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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-14667

 

WMI Holdings Corp.

(Exact name of registrant as specified in its charter)

 

 

Washington

 

91-1653725

(State or other jurisdiction

of incorporation)

 

(IRS Employer

Identification No.)

 

1201 THIRD AVENUE, SUITE 3000

SEATTLE, WASHINGTON

 

98101

(Address of principal executive offices)

 

(Zip Code)

(206) 432-8887

(Registrant’s telephone number, including area code)

 

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.    x  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).    x  Yes    ¨  No

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

 

Large accelerated filer

 

¨

  

Accelerated filer

 

x

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    x  Yes    ¨  No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

 

Common Stock $0.00001 par value

 

202,343,245

(Class)

 

(Outstanding at November  5, 2014)

 

 


 

Forward-Looking Statements

Certain information included in this Quarterly Report on Form 10-Q and the documents incorporated herein by reference contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q that address activities, events, conditions or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business and these statements are not guarantees of future performance. These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements may include the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “strategy,” “future,” “opportunity,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result” and similar expressions. Such forward-looking statements involve risks and uncertainties that may cause actual events, results or performance to differ materially from those indicated by such statements. Some of these risks are identified and discussed under Risk Factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013, and under Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014. These risk factors will be important to consider in determining future results and should be reviewed in their entirety. These forward-looking statements are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that the events, results or trends identified in these forward-looking statements will occur or be achieved. Forward-looking statements speak only as of the date they are made, and we do not undertake to update any forward-looking statement, except as required by law.

* * * * *

As used in this Quarterly Report on Form 10-Q, unless the context requires otherwise, (i) the terms “we,” “us,” “our” or “Company” refer collectively to WMI Holdings Corp. and its consolidated subsidiaries; (ii) “WMIHC” refers only to WMI Holdings Corp., without regard to its subsidiaries; (iii) “WMMRC” means WM Mortgage Reinsurance Company, Inc. (a wholly-owned subsidiary of WMIHC); and (iv) “WMIIC” means WMI Investment Corp. (a wholly-owned subsidiary of WMIHC).

 

 

 

1


 

WMI HOLDINGS CORP.

FORM 10-Q

INDEX

 

 

 

 

2


 

PART I

FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements.

WMI HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(Unaudited)

 

 

September 30,

 

 

December 31,

 

 

2014

 

 

2013

 

ASSETS

 

 

 

 

 

 

 

Investments held in trust, at fair value:

 

 

 

 

 

 

 

Fixed-maturity securities

$

55,710

 

 

$

145,904

 

Cash equivalents held in trust

 

10,444

 

 

 

33,093

 

Total investments held in trust

 

66,154

 

 

 

178,997

 

Cash and cash equivalents

 

6,345

 

 

 

11,986

 

Fixed-maturity securities, at fair value

 

81,306

 

 

 

72,897

 

Restricted cash

 

44

 

 

 

115

 

Accrued investment income

 

731

 

 

 

1,110

 

Deferred offering costs

 

13,237

 

 

 

1,071

 

Other assets

 

990

 

 

 

1,462

 

Total assets

$

168,807

 

 

$

267,638

 

LIABILITIES and SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

Notes payable - principal

$

30,330

 

 

$

105,502

 

Notes payable - interest

 

329

 

 

 

1,143

 

Losses and loss adjustment reserves

 

22,166

 

 

 

44,314

 

Losses payable

 

642

 

 

 

2,517

 

Unearned premiums

 

1,156

 

 

 

1,394

 

Accrued ceding commissions

 

48

 

 

 

102

 

Loss contract fair market value reserve

 

16,032

 

 

 

46,319

 

Other liabilities

 

508

 

 

 

1,218

 

Total liabilities

 

71,211

 

 

 

202,509

 

Commitments and contingencies

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Convertible preferred stock, $0.00001 par value; 5,000,000 authorized; 1,000,000 and zero

   shares issued and outstanding as of September 30, 2014 and December 31, 2013,

   respectively

 

 

 

 

 

Common stock, $0.00001 par value; 500,000,000 authorized; 202,343,245 and 201,842,351

   shares issued and outstanding as of September 30, 2014 and December 31, 2013,

   respectively

 

2

 

 

 

2

 

Additional paid-in capital

 

106,421

 

 

 

77,142

 

Accumulated (deficit)

 

(8,827

)

 

 

(12,015

)

Total shareholders’ equity

 

97,596

 

 

 

65,129

 

Total liabilities and shareholders’ equity

$

168,807

 

 

$

267,638

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

3


 

WMI HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts and share data)

(Unaudited)

 

 

Three Months

 

 

Three Months

 

 

Nine Months

 

 

Nine Months

 

 

ended September 30,

 

 

ended September 30,

 

 

ended September 30,

 

 

ended September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Premiums earned

$

1,635

 

 

$

2,933

 

 

$

5,514

 

 

$

8,072

 

Net investment income (loss)

 

86

 

 

 

790

 

 

 

1,191

 

 

 

(1,222

)

Total revenues

 

1,721

 

 

 

3,723

 

 

 

6,705

 

 

 

6,850

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expense (benefit)

 

542

 

 

 

(618

)

 

 

4,531

 

 

 

(1,918

)

Ceding commission expense

 

144

 

 

 

321

 

 

 

507

 

 

 

1,027

 

General and administrative expense

 

1,287

 

 

 

1,332

 

 

 

4,750

 

 

 

4,366

 

Loss contract reserve fair market value change

 

-

 

 

 

-

 

 

 

(30,287

)

 

 

(987

)

Loss from contract termination

 

-

 

 

 

-

 

 

 

6,563

 

 

 

-

 

Interest expense

 

1,047

 

 

 

3,566

 

 

 

7,998

 

 

 

11,540

 

Total expenses

 

3,020

 

 

 

4,601

 

 

 

(5,938

)

 

 

14,028

 

(Loss) income before federal income taxes

 

(1,299

)

 

 

(878

)

 

 

12,643

 

 

 

(7,178

)

Income tax expense (benefit)

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net (loss) income

 

(1,299

)

 

 

(878

)

 

 

12,643

 

 

 

(7,178

)

Preferred deemed dividend

 

-

 

 

 

-

 

 

 

(9,455

)

 

 

-

 

Net (loss) income attributable to common shareholders

$

(1,299

)

 

$

(878

)

 

$

3,188

 

 

$

(7,178

)

Basic net (loss) income per share attributable to common

   shareholders

$

(0.01

)

 

$

(0.00

)

 

$

0.02

 

 

$

(0.04

)

Shares used in computing basic net (loss) income per share

 

200,999,481

 

 

 

200,385,364

 

 

 

200,826,268

 

 

 

200,276,671

 

Diluted net (loss) income per share attributable to common

  shareholders

$

(0.01

)

 

$

(0.00

)

 

$

0.01

 

 

$

(0.04

)

Shares used in computing diluted net (loss) income per share

 

200,999,481

 

 

 

200,385,364

 

 

 

237,872,256

 

 

 

200,276,671

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

4


 

WMI HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(in thousands, except share amounts)

(Unaudited)

 

 

Common Stock

 

 

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional

paid-in

capital

 

 

Accumulated earnings (deficit)

 

 

Total shareholders’ equity

 

Balance at January 1, 2013

 

201,156,078

 

 

$

2

 

 

 

 

 

 

 

 

$

76,741

 

 

$

(12,353

)

 

$

64,390

 

Net income from January 1, 2013 to

   December 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

338

 

 

 

338

 

Issuance of common stock under

   restricted share compensation arrangement

 

686,273

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

401

 

 

 

 

 

 

401

 

Balance at December 31, 2013

 

201,842,351

 

 

 

2

 

 

 

 

 

 

 

 

 

77,142

 

 

 

(12,015

)

 

 

65,129

 

Net income from January 1, 2014 to

   September 30, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,643

 

 

 

12,643

 

Issuance of preferred stock and warrants to

   purchase common stock, net of offering costs

 

 

 

 

 

 

 

1,000,000

 

 

 

 

 

 

19,224

 

 

 

 

 

 

19,224

 

Preferred deemed dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

9,455

 

 

 

(9,455

)

 

 

 

Issuance of common stock under

   restricted share compensation arrangement

 

500,894

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

600

 

 

 

 

 

 

600

 

Balance at September 30, 2014

 

202,343,245

 

 

$

2

 

 

 

1,000,000

 

 

$

 

 

$

106,421

 

 

$

(8,827

)

 

$

97,596

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

5


 

WMI HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

Nine Months ended

 

 

Nine Months ended

 

 

September 30, 2014

 

 

September 30, 2013

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income (loss)

$

12,643

 

 

$

(7,178

)

Adjustments to reconcile net income (loss) to net cash (used in)

   provided by operating activities:

 

 

 

 

 

 

 

Amortization of bond premium or discount

 

1,350

 

 

 

1,715

 

Net realized (gain) loss on sale of investments

 

(435

)

 

 

754

 

Unrealized (gain) loss on trading securities

 

651

 

 

 

4,022

 

Equity-based compensation expense

 

600

 

 

 

301

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accrued investment income

 

379

 

 

 

249

 

Other assets

 

472

 

 

 

349

 

Change in cash equivalents held in trust

 

22,649

 

 

 

4,716

 

Change in restricted cash

 

71

 

 

 

25,054

 

Losses and loss adjustment reserves

 

(22,148

)

 

 

(24,954

)

Losses payable

 

(1,875

)

 

 

141

 

Unearned premiums

 

(238

)

 

 

1,281

 

Accrued ceding commission expense

 

(54

)

 

 

(32

)

Accrued interest on notes payable

 

(814

)

 

 

(369

)

Loss contract fair market value reserve

 

(30,287

)

 

 

(987

)

Other liabilities

 

(710

)

 

 

(63

)

Total adjustments

 

(30,389

)

 

 

12,177

 

Net cash (used in) provided by operating activities:

 

(17,746

)

 

 

4,999

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of investments

 

(431,113

)

 

 

(297,475

)

Proceeds from sales and maturities of investments

 

511,332

 

 

 

318,153

 

Net cash provided by (used in) investing activities:

 

80,219

 

 

 

20,678

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from issuance of preferred stock and warrants to purchase common stock

 

22,572

 

 

 

 

Fees incurred relating to preferred stock and warrant issuance

 

(3,348

)

 

 

 

Deferred offering costs

 

(12,166

)

 

 

 

Notes payable – principal repayments

 

(78,890

)

 

 

(36,294

)

Notes payable – principal issued

 

3,718

 

 

 

2,203

 

Net cash provided by (used in) financing activities:

 

(68,114

)

 

 

(34,091

)

Increase (decrease) in cash and cash equivalents

 

(5,641

)

 

 

(8,414

)

Cash and cash equivalents, beginning of period

 

11,986

 

 

 

16,761

 

Cash and cash equivalents, end of period

$

6,345

 

 

$

8,347

 

Supplementary disclosure of cash flow information:

 

 

 

 

 

 

 

Cash paid during the period:

 

 

 

 

 

 

 

Interest

$

5,094

 

 

$

9,707

 

Supplementary disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

Notes payable issued in lieu of cash interest payments

$

3,718

 

 

$

2,203

 

Preferred deemed dividend recorded due to beneficial conversion feature

$

9,455

 

 

$

-

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

 

6


 

WMI HOLDINGS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Unless otherwise indicated, financial information, including dollar values stated in the text of the notes to financial statements, is expressed in thousands.

References herein to the “Company,” “we,” “us” or “our” generally are intended to refer to WMI Holdings Corp. and its subsidiaries on a consolidated basis. “WMMRC” means WM Mortgage Reinsurance Company, Inc. (a wholly-owned subsidiary of WMIHC). “WMIIC” means WMI Investment Corp. (a wholly-owned subsidiary of WMIHC).

 

Note 1: The Company and its Subsidiaries

WMI Holdings Corp.

WMI Holdings Corp. (“WMIHC”) is a holding company organized and existing under the law of the State of Washington. WMIHC, formerly known as Washington Mutual, Inc. (“WMI”), is the direct parent of WM Mortgage Reinsurance Company, Inc. (“WMMRC”), a Hawaii corporation, and WMI Investment Corp. (“WMIIC”), a Delaware corporation. As described below, WMIHC is a successor to WMI, as and to the extent described in the Plan (defined below).

Prior to September 26, 2008 (the “Petition Date”), WMI was a multiple savings and loan holding company that owned Washington Mutual Bank (“WMB”) and, indirectly, WMB’s subsidiaries, including Washington Mutual Bank fsb (“FSB”). As of the Petition Date, WMI also owned, directly or indirectly, several non-banking, non-debtor subsidiaries. Prior to the Petition Date, WMI was subject to regulation and examination by the Office of Thrift Supervision (the “OTS”). WMB and FSB, in turn, as depository institutions with federal thrift charters, were subject to regulation and examination by the OTS. In addition, WMI’s banking and non-banking subsidiaries were overseen by various federal and state authorities, including the Federal Deposit Insurance Corporation (“FDIC”).

On September 25, 2008, the OTS, by order number 2008-36, closed WMB, appointed the FDIC as receiver for WMB (the “FDIC Receiver”) and advised that the FDIC Receiver was immediately taking possession of WMB’s assets. Immediately after its appointment as receiver, the FDIC Receiver sold substantially all the assets of WMB, including the stock of FSB, to JPMorgan Chase Bank, National Association (“JPMC”), pursuant to that certain Purchase and Assumption Agreement, Whole Bank, effective September 25, 2008, in exchange for payment of $1.88 billion and the assumption of all of WMB’s deposit liabilities. As a result of this transaction, substantially all of the business and accounting records of WMI became the property of JPMC and WMIHC had extremely limited access to such records. The foregoing notwithstanding, over time, limited access to such records was obtained through information sharing arrangements. Access to WMMRC’s historical records was not significantly affected by WMB’s closure and receivership.

On the Petition Date, WMI and WMIIC (together, referred to herein as the “Debtors”) each filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the Bankruptcy Court for the District of Delaware (the “Court”) (Case No.08-12229 (MFW)).

On December 12, 2011, the Debtors filed with the Court the Seventh Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Filed Plan”) and a related disclosure statement. The Filed Plan was subsequently modified and, on February 24, 2012, the Court entered an order (the “Confirmation Order”) confirming the Filed Plan as modified by such modifications (the “Plan”). On March 19, 2012 (the “Effective Date”), the Plan became effective and we emerged from bankruptcy with a new board of directors and certain new officers.

In connection with the Plan becoming effective, among other things:

approximately $6.5 billion was distributed to parties-in-interest on account of their allowed claims;

WMIHC received $75.0 million in cash from certain creditors;

WMIHC obtained access to a $125.0 million senior credit facility, approximately $25.0 million of which can be used for working capital and $100.0 million of which can be utilized in addition to the amount available for working capital for certain acquisitions and originations, subject to certain criteria and conditions set forth in the Financing Agreement (see Note 8: Financing Arrangements);

7


 

WMIHC issued: (a) $110.0 million aggregate principal amount of its 13% Senior First Lien Notes due 2030 (the “First Lien Notes”) under an indenture, dated as of March 19, 2012 (the “First Lien Indenture”), between WMIHC and Wilmington Trust, National Association, as Trustee; and (b) $20.0 million aggregate principal amount of its 13% Senior Second Lien Notes due 2030 (the “Second Lien Notes” and, together with the First Lien Notes, the “Runoff Notes”) under an indenture, dated as of March 19, 2012 (the “Second Lien Indenture” and, together with the First Lien Indenture, the “Indentures”), between WMIHC and Law Debenture Trust Company of New York, as Trustee; and with limited exceptions the Runoff Notes are solely payable from Runoff Proceeds Distributions (as defined in the Indentures) received by WMIHC from WMMRC, and therefore are generally nonrecourse to WMIHC (see Note 7: Notes Payable);

WMIHC issued 200,000,000 shares of common stock, of which 194,670,501 shares were issued to new WMIHC shareholders and 5,329,499 shares of common stock were issued and deposited into a Disputed Equity Escrow (as defined in the Plan); and

based on our analysis, we believe WMIHC experienced an ownership change under Section 382 of the Internal Revenue Code (the “Code”). Prior to emergence, WMI abandoned the stock of WMB, thereby generating a worthless stock deduction of approximately $8.37 billion, which gives rise to a net operating loss (“NOL”) carry forward for the year ended December 31, 2012. We believe that the total available and utilizable NOL carry forward at December 31, 2013 was approximately $5.96 billion and at September 30, 2014 we believe that there was no limit under Section 382 of the Code on the use of these NOLs (see Note 5: Income Taxes).

Upon emergence from bankruptcy on March 19, 2012, we had limited operations other than WMMRC’s legacy reinsurance business which is being operated in runoff and has not written any new business since September 26, 2008.

WMIHC is authorized to issue up to 500,000,000 shares of common stock, and up to 5,000,000 shares of preferred stock (in one or more series), in each case with a par value of $0.00001 per share. On the Effective Date of the Plan and pursuant to its terms, WMIHC issued 200,000,000 shares of common stock, with 194,670,501 shares issued to WMIHC’s new shareholders and 5,329,499 shares issued and deposited into the Disputed Equity Escrow. As of September 30, 2014, 2,921,555 shares of common stock remain on deposit in the Disputed Equity Escrow. As of September 30, 2014, 202,343,245 shares of WMIHC’s common stock were issued and outstanding. On January 30, 2014, 1,000,000 shares of WMIHC’s preferred stock were issued in conjunction with the KKR Transaction, described in Note 8: Financing Arrangements, and remain outstanding as of September 30, 2014.

WMMRC

WMMRC is a wholly-owned subsidiary of WMIHC. Prior to August 2008 (at which time WMMRC became a direct subsidiary of WMI), WMMRC was a wholly-owned subsidiary of FA Out-of-State Holdings, Inc., a second-tier subsidiary of WMB and third-tier subsidiary of WMI. WMMRC is a pure captive insurance company domiciled in the State of Hawaii. WMMRC was incorporated on February 25, 2000, and received a Certificate of Authority, dated March 2, 2000, from the Insurance Commissioner of the State of Hawaii.

WMMRC was originally organized to reinsure private mortgage insurance risk for seven primary mortgage insurers then offering private mortgage insurance on loans originated or purchased by former subsidiaries of WMI. The seven primary mortgage insurers are United Guaranty Residential Insurance Company (“UGRIC”), Genworth Mortgage Insurance Corporation (“GMIC”), Mortgage Guaranty Insurance Corporation (“MGIC”), PMI Mortgage Insurance Company (“PMI”), Radian Guaranty Incorporated (“Radian”), Republic Mortgage Insurance Company (“RMIC”) and Triad Guaranty Insurance Company (“Triad”).

Due to the then deteriorating performance in the mortgage guarantee markets and the closure and receivership of WMB, the reinsurance agreements with each of the primary mortgage insurers were terminated or placed into runoff during 2008. The agreements with UGRIC and Triad were placed into runoff effective May 31, 2008. The agreements with all other primary mortgage insurers were placed into runoff effective September 26, 2008. As a result, effective September 26, 2008, WMMRC ceased assuming new mortgage risks from the primary carriers. Consequently, WMMRC’s continuing operations consist solely of the runoff of coverage associated with mortgages placed with the primary mortgage carriers prior to September 26, 2008. In runoff, an insurer generally writes no new business but continues to service its obligations under in force policies and otherwise continues as a licensed insurer. Management does not believe any additional adjustments to the carrying values of assets and liabilities which were recorded at fair market value as a result of fresh start accounting as of March 19, 2012 are required as a result of WMMRC’s runoff status. The reinsurance agreements with Triad, PMI and UGRIC were commuted on August 31, 2009, October 2, 2012 and April 3, 2014, respectively.

8


 

WMIIC

WMIIC does not currently have any operations and is fully eliminated upon consolidation. Prior to September 26, 2008, WMIIC held a variety of securities and investments; however, such securities and investments were liquidated and the value thereof distributed in connection with implementing the Plan.

 

Note 2: Significant Accounting Policies

Basis of Presentation

During the bankruptcy, WMI adopted so-called “Modified Exchange Act Reporting” under the Securities and Exchange Commission (the “SEC”) Staff’s Legal Bulletin No. 2 (“SLB 2”). Following the Effective Date, WMIHC continues to rely upon the guidance set forth in SLB 2 and we filed as of the Effective Date a Form 8-K pertaining to emergence from bankruptcy and subsequently filed a Form 8-K/A, which included WMIHC’s audited balance sheet as of the Effective Date. As provided under the SLB 2 Modified Exchange Act Reporting framework, WMIHC resumed filing periodic reports under the Exchange Act for all periods after the Effective Date of the Plan. Subsequent to the Effective Date, we have timely filed our Exchange Act periodic reports.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for quarterly reporting. Certain information and footnote disclosures normally included in the financial statements and prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures included are adequate. The condensed consolidated balance sheet as of December 31, 2013, included herein, was derived from the audited consolidated financial statements as of that date.

These interim unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s consolidated financial statements and notes thereto filed in the Company’s Annual Report on Form 10-K, filed with the SEC on March 14, 2014. Interim information presented in the unaudited condensed consolidated financial statements has been prepared by management. In the opinion of management, the financial statements include all adjustments necessary for a fair presentation and that all such adjustments are of a normal, recurring nature and necessary for the fair statement of the financial position, results of operations and cash flows for the periods presented in accordance with GAAP. The results of operations for the periods ended September 30, 2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.

All significant intercompany transactions and balances have been eliminated in preparing the condensed consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Management has made significant estimates in certain areas, including valuing certain financial instruments and other assets, the determination of the contingent risk liabilities, and in determining appropriate insurance reserves. Actual results could differ substantially from those estimates.

Fair Value of Certain Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Generally, for assets that are reported at fair value, the Company uses quoted market prices or valuation models to estimate their fair value. These models incorporate inputs such as forward yield curves, market volatilities and pricing spreads, utilizing market-based inputs where readily available. The degree of management judgment involved in estimating the fair value of a financial instrument or other asset is dependent upon the availability of quoted market prices or observable market inputs. For financial instruments that are actively traded in the marketplace or whose values are based on readily available market value data, little judgment is necessary when estimating the instrument’s fair value. When observable market prices and data are not readily available, significant management judgment often is necessary to estimate fair value. In those cases, different assumptions could result in significant changes in valuation.

9


 

The Company classifies certain fixed-maturity investments as trading securities, which are recorded at fair value. The remaining fixed-maturity investments treated as “hold-to-maturity” investments are recorded at amortized cost which, in the case of much of our investment holdings, approximates fair value. As such, changes in unrealized gains and losses on investments held at the balance sheet date are recognized and reported as a component of net investment income on the statement of operations. The Company believes fair value provides better matching of investment earnings to potential cash flow generated from the investment portfolio and reduces subjectivity related to evaluating other-than-temporary impairment on the Company’s investment portfolio.

The carrying value of cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximates their fair value because of their short term nature.

The carrying value of notes payable approximates fair value based on time to maturity, underlying collateral, and prevailing interest rates.

Fair Value Option

The Company has recorded a liability related to a loss contract fair market value reserve (the “Reserve”) and applies Financial Accounting Standards Board (“FASB”) Fair Value Option accounting guidance to this liability. The Reserve was initially established in compliance with Accounting Standards Codification (“ASC”) 805-10-55-21(b)(1) which defines a loss contract as a “contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.” The Company recorded this Reserve to properly value the net economic value of the WMMRC subsidiary. At each reporting date, the Company reassesses the loss contract reserve which may result in a change to this line item in the balance sheet and a corresponding contra-expense which is reflected in the statement of operations. Accordingly, any changes in the loss contract reserve at the balance sheet date are recognized and reported within the loss contract reserve fair market value change in the statement of operations. The Company believes Fair Value Option accounting provides better matching of earnings to potential cash flow generated from the WMMRC operating business.

Fair Value Measurement

The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in the FASB Fair Value Measurements and Disclosures accounting guidance. The framework is based on the inputs used in valuation and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the fair value accounting guidance hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions.

The three levels of the hierarchy are as follows:

Level 1–Inputs to the valuation methodology are quoted prices for identical assets or liabilities traded in active markets.

Level 2–Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market corroborated inputs.

Level 3–Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the inputs that market participants would use.

Fair values are based on quoted market prices when available (Level 1). The Company receives the quoted market prices from a third party, nationally recognized pricing service. When market prices are not available, the Company utilizes a pricing service to determine an estimate of fair value. The fair value is generally estimated using current market inputs for similar financial instruments with comparable terms and credit quality, commonly referred to as matrix pricing (Level 2). These valuation techniques involve some level of management estimation and judgment. The Company recognizes transfers between levels in the fair value hierarchy at the end of the reporting period.

10


 

Fixed-Maturity Securities

Fixed-maturity securities consist of U.S. Treasury securities, obligations of U.S. government agencies, commercial mortgage-backed securities and corporate debt securities. Fixed-maturity securities held in trust are for the benefit of the primary insurers as more fully described in Note 3: Insurance Activity. Investments in fixed-maturity securities are reported at their estimated fair values or amortized cost (as the case may be) and are classified as trading securities in accordance with applicable accounting guidance. Realized gains and losses on the sale of fixed-maturity securities are determined using the specific identification method and are reported as a component of net investment income within the statement of operations.

Cash Equivalents and Investments Held in Trust

Cash equivalents, which include highly liquid overnight money market instruments, and fixed-maturity securities are held in trust for the benefit of the primary insurers as more fully described in Note 3: Insurance Activity and the following information regarding restrictions on distribution of net assets of subsidiaries.

Third Party Restrictions on Distribution of Net Assets of Wholly-Owned Subsidiaries

The net assets of WMMRC are subject to restrictions from distribution from multiple sources including the primary insurers who have approval control of distribution from the trust, the Insurance Commissioner of the State of Hawaii who has approval control prior to distributions or intercompany advances, and additional restrictions as described in Note 7: Notes Payable.

Premium Recognition

Premiums assumed are earned on a daily pro-rata basis over the underlying policy terms. Premiums assumed relating to the unexpired portion of policies in force at the balance sheet date are recorded as unearned premiums. Unearned premiums also include a reserve for post default premium reserves. Post default premium reserves occur when a loan is in a default position and the servicer continues to advance the premiums. If the loan ultimately goes to claim, the premiums advanced during the period of default are subject to recapture. The Company records a default premium reserve based on information provided by the underlying mortgage insurers when they provide information on the default premium reserve separately from other reserves. The change in the default premium reserve is reflected as a reduction or increase, as the case may be, in premiums assumed. The Company has recorded unearned premiums totaling $1.2 million and $1.4 million as of September 30, 2014 and December 31, 2013, respectively.

The Company recognizes premium deficiencies when there is a probable loss on an insurance contract. Premium deficiencies are recognized if the sum of the present value of expected losses and loss adjustment expenses, unamortized deferred acquisition costs, and maintenance costs exceed unearned premiums and anticipated investment income. Premium deficiency reserves have been recorded totaling $4.3 million and $2.4 million as of September 30, 2014 and December 31, 2013, respectively.

The Company’s premium deficiency analysis was performed on a single book basis and includes all book years and reinsurance treaties aggregated together using assumptions based on the actuarial best estimates at the balance sheet date. The calculation for premium deficiency requires significant judgment and includes estimates of future expected premiums, claims, loss adjustment expenses and investment income as of the balance sheet date. To the extent ultimate losses are higher or premiums are lower than estimated, additional premium deficiency reserves may be required in the future.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, amounts due from banks, U.S. Treasury bills and overnight investments. Except as described above in Cash Equivalents and Investments Held in Trust, the Company considers all amounts that are invested in highly liquid over-night money market instruments to be cash equivalents. The FDIC insures amounts on deposit with each financial institution up to limits as prescribed by law. The Company may hold funds with financial institutions in excess of the FDIC insured amount, however, the Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risk on cash and cash equivalents.

Restricted Cash

Restricted cash consists of amounts held for the express purposes of paying principal and interest and related fees on the Runoff Notes pursuant to the terms of the Indentures.

11


 

Ceding Commission Expense

The Company is required to pay a ceding commission to certain primary insurers pursuant to certain reinsurance agreements.

Losses and Loss Adjustment Reserves

The losses and loss adjustment reserve includes case basis estimates of reported losses and supplemental amounts for incurred but not reported losses (“IBNR”). A default is considered the incident (e.g., the failure to make timely payment of mortgage payments) that may give rise to a claim for mortgage insurance. In establishing the losses and loss adjustment reserve, the Company utilizes the findings of an independent consulting actuary. The consulting actuary estimates ultimate loss rates based upon industry data and claims and exposure data provided by the primary mortgage insurance carriers and assumptions of prepayment speed relative to loans reinsured by the Company. The fully developed ultimate loss rates are then applied to cumulative earned premium and reduced for cumulative losses and loss adjustment expenses paid to arrive at the liability for unpaid losses and loss adjustment expenses. Actuarial methods utilized by the consulting actuary to derive the ultimate loss rates include the loss development method, simulated loss development method, Bornhuetter-Ferguson method and simulated Bornhuetter-Ferguson method on a paid and incurred basis. Due to the current condition of the mortgage insurance market, WMMRC has recorded reserves at the higher of (x) reserves estimated by the consulting actuary for each primary mortgage guaranty carrier and (y) ceded case reserves and IBNR levels reported by the primary mortgage guaranty carriers as of September 30, 2014 and December 31, 2013, respectively. Management believes that the recorded aggregate liability for unpaid losses and loss adjustment expenses at period end represents the Company’s best estimate, based upon the available data, of the amount necessary to cover the current cost of losses. However, due to the inherent uncertainty arising from fluctuations in the persistency rate of mortgage insurance claims, the Company’s size and lack of prior operating history, external factors such as future changes in regional or national economic conditions, judicial decisions, federal and state legislation related to mortgage restructuring and foreclosure restrictions, claims denials and coverage rescissions by primary carriers and other factors beyond the Company’s control, it is not presently possible to determine whether actual loss experience will conform to the assumptions used in determining the estimated amounts for such liability at the balance sheet date. Accordingly, the ultimate liability could be significantly higher or lower, as the case may be, of the amount indicated in the financial statements and there can be no assurance that the reserve amounts recorded will be sufficient. As adjustments to these estimates become necessary, such adjustments are reflected in current operations.

Loss Contract Fair Market Value Reserves

A loss contract fair market value reserve relating to contractual obligations of WMMRC was established at March 19, 2012 as a result of applying fresh start accounting and in compliance with ASC 805-10-55-21(b)(1) which defines a loss contract as a “contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.” The fair market value of this reserve is analyzed quarterly and is adjusted accordingly. This adjustment to the reserve produces an expense or contra-expense in the statement of operations.

Fresh Start Accounting

The Company adopted fresh start accounting in accordance with ASC 852 (Reorganizations) (“ASC 852”) upon emergence from bankruptcy on March 19, 2012. Under ASC 852, the application of fresh start accounting results in the allocation of reorganization value to the fair value of assets, and is required when (a) the reorganization value of assets immediately prior to confirmation of a plan of reorganization is less than the total of all post-petition liabilities and allowed claims and (b) the holders of voting shares immediately prior to the confirmation of the plan of reorganization receive less than 50 percent of the voting shares of the emerging entity. The Company adopted fresh start accounting as of the Effective Date, which represents the date on which all material conditions precedent to the effectiveness of the Plan were satisfied or waived. As of the Effective Date, the Company believes that it satisfied both of the aforementioned conditions.

The Company’s reorganization value (“Equity Value”), upon emergence from bankruptcy, was determined to be $76.6 million, which represented management’s best estimate of fair value based on a calculation of the present value of the Company’s consolidated assets and liabilities as at March 19, 2012. As part of our fresh start reporting, we applied various valuation methodologies to calculate the reorganization value of the Company. These methods included (a) the comparable company analysis, (b) the precedent transactions analysis and (c) the discounted cash flow analysis. The application of these methodologies requires certain key estimates, judgments and assumptions, including financial projections, the amount of cash available to fund operations and current market conditions. Such projections, judgments and assumptions are inherently subject to significant uncertainties and there can be no assurance that such estimates, assumptions and projections reflected in the valuation will be realized and actual results may vary materially. The Company filed a Form 8-K pertaining to emergence from bankruptcy and subsequently filed a Form 8-K/A, which included WMIHC’s audited balance sheet as of the Effective Date.

12


 

Comprehensive Income (Loss)

The Company has no comprehensive income (loss) other than the net income (loss) disclosed in the condensed consolidated statement of operations.

Net (Loss) Income Per Common Share

Basic earnings (loss) per common share is computed by dividing net income (loss) applicable to the Company’s common shareholders by the weighted average number of common shares outstanding for the period. Diluted net (loss) income per common share is computed by dividing net income (loss) applicable to the Company’s common shareholders by the weighted average number of common shares outstanding during the period and the effect of all dilutive common stock equivalents. If common share equivalents exist, in periods where there is a net loss, diluted loss per common share would be equal to or less than basic loss per common share, since the effect of including any common share equivalents would be antidilutive.

Equity-Based Compensation

On May 22, 2012, WMIHC’s board of directors (the “Board”) approved the Company’s 2012 Long-Term Incentive Plan (the “2012 Plan”) to award restricted stock to its non-employee directors and to have a plan in place for awards to executives and others in connection with the Company’s operations and future strategic plans. A total of 2 million shares of common stock were initially reserved for future issuance under the Plan, which became effective upon the Board approval on May 22, 2012. On February 10, 2014, the Board approved and adopted a First Amendment to the 2012 Plan, pursuant to which the number of shares of WMIHC’s common stock reserved and available for grants under the 2012 Plan was increased from 2 million shares to 3 million shares, and that modified the terms under which the 2012 Plan may be amended to permit such an increase through action of the Board except when shareholder approval is necessary to comply with any applicable law, regulation or rule of any stock exchange on which WMIHC’s shares are listed, quoted or traded. The 2012 Plan provides for the granting of restricted shares and other cash and share based awards. The value of restricted stock is determined using the fair market value of the shares on the issuance date.

Income Taxes

The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the carrying amounts and tax bases of assets and liabilities and losses carried forward and tax credits. Deferred tax assets and liabilities are measured using enacted tax rates and laws applicable to the years in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to the extent that it is more likely than not that deferred tax assets will not be realized.

The Company recognizes the financial statement effects of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Penalties and interest, of which there are none, would be reflected in income tax expense. Tax years are open to the extent the Company has net operating loss carry-forwards available to be utilized currently.

Dividend Policy

WMIHC has paid no dividends on or after the Effective Date and currently has no plans to pay a dividend. The Financing Agreement and the Note Purchase Agreement (as such are defined in Note 8: Financing Arrangements) include restrictions related to the payment of dividends.

New Accounting Pronouncements

The Company has reviewed recently issued standards and determined that none have relevance to its current operations or have any material impact on the Company’s consolidated financial position, results of operations or disclosure requirements.

 

13


 

Note 3: Insurance Activity

The Company, through WMMRC, reinsures mortgage guaranty risks of mortgage loans originated by affiliates of the Company during the period from 1997 through 2008. WMMRC is (or was) a party to reinsurance agreements with UGRIC, GMIC, MGIC, PMI, Radian, RMIC and Triad. The agreements with UGRIC and Triad were placed into runoff effective May 31, 2008. The agreements with all other primary mortgage insurers were placed into runoff effective September 26, 2008. The reinsurance agreements with Triad, PMI and UGRIC were commuted on August 31, 2009, October 2, 2012 and April 3, 2014, respectively.

On April 3, 2014, WMMRC, a wholly-owned subsidiary of the Company, and UGRIC entered into a Commutation Agreement and Mutual Release (the “Commutation Agreement”), a copy of which was attached as Exhibit 10.1 to the Company’s Form 8-K filed on April 7, 2014. The effectiveness of the Commutation Agreement was conditioned upon obtaining certain consents, approvals and waivers, as described further below. On May 19, 2014, the Commutation Agreement became effective. Pursuant to the Commutation Agreement, WMMRC and UGRIC agreed to the commutation and termination of (i) the trust and trust account (the “Trust Account”) established by that certain trust agreement dated December 31, 1998 between WMMRC, UGRIC and US Bank, National Association, as trustee, pursuant to which WMMRC established a Trust Account for the benefit of UGRIC, in order to secure obligations of WMMRC and (ii) the reinsurance agreements and related arrangements described more specifically in the Commutation Agreement (the “Commutation”).

The Commutation Agreement became effective upon the completion of the following events, all of which have been obtained: (a) the State of Hawaii, Insurance Division approved the Commutation Agreement; (b) the Company entered into a Limited Waiver Agreement with the First Indenture Trustee in order to permit the Commutation under the terms of the First Lien Indenture; (c) the Company entered into a Limited Waiver Agreement with the Second Indenture Trustee in order to permit the Commutation under the terms of the Second Lien Indenture; (d) the Company received a Consent from the agent and requisite lenders under the Financing Agreement in order to permit the Commutation under the Financing Agreement; and (e) WMI Liquidating Trust, the beneficial owner of at least two-thirds in aggregate principal amount of the notes outstanding under the First Lien Indenture and the Second Lien Indenture, and Cede & Co., the registered holder of at least two-thirds in aggregate principal amount of the notes outstanding under the First Lien Indenture and the Second Lien Indenture, consented to both limited waiver agreements.

In accordance with the terms of the Commutation Agreement, UGRIC was paid $17.7 million in cash and WMMRC was paid all remaining cash and assets remaining in the Trust Account, which totaled $65.4 million (the “WMMRC Amount”) from the Commutation.

The WMMRC Amount was deposited into WMMRC’s custodial account. WMMRC requested and received approval from the State of Hawaii, Insurance Division to declare a dividend or distribution of all or a portion of the WMMRC Amount to the Company. The Company deposited such dividend or distribution to the extent constituting Runoff Proceeds (as defined in the Indentures) directly into the Collateral Account (as defined in the Indentures) for distribution to the note holders in accordance with the Indentures. On July 1, 2014, WMIHC repaid $62.7 million of principal and $679 thousand of interest relating to the Runoff Notes. On July 15, 2014, WMIHC repaid an additional $16.2 million of principal and $257 thousand of interest relating to the Runoff Notes. At July 15, 2014 (the date of the $16.2 million principal payment), the remaining outstanding balance of First Lien Runoff Notes was reduced to $2.9 million, and Second Lien Runoff Notes principal balance totaled $26.5 million.

All agreements between WMMRC and the primary mortgage insurers are on an excess of loss basis, except for certain reinsurance treaties with GMIC and Radian during 2007 and 2008, which are reinsured on a 50 percent quota share basis. Pursuant to the excess of loss reinsurance treaties, WMMRC reinsures a second loss layer which ranges from 5 percent to 10 percent of the risk in force in excess of the primary mortgage insurer’s first loss percentage which range from 4 percent to 5 percent. Each calendar year, or book year, is treated separately from other years when calculating losses. In return for accepting a portion of the risk, WMMRC receives, net of ceding commission, a percentage of the premium that ranges from 25 to 40 percent.

As security for the ceding insurers, WMMRC has entered into separate trust agreements with each of the primary mortgage insurance companies whereby a portion of the funds from premiums assumed are held in trust accounts for the benefit of each separate insurer. Pursuant to the terms of the reinsurance agreements, WMMRC is required to keep such assets in trust for a minimum of five (5) years and are subject to claims for up to ten (10) years from termination of obligations arising from the last year in which insurance business was written prior to runoff. Release of funds from the trust by WMMRC requires approval from the primary mortgage guaranty companies.

14


 

Premiums assumed and earned are as follows for the periods ended September 30, 2014 and 2013, respectively:

 

 

Three Months

 

 

Three Months

 

 

Nine Months

 

 

Nine Months

 

 

ended September 30,

 

 

ended September 30,

 

 

ended September 30,

 

 

ended September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Premiums assumed

$

1,564

 

 

$

2,790

 

 

$

5,276

 

 

$

9,353

 

Change in unearned premiums

 

71

 

 

 

143

 

 

 

238

 

 

 

(1,281

)

Premiums earned

$

1,635

 

 

$

2,933

 

 

$

5,514

 

 

$

8,072

 

 

The components of the liability for losses and loss adjustment reserves are as follows as of September 30, 2014 and December 31, 2013, respectively:

 

 

September 30,

 

December 31,

 

 

2014

 

2013

 

Case-basis reserves

$

17,787

 

$

41,159

 

IBNR reserves

 

107

 

 

713

 

Premium deficiency reserves

 

4,272

 

 

2,442

 

Total losses and loss adjustment reserves

$

22,166

 

$

44,314

 

 

Losses and loss adjustment reserve activity are as follows for the nine months ended September 30, 2014 and the year ended December 31, 2013, respectively:

 

 

September 30,

 

December 31,

 

 

2014

 

2013

 

Balance at beginning of period

$

44,314

 

$

82,524

 

Incurred (released) - prior periods

 

4,531

 

 

(6,159

)

Paid - prior periods

 

(26,679

)

 

(32,051

)

Total losses and loss adjustment reserves

$

22,166

 

$

44,314

 

 

The loss contract fair market reserve balance is analyzed and adjusted quarterly. The balance in the reserve was $16.0 million at September 30, 2014 and $46.3 million at December 31, 2013. The fair market value of this reserve decreased by $30.3 million and $1.0 million during the nine months ended September 30, 2014 and September 30, 2013, respectively. The decreases resulted in corresponding decreases in expense of $30.3 million and $1.0 million for the nine months ended September 30, 2014 and September 30, 2013, respectively.

 


15


 

 

Note 4: Investment Securities

The following tables show the amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of total fixed-maturity securities and total fixed-maturity securities held in trust at September 30, 2014 and December 31, 2013, respectively:  

 

September 30, 2014

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

Obligations of U.S. government sponsored enterprises

$

6,491

 

 

$

23

 

 

$

(34

)

 

$

6,480

 

Corporate debt securities

 

62,232

 

 

 

665

 

 

 

(94

)

 

 

62,803

 

Commercial paper

 

54,997

 

 

 

 

 

 

 

 

 

54,997

 

Foreign corporate debt securities

 

12,734

 

 

 

46

 

 

 

(44

)

 

 

12,736

 

Total fixed-maturity securities

 

136,454

 

 

 

734

 

 

 

(172

)

 

 

137,016

 

Less total unrestricted fixed-maturity securities – trading

 

7,944

 

 

 

207

 

 

 

(18

)

 

 

8,133

 

Less total unrestricted fixed-maturity securities – held to

  maturity

 

73,173

 

 

 

 

 

 

 

 

 

73,173

 

Total fixed-maturity securities held in trust

$

55,337

 

 

$

527

 

 

$

(154

)

 

$

55,710

 

  

 

December 31, 2013

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Estimated

Fair Value

 

Obligations of U.S. government sponsored enterprises

$

15,868

 

 

$

127

 

 

$

(163

)

 

$

15,832

 

Corporate debt securities

 

80,624

 

 

 

1,450

 

 

 

(182

)

 

 

81,892

 

Commercial paper

 

98,929

 

 

 

4

 

 

 

(1

)

 

 

98,932

 

Foreign corporate debt securities

 

22,166

 

 

 

149

 

 

 

(170

)

 

 

22,145

 

Total fixed-maturity securities

 

217,587

 

 

 

1,730

 

 

 

(516

)

 

 

218,801

 

Less total unrestricted fixed-maturity securities – trading

 

7,326

 

 

 

232

 

 

 

(13

)

 

 

7,545

 

Less total unrestricted fixed-maturity securities – held to

  maturity

 

65,352

 

 

 

 

 

 

 

 

 

65,352

 

Total fixed-maturity securities held in trust

$

144,909

 

 

$

1,498

 

 

$

(503

)

 

$

145,904

 

 

 

 

 

Amortized cost and estimated fair value of fixed-maturity securities at September 30, 2014 by contractual maturity are as follows:

 

 

Amortized

Cost

 

 

Estimated

Fair Value

 

Maturity in:

 

 

 

 

 

 

 

2014

$

63,371

 

 

$

63,368

 

2015-2019

 

73,083

 

 

 

73,648

 

Total fixed-maturity securities

$

136,454

 

 

$

137,016

 

 

Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

16


 

Net investment income (loss) for the periods ended September 30, 2014 and 2013, respectively, is summarized as follows:

 

 

Three Months

 

 

Three Months

 

 

Nine Months

 

 

Nine Months

 

 

ended September 30,

 

 

ended September 30,

 

 

ended September 30,

 

 

ended September 30,

 

 

2014

 

 

2013

 

 

2014

 

 

2013

 

Investment income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of premium or discount on fixed-maturity securities

$

(392

)

 

$

(631

)

 

$

(1,350

)

 

$

(1,715

)

Investment income on fixed-maturity securities

 

740

 

 

 

1,621

 

 

 

2,748

 

 

 

5,258

 

Interest income on cash and equivalents

 

2

 

 

 

2

 

 

 

9

 

 

 

11

 

Realized net gain (loss) from sale of investments

 

19

 

 

 

(767

)

 

 

435

 

 

 

(754

)

Unrealized (losses) gains on trading securities held at period end

 

(283

)

 

 

565

 

 

 

(651

)

 

 

(4,022

)

Net investment income (loss)

$

86

 

 

$

790

 

 

$

1,191

 

 

$

(1,222

)

 

 

The following tables show how the Company’s investments are categorized in accordance with fair value measurement, as of September 30, 2014 and December 31, 2013, respectively:

 

 

September 30, 2014

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Class of Security:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government sponsored enterprises

$

3,021

 

 

$

3,459

 

 

$

 

 

$

6,480

 

Corporate debt securities

 

30,474

 

 

 

32,329

 

 

 

 

 

 

62,803

 

Commercial paper

 

54,997

 

 

 

 

 

 

 

 

 

54,997

 

Foreign corporate debt securities

 

1,777

 

 

 

10,959

 

 

 

 

 

 

12,736

 

Total fixed-maturity securities

 

90,269

 

 

 

46,747

 

 

 

 

 

 

137,016

 

Money market funds

 

16,517

 

 

 

 

 

 

 

 

 

16,517

 

Total

$

106,786

 

 

$

46,747

 

 

$

 

 

$

153,533

 

 

 

December 31, 2013

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Class of Security:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of U.S. government sponsored enterprises

$

6,299

 

 

$

9,533

 

 

$

 

 

$

15,832

 

Corporate debt securities

 

11,891

 

 

 

70,001

 

 

 

 

 

 

81,892

 

Commercial paper

 

98,932

 

 

 

 

 

 

 

 

 

98,932

 

Foreign corporate debt securities

 

7,652

 

 

 

14,493

 

 

 

 

 

 

22,145

 

Total fixed-maturity securities

 

124,774

 

 

 

94,027

 

 

 

 

 

 

218,801

 

Money market funds

 

44,863

 

 

 

 

 

 

 

 

 

44,863

 

Total

$

169,637

 

 

$

94,027