33121 ICCH 10Q1_Taxonomy2020

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 Mach 31, 2021

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)

_______________________________

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

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 

The number of shares of the registrant’s common stock outstanding as of May 3, 2021 was 3,298,355.

 



 

 


 

Table of Contents

 

Table of Contents





 

 



 

Page 

PART I

 

 

Item 1.

Financial Statements

 



Condensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 2020



Condensed Consolidated Statements of Earnings and Comprehensive Earnings for the Three-Month Periods Ended March 31, 2021 and 2020 (unaudited)



Condensed Consolidated Statements of Stockholders Equity for the Three-Month Periods Ended March 31, 2021 and 2020 (unaudited)



Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2021 and 2020 (unaudited)



Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.

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

18 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

30 

Item 4.

Controls and Procedures

31 



 

 

PART II

 

 

Item 1.

Legal Proceedings

31 

Item 1A.

Risk Factors

31 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32 

Item 3.

Default Upon Senior Securities

32 

Item 4.

Mine Safety Disclosures

32 

Item 5.

Other Information

32 

Item 6.

Exhibits

33 



 

 

Signatures 

34 



 

~  2  ~


 

Table of Contents

 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets





 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of



 

March 31,

 

December 31,



 

2021

 

2020



 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

 

Investments and cash:

 

 

 

 

 

 

Fixed maturity securities (amortized cost - $97,695,883 at 3/31/2021 and $98,753,027 at 12/31/2020)

 

$

101,865,040 

 

$

105,740,566 

Common stocks at fair value

 

 

18,404,167 

 

 

14,724,814 

Preferred stocks at fair value

 

 

1,654,530 

 

 

1,683,892 

Other invested assets

 

 

1,777,792 

 

 

1,772,867 

Property held for investment, at cost, net of accumulated depreciation of $464,847 at 3/31/2021 and $465,364 at 12/31/2020

 

 

5,148,152 

 

 

5,399,826 

Cash and cash equivalents

 

 

5,556,479 

 

 

6,598,842 

Total investments and cash

 

 

134,406,160 

 

 

135,920,807 

Accrued investment income

 

 

700,153 

 

 

660,793 

Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $150,000 at 3/31/2021 and 12/31/2020

 

 

22,598,051 

 

 

23,506,171 

Ceded unearned premiums

 

 

861,914 

 

 

860,905 

Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $0 at 3/31/2021 and 12/31/2020

 

 

14,011,159 

 

 

13,019,865 

Federal income taxes

 

 

338,908 

 

 

372,986 

Deferred policy acquisition costs, net

 

 

5,721,277 

 

 

5,429,620 

Property and equipment, at cost, net of accumulated depreciation of $6,196,657 at 3/31/2021 and $6,079,728 at 12/31/2020

 

 

2,818,244 

 

 

2,860,331 

Other assets

 

 

1,287,738 

 

 

1,307,794 

Total assets

 

$

182,743,604 

 

$

183,939,272 

Liabilities and Equity

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Unpaid losses and settlement expenses

 

$

61,807,968 

 

$

61,575,666 

Unearned premiums

 

 

30,467,894 

 

 

29,788,834 

Reinsurance balances payable

 

 

347,506 

 

 

371,195 

Corporate debt

 

 

13,462,614 

 

 

13,465,574 

Accrued expenses

 

 

3,021,753 

 

 

3,472,511 

Income taxes - deferred

 

 

910,957 

 

 

1,231,271 

Other liabilities

 

 

944,113 

 

 

1,290,532 

Total liabilities

 

 

110,962,805 

 

 

111,195,583 

Equity:

 

 

 

 

 

 

Common stock1  

 

 

35,000 

 

 

35,000 

Treasury stock, at cost2

 

 

(3,095,065)

 

 

(3,153,838)

Additional paid-in capital

 

 

32,765,565 

 

 

32,780,436 

Accumulated other comprehensive earnings, net of tax

 

 

3,293,569 

 

 

5,520,091 

Retained earnings

 

 

41,302,055 

 

 

40,140,115 

Less: Unearned Employee Stock Ownership Plan shares at cost3

 

 

(2,520,325)

 

 

(2,578,115)

Total equity

 

 

71,780,799 

 

 

72,743,689 

Total liabilities and equity

 

$

182,743,604 

 

$

183,939,272 



1Par value $0.01; authorized: 2021 - 10,000,000 shares and 202010,000,000 shares; issued: 20213,500,000 shares and 20203,500,000 shares; outstanding: 2021  3,295,255 and 2020 - 3,291,125 shares.

22021204,745 shares and 2020208,875 shares

32021  –252,032 shares and 2020  –257,811 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,



 

2021

 

2020

Net premiums earned

 

$

12,048,713 

 

$

13,013,989 

Net investment income

 

 

801,406 

 

 

835,400 

Net realized investment gains

 

 

186,709 

 

 

95,632 

Net unrealized gains (losses) on equity securities

 

 

876,316 

 

 

(3,689,347)

Other income

 

 

46,716 

 

 

50,198 

Consolidated revenues

 

 

13,959,860 

 

 

10,305,872 

Losses and settlement expenses

 

 

7,802,706 

 

 

7,842,082 

Policy acquisition costs and other operating expenses

 

 

4,467,578 

 

 

4,764,974 

Interest expense on debt

 

 

53,702 

 

 

35,328 

General corporate expenses

 

 

163,982 

 

 

174,421 

Total expenses

 

 

12,487,968 

 

 

12,816,805 

Earnings (loss) before income taxes

 

 

1,471,892 

 

 

(2,510,933)

Total income tax expense (benefit)

 

 

309,951 

 

 

(537,637)

Net earnings (loss)

 

$

1,161,941 

 

$

(1,973,296)



 

 

 

 

 

 

Other comprehensive loss, net of tax

 

 

(2,226,522)

 

 

(1,710,846)

Comprehensive loss

 

$

(1,064,581)

 

$

(3,684,142)



 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

Basic net earnings (loss) per share

 

$

0.38 

 

$

(0.65)

Diluted:

 

 

 

 

 

 

Diluted net earnings (loss) per share

 

$

0.38 

 

$

(0.65)



 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

Basic

 

 

3,034,233 

 

 

3,016,062 

Diluted

 

 

3,044,479 

 

 

3,020,458 



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, 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 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Common stock

 

Treasury stock

 

Unearned ESOP

 

Additional paid-in capital

 

Retained
earnings

 

Accumulated
other
comprehensive
earnings (loss)

 

Total equity

Balance, January 1, 2021

 

$

35,000 

 

$

(3,153,838)

 

$

(2,578,115)

 

$

32,780,436 

 

$

40,140,115 

 

$

5,520,091 

 

$

72,743,689 

Purchase of treasury stock

 

 

 —

 

 

(19,174)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(19,174)

Net earnings

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,161,941 

 

 

 —

 

 

1,161,941 

Other comprehensive loss, net of tax

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(2,226,522)

 

 

(2,226,522)

Restricted stock unit expense

 

 

 —

 

 

77,947 

 

 —

 

 

(39,831)

 

 

 —

 

 

 —

 

 

38,116 

ESOP compensation expense

 

 

 —

 

 

 —

 

 

57,790 

 

 

24,960 

 

 

 —

 

 

 —

 

 

82,750 

Balance, March 31, 2021

 

$

35,000 

 

$

(3,095,065)

 

$

(2,520,325)

 

$

32,765,565 

 

$

41,302,055 

 

$

3,293,569 

 

$

71,780,799 



1Amount represents restricted stock units that have fully vested in the period



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,



2021

 

2020

Cash flows from operating activities:

 

 

 

 

 

Net earnings (loss)

$

1,161,941 

 

$

(1,973,296)

Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities

 

 

 

 

 

Net realized investment gains

 

(186,709)

 

 

(95,632)

Net unrealized (gains) losses on equity securities

 

(876,316)

 

 

3,689,347 

Depreciation

 

159,680 

 

 

167,079 

Deferred income tax

 

271,546 

 

 

(776,673)

Amortization of bond premium and discount

 

67,997 

 

 

46,198 

Stock-based compensation expense

 

120,866 

 

 

112,695 

Change in:

 

 

 

 

 

Accrued investment income

 

(39,360)

 

 

(49,265)

Premiums and reinsurance balances receivable

 

908,120 

 

 

145,030 

Ceded unearned premiums

 

(1,009)

 

 

16,232 

Reinsurance balances payable

 

(23,689)

 

 

(22,323)

Reinsurance balances recoverable

 

(991,294)

 

 

(282,252)

Deferred policy acquisition costs

 

(291,657)

 

 

(111,309)

Unpaid losses and settlement expenses

 

232,302 

 

 

1,435,349 

Unearned premiums

 

679,060 

 

 

(575,696)

Accrued expenses

 

(450,758)

 

 

(1,249,696)

Current federal income tax

 

34,078 

 

 

3,497 

Other

 

(292,180)

 

 

(316,700)

Net cash provided by operating activities

 

482,618 

 

 

162,585 

Cash flows from investing activities:

 

 

 

 

 

Purchases of:

 

 

 

 

 

Fixed maturity securities, available-for-sale

 

(2,494,500)

 

 

(5,105,043)

Common stocks

 

(3,310,389)

 

 

(592,329)

Preferred stocks

 

(81,953)

 

 

(1,548,172)

Other invested assets

 

 —

 

 

(821,500)

Property held for investment

 

(30,018)

 

 

(28,573)

Property and equipment

 

(80,497)

 

 

(108,096)

Proceeds from sales, maturities and calls of:

 

 

 

 

 

Fixed maturity securities, available-for-sale

 

3,484,432 

 

 

3,802,593 

Common stocks

 

687,015 

 

 

524,818 

Preferred stocks

 

78,469 

 

 

91,838 

Property held for investment

 

243,588 

 

 

 —

Property and equipment

 

1,007 

 

 

3,835 

Net cash used in investing activities

 

(1,502,846)

 

 

(3,780,629)

Cash flows from financing activities:

 

 

 

 

 

Proceeds from loans

 

 —

 

 

6,000,000 

Repayments of borrowed funds

 

(2,961)

 

 

(2,522)

Purchase of treasury stock

 

(19,174)

 

 

 —

Net cash (used in) provided by financing activities

 

(22,135)

 

 

5,997,478 

Net (decrease) increase in cash and cash equivalents

 

(1,042,363)

 

 

2,379,434 

Cash and cash equivalents at beginning of year

 

6,598,842 

 

 

6,626,585 

Cash and cash equivalents at end of period

$

5,556,479 

 

$

9,006,019 

Supplemental information:

 

 

 

 

 

Interest paid

$

52,600 

 

$

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 that is the parent company of ICC Properties, LLC, a real estate series limited liability company.  Both ICC and ICC Properties, LLC are Illinois domiciled companies.



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 Arizona, Colorado, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Ohio, Pennsylvania, and Wisconsin and markets through independent agents. Approximately 24.8% and 26.5% of the premium is written in Illinois for the three months ended March 31, 2021 and 2020, 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, 2020 (the “2020 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, 2021, 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 2020 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 2020 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, 2021 and 2020, the Company recognized no impairments.  Property and equipment are summarized as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of



 

March 31,

 

December 31,



 

2021

 

2020

Automobiles

 

$

530,723 

 

$

530,722 

Furniture and fixtures

 

 

488,642 

 

 

491,766 

Computer equipment and software

 

 

4,046,770 

 

 

3,971,272 

Home office

 

 

3,948,766 

 

 

3,946,299 

Total cost

 

 

9,014,901 

 

 

8,940,059 

Accumulated depreciation

 

 

(6,196,657)

 

 

(6,079,728)

Net property and equipment

 

$

2,818,244 

 

$

2,860,331 



F.     COMPREHENSIVE EARNINGS



Comprehensive earnings (loss) include net earnings (loss) 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 earnings, as shown in the consolidated statements of earnings and comprehensive earnings, is net of tax (benefit) of  $(591,860) and $(454,782) for the three months ended March 31, 2021 and 2020, respectively.



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





 

 

 

 

 

 

 



 

Three-Months Ended March 31,

 



 

2021

 

2020

 

Beginning balance

 

$

5,520,091 

 

$

2,953,936 

 



 

 

 

 

 

 

 

Other comprehensive loss before reclassification

 

 

(2,225,503)

 

 

(1,526,960)

 

Amount reclassified from accumulated other comprehensive loss

 

 

(1,019)

 

 

(183,886)

 

Net current period other comprehensive loss

 

 

(2,226,522)

 

 

(1,710,846)

 

Ending balance

 

$

3,293,569 

 

$

1,243,090 

 



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,



 

2021

 

2020



 

Pre-tax

 

Tax

 

After-tax

 

Pre-tax

 

Tax

 

After-tax

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains and losses on AFS investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding losses arising during the period

 

$

(2,817,092)

 

$

591,589 

 

$

(2,225,503)

 

$

(1,932,861)

 

$

405,901 

 

$

(1,526,960)

Reclassification adjustment for gains included in net earnings

 

 

(1,290)

 

 

271 

 

 

(1,019)

 

 

(232,767)

 

 

48,881 

 

 

(183,886)

Total other comprehensive loss

 

$

(2,818,382)

 

$

591,860 

 

$

(2,226,522)

 

$

(2,165,628)

 

$

454,782 

 

$

(1,710,846)



~  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

 

2021

 

2020

 

where Net Earnings is Presented

Unrealized (gains) on AFS investments:

 

 

 

 

 

 

 

 



 

$

(1,290)

 

$

(232,767)

 

Net realized investment (gains)



 

 

271 

 

 

48,881 

 

Income tax expense

Total reclassification adjustment, net of tax

 

$

(1,019)

 

$

(183,886)

 

 

 

G.     RISKS AND UNCERTAINTIES



Certain risks and uncertainties are inherent to our day-to-day operations. Adverse changes in the economy could lower demand for our insurance products or negatively impact our investment results, both of which could have an adverse effect on the revenue and profitability of our operations. The ongoing COVID-19 pandemic has resulted in, and could continue to result in, significant disruptions in economic activity and financial markets. The cumulative effects of COVID-19 on the Company, and the effect of any other public health outbreak, cannot be predicted, but could reduce demand for our insurance policies, result in increased level of losses, settlement expenses or other operating costs, or reduce the market value of invested assets held by the Company.



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)

2021

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

$

3,484,432 

 

$

1,319 

 

$

(29)

 

$

1,290 

Common stocks

 

 

687,015 

 

 

212,361 

 

 

(32,397)

 

 

179,964 

Preferred stocks

 

 

78,469 

 

 

5,455 

 

 

 —

 

 

5,455 

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)



~  9  ~


 

Table of Contents

 







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

The amortized cost and estimated fair value of fixed income securities at March 31, 2021, by contractual maturity, are shown as follows:





 

 

 

 

 

 



 

 

 

 

 

 



 

Amortized Cost

 

Fair Value

Due in one year or less

 

$

1,849,923 

 

$

1,888,670 

Due after one year through five years

 

 

20,417,844 

 

 

21,645,715 

Due after five years through 10 years

 

 

15,114,224 

 

 

16,148,886 

Due after 10 years

 

 

21,536,839 

 

 

22,722,744 

Asset and mortgage backed securities without a specific due date

 

 

38,561,248 

 

 

39,224,101 

Redeemable preferred stocks

 

 

215,805 

 

 

234,923 

Total fixed maturity securities

 

$

97,695,883 

 

$

101,865,040 



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



The following table is a schedule of cost or amortized cost and estimated fair values of investments in securities classified as available for sale at March 31, 2021 and December 31, 2020:  









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Gross Unrealized



 

Amortized Cost

 

Fair Value

 

Gains

 

Losses

2021

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

1,352,581 

 

$

1,364,297 

 

$

23,227 

 

$

(11,511)

MBS/ABS/CMBS

 

 

38,561,248 

 

 

39,224,101 

 

 

977,305 

 

 

(314,452)

Corporate

 

 

40,104,876 

 

 

42,735,613 

 

 

2,835,297 

 

 

(204,560)

Municipal

 

 

17,461,373 

 

 

18,306,106 

 

 

955,785 

 

 

(111,052)

Redeemable preferred stock

 

 

215,805 

 

 

234,923 

 

 

19,118 

 

 

 —

Total fixed maturity securities

 

$

97,695,883 

 

$

101,865,040 

 

$

4,810,732 

 

$

(641,575)







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Gross Unrealized



 

Amortized Cost

 

Fair Value

 

Gains

 

Losses

2020

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

$

1,352,758 

 

$

1,385,406 

 

$

33,336 

 

$

(688)

MBS/ABS/CMBS

 

 

40,509,172 

 

 

41,743,304 

 

 

1,367,411 

 

 

(133,279)

Corporate

 

 

39,186,671 

 

 

43,580,743 

 

 

4,429,000 

 

 

(34,928)

Municipal

 

 

17,488,621 

 

 

18,788,674 

 

 

1,316,358 

 

 

(16,305)

Redeemable preferred stock

 

 

215,805 

 

 

242,439 

 

 

26,634 

 

 

 —

Total fixed maturity securities

 

$

98,753,027 

 

$

105,740,566 

 

$

7,172,739 

 

$

(185,200)



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 $14,865,024 and $16,220,343 and commercial mortgage backed securities of $12,452,036 and $12,721,455 at March 31, 2021 and December 31, 2020, respectively.  

~  10  ~


 

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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 March 31, 2021 and December 31, 2020. 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, 2021

 

December 31, 2020



 

 

 

 

12 Months

 

 

 

 

 

 

 

12 Months

 

 

 



 

< 12 Months

 

& Greater

 

Total

 

< 12 Months

 

& Greater

 

Total

Fixed Maturity Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

$

689,063 

 

$

 —

 

$

689,063 

 

$

299,391 

 

$

 —

 

$

299,391 

Amortized cost

 

 

700,574 

 

 

 —

 

 

700,574 

 

 

300,078 

 

 

 —

 

 

300,078 

Unrealized loss

 

 

(11,511)

 

 

 —

 

 

(11,511)

 

 

(688)

 

 

 —

 

 

(688)

MBS/ABS/CMBS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

7,512,704 

 

 

1,820,824 

 

 

9,333,528 

 

 

7,120,339 

 

 

2,010,434 

 

 

9,130,773 

Amortized cost

 

 

7,711,500 

 

 

1,936,480 

 

 

9,647,980 

 

 

7,236,360 

 

 

2,027,692 

 

 

9,264,052 

Unrealized loss

 

 

(198,796)

 

 

(115,656)

 

 

(314,452)

 

 

(116,021)

 

 

(17,258)

 

 

(133,279)

Corporate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

6,201,266 

 

 

233,125 

 

 

6,434,391 

 

 

1,739,691 

 

 

 —

 

 

1,739,691 

Amortized cost

 

 

6,390,010 

 

 

248,941 

 

 

6,638,951 

 

 

1,774,619 

 

 

 —

 

 

1,774,619 

Unrealized loss

 

 

(188,744)

 

 

(15,816)

 

 

(204,560)

 

 

(34,928)

 

 

 —

 

 

(34,928)

Municipal

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

3,457,673 

 

 

245,545 

 

 

3,703,218 

 

 

756,678 

 

 

 —

 

 

756,678 

Amortized cost

 

 

3,565,111 

 

 

249,159 

 

 

3,814,270 

 

 

772,984 

 

 

 —

 

 

772,984 

Unrealized loss

 

 

(107,438)

 

 

(3,614)

 

 

(111,052)

 

 

(16,306)

 

 

 —

 

 

(16,306)

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair value

 

 

17,860,706 

 

 

2,299,494 

 

 

20,160,200 

 

 

9,916,099 

 

 

2,010,434 

 

 

11,926,533 

Amortized cost

 

 

18,367,195 

 

 

2,434,580 

 

 

20,801,775 

 

 

10,084,041 

 

 

2,027,692 

 

 

12,111,733 

Unrealized loss

 

$

(506,489)

 

$

(135,086)

 

$

(641,575)

 

$

(167,942)

 

$

(17,258)

 

$

(185,200)



The fixed income portfolio contained 43 securities in an unrealized loss position as of March 31, 2021. Of these 43 securities, 6 have been in an unrealized loss position for 12 consecutive months or longer and represent $135,086 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, 2021. For all fixed income securities at a loss at March 31, 2021, 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 at maturity. The fixed income securities in an unrealized loss position were not other-than-temporarily impaired at March 31, 2021 and December 31, 2019.



UNREALIZED GAINS AND LOSSES ON EQUITY SECURITIES



Net unrealized gains for the three months ended March 31, 2021 for equity securities held as of March 31, 2021  were $876,316. Net unrealized (losses) for the three months ended March 31, 2020 for equity securities held as of March 31, 2020 were $(3,689,347).



Other Invested Assets



Other invested assets include membership in the Federal Home Loan Bank of Chicago (FHLBC), which occurred in February 2018. Our $200,000 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 include privately held investments of $204,400, and notes issued. Two of the notes, issued for $625,000 and $650,000 on July 30, 2019 and January 28, 2020, respectively,  bear interest at 6.5% and are amortized over 20 years with a balloon payment due July 30, 2029. A third note issued for $94,000 on October 30, 2020, bears interest at 6.0% and is amortized over 29 years with monthly payments due beginning July 31, 2021. As of March 31, 2021, this note has

~  11  ~


 

Table of Contents

 

$4,000 in accrued escrow and interest receivable. The Company had no allowance recorded related to uncollectible notes receivables at March 31, 2021 and December 31, 2020.



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), Commercial Mortgage-backed Securities (CMBS) 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, CMBS, CMO and ABS with corroborated and observable inputs are classified as Level 2. All MBS, CMBS, 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.



Due to the relatively short-term nature of cash and cash equivalents, their carrying amounts are reasonable estimates of fair value. Other invested assets as well as 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.



~  12  ~


 

Table of Contents

 

Assets measured at fair value on a recurring basis as of March 31, 2021, are summarized below:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

Significant

 

 

 

 

 

 



 

Quoted in Active

 

Other

 

Significant

 

 

 



 

Markets for

 

Observable

 

Unobservable

 

 

 



 

Identical Assets

 

Inputs

 

Inputs

 

 

 



 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Total

AFS securities

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury

 

$

1,364,297 

 

$

 —

 

$

 —

 

$

1,364,297 

MBS/ABS/CMBS

 

 

 —

 

 

39,224,101 

 

 

 —

 

 

39,224,101 

Corporate

 

 

 —

 

 

42,735,612 

 

 

 —

 

 

42,735,612 

Municipal

 

 

 —

 

 

18,306,106