10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

Commission File Number: 001-12117

FIRST ACCEPTANCE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	75-1328153
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
3813 Green Hills Village Drive Nashville, Tennessee	37215
(Address of principal executive offices)	(Zip Code)

(615) 844-2800

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller Reporting Company	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

At November 3, 2014, there were 40,999,909 shares outstanding of the registrant’s common stock, par value $0.01 per share.

FIRST ACCEPTANCE CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2014

INDEX

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3. Quantitative and Qualitative Disclosures About Market Risk	21
Item 4. Controls and Procedures	23
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	24
Item 4. Mine Safety Disclosures	24
Item 6. Exhibits	24
SIGNATURES

i

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	September 30,			December 31,
	2014			2013
	(Unaudited)
ASSETS
Investments, available-for-sale at fair value (amortized cost of $115,854 and $126,873, respectively)	$	121,513		$	130,248
Cash and cash equivalents		96,496			72,033
Premiums and fees receivable, net of allowance of $445 and $311		58,401			46,228
Other investments		9,922			7,513
Other assets		6,320			6,471
Property and equipment, net		3,187			3,512
Deferred acquisition costs		3,776			2,902
Identifiable intangible assets		4,800			4,800
TOTAL ASSETS	$	304,415		$	273,707
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves		91,244			84,286
Unearned premiums and fees		70,235			55,983
Debentures payable		40,330			40,301
Other liabilities		17,115			16,205
Total liabilities		218,924			196,775
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000 shares authorized	--			--
Common stock, $.01 par value, 75,000 shares authorized; 41,000 and 40,983 shares issued and outstanding, respectively		410			410
Additional paid-in capital		457,168			456,993
Accumulated other comprehensive income		5,659			3,375
Accumulated deficit		(377,746	)		(383,846	)
Total stockholders’ equity		85,491			76,932
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	304,415		$	273,707

See notes to consolidated financial statements.

1

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014		2013
Revenues:
Premiums earned	$	54,369		$	49,467		$	161,971	$	150,988
Commission and fee income		10,097			8,632			29,323		26,391
Investment income		1,142			1,473			3,936		4,017
Net realized gains (losses) on investments, available-for-sale (includes $(4), $6, $36 and $(36), respectively, of accumulated other comprehensive income reclassification for unrealized gains (losses))		(4	)		6			36		(36	)
		65,604			59,578			195,266		181,360
Costs and expenses:
Losses and loss adjustment expenses		41,440			36,132			119,323		108,724
Insurance operating expenses		20,654			20,145			65,845		62,394
Other operating expenses		244			235			722		687
Stock-based compensation		39			54			151		194
Depreciation and amortization		423			485			1,303		1,593
Interest expense		427			431			1,275		1,301
		63,227			57,482			188,619		174,893
Income before income taxes		2,377			2,096			6,647		6,467
Provision for income taxes (includes $(1), $2, $13 and $(13), respectively, of income tax expense from reclassification items)		257			164			547		445
Net income	$	2,120		$	1,932		$	6,100	$	6,022
Net income  per share:
Basic	$	0.05		$	0.05		$	0.15	$	0.15
Diluted	$	0.05		$	0.05		$	0.15	$	0.15
Number of shares used to calculate net income  per share:
Basic		40,995			40,942			40,981		40,925
Diluted		41,297			41,161			41,285		40,948
Reconciliation of net income to other comprehensive income :
Net income	$	2,120		$	1,932		$	6,100	$	6,022
Net unrealized change in investments		(667	)		(419	)		2,284		(4,446	)
Comprehensive income	$	1,453		$	1,513		$	8,384	$	1,576
Detail of net realized gains (losses) on investments, available-for-sale:
Net realized gains (losses) on sales and redemptions	$	(4	)	$	39		$	36	$	25
OTTI charges reclassified from other comprehensive income and recognized in net income		-			(33	)		-		(61	)
Net realized gains (losses) on investments, available-for-sale	$	(4	)	$	6		$	36	$	(36	)

See notes to consolidated financial statements.

2

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

	Nine Months EndedSeptember 30,
	2014		2013
Cash flows from operating activities:
Net income	$	6,100	$	6,022
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		1,303		1,593
Stock-based compensation		151		194
Other-than-temporary impairment on investment securities		-		61
Net realized (gains) losses on sales and redemptions of investments		(36)		(25	)
Investment income and equity in earnings from other investments		(248)		(128	)
Other		244		174
Change in:
Premiums and fees receivable		(12,307)		(4,624	)
Loss and loss adjustment expense reserves		6,958		5,557
Unearned premiums and fees		14,252		5,664
Other		218		109
Net cash provided by operating activities		16,635		14,597
Cash flows from investing activities:
Purchases of investments, available-for-sale		(5,441)		(17,612	)
Purchases of other investments		(2,336)		(6,316	)
Maturities and redemptions of investments, available-for-sale		16,379		16,506
Capital expenditures		(978)		(795	)
Other		173		(2	)
Net cash provided by (used in) investing activities		7,797		(8,219	)
Cash flows from financing activities:
Net proceeds from issuance of common stock		31		24
Net cash provided by financing activities		31		24
Net change in cash and cash equivalents		24,463		6,402
Cash and cash equivalents, beginning of period		72,033		59,104
Cash and cash equivalents, end of period	$	96,496	$	65,506

See notes to consolidated financial statements.

3

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. General

The consolidated financial statements of First Acceptance Corporation (the “Company”) included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted. In the opinion of management, the consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the interim periods.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2013.

2. Fair Value

Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs are based on market data from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information. All assets and liabilities that are carried at fair value are classified and disclosed in one of the following categories:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Quoted market prices for similar assets or liabilities in active markets; quoted prices by independent pricing services for identical or similar assets or liabilities in markets that are not active; and valuations, using models or other valuation techniques, that use observable market data. All significant inputs are observable, or derived from observable information in the marketplace, or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 - Instruments that use non-binding broker quotes or model driven valuations that do not have observable market data or those that are estimated based on an ownership interest to which a proportionate share of net assets is attributed.

The Company categorizes valuation methods used in its identifiable intangible assets impairment tests as Level 3. To determine the fair value of acquired trademarks and trade names, the Company uses the relief-from-royalty method, which requires the Company to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. The Company also categorizes valuation methods used to fair value its investments in other investments as Level 3, since these investments have redemptions and transfer restrictions and are therefore not readily marketable.

Fair Value of Financial Instruments

The carrying values and fair values of certain of the Company’s financial instruments were as follows (in thousands).

	September 30, 2014				December 31, 2013
	Carrying Value		FairValue		Carrying Value		FairValue
Assets:
Investments, available-for-sale	$	121,513	$	121,513	$	130,248	$	130,248
Other investments		9,922		9,922		7,513		7,513
Liabilities:
Debentures payable		40,330		19,507		40,301		15,006

4

FIRST ACCEPTANCE CORPORATION 10-Q

The fair values as presented represent the Company’s best estimates and may not be substantiated by comparisons to independent markets. The fair value of the debentures payable is categorized as Level 3, since it was based on current market rates offered for debt with similar risks and maturities, an unobservable input categorized as Level 3. Carrying values of certain financial instruments, such as cash and cash equivalents and premiums and fees receivable, approximate fair value due to the short-term nature of the instruments and are not required to be disclosed. Therefore, the aggregate of the fair values presented in the preceding table do not purport to represent the Company’s underlying value.

The Company holds available-for-sale investments and other investments, which are carried at either net asset value or under the equity method which approximates fair value. The following tables present the fair-value measurements for each major category of assets that are measured on a recurring basis (in thousands).

			Fair Value Measurements Using
September 30, 2014	Total		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other Observable Inputs(Level 2)		Significant Unobservable Inputs(Level 3)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	4,287	$	4,287	$	-	$	-
State		731		-		731		-
Political subdivisions		508		-		508		-
Revenue and assessment		12,519		-		12,519		-
Corporate bonds		76,426		-		76,426		-
Collateralized mortgage obligations:
Agency backed		7,071		-		7,071		-
Non-agency backed – residential		4,358		-		4,358		-
Non-agency backed – commercial		3,121		-		3,121		-
Total fixed maturities, available-for-sale		109,021		4,287		104,734		-
Preferred stock, available-for-sale		1,721		1,721		-		-
Mutual funds, available-for-sale		10,771		10,771		-		-
Total investments, available-for-sale		121,513		16,779		104,734		-
Other investments		9,922		-		-		9,922
Cash and cash equivalents		96,496		96,496		-		-
Total	$	227,931	$	113,275	$	104,734	$	9,922

			Fair Value Measurements Using
December 31, 2013	Total		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other Observable Inputs(Level 2)		Significant Unobservable Inputs(Level 3)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	12,485	$	12,485	$	—	$	—
State		736		—		736		—
Political subdivisions		612		—		612		—
Revenue and assessment		14,658		—		14,658		—
Corporate bonds		73,325		—		73,325		—
Collateralized mortgage obligations:
Agency backed		7,514		—		7,514		—
Non-agency backed – residential		4,660		—		4,660		—
Non-agency backed – commercial		3,943		—		3,943		—
Total fixed maturities, available-for-sale		117,933		12,485		105,448		—
Preferred stock available-for-sale		1,578		1,578		—		—
Mutual funds, available-for-sale		10,737		10,737		—		—
Total investments, available-for-sale		130,248		24,800		105,448		—
Other investments		7,513		—		—		7,513
Cash and cash equivalents		72,033		72,033		—		—
Total	$	209,794	$	96,833	$	105,448	$	7,513

5

FIRST ACCEPTANCE CORPORATION 10-Q

The fair values of the Company’s investments are determined by management after taking into consideration available sources of data. All of the portfolio valuations classified as Level 1 or Level 2 in the above tables are priced exclusively by utilizing the services of independent pricing sources using observable market data. The Level 2 classified security valuations are obtained from a single independent pricing service. The Level 3 classified securities in the table above consist of other investments for which fair value is estimated based on the Company’s ownership interest. There were no transfers between Level 1 and Level 2 for the three and nine months ended September 30, 2014 and 2013. The Company’s policy is to recognize transfers between levels at the end of the reporting period based on specific identification. The Company has not made any adjustments to the prices obtained from the independent pricing sources.

The Company has reviewed the pricing techniques and methodologies of the independent pricing service for Level 2 investments and believes that its policies adequately consider market activity, either based on specific transactions for the security valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. The Company monitored security-specific valuation trends and has made inquiries with the pricing service about material changes or the absence of expected changes to understand the underlying factors and inputs and to validate the reasonableness of the pricing.

The following table represents the quantitative disclosure for those assets classified as Level 3 during the nine months ended September 30, 2014 (in thousands).

		Fair Value Measurements UsingSignificant Unobservable Inputs (Level 3)
	Limited partnership interestscarried at
	Net Asset Value		Equity Method		Common Stock at Fair Value		Total
Balance at December 31, 2013	$	3,314	$	4,199	$	-	$	7,513
Gains included in net income		117		131		-		248
Investments and capital calls		1,616		-		720		2,336
Distributions received		(175)		-		-		(175)
Transfers into and out of Level 3		-		-		-		-
Balance at September 30, 2014	$	4,872	$	4,330	$	720	$	9,922

3. Investments

Investments, Available-for-Sale

The following tables summarize the Company’s investment securities (in thousands).

September 30, 2014	AmortizedCost		Gross Unrealized Gains		Gross Unrealized Losses		FairValue
U.S. government and agencies	$	4,005	$	290	$	(8)	$	4,287
State		698		33		-		731
Political subdivisions		500		8		-		508
Revenue and assessment		11,346		1,173		-		12,519
Corporate bonds		74,950		2,483		(1,007)		76,426
Collateralized mortgage obligations:
Agency backed		6,848		223		-		7,071
Non-agency backed – residential		3,682		676		-		4,358
Non-agency backed – commercial		2,425		696		-		3,121
Total fixed maturities, available-for-sale		104,454		5,582		(1,015)		109,021
Preferred stock, available-for-sale		1,500		221		-		1,721
Mutual funds, available-for-sale		9,900		871		-		10,771
	$	115,854	$	6,674	$	(1,015)	$	121,513

6

FIRST ACCEPTANCE CORPORATION 10-Q

December 31, 2013	AmortizedCost		Gross Unrealized Gains		Gross Unrealized Losses			FairValue
U.S. government and agencies	$	12,006	$	495	$	(16	)	$	12,485
State		697		39		—			736
Political subdivisions		601		11		—			612
Revenue and assessment		14,050		619		(11	)		14,658
Corporate bonds		73,461		2,127		(2,263	)		73,325
Collateralized mortgage obligations:
Agency backed		7,113		401		—			7,514
Non-agency backed – residential		4,181		480		(1	)		4,660
Non-agency backed – commercial		3,363		580		—			3,943
Total fixed maturities, available-for-sale		115,472		4,752		(2,291	)		117,933
Preferred stock, available-for-sale		1,500		78		—			1,578
Mutual funds, available-for-sale		9,901		836		—			10,737
	$	126,873	$	5,666	$	(2,291	)	$	130,248

The following tables set forth the scheduled maturities of the Company’s fixed maturity securities based on their fair values (in thousands). Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.

September 30, 2014	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		AllFixed Maturity Securities
One year or less	$	5,106	$	-	$	-	$	5,106
After one through five years		27,068		10,941		-		38,009
After five through ten years		21,873		20,890		-		42,763
After ten years		6,858		1,735		-		8,593
No single maturity date		14,453		97		-		14,550
	$	75,358	$	33,663	$	-	$	109,021

December 31, 2013	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		AllFixed Maturity Securities
One year or less	$	14,305	$	—	$	—	$	14,305
After one through five years		25,667		10,888		—		36,555
After five through ten years		20,445		22,836		—		43,281
After ten years		3,667		4,008		—		7,675
No single maturity date		15,928		189		—		16,117
	$	80,012	$	37,921	$	—	$	117,933

The following table reflects the number of fixed maturity securities with gross unrealized gains and losses. Gross unrealized losses are further segregated by the length of time that individual securities have been in a continuous unrealized loss position.

	Gross Unrealized Losses				Gross Unrealized Gains
At:	Less than or equal to 12 months		Greater than 12 months
September 30, 2014		5		11		81
December 31, 2013		12		7		83

7

FIRST ACCEPTANCE CORPORATION 10-Q

The following tables reflect the fair value and gross unrealized losses of those fixed maturity securities in a continuous unrealized loss position for greater than 12 months. Gross unrealized losses are further segregated by the percentage of amortized cost (in thousands, except number of securities).

Gross Unrealized Losses at September 30, 2014:	Numberof Securities		Fair Value		Gross Unrealized Losses
Less than or equal to 10%		11	$	25,555	$	(974)
Greater than 10%		-		—		—
		11	$	25,555	$	(974)

Gross Unrealized Losses at December 31, 2013:	Number of Securities		Fair Value		Gross Unrealized Losses
Less than or equal to 10%		7	$	13,980	$	(1,270	)
Greater than 10%		—		—		—
		7	$	13,980	$	(1,270	)

The following tables set forth the amount of gross unrealized losses by current severity (as compared to amortized cost) and length of time that individual securities have been in a continuous unrealized loss position (in thousands).

Length of Gross Unrealized Losses at September 30, 2014:	Fair Value of Securities with GrossUnrealizedLosses		Gross Unrealized Losses		Severity of Gross Unrealized Losses
					Less than 5%		5% to 10%		Greater than 10%
Less than or equal to:
Three months	$	1,198	$	(1)	$	(1)	$	-	$	-
Six months		3,038		(16)		(16)		-		-
Nine months		2,876		(16)		(16)		-		-
Twelve months		996		(8)		(8)		-		-
Greater than twelve months		25,555		(974)		(518)		(456)		-
Total	$	33,663	$	(1,015)	$	(559)	$	(456)	$	-

Length of Gross Unrealized Losses at December 31, 2013:	Fair Value of Securities with GrossUnrealizedLosses		Gross Unrealized Losses			Severity of Gross Unrealized Losses
						Less than 5%			5% to 10%			Greater than 10%
Less than or equal to:
Three months	$	6,417	$	(40	)	$	(40	)	$	—		$	—
Six months		1,653		(129	)		—			(129	)		—
Nine months		15,871		(852	)		(153	)		(699	)		—
Twelve months		—		—			—			—			—
Greater than twelve months		13,980		(1,270	)		(85	)		(1,185	)		—
Total	$	37,921	$	(2,291	)	$	(278	)	$	(2,013	)	$	—

Other Investments

Other investments consist of the common stock of a real estate investment trust and limited partnership interests in three funds that invest in (i) commercial real estate and secured commercial real estate loans acquired from financial intuitions, (ii) small balance distressed secured loans and debt securities and (iii) undervalued international publicly-traded equities. These investments have redemption and transfer restrictions; however, the Company does not intend to sell these investments, and it is more likely than not that the Company will not be required to sell them before the expiration of such restrictions. At September 30, 2014, the Company had unfunded commitments of $3.0 million with two of these investments.

Net income from other investments is recorded in investment income in the consolidated statements of comprehensive income (loss).

8

FIRST ACCEPTANCE CORPORATION 10-Q

Restrictions

At September 30, 2014, fixed maturities and cash equivalents with a fair value and amortized cost of $5.2 million were on deposit with various insurance departments as a requirement of doing business in those states. Cash equivalents with a fair value and amortized cost of $9.4 million were on deposit with another insurance company as collateral for an assumed reinsurance contract.

Investment Income and Net Realized Gains and Losses

The major categories of investment income follow (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Fixed maturities, available-for-sale	$	1,089	$	1,213		$	3,442	$	3,717
Mutual funds, available-for-sale		151		176			458		462
Other investments		(29)		128			248		128
Other		54		73			156		163
Investment expenses		(123)		(117	)		(368)		(453	)
	$	1,142	$	1,473		$	3,936	$	4,017

The components of net realized gains (losses) on investments, available-for-sale at fair value follow (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Gains	$	-	$	44		$	85	$	92
Losses		(4)		(5	)		(49)		(67	)
Other-than-temporary impairment		-		(33	)		-		(61	)
	$	(4)	$	6		$	36	$	(36	)

Realized gains and losses on sales and redemptions are computed based on specific identification. The non-credit related portion of other-than-temporary impairment (“OTTI”) is included in other comprehensive income. The amounts of non-credit OTTI for securities still owned was $0.9 million for non-agency backed residential collateralized mortgage obligations (“CMOs”) and $0.2 million related to non-agency backed commercial CMOs at both September 30, 2014 and December 31, 2013.

Other-Than-Temporary Impairment

The Company separates OTTI into the following two components: (i) the amount related to credit losses, which is recognized in the consolidated statement of comprehensive income (loss) and (ii) the amount related to all other factors, which is recorded in comprehensive income (loss). The credit-related portion of an OTTI is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge.

The determination of whether unrealized losses are “other-than-temporary” requires judgment based on subjective as well as objective factors. The Company routinely monitors its investment portfolio for changes in fair value that might indicate potential impairments and performs detailed reviews on such securities. Changes in fair value are evaluated to determine the extent to which such changes are attributable to (i) fundamental factors specific to the issuer or (ii) market-related factors such as interest rates or sector declines.

Securities with declines attributable to issuer-specific fundamentals are reviewed to identify all available evidence to estimate the potential for impairment. Resources used include historical financial data included in filings with the SEC for corporate bonds and performance data regarding the underlying loans for CMOs. Securities with declines attributable solely to market or sector declines where the Company does not intend to sell the security and it is more likely than not that the Company will not be required to sell the security before the full recovery of its amortized cost basis are not deemed to be other-than-temporarily impaired.

9

FIRST ACCEPTANCE CORPORATION 10-Q

The issuer-specific factors considered in reaching the conclusion that securities with declines are not other-than-temporary include (i) the extent and duration of the decline in fair value, including the duration of any significant decline in value, (ii) whether the security is current as to payments of principal and interest, (iii) a valuation of any underlying collateral, (iv) current and future conditions and trends for both the business and its industry, (v) changes in cash flow assumptions for CMOs and (vi) rating agency actions. Based on these factors, the Company makes a determination as to the probability of recovering principal and interest on the security.

For the three and nine months ended September 30, 2013, the Company recognized OTTI charges in net income of $33 thousand and $61 thousand, respectively, related to one non-agency backed residential CMO.

The following is a progression of the credit-related portion of OTTI on investments owned at September 30, 2014 and 2013 (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Beginning balance	$	(2,632)	$	(2,599	)	$	(2,632)	$	(2,666	)
Additional credit impairments on:
Previously impaired securities		—		(33	)		—		(61	)
Securities without previous impairments		—		—			—		—
		—		(33	)		—		(61	)
Reductions for securities sold (realized)		—		—			—		95
	$	(2,632)	$	(2,632	)	$	(2,632)	$	(2,632	)

The Company believes that the remaining securities having unrealized losses at September 30, 2014 were not other-than-temporarily impaired. The Company also does not intend to sell any of these securities and it is more likely than not that the Company will not be required to sell any of these securities before the recovery of their amortized cost basis.

4. Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data).

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	2014		2013		2014		2013
Net income	$	2,120	$	1,932	$	6,100	$	6,022
Weighted average common basic shares		40,995		40,942		40,981		40,925
Effect of dilutive securities		302		219		304		23
Weighted average common dilutive shares		41,297		41,161		41,285		40,948
Basic and diluted net income per share	$	0.05	$	0.05	$	0.15	$	0.15

For the three months ended September 30, 2014, the computation of diluted net income per share included 5 thousand shares of unvested restricted common stock and options to purchase approximately $0.8 million shares that had a dilutive effect of 297 thousand shares. For the nine months ended September 30, 2014, the computation of diluted net income per share included 5 thousand shares of unvested restricted common stock and options to purchase approximately $0.8 million shares that had a dilutive effect of 299 thousand shares. Options to purchase 345 thousand shares were not included in the computation of diluted net income per share for the three and nine months ended September 30, 2014, as their exercise prices were in excess of the average stock prices for the periods.

For the three months ended September 30, 2013, the computation of diluted net income per share included 23 thousand shares of unvested restricted common stock and options to purchase approximately 0.8 million shares that had a dilutive effect of 196 thousand shares. For the nine months ended September 30, 2013, the computation of diluted net income per share included 23 thousand shares of unvested restricted common stock. Options to purchase 440 thousand and 1.3 million shares were not included in the computation of diluted net income per share for the three and nine months ended September 30, 2013, respectively, as their exercise prices were in excess of the average stock prices for the periods.

10

FIRST ACCEPTANCE CORPORATION 10-Q

5. Income Taxes

The provision for income taxes consisted of the following (in thousands).

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	2014		2013		2014		2013
Federal:
Current	$	80	$	35	$	170	$	102
Deferred		—		—		(1)		—
		80		35		169		102
State:
Current		176		128		376		341
Deferred		1		1		2		2
		177		129		378		343
	$	257	$	164	$	547	$	445

11

FIRST ACCEPTANCE CORPORATION 10-Q

The provision for income taxes differs from the amounts computed by applying the statutory federal corporate tax rate of 35% to income before income taxes as a result of the following (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Provision for income taxes at statutory rate	$	832	$	733		$	2,327	$	2,264
Tax effect of:
Tax-exempt investment income		(5)		(10	)		(16)		(21	)
Change in the beginning of the period balance of the valuation allowance for deferred tax assets allocated to federal income taxes		(760)		(716	)		(2,216)		(2,352	)
Stock-based compensation		3		22			48		193
State income taxes, net of federal income tax benefit and valuation allowance		177		129			378		343
Other		10		6			26		18
	$	257	$	164		$	547	$	445

The Company had a valuation allowance of $21.2 million and $24.2 million at September 30, 2014 and December 31, 2013, respectively, to reduce deferred tax assets to the amount that is more likely than not to be realized. The change in the total valuation allowance for the nine months ended September 30, 2014 was a decrease of $3.0 million. For the nine months ended September 30, 2014, the change in the valuation allowance included an increase of $0.8 million related to unrealized change in investments included in other comprehensive income and was net of the utilization of $8.0 million in net operating loss carryforwards.

In assessing the realization of deferred tax assets, management considered whether it was more likely than not that some portion or all of the deferred tax assets will not be realized. The Company is required to assess whether a valuation allowance should be established against the Company’s net deferred tax assets based on the consideration of all available evidence using a more likely than not standard. In making such judgments, significant weight is given to evidence that can be objectively verified. In assessing the Company’s ability to support the realizability of its deferred tax assets, management considered both positive and negative evidence. The Company placed greater weight on historical results than on the Company’s outlook for future profitability and established a deferred tax valuation allowance at September 30, 2014 and December 31, 2013. The Company’s historical results now reflect nine consecutive quarters of taxable income which management considers to be a trend of positive evidence in assessing the realizability of its deferred tax assets. Although management decided not to adjust the valuation allowance at September 30, 2014, the deferred tax valuation allowance may be adjusted in future periods if management determines that it is more likely than not that some portion or all of the deferred tax assets will be realized. In the event the deferred tax valuation allowance is adjusted, the Company would record an income tax benefit for the adjustment.

6. Segment Information

The Company operates in two business segments with its primary focus being the selling, servicing and underwriting of non-standard personal automobile insurance. The real estate and corporate segment consists of the activities related to the disposition of foreclosed real estate held for sale, interest expense associated with all debt and other general corporate overhead expenses.

The following table presents selected financial data by business segment (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Revenues:
Insurance	$	65,588	$	59,564		$	195,221	$	181,323
Real estate and corporate		16		14			45		37
Consolidated total	$	65,604	$	59,578		$	195,266	$	181,360
Income (loss) before income taxes:
Insurance	$	3,071	$	2,802		$	8,750	$	8,613
Real estate and corporate		(694)		(706	)		(2,103)		(2,146	)
Consolidated total	$	2,377	$	2,096		$	6,647	$	6,467

12

FIRST ACCEPTANCE CORPORATION 10-Q

	September 30,2014		December 31,2013
Total assets:
Insurance.	$	288,819	$	262,869
Real estate and corporate		15,596		10,838
Consolidated total	$	304,415	$	273,707

7. Litigation

The Company is named as a defendant in various lawsuits, arising in the ordinary course of business, generally relating to its insurance operations. All legal actions relating to claims made under insurance policies are considered by the Company in establishing its loss and loss adjustment expense reserves. The Company also faces lawsuits from time to time that seek damages beyond policy limits, commonly known as bad faith claims, as well as class action and individual lawsuits that involve issues arising in the course of the Company’s business. The Company continually evaluates potential liabilities and reserves for litigation of these types using the criteria established by FASB ASC 450, Contingencies (“FASB ASC 450”). Pursuant to FASB ASC 450, reserves for a loss may only be recognized if the likelihood of occurrence is probable and the amount can be reasonably estimated. If a loss, while not probable, is judged to be reasonably possible, management will disclose, if it can be estimated, a possible range of loss or state that an estimate cannot be made. Management evaluates each legal action and records reserves for losses as warranted by establishing a reserve in its consolidated balance sheets in loss and loss adjustment expense reserves for bad faith claims and in other liabilities for other lawsuits. Amounts incurred are recorded in the Company’s consolidated statements of comprehensive income in losses and loss adjustment expenses for bad faith claims and in insurance operating expenses for other lawsuits unless otherwise disclosed.

In January 2014, one current and three former employees filed a class action lawsuit against the Company in the U.S. District Court for the Middle District of Tennessee. The case is styled Lykins, et al. v. First Acceptance Corporation, et al. The suit alleges the Company violated the Fair Labor Standards Act by misclassifying its insurance agents as exempt employees. Plaintiffs seek unpaid wages, overtime, attorneys’ fees and costs. The Company answered the plaintiffs’ Complaint and denied all of the allegations contained therein. In April 2014, the case was conditionally certified as a class action, and a notice regarding the case was sent to all potential class members. Approximately 200 individuals chose to participate in the case during the opt-in period which closed on July 15, 2014. The Company strongly disagrees with the allegations and will put forth a vigorous defense. The case is still in its early stages of discovery. This litigation will likely have a lengthy duration. Therefore, an estimate of the ultimate impact of this litigation on the Company, if any, cannot be made at this time.

8. Recent Accounting Pronouncements

In May 2014, the Financial Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) jointly issued a new revenue recognition standard, Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, that will supersede virtually all revenue recognition guidance in GAAP and International Financial Reporting Standards (“IFRS”). This guidance has an effective date for public companies for annual and interim periods beginning after December 15, 2016, with early adoption not permitted. The standard is intended to increase comparability across industries and jurisdictions. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The new standard will not change accounting guidance for insurance contracts. However, the Company is currently evaluating this guidance as it relates to non-insurance arrangements and any impact it will have on future consolidated financial statements. At this time the impact is unknown.

In June 2014, the FASB made a decision to require insurance companies to make additional disclosures about short-term duration contracts. This guidance has an effective date for public companies for annual reporting periods beginning after December 15, 2014 and interim reporting periods beginning after December 15, 2015, with early adoption permitted. The Company believes that it will be reasonably able to comply with these requirements.

13

FIRST ACCEPTANCE CORPORATION 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for year ended December 31, 2013. The following discussion should be read in conjunction with our consolidated financial statements included with this report and our consolidated financial statements and related Management’s Discussion and Analysis of Financial Condition and Results of Operations for year ended December 31, 2013 included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements made in this report, other than statements of historical fact, are forward-looking statements. You can identify these statements from our use of the words “may,” “should,” “could,” “potential,” “continue,” “plan,” “forecast,” “estimate,” “project,” “believe,” “intent,” “anticipate,” “expect,” “target,” “is likely,” “will,” or the negative of these terms and similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, among other things, statements and assumptions relating to:

· our future growth, income, income per share and other financial performance measures;

· the anticipated effects on our results of operations or financial condition from recent and expected developments or events;

· the financial condition of, and other issues relating to the strength of and liquidity available to, issuers of securities held in our investment portfolio;

· the accuracy and adequacy of our loss reserving methodologies; and

· our business and growth strategies.

We believe that our expectations are based on reasonable assumptions. However, these forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results to differ materially from our expectations of future results, performance or achievements expressed or implied by these forward-looking statements. In addition, our past results of operations do not necessarily indicate our future results. We discuss these and other uncertainties in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2013.

You should not place undue reliance on any forward-looking statements. These statements speak only as of the date of this report. Except as otherwise required by applicable laws, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this report, whether as a result of new information, future events, changed circumstances or any other reason after the date of this report.

General

We are principally a retailer, servicer and underwriter of non-standard personal automobile insurance. We also own two tracts of land in San Antonio, Texas that are held for sale. Non-standard personal automobile insurance is made available to individuals because of their inability or unwillingness to obtain standard insurance coverage due to various factors, including payment history, payment preference, failure in the past to maintain continuous insurance coverage, driving record and/or vehicle type.

At September 30, 2014, we leased and operated 353 retail locations (or “stores”) staffed by employee-agents who primarily sell non-standard personal automobile insurance products underwritten by us as well as certain commissionable ancillary products. In most states, our employee-agents also sell a complementary insurance product providing personal property and liability coverage for renters underwritten by us. In addition, select retail locations in highly competitive markets in Illinois and Texas offer non-standard personal automobile insurance serviced and underwritten by other third-party insurance carriers. In addition to our retail locations, we are able to complete the entire sales process over the phone via our call center or through the internet via our consumer-based website or mobile platform. We also sell our products through 11 retail locations operated by independent agents.

At September 30, 2014, we wrote non-standard personal automobile insurance in 12 states and were licensed in 13 additional states. See the discussion in Item 1. “Business—General” in our Annual Report on Form 10-K for the year ended December 31, 2013 for additional information with respect to our business.

14

FIRST ACCEPTANCE CORPORATION 10-Q

The following table shows the number of our retail locations. Retail location counts are based upon the date that a location commenced or ceased writing business. In September 2014, we opened our first new retail location (Lakeland, Florida) since 2008.

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Retail locations – beginning of period		353		366			360		369
Opened		1		—			1		—
Closed		(1)		(3	)		(8)		(6	)
Retail locations – end of period		353		363			353		363

The following table shows the number of our retail locations by state.

	September 30,				June 30,				December 31,
	2014		2013		2014		2013		2013		2012
Alabama		24		24		24		24		24		24
Florida		31		30		30		30		30		30
Georgia		60		60		60		60		60		60
Illinois		60		62		60		62		61		63
Indiana		17		17		17		17		17		17
Mississippi		7		7		7		7		7		7
Missouri		10		11		10		11		11		11
Ohio		27		27		27		27		27		27
Pennsylvania		15		16		16		16		16		16
South Carolina		25		26		25		26		25		26
Tennessee		19		19		19		19		19		19
Texas		58		64		58		67		63		69
Total		353		363		353		366		360		369

Consolidated Results of Operations

Overview

Our primary focus is selling, servicing and underwriting non-standard personal automobile insurance. Our real estate and corporate segment consists of activities related to the disposition of real estate held for sale, interest expense associated with debt, and other general corporate overhead expenses. Our insurance operations generate revenues from selling, servicing and underwriting non-standard personal automobile insurance policies and related products in 12 states. We conduct our underwriting operations through three insurance company subsidiaries: First Acceptance Insurance Company, Inc., First Acceptance Insurance Company of Georgia, Inc. and First Acceptance Insurance Company of Tennessee, Inc. Our insurance revenues are primarily generated from:

· premiums earned, including policy and renewal fees, from sales of policies written and assumed by our insurance company subsidiaries;

· commission and fee income, including installment billing fees on policies written, agency fees and commissions and fees for other ancillary products and policies sold on behalf of third-party insurance carriers; and

· investment income earned on the invested assets of the insurance company subsidiaries.

15

FIRST ACCEPTANCE CORPORATION 10-Q

The following table presents gross premiums earned by state (in thousands). Driven by a higher percentage of full coverage policies sold and rate increases taken in most states, net premiums earned for the three and nine months ended September 30, 2014 increased 9.9% and 7.3%, respectively, compared with the same periods in the prior year.

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Gross premiums earned:
Georgia	$	10,284	$	9,320		$	30,186	$	28,858
Florida		8,363		7,448			24,982		23,161
Texas		6,998		6,075			20,636		18,065
Ohio		5,605		4,519			16,511		13,563
Alabama		5,437		5,246			16,294		15,816
Illinois		5,205		4,920			15,026		15,565
South Carolina		4,042		3,840			12,284		11,534
Tennessee		3,131		3,095			9,526		9,316
Pennsylvania		1,861		2,138			6,265		6,511
Indiana		1,542		1,294			4,535		3,893
Missouri		1,224		952			3,637		2,822
Mississippi		745		669			2,285		2,030
Total gross premiums earned		54,437		49,516			162,167		151,134
Premiums ceded to reinsurer		(68)		(49	)		(196)		(146	)
Total net premiums earned	$	54,369	$	49,467		$	161,971	$	150,988

The following table presents the change in the total number of policies in force (“PIF”) for policies underwritten by our insurance company subsidiaries. PIF increases as a result of new policies issued and decreases as a result of policies that are canceled or expire and are not renewed. At September 30, 2014, PIF was 9.1% higher than at the same date in the prior year.

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	2014		2013		2014		2013
Policies in force – beginning of period		159,293		153,595		143,077		145,938
Net change during period		2,037		(5,740)		18,253		1,917
Policies in force – end of period		161,330		147,855		161,330		147,855

Insurance companies present a combined ratio as a measure of their overall underwriting profitability. The components of the combined ratio are as follows.

Loss Ratio—Loss ratio is the ratio (expressed as a percentage) of losses and loss adjustment expenses incurred to premiums earned and is a basic element of underwriting profitability. We calculate this ratio based on all direct and assumed premiums earned, net of ceded reinsurance.

Expense Ratio—Expense ratio is the ratio (expressed as a percentage) of insurance operating expenses (including depreciation and amortization) to net premiums earned. Insurance operating expenses are reduced by commission and fee income from insureds. This is a measurement that illustrates relative management efficiency in administering our operations.

Combined Ratio—Combined ratio is the sum of the loss ratio and the expense ratio. If the combined ratio is at or above 100%, an insurance company cannot be profitable without sufficient investment income.

The following table presents the loss, expense and combined ratios for our insurance operations.

	Three Months EndedSeptember 30,						Nine Months EndedSeptember 30,
	2014			2013			2014			2013
Loss		76.2	%		73.0	%		73.7	%		72.0	%
Expense		20.2	%		24.3	%		23.4	%		24.9	%
Combined		96.4	%		97.3	%		97.1	%		96.9	%

16

FIRST ACCEPTANCE CORPORATION 10-Q

Operational Initiatives

Since the beginning of 2012, we renewed our focus on improving the customer experience and value through several initiatives. Through October 2014, our progress has included:

· investment in our sales organization to improve the quality and consistency of the customer experience in our retail stores,

· continued development and consolidation of our “Acceptance” brand,

· development of electronic signature capabilities, thereby enabling most customers to receive quotes and bind policies over the phone and through our website,

· development of a consumer-based website that reflects our branding strategy, improves the customer experience, and allows for full-service capabilities including quoting, binding and receiving payments,

· development of an internet-specific sales strategy to drive quote traffic to our website, including the release of a mobile platform that puts the full range of our services into the broad spectrum of handheld devices, including mobile phones and tablets,

· continued expansion of our call center staff and capabilities to meet increasing customer demand,

· launch and expansion of complementary insurance products including term life, renters, third party homeowners and third party commercial automobile, and

· development and trial implementation of a low-cost automobile policy in select markets.

Moving forward, we continue to believe that our retail stores are the foundation of our business, providing an opportunity for us to directly interact with our customers on a regular basis. We also recognize that customer preferences have changed and that we need to adapt to meet those needs. For that reason, we will continue to invest in our people, retail stores, website and call center initiatives, and our customer interaction efforts in order to improve the customer experience. Our current initiatives include:

· expansion of our potential customer base through enhancements to our insurance products and the methods through which customer payments are accepted,

· continued investment and refinement of our internet-specific sales strategy, and

· continued investment and development of our website’s full-service capabilities.

Investments

We use the services of an independent investment manager to manage our investment portfolio. The investment manager conducts, in accordance with our investment policy, all of the investment purchases and sales for our insurance company subsidiaries. Our investment policy has been established by the Investment Committee of our Board of Directors and specifically addresses overall investment goals and objectives, authorized investments, prohibited securities, restrictions on sales by the investment manager and guidelines as to asset allocation, duration and credit quality. Management and the Investment Committee meet regularly with our investment manager to review the performance of the portfolio and compliance with our investment guidelines.

The invested assets of the insurance company subsidiaries consist substantially of marketable, investment grade debt securities, and include U.S. government securities, municipal bonds, corporate bonds, mutual funds and collateralized mortgage obligations (“CMOs”), in addition to some recent investments made into limited partnership interests and a real estate investment trust. Investment income is comprised primarily of interest earned on these securities, net of related investment expenses. Realized gains and losses may occur from time to time as changes are made to our holdings based upon changes in interest rates or the credit quality of specific securities.

The value of our consolidated available-for-sale investment portfolio was $121.5 million at September 30, 2014 and consisted of fixed maturity securities and investments in mutual funds, all carried at fair value with unrealized gains and losses reported as a separate component of stockholders’ equity. At September 30, 2014, we had gross unrealized gains of $6.7 million and gross unrealized losses of $1.0 million in our consolidated available-for-sale investment portfolio.

At September 30, 2014, 93% of the fair value of our fixed maturity portfolio was rated “investment grade” (a credit rating of AAA to BBB-) by nationally recognized statistical rating organizations. Investment grade securities generally bear lower yields and have lower degrees of risk than those that are unrated or non-investment grade. We believe that a high quality investment portfolio is more likely to generate a stable and predictable investment return.

17

FIRST ACCEPTANCE CORPORATION 10-Q

Investments in CMOs had a fair value of $14.6 million at September 30, 2014 and represented 13% of our fixed maturity portfolio. At September 30, 2014, 65% of our CMOs were considered investment grade by nationally recognized statistical rating agencies and 49% were backed by agencies of the United States government.

The following table summarizes our investment securities at September 30, 2014 (in thousands).

September 30, 2014	AmortizedCost		Gross Unrealized Gains		Gross Unrealized Losses		FairValue
U.S. government and agencies	$	4,005	$	290	$	(8)	$	4,287
State		698		33		-		731
Political subdivisions		500		8		-		508
Revenue and assessment		11,346		1,173		-		12,519
Corporate bonds		74,950		2,483		(1,007)		76,426
Collateralized mortgage obligations:
Agency backed		6,848		223		-		7,071
Non-agency backed – residential		3,682		676		-		4,358
Non-agency backed – commercial		2,425		696		-		3,121
Total fixed maturities, available-for-sale		104,454		5,582		(1,015)		109,021
Preferred stock, available-for-sale		1,500		221		-		1,721
Mutual funds, available-for-sale		9,900		871		-		10,771
	$	115,854	$	6,674	$	(1,015)	$	121,513

Three and Nine Months Ended September 30, 2014 Compared with the Three and Nine Months Ended September 30, 2013

Consolidated Results

Revenues for the three months ended September 30, 2014 increased 10% to $65.6 million from $59.6 million in the same period in the prior year. Income before income taxes for the three months ended September 30, 2014 was $2.4 million, compared with income before income taxes of $2.1 million for the three months ended September 30, 2013. Net income for the three months ended September 30, 2014 was $2.1 million, compared with net income of $1.9 million for the three months ended September 30, 2013. Basic and diluted net income per share were $0.05 for both the three months ended September 30, 2014 and 2013.

Revenues for the nine months ended September 30, 2014 increased 8% to $195.3 million from $181.4 million in the same period in the prior year. Income before income taxes for the nine months ended September 30, 2014 was $6.6 million, compared with income before income taxes of $6.5 million for the nine months ended September 30, 2013. Net income for the nine months ended September 30, 2014 was $6.1 million, compared with net income of $6.0 million for the nine months ended September 30, 2013. Basic and diluted net income per share were $0.15 for both the nine months ended September 30, 2014 and 2013.

Insurance Operations

Revenues from insurance operations were $65.6 million for the three months ended September 30, 2014, compared with $59.6 million for the three months ended September 30, 2013. Revenues from insurance operations were $195.2 million for the nine months ended September 30, 2014, compared with $181.3 million for the nine months ended September 30, 2013.

Income before income taxes from insurance operations for the three months ended September 30, 2014 was $3.1 million, compared with income before income taxes from insurance operations of $2.8 million for the three months ended September 30, 2013. Income before income taxes from insurance operations for the nine months ended September 30, 2014 was $8.8 million, compared with income before income taxes from insurance operations of $8.6 million for the nine months ended September 30, 2013.

Premiums Earned

Premiums earned increased by $4.9 million, or 10%, to $54.4 million for the three months ended September 30, 2014, from $49.5 million for the three months ended September 30, 2013. For the nine months ended September 30, 2014, premiums earned increased by $11.0 million, or 7%, to $162.0 million from $151.0 million for the nine months ended September 30, 2013. This improvement was primarily due to an increase in PIF from 147,855 at September 30, 2013 to 161,330 at September 30, 2014, in addition to a higher percentage of full coverage policies sold and our recent pricing actions.

18

FIRST ACCEPTANCE CORPORATION 10-Q

Commission and Fee Income

Commission and fee income increased by $1.5 million, or 17%, to $10.1 million for the three months ended September 30, 2014, from $8.6 million for the three months ended September 30, 2013. For the nine months ended September 30, 2014, commission and fee income increased by $2.9 million, or 11%, to $29.3 million from $26.4 million for the nine months ended September 30, 2013. This increase in commission and fee income was a result of higher fee income related to commissionable ancillary products sold through our retail locations and the increase in PIF noted above.

Investment Income

Investment income decreased to $1.1 million during the three months ended September 30, 2014 from $1.5 million during the same period in the prior year. This decrease in investment income was primarily a result of lower returns on fixed maturities and losses on other investments. For both the nine months ended September 30, 2014 and 2013, investment income was approximately $4.0 million with income from other investments offsetting lower returns on fixed maturities. At September 30, 2014 and 2013, the tax-equivalent book yields for our managed fixed maturities and cash equivalents portfolio were 2.9% and 3.0%, respectively, with effective durations of 3.00 and 3.30 years, respectively.

Net Realized Gains (Losses) on Investments, Available-for-sale

Net realized losses on investments, available-for-sale during the three months ended September 30, 2014 included $4 thousand of net realized losses on redemptions. Net realized gains on investments, available-for-sale during the three months ended September 30, 2013 included $39 thousand of net realized gains on redemptions and $33 thousand of charges related to OTTI on certain non-agency backed CMO’s.

For the nine months ended September 30, 2014 net realized gains on investments, available-for-sale included $36 thousand in net realized gains on redemptions. For the nine months ended September 30, 2013 net realized losses on investments, available-for-sale included $25 thousand in net realized gains on redemptions and $61 thousand of charges related to OTTI on certain non-agency backed CMOs.

Loss and Loss Adjustment Expenses

The loss ratio was 76.2% for the three months ended September 30, 2014, compared with 73.0% for the three months ended September 30, 2013. The loss ratio was 73.7% for the nine months ended September 30, 2014, compared with 72.0% for the nine months ended September 30, 2013. We experienced favorable development related to prior periods of $0.4 million for the three months ended September 30, 2014, compared with favorable development of $2.3 million for the three months ended September 30, 2013. For the nine months ended September 30, 2014, we experienced favorable development related to prior periods of $4.5 million, compared with favorable development of $2.1 million for the nine months ended September 30, 2013. The favorable development for the three month period ending September 30, 2014 was primarily related to Florida personal injury protection claims. The favorable development for the nine month period ended September 30, 2014 was primarily due to lower than expected development related to bodily injury emergence in the 2013 accident year.

Excluding the development related to prior periods for the three months ended September 30, 2014 and 2013, the loss ratios were 77.0% and 77.7%, respectively. Excluding the development related to prior periods, the loss ratios for the nine months ended September 30, 2014 and 2013 were 76.4% and 73.4%, respectively. The year-over-year increase in the loss ratio was primarily due to higher than expected claim frequency across multiple coverages.

Insurance Operating Expenses

Insurance operating expenses increased 3% to $20.7 million for the three months ended September 30, 2014, from $20.1 million for the three months ended September 30, 2013. For the nine months ended September 30, 2014, insurance operating expenses increased 6% to $65.9 million from $62.4 million for the nine months ended September 30, 2013. These increases were primarily attributable to additional variable cost associated with higher PIF as well as additional salaries and benefit costs for the sales organization.

The expense ratio was 20.2% for the three months ended September 30, 2014, compared with 24.3% for the three months ended September 30, 2013. The expense ratio was 23.4% for the nine months ended September 30, 2014, compared with 24.9% for the nine months ended September 30, 2013. The year-over-year decrease in the expense ratio was primarily due to the increase in premiums earned which resulted in a lower percentage of fixed expenses in our retail operations (such as rent and base salary).

19

FIRST ACCEPTANCE CORPORATION 10-Q

Overall, the combined ratio decreased to 96.4% for the three months ended September 30, 2014 from 97.3% for the three months ended September 30, 2013. For the nine months ended September 30, 2014, the combined ratio increased to 97.1% from 96.9% for the nine months ended September 30, 2013.

Provision for Income Taxes

The provision for income taxes was $0.3 million and $0.2 million, respectively, for the three months ended September 30, 2014 and 2013. The provision for income taxes was $0.5 million for the nine months ended September 30, 2014, compared with $0.4 million for the nine months ended September 30, 2013. The provision for income taxes related primarily to current state income taxes for certain subsidiaries with taxable income. At September 30, 2014 and 2013, we established a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. The Company’s historical results now reflect nine consecutive quarters of taxable income which management considers to be a trend of positive evidence in assessing the realizability of its deferred tax assets. Although management decided not to adjust the valuation allowance as of September 30, 2014, the deferred tax valuation allowance may be adjusted in future periods if we determine that it is more likely than not that some portion or all of the deferred tax assets will be realized. In the event the deferred tax valuation allowance is adjusted, we would record an income tax benefit for the adjustment.

Real Estate and Corporate

Loss before income taxes from real estate and corporate operations for the three months ended both September 30, 2014 and 2013 was $0.7 million. Loss before income taxes from real estate and corporate operations for the nine months ended both September 30, 2014 and 2013 was $2.1 million. Segment losses consist of other operating expenses not directly related to our insurance operations, interest expense and stock-based compensation offset by investment income on corporate invested assets. We incurred $0.4 million of interest expense for both the three months ended September 30, 2014 and 2013 related to debentures issued in July 2007. We incurred $1.3 million of interest expense for both the nine months ended September 30, 2014 and 2013 related to the debentures. For additional information, see “Liquidity and Capital Resources” in this report.

Liquidity and Capital Resources

Our primary sources of funds are premiums, fees and investment income from our insurance company subsidiaries and commissions and fee income from our non-insurance company subsidiaries. Our primary uses of funds are the payment of claims and operating expenses. Net cash provided by operating activities for the nine months ended September 30, 2014 was $16.6 million, compared with $14.6 million for the same period in the prior fiscal year. Net cash provided by investing activities for the nine months ended September 30, 2014 was $7.8 million, compared with net cash used in investing activities of $8.2 million for the same period in the prior fiscal year. The nine months ended September 30, 2014 included net reductions in our investment portfolio of $8.6 million, while the same period in the prior year included net additions to our investment portfolio of $7.4 million. The net reductions in our investment portfolio for the periods were primarily a result of maturities and redemptions in excess of purchases. Investing activities during the nine months ended September 30, 2014 also included capital expenditures primarily related to system enhancements of $1.0 million as compared to $0.8 million in the same period in the prior year.

Our holding company requires cash for general corporate overhead expenses and for debt service related to our debentures payable. The holding company’s primary source of unrestricted cash to meet its obligations is the sale of ancillary products and policies on behalf of third-party carriers. If necessary and available subject to state law limitations, the holding company may receive dividends from our insurance company subsidiaries. To a lesser extent, the holding company also receives cash from operating activities as a result of investment income. Through an intercompany tax allocation arrangement, taxable losses of the holding company provide cash to the holding company to the extent that taxable income is generated by the insurance company subsidiaries. At September 30, 2014, we had $13.0 million available in unrestricted cash and investments outside of the insurance company subsidiaries. These funds and the additional unrestricted cash from the sources noted above will be used to pay our future cash requirements outside of the insurance company subsidiaries.

The holding company has debt service requirements related to the debentures payable. The debentures are interest-only and mature in full in July 2037. The debentures pay interest at a variable rate equal to Three-Month LIBOR plus 375 basis points, which resets quarterly. The interest rate related to the debentures was 3.975% for the periods from April 2014 to July 2014. The interest rate reset in August 2014 to 3.986% through October 2014. In November 2014 the interest rate reset to 3.983% through January 2015.

State insurance laws limit the amount of dividends that may be paid from our insurance company subsidiaries. At September 30, 2014, our insurance company subsidiaries could pay ordinary dividends of $2.5 million without prior regulatory approval.

20

FIRST ACCEPTANCE CORPORATION 10-Q

The National Association of Insurance Commissioners Model Act for risk-based capital provides formulas to determine each December 31 on an annual basis the amount of statutory capital and surplus that an insurance company needs to ensure that it has an acceptable expectation of not becoming financially impaired. There are also statutory guidelines that suggest that on an annual calendar year basis an insurance company should not exceed a ratio of net premiums written to statutory capital and surplus of 3-to-1. On a combined basis, the ratio for our insurance company subsidiaries of net premiums written for the last twelve months to statutory capital and surplus was 2.29-to-1 at September 30, 2014. Based on our current forecast on a combined basis, we anticipate that our risk-based capital levels will be adequate and that our ratio of net premiums written to statutory capital and surplus will not exceed the 3-to-1 statutory guideline for the reasonably foreseeable future. We therefore believe that our insurance company subsidiaries have sufficient statutory capital and surplus available to support their net premium writings in this time frame.

We believe that existing cash and investment balances, when combined with anticipated cash flows as noted above, will be adequate to meet our expected liquidity needs, for both the holding company and our insurance company subsidiaries, in both the short-term and the reasonably foreseeable future. Any future growth strategy may require external financing, and we may from time to time seek to obtain external financing. We cannot assure that additional sources of financing will be available to us on favorable terms, or at all, or that any such financing would not negatively impact our results of operations.

Off-Balance Sheet Arrangements

We use off-balance sheet arrangements (e.g., operating leases) where the economics and sound business principles warrant their use. For information with respect to our off-balance sheet arrangements at December 31, 2013, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements” included in our Annual Report on Form 10-K for the year ended December 31, 2013. We have not entered into any new material off-balance sheet arrangements since December 31, 2013.

Critical Accounting Estimates

There have been no significant changes to our critical accounting estimates during the nine months ended September 30, 2014 compared with those disclosed in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk represents the potential economic loss arising from adverse changes in the fair value of financial instruments. Our exposures to market risk relate primarily to our investment portfolio, which is exposed primarily to interest rate risk and credit risk. The fair value of our investment portfolio is directly impacted by changes in market interest rates; generally, the fair value of fixed-income investments moves inversely with movements in market interest rates. Our fixed maturity portfolio is comprised of substantially all fixed rate investments with primarily short-term and intermediate-term maturities. Likewise, the underlying investments of our mutual fund investments are also primarily fixed-income investments. This portfolio composition allows flexibility in reacting to fluctuations of interest rates. Other investments offer additional risk through the diversity of their underlying investments and their lack of marketability. The portfolios of our insurance company subsidiaries are managed to achieve an adequate risk-adjusted return while maintaining sufficient liquidity to meet policyholder obligations.

Interest Rate Risk

The fair values of our fixed maturity investments fluctuate in response to changes in market interest rates. Increases and decreases in prevailing interest rates generally translate into decreases and increases, respectively, in the fair values of those instruments. Additionally, the fair values of interest rate sensitive instruments may be affected by the creditworthiness of the issuer, prepayment options, relative values of alternative investments, the liquidity of the instrument and other general market conditions.

21

FIRST ACCEPTANCE CORPORATION 10-Q

The following table summarizes the estimated effects of hypothetical increases and decreases in interest rates resulting from parallel shifts in market yield curves on our fixed maturity portfolio (in thousands). It is assumed that the effects are realized immediately upon the change in interest rates. The hypothetical changes in market interest rates do not reflect what could be deemed best or worst case scenarios. Variations in market interest rates could produce significant changes in the timing of repayments due to prepayment options available. For these and other reasons, actual results might differ from those reflected in the table.

	Sensitivity to Instantaneous Interest Rate Changes (basis points)
	(100)	(50)	0	50	100	200
Fair value of fixed maturity portfolio.........................................	$114,133	$111,600	$109,021	$106,436	$103,852	$98,689

The following table provides information about our fixed maturity investments at September 30, 2014 which are sensitive to interest rate risk. The table shows expected principal cash flows (at par value, which differs from amortized cost as a result of premiums or discounts at the time of purchase and OTTI) by expected maturity date for each of the next five fiscal years and collectively for all fiscal years thereafter (in thousands). Callable bonds and notes are included based on call date or maturity date depending upon which date produces the most conservative yield. CMOs and sinking fund issues are included based on maturity year adjusted for expected payment patterns. Actual cash flows may differ from those expected.

Year Ending December 31,	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		All Fixed Maturity Securities
2014	$	3,660	$	-	$	-	$	3,660
2015		16,012		-		-		16,012
2016		8,533		1,025		-		9,558
2017		5,756		6,575		-		12,331
2018		4,923		3,000		-		7,923
Thereafter		34,353		20,261		-		54,614
Total	$	73,237	$	30,861	$	-	$	104,098
Fair value	$	75,358	$	33,663	$	-	$	109,021

On June 15, 2007, our wholly-owned unconsolidated trust entity, First Acceptance Statutory Trust I (FAST I), used the proceeds from its sale of trust preferred securities to purchase $41.2 million of junior subordinated debentures.

The debentures pay interest at a variable rate equal to Three-Month LIBOR plus 375 basis points, which resets quarterly. The interest rate related to the debentures was 3.975% for the periods from April 2014 to July 2014. The interest rate reset in August 2014 to 3.986% through October 2014. In November 2014 the interest rate reset to 3.983% through January 2015.

Credit Risk

Credit risk is managed by diversifying our investment portfolio to avoid concentrations in any single industry group or issuer and by limiting investments in securities with lower credit ratings. Our largest investment in any one investment, excluding U.S. government and agency securities, is our investment in a single mutual fund with a fair value of $8.2 million, or 7% of our available-for-sale portfolio. Our five largest investments make up 18% of our available-for-sale portfolio.

22

FIRST ACCEPTANCE CORPORATION 10-Q

The following table presents the underlying ratings of our fixed maturity portfolio by nationally recognized statistical rating organizations at September 30, 2014 (in thousands).

Comparable Rating	AmortizedCost		% of Amortized Cost			FairValue		% of Fair Value
AAA	$	5,019		5	%	$	5,165		5	%
AA+, AA, AA-		37,140		35	%		37,674		34	%
A+, A, A-		43,059		41	%		44,801		40	%
BBB+, BBB, BBB-		12,568		13	%		13,370		14	%
Total investment grade		97,786		94	%		101,010		93	%
Not rated		2,722		3	%		2,864		3	%
BB+, BB, BB-		-		0	%		-		0	%
B+, B, B-		588		1	%		637		0	%
CCC+, CCC, CCC-		1,399		1	%		1,781		2	%
CC+, CC, CC-		462		0	%		825		1	%
C+, C, C-		941		1	%		1,322		1	%
D		556		0	%		582		0	%
Total non-investment grade		3,946		3	%		5,147		4	%
Total	$	104,454		100	%	$	109,021		100	%

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management team, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”) as of September 30, 2014. Based on that evaluation, our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) concluded that our disclosure controls and procedures were effective as of September 30, 2014 to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

During the period covered by this report, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

23

FIRST ACCEPTANCE CORPORATION 10-Q

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We and our subsidiaries are named from time to time as defendants in various legal actions that are incidental to our business, including those which arise out of or are related to the handling of claims made in connection with our insurance policies and claims handling. The plaintiffs in some of these lawsuits have alleged bad faith or extra-contractual damages, and some have sought punitive damages or class action status. We believe that the resolution of these legal actions will not have a material adverse effect on our financial condition or results of operations. However, the ultimate outcome of these matters is uncertain. See Note 7 to our consolidated financial statements for further information about legal proceedings.

Item 4. Mine Safety Disclosures

None.

Item 6. Exhibits

The following exhibits are attached to this report:

31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a).
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a).
32.1	Principal Executive Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Principal Financial Officer’s Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 –	XBRL

24

FIRST ACCEPTANCE CORPORATION 10-Q

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIRST ACCEPTANCE CORPORATION
Date: November 4, 2014	By:	/s/ Brent J. Gay
		Brent J. Gay
		Chief Financial Officer

25

EX-31.1

Exhibit 31.1

SECTION 302 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

I, Joseph S. Borbely, certify that:

1. I have reviewed this quarterly report on Form 10-Q of First Acceptance Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2014

/s/ Joseph S. Borbely

Joseph S. Borbely

Chief Executive Officer

EX-31.2

Exhibit 31.2

SECTION 302 CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER

I, Brent J. Gay, certify that:

1.I have reviewed this quarterly report on Form 10-Q of First Acceptance Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 4, 2014

/s/ Brent J. Gay

Brent J. Gay

Chief Financial Officer

EX-32.1

FIRST ACCEPTANCE CORPORATION 10-Q

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Acceptance Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph S. Borbely, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

/s/ Joseph S. Borbely

Joseph S. Borbely

Chief Executive Officer

November 4, 2014

A signed original of this written statement required by Section 906 has been provided to First Acceptance Corporation, and will be retained by First Acceptance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

FIRST ACCEPTANCE CORPORATION 10-Q

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of First Acceptance Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brent J. Gay, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

/s/ Brent J. Gay

Brent J. Gay

Chief Financial Officer

November 4, 2014

A signed original of this written statement required by Section 906 has been provided to First Acceptance Corporation, and will be retained by First Acceptance Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Segment Information - Selected Financial Data by Business Segment (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Segment Reporting Information [Line Items]
Revenues	$ 65,604	$ 59,578	$ 195,266	$ 181,360
Income (loss) before income taxes	2,377	2,096	6,647	6,467
Total assets	304,415		304,415		273,707
Insurance [Member]
Segment Reporting Information [Line Items]
Revenues	65,588	59,564	195,221	181,323
Income (loss) before income taxes	3,071	2,802	8,750	8,613
Total assets	288,819		288,819		262,869
Real Estate and Corporate [Member]
Segment Reporting Information [Line Items]
Revenues	16	14	45	37
Income (loss) before income taxes	(694)	(706)	(2,103)	(2,146)
Total assets	$ 15,596		$ 15,596		$ 10,838

XML

Net Income Per Share - Computation of Basic and Diluted Net Income Per Share (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Earnings Per Share [Abstract]
Net income	$ 2,120	$ 1,932	$ 6,100	$ 6,022
Weighted average common basic shares	40,995	40,942	40,981	40,925
Effect of dilutive securities	302	219	304	23
Weighted average common dilutive shares	41,297	41,161	41,285	40,948
Basic and diluted net income per share	$ 0.05	$ 0.05	$ 0.15	$ 0.15

XML

Investments - Scheduled Maturities of Company's Fixed Maturity Securities Based on their Fair Values (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Investments Debt And Equity Securities [Abstract]
Securities with Unrealized Gains, One year or less	$ 5,106	$ 14,305
Securities with Unrealized Gains, After one through five years	27,068	25,667
Securities with Unrealized Gains, After five through ten years	21,873	20,445
Securities with Unrealized Gains, After ten years	6,858	3,667
Securities with Unrealized Gains, No single maturity date	14,453	15,928
Securities with Unrealized Gains, Total	75,358	80,012
Securities with Unrealized Losses, After one through five years	10,941	10,888
Securities with Unrealized Losses, After five through ten years	20,890	22,836
Securities with Unrealized Losses, After ten years	1,735	4,008
Securities with Unrealized Losses, No single maturity date	97	189
Securities with Unrealized Losses, Total	33,663	37,921
All Fixed Maturity Securities, One year or less	5,106	14,305
All Fixed Maturity Securities, After one through five years	38,009	36,555
All Fixed Maturity Securities, After five through ten years	42,763	43,281
All Fixed Maturity Securities, After ten years	8,593	7,675
All Fixed Maturity Securities, No single maturity date	14,550	16,117
All Fixed Maturity Securities, Total	$ 109,021	$ 117,933

XML

Income Taxes - Provision (Benefit) for Income Taxes Differs from Amounts Computed by Applying Statutory Federal Corporate Tax Rate (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Income Tax Disclosure [Abstract]
Provision for income taxes at statutory rate	$ 832	$ 733	$ 2,327	$ 2,264
Tax effect of:
Tax-exempt investment income	(5)	(10)	(16)	(21)
Change in the beginning of the period balance of the valuation allowance for deferred tax assets allocated to federal income taxes	(760)	(716)	(2,216)	(2,352)
Stock-based compensation	3	22	48	193
State income taxes, net of federal income tax benefit and valuation allowance	177	129	378	343
Other	10	6	26	18
Income tax expense	$ 257	$ 164	$ 547	$ 445

XML

Investments

9 Months Ended

Sep. 30, 2014

Investments Debt And Equity Securities [Abstract]

Investments

3. Investments

Investments, Available-for-Sale

The following tables summarize the Company’s investment securities (in thousands).

September 30, 2014	AmortizedCost		Gross Unrealized Gains		Gross Unrealized Losses		FairValue
U.S. government and agencies	$	4,005	$	290	$	(8)	$	4,287
State		698		33		-		731
Political subdivisions		500		8		-		508
Revenue and assessment		11,346		1,173		-		12,519
Corporate bonds		74,950		2,483		(1,007)		76,426
Collateralized mortgage obligations:
Agency backed		6,848		223		-		7,071
Non-agency backed – residential		3,682		676		-		4,358
Non-agency backed – commercial		2,425		696		-		3,121
Total fixed maturities, available-for-sale		104,454		5,582		(1,015)		109,021
Preferred stock, available-for-sale		1,500		221		-		1,721
Mutual funds, available-for-sale		9,900		871		-		10,771
	$	115,854	$	6,674	$	(1,015)	$	121,513

December 31, 2013	AmortizedCost		Gross Unrealized Gains		Gross Unrealized Losses			FairValue
U.S. government and agencies	$	12,006	$	495	$	(16	)	$	12,485
State		697		39		—			736
Political subdivisions		601		11		—			612
Revenue and assessment		14,050		619		(11	)		14,658
Corporate bonds		73,461		2,127		(2,263	)		73,325
Collateralized mortgage obligations:
Agency backed		7,113		401		—			7,514
Non-agency backed – residential		4,181		480		(1	)		4,660
Non-agency backed – commercial		3,363		580		—			3,943
Total fixed maturities, available-for-sale		115,472		4,752		(2,291	)		117,933
Preferred stock, available-for-sale		1,500		78		—			1,578
Mutual funds, available-for-sale		9,901		836		—			10,737
	$	126,873	$	5,666	$	(2,291	)	$	130,248

The following tables set forth the scheduled maturities of the Company’s fixed maturity securities based on their fair values (in thousands). Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.

September 30, 2014	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		AllFixed Maturity Securities
One year or less	$	5,106	$	-	$	-	$	5,106
After one through five years		27,068		10,941		-		38,009
After five through ten years		21,873		20,890		-		42,763
After ten years		6,858		1,735		-		8,593
No single maturity date		14,453		97		-		14,550
	$	75,358	$	33,663	$	-	$	109,021

December 31, 2013	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		AllFixed Maturity Securities
One year or less	$	14,305	$	—	$	—	$	14,305
After one through five years		25,667		10,888		—		36,555
After five through ten years		20,445		22,836		—		43,281
After ten years		3,667		4,008		—		7,675
No single maturity date		15,928		189		—		16,117
	$	80,012	$	37,921	$	—	$	117,933

The following table reflects the number of fixed maturity securities with gross unrealized gains and losses. Gross unrealized losses are further segregated by the length of time that individual securities have been in a continuous unrealized loss position.

	Gross Unrealized Losses				Gross Unrealized Gains
At:	Less than or equal to 12 months		Greater than 12 months
September 30, 2014		5		11		81
December 31, 2013		12		7		83

The following tables reflect the fair value and gross unrealized losses of those fixed maturity securities in a continuous unrealized loss position for greater than 12 months. Gross unrealized losses are further segregated by the percentage of amortized cost (in thousands, except number of securities).

Gross Unrealized Losses at September 30, 2014:	Numberof Securities		Fair Value		Gross Unrealized Losses
Less than or equal to 10%		11	$	25,555	$	(974)
Greater than 10%		-		—		—
		11	$	25,555	$	(974)

Gross Unrealized Losses at December 31, 2013:	Number of Securities		Fair Value		Gross Unrealized Losses
Less than or equal to 10%		7	$	13,980	$	(1,270	)
Greater than 10%		—		—		—
		7	$	13,980	$	(1,270	)

The following tables set forth the amount of gross unrealized losses by current severity (as compared to amortized cost) and length of time that individual securities have been in a continuous unrealized loss position (in thousands).

Length of Gross Unrealized Losses at September 30, 2014:	Fair Value of Securities with GrossUnrealizedLosses		Gross Unrealized Losses		Severity of Gross Unrealized Losses
					Less than 5%		5% to 10%		Greater than 10%
Less than or equal to:
Three months	$	1,198	$	(1)	$	(1)	$	-	$	-
Six months		3,038		(16)		(16)		-		-
Nine months		2,876		(16)		(16)		-		-
Twelve months		996		(8)		(8)		-		-
Greater than twelve months		25,555		(974)		(518)		(456)		-
Total	$	33,663	$	(1,015)	$	(559)	$	(456)	$	-

Length of Gross Unrealized Losses at December 31, 2013:	Fair Value of Securities with GrossUnrealizedLosses		Gross Unrealized Losses			Severity of Gross Unrealized Losses
						Less than 5%			5% to 10%			Greater than 10%
Less than or equal to:
Three months	$	6,417	$	(40	)	$	(40	)	$	—		$	—
Six months		1,653		(129	)		—			(129	)		—
Nine months		15,871		(852	)		(153	)		(699	)		—
Twelve months		—		—			—			—			—
Greater than twelve months		13,980		(1,270	)		(85	)		(1,185	)		—
Total	$	37,921	$	(2,291	)	$	(278	)	$	(2,013	)	$	—

Other Investments

Other investments consist of the common stock of a real estate investment trust and limited partnership interests in three funds that invest in (i) commercial real estate and secured commercial real estate loans acquired from financial intuitions, (ii) small balance distressed secured loans and debt securities and (iii) undervalued international publicly-traded equities. These investments have redemption and transfer restrictions; however, the Company does not intend to sell these investments, and it is more likely than not that the Company will not be required to sell them before the expiration of such restrictions. At September 30, 2014, the Company had unfunded commitments of $3.0 million with two of these investments.

Net income from other investments is recorded in investment income in the consolidated statements of comprehensive income (loss).

Restrictions

At September 30, 2014, fixed maturities and cash equivalents with a fair value and amortized cost of $5.2 million were on deposit with various insurance departments as a requirement of doing business in those states. Cash equivalents with a fair value and amortized cost of $9.4 million were on deposit with another insurance company as collateral for an assumed reinsurance contract.

Investment Income and Net Realized Gains and Losses

The major categories of investment income follow (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Fixed maturities, available-for-sale	$	1,089	$	1,213		$	3,442	$	3,717
Mutual funds, available-for-sale		151		176			458		462
Other investments		(29)		128			248		128
Other		54		73			156		163
Investment expenses		(123)		(117	)		(368)		(453	)
	$	1,142	$	1,473		$	3,936	$	4,017

The components of net realized gains (losses) on investments, available-for-sale at fair value follow (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Gains	$	-	$	44		$	85	$	92
Losses		(4)		(5	)		(49)		(67	)
Other-than-temporary impairment		-		(33	)		-		(61	)
	$	(4)	$	6		$	36	$	(36	)

Realized gains and losses on sales and redemptions are computed based on specific identification. The non-credit related portion of other-than-temporary impairment (“OTTI”) is included in other comprehensive income. The amounts of non-credit OTTI for securities still owned was $0.9 million for non-agency backed residential collateralized mortgage obligations (“CMOs”) and $0.2 million related to non-agency backed commercial CMOs at both September 30, 2014 and December 31, 2013.

Other-Than-Temporary Impairment

The Company separates OTTI into the following two components: (i) the amount related to credit losses, which is recognized in the consolidated statement of comprehensive income (loss) and (ii) the amount related to all other factors, which is recorded in comprehensive income (loss). The credit-related portion of an OTTI is measured by comparing a security’s amortized cost to the present value of its current expected cash flows discounted at its effective yield prior to the impairment charge.

The determination of whether unrealized losses are “other-than-temporary” requires judgment based on subjective as well as objective factors. The Company routinely monitors its investment portfolio for changes in fair value that might indicate potential impairments and performs detailed reviews on such securities. Changes in fair value are evaluated to determine the extent to which such changes are attributable to (i) fundamental factors specific to the issuer or (ii) market-related factors such as interest rates or sector declines.

Securities with declines attributable to issuer-specific fundamentals are reviewed to identify all available evidence to estimate the potential for impairment. Resources used include historical financial data included in filings with the SEC for corporate bonds and performance data regarding the underlying loans for CMOs. Securities with declines attributable solely to market or sector declines where the Company does not intend to sell the security and it is more likely than not that the Company will not be required to sell the security before the full recovery of its amortized cost basis are not deemed to be other-than-temporarily impaired.

The issuer-specific factors considered in reaching the conclusion that securities with declines are not other-than-temporary include (i) the extent and duration of the decline in fair value, including the duration of any significant decline in value, (ii) whether the security is current as to payments of principal and interest, (iii) a valuation of any underlying collateral, (iv) current and future conditions and trends for both the business and its industry, (v) changes in cash flow assumptions for CMOs and (vi) rating agency actions. Based on these factors, the Company makes a determination as to the probability of recovering principal and interest on the security.

For the three and nine months ended September 30, 2013, the Company recognized OTTI charges in net income of $33 thousand and $61 thousand, respectively, related to one non-agency backed residential CMO.

The following is a progression of the credit-related portion of OTTI on investments owned at September 30, 2014 and 2013 (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Beginning balance	$	(2,632)	$	(2,599	)	$	(2,632)	$	(2,666	)
Additional credit impairments on:
Previously impaired securities		—		(33	)		—		(61	)
Securities without previous impairments		—		—			—		—
		—		(33	)		—		(61	)
Reductions for securities sold (realized)		—		—			—		95
	$	(2,632)	$	(2,632	)	$	(2,632)	$	(2,632	)

The Company believes that the remaining securities having unrealized losses at September 30, 2014 were not other-than-temporarily impaired. The Company also does not intend to sell any of these securities and it is more likely than not that the Company will not be required to sell any of these securities before the recovery of their amortized cost basis.

XML

Investments - Additional Information (Detail) (USD $)	3 Months Ended	9 Months Ended		3 Months Ended	9 Months Ended		12 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2013	Sep. 30, 2014 Funds	Sep. 30, 2013 Collateralized Non Agency Backed Residential Obligations	Sep. 30, 2013 Collateralized Non Agency Backed Residential Obligations	Sep. 30, 2014 Collateralized Mortgage Obligations [Member] Collateralized Non Agency Backed Residential Obligations	Dec. 31, 2013 Collateralized Mortgage Obligations [Member] Collateralized Non Agency Backed Residential Obligations	Sep. 30, 2014 Collateralized Mortgage Obligations [Member] Collateralized Non Agency Backed Commercial Obligations	Dec. 31, 2013 Collateralized Mortgage Obligations [Member] Collateralized Non Agency Backed Commercial Obligations
Schedule of Available-for-sale Securities [Line Items]
Number of investment funds			3
Unfunded commitments			$ 3,000,000
Fixed maturities and cash equivalents on deposit with various insurance departments at fair value and amortized cost			5,200,000
Cash equivalents on deposit with another insurance company at fair value and amortized cost			9,400,000
Non credit other than temporary impairment for securities						900,000	900,000	200,000	200,000
OTTI charges recognized in net income (loss)	$ 33,000	$ 61,000		$ 33,000	$ 61,000

XML

Investments - Gross Unrealized Losses by Current Severity and Length of Time that Individual Securities have been in Continuous Unrealized Loss Position (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Investment Maturity Date [Line Items]
Fair Value of Securities with Gross Unrealized Losses	$ 33,663	$ 37,921
Gross Unrealized Losses	(1,015)	(2,291)
Less Than 5% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	(559)	(278)
5% to 10% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	(456)	(2,013)
Greater Than 10% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	0	0
Three Months [Member]
Investment Maturity Date [Line Items]
Fair Value of Securities with Gross Unrealized Losses	1,198	6,417
Gross Unrealized Losses	(1)	(40)
Three Months [Member] | Less Than 5% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	(1)	(40)
Three Months [Member] | Greater Than 10% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	0	0
Six Months [Member]
Investment Maturity Date [Line Items]
Fair Value of Securities with Gross Unrealized Losses	3,038	1,653
Gross Unrealized Losses	(16)	(129)
Six Months [Member] | Less Than 5% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	(16)
Six Months [Member] | 5% to 10% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses		(129)
Six Months [Member] | Greater Than 10% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	0	0
Nine Months [Member]
Investment Maturity Date [Line Items]
Fair Value of Securities with Gross Unrealized Losses	2,876	15,871
Gross Unrealized Losses	(16)	(852)
Nine Months [Member] | Less Than 5% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	(16)	(153)
Nine Months [Member] | 5% to 10% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses		(699)
Nine Months [Member] | Greater Than 10% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	0	0
Twelve Months [Member]
Investment Maturity Date [Line Items]
Fair Value of Securities with Gross Unrealized Losses	996
Gross Unrealized Losses	(8)
Twelve Months [Member] | Less Than 5% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	(8)
Twelve Months [Member] | Greater Than 10% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	0	0
Greater Than 12 Months [Member]
Investment Maturity Date [Line Items]
Fair Value of Securities with Gross Unrealized Losses	25,555	13,980
Gross Unrealized Losses	(974)	(1,270)
Greater Than 12 Months [Member] | Less Than 5% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	(518)	(85)
Greater Than 12 Months [Member] | 5% to 10% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	(456)	(1,185)
Greater Than 12 Months [Member] | Greater Than 10% [Member]
Investment Maturity Date [Line Items]
Gross Unrealized Losses	$ 0	$ 0

XML

Investments - Major Categories of Investment Income (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Net Investment Income [Line Items]
Investment income	$ 1,142	$ 1,473	$ 3,936	$ 4,017
Investment expenses	(123)	(117)	(368)	(453)
Fixed maturities, available-for-sale [Member]
Net Investment Income [Line Items]
Investment income	1,089	1,213	3,442	3,717
Mutual funds, available-for-sale [Member]
Net Investment Income [Line Items]
Investment income	151	176	458	462
Other investments [Member]
Net Investment Income [Line Items]
Investment income	(29)	128	248	128
Other [Member]
Net Investment Income [Line Items]
Investment income	$ 54	$ 73	$ 156	$ 163

XML

Investments - Components of Net Realized Gains (Losses) on Investments, Available-for-Sale at Fair Value (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Investments Debt And Equity Securities [Abstract]
Gains		$ 44	$ 85	$ 92
Losses	(4)	(5)	(49)	(67)
OTTI charges reclassified from other comprehensive income and recognized in net income		(33)		(61)
Net realized gains (losses) on investments, available-for-sale	$ (4)	$ 6	$ 36	$ (36)

XML

Fair Value

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value

2. Fair Value

Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs are based on market data from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information. All assets and liabilities that are carried at fair value are classified and disclosed in one of the following categories:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Quoted market prices for similar assets or liabilities in active markets; quoted prices by independent pricing services for identical or similar assets or liabilities in markets that are not active; and valuations, using models or other valuation techniques, that use observable market data. All significant inputs are observable, or derived from observable information in the marketplace, or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 - Instruments that use non-binding broker quotes or model driven valuations that do not have observable market data or those that are estimated based on an ownership interest to which a proportionate share of net assets is attributed.

The Company categorizes valuation methods used in its identifiable intangible assets impairment tests as Level 3. To determine the fair value of acquired trademarks and trade names, the Company uses the relief-from-royalty method, which requires the Company to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. The Company also categorizes valuation methods used to fair value its investments in other investments as Level 3, since these investments have redemptions and transfer restrictions and are therefore not readily marketable.

Fair Value of Financial Instruments

The carrying values and fair values of certain of the Company’s financial instruments were as follows (in thousands).

	September 30, 2014				December 31, 2013
	Carrying Value		FairValue		Carrying Value		FairValue
Assets:
Investments, available-for-sale	$	121,513	$	121,513	$	130,248	$	130,248
Other investments		9,922		9,922		7,513		7,513
Liabilities:
Debentures payable		40,330		19,507		40,301		15,006

FIRST ACCEPTANCE CORPORATION 10-Q

The fair values as presented represent the Company’s best estimates and may not be substantiated by comparisons to independent markets. The fair value of the debentures payable is categorized as Level 3, since it was based on current market rates offered for debt with similar risks and maturities, an unobservable input categorized as Level 3. Carrying values of certain financial instruments, such as cash and cash equivalents and premiums and fees receivable, approximate fair value due to the short-term nature of the instruments and are not required to be disclosed. Therefore, the aggregate of the fair values presented in the preceding table do not purport to represent the Company’s underlying value.

The Company holds available-for-sale investments and other investments, which are carried at either net asset value or under the equity method which approximates fair value. The following tables present the fair-value measurements for each major category of assets that are measured on a recurring basis (in thousands).

			Fair Value Measurements Using
September 30, 2014	Total		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other Observable Inputs(Level 2)		Significant Unobservable Inputs(Level 3)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	4,287	$	4,287	$	-	$	-
State		731		-		731		-
Political subdivisions		508		-		508		-
Revenue and assessment		12,519		-		12,519		-
Corporate bonds		76,426		-		76,426		-
Collateralized mortgage obligations:
Agency backed		7,071		-		7,071		-
Non-agency backed – residential		4,358		-		4,358		-
Non-agency backed – commercial		3,121		-		3,121		-
Total fixed maturities, available-for-sale		109,021		4,287		104,734		-
Preferred stock, available-for-sale		1,721		1,721		-		-
Mutual funds, available-for-sale		10,771		10,771		-		-
Total investments, available-for-sale		121,513		16,779		104,734		-
Other investments		9,922		-		-		9,922
Cash and cash equivalents		96,496		96,496		-		-
Total	$	227,931	$	113,275	$	104,734	$	9,922

			Fair Value Measurements Using
December 31, 2013	Total		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other Observable Inputs(Level 2)		Significant Unobservable Inputs(Level 3)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	12,485	$	12,485	$	—	$	—
State		736		—		736		—
Political subdivisions		612		—		612		—
Revenue and assessment		14,658		—		14,658		—
Corporate bonds		73,325		—		73,325		—
Collateralized mortgage obligations:
Agency backed		7,514		—		7,514		—
Non-agency backed – residential		4,660		—		4,660		—
Non-agency backed – commercial		3,943		—		3,943		—
Total fixed maturities, available-for-sale		117,933		12,485		105,448		—
Preferred stock available-for-sale		1,578		1,578		—		—
Mutual funds, available-for-sale		10,737		10,737		—		—
Total investments, available-for-sale		130,248		24,800		105,448		—
Other investments		7,513		—		—		7,513
Cash and cash equivalents		72,033		72,033		—		—
Total	$	209,794	$	96,833	$	105,448	$	7,513

The fair values of the Company’s investments are determined by management after taking into consideration available sources of data. All of the portfolio valuations classified as Level 1 or Level 2 in the above tables are priced exclusively by utilizing the services of independent pricing sources using observable market data. The Level 2 classified security valuations are obtained from a single independent pricing service. The Level 3 classified securities in the table above consist of other investments for which fair value is estimated based on the Company’s ownership interest. There were no transfers between Level 1 and Level 2 for the three and nine months ended September 30, 2014 and 2013. The Company’s policy is to recognize transfers between levels at the end of the reporting period based on specific identification. The Company has not made any adjustments to the prices obtained from the independent pricing sources.

The Company has reviewed the pricing techniques and methodologies of the independent pricing service for Level 2 investments and believes that its policies adequately consider market activity, either based on specific transactions for the security valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. The Company monitored security-specific valuation trends and has made inquiries with the pricing service about material changes or the absence of expected changes to understand the underlying factors and inputs and to validate the reasonableness of the pricing.

The following table represents the quantitative disclosure for those assets classified as Level 3 during the nine months ended September 30, 2014 (in thousands).

		Fair Value Measurements UsingSignificant Unobservable Inputs (Level 3)
	Limited partnership interestscarried at
	Net Asset Value		Equity Method		Common Stock at Fair Value		Total
Balance at December 31, 2013	$	3,314	$	4,199	$	-	$	7,513
Gains included in net income		117		131		-		248
Investments and capital calls		1,616		-		720		2,336
Distributions received		(175)		-		-		(175)
Transfers into and out of Level 3		-		-		-		-
Balance at September 30, 2014	$	4,872	$	4,330	$	720	$	9,922

XML

Investments - Progression of Credit-Related Portion of OTTI on Investments (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Investments Debt And Equity Securities [Abstract]
Beginning balance	$ (2,632)	$ (2,599)	$ (2,632)	$ (2,666)
Additional credit impairments on:
Previously impaired securities		(33)		(61)
Securities without previous impairments	0	0	0	0
Total additional credit impairments securities		(33)		(61)
Reductions for securities sold (realized)				95
Ending balance	$ (2,632)	$ (2,632)	$ (2,632)	$ (2,632)

XML

CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
ASSETS
Investments, available-for-sale at fair value (amortized cost of $115,854 and $126,873, respectively)	$ 121,513	$ 130,248
Cash and cash equivalents	96,496	72,033
Premiums and fees receivable, net of allowance of $445 and $311	58,401	46,228
Other investments	9,922	7,513
Other assets	6,320	6,471
Property and equipment, net	3,187	3,512
Deferred acquisition costs	3,776	2,902
Identifiable intangible assets	4,800	4,800
TOTAL ASSETS	304,415	273,707
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	91,244	84,286
Unearned premiums and fees	70,235	55,983
Debentures payable	40,330	40,301
Other liabilities	17,115	16,205
Total liabilities	218,924	196,775
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000 shares authorized
Common stock, $.01 par value, 75,000 shares authorized; 41,000 and 40,983 shares issued and outstanding, respectively	410	410
Additional paid-in capital	457,168	456,993
Accumulated other comprehensive income	5,659	3,375
Accumulated deficit	(377,746)	(383,846)
Total stockholders’ equity	85,491	76,932
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 304,415	$ 273,707

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net income	$ 6,100	$ 6,022
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization	1,303	1,593
Stock-based compensation	151	194
Other-than-temporary impairment on investment securities		61
Net realized (gains) losses on sales and redemptions of investments	(36)	(25)
Investment income and equity in earnings from other investments	(248)	(128)
Other	244	174
Change in:
Premiums and fees receivable	(12,307)	(4,624)
Loss and loss adjustment expense reserves	6,958	5,557
Unearned premiums and fees	14,252	5,664
Other	218	109
Net cash provided by operating activities	16,635	14,597
Cash flows from investing activities:
Purchases of investments, available-for-sale	(5,441)	(17,612)
Purchases of other investments	(2,336)	(6,316)
Maturities and redemptions of investments, available-for-sale	16,379	16,506
Capital expenditures	(978)	(795)
Other	173	(2)
Net cash provided by (used in) investing activities	7,797	(8,219)
Cash flows from financing activities:
Net proceeds from issuance of common stock	31	24
Net cash provided by financing activities	31	24
Net change in cash and cash equivalents	24,463	6,402
Cash and cash equivalents, beginning of period	72,033	59,104
Cash and cash equivalents, end of period	$ 96,496	$ 65,506

XML

Income Taxes - Provision for Income Taxes (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Federal:
Current	$ 80	$ 35	$ 170	$ 102
Deferred			(1)
Gross Federal	80	35	169	102
State:
Current	176	128	376	341
Deferred	1	1	2	2
Gross State	177	129	378	343
Income tax expense	$ 257	$ 164	$ 547	$ 445

XML

Fair Value - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Fair Value Disclosures [Abstract]
Transfers between level 1 and level 2	$ 0	$ 0	$ 0	$ 0

XML

Income Taxes - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Income Tax Disclosure [Abstract]
Statutory federal corporate tax rate	35.00%
Valuation allowance	$ 21.2	$ 24.2
Change in the total valuation allowance	3.0
Change in the valuation allowance related to unrealized change in investments	0.8
Utilization of valuation allowance associated with net operating loss carry forwards	$ 8.0

XML

Investments - Summary of Company's Investment Securities (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Investment Securities [Line Items]
Amortized Cost	$ 115,854	$ 126,873
Gross Unrealized Gains	6,674	5,666
Gross Unrealized Losses	(1,015)	(2,291)
Fair Value	121,513	130,248
Preferred Stock
Investment Securities [Line Items]
Amortized Cost	1,500	1,500
Gross Unrealized Gains	221	78
Fair Value	1,721	1,578
Equity Funds
Investment Securities [Line Items]
Amortized Cost	9,900	9,901
Gross Unrealized Gains	871	836
Fair Value	10,771	10,737
Fixed Maturities
Investment Securities [Line Items]
Amortized Cost	104,454	115,472
Gross Unrealized Gains	5,582	4,752
Gross Unrealized Losses	(1,015)	(2,291)
Fair Value	109,021	117,933
Fixed Maturities | US Government Agencies Debt Securities
Investment Securities [Line Items]
Amortized Cost	4,005	12,006
Gross Unrealized Gains	290	495
Gross Unrealized Losses	(8)	(16)
Fair Value	4,287	12,485
Fixed Maturities | State Securities
Investment Securities [Line Items]
Amortized Cost	698	697
Gross Unrealized Gains	33	39
Fair Value	731	736
Fixed Maturities | Political Subdivisions Securities
Investment Securities [Line Items]
Amortized Cost	500	601
Gross Unrealized Gains	8	11
Fair Value	508	612
Fixed Maturities | Revenue And Assessment Securities
Investment Securities [Line Items]
Amortized Cost	11,346	14,050
Gross Unrealized Gains	1,173	619
Gross Unrealized Losses		(11)
Fair Value	12,519	14,658
Fixed Maturities | Corporate Bond Securities
Investment Securities [Line Items]
Amortized Cost	74,950	73,461
Gross Unrealized Gains	2,483	2,127
Gross Unrealized Losses	(1,007)	(2,263)
Fair Value	76,426	73,325
Fixed Maturities | Agency Backed [Member]
Investment Securities [Line Items]
Amortized Cost	6,848	7,113
Gross Unrealized Gains	223	401
Fair Value	7,071	7,514
Fixed Maturities | Collateralized Non Agency Backed Residential Obligations
Investment Securities [Line Items]
Amortized Cost	3,682	4,181
Gross Unrealized Gains	676	480
Gross Unrealized Losses		(1)
Fair Value	4,358	4,660
Fixed Maturities | Collateralized Non Agency Backed Commercial Obligations
Investment Securities [Line Items]
Amortized Cost	2,425	3,363
Gross Unrealized Gains	696	580
Fair Value	$ 3,121	$ 3,943

XML

General

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

General

1. General

The consolidated financial statements of First Acceptance Corporation (the “Company”) included herein have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been omitted. In the opinion of management, the consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the interim periods.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2013.

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Statement Of Financial Position [Abstract]
Amortized cost of investments	$ 115,854	$ 126,873
Allowance for premiums and fees receivable	$ 445	$ 311
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000	10,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	75,000	75,000
Common stock, shares issued	41,000	41,000
Common stock, shares outstanding	40,983	40,983

XML

Net Income Per Share (Tables)

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Computation of Basic and Diluted Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data).

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	2014		2013		2014		2013
Net income	$	2,120	$	1,932	$	6,100	$	6,022
Weighted average common basic shares		40,995		40,942		40,981		40,925
Effect of dilutive securities		302		219		304		23
Weighted average common dilutive shares		41,297		41,161		41,285		40,948
Basic and diluted net income per share	$	0.05	$	0.05	$	0.15	$	0.15

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 03, 2014
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Entity Registrant Name	FIRST ACCEPTANCE CORP /DE/
Entity Central Index Key	0001017907
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		40,999,909

XML

Income Taxes (Tables)

9 Months Ended

Sep. 30, 2014

Income Tax Disclosure [Abstract]

Provision for Income Taxes

The provision for income taxes consisted of the following (in thousands).

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	2014		2013		2014		2013
Federal:
Current	$	80	$	35	$	170	$	102
Deferred		—		—		(1)		—
		80		35		169		102
State:
Current		176		128		376		341
Deferred		1		1		2		2
		177		129		378		343
	$	257	$	164	$	547	$	445

Provision (Benefit) for Income Taxes Differs from Amounts Computed by Applying Statutory Federal Corporate Tax Rate

The provision for income taxes differs from the amounts computed by applying the statutory federal corporate tax rate of 35% to income before income taxes as a result of the following (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Provision for income taxes at statutory rate	$	832	$	733		$	2,327	$	2,264
Tax effect of:
Tax-exempt investment income		(5)		(10	)		(16)		(21	)
Change in the beginning of the period balance of the valuation allowance for deferred tax assets allocated to federal income taxes		(760)		(716	)		(2,216)		(2,352	)
Stock-based compensation		3		22			48		193
State income taxes, net of federal income tax benefit and valuation allowance		177		129			378		343
Other		10		6			26		18
	$	257	$	164		$	547	$	445

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenues:
Premiums earned	$ 54,369	$ 49,467	$ 161,971	$ 150,988
Commission and fee income	10,097	8,632	29,323	26,391
Investment income	1,142	1,473	3,936	4,017
Net realized gains (losses) on investments, available-for-sale (includes $(4), $6, $36 and $(36), respectively, of accumulated other comprehensive income reclassification for unrealized gains (losses))	(4)	6	36	(36)
Total revenues	65,604	59,578	195,266	181,360
Costs and expenses:
Losses and loss adjustment expenses	41,440	36,132	119,323	108,724
Insurance operating expenses	20,654	20,145	65,845	62,394
Other operating expenses	244	235	722	687
Stock-based compensation	39	54	151	194
Depreciation and amortization	423	485	1,303	1,593
Interest expense	427	431	1,275	1,301
Total costs and expenses	63,227	57,482	188,619	174,893
Income before income taxes	2,377	2,096	6,647	6,467
Provision for income taxes (includes $(1), $2, $13 and $(13), respectively, of income tax expense from reclassification items)	257	164	547	445
Net income	2,120	1,932	6,100	6,022
Net income per share:
Basic	$ 0.05	$ 0.05	$ 0.15	$ 0.15
Diluted	$ 0.05	$ 0.05	$ 0.15	$ 0.15
Number of shares used to calculate net income per share:
Basic	40,995	40,942	40,981	40,925
Diluted	41,297	41,161	41,285	40,948
Reconciliation of net income to other comprehensive income :
Net income	2,120	1,932	6,100	6,022
Net unrealized change in investments	(667)	(419)	2,284	(4,446)
Comprehensive income	1,453	1,513	8,384	1,576
Detail of net realized gains (losses) on investments, available-for-sale:
Net realized gains (losses) on sales and redemptions	(4)	39	36	25
OTTI charges reclassified from other comprehensive income and recognized in net income		(33)		(61)
Net realized gains (losses) on investments, available-for-sale	$ (4)	$ 6	$ 36	$ (36)

XML

Segment Information

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Segment Information

6. Segment Information

The Company operates in two business segments with its primary focus being the selling, servicing and underwriting of non-standard personal automobile insurance. The real estate and corporate segment consists of the activities related to the disposition of foreclosed real estate held for sale, interest expense associated with all debt and other general corporate overhead expenses.

The following table presents selected financial data by business segment (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Revenues:
Insurance	$	65,588	$	59,564		$	195,221	$	181,323
Real estate and corporate		16		14			45		37
Consolidated total	$	65,604	$	59,578		$	195,266	$	181,360
Income (loss) before income taxes:
Insurance	$	3,071	$	2,802		$	8,750	$	8,613
Real estate and corporate		(694)		(706	)		(2,103)		(2,146	)
Consolidated total	$	2,377	$	2,096		$	6,647	$	6,467

	September 30,2014		December 31,2013
Total assets:
Insurance.	$	288,819	$	262,869
Real estate and corporate		15,596		10,838
Consolidated total	$	304,415	$	273,707

XML

Income Taxes

9 Months Ended

Sep. 30, 2014

Income Tax Disclosure [Abstract]

Income Taxes

5. Income Taxes

The provision for income taxes consisted of the following (in thousands).

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	2014		2013		2014		2013
Federal:
Current	$	80	$	35	$	170	$	102
Deferred		—		—		(1)		—
		80		35		169		102
State:
Current		176		128		376		341
Deferred		1		1		2		2
		177		129		378		343
	$	257	$	164	$	547	$	445

The provision for income taxes differs from the amounts computed by applying the statutory federal corporate tax rate of 35% to income before income taxes as a result of the following (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Provision for income taxes at statutory rate	$	832	$	733		$	2,327	$	2,264
Tax effect of:
Tax-exempt investment income		(5)		(10	)		(16)		(21	)
Change in the beginning of the period balance of the valuation allowance for deferred tax assets allocated to federal income taxes		(760)		(716	)		(2,216)		(2,352	)
Stock-based compensation		3		22			48		193
State income taxes, net of federal income tax benefit and valuation allowance		177		129			378		343
Other		10		6			26		18
	$	257	$	164		$	547	$	445

The Company had a valuation allowance of $21.2 million and $24.2 million at September 30, 2014 and December 31, 2013, respectively, to reduce deferred tax assets to the amount that is more likely than not to be realized. The change in the total valuation allowance for the nine months ended September 30, 2014 was a decrease of $3.0 million. For the nine months ended September 30, 2014, the change in the valuation allowance included an increase of $0.8 million related to unrealized change in investments included in other comprehensive income and was net of the utilization of $8.0 million in net operating loss carryforwards.

In assessing the realization of deferred tax assets, management considered whether it was more likely than not that some portion or all of the deferred tax assets will not be realized. The Company is required to assess whether a valuation allowance should be established against the Company’s net deferred tax assets based on the consideration of all available evidence using a more likely than not standard. In making such judgments, significant weight is given to evidence that can be objectively verified. In assessing the Company’s ability to support the realizability of its deferred tax assets, management considered both positive and negative evidence. The Company placed greater weight on historical results than on the Company’s outlook for future profitability and established a deferred tax valuation allowance at September 30, 2014 and December 31, 2013. The Company’s historical results now reflect nine consecutive quarters of taxable income which management considers to be a trend of positive evidence in assessing the realizability of its deferred tax assets. Although management decided not to adjust the valuation allowance at September 30, 2014, the deferred tax valuation allowance may be adjusted in future periods if management determines that it is more likely than not that some portion or all of the deferred tax assets will be realized. In the event the deferred tax valuation allowance is adjusted, the Company would record an income tax benefit for the adjustment.

XML

Fair Value - Quantitative Disclosure for Assets Classified as Level 3 (Detail) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at December 31, 2013	$ 7,513
Gains included in net income	248
Investments and capital calls	2,336
Distributions received	(175)
Transfers into and out of Level 3	0
Balance at September 30, 2014	9,922
Common Stock at Fair Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments and capital calls	720
Transfers into and out of Level 3	0
Balance at September 30, 2014	720
Net Asset Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at December 31, 2013	3,314
Gains included in net income	117
Investments and capital calls	1,616
Distributions received	(175)
Transfers into and out of Level 3	0
Balance at September 30, 2014	4,872
Equity Method [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at December 31, 2013	4,199
Gains included in net income	131
Transfers into and out of Level 3	0
Balance at September 30, 2014	$ 4,330

XML

Segment Information (Tables)

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Selected Financial Data by Business Segment

The following table presents selected financial data by business segment (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Revenues:
Insurance	$	65,588	$	59,564		$	195,221	$	181,323
Real estate and corporate		16		14			45		37
Consolidated total	$	65,604	$	59,578		$	195,266	$	181,360
Income (loss) before income taxes:
Insurance	$	3,071	$	2,802		$	8,750	$	8,613
Real estate and corporate		(694)		(706	)		(2,103)		(2,146	)
Consolidated total	$	2,377	$	2,096		$	6,647	$	6,467

	September 30,2014		December 31,2013
Total assets:
Insurance.	$	288,819	$	262,869
Real estate and corporate		15,596		10,838
Consolidated total	$	304,415	$	273,707

XML

Fair Value (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Presentation of Carrying Values and Fair Values of Certain of Company's Financial Instruments

The carrying values and fair values of certain of the Company’s financial instruments were as follows (in thousands).

	September 30, 2014				December 31, 2013
	Carrying Value		FairValue		Carrying Value		FairValue
Assets:
Investments, available-for-sale	$	121,513	$	121,513	$	130,248	$	130,248
Other investments		9,922		9,922		7,513		7,513
Liabilities:
Debentures payable		40,330		19,507		40,301		15,006

Presentation of Fair-Value Measurements for Each Major Category of Assets Measured on Recurring Basis

The following tables present the fair-value measurements for each major category of assets that are measured on a recurring basis (in thousands).

			Fair Value Measurements Using
September 30, 2014	Total		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other Observable Inputs(Level 2)		Significant Unobservable Inputs(Level 3)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	4,287	$	4,287	$	-	$	-
State		731		-		731		-
Political subdivisions		508		-		508		-
Revenue and assessment		12,519		-		12,519		-
Corporate bonds		76,426		-		76,426		-
Collateralized mortgage obligations:
Agency backed		7,071		-		7,071		-
Non-agency backed – residential		4,358		-		4,358		-
Non-agency backed – commercial		3,121		-		3,121		-
Total fixed maturities, available-for-sale		109,021		4,287		104,734		-
Preferred stock, available-for-sale		1,721		1,721		-		-
Mutual funds, available-for-sale		10,771		10,771		-		-
Total investments, available-for-sale		121,513		16,779		104,734		-
Other investments		9,922		-		-		9,922
Cash and cash equivalents		96,496		96,496		-		-
Total	$	227,931	$	113,275	$	104,734	$	9,922

			Fair Value Measurements Using
December 31, 2013	Total		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other Observable Inputs(Level 2)		Significant Unobservable Inputs(Level 3)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	12,485	$	12,485	$	—	$	—
State		736		—		736		—
Political subdivisions		612		—		612		—
Revenue and assessment		14,658		—		14,658		—
Corporate bonds		73,325		—		73,325		—
Collateralized mortgage obligations:
Agency backed		7,514		—		7,514		—
Non-agency backed – residential		4,660		—		4,660		—
Non-agency backed – commercial		3,943		—		3,943		—
Total fixed maturities, available-for-sale		117,933		12,485		105,448		—
Preferred stock available-for-sale		1,578		1,578		—		—
Mutual funds, available-for-sale		10,737		10,737		—		—
Total investments, available-for-sale		130,248		24,800		105,448		—
Other investments		7,513		—		—		7,513
Cash and cash equivalents		72,033		72,033		—		—
Total	$	209,794	$	96,833	$	105,448	$	7,513

Quantitative Disclosure for Assets Classified as Level 3

The following table represents the quantitative disclosure for those assets classified as Level 3 during the nine months ended September 30, 2014 (in thousands).

		Fair Value Measurements UsingSignificant Unobservable Inputs (Level 3)
	Limited partnership interestscarried at
	Net Asset Value		Equity Method		Common Stock at Fair Value		Total
Balance at December 31, 2013	$	3,314	$	4,199	$	-	$	7,513
Gains included in net income		117		131		-		248
Investments and capital calls		1,616		-		720		2,336
Distributions received		(175)		-		-		(175)
Transfers into and out of Level 3		-		-		-		-
Balance at September 30, 2014	$	4,872	$	4,330	$	720	$	9,922

XML

Litigation

9 Months Ended

Sep. 30, 2014

Commitments And Contingencies Disclosure [Abstract]

Litigation

7. Litigation

The Company is named as a defendant in various lawsuits, arising in the ordinary course of business, generally relating to its insurance operations. All legal actions relating to claims made under insurance policies are considered by the Company in establishing its loss and loss adjustment expense reserves. The Company also faces lawsuits from time to time that seek damages beyond policy limits, commonly known as bad faith claims, as well as class action and individual lawsuits that involve issues arising in the course of the Company’s business. The Company continually evaluates potential liabilities and reserves for litigation of these types using the criteria established by FASB ASC 450, Contingencies (“FASB ASC 450”). Pursuant to FASB ASC 450, reserves for a loss may only be recognized if the likelihood of occurrence is probable and the amount can be reasonably estimated. If a loss, while not probable, is judged to be reasonably possible, management will disclose, if it can be estimated, a possible range of loss or state that an estimate cannot be made. Management evaluates each legal action and records reserves for losses as warranted by establishing a reserve in its consolidated balance sheets in loss and loss adjustment expense reserves for bad faith claims and in other liabilities for other lawsuits. Amounts incurred are recorded in the Company’s consolidated statements of comprehensive income in losses and loss adjustment expenses for bad faith claims and in insurance operating expenses for other lawsuits unless otherwise disclosed.

In January 2014, one current and three former employees filed a class action lawsuit against the Company in the U.S. District Court for the Middle District of Tennessee. The case is styled Lykins, et al. v. First Acceptance Corporation, et al. The suit alleges the Company violated the Fair Labor Standards Act by misclassifying its insurance agents as exempt employees. Plaintiffs seek unpaid wages, overtime, attorneys’ fees and costs. The Company answered the plaintiffs’ Complaint and denied all of the allegations contained therein. In April 2014, the case was conditionally certified as a class action, and a notice regarding the case was sent to all potential class members. Approximately 200 individuals chose to participate in the case during the opt-in period which closed on July 15, 2014. The Company strongly disagrees with the allegations and will put forth a vigorous defense. The case is still in its early stages of discovery. This litigation will likely have a lengthy duration. Therefore, an estimate of the ultimate impact of this litigation on the Company, if any, cannot be made at this time.

XML

Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2014

Accounting Changes And Error Corrections [Abstract]

Recent Accounting Pronouncements

8. Recent Accounting Pronouncements

In May 2014, the Financial Standards Board (“FASB”) and the International Accounting Standards Board (“IASB”) jointly issued a new revenue recognition standard, Accounting Standard Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”, that will supersede virtually all revenue recognition guidance in GAAP and International Financial Reporting Standards (“IFRS”). This guidance has an effective date for public companies for annual and interim periods beginning after December 15, 2016, with early adoption not permitted. The standard is intended to increase comparability across industries and jurisdictions. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects in exchange for the goods or services. The new standard will not change accounting guidance for insurance contracts. However, the Company is currently evaluating this guidance as it relates to non-insurance arrangements and any impact it will have on future consolidated financial statements. At this time the impact is unknown.

In June 2014, the FASB made a decision to require insurance companies to make additional disclosures about short-term duration contracts. This guidance has an effective date for public companies for annual reporting periods beginning after December 15, 2014 and interim reporting periods beginning after December 15, 2015, with early adoption permitted. The Company believes that it will be reasonably able to comply with these requirements.

XML

Investments (Tables)

9 Months Ended

Sep. 30, 2014

Investments Debt And Equity Securities [Abstract]

Summary of Company's Investment Securities

The following tables summarize the Company’s investment securities (in thousands).

September 30, 2014	AmortizedCost		Gross Unrealized Gains		Gross Unrealized Losses		FairValue
U.S. government and agencies	$	4,005	$	290	$	(8)	$	4,287
State		698		33		-		731
Political subdivisions		500		8		-		508
Revenue and assessment		11,346		1,173		-		12,519
Corporate bonds		74,950		2,483		(1,007)		76,426
Collateralized mortgage obligations:
Agency backed		6,848		223		-		7,071
Non-agency backed – residential		3,682		676		-		4,358
Non-agency backed – commercial		2,425		696		-		3,121
Total fixed maturities, available-for-sale		104,454		5,582		(1,015)		109,021
Preferred stock, available-for-sale		1,500		221		-		1,721
Mutual funds, available-for-sale		9,900		871		-		10,771
	$	115,854	$	6,674	$	(1,015)	$	121,513

December 31, 2013	AmortizedCost		Gross Unrealized Gains		Gross Unrealized Losses			FairValue
U.S. government and agencies	$	12,006	$	495	$	(16	)	$	12,485
State		697		39		—			736
Political subdivisions		601		11		—			612
Revenue and assessment		14,050		619		(11	)		14,658
Corporate bonds		73,461		2,127		(2,263	)		73,325
Collateralized mortgage obligations:
Agency backed		7,113		401		—			7,514
Non-agency backed – residential		4,181		480		(1	)		4,660
Non-agency backed – commercial		3,363		580		—			3,943
Total fixed maturities, available-for-sale		115,472		4,752		(2,291	)		117,933
Preferred stock, available-for-sale		1,500		78		—			1,578
Mutual funds, available-for-sale		9,901		836		—			10,737
	$	126,873	$	5,666	$	(2,291	)	$	130,248

Scheduled Maturities of Company's Fixed Maturity Securities Based on their Fair Values

The following tables set forth the scheduled maturities of the Company’s fixed maturity securities based on their fair values (in thousands). Actual maturities may differ from contractual maturities because certain securities may be called or prepaid by the issuers.

September 30, 2014	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		AllFixed Maturity Securities
One year or less	$	5,106	$	-	$	-	$	5,106
After one through five years		27,068		10,941		-		38,009
After five through ten years		21,873		20,890		-		42,763
After ten years		6,858		1,735		-		8,593
No single maturity date		14,453		97		-		14,550
	$	75,358	$	33,663	$	-	$	109,021

December 31, 2013	Securities with Unrealized Gains		Securities with Unrealized Losses		Securities with No Unrealized Gains or Losses		AllFixed Maturity Securities
One year or less	$	14,305	$	—	$	—	$	14,305
After one through five years		25,667		10,888		—		36,555
After five through ten years		20,445		22,836		—		43,281
After ten years		3,667		4,008		—		7,675
No single maturity date		15,928		189		—		16,117
	$	80,012	$	37,921	$	—	$	117,933

Number of Fixed Maturity Securities with Gross Unrealized Gains and Losses

The following table reflects the number of fixed maturity securities with gross unrealized gains and losses. Gross unrealized losses are further segregated by the length of time that individual securities have been in a continuous unrealized loss position.

	Gross Unrealized Losses				Gross Unrealized Gains
At:	Less than or equal to 12 months		Greater than 12 months
September 30, 2014		5		11		81
December 31, 2013		12		7		83

Fair Value and Gross Unrealized Losses of Fixed Maturity Securities in Continuous Unrealized Loss Position for Greater than 12 Months

The following tables reflect the fair value and gross unrealized losses of those fixed maturity securities in a continuous unrealized loss position for greater than 12 months. Gross unrealized losses are further segregated by the percentage of amortized cost (in thousands, except number of securities).

Gross Unrealized Losses at September 30, 2014:	Numberof Securities		Fair Value		Gross Unrealized Losses
Less than or equal to 10%		11	$	25,555	$	(974)
Greater than 10%		-		—		—
		11	$	25,555	$	(974)

Gross Unrealized Losses at December 31, 2013:	Number of Securities		Fair Value		Gross Unrealized Losses
Less than or equal to 10%		7	$	13,980	$	(1,270	)
Greater than 10%		—		—		—
		7	$	13,980	$	(1,270	)

Gross Unrealized Losses by Current Severity and Length of Time that Individual Securities have been in Continuous Unrealized Loss Position

The following tables set forth the amount of gross unrealized losses by current severity (as compared to amortized cost) and length of time that individual securities have been in a continuous unrealized loss position (in thousands).

Length of Gross Unrealized Losses at September 30, 2014:	Fair Value of Securities with GrossUnrealizedLosses		Gross Unrealized Losses		Severity of Gross Unrealized Losses
					Less than 5%		5% to 10%		Greater than 10%
Less than or equal to:
Three months	$	1,198	$	(1)	$	(1)	$	-	$	-
Six months		3,038		(16)		(16)		-		-
Nine months		2,876		(16)		(16)		-		-
Twelve months		996		(8)		(8)		-		-
Greater than twelve months		25,555		(974)		(518)		(456)		-
Total	$	33,663	$	(1,015)	$	(559)	$	(456)	$	-

Length of Gross Unrealized Losses at December 31, 2013:	Fair Value of Securities with GrossUnrealizedLosses		Gross Unrealized Losses			Severity of Gross Unrealized Losses
						Less than 5%			5% to 10%			Greater than 10%
Less than or equal to:
Three months	$	6,417	$	(40	)	$	(40	)	$	—		$	—
Six months		1,653		(129	)		—			(129	)		—
Nine months		15,871		(852	)		(153	)		(699	)		—
Twelve months		—		—			—			—			—
Greater than twelve months		13,980		(1,270	)		(85	)		(1,185	)		—
Total	$	37,921	$	(2,291	)	$	(278	)	$	(2,013	)	$	—

Major Categories of Investment Income

The major categories of investment income follow (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Fixed maturities, available-for-sale	$	1,089	$	1,213		$	3,442	$	3,717
Mutual funds, available-for-sale		151		176			458		462
Other investments		(29)		128			248		128
Other		54		73			156		163
Investment expenses		(123)		(117	)		(368)		(453	)
	$	1,142	$	1,473		$	3,936	$	4,017

Components of Net Realized Gains (Losses) on Investments, Available-For-Sale at Fair Value

The components of net realized gains (losses) on investments, available-for-sale at fair value follow (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Gains	$	-	$	44		$	85	$	92
Losses		(4)		(5	)		(49)		(67	)
Other-than-temporary impairment		-		(33	)		-		(61	)
	$	(4)	$	6		$	36	$	(36	)

Progression of Credit-Related Portion of OTTI on Investments

The following is a progression of the credit-related portion of OTTI on investments owned at September 30, 2014 and 2013 (in thousands).

	Three Months EndedSeptember 30,					Nine Months EndedSeptember 30,
	2014		2013			2014		2013
Beginning balance	$	(2,632)	$	(2,599	)	$	(2,632)	$	(2,666	)
Additional credit impairments on:
Previously impaired securities		—		(33	)		—		(61	)
Securities without previous impairments		—		—			—		—
		—		(33	)		—		(61	)
Reductions for securities sold (realized)		—		—			—		95
	$	(2,632)	$	(2,632	)	$	(2,632)	$	(2,632	)

XML

Net Income Per Share - Additional Information (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Earnings Per Share [Line Items]
Exercisable options outstanding that enable to purchase shares	800,000	800,000	800,000	800,000
Restricted Stock [Member]
Earnings Per Share [Line Items]
Shares with dilutive effect and included in computation of diluted income (loss) per share	5,000	23,000	5,000	23,000
Equity Option [Member]
Earnings Per Share [Line Items]
Shares with dilutive effect and included in computation of diluted income (loss) per share	297,000	196,000	299,000
Options excluded from computation of diluted income (loss) per share due to anti-dilutive effect	345,000	440,000	345,000	1,300,000

XML

Fair Value - Presentation of Fair-Value Measurements for Each Major Category of Assets Measured on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	$ 121,513	$ 130,248
Other investments	9,922	7,513
Fair Value Measurements Using [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	121,513	130,248
Other investments	9,922	7,513
Cash and cash equivalents	96,496	72,033
Total	227,931	209,794
Fair Value Measurements Using [Member] | Preferred Stock
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	1,721	1,578
Fair Value Measurements Using [Member] | Equity Funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mutual funds, available-for-sale	10,771	10,737
Fixed Maturities | Fair Value Measurements Using [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	109,021	117,933
Fixed Maturities | Fair Value Measurements Using [Member] | US Government Agencies Debt Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	4,287	12,485
Fixed Maturities | Fair Value Measurements Using [Member] | State Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	731	736
Fixed Maturities | Fair Value Measurements Using [Member] | Political Subdivisions Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	508	612
Fixed Maturities | Fair Value Measurements Using [Member] | Revenue And Assessment Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	12,519	14,658
Fixed Maturities | Fair Value Measurements Using [Member] | Corporate Bond Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	76,426	73,325
Fixed Maturities | Fair Value Measurements Using [Member] | Collateralized Agency Backed Obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	7,071	7,514
Fixed Maturities | Fair Value Measurements Using [Member] | Collateralized Non Agency Backed Residential Obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	4,358	4,660
Fixed Maturities | Fair Value Measurements Using [Member] | Collateralized Non Agency Backed Commercial Obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	3,121	3,943
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value Measurements Using [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	16,779	24,800
Cash and cash equivalents	96,496	72,033
Total	113,275	96,833
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value Measurements Using [Member] | Preferred Stock
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	1,721	1,578
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fair Value Measurements Using [Member] | Equity Funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mutual funds, available-for-sale	10,771	10,737
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fixed Maturities | Fair Value Measurements Using [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	4,287	12,485
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fixed Maturities | Fair Value Measurements Using [Member] | US Government Agencies Debt Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	4,287	12,485
Significant Other Observable Inputs (Level 2) [Member] | Fair Value Measurements Using [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	104,734	105,448
Total	104,734	105,448
Significant Other Observable Inputs (Level 2) [Member] | Fixed Maturities | Fair Value Measurements Using [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	104,734	105,448
Significant Other Observable Inputs (Level 2) [Member] | Fixed Maturities | Fair Value Measurements Using [Member] | State Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	731	736
Significant Other Observable Inputs (Level 2) [Member] | Fixed Maturities | Fair Value Measurements Using [Member] | Political Subdivisions Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	508	612
Significant Other Observable Inputs (Level 2) [Member] | Fixed Maturities | Fair Value Measurements Using [Member] | Revenue And Assessment Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	12,519	14,658
Significant Other Observable Inputs (Level 2) [Member] | Fixed Maturities | Fair Value Measurements Using [Member] | Corporate Bond Securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	76,426	73,325
Significant Other Observable Inputs (Level 2) [Member] | Fixed Maturities | Fair Value Measurements Using [Member] | Collateralized Agency Backed Obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	7,071	7,514
Significant Other Observable Inputs (Level 2) [Member] | Fixed Maturities | Fair Value Measurements Using [Member] | Collateralized Non Agency Backed Residential Obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	4,358	4,660
Significant Other Observable Inputs (Level 2) [Member] | Fixed Maturities | Fair Value Measurements Using [Member] | Collateralized Non Agency Backed Commercial Obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Investments, available-for-sale	3,121	3,943
Significant Unobservable Inputs (Level 3) [Member] | Fair Value Measurements Using [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Other investments	9,922	7,513
Total	$ 9,922	$ 7,513

XML

Investments - Number of Fixed Maturity Securities with Gross Unrealized Gains and Losses (Detail)	Sep. 30, 2014 Security	Dec. 31, 2013 Security
Investments Debt And Equity Securities [Abstract]
Number of Securities with Gross Unrealized Losses Less than or equal to 12 months	5	12
Number of Securities with Gross Unrealized Losses Greater than 12 months	11	7
Number of Securities with Gross Unrealized Gains	81	83

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Income Statement [Abstract]
Accumulated other comprehensive income reclassification for unrealized gains (losses)	$ (4)	$ 6	$ 36	$ (36)
Income tax expense from reclassification items	$ (1)	$ 2	$ 13	$ (13)

XML

Net Income Per Share

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Net Income Per Share

4. Net Income Per Share

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share data).

	Three Months EndedSeptember 30,				Nine Months EndedSeptember 30,
	2014		2013		2014		2013
Net income	$	2,120	$	1,932	$	6,100	$	6,022
Weighted average common basic shares		40,995		40,942		40,981		40,925
Effect of dilutive securities		302		219		304		23
Weighted average common dilutive shares		41,297		41,161		41,285		40,948
Basic and diluted net income per share	$	0.05	$	0.05	$	0.15	$	0.15

For the three months ended September 30, 2014, the computation of diluted net income per share included 5 thousand shares of unvested restricted common stock and options to purchase approximately $0.8 million shares that had a dilutive effect of 297 thousand shares. For the nine months ended September 30, 2014, the computation of diluted net income per share included 5 thousand shares of unvested restricted common stock and options to purchase approximately $0.8 million shares that had a dilutive effect of 299 thousand shares. Options to purchase 345 thousand shares were not included in the computation of diluted net income per share for the three and nine months ended September 30, 2014, as their exercise prices were in excess of the average stock prices for the periods.

For the three months ended September 30, 2013, the computation of diluted net income per share included 23 thousand shares of unvested restricted common stock and options to purchase approximately 0.8 million shares that had a dilutive effect of 196 thousand shares. For the nine months ended September 30, 2013, the computation of diluted net income per share included 23 thousand shares of unvested restricted common stock. Options to purchase 440 thousand and 1.3 million shares were not included in the computation of diluted net income per share for the three and nine months ended September 30, 2013, respectively, as their exercise prices were in excess of the average stock prices for the periods.

XML

Investments - Fair Value and Gross Unrealized Losses of Fixed Maturity Securities in Continuous Unrealized Loss Position for Greater than 12 Months (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014 Security	Dec. 31, 2013 Security
Schedule of Available-for-sale Securities [Line Items]
Number of Securities	11	7
Fair Value	$ 25,555	$ 13,980
Gross Unrealized Losses	(974)	(1,270)
Less Than or Equal to 10% [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of Securities	11	7
Fair Value	25,555	13,980
Gross Unrealized Losses	$ (974)	$ (1,270)

XML

Segment Information - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2014 Segment
Segment Reporting [Abstract]
Number of business segments	2

XML

Fair Value - Presentation of Carrying Values and Fair Values of Certain of Company's Financial Instruments (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Assets:
Investments, available-for-sale	$ 121,513	$ 130,248
Other investments	9,922	7,513
Liabilities:
Debentures payable	40,330	40,301
Carrying Value [Member]
Assets:
Investments, available-for-sale	121,513	130,248
Other investments	9,922	7,513
Liabilities:
Debentures payable	40,330	40,301
Fair Value [Member]
Assets:
Investments, available-for-sale	121,513	130,248
Other investments	9,922	7,513
Liabilities:
Debentures payable	$ 19,507	$ 15,006