9.30.19 ICCH 10Q3

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 September 30, 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 November 8, 2019 was 3,299,379.

 



 

 


 

Table of Contents

 

Table of Contents





 

 



 

Page 

PART I

 

 

Item 1.

Financial Statements



Condensed Consolidated Balance Sheets as of September 30, 2019 (unaudited) and December 31, 2018



Condensed Consolidated Statements of Earnings and Comprehensive Earnings For the Three-Month Periods Ended September 30, 2019 and 2018 (unaudited)



Condensed Consolidated Statements of Earnings and Comprehensive Earnings For the Nine-Month Periods Ended September 30, 2019 and 2018 (unaudited)



Condensed Consolidated Statements of Stockholders Equity for the Nine-Month Periods Ended September 30, 2019 and 2018 (unaudited)



Condensed Consolidated Statements of Cash Flows For the Nine-Month Periods Ended September 30, 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

21 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

37 

Item 4.

Controls and Procedures

39 



 

 

PART II

 

 

Item 1.

Legal Proceedings

39 

Item 1A.

Risk Factors

39 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40 

Item 3.

Default Upon Senior Securities

40 

Item 4.

Mine Safety Disclosures

40 

Item 5.

Other Information

40 

Item 6.

Exhibits

41 



 

 

Signatures 

42 



 

~  2  ~


 

Table of Contents

 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets





 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of



 

September 30,

 

December 31,



 

2019

 

2018



 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Investments and cash:

 

 

 

 

 

 

Fixed maturity securities (amortized cost - $88,857,008 at

 

 

 

 

 

 

9/30/2019 and $89,252,906 at 12/31/2018)

 

$

92,918,467 

 

$

88,981,159 

Common stocks (cost - $13,235,053 at

 

 

 

 

 

 

9/30/2019 and $13,572,713 at 12/31/2018)

 

 

13,330,075 

 

 

11,843,223 

Other invested assets

 

 

878,308 

 

 

154,200 

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

 

 

 

 

 

 

$302,100 at 9/30/2019 and $222,825 at 12/31/2018

 

 

3,839,390 

 

 

3,586,273 

Cash and cash equivalents

 

 

2,030,900 

 

 

4,644,784 

Total investments and cash

 

 

112,997,140 

 

 

109,209,639 

Accrued investment income

 

 

650,692 

 

 

648,321 

Premiums and reinsurance balances receivable, net of allowances for

 

 

 

 

 

 

uncollectible amounts of $50,000 at 9/30/2019 and 12/31/2018

 

 

23,252,325 

 

 

21,404,344 

Ceded unearned premiums

 

 

861,471 

 

 

796,065 

Reinsurance balances recoverable on unpaid losses and settlement expenses,

 

 

 

 

 

 

net of allowances for uncollectible amounts of $0 at 9/30/2019 and 12/31/2018

 

 

12,266,481 

 

 

6,735,964 

Federal income taxes

 

 

616,785 

 

 

1,868,669 

Deferred policy acquisition costs, net

 

 

5,525,395 

 

 

5,247,188 

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

 

 

 

 

 

 

$5,564,730 at 9/30/2019 and $5,099,090 at 12/31/2018

 

 

3,088,736 

 

 

3,332,810 

Other assets

 

 

2,212,641 

 

 

1,040,193 

Total assets

 

$

161,471,666 

 

$

150,283,193 

Liabilities and Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Unpaid losses and settlement expenses

 

$

58,322,611 

 

$

51,447,440 

Unearned premiums

 

 

31,615,601 

 

 

29,972,623 

Reinsurance balances payable

 

 

95,991 

 

 

993,004 

Corporate debt

 

 

3,477,586 

 

 

3,484,606 

Accrued expenses

 

 

3,159,742 

 

 

4,536,218 

Other liabilities

 

 

1,858,174 

 

 

1,256,003 

Total liabilities

 

 

98,529,705 

 

 

91,689,894 

Equity:

 

 

 

 

 

 

Common stock1  

 

 

35,000 

 

 

35,000 

Treasury stock, at cost2

 

 

(3,102,850)

 

 

(2,999,995)

Additional paid-in capital

 

 

32,641,488 

 

 

32,505,423 

Accumulated other comprehensive earnings (loss), net of tax

 

 

3,208,554 

 

 

(1,580,976)

Retained earnings

 

 

33,031,328 

 

 

33,680,702 

Less: Unearned Employee Stock Ownership Plan shares at cost3

 

 

(2,871,559)

 

 

(3,046,855)

Total equity

 

 

62,941,961 

 

 

58,593,299 

Total liabilities and equity

 

$

161,471,666 

 

$

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 - 3,012,223 and 2018 - 2,992,734 shares.

22019 – 200,621 shares and 2018 – 196,721 shares

32019 –287,156 shares and 2018 –304,685 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



 

September 30,



 

2019

 

2018

Net premiums earned

 

$

13,679,746 

 

$

12,137,690 

Net investment income

 

 

811,462 

 

 

735,683 

Net realized investment gains

 

 

141,481 

 

 

15,029 

Net unrealized losses on equity securities

 

 

(7,603)

 

 

 —

Other (loss) income

 

 

(112,763)

 

 

74,051 

Consolidated revenues

 

 

14,512,323 

 

 

12,962,453 

Losses and settlement expenses

 

 

9,609,347 

 

 

8,611,573 

Policy acquisition costs and other operating expenses

 

 

4,733,206 

 

 

4,475,659 

Interest expense on debt

 

 

32,458 

 

 

32,553 

General corporate expenses

 

 

164,378 

 

 

128,803 

Total expenses

 

 

14,539,389 

 

 

13,248,588 

Loss before income taxes

 

 

(27,066)

 

 

(286,135)

Total income tax benefit

 

 

(13,150)

 

 

(77,569)

Net loss

 

$

(13,916)

 

$

(208,566)



 

 

 

 

 

 

Other comprehensive earnings, net of tax

 

 

703,220 

 

 

213,059 

Comprehensive earnings

 

$

689,304 

 

$

4,493 



 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

Basic net loss per share

 

$

(0.00)

 

$

(0.07)

Diluted:

 

 

 

 

 

 

Diluted net loss per share

 

$

(0.00)

 

$

(0.07)



 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

Basic

 

 

3,011,034 

 

 

3,135,277 

Diluted

 

 

3,015,038 

 

 

3,136,764 















See accompanying notes to consolidated financial statements.

~  4  ~


 

Table of Contents

 

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited)







 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Nine-Months Ended



 

September 30,



 

2019

 

2018

Net premiums earned

 

$

39,219,882 

 

$

34,919,705 

Net investment income

 

 

2,406,965 

 

 

2,124,059 

Net realized investment gains

 

 

741,123 

 

 

1,087,229 

Net unrealized gains on equity securities

 

 

1,716,124 

 

 

 —

Other (loss) income

 

 

(43,838)

 

 

130,222 

Consolidated revenues

 

 

44,040,256 

 

 

38,261,215 

Losses and settlement expenses

 

 

28,117,369 

 

 

24,398,009 

Policy acquisition costs and other operating expenses

 

 

14,541,986 

 

 

13,089,081 

Interest expense on debt

 

 

96,353 

 

 

108,335 

General corporate expenses

 

 

444,829 

 

 

398,859 

Total expenses

 

 

43,200,537 

 

 

37,994,284 

Earnings before income taxes

 

 

839,719 

 

 

266,931 

Total income tax expense

 

 

122,796 

 

 

8,209 

Net earnings

 

$

716,923 

 

$

258,722 



 

 

 

 

 

 

Other comprehensive earnings (loss), net of tax

 

 

3,423,233 

 

 

(2,389,414)

Comprehensive earnings (loss)

 

$

4,140,156 

 

$

(2,130,692)



 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

Basic net earnings per share

 

$

0.24 

 

$

0.08 

Diluted:

 

 

 

 

 

 

Diluted net earnings per share

 

$

0.24 

 

$

0.08 



 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

Basic

 

 

3,004,887 

 

 

3,165,239 

Diluted

 

 

3,008,891 

 

 

3,166,726 















See accompanying notes to consolidated financial statements.













~  5  ~


 

Table of Contents

 

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 

Purchase of common stock

 

 

 —

 

 

(2,999,995)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,999,995)

Net earnings

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

258,722 

 

 

 —

 

 

258,722 

Other comprehensive loss, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,389,414)

 

 

(2,389,414)

Restricted stock unit expense

 

 

 —

 

 

 —

 

 

 —

 

 

35,818 

 

 

 —

 

 

 —

 

 

35,818 

ESOP shares released

 

 

 —

 

 

 —

 

 

175,778 

 

 

95,970 

 

 

 —

 

 

 —

 

 

271,748 

Balance, September 30, 2018

 

$

35,000 

 

$

(2,999,995)

 

$

(3,105,442)

 

$

32,465,078 

 

$

33,046,128 

 

$

(162,345)

 

$

59,278,424 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

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

 

 

 —

 

 

(102,855)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(102,855)

Net earnings

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

716,923 

 

 

 —

 

 

716,923 

Other comprehensive earnings, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

3,423,233 

 

 

3,423,233 

Restricted stock unit expense

 

 

 —

 

 

 —

 

 

 —

 

 

78,226 

 

 

 —

 

 

 —

 

 

78,226 

ESOP shares released

 

 

 —

 

 

 —

 

 

175,296 

 

 

57,839 

 

 

 —

 

 

 —

 

 

233,135 

Balance, September 30, 2019

 

$

35,000 

 

$

(3,102,850)

 

$

(2,871,559)

 

$

32,641,488 

 

$

33,031,328 

 

$

3,208,554 

 

$

62,941,961 





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







See accompanying notes to consolidated financial statements.

~  6  ~


 

Table of Contents

 

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)







 

 

 

 

 



 

 

 

 

 



Nine-Month Periods Ended September 30,



2019

 

2018

Cash flows from operating activities:

 

 

 

 

 

Net earnings

$

716,923 

 

$

258,722 

Adjustments to reconcile net earnings to net cash

 

 

 

 

 

provided by operating activities

 

 

 

 

 

Net realized investment gains

 

(741,123)

 

 

(1,087,229)

Net unrealized gains on equity securities

 

(1,716,124)

 

 

 —

Depreciation

 

613,916 

 

 

519,471 

Deferred income tax

 

360,009 

 

 

4,101 

Amortization of bond premium and discount

 

172,691 

 

 

239,029 

Stock-based compensation expense

 

311,361 

 

 

307,566 

Change in:

 

 

 

 

 

Accrued investment income

 

(2,371)

 

 

27,598 

Premiums and reinsurance balances receivable

 

(1,847,981)

 

 

(2,883,819)

Ceded unearned premiums

 

(65,406)

 

 

(430,781)

Reinsurance balances payable

 

(897,013)

 

 

908,323 

Reinsurance balances recoverable

 

(5,530,517)

 

 

550,567 

Deferred policy acquisition costs

 

(278,207)

 

 

(911,348)

Unpaid losses and settlement expenses

 

6,875,171 

 

 

3,139,319 

Unearned premiums

 

1,642,978 

 

 

3,822,745 

Accrued expenses

 

(1,376,476)

 

 

(548,197)

Current federal income tax

 

(18,097)

 

 

(9,086)

Other

 

(570,277)

 

 

(598,682)

Net cash (used in) provided by operating activities

 

(2,350,543)

 

 

3,308,299 

Cash flows from investing activities:

 

 

 

 

 

Purchases of:

 

 

 

 

 

Fixed maturity securities, available-for-sale

 

(19,060,848)

 

 

(12,181,365)

Common stocks

 

(5,252,095)

 

 

(13,932,332)

Preferred stocks

 

 —

 

 

(140,925)

Other invested assets

 

(738,300)

 

 

(39,200)

Property held for investment

 

(332,393)

 

 

(374,409)

Property and equipment

 

(321,704)

 

 

(444,603)

Proceeds from sales, maturities and calls of:

 

 

 

 

 

Fixed maturity securities, available-for-sale

 

19,522,461 

 

 

10,181,569 

Common stocks

 

5,998,276 

 

 

9,367,763 

Preferred stocks

 

 —

 

 

3,927,722 

Property and equipment

 

31,137 

 

 

5,854 

Net cash used in investing activities

 

(153,466)

 

 

(3,629,926)

Cash flows from financing activities:

 

 

 

 

 

Repayments of borrowed funds

 

(7,020)

 

 

(852,191)

Purchase of common stock

 

(102,855)

 

 

(2,999,995)

Net cash used in financing activities

 

(109,875)

 

 

(3,852,186)

Net decrease in cash and cash equivalents

 

(2,613,884)

 

 

(4,173,813)

Cash and cash equivalents at beginning of year

 

4,644,784 

 

 

6,876,519 

Cash and cash equivalents at end of period

$

2,030,900 

 

$

2,702,706 

Supplemental information:

 

 

 

 

 

Federal income tax recovered

$

164,543 

 

$

 —

Interest paid

 

96,700 

 

 

140,881 





See accompanying notes to consolidated financial statements. 

~  7  ~


 

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 Illinois Casualty Company (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 22.3% and 28.0% of the premium is written in Illinois for the three months ended September 30, 2019 and 2018, respectively. For the nine months ended September 30, 2019 and 2018, approximately 25.8% and 29.7% of the premium is written in Illinois, respectively. 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 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 September 30, 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

~  8  ~


 

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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 later 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 September 30, 2019 and 2018, the Company recognized no impairments.  Property and equipment are summarized as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of



 

September 30,

 

December 31,



 

2019

 

2018

Automobiles

 

$

600,117 

 

$

603,046 

Furniture and fixtures

 

 

450,834 

 

 

436,568 

Computer equipment and software

 

 

3,735,883 

 

 

3,542,339 

Home office

 

 

3,866,632 

 

 

3,849,947 

Total cost

 

 

8,653,466 

 

 

8,431,900 

Accumulated depreciation

 

 

(5,564,730)

 

 

(5,099,090)

Net property and equipment

 

$

3,088,736 

 

$

3,332,810 



~  9  ~


 

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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 September 30,



 

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 (losses) gains

  arising during the period

 

$

890,152 

 

$

(116,415)

 

$

773,737 

 

$

284,725 

 

$

(59,794)

 

$

224,931 

Reclassification adjustment for

  (gains) losses included in net earnings

 

 

(89,262)

 

 

18,745 

 

 

(70,517)

 

 

(15,029)

 

 

3,157 

 

 

(11,872)

Total other comprehensive (loss) earnings

 

$

800,890 

 

$

(97,670)

 

$

703,220 

 

$

269,696 

 

$

(56,637)

 

$

213,059 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Nine-Month Periods Ended September 30,



 

2019

 

2018



 

Pre-tax

 

Tax

 

After-tax

 

Pre-tax

 

Tax

 

After-tax

Other comprehensive earnings (loss),
  net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains and losses on AFS investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses)
  arising during the period

 

$

4,333,205 

 

$

(721,632)

 

$

3,611,573 

 

$

(1,937,344)

 

$

406,840 

 

$

(1,530,504)

Reclassification adjustment for
  (gains) losses included in net earnings

 

 

(238,405)

 

 

50,065 

 

 

(188,340)

 

 

(1,087,229)

 

 

228,319 

 

 

(858,910)

Total other comprehensive earnings (loss)

 

$

4,094,800 

 

$

(671,567)

 

$

3,423,233 

 

$

(3,024,573)

 

$

635,159 

 

$

(2,389,414)



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







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts Reclassified from

Accumulated Other Comprehensive Earnings



 

Three-Month Periods Ended

 

Nine-Month Period Ended

 

 

Details about Accumulated Other

 

September 30,

 

September 30,

 

Affected Line Item in the Statement

Comprehensive Earnings Component

 

2019

 

2018

 

2019

 

2018

 

where Net Earnings is Presented

Unrealized (gains) losses on AFS investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

$

(89,262)

 

$

(15,029)

 

$

(238,405)

 

$

(1,087,229)

 

Net realized investment (gains) losses



 

 

18,745 

 

 

3,157 

 

 

50,065 

 

 

228,319 

 

Income tax expense

Total reclassification adjustment, net of tax

 

$

(70,517)

 

$

(11,872)

 

$

(188,340)

 

$

(858,910)

 

 

 

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 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.

~  10  ~


 

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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 September 30,



 

 

 

 

 

 

 

 

 

 

Net Realized



 

Proceeds

 

Gains

 

Losses

 

Gains (Losses)

2019

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

$

5,771,988 

 

$

99,445 

 

$

(10,183)

 

$

89,262 

Common stocks

 

 

1,320,803 

 

 

185,319 

 

 

(133,100)

 

 

52,219 

2018

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

$

3,512,293 

 

$

45,130 

 

$

(30,165)

 

$

14,965 

Common stocks

 

 

533,388 

 

 

61,330 

 

 

(60,591)

 

 

739 

Preferred stocks

 

 

66,000 

 

 

 —

 

 

(675)

 

 

(675)













 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

For the Nine-Months Ended September 30,



 

 

 

 

 

 

 

 

 

 

Net Realized



 

Proceeds

 

Gains

 

Losses

 

Gains

2019

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

$

19,522,461 

 

$

264,737 

 

$

(26,332)

 

$

238,405 

Common stocks

 

 

5,998,276 

 

 

960,420 

 

 

(457,702)

 

 

502,718 

2018

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

$

10,181,569 

 

$

97,917 

 

$

(56,280)

 

$

41,637 

Common stocks

 

 

9,367,763 

 

 

1,164,192 

 

 

(122,833)

 

 

1,041,359 

Preferred stocks

 

 

3,927,722 

 

 

86,862 

 

 

(82,629)

 

 

4,233 



The amortized cost and estimated fair value of fixed income securities at September 30, 2019, by contractual maturity, are shown as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

Amortized Cost

 

Fair Value

Due in one year or less

 

$

3,706,721 

 

$

3,724,171 

Due after one year through five years

 

 

20,527,932 

 

 

21,357,177 

Due after five years through 10 years

 

 

14,516,310 

 

 

15,749,391 

Due after 10 years

 

 

13,833,858 

 

 

15,217,981 

Asset and mortgage backed securities without a specific due date

 

 

36,272,187 

 

 

36,869,747 

Total fixed maturity securities

 

$

88,857,008 

 

$

92,918,467 



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

~  11  ~


 

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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 September 30, 2019 and December 31, 2018:









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Cost or

 

 

 

 

Gross Unrealized



 

Amortized Cost

 

Fair Value

 

Gains

 

Losses

2019

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

1,349,993 

 

$

1,347,742 

 

$

761 

 

$

(3,012)

MBS/ABS/CMBS

 

 

36,272,188 

 

 

36,869,747 

 

 

655,901 

 

 

(58,342)

Corporate

 

 

40,936,728 

 

 

43,509,784 

 

 

2,576,595 

 

 

(3,539)

Municipal

 

 

10,298,099 

 

 

11,191,194 

 

 

893,095 

 

 

 —

Total AFS securities

 

$

88,857,008 

 

$

92,918,467 

 

$

4,126,352 

 

$

(64,893)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

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 the Company’s collateralized 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 $13,386,554 and $13,696,585 and commercial mortgage backed securities of $12,545,859 and $10,126,352 at September 30, 2019 and December 31, 2018, respectively.

~  12  ~


 

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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 September 30, 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.







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

September 30, 2019



 

 

 

 

12 Months

 

 

 



 

< 12 Months

 

& Greater

 

Total

Fixed Maturity Securities:

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

 

 

 

 

 

 

 

 

Fair value

 

$

 —

 

$

1,246,820 

 

$

1,246,820 

Cost or amortized cost

 

 

 —

 

 

1,249,832