hrtg-10q_20170630.htm

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 ☒ 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 ☒ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

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

The aggregate number of shares of the Registrant’s Common Stock, $0.0001 par value, outstanding on August 3, 2017 was 29,056,421.

Statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) or in documents incorporated by reference that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about anticipated growth in revenue, earnings per share, estimated unpaid losses on insurance policies, investment returns and expectations about our liquidity, and our ability to meet our investment objectives and to manage and mitigate market risk with respect to our investments. These statements are based on current expectations, estimates and projections about the industry and market in which we operate, and management’s beliefs and assumptions. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” or “continue” or the negative variations thereof or comparable terminology are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. The risks and uncertainties include, without limitation:

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

These forward-looking statements are subject to numerous risks, uncertainties and assumptions about us described in our filings with the Securities and Exchange Commission (the “SEC”). The forward-looking statements we make in our Form 10-Q are valid only as of the date of our Form 10-Q and may not occur in light of the risks, uncertainties and assumptions that we describe from time to time in our filings with the SEC. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from our forward-looking statements is included in the section entitled “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2016 and in our other filings with the SEC. Except as required by applicable law, we undertake no obligation and disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

	June 30, 2017			December 31, 2016
ASSETS	(unaudited)
Fixed maturity securities, available for sale, at fair value (amortized cost of $567,937 and $576,911 in 2017 and 2016, respectively)	$	569,052		$	571,011
Equity securities, available for sale, at fair value (cost of $34,175 and $34,190 in 2017 and 2016, respectively)		32,139			31,971
Total investments		601,191			602,982
Cash and cash equivalents		134,176			105,817
Restricted cash		18,381			20,910
Accrued investment income		5,105			4,764
Premiums receivable, net		38,960			42,720
Prepaid reinsurance premiums		213,009			106,609
Income taxes receivable		2,297			10,713
Deferred policy acquisition costs, net		41,792			42,779
Property and equipment, net		16,547			17,179
Intangibles, net		23,526			26,542
Goodwill		46,454			46,454
Other assets		7,197			5,775
Total Assets	$	1,148,635		$	1,033,244
LIABILITIES AND STOCKHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses	$	122,785		$	140,137
Unearned premiums		312,552			318,024
Reinsurance payable		224,807			96,667
Note payable, net of issuance costs		73,276			72,905
Deferred income taxes		4,651			3,003
Advance premiums		25,884			18,565
Accrued compensation		5,479			4,303
Other liabilities		13,934			21,681
Total Liabilities	$	783,368		$	675,285
Commitments and contingencies (Note 15)
Stockholders’ Equity:
Common stock, $0.0001 par value, 50,000,000 shares authorized, 29,056,421 shares issued and 28,156,421 outstanding at June 30, 2017 and 29,740,441 shares issued and 28,840,443 outstanding at December 31, 2016		3			3
Additional paid-in capital		208,135			205,727
Accumulated other comprehensive loss		(569	)		(5,018	)
Treasury stock, at cost, (2,443,352) shares at June 30, 2017 and (1,759,330) shares at December 31, 2016		(34,169	)		(25,562	)
Retained earnings		191,867			182,809
Total Stockholders' Equity		365,267			357,959
Total Liabilities and Stockholders' Equity	$	1,148,635		$	1,033,244

See accompanying notes to unaudited condensed consolidated financial statements.

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
REVENUE:
Gross premiums written	$	159,255		$	177,295		$	301,490		$	324,561
Change in gross unearned premiums		(6,901	)		(13,658	)		5,472			(8,981	)
Gross premiums earned		152,354			163,637			306,962			315,580
Ceded premiums		(61,902	)		(54,719	)		(124,334	)		(100,320	)
Net premiums earned		90,452			108,918			182,628			215,260
Net investment income		2,973			2,223			5,475			4,260
Net realized (losses) gains		(125	)		263			646			644
Other revenue		3,638			3,877			7,482			6,682
Total revenue		96,938			115,281			196,231			226,846
OPERATING EXPENSES:
Losses and loss adjustment expenses		46,046			48,794			92,693			115,757
Policy acquisition costs		21,738			20,753			45,180			38,881
General and administrative expenses		16,092			15,977			33,406			30,411
Total operating expenses		83,876			85,524			171,279			185,049
Operating income		13,062			29,757			24,952			41,797
Interest expense, net		1,990			—			3,934			—
Amortization of debt issuance costs		241			—			478			—
Income before income taxes		10,831			29,757			20,540			41,797
Provision for income taxes		4,189			11,389			7,915			16,006
Net income		6,642			18,368			12,625			25,791
OTHER COMPREHENSIVE INCOME:
Change in net unrealized gains on investments		3,899			8,928			7,880			13,010
Reclassification adjustment for net realized investment losses (gains)		125			(263	)		(646	)		(644	)
Income tax expense related to items of other comprehensive income		(1,549	)		(3,348	)		(2,785	)		(4,770	)
Total comprehensive income	$	9,117		$	23,685		$	17,074		$	33,387
Weighted average shares outstanding
Basic		28,283,587			29,653,668			28,543,703			30,010,776
Diluted		28,283,587			29,653,668			28,543,703			30,072,624
Earnings per share
Basic	$	0.23		$	0.62		$	0.44		$	0.86
Diluted	$	0.23		$	0.62		$	0.44		$	0.86

See accompanying notes to unaudited condensed consolidated financial statements.

	Common Shares			Par Value		Additional Paid-In Capital		Retained Earnings (Deficit)			Treasury Shares			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
Balance at December 31, 2016		28,840,443		$	3	$	205,727	$	182,809			(25,562	)	$	(5,018	)	$	357,959
Stock buy-back		(684,022	)		—		—		—			(8,607	)		—			(8,607	)
Stock-based compensation		—			—		2,408		—			—			—			2,408
Dividends declared on common stock		—			—		—		(3,567	)		—			—			(3,567	)
Net unrealized change in investments, net of tax		—			—		—		—			—			4,449			4,449
Net income		—			—		—		12,625			—			—			12,625
Balance at June 30, 2017		28,156,421		$	3	$	208,135	$	191,867		$	(34,169	)	$	(569	)	$	365,267

	Common Shares			Par Value		Additional Paid-In Capital		Retained Earnings (Deficit)			Treasury Shares			Accumulated Other Comprehensive Income (Loss)			Total Stockholders' Equity
Balance at December 31, 2015		30,441,410		$	3	$	202,628	$	155,955		$	—		$	(2,033	)	$	356,553
Stock buy-back		(1,140,289	)		—		—		—			(16,562	)		—			(16,562	)
Stock-based compensation		—			—		2,408		—			—			—			2,408
Dividends declared on common stock		—			—		—		(3,419	)		—			—			(3,419	)
Net unrealized change in investments, net of tax		—			—		—		—			—			7,596			7,596
Net income		—			—		—		25,791			—			—			25,791
Balance at June 30, 2016		29,301,121		$	3	$	205,036	$	178,327		$	(16,562	)	$	5,563		$	372,367

See accompanying notes to unaudited condensed consolidated financial statements.

	Six Months Ended June 30,
	2017			2016

OPERATING ACTIVITIES
Net income	$	12,625		$	25,791
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation		2,408			2,408
Amortization of bond discount		4,492			3,676
Depreciation and amortization		3,798			3,611
Net realized gains		(646	)		(644	)
Deferred income taxes, net of acquired		(1,137	)		10,810
Changes in operating assets and liabilities:
Accrued investment income		(341	)		(920	)
Premiums receivable, net		3,760			(2,611	)
Restricted cash		2,529			(5,559	)
Prepaid reinsurance premiums		(106,400	)		(143,318	)
Income taxes receivable		8,416			(2,969	)
Deferred policy acquisition costs, net		987			(7,768	)
Other assets		(1,422	)		1,209
Unpaid losses and loss adjustment expenses		(17,353	)		33,763
Unearned premiums		(5,472	)		8,981
Reinsurance payable		128,140			176,810
Accrued interest		(3,938	)		—
Income taxes payable		—			(2,092	)
Accrued compensation		1,176			2,715
Advance premiums		7,320			9,598
Other liabilities		(3,438	)		(9,218	)
Net cash provided by operating activities		35,504			104,273
INVESTING ACTIVITIES
Proceeds from sales and maturities of investments available for sale		99,041			90,321
Purchases of investments available for sale		(93,862	)		(154,518	)
Acquisition of a business, net of cash acquired		—			(111,907	)
Cost of property and equipment acquired		(150	)		(1,513	)
Net cash used in investing activities		5,029			(177,617	)
FINANCING ACTIVITIES
Dividends		(3,567	)		(3,419	)
Purchase of treasury stock		(8,607	)		(16,562	)
Net cash used in financing activities		(12,174	)		(19,981	)

Increase (decrease) in cash and cash equivalents		28,359			(93,325	)
Cash and cash equivalents, beginning of period		105,817			236,277
Cash and cash equivalents, end of period	$	134,176		$	142,952
Supplemental Cash Flows Information:
Income taxes paid, net	$	601		$	16,754

See accompanying notes to unaudited condensed consolidated financial statements.

The condensed consolidated financial statements as of and for the three and six months ended June 30, 2017 and 2016 include Heritage Insurance Holdings, Inc. (“Parent Company”) and its wholly-owned subsidiaries: Heritage Property & Casualty Insurance Company (“Heritage P&C”), which provides personal and commercial residential insurance; Heritage MGA, LLC, the managing general agent that manages substantially all aspects of our Florida insurance subsidiary’s business; Contractors’ Alliance Network, LLC (“CAN”), our vendor network manager for Florida claims which includes BRC Restoration Specialists, Inc. (“BRC”), our provider of restoration, emergency and recovery services; Zephyr Acquisition Company (“ZAC”) and its wholly-owned subsidiary, Zephyr Insurance Company, Inc. (“Zephyr”), our provider for writing insurance policies for residential wind insurance within the State of Hawaii; Skye Lane Properties, LLC, our property management subsidiary; First Access Insurance Group, LLC, our retail agency; Osprey Re Ltd. (“Osprey”), our reinsurance subsidiary that may provide a portion of the reinsurance protection purchased by our insurance subsidiaries; and Heritage Insurance Claims, LLC, an inactive subsidiary reserved for future development. The assets of BRC, a building restoration company, were acquired and merged into CAN in 2015. The assets of SVM Restoration Services Inc. (“SVM”), a water mitigation company, were acquired and merged into CAN in 2014.

Through our insurance subsidiaries, Heritage P&C and Zephyr, we write personal residential insurance for single-family homeowners and condominium owners, and rental property insurance in the states of Florida, Hawaii, North Carolina, South Carolina and Georgia. We also provide commercial residential insurance for Florida properties and are also licensed in the states of Alabama and Mississippi. We are vertically integrated and control or manage substantially all aspects of insurance underwriting, customer service, actuarial analysis, distribution and claims processing and adjusting. We conduct our operations under a single reporting segment.

The condensed consolidated financial information included herein as of and for the three and six months ended June 30, 2017 and 2016 does not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. However, such information reflects all adjustments consisting of normal recurring accruals which are, in the opinion of management, necessary for a fair statement of the financial condition and results of operations for the interim periods. The results for the three and six months ended June 30, 2017 and 2016 are not indicative of annual results. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The December 31, 2016 consolidated balance sheet was derived from the Company’s audited consolidated financial statements as of and for the year ended December 31, 2016.

For further information, refer to the consolidated financial statements and footnotes thereto included in Heritage Insurance Holdings, Inc.’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016. References to “we,” “us,” “our,” or the “Company” refer to Heritage Insurance Holdings, Inc. and its consolidated subsidiaries.

The Company qualifies as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, the Company is eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies. The Company intends to continue to take advantage of some, but not all, of the exemptions available to emerging growth companies until such time that it is no longer an emerging growth company. The Company has, however, irrevocably elected not to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. As a result, the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

We have made no material changes to our significant accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2016.

In March 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-09, Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"). The amendments in ASU 2016-09 intend to improve the accounting for share-based payment transactions as part of the FASB’s simplification initiative. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 requires that companies elect to account for forfeitures based on an estimate of the number of awards for which the requisite service period will not be rendered or to account for forfeitures as they occur. An entity may elect to apply the amendments related to the presentation of excess tax benefits on the statement of cash flows using either a prospective transition method or a retrospective transition method. The Company adopted the new guidance in ASU 2016-09 in the quarter ended June 30, 2017. As of June 30, 2017, the Company did not have any excess tax benefits recorded on the consolidated balance sheets, statement of operations or statement of cash flows for the periods ended June 30, 2017 or 2016. The adoption of ASU 2016-09 on our consolidated financial statements had no impact.

The Company describes below recent pronouncements that may have a significant effect on its financial statements or on its disclosures upon future adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on, or are unrelated to, its financial condition, results of operations, or related disclosures.

In May 2017, the FASB issued ASU No. 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting, clarifying when a change to the terms or conditions of a share-based payment award must be accounted for as a modification. The new guidance requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. The new guidance is effective for the Company on a prospective basis beginning on January 1, 2018, with early adoption permitted. This new guidance is not expected to have an impact on the Company’s Consolidated Financial Statements as it is not the Company’s practice to change either the terms or conditions of share-based payment awards once they are granted.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other. The amendments in ASU 2017-04 intend to simplify the subsequent measurement of goodwill, eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in ASU 2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The standard is effective for us in the first quarter of 2020 on a prospective basis with early adoption permitted. The Company does not expect the adoption of this standard will have a material impact on the consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which provides additional guidance on evaluating whether transactions should be accounted for as acquisitions of assets or businesses. The guidance requires an entity to evaluate if substantially all of the fair value of the assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the new guidance would define this as an asset acquisition; otherwise, the entity then evaluates whether the asset meets the requirement that a business include, at a minimum, an input and substantive process that together significantly contribute to the ability to create outputs. The guidance is effective for the Company on a prospective basis beginning on January 1, 2018, with early adoption permitted. This new guidance is not expected to have a material impact on the Company’s Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 is a new accounting standard that will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. This updated guidance is effective on January 1, 2018, and will require adoption on a retrospective basis with early adoption permitted. The Company has not experienced any transactions that are within the scope of this guidance and accordingly will evaluate the effect of this guidance further if and when any such transactions occur.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses Measurement of Credit Losses on Financial Instruments. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset in order to present the net carrying value at the amount expected to be collected on the financial asset on the consolidated balance sheet. The guidance also amends the current accounting for other-than-

temporary impairment model by requiring an estimate of the expected credit loss only when the fair value is below the amortized cost of the asset. The length of time the fair value of an available for sale debt security has been below the amortized cost will no longer impact the determination of whether a potential credit loss exists. The available for sale debt security model will also require the use of a valuation allowance as compared to the current practice of writing down the asset. The standard is effective for the Company in the first quarter of 2020 with early adoption permitted in the first quarter of 2019. The Company is in the early stages of evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The ASU 2016-01, which will significantly change the income statement impact of equity investments held by an entity, and the recognition of changes in fair value of financial liabilities when the fair value option is elected. The guidance requires equity investments to be measured at fair value with changes in fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee) and an assessment of a valuation allowance on deferred tax assets related to unrealized losses of available for sale debt securities in combination with other deferred tax assets. The standard is effective for the Company in the first quarter of 2018. The Company is in the early stages of evaluating the effect that the updated standard will have on its consolidated financial statements and related disclosures. The effect of adopting this guidance will be principally affected by the level of unrealized gains or losses associated with equity investments with readily determinable market values. Such unrealized gains or losses will be recognized upon adoption as a cumulative-effect adjustment with future unrealized gains or losses reflected in the statement of income and comprehensive income. Refer to Note 3 for the current status of such unrealized gains and losses levels that are currently recognized as other comprehensive income.

In May 2014, the FASB issued ASU Topic 2014-09, Revenue from Contracts with Customers. This guidance is not applicable to insurance contracts. The ASU 2014-09 creates a new topic, Topic 606, to provide guidance on revenue recognition for entities that enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The standard is effective for the Company in the first quarter of 2018 with early adoption permitted. Accordingly, while the Company is in the early stages of evaluating the effect of adopting this new guidance, the Company believes the application of this guidance will be less complex in relation to any non-insurance contracts.

There are no other recently issued accounting standards that apply to the Company or that are expected to have a material impact on the Company’s results of operations, financial condition, or cash flows.

On March 21, 2016, the Company completed its acquisition of ZAC and acquired 100% of its outstanding stock and its wholly-owned subsidiary, Zephyr, in exchange for approximately $110.3 million in cash, net of cash acquired. Zephyr is a specialty property insurance provider that offers policies for residential customers in Hawaii that only cover the peril of windstorm-hurricane events.

The purchase consideration for this acquisition has been allocated to the estimated fair market value of the net assets acquired, including approximately $31.8 million in identifiable intangible assets (primarily value of business acquired (“VOBA”), brand, customer relationships and trade name), and a residual amount of goodwill of approximately $38.4 million. This acquisition furthers the Company’s strategic push to diversify business operations and achieve potential reinsurance synergies while expanding growth opportunities outside of Florida.

The following table presents selected pro forma information, assuming the acquisition of ZAC had occurred on January 1, 2016. The unaudited pro forma information is not necessarily indicative of the results that the Company would have achieved had the transaction taken place on January 1, 2016 and the unaudited pro forma information does not purport to be indicative of future financial results.

The following table details the difference between cost or adjusted/amortized cost and estimated fair value, by major investment category, at June 30, 2017 and December 31, 2016:

	Cost or Adjusted / Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
June 30, 2017
U.S. government and agency securities	$	33,581	$	27	$	337	$	33,271
States, municipalities and political subdivisions		305,713		2,061		1,348		306,426
Special revenue		87,617		43		489		87,171
Industrial and miscellaneous		136,515		1,277		252		137,540
Redeemable preferred stocks		4,511		145		12		4,644
Total fixed maturities		567,937		3,553		2,438		569,052
Nonredeemable preferred stocks		14,073		578		30		14,621
Equity securities		20,102		923		3,507		17,518
Total equity securities		34,175		1,501		3,537		32,139
Total investments	$	602,112	$	5,054	$	5,975	$	601,191

	Cost or Adjusted / Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(In thousands)
December 31, 2016
U.S. government and agency securities	$	107,968	$	29	$	449	$	107,548
States, municipalities and political subdivisions		281,935		298		4,872		277,361
Special revenue		53,726		29		759		52,996
Industrial and miscellaneous		129,687		535		577		129,645
Redeemable preferred stocks		3,595		15		149		3,461
Total fixed maturities		576,911		906		6,806		571,011
Nonredeemable preferred stocks		14,935		40		460		14,515
Equity securities		19,255		1,197		2,996		17,456
Total equity securities		34,190		1,237		3,456		31,971
Total investments	$	611,101	$	2,143	$	10,262	$	602,982

The Company calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. The Company determines the cost or adjusted/amortized cost of the security sold using the specific-identification method. The following tables detail the Company’s net realized gains (losses) by major investment category for the three and six months ended June 30, 2017 and 2016.

		Page
PART I – FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheets: June 30, 2017 (unaudited) and December 31, 2016		2
Condensed Consolidated Statements of Income and Other Comprehensive Income: Three and Six months ended June 30, 2017 and 2016 (unaudited)		3
Condensed Consolidated Statements of Stockholders’ Equity: Six months ended June 30, 2017 and 2016 (unaudited)		4
Condensed Consolidated Statements of Cash Flows: Six months ended June 30, 2017 and 2016 (unaudited)		5
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Item 3 Quantitative and Qualitative Disclosures about Market Risk		38
Item 4 Controls and Procedures		39
PART II – OTHER INFORMATION
Item 1 Legal Proceedings		40
Item 1A Risk Factors		40
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		40
Item 4 Mine Safety Disclosures		40
Item 6 Exhibits		40
Signatures		41

Purchase Consideration
Cash, net of cash acquired	$	110,319

Assets acquired
Investments	$	76,543
Premiums and agent's receivable		1,403
Other assets		526
Prepaid reinsurance premiums		4,792
Intangible assets – value of business acquired		7,600
Intangible assets		24,245
Total assets acquired	$	115,109
Total liabilities assumed	$	(43,216	)

Net assets acquired	$	71,893
Goodwill		38,426
Total purchase price	$	110,319

	2017					2016
	Gains (Losses)			Fair Value at Sale		Gains (Losses)		Fair Value at Sale
	(In thousands)
Three Months Ended June 30,
Fixed maturities	$	15		$	5,706	$	338	$	8,686
Equity securities		54			2,352		20		600
Total realized gains		69			8,058		358		9,286
Fixed maturities		(170	)		1,686


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☒