10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 June 30, 2020

OR

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

For the transition period from to

Commission File Number: 001-38814

Positive Physicians Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)

Pennsylvania	83-0824448
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
100 Berwyn Park, Suite 220 850 Cassatt Road, Berwyn, PA	19312
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (888) 335-5335

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	PPHI	The Nasdaq Stock Market

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, 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  ☒

As of August 12, 2020, the registrant had 3,615,500 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements (Unaudited)	1
	Unaudited Consolidated Balance Sheets	1
	Unaudited Consolidated Statements of Operations	2
	Unaudited Consolidated Statements of Comprehensive Income	3
	Unaudited Consolidated Statements of Stockholders’ Equity	4
	Unaudited Consolidated Statements of Cash Flows	5
	Notes to Unaudited Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION	34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	35
Signatures		36

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Positive Physicians Holdings, Inc.

Consolidated Balance Sheets

	June 30, 2020		December 31, 2019
	(Unaudited)
Assets
Available-for-sale fixed maturity securities, at fair value	$	101,517,706	$	95,748,042
Equity securities, at fair value		260,915		7,756,966
Short-term investments, at fair value		249,988		1,169,472
Total investments		102,028,609		104,674,480
Cash and cash equivalents		22,867,591		20,988,081
Accrued investment income		671,412		699,087
Premiums receivable		6,590,480		7,383,876
Reinsurance recoverable		8,265,060		7,850,409
Income taxes recoverable		2,061,515		1,313,935
Unearned ceded premiums		1,923,151		1,181,345
Deferred acquisition costs		2,594,469		2,584,486
Deferred income taxes		207,071		891,584
Prepaid management fee		8,214,286		8,928,571
Other assets		276,808		124,507
Total assets	$	155,700,452	$	156,620,361
Liabilities and Stockholders' Equity
Liabilities
Losses and loss adjustment expenses	$	63,510,324	$	63,607,975
Unearned premiums		12,950,905		12,783,124
Reinsurance payable		2,926,238		1,961,653
Accounts payable, accrued expenses, and other liabilities		2,086,480		5,009,346
Note payable		32,690		64,858
Total liabilities		81,506,637		83,426,956
Stockholders' Equity
Common stock, $0.01 par value, 10,000,000 shares authorized;    3,615,500 shares issued and outstanding		36,155		36,155
Additional paid-in capital		49,492,203		49,421,081
Retained earnings		21,331,807		22,096,447
Accumulated other comprehensive income		3,333,650		1,639,722
Total stockholders' equity		74,193,815		73,193,405
Total liabilities and stockholders' equity	$	155,700,452	$	156,620,361

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

1

Positive Physicians Holdings, Inc.

Consolidated Statements of Operations

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues
Net premiums earned	$	4,699,722		$	5,327,994		$	9,384,432		$	10,819,201
Net investment income		648,546			766,247			1,414,843			1,394,503
Realized investment gains (losses), net		491,940			173,618			(1,472,481	)		1,025,269
Total revenues		5,840,208			6,267,859			9,326,794			13,238,973
Expenses
Losses and loss adjustment expenses, net		3,195,811			4,267,440			6,381,414			7,589,116
Other underwriting expenses		2,352,947			2,785,060			4,691,851			6,285,437
Interest expense		1,260			413			1,855			1,779
Total expenses		5,550,018			7,052,913			11,075,120			13,876,332
Income (loss) before provision for income taxes		290,190			(785,054	)		(1,748,326	)		(637,359	)
Provision for income taxes		(67,873	)		(224,107	)		(983,686	)		(168,201	)
Net income (loss)	$	358,063		$	(560,947	)	$	(764,640	)	$	(469,158	)
Income (loss) per common share
Common stock - basic	$	0.10		$	(0.16	)	$	(0.21	)	$	(0.13	)
Common stock - diluted	$	0.10		$	(0.16	)	$	(0.21	)	$	(0.13	)

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

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Positive Physicians Holdings, Inc.

Consolidated Statements of Comprehensive Income

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Net income (loss)	$	358,063		$	(560,947	)	$	(764,640	)	$	(469,158	)
Other comprehensive income, net of tax:
Unrealized gain on available-for-sale fixed maturity securities:
Unrealized holding gain during the period, net of income tax    expense of $938,368 and $277,179 for three months ended    June 30, 2020 and 2019 and $450,285 and $621,384 for six    months ended June 30, 2020 and 2019, respectively		3,533,937			1,042,739			1,736,858			2,309,331
Reclassification adjustments for (gains) losses included in net    income (loss), net of income tax (expense) benefit of $(1,033)    and $(6) for three months ended June 30, 2020 and 2019 and    $(11,412) and $7,509 for six months ended June 30, 2020 and    2019, respectively		(3,887	)		(22	)		(42,930	)		28,248
Other comprehensive income		3,530,050			1,042,717			1,693,928			2,337,579
Comprehensive income	$	3,888,113		$	481,770		$	929,288		$	1,868,421

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

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Positive Physicians Holdings, Inc.

Consolidated Statements of Stockholders’ Equity

	Three Months Ended June 30, 2020 (Unaudited)
	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance, April 1, 2020	$	36,155	$	49,468,496	$	20,973,744	$	(196,400	)	$	70,281,995
Stock based compensation expense		—		23,707		—		—			23,707
Net income		—		—		358,063		—			358,063
Other comprehensive income		—		—		—		3,530,050			3,530,050
Balance, June 30, 2020	$	36,155	$	49,492,203	$	21,331,807	$	3,333,650		$	74,193,815

	Six Months Ended June 30, 2020 (Unaudited)
	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Total Equity
Balance, January 1, 2020	$	36,155	$	49,421,081	$	22,096,447		$	1,639,722	$	73,193,405
Stock based compensation expense		—		71,122		—			—		71,122
Net loss		—		—		(764,640	)		—		(764,640	)
Other comprehensive income		—		—		—			1,693,928		1,693,928
Balance, June 30, 2020	$	36,155	$	49,492,203	$	21,331,807		$	3,333,650	$	74,193,815

	Three Months Ended June 30, 2019 (Unaudited)
	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)		Total Equity
Balance, April 1, 2019	$	36,155	$	49,463,760		$	22,427,187		$	64,846	$	71,991,948
Issuance of common stock		—		(42,679	)		—			—		(42,679	)
Net loss		—		—			(560,947	)		—		(560,947	)
Other comprehensive income		—		—			-			1,042,717		1,042,717
Balance, June 30, 2019	$	36,155	$	49,421,081		$	21,866,240		$	1,107,563	$	72,431,039

	Six Months Ended June 30, 2019 (Unaudited)
	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Equity
Balance, January 1, 2019	$	—	$	15,882,835	$	22,335,398		$	(1,230,016	)	$	36,988,217
Issuance of common stock		36,155		33,538,246		—			—			33,574,401
Net loss		—		—		(469,158	)		—			(469,158	)
Other comprehensive income		—		—		—			2,337,579			2,337,579
Balance, June 30, 2019	$	36,155	$	49,421,081	$	21,866,240		$	1,107,563		$	72,431,039

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

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Positive Physicians Holdings, Inc.

Consolidated Statements of Cash Flows

	Six Months Ended June 30,
	2020			2019
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net loss	$	(764,640	)	$	(469,158	)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Deferred income taxes		234,230			(168,927	)
Net realized (gain) loss on sales of investments		(49,364	)		179,944
Unrealized loss (gain) on equity securities and other investments		1,521,845			(1,205,213	)
Amortization of fixed maturity premiums		154,586			113,397
Depreciation and amortization expense		740,752			383,610
Stock based compensation expense		71,122			—
Changes in operating assets and liabilities:
Accrued investment income		27,675			(1,747	)
Premiums receivable		793,396			2,101,019
Reinsurance recoverable		(414,651	)		(1,684,074	)
Income taxes recoverable		(747,580	)		313
Unearned ceded premiums		(741,806	)		(991,017	)
Deferred acquisition costs		(9,983	)		326,736
Prepaid management fee		—			(10,000,000	)
Other assets		(178,769	)		(74,497	)
Losses and loss adjustment expenses		(97,651	)		(900,573	)
Unearned premiums		167,781			(448,072	)
Reinsurance payable		964,585			160,454
Accounts payable, accrued expenses, and other liabilities		(2,922,866	)		(1,689,520	)
Net cash flows used in operating activities		(1,251,338	)		(14,367,325	)
Cash flows from investing activities:
Proceeds from sales of fixed maturity securities		12,235,480			5,993,685
Proceeds from sales of equity securities and other investments		6,026,885			1,313,230
Purchases of fixed maturity securities		(15,686,197	)		(5,786,607	)
Purchases of equity securities		(332,624	)		(534,224	)
Net sales of short-term investments		919,472			300,000
Net cash flows provided by investing activities		3,163,016			1,286,084
Cash flows from financing activities
Proceeds from issuance of common stock		—			33,574,401
Payments of notes payable		(32,168	)		(30,937	)
Net cash flows (used in) provided by financing activities		(32,168	)		33,543,464
Net change in cash and cash equivalents		1,879,510			20,462,223
Cash and cash equivalents, at beginning of period		20,988,081			3,903,620
Cash and cash equivalents, at end of period	$	22,867,591		$	24,365,843
Cash paid during the period for interest	$	1,855		$	2,261

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

5

Positive Physicians Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

1. Organization

The accompanying unaudited consolidated financial statements include the accounts of Positive Physicians Holdings, Inc. and its wholly owned subsidiary (collectively referred to as the “Company”).  Positive Physicians Holdings, Inc. is a Pennsylvania domiciled holding company, which was incorporated on May 1, 2018 for the purpose of acquiring three Pennsylvania based reciprocal insurance exchanges: Positive Physicians Insurance Exchange (“PPIX”), Professional Casualty Association (“PCA”), and Physicians’ Insurance Program Exchange (“PIPE”). In connection with the completion of the Company’s initial public offering, PPIX, PCA, and PIPE converted from reciprocal insurance exchanges into stock insurance companies and were merged together to form Positive Physicians Insurance Company (“Positive Insurance Company”), a wholly owned subsidiary of the Company. The Company’s initial public offering and its acquisition of Positive Insurance Company were completed on March 27, 2019. Prior to that time, the Company had minimal assets and liabilities and had not engaged in any operations. References to the Company or Positive Insurance Company financial information in this Quarterly Report prior to the conversion and merger date is to the financial information of PPIX, PCA, and PIPE on a combined basis.  When used in this Quarterly Report, “we” and “our” mean PPIX, PCA, and PIPE prior to March 27, 2019, and Positive Insurance Company thereafter.

Positive Insurance Company

Positive Insurance Company writes medical malpractice insurance for healthcare providers practicing in Pennsylvania, New Jersey, Ohio, Delaware, Maryland, South Carolina, and Michigan.  Diversus Management, LLC (“Diversus Management”) manages and administers essentially all of the operations of Positive Insurance Company under the terms of a management agreement.  Diversus Management is a wholly owned subsidiary of Diversus, Inc. (“Diversus”).  Pursuant to the terms of the agreement, effective March 27, 2019, Diversus Management provides such administrative services to Positive Insurance Company in exchange for fees based upon a percentage of Positive Insurance Company’s gross written premiums, less return premiums.  Diversus Management may also earn quarterly performance management fees based on Positive Insurance Company’s combined ratio and net earned premiums.  Positive Insurance Company remains responsible for all underwriting decisions and the payment of all claims and claims related expenses incurred under policies issued by Positive Insurance Company and for all sales commissions paid to producers.

Products and Services

Positive Insurance Company underwrites medical professional liability coverage for physicians, their corporations, medical groups, clinics and allied healthcare providers.  Medical professional liability insurance (“MPLI”) protects physicians and other health care providers against liabilities arising from the rendering of, or failure to render, professional medical services.  We offer claims-made coverage, claims-made plus, and occurrence-based policies as well as tail coverage in Pennsylvania, New Jersey, Ohio, Delaware, Maryland, South Carolina, and Michigan.  Our policies include coverage for the cost of defending claims.  Claims-made policies provide coverage to the policyholder for claims reported during the period of coverage.  We offer extended reporting endorsements, or tails, to cover claims reported after the policy expires.  Occurrence-based policies provide coverage to the policyholders for all losses incurred during the policy coverage year regardless of when the claims are reported.  Although we generate a majority of our premiums from individual and small group practices, we also insure several major physician groups.

The Company accounts for its medical professional liability insurance business as a single reporting segment line of business.

Option Agreement

Upon completion of the conversions of PPIX, PCA, and PIPE and the securities offering on March 27, 2019, the Company and Diversus entered into an option agreement whereby either party has the option to cause Diversus, subject to shareholder approval, to merge with and become a wholly owned subsidiary of the Company.  Under the terms of the agreement, the option may be exercised by either the Company or Diversus at any time (1) during the period beginning 2 years after completion of the conversions of the exchanges and ending 54 months after the completion of the conversions, or (2) if earlier than 2 years after the completion of the conversions, then such date that the majority stockholder of the Company no longer has the right to appoint a majority of the board of directors of the Company.  In connection with any merger, the common stock shareholders of Diversus will receive either cash, common stock shares of the Company, or some combination thereof for their shares of Diversus’ common stock.  With respect to the preferred stock shares of Diversus, they will either be paid out in cash or converted into common stock shares of Diversus as if such preferred stock shares were converted into Diversus’ common stock shares immediately prior to the effective date of the merger.

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2. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Our consolidated financial statements include our accounts and those of our wholly owned subsidiary.  We have eliminated all inter-company accounts and transactions in consolidation.  

Positive Physicians Holdings, Inc. was formed on May 1, 2018.  Prior to the completion of the initial public offering, the Company, PPIX, PCA, and PIPE were under the common control of Diversus.  Additionally, prior to March 27, 2019, the Company did not engage in substantive pre-combination activities, and accordingly, is not considered the acquirer of the net assets of Positive Insurance Company.  The acquirer of these net assets is the majority stockholder of the Company.  Accordingly, the accompanying unaudited financial statements do not reflect any adjustments to fair value as might have been determined had the Company accounted for the acquisition of Positive Insurance Company’s net assets as a business combination.  

We recommend you read the interim consolidated financial statements we include in this Form 10-Q Report in conjunction with the financial statements and the notes to our financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.

3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and notes. Actual results could differ from these estimates and such differences could be material.  The Company’s principal estimates include the liability for losses and loss adjustment expenses, deferred acquisition costs, other-than-temporary impairments of investments, and valuation of deferred tax assets.

Cash and Cash Equivalents

The Company considers cash and cash equivalents to be cash on hand and depository bank accounts with original maturities of three months or less, are readily convertible to known amounts of cash, and present insignificant risk of changes in value due to changing interest rates.

Investments

Investments in fixed maturity securities are classified as available-for-sale and are stated at fair value. Unrealized holding gains and losses, net of related tax effects, on available-for-sale fixed maturity securities are recorded directly to accumulated other comprehensive income.  Investments in equity securities are stated at fair value and unrealized holding gains and losses are credited or charged to net income (loss) as incurred and are included in realized investment gains (losses), net in the accompanying consolidated statements of operations.

Realized gains and losses on sales of equity and fixed maturity securities are recognized into income based upon the specific identification method.  Interest and dividends are recognized as earned.  Short-term investments are considered to be short-term, highly liquid investments that are less than one year in term to the dates of maturity at the purchase dates, and they present insignificant risk of changes in value due to changing interest rates.

The Company regularly evaluates all of its investments based on current economic conditions, credit loss experience, and other specific developments.  If there is a decline in a security’s net realizable value that is other than temporary, it is considered as a realized loss and the cost basis in the security is reduced to its estimated fair value.

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A fixed maturity security is considered to be other-than-temporarily impaired when the security’s fair value is less than its amortized cost basis and 1) we intend to sell the security, 2) it is more likely than not that we will be required to sell the security before recovery of the security’s amortized cost basis, or 3) we believe we will be unable to recover the entire amortized cost basis of the security (i.e., credit loss has occurred).  Other-than-temporary-impairments (“OTTI”) of fixed maturity securities are separated into credit and noncredit-related amounts when there are credit-related losses associated with the impaired fixed maturity security for which management asserts that it does not have the intent to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis.  The amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other factors is recorded in other comprehensive income (loss).  A credit loss is determined by assessing whether the amortized cost basis of the security will be recovered, by comparing the present value of cash flows expected to be collected from the security, computed using original yield as the discount rate, to the amortized cost basis of the security.  The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered to be the “credit loss.”

Deferred Acquisition Costs

Certain direct acquisition costs consisting of commissions, premium taxes and certain other direct underwriting expenses that vary with and are primarily related to the successful production of business are deferred and amortized over the effective period of the related insurance policies as the underlying policy premiums are earned. The method followed in computing deferred acquisition costs limits the amount of deferred costs to their estimated realizable value, which gives effect to the premium to be earned, related investment income, losses and loss adjustment expenses, and certain other costs expected to be incurred as the premium is earned. Future changes in estimates, the most significant of which is expected losses and loss adjustment expenses, may require adjustments to deferred acquisition costs. If the estimation of net realizable value indicates that the deferred acquisition costs are not recoverable, then they would be written off.

Prepaid Management Fee

Prepaid management fee comprises costs incurred by the Company to execute a new management agreement with Diversus Management and is amortized on a straight-line basis over theseven-year useful life of the agreement.

Liability for Losses and Loss Adjustment Expenses

Liability for losses and loss adjustment expenses include an amount determined from individual case estimates and loss reports and an amount, based on prior experience, actuarial assumptions and management judgments for losses incurred but not reported. Such liabilities are necessarily based on assumptions and estimates, and while management believes the amount is adequate, the ultimate liability may be in excess of or less than the amounts provided. The methods for making such estimates for establishing the resulting liabilities are continually reviewed.  Estimating the ultimate cost of future losses and loss adjustment expenses is an uncertain and complex process.  This estimation process is based upon the assumption that past developments are an appropriate indicator of future events and involves a variety of actuarial techniques that analyze experience, trends, and other relevant factors.  The uncertainties involved with the reserving process include internal factors, such as changes in claims handling procedure, as well as external factors, such as economic trends and changes in the concepts of legal liability and damage awards.  Accordingly, final loss settlements may vary from the present estimates, particularly when those payments may not occur until well into the future.  Adjustments to previously established reserves are reflected in the operating results of the period in which the adjustment is determined to be necessary.  Such adjustments could possibly be significant, reflecting any variety of new and adverse or favorable trends.      

We also offer extended reporting coverage at no additional charge in the event of disability, death or retirement after a policyholder reaches the age of 55 and has been a mature-claims policyholder with Positive Insurance Company for at least one year.  An extended reporting endorsement policy reserve is required to assure that premiums are not earned prematurely.  This reserve is actuarially determined and the balance is included in unearned premiums in the consolidated balance sheets.

Reinsurance

The Company cedes insurance risk to other insurance companies. This arrangement allows us to minimize the net loss potential arising from large risks. Reinsurance contracts do not relieve the Company of its obligation to its policyholders. Reinsurance premiums, losses, and loss adjustment expenses are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contract.

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Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments, non-U.S. government bonds, premiums receivable, and balances recoverable from reinsurers.  Non-U.S. government bonds are diversified, and no one investment accounts for greater than 5% of our invested assets. Cash and cash equivalents are deposited with financial institutions with balances that fluctuate in excess of federally insured limits. If the financial institutions were not to honor their contractual liability to us, we could incur losses.  We are of the opinion that there is low risk because of the financial strength of the respective financial institutions.  We are also subject to concentrations of credit risk through short-term money market investments. The credit risk related to short-term money market investments is minimized by our investing in money market funds or repurchase agreements, both secured by U.S. government securities.  

No one insured accounted for over 10% of premiums receivable as of June 30, 2020 and December 31, 2019 or gross written premium for the three and six months ended June 30, 2020 and 2019.  We have reinsurance contracts with various reinsurers all of whom have A.M. Best ratings of A or better or have provided collateral to secure their obligations.  

Revenue Recognition

Premiums are earned on a daily pro rata basis over the terms of the insurance policies.  Unearned premium reserves are established to cover the unexpired portion of the policies in force less amounts ceded to reinsurers.  For consideration received for policies with effective dates subsequent to the reporting period, the Company records an advance premium liability in lieu of written premium.

Premiums associated with tails are generally earned as written, except for the afore-mentioned extended reporting coverage in the event of disability, death or retirement.  Other forms of tails, in which premiums are earned as written, include the following: 1) An insured who terminates a claims-made policy with their prior carrier, and who purchases tail coverage (extended reporting coverage) from their old carrier or obtains retroactive (prior-acts) coverage from a new carrier, or 2) Stand-alone tail coverage in which an insured is offered a tail policy by their prior carrier but seeks a competitive quote from a different carrier.  Both types of tail coverage insure against claims reported after the end of the original policy period for incidents that occurred while that policy was in effect.  

Comprehensive Income

Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale fixed maturity securities and unrealized losses related to factors other than credit on fixed maturity securities, are reported as a separate component in the equity section in the accompanying consolidated balance sheets. Such items, along with net income (loss), are components of comprehensive income, and are reflected in the accompanying consolidated statements of comprehensive income.  Reclassifications of realized gains and losses on sales of investments out of accumulated other comprehensive income are recorded in realized investment gains (losses), net in the accompanying consolidated statements of operations.

Income Taxes

The Company accounts for income taxes under the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements.  Under this method, deferred tax assets and liabilities are determined based on the differences between the consolidated financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized.  In making such determination, we consider all available positive and negative evidence, including future reversal of existing taxable temporary differences, tax planning strategies, projected future taxable income, and recent financial operations.

Prior to March 27, 2019, PPIX, PCA, and PIPE filed separate federal income tax returns.  The Company did not recognize any interest and penalties in the accompanying consolidated statements of operations for the three and six months ended June 30, 2020 and 2019.  PPIX, PCA, and PIPE remain subject to examination by the Internal Revenue Service for tax years 2016 through 2018 and the short stub period in 2019.  Beginning with the 2019 tax year, the Company will file a consolidated federal income tax return.

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4. Recent Accounting Pronouncements

As an emerging growth company, we have elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.  The following discussion includes effective dates for both public business entities and emerging growth companies, as well as whether specific guidance may be adopted early.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance that requires lessees to recognize leases, including operating leases, on the lessee’s balance sheet, unless a lease is considered a short-term lease.  This guidance also requires entities to make new judgments to identify leases.  The guidance was effective for annual and interim reporting periods beginning after December 15, 2018 and permitted early adoption.  The Company’s adoption of this guidance on January 1, 2019 did not have a significant impact on our financial condition, results of operations or cash flows.

Recently Issued Accounting Pronouncements

New accounting rules and disclosure requirements can impact the results and the comparability of the Company’s consolidated financial statements. The following recently issued accounting pronouncements are relevant to the Company’s consolidated financial statements:

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.  The amendments in this Update require a new topic to be added (Topic 326) to the Accounting Standards Codification ("ASC") and removes the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, off-balance-sheet credit exposures, and held-to-maturity securities.  Under current GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred.  The guidance under ASU 2016-13 will remove all current recognition thresholds and will require entities under the new current expected credit loss ("CECL") model to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument's contractual life.   The new CECL model is based upon expected losses rather than incurred losses.  Additionally, the credit loss recognition guidance for available-for-sale securities is amended and will require that credit losses on such debt securities should be recognized as an allowance for credit losses rather than a direct write-down of amortized cost balance.  The ASU was effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.  In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which extended the effective date of adopting ASU 2016-13.  Under ASU 2019-10, ASU 2016-13 will be effective for Public Business Entities that are filers with the Securities and Exchange Commission (“SEC”), excluding smaller reporting companies such as the Company, for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.  For all other entities, including smaller reporting companies like the Company, ASU 2016-13 will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.  For all entities, early adoption will continue to be permitted; that is, early adoption is allowed for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (that is, effective January 1, 2019, for calendar year-end companies).  The Company is currently a smaller reporting company, so the Company’s expected adoption date for ASU 2016-13 is January 1, 2023.  At this time, we are evaluating the potential impact of ASU 2016-13 in the Company’s consolidated financial statements.

5. Investments

The Company uses fair value measurements to record fair value adjustments to certain assets to determine fair value disclosures.  Fixed maturity available-for-sale securities and equity securities are recorded at fair value on a recurring basis.  FASB ASC Topic 820 “Fair Value Measurements and Disclosures” establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The three levels of the fair value hierarchy under ASC Topic 820 are as follows:

Level 1: Quoted (unadjusted) prices for identical assets in active markets.

Level 2: Other observable inputs, either directly or indirectly, including:

• Quoted prices for similar assets in active markets;

• Quoted prices for identical or similar assets in nonactive markets (few transactions, limited information, noncurrent prices, high variability over time, etc.);

• Inputs other than quoted prices that are observable for the asset (interest rates, yield curves, volatilities, default rates, etc.); and

• Inputs that are derived principally from or corroborated by other observable market data.

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Level 3: Unobservable inputs that cannot be corroborated by observable market data.

Under ASC Topic 820, we base fair values of assets on 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. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in FASB ASC Topic 820. Fair value measurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon our or other third-party’s estimates, are often calculated based on the characteristics of the asset, the economic and competitive environment and other such factors. Management uses its best judgment in estimating the fair value of financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts we could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period end and have not been re-evaluated or updated for purposes of the consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end. Additionally, changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future valuations.

We obtain one price for each security primarily from a third-party pricing service (“pricing service”), which generally uses quoted prices or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, non-binding broker quotes, benchmark yields, credit spreads, default rates, and prepayment speeds.

In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest-level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

Amortized cost/cost, gross unrealized gains, gross unrealized losses, and fair value of fixed maturity securities by major security type for the results at June 30, 2020 and December 31, 2019 are as follows:

	Amortized Cost/Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2020
U.S. government	$	11,359,661	$	205,497	$	18,101	$	11,547,057
States, territories, and possessions		1,088,928		59,450		—		1,148,378
Subdivisions of states, territories, and possessions		12,290,490		495,142		6,946		12,778,686
Industrial and miscellaneous		72,558,805		3,686,060		201,280		76,043,585
Total fixed maturity securities	$	97,297,884	$	4,446,149	$	226,327	$	101,517,706

	Amortized Cost/Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2019
U.S. government	$	10,689,829	$	100,223	$	38,490	$	10,751,562
States, territories, and possessions		1,096,638		46,385		—		1,143,023
Subdivisions of states, territories, and possessions		12,440,863		389,472		7,470		12,822,865
Industrial and miscellaneous		69,445,114		1,591,777		6,299		71,030,592
Total fixed maturity securities	$	93,672,444	$	2,127,857	$	52,259	$	95,748,042

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The table below sets forth the contractual maturity profile of our investments in fixed maturity securities at June 30, 2020 and December 31, 2019.  Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.

	June 30, 2020				December 31, 2019
	Amortized Cost/Cost		Fair Value		Amortized Cost/Cost		Fair Value
Due in less than one year	$	17,075,418	$	17,211,639	$	8,570,607	$	8,584,991
Due after one year to five years		58,599,281		61,398,223		59,713,323		60,844,219
Due after five years to ten years		21,091,272		22,320,449		24,656,702		25,539,400
Due after ten years		531,913		587,395		731,812		779,432
	$	97,297,884	$	101,517,706	$	93,672,444	$	95,748,042

Realized gains and losses are determined using the specific identification method. During the three and six months ended June 30, 2020 and 2019, proceeds from maturities and sales and gross realized gains and losses on securities and other investments are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Proceeds	$	10,748,023	$	2,329,834	$	18,262,365	$	7,306,915
Gross gains		771,306		41,207		823,155		59,898
Gross losses		516,504		186,205		773,791		239,842

The components of net realized investment gains (losses) for the three and six months ended June 30, 2020 and 2019 are as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020			2019
Gain (loss) on sales of fixed maturity securities	$	3,887	$	22		$	42,930		$	(28,248	)
Gain (loss) on sales of equity securities and other investments		250,915		(145,020	)		6,434			(151,696	)
Total gain (loss) on sales of investments		254,802		(144,998	)		49,364			(179,944	)
Unrealized gain (loss) on equity securities and other investments		237,138		318,616			(1,521,845	)		1,205,213
Total net realized investment gains (losses)	$	491,940	$	173,618		$	(1,472,481	)	$	1,025,269

The components of net investment income for the three and six months ended June 30, 2020 and 2019 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Fixed maturity securities	$	593,377	$	561,161	$	1,245,052	$	1,126,231
Cash and short-term investments		50,745		154,571		137,241		177,584
Equity securities		23,841		76,383		72,605		143,119
Other income		7,125		5,250		14,250		13,750
		675,088		797,365		1,469,148		1,460,684
Less investment expenses		26,542		31,118		54,305		66,181
Net investment income	$	648,546	$	766,247	$	1,414,843	$	1,394,503

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The following tables show fair value and gross unrealized losses of our fixed maturity investments with unrealized losses that are not deemed to be other-than temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2020 and December 31, 2019:

	Less than 12 months				12 months or longer				Total
Description of securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2020:
U.S. government	$	3,670,584	$	945	$	444,584	$	17,156	$	4,115,168	$	18,101
States, territories, and possessions		—		—		—		—		—		—
Subdivisions of states, territories, and possessions		—		—		68,379		6,946		68,379		6,946
Industrial and miscellaneous		4,947,932		201,280		—		—		4,947,932		201,280
Total fixed maturity securities	$	8,618,516	$	202,225	$	512,963	$	24,102	$	9,131,479	$	226,327

	Less than 12 months				12 months or longer				Total
Description of securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2019:
U.S. government	$	2,628,516	$	8,227	$	4,061,077	$	30,263	$	6,689,593	$	38,490
States, territories, and possessions		—		—		—		—		—		—
Subdivisions of states, territories, and possessions		—		—		93,000		7,470		93,000		7,470
Industrial and miscellaneous		4,773,607		5,934		350,922		365		5,124,529		6,299
Total fixed maturity securities	$	7,402,123	$	14,161	$	4,504,999	$	38,098	$	11,907,122	$	52,259

Fair values of interest rate sensitive instruments may be affected by increases and decreases in prevailing interest rates, which generally translate, respectively, into decreases and increases in fair values of fixed maturity investments. The fair values of interest rate sensitive instruments also may be affected by the credit worthiness of the issuer, prepayment options, relative values of other investments, the liquidity of the instrument, and other general market conditions.

We evaluated each security and took into account the severity and duration of the impairment, the current rating on the bond, and the outlook for the issuer according to independent analysts. We found that the declines in fair value are most likely attributable to increases in interest rates, and there is no evidence that the likelihood of not receiving all of the contractual cash flows as expected has changed. Our fixed maturity portfolio is managed by our investment committee in concert with an outside investment manager for investment grade bond investments. By agreement, the investment manager cannot sell any security without the consent of our investment committee if such sale will result in a net realized loss.

We monitor our investment portfolio and review securities that have experienced a decline in fair value below cost to evaluate whether the decline is other than temporary. When assessing whether the amortized cost basis of the security will be recovered, we compare the present value of the cash flows likely to be collected, based on an evaluation of all available information relevant to the collectability of the security, to the amortized cost basis of the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as the “credit loss.” If there is a credit loss, the impairment is considered to be other-than-temporary. If we identify that an other-than-temporary impairment loss has occurred, we then determine whether we intend to sell the security, or if it is more likely than not that we will be required to sell the security prior to recovering the amortized cost basis less any current-period credit losses. If we determine that we do not intend to sell, and it is more likely than not that we won’t be required to sell the security, then the amount of the impairment loss related to the credit loss will be recorded in earnings, and the remaining portion of the other-than-temporary impairment loss will be recognized in other comprehensive income (loss), net of tax. If we determine that we intend to sell the security, or that it is more likely than not that we will be required to sell the security prior to recovering its amortized cost basis less any current-period credit losses, then the full amount of the other-than-temporary impairment will be recognized in earnings.

For the six months ended June 30, 2020 and 2019, we determined that none of our fixed maturity securities were other-than-temporarily impaired. Adverse investment market conditions, or poor operating results of underlying investments, could result in impairment charges in the future.

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The table below presents the level within the fair value hierarchy generally utilized by us to estimate the fair value of assets disclosed on a recurring basis at June 30, 2020:

	Total		Level 1		Level 2		Level 3
U.S. government	$	11,547,057	$	—	$	11,547,057	$	—
States, territories, and possessions		1,148,378		—		1,148,378		—
Subdivisions of states, territories and possessions		12,778,686		—		12,778,686		—
Industrial and miscellaneous		76,043,585		—		76,043,585		—
Total fixed maturity securities		101,517,706		—		101,517,706		—
Equity securities		260,915		260,915		—		—
	$	101,778,621	$	260,915	$	101,517,706	$	—

The table below presents the level within the fair value hierarchy generally utilized by us to estimate the fair value of assets disclosed on a recurring basis at December 31, 2019:

	Total		Level 1		Level 2		Level 3
U.S. government	$	10,751,562	$	—	$	10,751,562	$	—
States, territories, and possessions		1,143,023		—		1,143,023		—
Subdivisions of states, territories and possessions		12,822,865		—		12,822,865		—
Industrial and miscellaneous		71,030,592		—		71,030,592		—
Total fixed maturity securities		95,748,042		—		95,748,042		—
Equity securities		7,756,966		7,756,966		—		—
	$	103,505,008	$	7,756,966	$	95,748,042	$	—

6. Deferred Acquisition Costs

The following table summarizes the movements in deferred acquisition costs for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Balance, beginning of period	$	2,968,462	$	4,690,104	$	2,584,486	$	3,985,193
Amount capitalized during the period		227,097		933,145		1,920,875		3,760,410
Amount amortized during the period		601,090		1,964,792		1,910,892		4,087,146
Balance, end of period	$	2,594,469	$	3,658,457	$	2,594,469	$	3,658,457

7. Reinsurance

Under the Company’s current reinsurance agreement, we retain a portion of our exposure and pay to the reinsurers a portion of the premiums received on all policies reinsured. Insurance policies written by us are reinsured with other insurance companies principally to:

• reduce net liability on individual risks and clash occurrences;

• mitigate the effect of individual loss occurrences;

• cover us against losses in excess of policy limits and extra contractual obligation claims;

• stabilize underwriting results; and

• increase our underwriting capacity.

Under Pennsylvania law, each insured must maintain MPLI of at least $1,000,000 for each claim and $3,000,000 of annual aggregate coverage. We provide primary insurance coverage up to $500,000 per claim and $1,500,000 of annual aggregate coverage. The Pennsylvania Medical Care Availability and Reduction of Error (“MCARE”) Fund provides coverage for any losses above $500,000 per claim up to $1,000,000. In cases where coverage under the Pennsylvania MCARE Fund does not apply, the primary insurance provides coverage up to $1,000,000 per claim and $3,000,000 of annual aggregate coverage. We retain the first $300,000 in loss on all Pennsylvania claims and reinsurance covers the excess up to $1,000,000 that is not covered by the Pennsylvania MCARE Fund.  We cede to reinsurers any Pennsylvania claims in excess of $1,000,000.

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Other states in which we write insurance require doctors to maintain certain minimum coverage and provide a fund that provides coverage for losses above a certain amount, but some states do not prescribe insurance requirements for doctors.

We offer primary coverage up to $1,000,000 for each claim and $3,000,000 of annual aggregate coverage in Delaware, Maryland, Michigan, Ohio, New Jersey, and South Carolina. We retain the first $300,000 in loss for claims from these states, and reinsurance covers the excess up to $1,000,000. If an insured in New Jersey requests, additional coverage of $1,000,000, each claim, each insured, each policy can be provided and is fully ceded to the reinsurer up to a maximum aggregate liability of $2,000,000 to the reinsurer per the term of the reinsurance agreement.  In South Carolina and Michigan, the insured can elect policy limits of $200,000 per claim and, on these claims, we retain the first $100,000 and the reinsurer covers the next $100,000.  

We also purchase additional reinsurance coverage for clash, losses in excess of policy limits and extra contractual obligation claims.

Our premiums under the current reinsurance agreement are based on a percentage of our earned premiums during the term of the agreement.  The agreement was renewed on April 1, 2020.

Reinsurance does not legally discharge the insurance company issuing the policy from primary liability for the full amount due under the reinsured policies. A primary factor in the selection of reinsurers from whom we purchase reinsurance is their financial strength. Our reinsurance arrangements are generally renegotiated annually. The insolvency or inability of any reinsurer to meet its obligations to us could have a material adverse effect on our results of operations or financial condition. Our reinsurance providers, the majority of whom are longstanding partners that understand our business, are all carefully selected with the help of our reinsurance broker. We monitor the solvency of reinsurers through regular review of their financial statements and, if available, their A.M. Best ratings. Hannover Re, our current reinsurance partner, has an “A+ (Superior)” rating from A.M. Best.  According to A.M. Best, companies with a rating of “A” or better “have an excellent ability to meet their ongoing obligations to policyholders.”

We generally do not assume risks from other insurance companies.  However, we could be required by statute to participate in guaranty funds, which are formed to pay claims on policies issued by insolvent property and casualty insurers domiciled in certain states, such as Pennsylvania.  This participation, where applicable, requires us to pay an annual assessment based on our premiums written and determined on a market share basis.  As of June 30, 2020, our participation was not material.

The effect of reinsurance on premiums written, amounts earned, and losses incurred for the three and six months ended June 30, 2020 and 2019 is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Premiums written:
Direct	$	3,515,340	$	3,783,325	$	11,233,852	$	11,980,842
Ceded		2,176,966		648,254		2,423,445		2,600,731
Premiums written, net of reinsurance	$	1,338,374	$	3,135,071	$	8,810,407	$	9,380,111
Premiums earned:
Direct	$	5,164,623	$	6,075,535	$	11,066,071	$	12,428,915
Ceded		464,901		747,541		1,681,639		1,609,714
Premiums earned, net of reinsurance	$	4,699,722	$	5,327,994	$	9,384,432	$	10,819,201
Losses and loss adjustment expenses incurred:
Direct	$	3,470,626	$	6,365,077	$	7,436,399	$	10,276,266
Ceded		274,815		2,097,637		1,054,985		2,687,150
Losses and loss adjustment expenses incurred,    net of reinsurance	$	3,195,811	$	4,267,440	$	6,381,414	$	7,589,116

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8. Losses and Loss Adjustment Expenses

At June 30, 2020, the Company estimated that its liability for unpaid losses and loss adjustment expenses (“LAE”) for all insurance policies and reinsurance contracts issued by its insurance business was $63,510,324.  This amount included estimated losses from claims plus estimated expenses to settle claims.  This estimate also included estimated amounts for losses occurring on or prior to June 30, 2020 that had not yet been reported to the Company.  At June 30, 2020, the Company also estimated that its reinsurance recoverable on unpaid claims was $7,424,458.

Management believes that its unpaid losses and LAE are fairly stated at June 30, 2020.  However, estimating the ultimate claims liability is necessarily a complex and judgmental process inasmuch as the amounts are based on management’s informed estimates, assumptions and judgments using data currently available.  As additional experience and data become available regarding claims payment and reporting patterns, legal and legislative developments, judicial theories of liability, changes in social attitudes and economic conditions, the estimates are revised accordingly.  Original estimates are also increased or decreased, as additional information becomes known regarding individual claims.  If the Company’s ultimate losses, net of reinsurance, prove to differ substantially from the amounts recorded at June 30, 2020, then the related adjustments could have a material adverse impact on the Company’s financial condition, results of operations and liquidity.

Positive Insurance Company uses a combination of the Actual versus Expected Method, Bornhuetter-Ferguson Method, Expected Loss Ratio Method, Frequency/Severity Method, and the Incurred Loss Development Method in order to estimate its liability for losses and LAE.  There were no significant changes in the methodologies and assumptions used to develop the liabilities for losses and LAE during the six months ended June 30, 2020.

9. Income Taxes

At June 30, 2020 and December 31, 2019, the Company had no unrecognized tax benefits, no accrued interest and penalties, and no significant uncertain tax positions.  No interest and penalties were recognized during the six months ended June 30, 2020 and 2019.

At June 30, 2020 and December 31, 2019, the Company had unused net operating loss (“NOL”) carryforwards of $1,133,600 and $3,600,298, respectively, which will begin to expire in 2038, if unused.  The Company’s remaining unused NOLs that were generated prior to the conversions and merger in 2019 are subject to limitations under Section 382 of the Internal Revenue Code and are limited in the amount that can be utilized in any one year. The Company’s NOL balance at June 30, 2020 primarily consists of taxable losses that were generated by the holding company in 2020.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law.  The CARES Act includes certain income tax-related law changes that have a material effect on the Company’s deferred income taxes.  The most significant effect on the Company’s deferred income taxes is due to changes in the federal net operating loss carryback provisions which allow the Company to carryback NOLs originating in 2018 and 2019 to prior tax years with corporate income tax rates of 34% (as opposed to forward to future tax years with corporate income tax rates of 21%).  As a result of this legislation, during the first six months of 2020, the Company significantly reduced its NOL balance by $2,969,550, or $623,606 tax-effected, and recorded additional federal income tax refunds of $1,205,964.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all the Company’s deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), tax planning strategies, and projected future taxable income in making this assessment.  At June 30, 2020 and December 31, 2019, management determined that it was more likely than not that all of the deferred tax assets will be realized by the Company in future years.  Accordingly, the Company did not record a valuation allowance against its deferred tax assets at June 30, 2020 and December 31, 2019.

10. Agreements with Diversus

Positive Insurance Company has a management agreement with Diversus Management, whereby Diversus Management provides administrative services to Positive Insurance Company in exchange for fees based on a percentage of Positive Insurance Company’s gross written premium, less return premium. Under the current agreement, which became effective March 27, 2019, Diversus Management earns management fees at 12%.  Diversus Management may also earn quarterly performance management fees based on Positive Insurance Company’s combined ratio and net earned premiums. No quarterly performance fees were payable under the terms of the agreement at June 30, 2020.    

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Management fees are recorded in other underwriting expenses in the consolidated statements of operations.  The Company incurred management fees for the respective periods as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Management fees	$	823,577	$	887,322	$	2,142,988	$	2,936,702

In connection with the execution of the existing management agreement with Diversus Management, the Company paid Diversus $10,000,000 to execute the agreement. Such payment is presented as prepaid management fee in the accompanying consolidated balance sheets and is amortized on a straight-line basis over a period of seven years.  For each of the three months ended June 30, 2020 and 2019, the Company incurred amortization expense of $357,143.  For the six months ended June 30, 2020 and 2019, the Company incurred amortization expense of $714,285 and $357,143, respectively.  These amounts are recorded in other underwriting expenses in the consolidated statements of operations and included as part of both the current and prior year amounts disclosed in the table above.

Positive Insurance Company has contracts with Gateway Risk Services, LLC and Andrews Outsource Solutions LLC, both of which are wholly owned subsidiaries of Diversus, under which those companies provide claims processing and risk management services. Fees incurred by Positive Insurance Company under these contracts are recorded in other underwriting expenses in the consolidated statements of operations as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Claims processing and risk management services	$	402,875	$	408,875	$	795,450	$	808,250

Additionally, the former attorney-in-fact of PCA earned commissions related to our gross written premium and other accounts.  Beginning March 27, 2019, these commissions were paid to Specialty Insurance Agency, LLC, a wholly owned subsidiary of Diversus. These commissions are recorded in other underwriting expenses in the consolidated statements of operations.  Positive Insurance Company incurred related commission expenses for the respective periods as follows:  

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Commissions	$	16,133	$	-	$	78,206	$	77,850

The Company and Diversus entered into a loan agreement dated March 27, 2019 to provide a $6,000,000 credit facility to Diversus for working capital purposes.  The Company terminated the loan agreement on May 19, 2020.  There was no outstanding balance on the credit facility prior to the termination of the loan agreement.

11. Common Stock

The Company is authorized to issue 10,000,000 shares of $0.01 par value common stock. In connection with the completion of the initial public offering on March 27, 2019, 3,615,500 shares of the Company’s common stock were issued. At June 30, 2020, 3,615,500 shares of common stock remain issued and outstanding.

On September 27, 2019, the Company granted its Chief Executive Officer options to purchase 216,930 shares of common stock at an exercise price of $12.01 per share, which was the closing sale price of the Company’s common stock on the date the options were granted. Of the total options, 108,465 shares will vest in equal monthly installments over a three-and-one-half year period following September 27, 2019, and the remaining 108,465 shares will vest upon the achievement by the Company of certain milestones.  All vested option shares shall be exercisable for eight years from the date of vesting.  The stock-based compensation expense recorded by the Company during the three and six months ended June 30, 2020 was $23,707 and $71,122, respectively.

The holding company has cash and other liquid assets aggregating $15,824,903 at June 30, 2020.  The holding company’s principal source of future liquidity will be dividend payments from Positive Insurance Company, which is restricted by the insurance laws and regulations of the Commonwealth of Pennsylvania as to the amount of dividends or other distributions it may pay to the Company.

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An order by the Pennsylvania Insurance Department approving the conversions of PPIX, PCA, and PIPE prohibits the declaration or payment of any dividend, return of capital, or other distribution by the Company to Insurance Capital Group, LLC and Enstar Holdings (US) LLC, the two principal stockholders of the Company, or any other shareholder without the prior approval of the Pennsylvania Insurance Department, for a period of three years following the effective date of the conversions.  Additionally, by the order of the Pennsylvania Insurance Department, Positive Insurance Company cannot pay a dividend to the Company for a period of three years following the effective date of the conversions without the approval of the Pennsylvania Insurance Department.

Prior to its payment of any dividend, Positive Insurance Company will be required to provide notice of the dividend to the Pennsylvania Insurance Department. This notice must be provided to the Pennsylvania Insurance Department 30 days prior to the payment of an extraordinary dividend and 10 days prior to the payment of an ordinary dividend. The Pennsylvania Insurance Department has the power to limit or prohibit dividends if Positive Insurance Company is in violation of any law or regulation.

12. Earnings Per Share

As discussed in Note 1, the conversions of PPIX, PCA, and PIPE to stock insurance companies and the simultaneous acquisition of these companies resulted in the issuance of the Company’s common stock as of March 27, 2019.  The basic weighted average number of common shares outstanding was 3,615,500 for the three and six months ended June 30, 2020 and 2019.  For the period prior to the date of the conversions, the net common shares issued in the initial public offering were assumed to be outstanding since January 1, 2019.

The following table presents a reconciliation of the numerators and denominators that were used in the basic and diluted per share computations for the Company’s common stock:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020			2019
Basic earnings per common share:
Numerator:
Net income (loss)	$	358,063	$	(560,947	)	$	(764,640	)	$	(469,158	)
Denominator:
Weighted average shares outstanding		3,615,500		3,615,500			3,615,500			3,615,500
Basic earnings per common share	$	0.10	$	(0.16	)	$	(0.21	)	$	(0.13	)
Diluted earnings per common share:
Numerator:
Net income (loss)	$	358,063	$	(560,947	)	$	(764,640	)	$	(469,158	)
Denominator:
Weighted average shares outstanding - basic		3,615,500		3,615,500			3,615,500			3,615,500
Add:  vested stock options		23,243		—			23,243			—
Number of shares used in diluted computation		3,638,743		3,615,500			3,638,743			3,615,500
Diluted earnings per common share	$	0.10	$	(0.16	)	$	(0.21	)	$	(0.13	)

13. COVID-19

The Company’s operations and business have experienced disruptions due to the conditions surrounding the COVID-19 pandemic spreading throughout the United States.  These disruptions include, but are not limited to, office closures and difficulties in maintaining operational continuance during remote operations required by illness, social quarantining, and work from home orders that were in force.  The Company’s management has devoted substantial time and attention to assessing the potential impact of COVID-19 and those events on the Company’s operations and financial position and developing operational and financial plans to address those matters.

As a result of the COVID-19 pandemic, the Company has seen premium decreases due to policy endorsements associated with doctors electing to work part time, take a leave of absence or retire.  In addition, some of our insureds have elected to temporarily change their areas of practice and/or specialties.  For example, a doctor may choose to drop from orthopedic surgery to office-only status due to the lack of elective surgeries.  The Company has received notification for such requests from our policyholders which went into effect on June 30, 2020 and necessary reimbursements or credits against future payments have been applied.  During the second quarter, the Company recorded approximately $160,000 in return premium adjustments, or reductions in direct premiums written, associated with these policy endorsements.

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In terms of collections, prior to the pandemic, the Company’s policy was to cancel any insurance policies for which premiums had not been received within 60 days subsequent to policy effective date, with notice of intent to cancel sent to the insured after 30 days post-inception date, or post-payment due date.  As a result of COVID-19, the Company has updated this policy and suspended cancellations of insurance contracts resulting from non-payment of premium and deferred payments until June 30, 2020 for invoices due after April 1, 2020.  Due to this change in policy, the Company recorded an allowance for uncollectible premium of approximately $150,000 at June 30, 2020 based on the aging of outstanding premiums receivable.

14. Subsequent Events

On August 1, 2020, the Company’s independent registered public accounting firm changed its name from Baker Tilly Virchow Krause, LLP to Baker Tilly US, LLP.

On May 18, 2020, the Company received a written notice from the Listing Qualifications Department of Nasdaq indicating that the Company is not in compliance with Listing Rule 5550(a)(4), due to the Company’s failure to meet the minimum 500,000 publicly held shares requirement for continued listing on the Nasdaq Capital Market.  On August 5, 2020, the Company filed with the SEC a Form 25, notification to voluntarily delist from the Nasdaq Capital Market, after announcing its intention on July 27, 2020 and that it anticipates that its common stock will be quoted on the OTCQX Best Market following the Nasdaq delisting.  The delisting will be effective August 17, 2020 at which time the Company’s stock will begin trading on the OTCQX Best Market.  The Company’s stock will continue to trade under the symbol, PPHI.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion is intended to provide a more comprehensive review of Positive Physicians Holdings, Inc. (“PPHI”) and its wholly owned subsidiary’s (collectively referred to as the “Company,” which also may be referred to as “we” or “us”) operating results and financial condition than can be obtained from reading the Financial Statements alone.  The discussion should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto included in “Part I. Item 1. Financial Statements” of the Company.  Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q constitutes forward-looking information that involves risk and uncertainties.  We also recommend you read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2019.

OVERVIEW

Positive Physicians Holdings, Inc. is a Pennsylvania domiciled holding company, which was incorporated on May 1, 2018 for the purpose of acquiring three Pennsylvania based reciprocal insurance exchanges: Positive Physicians Insurance Exchange (“PPIX”), Professional Casualty Association (“PCA”), and Physicians’ Insurance Program Exchange (“PIPE”).  In connection with the completion of PPHI’s initial public offering, PPIX, PCA, and PIPE converted from reciprocal insurance exchanges into stock insurance companies.  

As part of the conversions, on March 27, 2019, PPIX merged with and into PPIX Conversion Corp., PCA merged with and into PCA Conversion Corp., and PIPE merged with and into PIPE Conversion Corp.  Accordingly, PPIX, PCA, and PIPE no longer exist.  Immediately thereafter, PCA Conversion Corp. and PIPE Conversion Corp. merged with and into PPIX Conversion Corp., which then changed its name to Positive Physicians Insurance Company (“Positive Insurance Company”) and became our single insurance company subsidiary and successor to PPIX, PCA, and PIPE.  PPHI had minimal assets and liabilities and had not engaged in any operations prior to March 27, 2019.

Positive Insurance Company writes medical malpractice insurance for healthcare providers practicing in Pennsylvania, New Jersey, Ohio, Delaware, Maryland, South Carolina, and Michigan.  Diversus Management, LLC (“Diversus Management”) manages and administers essentially all of the operations of Positive Insurance Company under the terms of a management agreement.  Diversus Management is a wholly owned subsidiary of Diversus, Inc. (“Diversus”).  Pursuant to the terms of the agreement, effective March 27, 2019, Diversus Management provides such administrative services to Positive Insurance Company in exchange for fees based upon a percentage of Positive Insurance Company’s gross written premiums, less return premiums.  Diversus Management may also earn quarterly performance management fees based on Positive Insurance Company’s combined ratio and net earned premiums.  Positive Insurance Company remains responsible for all underwriting decisions and the payment of all claims and claims related expenses incurred under policies issued by Positive Insurance Company and for all sales commissions paid to producers.

Positive Insurance Company underwrites medical professional liability coverage for physicians, their corporations, medical groups, clinics and allied healthcare providers.  Medical professional liability insurance (“MPLI”) protects physicians and other health care providers against liabilities arising from the rendering of, or failure to render, professional medical services.  We offer claims-made coverage, claims-made plus, and occurrence-based policies as well as tail coverage in Pennsylvania, New Jersey, Ohio, Delaware, Maryland, South Carolina, and Michigan.  Our policies include coverage for the cost of defending claims.  Claims-made policies provide coverage to the policyholder for claims reported during the period of coverage.  We offer extended reporting endorsements, or tails, to cover claims reported after the policy expires.  Occurrence-based policies provide coverage to the policyholders for all losses incurred during the policy coverage year regardless of when the claims are reported.  Although we generate a majority of our premiums from individual and small group practices, we also insure several major physician groups.

Marketplace Conditions and Trends

The MPLI industry is affected by recurring industry cycles known as “hard” and “soft” markets.  A soft market is characterized by intense competition, resulting in lower pricing in order to compete for business.  A hard market, generally considered a beneficial industry trend, is characterized by reduced competition that results in higher pricing.  From approximately 2001 until approximately 2007, the Pennsylvania MPLI market experienced a hard market cycle.  This resulted in the creation of several alternative MPLI providers, such as PPIX, PCA, and PIPE.  

The MPLI market began to experience a soft market cycle around the second quarter of 2008, due primarily to the large rate increases taken over the previous six years.  The soft market continued and was facilitated by the restructuring of the healthcare industry, partially as a result of the Affordable Care Act.  This resulted in significant price competition, as the number of medical professionals practicing independent of hospitals or large professional groups began to decline.  According to a study prepared by the National Association of Insurance Commissioners, MPLI direct premiums written declined by 24.0% on a national basis from 2006 to 2018 and declined by 14.6% in Pennsylvania and 33.0% in New Jersey during this same time period.  This resulted in lower direct premiums written and lower operating profits for many MPLI carriers.

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The soft market cycle troughed in 2012, and since then, national loss payouts, on average, have steadily increased through 2019.  As a result, underwriting criteria in the MPLI industry has started to become more stringent, with opportunities for improved pricing, and we believe the market cycle has transitioned to a hard market.  At Positive Insurance Company, beginning in April 2020 our renewal book of business has begun to experience price increases of 2.5% through reduced credits, a development which we expect to continue and extend through our policy renewals in 2020.  We are also seeing rate increases take place by other carriers in many of the states in which we write business.

In addition to pricing increases, we intend to achieve further premium growth with our expansion into new states.  Positive Insurance Company was admitted into Texas in November 2019 and is currently in the process of obtaining approval on premium rates before we can begin writing business there.  We are also currently in the process of obtaining licenses to write business in the states of California, Florida and Georgia.

Effects of COVID-19

Our operations and business have experienced disruptions due to the conditions surrounding the COVID-19 pandemic spreading throughout the United States.  These disruptions include, but are not limited to, office closures and difficulties in maintaining operational continuance during remote operations required by illness, social quarantining, and work from home orders that were in force.  Our management has devoted substantial time and attention to assessing the potential impact of COVID-19 and those events on our operations and financial position and developing operational and financial plans to address those matters.

As a result of the COVID-19 pandemic, we have seen premium decreases due to policy endorsements associated with doctors electing to work part time, take a leave of absence or retire.  In addition, some of our insureds have elected to temporarily change their areas of practice and/or specialties.  For example, a doctor may choose to drop from orthopedic surgery to office-only status due to the lack of elective surgeries.  We have received notification for such requests from our policyholders which went into effect on June 30, 2020 and necessary reimbursements or credits against future payments have been applied.  During the second quarter, we recorded approximately $160,000 in return premium adjustments, or reductions in direct premiums written, associated with these policy endorsements.

In terms of collections, prior to the pandemic, our policy was to cancel any insurance policies for which premiums had not been received within 60 days subsequent to policy effective date, with notice of intent to cancel sent to the insured after 30 days post-inception date, or post-payment due date.  As a result of COVID-19, we have updated this policy and suspended cancellations of insurance contracts resulting from non-payment of premium and deferred payments until June 30, 2020 for invoices due after April 1, 2020.  The amount of premium payment deferrals is approximately $950,000.  Also, due to this change in policy, we recorded an allowance for uncollectible premium of approximately $150,000 at June 30, 2020 based on the aging of outstanding premiums receivable.  Dependent upon the extent to which our policyholders’ own businesses have been impacted by the pandemic, our collection of premiums against current in-force policies could be significantly impacted.

With respect to claims, our policyholder base mainly consists of physicians, their corporations and medical groups.  During the COVID-19 pandemic, on-site visits to doctors have declined and been replaced by an increase in telehealth/virtual office visits.  Since the COVID-19 pandemic resulted in government-issued work from home orders, although we have seen the number of new claims reported during the second quarter decline, it is unclear if this is from the closure of courts during this period of time or due to other factors.  In general, our expectation is that the frequency of new claims reported regarding medical rendered during this time period will decrease.  As to actual claims relating to COVID-19 exposures, we anticipate that the number of claims will be minimal.  Unless some unforeseen fact pattern is established, we expect that the difficulty of establishing the source of a COVID-19 exposure, as well as the heroic efforts of healthcare providers, will serve to make such claims unattractive to both patients and their counsel.  We do not anticipate our loss and LAE ratios to be impacted.  However, this view could change in the future depending on the duration of the pandemic and if the lower frequency of new claims reported becomes a trend.

Principal Revenue and Expense Items

Positive Insurance Company derives its revenue primarily from net premiums earned, net investment income, and net realized and unrealized gains (losses) from investments.

Net premiums earned

Gross premiums written is equal to direct and assumed premiums before the effect of ceded reinsurance.  Net premiums written is the difference between gross premiums written and premiums ceded or paid to reinsurers (ceded premiums written).

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Premiums earned are the earned portion of net premiums written.  Gross premiums written include all premiums recorded by an insurance company during a specified policy period.  Insurance premiums on MPLI policies are recognized in proportion to the underlying risk insured and are earned ratably over the duration of the policies.  At the end of each accounting period, the portion of the premiums that is not yet earned is included in unearned premiums and recognized as revenue in subsequent periods over the remaining term of the policy.  The policies written by Positive Insurance Company typically have a term of twelve months.  Thus, for example, for a policy that is written on July 1, 2020, one-half of the premiums would be earned in 2020 and the other half would be earned in 2021.

Net investment income and net realized and unrealized gains (losses) from investments

We invest our surplus and the funds supporting our insurance liabilities (including unearned premiums and unpaid loss and loss adjustment expenses) in cash, cash equivalents, short-term investments, and equity and debt securities.  Investment income includes interest and dividends earned.  We recognize realized gains when invested assets are sold for an amount greater than their cost or amortized cost (in the case of fixed maturity securities) and recognize realized losses when investment securities are written down as a result of other-than-temporary-impairment or sold for an amount less than their cost or amortized cost, as applicable.  Realized gains and losses on sales of fixed maturity and equity securities and other investments and unrealized holding gains and losses on equity securities and other investments are included in realized investment gains (losses), net.  Our portfolio of investment securities is managed by our outside investment manager, who has discretion to buy and sell securities in accordance with the investment policy approved by Positive Insurance Company’s Board of Directors.

Losses and loss adjustment expenses

Losses and loss adjustment expenses (“LAE”) represent the largest expense item and include: (1) claim payments made, (2) estimates for future claim payments and changes in those estimates for prior periods, and (3) costs associated with investigating, defending and adjusting claims, including legal fees.

Other underwriting expenses

Expenses incurred to underwrite risks include policy acquisition costs and underwriting and administrative expenses.  Policy acquisition costs consist of commission expenses, premium taxes, and certain other underwriting expenses that vary with and are primarily related to the writing and acquisition of new and renewal business.  These policy acquisition costs are deferred and amortized over the effective period of the related insurance policies.  Underwriting and administrative expenses consist of salaries, rent, office supplies, depreciation, and all other operating expenses not otherwise classified separately, and payments to bureaus and assessments of statistical agencies for policy service and administration items such as rating manuals, rating plans and experience data.

Income taxes

We use the asset and liability method of accounting for income taxes.  Deferred income taxes arise from the recognition of temporary differences between financial statement carrying amounts and the tax bases of our assets and liabilities.  A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized.  The effect of a change in tax rates is recognized in the period of the enactment date.

Key Financial Measures

We evaluate our insurance operations by monitoring certain key measures of growth and profitability.  Some of these measurements are “non-GAAP” financial measurements under Securities and Exchange Commission rules and regulations.  We utilize certain non-GAAP financial performance measures that are widely used in the property and casualty insurance industry and that we believe are valuable in managing our business and for comparison to our peers. These financial performance measures are the loss and LAE ratio, expense ratio, combined ratio, underwriting income (loss), and operating income (loss).  

We measure growth by monitoring changes in gross premiums written and net premiums written, and measure underwriting profitability by examining losses and LAE, underwriting expenses and combined ratios.  We also measure profitability by examining underwriting income (loss) and operating income (loss).

Loss and LAE ratio

The loss and LAE ratio is the ratio (expressed as a percentage) of losses and loss adjustment expenses incurred to premiums earned.  Positive Insurance Company measures the loss and LAE ratio on a policy year and calendar year loss basis to measure underwriting profitability.  A policy year loss and LAE ratio measures losses and loss adjustment expenses for insured events occurring in a particular year, regardless of when they are reported, as a percentage of premiums earned during that year.  A calendar year loss and LAE ratio measures losses and loss adjustment expenses for insured events occurring during a particular year and the change in loss reserves from prior policy years as a percentage of premiums earned during that year.

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Expense ratio

The expense ratio is the ratio (expressed as a percentage) of other underwriting expenses (attributable to insurance operations) to premiums earned, and measures our operational efficiency in producing, underwriting and administering the Company’s insurance business.

Combined ratio

The combined ratio is a measure of property and casualty underwriting performance.  The combined ratio computed on a GAAP basis is equal to the sum of losses and loss adjustment expenses and other underwriting expenses, all divided by net premiums earned.  If the combined ratio is below 100%, we are making an underwriting profit.  If our combined ratio is at or above 100%, we are not profitable without investment income and may not be profitable if investment income is insufficient.

Underwriting income (loss)

Underwriting income (loss) measures the pre-tax profitability of insurance operations.  It is derived by subtracting losses and loss adjustment expenses and other underwriting expenses from earned premiums.

Operating income (loss)

Operating income (loss) measures the profitability of business operations.  We define it as GAAP net income (loss) excluding net realized investment gains and losses, net of tax.  Net realized investment activity is excluded because net realized investment gains and losses are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business operations.  Operating income is a non-GAAP measure which is important for an understanding of our overall results of operations.  However, it does not replace net income (loss) as the GAAP measure of our consolidated results of operations, nor should it be viewed as a substitute for measures determined in accordance with GAAP.

RESULTS OF OPERATIONS

Our results of operations are influenced by factors affecting the MPLI industry, in general.  The operating results of the United States MPLI industry are subject to significant variations due to competition, changes in regulation, rising medical expenses, judicial trends, fluctuations in interest rates, and other changes in the investment environment.

Our premium levels and underwriting results have been, and continue to be, influenced by market conditions.  Pricing in the MPLI industry historically has been cyclical.  During a soft market cycle, price competition is more significant than during a hard market cycle which makes it difficult to attract and retain properly priced MPLI business.  As previously discussed, the markets in which we operate, and the national MPLI markets, were in a prolonged period of a soft market cycle.  However, we are seeing price increases with our policy renewals in 2020 and we believe the market is hardening.  Therefore, it is generally likely that insurers will be able to increase their rates or profit margins, as market conditions continue to improve.  A hard market typically has a positive effect on premium growth, which can include absolute increases in premiums written.

We reported net income of $358,063 for the second quarter of 2020, compared to a net loss of $560,947 for the second quarter of 2019.  The improvement for second quarter in 2020 is due to better underwriting results and additional realized investment gains.  For the first six months, we had net losses of $764,640 in the current year, compared to $469,158 in prior year.  The year-to-date results reflect realized investment losses in 2020, compared to gains in 2019, mainly due to fluctuations in the unrealized position on our equity securities, which was largely offset by improved underwriting results in 2020.

For the second quarter, operating losses were $30,570 in 2020, compared to $698,105 in 2019.  For the first six months, we had operating income of $398,620 in the current year, compared to an operating loss of $1,279,121 last year.  The increases in our operating results for both periods, compared to prior year, largely reflect improvement in our underwriting profitability.

Total revenues were $5,840,208 in the second quarter of 2020, compared to $6,267,859 for the same period last year.  Total revenues were $9,326,794 for the first six months of 2020, compared to $13,238,973 for the first half of 2019.  The decline in revenues during the first six months of 2020, compared to the first six months in 2019, primarily reflects unrealized losses on equity securities recognized in current year in contrast to unrealized gains recorded in prior year.  The decreases for both the second quarter and first six months of 2020, compared to the same periods in 2019, also reflect lower net premiums earned.

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The major components of consolidated revenues and pre-tax income (loss) for the three and six months ended June 30, 2020 and 2019 are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues:
Net premiums earned	$	4,699,722		$	5,327,994		$	9,384,432		$	10,819,201
Net investment income		648,546			766,247			1,414,843			1,394,503
Realized investment gains (losses), net		491,940			173,618			(1,472,481	)		1,025,269
Total revenues		5,840,208			6,267,859			9,326,794			13,238,973
Expenses:
Losses and loss adjustment expenses		3,195,811			4,267,440			6,381,414			7,589,116
Other underwriting expenses		2,352,947			2,785,060			4,691,851			6,285,437
Interest expense		1,260			413			1,855			1,779
Total expenses		5,550,018			7,052,913			11,075,120			13,876,332
Income (loss) before income taxes		290,190			(785,054	)		(1,748,326	)		(637,359	)
Income tax benefit		(67,873	)		(224,107	)		(983,686	)		(168,201	)
Net income (loss)	$	358,063		$	(560,947	)	$	(764,640	)	$	(469,158	)
Underwriting loss (1)	$	(223,400	)	$	(1,159,770	)	$	(502,598	)	$	(2,290,214	)
Operating income (loss)	$	(30,570	)	$	(698,105	)	$	398,620		$	(1,279,121	)

(1) Underwriting loss excludes holding company expenses of $625,600 and $564,700 for the three months ended June 30, 2020 and 2019, and $1,186,200 and $765,100 for the six months ended June 30, 2020 and 2019, respectively.

Premiums Written and Premiums Earned

The comparative changes in premiums written and premiums earned for the three months ended June 30, 2020 and 2019 are reflected in the table below.  

	Three Months Ended June 30,
	2020		2019		% Change
Premiums written:
Direct	$	3,515,340	$	3,783,325		-7.1	%
Ceded		2,176,966		648,254		235.8	%
Premiums written, net of reinsurance	$	1,338,374	$	3,135,071		-57.3	%
Premiums earned:
Direct	$	5,164,623	$	6,075,535		-15.0	%
Ceded		464,901		747,541		-37.8	%
Premiums earned, net of reinsurance	$	4,699,722	$	5,327,994		-11.8	%

The comparative changes in premiums written and premiums earned for the six months ended June 30, 2020 and 2019 are reflected in the table below.  

	Six Months Ended June 30,
	2020		2019		% Change
Premiums written:
Direct	$	11,233,852	$	11,980,842		-6.2	%
Ceded		2,423,445		2,600,731		-6.8	%
Premiums written, net of reinsurance	$	8,810,407	$	9,380,111		-6.1	%
Premiums earned:
Direct	$	11,066,071	$	12,428,915		-11.0	%
Ceded		1,681,639		1,609,714		4.5	%
Premiums earned, net of reinsurance	$	9,384,432	$	10,819,201		-13.3	%

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The decline in direct premiums written during the first six months of 2020, compared to the same period in 2019, is primarily due to the non-renewal of prior year policies which did not satisfy our underwriting criteria.  In addition, the decreases in both second quarter and first six months of 2020 were impacted by return premium adjustments associated with policy endorsements related to the COVID-19 pandemic.

Ceded premiums written significantly increased during the second quarter of 2020, compared to the second quarter last year, as our ceded premiums are written based on direct premiums earned during the term of our reinsurance agreement.  In 2020, our reinsurance agreement renewed on April 1^st, whereas in 2019, our reinsurance contract renewed on March 27^th.  As a result, the amount of direct premiums subject to our calculation of ceded premiums written was much greater during the second quarter of 2020.  The decrease in ceded premiums written during the first six months of 2020, compared to the same period in 2019, correlates with the decline in direct premiums written.

Net Investment Income

The following table sets forth our average cash and invested assets and investment income for the reported periods:

	Six Months Ended June 30,
	2020			2019
Average cash and invested assets	$	125,279,381		$	112,326,218
Net investment income		1,414,843			1,394,503
Annualized return on average cash and invested assets		2.26	%		2.48	%

Net investment income for the first six months of 2020 was $1,414,843, compared to $1,394,503 for the first six months of 2019.  The average monthly net investment income increased modestly from $232,000 during the first six months last year to $236,000 during the same period this year.  

The increase in net investment income primarily reflects the increase in our cash and invested asset positions, due to proceeds from the initial public offering stock issuance on March 27, 2019, partially offset by lower investment yields in the current year.

Realized Investment Gains (Losses), Net

Net realized investment gains (losses) for the three and six months ended June 30, 2020 and 2019 are as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020			2019
Total gain (loss) on sales of investments	$	254,802	$	(144,998	)	$	49,364		$	(179,944	)
Unrealized gain (loss) on equity securities and other investments		237,138		318,616			(1,521,845	)		1,205,213
Total net realized investment gains (losses)	$	491,940	$	173,618		$	(1,472,481	)	$	1,025,269

The unrealized loss on equity securities during the first six months of 2020 primarily reflects the market volatility associated with the COVID-19 pandemic.  During the second quarter, we sold the majority of these equity holdings for a modest net realized gain following a partial recovery in corresponding fair values.  Our fixed maturity investments are available-for-sale because we may, from time to time, make sales of securities that are not impaired, consistent with our investment goals and policies.

Losses and Loss Adjustment Expenses

The components of the GAAP combined ratios were as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Loss and LAE ratio		68.0	%		80.1	%		68.0	%		70.1	%
Expense ratio (1)		36.8	%		41.7	%		37.4	%		51.0	%
Combined ratio		104.8	%		121.8	%		105.4	%		121.1	%

(1) Expense ratio excludes holding company expenses of $625,600 and $564,700 for the three months ended June 30, 2020 and 2019, and $1,186,200 and $765,100 for the six months ended June 30, 2020 and 2019, respectively.

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The decrease in the loss and LAE ratios for the second quarter and first six months of 2020, compared to the same periods in 2019, primarily reflectsa lower loss and LAE estimate for the current policy year.  

The MPLI line of business is prone to variability in the loss reserving process due to the extended period of time during which claims can be made and the subsequent time required to settle those claims.  Adjustments to our original estimates resulting from claims are not made until the period in which there is reasonable evidence that an adjustment to the reserve is appropriate.

Other Underwriting Expenses

Other underwriting expenses, including changes in deferred acquisition costs, decreased to $2,352,947 for the second quarter of 2020, compared to $2,785,060 for the second quarter of 2019, and decreased to $4,691,851 during the first six months of 2020, compared to $6,285,437 for the same period in 2019.  Positive Insurance Company pays a management fee to Diversus Management which is equal to a percentage of premiums written.  This percentage was reduced from 25% to 12%, effective March 27, 2019.  Positive Insurance Company also incurred $371,000 in initial public offering and conversion costs during the first half of 2019, mainly in the first quarter, which are included in other underwriting expenses.  These expense reductions during the first six months of 2020 were partially offset by the amortization of the prepaid management fee which was not incurred in the first quarter last year.  

The decrease in other underwriting expenses on a quarter-to-date basis is primarily due to a lower amortization of deferred acquisition costs in the current year, which reflects the prior year reduction in the management fee percentage noted above.  

Income Tax Expense (Benefit)

The provision for income taxes for the three and six months ended June 30, 2020 resulted in income tax benefits of $67,873 and $983,686, respectively, compared to income tax benefits of $224,107 and $168,201 for the same periods in 2019.  The Company’s effective tax rate for both years was 21%.  

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law.  The CARES Act includes certain income tax-related law changes that have a material effect on our deferred income taxes.  The most significant effect on our deferred income taxes is due to changes in the federal net operating loss (“NOL”) carryback provisions which allow us to carryback NOLs originating in 2018 and 2019 to prior tax years with corporate income tax rates of 34% (as opposed to forward to future tax years with corporate income tax rates of 21%).  As a result of this legislation, during the first six months of 2020, we significantly reduced our NOL balance by $2,969,550, or $623,606 tax-effected, and recorded additional federal income tax refunds of $1,205,964, which resulted in an income tax benefit of $582,358.

Loss Reserves

The following tables provide case and incurred-but-not-reported reserves of Positive Insurance Company’s losses and loss adjustment expenses as of June 30, 2020 and December 31, 2019.

As of June 30, 2020

	Case Reserves		IBNR Reserves		Total Reserves
Medical professional liability	$	34,648,805	$	21,437,061	$	56,085,866
Total net reserves		34,648,805		21,437,061		56,085,866
Reinsurance recoverables on unpaid claims		2,498,603		4,925,855		7,424,458
Gross reserves	$	37,147,408	$	26,362,916	$	63,510,324

As of December 31, 2019

	Case Reserves		IBNR Reserves		Total Reserves
Medical professional liability	$	30,126,567	$	25,966,273	$	56,092,840
Total net reserves		30,126,567		25,966,273		56,092,840
Reinsurance recoverables on unpaid claims		1,894,670		5,620,465		7,515,135
Gross reserves	$	32,021,237	$	31,586,738	$	63,607,975

The estimation of Positive Insurance Company’s reserves is based on several actuarial methods, each of which incorporates many quantitative assumptions.  The judgment of the independent actuary plays an important role in selecting among various loss development factors and selecting the appropriate method, or combination of methods, to use for a given policy year.  

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of an entity’s ability to secure sufficient cash to meet its contractual obligations and operating needs.  Our insurance operations generate cash by writing policies and collecting premiums.  The cash generated is used to pay losses and LAE as well as other underwriting expenses.  Any excess cash is invested and earns investment income.  

We maintain investment and reinsurance programs that are intended to provide sufficient funds to meet our obligations without forced sales of investments.  As such, our investment portfolio contains a high degree of liquidity, with relatively short-term and highly liquid assets, to ensure the availability of funds and to meet the demands of claim settlements and operating expenses. We also have an Investment Committee which meets regularly to discuss cash flow projections and our short-term cash needs as well as asset allocation within our investment portfolio.

Furthermore, liquidity requirements are met primarily through operating cash flows and by maintaining a portfolio with maturities that reflect our estimates of future cash flow requirements.  Our investment strategy includes setting guidelines for asset quality standards, allocating assets among investment types and issuers, and other relevant criteria for our portfolio.  In addition, invested asset cash flows, which include both current interest income received and investment maturities, are structured to consider projected liability cash flows of loss reserve payouts that are based on actuarial models.  Property and casualty claim demands are somewhat unpredictable in nature and require liquidity from the underlying invested assets.  Our invested assets are structured to emphasize current investment income while maintaining appropriate portfolio quality and diversity.

Cash flows for the six months ended June 30, 2020 and 2019 were as follows:

	Six Months Ended June 30,
	2020			2019
Cash flows used in operating activities	$	(1,251,338	)	$	(14,367,325	)
Cash flows provided by investing activities		3,163,016			1,286,084
Cash flows (used in) provided by financing activities		(32,168	)		33,543,464
Net increase in cash and cash equivalents	$	1,879,510		$	20,462,223

Cash flows from operating activities improved during the first six months of 2020, compared to prior year, primarily attributable to the payment of the $10,000,000 prepaid management fee to Diversus in 2019.  Cash flows from investing activities increased in the first six months of 2020, compared to prior year, mainly due to additional sales of equity securities in the current year.  The decrease in cash flows from financing activities in 2020 reflects proceeds of $33,574,401 received from the initial public offering stock issuance in March 2019.

At the holding company level, our primary sources of liquidity are dividends and tax payments received from Positive Insurance Company and capital raising activities.  We utilize cash to pay debt obligations, taxes to the federal government, and corporate expenses.  At June 30, 2020, we had $15,824,903 of cash and short-term investments at our holding company which we believe, combined with our other capital sources, will continue to provide us with sufficient funds to meet our foreseeable ongoing expenses and other obligations.

Our insurance subsidiary, Positive Insurance Company, is restricted by the insurance laws and regulations of the Commonwealth of Pennsylvania as to the amount of dividends or other distributions it may pay to the holding company.  In considering future dividend policy, Positive Insurance Company will consider, among other things, applicable regulatory constraints.  At June 30, 2020, Positive Insurance Company had statutory surplus of $39,027,224.  

An order by the Pennsylvania Insurance Department approving the conversions of PPIX, PCA, and PIPE prohibits the declaration or payment of any dividend, return of capital, or other distribution by PPHI to Insurance Capital Group, LLC and Enstar Holdings (US) LLC, the two principal stockholders of PPHI, or any other shareholder without the prior approval of the Pennsylvania Insurance Department, for a period of three years following the effective date of the conversions.  Additionally, by the order of the Pennsylvania Insurance Department, Positive Insurance Company cannot pay a dividend to PPHI for a period of three years following the effective date of the conversions without the approval of the Pennsylvania Insurance Department.

Prior to its payment of any dividend, Positive Insurance Company will be required to provide notice of the dividend to the Pennsylvania Insurance Department.  This notice must be provided to the Pennsylvania Insurance Department 30 days prior to the payment of an extraordinary dividend and 10 days prior to the payment of an ordinary dividend.  The Pennsylvania Insurance Department has the power to limit or prohibit dividends if Positive Insurance Company is in violation of any law or regulation.  These restrictions or any subsequently imposed restrictions may affect our future liquidity.

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Off-Balance Sheet Arrangements

The Company had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital reserves.

INVESTMENTS

Our investment portfolio is invested primarily in publicly traded, investment grade, fixed maturity securities with an average credit quality of A as rated by nationally recognized credit rating agencies.  The portfolio is externally managed by independent, professional investment managers and is broadly diversified across sectors and issuers.  Exposures are aggregated, monitored, and actively managed by our Investment Committee.  We also have an investment policy statement which requires managers to maintain highly diversified exposures to individual issuers and closely monitor compliance with portfolio guidelines.  

We have structured our investment portfolio to provide an appropriate matching of maturities with anticipated claims payments.  The fair values of these investments are subject to fluctuation in interest rates.  If we decide or are required in the future to sell securities in a rising interest rate environment, then we would expect to incur losses from such sales.  As of June 30, 2020, the average duration of our fixed maturity security investments that support the insurance reserves was approximately was 2.7 years, while the duration of our insurance reserves was slightly lower, reflecting our decision to maintain longer asset duration in order to enhance overall yield, while maintaining a high overall credit quality.  We estimate that a 100 basis points (bps) increase in interest rates would reduce the valuation of our fixed maturity portfolio by $3,622,658 at June 30, 2020.  

The following table shows the fair value and amortized cost/cost of our available-for-sale fixed maturity and equity securities:

	June 30, 2020				December 31, 2019
	Fair Value		Amortized Cost/Cost		Fair Value		Amortized Cost/Cost
U.S. government	$	11,547,057	$	11,359,661	$	10,751,562	$	10,689,829
States, territories, and possessions		1,148,378		1,088,928		1,143,023		1,096,638
Subdivisions of states, territories, and possessions		12,778,686		12,290,490		12,822,865		12,440,863
Industrial and miscellaneous		76,043,585		72,558,805		71,030,592		69,445,114
Total fixed maturity securities		101,517,706		97,297,884		95,748,042		93,672,444
Equity securities		260,915		628,256		7,756,966		6,602,462
	$	101,778,621	$	97,926,140	$	103,505,008	$	100,274,906

The fair value of our investment portfolio increased during the second quarter of 2020, primarily due to unrealized appreciation in our fixed maturity securities, mainly corporate bonds, which resulted from declining interest rates.  We also sold the majority of our equity securities during the second quarter for a modest net realized gain in order to de-risk our consolidated balance sheet.  The total net unrealized gain on our investment portfolio at June 30, 2020 was $3,852,481, or nearly 4% of the amortized cost or cost basis, compared to an overall net unrealized gain of $3,230,102 at December 31, 2019.  

Year-to-date movements in the unrealized gain (loss) position of our fixed maturity and equity securities are as follows:

	June 30, 2020			December 31, 2019			YTD Change
Fixed maturity securities:
Unrealized gains	$	4,446,149		$	2,127,857		$	2,318,292
Unrealized losses		(226,327	)		(52,259	)		(174,068	)
Net fixed maturity securities unrealized gains		4,219,822			2,075,598			2,144,224
Equity securities:
Unrealized gains		—			1,493,581			(1,493,581	)
Unrealized losses		(367,341	)		(339,077	)		(28,264	)
Net equity securities unrealized (losses) gains		(367,341	)		1,154,504			(1,521,845	)
Net unrealized gain	$	3,852,481		$	3,230,102		$	622,379

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For our fixed maturity securities that were temporarily impaired at June 30, 2020 and December 31, 2019, the length of time that such securities were in an unrealized loss position, as measured by their month-end fair value, are as follows:

	Less than 12 months				12 months or longer				Total
Description of securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2020:
U.S. government	$	3,670,584	$	945	$	444,584	$	17,156	$	4,115,168	$	18,101
States, territories, and possessions		—		—		—		—		—		—
Subdivisions of states, territories, and possessions		—		—		68,379		6,946		68,379		6,946
Industrial and miscellaneous		4,947,932		201,280		—		—		4,947,932		201,280
Total fixed maturity securities	$	8,618,516	$	202,225	$	512,963	$	24,102	$	9,131,479	$	226,327

	Less than 12 months				12 months or longer				Total
Description of securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2019:
U.S. government	$	2,628,516	$	8,227	$	4,061,077	$	30,263	$	6,689,593	$	38,490
States, territories, and possessions		—		—		—		—		—		—
Subdivisions of states, territories, and possessions		—		—		93,000		7,470		93,000		7,470
Industrial and miscellaneous		4,773,607		5,934		350,922		365		5,124,529		6,299
Total fixed maturity securities	$	7,402,123	$	14,161	$	4,504,999	$	38,098	$	11,907,122	$	52,259

At June 30, 2020, we had gross unrealized losses on fixed maturity securities of $226,327, compared to gross unrealized losses on fixed maturity securities of $52,259 at December 31, 2019.  The increase in gross unrealized losses during the first six months of 2020 was attributable to increases in interest rates, mainly associated with our holdings in certain corporate bonds.  We have not observed any evidence which would lead us to believe that the entire amortized cost basis will not be recovered.

OTHER MATTERS

Comparison of SAP and GAAP Results

Results presented in accordance with GAAP vary in certain respects from results presented in accordance with statutory accounting practices prescribed or permitted by the Pennsylvania Insurance Department (collectively “SAP”).  Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of National Association of Insurance Commissioners publications.  Permitted SAP encompasses all accounting practices that are not prescribed.  Our domestic insurance subsidiary uses SAP to prepare various financial reports for use by insurance regulators.

Recent Accounting Guidance

Refer to Note 4 to the Unaudited Consolidated Financial Statements for information regarding recent accounting guidance.

Critical Accounting Policies

As of June 30, 2020, there were no material changes to our critical accounting estimates.  For a full discussion of our critical accounting estimates, refer to Item 7 in our 2019 Form 10-K.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 with respect to the Company’s business, financial condition and results of operations and the plans and objectives of its management.  Forward-looking statements can generally be identified by use of forward-looking terminology such as “may,” “will,” “plan,” “expect,” “intend,” “anticipate,” and “believe.”  These forward-looking statements may include estimates, assumptions or projections and are based on currently available financial, industry, competitive and economic data and our current operating plans.  All forward-looking statements are subject to risks and uncertainties, including risks regarding the effects and duration of the COVID-19 pandemic, that could cause actual results to differ materially from those expressed or implied by the forward-looking statements.

The effect of the COVID-19 pandemic on our operations could have a material adverse effect on our business, financial condition, results of operations, or cash flows.  The World Health Organization has declared the outbreak of COVID-19, which began in December 2019, a pandemic and the U.S. federal government has declared it a national emergency. Our business and operations could be materially and adversely affected by the effects of COVID-19. The global spread of COVID-19 has already created significant volatility, uncertainty and economic disruption in the markets in which we operate. Governments, public institutions, and other organizations in countries and localities where cases of COVID-19 have been detected are taking certain emergency measures to mitigate its spread, including implementing travel restrictions and closing factories, schools, public buildings, and businesses. While the full impact of this outbreak is not yet known, we are closely monitoring the spread of COVID-19 and continually assessing its potential effects on our business.

As a result of the restrictions put in place to address COVID-19 and the related economic downturn, the Company has experienced business disruptions including, but not limited to, office closures and difficulties in maintaining operational continuance during remote operations required by illness, social quarantining, and work from home orders that were in force.  The extent to which our results continue to be affected by COVID-19 will largely depend on future developments which cannot be accurately predicted, including the duration and scope of the pandemic, governmental and business responses to the pandemic and the impact on the global economy.  While these factors are uncertain, the COVID-19 pandemic or the perception of its effects could continue to have a material adverse effect on our business, financial condition, results of operations, or cash flows.

Other factors that could cause actual results to differ materially from those in the forward-looking statements, include, but are not limited to:

• the potential impact of fraud, operational errors, system malfunctions, or cybersecurity incidents;

• financial market conditions, including, but not limited to, changes in interest rates and the stock markets causing a reduction of investment income or investment gains and reduction in the value of our investment portfolio;

• future economic conditions in the market in which we compete that are less favorable than expected;

• the effect of legislative, judicial, economic, demographic, and regulatory events in the jurisdictions where we do business;

• our ability to successfully implement steps to optimize the business portfolio, ensure capital efficiency, and enhance investment returns;

• the risks associated with the management of capital on behalf of investors;

• our ability to enter new markets successfully and capitalize on growth opportunities either through acquisitions or the expansion of our producer network;

• the success with which our brokers sell our products and our ability to collect payments from our insureds;

• heightened competition, including specifically the intensification of price competition, the entry of new competitors and the development of new products by new or existing competitors, resulting in a reduction in the demand for our products;

• our concentration in medical professional liability insurance, which makes us particularly susceptible to adverse changes in that industry segment;

• changes in general economic conditions, including inflation, unemployment, interest rates and other factors;

• estimates and adequacy of loss reserves and trends in loss and loss adjustment expenses;

• changes in the coverage terms required by state laws, including higher limits;

• our inability to obtain regulatory approval of, or to implement, premium rate increases;

30

• inadequacy of premiums we charge to compensate us for our losses incurred;

• the effectiveness of our risk management loss limitation methods;

• our ability to obtain reinsurance coverage at reasonable prices or on terms that adequately protect us and to collect amounts that we believe we are entitled to under such reinsurance;

• our ability to attract and retain qualified management personnel;

• dependence upon our relationship with Diversus Management, LLC and the management fee under our agreement with them;

• the potential impact on our reported net income (loss) that could result from the adoption of future accounting standards issued by the Financial Accounting Standards Board or other standard-setting bodies;

• unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations;

• statutory requirements that limit our ability to receive dividends from our insurance subsidiary;

• the impact of future results on the recoverability of our deferred tax asset;

• adverse litigation or arbitration results; and

• adverse changes in applicable laws, regulations or rules governing insurance holding companies and insurance companies, including tax or accounting matters, limitations on premium levels, increases in minimum capital and reserves, other financial viability requirements, and changes that affect the cost of, or demand for, our products.

You should not place undue reliance on any forward-looking statements that we make.  All forward-looking statements made in this Form 10-Q reflect our views on the date of this report.  Forward-looking statements are not generally required to be publicly revised as circumstances change and we do not intend to update the forward-looking statements in this Form 10-Q to reflect circumstances after the date of this report or to reflect the occurrence of unanticipated events.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

Market risk is the risk that a company will incur losses due to adverse changes in the fair value of financial instruments. We have exposure to three principal types of market risk through our investment activities: interest rate risk, credit risk and equity risk. Our primary market risk exposure is changes in interest rates. We have not entered, and do not plan to enter, into any derivative financial instruments for hedging, trading or speculative purposes.

Interest Rate Risk

Interest rate risk is the risk that a company will incur economic losses due to adverse changes in interest rates. Our exposure to interest rate changes primarily results from our significant holdings of fixed rate investments. Fluctuations in interest rates have a direct impact on the fair value of these securities.

Our fixed maturity investments include U.S. government bonds, securities issued by government agencies, obligations of state and local governments and governmental authorities, and corporate bonds, most of which are exposed to changes in prevailing interest rates and which may experience moderate fluctuations in fair value resulting from changes in interest rates. We hold these investments as available for sale. This allows us to manage our exposure to risks associated with interest rate fluctuations through active review of our investment portfolio by management, our investment adviser and our board of directors.

Fluctuations in near-term interest rates could impact our results of operations and operating cash flows. Certain of these securities may have call features. In a declining interest rate environment, these securities may be called by their issuer and replaced with securities bearing lower interest rates. If we are required to sell these securities in a rising interest rate environment, then we may recognize losses.

As a general matter, we attempt to match the durations of our assets with the durations of our liabilities. Our investment objectives include maintaining adequate liquidity to meet our operational needs and optimizing our after-tax investment income and our after-tax total return, all of which are subject to our tolerance for risk.

The table below shows the interest rate sensitivity on our fixed maturity investments measured in terms of fair value (which is equal to the carrying value for all of our investment securities that are subject to interest rate changes) at June 30, 2020:

Hypothetical Change in	Estimated Change			Fair
Interest Rates	in Fair Value			Value
200 basis point increase	$	(7,251,410	)	$	94,266,296
100 basis point increase		(3,622,658	)		97,895,048
No change					101,517,706
100 basis point decrease		3,603,879			105,121,585
200 basis point decrease		7,232,121			108,749,827

Credit Risk

Credit risk is the potential economic loss principally arising from adverse changes in the financial condition of a specific debt issuer. We address this risk by investing primarily in fixed maturity securities that are rated at least “A” by Moody’s or an equivalent rating quality. We also independently, and through our outside investment manager, monitor the financial condition of all the issuers of fixed maturity securities in our portfolio. To limit our exposure to risk, we employ diversification rules that limit the credit exposure to any single issuer or asset class.

Equity Risk

Equity price risk is the risk that we will incur economic losses on our equity securities due to adverse changes in equity prices.

Impact of Inflation

Increases in the cost of medical procedures and related services can affect the losses that we may incur in connection with resolving claims under policies that we issue. These cost increases reduce profit margins to the extent that rate increases are not implemented on an adequate and timely basis. We, like all insurance companies, establish insurance premium levels before the amount of losses and loss adjustment expenses, or the extent to which inflation may impact these expenses, are known. Therefore, we attempt to anticipate the potential impact of inflation when establishing rates. Because inflation has remained relatively low in recent years, our financial results have not been significantly affected by it.

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Item 4. Controls and Procedures.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that required information is recorded, processed, summarized, and reported within the required timeframe as specified in the SEC’s rules and forms of the SEC.  Our disclosure controls and procedures are also designed to ensure that information required to be disclosed is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision of and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, as of June 30, 2020, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that as of June 30, 2020, our disclosure controls and procedures were effective and timely at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) identified during the second quarter of 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

33

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

Positive Physicians Holdings, Inc. and its wholly owned subsidiary (collectively referred to as the “Company”) are periodically subject to litigation in the normal course of its business.  Based upon information presently available to us, we do not consider any litigation to be material.  However, given the uncertainties attendant to litigation, we cannot assure you that our results of operations and financial condition will not be materially adversely affected by any litigation.

Item 1A. Risk Factors.

Not required

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable

Item 5. Other Information.

None

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Item 6. Exhibits.

Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).

Exhibit Number	Description
31.1*	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

35

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Positive Physicians Holdings, Inc.
Date:  August 14, 2020	By:	/s/ Lewis S. Sharps, M.D.
		Lewis S. Sharps, M.D.
		President and Chief Executive Officer
Date:  August 14, 2020	By:	/s/ Donovan C. Augustin
		Donovan C. Augustin
		Chief Financial Officer

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Lewis S. Sharps, M.D., certify that:

1. I have reviewed this Quarterly Report of Positive Physicians Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 14, 2020	By:	/s/ Lewis S. Sharps, M.D.
		Lewis S. Sharps, M.D.
		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Donovan C. Augustin, certify that:

1. I have reviewed this Quarterly Report of Positive Physicians Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:  August 14, 2020	By:	/s/ Donovan C. Augustin
		Donovan C. Augustin
		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Positive Physicians Holdings, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 14, 2020	By:	/s/ Lewis S. Sharps, M.D.
		Lewis S. Sharps, M.D.
		Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Positive Physicians Holdings, Inc. (the “Company”) on Form 10-Q for the period ending June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  August 14, 2020	By:	/s/ Donovan C. Augustin
		Donovan C. Augustin
		Chief Financial Officer

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2020	Aug. 12, 2020
Cover [Abstract]
Entity Registrant Name	Positive Physicians Holdings, Inc.
Entity Central Index Key	0001752039
Trading Symbol	PPHI
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		3,615,500
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2020
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2020
Entity Current Reporting Status	Yes
Entity File Number	001-38814
Entity Tax Identification Number	83-0824448
Entity Address, Address Line One	100 Berwyn Park, Suite 220
Entity Address, Address Line Two	850 Cassatt Road
Entity Address, City or Town	Berwyn
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	19312
City Area Code	888
Local Phone Number	335-5335
Document Quarterly Report	true
Document Transition Report	false
Entity Incorporation, State or Country Code	PA
Entity Interactive Data Current	Yes
Title of 12(b) Security	Common Stock
Security Exchange Name	NASDAQ

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Consolidated Balance Sheets - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Assets
Available-for-sale fixed maturity securities, at fair value	$ 101,517,706	$ 95,748,042
Equity securities, at fair value	260,915	7,756,966
Short-term investments, at fair value	249,988	1,169,472
Total investments	102,028,609	104,674,480
Cash and cash equivalents	22,867,591	20,988,081
Accrued investment income	671,412	699,087
Premiums receivable	6,590,480	7,383,876
Reinsurance recoverable	8,265,060	7,850,409
Income taxes recoverable	2,061,515	1,313,935
Unearned ceded premiums	1,923,151	1,181,345
Deferred acquisition costs	2,594,469	2,584,486
Deferred income taxes	207,071	891,584
Prepaid management fee	8,214,286	8,928,571
Other assets	276,808	124,507
Total assets	155,700,452	156,620,361
Liabilities
Losses and loss adjustment expenses	63,510,324	63,607,975
Unearned premiums	12,950,905	12,783,124
Reinsurance payable	2,926,238	1,961,653
Accounts payable, accrued expenses, and other liabilities	2,086,480	5,009,346
Note payable	32,690	64,858
Total liabilities	81,506,637	83,426,956
Stockholders' Equity
Common stock, $0.01 par value, 10,000,000 shares authorized; 3,615,500 shares issued and outstanding	36,155	36,155
Additional paid-in capital	49,492,203	49,421,081
Retained earnings	21,331,807	22,096,447
Accumulated other comprehensive income	3,333,650	1,639,722
Total stockholders' equity	74,193,815	73,193,405
Total liabilities and stockholders' equity	$ 155,700,452	$ 156,620,361

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Consolidated Balance Sheets (Parenthetical)	Jun. 30, 2020 $ / shares shares
Statement Of Financial Position [Abstract]
Common stock, par value | $ / shares	$ 0.01
Common stock, shares authorized	10,000,000
Common stock, shares issued	3,615,500
Common stock, shares outstanding	3,615,500

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Consolidated Statements of Operations - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Revenues
Net premiums earned	$ 4,699,722	$ 5,327,994	$ 9,384,432	$ 10,819,201
Net investment income	648,546	766,247	1,414,843	1,394,503
Realized investment gains (losses), net	491,940	173,618	(1,472,481)	1,025,269
Total revenues	5,840,208	6,267,859	9,326,794	13,238,973
Expenses
Losses and loss adjustment expenses, net	3,195,811	4,267,440	6,381,414	7,589,116
Other underwriting expenses	2,352,947	2,785,060	4,691,851	6,285,437
Interest expense	1,260	413	1,855	1,779
Total expenses	5,550,018	7,052,913	11,075,120	13,876,332
Income (loss) before provision for income taxes	290,190	(785,054)	(1,748,326)	(637,359)
Provision for income taxes	(67,873)	(224,107)	(983,686)	(168,201)
Net income (loss)	$ 358,063	$ (560,947)	$ (764,640)	$ (469,158)
Income (loss) per common share
Common stock - basic	$ 0.10	$ (0.16)	$ (0.21)	$ (0.13)
Common stock - diluted	$ 0.10	$ (0.16)	$ (0.21)	$ (0.13)

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Consolidated Statements of Comprehensive Income - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Income Statement [Abstract]
Net income (loss)	$ 358,063	$ (560,947)	$ (764,640)	$ (469,158)
Unrealized gain on available-for-sale fixed maturity securities:
Unrealized holding gain during the period, net of income tax expense of $938,368 and $277,179 for three months ended June 30, 2020 and 2019 and $450,285 and $621,384 for six months ended June 30, 2020 and 2019, respectively	3,533,937	1,042,739	1,736,858	2,309,331
Reclassification adjustments for (gains) losses included in net income (loss), net of income tax (expense) benefit of $(1,033) and $(6) for three months ended June 30, 2020 and 2019 and $(11,412) and $7,509 for six months ended June 30, 2020 and 2019, respectively	(3,887)	(22)	(42,930)	28,248
Other comprehensive income	3,530,050	1,042,717	1,693,928	2,337,579
Comprehensive income	$ 3,888,113	$ 481,770	$ 929,288	$ 1,868,421

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Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Income Statement [Abstract]
Unrealized holding gain during the period, income tax expense	$ 938,368	$ 277,179	$ 450,285	$ 621,384
Reclassification adjustments for (gains) losses included in net income (loss), income tax (expense) benefit	$ (1,033)	$ (6)	$ (11,412)	$ 7,509

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Consolidated Statements of Stockholders' Equity - USD ($)	Total	Common stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Balance at Dec. 31, 2018	$ 36,988,217		$ 15,882,835	$ 22,335,398	$ (1,230,016)
Issuance of common stock	33,574,401	$ 36,155	33,538,246
Net income (loss)	(469,158)			(469,158)
Other comprehensive income	2,337,579				2,337,579
Balance at Jun. 30, 2019	72,431,039	36,155	49,421,081	21,866,240	1,107,563
Balance at Mar. 31, 2019	71,991,948	36,155	49,463,760	22,427,187	64,846
Issuance of common stock	(42,679)		(42,679)
Net income (loss)	(560,947)			(560,947)
Other comprehensive income	1,042,717				1,042,717
Balance at Jun. 30, 2019	72,431,039	36,155	49,421,081	21,866,240	1,107,563
Balance at Dec. 31, 2019	73,193,405	36,155	49,421,081	22,096,447	1,639,722
Stock based compensation expense	71,122		71,122
Net income (loss)	(764,640)			(764,640)
Other comprehensive income	1,693,928				1,693,928
Balance at Jun. 30, 2020	74,193,815	36,155	49,492,203	21,331,807	3,333,650
Balance at Mar. 31, 2020	70,281,995	36,155	49,468,496	20,973,744	(196,400)
Stock based compensation expense	23,707		23,707
Net income (loss)	358,063			358,063
Other comprehensive income	3,530,050				3,530,050
Balance at Jun. 30, 2020	$ 74,193,815	$ 36,155	$ 49,492,203	$ 21,331,807	$ 3,333,650

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Consolidated Statements of Cash Flows - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Cash flows from operating activities:
Net loss	$ (764,640)	$ (469,158)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Deferred income taxes	234,230	(168,927)
Net realized (gain) loss on sales of investments	(49,364)	179,944
Unrealized loss (gain) on equity securities and other investments	1,521,845	(1,205,213)
Amortization of fixed maturity premiums	154,586	113,397
Depreciation and amortization expense	740,752	383,610
Stock based compensation expense	71,122
Changes in operating assets and liabilities:
Accrued investment income	27,675	(1,747)
Premiums receivable	793,396	2,101,019
Reinsurance recoverable	(414,651)	(1,684,074)
Income taxes recoverable	(747,580)	313
Unearned ceded premiums	(741,806)	(991,017)
Deferred acquisition costs	(9,983)	326,736
Prepaid management fee		(10,000,000)
Other assets	(178,769)	(74,497)
Losses and loss adjustment expenses	(97,651)	(900,573)
Unearned premiums	167,781	(448,072)
Reinsurance payable	964,585	160,454
Accounts payable, accrued expenses, and other liabilities	(2,922,866)	(1,689,520)
Net cash flows used in operating activities	(1,251,338)	(14,367,325)
Cash flows from investing activities:
Proceeds from sales of fixed maturity securities	12,235,480	5,993,685
Proceeds from sales of equity securities and other investments	6,026,885	1,313,230
Purchases of fixed maturity securities	(15,686,197)	(5,786,607)
Purchases of equity securities	(332,624)	(534,224)
Net sales of short-term investments	919,472	300,000
Net cash flows provided by investing activities	3,163,016	1,286,084
Cash flows from financing activities
Proceeds from issuance of common stock		33,574,401
Payments of notes payable	(32,168)	(30,937)
Net cash flows (used in) provided by financing activities	(32,168)	33,543,464
Net change in cash and cash equivalents	1,879,510	20,462,223
Cash and cash equivalents, at beginning of period	20,988,081	3,903,620
Cash and cash equivalents, at end of period	22,867,591	24,365,843
Cash paid during the period for interest	$ 1,855	$ 2,261

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Organization

6 Months Ended

Jun. 30, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization

1. Organization

The accompanying unaudited consolidated financial statements include the accounts of Positive Physicians Holdings, Inc. and its wholly owned subsidiary (collectively referred to as the “Company”).  Positive Physicians Holdings, Inc. is a Pennsylvania domiciled holding company, which was incorporated on May 1, 2018 for the purpose of acquiring three Pennsylvania based reciprocal insurance exchanges: Positive Physicians Insurance Exchange (“PPIX”), Professional Casualty Association (“PCA”), and Physicians’ Insurance Program Exchange (“PIPE”). In connection with the completion of the Company’s initial public offering, PPIX, PCA, and PIPE converted from reciprocal insurance exchanges into stock insurance companies and were merged together to form Positive Physicians Insurance Company (“Positive Insurance Company”), a wholly owned subsidiary of the Company. The Company’s initial public offering and its acquisition of Positive Insurance Company were completed on March 27, 2019. Prior to that time, the Company had minimal assets and liabilities and had not engaged in any operations. References to the Company or Positive Insurance Company financial information in this Quarterly Report prior to the conversion and merger date is to the financial information of PPIX, PCA, and PIPE on a combined basis.  When used in this Quarterly Report, “we” and “our” mean PPIX, PCA, and PIPE prior to March 27, 2019, and Positive Insurance Company thereafter.

Positive Insurance Company

Positive Insurance Company writes medical malpractice insurance for healthcare providers practicing in Pennsylvania, New Jersey, Ohio, Delaware, Maryland, South Carolina, and Michigan.  Diversus Management, LLC (“Diversus Management”) manages and administers essentially all of the operations of Positive Insurance Company under the terms of a management agreement.  Diversus Management is a wholly owned subsidiary of Diversus, Inc. (“Diversus”).  Pursuant to the terms of the agreement, effective March 27, 2019, Diversus Management provides such administrative services to Positive Insurance Company in exchange for fees based upon a percentage of Positive Insurance Company’s gross written premiums, less return premiums.  Diversus Management may also earn quarterly performance management fees based on Positive Insurance Company’s combined ratio and net earned premiums.  Positive Insurance Company remains responsible for all underwriting decisions and the payment of all claims and claims related expenses incurred under policies issued by Positive Insurance Company and for all sales commissions paid to producers.

Products and Services

Positive Insurance Company underwrites medical professional liability coverage for physicians, their corporations, medical groups, clinics and allied healthcare providers.  Medical professional liability insurance (“MPLI”) protects physicians and other health care providers against liabilities arising from the rendering of, or failure to render, professional medical services.  We offer claims-made coverage, claims-made plus, and occurrence-based policies as well as tail coverage in Pennsylvania, New Jersey, Ohio, Delaware, Maryland, South Carolina, and Michigan.  Our policies include coverage for the cost of defending claims.  Claims-made policies provide coverage to the policyholder for claims reported during the period of coverage.  We offer extended reporting endorsements, or tails, to cover claims reported after the policy expires.  Occurrence-based policies provide coverage to the policyholders for all losses incurred during the policy coverage year regardless of when the claims are reported.  Although we generate a majority of our premiums from individual and small group practices, we also insure several major physician groups.

The Company accounts for its medical professional liability insurance business as a single reporting segment line of business.

Option Agreement

Upon completion of the conversions of PPIX, PCA, and PIPE and the securities offering on March 27, 2019, the Company and Diversus entered into an option agreement whereby either party has the option to cause Diversus, subject to shareholder approval, to merge with and become a wholly owned subsidiary of the Company.  Under the terms of the agreement, the option may be exercised by either the Company or Diversus at any time (1) during the period beginning 2 years after completion of the conversions of the exchanges and ending 54 months after the completion of the conversions, or (2) if earlier than 2 years after the completion of the conversions, then such date that the majority stockholder of the Company no longer has the right to appoint a majority of the board of directors of the Company.  In connection with any merger, the common stock shareholders of Diversus will receive either cash, common stock shares of the Company, or some combination thereof for their shares of Diversus’ common stock.  With respect to the preferred stock shares of Diversus, they will either be paid out in cash or converted into common stock shares of Diversus as if such preferred stock shares were converted into Diversus’ common stock shares immediately prior to the effective date of the merger.

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Basis of Presentation

6 Months Ended

Jun. 30, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation

2. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

Our consolidated financial statements include our accounts and those of our wholly owned subsidiary.  We have eliminated all inter-company accounts and transactions in consolidation.  

Positive Physicians Holdings, Inc. was formed on May 1, 2018.  Prior to the completion of the initial public offering, the Company, PPIX, PCA, and PIPE were under the common control of Diversus.  Additionally, prior to March 27, 2019, the Company did not engage in substantive pre-combination activities, and accordingly, is not considered the acquirer of the net assets of Positive Insurance Company.  The acquirer of these net assets is the majority stockholder of the Company.  Accordingly, the accompanying unaudited financial statements do not reflect any adjustments to fair value as might have been determined had the Company accounted for the acquisition of Positive Insurance Company’s net assets as a business combination.  

We recommend you read the interim consolidated financial statements we include in this Form 10-Q Report in conjunction with the financial statements and the notes to our financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and notes. Actual results could differ from these estimates and such differences could be material.  The Company’s principal estimates include the liability for losses and loss adjustment expenses, deferred acquisition costs, other-than-temporary impairments of investments, and valuation of deferred tax assets.

Cash and Cash Equivalents

The Company considers cash and cash equivalents to be cash on hand and depository bank accounts with original maturities of three months or less, are readily convertible to known amounts of cash, and present insignificant risk of changes in value due to changing interest rates.

Investments

Investments in fixed maturity securities are classified as available-for-sale and are stated at fair value. Unrealized holding gains and losses, net of related tax effects, on available-for-sale fixed maturity securities are recorded directly to accumulated other comprehensive income.  Investments in equity securities are stated at fair value and unrealized holding gains and losses are credited or charged to net income (loss) as incurred and are included in realized investment gains (losses), net in the accompanying consolidated statements of operations.

Realized gains and losses on sales of equity and fixed maturity securities are recognized into income based upon the specific identification method.  Interest and dividends are recognized as earned.  Short-term investments are considered to be short-term, highly liquid investments that are less than one year in term to the dates of maturity at the purchase dates, and they present insignificant risk of changes in value due to changing interest rates.

The Company regularly evaluates all of its investments based on current economic conditions, credit loss experience, and other specific developments.  If there is a decline in a security’s net realizable value that is other than temporary, it is considered as a realized loss and the cost basis in the security is reduced to its estimated fair value.

A fixed maturity security is considered to be other-than-temporarily impaired when the security’s fair value is less than its amortized cost basis and 1) we intend to sell the security, 2) it is more likely than not that we will be required to sell the security before recovery of the security’s amortized cost basis, or 3) we believe we will be unable to recover the entire amortized cost basis of the security (i.e., credit loss has occurred).  Other-than-temporary-impairments (“OTTI”) of fixed maturity securities are separated into credit and noncredit-related amounts when there are credit-related losses associated with the impaired fixed maturity security for which management asserts that it does not have the intent to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis.  The amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other factors is recorded in other comprehensive income (loss).  A credit loss is determined by assessing whether the amortized cost basis of the security will be recovered, by comparing the present value of cash flows expected to be collected from the security, computed using original yield as the discount rate, to the amortized cost basis of the security.  The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered to be the “credit loss.”

Deferred Acquisition Costs

Certain direct acquisition costs consisting of commissions, premium taxes and certain other direct underwriting expenses that vary with and are primarily related to the successful production of business are deferred and amortized over the effective period of the related insurance policies as the underlying policy premiums are earned. The method followed in computing deferred acquisition costs limits the amount of deferred costs to their estimated realizable value, which gives effect to the premium to be earned, related investment income, losses and loss adjustment expenses, and certain other costs expected to be incurred as the premium is earned. Future changes in estimates, the most significant of which is expected losses and loss adjustment expenses, may require adjustments to deferred acquisition costs. If the estimation of net realizable value indicates that the deferred acquisition costs are not recoverable, then they would be written off.

Prepaid Management Fee

Prepaid management fee comprises costs incurred by the Company to execute a new management agreement with Diversus Management and is amortized on a straight-line basis over theseven-year useful life of the agreement.

Liability for Losses and Loss Adjustment Expenses

Liability for losses and loss adjustment expenses include an amount determined from individual case estimates and loss reports and an amount, based on prior experience, actuarial assumptions and management judgments for losses incurred but not reported. Such liabilities are necessarily based on assumptions and estimates, and while management believes the amount is adequate, the ultimate liability may be in excess of or less than the amounts provided. The methods for making such estimates for establishing the resulting liabilities are continually reviewed.  Estimating the ultimate cost of future losses and loss adjustment expenses is an uncertain and complex process.  This estimation process is based upon the assumption that past developments are an appropriate indicator of future events and involves a variety of actuarial techniques that analyze experience, trends, and other relevant factors.  The uncertainties involved with the reserving process include internal factors, such as changes in claims handling procedure, as well as external factors, such as economic trends and changes in the concepts of legal liability and damage awards.  Accordingly, final loss settlements may vary from the present estimates, particularly when those payments may not occur until well into the future.  Adjustments to previously established reserves are reflected in the operating results of the period in which the adjustment is determined to be necessary.  Such adjustments could possibly be significant, reflecting any variety of new and adverse or favorable trends.      

We also offer extended reporting coverage at no additional charge in the event of disability, death or retirement after a policyholder reaches the age of 55 and has been a mature-claims policyholder with Positive Insurance Company for at least one year.  An extended reporting endorsement policy reserve is required to assure that premiums are not earned prematurely.  This reserve is actuarially determined and the balance is included in unearned premiums in the consolidated balance sheets.

Reinsurance

The Company cedes insurance risk to other insurance companies. This arrangement allows us to minimize the net loss potential arising from large risks. Reinsurance contracts do not relieve the Company of its obligation to its policyholders. Reinsurance premiums, losses, and loss adjustment expenses are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contract.

Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments, non-U.S. government bonds, premiums receivable, and balances recoverable from reinsurers.  Non-U.S. government bonds are diversified, and no one investment accounts for greater than 5% of our invested assets. Cash and cash equivalents are deposited with financial institutions with balances that fluctuate in excess of federally insured limits. If the financial institutions were not to honor their contractual liability to us, we could incur losses.  We are of the opinion that there is low risk because of the financial strength of the respective financial institutions.  We are also subject to concentrations of credit risk through short-term money market investments. The credit risk related to short-term money market investments is minimized by our investing in money market funds or repurchase agreements, both secured by U.S. government securities.  

No one insured accounted for over 10% of premiums receivable as of June 30, 2020 and December 31, 2019 or gross written premium for the three and six months ended June 30, 2020 and 2019.  We have reinsurance contracts with various reinsurers all of whom have A.M. Best ratings of A or better or have provided collateral to secure their obligations.  

Revenue Recognition

Premiums are earned on a daily pro rata basis over the terms of the insurance policies.  Unearned premium reserves are established to cover the unexpired portion of the policies in force less amounts ceded to reinsurers.  For consideration received for policies with effective dates subsequent to the reporting period, the Company records an advance premium liability in lieu of written premium.

Premiums associated with tails are generally earned as written, except for the afore-mentioned extended reporting coverage in the event of disability, death or retirement.  Other forms of tails, in which premiums are earned as written, include the following: 1) An insured who terminates a claims-made policy with their prior carrier, and who purchases tail coverage (extended reporting coverage) from their old carrier or obtains retroactive (prior-acts) coverage from a new carrier, or 2) Stand-alone tail coverage in which an insured is offered a tail policy by their prior carrier but seeks a competitive quote from a different carrier.  Both types of tail coverage insure against claims reported after the end of the original policy period for incidents that occurred while that policy was in effect.  

Comprehensive Income

Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale fixed maturity securities and unrealized losses related to factors other than credit on fixed maturity securities, are reported as a separate component in the equity section in the accompanying consolidated balance sheets. Such items, along with net income (loss), are components of comprehensive income, and are reflected in the accompanying consolidated statements of comprehensive income.  Reclassifications of realized gains and losses on sales of investments out of accumulated other comprehensive income are recorded in realized investment gains (losses), net in the accompanying consolidated statements of operations.

Income Taxes

The Company accounts for income taxes under the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements.  Under this method, deferred tax assets and liabilities are determined based on the differences between the consolidated financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized.  In making such determination, we consider all available positive and negative evidence, including future reversal of existing taxable temporary differences, tax planning strategies, projected future taxable income, and recent financial operations.

Prior to March 27, 2019, PPIX, PCA, and PIPE filed separate federal income tax returns.  The Company did not recognize any interest and penalties in the accompanying consolidated statements of operations for the three and six months ended June 30, 2020 and 2019.  PPIX, PCA, and PIPE remain subject to examination by the Internal Revenue Service for tax years 2016 through 2018 and the short stub period in 2019.  Beginning with the 2019 tax year, the Company will file a consolidated federal income tax return.

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Recent Accounting Pronouncements

4. Recent Accounting Pronouncements

As an emerging growth company, we have elected to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.  The following discussion includes effective dates for both public business entities and emerging growth companies, as well as whether specific guidance may be adopted early.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued guidance that requires lessees to recognize leases, including operating leases, on the lessee’s balance sheet, unless a lease is considered a short-term lease.  This guidance also requires entities to make new judgments to identify leases.  The guidance was effective for annual and interim reporting periods beginning after December 15, 2018 and permitted early adoption.  The Company’s adoption of this guidance on January 1, 2019 did not have a significant impact on our financial condition, results of operations or cash flows.

Recently Issued Accounting Pronouncements

New accounting rules and disclosure requirements can impact the results and the comparability of the Company’s consolidated financial statements. The following recently issued accounting pronouncements are relevant to the Company’s consolidated financial statements:

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments.  The amendments in this Update require a new topic to be added (Topic 326) to the Accounting Standards Codification ("ASC") and removes the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, off-balance-sheet credit exposures, and held-to-maturity securities.  Under current GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred.  The guidance under ASU 2016-13 will remove all current recognition thresholds and will require entities under the new current expected credit loss ("CECL") model to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument's contractual life.   The new CECL model is based upon expected losses rather than incurred losses.  Additionally, the credit loss recognition guidance for available-for-sale securities is amended and will require that credit losses on such debt securities should be recognized as an allowance for credit losses rather than a direct write-down of amortized cost balance.  The ASU was effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.  In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which extended the effective date of adopting ASU 2016-13.  Under ASU 2019-10, ASU 2016-13 will be effective for Public Business Entities that are filers with the Securities and Exchange Commission (“SEC”), excluding smaller reporting companies such as the Company, for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years.  For all other entities, including smaller reporting companies like the Company, ASU 2016-13 will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.  For all entities, early adoption will continue to be permitted; that is, early adoption is allowed for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (that is, effective January 1, 2019, for calendar year-end companies).  The Company is currently a smaller reporting company, so the Company’s expected adoption date for ASU 2016-13 is January 1, 2023.  At this time, we are evaluating the potential impact of ASU 2016-13 in the Company’s consolidated financial statements.

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Investments

6 Months Ended

Jun. 30, 2020

Marketable Securities [Abstract]

Investments

5. Investments

The Company uses fair value measurements to record fair value adjustments to certain assets to determine fair value disclosures.  Fixed maturity available-for-sale securities and equity securities are recorded at fair value on a recurring basis.  FASB ASC Topic 820 “Fair Value Measurements and Disclosures” establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The three levels of the fair value hierarchy under ASC Topic 820 are as follows:

Level 1: Quoted (unadjusted) prices for identical assets in active markets.

Level 2: Other observable inputs, either directly or indirectly, including:

• Quoted prices for similar assets in active markets;

• Quoted prices for identical or similar assets in nonactive markets (few transactions, limited information, noncurrent prices, high variability over time, etc.);

• Inputs other than quoted prices that are observable for the asset (interest rates, yield curves, volatilities, default rates, etc.); and

• Inputs that are derived principally from or corroborated by other observable market data.

Level 3: Unobservable inputs that cannot be corroborated by observable market data.

Under ASC Topic 820, we base fair values of assets on 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. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in FASB ASC Topic 820. Fair value measurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon our or other third-party’s estimates, are often calculated based on the characteristics of the asset, the economic and competitive environment and other such factors. Management uses its best judgment in estimating the fair value of financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts we could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period end and have not been re-evaluated or updated for purposes of the consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end. Additionally, changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future valuations.

We obtain one price for each security primarily from a third-party pricing service (“pricing service”), which generally uses quoted prices or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, non-binding broker quotes, benchmark yields, credit spreads, default rates, and prepayment speeds.

In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest-level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

Amortized cost/cost, gross unrealized gains, gross unrealized losses, and fair value of fixed maturity securities by major security type for the results at June 30, 2020 and December 31, 2019 are as follows:

	Amortized Cost/Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2020
U.S. government	$	11,359,661	$	205,497	$	18,101	$	11,547,057
States, territories, and possessions		1,088,928		59,450		—		1,148,378
Subdivisions of states, territories, and possessions		12,290,490		495,142		6,946		12,778,686
Industrial and miscellaneous		72,558,805		3,686,060		201,280		76,043,585
Total fixed maturity securities	$	97,297,884	$	4,446,149	$	226,327	$	101,517,706

	Amortized Cost/Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2019
U.S. government	$	10,689,829	$	100,223	$	38,490	$	10,751,562
States, territories, and possessions		1,096,638		46,385		—		1,143,023
Subdivisions of states, territories, and possessions		12,440,863		389,472		7,470		12,822,865
Industrial and miscellaneous		69,445,114		1,591,777		6,299		71,030,592
Total fixed maturity securities	$	93,672,444	$	2,127,857	$	52,259	$	95,748,042

The table below sets forth the contractual maturity profile of our investments in fixed maturity securities at June 30, 2020 and December 31, 2019.  Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.

	June 30, 2020				December 31, 2019
	Amortized Cost/Cost		Fair Value		Amortized Cost/Cost		Fair Value
Due in less than one year	$	17,075,418	$	17,211,639	$	8,570,607	$	8,584,991
Due after one year to five years		58,599,281		61,398,223		59,713,323		60,844,219
Due after five years to ten years		21,091,272		22,320,449		24,656,702		25,539,400
Due after ten years		531,913		587,395		731,812		779,432
	$	97,297,884	$	101,517,706	$	93,672,444	$	95,748,042

Realized gains and losses are determined using the specific identification method. During the three and six months ended June 30, 2020 and 2019, proceeds from maturities and sales and gross realized gains and losses on securities and other investments are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Proceeds	$	10,748,023	$	2,329,834	$	18,262,365	$	7,306,915
Gross gains		771,306		41,207		823,155		59,898
Gross losses		516,504		186,205		773,791		239,842

The components of net realized investment gains (losses) for the three and six months ended June 30, 2020 and 2019 are as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020			2019
Gain (loss) on sales of fixed maturity securities	$	3,887	$	22		$	42,930		$	(28,248	)
Gain (loss) on sales of equity securities and other investments		250,915		(145,020	)		6,434			(151,696	)
Total gain (loss) on sales of investments		254,802		(144,998	)		49,364			(179,944	)
Unrealized gain (loss) on equity securities and other investments		237,138		318,616			(1,521,845	)		1,205,213
Total net realized investment gains (losses)	$	491,940	$	173,618		$	(1,472,481	)	$	1,025,269

The components of net investment income for the three and six months ended June 30, 2020 and 2019 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Fixed maturity securities	$	593,377	$	561,161	$	1,245,052	$	1,126,231
Cash and short-term investments		50,745		154,571		137,241		177,584
Equity securities		23,841		76,383		72,605		143,119
Other income		7,125		5,250		14,250		13,750
		675,088		797,365		1,469,148		1,460,684
Less investment expenses		26,542		31,118		54,305		66,181
Net investment income	$	648,546	$	766,247	$	1,414,843	$	1,394,503

The following tables show fair value and gross unrealized losses of our fixed maturity investments with unrealized losses that are not deemed to be other-than temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2020 and December 31, 2019:

	Less than 12 months				12 months or longer				Total
Description of securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2020:
U.S. government	$	3,670,584	$	945	$	444,584	$	17,156	$	4,115,168	$	18,101
States, territories, and possessions		—		—		—		—		—		—
Subdivisions of states, territories, and possessions		—		—		68,379		6,946		68,379		6,946
Industrial and miscellaneous		4,947,932		201,280		—		—		4,947,932		201,280
Total fixed maturity securities	$	8,618,516	$	202,225	$	512,963	$	24,102	$	9,131,479	$	226,327

	Less than 12 months				12 months or longer				Total
Description of securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2019:
U.S. government	$	2,628,516	$	8,227	$	4,061,077	$	30,263	$	6,689,593	$	38,490
States, territories, and possessions		—		—		—		—		—		—
Subdivisions of states, territories, and possessions		—		—		93,000		7,470		93,000		7,470
Industrial and miscellaneous		4,773,607		5,934		350,922		365		5,124,529		6,299
Total fixed maturity securities	$	7,402,123	$	14,161	$	4,504,999	$	38,098	$	11,907,122	$	52,259

Fair values of interest rate sensitive instruments may be affected by increases and decreases in prevailing interest rates, which generally translate, respectively, into decreases and increases in fair values of fixed maturity investments. The fair values of interest rate sensitive instruments also may be affected by the credit worthiness of the issuer, prepayment options, relative values of other investments, the liquidity of the instrument, and other general market conditions.

We evaluated each security and took into account the severity and duration of the impairment, the current rating on the bond, and the outlook for the issuer according to independent analysts. We found that the declines in fair value are most likely attributable to increases in interest rates, and there is no evidence that the likelihood of not receiving all of the contractual cash flows as expected has changed. Our fixed maturity portfolio is managed by our investment committee in concert with an outside investment manager for investment grade bond investments. By agreement, the investment manager cannot sell any security without the consent of our investment committee if such sale will result in a net realized loss.

We monitor our investment portfolio and review securities that have experienced a decline in fair value below cost to evaluate whether the decline is other than temporary. When assessing whether the amortized cost basis of the security will be recovered, we compare the present value of the cash flows likely to be collected, based on an evaluation of all available information relevant to the collectability of the security, to the amortized cost basis of the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as the “credit loss.” If there is a credit loss, the impairment is considered to be other-than-temporary. If we identify that an other-than-temporary impairment loss has occurred, we then determine whether we intend to sell the security, or if it is more likely than not that we will be required to sell the security prior to recovering the amortized cost basis less any current-period credit losses. If we determine that we do not intend to sell, and it is more likely than not that we won’t be required to sell the security, then the amount of the impairment loss related to the credit loss will be recorded in earnings, and the remaining portion of the other-than-temporary impairment loss will be recognized in other comprehensive income (loss), net of tax. If we determine that we intend to sell the security, or that it is more likely than not that we will be required to sell the security prior to recovering its amortized cost basis less any current-period credit losses, then the full amount of the other-than-temporary impairment will be recognized in earnings.

For the six months ended June 30, 2020 and 2019, we determined that none of our fixed maturity securities were other-than-temporarily impaired. Adverse investment market conditions, or poor operating results of underlying investments, could result in impairment charges in the future.

The table below presents the level within the fair value hierarchy generally utilized by us to estimate the fair value of assets disclosed on a recurring basis at June 30, 2020:

	Total		Level 1		Level 2		Level 3
U.S. government	$	11,547,057	$	—	$	11,547,057	$	—
States, territories, and possessions		1,148,378		—		1,148,378		—
Subdivisions of states, territories and possessions		12,778,686		—		12,778,686		—
Industrial and miscellaneous		76,043,585		—		76,043,585		—
Total fixed maturity securities		101,517,706		—		101,517,706		—
Equity securities		260,915		260,915		—		—
	$	101,778,621	$	260,915	$	101,517,706	$	—

The table below presents the level within the fair value hierarchy generally utilized by us to estimate the fair value of assets disclosed on a recurring basis at December 31, 2019:

	Total		Level 1		Level 2		Level 3
U.S. government	$	10,751,562	$	—	$	10,751,562	$	—
States, territories, and possessions		1,143,023		—		1,143,023		—
Subdivisions of states, territories and possessions		12,822,865		—		12,822,865		—
Industrial and miscellaneous		71,030,592		—		71,030,592		—
Total fixed maturity securities		95,748,042		—		95,748,042		—
Equity securities		7,756,966		7,756,966		—		—
	$	103,505,008	$	7,756,966	$	95,748,042	$	—

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Deferred Acquisition Costs

6 Months Ended

Jun. 30, 2020

Insurance [Abstract]

Deferred Acquisition Costs

6. Deferred Acquisition Costs

The following table summarizes the movements in deferred acquisition costs for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Balance, beginning of period	$	2,968,462	$	4,690,104	$	2,584,486	$	3,985,193
Amount capitalized during the period		227,097		933,145		1,920,875		3,760,410
Amount amortized during the period		601,090		1,964,792		1,910,892		4,087,146
Balance, end of period	$	2,594,469	$	3,658,457	$	2,594,469	$	3,658,457

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Reinsurance

6 Months Ended

Jun. 30, 2020

Insurance [Abstract]

Reinsurance

7. Reinsurance

Under the Company’s current reinsurance agreement, we retain a portion of our exposure and pay to the reinsurers a portion of the premiums received on all policies reinsured. Insurance policies written by us are reinsured with other insurance companies principally to:

• reduce net liability on individual risks and clash occurrences;

• mitigate the effect of individual loss occurrences;

• cover us against losses in excess of policy limits and extra contractual obligation claims;

• stabilize underwriting results; and

• increase our underwriting capacity.

Under Pennsylvania law, each insured must maintain MPLI of at least $1,000,000 for each claim and $3,000,000 of annual aggregate coverage. We provide primary insurance coverage up to $500,000 per claim and $1,500,000 of annual aggregate coverage. The Pennsylvania Medical Care Availability and Reduction of Error (“MCARE”) Fund provides coverage for any losses above $500,000 per claim up to $1,000,000. In cases where coverage under the Pennsylvania MCARE Fund does not apply, the primary insurance provides coverage up to $1,000,000 per claim and $3,000,000 of annual aggregate coverage. We retain the first $300,000 in loss on all Pennsylvania claims and reinsurance covers the excess up to $1,000,000 that is not covered by the Pennsylvania MCARE Fund.  We cede to reinsurers any Pennsylvania claims in excess of $1,000,000.

Other states in which we write insurance require doctors to maintain certain minimum coverage and provide a fund that provides coverage for losses above a certain amount, but some states do not prescribe insurance requirements for doctors.

We offer primary coverage up to $1,000,000 for each claim and $3,000,000 of annual aggregate coverage in Delaware, Maryland, Michigan, Ohio, New Jersey, and South Carolina. We retain the first $300,000 in loss for claims from these states, and reinsurance covers the excess up to $1,000,000. If an insured in New Jersey requests, additional coverage of $1,000,000, each claim, each insured, each policy can be provided and is fully ceded to the reinsurer up to a maximum aggregate liability of $2,000,000 to the reinsurer per the term of the reinsurance agreement.  In South Carolina and Michigan, the insured can elect policy limits of $200,000 per claim and, on these claims, we retain the first $100,000 and the reinsurer covers the next $100,000.  

We also purchase additional reinsurance coverage for clash, losses in excess of policy limits and extra contractual obligation claims.

Our premiums under the current reinsurance agreement are based on a percentage of our earned premiums during the term of the agreement.  The agreement was renewed on April 1, 2020.

Reinsurance does not legally discharge the insurance company issuing the policy from primary liability for the full amount due under the reinsured policies. A primary factor in the selection of reinsurers from whom we purchase reinsurance is their financial strength. Our reinsurance arrangements are generally renegotiated annually. The insolvency or inability of any reinsurer to meet its obligations to us could have a material adverse effect on our results of operations or financial condition. Our reinsurance providers, the majority of whom are longstanding partners that understand our business, are all carefully selected with the help of our reinsurance broker. We monitor the solvency of reinsurers through regular review of their financial statements and, if available, their A.M. Best ratings. Hannover Re, our current reinsurance partner, has an “A+ (Superior)” rating from A.M. Best.  According to A.M. Best, companies with a rating of “A” or better “have an excellent ability to meet their ongoing obligations to policyholders.”

We generally do not assume risks from other insurance companies.  However, we could be required by statute to participate in guaranty funds, which are formed to pay claims on policies issued by insolvent property and casualty insurers domiciled in certain states, such as Pennsylvania.  This participation, where applicable, requires us to pay an annual assessment based on our premiums written and determined on a market share basis.  As of June 30, 2020, our participation was not material.

The effect of reinsurance on premiums written, amounts earned, and losses incurred for the three and six months ended June 30, 2020 and 2019 is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Premiums written:
Direct	$	3,515,340	$	3,783,325	$	11,233,852	$	11,980,842
Ceded		2,176,966		648,254		2,423,445		2,600,731
Premiums written, net of reinsurance	$	1,338,374	$	3,135,071	$	8,810,407	$	9,380,111
Premiums earned:
Direct	$	5,164,623	$	6,075,535	$	11,066,071	$	12,428,915
Ceded		464,901		747,541		1,681,639		1,609,714
Premiums earned, net of reinsurance	$	4,699,722	$	5,327,994	$	9,384,432	$	10,819,201
Losses and loss adjustment expenses incurred:
Direct	$	3,470,626	$	6,365,077	$	7,436,399	$	10,276,266
Ceded		274,815		2,097,637		1,054,985		2,687,150
Losses and loss adjustment expenses incurred,    net of reinsurance	$	3,195,811	$	4,267,440	$	6,381,414	$	7,589,116

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Losses and Loss Adjustment Expenses

6 Months Ended

Jun. 30, 2020

Insurance [Abstract]

Losses and Loss Adjustment Expenses

8. Losses and Loss Adjustment Expenses

At June 30, 2020, the Company estimated that its liability for unpaid losses and loss adjustment expenses (“LAE”) for all insurance policies and reinsurance contracts issued by its insurance business was $63,510,324.  This amount included estimated losses from claims plus estimated expenses to settle claims.  This estimate also included estimated amounts for losses occurring on or prior to June 30, 2020 that had not yet been reported to the Company.  At June 30, 2020, the Company also estimated that its reinsurance recoverable on unpaid claims was $7,424,458.

Management believes that its unpaid losses and LAE are fairly stated at June 30, 2020.  However, estimating the ultimate claims liability is necessarily a complex and judgmental process inasmuch as the amounts are based on management’s informed estimates, assumptions and judgments using data currently available.  As additional experience and data become available regarding claims payment and reporting patterns, legal and legislative developments, judicial theories of liability, changes in social attitudes and economic conditions, the estimates are revised accordingly.  Original estimates are also increased or decreased, as additional information becomes known regarding individual claims.  If the Company’s ultimate losses, net of reinsurance, prove to differ substantially from the amounts recorded at June 30, 2020, then the related adjustments could have a material adverse impact on the Company’s financial condition, results of operations and liquidity.

Positive Insurance Company uses a combination of the Actual versus Expected Method, Bornhuetter-Ferguson Method, Expected Loss Ratio Method, Frequency/Severity Method, and the Incurred Loss Development Method in order to estimate its liability for losses and LAE.  There were no significant changes in the methodologies and assumptions used to develop the liabilities for losses and LAE during the six months ended June 30, 2020.

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Income Taxes

6 Months Ended

Jun. 30, 2020

Income Tax Disclosure [Abstract]

Income Taxes

9. Income Taxes

At June 30, 2020 and December 31, 2019, the Company had no unrecognized tax benefits, no accrued interest and penalties, and no significant uncertain tax positions.  No interest and penalties were recognized during the six months ended June 30, 2020 and 2019.

At June 30, 2020 and December 31, 2019, the Company had unused net operating loss (“NOL”) carryforwards of $1,133,600 and $3,600,298, respectively, which will begin to expire in 2038, if unused.  The Company’s remaining unused NOLs that were generated prior to the conversions and merger in 2019 are subject to limitations under Section 382 of the Internal Revenue Code and are limited in the amount that can be utilized in any one year. The Company’s NOL balance at June 30, 2020 primarily consists of taxable losses that were generated by the holding company in 2020.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law.  The CARES Act includes certain income tax-related law changes that have a material effect on the Company’s deferred income taxes.  The most significant effect on the Company’s deferred income taxes is due to changes in the federal net operating loss carryback provisions which allow the Company to carryback NOLs originating in 2018 and 2019 to prior tax years with corporate income tax rates of 34% (as opposed to forward to future tax years with corporate income tax rates of 21%).  As a result of this legislation, during the first six months of 2020, the Company significantly reduced its NOL balance by $2,969,550, or $623,606 tax-effected, and recorded additional federal income tax refunds of $1,205,964.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all the Company’s deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), tax planning strategies, and projected future taxable income in making this assessment.  At June 30, 2020 and December 31, 2019, management determined that it was more likely than not that all of the deferred tax assets will be realized by the Company in future years.  Accordingly, the Company did not record a valuation allowance against its deferred tax assets at June 30, 2020 and December 31, 2019.

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Agreements with Diversus

6 Months Ended

Jun. 30, 2020

Related Party Transactions [Abstract]

Agreements with Diversus

10. Agreements with Diversus

Positive Insurance Company has a management agreement with Diversus Management, whereby Diversus Management provides administrative services to Positive Insurance Company in exchange for fees based on a percentage of Positive Insurance Company’s gross written premium, less return premium. Under the current agreement, which became effective March 27, 2019, Diversus Management earns management fees at 12%.  Diversus Management may also earn quarterly performance management fees based on Positive Insurance Company’s combined ratio and net earned premiums. No quarterly performance fees were payable under the terms of the agreement at June 30, 2020.    

Management fees are recorded in other underwriting expenses in the consolidated statements of operations.  The Company incurred management fees for the respective periods as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Management fees	$	823,577	$	887,322	$	2,142,988	$	2,936,702

In connection with the execution of the existing management agreement with Diversus Management, the Company paid Diversus $10,000,000 to execute the agreement. Such payment is presented as prepaid management fee in the accompanying consolidated balance sheets and is amortized on a straight-line basis over a period of seven years.  For each of the three months ended June 30, 2020 and 2019, the Company incurred amortization expense of $357,143.  For the six months ended June 30, 2020 and 2019, the Company incurred amortization expense of $714,285 and $357,143, respectively.  These amounts are recorded in other underwriting expenses in the consolidated statements of operations and included as part of both the current and prior year amounts disclosed in the table above.

Positive Insurance Company has contracts with Gateway Risk Services, LLC and Andrews Outsource Solutions LLC, both of which are wholly owned subsidiaries of Diversus, under which those companies provide claims processing and risk management services. Fees incurred by Positive Insurance Company under these contracts are recorded in other underwriting expenses in the consolidated statements of operations as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Claims processing and risk management services	$	402,875	$	408,875	$	795,450	$	808,250

Additionally, the former attorney-in-fact of PCA earned commissions related to our gross written premium and other accounts.  Beginning March 27, 2019, these commissions were paid to Specialty Insurance Agency, LLC, a wholly owned subsidiary of Diversus. These commissions are recorded in other underwriting expenses in the consolidated statements of operations.  Positive Insurance Company incurred related commission expenses for the respective periods as follows:  

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Commissions	$	16,133	$	-	$	78,206	$	77,850

The Company and Diversus entered into a loan agreement dated March 27, 2019 to provide a $6,000,000 credit facility to Diversus for working capital purposes.  The Company terminated the loan agreement on May 19, 2020.  There was no outstanding balance on the credit facility prior to the termination of the loan agreement.

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Common Stock

6 Months Ended

Jun. 30, 2020

Equity [Abstract]

Common Stock

11. Common Stock

The Company is authorized to issue 10,000,000 shares of $0.01 par value common stock. In connection with the completion of the initial public offering on March 27, 2019, 3,615,500 shares of the Company’s common stock were issued. At June 30, 2020, 3,615,500 shares of common stock remain issued and outstanding.

On September 27, 2019, the Company granted its Chief Executive Officer options to purchase 216,930 shares of common stock at an exercise price of $12.01 per share, which was the closing sale price of the Company’s common stock on the date the options were granted. Of the total options, 108,465 shares will vest in equal monthly installments over a three-and-one-half year period following September 27, 2019, and the remaining 108,465 shares will vest upon the achievement by the Company of certain milestones.  All vested option shares shall be exercisable for eight years from the date of vesting.  The stock-based compensation expense recorded by the Company during the three and six months ended June 30, 2020 was $23,707 and $71,122, respectively.

The holding company has cash and other liquid assets aggregating $15,824,903 at June 30, 2020.  The holding company’s principal source of future liquidity will be dividend payments from Positive Insurance Company, which is restricted by the insurance laws and regulations of the Commonwealth of Pennsylvania as to the amount of dividends or other distributions it may pay to the Company.

An order by the Pennsylvania Insurance Department approving the conversions of PPIX, PCA, and PIPE prohibits the declaration or payment of any dividend, return of capital, or other distribution by the Company to Insurance Capital Group, LLC and Enstar Holdings (US) LLC, the two principal stockholders of the Company, or any other shareholder without the prior approval of the Pennsylvania Insurance Department, for a period of three years following the effective date of the conversions.  Additionally, by the order of the Pennsylvania Insurance Department, Positive Insurance Company cannot pay a dividend to the Company for a period of three years following the effective date of the conversions without the approval of the Pennsylvania Insurance Department.

Prior to its payment of any dividend, Positive Insurance Company will be required to provide notice of the dividend to the Pennsylvania Insurance Department. This notice must be provided to the Pennsylvania Insurance Department 30 days prior to the payment of an extraordinary dividend and 10 days prior to the payment of an ordinary dividend. The Pennsylvania Insurance Department has the power to limit or prohibit dividends if Positive Insurance Company is in violation of any law or regulation.

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Earnings Per Share

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Earnings Per Share

12. Earnings Per Share

As discussed in Note 1, the conversions of PPIX, PCA, and PIPE to stock insurance companies and the simultaneous acquisition of these companies resulted in the issuance of the Company’s common stock as of March 27, 2019.  The basic weighted average number of common shares outstanding was 3,615,500 for the three and six months ended June 30, 2020 and 2019.  For the period prior to the date of the conversions, the net common shares issued in the initial public offering were assumed to be outstanding since January 1, 2019.

The following table presents a reconciliation of the numerators and denominators that were used in the basic and diluted per share computations for the Company’s common stock:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020			2019
Basic earnings per common share:
Numerator:
Net income (loss)	$	358,063	$	(560,947	)	$	(764,640	)	$	(469,158	)
Denominator:
Weighted average shares outstanding		3,615,500		3,615,500			3,615,500			3,615,500
Basic earnings per common share	$	0.10	$	(0.16	)	$	(0.21	)	$	(0.13	)
Diluted earnings per common share:
Numerator:
Net income (loss)	$	358,063	$	(560,947	)	$	(764,640	)	$	(469,158	)
Denominator:
Weighted average shares outstanding - basic		3,615,500		3,615,500			3,615,500			3,615,500
Add:  vested stock options		23,243		—			23,243			—
Number of shares used in diluted computation		3,638,743		3,615,500			3,638,743			3,615,500
Diluted earnings per common share	$	0.10	$	(0.16	)	$	(0.21	)	$	(0.13	)

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COVID-19

6 Months Ended

Jun. 30, 2020

Extraordinary And Unusual Items [Abstract]

COVID-19

13. COVID-19

The Company’s operations and business have experienced disruptions due to the conditions surrounding the COVID-19 pandemic spreading throughout the United States.  These disruptions include, but are not limited to, office closures and difficulties in maintaining operational continuance during remote operations required by illness, social quarantining, and work from home orders that were in force.  The Company’s management has devoted substantial time and attention to assessing the potential impact of COVID-19 and those events on the Company’s operations and financial position and developing operational and financial plans to address those matters.

As a result of the COVID-19 pandemic, the Company has seen premium decreases due to policy endorsements associated with doctors electing to work part time, take a leave of absence or retire.  In addition, some of our insureds have elected to temporarily change their areas of practice and/or specialties.  For example, a doctor may choose to drop from orthopedic surgery to office-only status due to the lack of elective surgeries.  The Company has received notification for such requests from our policyholders which went into effect on June 30, 2020 and necessary reimbursements or credits against future payments have been applied.  During the second quarter, the Company recorded approximately $160,000 in return premium adjustments, or reductions in direct premiums written, associated with these policy endorsements.

In terms of collections, prior to the pandemic, the Company’s policy was to cancel any insurance policies for which premiums had not been received within 60 days subsequent to policy effective date, with notice of intent to cancel sent to the insured after 30 days post-inception date, or post-payment due date.  As a result of COVID-19, the Company has updated this policy and suspended cancellations of insurance contracts resulting from non-payment of premium and deferred payments until June 30, 2020 for invoices due after April 1, 2020.  Due to this change in policy, the Company recorded an allowance for uncollectible premium of approximately $150,000 at June 30, 2020 based on the aging of outstanding premiums receivable.

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Subsequent Events

6 Months Ended

Jun. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

14. Subsequent Events

On August 1, 2020, the Company’s independent registered public accounting firm changed its name from Baker Tilly Virchow Krause, LLP to Baker Tilly US, LLP.

On May 18, 2020, the Company received a written notice from the Listing Qualifications Department of Nasdaq indicating that the Company is not in compliance with Listing Rule 5550(a)(4), due to the Company’s failure to meet the minimum 500,000 publicly held shares requirement for continued listing on the Nasdaq Capital Market.  On August 5, 2020, the Company filed with the SEC a Form 25, notification to voluntarily delist from the Nasdaq Capital Market, after announcing its intention on July 27, 2020 and that it anticipates that its common stock will be quoted on the OTCQX Best Market following the Nasdaq delisting.  The delisting will be effective August 17, 2020 at which time the Company’s stock will begin trading on the OTCQX Best Market.  The Company’s stock will continue to trade under the symbol, PPHI.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

Accounting Policies [Abstract]

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and notes. Actual results could differ from these estimates and such differences could be material.  The Company’s principal estimates include the liability for losses and loss adjustment expenses, deferred acquisition costs, other-than-temporary impairments of investments, and valuation of deferred tax assets.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers cash and cash equivalents to be cash on hand and depository bank accounts with original maturities of three months or less, are readily convertible to known amounts of cash, and present insignificant risk of changes in value due to changing interest rates.

Investments

Investments

Investments in fixed maturity securities are classified as available-for-sale and are stated at fair value. Unrealized holding gains and losses, net of related tax effects, on available-for-sale fixed maturity securities are recorded directly to accumulated other comprehensive income.  Investments in equity securities are stated at fair value and unrealized holding gains and losses are credited or charged to net income (loss) as incurred and are included in realized investment gains (losses), net in the accompanying consolidated statements of operations.

Realized gains and losses on sales of equity and fixed maturity securities are recognized into income based upon the specific identification method.  Interest and dividends are recognized as earned.  Short-term investments are considered to be short-term, highly liquid investments that are less than one year in term to the dates of maturity at the purchase dates, and they present insignificant risk of changes in value due to changing interest rates.

The Company regularly evaluates all of its investments based on current economic conditions, credit loss experience, and other specific developments.  If there is a decline in a security’s net realizable value that is other than temporary, it is considered as a realized loss and the cost basis in the security is reduced to its estimated fair value.

A fixed maturity security is considered to be other-than-temporarily impaired when the security’s fair value is less than its amortized cost basis and 1) we intend to sell the security, 2) it is more likely than not that we will be required to sell the security before recovery of the security’s amortized cost basis, or 3) we believe we will be unable to recover the entire amortized cost basis of the security (i.e., credit loss has occurred).  Other-than-temporary-impairments (“OTTI”) of fixed maturity securities are separated into credit and noncredit-related amounts when there are credit-related losses associated with the impaired fixed maturity security for which management asserts that it does not have the intent to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis.  The amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other factors is recorded in other comprehensive income (loss).  A credit loss is determined by assessing whether the amortized cost basis of the security will be recovered, by comparing the present value of cash flows expected to be collected from the security, computed using original yield as the discount rate, to the amortized cost basis of the security.  The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered to be the “credit loss.”

Deferred Acquisition Costs

Deferred Acquisition Costs

Certain direct acquisition costs consisting of commissions, premium taxes and certain other direct underwriting expenses that vary with and are primarily related to the successful production of business are deferred and amortized over the effective period of the related insurance policies as the underlying policy premiums are earned. The method followed in computing deferred acquisition costs limits the amount of deferred costs to their estimated realizable value, which gives effect to the premium to be earned, related investment income, losses and loss adjustment expenses, and certain other costs expected to be incurred as the premium is earned. Future changes in estimates, the most significant of which is expected losses and loss adjustment expenses, may require adjustments to deferred acquisition costs. If the estimation of net realizable value indicates that the deferred acquisition costs are not recoverable, then they would be written off.

Prepaid Management Fee

Prepaid Management Fee

Prepaid management fee comprises costs incurred by the Company to execute a new management agreement with Diversus Management and is amortized on a straight-line basis over theseven-year useful life of the agreement.

Liability for Losses and Loss Adjustment Expenses

Liability for Losses and Loss Adjustment Expenses

Liability for losses and loss adjustment expenses include an amount determined from individual case estimates and loss reports and an amount, based on prior experience, actuarial assumptions and management judgments for losses incurred but not reported. Such liabilities are necessarily based on assumptions and estimates, and while management believes the amount is adequate, the ultimate liability may be in excess of or less than the amounts provided. The methods for making such estimates for establishing the resulting liabilities are continually reviewed.  Estimating the ultimate cost of future losses and loss adjustment expenses is an uncertain and complex process.  This estimation process is based upon the assumption that past developments are an appropriate indicator of future events and involves a variety of actuarial techniques that analyze experience, trends, and other relevant factors.  The uncertainties involved with the reserving process include internal factors, such as changes in claims handling procedure, as well as external factors, such as economic trends and changes in the concepts of legal liability and damage awards.  Accordingly, final loss settlements may vary from the present estimates, particularly when those payments may not occur until well into the future.  Adjustments to previously established reserves are reflected in the operating results of the period in which the adjustment is determined to be necessary.  Such adjustments could possibly be significant, reflecting any variety of new and adverse or favorable trends.      

We also offer extended reporting coverage at no additional charge in the event of disability, death or retirement after a policyholder reaches the age of 55 and has been a mature-claims policyholder with Positive Insurance Company for at least one year.  An extended reporting endorsement policy reserve is required to assure that premiums are not earned prematurely.  This reserve is actuarially determined and the balance is included in unearned premiums in the consolidated balance sheets.

Reinsurance

Reinsurance

The Company cedes insurance risk to other insurance companies. This arrangement allows us to minimize the net loss potential arising from large risks. Reinsurance contracts do not relieve the Company of its obligation to its policyholders. Reinsurance premiums, losses, and loss adjustment expenses are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contract.

Credit Risk

Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments, non-U.S. government bonds, premiums receivable, and balances recoverable from reinsurers.  Non-U.S. government bonds are diversified, and no one investment accounts for greater than 5% of our invested assets. Cash and cash equivalents are deposited with financial institutions with balances that fluctuate in excess of federally insured limits. If the financial institutions were not to honor their contractual liability to us, we could incur losses.  We are of the opinion that there is low risk because of the financial strength of the respective financial institutions.  We are also subject to concentrations of credit risk through short-term money market investments. The credit risk related to short-term money market investments is minimized by our investing in money market funds or repurchase agreements, both secured by U.S. government securities.  

No one insured accounted for over 10% of premiums receivable as of June 30, 2020 and December 31, 2019 or gross written premium for the three and six months ended June 30, 2020 and 2019.  We have reinsurance contracts with various reinsurers all of whom have A.M. Best ratings of A or better or have provided collateral to secure their obligations.  

Revenue Recognition

Revenue Recognition

Premiums are earned on a daily pro rata basis over the terms of the insurance policies.  Unearned premium reserves are established to cover the unexpired portion of the policies in force less amounts ceded to reinsurers.  For consideration received for policies with effective dates subsequent to the reporting period, the Company records an advance premium liability in lieu of written premium.

Premiums associated with tails are generally earned as written, except for the afore-mentioned extended reporting coverage in the event of disability, death or retirement.  Other forms of tails, in which premiums are earned as written, include the following: 1) An insured who terminates a claims-made policy with their prior carrier, and who purchases tail coverage (extended reporting coverage) from their old carrier or obtains retroactive (prior-acts) coverage from a new carrier, or 2) Stand-alone tail coverage in which an insured is offered a tail policy by their prior carrier but seeks a competitive quote from a different carrier.  Both types of tail coverage insure against claims reported after the end of the original policy period for incidents that occurred while that policy was in effect.  

Comprehensive Income

Comprehensive Income

Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale fixed maturity securities and unrealized losses related to factors other than credit on fixed maturity securities, are reported as a separate component in the equity section in the accompanying consolidated balance sheets. Such items, along with net income (loss), are components of comprehensive income, and are reflected in the accompanying consolidated statements of comprehensive income.  Reclassifications of realized gains and losses on sales of investments out of accumulated other comprehensive income are recorded in realized investment gains (losses), net in the accompanying consolidated statements of operations.

Income Taxes

Income Taxes

The Company accounts for income taxes under the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements.  Under this method, deferred tax assets and liabilities are determined based on the differences between the consolidated financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized.  In making such determination, we consider all available positive and negative evidence, including future reversal of existing taxable temporary differences, tax planning strategies, projected future taxable income, and recent financial operations.

Prior to March 27, 2019, PPIX, PCA, and PIPE filed separate federal income tax returns.  The Company did not recognize any interest and penalties in the accompanying consolidated statements of operations for the three and six months ended June 30, 2020 and 2019.  PPIX, PCA, and PIPE remain subject to examination by the Internal Revenue Service for tax years 2016 through 2018 and the short stub period in 2019.  Beginning with the 2019 tax year, the Company will file a consolidated federal income tax return.

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Investments (Tables)

6 Months Ended

Jun. 30, 2020

Marketable Securities [Abstract]

Schedule of Amortized Cost/Cost, Gross Unrealized Gains, Gross Unrealized Losses, and Fair Value of Fixed Maturity Securities

Amortized cost/cost, gross unrealized gains, gross unrealized losses, and fair value of fixed maturity securities by major security type for the results at June 30, 2020 and December 31, 2019 are as follows:

	Amortized Cost/Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
June 30, 2020
U.S. government	$	11,359,661	$	205,497	$	18,101	$	11,547,057
States, territories, and possessions		1,088,928		59,450		—		1,148,378
Subdivisions of states, territories, and possessions		12,290,490		495,142		6,946		12,778,686
Industrial and miscellaneous		72,558,805		3,686,060		201,280		76,043,585
Total fixed maturity securities	$	97,297,884	$	4,446,149	$	226,327	$	101,517,706

	Amortized Cost/Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2019
U.S. government	$	10,689,829	$	100,223	$	38,490	$	10,751,562
States, territories, and possessions		1,096,638		46,385		—		1,143,023
Subdivisions of states, territories, and possessions		12,440,863		389,472		7,470		12,822,865
Industrial and miscellaneous		69,445,114		1,591,777		6,299		71,030,592
Total fixed maturity securities	$	93,672,444	$	2,127,857	$	52,259	$	95,748,042

Schedule of Contractual Maturity Profile of Investments in Fixed Maturity Securities

The table below sets forth the contractual maturity profile of our investments in fixed maturity securities at June 30, 2020 and December 31, 2019.  Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.

	June 30, 2020				December 31, 2019
	Amortized Cost/Cost		Fair Value		Amortized Cost/Cost		Fair Value
Due in less than one year	$	17,075,418	$	17,211,639	$	8,570,607	$	8,584,991
Due after one year to five years		58,599,281		61,398,223		59,713,323		60,844,219
Due after five years to ten years		21,091,272		22,320,449		24,656,702		25,539,400
Due after ten years		531,913		587,395		731,812		779,432
	$	97,297,884	$	101,517,706	$	93,672,444	$	95,748,042

Schedule of Realized Gains and Losses Securities and Other Investments

During the three and six months ended June 30, 2020 and 2019, proceeds from maturities and sales and gross realized gains and losses on securities and other investments are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Proceeds	$	10,748,023	$	2,329,834	$	18,262,365	$	7,306,915
Gross gains		771,306		41,207		823,155		59,898
Gross losses		516,504		186,205		773,791		239,842

Schedule of Realized Investment Gains (Losses)

The components of net realized investment gains (losses) for the three and six months ended June 30, 2020 and 2019 are as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020			2019
Gain (loss) on sales of fixed maturity securities	$	3,887	$	22		$	42,930		$	(28,248	)
Gain (loss) on sales of equity securities and other investments		250,915		(145,020	)		6,434			(151,696	)
Total gain (loss) on sales of investments		254,802		(144,998	)		49,364			(179,944	)
Unrealized gain (loss) on equity securities and other investments		237,138		318,616			(1,521,845	)		1,205,213
Total net realized investment gains (losses)	$	491,940	$	173,618		$	(1,472,481	)	$	1,025,269

Schedule of Net Investment Income

The components of net investment income for the three and six months ended June 30, 2020 and 2019 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Fixed maturity securities	$	593,377	$	561,161	$	1,245,052	$	1,126,231
Cash and short-term investments		50,745		154,571		137,241		177,584
Equity securities		23,841		76,383		72,605		143,119
Other income		7,125		5,250		14,250		13,750
		675,088		797,365		1,469,148		1,460,684
Less investment expenses		26,542		31,118		54,305		66,181
Net investment income	$	648,546	$	766,247	$	1,414,843	$	1,394,503

Schedule of Fair Value and Gross Unrealized Losses of Fixed Maturity Investments

The following tables show fair value and gross unrealized losses of our fixed maturity investments with unrealized losses that are not deemed to be other-than temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2020 and December 31, 2019:

	Less than 12 months				12 months or longer				Total
Description of securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2020:
U.S. government	$	3,670,584	$	945	$	444,584	$	17,156	$	4,115,168	$	18,101
States, territories, and possessions		—		—		—		—		—		—
Subdivisions of states, territories, and possessions		—		—		68,379		6,946		68,379		6,946
Industrial and miscellaneous		4,947,932		201,280		—		—		4,947,932		201,280
Total fixed maturity securities	$	8,618,516	$	202,225	$	512,963	$	24,102	$	9,131,479	$	226,327

	Less than 12 months				12 months or longer				Total
Description of securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2019:
U.S. government	$	2,628,516	$	8,227	$	4,061,077	$	30,263	$	6,689,593	$	38,490
States, territories, and possessions		—		—		—		—		—		—
Subdivisions of states, territories, and possessions		—		—		93,000		7,470		93,000		7,470
Industrial and miscellaneous		4,773,607		5,934		350,922		365		5,124,529		6,299
Total fixed maturity securities	$	7,402,123	$	14,161	$	4,504,999	$	38,098	$	11,907,122	$	52,259

Schedule of Estimate Fair Value of Assets

The table below presents the level within the fair value hierarchy generally utilized by us to estimate the fair value of assets disclosed on a recurring basis at June 30, 2020:

	Total		Level 1		Level 2		Level 3
U.S. government	$	11,547,057	$	—	$	11,547,057	$	—
States, territories, and possessions		1,148,378		—		1,148,378		—
Subdivisions of states, territories and possessions		12,778,686		—		12,778,686		—
Industrial and miscellaneous		76,043,585		—		76,043,585		—
Total fixed maturity securities		101,517,706		—		101,517,706		—
Equity securities		260,915		260,915		—		—
	$	101,778,621	$	260,915	$	101,517,706	$	—

The table below presents the level within the fair value hierarchy generally utilized by us to estimate the fair value of assets disclosed on a recurring basis at December 31, 2019:

	Total		Level 1		Level 2		Level 3
U.S. government	$	10,751,562	$	—	$	10,751,562	$	—
States, territories, and possessions		1,143,023		—		1,143,023		—
Subdivisions of states, territories and possessions		12,822,865		—		12,822,865		—
Industrial and miscellaneous		71,030,592		—		71,030,592		—
Total fixed maturity securities		95,748,042		—		95,748,042		—
Equity securities		7,756,966		7,756,966		—		—
	$	103,505,008	$	7,756,966	$	95,748,042	$	—

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Deferred Acquisition Costs (Tables)

6 Months Ended

Jun. 30, 2020

Insurance [Abstract]

Summary of Movements in Deferred Acquisition Costs

The following table summarizes the movements in deferred acquisition costs for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Balance, beginning of period	$	2,968,462	$	4,690,104	$	2,584,486	$	3,985,193
Amount capitalized during the period		227,097		933,145		1,920,875		3,760,410
Amount amortized during the period		601,090		1,964,792		1,910,892		4,087,146
Balance, end of period	$	2,594,469	$	3,658,457	$	2,594,469	$	3,658,457

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Reinsurance (Tables)

6 Months Ended

Jun. 30, 2020

Insurance [Abstract]

Schedule of Effect of Reinsurance on Premiums Written, Amounts Earned, and Losses Incurred

The effect of reinsurance on premiums written, amounts earned, and losses incurred for the three and six months ended June 30, 2020 and 2019 is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Premiums written:
Direct	$	3,515,340	$	3,783,325	$	11,233,852	$	11,980,842
Ceded		2,176,966		648,254		2,423,445		2,600,731
Premiums written, net of reinsurance	$	1,338,374	$	3,135,071	$	8,810,407	$	9,380,111
Premiums earned:
Direct	$	5,164,623	$	6,075,535	$	11,066,071	$	12,428,915
Ceded		464,901		747,541		1,681,639		1,609,714
Premiums earned, net of reinsurance	$	4,699,722	$	5,327,994	$	9,384,432	$	10,819,201
Losses and loss adjustment expenses incurred:
Direct	$	3,470,626	$	6,365,077	$	7,436,399	$	10,276,266
Ceded		274,815		2,097,637		1,054,985		2,687,150
Losses and loss adjustment expenses incurred,    net of reinsurance	$	3,195,811	$	4,267,440	$	6,381,414	$	7,589,116

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Agreements with Diversus (Tables)

6 Months Ended

Jun. 30, 2020

Related Party Transactions [Abstract]

Schedule of Management Expenses Recorded in Operating Expenses

Management fees are recorded in other underwriting expenses in the consolidated statements of operations.  The Company incurred management fees for the respective periods as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Management fees	$	823,577	$	887,322	$	2,142,988	$	2,936,702

Schedule of Fees Incurred under the Contracts

Fees incurred by Positive Insurance Company under these contracts are recorded in other underwriting expenses in the consolidated statements of operations as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Claims processing and risk management services	$	402,875	$	408,875	$	795,450	$	808,250

Schedule of Commission Expenses

Positive Insurance Company incurred related commission expenses for the respective periods as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Commissions	$	16,133	$	-	$	78,206	$	77,850

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Schedule of Reconciliation of the Numerators and Denominators we used in the Basic and Diluted Per Share

The following table presents a reconciliation of the numerators and denominators that were used in the basic and diluted per share computations for the Company’s common stock:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020			2019
Basic earnings per common share:
Numerator:
Net income (loss)	$	358,063	$	(560,947	)	$	(764,640	)	$	(469,158	)
Denominator:
Weighted average shares outstanding		3,615,500		3,615,500			3,615,500			3,615,500
Basic earnings per common share	$	0.10	$	(0.16	)	$	(0.21	)	$	(0.13	)
Diluted earnings per common share:
Numerator:
Net income (loss)	$	358,063	$	(560,947	)	$	(764,640	)	$	(469,158	)
Denominator:
Weighted average shares outstanding - basic		3,615,500		3,615,500			3,615,500			3,615,500
Add:  vested stock options		23,243		—			23,243			—
Number of shares used in diluted computation		3,638,743		3,615,500			3,638,743			3,615,500
Diluted earnings per common share	$	0.10	$	(0.16	)	$	(0.21	)	$	(0.13	)

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Organization - Additional Information (Details)	6 Months Ended
	Jun. 30, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Date of incorporation	May 01, 2018

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Basis of Presentation - Additional Information (Details)	6 Months Ended
	Jun. 30, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]
Date of incorporation	May 01, 2018

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Summary of Significant Accounting Policies - Additional Information (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2020 USD ($) Investment Insured	Dec. 31, 2019 Insured
Accounting Policies [Abstract]
Prepaid management fee amortization period	7 years
Charges for extended reporting coverage | $	$ 0
Age for extended reporting coverage for policyholders	55 years
Minimum duration of policy for extended coverage	1 year
Number of investment accounted for greater than 5% | Investment	0
Number of insured accounted for over 20% | Insured	0	0

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Investments - Schedule of Major Security Type (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Marketable Securities [Line Items]
Fixed maturity securities, Amortized Cost/Cost	$ 97,297,884	$ 93,672,444
Fixed maturity securities, Gross Unrealized Gains	4,446,149	2,127,857
Fixed maturity securities, Gross Unrealized Losses	226,327	52,259
Fixed maturity securities, Fair Value	101,517,706	95,748,042
Industrial and Miscellaneous [Member]
Marketable Securities [Line Items]
Fixed maturity securities, Amortized Cost/Cost	72,558,805	69,445,114
Fixed maturity securities, Gross Unrealized Gains	3,686,060	1,591,777
Fixed maturity securities, Gross Unrealized Losses	201,280	6,299
Fixed maturity securities, Fair Value	76,043,585	71,030,592
U.S. Government [Member]
Marketable Securities [Line Items]
Fixed maturity securities, Amortized Cost/Cost	11,359,661	10,689,829
Fixed maturity securities, Gross Unrealized Gains	205,497	100,223
Fixed maturity securities, Gross Unrealized Losses	18,101	38,490
Fixed maturity securities, Fair Value	11,547,057	10,751,562
States, Territories, and Possessions [Member]
Marketable Securities [Line Items]
Fixed maturity securities, Amortized Cost/Cost	1,088,928	1,096,638
Fixed maturity securities, Gross Unrealized Gains	59,450	46,385
Fixed maturity securities, Fair Value	1,148,378	1,143,023
Subdivisions of States, Territories, and Possessions [Member]
Marketable Securities [Line Items]
Fixed maturity securities, Amortized Cost/Cost	12,290,490	12,440,863
Fixed maturity securities, Gross Unrealized Gains	495,142	389,472
Fixed maturity securities, Gross Unrealized Losses	6,946	7,470
Fixed maturity securities, Fair Value	$ 12,778,686	$ 12,822,865

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Investments - Schedule of Contractual Maturity Profile of Investments in Fixed Maturity Securities (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Marketable Securities [Line Items]
Fixed maturity securities, Amortized Cost/Cost	$ 97,297,884	$ 93,672,444
Fair Value, Available-for-sale Securities	101,517,706	95,748,042
Fixed Maturity Securities [Member]
Marketable Securities [Line Items]
Amortized Cost, Due to mature One year or less	17,075,418	8,570,607
Amortized Cost, Due to mature After one year through five years	58,599,281	59,713,323
Amortized Cost, Due to mature After five years through ten years	21,091,272	24,656,702
Amortized Cost, Due to mature After ten years	531,913	731,812
Fixed maturity securities, Amortized Cost/Cost	97,297,884	93,672,444
Fair Value, Due to mature One year or less	17,211,639	8,584,991
Fair Value, Due to mature After one year through five years	61,398,223	60,844,219
Fair Value, Due to mature After five years through ten years	22,320,449	25,539,400
Fair Value, Due to mature After ten years	587,395	779,432
Fair Value, Available-for-sale Securities	$ 101,517,706	$ 95,748,042

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Investments - Schedule of Realized Gains and Losses Securities and Other Investments (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Marketable Securities [Abstract]
Proceeds	$ 10,748,023	$ 2,329,834	$ 18,262,365	$ 7,306,915
Gross gains	771,306	41,207	823,155	59,898
Gross losses	$ 516,504	$ 186,205	$ 773,791	$ 239,842

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Investments -Schedule of Realized Investment Gains (Losses) (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Marketable Securities [Abstract]
Gain (loss) on sales of fixed maturity securities	$ 3,887	$ 22	$ 42,930	$ (28,248)
Gain (loss) on sales of equity securities and other investments	250,915	(145,020)	6,434	(151,696)
Total gain (loss) on sales of investments	254,802	(144,998)	49,364	(179,944)
Unrealized gain (loss) on equity securities and other investments	237,138	318,616	(1,521,845)	1,205,213
Total net realized investment gains (losses)	$ 491,940	$ 173,618	$ (1,472,481)	$ 1,025,269

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Investments - Schedule of Net Investment Income (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Marketable Securities [Line Items]
Gross investment income	$ 675,088	$ 797,365	$ 1,469,148	$ 1,460,684
Less investment expenses	26,542	31,118	54,305	66,181
Net investment income	648,546	766,247	1,414,843	1,394,503
Fixed Maturity Securities [Member]
Marketable Securities [Line Items]
Gross investment income	593,377	561,161	1,245,052	1,126,231
Cash and Short-term Investments [Member]
Marketable Securities [Line Items]
Gross investment income	50,745	154,571	137,241	177,584
Equity Securities [Member]
Marketable Securities [Line Items]
Gross investment income	23,841	76,383	72,605	143,119
Other Income [Member]
Marketable Securities [Line Items]
Gross investment income	$ 7,125	$ 5,250	$ 14,250	$ 13,750

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Investments - Schedule of Fair Value and Gross Unrealized Losses of Fixed Maturity Investments (Details) - Fixed Maturity Securities [Member] - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Fixed maturities securities, Less than 12 months Fair Value	$ 8,618,516	$ 7,402,123
Fixed maturities securities, Less than 12 months Unrealized Losses	202,225	14,161
Fixed maturities securities, Greater than 12 months Fair Value	512,963	4,504,999
Fixed maturities securities, Greater than 12 months Unrealized Losses	24,102	38,098
Fixed maturities securities, Fair Value, Total	9,131,479	11,907,122
Fixed maturities securities, Unrealized Losses, Total	226,327	52,259
U.S. Government [Member]
Fixed maturities securities, Less than 12 months Fair Value	3,670,584	2,628,516
Fixed maturities securities, Less than 12 months Unrealized Losses	945	8,227
Fixed maturities securities, Greater than 12 months Fair Value	444,584	4,061,077
Fixed maturities securities, Greater than 12 months Unrealized Losses	17,156	30,263
Fixed maturities securities, Fair Value, Total	4,115,168	6,689,593
Fixed maturities securities, Unrealized Losses, Total	18,101	38,490
Subdivisions of States, Territories, and Possessions [Member]
Fixed maturities securities, Greater than 12 months Fair Value	68,379	93,000
Fixed maturities securities, Greater than 12 months Unrealized Losses	6,946	7,470
Fixed maturities securities, Fair Value, Total	68,379	93,000
Fixed maturities securities, Unrealized Losses, Total	6,946	7,470
Industrial and Miscellaneous [Member]
Fixed maturities securities, Less than 12 months Fair Value	4,947,932	4,773,607
Fixed maturities securities, Less than 12 months Unrealized Losses	201,280	5,934
Fixed maturities securities, Greater than 12 months Fair Value		350,922
Fixed maturities securities, Greater than 12 months Unrealized Losses		365
Fixed maturities securities, Fair Value, Total	4,947,932	5,124,529
Fixed maturities securities, Unrealized Losses, Total	$ 201,280	$ 6,299

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Investments - Additional Information (Details) - USD ($)	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Marketable Securities [Abstract]
Impairment of investments	$ 0	$ 0

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Investments - Assets Measured at Fair Value on a Recurring Basis (Details) - Recurring [Member] - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Marketable Securities [Line Items]
Estimated fair value of assets	$ 101,778,621	$ 103,505,008
Level 1 [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	260,915	7,756,966
Level 2 [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	101,517,706	95,748,042
Fixed Maturity Securities [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	101,517,706	95,748,042
Fixed Maturity Securities [Member] | Level 2 [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	101,517,706	95,748,042
Fixed Maturity Securities [Member] | U.S. Government [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	11,547,057	10,751,562
Fixed Maturity Securities [Member] | U.S. Government [Member] | Level 2 [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	11,547,057	10,751,562
Fixed Maturity Securities [Member] | States, Territories, and Possessions [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	1,148,378	1,143,023
Fixed Maturity Securities [Member] | States, Territories, and Possessions [Member] | Level 2 [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	1,148,378	1,143,023
Fixed Maturity Securities [Member] | Subdivisions of States, Territories, and Possessions [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	12,778,686	12,822,865
Fixed Maturity Securities [Member] | Subdivisions of States, Territories, and Possessions [Member] | Level 2 [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	12,778,686	12,822,865
Fixed Maturity Securities [Member] | Industrial and Miscellaneous [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	76,043,585	71,030,592
Fixed Maturity Securities [Member] | Industrial and Miscellaneous [Member] | Level 2 [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	76,043,585	71,030,592
Equity Securities [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	260,915	7,756,966
Equity Securities [Member] | Level 1 [Member]
Marketable Securities [Line Items]
Estimated fair value of assets	$ 260,915	$ 7,756,966

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Deferred Acquisition Costs - Summary of Movements in Deferred Acquisition Costs (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Insurance [Abstract]
Balance, beginning of period	$ 2,968,462	$ 4,690,104	$ 2,584,486	$ 3,985,193
Amount capitalized during the period	227,097	933,145	1,920,875	3,760,410
Amount amortized during the period	601,090	1,964,792	1,910,892	4,087,146
Balance, end of period	$ 2,594,469	$ 3,658,457	$ 2,594,469	$ 3,658,457

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Reinsurance - Additional Information (Details)	6 Months Ended
	Jun. 30, 2020 USD ($)
Reinsurance Retention Policy [Line Items]
Agreement renewal date	Apr. 01, 2020
Primary Insurance [Member]
Reinsurance Retention Policy [Line Items]
Malpractice insurance, annual coverage limit	$ 1,500,000
Malpractice insurance, maximum coverage per Incident	500,000
Pennsylvania Medical Care Availability And Reduction Of Error [Member]
Reinsurance Retention Policy [Line Items]
Malpractice insurance, coverage floor	500,000
Malpractice insurance, maximum coverage per Incident	1,000,000
Primary insurance, Pennsylvania MCARE not applied [Member]
Reinsurance Retention Policy [Line Items]
Malpractice insurance, annual coverage limit	3,000,000
Malpractice insurance, maximum coverage per Incident	1,000,000
Pennsylvania [Member]
Reinsurance Retention Policy [Line Items]
Malpractice insurance, coverage floor	1,000,000
Malpractice insurance, annual coverage limit	3,000,000
Retained risk amount	300,000
Reinsurance coverage, maximum	1,000,000
Maryland, Delaware, Ohio, New Jersey, and South Carolina [Member]
Reinsurance Retention Policy [Line Items]
Malpractice insurance, annual coverage limit	3,000,000
Malpractice insurance, maximum coverage per Incident	1,000,000
Retained risk amount	300,000
Reinsurance coverage, maximum	1,000,000
New Jersey [Member]
Reinsurance Retention Policy [Line Items]
Malpractice insurance additional coverage per incident	1,000,000
Maximum aggregate liability ceded to reinsurer per the terms of reinsurance agreement	2,000,000
South Carolina and Michigan [Member]
Reinsurance Retention Policy [Line Items]
Retained risk amount	100,000
Malpractice insurance additional coverage per incident	200,000
Reinsurance retention policy, excess retention, amount reinsured	$ 100,000

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Reinsurance - Effect of Reinsurance on Premiums Written, Amounts Earned, and Losses Incurred (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Premiums written:
Direct	$ 3,515,340	$ 3,783,325	$ 11,233,852	$ 11,980,842
Ceded	2,176,966	648,254	2,423,445	2,600,731
Premiums written, net of reinsurance	1,338,374	3,135,071	8,810,407	9,380,111
Premiums earned:
Direct	5,164,623	6,075,535	11,066,071	12,428,915
Ceded	464,901	747,541	1,681,639	1,609,714
Premiums earned, net of reinsurance	4,699,722	5,327,994	9,384,432	10,819,201
Losses and loss adjustment expenses incurred:
Direct	3,470,626	6,365,077	7,436,399	10,276,266
Ceded	274,815	2,097,637	1,054,985	2,687,150
Losses and loss adjustment expenses incurred, net of reinsurance	$ 3,195,811	$ 4,267,440	$ 6,381,414	$ 7,589,116

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Losses and Loss Adjustment Expenses - Additional Information (Details) - USD ($)	Jun. 30, 2020	Dec. 31, 2019
Roll Forward In Liability For Unpaid Claims And Claims Adjustment Expense [Abstract]
Liabilities for Unpaid Losses and Loss Adjustment Expenses, net of reinsurance	$ 63,510,324	$ 63,607,975
Reinsurance recoverable on unpaid claims	$ 7,424,458

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Income Taxes - Additional Information (Details) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Tax Disclosure [Line Items]
Unrecognized tax benefits	$ 0		$ 0
Unrecognized tax benefits, interest and penalties	0		0
Significant uncertain tax positions	0		0
Interest and penalties recognized	0	$ 0
Net operating loss carryforward	$ 1,133,600		3,600,298
Net operating loss carryforward, expiration year	2038
Deferred tax assets, valuation allowance	$ 0		$ 0
CARES Act [Member]
Income Tax Disclosure [Line Items]
Net operating loss carryforward	$ 2,969,550
Effective income tax rate reconciliation, at federal statutory income tax rate, percent	21.00%		21.00%	21.00%	34.00%
Net operating loss carryforwards tax effected	$ 623,606
Additional Federal income tax refunds	$ 1,205,964

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Agreements with Diversus - Additional Information (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019	Mar. 27, 2019
Related Party Transaction [Line Items]
Earned management fee, percentage			12.00%
Quarterly performance fees payable	$ 0		$ 0
Prepaid management fee	8,214,286		$ 8,214,286		$ 8,928,571	$ 10,000,000
Prepaid management fee amortization period			7 years
Line of credit facility, maximum borrowing capacity						$ 6,000,000
Line of credit	0		$ 0
Other Underwriting Expenses [Member]
Related Party Transaction [Line Items]
Prepaid management amortization expense	$ 357,143	$ 357,143	$ 714,285	$ 357,143

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Agreements with Diversus - Summary of Management Expenses (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Other Underwriting Expenses [Member]
Related Party Transaction [Line Items]
Management fees	$ 823,577	$ 887,322	$ 2,142,988	$ 2,936,702

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Agreements with Diversus - Schedule of Fees Incurred under the Contract (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Gateway Risk Services LLC and Andrews Outsource Solutions LLC [Member] | Other Underwriting Expenses [Member]
Related Party Transaction [Line Items]
Claims processing and risk management services	$ 402,875	$ 408,875	$ 795,450	$ 808,250

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Agreements with Diversus - Schedule of Commission Expenses (Details) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2020	Jun. 30, 2019
Specialty Insurance Services, LLC [Member] | Other Underwriting Expenses [Member]
Related Party Transaction [Line Items]
Commissions	$ 16,133	$ 78,206	$ 77,850

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Common Stock - Additional Information (Details) - USD ($)			3 Months Ended	6 Months Ended
	Sep. 27, 2019	Mar. 27, 2019	Jun. 30, 2020	Jun. 30, 2020	Sep. 28, 2019
Subsidiary Sale Of Stock [Line Items]
Common stock, shares authorized			10,000,000	10,000,000
Common stock, par value			$ 0.01	$ 0.01
Common stock, shares issued			3,615,500	3,615,500
Common stock, shares outstanding			3,615,500	3,615,500
Stock-based compensation expense			$ 23,707	$ 71,122
Cash and other liquid assets			$ 15,824,903	$ 15,824,903
Notice period prior to the payment of extraordinary dividend				30 days
Notice period prior to the payment of ordinary dividend.				10 days
Chief Executive Officer [Member] | Common stock [Member]
Subsidiary Sale Of Stock [Line Items]
Options granted to purchase common stock, shares	216,930
Exercise price of common stock per share	$ 12.01
Shares to be vested	108,465				108,465
Shares vesting period				3 years 6 months
Vested shares exercisable from date of vesting				8 years
IPO [Member]
Subsidiary Sale Of Stock [Line Items]
Common stock issued during period		3,615,500

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Earnings Per Share - Additional Information (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Earnings Per Share [Abstract]
Weighted average shares outstanding	3,615,500	3,615,500	3,615,500	3,615,500

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Earnings per Share - Schedule of Reconciliation of the Numerators and Denominators we used in the Basic and Diluted Per Share (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Numerator:
Net income (loss)	$ 358,063	$ (560,947)	$ (764,640)	$ (469,158)
Denominator:
Weighted average shares outstanding	3,615,500	3,615,500	3,615,500	3,615,500
Basic earnings per common share	$ 0.10	$ (0.16)	$ (0.21)	$ (0.13)
Denominator:
Diluted earnings per common share	$ 0.10	$ (0.16)	$ (0.21)	$ (0.13)
Basic Earnings (Loss) Per Common Share
Numerator:
Net income (loss)	$ 358,063	$ (560,947)	$ (764,640)	$ (469,158)
Denominator:
Weighted average shares outstanding	3,615,500	3,615,500	3,615,500	3,615,500
Basic earnings per common share	$ 0.10	$ (0.16)	$ (0.21)	$ (0.13)
Diluted Earnings (Loss) Per Common Share
Numerator:
Net income (loss)	$ 358,063	$ (560,947)	$ (764,640)	$ (469,158)
Denominator:
Weighted average shares outstanding	3,615,500	3,615,500	3,615,500	3,615,500
Denominator:
Add: vested stock options	23,243		23,243
Number of shares used in diluted computation	3,638,743	3,615,500	3,638,743	3,615,500
Diluted earnings per common share	$ 0.10	$ (0.16)	$ (0.21)	$ (0.13)

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COVID-19 - Additional Information (Details) - COVID 19 [Member]	3 Months Ended
	Jun. 30, 2020 USD ($)
Unusual Or Infrequent Item [Line Items]
Return premium adjustments or reductions in direct premiums written	$ 160,000
Allowance for uncollectible premium	$ 150,000

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Subsequent Events - Additional Information (Details)	May 18, 2020 shares
Nasdaq Capital Market [Member]
Subsequent Event [Line Items]
Minimum publicly held shares requirement for continued listing	500,000