Florida
|
|
65-0248866
|
(State or Other Jurisdiction of Incorporation or Organization)
|
|
(IRS Employer Identification Number)
|
Large accelerated filer ☐
|
Accelerated filer ☒
|
Non-accelerated filer ☐
|
Smaller reporting company ☐
|
PART I: FINANCIAL INFORMATION
|
PAGE
|
|
ITEM 1
|
3
|
|
ITEM 2
|
26 | |
ITEM 3
|
32
|
|
ITEM 4
|
32
|
|
PART II: OTHER INFORMATION
|
||
ITEM 1
|
32
|
|
ITEM 1A
|
33
|
|
ITEM 2
|
33
|
|
ITEM 3
|
33
|
|
ITEM 4
|
33
|
|
ITEM 5
|
33
|
|
ITEM 6
|
34
|
|
35
|
March 31, 2016
|
December 31, 2015
|
|||||||
ASSETS
|
(in thousands, except per share data)
|
|||||||
Investments:
|
||||||||
Debt securities, available-for-sale, at fair value
|
$
|
339,245
|
$
|
339,178
|
||||
Debt securities, held-to-maturity, at amortized cost
|
6,218
|
6,619
|
||||||
Equity securities, available-for-sale, at fair value
|
40,830
|
38,534
|
||||||
Total investments
|
386,293
|
384,331
|
||||||
Cash and cash equivalents
|
72,562
|
53,038
|
||||||
Prepaid reinsurance premiums
|
113,117
|
120,771
|
||||||
Premiums receivable, net of allowance of $123 and $302, respectively
|
48,232
|
38,594
|
||||||
Reinsurance recoverable, net
|
17,924
|
12,714
|
||||||
Deferred acquisition costs
|
15,764
|
15,547
|
||||||
Income taxes receivable
|
1,171
|
2,691
|
||||||
Property and equipment, net
|
3,236
|
2,894
|
||||||
Other assets
|
7,829
|
7,605
|
||||||
Total assets
|
$
|
666,128
|
$
|
638,185
|
||||
LIABILITIES AND SHAREHOLDERS' EQUITY
|
||||||||
Loss and loss adjustment expense reserves
|
$
|
101,615
|
$
|
97,340
|
||||
Unearned premiums
|
261,885
|
253,960
|
||||||
Debt from consolidated variable interest entity
|
4,893
|
4,887
|
||||||
Deferred income taxes, net
|
8,900
|
5,627
|
||||||
Other liabilities
|
27,645
|
25,612
|
||||||
Total liabilities
|
404,938
|
387,426
|
||||||
Preferred stock, $0.01 par value: 1,000,000 shares authorized
|
-
|
-
|
||||||
Common stock, $0.01 par value: 25,000,000 shares authorized; 13,826,654 and 13,798,773 shares issued and outstanding, respectively
|
138
|
138
|
||||||
Additional paid-in capital
|
132,928
|
131,998
|
||||||
Accumulated other comprehensive income
|
6,367
|
3,985
|
||||||
Retained earnings
|
103,354
|
96,461
|
||||||
Total shareholders' equity attributable to Federated National Holding Company shareholders
|
242,787
|
232,582
|
||||||
Noncontrolling interest
|
18,403
|
18,177
|
||||||
Total shareholders' equity
|
261,190
|
250,759
|
||||||
Total liabilities and shareholders' equity
|
$
|
666,128
|
$
|
638,185
|
Three Months Ended March 31,
|
||||||||
2016
|
2015
|
|||||||
(in thousands, except per share data)
|
||||||||
Revenue:
|
||||||||
Net premiums earned
|
$
|
54,997
|
$
|
44,786
|
||||
Net investment income
|
2,040
|
1,546
|
||||||
Net realized investment gains
|
927
|
1,704
|
||||||
Other income
|
10,996
|
6,900
|
||||||
Total revenue
|
68,960
|
54,936
|
||||||
Costs and expenses:
|
||||||||
Losses and loss adjustment expenses
|
29,545
|
23,949
|
||||||
Commissions and other underwriting expenses
|
19,852
|
12,694
|
||||||
General and administrative expenses
|
4,081
|
3,798
|
||||||
Interest expense
|
84
|
11
|
||||||
Total costs and expenses
|
53,562
|
40,452
|
||||||
Income before income taxes
|
15,398
|
14,484
|
||||||
Income taxes
|
5,795
|
5,711
|
||||||
Net income
|
9,603
|
8,773
|
||||||
Net income (loss) attributable to noncontrolling interest
|
68
|
(511
|
)
|
|||||
Net income attributable to Federated National Holding Company shareholders
|
$
|
9,535
|
$
|
9,284
|
||||
Net income per share attributable to Federated National Holding Company shareholders:
|
||||||||
Basic
|
$
|
0.69
|
$
|
0.68
|
||||
Diluted
|
$
|
0.68
|
$
|
0.66
|
Three Months Ended March 31,
|
||||||||
2016
|
2015
|
|||||||
(in thousands)
|
||||||||
Net income
|
$
|
9,603
|
$
|
8,773
|
||||
Change in net unrealized gains on investments, available-for-sale
|
4,084
|
1,965
|
||||||
Comprehensive income before income taxes
|
13,687
|
10,738
|
||||||
Income tax expense related to items of other comprehensive income
|
(1,544
|
)
|
(758
|
)
|
||||
Comprehensive income
|
12,143
|
9,980
|
||||||
Comprehensive income (loss) attributable to noncontrolling interest
|
226
|
(511
|
)
|
|||||
Comprehensive income attributable to Federated National Holding Company shareholders
|
$
|
11,917
|
$
|
10,491
|
Preferred
Stock
|
Common Stock
|
Additional
Paid-in
Capital
|
Accumulated
Other
Comprehensive
Income
|
Retained
Earnings
|
Total Shareholders'
Equity attributable to
Federated National
Holding Company
Shareholders
|
Noncontrolling
Interest
|
Total
Shareholders'
Equity
|
|||||||||||||||||||||||||||||
Issued Shares
|
Amount
|
|||||||||||||||||||||||||||||||||||
(in thousands, except share data)
|
||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2015
|
$
|
-
|
|
13,798,773
|
$
|
138
|
$
|
131,998
|
$
|
3,985
|
$
|
96,461
|
$
|
232,582
|
$
|
18,177
|
$
|
250,759
|
||||||||||||||||||
Net income
|
-
|
-
|
-
|
-
|
-
|
9,535
|
9,535
|
68
|
9,603
|
|||||||||||||||||||||||||||
Other comprehensive income
|
-
|
-
|
-
|
-
|
2,382
|
-
|
2,382
|
158
|
2,540
|
|||||||||||||||||||||||||||
Dividends paid
|
-
|
-
|
-
|
-
|
-
|
(1,565
|
)
|
(1,565
|
)
|
-
|
(1,565
|
)
|
||||||||||||||||||||||||
Issuance of common stock for share-based awards
|
-
|
80,481
|
-
|
4
|
-
|
-
|
4
|
-
|
4
|
|||||||||||||||||||||||||||
Common stock buyback
|
-
|
(52,600
|
)
|
-
|
-
|
-
|
(1,077
|
)
|
(1,077
|
)
|
-
|
(1,077
|
)
|
|||||||||||||||||||||||
Share-based compensation
|
-
|
-
|
-
|
926
|
-
|
-
|
926
|
-
|
926
|
|||||||||||||||||||||||||||
Balance as of March 31, 2016
|
$
|
-
|
13,826,654
|
$
|
138
|
$
|
132,928
|
$
|
6,367
|
$
|
103,354
|
$
|
242,787
|
$
|
18,403
|
$
|
261,190
|
Three Months Ended March 31,
|
||||||||
2016
|
2015
|
|||||||
(in thousands)
|
||||||||
Cash flow from operating activities:
|
||||||||
Net income
|
$
|
9,603
|
$
|
8,773
|
||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
|
||||||||
Net realized investment gains
|
(927
|
)
|
(1,704
|
)
|
||||
Amortization of investment premium or discount, net
|
1,313
|
1,253
|
||||||
Depreciation and amortization
|
187
|
152
|
||||||
Share-based compensation
|
926
|
1,282
|
||||||
Changes in operating assets and liabilities:
|
||||||||
Prepaid reinsurance premiums
|
7,654
|
8,463
|
||||||
Premiums receivable, net
|
(9,638
|
)
|
(2,535
|
)
|
||||
Reinsurance recoverable, net
|
(5,210
|
)
|
(500
|
)
|
||||
Deferred acquisition costs
|
(217
|
)
|
(2,156
|
)
|
||||
Income taxes receivable, net
|
1,274
|
(280
|
)
|
|||||
Loss and loss adjustment expense reserves
|
4,275
|
6,145
|
||||||
Unearned premiums
|
7,925
|
11,009
|
||||||
Deferred income taxes, net of other comprehensive income
|
1,729
|
(202
|
)
|
|||||
Other, net
|
1,809
|
(1,348
|
)
|
|||||
Net cash provided by operating activities
|
20,703
|
28,352
|
||||||
Cash flow from investing activities:
|
||||||||
Sales, maturities and redemptions of investment securities
|
72,669
|
56,264
|
||||||
Purchases of investment securities
|
(70,933
|
)
|
(59,466
|
)
|
||||
Purchases of property and equipment
|
(523
|
)
|
(122
|
)
|
||||
Net cash provided by (used in) investing activities
|
1,213
|
|
(3,324
|
)
|
||||
Cash flow from financing activities:
|
||||||||
Noncontrolling interest equity investment
|
-
|
17,987
|
||||||
Tax benefit related to share-based compensation
|
246
|
530
|
||||||
Issuance of debt in consolidated variable interest entity
|
-
|
5,000
|
||||||
Purchases of FNHC common stock
|
(1,077
|
)
|
-
|
|||||
Issuance of common stock for share-based awards
|
4
|
27
|
||||||
Dividends paid
|
(1,565
|
)
|
(566
|
)
|
||||
Net cash (used in) provided by financing activities
|
(2,392
|
)
|
22,978
|
|||||
Net increase in cash and cash equivalents
|
19,524
|
48,006
|
||||||
Cash and cash equivalents at beginning of period
|
53,038
|
40,157
|
||||||
Cash and cash equivalents at end of period
|
$
|
72,562
|
$
|
88,163
|
Three Months Ended March 31,
|
||||||||
2016
|
2015
|
|||||||
(in thousands)
|
||||||||
Supplemental disclosure of cash flow information:
|
||||||||
Cash paid during the period for:
|
||||||||
Income taxes
|
$
|
2,300
|
$
|
5,662
|
||||
Non-cash investing and finance activities:
|
||||||||
Accrued dividends payable
|
$
|
854
|
$
|
567
|
(1) | ORGANIZATION AND BUSINESS |
(2) | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES |
(a) | BASIS OF PRESENTATION |
(b) | PRINCIPLES OF CONSOLIDATION |
(c) | ACCOUNTING ESTIMATES AND ASSUMPTIONS |
(d) | RECLASSIFICATIONS |
(e)
|
ADJUSTMENTS
|
(f) | RECENT ACCOUNTING PRONOUNCEMENTS |
(3)
|
FAIR VALUE
|
March 31, 2016
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Debt securities:
|
||||||||||||||||
United States government obligations and authorities
|
$
|
26,578
|
$
|
26,895
|
$
|
-
|
$
|
53,473
|
||||||||
Obligations of states and political subdivisions
|
-
|
124,310
|
-
|
124,310
|
||||||||||||
Corporate
|
-
|
148,926
|
-
|
148,926
|
||||||||||||
International
|
-
|
12,536
|
-
|
12,536
|
||||||||||||
26,578
|
312,667
|
-
|
339,245
|
|||||||||||||
Equity securities
|
38,302
|
2,528
|
-
|
40,830
|
||||||||||||
Total investments
|
$
|
64,880
|
$
|
315,195
|
$
|
-
|
$
|
380,075
|
December 31, 2015
|
||||||||||||||||
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Debt securities:
|
||||||||||||||||
United States government obligations and authorities
|
$
|
34,733
|
$
|
26,820
|
$
|
-
|
$
|
61,553
|
||||||||
Obligations of states and political subdivisions
|
-
|
110,702
|
-
|
110,702
|
||||||||||||
Corporate
|
-
|
154,620
|
-
|
154,620
|
||||||||||||
International
|
-
|
12,303
|
-
|
12,303
|
||||||||||||
34,733
|
304,445
|
-
|
339,178
|
|||||||||||||
Equity securities
|
38,012
|
522
|
-
|
38,534
|
||||||||||||
Total investments
|
$
|
72,745
|
$
|
304,967
|
$
|
-
|
$
|
377,712
|
(4) | INVESTMENTS |
Amortized Cost or
Cost
|
Gross Unrealized
Gains
|
Gross Unrealized
Losses
|
Fair Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
March 31, 2016
|
||||||||||||||||
Debt Securities - available-for-sale:
|
||||||||||||||||
United States government obligations and authorities
|
$
|
52,406
|
$
|
1,075
|
$
|
8
|
$
|
53,473
|
||||||||
Obligations of states and political subdivisions
|
122,143
|
2,206
|
39
|
124,310
|
||||||||||||
Corporate
|
146,571
|
2,854
|
499
|
148,926
|
||||||||||||
International
|
12,448
|
176
|
88
|
12,536
|
||||||||||||
333,568
|
6,311
|
634
|
339,245
|
|||||||||||||
Debt Securities - held-to-maturity:
|
||||||||||||||||
United States government obligations and authorities
|
4,238
|
65
|
82
|
4,221
|
||||||||||||
Corporate
|
1,849
|
33
|
6
|
1,876
|
||||||||||||
International
|
131
|
4
|
-
|
135
|
||||||||||||
6,218
|
102
|
88
|
6,232
|
|||||||||||||
Equity securities
|
36,312
|
6,297
|
1,779
|
40,830
|
||||||||||||
Total investments
|
$
|
376,098
|
$
|
12,710
|
$
|
2,501
|
$
|
386,307
|
Amortized Cost or
Cost |
Gross Unrealized
Gains |
Gross Unrealized
Losses |
Fair Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
December 31, 2015
|
||||||||||||||||
Debt Securities - available-for-sale:
|
||||||||||||||||
United States government obligations and authorities
|
$
|
61,384
|
$
|
489
|
$
|
320
|
$
|
61,553
|
||||||||
Obligations of states and political subdivisions
|
109,152
|
1,590
|
40
|
110,702
|
||||||||||||
Corporate
|
154,957
|
1,153
|
1,490
|
154,620
|
||||||||||||
International
|
12,528
|
18
|
243
|
12,303
|
||||||||||||
338,021
|
3,250
|
2,093
|
339,178
|
|||||||||||||
Debt Securities - held-to-maturity:
|
||||||||||||||||
United States government obligations and authorities
|
4,275
|
30
|
204
|
4,101
|
||||||||||||
Corporate
|
2,253
|
14
|
20
|
2,247
|
||||||||||||
International
|
91
|
-
|
-
|
91
|
||||||||||||
6,619
|
44
|
224
|
6,439
|
|||||||||||||
Equity securities
|
33,581
|
6,809
|
1,856
|
38,534
|
||||||||||||
Total investments
|
$
|
378,221
|
$
|
10,103
|
$
|
4,173
|
$
|
384,151
|
March 31, 2016
|
December 31, 2015
|
|||||||||||||||
Securities with maturity dates:
|
Amortized
Cost
|
Fair Value
|
Amortized
Cost
|
Fair Value
|
||||||||||||
(in thousands)
|
||||||||||||||||
Debt securities, available-for-sale:
|
||||||||||||||||
One year or less
|
$
|
30,152
|
$
|
30,177
|
$
|
24,470
|
$
|
24,488
|
||||||||
Over one through five years
|
173,698
|
175,777
|
170,797
|
171,113
|
||||||||||||
Over five through ten years
|
129,692
|
133,258
|
142,728
|
143,545
|
||||||||||||
Over ten years
|
26
|
33
|
26
|
32
|
||||||||||||
333,568
|
339,245
|
338,021
|
339,178
|
|||||||||||||
Debt securities, held-to-maturity:
|
||||||||||||||||
One year or less
|
478
|
480
|
486
|
487
|
||||||||||||
Over one through five years
|
1,927
|
1,976
|
1,899
|
1,915
|
||||||||||||
Over five through ten years
|
3,813
|
3,776
|
4,234
|
4,037
|
||||||||||||
6,218
|
6,232
|
6,619
|
6,439
|
|||||||||||||
Total
|
$
|
339,786
|
$
|
345,477
|
$
|
344,640
|
$
|
345,617
|
Three Months Ended March 31,
|
||||||||
2016
|
2015
|
|||||||
(in thousands)
|
||||||||
Interest income
|
$
|
1,853
|
$
|
1,440
|
||||
Dividends income
|
187
|
106
|
||||||
Net investment income
|
$
|
2,040
|
$
|
1,546
|
Three Months Ended March 31,
|
||||||||
2016
|
2015
|
|||||||
(in thousands)
|
||||||||
Gross realized gains:
|
||||||||
Debt securities
|
$
|
1,304
|
$
|
515
|
||||
Equity securities
|
738
|
1,395
|
||||||
Total gross realized gains
|
2,042
|
1,910
|
||||||
Gross realized losses:
|
||||||||
Debt securities
|
(540
|
)
|
(103
|
)
|
||||
Equity securities
|
(575
|
)
|
(103
|
)
|
||||
Total gross realized losses
|
(1,115
|
)
|
(206
|
)
|
||||
Net realized gains on investments
|
$
|
927
|
$
|
1,704
|
Less than 12 months
|
12 months or longer
|
Total
|
||||||||||||||||||||||
March 31, 2016
|
Fair Value
|
Gross
Unrealized
Losses
|
Fair Value
|
Gross
Unrealized
Losses
|
Fair Value
|
Gross
Unrealized
Losses
|
||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||
Debt securities:
|
||||||||||||||||||||||||
United States government obligations and authorities
|
$
|
1,058
|
$
|
2
|
$
|
660
|
$
|
6
|
$
|
1,718
|
$
|
8
|
||||||||||||
Obligations of states and political subdivisions
|
15,750
|
38
|
1,032
|
1
|
16,782
|
39
|
||||||||||||||||||
Corporate
|
31,204
|
466
|
2,935
|
33
|
34,139
|
499
|
||||||||||||||||||
International
|
2,092
|
60
|
603
|
28
|
2,695
|
88
|
||||||||||||||||||
50,104
|
566
|
5,230
|
68
|
55,334
|
634
|
|||||||||||||||||||
Equity securities
|
10,905
|
1,777
|
25
|
2
|
10,930
|
1,779
|
||||||||||||||||||
Total investments
|
$
|
61,009
|
$
|
2,343
|
$
|
5,255
|
$
|
70
|
$
|
66,264
|
$
|
2,413
|
Less than 12 months
|
12 months or longer
|
Total
|
||||||||||||||||||||||
December 31, 2015
|
Fair Value
|
Gross
Unrealized
Losses
|
Fair Value
|
Gross
Unrealized
Losses
|
Fair Value
|
Gross
Unrealized
Losses
|
||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||
Debt securities:
|
||||||||||||||||||||||||
United States government obligations and authorities
|
$
|
30,464
|
$
|
303
|
$
|
659
|
$
|
17
|
$
|
31,123
|
$
|
320
|
||||||||||||
Obligations of states and political subdivisions
|
16,652
|
40
|
-
|
-
|
16,652
|
40
|
||||||||||||||||||
Corporate
|
87,176
|
1,420
|
3,590
|
70
|
90,766
|
1,490
|
||||||||||||||||||
International
|
8,660
|
191
|
281
|
52
|
8,941
|
243
|
||||||||||||||||||
142,952
|
1,954
|
4,530
|
139
|
147,482
|
2,093
|
|||||||||||||||||||
Equity securities
|
11,790
|
1,850
|
84
|
6
|
11,874
|
1,856
|
||||||||||||||||||
Total investments
|
$
|
154,742
|
$
|
3,804
|
$
|
4,614
|
$
|
145
|
$
|
159,356
|
$
|
3,949
|
(5)
|
REINSURANCE
|
March 31, 2016
|
December 31, 2015
|
|||||||
(in thousands)
|
||||||||
Reinsurance recoverable on paid losses
|
$
|
6,767
|
$
|
5,218
|
||||
Reinsurance recoverable on unpaid losses
|
11,157
|
7,496
|
||||||
Reinsurance recoverable, net
|
$
|
17,924
|
$
|
12,714
|
Three Months Ended March 31,
|
||||||||
2016
|
2015
|
|||||||
(in thousands)
|
||||||||
Premiums written:
|
||||||||
Direct
|
$
|
136,025
|
$
|
106,702
|
||||
Ceded
|
(43,570
|
)
|
(25,958
|
)
|
||||
$
|
92,455
|
$
|
80,744
|
|||||
Premiums earned:
|
||||||||
Direct
|
$
|
128,099
|
$
|
95,693
|
||||
Ceded
|
(73,102
|
)
|
(50,907
|
)
|
||||
$
|
54,997
|
$
|
44,786
|
(6)
|
LOSS AND LAE RESERVES
|
Three Months Ended
March 31, 2016
|
Year Ended
December 31, 2015
|
|||||||
(in thousands)
|
||||||||
Gross reserves, beginning of period
|
$
|
97,340
|
$
|
78,330
|
||||
Less: reinsurance recoverable (1)
|
(7,496
|
)
|
(10,394
|
)
|
||||
Net reserves, beginning of period
|
89,844
|
67,936
|
||||||
Incurred loss, net of reinsurance, related to:
|
||||||||
Current year
|
30,093
|
113,819
|
||||||
Prior years
|
(548
|
)
|
(9,466
|
)
|
||||
Total incurred loss and LAE, net of reinsurance
|
29,545
|
104,353
|
||||||
Paid loss, net of reinsurance, related to:
|
||||||||
Current year
|
9,221
|
49,531
|
||||||
Prior years
|
19,710
|
32,914
|
||||||
Total paid loss and LAE, net of reinsurance
|
28,931
|
82,445
|
||||||
Net reserves, end of period
|
90,458
|
89,844
|
||||||
Plus: reinsurance recoverable (1)
|
11,157
|
7,496
|
||||||
Gross reserves, end of period
|
$
|
101,615
|
$
|
97,340
|
(1) | Reinsurance recoverable in this table includes only ceded loss and LAE reserves. |
(7)
|
DEBT
|
(8)
|
INCOME TAXES
|
Three Months Ended March 31,
|
||||||||
2016
|
2015
|
|||||||
(in thousands)
|
||||||||
Federal:
|
||||||||
Current
|
$
|
3,544
|
$
|
4,652
|
||||
Deferred
|
1,439
|
259
|
||||||
Federal income tax expense
|
4,983
|
4,911
|
||||||
State:
|
||||||||
Current
|
276
|
731
|
||||||
Deferred
|
536
|
69
|
||||||
State income tax expense
|
812
|
800
|
||||||
Total income taxes
|
$
|
5,795
|
$
|
5,711
|
Three Months Ended March 31,
|
||||||||
2016
|
2015
|
|||||||
(in thousands)
|
||||||||
Computed expected tax expense provision, at federal rate
|
$
|
5,389
|
$
|
5,248
|
||||
State tax, net of federal tax benefit
|
534
|
543
|
||||||
Other |
(128
|
)
|
(80
|
) | ||||
Total income taxes
|
$
|
5,795
|
$
|
5,711
|
(9)
|
COMMITMENTS AND CONTINGENCIES
|
(10)
|
SHAREHOLDERS’ EQUITY
|
Three months ended March 31,
|
||||||||
2016
|
2015
|
|||||||
(in thousands)
|
||||||||
Restricted stock
|
$
|
680
|
$
|
728
|
||||
Stock options
|
-
|
24
|
||||||
Total share-based compensation expense
|
$
|
680
|
$
|
752
|
||||
Excess tax benefits from stock-based awards
|
$
|
246
|
$
|
530
|
||||
Intrinsic value of options exercised
|
$
|
193
|
$
|
2,346
|
||||
Fair value of restricted stock vested
|
$
|
12,358
|
$
|
17,387
|
Number of Shares
|
Weighted Average
Option Exercise Price
|
|||||||
Outstanding at January 1, 2016
|
174,633
|
$
|
3.79
|
|||||
Granted
|
-
|
$
|
-
|
|||||
Exercised
|
(1,100
|
)
|
$
|
4.20
|
||||
Cancelled
|
-
|
$
|
-
|
|||||
Outstanding at March 31, 2016
|
173,533
|
$
|
3.78
|
Number of Shares
|
Weighted Average
Grant Date Fair Value
|
|||||||
Outstanding at January 1, 2016
|
418,807
|
$
|
20.14
|
|||||
Granted
|
128,472
|
$
|
19.16
|
|||||
Vested
|
(79,381
|
)
|
$
|
15.57
|
||||
Cancelled
|
-
|
$
|
-
|
|||||
Outstanding at March 31, 2016
|
467,898
|
$
|
20.64
|
Three Months Ended March 31,
|
||||||||||||||||||||||||
2016
|
2015
|
|||||||||||||||||||||||
Before Tax
|
Income Tax
|
Net
|
Before Tax
|
Income Tax
|
Net
|
|||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||
Accumulated other comprehensive income, beginning of period
|
$
|
6,111
|
$
|
(2,247
|
)
|
$
|
3,864
|
$
|
12,417
|
$
|
(4,699
|
)
|
$
|
7,718
|
||||||||||
Other comprehensive income before reclassifications
|
5,570
|
|
(2,103
|
)
|
|
3,467
|
|
4,717
|
|
(1,806
|
)
|
|
2,911
|
|||||||||||
Reclassification adjustment for realized gains included in net income
|
(1,486
|
)
|
559
|
(927
|
)
|
(2,752
|
)
|
1,048
|
(1,704
|
)
|
||||||||||||||
4,084
|
|
(1,544
|
)
|
|
2,540
|
|
1,965
|
|
(758
|
)
|
|
1,207
|
||||||||||||
Accumulated other comprehensive income, end of period
|
$
|
10,195
|
$
|
(3,791
|
)
|
$
|
6,404
|
$
|
14,382
|
$
|
(5,457
|
)
|
$
|
8,925
|
(11)
|
EARNINGS PER SHARE
|
Three Months Ended March 31,
|
||||||||
2016
|
2015
|
|||||||
(in thousands, except per share data)
|
||||||||
Net income attributable to Federated National Holding Company shareholders
|
$
|
9,535
|
$
|
9,284
|
||||
Weighted average number of common shares outstanding - basic
|
13,826
|
13,656
|
||||||
Net income per share - basic
|
$
|
0.69
|
$
|
0.68
|
||||
Weighted average number of common shares outstanding - basic
|
13,826
|
13,656
|
||||||
Dilutive effect of stock compensation plans
|
$
|
218
|
$
|
320
|
||||
Weighted average number of common shares outstanding - diluted
|
14,044
|
13,976
|
||||||
Net income per share - diluted
|
$
|
0.68
|
$
|
0.66
|
||||
Dividends per share
|
$
|
0.05
|
$
|
0.04
|
(12)
|
VARIABLE INTEREST ENTITY
|
March 31, 2016
|
December 31, 2015
|
|||||||
ASSETS
|
(in thousands)
|
|||||||
Investments
|
||||||||
Debt maturities, held-to-maturity, at amortized cost
|
$
|
19,836
|
$
|
21,312
|
||||
Equity securities, available-for-sale, at fair value
|
3,151
|
1,358
|
||||||
Total investments
|
22,987
|
22,670
|
||||||
Cash and cash equivalents
|
14,990
|
14,616
|
||||||
Prepaid reinsurance premiums
|
14
|
34
|
||||||
Premiums receivable, net
|
344
|
355
|
||||||
Deferred income taxes
|
5
|
646
|
||||||
Income taxes receivable
|
395
|
-
|
||||||
Deferred acquisition costs
|
237
|
234
|
||||||
Other assets
|
156
|
157
|
||||||
Total assets
|
$
|
39,128
|
$
|
38,712
|
||||
LIABILITIES
|
||||||||
Loss and loss adjustment expense reserves
|
$
|
324
|
$
|
237
|
||||
Unearned premiums
|
1,572
|
1,448
|
||||||
Debt
|
4,893
|
4,887
|
||||||
Income taxes payable
|
-
|
8
|
||||||
Other liabilities
|
187
|
374
|
||||||
Total liabilities
|
$
|
6,976
|
$
|
6,954
|
(13)
|
SUBSEQUENT EVENTS
|
· | Projections of revenues, income, earnings per share, dividends, capital structure or other financial items or measures; |
· | Descriptions of plans or objectives of management for future operations, insurance products/or services; |
· | Forecasts of future insurable events, economic performance, liquidity, need for funding and income; and |
· | Descriptions of assumptions or estimates underlying or relating to any of the foregoing. |
· | MNIC entered into a Managing General Agent and Claims Administration Agreement (the “Monarch MGA Agreement”) with FedNat Underwriters, Inc. (“FNU”), a wholly owned subsidiary of the Company, pursuant to which FNU provides underwriting, accounting, reinsurance placement and claims administration services to Monarch. For its services under the Monarch MGA Agreement, FNU receives 4% of Monarch’s total written annual premium, excluding acquisition expenses payable to agents, for FNU’s managing general agent services; 3.6% of Monarch’s total earned annual premium for FNU’s claims administration services; and a per-policy administrative fee of $25 for each policy underwritten for Monarch. The Company also receives an annual expense reimbursement for accounting and related services. |
· | MNIC, MNHC and Monarch Delaware (collectively, the “Monarch Entities”) entered into an Investment Management Agreement (the “Monarch Investment Agreement”) with Crosswinds AUM LLC, a wholly owned subsidiary of Crosswinds (“Crosswinds AUM”), pursuant to which Crosswinds AUM manages the investment portfolios of the Monarch Entities. The management fee, on an annual basis, is 0.75% of assets under management up to $100 million; 0.50% of assets under management of more than $100 million but less than $200 million; and 0.30% of assets under management of more than $200 million. |
· | MNIC also entered into a Reinsurance Capacity Right of First Refusal Agreement with TransRe, pursuant to which TransRe has a right of first refusal for all quota share and excess of loss reinsurance that Monarch Insurance deems necessary in its sole discretion for so long as TransRe remains a member of Monarch Delaware or the MNHC debt remains outstanding. Pursuant to this agreement, TransRe has the right to provide, at market rates and terms, a maximum of 15% of any reinsurance coverage obtained by Monarch Delaware in any individual reinsurance contract. |
· | The Company’s CEO and CFO hold their respective positions with Monarch Entities while they remain employed by the Company. |
· | Gross written premiums totaled $136.0 million in the first quarter of 2016, compared with $106.7 million in the first quarter of 2015. |
· | Total revenues totaled $69.0 million in the first quarter of 2016, compared with $54.9 million in the first quarter of 2015. |
· | Net income attributable to FNHC shareholders totaled $9.5 million in the first quarter of 2016, compared with $9.3 million in the first quarter of 2015. |
· | Total investments increased $2.0 million, to $386.3 million as of March 31, 2016, compared with $384.3 million as of December 31, 2015. |
· | Cash and cash equivalents increased $19.6 million, to $72.6 million as of March 31, 2016, compared with $53.0 million as of December 31, 2015. |
· | Loss ratio was 53.7% in the first quarter of 2016, compared with 53.5% in the first quarter of 2015. The loss ratio is calculated as losses and LAE divided by net premiums earned. |
· | Expense ratio was 43.5% in the first quarter of 2016, compared with 36.8% in the first quarter of 2015. The expense ratio is calculated as all operating expenses less interest expense divided by net premiums earned. |
· | Combined ratio was 97.2% in the first quarter of 2016, compared with 90.3% in the first quarter of 2015. The combined ratio is calculated as the sum of losses and LAE and all operating expenses less interest expense divided by net premiums earned. |
Three Months Ended March 31,
|
||||||||
2016
|
2015
|
|||||||
(in thousands)
|
||||||||
Other income:
|
||||||||
Direct written policy fees
|
$
|
4,202
|
$
|
2,492
|
||||
Commission income
|
4,827
|
1,126
|
||||||
Brokerage revenue
|
1,448
|
1,378
|
||||||
Quota-share profit sharing
|
-
|
1,477
|
||||||
Finance revenue
|
519
|
427
|
||||||
Total
|
$
|
10,996
|
$
|
6,900
|
Total Number of Shares
Repurchased
|
Average Price Paid
Per Share
|
Total Number of Shares
Purchased as of Part of
Publicly Announced Plans
|
Approximate Dollar
Value of Shares That May Yet Be
Purchased Under the Plans (1)
|
|||||||||||||
March 14, 2016 to March 31, 2016
|
52,600
|
$
|
20.44
|
52,600
|
$
|
8,924,780
|
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. * |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. * |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. * |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. * |
FEDERATED NATIONAL HOLDING COMPANY
|
|||
By:
|
/s/ Michael H. Braun
|
||
Michael H. Braun, Chief Executive Officer
|
|||
(Principal Executive Officer)
|
|||
/s/ Peter J. Prygelski III
|
|||
Peter J. Prygelski III, Chief Financial Officer
|
|||
(Principal Financial and Accounting Officer)
|
|||
Date: May 6, 2016
|
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. * |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. * |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. * |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. * |
Date: May 6, 2016
|
|
/s/ Michael H. Braun
|
|
Michael H. Braun
|
|
Chief Executive Officer (Principal Executive Officer)
|
Date: May 6, 2016
|
|
/s/ Peter J. Prygelski III
|
|
Peter J. Prygelski III
|
|
Chief Financial Officer (Principal Financial and Accounting Officer)
|
By: /s/ Michael H. Braun
|
Michael H. Braun, Chief Executive Officer (Principal Executive Officer)
|
May 6, 2016
|
By: /s/ Peter J. Prygelski III
|
Peter J. Prygelski III, Chief Financial Officer (Principal Financial and Accounting Officer)
|
May 6, 2016
|
Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
May. 06, 2016 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | FEDERATED NATIONAL HOLDING CO | |
Entity Central Index Key | 0001069996 | |
Current Fiscal Year End Date | --12-31 | |
Entity Well-known Seasoned Issuer | No | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 13,826,654 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q1 | |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2016 |
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|
ASSETS | ||
Premiums receivable, allowance for credit losses | $ 123 | $ 302 |
LIABILITIES AND SHAREHOLDERS' EQUITY | ||
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized (in shares) | 1,000,000 | 1,000,000 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 25,000,000 | 25,000,000 |
Common stock, shares issued (in shares) | 13,826,654 | 13,798,773 |
Common stock, shares outstanding (in shares) | 13,826,654 | 13,798,773 |
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Revenue: | ||
Net premiums earned | $ 54,997 | $ 44,786 |
Net investment income | 2,040 | 1,546 |
Net realized investment gains | 927 | 1,704 |
Other income | 10,996 | 6,900 |
Total revenue | 68,960 | 54,936 |
Costs and expenses: | ||
Losses and loss adjustment expenses | 29,545 | 23,949 |
Commissions and other underwriting expenses | 19,852 | 12,694 |
General and administrative expenses | 4,081 | 3,798 |
Interest expense | 84 | 11 |
Total costs and expenses | 53,562 | 40,452 |
Income before income taxes | 15,398 | 14,484 |
Income taxes | 5,795 | 5,711 |
Net income | 9,603 | 8,773 |
Net income (loss) attributable to noncontrolling interest | 68 | (511) |
Net income attributable to Federated National Holding Company shareholders | $ 9,535 | $ 9,284 |
Net income per share attributable to Federated National Holding Company shareholders: | ||
Basic (in dollars per share) | $ 0.69 | $ 0.68 |
Diluted (in dollars per share) | $ 0.68 | $ 0.66 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands |
3 Months Ended | |
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Mar. 31, 2016 |
Mar. 31, 2015 |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract] | ||
Net income | $ 9,603 | $ 8,773 |
Change in net unrealized gains on investments, available-for-sale | 4,084 | 1,965 |
Comprehensive income before income taxes | 13,687 | 10,738 |
Income tax expense related to items of other comprehensive income | (1,544) | (758) |
Comprehensive income | 12,143 | 9,980 |
Comprehensive income (loss) attributable to noncontrolling interest | 226 | (511) |
Comprehensive income attributable to Federated National Holding Company shareholders | $ 11,917 | $ 10,491 |
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) - 3 months ended Mar. 31, 2016 - USD ($) $ in Thousands |
Preferred Stock [Member] |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Accumulated Other Comprehensive Income [Member] |
Retained Earnings [Member] |
Total Shareholders' Equity Attributable to Federated National Holding Company Shareholders [Member] |
Noncontrolling Interest [Member] |
Total |
---|---|---|---|---|---|---|---|---|
Balance at Dec. 31, 2015 | $ 0 | $ 138 | $ 131,998 | $ 3,985 | $ 96,461 | $ 232,582 | $ 18,177 | $ 250,759 |
Balance (in shares) at Dec. 31, 2015 | 13,798,773 | |||||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | ||||||||
Net income | 0 | $ 0 | 0 | 0 | 9,535 | 9,535 | 68 | 9,603 |
Other comprehensive income | 0 | 0 | 0 | 2,382 | 0 | 2,382 | 158 | 2,540 |
Dividends paid | 0 | 0 | 0 | 0 | (1,565) | (1,565) | 0 | (1,565) |
Issuance of common stock for share-based awards | 0 | $ 0 | 4 | 0 | 0 | 4 | 0 | 4 |
Issuance of common stock for share-based awards (in shares) | 80,481 | |||||||
Common stock buyback | 0 | $ 0 | 0 | 0 | (1,077) | (1,077) | 0 | $ (1,077) |
Common stock buyback (in shares) | (52,600) | (52,600) | ||||||
Shares based compensation | 0 | $ 0 | 926 | 0 | 0 | 926 | 0 | $ 926 |
Balance at Mar. 31, 2016 | $ 0 | $ 138 | $ 132,928 | $ 6,367 | $ 103,354 | $ 242,787 | $ 18,403 | $ 261,190 |
Balance (in shares) at Mar. 31, 2016 | 13,826,654 |
ORGANIZATION AND BUSINESS |
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Mar. 31, 2016 | |||
ORGANIZATION AND BUSINESS [Abstract] | |||
ORGANIZATION AND BUSINESS |
This report should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2015 of Federated National Holding Company (“FNHC”, “Company”, “we”, “us”). FNHC is an insurance holding company that controls substantially all steps in the insurance underwriting, distribution and claims processes through our subsidiaries and our contractual relationships with our independent agents and general agents. We are authorized to underwrite, and/or place through our wholly owned subsidiaries, homeowners’ multi-peril (“homeowners”), commercial general liability, federal flood, personal auto and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and our other services through a network of independent agents. Our wholly owned insurance subsidiary is Federated National Insurance Company (“FNIC”), which is licensed as an admitted carrier in Florida, Alabama, Louisiana and South Carolina. We also serve as managing general agent for Monarch National Insurance Company (“MNIC”), which was founded in 2015 through the joint venture, described below, and is licensed as an admitted carrier in Florida. An admitted carrier is an insurance company that has received a license from the state department of insurance giving the company the authority to write specific lines of insurance in that state. These companies are also bound by rate and form regulations, and are strictly regulated to protect policyholders from a variety of illegal and unethical practices, including fraud. Admitted carriers are also required to financially contribute to the state guarantee fund, which is used to pay for losses if an insurance carrier becomes insolvent or unable to pay the losses due their policyholders. Monarch National Insurance Company Joint Venture On March 19, 2015, the Company entered into a joint venture to organize MNIC, which received its certificate of authority to write homeowners’ property and casualty insurance in Florida from the Florida Office of Insurance Regulation (the “Florida OIR”). The Company’s joint venture partners are a majority-owned limited partnership of Crosswinds Holdings Inc., a publicly traded Canadian private equity firm and asset manager (“Crosswinds”); and Transatlantic Reinsurance Company (“TransRe”). The Company and Crosswinds each invested $14.0 million in Monarch Delaware Holdings LLC (“Monarch Delaware”), the indirect parent company of MNIC, for a 42.4% interest in Monarch Delaware (each holding 50% of the voting interests in Monarch Delaware). TransRe invested $5.0 million for a 15.2% non-voting interest in Monarch Delaware and advanced an additional $5.0 million in debt evidenced by a six-year promissory note bearing 6% annual interest payable by Monarch National Holding Company (“MNHC”), a wholly owned subsidiary of Monarch Delaware and the direct parent company of MNIC. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES [Abstract] | |||||||||||||||||||||
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES |
The financial statements contained in this Quarterly Report on Form 10-Q are unaudited, but reflect all adjustments that, in the opinion of management, are necessary for a fair statement of results of the interim periods covered thereby. The accompanying unaudited consolidated financial statements are prepared in accordance with US generally accepted accounting principles (“GAAP”). Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized below. The results of operations for any interim period are not necessarily indicative of results for the full year.
The accompanying consolidated financial statements include the accounts of FNHC and all other entities in which we have a controlling financial interest and any variable interest entities (“VIE”) in which we are the primary beneficiary. All material inter-company accounts and transactions have been eliminated in consolidation. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support or where investors lack certain characteristics of a controlling financial interest. We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders. We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE. If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in our consolidated financial statements. In connection with the investment in Monarch Delaware, we have determined that we are the primary beneficiary of this VIE, as we possess both the power to direct the activities of the VIE that most significantly impact its economic performance. Accordingly, we consolidate the VIE in our consolidated financial statements. Refer to note 12 for additional information on the VIE.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates. Similar to other property and casualty insurers, our liability for loss and loss adjustment expense reserves, although supported by actuarial projections and other data is ultimately based on management's reasoned expectations of future events. Although considerable variability is inherent in these estimates, we believe that this liability is adequate. Estimates are reviewed regularly and adjusted as necessary. Such adjustments are reflected in current operations.
Certain amounts in prior year’s consolidated financial statements have been reclassified to conform to the 2016 presentation. These reclassifications had no effect on the reported results of operations, financial condition, and cash flows. In the current period, the Company concluded it was appropriate to reclassify certain revenue accounts that do not have material balances and include them within other income in the consolidated statements of operations. In addition, during the current period, the Company reclassified certain costs and expenses, principally, operating and underwriting expenses, salaries and wages and amortization of deferred policy acquisition costs. These respective account balances are now included in commissions and other underwriting expenses and general and administrative expenses in the consolidated statements of operations. The Company believes this reclassification provide greater clarity and insight into the consolidated financial statements for the periods presented.
During our third quarter 2015 analysis of actual experience to date under the July 1, 2014 quota share reinsurance contract, we re-evaluated the accounting treatment for quota share reinsurance contracts with retrospective rating provisions. As a result of this re-evaluation, we concluded reinsurance contracts which have retrospective rating provisions should be accounted for under Accounting Standards Codification 944, Financial Services — Insurance (“ASC 944”), where amounts due to (from) the assuming companies are accrued based on estimated contract experience to date as though the contracts were terminated. Refer to note 2 in our Form 10-Q for the period ended September 30, 2015 for additional information. The adjustments to our accounting for the July 1, 2014 quota share reinsurance treaty, inclusive of other adjustments, are not material in any prior quarter or annual period based on an analysis of quantitative and qualitative factors in accordance with SEC guidance. As a result, we recorded these adjustments during the year ended December 31, 2015. The prior period adjustments increased net income by $1.3 million for the three months ended March 31, 2015.
Recently Adopted In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 amended the consolidation guidance by modifying the evaluation criteria for whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminating the presumption that a general partner should consolidate a limited partnership, and affecting the consolidation analysis of reporting entities that are involved with variable interest entities. We adopted the provisions of ASU 2015-02 effective January 1, 2016 and re-evaluated all legal entity investments under the revised consolidation model. The adoption of ASU 2015-02 did not have any impact on our consolidated financial statements. In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest. ASU 2015-03 reduces the complexity of disclosing debt issuance costs and debt discount and premium on the balance sheet by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The Company adopted this ASU retrospectively as of January 1, 2016. Other assets and debt from consolidated variable interest entity have been reclassified to be consistent with the adoption of this standard, which resulted in a reduction of $0.1 million each. There were no changes to shareholders’ equity as a result of this adoption. There were no other impacts on the Company’s consolidated financial statements. Not Yet Adopted In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in United States Generally Accepted Accounting Principles when it becomes effective. In July 2015, the FASB voted to delay the effective date of ASU 2014-09 by one year, making it effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted as of the original effective date. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. In May 2015, the FASB issued ASU 2015-09, Financial Services – Insurance (Topic 944): Disclosures about Short-Duration-Contracts. The amendments in this ASU apply to all insurance entities that issue short-duration contracts as defined in Topic 944, Financial Services—Insurance. The amendments require insurance entities to disclose for annual reporting periods information on the liability for unpaid claims and claim adjustment expenses. The amendments in this ASU are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. This new guidance affects disclosures only and will have no impact on the Company’s consolidated financial statements. In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, this new guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This new guidance is effective for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact the adoption of this standard would have on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). Upon the effective date, ASU 2016-02 will supersede the current lease guidance in Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. We are currently evaluating the effects the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early application is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements. |
FAIR VALUE |
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FAIR VALUE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE |
Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs are based on market data from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information. All assets and liabilities that are carried at fair value are classified and disclosed in one of the following categories: Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities. An active market is defined as a market where transactions for the financial statement occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2 — Quoted market prices for similar assets or liabilities and valuations, using models or other valuation techniques that use observable market data. All significant inputs are observable, or derived from observable information in the marketplace, or are supported by observable levels at which transactions are executed in the market place. Level 3 — Instruments that use non-binding broker quotes or model driven valuations that do not have observable market data or those that are estimated based on an ownership interest to which a proportionate share of net assets is attributed. Currently, the Company has no level 3 investments. The Company’s financial instruments measured at fair value and the level of the fair value hierarchy of inputs used were as follows:
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INVESTMENTS |
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INVESTMENTS [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVESTMENTS |
Unrealized Gains and Losses The amortized cost and the fair value of debt and equity securities as of March 31, 2016 and December 31, 2015 are summarized as follows:
Contractual Maturity The amortized cost and estimated fair value of debt securities as of March 31, 2016 and December 31, 2015 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Net Investment Income Net investment income was as follows:
Net Realized Gains and Losses The amount of gross realized gains and losses were as follows:
During the three months ended March 31, 2016 and 2015, the proceeds from sales of available-for-sale investment securities were $66.7 million and $53.5 million, respectively. Aging of Gross Unrealized Losses As of March 31, 2016 and December 31, 2015, gross unrealized losses and related fair values for debt and equity securities, grouped by duration of time in a continuous unrealized loss position, were as follows:
The Company holds its equity and debt securities as available-for-sale and as such, these securities are recorded at fair value. The Company continually monitors the difference between cost and the estimated fair value of its investments, which involves uncertainty as to whether declines in value are temporary in nature. If the decline of a particular investment is deemed temporary, the Company records the decline as an unrealized loss in shareholders’ equity. If the decline is deemed to be other than temporary, the Company writes its cost-basis or amortized cost-basis down to the fair value of the investment and records an other than temporarily impaired ("OTTI") loss on its statement of operations. In addition, any portion of such decline related to debt securities that is believed to arise from factors other than credit is recorded as a component of other comprehensive income rather than charged against income. The Company’s assessment of equity securities initially involves an evaluation of all securities that are in an unrealized loss position, regardless of the duration or severity of the loss, as of the applicable balance sheet date. Such initial review consists primarily of assessing whether: (i) there has been a negative credit or news event with respect to the issuer that could indicate the existence of an OTTI; and (ii) the Company has the ability and intent to hold an equity security for a period of time sufficient to allow for an anticipated recovery (generally considered to be one year from the balance sheet date). To the extent that an equity security in an unrealized loss position is not impaired based on the initial review described above, the Company then further evaluates such equity security by considering qualitative and quantitative factors, including facts and circumstances specific to individual securities, asset classes, the financial condition of the issuer, changes in dividend payment, the length of time fair value had been less than cost, the severity of the decline in fair value below cost, industry outlook and our ability and intent to hold each position until its forecasted recovery. If the Company intends to sell, or it is more likely than not that, the Company will sell, a debt security before recovery of its amortized cost basis, the total amount of the unrealized loss position is recognized as an OTTI loss in income. To the extent that a debt security that is in an unrealized loss position is not impaired based on the preceding, the Company will consider a debt security to be impaired when it believes it to be probable that the Company will not be able to collect the entire amortized cost basis. During the three months ended March 31, 2016 and 2015, we did not have any material OTTI losses. Collateral Deposits As of March 31, 2016, investments with fair values of approximately $12.0 million, the majority of which were debt securities, were deposited with governmental authorities and into custodial bank accounts as required by law or contractually obligated. |
REINSURANCE |
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REINSURANCE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
REINSURANCE |
Overview The Company reinsures (cedes) a portion of written premiums on an excess of loss or a quota share basis to nonaffiliated insurance companies in order to limit our loss exposure. To the extent that reinsuring companies are unable to meet their obligations assumed under these reinsurance agreements, we remain primarily liable to our policyholders. Reinsurance Recoverables Amounts recoverable from reinsurers are recognized in a manner consistent with the claims liabilities associated with the reinsurance placement and presented on the balance sheet as reinsurance recoverables. The following reinsurance recoverable is reflected in the consolidated balance sheets as of the dates presented as follows:
Premiums Written and Earned The following table indicates premiums written and earned as follows:
Significant Reinsurance Contracts FNIC operates primarily by underwriting and accepting risks for their direct account on a gross basis and reinsuring a portion of the exposure on either an individual risk or an aggregate basis to the extent those exceed the desired retention level. We continually evaluate the relative attractiveness of different forms of reinsurance contracts and different markets that may be used to achieve our risk and profitability objectives. MNIC does not have any material reinsurance contracts as of March 31, 2016. All of our reinsurance contracts do not relieve FNIC from their direct obligations to insured. The Company’s reinsurance program, which runs either from June 1 to May 31 or from July 1 to June 30 of the following year, consists of excess of loss placed with the private market and the Florida Hurricane Catastrophe Fund (“FHCF”) and quota share, which is a form of proportional reinsurance, treaties which insure the homeowners’ property lines from catastrophes in Florida and other states. The excess of loss and FHCF treaties, which became effective on July 1, 2015, insures for approximately $1.82 billion of aggregate catastrophic losses and loss adjustment expenses (“LAE”) with a maximum single event coverage totaling approximately $1.26 billion, with the Company retaining the first $12.9 million in Florida and $5.0 million in Louisiana, Alabama and South Carolina for losses and LAE from each event. The FHCF treaty only affords coverage for losses sustained in Florida and represents only a portion of the reinsurance coverage in Florida. The Company’s quota share treaties, which are included in the reinsurance program, runs from July 1 to June 30 of the following year. The quota share treaties consist of two different treaties, one for 30% which became effective July 1, 2014 and the other for 10% which became effective July 1, 2015. The combined treaties provide a 40% quota share reinsurance treaty on the first $100 million of covered losses for the homeowners’ insurance program in Florida. The treaties are accounted for as retrospectively rated contracts whereby the estimated ultimate premium or commission is recognized over the period of the contracts. The quota share reinsurance agreements require FNIC to secure the credit, regulatory and business risk. Fully funded trust agreements securing these risks totaled $3.5 million, as of March 31, 2016 and December 31, 2015. |
LOSS AND LAE RESERVES |
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LOSS AND LAE RESERVES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LOSS AND LAE RESERVES |
The liability for loss and LAE reserves is determined on an individual-case basis for all incidents reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and IBNR. Activity in the liability for loss and LAE reserves is summarized as follows:
The favorable development in 2015 and first quarter of 2016 is primarily a result of continued favorable loss experience (mostly caused by decreased severity in reported claims) in the Company’s all other peril homeowners coverage caused in part by the absence of severe weather in Florida. Specifically, we have experienced better severity than expected on the 2014 and 2013 accident years. |
DEBT |
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DEBT [Abstract] | |||
DEBT |
On March 17, 2015, MNHC, a wholly owned subsidiary of Monarch Delaware, our consolidated VIE, issued a promissory note with a principal amount of $5.0 million bearing 6% annual interest, due March 17, 2021 with interest payable on an annual basis due March 17 each year. The debt was issued to TransRe, a related party, and is being carried at the unpaid principal balance, net of debt issuance costs, and any accrued and unpaid interest is recognized in other liabilities in the consolidated balance sheet. The Company recorded $0.1 million of debt issuance costs related to the 6% promissory note. |
INCOME TAXES |
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INCOME TAXES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES |
A summary of the provision for income tax expense is as follows.
The actual income tax expense differs from the "expected" income tax expense (computed by applying the combined applicable effective federal and state tax rates to income before income tax expense as follows:
The Company files a federal income tax return and various state and local tax returns. The Company’s consolidated federal and state income tax returns for 2012 - 2014 are open for review by the Internal Revenue Service (“IRS”) and other state taxing authorities. As of March 31, 2016 and December 31, 2015, we have determined that there are no uncertain tax positions. |
COMMITMENTS AND CONTINGENCIES |
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COMMITMENTS AND CONTINGENCIES [Abstract] | |||
COMMITMENTS AND CONTINGENCIES |
Legal Proceedings In the ordinary course of conducting business, the Company is involved in various legal proceedings, specifically claims litigation. The Company’s insurance subsidiaries participate in most of these proceedings by either defending third-party claims brought against insureds or litigating first-party coverage claims. The Company accounts for such activity through the establishment of loss and loss adjustment expense reserves. We believe that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and costs of defense, is immaterial to our consolidated financial statements. The Company is also occasionally involved in other legal and regulatory proceedings, some of which may assert claims for substantial amounts. These other legal proceedings may occasionally make us party to individual actions in which extra-contractual damages, punitive damages or penalties are sought, such as claims alleging bad faith in the handling of insurance claims. On a quarterly basis, the Company reviews these outstanding matters, if any. Consistent with GAAP, the Company establishes accruals when it is probable that a loss has been incurred and the Company can reasonably estimate its potential exposure. We record for such probable and estimable losses, if any, through the establishment of legal expense reserves. Based on our quarterly review, the Company believes that our accruals for probable and estimable losses are reasonable and that the amounts accrued do not have a material effect on our consolidated financial statements. Assessment Related Activity We operate in a regulatory environment where certain entities and organizations have the authority to require us to participate in assessments. Currently these entities and organizations include, but are not limited to, Florida Insurance Guaranty Association (“FIGA”), Citizens Property Insurance Corporation (“Citizens”), FHCF and Florida Joint Underwriters Insurance Association (“JUA”). As a direct premium writer in the state of Florida, we are required to participate in certain insurer solvency associations under Florida Statutes Section 631.57(3) (a), administered by FIGA. Future assessments are likely, although the impact of these assessments on our balance sheet, results of operations or cash flow are undeterminable at this time. FNIC is also required to participate in an insurance apportionment plan under Florida Statutes Section 627.351, which is referred to as a JUA Plan. The JUA Plan provides for the equitable apportionment of any profits realized, or losses and expenses incurred, among participating automobile insurers. In the event of an underwriting deficit incurred by the JUA Plan which is not recovered through the policyholders in the JUA Plan, such deficit shall be recovered from the companies participating in the JUA Plan in the proportion that the net direct written premiums of each such member during the preceding calendar year bear to the aggregate net direct premiums written in this state by all members of the JUA Plan. FNIC was not assessed by the JUA Plan. Future assessments by this association are undeterminable at this time. |
SHAREHOLDERS' EQUITY |
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SHAREHOLDERS' EQUITY [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHAREHOLDERS' EQUITY |
Common Stock Repurchases In March 2016, our Board of Directors authorized a program to repurchase shares of common stock of FNHC, at such times and at prices as management determines advisable, up to an aggregate of $10.0 million through March 31, 2017. Pursuant to our Board of Directors authorizations, the Company repurchased 52,600 shares of its common stock at a total cost of $1.1 million, which is an average price per share of $20.44, during the three months ended March 31, 2016. Share-based Compensation Expense The following table provides certain information in connection with the Company’s share-based compensation arrangements as follows:
The intrinsic value of options exercised represents the difference between the stock option exercise price and the weighted average closing stock price of FNHC common stock on the exercise dates, as reported on The NASDAQ Global Market. The unamortized share-based compensation expense is $8.7 million as of March 31, 2016, which will be recognized over the remaining weighted average vesting period of approximately 3.23 years. Stock Option Awards A summary of the Company’s stock option activity for the period from January 1, 2016 to March 31, 2016 is as follows:
Restricted Stock On March 10, 2016, the Company’s Board of Directors granted 128,472 restricted shares to the Company’s Directors, Executives and other key employees. The restricted shares vest over three or five years. A summary of the Company’s restricted stock activity for the period from January 1, 2016 to March 31, 2016 is as follows:
The weighted average grant date fair value is measured at the closing price of FNHC common stock on the grant date, as reported on The NASDAQ Global Market. Accumulated Other Comprehensive Income The following table presents a reconciliation of the changes in accumulated other comprehensive income during the three months ended March 31, 2016 and 2015:
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EARNINGS PER SHARE |
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EARNINGS PER SHARE |
The following table illustrates our computations of basic and diluted net income per share.
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VARIABLE INTEREST ENTITY |
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VARIABLE INTEREST ENTITY |
The carrying amounts of the assets of Monarch Delaware, our consolidated VIE, which can only be used to settle obligations of Monarch Delaware, and liabilities of Monarch Delaware for which creditors do not have recourse are as follows:
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SUBSEQUENT EVENTS |
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SUBSEQUENT EVENTS [Abstract] | |||
SUBSEQUENT EVENTS |
MNIC applied for and was approved by the Florida OIR for a rate decrease of 11.9% for Florida homeowners’ multiple-peril insurance policies, which became effective for new and renewals on April 15, 2016. Additionally, FNIC applied for and was approved by the Florida OIR for a rate increase of 5.6% for Florida homeowners’ multiple-peril insurance policies, which will become effective for new and renewals on August 1, 2016. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (Policies) |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES [Abstract] | ||||
BASIS OF PRESENTATION |
The financial statements contained in this Quarterly Report on Form 10-Q are unaudited, but reflect all adjustments that, in the opinion of management, are necessary for a fair statement of results of the interim periods covered thereby. The accompanying unaudited consolidated financial statements are prepared in accordance with US generally accepted accounting principles (“GAAP”). Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized below. The results of operations for any interim period are not necessarily indicative of results for the full year. |
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PRINCIPLES OF CONSOLIDATION |
The accompanying consolidated financial statements include the accounts of FNHC and all other entities in which we have a controlling financial interest and any variable interest entities (“VIE”) in which we are the primary beneficiary. All material inter-company accounts and transactions have been eliminated in consolidation. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support or where investors lack certain characteristics of a controlling financial interest. We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders. We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE. If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in our consolidated financial statements. In connection with the investment in Monarch Delaware, we have determined that we are the primary beneficiary of this VIE, as we possess both the power to direct the activities of the VIE that most significantly impact its economic performance. Accordingly, we consolidate the VIE in our consolidated financial statements. Refer to note 12 for additional information on the VIE. |
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ACCOUNTING ESTIMATES AND ASSUMPTIONS |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates. Similar to other property and casualty insurers, our liability for loss and loss adjustment expense reserves, although supported by actuarial projections and other data is ultimately based on management's reasoned expectations of future events. Although considerable variability is inherent in these estimates, we believe that this liability is adequate. Estimates are reviewed regularly and adjusted as necessary. Such adjustments are reflected in current operations. |
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RECLASSIFICATIONS |
Certain amounts in prior year’s consolidated financial statements have been reclassified to conform to the 2016 presentation. These reclassifications had no effect on the reported results of operations, financial condition, and cash flows. In the current period, the Company concluded it was appropriate to reclassify certain revenue accounts that do not have material balances and include them within other income in the consolidated statements of operations. In addition, during the current period, the Company reclassified certain costs and expenses, principally, operating and underwriting expenses, salaries and wages and amortization of deferred policy acquisition costs. These respective account balances are now included in commissions and other underwriting expenses and general and administrative expenses in the consolidated statements of operations. The Company believes this reclassification provide greater clarity and insight into the consolidated financial statements for the periods presented. |
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ADJUSTMENTS |
During our third quarter 2015 analysis of actual experience to date under the July 1, 2014 quota share reinsurance contract, we re-evaluated the accounting treatment for quota share reinsurance contracts with retrospective rating provisions. As a result of this re-evaluation, we concluded reinsurance contracts which have retrospective rating provisions should be accounted for under Accounting Standards Codification 944, Financial Services — Insurance (“ASC 944”), where amounts due to (from) the assuming companies are accrued based on estimated contract experience to date as though the contracts were terminated. Refer to note 2 in our Form 10-Q for the period ended September 30, 2015 for additional information. The adjustments to our accounting for the July 1, 2014 quota share reinsurance treaty, inclusive of other adjustments, are not material in any prior quarter or annual period based on an analysis of quantitative and qualitative factors in accordance with SEC guidance. As a result, we recorded these adjustments during the year ended December 31, 2015. The prior period adjustments increased net income by $1.3 million for the three months ended March 31, 2015. |
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RECENT ACCOUNTING PRONOUNCEMENTS |
Recently Adopted In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 amended the consolidation guidance by modifying the evaluation criteria for whether limited partnerships and similar legal entities are variable interest entities or voting interest entities, eliminating the presumption that a general partner should consolidate a limited partnership, and affecting the consolidation analysis of reporting entities that are involved with variable interest entities. We adopted the provisions of ASU 2015-02 effective January 1, 2016 and re-evaluated all legal entity investments under the revised consolidation model. The adoption of ASU 2015-02 did not have any impact on our consolidated financial statements. In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of Interest. ASU 2015-03 reduces the complexity of disclosing debt issuance costs and debt discount and premium on the balance sheet by requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The Company adopted this ASU retrospectively as of January 1, 2016. Other assets and debt from consolidated variable interest entity have been reclassified to be consistent with the adoption of this standard, which resulted in a reduction of $0.1 million each. There were no changes to shareholders’ equity as a result of this adoption. There were no other impacts on the Company’s consolidated financial statements. Not Yet Adopted In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in United States Generally Accepted Accounting Principles when it becomes effective. In July 2015, the FASB voted to delay the effective date of ASU 2014-09 by one year, making it effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, with early adoption permitted as of the original effective date. ASU 2014-09 permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. In May 2015, the FASB issued ASU 2015-09, Financial Services – Insurance (Topic 944): Disclosures about Short-Duration-Contracts. The amendments in this ASU apply to all insurance entities that issue short-duration contracts as defined in Topic 944, Financial Services—Insurance. The amendments require insurance entities to disclose for annual reporting periods information on the liability for unpaid claims and claim adjustment expenses. The amendments in this ASU are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. This new guidance affects disclosures only and will have no impact on the Company’s consolidated financial statements. In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Most notably, this new guidance requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. This new guidance is effective for annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact the adoption of this standard would have on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”). Upon the effective date, ASU 2016-02 will supersede the current lease guidance in Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. We are currently evaluating the effects the adoption of ASU 2016-02 will have on the Company’s consolidated financial statements. In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods therein. Early application is permitted. We are currently evaluating the impact of this guidance on our consolidated financial statements. |
FAIR VALUE (Tables) |
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FAIR VALUE [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets Measured at Fair Value on a Recurring Basis | The Company’s financial instruments measured at fair value and the level of the fair value hierarchy of inputs used were as follows:
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INVESTMENTS (Tables) |
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INVESTMENTS [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Amortized Cost and Fair Value of Debt and Equity Securities | The amortized cost and the fair value of debt and equity securities as of March 31, 2016 and December 31, 2015 are summarized as follows:
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Summary of Debt Securities, Contractual Maturity | The amortized cost and estimated fair value of debt securities as of March 31, 2016 and December 31, 2015 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
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Net Investment Income | Net investment income was as follows:
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Net Realized Gains and Losses | The amount of gross realized gains and losses were as follows:
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Gross Unrealized Losses and Fair Values for Debt and Equity Securities in Continuous Unrealized Loss Position | As of March 31, 2016 and December 31, 2015, gross unrealized losses and related fair values for debt and equity securities, grouped by duration of time in a continuous unrealized loss position, were as follows:
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REINSURANCE (Tables) |
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REINSURANCE [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reinsurance Recoverables | The following reinsurance recoverable is reflected in the consolidated balance sheets as of the dates presented as follows:
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Premiums Written and Earned | The following table indicates premiums written and earned as follows:
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LOSS AND LAE RESERVES (Tables) |
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LOSS AND LAE RESERVES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Activity in Liability for Loss and LAE Reserves | Activity in the liability for loss and LAE reserves is summarized as follows:
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INCOME TAXES (Tables) |
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INCOME TAXES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Provision for Income Tax Benefit | A summary of the provision for income tax expense is as follows.
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Components of Effective Federal and State Tax Rates to Income before Provision for Income Tax Benefit | The actual income tax expense differs from the "expected" income tax expense (computed by applying the combined applicable effective federal and state tax rates to income before income tax expense as follows:
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SHAREHOLDERS' EQUITY (Tables) |
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SHAREHOLDERS' EQUITY [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Share-based Compensation Arrangements | The following table provides certain information in connection with the Company’s share-based compensation arrangements as follows:
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Summary of Stock Option Activity | A summary of the Company’s stock option activity for the period from January 1, 2016 to March 31, 2016 is as follows:
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Summary of Restricted Stock Activity | A summary of the Company’s restricted stock activity for the period from January 1, 2016 to March 31, 2016 is as follows:
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Reconciliation of Changes in Accumulated Other Comprehensive Income Attributable to FNHC Shareholders | The following table presents a reconciliation of the changes in accumulated other comprehensive income during the three months ended March 31, 2016 and 2015:
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EARNINGS PER SHARE (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Computations of Basic and Diluted Net Income Per Common Share | The following table illustrates our computations of basic and diluted net income per share.
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VARIABLE INTEREST ENTITY (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable Interest Entity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying Amount of VIE Consolidated Assets and Liabilities | The carrying amounts of the assets of Monarch Delaware, our consolidated VIE, which can only be used to settle obligations of Monarch Delaware, and liabilities of Monarch Delaware for which creditors do not have recourse are as follows:
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ORGANIZATION AND BUSINESS (Details) - Monarch Delaware Holdings LLC [Member] - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 17, 2015 |
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Business Organization [Line Item] | ||
Capital contribution for voting interests | $ 14.0 | |
Ownership interest in Monarch Parent's equity | 42.40% | |
Voting interest held in Monarch Parent's equity | 50.00% | |
Long-term debt | $ 5.0 | |
Interest rate percentage | 6.00% | |
Crosswinds [Member] | ||
Business Organization [Line Item] | ||
Capital contribution for voting interests | $ 14.0 | |
Ownership interest in Monarch Parent's equity | 42.40% | |
Voting interest held in Monarch Parent's equity | 50.00% | |
Transatlantic Reinsurance Company [Member] | ||
Business Organization [Line Item] | ||
Capital contribution for voting interests | $ 5.0 | |
Ownership interest in Monarch Parent's equity | 15.20% | |
Transatlantic Reinsurance Company [Member] | Senior Debt [Member] | ||
Business Organization [Line Item] | ||
Long-term debt | $ 5.0 | |
Maturity period of debt | 6 years | |
Interest rate percentage | 6.00% |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
|
Change in Accounting Estimate [Line Items] | |||
Net income | $ 9,603 | $ 8,773 | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Other assets | 7,829 | $ 7,605 | |
Debt from consolidated variable interest entity | 4,893 | $ 4,887 | |
Change in Accounting Method Accounted for as Change in Estimate [Member] | Quota Share Reinsurance Adjustments [Member] | |||
Change in Accounting Estimate [Line Items] | |||
Net income | $ 1,300 | ||
Accounting Standards Update 2015-03 [Member] | |||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |||
Other assets | (100) | ||
Debt from consolidated variable interest entity | $ (100) |
INVESTMENTS, Net Investment Income (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Net investment income [Abstract] | ||
Interest income | $ 1,853 | $ 1,440 |
Dividends income | 187 | 106 |
Net investment income | $ 2,040 | $ 1,546 |
INVESTMENTS, Net Realized Gains and Losses (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Gross realized gains and losses [Abstract] | ||
Total gross realized gains | $ 2,042 | $ 1,910 |
Total gross realized losses | (1,115) | (206) |
Net realized gains on investments | 927 | 1,704 |
Proceeds from sales of investments securities | 66,700 | 53,500 |
Debt Securities [Member] | ||
Gross realized gains and losses [Abstract] | ||
Total gross realized gains | 1,304 | 515 |
Total gross realized losses | (540) | (103) |
Equity Securities [Member] | ||
Gross realized gains and losses [Abstract] | ||
Total gross realized gains | 738 | 1,395 |
Total gross realized losses | $ (575) | $ (103) |
INVESTMENTS, Collateral Deposits (Details) $ in Millions |
Mar. 31, 2016
USD ($)
|
---|---|
INVESTMENTS [Abstract] | |
Fair value of investments deposited with governmental authorities required by law | $ 12.0 |
LOSS AND LAE RESERVES (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Mar. 31, 2016 |
Dec. 31, 2015 |
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LOSS AND LAE RESERVES [Abstract] | |||||
Gross reserves, beginning of period | $ 97,340 | $ 78,330 | |||
Less: reinsurance recoverable | [1] | (7,496) | (10,394) | ||
Net reserves, beginning of period | 89,844 | 67,936 | |||
Incurred loss, net of reinsurance, related to [Abstract] | |||||
Current year | 30,093 | 113,819 | |||
Prior years | (548) | (9,466) | |||
Total incurred loss and LAE, net of reinsurance | 29,545 | 104,353 | |||
Paid loss, net of reinsurance, related to [Abstract] | |||||
Current year | 9,221 | 49,531 | |||
Prior years | 19,710 | 32,914 | |||
Total paid loss and LAE, net of reinsurance | 28,931 | 82,445 | |||
Net reserves, end of period | 90,458 | 89,844 | |||
Plus: reinsurance recoverable | [1] | 11,157 | 7,496 | ||
Gross reserves, end of period | $ 101,615 | $ 97,340 | |||
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DEBT (Details) - Monarch Delaware Holdings LLC [Member] - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 17, 2015 |
|
Debt Instrument [Line Items] | ||
Long-term debt | $ 5.0 | |
Interest rate percentage | 6.00% | |
Maturity period of debt | Mar. 17, 2021 | |
Debt issuance cost | $ 0.1 |
INCOME TAXES, Summary of Provision for Income Tax Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Federal [Abstract] | ||
Current | $ 3,544 | $ 4,652 |
Deferred | 1,439 | 259 |
Federal income tax expense | 4,983 | 4,911 |
State [Abstract] | ||
Current | 276 | 731 |
Deferred | 536 | 69 |
State income tax expense | 812 | 800 |
Total income taxes | $ 5,795 | $ 5,711 |
INCOME TAXES, Effective Income Tax Rate Reconciliation (Details) - USD ($) $ in Thousands |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
Dec. 31, 2015 |
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Components of effective federal and state tax rates to income before provision for income tax benefit [Abstract] | |||
Computed expected tax expense provision, at federal rate | $ 5,389 | $ 5,248 | |
State tax, net of federal tax benefit | 534 | 543 | |
Other | (128) | (80) | |
Total income taxes | 5,795 | $ 5,711 | |
Uncertain tax positions | $ 0 | $ 0 |
SHAREHOLDERS' EQUITY, Common Stock Repurchases (Details) $ / shares in Units, $ in Thousands |
3 Months Ended |
---|---|
Mar. 31, 2016
USD ($)
$ / shares
shares
| |
SHAREHOLDERS' EQUITY [Abstract] | |
Common stock repurchases, authorized amount | $ 10,000 |
Common stock repurchased during period (in shares) | shares | 52,600 |
Common stock repurchased during period, total cost | $ 1,077 |
Common stock repurchased during period, average price (in dollars per share) | $ / shares | $ 20.44 |
SHAREHOLDERS' EQUITY, Share-based Compensation Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Total share-based compensation expense | $ 680 | $ 752 |
Excess tax benefits from share-based awards | 246 | 530 |
Intrinsic value of options exercised | 193 | 2,346 |
Fair value of restricted stock vested | 12,358 | 17,387 |
Unamortized share-based compensation expense | $ 8,700 | |
Remaining weighted average vesting period | 3 years 2 months 23 days | |
Restricted Stock [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Total share-based compensation expense | $ 680 | 728 |
Stock Options [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Total share-based compensation expense | $ 0 | $ 24 |
SHAREHOLDERS' EQUITY, Stock Option Awards (Details) - Stock Options [Member] |
3 Months Ended |
---|---|
Mar. 31, 2016
$ / shares
shares
| |
Stock Options, Number of Shares [Roll Forward] | |
Outstanding, beginning of period (in shares) | shares | 174,633 |
Granted (in shares) | shares | 0 |
Exercised (in shares) | shares | (1,100) |
Cancelled (in shares) | shares | 0 |
Outstanding, end of period (in shares) | shares | 173,533 |
Stock Options, Weighted Average Option Exercise Price [Roll Forward] | |
Outstanding, beginning of period (in dollars per share) | $ / shares | $ 3.79 |
Granted (in dollars per share) | $ / shares | 0 |
Exercised (in dollars per share) | $ / shares | 4.20 |
Cancelled (in dollars per share) | $ / shares | 0 |
Outstanding, end of period (in dollars per share) | $ / shares | $ 3.78 |
SHAREHOLDERS' EQUITY, Restricted Stock (Details) - Restricted Stock [Member] - $ / shares |
3 Months Ended | |
---|---|---|
Mar. 10, 2016 |
Mar. 31, 2016 |
|
Restricted Shares, Number of Shares [Roll Forward] | ||
Outstanding, beginning of period (in shares) | 418,807 | |
Granted (in shares) | 128,472 | |
Vested (in shares) | (79,381) | |
Cancelled (in shares) | 0 | |
Outstanding, end of period (in shares) | 467,898 | |
Restricted Shares, Weighted Average Option Exercise Price [Roll Forward] | ||
Outstanding, beginning of period (in dollars per share) | $ 20.14 | |
Granted (in dollars per share) | 19.16 | |
Vested (in dollars per share) | 15.57 | |
Cancelled (in dollars per share) | 0 | |
Outstanding, end of period (in dollars per share) | $ 20.64 | |
Minimum [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Grants vesting period | 3 years | |
Maximum [Member] | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Grants vesting period | 5 years |
EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2016 |
Mar. 31, 2015 |
|
EARNINGS PER SHARE [Abstract] | ||
Net income attributable to Federated National Holding Company shareholders | $ 9,535 | $ 9,284 |
Weighted average number of common shares outstanding - basic (in shares) | 13,826 | 13,656 |
Net income per share - basic (in dollars per share) | $ 0.69 | $ 0.68 |
Dilutive effect of stock compensation plans (in shares) | 218,000 | 320,000 |
Weighted average number of common shares outstanding - diluted (in shares) | 14,044 | 13,976 |
Net income per share - diluted (in dollars per share) | $ 0.68 | $ 0.66 |
Dividends per share (in dollars per share) | $ 0.05 | $ 0.04 |
SUBSEQUENT EVENTS (Details) - Subsequent Event [Member] |
May. 05, 2016 |
---|---|
MNIC [Member] | |
Subsequent Event [Line Items] | |
Increase (decrease) in premium rate approved by Florida OIR | (11.90%) |
FNIC [Member] | |
Subsequent Event [Line Items] | |
Increase (decrease) in premium rate approved by Florida OIR | 5.60% |
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