0001437749-22-027203.txt : 20221114 0001437749-22-027203.hdr.sgml : 20221114 20221114144604 ACCESSION NUMBER: 0001437749-22-027203 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 61 CONFORMED PERIOD OF REPORT: 20220930 FILED AS OF DATE: 20221114 DATE AS OF CHANGE: 20221114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICC Holdings, Inc. CENTRAL INDEX KEY: 0001681903 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 813359409 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38046 FILM NUMBER: 221383959 BUSINESS ADDRESS: STREET 1: 225 20TH STREET CITY: ROCK ISLAND STATE: IL ZIP: 61201 BUSINESS PHONE: 309-793-1700 MAIL ADDRESS: STREET 1: 225 20TH STREET CITY: ROCK ISLAND STATE: IL ZIP: 61201 10-Q 1 icch20220930_10q.htm FORM 10-Q icch20220930_10q.htm
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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

 

FORM 10-Q

_______________________________

 

(Mark One)

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

 

For the quarterly period ended September 30, 2022

or

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

 

For transition period from __________ to __________.

 

Commission File Number: 001-38046

 

ICC Holdings, Inc.

(Exact name of registrant as specified in its charter)

_______________________________

Pennsylvania

(State or other jurisdiction of
incorporation or organization)

 

81-3359409

(I.R.S. Employer
Identification No.)

   

225 20th Street, Rock Island, Illinois

(Address of principal executive offices)

 

61201

(Zip Code)

(309) 793-1700

(Registrant’s telephone number, including area code)

_______________________________

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ICCH

The NASDAQ Stock Market LLC

 

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. Yes ☒   No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒   No ☐

 

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

 

 

Large accelerated filer   ☐

Accelerated filer   ☐

 

Non-accelerated filer     ☒ 

Smaller reporting company   

  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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

 

The number of shares of the registrant’s common stock outstanding as of November 7, 2022 was 3,155,138.

 

 

 
 

 

Table of Contents

 

       
       
     

Page

PART I

     

Item 1

Financial Statements

 
   

Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021

3
   

Condensed Consolidated Statements of Earnings and Comprehensive Earnings for the Three-Month Periods Ended September 30, 2022 and 2021 (unaudited)

4
   

Condensed Consolidated Statements of Earnings and Comprehensive Earnings for the Nine-Month Periods Ended September 30, 2022 and 2021 (unaudited)

5
   

Condensed Consolidated Statements of Stockholders Equity for the Nine-Month Periods Ended September 30, 2022 and 2021 (unaudited)

6
   

Condensed Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 2022 and 2021 (unaudited)

7
   

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3

Quantitative and Qualitative Disclosures about Market Risk

35

Item 4

Controls and Procedures

36
       

PART II

     

Item 1

Legal Proceedings

37

Item 1A

Risk Factors

37

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

37

Item 3

Default Upon Senior Securities

37

Item 4

Mine Safety Disclosures

37

Item 5

Other Information

37

Item 6

Exhibits

38
       

Signatures

    39

 

 

 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

  

As of

 
  

September 30,

  

December 31,

 
  

2022

  

2021

 
  

(Unaudited)

     

Assets

        

Investments and cash:

        

Fixed maturity securities (amortized cost of $103,689,841 at 9/30/2022 and $102,145,223 at 12/31/2021)

 $91,727,759  $105,841,543 

Common stocks at fair value

  17,763,670   23,608,197 

Preferred stocks at fair value

  2,762,210   2,780,450 

Other invested assets

  4,556,769   3,086,568 

Property held for investment, at cost, net of accumulated depreciation of $563,073 at 9/30/2022 and $464,713 at 12/31/2021

  5,831,065   5,509,114 

Cash and cash equivalents

  3,280,008   4,606,378 

Total investments and cash

  125,921,481   145,432,250 

Accrued investment income

  776,896   659,413 

Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $100,000 at 9/30/2022 and 12/31/2021

  30,320,652   27,199,804 

Ceded unearned premiums

  977,283   967,022 

Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $0 at 9/30/2022 and 12/31/2021

  14,768,237   14,521,219 

Federal income taxes

  4,097,155   195,694 

Deferred policy acquisition costs, net

  7,202,485   6,538,844 

Property and equipment, at cost, net of accumulated depreciation of $6,499,976 at 9/30/2022 and $6,243,055 at 12/31/2021

  3,314,731   3,144,218 

Other assets

  2,046,289   1,343,504 

Total assets

 $189,425,209  $200,001,968 
         

Liabilities and Equity

        

Liabilities:

        

Unpaid losses and settlement expenses

 $68,630,450  $61,834,809 

Unearned premiums

  40,193,784   36,212,266 

Reinsurance balances payable

  1,227,713   1,368,294 

Corporate debt

  15,000,000   18,455,342 

Accrued expenses

  5,213,706   5,441,611 

Income taxes - deferred

     954,862 

Other liabilities

  2,510,388   1,030,870 

Total liabilities

  132,776,041   125,298,054 
         

Equity:

        

Common stock1

  35,000   35,000 

Treasury stock, at cost2

  (5,423,190)  (3,155,399)

Additional paid-in capital

  33,032,189   32,965,136 

Accumulated other comprehensive (loss) earnings, net of tax

  (9,450,111)  2,920,027 

Retained earnings

  40,623,729   44,282,895 

Less: Unearned Employee Stock Ownership Plan shares at cost3

  (2,168,449)  (2,343,745)

Total equity

  56,649,168   74,703,914 

Total liabilities and equity

 $189,425,209  $200,001,968 

 

1 Par value $0.01; authorized: 2022 - 10,000,000 shares and 2021 10,000,000 shares; issued: 2022 3,500,000 shares and 2021 3,500,000 shares; outstanding: 2022 – 3,156,285 and 2021  3,291,852 shares

2 2022 – 343,715 shares and 2021 – 208,148 shares

3 2022 – 216,845 shares and 2021 – 234,374 shares

 

See accompanying notes to consolidated financial statements

 

 

 

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited)

 

   

For the Three-Months Ended

 
   

September 30,

 
   

2022

   

2021

 

Net premiums earned

  $ 17,724,441     $ 14,079,395  

Net investment income

    1,027,631       823,912  

Net realized investment gains

    41,206       287,455  

Net unrealized losses on equity securities

    (1,084,289 )     (212,136 )

Other income

    85,402       58,590  

Consolidated revenues

    17,794,391       15,037,216  

Losses and settlement expenses

    10,386,524       8,814,522  

Policy acquisition costs and other operating expenses

    6,360,896       5,442,542  

Interest expense on debt

    46,409       62,379  

General corporate expenses

    189,708       171,105  

Total expenses

    16,983,537       14,490,548  

Earnings before income taxes

    810,854       546,668  

Total income tax expense

    181,114       122,405  

Net earnings

  $ 629,740     $ 424,263  
                 

Other comprehensive loss, net of tax

    (3,408,937 )     (680,975 )

Comprehensive loss

  $ (2,779,197 )   $ (256,712 )
                 

Earnings per share:

               

Basic:

               

Basic net earnings per share

  $ 0.21     $ 0.14  

Diluted:

               

Diluted net earnings per share

    0.20     $ 0.14  
                 

Weighted average number of common shares outstanding:

               

Basic

    3,060,693       3,068,199  

Diluted

    3,074,236       3,083,867  

 

See accompanying notes to consolidated financial statements.

 

 

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited)

 

   

For the Nine-Months Ended

 
   

September 30,

 
   

2022

   

2021

 

Net premiums earned

  $ 50,765,760     $ 38,860,915  

Net investment income

    2,896,901       2,409,036  

Net realized investment gains

    785,600       824,070  

Net unrealized (losses) gains on equity securities

    (6,181,492 )     1,392,999  

Other income

    333,059       196,624  

Consolidated revenues

    48,599,828       43,683,644  

Losses and settlement expenses

    34,390,330       25,281,508  

Policy acquisition costs and other operating expenses

    18,136,104       14,957,143  

Interest expense on debt

    149,661       174,095  

General corporate expenses

    563,626       531,222  

Total expenses

    53,239,721       40,943,968  

(Loss) earnings before income taxes

    (4,639,893 )     2,739,676  

Total income tax (benefit) expense

    (980,726 )     590,806  

Net (loss) earnings

  $ (3,659,167 )   $ 2,148,870  
                 

Other comprehensive loss, net of tax

    (12,370,138 )     (1,826,510 )

Comprehensive (loss) earnings

  $ (16,029,305 )   $ 322,360  
                 

Earnings per share:

               

Basic:

               

Basic net (loss) earnings per share

  $ (1.20 )   $ 0.71  

Diluted:

               

Diluted net (loss) earnings per share

  $ (1.19 )   $ 0.70  
                 

Weighted average number of common shares outstanding:

               

Basic

    3,061,961       3,042,035  

Diluted

    3,075,504       3,057,704  

 

See accompanying notes to consolidated financial statements.

 

 

 

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders Equity (Unaudited)

 

   

Common stock

   

Treasury stock

   

Unearned ESOP

   

Additional paid-in capital

   

Retained earnings

   

Accumulated other comprehensive earnings (loss)

   

Total equity

 

Balance, January 1, 2021

  $ 35,000     $ (3,153,838 )   $ (2,578,115 )   $ 32,780,436     $ 40,140,115     $ 5,520,091     $ 72,743,689  

Purchase of treasury stock

          (103,407 )                             (103,407 )

Net earnings

                            2,148,870             2,148,870  

Other comprehensive loss, net of tax

                                  (1,826,510 )     (1,826,510 )

Restricted stock unit expense

          137,599

1

          (544 )                 137,055  

ESOP compensation expense

                175,296       95,869                   271,165  

Balance, September 30, 2021

  $ 35,000     $ (3,119,646 )   $ (2,402,819 )   $ 32,875,761     $ 42,288,985     $ 3,693,581     $ 73,370,862  

 

   

Common stock

   

Treasury stock

   

Unearned ESOP

   

Additional paid-in capital

   

Retained earnings

   

Accumulated other comprehensive earnings (loss)

   

Total equity

 

Balance, January 1, 2022

  $ 35,000     $ (3,155,399 )   $ (2,343,745 )   $ 32,965,136     $ 44,282,895     $ 2,920,027     $ 74,703,914  

Purchase of treasury stock

          (2,469,237 )                             (2,469,237 )

Net loss

                            (3,659,167 )           (3,659,167 )

Other comprehensive loss, net of tax

                                  (12,370,138 )     (12,370,138 )

Restricted stock unit expense

          201,446

1

          (49,871 )                 151,575  

ESOP compensation expense

                175,296       116,924                   292,220  

Balance, September 30, 2022

  $ 35,000     $ (5,423,190 )   $ (2,168,449 )   $ 33,032,189     $ 40,623,728     $ (9,450,111 )   $ 56,649,168  

 

1Amount represents restricted stock units that have fully vested in the period.

 

See accompanying notes to consolidated financial statements.

 

 

 

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

  

Nine-Month Periods Ended September 30,

 
  

2022

  

2021

 

Cash flows from operating activities:

        

Net (loss) earnings

 $(3,659,167) $2,148,870 

Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities

        

Net realized investment gains

  (785,600)  (824,070)

Net unrealized losses (gains) on equity securities

  6,181,492   (1,392,999)

Depreciation

  555,853   485,688 

Deferred income tax

  (1,516,967)  218,885 

Amortization of bond premium and discount

  156,310   209,740 

Stock-based compensation expense

  443,795   408,220 

Change in:

        

Accrued investment income

  (117,483)  (52,792)

Premiums and reinsurance balances receivable

  (3,120,848)  (2,656,012)

Ceded unearned premiums

  (10,261)  (96,603)

Reinsurance balances payable

  (140,581)  804,998 

Reinsurance balances recoverable

  (247,018)  (1,456,368)

Deferred policy acquisition costs

  (663,641)  (854,536)

Unpaid losses and settlement expenses

  6,795,641   (285,054)

Unearned premiums

  3,981,518   5,132,116 

Accrued expenses

  (227,905)  773,976 

Current federal income tax

  (51,091)  268,235 

Other

  776,736   (188,107)

Net cash provided by operating activities

  8,350,783   2,644,187 

Cash flows from investing activities:

        

Purchases of:

        

Fixed maturity securities

  (15,502,187)  (17,102,938)

Common stocks

  (2,945,823)  (8,119,260)

Preferred stocks

  (1,208,744)  (458,734)

Other invested assets

  (1,698,503)  (350,000)

Property held for investment

  (723,619)  (1,630,760)

Property and equipment

  (620,441)  (647,962)

Proceeds from sales, maturities and calls of:

        

Fixed maturity securities

  13,800,029   11,921,877 

Common stocks

  3,976,938   2,734,181 

Preferred stocks

  646,552   340,523 

Other invested assets

  227,482   304,987 

Property held for investment

  278,679   1,470,533 

Property and equipment

  17,064   44,963 

Net cash used in investing activities

  (3,752,573)  (11,492,590)

Cash flows from financing activities:

        

Proceeds from loans

  5,000,000   9,000,000 

Repayments of borrowed funds

  (8,455,342)  (4,007,552)

Purchase of treasury stock

  (2,469,237)  (103,407)

Net cash (used in) provided by financing activities

  (5,924,580)  4,889,041 

Net decrease in cash and cash equivalents

  (1,326,370)  (3,959,362)

Cash and cash equivalents at beginning of year

  4,606,378   6,598,842 

Cash and cash equivalents at end of period

 $3,280,008  $2,639,480 

Supplemental information:

        

Federal income tax paid

 $160,000  $65,000 

Interest paid

 $144,300  $170,100 

 

See accompanying notes to consolidated financial statements. 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A.

DESCRIPTION OF BUSINESS

 

ICC Holdings, Inc. is a Pennsylvania corporation that was organized in 2016. As used in this Form 10-Q, references to the “Company,” “we,” “us,” and “our” refer to the consolidated group. On a stand-alone basis ICC Holdings, Inc. is referred to as the “Parent Company.” The consolidated group consists of the holding company, ICC Holdings, Inc.; ICC Realty, LLC, a real estate services and holding company; Beverage Insurance Agency, Inc., a non-insurance subsidiary; Estrella Innovative Solutions, Inc., an outsourcing company; Southern Hospitality Education, LLC, dba Katkin, a full-service food safety and education company; and Illinois Casualty Company (ICC), an operating insurance company that is the parent company of ICC Properties, LLC, a real estate series limited liability company. Both ICC and ICC Properties, LLC are Illinois domiciled companies.

 

We are a specialty insurance carrier primarily underwriting commercial multi-peril, liquor liability, workers’ compensation, and umbrella liability coverages for the food and beverage industry through our subsidiary insurance company, ICC. ICC writes business in Arizona, Colorado, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Ohio, Pennsylvania, and Wisconsin and markets through independent agents. Approximately 20.3% and 22.1% of the premium is written in Illinois for the three months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022 and 2021, approximately 22.2% and 23.9%, respectively, of the premium is written in Illinois. The Company operates as one segment.

 

B.

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

 

The unaudited condensed consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting and with the instructions to Form 10-Q. Accordingly, they do not include all the disclosures required by GAAP for complete financial statements. As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, for the year ended December 31, 2021 (the “2021 10-K”). Management believes that the disclosures are adequate to make the information presented not misleading, and all normal and recurring adjustments necessary to present fairly the financial position at September 30, 2022 the results of operations of the Company and its subsidiaries for all periods presented have been made. The results of operations for any interim period are not necessarily indicative of the operating results for a full year.

 

The preparation of the unaudited condensed consolidated interim financial statements requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated interim financial statements, and the reported amounts of revenue and expenses during the period. These amounts are inherently subject to change and actual results could differ significantly from these estimates.

 

C.

SIGNIFICANT ACCOUNTING POLICIES

 

The Company reported its significant accounting policies in the 2021 10-K.

 

D.

PROSPECTIVE ACCOUNTING STANDARDS

 

For information regarding accounting standards that the Company has not yet adopted, see the “Prospective Accounting Standards” in Note 1 Summary of Significant Accounting Policies in the 2021 10-K. The Company maintains its status as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We have taken advantage of the extended transition period provided by Section 107 of the JOBS Act. We decided to comply with the effective dates for financial accounting standards applicable to emerging growth companies later in compliance with the requirements in Sections 107(b)(2) and (3) of the JOBS Act. Such decision is irrevocable. These exemptions will expire following the filing of our Annual Report on Form 10-K for the year ending December 31, 2022.

 

ASU 2016-13 was issued to provide more decision-useful information about the expected credit losses on financial statements. Current GAAP delays the recognition of credit losses until lit is probable a loss has been incurred. The update will require a financial asset measured at amortized cost, including reinsurance balances recoverable, to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through earnings. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses. However, the amendments would limit the amount of the allowance to the amount by which fair value is below amortized cost. This ASU impacts the Company beginning January 1, 2023. The Company expects investments, premiums and reinsurance balances receivable, ceded unearned premiums, and reinsurance balances recoverable on unpaid losses and settlement expenses to be impacted by allowances for credit losses.

 

- 8 -

 

E.

PROPERTY AND EQUIPMENT

 

Annually, the Company reviews the major asset classes of property and equipment held for impairment. For the periods ended September 30, 2022 and 2021, the Company recognized no impairments. Property and equipment are summarized as follows:

 

  

As of

 
  

September 30,

  

December 31,

 
  

2022

  

2021

 

Automobiles

 $637,306  $507,889 

Furniture and fixtures

  516,413   512,268 

Computer equipment and software

  4,643,990   4,350,118 

Home office

  4,016,998   4,016,998 

Total cost

  9,814,707   9,387,273 

Accumulated depreciation

  (6,499,976)  (6,243,055)

Net property and equipment

 $3,314,731  $3,144,218 

 

F.

COMPREHENSIVE EARNINGS

 

Comprehensive (loss) earnings include net (loss) earnings plus unrealized (losses) gains on available-for-sale investment securities, net of tax. In reporting the components of comprehensive earnings on a net basis in the statement of earnings and comprehensive earnings, the Company used a 21% tax rate. Other comprehensive earnings, as shown in the consolidated statements of earnings and comprehensive earnings, is net of tax (benefit) of $(3,288,000) and $(486,000) for the nine months ended September 30, 2022 and 2021, respectively.

 

The following table presents changes in accumulated other comprehensive (loss) earnings for unrealized gains and losses on available-for-sale securities:

         
  

Nine-Months Ended September 30,

 
  

2022

  

2021

 

Beginning balance

 $2,920,027  $5,520,091 
         

Other comprehensive loss before reclassification

  (12,370,634)  (1,729,126)

Amount reclassified from accumulated other comprehensive loss

  496   (97,384)

Net current period other comprehensive loss

  (12,370,138)  (1,826,510)

Ending balance

 $(9,450,111) $3,693,581 

 

- 9 -

 

The following table illustrates the components of other comprehensive earnings for each period presented in the condensed consolidated interim financial statements.

 

  

Three-Month Periods Ended September 30,

 
  

2022

  

2021

 
  

Pre-tax

  Tax  

After-tax

  

Pre-tax

  

Tax

  

After-tax

 

Other comprehensive loss, net of tax

                        

Unrealized gains and losses on AFS investments:

                        

Unrealized holding losses arising during the period

 $(4,315,110) $906,173  $(3,408,937) $(748,597) $157,205  $(591,392)

Reclassification adjustment for losses (gains) included in net earnings

           (113,397)  23,814   (89,583)

Total other comprehensive loss

 $(4,315,110) $906,173  $(3,408,937) $(861,994) $181,019  $(680,975)

 

  

Nine-Month Periods Ended September 30,

 
  

2022

  

2021

 
  

Pre-tax

  

Tax

  

After-tax

  

Pre-tax

  

Tax

  

After-tax

 

Other comprehensive (loss) earnings, net of tax

                        

Unrealized gains and losses on AFS investments:

                        

Unrealized holding losses arising during the period

 $(15,659,030) $3,288,396  $(12,370,634) $(2,188,767) $459,641  $(1,729,126)

Reclassification adjustment for losses (gains) included in net earnings

  628   (132)  496   (123,271)  25,887   (97,384)

Total other comprehensive loss

 $(15,658,402) $3,288,264  $(12,370,138) $(2,312,038) $485,528  $(1,826,510)

 

The following table provides the reclassifications from accumulated other comprehensive earnings for the periods presented:

 

Amounts Reclassified from

Accumulated Other Comprehensive Earnings

  

Three-Month Periods Ended

  

Nine-Month Periods Ended

  

Details about Accumulated Other

 

September 30,

  

September 30,

 

Affected Line Item in the Statement

Comprehensive Earnings Component

 

2022

  

2021

  

2022

  

2021

 

where Net Earnings is Presented

Unrealized (gains) on AFS investments:

                 
  $  $(113,397) $628  $(123,271)

Net realized investment (gains)

      23,814   (132)  25,887 

Income tax expense

Total reclassification adjustment, net of tax

 $  $(89,583) $496  $(97,384) 

 

G.

RISKS AND UNCERTAINTIES

 

Certain risks and uncertainties are inherent to our day-to-day operations. Adverse changes in the economy could lower demand for our insurance products or negatively impact our investment results, both of which could have an adverse effect on the revenue and profitability of our operations. The ongoing COVID-19 pandemic has resulted in, and could continue to result in, significant disruptions in economic activity and financial markets. Russia’s invasion of Ukraine, inflation and related monetary policy responses, and recession fears are also causing volatility. The cumulative effects of these events on the Company cannot be predicted, but could reduce demand for our insurance policies, result in increased level of losses, settlement expenses or other operating costs, or reduce the market value of invested assets held by the Company.

 

- 10 -

 
 

2.

INVESTMENTS

 

The Company’s investments are primarily composed of fixed income debt securities and common and preferred equity securities. We carry our equity securities at fair value and categorize all our fixed maturity debt securities as available-for-sale (AFS), which are carried at fair value. When available, quoted market prices are obtained to determine fair value for the Company’s investments. If a quoted market price is not available, fair value is estimated using a secondary pricing source or using quoted market prices of similar securities. The Company has no investment securities for which fair value is determined using Level 3 inputs as defined in Note 3 Fair Value Disclosures. Realized gains and losses on disposition of investments are based on specific identification of the investments sold on the settlement date, which does not differ significantly from trade date accounting.

 

Available-for-Sale Fixed Maturity and Equity Securities

 

The following tables are a summary of the proceeds from sales, maturities, and calls of AFS fixed maturity and equity securities and the related gross realized gains and losses.

 

  

For the Three-Months Ended September 30,

 
              

Net Realized

 
  

Proceeds

  

Gains

  

Losses

  

Gains (Losses)

 

2022

                

Fixed maturity securities

 $1,185,955  $  $  $ 

Common stocks

  600,120   112,306   (59,628)  52,678 

Preferred stocks

  242,844   1,004   (12,476)  (11,472)

2021

                

Fixed maturity securities

 $5,737,579  $113,397  $  $113,397 

Common stocks

  769,346   198,390   (24,333)  174,057 

Preferred stocks

            

 

  

For the Nine-Months Ended September 30,

 
              

Net Realized

 
  

Proceeds

  

Gains

  

Losses

  

Gains (Losses)

 

2022

                

Fixed maturity securities

 $13,800,029  $105,918  $(106,546) $(628)

Common stocks

  3,976,938   1,052,648   (254,260)  798,388 

Preferred stocks

  646,552   8,749   (20,909)  (12,160)

2021

                

Fixed maturity securities

 $11,921,877  $132,853  $(9,582) $123,271 

Common stocks

  2,734,181   753,159   (90,072)  663,087 

Preferred stocks

  340,523   37,711      37,711 

 

The amortized cost and estimated fair value of fixed income securities at September 30, 2022, by contractual maturity, are shown as follows:

 

  

Amortized Cost

  

Fair Value

 

Due in one year or less

 $1,595,530  $1,584,923 

Due after one year through five years

  15,569,947   14,762,906 

Due after five years through 10 years

  19,819,683   17,066,596 

Due after 10 years

  26,662,556   21,602,374 

Asset and mortgage backed securities without a specific due date

  39,826,320   36,504,808 

Redeemable preferred stocks

  215,805   206,152 

Total fixed maturity securities

 $103,689,841  $91,727,759 

 

Expected maturities may differ from contractual maturities due to call provisions on some existing securities.

 

- 11 -

 

The following table is a schedule of amortized cost and estimated fair values of investments in securities classified as available for sale at September 30, 2022 and December 31, 2021

 

          

Gross Unrealized

 
  

Amortized Cost

  

Fair Value

  

Gains

  

Losses

 

2022

                

Fixed maturity securities:

                

U.S. Treasury

 $1,352,998  $1,245,719  $  $(107,279)

MBS/ABS/CMBS

  39,826,320   36,504,807   579   (3,322,092)

Corporate

  40,797,326   36,080,909   10,194   (4,726,611)

Municipal

  21,497,392   17,690,172   41,619   (3,848,839)

Redeemable preferred stock

  215,805   206,152   1,320   (10,973)

Total fixed maturity securities

 $103,689,841  $91,727,759  $53,712  $(12,015,794)

 

          

Gross Unrealized

 
  

Amortized Cost

  

Fair Value

  

Gains

  

Losses

 

2021

                

Fixed maturity securities:

                

U.S. Treasury

 $1,352,044  $1,345,992  $11,276  $(17,328)

MBS/ABS/CMBS

  40,712,275   41,023,871   607,483   (295,887)

Corporate

  38,959,905   41,206,964   2,434,738   (187,679)

Municipal

  20,905,194   22,031,831   1,149,998   (23,361)

Redeemable preferred stock

  215,805   232,885   17,080    

Total fixed maturity securities

 $102,145,223  $105,841,543  $4,220,575  $(524,255)

 

All the Company’s collateralized securities carry an average credit rating of AA+ by one or more major rating agencies and continue to pay according to contractual terms. Included within MBS/ABS/CMBS, as defined in Note 3 Fair Value Disclosures, are asset backed securities with fair values of $10,897,742 and $14,351,099, residential mortgage backed securities of $16,488,927 and $14,975,101, and commercial mortgage backed securities of $9,118,138 and $11,697,671 at September 30, 2022 and December 31, 2021, respectively.

 

- 12 -

 

ANALYSIS

 

The following tables are also used as part of the impairment analysis and displays the total value of securities that were in an unrealized loss position as of September 30, 2022 and December 31, 2021. The tables segregate the securities based on type, noting the fair value, amortized cost, and unrealized loss on each category of investment as well as in total. The table further classifies the securities based on the length of time they have been in an unrealized loss position.

 

  

September 30, 2022

  

December 31, 2021

 
      

12 Months

          

12 Months

     
  

< 12 Months

  

& Greater

  

Total

  

< 12 Months

  

& Greater

  

Total

 

Fixed Maturity Securities:

                        

U.S. Treasury

                        

Fair value

 $613,609  $632,109  $1,245,718  $391,250  $291,891  $683,141 

Amortized cost

  652,633   700,364   1,352,997   400,408   300,061   700,469 

Unrealized loss

  (39,024)  (68,255)  (107,279)  (9,158)  (8,170)  (17,328)

MBS/ABS/CMBS

                        

Fair value

  27,169,391   9,308,869   36,478,260   20,403,757   1,124,095   21,527,852 

Amortized cost

  29,014,459   10,785,893   39,800,352   20,647,568   1,176,171   21,823,739 

Unrealized loss

  (1,845,068)  (1,477,024)  (3,322,092)  (243,811)  (52,076)  (295,887)

Corporate

                        

Fair value

  30,368,813   4,359,237   34,728,050   6,428,166   995,235   7,423,401 

Amortized cost

  33,917,388   5,537,273   39,454,661   6,590,227   1,020,853   7,611,080 

Unrealized loss

  (3,548,575)  (1,178,036)  (4,726,611)  (162,061)  (25,618)  (187,679)

Municipal

                        

Fair value

  14,034,490   581,522   14,616,012   2,676,052   269,247   2,945,299 

Amortized cost

  17,691,796   773,055   18,464,851   2,695,269   273,391   2,968,660 

Unrealized loss

  (3,657,306)  (191,533)  (3,848,839)  (19,217)  (4,144)  (23,361)

Redeemable preferred stock

                        

Fair value

  135,922      135,922          

Cost

  146,895      146,895          

Unrealized loss

  (10,973)     (10,973)         

Total

                        

Fair value

  72,322,225   14,881,737   87,203,962   29,899,225   2,680,468   32,579,693 

Amortized cost

  81,423,171   17,796,585   99,219,756   30,333,472   2,770,476   33,103,948 

Unrealized loss

  (9,100,946) $(2,914,848) $(12,015,794) $(434,247) $(90,008) $(524,255)

 

The fixed income portfolio contained 242 securities in an unrealized loss position as of September 30, 2022. Of these 242 securities, 33 have been in an unrealized loss position for 12 consecutive months or longer and represent $2,914,848 in unrealized losses. All fixed income securities in the investment portfolio continue to pay the expected coupon payments under the contractual terms of the securities. Credit-related impairments on fixed income securities that we do not plan to sell, and for which we are not more likely than not to be required to sell, are recognized in net earnings. Any non-credit related impairment is recognized in comprehensive earnings. Based on management’s analysis, the fixed income portfolio is of a high credit quality, and it is believed it will recover the amortized cost basis of the fixed income securities. Management monitors the credit quality of the fixed income investments to assess if it is probable that the Company will receive its contractual or estimated cash flows in the form of principal and interest.

 

There were no other-than-temporary impairment losses recognized in net earnings during the nine months ended September 30, 2022 and September 30, 2021. For all fixed income securities at a loss at September 30, 2022, management believes it is probable that the Company will receive all contractual payments in the form of principal and interest. In addition, the Company is not required to, nor does it intend to sell these investments prior to recovering the entire amortized cost basis for each security, which may be at maturity. The fixed income securities in an unrealized loss position were not other-than-temporarily impaired at September 30, 2022 and December 31, 2021.

 

- 13 -

 

UNREALIZED GAINS AND LOSSES ON EQUITY SECURITIES

 

Net unrealized (losses) recognized during the three and nine months ended September 30, 2022 on equity securities held as of September 30, 2022 were $(1,084,289) and $(6,181,492), respectively. Net unrealized (losses) gains recognized during the three and nine months ended September 30, 2021 on equity securities held as of September 30, 2021 were $(212,136) and $1,392,999, respectively.

 

Other Invested Assets

 

Other invested assets as of September 30, 2022 and December 31, 2021 were $4,556,769 and $3,086,568, respectively.

 

Other invested assets as of  September 30, 2022 include privately held investments of $3,287,891 and notes receivable of $843,878, compared to $1,720,502 and $1,066,066, respectively, at December 31, 2021. The notes bear interest between 3.9% and 6.5%. For the nine months ended September 30, 2022, $229,979 in note payments were received and $7,791 in accrued escrow and interest receivable was recorded. Comparatively, as of December 31, 2021, $317,529 in note payments were received and $12,075 in accrued escrow and interest receivable was recorded. The Company had no allowance recorded related to uncollectible note receivables at  September 30, 2022 and December 31, 2021.

 

In addition, other invested assets include a membership in the Federal Home Loan Bank of Chicago (FHLBC) with a carrying value of $425,000 and $300,000 as of September 30, 2022 and December 31, 2021, respectively.

 

In November 2021, we agreed to commit up to $10.0 million to a private investment fund, subject to regulatory approval, which may be callable from time to time by such fund. As of September 30, 2022 and December 31, 2021, no calls were received.

 

 

3.

FAIR VALUE DISCLOSURES

 

Fair value is defined as the price in the principal market that would be received for an asset to facilitate an orderly transaction between market participants on the measurement date. The fair value of certain financial instruments is determined based on their underlying characteristics and relevant transactions in the marketplace. GAAP guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance also describes three levels of inputs that may be used to measure fair value.

 

The following are the levels of the fair value hierarchy and a brief description of the type of valuation inputs that are used to establish each level:

 

 

Level 1 is applied to valuations based on readily available, unadjusted quoted prices in active markets for identical assets.

 

 

Level 2 is applied to valuations based upon quoted prices for similar assets in active markets, quoted prices for identical or similar assets in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data.

 

 

Level 3 is applied to valuations that are derived from techniques in which one or more of the significant inputs are unobservable. Financial assets are classified based upon the lowest level of significant input that is used to determine fair value.

 

As a part of the process to determine fair value, management utilizes widely recognized, third-party pricing sources to determine fair values. Management has obtained an understanding of the third-party pricing sources’ valuation methodologies and inputs. The following is a description of the valuation techniques used for financial assets that are measured at fair value, including the general classification of such assets pursuant to the fair value hierarchy.

 

Corporate, Agencies, and Municipal Bonds—The pricing vendor employs a multi-dimensional model which uses standard inputs including (listed in order of priority for use) benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers and other reference data. The pricing vendor also monitors market indicators, as well as industry and economic events. All bonds valued using these techniques are classified as Level 2. All Corporate, Agencies, and Municipal securities are deemed Level 2.

 

- 14 -

 

Mortgage-backed Securities (MBS), Collateralized Mortgage Obligations (CMO), Commercial Mortgage-backed Securities (CMBS) and Asset-backed Securities (ABS)—The pricing vendor evaluation methodology includes principally interest rate movements and new issue data. Evaluation of the tranches (non-volatile, volatile, or credit sensitivity) is based on the pricing vendors’ interpretation of accepted modeling and pricing conventions. This information is then used to determine the cash flows for each tranche, benchmark yields, pre-payment assumptions and to incorporate collateral performance. To evaluate CMO volatility, an option adjusted spread model is used in combination with models that simulate interest rate paths to determine market price information. This process allows the pricing vendor to obtain evaluations of a broad universe of securities in a way that reflects changes in yield curve, index rates, implied volatility, mortgage rates, and recent trade activity. MBS, CMBS, CMO and ABS with corroborated and observable inputs are classified as Level 2. All MBS, CMBS, CMO and ABS holdings are deemed Level 2.

 

U.S. Treasury Bonds, Common Stocks and Exchange Traded Funds—U.S. treasury bonds and exchange traded equities have readily observable price levels and are classified as Level 1 (fair value based on quoted market prices). All common stock holdings are deemed Level 1.

 

Preferred Stock—Preferred stocks do not have readily observable prices but do have quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in markets that are not active; and inputs other than quoted prices and are classified as Level 2. All preferred stock holdings are deemed Level 2.

 

Due to the relatively short-term nature of cash and cash equivalents, their carrying amounts are reasonable estimates of fair value. Other invested assets include notes receivable, stock, and a membership in the Federal Home Loan Bank of Chicago (FHLBC). Notes receivable are carried at outstanding balance plus accrued interest. Stock and the membership in FHLBC are carried at cost.

 

- 15 -

 

Assets measured at fair value on a recurring basis as of September 30, 2022, are summarized below:

 

      

Significant

         
  

Quoted in Active

  

Other

  

Significant

     
  

Markets for

  

Observable

  

Unobservable

     
  

Identical Assets

  

Inputs

  

Inputs

     
  

(Level 1)

  

(Level 2)

  

(Level 3)

  

Total

 

AFS securities

                

Fixed maturity securities

                

U.S. treasury

 $1,245,719  $  $  $1,245,719 

MBS/ABS/CMBS

     36,504,807      36,504,807 

Corporate

     36,080,909      36,080,909 

Municipal

     17,690,172      17,690,172 

Redeemable preferred stocks

     206,152      206,152 

Total fixed maturity securities

  1,245,719   90,482,040      91,727,759 

Equity securities

                

Common stocks

  17,763,670         17,763,670 

Perpetual preferred stocks

     2,762,210      2,762,210 

Total equity securities

  17,763,670   2,762,210      20,525,880 

Total marketable investments measured at fair value

 $19,009,389  $93,244,250  $  $112,253,639 

 

Assets measured at fair value on a recurring basis as of December 31, 2021, are summarized below:

 

      

Significant

         
  

Quoted in Active

  

Other

  

Significant

     
  

Markets for

  

Observable

  

Unobservable

     
  

Identical Assets

  

Inputs

  

Inputs

     
  

(Level 1)

  

(Level 2)

  

(Level 3)

  

Total

 

AFS securities

                

Fixed maturity securities

                

U.S. treasury

 $1,345,992  $  $  $1,345,992 

MBS/ABS/CMBS

     41,023,871      41,023,871 

Corporate

     41,206,964      41,206,964 

Municipal

     22,031,831      22,031,831 

Redeemable preferred stocks

     232,885      232,885 

Total fixed maturity securities

  1,345,992   104,495,551      105,841,543 

Equity securities

                

Common stocks

  23,608,197         23,608,197 

Perpetual preferred stocks

     2,780,450      2,780,450 

Total equity securities

  23,608,197   2,780,450      26,388,647 

Total marketable investments measured at fair value

 $24,954,189  $107,276,001  $  $132,230,190 

 

As noted in the previous tables, the Company did not have any assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of September 30, 2022 or December 31, 2021. Additionally, there were no securities transferred in or out of Levels 1 and 2 during the nine-month periods ended September 30, 2022 and 2021.

 

- 16 -

 
 

4.

DEBT

 

Debt Obligation

 

Debt Obligations

 

As of  September 30, 2022 and December 31, 2021, the Company had $15.0 million and $18.5 million in outstanding debt, respectively.

 

ICC Holdings, Inc. secured a loan with a commercial bank in March 2017 in the amount of $3.5 million and used the proceeds to repay ICC for the money borrowed by the ESOP. The term of the loan is five years bearing interest at 3.65%. The Company pledged stock and $1.0 million of marketable assets as collateral for the loan. The Company paid $3.5 million in April 2022, which fully extinguished the loan balance.

 

The Company also has borrowing capacity of $42.0 million, which is 25% of net admitted statutory assets of Illinois Casualty Company as of the prior year-end.

 

As part of the Company’s response to COVID-19, the Company obtained, in March 2020, a $6.0 million loan from the FHLBC as a precautionary measure to increase its cash position, to provide increased liquidity, and to compensate for potential reductions in premium receivable collections. The term of the loan is five years bearing interest at 1.40%. The Company pledged $6.8 million of fixed income securities as collateral for this loan.

 

In  May 2021, the Company entered into a $4.0 million, 0.74% fixed interest, five-year FHLBC loan.

 

A one year FHLBC loan for $5.0 million, 0% interest was entered into in May 2021. Upon maturity in May 2022, this loan rolled over to a $5.0 million, five-year, 1.36% fixed interest loan.

 

The Company has $18.8 million in bonds pledged as collateral for all FHLBC loans.

 

Revolving Line of Credit

 

We increased our revolving line of credit with a commercial bank from $2.0 million to $4.0 million in July 2022. This line of credit is priced at Prime plus 0.5% with a floor of 4.75% and renews annually with a current expiration date of July 2023. The Company pledged $4.0 million of business assets in the event the Company draws down on the line of credit. This agreement includes an annually calculated financial debt covenant requiring a minimum total adjusted capital of $21.0 million. Total adjusted capital is the sum of an insurer’s statutory capital and surplus as determined in accordance with the statutory accounting applicable to the annual financial statements required to be filed with Illinois Department of Insurance. As of September 30, 2022, our total adjusted capital is in excess of $55.0 million. There was no interest paid on the line of credit during the nine months ended September 30, 2022 and 2021.

 

 

5.

REINSURANCE

 

In the ordinary course of business, the Company assumes and cedes premiums and selected insured risks with other insurance companies, known as reinsurance. A large portion of the reinsurance is put into effect under contracts known as treaties and, in some instances, by negotiation on each individual risk (known as facultative reinsurance). In addition, there are several types of treaties including quota share, excess of loss and catastrophe reinsurance contracts that protect against losses over stipulated amounts arising from any one occurrence or event. The arrangements allow the Company to pursue greater diversification of business and serve to limit the maximum net loss to a single event, such as a catastrophe. Through the quantification of exposed policy limits in each region and the extensive use of computer-assisted modeling techniques, management monitors the concentration of risks exposed to catastrophic events.

 

Through the purchase of reinsurance, the Company also generally limits its net loss on any individual risk to a maximum of $1,000,000 for casualty and workers’ compensation business and $750,000 for property, although certain treaties contain an annual aggregate deductible before reinsurance applies.

 

- 17 -

 

Premiums, written and earned, along with losses and settlement expenses incurred for the periods presented is summarized as follows:

 

  

Three-Month Periods Ended September 30,

 
  

2022

  

2021

 

WRITTEN

        

Direct

 $20,900,412  $18,356,903 

Reinsurance assumed

  59,970   41,008 

Reinsurance ceded

  (2,550,345)  (2,812,181)

Net

 $18,410,037  $15,585,730 

EARNED

        

Direct

 $20,224,145  $16,839,315 

Reinsurance assumed

  54,569   37,998 

Reinsurance ceded

  (2,554,273)  (2,797,918)

Net

 $17,724,441  $14,079,395 

LOSS AND SETTLEMENT EXPENSES INCURRED

        

Direct

 $11,226,504  $11,186,326 

Reinsurance assumed

  20,590   16,452 

Reinsurance ceded

  (860,570)  (2,388,256)

Net

 $10,386,524  $8,814,522 

 

  

Nine-Month Periods Ended September 30,

 
  

2022

  

2021

 

WRITTEN

        

Direct

 $61,695,027  $52,045,372 

Reinsurance assumed

  129,328   34,661 

Reinsurance ceded

  (7,087,338)  (8,183,606)

Net

 $54,737,017  $43,896,427 

EARNED

        

Direct

 $57,720,789  $46,897,960 

Reinsurance assumed

  122,048   49,958 

Reinsurance ceded

  (7,077,077)  (8,087,003)

Net

 $50,765,760  $38,860,915 

LOSS AND SETTLEMENT EXPENSES INCURRED

        

Direct

 $39,364,381  $33,992,513 

Reinsurance assumed

  68,283   26,703 

Reinsurance ceded

  (5,042,334)  (8,737,708)

Net

 $34,390,330  $25,281,508 

 

- 18 -

 
 

6.

UNPAID LOSSES AND SETTLEMENT EXPENSES

 

The following table is a reconciliation of the Company’s unpaid losses and settlement expenses:

 

  

For the Three-Months Ended

 
  

September 30,

 

(In thousands)

 

2022

  

2021

 

Unpaid losses and settlement expense - beginning of the period:

        

Gross

 $70,381  $63,858 

Less: Ceded

  15,527   15,918 

Net

  54,854   47,940 

Increase in incurred losses and settlement expense:

        

Current year

  9,825   8,582 

Prior years

  562   233 

Total incurred

  10,387   8,815 

Deduct: Loss and settlement expense payments for claims incurred:

        

Current year

  5,758   5,384 

Prior years

  5,620   4,557 

Total paid

  11,378   9,941 

Net unpaid losses and settlement expense - end of the period

  53,862   46,815 

Plus: Reinsurance recoverable on unpaid losses

  14,768   14,476 

Gross unpaid losses and settlement expense - end of the period

 $68,630  $61,291 

 

  

For the Nine-Months Ended

 
  

September 30,

 

(In thousands)

 

2022

  

2021

 

Unpaid losses and settlement expense - beginning of the period:

        

Gross

 $61,835  $61,576 

Less: Ceded

  14,521   13,020 

Net

  47,314   48,556 

Increase in incurred losses and settlement expense:

        

Current year

  29,309   23,818 

Prior years

  5,081   1,464 

Total incurred

  34,390   25,282 

Deduct: Loss and settlement expense payments for claims incurred:

        

Current year

  11,752   10,195 

Prior years

  16,089   16,829 

Total paid

  27,841   27,024 

Net unpaid losses and settlement expense - end of the period

  53,862   46,815 

Plus: Reinsurance recoverable on unpaid losses

  14,768