QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
|
(Address of principal executive offices) |
(Zip Code) |
Securities registered pursuant to Section 12(b) of the Act: |
||
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Class A |
||
Class B |
Common Stock, No Par Value: |
Class A (voting) |
|||
Class B (non-voting) |
||||
September 30 2020 |
December 31 2019 |
|||||||
Assets |
||||||||
Investments: |
||||||||
Fixed income securities |
$ |
$ |
||||||
Equity securities |
||||||||
Limited partnerships |
||||||||
Commercial mortgage loans |
||||||||
Short-term and other |
||||||||
Cash and cash equivalents |
||||||||
Restricted cash and cash equivalents |
||||||||
Accounts receivable |
||||||||
Reinsurance recoverable |
||||||||
Other assets |
||||||||
Current federal income taxes recoverable |
||||||||
Deferred federal income taxes |
||||||||
Total Assets |
$ |
$ |
||||||
Liabilities and shareholders' equity |
||||||||
Reserves for losses and loss expenses |
$ |
$ |
||||||
Reserves for unearned premiums |
||||||||
Reinsurance payable |
||||||||
Short-term borrowings |
||||||||
Accounts payable and other liabilities |
||||||||
Total Liabilities |
||||||||
Shareholders' equity: |
||||||||
Common stock- |
||||||||
Class A voting -- authorized |
||||||||
Class B non-voting -- authorized |
||||||||
Additional paid-in capital |
||||||||
Accumulated other comprehensive income |
||||||||
Retained earnings |
||||||||
Total Shareholders' Equity |
||||||||
Total Liabilities and Shareholders' Equity |
$ |
$ |
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Revenues |
||||||||||||||||
Net premiums earned |
$ |
$ |
$ |
$ |
||||||||||||
Net investment income |
||||||||||||||||
Commissions and other income |
||||||||||||||||
Net realized gains (losses) on investments, excluding impairment losses |
( |
) |
( |
) |
||||||||||||
Impairment losses on investments |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||
Net unrealized gains (losses) on equity securities and limited partnership investments |
( |
) |
( |
) |
||||||||||||
Net realized and unrealized gains (losses) on investments |
( |
) |
||||||||||||||
Expenses |
||||||||||||||||
Losses and loss expenses incurred |
||||||||||||||||
Other operating expenses |
||||||||||||||||
Income (loss) before federal income tax expense (benefit) |
( |
) |
( |
) |
||||||||||||
Federal income tax expense (benefit) |
( |
) |
( |
) |
||||||||||||
Net income (loss) |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||
Net income (loss) per share: |
||||||||||||||||
Basic |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||
Diluted |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||
Weighted average number of shares outstanding: |
||||||||||||||||
Basic |
||||||||||||||||
Dilutive effect of share equivalents |
n/a |
n/a |
||||||||||||||
Diluted |
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Net income (loss) |
$ |
$ |
( |
) |
$ |
( |
) |
$ |
||||||||
Other comprehensive income, net of tax: |
||||||||||||||||
Unrealized net gains on fixed income securities |
||||||||||||||||
Foreign currency translation adjustments |
( |
) |
( |
) |
||||||||||||
Other comprehensive income |
||||||||||||||||
Comprehensive income (loss) |
$ |
$ |
$ |
( |
) |
$ |
Common Stock |
Additional |
Accumulated Other |
||||||||||||||||||||||||||||||
Class A |
Class B |
Paid-in |
Comprehensive |
Retained |
Total |
|||||||||||||||||||||||||||
Description |
Shares |
Amount |
Shares |
Amount |
Capital |
Income (Loss) |
Earnings |
Equity |
||||||||||||||||||||||||
Balance at December 31, 2019 |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||||
Cumulative effect of the adoption of updated accounting guidance for credit losses, net of tax |
– |
– |
( |
) |
( |
) |
||||||||||||||||||||||||||
Net loss |
– |
– |
( |
) |
( |
) |
||||||||||||||||||||||||||
Foreign currency translation adjustment, net of tax |
– |
– |
( |
) |
( |
) |
||||||||||||||||||||||||||
Change in unrealized gain (loss) on investments, net of tax |
– |
– |
||||||||||||||||||||||||||||||
Common stock dividends |
– |
– |
( |
) |
( |
) |
||||||||||||||||||||||||||
Repurchase of common shares |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||
Restricted stock grants |
||||||||||||||||||||||||||||||||
Balance at September 30, 2020 |
$ |
$ |
$ |
$ |
$ |
$ |
Common Stock |
Additional |
Accumulated Other |
||||||||||||||||||||||||||||||
Class A |
Class B |
Paid-in |
Comprehensive |
Retained |
Total |
|||||||||||||||||||||||||||
Description |
Shares |
Amount |
Shares |
Amount |
Capital |
Income (Loss) |
Earnings |
Equity |
||||||||||||||||||||||||
Balance at June 30, 2020 |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||||
Net income |
– |
– |
||||||||||||||||||||||||||||||
Foreign currency translation adjustment, net of tax |
– |
– |
||||||||||||||||||||||||||||||
Change in unrealized gain (loss) on investments, net of tax |
– |
– |
||||||||||||||||||||||||||||||
Common stock dividends |
– |
– |
( |
) |
( |
) |
||||||||||||||||||||||||||
Repurchase of common shares |
||||||||||||||||||||||||||||||||
Restricted stock grants |
||||||||||||||||||||||||||||||||
Balance at September 30, 2020 |
$ |
$ |
$ |
$ |
$ |
$ |
Common Stock |
Additional |
Accumulated Other |
||||||||||||||||||||||||||||||
Class A |
Class B |
Paid-in |
Comprehensive |
Retained |
Total |
|||||||||||||||||||||||||||
Description |
Shares |
Amount |
Shares |
Amount |
Capital |
Income (Loss) |
Earnings |
Equity |
||||||||||||||||||||||||
Balance at December 31, 2018 |
$ |
$ |
$ |
$ |
( |
) |
$ |
$ |
||||||||||||||||||||||||
Net income |
– |
– |
||||||||||||||||||||||||||||||
Foreign currency translation adjustment, net of tax |
– |
– |
||||||||||||||||||||||||||||||
Change in unrealized gain (loss) on investments, net of tax |
– |
– |
||||||||||||||||||||||||||||||
Common stock dividends |
– |
– |
( |
) |
( |
) |
||||||||||||||||||||||||||
Repurchase of common shares |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||
Restricted stock grants |
||||||||||||||||||||||||||||||||
Balance at September 30, 2019 |
$ |
$ |
$ |
$ |
$ |
$ |
Common Stock |
Additional |
Accumulated Other |
||||||||||||||||||||||||||||||
Class A |
Class B |
Paid-in |
Comprehensive |
Retained |
Total |
|||||||||||||||||||||||||||
Description |
Shares |
Amount |
Shares |
Amount |
Capital |
Income (Loss) |
Earnings |
Equity |
||||||||||||||||||||||||
Balance at June 30, 2019 |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||||
Net loss |
– |
– |
( |
) |
( |
) |
||||||||||||||||||||||||||
Foreign currency translation adjustment, net of tax |
– |
– |
( |
) |
( |
) |
||||||||||||||||||||||||||
Change in unrealized gain (loss) on investments, net of tax |
– |
– |
||||||||||||||||||||||||||||||
Common stock dividends |
– |
– |
( |
) |
( |
) |
||||||||||||||||||||||||||
Repurchase of common shares |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||
Restricted stock grants |
||||||||||||||||||||||||||||||||
Balance at September 30, 2019 |
$ |
$ |
$ |
$ |
$ |
$ |
Nine Months Ended September 30 |
||||||||
2020 |
2019 |
|||||||
Operating activities |
||||||||
Net income (loss) |
$ |
( |
) |
$ |
||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities |
||||||||
Net cash provided by operating activities |
||||||||
Investing activities |
||||||||
Purchases of fixed income and equity securities |
( |
) |
( |
) |
||||
Distributions from limited partnerships |
||||||||
Proceeds from maturities |
||||||||
Proceeds from sales of fixed income securities |
||||||||
Proceeds from sales of equity securities |
||||||||
Purchase of commercial mortgage loans |
( |
) |
( |
) |
||||
Proceeds from commercial mortgage loans |
||||||||
Purchases of property and equipment |
( |
) |
( |
) |
||||
Proceeds from disposals of property and equipment |
||||||||
Net cash used in investing activities |
( |
) |
( |
) |
||||
Financing activities |
||||||||
Dividends paid to shareholders |
( |
) |
( |
) |
||||
Repurchase of common shares |
( |
) |
( |
) |
||||
Net cash used in financing activities |
( |
) |
( |
) |
||||
Effect of foreign exchange rates on cash and cash equivalents |
( |
) |
||||||
Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents |
( |
) |
||||||
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period |
||||||||
Cash, cash equivalents and restricted cash and cash equivalents at end of period |
$ |
$ |
Fair Value |
Cost or Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Net Unrealized Gains (Losses) |
||||||||||||||||
September 30, 2020 |
||||||||||||||||||||
Fixed income securities |
||||||||||||||||||||
Agency collateralized mortgage obligations |
$ |
$ |
$ |
$ |
( |
) |
$ |
|||||||||||||
Agency mortgage-backed securities |
( |
) |
||||||||||||||||||
Asset-backed securities |
( |
) |
( |
) |
||||||||||||||||
Bank loans |
( |
) |
( |
) |
||||||||||||||||
Certificates of deposit |
||||||||||||||||||||
Collateralized mortgage obligations |
( |
) |
( |
) |
||||||||||||||||
Corporate securities |
( |
) |
||||||||||||||||||
Mortgage-backed securities |
( |
) |
( |
) |
||||||||||||||||
Municipal obligations |
( |
) |
||||||||||||||||||
Non-U.S. government obligations |
||||||||||||||||||||
U.S. government obligations |
( |
) |
||||||||||||||||||
Total fixed income securities |
$ |
$ |
$ |
$ |
( |
) |
$ |
Fair Value |
Cost or Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Net Unrealized Gains (Losses) |
||||||||||||||||
December 31, 2019 |
||||||||||||||||||||
Fixed income securities |
||||||||||||||||||||
Agency collateralized mortgage obligations |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
Agency mortgage-backed securities |
( |
) |
||||||||||||||||||
Asset-backed securities |
( |
) |
( |
) |
||||||||||||||||
Bank loans |
( |
) |
( |
) |
||||||||||||||||
Certificates of deposit |
||||||||||||||||||||
Collateralized mortgage obligations |
||||||||||||||||||||
Corporate securities |
( |
) |
||||||||||||||||||
Mortgage-backed securities |
( |
) |
||||||||||||||||||
Municipal obligations |
( |
) |
||||||||||||||||||
Non-U.S. government obligations |
||||||||||||||||||||
U.S. government obligations |
( |
) |
||||||||||||||||||
Total fixed income securities |
$ |
$ |
$ |
$ |
( |
) |
$ |
September 30, 2020 |
December 31, 2019 |
|||||||||||||||||||||||
Number of Securities |
Fair Value |
Gross Unrealized Loss |
Number of Securities |
Fair Value |
Gross Unrealized Loss |
|||||||||||||||||||
Fixed income securities: |
||||||||||||||||||||||||
12 months or less |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
||||||||||||||||
Greater than 12 months |
( |
) |
( |
) |
||||||||||||||||||||
Total fixed income securities |
$ |
$ |
( |
) |
$ |
$ |
( |
) |
||||||||||||||||
Fair Value |
Cost or Amortized Cost |
|||||||
One year or less |
$ |
$ |
||||||
Excess of one year to five years |
||||||||
Excess of five years to ten years |
||||||||
Excess of ten years |
||||||||
Contractual maturities |
||||||||
Asset-backed securities |
||||||||
Total |
$ |
$ |
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Gross gains on available-for-sale fixed income securities sold during the period |
$ |
$ |
$ |
$ |
||||||||||||
Gross losses on available-for-sale fixed income securities sold during the period |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||
Impairment losses on investments |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||
Change in value of limited partnership investments |
( |
) |
||||||||||||||
Gains on equity securities: |
||||||||||||||||
Realized gains (losses) on equity securities sold during the period |
( |
) |
( |
) |
||||||||||||
Unrealized gains (losses) on equity securities held at the end of the period |
( |
) |
( |
) |
||||||||||||
Realized and unrealized gains (losses) on equity securities during the period |
( |
) |
||||||||||||||
Net realized and unrealized gains (losses) on investments |
$ |
$ |
$ |
( |
) |
$ |
2020 |
2019 |
|||||||
Three months ended September 30: |
||||||||
Premiums ceded to reinsurers |
$ |
$ |
||||||
Losses and loss expenses ceded to reinsurers |
||||||||
Commissions from reinsurers |
||||||||
2020 |
2019 |
|||||||
Nine months ended September 30: |
||||||||
Premiums ceded to reinsurers |
$ |
$ |
||||||
Losses and loss expenses ceded to reinsurers |
||||||||
Commissions from reinsurers |
||||||||
Nine Months Ended |
||||||||
September 30 |
||||||||
2020 |
2019 |
|||||||
Reserves, gross of reinsurance recoverable, at the beginning of the year |
$ |
$ |
||||||
Reinsurance recoverable on unpaid losses at the beginning of the year |
||||||||
Reserves at the beginning of the year |
||||||||
Provision for losses and loss expenses: |
||||||||
Claims occurring during the current period |
||||||||
Claims occurring during prior periods |
( |
) |
( |
) |
||||
Total incurred |
||||||||
Loss and loss expense payments: |
||||||||
Claims occurring during the current period |
||||||||
Claims occurring during prior periods |
||||||||
Total paid |
||||||||
Reserves at the end of the period |
||||||||
Reinsurance recoverable on unpaid losses at the end of the period |
||||||||
Reserves, gross of reinsurance recoverable, at the end of the period |
$ |
$ |
Three Months Ended September 30 |
Nine Months Ended September 30 |
|||||||||||||||
2020 |
2019 |
2020 |
2019 |
|||||||||||||
Revenues: |
||||||||||||||||
Net premiums earned |
$ |
$ |
$ |
$ |
||||||||||||
Net investment income |
||||||||||||||||
Net realized and unrealized gains (losses) on investments |
( |
) |
||||||||||||||
Commissions and other income |
||||||||||||||||
Total revenues |
$ |
$ |
$ |
$ |
Description |
Total |
Level 1 |
Level 2 |
Level 3 |
||||||||||||
Fixed income securities: |
||||||||||||||||
Agency collateralized mortgage obligations |
$ |
$ |
$ |
$ |
||||||||||||
Agency mortgage-backed securities |
||||||||||||||||
Asset-backed securities |
||||||||||||||||
Bank loans |
||||||||||||||||
Certificates of deposit |
||||||||||||||||
Collateralized mortgage obligations |
||||||||||||||||
Corporate securities |
||||||||||||||||
Options embedded in convertible securities |
||||||||||||||||
Mortgage-backed securities |
||||||||||||||||
Municipal obligations |
||||||||||||||||
Non-U.S. government obligations |
||||||||||||||||
U.S. government obligations |
||||||||||||||||
Total fixed income securities |
||||||||||||||||
Equity securities: |
||||||||||||||||
Consumer |
||||||||||||||||
Energy |
||||||||||||||||
Financial |
||||||||||||||||
Industrial |
||||||||||||||||
Technology |
||||||||||||||||
Funds (e.g., mutual funds, closed end funds, ETFs) |
||||||||||||||||
Other |
||||||||||||||||
Total equity securities |
||||||||||||||||
Short-term investments |
||||||||||||||||
Cash equivalents |
||||||||||||||||
Total |
$ |
$ |
$ |
$ |
Description |
Total |
Level 1 |
Level 2 |
Level 3 |
||||||||||||
Fixed income securities: |
||||||||||||||||
Agency collateralized mortgage obligations |
$ |
$ |
$ |
$ |
||||||||||||
Agency mortgage-backed securities |
||||||||||||||||
Asset-backed securities |
||||||||||||||||
Bank loans |
||||||||||||||||
Certificates of deposit |
||||||||||||||||
Collateralized mortgage obligations |
||||||||||||||||
Corporate securities |
||||||||||||||||
Options embedded in convertible securities |
||||||||||||||||
Mortgage-backed securities |
||||||||||||||||
Municipal obligations |
||||||||||||||||
Non-U.S. government obligations |
||||||||||||||||
U.S. government obligations |
||||||||||||||||
Total fixed income securities |
||||||||||||||||
Equity securities: |
||||||||||||||||
Consumer |
||||||||||||||||
Energy |
||||||||||||||||
Financial |
||||||||||||||||
Industrial |
||||||||||||||||
Technology |
||||||||||||||||
Funds (e.g., mutual funds, closed end funds, ETFs) |
||||||||||||||||
Other |
||||||||||||||||
Total equity securities |
||||||||||||||||
Short-term investments |
||||||||||||||||
Cash equivalents |
||||||||||||||||
Total |
$ |
$ |
$ |
$ |
Level Input: |
Input Definition: |
|
Level 1 |
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. |
|
Level 2 |
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date. |
|
Level 3 |
Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. |
Carrying |
Fair Value |
|||||||||||||||||||
Value |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||||||
September 30, 2020 |
||||||||||||||||||||
Assets: |
||||||||||||||||||||
Limited partnerships |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
Commercial mortgage loans |
||||||||||||||||||||
Liabilities: |
||||||||||||||||||||
Short-term borrowings |
||||||||||||||||||||
December 31, 2019 |
||||||||||||||||||||
Assets: |
||||||||||||||||||||
Limited partnerships |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
Commercial mortgage loans |
||||||||||||||||||||
Liabilities: |
||||||||||||||||||||
Short-term borrowings |
Grant Date |
Number of Shares Issued |
Vesting Date |
Service Period |
Grant Date Fair Value Per Share |
|||||
5/8/2018 |
$ |
||||||||
5/7/2019 |
$ |
||||||||
5/17/2019 |
$ |
||||||||
5/22/2019 |
$ |
||||||||
5/5/2020 |
$ |
Foreign Currency |
Unrealized Holding Gains (Losses) on Available-for-sale Securities |
Total |
||||||||||
Beginning balance at December 31, 2019 |
$ |
( |
) |
$ |
$ |
|||||||
Other comprehensive income (loss) before reclassifications |
( |
) |
||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) |
||||||||||||
Net current-period other comprehensive income (loss) |
( |
) |
||||||||||
Ending balance at September 30, 2020 |
$ |
( |
) |
$ |
$ |
Foreign Currency |
Unrealized Holding Gains (Losses) on Available-for-sale Securities |
Total |
||||||||||
Beginning balance at December 31, 2018 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||
Other comprehensive income (loss) before reclassifications |
||||||||||||
Amounts reclassified from accumulated other comprehensive income (loss) |
( |
) |
( |
) |
||||||||
Net current-period other comprehensive income (loss) |
||||||||||||
Ending balance at September 30, 2019 |
$ |
( |
) |
$ |
$ |
Three Months Ended |
Nine Months Ended |
|||||||||||||||
September 30 |
September 30 |
|||||||||||||||
(dollars in thousands) |
2020 |
2019 |
2020 |
2019 |
||||||||||||
Income (loss) before federal income tax expense (benefit) |
$ |
3,327 |
$ |
(1,019 |
) |
$ |
(7,604 |
) |
$ |
4,445 |
||||||
Less: Net realized and unrealized gains (losses) on investments |
144 |
125 |
(16,996 |
) |
9,041 |
|||||||||||
Less: Net investment income |
5,486 |
6,703 |
19,102 |
19,434 |
||||||||||||
Less: Corporate charges and CECL allowance adjustment included in other operating expenses 1 |
(1,939 |
) |
- |
(3,639 |
) |
- |
||||||||||
Underwriting loss |
$ |
(364 |
) |
$ |
(7,847 |
) |
$ |
(6,071 |
) |
$ |
(24,030 |
) |
||||
Other operating expenses |
36,952 |
36,070 |
105,259 |
104,386 |
||||||||||||
Less: Corporate charges and CECL allowance adjustment 1 |
1,939 |
- |
3,639 |
- |
||||||||||||
Other operating expenses, excluding corporate charges and CECL allowance adjustment |
35,013 |
36,070 |
101,620 |
104,386 |
||||||||||||
Ratios |
||||||||||||||||
Losses and loss expenses incurred |
$ |
84,673 |
$ |
84,781 |
$ |
234,713 |
$ |
262,336 |
||||||||
Net premiums earned |
117,853 |
110,288 |
325,242 |
335,931 |
||||||||||||
Loss ratio |
71.8 |
% |
76.9 |
% |
72.2 |
% |
78.1 |
% |
||||||||
Other operating expenses |
$ |
36,952 |
$ |
36,070 |
$ |
105,259 |
$ |
104,386 |
||||||||
Less: Commissions and other income |
1,469 |
2,716 |
5,020 |
6,761 |
||||||||||||
Other operating expenses, less commissions and other income |
35,483 |
33,354 |
100,239 |
97,625 |
||||||||||||
Net premiums earned |
117,853 |
110,288 |
325,242 |
335,931 |
||||||||||||
Expense ratio |
30.1 |
% |
30.2 |
% |
30.8 |
% |
29.1 |
% |
||||||||
Impact of corporate charges and CECL allowance adjustment |
(1.7 |
)% |
- |
(1.1 |
)% |
- |
||||||||||
Expense ratio, excluding corporate charges and CECL allowance adjustment |
28.4 |
% |
30.2 |
% |
29.7 |
% |
29.1 |
% |
||||||||
Combined ratio |
101.9 |
% |
107.1 |
% |
103.0 |
% |
107.2 |
% |
||||||||
Combined ratio, excluding corporate charges and CECL allowance adjustment |
100.2 |
% |
107.1 |
% |
101.9 |
% |
107.2 |
% |
2020 |
2019 |
Change |
% Change |
|||||||||||||
Gross premiums written |
$ |
148,039 |
$ |
137,145 |
$ |
10,894 |
7.9 |
% |
||||||||
Ceded premiums written |
(26,827 |
) |
(27,853 |
) |
1,026 |
(3.7 |
)% |
|||||||||
Net premiums written |
$ |
121,212 |
$ |
109,292 |
$ |
11,920 |
10.9 |
% |
||||||||
Net premiums earned |
$ |
117,853 |
$ |
110,288 |
$ |
7,565 |
6.9 |
% |
||||||||
Net investment income |
5,486 |
6,703 |
(1,217 |
) |
(18.2 |
)% |
||||||||||
Commissions and other income |
1,469 |
2,716 |
(1,247 |
) |
(45.9 |
)% |
||||||||||
Net realized and unrealized gains on investments |
144 |
125 |
19 |
15.2 |
% |
|||||||||||
Total revenue |
124,952 |
119,832 |
||||||||||||||
Losses and loss expenses incurred |
84,673 |
84,781 |
(108 |
) |
(0.1 |
)% |
||||||||||
Other operating expenses |
36,952 |
36,070 |
882 |
2.4 |
% |
|||||||||||
Total expenses |
121,625 |
120,851 |
||||||||||||||
Income (loss) before federal income tax expense (benefit) |
3,327 |
(1,019 |
) |
4,346 |
||||||||||||
Federal income tax expense (benefit) |
46 |
(312 |
) |
358 |
||||||||||||
Net income (loss) |
$ |
3,281 |
$ |
(707 |
) |
$ |
3,988 |
|||||||||
2020 |
2019 |
Change |
% Change |
|||||||||||||
Gross premiums written |
$ |
397,494 |
$ |
433,191 |
$ |
(35,697 |
) |
(8.2 |
)% |
|||||||
Ceded premiums written |
(77,769 |
) |
(92,882 |
) |
15,113 |
(16.3 |
)% |
|||||||||
Net premiums written |
$ |
319,725 |
$ |
340,309 |
$ |
(20,584 |
) |
(6.0 |
)% |
|||||||
Net premiums earned |
$ |
325,242 |
$ |
335,931 |
$ |
(10,689 |
) |
(3.2 |
)% |
|||||||
Net investment income |
19,102 |
19,434 |
(332 |
) |
(1.7 |
)% |
||||||||||
Commissions and other income |
5,020 |
6,761 |
(1,741 |
) |
(25.8 |
)% |
||||||||||
Net realized and unrealized gains (losses) on investments |
(16,996 |
) |
9,041 |
(26,037 |
) |
(288.0 |
)% |
|||||||||
Total revenue |
332,368 |
371,167 |
||||||||||||||
Losses and loss expenses incurred |
234,713 |
262,336 |
(27,623 |
) |
(10.5 |
)% |
||||||||||
Other operating expenses |
105,259 |
104,386 |
873 |
0.8 |
% |
|||||||||||
Total expenses |
339,972 |
366,722 |
||||||||||||||
Income (loss) before federal income tax expense (benefit) |
(7,604 |
) |
4,445 |
(12,049 |
) |
|||||||||||
Federal income tax expense (benefit) |
(96 |
) |
869 |
(965 |
) |
|||||||||||
Net income (loss) |
$ |
(7,508 |
) |
$ |
3,576 |
$ |
(11,084 |
) |
||||||||
● | general economic conditions, including continued volatility of the financial markets, prevailing interest rate levels and stock and credit market performance, which may affect or continue to affect (among other things) our ability to sell our products and to collect amounts due to us, our ability to access capital resources and the costs associated with such access to capital and the market value of our investments; |
● | the effects of the COVID-19 pandemic and associated government actions on our operating and financial performance; |
● | our ability to obtain adequate premium rates and manage our growth strategy; |
● | increasing competition in the sale of our insurance products and services resulting from the entrance of new competitors into, or the expansion of the operations of existing competitors in, our markets and our ability to retain existing customers; |
● | other changes in the markets for our insurance products; |
● | the impact of technological advances, including those specific to the transportation industry; |
● | changes in the legal or regulatory environment, which may affect the manner in which claims are adjusted or litigated, including loss and loss adjustment expense; |
● | legal or regulatory changes or actions, including those relating to the regulation of the sale, underwriting and pricing of insurance products and services and capital requirements; |
● | the impact of a downgrade in our financial strength rating; |
● | technology or network security disruptions or breaches; |
● | adequacy of insurance reserves; |
● | availability of reinsurance and ability of reinsurers to pay their obligations; |
● | our ability to attract and retain qualified employees; |
● | tax law and accounting changes; and |
● | legal actions brought against us. |
Fair Value |
Estimated Change in Fair Value |
|||||||
200 basis point increase |
$ |
803,764 |
$ |
(48,173 |
) |
|||
100 basis point increase |
827,851 |
(24,086 |
) |
|||||
Current fair value |
851,937 |
– |
||||||
100 basis point decrease |
876,023 |
24,086 |
||||||
200 basis point decrease |
900,110 |
48,173 |
• |
Net premiums earned. We expect the impact of COVID-19 on general economic activity will continue to negatively impact our premium volumes. We did not experience a material effect on our net premiums earned in the first quarter of 2020, but saw a more significant impact in the second and third quarters of 2020 primarily due to the reduction in miles driven, which is the basis of premiums we receive, by our commercial automobile insureds, as well as an overall reduction in public transportation units insured. This impact could further persist for the remainder of 2020 and beyond, but the degree of the impact will depend on the extent and duration of the economic contraction. |
• |
Losses and loss expenses incurred. We have seen a favorable impact on our losses and loss expenses incurred in commercial automobile during the first nine months of 2020 as a result of declines in accident frequency due to lower traffic density, but in the future we may incur higher claim and claim adjustment expenses in certain lines of business as a result of COVID-19 due to increases in frequency and/or severity of claims. For example, we may experience elevated frequency and severity in our workers’ compensation lines related to compensable claims by workers who demonstrate that the injury or illness arose both out of and in the course of their employment. We may also experience elevated frequency and severity in our liability coverages as a result of plaintiffs’ lawyers seeking to generate COVID-19-related claim activity against our insureds. Additionally, the anticipated and unknown risks related to COVID-19 may cause additional uncertainty in the process of estimating claims and claim adjustment expense reserves. For example, the behavior of claimants and policyholders may change in unexpected ways, the disruption to the court system may impact the timing and amounts of claims settlements and the actions taken by governmental bodies, both legislative and regulatory, in reaction to COVID-19 and their related impacts are hard to predict. As a result, our estimated level of claims and claim adjustment expense reserves may change. We are also subject to credit risk in our insurance operations, which may be exacerbated in times of economic distress. |
• |
Investments. The volatility in the global financial markets related to COVID-19 has contributed to net realized and unrealized investment losses, primarily due to the impact of changes in fair value on our equity investments. Our corporate fixed income portfolio may be adversely impacted by ratings downgrades, increased bankruptcies and credit spread widening in distressed industries, such as energy, gaming, lodging and leisure, autos, airlines and retail. Our money market investments have been impacted by lower interest rates and may continue to be impacted by these lower rates. Our investment portfolio also includes commercial mortgage-backed securities, which could be adversely impacted by declines in real estate valuations and/or financial market disruption. Further volatility in the global financial markets due to the continuing impact of COVID-19 could result in future net realized and unrealized investment losses, including potential impairments in our fixed income portfolio. In addition, declines in fixed income yields would result in decreases in net investment income from future investment activity, including re-investments. |
• |
Liquidity. Collection of premiums, deductibles or self-insured retentions from our policyholders and reinsurance recoverables from our reinsurers may become increasingly difficult. At the state level, insurance departments throughout the country have issued bulletins and regulations urging or requiring insurers to extend grace periods for the payment of policy premiums and to refrain from canceling or non-renewing policies for the non-payment of policy premiums for policyholders adversely affected by COVID-19. It is uncertain what impact these government mandates may have on our ability to recover unpaid premiums on the affected policies or what our obligations may be for the payment of claims made under policies for which we have not received premium payments. |
• |
Adverse Legislative and/or Regulatory Action. Federal, state and local government actions to address and contain the impact of COVID-19 may adversely affect us. A number of states have instituted, and other states are considering instituting, changes designed to effectively expand workers' compensation coverage by creating presumptions of compensability of claims for certain types of workers. Regulatory restrictions or requirements could also impact pricing, risk selection and our rights and obligations with respect to our policies and insureds, including our ability to cancel policies or our right to collect premiums. |
• |
Operational Disruptions and Heightened Cybersecurity Risks. Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our agents, brokers, suppliers or outsourcing providers are unable to continue to work because of illness, government directives or otherwise. In addition, the interruption of our or their system capabilities could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or perform other necessary business functions. Having shifted to primarily remote working arrangements, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and capabilities. We have not experienced any operational interruptions or cybersecurity disruptions during this time. |
Exhibit No. |
Description |
|
Amended and Restated Articles of Incorporation of Protective Insurance Corporation, incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed August 8, 2018. |
||
Code of By-Laws of Protective Insurance Corporation, as amended through May 14, 2020, incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on May 14, 2020. |
||
Form of Long-Term Incentive Plan Award Agreement, effective July 6, 2020, by and between Protective Insurance Corporation and certain Executives, dated as of July 6, 2020, incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed August 5, 2020. |
||
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
||
101 |
The following materials from Protective Insurance Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (1) the Condensed Consolidated Balance Sheets, (2) the Condensed Consolidated Statements of Operations, (3) the Condensed Consolidated Statements of Comprehensive Income (Loss), (4) the Condensed Consolidated Statements of Shareholders' Equity, (5) the Condensed Consolidated Statements of Cash Flows, and (6) the Notes to Unaudited Condensed Consolidated Financial Statements. |
|
104 |
Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101) |
By: |
/s/ Jeremy D. Edgecliffe-Johnson |
|
Jeremy D. Edgecliffe-Johnson |
||
Chief Executive Officer |
By: |
/s/ John R. Barnett |
|
John R. Barnett |
||
Chief Financial Officer |
1. |
I have reviewed this Quarterly Report on Form 10-Q of Protective Insurance Corporation;
|
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.
|
/s/ Jeremy D. Edgecliffe-Johnson
|
|
Jeremy D. Edgecliffe-Johnson
|
|
Chief Executive Officer
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of Protective Insurance Corporation;
|
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.
|
/s/ John R. Barnett
|
|
John R. Barnett
|
|
Chief Financial Officer
|
(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.
|
/s/ Jeremy D. Edgecliffe-Johnson
|
|
Jeremy D. Edgecliffe-Johnson
|
|
Chief Executive Officer
|
|
/s/ John R. Barnett
|
|
John R. Barnett
|
|
Chief Financial Officer
|
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end
Unaudited Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2020 |
Dec. 31, 2019 |
---|---|---|
Class A Voting [Member] | ||
Shareholders' equity: | ||
Common stock, par value (in dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized (in shares) | 3,000,000 | 3,000,000 |
Common stock, shares outstanding (in shares) | 2,603,350 | 2,603,350 |
Class B Non-voting [Member] | ||
Shareholders' equity: | ||
Common stock, par value (in dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized (in shares) | 20,000,000 | 20,000,000 |
Common stock, shares outstanding (in shares) | 11,650,004 | 11,675,956 |
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) [Abstract] | ||||
Net income (loss) | $ 3,281 | $ (707) | $ (7,508) | $ 3,576 |
Other comprehensive income, net of tax: | ||||
Unrealized net gains on fixed income securities | 6,133 | 1,566 | 5,123 | 16,539 |
Foreign currency translation adjustments | 159 | (189) | (307) | 402 |
Other comprehensive income | 6,292 | 1,377 | 4,816 | 16,941 |
Comprehensive income (loss) | $ 9,573 | $ 670 | $ (2,692) | $ 20,517 |
Summary of Significant Accounting Policies |
9 Months Ended |
---|---|
Sep. 30, 2020 | |
Summary of Significant Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies |
(1) Summary of Significant Accounting Policies:
Description of Business: Protective Insurance Corporation (the "Company"), based in Carmel, Indiana, is a property-casualty insurer specializing in marketing and underwriting property, liability and workers' compensation coverage for trucking and public transportation fleets, as well as coverage for trucking industry independent contractors. The Company offers a range of products and services, the most significant being commercial automobile and workers' compensation insurance products. The Company operates as one reportable property and casualty insurance segment based on how its operating results are regularly reviewed by its chief operating decision maker when making decisions about how resources are allocated and assessing performance.
The term “Insurance Subsidiaries,” as used throughout this document, refers to Protective Insurance Company, Protective Specialty Insurance Company, Sagamore Insurance Company and B&L Insurance, Ltd.
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Interim financial statements should be read in conjunction with the Company's annual audited financial statements and other disclosures included in the Company's most recent Annual Report on Form 10-K. Operating results for interim periods are not necessarily indicative of results that may be expected for the year ending December 31, 2020 or any other future period.
Accounting Policies
Investments: Carrying amounts for fixed income securities represent fair value and are based on quoted market prices, where available, or broker/dealer quotes for specific securities where quoted market prices are not available. Equity securities are carried at quoted market prices (fair value).
Commercial mortgage loans are carried primarily at amortized cost along with an allowance for losses when necessary. These investments represent interests in commercial mortgage loans originated and serviced by a third party of which the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgage loans. The Company recorded an allowance of $195 on its commercial mortgage loans as of September 30, 2020 in conjunction with the adoption of the new credit losses accounting standard discussed below.
The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to record its proportionate share of the limited partnership's net income. To the extent the limited partnerships include both realized and unrealized investment gains or losses in the determination of net income or loss, then the Company would also recognize, through its condensed consolidated statements of operations, its proportionate share of the investee's unrealized, as well as realized, investment gains or losses within net unrealized gains (losses) on equity securities and limited partnership investments.
Short-term and other investments are carried at cost, which approximates their fair values.
Fixed income securities are considered to be available-for-sale. The related unrealized net gains or losses (net of applicable tax effects) on fixed income securities are reflected directly in other comprehensive income (loss) within shareholders' equity. Included within available-for-sale fixed income securities are convertible debt securities. A portion of the changes in the fair values of convertible debt securities is reflected as a component of net realized gains (losses) on investments, excluding impairment losses within the condensed consolidated statements of operations. Realized gains and losses on disposals of fixed income securities are recorded on the trade date. Realized gains and losses on fixed income securities are determined by the specific identification of the cost of investments sold and are included in net realized gains (losses) on investments, excluding impairment losses.
Equity securities are recorded at fair value, with unrealized net gains or losses reflected as a component of net unrealized gains (losses) on equity securities and limited partnership investments within the condensed consolidated statements of operations. Realized gains and losses on disposals of equity securities are recorded on the trade date and included in net realized gains (losses) on investments, excluding impairment losses.
Recognition of Revenue and Costs: Premiums are earned over the period for which insurance protection is provided. A reserve for unearned premiums is established to reflect amounts applicable to subsequent accounting periods. Commissions to unaffiliated companies and premium taxes applicable to unearned premiums are deferred and expensed as the related premiums are earned. The Company does not defer acquisition costs that are not directly variable with the production of premiums. If it is determined that expected losses and deferred expenses will likely exceed the related unearned premiums, the asset representing deferred policy acquisition costs is reduced and an expense is charged against current operations to reflect any such premium deficiency. In the event that the expected premium deficiency exceeds deferred policy acquisition costs, an additional liability would be recorded with a corresponding expense to current operations for the amount of the excess premium deficiency. Anticipated investment income is considered in determining recoverability of deferred acquisition costs. The Company had no material contract assets, contract liabilities, or deferred contract costs recorded on its condensed consolidated balance sheet at September 30, 2020.
The following accounting policies have been updated effective January 1, 2020 to reflect the Company's adoption of Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, as described below.
Investment Impairments: For a fixed income security in an unrealized loss position where the Company has the intent to sell the fixed income security, or it is more likely than not that the Company will have to sell the fixed income security before recovery of its amortized cost basis, the decline in value is recorded within impairment losses on investments in the condensed consolidated statements of operations. The new cost basis of the investment is the previous amortized cost basis less the impairment recognized. The new cost basis is not adjusted for any subsequent recoveries in fair value.
For a fixed income security that the Company does not intend to sell or in cases where it is more likely than not that the Company will not have to sell the security, the Company separates the credit loss component of the impairment from the amount related to all other factors and reports the credit loss component within net realized gains (losses) on investments, excluding impairment losses in the condensed consolidated statements of operations. The impairment related to all other factors (non-credit factors) is reported in other comprehensive income (loss). The allowance is adjusted for any additional credit losses and subsequent recoveries. Upon recognizing a credit loss, the cost basis is not adjusted.
The Company considers the extent to which fair value is below amortized cost in determining whether a credit-related loss exists. The Company also considers the credit quality rating of the security, focusing on those below investment grade, with emphasis on securities downgraded below investment grade. The credit loss is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed income security. The net present value is calculated by discounting the Company's best estimate of projected future cash flows at the appropriate effective interest rate. Additionally, the Company may conclude that a qualitative analysis is sufficient to support its conclusion that the present value of the expected cash flows equals or exceeds a security’s amortized cost.
The Company reports investment income due and accrued separately from available-for-sale fixed income securities and has elected not to measure an allowance for credit losses for investment income due and accrued. Investment income due and accrued is written off through net realized gains (losses) on investments, excluding impairment losses at the time the issuer defaults or is expected to default on payments.
Deductible Receivables: Under certain workers’ compensation insurance contracts with deductible features, the Company is obligated to pay the claimant for the full amount of the claim. The Company is subsequently reimbursed by the policyholder for the deductible amount. These amounts are included on a net of allowance basis in the condensed consolidated balance sheets within accounts receivable. The allowance is based upon the Company’s ongoing review of amounts outstanding, changes in policyholder credit standing, and other relevant factors. A probability-of-default methodology, which reflects current and forecasted economic conditions, is used to estimate the allowance for expected credit losses for deductible receivables. As of September 30, 2020, the Company recorded an allowance for expected credit losses of $16,500 ($13,035, net of tax). See Note 10 – Litigation, Commitments and Contingencies for further discussion.
Recently Adopted Accounting Pronouncements: Effective January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), or ASU 2016-02. Under the new guidance, lessees are required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees are required to recognize a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The Company's adoption of the new standard did not have any impact on its condensed consolidated statements of operations or cash flows; however, the impact of adopting the new guidance resulted in a right-of-use asset and a lease liability being recorded on the condensed consolidated balance sheet as of September 30, 2020, each of approximately $145, which are included within other assets and accounts payable and other liabilities.
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13. ASU 2016-13 introduced a current expected credit loss ("CECL") model for measuring expected credit losses for certain types of financial instruments held at the reporting date requiring significant judgment in application based on historical experience, current conditions and reasonable supportable forecasts, but is not prescriptive about certain aspects of estimating expected losses. The guidance replaced the current incurred loss model for measuring expected credit losses and provided for additional disclosure requirements. Subsequently, the FASB issued additional ASUs on Topic 326 that did not change the core principle of the guidance in ASU 2016-13, but provided clarification and implementation guidance on certain aspects of ASU 2016-13, and had the same effective date and transition requirements as ASU 2016-13. The Company adopted the guidance using a modified retrospective approach as of January 1, 2020 and recognized a cumulative effect adjustment of $15,545 ($12,281, net of tax), to the opening balance of retained earnings. The adjustment was primarily related to estimating credit losses on the Company’s accounts receivable balances, reinsurance recoverable balances and commercial mortgage loans at the date of adoption with $15,000 ($11,850, net of tax) attributed to the ongoing litigation with Personnel Staffing Group ("PSG") discussed in Note 10 - Litigation, Commitments and Contingencies.
The updated guidance in ASU 2016-13 also amended the previous other-than-temporary impairment ("OTTI") model for available-for-sale fixed income securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The Company adopted the guidance related to available-for-sale fixed income securities on January 1, 2020 using a prospective transition approach for available-for-sale fixed income securities that were purchased with credit deterioration or had recognized an OTTI write-down prior to the effective date. The effect of the prospective transition approach was to maintain the same amortized cost basis before and after the effective date.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. This update removed the disclosure requirements for the amounts of and the reasons for transfers between Level 1 and Level 2 and disclosure of the policy for timing of transfers between levels. This update also removed disclosure requirements for the valuation processes for Level 3 fair value measurements. Additionally, this update added disclosure requirements for the changes in unrealized gains and losses for recurring Level 3 fair value measurements and quantitative information for certain unobservable inputs in Level 3 fair value measurements. The Company adopted ASU 2018-13 as of January 1, 2020. As the requirements of this guidance are applicable to disclosure only, the adoption of ASU 2018-13 had no material impact on the Company's condensed consolidated financial statements.
Recently Issued Accounting Pronouncements: In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12. Among other items, the amendments in ASU 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipated loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year. ASU 2019-12 removes this exception and provides that in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the effects the adoption of ASU 2019-12 will have on its condensed consolidated financial statements.
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Investments |
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Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments |
(2) Investments:
The following is a summary of available-for-sale securities at September 30, 2020 and December 31, 2019:
The following table summarizes, for available-for-sale fixed income securities in an unrealized loss position at September 30, 2020 and December 31, 2019, the aggregate fair value and gross unrealized loss categorized by the duration individual securities have been continuously in an unrealized loss position.
The fair value and the cost or amortized costs of fixed income investments at September 30, 2020, organized by contractual maturity, are shown below. Actual maturities may ultimately differ from contractual maturities because borrowers have, in some cases, the right to call or prepay obligations with or without call or prepayment penalties. Pre-refunded municipal bonds are classified based on their pre-refunded call dates.
Following is a summary of the components of net realized and unrealized gains (losses) on investments for the periods presented in the accompanying condensed consolidated statements of operations.
As discussed in Note 1, the Company adopted the provisions of the new CECL model for measuring expected credit losses for available-for-sale fixed income securities as of January 1, 2020. The updated guidance amended the previous OTTI model for available-for-sale fixed income securities by requiring the recognition of impairments relating to credit losses through an allowance account on the balance sheet with a corresponding adjustment to earnings and limiting the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. For those securities the Company intended to sell as of September 30, 2020, a write down to earnings of $588 and $1,046 was recorded during the three and nine months ended September 30, 2020. The Company reviewed its remaining fixed income securities in an unrealized loss position as of September 30, 2020 and determined the losses were primarily the result of non-credit factors, such as the increase in market volatility due to the disruption in global financial markets as a result of the novel coronavirus COVID-19 ("COVID-19") pandemic and responses to it. The Company currently does not intend to sell nor does it expect to be required to sell these securities before recovery of their amortized cost. Based on the above factors, the Company did not record any allowance for credit losses related to these available-for-sale fixed income securities under the new guidance in the first nine months of 2020.
Shareholders' equity at September 30, 2020 included approximately $4,038, net of federal income tax expense, of reported earnings that remain undistributed by limited partnerships.
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Reinsurance |
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Reinsurance [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reinsurance |
(3) Reinsurance:
The following table summarizes the Company's transactions with reinsurers for the three and nine months ended September 30, 2020 and 2019 comparative periods.
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Loss and Loss Expense Reserves |
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Loss and Loss Expense Reserves |
(4) Loss and Loss Expense Reserves:
Activity in the reserves for losses and loss expenses for the nine months ended September 30, 2020 and 2019 is summarized as follows. All amounts are shown net of reinsurance, unless otherwise indicated.
The $5 prior accident year favorable development during the nine months ended September 30, 2020 was primarily due to favorable loss development in the Company's occupational accident line of business for accident years 2018 and 2019, mostly offset by unfavorable loss development in excess automobile liability and public transportation primarily for accident year 2018. This savings compares to a prior accident year savings of $1,589 for the nine months ended September 30, 2019, which related to favorable loss development in workers' compensation and independent contractor coverages. Losses incurred from claims occurring during prior years reflect the development from prior accident years, composed of individual claim savings and deficiencies which, in the aggregate, have resulted from the settlement of claims at amounts higher or lower than previously reserved and from changes in estimates of losses incurred but not reported as part of the normal reserving process.
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Segment Information |
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Segment Information |
(5) Segment Information:
The Company has one reportable business segment in its operations: Property and Casualty Insurance. The property and casualty insurance segment provides multiple lines of insurance coverage primarily to commercial automobile companies, as well as to independent contractors who contract with commercial automobile companies.
The following table summarizes segment revenues for the three and nine months ended September 30, 2020 and 2019:
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Debt |
9 Months Ended |
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Sep. 30, 2020 | |
Debt [Abstract] | |
Debt |
(6) Debt:
On August 9, 2018, the Company entered into a credit agreement providing a revolving credit facility with a $40,000 limit, with the option for up to an additional $35,000 in incremental loans at the discretion of the lenders. This credit agreement has an expiration date of August 9, 2022. Interest on this revolving credit facility is referenced to the London Interbank Offered Rate and can be fixed for periods of up to one year at the Company's option. Outstanding drawings on this revolving credit facility were $20,000 as of September 30, 2020. At September 30, 2020, the effective interest rate was 1.26%, and the Company had $20,000 remaining available under the revolving credit facility. The current outstanding borrowings were used to repay the Company's previous line of credit. The Company's revolving credit facility has two financial covenants, each of which were met as of September 30, 2020. These covenants require the Company to have a minimum U.S. generally accepted accounting principles net worth and a maximum consolidated debt to equity ratio of 0.35.
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Taxes |
9 Months Ended |
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Sep. 30, 2020 | |
Taxes [Abstract] | |
Taxes |
(7) Taxes:
The Company uses the estimated annual effective tax rate method for calculating its tax provision in interim periods, which represents the Company’s best estimate of the effective tax rate expected for the full year based on projected annual taxable income (loss). The effective tax rate can fluctuate throughout the year because estimates used in the quarterly tax provision are updated as more information becomes available throughout the year.
The effective federal tax rate on consolidated income for the three months ended September 30, 2020 was 1.4% compared to 30.6% on consolidated loss for the three months ended September 30, 2019. The effective federal tax rate on consolidated loss for the nine months ended September 30, 2020 was 1.3% compared to 19.6% on consolidated income for the nine months ended September 30, 2019. Pre-tax losses in the periods presented make these interim period effective tax rates less comparable year-over-year. The difference in the effective federal income tax rate from the normal statutory rate was primarily related to adjustments to the valuation allowance in the current period on our deferred tax assets discussed below, in addition to the effects of tax-exempt investment income and the dividends received deduction.
In assessing the valuation of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or availability to carryback the losses to taxable income during the periods in which those temporary differences become deductible. The Company considered several factors when analyzing the need for a valuation allowance, including the Company's current three year cumulative loss through September 30, 2020, the increase in deferred tax assets due to the adoption of CECL at January 1, 2020 discussed in Note 1, the change in unrealized gains and losses and the loss of a high taxable income year from the carryback period. The three year cumulative loss limits the Company's ability to use projected income beyond 2020 in the analysis. Based on this analysis, the Company concluded that a valuation allowance was necessary for its deferred tax assets not supported by either carryback availability or future reversals of existing taxable temporary differences. The Company's valuation allowance was $1,535 as of September 30, 2020, all of which was recorded in the condensed consolidated statement of operations for the nine months ended September 30, 2020. This represented an $853 reduction to the valuation allowance of $2,388 recorded for the six months ended June 30, 2020. Of this reduction, $641 was recorded in the condensed consolidated statement of operations for the three months ended September 30, 2020 and the balance was recorded in shareholders' equity within accumulated other comprehensive income as of September 30, 2020.
As of September 30, 2020, the Company's calendar years 2018, 2017 and 2016 remain subject to examination by the Internal Revenue Service.
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Fair Value |
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Fair Value [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value |
(8) Fair Value:
Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:
As of September 30, 2020:
As of December 31, 2019:
Level inputs, as defined by the FASB guidance, are as follows:
The Company did not have any Level 3 assets at September 30, 2020 or December 31, 2019. Level 3 assets, when present, are valued using various unobservable inputs, including extrapolated data, proprietary models and indicative quotes.
Quoted market prices are obtained whenever possible. Where quoted market prices are not available, fair values are estimated using broker/dealer quotes for specific securities. These techniques are significantly affected by the Company's assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs have not been considered in estimating fair values.
Transfers between levels, if any, are recorded as of the beginning of the reporting period. There were no significant transfers of assets between Level 1 and Level 2 during the nine months ended September 30, 2020.
In addition to the preceding disclosures on assets recorded at fair value in the condensed consolidated balance sheets, FASB guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in the condensed consolidated balance sheets.
Non-financial instruments such as real estate, property and equipment, other assets, deferred income taxes and intangible assets, and certain financial instruments such as policy reserve liabilities are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to determine the underlying economic value of the Company. The following methods, assumptions and inputs were used to estimate the fair value of each class of financial instrument:
Limited partnerships: The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to carry the investment at its proportionate share of the limited partnership's equity. The underlying assets of the Company's investments in limited partnerships are carried primarily at fair value; therefore, the Company's carrying value of limited partnerships approximates fair value. As these investments are not actively traded and the corresponding inputs are based on data provided by the investees, they are classified as Level 3.
Commercial mortgage loans: Commercial mortgage loans are carried primarily at amortized cost along with a valuation allowance for losses when necessary. These investments represent interests in commercial mortgage loans originated and serviced by a third party of which the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgage loans. The fair value of the Company’s investment in these commercial mortgage loans is based on expected future cash flows discounted at the current interest rate for origination of similar quality loans, adjusted for specific loan risk. These investments are classified as Level 3.
Short-term borrowings: The fair value of the Company's short-term borrowings is based on quoted market prices for the same or similar debt, or, if no quoted market prices are available, on the current market interest rates available to the Company for debt of similar terms and remaining maturities.
A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company's condensed consolidated balance sheets at September 30, 2020 and December 31, 2019 is as follows:
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Stock-Based Compensation |
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Stock-Based Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation |
(9) Stock-Based Compensation:
The Company issues shares of restricted Class B Common Stock to the Company's outside directors as part of their annual retainer compensation. The shares are distributed to the outside directors on the vesting date, which, with the exception of pro-rated annual retainers granted to outside directors, is one year following the date of grant. On May 17, 2019, the Company granted shares of restricted Class B Common Stock in connection with the election of a new outside director, reflecting such director’s pro-rated annual retainer compensation, which shares vested and were distributed on May 7, 2020. Additionally, effective May 22, 2019, John D. Nichols, Jr. ceased serving as the Company's Interim Chief Executive Officer and principal executive officer, but continued to serve as Chairman of the Company's Board of Directors. On May 22, 2019, the Company granted shares of restricted Class B Common Stock to Mr. Nichols in connection with this transition, reflecting his pro-rated annual retainer compensation, which shares also vested and were distributed on May 7, 2020. The table below provides detail of the restricted stock issuances to directors for 2019 and 2020:
Compensation expense related to the above stock grants is recognized over the period in which the directors render services.
In March 2018, the Company's Compensation Committee, now known as the Compensation and Human Capital Committee (the "Committee"), granted equity-based awards pursuant to the Company's Long-Term Incentive Plan (the "Long-Term Incentive Plan"). Certain participants under the Long-Term Incentive Plan were granted equity awards (the "2018 LTIP Awards"), with the number of shares of Class B Common Stock earned pursuant to such awards determined by applying a performance matrix consisting of a measurement of the combined results of the Company's 2018 growth in gross premiums earned and the Company's 2018 combined ratio. The combined ratio is calculated as a ratio of (A) losses and loss expenses incurred, plus other operating expenses, less commission and other income to (B) net premiums earned. No 2018 LTIP Awards were earned based on the Company's performance in 2018, and therefore no shares were issued pursuant to the 2018 LTIP Awards. In addition to the 2018 LTIP Awards, in March 2018 the Committee also granted Value Creation Incentive Plan awards (the "2018 VCIP Awards") to certain participants under the Long-Term Incentive Plan. The 2018 VCIP Awards are performance-based equity awards that will be earned based on the Company's cumulative operating income, as defined above, over a three-year performance period from January 1, 2018 through December 31, 2020 relative to a cumulative operating income goal for the period set by the Compensation Committee in March 2018. Any 2018 VCIP Awards that are earned will be paid in unrestricted shares of the Company's Class B Common Stock at the end of the three-year performance period, but no later than March 15, 2021. No shares are eligible to be issued under the 2018 VCIP Awards as of September 30, 2020.
On November 13, 2018, the Company entered into an employment agreement with its Interim Chief Executive Officer, John D. Nichols, Jr. Pursuant to the terms of this employment agreement, on November 13, 2018, Mr. Nichols was granted 85,000 restricted shares of the Company's Class B Common Stock (the "Nichols Stock Grant"), of which 42,500 shares vested as of October 17, 2019; 21,250 shares vested as of October 17, 2020, and 21,250 shares will vest as of October 17, 2021. The Company incurred $131 of expense during the nine months ended September 30, 2020 related to the Nichols Stock Grant.
In March 2019, the Committee granted equity-based awards pursuant to the Long-Term Incentive Plan. Certain participants under the Long-Term Incentive Plan were granted equity awards (the "2019 LTIP Awards"), with the number of shares of Class B Common Stock earned pursuant to such awards determined by applying a performance matrix consisting of a corporate performance component as well as a personal performance component. The corporate performance component of the 2019 LTIP Awards was determined based on the Company's achievement of 2019 underwriting income compared to the plan target. The Company's underwriting income was calculated as income (loss) before federal income tax expense (benefit), less net realized and unrealized gains (losses) on investments, less net investment income. The personal performance component of the 2019 LTIP Awards was determined based on the achievement of personal goals that aligned with departmental and corporate objectives for 2019. 2019 LTIP Awards earned were paid in shares of restricted Class B Common Stock in early 2020. of such shares will vest annually over the three-year period beginning one year from the date of issue. The Company incurred $75 of expense during the nine months ended September 30, 2020 related to the 2019 LTIP Awards.
On May 22, 2019, the Company entered into an employment agreement with its new Chief Executive Officer, Jeremy D. Edgecliffe-Johnson. Pursuant to the terms of this employment agreement, on May 22, 2019, Mr. Edgecliffe-Johnson was granted 70,000 restricted shares of the Company's Class B Common Stock (the "Edgecliffe-Johnson Stock Grant"), of which 35,000 shares will vest as of June 1, 2022, 21,000 shares will vest as of June 1, 2023, and 14,000 shares will vest as of June 1, 2024. The Company incurred $157 of expense during the nine months ended September 30, 2020 related to the Edgecliffe-Johnson Stock Grant.
On November 5, 2019, the Board of the Company, upon the recommendation of the Committee, approved equity compensation awards to be granted to seven members of senior management as of November 12, 2019 under the Long-Term Incentive Plan. The Board approved a total of $1,100 in grants of restricted shares of the Company’s Class B Common Stock, which will vest on January 1, 2023, subject to the recipient’s continued employment with the Company through the vesting date. The Company incurred $264 of expense during the nine months ended September 30, 2020 related to this grant.
On July 6, 2020, the Committee granted a total of 101,400 restricted shares of the Company's Class B Common Stock to certain members of senior management under the Long-Term Incentive Plan. These 101,400 restricted shares will vest on July 1, 2023, subject to the recipient’s continued employment with the Company through the vesting date. The Company incurred $104 of expense during the nine months ended September 30, 2020 related to this grant.
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Litigation, Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2020 | |
Litigation, Commitments and Contingencies [Abstract] | |
Litigation, Commitments and Contingencies |
(10) Litigation, Commitments and Contingencies:
In the ordinary, regular and routine course of their business, the Company and its Insurance Subsidiaries are frequently involved in various matters of litigation relating principally to claims for insurance coverage provided. No currently pending matter is deemed by management to be material to the Company, other than as noted below.
Personnel Staffing Group Litigation
In July 2019, Protective Insurance Company (“Protective”) was named as a defendant in an action brought by a former insured, Personnel Staffing Group d/b/a MVP Staffing (“PSG”), in the U.S. District Court for the Central District of California (the “California Action”) alleging that Protective had breached its workers’ compensation insurance policy and had breached the duties of good faith and fair dealing. Protective provided workers’ compensation insurance to PSG from January 1, 2017 through June 30, 2018, which was subject to a $500 per claim deductible to be paid by PSG. No specific damages were included in the complaint. In August 2019, Protective filed a motion to dismiss or stay the action.
In August 2019, Protective filed a lawsuit against PSG in Marion County Superior Court, in Indianapolis, Indiana (the “Indiana Court”) alleging breach of contract, breach of the parties' collateral agreement, breach of the parties' indemnity agreement, and seeking a declaratory judgment regarding PSG’s obligation to fund its ongoing claim deductible obligations and adequately collateralize Protective’s current and ongoing claims exposure pursuant to terms of the parties' agreements (the “Indiana Action”). In October 2019, Protective amended the complaint to include allegations of misrepresentation as to source of coverage, negligent misrepresentation, fraud and racketeering and seeking injunctive relief. In November 2019, PSG filed a motion to dismiss the Indiana Action on the basis of comity with the California Action, claiming that California was the proper forum for Protective’s claims.
In February 2020, the Indiana Court issued an order dismissing the Indiana Action without prejudice; the Indiana Court declined to rule on the legal effect of the forum selection clause in the parties’ agreements, finding that any interpretation should be addressed by the court in the California Action. On April 28, 2020, Protective’s motion to dismiss the California Action was granted without prejudice on grounds that Indiana is the more appropriate forum. On May 4, 2020, PSG filed a notice of appeal in the 9th Circuit Court of Appeals, challenging the order of dismissal in the California Action. On May 1, 2020, Protective filed a motion with the Indiana Court to re-open the Indiana Action, which was denied on September 23, 2020, pending resolution of PSG's 9th Circuit appeal. Protective intends to vigorously pursue its claims against PSG, however, the ultimate outcome cannot be presently determined.
Pursuant to the terms of the workers’ compensation policies, Protective has a duty to adjust and pay claims arising under the policies regardless of whether PSG makes payments to Protective for deductible obligations under the policies. Under its contractual obligations to Protective, PSG is required to maintain a “loss fund” for the payment of claims, the balance of which is to remain at or above $4,000; in addition, PSG is required to provide collateral in an amount equal to 110% of Protective’s current open case reserves on workers’ compensation claims arising under the policies.
As of September 30, 2020, Protective had approximately $19,400 in receivables on claims arising under PSG’s workers’ compensation policies and had exhausted all collateral provided by PSG. Protective continues to pay claims settlements under the policies without reimbursement from PSG. For the past six months, the average monthly invoices have been approximately $786. PSG’s estimated ultimate obligation under the agreements is approximately $46,730 as of September 30, 2020 (inclusive of the $19,400 in receivables noted above). At September 30, 2020, based on the Company's assessment that PSG will continue to operate as a business and that the terms of the agreement with PSG will be legally enforceable, the Company believes that it will fully collect all current and future amounts due from PSG relating to this matter.
The Company included this matter in its assessment of the impact of adopting ASU 2016-13, the new guidance for measuring CECL, which is discussed in Note 1. A probability-of-default methodology was applied to projected estimated cash flows to estimate the allowance for expected credit losses for this matter. The Company considered the delay in reimbursement for claims paid as well as probability of default assumptions when analyzing the credit loss related to this matter. As of January 1, 2020, in conjunction with the adoption of ASU 2016-13, the Company recorded an allowance for expected credit losses of $15,000 ($11,850, net of tax) as a reduction to equity. During the third quarter of 2020, the Company performed an update to its CECL allowance calculation related to the PSG matter. As noted above, there have been further delays in the litigation process, which have extended the estimated cash flow timing. As a result of these delays and an increase in the estimated ultimate obligation, the Company recorded an additional allowance of $1,500 ($1,185, net of tax) within other operating expenses in the condensed consolidated statement of operations for the three and nine months ended September 30, 2020. In the event of a situation that results in no recovery from PSG, the Company would incur an estimated charge to the condensed consolidated statement of operations of $30,230 ($23,882, net of tax), which represents the estimated ultimate obligation discussed above less the CECL allowance.
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Shareholders' Equity |
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Shareholders' Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders' Equity |
(11) Shareholders' Equity:
On August 31, 2017, the Company's Board of Directors authorized the reinstatement of its share repurchase program for up to 2,464,209 shares of the Company's Class A or Class B Common Stock. No duration has been placed on the Company's share repurchase program, and the Company reserves the right to amend, suspend or discontinue it at any time. The share repurchase program does not commit the Company to repurchase any shares of its common stock.
During the nine months ended September 30, 2020, the Company paid $1,782 to repurchase 126,764 shares of Class B Common Stock under the share repurchase program. No share repurchases have been made since March 20, 2020.
The following table illustrates changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2020:
The following table illustrates changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2019:
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Related Parties |
9 Months Ended |
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Sep. 30, 2020 | |
Related Parties [Abstract] | |
Related Parties |
(12) Related Parties:
The Company utilizes the services of an investment firm of which one director of the Company is a partial owner. This investment firm manages equity securities and fixed income portfolios held by the Company with an aggregate market value of approximately $6,805 at September 30, 2020. Total commissions and net fees earned by this investment firm and its affiliates on these portfolios were $103 and $100 for the nine months ended September 30, 2020 and 2019.
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Subsequent Events |
9 Months Ended |
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Sep. 30, 2020 | |
Subsequent Events [Abstract] | |
Subsequent Events |
(13) Subsequent Events:
On November 3, 2020, the Company's Board of Directors declared a regular quarterly dividend of $0.10 per share on the Company's Class A and Class B Common Stock. The dividend per share will be payable December 1, 2020 to shareholders of record on November 17, 2020.
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Summary of Significant Accounting Policies (Policies) |
9 Months Ended |
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Sep. 30, 2020 | |
Summary of Significant Accounting Policies [Abstract] | |
Description of Business |
Description of Business: Protective Insurance Corporation (the "Company"), based in Carmel, Indiana, is a property-casualty insurer specializing in marketing and underwriting property, liability and workers' compensation coverage for trucking and public transportation fleets, as well as coverage for trucking industry independent contractors. The Company offers a range of products and services, the most significant being commercial automobile and workers' compensation insurance products. The Company operates as one reportable property and casualty insurance segment based on how its operating results are regularly reviewed by its chief operating decision maker when making decisions about how resources are allocated and assessing performance.
The term “Insurance Subsidiaries,” as used throughout this document, refers to Protective Insurance Company, Protective Specialty Insurance Company, Sagamore Insurance Company and B&L Insurance, Ltd.
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Basis of Presentation |
Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Interim financial statements should be read in conjunction with the Company's annual audited financial statements and other disclosures included in the Company's most recent Annual Report on Form 10-K. Operating results for interim periods are not necessarily indicative of results that may be expected for the year ending December 31, 2020 or any other future period.
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Investments |
Investments: Carrying amounts for fixed income securities represent fair value and are based on quoted market prices, where available, or broker/dealer quotes for specific securities where quoted market prices are not available. Equity securities are carried at quoted market prices (fair value).
Commercial mortgage loans are carried primarily at amortized cost along with an allowance for losses when necessary. These investments represent interests in commercial mortgage loans originated and serviced by a third party of which the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgage loans. The Company recorded an allowance of $195 on its commercial mortgage loans as of September 30, 2020 in conjunction with the adoption of the new credit losses accounting standard discussed below.
The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to record its proportionate share of the limited partnership's net income. To the extent the limited partnerships include both realized and unrealized investment gains or losses in the determination of net income or loss, then the Company would also recognize, through its condensed consolidated statements of operations, its proportionate share of the investee's unrealized, as well as realized, investment gains or losses within net unrealized gains (losses) on equity securities and limited partnership investments.
Short-term and other investments are carried at cost, which approximates their fair values.
Fixed income securities are considered to be available-for-sale. The related unrealized net gains or losses (net of applicable tax effects) on fixed income securities are reflected directly in other comprehensive income (loss) within shareholders' equity. Included within available-for-sale fixed income securities are convertible debt securities. A portion of the changes in the fair values of convertible debt securities is reflected as a component of net realized gains (losses) on investments, excluding impairment losses within the condensed consolidated statements of operations. Realized gains and losses on disposals of fixed income securities are recorded on the trade date. Realized gains and losses on fixed income securities are determined by the specific identification of the cost of investments sold and are included in net realized gains (losses) on investments, excluding impairment losses.
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Recognition of Revenue and Costs |
Recognition of Revenue and Costs: Premiums are earned over the period for which insurance protection is provided. A reserve for unearned premiums is established to reflect amounts applicable to subsequent accounting periods. Commissions to unaffiliated companies and premium taxes applicable to unearned premiums are deferred and expensed as the related premiums are earned. The Company does not defer acquisition costs that are not directly variable with the production of premiums. If it is determined that expected losses and deferred expenses will likely exceed the related unearned premiums, the asset representing deferred policy acquisition costs is reduced and an expense is charged against current operations to reflect any such premium deficiency. In the event that the expected premium deficiency exceeds deferred policy acquisition costs, an additional liability would be recorded with a corresponding expense to current operations for the amount of the excess premium deficiency. Anticipated investment income is considered in determining recoverability of deferred acquisition costs. The Company had no material contract assets, contract liabilities, or deferred contract costs recorded on its condensed consolidated balance sheet at September 30, 2020.
The following accounting policies have been updated effective January 1, 2020 to reflect the Company's adoption of Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, as described below.
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Investment Impairments |
Investment Impairments: For a fixed income security in an unrealized loss position where the Company has the intent to sell the fixed income security, or it is more likely than not that the Company will have to sell the fixed income security before recovery of its amortized cost basis, the decline in value is recorded within impairment losses on investments in the condensed consolidated statements of operations. The new cost basis of the investment is the previous amortized cost basis less the impairment recognized. The new cost basis is not adjusted for any subsequent recoveries in fair value.
For a fixed income security that the Company does not intend to sell or in cases where it is more likely than not that the Company will not have to sell the security, the Company separates the credit loss component of the impairment from the amount related to all other factors and reports the credit loss component within net realized gains (losses) on investments, excluding impairment losses in the condensed consolidated statements of operations. The impairment related to all other factors (non-credit factors) is reported in other comprehensive income (loss). The allowance is adjusted for any additional credit losses and subsequent recoveries. Upon recognizing a credit loss, the cost basis is not adjusted.
The Company considers the extent to which fair value is below amortized cost in determining whether a credit-related loss exists. The Company also considers the credit quality rating of the security, focusing on those below investment grade, with emphasis on securities downgraded below investment grade. The credit loss is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed income security. The net present value is calculated by discounting the Company's best estimate of projected future cash flows at the appropriate effective interest rate. Additionally, the Company may conclude that a qualitative analysis is sufficient to support its conclusion that the present value of the expected cash flows equals or exceeds a security’s amortized cost.
The Company reports investment income due and accrued separately from available-for-sale fixed income securities and has elected not to measure an allowance for credit losses for investment income due and accrued. Investment income due and accrued is written off through net realized gains (losses) on investments, excluding impairment losses at the time the issuer defaults or is expected to default on payments.
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Deductible Receivables |
Deductible Receivables: Under certain workers’ compensation insurance contracts with deductible features, the Company is obligated to pay the claimant for the full amount of the claim. The Company is subsequently reimbursed by the policyholder for the deductible amount. These amounts are included on a net of allowance basis in the condensed consolidated balance sheets within accounts receivable. The allowance is based upon the Company’s ongoing review of amounts outstanding, changes in policyholder credit standing, and other relevant factors. A probability-of-default methodology, which reflects current and forecasted economic conditions, is used to estimate the allowance for expected credit losses for deductible receivables. As of September 30, 2020, the Company recorded an allowance for expected credit losses of $16,500 ($13,035, net of tax). See Note 10 – Litigation, Commitments and Contingencies for further discussion.
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Recently Adopted and Recently Issued Accounting Pronouncements |
Recently Adopted Accounting Pronouncements: Effective January 1, 2019, the Company adopted ASU No. 2016-02, Leases (Topic 842), or ASU 2016-02. Under the new guidance, lessees are required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees are required to recognize a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The Company's adoption of the new standard did not have any impact on its condensed consolidated statements of operations or cash flows; however, the impact of adopting the new guidance resulted in a right-of-use asset and a lease liability being recorded on the condensed consolidated balance sheet as of September 30, 2020, each of approximately $145, which are included within other assets and accounts payable and other liabilities.
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13. ASU 2016-13 introduced a current expected credit loss ("CECL") model for measuring expected credit losses for certain types of financial instruments held at the reporting date requiring significant judgment in application based on historical experience, current conditions and reasonable supportable forecasts, but is not prescriptive about certain aspects of estimating expected losses. The guidance replaced the current incurred loss model for measuring expected credit losses and provided for additional disclosure requirements. Subsequently, the FASB issued additional ASUs on Topic 326 that did not change the core principle of the guidance in ASU 2016-13, but provided clarification and implementation guidance on certain aspects of ASU 2016-13, and had the same effective date and transition requirements as ASU 2016-13. The Company adopted the guidance using a modified retrospective approach as of January 1, 2020 and recognized a cumulative effect adjustment of $15,545 ($12,281, net of tax), to the opening balance of retained earnings. The adjustment was primarily related to estimating credit losses on the Company’s accounts receivable balances, reinsurance recoverable balances and commercial mortgage loans at the date of adoption with $15,000 ($11,850, net of tax) attributed to the ongoing litigation with Personnel Staffing Group ("PSG") discussed in Note 10 - Litigation, Commitments and Contingencies.
The updated guidance in ASU 2016-13 also amended the previous other-than-temporary impairment ("OTTI") model for available-for-sale fixed income securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The Company adopted the guidance related to available-for-sale fixed income securities on January 1, 2020 using a prospective transition approach for available-for-sale fixed income securities that were purchased with credit deterioration or had recognized an OTTI write-down prior to the effective date. The effect of the prospective transition approach was to maintain the same amortized cost basis before and after the effective date.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. This update removed the disclosure requirements for the amounts of and the reasons for transfers between Level 1 and Level 2 and disclosure of the policy for timing of transfers between levels. This update also removed disclosure requirements for the valuation processes for Level 3 fair value measurements. Additionally, this update added disclosure requirements for the changes in unrealized gains and losses for recurring Level 3 fair value measurements and quantitative information for certain unobservable inputs in Level 3 fair value measurements. The Company adopted ASU 2018-13 as of January 1, 2020. As the requirements of this guidance are applicable to disclosure only, the adoption of ASU 2018-13 had no material impact on the Company's condensed consolidated financial statements.
Recently Issued Accounting Pronouncements: In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12. Among other items, the amendments in ASU 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipated loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year. ASU 2019-12 removes this exception and provides that in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the effects the adoption of ASU 2019-12 will have on its condensed consolidated financial statements.
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Investments (Tables) |
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Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Available-for-Sale Securities |
The following is a summary of available-for-sale securities at September 30, 2020 and December 31, 2019:
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Fixed Maturity and Equity Security Investments in Unrealized Loss Position |
The following table summarizes, for available-for-sale fixed income securities in an unrealized loss position at September 30, 2020 and December 31, 2019, the aggregate fair value and gross unrealized loss categorized by the duration individual securities have been continuously in an unrealized loss position.
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Fair Value and Cost or Amortized Cost of Fixed Maturity Investments by Contractual Maturity |
The fair value and the cost or amortized costs of fixed income investments at September 30, 2020, organized by contractual maturity, are shown below. Actual maturities may ultimately differ from contractual maturities because borrowers have, in some cases, the right to call or prepay obligations with or without call or prepayment penalties. Pre-refunded municipal bonds are classified based on their pre-refunded call dates.
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Net Realized and Unrealized Gains (Losses) on Investments |
Following is a summary of the components of net realized and unrealized gains (losses) on investments for the periods presented in the accompanying condensed consolidated statements of operations.
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Reinsurance (Tables) |
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Reinsurance |
The following table summarizes the Company's transactions with reinsurers for the three and nine months ended September 30, 2020 and 2019 comparative periods.
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Loss and Loss Expense Reserves (Tables) |
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Activity in Reserves for Losses and Loss Expenses |
Activity in the reserves for losses and loss expenses for the nine months ended September 30, 2020 and 2019 is summarized as follows. All amounts are shown net of reinsurance, unless otherwise indicated.
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Segment Information (Tables) |
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Segment Revenues |
The following table summarizes segment revenues for the three and nine months ended September 30, 2020 and 2019:
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Fair Value (Tables) |
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements by Level for Assets Measured at Fair Value on Recurring Basis |
Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:
As of September 30, 2020:
As of December 31, 2019:
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Carrying Value and Fair Value by Level of Financial Instruments |
A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company's condensed consolidated balance sheets at September 30, 2020 and December 31, 2019 is as follows:
|
Stock-Based Compensation (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Detail of Restricted Stock Issuances |
The Company issues shares of restricted Class B Common Stock to the Company's outside directors as part of their annual retainer compensation. The shares are distributed to the outside directors on the vesting date, which, with the exception of pro-rated annual retainers granted to outside directors, is one year following the date of grant. On May 17, 2019, the Company granted shares of restricted Class B Common Stock in connection with the election of a new outside director, reflecting such director’s pro-rated annual retainer compensation, which shares vested and were distributed on May 7, 2020. Additionally, effective May 22, 2019, John D. Nichols, Jr. ceased serving as the Company's Interim Chief Executive Officer and principal executive officer, but continued to serve as Chairman of the Company's Board of Directors. On May 22, 2019, the Company granted shares of restricted Class B Common Stock to Mr. Nichols in connection with this transition, reflecting his pro-rated annual retainer compensation, which shares also vested and were distributed on May 7, 2020. The table below provides detail of the restricted stock issuances to directors for 2019 and 2020:
|
Shareholders' Equity (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders' Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Accumulated Other Comprehensive Income (Loss) by Component |
The following table illustrates changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2020:
The following table illustrates changes in accumulated other comprehensive income (loss) by component for the nine months ended September 30, 2019:
|
Reinsurance (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
|
Reinsurance [Abstract] | ||||
Premiums ceded to reinsurers | $ 26,825 | $ 29,957 | $ 83,508 | $ 92,556 |
Losses and loss expenses ceded to reinsurers | 27,270 | 27,228 | 75,201 | 86,876 |
Commissions from reinsurers | $ 7,206 | $ 7,820 | $ 21,785 | $ 23,229 |
Segment Information (Details) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2020
USD ($)
|
Sep. 30, 2019
USD ($)
|
Sep. 30, 2020
USD ($)
Segment
|
Sep. 30, 2019
USD ($)
|
|
Segment Information [Abstract] | ||||
Number of reportable segments | Segment | 1 | |||
Summary of Segment Revenue [Abstract] | ||||
Net premiums earned | $ 117,853 | $ 110,288 | $ 325,242 | $ 335,931 |
Net investment income | 5,486 | 6,703 | 19,102 | 19,434 |
Net realized and unrealized gains (losses) on investments | 144 | 125 | (16,996) | 9,041 |
Commissions and other income | 1,469 | 2,716 | 5,020 | 6,761 |
Total revenues | 124,952 | 119,832 | 332,368 | 371,167 |
Property and Casualty Insurance [Member] | ||||
Summary of Segment Revenue [Abstract] | ||||
Net premiums earned | 117,853 | 110,288 | 325,242 | 335,931 |
Net investment income | 5,486 | 6,703 | 19,102 | 19,434 |
Net realized and unrealized gains (losses) on investments | 144 | 125 | (16,996) | 9,041 |
Commissions and other income | 1,469 | 2,716 | 5,020 | 6,761 |
Total revenues | $ 124,952 | $ 119,832 | $ 332,368 | $ 371,167 |
Debt (Details) - Revolving Credit Facility [Member] $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2020
USD ($)
Covenant
|
Aug. 09, 2018
USD ($)
|
|
Credit Agreement [Abstract] | ||
Maximum credit limit | $ 40,000 | |
Additional incremental loans limit | $ 35,000 | |
Expiration date | Aug. 09, 2022 | |
Optional period of fixed interest | 1 year | |
Outstanding drawings | $ 20,000 | |
Effective interest rate | 1.26% | |
Amount remaining under credit facility | $ 20,000 | |
Number of financial covenants | Covenant | 2 | |
Net worth and maximum consolidated leverage ratio | 0.35 |
Taxes (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | |||
---|---|---|---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
Sep. 30, 2020 |
Sep. 30, 2019 |
Jun. 30, 2020 |
|
Taxes [Abstract] | |||||
Effective federal tax rate on consolidated loss | 1.40% | 30.60% | 1.30% | 19.60% | |
Valuation allowance | $ 1,535 | $ 1,535 | $ 2,388 | ||
Valuation allowance recorded in statement of operations | $ 641 | ||||
Reduction in valuation allowance | $ (853) |
Shareholders' Equity (Details) - USD ($) $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2020 |
Sep. 30, 2019 |
|
Stock Repurchase Program [Abstract] | ||
Stock repurchase program, shares authorized (in shares) | 2,464,209 | |
Repurchase of common shares | $ 1,782 | $ 10,283 |
Class B [Member] | ||
Stock Repurchase Program [Abstract] | ||
Repurchase of common stock (in shares) | 126,764 |
Related Parties (Details) - Investment Firm Services [Member] $ in Thousands |
9 Months Ended | |
---|---|---|
Sep. 30, 2020
USD ($)
Director
|
Sep. 30, 2019
USD ($)
|
|
Related Party [Abstract] | ||
Management fees and commissions | $ 103 | $ 100 |
Director [Member] | ||
Related Party [Abstract] | ||
Number of related parties | Director | 1 | |
Market value of equity and fixed maturity securities portfolio | $ 6,805 |
Subsequent Events (Details) - Subsequent Event [Member] |
Nov. 03, 2020
$ / shares
|
---|---|
Subsequent Event [Abstract] | |
Dividend payable, date declared | Nov. 03, 2020 |
Dividend payable, date to be paid | Dec. 01, 2020 |
Dividend payable, date of record | Nov. 17, 2020 |
Class A [Member] | |
Subsequent Event [Abstract] | |
Dividend payable (in dollars per share) | $ 0.10 |
Class B [Member] | |
Subsequent Event [Abstract] | |
Dividend payable (in dollars per share) | $ 0.10 |
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