UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~March 31,~~September 30, 2019

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ~~AND~~ EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 0-5534

PROTECTIVE INSURANCE CORPORATION

(Exact name of registrant as specified in its charter)

INDIANA		35-0160330
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

111 Congressional Boulevard, Carmel, Indiana		46032
(Address of principal executive offices)		(Zip Code)

Registrant's telephone number, including area code: (317) 636-9800

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, No Par Value	PTVCA	The Nasdaq Stock Market LLC
Class B Common Stock, No Par Value	PTVCB	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 ✓_

~~Securities registered pursuant to Section 12(b) of the Act:~~
~~Title of each class~~	~~Trading Symbol(s)~~	~~Name of each exchange on which registered~~
~~Class A Common Stock, No Par Value~~	~~PTVCA~~	~~The Nasdaq Stock Market LLC~~
~~Class B Common Stock, No Par Value~~	~~PTVCB~~	~~The Nasdaq Stock Market LLC~~

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of ~~May 1,~~November 5, 2019:

Common Stock, No Par Value:	Class A (voting)	~~2,615,216~~ 2,608,294
	Class B (non-voting)	~~12,076,998~~ 11,722,917
		~~14,692,214~~ 14,331,211

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share data)

	March 31 2019		December 31 2018			September 30 2019		December 31 2018
Assets
Investments:
Fixed income securities	$	671,973	$	592,645		$	757,841	$	592,645
Equity securities		68,956		66,422			72,837		66,422
Limited partnerships		38,239		55,044			22,645		55,044
Commercial mortgage loans		7,844		6,672			9,418		6,672
Short-term and other		1,000		1,000			1,000		1,000
		788,012		721,783			863,741		721,783

Cash and cash equivalents		117,418		163,996			85,777		163,996
Restricted cash and cash equivalents		15,888		6,815			22,410		6,815
Accounts receivable		108,974		102,972			105,801		102,972
Reinsurance recoverable		404,424		392,436			418,031		392,436
Other assets		95,572		88,426			93,756		88,426
Current federal income taxes recoverable		6,025		7,441			4,267		7,441
Deferred federal income taxes		3,478		6,262			2,984		6,262
	$	1,539,791	$	1,490,131
Total Assets						$	1,596,767	$	1,490,131

Liabilities and shareholders' equity
Reserves for losses and loss expenses	$	894,221	$	865,339		$	960,695	$	865,339
Reserves for unearned premiums		80,332		71,625			76,329		71,625
Reinsurance payable		62,802		66,632			55,225		66,632
Short-term borrowings		20,000		20,000			20,000		20,000
Accounts payable and other liabilities		116,366		110,453			121,088		110,453
Total Liabilities							1,233,337		1,134,049
		1,173,721		1,134,049
Shareholders' equity:
Common stock-no par value:
Class A voting -- authorized 3,000,000 shares; outstanding -- 2019 - 2,615,239; 2018 - 2,615,339		112		112
Class B non-voting -- authorized 20,000,000 shares; outstanding -- 2019 - 12,249,414; 2018 - 12,253,922		522		522
Class A voting -- authorized 3,000,000 shares; outstanding -- 2019 - 2,608,819; 2018 - 2,615,339							112		112
Class B non-voting -- authorized 20,000,000 shares; outstanding -- 2019 - 11,738,578; 2018 - 12,253,922							501		522
Additional paid-in capital		55,049		54,720			53,670		54,720
Accumulated other comprehensive income (loss)		1,416		(7,347	)		9,594		(7,347	)
Retained earnings		308,971		308,075			299,553		308,075
		366,070		356,082
	$	1,539,791	$	1,490,131
Total Shareholders' Equity							363,430		356,082
Total Liabilities and Shareholders' Equity						$	1,596,767	$	1,490,131

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share data)

	Three Months Ended March 31						Three Months Ended September 30						Nine Months Ended September 30
	2019			2018			2019			2018			2019			2018
Revenues
Net premiums earned	$	110,013		$	105,462		$	110,288		$	96,807		$	335,931		$	314,209
Net investment income		6,232			4,636			6,703			5,578			19,434			16,010
Commissions and other income		2,064			1,814			2,716			3,413			6,761			7,488
Net realized gains (losses) on investments, excluding impairment losses		(39	)		376
Net realized gains on investments, excluding impairment losses								1,199			449			1,872			1,740
Other-than-temporary impairment losses on investments		(260	)		–			(58	)		–			(404	)		–
Net unrealized gains (losses) on equity securities and limited partnership investments		6,327			(4,909	)		(1,016	)		1,924			7,573			(7,335	)
Net realized and unrealized gains (losses) on investments		6,028			(4,533	)		125			2,373			9,041			(5,595	)
		124,337			107,379			119,832			108,171			371,167			332,112

Expenses
Losses and loss expenses incurred		87,122			72,298			84,781			94,540			262,336			244,327
Other operating expenses		33,701			34,767			36,070			29,200			104,386			99,984
		120,823			107,065			120,851			123,740			366,722			344,311
Income before federal income tax expense (benefit)		3,514			314
Income (loss) before federal income tax expense (benefit)								(1,019	)		(15,569	)		4,445			(12,199	)
Federal income tax expense (benefit)		766			(16	)		(312	)		(3,244	)		869			(2,691	)
Net income	$	2,748		$	330
Net income (loss)							$	(707	)	$	(12,325	)	$	3,576		$	(9,508	)

Per share data:
Basic and diluted earnings	$	.18		$	.02

Dividends paid to shareholders	$	.10		$	.28
Basic and diluted earnings (loss)							$	(.05	)	$	(.82	)	$	.24		$	(.63	)

Reconciliation of shares outstanding:
Average shares outstanding - basic		14,848			15,010			14,361			14,969			14,607			14,998
Dilutive effect of share equivalents		30			24			-			-			77			-
Average shares outstanding - diluted		14,878			15,034			14,361			14,969			14,684			14,998

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	Three Months Ended March 31					Three Months Ended September 30						Nine Months Ended September 30
	2019		2018			2019			2018			2019		2018
Net income	$	2,748	$	330
Net income (loss)						$	(707	)	$	(12,325	)	$	3,576	$	(9,508	)

Other comprehensive income (loss), net of tax:
Unrealized net gains (losses) on fixed income securities		8,456		(3,121	)		1,566			(1,151	)		16,539		(6,298	)

Foreign currency translation adjustments		307		(223	)		(189	)		202			402		(209	)

Other comprehensive income (loss)		8,763		(3,344	)		1,377			(949	)		16,941		(6,507	)

Comprehensive income (loss)	$	11,511	$	(3,014	)	$	670		$	(13,274	)	$	20,517	$	(16,015	)

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Shareholders' Equity

(in thousands)

	Common Stock										Additional			Accumulated Other									Common Stock											Additional			Accumulated Other
	Class A				Class B						Paid-in			Comprehensive			Retained						Class A					Class B						Paid-in			Comprehensive			Retained			Total
Description	Shares		Amount		Shares			Amount			Capital			Income			Earnings			Total Equity			Shares			Amount		Shares			Amount			Capital			Income (Loss)			Earnings			Equity
Balance at December 31, 2018		2,615	$	112		12,254		$	522		$	54,720		$	(7,347	)	$	308,075		$	356,082			2,615		$	112		12,254		$	522		$	54,720		$	(7,347	)	$	308,075		$	356,082
Net income		–		–		–			–			–			–			2,748			2,748			–			–		–			–			–			–			3,576			3,576
Foreign currency translation adjustment, net of tax		–		–		–			–			–			307			–			307			–			–		–			–			–			402			–			402
Change in unrealized gain (loss) on investments, net of tax		–		–		–			–			–			8,456			–			8,456			–			–		–			–			–			16,539			–			16,539
Common stock dividends		–		–		–			–			–			–			(1,493	)		(1,493	)		–			–		–			–			–			–			(4,429	)		(4,429	)
Repurchase of common stock		–		–		(25	)		(1	)		(108	)		–			(359	)		(468	)		(6	)		–		(595	)		(24	)		(2,590	)		–			(7,669	)		(10,283	)
Restricted stock grants		–		–		20			1			437			–			–			438			–			–		80			3			1,540			––			–			1,543
Balance at March 31, 2019		2,615	$	112		12,249		$	522			55,049		$	1,416		$	308,971		$	366,070
Balance at September 30, 2019																								2,609		$	112		11,739		$	501		$	53,670		$	9,594		$	299,553		$	363,430

	Common Stock									Additional			Accumulated Other									Common Stock											Additional			Accumulated Other
	Class A				Class B					Paid-in			Comprehensive			Retained						Class A					Class B						Paid-in			Comprehensive			Retained			Total
Description	Shares		Amount		Shares			Amount		Capital			Loss			Earnings			Total Equity			Shares			Amount		Shares			Amount			Capital			Income (Loss)			Earnings			Equity
Balance at December 31, 2017		2,623	$	112		12,424		$	530	$	55,078		$	46,391		$	316,700		$	418,811
Cumulative effect of adoption of ASU 2016-01, net of tax		–		–		–			–		–			(46,157	)		46,157			–
Cumulative effect of adoption of ASU 2018-02		–		–		–			–		–			117			(117	)		–
Net income		–		–		–			–		–			–			330			330
Balance at June 30, 2019																							2,612		$	112		11,932		$	509		$	54,065		$	8,217		$	304,513		$	367,416
Net loss																							–			–		–			–			–			–			(707	)		(707	)
Foreign currency translation adjustment, net of tax		–		–		–			–		–			(223	)		–			(223	)		–			–		–			–			–			(189	)		–			(189	)
Change in unrealized gain (loss) on investments, net of tax		–		–		–			–		–			(3,121	)		–			(3,121	)		–			–		–			–			–			1,566			–			1,566
Common stock dividends		–		–		–			–		–			–			(4,229	)		(4,229	)		–			–		–			–			–			–			(1,442	)		(1,442	)
Repurchase of common stock		–		–		(11	)		–		(45	)		–			(190	)		(235	)		(3	)		–		(224	)		(9	)		(976	)		–			(2,811	)		(3,796	)
Restricted stock grants		–		–		5			–		478			–			–			478			–			–		31			1			581			–			–			582
Balance at March 31, 2018		2,623	$	112		12,418		$	530	$	55,511		$	(2,993	)	$	358,651		$	411,811
Balance at September 30, 2019																							2,609		$	112		11,739		$	501		$	53,670		$	9,594		$	299,553		$	363,430

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Shareholders' Equity

(in thousands)

	Common Stock										Additional			Accumulated Other
	Class A				Class B						Paid-in			Comprehensive			Retained			Total
Description	Shares		Amount		Shares			Amount			Capital			Income (Loss)			Earnings			Equity
Balance at December 31, 2017		2,623	$	112		12,424		$	530		$	55,078		$	46,391		$	316,700		$	418,811
Cumulative effect of adoption of ASU 2016-01, net of tax (Note 1)		–		–		–			–			–			(46,157	)		46,157			–
Cumulative effect of adoption of ASU 2018-02 (Note 1)		–		–		–			–			–			117			(117	)		–
Net loss		–		–		–			–			–			–			(9,508	)		(9,508	)
Foreign currency translation adjustment, net of tax		–		–		–			–			–			(209	)		–			(209	)
Change in unrealized gain (loss) on investments, net of tax		–		–		–			–			–			(6,298	)		–			(6,298	)
Common stock dividends		–		–		–			–			–			–			(12,652	)		(12,652	)
Repurchase of common stock		–		–		(112	)		(5	)		(484	)		–			(2,131	)		(2,620	)
Restricted stock grants		–		–		13			–			521			–			–			521
Balance at September 30, 2018		2,623	$	112		12,325		$	525		$	55,115		$	(6,156	)	$	338,449		$	388,045

	Common Stock										Additional			Accumulated Other
	Class A				Class B						Paid-in			Comprehensive			Retained			Total
Description	Shares		Amount		Shares			Amount			Capital			Income (Loss)			Earnings			Equity
Balance at June 30, 2018		2,623	$	112		12,380		$	528		$	55,745		$	(5,207	)	$	356,057		$	407,235
Net loss		–		–		–			–			–			–			(12,325	)		(12,325	)
Foreign currency translation adjustment, net of tax		–		–		–			–			–			202			–			202
Change in unrealized gain (loss) on investments, net of tax		–		–		–			–			–			(1,151	)		–			(1,151	)
Common stock dividends		–		–		–			–			–			–			(4,196	)		(4,196	)
Repurchase of common stock		–		–		(58	)		(3	)		(250	)		–			(1,087	)		(1,340	)
Restricted stock grants		–		–		3			–			(380	)		–			–			(380	)
Balance at September 30, 2018		2,623	$	112		12,325		$	525		$	55,115		$	(6,156	)	$	338,449		$	388,045

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	Three Months Ended March 31						Nine Months Ended September 30
	2019			2018			2019			2018
Operating activities
Net income	$	2,748		$	330
Adjustments to reconcile net income to net cash provided by operating activities		8,657			7,697
Net income (loss)							$	3,576		$	(9,508	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities								58,746			69,878
Net cash provided by operating activities		11,405			8,027			62,322			60,370

Investing activities
Purchases of fixed income and equity securities		(140,645	)		(140,820	)		(342,299	)		(330,217	)
Purchases of limited partnership interests		–			(200	)		–			(450	)
Distributions from limited partnerships		17,214			–			33,395			369
Proceeds from maturities		16,776			14,021			64,536			46,620
Proceeds from sales of fixed income securities		52,199			89,636			118,725			181,867
Proceeds from sales of equity securities		9,169			59,757			19,408			117,692
Purchase of insurance company-owned life insurance		–			(10,000	)		–			(10,000	)
Purchase of commercial mortgage loans		(1,172	)		–			(2,746	)		–
Purchases of property and equipment		(797	)		(1,218	)		(1,659	)		(4,360	)
Proceeds from disposals of property and equipment		–			4			4			8
Net cash provided by (used in) investing activities		(47,256	)		11,180			(110,636	)		1,529

Financing activities
Dividends paid to shareholders		(1,493	)		(4,229	)		(4,429	)		(12,652	)
Repurchase of common shares		(468	)		(235	)		(10,283	)		(2,620	)
Net cash used in financing activities		(1,961	)		(4,464	)		(14,712	)		(15,272	)

Effect of foreign exchange rates on cash and cash equivalents		307			(223	)		402			(209	)

Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents		(37,505	)		14,520			(62,624	)		46,418
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period		170,811			68,713			170,811			68,713
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$	133,306		$	83,233		$	108,187		$	115,131

See notes to condensed consolidated financial statements.

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Notes to Unaudited Condensed Consolidated Financial Statements

(All dollar amounts presented in these notes are in thousands, except share and per share data)

(1) Summary of Significant Accounting Policies:

Description of Business: Protective Insurance Corporation (the "Company"), based in Carmel, Indiana, is a property-casualty insurer specializing in marketing and underwriting property, liability and workers' compensation coverage for trucking and public transportation fleets, as well as coverage for trucking industry independent contractors. In addition, the Company offers workers' compensation coverage for a variety of operations outside the transportation industry. The Company operates as one reportable property and casualty insurance segment, offering a range of products and services, the most significant being commercial automobile and workers' compensation insurance products.

The term “Insurance Subsidiaries,” as used throughout this document, refers to Protective Insurance Company, Protective Specialty Insurance Company, Sagamore Insurance Company and B&L Insurance, Ltd.

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Interim financial statements should be read in conjunction with the Company's annual audited financial statements and other disclosures included in the Company's most recent Annual Report on Form 10-K. Operating results for interim periods are not necessarily indicative of results that may be expected for the year ending December 31, 2019 or any other future period.

Investments: Carrying amounts for fixed income securities represent fair value and are based on quoted market prices, where available, or broker/dealer quotes for specific securities where quoted market prices are not available. Equity securities are carried at quoted market prices (fair value). Commercial mortgage loans are carried primarily at amortized cost along with a valuation allowance for losses when necessary. These investments represent interests in commercial mortgage loans originated and serviced by a third party of which the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgage loans. There was no valuation allowance on the Company's commercial mortgage loans as of ~~March 31,~~September 30, 2019.

The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to record its proportionate share of the limited partnership's net income. To the extent the limited partnerships include both realized and unrealized investment gains or losses in the determination of net income or loss, then the Company would also recognize, through its condensed consolidated statements of operations, its proportionate share of the investee's unrealized, as well as realized, investment gains or losses within net unrealized gains (losses) on equity securities and limited partnership investments.

Short-term and other investments are carried at cost, which approximates their fair values.

Fixed income securities are considered to be available-for-sale. The related unrealized net gains or losses (net of applicable tax effects) on fixed income securities are reflected directly in shareholders' equity. Included within available-for-sale fixed income securities are convertible debt securities. A portion of the changes in the fair values of convertible debt securities is reflected as a component of net realized gains ~~(losses)~~ on investments, excluding impairment losses within the condensed consolidated statements of operations. Realized gains and losses on disposals of fixed income securities are recorded on the trade date. Realized gains and losses on fixed income securities are determined by the specific identification of the cost of investments sold and are included in net realized gains ~~(losses)~~ on investments, excluding impairment losses.

Effective January 1, 2018, the Company adopted new accounting guidance that requires equity securities ~~are~~to be recorded at fair value, with unrealized net gains or losses reflected as a component of net unrealized gains (losses) on equity securities and limited partnership investments within the condensed consolidated statements of operations. Realized gains and losses on disposals of equity securities are recorded on the trade date and included in net realized gains ~~(losses)~~ on investments, excluding impairment losses. Prior to adoption of the new accounting guidance, unrealized gains and losses related to equity securities were reflected directly in shareholders’ equity unless a decline in value was determined to be other-than-temporary, in which case the loss was charged to income.

In accordance with the Financial Accounting Standards Board's ("FASB") other-than-temporary impairment guidance, if a fixed income security is in an unrealized loss position and the Company has the intent to sell the fixed income security, or it is more likely than not that the Company will have to sell the fixed income security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to other-than-temporary impairment losses on investments in the condensed consolidated statements of operations. For impaired fixed income securities that the Company does not intend to sell or in cases where it is more likely than not that the Company will not have to sell such securities, but the Company expects that it will not fully recover the amortized cost basis, the credit component of the other-than-temporary impairment is recognized in other-than-temporary impairment losses on investments in the condensed consolidated statements of operations and the non-credit component of the other-than-temporary impairment is recognized directly in shareholders' equity.

- 78 -

The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed income security. The net present value is calculated by discounting the Company's best estimate of projected future cash flows at the appropriate effective interest rate.

Recognition of Revenue and Costs: Premiums are earned over the period for which insurance protection is provided. A reserve for unearned premiums, computed by the daily pro-rata method, is established to reflect amounts applicable to subsequent accounting periods. Commissions to unaffiliated companies and premium taxes applicable to unearned premiums are deferred and expensed as the related premiums are earned. The Company does not defer acquisition costs that are not directly variable with the production of ~~premium.~~premiums. If it is determined that expected losses and deferred expenses will likely exceed the related unearned premiums, the asset representing deferred policy acquisition costs is reduced and an expense is charged against current operations to reflect any such premium deficiency. In the event that the expected premium deficiency exceeds deferred policy acquisition costs, an additional liability would be recorded with a corresponding expense to current operations for the amount of the excess premium deficiency. Anticipated investment income is considered in determining recoverability of deferred acquisition costs. The Company had no material contract assets, contract liabilities, or deferred contract costs recorded on its condensed consolidated balance sheet at ~~March 31,~~September 30, 2019.

Recently Adopted Accounting Pronouncements: In ~~February~~January 2016, the FASB issued Accounting Standards Update ("ASU") 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01. The amendments in ASU 2016-01 changed the accounting for non-consolidated equity investments that are not accounted for under the equity method of accounting by requiring changes in fair value to be recognized in income. Previously, the Company's equity securities were classified as available-for-sale and changes in fair value were recognized in accumulated other comprehensive income (loss) as a component of shareholders' equity. The Company adopted ASU 2016-01 as of January 1, 2018 using the modified retrospective approach and recorded a cumulative-effect adjustment to reclassify unrealized gains on equity securities of $71,012 ($46,157, net of tax) from other comprehensive income (loss) to retained earnings within the consolidated balance sheet as of December 31, 2018. Unrealized gains or losses on equity securities are now recognized in the consolidated statements of operations within net unrealized gains (losses) on equity securities and limited partnership investments.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or ASU 2016-02. ASU 2016-02 superseded the ~~current~~prior lease guidance in Accounting Standards Codification ("ASC") Topic 840, Leases. Under the new guidance, lessees are required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees are required to recognize a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The guidance provides for a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, or ASU 2018-11, which provided adopters an additional transition method by allowing entities to initially apply ASU 2016-02, and subsequent related standards, at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the new guidance on January 1, 2019 utilizing the transition method allowed per ASU 2018-11, and accordingly, comparative period financial information was not adjusted for the effects of the new guidance. No cumulative-effect adjustment was required to the opening balance of retained earnings on the adoption date. The Company's adoption of the new standard did not have any impact on the Company's condensed consolidated statements of operations or cash flows; however, the impact of adopting the new guidance resulted in a right-of-use asset and a lease liability being recorded on the condensed consolidated balance sheet as of ~~March 31,~~September 30, 2019, each of approximately ~~$400,~~$210, which isare included within other assets and accounts payable and other liabilities.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). This ASU allows for the option to reclassify, from accumulated other comprehensive income (loss) to retained earnings, stranded tax effects resulting from the reduced federal corporate income tax rate in the U.S. Tax Cuts and Jobs Act of 2017, which was enacted on December 22, 2017. The legislation included a reduction to the corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. The amount of the reclassification was the difference between the historical corporate income tax rate and the new 21 percent corporate income tax rate. The Company adopted the new guidance in the first quarter of 2018 and recorded a cumulative-effect adjustment to reclassify the tax effects on fixed income investments of $117 from other comprehensive income (loss) to retained earnings within the consolidated balance sheet as of December 31, 2018.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements. This update provides clarification, corrects errors in and makes minor improvements to various ASC topics. Many of the amendments in this update have transition guidance with effective dates for annual periods beginning after December 15, 2018, and some amendments in this update do not require transition guidance and were effective upon issuance of this update. The adoption of this standard did not have a material impact on the Company's ~~condensed~~ consolidated financial statements.

- 9 -

Recently Issued Accounting Pronouncements: In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. This update introduces a current expected credit loss model for measuring expected credit losses for certain types of financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. ASU 2016-13 replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities, and provides for additional disclosure requirements. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the effects the adoption of ASU 2016-13 will have on its consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. This update removes the disclosure requirements for the amounts of and the reasons for transfers between Level 1 and Level 2 and disclosure of the policy for timing of transfers between levels. This update also removes disclosure requirements for the valuation processes for Level 3 fair value measurements. Additionally, this update adds disclosure requirements for the changes in unrealized gains and losses for recurring Level 3 fair value measurements and quantitative information for certain unobservable inputs in Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019. The Company does not expect ASU 2018-13 to have a material impact on its consolidated financial statements.

In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. These updates provide an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost and provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, and have the same effective date and transition requirements as ASU 2016-13. ASU 2016-13 introduces a current expected credit loss (CECL) model for measuring expected credit losses for certain types of financial instruments held at the reporting date requiring significant judgment in application based on historical experience, current conditions and reasonable supportable forecasts, but is not prescriptive about certain aspects of estimating expected losses. This update will have an impact on our available-for-sale fixed income portfolio, recoverable reinsurance balances, commercial mortgage loans and accounts receivable balances. ASU 2016-13 replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale fixed income securities to be recognized through an allowance for credit losses through which amounts can be reversed, rather than through an irreversible write-down of the cost, and provides for additional disclosure requirements. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2018. The guidance will be adopted using a modified retrospective approach through a cumulative-effect adjustment to the opening balance of retained earnings at the date of adoption and a prospective transition approach for fixed income securities for which an other-than-temporary impairment had been recognized before the adoption date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the date of adoption. The Company is currently gathering data and evaluating the effects the adoption of ASU ~~2018-13~~2016-13 will have on its consolidated financial statements.

- 810 -

(2) Investments:

The following is a summary of available-for-sale securities at ~~March 31,~~September 30, 2019 and December 31, 2018:

	Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gains (Losses)			Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gains (Losses)
March 31, 2019
September 30, 2019
Fixed income securities
Agency collateralized mortgage obligations	$	15,773	$	15,567	$	265	$	(59	)	$	206		$	14,426	$	13,911	$	518	$	(3	)	$	515
Agency mortgage-backed securities		41,283		40,486		849		(52	)		797			51,246		49,567		1,691		(12	)		1,679
Asset-backed securities		77,307		77,890		180		(763	)		(583	)		99,295		99,834		580		(1,119	)		(539	)
Bank loans		11,284		11,372		38		(126	)		(88	)		14,625		14,871		54		(300	)		(246	)
Certificates of deposit		2,835		2,835		–		–			–			2,835		2,835		–		–			–
Collateralized mortgage obligations		5,433		5,072		433		(72	)		361			5,718		5,234		571		(87	)		484
Corporate securities		227,529		227,017		2,110		(1,598	)		512			267,223		261,191		6,858		(826	)		6,032
Mortgage-backed securities		37,984		37,699		588		(303	)		285			47,381		46,235		1,290		(144	)		1,146
Municipal obligations		30,357		30,056		383		(82	)		301			32,986		32,280		755		(49	)		706
Non-U.S. government obligations		30,879		30,810		162		(93	)		69			24,068		23,705		364		(1	)		363
U.S. government obligations		191,309		190,324		1,469		(484	)		985			198,038		195,099		3,326		(387	)		2,939
Total fixed income securities	$	671,973	$	669,128	$	6,477	$	(3,632	)	$	2,845		$	757,841	$	744,762	$	16,007	$	(2,928	)	$	13,079

	Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gains (Losses)
December 31, 2018
Fixed income securities
Agency collateralized mortgage obligations	$	10,687	$	10,636	$	145	$	(94	)	$	51
Agency mortgage-backed securities		37,385		37,168		371		(154	)		217
Asset-backed securities		64,422		66,241		14		(1,833	)		(1,819	)
Bank loans		9,750		10,208		27		(485	)		(458	)
Certificates of deposit		2,835		2,835		–		–			–
Collateralized mortgage obligations		5,423		5,095		376		(48	)		328
Corporate securities		190,450		196,925		127		(6,602	)		(6,475	)
Mortgage-backed securities		38,540		38,586		377		(423	)		(46	)
Municipal obligations		29,155		29,102		239		(186	)		53
Non-U.S. government obligations		25,180		25,339		6		(165	)		(159	)
U.S. government obligations		178,818		178,369		1,252		(803	)		449
Total fixed income securities	$	592,645	$	600,504	$	2,934	$	(10,793	)	$	(7,859	)

The following table summarizes, for available-for-sale fixed income securities in an unrealized loss position at ~~March 31,~~September 30, 2019 and December 31, 2018, the aggregate fair value and gross unrealized loss categorized by the duration individual securities have been continuously in an unrealized loss position.

	March 31, 2019							December 31, 2018							September 30, 2019							December 31, 2018
	Number of Securities		Fair Value		Gross Unrealized Loss			Number of Securities		Fair Value		Gross Unrealized Loss			Number of Securities		Fair Value		Gross Unrealized Loss			Number of Securities		Fair Value		Gross Unrealized Loss
Fixed income securities:
12 months or less		85	$	96,462	$	(1,570	)		275	$	282,646	$	(7,296	)		97	$	106,943	$	(2,097	)		275	$	282,646	$	(7,296	)
Greater than 12 months		253		208,253		(2,062	)		217		131,001		(3,497	)		86		58,053		(831	)		217		131,001		(3,497	)
Total fixed income securities		338	$	304,715	$	(3,632	)		492	$	413,647	$	(10,793	)		183	$	164,996	$	(2,928	)		492	$	413,647	$	(10,793	)

- 911 -

The fair value and the cost or amortized costs of fixed income investments at ~~March 31,~~September 30, 2019, organized by contractual maturity, are shown below. Actual maturities may ultimately differ from contractual maturities because borrowers have, in some cases, the right to call or prepay obligations with or without call or prepayment penalties. Pre-refunded municipal bonds are classified based on their pre-refunded call dates.

Fair
Value

Cost or
Amortized Cost

One year or less $ 95,201 $ 95,347
Excess of one year to five years 315,983 314,909
Excess of five years to ten years 81,812 80,997
Excess of ten years 6,630 6,233
Contractual maturities 499,626 497,486
Asset-backed securities 172,347 171,642
Total $ 671,973 $ 669,128

	Fair Value		Cost or Amortized Cost
One year or less	$	67,076	$	67,008
Excess of one year to five years		336,640		330,035
Excess of five years to ten years		129,362		126,528
Excess of ten years		12,416		11,645
Contractual maturities		545,494		535,216
Asset-backed securities		212,347		209,546
Total	$	757,841	$	744,762

Following is a summary of the components of net realized and unrealized gains (losses) on investments for the periods presented in the accompanying condensed consolidated statements of operations.

	Three Months Ended March 31
	2019			2018			Three Months Ended September 30						Nine Months Ended September 30
							2019			2018			2019			2018
Gross gains on available-for-sale fixed income securities sold during the period	$	3,171		$	2,443		$	2,407		$	2,690		$	9,710		$	8,824
Gross losses on available-for-sale fixed income securities sold during the period		(3,527	)		(2,708	)		(2,728	)		(2,743	)		(9,409	)		(8,539	)

Other-than-temporary impairments		(260	)		–			(58	)		–			(404	)		–

Change in value of limited partnership investments		408			(2,603	)		278			(1,073	)		1,000			(6,518	)

Gains (losses) on equity securities:
Gains on equity securities:
Realized gains on equity securities sold during the period		317			641			1,520			502			1,571			1,455
Unrealized gains (losses) on equity securities held at the end of the period		5,919			(2,306	)		(1,294	)		2,997			6,573			(817	)
Realized and unrealized gains (losses) on equity securities during the period		6,236			(1,665	)
Realized and unrealized gains on equity securities during the period								226			3,499			8,144			638

Net realized and unrealized gains (losses) on investments	$	6,028		$	(4,533	)	$	125		$	2,373		$	9,041		$	(5,595	)

Shareholders' equity at ~~March 31,~~September 30, 2019 included approximately ~~$27,203,~~$16,035, net of federal income tax expense, of reported earnings that remain undistributed by limited partnerships.

(3) Reinsurance:

The following table summarizes the Company's transactions with reinsurers for the ~~three months ended March 31,~~ 2019 and ~~2018.~~2018 comparative periods.

	2019		2018		2019		2018
Three months ended March 31:
Three months ended September 30:
Premiums ceded to reinsurers	$	30,173	$	32,442	$	29,957	$	39,318
Losses and loss expenses ceded to reinsurers		30,789		26,661		27,228		44,015
Commissions from reinsurers		7,233		7,880		7,820		5,986

Nine months ended September 30:
Premiums ceded to reinsurers					$	92,556	$	100,560
Losses and loss expenses ceded to reinsurers						86,876		92,651
Commissions from reinsurers						23,229		20,309

- 1012 -

(4) Loss and Loss Expense Reserves:

Activity in the reserves for losses and loss expenses for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018 is summarized as follows. All amounts are shown net of reinsurance, unless otherwise indicated.

							Nine Months Ended
	Three Months Ended March 31						September 30
	2019			2018			2019			2018
Reserves, gross of reinsurance recoverable, at the beginning of the year	$	865,339		$	680,274		$	865,339		$	680,274
Reinsurance recoverable on unpaid losses at the beginning of the year		375,935			308,143			375,935			308,143
Reserves at the beginning of the year		489,404			372,131			489,404			372,131

Provision for losses and loss expenses:
Claims occurring during the current period		88,180			73,899			263,925			229,644
Claims occurring during prior periods		(1,058	)		(1,601	)		(1,589	)		14,683
Total incurred		87,122			72,298			262,336			244,327

Loss and loss expense payments:
Claims occurring during the current period		8,708			10,683			53,836			49,510
Claims occurring during prior periods		56,747			48,655			133,196			123,167
Total paid		65,455			59,338			187,032			172,677
Reserves at the end of the period		511,071			385,091			564,708			443,781

Reinsurance recoverable on unpaid losses at the end of the period		383,150			309,359			395,987			334,056
Reserves, gross of reinsurance recoverable, at the end of the period	$	894,221		$	694,450		$	960,695		$	777,837

The ~~table above shows a reserve savings of $1,058 that developed~~$1,589 prior accident year favorable development during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was primarily due to favorable loss development in workers' compensation and independent contractor coverages. This savings compares to a prior accident year deficiency of $14,683 for the ~~settlement of claims occurring on or before December 31, 2018.~~nine months ended September 30, 2018, which related to unfavorable loss development in commercial automobile coverages. Losses incurred from claims occurring during prior years reflect the development from prior accident years, composed of individual claim savings and deficiencies which, in the aggregate, have resulted from the settlement of claims at amounts higher or lower than previously reserved and from changes in estimates of losses incurred but not reported.

~~The $1,058 prior accident year savings that developed during the three months ended March 31, 2019 was primarily~~ ~~due to favorable loss development in workers' compensation and independent contractor coverages.~~ This 2019 savings compares to a savings of $1,601 for the three months ended March 31, 2018, which was also related to favorable loss development from workers' compensation and independent contractor coverages.

(5) Segment Information:

The Company has one reportable business segment in its operations: Property and Casualty Insurance. The property and casualty insurance segment provides multiple lines of insurance coverage primarily to commercial automobile companies, as well as to independent contractors who contract with commercial automobile companies. In addition, the Company provides workers' compensation coverage for a variety of operations outside the transportation industry.

The following table summarizes segment revenues for the three and nine months ended ~~March 31,~~September 30, 2019 and 2018:

	Three Months Ended March 31					Three Months Ended September 30				Nine Months Ended September 30
	2019		2018			2019		2018		2019		2018
Revenues:
Net premiums earned	$	110,013	$	105,462		$	110,288	$	96,807	$	335,931	$	314,209
Net investment income		6,232		4,636			6,703		5,578		19,434		16,010
Net realized and unrealized gains (losses) on investments		6,028		(4,533	)		125		2,373		9,041		(5,595	)
Commissions and other income		2,064		1,814			2,716		3,413		6,761		7,488
Total revenues	$	124,337	$	107,379		$	119,832	$	108,171	$	371,167	$	332,112

- 1113 -

(6) Debt:

On August 9, 2018, the Company entered into a credit agreement providing a revolving credit facility with a $40,000 limit, with the option for up to an additional $35,000 in incremental loans at the discretion of the lenders. This credit agreement has an expiration date of August 9, 2022. Interest on this revolving credit facility is referenced to the London Interbank Offered Rate and can be fixed for periods of up to one year at the Company's option. Outstanding drawings on this revolving credit facility were $20,000 as of ~~March 31,~~September 30, 2019. At ~~March 31,~~September 30, 2019, the effective interest rate was ~~3.59%~~3.14%, and the Company had $20,000 remaining under the revolving credit ~~facility as of March 31, 2019.~~facility. The current outstanding borrowings were used to repay the Company's previous line of credit. The Company's revolving credit facility has two financial covenants, each of which were met as of ~~March 31, 2019, requiring~~September 30, 2019. These covenants require the Company to have a minimum U.S. generally accepted accounting principles net worth and a maximum consolidated leverage ratio of 0.35 to 1.00.

(7) Taxes:

The Company uses the estimated annual effective tax rate method for calculating its tax provision in interim periods, which represents the Company’s best estimate of the effective tax rate expected for the full year based on projected annual taxable income (loss). The effective tax rate can fluctuate throughout the year because estimates used in the quarterly tax provision are updated as more information becomes available throughout the year.

The effective federal tax rate on consolidated loss for the three months ended September 30, 2019 was 30.6% compared to 20.8% for the three months ended September 30, 2018. The effective federal tax rate on consolidated income for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was ~~21.8%~~19.6% compared to ~~(5.1%)~~22.1% on consolidated loss for the nine months ended September 30, 2018. The lower pre-tax loss for the three months ended ~~March 31, 2018.~~September 30, 2019 as well as the relatively low amount of pre-tax income for the nine months ended September 30, 2019 make these interim period effective tax rates less comparable year over year. The difference in the effective federal income tax rate ~~differs~~ from the normal statutory rate ~~in part as a result~~was primarily related to the effects of tax-exempt investment income. The effective tax rate for the three months ended March 31, 2018 was also impacted by the change in accounting for unrealized gains and losses on equity securities related to the Company's adoption of ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, where changes in unrealized gains and losses,income and the corresponding tax effects, are now recorded in the condensed consolidated statement of operations. The Company recorded an unrealized loss, and corresponding tax benefit, related to equity securities during the three months ended March 31, 2019.dividends received deduction.

As of ~~March 31,~~September 30, 2019, the Company's calendar years 2017 ~~2016~~ and ~~2015~~2016 remain subject to examination by the Internal Revenue Service.

- 1214 -

(8) Fair Value:

Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:

As of ~~March 31,~~September 30, 2019:

Description	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Fixed income securities:
Agency collateralized mortgage obligations	$	15,773	$	–	$	15,773	$	–	$	14,426	$	–	$	14,426	$	–
Agency mortgage-backed securities		41,283		–		41,283		–		51,246		–		51,246		–
Asset-backed securities		77,307		–		77,307		–		99,295		–		99,295		–
Bank loans		11,284		–		11,284		–		14,625		–		14,625		–
Certificates of deposit		2,835		2,835		–		–		2,835		2,835		–		–
Collateralized mortgage obligations		5,433		–		5,433		–		5,718		–		5,718		–
Corporate securities		222,853		–		222,853		–		262,656		–		262,656		–
Options embedded in convertible securities		4,676		–		4,676		–		4,567		–		4,567		–
Mortgage-backed securities		37,984		–		37,984		–		47,381		–		47,381		–
Municipal obligations		30,357		–		30,357		–		32,986		–		32,986		–
Non-U.S. government obligations		30,879		–		30,879		–		24,068		–		24,068		–
U.S. government obligations		191,309		–		191,309		–		198,038		–		198,038		–
Total fixed income securities		671,973		2,835		669,138		–		757,841		2,835		755,006		–
Equity securities:
Consumer		15,862		15,862		–		–		15,387		15,387		–		–
Energy		3,534		3,534		–		–		3,010		3,010		–		–
Financial		24,814		24,814		–		–		29,829		29,829		–		–
Industrial		7,412		7,412		–		–		4,488		4,488		–		–
Technology		2,631		2,631		–		–		2,609		2,609		–		–
Funds (e.g. mutual funds, closed end funds, ETFs)		6,324		6,324		–		–		9,438		9,438		–		–
Other		8,379		8,379		–		–		8,076		8,076		–		–
Total equity securities		68,956		68,956		–		–		72,837		72,837		–		–
Short-term		1,000		1,000		–		–
Short-term investments										1,000		1,000		–		–
Cash equivalents		113,377		504		112,873		–		78,072		–		78,072		–
Total	$	855,306	$	73,295	$	782,011	$	–	$	909,750	$	76,672	$	833,078	$	–

- 1315 -

As of December 31, 2018:

Description	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Fixed income securities:
Agency collateralized mortgage obligations	$	10,687	$	–	$	10,687	$	–	$	10,687	$	–	$	10,687	$	–
Agency mortgage-backed securities		37,385		–		37,385		–		37,385		–		37,385		–
Asset-backed securities		64,422		–		64,422		–		64,422		–		64,422		–
Bank loans		9,750		–		9,750		–		9,750		–		9,750		–
Certificates of deposit		2,835		2,835		–		–		2,835		2,835		–		–
Collateralized mortgage obligations		5,423		–		5,423		–		5,423		–		5,423		–
Corporate securities		186,651		–		186,651		–		186,651		–		186,651		–
Options embedded in convertible securities		3,799		–		3,799		–		3,799		–		3,799		–
Mortgage-backed securities		38,540		–		38,540		–		38,540		–		38,540		–
Municipal obligations		29,155		–		29,155		–		29,155		–		29,155		–
Non-U.S. government obligations		25,180		–		25,180		–		25,180		–		25,180		–
U.S. government obligations		178,818		–		178,818		–		178,818		–		178,818		–
Total fixed income securities		592,645		2,835		589,810		–		592,645		2,835		589,810		–
Equity securities:
Consumer		17,945		17,945		–		–		17,945		17,945		–		–
Energy		3,179		3,179		–		–		3,179		3,179		–		–
Financial		25,253		25,253		–		–		25,253		25,253		–		–
Industrial		6,920		6,920		–		–		6,920		6,920		–		–
Technology		2,303		2,303		–		–		2,303		2,303		–		–
Funds (e.g. mutual funds, closed end funds, ETFs)		5,489		5,489		–		–		5,489		5,489		–		–
Other		5,333		5,333		–		–		5,333		5,333		–		–
Total equity securities		66,422		66,422		–		–		66,422		66,422		–		–
Short-term		1,000		1,000		–		–
Short-term investments										1,000		1,000		–		–
Cash equivalents		156,855		–		156,855		–		156,855		–		156,855		–
Total	$	816,922	$	70,257	$	746,665	$	–	$	816,922	$	70,257	$	746,665	$	–

Level inputs, as defined by the FASB guidance, are as follows:

Level Input:		Input Definition:

Level 1		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

Level 2		Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.

Level 3		Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The Company did not have any Level 3 assets at ~~March 31,~~September 30, 2019 or December 31, 2018. Level 3 assets, when present, are valued using various unobservable inputs, including extrapolated data, proprietary models and indicative quotes.

Quoted market prices are obtained whenever possible. Where quoted market prices are not available, fair values are estimated using broker/dealer quotes for specific securities. These techniques are significantly affected by the Company's assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs have not been considered in estimating fair values.

Transfers between levels, if any, are recorded as of the beginning of the reporting period. There were no significant transfers of assets between Level 1 and Level 2 during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018.

In addition to the preceding disclosures on assets recorded at fair value in the condensed consolidated balance sheets, FASB guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in the condensed consolidated balance sheets.

Non-financial instruments such as real estate, property and equipment, other assets, deferred income taxes and intangible assets, and certain financial instruments such as policy reserve liabilities are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to determine the underlying economic value of the Company. The following methods, assumptions and inputs were used to estimate the fair value of each class of financial instrument:

- 1416 -

Limited partnerships: The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to carry the investment at its proportionate share of the limited partnership's equity. The underlying assets of the Company's investments in limited partnerships are carried primarily at fair ~~value, and,~~value; therefore, the Company's carrying value of limited partnerships approximates fair value. As these investments are not actively traded and the corresponding inputs are based on data provided by the investees, they are classified as Level 3.

Commercial mortgage loans: Commercial mortgage loans are carried primarily at amortized cost along with a valuation allowance for losses when necessary. These investments represent interests in commercial mortgage loans originated and serviced by a third party of which the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgage loans. The fair value of the Company’s investment in these commercial mortgage loans is based on expected future cash flows discounted at the current interest rate for origination of similar quality loans, adjusted for specific loan risk. These investments are classified as Level 3.

Short-term borrowings: The fair value of the Company's short-term borrowings is based on quoted market prices for the same or similar debt, or, if no quoted market prices are available, on the current market interest rates available to the Company for debt of similar terms and remaining maturities.

A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company's condensed consolidated balance sheets at ~~March 31,~~September 30, 2019 and December 31, 2018 is as follows:

	Carrying		Fair Value								Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total		Value		Level 1		Level 2		Level 3		Total
March 31, 2019
September 30, 2019
Assets:
Limited partnerships	$	38,239	$	–	$	–	$	38,239	$	38,239	$	22,645	$	–	$	–	$	22,645	$	22,645
Commercial mortgage loans		7,844		–		–		7,844		7,844		9,418		–		–		9,418		9,418
Liabilities:
Short-term borrowings		20,000		–		20,000		–		20,000		20,000		–		20,000		–		20,000

December 31, 2018
Assets:
Limited partnerships	$	55,044	$	–	$	–	$	55,044	$	55,044	$	55,044	$	–	$	–	$	55,044	$	55,044
Commercial mortgage loans		6,672		–		–		6,672		6,672		6,672		–		–		6,672		6,672
Liabilities:
Short-term borrowings		20,000		–		20,000		–		20,000		20,000		–		20,000		–		20,000

(9) ~~Stock Based~~Stock-Based Compensation:

The Company issues shares of restricted Class B Common Stock to the Company's outside directors ~~which serve~~ as ~~the~~part of their annual retainer ~~compensation for the outside directors.~~compensation. The shares are distributed to the outside directors on the vesting date, which, with the exception of pro-rated annual retainers granted to outside directors, is one year following the date of grant. On May 17, 2019, the Company granted shares of restricted Class B Common Stock in connection with the election of a new outside director, reflecting such director’s pro-rated annual retainer compensation, which shares will vest and be distributed on May 7, 2020. Additionally, effective May 22, 2019, John D. Nichols, Jr. ceased serving as the Company's Interim Chief Executive Officer and principal executive officer, but continued to serve as Chairman of the Company's Board of Directors. On May 22, 2019, the Company granted shares of restricted Class B Common Stock to Mr. Nichols in connection with this transition, reflecting his pro-rated annual retainer compensation, which shares will also vest and be distributed on May 7, 2020. The table below provides detail of the restricted stock issuances to directors for 2018 and 2019:

Grant Date	Number of Shares Issued		Vesting Date	Service Period	Grant Date Fair Value Per Share		Number of Shares Issued		Vesting Date	Service Period	Grant Date Fair Value Per Share
5/9/2017		18,183	5/9/2018	7/1/2017 - 6/30/2018	$	24.20		18,183	5/9/2018	7/1/2017 - 6/30/2018	$	24.20

8/31/2017		1,257	5/9/2018	8/31/2017 - 6/30/2018	$	21.90		1,257	5/9/2018	8/31/2017 - 6/30/2018	$	21.90

2/9/2018		408	5/9/2018	2/9/2018 - 6/30/2018	$	24.20		408	5/9/2018	2/9/2018 - 6/30/2018	$	24.20

5/8/2018		19,085	5/8/2019	7/1/2018 - 6/30/2019	$	23.05		19,085	5/8/2019	7/1/2018 - 6/30/2019	$	23.05

5/7/2019		29,536	5/7/2020	7/1/2019 - 6/30/2020	$	16.25		29,536	5/7/2020	7/1/2019 - 6/30/2020	$	16.25

5/17/2019								3,591	5/7/2020	7/1/2019 - 6/30/2020	$	16.25

5/22/2019								3,541	5/7/2020	7/1/2019 - 6/30/2020	$	16.25

- 17 -

Compensation expense related to the above stock grants is recognized over the period in which the directors render services.

~~- 15 -~~

In May 2017, the Company's Compensation Committee granted equity-based awards pursuant to the Company's Long-Term Incentive Plan (the "Long-Term Incentive Plan"), which was approved by the Company's shareholders at the 2017 Annual Meeting of Shareholders. Certain participants under the Long-Term Incentive Plan were granted Value Creation Incentive Plan awards (the "2017 VCIP Awards"). The 2017 VCIP Awards are performance-based equity awards that will be earned based on the Company's cumulative operating income over a three-year performance period from January 1, 2017 through December 31, 2019 relative to a cumulative operating income goal for the period set by the Compensation Committee in March 2017. For the purpose of the 2017 VCIP Awards, cumulative operating income is equal to income before taxes excluding net realized gains (losses) on investments. Any 2017 VCIP Awards that are earned will be paid in unrestricted shares of the Company's Class B Common Stock at the end of the three-year performance period, but no later than March 15, 2020. No shares are eligible to be issued under the 2017 VCIP Awards as of ~~March 31,~~September 30, 2019.

In March 2018, the Company's Compensation Committee granted equity-based awards pursuant to the Long-Term Incentive Plan. Certain participants under the Long-Term Incentive Plan were granted equity awards (the "2018 LTIP Awards"), with the number of shares of Class B Common Stock earned pursuant to such ~~award~~awards determined by applying a performance matrix consisting of a measurement of the combined results of the Company's 2018 growth in gross premiums earned and the Company's 2018 combined ratio. The combined ratio is calculated as a ratio of (A) losses and loss expenses incurred, plus other operating expenses, less commission and other income to (B) net premiums earned. No 2018 LTIP Awards were earned based on the Company's performance in 2018, and therefore no shares were issued pursuant to the 2018 LTIP Awards. In addition to the 2018 LTIP Awards, in March 2018 the Company's Compensation Committee also granted Value Creation Incentive Plan awards (the "2018 VCIP Awards") to certain participants under the Long-Term Incentive Plan. The 2018 VCIP Awards are performance-based equity awards that will be earned based on the Company's cumulative operating income, as defined above, over a three-year performance period from January 1, 2018 through December 31, 2020 relative to a cumulative operating income goal for the period set by the Compensation Committee in March 2018. Any 2018 VCIP Awards that are earned will be paid in unrestricted shares of the Company's Class B Common Stock at the end of the three-year performance period, but no later than March 15, 2021. No shares are eligible to be issued under the 2018 VCIP Awards as of ~~March 31,~~September 30, 2019.

On November 13, 2018, the Company entered into an employment agreement ~~(the "Agreement")~~ with its Interim Chief Executive Officer, John D. Nichols, Jr. Pursuant to the terms of ~~the Agreement,~~this employment agreement, on November 13, 2018, Mr. Nichols was granted 85,000 restricted shares of the Company's Class B Common Stock (the ~~"Stock~~"Nichols Stock Grant"), of which 42,500 shares ~~will vest~~vested as of October 17, 2019; 21,250 shares will vest as of October 17, 2020, and 21,250 shares will vest as of October 17, 2021. The Company recorded ~~$309~~$844 of expense during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 related to the Nichols Stock Grant.

In March 2019, the Company's Compensation Committee granted equity-based awards pursuant to the Long-Term Incentive Plan. Certain participants under the Long-Term Incentive Plan were granted equity awards (the "2019 LTIP Awards"), with the number of shares of Class B Common Stock earned pursuant to such ~~award~~awards determined by applying a performance matrix consisting of a corporate performance component as well as a personal performance component. The corporate performance component of the 2019 LTIP Awards will be determined based on the Company's achievement of 2019 underwriting income compared to the plan target. The Company's underwriting income will be calculated as income (loss) before federal income tax expense (benefit), less net realized gains (losses) on investments, less net unrealized gains (losses) on equity securities and limited partnerships, less net investment income. The personal performance component of the 2019 LTIP Awards will be determined based on the achievement of personal goals that align with departmental and corporate objectives for 2019. Any 2019 LTIP Awards earned will be paid in shares of restricted Class B Common Stock in early 2020. One-third of such shares will vest annually over the three-year period beginning one year from the date of issue. The Company recorded ~~$24~~$107 of expense during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 related to the 2019 LTIP Awards.

On May 22, 2019, the Company entered into an employment agreement with its new Chief Executive Officer, Jeremy D. Edgecliffe-Johnson. Pursuant to the terms of this employment agreement, on May 22, 2019, Mr. Edgecliffe-Johnson was granted 70,000 restricted shares of the Company's Class B Common Stock (the "Edgecliffe-Johnson Stock Grant"), of which 35,000 shares will vest as of June 1, 2022, 21,000 shares will vest as of June 1, 2023, and 14,000 shares will vest as of June 1, 2024. The Company recorded $122 of expense during the nine months ended September 30, 2019 related to the Edgecliffe-Johnson Stock Grant.

(10) Litigation, Commitments and Contingencies:

In the ordinary, regular and routine course of their business, the Company and its ~~insurance subsidiaries~~Insurance Subsidiaries are frequently involved in various matters of litigation relating principally to claims for insurance coverage provided. No currently pending matter is deemed by management to be material to the ~~Company.~~Company, other than as noted below.

- 1618 -

Personnel Staffing Group Litigation

In July 2019, Protective Insurance Company (“Protective”) was named as a defendant in an action brought by a former insured, Personnel Staffing Group d/b/a MVP Staffing (“PSG”), in the U.S. District Court for the Central District of California alleging that Protective had breached its workers’ compensation insurance policy and had breached the duties of good faith and fair dealing. Protective provided workers’ compensation insurance to PSG from January 1, 2017 through June 30, 2018, which was subject to a $500 per claim deductible to be paid by PSG. No specific damages were included in the complaint. In August 2019, Protective filed a motion to dismiss or stay the action, which is pending. The Company intends to vigorously defend these claims; however, the ultimate outcome cannot be presently determined.

In August 2019, Protective filed a lawsuit against PSG in Marion County Superior Court, in Indianapolis, Indiana alleging breach of contract, breach of the parties' collateral agreement, breach of the parties' indemnity agreement, and seeking a declaratory judgment regarding PSG’s ongoing obligation to fund its ongoing claim deductible obligations and adequately collateralize Protective’s current and ongoing claims exposure pursuant to terms of the parties' agreements. In October 2019, Protective amended the complaint to include allegations of misrepresentation as to source of coverage, negligent misrepresentation, fraud and racketeering and seeking injunctive relief. Pursuant to the terms of the workers’ compensation policies, Protective has a duty to adjust and pay claims arising under the policies regardless of whether PSG makes payments to Protective for deductible obligations under the policies. Under its contractual obligations to Protective, PSG is required to maintain a “loss fund” for the payment of claims, the balance of which is to remain at or above $4,000; in addition, PSG is required to provide collateral in an amount equal to 110% of Protective’s current open case reserves on workers’ compensation claims arising under the policies.

As of September 30, 2019, Protective had approximately $6,800 in deductible receivables on claims arising under PSG’s workers’ compensation policies and had exhausted all collateral provided by PSG. Protective continues to pay claims settlements under the policies without reimbursement from PSG. For the past six months, the average monthly deductible invoices have been $1,600. PSG’s estimated ultimate obligation under the agreements is approximately $43,000 as of September 30, 2019 (inclusive of the $6,800 in deductible receivables noted above). At September 30, 2019, based on the Company's assessment that PSG will continue to operate as a business and that the terms of the agreement with PSG will be legally enforceable, the Company believes that it will fully collect all current and future amounts due from PSG relating to this matter and, therefore, has not recorded a provision for any potential loss. In the event that PSG files bankruptcy or that the agreements are found to be unenforceable, Protective will likely incur a charge up to the then-estimated amount of PSG’s ultimate obligation.

The Company will also include this matter when assessing the impact of adopting the accounting guidance under the new credit losses standard discussed in Note 1.

(11) Shareholders' Equity:

On August 31, 2017, the Company's Board of Directors authorized the reinstatement of its share repurchase program for up to 2,464,209 shares of the Company's Class A or Class B Common Stock. On August ~~7, 2018,~~6, 2019, the Company's Board of Directors reaffirmed its share repurchase program, but also provided that the aggregate dollar amount of shares of the Company's ~~Common Stock~~common stock that may be repurchased under the share repurchase program ~~through~~between August 8,6, 2019 and August 6, 2020 may not exceed ~~$25,000.~~$25,000, including a limit of up to $6,250 per quarter. Pursuant to this share repurchase program, the Company entered into a Rule 10b5-1 plan on ~~March 22,~~September 23, 2019 (the "Rule 10b5-1 Plan"), which authorized the repurchase of up to ~~$3,500~~$625 of the Company's outstanding common ~~shares~~stock at various pricing thresholds, in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934. The Rule 10b5-1 ~~plan~~Plan expires on ~~May 9,~~November 7, 2019. No duration has been placed on the Company's share repurchase program, and the Company reserves the right to amend, suspend or discontinue it at any time. The share repurchase program does not commit the Company to repurchase any shares of its ~~Common Stock.~~common stock.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, the Company paid ~~$468~~$10,283 to repurchase ~~100~~6,520 shares of Class A and ~~24,858~~595,326 shares of Class B Common Stock under the share repurchase program.

- 19 -

The following table illustrates changes in accumulated other comprehensive income (loss) by component for the ~~three~~nine months ended ~~March 31,~~September 30, 2019:

	Foreign Currency			Unrealized Holding Gains (Losses) on Available-for-sale Securities			Total			Foreign Currency			Unrealized Holding Gains (Losses) on Available-for-sale Securities			Total
Beginning balance at December 31, 2018	$	(1,139	)	$	(6,208	)	$	(7,347	)	$	(1,139	)	$	(6,208	)	$	(7,347	)

Other comprehensive income before reclassifications		307			7,671			7,978			402			16,588			16,990
Amounts reclassified from accumulated other comprehensive income (loss)		–			785			785			–			(49	)		(49	)

Net current-period other comprehensive income		307			8,456			8,763			402			16,539			16,941

Ending balance at March 31, 2019	$	(832	)	$	2,248		$	1,416
Ending balance at September 30, 2019										$	(737	)	$	10,331		$	9,594

The following table illustrates changes in accumulated other comprehensive income (loss) by component for the ~~three~~nine months ended ~~March 31,~~September 30, 2018:

	Foreign Currency			Unrealized Holding Gains (Losses) on Available-for-sale Securities			Total			Foreign Currency			Unrealized Holding Gains (Losses) on Available-for-sale Securities			Total
Beginning balance at December 31, 2017	$	(309	)	$	46,700		$	46,391		$	(309	)	$	46,700		$	46,391

Cumulative effect of adoption of ASU 2016-01, net of tax		–			(46,157	)		(46,157	)		–			(46,157	)		(46,157	)

Balance at January 1, 2018		(309	)		543			234			(309	)		543			234

Cumulative effect of adoption of ASU 2018-02		–			117			117			–			117			117
Other comprehensive loss before reclassifications		(223	)		(2,998	)		(3,221	)		(209	)		(4,815	)		(5,024	)
Amounts reclassified from accumulated other comprehensive income (loss)		–			(123	)		(123	)		–			(1,483	)		(1,483	)

Net current-period other comprehensive loss		(223	)		(3,121	)		(3,344	)		(209	)		(6,298	)		(6,507	)

Ending balance at March 31, 2018	$	(532	)	$	(2,461	)	$	(2,993	)
Ending balance at September 30, 2018										$	(518	)	$	(5,638	)	$	(6,156	)

~~- 17 -~~

(12) Related Parties:

At March 31, 2019, the Company was invested in one limited partnership, the New Vernon India Fund, with an aggregate estimated value of $17,313, that is managed by an organization in which one director of the Company is an executive officer and owner. The Company's ownership interest in this limited partnership at March 31, 2019 was 4%. For the three months ended March 31, 2019 and 2018, the Company recorded $48 and $142 of fees related to the management of this limited partnership investment.

~~In January 2019, the Company withdrew $5,684 from the New Vernon Global Opportunity Fund, which liquidated its investment in this limited partnership.~~

The Company utilizes the services of an investment firm of which one director of the Company is a partial owner. ~~These~~This investment ~~firms manage~~firm manages equity securities and fixed income portfolios held by the Company with an aggregate market value of approximately ~~$7,899~~$8,885 at ~~March 31,~~September 30, 2019. Total commissions and net fees earned by ~~the~~this investment ~~firms~~firm and its affiliates on these portfolios were $5$12 and ~~$27~~$81 for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018.

(13) Subsequent Events:

~~In April 2019, the Company withdrew $3,000 from the Arbiter Partners limited partnership, which reduced the Company's investment in this limited partnership.~~

On ~~May 7,~~November 5, 2019, the Company's Board of Directors declared a regular quarterly dividend of $0.10 per share on the Company's Class A and Class B Common Stock. The dividend per share will be payable ~~June 4,~~December 3, 2019 to shareholders of record on ~~May 21,~~November 19, 2019.

Pursuant to the Rule 10b5-1 plan entered into on March 22, 2019, the Company paid $3,031 to repurchase 23 shares of Class A and 172,416 shares of Class B Common Stock between April 1, 2019 and the date of this Quarterly Report on Form 10-Q.

- 1820 -

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Protective Insurance Corporation is a property-casualty insurer specializing in marketing and underwriting property, liability and workers' compensation coverage for trucking and public transportation fleets, as well as coverage for trucking industry independent contractors. Additionally, we offer workers' compensation coverage for a variety of operations outside the transportation industry. We operate as one reportable property and casualty insurance segment, offering a range of products and services, the most significant being commercial automobile and workers' compensation insurance products.

The term “Protective,” as used throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), refers to Protective Insurance Corporation, the parent company. The terms the “Company,” “we,” “us” and “our,” as used throughout this MD&A, refer to Protective and all of its subsidiaries, unless the context clearly indicates otherwise. The term “Insurance Subsidiaries,” as used throughout this MD&A, refers to Protective Insurance Company, Protective Specialty Insurance Company, Sagamore Insurance Company and B&L Insurance, Ltd.

Liquidity and Capital Resources

The primary sources of our liquidity are (1) funds generated from insurance operations, including net investment income, (2) proceeds from the sale of investments, and (3) proceeds from maturing investments.

We generally experience positive cash flow from operations. Premiums are collected on insurance policies in advance of the disbursement of funds for payment of claims. Operating costs of our property/casualty Insurance Subsidiaries, other than loss and loss expense payments and commissions paid to related agency companies, average less than one-third of net premiums earned on a consolidated basis, and the remaining amount is available for investment for varying periods of time depending on the type of insurance coverage provided and the timing of the claim payments. Because losses are often settled in periods subsequent to when they are incurred, operating cash flows may, at times, become negative as loss settlements on claim reserves established in prior years exceed current revenues. Our cash flow relating to premiums is significantly affected by reinsurance programs in effect, whereby we cede both premium and risk to other insurance and reinsurance companies. These programs vary significantly among products, and certain contracts call for reinsurance payment patterns, which do not coincide with the collection of premiums by us from our insureds.

On August 31, 2017, our Board of Directors authorized the reinstatement of our share repurchase program for up to 2,464,209 shares of our Class A or Class B Common Stock. On August ~~7, 2018,~~6, 2019, our Board of Directors reaffirmed our share repurchase program, but also provided that the aggregate dollar amount of shares of our common stock that may be repurchased under the share repurchase program ~~through~~between August 8,6, 2019 and August 6, 2020 may not exceed $25.0 ~~million.~~million, including a limit of up to $6.25 million per quarter. The repurchases may be made in the open market or through privately negotiated transactions, from time-to-time, and in accordance with applicable laws, rules and regulations. On ~~March 22,~~September 23, 2019, we entered into a stock repurchase plan for the purpose of repurchasing up to ~~$3.5~~$0.6 million of shares of our common stock, at various pricing thresholds, in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Rule 10b5-1 Plan"). The Rule 10b5-1 Plan was established pursuant to, and as part of, our share repurchase program and permits shares to be repurchased in accordance with pre-determined criteria when repurchases would otherwise be prohibited, such as during self-imposed blackout periods, or under insider trading laws. The Rule 10b5-1 ~~plan~~Plan expires on ~~May 9,~~November 7, 2019. The share repurchase program may be amended, suspended or discontinued at any time and does not commit us to repurchase any shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand. The actual number and value of the shares to be purchased will depend on the performance of our stock price, market volume and other market conditions. During the ~~three~~nine months ended ~~March 31,~~September 30, 2019, we paid ~~$0.5~~$10.3 million to repurchase ~~100~~6,520 shares of Class A and ~~24,858~~595,326 shares of Class B Common Stock under the share repurchase program.

For several years, our investment philosophy has emphasized the purchase of short-term bonds with high quality and liquidity. Our fixed income investment portfolio continues to emphasize shorter-duration instruments. If there was a hypothetical increase in interest rates of 100 basis points, the price of our ~~bonds~~fixed income portfolio, including cash, at ~~March 31,~~September 30, 2019 would be expected to ~~fall~~decrease by approximately ~~2.7%~~2.6%. The credit quality of our fixed income securities remains high with a weighted average rating of AA-, including cash. The average contractual life of our fixed income and short-term investment portfolio was 6.7 years at September 30, 2019 and 5.5 years at ~~March 31, 2019 and~~ December 31, 2018. The average duration of our fixed income portfolio remains shorter than the average duration of our liabilities. We also remain an active participant in the equity securities market, using capital in excess of amounts considered necessary to fund our current operations. The long-term horizon for our equity investments allows us to invest in positions ~~where~~that primarily focus on ultimate value, and not short-term market ~~fluctuation, is the primary focus.~~fluctuation. Investments made by our domestic property/casualty Insurance Subsidiaries are regulated by guidelines promulgated by the National Association of Insurance Commissioners (the "NAIC"), which are designed to provide protection for both policyholders and shareholders.

- 21 -

Net cash flows from operations increased ~~$3.4~~$1.9 million to ~~$11.4~~$62.3 million during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 compared to ~~$8.0~~$60.4 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2018. The increase in operating cash flows was primarily related to higher premium volume ~~and~~as well as higher investment income during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 compared to the same period in 2018.

~~- 19 -~~

Net cash used in investing activities was ~~$47.3~~$110.6 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 compared to ~~net~~ cash provided by investing activities of ~~$11.2~~$1.5 million for the ~~three~~nine months ended ~~March 31,~~September 30, 2018. The ~~$58.5~~$112.1 million change was primarily ~~related~~due to ~~lower proceeds~~the increased investment of cash and cash equivalent investments into fixed income securities during the 2019 period. We also received an additional $33.0 million from ~~sales~~limited partnership investments, which were reinvested into fixed income securities during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, we reallocated a large portion of our equity ~~and~~portfolio to fixed income ~~security investments and our purchases of $1.2 million of commercial mortgage loans in~~securities, however the ~~first quarter of 2019, partially offset by $17.2 million in distributions received from limited partnerships~~total amount invested was relatively stable. Additionally, during ~~the first quarter of 2019 and a $0.4 million reduction in purchases of property and equipment. Additionally, the first quarter of~~ 2018, ~~included the purchase of~~we purchased $10.0 million of company-owned life insurance, which did not recur in ~~the first quarter of~~ 2019.

Net cash used in financing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 consisted of regular cash dividend payments to shareholders of ~~$1.5~~$4.4 million ($~~0.10~~0.30 per share) and ~~$0.5~~$10.3 million to repurchase shares of our Class A and B Common Stock. Financing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2018 consisted of regular cash dividend payments to shareholders of ~~$4.2~~$12.7 million ($~~0.28~~0.84 per share) and ~~$0.2~~$2.6 million to repurchase shares of our Class A and B Common Stock.

Our assets at ~~March 31,~~September 30, 2019 included ~~$113.4~~$78.1 million of investments included within cash and cash equivalents on the condensed consolidated balance sheet that are readily convertible to cash without market penalty and an additional ~~$95.0~~$67.1 million of fixed income investments maturing in less than one year. We believe these liquid investments, plus the expected cash flow from premium collections, are sufficient to provide for projected claim payments and operating cost demands. In the event competitive conditions produce inadequate premium rates and we choose to further restrict volume, the liquidity of our investment portfolio would permit us to continue to pay claims as settlements are reached without requiring the disposal of investments at a loss, regardless of interest rates in effect at the time. In addition, our reinsurance program is structured to avoid significant cash outlays that accompany large losses.

We maintain a revolving credit facility with a $40.0 million limit, with the option for up to an additional $35.0 million in incremental loans at the discretion of the lenders, which has an expiration date of August 9, 2022. Interest on this revolving credit facility is referenced to the London Interbank Offered Rate and can be fixed for periods of up to one year at our option. Outstanding drawings on this revolving credit facility were $20.0 million as of ~~March 31,~~September 30, 2019. At ~~March 31,~~September 30, 2019, the effective interest rate was ~~3.59%,~~3.14% and we had $20.0 million remaining under the revolving credit ~~facility as of March 31, 2019.~~facility. The current outstanding borrowings were used to repay ~~the~~our previous line of credit. Our revolving credit facility has two financial covenants, each of which were met as of ~~March 31, 2019, requiring~~September 30, 2019. These covenants require us to have a minimum U.S. ~~Generally Accepted Accounting Principles~~generally accepted accounting principles ("GAAP") net worth and a maximum consolidated leverage ratio of 0.35 to 1.00.

Annualized net premiums written by our Insurance Subsidiaries for the ~~first~~third quarter of 2019 equaled approximately ~~120%~~122% of the combined statutory surplus of these ~~subsidiaries, a level consistent with higher~~subsidiaries. According to the NAIC, acceptable ranges for the ratio of net premiums ~~written. Premium writings~~written to statutory surplus include results of up to ~~100%~~300%. This ratio is designed to measure our ability to absorb above-average losses and ~~in some cases up to 200% of surplus are generally considered acceptable by regulatory authorities. Further, the~~our financial strength. Additionally, the statutory capital of each of our Insurance Subsidiaries substantially exceeded minimum risk-based capital requirements set by the NAIC as of ~~March 31,~~September 30, 2019. ~~Accordingly,~~As a result, we have the ability to ~~significantly~~ increase our business without seeking additional capital to meet regulatory guidelines.

Consolidated shareholders' equity is composed largely of GAAP shareholders' equity of our Insurance Subsidiaries. As such, there are statutory restrictions on the transfer of substantial portions of this equity to Protective. At ~~March 31,~~September 30, 2019, ~~$54.1~~$37.1 million may be transferred by dividend or loan to Protective during the remainder of 2019 without approval by, or prior notification to, regulatory authorities. An additional ~~$212.5~~$215.3 million of shareholders' equity of our Insurance Subsidiaries could be advanced or loaned to Protective with prior notification to, and approval from, regulatory authorities, although transfers of this size would not be practical. We believe these restrictions pose no material liquidity concerns for us. We also believe the financial strength and stability of our Insurance Subsidiaries would permit access by Protective to short-term and long-term sources of credit when needed. Protective had cash and marketable securities valued at ~~$10.1~~$6.4 million at ~~March 31,~~September 30, 2019.

- 2022 -

Non-GAAP Measures

We believe investors’ understanding of our performance is enhanced by our disclosure of underwriting income (loss), which is a measure that is not calculated in accordance with GAAP. Underwriting income (loss) represents the pre-tax profitability of our insurance operations and is derived by subtracting net realized and unrealized gains (losses) on investments and net investment income from income before federal income tax expense (benefit). We use underwriting income (loss) as an internal performance measure in the management of our operations because we believe it gives us and users of our financial information useful insight into our results of operations, our underlying business performance and our ongoing operating trends. Underwriting income (loss) should not be viewed as a substitute for income before federal income tax expense (benefit) calculated in accordance with GAAP, and other companies may define underwriting income (loss) differently.

The ratio of consolidated other operating expenses, less commissions and other income, to net premiums earned, or our expense ratio, and the ratio of losses and loss expenses incurred, plus other operating expenses, less ~~commission~~commissions and other income, to net premiums earned, or our combined ratio, are measures of our profitability that we believe increase the period-to-period comparability of our operational results. Our management uses these ratios to evaluate performance, allocate resources and forecast future operating periods. While expense ratios and combined ratios are widely used within our industry, our use of such ratios may not be directly comparable to similarly titled measures reported by other companies.

	2019			2018			Three Months Ended						Nine Months Ended
Income before federal income tax expense (benefit)	$	3,514		$	314
							September 30						September 30
(dollars in thousands)							2019			2018			2019			2018
Income (loss) before federal income tax expense (benefit)							$	(1,019	)	$	(15,569	)	$	4,445		$	(12,199	)
Less: Net realized and unrealized gains (losses) on investments		6,028			(4,533	)		125			2,373			9,041			(5,595	)
Less: Net investment income		6,232			4,636			6,703			5,578			19,434			16,010
Underwriting income (loss)	$	(8,746	)	$	211
Underwriting loss							$	(7,847	)	$	(23,520	)	$	(24,030	)	$	(22,614	)


Ratios
Losses and loss expenses incurred	$	87,122		$	72,298		$	84,781		$	94,540		$	262,336		$	244,327
Net premiums earned		110,013			105,462			110,288			96,807			335,931			314,209
Loss ratio		79.2	%		68.6	%		76.9	%		97.7	%		78.1	%		77.8	%

Other operating expenses	$	33,701		$	34,767		$	36,070		$	29,200		$	104,386		$	99,984
Less: Commissions and other income		2,064			1,814			2,716			3,413			6,761			7,488
Other operating expenses, less commissions and other income		31,637			32,953			33,354			25,787			97,625			92,496
Net premiums earned		110,013			105,462			110,288			96,807			335,931			314,209
Expense ratio		28.8	%		31.2	%		30.2	%		26.6	%		29.1	%		29.4	%

Combined ratio		108.0	%		99.8	%		107.1	%		124.3	%		107.2	%		107.2	%

- 2123 -

Results of Operations

Comparison of ~~First~~Third Quarter 2019 to ~~First~~Third Quarter 2018(in thousands)

	2019			2018			Change			% Change			2019			2018			Change			% Change
Gross premiums written	$	148,893		$	148,823		$	70			–		$	137,145		$	138,699		$	(1,554	)		(1.1	)%
Ceded premiums written		(33,571	)		(35,389	)		1,818			5.1	%		(27,853	)		(41,685	)		13,832			(33.2	)%
Net premiums written	$	115,322		$	113,434		$	1,888			1.7	%	$	109,292		$	97,014		$	12,278			12.7	%

Net premiums earned	$	110,013		$	105,462		$	4,551			4.3	%	$	110,288		$	96,807		$	13,481			13.9	%
Net investment income		6,232			4,636			1,596			34.4	%		6,703			5,578			1,125			20.2	%
Commissions and other income		2,064			1,814			250			13.8	%		2,716			3,413			(697	)		(20.4	)%
Net realized and unrealized gains (losses) on investments		6,028			(4,533	)		10,561			233.0	%
Net realized and unrealized gains on investments														125			2,373			(2,248	)		94.7	%
Total revenue		124,337			107,379									119,832			108,171
Losses and loss expenses incurred		87,122			72,298			14,824			20.5	%		84,781			94,540			(9,759	)		(10.3	)%
Other operating expenses		33,701			34,767			(1,066	)		(3.1	)%		36,070			29,200			6,870			23.5	%
Total expenses		120,823			107,065									120,851			123,740
Income before federal income tax expense (benefit)		3,514			314			3,200
Federal income tax expense (benefit)		766			(16	)		782
Net income	$	2,748		$	330		$	2,418
Loss before federal income tax benefit														(1,019	)		(15,569	)		14,550
Federal income tax benefit														(312	)		(3,244	)		2,932
Net loss													$	(707	)	$	(12,325	)	$	11,618

Gross premiums written during the ~~first~~third quarter of 2019 ~~were approximately flat,~~decreased $1.6 million (1.1%), while net premiums earned increased ~~$4.6~~$13.5 million ~~(4.3%~~(13.9%), as compared to the ~~first~~third quarter of 2018. The higher net premiums earned in the third quarter of 2019 were primarily the result of lower premiums ceded in the ~~changes~~current quarter when compared to the same period in ~~our reinsurance structure~~2018, as discussed below. The difference in the percentage change for premiums written compared to earned was reflective of the normal differences in the financial statement recognition of earned premiums compared to written, as well as differences in reinsurance ceding rates on the mix of business in-force.

Premiums ceded to reinsurers on our insurance business averaged ~~22.5%~~20.3% of gross premiums written for the ~~first~~third quarter of 2019 compared to ~~23.8%~~30.1% in ~~the first quarter of 2018. In~~ the third quarter of ~~2017, we lowered~~2018. The decrease in premiums ceded was primarily due to our reserve strengthening during the ~~quota share~~third quarter of 2018 that resulted in ceding an additional $13.8 million in premium from prior treaty years related to the variable premium adjustment provisions in our historical reinsurance treaties, which did not recur in 2019. This was partially offset by higher gross premiums written in our workers' compensation coverages, which carry a higher reinsurance ceding rate, in the third quarter of 2019 compared to the third quarter of 2018.

Losses and loss expenses incurred during the third quarter of 2019 decreased $9.8 million (10.3%) compared to the third quarter of 2018, resulting in a loss ratio of 76.9% during the third quarter of 2019 compared to a loss ratio of 97.7% during the third quarter of 2018. The loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned. The higher losses and loss expenses and higher loss ratio in the third quarter of 2018 reflected reserve strengthening of $16.4 million related to unfavorable prior accident year loss development in commercial automobile coverages as a result of increased claim severity due to a more challenging litigation environment and an increase in the time to settle claims. The third quarter of 2019 loss ratio reflected an increase in losses driven by severe commercial automobile claims, including continued emergence of severity as well as $0.1 million of adverse prior accident year development.

Net investment income for the third quarter of 2019 increased 20.2% to $6.7 million compared to $5.6 million for the third quarter of 2018. The increase reflected an increase in average funds invested resulting from positive cash flow, as well as the continued reallocation from equity investments in limited partnerships and cash and cash equivalent investments into short-duration, high-quality bonds.

Net realized and unrealized gains on investments of $0.1 million during the third quarter of 2019 were primarily driven by net realized gains on sales of securities, excluding impairment losses, of $1.2 million and a $0.3 million increase in the value of our limited partnership investments, partially offset by $1.3 million in unrealized losses on equity securities during the period and other-than-temporary impairments on our ~~workers compensation~~fixed income securities of $0.1 million recognized during the period. Comparative third quarter 2018 net realized and unrealized losses on investments of $2.4 million were primarily driven by $3.0 million in unrealized gains on equity securities and net realized gains on sales of fixed income and equity securities, excluding impairment losses, of $0.5 million during the period, partially offset by a $1.1 million decrease in the value of our limited partnership investments. Realized investment gains and losses result from decisions regarding overall portfolio realignment as well as the sale of individual securities, including the change in the aggregate value of limited partnerships and, as such, should not be expected to be consistent from period to period.

Other operating expenses for the third quarter of 2019 increased $6.9 million, or 23.5%, to $36.1 million compared to the third quarter of 2018. The increase was driven primarily by higher salary and benefit expenses and higher commission expenses as a result of the mix of premium written during the third quarter of 2019. Additionally, other operating expenses for the third quarter of 2019 included charges of $1.6 million related to severance and new hire costs as well as bad debt expense, which we do not expect to recur. The expense ratio was 30.2% during the third quarter of 2019 compared to 26.6% for the third quarter of 2018. The increase in the expense ratio was primarily related to the higher salary and benefit expenses and higher commission expenses noted above.

- 24 -

Federal income tax benefit was $0.3 million for the third quarter of 2019 compared to $3.2 million for the third quarter of 2018. The effective tax rate for the third quarter of 2019 was a 30.6% tax benefit compared to a 20.8% tax benefit in the third quarter of 2018. The lower pre-tax loss for the three months ended September 30, 2019 made these interim period effective tax rates less comparable. The effective federal income tax rate in the current year differed from the normal statutory rate primarily as a result of tax-exempt investment income and the dividends received deduction. The effective tax rate can fluctuate throughout the year because estimates used in the quarterly tax provision are updated as more information becomes available throughout the year.

As a result of the factors mentioned above, net loss improved $11.6 million to a loss of $0.7 million during the third quarter of 2019 compared to a net loss of $12.3 million during the third quarter of 2018.

Comparison of Nine Months Ended September 30, 2019 to Nine Months Ended September 30, 2018 (in thousands)

	2019			2018			Change			% Change
Gross premiums written	$	433,191		$	429,792		$	3,399			0.8	%
Ceded premiums written		(92,882	)		(105,090	)		12,208			(11.6	)%
Net premiums written	$	340,309		$	324,702		$	15,607			4.8	%

Net premiums earned	$	335,931		$	314,209		$	21,722			6.9	%
Net investment income		19,434			16,010			3,424			21.4	%
Commissions and other income		6,761			7,488			(727	)		(9.7	)%
Net realized and unrealized gains (losses) on investments		9,041			(5,595	)		14,636			261.6	%
Total revenue		371,167			332,112
Losses and loss expenses incurred		262,336			244,327			18,009			7.4	%
Other operating expenses		104,386			99,984			4,402			4.4	%
Total expenses		366,722			344,311
Income (loss) before federal income tax expense (benefit)		4,445			(12,199	)		16,644
Federal income tax expense (benefit)		869			(2,691	)		3,560
Net income (loss)	$	3,576		$	(9,508	)	$	13,084

Gross premiums written during the nine months ended September 30, 2019 increased $3.4 million (0.8%), while net premiums earned increased $21.7 million (6.9%), as compared to ~~reflect growing profitability and confidence~~the same period in ~~this book~~2018. The higher net premiums earned in the nine months ended September 30, 2019 were primarily the result of ~~business. We also restructured~~lower premiums ceded in the current period when compared to the same period in 2018, as discussed below. The difference in the percentage change for premiums written compared to earned was reflective of the normal differences in the financial statement recognition of earned premiums compared to written, as well as differences in reinsurance ceding rates on the mix of business in-force.

Premiums ceded to reinsurers on our ~~commercial automobile reinsurance~~insurance business averaged 21.4% of gross premiums written for the nine months ended September 30, 2019 compared to 24.5% for the same period of 2018. The decrease in premiums ceded was primarily due to our reserve strengthening during the nine months ended September 30, 2018 that resulted in ceding an additional $16.4 million in premium from prior treaty ~~moving away from~~years related to the variable premium ~~ceded rates (based on loss performance),~~adjustment provisions in our historical reinsurance treaties, compared to a flat ceding arrangement with no material changes to the economic risks taken for these products (i.e. ceded losses will decrease by a similar amount as ceded premiums). The impacts of these changes to our reinsurance structure were partially offset by the ceding of an additional $1.6 million in commercial automobile premium from prior treaty years related to ~~variable premium~~the same adjustment provisions during the nine months ended September 30, 2019. Additionally, during the nine months ended September 30, 2019, we had higher gross premiums written in ~~our historical~~workers' compensation coverages, which carry a higher reinsurance ~~treaties.~~ceding rate.

Losses and loss expenses incurred during the ~~first quarter of~~nine months ended September 30, 2019 increased ~~$14.8~~$18.0 million ~~(20.5%~~(7.4%) compared to the ~~first quarter~~same period of 2018, resulting in a loss ratio of ~~79.2% during~~78.1% for the ~~first quarter of 2019 compared~~period. This compares to a loss ratio of ~~68.6%~~77.8% during the ~~first quarter~~same period of 2018. The loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned. The increased losses and loss expenses and the higher loss ratio in the ~~first quarter of~~nine months ended September 30, 2019 reflected an increase in ~~current accident year~~ losses driven by severe commercial automobile ~~losses,~~claims, including continued emergence of severity. This ~~current accident year~~loss development was partially offset by prior accident year net savings of ~~$1.1~~$1.6 million that developed during the ~~three~~nine months ended ~~March 31,~~September 30, 2019, primarily due to favorable loss development in workers' compensation and independent contractor coverages. Including the impact of the additional $1.6 million ceded premium discussed above, the total prior accident year impacts ~~were unfavorable by $0.5 million~~offset each other for the ~~three~~nine months ended ~~March 31,~~September 30, 2019. Losses and loss expenses for the nine months ended September 30, 2018 reflected reserve strengthening of $14.7 million related to unfavorable prior accident year loss development in commercial automobile coverages.

Net investment income for the ~~first quarter of~~nine months ended September 30, 2019 increased ~~34.4%~~21.4% to ~~$6.2~~$19.4 million compared to ~~$4.6~~$16.0 million ~~for~~in the ~~first quarter~~same period of 2018. The increase reflected an increase in average funds invested resulting from positive cash flow, as well as a reallocation from equity investments ~~held~~ in limited partnerships and cash and cash equivalent investments into short-duration, ~~high quality~~high-quality bonds. After-tax investment income increased by 31.6% to $5.0 million during the first quarter of 2019, compared to $3.8 million during the first quarter of 2018, reflecting the aforementioned increase in average funds invested and reallocation from limited partnerships to short-duration, high quality bonds.

- 25 -

Net realized and unrealized gains on investments of ~~$6.0~~$9.0 million during the ~~first quarter of~~nine months ended September 30, 2019 were primarily driven by ~~$6.0~~$6.6 million in unrealized gains on equity securities during the period, net realized gains on sales of securities, excluding impairment losses, of $1.9 million and a ~~$0.4~~$1.0 million increase in the value of our limited partnership investments, partially offset by other-than-temporary impairments on our fixed income securities of ~~$0.3~~$0.4 million recognized during the period. ~~Comparative first quarter~~In the comparative nine month period ended September 30, 2018, net realized and unrealized losses on investments of ~~$4.5~~$5.6 million were driven by a ~~$2.6~~$6.5 million decrease in the value of our limited partnership investments and ~~$2.3~~$0.8 million in unrealized losses on equity securities, excluding impairment losses, during the period, partially offset by net realized gains on sales of fixed income and equity securities of ~~$0.4~~$1.7 million. Realized investment gains and losses result from decisions regarding overall portfolio realignment as well as the sale of individual securities, including the change in the aggregate value of limited partnerships and, as such, should not be expected to be consistent from period to period.

Other operating expenses for the ~~first quarter of~~nine months ended September 30, 2019 ~~decreased $1.1~~increased $4.4 million, or ~~3.1%~~4.4%, to ~~$33.7~~$104.4 million compared to $100.0 million for the ~~first quarter~~same period of 2018. The ~~decrease~~increase was driven primarily ~~by lower salary and benefit expense in addition to lower other operating expenses, partially offset~~ by higher commission expenses as a result of the mix of premium written inand higher salary and benefit expenses during the ~~first quarter of~~nine months ended September 30, 2019. The expense ratio ~~of consolidated other operating expenses less commissions and other income to net premiums earned (the “expense ratio”)~~ was ~~28.8%~~29.1% during the ~~first quarter of~~nine months ended September 30, 2019 compared to ~~31.2%~~29.4% for the ~~first quarter~~same period of 2018. The decrease in the expense ratio was primarily related to the leveraging effect of higher net premiums earned in the ~~first quarter of~~nine months ended September 30, 2019 compared to the ~~first quarter~~same period of 2018.

~~- 22 -~~

Federal income tax expense was ~~$0.8~~$0.9 million for the ~~first quarter of~~nine months ended September 30, 2019 compared to a federal income tax benefit of ~~less than $0.1~~$2.7 million for the ~~first quarter~~same period of 2018. The effective tax rate for the ~~first quarter of~~nine months ended September 30, 2019 was ~~21.8%~~a 19.6% expense compared to ~~(5.1%)~~a 22.1% benefit in the ~~first quarter~~same period of 2018. The relatively low amount of pre-tax income for the nine months ended September 30, 2019 made these interim period effective tax rates less comparable. The effective federal income tax rate in the current year differed from the normal statutory rate ~~in part~~primarily as a result of tax-exempt investment ~~income.~~income and the dividends received deduction. The effective tax rate ~~for~~can fluctuate throughout the three months ended March 31, 2018 was also impacted by the change in accounting for unrealized gains and losses on equity securities related to our adoption of ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, where changes in unrealized gains and losses, and the corresponding tax effects, are now recordedyear because estimates used in the ~~condensed consolidated statement of operations.~~quarterly tax provision are updated as more information becomes available throughout the year.

As a result of the factors mentioned above, net income increased ~~$2.4~~$13.1 million to ~~$2.7~~$3.6 million during the ~~first quarter of~~nine months ended September 30, 2019 compared to net ~~income~~loss of ~~$0.3~~$9.5 million during the ~~first quarter~~same period of 2018.

Sensitivity Analysis

Management is aware of the potential for variation from the reserves established at any particular point in time. Savings or deficiencies could develop in future valuations of the currently established loss and loss expense reserve estimates under a variety of reasonably possible scenarios. The majority of our reserves for losses and loss expenses, on a net of reinsurance basis, relate to our commercial automobile products. Perhaps the most significant example of sensitivity to variation in the key assumptions is the loss ratio selection for our commercial automobile products for policies subject to certain major reinsurance treaties.

Commercial automobile products covered by our reinsurance treaties from July 2013 through June 2019 are subject to an aggregate stop-loss provision. Once this aggregate stop-loss level is reached, for every $100 of additional loss, we are only responsible ~~only~~ for our $25 retention. The following table illustrates the benefit of these reinsurance treaties, as the net financial ~~impact~~loss to us of a further ~~5% or 10%~~ increase in ultimate losses for each of the ~~five~~six most recent reinsurance treaty years ~~(2014-2018)~~(2013-2018) covering these commercial automobile ~~products:~~products is only about 25% of the gross loss:

	5% Increase in Ultimate Loss Ratio		10% Increase in Ultimate Loss Ratio		5% Increase in Ultimate Loss Ratio		10% Increase in Ultimate Loss Ratio
Gross loss expense from further strengthening current reserve position	$	35.3	$	70.7	$	45.5	$	90.9
Net financial loss		9.2		18.1		11.8		23.1

$/share (after tax)	$	0.49	$	0.96	$	0.64	$	1.25

Commercial automobile products covered by our reinsurance treaty from July 2019 through June 2020 are also subject to an aggregate stop-loss provision. Once the aggregate stop-loss level is reached, for every $100 of additional loss, we are responsible for our $65 retention. This increase in our retention compared to recent years reflects both: (1) our decision to buy less reinsurance due to a higher cost of reinsurance for the 2019 treaty year, and (2) our confidence in profitability improvements given rate increases we are receiving on our commercial automobile products.

- 26 -

Forward-Looking Information

The disclosures in this Form 10-Q contain "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995). All statements, trend analyses and other information contained in this Form 10-Q relative to markets for our products and trends in our operations or financial results, as well as other statements including words such as "may," "target," "anticipate," "believe," "plan," "estimate," "expect," "intend," "project," and other similar expressions, constitute forward-looking statements.

Investors are cautioned that such forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements, many of which are difficult to predict and generally beyond our control. Investors are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Investors are also urged to carefully review and consider the various disclosures made by us, which attempt to advise interested parties of the factors that affect our business, including "Risk Factors" set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and our reports filed with the U.S. Securities and Exchange Commission from time to time. Except to the extent otherwise required by federal securities laws, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof.

~~- 23 -~~

Factors that could contribute to these differences include, among other things:

●

general economic conditions, including weakness of the financial markets, prevailing interest rate levels and stock and credit market performance, which may affect or continue to affect (among other things) our ability to sell our products and to collect amounts due to us, our ability to access capital resources and the costs associated with such access to capital and the market value of our investments;

●

our ability to obtain adequate premium rates and manage our operating strategies;

●

increasing competition in the sale of our insurance products and services resulting from the entrance of new competitors into, or the expansion of the operations of existing competitors in, our markets and our ability to retain existing customers;

●

other changes in the markets for our insurance products;

●

the impact of technological advances, including those specific to the transportation industry;

●

changes in the legal or regulatory environment, which may affect the manner in which claims are adjusted or litigated, including loss and loss adjustment expense;

●

legal or regulatory changes or actions, including those relating to the regulation of the sale, underwriting and pricing of insurance products and services and capital requirements;

●

the impact of a downgrade in our financial strength rating;

●

technology or network security disruptions or breaches;

●

adequacy of insurance reserves;

●

availability of reinsurance and ability of reinsurers to pay their obligations;

●

our ability to attract and retain qualified ~~employees and to successfully complete our Chief Executive Officer transition;~~employees;

●

tax law and accounting changes; and

●

legal actions brought against us.

Some of the significant risks and uncertainties that could cause actual results to differ materially from our expectations and projections are described more fully in Part II, Item 1A, "Risk Factors," of this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. You should read that information in conjunction with this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our unaudited condensed consolidated financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Critical Accounting Policies

There have been no changes in our critical accounting policies as disclosed in our Annual Report on Form 10-K filed for the year ended December 31, 2018.

Concentrations of Credit Risk

Our Insurance Subsidiaries cede portions of their gross premiums to numerous reinsurers under quota share and excess of loss treaties, as well as facultative placements. These reinsurers assume commensurate portions of the risk of loss covered by the contracts. As losses are reported and reserved, portions of the gross losses attributable to reinsurers are established as receivable assets and losses incurred are reduced. At ~~March 31,~~September 30, 2019, amounts due from reinsurers on paid and unpaid losses were estimated to total approximately ~~$383~~$396 million. Because of the large policy limits reinsured by us, the ultimate amount of incurred but not reported losses and loss adjustment expenses attributable to reinsurers could vary significantly from ~~the~~this estimate; provided, however, absent the inability to collect from reinsurers, such variance would not result in changes in net claim losses incurred by us.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Other than as set forth below, there have been no material changes in the Company's exposure to market risk since the disclosure in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Interest Rate Risk

We are exposed to interest rate risk on our fixed income investments. Given the anticipated duration of our liabilities (principally insurance loss and loss expense reserves) relative to investment maturities, a 100 to 200 basis point increase in interest rates would not have a material impact on our ability to conduct daily operations or to meet our obligations and could result in significantly higher investment income in a relatively short period of time, as short-term investments and maturing bonds could be reinvested in higher yielding securities.

The table below summarizes our interest rate risk by illustrating the sensitivity of the fair value of our fixed income investments as of ~~March 31,~~September 30, 2019 to selected hypothetical changes in interest rates (dollars in thousands).

	Fair Value		Estimated Change in Fair Value			Fair Value		Estimated Change in Fair Value
200 basis point increase	$	634,881	$	(37,092	)	$	714,048	$	(43,793	)
100 basis point increase		653,427		(18,546	)		735,945		(21,896	)
Current fair value		671,973		–			757,841		–
100 basis point decrease		690,517		18,544			779,737		21,896
200 basis point decrease		709,058		37,085			801,634		43,793

Our selection of the range of values chosen to represent changes in interest rates should not be construed as our prediction of future market events, but rather as an illustration of the impact of such events should they occur. Several other factors, including but not limited to the financial strength of the issuer, prepayment options, relative values of alternative investments, liquidity of the investment, currency fluctuations for non-U.S. debt holdings and other general market conditions, can impact the fair values of fixed income investments and, therefore, significant variations in market interest rates could produce quite different results from the hypothetical estimates presented above.

ITEM 4. CONTROLS AND PROCEDURES

The Company carried out an evaluation as of ~~March 31,~~September 30, 2019 under the supervision and with the participation of management, including the ~~Interim~~ Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or the "Exchange Act". Based upon that evaluation, the ~~Interim~~ Chief Executive Officer and Chief Financial Officer concluded the disclosure controls and procedures were effective in ensuring that information required to be disclosed in reports that the Company files or submits under the Exchange Act is: (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms; and (b) accumulated and communicated to management, including the ~~Interim~~ Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. The Company noted no change in its internal control over financial reporting that occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required with respect to this item can be found in Note 10 - Litigation, Commitments and Contingencies of Notes to Unaudited Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q and is incorporated by reference into this Part II, Item 1.

ITEM 1A. RISK FACTORS

In addition to the information set forth in this Quarterly Report on Form 10-Q and before deciding to invest in, or retain, shares of the Company's common stock, you should carefully review and consider the information contained in the Company's other reports and periodic filings that it makes with the Securities and Exchange Commission, including, without limitation, the information contained under the caption Part I, Item 1A "Risk Factors" in its Annual Report on Form 10-K for the year ended December 31, 2018. Those risk factors could materially affect the Company's business, financial condition and results of operations. There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

Total Number of
Shares Purchased

Average Price
Paid per Share

Total Number of
Shares Purchased
Under the Program ⁽¹⁾

Remaining Shares
Available to be Purchased
Under the Program ⁽¹⁾

January 1 – January 31 – $ - – 2,179,581
February 1 – February 28 – - – 2,179,581
March 1 – March 31 24,958 18.72 24,958 2,154,623
Total 24,958 24,958

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased Under the Program ⁽¹⁾		Remaining Shares Available to be Purchased Under the Program ⁽¹⁾
July 1 – July 31		124,151	$	16.90		124,151		1,681,349
August 1 – August 31		60,585		16.31		60,585		1,620,764
September 1 – September 30		43,029		16.49		43,029		1,577,735
Total		227,765				227,765

⁽¹⁾

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ITEM 6. EXHIBITS

INDEX TO EXHIBITS

Exhibit No.		Description

3.1		Amended and Restated Articles of Incorporation of Protective Insurance Corporation, incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed August 8, 2018.

3.2		Code of By-Laws of Protective Insurance Corporation, as amended effective ~~February 22,~~May 17, 2019, incorporated by reference to Exhibit 3.2 to the Company's ~~Annual~~Quarterly Report on Form ~~10-K~~10-Q filed ~~March~~August 7, 2019.

10.1		Offer Letter, dated September 6, 2019, between the Company and John R. Barnett

10.2		Non-Compete, Severance and Confidentiality Agreement, dated effective as of October 1, 2019, between the Company and John R. Barnett

31.1		Certification of the ~~Interim~~ Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of the ~~Interim~~ Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials from Protective Insurance Corporation's Quarterly Report on Form 10-Q for the quarter ended ~~March 31,~~September 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (1) the Condensed Consolidated Balance Sheets, (2) the Condensed Consolidated Statements of Operations, (3) the Condensed Consolidated Statements of Comprehensive Income (Loss), (4) the Condensed Consolidated Statements of Shareholders' Equity, (5) the Condensed Consolidated Statements of Cash Flows, and ~~(5)~~(6) the Notes to Unaudited Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PROTECTIVE INSURANCE CORPORATION

Date ~~May 8,~~November 6, 2019

By:	/s/ Jeremy D. Edgecliffe-Johnson
	Jeremy D. Edgecliffe-Johnson
	Chief Executive Officer

Date November 6, 2019

By:	/s/ John ~~D. Nichols, Jr.~~R. Barnett
	John ~~D. Nichols, Jr.~~
	~~Interim Chief Executive Officer & Chairman of the Board of Directors~~

~~Date May 8, 2019~~

~~By:~~	~~/s/ William C. Vens~~
	~~William C. Vens~~R. Barnett
	Chief Financial Officer

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