Acquisition (Tables)

9 Months Ended

Sep. 30, 2015

Schedule of Unaudited Pro Forma Consolidated Results of Operations

The following table presents the Company’s unaudited pro forma consolidated results of operations for the quarters and nine months ended September 30, 2015 and 2014 as if the acquisition had occurred on January 1, 2014 instead of January 1, 2015.


	Pro Forma
	Quarters Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands except per share data)	2015			2014		2015		2014
Total Revenue	$	124,060		$	141,902	$	402,347	$	462,164
Net Income (Loss)	$	(3,746	)	$	13,782	$	19,560	$	57,224
Net Income (Loss) per share (diluted)	$	( 0.15	)	$	0.54	$	0.76	$	2.24

Valuation of Intangible Assets

An identification and valuation of intangible assets was performed that resulted in the recognition of intangible assets of $32.0 million with values assigned as follows:


(Dollars in thousands) Description	Useful Life	Amount
State insurance licenses	Indefinite	$	5,000
Value of business acquired	< 1 year		25,500
Agent relationships	10 years		900
Trade name	7 - 8 years		600

		$	32,000

Fair Value, Gross Contractual Amounts Due, and Contractual Cash Flows Not Expected to be Collected of Acquired Receivables

The fair value, gross contractual amounts due, and contractual cash flows not expected to be collected of acquired receivables are as follows:


(Dollars in thousands)	Fair Value		Gross Contractual Amounts Due		Contractual cash flows not expected to be collected
Premium receivables	$	25,941	$	26,896	$	955
Accounts receivable		11,311		11,311		—
Reinsurance receivables		12,723		12,723		—

Geographical Distribution of American Reliable's Gross Premium Written

The following table sets forth the geographic distribution of American Reliable’s gross premiums written, excluding business that is ceded under a 100% quota share reinsurance agreement to American Bankers Insurance Company of Florida, for the year ended December 31, 2014:


	Year Ended December 31, 2014
(Dollars in thousands)	Amount		Percent
Texas	$	32,760		12.3	%
California		25,556		9.6
North Carolina		23,040		8.7
Arizona		17,722		6.7
Louisiana		17,522		6.6
New York		13,408		5.0
Florida		12,361		4.6
Oklahoma		9,977		3.7
Georgia		8,768		3.3
New Jersey		6,925		2.6

Subtotal		168,039		63.1
All other states		98,264		36.9

Total	$	266,303		100.0	%

Effect of Reinsurance on Premiums Written and Earned

The effect of reinsurance on premiums written and earned by American Reliable is as follows:


(Dollars in thousands)	Written		Earned
For the quarter ended September 30, 2015:
Direct business	$	65,824	$	57,825
Reinsurance assumed		21,525		22,927
Reinsurance ceded		24,047		18,620

Net premiums	$	63,302	$	62,132


(Dollars in thousands)	Written		Earned
For the nine months ended September 30, 2015:
Direct business	$	179,979	$	182,851
Reinsurance assumed		69,585		70,120
Reinsurance ceded		52,779		61,499

Net premiums	$	196,785	$	191,472

Future Minimum Cash Payments under Non-Cancelable Operating Leases

At September 30, 2015, future minimum cash payments under non-cancelable operating leases related to the operations of American Reliable were as follows:


(Dollars in thousands)
October 1, 2015 to September 30, 2016	$	1,032
October 1, 2016 to September 30, 2017		941
October 1, 2017 to September 30, 2018		937
October 1, 2018 to September 30, 2019		143

Total	$	3,053

American Reliable Insurance Company

Estimated Fair Value of Assets Acquired and Liabilities Assumed

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition as of September 30, 2015 compared to June 30, 2015 along with changes in estimates made during the quarter.


	As of
(Dollars in thousands)	September 30, 2015		June 30, 2015		Change
ASSETS:
Investments	$	226,458	$	226,458	$	—
Cash and cash equivalents		21,360		21,360		—
Premiums receivables, net		25,941		25,941		—
Accounts receivable		11,311		17,129		(5,818	)
Reinsurance receivables		13,842		12,723		1,119
Prepaid reinsurance premiums		43,506		43,506		—
Intangible assets		32,000		32,000		—
Deferred federal income taxes		1,139		1,246		(107	)
Other assets		6,550		6,550		—

Total assets		382,107		386,913		(4,806	)

LIABILITIES:
Unearned premiums		172,234		172,234		—
Unpaid losses and loss adjustment expenses		89,489		88,370		1,119
Reinsurance balances payable		13,219		13,219		—
Contingent commissions		3,876		3,876		—
Other liabilities		5,608		5,685		(77	)

Total liabilities		284,426		283,384		1,042

Estimated fair value of net assets acquired		97,681		103,529		(5,848	)
Purchase price		99,797		105,843		6,046

Goodwill	$	2,116	$	2,314	$	(198	)

Intangible assets

The following table presents details of the Company’s intangible assets arising from the American Reliable acquisition as of September 30, 2015:


(Dollars in thousands) Description	Useful Life	Cost		Accumulated Amortization		Net Value
State insurance licenses	Indefinite	$	5,000	$	—	$	5,000
Value of business acquired	< 1 year		25,500		22,823		2,677
Agent relationships	10 years		900		67		833
Trade name	7 - 8 years		600		64		536

		$	32,000	$	22,954	$	9,046

Expected Amortization Expense

The Company expects that amortization expense for the next five years related to the American Reliable acquisition will be as follows:


(Dollars in thousands)
October 1, 2015 to September 30, 2016	$	2,853
October 1, 2016 to September 30, 2017		176
October 1, 2017 to September 30, 2018		176
October 1, 2018 to September 30, 2019		176
October 1, 2019 to September 30, 2020		176