The accompanying notes to consolidated financial statements are an integral part of these statements.
The accompanying notes to consolidated financial statements are an integral part of these statements.
The accompanying notes to consolidated financial statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Nature of Operations, Basis of Presentation and Consolidation
Universal Insurance Holdings, Inc. (UIH) is a Delaware corporation originally incorporated as Universal Heights, Inc. in November 1990. UIH, with
its wholly-owned subsidiaries (the Company), is a vertically integrated insurance holding company performing all aspects of insurance underwriting, distribution and claims. Through its wholly-owned subsidiaries, including Universal
Property & Casualty Insurance Company (UPCIC) and American Platinum Property and Casualty Insurance Company (APPCIC), collectively referred to as the Insurance Entities, the Company is principally engaged
in the property and casualty insurance business offered primarily through a network of independent agents. Risk from catastrophic losses is managed through the use of reinsurance agreements. The Companys primary product is homeowners
insurance currently offered in seven states as of December 31, 2013, including Florida, which comprises the vast majority of the Companys in-force policies. See NOTE 5, INSURANCE OPERATIONS, for more information regarding the
Companys insurance operations.
The Company generates revenues primarily from the collection of premiums and the investment of available funds in
excess of those retained for claims-paying obligations and insurance operations. Other significant sources of revenue include commissions collected from reinsurers and policy fees.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America
(U.S. GAAP). The consolidated financial statements include the accounts of UIH and its wholly owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
To conform to current period presentation, certain amounts in the prior periods consolidated financial statements and notes have been reclassified. Such
reclassifications were of an immaterial amount and had no effect on net income or stockholders equity.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Companys primary areas of
estimate are the recognition of premium revenues, liabilities for unpaid losses and loss adjustment expenses, provision for premium deficiency and reinsurance. Actual results could differ from those estimates.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company are summarized as follows:
Cash and Cash Equivalents.
The Company includes in cash equivalents all short-term, highly liquid investments that are readily convertible to known
amounts of cash and have an original maturity of three months or less. These amounts are carried at cost, which approximates fair value. The Company excludes any net negative cash balances from Cash and Cash Equivalents that the Company or any of
its subsidiaries may have with any single institution. These amounts are reclassified to liabilities and presented as bank overdraft in the Companys consolidated balance sheets.
Restricted Cash and Cash Equivalents.
The Company classifies amounts of cash and cash equivalents that are restricted in terms of their use and
withdrawal separately on the face the Consolidated Balance Sheets. See below in this Note 2 and Note 5 INSURANCE OPERATIONS for a discussion of the nature of the restrictions.
Investment Securities, Trading.
Investment securities held in the Companys trading portfolio consisted of both debt and equity securities.
Investment securities held in trading were recorded at fair value on the consolidated balance sheet, with unrealized gains and losses reported in current period earnings. All investment securities held by the Company as of December 31, 2012
were held in the trading portfolio. The Company liquidated its trading portfolio of equity securities and transferred the fixed maturities that were outstanding at December 31, 2012 into its portfolio of securities available for sale effective
March 1, 2013.
Gains and losses realized on the disposition of investment securities held in trading were determined on the FIFO basis and credited
or charged to income. Premium and discount on investment securities held in trading were amortized and accreted using the interest method and charged or credited to investment income.
50
Investment Securities, Available for Sale
. Investment securities available for sale consist of both debt
and equity securities. Investment securities available for sale are recorded at fair value on the consolidated balance sheet. Unrealized gains and losses on securities available for sale are excluded from earnings and reported as a component of
other comprehensive income, net of related deferred taxes until reclassified to earnings upon the consummation of sales transaction with an unrelated third party or when the decline in fair value is deemed other than temporary.
The assessment of whether the impairment of a securitys fair value is other than temporary is performed using a portfolio review as well as a
case-by-case review considering a wide range of factors. There are a number of assumptions and estimates inherent in evaluating impairments and determining if they are other than temporary, including: 1) the Companys ability and intent to hold
the investment for a period of time sufficient to allow for an anticipated recovery in value; 2) the expected recoverability of principal and interest; 3) the extent and length of time to which the fair value has been less than amortized cost for
fixed maturity securities or cost for equity securities referred to as severity and duration; 4) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry conditions and trends, and implications
of rating agency actions and offering prices referred to as credit quality; and 5) the specific reasons that a security is in a significant unrealized loss position, including market conditions which could affect liquidity. Additionally, once
assumptions and estimates are made, any number of changes in facts and circumstances could cause the Company to subsequently determine that an impairment is other than temporary, including: 1) general economic conditions that are worse than
previously forecasted or that have a greater adverse effect on a particular issuer or industry sector than originally estimated; 2) changes in the facts and circumstances related to a particular issue or issuers ability to meet all of its
contractual obligations; and 3) changes in facts and circumstances obtained that causes a change in our ability or intent to hold a security to maturity or until it recovers in value. Managements intent and ability to hold securities is a
determination that is made at each respective balance sheet date giving consideration to factors known to management for each individual issuer of securities such as credit quality and other publicly available information.
Gains and losses realized on the disposition of investment securities available for sale are determined on the first-in-first-out basis (FIFO) and
credited or charged to income. Premium and discount on investment securities are amortized and accreted using the interest method and charged or credited to investment income.
Derivatives.
Derivatives were held in the Companys trading portfolio and were reported at fair value with changes in their value reported as
unrealized gains or losses until exercised, sold or upon expiration at which time the gain or loss was recognized as a realized gain or loss. The premium received for a written call option was recorded as a liability until the option was either
exercised or expired. If the option was exercised by the holder, the Company recognizes the premium received by adjusting the amount of the realized gain or loss on the underlying security by the amount of the option premium received. If the option
expired or otherwise terminated, the premium received was recognized as a component of realized gains or losses. All derivatives held in the Companys trading portfolio were liquidated during the first quarter of 2013.
Premiums Receivable.
Generally, premiums are collected prior to providing risk coverage, minimizing the Companys exposure to credit risk. The
Company performs a policy level evaluation to determine the extent the premiums receivable balance exceeds the unearned premiums balance. The Company then ages this exposure to establish an allowance for doubtful accounts based on prior experience.
As of December 31, 2013 and 2012, the Company had recorded allowances for doubtful accounts in the amounts of $446 thousand and $530 thousand, respectively.
Property and Equipment.
Property and equipment is recorded at cost less accumulated depreciation. Depreciation is provided on the straight-line basis
over the estimated useful life of the assets. Estimated useful life of all property and equipment ranges from three to twenty-seven-and-one-half years. Expenditures for improvements are capitalized and depreciated over the remaining useful life of
the asset. Routine repairs and maintenance are expensed as incurred. Website development costs are capitalized and amortized over their estimated useful life. The Company reviews its property and equipment annually and whenever changes in
circumstances indicate that the carrying amount may not be recoverable.
Leases.
The Company has operating leases that are subject to annual
increases and amortizes the scheduled annual rental increases over the term of the leases.
Recognition of Premium Revenues.
The Company recognizes
revenue when realized or realizable and earned. Property and liability premiums are recognized as revenue on a pro rata basis over the policy term. The portion of premiums that will be earned in the future is deferred and reported as unearned
premiums. The Company believes that its revenue recognition policies conform to U.S. GAAP. In the event policyholders cancel their policies, unearned premiums represent amounts that the Insurance Entities would refund policyholders. Accordingly, the
Company determines unearned premiums by calculating the pro rata amount that would be due to the policyholders at a given point in time based upon the premiums owed over the life of each policy.
Recognition of Commission Revenue and Policy Fees
. Commission revenue generated from agency operations and the Managing General Agent (MGA)s
policy fee on all new and renewal insurance policies are recognized as income upon policy inception. Brokerage commission revenue earned on ceded reinsurance is recognized over the term of the reinsurance agreements.
51
Recognition of Policyholder Payment Plan Fee Revenue.
The Company offers its policyholders the option of
paying their policy premiums in full at inception or in two or four installment payments. The Company charges fees to its policyholders that elect to pay their premium in installments and records such fees as revenue when the policyholder makes the
installment payment election and the Company bills the fees to the policyholder. These fees are included in Other Revenue in the Companys Consolidated Statements of Income.
Deferred Policy Acquisition Costs
. Certain costs incurred in connection with the successful acquisition and renewal of insurance business are deferred
and amortized over the terms of the policies to which they are related. A portion of reinsurance ceding commissions received are deferred and amortized over the effective period of the related insurance policies. Deferred policy acquisition costs
and deferred ceding commissions are netted for balance sheet presentation purposes.
Insurance Liabilities
. Unpaid losses and loss adjustment
expenses (LAE) are provided for as claims are incurred. The provision for unpaid losses and loss adjustment expenses includes: (1) the accumulation of individual case estimates for claims and claim adjustment expenses reported prior
to the close of the accounting period; (2) estimates for unreported claims based on industry data; and (3) estimates of expenses for investigating and adjusting claims based on the experience of the Company and the industry.
Inherent in the estimates of ultimate claims are expected trends in claim severity, frequency and other factors that may vary as claims are settled. The
amount of uncertainty in the estimates for casualty coverage is significantly affected by such factors as the amount of claims experience relative to the development period, knowledge of the actual facts and circumstances and the amount of insurance
risk retained. In addition, the Companys policyholders are currently concentrated in South Florida, which is periodically subject to adverse weather conditions, such as hurricanes and tropical storms. The methods for making such estimates and
for establishing the resulting liability are periodically reviewed, and any adjustments are reflected in current earnings.
Provision for Premium
Deficiency
. It is the Companys policy to evaluate and recognize losses on insurance contracts when estimated future claims and maintenance costs under a group of existing contracts will exceed anticipated future premiums. No accruals for
premium deficiency were considered necessary as of December 31, 2013 and 2012.
Reinsurance
. In the normal course of business, the Company
seeks to reduce the risk of loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring (ceding) certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers.
The Company remains responsible for insured losses in the event of the failure of any reinsurer to make payments otherwise due to the Company. Amounts recoverable from reinsurers are estimated in a manner consistent with the provisions of the
reinsurance agreement and consistent with the establishment of the liability of the Company. Allowances are established for amounts deemed uncollectible if any.
Income Taxes
. Income tax provisions are based on the asset and liability method. Deferred federal and state income taxes have been provided for
temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, net of valuation allowance if any. The Company reviews its deferred tax assets for recoverability.
Income (Loss) Per Share of Common Stock
. Basic earnings per share is computed by dividing the Companys net income (loss), less preferred stock
dividends, by the weighted-average number of shares of Common Stock outstanding during the period. Diluted earnings per share is computed by dividing the Companys net income (loss) by the weighted average number of shares of Common Stock
outstanding during the period and the impact of all dilutive potential common shares, primarily preferred stock, unvested shares, options and warrants. The dilutive impact of stock options, unvested shares and warrants is determined by applying the
treasury stock method and the dilutive impact of the preferred stock is determined by applying the if converted method.
Fair Value
Measurements
. The Companys policy is to record transfers of assets and liabilities, if any, between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair
value.
Concentrations of Credit Risk.
The Company is exposed to concentrations of credit risk, consisting principally of cash and cash
equivalents, restricted cash and cash equivalents, debt securities, premiums receivable, prepaid reinsurance premiums, reinsurance receivable and reinsurance recoverable.
The Company maintains depository relationships with SunTrust Bank, Wells Fargo Bank N.A., Deutsche Bank Securities, Inc., and State Street Bank and Trust
Company and invests excess cash with custodial institutions that invest primarily in money market accounts consisting of or collateralized by short-term U.S. Treasury securities and other U.S. government guaranteed securities. These accounts are
held primarily by SunTrust Bank, Deutsche Bank Securities, Inc., and State Street Bank and Trust Company. The Company regularly evaluates the financial strength of the institutions with which it maintains depository relationships.
52
The following table presents current ratings for each of these financial institutions from various rating
agencies:
|
|
|
|
|
|
|
Current Ratings
|
Institution
|
|
Standard and
Poors Rating
|
|
Moodys
Investors
|
Sun Trust Bank
|
|
BBB+
|
|
A3
|
Wells Fargo Bank N.A.
|
|
AA-
|
|
Aa3
|
Deutsche Bank Securities, Inc.
|
|
A
|
|
A2
|
State Street Bank and Trust Company
|
|
AA-
|
|
Aa3
|
The following table presents the amount of cash and cash equivalents as of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
As of December 31, 2013
|
|
|
As of December 31, 2012
|
|
Institution
|
|
Cash
|
|
|
Money
Market Funds
|
|
|
Total
|
|
|
% by
institution
|
|
|
Cash
|
|
|
Money
Market Funds
|
|
|
Total
|
|
|
% by
institution
|
|
U. S. Bank IT&C
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
40,463
|
|
|
$
|
40,463
|
|
|
|
11.6
|
%
|
SunTrust Bank
|
|
|
931
|
|
|
|
3,550
|
|
|
|
4,481
|
|
|
|
3.8
|
%
|
|
|
773
|
|
|
|
1,055
|
|
|
|
1,828
|
|
|
|
0.5
|
%
|
SunTrust Bank Escrow Services
|
|
|
|
|
|
|
56,129
|
|
|
|
56,129
|
|
|
|
47.9
|
%
|
|
|
|
|
|
|
300,843
|
|
|
|
300,843
|
|
|
|
86.6
|
%
|
Wells Fargo Bank N.A.
|
|
|
3,631
|
|
|
|
|
|
|
|
3,631
|
|
|
|
3.1
|
%
|
|
|
1,991
|
|
|
|
3
|
|
|
|
1,994
|
|
|
|
0.6
|
%
|
Deutsche Bank Securities, Inc.
|
|
|
|
|
|
|
33,041
|
|
|
|
33,041
|
|
|
|
28.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State Street Bank and Trust Company
|
|
|
|
|
|
|
19,993
|
|
|
|
19,993
|
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Banking Institutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,796
|
|
|
|
468
|
|
|
|
2,264
|
|
|
|
0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,562
|
|
|
$
|
112,713
|
|
|
$
|
117,275
|
|
|
|
100.0
|
%
|
|
$
|
4,560
|
|
|
$
|
342,832
|
|
|
$
|
347,392
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and cash equivalents are maintained in money market accounts consisting of U.S. Treasury and government agency
securities.
The following table presents the amount of restricted cash and cash equivalents as of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and cash equivalents
|
|
|
|
As of December 31, 2013
|
|
|
As of December 31, 2012
|
|
Institution
|
|
State
Deposits
|
|
|
% by
institution
|
|
|
State
Deposits
|
|
|
% by
institution
|
|
U. S. Bank IT&C
|
|
$
|
800
|
|
|
|
30.8
|
%
|
|
$
|
800
|
|
|
|
2.4
|
%
|
Florida Department of Financial Services
|
|
|
1,800
|
|
|
|
69.2
|
%
|
|
|
32,209
|
|
|
|
97.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,600
|
|
|
|
100.0
|
%
|
|
$
|
33,009
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Concentrations of credit risk with respect to premiums receivable are limited due to the large number of individuals
comprising the Companys customer base. However, the majority of the Companys revenues are currently derived from products and services offered to customers in Florida, which could be adversely affected by economic downturns, an increase
in competition or other environmental changes.
In order to reduce credit risk for amounts due from reinsurers, the Insurance Entities seek to do business
with financially sound reinsurance companies and regularly evaluate the financial strength of all reinsurers used.
53
The following table presents current ratings from rating agencies and the unsecured amounts due from the
Companys reinsurers whose aggregate balance exceeded 3% of the Companys stockholders equity as of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Ratings
|
|
As of
|
|
Reinsurer
|
|
AM Best
Company
|
|
Standard and
Poors Rating
|
|
Moodys
Investors
|
|
December 31,
2013
|
|
|
December 31,
2012
|
|
Everest Reinsurance Company
|
|
A+
|
|
A+
|
|
A1
|
|
$
|
87,789
|
|
|
$
|
44,392
|
|
Florida Hurricane Catastrophe Fund
|
|
n/a
|
|
n/a
|
|
n/a
|
|
|
33,593
|
|
|
|
31,970
|
|
Odyssey Reinsurance Company
|
|
A
|
|
A-
|
|
A3
|
|
|
142,190
|
|
|
|
192,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (1)
|
|
|
|
|
|
|
|
$
|
263,572
|
|
|
$
|
268,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amounts represent prepaid reinsurance premiums, reinsurance receivables, and net recoverables for paid and unpaid losses, including incurred but not reported reserves, loss adjustment expenses, and offsetting
reinsurance payables. n/aNo rating available
|
Share-based Compensation.
The Company accounts for share-based compensation based
on the estimated grant-date fair value. The Company recognizes these compensation costs in general and administrative expenses and generally amortizes them on a straight-line basis over the requisite service period of the award, which is the vesting
term. Individual tranches of performance-based awards are amortized separately since the vesting of each tranche is subject to independent annual measures. The fair value of stock option awards are estimated using the Black-Scholes option pricing
model with the grant-date assumptions discussed in Note 9 SHARE BASED COMPENSATION. The fair value of the restricted share grants are determined based on the market price on the date of grant.
Statutory Accounting.
UPCIC and APPCIC prepare statutory financial statements in conformity with accounting practices prescribed or permitted by the
Florida Office of Insurance Regulation (OIR). The OIR requires that insurance companies domiciled in Florida prepare their statutory financial statements in accordance with the NAIC Accounting Practices and Procedures Manual, as modified
by the Office of Insurance Regulation of Florida. Accordingly, the admitted assets, liabilities and capital and surplus of UPCIC and APPCIC as of December 31, 2013 and 2012 and the results of operations and cash flows, for the years ended
December 31, 2013, 2012 and 2011, have been determined in accordance with statutory accounting principles, but adjusted to U.S. GAAP for purposes of these financial statements. The statutory accounting principles are designed primarily to
demonstrate the ability to meet obligations to policyholders and claimants and, consequently, differ in some respects from U.S. GAAP.
New
Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board (FASB) issued accounting guidance on the presentation
of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. Under this guidance, an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should generally be
presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward. This guidance is effective for fiscal years and interim periods beginning after December 15, 2013, but earlier adoption is
permitted. We plan to adopt the standard prospectively on the required effective date of January 1, 2014 and are assessing the effect of adopting the standard on our Consolidated Balance Sheets, Statements of Income and Statements of Cash
Flows.
In June 2011, the FASB updated its guidance to the Comprehensive Income Topic 220 of the FASB Accounting Standards Codification (ASC)
and in February 2013, the FASB further amended such topic. This February 2013 guidance requires disclosure about amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either
on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income, but only if the amount reclassified is required to be reclassified
to net income in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about
those amounts. This guidance is to be applied prospectively to interim and annual reporting periods beginning after December 15, 2012. The Company adopted this guidance effective January 1, 2013. The adoption of this guidance results in
additional disclosures but did not impact the Companys results of operations, cash flows or financial position. The updated guidance provided by the FASB in June 2011 increases the prominence of items reported in other comprehensive income by
eliminating the option of presenting components of other comprehensive income as part of the statement of changes in stockholders equity. The guidance requires that total comprehensive income (including both the net income components and other
comprehensive income components) be reported in either a single continuous statement of comprehensive income (the approach currently used in the Companys financial statements), or two separate but consecutive statements. This guidance is to be
applied retrospectively to fiscal years (and interim periods within those years) beginning after December 15, 2011. The Company adopted this guidance effective January 1, 2012. The adoption did not have an impact on the presentation of the
Companys financial statements and notes herein, as the Company has presented amounts of other comprehensive income consistent with this updated guidance.
54
In May 2011, the FASB updated its guidance related to the Fair Value Measurement, Topic 820 of the ASC, to
achieve common fair value measurement and disclosure requirements with International Financial Reporting Standards. The amendments change the wording used to describe many of the requirements under U.S. GAAP, to clarify the intent of application of
existing fair value measurement and disclosure requirements, and to change particular principles or requirements for measuring and disclosing fair value measurements. The amendments are to be applied prospectively to interim and annual reporting
periods beginning after December 15, 2011. The Company adopted this guidance effective January 1, 2012. The adoption of this guidance resulted in additional disclosure but did not impact the Companys results of operations, cash flows
or financial position.
In September 2010, the FASB issued guidance related to accounting for costs associated with acquiring or renewing insurance
contracts. This guidance defines allowable deferred policy acquisition costs as costs incurred by insurance entities for the successful acquisition of new and renewal contracts. Such costs result directly from and are essential to the contract
transaction(s) and would not have been incurred by the insurance entity had the contract(s) not occurred. This guidance is effective for periods beginning after December 15, 2011, with early adoption permitted. The Company adopted this guidance
prospectively effective January 1, 2012. Under the new guidance, the Companys net deferred policy acquisition costs were reduced from $13.0 million to $11.4 million, a difference of 13% at December 31, 2011. The resulting $1.6
million difference was charged directly to earnings during the three months ended March 31, 2012. This charge represents a charge-off of capitalized costs existing at December 31, 2011, which would have been amortized to earnings within a
twelve-month period under the old guidance.
55
NOTE 3 INVESTMENTS
The Company liquidated its trading portfolio of equity securities and transferred the fixed maturities that were outstanding at
December 31, 2012 into its portfolio of securities available for sale effective March 1, 2013. The net unrealized gain (loss) associated with the fixed maturities trading portfolio was recognized in earnings up to the date of transfer.
The following table presents the Companys investment holdings by type of instrument as of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
As of December 31, 2012
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
Cost or
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
|
|
|
Carrying
|
|
|
Amortized
|
|
|
|
|
|
Carrying
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Value
|
|
|
Cost (2)
|
|
|
Fair Value
|
|
|
Value
|
|
Cash and cash equivalents (1)
|
|
$
|
117,275
|
|
|
$
|
117,275
|
|
|
$
|
117,275
|
|
|
$
|
347,392
|
|
|
$
|
347,392
|
|
|
$
|
347,392
|
|
Restricted cash and cash equivalents
|
|
|
2,600
|
|
|
|
2,600
|
|
|
|
2,600
|
|
|
|
33,009
|
|
|
|
33,009
|
|
|
|
33,009
|
|
Trading portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations and agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,192
|
|
|
|
4,009
|
|
|
|
4,009
|
|
Equity securities (2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals and mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,113
|
|
|
|
26,130
|
|
|
|
26,130
|
|
Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,053
|
|
|
|
10,868
|
|
|
|
10,868
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,416
|
|
|
|
8,215
|
|
|
|
8,215
|
|
Exchange-traded and mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals and mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,687
|
|
|
|
21,989
|
|
|
|
21,989
|
|
Agriculture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,705
|
|
|
|
10,265
|
|
|
|
10,265
|
|
Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,992
|
|
|
|
5,068
|
|
|
|
5,068
|
|
Indices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,827
|
|
|
|
2,506
|
|
|
|
2,506
|
|
Non-hedging derivative asset (liability), net (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
(21
|
)
|
|
|
(21
|
)
|
Other investments (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
517
|
|
|
|
317
|
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading portfolio investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,571
|
|
|
|
89,346
|
|
|
|
89,346
|
|
Available for sale portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government obligations and agencies
|
|
|
105,229
|
|
|
|
104,215
|
|
|
|
104,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
|
94,708
|
|
|
|
94,203
|
|
|
|
94,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and asset-backed securities
|
|
|
91,502
|
|
|
|
91,000
|
|
|
|
91,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
8,500
|
|
|
|
9,295
|
|
|
|
9,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
55,113
|
|
|
|
55,727
|
|
|
|
55,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale investments
|
|
|
355,052
|
|
|
|
354,440
|
|
|
|
354,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
474,927
|
|
|
$
|
474,315
|
|
|
$
|
474,315
|
|
|
$
|
476,972
|
|
|
$
|
469,747
|
|
|
$
|
469,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Cash and cash equivalents include money market accounts consisting of or collateralized by short-term U.S. Treasury securities and other U.S. government guaranteed securities.
|
(2)
|
The cost for equity securities as of December 31, 2012 has been restated from the amounts reported on Form 10-K for the year ended December 31, 2012. The amounts previously reported represented the cost
determined under a statutory basis of accounting. The restatement does not affect any amounts reported in the consolidated financial statements including the carrying amount of equity securities reported in the consolidated balance sheet as of
December 31, 2012 and unrealized gains and losses reported in the consolidated statement of income for the year ended December 31, 2012.
|
(3)
|
Derivatives are included in Other assets and Other liabilities and accrued expenses in the Consolidated Balance Sheets.
|
(4)
|
Other investments represent physical metals held by the Company and are included in Other assets in the Consolidated Balance Sheets.
|
The Company has made an assessment of its invested assets for fair value measurement as further described in Note 16 FAIR VALUE MEASUREMENTS.
56
The following table presents the components of net investment income, comprised primarily of interest and
dividends, for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Cash and cash equivalents (1)
|
|
$
|
148
|
|
|
$
|
705
|
|
|
$
|
568
|
|
Fixed maturities
|
|
|
1,420
|
|
|
|
66
|
|
|
|
494
|
|
Equity securities
|
|
|
1,982
|
|
|
|
566
|
|
|
|
421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
3,550
|
|
|
|
1,337
|
|
|
|
1,483
|
|
Less investment expenses
|
|
|
(1,622
|
)
|
|
|
(896
|
)
|
|
|
(695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (expense) income
|
|
$
|
1,928
|
|
|
$
|
441
|
|
|
$
|
788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes interest earned on restricted cash and cash equivalents.
|
Trading Portfolio
The following table provides the effect of trading activities on the Companys results of operations for the periods presented by type of instrument and
by line item in the Consolidated Statements of Income (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Realized gains (losses) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(3,206
|
)
|
Equity securities
|
|
|
(15,969
|
)
|
|
|
(12,286
|
)
|
|
|
5,816
|
|
Derivatives (non-hedging instruments) (1)
|
|
|
(68
|
)
|
|
|
343
|
|
|
|
(260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realized gains (losses) on trading portfolio
|
|
|
(16,037
|
)
|
|
|
(11,943
|
)
|
|
|
2,350
|
|
Change in unrealized gains (losses) on investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
13
|
|
|
|
195
|
|
|
|
8,472
|
|
Equity securities
|
|
|
7,758
|
|
|
|
9,158
|
|
|
|
(26,762
|
)
|
Derivatives (non-hedging instruments) (1)
|
|
|
89
|
|
|
|
145
|
|
|
|
25
|
|
Other
|
|
|
14
|
|
|
|
(55
|
)
|
|
|
(145
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change in unrealized gains (losses) on trading portfolio
|
|
|
7,874
|
|
|
|
9,443
|
|
|
|
(18,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains (losses) recognized on trading portfolio
|
|
$
|
(8,163
|
)
|
|
$
|
(2,500
|
)
|
|
$
|
(16,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
This table provides the alternative quantitative disclosures permitted for derivatives that are not used as hedging instruments and are included in the trading portfolio.
|
Securities Available for Sale
The following table
provides the cost or amortized cost and fair value of securities available for sale as of the period presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
|
Cost or
Amortized Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross Unrealized
Losses
|
|
|
Fair Value
|
|
Fixed Maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government and agency obligations
|
|
$
|
105,229
|
|
|
$
|
19
|
|
|
$
|
(1,033
|
)
|
|
$
|
104,215
|
|
Corporate bonds
|
|
|
94,708
|
|
|
|
265
|
|
|
|
(770
|
)
|
|
|
94,203
|
|
Mortgage-backed and asset-backed securities
|
|
|
91,502
|
|
|
|
75
|
|
|
|
(577
|
)
|
|
|
91,000
|
|
Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
8,500
|
|
|
|
916
|
|
|
|
(121
|
)
|
|
|
9,295
|
|
Mutual funds
|
|
|
55,113
|
|
|
|
2,266
|
|
|
|
(1,652
|
)
|
|
|
55,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
355,052
|
|
|
$
|
3,541
|
|
|
$
|
(4,153
|
)
|
|
$
|
354,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
The following table summarizes the fair value and gross unrealized losses on securities available for sale,
aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2013 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 months
|
|
|
12 months or longer
|
|
|
|
Number
of issues
|
|
|
Fair value
|
|
|
Unrealized
losses
|
|
|
Number
of issues
|
|
|
Fair value
|
|
|
Unrealized
losses
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government and agency obligations
|
|
|
6
|
|
|
$
|
71,042
|
|
|
$
|
(1,033
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
Corporate bonds
|
|
|
55
|
|
|
|
65,926
|
|
|
|
(770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed and asset-backed securities
|
|
|
16
|
|
|
|
67,110
|
|
|
|
(577
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
13
|
|
|
|
3,517
|
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual funds
|
|
|
5
|
|
|
|
19,646
|
|
|
|
(1,652
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
95
|
|
|
$
|
227,241
|
|
|
$
|
(4,153
|
)
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2013, we held fixed maturity and equity securities that were in an unrealized loss position as presented
in the table above. Since the Company liquidated its trading portfolio and transferred the remaining fixed maturities into its portfolio of securities available for sale effective March 1, 2013, there were no positions held in our portfolio of
securities available for sale for longer than 12 months. For fixed maturity securities with significant declines in value, we perform fundamental credit analysis on a security-by-security basis, which includes consideration of credit quality and
credit ratings, review of relevant industry analyst reports and other available market data. For fixed maturity and equity securities, the Company considers whether it has the intent and ability to hold the securities for a period of time sufficient
to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the securitys decline in fair value is considered other than temporary and is recorded in earnings.
Based upon the relative severity and duration of the unrealized losses combined with managements intent and ability to hold the securities until recovery, management had no reason to believe the unrealized losses for securities available for
sale at December 31, 2013 were other than temporary.
The following table presents the amortized cost and fair value of fixed maturities available for
sale by contractual maturity as of December 31, 2013 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturities
Securities Available for Sale
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Due in one year or less
|
|
$
|
3,827
|
|
|
$
|
3,825
|
|
Due after one year through five years
|
|
|
191,522
|
|
|
|
190,260
|
|
Due after five years through ten years
|
|
|
4,588
|
|
|
|
4,333
|
|
Due after ten years
|
|
|
|
|
|
|
|
|
Mortgage-backed and asset-backed securities
|
|
|
91,502
|
|
|
|
91,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
291,439
|
|
|
$
|
289,418
|
|
|
|
|
|
|
|
|
|
|
The following table provides certain information related to securities available for sale during the periods presented (in
thousands):
|
|
|
|
|
|
|
Year Ended
December 31, 2013
|
|
Sales proceeds (fair value)
|
|
$
|
15,542
|
|
Gross realized gains
|
|
$
|
1,301
|
|
Gross realized losses
|
|
$
|
(4
|
)
|
Other than temporary losses
|
|
$
|
|
|
58
NOTE 4 REINSURANCE
The Company seeks to reduce its risk of loss by reinsuring certain levels of risk in various areas of exposure with other insurance
enterprises or reinsurers, generally, as of the beginning of the hurricane season on June 1 of each year. The Companys reinsurance program consists of excess of loss, quota share and catastrophe reinsurance, subject to the terms and
conditions of the applicable agreements. The Company is responsible for insured losses related to catastrophes and other events in excess of coverage provided by its reinsurance program. The Company also remains responsible for the settlement of
insured losses in the event of the failure of any of its reinsurers to make payments otherwise due to the Company. See Note 1, SIGNIFICANT ACCOUNTING POLICIES C
oncentrations of Credit Risk,
for
a
mounts due from our largest
reinsurers as of December 31, 2013.
The estimated insured value of the Companys in-force policyholder coverage for windstorm exposures as of
December 31, 2013, was approximately $120.1 billion.
The Company reduced the percentage of premiums ceded by UPCIC to its quota share reinsurers to
45% beginning with the reinsurance program effective June 1, 2012, from 50% under the prior year quota share contract effective June 1, 2011 through May 31, 2012. The Companys two quota share reinsurance contracts were effective
June 1, 2013. One quota share reinsurance contract provides coverage to UPCIC through May 31, 2014 and the other provides coverage to UPCIC through May 31, 2015. By ceding 5% less premium to its quota share reinsurers, the Company
intends to increase its profitability. The reduction of cession rate also decreases the amount of losses and LAE that may be ceded by UPCIC and effectively increases the amount of risk retained by UPCIC and the Company. The reduction of cession rate
also reduces the amount of ceding commissions earned from the Companys quota share reinsurer during the contract term and decreases the amount of deferred ceding commission, as of December 31, 2013, that is a component of net deferred
policy acquisition costs.
Amounts recoverable from reinsurers are estimated in a manner consistent with the reinsurance contracts. Reinsurance premiums,
losses and LAE are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Deferred ceding commissions are netted against policy acquisition costs and amortized
over the effective period of the related insurance policies.
59
The Companys reinsurance arrangements had the following effect on certain items in the Consolidated
Statements of Income for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
|
|
|
|
|
|
|
|
Losses and Loss
|
|
|
|
Premiums
|
|
|
Premiums
|
|
|
Adjustment
|
|
|
|
Written
|
|
|
Earned
|
|
|
Expenses
|
|
Direct
|
|
$
|
783,894
|
|
|
$
|
788,477
|
|
|
$
|
216,852
|
|
Ceded
|
|
|
(522,116
|
)
|
|
|
(520,822
|
)
|
|
|
(108,237
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
261,778
|
|
|
$
|
267,655
|
|
|
$
|
108,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
Losses and Loss
|
|
|
|
Premiums
|
|
|
Premiums
|
|
|
Adjustment
|
|
|
|
Written
|
|
|
Earned
|
|
|
Expenses
|
|
Direct
|
|
$
|
780,128
|
|
|
$
|
751,899
|
|
|
$
|
249,064
|
|
Ceded
|
|
|
(517,604
|
)
|
|
|
(520,779
|
)
|
|
|
(122,877
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
262,524
|
|
|
$
|
231,120
|
|
|
$
|
126,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2011
|
|
|
|
|
|
|
|
|
|
Losses and Loss
|
|
|
|
Premiums
|
|
|
Premiums
|
|
|
Adjustment
|
|
|
|
Written
|
|
|
Earned
|
|
|
Expenses
|
|
Direct
|
|
$
|
721,462
|
|
|
$
|
689,955
|
|
|
$
|
245,335
|
|
Ceded
|
|
|
(512,979
|
)
|
|
|
(490,970
|
)
|
|
|
(121,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
208,483
|
|
|
$
|
198,985
|
|
|
$
|
124,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following prepaid reinsurance premiums and reinsurance recoverable and receivable are reflected in the Consolidated
Balance Sheets as of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Prepaid reinsurance premiums
|
|
$
|
241,214
|
|
|
$
|
239,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance recoverable on unpaid losses and LAE
|
|
$
|
68,584
|
|
|
$
|
81,415
|
|
Reinsurance recoverable on paid losses
|
|
|
39,263
|
|
|
|
7,776
|
|
Reinsurance receivable, net
|
|
|
203
|
|
|
|
24,334
|
|
|
|
|
|
|
|
|
|
|
Reinsurance recoverable and receivable
|
|
$
|
108,050
|
|
|
$
|
113,525
|
|
|
|
|
|
|
|
|
|
|
60
Segregated Account T25
UIH owned and maintained a segregated account, Segregated Account T25 Universal Insurance Holdings of White Rock Insurance (SAC) Ltd. (T25),
established in accordance with Bermuda law. As part of the Companys overall reinsurance program, T25 at times entered into underlying excess catastrophe contracts with the Insurance Entities for the purpose of assuming certain risk for
specified loss occurrences, including hurricanes. The agreements between T25 and the Insurance Entities were a cost-effective alternative to reinsurance that the Insurance Entities would otherwise purchase from third-party reinsurers. While the
Company retained risk that otherwise would be transferred to third party reinsurers, the use of the Segregated Account T25 provided benefits to the Insurance Entities in no-loss years that could not be replicated in the open reinsurance
market. These benefits included the return to the Insurance Entities of a substantial portion of the earned reinsurance premiums under the contract. All the related intercompany transactions with respect to these agreements are eliminated in
consolidation with the exception of amounts held in trust or on deposit with the OIR which is presented as restricted cash and cash equivalents.
The T25
agreement effective June 1, 2012 through May 31, 2013 was terminated effective December 31, 2012, pursuant to the terms of the agreement. In connection with the termination of the agreement, the affiliates agreed to release funds held
in trust due to the beneficiary (i.e., UPCIC) and the balance to the grantor (i.e., UIH) in December 2012.
Effective January 1, 2013, the T25
contract was subsequently replaced at identical limits and retentions as the prior agreement with unaffiliated third-party reinsurers as an open market purchase. Effective January 1, 2013 through May 31, 2013, under an excess catastrophe
contract, UPCIC obtained catastrophe coverage of 45% of $75 million in excess of $75 million and 55% of $105 million in excess of $45 million covering certain loss occurrences including hurricanes. The total cost of this reinsurance coverage is $2.7
million.
NOTE 5 INSURANCE OPERATIONS
The Companys primary product is homeowners insurance currently offered by APPCIC in one state (Florida) and by UPCIC in seven states,
including Florida.
The following table provides the percentage of concentrations with respect to the Insurance Entities nationwide
policies-in-force as of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
Percentage of Policies-In-Force:
|
|
|
|
|
|
|
|
|
In Florida
|
|
|
93
|
%
|
|
|
96
|
%
|
With wind coverage
|
|
|
98
|
%
|
|
|
98
|
%
|
With wind coverage in South Florida (1)
|
|
|
27
|
%
|
|
|
28
|
%
|
(1)
|
South Florida is comprised of Miami-Dade, Broward and Palm Beach counties.
|
Deferred Policy Acquisition
Costs, net
The Company defers certain costs in connection with written policies, called Deferred Policy Acquisition Costs (DPAC), net of
corresponding amounts of ceded reinsurance commissions, called Deferred Reinsurance Ceding Commissions (DRCC).
61
The following table presents the beginning and ending balances and the changes in DPAC, net of DRCC, for the
periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
DPAC, beginning of year (1)
|
|
$
|
54,431
|
|
|
$
|
50,200
|
|
|
$
|
50,127
|
|
Capitalized Costs
|
|
|
109,981
|
|
|
|
107,180
|
|
|
|
114,358
|
|
Amortization of DPAC
|
|
|
(110,313
|
)
|
|
|
(102,949
|
)
|
|
|
(107,003
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DPAC, end of year
|
|
$
|
54,099
|
|
|
$
|
54,431
|
|
|
$
|
57,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DRCC, beginning of year (1)
|
|
$
|
37,149
|
|
|
$
|
38,845
|
|
|
$
|
40,682
|
|
Ceding Commissions Written
|
|
|
89,679
|
|
|
|
85,063
|
|
|
|
89,330
|
|
Earned Ceding Commissions
|
|
|
(88,628
|
)
|
|
|
(86,759
|
)
|
|
|
(85,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DRCC, end of year
|
|
$
|
38,200
|
|
|
$
|
37,149
|
|
|
$
|
44,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DPAC (DRCC), net, beginning of year (1)
|
|
$
|
17,282
|
|
|
$
|
11,355
|
|
|
$
|
9,445
|
|
Capitalized Costs, net
|
|
|
20,302
|
|
|
|
22,117
|
|
|
|
25,028
|
|
Amortization of DPAC (DRCC), net
|
|
|
(21,685
|
)
|
|
|
(16,190
|
)
|
|
|
(21,477
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DPAC (DRCC), net, end of year
|
|
$
|
15,899
|
|
|
$
|
17,282
|
|
|
$
|
12,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The beginning balances for the twelve months ended December 31, 2012 have been adjusted in connection with the adoption of the FASBs updated guidance related to deferred acquisition costs as discussed below.
|
As discussed in Note 2 SIGNIFICANT ACCOUNTING POLICIES, the Company prospectively adopted new accounting guidance effective
January 1, 2012 related to accounting for costs associated with acquiring or renewing insurance contracts. This guidance resulted in a 13% reduction of our net deferred policy acquisition costs as of December 31, 2011, and a corresponding
pre-tax charge of $1.6 million against earnings during the first quarter of 2012. This charge represents a charge-off of capitalized costs existing at December 31, 2011, which would have been amortized to earnings within a twelve-month period
under the old guidance. In the period of adoption (three months ended March 31, 2012), approximately $9 million of net costs would have been deferred under the old guidance compared to the $5.6 million under the new guidance. Future expenses
will be accelerated with the adoption of this guidance, as the amounts being deferred have decreased, partially offset by less amortization. The effect of this change in periods subsequent to March 31, 2012, on income and per share amounts
is not determinable as the historical methodology will have been discontinued after adoption.
Liability for Unpaid Losses and Loss Adjustment Expenses
The Insurance Entities establish liabilities for unpaid losses and loss adjustment expenses on reported and unreported claims of insured losses. These
liability estimates are based on known facts and interpretation of factors such as claim payment patterns, loss payments, pending levels of unpaid claims, product mix and industry experience. The establishment of appropriate liabilities, including
liabilities for catastrophes, is an inherently uncertain process. Management regularly updates its estimates as new facts become known and further events occur which may impact the resolution of unsettled claims.
The level of catastrophe loss experienced in any year cannot be predicted and could be material to results of operations and financial position. The
Companys policyholders are concentrated in South Florida, which is periodically subject to adverse weather conditions, such as hurricanes and tropical storms. During the twelve-month periods ended December 31, 2013, 2012 and 2011, the
Company did not experience any significant effects from catastrophic events. Management continuously evaluates alternative business strategies to more effectively manage the Companys exposure to catastrophe losses, including the maintenance of
catastrophic reinsurance coverage as discussed in Note 4.
Management believes that the liabilities for claims and claims expense as of December 31,
2013 are appropriately established in the aggregate and adequate to cover the ultimate cost of reported and unreported claims arising from losses which had occurred by that date. However, if losses exceeded direct loss reserve estimates there could
be a material adverse effect on the Companys financial statements. Also, if there are regulatory initiatives, legislative enactments or case law precedents which change the basis for policy coverage, in any of these events, there could be an
effect on direct loss reserve estimates having a material adverse effect on the Companys financial statements.
62
Set forth in the following table is the change in liability for unpaid losses and LAE for the periods presented
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Balance at beginning of year
|
|
$
|
193,241
|
|
|
$
|
187,215
|
|
Less reinsurance recoverable
|
|
|
(81,415
|
)
|
|
|
(88,002
|
)
|
|
|
|
|
|
|
|
|
|
Net balance at beginning of period
|
|
|
111,826
|
|
|
|
99,213
|
|
|
|
|
|
|
|
|
|
|
Incurred (recovered) related to:
|
|
|
|
|
|
|
|
|
Current year
|
|
|
111,560
|
|
|
|
119,458
|
|
Prior years
|
|
|
(2,945
|
)
|
|
|
6,729
|
|
|
|
|
|
|
|
|
|
|
Total incurred
|
|
|
108,615
|
|
|
|
126,187
|
|
|
|
|
|
|
|
|
|
|
Paid related to:
|
|
|
|
|
|
|
|
|
Current year
|
|
|
62,529
|
|
|
|
54,141
|
|
Prior years
|
|
|
67,274
|
|
|
|
59,433
|
|
|
|
|
|
|
|
|
|
|
Total paid
|
|
|
129,803
|
|
|
|
113,574
|
|
|
|
|
|
|
|
|
|
|
Net balance at end of period
|
|
|
90,638
|
|
|
|
111,826
|
|
Plus reinsurance recoverable
|
|
|
68,584
|
|
|
|
81,415
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
159,222
|
|
|
$
|
193,241
|
|
|
|
|
|
|
|
|
|
|
The liability for unpaid losses and LAE includes a decrease of $2.9 million and an increase of $6.7 million in 2013 and 2012,
respectively, in response to reserve development on prior accident years. The favorable development recorded during the year ended December 31, 2013 was primarily the result of lower than anticipated loss settlements on 2004 and 2005
catastrophe claims which were recognized during the calendar year, and favorable development of accident year 2011 and 2012 non-catastrophe loss estimates which were recognized at year end 2013 after a detailed actuarial analysis. Favorable
reserve development in 2013 was somewhat offset by increases in loss adjustment expense estimates on non-catastrophe claims for 2010 through 2012 accident years that were recognized at year end. The reserve development for 2012 was primarily the
result of actual loss development on prior accident year non-catastrophe homeowners losses and higher than expected adjusting and other expenses.
Regulatory Requirements and Restrictions
The Insurance
Entities are subject to regulations and standards of the OIR. These standards require the Insurance Entities to maintain specified levels of statutory capital and restrict the timing and amount of dividends and other distributions that may be paid
to the parent company. Except in the case of extraordinary dividends, these standards generally permit dividends to be paid from statutory unassigned surplus of the regulated subsidiary and are limited based on the regulated subsidiarys level
of statutory net income and statutory capital and surplus. The maximum dividend that may be paid by UPCIC and APPCIC to their immediate parent company, Universal Insurance Holding Company of Florida (UIHCF), without prior approval is
limited to the lesser of statutory net income from operations of the preceding calendar year or 10.0% of statutory unassigned surplus as of the preceding year end. These dividends are referred to as ordinary dividends and generally can
be paid without prior regulatory approval. If the dividend, together with other dividends paid within the preceding twelve months, exceeds a specified statutory limit or is paid from sources other than earned surplus, the entire dividend is
generally considered an extraordinary dividend and must receive prior regulatory approval.
Based on the 2012 statutory net income and
statutory capital and surplus levels, UPCIC and APPCIC did not have the capacity to pay ordinary dividends during 2013. No dividends were paid from UPCIC or APPCIC to UIHCF during the years ended December 31, 2013, 2012 and 2011. Dividends paid
to the shareholders of UIH are paid from the equity of UIH not from the surplus of the Insurance Entities.
63
The Florida Insurance Code requires companies to maintain capitalization equivalent to the greater of ten percent
of the insurers total liabilities or $5.0 million. The following table presents the amount of statutory capital and surplus, and an amount representing ten percent of total liabilities for both UPCIC and APPCIC as of the periods presented (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Ten percent of total liabilities
|
|
|
|
|
|
|
|
|
UPCIC
|
|
$
|
39,179
|
|
|
$
|
39,260
|
|
APPCIC
|
|
$
|
625
|
|
|
$
|
694
|
|
Statutory capital and surplus
|
|
|
|
|
|
|
|
|
UPCIC
|
|
$
|
161,803
|
|
|
$
|
134,034
|
|
APPCIC
|
|
$
|
13,708
|
|
|
$
|
14,330
|
|
At such dates in the table above, both UPCIC and APPCIC met the Florida capitalization requirement. UPCIC and APPCIC are also
required to adhere to prescribed premium-to-capital surplus ratios and have met those requirements at such dates.
Through UIHCF, the Insurance
Entities parent company, UIH recorded capital contributions for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Capital Contributions
|
|
$
|
|
|
|
$
|
28,550
|
|
|
$
|
49,000
|
|
UPCIC and APPCIC are required annually to comply with the NAIC RBC requirements. RBC requirements prescribe a method of
measuring the amount of capital appropriate for an insurance company to support its overall business operations in light of its size and risk profile. NAICs RBC requirements are used by regulators to determine appropriate regulatory actions
relating to insurers who show signs of weak or deteriorating condition. As of December 31, 2013, based on calculations using the appropriate NAIC RBC formula, UPCICs and APPCICs reported total adjusted capital was in excess of the
requirements.
The Company is required by various state laws and regulations to maintain certain assets in depository accounts. The following table
represents assets held by insurance regulators as of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Restricted cash and cash equivalents
|
|
$
|
2,600
|
|
|
$
|
33,009
|
|
Investments
|
|
$
|
3,707
|
|
|
$
|
4,009
|
|
In November 2012, the Florida Insurance Guaranty Association (FIGA) Board of Directors determined the need for an
emergency assessment upon its member companies. The assessment was 0.9% of each respective members Florida net direct premiums for calendar year 2011. The Insurance Entities participation in this assessment totaled $6.3 million based on
2011 net direct premiums generated in Florida of approximately $704.8 million. Pursuant to Florida statutes, insurers are permitted to recoup the assessment by adding a surcharge to policies in an amount not to exceed the amount paid by the
insurer to FIGA. As a result, the Insurance Entities recorded this assessment as an expense during the year ended December 31, 2012 and began to recoup the assessment on February 1, 2013. The Company has recouped the majority of this
assessment as of December 31, 2013.
UPCIC received an order from the OIR dated May 30, 2013 related to the OIRs Target Market Conduct
Final Examination Report of UPCIC for the period January 2009 through May 2013 (OIR Order). The OIR Order alleged certain violations and findings and sought to impose certain requirements and an administrative fine of $1.3 million upon
UPCIC. On October 4, 2013, UPCIC and the OIR signed a Consent Order settling the OIR Order. The Consent Order clarified language contained in the OIR Order, imposed certain requirements on UPCIC and required UPCIC to pay the administrative fine
of $1.3 million, which it paid on October 18, 2013.
64
NOTE 6 PROPERTY AND EQUIPMENT
Property and equipment consisted of the following for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Land
|
|
$
|
1,287
|
|
|
$
|
1,287
|
|
Building
|
|
|
6,508
|
|
|
|
6,508
|
|
Leasehold improvements
|
|
|
17
|
|
|
|
|
|
Computers
|
|
|
619
|
|
|
|
568
|
|
Furniture
|
|
|
1,112
|
|
|
|
1,043
|
|
Automobiles and other vehicles
|
|
|
3,067
|
|
|
|
2,183
|
|
Software
|
|
|
2,055
|
|
|
|
1,772
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
14,665
|
|
|
|
13,361
|
|
Less: accumulated depreciation
|
|
|
(5,376
|
)
|
|
|
(4,393
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
9,289
|
|
|
$
|
8,968
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization was $1 million, $840 thousand and $639 thousand for the years ended December 31, 2013, 2012
and 2011, respectively.
The following table provides realized gains (losses) on the disposal of property and equipment for the periods presented (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Realized gain (loss) on disposal
|
|
$
|
(10
|
)
|
|
$
|
(6
|
)
|
|
$
|
17
|
|
NOTE 7 LONG-TERM DEBT
Long-term debt consists of a surplus note with a carrying amount of $18.8 million and $20.2 million as of December 31, 2013 and
December 31, 2012, respectively, a term loan with a carrying amount of $18.5 million as of December 31, 2013 and none at December 31, 2012, and any amounts drawn upon an unsecured line of credit.
Surplus Note
On November 9, 2006, UPCIC entered
into a $25.0 million surplus note with the SBA under Floridas Insurance Capital Build-Up Incentive Program (ICBUI). Under ICBUI, which was implemented by the Florida Legislature to encourage insurance companies to write additional
residential insurance coverage in Florida, the SBA matched UPCICs funds of $25.0 million that were earmarked for participation in the program. The surplus note brings the current statutory capital and surplus of UPCIC to approximately $161.8
million as of December 31, 2013.
The surplus note calls for serial maturities and is scheduled to be fully repaid on December, 31, 2026 and accrues
interest at a rate equivalent to the 10-year U.S. Treasury Bond rate, adjusted quarterly based on the 10-year Constant Maturity Treasury rate. For the first three years of the term of the surplus note, UPCIC was required to pay interest only. The
effective interest rate paid on the surplus note was 2.21%, 1.96% and 3.77% for years ended December 31, 2013, 2012 and 2011, respectively. Any payment of principal or interest by UPCIC on the surplus note must be approved by the Commissioner
of the OIR. Quarterly principal payments of $368 thousand are due through 2026. Aggregate principal payments of $1.5 million were made during each of the years ended December 31, 2013, 2012 and 2011.
In May 2008, the Florida Legislature passed a law providing participants in the Program an opportunity to amend the terms of their surplus notes based on law
changes. The new law contains methods for calculating compliance with the writing ratio requirements that are more favorable to UPCIC than prior law and the prior terms of the existing surplus note. On November 6, 2008, UPCIC and the SBA
executed an addendum to the surplus note that reflects these law changes. The terms of the addendum were effective July 1, 2008. In addition to other less significant changes, the addendum modifies the definitions of Minimum Required Surplus,
Minimum Writing Ratio, Surplus, and Gross Written Premium, respectively, as defined in the original surplus note.
65
UPCIC has been and currently remains in compliance with each of the loans covenants as implemented by rules
promulgated by the SBA. An event of default will occur under the surplus note, as amended, if UPCIC: (i) defaults in the payment of the surplus note; (ii) fails to submit quarterly filings to the OIR; (iii) fails to maintain at least
$50 million of surplus during the term of the surplus note, except for certain situations; (iv) misuses proceeds of the surplus note; (v) makes any misrepresentations in the application for the program; (vi) pays any dividend when
principal or interest payments are past due under the surplus note; or (vii) fails to maintain a level of surplus and reinsurance sufficient to cover in excess of UPCICs 1-in-100 year probable maximum loss as determined by a hurricane
loss model accepted by the Florida Commission on Hurricane Loss Projection Methodology as certified by the OIR annually.
The original surplus note
provided for increases in interest rates for failure to meet the Minimum Writing Ratio. Under the terms of the surplus note agreement, at December 31, 2007, the interest rate on the note was increased by 450 basis points. As of June 30,
2008, the additional interest rate on the note was decreased from 450 basis points to 25 basis points. Under the terms of the surplus note, as amended, the net written premium to surplus requirement and gross written premium to surplus requirement
have been modified. Further, UPCIC will be subject to increases in interest rates if it drops below a net written premium to surplus of 1:1 below a gross written premium to surplus ratio of 3:1 for three consecutive quarters beginning
January 1, 2010. As of December 31, 2013, UPCICs net written premium to surplus ratio and gross written premium to surplus ratio were in excess of the required minimums and, therefore, UPCIC is not subject to increases in interest
rates.
Term Loan
On May 23, 2013, UIH entered
into a $20 million unsecured term loan agreement and related term note (Term Loan) with RenaissanceRe Ventures Ltd. (RenRe Ventures). See Note 11 RELATED PARTY TRANSACTIONS, for a discussion of a series of agreements
entered into with RenRe Ventures and its affiliate Renaissance Reinsurance Ltd. (RenRe).
The Term Loan bears interest at the rate of
0.50% per annum and matures on the earlier of May 23, 2016 or the date that all principal under the Term Loan is pre-paid or deemed paid in full. The Term Loan is amortized over the three-year term and UIH may prepay the loan without
penalty. Principal is payable annually on the anniversary of the closing date in three annual installments and interest is payable in arrears on the same dates as the principal payments. The Term Loan contains financial covenants and as of
December 31, 2013, UIH was in compliance with such covenants.
The stated interest rate of the Term Loan of 0.50% is below the Companys
borrowing rate resulting in imputed interest and an original issue discount computed by calculating the present value of the future principal and interest payments utilizing the Companys borrowing rate. Concurrent with the establishment of the
original issue discount, the Company recorded a deferred credit, a component of other liabilities and accrued expenses, for an equal amount against premium payments the Company will make in connection with a catastrophe risk-linked transaction
contract entered into with RenRe on the same date and with the same maturity date as the Term Loan. The original issue discount will be amortized to interest expense over the life of the Term Loan and the deferred credit will be amortized as a
reduction in insurance expense, a component of general and administrative expenses, over the life of a covered loss index swap with RenRe.
The following
table provides the principal amount and unamortized discount of the Term Loan for the period presented (in thousands):
|
|
|
|
|
|
|
As of December 31, 2013
|
|
Principal amount
|
|
$
|
20,000
|
|
Less: unamortized discount
|
|
|
(1,510
|
)
|
|
|
|
|
|
Term Loan, net of unamortized discount
|
|
$
|
18,490
|
|
|
|
|
|
|
Through the interest rate payment of 0.50% per annum and the amortization of the discount, the effective interest rate on
the Term Loan is 5.99%. Amortization of the discount is included in interest expense, a component of general and administrative expenses, in the Consolidated Statements of Income and was $601 thousand for the twelve months ended December 31,
2013.
Should UIH default on either the DB Loan (defined below) or the Term Loan, it will be prohibited from paying dividends to its shareholders.
Unsecured Line of Credit
On March 29, 2013, UIH
entered into a revolving loan agreement and related revolving note with Deutsche Bank Trust Company Americas (Deutsche Bank), amended as of May 23, 2013 (DB Loan). The DB Loan makes available to UIH an unsecured line of
credit in an aggregate amount not to exceed $10.0 million. Draws under the DB Loan have a maturity date of March 27, 2015 and carry an interest rate of LIBOR plus a margin of 5.50% or Deutsche Banks prime rate plus a margin of 3.50%. The
interest rate is at the election of UIH. The DB Loan contains financial covenants. As of December 31, 2013, UIH was in compliance with all such covenants. UIH had not drawn any amounts under the unsecured line of credit as of December 31,
2013.
66
Maturities
The following table provides an estimate of principal payments to be made for the amounts due on the surplus note and the Term Loan as of December 31,
2013 (in thousands):
|
|
|
|
|
2014
|
|
$
|
7,471
|
|
2015
|
|
|
8,471
|
|
2016
|
|
|
8,471
|
|
2017
|
|
|
1,471
|
|
2018
|
|
|
1,471
|
|
Thereafter
|
|
|
11,395
|
|
|
|
|
|
|
Total
|
|
$
|
38,750
|
(1)
|
|
|
|
|
|
(1)
|
Differs from amount presented in the Balance Sheet as of December 31, 2013 due to unamortized discount as presented in the table above.
|
Interest Expense
Interest expense was $1.2 million, $414
thousand, and $856 thousand for the years ended December 31, 2013, 2012 and 2011, respectively.
NOTE 8 STOCKHOLDERS EQUITY
Cumulative Convertible Preferred Stock
As of December 31, 2013 and 2012, the Company had shares outstanding of Series A Preferred Stock and Series M Preferred Stock. Each share of Series A
Preferred Stock and Series M Preferred Stock is convertible by the Company into shares of Common Stock.
The following table provides certain information
for each series of convertible preferred stock as of the periods presented (in thousands, except conversion factor):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
As of December 31, 2012
|
|
|
|
Series A
|
|
|
Series M
|
|
|
Total
|
|
|
Series A
|
|
|
Series M
|
|
|
Total
|
|
Shares issued and outstanding
|
|
|
20
|
|
|
|
10
|
|
|
|
30
|
|
|
|
20
|
|
|
|
88
|
|
|
|
108
|
|
Conversion factor
|
|
|
2.50
|
|
|
|
5.00
|
|
|
|
NM
|
|
|
|
2.50
|
|
|
|
5.00
|
|
|
|
NM
|
|
Common shares resulting if converted
|
|
|
50
|
|
|
|
50
|
|
|
|
100
|
|
|
|
50
|
|
|
|
438
|
|
|
|
488
|
|
NM - Not meaningful.
The
Series A Preferred Stock pays a cumulative dividend of $0.25 per share per quarter. During 2013 and 2012, respectively, the Company declared and paid aggregate dividends of $20 thousand to holders of record of the Companys Series A Preferred
Stock.
There were no conversions of Series A Preferred Stock during the years ended December 31, 2013 and 2012.
The Series M Preferred Stock pays a cumulative dividend of $0.20 per share per year. The Company declared and paid aggregate dividends to holders of record of
the Companys Series M Preferred Stock of $9 thousand and $267 thousand for the years ended December 31, 2013 and 2012, respectively.
During
the year ended December 31, 2013, shareholders converted 77,740 shares of Series M Preferred Stock into 388,700 shares of Common Stock. There were no conversions of Series M Preferred Stock in 2012.
67
Common Stock
The following table summarizes the activity relating to shares of the Companys Common Stock during the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
Shares
|
|
|
Treasury
Shares
|
|
|
Outstanding
Shares
|
|
Balance, as of December 31, 2010
|
|
|
40,407
|
|
|
|
(1,019
|
)
|
|
|
39,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
160
|
|
|
|
|
|
|
|
160
|
|
Shares cancelled
|
|
|
(70
|
)
|
|
|
70
|
|
|
|
|
|
Restricted stock grant
|
|
|
600
|
|
|
|
|
|
|
|
600
|
|
Shares acquired through cashless exercise (1)
|
|
|
|
|
|
|
(70
|
)
|
|
|
(70
|
)
|
Other adjustments
|
|
|
3
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of December 31, 2011
|
|
|
41,100
|
|
|
|
(1,018
|
)
|
|
|
40,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
285
|
|
|
|
|
|
|
|
285
|
|
Shares cancelled
|
|
|
(146
|
)
|
|
|
146
|
|
|
|
|
|
Restricted stock grant
|
|
|
650
|
|
|
|
|
|
|
|
650
|
|
Shares acquired through cashless exercise (1)
|
|
|
|
|
|
|
(146
|
)
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of December 31, 2012
|
|
|
41,889
|
|
|
|
(1,018
|
)
|
|
|
40,871
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of preferred stock
|
|
|
389
|
|
|
|
|
|
|
|
389
|
|
Shares repurchased
|
|
|
|
|
|
|
(7,257
|
)
|
|
|
(7,257
|
)
|
Options exercised
|
|
|
2,330
|
|
|
|
|
|
|
|
2,330
|
|
Shares cancelled
|
|
|
(1,967
|
)
|
|
|
1,967
|
|
|
|
|
|
Restricted stock grant
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
Shares acquired through cashless exercise (1)
|
|
|
|
|
|
|
(1,967
|
)
|
|
|
(1,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, as of December 31, 2013
|
|
|
43,641
|
|
|
|
(8,275
|
)
|
|
|
35,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
All shares acquired represent shares tendered to cover the strike price for options and tax withholdings on the intrinsic value of options exercised or restricted stock vested. These shares have been cancelled by the
Company.
|
On April 1, 2013, UIH entered into a repurchase agreement with Bradley I. Meier, the Companys former Chairman,
President and Chief Executive Officer and a principal stockholder of UIH, to repurchase an aggregate of four million shares of UIHs common stock owned by Mr. Meier. The initial repurchase of two million of Mr. Meiers shares
occurred on April 1, 2013, and the subsequent repurchase of two million shares occurred on May 23, 2013, each at a price of $4.02 per share, representing a discount from the then-current market price of UIHs common stock. The
repurchase of shares from Mr. Meier provides us with an opportunity to buy back shares at a discount to current stock price, while facilitating the orderly sale of shares by a large shareholder.
On May 23, 2013, UIH entered into a second repurchase agreement with Bradley I. Meier to repurchase an additional 2.666 million shares of UIHs
common stock owned by Mr. Meier. The repurchase of 2.666 million of Mr. Meiers shares occurred on May 23, 2013 for a repurchase price of $4.50 per share, representing a discount from the then-current market price of
UIHs common stock.
On August 1, 2013, UIH entered into a third repurchase agreement with Bradley I. Meier to repurchase an additional
350 thousand shares of UIHs common stock owned by Mr. Meier. The repurchase of 350 thousand of Mr. Meiers shares occurred on August 1, 2013 for a repurchase price of $7.02 per share, representing a discount from
the then-current market price of UIHs common stock.
On August 14, 2013, UIH entered into a repurchase agreement with Norman M. Meier to
repurchase 241,933 shares of UIHs common stock owned by Mr. Meier. The repurchase of 241,933 of Mr. Meiers shares occurred on August 14, 2013 for a repurchase price of $7.57 per share, representing a discount from the
then-current market price of UIHs common stock.
68
Dividends Declared
The Company declared dividends on its outstanding shares of common stock to its shareholders of record as follows for the periods presented (in thousands,
except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
|
Per Share
|
|
|
Aggregate
|
|
|
Per Share
|
|
|
Aggregate
|
|
|
Per Share
|
|
|
Aggregate
|
|
|
|
Amount
|
|
|
Amount
|
|
|
Amount
|
|
|
Amount
|
|
|
Amount
|
|
|
Amount
|
|
First Quarter
|
|
$
|
0.08
|
|
|
$
|
3,259
|
|
|
$
|
0.10
|
|
|
$
|
4,012
|
|
|
$
|
0.10
|
|
|
$
|
3,939
|
|
Second Quarter
|
|
$
|
0.08
|
|
|
$
|
2,821
|
|
|
$
|
0.08
|
|
|
$
|
3,214
|
|
|
$
|
|
|
|
$
|
|
|
Third Quarter
|
|
$
|
0.10
|
|
|
$
|
3,511
|
|
|
$
|
0.08
|
|
|
$
|
3,270
|
|
|
$
|
0.08
|
|
|
$
|
3,199
|
|
Fourth Quarter
|
|
$
|
0.23
|
|
|
$
|
8,134
|
|
|
$
|
0.20
|
|
|
$
|
8,174
|
|
|
$
|
0.14
|
|
|
$
|
5,611
|
|
Applicable provisions of the Delaware General Corporation Law may affect the ability of the Company to declare and pay
dividends on its Common Stock. In particular, pursuant to the Delaware General Corporation Law, a company may pay dividends out of its surplus, as defined, or out of its net profits, for the fiscal year in which the dividend is declared and/or the
preceding year. Surplus is defined in the Delaware General Corporation Law to be the excess of net assets of the company over capital. Capital is defined to be the aggregate par value of shares issued. Moreover, the ability of the Company to pay
dividends, if and when declared by its Board of Directors, may be restricted by regulatory limits on the amount of dividends, which the Insurance Entities are permitted to pay the Company.
Restrictions limiting the payment of dividends by UIH
UIH pays dividends to shareholders, which are funded by earnings on investments and distributions from the earnings of its consolidated
subsidiaries. Generally, other than as disclosed in Note 7 LONG-TERM DEBT, there are no restrictions for UIH limiting the payment of dividends. However, UIHs ability to pay dividends to shareholders may be affected by restrictions on the
ability of the Insurance Entities to pay dividends to UIH through UIHCF. See Note 5, INSURANCE OPERATIONS, for a discussion of these restrictions. As of December 31, 2013, 100 percent of the Insurance Entities net assets were restricted.
There are no such restrictions for UIHs non-insurance consolidated subsidiaries. Notwithstanding the restriction on the net assets of the Insurance Entities, UIH received distributions from the earnings of its non-insurance consolidated
subsidiaries of $26.9 million, $40.2 million and $89.3 million during the years ended December 31, 2013, 2012 and 2011, respectively and made capital contributions to the Insurance Entities of $28.6 million and $49.0 million, during the years
ended December 31, 2012 and 2011, respectively. UIH did not make any capital contributions to the Insurance Entities during the year ended December 31, 2013. The Company prepares and files a consolidated federal tax return for UIH and
its consolidated subsidiaries with all U.S. GAAP tax related entries recorded on the books of UIH. Since the U.S. GAAP tax related entries are not recorded at the subsidiary level, the Company does not have the ability to produce the amount of net
assets for each of its subsidiaries in accordance with U.S. GAAP.
NOTE 9 SHARE-BASED COMPENSATION
Equity Compensation Plan
On
October 13, 2009, the Companys Board of Directors approved, and recommended that the Companys stockholders approve, the 2009 Omnibus Incentive Plan (Incentive Plan). On November 16, 2009, the Companys
stockholders approved the Incentive Plan by written consent.
An aggregate of 1.8 million shares of Common Stock was initially reserved for issuance
and available for awards under the Incentive Plan. Awards under the Incentive Plan may include incentive stock options, nonqualified stock options, stock appreciation rights, non-vested shares of Common Stock (Restricted Stock),
restricted stock units, performance share or unit awards, other share-based awards and cash-based incentive awards. Awards under the Incentive Plan may be granted to employees, directors, consultants or other persons providing services to the
Company or its affiliates. The Incentive Plan also provides for awards that are intended to qualify as performance-based compensation in order to preserve the deductibility of such compensation by the Company under Section 162(m) of
the Internal Revenue Code.
At the 2011 Annual Meeting of Shareholders held on May 11, 2011, shareholders voted to approve the recommendation of the
Companys Board of Directors to amend the Incentive Plan. The Incentive Plan allows for amendments which are intended for the plan to remain a flexible and effective source of incentive compensation in terms of the number of shares of stock
available for awards, in terms of its design, as well as whether it generally conforms with the best practices in todays business environment. Significant aspects of the amendment include: an increase of 2.4 million shares in the shares
reserved for grant, an adjustment to the annual maximum awards limits, a prohibition against re-pricing of options and stock appreciation rights without shareholder approval, and an addition of specific elements to the performance goals.
69
At the 2012 Annual Meeting of Shareholders held on June 8, 2012, shareholders voted to approve the
recommendation of the Companys Board of Directors to amend the Incentive Plan. Significant aspects of this amendment include: an increase of 3 million in the shares reserved for grant, an extension of the term, an expansion of the list of
performance goals, a provision for recovery compensation in connection with financial restatements, and certain modifications in order to provide internal consistency.
At the 2013 Annual Meeting of Shareholders held on June 6, 2013, shareholders voted to approve the recommendation of the Companys Board of
Directors to amend the Incentive Plan to add 3 million shares to the shares reserved for grant.
As of December 31, 2013, 1,947 thousand
shares remained reserved for issuance and were available for new awards under the Incentive Plan.
The following table provides certain information
related to stock options and restricted stock during the year ended December 31, 2013 (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
|
|
Stock Options
|
|
|
Restricted Stock
|
|
|
|
Number of
Options
|
|
|
Weighted
Average
Exercise
Price per
Share (1)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Weighted
Average
Remaining
Term
|
|
|
Number of
Shares (2)
|
|
|
Weighted
Average
Grant Date
Fair Value
per Share (1)
|
|
Outstanding as of December 31, 2012
|
|
|
5,330
|
|
|
$
|
4.29
|
|
|
|
|
|
|
|
|
|
|
|
1,152
|
|
|
$
|
4.37
|
|
Granted
|
|
|
2,015
|
|
|
|
6.54
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
5.43
|
|
Forfeited
|
|
|
(40
|
)
|
|
|
7.33
|
|
|
|
|
|
|
|
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Exercised
|
|
|
(2,330
|
)
|
|
|
4.06
|
|
|
|
|
|
|
|
|
|
|
|
n/a
|
|
|
|
n/a
|
|
Vested
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
(552
|
)
|
|
|
4.64
|
|
Expired
|
|
|
(850
|
)
|
|
|
3.90
|
|
|
|
|
|
|
|
|
|
|
|
n/a
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2013
|
|
|
4,125
|
|
|
$
|
5.56
|
|
|
$
|
36,786
|
|
|
|
3.86
|
|
|
|
1,600
|
|
|
$
|
4.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2013
|
|
|
1,900
|
|
|
$
|
4.83
|
|
|
$
|
18,330
|
|
|
|
2.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Unless otherwise specified, such as in the case of the exercise of stock options, the per share prices were determined using the closing price of the Companys Common Stock as quoted on the exchanges on which the
Company was listed. Shares issued upon exercise of options represent original issuances in private transactions pursuant to Section 4(2) of the Securities Act of 1933, as amended or issuances under the Companys 2009 Omnibus Incentive
Plan.
|
(2)
|
All shares outstanding as of December 31, 2013 are expected to vest.
|
n/a - Not applicable
70
The following table provides certain information in connection with the Companys share-based compensation
arrangements for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
930
|
|
|
$
|
1,188
|
|
|
$
|
1,450
|
|
Restricted stock
|
|
|
5,487
|
|
|
|
2,642
|
|
|
|
1,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,417
|
|
|
$
|
3,830
|
|
|
$
|
2,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
359
|
|
|
$
|
458
|
|
|
$
|
559
|
|
Restricted stock
|
|
|
433
|
|
|
|
468
|
|
|
|
315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
792
|
|
|
$
|
926
|
|
|
$
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
2,365
|
|
|
$
|
168
|
|
|
$
|
195
|
|
Restricted stock
|
|
|
374
|
|
|
|
291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,739
|
|
|
$
|
459
|
|
|
$
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefits(shortfall):
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
418
|
|
|
$
|
(1,618
|
)
|
|
$
|
195
|
|
Restricted stock
|
|
|
(59
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
359
|
|
|
$
|
(1,760
|
)
|
|
$
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average fair value per option or share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option grants
|
|
$
|
0.79
|
|
|
$
|
0.87
|
|
|
$
|
1.67
|
|
Restricted stock grants
|
|
$
|
5.43
|
|
|
$
|
3.37
|
|
|
$
|
5.61
|
|
Intrinsic value of options exercised
|
|
$
|
6,131
|
|
|
$
|
437
|
|
|
$
|
507
|
|
Fair value of restricted stock vested
|
|
$
|
2,548
|
|
|
$
|
1,164
|
|
|
$
|
540
|
|
Cash received for strike price and tax withholdings
|
|
$
|
|
|
|
$
|
652
|
|
|
$
|
204
|
|
Shares acquired through cashless exercise (1)
|
|
|
1,966
|
|
|
|
147
|
|
|
|
70
|
|
Value of shares acquired through cashless exercise (1)
|
|
$
|
12,630
|
|
|
$
|
583
|
|
|
$
|
263
|
|
(1)
|
All shares acquired represent shares tendered to cover the strike price for options and tax withholdings on the intrinsic value of options exercised or restricted stock vested. These shares have been cancelled by the
Company.
|
The following table provides the amount of unrecognized compensation expense as of the most recent balance sheet date and the
weighted average period over which those expenses will be recorded for both stock options and restricted stock (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
|
Stock
Options
|
|
|
Restricted
Stock
|
|
Unrecognized expense
|
|
$
|
1,449
|
|
|
$
|
2,844
|
|
Weighted average remaining years
|
|
|
2.87
|
|
|
|
0.82
|
|
Stock Options
Non-qualified stock option awards (stock options) granted by the Company generally expire between 5 to 10 years from the grant date and
generally vest over a 2 to 3 year service period commencing on the grant date.
The Company used the modified Black-Scholes model to estimate the fair
value of employee stock options on the date of grant utilizing the assumptions noted below. The risk-free rate is based on the U.S. Treasury bill yield curve in effect at the time of grant for the expected term of the option. The expected term of
options granted represents the period of time that the options are expected to be outstanding. Expected volatilities are based on historical volatilities of our Common Stock. The dividend yield was based on expected dividends at the time of grant.
71
The following table provides the assumptions utilized in the Black-Scholes model for stock options granted during
the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Weighted-average risk-free interest rate
|
|
|
0.27
|
%
|
|
|
0.62
|
%
|
|
|
1.34
|
%
|
Expected term of option in years
|
|
|
3.21
|
|
|
|
4.25
|
|
|
|
3.92
|
|
Weighted-average volatility
|
|
|
34.1
|
%
|
|
|
48.4
|
%
|
|
|
58.5
|
%
|
Dividend yield
|
|
|
9.1
|
%
|
|
|
11.4
|
%
|
|
|
8.9
|
%
|
Weighted average grant date fair value per share
|
|
$
|
0.79
|
|
|
$
|
0.87
|
|
|
$
|
1.67
|
|
On June 23, 2011, the Company granted the Chief Executive Officer (CEO) a stock option to purchase
300 thousand shares of common stock, the Chief Operating Officer (COO) a stock option to purchase 300 thousand shares of common stock and the Chief Financial Officer (CFO) a stock option to purchase 75 thousand
shares of common stock. All three option grants have an exercise price of $4.70 per share, expire on June 23, 2018 and vest over three years as follows: (i) one third on the six (6) month anniversary of the date of grant,
(ii) one third on the one (1) year anniversary of the date of grant, and (iii) one third on the two (2) year anniversary of the date of grant.
On September 4, 2012, the Company granted stock options for an aggregate 500 thousand shares of Common Stock to the Companys COO in
consideration for services rendered pursuant to terms of an employment agreement and to provide the COO with a continued incentive to share in the success of the Company. The options have an exercise price of $3.51, expire on September 4, 2019
and vest over two years as follows: options for 250 thousand shares on the one year anniversary of the grant date and options for 250 thousand shares on the two year anniversary of the grant date.
On March 12, 2013, the Company granted the COO a stock option to purchase 100 thousand shares of common stock. The option has an exercise price of
$4.51 per share, expires on March 12, 2018 and vests over three years as follows: one third on the one (1) year anniversary of the date of grant, one third on the two (2) year anniversary of the date of grant and one third on the
three (3) year anniversary of the date of grant.
On July 8, 2013, the Company granted the COO an additional stock option to purchase
300 thousand shares of common stock. The option has an exercise price of $7.33 per share, expires on July 8, 2018 and vests over three years as follows: one third on the one (1) year anniversary of the date of grant, one third on the
two (2) year anniversary of the date of grant and one third on the three (3) year anniversary of the date of grant.
On November 12, 2013,
the Company granted the Chief Administrative Officer (CAO) a stock option to purchase 200 thousand shares of common stock. The Company also granted the CEO a stock option to purchase 300 thousand shares of common stock. Both
option grants have an exercise price of $8.01 per share, expire on November 12, 2020 and vest over three years as follows: one third on the one (1) year anniversary of the date of grant, one third on the two (2) year anniversary of
the date of grant and one third on the three (3) year anniversary of the date of grant.
Restricted Stock Grants
Restricted stock grants are awarded to certain employees in consideration for services rendered pursuant to terms of employment agreements and or to provide to
those employees with a continued incentive to share in the success of the Company. Non-vested shares (restricted stock) generally vest over a three year service period commencing on the grant date. The prices discussed below reflect the
market price of UIHs common stock on the grant date.
The Company issued 600 thousand shares of performance-based restricted Common Stock at a
price of $5.61 per share to its COO. Shares of 200 thousand vest on each of the first, second and third anniversary of the grant date which was March 28, 2011, subject to shareholder approval and annual performance criteria. This grant was
not effective until shareholder approval which took place May 11, 2011.
Effective August 23, 2012, the Company issued 650 thousand shares
of restricted Common Stock at a price of $3.37 per share to its COO. The stock vests cumulatively over a two-year period as follows: 38.5 percent, 77 percent and 100 percent, respectively, on January 1, 2013, January 1, 2014 and
December 31, 2014.
72
Effective April 1, 2013, the Company issued 500 thousand shares of restricted Common Stock to its CEO,
250 thousand shares of restricted Common Stock to its COO and 100 thousand shares of restricted Common Stock to its CAO. All three restricted Common Stock grants were issued at a price of $4.88 per share and vest on April 7, 2014.
Effective August 8, 2013, the Company issued 150 thousand shares of restricted Common Stock at a price of $8.55 per share to its CFO. The stock
vests cumulatively over a two-year period as follows: 50 percent and 50 percent, respectively, on October 1, 2014 and October 1, 2015.
NOTE 10 EMPLOYEE BENEFIT PLAN
Effective January 1, 2009, the Company adopted a qualified retirement plan covering substantially all employees. It is designed to help
the employees meet their financial needs during their retirement years. Eligibility for participation in the plan is generally based on employees date of hire or on completion of a specified period of service. Employer contributions to this
plan are made in cash.
The plan titled the Universal Property & Casualty 401(K) Profit Sharing Plan and Trust (401(k)
Plan) is a defined contribution plan that allows employees to defer compensation through contributions to the 401(k) Plan. The contributions are invested on the employees behalf, and the benefits paid to employees are based on
contributions and any earnings or loss. The 401(k) Plan includes a Company contribution of 100 percent of each eligible participants contribution that does not exceed five percent of their compensation during the 401(k) Plan year. The Company
may make additional profit-sharing contributions. However, no additional profit-sharing contribution was made during the years ended December 31, 2013, 2012 and 2011.
The Company accrued for aggregate contributions of approximately $709 thousand, $598 thousand and $542 thousand to the 401(k) Plan during the years ended
December 31, 2013, 2012 and 2011, respectively.
NOTE 11 RELATED PARTY TRANSACTIONS
Downes and Associates, a multi-line insurance adjustment corporation based in Deerfield Beach, Florida performed certain claims adjusting
work for UPCIC. Downes and Associates is owned by Dennis Downes, who is the father of Sean P. Downes, Chairman, President and Chief Executive Officer of the Company. All amounts paid to Downes and Associates were no greater than amounts that would
need to be paid to third parties on an arms-length basis for similar services. The Companys agreement with Downes and Associates was terminated effective November 30, 2013 and on December 1, 2013 Dennis Downes became an
employee of the Company.
Scott P. Callahan, a director of the Company, provides the Company with consulting services and advice with respect to the
Companys reinsurance and related matters through SPC Global RE Advisors LLC, an entity affiliated with Mr. Callahan. The Company entered into the consulting agreement with SPC Global RE Advisors LLC effective June 6, 2013.
The following table provides payments made by the Company to Downes and SPC Global RE Advisors LLC for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Downes and Associates
|
|
$
|
477
|
|
|
$
|
623
|
|
|
$
|
753
|
|
SPC Global RE Advisors LLC
|
|
$
|
68
|
|
|
$
|
|
|
|
$
|
|
|
There were no amounts due to Downes and Associates and SPC Global RE Advisors LLC as of December 31, 2013 and 2012.
Payments due to Downes and Associates and SPC Global RE Advisors LLC were generally made in the month the services were provided.
See NOTE 8
STOCKHOLDERS EQUITY, for details on the repurchase agreements between UIH and each of Messrs. Bradley Meier and Norman Meier.
RenRe currently is, and has
been, a participant in the Companys reinsurance programs. On May 23, 2013, the Company entered into a series of contracts with RenRe and its affiliate, RenRe Ventures. As discussed in Note 7 LONG-TERM DEBT, UIH entered into an
unsecured Term Loan with RenRe Ventures. The Term Loan is part of a series of agreements entered into by the Company, RenRe and RenRe Ventures pursuant to which, among other things, the Company has purchased a catastrophe risk-linked transaction
contract from RenRe and entered into an agreement whereby RenRe will reserve reinsurance capacity for the Companys reinsurance programs and receive a right of first refusal in respect of a portion thereof. As part of the series of agreements
with RenRe and RenRe Ventures,
73
on May 23, 2013, UIH, RenRe Ventures and Mr. Bradley Meier agreed to assign to RenRe Ventures a portion of UIHs right of first refusal to repurchase shares of its common stock
owned by Mr. Meier under the first repurchase agreement entered into on April 1, 2013. RenRe Ventures will have a right of first refusal to repurchase one-third of the shares offered by Mr. Meier to any third party, up to the lesser
of 2 million shares or 4.99% of UIHs outstanding common stock, through December 31, 2014.
NOTE 12 INCOME TAXES
The following table reconciles the statutory federal income tax rate to the Companys effective tax rate for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
Increases (decreases) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Disallowed meals & entertainment
|
|
|
0.4
|
%
|
|
|
0.6
|
%
|
|
|
0.6
|
%
|
Disallowed compensation
|
|
|
2.3
|
%
|
|
|
3.2
|
%
|
|
|
2.3
|
%
|
Fines and penalties
|
|
|
0.4
|
%
|
|
|
|
|
|
|
|
|
True-up of prior year tax returns
|
|
|
(0.6
|
%)
|
|
|
|
|
|
|
|
|
State income tax, net of federal tax benefit (1)
|
|
|
3.6
|
%
|
|
|
3.6
|
%
|
|
|
3.6
|
%
|
Other, net (2)
|
|
|
0.2
|
%
|
|
|
(0.1
|
%)
|
|
|
(1.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
41.3
|
%
|
|
|
42.3
|
%
|
|
|
40.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Included in income tax is Florida income tax at a statutory rate of 5.5%.
|
(2)
|
For 2011, other represents true-ups recorded upon completion of prior years tax returns, partially offset by estimates of penalties and interest for current year underpayment of estimated taxes.
|
74
Deferred income taxes represent the temporary differences between the GAAP and tax basis of the Companys
assets and liabilities. The tax effects of temporary differences are as follows as of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2013
|
|
|
2012
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Unearned premiums
|
|
$
|
10,976
|
|
|
$
|
11,430
|
|
Advanced premiums
|
|
|
1,742
|
|
|
|
1,132
|
|
Unpaid losses and LAE
|
|
|
2,598
|
|
|
|
3,449
|
|
Regulatory assessments
|
|
|
345
|
|
|
|
2,447
|
|
Share-based compensation
|
|
|
1,459
|
|
|
|
3,048
|
|
Accrued wages
|
|
|
255
|
|
|
|
778
|
|
Allowance for uncollectible receivables
|
|
|
172
|
|
|
|
205
|
|
Additional tax basis of securities
|
|
|
45
|
|
|
|
573
|
|
Change in unrealized losses on investments
|
|
|
|
|
|
|
2,782
|
|
Capital loss carryforwards
|
|
|
1,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
18,741
|
|
|
|
25,844
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred policy acquisition costs, net
|
|
|
(6,133
|
)
|
|
|
(6,666
|
)
|
Prepaid expenses
|
|
|
(548
|
)
|
|
|
|
|
Other comprehensive income
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
(6,690
|
)
|
|
|
(6,666
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
$
|
12,051
|
|
|
$
|
19,178
|
|
|
|
|
|
|
|
|
|
|
A valuation allowance is deemed unnecessary as of December 31, 2013 and 2012, respectively, because management believes
it is probable that the Company will generate taxable income sufficient to realize the tax benefits associated with the net deferred income tax asset shown above in the near future.
Liabilities for unrecognized tax benefits, if any, are recorded in accordance with issued FASB guidance on Accounting for Uncertainty in Income Taxes. The
Company recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
The Company filed a
consolidated federal income tax return for the fiscal years ended December 31, 2012, 2011, and 2010 and intends to file the same for the year ended December 31, 2013. The tax allocation agreements between the Company and the Insurance
Entities provide that they will incur income taxes based on a computation of taxes as if they were stand-alone taxpayers. The computations are made utilizing the financial statements of the Insurance Entities prepared on a statutory basis of
accounting and prior to consolidating entries which include the conversion of certain balances and transactions of the statutory financial statements to a U.S. GAAP basis.
Tax years that remain open for purposes of examination of its income tax liability due to taxing authorities, include the years ended December 31, 2012,
2011 and 2010.
NOTE 13 EARNINGS PER SHARE
Basic earnings per share (EPS) is based on the weighted average number of shares outstanding for the period, excluding any
dilutive common share equivalents. Diluted EPS reflects the potential dilution that could occur if securities to issue Common Stock were exercised.
75
The following table reconciles the numerator (i.e., income) and denominator (i.e., shares) of the basic and
diluted earnings per share computations for net income for the periods presented (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Numerator for EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
58,977
|
|
|
$
|
30,312
|
|
|
$
|
20,109
|
|
Less: Preferred stock dividends
|
|
|
(29
|
)
|
|
|
(287
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
58,948
|
|
|
$
|
30,025
|
|
|
$
|
20,089
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
35,866
|
|
|
|
39,614
|
|
|
|
39,184
|
|
Plus: Assumed conversion of stock-based compensation (1)
|
|
|
1,531
|
|
|
|
513
|
|
|
|
770
|
|
Assumed conversion of preferred stock
|
|
|
379
|
|
|
|
489
|
|
|
|
488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted common shares outstanding
|
|
|
37,776
|
|
|
|
40,616
|
|
|
|
40,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
1.64
|
|
|
$
|
0.76
|
|
|
$
|
0.51
|
|
Diluted earnings per common share
|
|
$
|
1.56
|
|
|
$
|
0.75
|
|
|
$
|
0.50
|
|
|
|
|
|
Weighted average number of antidilutive shares
|
|
|
518
|
|
|
|
818
|
|
|
|
2,553
|
|
(1)
|
Represents the dilutive effect of unvested restricted stock and unexercised stock options.
|
The Company
purchased 7.257 million shares of UIHs common stock during the twelve months ended December 31, 2013, which decreased weighted average common shares outstanding and weighted average diluted common shares outstanding for these
periods. The effect was to increase diluted earnings per common share by $0.17 for the twelve month period ended December 31, 2013. There were no repurchases of UIHs common stock during 2012 and 2011. See Note 8
(Stockholders Equity) for details on the repurchases of UIHs common stock.
NOTE 14 OTHER COMPREHENSIVE INCOME (LOSS)
The following table provides the components of other comprehensive income (loss) on a pretax and after-tax basis for the period presented
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
|
|
|
Pre-tax
|
|
|
Tax
|
|
|
After-tax
|
|
Net unrealized gains (losses) on investments available for sale arising during the year
|
|
$
|
685
|
|
|
$
|
264
|
|
|
$
|
421
|
|
Amounts reclassified from accumulated other
comprehensive income (loss)
|
|
|
(1,297
|
)
|
|
|
(500
|
)
|
|
|
(797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
($
|
612
|
)
|
|
($
|
236
|
)
|
|
($
|
376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no amounts of other comprehensive income for the years ended December 31, 2012 and 2011 and there were no
amounts of accumulated other comprehensive income as of December 31, 2012.
76
The following table provides the reclassifications out of accumulated other comprehensive income for the period
presented (in thousands):
|
|
|
|
|
|
|
Year Ended December 31, 2013
|
Details about Accumulated Other
Comprehensive Income Components
|
|
Amounts Reclassified from
Accumulated
Other Comprehensive Income
|
|
|
Affected Line Item in the Statement
Where Net Income is Presented
|
Unrealized gains (losses) on investments available for sale
|
|
|
|
|
|
|
|
|
$
|
1,297
|
|
|
Net realized gains (losses) on investments
|
|
|
|
(500
|
)
|
|
Tax (expense) or benefit
|
|
|
|
|
|
|
|
Total reclassification for the year
|
|
$
|
797
|
|
|
Net of tax
|
|
|
|
|
|
|
|
NOTE 15 COMMITMENTS AND CONTINGENCIES
Operating Leases and Other
On
July 12, 2013, UPCIC entered into a lease agreement (Lease Agreement) for an office building containing 29,018 rentable square feet adjacent to its principal office in Fort Lauderdale, Florida (Property). The Company
expects to use the Property for additional office and storage space. Pursuant to the Lease Agreement, the monthly rent for the Property is approximately $51 thousand and is subject to annual increases. The term of the lease is ten years, subject to
UPCICs purchase of the Property as described below which is expected to take place no later than February 2015. The Company took possession of the office building and began making monthly rental payments in October 2013. Based on the terms of
the Lease Agreement, the Company is accounting for this arrangement as an operating lease.
Also on July 12, 2013, UPCIC entered into a purchase
agreement to acquire the Property (Purchase Agreement). The Purchase Agreement provides that the closing for the sale of the Property will take place no later than February 5, 2015. The closing for the sale of the Property is
subject to certain closing conditions. The purchase price for the Property is $5.99 million, and UPCIC will receive a credit toward the purchase price for a portion of the rent it pays under the Lease Agreement.
The Company has leased certain computer equipment and software under a master equipment lease agreement with Relational Funding, Inc. with an original
equipment cost of $2.7 million. The Company also has several leases on other office space.
The following table provides future minimum rental payments
required under the non-cancelable operating leases as of the period presented (in thousands):
|
|
|
|
|
As of December 31,
2013
|
|
2014
|
|
$
|
882
|
|
2015
|
|
|
120
|
|
|
|
|
|
|
Total
|
|
$
|
1,002
|
|
|
|
|
|
|
Total rental expense was $423 thousand, $286 thousand and $451 thousand in 2013, 2012 and 2011, respectively.
Litigation
Certain lawsuits have been filed against the
Company. These lawsuits involve matters that are routine litigation incidental to the claims aspect of the Companys business for which estimated losses are included in Unpaid Losses and Loss Adjustment Expenses in the Companys
Consolidated Financial Statements. In the opinion of management, these lawsuits are not material individually or in the aggregate to the Companys financial position or results of operations. Accruals made or assessments of materiality of
disclosure related to probable or possible losses do not consider any anticipated insurance proceeds.
77
NOTE 16 FAIR VALUE MEASUREMENTS
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants as of the measurement date. GAAP describes three approaches to measuring the fair value of assets and liabilities: the market approach, the income approach and the cost approach. Each approach includes multiple valuation
techniques. GAAP does not prescribe which valuation technique should be used when measuring fair value, but does establish a fair value hierarchy that prioritizes the inputs used in applying the various techniques. Inputs broadly refer to the
assumptions that market participants use to make pricing decisions, including assumptions about risk. Level 1 inputs are given the highest priority in the hierarchy while Level 3 inputs are given the lowest priority. Assets and liabilities carried
at fair value are classified in one of the following three categories based on the nature of the inputs to the valuation technique used:
|
|
|
Level 1 Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date. Active markets are those in which transactions for the asset or
liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
|
|
Level 2 Observable market-based inputs or unobservable inputs that are corroborated by market data.
|
|
|
|
Level 3 Unobservable inputs that are not corroborated by market data. These inputs reflect managements best estimate of fair value using its own assumptions about the assumptions a market participant would
use in pricing the asset or liability.
|
Summary of significant valuation techniques for assets measured at fair value on a recurring
basis
Level 1
Cash and cash equivalents and
restricted cash and cash equivalents:
Cash equivalents and restricted cash equivalents comprise actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access. The carrying value of
cash and cash equivalents and restricted cash and cash equivalents approximates fair value due to its liquid nature.
Common stock:
Comprise
actively traded, exchange-listed U.S. and international equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.
Exchange-traded and mutual funds:
Comprise actively traded funds. Valuation is based on daily quoted net asset values for identical assets in active
markets that the Company can access.
Other investments:
Currently comprise physical metal positions held by the Company
.
Valuation is based
on unadjusted quoted prices for identical assets in active markets that the Company can access.
Level 2
U.S. government obligations and agencies:
Comprise U.S. Treasury Bills or Notes or U.S. Treasury Inflation Protected Securities (TIPS). The primary
inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields and credit spreads.
Corporate Bonds:
Comprise investment-grade fixed maturity securities. The primary inputs to the valuation include quoted prices for identical assets in
inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields and credit spreads.
Mortgage-backed and
asset-backed securities:
Comprise securities that are collateralized by mortgage obligations and other assets. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or
inactive markets, contractual cash flows, benchmark yields, collateral performance, prepayment speeds and credit spreads.
Derivatives
: The primary
inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that are not active or highly active.
As required by GAAP, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value
measurement. The Companys assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect their placement within the fair value hierarchy levels.
78
The following tables set forth by level within the fair value hierarchy the Companys assets that were
accounted for at fair value on a recurring basis as of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
As of December 31, 2013
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
117,275
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
117,275
|
|
Restricted cash and cash equivalents
|
|
|
2,600
|
|
|
|
|
|
|
|
|
|
|
|
2,600
|
|
Available for sale portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government obligations and agencies
|
|
|
|
|
|
|
104,215
|
|
|
|
|
|
|
|
104,215
|
|
Corporate bonds
|
|
|
|
|
|
|
94,203
|
|
|
|
|
|
|
|
94,203
|
|
Mortgage-backed and asset-backed securities
|
|
|
|
|
|
|
91,000
|
|
|
|
|
|
|
|
91,000
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
9,295
|
|
|
|
|
|
|
|
|
|
|
|
9,295
|
|
Mutual funds
|
|
|
55,727
|
|
|
|
|
|
|
|
|
|
|
|
55,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available for sale portfolio investments
|
|
$
|
65,022
|
|
|
$
|
289,418
|
|
|
$
|
|
|
|
$
|
354,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets accounted for at fair value
|
|
$
|
184,897
|
|
|
$
|
289,418
|
|
|
$
|
|
|
|
$
|
474,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements
|
|
|
|
As of December 31, 2012
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Cash and cash equivalents
|
|
$
|
347,392
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
347,392
|
|
Restricted cash and cash equivalents
|
|
|
33,009
|
|
|
|
|
|
|
|
|
|
|
|
33,009
|
|
Trading portfolio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US government obligations and agencies
|
|
|
|
|
|
|
4,009
|
|
|
|
|
|
|
|
4,009
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals and mining
|
|
|
26,130
|
|
|
|
|
|
|
|
|
|
|
|
26,130
|
|
Energy
|
|
|
10,868
|
|
|
|
|
|
|
|
|
|
|
|
10,868
|
|
Other
|
|
|
8,215
|
|
|
|
|
|
|
|
|
|
|
|
8,215
|
|
Exchange traded and mutual funds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metals and mining
|
|
|
21,989
|
|
|
|
|
|
|
|
|
|
|
|
21,989
|
|
Agriculture
|
|
|
10,265
|
|
|
|
|
|
|
|
|
|
|
|
10,265
|
|
Energy
|
|
|
5,068
|
|
|
|
|
|
|
|
|
|
|
|
5,068
|
|
Indices
|
|
|
2,506
|
|
|
|
|
|
|
|
|
|
|
|
2,506
|
|
Non-hedging derivative liability, net
|
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
(21
|
)
|
Other investments
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total trading portfolio investments
|
|
$
|
85,358
|
|
|
$
|
3,988
|
|
|
$
|
|
|
|
$
|
89,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets (liabilities) accounted for at fair value
|
|
$
|
465,759
|
|
|
$
|
3,988
|
|
|
$
|
|
|
|
$
|
469,747
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company utilizes third-party independent pricing services that provide a price quote for each fixed maturity, equity
security and derivative. Management reviews the methodology used by the pricing services. If management believes that the price used by the pricing service does not reflect an orderly transaction between participants, management will use an
alternative valuation methodology. There were no adjustments made by the Company to the prices obtained from the independent pricing source for any fixed maturities, equity securities or derivatives included in the tables above.
79
The following table summarizes the carrying value and estimated fair values of the Companys financial
instruments that are not carried at fair value (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2013
|
|
|
|
|
|
|
(Level 3)
|
|
|
|
|
|
|
Estimated Fair
|
|
|
|
Carrying value
|
|
|
Value
|
|
Liabilities (debt):
|
|
|
|
|
|
|
|
|
Surplus note
|
|
$
|
18,750
|
|
|
$
|
15,900
|
|
Term loan
|
|
$
|
18,490
|
|
|
$
|
18,490
|
|
|
|
|
|
As of December 31, 2012
|
|
|
|
|
|
|
(Level 3)
|
|
|
|
|
|
|
Estimated Fair
|
|
|
|
Carrying value
|
|
|
Value
|
|
Liabilities (debt):
|
|
|
|
|
|
|
|
|
Surplus note
|
|
$
|
20,221
|
|
|
$
|
18,057
|
|
Level 3
Long-term debt:
The fair value of the surplus note was determined by management from the expected cash flows discounted using the interest rate quoted by the issuer. The State Board of Administration of Florida (SBA) is the issuer of the surplus
note and the quoted interest rate is below prevailing rates quoted by private lending institutions. However, as the Companys use of funds from the surplus note is limited by the terms of the agreement, the Company has determined the interest
rate quoted by the SBA to be appropriate for purposes of establishing the fair value of the note.
The fair value of the Term Loan approximates the
carrying value given the original issue discount which was calculated based on the present value of future cash flows using the Companys effective borrowing rate for similar instruments.
80
NOTE 17 QUARTERLY RESULTS FOR 2013 AND 2012 (UNAUDITED)
The following table provides a summary of quarterly results for the periods presented (in thousands except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
For the year ended December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
$
|
65,409
|
|
|
$
|
66,867
|
|
|
$
|
68,927
|
|
|
$
|
66,452
|
|
Investment income
|
|
|
12
|
|
|
|
137
|
|
|
|
382
|
|
|
|
1,397
|
|
Total revenues
|
|
|
67,455
|
|
|
|
77,756
|
|
|
|
78,368
|
|
|
|
77,580
|
|
Total expenses
|
|
|
47,693
|
|
|
|
48,068
|
|
|
|
53,255
|
|
|
|
51,587
|
|
Net income
|
|
|
11,959
|
|
|
|
17,029
|
|
|
|
14,407
|
|
|
|
15,582
|
|
Basic earnings per share
|
|
|
0.30
|
|
|
|
0.47
|
|
|
|
0.43
|
|
|
|
0.46
|
|
Diluted earnings per share
|
|
|
0.29
|
|
|
|
0.44
|
|
|
|
0.40
|
|
|
|
0.44
|
|
|
|
|
|
|
For the year ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
$
|
48,640
|
|
|
$
|
55,694
|
|
|
$
|
59,512
|
|
|
$
|
67,274
|
|
Investment income
|
|
|
(36
|
)
|
|
|
(16
|
)
|
|
|
215
|
|
|
|
278
|
|
Total revenues
|
|
|
60,247
|
|
|
|
59,928
|
|
|
|
74,537
|
|
|
|
75,227
|
|
Total expenses
|
|
|
44,018
|
|
|
|
46,936
|
|
|
|
60,563
|
|
|
|
65,863
|
|
Net income
|
|
|
9,873
|
|
|
|
7,777
|
|
|
|
8,256
|
|
|
|
4,406
|
|
Basic earnings per share
|
|
|
0.24
|
|
|
|
0.20
|
|
|
|
0.21
|
|
|
|
0.11
|
|
Diluted earnings per share
|
|
|
0.24
|
|
|
|
0.19
|
|
|
|
0.20
|
|
|
|
0.11
|
|
The improvement in the fourth quarter results for 2013 compared to 2012 is attributable to an increase in revenues of $2.4
million and a decrease in operating expenses of $14.3 million. The increase in revenues is comprised mostly of an increase in net investment income of $1.1 million from dividends received on the Companys equity investments and a non-repeating
net unrealized loss of $2.0 million recorded in the fourth quarter of 2012, for investments held in the trading portfolio which was liquidated in the first quarter of 2013. The decrease in operating expenses is comprised of a reduction in losses and
loss adjustment expenses of $5.7 million and a reduction in general and administrative expenses of $8.6 million. The reduction in general and administrative expenses reflects the recovery of a portion of FIGA assessments during the fourth quarter of
2013 that were charged in full to earnings in the fourth quarter of 2012. The effective tax rate for the fourth quarter of 2013 was 40.0% compared to 52.9% in the fourth quarter of 2012. The effect of non-deductible expenses in the fourth quarter of
2012 compared to 2013 was more pronounced given the lower amount of income before taxes for 2012 compared to 2013. Diluted earnings per share for the fourth quarter of 2013 includes a benefit of $0.08 resulting from repurchases of the Companys
shares during 2013 from the Companys former CEO.
NOTE 18 SUBSEQUENT EVENTS
The Company performed an evaluation of subsequent events through the date the financial statements were issued and determined there were no
recognized or unrecognized subsequent events that would require an adjustment or additional disclosure in the consolidated financial statements as of December 31, 2013 except for the following.
On January 2, 2014, the Company repurchased an additional 675,000 shares of the Companys common stock from Bradley I. Meier, the Companys
former Chief Executive Officer, at approximately $11.11 per share, in a privately negotiated transaction. As previously described, the Company has a right of first refusal to purchase shares of the Companys Common Stock offered for sale by
Mr. Meier through December 31, 2014. See Note 11 RELATED PARTY TRANSACTIONS. The repurchase price represents a discount of approximately 23 percent from the December 31, 2013 closing price of the Companys common
stock. The Company funded the share repurchase using cash on hand.
On January 30, 2014, the Company declared a dividend of $0.10 per share on
its outstanding common stock payable on March 3, 2014, to shareholders of record on February 19, 2014.
On February 24, 2014, the S&P
Dow Jones Indices announced that the Company will join S&P SmallCap 600 Index after the close of trading on February 28, 2014.
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