icch20240331_10q.htm
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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, 2024

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 9, 2024 was 3,142,973.

 

 

 
 

 

Table of Contents

 

       
       
     

Page

PART I

     

Item 1

Financial Statements

 
   

Condensed Consolidated Balance Sheets as of March 31, 2024 (unaudited) and December 31, 2023

3
   

Condensed Consolidated Statements of Earnings and Comprehensive Earnings for the Three Month Periods Ended March 31, 2024 and 2023 (unaudited)

4
   

Condensed Consolidated Statements of Earnings and Comprehensive Earnings for the Three Month Periods Ended March 31, 2024 and 2023 (unaudited)

4
   

Condensed Consolidated Statements of Stockholders Equity for the Three Month Periods Ended March 31, 2024 and 2023 (unaudited)

5
   

Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2024 and 2023 (unaudited)

6
   

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2

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

21

Item 3

Quantitative and Qualitative Disclosures about Market Risk

33

Item 4

Controls and Procedures

34
       

PART II

     

Item 1

Legal Proceedings

35

Item 1A

Risk Factors

35

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

35

Item 3

Default Upon Senior Securities

35

Item 4

Mine Safety Disclosures

35

Item 5

Other Information

35

Item 6

Exhibits

36
       

Signatures

    37

 

 

 

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

  

As of

 
  

March 31,

  

December 31,

 
  

2024

  

2023

 
   (Unaudited)     

Assets:

        

Investments and cash:

        

Fixed maturity securities (amortized cost of $118,359,809 at 3/31/2024 and $119,336,041 at 12/31/2023)

 $109,168,285  $110,955,697 

Common stocks at fair value

  13,369,954   12,191,621 

Preferred stocks at fair value

  3,046,812   2,896,296 

Other invested assets, net of allowances for credit losses of $39,000 at 3/31/2024 and $39,000 at 12/31/2023

  9,040,528   8,898,409 

Property held for investment, at cost, net of accumulated depreciation of $728,443 at 3/31/2024 and $682,402 at 12/31/2023

  6,115,025   5,910,864 

Cash and cash equivalents

  7,026,999   1,478,135 

Total investments and cash

  147,767,603   142,331,022 

Accrued investment income

  962,242   915,156 

Premiums and reinsurance balances receivable, net of allowances for credit losses of $136,000 at 3/31/2024 and $143,000 at 12/31/2023

  36,450,702   37,220,433 

Ceded unearned premiums

  724,172   755,099 

Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for credit losses of $88,000 at 3/31/2024 and $82,000 at 12/31/2023

  13,738,899   12,736,579 

Federal income taxes

  2,386,403   2,775,366 

Deferred policy acquisition costs, net

  8,643,538   8,552,459 

Property and equipment, at cost, net of accumulated depreciation of $7,109,013 at 3/31/2024 and $6,990,076 at 12/31/2023

  3,363,731   3,325,322 

Other Assets, net of allowances for credit losses of $5,000 at 3/31/2024 and $5,000 at 12/31/2023

  2,395,727   2,405,577 

Total assets

 $216,433,017  $211,017,013 
         

Liabilities:

        

Unpaid losses and settlement expenses

 $77,650,986  $71,919,585 

Unearned premiums

  47,450,348   47,259,637 

Reinsurance balances payable

  663,886   1,132,301 

Corporate debt

  15,000,000   15,000,000 

Accrued expenses

  5,783,483   7,442,617 

Other liabilities

  1,198,903   1,259,324 

Total liabilities

  147,747,606   144,013,464 
         

Equity:

        

Common stock1

  35,000   35,000 

Treasury stock, at cost2

  (5,776,979)  (5,710,324)

Additional paid-in capital

  33,421,997   33,330,846 

Accumulated other comprehensive (loss), net of tax

  (7,261,448)  (6,621,336)

Retained earnings

  50,083,573   47,844,368 

Less: Unearned Employee Stock Ownership Plan shares at cost3

  (1,816,732)  (1,875,005)

Total equity

  68,685,411   67,003,549 

Total liabilities and equity

 $216,433,017  $211,017,013 

 

1 Par value $0.01; authorized: 2024 and 2023 - 10,000,000 shares; issued: 2024  3,500,000 shares and 2023  3,500,000 shares; outstanding: 2024 3,138,976 and 2023  3,138,976 shares

2 2024 – 361,024 shares and 2023 – 361,024 shares

3 2024 – 181,671 shares and 2023  187,498 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

 
  

March 31,

 
  

2024

  

2023

 

Net premiums earned

 $20,222,366  $17,801,297 

Net investment income

  1,440,202   1,209,415 

Net realized investment gains (losses)

  150,686   (75,565)

Net unrealized gains on investments

  1,273,890   639,418 

Other (loss) income

  (5,037)  45,836 

Consolidated revenues

  23,082,107   19,620,401 

Losses and settlement expenses

  12,336,928   11,047,681 

Policy acquisition costs and other operating expenses

  7,663,099   6,349,581 

Interest expense on debt

  45,904   45,400 

General corporate expenses

  200,770   193,674 

Total expenses

  20,246,701   17,636,336 

Earnings before income taxes

  2,835,406   1,984,065 

Total income tax expense

  596,201   405,520 

Net earnings

 $2,239,205  $1,578,545 
         

Other comprehensive (loss) earnings, net of tax

  (640,112)  1,596,353 

Comprehensive earnings

 $1,599,093  $3,174,898 
         

Earnings per share:

        

Basic:

        

Basic net earnings per share

 $0.76  $0.54 

Diluted:

        

Diluted net earnings per share

 $0.75  $0.53 
         

Weighted average number of common shares outstanding:

        

Basic

  2,953,441   2,942,659 

Diluted

  2,969,446   2,956,273 

 

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, 2023

 $35,000  $(5,463,535) $(2,109,375) $33,119,125  $43,701,233  $(8,841,517) $60,440,931 

Cumulative adjustment for adoption of ASU 2016-13, net of tax

              (113,760)     (113,760)

Purchase of treasury stock

     (46,334)              (46,334)

Net earnings

              1,578,545      1,578,545 

Other comprehensive earnings, net of tax

                 1,596,353   1,596,353 

Restricted stock unit expense

           52,850         52,850 

ESOP compensation expense

        57,790   32,154         89,944 

Balance, March 31, 2023

 $35,000  $(5,509,869) $(2,051,585) $33,204,129  $45,166,018  $(7,245,164) $63,598,529 

 

  

Common stock

  

Treasury stock

  

Unearned ESOP

  

Additional paid-in capital

  

Retained earnings

  

Accumulated other comprehensive earnings (loss)

  

Total equity

 

Balance, January 1, 2024

 $35,000  $(5,710,324) $(1,875,005) $33,330,846  $47,844,368  $(6,621,336) $67,003,549 

Purchase of treasury stock

     (66,655)              (66,655)

Net earnings

              2,239,205      2,239,205 

Other comprehensive loss, net of tax

                 (640,112)  (640,112)

Restricted stock unit expense

           59,380         59,380 

ESOP compensation expense

        58,273   31,771         90,044 

Balance, March 31, 2024

 $35,000  $(5,776,979) $(1,816,732) $33,421,997  $50,083,573  $(7,261,448) $68,685,411 

 

See accompanying notes to consolidated financial statements.

 

 

 

 

ICC Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

  

Three-Month Periods Ended March 31,

 
  

2024

  

2023

 

Cash flows from operating activities:

        

Net earnings

 $2,239,205  $1,578,545 

Adjustments to reconcile net earnings to net cash provided by operating activities

        

Net realized investment (gains) losses

  (150,686)  75,565 

Net unrealized gains on investments

  (1,273,890)  (639,418)

Depreciation

  199,686   173,491 

Deferred income tax

  194,829   267,226 

Amortization of bond premium and discount

  (18,871)  29,821 

Stock-based compensation expense

  149,424   142,794 

Change in:

        

Accrued investment income

  (47,086)  509 

Premiums and reinsurance balances receivable

  769,731   (506,948)

Ceded unearned premiums

  30,927   143,200 

Reinsurance balances recoverable

  (1,002,320)  (843,357)

Deferred policy acquisition costs

  (91,079)  (565,515)

Unpaid losses and settlement expenses

  5,731,401   5,252,537 

Unearned premiums

  190,711   568,115 

Reinsurance balances payable

  (468,415)  (1,123,875)

Accrued expenses

  (1,659,134)  (1,949,578)

Current federal income tax

  364,293   124,565 

Other

  (93,842)  (386,200)

Net cash provided by operating activities

  5,064,884   2,341,477 

Cash flows from investing activities:

        

Purchases of:

        

Fixed maturity securities

  (3,259,172)  (5,960,521)

Common stocks

  (826,741)  (807,926)

Preferred stocks

  (242,131)  (78,716)

Other invested assets

     (360,000)

Property held for investment

  (250,201)  (358,210)

Property and equipment

  (192,156)  (160,191)

Proceeds from sales, maturities and calls of:

        

Fixed maturity securities

  4,294,521   3,830,441 

Common stocks

  705,443   778,071 

Preferred stocks

  245,513   95,628 

Other invested assets

  75,458   8,557 

Property and equipment

  101   33 

Net cash provided by (used in) investing activities

  550,635   (3,012,834)

Cash flows from financing activities:

        

Purchase of treasury stock

  (66,655)  (46,334)

Net cash used in financing activities

  (66,655)  (46,334)

Net increase (decrease) in cash and cash equivalents

  5,548,864   (717,691)

Cash and cash equivalents at beginning of year

  1,478,135   3,139,986 

Cash and cash equivalents at end of period

 $7,026,999  $2,422,295 

Supplemental information:

        

Interest paid

 $45,900  $39,500 

 

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. 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.; Two Rivers Realty Investments, LLC, a real estate services and holding company; Beverage Insurance Agency, Inc., dba Beverage Insurance Specialty, a wholesale insurance agency; Estrella Innovative Solutions, Inc., an outsourcing company; Southern Hospitality Education, LLC, dba Katkin, a full-service food safety and education company; Guild Insurance Inc. (Guild), an operating insurance agency acquired in October 2023; and Illinois Casualty Company (ICC), an operating insurance company. ICC is an Illinois domiciled company. ICC owns Two Rivers Investment Properties, LLC, a real estate services and holding company, and ICC Re Limited, a vehicle to participate in various Lloyd's of London (Lloyd's) syndicate's underwriting activity.

 

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 21.7% and 23.0% of the premium is written in Illinois for the three months ended March 31, 2024 and 2023, respectively. The Company operates as one 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, 2023 (the “2023 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, 2024 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 the 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 the fair value is less than amortized cost. The Company applied this standard to fixed maturity securities, accrued interest, 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 2023 resulted in a $113,760 decrease in retained earnings

 

D.

PROSPECTIVE ACCOUNTING STANDARDS

 

There are no prospective accounting standards that would have a material impact on our financial statements as of  March 31, 2024.

 

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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, 2024 and December 31, 2023, the Company recognized no impairments. Property and equipment are summarized as follows:

 

  

As of

 
  

March 31,

  

December 31,

 
  

2024

  

2023

 

Automobiles

 $693,634  $645,458 

Furniture and fixtures

  526,657   525,843 

Computer equipment and software

  5,093,380   5,037,301 

Home office

  4,159,073   4,106,796 

Total cost

  10,472,744   10,315,398 

Accumulated depreciation

  (7,109,013)  (6,990,076)

Net property and equipment

 $3,363,731  $3,325,322 

 

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 21% tax rate. 

 

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

 

         
  

Three-Months Ended March 31,

 
  

2024

  

2023

 

Beginning balance

 $(6,621,336) $(8,841,517)

Other comprehensive (loss) earnings before reclassification

  (639,189)  1,564,342 

Amount reclassified from accumulated other comprehensive (loss) earnings

  (923)  32,011 

Net current period other comprehensive (loss) earnings

  (640,112)  1,596,353 

Ending balance

 $(7,261,448) $(7,245,164)

 

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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 March 31,

 
  

2024

  

2023

 
  

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) gains arising during the period

 $(809,101) $169,912  $(639,189) $1,980,180  $(415,838) $1,564,342 

Reclassification adjustment for (gains) losses included in net earnings

  (1,167)  244   (923)  40,520   (8,509)  32,011 

Total other comprehensive (loss) earnings

 $(810,268) $170,156  $(640,112) $2,020,700  $(424,347) $1,596,353 

 

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

  

Details about Accumulated Other

 

March 31,

 

Affected Line Item in the Statement

Comprehensive Earnings Component

 

2024

  

2023

 

where Net Earnings is Presented

Unrealized (gains) losses on ASF investments:

         
  $(1,167) $40,520 

Net realized investment (gains) losses

   244   (8,509)

Income tax expense (benefit)

Total reclassification adjustment, net of tax

 $(923) $32,011  

 

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.

 

H.

INTANGIBLES

 

Intangible assets of $1.2 million are reported within Other Assets on the Consolidated Balance Sheets. Finite-lived intangible assets are amortized over their estimated useful lives. 

 

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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 March 31,

 
              

Net Realized

 
  

Proceeds

  

Gains

  

Losses

  

Gains (Losses)

 

2024

                

Fixed maturity securities

 $4,294,521  $1,167  $  $1,167 

Common stocks

  705,443   249,637   (70,057)  179,580 

Preferred stocks

  245,513   1,409   (31,470)  (30,061)

2023

                

Fixed maturity securities

 $3,830,441  $  $(40,520) $(40,520)

Common stocks

  778,071   126,001   (185,458)  (59,457)

Preferred stocks

  95,628   24,412      24,412 

 

The amortized cost and estimated fair value of fixed income securities at  March 31, 2024, by contractual maturity, are shown as follows:

 

  

Amortized Cost

  

Fair Value

 

Due in one year or less

 $3,548,339  $3,498,321 

Due after one year through five years

  15,222,260   14,582,221 

Due after five years through 10 years

  24,129,964   22,440,674 

Due after 10 years

  26,891,230   22,631,543 

Asset and mortgage-backed securities without a specific due date

  48,381,623   45,834,486 

Redeemable preferred stocks

  186,393   181,040 

Total fixed maturity securities

 $118,359,809  $109,168,285 

 

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

 

- 10 -

 

The following table is a schedule of amortized cost and estimated fair values of investments in securities classified as available for sale at March 31, 2024 and December 31, 2023:

 

          

Gross Unrealized

 
  

Amortized Cost

  

Fair Value

  

Gains

  

Losses

 

2024

                

Fixed maturity securities:

                

U.S. Treasury

 $1,351,519  $1,295,211  $  $(56,308)

MBS/ABS/CMBS

  48,381,623   45,834,486   291,072   (2,838,209)

Corporate

  45,827,528   42,444,447   104,428   (3,487,509)

Municipal

  22,612,746   19,413,101   125,472   (3,325,117)

Redeemable preferred stock

  186,393   181,040      (5,353)

Total fixed maturity securities

 $118,359,809  $109,168,285  $520,972  $(9,712,496)

 

          

Gross Unrealized

 
  

Amortized Cost

  

Fair Value

  

Gains

  

Losses

 

2023

                

Fixed maturity securities:

                

U.S. Treasury

 $1,351,768  $1,289,774  $  $(61,994)

MBS/ABS/CMBS

  49,400,028   47,020,328   283,957   (2,663,657)

Corporate

  45,764,492   42,981,718   287,412   (3,070,186)

Municipal

  22,633,360   19,493,317   153,103   (3,293,146)

Redeemable preferred stock

  186,393   170,560      (15,833)

Total fixed maturity securities

 $119,336,041  $110,955,697  $724,472  $(9,104,816)

 

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 $8,192,160 and $8,462,540, residential mortgage-backed securities of $32,154,992 and $32,928,128, and commercial mortgage-backed securities of $5,487,334 and $5,629,659 at March 31, 2024 and December 31, 2023, respectively. The Company has recorded no current expected credit loss (CECL) allowances related to available for sale investments at March 31, 2024 and December 31, 2023, respectively.

 

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ANALYSIS

 

The following tables display the total value of securities that were in an unrealized loss position as of March 31, 2024 and December 31, 2023. 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 tables further classifies the securities based on the length of time they have been in an unrealized loss position.

 

  

March 31, 2024

  

December 31, 2023

 
      

12 Months

          

12 Months

     
  

< 12 Months

  

& Greater

  

Total

  

< 12 Months

  

& Greater

  

Total

 

Fixed Maturity Securities:

                        

U.S. Treasury

                        

Fair value

 $  $1,295,211  $1,295,211  $  $1,289,774  $1,289,774 

Amortized cost

     1,351,519   1,351,519      1,351,768   1,351,768 

Unrealized loss

     (56,308)  (56,308)     (61,994)  (61,994)

MBS/ABS/CMBS

                        

Fair value

  8,671,226   20,894,107   29,565,333   8,345,340   24,323,865   32,669,205 

Amortized cost

  8,780,692   23,622,850   32,403,542   8,462,010   26,870,852   35,332,862 

Unrealized loss

  (109,466)  (2,728,743)  (2,838,209)  (116,670)  (2,546,987)  (2,663,657)

Corporate

                        

Fair value

  5,126,823   31,263,210   36,390,033   477,051   33,352,754   33,829,805 

Amortized cost

  5,205,614   34,671,928   39,877,542   478,370   36,421,621   36,899,991 

Unrealized loss

  (78,791)  (3,408,718)  (3,487,509)  (1,319)  (3,068,867)  (3,070,186)

Municipal

                        

Fair value

  1,276,758   12,114,730   13,391,488      12,149,238   12,149,238 

Amortized cost

  1,283,254   15,433,351   16,716,605      15,442,384   15,442,384 

Unrealized loss

  (6,496)  (3,318,621)  (3,325,117)     (3,293,146)  (3,293,146)

Redeemable preferred stock

                        

Fair value

  121,500   59,540   181,040   149,240   21,320   170,560 

Amortized cost

  123,188   63,205   186,393   161,549   24,844   186,393 

Unrealized loss

  (1,688)  (3,665)  (5,353)  (12,309)  (3,524)  (15,833)

Total

                        

Fair value

  15,196,307   65,626,798   80,823,105   8,971,631   71,136,951   80,108,582 

Amortized cost

  15,392,748   75,142,853   90,535,601   9,101,929   80,111,469   89,213,398 

Unrealized loss

 $(196,441) $(9,516,055) $(9,712,496) $(130,298) $(8,974,518) $(9,104,816)

 

The fixed income portfolio contained 219 securities in an unrealized loss position as of March 31, 2024. Of these 219 securities, 192 have been in an unrealized loss position for 12 consecutive months or longer and represent $9,516,055 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. Current unrealized losses are the result of rising interest rates. 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 CECL allowances from the fixed income portfolio recognized in net earnings during the three months ended March 31, 2024 and 2023. 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.

 

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UNREALIZED GAINS AND LOSSES ON INVESTMENTS

 

Net unrealized gains recognized during the three months ended March 31, 2024 on equity securities and limited partnership investments were $1,273,890. Net unrealized gains recognized during the three months ended March 31, 2023 on investments held as of March 31, 2023 were $639,418.

 

Other Invested Assets

 

Other invested assets as of March 31, 2024 and December 31, 2023 were $9,040,528 and $8,898,409, respectively. These amounts were net of $39,000 in CECL allowances. Other invested assets as of  March 31, 2024 include privately held investments of $2,414,810, notes receivable of $5,420,520, Funds at Lloyd's of $819,198 and a $425,000 membership in the Federal Home Loan Bank of Chicago (FHLBC). As of  December 31, 2023, privately held investments were $2,197,232, notes receivable were $5,495,978, Funds at Lloyd's were 819,198, and the membership in FHLBC was $425,000.

 

As of  March 31, 2024, privately held investments are comprised of a $1,950,380 limited partnership accounted for under the equity method with a three month lag, a $250,000 SAFE investment carried at cost, and $214,430 in stock carried at fair value. The limited partnership is considered a related party. In November 2021, we agreed to commit up to $10.0 million to a private investment fund, subject to regulatory approval, which may be callable from time to time by such fund. As of  March 31, 2024, the Company has received calls for $1,949,134 for a limited partnership from the private investment fund. Our balance available for future endeavors with the private investment fund is $8,050,866 as of  March 31, 2024. As of  December 31, 2023, privately held investments are comprised of a $1,734,622 limited partnership accounted for under the equity method with a three month lag, a $250,000 SAFE investment carried at cost, and $212,610 in stock carried at fair value. As of  December 31, 2023, the Company received calls for $1,949,134 for the limited partnership and our balance available for future endeavors was $8,050,866.

 

Notes receivable are carried at outstanding value plus accrued interest. As of  March 31, 2024, most of the notes receivable bear interest between 3.9% and 8.25%. One note has interest at prime minus 25 basis points with a floor of 4.0%. For the three months ended March 31, 2024, $75,458 in note payments were received and $0 in accrued principal and interest receivable was recorded. The Company had $39,000 in CECL allowances recorded related to uncollectible note receivables at  March 31, 2024.

 

The Funds at Lloyd's and membership in the FHLBC are 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.

 

- 13 -

 

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, Funds at Lloyd's, and membership in the FHLBC. Notes receivable are carried at outstanding balance plus accrued interest. Stock is at fair value when available. The limited partnership is accounted for under the equity method, which is considered a related party. The SAFE investment, Funds at Lloyd's, and the membership in FHLBC are carried at cost.

 

- 14 -

 

Assets measured at fair value on a recurring basis as of March 31, 2024, 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

 $1,295,211  $  $  $1,295,211 

MBS/ABS/CMBS

     45,834,486      45,834,486 

Corporate

     42,444,447      42,444,447 

Municipal

     19,413,101      19,413,101 

Redeemable preferred stocks

     181,040      181,040 

Total fixed maturity securities

  1,295,211   107,873,074      109,168,285 

Equity securities

                

Common stocks

  13,369,954      

   13,369,954 

Perpetual preferred stocks

     3,046,812      3,046,812 

Total equity securities

  13,369,954   3,046,812      16,416,766 

Total marketable investments measured at fair value

 $14,665,165  $110,919,886  $  $125,585,051 

 

Assets measured at fair value on a recurring basis as of December 31, 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

 $1,289,774  $  $  $1,289,774 

MBS/ABS/CMBS

     47,020,328      47,020,328 

Corporate

     42,981,718      42,981,718 

Municipal

     19,493,317      19,493,317 

Redeemable preferred stocks

     170,560      170,560 

Total fixed maturity securities

  1,289,774   109,665,923      110,955,697 

Equity securities

                

Common stocks

  12,191,621         12,191,621 

Perpetual preferred stocks

     2,896,296      2,896,296 

Total equity securities

  12,191,621   2,896,296      15,087,917 

Total marketable investments measured at fair value

 $13,481,395  $112,562,219  $  $126,043,614 

 

As noted in the previous tables, the Company has no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of March 31, 2024 or December 31, 2023. Additionally, there were no securities transferred in or out of Levels 1 and 2 during the three-month periods ended March 31, 2024 and 2023.

 

- 15 -

 

 

4.

DEBT

 

Debt Obligation

 

Debt Obligations

 

The Company had $15,000,000 in outstanding debt as of  March 31, 2024 and December 31, 2023.

 

The Company also has borrowing capacity of $48.2 million with the Federal Home Loan Bank of Chicago (FHLBC), which is 25% of net admitted statutory assets of Illinois Casualty Company as of the prior year-end. As of  March 31, 2024, the Company has used $15.0 million of that capacity through three separate 5-year term loans expiring between 2025 and 2027, with a weighted average interest rate of 1.21%.

 

The Company has $19.1 million in bonds pledged as collateral for all FHLBC loans.

 

Revolving Line of Credit

 

As of March 31, 2024, the balance on the line of credit was $0. As of  July 5, 2023, this line of credit is priced at prime plus 0.5% with a floor of 6.00% and renews annually with a current expiration date of July 5, 2024. The Company has $4.0 million of available credit and has pledged $4.0 million of business assets in the event the Company draws down on the line of credit. This agreement includes an annually calculated financial debt covenant requiring a minimum total adjusted capital of $21.0 million. Total adjusted capital is the sum of an insurer’s statutory capital and surplus as determined in accordance with the statutory accounting principles applicable to the annual financial statements required to be filed with Illinois Department of Insurance. As of March 31, 2024, our total adjusted capital is approximately $65.4 million. There was no interest paid on the line of credit during the three months ended March 31, 2024 and 2023.

 

 

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 $1,000,000 for casualty and workers’ compensation business and $1,000,000 for property, although certain treaties contain an annual aggregate deductible before reinsurance applies.

 

- 16 -

 

Premiums, written and earned, along with losses and settlement expenses incurred for the periods presented is summarized as follows:

 

  

Three-Month Periods Ended March 31,

 
  

2024

  

2023

 

WRITTEN

        

Direct

 $23,735,559  $20,814,526 

Reinsurance assumed

  47,776   38,726 

Reinsurance ceded

  (3,339,331)  (2,340,640)

Net

 $20,444,004  $18,512,612 

EARNED

        

Direct

 $23,545,004  $20,243,436 

Reinsurance assumed

  47,620   41,702 

Reinsurance ceded

  (3,370,258)  (2,483,841)

Net

 $20,222,366  $17,801,297 

LOSS AND SETTLEMENT EXPENSES INCURRED

        

Direct

 $14,119,451  $13,266,429 

Reinsurance assumed

  63,722   9,241 

Reinsurance ceded

  (1,846,245)  (2,227,989)

Net

 $12,336,928  $11,047,681 

 

- 17 -

 
 

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

 
  

March 31,

 
         

(In thousands)

 

2024

  

2023

 

Unpaid losses and settlement expense - beginning of the period:

        

Gross

 $71,920  $67,614 

Less: Ceded

  12,737   13,610 

Less: CECL allowance for reinsurance recoverable on unpaid losses

  82    

Net

  59,101   54,004 

Increase in incurred losses and settlement expense:

        

Current year

  12,288   11,072 

Prior years

  49   (24)

Total incurred

  12,337   11,048 

Deduct: Loss and settlement expense payments for claims incurred:

        

Current year

  1,924   1,158 

Prior years

  5,690   5,487 

Total paid

  7,614   6,645 

Net unpaid losses and settlement expense - end of the period

  63,824   58,407 

Plus: Reinsurance recoverable on unpaid losses net of CECL

  13,739   14,356 

Plus: CECL allowance for reinsurance recoverable on unpaid losses1

  88   104 

Gross unpaid losses and settlement expense - end of the period

 $77,651  $72,867 

 

1 See page 7, Significant account policies, for an explanation of CECL.

 

 

For the  three months ended  March 31, 2024 and  2023, we experienced  unfavorable and favorable development of  $49,000 and  $24,000, respectively. The  unfavorable development for the  three months ended  March 31, 2024 is primarily due to additional information received on prior year accident claims for liquor liability.

 

 

- 18 -

 
 

7.

INCOME TAXES

 

The Company’s effective tax rate for the three month periods ended March 31, 2024 was 21.0% compared to 20.4% for the same period in 2023. Effective rates are dependent upon components of pretax earnings and losses and the related tax effects.

 

Income tax expense for the three month periods ended March 31, 2024 and 2023 differed from the amounts computed by applying the U.S. federal tax rate of 21% to pretax income from continuing operations as demonstrated in the following table:

 

  

For the Three-Months Ended

 
  

March 31,

 
  

2024

  

2023

 

Provision for income taxes at the statutory federal tax rates

 $595,435  $416,654 

Increase (reduction) in taxes resulting from:

        

Tax-exempt interest income

  (7,929)  (10,072)

Dividends received deduction

  (10,065)  (20,460)

Proration of tax-exempt interest and dividends received deduction

  4,283   7,417 

Nondeductible expenses

  15,915   15,091 

Officer life insurance, net

  (1,438)  (3,110)

Total

 $596,201  $405,520 

 

Management believes it is more likely than not that all deferred tax assets will be recovered as the result of future operations, which will generate sufficient taxable income to realize the deferred tax asset.

 

As of March 31, 2024 and December 31, 2023, the Company does not have any capital or operating loss carryforwards. Periods still subject to IRS audit include 2020 through current year. There are currently no open tax exams. As of March 31, 2024 a significant portion of the Company's net deferred tax asset relates to unrealized losses on fixed income securities and equity securities. 

 

- 19 -

 
 

8.

EMPLOYEE BENEFITS

 

ESOP

 

In connection with our conversion and public offering, we established an ESOP. The ESOP borrowed from the Company to purchase 350,000 shares in the offering. The issuance of the shares to the ESOP resulted in a contra account established in the equity section of the balance sheet for the unallocated shares at an amount equal to their $10.00 per share purchase price.

 

The Company may make discretionary contributions to the ESOP and pay dividends on unallocated shares to the ESOP. ICC makes annual contributions to the ESOP sufficient to repay the loan. When loan payments are made, ESOP shares are allocated to participants based on relative compensation. The Company repurchases shares from participants that have left our employment. ICC Holdings did not contributed to the ESOP for the three months ended March 31, 2024 and 2023. No other contributions were made to the ESOP during these time periods.

 

A compensation expense charge is booked monthly during each year for the shares committed to be allocated to participants that year, determined with reference to the fair market value of our stock at the time the commitment to allocate the shares is accrued and recognized. For the three months ended March 31, 2024, we recognized compensation expense of $90,044 related to 5,827 shares of our common stock that are committed to be released to participants’ accounts at December 31, 2024. For the three months ended March 31, 2023, we recognized compensation expense of $89,944 related to 5,779 shares of our common stock that were committed to be released to participants’ accounts at December 31, 2023.

 

RESTRICTED STOCK UNITS

 

Restricted stock units (RSUs) were granted for the first time in February 2018 and more recently in April of each year. RSUs have a grant date value equal to the closing price of the Company’s stock on the dates the shares are granted. The RSUs vest one third over three years beginning the first anniversary of the date of grant. The Company recognized $59,380 and $52,850 in RSU expense for the three months ended  March 31, 2024 and  March 31, 2023, respectfully.

 

  

RSUs

  

Weighted Average Grant Date Fair Value

 

Nonvested on December 31, 2023

  19,787  $15.87 

Granted

      

Vested

  (3,782)  15.70 

Nonvested on March 31, 2024

  16,005  $15.92 

 

 

9.

SUBSEQUENT EVENTS

 

The Company granted 20,100 restricted stock units on April 1, 2024. On April 30, 2024, the Company made a commitment for $3.0 million investment in Inter-Atlantic Fund X, L.P., a limited partnership. To date there have been no cash calls.

 

  

- 20 -

 
 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statements made by or on behalf of ICC Holdings, Inc. ICC Holdings, Inc., and its representatives may, from time to time, make written or verbal forward-looking statements, including statements contained in ICC Holdings, Inc.'s filings with the Securities and Exchange Commission (SEC) and its reports to shareholders. Generally, the inclusion of the words “anticipates,” “believes,” “estimate,” “expect,” “future,” “intend,” “may,” “plans,” “seek,” “will,” or the negative of such terms and similar expressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. All statements addressing operating performance, events, or developments that ICC Holdings, Inc. expects or anticipates will occur in the future, including statements relating to sales growth, earnings or earnings per share growth, and market share, as well as statements expressing optimism or pessimism about future operating results, are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are and will be based on management’s then-current beliefs and assumptions regarding future events and operating performance and on information currently available to management and are applicable only as of the dates of such statements.



Forward-looking statements involve risks, uncertainties, and assumptions, including, among other things, the factors discussed under the heading “Item 1A. Risk Factors” of ICC Holdings, Inc.’s Annual Report on Form 10-K and those listed below. Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. Actual results may differ materially from those expressed in these forward-looking statements due to several uncertainties and risks, including the risks described in this Quarterly Report on Form 10-Q and other unforeseen risks. Readers should not put undue reliance on any forward-looking statements. These statements speak only as of the date of this Quarterly Report on Form 10-Q, even if subsequently made available by us on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events or circumstances occurring after the date of this Quarterly Report on Form 10-Q.



All of these factors are difficult to predict, and many are beyond our control. These important factors include those discussed under “Item 1A. Risk Factors” of ICC Holdings, Inc.’s 2023 Annual Report on Form 10-K and those listed below:

 

 

the potential impact of fraud, operational errors, systems malfunctions, or cybersecurity incidents;

 

future economic conditions in the markets in which we compete that are less favorable than expected;

 

our ability to expand geographically;

 

the effects of weather-related and other catastrophic events;

 

the effect of legislative, judicial, economic, demographic, and regulatory events in the jurisdictions where we do business, especially changes with respect to laws, regulations, and judicial decisions relating to liquor liability;

 

our ability to enter new markets successfully and capitalize on growth opportunities either through acquisitions or the expansion of our producer network;

  the impacts of negative social media and cancel culture;
  financial market conditions, including, but not limited to, changes in interest rates and the stock markets causing a reduction of investment income or investment gains and a reduction in the value of our investment portfolio;
 

heightened competition, including specifically the intensification of price competition, the entry of new competitors and the development of new products by new or existing competitors, resulting in a reduction in the demand for our products;

  a downgrade in our A.M. Best rating;
  disruptions and negative investor sentiment caused by bank failures in 2023;
  reliance on Lloyd's of London brokers to profitably operate, share timely financial results, and maintain accurate reserves;
  the impact of acts of terrorism and acts of war;
  the effects of terrorist related insurance legislation and laws;
  changes in general economic conditions, including inflation, unemployment, interest rates, and other factors;
  the cost, availability, and collectability of reinsurance;
  estimates and adequacy of loss reserves and trends in loss and settlement expenses;
  changes in the coverage terms selected by insurance customers, including higher limits;
  our inability to obtain regulatory approval of, or to implement, premium rate increases;
  our ability to obtain reinsurance coverage at reasonable prices or on terms that adequately protect us;
  expense and reputational impact on the Company as a result of expenses related to the continuing activities of an activist shareholder;
  adverse litigation or arbitration results;
  adverse changes in applicable laws, regulations or rules governing insurance holding companies and insurance companies, and environmental, tax or accounting matters including limitations on premium levels, increases in minimum capital and reserves, other financial viability requirements, and changes that affect the cost of, or demand for our products;
 

infection rates, severity of pandemics, civil unrest and their effects on our business operations and claims activity, and any adverse impact to our insureds, brokers, agents, and employees;

  our debt and debt service requirements which may restrict our operation and financial flexibility, as well as imposing unfavorable interest and financing costs;
  our ability to maintain our existing credit facilities or obtain satisfactory new credit facilities or other borrowings;
  changes to our assessment as to whether it is more likely than not that we will be required to sell, or have the intent to sell, available for sale or fixed maturity investments before their anticipated recovery;
  our ability to implement business strategies, including our acquisition strategy and expansion plans;
  our acquisition strategy may not be successful in locating advantageous targets;
  our ability to successfully integrate any assets, liabilities, customers, systems, and management personnel we acquire into our operations and our ability to realize related revenue synergies, strategic gains, and cost savings may be significantly harder to achieve, if at all, or may take longer to achieve;
  potential goodwill impairment charges, future impairment charges, and fluctuations in the fair values of reporting units or of assets in the event projected financial results are not achieved within expected time frames;

 

 

 

the potential impact on our reported net income that could result from the adoption of future auditing or accounting standards issued by the Public Company Accounting Oversight Board or the Financial Accounting Standards Board or other standard-setting bodies;

 

unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations; and

 

litigation tactics and developments, including those related to business interruption claims.

 

Because forward-looking information is subject to various risks and uncertainties, actual results may differ materially from that expressed or implied by the forward-looking information.

 

All subsequent written and oral forward-looking information attributable to ICC Holdings, Inc. or any person acting on our behalf is expressly qualified in its entirety by the cautionary statement contained or referred to in this section.

 

Overview

 

ICC is a regional property and casualty insurance company incorporated in Illinois and focused exclusively on the food and beverage industry. ICC is a wholly owned subsidiary of ICC Holdings, Inc.

 

For the three months ended March 31, 2024, the Company had direct written premiums of $23,736,000, net premiums earned of $20,222,000, and net earnings of $2,239,000. For the three months ended March 31, 2023, the Company had direct premiums written of $20,815,000, net premiums earned of $17,801,000, and net earnings of $1,579,000. On March 31, 2024, the Company had total assets of $216,433,000 and equity of $68,685,000. On December 31, 2023, the Company had total assets of $211,017,000 and equity of $67,004,000.

 

Principal Revenue and Expense Items

 

We derive our revenue primarily from premiums earned, net investment income, and net realized and unrealized gains (losses) from investments.

 

Gross and net premiums written

 

Gross premiums written are equal to direct and assumed premiums before the effect of ceded reinsurance. Net premiums written is the difference between gross premiums written and premiums ceded or paid to reinsurers (ceded premiums written).

 

 

Net premiums earned

 

Premiums earned are the earned portion of our net premiums written. Gross premiums written include all premiums recorded by an insurance company during a specified policy period. Insurance premiums on property and casualty insurance contracts are recognized in proportion to the underlying risk insured and are earned ratably over the duration of the policies. At the end of each accounting period, the portion of the premiums that are not yet earned is included in unearned premiums and is realized as revenue in subsequent periods over the remaining term of the policy. Our policies typically have a term of twelve months. Thus, for example, for a policy that is written on July 1, 2024, one-half of the premiums would be earned in 2024 and the other half would be earned in 2025.

 

Net investment income and net realized gains (losses) on investments

 

We invest our surplus and the funds supporting our insurance liabilities (including unearned premiums and unpaid loss and loss adjustment expenses) in cash, cash equivalents, equities, fixed securities, and real estate. Investment income includes interest and dividends earned on invested assets as well as rental income on investment properties. Net realized gains and losses on invested assets are reported separately from net investment income. We recognize realized gains when invested assets are sold for an amount greater than their cost or amortized cost (in the case of fixed securities) and recognize realized losses when investment securities are written down as a result of an other-than-temporary impairment or sold for an amount less than their cost or amortized cost, as applicable. We recognize in earnings the change in unrealized gains and losses on equity securities and limited partnership investments, excluding fixed income securities, when our investments are trading at an amount greater than or less than their cost, respectively. Net unrealized gains on investments in net earnings for the three months ended March 31, 2024 were $1,274,000. Net unrealized gains for the three months ended March 31, 2023 for investments in net earnings were $639,000. Our portfolio of investment securities is managed by two independent third parties with managers specializing in the insurance industry. The board of directors’ investment committee is responsible for establishing investment policies and monitoring risk limits and tolerances. We seek to protect customers’ benefits by optimizing the risk/return relationship on an ongoing basis, avoiding high levels of investments that may be redeemed by the issuer, maintaining sufficiently liquid investments, and avoiding undue asset concentrations through diversification. We are exposed to two primary sources of investment risk:

 

 

credit risk, relating to the uncertainty associated with the continued ability of an obligor to make timely payments of principal and interest; and

 

 

interest rate risk, relating to the market price and/or cash flow variability associated with changes in market yield curves.

 

Our ability to manage credit risk is essential to our business and our profitability. We devote considerable resources to the credit analysis of each new investment. We manage credit risk through industry, issuer, and asset class diversification.

 

ICC’s expenses consist primarily of:

 

Losses and settlement expenses

 

Losses and settlement expenses represent the largest expense item and include: (1) claim payments made, (2) estimates for future claim payments and changes in those estimates for prior periods, and (3) costs associated with investigating, defending, and adjusting claims.

 

Amortization of deferred policy acquisition costs and other operating expenses

 

Expenses incurred to underwrite risks are referred to as policy acquisition expenses. Variable policy acquisition costs consist of commission expenses, premium taxes, and certain other underwriting expenses that vary with and are primarily related to the writing and acquisition of new and renewal business. These policy acquisition costs are deferred and amortized over the effective period of the related insurance policies. Fixed policy acquisition costs are expensed as incurred. These costs include salaries, rent, office supplies, and depreciation. Other operating expenses consist primarily of information technology costs, accounting, and employee compensation, as well as audit and legal expenses.

 

Income taxes

 

We use the asset and liability method of accounting for income taxes. Deferred income taxes arise from the recognition of temporary differences between financial statement carrying amounts and the tax bases of our assets and liabilities. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The effect of a change in tax rates is recognized in the period of the enactment date.

 

Key Financial Measures

 

We evaluate our insurance operations by monitoring certain key measures of growth and profitability. In addition to reviewing our financial performance based on results determined in accordance with generally accepted accounting principles in the United States (GAAP), we utilize certain operational financial measures that we believe are valuable in managing our business and for comparison to our peers. These operational measures are combined ratio, written premiums, underwriting income, the losses and settlement expense ratio, the expense ratio, the ratio of net written premiums to statutory surplus, and return on average equity.

 

We measure growth by monitoring changes in gross premiums written and net premiums written. We measure underwriting profitability by examining losses and settlement expense, underwriting expense, and combined ratios. We also measure profitability by examining underwriting income (loss) and net earnings (loss).

 

 

Losses and settlement expense ratio

 

The losses and settlement expense ratio is the ratio (expressed as a percentage) of losses and settlement expenses incurred to net premiums earned. We measure the losses and settlement expense ratio on an accident year and calendar year loss basis to measure underwriting profitability. An accident year loss ratio measures losses and settlement expenses for insured events occurring in a particular year, regardless of when they are reported, as a percentage of premiums earned during that year. A calendar year loss ratio measures losses and settlement expenses for insured events occurring during a particular year and the change in loss reserves from prior accident years as a percentage of premiums earned during that year.

 

Expense ratio

 

The underwriting expense ratio is the ratio (expressed as a percentage) of amortization of deferred policy acquisition costs and other operating expenses to premiums earned, and measures our operational efficiency in producing, underwriting, and administering our insurance business.

 

GAAP combined ratio

 

Our GAAP combined ratio is the sum of the losses and settlement expense ratio and the expense ratio and measures our overall underwriting profit. If the GAAP combined ratio is below 100%, we are making an underwriting profit. If our combined ratio is at or above 100%, we are not profitable without investment income and may not be profitable if investment income is insufficient.

 

Net premiums written to statutory surplus ratio

 

The net premiums written to statutory surplus ratio represents the ratio of net premiums written, after reinsurance ceded, to statutory surplus. This ratio measures our exposure to pricing errors in our current book of business. The higher the ratio, the greater the impact on surplus should pricing prove inadequate.

 

Underwriting income (loss)

 

Underwriting income (loss) measures the pre-tax profitability of our insurance operations. It is derived by subtracting losses and settlement expense, amortization of deferred policy acquisition costs, and underwriting and administrative expenses from net earned premiums. Each of these items is presented as a caption in our statements of earnings.

 

Net earnings (loss) and return on average equity

 

We use net earnings (loss) to measure our profit and return on average equity to measure our effectiveness in utilizing equity to generate net earnings. In determining return on average equity for a given year, net earnings (loss) is divided by the average of the beginning and ending equity for that year.

 

Critical Accounting Policies

 

The accounting policies and estimates considered by management to be critically important in the preparation and understanding of the Company’s financial statements and related disclosures are presented in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

 

Results of Operations

 

Our results of operations are influenced by factors affecting the property and casualty insurance industry in general. The operating results of the United States property and casualty insurance industry are subject to significant variations due to competition, weather, catastrophic events, regulation, general economic conditions, judicial trends, fluctuations in interest rates, and other changes in the investment environment.



Our premium and underwriting results have been, and continue to be, influenced by market conditions. Pricing in the property and casualty insurance industry historically has been cyclical. During a soft market cycle, price competition is more significant than during a hard market cycle and makes it difficult to attract and retain properly priced commercial business. A hard market typically has a positive effect on premium growth.

  

 

The following summarizes our results for the three months ended March 31, 2024 and 2023:



Premiums



Direct premiums written increased by $2,921,000, or 14.0%, to $23,736,000 for the three months ended March 31, 2024 from $20,815,000 for the same period of 2023. Net written premium increased by $1,931,000, or 10.4%, to $20,444,000 for the three months ended March 31, 2024 from $18,513,000 for the same period in 2023. Net premiums earned increased by $2,421,000, or 13.6%, for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, consistent with our increased premium writings in 2024 and 2023.



For the three months ended March 31, 2024, we ceded to reinsurers $3,370,000 of earned premiums, compared to $2,484,000 of earned premiums for the three months ended March 31, 2023. Ceded earned premiums as a percent of direct premiums written increased to 14.1% from 11.2% for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 as a result of increased direct earned premiums and the addition of a ceding allowance on the first excess reinsurance contracts.

 

Premiums are earned ratably over the term of the policy whereas written premiums are reflected on the effective date of the policy.



Investment Income



Net investment income increased by $231,000, or 19.1%, to $1,440,000 for the three months ended March 31, 2024, as compared to $1,209,000 for the same period in 2023. This increase is a result of increased rates on our fixed income portfolio and an increase in overall investment holdings.

 

Other Income



Other income is derived from policies we write and represents additional charges to policyholders for services outside of the premium charge, such as installment billing or policy issuance costs. Other income decreased by $51,000, or 110.9%, during the three months ended March 31, 2024 as compared to the same period in 2023 due to decreased Katkin sales.



Unpaid Losses and Settlement Expenses

 

   

For the Three-Months Ended

 
   

March 31,

 
                 

(In thousands)

 

2024

   

2023

 

Unpaid losses and settlement expense - beginning of the period:

               

Gross

  $ 71,920     $ 67,614  

Less: Ceded

    12,737       13,610  

Less: CECL allowance for reinsurance recoverable on unpaid losses

    82        

Net

    59,101       54,004  

Increase in incurred losses and settlement expense:

               

Current year

    12,288       11,072  

Prior years

    49       (24 )

Total incurred

    12,337       11,048  

Deduct: Loss and settlement expense payments for claims incurred:

               

Current year

    1,924       1,158  

Prior years

    5,690       5,487  

Total paid

    7,614       6,645  

Net unpaid losses and settlement expense - end of the period

    63,824       58,407  

Plus: Reinsurance recoverable on unpaid losses net of CECL

    13,739       14,356  

Plus: CECL allowance for reinsurance recoverable on unpaid losses

    88       104  

Gross unpaid losses and settlement expense - end of the period

  $ 77,651     $ 72,867  

 

Gross unpaid losses and settlement expenses increased by $5,731,000, or 8.0%, in the three months ended March 31, 2024 as compared to December 31, 2023. For the three months ended March 31, 2024 and 2023, we experienced unfavorable and favorable development of $49,000 and $24,000, respectively.



 

Losses and Settlement Expenses



Losses and settlement expenses increased by $1,289,000, or 11.7%, to $12,337,000 for the three months ended March 31, 2024, from $11,048,000 for the same period in 2023. The increase in losses and settlement expenses was driven current year accident losses in 2024 over 2023.

 

Policy Acquisition Costs and Other Operating Expenses and the Expense Ratio



Policy acquisition costs are costs we incur to issue policies, which include commissions, premium taxes, underwriting reports, and underwriter compensation costs. The Company offsets the direct commissions it pays with ceded commissions it receives from reinsurers. Other operating expenses consist primarily of information technology costs, accounting, and internal control salaries, as well as audit and legal expenses. Policy acquisition costs and other operating expenses increased by $1,313,000, or 20.7%, to $7,663,000 for the three months ended March 31, 2024 from $6,350,000 for the same period in 2023. The increase in these expenses is mainly due to increases in salaries and commissions. Salary expense is up due to increased costs associated with business growth and increased headcount. Commissions increased as a result of higher written premiums and higher contingent commission during the quarter. 

 

Our expense ratio is calculated by dividing the sum of policy acquisition costs and operating expenses by net earned premiums. We use the expense ratio to evaluate the operating efficiency of our consolidated operations. Costs that cannot be readily identifiable as a direct cost of a product line remain in general corporate expenses.

 

Our expense ratio increased by 220 basis points from 35.7% to 37.9% for the three months ended March 31, 2024 as compared to the same period in 2023.



General Corporate Expenses



General corporate expenses consist primarily of occupancy costs, such as rent and utilities. These costs are largely fixed and, therefore, do not vary significantly with premium volume but do vary with the Company’s changes in properties held for investment. Our general corporate expenses increased by $7,000, or 3.6%, for the three months ended March 31, 2024 as compared to the same period in 2023.

 

Interest Expense



Interest expense increased slightly to $46,000 for the three months ended March 31, 2024 from $45,000 for the same period during 2023.



Income Tax Expense



We reported income tax expense of $596,000 and $406,000 for the three months ended March 31, 2024 and 2023, respectively. The increase in income tax expense in 2024 relates to the positive change in net unrealized losses on investments. Our effective tax rate for the three months ended March 31, 2024 was 21.0%, compared to 20.4% for the same period in 2023. Effective rates are dependent upon components of pretax earnings and losses and the related tax effects.



The Company has not established a valuation allowance against any of the net deferred tax assets.

 

 

Financial Position

 

The following summarizes our financial position as of March 31, 2024 and December 31, 2023:

 

Unpaid Losses and Settlement Expense

 

Our reserves for unpaid loss and settlement expense are summarized below:

 

   

As of March 31,

   

As of December 31,

 

(In thousands)

 

2024

   

2023

 

Case reserves

  $ 32,836     $ 29,718  

IBNR reserves

    30,988       29,383  

Net unpaid losses and settlement expense

    63,824       59,101  

Reinsurance recoverables, excluding CECL allowance

    13,827       12,819  

Reserves for unpaid loss and settlement expense

  $ 77,651     $ 71,920  

 

Actuarial Ranges

 

The selection of the ultimate loss is based on information unique to each line of business and accident year and the judgment and expertise of our actuary and management.

 

The following table provides case and IBNR reserves for losses and loss adjustment expenses as of March 31, 2024 and December 31, 2023.

 

As of March 31, 2024 

 

(In thousands)

 

Case Reserves

   

IBNR Reserves

   

Total Reserves

 

Commercial liability

  $ 27,786     $ 28,725     $ 56,511  

Property

    2,341       (72 )     2,269  

Other

    2,709       2,335       5,044  

Total net reserves

    32,836       30,988       63,824  

Reinsurance recoverables, excluding CECL allowance

    2,959       10,868       13,827  

Gross reserves

  $ 35,795     $ 41,856     $ 77,651  

 

As of December 31, 2023

 

                           

Actuarially Determined Range of Estimates

 

(In thousands)

 

Case Reserves

   

IBNR Reserves

   

Total Reserves

   

Low

   

High

 

Commercial liability

  $ 24,286     $ 27,184     $ 51,470                  

Property

    2,715       (127 )     2,588                  

Other

    2,717       2,326       5,043                  

Total net reserves

    29,718       29,383       59,101     $ 52,617     $ 62,912  

Reinsurance recoverables

    2,371       10,448       12,819       10,346       14,081  

Gross reserves

  $ 32,089     $ 39,831     $ 71,920     $ 62,963     $ 76,993  

 

 

Our actuary determined a range of reasonable reserve estimates which reflect the uncertainty inherent in the loss reserve process. This range does not represent the range of all possible outcomes. We believe that the actuarially determined ranges represent reasonably likely changes in the loss and settlement expense estimates, however actual results could differ significantly from these estimates. The range was determined by line of business and accident year after a review of the output generated by the various actuarial methods utilized. The actuary reviewed the variance around the select loss reserve estimates for each of the actuarial methods and selected reasonable low and high estimates based on his knowledge and judgment. In making these judgments the actuary typically assumed, based on his experience, that the larger the reserve the less volatility and that property reserves would exhibit less volatility than casualty reserves. In addition, when selecting these low and high estimates, the actuary considered:

 

 

historical industry development experience in our business line;

 

 

historical company development experience;

 

 

the impact of court decisions on insurance coverage issues, which can impact the ultimate cost of settling claims;

 

 

changes in our internal claims processing policies and procedures; and

 

 

trends and risks in claim costs, such as risk that medical cost inflation could increase.

 

Our actuary is required to exercise a considerable degree of judgment in the evaluation of all of these and other factors in the analysis of our loss and settlement expense reserves, and related range of anticipated losses. Because of the level of uncertainty impacting the estimation process, it is reasonably possible that different actuaries would arrive at different conclusions. The method of determining the reserve range has not changed and the reserve range generated by our actuary is consistent with the observed development of our loss reserves over the last few years.

 

The width of the range in reserves arises primarily because specific losses may not be known and reported for some period and the ultimate losses paid and loss adjustment expenses incurred with respect to known losses may be larger than currently estimated. The ultimate frequency or severity of these claims can be very different than the assumptions we used in our estimation of ultimate reserves for these exposures.

 

Specifically, the following factors could impact the frequency and severity of claims, and therefore, the ultimate amount of loss and settlement expense paid:

 

 

the rate of increase in labor costs, medical costs, and material costs that underlie insured risks;

 

 

development of risk associated with our expanding producer relationships and our growth in new states or states where we currently have small market share; and

 

 

impact of changes in laws or regulations.

 

The estimation process for determining the liability for unpaid loss and settlement expense inherently results in adjustments each year for claims incurred (but not paid) in preceding years. Negative amounts reported for claim