33117 ICC 10Q

Table of Contents

 

 



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________

FORM 10-Q

_______________________________



(Mark One)



 

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



For the quarterly period ended March 31, 2017

or



 

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



For transition period from                      to                     .

Commission File Number: 333-214081

ICC Holdings, Inc.

(Exact name of registrant as specified in its charter)

_______________________________



 

 

Pennsylvania

(State or other jurisdiction of
incorporation or organization)

 

 

81-3359409

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

 

225 20th Street, Rock Island, Illinois

(Address of principal executive offices)

 

 

61201

(Zip Code)

 

(309) 793-1700

(Registrant’s telephone number, including area code)

_______________________________

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes    No 

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





 

 



Large accelerated filer   

Accelerated filer   



Non-accelerated filer     (Do not check if a smaller reporting company)

Smaller reporting company   



 

Emerging growth company  

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

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

The number of shares of the registrant’s common stock outstanding as of May 5, 2017 was 3,150,000.

 



 

 


 

Table of Contents

 

Table of Contents [Review titles on links to financials]





 

 



 

Page 

PART I

 

 

Item 1.

Financial Statements



Condensed Consolidated Balance Sheets as of March 31, 2017 (unaudited) and December 31, 2016



Condensed Consolidated Statements of Earnings and Comprehensive Earnings For the Three-Month Periods Ended March 31, 2017 and 2016 (unaudited)



Condensed Consolidated Statements of Cash Flows For the Three-Month Periods Ended March 31, 2017 and 2016 (unaudited)



Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

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

17 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

31 

Item 4.

Controls and Procedures

32 



 

 

PART II

 

 

Item 1.

Legal Proceedings

33 

Item 1A.

Risk Factors

33 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33 

Item 3.

Default Upon Senior Securities

33 

Item 4.

Mine Safety Disclosures

33 

Item 5.

Other Information

33 

Item 6.

Exhibits

33 



 

 

Signatures 

34 



 

~  2  ~


 

Table of Contents

 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets





 

 

 

 

 

 



 

As of



 

March 31,

 

December 31,



 

2017

 

2016



 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Investments and cash:

 

 

 

 

 

 

Available for sale securities, at fair value

 

 

 

 

 

 

Fixed maturity securities (amortized cost - $66,483,930 at

 

$

67,684,804 

 

$

64,134,023 

3/31/2017 and $62,929,091 at 12/31/2016)

 

 

 

 

 

 

Common stocks¹ (cost - $7,718,532 at

 

 

8,355,129 

 

 

6,982,547 

3/31/2017 and $6,311,708 at 12/31/2016)

 

 

 

 

 

 

Preferred stocks (cost - $3,670,884 at

 

 

3,664,710 

 

 

2,798,413 

3/31/2017 and $2,925,434 at 12/31/2016)

 

 

 

 

 

 

Property held for investment, at cost, net of accumulated depreciation of

 

 

2,199,760 

 

 

2,207,424 

$65,259 at 3/31/2017 and $50,948 at 12/31/2016

 

 

 

 

 

 

Cash and cash equivalents

 

 

32,517,702 

 

 

4,376,847 

Total investments and cash

 

 

114,422,105 

 

 

80,499,254 

Accrued investment income

 

 

523,667 

 

 

524,156 

Premiums and reinsurance balances receivable, net of allowances for

 

 

17,495,767 

 

 

17,479,487 

uncollectible amounts of $50,000 at 3/31/2017 and 12/31/2016

 

 

 

 

 

 

Ceded unearned premiums

 

 

243,075 

 

 

270,751 

Reinsurance balances recoverable on unpaid losses and settlement expenses,

 

 

9,472,625 

 

 

12,114,998 

net of allowances for uncollectible amounts of $0 at 3/31/2017 and 12/31/2016

 

 

 

 

 

 

Current federal income taxes

 

 

53,873 

 

 

149,252 

Net deferred federal income taxes

 

 

526,422 

 

 

888,254 

Deferred policy acquisition costs, net

 

 

4,335,085 

 

 

4,162,927 

Property and equipment, at cost, net of accumulated depreciation of

 

 

3,737,076 

 

 

3,719,535 

$4,414,058 at 3/31/2017 and $4,308,247 at 12/31/2016

 

 

 

 

 

 

Other assets

 

 

1,647,346 

 

 

2,351,347 

Total assets

 

$

152,457,041 

 

$

122,159,961 



 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Unpaid losses and settlement expenses

 

$

49,863,933 

 

$

52,817,254 

Unearned premiums

 

 

24,564,128 

 

 

24,777,712 

Reinsurance balances payable

 

 

154,968 

 

 

109,790 

Corporate debt

 

 

5,215,142 

 

 

3,786,950 

Accrued expenses

 

 

2,487,741 

 

 

4,827,042 

Other liabilities

 

 

6,530,493 

 

 

2,241,003 

Total liabilities

 

 

88,816,405 

 

 

88,559,751 

Equity:

 

 

 

 

 

 

Common stock2  

 

 

35,000 

 

 

 —

Additional paid-in capital

 

 

32,587,566 

 

 

 —

Accumulated other comprehensive earnings, net of tax

 

 

1,208,657 

 

 

1,154,175 

Retained earnings

 

 

33,295,079 

 

 

32,446,035 

Less: Unearned Employee Stock Ownership Plan shares at cost3

 

 

(3,485,666)

 

 

 —

Total equity

 

 

63,640,636 

 

 

33,600,210 

Total liabilities and equity

 

$

152,457,041 

 

$

122,159,961 



1Common stock securities consist of exchange trade funds (ETF) made up primarily of Dividends Select and the S&P 500.

2Par value $0.01; authorized: 2017 - 10,000,000 shares and  2016 - 0 shares; issued: 2017 - 3,500,000 and 2016 - 0 shares;  outstanding: 2017 - 3,150,000 and 2016 - 0 shares.

32017 – 350,000 shares and 2016 – 0 shares



See accompanying notes to consolidated financial statements. 

~  3  ~


 

Table of Contents

 

ICC Holdings, Inc and Subsidiaries

Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three-Months Ended



 

Ended March 31,



 

2017

 

2016

Net premiums earned

 

$

10,838,106 

 

$

10,290,762 

Net investment income

 

 

472,324 

 

 

347,826 

Net realized investment gains

 

 

444,781 

 

 

124,248 

Other income

 

 

84,258 

 

 

58,325 

Consolidated revenues

 

 

11,839,469 

 

 

10,821,161 

Losses and settlement expenses

 

 

6,599,384 

 

 

6,379,496 

Policy acquisition costs

 

 

3,734,652 

 

 

3,531,980 

Interest expense on debt

 

 

52,310 

 

 

41,347 

General corporate expenses

 

 

139,215 

 

 

92,889 

Total expenses

 

 

10,525,561 

 

 

10,045,712 

Earnings before income taxes

 

 

1,313,908 

 

 

775,449 

Income tax expense:

 

 

 

 

 

 

Current

 

 

131,098 

 

 

39,030 

Deferred

 

 

333,766 

 

 

266,423 

Total income tax expense

 

 

464,864 

 

 

305,453 

Net earnings

 

$

849,044 

 

$

469,996 



 

 

 

 

 

 

Other comprehensive earnings, net of tax

 

 

54,481 

 

 

1,009,018 

Comprehensive earnings

 

$

903,525 

 

$

1,479,014 



 

 

 

 

 

 

Earnings per share1:

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

Basic net earnings per share

 

 

$            0.27

 

 

$            0.15

Diluted:

 

 

 

 

 

 

Diluted net earnings per share

 

 

$            0.27

 

 

$            0.15



 

 

 

 

 

 

Weighted average number of common shares outstanding2:

 

 

 

 

 

 

Basic

 

 

3,150,000 

 

 

3,150,000 

Diluted

 

 

3,150,000 

 

 

3,150,000 



1The unaudited pro forma earnings per share for the three months ended March 31, 2016 is provided as a basis for comparison of current period earnings.



2Weighted average number of common shares outstanding for the three months ended March 31, 2016 is based off of the resulting shares from the initial public offering that was completed in March 2017 and are used to calculate the pro forma earnings per share for the three months ended March 31, 2016.



See accompanying notes to consolidated financial statements.

~  4  ~


 

Table of Contents

 

ICC Holdings, Inc and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)







 

 

 

 

 



 

 

 

 

 



Three-Month Periods Ended March 31,



2017

 

2016

Cash flows from operating activities:

 

 

 

 

 

Net earnings

$

849,044 

 

$

469,996 

Adjustments to reconcile net earnings to net cash provided

 

 

 

 

 

by (used in) operating activities

 

 

 

 

 

Net realized investment gains

 

(444,781)

 

 

(124,248)

Depreciation

 

216,554 

 

 

180,431 

Deferred income tax

 

333,766 

 

 

266,423 

Amortization of bond premium and discount

 

59,521 

 

 

57,100 

Change in:

 

 

 

 

 

Accrued investment income

 

489 

 

 

109,460 

Premiums and reinsurance balances receivable (net)

 

(16,280)

 

 

(3,479,388)

Reinsurance balances payable

 

45,178 

 

 

 —

Ceded unearned premiums

 

27,676 

 

 

(82,846)

Reinsurance balances recoverable

 

2,642,373 

 

 

(252,731)

Deferred policy acquisition costs

 

(172,158)

 

 

(107,628)

Accrued expenses

 

(2,339,301)

 

 

(1,429,665)

Unpaid losses and settlement expenses

 

(2,953,321)

 

 

373,130 

Unearned premiums

 

(213,584)

 

 

(41,095)

Current federal income tax

 

95,379 

 

 

39,030 

Other

 

1,151,454 

 

 

(1,080,010)

Net cash provided by (used in) operating activities

 

(717,991)

 

 

(5,102,041)

Cash flows from investing activities:

 

 

 

 

 

Purchases of:

 

 

 

 

 

Fixed maturity securities, available-for-sale

 

(3,870,786)

 

 

(1,895,534)

Common stocks, available-for-sale

 

(2,947,068)

 

 

(388,740)

Preferred stock, available-for-sale

 

(125,575)

 

 

 —

Property and equipment

 

(220,148)

 

 

(536,881)

Property held for investment

 

(6,646)

 

 

(1,632,254)

Proceeds from sales, maturities and calls of:

 

 

 

 

 

Fixed maturity securities, available-for-sale

 

3,507,897 

 

 

6,177,479 

Common stocks, available-for-sale

 

1,955,715 

 

 

 —

Property and equipment

 

365 

 

 

8,300 

Net cash (used in) provided by investing activities

 

(1,706,246)

 

 

1,732,370 

Cash flows from financing activities:

 

 

 

 

 

Proceeds received from issuance of shares of common stock, net of offering costs

 

29,136,900 

 

 

 —

Proceeds from loan

 

3,499,149 

 

 

 —

Proceeds from sale leaseback

 

 —

 

 

777,643 

Proceeds from bank overdraft

 

 —

 

 

1,253,977 

Repayments of borrowed funds

 

(2,070,957)

 

 

(105,893)

Net cash provided by financing activities

 

30,565,092 

 

 

1,925,727 

Net increase (decrease) in cash and cash equivalents

 

28,140,855 

 

 

(1,443,944)

Cash and cash equivalents at beginning of year

 

4,376,847 

 

 

2,179,511 

Cash and cash equivalents at end of period

$

32,517,702 

 

$

735,567 

Supplemental information:

 

 

 

 

 

Federal income tax paid

$

 —

 

$

 —

Interest paid

 

52,186 

 

 

42,923 

Non-cash transactions:

 

 

 

 

 

Payable for securities purchased

 

3,842,037 

 

 

 —



See accompanying notes to consolidated financial statements. 

~  5  ~


 

Table of Contents

 

Notes to Unaudited Condensed Consolidated Financial Statements



1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



A.     DESCRIPTION OF BUSINESS



ICC Holdings, Inc. is a Pennsylvania corporation that was organized in 2016. As used in this Form 10-Q, references to “the Company,” “we,” “us,” and “our” refer to the consolidated group for the period after the completion of the stock conversion and refer to ICC and its subsidiaries for the period prior to the stock conversion. On a stand-alone basis ICC Holdings, Inc is referred to as the “Parent Company.” The consolidated group consists of the holding company, ICC Holdings, Inc., an operating insurance company, Illinois Casulaty Company (ICC), and ICC’s three wholly-owned subsidiaries, Beverage Insurance Agency, Inc., an inactive insurance agency, Estrella Innovative Solutions, Inc., an outsourcing company, and ICC Realty, LLC, a real estate services and holding company. ICC is an Illinois domiciled company.



ICC Holdings, Inc. was formed so that it could acquire all of the capital stock of ICC in a mutual-to-stock conversion. The plan of conversion was approved by ICC policyholders at a special meeting on March 17, 2017. Simultaneously, surplus notes totaling $1.65 million were converted into 165,000 shares of the Company’s common stock. The Company’s offering closed on March 24, 2017, and our Employee Stock Ownership Plan (ESOP) purchased 350,000 of the shares in the offering. In order to complete the purchase of common shares, the ESOP borrowed money from ICC. ICC Holdings, Inc. secured a loan with American Bank & Trust in March 2017 and used the proceeds to repay ICC for the money borrowed by the ESOP. On March 28, 2017, the Company’s stocks began trading on the NASDAQ Capital Market under the “ICCH” ticker. The Company paid $978,150 of underwriting fees to Griffin Financial Group, LLC. Proceeds received from the offering net of offering costs and underwriting fees was $29.1 million.



Prior to the conversion on March 24, 2017, ICC Holdings, Inc did not engage in any operations. After the conversion, ICC Holdings, Inc’s primary assets are the outstanding capital stock of ICC and a portion of the net proceeds from the stock offering completed in connection with the mutual-to-stock conversion. On the effective date of the conversion, ICC became a wholly owned subsidiary of ICC Holdings, Inc. The mutual to stock conversion was accounted for as a change in corporate form with the historic basis of ICC’s assets, liabilities, and equity unchanged as a result. The condensed consolidated financial statements as of March 31, 2017 and for the three months then ended, include ICC Holdings and subsidiaries. The financial statements as of December 31, 2016, as of March 31, 2016, and for the three months ended March 31, 2016, represent ICC and its subsidiaries only, as the conversion to stock form was completed on March 24, 2017.



We are a specialty insurance carrier primarily underwriting commercial multi-peril, liquor liability, workers’ compensation, and umbrella liability coverages for the food and beverage industry through our subsidiary insurance company, ICC. ICC writes business in Illinois, Iowa, Indiana, Minnesota, Missouri, Wisconsin, and Ohio and markets through independent agents. Approximately 35.9% and 39.2% of the premium is written in Illinois for the three months ended March 31, 2017 and 2016, respectively. ICC has three wholly owned subsidiaries, Beverage Insurance Agency, Estrella Innovative Solutions, Inc., and ICC Realty, LLC.; however the Company operates as a single segment.



B.     PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION



The unaudited condensed consolidated interim financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial reporting and with the instructions to Form 10-Q.  Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements.  As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s December 31, 2016 Annual Report on Form 10-K. The condensed consolidated balance sheet at December 31, 2016, was derived from the audited consolidated balance sheet of ICC as of that date. Management believes that the disclosures are adequate to make the information presented not misleading, and all normal and recurring adjustments necessary to present fairly the financial position at March 31, 2017, and the results of operations of the Company and its subsidiaries for all periods presented have been made. The results of operations for any interim period are not necessarily indicative of the operating results for a full year.



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



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Table of Contents

 

C.     SIGNIFICANT ACCOUNTING POLICIES



The Company reported significant accounting policies in its Annual Report on Form 10-K for the year ended December 31, 2016. The following are new or revised disclosures.



EMPLOYEE STOCK OWNERSHIP PLAN



The Company recognizes compensation expense related to its employee stock ownership plan (ESOP) ratably during each year for the shares committed to be allocated to participants that year, determined with reference to the fair market value of our stock at the time the commitment to allocate the shares is accrued and recognized. For purposes of calculating earnings per share, the Company includes the weighted average of ESOP shares committed to be released for the period. The ESOP covers executives, managers and associates.



EARNINGS PER SHARE



Basic and diluted earnings per share (EPS) are calculated by dividing earnings available to common shareholders by the weighted average number of common shares outstanding during the period. The denominator for basic and diluted EPS includes ESOP shares committed to be release. The unaudited pro forma earnings per share for the three months ended March 31, 2016 is provided to be used as a basis for comparison of current period earnings. The weighted average number of common shares outstanding for the three months ended March 31, 2016 is based off of the resulting shares from the initial public offering that was completed in March 2017.  



D.     PROSPECTIVE ACCOUNTING STANDARDS



For information regarding accounting standards that the Company has not yet adopted, see the “Prospective Accounting Standards” in Note 1 – Summary of Significant Accounting Policies in the Company’s 2016 Form 10-K. The Company maintains its status as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). We have taken advantage of the extended transition period provided by Section 107 of the JOBS Act. We decided to comply with the effective dates for financial accounting standards applicable to emerging growth companies at a later date in compliance with the requirements in Sections 107(b)(2) and (3) of the JOBS Act. Such decision is irrevocable. 



E.     PROPERTY AND EQUIPMENT



Annually, the Company reviews the major asset classes of property and equipment held for impairment. For the periods ended March 31, 2017 and 2016, the Company recognized no impairments.  Property and equipment are summarized as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of



 

March 31,

 

December 31,



 

2017

 

2016

Automobiles

 

$

744,211 

 

$

668,794 

Furniture and fixtures

 

 

432,179 

 

 

516,318 

Computer equipment and software

 

 

3,281,787 

 

 

3,151,676 

Home office

 

 

3,692,957 

 

 

3,690,994 

Total cost

 

 

8,151,134 

 

 

8,027,782 

Accumulated depreciation

 

 

(4,414,058)

 

 

(4,308,247)

Net property and equipment

 

$

3,737,076 

 

$

3,719,535 



F.     COMPREHENSIVE EARNINGS



Comprehensive earnings include net earnings plus unrealized gains and losses on available-for-sale investment securities, net of tax. In reporting the components of comprehensive earnings on a net basis in the statement of earnings, the Company used a 34 percent tax rate.



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Table of Contents

 

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







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Three-Month Periods Ended March 31,



 

2017

 

2016



 

Pre-tax

 

Tax

 

After-tax

 

Pre-tax

 

Tax

 

After-tax

Other comprehensive earnings (loss),
  net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains and losses on investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding (losses) gains
  arising during the period

 

$

527,327 

 

$

(179,291)

 

$

348,036 

 

$

1,653,064 

 

$

(562,042)

 

$

1,091,022 

Reclassification adjustment for

  (gains) losses included in net income

 

 

(444,781)

 

 

151,226 

 

 

(293,555)

 

 

(124,248)

 

 

42,244 

 

 

(82,004)

Total other comprehensive (loss)

  earnings

 

$

82,546 

 

$

(28,065)

 

$

54,481 

 

$

1,528,816 

 

$

(519,798)

 

$

1,009,018 







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







 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Amounts Reclassified from

Accumulated Other Comprehensive Earnings

Details about Accumulated Other

 

Three-Month Periods Ended March 31,

 

Affected Line Item in the Statement

Comprehensive Earnings Component

 

2017

 

2016

 

where Net Earnings is Presented

Unrealized gains on AFS investments:

 

 

 

 

 

 

 

 



 

$

(444,781)

 

$

(124,248)

 

Net realized investment gains



 

 

151,226 

 

 

42,244 

 

Income tax expense

Total reclassification adjustment, net of tax

 

$

(293,555)

 

$

(82,004)

 

 

 

2.     INVESTMENTS 



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



The following is a summary of the proceeds from sales, maturities, and calls of available-for-sale securities and the related gross realized gains and losses for the three-months ended March 31, 2017 and 2016.







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three-Months Ended Ended March 31,



 

 

 

 

 

 

 

 

 

 

Net realized



 

Proceeds

 

Gains

 

Losses

 

gain / (Loss)

2017

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

$

3,507,897 

 

$

29,328 

 

$

(18)

 

$

29,310 

Common stocks

 

 

1,955,715 

 

 

415,471 

 

 

 —

 

 

415,471 

2016

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

$

6,177,479 

 

$

124,251 

 

$

(3)

 

$

124,248 







~  8  ~


 

Table of Contents

 

The amortized cost and estimated fair value of fixed income securities at March 31, 2017, by contractual maturity, are shown as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

Amortized Cost

 

Fair Value

Due in one year or less

 

$

1,002,040 

 

$

1,007,504 

Due after one year through five years

 

 

17,204,823 

 

 

17,632,613 

Due after five years through 10 years

 

 

14,332,542 

 

 

15,014,148 

Due after 10 years

 

 

11,240,936 

 

 

11,419,931 

Asset and mortgage backed securities without a specific due date

 

 

22,703,589 

 

 

22,610,608 

Total fixed maturity securities

 

$

66,483,930 

 

$

67,684,804 



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



The following table is a schedule of cost or amortized cost and estimated fair values of investments in fixed income and equity securities as of March 31, 2017 and December 31, 2016:  









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Cost or

 

 

 

 

Gross Unrealized



 

Amortized Cost

 

Fair Value

 

Gains

 

Losses

2017

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury

 

$

1,345,335 

 

$

1,342,762 

 

$

2,466 

 

$

(5,039)

MBS/ABS/CMBS

 

 

22,703,589 

 

 

22,610,608 

 

 

168,126 

 

 

(261,107)

Corporate

 

 

26,227,525 

 

 

26,984,615 

 

 

827,528 

 

 

(70,438)

Municipal

 

 

16,207,481 

 

 

16,746,819 

 

 

659,592 

 

 

(120,254)

Total fixed maturity securities

 

 

66,483,930 

 

 

67,684,804 

 

 

1,657,712 

 

 

(456,838)

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

Common stocks

 

 

7,718,532 

 

 

8,355,129 

 

 

678,475 

 

 

(41,878)

Preferred stocks

 

 

3,670,884 

 

 

3,664,710 

 

 

41,864 

 

 

(48,038)

Total equity securities

 

 

11,389,416 

 

 

12,019,839 

 

 

720,339 

 

 

(89,916)

Total AFS securities

 

$

77,873,346 

 

$

79,704,643 

 

$

2,378,051 

 

$

(546,754)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Cost or

 

 

 

 

Gross Unrealized



 

Amortized Cost

 

Fair Value

 

Gains

 

Losses

2016

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury

 

$

1,244,542 

 

$

1,241,125 

 

$

2,527 

 

$

(5,944)

MBS/ABS/CMBS

 

 

19,751,138 

 

 

19,677,200 

 

 

183,175 

 

 

(257,113)

Corporate

 

 

27,593,568 

 

 

28,344,907 

 

 

842,782 

 

 

(91,443)

Municipal

 

 

14,339,843 

 

 

14,870,791 

 

 

665,790 

 

 

(134,842)

Total fixed maturity securities

 

 

62,929,091 

 

 

64,134,023 

 

 

1,694,274 

 

 

(489,342)

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

Common stocks

 

 

6,311,708 

 

 

6,982,547 

 

 

704,768 

 

 

(33,929)

Preferred stocks

 

 

2,925,434 

 

 

2,798,413 

 

 

5,425 

 

 

(132,446)

Total equity securities

 

 

9,237,142 

 

 

9,780,960 

 

 

710,193 

 

 

(166,375)

Total AFS securities

 

$

72,166,233 

 

$

73,914,983 

 

$

2,404,467 

 

$

(655,717)



Included within MBS/ABS/CMBS, as defined in Note 3 – Fair Value Disclosures, are residential mortgage backed securities with fair values of  $13,517,204 and $10,288,405 and commercial mortgage backed securities of $7,560,031 and $7,600,109 at March 31, 2017 and December 31, 2016, respectively.

~  9  ~


 

Table of Contents

 

ANALYSIS



The following table is also used as part of the impairment analysis and displays the total value of securities that were in an unrealized loss position as of March 31, 2017, and December 31, 2016. The table segregates the securities based on type, noting the fair value, cost (or amortized cost), and unrealized loss on each category of investment as well as in total. The table further classifies the securities based on the length of time they have been in an unrealized loss position.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

March 31, 2017

 

December 31, 2016



 

 

 

 

12 Mos

 

 

 

 

 

 

 

12 Mos

 

 

 



 

< 12 Mos.

 

& Greater

 

Total

 

< 12 Mos.

 

& Greater

 

Total

U.S. Treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

994,547 

 

$

 —

 

$

994,547 

 

$

993,576 

 

$

 —

 

$

993,576 

Cost or Amortized cost

 

 

999,586 

 

 

 —

 

 

999,586 

 

 

999,520 

 

 

 —

 

 

999,520 

Unrealized Loss

 

 

(5,039)

 

 

 —

 

 

(5,039)

 

 

(5,944)

 

 

 —

 

 

(5,944)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MBS/ABS/CMBS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

10,393,841 

 

 

235,713 

 

 

10,629,554 

 

 

10,712,987 

 

 

322,641 

 

 

11,035,628 

Cost or Amortized cost

 

 

10,654,350 

 

 

236,311 

 

 

10,890,661 

 

 

10,968,840 

 

 

323,901 

 

 

11,292,741 

Unrealized Loss

 

 

(260,509)

 

 

(598)

 

 

(261,107)

 

 

(255,853)

 

 

(1,260)

 

 

(257,113)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

4,194,343 

 

 

988,578 

 

 

5,182,921 

 

 

5,476,442 

 

 

984,115 

 

 

6,460,557 

Cost or Amortized cost

 

 

4,253,949 

 

 

999,410 

 

 

5,253,359 

 

 

5,552,624 

 

 

999,376 

 

 

6,552,000 

Unrealized Loss

 

 

(59,606)

 

 

(10,832)

 

 

(70,438)

 

 

(76,182)

 

 

(15,261)

 

 

(91,443)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Municipal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

5,703,400 

 

 

 —

 

 

5,703,400 

 

 

2,995,362 

 

 

 —

 

 

2,995,362 

Cost or Amortized cost

 

 

5,823,654 

 

 

 —

 

 

5,823,654 

 

 

3,130,204 

 

 

 —

 

 

3,130,204 

Unrealized Loss

 

 

(120,254)

 

 

 —

 

 

(120,254)

 

 

(134,842)

 

 

 —

 

 

(134,842)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subtotal, fixed income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

21,286,131 

 

 

1,224,291 

 

 

22,510,422 

 

 

20,178,367 

 

 

1,306,756 

 

 

21,485,123 

Cost or Amortized cost

 

 

21,731,539 

 

 

1,235,721 

 

 

22,967,260 

 

 

20,651,188 

 

 

1,323,277 

 

 

21,974,465 

Unrealized Loss

 

 

(445,408)

 

 

(11,430)

 

 

(456,838)

 

 

(472,821)

 

 

(16,521)

 

 

(489,342)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

 —

 

 

216,690 

 

 

216,690 

 

 

 —

 

 

445,872 

 

 

445,872 

Cost or Amortized cost

 

 

 —

 

 

258,568 

 

 

258,568 

 

 

 —

 

 

479,801 

 

 

479,801 

Unrealized Loss

 

 

 —

 

 

(41,878)

 

 

(41,878)

 

 

 —

 

 

(33,929)

 

 

(33,929)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

1,917,159 

 

 

 —

 

 

1,917,159 

 

 

2,328,345 

 

 

 —

 

 

 —

Cost or Amortized cost

 

 

1,965,197 

 

 

 —

 

 

1,965,197 

 

 

2,460,791 

 

 

 —

 

 

 —

Unrealized Loss

 

 

(48,038)

 

 

 —

 

 

(48,038)

 

 

(132,446)

 

 

 —

 

 

(132,446)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

23,203,290 

 

 

1,440,981 

 

 

24,644,271 

 

 

22,506,712 

 

 

1,752,628 

 

 

24,259,340 

Cost or amortized cost

 

 

23,696,736 

 

 

1,494,289 

 

 

25,191,025 

 

 

23,111,979 

 

 

1,803,078 

 

 

24,915,057 

Unrealized Loss

 

$

(493,446)

 

$

(53,308)

 

$

(546,754)

 

$

(605,267)

 

$

(50,450)

 

$

(655,717)



As of March 31, 2017, the Company held 14 common equity and preferred stock securities in an unrealized loss position. Of these 14 securities, one has been in an unrealized loss position for 12 consecutive months or longer and represents $41,878 in unrealized losses. As of December 31, 2016, the Company held 21 equity securities that were in unrealized loss positions. Of these 21 securities, two were in an unrealized loss position for 12 consecutive months or longer and represented $33,929 in unrealized losses.



The fixed income portfolio contained 57 securities in an unrealized loss position as of March 31, 2017. Of these 57 securities, four have been in an unrealized loss position for 12 consecutive months or longer and represent $11,430 in unrealized losses. All fixed income securities in the investment portfolio continue to pay the expected coupon payments under the contractual terms of the securities. Credit-related impairments on fixed income securities that we do not plan to sell, and for which we are not more likely than not to be required to sell, are recognized in net earnings. Any non-credit related impairment is recognized in comprehensive earnings. Based on management’s analysis, the fixed income portfolio is of a high credit 

~  10  ~


 

Table of Contents

 

quality and it is believed it will recover the amortized cost basis of the fixed income securities. Management monitors the credit quality of the fixed income investments to assess if it is probable that the Company will receive its contractual or estimated cash flows in the form of principal and interest. There were no other-than-temporary impairment losses recognized in other comprehensive earnings in the periods presented.

 

3.     FAIR VALUE DISCLOSURES



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



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



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



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



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



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



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



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



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



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



Due to the relatively short-term nature of cash, cash equivalents, and the mortgage on the home office, their carrying amounts are reasonable estimates of fair value. Reported in Note 4–Debt, the surplus notes, capital lease obligations, and other debt obligations are carried at face value and given that there is no readily available market for these to trade in, management believes that face value accurately reflects fair value. Cash and cash equivalents are classified as Level 1 of the hierarchy. The mortgage on the home office and the surplus notes are carried at Level 2 of the hierarchy.

~  11  ~


 

Table of Contents

 



Assets measured at fair value on a recurring basis as of March 31, 2017, are as summarized below:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Significant

 

 

 

 

 

 



 

Quoted in Active

 

Other

 

Significant

 

 

 



 

Markets for

 

Observable

 

Unobservable

 

 

 



 

Identical Assets

 

Inputs

 

Inputs

 

 

 



 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

AFS securities

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities