Note 16 - Segment Information

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

16

.

Segment Information

The Company is engaged in the sale of property and casualty insurance products and has organized its principal operations into two types of insurance businesses: commercial lines and personal lines. Within these two insurance businesses, the Company offers various insurance products. Such insurance businesses are engaged in underwriting and marketing insurance coverages, and administering claims processing for such policies.

The Company defines its operating segments as components of the business where separate financial information is available and used by the chief operating decision-making group in deciding how to allocate resources to its segments and in assessing its performance. In assessing performance of its operating segments, the Company’s chief operating decision-making group, comprised of key senior executives, reviews a number of financial measures including gross written premiums, net earned premiums, and loss and loss adjustment expenses, net of reinsurance recoveries. The primary measure used for making decisions about resources to be allocated to an operating segment and assessing its performance is segment underwriting gain or loss which is defined as segment revenues, consisting of net earned premiums and other income, less segment expenses, consisting of losses and loss adjustment expenses, policy acquisition costs and other underwriting and operating expenses of the operating segments. Other underwriting and operating expenses include primarily compensation and related benefits for underwriting personnel, licensing of policy issuance and claims systems, rent and utilities. The Company markets, distributes and sells its insurance products through its own insurance agencies and a network of independent agents. All of the Company’s insurance activities are conducted in the United States with a concentration of activity in Florida, Michigan and Pennsylvania. For the nine months ended September 30, 2015 and 2014, gross written premiums attributable to these three states were 58% and 59%, respectively, of the Company’s total gross written premiums.

The commercial lines and personal lines accounted for approximately 71% and 29%, respectively, of net earned premiums for the nine months ended September 30, 2015, and approximately 59% and 41%, respectively, of net earned premiums for the nine months ended September 30, 2014. Other income includes installment and policy fees charged to policyholders and commissions income from third party insurers on policies written through our agencies relating to our product lines.

The following provides a description of the Company’s two insurance businesses and product offerings within these businesses:

● Commercial lines—offers coverage for property, liability, automobile and other miscellaneous coverage primarily to owner-operated small and mid-sized businesses, professional organizations and hospitality businesses such as restaurant, bars and taverns. Included within commercial insurance business are the following key products:

● Commercial multi-peril (“CMP”)—provides property and liability coverages in a package to the policyholder.

● Other liability—provides coverage for general liability and liquor liability on an individual policy.

● Automobile—provides coverage for commercial automobiles for businesses that supply to their employees company-owned vehicles.

● Other—includes primarily workers’ compensation coverage in narrowly selected areas.

● Personal lines—offers coverage for low-value dwelling, wind-exposed homeowners and automobile. Included within personal insurance business are the following key products:

● Low-value dwelling (previously known as Midwest homeowners)—provides coverage for nonstandard homeowners insurance and dwelling fire insurance products (property and basic perils coverage only) located primarily in Indiana and Illinois.

● Wind-exposed homeowners (previously known as Specialty homeowners)—provides coverage in niche homeowners markets that have special risk characteristics, including coastal exposure to wind, located primarily in Florida, Hawaii and Texas.

● Automobile—provides coverage for nonstandard private passenger automobile insurance policies primarily for individuals located in Florida and Illinois. Both the Florida and Illinois books of nonstandard auto business are currently in run-off.

The Company renamed Midwest homeowners to low-value dwelling as the Company began to enter into other geographic areas in the U.S. which target the niche, low-value dwelling market that is similar to the product offering within Midwest homeowners. The Company also renamed specialty homeowners to wind-exposed homeowners to better describe the underlying business.

In addition to the reportable segments, the Company maintains a Corporate and Other category to reconcile segment results to the consolidated totals. The Corporate and Other category includes: (i) corporate operating expenses such as salaries and related benefits of the Company’s executive management team and finance and information technology personnel, and other corporate headquarters expenses, (ii) interest expense on the Company’s senior debt obligations; (iii) depreciation and amortization on property and equipment, and (iv) all investment income activity. All investment income activity is reported within net investment income and net realized investment gains on the consolidated statements of operations. The Company’s assets on the consolidated balance sheet are not allocated to the reportable segments.

The following tables present information by reportable segment (in thousands):

	Commercial Lines											Personal Lines
												Homeowners
Three Months Ended September 30, 2015	CMP			Other Liability		Auto		Other		Total		Low-value Dwelling			Wind- exposed		Auto			Total			Corporate & Other			Total
Gross written premiums	$	9,413		$	3,109	$	3,226	$	907	$	16,655	$	2,071		$	5,537	$	(21	)	$	7,587		$	-		$	24,242
Net written premiums	$	12,186		$	3,541	$	3,891	$	1,168	$	20,786	$	2,201		$	5,633	$	(21	)	$	7,813		$	-		$	28,599
Net earned premiums	$	8,458		$	2,107	$	2,312	$	744	$	13,621	$	1,530		$	2,417	$	315		$	4,262		$	-		$	17,883
Other income		(269	)		651		8		-		390		50			60		5			115			18			523
Segment revenue		8,189			2,758		2,320		744		14,011		1,580			2,477		320			4,377			18			18,406
Loss and loss adjustment expenses, net		4,581			716		1,535		211		7,043		1,179			1,139		452			2,770			-			9,813
Policy acquisition costs		2,069			684		549		146		3,448		444			616		97			1,157			-			4,605
Operating expenses		884			253		109		58		1,304		220			155		807			1,182			839			3,325
Segment expenses		7,534			1,653		2,193		415		11,795		1,843			1,910		1,356			5,109			839			17,743
Segment underwriting gain (loss)	$	655		$	1,105	$	127	$	329	$	2,216	$	(263	)	$	567	$	(1,036	)	$	(732	)	$	(821	)	$	663
Investment income																								505			505
Net realized investment gains																								6			6
Other gains																								104			104
Interest expense																								(181	)		(181	)
Income (loss) before income taxes																							$	(387	)	$	1,097

	Commercial Lines										Personal Lines
											Homeowners
Three Months Ended September 30, 2014	CMP		Other Liability		Auto		Other		Total		Low-value Dwelling			Wind- exposed		Auto			Total			Corporate & Other			Total
Gross written premiums	$	8,695	$	1,771	$	2,010	$	789	$	13,265	$	2,198		$	1,630	$	1,819		$	5,647		$	-		$	18,912
Net written premiums	$	7,192	$	1,471	$	1,811	$	719	$	11,193	$	1,863		$	1,342	$	1,819		$	5,024		$	-		$	16,217
Net earned premiums	$	6,540	$	1,312	$	1,360	$	446	$	9,658	$	1,681		$	888	$	2,344		$	4,913		$	-		$	14,571
Other income		158		25		6		-		189		104			-		123			227			(29	)		387
Segment revenue		6,698		1,337		1,366		446		9,847		1,785			888		2,467			5,140			(29	)		14,958
Loss and loss adjustment expenses, net		3,169		404		880		300		4,753		2,590			455		2,417			5,462			-			10,215
Policy acquisition costs		1,670		371		350		87		2,478		528			302		430			1,260			-			3,738
Operating expenses		879		174		92		57		1,202		108			80		694			882			1,349			3,433
Segment expenses		5,718		949		1,322		444		8,433		3,226			837		3,541			7,604			1,349			17,386
Segment underwriting gain (loss)	$	980	$	388	$	44	$	2	$	1,414	$	(1,441	)	$	51	$	(1,074	)	$	(2,464	)	$	(1,378	)	$	(2,428	)
Investment income																							321			321
Net realized investment gains																							94			94
Other gains																							-			-
Interest expense																							(108	)		(108	)
Income (loss) before income taxes																						$	(1,071	)	$	(2,121	)

 

	Commercial Lines										Personal Lines
											Homeowners
Nine Months Ended September 30, 2015	CMP		Other Liability		Auto		Other		Total		Low-value Dwelling			Wind- exposed		Auto			Total		Corporate & Other			Total
Gross written premiums	$	29,840	$	9,704	$	8,510	$	2,669	$	50,723	$	5,119		$	11,595	$	1,068		$	17,782	$	-		$	68,505
Net written premiums	$	24,859	$	8,441	$	7,468	$	2,396	$	43,164	$	4,196		$	9,779	$	1,068		$	15,043	$	-		$	58,207
Net earned premiums	$	21,049	$	5,269	$	5,673	$	1,788	$	33,779	$	4,409		$	6,706	$	2,597		$	13,712	$	-		$	47,491
Other income		308		737		19		-		1,064		165			101		85			351		77			1,492
Segment revenue		21,357		6,006		5,692		1,788		34,843		4,574			6,807		2,682			14,063		77			48,983
Loss and loss adjustment expenses, net		11,788		1,649		3,978		422		17,837		3,305			3,297		2,920			9,522		-			27,359
Policy acquisition costs		4,333		1,231		1,251		288		7,103		1,222			1,030		484			2,736		-			9,839
Operating expenses		2,785		696		325		181		3,987		405			390		1,010			1,805		4,844			10,636
Segment expenses		18,906		3,576		5,554		891		28,927		4,932			4,717		4,414			14,063		4,844			47,834
Segment underwriting gain (loss)	$	2,451	$	2,430	$	138	$	897	$	5,916	$	(358	)	$	2,090	$	(1,732	)	$	-	$	(4,767	)	$	1,149
Investment income																						1,460			1,460
Net realized investment gains																						238			238
Other gains																						104			104
Interest expense																						(664	)		(664	)
Income (loss) before income taxes																					$	(3,629	)	$	2,287

	Commercial Lines													Personal Lines
														Homeowners
Nine Months Ended September 30, 2014	CMP			Other Liability		Auto			Other			Total		Low-value Dwelling			Wind- exposed		Auto			Total			Corporate & Other			Total
Gross written premiums	$	23,806		$	5,775	$	6,257		$	1,875		$	37,713	$	6,243		$	4,691	$	6,933		$	17,867		$	-		$	55,580
Net written premiums	$	20,295		$	5,142	$	5,861		$	1,708		$	33,006	$	5,573		$	4,106	$	6,933		$	16,612		$	-		$	49,618
Net earned premiums	$	16,790		$	3,767	$	2,797		$	1,056		$	24,410	$	4,636		$	2,362	$	9,795		$	16,793		$	-		$	41,203
Other income		573			103		18			-			694		314			-		436			750			(20	)		1,424
Segment revenue		17,363			3,870		2,815			1,056			25,104		4,950			2,362		10,231			17,543			(20	)		42,627
Loss and loss adjustment expenses, net		11,322			1,100		1,845			731			14,998		6,070			1,203		8,206			15,479			-			30,477
Policy acquisition costs		4,355			1,009		726			194			6,284		1,407			796		2,001			4,204			-			10,488
Operating expenses		2,609			582		284			161			3,636		317			238		1,427			1,982			3,922			9,540
Segment expenses		18,286			2,691		2,855			1,086			24,918		7,794			2,237		11,634			21,665			3,922			50,505
Segment underwriting gain (loss)	$	(923	)	$	1,179	$	(40	)	$	(30	)	$	186	$	(2,844	)	$	125	$	(1,403	)	$	(4,122	)	$	(3,942	)	$	(7,878	)
Investment income																										823			823
Net realized investment gains																										266			266
Other gains																										-			-
Interest expense																										(360	)		(360	)
Income (loss) before income taxes																									$	(3,213	)	$	(7,149	)

In January 2015, the Company notified its insurance regulator in the State of Florida of its intent to stop writing nonstandard personal automobile policies. The Company discontinued offering and writing new policies on January 27, 2015, but will continue to service existing policies, pay claims and perform other administrative services as needed until the run-off of the claims on such policies is complete. In early 2014, the Company discontinued writing nonstandard personal automobile business in Illinois. The Company has no plans to provide or write this insurance coverage in the future. By the end of May 2015, this exited product line was solely in run-off. The Company received approval to discontinue its offering of personal automobile insurance policies from the insurance regulators in April 2015, and had ceased all writings by June 1, 2015. The personal automobile product line contributed $315,000 and $2.3 million to net earned premiums and $(1.0) million and $(1.1) million to income (loss) before income taxes for the three months ended September 30, 2015 and 2014, respectively, and $2.6 million and $9.8 million to net earned premiums, and $(1.7) million and $(1.4) million to income (loss) before income taxes for the nine months ended September 30, 2015 and 2014, respectively.

The decision to stop writing personal automobile policies is the result of the Company’s change in strategic positioning and its desire to increase its personal homeowners product line and pursue existing commercial line opportunities.