The following tables present the categorization for our financial instruments measured at fair value on a recurring basis. The table includes financial instruments at SeptemberJune 30, 20192020 and December 31, 2018:2019:
|
| | | | | | | | | | | | | | | |
September 30, 2019 | | | Fair Value Measurements |
Description | Total | | Level 1 | | Level 2 | | Level 3 |
AVAILABLE-FOR-SALE | | | | | | | |
Fixed maturities: | | | | | | | |
Bonds | | | | | | | |
U.S. Treasury | $ | 39,062 |
| | $ | — |
| | $ | 39,062 |
| | $ | — |
|
U.S. government agency | 113,731 |
| | — |
| | 113,731 |
| | — |
|
States, municipalities and political subdivisions | | | | | | | |
General obligations | | | | | | | |
Midwest | 89,688 |
| | — |
| | 89,688 |
| | — |
|
Northeast | 32,375 |
| | — |
| | 32,375 |
| | — |
|
South | 116,149 |
| | — |
| | 116,149 |
| | — |
|
West | 110,581 |
| | — |
| | 110,581 |
| | — |
|
Special revenue | | | | | | | |
Midwest | 143,665 |
| | — |
| | 143,665 |
| | — |
|
Northeast | 63,220 |
| | — |
| | 63,220 |
| | — |
|
South | 238,512 |
| | — |
| | 238,512 |
| | — |
|
West | 145,362 |
| | — |
| | 145,362 |
| | — |
|
Foreign bonds | 5,119 |
| | — |
| | 5,119 |
| | — |
|
Public utilities | 65,503 |
| | — |
| | 65,503 |
| | — |
|
Corporate bonds | | | | | | | |
Energy | 27,946 |
| | — |
| | 27,946 |
| | — |
|
Industrials | 54,898 |
| | — |
| | 54,898 |
| | — |
|
Consumer goods and services | 49,953 |
| | — |
| | 49,953 |
| | — |
|
Health care | 14,694 |
| | — |
| | 14,694 |
| | — |
|
Technology, media and telecommunications | 27,441 |
| | — |
| | 27,441 |
| | — |
|
Financial services | 101,432 |
| | — |
| | 101,182 |
| | 250 |
|
Mortgage-backed securities | 6,752 |
| | — |
| | 6,752 |
| | — |
|
Collateralized mortgage obligations | | | | | | | |
Government national mortgage association | 77,638 |
| | — |
| | 77,638 |
| |
|
|
Federal home loan mortgage corporation | 127,733 |
| | — |
| | 127,733 |
| |
|
|
Federal national mortgage association | 74,172 |
| | — |
| | 74,172 |
| |
|
|
Asset-backed securities | 3,660 |
| | — |
| | 2,863 |
| | 797 |
|
Total Available-for-Sale Fixed Maturities | $ | 1,729,286 |
| | $ | — |
| | $ | 1,728,239 |
| | $ | 1,047 |
|
TRADING | | | | | | | |
Fixed maturities: | | | | | | | |
Bonds | | | | | | | |
Corporate bonds | | | | | | | |
Consumer goods and services | $ | 1,948 |
| | $ | — |
| | $ | 1,948 |
| | $ | — |
|
Health care | 5,635 |
| | — |
| | 5,635 |
| | — |
|
Technology, media and telecommunications | 3,203 |
| | — |
| | 3,203 |
| | — |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Redeemable preferred stocks | 2,767 | | | 2,767 | | | — | | | — | |
Total Trading Securities | $ | 11,223 | | | $ | 2,767 | | | $ | 8,456 | | | $ | — | |
EQUITY SECURITIES | | | | | | | |
Common stocks | | | | | | | |
Public utilities | $ | 14,873 | | | $ | 14,873 | | | $ | — | | | $ | — | |
Energy | 9,913 | | | 9,913 | | | — | | | — | |
Industrials | 30,737 | | | 30,737 | | | — | | | — | |
Consumer goods and services | 27,977 | | | 27,977 | | | — | | | — | |
Health care | 27,216 | | | 27,216 | | | — | | | — | |
Technology, media and telecommunications | 16,470 | | | 16,470 | | | — | | | — | |
Financial services | 74,353 | | | 74,353 | | | — | | | — | |
Nonredeemable preferred stocks | 6,087 | | | 5,492 | | | — | | | 595 | |
Total Equity Securities | $ | 207,626 | | | $ | 207,031 | | | $ | — | | | $ | 595 | |
Short-Term Investments | $ | 175 | | | $ | 175 | | | $ | — | | | $ | — | |
Money Market Accounts | $ | 71,785 | | | $ | 71,785 | | | $ | — | | | $ | — | |
Corporate-Owned Life Insurance | $ | 7,107 | | | $ | — | | | $ | 7,107 | | | $ | — | |
Total Assets Measured at Fair Value | $ | 1,994,092 | | | $ | 281,758 | | | $ | 1,710,562 | | | $ | 1,772 | |
| | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2019 | | | Fair Value Measurements | | | | |
Description | Total | | Level 1 | | Level 2 | | Level 3 |
AVAILABLE-FOR-SALE | | | | | | | |
Fixed maturities: | | | | | | | |
Bonds | | | | | | | |
U.S. Treasury | $ | 69,491 | | | $ | — | | | $ | 69,491 | | | $ | — | |
U.S. government agency | 100,202 | | | — | | | 100,202 | | | — | |
States, municipalities and political subdivisions | | | | | | | |
General obligations | | | | | | | |
Midwest | 88,594 | | | — | | | 88,594 | | | — | |
Northeast | 31,270 | | | — | | | 31,270 | | | — | |
South | 115,203 | | | — | | | 115,203 | | | — | |
West | 110,317 | | | — | | | 110,317 | | | — | |
Special revenue | | | | | | | |
Midwest | 139,892 | | | — | | | 139,892 | | | — | |
Northeast | 61,543 | | | — | | | 61,543 | | | — | |
South | 234,666 | | | — | | | 234,666 | | | — | |
West | 144,844 | | | — | | | 144,844 | | | — | |
Foreign bonds | 5,117 | | | — | | | 5,117 | | | — | |
Public utilities | 63,651 | | | — | | | 63,651 | | | — | |
Corporate bonds | | | | | | | |
Energy | 30,124 | | | — | | | 30,124 | | | — | |
Industrials | 54,015 | | | — | | | 54,015 | | | — | |
Consumer goods and services | 49,466 | | | — | | | 49,466 | | | — | |
Health care | 9,480 | | | — | | | 9,480 | | | — | |
|
| | | | | | | | | | | | | | | |
Financial services | 2,795 |
| | — |
| | 2,795 |
| | — |
|
Redeemable preferred stocks | 3,299 |
| | 3,299 |
| | — |
| | — |
|
Total Trading Securities | $ | 16,880 |
| | $ | 3,299 |
| | $ | 13,581 |
| | $ | — |
|
EQUITY SECURITIES | | | | | | | |
Common stocks | | | | | | | |
Public utilities | $ | 16,995 |
| | $ | 16,995 |
| | $ | — |
| | $ | — |
|
Energy | 12,824 |
| | 12,824 |
| | — |
| | — |
|
Industrials | 59,526 |
| | 59,526 |
| | — |
| | — |
|
Consumer goods and services | 29,010 |
| | 29,010 |
| | — |
| | — |
|
Health care | 25,314 |
| | 25,314 |
| | — |
| | — |
|
Technology, media and telecommunications | 18,339 |
| | 18,339 |
| | — |
| | — |
|
Financial services | 124,663 |
| | 124,663 |
| | — |
| | — |
|
Nonredeemable preferred stocks | 6,072 |
| | 5,477 |
| | — |
| | 595 |
|
Total Equity Securities | $ | 292,743 |
| | $ | 292,148 |
| | $ | — |
| | $ | 595 |
|
Short-Term Investments | $ | 175 |
| | $ | 175 |
| | $ | — |
| | $ | — |
|
Money Market Accounts | $ | 30,742 |
| | $ | 30,742 |
| | $ | — |
| | $ | — |
|
Corporate-Owned Life Insurance | $ | 6,271 |
| | $ | — |
| | $ | 6,271 |
| | $ | — |
|
Total Assets Measured at Fair Value | $ | 2,076,097 |
| | $ | 326,364 |
| | $ | 1,748,091 |
| | $ | 1,642 |
|
|
| | | | | | | | | | | | | | | |
December 31, 2018 | | | Fair Value Measurements |
Description | Total | | Level 1 | | Level 2 | | Level 3 |
AVAILABLE-FOR-SALE | | | | | | | |
Fixed maturities: | | | | | | | |
Bonds | | | | | | | |
U.S. Treasury | $ | 27,418 |
| | $ | — |
| | $ | 27,418 |
| | $ | — |
|
U.S. government agency | 214,682 |
| | — |
| | 214,682 |
| | — |
|
States, municipalities and political subdivisions | | | | | | | |
General obligations | | | | | | | |
Midwest | 95,212 |
| | — |
| | 95,212 |
| | — |
|
Northeast | 37,655 |
| | — |
| | 37,655 |
| | — |
|
South | 113,911 |
| | — |
| | 113,911 |
| | — |
|
West | 107,841 |
| | — |
| | 107,841 |
| | — |
|
Special revenue | | | | | | | |
Midwest | 140,764 |
| | — |
| | 140,764 |
| | — |
|
Northeast | 61,948 |
| | — |
| | 61,948 |
| | — |
|
South | 235,809 |
| | — |
| | 235,809 |
| | — |
|
West | 142,920 |
| | — |
| | 142,920 |
| | — |
|
Foreign bonds | 9,716 |
| | — |
| | 9,716 |
| | — |
|
Public utilities | 56,059 |
| | — |
| | 56,059 |
| | — |
|
Corporate bonds | | | | | | | |
Energy | 28,648 |
| | — |
| | 28,648 |
| | — |
|
Industrials | 53,085 |
| | — |
| | 53,085 |
| | — |
|
Consumer goods and services | 53,646 |
| | — |
| | 53,646 |
| | — |
|
Health care | 16,658 |
| | — |
| | 16,658 |
| | — |
|
Technology, media and telecommunications | 26,176 |
| | — |
| | 26,176 |
| | — |
|
Financial services | 79,349 |
| | — |
| | 79,099 |
| | 250 |
|
Mortgage-backed securities | 7,424 |
| | — |
| | 7,424 |
| | — |
|
Collateralized mortgage obligations | | | | | | | |
Government national mortgage association | 76,701 |
| | — |
| | 76,701 |
| | — |
|
Federal home loan mortgage corporation | 107,623 |
| | — |
| | 107,623 |
| | — |
|
Federal national mortgage association | 52,748 |
| | — |
| | 52,748 |
| | — |
|
Asset-backed securities | 3,495 |
| | — |
| | 2,829 |
| | 666 |
|
Total Available-for-Sale Fixed Maturities | $ | 1,749,488 |
| | $ | — |
| | $ | 1,748,572 |
| | $ | 916 |
|
TRADING | | | | | | | |
Fixed maturities: | | | | | | | |
Bonds | | | | | | | |
Corporate bonds | | | | | | | |
Industrials | $ | 397 |
| | $ | — |
| | $ | 397 |
| | $ | — |
|
Consumer goods and services | 1,599 |
| | — |
| | 1,599 |
| | — |
|
Health care | 3,236 |
| | — |
| | 3,236 |
| | — |
|
Technology, media and telecommunications | 3,028 |
| | — |
| | 3,028 |
| | — |
|
Financial services | 2,231 |
| | — |
| | 2,231 |
| | — |
|
|
| | | | | | | | | | | | | | | |
Redeemable preferred stocks | 2,749 |
| | 2,749 |
| | — |
| | — |
|
Total Trading Securities | $ | 13,240 |
| | $ | 2,749 |
| | $ | 10,491 |
| | — |
|
EQUITY SECURITIES | | | | | | | |
Common Stocks | | | | | | | |
Public utilities | $ | 15,949 |
| | $ | 15,949 |
| | $ | — |
| | $ | — |
|
Energy | 10,975 |
| | 10,975 |
| | — |
| | — |
|
Industrials | 53,536 |
| | 53,536 |
| | — |
| | — |
|
Consumer goods and services | 24,465 |
| | 24,465 |
| | — |
| | — |
|
Health care | 22,286 |
| | 22,286 |
| | — |
| | — |
|
Technology, media and telecommunications | 13,944 |
| | 13,944 |
| | — |
| | — |
|
Financial services | 101,555 |
| | 101,555 |
| | — |
| | — |
|
Nonredeemable preferred stocks | 5,651 |
| | 5,056 |
| | — |
| | 595 |
|
Total Equity Securities | $ | 248,361 |
| | $ | 247,766 |
| | $ | — |
| | $ | 595 |
|
Short-Term Investments | $ | 175 |
| | $ | 175 |
| | $ | — |
| | $ | — |
|
Money Market Accounts | $ | 3,275 |
| | $ | 3,275 |
| | $ | — |
| | $ | — |
|
Corporate-Owned Life Insurance | $ | 4,907 |
| | $ | — |
| | $ | 4,907 |
| | $ | — |
|
Total Assets Measured at Fair Value | $ | 2,019,446 |
| | $ | 253,965 |
| | $ | 1,763,970 |
| | $ | 1,511 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
Technology, media and telecommunications | 27,670 | | | — | | | 27,670 | | | — | |
Financial services | 100,253 | | | — | | | 100,003 | | | 250 | |
Mortgage-backed securities | 6,356 | | | — | | | 6,356 | | | — | |
Collateralized mortgage obligations | | | | | | | |
Government national mortgage association | 80,356 | | | — | | | 80,356 | | | — | |
Federal home loan mortgage corporation | 124,502 | | | — | | | 124,502 | | | — | |
Federal national mortgage association | 71,845 | | | — | | | 71,845 | | | — | |
Asset-backed securities | 750 | | | — | | | — | | | 750 | |
| | | | | | | |
Total Available-for-Sale Fixed Maturities | $ | 1,719,607 | | | $ | — | | | $ | 1,718,607 | | | $ | 1,000 | |
TRADING | | | | | | | |
Fixed maturities: | | | | | | | |
Bonds | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Corporate bonds | | | | | | | |
| | | | | | | |
| | | | | | | |
Consumer goods and services | $ | 2,276 | | | $ | — | | | $ | 2,276 | | | $ | — | |
Health care | 4,701 | | | — | | | 4,701 | | | — | |
Technology, media and telecommunications | 1,732 | | | — | | | 1,732 | | | — | |
Financial services | 2,460 | | | — | | | 2,460 | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Redeemable preferred stocks | 4,087 | | | 4,087 | | | — | | | — | |
Total Trading Securities | $ | 15,256 | | | $ | 4,087 | | | $ | 11,169 | | | — | |
EQUITY SECURITIES | | | | | | | |
Common stocks | | | | | | | |
Public utilities | $ | 16,295 | | | $ | 16,295 | | | $ | — | | | $ | — | |
Energy | 14,639 | | | 14,639 | | | — | | | — | |
Industrials | 57,330 | | | 57,330 | | | — | | | — | |
Consumer goods and services | 29,935 | | | 29,935 | | | — | | | — | |
Health care | 27,285 | | | 27,285 | | | — | | | — | |
Technology, media and telecommunications | 19,265 | | | 19,265 | | | — | | | — | |
Financial services | 127,780 | | | 127,780 | | | — | | | — | |
Nonredeemable preferred stocks | 6,674 | | | 6,079 | | | — | | | 595 | |
Total Equity Securities | $ | 299,203 | | | $ | 298,608 | | | $ | — | | | $ | 595 | |
Short-Term Investments | $ | 175 | | | $ | 175 | | | $ | — | | | $ | — | |
Money Market Accounts | $ | 9,334 | | | $ | 9,334 | | | $ | — | | | $ | — | |
Corporate-Owned Life Insurance | $ | 6,777 | | | $ | — | | | $ | 6,777 | | | $ | — | |
Total Assets Measured at Fair Value | $ | 2,050,352 | | | $ | 312,204 | | | $ | 1,736,553 | | | $ | 1,595 | |
The fair value of securities that are categorized as Level 1 is based on quoted market prices that are readily and regularly available.
We use a market-based approach for valuing all of our Level 2 securities and submit them primarily to a third-party valuation service provider. Any of these securities not valued by this service provider are submitted to another third-party valuation service provider. Both service providers use a market approach to find pricing of similar financial instruments. The market inputs our service providers normally seek to value our securities include the following, listed in approximate order of priority: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including market research publications. The method and inputs for these securities classified as Level 2 are the same regardless of industry category, credit
quality, duration, geographical concentration or economic characteristics. For our mortgage-backed securities, collateralized mortgage obligations and asset-backed securities, our service providers use additional market inputs to value these securities, including the following: new issue data, periodic payment information, monthly payment information, collateral performance and real estate analysis from third parties. Our service providers prioritize inputs based on market conditions, and not all inputs listed are available for use in the valuation process for each security on any given day.
At least annually, we review the methodologies and assumptions used by our valuation service providers and verify that they are reasonable and representative of the fair value of the underlying securities held in the investment portfolio. We validate the prices obtained from independent pricing services and brokers prior to their use for reporting purposes by evaluating their reasonableness on a monthly basis. Our validation process includes a review for unusual fluctuations. Unusual fluctuations outside of our expectations are independently corroborated with additional third-party sources that use similar valuation techniques as discussed above. In addition, on a quarterly basis, we also test all securities in the portfolio and independently corroborate the valuations obtained from our third-party valuation service providers. Quarterly, we also perform deep dive analysis of the pricing method used by our third-party valuation service provider by selecting a random sample of securities by asset class and reviewing methodologies. In our opinion, the pricing obtained at SeptemberJune 30, 20192020 and December 31, 20182019 was reasonable.
For the three- and nine-monthsix-month periods ended SeptemberJune 30, 2019,2020, the change in our available-for-sale securities categorized as Level 1 and Level 2 is the result of investment purchases that were made using funds held in our money market accounts, disposals and the change in unrealized gains on both fixed maturities and equity securities.
During the three- and nine-month periods ended September 30, 2019, there were no securities transferred between Level 1 and Level 2.
Securities categorized as Level 3 include holdings in certain private placement fixed maturity and equity securities for which an active market does not currently exist. The fair value of our Level 3 private placement securities is determined by management relying on pricing received from our independent pricing services and brokers consistent with the process to estimate fair value for Level 2 securities. However, securities are categorized as Level 3 if these quotes cannot be corroborated by other market observable data due to the unobservable nature of the brokers’ valuation processes. If pricing cannot be obtained from these sources, which occurs onThe following table provides a limited basis, management will perform a discounted cash flow analysis, using an appropriate risk-adjusted discount rate, on the underlying security to estimate fair value. quantitative information about our Level 3 securities at June 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Quantitative Information about Level 3 Fair Value Measurements | | | | | | | | |
| | Fair Value at | | Valuation Technique(s) | | Unobservable inputs | | Range of weighted average significant unobservable inputs |
| | June 30, 2020 | | | | | | |
Corporate bonds - financial services | | $ | 250 | | | Fair value equals cost | | NA | | NA |
| | | | | | | | |
Fixed Maturities asset-backed securities | | 927 | | | Discounted cash flow | | Probability of default | | 4% - 6% |
| | | | | | | | |
Nonredeemable preferred stocks | | 595 | | | Discounted cash flow | | Multiplier | | 3x - 4x |
During the three- and nine-monthsix-month periods ended SeptemberJune 30, 2019,2020, there were no securities transferred in or out of Level 3.
The following table provides a summary of the changes in fair value of our Level 3 securities for the three-month period ended SeptemberJune 30, 2019:2020:
|
| | | | | | | | | | | | | | | |
| Corporate bonds | | Asset-backed securities | | Equities | | Total |
Balance at June 30, 2019 | $ | 250 |
| | $ | 744 |
| | $ | 595 |
| | $ | 1,589 |
|
Net unrealized gains(1) | — |
| | 53 |
| | — |
| | 53 |
|
Purchases | 100 |
| | — |
| | — |
| | 100 |
|
Disposals | (100 | ) | | — |
| | — |
| | (100 | ) |
Balance at September 30, 2019 | $ | 250 |
| | $ | 797 |
| | $ | 595 |
| | $ | 1,642 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Corporate bonds | | Asset-backed securities | | Equities | | Total |
Balance at April 1, 2020 | | | | | | | $ | 250 | | | $ | 921 | | | $ | 595 | | | $ | 1,766 | |
| | | | | | | | | | | | | |
Net unrealized gains(1) | | | | | | | — | | | 6 | | | — | | | 6 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance at June 30, 2020 | | | | | | | $ | 250 | | | $ | 927 | | | $ | 595 | | | $ | 1,772 | |
(1) Net unrealized gains are recorded as a component of comprehensive income.
The following table provides a summary of the changes in fair value of our Level 3 securities for the nine-monthsix-month period ended SeptemberJune 30, 2019:2020:
|
| | | | | | | | | | | | | | | |
| Corporate bonds | | Asset-backed securities | | Equities | | Total |
Balance at January 1, 2019 | $ | 250 |
| | $ | 666 |
| | $ | 595 |
| | $ | 1,511 |
|
Net unrealized gains(1) | — |
| | 131 |
| | — |
| | 131 |
|
Purchases | 100 |
| | — |
| | — |
| | — |
|
Disposals | (100 | ) | | — |
| | — |
| | — |
|
Balance at September 30, 2019 | $ | 250 |
| | $ | 797 |
| | $ | 595 |
| | $ | 1,642 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Corporate bonds | | Asset-backed securities | | Equities | | Total |
Balance at January 1, 2020 | | | | | | | $ | 250 | | | $ | 750 | | | $ | 595 | | | $ | 1,595 | |
| | | | | | | | | | | | | |
Net unrealized gains(1) | | | | | | | — | | | 177 | | | — | | | 177 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Balance at June 30, 2020 | | | | | | | $ | 250 | | | $ | 927 | | | $ | 595 | | | $ | 1,772 | |
(1) Net unrealized gains are recorded as a component of comprehensive income.
Commercial Mortgage Loans
The following tables present the carrying value of our commercial mortgage loans and additional information at SeptemberJune 30, 20192020 and December 31, 2018:2019:
| | | | | | | | | | | |
Commercial Mortgage Loans | | | |
| June 30, 2020 | | December 31, 2019 |
Loan-to-value | Carrying Value | | Carrying Value |
Less than 65% | $ | 39,189 | | | $ | 34,024 | |
65%-75% | 8,496 | | | 8,496 | |
Total amortized cost | $ | 47,685 | | | $ | 42,520 | |
Allowance for mortgage loan losses | (76) | | | (72) | |
Mortgage loans, net | $ | 47,609 | | | $ | 42,448 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Loans by Region | | | | | | | |
| June 30, 2020 | | | | December 31, 2019 | | |
| Carrying Value | | Percent of Total | | Carrying Value | | Percent of Total |
East North Central | $ | 3,245 | | | 6.8 | % | | $ | 3,245 | | | 7.6 | % |
Southern Atlantic | 9,594 | | | 20.1 | | | 7,026 | | | 16.5 | |
East South Central | 8,278 | | | 17.4 | | | 8,358 | | | 19.7 | |
New England | 6,588 | | | 13.8 | | | 6,588 | | | 15.5 | |
Middle Atlantic | 15,007 | | | 31.4 | | | 15,076 | | | 35.5 | |
Mountain | 2,227 | | | 4.7 | | | 2,227 | | | 5.2 | |
West North Central | 2,746 | | | 5.8 | | | — | | | — | |
Total mortgage loans at amortized cost | $ | 47,685 | | | 100.0 | % | | $ | 42,520 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Mortgage Loans by Property Type | | | | | | | |
| June 30, 2020 | | | | December 31, 2019 | | |
| Carrying Value | | Percent of Total | | Carrying Value | | Percent of Total |
Commercial | | | | | | | |
Multifamily | $ | 17,064 | | | 35.7 | % | | $ | 11,741 | | | 27.6 | % |
Office | 11,759 | | | 24.7 | | | 11,848 | | | 27.9 | |
Industrial | 10,124 | | | 21.2 | | | 10,124 | | | 23.8 | |
Retail | 2,227 | | | 4.7 | | | 2,227 | | | 5.2 | |
Mixed use/Other | 6,511 | | | 13.7 | | | 6,580 | | | 15.5 | |
Total mortgage loans at amortized cost | $ | 47,685 | | | 100.0 | % | | $ | 42,520 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
Amortized Cost Basis by Year of Origination and Credit Quality Indicator | | | | | | | |
| 2020 | | 2019 | | 2018 | | Total |
Commercial mortgage loans: | | | | | | | |
Risk Rating: | | | | | | | |
1-2 internal grade | $ | 5,323 | | | $ | 8,416 | | | $ | 18,862 | | | $ | 32,601 | |
3-4 internal grade | — | | | 8,496 | | | 6,588 | | | 15,084 | |
5 internal grade | — | | | — | | | — | | | — | |
6 internal grade | — | | | — | | | — | | | — | |
7 internal grade | — | | | — | | | — | | | — | |
Total commercial mortgage loans | $ | 5,323 | | | $ | 16,912 | | | $ | 25,450 | | | $ | 47,685 | |
Current-period write-offs | — | | | — | | | — | | | — | |
Current-period recoveries | — | | | — | | | — | | | — | |
Current-period net write-offs | $ | — | | | $ | — | | | $ | — | | | $ | — | |
|
| | | | | | | |
Commercial Mortgage Loans |
| September 30, 2019 | | December 31, 2018 |
Loan-to-value | Carrying Value | | Carrying Value |
Less than 65% | $ | 27,878 |
| | $ | 25,828 |
|
65%-75% | 8,496 |
| | — |
|
Total amortized cost | $ | 36,374 |
| | $ | 25,828 |
|
Valuation allowance | (62 | ) | | (46 | ) |
Total mortgage loans | $ | 36,312 |
| | $ | 25,782 |
|
|
| | | | | | | | | | | | | |
Mortgage Loans by Region |
| September 30, 2019 | | December 31, 2018 |
| Carrying Value | | Percent of Total | | Carrying Value | | Percent of Total |
East North Central | $ | 3,245 |
| | 8.9 | % | | $ | 3,244 |
| | 12.6 | % |
Southern Atlantic | 6,652 |
| | 18.3 |
| | 6,652 |
| | 25.8 |
|
East South Central | 4,861 |
| | 13.4 |
| | 4,975 |
| | 19.3 |
|
New England | 6,588 |
| | 18.1 |
| | 6,588 |
| | 25.4 |
|
Middle Atlantic | 12,801 |
| | 35.2 |
| | 4,369 |
| | 16.9 |
|
Mountain | 2,227 |
| | 6.1 |
| | — |
| | — |
|
Total mortgage loans at amortized cost | $ | 36,374 |
| | 100.0 | % | | $ | 25,828 |
| | 100.0 | % |
|
| | | | | | | | | | | | | |
Mortgage Loans by Property Type |
| September 30, 2019 | | December 31, 2018 |
| Carrying Value | | Percent of Total | | Carrying Value | | Percent of Total |
Commercial | | | | | | | |
Multifamily | $ | 3,245 |
| | 8.9 | % | | $ | 3,244 |
| | 12.6 | % |
Office | 11,513 |
| | 31.7 |
| | 11,627 |
| | 45.0 |
|
Retail | 2,227 |
| | 6.1 |
| | — |
| | — |
|
Mixed use/Other | 19,389 |
| | 53.3 |
| | 10,957 |
| | 42.4 |
|
Total mortgage loans at amortized cost | $ | 36,374 |
| | 100.0 | % | | $ | 25,828 |
| | 100.0 | % |
Commercial mortgage loans carrying value excludes accrued interest of $168. As of June 30, 2020, all loan receivables were current, with no delinquencies. The commercial mortgage loans originate with an initial loan-to-value ratio to provide sufficient collateral to absorb losses should a loan be required to foreclose. Mortgage loans are evaluated on a quarterly basis for impairment on an individual basis through a monitoring process and review of key credit indicators, such as economic trends, delinquency rates, property valuations, occupancy and rental rates and loan-to-value ratios. A loan is considered impaired when the Company believes it will not collect the contractual principal and interest set forth in the contractual terms of the loan. A valuationAn internal grade is assigned to each mortgage loan, with a grade of 1 being the highest and least likely for an impairment and the lowest rating of 7 being the most likely for an impairment. An allowance for mortgage loan losses is established on each loan recognizing a loss for amounts which we believe will not be collected according to the contractual terms of the respective loan agreement. As of SeptemberJune 30, 2019, there were no2020, the Company had an allowance for mortgage loan impairments.losses of $76, summarized in the following rollforward:
| | | | | | | | |
Rollforward of allowance for mortgage loan losses: | | |
| | As of |
| | June 30, 2020 |
Beginning balance, January 1, 2020 | | $ | 72 | |
Current-period provision for expected credit losses | | 4 | |
Write-off charged against the allowance, if any | | — | |
Recoveries of amounts previously written off, if any | | — | |
Ending balance of the allowance for mortgage loan losses, June 30, 2020 | | $ | 76 | |
NOTE 4. RESERVES FOR LOSSES AND LOSS SETTLEMENT EXPENSES
Property insurance indemnifies an insured with an interest in physical property for loss of, or damage to, such property or the loss of its income-producing abilities. Casualty insurance primarily covers liability for damage to property of, or injury to, a person or entity other than the insured. In most cases, casualty insurance also obligates the insurance company to provide a defense for the insured in litigation, arising out of events covered by the policy.
Liabilities for losses and loss settlement expenses reflect management's best estimates at a given point in time of what we expect to pay for claims that have been reported and those that have been incurred but not reported ("IBNR"), based on known facts, circumstances, and historical trends. Because property and casualty insurance reserves are estimates of the unpaid portions of incurred losses that have been reported to us, as well as losses that have been incurred but not reported, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses and related loss settlement expenses may vary materially from recorded amounts. We regularly update our reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported as a component of losses and loss settlement expenses incurred in the period such changes are determined.
The determination of reserves (particularly those relating to liability lines of insurance that have relatively longer lag in claim reporting) requires significant work to reasonably project expected future claim reporting and payment patterns. If, during the course of our regular monitoring of reserves, we determine that coverages previously written are incurring higher than expected losses, we will take action that may include, among other things, increasing the related reserves. Any adjustments we make to reserves are reflected in operating results in the year in which we make those adjustments. We engage an independent actuary, Regnier Consulting Group, Inc., to render an opinion as to the reasonableness of our statutory reserves annually. The actuarial opinion is filed in those states where we are licensed.
On a quarterly basis, UFG's internal actuary performs a detailed actuarial review of IBNR reserves. This review includes a comparison of results from the most recent analysis of reserves completed by both our internal and external actuaries. Senior management meets with our internal actuary to review, on a regular and quarterly basis, the adequacy of carried reserves based on results from this actuarial analysis. There are two fundamental types or sources of IBNR reserves. We record IBNR reserves for "normal" types of claims and also specific IBNR reserves related to unique circumstances or events. A major hurricane is an example of an event that might necessitate establishing specific IBNR reserves because an analysis of existing historical data would not provide an appropriate estimate.
We do not discount loss reserves based on the time value of money.
The following table provides an analysis of changes in our property and casualty losses and loss settlement expense reserves at SeptemberJune 30, 20192020 and December 31, 20182019 (net of reinsurance amounts):
| | | | | | | | | |
| September 30, 2019 | | December 31, 2018 | | June 30, 2020 | | December 31, 2019 |
Gross liability for losses and loss settlement expenses at beginning of year | $ | 1,312,483 |
| | $ | 1,224,183 |
| Gross liability for losses and loss settlement expenses at beginning of year | $ | 1,421,754 | | | $ | 1,312,483 | |
Ceded losses and loss settlement expenses | (57,094 | ) | | (59,871 | ) | Ceded losses and loss settlement expenses | (68,536) | | | (57,094) | |
Net liability for losses and loss settlement expenses at beginning of year | $ | 1,255,389 |
| | $ | 1,164,312 |
| Net liability for losses and loss settlement expenses at beginning of year | $ | 1,353,218 | | | $ | 1,255,389 | |
Losses and loss settlement expenses incurred for claims occurring during | | | | Losses and loss settlement expenses incurred for claims occurring during | |
Current year | $ | 596,771 |
| | $ | 785,778 |
| Current year | $ | 415,246 | | | $ | 835,507 | |
Prior years | (770 | ) | | (54,167 | ) | Prior years | (23,770) | | | (5,335) | |
Total incurred | $ | 596,001 |
| | $ | 731,611 |
| Total incurred | $ | 391,476 | | | $ | 830,172 | |
Losses and loss settlement expense payments for claims occurring during | | | | Losses and loss settlement expense payments for claims occurring during | |
Current year | $ | 229,274 |
| | $ | 306,032 |
| Current year | $ | 143,828 | | | $ | 333,975 | |
Prior years | 316,101 |
| | 334,502 |
| Prior years | 246,197 | | | 398,368 | |
Total paid | $ | 545,375 |
| | $ | 640,534 |
| Total paid | $ | 390,025 | | | $ | 732,343 | |
Net liability for losses and loss settlement expenses at end of year | $ | 1,306,015 |
| | $ | 1,255,389 |
| Net liability for losses and loss settlement expenses at end of year | $ | 1,354,669 | | | $ | 1,353,218 | |
Ceded loss and loss settlement expenses | 54,524 |
| | 57,094 |
| Ceded loss and loss settlement expenses | 123,020 | | | 68,536 | |
Gross liability for losses and loss settlement expenses at end of period | $ | 1,360,539 |
| | $ | 1,312,483 |
| Gross liability for losses and loss settlement expenses at end of period | $ | 1,477,689 | | | $ | 1,421,754 | |
There are a multitude of factors that can impact loss reserve development. Those factors include, but are not limited to: historical data, the potential impact of various loss reserve development factors and trends including historical loss experience, legislative enactments, judicial decisions, legal developments in imposition of damages, experience with alternative dispute resolution, results of our medical bill review process, the potential impact of salvage and subrogation and changes and trends in general economic conditions, including the effects of inflation. All of these factors influence our estimates of required reserves and for long tail lines these factors can change over the course of the settlement of the claim. However, there is no precise method for evaluating the specific monetary impact of any individual factor on the development of reserves.
For the three-month period ended September 30, 2019 the majority of favorable development came from workers' compensation with a partial offset coming primarily from unfavorable development for commercial liability. The favorable development for workers' compensation was primarily from reductions in reserves for reported claims which were more than sufficient to offset paid loss. The unfavorable development for commercial liability is due to paid losses and an increase in loss adjustment expenses. All other lines combined contributed additional overall favorable development during this three-month period. For the nine-month period ended September 30, 2019 the majority of favorable development came from workers' compensation which was more than offset by unfavorable development for commercial liability. The favorable development for workers' compensation was primarily from reductions in reserves for reported claims which were more than sufficient to offset paid loss. Also, loss adjustment expense contributed favorable development with reductions in reserves more than sufficient to offset payments. The unfavorable development for commercial liability is due to paid losses and an increase in loss adjustment expenses. All other lines combined contributed additional overall favorable development during this nine-month period.
For the three-month period ended September 30, 2018, the majority of unfavorable development came from two lines, commercial liability and commercial automobile with a partial offset coming from favorable development for the three lines of reinsurance assumed, workers' compensation and fidelity and surety. All other lines combined contributed a relatively minimal amount of overall unfavorable development during this three-month period. The unfavorable development for the three-month period ended September 30, 2018 is attributable to latent emergence of commercial automobile claims that increased sufficiently to also generate an umbrella liability claim, as well as a large but independent general liability claim. For the nine-month period ended September 30, 2018 the majority of favorable development came from four lines: workers' compensation, commercial automobile, commercial liability, and reinsurance assumed. Each of the other individual lines also contributed favorable development during this nine-month period (none were unfavorable).
Generally, we base reserves for each claim on the estimated ultimate exposure for that claim. We believe that it is appropriate and reasonable to establish a best estimate for reserves within a range of reasonable estimates, especially when we are reserving for claims for bodily injury, disabilities and similar claims, for which settlements and verdicts can vary widely. Our reserving philosophy may result in favorable reserve development in future years that will decrease losses and loss settlement expenses for prior year claims in the year of adjustment. We realize that this philosophy, coupled with what we believe to be aggressive and successful claims management and loss settlement practices, has resulted in year-to-year redundancies in reserves. We believe our approach produces recorded reserves that are reasonably consistent as to their relative position within a range of reasonable reserves from year-to-year. However, conditions and trends that have affected the reserve development for a given year do change. Therefore, such development cannot be used to project future reserve redundancies or deficiencies.
We are not aware of any significant contingent liabilities related to environmental issues. Because of the type of property coverage we write, we have potential exposure to environmental pollution, mold and asbestos claims. Our underwriters are aware of these exposures and use riders or endorsements to limit exposure.
Reserve Development
For the three-month period ended June 30, 2020 the majority of favorable development came from workers' compensation and commercial fire and allied lines. This favorable development was partially offset by unfavorable development of commercial auto and reinsurance assumed lines. All other lines combined contributed a relatively modest amount of overall favorable development during this three-month period. For the six-month period ended June 30, 2020 the majority of favorable development came from workers' compensation and commercial fire and allied lines. This favorable development was partially offset by unfavorable development of the commercial liability line. All other lines combined contributed a relatively modest amount of overall favorable development during this six-month period.
For the three-month period ended June 30, 2019, the majority of unfavorable development came from the commercial liability line with a partial offset coming primarily from favorable development in workers compensation and commercial fire and allied lines of business. All other lines combined contributed a relatively minimal amount of overall unfavorable development during this three-month period. For the six-month period ended June 30, 2019, the majority of unfavorable development came from the commercial liability line,with a partial offset coming primarily from favorable development in workers' compensation, and fidelity and surety lines. All other lines combined contributed a relatively minimal amount of overall unfavorable development during this six-month period. The unfavorable development in both periods in the commercial liability line was primarily from prior year reserve strengthening on auto liability and other liability claims.
NOTE 5. EMPLOYEE BENEFITS
Net Periodic Benefit Cost
The components of the net periodic benefit cost for our pension and postretirement benefit plans are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plan | | | | Postretirement Benefit Plan | | |
Three Months Ended June 30, | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
Net periodic benefit cost | | | | | | | |
Service cost | $ | 2,707 | | | $ | 1,997 | | | $ | 432 | | | $ | 456 | |
Interest cost | 2,066 | | | 2,080 | | | 253 | | | 318 | |
Expected return on plan assets | (3,385) | | | (2,696) | | | — | | | — | |
Amortization of prior service credit | — | | | — | | | (2,021) | | | (2,221) | |
Amortization of net loss | 979 | | | 901 | | | 94 | | | 224 | |
Net periodic benefit cost | $ | 2,367 | | | $ | 2,282 | | | $ | (1,242) | | | $ | (1,223) | |
|
| | | | | | | | | | | | | | | |
| Pension Plan | | Postretirement Benefit Plan |
Three Months Ended September 30, | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
Net periodic benefit cost | | | | | | | |
Service cost | $ | 1,997 |
| | $ | 2,175 |
| | $ | 456 |
| | $ | 750 |
|
Interest cost | 2,080 |
| | 1,875 |
| | 319 |
| | 502 |
|
Expected return on plan assets | (2,696 | ) | | (2,626 | ) | | — |
| | — |
|
Amortization of prior service credit | — |
| | — |
| | (2,221 | ) | | (1,352 | ) |
Amortization of net loss | 901 |
| | 1,072 |
| | 224 |
| | 589 |
|
Net periodic benefit cost | $ | 2,282 |
| | $ | 2,496 |
| | $ | (1,222 | ) | | $ | 489 |
|
|
| | | | | | | | | | | | | | | |
| Pension Plan | | Postretirement Benefit Plan |
Nine Months Ended September 30, | 2019 | | 2018 | | 2019 | | 2018 |
| | | | | | | |
Net periodic benefit cost | | | | | | | |
Service cost | $ | 5,991 |
| | $ | 6,525 |
| | $ | 1,368 |
| | $ | 2,249 |
|
Interest cost | 6,240 |
| | 5,625 |
| | 956 |
| | 1,506 |
|
Expected return on plan assets | (8,088 | ) | | (7,877 | ) | | — |
| | — |
|
Amortization of prior service credit | — |
| | — |
| | (6,463 | ) | | (4,056 | ) |
Amortization of net loss | 2,703 |
| | 3,215 |
| | 671 |
| | 1,767 |
|
Net periodic benefit cost | $ | 6,846 |
| | $ | 7,488 |
| | $ | (3,468 | ) | | $ | 1,466 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Plan | | | | Postretirement Benefit Plan | | |
Six Months Ended June 30, | 2020 | | 2019 | | 2020 | | 2019 |
| | | | | | | |
Net periodic benefit cost | | | | | | | |
Service cost | $ | 5,414 | | | $ | 3,994 | | | $ | 864 | | | $ | 912 | |
Interest cost | 4,132 | | | 4,160 | | | 506 | | | 637 | |
Expected return on plan assets | (6,770) | | | (5,392) | | | — | | | — | |
Amortization of prior service credit | — | | | — | | | (4,042) | | | (4,242) | |
Amortization of net loss | 1,958 | | | 1,802 | | | 188 | | | 447 | |
Net periodic benefit cost | $ | 4,734 | | | $ | 4,564 | | | $ | (2,484) | | | $ | (2,246) | |
A portion of the service cost component of net periodic pension and postretirement benefit costs is capitalized and amortized as part of deferred acquisition costs and is included in the income statement line titled "amortization"Amortization of deferred policy acquisition costs."costs" in the Consolidated Statements of Income and Comprehensive Income. The portion not related to the compensation and the other components of net periodic pension and postretirement benefit costs is included in the income statement line titled "other underwriting expenses."
Employer Contributions
We previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 20182019 that we expected to contribute $4,000$10,000 to the pension plan in 2019.2020. For the nine-monthsix-month period ended SeptemberJune 30, 2019,2020, we contributed $4,000$5,000 to the pension plan.
NOTE 6. STOCK-BASED COMPENSATION
Non-Qualified Employee Stock Award Plan
The United Fire Group, Inc. 2008 Stock Plan (the "2008 Stock Plan") authorized the issuance of restricted and unrestricted stock awards, restricted stock units, stock appreciation rights, incentive stock options, and non-qualified stock options for up to 1,900,000 shares of UFG common stock to employees. In May 2014, the Registrant's shareholders approved an additional 1,500,000 shares of UFG common stock issuable at any time and from time to time pursuant to the 2008 Stock Plan, among other amendments, and renamed such plan as the United Fire Group, Inc. Stock Plan (as amended, the "Stock Plan"). At SeptemberJune 30, 2019,2020, there were 817,355704,260 authorized shares remaining available for future issuance. The Stock Plan is administered by the Board of Directors, which determines those employees who will receive awards, when awards will be granted, and the terms and conditions of the awards. The
Board of Directors may also take any action it deems necessary and appropriate for the administration of the
Stock Plan. Pursuant to the Stock Plan, the Board of Directors may, at its sole discretion, grant awards to our employees.
Options granted pursuant to the Stock Plan are granted to buy shares of UFG's common stock at the market value of the stock on the date of grant. Options granted prior to March 2017 vest and are exercisable in installments of 20.0 percent of the number of shares covered by the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. Options granted after March 2017 vest and are exercisable in installments of 33.3 percent of the number of shares covered by the option award each year from the grant date, unless the Board of Directors authorizes the acceleration of vesting. To the extent not exercised, vested option awards accumulate and are exercisable by the awardee, in whole or in part, in any subsequent year included in the option period, but not later than 10 years from the grant date. Restricted and unrestricted stock awards granted pursuant to the Stock Plan are granted at the market value of UFG's common stock on the date of the grant. Restricted stock units fully vest after 3 years or 5 years from the date of grant, unless accelerated upon the approval of the Board of Directors, at which time UFG common stock will be issued to the awardee.
The activity in the Stock Plan is displayed in the following table:
| | | | | | | | | | | |
Authorized Shares Available for Future Award Grants | Six Months Ended June 30, 2020 | | From Inception to June 30, 2020 |
Beginning balance | 834,910 | | | 1,900,000 | |
Additional shares authorized | — | | | 1,500,000 | |
Number of awards granted | (165,024) | | | (3,281,445) | |
Number of awards forfeited or expired | 34,374 | | | 585,705 | |
Ending balance | 704,260 | | | 704,260 | |
Number of option awards exercised | 7,200 | | | 1,450,389 | |
Number of unrestricted stock awards granted | — | | | 10,090 | |
Number of restricted stock awards vested | 63,600 | | | 164,378 | |
|
| | | | | |
Authorized Shares Available for Future Award Grants | Nine Months Ended September 30, 2019 | | From Inception to September 30, 2019 |
Beginning balance | 890,857 |
| | 1,900,000 |
|
Additional shares authorized | — |
| | 1,500,000 |
|
Number of awards granted | (109,905 | ) | | (3,132,972 | ) |
Number of awards forfeited or expired | 36,403 |
| | 550,327 |
|
Ending balance | 817,355 |
| | 817,355 |
|
Number of option awards exercised | 104,338 |
| | 1,428,952 |
|
Number of unrestricted stock awards granted | — |
| | 9,370 |
|
Number of restricted stock awards vested | 42,585 |
| | 100,778 |
|
Non-Qualified Non-Employee Director Stock Plan
The United Fire Group, Inc. Non-Employee Director Stock Plan (formerly known as the 2005 Non-Qualified Non- Employee Director Stock Option and Restricted Stock Plan
The United Fire Group, Inc. 2005 Non-Qualified Non-Employee Director Stock Option and Restricted Stock PlanPlan) (the "Director Stock Plan") authorizes the issuance of restricted stock awards and non-qualified stock options to purchase shares of UFG's common stock to non-employee directors. On May 20, 2020, the Company’s shareholders approved amendments to the Director Stock Plan, previously approved by the Company’s Board of Directors, to (i) increase the number of shares available for future awards under the Director Stock Plan from 300,000 to 450,000, (ii) extend the expiration date of the Director Stock Plan from December 31, 2020 to December 31, 2029, (iii) allow for the grant of awards of restricted stock units, and (iv) rename the Director Stock Plan as the "United Fire Group, Inc. Non-Employee Director Stock Plan." At SeptemberJune 30, 2019, we2020, the Company had 34,863160,135 authorized shares available for future issuance.
The Board of Directors has the authority to determine which non-employee directors receive awards, when optionsrestricted stock, restricted stock units and restricted stockoptions shall be granted, the option price, the option expiration date, the date of grant, the vesting schedule of options or whether the options shall be immediately vested, the terms and conditions of options, restricted stock and restricted stock units (other than those terms and conditions set forth in the plan) and the number of shares of common stock to be issued pursuant to an option, agreementrestricted stock or restricted stock agreementunit agreements (subject to limits set forth in the plan)Director Stock Plan). The Board of Directors may also take any action it deems necessary and appropriate for the administration of the Director Stock Plan.
The activity in the Director Stock Plan is displayed in the following table:
| | | | | | | | | | | |
Authorized Shares Available for Future Award Grants | Six Months Ended June 30, 2020 | | From Inception to June 30, 2020 |
Beginning balance | 34,863 | | | 300,000 | |
Additional authorization | 150,000 | | | 150,000 | |
Number of awards granted | (24,728) | | | (313,868) | |
Number of awards forfeited or expired | — | | | 24,003 | |
Ending balance | 160,135 | | | 160,135 | |
Number of option awards exercised | 14,183 | | | 133,275 | |
Number of restricted stock awards vested | 14,300 | | | 98,491 | |
|
| | | | | |
Authorized Shares Available for Future Award Grants | Nine Months Ended September 30, 2019 | | From Inception to September 30, 2019 |
Beginning balance | 49,163 |
| | 300,000 |
|
Number of awards granted | (14,300 | ) | | (289,140 | ) |
Number of awards forfeited or expired | — |
| | 24,003 |
|
Ending balance | 34,863 |
| | 34,863 |
|
Number of option awards exercised | 1,131 |
| | 119,092 |
|
Number of restricted stock awards vested | — |
| | 71,541 |
|
Stock-Based Compensation Expense
For the three-month periods ended SeptemberJune 30, 20192020 and 2018,2019, we recognized stock-based compensation expense of $1,203$1,292 and $1,320,$1,357, respectively. For the nine-monthsix-month periods ended SeptemberJune 30, 20192020 and 2018,2019, we recognized stock-based compensation expense of $5,248 $2,927 and $4,040,$4,045, respectively. Stock-based compensation expense is recognized over the vesting period of the stock options.
As of SeptemberJune 30, 2019,2020, we had $6,645$6,289 in stock-based compensation expense that has yet to be recognized through our results of operations. We expect this compensation to be recognized over the remainder of 20192020 and subsequent years according to the table below, except with respect to awards that are accelerated by the Board of Directors, in which case we will recognize any remaining compensation expense in the period in which the awards are accelerated.
|
| | | | |
2019 | | $ | 1,301 |
|
2020 | | 3,525 |
|
2021 | | 1,643 |
|
2022 | | 176 |
|
2023 | | — |
|
Total | | $ | 6,645 |
|
NOTE 7. SEGMENT INFORMATION
On September 19, 2017, the Company announced that it had agreed to sell its subsidiary, United Life, to Kuvare. The sale closed on March 30, 2018. As a result, the life insurance business has been reported as discontinued operations in the Consolidated Financial Statements and all comparable prior periods have been presented to conform to the current period presentation. For more information, refer to Note 11. Discontinued Operations.
Prior to the announcement to sell United Life, we had 2 reportable business segments in our operations: property and casualty insurance and life insurance. The property and casualty insurance business has 6 domestic locations from which it conducts its direct business. The life insurance segment operated from our home office in Cedar Rapids, Iowa. Because all of our insurance is sold domestically, we have no revenues from foreign operations.
After the announcement of the United Life transaction, our continuing operations, the property and casualty insurance business, was reported as 1 reportable segment. The property and casualty insurance business profit or loss is consistent with consolidated reporting as disclosed on the Consolidated Statements of Income and Comprehensive Income. We analyze the property and casualty insurance business results based on profitability (i.e., loss ratios), expenses and return on equity. The Company's property and casualty insurance business was determined using a management approach to make decisions on operating matters, including allocating resources, assessing performance, determining which products to market and sell, determining distribution networks with insurance agents and monitoring the regulatory environment. The property and casualty insurance business products have similar economic characteristics and use a similar marketing and distribution strategy with our independent agents. The property and casualty insurance business geographic concentration did not change after the announcement of the sale of the life insurance business. We will continue to evaluate our continuing operations on the basis of both statutory accounting principles prescribed or permitted by our states of domicile and GAAP. | | | | | | | | |
2020 | | $ | 2,159 | |
2021 | | 2,666 | |
2022 | | 1,146 | |
2023 | | 225 | |
2024 | | 82 | |
2025 | | 11 | |
Total | | $ | 6,289 | |
NOTE 8.7. EARNINGS PER COMMON SHARE
Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share gives effect to all dilutive common shares outstanding during the reporting period. The dilutive shares we consider in our diluted earnings per share calculation relate to our outstanding stock options, restricted stock awards and restricted stock unit awards.
We determine the dilutive effect of our outstanding stock options using the "treasury stock" method. Under this method, we assume the exercise of all of the outstanding stock options whose exercise price is less than the weighted-average market value of our common stock during the reporting period. This method also assumes that the
proceeds from the hypothetical stock option exercises are used to repurchase shares of our common stock at the weighted-average market value of the stock during the reporting period. The net of the assumed stock options exercised and assumed common shares repurchased represents the number of dilutive common shares, which we add to the denominator of the earnings per share calculation.
The components of basic and diluted earnings per share were as follows for the three-month periods ended SeptemberJune 30, 20192020 and 2018:2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | | | | |
(In Thousands, Except Share Data) | 2020 | | | | 2019 | | |
| Basic | | Diluted | | Basic | | Diluted |
Net income (loss) | $ | 5,960 | | | $ | 5,960 | | | $ | (4,196) | | | $ | (4,196) | |
Weighted-average common shares outstanding | 25,024,855 | | | 25,024,855 | | | 25,210,354 | | | 25,210,354 | |
Add dilutive effect of restricted stock unit awards | — | | | 213,203 | | | — | | | — | |
Add dilutive effect of stock options | — | | | 17,546 | | | — | | | — | |
Weighted-average common shares outstanding | 25,024,855 | | | 25,255,604 | | | 25,210,354 | | | 25,210,354 | |
Earnings (loss) per common share | $ | 0.24 | | | $ | 0.24 | | | $ | (0.17) | | | $ | (0.17) | |
Awards excluded from diluted earnings per share calculation(1) | — | | | 815,279 | | | — | | | 63,897 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, |
(In Thousands, Except Share Data) | 2019 | | 2018 |
| Basic | | Diluted | | Basic | | Diluted |
Net income (loss) from continuing operations | $ | (2,342 | ) | | $ | (2,342 | ) | | $ | 11,070 |
| | $ | 11,070 |
|
Weighted-average common shares outstanding | 25,176,334 |
| | 25,176,334 |
| | 25,052,627 |
| | 25,052,627 |
|
Add dilutive effect of restricted stock unit awards | — |
| | — |
| | — |
| | 279,636 |
|
Add dilutive effect of stock options | — |
| | — |
| | — |
| | 294,688 |
|
Weighted-average common shares outstanding | 25,176,334 |
| | 25,176,334 |
| | 25,052,627 |
| | 25,626,951 |
|
Earnings (loss) per common share from continuing operations | $ | (0.09 | ) | | $ | (0.09 | ) | | $ | 0.44 |
| | $ | 0.43 |
|
Earnings (loss) per common share | $ | (0.09 | ) | | $ | (0.09 | ) | | $ | 0.44 |
| | $ | 0.43 |
|
Awards excluded from diluted earnings per share calculation(1) | — |
| | 63,897 |
| | — |
| | — |
|
| |
(1) | (1)Outstanding awards that are not "in-the-money" are excluded from the diluted earnings per share calculation because the effect of including them would have been anti-dilutive. |
The components of basic and diluted earnings per share were as follows forcalculation because the nine-month periods ended September 30, 2019 and 2018:effect of including them would have been anti-dilutive.
| | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, | | | | | | |
(In Thousands, Except Share Data) | 2020 | | | | 2019 | | |
| Basic | | Diluted | | Basic | | Diluted |
Net income (loss) | $ | (66,574) | | | $ | (66,574) | | | $ | 40,325 | | | $ | 40,325 | |
Weighted-average common shares outstanding | 25,019,441 | | | 25,019,441 | | | 25,170,877 | | | 25,170,877 | |
Add dilutive effect of restricted stock unit awards | — | | | — | | | — | | | 257,810 | |
Add dilutive effect of stock options | — | | | — | | | — | | | 231,116 | |
Weighted-average common shares outstanding | 25,019,441 | | | 25,019,441 | | | 25,170,877 | | | 25,659,803 | |
Earnings (loss) per common share | $ | (2.66) | | | $ | (2.66) | | | $ | 1.60 | | | $ | 1.57 | |
Awards excluded from diluted earnings per share calculation(1) | — | | | 515,984 | | | — | | | 63,897 | |
(1)Outstanding awards that are not "in-the-money" are excluded from the diluted earnings per share calculation because the effect of including them would have been anti-dilutive.
|
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
(In Thousands, Except Share Data) | 2019 | | 2018 |
| Basic | | Diluted | | Basic | | Diluted |
Net income from continuing operations | $ | 37,983 |
| | $ | 37,983 |
| | $ | 31,591 |
| | $ | 31,591 |
|
Weighted-average common shares outstanding | 25,172,716 |
| | 25,172,716 |
| | 24,982,155 |
| | 24,982,155 |
|
Add dilutive effect of restricted stock unit awards | — |
| | 249,605 |
| | — |
| | 279,636 |
|
Add dilutive effect of stock options | — |
| | 221,423 |
| | — |
| | 345,514 |
|
Weighted-average common shares outstanding | 25,172,716 |
| | 25,643,744 |
| | 24,982,155 |
| | 25,607,305 |
|
Earnings per common share from continuing operations | $ | 1.51 |
| | $ | 1.48 |
| | $ | 1.26 |
| | $ | 1.23 |
|
Earnings (loss) per common share from discontinued operations | — |
| | — |
| | (0.08 | ) | | (0.07 | ) |
Gain on sale of discontinued operations, net of taxes | — |
| | — |
| | 1.10 |
| | 1.07 |
|
Earnings per common share | $ | 1.51 |
| | $ | 1.48 |
| | $ | 2.28 |
| | $ | 2.23 |
|
Awards excluded from diluted earnings per share calculation(1) | — |
| | 63,897 |
| | — |
| | 2,681 |
|
| |
(1) | Outstanding awards that are not "in-the-money" are excluded from the diluted earnings per share calculation because the effect of including them would have been anti-dilutive. |
NOTE 9.8. CREDIT FACILITY
On March 31, 2020, United Fire & Casualty Company (the "Borrower"), a wholly owned subsidiary of the Company, entered into a credit agreement (the "New Credit Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent (the "Administrative Agent"), issuing lender, swing-line lender and lender, and the other lenders from time to time party thereto (collectively with Wells Fargo, the "Lenders"), providing for a $50,000 revolving credit facility, which includes a $20,000 letter of credit sub-facility and a $5,000 swing-line loan for working capital and other general corporate purposes. The New Credit Agreement is provided by the Lenders on an unsecured basis, and the Borrower has the option to increase the New Credit Agreement by $100,000 if agreed to by the Lenders providing such incremental facility.
The New Credit Agreement includes customary events of default, including default in payments of principals, default in payment of other indebtedness, change of control and voluntary and involuntary insolvency proceedings, the occurrence of which would allow the Lenders to accelerate payment of all amounts outstanding thereunder and terminate any further commitments to lend.
The entry into the New Credit Agreement was completed as part of the Company’s regular course of financial planning and was not initiated as a result of market conditions resulting from the COVID-19 pandemic.
Prior to February 2, 2016,2020, the Company had a credit agreement (the "Previous Credit Agreement") which it entered into on February 2, 2016. The Company, as borrower, entered into athe Previous Credit Agreement (the "Credit Agreement") by and among the Company, with the lenders from time to time party thereto and KeyBank National Association ("Key Bank"), as administrative agent, swingline lender and letter of credit issuer. The Previous Credit Agreement providesprovided for a $50,000 four-year unsecured revolving credit facility that includesincluded a $20,000 letter of credit subfacility and a
swingline subfacility in the amount up to $5,000. The Previous Credit Agreement allowsallowed the Company to increase the aggregate amount of the commitments thereunder by up to $100,000, provided that no event of default hashad occurred and iswas continuing and certain other conditions arewere satisfied.
The Previous Credit Agreement iswas available for the Company's general corporate purposes, including liquidity, acquisitions and working capital. All unpaid principal and accrued interest under the Previous Credit Agreement iswas due and payable in full at maturity on February 2, 2020. Based on the type of loan, advances under the Previous Credit Agreement would bearbore interest on either the London interbank offered rateInterbank Offered Rate ("LIBOR") or a base rate plus, in each case, a calculated margin amount.
The unused commitments under the Credit Agreement will be subject to a commitment fee that will be calculated at a per annum rate. The applicable margins for borrowings under the Credit Agreement and the commitment fee thereunder will be determined by reference to a pricing grid based on the Company’s issuer credit rating by A.M. Best Company, Inc.
The Credit Agreement contains customary representations, conditions to borrowing, covenants and events of default, including certain covenants that limit or restrict, subject to certain exceptions, the ability of the Company and its subsidiaries to sell or transfer assets, enter into a merger or consolidate with another company, create liens, impose restrictions on subsidiary dividends, enter into sale-leaseback transactions, make investments or acquisitions, enter into certain reinsurance agreements, pay dividends during any period of default, enter into transactions with affiliates, change the nature of its business, or incur indebtedness. The Credit Agreement also includes financial covenants that require the Company to (i) maintain a minimum consolidated net worth, (ii) maintain a minimum consolidated statutory surplus and (iii) not exceed a 0.35 to 1.0 debt to total capitalization ratio.
There was 0 outstanding balance on either the New Credit Agreement or the Previous Credit Agreement at SeptemberJune 30, 20192020 and 2018,2019, respectively. For the nine-monthsix-month periods ended SeptemberJune 30, 20192020 and 2018,2019, we did 0t incur any interest expense related to either credit facility. We were in compliance with all covenants of the New Credit Agreement at SeptemberJune 30, 20192020.
.
NOTE 10.9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table shows the changes in the components of our accumulated other comprehensive income (loss), net of tax, for the three-month period ended SeptemberJune 30, 2019:2020:
| | | | | | | | | | | | | | Liability for | |
| | | Liability for | | | | Net unrealized | | underfunded | |
| Net unrealized | | underfunded | | | | appreciation | | employee | |
| appreciation | | employee | | | | on investments | | benefit costs(1) | | Total |
| on investments | | benefit costs(1) | | Total | |
Balance as of June 30, 2019 | 39,518 |
| | (19,373 | ) | | $ | 20,145 |
| |
Balance as of March 31, 2020 | | Balance as of March 31, 2020 | 51,779 | | | (33,280) | | | $ | 18,499 | |
Change in accumulated other comprehensive income before reclassifications | 12,173 |
| | — |
| | 12,173 |
| Change in accumulated other comprehensive income before reclassifications | 27,566 | | | — | | | 27,566 | |
Reclassification adjustments from accumulated other comprehensive income (loss) | (103 | ) | | 888 |
| | 785 |
| Reclassification adjustments from accumulated other comprehensive income (loss) | (62) | | | 847 | | | 785 | |
Balance as of September 30, 2019 | $ | 51,588 |
| | $ | (18,485 | ) | | $ | 33,103 |
| |
Balance as of June 30, 2020 | | Balance as of June 30, 2020 | $ | 79,283 | | | $ | (32,433) | | | $ | 46,850 | |
(1) The preparation of financial statements in conformity with GAAP requires us to make various estimates and assumptions that affect the reporting of net periodic benefit cost, plan assets and plan obligations for each plan at the date of the financial statements. Actual results could differ from these estimates. One significant estimate relates to the calculation of the benefit obligation for each plan. We annually establish the discount rate, which is an estimate of the interest rate at which these benefits could be effectively settled, that is used to determine the present value of the respective plan's benefit obligations as of December 31.
(1) The preparation of financial statements in conformity with GAAP requires us to make various estimates and assumptions that affect the reporting of net periodic benefit cost, plan assets and plan obligations for each plan at the date of the financial statements. Actual results could differ from these estimates. One significant estimate relates to the calculation of the benefit obligation for each plan. We annually establish the discount rate, which is an estimate of the interest rate at which these benefits could be effectively settled, that is used to determine the present value of the respective plan's benefit obligations as of December 31.
The Company has operating leases consisting of office space, vehicle leases, computer equipment, and office equipment. Lease terms and options vary in the Company's operating leases dependent upon the underlying leased asset. We exclude options to extend or terminate a lease from our recognition as part of our right-of-use assets and lease liabilities until those options are known and/or executed, as we typically do not exercise options to purchase the underlying leased asset. As of SeptemberJune 30, 2019,2020, we have leases with remaining terms of 1 year to 7 years, some of which may include no options for renewal and others with options to extend the lease terms from 6 months to 5 years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Part I, Item 1 "Financial Statements."
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that are representative of significant judgments and uncertainties and that potentially may result in materially different results under different assumptions and conditions. We base our discussion and analysis of our consolidated financial condition and results of operations on the amounts reported in our Consolidated Financial Statements, which we have prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). As we prepare these Consolidated Financial Statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Our critical accounting policies are more fully described in our Management's Discussion and Analysis of Financial Condition and Results of Operations presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018.2019. There have been no changes in our critical accounting policies from December 31, 2018.2019.
INTRODUCTION
The purpose of this Management's Discussion and Analysis is to provide an understanding of our results of operations and consolidated financial condition. Our Management's Discussion and Analysis should be read in conjunction with our Consolidated Financial Statements and related notes, including those in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2018.2019. Our Consolidated Financial Statements are prepared on the basis of GAAP. We also prepare financial statements for each of our insurance company subsidiaries based on statutory accounting principles and file them with insurance regulatory authorities in the states where they do business.
When we provide information on a statutory or other basis, we label it as such, otherwise all other data is presented in accordance with GAAP.
BUSINESS OVERVIEW
Founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc. ("UFG," the "Registrant," the "Company," "we," "us," or "our") and its consolidated insurance subsidiaries provide insurance protection for individuals and businesses through several regional offices. Our property and casualty insurance company subsidiaries are licensed in 46 states plus the District of Columbia and are represented by approximately 1,100approximately 1,000 independent agencies.
Our primary sources of revenue are premiums and investment income. Major categories of expenses from our continuing operations include losses and loss settlement expenses, underwriting and other operating expenses.
Discontinued Operations
On September 18, 2017, the Company signed a definitive agreement to sell its subsidiary, United Life Insurance Company ("United Life"), to Kuvare US Holdings, Inc. ("Kuvare"). The sale closed on March 30, 2018. The life insurance business has been accounted for as discontinued operations in the Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Cash Flows. All periods presented have been revised to show results from continuing and discontinued operations, as applicable, unless otherwise noted. For more information, refer to Part I, Item 1, Note 11. "Discontinued Operations."
Reportable Segments
Subsequent to the announcement of the sale of the life insurance business on September 19, 2017, we have operated and report as one business segment. The life insurance business has been reported as discontinued operations for all periods presented in this Form 10-Q, as applicable, unless otherwise noted. For more information, refer to Part I, Item 1, Note 7. "Segment Information.1. "Nature of Operations and Basis of Presentation."
Personal Lines Business
In May 2020, the Company entered into a renewal rights agreement for our personal lines business, providing our independent insurance agents with the opportunity to transfer their personal lines policies to Nationwide Mutual Insurance Company beginning in the third quarter of 2020, subject to the receipt of applicable regulatory approvals.
As part of this agreement, Nationwide will offer contracts to all of our personal lines agents across the country, with the exception of agents in Louisiana. We are continuing to evaluate our strategic plan for the personal lines business in Louisiana.
To ensure no lapse in coverage to policyholders, Nationwide will provide replacement policies to our personal lines policyholders at the time of renewal. Nationwide has agreed that these replacement policies will reflect substantially similar or improved coverage and pricing.
UFG’s entry into a renewal rights agreement with Nationwide was completed as part of our long-term strategic planning, allowing us to focus on the success of our core commercial lines business, which currently represents 94 percent of our business mix. It was not initiated as a result of market conditions from the COVID-19 pandemic.
The Company recognized other income of $5.7 million before tax during the second quarter of 2020 as a result of the personal lines renewal rights agreement with Nationwide Mutual Insurance Company.
Pooling Arrangement
All of our property and casualty insurance subsidiaries are members of an intercompany reinsurance pooling arrangement. The Company's pooling arrangement permits the participating companies to rely on the capacity of the entire pool's capital and surplus, rather than being limited to policy exposures of a size commensurate with each participant’s own surplus level.
Geographic Concentration
For the nine-monthsix-month period ended SeptemberJune 30, 2019,2020, approximately 48.349.5 percent of our property and casualty premiums were written in Texas, California, Iowa, Missouri, and Colorado.New Jersey.
Profit Factors
Our profitability is influenced by many factors, including price, competition, economic conditions, investment returns, interest rates, catastrophic events and other natural disasters, man-made disasters, state regulations, court decisions, and changes in the law. To manage these risks and uncertainties, we seek to achieve consistent profitability through strong agency relationships, exceptional customer service, fair and prompt claims handling, disciplined underwriting, superior loss control services, prudent management of our investments, appropriate matching of assets and liabilities, effective use of ceded reinsurance and effective and efficient use of technology.
COVID-19
Subsequent to December 31, 2019, the spread of the COVID-19 virus caused significant financial market volatility, economic uncertainty and interruptions to normal business activities. The COVID-19 pandemic has had a profound impact on day-to-day life, financial markets and the economy in the United States since the middle of March 2020. The Company, in response to the challenges presented by COVID-19, activated its pre-existing business continuity plans to respond to a pandemic in mid-March 2020. With the exception of our essential services employees, UFG has dispatched its staff to work remotely for the safety, health and well-being of our employees. We are fully operational, but have limited travel for non-essential employees. Additionally, certain routine work completed by our field marketing, claims and risk control representatives, such as premium audits and inspections, is being completed following social distancing recommendations. Our essential services employees are following recommended health and safety policies. We are and will continue to monitor the state and federal responses to the
pandemic and, when appropriate, will adjust our operations in response. We are developing a return to workplace plan for our employees, but have not finalized plans as of the date of this report. Our return to workplace plan will be implemented at the appropriate time and in a way that is designed to ensure the health and safety of our employees.
The implementation of our business continuity plans did not have a material effect on our internal control environment. We believe our operational processes, internal controls over financial reporting and disclosures, and financial reporting systems are operating effectively in the present environment. Our business teams are working remotely and continue to support our customers, agents and claimants as they did when we were in the office.
Nearly all of the policies we have issued contain contract language that specifically excludes business interruption coverage for losses due to viruses such as the COVID-19 pandemic, but we continue to carefully scrutinize each claim and will be affording coverage when appropriate. At this time, we expect the effect of COVID-19 on claims currently under our coverages to be manageable, based on the information presently available. However, the effects of the COVID-19 pandemic continue to evolve and we cannot predict the extent to which our business, results of operations, financial condition or liquidity will ultimately be impacted. Additionally, if established written contract policy exclusions of business interruption coverage for losses attributable to the COVID-19 pandemic are voided or changed through legislation, regulations or interpretations by the courts, such changes have the potential to materially increase claims, losses and legal expenses which could impact our business, financial condition, results of operations and liquidity.
We anticipate that the larger impact on our financial condition and results of operations will likely result from developments in the economy as a whole and the effect on financial markets and the investments we hold in our investment portfolio, premiums and demand for our products, and our ability to collect premiums or any requirement to return premiums to policyholders. We believe our current capital and liquidity positions are sufficient to maintain our current operations and we have the ability to access our credit facility if needed, but we have not yet had the need to do so. See Note 8 "Credit Facility" for more information. Our year-to-date cash flows provided by operations remained positive and our cash and cash equivalents have increased during the first six-months of 2020 since prior year-end. We have implemented state-mandated and optional payment leniency programs for our policyholders. As of June 30, 2020, we did not see a significant impact to cash flows or an increase in our allowance for doubtful accounts as a result of these programs. During the second quarter of 2020, management did not repurchase any shares of stock, suspending it's share repurchase program in mid-March 2020 for the time being. Also, the Company maintained the same level of cash dividend payments of $0.33 per share during the second quarter of 2020 as were paid in the first quarter of 2020.
We evaluate goodwill and other intangible assets for impairment at least on an annual basis or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill and other intangible assets may exceed tjeir implied fair value. Goodwill is evaluated at the reporting unit level. Any impairment is charged to operations in the period that the impairment is identified. As a result of the COVID-19 pandemic and its impact on equity markets and the economy, we performed a qualitative impairment assessment of our goodwill and intangible assets at June 30, 2020. As a result of this assessment, we did not recognize an impairment charge for goodwill or intangible assets at June 30, 2020.
As of June 30, 2020, we intend to keep all assets currently leased and honor the terms of the contracts. Also, we have four lease contracts where we are the lessor which we evaluated for impairment. As of June 30, 2020, all payments on these contracts had been received and we fully expect to receive all future payments on time. In the event that we receive any lease-related relief provided to mitigate the economic effects of the COVID-19 pandemic, we elect not to evaluate whether or not the relief represents a lease modification.
The decline in equity markets in the first six months of 2020 due to the COVID-19 pandemic did have a material impact on the fair value of our investments in equity securities and limited liability partnerships. The Company's investment philosophy, objectives, approach and program have not changed as a result of the COVID-19 pandemic. During the three-month period ended June 30, 2020 we had a recovery in the fair value of equity securities of $29.8 million and an increase in value of our investments in limited liability partnerships of $1.0 million from the values
reported at March 31, 2020. Year-to-date in 2020 the decrease in the fair value of equity securities from December 31, 2019 was $60.8 million.
The Company has a highly rated fixed maturity portfolio, with low credit risk. The Company recognized an unrealized gain of $32.0 million, net of tax, at June 30, 2020 on its available-for-sale fixed maturity portfolio. In addition, we also adopted new accounting guidance on January 1, 2020 which changes the measurement of credit losses for our investment in available-for-sale fixed maturities and our mortgage loans and also impacts our reinsurance receivables. The adoption of this new guidance resulted in an immaterial allowance for credit losses to be recorded for each of these assets on our balance sheet as of June 30, 2020. For more information on credit losses recognized in the three- and six-month periods ended June 30, 2020, please refer to the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.
FINANCIAL HIGHLIGHTS
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
(In Thousands, Except Ratios) | 2019 | | 2018 | | % | | 2019 | | 2018 | | % | (In Thousands, Except Ratios) | 2020 | | 2019 | | % | | 2020 | | 2019 | | % |
Revenues | | | | | | �� | | | | | | Revenues | | |
Net premiums earned | $ | 274,942 |
| | $ | 264,747 |
| | 3.9 | % | | $ | 813,742 |
| | $ | 766,767 |
| | 6.1 | % | Net premiums earned | $ | 263,609 | | | $ | 276,486 | | | (4.7) | % | | $ | 532,458 | | | $ | 538,800 | | | (1.2) | % |
Investment income, net of investment expenses | 13,291 |
| | 13,192 |
| | 0.8 |
| | 43,923 |
| | 43,933 |
| | — |
| Investment income, net of investment expenses | 12,696 | | | 14,120 | | | (10.1) | | | 15,059 | | | 30,632 | | | (50.8) | |
Net realized investment gains (losses) | | | | | |
| | | | | | |
| |
Change in the value of equity securities | 9,692 |
| | 14,381 |
| | (32.6 | ) | | 46,825 |
| | 5,498 |
| | NM |
| Change in the value of equity securities | 29,809 | | | 12,499 | | | 138.5 | | | (60,838) | | | 37,133 | | | (263.8) | |
All other net realized gains (losses) | 130 |
| | (410 | ) | | (131.7 | ) | | 3,301 |
| | 1,906 |
| | 73.2 |
| All other net realized gains (losses) | (14,030) | | | 1,092 | | | NM | | (16,790) | | | 3,171 | | | NM |
Net realized investment gains | 9,822 |
| | 13,971 |
| | (29.7 | ) | | 50,126 |
| | 7,404 |
| | NM |
| |
Net realized investment gains (losses) | | Net realized investment gains (losses) | 15,779 | | | 13,591 | | | 16.1 | | | (77,628) | | | 40,304 | | | (292.6) | |
Other income | | Other income | 5,719 | | | — | | | NM | | 5,719 | | | — | | | NM |
Total revenues | $ | 298,055 |
| | $ | 291,910 |
| | 2.1 | % | | $ | 907,791 |
| | $ | 818,104 |
| | 11.0 | % | Total revenues | $ | 297,803 | | | $ | 304,197 | | | (2.1) | % | | $ | 475,608 | | | $ | 609,736 | | | (22.0) | % |
|
| | | | | | | | | | | | | | | | | |
Benefits, Losses and Expenses |
| | | | | | | | | | | Benefits, Losses and Expenses | | | | | | |
Losses and loss settlement expenses | $ | 211,752 |
| | $ | 193,667 |
| | 9.3 | % | | $ | 596,001 |
| | $ | 527,541 |
| | 13.0 | % | Losses and loss settlement expenses | $ | 204,973 | | | $ | 220,009 | | | (6.8) | % | | $ | 391,476 | | | $ | 384,249 | | | 1.9 | % |
Amortization of deferred policy acquisition costs | 54,828 |
| | 51,758 |
| | 5.9 |
| | 161,842 |
| | 152,207 |
| | 6.3 |
| Amortization of deferred policy acquisition costs | 51,893 | | | 54,795 | | | (5.3) | | | 106,345 | | | 107,014 | | | (0.6) | |
Other underwriting expenses | 36,003 |
| | 33,887 |
| | 6.2 |
| | 104,370 |
| | 105,994 |
| | (1.5 | ) | Other underwriting expenses | 36,701 | | | 33,964 | | | 8.1 | | | 78,550 | | | 68,367 | | | 14.9 | |
Total benefits, losses and expenses | $ | 302,583 |
| | $ | 279,312 |
| | 8.3 | % | | $ | 862,213 |
| | $ | 785,742 |
| | 9.7 | % | Total benefits, losses and expenses | $ | 293,567 | | | $ | 308,768 | | | (4.9) | % | | $ | 576,371 | | | $ | 559,630 | | | 3.0 | % |
|
|
| | | | | | | | | | | | | |
Income (loss) from continuing operations before income taxes | $ | (4,528 | ) | | $ | 12,598 |
| | (135.9 | ) | | $ | 45,578 |
| | $ | 32,362 |
| | 40.8 | % | |
Income (loss) before income taxes | | Income (loss) before income taxes | $ | 4,236 | | | $ | (4,571) | | | (192.7) | | | $ | (100,763) | | | $ | 50,106 | | | NM |
Federal income tax expense (benefit) | (2,186 | ) | | 1,528 |
| | (243.1 | ) | | 7,595 |
| | 771 |
| | NM |
| Federal income tax expense (benefit) | (1,724) | | | (375) | | | NM | | (34,189) | | | 9,781 | | | NM |
Net income (loss) from continuing operations | $ | (2,342 | ) | | $ | 11,070 |
| | (121.2 | )% | | $ | 37,983 |
| | $ | 31,591 |
| | 20.2 | % | |
Loss from discontinued operations, net of tax | — |
| | — |
| | — | % | | — |
| | (1,912 | ) | | (100.0 | )% | |
Gain on sale of discontinued operations, net of tax | — |
| | — |
| | — | % | | — |
| | 27,307 |
| | (100.0 | )% | |
Net income (loss) | $ | (2,342 | ) | | $ | 11,070 |
| | (121.2 | )% | | $ | 37,983 |
| | $ | 56,986 |
| | (33.3 | )% | Net income (loss) | $ | 5,960 | | | $ | (4,196) | | | (242.0) | | | $ | (66,574) | | | $ | 40,325 | | | (265.1) | % |
| | | | | | | | | | | | |
GAAP Ratios: | | | |
| | | | | | | | | GAAP Ratios: | | | |
Net loss ratio (without catastrophes) | 70.0 | % | | 68.6 | % | | 2.0 | % | | 67.8 | % | | 64.8 | % | | 4.6 | % | Net loss ratio (without catastrophes) | 58.6 | % | | 71.6 | % | | (18.2) | % | | 61.1 | % | | 66.5 | % | | (8.1) | % |
Catastrophes - effect on net loss ratio | 7.0 |
| | 4.6 |
| | 52.2 | % | | 5.5 |
| | 4.0 |
| | 37.5 | % | Catastrophes - effect on net loss ratio | 19.2 | | | 8.0 | | | 140.0 | | | 12.4 | | | 4.8 | | | 158.3 | |
Net loss ratio(1) | 77.0 | % | | 73.2 | % | | 5.2 | % | | 73.3 | % | | 68.8 | % | | 6.5 | % | Net loss ratio(1) | 77.8 | % | | 79.6 | % | | (2.3) | % | | 73.5 | % | | 71.3 | % | | 3.1 | % |
Expense ratio(2) | 33.0 |
| | 32.3 |
| | 2.2 | % | | 32.7 |
| | 33.7 |
| | (3.0 | )% | Expense ratio(2) | 33.6 | | | 32.1 | | | 4.7 | | | 34.7 | | | 32.6 | | | 6.4 | |
Combined ratio(3) | 110.0 | % | | 105.5 | % | | 4.3 | % | | 106.0 | % | | 102.5 | % | | 3.4 | % | Combined ratio(3) | 111.4 | % | | 111.7 | % | | (0.3) | % | | 108.2 | % | | 103.9 | % | | 4.1 | % |
(1) The net loss ratio is calculated by dividing the sum of losses and loss settlement expenses by net premiums earned. We use the net loss ratio as a measure of the overall underwriting profitability of the insurance business we write and to assess the adequacy of our pricing. Our net loss ratio is meaningful in evaluating our financial results as reported in our unaudited Consolidated Financial Statements.
(2) The expense ratio is calculated by dividing nondeferred underwriting expenses and amortization of deferred policy acquisition costs by net premiums earned. The expense ratio measures a company's operational efficiency in producing, underwriting and administering its insurance business.
(3) The combined ratio is a commonly used financial measure of property and casualty underwriting performance. A combined ratio below 100.0 percent generally indicates a profitable book of business. The combined ratio is the sum of the net loss ratio and the underwriting expense ratio.
NM = Not meaningful
The following is a summary of our financial performance for the three- and nine-monthsix-month periods ended SeptemberJune 30, 2019:2020:
RESULTS OF OPERATIONS
For the three-month period ended SeptemberJune 30, 2019,2020, net income was $6.0 million compared to net loss of $4.2 million for the same period of 2019. In the three-month period ended June 30, 2020, the increase in net income was primarily due to an increase in net realized investment gains, a decrease in losses and loss settlement expenses and other income all partially offset by decreases in net premiums earned and net investment income.
For the six-month period ended June 30, 2020, net loss was $2.3$66.6 million compared to net income of $11.1$40.3 million for the same period of 2018.2019. In the six-month period ended June 30, 2020, the decrease in net income was primarily due to a decrease in the fair value of equity securities, a decrease in net investment income and increases in losses and loss settlement expenses.
Net premiums earned decreased to 4.7 percent and 1.2 percent during the three- and six-month periods ended June 30, 2020 compared to the same periods of 2019 primarily due to our focus on improving profitability through non-renewal of under-performing accounts in our commercial auto line of business. There was some impact to net premiums earned from the COVID-19 pandemic but it was less significant than the impact from our commercial auto profitability initiatives in the three- and six-month periods ended June 30, 2020. The Company has implemented state-mandated and optional payment leniency programs for our policyholders as a result of the COVID-19 pandemic. As of June 30, 2020, we did not see a significant impact to cash flows or an increase in our allowance for doubtful accounts as a result of these programs. We currently do not believe these payment modifications will have a material impact on our financial condition, liquidity or capital position.
Net investment income was $12.7 million for the second quarter of 2020 as compared to net investment income of $14.1 million for the same period in 2019. The decrease in net investment income in the second quarter of 2020 was primarily due to a decrease in invested assets as compared to the same period in 2019. Year-to date, net investment income was $15.1 million, compared to net investment income of $30.6 million for the same period in 2019. The decrease in net investment income was due to a combination of a decrease in the fair value of our investments in limited liability partnerships in the first quarter and a decrease in invested assets as compared to the same period in 2019. The valuation of these investments in limited liability partnerships varies from period to period due to the current equity market conditions, specifically related to financial institutions.
The Company recognized net realized investment gains of $15.8 million during the second quarter of 2020, compared to net realized investment gains of $13.6 million for the same period in 2019. The change in the three-month period ended SeptemberJune 30, 2020, as compared to the same period in 2019, was primarily due to the increase in the fair value of equity securities. Year-to-date, the Company recognized net realized investment losses of $77.6 million compared to net realized gains of $40.3 million. The decrease in the six-month period ended June 30, 2020 as compared to the same period in 2019 was primarily due to a decrease in the value of equity securities of $60.8 million, compared with an increase of $37.1 million, respectively.
Other income of $5.7 million before tax recognized during the second quarter of 2020 was the result of our previously announced personal lines renewal rights agreement with Nationwide Mutual Insurance Company.
Losses and loss settlement expenses decreased by 6.8 percentage points and increased by 1.9 percentage points during the three- and six-month periods ended June 30, 2020 compared to the same periods of 2019. The decrease in losses and loss settlement expenses primarily was due to an improvement in the performance of our core book of business, specifically our commercial auto and liability lines of businesses partially offset by an increase in catastrophe losses. Year-to-date, the increase in losses and loss settlement expenses and a lower increase in the change in the fair value of equity securities were partially offset by an increase in net premiums earned. Net premiums earned increased to $274.9 million compared to $264.7 million for the same period of 2018 primarily due to rate increases, premium audits and endorsements.
For the nine-month period ended September 30, 2019, net income was $38.0 million compared to net income of $57.0 million for the same period of 2018. In the nine-month period ended September 30, 2019, there was an increase in net premiums earned and net realized gains on equity securities, partially offset by an increase in losses and loss settlement expenses driven by an increase in catastrophe losses and a decrease in favorable prior year reserve development. Net premiums earned increased to $813.7 million compared to $766.8 million for the same period of 2018 primarily due to rate increases, premium audits and endorsements.
Investment income increased by $0.1 million and was flat, respectively, during the three- and nine-month periods ended September 30, 2019as compared to the same periods of 2018.
The decreaseperiod in net realized investment gains of $4.1 million was primarily due to a lower increase in the change in the fair value of equity securities during the three-month period ended September 30, 2019. The change in the fair value of equity securities in the three-month period ended September 30, 2019 was $9.7 million compared to an increase of $14.4 million during the same period of 2018. For the nine-month period ended September 30, 2019, the increase in net realized investment gains of $42.7 million was primarily due to an increase in severity of non-catastrophe losses and an increase in catastrophe losses.
The GAAP combined ratio decreased by 0.3 percentage points to 111.4 percent for the fair valuesecond quarter of equity securities of $46.8 million2020, compared to an increase of $5.5 million111.7 percent in the same period in 2019. The decrease in the combined ratio was primarily driven by a decrease in the loss ratio offset by an increase in the expense ratio. For the six-month period ended June 30, 2020, the GAAP combined ratio increased 4.3 percentage points to 108.2 percent compared to 103.9 percent for the six-month period ended June 30, 2019. The increase in the combined ratio was primarily driven by a combination of 2018.increases in the net loss ratio and expense ratio.
Losses andThe GAAP net loss settlement expenses increased by 9.3ratio improved 1.8 percentage points during the three-month period ended September 30, 2019second quarter of 2020 as compared to the same period in 2019. The decrease in the second quarter of 20182020 was primarily due to an increase in catastrophe losses, an increase in severity of losses and reserves additionsthe improvement in the current accident year, inperformance of our commercial auto and liability linescore book of business. Losses and loss settlement expenses increased by 13.0 percentage points during the nine-month period ended September 30, 2019 compared to the same period of 2018 primarily due to a decrease in favorable prior year reserve development from reserve strengthening inbusiness, specifically our commercial auto and liability lines of business andpartially offset by an increase in catastrophe losses. During the six-month period ended June 30, 2020, the net loss ratio
deteriorated 2.2 percentage points as compared to the same period in 2019 primarily due to an increase in catastrophe losses.
The combined ratio increased 4.5 percentage points and 3.5 percentage points to 110.0 percent and 106.0 percent for the three- and nine-month periods ended September 30, 2019, compared to 105.5 percent and 102.5 percent for the same periods of 2018. The increases in the combined ratios in the three- and nine-month periods ended September 30, 2019 as compared to the same periods in 2018 are primarily driven by an increase in the loss ratio from an increase in catastrophe losses, an increase in severity of losses and reserves additions in the current accident year in our commercial auto and liability lines of business.
Pre-tax catastrophe losses in the thirdsecond quarter of 20192020 were higher when compared to the thirdsecond quarter of 2018,2019, with catastrophe losses adding 7.019.2 percentage points to the combined ratio in 20192020 as compared to 4.68.0 percentage points in 2018. 2019. During the second quarter of 2020, the Company incurred losses from 20 catastrophic events primarily from severe convective storms in the Midwest and Southern United States. Our 10-year historical average for thirdsecond quarter catastrophe losses is 7.312.2 percentage points added to the combined ratio. Year-to-date, catastrophe losses added 5.5 percentage points in 2019totaled $65.9 million ($2.08 per diluted share) compared to 4.0 percentage points$25.6 million ($0.79 per diluted share) for the same period in 2018.2019.
The GAAP net lossexpense ratio excluding catastrophe losses deteriorated by 1.4 percentage points and 3.0 percentage pointsfor the second quarter of 2020 was 33.6 percent, compared to 70.032.1 percent and 67.8 percentfor the second quarter in 2019. The increase in the three- and nine-month periods ended September 30, 2019, respectively,expense ratio during the second quarter of 2020 as compared to the same period of 2018. The increase in the GAAP net loss ratio in the three-month period ended September 30, 2019, compared to the same period of 2018 is primarily due to an increaseour continued investment in catastrophe losses, an increase in severity of losses and reserves additions in the current accident year in our commercial auto and liability
lines of business. The increase in the GAAP net loss ratio in the nine-month period ended September 30, 2019 compared to the same period of 2018 is primarily due to a decrease in favorable prior year reserve development from reserve strengthening in our commercial auto and liability lines of business.
The expense ratio was 33.0 percent and 32.7 percent, respectively, for the three- and nine-month periods ended September 30, 2019, an increase of 0.7 percentage points and a decrease of 1.0 percentage points, respectively, as compared with the same periods of 2018. The increase in the three-month period ended September 30, 2019 was primarily due to quarterly fluctuations in expenses fortechnology, including our multi-year Oasis project, an upgrade to upgrade our technology platform designed to enhance core underwriting decisions, selection of risks and productivity. The decreaseYear-to-date, the expense rate was 34.7 percent compared to 32.6 percent in the nine-monthsame period ended September 30, 2019 was duein 2019. The increase in our investment in technology contributed to a decreasethe increase in employee benefit accruals and expenses due to post-retirement benefit plan amendments made at the end expense ratio, along with the acceleration
of 2018.the amortization of our deferred acquisition costs in our commercial auto line of business from lower than expected profitability.
On March 30, 2018, the sale of United Life closed, resulting in a gain on sale of discontinued operations after-tax of $27.3 million.
For a detailed discussion of our investment results, refer to the "Investment Portfolio" section below.
Reserve Development
For many liability claims, significant periods of time, ranging up to several years, and for certain construction defect claims, more than a decade, may elapse between the occurrence of the loss, the reporting of the loss to us and the settlement or other disposition of the claim. As a result, loss experience in the more recent accident years for the long-tail liability coverages has limited statistical credibility in our reserving process because a relatively small proportion of losses in these accident years are reported claims and an even smaller proportion are paid losses. In addition, long-tail liability claims are more susceptible to litigation and can be significantly affected by changing contract interpretations and the legal environment. Consequently, the estimation of loss reserves for long-tail coverages is more complex and subject to a higher degree of variability. Reserves for these long-tail coverages represent a significant portion of our overall carried reserves.
When establishing reserves and monitoring reserve adequacy, we analyze historical data and consider the potential impact of various loss development factors and trends, including historical loss experience, legislative enactments, judicial decisions, legal developments in imposition of damages, experience with alternative dispute resolution, results of our medical bill review process, the potential impact of salvage and subrogation and changes and trends in general economic conditions, including the effects of inflation. All of these factors influence our estimates of required reserves and for long-tail lines these factors can change over the course of the settlement of the claim. However, there is no precise method for evaluating the specific dollar impact of any individual factor on the development of reserves.
Our reserving philosophy is to reserve claims to their ultimate expected loss amount as soon as practicable after information about a claim becomes available. This approach tends to produce, on average, prudently conservative case reserves, which we expect to result in some level of favorable development over the course of settlement.
20192020 Development
The property and casualty insurance business experienced $5.5$10.0 million and $0.8$23.8 million of favorable development in our net reserves for prior accident years for the three- and nine-monthsix-month periods ended SeptemberJune 30, 2019,2020, respectively. For the three-month period ended SeptemberJune 30, 20192020 the majority of favorable development was from workers' compensation with $14.9$7.8 million of favorable development, followed by assumed reinsurancecommercial fire and allied lines which
contributed $1.2$4.9 million of favorable development. Partially offsetting this favorable development was unfavorable development contributed primarily by commercial automobile and other liability with $1.9 million of unfavorable development and reinsurance assumed with $1.5 million of unfavorable development. The favorable development for workers' compensation was primarily from reductions in reserves for reported claims which were more than sufficient to offset paid losses. The favorable development for assumed reinsurance was primarily from reductions in incurred but not reported ("IBNR")claim reserves which were more than sufficient to offset paid losses.loss. The favorable development was partially offset by unfavorableadverse development for two lines, primarily from commercial automobile and other liability which experienced $11.5 million of unfavorable development dueis attributed to paid loss and loss adjustment expense. Commercial fire and allied lines
also contributed $1.1 million of unfavorable development due to paid loss andunpaid claim reserves, paid loss adjustment expense.expense ("LAE") was more than offset by reductions of reserves for unpaid LAE. All other lines of insurance, in total, contributed an additional $2.0$0.7 million of favorable development during the quarter.
For the nine-monthsix-month period ended SeptemberJune 30, 20192020 the majority of favorable development was from workers' compensation with $26.3$16.0 million favorable development, followed by fidelitycommercial fire and suretyallied lines which contributed $12.8 million of favorable development. Partially offsetting was $3.1unfavorable development contributed primarily by commercial liability with $6.5 million favorable.of unfavorable development and reinsurance assumed with $2.7 million of unfavorable development. The favorable development for workers' compensation was primarily from reductions in claim reserves for reported claims which were more than sufficient to offset paid losses; loss adjustment expense also contributed favorable development with reductions in reserves more than sufficient to offset payments.loss. The favorableadverse development for fidelity and surety was from reductions in IBNR reserves, reductions in claim reserves and salvage recoveries. The favorable development was partially offset by unfavorable development for two lines, primarily from commercial liability which experienced $27.4 million of unfavorable development dueis attributed to paid loss and loss adjustment expense. Commercial fire and allied lines also contributed $3.5 millionwhich was greater than the reductions of unfavorable development due tounpaid claim reserves, paid losses.LAE was more than offset by reductions of reserves for unpaid LAE. All other lines of insurance, in total, contributed an additional $2.3$4.2 million of favorable year-to-date development.development during the quarter.
20182019 Development
The property and casualty insurance business experienced $0.7$9.4 million and $4.7 million, respectively, of unfavorable and $47.7 million of favorable development in our net reserves for prior accident years for the three- and nine-monthsix-month periods ended SeptemberJune 30, 2018, respectively.2019. For the three-month period ended SeptemberJune 30, 2018 the two lines contributing2019 the majority of unfavorable development werewas from the commercial other liability line with $7.5$17.5 million unfavorable development, and commercial automobile with $6.6followed by the assumed reinsurance line which contributed $2.1 million of unfavorable development. The unfavorable development in the commercial liability line was primarily from paid loss and an increase in claim reserves along with prior year reserve strengthening on auto liability and other liability claims in our Gulf Coast region. The apparent adverse development for the three-month period ended September 30, 2018assumed reinsurance is attributableattributed to the combinationacquisition of latent emergencea new reinsurance program. The loss portfolio transfer of commercial automobile claims that increased sufficiently to also generate an umbrella liability claim and also a very large but independent general liability claim. During the three-month period ended September 30, 2018 the threereserves for prior accident years resulted in unfavorable development. All other lines contributing the majorityof insurance, in total, contributed $10.2 million of favorable development during the quarter which partially offset the unfavorable development from the commercial liability and assumed reinsurance lines.
For the six-month period ended June 30, 2019 the majority of unfavorable development resulted from the commercial liability line with $16.0 million unfavorable development, followed by commercial fire and allied lines which contributed $2.4 million unfavorable development and then then assumed reinsurance line, which contributed $1.2 million of unfavorable development. The unfavorable development in the commercial liability line was primarily from prior year reserve strengthening on auto liability and other liability claims in our Gulf Coast region. Commercial fire and allied lines developed unfavorably due to an increase in paid loss. Reductions in unpaid claim reserves did not fully offset paid loss, but loss adjustment expense did provide a partial offset to the loss development by contributing favorable development. The apparent adverse development for the assumed reinsurance line is attributed to the acquisition of a new reinsurance program, which was noted above were reinsurance assumed with $6.5when discussing quarterly results above. All other lines of insurance, in total, contributed $14.9 million of favorable development workers' compensation with $5.4 million of favorableduring the year, which partially offset unfavorable development from commercial liability, commercial fire and fidelityallied and surety with $1.6 million of favorable development.assumed reinsurance lines.
For the nine-month period ended September 30, 2018 the majority of favorable development came from four lines: workers' compensation with $19.9 million favorable development, commercial automobile with $8.4 million favorable development, commercial other liability with $5.2 million favorable development, and reinsurance assumed with $5.5 million of favorable development. During the nine-month period ended September 30, 2018 every individual line experienced favorable development. The favorable development in the nine-month period ended September 30, 2018 is attributable to our continued litigation management efforts as well as favorable runoff of reserves for reported claims, reserves for IBNR claims, and reserve for general loss adjustment expenses.
Development amounts can vary significantly from quarter-to-quarter and year-to-year depending on a number of factors, including the number of claims settled and the settlement terms, and are subject to reallocation between accident years and lines of business. At SeptemberJune 30, 2019,2020, our total reserves were within our actuarial estimates.
The following tables display our net premiums earned, net losses and loss settlement expenses and net loss ratio by line of business:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended June 30, | 2020 | | | | | | 2019 | | | | |
| | | Net Losses | | | | | | Net Losses | | |
| | | and Loss | | | | | | and Loss | | |
| Net | | Settlement | | Net | | Net | | Settlement | | Net |
(In Thousands, Except Ratios) | Premiums | | Expenses | | Loss | | Premiums | | Expenses | | Loss |
Unaudited | Earned | | Incurred | | Ratio | | Earned | | Incurred | | Ratio |
Commercial lines | | | | | | | | | | | |
Other liability | $ | 77,407 | | | $ | 46,914 | | | 60.6 | % | | $ | 79,452 | | | $ | 57,582 | | | 72.5 | % |
Fire and allied lines | 62,592 | | | 67,055 | | | 107.1 | | | 60,615 | | | 55,851 | | | 92.1 | |
Automobile | 73,682 | | | 58,014 | | | 78.7 | | | 78,472 | | | 69,766 | | | 88.9 | |
Workers' compensation | 19,200 | | | 6,247 | | | 32.5 | | | 22,621 | | | 9,378 | | | 41.5 | |
Fidelity and surety | 6,332 | | | 110 | | | 1.7 | | | 6,146 | | | (650) | | | (10.6) | |
Miscellaneous | 385 | | | 96 | | | 24.9 | | | 436 | | | 99 | | | 22.7 | |
Total commercial lines | $ | 239,598 | | | $ | 178,436 | | | 74.5 | % | | $ | 247,742 | | | $ | 192,026 | | | 77.5 | % |
| | | | | | | | | | | |
Personal lines | | | | | | | | | | | |
Fire and allied lines | $ | 9,819 | | | $ | 19,187 | | | 195.4 | % | | $ | 10,302 | | | $ | 14,386 | | | 139.6 | % |
Automobile | 7,518 | | | 2,464 | | | 32.8 | | | 7,698 | | | 6,809 | | | 88.5 | |
Miscellaneous | 304 | | | 52 | | | 17.1 | | | 307 | | | 552 | | | 179.8 | |
Total personal lines | $ | 17,641 | | | $ | 21,703 | | | 123.0 | % | | $ | 18,307 | | | $ | 21,747 | | | 118.8 | % |
Reinsurance assumed | $ | 6,370 | | | $ | 4,834 | | | 75.9 | % | | $ | 10,437 | | | $ | 6,236 | | | 59.7 | % |
Total | $ | 263,609 | | | $ | 204,973 | | | 77.8 | % | | $ | 276,486 | | | $ | 220,009 | | | 79.6 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
Three Months Ended September 30, | 2019 | | 2018 |
| | | Net Losses | | | | | | Net Losses | | |
| | | and Loss | | | | | | and Loss | | |
| Net | | Settlement | | Net | | Net | | Settlement | | Net |
(In Thousands, Except Ratios) | Premiums | | Expenses | | Loss | | Premiums | | Expenses | | Loss |
Unaudited | Earned | | Incurred | | Ratio | | Earned | | Incurred | | Ratio |
Commercial lines | | | | | | | | | | | |
Other liability | $ | 80,421 |
| | $ | 50,656 |
| | 63.0 | % | | $ | 78,943 |
| | $ | 53,581 |
| | 67.9 | % |
Fire and allied lines | 61,628 |
| | 49,628 |
| | 80.5 |
| | 59,056 |
| | 40,514 |
| | 68.6 |
|
Automobile | 80,574 |
| | 85,227 |
| | 105.8 |
| | 72,773 |
| | 68,892 |
| | 94.7 |
|
Workers' compensation | 22,041 |
| | 3,076 |
| | 14.0 |
| | 24,127 |
| | 17,776 |
| | 73.7 |
|
Fidelity and surety | 6,755 |
| | 1,437 |
| | 21.3 |
| | 5,929 |
| | 1,379 |
| | 23.3 |
|
Miscellaneous | 428 |
| | 63 |
| | 14.7 |
| | 436 |
| | (29 | ) | | (6.7 | ) |
Total commercial lines | $ | 251,847 |
| | $ | 190,087 |
| | 75.5 | % | | $ | 241,264 |
| | $ | 182,113 |
| | 75.5 | % |
| | | | | | | | | | | |
Personal lines | | | | | | | | | | | |
Fire and allied lines | $ | 10,370 |
| | $ | 13,469 |
| | 129.9 | % | | $ | 10,416 |
| | $ | 11,423 |
| | 109.7 | % |
Automobile | 7,870 |
| | 6,946 |
| | 88.3 |
| | 7,450 |
| | 6,731 |
| | 90.3 |
|
Miscellaneous | 312 |
| | (130 | ) | | (41.7 | ) | | 307 |
| | 25 |
| | 8.1 |
|
Total personal lines | $ | 18,552 |
| | $ | 20,285 |
| | 109.3 | % | | $ | 18,173 |
| | $ | 18,179 |
| | 100.0 | % |
Reinsurance assumed | $ | 4,543 |
| | $ | 1,380 |
| | 30.4 | % | | $ | 5,310 |
| | $ | (6,625 | ) | | (124.8 | )% |
Total | $ | 274,942 |
| | $ | 211,752 |
| | 77.0 | % | | $ | 264,747 |
| | $ | 193,667 |
| | 73.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, | 2020 | | | | | | 2019 | | | | |
| | | Net Losses | | | | | | Net Losses | | |
| | | and Loss | | | | | | and Loss | | |
| Net | | Settlement | | Net | | Net | | Settlement | | Net |
(In Thousands, Except Ratios) | Premiums | | Expenses | | Loss | | Premiums | | Expenses | | Loss |
Unaudited | Earned | | Incurred | | Ratio | | Earned | | Incurred | | Ratio |
Commercial lines | | | | | | | | | | | |
Other liability | $ | 156,716 | | | $ | 90,637 | | | 57.8 | % | | $ | 157,879 | | | $ | 95,857 | | | 60.7 | % |
Fire and allied lines | 124,261 | | | 118,980 | | | 95.8 | | | 119,789 | | | 92,637 | | | 77.3 | |
Automobile | 151,700 | | | 123,319 | | | 81.3 | | | 153,706 | | | 140,337 | | | 91.3 | |
Workers' compensation | 38,628 | | | 13,955 | | | 36.1 | | | 44,496 | | | 15,323 | | | 34.4 | |
Fidelity and surety | 12,750 | | | 142 | | | 1.1 | | | 12,521 | | | (901) | | | (7.2) | |
Miscellaneous | 780 | | | 188 | | | 24.1 | | | 863 | | | — | | | — | |
Total commercial lines | $ | 484,835 | | | $ | 347,221 | | | 71.6 | % | | $ | 489,254 | | | $ | 343,253 | | | 70.2 | % |
| | | | | | | | | | | |
Personal lines | | | | | | | | | | | |
Fire and allied lines | $ | 19,789 | | | $ | 25,921 | | | 131.0 | % | | $ | 20,522 | | | $ | 20,668 | | | 100.7 | % |
Automobile | 15,148 | | | 7,613 | | | 50.3 | | | 15,180 | | | 12,476 | | | 82.2 | |
Miscellaneous | 610 | | | 2,658 | | | 435.7 | | | 608 | | | 484 | | | 79.6 | |
Total personal lines | $ | 35,547 | | | $ | 36,192 | | | 101.8 | % | | $ | 36,310 | | | $ | 33,628 | | | 92.6 | % |
Reinsurance assumed | $ | 12,076 | | | $ | 8,063 | | | 66.8 | % | | $ | 13,236 | | | $ | 7,368 | | | 55.7 | % |
Total | $ | 532,458 | | | $ | 391,476 | | | 73.5 | % | | $ | 538,800 | | | $ | 384,249 | | | 71.3 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended September 30, | 2019 | | 2018 |
| | | Net Losses | | | | | | Net Losses | | |
| | | and Loss | | | | | | and Loss | | |
| Net | | Settlement | | Net | | Net | | Settlement | | Net |
(In Thousands, Except Ratios) | Premiums | | Expenses | | Loss | | Premiums | | Expenses | | Loss |
Unaudited | Earned | | Incurred | | Ratio | | Earned | | Incurred | | Ratio |
Commercial lines | | | | | | | | | | | |
Other liability | $ | 238,300 |
| | $ | 146,513 |
| | 61.5 | % | | $ | 230,845 |
| | $ | 117,387 |
| | 50.9 | % |
Fire and allied lines | 181,417 |
| | 142,265 |
| | 78.4 |
| | 174,451 |
| | 125,844 |
| | 72.1 |
|
Automobile | 234,280 |
| | 225,564 |
| | 96.3 |
| | 209,176 |
| | 188,929 |
| | 90.3 |
|
Workers' compensation | 66,537 |
| | 18,399 |
| | 27.7 |
| | 71,101 |
| | 46,838 |
| | 65.9 |
|
Fidelity and surety | 19,276 |
| | 536 |
| | 2.8 |
| | 17,144 |
| | 2,328 |
| | 13.6 |
|
Miscellaneous | 1,291 |
| | 63 |
| | 4.9 |
| | 1,289 |
| | 348 |
| | 27.0 |
|
Total commercial lines | $ | 741,101 |
| | $ | 533,340 |
| | 72.0 | % | | $ | 704,006 |
| | $ | 481,674 |
| | 68.4 | % |
| | | | | | | | | | | |
Personal lines | | | | | | | | | | | |
Fire and allied lines | $ | 30,892 |
| | $ | 34,137 |
| | 110.5 | % | | $ | 31,250 |
| | $ | 28,183 |
| | 90.2 | % |
Automobile | 23,050 |
| | 19,422 |
| | 84.3 |
| | 21,686 |
| | 18,701 |
| | 86.2 |
|
Miscellaneous | 920 |
| | 354 |
| | 38.5 |
| | 903 |
| | (247 | ) | | (27.4 | ) |
Total personal lines | $ | 54,862 |
| | $ | 53,913 |
| | 98.3 | % | | $ | 53,839 |
| | $ | 46,637 |
| | 86.6 | % |
Reinsurance assumed | $ | 17,779 |
| | $ | 8,748 |
| | 49.2 | % | | $ | 8,922 |
| | $ | (770 | ) | | (8.6 | )% |
Total | $ | 813,742 |
| | $ | 596,001 |
| | 73.2 | % | | $ | 766,767 |
| | $ | 527,541 |
| | 68.8 | % |
Below are explanations regarding significant changes in the net loss ratios by line of business:
| |
• | Other liability- The net loss ratio improved 4.9 and deteriorated 10.6 percentage points in the three and nine-month periods ended September 30, 2019, respectively, compared to the same periods of 2018. The quarterly improvement is attributable to a decrease in losses over $500 thousand and a decrease in products liability IBNR reserves partially offset by an increase in unfavorable prior year reserve development, an increase in paid losses and an increase in auto liability IBNR reserves from an increase in severity. The year-to-date deterioration is primarily attributable to increases in paid losses, paid loss adjustment expense and increase in reserves along with unfavorable prior year reserve development primarily in our Gulf Coast region.
|
| |
• | Commercial automobile - The net loss ratio deteriorated 11.1 and 6.0 percentage points in the three and nine-month periods ended September 30, 2019, respectively, compared to the same periods of 2018. The deterioration for the quarterly results is attributable primarily to an increase in paid losses as well as an increase in IBNR reserves for the third quarter of 2019 due to an increase in severity of losses compared with an IBNR reserve decrease in 2018. The year-to-date deterioration is primarily attributable increased paid losses and a decrease in prior year favorable reserve development from reserve strengthening in our Gulf Coast region in 2019 as compared to the same period in 2018.
|
| |
• | Commercial fire and allied lines - The net loss ratio deteriorated 11.9 and 6.3 percentage points in the three and nine-month periods ended September 30, 2019, respectively, compared to the same periods of 2018. The deterioration in both periods is primarily due to an increase in catastrophe losses in 2019 and reserve releases in the same periods in 2018. For the quarter, the deterioration is attributable to changes in IBNR reserves which decreased significantly during the third quarter of 2018 compared to no change during the third quarter of 2019 along with changes in reserves for loss adjustment expense which increased moderately in 2019 compared with a decrease in the same period in 2018. The year-to-date deterioration is
|
•Other liability - The net loss ratio improved 11.9 and 2.9 percentage points, respectively, in the three- and six-month periods ended June 30, 2020, compared to the same periods of 2019. The decrease in both periods was primarily due to lower paid losses, improvement in the core book of business and lower prior year unfavorable reserve development.
43
and Southern United States.
•Commercial automobile - The net loss ratio improved 10.2 and 10.0 percentage points, respectively, in the three- and six-month periods ended June 30, 2020, compared to the same periods of 2019. The improvement in both periods was primarily attributable to changesa decrease in frequency of commercial auto claims and our portfolio management strategy to reduce the number of insured auto units, aggressively increasing commercial auto pricing and non-renew underperforming accounts.
•Personal fire and allied lines - The net loss IBNR reserves which increased during 2019ratio deteriorated 55.8 and 30.3 percentage points, respectively, in the three- and six-month periods ended June 30, 2020, compared with no change duringto the same periodperiods of 2019. The deterioration in 2018 along with changesboth periods is attributable to an increase in reserves forcatastrophe losses.
•Personal automobile- The net loss adjustment expense which changed slightly during 2019ratio improved by 55.7 and 31.9 percentage points in the three- and six-month periods ended June 30, 2020, compared withto the same periods of 2019. The improvement in both periods is attributable to a decrease during 2018.in claim frequency.
| |
• | Workers' compensation - The net loss ratio improved 59.7 and 38.2 percentage points in the three and nine-month periods ended September 30, 2019, respectively, compared to the same periods of 2018. The improvement in both periods is attributable to the combination of three factors: severity of claims has decreased in 2019 vs. 2018, an increase in favorable prior year reserve development in 2019 vs. 2018 and a decrease in loss adjustment expenses in 2019 vs. 2018
|
| |
• | Fidelity and surety- The net loss ratio improved 2.0 and 10.8 percentage points in the three and nine-month periods ended September 30, 2019, respectively, compared to the same periods of 2018. The improvement is attributable to favorable changes for paid loss and paid loss adjustment expense, both of which were lower for 2019 vs. 2018 because 2018 experienced significantly more large claim activity.
|
| |
• | Personal fire and allied lines - The net loss ratio deteriorated 20.2 and 20.3 percentage points in the three and nine-month periods ended September 30, 2019, respectively, compared to the same periods of 2018. The deterioration for both periods is primarily attributable to an increase in paid losses in 2019 and increase in IBNR reserves for 2019 vs. no change in 2018.
|
| |
• | Reinsurance assumed - The net loss ratio deteriorated 155.2 and 57.8 percentage points in the three and nine-month periods ended September 30, 2019, respectively, compared to the same periods of 2018. For the quarter, the deterioration is attributable to changes in IBNR reserves which decreased significantly during the third quarter of 2018 compared to less of a decrease during the third quarter of 2019. Year-to-date comparisons of results for 2019 vs. 2018 need to consider effects of a new reinsurance program which resulted in a portfolio transfer of premiums and reserves for prior accident years in the second quarter of 2019.
|
Financial Condition
Stockholders' equity increased decreased to $964.2$860.7 million at SeptemberJune 30, 2019,2020, from $888.4$910.5 million at December 31, 2018. The increase2019. This decrease was primarily attributed to anet incomeloss of $38.0$66.6 million, shareholder dividends of $16.5 million and share repurchases of $2.7 million, partially offset by an increase in net unrealized investment gains on fixed maturity securities of $60.9$32.0 million, net of tax, partially offset by shareholder dividends of $24.4 million.during the six months ended June 30, 2020.
At September 30, 2019, theThe Company's book value per share was $34.38, which is a decrease of $2.02 per share, or 5.5 percent from December 31, 2019. During the second quarter of 2020 we did not repurchase any shares of our common stock was $38.44.as we suspended share repurchases in mid-March in the interim. During the nine-monthsix-month period ended SeptemberJune 30, 2019, 178,7562020, 70,467 shares of common stock were repurchased for a total of $8.1$2.7 million. Under our share repurchase program, which is scheduled to expire on August 31, 2020, we were authorized to repurchase an additional 1,937,4441,786,977 shares of our common stock as of SeptemberJune 30, 2019.2020.
Discontinued Operations Results
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(In Thousands) | 2019 | | 2018 | | 2019 | | 2018 |
Revenues | | | | | | | |
Net premiums earned | $ | — |
| | $ | — |
| | $ | — |
| | $ | 13,003 |
|
Investment income, net of investment expenses | — |
| | — |
| | — |
| | 12,663 |
|
Net realized investment gains (losses) | — |
| | — |
| | — |
| | (1,057 | ) |
Other income | — |
| | — |
| | — |
| | 146 |
|
Total revenues | $ | — |
| | $ | — |
| | $ | — |
| | $ | 24,755 |
|
| | | | | | | |
Benefits, Losses and Expenses | | | | | | | |
Losses and loss settlement expenses | $ | — |
| | $ | — |
| | $ | — |
| | $ | 10,823 |
|
Increase in liability for future policy benefits | — |
| | — |
| | — |
| | 5,023 |
|
Amortization of deferred policy acquisition costs | — |
| | — |
| | — |
| | 1,895 |
|
Other underwriting expenses | — |
| | — |
| | — |
| | 3,864 |
|
Interest on policyholders' accounts | — |
| | — |
| | — |
| | 4,499 |
|
Total benefits, losses and expenses | $ | — |
| | $ | — |
| | $ | — |
| | $ | 26,104 |
|
| | | | | | | |
Loss from discontinued operations, before income taxes | $ | — |
| | $ | — |
| | $ | — |
| | $ | (1,349 | ) |
The sale of our discontinued operations closed on March 30, 2018, and therefore no income attributable to that business was earned in the nine-month period ended September 30, 2019. For the nine-month period ended September 30, 2018, our discontinued operations had a loss before income taxes of $1.3 million.
Investment Portfolio
Our invested assets totaled $2.1$2.0 billion at SeptemberJune 30, 2019,2020, compared to $2.1$2.2 billion at December 31, 2018, an increase2019, a decrease of $51.3$123.4 million. At SeptemberJune 30, 2019,2020, fixed maturity securities and equity securities made up 82.284.0 percent and 13.810.2 percent of the value of our investment portfolio, respectively. Because the primary purpose of our investment portfolio is to fund future claims payments, we use a conservative investment philosophy, investing in a diversified portfolio of high-quality, intermediate-term taxable corporate bonds, taxable U.S. government bonds and tax-exempt U.S. municipal bonds. Our overall investment strategy is to keep our cash on hand low in the current interest rate environment. If additional cash is needed, we can borrow funds available under our revolving credit facility.
Composition
We develop our investment strategies based on a number of factors, including estimated duration of reserve liabilities, short- and long-term liquidity needs, projected tax status, general economic conditions, expected rates of inflation, regulatory requirements, interest rates and credit quality of assets. We administer our investment portfolio based on investment guidelines approved by management and the investment committee of our Board of Directors that comply with applicable statutory regulations.
The composition of our investment portfolio at SeptemberJune 30, 20192020 is presented at carrying value in the following table:
| | | Continuing Operations | | | | | | | | | | |
| Property & Casualty Insurance | | Property & Casualty Insurance | |
| | | Percent |
| | | Percent |
(In Thousands, Except Ratios) | | | of Total |
| (In Thousands, Except Ratios) | | of Total |
Fixed maturities (1) | | | | Fixed maturities (1) | | | |
Available-for-sale | $ | 1,729,286 |
| | 81.4 | % | Available-for-sale | $ | 1,696,166 | | | 83.5 | % |
Trading securities | 16,880 |
| | 0.8 |
| Trading securities | 11,223 | | | 0.5 | |
Equity securities | 292,743 |
| | 13.8 |
| Equity securities | 207,626 | | | 10.2 | |
Mortgage loans | 36,312 |
| | 1.7 |
| Mortgage loans | 47,609 | | | 2.3 | |
Other long-term investments | 49,989 |
| | 2.3 |
| Other long-term investments | 68,941 | | | 3.5 | |
Short-term investments | 175 |
| | — |
| Short-term investments | 175 | | | — | |
Total | $ | 2,125,385 |
| | 100.0 | % | Total | $ | 2,031,740 | | | 100.0 | % |
(1) Available-for-sale securities and trading fixed maturities are carried at fair value.
At both SeptemberJune 30, 20192020 and December 31, 2018,2019, we classified $1.7 billion, or 99.099.3 percent, and $1.7 billion, or 99.299.1 percent, respectively, of our fixed maturities portfolio as available-for-sale. We classify our remaining fixed maturities as trading. We record available-for-sale fixed maturity securities at fair value, with any changes in fair value recognized in accumulated other comprehensive income. We record trading securities, primarily convertible redeemable preferred debt securities, at fair value, with any changes in fair value recognized in earnings.
As of SeptemberJune 30, 20192020 and December 31, 2018,2019, we did not have direct exposure to investments in subprime mortgages or other credit enhancement vehicles.
Credit Quality
The table below shows the composition of fixed maturity securities held in our available-for-sale held-to-maturity and trading security portfolios, by credit rating at SeptemberJune 30, 20192020 and December 31, 2018.2019. Information contained in the table is generally based upon the issued credit ratings provided by Moody's, unless the rating is unavailable, in which case we obtain credit ratings from Standard & Poor's.
| | | | | | | | | | | | | | | | | | | | | | | |
(In Thousands, Except Ratios) | June 30, 2020 | | | | December 31, 2019 | | |
Rating | Carrying Value | | % of Total | | Carrying Value | | % of Total |
AAA | $ | 658,389 | | | 38.6 | % | | $ | 721,446 | | | 41.6 | % |
AA | 660,048 | | | 38.6 | | | 664,238 | | | 38.3 | |
A | 197,943 | | | 11.6 | | | 179,553 | | | 10.3 | |
Baa/BBB | 178,820 | | | 10.5 | | | 157,350 | | | 9.1 | |
Other/Not Rated | 12,189 | | | 0.7 | | | 12,276 | | | 0.7 | |
| $ | 1,707,389 | | | 100.0 | % | | $ | 1,734,863 | | | 100.0 | % |
|
| | | | | | | | | | | | | |
(In Thousands, Except Ratios) | September 30, 2019 | | December 31, 2018 |
Rating | Carrying Value | | % of Total | | Carrying Value | | % of Total |
AAA | $ | 710,279 |
| | 40.7 | % | | $ | 734,471 |
| | 41.7 | % |
AA | 678,857 |
| | 38.9 |
| | 684,863 |
| | 38.9 |
|
A | 174,842 |
| | 10.0 |
| | 178,282 |
| | 10.1 |
|
Baa/BBB | 166,685 |
| | 9.5 |
| | 157,349 |
| | 8.9 |
|
Other/Not Rated | 15,503 |
| | 0.9 |
| | 7,763 |
| | 0.4 |
|
| $ | 1,746,166 |
| | 100.0 | % | | $ | 1,762,728 |
| | 100.0 | % |
Duration
Our investment portfolio is invested primarily in fixed maturity securities whose fair value is susceptible to market risk, specifically interest rate changes. Duration is a measurement we use to quantify our inherent interest rate risk and analyze our ability to match our invested assets to our reserve liabilities. If our invested assets and reserve liabilities have similar durations, then any change in interest rates will have an equal effect on these accounts. The primary purpose for matching invested assets and reserve liabilities is liquidity. With appropriate matching, our investments will mature when cash is needed, preventing the need to liquidate other assets prematurely. Mismatches in the duration of assets and liabilities can cause significant fluctuations in our results of operations.
Investment Results
We invest the premiums received from our policyholders in order to generate investment income, which is an important component of our revenues and profitability. The amount of investment income that we are able to generate is affected by many factors, some of which are beyond our control. Some of these factors are volatility in the financial markets, economic growth, inflation, interest rates, world political conditions, terrorist attacks or threats of terrorism, adverse events affecting other companies in our industry or the industries in which we invest and other unpredictable national or world events. Our net investment income from continuing operations increaseddecreased by 0.8%10.1 and 50.8 percent and was flat, respectively, in the three- and nine-monthsix-month periods ended SeptemberJune 30, 2019,2020, compared with the same periodsperiod of 2018.2019.
We hold certain investments in limited liability partnerships that are recorded on the equity method of accounting, with changes in value of these investments recorded in investment income. In the three- and nine-monthsix-month periods ended SeptemberJune 30, 2019,2020, the change in value of our investments in limited liability partnerships from continuing operations resulted in investment lossgains of $0.7$1.0 million and investment incomelosses of $1.9$9.1 million, respectively, as compared to an investment loss of $0.6 million and investment income of $3.4$0.1 million and $2.6 million, respectively, in the same periods of 2018.2019. This resulted in an increase of $0.9 million and a decrease of $0.1 million and $1.5$11.7 million, respectively, in investment income in the three- and nine-monthsix-month periods ended SeptemberJune 30, 2019.2020.
Our net realized investment gains were $9.8$15.8 million and $50.1net realized investment losses were $77.6 million, respectively, during the three- and nine-monthsix-month periods ended SeptemberJune 30, 2019,2020, as compared with net realized investment
gains of $14.0$13.6 million and $7.4$40.3 million, respectively, in the same periodperiods of 2018. $4.7 million of the $4.1 million change in the three-month period ended September 30, 2019 as compared to the same period in 2018 is due to the2019. A change in the fair value of equity securities. $41.3securities was responsible for $17.3 million of the $42.7gains and $98.0 million changeof the losses, respectively, $2.2 million of the gains and $117.9 million of the losses in the nine-month periodthree- and six-month periods ended SeptemberJune 30, 20192020 as compared to the same periodperiods in 2018 is due to the change in the fair value of equity securities.2019.
We regularly monitor the difference between our cost basis and the estimated fair value of our investments. Our accounting policyFor our available-for-sale fixed-maturity portfolio an allowance for impairment recognition requires other-than-temporary impairment charges to becredit losses is recorded when we determine that itnet of available-for-sale fixed maturities in the Consolidated Balance Sheets and a corresponding credit loss recognized as a realized loss or gain in the Consolidated Statements of Income and Comprehensive Income. The Company determines if an allowance for credit losses is more likely than not that we will be unable to collect all amounts due according to the contractual terms of the fixed maturity security will not occur in a reasonable amount of time. Impairment charges on investments are recorded based on a number of factors including the faircurrent economic conditions, management's expectations of future economic conditions and performance indicators, such as market value of the investments at the measurement date. Factors considered in evaluating whether a decline in value is other-than-temporary include: the length of timevs. amortized cost, investment spreads widening or contracting, rating actions, payment and the extent to which fair value has been less than cost; the financial condition and near-term prospects of the issuer; our intention to hold the investment; and the likelihood that we will be required to sell the investment.default history.
ChangesNon-credit related changes in unrealized gains and losses on available-for-sale fixed maturity securities do not affect net income and earnings per share but do impactare recognized as a component of other comprehensive income, impact stockholders' equity and book value per share.share, but do not affect net income. We believe that any unrealized losses on our available-for-sale securities at SeptemberJune 30, 20192020 are temporary based upon our current analysis of the issuers of the securities that we hold and current market conditions. ItWe have no intent to sell, and it is possiblemore likely than not that we could recognize impairment chargeswill not be required to sell, these securities until the fair value recovers to at least equal our cost basis or the securities mature.
For mortgage loans, an allowance for losses is established based on historical loss information of the collective pool of the Company's commercial mortgage loan investments that have similar risk characteristics. This allowance is presented as a separate line in the Consolidated Balance Sheets with an offset to "Net realized investment gains (losses)" in the Consolidated Statements of Income and Comprehensive Income.
To calculate the allowance for mortgage loan losses, the Company starts with historical loan experience to predict the future periodsexpected losses and then layers on securities that we own at September 30, 2019 if future eventsa market-linked adjustment. An example of a market linked adjustment is the change in commercial market price appreciation or change in gross domestic product, with every point of fall leading to an increase in loss reserve. Local market economics are also considered. On a quarterly basis, quantitative credit risk metrics, including for example, cash-flows, rent rolls and information cause usfinancial statements are reviewed for each loan to determine that a declineif it is performing in value is other-than-temporary. However, we endeavor to invest in high-quality assets to provide protection from future credit quality issues and corresponding other-than-temporary impairment write-downs. In the nine-month periods ended September 30, 2019 and 2018, there were no other-than-temporary impairment write-downs.line with its expectations.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity measures our ability to generate sufficient cash flows to meet our short- and long-term cash obligations. Our cash inflows are primarily a result of the receipt of premiums, reinsurance recoveries, sales or maturities of investments, and investment income. Cash provided from these sources is used to fund the payment of losses and loss settlement expenses, the purchase of investments, operating expenses, dividends, pension plan contributions, and in recent years, common stock repurchases.
We monitor our capital adequacy to support our business on a regular basis. The future capital requirements of our business will depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. Our ability to underwrite is largely dependent upon
the quality of our claims paying and financial strength ratings as evaluated by independent rating agencies. In particular, we require (1) sufficient capital to maintain our financial strength ratings, as issued by various rating agencies, at a level considered necessary by management to enable our insurance company subsidiaries to compete and (2) sufficient capital to enable our insurance company subsidiaries to meet the capital adequacy tests performed by regulatory agencies in the United States.
Cash outflows may be variable because of the uncertainty regarding settlement dates for losses. In addition, the timing and amount of individual catastrophe losses are inherently unpredictable and could increase our liquidity requirements. The timing and amount of reinsurance recoveries may be affected by reinsurer solvency and reinsurance coverage disputes.
Historically, we have generated substantial cash inflows from operations. It is our policy to invest the cash generated from operations in securities with maturities that, in the aggregate, correlate to the anticipated timing of payments
for losses and loss settlement expenses. The majority of our assets are invested in available-for-sale fixed maturity securities.
The following table displays a consolidated summary of cash sources and uses for the nine-monthsix-month periods ended SeptemberJune 30, 20192020 and 2018 from continuing and discontinued operations:2019:
| | | | | | | | | | | |
Cash Flow Summary | Six Months Ended June 30, | | |
(In Thousands) | 2020 | | 2019 |
Cash provided by (used in) | | | |
Operating activities | $ | 4,232 | | | $ | 36,276 | |
Investing activities | 41,127 | | | 62,600 | |
Financing activities | (19,819) | | | (14,546) | |
Net increase in cash and cash equivalents | $ | 25,540 | | | $ | 84,330 | |
|
| | | | | | | |
Cash Flow Summary | Nine Months Ended September 30, |
(In Thousands) | 2019 | | 2018 |
Cash provided by (used in) | | | |
Operating activities | $ | 56,165 |
| | $ | 69,214 |
|
Investing activities | 39,589 |
| | 2,491 |
|
Financing activities | (30,500 | ) | | (108,195 | ) |
Net increase in cash and cash equivalents | $ | 65,254 |
| | $ | (36,490 | ) |
In the Consolidated Statement of Cash Flows, cash flows from discontinued operations are shown in separate lines in each of the operating, investing and financing sections of the Cash Flow Statement. Our cash flows from continuing operations were sufficient to meet our liquidity needs for the nine-monthsix-month periods ended SeptemberJune 30, 20192020 and 20182019 and we anticipate they will be sufficient to meet our future liquidity needs. We also have the ability to access our credit facility if needed, but we have not yet had the need to do so. See Note 8 "Credit Facility" for more information. Our year-to-date cash flows provided by operations remained positive and our cash and cash equivalents have increased during the first six-months of 2020. We have implemented state-mandated and optional payment leniency programs for our policyholders as a result of the COVID-19 pandemic. As of June 30, 2020, we did not see a significant impact to cash flows or an increase in our allowance for doubtful accounts as a result of these programs.
Operating Activities
Net cash flows provided by operating activities totaled $56.2$4.2 million and $69.2totaled $36.3 million for the nine-monthsix-month periods ended SeptemberJune 30, 2020 and 2019, and 2018, respectively.
Investing Activities
Cash in excess of operating requirements is generally invested in fixed maturity securities and equity securities. Fixed maturities provide regular interest payments and allow us to match the duration of our liabilities. Equity securities provide dividend income, potential dividend income growth and potential appreciation. For further discussion of our investments, including our philosophy and our strategy for our portfolio, see the "Investment Portfolio" section of this Item 2.
In addition to investment income, possible sales of investments and proceeds from calls or maturities of fixed maturity securities also can provide liquidity. During the next five years, $308.4$371.5 million, or 17.721.8 percent, of our fixed maturity portfolio will mature.
We invest funds required for short-term cash needs primarily in money market accounts, which are classified as cash equivalents. At SeptemberJune 30, 2019,2020, our cash and cash equivalents included $30.7$71.8 million related to these money market accounts, compared to $3.3$9.3 million at December 31, 2018.2019.
Net cash flows provided by investing activities were $39.6$41.1 million and $2.5$62.6 million for the nine-monthsix-month periods ended SeptemberJune 30, 20192020 and 2018,2019, respectively. For the nine-monthsix-month periods ended SeptemberJune 30, 20192020 and 2018,2019, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of
investments from continuing operations of $246.6$179.4 million and $240.2$150.6 million, respectively. We also had net cash inflows from the sale of discontinued operations of $276.1 million for the nine-month period ended September 30, 2018.
Our cash outflows for investment purchases from continuing operationswere $179.2$126.2 million for the nine-monthsix-month period ended SeptemberJune 30, 2019,2020, compared to $504.4$67.1 million for the same period of 2018.2019.
Financing Activities
Net cash flows used in financing activities was $30.5$19.8 million for the nine-monthsix-month period ended SeptemberJune 30, 20192020 which decreased $77.7increased $5.3 million compared to $108.2$14.5 million used in the nine-monthsix-month period ended SeptemberJune 30, 2018.2019.
Credit Facilities
On February 2, 2016, theMarch 31, 2020, United Fire & Casualty Company, as borrower ("Borrower"), wholly owned subsidiary of United Fire Group, Inc. entered into a credit agreement by(the "New Credit Agreement") with Wells Fargo Bank, National Association ("Wells Fargo"), as administrative agent, issuing lender, swing line lender and amonglender, and the Company, with theother lenders from time to time party thereto and KeyBank National Association, as administrative agent, swingline lender and(collectively with Wells Fargo, the "Lenders"), providing for a $50,000 revolving credit facility, which includes a $20,000 letter of credit issuer.sub-facility and a $5,000 swing line loan for working capital and other general corporate purposes. The New Credit Agreement is provided on an unsecured basis, and the Borrower has the option to increase the New Credit Agreement by $100,000 if agreed to by the Lenders providing such incremental facility. As of SeptemberJune 30, 20192020 and 2018,2019, there were no balances outstanding under thisthe New Credit Agreement or the Borrower's previous credit agreement.agreement (which matured on February 2, 2020). For the six-month period ended June 30, 2020 and 2019, we did not incur any interest expense related to either credit facility. For further discussion of ourthe New Credit Agreement and the Borrower's previous credit agreement, refer to Part I, Item 1, Note 9.8 "Credit Facility."
Dividends
Dividends paid to shareholders totaled $24.4$16.5 million and $97.6$16.1 million in the nine-monthsix-month periods ended SeptemberJune 30, 2020 and 2019, and 2018, respectively. Dividends paid to shareholders in 2018 were higher than 2019 primarily due to a special cash dividend of $3.00 per share paid to shareholders on August 20, 2018. Our practice has been to pay quarterly cash dividends, which we have paid every quarter since March 1968.
Payments of any future dividends and the amounts of such dividends will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors out of legally available funds.
As a holding company with no independent operations of its own, we rely on dividends received from our insurance company subsidiaries in order to pay dividends to our common shareholders. Dividends payable by our insurance subsidiaries are governed by the laws in the states in which they are domiciled, and if applicable, commercially domiciled. In all cases, these state laws permit the payment of dividends only from earned surplus arising from business operations. For example, under Iowa law, the maximum dividend or distribution that may be paid within a 12-month period without prior approval of the Iowa Insurance Commissioner is generally restricted to the greater of 10 percent of statutory surplus as of the preceding December 31, or net income of the preceding calendar year on a statutory basis, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at SeptemberJune 30, 2019,2020, UFG's sole direct insurance company subsidiary, United Fire & Casualty Company, is able to make a maximum of $184.2 of $25.8 million in dividend payments without prior regulatory approval. TheseWe do not believe that these restrictions will not have a material impact in meeting the cash obligations of UFG.
Stockholders' Equity
Stockholders' equity increased 8.5decreased 5.5 percent to $964.2$860.7 million at SeptemberJune 30, 2019,2020, from $888.4$910.5 million at December 31, 2018. The increase was primarily attributed to net income of $38.0 million and an increase in net unrealized investment gains of $60.9 million, net of tax, during the first nine months of 2019, partially offset by shareholder dividends of $24.4 million.2019. At SeptemberJune 30, 2019,2020, the book value per share of our common stock was $38.44 $34.38 compared to $35.40$36.40 at December 31, 2018.2019. This decrease was primarily attributed to a net loss of $66.6 million, shareholder dividends of $16.5 million and share repurchases of $2.7 million, partially offset by an increase in net unrealized investment gains on fixed maturity securities of $32.0 million, net of tax, during the first six months of 2020.
OFF BALANCE SHEET ARRANGEMENTS
Funding Commitments
Pursuant to an agreement with one of our limited liability partnership investments, we are contractually committed through July 31, 2028, to make capital contributions upon request of the partnership. Our remaining potential contractual obligation was $16.0$10.9 million at SeptemberJune 30, 20192020.
.
In addition, the Company invested $25,000 in December 2019 in a limited liability partnership investment fund which is subject to a 3 year lockup with a 60 day minimum notice, with 4 possible repurchase dates per year after the 3 year lockup period is met. The fair value of the investment at June 30, 2020 was $24.5 million and there are no remaining capital contributions with this investment.
MEASUREMENT OF RESULTS
Management evaluates our operations by monitoring key measures of growth and profitability. The following section provides further explanation of the key measures management uses to evaluate our results.
Catastrophe losses is a commonly used financial measure that uses the designations of the Insurance Services Office ("ISO") and are reported with losses and loss settlement expense amounts net of reinsurance recoverables, unless specified otherwise. According to the ISO, a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in $25.0 million or more in U.S. industry-wide direct insured losses to property and that affect a significant number of insureds and insurers ("ISO catastrophe"). In addition to ISO catastrophes, we also include as catastrophes those events ("non-ISO catastrophes"), which may include U.S. or international losses that we believe are, or will be, material to our operations, either in amount or in number of claims made. Management, at times, may determine for comparison purposes that it is more meaningful to exclude extraordinary catastrophe losses and resulting litigation. The frequency and severity of catastrophe losses we experience in any year affect our results of operations and financial position. In analyzing the underwriting performance of our property and casualty insurance business, we evaluate performance both including and excluding catastrophe losses. Portions of our catastrophe losses may be recoverable under our catastrophe reinsurance agreements. We include a discussion of the impact of catastrophes because we believe it is meaningful for investors to understand the variability in our periodic earnings.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | | Six Months Ended June 30, | |
(In Thousands) | 2019 | | 2018 | | 2019 | | 2018 | (In Thousands) | 2020 | | 2019 | | 2020 | | 2019 |
ISO catastrophes | $ | 18,549 |
| | $ | 12,441 |
| | $ | 41,643 |
| | $ | 30,990 |
| ISO catastrophes | $ | 51,090 | | | $ | 19,549 | | | $ | 66,211 | | | $ | 23,095 | |
Non-ISO catastrophes (1) | 743 |
| | (173 | ) | | 3,284 |
| | (245 | ) | Non-ISO catastrophes (1) | (456) | | | 2,456 | | | (311) | | | 2,541 | |
Total catastrophes | $ | 19,292 |
| | $ | 12,268 |
| | $ | 44,927 |
| | $ | 30,745 |
| Total catastrophes | $ | 50,634 | | | $ | 22,005 | | | $ | 65,900 | | | $ | 25,636 | |
(1) This number includes international assumed losses.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have exposure to market risk arising from potential losses in our investment portfolio due to adverse changes in interest rates and market prices. However, we have the ability to hold fixed maturity investments to maturity. Our investment guidelines define the overall framework for managing our market and other investment risks, including accountability and controls. In addition, each of our subsidiaries has specific investment policies that delineate the investment limits and strategies that are appropriate given each entity's liquidity, surplus, product, and regulatory requirements. We respond to market risk by managing the character of investment purchases.
It is our philosophy that we do not utilize financial hedges or derivative financial instruments to manage risks, nor do we enter into any swap, forward or option contracts, but attempt to mitigate our exposure through active portfolio management. In addition, we place the majority of our investments in high-quality, liquid securities and limit the amount of credit exposure to any one issuer. At SeptemberJune 30, 2019,2020, we did not have direct exposure to investments in sub-prime mortgages or other credit-enhancement exposures.
While ourOur primary market riskrisks are exposure is to changes in interest rates we do have limited exposure to changes inand equity prices, and we have limited exposure to foreign currency exchange rates.
ThereThe decline and volatility in equity markets in the first six months of 2020 due to the COVID-19 pandemic did have been noa material changesimpact on the fair value of our investments in our market risk or market risk factors from what we reportedequity securities and limited liability partnerships. The COVID-19 pandemic presents new and emerging uncertainty to the financial markets. See further discussion in our AnnualItem 2, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 1A, Risk Factors, of this Quarterly Report on Form 10-K for the year ended December 31, 2018.10-Q.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of the end of the period covered by this report, were designed and functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Changes in Internal Control Over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated our internal control over financial reporting to determine whether any changes occurred during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on this evaluation, no such change in our internal control over financial reporting occurred during the fiscal quarter to which this report relates.relates. The implementation of our business continuity plans related to the COVID-19 pandemic did not have a material effect on our internal control environment. We believe our operational processes, internal controls over financial reporting and disclosures, and financial reporting systems are operating effectively in the present environment. Our business teams are working remotely and continue to support our customers, agents and claimants as they did when we were in the office.
51
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of its business, the Company is a party to a variety of legal proceedings. While the final outcome of these legal proceedings cannot be predicted with certainty, management believes all of the proceedings pending as of SeptemberJune 30, 20192020 to be ordinary and routine and does not expect these legal proceedings to have a material adverse effect on the Company's financial condition or results of operations.
ITEM 1A. RISK FACTORS
Our business is subject to a number of risks, including those identified in Part I, Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the SEC on February 28, 2019, that could have a material effect2020, as updated in our Quarterly Report on our business, results of operations, financial condition, and/or liquidity and that could cause our operating results to vary significantly from period to period. TheForm 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 6, 2020. These risks described in the above mentioned report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could also have a material effect on our business, results of operations, financial condition and/or liquidity.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Under our share repurchase program, first announced in August 2007, we may purchase UFG common stock from time to time on the open market or through privately negotiated transactions. The amount and timing of any purchases will be at our discretion and will depend upon a number of factors, including the share price, general economic and market conditions, and corporate and regulatory requirements.
The following table provides information with respect to purchases of shares of common stock made by or on our behalf or by any "affiliated purchaser," as defined in Rule 10b-18(a)(3) under the Exchange Act, during the three-month period ended SeptemberJune 30, 2019:2020:
|
| | | | | | | | | | | | |
| | | | | Total Number of Shares | | Maximum Number of |
| Total | | | | Purchased as a Part of | | Shares that may yet be |
| Number of | | Average Price | | Publicly Announced | | Purchased Under the |
Period | Shares Purchased | | Paid per Share | | Plans or Programs | | Plans or Programs(1) |
7/1/2019 - 7/31/2019 | — |
| | $ | — |
| | — |
| | 2,114,693 |
|
8/1/2019 - 8/31/2019 | 158,349 |
| | 45.52 |
| | 158,349 |
| | 1,956,344 |
|
9/1/2019 - 9/30/2019 | 18,900 |
| | 44.95 |
| | 18,900 |
| | 1,937,444 |
|
Total | 177,249 |
| | $ | 45.46 |
| | 177,249 |
| | 1,937,444 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Total Number of Shares | | Maximum Number of |
| Total | | | | Purchased as a Part of | | Shares that may yet be |
| Number of | | Average Price | | Publicly Announced | | Purchased Under the |
Period | Shares Purchased | | Paid per Share | | Plans or Programs | | Plans or Programs(1) |
4/1/2020 - 4/30/2020 | — | | | $ | — | | | — | | | 1,786,977 | |
5/1/2020 - 5/31/2020 | — | | | — | | | — | | | 1,786,977 | |
6/1/2020 - 6/30/2020 | — | | | — | | | — | | | 1,786,977 | |
Total | — | | | $ | — | | | — | | | 1,786,977 | |
(1) Our share repurchase program was originally announced in August 2007. In August 2016, our Board of Directors authorized the repurchase of up to an additional 1,500,000 shares of common stock through the end of August 2018. This is in addition to the 1,528,886 shares of common stock remaining under its previous authorizations. In August 2018, our Board of Directors extended our share repurchase program through the end of August 2020. As of SeptemberJune 30, 2019,2020, we remained authorized to repurchase 1,937,4441,786,977 shares of common stock. During the second quarter of 2020 we did not repurchase any shares of our common stock as we suspended share repurchases in mid-March in the interim.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBIT INDEX
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | | | | | | |
UNITED FIRE GROUP, INC. | | |
(Registrant) | | |
| | |
/s/ Randy A. Ramlo | | /s/ Dawn M. Jaffray |
Randy A. Ramlo | | Dawn M. Jaffray |
President, Chief Executive Officer, Director and Principal Executive Officer | | Executive Vice President, Chief Financial Officer and Principal Accounting Officer |
| | |
| | |
November 6, 2019August 5, 2020 | | November 6, 2019August 5, 2020 |
(Date) | | (Date) |