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Significant Accounting Policies

12 Months Ended

Dec. 31, 2011

Significant Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies followed by the Company are summarized as follows:

Basis of Presentation and Consolidation. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of UIH and its wholly owned subsidiaries, and the Universal Insurance Holdings, Inc. Stock Grantor Trust. All intercompany accounts and transactions have been eliminated in consolidation.

To conform to current period presentation, certain amounts in the prior periods’ consolidated financial statements and notes have been reclassified. Such reclassifications were of an immaterial amount and had no effect on net income or stockholders’ equity. The following discussion addresses the most significant reclassifications made.

The Company reclassified $37.6 million of its reinsurance payable, net as of December 31, 2010, to reinsurance receivable, net upon discovery that the Company was offsetting receivables and payables with separate reinsurers. This correction represents a change in the presentation only of the Company’s Condensed Consolidated Balance Sheet as of December 31, 2010 and Condensed Consolidated Statements of Cash Flows for the years ended December 31, 2010 and 2009, and had no impact on earnings, equity or cash flows from operating, investing and financing activities.

The following table provides the line items of the Company’s financial statements that were adjusted as a result of this reclassification (in thousands):


		As of December 31, 2010
		As Reported				Reclassification				Adjusted
Condensed Consolidated Balance Sheet:
Receivable from reinsurers, net		$	—			$	37,607			$	37,607
Total assets		$	766,230			$	37,607			$	803,837

Payable to reinsurers, net		$	37,946			$	37,607			$	75,553
Total liabilities		$	626,440			$	37,607			$	664,047


		Year Ended December 31, 2010
		As Reported				Reclassification				Adjusted
Condensed Consolidated Statements of Cash Flows:
Net change in assets and liabilities relating to operating activities:
Reinsurance receivable, net		$	—			$	3,575			$	3,575
Reinsurance payable, net		$	(35,158	)		$	(3,575	)		$	(38,733	)


		Year Ended December 31, 2009
		As Reported				Reclassification				Adjusted
Net change in assets and liabilities relating to operating activities:
Reinsurance receivable, net		$	—			$	3,683			$	3,683
Reinsurance payable, net		$	49,120			$	(3,683	)		$	45,437

The Company incorrectly included the amount of excess tax benefits from stock-based compensation in the amount of change to income taxes payable in the Company’s Consolidated Statements of Cash Flows for years ended December 31, 2010, 2009 and 2008. The excess tax benefits should have been presented as a separate line item adjusting net income to net cash flows provided by or used in operating activities. Since both line items are components of cash flows generated by or used in operating activities, there is no net impact to net cash flows provided by or used in operating activities. This reclassification between line items on the Consolidated Statements of Cash Flows had no impact on the Company’s net income or financial condition.

The following table provides the line items of the Company’s financial statements that were adjusted as a result of this reclassification (in thousands):


		Year Ended December 31, 2010
		As Reported				Reclassification				Adjusted
Condensed Consolidated Statements of Cash Flows:
Excess tax benefits from stock-based compensation		$	—			$	(4,099	)		$	(4,099	)
Income taxes payable		$	7,913			$	4,099			$	12,012


		Year Ended December 31, 2009
		As Reported				Reclassification				Adjusted
Excess tax benefits from stock-based compensation		$	—			$	(728	)		$	(728	)
Income taxes payable		$	369			$	728			$	1,097

The Company reclassified amounts out of cash and cash equivalents as of December 31, 2010 that were restricted in terms of their use and withdrawal and presents those amounts of restricted cash and cash equivalents as a separate line item on the face of the Consolidated Balance Sheets. The Company also presents restricted cash and cash equivalents as a separate line item reconciling net income to cash flows from operating activities in the Company’s Consolidated Statements of Cash Flows. The following table provides the line items of the Company’s financial statements that were adjusted as a result of this reclassification (in thousands):


		As of December 31, 2010
		As Reported				Reclassification				Adjusted
Condensed Consolidated Balance Sheet:
Cash and cash equivalents		$	147,585			$	(13,940	)		$	133,645
Restricted cash and cash equivalents		$	—			$	13,940			$	13,940


		Year Ended December 31, 2010
		As Reported				Reclassification				Adjusted
Condensed Consolidated Statements of Cash Flows:
Net change in assets and liabilities relating to operating activities:
Restricted cash and cash equivalents		$	—			$	5,175			$	5,175
Net cash flows provided by (used in) operating activities		$	(9,235	)		$	5,175			$	(4,060	)
Net increase (decrease) in cash and cash equivalents		$	(45,339	)		$	5,175			$	(40,164	)
Cash and cash equivalents at beginning of period		$	192,924			$	(19,115	)		$	173,809
Cash and cash equivalents at end of period		$	147,585			$	(13,940	)		$	133,645


		Year Ended December 31, 2009
		As Reported				Reclassification				Adjusted
Net change in assets and liabilities relating to operating activities:
Restricted cash and cash equivalents		$	—			$	(16,515	)		$	(16,515	)
Net cash flows provided by (used in) operating activities		$	37,332			$	(16,515	)		$	20,817
Net increase (decrease) in cash and cash equivalents		$	(64,041	)		$	(16,515	)		$	(80,556	)
Cash and cash equivalents at beginning of period		$	256,965			$	(2,600	)		$	254,365
Cash and cash equivalents at end of period		$	192,924			$	(19,115	)		$	173,809

Use of Estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company’s primary areas of estimate are the recognition of premium revenues, liabilities for unpaid losses and loss adjustment expenses, deferred policy acquisition costs, provision for premium deficiency and reinsurance. Actual results could differ from those estimates.

Cash and Cash Equivalents. The Company includes in cash equivalents all short-term, highly liquid investments that are readily convertible to known amounts of cash and have an original maturity of three months or less. These amounts are carried at cost, which approximates fair value. The Company excludes any net negative cash balances from Cash and Cash Equivalents that the Company or any of its subsidiaries may have with any single institution. These amounts are reclassified to liabilities and presented as bank overdraft in the Company’s consolidated balance sheets.

Restricted cash and cash equivalents. The Company classifies amounts of cash and cash equivalents that are restricted in terms of their use and withdrawal separately on the face the Consolidated Balance Sheets. See below in this Note 2 for a discussion of the nature of the restrictions.

Investments Securities. Investment securities consist of both debt and equity securities. Investments have been classified by the Company as trading, available for sale, or held to maturity, based on management’s intent and ability to hold to maturity. Investment securities held in trading and available for sale are recorded at fair value on the consolidated balance sheet while investments held to maturity are recorded at costs, adjusted for amortization of premiums or discounts and other than temporary declines in fair value. All investment securities held by the Company as of December 31, 2011 and 2010 were held in the trading portfolio.

Unrealized gains and losses on trading securities are reported in current period earnings. Unrealized gains and losses on securities available for sale were excluded from earnings and reported as a component of other comprehensive income, net of related deferred taxes until reclassified to earnings upon the consummation of sales transaction with an unrelated third party or when the decline in fair value was deemed other than temporary.

The assessment of whether the impairment of a security’s fair value was other than temporary was performed using a portfolio review as well as a case-by-case review considering a wide range of factors. There are a number of assumptions and estimates inherent in evaluating impairments and determining if they are other than temporary, including: 1) the Company’s ability and intent to hold the investment for a period of time sufficient to allow for an anticipated recovery in value; 2) the expected recoverability of principal and interest; 3) the length of time and extent to which the fair value has been less than amortized cost for fixed income securities or cost for equity securities; 4) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry conditions and trends, and implications of rating agency actions and offering prices; and 5) the specific reasons that a security is in a significant unrealized loss position, including market conditions which could affect liquidity. Additionally, once assumptions and estimates are made, any number of changes in facts and circumstances could cause the Company to subsequently determine that an impairment is other than temporary, including: 1) general economic conditions that are worse than previously forecasted or that have a greater adverse effect on a particular issuer or industry sector than originally estimated; 2) changes in the facts and circumstances related to a particular issue or issuer’s ability to meet all of its contractual obligations; and 3) changes in facts and circumstances obtained that causes a change in our ability or intent to hold a security to maturity or until it recovers in value.

Gains and losses realized on the disposition of investment securities are determined on the first-in-first-out basis (“FIFO”) and credited or charged to income. Prior to 2009, the Company used the specific identification method for determining realized gains and losses. Beginning in 2009, the Company began using the FIFO method due to the increase in size and complexity of its investment portfolio. Premium and discount on investment securities are amortized and accreted using the interest method and charged or credited to investment income.

Derivatives. Derivatives are held in the Company’s trading portfolio and are reported at fair value with changes in their value reported as unrealized gains or losses until exercised, sold or upon expiration at which time the gain or loss is recognized as a realized gain or loss. The premium received for a written call option is recorded as a liability until the option is either exercised or expires. If the option is exercised by the holder, the Company recognizes the premium received by adjusting the amount of the realized gain or loss on the underlying security by the amount of the option premium received. If the option expires or otherwise terminates, the premium received is recognized as a component of realized gains or losses.

Premiums Receivable. Generally, premiums are collected prior to providing risk coverage, minimizing the Company’s exposure to credit risk. The Company performs a policy level evaluation to determine the extent the premiums receivable balance exceeds the unearned premiums balance. The Company then ages this exposure to establish an allowance for doubtful accounts based on prior experience. As of December 31, 2011 and 2010, the Company had recorded allowances for doubtful accounts in the amounts of $715 thousand and $111 thousand, respectively.

Property and Equipment. Property and equipment is recorded at cost less accumulated depreciation. Depreciation is provided on the straight-line basis over the estimated useful life of the assets. Estimated useful life of all property and equipment ranges from three to twenty-seven-and-one-half years. Expenditures for improvements are capitalized and depreciated over the remaining useful life of the asset. Routine repairs and maintenance are expensed as incurred. Website development costs are capitalized and amortized over their estimated useful life. The Company reviews its property and equipment annually and whenever changes in circumstances indicate that the carrying amount may not be recoverable.

Recognition of Premium Revenues. The Company recognizes revenue when realized or realizable and earned. Property and liability premiums are recognized as revenue on a pro rata basis over the policy term. The portion of premiums that will be earned in the future is deferred and reported as unearned premiums. The Company believes that its revenue recognition policies conform to U.S. GAAP. In the event policyholders cancel their policies, unearned premiums represent amounts that UPCIC would refund policyholders. Accordingly, the Company determines unearned premiums by calculating the pro rata amount that would be due to the policyholders at a given point in time based upon the premiums owed over the life of each policy.

Recognition of Commission Revenue. Commission revenue, which is comprised of the Managing General Agent (MGA)’s policy fee income on all new and renewal insurance policies and commissions generated from agency operations is recognized as income upon policy inception.

Recognition of Policyholder Payment Plan Fee Revenue. The Company offers its policyholders the option of paying their policy premiums in full at inception or in two or four installment payments. The Company charges fees to its policyholders that elect to pay their premium in installments and records such fees as revenue when the policyholder makes the installment payment election and the Company bills the fees to the policyholder. These fees are included in Other Revenue in the Company’s Consolidated Statements of Income.

Deferred Policy Acquisition Costs. Policy acquisition costs consist primarily of commissions, premium taxes and other costs of acquiring new and renewal insurance business. These costs are deferred and amortized over the terms of the policies to which they are related. Reinsurance ceding commissions received are deferred and amortized over the effective period of the related insurance policies. Deferred policy acquisition costs and deferred ceding commissions are netted for balance sheet presentation purposes.

Insurance Liabilities. Unpaid losses and loss adjustment expenses (“LAE”) are provided for as claims are incurred. The provision for unpaid losses and loss adjustment expenses includes: (1) the accumulation of individual case estimates for claims and claim adjustment expenses reported prior to the close of the accounting period; (2) estimates for unreported claims based on industry data; and (3) estimates of expenses for investigating and adjusting claims based on the experience of the Company and the industry.

Inherent in the estimates of ultimate claims are expected trends in claim severity, frequency and other factors that may vary as claims are settled. The amount of uncertainty in the estimates for casualty coverage is significantly affected by such factors as the amount of claims experience relative to the development period, knowledge of the actual facts and circumstances and the amount of insurance risk retained. In addition, the Company’s policyholders are currently concentrated in South Florida, which is periodically subject to adverse weather conditions, such as hurricanes and tropical storms. The methods for making such estimates and for establishing the resulting liability are periodically reviewed, and any adjustments are reflected in current earnings.

Provision for Premium Deficiency. It is the Company’s policy to evaluate and recognize losses on insurance contracts when estimated future claims and maintenance costs under a group of existing contracts will exceed anticipated future premiums. No accruals for premium deficiency were considered necessary as of December 31, 2011 and 2010.

Reinsurance. In the normal course of business, the Company seeks to reduce the risk of loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring (ceding) certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. The Company is required to pay losses to the extent reinsurers are unable to discharge their obligations under the reinsurance agreements. Amounts recoverable from reinsurers are estimated in a manner consistent with the provisions of the reinsurance agreement and consistent with the establishment of the liability of the Company. Allowances are established for amounts deemed uncollectible.

Income Taxes. Income tax provisions are based on the asset and liability method. Deferred federal and state income taxes have been provided for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, net of valuation allowance. The Company reviews its deferred tax assets for recoverability.

Income (Loss) Per Share of Common Stock. Basic earnings per share is computed by dividing the Company’s net income (loss), less Preferred Stock dividends, by the weighted-average number of shares of Common Stock outstanding during the period. Diluted earnings per share is computed by dividing the Company’s net income (loss) by the weighted average number of shares of Common Stock outstanding during the period and the impact of all dilutive potential common shares, primarily Preferred Stock, options and warrants. The dilutive impact of stock options and warrants is determined by applying the treasury stock method and the dilutive impact of the Preferred Stock is determined by applying the “if converted” method.

Fair Value Measurements. Effective January 1, 2010, the Company adopted new Financial Accounting Standards Board (“FASB”) guidance that requires the Company to report significant transfers between Level 1 and Level 2 and the reasons for those transfers, as well as disclosing the reasons for transfers in or out of Level 3, including presenting the reconciliation of the changes in Level 3 fair value measurements separately for purchases, sales and settlements on a gross basis rather than as a net amount. Additionally, the guidance requires the Company to clarify existing disclosure requirements about the level of disaggregation and inputs and valuation techniques. The adoption of this guidance did not have an impact on the Company’s financial statements, other than expanded disclosures.

Disclosures about the purchases, sales, issuances and settlements in the roll forward activity in Level 3 fair value measurements were effective for fiscal years beginning after December 15, 2010. The adoption of the guidance for Level 3 activity did not have a significant impact on its financial statements.

In 2009, the Company adopted the guidance for nonrecurring fair value measurements of nonfinancial assets and liabilities, which guidance had been previously deferred. The adoption of this guidance had no material effect on the Company’s financial condition or results of operations.

Concentrations of Credit Risk. The Company is exposed to concentrations of credit risk, consisting principally of cash and cash equivalents, debt securities, premiums receivable and reinsurance recoverables.

Concentrations of credit risk with respect to cash on deposit are limited by the Company’s policy of investing excess cash with custodial institutions who invest primarily in money market accounts backed by the United States Government and United States Government agency securities with major national banks. These accounts are held by the Institutional Trust & Custody division of U.S. Bank, the Trust Department of SunTrust Bank and Bank of New York Trust Fund.

The Company maintains depository relationships with SunTrust Bank and Wells Fargo Bank N.A. It is the Company’s policy not to have a balance of more than $250 thousand for any of its affiliates at either institution on any given day to minimize exposure to a bank failure. Cash balances in excess of $250 thousand are transferred daily into custodial accounts with SunTrust Bank where cash is immediately invested into shares of the Federated Treasury Obligations Money Market Funds.

The following table provides the amount of cash and cash equivalents, and restricted cash and cash equivalents as of the periods presented (in thousands):


		As of December 31, 2011
		Cash and cash equivalents																Restricted cash and cash equivalents
Institution		Cash				Money Market Funds				Total				% by institution				Funds held in Trust (1)				State Deposits (2)				Total				% by institution
U. S. Bank IT&C		$	—			$	40,474			$	40,474				17.6	%		$	—			$	800			$	800				1.0	%
SunTrust Bank			1,629				—				1,629				0.7	%			—				—				—				0.0	%
SunTrust Bank Institutional Asset Services			—				182,701				182,701				79.5	%			—				—				—				0.0	%
Wells Fargo Bank N.A.			1,244				14				1,258				0.5	%			—				—				—				0.0	%
Bank of New York Trust Fund (1)			—				—				—				0.0	%			30,220				—				30,220				38.6	%
All Other Banking Institutions			1,739				1,884				3,623				1.6	%			—				47,292				47,292				60.3	%

Total		$	4,612			$	225,073			$	229,685				100.0	%		$	30,220			$	48,092			$	78,312				100.0	%


		As of December 31, 2010
		Cash and cash equivalents																Restricted cash and cash equivalents
Institution		Cash				Money Market Funds				Total				% by institution				Funds held in Trust (1)				State Deposits (2)				Total				% by institution
U. S. Bank IT&C		$	—			$	41,454			$	41,454				31.0	%		$	—			$	—			$	—				0.0	%
SunTrust Bank			1,241				—				1,241				0.9	%			—				—				—				0.0	%
SunTrust Bank Institutional Asset Services			—				89,724				89,724				67.1	%			—				—				—				0.0	%
Wells Fargo Bank N.A.			780				—				780				0.6	%			—				—				—				0.0	%
Bank of New York Trust Fund (1)			—				—				—				0.0	%			11,340				—				11,340				81.2	%
All Other Banking Institutions			443				3				446				0.3	%			—				2,600				2,600				18.7	%

		$	2,464			$	131,181			$	133,645				100.0	%		$	11,340			$	2,600			$	13,940				100.0	%

(1)	Amounts held in trust include collateral contributed by the Company in connection with reinsurance contracts entered into between a segregated account owned and maintained by the Company and UPCIC. See Note 4 – REINSURANCE for information about this arrangement.

(2)

State deposits represent amounts held with regulatory agencies in the various states in which our Insurance Entities do business. Applicable laws and regulations govern not only the amount, but also the type of securities that are eligible for deposit. State deposits also include amounts that the Company has voluntarily placed on deposit in connection with the T25 arrangement. See Note 4- REINSURANCE for a discussion of the T25 arrangement.

All debt securities owned by the Company as of December 31, 2011 and 2010 are direct obligations of the United States Treasury.

Concentrations of credit risk with respect to premiums receivable are limited due to the large number of individuals comprising the Company’s customer base. However, the majority of the Company’s revenues are currently derived from products and services offered to customers in Florida, which could be adversely affected by economic downturns, an increase in competition or other environmental changes.

In order to reduce credit risk for amounts due from reinsurers, the Company seeks to do business with financially sound reinsurance companies and regularly evaluate the financial strength of all reinsurers used. The Company’s largest reinsurer, Everest Reinsurance Company, has the following ratings from each of the rating agencies: A+ from A.M. Best Company, A+ from Standard and Poor’s Rating Services and Aa3 from Moody’s Investors Service, Inc.

The following table provides the unsecured amounts due from the Company’s reinsurers whose aggregate balance exceeded 3% of the Company’s stockholders’ equity (in thousands):


		As of December 31,
Reinsurer		2011				2010
Everest Reinsurance Company		$	264,997			$	227,942
Florida Hurricane Catastrophe Fund			30,422				32,848

Total (1)		$	295,419			$	260,790

(1)	Amounts represent prepaid reinsurance premiums, reinsurance receivables, and recoverables for paid and unpaid losses, including incurred but not reported (“IBNR”) reserves, loss adjustment expenses and unearned premiums.

Stock-based Compensation. The Company accounts for share-based compensation based on the estimated grant-date fair value. The Company recognizes these compensation costs in general and administrative expenses and generally amortizes them on a straight-line basis over the requisite service period of the award, which is the vesting term. Individual tranches of performance-based awards are amortized separately since the vesting of each tranche is subject to independent annual measures. The fair value of stock option awards are estimated using the Black-Scholes option pricing model with the grant-date assumptions discussed in Note 9. The fair value of the restricted share grants are determined based on the market price on the date of grant.

Statutory Accounting. UPCIC and APPCIC prepare statutory financial statements in conformity with accounting practices prescribed or permitted by the Office of Insurance Regulation of Florida. Effective January 1, 2001, the Office of Insurance Regulation of Florida required that insurance companies domiciled in Florida prepare their statutory financial statements in accordance with the NAIC Accounting Practices and Procedures Manual (the “Manual”), as modified by the Office of Insurance Regulation of Florida. Accordingly, the admitted assets, liabilities and capital and surplus of UPCIC and APCIC as of December 31, 2011 and 2010 and the results of operations and cash flows, for the years ended December 31, 2011, 2010 and 2009, have been determined in accordance with statutory accounting principles, but adjusted to U.S. GAAP for purposes of these financial statements. The statutory accounting principles are designed primarily to demonstrate the ability to meet obligations to policyholders and claimants and, consequently, differ in some respects from U.S. GAAP.

Other New Accounting Pronouncements

In April 2009, the FASB issued guidance on “Recognition and Presentation of Other-than-Temporary Impairments”, which amended the criteria for the recognition of other-than-temporary impairments (“OTTI”) for debt securities and required that credit losses be recognized in earnings and losses resulting from factors other than credit of the issuer be recognized in other comprehensive income. Prior to adoption, all OTTI was recorded in earnings in the period of recognition. This guidance was effective for interim and annual periods ending after June 15, 2009, and required a cumulative effect adjustment to the opening balance of retained earnings with a corresponding adjustment to accumulated other comprehensive income. The Company adopted this guidance in the second quarter of 2009. The adoption of this guidance did not have an effect on the results of operations or financial position of the Company.

In April 2009, the FASB issued guidance on “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” Under this guidance, if an entity determines that there has been a significant decrease in the volume and level of activity for the asset or the liability in relation to the normal market activity for the asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value. In addition, if there is evidence that the transaction for the asset or liability is not orderly, the entity shall place little, if any, weight on that transaction price as an indicator of fair value. This guidance was effective for interim and annual periods ending after June 15, 2009, and is applied prospectively. The Company adopted this guidance in the second quarter of 2009. The adoption of this guidance did not have an effect on the results of operations or financial position of the Company.

In April 2009, the FASB issued guidance on “Interim Disclosures about Fair Value of Financial Instruments”, which required disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This guidance required fair value disclosures on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value. This guidance was effective for interim reporting periods ending after June 15, 2009 and was adopted by the Company in the second quarter of 2009. The adoption of this guidance did not have an effect on the results of operations or financial position of the Company.

In June 2009, the FASB issued guidance on “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, which established the FASB Accounting Standards Codification as the sole source of authoritative U.S. GAAP recognized by the FASB to be applied to nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) promulgated under the authority of the federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. This guidance was effective for financial statements issued for interim and annual periods ending after September 15, 2009 and was adopted by the Company in the third quarter of 2009. The FASB Accounting Standards Codification superseded all existing non-SEC accounting and reporting standards. The adoption of this guidance changed the Company’s references to U.S. GAAP accounting standards but did not have an effect on the results of operations or financial position of the Company.

In January 2010, the FASB issued new accounting guidance which expands disclosure requirements relating to fair value measurements. The guidance added requirements for disclosing amounts of and reasons for significant transfers into and out of Levels 1 and 2 and required gross rather than net disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. The guidance also provided clarification that fair value measurement disclosures are required for each class of assets and liabilities. Disclosures about the valuation techniques and inputs used to measure fair value for measurements that fall in either Level 2 or Level 3 are also required. The Company adopted the provisions of the new guidance as of March 31, 2010, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which were adopted as of January 1, 2011. Disclosures are not required for earlier periods presented for comparative purposes. The new guidance affects disclosures only; therefore, the adoption had no impact on the Company’s results of operations or financial position.

In September 2010, the FASB issued guidance related to accounting for costs associated with acquiring or renewing insurance contracts. This guidance defines allowable deferred acquisition costs as costs incurred by insurance entities for the successful acquisition of new and renewal contracts. Such costs result directly from and are essential to the contract transaction(s) and would not have been incurred by the insurance entity had the contract(s) not occurred. This guidance will be effective for periods beginning after December 15, 2011, with early adoption permitted. The Company plans to prospectively adopt this guidance on January 1, 2012. Although the Company has not yet completed its evaluation of the impact to its financial statements, this guidance represents a significant departure from current industry practice upon adoption and will result in a reduction in the Company’s net deferred policy acquisition costs of approximately 20% to 30%, with a corresponding charge to earnings, and a reduction of deferrals and amortization of policy acquisition costs in future periods. This adjustment represents an acceleration of the amortization of costs in the period of adoption, which would have ultimately been charged to earnings within a twelve-month period.

- Definition

The entire disclosure for all significant accounting policies of the reporting entity.

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