UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________
FORM
_______________________________
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
ICC Holdings, Inc.
(Exact name of registrant as specified in its charter)
_______________________________
| (State or other jurisdiction of | (I.R.S. Employer | |
| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
_______________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading | Name of each exchange on which registered |
| | | The |
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.
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).
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 ☐ | |
| | 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
The number of shares of the registrant’s common stock outstanding as of November 6, 2023 was
| Page |
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| Item 1 |
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| Condensed Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 |
3 | ||
| 4 | |||
| 5 | |||
| 6 | |||
| 7 | |||
| Notes to Unaudited Condensed Consolidated Financial Statements |
8 | ||
| Item 2 |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 | |
| Item 3 |
35 | ||
| Item 4 |
36 | ||
| Item 1 |
37 | ||
| Item 1A |
37 | ||
| Item 2 |
37 | ||
| Item 3 |
37 | ||
| Item 4 |
37 | ||
| Item 5 |
37 | ||
| Item 6 |
38 | ||
| 39 | |||
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
ICC Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
| As of |
||||||||
| September 30, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
||||||||
| Assets: |
||||||||
| Investments and cash: |
||||||||
| Fixed maturity securities (amortized cost of $112,865,702 at 9/30/2023 and $104,580,681 at 12/31/2022) |
$ | $ | ||||||
| Common stocks at fair value |
||||||||
| Preferred stocks at fair value |
||||||||
| Other invested assets |
||||||||
| Property held for investment, at cost, net of accumulated depreciation of $634,738 at 9/30/2023 and $609,282 at 12/31/2022 |
||||||||
| Cash and cash equivalents |
||||||||
| Total investments and cash |
||||||||
| Accrued investment income |
||||||||
| Premiums and reinsurance balances receivable, net of allowances for credit losses of $50,000 at 9/30/2023 and $50,000 at 12/31/2022 |
||||||||
| Ceded unearned premiums |
||||||||
| Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for credit losses of $115,000 at 9/30/2023 and $0 at 12/31/2022 |
||||||||
| Federal income taxes |
||||||||
| Deferred policy acquisition costs, net |
||||||||
| Property and equipment, at cost, net of accumulated depreciation of $6,917,014 at 9/30/2023 and $6,590,602 at 12/31/2022 |
||||||||
| Other Assets, net of allowances for credit losses of $54,112 at 9/30/2023 and $0 at 12/31/2022 |
||||||||
| Total assets |
$ | $ | ||||||
| Liabilities: |
||||||||
| Unpaid losses and settlement expenses |
$ | $ | ||||||
| Unearned premiums |
||||||||
| Reinsurance balances payable |
||||||||
| Corporate debt |
||||||||
| Accrued expenses |
||||||||
| Other liabilities |
||||||||
| Total liabilities |
||||||||
| Equity: |
||||||||
| Common stock1 |
||||||||
| Treasury stock, at cost2 |
( |
) | ( |
) | ||||
| Additional paid-in capital |
||||||||
| Accumulated other comprehensive (loss), net of tax |
( |
) | ( |
) | ||||
| Retained earnings |
||||||||
| Less: Unearned Employee Stock Ownership Plan shares at cost3 |
( |
) | ( |
) | ||||
| Total equity |
||||||||
| Total liabilities and equity |
$ | $ | ||||||
1 Par value $0.01; authorized: 2023 - 10,000,000 shares and 2022 – 10,000,000 shares; issued: 2023 – 3,500,000 shares and 2022 – 3,500,000 shares; outstanding: 2023 – 3,139,598 and 2022 – 3,153,741 shares
2 2023 – 360,402 shares and 2022 – 346,259 shares
3 2023 – 193,408 shares and 2022 – 210,935 shares
See accompanying notes to consolidated financial statements.
ICC Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited)
| For the Three-Months Ended |
||||||||
| September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Net premiums earned |
$ | $ | ||||||
| Net investment income |
||||||||
| Net realized investment gains |
||||||||
| Net unrealized losses on equity securities |
( |
) | ( |
) | ||||
| Other income |
||||||||
| Consolidated revenues |
||||||||
| Losses and settlement expenses |
||||||||
| Policy acquisition costs and other operating expenses |
||||||||
| Interest expense on debt |
||||||||
| General corporate expenses |
||||||||
| Total expenses |
||||||||
| (Loss) earnings before income taxes |
( |
) | ||||||
| Total income tax (benefit) expense |
( |
) | ||||||
| Net (loss) earnings |
$ | ( |
) | $ | ||||
| Other comprehensive loss, net of tax |
( |
) | ( |
) | ||||
| Comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
| Earnings per share: |
||||||||
| Basic: |
||||||||
| Basic net (loss) earnings per share |
$ | ( |
) | $ | ||||
| Diluted: |
||||||||
| Diluted net (loss) earnings per share |
$ | ( |
) | $ | ||||
| Weighted average number of common shares outstanding: |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
See accompanying notes to consolidated financial statements.
ICC Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings and Comprehensive Earnings (Unaudited)
| For the Nine-Months Ended |
||||||||
| September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Net premiums earned |
$ | $ | ||||||
| Net investment income |
||||||||
| Net realized investment gains |
||||||||
| Net unrealized gains (losses) on equity securities |
( |
) | ||||||
| Other income |
||||||||
| Consolidated revenues |
||||||||
| Losses and settlement expenses |
||||||||
| Policy acquisition costs and other operating expenses |
||||||||
| Interest expense on debt |
||||||||
| General corporate expenses |
||||||||
| Total expenses |
||||||||
| Earnings (loss) before income taxes |
( |
) | ||||||
| Total income tax expense (benefit) |
( |
) | ||||||
| Net earnings (loss) |
$ | $ | ( |
) | ||||
| Other comprehensive loss, net of tax |
( |
) | ( |
) | ||||
| Comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
| Earnings per share: |
||||||||
| Basic: |
||||||||
| Basic net earnings (loss) per share |
$ | $ | ( |
) | ||||
| Diluted: |
||||||||
| Diluted net earnings (loss) per share |
$ | $ | ( |
) | ||||
| Weighted average number of common shares outstanding: |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
See accompanying notes to consolidated financial statements.
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, 2022 |
$ | $ | ( |
) | $ | ( |
) | $ | $ | $ | $ | |||||||||||||||||
| Purchase of treasury stock |
( |
) | ( |
) | ||||||||||||||||||||||||
| Net loss |
( |
) | ( |
) | ||||||||||||||||||||||||
| Other comprehensive loss, net of tax |
( |
) | ( |
) | ||||||||||||||||||||||||
| Restricted stock unit expense |
1 |
( |
) | |||||||||||||||||||||||||
| ESOP compensation expense |
||||||||||||||||||||||||||||
| Balance, September 30, 2022 |
$ | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||||||
| Common stock |
Treasury stock |
Unearned ESOP |
Additional paid-in capital |
Retained earnings |
Accumulated other comprehensive earnings (loss) | Total equity |
||||||||||||||||||||||
| Balance, January 1, 2023 |
$ | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||||||
| Cumulative adjustment for adoption of ASU 2016-13, net of tax |
( |
) | ( |
) | ||||||||||||||||||||||||
| Purchase of treasury stock |
( |
) | ( |
) | ||||||||||||||||||||||||
| Net earnings |
||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax |
( |
) | ( |
) | ||||||||||||||||||||||||
| Restricted stock unit expense |
1 |
|||||||||||||||||||||||||||
| ESOP compensation expense |
||||||||||||||||||||||||||||
| Balance, September 30, 2023 |
$ | $ | ( |
) | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||||||
1Amount represents restricted stock units that have fully vested in the period.
See accompanying notes to consolidated financial statements.
ICC Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
| Nine-Month Periods Ended September 30, |
||||||||
| 2023 |
2022 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net earnings (loss) |
$ | $ | ( |
) | ||||
| Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities |
||||||||
| Net realized investment gains |
( |
) | ( |
) | ||||
| Net unrealized (gains) losses on equity securities |
( |
) | ||||||
| Depreciation |
||||||||
| Deferred income tax |
( |
) | ( |
) | ||||
| Amortization of bond premium and discount |
||||||||
| Stock-based compensation expense |
||||||||
| Change in: |
||||||||
| Accrued investment income |
( |
) | ( |
) | ||||
| Premiums and reinsurance balances receivable |
( |
) | ( |
) | ||||
| Ceded unearned premiums |
( |
) | ||||||
| Reinsurance balances recoverable |
( |
) | ( |
) | ||||
| Deferred policy acquisition costs |
( |
) | ( |
) | ||||
| Unpaid losses and settlement expenses |
||||||||
| Unearned premiums |
||||||||
| Reinsurance balances payable |
( |
) | ( |
) | ||||
| Accrued expenses |
( |
) | ( |
) | ||||
| Current federal income tax |
( |
) | ( |
) | ||||
| Other |
( |
) | ||||||
| Net cash provided by operating activities |
||||||||
| Cash flows from investing activities: |
||||||||
| Purchases of: |
||||||||
| Fixed maturity securities |
( |
) | ( |
) | ||||
| Common stocks |
( |
) | ( |
) | ||||
| Preferred stocks |
( |
) | ( |
) | ||||
| Other invested assets |
( |
) | ( |
) | ||||
| Property held for investment |
( |
) | ( |
) | ||||
| Property and equipment |
( |
) | ( |
) | ||||
| Proceeds from sales, maturities and calls of: |
||||||||
| Fixed maturity securities |
||||||||
| Common stocks |
||||||||
| Preferred stocks |
||||||||
| Other invested assets |
||||||||
| Property held for investment |
||||||||
| Property and equipment |
||||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
||||||||
| Proceeds from loans |
||||||||
| Repayments of borrowed funds |
( |
) | ||||||
| Purchase of treasury stock |
( |
) | ( |
) | ||||
| Net cash used in financing activities |
( |
) | ( |
) | ||||
| Net decrease in cash and cash equivalents |
( |
) | ( |
) | ||||
| Cash and cash equivalents at beginning of year |
||||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental information: |
||||||||
| Federal income tax paid |
$ | $ | ||||||
| Interest paid |
$ | $ | ||||||
See accompanying notes to consolidated financial statements.
Notes to Unaudited Condensed Consolidated Financial Statements
| 1. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| A. | DESCRIPTION OF BUSINESS |
ICC Holdings, Inc. (the Company) 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; Southern Hospitality Education, LLC, dba Katkin, a full-service food safety and education company; and Illinois Casualty Company (ICC), an operating insurance company and parent company of ICC Properties, LLC, a real estate series limited liability company. Both ICC and ICC Properties, LLC are Illinois domiciled entities.
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, Utah, and Wisconsin and markets through independent agents. Approximately
| |
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, 2022 (the “2022 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, 2023 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 |
On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 was issued to improve the recognition and measurement of credit losses and to provide more decision-useful information about those losses. This new impairment model is based on expected losses rather than incurred losses. ASU 2016-13 requires that a financial asset measured at amortized cost be presented at the net amount expected to be collected by means of an allowance for credit losses that is included in net earnings. Credit losses relating to available-for-sale debt securities are also required to be recorded through a reversible allowance for credit losses but is limited to the amount by which fair value is less than amortized cost. The Company applied this standard to fixed maturity securities, premiums and reinsurance balances receivable, reinsurance balances recoverable on unpaid losses and settlement expenses, and other assets using the loss-rate method. In total, the cumulative-effect adjustment made to the financials as of the beginning of the year resulted in a $
| D. | PROSPECTIVE ACCOUNTING STANDARDS |
There are no prospective accounting standards that would have a material impact on our financial statements as of September 30, 2023.
E. | PROPERTY AND EQUIPMENT |
Annually, the Company reviews the major asset classes of property and equipment held for impairment. For the periods ended September 30, 2023 and December 31, 2022, the Company recognized
| As of | ||||||||
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Automobiles | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Computer equipment and software | ||||||||
| Home office | ||||||||
| Total cost | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
F. | COMPREHENSIVE EARNINGS |
Comprehensive (loss) earnings 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 and comprehensive earnings, the Company used a
The following table presents changes in accumulated other comprehensive (loss) earnings for unrealized gains and losses on available-for-sale securities:
| Nine-Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Beginning balance | $ | ( | ) | $ | ||||
| Other comprehensive loss before reclassification | ( | ) | ( | ) | ||||
| Amount reclassified from accumulated other comprehensive loss | ||||||||
| Net current period other comprehensive loss | ( | ) | ( | ) | ||||
| Ending balance | $ | ( | ) | $ | ( | ) | ||
The following table illustrates the components of other comprehensive earnings (loss) for each period presented in the condensed consolidated interim financial statements.
| Three-Month Periods Ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| 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 | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Reclassification adjustment for losses included in net earnings | ( | ) | ||||||||||||||||||||||
| Total other comprehensive loss | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Nine-Month Periods Ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||
| Pre-tax | Tax | After-tax | Pre-tax | Tax | After-tax | |||||||||||||||||||
| Other comprehensive (loss) earnings, net of tax | ||||||||||||||||||||||||
| Unrealized gains and losses on AFS investments: | ||||||||||||||||||||||||
| Unrealized holding losses arising during the period | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Reclassification adjustment for losses included in net earnings | ( | ) | ( | ) | ||||||||||||||||||||
| Total other comprehensive loss | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
The following table provides the reclassifications from accumulated other comprehensive earnings for the periods presented:
| Amounts Reclassified from | |||||||||||||
| Accumulated Other Comprehensive (Earnings) Loss | |||||||||||||
| Three-Month Periods Ended | Nine-Month Periods Ended | ||||||||||||
| Details about Accumulated Other | September 30, | September 30, | Affected Line Item in the Statement | ||||||||||
| Comprehensive (Earnings) Loss Component | 2023 | 2022 | 2023 | 2022 | where Net Earnings is Presented | ||||||||
| Unrealized losses on AFS investments: | |||||||||||||
| $ | $ | $ | $ | Net realized investment losses (gains)
| |||||||||
| ( | ) | ( | ) | ( | ) | Income tax expense (benefit) | |||||||
| Total reclassification adjustment, net of tax | $ | $ | $ | $ | |||||||||
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. War, terrorism, supply chain disruptions, labor shortages and tightening, inflation and related monetary policy responses, and recession fears are also causing volatility and disruptions in credit and capital markets, adverse developments or general investor sentiment regarding the value of our investment securities as a result of rising interest rates or otherwise, and the business prospects of the industry we serve. The cumulative effects of these events on the Company cannot be predicted, but could reduce demand for our insurance policies, result an 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 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 September 30, | ||||||||||||||||
| Net Realized | ||||||||||||||||
| Proceeds | Gains | Losses | Gains (Losses) | |||||||||||||
| 2023 | ||||||||||||||||
| Fixed maturity securities | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Common stocks | ( | ) | ||||||||||||||
| Preferred stocks | ||||||||||||||||
| 2022 | ||||||||||||||||
| Fixed maturity securities | $ | $ | $ | $ | ||||||||||||
| Common stocks | ( | ) | ||||||||||||||
| Preferred stocks | ( | ) | ( | ) | ||||||||||||
| For the Nine-Months Ended September 30, | ||||||||||||||||
| Net Realized | ||||||||||||||||
| Proceeds | Gains | Losses | Gains (Losses) | |||||||||||||
| 2023 | ||||||||||||||||
| Fixed maturity securities | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Common stocks | ( | ) | ||||||||||||||
| Preferred stocks | ( | ) | ||||||||||||||
| 2022 | ||||||||||||||||
| Fixed maturity securities | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||
| Common stocks | ( | ) | ||||||||||||||
| Preferred stocks | ( | ) | ( | ) | ||||||||||||
The amortized cost and estimated fair value of fixed income securities at September 30, 2023, by contractual maturity, are shown as follows:
| Amortized Cost | Fair Value | |||||||
| Due in one year or less | $ | $ | ||||||
| Due after one year through five years | ||||||||
| Due after five years through 10 years | ||||||||
| Due after 10 years | ||||||||
| Asset and mortgage-backed securities without a specific due date | ||||||||
| Redeemable preferred stocks | ||||||||
| Total fixed maturity securities | $ | $ | ||||||
Expected maturities may differ from contractual maturities due to call provisions on some existing securities.
The following table is a schedule of amortized cost and estimated fair values of investments in securities classified as available for sale at September 30, 2023 and December 31, 2022:
| Gross Unrealized | ||||||||||||||||
| Amortized Cost | Fair Value | Gains | Losses | |||||||||||||
| 2023 | ||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||
| U.S. Treasury | $ | $ | $ | $ | ( | ) | ||||||||||
| MBS/ABS/CMBS | ( | ) | ||||||||||||||
| Corporate | ( | ) | ||||||||||||||
| Municipal | ( | ) | ||||||||||||||
| Redeemable preferred stock | ( | ) | ||||||||||||||
| Total fixed maturity securities | $ | $ | $ | $ | ( | ) | ||||||||||
| Gross Unrealized | ||||||||||||||||
| Amortized Cost | Fair Value | Gains | Losses | |||||||||||||
| 2022 | ||||||||||||||||
| Fixed maturity securities: | ||||||||||||||||
| U.S. Treasury | $ | $ | $ | $ | ( | ) | ||||||||||
| MBS/ABS/CMBS | ( | ) | ||||||||||||||
| Corporate | ( | ) | ||||||||||||||
| Municipal | ( | ) | ||||||||||||||
| Redeemable preferred stock | ( | ) | ||||||||||||||
| Total fixed maturity securities | $ | $ | $ | $ | ( | ) | ||||||||||
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 asset backed securities with fair values of $
ANALYSIS
The following tables display the total value of securities that were in an unrealized loss position as of September 30, 2023 and December 31, 2022. The tables segregate the securities based on type, noting the fair value, 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, 2023 | December 31, 2022 | |||||||||||||||||||||||
| 12 Months | 12 Months | |||||||||||||||||||||||
| < 12 Months | & Greater | Total | < 12 Months | & Greater | Total | |||||||||||||||||||
| Fixed Maturity Securities: | ||||||||||||||||||||||||
| U.S. Treasury | ||||||||||||||||||||||||
| Fair value | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Amortized cost | ||||||||||||||||||||||||
| Unrealized loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| MBS/ABS/CMBS | ||||||||||||||||||||||||
| Fair value | ||||||||||||||||||||||||
| Amortized cost | ||||||||||||||||||||||||
| Unrealized loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Corporate | ||||||||||||||||||||||||
| Fair value | ||||||||||||||||||||||||
| Amortized cost | ||||||||||||||||||||||||
| Unrealized loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Municipal | ||||||||||||||||||||||||
| Fair value | ||||||||||||||||||||||||
| Amortized cost | ||||||||||||||||||||||||
| Unrealized loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Redeemable preferred stock | ||||||||||||||||||||||||
| Fair value | ||||||||||||||||||||||||
| Amortized cost | ||||||||||||||||||||||||
| Unrealized loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Total | ||||||||||||||||||||||||
| Fair value | ||||||||||||||||||||||||
| Amortized cost | ||||||||||||||||||||||||
| Unrealized loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The fixed income portfolio contained
There were
UNREALIZED GAINS AND LOSSES ON EQUITY SECURITIES
Net unrealized losses and gains recognized during the three and nine months ended September 30, 2023 on equity securities held as of September 30, 2023 were unrealized losses of $
Other Invested Assets
Other invested assets as of September 30, 2023 and December 31, 2022 were $
As of September 30, 2023, privately held investments are comprised of a $
Notes receivable are carried at outstanding value plus accrued interest. As of September 30, 2023, most of the notes receivable bear interest between
The membership in the FHLBC is carried at cost.
| 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 include notes receivable, stock, a limited partnership, a SAFE investment, and a membership in the FHLBC. Notes receivable are carried at outstanding balance plus accrued interest. Stock and the limited partnership at fair value when available. The SAFE investment and the membership in FHLBC are carried at cost.
Assets measured at fair value on a recurring basis as of September 30, 2023, 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 | $ | $ | $ | $ | ||||||||||||
| MBS/ABS/CMBS | ||||||||||||||||
| Corporate | ||||||||||||||||
| Municipal | ||||||||||||||||
| Redeemable preferred stocks | ||||||||||||||||
| Total fixed maturity securities | ||||||||||||||||
| Equity securities | ||||||||||||||||
| Common stocks | — | |||||||||||||||
| Perpetual preferred stocks | ||||||||||||||||
| Total equity securities | ||||||||||||||||
| Total marketable investments measured at fair value | $ | $ | $ | $ | ||||||||||||
Assets measured at fair value on a recurring basis as of December 31, 2022, 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 | $ | $ | $ | $ | ||||||||||||
| MBS/ABS/CMBS | ||||||||||||||||
| Corporate | ||||||||||||||||
| Municipal | ||||||||||||||||
| Redeemable preferred stocks | ||||||||||||||||
| Total fixed maturity securities | ||||||||||||||||
| Equity securities | ||||||||||||||||
| Common stocks | ||||||||||||||||
| Perpetual preferred stocks | ||||||||||||||||
| Total equity securities | ||||||||||||||||
| Total marketable investments measured at fair value | $ | $ | $ | $ | ||||||||||||
As noted in the previous tables, the Company has
| 4. | DEBT |
Debt Obligation
Debt Obligations
The Company had $
The Company also has borrowing capacity of $
As part of the Company’s response to COVID-19, the Company obtained, in March 2020, a $
In May 2021, the Company entered into a $
In May 2022, the Company entered into a $
The Company has $
Revolving Line of Credit
We increased our revolving line of credit with a commercial bank from $
| 5. | REINSURANCE |
In the ordinary course of business, the Company assumes and cedes premiums and selected insured risks with other insurance companies, known as reinsurance. A large portion of the reinsurance is put into effect under contracts known as treaties and, in some instances, by negotiation on each individual risk (known as facultative reinsurance). In addition, there are several types of treaties including quota share, excess of loss and catastrophe reinsurance contracts that protect against losses over stipulated amounts arising from any one occurrence or event. The arrangements allow the Company to pursue greater diversification of business and serve to limit the maximum net loss to a single event, such as a catastrophe. Through the quantification of exposed policy limits in each region and the extensive use of computer-assisted modeling techniques, management monitors the concentration of risks exposed to catastrophic events.
Through the purchase of reinsurance, the Company also generally limits its net loss on any individual risk to a maximum of $
Premiums, written and earned, along with losses and settlement expenses incurred for the periods presented is summarized as follows:
| Three-Month Periods Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| WRITTEN | ||||||||
| Direct | $ | $ | ||||||
| Reinsurance assumed | ||||||||
| Reinsurance ceded | ( | ) | ( | ) | ||||
| Net | $ | $ | ||||||
| EARNED | ||||||||
| Direct | $ | $ | ||||||
| Reinsurance assumed | ||||||||
| Reinsurance ceded | ( | ) | ( | ) | ||||
| Net | $ | $ | ||||||
| LOSS AND SETTLEMENT EXPENSES INCURRED | ||||||||
| Direct | $ | $ | ||||||
| Reinsurance assumed | ||||||||
| Reinsurance ceded | ( | ) | ( | ) | ||||
| Net | $ | $ | ||||||
| Nine-Month Periods Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| WRITTEN | ||||||||
| Direct | $ | $ | ||||||
| Reinsurance assumed | ||||||||
| Reinsurance ceded | ( | ) | ( | ) | ||||
| Net | $ | $ | ||||||
| EARNED | ||||||||
| Direct | $ | $ | ||||||
| Reinsurance assumed | ||||||||
| Reinsurance ceded | ( | ) | ( | ) | ||||
| Net | $ | $ | ||||||
| LOSS AND SETTLEMENT EXPENSES INCURRED | ||||||||
| Direct | $ | $ | ||||||
| Reinsurance assumed | ||||||||
| Reinsurance ceded | ( | ) | ( | ) | ||||
| Net | $ | $ | ||||||
| 6. | UNPAID LOSSES AND SETTLEMENT EXPENSES |
The following table is a reconciliation of the Company’s unpaid losses and settlement expenses:
| For the Three-Months Ended | ||||||||
| September 30, | ||||||||
| (In thousands) | 2023 | 2022 | ||||||
| Unpaid losses and settlement expense - beginning of the period: | ||||||||
| Gross | $ | $ | ||||||
| Less: Ceded | ||||||||
| Net | ||||||||
| Increase in incurred losses and settlement expense: | ||||||||
| Current year | ||||||||
| Prior years | ||||||||
| Total incurred | ||||||||
| Deduct: Loss and settlement expense payments for claims incurred: | ||||||||
| Current year | ||||||||
| Prior years | ||||||||
| Total paid | ||||||||
| Net unpaid losses and settlement expense - end of the period | ||||||||
| Plus: Reinsurance recoverable on unpaid losses net of CECL | ||||||||
| Plus: CECL allowance for reinsurance recov | ||||||||