16.	Statutory Financial Information and Accounting Policies

The statutory-basis financial statements of the Insurance Companies are prepared in accordance with accounting practices prescribed or permitted by the Department of Insurance in each respective state of domicile. Each state of domicile requires that insurance companies domiciled in the state prepare their statutory-basis financial statements in accordance with the National Association of Insurance Commissioners Accounting Practices and Procedures Manual subject to any deviations prescribed or permitted by the insurance commissioner in each state of domicile. The Insurance Companies are required to report their risk-based capital (“RBC”) each December 31. Failure to maintain an adequate RBC could subject the Insurance Companies to regulatory action and could restrict the payment of dividends. At December 31, 2016, the RBC levels of the Insurance Companies did not subject them to regulatory action other than monthly financial reporting to the Texas Department of Insurance.

At December 31, 2016 and 2015, on a consolidated statutory basis, the capital and surplus of the Insurance Companies was $58.9 million and $98.8 million, respectively. For the years ended December 31, 2016, 2015 and 2014, consolidated statutory net (loss) income of the Insurance Companies was ($52.0) million, ($7.3) million and $1.0 million, respectively.

The maximum amount of dividends which can be paid by First Acceptance Insurance Company, Inc. (“FAIC”) to the Company, without the prior approval of the Texas insurance commissioner, is limited to the greater of 10% of statutory capital and surplus at December 31^st of the next preceding year or net income for the year. In addition, dividends may only be paid from unassigned funds (surplus) and an insurance company’s remaining surplus must be both reasonable in relation to its outstanding liabilities and adequate to its financial needs. At December 31, 2016, FAIC could not pay any dividends to the Company due to a negative unassigned surplus position.