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Insurance Operations | 9 Months Ended
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Sep. 30, 2012
Reinsurance/Insurance Operations [Abstract] |
Insurance Operations |
5. | Insurance Operations
The Company’s primary product is homeowners insurance currently offered by APPCIC in one state (Florida) and by UPCIC in seven states, including Florida. The following table provides the percentage of concentrations with respect to the Insurance Entities’ nationwide policies-in-force as of the periods presented:
|  | September 30, 2012 |  |  | December 31, 2011 |
Percentage of Policies-In-Force: |  |  |  |  |  |  |  |
In Florida |  |  | 96 | % |  |  | 98 | %
With wind coverage |  |  | 98 | % |  |  | 98 | %
With wind coverage in South Florida (1) |  |  | 29 | % |  |  | 32 | %
(1) | South Florida is comprised of Miami-Dade, Broward and Palm Beach counties.
Deferred Policy Acquisition Costs The Company defers certain costs in connection with written policies, called Deferred Policy Acquisition Costs (“DPAC”), net of corresponding amounts of ceded reinsurance commissions, called Deferred Reinsurance Ceding Commissions (“DRCC”). Net DPAC is amortized over the effective period of the related insurance policies. The following table presents the beginning and ending balances and the changes in DPAC, net of DRCC, for the periods presented (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
DPAC, beginning of period (1) |  | $ | 56,922 |  |  | $ | 59,129 |  |  | $ | 50,200 |  |  | $ | 50,128 |
Capitalized costs |  |  | 26,849 |  |  |  | 30,759 |  |  |  | 82,529 |  |  |  | 87,551 |
Amortization of DPAC |  |  | (26,606 | ) |  |  | (30,332 | ) |  |  | (75,564 | ) |  |  | (78,123 | )
DPAC, end of period |  | $ | 57,165 |  |  | $ | 59,556 |  |  | $ | 57,165 |  |  | $ | 59,556 |
DRCC, beginning of period (1) |  | $ | 39,178 |  |  | $ | 47,103 |  |  | $ | 38,845 |  |  | $ | 40,682 |
Ceding commissions written |  |  | 21,082 |  |  |  | 21,220 |  |  |  | 65,857 |  |  |  | 69,109 |
Earned ceding commissions |  |  | (21,114 | ) |  |  | (21,780 | ) |  |  | (65,556 | ) |  |  | (63,248 | )
DRCC, end of period |  | $ | 39,146 |  |  | $ | 46,543 |  |  | $ | 39,146 |  |  | $ | 46,543 |
DPAC (DRCC), net, beginning of period (1) |  | $ | 17,744 |  |  | $ | 12,026 |  |  | $ | 11,355 |  |  | $ | 9,446 |
Capitalized costs, net |  |  | 5,767 |  |  |  | 9,539 |  |  |  | 16,672 |  |  |  | 18,442 |
Amortization of DPAC (DRCC), net |  |  | (5,492 | ) |  |  | (8,552 | ) |  |  | (10,008 | ) |  |  | (14,875 | )
DPAC (DRCC), net, end of period |  | $ | 18,019 |  |  | $ | 13,013 |  |  | $ | 18,019 |  |  | $ | 13,013 |
(1) | The beginning balances for the nine months ended September 30, 2012 have been adjusted in connection with the adoption of the FASB’s updated guidance related to deferred acquisition costs as discussed below.
As discussed in Note 2 – Significant Accounting Policies, the Company prospectively adopted new accounting guidance effective January 1, 2012 related to accounting for costs associated with acquiring or renewing insurance contracts. This guidance resulted in a 13% reduction of our net deferred policy acquisition costs as of December 31, 2011, and a corresponding pre-tax charge of $1.6 million against earnings during the first quarter of 2012. This charge represents a charge-off of capitalized costs existing at December 31, 2011, which would have been amortized to earnings within a twelve-month period under the old guidance. In the period of adoption (three months ended March 31, 2012), approximately $9 million of net costs would have been deferred under the old guidance compared to the $5.6 million under the new guidance. Future expenses will be higher with the adoption of this guidance, as the amounts being deferred have decreased, partially offset by less amortization. The effect of this change in periods subsequent to March 31, 2012, on income and per share amounts is not determinable as the historical methodology will have been discontinued after adoption. Liability for Unpaid Losses and Loss Adjustment Expenses Set forth in the following table is the change in liability for unpaid losses and LAE for the periods presented (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2012 |  |  | 2011 |  |  | 2012 |  |  | 2011 |
Balance at beginning of period |  | $ | 164,625 |  |  | $ | 155,375 |  |  | $ | 187,215 |  |  | $ | 158,929 |
Less reinsurance recoverable |  |  | 73,169 |  |  |  | 76,307 |  |  |  | 88,002 |  |  |  | 79,114 |
Net balance at beginning of period |  |  | 91,456 |  |  |  | 79,068 |  |  |  | 99,213 |  |  |  | 79,815 |
Incurred related to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current year |  |  | 27,409 |  |  |  | 24,975 |  |  |  | 83,120 |  |  |  | 76,897 |
Prior years |  |  | 8,891 |  |  |  | 4,368 |  |  |  | 8,791 |  |  |  | 4,483 |
Total incurred |  |  | 36,300 |  |  |  | 29,343 |  |  |  | 91,911 |  |  |  | 81,380 |
Paid related to: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Current year |  |  | 18,808 |  |  |  | 15,244 |  |  |  | 34,143 |  |  |  | 30,119 |
Prior years |  |  | 10,434 |  |  |  | 9,587 |  |  |  | 58,467 |  |  |  | 47,496 |
Total paid |  |  | 29,242 |  |  |  | 24,831 |  |  |  | 92,610 |  |  |  | 77,615 |
Net balance at end of period |  |  | 98,514 |  |  |  | 83,580 |  |  |  | 98,514 |  |  |  | 83,580 |
Plus reinsurance recoverables |  |  | 74,160 |  |  |  | 79,374 |  |  |  | 74,160 |  |  |  | 79,374 |
Balance at end of period |  | $ | 172,674 |  |  | $ | 162,954 |  |  | $ | 172,674 |  |  | $ | 162,954 |
Regulatory Requirements The Insurance Entities are subject to regulations and standards of the Florida Office of Insurance Regulation (“OIR”). UPCIC is also subject to the laws of other states in which it operates. The OIR standards require the Insurance Entities to maintain specified levels of statutory capital and restrict the timing and amount of dividends and other distributions that may be paid to the parent company. Except in the case of extraordinary dividends, these standards generally permit the Insurance Entities to pay dividends from statutory unassigned surplus to the parent company. The dividends are limited based on the Insurance Entities’ level of statutory net income and statutory capital and surplus. These dividends are referred to as “ordinary dividends” and generally can be paid without prior regulatory approval. If the dividend, together with other dividends paid within the preceding twelve months, exceeds a specified statutory limit or is paid from sources other than earned surplus, the entire dividend is generally considered an “extraordinary dividend” and must receive prior regulatory approval. Based on the 2011 statutory net income and statutory capital and surplus levels, UPCIC and APPCIC do not have the capacity to pay ordinary dividends during 2012. For the nine months ended September 30, 2012, no dividends were paid from UPCIC or APPCIC to the parent company. Dividends paid to the shareholders of UIH are paid from the surplus of UIH and not that of the Insurance Entities. The Florida Insurance Code requires companies to maintain capitalization equivalent to the greater of ten percent of the insurer’s total liabilities or $5.0 million. The following table presents the amount of statutory capital and surplus, and an amount representing ten percent of total liabilities for both UPCIC and APPCIC as of the periods presented (in thousands):
|  | As of September 30, 2012 |  |  | As of December 31, 2011 |
Ten percent of total liabilities |  |  |  |  |  |  |  |
UPCIC |  | $ | 45,312 |  |  | $ | 37,063 |
APPCIC |  | $ | 688 |  |  | $ | 97 |
Statutory capital and surplus |  |  |  |  |  |  |  |
UPCIC |  | $ | 125,676 |  |  | $ | 122,956 |
APPCIC |  | $ | 9,053 |  |  | $ | 9,378 |
At such dates, both UPCIC and APPCIC met the Florida capitalization requirement. UPCIC and APPCIC are also required to adhere to prescribed premium-to-capital surplus ratios and have met those requirements as well. The Company is required by various state laws and regulations to maintain certain assets in depository accounts. The following table represents assets held by insurance regulators as of the periods presented (in thousands):
|  | As of September 30, 2012 |  |  | As of December 31, 2011 |
Restricted cash and cash equivalents |  | $ | 54,295 |  |  | $ | 48,092 |
Investments |  | $ | 4,008 |  |  | $ | 3,801 |

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- Definition The entire disclosure for the types of coverages and products sold, and the assets, obligations, recorded liabilities, revenues and expenses arising therefrom, and the amounts of and methodologies and assumptions used in determining the amounts of such items. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 113 -Paragraph 27 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 60 -Paragraph 60 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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