Acquisition of Direct Auto Insurance Company

6 Months Ended

Jun. 30, 2018

Business Combinations [Abstract]

Acquisition of Direct Auto Insurance Company

4. Acquisition of Direct Auto Insurance Company

On May 31, 2018, the Company entered into an agreement to acquire 100% of the stock of Direct Auto Insurance Company (“Direct Auto”) from private shareholders. The agreement contains customary representations, warranties, and covenants by the Company and the other parties to the agreement. Closing of the transaction is expected later this year, subject to the receipt of regulatory approvals and other customary closing conditions.

Direct Auto is headquartered in Chicago, Illinois and underwrites specialty automobile insurance in the state of Illinois through independent agents. Following the completion of the transaction, it is expected that the current president (who is also one of the principal shareholders) of Direct Auto will continue to manage the Direct Auto insurance operations along with the current staff and management team.

It is expected that Direct Auto will become part of the Company’s non-standard auto business segment as of the closing date.

We account for business acquisitions in accordance with the acquisition method of accounting, which requires, among other things, that most assets acquired, liabilities assumed, and contingent consideration be recognized at their fair values as of the acquisition date, which is expected to be the closing date for the Direct Auto transaction. During the measurement period, adjustments to provisional purchase price allocations are recognized if new information is obtained about the facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends as soon as it is determined that no more information is obtainable, but in no case shall the measurement period exceed one year from the acquisition date.