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, 2016

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 ☒    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 ☒    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	☒

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

Yes ☐    No ☒

At November 9, 2016, there were 41,096,037 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, 2016

INDEX

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	27
Item 4. Controls and Procedures	28
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	29
Item 4. Mine Safety Disclosures	29
Item 6. Exhibits	29
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,
	2016			2015
	(Unaudited)
ASSETS
Investments, available-for-sale at fair value (amortized cost of $119,780 and    $128,304, respectively)	$	122,646		$	131,582
Cash, cash equivalents, and restricted cash		143,371			115,587
Premiums, fees, and commissions receivable, net of allowance of $451 and    $454, respectively		75,770			69,881
Receivable for securities		20,026			—
Deferred tax assets, net		32,216			18,301
Other investments		9,653			11,256
Other assets		6,613			6,950
Property and equipment, net		5,292			5,141
Deferred acquisition costs		5,750			5,509
Goodwill		29,384			29,429
Identifiable intangible assets, net		7,814			8,491
TOTAL ASSETS	$	458,535		$	402,127
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	$	164,700		$	122,071
Unearned premiums and fees		89,820			83,426
Debentures payable		40,290			40,256
Term loan from principal stockholder		29,773			29,753
Payable for securities		37,929			—
Accrued expenses		7,265			7,345
Other liabilities		10,693			15,606
Total liabilities		380,470			298,457
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000 shares authorized		—			—
Common stock, $.01 par value, 75,000 shares authorized; 41,096 issued and outstanding		411			411
Additional paid-in capital		457,681			457,476
Accumulated other comprehensive income, net of tax of $22 and $62, respectively		3,416			3,491
Accumulated deficit		(383,443	)		(357,708	)
Total stockholders’ equity		78,065			103,670
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	458,535		$	402,127

See notes to consolidated financial statements.

1

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(in thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Revenues:
Premiums earned	$	76,740		$	67,508		$	233,997		$	197,423
Commission and fee income		19,291			18,974			58,055			42,252
Investment income		1,187			1,144			3,795			3,695
Gain on sale of foreclosed real estate		—			—			1,237			—
Net realized gains (losses) on investments, available-for-      sale (includes $4,892 and $4,745, respectively, of      accumulated other comprehensive loss      reclassification for net unrealized gains in 2016)		4,897			(6	)		4,733			(13	)
		102,115			87,620			301,817			243,357
Costs and expenses:
Losses and loss adjustment expenses		71,079			57,367			245,262			160,304
Insurance operating expenses		28,940			29,309			88,901			78,039
Other operating expenses		369			295			932			881
Litigation settlement		—			3,406			—			3,645
Stock-based compensation		59			37			164			109
Depreciation		667			424			1,934			1,224
Amortization of identifiable intangibles assets		240			254			717			261
Interest expense		1,088			1,052			3,213			1,924
		102,442			92,144			341,123			246,387
Loss before income taxes		(327	)		(4,524	)		(39,306	)		(3,030	)
Provision (benefit) for income taxes		6			(1,506	)		(13,571	)		(813	)
Net loss	$	(333	)	$	(3,018	)	$	(25,735	)	$	(2,217	)
Net loss per share:
Basic and diluted	$	(0.01	)	$	(0.07	)	$	(0.63	)	$	(0.05	)
Number of shares used to calculate net loss per share:
Basic and diluted		41,096			41,041			41,074			41,026
Reconciliation of net loss to other comprehensive loss:
Net loss	$	(333	)	$	(3,018	)	$	(25,735	)	$	(2,217	)
Unrealized change in investments:
Unrealized change in investments arising during         the period, net of tax of $4, $(17), $1,621        and $(609), respectively		7			(32	)		3,009			(1,131	)
Reclassification of net realized gains on investments,        available-for-sale, included in net loss, net of tax        of $(1,712) and $(1,661), respectively, in 2016		(3,180	)		—			(3,084	)		—
Comprehensive loss	$	(3,506	)	$	(3,050	)	$	(25,810	)	$	(3,348	)
Detail of net realized gains (losses) on investments,    available-for-sale:
Net realized gains (losses) on sales and redemptions	$	4,897		$	(6	)	$	4,880		$	(13	)
Other-than-temporary impairment charges		—			—			(147	)		—
Net realized gains (losses) on investments, available-for-     sale	$	4,897		$	(6	)	$	4,733		$	(13	)

See notes to consolidated financial statements.

2

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

	Nine Months Ended
	September 30,
	2016	2015
Cash flows from operating activities:
Net loss	$         (25,735)	$           (2,217)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation	1,934	1,224
Amortization of identifiable intangibles assets	717	261
Stock-based compensation	164	109
Deferred income taxes	(13,879)	(1,111)
Other-than-temporary impairment on investments, available-for-sale	147	—
Net realized (gains) losses on sales and redemptions of investments	(4,880)	13
Investment income from other investments	(408)	(301)
Gain on sale of foreclosed real estate, net	(1,237)	—
Other	170	212
Change in:
Premiums, fees, and commission receivable	(5,886)	(18,041)
Deferred acquisition costs	(241)	(1,969)
Loss and loss adjustment expense reserves	42,629	18,396
Unearned premiums and fees	6,394	18,935
Accrued expenses	(47)	6,122
Other liabilities	(4,913)	2,403
Other	(692)	13
Net cash (used in) provided by operating activities	(5,763)	24,049
Cash flows from investing activities:
Purchases of investments, available-for-sale	(62,950)	(21,022)
Maturities and redemptions of investments, available-for-sale	9,155	8,372
Sales of fixed maturities, available-for-sale	66,879	—
Purchases of other investments	(957)	(1,739)
Distributions from other investments	3,270	577
Net change in receivable/payable for securities	17,903	—
Capital expenditures	(1,523)	(1,529)
Proceeds from sale of foreclosed real estate, net	1,769	—
Acquisition of identifiable intangible assets	(40)	(205)
Business acquired through asset purchase	—	(33,770)
Net cash provided by (used in) investing activities	33,506	(49,316)
Cash flows from financing activities:
Proceeds from term loan from principal stockholder	—	30,000
Net proceeds from issuance of common stock	41	45
Net cash provided by financing activities	41	30,045
Net change in cash, cash equivalents, and restricted cash	27,784	4,778
Cash, cash equivalents, and restricted cash, beginning of period	115,587	102,429
Cash, cash equivalents, and restricted cash, end of period	$        143,371	$        107,207

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, 2015.

Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash consist of bank demand deposits and highly-liquid investments, including overnight collateralized purchase agreements. All investments with maturities of three months or less at the date of purchase are considered cash equivalents. At September 30, 2016 and December 31, 2015 the Company had restricted cash equivalents of $17.1 million and $9.4 million, respectively.

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.

NAV    -   Calculated net asset value (“NAV”) based on an ownership interest to which a proportionate share of net assets is attributed.

The Company considers the valuation methods used in both its identifiable intangible assets initial measurement and 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. To determine the fair value of the acquired policy renewal rights and customer relationships, the Company uses an “excess earnings” method that relies on projected future net cash flows and includes key assumptions for the customer retention and renewal rates. The data used in these methods is not observable in the market.

4

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Fair Value of Financial Instruments

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

	September 30, 2016				December 31, 2015
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Assets:
Investments, available-for-sale	$	122,646	$	122,646	$	131,582	$	131,582
Other investments		9,653		9,653		11,256		11,256
Liabilities:
Debentures payable		40,290		11,242		40,256		20,275
Term loan from principal stockholder		29,773		15,815		29,753		28,504

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 and the term loan from principal shareholder are categorized as Level 3, since they were 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, fees, and commissions 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 does not purport to represent the Company’s underlying value.

The following tables present the fair-value measurements for each major category of assets that are measured on a recurring basis (in thousands). Other investments are carried at net asset value which approximates fair value.

			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant		Proportionate
			Markets for		Observable		Unobservable		Share of
			Identical Assets		Inputs		Inputs		Net Assets
September 30, 2016	Total		(Level 1)		(Level 2)		(Level 3)		(NAV)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	19,380	$	19,380	$	—	$	—	$	—
Political subdivisions		4,319		—		4,319		—		—
Revenue and assessment		5,947		—		5,947		—		—
Corporate bonds		48,704		—		48,704		—		—
Collateralized mortgage obligations:
Agency backed		23,624		—		23,624		—		—
Non-agency backed – residential		3,055		—		3,055		—		—
Non-agency backed – commercial		1,922		—		1,922		—		—
Total fixed maturities, available-for-sale		106,951		19,380		87,571		—		—
Preferred stock, available-for-sale		3,313		3,313		—		—		—
Mutual funds, available-for-sale		12,382		12,382	—			—		—
Total investments, available-for-sale		122,646		35,075		87,571		—		—
Other investments		9,653		—		—		4,535		5,118
Cash, cash equivalents, and restricted cash		143,371		143,371		—		—		—
Total	$	275,670	$	178,446	$	87,571	$	4,535	$	5,118

5

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant		Proportionate
			Markets for		Observable		Unobservable		Share of
			Identical Assets		Inputs		Inputs		Net Assets
December 31, 2015	Total		(Level 1)		(Level 2)		(Level 3)		(NAV)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	13,113	$	13,113	$	—	$	—	$	—
State		702		—		702		—		—
Political subdivisions		4,363		—		4,363		—		—
Revenue and assessment		12,644		—		12,644		—		—
Corporate bonds		80,785		—		80,785		—		—
Collateralized mortgage obligations:
Agency backed		873		—		873		—		—
Non-agency backed – residential		3,455		—		3,455		—		—
Non-agency backed – commercial		2,507		—		2,507		—		—
Total fixed maturities, available-for-sale		118,442		13,113		105,329		—		—
Preferred stock, available-for-sale		1,723		1,723		—		—		—
Mutual funds, available-for-sale		11,417		11,417	—			—		—
Total investments, available-for-sale		131,582		26,253		105,329		—		—
Other investment		11,256		—		—		3,276		7,980
Cash, cash equivalents, and restricted cash		115,587		115,587		—		—		—
Total	$	258,425	$	141,840	$	105,329	$	3,276	$	7,980

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 security in the table above consists of an investment in the common stock of a real estate investment trust for which fair value has been determined using a model driven valuation that does not have observable market data. There were no transfers between Level 1 and Level 2 for the three and nine months ended September 30, 2016 and 2015. 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.  Likewise, the Company reviews the Level 3 valuation model to understand the underlying factors and inputs and to validate the reasonableness of the pricing.

6

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table represents the quantitative disclosure for the asset classified as Level 3 during the nine months ended September 30, 2016 (in thousands).

	Fair Value
	Measurements Using
	Significant Unobservable
	Inputs (Level 3)
	Common Stock
	at Fair Value
Balance at December 31, 2015	$	3,276
Gains included in net loss		—
Gains included in comprehensive loss		302
Investments and capital calls		957
Distributions received		—
Transfers into and out of Level 3		—
Balance at September 30, 2016	$	4,535

3. Investments

Investments, Available-for-Sale

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

		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
September 30, 2016	Cost	Gains	Losses	Value
U.S. government and agencies	$       19,141	$               246	$                  (7)	$          19,380
Political subdivisions	4,264	55	—	4,319
Revenue and assessment	5,639	308	—	5,947
Corporate bonds	48,419	391	(106)	48,704
Collateralized mortgage obligations:
Agency backed	23,553	86	(15)	23,624
Non-agency backed – residential	2,493	569	(7)	3,055
Non-agency backed – commercial	1,433	489	—	1,922
Total fixed maturities, available-for-sale	104,942	2,144	(135)	106,951
Preferred stock, available-for-sale	3,025	307	(19)	3,313
Mutual funds, available-for-sale	11,813	569	—	12,382
	$        119,780	$            3,020	$              (154)	$        122,646

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2015	Cost		Gains		Losses			Value
U.S. government and agencies	$	13,036	$	162	$	(85	)	$	13,113
State		698		4		—			702
Political subdivisions		4,354		9		—			4,363
Revenue and assessment		11,770		895		(21	)		12,644
Corporate bonds		79,426		2,022		(663	)		80,785
Collateralized mortgage obligations:
Agency backed		793		80		—			873
Non-agency backed – residential		2,877		579		(1	)		3,455
Non-agency backed – commercial		1,891		616		—			2,507
Total fixed maturities, available-for-sale		114,845		4,367		(770	)		118,442
Preferred stock, available-for-sale		1,500		223		—			1,723
Mutual funds, available-for-sale		11,959		120		(662	)		11,417
	$	128,304	$	4,710	$	(1,432	)	$	131,582

7

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

The following table sets 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.

					Securities
	Securities		Securities		with No		All
	with		with		Unrealized		Fixed
	Unrealized		Unrealized		Gains or		Maturity
September 30, 2016	Gains		Losses		Losses		Securities
One year or less	$	4,821	$	3,572	$	—	$	8,393
After one through five years		24,019		2,112		2,000		28,131
After five through ten years		16,149		12,957		—		29,106
After ten years		7,762		4,958		—		12,720
No single maturity date		5,709		22,892		—		28,601
	$	58,460	$	46,491	$	2,000	$	106,951

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
	Less than		Greater		Gross
	or equal to		than 12		Unrealized
At:	12 months		months		Gains
September 30, 2016		12		—		57
December 31, 2015		21		4		70

The following table reflects the fair value and gross unrealized losses of those fixed maturity securities in a continuous unrealized loss position for greater than 12 months at December 31, 2015. There were no securities meeting these criteria at September 30, 2016. Gross unrealized losses are further segregated by the percentage of amortized cost (in thousands, except number of securities).

	Number				Gross
Gross Unrealized Losses	of		Fair		Unrealized
at December 31, 2015:	Securities		Value		Losses
Less than or equal to 10%		4	$	7,689	$	(241	)
Greater than 10%		—		—		—
		4	$	7,689	$	(241	)

8

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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).

	Fair Value of
	Securities with
Length of	Gross		Gross			Severity of Gross Unrealized Losses
Gross Unrealized Losses	Unrealized		Unrealized			Less			5% to			Greater
at September 30, 2016:	Losses		Losses			than 5%				10%		than 10%
Less than or equal to:
Three months	$	47,891	$	(147	)	$	(147	)	$	—		$	—
Six months		—		—			—			—			—
Nine months		105		(7	)		—			(7	)		—
Twelve months		—		—			—			—			—
Greater than twelve months		—		—			—			—			—
Total	$	47,996	$	(154	)	$	(147	)	$	(7	)	$	—

	Fair Value of
	Securities with
Length of	Gross		Gross			Severity of Gross Unrealized Losses
Gross Unrealized Losses	Unrealized		Unrealized			Less			5% to			Greater
at December 31, 2015:	Losses		Losses			than 5%				10%		than 10%
Less than or equal to:
Three months	$	20,899	$	(130	)	$	(130	)	$	—		$	—
Six months		7,036		(465	)		—			(465	)		—
Nine months		14,057		(395	)		(197	)		(197	)		(1	)
Twelve months		7,892		(201	)		(201	)		—			—
Greater than twelve months		7,689		(241	)		(241	)		—			—
Total	$	57,573	$	(1,432	)	$	(769	)	$	(662	)	$	(1	)

Other-Than-Temporary Impairment

For the nine months ended September 30, 2016, the Company recognized OTTI charges in net income of $147 thousand related to one mutual fund.

The Company believes that the remaining securities having unrealized losses at September 30, 2016 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.

Other Investments

Other investments consist of the common stock of a real estate investment trust and limited partnership interests in two 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. The Company recently withdrew from one limited partnership investment and received the final withdrawal installment in July 2016. The Company does not intend to sell the remaining 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, 2016, the Company had unfunded commitments of $0.2 million with two of these investments.

Restrictions

At September 30, 2016, fixed maturities and cash equivalents with a fair value and amortized cost of $6.6 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 $15.6 million were on deposit with another insurance company as collateral for an assumed reinsurance contract.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Investment Income and Net Realized Gains and Losses

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Fixed maturities, available-for-sale	$	971		$	1,077		$	2,922		$	3,131
Mutual funds, available-for-sale		153			164			519			457
Other investments		53			(27	)		408			301
Other		130			56			313			174
Investment expenses		(120	)		(126	)		(367	)		(368	)
	$	1,187		$	1,144		$	3,795		$	3,695

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Gains	$	4,900		$	—		$	4,900		$	3
Losses		(3	)		(6	)		(20	)		(16	)
Other-than-temporary impairment		—			—			(147	)		—
	$	4,897		$	(6	)	$	4,733		$	(13	)

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 loss. 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, 2016 and December 31, 2015.

4. Net Loss Per Share

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Net loss	$	(333	)	$	(3,018	)	$	(25,735	)	$	(2,217	)
Weighted average common basic shares		41,096			41,041			41,074			41,026
Effect of dilutive securities		—			—			—			—
Weighted average common dilutive shares		41,096			41,041			41,074			41,026
Basic and diluted net loss per share	$	(0.01	)	$	(0.07	)	$	(0.63	)	$	(0.05	)

On March 15, 2016, the Compensation Committee of the Board of Directors of the Company awarded 146 thousand restricted stock units to executive officers. Such restricted stock units will vest, and an equal number of shares of common stock will be deliverable upon the third anniversary of the date of grant. Compensation expense related to the units was calculated based upon the closing market price of the common stock on the date of grant ($2.30) and is recorded on a straight-line basis over the vesting period.

For the three months ended September 30, 2016, the computation of diluted net loss per share did not include 270 thousand restricted stock units, a dilutive effect of 5 thousand shares, since their inclusion would have been anti-dilutive. Options to purchase 1,045 thousand shares were not included in the computation of diluted net loss per share for the three months ended September 30, 2016, since their exercise price was in excess of the average stock prices for these periods.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

For the nine months ended September 30, 2016, the computation of diluted net loss per share did not include options to purchase 825 thousand shares and 270 thousand restricted stock units, a dilutive effect of 176 thousand shares and 23 thousand shares, respectively, since their inclusion would have been anti-dilutive. Options to purchase 220 thousand shares were not included in the computation of diluted net loss per share for the nine months ended September 30, 2016, since their exercise price was in excess of the average stock prices for these periods.

For the three and nine months ended September 30, 2015, the computation of diluted net income per share did not include options to purchase 825 thousand shares, a dilutive effect of 335 thousand shares and 324 thousand shares, respectively, and 141 thousand restricted stock units, a dilutive effect of 30 thousand shares and 19 thousand shares, respectively, since their inclusion would have been anti-dilutive. Options to purchase 260 thousand shares were not included in the computation of diluted net income per share for the three and nine months ended September 30, 2015, since their exercise prices were in excess of the average stock prices for these periods.    

5. Losses and Loss Adjustment Expenses Incurred and Paid

Information regarding the reserve for unpaid losses and loss adjustment expenses (“LAE”) is as follows (in thousands).

	Nine Months Ended
	September 30,
	2016			2015
Liability for unpaid losses and LAE at beginning of period, gross	$	122,071		$	96,613
Reinsurance balances receivable		(464	)		(362	)
Liability for unpaid losses and LAE at beginning of period, net		121,607			96,251
Add: Provision for losses and LAE:
Current period		217,802			159,686
Prior periods		27,460			618
Net losses and LAE incurred		245,262			160,304
Less: Losses and LAE paid:
Current period		111,307			87,280
Prior periods		91,703			54,697
Net losses and LAE paid		203,010			141,977
Liability for unpaid losses and LAE at end of period, net		163,859			114,578
Reinsurance balances receivable		841			431
Liability for unpaid losses and LAE at end of period, gross	$	164,700		$	115,009

The unfavorable development for the nine months ended September 30, 2016 was the result of increased losses primarily from the 2015 accident year across all major coverages. The most significant causes of the development were a greater than usual emergence of reported claims and higher bodily injury severity.

6. Income Taxes

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Federal:
Current	$	—		$	(30	)	$	—		$	21
Deferred		(162	)		(1,467	)		(13,789	)		(1,065	)
		(162	)		(1,497	)		(13,789	)		(1,044	)
State:
Current		149			43			308			277
Deferred		19			(52	)		(90	)		(46	)
		168			(9	)		218			231
	$	6		$	(1,506	)	$	(13,571	)	$	(813	)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Benefit for income taxes at statutory rate	$	(115	)	$	(1,584	)	$	(13,758	)	$	(1,061	)
Tax effect of:
Tax-exempt investment income		(10	)		(5	)		(30	)		(15	)
Change in the beginning of the period balance of the    valuation allowance for deferred tax assets allocated    to federal income taxes		(6	)		6			51			8
Stock-based compensation		12			—			29			22
State income taxes, net of federal income tax benefit    and state valuation allowance		116			(24	)		110			134
Other		9			101			27			99
	$	6		$	(1,506	)	$	(13,571	)	$	(813	)

The Company had a deferred tax asset (“DTA”) valuation allowance of $2.1 million at September 30, 2016 and $1.7 million at December 31, 2015, attributable to certain amounts related to state taxes and OTTI that are not more likely than not to be realized. In assessing the Company’s ability to realize the DTA, both positive and negative evidence are used to evaluate the allowance. Although the Company has incurred a nine-month pre-tax loss of $39.3 million which is a source of negative evidence, it placed greater weight on its outlook for future taxable income over the allowable time period for realization of the DTA and concluded that it is more likely than not that the remaining DTA will be realized. Regarding the length of time available to realize the DTA, at September 30, 2016, $20.6 million of the DTA related to net operating loss carryforwards do not expire until 2031 through 2036 and $2.0 million in AMT (“Alternative Minimum Tax”) carryforwards have no expiration date. The DTA 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 DTA will not be realized. In the event the DTA valuation allowance is adjusted, the Company would record an income tax expense for the adjustment.

7. 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 Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Revenues:
Insurance	$	102,099		$	87,604		$	300,533		$	243,307
Real estate and corporate		16			16			1,284			50
Consolidated total	$	102,115		$	87,620		$	301,817		$	243,357
Income (loss) before income taxes:
Insurance	$	1,173		$	(3,156	)	$	(36,280	)	$	(166	)
Real estate and corporate		(1,500	)		(1,368	)		(3,026	)		(2,864	)
Consolidated total	$	(327	)	$	(4,524	)	$	(39,306	)	$	(3,030	)

	September 30,		December 31,
	2016		2015
Total assets:
Insurance	$	416,182	$	373,475
Real estate and corporate		42,353		28,652
Consolidated total	$	458,535	$	402,127

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FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

8. 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 loss in losses and loss adjustment expenses for bad faith claims and in insurance operating expenses for other lawsuits unless otherwise disclosed.

9. Recent Accounting Pronouncements

In May 2014, the Financial Accounting 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 had an effective date for public companies for annual and interim periods beginning after December 15, 2016, with early adoption not permitted. In July 2015, the FASB issued a one-year deferral of this effective date with the option for entities to early adopt at the original effective date. 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.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” which requires companies to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued. The evaluation will be required for each annual and interim reporting period. This guidance has an effective date for public companies for annual reporting periods ending after December 15, 2016 and interim reporting periods thereafter, with early adoption permitted. The Company believes that it will be reasonably able to comply with these requirements.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” to clarify how customers in cloud computing arrangements should determine whether the arrangement includes a software license. The amendment also eliminates today’s requirement that customers analogize to the leases standard when determining the assets acquired in a software licensing arrangement. For calendar year-end entities, the guidance was effective January 1, 2016 with the option to apply the guidance either prospectively or retrospectively. The Company has elected to apply this guidance prospectively, which resulted in $5 thousand of software licenses included in identifiable intangibles assets on the consolidated balance sheet as of September 30, 2016. Prior to this guidance, these licenses would have been included in property and equipment on the consolidated balance sheet.

In May 2015, the FASB issued ASU No. 2015-09, “Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts” which requires 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, 2015 and interim reporting periods beginning after December 15, 2016, with early adoption permitted. The Company believes that it will be reasonably able to comply with these requirements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-20): Recognition and Measure of Financial Assets and Financial Liabilities” which requires entities to measure many equity investments at fair value and recognize changes in fair value in net income (loss), as opposed to the current practice of other comprehensive income (loss). The requirement does not apply to equity investments that result in consolidation, those accounted for under the equity method and certain others. The guidance provides a new measurement alternative for equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient. Under this alternative, these investments can be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The guidance is effective for public business entities for annual periods beginning after December 15, 2017, and interim periods within those years. The Company believes that its other investment in a real estate investment trust will fall under the guidance of the new measurement alternative and that future changes in fair value will be recognized in net income (loss), as opposed to the current practice of other comprehensive income (loss). The Company has not determined the impact on future consolidated financial statements once this is adopted.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” which requires lessees to put most leases on their balance sheets as lease liabilities with corresponding right-of-use assets, but recognize expense in a manner similar to the current accounting treatment. The guidance also eliminates the current real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. The guidance could have broad implications for an entity’s finances and operations and will require additional disclosures. The guidance is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in their financial statements. They also have the option to use certain relief and full retrospective application is prohibited. The Company believes its lease arrangements fall under this guidance and will be required to be shown on its consolidated balance sheet. The Company is currently evaluating controls and processes to ensure this guidance is reflected properly on future consolidated financial statements.  

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326)” which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses will be based on relevant information, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The expected increases and decreases in the credit loss will be reflected on the consolidated statement of comprehensive income (loss). The guidance is effective for public business entities for annual periods beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted. The Company has not determined the impact on future consolidated financial statements once this is adopted.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” which clarifies how entities should classify certain cash receipts and cash payments, including how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. Entities will have to apply the guidance retrospectively, but if it is impracticable to do so for an issue, the amendments related to that issue would be applied prospectively. The Company has not determined the impact on future consolidated financial statements once this is adopted.

10. Related Parties

In April 2016, the Company entered into standard agreements for Treasury and Custodial Services with a bank indirectly owned 15% by our principal stockholder. The fees under these agreements for the three and nine months ended September 30, 2016 were $47 thousand and $93 thousand, respectively.

14

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

11. Business Combination

Acquisition of the Titan Agencies

On July 1, 2015, in order to expand its geographic presence, the Company completed the acquisition of certain assets of Titan Insurance Services, Inc. and Titan Auto Insurance of New Mexico, Inc. (the “Titan Agencies”). These agencies sell private passenger non-standard automobile insurance and complimentary products, principally in California, but also in Texas, Arizona, Florida, Nevada and New Mexico.  The Titan Agencies were previously owned and operated by Nationwide. Pursuant to the Asset Purchase Agreement (the “APA”), the Company acquired the assets of 83 retail stores for total consideration of $36.0 million, which included liabilities assumed estimated to be $2.3 million. The Company has accounted for the acquisition as a business combination applying the acquisition method.

Liabilities assumed included a $2.0 million estimate of the expected liability for returned commissions as of the closing date. This liability was subject to change based on the actual amount of returned commissions and the Company’s final estimation of this liability resulted in a $0.8 million reduction in goodwill through June 30, 2016.  

The Company considers this acquisition to be a separate reporting unit for goodwill impairment analysis purposes. At September 30, 2016, the Company concluded that there was no indication of impairment and that a quantitative analysis was not necessary as of this date. The date of the Company’s annual impairment analysis is each October 1.

15

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Pro Forma Information

The following unaudited pro forma combined statement of income for the nine months ended September 30, 2015 is based on our historical consolidated financial statements and gives effect to the acquisition of the Titan Agencies as if it had occurred on January 1, 2014. The pro forma combined financial statement does not necessarily reflect what the combined results of operations would have been had the acquisition occurred on the date indicated. It also may not be useful in predicting the future combined results of operations. The actual combined results of operations may differ significantly from the combined pro forma amounts reflected herein due to a variety of factors.

Pro Forma Statement of Income Nine Months Ended September 30, 2015	Company Historical	Titan Agencies Historical Six Months Ended June 30, 2015	Pro Forma Adjustments		Pro Forma Combined
Revenues:
Premiums earned	$        197,423	$                  —	$                —		$        197,423
Commission and fee income	42,252	14,547	—		56,799
Investment income	3,695	—	—		3,695
Net realized losses on investments, available-for-sale	(13)	—	—		(13)
	243,357	14,547	—		257,904
Costs and expenses:
Losses and loss adjustment expenses	160,304	—	—		160,304
Insurance operating expenses	78,039	14,555	—		92,594
Other operating expenses	881	—	—		881
Litigation settlement	3,645	—	—		3,645
Stock-based compensation	109	—	—		109
Depreciation	1,224	—	50	(a)	1,274
Amortization of identifiable intangibles assets	261	—	455	(b)	716
Interest expense	1,924	—	1,190	(c)	3,114
	246,387	14,555	1,695		262,637
Loss before income taxes	(3,030)	(8)	(1,695)		(4,733)
Benefit for income taxes	(813)	(3)	(678)	(d)	(1,494)
Net loss	$          (2,217)	$                   (5)	$          (1,017)		$          (3,239)
Net loss per share:
Basic	$            (0.05)				$            (0.08)
Diluted	$            (0.05)				$            (0.08)
Number of shares used to calculate net loss per share:
Basic	41,026				41,026
Diluted	41,026				41,026

Pro forma adjustments

The following adjustments have been reflected in the unaudited pro forma combined financial information.

(a) Depreciation expense related to acquired tangible asset

(b) Amortization expense related to acquired identifiable intangible asset

(c) Interest expense related to acquisition financing

(d) Calculated income tax effect of pro forma adjustments at the estimated combined federal and state statutory rate of 40%

16

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

12. Current Liquidity and Statutory Capital and Surplus

The Company has $70.0 million in long-term borrowings of which $40.0 million matures in 2037 and $30.0 million matures in 2025. At September 30, 2016, the Company was in compliance with the covenants related to these borrowings. Such borrowings are not obligations of the Company’s regulated insurance company subsidiaries who at September 30, 2016 had combined statutory capital and surplus of $62.5 million. The Company believes that it has sufficient liquidity to meet its current obligations in the foreseeable future, including the payment of interest on its long-term borrowings which it currently funds through the cash flows of its agency operations which are generated outside the Company’s regulated insurance company subsidiaries and are not subject to any limitation on the payment of dividends to the holding company.

The Company has three insurance company subsidiaries that are organized and domiciled under the insurance statutes of Texas, Georgia, and Tennessee. The insurance company subsidiaries operate under licenses issued by various state insurance authorities. Such licenses may be of perpetual duration or periodically renewable, provided the insurance company subsidiaries continue to meet applicable regulatory requirements.

For the nine months ended September 30, 2016, the insurance company subsidiaries experienced a reduction in combined statutory capital and surplus of $36.3 million, primarily as a result of the unfavorable loss development during the period. The National Association of Insurance Commissioners (“NAIC”) 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. Failure to meet applicable risk-based capital requirements could subject our insurance company subsidiaries to further examination or corrective action imposed by state regulators, including limitations on their writing of additional business, state supervision, or even liquidation. Although statutory risk-based capital calculations are only made as of each December 31, the Company estimated that the three insurance company subsidiaries remain above the regulatory company action levels as of September 30, 2016. 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 4.90-to-1 at September 30, 2016 which is in excess of the suggested guidelines. Management is currently operating under a business plan to reduce premium writings and increase statutory capital and surplus to address the net premiums written to statutory capital and surplus guidelines.

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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, 2015. 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, 2015 included in our Annual Report on Form 10-K for the year ended December 31, 2015.

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:

• the accuracy and adequacy of our loss reserving methodologies;

• 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, including the recently completed acquisition of the Titan Agencies;

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

• 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, 2015.

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.

New York Stock Exchange Listing

Our common stock is listed on the New York Stock Exchange (the “NYSE”).  On October 14, 2016, we received notice from the NYSE (the “NYSE Notice”) that we were not in compliance with the NYSE’s continued listing standards set forth in the NYSE Listed Company Manual, which require the average closing price of our common stock to be at least $1.00 per share over a consecutive 30 trading-day period.  As of October 12, 2016, the 30 trading-day average closing price of our common stock was $0.99 per share.

Upon receipt of the notice of non-compliance from the NYSE, we became subject to the procedures set forth in Sections 801 and 802 of the NYSE Listed Company Manual.  As required by the NYSE, we have responded, acknowledging the notification.  Under the NYSE rules, we have six months from receipt of the NYSE Notice to regain compliance with the minimum share price rule.  We expect that our common stock will continue to be listed on the NYSE during this period, subject to our continued compliance with the NYSE’s other continued listing standards.

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FIRST ACCEPTANCE CORPORATION 10-Q

General

We are principally a retailer, servicer and underwriter of non-standard personal automobile insurance. 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, and failure in the past to maintain continuous insurance coverage, driving record and/or vehicle type. At September 30, 2016, we also owned a tract of land in San Antonio, Texas that is held for sale. On May 4, 2016, we sold one tract of land resulting in a gain of $1.2 million.

At September 30, 2016, we leased and operated 369 retail locations (or “stores”) and a call center 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, retail locations in some markets offer non-standard personal automobile insurance serviced and underwritten by other third-party insurance carriers for which we receive a commission.

Our insurance operations generate revenue from selling non-standard personal automobile insurance products and related products in 17 states. We conduct our servicing and underwriting operations in 14 states and are licensed as an insurer in 12 additional states. After obtaining a license in California, we began selling our non-standard personal automobile insurance product in late June 2016 on a limited basis.

At September 30, 2016, 287 of our 369 stores primarily sell non-standard personal automobile insurance products underwritten by us.

See the discussion in Item 1. “Business—General” in our Annual Report on Form 10-K for the year ended December 31, 2015 for additional information with respect to our business.

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. The Company used the expiration of 24 Chicago-area leases in January 2016 to consolidate these locations and better align them with our customers’ needs. As a result, 7 strategically-placed stores were opened as replacements from November 2015 to April 2016.

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2016	2015	2016	2015
Retail locations – beginning of period	409	359	440	356
Opened	—	—	4	5
Acquired	—	83	—	83
Closed	(40)	(4)	(75)	(6)
Retail locations – end of period	369	438	369	438

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FIRST ACCEPTANCE CORPORATION 10-Q

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

	September 30,		June 30,		December 31,
	2016	2015	2016	2015	2015	2014
Alabama	23	24	24	24	24	24
Arizona	10	10	10	—	10	—
California	47	48	47	—	48	—
Florida	34	39	34	35	39	31
Georgia	53	60	60	60	60	60
Illinois	39	58	41	60	61	60
Indiana	16	17	17	17	17	17
Mississippi	6	7	7	7	7	7
Missouri	6	9	9	9	9	10
Nevada	4	4	4	—	4	—
New Mexico	5	5	5	—	5	—
Ohio	27	27	27	27	27	27
Pennsylvania	11	14	13	15	14	15
South Carolina	20	25	23	25	24	25
Tennessee	23	23	23	23	23	22
Texas	45	68	65	57	68	58
Total	369	438	409	359	440	356

Recent Actions

We have taken the following actions to reduce premiums written and increase statutory capital and surplus with the goal of returning our ratio of net premiums written to statutory capital and surplus to within regulatory guidelines and improve profitability:

• We have filed and received approval for substantial rate increases in response to our increase in claim frequency.  The magnitude and frequency of these increases is unprecedented in our recent history;

• We closed 39 poorly-performing stores during the most recent quarter and an additional nine stores in October;

• We reduced premium writings, through the closing of the poorly performing stores, by temporarily suspending new business in selected areas of our business, and tightening our underwriting standards;

• We increased our statutory capital and surplus during the most recent quarter by selling available-for-sale securities with unrealized gains ($4.9 million) and through capital contributions from net income derived from our insurance agency operations ($2.6 million).

Titan Acquisition

EffectiveJuly 1, 2015, we acquired certain assets of Titan Insurance Services, Inc. and Titan Auto Insurance of New Mexico, Inc. (the “Titan Agencies”). These 82 retail locations, which are now rebranded under our Acceptance Insurance name, primarily sell private passenger non-standard automobile insurance policies underwritten by unrelated insurance companies for which our revenues are in the form of commission and fee income. We currently offer our own product in Texas, Florida and, on a limited basis, in California and are developing our products for Arizona, Nevada and New Mexico. A call center location that we acquired was closed during 2016 and consolidated into our existing call center.

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FIRST ACCEPTANCE CORPORATION 10-Q

Consolidated Results of Operations

Overview

Our insurance operations generate revenue from selling non-standard personal automobile insurance products and related products in 17 states. We conduct our servicing and underwriting operations in 14 states and are licensed as an insurer in 11 additional 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 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.

The following table presents gross premiums earned by state (in thousands). Driven primarily by a 13% year-over-year increase in our average in-force premium, net premiums earned for the three and nine months ended September 30, 2016 increased 14% and 19%, compared with the same periods in the prior year.

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2016	2015	2016	2015
Gross premiums earned:
Georgia	$          16,344	$          13,079	$          47,672	$          37,619
Florida	11,524	10,231	35,309	30,639
Texas	10,402	8,990	32,285	26,365
Ohio	7,568	6,688	23,258	19,814
Alabama	7,143	6,238	21,193	18,333
South Carolina	6,718	5,115	20,664	14,691
Illinois	4,982	6,030	16,238	18,213
Tennessee	4,842	4,486	14,830	12,141
Pennsylvania	2,406	2,303	7,399	6,923
Indiana	2,322	2,003	6,994	5,869
Missouri	1,307	1,451	4,693	4,315
Mississippi	965	852	3,003	2,540
Virginia	235	138	700	232
California	99	—	99	—
Total gross premiums earned	76,857	67,604	234,337	197,694
Premiums ceded to reinsurer	(117)	(96)	(340)	(271)
Total net premiums earned	$          76,740	$          67,508	$        233,997	$        197,423

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.

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FIRST ACCEPTANCE CORPORATION 10-Q

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Loss		92.6	%		85.0	%		104.8	%		81.2	%
Expense		13.8	%		16.3	%		14.3	%		18.9	%
Combined		106.4	%		101.3	%		119.1	%		100.1	%

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 other alternative 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. Although investments are generally purchased with the intention to hold them until maturity, realized gains and losses could 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, or as we did in the recent quarter, to increase the statutory capital and surplus of the insurance company subsidiaries who carry fixed maturity securities at amortized cost.

The value of our consolidated available-for-sale investment portfolio was $122.6 million at September 30, 2016 and consisted of fixed maturity securities, a preferred stock, and investments in mutual funds, all carried at fair value with unrealized gains and losses reported in a separate component of stockholders’ equity. At September 30, 2016, we had gross unrealized gains of $3.0 million and gross unrealized losses of $0.2 million in our consolidated investments available-for-sale portfolio.

The value of our other investments was $9.7 million at September 30, 2016 and consisted of limited partnership interests carried at net asset value, which approximates fair value, with unrealized gains and losses reported as investment income, and a privately-held real estate investment trust carried at fair value, with unrealized gains and losses reported in a separate component of stockholders’ equity. At September 30, 2016, we had gross unrealized gains attributable to our privately-held real estate investment trust of $0.6 million in our consolidated other investments.

At September 30, 2016, 96% 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.

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FIRST ACCEPTANCE CORPORATION 10-Q

The following table summarizes our investment securities at September 30, 2016 (in thousands).

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
September 30, 2016	Cost		Gains		Losses			Value
U.S. government and agencies	$	19,141	$	246	$	(7	)	$	19,380
Political subdivisions		4,264		55		—			4,319
Revenue and assessment		5,639		308		—			5,947
Corporate bonds		48,419		391		(106	)		48,704
Collateralized mortgage obligations:
Agency backed		23,553		86		(15	)		23,624
Non-agency backed – residential		2,493		569		(7	)		3,055
Non-agency backed – commercial		1,433		489	—				1,922
Total fixed maturities, available-for-sale		104,942		2,144		(135	)		106,951
Preferred stock, available-for-sale		3,025		307		(19	)		3,313
Mutual funds, available-for-sale		11,813		569		—			12,382
	$	119,780	$	3,020	$	(154	)	$	122,646

Three and Nine Months Ended September 30, 2016 Compared with the Three and Nine Months Ended September 30, 2015

Consolidated Results

Revenues for the three months ended September 30, 2016 increased 17% to $102.1 million from $87.6 million in the same period in the prior year. Loss before income taxes, for the three months ended September 30, 2016 was $0.3 million, compared with $4.5 million for the three months ended September 30, 2015. Net loss for the three months ended September 30, 2016 was $0.3 million, compared with $3.0 million for the three months ended September 30, 2015. Basic and diluted net loss per share were $0.01 for the three months ended September 30, 2016, compared with $0.07 for the same period in the prior year.  

Revenues for the nine months ended September 30, 2016 increased 24% to $301.8 million from $243.4 million in the same period in the prior year. Loss before income taxes, for the nine months ended September 30, 2016 was $39.3 million, compared with $3.0 million for the nine months ended September 30, 2015. Net loss for the nine months ended September 30, 2016 was $25.7 million, compared with $2.2 million for the nine months ended September 30, 2015. Basic and diluted net loss per share were $0.63 for the nine months ended September 30, 2016, compared with $0.05 for the same period in the prior year.

For the three and nine months ended September 30, 2016, we recognized $0.1 million of favorable prior period loss development and $27.5 million of unfavorable prior period loss development, respectively. Additionally, the results for these periods were favorably impacted by net realized gains on investments of $4.9 million from the sales of fixed maturities that were sold to increase the statutory capital and surplus of our insurance company subsidiaries. The nine months ended September 30, 2016 also includes a $1.2 million gain on the sale of foreclosed real estate. The three and nine months ended September 30, 2015 included $3.4 million and $3.6 million, respectively, of costs related to a litigation settlement.

Insurance Operations

Revenues from insurance operations were $102.1 million for the three months ended September 30, 2016, compared with $87.6 million for the three months ended September 30, 2015. Revenues from insurance operations were $300.5 million for the nine months ended September 30, 2016, compared with $243.3 million for the nine months ended September 30, 2015.

Income before income taxes from insurance operations for the three months ended September 30, 2016 was $1.2 million, compared with loss before income taxes from insurance operations of $3.2 million for the three months ended September 30, 2015. Loss before income taxes from insurance operations for the nine months ended September 30, 2016 was $36.3 million, compared with $0.2 million for the nine months ended September 30, 2015.

Premiums Earned

Premiums earned increased by $9.2 million, or 14%, to $76.7 million for the three months ended September 30, 2016, from $67.5 million for the three months ended September 30, 2015. For the nine months ended September 30, 2016 premiums earned increased by $36.6 million, or 19%, to $234.0 million from $197.4 million for the nine months ended September 30, 2015. This improvement was primarily due to higher average premiums resulting from our recent rate increases.

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FIRST ACCEPTANCE CORPORATION 10-Q

Commission and Fee Income

Commission and fee income increased by $0.3 million, or 1%, to $19.3 million for the three months ended September 30, 2016, from $19.0 million for the three months ended September 30, 2015. For the nine months ended September 30, 2016, commission and fee income increased by $15.8 million, or 37%, to $58.1 million from $42.3 million for the nine months ended September 30, 2015, primarily as a result of revenue from the former Titan retail locations acquired on July 1, 2015. Commission and fee income also increased as a result of higher fee income related to commissionable ancillary products sold through our previously-existing retail locations.

Investment Income

Investment income was $1.2 million and $1.1 million for the three months ended September 30, 2016 and 2015, respectively. For the nine months ended September 30, 2016 and 2015, investment income was $3.8 million and $3.7 million, respectively. At September 30, 2016 and 2015, the tax-equivalent book yields for our managed fixed maturities and cash equivalents portfolio were 1.6% and 2.6%, respectively, with effective durations of 2.62 and 2.93 years, respectively.

During the three months ended September 30, 2016, in order to increase the statutory capital and surplus of our insurance company subsidiaries by realizing gains on fixed maturities carried at amortized cost for statutory purposes, we sold $66.9 million of available-for-sale securities yielding 3.6% and reinvested the proceeds at 2.2%. As a result, our investment income in future periods will decline from the reduced yield in our fixed maturities portfolio.

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

Net realized gains on investments, available-for-sale, during the three and nine months ended September 30, 2016 included $4.9 million from the previously-mentioned sale of fixed maturities. Net realized gains for the nine months ended September 30, 2016 are net of $147 thousand of charges related to other-than-temporary-impairment (“OTTI”) on a mutual fund and other net realized losses from redemptions.

Loss and Loss Adjustment Expenses

The loss ratio was 92.6% for the three months ended September 30, 2016, compared with 85.0% for the three months ended September 30, 2015. The loss ratio was 104.8% for the nine months ended September 30, 2016, compared with 81.2% for the nine months ended September 30, 2015. We experienced favorable development related to prior periods of $0.1 million and unfavorable development related to prior periods of $27.5 million for the three and nine months ended September 30, 2016, respectively. This unfavorable development for the nine months ended September 30, 2016 was the result of increased losses primarily from the 2015 accident year across all major coverages. The most significant causes of the development were a greater than usual emergence of reported claims and higher bodily injury severity.

Excluding prior period development, the loss ratio for the 2016 accident year is now estimated to be 92.7%. This elevated loss ratio is primarily due to higher than expected claim frequency across all major coverages and higher bodily injury severity. We believe that an increase in distracted driving, along with an increase in the number of miles driven by insured drivers as a result of lower gas prices and a favorable economy has been a contributing factor to an industry-wide increase in frequency. In response, we have continued to implement aggressive rate and underwriting actions as warranted at a state and coverage level and strengthen its claims organization and processes.

Insurance Operating Expenses

Insurance operating expenses decreased 1% to $28.9 million for the three months ended September 30, 2016, from $29.3 million for the three months ended September 30, 2015. For the nine months ended September 30, 2016, insurance operating expenses increased 14.0% to $88.9 million from $78.0 million for nine months ended September 30, 2015. The increase in operating expenses for the nine months ended September 30, 2016 is primarily due to the addition of the former Titan retail locations which were not acquired until July 1, 2015.

During the three months ended September 30, 2016, we closed 39 poorly-performing stores. The cost of these closures, primarily for lease buyouts, was $792 thousand and is included in insurance operating expenses.

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FIRST ACCEPTANCE CORPORATION 10-Q

The expense ratio was 13.8% for the three months ended September 30, 2016, compared with 16.3% for the three months ended September 30, 2015. The expense ratio was 14.3% for the nine months ended September 30, 2016, compared with 18.9% for the nine months ended September 30, 2015. 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) and our ongoing efforts on cost containment.

Overall, the combined ratio increased to 106.4% for the three months ended September 30, 2016 from 101.3% for the three months ended September 30, 2015. For the nine months ended September 30, 2016, the combined ratio increased to 119.1% from 100.1% for the nine months ended September 30, 2015.

Provision (Benefit) for Income Taxes

The provision for income taxes was $6 thousand for the three months ended September 30, 2016, compared with a benefit of $1.5 million for the three months ended September 30, 2015. The benefit for income taxes was $13.6 million for the nine months ended September 30, 2016, compared with $0.8 million for the nine months ended September 30, 2015. The nine months ended September 30, 2016 includes an increase in the valuation allowance for deferred tax assets of $0.3 million.

In assessing our ability to realize the DTA, both positive and negative evidence are used to evaluate the allowance. Although we have incurred a six-month pre-tax loss of $39.3 million which is a source of negative evidence, we placed greater weight on our outlook for future taxable income over the allowable time period for realization of the DTA and concluded that it is more likely than not that the remaining DTA will be realized. Regarding the length of time available to realize the DTA, at September 30, 2016, $20.6 million of the DTA related to net operating loss carryforwards do not expire until 2031 through 2036 and $2.0 million in AMT (“Alternative Minimum Tax”) carryforwards have no expiration date. The DTA 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 DTA will not be realized. In the event the DTA valuation allowance is adjusted, we would record an income tax expense for the adjustment.

Real Estate and Corporate

Loss before income taxes from real estate and corporate operations for the three months ended September 30, 2016 was $1.5 million, compared with $1.4 million for the three months ended September 30, 2015. Loss before income taxes from real estate and corporate operations for the nine months ended September 30, 2016 and 2015 was $3.0 million and $2.9 million, respectively. Segment losses consist of other operating expenses not directly related to our insurance operations, interest expense and stock-based compensation offset by a gain on the sale of foreclosed real estate and investment income on corporate invested assets. On May 4, 2016, we sold one of our two remaining tracts of land resulting in a gain of $1.2 million.

We incurred $1.1 million of interest expense for the three months ended September 30, 2016 and 2015. We incurred $3.2 million of interest expense for the nine months ended September 30, 2016, compared with $1.9 million for the nine months ended September 30, 2015. The nine months ended September 30, 2016 included $1.8 million of interest expense compared to $0.6 million of interest expense for the nine months ended September 30, 2015 on the term loan from our principal stockholder to finance the July 1, 2015 Titan acquisition. The balance of interest expense is 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 used by operating activities for the nine months ended September 30, 2016 was $5.8 million, compared with net cash provided by operating activities of $24.0 million for the same period in the prior fiscal year. This change was primarily the result of our recent net loss from insurance operations. Net cash provided by investing activities for the nine months ended September 30, 2016 was $33.5 million, compared to net cash used by investing activities of $49.3 million for the same period in the prior fiscal year, which included a deposit of $33.7 million required under the Titan asset purchase agreement. Investing activities for the nine months ended September 30, 2016 were impacted by the sale of certain fixed maturities in an unrealized gain position to increase the statutory capital and surplus of the insurance company subsidiaries and their subsequent reinvestment. They also included a net change in the receivable and payable for securities of $17.9 million due to the timing of these sales and purchases. The current period also included $1.8 million of proceeds from the sale of foreclosed real estate.

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FIRST ACCEPTANCE CORPORATION 10-Q

Our holding company requires cash for general corporate overhead expenses and for debt service related to our debentures and term loan payable. The holding company’s primary source of unrestricted cash to meet its obligations is the sale of ancillary products and insurance policies on behalf of third-party carriers by our agency operations, including the recent Titan acquisition. During the nine months ended September 30, 2016, the holding company contributed $7.6 million to the statutory capital and surplus of the insurance company subsidiaries from our insurance agency net income. At October 31, 2016, our holding company had $1.5 million available remaining in unrestricted cash and investments. These funds and the additional unrestricted cash from our agency operations will be used to pay our future cash requirements outside of the insurance company subsidiaries in the short-term and foreseeable future.

The holding company has debt service requirements related to the debentures payable and the term loan to a principal shareholder. The debentures are interest-only and mature in full in July 2037. The debentures accrue interest at a variable rate equal to Three-Month LIBOR plus 375 basis points, which resets quarterly. The interest rate related to the debentures for the nine months ended September 30, 2016 ranged from 4.366% to 4.507%. In October 2016 the interest rate reset to 4.637% through January 2017. The term loan is interest-only and matures in full in June 2025. The interest rate on the term loan is 8%.

State insurance laws limit the amount of dividends that may be paid from our insurance company subsidiaries. At September 30, 2016, our insurance company subsidiaries could pay not pay any dividends due to a negative unassigned surplus position.

We have three insurance company subsidiaries that are organized and domiciled under the insurance statutes of Texas, Georgia, and Tennessee. Our insurance company subsidiaries also operate under licenses issued by various state insurance authorities. Such licenses may be of perpetual duration or periodically renewable, provided we continue to meet applicable regulatory requirements.

For the nine months ended September 30, 2016, the insurance company subsidiaries experienced a reduction in statutory capital and surplus of $36.3 million primarily as a result of the unfavorable loss development during this period. The National Association of Insurance Commissioners (“NAIC”) 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. Failure to meet applicable risk-based capital requirements could subject our insurance company subsidiaries to further examination or corrective action imposed by state regulators, including limitations on their writing of additional business, state supervision or even liquidation. Although statutory risk-based capital calculations are only made as of each December 31, we have estimated that the insurance company subsidiaries remain above the company action levels as of September 30, 2016. 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 4.90-to-1 at September 30, 2016 which is in excess of the suggested guidelines.

Management is currently operating under a business plan to reduce premium writings and increase statutory capital and surplus to address the net premiums written to statutory capital and surplus guidelines. 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 foreseeable future.

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, 2015, 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, 2015. We have not entered into any new material off-balance sheet arrangements since December 31, 2015.

Critical Accounting Estimates

There have been no significant changes to our critical accounting estimates during the nine months ended September 30, 2016 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, 2015.

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FIRST ACCEPTANCE CORPORATION 10-Q

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.

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	$	112,510	$	109,741	$	106,951	$	104,155	$	101,361	$	95,775

The following table provides information about our fixed maturity investments at September 30, 2016 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 any previously recognized impairment) 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
2016	$	1,221	$	1,035	$	—	$	2,256
2017		7,421		7,680		—		15,101
2018		3,518		6,106		—		9,624
2019		8,132		4,105		—		12,237
2020		6,925		4,117		—		11,042
Thereafter		29,575		22,168		2,000		53,743
Total	$	56,792	$	45,211	$	2,000	$	104,003
Fair value	$	58,460	$	46,491	$	2,000	$	106,951

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. FAST I is a variable interest entity that does not meet the requirements for consolidation of FASB ASC 810, Consolidation. The debentures are interest-only and mature in full in July 2037. The debentures accrue interest at a variable rate equal to Three-Month LIBOR plus 375 basis points, which resets quarterly. The interest rate related to the debentures for the nine months ended September 30, 2016 ranged from 4.366% to 4.507%. In October 2016 the interest rate reset to 4.637% through January 2017.

27

FIRST ACCEPTANCE CORPORATION 10-Q

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, excluding U.S. government and agency securities, is in a single mutual fund with a fair value of $7.6 million, or 6% of our available-for-sale portfolio. Our five largest investments make up 38% of our available-for-sale portfolio.

The following table presents the underlying ratings of our fixed maturity portfolio by nationally recognized statistical rating organizations at September 30, 2016 (in thousands).

Comparable Rating	Amortized Cost		% of Amortized Cost			Fair Value		% of Fair Value
AAA	$	2,503		2	%	$	2,612		2	%
AA+, AA, AA-		58,024		55	%		58,712		55	%
A+, A, A-		30,239		29	%		30,334		28	%
BBB+, BBB, BBB-		10,920		10	%		11,017		10	%
Total investment grade		101,686		97	%		102,675		96	%
Not rated		—		0	%		—		0	%
BB+, BB, BB-		500		0	%		518		0	%
B+, B, B-		661		1	%		701		1	%
CCC+, CCC, CCC-		589		1	%		859		1	%
CC+, CC, CC-		54		0	%		235		0	%
C+, C, C-		570		1	%		850		1	%
D		882		1	%		1,113		1	%
Total non-investment grade		3,256		3	%		4,276		4	%
Total	$	104,942		100	%	$	106,951		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, 2016. 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, 2016 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.

28

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. 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

29

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 10, 2016	By:	/s/ Brent J. Gay
		Brent J. Gay
		Chief Financial Officer

30

EX-31.1

Exhibit 31.1

SECTION 302 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER

I, Kenneth D. Russell, 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 10, 2016

/s/ Kenneth D. Russell

Kenneth D. Russell

Interim 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 10, 2016

/s/ Brent J. Gay

Brent J. Gay

Chief Financial Officer

 

EX-32.1

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, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kenneth D. Russell, 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/ Kenneth D. Russell

Kenneth D. Russell

Interim Chief Executive Officer

November 10, 2016

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

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, 2016, 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 10, 2016

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

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 09, 2016
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Trading Symbol	FAC
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		41,096,037

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
ASSETS
Investments, available-for-sale at fair value (amortized cost of $119,780 and $128,304, respectively)	$ 122,646	$ 131,582
Cash, cash equivalents, and restricted cash	143,371	115,587
Premiums, fees, and commissions receivable, net of allowance of $451 and $454, respectively	75,770	69,881
Receivable for securities	20,026
Deferred tax assets, net	32,216	18,301
Other investments	9,653	11,256
Other assets	6,613	6,950
Property and equipment, net	5,292	5,141
Deferred acquisition costs	5,750	5,509
Goodwill	29,384	29,429
Identifiable intangible assets, net	7,814	8,491
TOTAL ASSETS	458,535	402,127
LIABILITIES AND STOCKHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	164,700	122,071
Unearned premiums and fees	89,820	83,426
Debentures payable	40,290	40,256
Term loan from principal stockholder	29,773	29,753
Payable for securities	37,929
Accrued expenses	7,265	7,345
Other liabilities	10,693	15,606
Total liabilities	380,470	298,457
Stockholders’ equity:
Preferred stock, $.01 par value, 10,000 shares authorized
Common stock, $.01 par value, 75,000 shares authorized; 41,096 issued and outstanding	411	411
Additional paid-in capital	457,681	457,476
Accumulated other comprehensive income, net of tax of $22 and $62, respectively	3,416	3,491
Accumulated deficit	(383,443)	(357,708)
Total stockholders’ equity	78,065	103,670
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 458,535	$ 402,127

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Statement Of Financial Position [Abstract]
Amortized cost of investments	$ 119,780	$ 128,304
Allowance for premiums, fees and Commission receivable	$ 451	$ 454
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	41,096,000	41,096,000
Common stock, shares outstanding	41,096,000	41,096,000
Accumulated Other Comprehensive Income, tax	$ 22	$ 62

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Premiums earned	$ 76,740	$ 67,508	$ 233,997	$ 197,423
Commission and fee income	19,291	18,974	58,055	42,252
Investment income	1,187	1,144	3,795	3,695
Gain on sale of foreclosed real estate			1,237
Net realized gains (losses) on investments, available-for- sale (includes $4,892 and $4,745, respectively, of accumulated other comprehensive loss reclassification for net unrealized gains in 2016)	4,897	(6)	4,733	(13)
Total revenues	102,115	87,620	301,817	243,357
Costs and expenses:
Losses and loss adjustment expenses	71,079	57,367	245,262	160,304
Insurance operating expenses	28,940	29,309	88,901	78,039
Other operating expenses	369	295	932	881
Litigation settlement		3,406		3,645
Stock-based compensation	59	37	164	109
Depreciation	667	424	1,934	1,224
Amortization of identifiable intangibles assets	240	254	717	261
Interest expense	1,088	1,052	3,213	1,924
Total costs and expenses	102,442	92,144	341,123	246,387
Loss before income taxes	(327)	(4,524)	(39,306)	(3,030)
Provision (benefit) for income taxes	6	(1,506)	(13,571)	(813)
Net loss	$ (333)	$ (3,018)	$ (25,735)	$ (2,217)
Net loss per share:
Basic and diluted	$ (0.01)	$ (0.07)	$ (0.63)	$ (0.05)
Number of shares used to calculate net loss per share:
Basic and diluted	41,096	41,041	41,074	41,026
Reconciliation of net loss to other comprehensive loss:
Net loss	$ (333)	$ (3,018)	$ (25,735)	$ (2,217)
Unrealized change in investments:
Unrealized change in investments arising during the period, net of tax of $4, $(17), $1,621 and $(609), respectively	7	(32)	3,009	(1,131)
Reclassification of net realized gains on investments, available-for-sale, included in net loss, net of tax of $(1,712) and $(1,661), respectively, in 2016	(3,180)		(3,084)
Comprehensive loss	(3,506)	(3,050)	(25,810)	(3,348)
Detail of net realized gains (losses) on investments, available-for-sale:
Net realized gains (losses) on sales and redemptions	4,897	(6)	4,880	(13)
Other-than-temporary impairment charges			(147)
Net realized gains (losses) on investments, available-for-sale	$ 4,897	$ (6)	$ 4,733	$ (13)

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Statement [Abstract]
Accumulated other comprehensive loss reclassification for net unrealized gains	$ 4,892		$ 4,745
Unrealized change in investments, tax	4	$ (17)	1,621	$ (609)
Reclassification of net realized gains on investments, tax	$ (1,712)		$ (1,661)

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net loss	$ (25,735)	$ (2,217)
Adjustments to reconcile net loss to cash provided by operating activities:
Depreciation	1,934	1,224
Amortization of identifiable intangibles assets	717	261
Stock-based compensation	164	109
Deferred income taxes	(13,879)	(1,111)
Other-than-temporary impairment on investments, available-for-sale	147
Net realized (gains) losses on sales and redemptions of investments	(4,880)	13
Investment income from other investments	(408)	(301)
Gain on sale of foreclosed real estate, net	(1,237)
Other	170	212
Change in:
Premiums, fees, and commission receivable	(5,886)	(18,041)
Deferred acquisition costs	(241)	(1,969)
Loss and loss adjustment expense reserves	42,629	18,396
Unearned premiums and fees	6,394	18,935
Accrued expenses	(47)	6,122
Other liabilities	(4,913)	2,403
Other	(692)	13
Net cash (used in) provided by operating activities	(5,763)	24,049
Cash flows from investing activities:
Purchases of investments, available-for-sale	(62,950)	(21,022)
Maturities and redemptions of investments, available-for-sale	9,155	8,372
Sales of fixed maturities, available-for-sale	66,879
Purchases of other investments	(957)	(1,739)
Distributions from other investments	3,270	577
Net change in receivable/payable for securities	17,903
Capital expenditures	(1,523)	(1,529)
Proceeds from sale of foreclosed real estate, net	1,769
Acquisition of identifiable intangible assets	(40)	(205)
Business acquired through asset purchase		(33,770)
Net cash provided by (used in) investing activities	33,506	(49,316)
Cash flows from financing activities:
Proceeds from term loan from principal stockholder		30,000
Net proceeds from issuance of common stock	41	45
Net cash provided by financing activities	41	30,045
Net change in cash, cash equivalents, and restricted cash	27,784	4,778
Cash, cash equivalents, and restricted cash, beginning of period	115,587	102,429
Cash, cash equivalents, and restricted cash, end of period	$ 143,371	$ 107,207

XML

General

9 Months Ended

Sep. 30, 2016

Organization Consolidation And Presentation Of Financial Statements [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, 2015.

Cash, Cash Equivalents, and Restricted Cash

Cash, cash equivalents, and restricted cash consist of bank demand deposits and highly-liquid investments, including overnight collateralized purchase agreements. All investments with maturities of three months or less at the date of purchase are considered cash equivalents. At September 30, 2016 and December 31, 2015 the Company had restricted cash equivalents of $17.1 million and $9.4 million, respectively.

XML

Fair Value

9 Months Ended

Sep. 30, 2016

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.

NAV    -   Calculated net asset value (“NAV”) based on an ownership interest to which a proportionate share of net assets is attributed.

The Company considers the valuation methods used in both its identifiable intangible assets initial measurement and 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. To determine the fair value of the acquired policy renewal rights and customer relationships, the Company uses an “excess earnings” method that relies on projected future net cash flows and includes key assumptions for the customer retention and renewal rates. The data used in these methods is not observable in the market.

Fair Value of Financial Instruments

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

	September 30, 2016				December 31, 2015
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Assets:
Investments, available-for-sale	$	122,646	$	122,646	$	131,582	$	131,582
Other investments		9,653		9,653		11,256		11,256
Liabilities:
Debentures payable		40,290		11,242		40,256		20,275
Term loan from principal stockholder		29,773		15,815		29,753		28,504

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 and the term loan from principal shareholder are categorized as Level 3, since they were 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, fees, and commissions 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 does not purport to represent the Company’s underlying value.

The following tables present the fair-value measurements for each major category of assets that are measured on a recurring basis (in thousands). Other investments are carried at net asset value which approximates fair value.

			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant		Proportionate
			Markets for		Observable		Unobservable		Share of
			Identical Assets		Inputs		Inputs		Net Assets
September 30, 2016	Total		(Level 1)		(Level 2)		(Level 3)		(NAV)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	19,380	$	19,380	$	—	$	—	$	—
Political subdivisions		4,319		—		4,319		—		—
Revenue and assessment		5,947		—		5,947		—		—
Corporate bonds		48,704		—		48,704		—		—
Collateralized mortgage obligations:
Agency backed		23,624		—		23,624		—		—
Non-agency backed – residential		3,055		—		3,055		—		—
Non-agency backed – commercial		1,922		—		1,922		—		—
Total fixed maturities, available-for-sale		106,951		19,380		87,571		—		—
Preferred stock, available-for-sale		3,313		3,313		—		—		—
Mutual funds, available-for-sale		12,382		12,382	—			—		—
Total investments, available-for-sale		122,646		35,075		87,571		—		—
Other investments		9,653		—		—		4,535		5,118
Cash, cash equivalents, and restricted cash		143,371		143,371		—		—		—
Total	$	275,670	$	178,446	$	87,571	$	4,535	$	5,118

			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant		Proportionate
			Markets for		Observable		Unobservable		Share of
			Identical Assets		Inputs		Inputs		Net Assets
December 31, 2015	Total		(Level 1)		(Level 2)		(Level 3)		(NAV)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	13,113	$	13,113	$	—	$	—	$	—
State		702		—		702		—		—
Political subdivisions		4,363		—		4,363		—		—
Revenue and assessment		12,644		—		12,644		—		—
Corporate bonds		80,785		—		80,785		—		—
Collateralized mortgage obligations:
Agency backed		873		—		873		—		—
Non-agency backed – residential		3,455		—		3,455		—		—
Non-agency backed – commercial		2,507		—		2,507		—		—
Total fixed maturities, available-for-sale		118,442		13,113		105,329		—		—
Preferred stock, available-for-sale		1,723		1,723		—		—		—
Mutual funds, available-for-sale		11,417		11,417	—			—		—
Total investments, available-for-sale		131,582		26,253		105,329		—		—
Other investment		11,256		—		—		3,276		7,980
Cash, cash equivalents, and restricted cash		115,587		115,587		—		—		—
Total	$	258,425	$	141,840	$	105,329	$	3,276	$	7,980

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 security in the table above consists of an investment in the common stock of a real estate investment trust for which fair value has been determined using a model driven valuation that does not have observable market data. There were no transfers between Level 1 and Level 2 for the three and nine months ended September 30, 2016 and 2015. 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.  Likewise, the Company reviews the Level 3 valuation model to understand the underlying factors and inputs and to validate the reasonableness of the pricing.

The following table represents the quantitative disclosure for the asset classified as Level 3 during the nine months ended September 30, 2016 (in thousands).

	Fair Value
	Measurements Using
	Significant Unobservable
	Inputs (Level 3)
	Common Stock
	at Fair Value
Balance at December 31, 2015	$	3,276
Gains included in net loss		—
Gains included in comprehensive loss		302
Investments and capital calls		957
Distributions received		—
Transfers into and out of Level 3		—
Balance at September 30, 2016	$	4,535

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Investments

9 Months Ended

Sep. 30, 2016

Investments Debt And Equity Securities [Abstract]

Investments

3. Investments

Investments, Available-for-Sale

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

		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
September 30, 2016	Cost	Gains	Losses	Value
U.S. government and agencies	$       19,141	$               246	$                  (7)	$          19,380
Political subdivisions	4,264	55	—	4,319
Revenue and assessment	5,639	308	—	5,947
Corporate bonds	48,419	391	(106)	48,704
Collateralized mortgage obligations:
Agency backed	23,553	86	(15)	23,624
Non-agency backed – residential	2,493	569	(7)	3,055
Non-agency backed – commercial	1,433	489	—	1,922
Total fixed maturities, available-for-sale	104,942	2,144	(135)	106,951
Preferred stock, available-for-sale	3,025	307	(19)	3,313
Mutual funds, available-for-sale	11,813	569	—	12,382
	$        119,780	$            3,020	$              (154)	$        122,646

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2015	Cost		Gains		Losses			Value
U.S. government and agencies	$	13,036	$	162	$	(85	)	$	13,113
State		698		4		—			702
Political subdivisions		4,354		9		—			4,363
Revenue and assessment		11,770		895		(21	)		12,644
Corporate bonds		79,426		2,022		(663	)		80,785
Collateralized mortgage obligations:
Agency backed		793		80		—			873
Non-agency backed – residential		2,877		579		(1	)		3,455
Non-agency backed – commercial		1,891		616		—			2,507
Total fixed maturities, available-for-sale		114,845		4,367		(770	)		118,442
Preferred stock, available-for-sale		1,500		223		—			1,723
Mutual funds, available-for-sale		11,959		120		(662	)		11,417
	$	128,304	$	4,710	$	(1,432	)	$	131,582

The following table sets 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.

					Securities
	Securities		Securities		with No		All
	with		with		Unrealized		Fixed
	Unrealized		Unrealized		Gains or		Maturity
September 30, 2016	Gains		Losses		Losses		Securities
One year or less	$	4,821	$	3,572	$	—	$	8,393
After one through five years		24,019		2,112		2,000		28,131
After five through ten years		16,149		12,957		—		29,106
After ten years		7,762		4,958		—		12,720
No single maturity date		5,709		22,892		—		28,601
	$	58,460	$	46,491	$	2,000	$	106,951

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
	Less than		Greater		Gross
	or equal to		than 12		Unrealized
At:	12 months		months		Gains
September 30, 2016		12		—		57
December 31, 2015		21		4		70

The following table reflects the fair value and gross unrealized losses of those fixed maturity securities in a continuous unrealized loss position for greater than 12 months at December 31, 2015. There were no securities meeting these criteria at September 30, 2016. Gross unrealized losses are further segregated by the percentage of amortized cost (in thousands, except number of securities).

	Number				Gross
Gross Unrealized Losses	of		Fair		Unrealized
at December 31, 2015:	Securities		Value		Losses
Less than or equal to 10%		4	$	7,689	$	(241	)
Greater than 10%		—		—		—
		4	$	7,689	$	(241	)

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).

	Fair Value of
	Securities with
Length of	Gross		Gross			Severity of Gross Unrealized Losses
Gross Unrealized Losses	Unrealized		Unrealized			Less			5% to			Greater
at September 30, 2016:	Losses		Losses			than 5%				10%		than 10%
Less than or equal to:
Three months	$	47,891	$	(147	)	$	(147	)	$	—		$	—
Six months		—		—			—			—			—
Nine months		105		(7	)		—			(7	)		—
Twelve months		—		—			—			—			—
Greater than twelve months		—		—			—			—			—
Total	$	47,996	$	(154	)	$	(147	)	$	(7	)	$	—

	Fair Value of
	Securities with
Length of	Gross		Gross			Severity of Gross Unrealized Losses
Gross Unrealized Losses	Unrealized		Unrealized			Less			5% to			Greater
at December 31, 2015:	Losses		Losses			than 5%				10%		than 10%
Less than or equal to:
Three months	$	20,899	$	(130	)	$	(130	)	$	—		$	—
Six months		7,036		(465	)		—			(465	)		—
Nine months		14,057		(395	)		(197	)		(197	)		(1	)
Twelve months		7,892		(201	)		(201	)		—			—
Greater than twelve months		7,689		(241	)		(241	)		—			—
Total	$	57,573	$	(1,432	)	$	(769	)	$	(662	)	$	(1	)

Other-Than-Temporary Impairment

For the nine months ended September 30, 2016, the Company recognized OTTI charges in net income of $147 thousand related to one mutual fund.

The Company believes that the remaining securities having unrealized losses at September 30, 2016 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.

Other Investments

Other investments consist of the common stock of a real estate investment trust and limited partnership interests in two 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. The Company recently withdrew from one limited partnership investment and received the final withdrawal installment in July 2016. The Company does not intend to sell the remaining 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, 2016, the Company had unfunded commitments of $0.2 million with two of these investments.

Restrictions

At September 30, 2016, fixed maturities and cash equivalents with a fair value and amortized cost of $6.6 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 $15.6 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 Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Fixed maturities, available-for-sale	$	971		$	1,077		$	2,922		$	3,131
Mutual funds, available-for-sale		153			164			519			457
Other investments		53			(27	)		408			301
Other		130			56			313			174
Investment expenses		(120	)		(126	)		(367	)		(368	)
	$	1,187		$	1,144		$	3,795		$	3,695

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Gains	$	4,900		$	—		$	4,900		$	3
Losses		(3	)		(6	)		(20	)		(16	)
Other-than-temporary impairment		—			—			(147	)		—
	$	4,897		$	(6	)	$	4,733		$	(13	)

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 loss. 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, 2016 and December 31, 2015.

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Net Loss Per Share

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Net Loss Per Share

4. Net Loss Per Share

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Net loss	$	(333	)	$	(3,018	)	$	(25,735	)	$	(2,217	)
Weighted average common basic shares		41,096			41,041			41,074			41,026
Effect of dilutive securities		—			—			—			—
Weighted average common dilutive shares		41,096			41,041			41,074			41,026
Basic and diluted net loss per share	$	(0.01	)	$	(0.07	)	$	(0.63	)	$	(0.05	)

On March 15, 2016, the Compensation Committee of the Board of Directors of the Company awarded 146 thousand restricted stock units to executive officers. Such restricted stock units will vest, and an equal number of shares of common stock will be deliverable upon the third anniversary of the date of grant. Compensation expense related to the units was calculated based upon the closing market price of the common stock on the date of grant ($2.30) and is recorded on a straight-line basis over the vesting period.

For the three months ended September 30, 2016, the computation of diluted net loss per share did not include 270 thousand restricted stock units, a dilutive effect of 5 thousand shares, since their inclusion would have been anti-dilutive. Options to purchase 1,045 thousand shares were not included in the computation of diluted net loss per share for the three months ended September 30, 2016, since their exercise price was in excess of the average stock prices for these periods.

For the nine months ended September 30, 2016, the computation of diluted net loss per share did not include options to purchase 825 thousand shares and 270 thousand restricted stock units, a dilutive effect of 176 thousand shares and 23 thousand shares, respectively, since their inclusion would have been anti-dilutive. Options to purchase 220 thousand shares were not included in the computation of diluted net loss per share for the nine months ended September 30, 2016, since their exercise price was in excess of the average stock prices for these periods.

For the three and nine months ended September 30, 2015, the computation of diluted net income per share did not include options to purchase 825 thousand shares, a dilutive effect of 335 thousand shares and 324 thousand shares, respectively, and 141 thousand restricted stock units, a dilutive effect of 30 thousand shares and 19 thousand shares, respectively, since their inclusion would have been anti-dilutive. Options to purchase 260 thousand shares were not included in the computation of diluted net income per share for the three and nine months ended September 30, 2015, since their exercise prices were in excess of the average stock prices for these periods.     

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Losses and Loss Adjustment Expenses Incurred and Paid

9 Months Ended

Sep. 30, 2016

Insurance [Abstract]

Losses and Loss Adjustment Expenses Incurred and Paid

5. Losses and Loss Adjustment Expenses Incurred and Paid

Information regarding the reserve for unpaid losses and loss adjustment expenses (“LAE”) is as follows (in thousands).

	Nine Months Ended
	September 30,
	2016			2015
Liability for unpaid losses and LAE at beginning of period, gross	$	122,071		$	96,613
Reinsurance balances receivable		(464	)		(362	)
Liability for unpaid losses and LAE at beginning of period, net		121,607			96,251
Add: Provision for losses and LAE:
Current period		217,802			159,686
Prior periods		27,460			618
Net losses and LAE incurred		245,262			160,304
Less: Losses and LAE paid:
Current period		111,307			87,280
Prior periods		91,703			54,697
Net losses and LAE paid		203,010			141,977
Liability for unpaid losses and LAE at end of period, net		163,859			114,578
Reinsurance balances receivable		841			431
Liability for unpaid losses and LAE at end of period, gross	$	164,700		$	115,009

The unfavorable development for the nine months ended September 30, 2016 was the result of increased losses primarily from the 2015 accident year across all major coverages. The most significant causes of the development were a greater than usual emergence of reported claims and higher bodily injury severity.

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Income Taxes

9 Months Ended

Sep. 30, 2016

Income Tax Disclosure [Abstract]

Income Taxes

6. Income Taxes

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Federal:
Current	$	—		$	(30	)	$	—		$	21
Deferred		(162	)		(1,467	)		(13,789	)		(1,065	)
		(162	)		(1,497	)		(13,789	)		(1,044	)
State:
Current		149			43			308			277
Deferred		19			(52	)		(90	)		(46	)
		168			(9	)		218			231
	$	6		$	(1,506	)	$	(13,571	)	$	(813	)

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Benefit for income taxes at statutory rate	$	(115	)	$	(1,584	)	$	(13,758	)	$	(1,061	)
Tax effect of:
Tax-exempt investment income		(10	)		(5	)		(30	)		(15	)
Change in the beginning of the period balance of the    valuation allowance for deferred tax assets allocated    to federal income taxes		(6	)		6			51			8
Stock-based compensation		12			—			29			22
State income taxes, net of federal income tax benefit    and state valuation allowance		116			(24	)		110			134
Other		9			101			27			99
	$	6		$	(1,506	)	$	(13,571	)	$	(813	)

The Company had a deferred tax asset (“DTA”) valuation allowance of $2.1 million at September 30, 2016 and $1.7 million at December 31, 2015, attributable to certain amounts related to state taxes and OTTI that are not more likely than not to be realized. In assessing the Company’s ability to realize the DTA, both positive and negative evidence are used to evaluate the allowance. Although the Company has incurred a nine-month pre-tax loss of $39.3 million which is a source of negative evidence, it placed greater weight on its outlook for future taxable income over the allowable time period for realization of the DTA and concluded that it is more likely than not that the remaining DTA will be realized. Regarding the length of time available to realize the DTA, at September 30, 2016, $20.6 million of the DTA related to net operating loss carryforwards do not expire until 2031 through 2036 and $2.0 million in AMT (“Alternative Minimum Tax”) carryforwards have no expiration date. The DTA 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 DTA will not be realized. In the event the DTA valuation allowance is adjusted, the Company would record an income tax expense for the adjustment.

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Segment Information

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Segment Information

7. 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 Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Revenues:
Insurance	$	102,099		$	87,604		$	300,533		$	243,307
Real estate and corporate		16			16			1,284			50
Consolidated total	$	102,115		$	87,620		$	301,817		$	243,357
Income (loss) before income taxes:
Insurance	$	1,173		$	(3,156	)	$	(36,280	)	$	(166	)
Real estate and corporate		(1,500	)		(1,368	)		(3,026	)		(2,864	)
Consolidated total	$	(327	)	$	(4,524	)	$	(39,306	)	$	(3,030	)

	September 30,		December 31,
	2016		2015
Total assets:
Insurance	$	416,182	$	373,475
Real estate and corporate		42,353		28,652
Consolidated total	$	458,535	$	402,127

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Litigation

9 Months Ended

Sep. 30, 2016

Commitments And Contingencies Disclosure [Abstract]

Litigation

8. 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 loss in losses and loss adjustment expenses for bad faith claims and in insurance operating expenses for other lawsuits unless otherwise disclosed.

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2016

Accounting Changes And Error Corrections [Abstract]

Recent Accounting Pronouncements

9. Recent Accounting Pronouncements

In May 2014, the Financial Accounting 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 had an effective date for public companies for annual and interim periods beginning after December 15, 2016, with early adoption not permitted. In July 2015, the FASB issued a one-year deferral of this effective date with the option for entities to early adopt at the original effective date. 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.

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” which requires companies to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued. The evaluation will be required for each annual and interim reporting period. This guidance has an effective date for public companies for annual reporting periods ending after December 15, 2016 and interim reporting periods thereafter, with early adoption permitted. The Company believes that it will be reasonably able to comply with these requirements.

In April 2015, the FASB issued ASU No. 2015-05, “Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” to clarify how customers in cloud computing arrangements should determine whether the arrangement includes a software license. The amendment also eliminates today’s requirement that customers analogize to the leases standard when determining the assets acquired in a software licensing arrangement. For calendar year-end entities, the guidance was effective January 1, 2016 with the option to apply the guidance either prospectively or retrospectively. The Company has elected to apply this guidance prospectively, which resulted in $5 thousand of software licenses included in identifiable intangibles assets on the consolidated balance sheet as of September 30, 2016. Prior to this guidance, these licenses would have been included in property and equipment on the consolidated balance sheet.

In May 2015, the FASB issued ASU No. 2015-09, “Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts” which requires 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, 2015 and interim reporting periods beginning after December 15, 2016, with early adoption permitted. The Company believes that it will be reasonably able to comply with these requirements.

In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-20): Recognition and Measure of Financial Assets and Financial Liabilities” which requires entities to measure many equity investments at fair value and recognize changes in fair value in net income (loss), as opposed to the current practice of other comprehensive income (loss). The requirement does not apply to equity investments that result in consolidation, those accounted for under the equity method and certain others. The guidance provides a new measurement alternative for equity investments that do not have readily determinable fair values and do not qualify for the net asset value practical expedient. Under this alternative, these investments can be measured at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The guidance is effective for public business entities for annual periods beginning after December 15, 2017, and interim periods within those years. The Company believes that its other investment in a real estate investment trust will fall under the guidance of the new measurement alternative and that future changes in fair value will be recognized in net income (loss), as opposed to the current practice of other comprehensive income (loss). The Company has not determined the impact on future consolidated financial statements once this is adopted.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” which requires lessees to put most leases on their balance sheets as lease liabilities with corresponding right-of-use assets, but recognize expense in a manner similar to the current accounting treatment. The guidance also eliminates the current real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs and lease executory costs for all entities. The guidance could have broad implications for an entity’s finances and operations and will require additional disclosures. The guidance is effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within those years. Early adoption is permitted. Entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in their financial statements. They also have the option to use certain relief and full retrospective application is prohibited. The Company believes its lease arrangements fall under this guidance and will be required to be shown on its consolidated balance sheet. The Company is currently evaluating controls and processes to ensure this guidance is reflected properly on future consolidated financial statements.  

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326)” which requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses will be based on relevant information, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The expected increases and decreases in the credit loss will be reflected on the consolidated statement of comprehensive income (loss). The guidance is effective for public business entities for annual periods beginning after December 15, 2019, and interim periods within those years. Early adoption is permitted. The Company has not determined the impact on future consolidated financial statements once this is adopted.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” which clarifies how entities should classify certain cash receipts and cash payments, including how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flows. The guidance is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. Entities will have to apply the guidance retrospectively, but if it is impracticable to do so for an issue, the amendments related to that issue would be applied prospectively. The Company has not determined the impact on future consolidated financial statements once this is adopted.

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Related Parties

9 Months Ended

Sep. 30, 2016

Related Party Transactions [Abstract]

Related Parties

10. Related Parties

In April 2016, the Company entered into standard agreements for Treasury and Custodial Services with a bank indirectly owned 15% by our principal stockholder. The fees under these agreements for the three and nine months ended September 30, 2016 were $47 thousand and $93 thousand, respectively.

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Business Combination

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Business Combination

11. Business Combination

Acquisition of the Titan Agencies

On July 1, 2015, in order to expand its geographic presence, the Company completed the acquisition of certain assets of Titan Insurance Services, Inc. and Titan Auto Insurance of New Mexico, Inc. (the “Titan Agencies”). These agencies sell private passenger non-standard automobile insurance and complimentary products, principally in California, but also in Texas, Arizona, Florida, Nevada and New Mexico.  The Titan Agencies were previously owned and operated by Nationwide. Pursuant to the Asset Purchase Agreement (the “APA”), the Company acquired the assets of 83 retail stores for total consideration of $36.0 million, which included liabilities assumed estimated to be $2.3 million. The Company has accounted for the acquisition as a business combination applying the acquisition method.

Liabilities assumed included a $2.0 million estimate of the expected liability for returned commissions as of the closing date. This liability was subject to change based on the actual amount of returned commissions and the Company’s final estimation of this liability resulted in a $0.8 million reduction in goodwill through June 30, 2016.  

The Company considers this acquisition to be a separate reporting unit for goodwill impairment analysis purposes. At September 30, 2016, the Company concluded that there was no indication of impairment and that a quantitative analysis was not necessary as of this date. The date of the Company’s annual impairment analysis is each October 1.

Pro Forma Information

The following unaudited pro forma combined statement of income for the nine months ended September 30, 2015 is based on our historical consolidated financial statements and gives effect to the acquisition of the Titan Agencies as if it had occurred on January 1, 2014. The pro forma combined financial statement does not necessarily reflect what the combined results of operations would have been had the acquisition occurred on the date indicated. It also may not be useful in predicting the future combined results of operations. The actual combined results of operations may differ significantly from the combined pro forma amounts reflected herein due to a variety of factors.

Pro Forma Statement of Income Nine Months Ended September 30, 2015	Company Historical	Titan Agencies Historical Six Months Ended June 30, 2015	Pro Forma Adjustments		Pro Forma Combined
Revenues:
Premiums earned	$        197,423	$                  —	$                —		$        197,423
Commission and fee income	42,252	14,547	—		56,799
Investment income	3,695	—	—		3,695
Net realized losses on investments, available-for-sale	(13)	—	—		(13)
	243,357	14,547	—		257,904
Costs and expenses:
Losses and loss adjustment expenses	160,304	—	—		160,304
Insurance operating expenses	78,039	14,555	—		92,594
Other operating expenses	881	—	—		881
Litigation settlement	3,645	—	—		3,645
Stock-based compensation	109	—	—		109
Depreciation	1,224	—	50	(a)	1,274
Amortization of identifiable intangibles assets	261	—	455	(b)	716
Interest expense	1,924	—	1,190	(c)	3,114
	246,387	14,555	1,695		262,637
Loss before income taxes	(3,030)	(8)	(1,695)		(4,733)
Benefit for income taxes	(813)	(3)	(678)	(d)	(1,494)
Net loss	$          (2,217)	$                   (5)	$          (1,017)		$          (3,239)
Net loss per share:
Basic	$            (0.05)				$            (0.08)
Diluted	$            (0.05)				$            (0.08)
Number of shares used to calculate net loss per share:
Basic	41,026				41,026
Diluted	41,026				41,026

Pro forma adjustments

The following adjustments have been reflected in the unaudited pro forma combined financial information.

(a) Depreciation expense related to acquired tangible asset

(b) Amortization expense related to acquired identifiable intangible asset

(c) Interest expense related to acquisition financing

(d) Calculated income tax effect of pro forma adjustments at the estimated combined federal and state statutory rate of 40%

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Current Liquidity and Statutory Capital and Surplus

9 Months Ended

Sep. 30, 2016

Current Liquidity And Statutory Capital And Surplus [Abstract]

Current Liquidity and Statutory Capital and Surplus

12. Current Liquidity and Statutory Capital and Surplus

The Company has $70.0 million in long-term borrowings of which $40.0 million matures in 2037 and $30.0 million matures in 2025. At September 30, 2016, the Company was in compliance with the covenants related to these borrowings. Such borrowings are not obligations of the Company’s regulated insurance company subsidiaries who at September 30, 2016 had combined statutory capital and surplus of $62.5 million. The Company believes that it has sufficient liquidity to meet its current obligations in the foreseeable future, including the payment of interest on its long-term borrowings which it currently funds through the cash flows of its agency operations which are generated outside the Company’s regulated insurance company subsidiaries and are not subject to any limitation on the payment of dividends to the holding company.

The Company has three insurance company subsidiaries that are organized and domiciled under the insurance statutes of Texas, Georgia, and Tennessee. The insurance company subsidiaries operate under licenses issued by various state insurance authorities. Such licenses may be of perpetual duration or periodically renewable, provided the insurance company subsidiaries continue to meet applicable regulatory requirements.

For the nine months ended September 30, 2016, the insurance company subsidiaries experienced a reduction in combined statutory capital and surplus of $36.3 million, primarily as a result of the unfavorable loss development during the period. The National Association of Insurance Commissioners (“NAIC”) 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. Failure to meet applicable risk-based capital requirements could subject our insurance company subsidiaries to further examination or corrective action imposed by state regulators, including limitations on their writing of additional business, state supervision, or even liquidation. Although statutory risk-based capital calculations are only made as of each December 31, the Company estimated that the three insurance company subsidiaries remain above the regulatory company action levels as of September 30, 2016. 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 4.90-to-1 at September 30, 2016 which is in excess of the suggested guidelines. Management is currently operating under a business plan to reduce premium writings and increase statutory capital and surplus to address the net premiums written to statutory capital and surplus guidelines.

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Fair Value (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Disclosures [Abstract]

Presentation of Carrying Values and Fair Values of Certain Financial Instruments

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

	September 30, 2016				December 31, 2015
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Assets:
Investments, available-for-sale	$	122,646	$	122,646	$	131,582	$	131,582
Other investments		9,653		9,653		11,256		11,256
Liabilities:
Debentures payable		40,290		11,242		40,256		20,275
Term loan from principal stockholder		29,773		15,815		29,753		28,504

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). Other investments are carried at net asset value which approximates fair value.

			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant		Proportionate
			Markets for		Observable		Unobservable		Share of
			Identical Assets		Inputs		Inputs		Net Assets
September 30, 2016	Total		(Level 1)		(Level 2)		(Level 3)		(NAV)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	19,380	$	19,380	$	—	$	—	$	—
Political subdivisions		4,319		—		4,319		—		—
Revenue and assessment		5,947		—		5,947		—		—
Corporate bonds		48,704		—		48,704		—		—
Collateralized mortgage obligations:
Agency backed		23,624		—		23,624		—		—
Non-agency backed – residential		3,055		—		3,055		—		—
Non-agency backed – commercial		1,922		—		1,922		—		—
Total fixed maturities, available-for-sale		106,951		19,380		87,571		—		—
Preferred stock, available-for-sale		3,313		3,313		—		—		—
Mutual funds, available-for-sale		12,382		12,382	—			—		—
Total investments, available-for-sale		122,646		35,075		87,571		—		—
Other investments		9,653		—		—		4,535		5,118
Cash, cash equivalents, and restricted cash		143,371		143,371		—		—		—
Total	$	275,670	$	178,446	$	87,571	$	4,535	$	5,118

			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant		Proportionate
			Markets for		Observable		Unobservable		Share of
			Identical Assets		Inputs		Inputs		Net Assets
December 31, 2015	Total		(Level 1)		(Level 2)		(Level 3)		(NAV)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	13,113	$	13,113	$	—	$	—	$	—
State		702		—		702		—		—
Political subdivisions		4,363		—		4,363		—		—
Revenue and assessment		12,644		—		12,644		—		—
Corporate bonds		80,785		—		80,785		—		—
Collateralized mortgage obligations:
Agency backed		873		—		873		—		—
Non-agency backed – residential		3,455		—		3,455		—		—
Non-agency backed – commercial		2,507		—		2,507		—		—
Total fixed maturities, available-for-sale		118,442		13,113		105,329		—		—
Preferred stock, available-for-sale		1,723		1,723		—		—		—
Mutual funds, available-for-sale		11,417		11,417	—			—		—
Total investments, available-for-sale		131,582		26,253		105,329		—		—
Other investment		11,256		—		—		3,276		7,980
Cash, cash equivalents, and restricted cash		115,587		115,587		—		—		—
Total	$	258,425	$	141,840	$	105,329	$	3,276	$	7,980

Quantitative Disclosure for Assets Classified as Level 3

The following table represents the quantitative disclosure for the asset classified as Level 3 during the nine months ended September 30, 2016 (in thousands).

	Fair Value
	Measurements Using
	Significant Unobservable
	Inputs (Level 3)
	Common Stock
	at Fair Value
Balance at December 31, 2015	$	3,276
Gains included in net loss		—
Gains included in comprehensive loss		302
Investments and capital calls		957
Distributions received		—
Transfers into and out of Level 3		—
Balance at September 30, 2016	$	4,535

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Investments (Tables)

9 Months Ended

Sep. 30, 2016

Investments Debt And Equity Securities [Abstract]

Summary of Company's Investment Securities

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

		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
September 30, 2016	Cost	Gains	Losses	Value
U.S. government and agencies	$       19,141	$               246	$                  (7)	$          19,380
Political subdivisions	4,264	55	—	4,319
Revenue and assessment	5,639	308	—	5,947
Corporate bonds	48,419	391	(106)	48,704
Collateralized mortgage obligations:
Agency backed	23,553	86	(15)	23,624
Non-agency backed – residential	2,493	569	(7)	3,055
Non-agency backed – commercial	1,433	489	—	1,922
Total fixed maturities, available-for-sale	104,942	2,144	(135)	106,951
Preferred stock, available-for-sale	3,025	307	(19)	3,313
Mutual funds, available-for-sale	11,813	569	—	12,382
	$        119,780	$            3,020	$              (154)	$        122,646

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2015	Cost		Gains		Losses			Value
U.S. government and agencies	$	13,036	$	162	$	(85	)	$	13,113
State		698		4		—			702
Political subdivisions		4,354		9		—			4,363
Revenue and assessment		11,770		895		(21	)		12,644
Corporate bonds		79,426		2,022		(663	)		80,785
Collateralized mortgage obligations:
Agency backed		793		80		—			873
Non-agency backed – residential		2,877		579		(1	)		3,455
Non-agency backed – commercial		1,891		616		—			2,507
Total fixed maturities, available-for-sale		114,845		4,367		(770	)		118,442
Preferred stock, available-for-sale		1,500		223		—			1,723
Mutual funds, available-for-sale		11,959		120		(662	)		11,417
	$	128,304	$	4,710	$	(1,432	)	$	131,582

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

The following table sets 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.

					Securities
	Securities		Securities		with No		All
	with		with		Unrealized		Fixed
	Unrealized		Unrealized		Gains or		Maturity
September 30, 2016	Gains		Losses		Losses		Securities
One year or less	$	4,821	$	3,572	$	—	$	8,393
After one through five years		24,019		2,112		2,000		28,131
After five through ten years		16,149		12,957		—		29,106
After ten years		7,762		4,958		—		12,720
No single maturity date		5,709		22,892		—		28,601
	$	58,460	$	46,491	$	2,000	$	106,951

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
	Less than		Greater		Gross
	or equal to		than 12		Unrealized
At:	12 months		months		Gains
September 30, 2016		12		—		57
December 31, 2015		21		4		70

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

The following table reflects the fair value and gross unrealized losses of those fixed maturity securities in a continuous unrealized loss position for greater than 12 months at December 31, 2015. There were no securities meeting these criteria at September 30, 2016. Gross unrealized losses are further segregated by the percentage of amortized cost (in thousands, except number of securities).

	Number				Gross
Gross Unrealized Losses	of		Fair		Unrealized
at December 31, 2015:	Securities		Value		Losses
Less than or equal to 10%		4	$	7,689	$	(241	)
Greater than 10%		—		—		—
		4	$	7,689	$	(241	)

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).

	Fair Value of
	Securities with
Length of	Gross		Gross			Severity of Gross Unrealized Losses
Gross Unrealized Losses	Unrealized		Unrealized			Less			5% to			Greater
at September 30, 2016:	Losses		Losses			than 5%				10%		than 10%
Less than or equal to:
Three months	$	47,891	$	(147	)	$	(147	)	$	—		$	—
Six months		—		—			—			—			—
Nine months		105		(7	)		—			(7	)		—
Twelve months		—		—			—			—			—
Greater than twelve months		—		—			—			—			—
Total	$	47,996	$	(154	)	$	(147	)	$	(7	)	$	—

	Fair Value of
	Securities with
Length of	Gross		Gross			Severity of Gross Unrealized Losses
Gross Unrealized Losses	Unrealized		Unrealized			Less			5% to			Greater
at December 31, 2015:	Losses		Losses			than 5%				10%		than 10%
Less than or equal to:
Three months	$	20,899	$	(130	)	$	(130	)	$	—		$	—
Six months		7,036		(465	)		—			(465	)		—
Nine months		14,057		(395	)		(197	)		(197	)		(1	)
Twelve months		7,892		(201	)		(201	)		—			—
Greater than twelve months		7,689		(241	)		(241	)		—			—
Total	$	57,573	$	(1,432	)	$	(769	)	$	(662	)	$	(1	)

Major Categories of Investment Income

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Fixed maturities, available-for-sale	$	971		$	1,077		$	2,922		$	3,131
Mutual funds, available-for-sale		153			164			519			457
Other investments		53			(27	)		408			301
Other		130			56			313			174
Investment expenses		(120	)		(126	)		(367	)		(368	)
	$	1,187		$	1,144		$	3,795		$	3,695

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 Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Gains	$	4,900		$	—		$	4,900		$	3
Losses		(3	)		(6	)		(20	)		(16	)
Other-than-temporary impairment		—			—			(147	)		—
	$	4,897		$	(6	)	$	4,733		$	(13	)

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Net Loss Per Share (Tables)

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Computation of Basic and Diluted Net Loss Per Share

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Net loss	$	(333	)	$	(3,018	)	$	(25,735	)	$	(2,217	)
Weighted average common basic shares		41,096			41,041			41,074			41,026
Effect of dilutive securities		—			—			—			—
Weighted average common dilutive shares		41,096			41,041			41,074			41,026
Basic and diluted net loss per share	$	(0.01	)	$	(0.07	)	$	(0.63	)	$	(0.05	)

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Losses and Loss Adjustment Expenses Incurred and Paid (Tables)

9 Months Ended

Sep. 30, 2016

Insurance [Abstract]

Information Regarding the Reserve for Unpaid Losses and Loss Adjustment Expenses

Information regarding the reserve for unpaid losses and loss adjustment expenses (“LAE”) is as follows (in thousands).

	Nine Months Ended
	September 30,
	2016			2015
Liability for unpaid losses and LAE at beginning of period, gross	$	122,071		$	96,613
Reinsurance balances receivable		(464	)		(362	)
Liability for unpaid losses and LAE at beginning of period, net		121,607			96,251
Add: Provision for losses and LAE:
Current period		217,802			159,686
Prior periods		27,460			618
Net losses and LAE incurred		245,262			160,304
Less: Losses and LAE paid:
Current period		111,307			87,280
Prior periods		91,703			54,697
Net losses and LAE paid		203,010			141,977
Liability for unpaid losses and LAE at end of period, net		163,859			114,578
Reinsurance balances receivable		841			431
Liability for unpaid losses and LAE at end of period, gross	$	164,700		$	115,009

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Income Taxes (Tables)

9 Months Ended

Sep. 30, 2016

Income Tax Disclosure [Abstract]

Provision (Benefit) for Income Taxes

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Federal:
Current	$	—		$	(30	)	$	—		$	21
Deferred		(162	)		(1,467	)		(13,789	)		(1,065	)
		(162	)		(1,497	)		(13,789	)		(1,044	)
State:
Current		149			43			308			277
Deferred		19			(52	)		(90	)		(46	)
		168			(9	)		218			231
	$	6		$	(1,506	)	$	(13,571	)	$	(813	)

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

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Benefit for income taxes at statutory rate	$	(115	)	$	(1,584	)	$	(13,758	)	$	(1,061	)
Tax effect of:
Tax-exempt investment income		(10	)		(5	)		(30	)		(15	)
Change in the beginning of the period balance of the    valuation allowance for deferred tax assets allocated    to federal income taxes		(6	)		6			51			8
Stock-based compensation		12			—			29			22
State income taxes, net of federal income tax benefit    and state valuation allowance		116			(24	)		110			134
Other		9			101			27			99
	$	6		$	(1,506	)	$	(13,571	)	$	(813	)

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Selected Financial Data by Business Segment

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Revenues:
Insurance	$	102,099		$	87,604		$	300,533		$	243,307
Real estate and corporate		16			16			1,284			50
Consolidated total	$	102,115		$	87,620		$	301,817		$	243,357
Income (loss) before income taxes:
Insurance	$	1,173		$	(3,156	)	$	(36,280	)	$	(166	)
Real estate and corporate		(1,500	)		(1,368	)		(3,026	)		(2,864	)
Consolidated total	$	(327	)	$	(4,524	)	$	(39,306	)	$	(3,030	)

	September 30,		December 31,
	2016		2015
Total assets:
Insurance	$	416,182	$	373,475
Real estate and corporate		42,353		28,652
Consolidated total	$	458,535	$	402,127

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Business Combination (Tables)

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Business Combination Pro Forma Information

Pro Forma Statement of Income Nine Months Ended September 30, 2015	Company Historical	Titan Agencies Historical Six Months Ended June 30, 2015	Pro Forma Adjustments		Pro Forma Combined
Revenues:
Premiums earned	$        197,423	$                  —	$                —		$        197,423
Commission and fee income	42,252	14,547	—		56,799
Investment income	3,695	—	—		3,695
Net realized losses on investments, available-for-sale	(13)	—	—		(13)
	243,357	14,547	—		257,904
Costs and expenses:
Losses and loss adjustment expenses	160,304	—	—		160,304
Insurance operating expenses	78,039	14,555	—		92,594
Other operating expenses	881	—	—		881
Litigation settlement	3,645	—	—		3,645
Stock-based compensation	109	—	—		109
Depreciation	1,224	—	50	(a)	1,274
Amortization of identifiable intangibles assets	261	—	455	(b)	716
Interest expense	1,924	—	1,190	(c)	3,114
	246,387	14,555	1,695		262,637
Loss before income taxes	(3,030)	(8)	(1,695)		(4,733)
Benefit for income taxes	(813)	(3)	(678)	(d)	(1,494)
Net loss	$          (2,217)	$                   (5)	$          (1,017)		$          (3,239)
Net loss per share:
Basic	$            (0.05)				$            (0.08)
Diluted	$            (0.05)				$            (0.08)
Number of shares used to calculate net loss per share:
Basic	41,026				41,026
Diluted	41,026				41,026

Pro forma adjustments

The following adjustments have been reflected in the unaudited pro forma combined financial information.

(a) Depreciation expense related to acquired tangible asset

(b) Amortization expense related to acquired identifiable intangible asset

(c) Interest expense related to acquisition financing

(d) Calculated income tax effect of pro forma adjustments at the estimated combined federal and state statutory rate of 40%

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General - Additional Information (Detail) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Assets [Abstract]
Maximum maturity period of cash equivalents included in investments	3 months
Restricted cash equivalents	$ 17.1	$ 9.4

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Fair Value - Presentation of Carrying Values and Fair Values of Certain Financial Instruments (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Assets:
Investments, available-for-sale	$ 122,646	$ 131,582
Other investments	9,653	11,256
Liabilities:
Debentures payable	40,290	40,256
Term loan from principal stockholder	29,773	29,753
Carrying Value
Assets:
Investments, available-for-sale	122,646	131,582
Other investments	9,653	11,256
Liabilities:
Debentures payable	40,290	40,256
Term loan from principal stockholder	29,773	29,753
Fair Value
Assets:
Investments, available-for-sale	122,646	131,582
Other investments	9,653	11,256
Liabilities:
Debentures payable	11,242	20,275
Term loan from principal stockholder	$ 15,815	$ 28,504

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Fair Value - Presentation of Fair-Value Measurements for Each Major Category of Assets Measured on Recurring Basis (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Dec. 31, 2014
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	$ 122,646	$ 131,582
Other investments	9,653	11,256
Cash, cash equivalents, and restricted cash	143,371	115,587	$ 107,207	$ 102,429
Total	275,670	258,425
Fixed Maturities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	106,951	118,442
Fixed Maturities | U.S. government and agencies
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	19,380	13,113
Fixed Maturities | State
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale		702
Fixed Maturities | Political subdivisions
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	4,319	4,363
Fixed Maturities | Revenue and assessment
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	5,947	12,644
Fixed Maturities | Corporate bonds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	48,704	80,785
Fixed Maturities | Collateralized mortgage obligations: Agency Backed
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	23,624	873
Fixed Maturities | Collateralized mortgage obligations: Non-agency backed - residential
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	3,055	3,455
Fixed Maturities | Collateralized mortgage obligations: Non-agency backed - commercial
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	1,922	2,507
Preferred stock, available-for-sale
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	3,313	1,723
Mutual funds, available-for-sale
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	12,382	11,417
Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	35,075	26,253
Cash, cash equivalents, and restricted cash	143,371	115,587
Total	178,446	141,840
Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) | Fixed Maturities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	19,380	13,113
Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) | Fixed Maturities | U.S. government and agencies
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	19,380	13,113
Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) | Preferred stock, available-for-sale
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	3,313	1,723
Fair Value Measurements Using Quoted Prices in Active Markets for Identical Assets (Level 1) | Mutual funds, available-for-sale
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	12,382	11,417
Fair Value Measurements Using Significant Other Observable Inputs (Level 2)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	87,571	105,329
Total	87,571	105,329
Fair Value Measurements Using Significant Other Observable Inputs (Level 2) | Fixed Maturities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	87,571	105,329
Fair Value Measurements Using Significant Other Observable Inputs (Level 2) | Fixed Maturities | State
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale		702
Fair Value Measurements Using Significant Other Observable Inputs (Level 2) | Fixed Maturities | Political subdivisions
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	4,319	4,363
Fair Value Measurements Using Significant Other Observable Inputs (Level 2) | Fixed Maturities | Revenue and assessment
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	5,947	12,644
Fair Value Measurements Using Significant Other Observable Inputs (Level 2) | Fixed Maturities | Corporate bonds
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	48,704	80,785
Fair Value Measurements Using Significant Other Observable Inputs (Level 2) | Fixed Maturities | Collateralized mortgage obligations: Agency Backed
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	23,624	873
Fair Value Measurements Using Significant Other Observable Inputs (Level 2) | Fixed Maturities | Collateralized mortgage obligations: Non-agency backed - residential
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	3,055	3,455
Fair Value Measurements Using Significant Other Observable Inputs (Level 2) | Fixed Maturities | Collateralized mortgage obligations: Non-agency backed - commercial
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Investments, available-for-sale	1,922	2,507
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Other investments	4,535	3,276
Total	4,535	3,276
Fair Value Measurements Using Proportionate Share of Net Assets (NAV)
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Other investments	5,118	7,980
Total	$ 5,118	$ 7,980

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Fair Value - Additional Information (Detail) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Fair Value Disclosures [Abstract]
Transfers between level 1 and level 2	$ 0	$ 0	$ 0	$ 0

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Fair Value - Quantitative Disclosure for Assets Classified as Level 3 (Detail) - Common Stock at Fair Value $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Fair Value, Assets Measured on Recurring and Nonrecurring Basis [Line Items]
Balance at December 31, 2015	$ 3,276
Gains included in comprehensive loss	302
Investments and capital calls	957
Balance at September 30, 2016	$ 4,535

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Investments - Summary of Company's Investment Securities (Detail) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Investment Securities [Line Items]
Amortized Cost	$ 119,780	$ 128,304
Gross Unrealized Gains	3,020	4,710
Gross Unrealized Losses	(154)	(1,432)
Fair Value	122,646	131,582
Fixed Maturities
Investment Securities [Line Items]
Amortized Cost	104,942	114,845
Gross Unrealized Gains	2,144	4,367
Gross Unrealized Losses	(135)	(770)
Fair Value	106,951	118,442
Fixed Maturities | U.S. government and agencies
Investment Securities [Line Items]
Amortized Cost	19,141	13,036
Gross Unrealized Gains	246	162
Gross Unrealized Losses	(7)	(85)
Fair Value	19,380	13,113
Fixed Maturities | Political subdivisions
Investment Securities [Line Items]
Amortized Cost	4,264	4,354
Gross Unrealized Gains	55	9
Fair Value	4,319	4,363
Fixed Maturities | Revenue and assessment
Investment Securities [Line Items]
Amortized Cost	5,639	11,770
Gross Unrealized Gains	308	895
Gross Unrealized Losses		(21)
Fair Value	5,947	12,644
Fixed Maturities | Corporate bonds
Investment Securities [Line Items]
Amortized Cost	48,419	79,426
Gross Unrealized Gains	391	2,022
Gross Unrealized Losses	(106)	(663)
Fair Value	48,704	80,785
Fixed Maturities | Collateralized mortgage obligations: Agency Backed
Investment Securities [Line Items]
Amortized Cost	23,553	793
Gross Unrealized Gains	86	80
Gross Unrealized Losses	(15)
Fair Value	23,624	873
Fixed Maturities | Collateralized mortgage obligations: Non-agency backed - residential
Investment Securities [Line Items]
Amortized Cost	2,493	2,877
Gross Unrealized Gains	569	579
Gross Unrealized Losses	(7)	(1)
Fair Value	3,055	3,455
Fixed Maturities | Collateralized mortgage obligations: Non-agency backed - commercial
Investment Securities [Line Items]
Amortized Cost	1,433	1,891
Gross Unrealized Gains	489	616
Fair Value	1,922	2,507
Fixed Maturities | State
Investment Securities [Line Items]
Amortized Cost		698
Gross Unrealized Gains		4
Fair Value		702
Preferred stock, available-for-sale
Investment Securities [Line Items]
Amortized Cost	3,025	1,500
Gross Unrealized Gains	307	223
Gross Unrealized Losses	(19)
Fair Value	3,313	1,723
Mutual funds, available-for-sale
Investment Securities [Line Items]
Amortized Cost	11,813	11,959
Gross Unrealized Gains	569	120
Gross Unrealized Losses		(662)
Fair Value	$ 12,382	$ 11,417

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Investments - Scheduled Maturities of Company's Fixed Maturity Securities Based on their Fair Values (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Securities with Unrealized Losses, Total	$ 47,996	$ 57,573
Fixed Maturities
Schedule of Available-for-sale Securities [Line Items]
Securities with Unrealized Gains, One year or less	4,821
Securities with Unrealized Gains, After one through five years	24,019
Securities with Unrealized Gains, After five through ten years	16,149
Securities with Unrealized Gains, After ten years	7,762
Securities with Unrealized Gains, No single maturity date	5,709
Securities with Unrealized Gains, Total	58,460
Securities with Unrealized Losses, One year or less	3,572
Securities with Unrealized Losses, After one through five years	2,112
Securities with Unrealized Losses, After five through ten years	12,957
Securities with Unrealized Losses, After ten years	4,958
Securities with Unrealized Losses, No single maturity date	22,892
Securities with Unrealized Losses, Total	46,491
Securities with No Unrealized Gains or Losses, After one through five years	2,000
Securities with No Unrealized Gains or Losses, Total	2,000
All Fixed Maturity Securities, One year or less	8,393
All Fixed Maturity Securities, After one through five years	28,131
All Fixed Maturity Securities, After five through ten years	29,106
All Fixed Maturity Securities, After ten years	12,720
All Fixed Maturity Securities, No single maturity date	28,601
All Fixed Maturity Securities, Total	$ 106,951

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Investments - Number of Fixed Maturity Securities with Gross Unrealized Gains and Losses (Detail) - Security	Sep. 30, 2016	Dec. 31, 2015
Investments Debt And Equity Securities [Abstract]
Number of Securities with Gross Unrealized Losses Less than or equal to 12 months	12	21
Number of Securities with Gross Unrealized Losses Greater than 12 months	0	4
Number of Securities with Gross Unrealized Gains	57	70

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Investments - Additional Information (Detail)	9 Months Ended	12 Months Ended
	Sep. 30, 2016 USD ($) Security Fund	Dec. 31, 2015 USD ($) Security
Schedule of Available-for-sale Securities [Line Items]
Number of securities | Security	0	4
Fair value	$ 0	$ 7,689,000
Gross unrealized losses	0	(241,000)
OTTI charges recognized in net income	$ 147,000
Number of investment funds | Fund	2
Unfunded commitments	$ 200,000
Fixed maturities and cash equivalents on deposit with various insurance departments at fair value and amortized cost	6,600,000
Cash equivalents on deposit with another insurance company at fair value and amortized cost	15,600,000
Collateralized mortgage obligations: Non-agency backed - residential
Schedule of Available-for-sale Securities [Line Items]
Non credit other than temporary impairment for securities	900,000	900,000
Collateralized mortgage obligations: Non-agency backed - commercial
Schedule of Available-for-sale Securities [Line Items]
Non credit other than temporary impairment for securities	$ 200,000	$ 200,000

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Investments - Fair Value and Gross Unrealized Losses of Fixed Maturity Securities in Continuous Unrealized Loss Position for Greater than 12 Months (Detail)	Sep. 30, 2016 USD ($) Security	Dec. 31, 2015 USD ($) Security
Schedule of Available-for-sale Securities [Line Items]
Number of Securities | Security	0	4
Fair Value	$ 0	$ 7,689,000
Gross Unrealized Losses	$ 0	$ (241,000)
Percentage of amortized cost less than or equal to 10%
Schedule of Available-for-sale Securities [Line Items]
Number of Securities | Security		4
Fair Value		$ 7,689,000
Gross Unrealized Losses		$ (241,000)

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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	Sep. 30, 2016	Dec. 31, 2015
Investment Maturity Date [Line Items]
Fair Value of Securities with Gross Unrealized Losses	$ 47,996	$ 57,573
Gross Unrealized Losses	(154)	(1,432)
Percentage of amortized cost less than 5%
Investment Maturity Date [Line Items]
Gross Unrealized Losses	(147)	(769)
Percentage of amortized cost 5% to 10%
Investment Maturity Date [Line Items]
Gross Unrealized Losses	(7)	(662)
Percentage of amortized cost greater than 10%
Investment Maturity Date [Line Items]
Gross Unrealized Losses		(1)
Less than or equals to three months
Investment Maturity Date [Line Items]
Fair Value of Securities with Gross Unrealized Losses	47,891	20,899
Gross Unrealized Losses	(147)	(130)
Less than or equals to three months | Percentage of amortized cost less than 5%
Investment Maturity Date [Line Items]
Gross Unrealized Losses	(147)	(130)
Less than or equals to six months
Investment Maturity Date [Line Items]
Fair Value of Securities with Gross Unrealized Losses		7,036
Gross Unrealized Losses		(465)
Less than or equals to six months | Percentage of amortized cost 5% to 10%
Investment Maturity Date [Line Items]
Gross Unrealized Losses		(465)
Less than or equals to nine months
Investment Maturity Date [Line Items]
Fair Value of Securities with Gross Unrealized Losses	105	14,057
Gross Unrealized Losses	(7)	(395)
Less than or equals to nine months | Percentage of amortized cost less than 5%
Investment Maturity Date [Line Items]
Gross Unrealized Losses		(197)
Less than or equals to nine months | Percentage of amortized cost 5% to 10%
Investment Maturity Date [Line Items]
Gross Unrealized Losses	$ (7)	(197)
Less than or equals to nine months | Percentage of amortized cost greater than 10%
Investment Maturity Date [Line Items]
Gross Unrealized Losses		(1)
Less than or equals to twelve months
Investment Maturity Date [Line Items]
Fair Value of Securities with Gross Unrealized Losses		7,892
Gross Unrealized Losses		(201)
Less than or equals to twelve months | Percentage of amortized cost less than 5%
Investment Maturity Date [Line Items]
Gross Unrealized Losses		(201)
Greater than 12 months
Investment Maturity Date [Line Items]
Fair Value of Securities with Gross Unrealized Losses		7,689
Gross Unrealized Losses		(241)
Greater than 12 months | Percentage of amortized cost less than 5%
Investment Maturity Date [Line Items]
Gross Unrealized Losses		$ (241)

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Investments - Major Categories of Investment Income (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Net Investment Income [Line Items]
Investment expenses	$ (120)	$ (126)	$ (367)	$ (368)
Net investment income	1,187	1,144	3,795	3,695
Fixed Maturities
Net Investment Income [Line Items]
Gross investment income	971	1,077	2,922	3,131
Mutual funds, available-for-sale
Net Investment Income [Line Items]
Gross investment income	153	164	519	457
Other investments
Net Investment Income [Line Items]
Gross investment income	53	(27)	408	301
Other
Net Investment Income [Line Items]
Gross investment income	$ 130	$ 56	$ 313	$ 174

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Investments - Components of Net Realized Gains (Losses) on Investments, Available-for-Sale at Fair Value (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Investments Debt And Equity Securities [Abstract]
Gains	$ 4,900		$ 4,900	$ 3
Losses	(3)	$ (6)	(20)	(16)
Other-than-temporary impairment			(147)
Net realized gains (losses) on investments, available-for-sale	$ 4,897	$ (6)	$ 4,733	$ (13)

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Net Loss Per Share - Computation of Basic and Diluted Net Loss Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share [Abstract]
Net loss	$ (333)	$ (3,018)	$ (25,735)	$ (2,217)
Weighted average common basic shares	41,096	41,041	41,074	41,026
Weighted average common dilutive shares	41,096	41,041	41,074	41,026
Basic and diluted	$ (0.01)	$ (0.07)	$ (0.63)	$ (0.05)

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Net Loss Per Share - Additional Information (Detail) - $ / shares shares in Thousands		3 Months Ended		9 Months Ended
	Mar. 15, 2016	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Equity option
Earnings Per Share [Line Items]
Exercisable options outstanding that enable to purchase shares			825	825	825
Shares with dilutive effect and included in computation of diluted income (loss) per share			335	176	324
Options excluded from computation of diluted income (loss) per share due to anti-dilutive effect		1,045	260	220	260
Restricted stock
Earnings Per Share [Line Items]
Exercisable options outstanding that enable to purchase shares		270	141	270	141
Shares with dilutive effect and included in computation of diluted income (loss) per share		5	30	23	19
Restricted stock | Executive Officer
Earnings Per Share [Line Items]
Compensation awarded restricted stock units	146
Closing market price of the common stock	$ 2.30

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Losses and Loss Adjustment Expenses Incurred and Paid - Information Regarding the Reserve for Unpaid Losses and Loss Adjustment Expenses (Detail) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Insurance [Abstract]
Liability for unpaid losses and LAE at beginning of period, gross	$ 122,071	$ 96,613
Reinsurance balances receivable, beginning balance	(464)	(362)
Liability for unpaid losses and LAE at beginning of period, net	121,607	96,251
Add: Provision for losses and LAE:
Current period	217,802	159,686
Prior periods	27,460	618
Net losses and LAE incurred	245,262	160,304
Less: Losses and LAE paid:
Current period	111,307	87,280
Prior periods	91,703	54,697
Net losses and LAE paid	203,010	141,977
Liability for unpaid losses and LAE at end of period, net	163,859	114,578
Reinsurance balances receivable, ending balance	841	431
Liability for unpaid losses and LAE at end of period, gross	$ 164,700	$ 115,009

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Income Taxes - Provision (Benefit) for Income Taxes (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Federal:
Current		$ (30)		$ 21
Deferred	$ (162)	(1,467)	$ (13,789)	(1,065)
Gross Federal	(162)	(1,497)	(13,789)	(1,044)
State:
Current	149	43	308	277
Deferred	19	(52)	(90)	(46)
Gross State	168	(9)	218	231
Income tax expense (benefit)	$ 6	$ (1,506)	$ (13,571)	$ (813)

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Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Statutory federal corporate tax rate			35.00%
Valuation allowance	$ 2,100		$ 2,100		$ 1,700
Pre-tax loss	(327)	$ (4,524)	(39,306)	$ (3,030)
DTA related to net operating loss carryforwards	20,600		$ 20,600
DTA related to operating loss carryforwards expiration, description			do not expire until 2031 through 2036
AMT carryforwards	$ 2,000		$ 2,000

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Income Taxes - Provision (Benefit) for Income Taxes Differs from Amounts Computed by Applying Statutory Federal Corporate Tax Rate (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Tax Disclosure [Abstract]
Benefit for income taxes at statutory rate	$ (115)	$ (1,584)	$ (13,758)	$ (1,061)
Tax effect of:
Tax-exempt investment income	(10)	(5)	(30)	(15)
Change in the beginning of the period balance of the valuation allowance for deferred tax assets allocated to federal income taxes	(6)	6	51	8
Stock-based compensation	12		29	22
State income taxes, net of federal income tax benefit and state valuation allowance	116	(24)	110	134
Other	9	101	27	99
Income tax expense (benefit)	$ 6	$ (1,506)	$ (13,571)	$ (813)

XML

Segment Information - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2016 Segment
Segment Reporting [Abstract]
Number of business segments	2

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Segment Information - Selected Financial Data by Business Segment (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Segment Reporting Information [Line Items]
Revenues	$ 102,115	$ 87,620	$ 301,817	$ 243,357
Income (loss) before income taxes	(327)	(4,524)	(39,306)	(3,030)
Total assets	458,535		458,535		$ 402,127
Insurance
Segment Reporting Information [Line Items]
Revenues	102,099	87,604	300,533	243,307
Income (loss) before income taxes	1,173	(3,156)	(36,280)	(166)
Total assets	416,182		416,182		373,475
Real estate and Corporate
Segment Reporting Information [Line Items]
Revenues	16	16	1,284	50
Income (loss) before income taxes	(1,500)	$ (1,368)	(3,026)	$ (2,864)
Total assets	$ 42,353		$ 42,353		$ 28,652

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Recent Accounting Pronouncements - Additional Information (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Amount included in identifiable intangibles assets	$ 7,814	$ 8,491
Accounting Standards Update, 2015-05 | Software Licenses
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Amount included in identifiable intangibles assets	$ 5

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Related Parties - Additional Information (Detail) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended	9 Months Ended
	Apr. 30, 2016	Sep. 30, 2016	Sep. 30, 2016
Related Party Transaction [Line Items]
Percentage of indirect ownership by principal stockholder	15.00%
Treasury And Custodial Services Agreements
Related Party Transaction [Line Items]
Fees for related party services		$ 47	$ 93

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Business Combinations - Additional Information (Detail) - Titan Acquisition $ in Millions		6 Months Ended
	Jul. 01, 2015 USD ($) Stores	Jun. 30, 2016 USD ($)	Sep. 30, 2016 USD ($)
Business Acquisition [Line Items]
Estimate of expected liability			$ 2.0
Reduction in goodwill		$ 0.8
Asset Purchase Agreement
Business Acquisition [Line Items]
Business acquisition, effective date of completion	Jul. 01, 2015
Payments to acquire businesses, gross	$ 36.0
Number of retail stores | Stores	83
Business combination, liabilities assumed	$ 2.3

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Business Combinations - Business Combination Pro Forma Information (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended		6 Months Ended	9 Months Ended
		Sep. 30, 2016	Sep. 30, 2015	Jun. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Revenues:
Premiums earned		$ 76,740	$ 67,508		$ 233,997	$ 197,423
Commission and fee income		19,291	18,974		58,055	42,252
Investment income		1,187	1,144		3,795	3,695
Net realized losses on investments, available-for-sale		4,897	(6)		4,733	(13)
Total revenues		102,115	87,620		301,817	243,357
Costs and expenses:
Losses and loss adjustment expenses		71,079	57,367		245,262	160,304
Insurance operating expenses		28,940	29,309		88,901	78,039
Other operating expenses		369	295		932	881
Litigation settlement			3,406			3,645
Stock-based compensation		59	37		164	109
Depreciation		667	424		1,934	1,224
Amortization of identifiable intangibles assets		240	254		717	261
Interest expense		1,088	1,052		3,213	1,924
Total costs and expenses		102,442	92,144		341,123	246,387
Loss before income taxes		(327)	(4,524)		(39,306)	(3,030)
Benefit for income taxes		6	(1,506)		(13,571)	(813)
Net loss		$ (333)	$ (3,018)		$ (25,735)	$ (2,217)
Net loss per share:
Basic						$ (0.05)
Diluted						$ (0.05)
Number of shares used to calculate net loss per share:
Basic		41,096	41,041		41,074	41,026
Diluted		41,096	41,041		41,074	41,026
Titan Agencies Historical
Revenues:
Commission and fee income				$ 14,547
Total revenues				14,547
Costs and expenses:
Insurance operating expenses				14,555
Total costs and expenses				14,555
Loss before income taxes				(8)
Benefit for income taxes				(3)
Net loss				$ (5)
Pro Forma Adjustments
Costs and expenses:
Depreciation	[1]					$ 50
Amortization of identifiable intangibles assets	[2]					455
Interest expense	[3]					1,190
Total costs and expenses						1,695
Loss before income taxes						(1,695)
Benefit for income taxes	[4]					(678)
Net loss						(1,017)
Pro Forma Combined
Revenues:
Premiums earned						197,423
Commission and fee income						56,799
Investment income						3,695
Net realized losses on investments, available-for-sale						(13)
Total revenues						257,904
Costs and expenses:
Losses and loss adjustment expenses						160,304
Insurance operating expenses						92,594
Other operating expenses						881
Litigation settlement						3,645
Stock-based compensation						109
Depreciation						1,274
Amortization of identifiable intangibles assets						716
Interest expense						3,114
Total costs and expenses						262,637
Loss before income taxes						(4,733)
Benefit for income taxes						(1,494)
Net loss						$ (3,239)
Net loss per share:
Basic						$ (0.08)
Diluted						$ (0.08)
Number of shares used to calculate net loss per share:
Basic						41,026
Diluted						41,026

[1] Depreciation expense related to acquired tangible asset

[2] Amortization expense related to acquired identifiable intangible asset

[3] Interest expense related to acquisition financing

[4] Calculated income tax effect of pro forma adjustments at the estimated combined federal and state statutory rate of 40%

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Business Combinations - Business Combination Pro Forma Information (Parenthetical) (Detail)	9 Months Ended
	Sep. 30, 2015
Business Combinations [Abstract]
Business acquisition, pro forma adjustments estimated combined federal and state statutory tax rate	40.00%

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Current Liquidity and Statutory Capital and Surplus - Additional Information (Detail) $ in Millions	9 Months Ended
	Sep. 30, 2016 USD ($)
Current Liquidity And Statutory Capital And Surplus [Line Items]
Long-term debt obligations	$ 70.0
Statutory capital and surplus balance	62.5
Reduction in statutory capital and surplus	$ 36.3
Ratio of net premiums to statutory capital and surplus	4.90%
Minimum
Current Liquidity And Statutory Capital And Surplus [Line Items]
Ratio of net premiums to statutory capital and surplus	3.00%
Long-term debt matures on 2037
Current Liquidity And Statutory Capital And Surplus [Line Items]
Long-term debt obligations	$ 40.0
Long-term debt matures on 2025
Current Liquidity And Statutory Capital And Surplus [Line Items]
Long-term debt obligations	$ 30.0