Revision of Previously Issued Consolidated Financial Statements

9 Months Ended

Sep. 30, 2021

Revision of Previously Issued Consolidated Financial Statements [Abstract]

Revision of Previously Issued Consolidated Financial Statements

3. Revision of Previously Issued Consolidated Financial Statements

In connection with the preparation of our consolidated financial statements for the quarter ended September 30, 2021, we identified immaterial errors relating to certain reinsurance treaties and other items related to prior periods. We maintain various Quota Share and Excess of Loss reinsurance treaties for our casualty lines of business produced by our Specialty Commercial Segment. We incorrectly determined the gross premium subject to these reinsurance treaties from October 1, 2018 through June 30, 2021, which overstated our net earned premium and understated our net losses incurred and operating expenses. This error impacted only excess policies in our Commercial Auto, E&S Casualty and Professional Liability business units within our Specialty Commercial Segment.

In accordance with SEC Staff Accounting Bulletin Topics 1.M and 1.N, the Company evaluated the materiality of this error both quantitatively and qualitatively and determined that it was not material to our previously issued

consolidated financial statements. However, adjusting for the cumulative effect of this error in the consolidated financial statements of operations for 2021 would be material to the Company’s results for this period.

The accompanying financial statements and relevant footnotes to the consolidated financial statements in this Quarterly Report on Form 10-Q have been revised to correct for these immaterial prior period errors. The impact to the statements of comprehensive income and equity are captured within the tables below through the presentation of the impact to net income and retained earnings. The tables below provide reconciliations of our previously reported amounts to the revised amounts corrected for these immaterial errors in the prior periods indicated.

Consolidated Statements of Operations:

	Three months ended September 30,						Nine months ended September 30,
	2020						2020
	As previously						As previously
	reported		Revisions		As revised		reported		Revisions		As revised
Ceded premiums written	$	(80,353)	$	(3,055)	$	(83,408)	$	(230,094)	$	(9,173)	$	(239,267)
Net premiums written		116,111		(3,055)		113,056		351,603		(9,173)		342,430
Change in unearned premiums		3,449		215		3,664		17,486		2,101		19,587
Net premiums earned		119,560		(2,840)		116,720		369,089		(7,072)		362,017
Total revenues		123,133		(2,840)		120,293		356,833		(7,072)		349,761
Losses and loss adjustment expenses		124,253		(1,698)		122,555		312,531		(4,253)		308,278
Operating expenses		34,296		(656)		33,640		93,703		(1,644)		92,059
(Loss) income before tax	$	(37,306)	$	(486)	$	(37,792)	$	(101,309)	$	(1,175)	$	(102,484)
Income tax expense		(9,302)		(102)		(9,404)		(15,696)		(247)		(15,943)
Net loss	$	(28,004)	$	(384)	$	(28,388)	$	(85,613)	$	(928)	$	(86,541)
Common stockholders net income per share:
Basic	$	(1.54)	$	(0.02)	$	(1.56)	$	(4.72)	$	(0.05)	$	(4.77)
Diluted	$	(1.54)	$	(0.02)	$	(1.56)	$	(4.72)	$	(0.05)	$	(4.77)

	For the year ended December 31,						For the year ended December 31,
	2019						2020
	As previously						As previously
	reported		Revisions		As revised		reported		Revisions		As revised
Ceded premiums written	$	(347,279)	$	(5,978)	$	(353,257)	$	(304,395)	$	(10,640)	$	(315,035)
Net premiums written		496,552		(5,978)		490,574		438,973		(10,640)		428,333
Change in unearned premiums		(59,675)		3,393		(56,282)		42,825		743		43,568
Net premiums earned		436,877		(2,585)		434,292		481,798		(9,897)		471,901
Total revenues		486,371		(2,585)		483,786		478,745		(9,897)		468,848
Losses and loss adjustment expenses		362,165		(1,619)		360,546		412,851		(5,944)		406,907
Operating expenses		117,357		(325)		117,032		126,266		(2,347)		123,919
(Loss) income before tax	$	(1,032)	$	(642)	$	(1,674)	$	(114,162)	$	(1,606)	$	(115,768)
Income tax expense		(407)		(135)		(542)		(22,507)		1,090		(21,417)
Net loss	$	(625)	$	(507)	$	(1,132)	$	(91,655)	$	(2,696)	$	(94,351)
Common stockholders net income per share:
Basic	$	(0.03)	$	(0.03)	$	(0.06)	$	(5.05)	$	(0.15)	$	(5.20)
Diluted	$	(0.03)	$	(0.03)	$	(0.06)	$	(5.05)	$	(0.15)	$	(5.20)

	Three months ended March 31,						Three months ended June 30,						Six months ended June 30,
	2021						2021						2021
	As previously						As previously						As previously
	reported		Revisions		As revised		reported		Revisions		As revised		reported		Revisions		As revised
Ceded premiums written	$	(69,871)	$	(1,650)	$	(71,521)	$	(80,582)	$	(1,648)	$	(82,230)	$	(150,453)	$	(3,298)	$	(153,751)
Net premiums written		93,147		(1,650)		91,497		89,134		(1,648)		87,486		182,281		(3,298)		178,983
Change in unearned premiums		11,071		(716)		10,355		9,477		(379)		9,098		20,548		(1,095)		19,453
Net premiums earned		104,218		(2,366)		101,852		98,611		(2,027)		96,584		202,829		(4,393)		198,436
Total revenues		114,419		(2,366)		112,053		106,215		(2,027)		104,188		220,634		(4,393)		216,241
Losses and loss adjustment expenses		70,903		(1,424)		69,479		77,719		(1,230)		76,489		148,622		(2,654)		145,968
Operating expenses		30,441		(468)		29,973		27,653		(319)		27,334		58,094		(787)		57,307
(Loss) income before tax	$	11,700	$	(473)	$	11,227	$	(532)	$	(478)	$	(1,010)	$	11,168	$	(951)	$	10,217
Income tax expense		2,355		(99)		2,256		(65)		(100)		(165)		2,290		(199)		2,091
Net loss	$	9,345	$	(374)	$	8,971	$	(467)	$	(378)	$	(845)	$	8,878	$	(752)	$	8,126
Common stockholders net income per share:
Basic	$	0.52	$	(0.03)	$	0.49	$	(0.03)	$	(0.02)	$	(0.05)	$	0.49	$	(0.04)	$	0.45
Diluted	$	0.52	$	(0.03)	$	0.49	$	(0.03)	$	(0.02)	$	(0.05)	$	0.49	$	(0.04)	$	0.45

Consolidated Balance Sheets:

	December 31,						December 31,
	2019						2020
	As previously						As previously
	reported		Revisions		As revised		reported		Revisions		As revised
Ceded unearned premiums	$	164,221	$	3,777	$	167,998	$	138,926	$	4,520	$	143,446
Reinsurance recoverable		315,466		1,671		317,137		490,231		7,615		497,846
Federal income tax recoverable		8,995		139		9,134		25,642		(951)		24,691
Total assets		1,495,274		5,587		1,500,861		1,485,533		11,184		1,496,717
Reinsurance payable		59,274		6,107		65,381		46,700		14,400		61,100
Total liabilities		1,231,992		6,107		1,238,099		1,314,611		14,400		1,329,011
Retained earnings		160,570		(521)		160,049		68,915		(3,216)		65,699
Total stockholders' equity		263,282		(521)		262,761		170,922		(3,216)		167,706
Total liabilities and stockhoders' equity		1,495,274		5,586		1,500,860		1,485,533		11,184		1,496,717

	September 30,						March 31,						June 30,
	2020						2021						2021
	As previously						As previously						As previously
	reported		Revisions		As revised		reported		Revisions		As revised		reported		Revisions		As revised
Ceded unearned premiums	$	144,075	$	2,101	$	146,176	$	134,206	$	3,804	$	138,010	$	139,609	$	3,425	$	143,034
Reinsurance recoverable		504,472		4,253		508,725		494,815		9,039		503,854		494,473		10,269		504,742
Federal income tax recoverable		19,748		247		19,995		23,855		(852)		23,003		20,025		(751)		19,274
Total assets		1,497,507		6,601		1,504,108		1,517,543		11,991		1,529,534		1,506,694		12,943		1,519,637
Reinsurance payable		67,346		7,529		74,875		51,673		15,582		67,255		51,921		16,911		68,832
Total liabilities		1,321,328		7,529		1,328,857		1,337,791		15,582		1,353,373		1,327,810		16,911		1,344,721
Retained earnings		74,957		(928)		74,029		78,260		(3,592)		74,668		77,793		(3,968)		73,825
Total stockholders' equity		176,179		(928)		175,251		179,752		(3,592)		176,160		178,884		(3,968)		174,916
Total liabilities and stockhoders' equity		1,497,507		6,601		1,504,108		1,517,543		11,990		1,529,533		1,506,694		12,943		1,519,637

Consolidated Statements of Cash Flows:

	For the year ended December 31,						For the year ended December 31,						For the nine months ended September 30,
	2019						2020						2020
	As previously						As previously						As previously
	reported		Revisions		As revised		reported		Revisions		As revised		reported		Revisions		As revised
Net income	$	(625)	$	(507)	$	(1,132)	$	(91,655)	$	(2,696)	$	(94,351)	$	(85,613)	$	(928)	$	(86,541)
Change in reinsurance payable		(8,054)		5,654		(2,400)		(12,574)		8,293		(4,281)		8,072		7,529		15,601
Change in reinsurance recoverable		(63,437)		(1,619)		(65,056)		(174,765)		(5,944)		(180,709)		(189,006)		(4,253)		(193,259)
Change in ceded unearned premiums		(31,190)		(3,393)		(34,583)		25,295		(743)		24,552		20,146		(2,101)		18,045
Change in federal income tax recoverable		(8,999)		(135)		(9,134)		(16,647)		1,090		(15,557)		(10,753)		(247)		(11,000)
Net cash provided by (used in) operating activities	$	27,670	$	—	$	27,670	$	(69,327)	$	—	$	(69,327)	$	(62,895)	$	—	$	(62,895)

	For the three months ended March 31,						For the six months ended June 30,
	2021						2021
	As previously						As previously
	reported		Revisions		As revised		reported		Revisions		As revised
Net income	$	9,345	$	(374)	$	8,971	$	8,878	$	(752)	$	8,126
Change in reinsurance payable		4,973		1,182		6,155		5,221		2,510		7,731
Change in reinsurance recoverable		(4,584)		(1,424)		(6,008)		(4,242)		(2,653)		(6,895)
Change in ceded unearned premiums		4,720		716		5,436		(683)		1,094		411
Change in federal income tax payable (recoverable)		1,787		(100)		1,687		5,617		(200)		5,417
Net cash provided by (used in) operating activities	$	29,476	$	—	$	29,476	$	28,899	$	—	$	28,899