false--12-31Q1202000008650584000000135000002500000030000000200000011111750000042500000725000002000000011110.03750.03400.0050.005Interest payments due quarterlyInterest payments due quarterly29400012320001500005800014800057000000.04750.0475WSJ80009200011 0000865058 2020-01-01 2020-03-31 0000865058 2019-01-01 2019-12-31 0000865058 2020-05-14 0000865058 2019-12-31 0000865058 2020-03-31 0000865058 2019-01-01 2019-03-31 0000865058 us-gaap:CommonStockMember 2019-03-31 0000865058 2019-03-31 0000865058 us-gaap:TreasuryStockMember 2018-12-31 0000865058 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0000865058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0000865058 us-gaap:TreasuryStockMember 2019-03-31 0000865058 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0000865058 us-gaap:CommonStockMember 2018-12-31 0000865058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0000865058 us-gaap:RetainedEarningsMember 2018-12-31 0000865058 2018-12-31 0000865058 us-gaap:RetainedEarningsMember 2019-03-31 0000865058 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0000865058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0000865058 us-gaap:RetainedEarningsMember 2020-01-01 2020-03-31 0000865058 us-gaap:AdditionalPaidInCapitalMember 2019-12-31 0000865058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0000865058 us-gaap:CommonStockMember 2019-12-31 0000865058 us-gaap:TreasuryStockMember 2020-01-01 2020-03-31 0000865058 us-gaap:RetainedEarningsMember 2019-12-31 0000865058 us-gaap:RetainedEarningsMember 2020-03-31 0000865058 us-gaap:TreasuryStockMember 2020-03-31 0000865058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-03-31 0000865058 us-gaap:AdditionalPaidInCapitalMember 2020-03-31 0000865058 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-03-31 0000865058 us-gaap:CommonStockMember 2020-03-31 0000865058 us-gaap:TreasuryStockMember 2019-12-31 0000865058 nsec:SingleLargestAgentBalanceDueMember 2020-03-31 0000865058 nsec:TrustPreferredSecurityOffering2005Member 2005-12-01 2005-12-31 0000865058 nsec:TrustPreferredSecurityOffering2007Member 2007-06-01 2007-06-30 0000865058 nsec:TrustPreferredSecurityOffering2007Member 2007-06-30 0000865058 us-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember 2020-03-31 0000865058 nsec:TrustPreferredSecurityOffering2007Member us-gaap:UnsecuredDebtMember 2007-06-30 0000865058 us-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember srt:MaximumMember 2020-01-01 2020-03-31 0000865058 nsec:TrustPreferredSecurityOffering2005Member 2005-12-31 0000865058 us-gaap:EquitySecuritiesMember 2019-01-01 2019-03-31 0000865058 us-gaap:PolicyLoansMember 2019-01-01 2019-03-31 0000865058 us-gaap:MortgagesMember 2020-01-01 2020-03-31 0000865058 us-gaap:RealEstateInvestmentMember 2019-01-01 2019-03-31 0000865058 us-gaap:RealEstateInvestmentMember 2020-01-01 2020-03-31 0000865058 us-gaap:PolicyLoansMember 2020-01-01 2020-03-31 0000865058 us-gaap:EquitySecuritiesMember 2020-01-01 2020-03-31 0000865058 us-gaap:FixedMaturitiesMember 2019-01-01 2019-03-31 0000865058 nsec:OtherPrincipallyShortTermInvestmentsMember 2019-01-01 2019-03-31 0000865058 nsec:OtherPrincipallyShortTermInvestmentsMember 2020-01-01 2020-03-31 0000865058 us-gaap:MortgagesMember 2019-01-01 2019-03-31 0000865058 us-gaap:FixedMaturitiesMember 2020-01-01 2020-03-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember 2020-03-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2020-03-31 0000865058 us-gaap:AssetBackedSecuritiesMember 2020-03-31 0000865058 us-gaap:EquitySecuritiesMember 2020-03-31 0000865058 us-gaap:CorporateBondSecuritiesMember 2020-03-31 0000865058 us-gaap:USStatesAndPoliticalSubdivisionsMember 2020-03-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember 2019-12-31 0000865058 us-gaap:AssetBackedSecuritiesMember 2019-12-31 0000865058 us-gaap:ForeignGovernmentDebtSecuritiesMember 2019-12-31 0000865058 us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2019-12-31 0000865058 us-gaap:CorporateBondSecuritiesMember 2019-12-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember 2019-12-31 0000865058 us-gaap:USStatesAndPoliticalSubdivisionsMember 2019-12-31 0000865058 us-gaap:ForeignGovernmentDebtSecuritiesMember 2020-03-31 0000865058 us-gaap:USGovernmentAgenciesDebtSecuritiesMember 2020-03-31 0000865058 nsec:ChangeinSurrenderValueofCompanyOwnedLifeInsuranceMember 2020-01-01 2020-03-31 0000865058 nsec:OtherPrincipallyRealEstateMember 2020-01-01 2020-03-31 0000865058 nsec:ChangeinfairvalueofequitysecuritiesMember 2020-01-01 2020-03-31 0000865058 nsec:RealizedGainonCompanyOwnedLifeInsuranceMember 2020-01-01 2020-03-31 0000865058 nsec:ChangeinfairvalueofequitysecuritiesMember 2019-01-01 2019-03-31 0000865058 nsec:OtherPrincipallyRealEstateMember 2019-01-01 2019-03-31 0000865058 nsec:RealizedGainonCompanyOwnedLifeInsuranceMember 2019-01-01 2019-03-31 0000865058 nsec:ChangeinSurrenderValueofCompanyOwnedLifeInsuranceMember 2019-01-01 2019-03-31 0000865058 srt:MaximumMember 2020-03-31 0000865058 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:ForeignGovernmentDebtSecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:USGovernmentAgenciesDebtSecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:USGovernmentAgenciesDebtSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:ForeignGovernmentDebtSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:ForeignGovernmentDebtSecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:EquitySecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel1Member us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel3Member us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:ForeignGovernmentDebtSecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:USGovernmentAgenciesDebtSecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:USGovernmentAgenciesDebtSecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:FairValueMeasurementsRecurringMember 2019-01-01 2019-12-31 0000865058 us-gaap:AvailableforsaleSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2019-01-01 2019-12-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0000865058 us-gaap:AvailableforsaleSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2018-12-31 0000865058 us-gaap:AvailableforsaleSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:AvailableforsaleSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2020-01-01 2020-03-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:FairValueMeasurementsRecurringMember 2020-01-01 2020-03-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:AvailableforsaleSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2020-03-31 0000865058 us-gaap:FairValueMeasurementsNonrecurringMember 2019-12-31 0000865058 us-gaap:FairValueMeasurementsNonrecurringMember 2020-03-31 0000865058 us-gaap:LongTermDebtMember 2020-03-31 0000865058 us-gaap:CashSurrenderValueMember 2020-03-31 0000865058 us-gaap:PolicyLoansMember 2020-03-31 0000865058 us-gaap:InsuranceClaimsMember 2020-03-31 0000865058 us-gaap:HeldtomaturitySecuritiesMember 2019-12-31 0000865058 us-gaap:InsuranceClaimsMember 2019-12-31 0000865058 us-gaap:MortgagesMember 2020-03-31 0000865058 us-gaap:ShortTermDebtMember 2019-12-31 0000865058 us-gaap:OtherLongTermInvestmentsMember 2020-03-31 0000865058 us-gaap:HeldtomaturitySecuritiesMember 2020-03-31 0000865058 us-gaap:MortgagesMember 2019-12-31 0000865058 us-gaap:OtherLongTermInvestmentsMember 2019-12-31 0000865058 us-gaap:ShortTermDebtMember 2020-03-31 0000865058 us-gaap:CashSurrenderValueMember 2019-12-31 0000865058 us-gaap:PolicyLoansMember 2019-12-31 0000865058 us-gaap:LongTermDebtMember 2019-12-31 0000865058 us-gaap:EquitySecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:ForeignGovernmentDebtSecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:ForeignGovernmentDebtSecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:USGovernmentAgenciesDebtSecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel1Member us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel3Member us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:ForeignGovernmentDebtSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:USGovernmentAgenciesDebtSecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:InterestRateSwapMember us-gaap:FairValueInputsLevel2Member us-gaap:DerivativeFinancialInstrumentsLiabilitiesMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:ForeignGovernmentDebtSecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueInputsLevel1Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:USStatesAndPoliticalSubdivisionsMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:USGovernmentAgenciesDebtSecuritiesMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:EquitySecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:USGovernmentAgenciesDebtSecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:CorporateBondSecuritiesMember us-gaap:FairValueInputsLevel3Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMember us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:AssetBackedSecuritiesMember us-gaap:FairValueInputsLevel2Member us-gaap:FairValueMeasurementsRecurringMember 2019-12-31 0000865058 us-gaap:FurnitureAndFixturesMember 2019-12-31 0000865058 nsec:BuildingAndImprovementsMember 2019-12-31 0000865058 nsec:BuildingAndImprovementsMember 2020-03-31 0000865058 us-gaap:FurnitureAndFixturesMember 2020-03-31 0000865058 nsec:ElectronicDataProcessingEquipmentMember 2019-12-31 0000865058 nsec:ElectronicDataProcessingEquipmentMember 2020-03-31 0000865058 nsec:InterestRateSwap1Member 2020-02-26 0000865058 us-gaap:CashFlowHedgingMember 2011-12-31 0000865058 us-gaap:InterestRateSwapMember 2020-02-26 0000865058 us-gaap:InterestRateSwapMember 2010-05-26 0000865058 us-gaap:InterestRateSwapMember 2010-12-31 0000865058 us-gaap:UnsecuredDebtMember us-gaap:NotesPayableToBanksMember 2019-12-31 0000865058 us-gaap:UnsecuredDebtMember us-gaap:NotesPayableToBanksMember 2020-03-31 0000865058 nsec:TrustPreferredSecurityOffering2007Member us-gaap:UnsecuredDebtMember 2020-03-31 0000865058 nsec:TrustPreferredSecurityOffering2007Member us-gaap:UnsecuredDebtMember 2019-12-31 0000865058 nsec:TrustPreferredSecurityOffering2005Member us-gaap:UnsecuredDebtMember 2019-12-31 0000865058 nsec:PromissoryNoteMember us-gaap:UnsecuredDebtMember 2019-12-31 0000865058 nsec:TrustPreferredSecurityOffering2005Member us-gaap:UnsecuredDebtMember 2020-03-31 0000865058 nsec:PromissoryNoteMember us-gaap:UnsecuredDebtMember 2020-03-31 0000865058 us-gaap:UnsecuredDebtMember us-gaap:NotesPayableToBanksMember 2020-01-01 2020-03-31 0000865058 nsec:TrustPreferredSecurityOffering2005Member us-gaap:UnsecuredDebtMember us-gaap:LondonInterbankOfferedRateLIBORMember 2005-12-14 2005-12-15 0000865058 nsec:TrustPreferredSecurityOffering2007Member us-gaap:UnsecuredDebtMember 2020-01-01 2020-03-31 0000865058 nsec:TrustPreferredSecurityOffering2005Member us-gaap:UnsecuredDebtMember 2020-01-01 2020-03-31 0000865058 nsec:PromissoryNoteMember us-gaap:UnsecuredDebtMember 2020-01-01 2020-03-31 0000865058 nsec:TrustPreferredSecurityOffering2007Member us-gaap:UnsecuredDebtMember us-gaap:LondonInterbankOfferedRateLIBORMember 2007-06-20 2007-06-21 0000865058 us-gaap:CollateralPledgedMember 2019-12-31 0000865058 us-gaap:CollateralPledgedMember 2020-03-31 0000865058 srt:ConsolidatedPropertyAndCasualtyInsuranceEntityMember 2019-01-01 2019-03-31 0000865058 srt:ConsolidatedPropertyAndCasualtyInsuranceEntityMember 2020-01-01 2020-03-31 0000865058 srt:ConsolidatedPropertyAndCasualtyInsuranceEntityMember 2019-12-31 0000865058 srt:ConsolidatedPropertyAndCasualtyInsuranceEntityMember 2019-03-31 0000865058 srt:ConsolidatedPropertyAndCasualtyInsuranceEntityMember 2018-12-31 0000865058 srt:ConsolidatedPropertyAndCasualtyInsuranceEntityMember 2020-03-31 0000865058 nsec:SecondCatastropheEventMember 2020-01-01 2020-03-31 0000865058 nsec:FirstCatastropheEventMember 2020-01-01 2020-03-31 0000865058 nsec:SingleReinsurerMember 2020-03-31 0000865058 nsec:SingleReinsurerMember 2019-12-31 0000865058 nsec:Layer4Member 2020-01-01 2020-03-31 0000865058 nsec:Layer1Member 2020-01-01 2020-03-31 0000865058 nsec:Layer2Member 2020-01-01 2020-03-31 0000865058 nsec:Layer3Member 2020-01-01 2020-03-31 0000865058 nsec:NonQualifiedDeferredCompensationPlansMember 2019-01-01 2019-03-31 0000865058 nsec:NonQualifiedDeferredCompensationPlansMember 2020-01-01 2020-03-31 0000865058 nsec:ExecutiveOffisersMember 2020-01-01 2020-03-31 0000865058 2019-11-30 0000865058 us-gaap:CommonClassAMember 2020-03-31 0000865058 us-gaap:CommonClassAMember 2019-12-31 0000865058 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-01-01 2019-03-31 0000865058 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-01-01 2019-03-31 0000865058 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2020-03-31 0000865058 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-12-31 0000865058 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2020-01-01 2020-03-31 0000865058 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-12-31 0000865058 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-03-31 0000865058 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2019-01-01 2019-03-31 0000865058 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2020-01-01 2020-03-31 0000865058 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2020-03-31 0000865058 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-12-31 0000865058 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-03-31 0000865058 us-gaap:AccumulatedNetGainLossFromDesignatedOrQualifyingCashFlowHedgesMember 2018-12-31 0000865058 us-gaap:ReclassificationOutOfAccumulatedOtherComprehensiveIncomeMember us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2020-01-01 2020-03-31 0000865058 us-gaap:LifeInsuranceSegmentMember 2019-01-01 2019-03-31 0000865058 us-gaap:AllOtherSegmentsMember 2019-01-01 2019-03-31 0000865058 us-gaap:PropertyLiabilityAndCasualtyInsuranceSegmentMember 2019-01-01 2019-03-31 0000865058 srt:ConsolidationEliminationsMember 2019-01-01 2019-03-31 0000865058 us-gaap:AllOtherSegmentsMember 2020-03-31 0000865058 us-gaap:PropertyLiabilityAndCasualtyInsuranceSegmentMember 2019-12-31 0000865058 us-gaap:LifeInsuranceSegmentMember 2019-12-31 0000865058 us-gaap:AllOtherSegmentsMember 2019-12-31 0000865058 us-gaap:PropertyLiabilityAndCasualtyInsuranceSegmentMember 2020-03-31 0000865058 us-gaap:LifeInsuranceSegmentMember 2020-03-31 0000865058 us-gaap:LifeInsuranceSegmentMember 2020-01-01 2020-03-31 0000865058 us-gaap:PropertyLiabilityAndCasualtyInsuranceSegmentMember 2020-01-01 2020-03-31 0000865058 us-gaap:PropertyLiabilityAndCasualtyInsuranceSegmentMember nsec:HomeownersIncludingMobileHomeownersMember 2020-01-01 2020-03-31 0000865058 us-gaap:PropertyLiabilityAndCasualtyInsuranceSegmentMember nsec:DwellingFireandExtendedCoverageMember 2019-01-01 2019-03-31 0000865058 us-gaap:PropertyLiabilityAndCasualtyInsuranceSegmentMember nsec:HomeownersIncludingMobileHomeownersMember 2019-01-01 2019-03-31 0000865058 us-gaap:PropertyLiabilityAndCasualtyInsuranceSegmentMember nsec:DwellingFireandExtendedCoverageMember 2020-01-01 2020-03-31 0000865058 us-gaap:LifeInsuranceSegmentMember nsec:AccidentandHealthInsuranceMember 2019-01-01 2019-03-31 0000865058 us-gaap:PropertyLiabilityAndCasualtyInsuranceSegmentMember nsec:InsuranceProductLineOtherliabilityMember 2020-01-01 2020-03-31 0000865058 us-gaap:LifeInsuranceSegmentMember nsec:AccidentandHealthInsuranceMember 2020-01-01 2020-03-31 0000865058 us-gaap:LifeInsuranceSegmentMember nsec:TraditionalLifeInsuranceMember 2020-01-01 2020-03-31 0000865058 us-gaap:PropertyLiabilityAndCasualtyInsuranceSegmentMember nsec:InsuranceProductLineOtherliabilityMember 2019-01-01 2019-03-31 0000865058 us-gaap:LifeInsuranceSegmentMember nsec:TraditionalLifeInsuranceMember 2019-01-01 2019-03-31 0000865058 srt:ConsolidationEliminationsMember 2020-01-01 2020-03-31 0000865058 us-gaap:AllOtherSegmentsMember 2020-01-01 2020-03-31 0000865058 stpr:TX us-gaap:HurricaneMember 2020-03-31 0000865058 us-gaap:CatastropheMember us-gaap:SubsequentEventMember 2020-04-01 2020-04-30 0000865058 us-gaap:CatastropheMember us-gaap:SubsequentEventMember 2020-04-30 xbrli:pure iso4217:USD xbrli:shares iso4217:USD xbrli:shares nsec:hours nsec:Segments nsec:claim
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM 10-Q

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

For the quarterly period ended March 31, 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 0-18649

image1a01a26.jpg
The National Security Group, Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
63-1020300
(State or Other Jurisdiction of
Incorporation or Organization)
 
(IRS Employer
Identification No.)
 
 
 
661 East Davis Street
 
 
Elba,
Alabama
 
36323
(Address of principal executive offices)
 
(Zip-Code)
 
Registrant’s Telephone Number including Area Code (334) 897-2273

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock,
par value $1.00 per share
NSEC
The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

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  þ    No  o

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 and post such files).    þ Yes    o No

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

Large accelerated filer     o                         Accelerated filer           
Non-accelerated filer      þ                         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.     o

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


Class
 
Outstanding May 14, 2020
 
 
 
Common Stock $1.00 par value
 
2,529,866 shares





1

Table of Contents

THE NATIONAL SECURITY GROUP, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
 
 
 
 
Page No.
 
Item 1.  Financial Statements
 
 
 
 
 
 
 
Condensed Consolidated Balance Sheets (UNAUDITED EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)
 
 
Condensed Consolidated Statements of Operations (UNAUDITED)
 
 
Condensed Consolidated Statements of Comprehensive Income (Loss) (UNAUDITED)
 
 
Condensed Consolidated Statements of Changes in Shareholders’ Equity (UNAUDITED)
 
 
Condensed Consolidated Statements of Cash Flows (UNAUDITED)
 
 
Notes to Condensed Consolidated Financial Statements (UNAUDITED EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)
 
 
Review Report of Independent Registered Public Accounting Firm
 
 
 
 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
 
 
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
 
 
 
 
 
Item 4.  Controls and Procedures
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
Item 1.    Legal Proceedings
 
Item 1A. Risk Factors
 
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of
               Equity Securities
 
Item 3.    Defaults Upon Senior Securities
 
Item 4. Mine Safety Disclosures
 
Item 5.    Other Information
 
Item 6.    Exhibits
 
 
 
 
SIGNATURE

2

Table of Contents

Cautionary Statement Regarding Forward-Looking Statements
Any statement contained in this report which is not a historical fact, or which might otherwise be considered an opinion or projection concerning the Company or its business, whether expressed or implied, is meant as and should be considered a forward-looking statement as that term is defined in the Private Securities Litigation Reform Act of 1995. The following report contains forward-looking statements that are not strictly historical and that involve risks and uncertainties. Such statements include any statements containing the words “expect,” “plan,” “estimate,” “anticipate” or other words of a similar nature. Management cautions investors about forward-looking statements. Forward-looking statements involve certain evaluation criteria, such as risks, uncertainties, estimates, and/or assumptions made by individuals informed of the Company and industries in which we operate. Any variation in the preceding evaluation criteria could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, without limitation, the following:

The insurance industry is highly competitive and the Company encounters significant competition in all lines of business from other insurance companies. Many of the competing companies have more abundant financial resources than the Company.

Insurance is a highly regulated industry. It is possible that legislation may be enacted which would have an adverse effect on the Company's business.

The Company is subject to regulation by state governments for each of the states in which it conducts business. The Company cannot predict the subject of any future regulatory initiative(s) or its (their) impact on the Company's business. Company insurance rates are also subject to approval by state insurance departments in each of these states. We are often limited in the level of rate increases we can obtain.

The Company is rated by various insurance rating agencies. If a rating is downgraded from its current level by one of these agencies, sales of the Company's products and stock price could be adversely impacted.

The Company's financial results are adversely affected by increases in policy claims received by the Company. While a manageable risk, this fluctuation is often unpredictable.
  
The Company's investments are subject to a variety of risks. Investments are subject to defaults and changes in market value. Market value can be affected by changes in interest rates, market performance and the economy.

The Company mitigates risk associated with life policies through implementing effective underwriting and reinsurance strategies. These factors mitigate, not eliminate, risk related to mortality and morbidity exposure. The Company has established reserves for claims and future policy benefits based on amounts determined by independent actuaries. There is no assurance that these estimated reserves will prove to be sufficient or that the Company will not incur claims exceeding reserves, which could result in operating losses and loss of capital.

The Company mitigates risk associated with property and casualty policies through implementing effective underwriting and reinsurance strategies. The Company obtains reinsurance which increases underwriting capacity and limits the risk associated with policy claims. The Company is subject to credit risk with regard to reinsurers as reinsurance does not alleviate the Company's liability to its insured's for the ceded risks. The Company utilizes a third-party to develop a reinsurance treaty with reinsurers who are reliable and financially stable. However, there is no guarantee that booked reinsurance recoverable will actually be recovered. A reinsurer's insolvency or inability to make payments due could have a material adverse impact on the financial condition of the Company.

The Company's ability to continue to pay dividends to shareholders is contingent upon profitability and capital adequacy of the insurance subsidiaries. The insurance subsidiaries operate under regulatory restrictions that could limit the ability to fund future dividend payments of the Company. An adverse event or series of events could materially impact the ability of the insurance subsidiaries to fund future dividends, and consequently, the Board of Directors would have to suspend the declaration of dividends to shareholders.

The Company is subject to the risk of adverse settlements or judgments resulting from litigation of contested
    claims. It is difficult to predict or quantify the expected results of litigation because the outcome depends on
decisions of the court and jury that are based on facts and legal arguments presented at the trial.

3

Table of Contents

PART I
Item 1. Financial Statements
THE NATIONAL SECURITY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands)
 
March 31, 2020
 
December 31, 2019
ASSETS
 
(UNAUDITED)
 
 
Investments
 
 
 
 
Fixed maturities held-to-maturity, at amortized cost (estimated fair value: 2020 -
      $1,354; 2019 - $1,345)
 
$
1,249

 
$
1,290

Fixed maturities available-for-sale, at estimated fair value (cost: 2020 -
      $101,828; 2019 - $97,102)
 
102,530

 
100,260

Equity securities, at estimated fair value (cost: 2020 - $2,127; 2019 - $2,127)
 
4,704

 
5,303

Trading securities
 
125

 
149

Receivable for securities sold
 
2

 
56

Mortgage loans on real estate, at cost
 
147

 
147

Investment real estate, at book value
 
2,934

 
2,934

Policy loans
 
1,912

 
1,895

Company owned life insurance
 
4,405

 
4,655

Other invested assets
 
2,240

 
2,280

Total Investments
 
120,248

 
118,969

Cash and cash equivalents
 
5,869

 
11,809

Accrued investment income
 
756

 
706

Policy receivables and agents' balances, net
 
12,431

 
12,028

Reinsurance recoverable
 
276

 
276

Deferred policy acquisition costs
 
7,525

 
7,666

Property and equipment, net
 
1,625

 
1,630

Deferred income tax asset, net
 
676

 

Other assets
 
1,080

 
850

Total Assets
 
$
150,486

 
$
153,934

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 

 
 

Property and casualty benefit and loss reserves
 
$
6,465

 
$
7,199

Accident and health benefit and loss reserves
 
3,950

 
4,046

Life and annuity benefit and loss reserves
 
34,352

 
34,269

Unearned premiums
 
31,325

 
30,555

Policy and contract claims
 
1,132

 
1,053

Other policyholder funds
 
1,335

 
1,350

Short-term notes payable and current portion of long-term debt
 
500

 
500

Long-term debt
 
13,667

 
13,664

Accrued income taxes
 
173

 
226

Deferred income tax liability
 

 
96

Other liabilities
 
7,629

 
7,515

Total Liabilities
 
100,528

 
100,473

Contingencies
 


 


Shareholders' equity
 
 

 
 

Common stock
 
2,532

 
2,532

Additional paid-in capital
 
5,602

 
5,602

Accumulated other comprehensive income (loss)
 
(42
)
 
2,443

Retained earnings
 
41,879

 
42,891

Treasury stock, at cost
 
(13
)
 
(7
)
Total Shareholders' Equity
 
49,958

 
53,461

Total Liabilities and Shareholders' Equity
 
$
150,486

 
$
153,934

The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

4

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

($ in thousands, except per share)
 
Three months ended
March 31,
 
 
2020
 
2019
REVENUES
 
 
 
 
Net premiums earned
 
$
14,955

 
$
14,718

Net investment income
 
964

 
962

Investment gains (losses)
 
(990
)
 
2,120

Other income
 
145

 
146

Total Revenues
 
15,074

 
17,946

BENEFITS, LOSSES AND EXPENSES
 
 

 
 

Policyholder benefits and settlement expenses
 
10,583

 
9,023

Amortization of deferred policy acquisition costs
 
1,065

 
980

Commissions
 
2,075

 
2,033

General and administrative expenses
 
1,394

 
2,332

Taxes, licenses and fees
 
721

 
687

Interest expense
 
261

 
295

Total Benefits, Losses and Expenses
 
16,099

 
15,350

 
 
 
 
 
Income (Loss) Before Income Taxes
 
(1,025
)
 
2,596

 
 
 
 
 
INCOME TAX EXPENSE (BENEFIT)
 
 

 
 

Current
 
(53
)
 
245

Deferred
 
(112
)
 
(92
)
 
 
(165
)
 
153

 
 
 
 
 
Net Income (Loss)
 
$
(860
)
 
$
2,443

 
 
 
 
 
INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED
 
$
(0.34
)
 
$
0.97

 
 
 
 
 
DIVIDENDS DECLARED PER SHARE
 
$
0.06

 
$
0.05


The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.


5

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

($ in thousands)
 
Three months ended
March 31,
 
 
2020

2019
 
 
 
 
 
Net income (loss)
 
$
(860
)
 
$
2,443

 
 

 
 
Other comprehensive income (loss), net of tax
 
 
 
 
Changes in:
 
 
 
 
Unrealized gains (losses) on securities, net of reclassification adjustment of $(92) and $8 for 2020 and 2019, respectively
 
(1,940
)
 
1,734

Unrealized gain (loss) on interest rate swap
 
(545
)
 
25

 
 
 
 
 
Other comprehensive income (loss), net of tax
 
(2,485
)
 
1,759

 
 
 
 
 
Comprehensive income (loss)
 
$
(3,345
)
 
$
4,202


The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.



6

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

($ in thousands)
Total
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Treasury Stock
Balance at December 31, 2019
$
53,461

 
$
42,891

 
$
2,443

 
$
2,532

 
$
5,602

 
$
(7
)
 
 
 
 
 
 
 
 
 
 
 
 
Common stock reacquired
(6
)
 
 
 
 
 
 
 
 
 
(6
)
 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive loss:
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss for March 31, 2020
(860
)
 
(860
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss (net of tax)
(2,485
)
 
 
 
(2,485
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends
(152
)
 
(152
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2020
$
49,958

 
$
41,879

 
$
(42
)
 
$
2,532

 
$
5,602

 
$
(13
)

 
Total
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Common
Stock
 
Additional
Paid-in
Capital
 
Treasury Stock
Balance at December 31, 2018
$
45,866

 
$
39,355

 
$
(1,570
)
 
$
2,527

 
$
5,554

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Comprehensive income:
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income for March 31, 2019
2,443

 
2,443

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (net of tax)
1,759

 
 
 
1,759

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends
(126
)
 
(126
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2019
$
49,942

 
$
41,672

 
$
189

 
$
2,527

 
$
5,554

 
$


The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

7

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

($ in thousands)
Three months ended
March 31,
 
2020
 
2019
Cash Flows from Operating Activities
 
 
 
Net income (loss)
$
(860
)
 
$
2,443

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

Depreciation expense and amortization/accretion, net
69

 
72

Net (gains) losses on investments
990

 
(2,120
)
Deferred income taxes
(112
)
 
(92
)
Amortization of deferred policy acquisition costs
1,065

 
980

Changes in assets and liabilities:
 
 
 
Change in receivable for securities sold
54

 

Change in accrued investment income
(50
)
 
(13
)
Change in reinsurance recoverable

 
376

Policy acquisition costs deferred
(924
)
 
(895
)
Change in accrued income taxes
(53
)
 
618

Change in net policy liabilities and claims
(306
)
 
(281
)
Change in other assets/liabilities, net
(800
)
 
617

Other, net
(1
)
 
4

Net cash provided by (used in) operating activities
(928
)
 
1,709

Cash Flows from Investing Activities
 
 
 

Purchase of:
 
 
 
Available-for-sale securities
(9,926
)
 
(4,119
)
Trading securities and short-term investments

 
(26
)
Property and equipment
(25
)
 
(3
)
Proceeds from sale or maturities of:
 
 
 
Held-to-maturity securities
45

 
19

Available-for-sale securities
5,076

 
2,282

Real estate held for investment
2

 
11

Other invested assets, net
(17
)
 
2,037

Net cash provided by (used in) investing activities
(4,845
)
 
201

Cash Flows from Financing Activities
 

 
 

Change in other policyholder funds
(15
)
 
(42
)
Dividends paid
(152
)
 
(126
)
Net cash used in financing activities
(167
)
 
(168
)
Net change in cash and cash equivalents
(5,940
)
 
1,742

Cash and cash equivalents, beginning of year
11,809

 
5,676

Cash and cash equivalents, end of period
$
5,869

 
$
7,418


The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

8

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)




NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Principles of Consolidation and Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of The National Security Group, Inc. (the Company) and its wholly-owned subsidiaries:  National Security Insurance Company (NSIC), National Security Fire and Casualty Company (NSFC) and NATSCO, Inc. (NATSCO).  NSFC includes a wholly-owned subsidiary, Omega One Insurance Company (Omega).  The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).  In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the condensed consolidated financial statements have been included. All significant intercompany transactions and accounts have been eliminated in the condensed consolidated financial statements. The financial information presented herein should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, which includes information and disclosures not presented herein.

Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in these condensed consolidated financial statements are reserves for future life insurance policy benefits, liabilities for losses and loss adjustment expenses, reinsurance recoverable associated with loss and loss adjustment expense liabilities, deferred policy acquisition costs, deferred income tax assets and liabilities, assessments of other-than-temporary impairments on investments and accruals for contingencies.  Actual results could differ from the estimates used in preparing these condensed consolidated financial statements.

Earnings Per Share
Earnings per share of common stock is based on the weighted average number of shares outstanding during each year. The adjusted weighted average shares outstanding were 2,530,783 at March 31, 2020 and 2,527,136 at March 31, 2019. The Company did not have any dilutive securities as of March 31, 2020 and 2019.

Reclassifications
Certain 2019 amounts have been reclassified from the prior year condensed consolidated financial statements to conform to the 2020 presentation.

Concentration of Credit Risk
The Company maintains cash balances which are generally held in non-interest bearing demand deposit accounts subject to FDIC insured limits of $250,000 per entity. At March 31, 2020, the net amount exceeding FDIC insured limits was $4,427,000 at three financial institutions. The Company has not experienced any losses in such accounts. Management of the Company reviews financial information of financial institutions on a quarterly basis and believes the Company is not exposed to any significant credit risk on cash and cash equivalents.

Policy receivables are reported at unpaid balances. Policy receivables are generally offset by associated unearned premium liabilities and are not subject to significant credit risk. Receivables from agents, less provision for credit losses, are composed of balances due from independent agents. At March 31, 2020, the single largest balance due from one agent totaled $504,000.

Reinsurance contracts do not relieve the Company of its obligations to policyholders. A failure of a reinsurer to meet its obligation could result in losses to the insurance subsidiaries. Allowances for losses on reinsurance recoverables are established if amounts are believed to be uncollectible. At March 31, 2020 and December 31, 2019, no amounts were deemed uncollectible. The Company, at least annually, evaluates the financial condition of all reinsurers and evaluates any potential concentrations of credit risk. At March 31, 2020, management does not believe the Company is exposed to any significant credit risk related to its reinsurance program.


9

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)



Accounting Changes Not Yet Adopted
Reference Rate Reform
In March 2020, the FASB issued guidance that provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The Company has exposure to LIBOR based financial instruments through its subordinated debentures. The contracts with respect to these borrowings contain alternative reference rates that would automatically take effect upon the phasing out of LIBOR and would not materially change the liability exposure. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is evaluating the optional expedients and exceptions in the guidance but does not expect the adoption of this guidance to have a material impact on its financial position or results of operations.

Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued guidance to simplify the accounting for income taxes. The guidance removes certain exceptions to general principles in the income tax guidance and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of this new guidance. The Company does not expect the adoption to have a material impact on its financial position or results of operations.

Targeted Improvements to the Accounting for Long-Duration Contracts
In August 2018, the FASB issued guidance to improve the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The guidance improves timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to discount future cash flows. The guidance will simplify and improve accounting for certain market-based options or guarantees associated with deposit type contracts and simplify the amortization of deferred policy acquisition costs. The guidance also introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures. The guidance is effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance. Due to the nature and extent of the changes required to the Company’s life insurance operations, the adoption of this standard is expected to have a material impact on the consolidated financial statements.

Financial Instruments - Credit Losses
In June 2016, the FASB issued guidance that replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The FASB released additional guidance in November 2018 that provides scope clarification. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those years. The Company does not expect the adoption to have a material impact on its financial position or results of operations.

Recently Adopted Accounting Standards
Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued guidance that removes, modifies and adds to the disclosure requirements related to fair value measurements. The guidance removes the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 assets, the policy for timing and transfers between levels and the valuation process for Level 3 fair value measurements. The guidance modifies disclosure requirements for investments in certain entities that calculate net asset value and clarifies the purpose of the measurement uncertainty disclosure. The guidance adds requirements to disclose changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements and to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted this guidance on January 1, 2020. The adoption of this guidance did not have a material impact on its financial position or results of operations.


10

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)



Contingent Put and Call Options in Debt Instruments
In March 2016, the FASB issued guidance that clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those years. The Company adopted this guidance on January 1, 2020. The adoption of this guidance did not have a material impact on its financial position or results of operations.

NOTE 2 – VARIABLE INTEREST ENTITIES

The Company holds passive interests in limited partnerships that are considered to be Variable Interest Entities (VIE) under the provisions of ASC 810 Consolidation. The Company is not the primary beneficiary of the entities and is not required to consolidate under ASC 810. The entities are private placement investment funds formed for the purpose of investing in private equity investments. The Company owns less than 1% of the limited partnerships. The carrying value of the investments totals $363,000 and is included as a component of Other Invested Assets in the accompanying condensed consolidated balance sheets.

In December 2005, the Company formed National Security Capital Trust I, a statutory trust created under the Delaware Statutory Trust Act, for the sole purpose of issuing, in private placement transactions, $9,000,000 of trust preferred securities (TPS) and using the proceeds thereof, together with the equity proceeds received from the Company in the initial formation of the Trust, to purchase $9,279,000 of variable rate subordinated debentures issued by the Company. The Company owns all voting securities of the Trust and the subordinated debentures are the sole assets of the Trust. The Trust will meet the obligations of the TPS with the interest and principal paid on the subordinated debentures. The Company received net proceeds from the TPS transactions, after commissions and other costs of issuance, of $9,005,000. The Company also holds all the voting securities issued by the Trust and such trusts are considered to be VIE's. The Trust is not consolidated because the Company is not the primary beneficiary of the trust. The Subordinated Debentures, disclosed in Note 7, are reported in the accompanying condensed consolidated balance sheets as a component of long-term debt. The Company's equity investments in the Trust total $279,000 and are included in Other Assets in the accompanying condensed consolidated balance sheets.

In June 2007, the Company formed National Security Capital Trust II for the sole purpose of issuing, in private placement transactions, $3,000,000 of trust preferred securities and using the proceeds thereof, together with the equity proceeds received from the Company in the initial formation of the Trust, to purchase $3,093,000 unsecured junior subordinated deferrable interest debentures. The Company owns all voting securities of the Trust and the subordinated debentures are the sole assets of the Trust. The Trust will meet the obligations of the TPS with the interest and principal paid on the subordinated debentures. The Company received net proceeds from the TPS transactions, after commissions and other costs of issuance, of $2,995,000. The Company also holds all the voting securities issued by the Trust and such trusts are considered to be VIE's. The Trust is not consolidated because the Company is not the primary beneficiary of the Trust. The Subordinated Debentures, disclosed in Note 7, are reported in the accompanying condensed consolidated balance sheets as a component of long-term debt. The Company's equity investments in the Trust total $93,000 and are included in Other Assets in the accompanying condensed consolidated balance sheets.

NOTE 3 – INVESTMENTS

Our investment in available-for-sale securities, which are reported at fair value, includes fixed maturity securities and equity securities. Net unrealized gains or losses on fixed maturities are reported after-tax as a component of other comprehensive income. Changes in fair value of equity securities are reported in investment gains/losses as a component of net income.


11

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)



The amortized cost and aggregate fair values of investments in available-for-sale securities as of March 31, 2020 are as follows:
($ in thousands)

Available-for-sale securities:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. Government corporations and agencies
 
$
4,569

 
$
326

 
$

 
$
4,895

Agency mortgage backed securities
 
33,437

 
1,569

 
19

 
34,987

Asset backed securities
 
10,195

 
37

 
962

 
9,270

Private label mortgage backed securities
 
8,255

 
115

 
50

 
8,320

Corporate bonds
 
38,365

 
1,170

 
1,721

 
37,814

States, municipalities and political subdivisions
 
6,178

 
153

 
14

 
6,317

Foreign governments
 
829

 
98

 

 
927

Total Fixed Maturities
 
101,828

 
3,468

 
2,766

 
102,530

Equity securities
 
2,127

 
2,607

 
30

 
4,704

Total
 
$
103,955

 
$
6,075

 
$
2,796

 
$
107,234



The amortized cost and aggregate fair values of investments in held-to-maturity securities as of March 31, 2020 are as follows:
($ in thousands)

Held-to-maturity securities:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Agency mortgage backed securities
 
$
1,249

 
$
105

 
$

 
$
1,354

Total
 
$
1,249

 
$
105

 
$

 
$
1,354



The amortized cost and aggregate fair values of investments in available-for-sale securities as of December 31, 2019 are as follows:

($ in thousands)

Available-for-sale securities:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
U.S. Government corporations and agencies
 
$
4,131

 
$
150

 
$

 
$
4,281

Agency mortgage backed securities
 
32,283

 
861

 
157

 
32,987

Asset backed securities
 
10,307

 
71

 
104

 
10,274

Private label mortgage backed securities
 
6,815

 
441

 
4

 
7,252

Corporate bonds
 
36,074

 
1,816

 
70

 
37,820

States, municipalities and political subdivisions
 
6,669

 
109

 
1

 
6,777

Foreign governments
 
823

 
46

 

 
869

Total Fixed Maturities
 
97,102

 
3,494

 
336

 
100,260

Equity securities
 
2,127

 
3,176

 

 
5,303

Total
 
$
99,229

 
$
6,670

 
$
336

 
$
105,563




12

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)



The amortized cost and aggregate fair values of investments in held-to-maturity securities as of December 31, 2019 are as follows:
($ in thousands)

Held-to-maturity securities:
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Agency mortgage backed securities
 
$
1,290

 
$
55

 
$

 
$
1,345

Total
 
$
1,290

 
$
55

 
$

 
$
1,345



The amortized cost and aggregate fair value of debt securities at March 31, 2020, by contractual maturity, are presented in the following table.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
($ in thousands)
 
Amortized
Cost
 
Fair
Value
Available-for-sale securities:
 
 
 
 
Due in one year or less
 
$
1,637

 
$
1,629

Due after one year through five years
 
18,944

 
18,644

Due after five years through ten years
 
27,489

 
26,786

Due after ten years
 
53,758

 
55,471

Total
 
$
101,828

 
$
102,530

 
 
 
 
 
Held-to-maturity securities:
 
 

 
 

Due after one year through five years
 
$
26

 
$
27

Due after five years through ten years
 
4

 
5

Due after ten years
 
1,219

 
1,322

Total
 
$
1,249

 
$
1,354



A summary of securities available-for-sale with unrealized losses as of March 31, 2020, along with the related fair value, aggregated by the length of time that investments have been in a continuous unrealized loss position, is as follows:
($ in thousands)
 
Less than 12 months
 
12 months or longer
 
Total
March 31, 2020
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Total
Securities in a Loss Position
Agency mortgage backed securities
 
$
364

 
$
5

 
$
536

 
$
14

 
$
900

 
$
19

 
3
Asset backed securities
 
6,291

 
610

 
1,135

 
352

 
7,426

 
962

 
11
Private label mortgage backed securities
 
2,450

 
50

 

 

 
2,450

 
50

 
6
Corporate bonds
 
16,831

 
1,712

 
491

 
9

 
17,322

 
1,721

 
36
States, municipalities and political subdivisions
 
1,483

 
14

 

 

 
1,483

 
14

 
3
Equity securities
 
128


30






128


30


2
 
 
$
27,547

 
$
2,421

 
$
2,162

 
$
375

 
$
29,709

 
$
2,796

 
61


There were no securities held-to-maturity with unrealized losses as of March 31, 2020.


13

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)



A summary of securities available-for-sale with unrealized losses as of December 31, 2019, along with the related fair value, aggregated by the length of time that investments have been in a continuous unrealized loss position, is as follows:
($ in thousands)
 
Less than 12 months
 
12 months or longer
 
Total
December 31, 2019
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Fair
Value
 
Gross
Unrealized
Losses
 
Total
Securities in a Loss Position
Agency mortgage backed securities
 
$
5,663

 
$
104

 
$
1,751

 
$
53

 
$
7,414

 
$
157

 
18
Asset backed securities
 
4,241

 
33

 
1,579

 
71

 
5,820

 
104

 
9
Private label mortgage backed securities
 
1,060

 
4

 

 

 
1,060

 
4

 
1
Corporate bonds
 
6,363

 
54

 
1,484

 
16

 
7,847

 
70

 
14
States, municipalities and political subdivisions
 
512

 
1

 

 

 
512

 
1

 
1
 
 
$
17,839

 
$
196

 
$
4,814

 
$
140

 
$
22,653

 
$
336

 
43


There were no securities held-to-maturity with unrealized losses as of December 31, 2019.

The Company conducts periodic reviews to identify and evaluate securities in an unrealized loss position in order to identify other-than-temporary impairments. For securities in an unrealized loss position, the Company assesses whether the Company has the intent to sell the security or more-likely-than-not will be required to sell the security before the anticipated recovery.  If either of these conditions is met, the Company is required to recognize an other-than-temporary impairment with the entire unrealized loss reported in earnings.  For securities in an unrealized loss position that do not meet these conditions, the Company assesses whether the impairment of a security is other-than-temporary.  If the impairment is determined to be other-than-temporary, the Company is required to separate the other-than-temporary impairments into two components:  the amount representing the credit loss and the amount related to all other factors.  The credit loss is the portion of the amortized book value in excess of the net present value of the projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment.  The credit loss component of other-than-temporary impairments is reported in earnings, whereas the amount relating to factors other than credit losses are recorded in other comprehensive income, net of taxes.

Management has evaluated each security in a significant unrealized loss position in the fixed maturity investment portfolio. The Company has no material exposure to sub-prime mortgage loans and approximately 4% of the fixed income investment portfolio is rated below investment grade.  Based on a review of the available financial information, the prospect for future earnings of each company and consideration of the Company’s intent and ability to hold the securities until market values recovered, it was determined that, other than the impairment described below, the securities in an accumulated loss position in the portfolio were temporary impairments.

For the three months ended March 31, 2020, the Company realized $238,000 other-than-temporary impairments. For the year ended December 31, 2019, the Company realized no other-than-temporary impairments. At March 31, 2020, the three largest losses not realized as an impairment in the fixed maturity portfolio totaled $356,000, $289,000 and $242,000. After evaluation by management, it was determined that each of these losses were driven by changes in market interest rates and, in some cases, a lack of liquidity in some sectors driven by market dislocation in late March of 2020 associated with the initial market shocks from COVID-19. However, management currently has the intent and ability to hold these investments until recovery so no other-than-temporary impairments were recognized. At December 31, 2019, the three largest losses not realized as an impairment in the fixed maturity portfolio totaled $60,000, $23,000 and $20,000.





14

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)




Major categories of investment income are summarized as follows:
($ in thousands)
 
Three months ended
March 31,
 
 
2020
 
2019
Fixed maturities
 
$
916

 
$
937

Equity securities
 
41

 
27

Mortgage loans on real estate
 
2

 
2

Investment real estate
 
1

 
2

Policy loans
 
36

 
34

Other
 
4

 
3

 
 
1,000

 
1,005

Less: Investment expenses
 
36

 
43

Net investment income
 
$
964

 
$
962



Major categories of investment gains and losses are summarized as follows:
($ in thousands)
 
Three months ended
March 31,
 
 
2020
 
2019
Realized gains on fixed maturities
 
$
121

 
$
10

Gains (losses) on trading securities
 
(25
)
 
3

Change in fair value of equity securities
 
(599
)
 
126

Change in surrender value of company owned life insurance
 
(251
)
 
189

Realized gain on company owned life insurance
 

 
1,792

Other gains principally real estate
 
2

 

Other-than-temporary impairments
 
(238
)
 

Net investment gains (losses)
 
$
(990
)
 
$
2,120



An analysis of the net change in unrealized gains (losses) on available-for-sale securities follows:
($ in thousands)
March 31,
2020
 
December 31, 2019
Fixed maturities
$
(2,456
)
 
$
4,910

Deferred income tax
516

 
(1,031
)
Change in net unrealized gains (losses) on available-for-sale securities
$
(1,940
)
 
$
3,879



NOTE 4 – FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
 
Our available-for-sale securities consists of fixed maturity and equity securities which are recorded at fair value in the accompanying condensed consolidated balance sheets.  

We are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings.  We elected not to measure any eligible items using the fair value option.

Accounting standards define fair value as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework to make the measurement of fair value more consistent and comparable.  In determining fair value, we primarily use

15

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)



prices and other relevant information generated by market transactions involving identical or comparable assets. The Company categorizes assets and liabilities carried at their fair value based upon a fair value hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 1 assets and liabilities consist of money market fund deposits and certain of our marketable debt and equity instruments, including equity instruments offsetting deferred compensation, that are traded in an active market with sufficient volume and frequency of transactions.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets include certain of our marketable debt and equity instruments with quoted market prices that are traded in less active markets or priced using a quoted market price for similar instruments. Level 2 assets also include marketable equity instruments with security-specific restrictions that would transfer to the buyer, marketable debt instruments priced using indicator prices which represent non-binding market consensus prices that can be corroborated by observable market quotes, as well as derivative contracts and debt instruments priced using inputs that are observable in the market or can be derived principally from or corroborated by observable market data.  Marketable debt instruments in this category generally include commercial paper, bank time deposits, repurchase agreements for fixed-income instruments, and a majority of floating-rate notes, corporate bonds, and municipal bonds.

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. Level 3 assets and liabilities include marketable debt instruments, non-marketable equity investments, derivative contracts, and company issued debt with values are determined using inputs that are both unobservable and significant to the values of the instruments being measured. Level 3 assets also include marketable debt instruments that are priced using indicator prices that we were unable to corroborate with observable market quotes.

Marketable debt instruments in this category generally include asset-backed securities and certain floating-rate notes, corporate bonds, and municipal bonds.


16

Table of Contents

THE NATIONAL SECURITY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)



Assets/Liabilities Measured at Fair Value on a Recurring Basis
Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 are summarized in the following table by the type of inputs applicable to the fair value measurements:
($ in thousands)
 
Fair Value Measurements at Reporting Date Using
Description
 
Total
 
Level 1
 
Level 2
 
Level 3
Financial Assets
 
 
 
 
 
 
 
 
Fixed maturities available-for-sale
 
 
 
 
 
 
 
 
U.S. Government corporations and agencies
 
$
4,895

 
$
4,895

 
$

 
$

Agency mortgage backed securities
 
34,987

 
19,684

 
15,303

 

Asset backed securities
 
9,270

 
2,545

 
6,725

 

Corporate bonds
 
37,814

 

 
37,814

 

Private label asset backed securities
 
8,320

 
967

 
7,353

 

States, municipalities and political subdivisions
 
6,317

 

 
6,317

 

Foreign governments
 
927

 
927