Segment Information

The Company is engaged in the sale of property and casualty insurance products and has organized its business model around three classes of insurance businesses: commercial lines, personal lines, and wholesale agency business. Within these three businesses, the Company offers various insurance products and insurance agency services. Such insurance businesses are engaged in underwriting and marketing insurance coverages, and administering claims processing for such policies. The Company views the commercial and personal lines segments as underwriting business (business that takes on insurance underwriting risk). The wholesale agency business provides non-risk bearing revenue through commissions and policy fees. The wholesale agency business increases the product options to the Company’s independent retail agents by offering both insurance products from the Insurance Company Subsidiaries as well as products offered by other insurers. This segment has expanded in 2019, resulting in its separate disclosure. Prior periods have been recast to reflect the separate disclosure of the wholesale agency segment.

The Company defines its operating segments as components of the business where separate financial information is available and used by the chief operating decision maker 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 maker, the Chief Executive Officer, reviews a number of financial measures including gross written premiums, net earned premiums, losses and LAE, net of reinsurance recoveries, and other revenue and expenses. 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 LAE, policy acquisition costs and operating expenses of the operating segments. Operating expenses primarily include compensation and related benefits for personnel, 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, Texas and Pennsylvania. For the nine months ended September 30, 2019 and 2018, gross written premiums attributable to these four states were 49% and 54%, respectively, of the Company’s total gross written premiums.

The Agency business sells insurance products on behalf of the Company’s commercial and personal lines businesses as well as to third-party insurers. Certain acquisition costs incurred by the commercial and personal lines businesses are reflected as commission revenue for the Agency business and are eliminated in the Eliminations category.

In addition to the reportable operating segments, the Company maintains a Corporate category to reconcile segment results to the consolidated totals. The Corporate 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 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, net realized investment gains, and change in fair value of equity securities 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 operating segment (dollars in thousands):



Three Months Ended September 30, 2019	Commercial Lines			Personal Lines			Total Underwriting			Wholesale Agency		Corporate			Eliminations			Total
Gross written premiums	$	25,018		$	2,059		$	27,077		$	—	$	—		$	—		$	27,077
Net written premiums	$	22,095		$	1,711		$	23,806		$	—	$	—		$	—		$	23,806

Net earned premiums	$	21,439		$	1,336		$	22,775		$	—	$	—		$	—		$	22,775
Other income	70			33			103			2,619		47			(2,205		)	564
Total revenue	21,509			1,369			22,878			2,619		47			(2,205		)	23,339
Losses and loss adjustment expenses, net	13,517			1,340			14,857			—		—			—			14,857
Policy acquisition costs	6,114			447			6,561			1,825		—			(2,233		)	6,153
Operating expenses	3,239			327			3,566			434		297			—			4,297
Total expenses	22,870			2,114			24,984			2,259		297			(2,233		)	25,307
Underwriting gain (loss)	$	(1,361	)	$	(745	)	$	(2,106	)	$	360	$	(250	)	$	28		$	(1,968	)

Net investment income							—			—		1,210			—			1,210
Net realized investment gains							—			—		390			—			390
Change in fair value of equity securities							—			—		(1,065		)	—			(1,065		)
Interest expense							—			—		(720		)	—			(720		)
Income (loss) before equity earnings of affiliates and income taxes							$	(2,106	)	$	360	$	(435	)	$	28		$	(2,153	)



Three Months Ended September 30, 2018	Commercial Lines			Personal Lines			Total Underwriting			Wholesale Agency		Corporate			Eliminations			Total
Gross written premiums	$	24,806		$	1,823		$	26,629		$	—	$	—		$	—		$	26,629
Net written premiums	$	22,160		$	686		$	22,846		$	—	$	—		$	—		$	22,846

Net earned premiums	$	21,270		$	2,180		$	23,450		$	—	$	—		$	—		$	23,450
Other income	19			49			68			2,708		34			(2,405		)	405
Total revenue	21,289			2,229			23,518			2,708		34			(2,405		)	23,855
Losses and loss adjustment expenses, net	14,445			2,109			16,554			—		—			—			16,554
Policy acquisition costs	6,088			961			7,049			1,808		—			(2,405		)	6,452
Operating expenses	3,871			325			4,196			389		201						4,786
Total expenses	24,404			3,395			27,799			2,197		201			(2,405		)	27,792
Underwriting gain (loss)	$	(3,115	)	$	(1,166	)	(4,281		)	511		(167		)	—			(3,937		)

Net investment income							—			—		786			—			786
Net realized investment gains							—			—		(21		)	—			(21		)
Change in fair value of equity securities							—			—		151			—			151
Interest expense							—			—		(598		)	—			(598		)
Income (loss) before equity earnings of affiliates and income taxes							$	(4,281	)	$	511	$	151		$	—		$	(3,619	)



Nine Months Ended September 30, 2019	Commercial Lines			Personal Lines			Total Underwriting			Wholesale Agency		Corporate			Eliminations			Total
Gross written premiums	$	71,061		$	5,401		$	76,462		$	—	$	—		$	—		$	76,462
Net written premiums	$	61,579		$	3,983		$	65,562		$	—	$	—		$	—		$	65,562

Net earned premiums	$	62,291		$	3,520		$	65,811		$	—	$	—		$	—		$	65,811
Other income	144			108			252			7,099		179			(5,963		)	1,567
Total revenue	62,435			3,628			66,063			7,099		179			(5,963		)	67,378
Losses and loss adjustment expenses, net	38,611			5,084			43,695			—		—			—			43,695
Policy acquisition costs	17,335			1,202			18,537			4,787		—			(5,372		)	17,952
Operating expenses	9,614			867			10,481			1,572		907			—			12,960
Total expenses	65,560			7,153			72,713			6,359		907			(5,372		)	74,607
Underwriting gain (loss)	$	(3,125	)	$	(3,525	)	$	(6,650	)	$	740	$	(728	)	$	(591	)	$	(7,229	)

Net investment income							—			—		3,171			—			3,171
Net realized investment gains							—			—		1,124			—			1,124
Change in fair value of equity securities							—			—		(715		)	—			(715		)
Interest expense							—			—		(2,155		)	—			(2,155		)
Income (loss) before equity earnings of affiliates and income taxes							$	(6,650	)	$	740	$	697		$	(591	)	$	(5,804	)



Nine Months Ended September 30, 2018	Commercial Lines			Personal Lines			Total Underwriting			Wholesale Agency		Corporate			Eliminations			Total
Gross written premiums	$	71,602		$	5,326		$	76,928		$	—	$	—		$	—		$	76,928
Net written premiums	$	63,866		$	1,420		$	65,286		$	—	$	—		$	—		$	65,286

Net earned premiums	$	62,270		$	8,918		$	71,188		$	—	$	—		$	—		$	71,188
Other income	76			181			257			7,018		99			(6,162		)	1,212
Total revenue	62,346			9,099			71,445			7,018		99			(6,162		)	72,400
Losses and loss adjustment expenses, net	36,979			7,971			44,950			—		—			—			44,950
Policy acquisition costs	17,722			3,260			20,982			4,617					(6,162		)	19,437
Operating expenses	10,906			779			11,685			1,340		251						13,276
Total expenses	65,607			12,010			77,617			5,957		251			(6,162		)	77,663
Underwriting gain (loss)	$	(3,261	)	$	(2,911	)	$	(6,172	)	$	1,061	$	(152	)	$	—		$	(5,263	)

Net investment income												2,425			—			2,425
Net realized investment gains												152			—			152
Change in fair value of equity securities												(116		)	—			(116		)
Interest expense												(1,834		)	—			(1,834		)
Income (loss) before equity earnings of affiliates and income taxes							$	(6,172	)	$	1,061	$	475		$	—		$	(4,636	)