33120 ICCH 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, 2020

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 8, 2020 was 3,303,708.

 



 

 


 

Table of Contents

 

Table of Contents





 

 



 

Page 

PART I

 

 

Item 1.

Financial Statements

 



Condensed Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019



Condensed Consolidated Statements of Earnings and Comprehensive Earnings For the Three-Month Periods Ended March 31, 2020 and 2019 (unaudited)



Condensed Consolidated Statements of Stockholders Equity for the Three-Month Periods Ended March 31, 2020 and 2019 (unaudited)



Condensed Consolidated Statements of Cash Flows For the Three-Month Periods Ended March 31, 2020 and 2019 (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

33 

Item 4.

Controls and Procedures

35 



 

 

PART II

 

 

Item 1.

Legal Proceedings

35 

Item 1A.

Risk Factors

35 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36 

Item 3.

Default Upon Senior Securities

36 

Item 4.

Mine Safety Disclosures

36 

Item 5.

Other Information

36 

Item 6.

Exhibits

37 



 

 

Signatures 

38 



 

~  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,



 

2020

 

2019



 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Investments and cash:

 

 

 

 

 

 

Fixed maturity securities (cost or amortized cost - $89,837,334 at

 

 

 

 

 

 

3/31/2020 and $88,348,415 at 12/31/2019)

 

$

91,410,811 

 

$

92,087,572 

Common stocks at fair value

 

 

10,752,130 

 

 

14,448,773 

Preferred stocks at fair value

 

 

1,393,890 

 

 

 —

Other invested assets

 

 

1,699,831 

 

 

877,900 

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

 

 

 

 

 

 

$362,934 at 3/31/2020 and $332,218 at 12/31/2019

 

 

4,351,571 

 

 

4,353,713 

Cash and cash equivalents

 

 

9,006,019 

 

 

6,626,585 

Total investments and cash

 

 

118,614,252 

 

 

118,394,543 

Accrued investment income

 

 

695,769 

 

 

646,504 

Premiums and reinsurance balances receivable, net of allowances for

 

 

 

 

 

 

uncollectible amounts of $100,000 at 3/31/2020 and 12/31/2019

 

 

22,223,496 

 

 

22,368,526 

Ceded unearned premiums

 

 

806,586 

 

 

822,818 

Reinsurance balances recoverable on unpaid losses and settlement expenses,

 

 

 

 

 

 

net of allowances for uncollectible amounts of $0 at 3/31/2020 and 12/31/2019

 

 

11,318,422 

 

 

11,036,170 

Federal income taxes

 

 

1,381,140 

 

 

192,559 

Deferred policy acquisition costs, net

 

 

5,380,565 

 

 

5,269,256 

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

 

 

 

 

 

 

$5,715,991 at 3/31/2020 and $5,619,706 at 12/31/2019

 

 

3,001,246 

 

 

3,033,348 

Other assets

 

 

1,135,653 

 

 

1,239,794 

Total assets

 

$

164,557,129 

 

$

163,003,518 

Liabilities and Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Unpaid losses and settlement expenses

 

$

58,273,656 

 

$

56,838,307 

Unearned premiums

 

 

29,817,121 

 

 

30,392,817 

Reinsurance balances payable

 

 

352,675 

 

 

374,998 

Corporate debt

 

 

9,472,566 

 

 

3,475,088 

Accrued expenses

 

 

2,967,292 

 

 

4,216,988 

Income taxes - deferred

 

 

 —

 

 

39,213 

Other liabilities

 

 

903,432 

 

 

1,324,273 

Total liabilities

 

 

101,786,742 

 

 

96,661,684 

Equity:

 

 

 

 

 

 

Common stock1  

 

 

35,000 

 

 

35,000 

Treasury stock, at cost2

 

 

(3,047,109)

 

 

(3,146,576)

Additional paid-in capital

 

 

32,658,165 

 

 

32,703,209 

Accumulated other comprehensive earnings, net of tax

 

 

1,243,090 

 

 

2,953,936 

Retained earnings

 

 

34,635,454 

 

 

36,608,750 

Less: Unearned Employee Stock Ownership Plan shares at cost3

 

 

(2,754,213)

 

 

(2,812,485)

Total equity

 

 

62,770,387 

 

 

66,341,834 

Total liabilities and equity

 

$

164,557,129 

 

$

163,003,518 



1Par value $0.01; authorized: 2020 - 10,000,000 shares and 201910,000,000 shares; issued: 2020  3,500,000 shares and 20193,500,000 shares;  outstanding: 2020 - 3,028,287 and 2019 - 3,014,941 shares.

22020196,292 shares and 2019 203,811 shares

32020  –275,421 shares and 2019  –281,248 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



 

March 31,



 

2020

 

2019

Net premiums earned

 

$

13,013,989 

 

$

12,445,914 

Net investment income

 

 

835,400 

 

 

795,373 

Net realized investment gains (losses)

 

 

95,632 

 

 

(47,426)

Net unrealized (losses) gains on equity securities

 

 

(3,689,347)

 

 

1,840,418 

Other income (loss)

 

 

50,198 

 

 

(53,887)

Consolidated revenues

 

 

10,305,872 

 

 

14,980,392 

Losses and settlement expenses

 

 

7,842,082 

 

 

9,607,290 

Policy acquisition costs and other operating expenses

 

 

4,764,974 

 

 

4,850,186 

Interest expense on debt

 

 

35,328 

 

 

32,014 

General corporate expenses

 

 

174,421 

 

 

143,161 

Total expenses

 

 

12,816,805 

 

 

14,632,651 

(Loss) earnings before income taxes

 

 

(2,510,933)

 

 

347,741 

Total income tax (benefit) expense

 

 

(537,637)

 

 

58,993 

Net (loss) earnings

 

$

(1,973,296)

 

$

288,748 



 

 

 

 

 

 

Other comprehensive (loss) earnings, net of tax

 

 

(1,710,846)

 

 

1,474,209 

Comprehensive (loss) earnings

 

$

(3,684,142)

 

$

1,762,957 



 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

Basic net (loss) earnings per share

 

$

(0.65)

 

$

0.10 

Diluted:

 

 

 

 

 

 

Diluted net (loss) earnings per share

 

$

(0.65)

 

$

0.10 



 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

Basic

 

 

3,016,062 

 

 

2,999,068 

Diluted

 

 

3,020,458 

 

 

3,000,770 















See accompanying notes to consolidated financial statements.













~  4  ~


 

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, 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 loss, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,474,209 

 

 

1,474,209 

Restricted stock unit expense

 

 

 —

 

 

 —

 

 

 —

 

 

18,773 

 

 

 —

 

 

 —

 

 

18,773 

ESOP compensation expense

 

 

 —

 

 

 —

 

 

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 2019 10-K, Note 1 - Summary of Significant Accounting Policies









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common stock

 

Treasury stock

 

Unearned ESOP

 

Additional paid-in capital

 

Retained
earnings

 

Accumulated
other
comprehensive
earnings (loss)

 

Total equity

Balance, January 1, 2020

 

$

35,000 

 

$

(3,146,576)

 

$

(2,812,485)

 

$

32,703,209 

 

$

36,608,750 

 

$

2,953,936 

 

$

66,341,834 

Net (loss)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,973,296)

 

 

 —

 

 

(1,973,296)

Other comprehensive (loss), net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,710,846)

 

 

(1,710,846)

Restricted stock unit expense

 

 

 —

 

 

99,467 

 

 

 —

 

 

(62,540)

 

 

 —

 

 

 —

 

 

36,927 

ESOP compensation expense

 

 

 —

 

 

 —

 

 

58,272 

 

 

17,496 

 

 

 —

 

 

 —

 

 

75,768 

Balance, March 31, 2020

 

$

35,000 

 

$

(3,047,109)

 

$

(2,754,213)

 

$

32,658,165 

 

$

34,635,454 

 

$

1,243,090 

 

$

62,770,387 











See accompanying notes to consolidated financial statements.

~  5  ~


 

Table of Contents

 

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)







 

 

 

 

 



 

 

 

 

 



Three-Month Periods Ended March 31,



2020

 

2019

Cash flows from operating activities:

 

 

 

 

 

Net (loss) earnings

$

(1,973,296)

 

$

288,748 

Adjustments to reconcile net (loss) earnings to net cash

 

 

 

 

 

provided by operating activities

 

 

 

 

 

Net realized investment (losses) gains

 

(95,632)

 

 

47,426 

Net unrealized losses (gains) on equity securities

 

3,689,347 

 

 

(1,840,418)

Depreciation

 

167,079 

 

 

199,126 

Deferred income tax

 

(776,673)

 

 

375,879 

Amortization of bond premium and discount

 

46,198 

 

 

57,625 

Stock-based compensation expense

 

112,695 

 

 

98,203 

Change in:

 

 

 

 

 

Accrued investment income

 

(49,265)

 

 

(33,248)

Premiums and reinsurance balances receivable

 

145,030 

 

 

(676,696)

Ceded unearned premiums

 

16,232 

 

 

12,371 

Reinsurance balances payable

 

(22,323)

 

 

3,551,227 

Reinsurance balances recoverable

 

(282,252)

 

 

(8,372,725)

Deferred policy acquisition costs

 

(111,309)

 

 

3,718 

Unpaid losses and settlement expenses

 

1,435,349 

 

 

9,569,902 

Unearned premiums

 

(575,696)

 

 

10,510 

Accrued expenses

 

(1,249,696)

 

 

(1,965,886)

Current federal income tax

 

3,497 

 

 

(152,343)

Other

 

(316,700)

 

 

(45,124)

Net cash provided by operating activities

 

162,585 

 

 

1,128,295 

Cash flows from investing activities:

 

 

 

 

 

Purchases of:

 

 

 

 

 

Fixed maturity securities, available-for-sale

 

(5,105,043)

 

 

(4,902,758)

Common stocks

 

(592,329)

 

 

(617,566)

Preferred stocks

 

(1,548,172)

 

 

 —

Other invested assets

 

(821,500)

 

 

(104,000)

Property held for investment

 

(28,573)

 

 

(50)

Property and equipment

 

(108,096)

 

 

(75,726)

Proceeds from sales, maturities and calls of:

 

 

 

 

 

Fixed maturity securities, available-for-sale

 

3,802,593 

 

 

5,778,893 

Common stocks

 

524,818 

 

 

553,413 

Preferred stocks

 

91,838 

 

 

 —

Property and equipment

 

3,835 

 

 

5,268 

Net cash (used in) provided by investing activities

 

(3,780,629)

 

 

637,474 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from loans

 

6,000,000 

 

 

 —

Repayments of borrowed funds

 

(2,522)

 

 

 —

Purchase of common stock

 

 —

 

 

(1,400)

Net cash provided by (used in) financing activities

 

5,997,478 

 

 

(1,400)

Net increase in cash and cash equivalents

 

2,379,434 

 

 

1,764,369 

Cash and cash equivalents at beginning of year

 

6,626,585 

 

 

4,644,784 

Cash and cash equivalents at end of period

$

9,006,019 

 

$

6,409,153 

Supplemental information:

 

 

 

 

 

Federal income tax recovered

$

 —

 

$

164,543 

Interest paid

 

35,300 

 

 

 —





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., a non-insurance subsidiary; 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 26.5% and 29.6% of the premium is written in Illinois for the three months ended March 31, 2020 and 2019, 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, 2019 (the “2019 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, 2020, 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 2019 10-K.





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 2019 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. 



~  7  ~


 

Table of Contents

 

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, 2020 and 2019, the Company recognized no impairments.  Property and equipment are summarized as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of



 

March 31,

 

December 31,



 

2020

 

2019

Automobiles

 

$

521,010 

 

$

505,788 

Furniture and fixtures

 

 

471,215 

 

 

457,218 

Computer equipment and software

 

 

3,855,126 

 

 

3,823,416 

Home office

 

 

3,869,886 

 

 

3,866,632 

Total cost

 

 

8,717,237 

 

 

8,653,054 

Accumulated depreciation

 

 

(5,715,991)

 

 

(5,619,706)

Net property and equipment

 

$

3,001,246 

 

$

3,033,348 



F.     COMPREHENSIVE EARNINGS



Comprehensive (loss) earnings include net (loss) earnings plus unrealized (gains) 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.  Other comprehensive (loss) earnings, as shown in the consolidated statements of earnings and comprehensive earnings, is net of tax (benefit) expense of $(595,473) and $419,383 for the three months ended March 31, 2020 and 2019, respectively.



The following table presents changes in accumulated other comprehensive (loss) earnings for unrealized gains and losses on available-for-sale securities:







 

 

 

 

 

 



 

Three-Month Periods Ended March 31,



 

 

2020

 

2019

Beginning balance

$

2,953,936 

 

$

(1,580,976)

 

Cumulative effect of adoption of ASU 2016-01

 

 -

 

 

1,366,297 

 

Adjusted beginning balance

 

2,953,936 

 

 

(214,679)

 

Oher comprehensive (loss) earnings before reclassifications

 

(1,526,960)

 

 

1,436,742 

 

Amount reclassified from accumulated other comprehensive (loss) earnings

 

(183,886)

 

 

37,467 

 

Net current period other comprehensive (loss) earnings

 

(1,710,846)

 

 

1,474,209 

 

Ending balance

$

1,243,090 

 

$

1,259,530 

 



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,



 

2020

 

2019



 

Pre-tax

 

Tax

 

After-tax

 

Pre-tax

 

Tax

 

After-tax

Other comprehensive (loss) earnings,
  net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains and losses on investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding (losses) gains

  arising during the period

 

$

(2,171,314)

 

$

644,354 

 

$

(1,526,960)

 

$

1,866,085 

 

$

(429,343)

 

$

1,436,742 

Reclassification adjustment for

  (gains) losses included in net earnings

 

 

(232,767)

 

 

48,881 

 

 

(183,886)

 

 

47,426 

 

 

(9,959)

 

 

37,467 

Total other comprehensive (loss) earnings

 

$

(2,404,081)

 

$

693,235 

 

$

(1,710,846)

 

$

1,913,511 

 

$

(439,302)

 

$

1,474,209 



~  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



 

Three-Month Periods Ended

 

 

 

Details about Accumulated Other

 

March 31,

 

 

Affected Line Item in the Statement

Comprehensive Earnings Component

 

2020

 

2019

 

 

where Net Earnings is Presented

Unrealized (gains) losses on AFS investments:

 

 

 

 

 

 

 

 

 



 

$

(232,767)

 

$

47,426 

 

 

Net realized investment (gains) losses



 

 

48,881 

 

 

(9,959)

 

 

Income tax expense (benefit)

Total reclassification adjustment, net of tax

 

$

(183,886)

 

$

37,467 

 

 

 

 

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.



Available-for-Sale Fixed Maturity and Equity Securities



The following tables are a summary of the proceeds from sales, maturities, and calls of AFS 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

 

Gains (Losses)

2020

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

$

3,802,593 

 

$

233,693 

 

$

(926)

 

$

232,767 

Common stocks

 

 

524,818 

 

 

47,126 

 

 

(173,499)

 

 

(126,373)

Preferred stocks

 

 

91,838 

 

 

 —

 

 

(10,762)

 

 

(10,762)

2019

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

$

5,778,893 

 

$

25,589 

 

$

(11,619)

 

$

13,970 

Common stocks

 

 

553,413 

 

 

63,577 

 

 

(124,973)

 

 

(61,396)



The amortized cost and estimated fair value of fixed income securities at March 31, 2020, by contractual maturity, are shown as follows:







 

 

 

 

 

 



 

 

 

 

 

 



 

Amortized Cost

 

Fair Value

Due in one year or less

 

$

3,228,198 

 

$

3,242,332 

Due after one year through five years

 

 

18,003,293 

 

 

18,394,229 

Due after five years through 10 years

 

 

15,530,315 

 

 

15,833,388 

Due after 10 years

 

 

19,380,384 

 

 

20,331,864 

Asset and mortgage backed securities without a specific due date

 

 

33,479,339 

 

 

33,387,560 

Redeemable preferred stocks

 

 

215,805 

 

 

221,438 

Total fixed maturity securities

 

$

89,837,334 

 

$

91,410,811 



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, 2020 and December 31, 2019:









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Cost or

 

 

 

 

Gross Unrealized



 

Amortized Cost

 

Fair Value

 

Gains

 

Losses

2020

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

1,352,761 

 

$

1,392,031 

 

$

39,270 

 

$

 —

MBS/ABS/CMBS

 

 

33,479,339 

 

 

33,387,560 

 

 

585,105 

 

 

(676,884)

Corporate

 

 

38,473,713 

 

 

39,357,281 

 

 

1,516,966 

 

 

(633,398)

Municipal

 

 

16,315,716 

 

 

17,052,501 

 

 

827,188 

 

 

(90,403)

Redeemable preferred stock

 

 

215,805 

 

 

221,438 

 

 

6,270 

 

 

(637)

Total fixed maturity securities

 

$

89,837,334 

 

$

91,410,811 

 

$

2,974,799 

 

$

(1,401,322)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Gross Unrealized



 

Amortized Cost

 

Fair Value

 

Gains

 

Losses

2019

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

800,462 

 

$

800,219 

 

$

684 

 

$

(927)

MBS/ABS/CMBS

 

 

33,802,911 

 

 

34,290,995 

 

 

540,743 

 

 

(52,659)

Corporate

 

 

39,442,202 

 

 

41,915,103 

 

 

2,482,378 

 

 

(9,477)

Municipal

 

 

14,302,840 

 

 

15,081,255 

 

 

808,081 

 

 

(29,666)

Total fixed maturity securities

 

$

88,348,415 

 

$

92,087,572 

 

$

3,831,886 

 

$

(92,729)



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 $9,555,196 and $9,909,462 and commercial mortgage backed securities of $13,136,719 and $13,408,898 at March 31, 2020 and December 31, 2019, 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, 2020 and December 31, 2019. 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, 2020

 

December 31, 2019



 

 

 

 

12 Months

 

 

 

 

 

 

 

12 Months

 

 

 



 

< 12 Months

 

& Greater

 

Total

 

< 12 Months

 

& Greater

 

Total

Fixed Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

 —

 

$

 —

 

$

 —

 

$

 —

 

$

699,391 

 

$

699,391 

Amortized cost

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

700,318 

 

 

700,318 

Unrealized loss

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(927)

 

 

(927)

MBS/ABS/CMBS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

12,453,701 

 

 

1,894,665 

 

 

14,348,366 

 

 

6,398,581 

 

 

5,056,732 

 

 

11,455,313 

Amortized cost

 

 

12,969,112 

 

 

2,056,138 

 

 

15,025,250 

 

 

6,420,488 

 

 

5,087,484 

 

 

11,507,972 

Unrealized loss

 

 

(515,411)

 

 

(161,473)

 

 

(676,884)

 

 

(21,907)

 

 

(30,752)

 

 

(52,659)

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

6,799,881 

 

 

 —

 

 

6,799,881 

 

 

1,396,706 

 

 

 —

 

 

1,396,706 

Amortized cost

 

 

7,433,279 

 

 

 —

 

 

7,433,279 

 

 

1,406,183 

 

 

 —

 

 

1,406,183 

Unrealized loss

 

 

(633,398)

 

 

 —

 

 

(633,398)

 

 

(9,477)

 

 

 —

 

 

(9,477)

Municipal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

3,446,768 

 

 

 —

 

 

3,446,768 

 

 

1,969,468 

 

 

 —

 

 

1,969,468 

Amortized cost

 

 

3,537,171 

 

 

 —

 

 

3,537,171 

 

 

1,999,134 

 

 

 —

 

 

1,999,134 

Unrealized loss

 

 

(90,403)

 

 

 —

 

 

(90,403)

 

 

(29,666)

 

 

 —

 

 

(29,666)

Subtotal, fixed income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

22,700,350 

 

 

1,894,665 

 

 

24,595,015 

 

 

9,764,755 

 

 

5,756,123 

 

 

15,520,878 

Amortized cost

 

 

23,939,562 

 

 

2,056,138 

 

 

25,995,700 

 

 

9,825,805 

 

 

5,787,802 

 

 

15,613,607 

Unrealized loss

 

 

(1,239,212)

 

$

(161,473)

 

$

(1,400,685)

 

$

(61,050)

 

$

(31,679)

 

$

(92,729)

Redeemable preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

71,588 

 

 

 —

 

 

71,588 

 

 

 —

 

 

 —

 

 

 —

Cost

 

 

72,225 

 

 

 —

 

 

72,225 

 

 

 —

 

 

 —

 

 

 —

Unrealized loss

 

 

(637)

 

 

 —

 

 

(637)

 

 

 —

 

 

 —

 

 

 —

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

22,771,938 

 

 

1,894,665 

 

 

24,666,603 

 

 

9,764,755 

 

 

5,756,123 

 

 

15,520,878 

Amortized cost

 

 

24,011,787 

 

 

2,056,138 

 

 

26,067,925 

 

 

9,825,805 

 

 

5,787,802 

 

 

15,613,607 

Unrealized loss

 

$

(1,239,849)

 

$

(161,473)

 

$

(1,401,322)

 

$

(61,050)

 

$

(31,679)

 

$

(92,729)



The fixed income portfolio contained 57 securities in an unrealized loss position as of March 31, 2020. Of these 57 securities, 4 have been in an unrealized loss position for 12 consecutive months or longer and represent $161,473 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, 2020. For all fixed income securities at a loss at March 31, 2020, 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, 2020 and December 31, 2019.



~  11  ~


 

Table of Contents

 

UNREALIZED GAINS AND LOSSES ON EQUITY SECURITIES



Net unrealized losses for the three months ended March 31, 2020 for equity securities held as of March 31, 2020 was $3,689,347.  Net unrealized gains for the three months ended March 31, 2019 for equity securities held as of March 31, 2019 was $1,840,418.



Other Invested Assets



Other invested assets includes 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, the carrying amount approximates fair value.



In addition, other invested assets includes privately held investments of $305,000, and notes issued for $625,000 and $650,000 on July 30, 2019 and January 28, 2020, respectively. Both notes bear interest at 6.5%, and are amortized over 20 years with a balloon payment due July 30, 2029.



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.