility | ||
Variable rate basis | 3-month LIBOR | |
Trust Preferred Securities | Subordinated debentures | Minimum | London Interbank Offered Rate (LIBOR) [Member] | ||
Credit Facility | ||
Basis spread on variable rate (as a percent) | 3.80% | |
Trust Preferred Securities | Subordinated debentures | Maximum | London Interbank Offered Rate (LIBOR) [Member] | ||
Credit Facility | ||
Basis spread on variable rate (as a percent) | 4.10% | |
T.B.A. Insurance Group, Ltd Member | Revolving Credit Facility (“credit agreement”) | ||
Credit Facility | ||
Maximum borrowing capacity | $ 15 | |
Unused capacity commitment fee percentage | 0.125% | |
Minimum tangible net worth required by financial covenant | $ 150 | |
Minimum asset market value required by financial covenant | $ 25 | |
T.B.A. Insurance Group, Ltd Member | Revolving Credit Facility (“credit agreement”) | London Interbank Offered Rate (LIBOR) [Member] | ||
Credit Facility | ||
Variable rate basis | LIBOR | |
Variable rate basis floor | 0.15% | |
Basis spread on variable rate (as a percent) | 1.85% |
Business Combinations (Details)
Business Combinations (Details) - United National Specialty Company (“UNSIC”) | Sep. 30, 2016USD ($)state |
Business Acquisition [Line Items] | |
Percentage of common shares outstanding acquired | 100.00% |
Number of states in which the acquired company has licenses | state | 49 |
Consideration transferred in cash | $ 18,600,000 |
Acquisition related costs | 117,000 |
Net assets acquired | |
Fixed-maturity securities | 9,940,000 |
Cash and cash equivalents | 1,260,000 |
Reinsurance recoverables | 15,104,000 |
Interest receivable | 30,000 |
Goodwill and intangible assets, net | 7,350,000 |
Total identifiable assets acquired | 33,684,000 |
Unpaid losses and loss adjustment expenses | 13,237,000 |
Unearned premiums | 1,867,000 |
Total liabilities assumed | 15,104,000 |
Net assets acquired | 18,580,000 |
Goodwill | $ 0 |