The Company acquired its subsidiary, PWSC, effective October 12, 2017. The consolidated statements of operations include the earnings of PWSC from the date of acquisition. Refer to Note 4, "Acquisitions," to the Consolidated Financial Statements, for further discussion.
Table 1 Segment Operating (Loss) Income for the Years Ended December 31, 2017 and 2016
For the year ended December 31, 2017, we reported net loss of 11.1 million ($0.73 per diluted share) compared to net income of $0.5 million ($0.01 per diluted share) for the year ended December 31, 2016.
The Insurance Underwriting expense ratio was 23.5% in 2017 compared with 25.0% in 2016. The decrease in the expense ratio is primarily due to increased net premiums earned as well as lower salary and benefits expense at Mendota and MCC and lower bad debt expense at Mendota for 2017 as compared to 2016, despite the 2016 expense ratio reflecting a one-time benefit of $0.5 million related to the settlement of outstanding litigation.
The Company incurred net realized gains of $0.4 million in 2016 compared to $1.2 million in 2015. The net realized gains in 2016 resulted primarily from the liquidation of equity investments in Insurance Underwriting. The net realized gains in 2015 resulted primarily from the liquidation of limited liability investments in Insurance Underwriting.
During the third quarter of 2016, the Company recorded a non-cash gain on deconsolidation of 1347 Investors of $5.6 million. Refer to the "Investments" section below and Note 5, "Deconsolidations, Discontinued Operations and Liquidation," to the Consolidated Financial Statements, for further discussion.
TABLE 8 Increase (decrease) in prior years' provision for property and casualty loss and loss adjustment expenses by line of business and accident year
On October 12, 2017, the Company borrowed a principal amount of $5.0 million from a bank to partially finance its acquisition of PWSC. The bank loan matures on October 12, 2022 and has a fixed interest rate of 5.0%. The bank loan is carried in the consolidated balance sheets at its unpaid principal balance.
The Company's bank loan is reported at its unpaid principal balance.
revenue recognition will be materially consistent with the way we expect to recognize service fee and commission income once ASU 2014-09 is adopted.
This acquisition was accounted for as a business combination using the acquisition method of accounting. The purchase price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. During
For the year ended December 31, 2017, depreciation expense on property and equipment of $4.4 million and zero is included in general and administrative expenses and loss and loss adjustment expenses, respectively, in the consolidated statements of operations. For the year ended December 31, 2016, depreciation expense on property and equipment of $2.3 million and $0.2 million is included in general and administrative expenses and loss and loss adjustment expenses, respectively, in the consolidated statements of operations. For the year ended December 31, 2015, depreciation expense on property and equipment of $0.4 million and $0.2 million is included in general and administrative expenses and loss and loss adjustment expenses, respectively, in the consolidated statements of operations.
Pursuant to SAB 118, the Company recorded provisional amounts for the estimated income tax effects of the Tax Act on deferred income taxes. The Company estimates that (1) the reduction in the corporate income tax rate decreased its net deferred income tax liability as of December 31, 2017 by $18.9 million and (2) the change in the AMT credit rules allowed the Company to reduce its valuation allowance against its gross deferred income tax assets by $0.1 million, for a combined Tax Act total of $19.0 million. The $19.0 million Tax Act amount was recorded as a decrease to income tax expense in the Company’s consolidated statements of operations for the year ended December 31, 2017. In addition, as result of the reduction in the corporate income tax rate, the Company provisionally reduced its December 31, 2017 net deferred income tax asset balance and the related net deferred income tax valuation allowance by $108.2 million, the net effect of which had no impact on the Company’s consolidated statements of operations for the year ended December 31, 2017.
Amounts, originating dates and expiration dates of the KAI Tax Group's consolidated U.S. net operating loss carryforwards, totaling $882.4 million, are as follows:
Trinity sells warranty products and provides maintenance support to consumers and businesses in the HVAC, standby generator, commercial LED lighting and refrigeration industries. Trinity distributes its warranty products through original equipment manufacturers, HVAC distributors and commercial and residential contractors. Trinity distributes its maintenance support directly through corporate owners of retail spaces throughout the United States.
The following table provides a reconciliation of the fair value of recurring Level 3 fair value measurements for the years ended December 31, 2017, 2016 and 2015:
The Company provided indemnity and hold harmless agreements to a third party for certain customs bonds reinsured by Lincoln General Insurance Company ("Lincoln General") during a period of the time Lincoln General was a subsidiary of the Company. These agreements may require the Company to compensate the third party if Lincoln General is unable to fulfill its obligations relating to the customs bonds. The Company's potential exposure under these agreements is not determinable, and no liability has been recorded in the consolidated financial statements at December 31, 2017. No assurances can be given, however, the Company will not be required to perform under these agreements in a manner that would have a material adverse effect on the Company's business, results of operations or financial condition.
The third party filed a lawsuit on May 11, 2016 seeking damages of $0.2 million from the Company. During the fourth quarter of 2017, the Company tendered payment of $0.2 million in an effort to resolve this particular matter.
The Company’s insurance subsidiaries are required to hold minimum levels of statutory capital and surplus to satisfy regulatory requirements. The minimum statutory capital and surplus, or company action level RBC, necessary to satisfy regulatory requirements for the Company's insurance subsidiaries collectively was $26.7 million at December 31, 2017. Company action level RBC is the level at which an insurance company is required to file a corrective action plan with its regulators and is equal to 200% of the authorized control level RBC.