1. ORGANIZATION, CONSOLIDATION AND BASIS OF PRESENTATION
Organization
Federated National Holding Company, (“FNHC,” the “Company,” “we,” or “us”), is an insurance holding company that controls substantially all steps in the insurance underwriting, distribution and claims processes through our subsidiaries and our contractual relationships with our independent agents and general agents. We are authorized to underwrite, and/or place through our wholly owned subsidiaries, homeowners’ multi-peril (“homeowners’”), personal automobile, commercial general liability, federal flood, and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and our other services through a network of independent agents.
Our wholly owned insurance subsidiary is Federated National Insurance Company (“FNIC”), which is licensed as an admitted carrier in Florida, Texas, Georgia, Alabama, Louisiana and South Carolina. We also serve as managing general agent for Monarch National Insurance Company (“MNIC”), which was founded in 2015 through the joint venture, described below, and is licensed as an admitted carrier in Florida. An admitted carrier is an insurance company that has received a license from the state department of insurance giving the Company the authority to write specific lines of insurance in that state. These companies are also bound by rate and form regulations, and are strictly regulated to protect policyholders from a variety of illegal and unethical practices, including fraud. Admitted carriers are also required to financially contribute to the state guarantee fund, which is used to pay for losses if an insurance carrier becomes insolvent or unable to pay the losses due to their policyholders.
On March 19, 2015, the Company entered into a joint venture to organize MNIC, which received its certificate of authority to write homeowners’ property and casualty insurance in Florida from the Florida Office of Insurance Regulation (the “Florida OIR”). The Company’s joint venture partners are a majority-owned limited partnership of Crosswinds Holdings Inc., a publicly traded Canadian private equity firm and asset manager (“Crosswinds”); and Transatlantic Reinsurance Company (“TransRe”).
The Company and Crosswinds each invested
$14.0
million in Monarch Delaware Holdings LLC (“Monarch Delaware”), the indirect parent company of MNIC, for a
42.4%
interest in Monarch Delaware (each holding
50%
of the voting interests in Monarch Delaware). TransRe invested
$5.0
million for a
15.2%
non-voting interest in Monarch Delaware and advanced an additional
$5.0
million in debt evidenced by a
six
-year promissory note bearing
6%
annual interest payable by Monarch National Holding Company (“MNHC”), a wholly owned subsidiary of Monarch Delaware and the direct parent company of MNIC.
Partnerships
We entered into an Insurance Agency Master Agreement with Ivantage Select Agency, Inc., (“ISA”), an affiliate of Allstate Insurance Company (“Allstate”), pursuant to which we are authorized by ISA to appoint Allstate agents to offer our homeowners’ and commercial general liability insurance products to consumers in Florida. As a percentage of the total homeowners’ premiums we underwrote in the three months ended June 30, 2017 and 2016,
25.3%
and
24.7%
, respectively, were from Allstate’s network of Florida agents. For the six months ended June 30, 2017 and 2016,
24.6%
and
24.1%
, respectively, of the homeowners’ premiums we underwrote were from Allstate’s network of Florida agents.
Additionally, we have a managing general underwriting agreement with SageSure Insurance Managers (“SageSure”) to facilitate growth in our FNIC homeowners business outside of Florida. As a percentage of the total homeowners’ premiums we underwrote in the three months ended June 30, 2017 and 2016,
9.8%
and
6.3%
, respectively, were underwritten by SageSure. For the six months ended June 30, 2017 and 2016,
9.2%
and
6.3%
, respectively, were underwritten by SageSure
.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of FNHC and all other entities in which we have a controlling financial interest and any variable interest entities (“VIE”) in which we are the primary beneficiary. All material inter-company accounts and transactions have been eliminated in consolidation. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support or where investors lack certain characteristics of a controlling financial interest. We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders. We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE. If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in our consolidated financial statements.
In connection with the investment in Monarch Delaware, we have determined that we are the primary beneficiary of this VIE, as we possess the power to direct the activities of the VIE that most significantly impact its economic performance. Accordingly, we consolidate the VIE in our consolidated financial statements. Refer to Note 12 for additional information on the VIE.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the information and notes required by GAAP for complete financial statements. Additionally, operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. These unaudited consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state, in all material respects, our financial position and results of operations for the periods presented. Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized below.
This report should be read in conjunction with the Company’s 2016 Annual Report on Form 10-K (the “2016 Form 10-K”).
2. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Our significant accounting policies were described in Note 2 to our Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2016 Form 10-K. There have been no significant changes in our significant accounting policies for the six months ended June 30, 2017.
Accounting Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates.
Similar to other property and casualty insurers, our liability for losses and loss adjustment expense reserves, although supported by actuarial projections and other data, is ultimately based on management’s reasoned expectations of future events. Although considerable variability is inherent in these estimates, we believe that this liability is adequate. Estimates are reviewed regularly and adjusted as necessary. Such adjustments are reflected in current operations. Refer to Note 6 accompanying our consolidated financial statements for a discussion of our liability for losses and loss adjustment expense reserves.
Reclassifications
In conjunction with our 2017 second quarter review of financial statements, we re-assessed the income statement classification of ceded commission income and salaries and wages from our claims department. As a result of this re-assessment, we have adjusted the income statement classification of these items as follows:
|
|
(a)
|
|
ceding commission income from Other income to Commissions and other underwriting expenses
|
|
|
(b)
|
|
salaries and wages from our claims department from Commissions and other underwriting expenses to Loss and loss adjustment expenses
|
These reclassifications represent corrections of immaterial errors and are not material in any prior quarter or annual period based on quantitative and qualitative factors in accordance with SEC guidance. Additionally, these reclassified items had no effect on the reported results of operations, financial condition or statements of cash flows.
As a result, these reclassified items impacted the following income statement line items for the three and six months ended June 30, 2016:
|
|
·
|
|
Other income decreased by
$3.1
million and
$5.8
million, respectively,
|
|
|
·
|
|
Loss and loss adjustment expenses increased by
$2.0
million and
$3.7
million, respectively, and
|
|
|
·
|
|
Commissions and other underwriting expenses decreased by
$5.1
million, and
$9.5
million, respectively.
|
The reclassifications above had the following impact on our net loss ratios, net expense ratios and combined ratios for the three and six months ended June 30, 2016:
|
|
·
|
|
Net loss ratio increased by
3.3%
and
3.2%
, respectively,
|
|
|
·
|
|
Net expense ratio decreased by
8.4%
and
8.3%
, respectively, and
|
|
|
·
|
|
Combined ratio decreased by
5.1%
.
|
Additionally, these reclassifications impacted the following income statement line items for the three and six months ended June 30, 2017:
|
|
·
|
|
Other income decreased by
$1.8
million and
$4.0
million, respectively,
|
|
|
·
|
|
Loss and loss adjustment expenses increased by
$2.9
million and
$5.9
million, respectively, and
|
|
|
·
|
|
Commissions and other underwriting expenses decreased by
$4.8
million, and
$9.9
million, respectively.
|
The reclassifications above had the following impact on our net loss ratios, net expense ratios and combined ratios for the three and six months ended June 30, 2017:
|
|
·
|
|
Net loss ratio increased by
3.6%
and
3.7%
, respectively,
|
|
|
·
|
|
Net expense ratio decreased by
5.8%
and
6.2%
, respectively, and
|
|
|
·
|
|
Combined ratio decreased by
2.2%
and
2.5%
, respectively.
|
Finally, the reclassifications impacted the following balance sheet line items as of December 31, 2016:
|
|
·
|
|
Deferred policy acquisition costs decreased by
$1.5
million,
|
|
|
·
|
|
Loss and loss adjustment expense reserves increased by
$0.4
million, and
|
|
|
·
|
|
Other liabilities decreased by
$1.9
million.
|
Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-09,
Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
(“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.
The Company adopted these amendments effective January 1, 2017, resulting in
$0.1
million of discrete income tax deficiencies reflected as a component of the income tax provision on the Consolidated Statements of Operations. Additionally, ASU 2016-09 requires excess tax benefits be presented within the statement of cash flows as an operating activity rather than as a financing activity. The Company adopted this change on a prospective basis, which resulted in a
$
0.1
million decrease in cash provided by operating activities for the six months ended June 30, 2017. Further, ASU 2016-09 requires excess tax benefits and deficiencies to be prospectively excluded from the assumed future proceeds in the calculation of diluted shares, which increased the Company's weighted average number of diluted common shares outstanding by
15,133
and
16,619
shares in the second quarter and first six months of 2017, respectively.
Recent Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
(“ASU 2014-09”).
ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This authoritative guidance replaces all general and most industry specific revenue recognition guidance (excluding insurance) currently prescribed by U.S. GAAP. The core principle is that an entity recognizes revenue to reflect the transfer of a promised good or service to customers in an amount that reflects that consideration to which the entity expects to be entitled in exchange for that good or service. This guidance also provides clarification on when an entity is a principal or an agent in a transaction. The guidance may be applied using one of the two following methods: (1) retrospectively to each prior reporting periods presented, or (2) retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application. In addition, during 2016 the FASB issued ASU 2016-08, ASU 2016-10, and ASU 2016-12, all of which clarify certain implementation guidance within ASU 2014-09.
We will adopt this accounting standard update effective January 1, 2018.
As part of our implementation process, we have gained an understanding of the new standard and performed an analysis to identify accounting policies that may need to change and additional disclosures that will be required. While we continue to evaluate the impact of the provisions of this accounting standard update, only a portion of our revenues are impacted by this guidance because the guidance does not apply to revenue on contracts accounted for under the financial instruments or insurance contracts standards. As a result, we expect the timing of our revenue recognition for most of our revenue streams to generally remain the same. Our evaluation process includes, but is not limited to, identifying contracts within the scope of the guidance, reviewing and documenting our accounting for these contracts, and identifying and determining the accounting for any related contract costs. We have not yet quantified the impact, if any, to our consolidated financial statements
.
In January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities,
which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, this new guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This new guidance is
effective for annual reporting periods beginning after December 15, 2017.
The Company is in the early stages of evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures. The effect of adopting this guidance will be principally affected by the level of unrealized gains or losses associated with equity investments with readily determinable market values. Such unrealized gains or losses will be recognized upon adoption as a cumulative-effect adjustment with future unrealized gains or losses reflected in the statement of income and comprehensive income. Refer to Note 4 for the current status of such unrealized gains and losses levels that are currently recognized as other comprehensive income
.
In February 2016, the FASB issued ASU 2016-02,
Leases
(Topic 842)
(“ASU 2016-02”). Upon the effective date, ASU 2016-02 will supersede the current lease guidance in Topic 840,
Leases
. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements.
The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements.
All of our leases are classified as operating leases under current lease accounting guidance.
This guidance will require us to add our operating leases to the balance sheet.
We do not expect this standard will have a material effect on our financial statements due to the recognition of new ROU assets and lease liabilities on our balance sheets for our operating leases. We expect to elect all of the standard’s available practical expedients on adoption.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU 2016-13”) which significantly changes the measurement of credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount, as currently performed under the other-than-temporary impairment model. Additionally, the standard will require enhanced disclosures for financial assets measured at amortized cost and available-for-sale debt securities to help the financial statement users better understand significant judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted. We are in the early stages of evaluating the effects the adoption of ASU 2016-13 will have on the Company’s consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230),
Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”). ASU 2016-15 provides guidance on the following eight specific cash flow classification issues: (1) debt prepayment or debt extinguishment costs; (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (3) contingent consideration payments made after a business combination; (4) proceeds from the settlement of insurance claims; (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) distributions received from equity method investees; (7) beneficial interests in securitization transactions; and (8) separately identifiable cash flows and application of the predominance principle. Current GAAP does not include specific guidance on these eight cash flow classification issues. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. We will adopt this accounting standard update effective January 1, 2018. The provisions of this update will not have a material impact on our consolidated statements of cash flows.
3. FAIR VALUE
Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs are based on market data from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information. All assets and liabilities that are carried at fair value are classified and disclosed in one of the following categories:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market is defined as a market where transactions for the financial statement occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 — Quoted market prices for similar assets or liabilities and valuations, using models or other valuation techniques that use observable market data. All significant inputs are observable, or derived from observable information in the marketplace, or are supported by observable levels at which transactions are executed in the market place.
Level 3 — Instruments that use non-binding broker quotes or model driven valuations that do not have observable market data or those that are estimated based on an ownership interest to which a proportionate share of net assets is attributed. Currently, the Company has no level 3 investments.
The Company’s financial instruments measured at fair value and the level of the fair value hierarchy of inputs used were as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in thousands)
|
|
Debt securities - available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations and authorities
|
|
$
|
49,028
|
|
$
|
36,594
|
|
$
|
—
|
|
$
|
85,622
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
86,919
|
|
|
—
|
|
|
86,919
|
|
Corporate
|
|
|
—
|
|
|
196,733
|
|
|
—
|
|
|
196,733
|
|
International
|
|
|
—
|
|
|
14,636
|
|
|
—
|
|
|
14,636
|
|
|
|
|
49,028
|
|
|
334,882
|
|
|
—
|
|
|
383,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
45,445
|
|
|
—
|
|
|
—
|
|
|
45,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
94,473
|
|
$
|
334,882
|
|
$
|
—
|
|
$
|
429,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
|
|
(in thousands)
|
|
Debt securities - available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations and authorities
|
|
$
|
36,560
|
|
$
|
25,645
|
|
$
|
—
|
|
$
|
62,205
|
|
Obligations of states and political subdivisions
|
|
|
—
|
|
|
151,183
|
|
|
—
|
|
|
151,183
|
|
Corporate
|
|
|
—
|
|
|
149,505
|
|
|
—
|
|
|
149,505
|
|
International
|
|
|
—
|
|
|
11,863
|
|
|
—
|
|
|
11,863
|
|
|
|
|
36,560
|
|
|
338,196
|
|
|
—
|
|
|
374,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
28,960
|
|
|
415
|
|
|
—
|
|
|
29,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
65,520
|
|
$
|
338,611
|
|
$
|
—
|
|
$
|
404,131
|
The Company’s held-to-maturity debt securities are reported on the
c
onsolidated balance sheets at amortized cost and disclosed at fair value in Note 4 herein. The fair values of these securities are classified within Level 1 and Level 2 of the fair value hierarchy and consist of United States government obligations and authorities, Corporate securities, and International securities. The fair value of the securities classified as Level 1 was
$3.9
million as of June
30, 2017 and December 31, 2016
. The fair value of the securities classified as Level 2 was
$1.4
million and
$1.6
million as of June 30, 2017 and December 31, 2016, respectively.
A third party nationally recognized pricing service provides the fair value of securities in Level 2.
We review the third party pricing methodologies quarterly and test for significant differences between the market price used to value the security and recent sales activity
.
A summary of the significant valuation techniques and market inputs for each class of security is as follows:
United States government obligations and authorities
: In determining the fair value for U.S. Government securities
in Level 1
we use
q
uoted prices (unadjusted) in active markets for identical assets or liabilities
.
In determining the fair value for U.S. Government securities
in Level 2
we use
the market approach. The primary inputs to the valuation include reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.
Obligations of states and political subdivisions
: In determining the fair value for state and municipal securities we use the market approach. The primary inputs to the valuation include reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events.
Corporate and International
: In determining the fair value for corporate securities we use the market approach. The primary inputs to the valuation include reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads (for investment grade securities), observations of equity and credit default swap curves (for high-yield corporates), reference data and industry and economic events.
4. INVESTMENTS
Unrealized Gains and Losses
The following table details the difference between amortized cost or cost and estimated fair value, by major investment category, at
June 30, 2017
and at December 31, 2016:
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|
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|
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|
|
|
|
|
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|
|
Amortized
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
Cost
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
|
|
or Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities - available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations and authorities
|
|
$
|
85,643
|
|
$
|
462
|
|
$
|
484
|
|
$
|
85,621
|
|
Obligations of states and political subdivisions
|
|
|
86,295
|
|
|
852
|
|
|
228
|
|
|
86,919
|
|
Corporate
|
|
|
194,484
|
|
|
2,577
|
|
|
328
|
|
|
196,733
|
|
International
|
|
|
14,483
|
|
|
164
|
|
|
10
|
|
|
14,637
|
|
|
|
|
380,905
|
|
|
4,055
|
|
|
1,050
|
|
|
383,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities - held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations and authorities
|
|
|
4,165
|
|
|
21
|
|
|
109
|
|
|
4,077
|
|
Corporate
|
|
|
1,190
|
|
|
27
|
|
|
—
|
|
|
1,217
|
|
International
|
|
|
66
|
|
|
1
|
|
|
—
|
|
|
67
|
|
|
|
|
5,421
|
|
|
49
|
|
|
109
|
|
|
5,361
|
|
Equity securities
|
|
|
40,202
|
|
|
5,966
|
|
|
723
|
|
|
45,445
|
|
Total investments
|
|
$
|
426,528
|
|
$
|
10,070
|
|
$
|
1,882
|
|
$
|
434,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
Gross
|
|
Gross
|
|
|
|
|
|
|
Cost
|
|
Unrealized
|
|
Unrealized
|
|
|
|
|
|
|
or Cost
|
|
Gains
|
|
Losses
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities - available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations and authorities
|
|
$
|
62,881
|
|
$
|
177
|
|
$
|
853
|
|
$
|
62,205
|
|
Obligations of states and political subdivisions
|
|
|
152,823
|
|
|
427
|
|
|
2,067
|
|
|
151,183
|
|
Corporate
|
|
|
149,053
|
|
|
1,347
|
|
|
895
|
|
|
149,505
|
|
International
|
|
|
11,887
|
|
|
95
|
|
|
119
|
|
|
11,863
|
|
|
|
|
376,644
|
|
|
2,046
|
|
|
3,934
|
|
|
374,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities - held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations and authorities
|
|
|
4,163
|
|
|
22
|
|
|
118
|
|
|
4,067
|
|
Corporate
|
|
|
1,317
|
|
|
20
|
|
|
2
|
|
|
1,335
|
|
International
|
|
|
71
|
|
|
—
|
|
|
—
|
|
|
71
|
|
|
|
|
5,551
|
|
|
42
|
|
|
120
|
|
|
5,473
|
|
Equity securities
|
|
|
24,163
|
|
|
5,500
|
|
|
288
|
|
|
29,375
|
|
Total investments
|
|
$
|
406,358
|
|
$
|
7,588
|
|
$
|
4,342
|
|
$
|
409,604
|
Net Realized Gains and Losses
The Company calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or amortized cost of the security sold. Net realized gains and losses on investments are determined in accordance with the specific identification method. The following tables detail the Company’s net realized gains (losses) by major investment category for the
three and six months ended June 30, 2017 and 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
|
(in thousands)
|
|
Gross realized gains:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
$
|
304
|
|
$
|
624
|
|
$
|
873
|
|
$
|
1,927
|
|
Equity securities
|
|
|
2,735
|
|
|
417
|
|
|
3,290
|
|
|
1,155
|
|
Total gross realized gains
|
|
|
3,039
|
|
|
1,041
|
|
|
4,163
|
|
|
3,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross realized losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities
|
|
|
(118)
|
|
|
(55)
|
|
|
(1,209)
|
|
|
(595)
|
|
Equity securities
|
|
|
(273)
|
|
|
(979)
|
|
|
(411)
|
|
|
(1,553)
|
|
Total gross realized losses
|
|
|
(391)
|
|
|
(1,034)
|
|
|
(1,620)
|
|
|
(2,148)
|
|
Net realized gains on investments
|
|
$
|
2,648
|
|
$
|
7
|
|
$
|
2,543
|
|
$
|
934
|
During the
three months ended June 30, 2017 and 2016
, the proceeds from sales of available-for-sale investment securities were
$27.3
million
and
$
3
6
.9
million
, respectively.
During the six months ended June 30, 2017 and 2016, the proceeds from sales of available-for-sale investment securities were
$138.9
million
and
$99.4
million
, respectively.
Contractual Maturity
The amortized cost and estimated fair value of debt securities as of
June 30, 2017
and December 31, 2016 by contractual maturity are shown below. Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
December 31, 2016
|
|
|
|
Amortized
|
|
|
|
|
Amortized
|
|
|
|
|
|
|
Cost
|
|
Fair Value
|
|
Cost
|
|
Fair Value
|
|
Securities with maturity dates:
|
|
(in thousands)
|
|
Debt securities, available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
38,343
|
|
$
|
38,399
|
|
$
|
46,189
|
|
$
|
46,231
|
|
Over one through five years
|
|
|
181,014
|
|
|
182,264
|
|
|
177,982
|
|
|
177,899
|
|
Over five through ten years
|
|
|
160,332
|
|
|
162,048
|
|
|
150,557
|
|
|
148,783
|
|
Over ten years
|
|
|
1,216
|
|
|
1,199
|
|
|
1,916
|
|
|
1,843
|
|
|
|
|
380,905
|
|
|
383,910
|
|
|
376,644
|
|
|
374,756
|
|
Debt securities, held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
|
135
|
|
|
135
|
|
|
170
|
|
|
170
|
|
Over one through five years
|
|
|
1,858
|
|
|
1,892
|
|
|
1,719
|
|
|
1,750
|
|
Over five through ten years
|
|
|
3,428
|
|
|
3,334
|
|
|
3,662
|
|
|
3,553
|
|
|
|
|
5,421
|
|
|
5,361
|
|
|
5,551
|
|
|
5,473
|
|
Total
|
|
$
|
386,326
|
|
$
|
389,271
|
|
$
|
382,195
|
|
$
|
380,229
|
Net Investment Income
The following table
provides a detail of
the Company’s net investment income for the
three and six months ended June 30, 2017 and 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
|
Interest income
|
|
$
|
2,411
|
|
$
|
1,984
|
|
$
|
4,581
|
|
$
|
3,837
|
|
Dividends income
|
|
|
149
|
|
|
210
|
|
|
297
|
|
|
397
|
|
Net investment income
|
|
$
|
2,560
|
|
$
|
2,194
|
|
$
|
4,878
|
|
$
|
4,234
|
Aging of Gross Unrealized Losses
As of
June 30, 2017
and December 31, 2016, gross unrealized losses and related fair values for available-for-sale debt securities and equity securities, grouped by duration of time in a continuous unrealized loss position, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
June 30, 2017
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Debt securities - available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and authorities
|
$
|
48,333
|
|
$
|
479
|
|
$
|
98
|
|
$
|
5
|
|
$
|
48,431
|
|
$
|
484
|
|
Obligations of states and political subdivisions
|
|
24,012
|
|
|
228
|
|
|
—
|
|
|
—
|
|
|
24,012
|
|
|
228
|
|
Corporate
|
|
43,646
|
|
|
320
|
|
|
930
|
|
|
8
|
|
|
44,576
|
|
|
328
|
|
International
|
|
1,774
|
|
|
10
|
|
|
—
|
|
|
—
|
|
|
1,774
|
|
|
10
|
|
|
|
117,765
|
|
|
1,037
|
|
|
1,028
|
|
|
13
|
|
|
118,793
|
|
|
1,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
9,010
|
|
|
631
|
|
|
696
|
|
|
92
|
|
|
9,706
|
|
|
723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
$
|
126,775
|
|
$
|
1,668
|
|
$
|
1,724
|
|
$
|
105
|
|
$
|
128,499
|
|
$
|
1,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
12 months or longer
|
|
Total
|
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
|
|
Gross
|
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
Fair
|
|
Unrealized
|
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
Value
|
|
Losses
|
|
December 31, 2016
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Debt securities - available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States government obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and authorities
|
$
|
45,255
|
|
$
|
850
|
|
$
|
111
|
|
$
|
3
|
|
$
|
45,366
|
|
$
|
853
|
|
Obligations of states and political subdivisions
|
|
103,724
|
|
|
2,066
|
|
|
1,007
|
|
|
1
|
|
|
104,731
|
|
|
2,067
|
|
Corporate
|
|
59,970
|
|
|
864
|
|
|
2,427
|
|
|
31
|
|
|
62,397
|
|
|
895
|
|
International
|
|
5,925
|
|
|
119
|
|
|
5
|
|
|
—
|
|
|
5,930
|
|
|
119
|
|
|
|
214,874
|
|
|
3,899
|
|
|
3,550
|
|
|
35
|
|
|
218,424
|
|
|
3,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
4,701
|
|
|
253
|
|
|
434
|
|
|
35
|
|
|
5,135
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
$
|
219,575
|
|
$
|
4,152
|
|
$
|
3,984
|
|
$
|
70
|
|
$
|
223,559
|
|
$
|
4,222
|
As of
June 30, 2017
, the Company held a total of
5
18 d
ebt and equity securities that were in an unrealized loss position, of which
19
securities were in an unrealized loss position con
tinuously for 12 months or more. As of December 31, 2016, the Company held a total of
1,132
debt and equity securities that were in an unrealized loss position, of which
36
securities were in an unrealized loss position continuously for 12 months or more. The unrealized losses associated with these securities consisted primarily of losses related to corporate securities.
The Company holds its equity securities and some of its debt securities as available-for-sale and as such, these securities are recorded at fair value. The Company continually monitors the difference between cost and the estimated fair value of its investments, which involves uncertainty as to whether declines in value are temporary in nature. If the decline of a particular investment is deemed temporary, the Company records the decline as an unrealized loss in shareholders’ equity. If the decline is deemed to be other than temporary, the Company will write the security’s cost-basis or amortized cost-basis down to the fair value of the investment and recognizes an other than temporary impairment (“OTTI”) loss in our consolidated statement of operations. Additionally, any portion of such decline related to debt securities that is believed to arise from factors other than credit will be recorded as a component of other comprehensive income rather than charged against income.
The Company’s assessment of equity securities initially involves an evaluation of all securities that are in an unrealized loss position, regardless of the duration or severity of the loss, as of the applicable balance sheet date. Such initial review consists primarily of assessing whether: (i) there has been a negative credit or news event with respect to the issuer that could indicate the existence of an OTTI; and (ii) the Company has the ability and intent to hold an equity security for a period of time sufficient to allow for an anticipated recovery (generally considered to be one year from the balance sheet date).
To the extent that an equity security in an unrealized loss position is not impaired based on the initial review described above, the Company then evaluates such equity security by considering qualitative and quantitative factors. These factors include but are not limited to facts and circumstances specific to individual securities, asset classes, the financial condition of the issuer, changes in dividend payment, the length of time fair value had been less than cost, the severity of the decline in fair value below cost, industry outlook and our ability and intent to hold each position until its forecasted recovery.
If the Company intends to sell, or it is more likely than not that, the Company will sell, a debt security before recovery of its amortized cost basis, the total amount of the unrealized loss position is recognized as an OTTI loss in our consolidated statement of operations. To the extent a debt security in an unrealized loss position is not impaired based on the preceding
,
the Company will consider that security to be impaired when it believes collection of the amortized cost is not probable.
During the Company’s quarterly evaluation of its securities for impairment, there were
no
material
OTTI losses
identified
in our investments in debt and equity securities during the
three and six months ended June 30, 2017 and 2016
.
Collateral Deposits
As of
June 30, 2017
, investments with fair values of approximately
$
12
.
8
million
, the majority of which were debt securities, were deposited with governmental authorities and into custodial bank accounts as required by law or contractual obligations.
5. REINSURANCE
Reinsurance is used to mitigate the exposure to losses, manage capacity and protect capital resources. The Company reinsures (cedes) a portion of written premiums on an excess of loss or a quota share basis in order to limit our loss exposure. To the extent that reinsuring companies are unable to meet their obligations assumed under these reinsurance agreements, we remain primarily liable to our policyholders.
We are selective in choosing reinsurers and consider numerous factors, the most important of which are the financial stability of the reinsurer or capital specifically pledged to uphold the contract, its history of responding to claims and its overall reputation. In an effort to minimize our exposure to the insolvency of a reinsurer, we evaluate the acceptability and review the financial condition of the reinsurer at least annually with the assistance of our reinsurance broker.
Significant Reinsurance Contracts
FNIC and MNIC operate primarily by underwriting and accepting risks for their direct account on a gross basis and reinsuring a portion of the exposure on either an individual risk or an aggregate basis to the extent those exceed the desired retention level. We continually evaluate the relative attractiveness of different forms of reinsurance contracts and different markets that may be used to achieve our risk and profitability objectives. All of our reinsurance contracts do not relieve FNIC or MNIC from their direct obligations to the insured
.
FNIC’s 2016-2017 reinsurance programs, costing approximately
$179.5
million, include
d
approximately
$125.7
million for the private reinsurance for Federated National’s Florida exposure, including prepaid automatic premium reinstatement protection on all layers, along with approximately
$53.8
million payable to the FHCF. The combination of private and FHCF reinsurance treaties
af
ford
ed
Federated National with approximately
$2.22
billion of aggregate coverage with a maximum single event coverage total
ed
approximately
$1.58
billion, exclusive of retentions. FNIC maintained its FHCF participation at
75%
for the 2016 hurricane season. FNIC’s single event pre-tax retention for a catastrophic event in Florida is $18.45 million. In addition, FNIC purchases separate underlying reinsurance layers in Louisiana, Texas, Alabama, and South Carolina to cover losses and LAE outside of Florida for each catastrophic event from
$8.0
million to
$18.45
million. Depending on the characteristics of the catastrophic event, and the states involved, FNIC’s single event pre-tax retention could
have
be
en
as low as $8.0 million
.
Additionally, the Company’s private market excess of loss treaties became effective July 1, 2016 and all private layers have prepaid automatic reinsta
tement protection, which afforded
us additional coverage against multiple catastrophic events in the same hurricane season. The Company obtained multiple year protection for a portion of its program; as a r
esult, some of the coverage
expire
d
on June 30, 2017, and a portion of the coverage will remain in-force one additional treaty year until June 30, 2018. These private market excess of loss treaties structure coverage into layers, with a cascading feature such that substantially all private layers attach after $18.45 million in losses for FNIC’s Florida exposure. If the aggregate limit of the preceding layer is exhausted, the next layer drops down (cascades) in its place. Additionally, any unused layer protection drops down for subsequent events until exhausted.
FNIC’s 2017-2018 reinsurance programs are estimated to cost
$180
million which includes approximately
$125
million for the private reinsurance for FNIC’s Florida exposure described above, including prepaid automatic premium reinstatement protection, along with approximately
$53.1
million payable to the FHCF. The combination of private and FHCF reinsurance treaties will afford FNIC approximately
$2.19
billion of aggregate coverage with a maximum single event coverage totaling approximately
$1.56
billion, exclusive of retentions. FNIC maintained its FHCF participation at
75%
for the 2017 hurricane season. FNIC’s single event pre-tax retention for a catastrophic event in Florida is
$18
million, down slightly from the 2016-2017 reinsurance programs.
FNIC’s private market excess of loss treaties, covering both Florida and Non-Florida exposures, are effective July 1, 2017 and all private layers have prepaid automatic reinstatement protection, which affords F
NIC
additional coverage for subsequent events. The reinsurance program includes multiple year protection with
$89
million of new multiple year protection this year and
$156
million of renewing multiple year protection from last year. These private market excess of loss treaties structure coverage into layers, with a cascading feature such that substantially all layers attach after
$25.1
million in losses for FNIC’s exposure. If the aggregate limit of the preceding layer is exhausted, the next layer drops down (cascades) in its place. Additionally, any unused layer protection drops down for subsequent events until exhausted. FNIC purchased an underlying limit of protection for
$7.1
million excess of
$18
million with prepaid automatic reinstatement protection. These treaties are with reinsurers that currently have an A.M. Best Company (“AM Best”) or Standard & Poor’s rating of “A-” or better, or have fully collateralized their maximum potential obligations in dedicated trusts
.
FNIC’s Non-Florida excess of loss reinsurance treaties affords us an additional
$21
million of aggregate coverage with first event coverage totaling
$5
million and second event coverage totaling
$16
million. The Non-Florida retention is lowered to
$13
million for the first event and
$2
million for the second event on a gross basis though it is reduced to
$6.5
million and
$1
million on a net basis after taking into account the profit share agreement that FNIC has with our non-affiliated managing general underwriter that writes our Non-Florida property business. FNIC’s Non-Florida reinsurance program cost includes
$1.9
million for this private reinsurance, including prepaid automatic premium reinstatement protection.
MNIC’s 2016-2017 catastrop
he reinsurance program, which ra
n from either June 1 to May 31 or June 1 to June 30 (
13
month period), consist
ed
of the FHCF and private market excess of loss treaties. All private layers have prepaid automatic reinsta
tement protection, which afforded
MNIC additional coverage, and ha
d
a cascading feature such that substantially all layers attach
ed
at
$3.4
million for MNIC's Florida exposure
.
MNIC’s 2017-2018 reinsurance programs are estimated to cost
$5.17
million which includes approximately
$3.23
million for the private reinsurance as described below, along with approximately
$1.94
million payable to FHCF. The combination of private and FHCF reinsurance treaties will afford Monarch National approximately
$109.81
million of aggregate coverage with a maximum single event coverage totaling approximately
$68.89
million, exclusive of retentions. Monarch National’s FHCF participation is at
75%
for the 2017 hurricane season.
MNIC’s private market excess of loss treaties are effective July 1, 2017 and all private layers have prepaid automatic reinstatement protection, which affords MNIC additional coverage for subsequent events, and have a cascading feature such that substantially all layers attach at
$3.4
million for Monarch National’s Florida exposure. These treaties are with reinsurers that currently have an AM Best or Standard & Poor’s rating of “A-” or better, or have fully collateralized their maximum potential obligations in dedicated trusts.
The Company’s property quota share treaties, which are include
d in the reinsurance program, ra
n for a
two
-year period from July 1 to July 1 of the following year. The property quota-share treaties consist
ed
of
two
different treaties, one for
30%
which became
effective July 1, 2014, and the other for
10%
which became effective July 1, 2015. The combined treaties provided a
40%
quota-share reinsurance on the first
$100
million of covered losses for the homeowners’ property insurance program in Florida. The treaties are accounted for as retrospectively rated contracts whereby the estimated ultimate premium or commission is recognized over the period of the contracts.
On July 1, 2016, the
30%
property quota-share treaty expired on a cut-off basis, which means as of that date the Company retained an incremental
30%
of its unearned premiums and losses. The reinsurers will remain liable for 30% of the paid losses occurring during the term of the treaty, until the treaty is commuted.
The Company’s private passenger automobile quota share treaties are typically
one
-year programs which become effective at different points in the year and cover auto policies across several states. These automobile quota share treaties cede approximately
75%
of all written premiums entered into by the Company.
Certain reinsurance agreements require FNIC
and MNIC
to secure the credit, regulatory and business risk. Fully funded trust agreements securing these risks
for FNIC
totaled
$2.6
million as of June 30, 2017 and as of December 31, 2016.
Fully funded trust agreements securing these risks
for MNIC
totaled
$0.3
million as of June 30, 2017 and as of December 31, 2016.
Subsequent Event
s
On July 1, 201
7
, the
10%
property quota-share treaty expired on a cut-off basis, which means as of that date the Company retained an incremental
10%
of its unearned premiums and losses. The reinsurers will remain liable for
1
0% of the paid losses occurring during the term of the treaty, until the treaty is commuted.
Additionally, FNIC has bound a new
10%
quota
-
share on its Florida homeow
ners book of business, which became
effective on July 1,
2017 and excludes named storms.
Reinsurance Recoverables
Amounts recoverable from reinsurers are recognized in a manner consistent with the claims liabilities associated with the reinsurance placement and presented on the consolidated balance sheet as reinsurance recoverables. The following table presents reinsurance recoverables as reflected in the consolidated balance sheets as of June 30, 2017 and December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
|
Reinsurance recoverable on paid losses
|
|
$
|
7,629
|
|
$
|
7,451
|
|
Reinsurance recoverable on unpaid losses
|
|
|
33,461
|
|
|
41,079
|
|
Reinsurance recoverable, net
|
|
$
|
41,090
|
|
$
|
48,530
|
Premiums Written and Earned
The following table presents premiums written and earned for the three and six months ended June 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
|
(in thousands)
|
|
Net premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
168,692
|
|
$
|
171,218
|
|
$
|
314,743
|
|
$
|
307,242
|
|
Ceded
|
|
|
(78,983)
|
|
|
(119,410)
|
|
|
(106,287)
|
|
|
(162,980)
|
|
|
|
$
|
89,709
|
|
$
|
51,808
|
|
$
|
208,456
|
|
$
|
144,262
|
|
Net premiums earned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
$
|
150,563
|
|
$
|
137,334
|
|
$
|
298,541
|
|
$
|
265,433
|
|
Ceded
|
|
|
(67,404)
|
|
|
(77,289)
|
|
|
(136,889)
|
|
|
(150,391)
|
|
|
|
$
|
83,159
|
|
$
|
60,045
|
|
$
|
161,652
|
|
$
|
115,042
|
6
.
LOSS AND LOSS ADJUSTMENT EXPENSE
(“LAE”)
RESERVES
The liability for loss and LAE reserves is determined on an individual-case basis for all claims reported. The liability also includes amounts for unallocated expenses,
consideration for anticipated subrogation recoveries that will offset future loss payments,
anticipated future claim development and incurred but not yet reported (“IBNR”).
Activity in the liability for loss and LAE reserves is summarized as follows
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
|
Gross reserves, beginning of period
|
|
$
|
158,476
|
|
$
|
97,340
|
|
Less: reinsurance recoverable
(1)
|
|
|
(41,079)
|
|
|
(7,496)
|
|
Net reserves, beginning of period
|
|
|
117,397
|
|
|
89,844
|
|
|
|
|
|
|
|
|
|
Incurred loss, net of reinsurance, related to:
|
|
|
|
|
|
|
|
Current year
|
|
|
105,443
|
|
|
69,290
|
|
Prior years
|
|
|
3,279
|
|
|
10,953
|
|
Total incurred loss and LAE, net of reinsurance
|
|
|
108,722
|
|
|
80,243
|
|
|
|
|
|
|
|
|
|
Paid loss, net of reinsurance, related to:
|
|
|
|
|
|
|
|
Current year
|
|
|
47,463
|
|
|
27,707
|
|
Prior years
|
|
|
55,144
|
|
|
32,191
|
|
Total paid loss and LAE, net of reinsurance
|
|
|
102,607
|
|
|
59,898
|
|
|
|
|
|
|
|
|
|
Net reserves, end of period
|
|
|
123,512
|
|
|
110,189
|
|
Plus: reinsurance recoverable
(1)
|
|
|
33,461
|
|
|
10,534
|
|
Gross reserves, end of period
|
|
$
|
156,973
|
|
$
|
120,723
|
|
|
(1)
|
|
Reinsurance recoverable in this table includes only ceded loss and LAE reserves.
|
The establishment of loss reserves is an inherently uncertain process and changes in loss reserve estimates are expected as such estimates are subject to the outcome of future events. The factors influencing changes in claim costs are often difficult to isolate or quantify and developments in paid and incurred losses from historical trends are frequently subject to multiple interpretations. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are made.
During the six months ended June 30, 2017, the Company experienced
$3.3
million of unfavorable loss and LAE reserve development on prior accident years in our Homeowners and Automobile lines of business. The Homeowners’ unfavorable development of
$1.8
million primarily relates to the continued impact from assignment of benefits and related ligation costs
in the state of Florida. The Automobile’s unfavorable development of
$1.5
million relates to the 2016 accident year from our auto program in the state of Georgia.
During the six months ended June 30, 2016, the Company experienced
$10.5
million of unfavorable loss and LAE reserve development on prior year accident years primarily in
our Homeowners’ line of business
in the state of Florida. The deficiency primarily relates to higher severity above the expected development factor anticipated at December 31, 2015 which was driven by the impact from assignment of benefits and related ligation costs
.
7
.
LONG-TERM
DEBT
On
March
17, 2015, MNHC, a wholly owned subsidiary of Monarch Delaware, and MNIC’s direct parent, our consolidated VIE, issued a promissory note with a principal amount of
$5.0
million
bearing
6%
annual interest, due
March
17, 2021
with interest payable on an annual basis due
March
17 each year. The debt was issued to TransRe, a related party, in connection with its investment in Monarch Delaware, and is being carried at the unpaid principal balance, net of debt issuance costs, and any accrued and unpaid interest is recognized in other liabilities in the consolidated balance sheet. The Company recorded
$
0.1
million
of debt issuance costs related to the 6% promissory note.
8
.
INCOME TAXES
The provision for income tax expense for the three and six months ended June 30, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
|
(in thousands)
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(66)
|
|
$
|
4,614
|
|
$
|
1,048
|
|
$
|
8,158
|
|
Deferred
|
|
|
2,380
|
|
|
(3,925)
|
|
|
2,908
|
|
|
(2,487)
|
|
Federal income tax expense
|
|
|
2,314
|
|
|
689
|
|
|
3,956
|
|
|
5,671
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(68)
|
|
|
1,072
|
|
|
150
|
|
|
1,347
|
|
Deferred
|
|
|
389
|
|
|
(1,064)
|
|
|
467
|
|
|
(526)
|
|
State income tax expense
|
|
|
321
|
|
|
8
|
|
|
617
|
|
|
821
|
|
Total income tax expense
|
|
$
|
2,635
|
|
$
|
697
|
|
$
|
4,573
|
|
$
|
6,492
|
The actual income tax expense differs from the “expected” income tax expense (computed by applying the combined applicable effective federal and state tax rates to income before income tax expense) as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
|
(in thousands)
|
|
Computed expected tax expense provision, at federal rate
|
|
$
|
2,538
|
|
$
|
663
|
|
$
|
4,327
|
|
$
|
6,052
|
|
State tax, net of federal tax benefit
|
|
|
194
|
|
|
11
|
|
|
376
|
|
|
544
|
|
Other
|
|
|
(97)
|
|
|
23
|
|
|
(130)
|
|
|
(104)
|
|
Total income tax expense
|
|
$
|
2,635
|
|
$
|
697
|
|
$
|
4,573
|
|
$
|
6,492
|
The Company files income tax returns in the U.S. federal jurisdiction and various states and local jurisdictions
.
Monarch National Holding Company (“MNHC”), a
wholly owned
subsidiary of the
consolidated VIE
, is currently under Federal audit for tax year 2015. As of June 30, 2017, except for the MNHC 2015 Federal income tax return audit,
no other
open tax years are under examination by the IRS or any material state and local jurisdictions
The Company adopted ASU 2016-09 in the first quarter of 2017 which requires the recognition of excess tax benefits and tax deficiencies within income tax (benefit) expense in the Consolidated Statements of Operations (see Note 2). The Company elected to apply this change in presentation prospectively from the beginning of fiscal year 2017, thus prior periods have not been adjusted. This adoption resulted in the recognition of
$0.1
million of excess tax deficiencies recorded within income tax expense for the six months ended June 30, 2017. This change could create volatility in the Company's effective tax rate in future periods. During the six months ended June 30, 2016, excess tax benefits were recorded in shareholders’ equity within the Consolidated Balance Sheets instead of income tax expense within the Consolidated Statements of Operations.
As of June 30, 2017 and December 31, 2016, there are
no
uncertain tax positions.
9. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
In the ordinary course of business, the Company is involved in various legal proceedings, specifically claims litigation. The Company’s insurance subsidiaries participate in most of these proceedings by either defending third-party claims brought against insureds or litigating first-party coverage claims. The Company accounts for such activity through the establishment of loss and LAE reserves. We believe that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, is immaterial to our consolidated financial statements. The Company is also occasionally involved in other legal and regulatory proceedings, some of which may assert claims for substantial amounts. These other legal proceedings may occasionally make us party to individual actions in which extra-contractual damages, punitive damages or penalties are sought, such as claims alleging bad faith in the handling of insurance claims.
On a quarterly basis, the Company reviews these outstanding matters, if any. Consistent with GAAP, the Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. The Company does not establish reserves for identified legal matters when we believe that the likelihood of an unfavorable outcome is not probable. Based on our quarterly review, the Company believes that our accruals for probable and estimable losses are reasonable and that the amounts accrued do not have a material effect on our consolidated financial statements.
The Company is a party to a Co-Existence Agreement effective as of
August
30, 2013 (the “Co-Existence Agreement”) with Federated Mutual Insurance Company (“Mutual”) pursuant to which the Company has agreed to certain restrictions on its use of the word “FEDERATED” without the word “NATIONAL” when referring to FNHC and Federated National Insurance Company. In response to Mutual’s allegations that the Company’s use of the word “FED” as part of the Company’s federally registered “FEDNAT” trademark infringes on Mutual’s federal and common law trademark rights, which the Company disputes, on
July
21, 2016, the Company filed a declaratory judgment action for non-infringement of trademark in the U.S. District Court for the Southern District of Florida. Specifically, the Company seeks a declaration that its federally registered trademark "FEDNAT" does not infringe any alleged trademark rights of Mutual and that Mutual does not own any trademark rights to the name or mark "FED" in connection with insurance services outside of Owatonna, Minnesota.
On
July
26, 2016, Mutual filed a demand for arbitration against the Company before the American Arbitration Association (“AAA”) alleging a breach of the Co-Existence Agreement. On
November
29, 2016, the U.S. District Court for the Southern District of Florida granted Mutual’s motion to compel arbitration of the Company’s declaratory judgment action for non-infringement o
f a trademark.
On
February
3, 2017, the AAA granted the Company’s motion to terminate the arbitration for lack of jurisdiction based upon Mutual’s failure to comply with the Co-Existence Agreement’s regarding the selec
tion of an arbitrator.
An arbitrator has been selected.
The Company nevertheless intends to vigorously defend against Mutual’s allegations, although there can be no assurances as to the outcome of this matter.
On March 2, 2017, the Company filed a complaint in Broward County, Florida court to enforce the terms of the restrictive covenants set forth in the Amended and Restated Non-Competition, Non-Disclosure and Non-Solicitation Agreement dated August 5, 2013, as amended, entered into between Peter J. Prygelski, III and the Company during Mr. Prygelski’s employment with the Company and set forth in the separation agreement he entered into in connection with his separation from the Company. The Company believes that he accepted employment with a competitor in contravention of these restrictive covenants. Mr. Prygelski sought to dismiss the case and compel arbitration, which was denied by the court. The Company’s motion for preliminary (temporary) injunctive relief was also denied by the court. The parties have each filed claims in arbitration, which remain pending. Because of the relatively early stage of this matter, there can be no assurances as to its outcome. The Company has not recognized a gain contingency in its financial statements as of June 30, 2017
.
Assessment Related Activity
We operate in a regulatory environment where certain entities and organizations have the authority to require us to participate in assessments. Currently these entities and organizations include: Florida Insurance Guaranty Association (“FIGA”), Citizens Property Insurance Corporation (“Citizens”), FHCF, Florida Joint Underwriters Insurance Association (“JUA”), Georgia Insurers Insolvency Pool (“GIIP”), Special Insurance Fraud Fund (“SIIF”), Fair Access to Insurance Requirements Plan (“FAIRP”), Georgia Automobile Insurance Plan (“GAIP”), Property Insurance Association of Louisiana (“PIAL”), Louisiana Automobile Insurance Plan (“LAIP”), South Carolina Property & Casualty Insurance Guaranty Association (“SCPCIGA”), Texas Property and Casualty Insurance Guaranty Association (“TPCIGA”), Texas Windstorm Insurance Association (“TWIA”), Texas Automobile Insurance Plan Association (“TAIPA”), Alabama Insurance Guaranty Association (“AIGA”), and Alabama Insurance Un
derwriters Association (“AIUA”)
. As a direct premium writer in Florida, we are required to participate in certain insurer solvency associations under Florida law, administered by FIGA. Future assessments are likely, although the impact of these assessments on our balance sheet, results of operations or cash flow are undeterminable at this time.
FNIC is also required to participate in an insurance apportionment plan under Florida law, which is referred to as a JUA Plan. The JUA Plan provides for the equitable apportionment of any profits realized, or losses and expenses incurred, among participating automobile insurers. In the event of an underwriting deficit incurred by the JUA Plan which is not recovered through the policyholders in the JUA Plan, such deficit shall be recovered from the companies participating in the JUA Plan in the proportion that the net direct written premiums of each such member during the preceding calendar year bear to the aggregate net direct premiums written in this state by all members of the JUA Plan.
There were no material assessments by the JUA Plan as of June 30, 2016.
Future assessments by this association are undeterminable at this time.
Leases
FNHC and its subsidiaries lease certain facilities, furniture and equipment under long-term lease agreements. Additional information about leases can be found in Note 9 to our Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data,” of the 2016 Form 10-K.
10. SHAREHOLDERS’ EQUITY
Common Stock Repurchases
In November 2016, our Board of Directors authorized a program to repurchase shares of common stock of FNHC, at such times and at prices as management determines advisable, up to an aggregate of
$10.0
million through March 1, 2017. In March 2017, our Board of Directors authorized an additional
$10.0
million share buyback program to repurchase shares of common stock through March 31, 2018. This program may be modified, suspended or terminated by us at any time without notice. Common stock repurchases are conducted in the open market or under Rule 10b5-1 trading plans from time to time in its discretion, based on ongoing assessments of the Company’s capital needs, the market price of its common stock and general market conditions. The amount and timing of all repurchase transactions are contingent upon market conditions, applicable legal requirements and other factors.
Pursuant to our Board of Directors’ authorizations, the Company repurchased
390,923
shares of its common stock at a total cost of
$6.2
million, which is a weighted average price per share of
$15.82
, during the
three
months ended June 30, 2017. As of June 30, 2017, the remaining availability for future repurchases of our common stock was
$3.3
million.
Share-Based Compensation Expense
The following table provides certain information in connection with the Company’s share-based compensation arrangements for the three and six months ended June 30, 2017 and 2016, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
(in thousands)
|
|
Restricted stock
|
|
$
|
745
|
|
$
|
1,953
|
|
$
|
1,412
|
|
$
|
2,633
|
|
Stock options
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total share-based compensation expense
|
|
$
|
745
|
|
$
|
1,953
|
|
$
|
1,412
|
|
$
|
2,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of options exercised
|
|
$
|
7
|
|
$
|
102
|
|
$
|
7
|
|
$
|
122
|
|
Fair value of restricted stock vested
|
|
$
|
155
|
|
$
|
1,656
|
|
$
|
1,505
|
|
$
|
2,892
|
The intrinsic value of options exercised represents the difference between the stock option exercise price and the weighted average closing stock price of FNHC common stock on the exercise dates, as reported on the NASDAQ Global Market.
Stock Option Awards
A summary of the Company’s stock option activity for the period from January 1, 2017 to June 30, 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average
Option
Exercise Price
|
|
Outstanding at January 1, 2017
|
|
79,484
|
|
$
|
3.70
|
|
Granted
|
|
—
|
|
$
|
—
|
|
Exercised
|
|
(400)
|
|
$
|
3.59
|
|
Cancelled
|
|
—
|
|
$
|
—
|
|
Outstanding at June 30, 2017
|
|
79,084
|
|
$
|
3.70
|
Restricted Stock Awards
The Company recognizes share-based compensation expense for all restricted stock awards (“RSAs”) held by employees. The accounting charge is measured at the grant date as the fair value of FNHC common stock and expensed as non-cash compensation over the vesting term using the straight-line basis
for service awards and the accelerated basis for performance
‑based awards with graded vesting
.
Certain cliff vesting awards contain performance criteria which are tied to the achievement of certain market conditions. This value is recognized as expense over the service period using the straight
‑line recognition method.
During the
first
h
alf
of 2017 and 2016, the Board of Directors granted
106,454
and
128,472
RSAs, respectively, vesting over
three
or
five
years, to the Company’s directors, executives and other key employees.
The following table summarizes RSA activity during the six months ended June 30, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|
Outstanding at January 1, 2017
|
|
337,203
|
|
$
|
19.69
|
|
Granted
|
|
106,454
|
|
$
|
17.95
|
|
Vested
|
|
(81,095)
|
|
$
|
18.56
|
|
Cancelled
|
|
(1,960)
|
|
$
|
20.39
|
|
Outstanding at June 30, 2017
|
|
360,602
|
|
$
|
19.43
|
The weighted average grant date fair value is measured using the closing price of FNHC common stock on the grant date, as reported on the NASDAQ Global Market.
Accumulated Other Comprehensive Income
The following table presents a reconciliation of the changes in accumulated other comprehensive income during the three and six months ended June 30, 2017 and 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2017
|
|
2016
|
|
|
|
Before
Tax
|
|
Income
Tax
|
|
Net
|
|
Before
Tax
|
|
Income
Tax
|
|
Net
|
|
|
|
(in thousands)
|
|
Accumulated other comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beginning of period
|
|
$
|
7,033
|
|
$
|
(2,644)
|
|
$
|
4,389
|
|
$
|
10,195
|
|
$
|
(3,791)
|
|
$
|
6,404
|
|
Other comprehensive income before reclassifications
|
|
|
3,862
|
|
|
(1,543)
|
|
|
2,319
|
|
|
5,013
|
|
|
(1,808)
|
|
|
3,205
|
|
Reclassification adjustment for realized (gains) losses included
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in net income
|
|
|
(2,648)
|
|
|
1,023
|
|
|
(1,625)
|
|
|
(7)
|
|
|
3
|
|
|
(4)
|
|
|
|
|
1,214
|
|
|
(520)
|
|
|
694
|
|
|
5,006
|
|
|
(1,805)
|
|
|
3,201
|
|
Accumulated other comprehensive income, end of period
|
|
$
|
8,247
|
|
$
|
(3,164)
|
|
$
|
5,083
|
|
$
|
15,201
|
|
$
|
(5,596)
|
|
$
|
9,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
2016
|
|
|
|
Before
Tax
|
|
Income
Tax
|
|
Net
|
|
Before
Tax
|
|
Income
Tax
|
|
Net
|
|
|
|
(in thousands)
|
|
Accumulated other comprehensive income,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
beginning of period
|
|
$
|
3,323
|
|
$
|
(1,199)
|
|
$
|
2,124
|
|
$
|
6,111
|
|
$
|
(2,247)
|
|
$
|
3,864
|
|
Other comprehensive income before reclassifications
|
|
|
7,467
|
|
|
(2,947)
|
|
|
4,520
|
|
|
10,024
|
|
|
(3,710)
|
|
|
6,314
|
|
Reclassification adjustment for realized (gains) losses included
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in net income
|
|
|
(2,543)
|
|
|
982
|
|
|
(1,561)
|
|
|
(934)
|
|
|
361
|
|
|
(573)
|
|
|
|
|
4,924
|
|
|
(1,965)
|
|
|
2,959
|
|
|
9,090
|
|
|
(3,349)
|
|
|
5,741
|
|
Accumulated other comprehensive income, end of period
|
|
$
|
8,247
|
|
$
|
(3,164)
|
|
$
|
5,083
|
|
$
|
15,201
|
|
$
|
(5,596)
|
|
$
|
9,605
|
11. EARNINGS PER SHARE
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted average number of common shares outstanding for the period, including outstanding unvested restricted stock awards and vested restricted stock awards
during the period
. Diluted EPS is computed by dividing net income by the weighted average number of shares outstanding, noted above, adjusted for the dilutive effect of stock options. Dilutive securities are common stock equivalents that are freely exercisable into common stock at less than market prices or otherwise dilute earnings if converted. The net effect of common stock equivalents is based on the incremental common stock that would be issued upon the assumed exercise of common stock options and the vesting of RSAs using the treasury stock method. Common stock equivalents are not included in diluted earnings per share when their inclusion is antidilutive.
The computations of diluted EPS available to our shareholders do not include approximately
0.3
and
0.
2
million
stock
options and RSAs for the
three months ended June 30, 2017 and 2016
,
respectively,
and
0.1
and
0.2
million
stock
options and RSAs for the
six months ended June 30, 2017 and 2016
,
respectively,
as the effect of their inclusion would have been antidilutive to earnings per share.
The following table presents the calculation of basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
(in thousands, except per share data)
|
|
(in thousands, except per share data)
|
|
Net income attributable to Federated National Holding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company shareholders
|
|
$
|
4,945
|
|
$
|
991
|
|
$
|
8,090
|
|
$
|
10,526
|
|
Weighted average number of common shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
|
|
13,171
|
|
|
13,805
|
|
|
13,305
|
|
|
13,816
|
|
Net income per share - basic
|
|
$
|
0.38
|
|
$
|
0.07
|
|
$
|
0.61
|
|
$
|
0.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
|
|
13,171
|
|
|
13,805
|
|
|
13,305
|
|
|
13,816
|
|
Dilutive effect of stock compensation plans
|
|
|
86
|
|
|
183
|
|
|
100
|
|
|
197
|
|
Weighted average number of common shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted
|
|
|
13,256
|
|
|
13,988
|
|
|
13,405
|
|
|
14,013
|
|
Net income per share - diluted
|
|
$
|
0.37
|
|
$
|
0.07
|
|
$
|
0.60
|
|
$
|
0.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share
|
|
$
|
0.08
|
|
$
|
0.06
|
|
$
|
0.16
|
|
$
|
0.11
|
Dividends Declared
In
March 2017
, our Board of Directors declared a $
0.08
p
er common share dividend
,
paid in
June
2017
,
to
shareholders of record on
May
1, 2017
, amounting to
$1.1
million
.
In
June 2017
, our Board of Directors declared a
$0.08
per common share dividend payable on
September 1, 2017
to shareholders of record on
August 1, 2017
.
12. VARIABLE INTEREST ENTITY
The carrying amounts of the assets of Monarch Delaware, our consolidated VIE, which can only be used to settle obligations of Monarch Delaware, and liabilities of Monarch Delaware for which creditors do not have recourse are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
|
2017
|
|
2016
|
|
|
|
(in thousands)
|
|
ASSETS
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
Debt securities, available-for-sale, at fair value
|
|
$
|
29,245
|
|
$
|
27,100
|
|
Equity securities, available-for-sale, at fair value
|
|
|
1,195
|
|
|
1,604
|
|
Total investments
|
|
|
30,440
|
|
|
28,704
|
|
Cash and cash equivalents
|
|
|
12,438
|
|
|
15,668
|
|
Reinsurance recoverable
|
|
|
350
|
|
|
-
|
|
Prepaid reinsurance premiums
|
|
|
1,855
|
|
|
1,070
|
|
Premiums receivable, net
|
|
|
711
|
|
|
1,584
|
|
Deferred acquisition costs
|
|
|
1,096
|
|
|
1,539
|
|
Other assets
|
|
|
765
|
|
|
635
|
|
Total assets
|
|
$
|
47,655
|
|
$
|
49,200
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Loss and loss adjustment expense reserves
|
|
$
|
2,722
|
|
$
|
1,659
|
|
Unearned premiums
|
|
|
6,108
|
|
|
8,406
|
|
Reinsurance payable
|
|
|
2,434
|
|
|
863
|
|
Debt
|
|
|
4,919
|
|
|
4,909
|
|
Other liabilities
|
|
|
833
|
|
|
1,026
|
|
Total liabilities
|
|
$
|
17,016
|
|
$
|
16,863
|
General information about Federated National Holding Company can be found at www.FedNat.com; however, the information that can be accessed through our web site is not part of our report. We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to the Securities and Exchange Act of 1934 available free of charge on our web site, as soon as reasonably practicable after they are electronically filed with the SEC.
