10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to

Commission file number 000-50795

(Exact name of registrant as specified in its charter)

Delaware	75-2770432
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4450 Sojourn Drive, Suite 500 Addison, Texas	75001
(Address of principal executive offices)	(Zip Code)

(972) 728-6300

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x  No ¨

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares outstanding of the registrant’s common stock, $.01 par value, as of May 13, 2015: 16,155,357

AFFIRMATIVE INSURANCE HOLDINGS, INC.

THREE MONTHS ENDED MARCH 31, 2015

INDEX TO FORM 10-Q

PART I – FINANCIAL INFORMATION		3
Item 1.	Financial Statements (Unaudited)	3
	Consolidated Balance Sheets – March 31, 2015 and December 31, 2014	3
	Consolidated Statements of Operations – Three Months Ended March 31, 2015 and 2014	4
	Consolidated Statements of Comprehensive Income (Loss) – Three Months Ended March 31, 2015 and 2014	5
	Consolidated Statements of Stockholders’ Deficit – Three Months Ended March 31, 2015 and 2014	5
	Consolidated Statements of Cash Flows – Three Months Ended March 31, 2015 and 2014	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	30
PART II – OTHER INFORMATION		31
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 1B.	Unresolved Staff Comments	31
Item 6.	Exhibits	31
SIGNATURES		32

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

AFFIRMATIVE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	March 31, 2015			December 31, 2014
	(Unaudited)
Assets
Available-for-sale securities, at fair value	$	26,724		$	33,285
Other invested assets		4,560			4,501
Cash and cash equivalents		27,620			23,863
Fiduciary and restricted cash		4,003			4,794
Accrued investment income		284			149
Premiums and fees receivable, net		65,182			53,167
Commissions receivable		1,137			487
Receivable from reinsurers		147,405			182,804
Income taxes receivable		—			149
Investment in real property, net		9,378			9,558
Property and equipment (net of accumulated depreciation of $60,377    for 2015 and $59,127 for 2014)		7,139			8,389
Other intangible assets (net of accumulated amortization of $7,765 for 2015    and 2014)		1,500			1,500
Prepaid expenses		5,915			5,623
Other assets (net of allowance for doubtful accounts of $576 for 2015    and 2014)		11,547			9,420
Total assets	$	312,394		$	337,689
Liabilities and Stockholders’ Deficit
Liabilities:
Reserves for losses and loss adjustment expenses	$	122,895		$	132,752
Unearned premium		89,100			84,055
Amounts due to reinsurers		59,895			80,126
Due to third-party carriers		4,804			5,106
Deferred revenue		7,108			6,537
Capital lease obligation		1,688			3,344
Debt		124,512			123,341
Income taxes payable		39			—
Deferred acquisition costs, net liability		673			4,214
Other liabilities		37,757			32,613
Total liabilities		448,471			472,088
Stockholders’ deficit:
Common stock, $0.01 par value; 75,000,000 shares authorized, 18,949,220 shares    issued and 16,155,357 shares outstanding at March 31, 2015    and December 31, 2014		190			190
Additional paid-in capital		167,733			167,623
Treasury stock, at cost (2,793,863 shares at March 31, 2015 and    December 31, 2014)		(32,910	)		(32,910	)
Accumulated other comprehensive loss		(1,344	)		(1,536	)
Retained deficit		(269,746	)		(267,766	)
Total stockholders’ deficit		(136,077	)		(134,399	)
Total liabilities and stockholders’ deficit	$	312,394		$	337,689

See accompanying Notes to Consolidated Financial Statements

3

AFFIRMATIVE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Three Months Ended March 31,
	2015			2014
	(Unaudited)
Revenues
Net premiums earned	$	40,915		$	33,364
Commission income, fees and managing general agent revenue		10,896			11,330
Net investment income		586			830
Net realized losses		(74	)		—
Other income		107			2
Total revenues		52,430			45,526
Expenses
Net losses and loss adjustment expenses		33,679			27,552
Selling, general and administrative expenses		16,379			12,792
Depreciation and amortization		1,250			1,496
Total expenses		51,308			41,840
Operating income		1,122			3,686
Interest expense		2,958			3,316
Income (loss) before income taxes		(1,836	)		370
Income tax expense (benefit)		144			(294	)
Net income (loss)	$	(1,980	)	$	664
Basic income (loss) per common share:
Net income (loss)	$	(0.13	)	$	0.04
Diluted income (loss) per common share:
Net income (loss)	$	(0.13	)	$	0.04
Weighted average common shares outstanding:
Basic		15,767			15,408
Diluted		15,767			16,282

See accompanying Notes to Consolidated Financial Statements

4

AFFIRMATIVE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Three Months Ended
	March 31,
	2015			2014
	(Unaudited)
Net income (loss)	$	(1,980	)	$	664
Other comprehensive income:
Unrealized gains on available-for-sale investment securities arising during    period		118			219
Reclassification adjustment for realized losses included in net income		74			—
Other comprehensive income, net		192			219
Total comprehensive income (loss)	$	(1,788	)	$	883

AFFIRMATIVE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited)

(in thousands, except share data)

	Three Months Ended March 31,
	2015					2014
	Shares		Amounts			Shares		Amounts
Common stock
Balance at beginning of year		18,949,220	$	190			18,202,221	$	182
Issuance of restricted stock awards		—		—			472,000		5
Balance at end of period		18,949,220		190			18,674,221		187
Additional paid-in capital
Balance at beginning of year				167,623					167,049
Issuance of restricted stock awards				—					(5	)
Stock-based compensation				110					15
Balance at end of period				167,733					167,059
Treasury stock
Balance at beginning of year and end of period		2,793,863		(32,910	)		2,793,863		(32,910	)
Accumulated other comprehensive income (loss)
Balance at beginning of year				(1,536	)				(1,654	)
Unrealized gain on available-for-sale investment    securities				192					219
Balance at end of period				(1,344	)				(1,435	)
Retained Deficit
Balance at beginning of year				(267,766	)				(235,559	)
Net income (loss)				(1,980	)				664
Balance at end of period				(269,746	)				(234,895	)
Total stockholders’ deficit			$	(136,077	)			$	(101,994	)

See accompanying Notes to Consolidated Financial Statements

5

AFFIRMATIVE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Three Months Ended March 31,
	2015			2014
	(Unaudited)
Cash flows from operating activities
Net income (loss)	$	(1,980	)	$	664
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating    activities:
Depreciation and amortization		1,430			1,676
Stock-based compensation expense		110			15
Amortization of debt issuance costs		411			502
Amortization of debt discount		99			408
Net realized losses from sales of available-for-sale securities		74			—
Fair value gain on investment in hedge fund		(59	)		(127	)
Amortization of premiums on investments, net		97			148
Provision for doubtful accounts		—			(6	)
Paid-in-kind interest		1,522			667
Change in operating assets and liabilities:
Fiduciary and restricted cash		1,991			(407	)
Premiums, fees and commissions receivable, net		(12,665	)		(19,631	)
Reserves for losses and loss adjustment expenses		(9,857	)		(8,786	)
Amounts due from reinsurers		15,168			235
Due to third-party carriers		(302	)		257
Deferred revenue		571			891
Unearned premium		5,045			18,852
Deferred acquisition costs, net		(3,541	)		(8,785	)
Income taxes		188			(1,928	)
Other		161			1,986
Net cash used in operating activities		(1,537	)		(13,369	)
Cash flows from investing activities
Fiduciary and restricted cash		(1,200	)		(4,800	)
Proceeds from sales of available-for-sale securities		5,734			198
Proceeds from maturities of available-for-sale securities		1,060			11,735
Purchases of available-for-sale securities		(212	)		(10,000	)
Purchases of property and equipment		—			(154	)
Net cash provided by (used in) investing activities		5,382			(3,021	)
Cash flows from financing activities
Proceeds from financing under capital lease obligations		—			4,858
Principal payments under capital lease obligations		(1,656	)		(1,547	)
Principal payments on mortgage security agreement		(448	)		(426	)
Debt modification costs paid		(149	)		—
Bank overdrafts		2,165			1,117
Net cash provided by (used in) financing activities		(88	)		4,002
Net increase (decrease) in cash and cash equivalents		3,757			(12,388	)
Cash and cash equivalents at beginning of year		23,863			44,569
Cash and cash equivalents at end of period	$	27,620		$	32,181
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,029		$	1,154
Cash paid for income taxes		12			1,634
Disclosure of non-cash information:
Senior secured credit facility modification fee capitalized to loan balance	$	713		$	—

See accompanying Notes to Consolidated Financial Statements

6

AFFIRMATIVE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. General

Affirmative Insurance Holdings, Inc. (the Company) was incorporated in Delaware in June 1998. The Company is a provider of non-standard personal automobile insurance policies for individual consumers in targeted geographic areas. The Company currently distributes insurance policies through approximately 5,000 independent agents or brokers in 7 states (Louisiana, Texas, California, Alabama, Illinois, Indiana and Missouri).

2. Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. This assumes continuing operations and the realization of assets and liabilities in the normal course of business.

The Company incurred losses from operations over the last six years, including an operating loss of $31.0 million for the year ended December 31, 2014. Losses over this period were primarily due to underwriting losses, significant revenue declines, expenses declining less than the amount of revenue declines, and goodwill impairments. The losses from operations were the result of significant new business written in 2012 and 2013, prior pricing issues in some states in which the Company has taken significant pricing and underwriting actions to address profitability, losses from states that the Company has exited, such as Florida and Michigan, and goodwill impairment charges as a result of such losses.

The senior secured and subordinated credit facilities contain quarterly debt covenants that set forth, among other things, minimum risk-based capital requirements for the Company’s insurance subsidiaries as well as minimum cash flow requirements for the Company’s non-regulated businesses. The credit facilities have been amended to waive compliance with the risk-based capital measurement requirement as of March 31, 2015, and to postpone the principal payment of $3.5 million due March 31, 2015 to June 30, 2015. Except for the minimum risk-based capital requirement for which the Company obtained a waiver, the Company was in compliance with these covenants as of March 31, 2015. However, it is probable the Company will not meet certain of these covenants in future periods. If the Company is unable to achieve compliance with the covenants or obtain a forbearance or waiver of any non-compliance or amend the agreements to change such covenants, the lenders could declare all amounts outstanding under the facilities to be immediately due and payable. Even if the Company is compliant with the covenants or, if not compliant, obtains additional forbearance or waivers from its lenders, there is still substantial uncertainty that the Company will be able to refinance or extend the maturity of the senior secured facility when it becomes due in March 2016. If the Company’s lenders declare the amounts outstanding to be immediately due and payable or if the Company is unable to refinance or extend the maturity of the senior secured credit facility when it becomes due, it would have a material adverse effect on the Company’s operations and the Company’s creditors and stockholders.

The Company’s insurance subsidiaries are subject to risk-based capital standards and other minimum capital and surplus requirements imposed under applicable state laws, including the laws of their state of domicile. The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the National Association of Insurance Commissioners, or NAIC, require insurance companies to report their results of risk-based capital calculations to state departments of insurance and the NAIC. At December 31, 2014, the risk-based capital level of Affirmative Insurance Company (AIC) triggered a regulatory action level event under the NAIC standard. As a result, AIC was required to submit a plan to the Illinois Department of Insurance (IDOI) in April 2015 detailing corrective actions being taken to return its risk-based capital ratio to an acceptable level. The IDOI may accept the plan, require further amendments to the plan or take additional regulatory action including, but not limited to, placing AIC in receivership. Such additional regulatory action by the Illinois Department of Insurance would have a material adverse effect on the Company’s operations and the interest of its creditors and stockholders. Such additional regulatory action by the Illinois Department of Insurance also would trigger a further event of default under the Company’s senior secured credit facility and subordinated credit facility allowing the Company’s lenders to declare all amounts outstanding under the facilities to be immediately due and payable, and if such amounts were declared immediately due and payable by the lenders, it would have a material adverse effect on the Company’s operations and the interests of its creditors and stockholders.

The Company has taken and will continue to pursue appropriate actions to improve the underwriting results. The Company is also pursuing various other actions to address these issues. However, there can be no assurance that these actions will be effective.

The Company’s recent history of recurring losses from operations, its failure to comply with certain financial covenants in its senior secured and subordinated credit facilities, its need to meet debt repayment requirements and its failure to comply with the Illinois Department of Insurance minimum risk-based capital requirements raise substantial doubt about the Company’s ability to continue as a going concern.

7

The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects of this uncertainty on the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities.

3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements of the Company. In the opinion of management, all adjustments necessary for a fair presentation have been included and are of a normal recurring nature. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K. The results of operations for interim periods should not be considered indicative of results to be expected for the full year.

Recently Issued Accounting Standards

Accounting Standards Update (ASU) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs issued in April 2015 requires 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 that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this standard is expected to impact only the presentation and note disclosures in the Company’s consolidated financial statements.

Accounting Standards Update (ASU) No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis issued in February 2015is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The ASU will be effective for periods beginning after December 15, 2015 for public companies. Early adoption is permitted, including adoption in an interim period. The implications of this ASU are currently under review by the Company.

4. Available-for-Sale Investment Securities

The Company’s available-for-sale investment securities are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of stockholders’ deficit. No income tax effect of unrealized gains and losses is reflected in other comprehensive income (loss) due to the Company carrying a full deferred tax valuation allowance. Gains and losses realized on the disposition of investment securities are determined on the specific-identification basis and credited or charged to income at the time of disposal.

Amortized Cost and Fair Value

The amortized cost, gross unrealized gains (losses), and estimated fair value of the Company’s available-for-sale securities at March 31, 2015 and December 31, 2014, were as follows (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
March 31, 2015
U.S. Treasury and government agencies	$	8,292	$	32	$	(9	)	$	8,315
States and political subdivisions		1,478		30		—			1,508
Corporate debt securities		15,009		152		(13	)		15,148
Certificates of deposit		1,750		3		—			1,753
Total	$	26,529	$	217	$	(22	)	$	26,724
December 31, 2014
U.S. Treasury and government agencies	$	8,311	$	33	$	(30	)	$	8,314
Mortgage-backed securities		3,386		19		(92	)		3,313
States and political subdivisions		1,485		34		—			1,519
Corporate debt securities		17,340		90		(58	)		17,372
Certificates of deposit		2,760		8		(1	)		2,767
Total	$	33,282	$	184	$	(181	)	$	33,285

8

For additional disclosures regarding methods and assumptions used in estimating fair values of these securities see Note 13.

Maturities

Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties. The Company’s amortized cost and estimated fair values of fixed-income securities at March 31, 2015 by contractual maturity were as follows (in thousands):

	Amortized Cost		Estimated Fair Value
Fixed maturities:
Due in one year or less	$	5,646	$	5,666
Due after one year through five years		20,726		20,901
Due after five years through ten years		157		157
Total	$	26,529	$	26,724

Gross Realized Gains and Losses

Gross realized gains and losses on available-for-sale investments for the three months ended March 31 were as follows (in thousands):

	2015			2014
Gross gains	$	24		$	—
Gross losses		(98	)		—
Total	$	(74	)	$	—

Unrealized Losses

The following table summarizes the Company’s available-for-sale securities in an unrealized loss position at March 31, 2015 and December 31, 2014, the estimated fair value and amount of gross unrealized losses, aggregated by investment category and length of time those securities have been continuously in an unrealized loss position (in thousands):

	March 31, 2015
	Less Than Twelve Months					Twelve Months or Greater					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
U.S. Treasury and government agencies	$	480	$	(1	)	$	2,000	$	(8	)	$	2,480	$	(9	)
Corporate debt securities		4,097		(9	)		1,567		(4	)		5,664		(13	)
Total	$	4,577	$	(10	)	$	3,567	$	(12	)	$	8,144	$	(22	)

	December 31, 2014
	Less Than Twelve Months					Twelve Months or Greater					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
U.S. Treasury and government agencies	$	2,217	$	(6	)	$	1,984	$	(24	)	$	4,201	$	(30	)
Mortgage-backed securities		1,388		(22	)		1,273		(70	)		2,661		(92	)
Corporate debt securities		5,894		(36	)		3,235		(22	)		9,129		(58	)
Certificates of deposit		999		(1	)		—		—			999		(1	)
Total	$	10,498	$	(65	)	$	6,492	$	(116	)	$	16,990	$	(181	)

9

The Company’s portfolio contained approximately 35 and 65 individual investment securities that were in an unrealized loss position as of March 31, 2015 and December 31, 2014, respectively.

The unrealized losses at March 31, 2015 were primarily attributable to changes in market interest rates since the securities were purchased. Management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. On a quarterly basis, the Company considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, duration and extent to which the fair value is less than cost. If the fair value of a debt security is less than its amortized cost basis, an other-than-temporary impairment may be triggered in circumstances where (1) an entity has an intent to sell the security, (2) it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, or (3) the entity does not expect to recover the entire amortized cost basis of the security (that is, a credit loss exists). Other-than-temporary impairments are separated into amounts representing credit losses which are recognized in earnings and amounts related to all other factors which are recognized in other comprehensive income (loss). The Company also considers potential adverse conditions related to the financial health of the issuer based on rating agency actions. As a result of management’s quarterly analyses for the period ended March 31, 2015 and the year ended December 31, 2014, no individual securities were considered other-than-temporarily impaired.

Restricted Investments

Certificates of deposit in the amount of $1.8 million and $2.8 million as of March 31, 2015 and December 31, 2014, respectively, were pledged as collateral associated with the capital lease related to certain computer software, software licenses, and hardware used in the Company’s insurance operations. See Note 8 for discussion of the associated capital lease obligation.

5. Reinsurance

In the ordinary course of business, the Company places reinsurance with other insurance companies in order to provide greater diversification of its business and limit the potential for losses arising from large risks. The Company’s reinsurance agreements provide for recovery of a portion of losses and loss expenses from reinsurers and reinsurance recoverables are recorded as assets. The Company is liable if the reinsurers are unable to satisfy their obligations under the agreements. The Company seeks to cede business to reinsurers generally with a financial strength rating of “A-” or better.

Quota-share agreements

In 2013, the Company entered into a quota-share agreement with a third-party reinsurance company effective March 31, 2013, under which the Company ceded 40% of business produced in Louisiana, Alabama, Texas and Illinois. This agreement was amended effective June 30, 2013, under which the Company ceded an additional 40% for the same four states for the remainder of 2013. This agreement was further amended to provide a $10.0 million reduction in ceded premiums in the fourth quarter. Written premiums ceded under this agreement totaled $145.8 million during the year ended December 31, 2013. This agreement terminated on January 1, 2014, resulting in the return of $47.2 million unearned premiums, net of $13.9 million of ceding commissions. Written premiums ceded under the agreement totaled $98.6 million.

Effective December 31, 2013, the Company entered into a new reinsurance agreement with four third-party reinsurance companies. Under this agreement, the Company ceded 20% of premiums and losses in Alabama, Illinois, Louisiana and Texas, and 60% in California on policies in force on December 31, 2013 or written or renewed on and after that date. Written premiums ceded under this agreement totaled $22.2 million as of December 31, 2013. On January 1, 2014, the quota-share rate increased to 60% for all business in force in these same states and for new and renewal business. On June 30, 2014, the reinsurance agreement was terminated, resulting in the return of $51.7 million of unearned premiums, net of $14.5 million of ceding commissions. Written premiums ceded under the agreement totaled $95.9 million as of December 31, 2014. In March 2015, two of the quota share reinsurers commuted their participation on this agreement, effectively reducing the quota share rate to 20.4%.

Effective June 30, 2014, a new reinsurance agreement with five third-party reinsurance companies was put in place to cede 85% of all business in force in these same states and for new and renewal business through June 30, 2015. Written premiums ceded under this agreement totaled $230.9 million through March 31, 2015. In March 2015, one of the quota share reinsurers commuted their participation on this agreement, reducing the effective ceding percentage to 70.6%. A return of $27.6 million of unearned ceded premiums, net of $7.7 million of ceding commissions, resulted from the commutation.

10

The effect of reinsurance on premiums written and earned was as follows (in thousands):

	Three Months Ended March 31,
	2015									2014
	Written Premium			Earned Premium			Loss and Loss Adjustment Expenses			Written Premium			Earned Premium			Loss and Loss Adjustment Expenses
Direct	$	84,733		$	79,970		$	61,140		$	99,447		$	80,321		$	56,276
Reinsurance ceded		(29,088	)		(39,055	)		(27,461	)		(34,630	)		(46,957	)		(28,724	)
Total	$	55,645		$	40,915		$	33,679		$	64,817		$	33,364		$	27,552

Under certain of the Company’s reinsurance transactions, the Company has received ceding commissions. The ceding commission rate varies based on loss experience. The estimates of loss experience are continually reviewed and adjusted, and the resulting adjustments to ceding commissions are reflected in current operations. Ceding commissions recognized, reflected as a reduction of selling, general and administrative expenses, were as follows (in thousands):

	Three Months Ended March 31,
	2015			2014
Selling, general and administrative expenses	$	(10,894	)	$	(15,430	)

The amount of loss reserves and unearned premium the Company would remain liable for in the event its reinsurers are unable to meet their obligations were as follows (in thousands):

	March 31,		December 31,
	2015		2014
Losses and loss adjustment expense reserves	$	58,952	$	86,421
Unearned premium reserve		57,121		67,089
Total	$	116,073	$	153,510

Receivable from reinsurers

The table below presents the total amount of receivables due from reinsurers as of March 31, 2015 and December 31, 2014 (in thousands):  

	March 31, 2015		December 31, 2014
Quota-share reinsurers for agreements effective June 30, 2014	$	102,460	$	130,086
Michigan Catastrophic Claims Association		25,392		27,610
Vesta Insurance Group		9,271		9,270
Quota-share reinsurers for agreements effective    December 31, 2013		4,309		14,096
Quota-share reinsurer for agreements effective January 1, 2011    and other		3,158		3,188
Quota-share reinsurer for agreements effective    September 1, 2011 and March 31, 2013		1,918		(2,285	)
Excess of loss reinsurers		897		839
Total reinsurance receivable	$	147,405	$	182,804

The quota-share reinsurers and the excess of loss reinsurers all have at least A- ratings from A.M. Best. Accordingly, the Company believes there is minimal credit risk related to these reinsurance receivables. Under the reinsurance agreement with Vesta Insurance Group (VIG), including primarily Vesta Fire Insurance Corporation (VFIC), AIC had the right, under certain circumstances, to require VFIC to provide a letter of credit or establish a trust account to collateralize gross amounts due from VFIC under the reinsurance agreement. At March 31, 2015, the VFIC Trust held $16.5 million (after cumulative withdrawals of $9.0 million through March 31, 2015), consisting of a U.S. Treasury money market account held in cash and cash equivalents, to collateralize the $9.3 million net recoverable from VFIC. In March 2015, AIC received a notice of determination from the VFIC Special Deputy Receiver on multiple proofs of claim for an aggregate amount of $15.3 million for various reinsurance balances with VFIC. As part of the

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notice of determination, AIC entered into a settlement agreement and release with the VFIC Special Deputy Receiver. AIC expects to receive the $15.3 million in settlement proceeds in May 2015.

6. Deferred Policy Acquisition Costs

Policy acquisition costs, consisting of primarily commissions and premium taxes, net of ceding commission income, are deferred and charged against income ratably over the terms of the related policies. The components of deferred policy acquisition costs and the related amortization were as follows for the three months ended March 31, 2015 and 2014 (in thousands):

	Gross			Ceded			Net
Balance at January 1, 2015	$	14,568		$	(18,782	)	$	(4,214	)
Additions		14,962			(8,110	)		6,852
Amortization		(14,210	)		10,899			(3,311	)
Ending balance at March 31, 2015	$	15,320		$	(15,993	)	$	(673	)
Balance at January 1, 2014	$	12,587		$	(20,131	)	$	(7,544	)
Additions		17,892			(8,894	)		8,998
Amortization		(13,265	)		13,052			(213	)
Ending balance at March 31, 2014	$	17,214		$	(15,973	)	$	1,241

7. Debt

The Company’s long-term debt instruments and balances outstanding at March 31, 2015 and December 31, 2014 were as follows (in thousands):

	March 31, 2015		December 31, 2014
Notes payable due 2035	$	30,928	$	30,928
Notes payable due 2035		25,774		25,774
Notes payable due 2035		20,111		20,113
Total notes payable		76,813		76,815
Senior secured credit facility effective September 2013,    net of discount		28,946		28,135
Subordinated secured credit facility		17,376		16,566
Mortgage payable		1,377		1,825
Total long-term debt	$	124,512	$	123,341

Notes payable

The $30.9 million notes payable due 2035 are redeemable in whole or in part by the Company. The notes adjust quarterly to the three-month LIBOR rate plus 3.60%. The interest rate as of March 31, 2015 was 3.87%.

The $25.8 million notes payable due 2035 are redeemable in whole or in part by the Company. The notes adjust quarterly to the three-month LIBOR rate plus 3.55%. The interest rate as of March 31, 2015 was 3.82%.

On February 28, 2012, the Company exercised its right to defer interest payments on the two notes payable mentioned above beginning with the scheduled interest payment due in March 2012 and continuing for a period of up to five years. The affected notes are associated with obligations to the Company’s unconsolidated trusts. The outstanding balance of the affected notes was $56.7 million as of March 31, 2015. The Company will continue to accrue interest on the principal during the interest deferral period and the unpaid deferred interest will also accrue interest. Deferred interest will be due and payable at the expiration of the interest deferral period and totaled $7.5 million as of March 31, 2015.

The $20.1 million notes payable due 2035 are redeemable in whole or in part by the Company. The notes adjust quarterly to the three-month LIBOR rate plus 3.95%. The interest rate as of March 31, 2015 was 4.22%.

Senior and subordinated secured facilities

On September 30, 2013, the Company replaced its existing senior credit facility with the proceeds from the sale of the retail business and with proceeds from two new debt arrangements. The Company’s new debt arrangement consisted of a $40.0 million

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senior secured credit facility with a maturity date of March 30, 2016, and a $10.0 million subordinated secured credit facility with a maturity date of March 30, 2017.

The pricing under the senior secured credit facility was amended effective September 30, 2014 to an adjusted LIBOR rate floor of 1.25%, plus 9.25%. The interest rate as of March 31, 2015 was 10.50%. The Company made principal payments of $11.5 million in the aggregate as at March 31, 2015. Fees of $0.7 million were added to the outstanding principal balance on March 31, 2015 in connection with the amended agreement effective December 31, 2014. As of March 31, 2015, the principal balance of the senior secured credit facility was $29.2 million. The senior secured credit facility was issued at a discount of $2.0 million that is amortized as interest expense over the expected term of the loan using the effective interest method. Repayment of the facility is due quarterly with $2.0 million payable for each quarter through September 30, 2014, $3.5 million payable each quarter through September 30, 2015, $4.5 million payable on December 31, 2015 and the remaining balance of $13.5 million due in full on March 30, 2016. Prepayments under this agreement are applied to the earliest payments due. Effective December 31, 2014, the senior secured credit facility was amended to postpone the principal payment of $3.5 million due March 31, 2015. The next payment due is $7.0 million on June 30, 2015.

The pricing under the subordinated secured credit facility is currently subject to an adjusted LIBOR rate floor of 1.25%, plus 18.00%. The interest rate as of March 31, 2015 was 19.25%. The subordinated secured credit facility included a commitment fee of $3.0 million that was added to the principal balance outstanding. Accrued interest is added to the outstanding principal balance until the senior secured credit facility is paid. Capitalized interest totaling $4.4 million was added to the principal balance through March 31, 2015. As of March 31, 2015, the principal balance of the subordinated secured credit facility was $17.4 million.

In March 2015, the Company entered into an amendment to the senior secured and subordinated credit facilities. The amendment included the following significant items:

· A waiver under both the senior secured and subordinated credit facility of all defaults or events of default arising out of the breach of the Company’s risk-based capital ratio for the quarters ended December 31, 2014 and March 31, 2015.

· The principal payment of $3.5 million due March 31, 2015 under the senior secured facility postponed to June 30, 2015. The next principal payment due is $7.0 million on June 30, 2015.

· A fee of 2.5% is due to the senior secured facility lenders upon approving the amendment. The fee shall be added to the principal amount of the credit facility as of March 31, 2015. Commencing on July 31, 2015, a fee of 0.50% is due on the last day of each month thereafter, which may, at the Company’s option, be added to the principal amount of the credit facility then outstanding.

In November 2014, the Company entered into an amendment to the senior secured and subordinated credit facilities. The amendment included the following significant items:

· A waiver under both the senior secured and subordinated credit facility of all defaults or events of default arising out of the breach of the Company’s risk-based capital ratio for the quarter ended September 30, 2014.

· Effective September 30, 2014, the pricing under the senior secured facility changed from adjusted LIBOR rate floor plus 7.25% to the adjusted LIBOR rate floor plus 9.25%. The new interest rate on the senior secured facility beginning September 30, 2014 is 10.50%.

· A fee of 1% is due to the senior secured facility lenders upon approving the amendment. The Company paid a 0.50% fee to the senior secured facility lenders in November 2014 and March 2015.

Mortgage payable

In March 2013, the Company, through one of its indirect, wholly-owned subsidiaries, entered into a $4.8 million loan secured by commercial real estate to provide liquidity to AIC. The loan is evidenced by a promissory note secured by a mortgage security agreement and assignment of leases and rents on real estate located in Baton Rouge, Louisiana, which is held as investment in real property on the consolidated balance sheet. The mortgage bears interest at a per annum fixed rate of 4.95%. The mortgage requires monthly payments of principal and interest with the final payment due on the maturity date of December 15, 2015. As security for payments, the Company assigned rents due under the lease to a trustee. Pursuant to an escrow and servicing agreement, the trustee will receive rent due under the lease, make required payments due under the mortgage and maintain certain escrow accounts to pay for the necessary expenses of the property until the mortgage is paid in full.

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8. Capital Lease Obligation

In December 2013, the Company entered into a capital lease obligation related to certain computer software, software licenses and hardware used in the Company’s insurance operations. The Company received cash proceeds from the financing in the amount of $4.9 million which were pledged as collateral against all the Company’s obligations under the lease. The dollar amount of collateral pledged is set to decline over the term of the lease as the Company makes the scheduled lease payments. At the end of the initial term, the Company will have the right to purchase the software for a nominal fee, after which all rights, title and interest would transfer to the Company.

In May 2010, the Company entered into two capital lease obligations related to certain computer software, software licenses, and hardware used in the Company’s insurance operations. The Company received cash proceeds from the financing in the amount of $28.2 million. As required by the lease agreements, the Company purchased $28.2 million of certificates of deposit held in brokerage accounts and pledged such securities as collateral against all of the Company’s obligations under the lease. The dollar amount of collateral pledged is set to decline over the term of the lease as the Company makes the scheduled lease payments. At the end of the initial term, the Company will have the right to purchase the software for a nominal fee, after which all rights, title and interest would transfer to the Company.

In October 2012, one of the Lessors terminated their capital lease agreement with the Company. In December 2012, the Lessor conveyed all rights and interest in the leased property to the Company.

The remaining lease term for both capital leases is 3 months with monthly rental payments totaling approximately $0.6 million. Cash and securities pledged as collateral and held as available-for-sale securities were $3.0 million and $4.9 million as of March 31, 2015 and December 31, 2014, respectively.

Property under capital lease consisted of the following as of March 31, 2015 and 2014 (in thousands):

	March 31, 2015			December 31, 2014
Computer software, software licenses and hardware	$	34,212		$	34,212
Accumulated depreciation		(29,175	)		(28,263	)
Computer software, software licenses and hardware, net	$	5,037		$	5,949

Estimated future lease payments for the year ending December 31 (in thousands):

2015	$	1,704
Less: Amount representing interest		(16	)
Present value of future lease payments	$	1,688

9. Income Taxes

The provision for income taxes for the three months ended March 31, 2015 and 2014 consisted of the following (in thousands):

	Three Months Ended March 31,
	2015		2014
Current tax expense (benefit)	$	144	$	(294	)
Deferred tax expense		—		—
Income tax expense (benefit)	$	144	$	(294	)

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The Company’s effective tax rate differed from the statutory rate of 35% for the three months ended March 31 as follows (in thousands):

	Three Months Ended March 31,
	2015			2014
Income (loss) before income taxes	$	(1,836	)	$	370
Tax provision computed at the federal statutory income    tax rate		(643	)		130
Increases (reductions) in tax resulting from:
Tax-exempt interest		(2	)		(4	)
State income taxes		65			349
Valuation allowance		716			(774	)
Other		8			5
Income tax expense (benefit)	$	144		$	(294	)
Effective tax rate		(7.8	)%		(79.5	)%

Our gross deferred tax assets prior to recognition of valuation allowance were $99.2  million and $98.5 million at March 31, 2015 and December 31, 2014, respectively. In assessing the realizability of our deferred tax assets, we considered whether it was more likely than not that our deferred tax assets will be realized based upon all available evidence, including scheduled reversal of deferred tax liabilities, historical operating results, projected future operating results, tax carry-back availability, and limitations pursuant to Section 382 of the Internal Revenue Code, among others. Based on this assessment, we began recording a valuation allowance against deferred taxes in December 2009. The valuation allowance was $97.8 million and $97.2 million at March 31, 2015 and December 31, 2014, respectively.

10. Legal and Regulatory Proceedings

The Company and its subsidiaries are named from time to time as parties in various legal actions arising in the ordinary course of the Company’s business and arising out of or related to claims made in connection with the Company’s insurance policies and claims handling. There are no material changes with respect to legal and regulatory proceedings previously disclosed in Note 15 to the consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2014.

11. Net Income (Loss) per Common Share

Net income (loss) per common share is based on the weighted average number of shares outstanding. Diluted weighted average shares are calculated by adjusting basic weighted average shares outstanding by all potentially dilutive stock options. Restricted stock awards of 314,667 for the three months ended March 31, 2015, were not included in the computation of diluted earnings per share because the value of the award was greater than the average market price of the common stock. Stock options outstanding of 1,250,000 and 323,000 for the three months ended March 31, 2015 and 2014, respectively, were not included in the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common stock or there was a net loss from operations in the period thus the inclusion would have been anti-dilutive. Diluted earnings per share are calculated using the treasury stock method.

The following table sets forth the reconciliation of numerators and denominators for the basic and diluted earnings per share computation for the three months ended March 31, 2015 and 2014 (in thousands, except per share amounts):

	Three Months Ended March 31,
	2015			2014
Numerator:
Net income (loss)	$	(1,980	)	$	664
Denominator:
Weighted average common shares outstanding		15,767			15,408
Weighted average effect of dilutive securities		—			874
Total diluted weighted average shares outstanding		15,767			16,282
Basic income (loss) per common share:	$	(0.13	)	$	0.04
Diluted income (loss) per common share:	$	(0.13	)	$	0.04

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12. Disclosures for Items Reclassified Out of Accumulated Other Comprehensive Income (Loss)

The following table sets forth the components of accumulated other comprehensive income (loss), including reclassification adjustments for the three months ended March 31, 2015 and 2014 (in thousands):

	2015			2014
Beginning balance	$	(1,536	)	$	(1,654	)
Other comprehensive income before reclassifications		118			219
Amounts reclassified from accumulated other    comprehensive income (loss)		74			—
Net current period other comprehensive income		192			219
Ending balance	$	(1,344	)	$	(1,435	)

Net loss in accumulated other comprehensive income (loss) reclassifications for previously unrealized net loss on available-for-sale securities was $74,000 for the three months ended March 31, 2015. The loss was not net of any taxes due to the valuation allowance for deferred income taxes.

13. Fair Value of Financial Instruments

The Company utilizes a hierarchy of valuation techniques for the disclosure of fair value estimates based on whether the significant inputs into the valuation are observable. In determining the level of hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The Company measures certain assets and liabilities at fair value on a recurring basis, including investment securities classified as available-for-sale, cash equivalents and other invested assets. Following is a brief description of the type of valuation information that qualifies as a financial asset or liability for each level:

Level 1 — Unadjusted quoted market prices for identical assets or liabilities in active markets which are accessible by the Company.

Level 2 — Observable prices in active markets for similar assets or liabilities. Prices for identical or similar assets or liabilities in markets that are not active. Directly observable market inputs for substantially the full term of the asset or liability, e.g., interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, default rates, and credit spreads. Market inputs that are not directly observable, but are derived from or corroborated by observable market data.

Level 3 — Unobservable inputs based on the Company’s own judgment as to assumptions a market participant would use, including inputs derived from extrapolation and interpolation that are not corroborated by observable market data.

The Company evaluates the various types of financial assets and liabilities to determine the appropriate fair value hierarchy based upon trading activity and the observation of market inputs. The Company employs control processes to validate the reasonableness of the fair value estimates of its assets and liabilities, including those estimates based on prices and quotes obtained from independent third-party sources. The Company’s procedures generally include, but are not limited to, initial and ongoing evaluation of methodologies used by independent third-parties and additional pricing services are used as a comparison to determine the reasonableness of fair values used in pricing the investment portfolio.

The Company recognizes transfers between levels at the actual date of the event or change in circumstances that caused the transfer.

Where possible, the Company utilizes quoted market prices to measure fair value. For assets and liabilities that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in Level 1 of the hierarchy. When quoted market prices in active markets are unavailable, the Company determines fair values based on independent external valuation information obtained from independent pricing services, which utilize various models and valuation techniques based on a range of inputs including pricing models, quoted market prices of publicly traded securities with similar duration and yield, time value, yield curve, prepayment speeds, default rates and discounted cash flows. In most cases, these estimates are determined based on independent third-party valuation information, and the amounts are disclosed as Level 2 or Level 3 of the fair value hierarchy depending on the level of observable market inputs.

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Financial assets measured at fair value on a recurring basis

The following table provides information as of March 31, 2015 about the Company’s financial assets measured at fair value on a recurring basis (in thousands):  

	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury and government agencies	$	8,315	$	8,315	$	—	$	—
States and political subdivisions		1,508		—		1,508		—
Corporate debt securities		15,148		—		15,148		—
Certificates of deposit		1,753		—		1,753		—
Total investment securities		26,724		8,315		18,409		—
Other invested assets		4,560		—		—		4,560
Total assets	$	31,284	$	8,315	$	18,409	$	4,560

The following table provides information as of December 31, 2014 about the Company’s financial assets measured at fair value on a recurring basis (in thousands):  

	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury and government agencies	$	8,314	$	8,314	$	—	$	—
Mortgage-backed securities		3,313		—		3,313		—
States and political subdivisions		1,519		—		1,519		—
Corporate debt securities		17,372		—		17,372		—
Certificates of deposit		2,767		—		2,767		—
Total investment securities		33,285		8,314		24,971		—
Other invested assets		4,501		—		—		4,501
Total assets	$	37,786	$	8,314	$	24,971	$	4,501

Level 1 Financial assets

Financial assets classified as Level 1 in the fair value hierarchy include U.S. Treasury and government agencies securities. These securities are actively traded and the Company estimates the fair value of these securities using unadjusted quoted market prices.

Level 2 Financial assets

Financial assets classified as Level 2 in the fair value hierarchy include mortgage-backed securities, tax-exempt securities, corporate bonds and certificates of deposit. The fair value of these securities is determined based on observable market inputs provided by independent third-party pricing services. To date, the Company has not experienced a circumstance where it has determined that an adjustment is required to a quote or price received from independent third-party pricing sources. To the extent the Company determines that a price or quote is inconsistent with actual trading activity observed in that investment or similar investments, the Company would determine a fair value using this observable market information and disclose the occurrence of this circumstance. All of the fair values of securities disclosed in Level 2 are estimated based on independent third-party pricing services.

Level 3 Financial assets

The Company’s Level 3 financial assets include an investment in a hedge fund, which is presented as other invested assets in the consolidated balance sheets. The Company elected the fair value option for its investment in the hedge fund and measures the fair value of the hedge fund on the basis of the net asset value of the fund as reported by the fund manager. The hedge fund is primarily invested in residential mortgage-backed securities and other asset-backed securities which are recorded at fair value as determined by the fund manager. Such fair value determination is based on quoted marked prices, bid prices, or the fund manager’s proprietary valuation models where quoted prices are unavailable or deemed to be inadequately representative of fair value. Significant decreases

17

in the fair value of the underlying securities in the hedge fund would result in a significantly lower fair value measurement of other invested assets as reported in the consolidated balance sheets.

Fair value measurements for assets in Level 3 for the year ended March 31, 2015 were as follows (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Other Invested Assets
Balance at January 1, 2015	$	4,501
Transfers into Level 3		—
Total gains included in earnings as net investment    income		59
Settlements		—
Balance at March 31, 2015	$	4,560

Fair value measurements for assets in Level 3 for the year ended March 31, 2014 were as follows (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Other Invested Assets
Balance at January 1, 2014	$	4,085
Transfers into Level 3		—
Total gains included in earnings as net investment    income		127
Settlements		—
Balance at March 31, 2014	$	4,212

The Company did not have any transfers between Levels 1 and 2 during the three months ended March 31, 2015 or 2014.

Financial Instruments Disclosed, But Not Carried, At Fair Value

Fair values represent the Company’s best estimates and may not be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.

The following table presents the carrying value and estimated fair value of the Company’s financial assets and liabilities disclosed, but not carried, at fair value at March 31, 2015 and the level within the fair value hierarchy (in thousands):

	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	27,620	$	27,620	$	27,620	$	—	$	—
Fiduciary and restricted cash		4,003		4,003		4,003		—		—
Total	$	31,623	$	31,623	$	31,623	$	—	$	—
Liabilities:
Notes payable	$	76,813	$	14,233	$	—	$	—	$	14,233
Senior secured credit facility		28,946		29,045		—		—		29,045
Subordinated secured credit facility		17,376		15,105		—		—		15,105
Mortgage payable		1,377		1,377		—		—		1,377
Total	$	124,512	$	59,760	$	—	$	—	$	59,760

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The following table presents the carrying value and estimated fair value of the Company’s financial assets and liabilities disclosed, but not carried, at fair value at December 31, 2014 and the level within the fair value hierarchy (in thousands):

	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	23,863	$	23,863	$	23,863	$	—	$	—
Fiduciary and restricted cash		4,794		4,794		4,794		—		—
Total	$	28,657	$	28,657	$	28,657	$	—	$	—
Liabilities:
Notes payable	$	76,815	$	14,289	$	—	$	—	$	14,289
Senior secured credit facility		28,135		28,254		—		—		28,254
Subordinated secured credit facility		16,566		14,126		—		—		14,126
Mortgage payable		1,825		1,825		—		—		1,825
Total	$	123,341	$	58,494	$	—	$	—	$	58,494

The fair values of the notes payable, the senior secured credit facility and the subordinated secured credit facility were estimated using discounted cash flow analyses prepared by a third-party valuation source based on inputs and assumptions, such as credit and default risk associated with the debt. The mortgage payable is reported at par value which approximates its fair value due to its short-term nature.

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

OVERVIEW

We are a provider of non-standard personal automobile insurance policies for individual consumers in targeted geographic markets. Non-standard personal automobile insurance policies provide coverage to drivers who find it difficult to obtain insurance from standard automobile insurance companies due to their lack of prior insurance, age, driving record, limited financial resources or other factors. Non-standard personal automobile insurance policies generally require higher premiums than standard automobile insurance policies for comparable coverage.

As of March 31, 2015, our subsidiaries included insurance companies licensed to write insurance policies in 39 states, two underwriting agencies and a service company. We currently operate in seven states (Louisiana, Texas, California, Alabama, Illinois, Indiana and Missouri) and distribute our insurance policies through approximately 5,000 independent agents or brokers, including an unaffiliated underwriting agency that distributes our policies in the state of California. We also distribute and service non-standard insurance policies underwritten by a Texas county mutual insurance company.

The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern. This assumes continuing operations and the realization of assets and liabilities in the normal course of business.

We incurred losses from operations over the last six years, including an operating loss of $31.0 million for the year ended December 31, 2014. Losses over this period were primarily due to underwriting losses, significant revenue declines, expenses declining less than the amount of revenue declines, and goodwill impairments. The losses from operations were the result of significant new business written in 2012 and 2013, prior pricing issues in some states in which the Company has taken significant pricing and underwriting actions to address profitability, losses from states that the Company has exited, such as Florida and Michigan, and goodwill impairment charges as a result of such losses.

The senior secured and subordinated credit facilities contain quarterly debt covenants that set forth, among other things, minimum risk-based capital requirements for our insurance subsidiaries as well as minimum cash flow requirements for our non-regulated businesses. The credit facilities have been amended to waive compliance with the risk-based capital measurement requirement as of March 31, 2015, and to postpone the principal payment of $3.5 million due March 31, 2015 to June 30, 2015. Except for the minimum risk-based capital requirement for which we obtained a waiver, we were in compliance with these covenants as of March 31, 2015. However, it is probable we will not meet certain of these covenants in future periods. If we are unable to achieve compliance with the covenants or obtain a forbearance or waiver of any non-compliance or amend the agreements to change such covenants, the lenders could declare all amounts outstanding under the facilities to be immediately due and payable. Even if we were compliant with the covenants or, if not compliant, obtain additional forbearance or waivers from our lenders, there is still substantial uncertainty that we will be able to refinance or extend the maturity of the senior secured facility when it becomes due in March 2016. If our lenders declare the amounts outstanding to be immediately due and payable or if we were unable to refinance or extend the maturity of the senior secured credit facility when it becomes due, it would have a material adverse effect on our operations and our creditors and stockholders. .

Our insurance subsidiaries are subject to risk-based capital standards and other minimum capital and surplus requirements imposed under applicable state laws, including the laws of their state of domicile. The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the National Association of Insurance Commissioners, or NAIC, require insurance companies to report their results of risk-based capital calculations to state departments of insurance and the NAIC. At December 31, 2014, the risk-based capital level of Affirmative Insurance Company (AIC) triggered a regulatory action level event under the NAIC standard. As a result, AIC was required to submit a plan to the Illinois Department of Insurance (IDOI) in April 2015 detailing corrective actions being taken to return its risk-based capital ratio to an acceptable level. The IDOI may accept the plan, require further amendments to the plan or take additional regulatory action including, but not limited to, placing AIC in receivership. Such additional regulatory action by the Illinois Department of Insurance would have a material adverse effect on our operations and the interest of our creditors and stockholders. Such additional regulatory action by the Illinois Department of Insurance also would trigger a further event of default under our senior secured credit facility and subordinated credit facility allowing our lenders to declare all amounts outstanding under the facilities to be immediately due and payable, and if such amounts were declared immediately due and payable by the lenders, it would have a material adverse effect on our operations and the interests of our creditors and stockholders.

We have taken and will continue to pursue appropriate actions to improve the underwriting result. We are also pursuing various other actions to address these issues.  However, there can be no assurance that these actions will be effective.

Our recent history of recurring losses from operations, our failure to comply with certain financial covenants in our senior secured and subordinated credit facilities, our need to meet debt repayment requirements and our failure to comply with the Illinois Department of Insurance minimum risk-based capital requirements raise substantial doubt about the Company’s ability to continue as a going concern.

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The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects of this uncertainty on the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities.

RECENTLY ISSUED ACCOUNTING STANDARDS

Accounting Standards Update (ASU) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs issued in April 2015 requires 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 that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this standard is expected to impact only the presentation and note disclosures in our consolidated financial statements.

Accounting Standards Update (ASU) No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis issued in February 2015is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The ASU will be effective for periods beginning after December 15, 2015 for public companies. Early adoption is permitted, including adoption in an interim period. The implications of this ASU are currently under review.

MEASUREMENT OF PERFORMANCE

Our ability to develop strong and mutually beneficial relationships with independent agencies is important to the success of our distribution strategy. We believe that strong product positioning and high service standards are key to independent agency loyalty. We foster our independent agency relationships by providing them our agency software applications designed to strengthen and expand their sales and service capabilities for our products. These software applications provide independent agencies with the ability to service their customers’ accounts and access their own commission information. We maintain strict and high standards for call answering and abandonment rate service levels in our customer service call centers. We believe the level and array of services that we offer to independent agencies creates value in their businesses.

Premiums. One measurement of our performance is the level of gross written premiums managed. The following table displays our gross written premiums managed and assumed by state (in thousands):

	Three Months Ended March 31,
	2015		2014
Louisiana	$	31,062	$	39,563
Texas		28,374		28,730
California		20,049		22,919
Alabama		8,322		9,047
Illinois		2,396		5,018
Indiana		814		1,624
Missouri		217		1,054
Other		4		10
Total written premium managed		91,238		107,965
Less: Texas written premium not underwritten		6,505		8,518
Gross underwritten premiums	$	84,733	$	99,447

Total gross written premiums managed for the three months ended March 31, 2015 decreased $16.7 million, or 15.5%, compared with the prior year quarter. This decrease was due to the decline in production in the states of Louisiana, Illinois, Indiana and Missouri, where we suspended writing of new business for all agents other than our former retail agents in Louisiana. Additionally, we took actions to significantly reduce the writing of new business in the state of California.

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The following table reflects the premiums ceded and assumed under reinsurance agreements in our consolidated financial statements (in thousands):

	Three Months Ended March 31,
	2015			2014
Gross written premiums	$	84,733		$	99,447
Ceded premiums written		(29,088	)		(34,630	)
Net premiums written	$	55,645		$	64,817

Total net premiums written for the three months ended March 31, 2015 decreased $9.2 million, or 14.2%, compared with the prior year quarter. The decrease was due to changes in the amount of quota-share reinsurance and the reduction in gross written premium.

Reinsurance. In 2013, we entered into a new quota-share agreement with a third-party reinsurance company effective March 31, 2013, under which we ceded 40% of business produced in Louisiana, Alabama, Texas and Illinois. This agreement was amended effective June 30, 2013, under which we ceded an additional 40% for the same four states for the remainder of 2013. This agreement was further amended to provide a $10.0 million reduction in ceded premiums in the fourth quarter. Written premiums ceded under this agreement totaled $145.8 million during the year ended December 31, 2013. This agreement terminated on January 1, 2014, resulting in the return of $47.2 million unearned premiums, net of $13.9 million of ceding commissions. Written premiums ceded under the agreement totaled $98.6 million.

Effective December 31, 2013, we entered into a reinsurance agreement with four third-party reinsurance companies. Under this agreement, we ceded 20% of premiums and losses in Alabama, Illinois, Louisiana and Texas, and 60% in California on policies in force on December 31, 2013 or written or renewed on and after that date. Written premiums ceded under this agreement totaled $22.2 million as of December 31, 2013. On January 1, 2014, the quota-share rate increased to 60% for all business in force in these same states and for new and renewal business. On June 30, 2014, the reinsurance agreement was terminated, resulting in the return of $51.7 million of unearned premiums, net of $14.5 million of ceding commissions. Written premiums ceded under the agreement totaled $95.9 million as of December 31, 2014. In March 2015, two of the quota share reinsurers commuted their participation on this agreement, effectively reducing the quota share rate to 20.4%.

Effective June 30, 2014, a new reinsurance agreement with five third-party reinsurance companies was put in place to cede 85% of all business in force in these same states and for new and renewal business through June 30, 2015. Written premiums ceded under this agreement totaled $230.9 million through March 31, 2015. In March 2015, one of the quota share reinsurers commuted their participation on this agreement, reducing the effective ceding percentage to 70.6%. A return of $27.6 million of unearned ceded premiums, net of $7.7 million of ceding commissions, resulted from the commutation.

RESULTS OF OPERATIONS

We had net loss of $2.0 million and a net income of $0.7 million for the three months ended March 31, 2015 and 2014, respectively. The results for the three months ended March 31, 2015 included a negative pretax impact of $3.4 million from adverse prior period development, which consisted of an increase of $2.0 million to loss and loss adjustment expenses and $1.4 million to selling, general and administrative expenses.

Comparison of the Three Months Ended March 31, 2015 to the Three Months Ended March 31, 2014

Total revenues for the three months ended March 31, 2015 increased $6.9 million, or 15.2%, compared with the three months ended March 31, 2014. The increase was due to increases in net premiums earned and other income, partially offset by decreases in commission income, fees and managing general agent revenue, net investment income and net realized losses.

The largest component of revenue is net premiums earned on insurance policies. Net premiums earned for the current quarter increased $7.6 million, or 22.6%, to $40.9 million compared with the prior year quarter of $33.4 million. Since insurance premiums are earned over the service period of the policies, the revenue in the current quarter includes premiums earned on insurance products written through our distribution channels in both current and previous periods. The increase reflects a decrease in quota-share reinsurance during the three months ended March 31, 2015.

Commission Income, Fees and Managing General Agent Revenue. Another measurement of our performance is the relative level of production of fee revenue. Policy origination fees and installment fees compensate us for the costs of policy administration and providing installment payment plans. Policy and installment fees are earned for business managed by our general agencies and must be approved by the applicable state’s department of insurance. Managing general agent revenues are earned for business produced for

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a Texas county mutual insurance company beginning January 1, 2013. We receive compensation for underwriting services and providing claims handling on the business.

The following sets forth the components of consolidated commission income, fees and managing general agent revenue earned for the current and the prior year quarter (in thousands):

	Three Months Ended March 31,
	2015		2014
Insurance fees:
Policyholder fees	$	9,139	$	9,531
Managing general agent revenue		1,657		1,733
Commissions and fees		100		66
Total commission income, fees and managing general    agent revenue	$	10,896	$	11,330

Commission income, fees and managing general agent revenue for the three months ended March 31, 2015 decreased $0.4 million, or 3.8%, compared with the prior year quarter. The decrease was primarily due to the decline in policy fees and managing general agent revenue. Policyholder fees decreased $0.4 million, or 4.1%, due to the lower overall volume of premiums written. Managing general agent revenue decreased $0.1 million, or 4.4%, compared with the prior year quarter. Managing general agent revenue is related to the Texas county mutual book of business that we manage, but no longer assume the underwriting risk beginning January 1, 2013.

Net Investment Income and Other Income.  Net investment income includes income on our portfolio of debt securities and net rental income from our investment in real property. Net investment income for the three months ended March 31, 2015 decreased $0.2 million, or 29.4%, compared with the prior year quarter. The decrease was primarily due to a 51.3% decrease in total average invested assets to $27.3 million during the current quarter from $56.0 million during the prior year quarter. The annualized average investment yield was 1.1% in the current quarter, compared with 1.4% in the prior year quarter.

Losses and Loss Adjustment Expenses.  Since the largest expenses of an insurance company are the losses and loss adjustment expenses, another measurement of our insurance carriers’ performance is the level of such expenses, specifically as a ratio to earned premiums. Our losses and loss adjustment expenses are a blend of the specific estimated and actual costs of providing the coverage contracted by the purchasers of our insurance policies. We maintain reserves to cover our estimated ultimate liability for losses and related loss adjustment expenses for both reported and unreported claims on the insurance policies issued by our insurance companies. The establishment of appropriate reserves is an inherently uncertain process, involving actuarial and statistical projections of what we expect to be the cost of the ultimate settlement and administration of claims based on historical claims information, estimates of future trends in claims severity and other variable factors such as inflation. To the extent that our reserves prove to be inadequate in the future, we would be required to increase our reserves for losses and loss adjustment expenses and incur a charge to earnings in the period during which such reserves are increased. The historic development of our reserves for losses and loss adjustment expenses is not necessarily indicative of future trends in the development of these amounts.

Net losses and loss adjustment expenses for the current quarter increased $6.1million, or 22.2%, compared with the prior year quarter. The percentage of net losses and loss adjustment expense to net premiums earned (the net loss ratio) was 82.3% compared with 82.6% in the prior year quarter. This includes a $2.0 million unfavorable prior period development primarily related to our 2014 accident year business in Louisiana and California. The use of quota-share reinsurance overstates the net loss ratio. Loss adjustment expenses include all of the business subject to the quota-share treaties with ceding commission income booked as an offset to selling, general and administrative expenses. Excluding the impact of the quota-share, the net loss ratio for the 2015 accident quarter was 72.1% and 70.1% for the 2014.

Selling, General and Administrative Expenses. Another measurement of our performance that addresses our overall efficiency is the level of selling, general and administrative expenses (SG&A). We recognize that our customers are primarily motivated by low prices. As a result, we strive to keep our costs as low as possible to be able to keep our prices affordable and thus to maximize our sales while still maintaining profitability. Our SG&A include not only the cost of acquiring the insurance policies through our insurance carriers (the amortization of the deferred acquisition costs) and managing our insurance carriers, but also the costs of the holding company. The largest component of SG&A is personnel costs, including compensation and benefits. SG&A for the three months ended March 31, 2015 increased by $3.6 million, or 28.0%, compared to the prior year quarter. The increase resulted from a $5.1 million increase in policy acquisition costs primarily driven by the decrease in ceded commission income, partially offset by a $1.5 million decrease in overhead costs due to management actions to reduce expenses.

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Deferred policy acquisition costs represent the deferral of expenses that we incur related to successful contract acquisition of new business or renewal of existing business. Policy acquisition costs, consisting of primarily commission expenses and premium taxes, are initially deferred and then charged against income ratably over the terms of the related policies through amortization of the deferred policy acquisition costs. Thus, the amortization of deferred acquisition costs is correlated with earned premium and the ratio of amortization of deferred acquisition costs to earned premium in an accounting period is another measurement of performance.

Amortization of deferred policy acquisition costs is a major component of selling, general and administrative expenses. The following table sets forth the impact that amortization of deferred acquisition costs had on selling, general and administrative expenses and the change in deferred acquisition costs (in thousands):

	Three Months Ended March 31,
	2015			2014
Amortization of deferred acquisition costs, net	$	3,311		$	213
Other selling, general and administrative expenses		13,068			12,579
Total selling, general and administrative expenses	$	16,379		$	12,792
Total as a percentage of net premiums earned		40.0	%		38.3	%
Beginning deferred acquisition costs, net	$	(4,214	)	$	(7,544	)
Additions, net of ceding commission		6,852			8,998
Amortization, net of ceding commissions		(3,311	)		(213	)
Ending deferred acquisition costs, net	$	(673	)	$	1,241
Amortization of deferred acquisition costs, net, as a    percentage of net premiums earned		(8.1	)%		(0.6	)%

Interest Expense.  Interest expense for the three months ended March 31, 2015 decreased $0.4 million, or 10.8%, compared with the prior year quarter. This decrease was primarily due to the decrease in the average debt outstanding.

Income Taxes.  We had income tax expense of $0.1 million for the current year quarter and income tax benefit of $0.3 million for the prior year quarter.

Our gross deferred tax assets prior to recognition of valuation allowance were $99.2 million and $98.5 million at March 31, 2015 and December 31, 2014, respectively. In assessing the realizability of our deferred tax assets, we considered whether it was more likely than not that our deferred tax assets will be realized based upon all available evidence, including scheduled reversal of deferred tax liabilities, historical operating results, projected future operating results, tax carry-back availability, and limitations pursuant to Section 382 of the Internal Revenue Code, among others. Based on this assessment, we began recording a valuation allowance against deferred taxes in December 2009. The valuation allowance was $97.8 million and $97.2 million at March 31, 2015 and December 31, 2014, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Sources and uses of funds.   We are a holding company with no business operations of our own. Consequently, our ability to pay dividends to stockholders, meet our debt payment obligations and pay our taxes and administrative expenses is largely dependent on dividends or other distributions from our subsidiaries.

There are no restrictions on the payment of dividends by our non-insurance company subsidiaries other than state corporate laws regarding solvency. As a result, our non-insurance company subsidiaries generate revenues, profits and net cash flows that are generally unrestricted as to their availability for the payment of dividends and we have and expect to continue to use those revenues to service our corporate financial obligations, such as debt service and stockholder dividends. As of March 31, 2015, we had $1.7 million of cash and cash equivalents at our holding company and non-insurance company subsidiaries.

State insurance laws restrict the ability of our insurance company subsidiaries to declare stockholder dividends. These subsidiaries may not issue an “extraordinary dividend” until 30 days after the applicable commissioner of insurance has received notice of the intended dividend and has not objected in such time or until the commissioner has approved the payment of the extraordinary dividend within the 30-day period. In most states, an extraordinary dividend is defined as any dividend or distribution of cash or other property whose fair market value, together with that of other dividends and distributions made within the preceding 12 months, exceeds the greater of 10.0% of the insurance company’s surplus as of the preceding year-end or the insurance company’s net income for the preceding year, in each case determined in accordance with statutory accounting practices. In addition, dividends may only be paid from unassigned earnings and an insurance company’s remaining surplus must be both reasonable in relation to its outstanding liabilities and adequate to its financial needs. As of March 31, 2015, our insurance companies could not pay ordinary

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dividends to us without prior regulatory approval due to a negative unassigned surplus position of Affirmative Insurance Company. However, as mentioned previously, our non-insurance company subsidiaries provide adequate cash flow to fund their own operations.

Our insurance company subsidiaries are subject to risk-based capital standards and other minimum capital and surplus requirements imposed under applicable state laws, including the laws of their state of domicile. The risk-based capital standards, based upon the Risk-Based Capital Model Act, adopted by the National Association of Insurance Commissioners (NAIC), require our insurance company subsidiaries to report their results of risk-based capital calculations to state departments of insurance and the NAIC. Failure to meet applicable risk-based capital requirements or minimum statutory capital requirements could subject us to further examination or corrective action imposed by state regulators, including limitations on our writing of additional business, state supervision or liquidation. Any changes in existing risk-based capital requirements or minimum statutory capital requirements may require us to increase our statutory capital levels. At December 31, 2014, three of our insurance subsidiaries maintained a risk-based capital level that was in excess of an amount that would require any corrective actions. The risk-based capital level of Affirmative Insurance Company (AIC) triggered a regulatory action level event under the NAIC standard. As a result, AIC was required to submit a plan to the Illinois Department of Insurance (IDOI) in April 2015 detailing corrective actions being taken to return its risk-based capital ratio to an acceptable level. The IDOI may accept the plan, require further amendments to the plan or take additional regulatory action including, but not limited to, placing AIC in receivership.

The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern. This assumes continuing operations and the realization of assets and liabilities in the normal course of business.

We incurred losses from operations over the last six years, including an operating loss of $31.0 million for the year ended December 31, 2014. Losses over this period were primarily due to underwriting losses, significant revenue declines, expenses declining less than the amount of revenue declines, and goodwill impairments. The losses from operations were the result of significant new business written in 2012 and 2013, prior pricing issues in some states in which we have taken significant pricing and underwriting actions to address profitability, losses from states that we have exited, such as Florida and Michigan, and goodwill impairment charges as a result of such losses.

The senior secured and subordinated credit facilities contain quarterly debt covenants that set forth, among other things, minimum risk-based capital requirements for our insurance subsidiaries as well as minimum cash flow requirements for our non-regulated businesses. The credit facilities have been amended to waive compliance with the risk-based capital measurement requirement as of March 31, 2015, and to postpone the principal payment of $3.5 million due March 31, 2015 to June 30, 2015. Except for the minimum risk-based capital requirement for which we obtained a waiver, we were in compliance with these covenants as of March 31, 2015. However, it is probable we will not meet certain of these covenants in future periods. If we are unable to achieve compliance with the covenants or obtain a forbearance or waiver of any non-compliance or amend the agreements to change such covenants, the lenders could declare all amounts outstanding under the facilities to be immediately due and payable. Even if we were compliant with the covenants or, if not compliant, obtain additional forbearance or waivers from our lenders, there is still substantial uncertainty that we will be able to refinance or extend the maturity of the senior secured facility when it becomes due in March 2016. If our lenders declare the amounts outstanding to be immediately due and payable or if we were unable to refinance or extend the maturity of the senior secured credit facility when it becomes due, it would have a material adverse effect on our operations and our creditors and stockholders.

Our insurance subsidiaries are subject to risk-based capital standards and other minimum capital and surplus requirements imposed under applicable state laws, including the laws of their state of domicile. The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the National Association of Insurance Commissioners, or NAIC, require insurance companies to report their results of risk-based capital calculations to state departments of insurance and the NAIC. At December 31, 2014, the risk-based capital level of Affirmative Insurance Company (AIC) triggered a regulatory action level event under the NAIC standard. As a result, AIC was required to submit a plan to the Illinois Department of Insurance (IDOI) in April 2015 detailing corrective actions being taken to return its risk-based capital ratio to an acceptable level. The IDOI may accept the plan, require further amendments to the plan or take additional regulatory action including, but not limited to, placing AIC in receivership. Such additional regulatory action by the Illinois Department of Insurance would have a material adverse effect on our operations and the interest of our creditors and stockholders. Such additional regulatory action by the Illinois Department of Insurance also would trigger a further event of default under our senior secured credit facility and subordinated credit facility allowing our lenders to declare all amounts outstanding under the facilities to be immediately due and payable, and if such amounts were declared immediately due and payable by the lenders, it would have a material adverse effect on our operations and the interests of our creditors and stockholders.

We have taken and will continue to pursue appropriate actions to improve the underwriting result. We are also pursuing various other actions to address these issues. However, there can be no assurance that these actions will be effective.

Our recent history of recurring losses from operations, our failure to comply with certain financial covenants in our senior secured and subordinated credit facilities, our need to meet debt repayment requirements and our failure to comply with the Illinois

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Department of Insurance minimum risk-based capital requirements raise substantial doubt about the Company’s ability to continue as a going concern.

In December 2013, we entered into a capital lease obligation related to certain computer software, software licenses and hardware used in our insurance operations. We received cash proceeds from the financing in the amount of $4.9 million which were pledged as collateral against all the Company’s obligations under the lease. The dollar amount of collateral pledged is set to decline over the term of the lease as the Company makes the scheduled lease payments. At the end of the initial term, we will have the right to purchase the software for a nominal fee, after which all rights, title and interest would transfer to us.

In May 2010, we entered into two capital lease obligations related to certain computer software, software licenses, and hardware currently used by and on the books of Affirmative Insurance Company (AIC). We received cash proceeds from the financing in the amount of $28.2 million. As required by lease, we purchased $28.2 million of certificates of deposit held in brokerage accounts and pledged such securities as collateral against all of the Company’s obligation under the lease. The dollar amount of collateral pledged is set to decline over the term of the lease as the Company makes the scheduled lease payments. At the end of the initial term, we will have the right to purchase the software for a nominal fee, after which all rights, title and interest would transfer to us

In October 2012, one of the Lessors terminated their capital lease agreement and in December 2012, the Lessor conveyed all rights and interest in the leased property back to the Company. Both capital leases mature in June 2015.

In March 2013, we entered into a $4.8 million loan secured by commercial real estate to provide liquidity to AIC. The loan is evidenced by a promissory note secured by a mortgage security agreement and assignment of leases and rents on real estate located in Baton Rouge, Louisiana, which is held as investment in real property in the accompanying consolidated balance sheet. The mortgage bears interest at a per annum fixed rate of 4.95%. The mortgage requires monthly payments of principal and interest with the final payment due on the maturity date of December 15, 2015. As security for payments, we assigned rents due under the lease to a trustee. Pursuant to an escrow and servicing agreement, the trustee will receive rent due under the lease, make required payments due under the mortgage and maintain certain escrow accounts to pay for the necessary expenses of the property until the mortgage is paid in full. The principal balance of the mortgage payable was $1.4 million at March 31, 2015.

On February 28, 2012, we exercised our right to defer interest payments on selected Notes Payable beginning with the scheduled interest payment due in March 2012 and continuing for a period of up to five years. The affected notes are associated with obligations to our unconsolidated trusts. The outstanding balance of the affected notes was $56.7 million as of March 31, 2015. We will continue to accrue interest on the principal during the extension period and the unpaid deferred interest will also accrue interest. Deferred interest will be due and payable at the expiration of the extension period.

Our operating subsidiaries’ primary sources of funds are premiums received, commission, fee income and managing general agency revenue, investment income and the proceeds from the sale and maturity of investments. Funds are used to pay claims and operating expenses, to purchase investments and to pay dividends to our holding company.

We believe that existing cash and investment balances, as well as cash flows generated from operations, and other actions taken by the Company will be adequate to meet our liquidity needs, planned capital expenditures and the debt service requirements of the senior secured credit facility and notes payable, during the 12-month period following the date of this report at both the holding company and insurance company levels. For the three months ended March 31, 2015, cash and cash equivalents increased $3.8 million in 2015 as compared with a decrease of $12.4 million in the prior year quarter. Our net cash used in operations was $1.5 million for the current quarter as compared to net cash used in operations of $13.4 million in the prior year quarter. The decrease was primarily due to the decrease in gross written premiums ceded to reinsurers resulting from the commuted quota share agreements during the period. Net cash provided by investing activities was $5.4 million for the current quarter as compared to net cash used in investing activities of $3.0 million in the prior year quarter. The increase in cash flows was due to the proceeds from the sale and maturities of the available for sale securities during the period. Net cash used in financing activities was $0.1 million for the current quarter as compared to net cash provided by financing activities of $4.0 million in the prior year quarter. The decrease resulted from the proceeds from the capital lease of $4.9 million received in the prior year quarter partially offset by the increase in financing from bank overdrafts.

On September 30, 2013, we replaced our existing senior credit facility with the proceeds from the sale of the retail business and with proceeds from two new debt arrangements. Our new debt arrangement consisted of a $40.0 million senior secured credit facility with a maturity date of March 30, 2016, and a $10.0 million subordinated secured credit facility with a maturity date of March 30, 2017.

The pricing under the senior secured credit facility was amended effective September 30, 2014 to an adjusted LIBOR rate floor of 1.25%, plus 9.25%. The interest rate as of March 31, 2015 was 10.50%. The Company made principal payments of $11.5 million in the aggregate as of March 31, 2015. Fees of $0.7 million were added to the outstanding principal balance on March 31, 2015 in

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connection with the amended agreement effective December 31, 2014. As of March 31, 2015, the principal balance of the senior secured credit facility was $29.2 million. The senior secured credit facility was issued at a discount of $2.0 million that is amortized as interest expense over the expected term of the loan using the effective interest method. Repayment of the facility is due quarterly with $2.0 million payable for each quarter through September 30, 2014, $3.5 million payable each quarter through September 30, 2015, $4.5 million payable on December 31, 2015 and the remaining balance of $13.5 million due in full on March 30, 2016. Prepayments under this agreement are applied to the earliest payments due. Effective December 31, 2014, the senior secured credit facility was amended to postpone the principal payment of $3.5 million due March 31, 2015. The next payment due is $7.0 million on June 30, 2015.

The pricing under the subordinated secured credit facility is currently subject to an adjusted LIBOR rate floor of 1.25%, plus 18.00%. The interest rate as of March 31, 2015 was 19.25%. The subordinated secured credit facility included a commitment fee of $3.0 million that was added to the principal balance outstanding. Accrued interest is added to the outstanding principal balance until the senior secured credit facility is paid. Capitalized interest totaling $4.4 million was added to the principal balance through March 31, 2015. As of March 31, 2015, the principal balance of the subordinated secured credit facility was $17.4 million.

Our obligations under the credit facilities are guaranteed by our material operating subsidiaries (other than the Company’s insurance companies) and are secured by a first lien security interest on all of our assets and the assets of our material operating subsidiaries (other than the Company’s insurance companies), including a pledge of 100% of the stock of AIC.

Item 3.Quantitative and Qualitative Disclosures About Market Risk

We are principally exposed to two types of market risk: interest rate risk and credit risk.

Interest rate risk. Our investment portfolio consists of investment-grade, fixed-income securities classified as available-for-sale investment securities. Accordingly, the primary market risk exposure to our debt securities is interest rate risk. In general, the fair market value of a portfolio of fixed-income securities increases or decreases inversely with changes in market interest rates, while net investment income realized from future investments in fixed-income securities increases or decreases along with interest rates. In addition, some of our fixed-income securities have call or prepayment options. This could subject us to reinvestment risk should interest rates fall and issuers call their securities and we reinvest at lower interest rates. We attempt to mitigate this interest rate risk by investing in securities with varied maturity dates and by managing the duration of our investment portfolio to the duration of our reserves. The fair value of our fixed-income securities as of March 31, 2015 was $26.7 million. The effective average duration of the portfolio as of March 31, 2015 was 2.0 years. If market interest rates increase 1.0%, our fixed-income investment portfolio would be expected to decline in market value by 2.0%, or $0.6 million, representing the effective average duration multiplied by the change in market interest rates. Conversely, a 1.0% decline in interest rates would result in a 2.0%, or $0.6 million, increase in the market value of our fixed-income investment portfolio.

On September 30, 2013, we replaced our existing senior credit facility with the proceeds from the sale of the retail business and with proceeds from two new debt arrangements. Our new debt arrangement consisted of a $40.0 million senior secured credit facility with a maturity date of March 30, 2016, and a $10.0 million subordinated secured credit facility with a maturity date of March 30, 2017.

The pricing under the senior secured credit facility was amended effective September 30, 2014 to an adjusted LIBOR rate floor of 1.25%, plus 9.25%. The interest rate as of March 31, 2015 was 10.50%. The Company made principal payments of $11.5 million in the aggregate as of March 31, 2015. Fees of $0.7 million were added to the outstanding principal balance on March 31, 2015 in connection with the amended agreement effective December 31, 2014. As of March 31, 2015, the principal balance of the senior secured credit facility was $29.2 million. The senior secured credit facility was issued at a discount of $2.0 million that is amortized as interest expense over the expected term of the loan using the effective interest method. Repayment of the facility is due quarterly with $2.0 million payable for each quarter through September 30, 2014, $3.5 million payable each quarter through September 30, 2015, $4.5 million payable on December 31, 2015 and the remaining balance of $13.5 million due in full on March 30, 2016. Prepayments under this agreement are applied to the earliest payments due. Effective December 31, 2014, the senior secured credit facility was amended to postpone the principal payment of $3.5 million due March 31, 2015. The next payment due is $7.0 million on June 30, 2015.

The pricing under the subordinated secured credit facility is currently subject to an adjusted LIBOR rate floor of 1.25%, plus 18.00%. The interest rate as of March 31, 2015 was 19.25%. The subordinated secured credit facility included a commitment fee of $3.0 million that was added to the principal balance outstanding. Accrued interest is added to the outstanding principal balance until the senior secured credit facility is paid. Capitalized interest totaling $4.4 million was added to the principal balance through March 31, 2015. As of March 31, 2015, the principal balance of the subordinated secured credit facility was $17.4 million.

27

Our notes payable are also subject to interest rate risk. The $30.9 million notes adjust quarterly to the three-month LIBOR rate plus 3.60%. The interest rate as of March 31, 2015 was 3.87%. The $25.8 million notes adjust quarterly to the three-month LIBOR rate plus 3.55%. The interest rate as of March 31, 2015 was 3.82%. The $20.1 million notes payable bear an interest rate of the three-month LIBOR rate plus 3.82%. The interest rate as of March 31, 2015 was 4.22%.

Credit risk. An additional exposure to our investment portfolio is credit risk. We attempt to manage our credit risk by investing only in investment-grade securities and limiting our exposure to a single issuer. At March 31, 2015 and December 31, 2014, respectively, our investments were in the following:

	March 31, 2015			December 31, 2014
Corporate debt securities		56.7	%		52.2	%
U.S. Treasury and government agencies		31.1			25.0
Certificates of deposit		6.6			8.3
States and political subdivisions		5.6			4.5
Mortgage-backed securities		—			10.0
Total		100.0	%		100.0	%

We invest our insurance portfolio funds in highly-rated, fixed-income securities. Information about our investment portfolio is as follows ($ in thousands):

	March 31, 2015			December 31, 2014
Total invested assets	$	26,724		$	33,285
Tax-equivalent book yield		1.75	%		1.59	%
Average duration in years		2.01			2.49
Average S&P rating	A-			A-

We are subject to credit risk with respect to our reinsurers. Although a reinsurer is liable for losses to the extent of the coverage which it assumes, our reinsurance contracts do not discharge our insurance companies from primary liability to each policyholder for the full amount of the applicable policy, and consequently our insurance companies remain obligated to pay claims in accordance with the terms of the policies regardless of whether a reinsurer fulfills or defaults on its obligations under the related reinsurance agreement. In order to mitigate credit risk to reinsurance companies, we attempt to select financially strong reinsurers with an A.M. Best rating of “A-” or better and continue to evaluate their financial condition. When appropriate, we obtain irrevocable letters of credit or require the reinsurer to establish trust funds to secure their obligations to us.

Our hedge fund investment of $4.5 million at March 31, 2015 is also subject to credit and counterparty risk, in the event that issuers of any of the underlying commercial and residential mortgage-backed securities should default. However, this investment is not material to our overall investment portfolio or consolidated assets and we have established investment policy guidelines to limit the amount of investments other than high quality fixed-income securities.

The table below presents the total amount of receivables due from reinsurers as of March 31, 2015 and December 31, 2014 (in thousands):  

	March 31, 2015		December 31, 2014
Quota-share reinsurers for agreements effective June 30, 2014	$	102,460	$	130,086
Michigan Catastrophic Claims Association		25,392		27,610
Vesta Insurance Group		9,271		9,270
Quota-share reinsurers for agreements effective    December 31, 2013		4,309		14,096
Quota-share reinsurer for agreements effective January 1, 2011    and other		3,158		3,188
Quota-share reinsurer for agreements effective    September 1, 2011 and March 31, 2013		1,918		(2,285	)
Excess of loss reinsurers		897		839
Total reinsurance receivable	$	147,405	$	182,804

28

The quota-share reinsurers and excess of loss reinsurers all have at least A- ratings from A.M. Best. Accordingly, we believe there is minimal risk related to these reinsurance receivables.

In 2013, we entered into a quota-share agreement with a third-party reinsurance company effective March 31, 2013, under which we ceded 40% of business produced in Louisiana, Alabama, Texas and Illinois. This agreement was amended effective June 30, 2013, under which we ceded an additional 40% for the same four states for the remainder of 2013. This agreement was further amended to provide a $10.0 million reduction in ceded premiums in the fourth quarter. Written premiums ceded under this agreement totaled $145.8 million during the year ended December 31, 2013. This agreement terminated on January 1, 2014, resulting in the return of $47.2 million unearned premiums, net of $13.9 million of ceding commissions. Written premiums ceded under the agreement totaled $98.6 million.

Effective December 31, 2013, we entered into a new reinsurance agreement with four third-party reinsurance companies. Under this agreement, we ceded 20% of premiums and losses in Alabama, Illinois, Louisiana and Texas, and 60% in California on policies in force on December 31, 2013 or written or renewed on and after that date. Written premiums ceded under this agreement totaled $22.2 million as of December 31, 2013. On January 1, 2014, the quota-share rate increased to 60% for all business in force in these same states and for new and renewal business. On June 30, 2014, the reinsurance agreement was terminated, resulting in the return of $51.7 million of unearned premiums, net of $14.5 million of ceding commissions. Written premiums ceded under the agreement totaled $95.9 million as of December 31, 2014. In March 2015, two of the quota share reinsurers commuted their participation on this agreement, effectively reducing the quota share rate to 20.4%.

Effective June 30, 2014, a new reinsurance agreement with five third-party reinsurance companies was put in place to cede 85% of all business in force in these same states and for new and renewal business through June 30, 2015. Written premiums ceded under this agreement totaled $230.9 million through March 31, 2015. In March 2015, one of the quota share reinsurers commuted their participation on this agreement, reducing the effective ceding percentage to 70.6%. A return of $27.6 million of unearned ceded premiums, net of $7.7 million of ceding commissions, resulted from the commutation.

The Michigan Catastrophic Claims Association (MCCA) is the mandatory reinsurance facility that covers no-fault medical losses above a specific retention amount in Michigan. We discontinued writing business in Michigan in 2011. For policies effective in 2011 and 2010 the retention amount was $0.5 million. When we wrote personal automobile policies in the state of Michigan, we ceded premiums and claims to the MCCA. Funding for MCCA comes from assessments against active automobile insurers based upon their proportionate market share of the state’s automobile liability insurance market. Insurers are allowed to pass along this cost to Michigan automobile policyholders.

Under the reinsurance agreement with Vesta Insurance Group (VIG), including primarily Vesta Fire Insurance Corporation (VFIC), our wholly-owned subsidiaries Affirmative Insurance Company (AIC) had the right, under certain circumstances, to require VFIC to provide a letter of credit or establish a trust account to collateralize the gross amount due AIC from VFIC under the reinsurance agreement. Accordingly, AIC and VFIC entered into a Security Fund Agreement in September 2004. In August 2005, AIC received a letter from VFIC’s President that irrevocably confirmed VFIC’s duty and obligation under the Security Fund Agreement to provide security sufficient to satisfy VFIC’s gross obligations under the reinsurance agreement (the VFIC Trust). At March 31, 2015, the VFIC Trust held $16.5 million (after cumulative withdrawals of $9.0 million through March 31, 2015), consisting of a U.S. Treasury money market account, to collateralize the $9.3 million net recoverable from VFIC. In March 2015, we received a notice of determination from the VFIC Special Deputy Receiver on multiple proofs of claim for an aggregate amount of $15.3 million for various reinsurance balances with VFIC. As part of the notice of determination, we entered into a settlement agreement and release with the VFIC Special Deputy Receiver. We expect to receive the $15.3 million in settlement proceeds in May 2015.

29

Item 4. Controls and Procedures

The Company’s management performed an evaluation under the supervision and with the participation of the Company’s principal executive officer and the principal financial officer, and completed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e), as adopted by the U.S. Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of March 31, 2015. Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.

Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective.

During the Company’s last fiscal quarter there were no changes in internal control over financial reporting that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

30

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The Company and its subsidiaries are named from time to time as parties in various legal actions arising in the ordinary course of the Company’s business and arising out of or related to claims made in connection with the Company’s insurance policies and claims handling.  See Note 10 of Notes to Consolidated Financial Statements, “Legal and Regulatory Proceedings.”

Item1A. Risk Factors

There are no material changes with respect to those risk factors previously disclosed in Item 1A to Part I of our Form 10-K for the year ended December 31, 2014.

Item1B. Unresolved Staff Comments

Not applicable.

Item 6. Exhibits

10.1*	Commutation and Release Agreement effective April 1, 2015, between Affirmative Insurance Company and Watford Re Ltd., with respect to the Automobile Quota Share Reinsurance contract between Affirmative Insurance Company and Watford Re Ltd. effective June 30, 2014 through June 30, 2015.
10.2*	Endorsement No. 4 to the Interests and Liabilities Agreement of Third Point Reinsurance Company Ltd. with respect to the Automobile Quota Share Reinsurance Contract effective December 31, 2013 issued to Affirmative Insurance Company.
10.3*	Endorsement No. 1 to the Interests and Liabilities Agreement of Third Point Reinsurance Company Ltd. with respect to the Automobile Quota Share Reinsurance Contract effective June 30, 2014 issued to Affirmative Insurance Company.
10.4*	Fifth Amendment to Credit Agreement dated and effective as of April 10, 2015, by and among Affirmative Insurance Holdings, Inc., as Borrower, the Lenders party thereto, and Credit Suisse AG, Cayman Islands Branch, as Administrative Agent and Collateral Agent.
10.5*	Fifth Amendment to Second Lien Credit Agreement dated and effective as of April 10, 2015, by and among Affirmative Insurance Holdings, Inc., the Lenders party thereto, and JCF AFFM Debt Holdings, L.P., as Administrative Agent and Collateral Agent.
31.1*	Certification of Michael J. McClure, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Earl R. Fonville, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of Michael J. McClure, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of Earl R. Fonville, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*	The following materials from Affirmative Insurance Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (1) the Consolidated Balance Sheets, (2) the Consolidated Statements of Operations, (3) the Consolidated Statements of Comprehensive Income (Loss), (4) the Consolidated Statements of Stockholders’ Deficit, (5) the Consolidated Statements of Cash Flows, and (6) Notes to Consolidated Financial Statements, including detailed tagging of footnotes and schedules.

* Filed herewith

31

SIGNATURES

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

	Affirmative Insurance Holdings, Inc.
Date: May 15, 2015	By:	/s/ Earl R. Fonville
		Earl R. Fonville
		Executive Vice President and Chief Financial Officer (and in his capacity as Principal Financial Officer)

32

EX-10.1

Exhibit 10.1

COMMUTATIONANDRELEASEAGREEMENT

COMMUTATIONANDRELEASEAGREEMENT (the"Agreement") enteredintobetween Affirmative Insurance Company (the "Company")and Watford ReLtd. (the "Reinsurer"), effectivethe1stdayofApril,2015.

WHEREAS, theReinsurer entered intoAutomobile QuotaShare Reinsurance Contract (the"Contract"),effectiveJune30,2014throughJune30, 2015,GCReferenceU4VT0008,with theCompany,wherebytheReinsurer,inconsideration ofpaymentofpremium,reinsuredcertain risksinsuredbytheCompany;and

WHEREAS, the Reinsurer and the Company desire to fully and finally settle and commute allobligations andliabilities knownandunknown oftheReinsurerandtheCompany undertheContract;and

WHEREAS, theReinsurer hasoffered topayandtheCompany hasagreedtoacceptin fullsatisfactionoftheReinsurer'spresentandfutureliabilitiesundertheContract$2,949,154.71, whichwillbesubject toadjustment oncetheFebruaryandMarch2015accountsareprocessed andsubmitted totheReinsurer;

NOW, THEREFORE, IT IS AGREED BY AND BETWEEN THE REINSURER AND THE COMPANY THAT:

1.The Reinsurer shall pay to the Company the sum of $2,949,154.71, subject to adjustment as noted above, within 10 days of the execution of this Agreement by both the Reinsurer and the Company.

2.The Company shall accept the sum set forth in paragraph 1. herein in full and final settlement of any and all amounts due from the Reinsurer to the Company under the Contract.

3.In consideration of payment of $2,949,154.71 referred to in paragraph 1. herein, subject to adjustment as noted above, and effective on the date of such payment, the Company shall release and discharge the Reinsurer, its predecessors, parents, affiliates, agents, officers, directors and shareholders and assigns from any and all present and future payment obligations, adjustments, executions, offsets, actions, causes of action, suits, debts, sums of money, accounts, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, damages, judgments, claims, demands, liabilities and/or losses whatsoever, all whether known or unknown, which the Company and its successors and assigns ever had, now have, or hereafter may have, whether grounded in law or equity, in contract or in tort, against the Reinsurer or any of them by reason of any matter whatsoever arising out of the Contract, it being the intention of the parties that this release operate as a full and final settlement of the Reinsurer's current and future liabilities to the Company under said Contract.

4.Simultaneous with the Company releases as provided for in paragraph 3 above, the Reinsurer shall release and discharge the Company, its predecessors, parents, affiliates, agents, officers, directors, shareholders and assigns from any and all present and future payment obligations, adjustments, executions, offsets, actions, causes of action, suits, debts, sums of money, accounts, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, damages, judgments, claims, demands, liabilities and/or losses whatsoever, all whether known or unknown, which the Reinsurer and its successors and assigns ever had, now have or hereafter may have, whether grounded in Jaw or equity, in contract or in tort, against the Company or any of them by reason of any matter whatsoever arising out

1

of the Contract, it being the intention of the parties that this release operate as a full and final settlement of the Company'scurrentandfutureliabilitiestotheReinsurerundertheContract.

5.The rights, duties and obligations set forth herein shall inure to the benefit of and be binding upon any and all predecessors, successors, affiliates, officers, directors, employees, parents, subsidiaries, stockholders, liquidators, receivers and assigns of the parties hereto.

6.The parties hereto expressly warrant and represent that they are corporations in good standing in their respective places of domicile; that the execution of this Agreement is fully authorized by each of them; that the person or persons executing this Agreement have the necessary and appropriate authority to do so; that there are no pending agreements, transactions, or negotiations to which any of them are a party that would render this Agreement or any part thereof void, voidable, or unenforceable; and that no authorization, consent or approval of any government entity is required to make this Agreement valid and binding upon them.

7.This Agreement shall be interpreted under and governed by the laws of the State of Illinois witout regard to its conflict of laws rules.

8.The Company and the Reinsurer hereby agree to execute promptly any and all supplemental agreements, releases, affidavits, waivers and other documents of any nature or kind that the other party may reasonably require in order to implement the provisions or objectives of this Agreement.

9.This Agreement may be executed in multiple counterparts, each of which, when so executed and delivered shall be an original, but such counterparts shall together constitute one and the same instrument and agreement.

10.This Agreement contains the entire agreement between the parties as respects its subject matter. All discussions and agreements previously entered into between the parties concerning the subject matter of the Agreement are merged into this Agreement. This Agreement may not be modified or amended, nor any of its provisions waived, except by an instrument in writing, signed by the parties hereto.

11.If the Company shall be obligated under the laws respecting debtors and creditors of the United States or of the State of Illinois to repay to the Reinsurer, or to a rehabilitator, successor, liquidator or trustee of the Reinsurer, the consideration paid hereunder, then the Company will make such repayment and, upon such repayment, this Agreement shall be null and void. In addition, in the event that the consideration paid hereunder shall be a voidable transfer under applicable law, and any party shall be obligated to repay the consideration, then the Company will repay such consideration and, upon such repayment, this Agreement shall be null and void.

2

IN WITNESS WHEREOF, the authorized representatives of the parties hereto have executed this Commutation and Release Agreement in duplicate as of the day and year first written above.

WatfordReLtd.
By:	/s/ Watford Re	Witness:	/s/ Witness
Title:	Senior Vice President
Date:	3/30/15

Affirmative Insurance Company
By:	/s/ Michael J. McClure	Witness:	/s/ John P. Killacky
Title:	Chairman
Date:	4/1/15

3

EX-10.2

Exhibit 10.2

ENDORSEMENT NO. 4

to the

INTERESTS AND LIABILITIES AGREEMENT

Effective:  December 31, 2013

(the “Agreement”)

of

third point reinsurance company ltd.

(the “Subscribing Reinsurer”)

with respect to the

Automobile Quota Share Reinsurance Contract

Effective:  December 31, 2013

(the “Contract”)

issued to

Affirmative Insurance Company

Burr Ridge, Illinois

(the “Company”)

A. IT IS HEREBY AGREED, effective March 31, 2015, that this Endorsement deletes and replaces in its entirety the Commutation and Release Agreement previously signed by the Company and the Subscribing Reinsurer on March 6, 2015.

B. IT IS FURTHER AGREED, effective March 31, 2015, the Company and the Subscribing Reinsurer, in order to fully and finally settle and commute all obligations and liabilities known and unknown under this Contract agree to the following:

1. Subject to the terms and conditions of this Endorsement, the Company accepts payment of $22,212,002 (the “Commutation Amount “) from the Subscribing Reinsurer in full and final settlement of any and all amounts due from the Company to the Reinsurer under this Contract and under the Automobile Quota Share Reinsurance Contract, effective June 30, 2014 as specified in Endorsement No. 1, effective March 31, 2015, attached to the Subscribing Reinsurer’s Interests and Liabilities Agreement pertaining thereto.

2. In consideration of payment of the Commutation Amount, and effective on the date of such payment, the Company shall release and discharge the Subscribing Reinsurer, its predecessors, parents, affiliates, agents, officers, directors and shareholders and assigns from any and all present and future payment obligations, adjustments, executions, offsets, actions, causes of action, suits, debts, sums of money, accounts, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, damages, judgments, claims, demands, liabilities and/or losses whatsoever, all

Effective: December 31, 2013		DOC: April 7, 2015
U4VT0008	1 of 4	Addendum No. 4 eff:  March 31, 2015

Exhibit 10.2

whether known or unknown, which the Company and its successors and assigns ever had, now have, or hereafter may have, whether grounded in law or equity, in contract or in tort, against the Reinsurer or any of them by reason of any matter whatsoever arising out of the Contract, it being the intention of the parties that this release operates as a full and final settlement of the Subscribing Reinsurer’s current and future liabilities to the Company under this Contract.

3. Simultaneous with the Company releases as provided for in paragraph 2. above, the Subscribing Reinsurer shall release and discharge the Company, its predecessors, parents, affiliates, agents, officers, directors, shareholders and assigns from any and all present and future payment obligations, adjustments, executions, offsets, actions, causes of action, suits, debts, sums of money, accounts, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, damages, judgments, claims, demands, liabilities and/or losses whatsoever, all whether known or unknown, which the Reinsurer and its successors and assigns ever had, now have or hereafter may have, whether grounded in law or equity, in contract or in tort, against the Company or any of them by reason of any matter whatsoever arising out of the Contracts, it being the intention of the parties that this release operate as a full and final settlement of the Company’s current and future liabilities to the Subscribing Reinsurer under this Contract.

4. The rights, duties and obligations set forth herein shall inure to the benefit of and be binding upon any and all predecessors, successors, affiliates, officers, directors, employees, parents, subsidiaries, stockholders, liquidators, receivers and assigns of the parties hereto.

5. The parties hereto expressly warrant and represent that they are corporations in good standing in their respective places of domicile; that the execution of this Endorsement is fully authorized by each of them; that the person or persons executing this Endorsement have the necessary and appropriate authority to do so; that there are no pending agreements, transactions, or negotiations to which any of them are a party that would render this Endorsement or any part thereof void, voidable, or unenforceable; and that no authorization, consent or approval of any government entity is required to make this Endorsement valid and binding upon them.

6. The Company and the Subscribing Reinsurer hereby agree to execute promptly any and all supplemental agreements, releases, affidavits, waivers and other documents of any nature or kind that the other party may reasonably require in order to implement the provisions or objectives of this Endorsement.

7. If the Company shall be obligated under the laws respecting debtors and creditors of the United States or of the State of Illinois to repay to the Subscribing Reinsurer, or to a rehabilitator, successor, liquidator or trustee of the Subscribing Reinsurer, the consideration paid hereunder, then the Company will make such repayment and, upon such repayment, Section B of this Endorsement shall be null and void.  In addition, in the event that the consideration paid hereunder shall be a voidable transfer under

Effective: December 31, 2013		DOC: April 7, 2015
U4VT0008	2 of 4	Addendum No. 4 eff:  March 31, 2015

Exhibit 10.2

applicable law, and any party shall be obligated to repay the consideration, then the Company will repay such consideration and, upon such repayment, Section B of this Endorsement shall be null and void.

All other terms and conditions remain unchanged.

IN WITNESS WHEREOF, the parties hereto have caused this Endorsement to be executed, in duplicate, this 29^th  day of April, in the year of 2015.

Affirmative Insurance Company

/s/ Michael J. McClure

AUTOMOBILE QUOTA SHARE REINSURANCE CONTRACT

Effective: December 31, 2013		DOC: April 7, 2015
U4VT0008	3 of 4	Addendum No. 4 eff:  March 31, 2015

Exhibit 10.2

and on this 13^th day of April, in the year of 2015.

third point reinsurance company ltd.

/s/ J. Robert Bredahl

Market Reference Number:  

Affirmative Insurance Company

AUTOMOBILE QUOTA SHARE REINSURANCE CONTRACT

Effective: December 31, 2013		DOC: April 7, 2015
U4VT0008	4 of 4	Addendum No. 4 eff:  March 31, 2015

EX-10.3

Exhibit 10.3

ENDORSEMENT NO. 1

to the

INTERESTS AND LIABILITIES AGREEMENT

Effective:  June 30, 2014

(the “Agreement”)

of

third point reinsurance company ltd.

(the “Subscribing Reinsurer”)

with respect to the

Automobile Quota Share Reinsurance Contract

Effective:  June 30, 2014

(the “Contract”)

issued to

Affirmative Insurance Company

Burr Ridge, Illinois

(the “Company”)

A. IT IS HEREBY AGREED, effective March 31, 2015, that this Endorsement deletes and replaces in its entirety the Commutation and Release Agreement previously signed by the Company and the Subscribing Reinsurer on March 6, 2015.

B. IT IS FURTHER AGREED, effective March 31, 2015, that the Company and the Subscribing Reinsurer, in order to fully and finally settle and commute all obligations and liabilities known and unknown under this Contract, but only as respects losses commencing during the period from June 30, 2014 through March 31, 2015, agree to the following:

1. Subject to the terms and conditions of this Endorsement, the Company accepts payment of $22,212,002 (the “Commutation Amount “) from the Subscribing Reinsurer in full and final settlement of any and all amounts due from the Company to the Reinsurer under this Contract (or portion thereof) and under the Automobile Quota Share Reinsurance Contract, effective December 31, 2013 as specified in Endorsement No. 4, effective March 31, 2015 ,attached to the Subscribing Reinsurer’s Interests and Liabilities Agreement pertaining thereto.

2. In consideration of payment of the Commutation Amount, and effective on the date of such payment, the Company shall release and discharge the Subscribing Reinsurer, its predecessors, parents, affiliates, agents, officers, directors and shareholders and assigns from any and all present and future payment obligations, adjustments, executions, offsets, actions, causes of action, suits, debts, sums of money, accounts, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises,

Effective: June 30, 2014		DOC: April 7, 2015
U4VT0008	1 of 5	Addendum No. 1 eff: March 31, 2015

Exhibit 10.3

damages, judgments, claims, demands, liabilities and/or losses whatsoever, all whether known or unknown, which the Company and its successors and assigns ever had, now have, or hereafter may have, whether grounded in law or equity, in contract or in tort, against the Reinsurer or any of them by reason of any matter whatsoever arising out of the Contract, it being the intention of the parties that this release operates as a full and final settlement of the Subscribing Reinsurer’s current and future liabilities to the Company under this Contract (or portion thereof).

3. Simultaneous with the Company releases as provided for in paragraph 2. above, the Subscribing Reinsurer shall release and discharge the Company, its predecessors, parents, affiliates, agents, officers, directors, shareholders and assigns from any and all present and future payment obligations, adjustments, executions, offsets, actions, causes of action, suits, debts, sums of money, accounts, reckonings, bonds, bills, covenants, contracts, controversies, agreements, promises, damages, judgments, claims, demands, liabilities and/or losses whatsoever, all whether known or unknown, which the Reinsurer and its successors and assigns ever had, now have or hereafter may have, whether grounded in law or equity, in contract or in tort, against the Company or any of them by reason of any matter whatsoever arising out of the Contracts, it being the intention of the parties that this release operate as a full and final settlement of the Company’s current and future liabilities to the Subscribing Reinsurer under this Contract (or portion thereof).

4. The rights, duties and obligations set forth herein shall inure to the benefit of and be binding upon any and all predecessors, successors, affiliates, officers, directors, employees, parents, subsidiaries, stockholders, liquidators, receivers and assigns of the parties hereto.

5. The parties hereto expressly warrant and represent that they are corporations in good standing in their respective places of domicile; that the execution of this Endorsement is fully authorized by each of them; that the person or persons executing this Endorsement have the necessary and appropriate authority to do so; that there are no pending agreements, transactions, or negotiations to which any of them are a party that would render this Endorsement or any part thereof void, voidable, or unenforceable; and that no authorization, consent or approval of any government entity is required to make this Endorsement valid and binding upon them.

6. The Company and the Subscribing Reinsurer hereby agree to execute promptly any and all supplemental agreements, releases, affidavits, waivers and other documents of any nature or kind that the other party may reasonably require in order to implement the provisions or objectives of this Endorsement.

7. If the Company shall be obligated under the laws respecting debtors and creditors of the United States or of the State of Illinois to repay to the Subscribing Reinsurer, or to a rehabilitator, successor, liquidator or trustee of the Subscribing Reinsurer, the consideration paid hereunder, then the Company will make such repayment and, upon such repayment, Section B of this Endorsement shall be null and void.  In addition, in

Effective: June 30, 2014		DOC: April 7, 2015
U4VT0008	2 of 5	Addendum No. 1 eff: March 31, 2015

Exhibit 10.3

the event that the consideration paid hereunder shall be a voidable transfer under applicable law, and any party shall be obligated to repay the consideration, then the Company will repay such consideration and, upon such repayment, Section B of this Endorsement shall be null and void.

C. IT IS FURTHER AGREED, effective March 31, 2015, with respect to losses commencing at and after that time and date and as respects the Subscribing Reinsurer only, the Contract shall be amended as follows:

1. Article 3 – Retention and Limit, is amended to read:

reTEnTION AND LIMIT

The Company shall cede, and the Reinsurer shall accept as reinsurance, a 50% share of all business reinsured hereunder.  The Reinsurer shall pay to the Company the Reinsurer’s quota share of losses under the Policies covered under this Contract.

2. The share of the Subscribing Reinsurer in the interests and liabilities of the “Reinsurer” under the Contract is amended to 20.59% part of the 50% quota share cession (i.e., 20.59/50ths of the interests and liabilities of the Reinsurer) as set forth in the Contract.

All other terms and conditions remain unchanged.

Effective: June 30, 2014		DOC: April 7, 2015
U4VT0008	3 of 5	Addendum No. 1 eff: March 31, 2015

Exhibit 10.3

IN WITNESS WHEREOF, the parties hereto have caused this Endorsement to be executed, in duplicate, this 29^th day of April, in the year of 2015.

Affirmative Insurance Company

/s/ Michael J. McClure

Automobile Quota Share Reinsurance Contract

Effective: June 30, 2014		DOC: April 7, 2015
U4VT0008	4 of 5	Addendum No. 1 eff: March 31, 2015

Exhibit 10.3

and on this 13^th day of  April, in the year of 2015.

third point reinsurance company ltd.

/s/ J. Robert Bredahl

Market Reference Number:  

Affirmative Insurance Company

Automobile Quota Share Reinsurance Contract

Effective: June 30, 2014		DOC: April 7, 2015
U4VT0008	5 of 5	Addendum No. 1 eff: March 31, 2015

EX-10.4

Exhibit 10.4

FIFTH AMENDMENT TO CREDIT AGREEMENT

This FIFTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”) is dated and effective as of April 10, 2015, and entered into by and among AFFIRMATIVE INSURANCE HOLDINGS, INC., a Delaware corporation (the “Borrower”), the lenders listed on the signature pages hereto, CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Administrative Agent (in such capacity, the “Administrative Agent”) and as Collateral Agent (in such capacity, the “Collateral Agent”), and for purposes of Section 6 hereof, the other Loan Parties listed on the signature pages hereto.  Capitalized terms used but not defined herein having the meaning given them in the Credit Agreement (as hereinafter defined).

Recitals

Whereas, the Borrower, the Lenders from time to time party thereto, the Agents and the other parties thereto have entered into that certain Credit Agreement dated as of September 30, 2013, as amended by that certain First Amendment to Credit Agreement dated as of December 31, 2013, as amended by that certain Second Amendment to Credit Agreement dated as of May 14, 2014, as amended by that certain Third Amendment and Waiver to Credit Agreement dated as of November 14, 2014, and as amended by that certain Fourth Amendment and Waiver to Credit Agreement dated as of March 31, 2015 (as amended, amended and restated, extended, supplemented or otherwise modified prior to the date hereof, the “Credit Agreement”);

Whereas, the Borrower has requested an amendment to and consent under the Credit Agreement, pursuant to and in accordance with Section 9.08(a) of the Credit Agreement; and

Whereas, the Lenders are willing to agree to the amendment and consent requested by the Borrower, on the terms and conditions set forth in this Amendment;

Now Therefore, in consideration of the premises and the mutual agreements set forth herein, the Borrower and Lenders agree as follows:

1.AMENDMENTS TO CREDIT AGREEMENT.  Subject to the conditions and upon the terms set forth in this Amendment and in reliance on the representations and warranties of the Borrower set forth in this Amendment, the Credit Agreement is hereby amended as follows:

1.1.Amendment to Section 1.01.

(a)Section 1.01 of the Credit Agreement shall be amended to add the following definitions in the appropriate alphabetical order:

“Fifth Amendment” shall mean that certain Fifth Amendment to Credit Agreement, dated and effective as of April 10, 2015, by and among the Borrower, the Loan Parties, the Lenders party thereto, and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent.

“Fifth Amendment Effective Date” shall have the meaning set forth in Section 5 of the Fifth Amendment.

1.2.Amendment to Section 2.20.  

(a) Section 2.20 of the Credit Agreement shall be amended by adding the following new clause (j) immediately after clause (i):

“(j)For purposes of determining withholding Taxes imposed under FATCA, from and after each of the Third Amendment Effective Date, the Fourth Amendment Effective Date and the Fifth Amendment Effective Date, the Borrower and the Administrative Agent shall treat (and the Lenders hereby authorize the Administrative Agent to treat) the Loans as not qualifying as a “grandfathered obligation” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).”

(b) Each reference in Section 2.20 of the Credit Agreement to “IRS Form W-8BEN” is hereby deleted in its entirety and replaced with the following:   “IRS Form W-8BEN (or W-8BEN-E, as applicable)”.

1.3.Amendment to Section 9.05.  Section 9.05 of the Credit Agreement shall be amended by deleting clause (a), and replacing such clause in its entirety with the following:

 “(a)The Borrower agrees to pay all reasonable out-of-pocket costs and expenses (subject to receipt of reasonably detailed supporting backup documentation) incurred by the Administrative Agent and the Collateral Agent in connection with the syndication of the credit facilities provided for herein and the preparation and administration of this Agreement and the other Loan Documents or in connection with any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions hereby or thereby contemplated shall be consummated) or incurred by the Administrative Agent, the Collateral Agent, the Arranger or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement and the other Loan Documents or in connection with the Loans made hereunder (in the case of legal fees and expenses, limited to the reasonable fees, disbursements and other charges of (x) Latham & Watkins LLP, counsel for the Administrative Agent and the Collateral Agent, (y) if reasonably necessary, one local counsel in any relevant jurisdiction and (z) if reasonably necessary, one regulatory counsel in any relevant jurisdiction and, in connection with any such enforcement or protection, the reasonable fees, disbursements and other charges of Latham & Watkins LLP or one primary counsel for the Administrative Agent and the Collateral Agent and one primary counsel for the Lenders (taken as a whole) and, solely in the case of an actual or perceived conflict of interest, one additional counsel to each group of similarly situated affected persons).”

2.CONSENT.  

2.1.Consent.  Notwithstanding anything in the Credit Agreement to the contrary, the Lenders hereby consent to the Borrower entering into that certain amendment to capital contribution agreement in the form provided to the Lenders at 4:28 PM (New York time) on April 9, 2015.

3.REPRESENTATIONS AND WARRANTIES OF THE BORROWER.  In order to induce the Lenders and the Agents to enter into this Amendment, the Borrower represents and warrants to each Lender and the Agents that the following statements are true, correct and complete:

3.1.Power and Authority.  Each of the Loan Parties has all requisite corporate or limited liability company power and authority to enter into this Amendment and to carry out the

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transactions contemplated by, and to perform its obligations under or in respect of, the Credit Agreement as amended hereby.

3.2.Corporate Action.  The execution and delivery of this Amendment and the performance of the obligations of each of the Loan Parties under or in respect of the Credit Agreement as amended hereby have been duly authorized by all necessary corporate or limited liability company action on the part of each of the Loan Parties.

3.3.No Conflict or Violation or Required Consent or Approval.  The execution and delivery of this Amendment and the performance of the obligations of each of the Loan Parties under or in respect of the Credit Agreement as amended hereby do not and will not conflict with or violate (a) any provision of the certificate or articles of incorporation or other constitutive documents or by-laws of any Loan Party or any of its Subsidiaries, (b) any provision of any law or any governmental rule or regulation applicable to any Loan Party or any of its Subsidiaries, (c) any order of any Governmental Authority or arbitrator binding on any Loan Party or any of its Subsidiaries, or (d) any indenture, agreement or instrument to which any Loan Party or any of its Subsidiaries is a party or by which any Loan Party or any of its Subsidiaries, or any property of any of them, is bound (except where such violation could not reasonably be expected to have a Material Adverse Effect), and do not and will not require any consent or approval of any Person (other than any approval or consent obtained and is in full force and effect or approvals or consents the failure to obtain could not reasonably be expected to have a Material Adverse Effect or which are not material to the consummation of the transaction contemplated hereby).

3.4.Execution, Delivery and Enforceability.  This Amendment has been duly executed and delivered by each Loan Party which is a party hereto and is the legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, except as enforceability may be affected by applicable bankruptcy, insolvency, and similar proceedings affecting the rights of creditors generally, and general principles of equity.  The Agents’ Liens in all Collateral continue to be valid, binding and enforceable Liens which secure the Obligations to the extent valid, binding and enforceable on the Closing Date, except as enforceability may be affected by applicable bankruptcy, insolvency and similar proceedings affecting the rights of creditors generally, and general principles of equity.

3.5.No Default or Event of Default.  After giving effect to this Amendment, no event has occurred and is continuing or will result from the execution and delivery of this Amendment that would constitute a Default or an Event of Default.

3.6.No Material Adverse Effect.  No event, change or condition has occurred since the Closing Date that has caused, or could reasonably be expected to cause, a Material Adverse Effect.

3.7.Representations and Warranties.  Each of the representations and warranties contained herein and in the Loan Documents is and will be true and correct in all material respects (except that any representation and warranty that is qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all respects) on and as of the date hereof and as of the effective date of this Amendment, except to the extent that such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects as of such earlier date (except that any representation and warranty that is qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all respects as of such earlier date).

4.CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT.  This Amendment, and the consents and approvals contained herein, shall be effective only if and when signed by, and when counterparts hereof shall have been delivered to the Agents (by hand delivery, mail, telecopy or other

3

electronic transmission) by each Loan Party and each Lender, and only if and when each of the following conditions is satisfied or waived:

4.1.No Default or Event of Default; Accuracy of Representations and Warranties. At the time of and immediately after giving effect to this Amendment, no Default or Event of Default shall exist and each of the representations and warranties made by the Loan Parties herein and in or pursuant to the Loan Documents shall be true and correct in all material respects (except that any representation and warranty that is qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all respects) as if made on and as of the date on which this Amendment becomes effective (except that any such representation or warranty that is expressly stated as being made only as of a specified earlier date shall be true and correct in all material respects as of such earlier date (except that any representation and warranty that is qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all respects as of such earlier date)).

4.2.Amendment to Closing Date Subordinated Credit Agreement.  The Administrative Agent shall have received a duly executed copy of an amendment to the Closing Date Subordinated Credit Agreement substantially in the form attached as Exhibit A hereto, making amendments thereto that correspond to those made herein and otherwise in form and substance reasonably satisfactory to the Lenders.

4.3.Fees and Expenses.  The Administrative Agent shall have received on the Fifth Amendment Effective Date all reasonable and documented out-of-pocket costs and expenses of the Administrative Agent incurred in connection with this Amendment, any other documents prepared in connection herewith and the transactions contemplated hereby (in the case of legal fees and expenses, limited to the reasonable fees, charges and disbursements of Latham & Watkins LLP and Locke Lord LLP, counsels for the Administrative Agent); provided that, the Administrative Agent and/or Latham & Watkins LLP and/or Locke Lord LLP shall have provided to the Borrower reasonably detailed supporting backup documentation.

5.EFFECTIVE DATE.  This Amendment shall become effective (the “Fifth Amendment Effective Date”) as of April 10, 2015 once the conditions set forth in Section 4 of this Amendment are satisfied or waived.

6.EFFECT OF AMENDMENT; RATIFICATION.  This Amendment is a Loan Document.  From and after the date on which this Amendment becomes effective, all references in the Loan Documents to the Credit Agreement and other Loan Documents shall mean the Credit Agreement as amended hereby.  Except as expressly amended or waived hereby, the Credit Agreement and the other Loan Documents, including the Liens granted thereunder, shall remain in full force and effect, and all terms and provisions thereof are hereby ratified and confirmed. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Lenders or the Administrative Agent under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other provision of the Credit Agreement or of any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Except as expressly set forth herein, nothing herein shall be deemed to be a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances.

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7.MISCELLANEOUS.  Each of the Loan Parties confirms that as amended hereby, each of the Loan Documents to which it is a party is in full force and effect, and that as of the date hereof, none of the Loan Parties has any defenses, setoffs or counterclaims to its Obligations.

8.APPLICABLE LAW.  THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.

9.NO WAIVER.  The execution, delivery and effectiveness of this Amendment does not constitute a waiver of any Default or Event of Default, amend or modify any provision of any Loan Document except as expressly set forth herein or constitute a course of dealing or any other basis for altering the Obligations of any Loan Party.

10.COMPLETE AGREEMENT.  This Amendment sets forth the complete agreement of the parties in respect of any amendment to any of the provisions of any Loan Document.  

11.CAPTIONS; COUNTERPARTS; LENDER DIRECTION.  The catchlines and captions herein are intended solely for convenience of reference and shall not be used to interpret or construe the provisions hereof.  This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts (including by telecopy or other electronic transmission), all of which taken together shall constitute but one and the same instrument.  Delivery of an executed counterpart of a signature page of this Amendment by facsimile transmission or pdf electronic delivery shall be effective as delivery of a manually executed counterpart hereof.  Each of the Lenders party hereto hereby directs Credit Suisse AG, Cayman Islands Branch to execute this Amendment in its capacity as Administrative Agent and Collateral Agent under the Credit Agreement.

12.RELEASE.  

12.1.In consideration of the Administrative Agent’s and the Lenders’ execution and delivery of this Amendment, each of Borrower and the other Loan Parties, on behalf of itself and its agents, representatives, officers, directors, advisors, employees, subsidiaries, affiliates, successors and assigns (collectively, “Releasors”), hereby forever agrees and covenants not to sue or prosecute against any Releasee (as hereinafter defined) and hereby forever waives, releases and discharges, to the fullest extent permitted by law, each Releasee from any and all claims (including, without limitation, crossclaims, counterclaims, rights of set-off and recoupment), actions, causes of action, suits, debts, accounts, interests, liens, promises, warranties, damages and consequential damages, demands, agreements, bonds, bills, specialties, covenants, controversies, variances, trespasses, judgments, executions, costs, expenses or claims whatsoever, that such Releasor now has or hereafter may have, of whatsoever nature and kind, whether known or unknown, whether now existing or hereafter arising, whether arising at law or in equity (collectively, the “Claims”), against any or all of the Secured Parties in any capacity and their respective affiliates, subsidiaries, shareholders and “controlling persons” (within the meaning of the federal securities laws), and their respective successors and assigns and each and all of the officers, directors, employees, agents, attorneys, advisors and other representatives of each of the foregoing (collectively, the “Releasees”), based in whole or in part on facts, whether or not now known, existing on or before the Fifth Amendment Effective Date, that relate to, arise out of or otherwise are in connection with: (i) any or all of the Loan Documents (including this Amendment) or transactions contemplated thereby or hereby or any actions or omissions in connection therewith or herewith, or (ii) any aspect of the dealings between or among any state insurance department or other regulatory body with authority over the Borrower, the Loan Parties or any of their respective Regulated Insurance Subsidiaries, on the one hand, and any one or more of the Releasees, on the other hand, but only to the

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extent such dealings relate to any or all of the documents, transactions, actions or omissions referenced in clause (i) hereof.  In entering into this Amendment, Borrower and each other Loan Party consulted with, and has been represented by, legal counsel and expressly disclaims any reliance on any representations, acts or omissions by any of the Releasees and hereby agrees and acknowledges that the validity and effectiveness of the releases set forth above do not depend in any way on any such representations, acts and/or omissions or the accuracy, completeness or validity thereof.  The provisions of this Section shall survive the termination of this Amendment, the Credit Agreement, the other Loan Documents and payment in full of the Obligations.

12.2.Each of Borrower and other Loan Parties, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Releasee that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Releasee on the basis of any Claim released, remissed and discharged by Borrower or any other Loan Party pursuant to Section 12.1 hereof. 

13.Administrative Agent.  In accordance with Article VIII, the Lenders hereby direct and authorize the Administrative Agent to enter into this Amendment, and all parties hereto acknowledge that the Administrative Agent shall have entered into this Amendment with the consent and at the request of the Lenders. Each party hereto further acknowledges and agrees that the Administrative Agent is executing and delivering this Amendment solely for purposes of (a) approving Sections 1.2, 1.3 and 12 hereof and (b) otherwise acknowledging the other amendments and consents approved by the Lenders.

[signatures follow; remainder of page intentionally left blank]

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IN WITNESS WHEREOF, each of the undersigned has duly executed this Fifth Amendment to Credit Agreement as of the date set forth above.

AFFIRMATIVE INSURANCE HOLDINGS, INC.,
as Borrower
By:	/s/ Michael J. McClure
	Name:  Michael J. McClure
	Title:  CEO
LOAN PARTIES:
AFFIRMATIVE INSURANCE HOLDINGS, INC.
AFFIRMATIVE MANAGEMENT SERVICES, INC.
AFFIRMATIVE SERVICES, INC.
AFFIRMATIVE INSURANCE GROUP, INC.
AFFIRMATIVE UNDERWRITING SERVICES, INC.
AFFIRMATIVE INSURANCE SERVICES, INC.
AFFIRMATIVE, L.L.C., (f/k/a USAgencies, L.L.C.)
AFFIRMATIVE GENERAL AGENCY, INC., (f/k/a USagencies Management Services, Inc.)
By:	/s/ Michael J. McClure
	Name:  Michael J. McClure
	Title:  CEO

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,
as Administrative Agent and as Collateral Agent
By:	/s/ Vipul Dhadda
	Name:  Vipul Dhadda
	Title: Authorized Signatory
By:	/s/ Whitney Gaston
	Name: Whitney Gaston
	Title: Authorized Signatory

The Lender acknowledges and agrees that this signature page shall be fully valid and binding upon the Lender upon its execution and delivery by the Lender to the Administrative Agent and may not thereafter be revoked, terminated or cancelled by the Lender.

[LENDER]
as a Lender
By:	/s/ [Lender]
	Name:
	Title:

EX-10.5

Exhibit 10.5

FIFTH AMENDMENT TO SECOND LIEN CREDIT AGREEMENT

This FIFTH AMENDMENT TO SECOND LIEN CREDIT AGREEMENT (this “Amendment”) is dated and effective as of April 10, 2015, and entered into by and among AFFIRMATIVE INSURANCE HOLDINGS, INC., a Delaware corporation (the “Borrower”), the lenders listed on the signature pages hereto, JCF AFFM DEBT HOLDINGS L.P., as Administrative Agent (in such capacity, the “Administrative Agent”) and as Collateral Agent (in such capacity, the “Collateral Agent”), and for purposes of Section 6 hereof, the other Loan Parties listed on the signature pages hereto.  Capitalized terms used but not defined herein having the meaning given them in the Credit Agreement (as hereinafter defined).

Recitals

Whereas, the Borrower, the Lenders from time to time party thereto, the Agents and the other parties thereto have entered into that certain Second Lien Credit Agreement dated as of September 30, 2013, as amended by that certain First Amendment to Second Lien Credit Agreement dated as of December 31, 2013, as amended by that certain Second Amendment to Second Lien Credit Agreement dated as of May 14, 2014, as amended by that certain Third Amendment and Waiver to Second Lien Credit Agreement dated as of November 14, 2014, and as amended by that certain Fourth Amendment and Waiver to Second Lien Credit Agreement dated as of March 31, 2015 (as amended, amended and restated, extended, supplemented or otherwise modified prior to the date hereof, the “Credit Agreement”);

Whereas, the Borrower has requested an amendment to and consent under the Credit Agreement, pursuant to and in accordance with Section 9.08(a) of the Credit Agreement; and

Whereas, the Lenders and the Agents are willing to agree to the amendment and consent requested by the Borrower, on the terms and conditions set forth in this Amendment;

Now Therefore, in consideration of the premises and the mutual agreements set forth herein, the Borrower, Lenders and Agents agree as follows:

1.AMENDMENTS TO CREDIT AGREEMENT.  Subject to the conditions and upon the terms set forth in this Amendment and in reliance on the representations and warranties of the Borrower set forth in this Amendment, the Credit Agreement is hereby amended as follows:

1.1.Amendment to Section 1.01.

(a)Section 1.01 of the Credit Agreement shall be amended to add the following definitions in the appropriate alphabetical order:

“Fifth Amendment” shall mean that certain Fifth Amendment to Second Lien Credit Agreement, dated and effective as of April 10, 2015, by and among the Borrower, the Loan Parties, the Lenders party thereto, and JCF AFFM Debt Holdings L.P., as administrative agent and collateral agent.

“Fifth Amendment Effective Date” shall have the meaning set forth in Section 5 of the Fifth Amendment.

1.2.Amendments to Section 2.20.  

(a)Section 2.20 of the Credit Agreement shall be amended by adding the following new clause (j) immediately after clause (i):

“(j)For purposes of determining withholding Taxes imposed under FATCA, from and after each of the Third Amendment Effective Date, the Fourth Amendment Effective Date and the Fifth Amendment Effective Date, the Borrower and the Administrative Agent shall treat (and the Lenders hereby authorize the Administrative Agent to treat) the Loans as not qualifying as a “grandfathered obligation” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).”

(b)Each reference in Section 2.20 of the Credit Agreement to “IRS Form W-8BEN” is hereby deleted in its entirety and replaced with the following:   “IRS Form W-8BEN (or W-8BEN-E, as applicable)”.

2.CONSENT.  

2.1.Consent.  Notwithstanding anything in the Credit Agreement to the contrary, the Lenders hereby consent to the Borrower entering into that certain amendment to capital contribution agreement in the form provided to the Lenders at 4:28 PM (New York time) on April 9, 2015.

3.REPRESENTATIONS AND WARRANTIES OF THE BORROWER.  In order to induce the Lenders and the Agents to enter into this Amendment, the Borrower represents and warrants to each Lender and the Agents that the following statements are true, correct and complete:

3.1.Power and Authority.  Each of the Loan Parties has all requisite corporate or limited liability company power and authority to enter into this Amendment and to carry out the transactions contemplated by, and to perform its obligations under or in respect of, the Credit Agreement as amended hereby.

3.2.Corporate Action.  The execution and delivery of this Amendment and the performance of the obligations of each of the Loan Parties under or in respect of the Credit Agreement as amended hereby have been duly authorized by all necessary corporate or limited liability company action on the part of each of the Loan Parties.

3.3.No Conflict or Violation or Required Consent or Approval.  The execution and delivery of this Amendment and the performance of the obligations of each of the Loan Parties under or in respect of the Credit Agreement as amended hereby do not and will not conflict with or violate (a) any provision of the certificate or articles of incorporation or other constitutive documents or by-laws of any Loan Party or any of its Subsidiaries, (b) any provision of any law or any governmental rule or regulation applicable to any Loan Party or any of its Subsidiaries, (c) any order of any Governmental Authority or arbitrator binding on any Loan Party or any of its Subsidiaries, or (d) any indenture, agreement or instrument to which any Loan Party or any of its Subsidiaries is a party or by which any Loan Party or any of its Subsidiaries, or any property of any of them, is bound (except where such violation could not reasonably be expected to have a Material Adverse Effect), and do not and will not require any consent or approval of any Person (other than any approval or consent obtained and is in full force and effect or approvals or consents the failure to obtain could not reasonably be expected to have a Material Adverse Effect or which are not material to the consummation of the transaction contemplated hereby).

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3.4.Execution, Delivery and Enforceability.  This Amendment has been duly executed and delivered by each Loan Party which is a party hereto and is the legal, valid and binding obligation of such Loan Party, enforceable in accordance with its terms, except as enforceability may be affected by applicable bankruptcy, insolvency, and similar proceedings affecting the rights of creditors generally, and general principles of equity.  The Agents’ Liens in all Collateral continue to be valid, binding and enforceable Liens which secure the Obligations to the extent valid, binding and enforceable on the Closing Date, except as enforceability may be affected by applicable bankruptcy, insolvency and similar proceedings affecting the rights of creditors generally, and general principles of equity.

3.5.No Default or Event of Default.  After giving effect to this Amendment, no event has occurred and is continuing or will result from the execution and delivery of this Amendment that would constitute a Default or an Event of Default.

3.6.No Material Adverse Effect.  No event, change or condition has occurred since the Closing Date that has caused, or could reasonably be expected to cause, a Material Adverse Effect.

3.7.Representations and Warranties.  Each of the representations and warranties contained herein and in the Loan Documents is and will be true and correct in all material respects (except that any representation and warranty that is qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all respects) on and as of the date hereof and as of the effective date of this Amendment, except to the extent that such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects as of such earlier date (except that any representation and warranty that is qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all respects as of such earlier date).

4.CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT.  This Amendment, and the consents and approvals contained herein, shall be effective only if and when signed by, and when counterparts hereof shall have been delivered to the Agents (by hand delivery, mail, telecopy or other electronic transmission) by each Loan Party and each Lender, and only if and when each of the following conditions is satisfied or waived:

4.1.No Default or Event of Default; Accuracy of Representations and Warranties. At the time of and immediately after giving effect to this Amendment, no Default or Event of Default shall exist and each of the representations and warranties made by the Loan Parties herein and in or pursuant to the Loan Documents shall be true and correct in all material respects (except that any representation and warranty that is qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all respects) as if made on and as of the date on which this Amendment becomes effective (except that any such representation or warranty that is expressly stated as being made only as of a specified earlier date shall be true and correct in all material respects as of such earlier date (except that any representation and warranty that is qualified by “materiality” or “Material Adverse Effect” shall be true and correct in all respects as of such earlier date)).

4.2.Amendment to First Lien Credit Agreement.  The Administrative Agent shall have received a duly executed copy of an amendment to the First Lien Credit Agreement substantially in the form attached as Exhibit A hereto, making amendments thereto that correspond to those made herein and otherwise in form and substance reasonably satisfactory to the Administrative Agent.

4.3.Fees and Expenses.  The Administrative Agent shall have received on the Fifth Amendment Effective Date all reasonable and documented out-of-pocket costs and expenses of the Administrative Agent incurred in connection with this Amendment, any other documents prepared in connection herewith and the transactions contemplated hereby (in the case of legal fees and expenses,

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limited to the reasonable fees, charges and disbursements of Debevoise & Plimpton LLP, counsel for the Administrative Agent); provided that, the Administrative Agent and/or Debevoise & Plimpton LLP shall have provided to the Borrower reasonably detailed supporting backup documentation.

5.EFFECTIVE DATE.  This Amendment shall become effective (the “Fifth Amendment Effective Date”) as of April 10, 2015 once the conditions set forth in Section 4 of this Amendment are satisfied or waived.

6.EFFECT OF AMENDMENT; RATIFICATION.  This Amendment is a Loan Document.  From and after the date on which this Amendment becomes effective, all references in the Loan Documents to the Credit Agreement and other Loan Documents shall mean the Credit Agreement as amended hereby.  Except as expressly amended or waived hereby, the Credit Agreement and the other Loan Documents, including the Liens granted thereunder, shall remain in full force and effect, and all terms and provisions thereof are hereby ratified and confirmed. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Lenders or the Administrative Agent under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other provision of the Credit Agreement or of any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Except as expressly set forth herein, nothing herein shall be deemed to be a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document in similar or different circumstances.

7.MISCELLANEOUS.  Each of the Loan Parties confirms that as amended hereby, each of the Loan Documents to which it is a party is in full force and effect, and that as of the date hereof, none of the Loan Parties has any defenses, setoffs or counterclaims to its Obligations.

8.APPLICABLE LAW.  THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.

9.NO WAIVER.  The execution, delivery and effectiveness of this Amendment does not constitute a waiver of any Default or Event of Default, amend or modify any provision of any Loan Document except as expressly set forth herein or constitute a course of dealing or any other basis for altering the Obligations of any Loan Party.

10.COMPLETE AGREEMENT.  This Amendment sets forth the complete agreement of the parties in respect of any amendment to any of the provisions of any Loan Document.  

11.CAPTIONS; COUNTERPARTS.  The catchlines and captions herein are intended solely for convenience of reference and shall not be used to interpret or construe the provisions hereof.  This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts (including by telecopy or other electronic transmission), all of which taken together shall constitute but one and the same instrument.  Delivery of an executed counterpart of a signature page of this Amendment by facsimile transmission or pdf electronic delivery shall be effective as delivery of a manually executed counterpart hereof.

4

12.RELEASE.  

12.1.In consideration of the Administrative Agent’s and the Lenders’ execution and delivery of this Amendment, each of Borrower and the other Loan Parties, on behalf of itself and its agents, representatives, officers, directors, advisors, employees, subsidiaries, affiliates, successors and assigns (collectively, “Releasors”), hereby forever agrees and covenants not to sue or prosecute against any Releasee (as hereinafter defined) and hereby forever waives, releases and discharges, to the fullest extent permitted by law, each Releasee from any and all claims (including, without limitation, crossclaims, counterclaims, rights of set-off and recoupment), actions, causes of action, suits, debts, accounts, interests, liens, promises, warranties, damages and consequential damages, demands, agreements, bonds, bills, specialties, covenants, controversies, variances, trespasses, judgments, executions, costs, expenses or claims whatsoever, that such Releasor now has or hereafter may have, of whatsoever nature and kind, whether known or unknown, whether now existing or hereafter arising, whether arising at law or in equity (collectively, the “Claims”), against any or all of the Secured Parties in any capacity and their respective affiliates, subsidiaries, shareholders and “controlling persons” (within the meaning of the federal securities laws), and their respective successors and assigns and each and all of the officers, directors, employees, agents, attorneys, advisors and other representatives of each of the foregoing (collectively, the “Releasees”), based in whole or in part on facts, whether or not now known, existing on or before the Fifth Amendment Effective Date, that relate to, arise out of or otherwise are in connection with: (i) any or all of the Loan Documents (including this Amendment) or transactions contemplated thereby or hereby or any actions or omissions in connection therewith or herewith, or (ii) any aspect of the dealings between or among any state insurance department or other regulatory body with authority over the Borrower, the Loan Parties or any of their respective Regulated Insurance Subsidiaries, on the one hand, and any one or more of the Releasees, on the other hand, but only to the extent such dealings relate to any or all of the documents, transactions, actions or omissions referenced in clause (i) hereof.  In entering into this Amendment, Borrower and each other Loan Party consulted with, and has been represented by, legal counsel and expressly disclaims any reliance on any representations, acts or omissions by any of the Releasees and hereby agrees and acknowledges that the validity and effectiveness of the releases set forth above do not depend in any way on any such representations, acts and/or omissions or the accuracy, completeness or validity thereof.  The provisions of this Section shall survive the termination of this Amendment, the Credit Agreement, the other Loan Documents and payment in full of the Obligations.

12.2.Each of Borrower and other Loan Parties, on behalf of itself and its successors, assigns, and other legal representatives, hereby absolutely, unconditionally and irrevocably, covenants and agrees with and in favor of each Releasee that it will not sue (at law, in equity, in any regulatory proceeding or otherwise) any Releasee on the basis of any Claim released, remissed and discharged by Borrower or any other Loan Party pursuant to Section 12.1 hereof.

[signatures follow; remainder of page intentionally left blank]

5

IN WITNESS WHEREOF, each of the undersigned has duly executed this Fifth Amendment to Credit Agreement as of the date set forth above.

AFFIRMATIVE INSURANCE HOLDINGS, INC.,
as Borrower
By:	/s/ Michael J. McClure
	Name:  Michael J. McClure
	Title:  CEO
LOAN PARTIES:
AFFIRMATIVE INSURANCE HOLDINGS, INC.
AFFIRMATIVE MANAGEMENT SERVICES, INC.
AFFIRMATIVE SERVICES, INC.
AFFIRMATIVE INSURANCE GROUP, INC.
AFFIRMATIVE UNDERWRITING SERVICES, INC.
AFFIRMATIVE INSURANCE SERVICES, INC.
AFFIRMATIVE, L.L.C., (f/k/a USAgencies, L.L.C.)
AFFIRMATIVE GENERAL AGENCY, INC., (f/k/a USagencies Management Services, Inc.)
By:	/s/ Michael J. McClure
	Name:  Michael J. McClure
	Title:  CEO

JCF AFFM DEBT HOLDINGS L.P.,
as Administrative Agent, and as Collateral Agent and Lender
By: JCF AFFM DEBT HOLDING GP LTD., its General Partner
By:	/s/ J. Christopher Flowers
	Name: J. Christopher Flowers
	Title: Director

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Michael J. McClure, Chief Executive Officer of Affirmative Insurance Holdings, Inc., certify that:

1. I have reviewed this report on Form 10-Q of Affirmative Insurance Holdings, Inc.:

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

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

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

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

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

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

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

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

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

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

Date: May 15, 2015

/s/ Michael J. McClure

Michael J. McClure

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Earl R. Fonville, Executive Vice President and Chief Financial Officer of Affirmative Insurance Holdings, Inc., certify that:

1. I have reviewed this report on Form 10-Q of Affirmative Insurance Holdings, Inc.:

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

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

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

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

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

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

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

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

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

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

Date: May 15, 2015

/s/ Earl R. Fonville

Earl R. Fonville

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION

I, Michael J. McClure, Chief Executive Officer of Affirmative Insurance Holdings, Inc. (the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 to the best of my knowledge, that:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2015 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certificate is being furnished solely for purposes of Section 906.

Date: May 15, 2015

/s/ Michael J. McClure

Michael J. McClure

Chief Executive Officer

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

EX-32.2

Exhibit 32.2

CERTIFICATION

I, Earl R. Fonville, Executive Vice President and Chief Financial Officer of Affirmative Insurance Holdings, Inc. (the Company), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 to the best of my knowledge, that:

(1) the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2015 (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certificate is being furnished solely for purposes of Section 906.

Date: May 15, 2015

/s/ Earl R. Fonville

Earl R. Fonville

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

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

XML

Effect of Reinsurance on Premiums Written and Earned (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Reinsurance Disclosures [Abstract]
Written Premium, Direct	$ 84,733	$ 99,447
Written Premium, Reinsurance ceded	(29,088)	(34,630)
Written Premium, Total	55,645	64,817
Earned Premium, Direct	79,970	80,321
Earned Premium, Reinsurance ceded	(39,055)	(46,957)
Earned Premium, Total	40,915	33,364
Loss and Loss Adjustment Expenses, Direct	61,140	56,276
Loss and Loss Adjustment Expenses, Reinsurance ceded	(27,461)	(28,724)
Loss and Loss Adjustment Expenses, Total	$ 33,679	$ 27,552

XML

Summary of Reconciliation of Numerators and Denominators for Basic and Diluted Earnings per Share (Detail) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Numerator:
Net income (loss)	$ (1,980)	$ 664
Denominator:
Weighted average common shares outstanding	15,767	15,408
Weighted average effect of dilutive securities		874
Total diluted weighted average shares outstanding	15,767	16,282
Basic income (loss) per common share:	$ (0.13)	$ 0.04
Diluted income (loss) per common share:	$ (0.13)	$ 0.04

XML

Property Under Capital Lease (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Leases [Abstract]
Computer software, software licenses and hardware	$ 34,212	$ 34,212
Accumulated depreciation	(29,175)	(28,263)
Computer software, software licenses and hardware, net	$ 5,037	$ 5,949

XML

Items Reclassified Out of Accumulated Other Comprehensive Income (AOCI) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Equity [Abstract]
Beginning balance	$ (1,536)	$ (1,654)
Other comprehensive income before reclassifications	118	219
Amounts reclassified from accumulated other comprehensive income (loss)	74
Net current period other comprehensive income	192	219
Ending balance	$ (1,344)	$ (1,435)

XML

Debt - Additional Information (Detail) (USD $)	3 Months Ended	1 Months Ended		0 Months Ended	1 Months Ended
	Mar. 31, 2015	Mar. 30, 2015	Nov. 30, 2014	Jul. 31, 2015	Sep. 30, 2014	Dec. 31, 2014	Mar. 31, 2013	Sep. 30, 2013
Debt Instrument [Line Items]
Notes payable	$ 76,813,000					$ 76,815,000
Period of interest payments on selected notes payable	5 years
Total deferred interest payable at the expiration of interest deferral period	7,500,000
Debt instrument maturity period	Dec. 15, 2015
Secured loan							4,800,000
Mortgage, interest rate	4.95%
Senior Secured Credit Facility
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate	9.25%
Interest rate	10.50%				10.50%
Secured credit facility								40,000,000
Debt instrument maturity period	Mar. 30, 2016
Leverage ratio under condition one	1.25%
Principal Periodic Payment	11,500,000
Fees on amended agreement	700,000
Principal balance	29,200,000
Debt instrument discount	2,000,000
Fee percentage due	1.00%	0.50%	0.50%
Senior Secured Credit Facility | September 30, 2014 Payment Due
Debt Instrument [Line Items]
Repayment of credit facility	2,000,000
Senior Secured Credit Facility | December 31, 2015 Payment Due
Debt Instrument [Line Items]
Repayment of credit facility	4,500,000
Senior Secured Credit Facility | March 30, 2016 Payment Due
Debt Instrument [Line Items]
Repayment of credit facility	13,500,000
Senior Secured Credit Facility | Before Amendment | Debt Instrument, Redemption, Period Two
Debt Instrument [Line Items]
Repayment of credit facility	3,500,000
Senior Secured Credit Facility | After Amendment | Debt Instrument, Redemption, Period Two
Debt Instrument [Line Items]
Repayment of credit facility	7,000,000
Senior Secured Credit Facility | After Amendment | Debt Instrument, Redemption, Period Two Postpone
Debt Instrument [Line Items]
Repayment of credit facility	3,500,000
Senior Secured Credit Facility | Amendment One
Debt Instrument [Line Items]
Fee percentage due	2.50%
Senior Secured Credit Facility | Scenario, Forecast
Debt Instrument [Line Items]
Fee percentage due				0.50%
LIBOR | Senior Secured Credit Facility | Before Amendment
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate					7.25%
LIBOR | Senior Secured Credit Facility | After Amendment
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate					9.25%
Three-month LIBOR Rate Plus 3.60% Notes Payable Due 2035
Debt Instrument [Line Items]
Notes payable	30,900,000
Maturity Year	2035
Securities adjusted	Three-month LIBOR
Interest rate	3.87%
Three-month LIBOR Rate Plus 3.60% Notes Payable Due 2035 | LIBOR
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate	3.60%
Three-month LIBOR Rate Plus 3.55% Notes Payable Due 2035
Debt Instrument [Line Items]
Notes payable	25,800,000
Maturity Year	2035
Securities adjusted	Three-month LIBOR
Interest rate	3.82%
Three-month LIBOR Rate Plus 3.55% Notes Payable Due 2035 | LIBOR
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate	3.55%
Notes Payable With Deferred Interest Right
Debt Instrument [Line Items]
Notes payable	56,700,000
Three-month LIBOR Rate Plus 3.95% Notes Payable Due 2035
Debt Instrument [Line Items]
Notes payable	20,100,000
Maturity Year	2035
Securities adjusted	Three-month LIBOR
Interest rate	4.22%
Three-month LIBOR Rate Plus 3.95% Notes Payable Due 2035 | LIBOR
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate	3.95%
Subordinated Secured Credit Facility
Debt Instrument [Line Items]
Interest rate	19.25%
Debt instrument maturity period	Mar. 30, 2017
Debt instrument face amount								10,000,000
Principal balance	17,400,000
Commitment fee	3,000,000
Capitalized interest cost	$ 4,400,000
Subordinated Secured Credit Facility | LIBOR
Debt Instrument [Line Items]
Debt instrument, basis spread on variable rate	18.00%
Leverage ratio under condition one	1.25%

XML

Available-for-Sale Investment Securities - Additional Information (Detail) (USD $)	3 Months Ended
	Mar. 31, 2015 Securities	Dec. 31, 2014 Securities
Schedule of Available-for-sale Securities [Line Items]
Income tax effect of unrealized gains and losses	$ 0
Individual investment securities in an unrealized loss position	35	65
Individual securities considered other-than-temporarily impaired	0	0
Available-for-sale securities pledged as collateral	3,000,000	4,900,000
Certificates of deposit | Capital Lease
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities pledged as collateral	$ 1,800,000	$ 2,800,000

XML

Financial Assets Measured at Fair Value on Recurring Basis (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities	$ 26,724	$ 33,285
Other invested assets	4,560	4,501
Fair Value measurements on a recurring basis
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities	26,724	33,285
Other invested assets	4,560	4,501
Total assets	31,284	37,786
Fair Value measurements on a recurring basis | Level 1
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities	8,315	8,314
Total assets	8,315	8,314
Fair Value measurements on a recurring basis | Level 2
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities	18,409	24,971
Total assets	18,409	24,971
Fair Value measurements on a recurring basis | Level 3
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Other invested assets	4,560	4,501
Total assets	4,560	4,501
Fair Value measurements on a recurring basis | U.S. Treasury and government agencies
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities	8,315	8,314
Fair Value measurements on a recurring basis | U.S. Treasury and government agencies | Level 1
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities	8,315	8,314
Fair Value measurements on a recurring basis | Mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities		3,313
Fair Value measurements on a recurring basis | Mortgage-backed securities | Level 2
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities		3,313
Fair Value measurements on a recurring basis | States and political subdivisions
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities	1,508	1,519
Fair Value measurements on a recurring basis | States and political subdivisions | Level 2
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities	1,508	1,519
Fair Value measurements on a recurring basis | Corporate debt securities
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities	15,148	17,372
Fair Value measurements on a recurring basis | Corporate debt securities | Level 2
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities	15,148	17,372
Fair Value measurements on a recurring basis | Certificates of deposit
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities	1,753	2,767
Fair Value measurements on a recurring basis | Certificates of deposit | Level 2
Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Total investment securities	$ 1,753	$ 2,767

XML

Debt (Tables)

3 Months Ended

Mar. 31, 2015

Debt Disclosure [Abstract]

Summary of Long-Term Debt Instruments and Balances Outstanding

The Company’s long-term debt instruments and balances outstanding at March 31, 2015 and December 31, 2014 were as follows (in thousands):

	March 31, 2015		December 31, 2014
Notes payable due 2035	$	30,928	$	30,928
Notes payable due 2035		25,774		25,774
Notes payable due 2035		20,111		20,113
Total notes payable		76,813		76,815
Senior secured credit facility effective September 2013,    net of discount		28,946		28,135
Subordinated secured credit facility		17,376		16,566
Mortgage payable		1,377		1,825
Total long-term debt	$	124,512	$	123,341

XML

Provision for Income Taxes (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Income Tax Disclosure [Abstract]
Current tax expense (benefit)	$ 144	$ (294)
Income tax expense (benefit)	$ 144	$ (294)

XML

Amount of Receivables Due from Reinsurers (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Accounts Notes And Loans Receivable [Line Items]
Receivable from reinsurers	$ 147,405	$ 182,804
Quota-share reinsurers for agreements effective June 30, 2014
Accounts Notes And Loans Receivable [Line Items]
Receivable from reinsurers	102,460	130,086
Michigan Catastrophic Claims Association
Accounts Notes And Loans Receivable [Line Items]
Receivable from reinsurers	25,392	27,610
Vesta Insurance Group
Accounts Notes And Loans Receivable [Line Items]
Receivable from reinsurers	9,271	9,270
Quota-share reinsurers for agreements effective December 31, 2013
Accounts Notes And Loans Receivable [Line Items]
Receivable from reinsurers	4,309	14,096
Quota-share reinsurer for agreements effective January 1, 2011 and other
Accounts Notes And Loans Receivable [Line Items]
Receivable from reinsurers	3,158	3,188
Quota-share reinsurer for agreements effective September 1, 2011 and March 31, 2013
Accounts Notes And Loans Receivable [Line Items]
Receivable from reinsurers	1,918	(2,285)
Excess of Loss Reinsurers
Accounts Notes And Loans Receivable [Line Items]
Receivable from reinsurers	$ 897	$ 839

XML

Available-for-Sale Investment Securities in Unrealized Loss Position (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Schedule of Available-for-sale Securities [Line Items]
Less Than Twelve Months Estimated Fair Value	$ 4,577	$ 10,498
Less Than Twelve Months Gross Unrealized Losses	(10)	(65)
Twelve Months or Greater Estimated Fair Value	3,567	6,492
Twelve Months or Greater Gross Unrealized Losses	(12)	(116)
Total Estimated Fair Value	8,144	16,990
Total Gross Unrealized Losses	(22)	(181)
Certificates of deposit
Schedule of Available-for-sale Securities [Line Items]
Less Than Twelve Months Estimated Fair Value		999
Less Than Twelve Months Gross Unrealized Losses		(1)
Total Estimated Fair Value		999
Total Gross Unrealized Losses		(1)
U.S. Treasury and government agencies
Schedule of Available-for-sale Securities [Line Items]
Less Than Twelve Months Estimated Fair Value	480	2,217
Less Than Twelve Months Gross Unrealized Losses	(1)	(6)
Twelve Months or Greater Estimated Fair Value	2,000	1,984
Twelve Months or Greater Gross Unrealized Losses	(8)	(24)
Total Estimated Fair Value	2,480	4,201
Total Gross Unrealized Losses	(9)	(30)
Mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Less Than Twelve Months Estimated Fair Value		1,388
Less Than Twelve Months Gross Unrealized Losses		(22)
Twelve Months or Greater Estimated Fair Value		1,273
Twelve Months or Greater Gross Unrealized Losses		(70)
Total Estimated Fair Value		2,661
Total Gross Unrealized Losses		(92)
Corporate debt securities
Schedule of Available-for-sale Securities [Line Items]
Less Than Twelve Months Estimated Fair Value	4,097	5,894
Less Than Twelve Months Gross Unrealized Losses	(9)	(36)
Twelve Months or Greater Estimated Fair Value	1,567	3,235
Twelve Months or Greater Gross Unrealized Losses	(4)	(22)
Total Estimated Fair Value	5,664	9,129
Total Gross Unrealized Losses	$ (13)	$ (58)

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Effective Tax Rate Differed from Statutory Tax Rate (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Income Tax Disclosure [Abstract]
Income (loss) before income taxes	$ (1,836)	$ 370
Tax provision computed at the federal statutory income tax rate	(643)	130
Increases (reductions) in tax resulting from:
Tax-exempt interest	(2)	(4)
State income taxes	65	349
Valuation allowance	716	(774)
Other	8	5
Income tax expense (benefit)	$ 144	$ (294)
Effective tax rate	(7.80%)	(79.50%)

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Capital Lease Obligation - Additional Information (Detail) (USD $)	1 Months Ended	3 Months Ended		12 Months Ended
	May 31, 2010 Leases	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2013	Dec. 31, 2014
Schedule Of Capital Lease Obligations [Line Items]
Proceeds from financing under capital lease obligations	$ 28,200,000		$ 4,858,000
Number of capital lease obligations	2
Purchase of FDIC-insured certificates of deposit	28,200,000
Lease term		3 months
Total rental monthly payments		600,000
Available-for-sale securities pledged as collateral		3,000,000			4,900,000
Computer Software, Intangible Asset
Schedule Of Capital Lease Obligations [Line Items]
Proceeds from financing under capital lease obligations				$ 4,900,000

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Going Concern

3 Months Ended

Mar. 31, 2015

Going Concern [Abstract]

Going Concern

2. Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. This assumes continuing operations and the realization of assets and liabilities in the normal course of business.

The Company incurred losses from operations over the last six years, including an operating loss of $31.0 million for the year ended December 31, 2014. Losses over this period were primarily due to underwriting losses, significant revenue declines, expenses declining less than the amount of revenue declines, and goodwill impairments. The losses from operations were the result of significant new business written in 2012 and 2013, prior pricing issues in some states in which the Company has taken significant pricing and underwriting actions to address profitability, losses from states that the Company has exited, such as Florida and Michigan, and goodwill impairment charges as a result of such losses.

The senior secured and subordinated credit facilities contain quarterly debt covenants that set forth, among other things, minimum risk-based capital requirements for the Company’s insurance subsidiaries as well as minimum cash flow requirements for the Company’s non-regulated businesses. The credit facilities have been amended to waive compliance with the risk-based capital measurement requirement as of March 31, 2015, and to postpone the principal payment of $3.5 million due March 31, 2015 to June 30, 2015. Except for the minimum risk-based capital requirement for which the Company obtained a waiver, the Company was in compliance with these covenants as of March 31, 2015. However, it is probable the Company will not meet certain of these covenants in future periods. If the Company is unable to achieve compliance with the covenants or obtain a forbearance or waiver of any non-compliance or amend the agreements to change such covenants, the lenders could declare all amounts outstanding under the facilities to be immediately due and payable. Even if the Company is compliant with the covenants or, if not compliant, obtains additional forbearance or waivers from its lenders, there is still substantial uncertainty that the Company will be able to refinance or extend the maturity of the senior secured facility when it becomes due in March 2016. If the Company’s lenders declare the amounts outstanding to be immediately due and payable or if the Company is unable to refinance or extend the maturity of the senior secured credit facility when it becomes due, it would have a material adverse effect on the Company’s operations and the Company’s creditors and stockholders.

The Company’s insurance subsidiaries are subject to risk-based capital standards and other minimum capital and surplus requirements imposed under applicable state laws, including the laws of their state of domicile. The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the National Association of Insurance Commissioners, or NAIC, require insurance companies to report their results of risk-based capital calculations to state departments of insurance and the NAIC. At December 31, 2014, the risk-based capital level of Affirmative Insurance Company (AIC) triggered a regulatory action level event under the NAIC standard. As a result, AIC was required to submit a plan to the Illinois Department of Insurance (IDOI) in April 2015 detailing corrective actions being taken to return its risk-based capital ratio to an acceptable level. The IDOI may accept the plan, require further amendments to the plan or take additional regulatory action including, but not limited to, placing AIC in receivership. Such additional regulatory action by the Illinois Department of Insurance would have a material adverse effect on the Company’s operations and the interest of its creditors and stockholders. Such additional regulatory action by the Illinois Department of Insurance also would trigger a further event of default under the Company’s senior secured credit facility and subordinated credit facility allowing the Company’s lenders to declare all amounts outstanding under the facilities to be immediately due and payable, and if such amounts were declared immediately due and payable by the lenders, it would have a material adverse effect on the Company’s operations and the interests of its creditors and stockholders.

The Company has taken and will continue to pursue appropriate actions to improve the underwriting results. The Company is also pursuing various other actions to address these issues. However, there can be no assurance that these actions will be effective.

The Company’s recent history of recurring losses from operations, its failure to comply with certain financial covenants in its senior secured and subordinated credit facilities, its need to meet debt repayment requirements and its failure to comply with the Illinois Department of Insurance minimum risk-based capital requirements raise substantial doubt about the Company’s ability to continue as a going concern.

The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects of this uncertainty on the recoverability or classification of recorded asset amounts or the amounts or classification of liabilities.

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Summary of Policy Acquisition Cost (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Deferred Policy Acquisition Costs [Line Items]
Beginning balance			$ (4,214)
Ending balance	(673)		(4,214)
Deferred Policy Acquisition Costs, Gross
Deferred Policy Acquisition Costs [Line Items]
Beginning balance	14,568	12,587
Additions	14,962	17,892
Amortization	(14,210)	(13,265)
Ending balance	15,320	17,214
Deferred Policy Acquisition Costs, Ceded
Deferred Policy Acquisition Costs [Line Items]
Beginning balance	(18,782)	(20,131)
Additions	(8,110)	(8,894)
Amortization	10,899	13,052
Ending balance	(15,993)	(15,973)
Deferred Policy Acquisition Costs, Net
Deferred Policy Acquisition Costs [Line Items]
Beginning balance	(4,214)	(7,544)
Ending balance	(673)	1,241
Additions	6,852	8,998
Amortization	$ (3,311)	$ (213)

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Disclosures for Items Reclassified Out of Accumulated Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2015

Equity [Abstract]

Components of Accumulated Other Comprehensive Income (Loss)

The following table sets forth the components of accumulated other comprehensive income (loss), including reclassification adjustments for the three months ended March 31, 2015 and 2014 (in thousands):

	2015			2014
Beginning balance	$	(1,536	)	$	(1,654	)
Other comprehensive income before reclassifications		118			219
Amounts reclassified from accumulated other    comprehensive income (loss)		74			—
Net current period other comprehensive income		192			219
Ending balance	$	(1,344	)	$	(1,435	)

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Net Income (Loss) per Common Share (Tables)

3 Months Ended

Mar. 31, 2015

Earnings Per Share [Abstract]

Summary of Reconciliation of Numerators and Denominators for Basic and Diluted Earnings per Share

The following table sets forth the reconciliation of numerators and denominators for the basic and diluted earnings per share computation for the three months ended March 31, 2015 and 2014 (in thousands, except per share amounts):

	Three Months Ended March 31,
	2015			2014
Numerator:
Net income (loss)	$	(1,980	)	$	664
Denominator:
Weighted average common shares outstanding		15,767			15,408
Weighted average effect of dilutive securities		—			874
Total diluted weighted average shares outstanding		15,767			16,282
Basic income (loss) per common share:	$	(0.13	)	$	0.04
Diluted income (loss) per common share:	$	(0.13	)	$	0.04

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Disclosures for Items Reclassified Out of Accumulated Other Comprehensive Income (AOCI) - Additional Information (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015
Equity [Abstract]
Reclassifications for previously unrealized net gains on available-for-sale securities	$ 74

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Summary of Long-Term Debt Instruments and Balances Outstanding (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Notes payable	$ 76,813	$ 76,815
Subordinated secured credit facility	17,376	16,566
Mortgage payable	1,377	1,825
Total long-term debt	124,512	123,341
30.9 million notes payable due 2035
Debt Instrument [Line Items]
Notes payable	30,928	30,928
25.8 million notes payable due 2035
Debt Instrument [Line Items]
Notes payable	25,774	25,774
20.1 million notes payable due 2035
Debt Instrument [Line Items]
Notes payable	20,111	20,113
Effective September 2013
Debt Instrument [Line Items]
Senior secured credit facility, net of discount	$ 28,946	$ 28,135

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2015

Fair Value Disclosures [Abstract]

Financial Assets Measured at Fair Value on Recurring Basis

The following table provides information as of March 31, 2015 about the Company’s financial assets measured at fair value on a recurring basis (in thousands):  

	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury and government agencies	$	8,315	$	8,315	$	—	$	—
States and political subdivisions		1,508		—		1,508		—
Corporate debt securities		15,148		—		15,148		—
Certificates of deposit		1,753		—		1,753		—
Total investment securities		26,724		8,315		18,409		—
Other invested assets		4,560		—		—		4,560
Total assets	$	31,284	$	8,315	$	18,409	$	4,560

The following table provides information as of December 31, 2014 about the Company’s financial assets measured at fair value on a recurring basis (in thousands):  

	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury and government agencies	$	8,314	$	8,314	$	—	$	—
Mortgage-backed securities		3,313		—		3,313		—
States and political subdivisions		1,519		—		1,519		—
Corporate debt securities		17,372		—		17,372		—
Certificates of deposit		2,767		—		2,767		—
Total investment securities		33,285		8,314		24,971		—
Other invested assets		4,501		—		—		4,501
Total assets	$	37,786	$	8,314	$	24,971	$	4,501

Fair Value Measurements for Assets

Fair value measurements for assets in Level 3 for the year ended March 31, 2015 were as follows (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Other Invested Assets
Balance at January 1, 2015	$	4,501
Transfers into Level 3		—
Total gains included in earnings as net investment    income		59
Settlements		—
Balance at March 31, 2015	$	4,560

Fair value measurements for assets in Level 3 for the year ended March 31, 2014 were as follows (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Other Invested Assets
Balance at January 1, 2014	$	4,085
Transfers into Level 3		—
Total gains included in earnings as net investment    income		127
Settlements		—
Balance at March 31, 2014	$	4,212

Fair Value Measurements for Assets and Liabilities

The following table presents the carrying value and estimated fair value of the Company’s financial assets and liabilities disclosed, but not carried, at fair value at March 31, 2015 and the level within the fair value hierarchy (in thousands):

	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	27,620	$	27,620	$	27,620	$	—	$	—
Fiduciary and restricted cash		4,003		4,003		4,003		—		—
Total	$	31,623	$	31,623	$	31,623	$	—	$	—
Liabilities:
Notes payable	$	76,813	$	14,233	$	—	$	—	$	14,233
Senior secured credit facility		28,946		29,045		—		—		29,045
Subordinated secured credit facility		17,376		15,105		—		—		15,105
Mortgage payable		1,377		1,377		—		—		1,377
Total	$	124,512	$	59,760	$	—	$	—	$	59,760

The following table presents the carrying value and estimated fair value of the Company’s financial assets and liabilities disclosed, but not carried, at fair value at December 31, 2014 and the level within the fair value hierarchy (in thousands):

	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	23,863	$	23,863	$	23,863	$	—	$	—
Fiduciary and restricted cash		4,794		4,794		4,794		—		—
Total	$	28,657	$	28,657	$	28,657	$	—	$	—
Liabilities:
Notes payable	$	76,815	$	14,289	$	—	$	—	$	14,289
Senior secured credit facility		28,135		28,254		—		—		28,254
Subordinated secured credit facility		16,566		14,126		—		—		14,126
Mortgage payable		1,825		1,825		—		—		1,825
Total	$	123,341	$	58,494	$	—	$	—	$	58,494

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General - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2015 Agency State
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Number of states operating	7
Number of Independent agents	5,000

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General

3 Months Ended

Mar. 31, 2015

Organization Consolidation And Presentation Of Financial Statements [Abstract]

General

1. General

Affirmative Insurance Holdings, Inc. (the Company) was incorporated in Delaware in June 1998. The Company is a provider of non-standard personal automobile insurance policies for individual consumers in targeted geographic areas. The Company currently distributes insurance policies through approximately 5,000 independent agents or brokers in 7 states (Louisiana, Texas, California, Alabama, Illinois, Indiana and Missouri).

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Going Concern - Additional Information (Detail) (USD $)	3 Months Ended		12 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Going Concern [Line Items]
Operating loss	$ 1,122,000	$ 3,686,000	$ (31,000,000)
Description of non-compliance with risk-based capital ratio	The Company’s insurance subsidiaries are subject to risk-based capital standards and other minimum capital and surplus requirements imposed under applicable state laws, including the laws of their state of domicile. The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the National Association of Insurance Commissioners, or NAIC, require insurance companies to report their results of risk-based capital calculations to state departments of insurance and the NAIC. At December 31, 2014, the risk-based capital level of Affirmative Insurance Company (AIC) triggered a regulatory action level event under the NAIC standard. As a result, AIC was required to submit a plan to the Illinois Department of Insurance (IDOI) in April 2015 detailing corrective actions being taken to return its risk-based capital ratio to an acceptable level. The IDOI may accept the plan, require further amendments to the plan or take additional regulatory action including, but not limited to, placing AIC in receivership. Such additional regulatory action by the Illinois Department of Insurance would have a material adverse effect on the Company’s operations and the interest of its creditors and stockholders. Such additional regulatory action by the Illinois Department of Insurance also would trigger a further event of default under the Company’s senior secured credit facility and subordinated credit facility allowing the Company’s lenders to declare all amounts outstanding under the facilities to be immediately due and payable, and if such amounts were declared immediately due and payable by the lenders, it would have a material adverse effect on the Company’s operations and the interests of its creditors and stockholders.
Senior Secured Credit Facility | Debt Instrument, Redemption, Period Two
Going Concern [Line Items]
Debt Instrument, Covenant Compliance	The credit facilities have been amended to waive compliance with the risk-based capital measurement requirement as of March 31, 2015, and to postpone the principal payment of $3.5 million due March 31, 2015 to June 30, 2015. Except for the minimum risk-based capital requirement for which the Company obtained a waiver, the Company was in compliance with these covenants as of March 31, 2015.
Senior Secured Credit Facility | After Amendment | Debt Instrument, Redemption, Period Two
Going Concern [Line Items]
Repayment of credit facility	7,000,000
Senior Secured Credit Facility | After Amendment | Debt Instrument, Redemption, Period Two Postpone
Going Concern [Line Items]
Repayment of credit facility	$ 3,500,000

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Adjustments to Ceding Commissions Recognized (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Reinsurance Disclosures [Abstract]
Selling, general and administrative expenses	$ (10,894)	$ (15,430)

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Net Income (Loss) per Common Share - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Restricted Stock
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Outstanding shares excluded from computation of earnings per share due to anti-dilutive effect	314,667
Equity Option
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Outstanding shares excluded from computation of earnings per share due to anti-dilutive effect	1,250,000	323,000

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CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Assets
Available-for-sale securities, at fair value	$ 26,724	$ 33,285
Other invested assets	4,560	4,501
Cash and cash equivalents	27,620	23,863
Fiduciary and restricted cash	4,003	4,794
Accrued investment income	284	149
Premiums and fees receivable, net	65,182	53,167
Commissions receivable	1,137	487
Receivable from reinsurers	147,405	182,804
Income taxes receivable		149
Investment in real property, net	9,378	9,558
Property and equipment (net of accumulated depreciation of $60,377 for 2015 and $59,127 for 2014)	7,139	8,389
Other intangible assets (net of accumulated amortization of $7,765 for 2015 and 2014)	1,500	1,500
Prepaid expenses	5,915	5,623
Other assets (net of allowance for doubtful accounts of $576 for 2015 and 2014)	11,547	9,420
Total assets	312,394	337,689
Liabilities:
Reserves for losses and loss adjustment expenses	122,895	132,752
Unearned premium	89,100	84,055
Amounts due to reinsurers	59,895	80,126
Due to third-party carriers	4,804	5,106
Deferred revenue	7,108	6,537
Capital lease obligation	1,688	3,344
Debt	124,512	123,341
Income taxes payable	39
Deferred acquisition costs, net liability	673	4,214
Other liabilities	37,757	32,613
Total liabilities	448,471	472,088
Stockholders’ deficit:
Common stock, $0.01 par value; 75,000,000 shares authorized, 18,949,220 shares issued and 16,155,357 shares outstanding at March 31, 2015 and December 31, 2014	190	190
Additional paid-in capital	167,733	167,623
Treasury stock, at cost (2,793,863 shares at March 31, 2015 and December 31, 2014)	(32,910)	(32,910)
Accumulated other comprehensive loss	(1,344)	(1,536)
Retained deficit	(269,746)	(267,766)
Total stockholders’ deficit	(136,077)	(134,399)
Total liabilities and stockholders’ deficit	$ 312,394	$ 337,689

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Summary of Long-Term Debt Instruments and Balances Outstanding (Parenthetical) (Detail)	3 Months Ended	12 Months Ended
	Mar. 31, 2015	Dec. 31, 2014
30.9 million notes payable due 2035
Debt Instrument [Line Items]
Maturity Year	2035	2035
25.8 million notes payable due 2035
Debt Instrument [Line Items]
Maturity Year	2035	2035
20.1 million notes payable due 2035
Debt Instrument [Line Items]
Maturity Year	2035	2035

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (USD $) In Thousands, except Share data	Total	Common Stock	Additional Paid-in Capital	Treasury Stock	Accumulated Other Comprehensive Income (Loss)	Retained Earnings
Balance at beginning of year at Dec. 31, 2013		$ 182	$ 167,049	$ (32,910)	$ (1,654)	$ (235,559)
Balance at beginning of year (in shares) at Dec. 31, 2013		18,202,221		2,793,863
Issuance of restricted stock awards		5	(5)
Issuance of restricted stock awards (in shares)		472,000
Stock-based compensation			15
Unrealized gain on available-for-sale investment securities	219				219
Net income (loss)	664
Balance at end of period at Mar. 31, 2014	(101,994)	187	167,059	(32,910)	(1,435)	(234,895)
Balance at end of period (in shares) at Mar. 31, 2014		18,674,221		2,793,863
Balance at beginning of year at Dec. 31, 2014	(134,399)	190	167,623	(32,910)	(1,536)	(267,766)
Balance at beginning of year (in shares) at Dec. 31, 2014		18,949,220		2,793,863
Stock-based compensation			110
Unrealized gain on available-for-sale investment securities	118				192
Net income (loss)	(1,980)
Balance at end of period at Mar. 31, 2015	$ (136,077)	$ 190	$ 167,733	$ (32,910)	$ (1,344)	$ (269,746)
Balance at end of period (in shares) at Mar. 31, 2015		18,949,220		2,793,863

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Fair Value Measurements for Assets and Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Carrying Value
Assets:
Cash and cash equivalents	$ 27,620	$ 23,863
Fiduciary and restricted cash	4,003	4,794
Total assets	31,623	28,657
Liabilities:
Notes payable	76,813	76,815
Senior secured credit facility	28,946	28,135
Subordinated secured credit facility	17,376	16,566
Mortgage payable	1,377	1,825
Total	124,512	123,341
Estimated Fair Value
Assets:
Cash and cash equivalents	27,620	23,863
Fiduciary and restricted cash	4,003	4,794
Total assets	31,623	28,657
Liabilities:
Notes payable	14,233	14,289
Senior secured credit facility	29,045	28,254
Subordinated secured credit facility	15,105	14,126
Mortgage payable	1,377	1,825
Total	59,760	58,494
Estimated Fair Value | Level 1
Assets:
Cash and cash equivalents	27,620	23,863
Fiduciary and restricted cash	4,003	4,794
Total assets	31,623	28,657
Estimated Fair Value | Level 3
Liabilities:
Notes payable	14,233	14,289
Senior secured credit facility	29,045	28,254
Subordinated secured credit facility	15,105	14,126
Mortgage payable	1,377	1,825
Total	$ 59,760	$ 58,494

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Amortized Costs and Estimated Fair Values of Fixed Income Securities (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 26,529	$ 33,282
Estimated Fair Value	26,724	33,285
Fixed income securities
Schedule of Available-for-sale Securities [Line Items]
Fixed maturities, Due in one year or less, Amortized Cost	5,646
Fixed maturities, Due after one year through five years, Amortized Cost	20,726
Fixed maturities, Due after five years through ten years, Amortized Cost	157
Amortized Cost	26,529
Fixed maturities, Due in one year or less, Estimated Fair Value	5,666
Fixed maturities, Due after one year through five years, Estimated Fair Value	20,901
Fixed maturities, Due after five years through ten years, Estimated Fair Value	157
Estimated Fair Value	$ 26,724

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Available-for-Sale Investment Securities (Tables)

3 Months Ended

Mar. 31, 2015

Schedule of Available-for-sale Securities [Line Items]

Summary of Available-for-Sale Securities

The amortized cost, gross unrealized gains (losses), and estimated fair value of the Company’s available-for-sale securities at March 31, 2015 and December 31, 2014, were as follows (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
March 31, 2015
U.S. Treasury and government agencies	$	8,292	$	32	$	(9	)	$	8,315
States and political subdivisions		1,478		30		—			1,508
Corporate debt securities		15,009		152		(13	)		15,148
Certificates of deposit		1,750		3		—			1,753
Total	$	26,529	$	217	$	(22	)	$	26,724
December 31, 2014
U.S. Treasury and government agencies	$	8,311	$	33	$	(30	)	$	8,314
Mortgage-backed securities		3,386		19		(92	)		3,313
States and political subdivisions		1,485		34		—			1,519
Corporate debt securities		17,340		90		(58	)		17,372
Certificates of deposit		2,760		8		(1	)		2,767
Total	$	33,282	$	184	$	(181	)	$	33,285

Gross Realized Gains and Losses on Available-for-Sale Investment

Gross realized gains and losses on available-for-sale investments for the three months ended March 31 were as follows (in thousands):

	2015			2014
Gross gains	$	24		$	—
Gross losses		(98	)		—
Total	$	(74	)	$	—

Summary of Available-for-sale Securities in Unrealized Loss Position

The following table summarizes the Company’s available-for-sale securities in an unrealized loss position at March 31, 2015 and December 31, 2014, the estimated fair value and amount of gross unrealized losses, aggregated by investment category and length of time those securities have been continuously in an unrealized loss position (in thousands):

	March 31, 2015
	Less Than Twelve Months					Twelve Months or Greater					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
U.S. Treasury and government agencies	$	480	$	(1	)	$	2,000	$	(8	)	$	2,480	$	(9	)
Corporate debt securities		4,097		(9	)		1,567		(4	)		5,664		(13	)
Total	$	4,577	$	(10	)	$	3,567	$	(12	)	$	8,144	$	(22	)

	December 31, 2014
	Less Than Twelve Months					Twelve Months or Greater					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
U.S. Treasury and government agencies	$	2,217	$	(6	)	$	1,984	$	(24	)	$	4,201	$	(30	)
Mortgage-backed securities		1,388		(22	)		1,273		(70	)		2,661		(92	)
Corporate debt securities		5,894		(36	)		3,235		(22	)		9,129		(58	)
Certificates of deposit		999		(1	)		—		—			999		(1	)
Total	$	10,498	$	(65	)	$	6,492	$	(116	)	$	16,990	$	(181	)

Fixed income securities

Schedule of Available-for-sale Securities [Line Items]

Summary of Available-for-Sale Securities

The Company’s amortized cost and estimated fair values of fixed-income securities at March 31, 2015 by contractual maturity were as follows (in thousands):

	Amortized Cost		Estimated Fair Value
Fixed maturities:
Due in one year or less	$	5,646	$	5,666
Due after one year through five years		20,726		20,901
Due after five years through ten years		157		157
Total	$	26,529	$	26,724

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Gross Realized Gains and Losses on Available-for-Sale Investments (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015
Investments Debt And Equity Securities [Abstract]
Gross gains	$ 24
Gross losses	(98)
Total	$ (74)

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Deferred Policy Acquisition Costs (Tables)

3 Months Ended

Mar. 31, 2015

Deferred Policy Acquisition Costs Disclosures [Abstract]

Components of Deferred Policy Acquisition Costs and Related Amortization

The components of deferred policy acquisition costs and the related amortization were as follows for the three months ended March 31, 2015 and 2014 (in thousands):

	Gross			Ceded			Net
Balance at January 1, 2015	$	14,568		$	(18,782	)	$	(4,214	)
Additions		14,962			(8,110	)		6,852
Amortization		(14,210	)		10,899			(3,311	)
Ending balance at March 31, 2015	$	15,320		$	(15,993	)	$	(673	)
Balance at January 1, 2014	$	12,587		$	(20,131	)	$	(7,544	)
Additions		17,892			(8,894	)		8,998
Amortization		(13,265	)		13,052			(213	)
Ending balance at March 31, 2014	$	17,214		$	(15,973	)	$	1,241

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Cash flows from operating activities
Net income (loss)	$ (1,980)	$ 664
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	1,430	1,676
Stock-based compensation expense	110	15
Amortization of debt issuance costs	411	502
Amortization of debt discount	99	408
Net realized losses from sales of available-for-sale securities	74
Fair value gain on investment in hedge fund	(59)	(127)
Amortization of premiums on investments, net	97	148
Provision for doubtful accounts		(6)
Paid-in-kind interest	1,522	667
Change in operating assets and liabilities:
Fiduciary and restricted cash	1,991	(407)
Premiums, fees and commissions receivable, net	(12,665)	(19,631)
Reserves for losses and loss adjustment expenses	(9,857)	(8,786)
Amounts due from reinsurers	15,168	235
Due to third-party carriers	(302)	257
Deferred revenue	571	891
Unearned premium	5,045	18,852
Deferred acquisition costs, net	(3,541)	(8,785)
Income taxes	188	(1,928)
Other	161	1,986
Net cash used in operating activities	(1,537)	(13,369)
Cash flows from investing activities
Fiduciary and restricted cash	(1,200)	(4,800)
Proceeds from sales of available-for-sale securities	5,734	198
Proceeds from maturities of available-for-sale securities	1,060	11,735
Purchases of available-for-sale securities	(212)	(10,000)
Purchases of property and equipment		(154)
Net cash provided by (used in) investing activities	5,382	(3,021)
Cash flows from financing activities
Proceeds from financing under capital lease obligations		4,858
Principal payments under capital lease obligations	(1,656)	(1,547)
Principal payments on mortgage security agreement	(448)	(426)
Debt issuance costs paid	(149)
Bank overdrafts	2,165	1,117
Net cash provided by (used in) financing activities	(88)	4,002
Net increase (decrease) in cash and cash equivalents	3,757	(12,388)
Cash and cash equivalents at beginning of year	23,863	44,569
Cash and cash equivalents at end of period	27,620	32,181
Supplemental disclosure of cash flow information:
Cash paid for interest	1,029	1,154
Cash paid for income taxes	12	1,634
Disclosure of non-cash information:
Senior secured credit facility amendment closing fee capitalized to loan balance	$ 713

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Statement Of Financial Position [Abstract]
Property and equipment, accumulated depreciation	$ 60,377	$ 59,127
Other intangible assets, accumulated amortization	7,765	7,765
Other assets, allowance for doubtful accounts	$ 576	$ 576
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	75,000,000	75,000,000
Common stock, shares issued	18,949,220	18,949,220
Common stock, shares outstanding	16,155,357	16,155,357
Treasury stock, shares	2,793,863	2,793,863

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Legal and Regulatory Proceedings

3 Months Ended

Mar. 31, 2015

Commitments And Contingencies Disclosure [Abstract]

Legal and Regulatory Proceedings

10. Legal and Regulatory Proceedings

The Company and its subsidiaries are named from time to time as parties in various legal actions arising in the ordinary course of the Company’s business and arising out of or related to claims made in connection with the Company’s insurance policies and claims handling. There are no material changes with respect to legal and regulatory proceedings previously disclosed in Note 15 to the consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2014.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2015	May 13, 2015
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1
Trading Symbol	AFFM
Entity Registrant Name	AFFIRMATIVE INSURANCE HOLDINGS INC
Entity Central Index Key	0001282543
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		16,155,357

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Net Income (Loss) per Common Share

3 Months Ended

Mar. 31, 2015

Earnings Per Share [Abstract]

Net Income (Loss) per Common Share

11. Net Income (Loss) per Common Share

Net income (loss) per common share is based on the weighted average number of shares outstanding. Diluted weighted average shares are calculated by adjusting basic weighted average shares outstanding by all potentially dilutive stock options. Restricted stock awards of 314,667 for the three months ended March 31, 2015, were not included in the computation of diluted earnings per share because the value of the award was greater than the average market price of the common stock. Stock options outstanding of 1,250,000 and 323,000 for the three months ended March 31, 2015 and 2014, respectively, were not included in the computation of diluted earnings per share because the exercise price of the options was greater than the average market price of the common stock or there was a net loss from operations in the period thus the inclusion would have been anti-dilutive. Diluted earnings per share are calculated using the treasury stock method.

The following table sets forth the reconciliation of numerators and denominators for the basic and diluted earnings per share computation for the three months ended March 31, 2015 and 2014 (in thousands, except per share amounts):

	Three Months Ended March 31,
	2015			2014
Numerator:
Net income (loss)	$	(1,980	)	$	664
Denominator:
Weighted average common shares outstanding		15,767			15,408
Weighted average effect of dilutive securities		—			874
Total diluted weighted average shares outstanding		15,767			16,282
Basic income (loss) per common share:	$	(0.13	)	$	0.04
Diluted income (loss) per common share:	$	(0.13	)	$	0.04

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Revenues
Net premiums earned	$ 40,915	$ 33,364
Commission income, fees and managing general agent revenue	10,896	11,330
Net investment income	586	830
Net realized losses	(74)
Other income	107	2
Total revenues	52,430	45,526
Expenses
Net losses and loss adjustment expenses	33,679	27,552
Selling, general and administrative expenses	16,379	12,792
Depreciation and amortization	1,250	1,496
Total expenses	51,308	41,840
Operating income	1,122	3,686
Interest expense	2,958	3,316
Income (loss) before income taxes	(1,836)	370
Income tax expense (benefit)	144	(294)
Net income (loss)	$ (1,980)	$ 664
Basic income (loss) per common share:
Net income (loss)	$ (0.13)	$ 0.04
Diluted income (loss) per common share:
Net income (loss)	$ (0.13)	$ 0.04
Weighted average common shares outstanding:
Basic	15,767	15,408
Diluted	15,767	16,282

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Reinsurance

3 Months Ended

Mar. 31, 2015

Reinsurance Disclosures [Abstract]

Reinsurance

5. Reinsurance

In the ordinary course of business, the Company places reinsurance with other insurance companies in order to provide greater diversification of its business and limit the potential for losses arising from large risks. The Company’s reinsurance agreements provide for recovery of a portion of losses and loss expenses from reinsurers and reinsurance recoverables are recorded as assets. The Company is liable if the reinsurers are unable to satisfy their obligations under the agreements. The Company seeks to cede business to reinsurers generally with a financial strength rating of “A-” or better.

Quota-share agreements

In 2013, the Company entered into a quota-share agreement with a third-party reinsurance company effective March 31, 2013, under which the Company ceded 40% of business produced in Louisiana, Alabama, Texas and Illinois. This agreement was amended effective June 30, 2013, under which the Company ceded an additional 40% for the same four states for the remainder of 2013. This agreement was further amended to provide a $10.0 million reduction in ceded premiums in the fourth quarter. Written premiums ceded under this agreement totaled $145.8 million during the year ended December 31, 2013. This agreement terminated on January 1, 2014, resulting in the return of $47.2 million unearned premiums, net of $13.9 million of ceding commissions. Written premiums ceded under the agreement totaled $98.6 million.

Effective December 31, 2013, the Company entered into a new reinsurance agreement with four third-party reinsurance companies. Under this agreement, the Company ceded 20% of premiums and losses in Alabama, Illinois, Louisiana and Texas, and 60% in California on policies in force on December 31, 2013 or written or renewed on and after that date. Written premiums ceded under this agreement totaled $22.2 million as of December 31, 2013. On January 1, 2014, the quota-share rate increased to 60% for all business in force in these same states and for new and renewal business. On June 30, 2014, the reinsurance agreement was terminated, resulting in the return of $51.7 million of unearned premiums, net of $14.5 million of ceding commissions. Written premiums ceded under the agreement totaled $95.9 million as of December 31, 2014. In March 2015, two of the quota share reinsurers commuted their participation on this agreement, effectively reducing the quota share rate to 20.4%.

Effective June 30, 2014, a new reinsurance agreement with five third-party reinsurance companies was put in place to cede 85% of all business in force in these same states and for new and renewal business through June 30, 2015. Written premiums ceded under this agreement totaled $230.9 million through March 31, 2015. In March 2015, one of the quota share reinsurers commuted their participation on this agreement, reducing the effective ceding percentage to 50%. A return of $27.6 million of unearned ceded premiums, net of $7.7 million of ceding commissions, resulted from the commutation.

The effect of reinsurance on premiums written and earned was as follows (in thousands):

	Three Months Ended March 31,
	2015									2014
	Written Premium			Earned Premium			Loss and Loss Adjustment Expenses			Written Premium			Earned Premium			Loss and Loss Adjustment Expenses
Direct	$	84,733		$	79,970		$	61,140		$	99,447		$	80,321		$	56,276
Reinsurance ceded		(29,088	)		(39,055	)		(27,461	)		(34,630	)		(46,957	)		(28,724	)
Total	$	55,645		$	40,915		$	33,679		$	64,817		$	33,364		$	27,552

Under certain of the Company’s reinsurance transactions, the Company has received ceding commissions. The ceding commission rate varies based on loss experience. The estimates of loss experience are continually reviewed and adjusted, and the resulting adjustments to ceding commissions are reflected in current operations. Ceding commissions recognized, reflected as a reduction of selling, general and administrative expenses, were as follows (in thousands):

	Three Months Ended March 31,
	2015			2014
Selling, general and administrative expenses	$	(10,894	)	$	(15,430	)

The amount of loss reserves and unearned premium the Company would remain liable for in the event its reinsurers are unable to meet their obligations were as follows (in thousands):

	March 31,		December 31,
	2015		2014
Losses and loss adjustment expense reserves	$	58,952	$	86,421
Unearned premium reserve		57,121		67,089
Total	$	116,073	$	153,510

Receivable from reinsurers

The table below presents the total amount of receivables due from reinsurers as of March 31, 2015 and December 31, 2014 (in thousands):  

	March 31, 2015		December 31, 2014
Quota-share reinsurers for agreements effective June 30, 2014	$	102,460	$	130,086
Michigan Catastrophic Claims Association		25,392		27,610
Vesta Insurance Group		9,271		9,270
Quota-share reinsurers for agreements effective    December 31, 2013		4,309		14,096
Quota-share reinsurer for agreements effective January 1, 2011    and other		3,158		3,188
Quota-share reinsurer for agreements effective    September 1, 2011 and March 31, 2013		1,918		(2,285	)
Excess of loss reinsurers		897		839
Total reinsurance receivable	$	147,405	$	182,804

The quota-share reinsurers and the excess of loss reinsurers all have at least A- ratings from A.M. Best. Accordingly, the Company believes there is minimal credit risk related to these reinsurance receivables. Under the reinsurance agreement with Vesta Insurance Group (VIG), including primarily Vesta Fire Insurance Corporation (VFIC), AIC had the right, under certain circumstances, to require VFIC to provide a letter of credit or establish a trust account to collateralize gross amounts due from VFIC under the reinsurance agreement. At March 31, 2015, the VFIC Trust held $16.5 million (after cumulative withdrawals of $9.0 million through March 31, 2015), consisting of a U.S. Treasury money market account held in cash and cash equivalents, to collateralize the $9.3 million net recoverable from VFIC. In March 2015, AIC received a notice of determination from the VFIC Special Deputy Receiver on multiple proofs of claim for an aggregate amount of $15.3 million for various reinsurance balances with VFIC. As part of the notice of determination, AIC entered into a settlement agreement and release with the VFIC Special Deputy Receiver. AIC expects to receive the $15.3 million in settlement proceeds in May 2015.

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Available-for-Sale Investment Securities

3 Months Ended

Mar. 31, 2015

Investments Debt And Equity Securities [Abstract]

Available-for-Sale Investment Securities

4. Available-for-Sale Investment Securities

The Company’s available-for-sale investment securities are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of stockholders’ deficit. No income tax effect of unrealized gains and losses is reflected in other comprehensive income (loss) due to the Company carrying a full deferred tax valuation allowance. Gains and losses realized on the disposition of investment securities are determined on the specific-identification basis and credited or charged to income at the time of disposal.

Amortized Cost and Fair Value

The amortized cost, gross unrealized gains (losses), and estimated fair value of the Company’s available-for-sale securities at March 31, 2015 and December 31, 2014, were as follows (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
March 31, 2015
U.S. Treasury and government agencies	$	8,292	$	32	$	(9	)	$	8,315
States and political subdivisions		1,478		30		—			1,508
Corporate debt securities		15,009		152		(13	)		15,148
Certificates of deposit		1,750		3		—			1,753
Total	$	26,529	$	217	$	(22	)	$	26,724
December 31, 2014
U.S. Treasury and government agencies	$	8,311	$	33	$	(30	)	$	8,314
Mortgage-backed securities		3,386		19		(92	)		3,313
States and political subdivisions		1,485		34		—			1,519
Corporate debt securities		17,340		90		(58	)		17,372
Certificates of deposit		2,760		8		(1	)		2,767
Total	$	33,282	$	184	$	(181	)	$	33,285

For additional disclosures regarding methods and assumptions used in estimating fair values of these securities see Note 13.

Maturities

Expected maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without penalties. The Company’s amortized cost and estimated fair values of fixed-income securities at March 31, 2015 by contractual maturity were as follows (in thousands):

	Amortized Cost		Estimated Fair Value
Fixed maturities:
Due in one year or less	$	5,646	$	5,666
Due after one year through five years		20,726		20,901
Due after five years through ten years		157		157
Total	$	26,529	$	26,724

Gross Realized Gains and Losses

Gross realized gains and losses on available-for-sale investments for the three months ended March 31 were as follows (in thousands):

	2015			2014
Gross gains	$	24		$	—
Gross losses		(98	)		—
Total	$	(74	)	$	—

Unrealized Losses

The following table summarizes the Company’s available-for-sale securities in an unrealized loss position at March 31, 2015 and December 31, 2014, the estimated fair value and amount of gross unrealized losses, aggregated by investment category and length of time those securities have been continuously in an unrealized loss position (in thousands):

	March 31, 2015
	Less Than Twelve Months					Twelve Months or Greater					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
U.S. Treasury and government agencies	$	480	$	(1	)	$	2,000	$	(8	)	$	2,480	$	(9	)
Corporate debt securities		4,097		(9	)		1,567		(4	)		5,664		(13	)
Total	$	4,577	$	(10	)	$	3,567	$	(12	)	$	8,144	$	(22	)

	December 31, 2014
	Less Than Twelve Months					Twelve Months or Greater					Total
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
U.S. Treasury and government agencies	$	2,217	$	(6	)	$	1,984	$	(24	)	$	4,201	$	(30	)
Mortgage-backed securities		1,388		(22	)		1,273		(70	)		2,661		(92	)
Corporate debt securities		5,894		(36	)		3,235		(22	)		9,129		(58	)
Certificates of deposit		999		(1	)		—		—			999		(1	)
Total	$	10,498	$	(65	)	$	6,492	$	(116	)	$	16,990	$	(181	)

The Company’s portfolio contained approximately 35 and 65 individual investment securities that were in an unrealized loss position as of March 31, 2015 and December 31, 2014, respectively.

The unrealized losses at March 31, 2015 were primarily attributable to changes in market interest rates since the securities were purchased. Management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis. Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. On a quarterly basis, the Company considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If the cost of an investment exceeds its fair value, the Company evaluates, among other factors, general market conditions, duration and extent to which the fair value is less than cost. If the fair value of a debt security is less than its amortized cost basis, an other-than-temporary impairment may be triggered in circumstances where (1) an entity has an intent to sell the security, (2) it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, or (3) the entity does not expect to recover the entire amortized cost basis of the security (that is, a credit loss exists). Other-than-temporary impairments are separated into amounts representing credit losses which are recognized in earnings and amounts related to all other factors which are recognized in other comprehensive income (loss). The Company also considers potential adverse conditions related to the financial health of the issuer based on rating agency actions. As a result of management’s quarterly analyses for the period ended March 31, 2015 and the year ended December 31, 2014, no individual securities were considered other-than-temporarily impaired.

Restricted Investments

Certificates of deposit in the amount of $1.8 million and $2.8 million as of March 31, 2015 and December 31, 2014, respectively, were pledged as collateral associated with the capital lease related to certain computer software, software licenses, and hardware used in the Company’s insurance operations. See Note 8 for discussion of the associated capital lease obligation.

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Reinsurance (Tables)

3 Months Ended

Mar. 31, 2015

Reinsurance Disclosures [Abstract]

Effect of Reinsurance on Premiums Written and Earned

The effect of reinsurance on premiums written and earned was as follows (in thousands):

	Three Months Ended March 31,
	2015									2014
	Written Premium			Earned Premium			Loss and Loss Adjustment Expenses			Written Premium			Earned Premium			Loss and Loss Adjustment Expenses
Direct	$	84,733		$	79,970		$	61,140		$	99,447		$	80,321		$	56,276
Reinsurance ceded		(29,088	)		(39,055	)		(27,461	)		(34,630	)		(46,957	)		(28,724	)
Total	$	55,645		$	40,915		$	33,679		$	64,817		$	33,364		$	27,552

Selling, General and Administrative Expenses

Ceding commissions recognized, reflected as a reduction of selling, general and administrative expenses, were as follows (in thousands):

	Three Months Ended March 31,
	2015			2014
Selling, general and administrative expenses	$	(10,894	)	$	(15,430	)

Amount of Loss Reserves and Unearned Premium

The amount of loss reserves and unearned premium the Company would remain liable for in the event its reinsurers are unable to meet their obligations were as follows (in thousands):

	March 31,		December 31,
	2015		2014
Losses and loss adjustment expense reserves	$	58,952	$	86,421
Unearned premium reserve		57,121		67,089
Total	$	116,073	$	153,510

Amount of Receivables Due from Reinsurers

The table below presents the total amount of receivables due from reinsurers as of March 31, 2015 and December 31, 2014 (in thousands):  

	March 31, 2015		December 31, 2014
Quota-share reinsurers for agreements effective June 30, 2014	$	102,460	$	130,086
Michigan Catastrophic Claims Association		25,392		27,610
Vesta Insurance Group		9,271		9,270
Quota-share reinsurers for agreements effective    December 31, 2013		4,309		14,096
Quota-share reinsurer for agreements effective January 1, 2011    and other		3,158		3,188
Quota-share reinsurer for agreements effective    September 1, 2011 and March 31, 2013		1,918		(2,285	)
Excess of loss reinsurers		897		839
Total reinsurance receivable	$	147,405	$	182,804

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Disclosures for Items Reclassified Out of Accumulated Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2015

Equity [Abstract]

Disclosures for Items Reclassified Out of Accumulated Other Comprehensive Income (Loss)

12. Disclosures for Items Reclassified Out of Accumulated Other Comprehensive Income (Loss)

The following table sets forth the components of accumulated other comprehensive income (loss), including reclassification adjustments for the three months ended March 31, 2015 and 2014 (in thousands):

	2015			2014
Beginning balance	$	(1,536	)	$	(1,654	)
Other comprehensive income before reclassifications		118			219
Amounts reclassified from accumulated other    comprehensive income (loss)		74			—
Net current period other comprehensive income		192			219
Ending balance	$	(1,344	)	$	(1,435	)

Net loss in accumulated other comprehensive income (loss) reclassifications for previously unrealized net loss on available-for-sale securities was $74,000 for the three months ended March 31, 2015. The loss was not net of any taxes due to the valuation allowance for deferred income taxes.

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Capital Lease Obligation

3 Months Ended

Mar. 31, 2015

Leases [Abstract]

Capital Lease Obligation

8. Capital Lease Obligation

In December 2013, the Company entered into a capital lease obligation related to certain computer software, software licenses and hardware used in the Company’s insurance operations. The Company received cash proceeds from the financing in the amount of $4.9 million which were pledged as collateral against all the Company’s obligations under the lease. The dollar amount of collateral pledged is set to decline over the term of the lease as the Company makes the scheduled lease payments. At the end of the initial term, the Company will have the right to purchase the software for a nominal fee, after which all rights, title and interest would transfer to the Company.

In May 2010, the Company entered into two capital lease obligations related to certain computer software, software licenses, and hardware used in the Company’s insurance operations. The Company received cash proceeds from the financing in the amount of $28.2 million. As required by the lease agreements, the Company purchased $28.2 million of certificates of deposit held in brokerage accounts and pledged such securities as collateral against all of the Company’s obligations under the lease. The dollar amount of collateral pledged is set to decline over the term of the lease as the Company makes the scheduled lease payments. At the end of the initial term, the Company will have the right to purchase the software for a nominal fee, after which all rights, title and interest would transfer to the Company.

In October 2012, one of the Lessors terminated their capital lease agreement with the Company. In December 2012, the Lessor conveyed all rights and interest in the leased property to the Company.

The remaining lease term for both capital leases is 3 months with monthly rental payments totaling approximately $0.6 million. Cash and securities pledged as collateral and held as available-for-sale securities were $3.0 million and $4.9 million as of March 31, 2015 and December 31, 2014, respectively.

Property under capital lease consisted of the following as of March 31, 2015 and 2014 (in thousands):

	March 31, 2015			December 31, 2014
Computer software, software licenses and hardware	$	34,212		$	34,212
Accumulated depreciation		(29,175	)		(28,263	)
Computer software, software licenses and hardware, net	$	5,037		$	5,949

Estimated future lease payments for the year ending December 31 (in thousands):

2015	$	1,704
Less: Amount representing interest		(16	)
Present value of future lease payments	$	1,688

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Deferred Policy Acquisition Costs

3 Months Ended

Mar. 31, 2015

Deferred Policy Acquisition Costs Disclosures [Abstract]

Deferred Policy Acquisition Costs

6. Deferred Policy Acquisition Costs

Policy acquisition costs, consisting of primarily commissions and premium taxes, net of ceding commission income, are deferred and charged against income ratably over the terms of the related policies. The components of deferred policy acquisition costs and the related amortization were as follows for the three months ended March 31, 2015 and 2014 (in thousands):

	Gross			Ceded			Net
Balance at January 1, 2015	$	14,568		$	(18,782	)	$	(4,214	)
Additions		14,962			(8,110	)		6,852
Amortization		(14,210	)		10,899			(3,311	)
Ending balance at March 31, 2015	$	15,320		$	(15,993	)	$	(673	)
Balance at January 1, 2014	$	12,587		$	(20,131	)	$	(7,544	)
Additions		17,892			(8,894	)		8,998
Amortization		(13,265	)		13,052			(213	)
Ending balance at March 31, 2014	$	17,214		$	(15,973	)	$	1,241

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Debt

3 Months Ended

Mar. 31, 2015

Debt Disclosure [Abstract]

Debt

7. Debt

The Company’s long-term debt instruments and balances outstanding at March 31, 2015 and December 31, 2014 were as follows (in thousands):

	March 31, 2015		December 31, 2014
Notes payable due 2035	$	30,928	$	30,928
Notes payable due 2035		25,774		25,774
Notes payable due 2035		20,111		20,113
Total notes payable		76,813		76,815
Senior secured credit facility effective September 2013,    net of discount		28,946		28,135
Subordinated secured credit facility		17,376		16,566
Mortgage payable		1,377		1,825
Total long-term debt	$	124,512	$	123,341

Notes payable

The $30.9 million notes payable due 2035 are redeemable in whole or in part by the Company. The notes adjust quarterly to the three-month LIBOR rate plus 3.60%. The interest rate as of March 31, 2015 was 3.87%.

The $25.8 million notes payable due 2035 are redeemable in whole or in part by the Company. The notes adjust quarterly to the three-month LIBOR rate plus 3.55%. The interest rate as of March 31, 2015 was 3.82%.

On February 28, 2012, the Company exercised its right to defer interest payments on the two notes payable mentioned above beginning with the scheduled interest payment due in March 2012 and continuing for a period of up to five years. The affected notes are associated with obligations to the Company’s unconsolidated trusts. The outstanding balance of the affected notes was $56.7 million as of March 31, 2015. The Company will continue to accrue interest on the principal during the interest deferral period and the unpaid deferred interest will also accrue interest. Deferred interest will be due and payable at the expiration of the interest deferral period and totaled $7.5 million as of March 31, 2015.

The $20.1 million notes payable due 2035 are redeemable in whole or in part by the Company. The notes adjust quarterly to the three-month LIBOR rate plus 3.95%. The interest rate as of March 31, 2015 was 4.22%.

Senior and subordinated secured facilities

On September 30, 2013, the Company replaced its existing senior credit facility with the proceeds from the sale of the retail business and with proceeds from two new debt arrangements. The Company’s new debt arrangement consisted of a $40.0 million senior secured credit facility with a maturity date of March 30, 2016, and a $10.0 million subordinated secured credit facility with a maturity date of March 30, 2017.

The pricing under the senior secured credit facility was amended effective September 30, 2014 to an adjusted LIBOR rate floor of 1.25%, plus 9.25%. The interest rate as of March 31, 2015 was 10.50%. The Company made principal payments of $11.5 million in the aggregate as at March 31, 2015. Fees of $0.7 million were added to the outstanding principal balance on March 31, 2015 in connection with the amended agreement effective December 31, 2014. As of March 31, 2015, the principal balance of the senior secured credit facility was $29.2 million. The senior secured credit facility was issued at a discount of $2.0 million that is amortized as interest expense over the expected term of the loan using the effective interest method. Repayment of the facility is due quarterly with $2.0 million payable for each quarter through September 30, 2014, $3.5 million payable each quarter through September 30, 2015, $4.5 million payable on December 31, 2015 and the remaining balance of $13.5 million due in full on March 30, 2016. Prepayments under this agreement are applied to the earliest payments due. Effective December 31, 2014, the senior secured credit facility was amended to postpone the principal payment of $3.5 million due March 31, 2015. The next payment due is $7.0 million on June 30, 2015.

The pricing under the subordinated secured credit facility is currently subject to an adjusted LIBOR rate floor of 1.25%, plus 18.00%. The interest rate as of March 31, 2015 was 19.25%. The subordinated secured credit facility included a commitment fee of $3.0 million that was added to the principal balance outstanding. Accrued interest is added to the outstanding principal balance until the senior secured credit facility is paid. Capitalized interest totaling $4.4 million was added to the principal balance through March 31, 2015. As of March 31, 2015, the principal balance of the subordinated secured credit facility was $17.4 million.

In March 2015, the Company entered into an amendment to the senior secured and subordinated credit facilities. The amendment included the following significant items:

· A waiver under both the senior secured and subordinated credit facility of all defaults or events of default arising out of the breach of the Company’s risk-based capital ratio for the quarters ended December 31, 2014 and March 31, 2015.

· The principal payment of $3.5 million due March 31, 2015 under the senior secured facility postponed to June 30, 2015. The next principal payment due is $7.0 million on June 30, 2015.

· A fee of 2.5% is due to the senior secured facility lenders upon approving the amendment. The fee shall be added to the principal amount of the credit facility as of March 31, 2015. Commencing on July 31, 2015, a fee of 0.50% is due on the last day of each month thereafter, which may, at the Company’s option, be added to the principal amount of the credit facility then outstanding.

In November 2014, the Company entered into an amendment to the senior secured and subordinated credit facilities. The amendment included the following significant items:

· A waiver under both the senior secured and subordinated credit facility of all defaults or events of default arising out of the breach of the Company’s risk-based capital ratio for the quarter ended September 30, 2014.

· Effective September 30, 2014, the pricing under the senior secured facility changed from adjusted LIBOR rate floor plus 7.25% to the adjusted LIBOR rate floor plus 9.25%. The new interest rate on the senior secured facility beginning September 30, 2014 is 10.50%.

· A fee of 1% is due to the senior secured facility lenders upon approving the amendment. The Company paid a 0.50% fee to the senior secured facility lenders in November 2014 and March 2015.

Mortgage payable

In March 2013, the Company, through one of its indirect, wholly-owned subsidiaries, entered into a $4.8 million loan secured by commercial real estate to provide liquidity to AIC. The loan is evidenced by a promissory note secured by a mortgage security agreement and assignment of leases and rents on real estate located in Baton Rouge, Louisiana, which is held as investment in real property on the consolidated balance sheet. The mortgage bears interest at a per annum fixed rate of 4.95%. The mortgage requires monthly payments of principal and interest with the final payment due on the maturity date of December 15, 2015. As security for payments, the Company assigned rents due under the lease to a trustee. Pursuant to an escrow and servicing agreement, the trustee will receive rent due under the lease, make required payments due under the mortgage and maintain certain escrow accounts to pay for the necessary expenses of the property until the mortgage is paid in full.

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Income Taxes

3 Months Ended

Mar. 31, 2015

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

The provision for income taxes for the three months ended March 31, 2015 and 2014 consisted of the following (in thousands):

	Three Months Ended March 31,
	2015		2014
Current tax expense (benefit)	$	144	$	(294	)
Deferred tax expense		—		—
Income tax expense (benefit)	$	144	$	(294	)

The Company’s effective tax rate differed from the statutory rate of 35% for the three months ended March 31 as follows (in thousands):

	Three Months Ended March 31,
	2015			2014
Income (loss) before income taxes	$	(1,836	)	$	370
Tax provision computed at the federal statutory income    tax rate		(643	)		130
Increases (reductions) in tax resulting from:
Tax-exempt interest		(2	)		(4	)
State income taxes		65			349
Valuation allowance		716			(774	)
Other		8			5
Income tax expense (benefit)	$	144		$	(294	)
Effective tax rate		(7.8	)%		(79.5	)%

Our gross deferred tax assets prior to recognition of valuation allowance were $99.2  million and $98.5 million at March 31, 2015 and December 31, 2014, respectively. In assessing the realizability of our deferred tax assets, we considered whether it was more likely than not that our deferred tax assets will be realized based upon all available evidence, including scheduled reversal of deferred tax liabilities, historical operating results, projected future operating results, tax carry-back availability, and limitations pursuant to Section 382 of the Internal Revenue Code, among others. Based on this assessment, we began recording a valuation allowance against deferred taxes in December 2009. The valuation allowance was $97.8 million and $97.2 million at March 31, 2015 and December 31, 2014, respectively.

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Amortized Cost Gross Unrealized Gains Losses and Estimated Fair Value of Available-for-Sale Securities (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 26,529	$ 33,282
Gross Unrealized Gains	217	184
Gross Unrealized Losses	(22)	(181)
Estimated Fair Value	26,724	33,285
U.S. Treasury and government agencies
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	8,292	8,311
Gross Unrealized Gains	32	33
Gross Unrealized Losses	(9)	(30)
Estimated Fair Value	8,315	8,314
Mortgage-backed securities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost		3,386
Gross Unrealized Gains		19
Gross Unrealized Losses		(92)
Estimated Fair Value		3,313
States and political subdivisions
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,478	1,485
Gross Unrealized Gains	30	34
Estimated Fair Value	1,508	1,519
Corporate debt securities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	15,009	17,340
Gross Unrealized Gains	152	90
Gross Unrealized Losses	(13)	(58)
Estimated Fair Value	15,148	17,372
Certificates of deposit
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	1,750	2,760
Gross Unrealized Gains	3	8
Gross Unrealized Losses		(1)
Estimated Fair Value	$ 1,753	$ 2,767

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Income Taxes - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Income Tax Disclosure [Abstract]
Effective tax rate from statutory rate	35.00%	35.00%
Gross deferred tax assets	$ 99.2		$ 98.5
Deferred tax assets valuation allowance	$ 97.8		$ 97.2

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2015

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements of the Company. In the opinion of management, all adjustments necessary for a fair presentation have been included and are of a normal recurring nature. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K. The results of operations for interim periods should not be considered indicative of results to be expected for the full year.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

Accounting Standards Update (ASU) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs issued in April 2015 requires 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 that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this standard is expected to impact only the presentation and note disclosures in the Company’s consolidated financial statements.

Accounting Standards Update (ASU) No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis issued in February 2015is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The ASU will be effective for periods beginning after December 15, 2015 for public companies. Early adoption is permitted, including adoption in an interim period. The implications of this ASU are currently under review by the Company.

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Capital Lease Obligation (Tables)

3 Months Ended

Mar. 31, 2015

Leases [Abstract]

Property Under Capital Lease

Property under capital lease consisted of the following as of March 31, 2015 and 2014 (in thousands):

	March 31, 2015			December 31, 2014
Computer software, software licenses and hardware	$	34,212		$	34,212
Accumulated depreciation		(29,175	)		(28,263	)
Computer software, software licenses and hardware, net	$	5,037		$	5,949

Future Lease Payments

Estimated future lease payments for the year ending December 31 (in thousands):

2015	$	1,704
Less: Amount representing interest		(16	)
Present value of future lease payments	$	1,688

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Estimated Future Lease Payments (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Leases [Abstract]
2015	$ 1,704
Less: Amount representing interest	(16)
Present value of future lease payments	$ 1,688	$ 3,344

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Amount of Loss Reserves and Unearned Premium (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Reinsurance Disclosures [Abstract]
Losses and loss adjustment expense reserves	$ 58,952	$ 86,421
Unearned premium reserve	57,121	67,089
Total	$ 116,073	$ 153,510

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Statement Of Income And Comprehensive Income [Abstract]
Net income (loss)	$ (1,980)	$ 664
Other comprehensive income:
Unrealized gains on available-for-sale investment securities arising during period	118	219
Reclassification adjustment for realized losses included in net income	74
Other comprehensive income, net	192	219
Total comprehensive income (loss)	$ (1,788)	$ 883

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2015

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements of the Company. In the opinion of management, all adjustments necessary for a fair presentation have been included and are of a normal recurring nature. The consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K. The results of operations for interim periods should not be considered indicative of results to be expected for the full year.

Recently Issued Accounting Standards

Accounting Standards Update (ASU) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs issued in April 2015 requires 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 that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The adoption of this standard is expected to impact only the presentation and note disclosures in the Company’s consolidated financial statements.

Accounting Standards Update (ASU) No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis issued in February 2015is intended to improve targeted areas of consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The ASU focuses on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The ASU will be effective for periods beginning after December 15, 2015 for public companies. Early adoption is permitted, including adoption in an interim period. The implications of this ASU are currently under review by the Company.

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Fair Value Measurements for Assets using Unobservable Inputs (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Fair Value Disclosures [Abstract]
Beginning Balance	$ 4,501	$ 4,085
Total gains included in earnings as net investment income	59	127
Ending Balance	$ 4,560	$ 4,212

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2015

Income Tax Disclosure [Abstract]

Provision for Income Taxes

The provision for income taxes for the three months ended March 31, 2015 and 2014 consisted of the following (in thousands):

	Three Months Ended March 31,
	2015		2014
Current tax expense (benefit)	$	144	$	(294	)
Deferred tax expense		—		—
Income tax expense (benefit)	$	144	$	(294	)

Summary of Effective Tax Rate Differed from Statutory Rate

The Company’s effective tax rate differed from the statutory rate of 35% for the three months ended March 31 as follows (in thousands):

	Three Months Ended March 31,
	2015			2014
Income (loss) before income taxes	$	(1,836	)	$	370
Tax provision computed at the federal statutory income    tax rate		(643	)		130
Increases (reductions) in tax resulting from:
Tax-exempt interest		(2	)		(4	)
State income taxes		65			349
Valuation allowance		716			(774	)
Other		8			5
Income tax expense (benefit)	$	144		$	(294	)
Effective tax rate		(7.8	)%		(79.5	)%

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Reinsurance - Additional Information (Detail) (USD $)	3 Months Ended		1 Months Ended	12 Months Ended	0 Months Ended	1 Months Ended			6 Months Ended	9 Months Ended	12 Months Ended	1 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2013	Dec. 31, 2014	Jan. 01, 2014	Mar. 31, 2015	Jun. 30, 2013	Mar. 31, 2013	Jun. 30, 2014	Dec. 31, 2013	Dec. 31, 2013	Jun. 30, 2014
Effects of Reinsurance [Line Items]
Written premiums ceded	$ 29,088,000	$ 34,630,000
Receivable from reinsurers	147,405,000			182,804,000		147,405,000
New Quota Share Reinsurance Treaty Agreements
Effects of Reinsurance [Line Items]
Written premiums ceded			22,200,000	95,900,000
New Quota Share Reinsurance Treaty Agreements | Louisiana, Alabama, Texas, Illinois
Effects of Reinsurance [Line Items]
Ceded percentage of business produced							40.00%	40.00%
Written premiums ceded							10,000,000			98,600,000	145,800,000
Ceded unearned premium									51,700,000		47,200,000
Net deferred ceding commissions									14,500,000		13,900,000
Ceded gross written premium											20.00%
Percentage of quota share rate					60.00%	20.40%
New Quota Share Reinsurance Treaty Agreements | California
Effects of Reinsurance [Line Items]
Ceded gross written premium											60.00%
Quota-share reinsurers for agreements effective June 30, 2014
Effects of Reinsurance [Line Items]
Ceded percentage of business produced	50.00%											85.00%
Written premiums ceded												230,900,000
Ceded unearned premium	27,600,000
Net deferred ceding commissions	7,700,000
Receivable from reinsurers	102,460,000			130,086,000		102,460,000
Vesta Insurance Group
Effects of Reinsurance [Line Items]
Total deposit	16,500,000					16,500,000
Deposit after cumulative withdrawals	9,000,000					9,000,000
Receivable from reinsurers	9,271,000			9,270,000		9,271,000
Reinsurance receivables on settlement agreement	$ 15,300,000					15,300,000

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Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2015

Fair Value Disclosures [Abstract]

Fair Value of Financial Instruments

13. Fair Value of Financial Instruments

The Company utilizes a hierarchy of valuation techniques for the disclosure of fair value estimates based on whether the significant inputs into the valuation are observable. In determining the level of hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. The Company measures certain assets and liabilities at fair value on a recurring basis, including investment securities classified as available-for-sale, cash equivalents and other invested assets. Following is a brief description of the type of valuation information that qualifies as a financial asset or liability for each level:

Level 1 — Unadjusted quoted market prices for identical assets or liabilities in active markets which are accessible by the Company.

Level 2 — Observable prices in active markets for similar assets or liabilities. Prices for identical or similar assets or liabilities in markets that are not active. Directly observable market inputs for substantially the full term of the asset or liability, e.g., interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, default rates, and credit spreads. Market inputs that are not directly observable, but are derived from or corroborated by observable market data.

Level 3 — Unobservable inputs based on the Company’s own judgment as to assumptions a market participant would use, including inputs derived from extrapolation and interpolation that are not corroborated by observable market data.

The Company evaluates the various types of financial assets and liabilities to determine the appropriate fair value hierarchy based upon trading activity and the observation of market inputs. The Company employs control processes to validate the reasonableness of the fair value estimates of its assets and liabilities, including those estimates based on prices and quotes obtained from independent third-party sources. The Company’s procedures generally include, but are not limited to, initial and ongoing evaluation of methodologies used by independent third-parties and additional pricing services are used as a comparison to determine the reasonableness of fair values used in pricing the investment portfolio.

The Company recognizes transfers between levels at the actual date of the event or change in circumstances that caused the transfer.

Where possible, the Company utilizes quoted market prices to measure fair value. For assets and liabilities that have quoted market prices in active markets, the Company uses the quoted market prices as fair value and includes these prices in the amounts disclosed in Level 1 of the hierarchy. When quoted market prices in active markets are unavailable, the Company determines fair values based on independent external valuation information obtained from independent pricing services, which utilize various models and valuation techniques based on a range of inputs including pricing models, quoted market prices of publicly traded securities with similar duration and yield, time value, yield curve, prepayment speeds, default rates and discounted cash flows. In most cases, these estimates are determined based on independent third-party valuation information, and the amounts are disclosed as Level 2 or Level 3 of the fair value hierarchy depending on the level of observable market inputs.

Financial assets measured at fair value on a recurring basis

The following table provides information as of March 31, 2015 about the Company’s financial assets measured at fair value on a recurring basis (in thousands):  

	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury and government agencies	$	8,315	$	8,315	$	—	$	—
States and political subdivisions		1,508		—		1,508		—
Corporate debt securities		15,148		—		15,148		—
Certificates of deposit		1,753		—		1,753		—
Total investment securities		26,724		8,315		18,409		—
Other invested assets		4,560		—		—		4,560
Total assets	$	31,284	$	8,315	$	18,409	$	4,560

The following table provides information as of December 31, 2014 about the Company’s financial assets measured at fair value on a recurring basis (in thousands):  

	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury and government agencies	$	8,314	$	8,314	$	—	$	—
Mortgage-backed securities		3,313		—		3,313		—
States and political subdivisions		1,519		—		1,519		—
Corporate debt securities		17,372		—		17,372		—
Certificates of deposit		2,767		—		2,767		—
Total investment securities		33,285		8,314		24,971		—
Other invested assets		4,501		—		—		4,501
Total assets	$	37,786	$	8,314	$	24,971	$	4,501

Level 1 Financial assets

Financial assets classified as Level 1 in the fair value hierarchy include U.S. Treasury and government agencies securities. These securities are actively traded and the Company estimates the fair value of these securities using unadjusted quoted market prices.

Level 2 Financial assets

Financial assets classified as Level 2 in the fair value hierarchy include mortgage-backed securities, tax-exempt securities, corporate bonds and certificates of deposit. The fair value of these securities is determined based on observable market inputs provided by independent third-party pricing services. To date, the Company has not experienced a circumstance where it has determined that an adjustment is required to a quote or price received from independent third-party pricing sources. To the extent the Company determines that a price or quote is inconsistent with actual trading activity observed in that investment or similar investments, the Company would determine a fair value using this observable market information and disclose the occurrence of this circumstance. All of the fair values of securities disclosed in Level 2 are estimated based on independent third-party pricing services.

Level 3 Financial assets

The Company’s Level 3 financial assets include an investment in a hedge fund, which is presented as other invested assets in the consolidated balance sheets. The Company elected the fair value option for its investment in the hedge fund and measures the fair value of the hedge fund on the basis of the net asset value of the fund as reported by the fund manager. The hedge fund is primarily invested in residential mortgage-backed securities and other asset-backed securities which are recorded at fair value as determined by the fund manager. Such fair value determination is based on quoted marked prices, bid prices, or the fund manager’s proprietary valuation models where quoted prices are unavailable or deemed to be inadequately representative of fair value. Significant decreases in the fair value of the underlying securities in the hedge fund would result in a significantly lower fair value measurement of other invested assets as reported in the consolidated balance sheets.

Fair value measurements for assets in Level 3 for the year ended March 31, 2015 were as follows (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Other Invested Assets
Balance at January 1, 2015	$	4,501
Transfers into Level 3		—
Total gains included in earnings as net investment    income		59
Settlements		—
Balance at March 31, 2015	$	4,560

Fair value measurements for assets in Level 3 for the year ended March 31, 2014 were as follows (in thousands):

	Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Other Invested Assets
Balance at January 1, 2014	$	4,085
Transfers into Level 3		—
Total gains included in earnings as net investment    income		127
Settlements		—
Balance at March 31, 2014	$	4,212

The Company did not have any transfers between Levels 1 and 2 during the three months ended March 31, 2015 or 2014.

Financial Instruments Disclosed, But Not Carried, At Fair Value

Fair values represent the Company’s best estimates and may not be substantiated by comparisons to independent markets and, in many cases, could not be realized in immediate settlement of the instruments.

The following table presents the carrying value and estimated fair value of the Company’s financial assets and liabilities disclosed, but not carried, at fair value at March 31, 2015 and the level within the fair value hierarchy (in thousands):

	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	27,620	$	27,620	$	27,620	$	—	$	—
Fiduciary and restricted cash		4,003		4,003		4,003		—		—
Total	$	31,623	$	31,623	$	31,623	$	—	$	—
Liabilities:
Notes payable	$	76,813	$	14,233	$	—	$	—	$	14,233
Senior secured credit facility		28,946		29,045		—		—		29,045
Subordinated secured credit facility		17,376		15,105		—		—		15,105
Mortgage payable		1,377		1,377		—		—		1,377
Total	$	124,512	$	59,760	$	—	$	—	$	59,760

The following table presents the carrying value and estimated fair value of the Company’s financial assets and liabilities disclosed, but not carried, at fair value at December 31, 2014 and the level within the fair value hierarchy (in thousands):

	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Assets:
Cash and cash equivalents	$	23,863	$	23,863	$	23,863	$	—	$	—
Fiduciary and restricted cash		4,794		4,794		4,794		—		—
Total	$	28,657	$	28,657	$	28,657	$	—	$	—
Liabilities:
Notes payable	$	76,815	$	14,289	$	—	$	—	$	14,289
Senior secured credit facility		28,135		28,254		—		—		28,254
Subordinated secured credit facility		16,566		14,126		—		—		14,126
Mortgage payable		1,825		1,825		—		—		1,825
Total	$	123,341	$	58,494	$	—	$	—	$	58,494

The fair values of the notes payable, the senior secured credit facility and the subordinated secured credit facility were estimated using discounted cash flow analyses prepared by a third-party valuation source based on inputs and assumptions, such as credit and default risk associated with the debt. The mortgage payable is reported at par value which approximates its fair value due to its short-term nature.