33119 ICC 10Q1

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, 2019

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: 001-38046

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes    No 

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





 

 



Large accelerated filer   

Accelerated filer   



Non-accelerated filer         

Smaller reporting company   



 

Emerging growth company  

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

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

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



Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ICCH

The NASDAQ Stock Market LLC



The number of shares of the registrant’s common stock outstanding as of May 13, 2019 was 3,303,279.

 



 

 


 

Table of Contents

 

Table of Contents





 

 



 

Page 

PART I

 

 

Item 1.

Financial Statements



Condensed Consolidated Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018



Condensed Consolidated Statements of Earnings and Comprehensive Earnings For the Three-Month Periods Ended March 31, 2019 and 2018 (unaudited)



Condensed Consolidated Statements of Stockholders Equity for the Three-Month Periods Ended March 31, 2019 and 2018 (unaudited)



Condensed Consolidated Statements of Cash Flows For the Three-Month Periods Ended March 31, 2019 and 2018 (unaudited)



Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

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

19 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

34 

Item 4.

Controls and Procedures

36 



 

 

PART II

 

 

Item 1.

Legal Proceedings

36 

Item 1A.

Risk Factors

36 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37 

Item 3.

Default Upon Senior Securities

37 

Item 4.

Mine Safety Disclosures

37 

Item 5.

Other Information

37 

Item 6.

Exhibits

38 



 

 

Signatures 

39 



 

~  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,



 

2019

 

2018



 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Investments and cash:

 

 

 

 

 

 

Fixed maturity securities (amortized cost - $88,333,116 at

 

$

89,927,455 

 

$

88,981,159 

3/31/2019 and $89,252,906 at 12/31/2018)

 

 

 

 

 

 

Common stocks (cost - $13,562,127 at

 

 

13,701,398 

 

 

11,843,223 

3/31/2019 and $13,572,713 at 12/31/2018)

 

 

 

 

 

 

Other invested assets

 

 

243,200 

 

 

154,200 

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

 

 

3,560,838 

 

 

3,586,273 

$248,310 at 3/31/2019 and $222,825 at 12/31/2018

 

 

 

 

 

 

Cash and cash equivalents

 

 

6,409,153 

 

 

4,644,784 

Total investments and cash

 

 

113,842,044 

 

 

109,209,639 

Accrued investment income

 

 

681,569 

 

 

648,321 

Premiums and reinsurance balances receivable, net of allowances for

 

 

22,081,040 

 

 

21,404,344 

uncollectible amounts of $50,000 at 3/31/2019 and 12/31/2018

 

 

 

 

 

 

Ceded unearned premiums

 

 

783,694 

 

 

796,065 

Reinsurance balances recoverable on unpaid losses and settlement expenses,

 

 

15,108,689 

 

 

6,735,964 

net of allowances for uncollectible amounts of $0 at 3/31/2019 and 12/31/2018

 

 

 

 

 

 

Federal income taxes

 

 

1,253,256 

 

 

1,868,669 

Deferred policy acquisition costs, net

 

 

5,243,470 

 

 

5,247,188 

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

 

 

3,229,627 

 

 

3,332,810 

$5,250,364 at 3/31/2019 and $5,099,090 at 12/31/2018

 

 

 

 

 

 

Other assets

 

 

1,046,815 

 

 

1,040,193 

Total assets

 

$

163,270,204 

 

$

150,283,193 

Liabilities and Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Unpaid losses and settlement expenses

 

$

61,017,342 

 

$

51,447,440 

Unearned premiums

 

 

29,983,133 

 

 

29,972,623 

Reinsurance balances payable

 

 

4,544,231 

 

 

993,004 

Corporate debt

 

 

3,484,606 

 

 

3,484,606 

Accrued expenses

 

 

2,570,332 

 

 

4,536,218 

Other liabilities

 

 

1,217,501 

 

 

1,256,003 

Total liabilities

 

 

102,817,145 

 

 

91,689,894 

Equity:

 

 

 

 

 

 

Common stock1  

 

 

35,000 

 

 

35,000 

Treasury stock, at cost2

 

 

(3,001,395)

 

 

(2,999,995)

Additional paid-in capital

 

 

32,545,836 

 

 

32,505,423 

Accumulated other comprehensive earnings (loss), net of tax

 

 

1,259,530 

 

 

(1,580,976)

Retained earnings

 

 

32,603,153 

 

 

33,680,702 

Less: Unearned Employee Stock Ownership Plan shares at cost3

 

 

(2,989,065)

 

 

(3,046,855)

Total equity

 

 

60,453,059 

 

 

58,593,299 

Total liabilities and equity

 

$

163,270,204 

 

$

150,283,193 



1Par value $0.01; authorized: 2019 - 10,000,000 shares and  2018 – 10,000,000 shares; issued: 2019 - 3,500,000 shares and 2018 – 3,500,000 shares;  outstanding: 2019 - 3,004,273 and 2018 - 2,992,734 shares.

22019 – 196,821 shares and 2018 – 196,721 shares

32019 –298,906 shares and 2018 –304,685 shares





See accompanying notes to consolidated financial statements. 

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Table of Contents

 

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three-Months Ended



 

March 31,



 

2019

 

2018

Net premiums earned

 

$

12,445,914 

 

$

11,296,944 

Net investment income

 

 

795,373 

 

 

702,884 

Net realized investment (losses) gains

 

 

(47,426)

 

 

1,102,130 

Net unrealized gains on equity securities

 

 

1,840,418 

 

 

 —

Other (loss) income

 

 

(53,887)

 

 

56,678 

Consolidated revenues

 

 

14,980,392 

 

 

13,158,636 

Losses and settlement expenses

 

 

9,607,290 

 

 

7,995,849 

Policy acquisition costs and other operating expenses

 

 

4,850,186 

 

 

4,137,351 

Interest expense on debt

 

 

32,014 

 

 

48,161 

General corporate expenses

 

 

143,161 

 

 

136,250 

Total expenses

 

 

14,632,651 

 

 

12,317,611 

Earnings before income taxes

 

 

347,741 

 

 

841,025 

Total income tax expense

 

 

58,993 

 

 

165,198 

Net earnings

 

$

288,748 

 

$

675,827 



 

 

 

 

 

 

Other comprehensive earnings (loss), net of tax

 

 

1,474,209 

 

 

(2,567,077)

Comprehensive earnings  (loss)

 

$

1,762,957 

 

$

(1,891,250)



 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

Basic net earnings per share

 

$

0.10 

 

$

0.21 

Diluted:

 

 

 

 

 

 

Diluted net earnings per share

 

$

0.10 

 

$

0.21 



 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

Basic

 

 

2,999,068 

 

 

3,173,807 

Diluted

 

 

3,000,770 

 

 

3,174,234 











See accompanying notes to consolidated financial statements.







~  4  ~


 

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ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common Stock

 

Treasury Stock

 

Unearned ESOP

 

Additional paid-in capital

 

Retained
earnings

 

Accumulated
other
comprehensive
earnings (loss)

 

Total equity

Balance, January 1, 2018

 

$

35,000 

 

$

 —

 

$

(3,281,220)

 

$

32,333,290 

 

$

32,787,406 

 

$

2,227,069 

 

$

64,101,545 

Net earnings

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

675,827 

 

 

 —

 

 

675,827 

Other comprehensive (loss), net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,567,077)

 

 

(2,567,077)

Restricted stock unit expense

 

 

 —

 

 

 —

 

 

 —

 

 

6,293 

 

 

 —

 

 

 —

 

 

6,293 

ESOP shares released

 

 

 —

 

 

 —

 

 

57,949 

 

 

32,293 

 

 

 —

 

 

 —

 

 

90,242 

Balance, March 31, 2018

 

$

35,000 

 

$

 —

 

$

(3,223,271)

 

$

32,371,876 

 

$

33,463,233 

 

$

(340,008)

 

$

62,306,830 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common Stock

 

Treasury Stock

 

Unearned ESOP

 

Additional paid-in capital

 

Retained
earnings

 

Accumulated
other
comprehensive
earnings (loss)

 

Total equity

Balance, January 1, 2019

 

$

35,000 

 

$

(2,999,995)

 

$

(3,046,855)

 

$

32,505,423 

 

$

33,680,702 

 

$

(1,580,976)

 

$

58,593,299 

Cumulative-effect adjustment from ASU 2016-011  

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,366,297)

 

 

1,366,297 

 

 

 

Purchase of common stock

 

 

 —

 

 

(1,400)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,400)

Net earnings

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

288,748 

 

 

 —

 

 

288,748 

Other comprehensive earnings, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,474,209 

 

 

1,474,209 

Restricted stock unit expense

 

 

 —

 

 

 —

 

 

 

 

18,773 

 

 

 —

 

 

 —

 

 

18,773 

ESOP shares released

 

 

 —

 

 

 —

 

 

57,790 

 

 

21,640 

 

 

 —

 

 

 —

 

 

79,430 

Balance, March 31, 2019

 

$

35,000 

 

$

(3,001,395)

 

$

(2,989,065)

 

$

32,545,836 

 

$

32,603,153 

 

$

1,259,530 

 

$

60,453,059 





1See discussion of Accounting Standards Update 2016-01 adoption in Note 1 - Summary of Significant Accounting Policies







See accompanying notes to consolidated financial statements.

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Table of Contents

 

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)







 

 

 

 

 



 

 

 

 

 



Three-Month Periods Ended March 31,



2019

 

2018

Cash flows from operating activities:

 

 

 

 

 

Net earnings

$

288,748 

 

$

675,827 

Adjustments to reconcile net earnings to net cash

 

 

 

 

 

provided by operating activities

 

 

 

 

 

Net realized investment losses (gains)

 

47,426 

 

 

(1,102,130)

Net unrealized gains on equity securities

 

(1,840,418)

 

 

 —

Depreciation

 

199,126 

 

 

131,273 

Deferred income tax

 

375,879 

 

 

12,135 

Amortization of bond premium and discount

 

57,625 

 

 

87,514 

Stock-based compensation expense

 

98,203 

 

 

 —

Change in:

 

 

 

 

 

Accrued investment income

 

(33,248)

 

 

(16,348)

Premiums and reinsurance balances receivable

 

(676,696)

 

 

(921,039)

Ceded unearned premiums

 

12,371 

 

 

(219,051)

Reinsurance balances payable

 

3,551,227 

 

 

355,594 

Reinsurance balances recoverable

 

(8,372,725)

 

 

265,496 

Deferred policy acquisition costs

 

3,718 

 

 

72,825 

Unpaid losses and settlement expenses

 

9,569,902 

 

 

369,977 

Unearned premiums

 

10,510 

 

 

895,609 

Accrued expenses

 

(1,965,886)

 

 

(1,802,486)

Current federal income tax

 

(152,343)

 

 

127,018 

Other

 

(45,124)

 

 

(430,656)

Net cash provided by (used in) operating activities

 

1,128,295 

 

 

(1,498,442)

Cash flows from investing activities:

 

 

 

 

 

Purchases of:

 

 

 

 

 

Fixed maturity securities, available-for-sale

 

(4,902,758)

 

 

(6,227,279)

Common stocks

 

(617,566)

 

 

(13,061,846)

Preferred stocks

 

 —

 

 

(140,925)

Other invested assets

 

(104,000)

 

 

(39,200)

Property held for investment

 

(50)

 

 

(33,703)

Property and equipment

 

(75,726)

 

 

(165,674)

Proceeds from sales, maturities and calls of:

 

 

 

 

 

Fixed maturity securities, available-for-sale

 

5,778,893 

 

 

4,070,941 

Common stocks

 

553,413 

 

 

8,593,328 

Preferred stocks

 

 —

 

 

3,861,722 

Property and equipment

 

5,268 

 

 

44,536 

Net cash provided by (used in) investing activities

 

637,473 

 

 

(3,098,100)

Cash flows from financing activities:

 

 

 

 

 

Net proceeds received from issuance of shares of common stock

 

 —

 

 

96,535 

Repayments of borrowed funds

 

 —

 

 

(848,132)

Purchase of common stock

 

(1,400)

 

 

 —

Net cash used in financing activities

 

(1,400)

 

 

(751,597)

Net increase (decrease) in cash and cash equivalents

 

1,764,368 

 

 

(5,348,139)

Cash and cash equivalents at beginning of year

 

4,644,784 

 

 

6,876,519 

Cash and cash equivalents at end of period

$

6,409,153 

 

$

1,528,380 

Supplemental information:

 

 

 

 

 

Federal income tax recovered

$

164,543 

 

$

 —

Interest paid

 

 —

 

 

80,394 





See accompanying notes to consolidated financial statements. 

~  6  ~


 

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. 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.; ICC Realty, LLC, a real estate services and holding company; Beverage Insurance Agency, Inc., an inactive insurance agency; Estrella Innovative Solutions, Inc., an outsourcing company; and ICC, an operating insurance company. ICC is an Illinois domiciled company.



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 Colorado, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Ohio, Pennsylvania, and Wisconsin and markets through independent agents. Approximately 29.6% and 33.3% of the premium is written in Illinois for the three months ended March 31, 2019 and 2018, respectively. ICC sold its two wholly-owned subsidiaries, Beverage Insurance Agency, Inc. and Estrella Innovative Solutions, Inc. to ICC Holdings during the second quarter of 2018. ICC sold ICC Realty, LLC to its parent, ICC Holdings, Inc. during the fourth quarter of 2017. 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 Annual Report on Form 10-K, for the year ended December 31, 2018 (the “2018 10-K”). 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, 2019, 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.



C.     SIGNIFICANT ACCOUNTING POLICIES



The Company reported its significant accounting policies in the 2018 10-K.



D.  ADOPTED ACCOUNTING PRONOUNCEMENTS   



Revenue Recognition (ASU 2017-13, ASU 2016-20, ASU 2016-12, ASU 2016-11, ASU 2016-10, ASU 2016-08, ASU 2015-14 and ASU 2014-09) – This update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. We adopted these updates effective January 1, 2019. All contracts within the scope of Topic 944, Financial Services – Insurance, investment income, investment related gains and losses and equity in earnings of unconsolidated investees are outside the scope of this ASU. As such, the adoption did not have a material effect on our consolidated financial statements.



Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15) – This guidance addresses eight specific cash flow issues with the objective of reducing existing diversity in practice. We adopted this update effective January 1, 2019, and the adoption did not have a material effect on our consolidated financial statements.



Financial Instruments – Recognition and Measurement (ASU 2016-01) – This guidance affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements of

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financial instruments. This update requires equity investments to be measured at fair value with subsequent changes recognized in net income, except for those accounted for under the equity method or requiring consolidation. Prior to the effective date of this update, changes in fair value related to available-for-sale (AFS) equity securities were recognized in OCI. We adopted this update effective January 1, 2019. Upon adoption, we recognized a cumulative-effect decrease to beginning retained earnings of $1.4 million and a corresponding increase to accumulated other comprehensive income (AOCI).



E. 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 2018 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. 



F.     PROPERTY AND EQUIPMENT



Annually, the Company reviews the major asset classes of property and equipment held for impairment. For the periods ended March 31, 2019 and 2018, the Company recognized no impairments.  Property and equipment are summarized as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of



 

March 31,

 

December 31,



 

2019

 

2018

Automobiles

 

$

608,511 

 

$

603,046 

Furniture and fixtures

 

 

447,132 

 

 

436,568 

Computer equipment and software

 

 

3,557,716 

 

 

3,542,339 

Home office

 

 

3,866,632 

 

 

3,849,947 

Total cost

 

 

8,479,991 

 

 

8,431,900 

Accumulated depreciation

 

 

(5,250,364)

 

 

(5,099,090)

Net property and equipment

 

$

3,229,627 

 

$

3,332,810 



G.     COMPREHENSIVE EARNINGS



Comprehensive earnings (loss) include net earnings (loss) plus the change in 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 21% tax rate.  



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,



 

2019

 

2018



 

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 gains (losses)
  arising during the period

 

$

1,866,085 

 

$

(429,343)

 

$

1,436,742 

 

$

(2,147,336)

 

$

450,942 

 

$

(1,696,394)

Reclassification adjustment for

  losses (gains) included in net earnings

 

 

47,426 

 

 

(9,959)

 

 

37,467 

 

 

(1,102,130)

 

 

231,447 

 

 

(870,683)

Total other comprehensive earnings (loss)

 

$

1,913,511 

 

$

(439,302)

 

$

1,474,209 

 

$

(3,249,466)

 

$

682,389 

 

$

(2,567,077)



~  8  ~


 

Table of Contents

 

The following table provides the reclassifications from 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

 

2019

 

2018

 

where Net Earnings is Presented

Unrealized losses (gains) on investments:

 

 

 

 

 

 

 

 



 

$

47,426 

 

$

(1,102,130)

 

Net realized investment losses (gains)



 

 

(9,959)

 

 

231,447 

 

Income tax (benefit) expense

Total reclassification adjustment, net of tax

 

$

37,467 

 

$

(870,683)

 

 

 

2.     INVESTMENTS



The Company’s investments are primarily composed of fixed income debt securities and common and preferred stock equity securities. We carry our equity securities at fair value and categorize all of our fixed maturity debt securities 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.



Available-for-Sale Fixed Maturity and Equity Securities



The following tables are a summary of the proceeds from sales, maturities, and calls of available-for-sale fixed maturity and equity securities and the related gross realized gains and losses.













 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the Three-Months Ended March 31,



 

 

 

 

 

 

 

 

 

 

Net realized



 

Proceeds

 

Gains

 

Losses

 

gain

2019

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

$

5,778,893 

 

$

25,589 

 

$

(11,619)

 

$

13,970 

Common stocks

 

 

553,413 

 

 

63,577 

 

 

(124,973)

 

 

(61,396)

Preferred stocks

 

 

 —

 

 

 —

 

 

 —

 

 

 —

2018

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

$

4,070,941 

 

$

48,118 

 

$

(13,031)

 

$

35,087 

Common stocks

 

 

8,593,328 

 

 

1,086,389 

 

 

(24,254)

 

 

1,062,135 

Preferred stocks

 

 

3,861,722 

 

 

86,862 

 

 

(81,954)

 

 

4,908 





The amortized cost and estimated fair value of fixed income securities at March 31, 2019, by contractual maturity, are shown as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

Amortized Cost

 

Fair Value

Due in one year or less

 

$

2,442,051 

 

$

2,436,559 

Due after one year through five years

 

 

23,845,589 

 

 

24,306,392 

Due after five years through 10 years

 

 

13,719,450 

 

 

14,325,931 

Due after 10 years

 

 

13,814,588 

 

 

14,500,013 

Asset and mortgage backed securities without a specific due date

 

 

34,511,438 

 

 

34,358,560 

Total fixed maturity securities

 

$

88,333,116 

 

$

89,927,455 



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

~  9  ~


 

Table of Contents

 



The following table is a schedule of cost or amortized cost and estimated fair values of investments in securities classified as available for sale at March 31, 2019 and December 31, 2018:  









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Cost or

 

 

 

 

Gross Unrealized



 

Amortized Cost

 

Fair Value

 

Gains

 

Losses

2019

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

1,349,045 

 

$

1,335,742 

 

$

 —

 

$

(13,303)

MBS/ABS/CMBS

 

 

34,511,437 

 

 

34,358,559 

 

 

188,396 

 

 

(341,274)

Corporate

 

 

38,317,813 

 

 

39,406,608 

 

 

1,165,691 

 

 

(76,896)

Municipal

 

 

14,154,821 

 

 

14,826,546 

 

 

676,010 

 

 

(4,285)

Total AFS securities

 

$

88,333,116 

 

$

89,927,455 

 

$

2,030,097 

 

$

(435,758)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Cost or

 

 

 

 

Gross Unrealized



 

Amortized Cost

 

Fair Value

 

Gains

 

Losses

2018

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

1,348,575 

 

$

1,328,925 

 

$

 —

 

$

(19,650)

MBS/ABS/CMBS

 

 

34,372,133 

 

 

33,799,024 

 

 

33,955 

 

 

(607,064)

Corporate

 

 

37,383,903 

 

 

37,366,690 

 

 

376,029 

 

 

(393,242)

Municipal

 

 

16,148,295 

 

 

16,486,520 

 

 

398,569 

 

 

(60,344)

Total fixed maturity securities

 

 

89,252,906 

 

 

88,981,159 

 

 

808,553 

 

 

(1,080,300)

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

Common stocks

 

 

13,572,713 

 

 

11,843,223 

 

 

406,812 

 

 

(2,136,302)

Total equity securities1

 

 

13,572,713 

 

 

11,843,223 

 

 

406,812 

 

 

(2,136,302)

Total AFS securities

 

$

102,825,619 

 

$

100,824,382 

 

$

1,215,365 

 

$

(3,216,602)



1Effective January 1, 2019, the Company adopted ASU No. 2016-01. As a result, equity securities are no longer classified as available-for-sale. Prior periods have not been recast to conform to the current presentation.



All of the Company’s collaterized securities carry an average credit rating of AA+ by one or more major rating agencies and continue to pay according to contractual terms. Included within MBS/ABS/CMBS, as defined in Note 3 – Fair Value Disclosures, are residential mortgage backed securities with fair values of $14,503,520 and $13,696,585 and commercial mortgage backed securities of $9,345,650 and $10,126,352 at March 31, 2019 and December 31, 2018, respectively.

~  10  ~


 

Table of Contents

 

ANALYSIS



The following tables are 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, 2019, and December 31, 2018. The tables segregate 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, 2019



 

 

 

 

12 Months

 

 

 



 

< 12 Months

 

& Greater

 

Total

Fixed Maturity Securities:

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

 

 

 

 

 

 

 

 

Fair value

 

$

 —

 

$

1,335,742 

 

$

1,335,742 

Cost or amortized cost

 

 

 —

 

 

1,349,045 

 

 

1,349,045 

Unrealized loss

 

 

 —

 

 

(13,303)

 

 

(13,303)

MBS/ABS/CMBS

 

 

 

 

 

 

 

 

 

Fair value

 

 

7,646,768 

 

 

13,672,461 

 

 

21,319,229 

Cost or amortized cost

 

 

7,698,242 

 

 

13,962,261 

 

 

21,660,503 

Unrealized loss

 

 

(51,474)

 

 

(289,800)

 

 

(341,274)

Corporate

 

 

 

 

 

 

 

 

 

Fair value

 

 

252,781 

 

 

9,358,068 

 

 

9,610,849 

Cost or amortized cost

 

 

252,910 

 

 

9,434,835 

 

 

9,687,745 

Unrealized loss

 

 

(129)

 

 

(76,767)

 

 

(76,896)

Municipal

 

 

 

 

 

 

 

 

 

Fair value

 

 

 —

 

 

272,453 

 

 

272,453 

Cost or amortized cost

 

 

 —

 

 

276,738 

 

 

276,738 

Unrealized loss

 

 

 —

 

 

(4,285)

 

 

(4,285)

Total debt securities available for sale

 

 

 

 

 

 

 

 

 

Fair value

 

 

7,899,549 

 

 

24,638,724 

 

 

32,538,273 

Cost or amortized cost

 

 

7,951,152 

 

 

25,022,879 

 

 

32,974,031 

Unrealized loss

 

 

(51,603)

 

 

(384,155)

 

 

(435,758)





~  11  ~


 

Table of Contents

 



 

 

 

 

 

 

 

 

 



 

December 31, 2018



 

 

 

 

12 Months

 

 

 



 

< 12 Months

 

& Greater

 

Total

U.S. Treasury

 

 

 

 

 

 

 

 

 

Fair value

 

$

 —

 

$

1,328,925 

 

$

1,328,925 

Cost or amortized cost

 

 

 —

 

 

1,348,575 

 

 

1,348,575 

Unrealized loss

 

 

 —

 

 

(19,650)

 

 

(19,650)

MBS/ABS/CMBS

 

 

 

 

 

 

 

 

 

Fair value

 

 

16,890,857 

 

 

11,956,493 

 

 

28,847,350 

Cost or amortized cost

 

 

17,039,357 

 

 

12,415,057 

 

 

29,454,414 

Unrealized loss

 

 

(148,500)

 

 

(458,564)

 

 

(607,064)

Corporate

 

 

 

 

 

 

 

 

 

Fair value

 

 

14,304,322 

 

 

5,745,289 

 

 

20,049,611 

Cost or amortized cost

 

 

14,550,153 

 

 

5,892,700 

 

 

20,442,853 

Unrealized loss

 

 

(245,831)

 

 

(147,411)

 

 

(393,242)

Municipal

 

 

 

 

 

 

 

 

 

Fair value

 

 

3,069,720 

 

 

838,980 

 

 

3,908,700 

Cost or amortized cost

 

 

3,100,036 

 

 

869,008 

 

 

3,969,044 

Unrealized loss

 

 

(30,316)

 

 

(30,028)

 

 

(60,344)

Subtotal, fixed income

 

 

 

 

 

 

 

 

 

Fair value

 

 

34,264,899 

 

 

19,869,687 

 

 

54,134,586 

Cost or amortized cost

 

 

34,689,546 

 

 

20,525,340 

 

 

55,214,886 

Unrealized loss

 

 

(424,647)

 

 

(655,653)

 

 

(1,080,300)

Common stock1

 

 

 

 

 

 

 

 

 

Fair value

 

 

8,187,764 

 

 

 

 

 

8,187,764 

Cost or amortized cost

 

 

10,324,066 

 

 

 —

 

 

10,324,066 

Unrealized loss

 

 

(2,136,302)

 

 

 —

 

 

(2,136,302)

Total

 

 

 

 

 

 

 

 

 

Fair value

 

 

42,452,663 

 

 

19,869,687 

 

 

62,322,350 

Cost or amortized cost

 

 

45,013,612 

 

 

20,525,340 

 

 

65,538,952 

Unrealized loss

 

$

(2,560,949)

 

$

(655,653)

 

$

(3,216,602)



1Effective January 1, 2019, the Company adopted ASU No. 2016-01. As a result, equity securities are no longer classified as available-for-sale. Prior periods have not been recast to conform to the current presentation.



As of December 31, 2018, the Company held 200 equity securities that were in unrealized loss positions. Of these 200 securities, none were in an unrealized loss position for 12 consecutive months or longer.



The fixed income portfolio contained 76 securities in an unrealized loss position as of March 31, 2019. Of these 76 securities, 63 have been in an unrealized loss position for 12 consecutive months or longer and represent $384,155 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 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 net earnings during the first three months ended March 31, 2018. For all fixed income securities at a loss at March 31, 2019, management believes it is probable that the Company will receive all contractual payments in the form of principal and interest. In addition, the Company is not required to, nor does it intend to sell these investments prior to recovering the entire amortized cost basis for each security, which may be maturity. The fixed income securities in an unrealized loss position were not other-than-temporarily impaired at March 31, 2019 and December 31, 2018.



UNREALIZED GAINS AND LOSSES ON EQUITY SECURITIES



The portion of net unrealized gains for the first quarter of 2018 that relates to equity securities held as of March 31, 2019 was $1,840,418.



~  12  ~


 

Table of Contents

 

Other Invested Assets



Other invested assets include privately held investments, including membership in the Federal Home Loan Bank of Chicago (FHLBC), which occurred in February 2018 . Our investment in FHLBC stock is carried at cost. Due to the nature of our membership in the FHLBC, its carrying amount approximates fair value. As of March 31, 2019, there were no investments pledged as collateral with the FHLBC. There may be investments pledged as collateral with the FHLBC to ensure timely access to the secured lending facility that ownership of FHLBC stock provides. As of and during the three month periods ending March 31, 2019 and March 31, 2018, there were no outstanding borrowings with the FHLBC.



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 Bonds—The 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 Funds—U.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 Stock—Preferred 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.



~  13  ~


 

Table of Contents

 

Due to the relatively short-term nature of cash and cash equivalents, their carrying amounts are reasonable estimates of fair value. Reported in Note 4 – Debt, 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.



Assets measured at fair value on a recurring basis as of March 31, 2019, are as summarized below:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Significant