UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
(Mark One)
| ☒ | Quarterly report pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934 |
For the Quarterly Period ended March 31,September 30, 2020.
| ☐ | Transition report pursuant to section 13 or 15 (d) of the Securities Exchange Act of 1934. |
For the transition period from to .
Commission file number000-28249
AMERINST INSURANCE GROUP, LTD.
(Exact Name of Registrant as Specified in its Charter)
| BERMUDA | 98-0207447 | |
(State or other jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
c/o Citadel Management Bermuda Limited 25 Church Street, Continental Building P.O. Box HM 1601, Hamilton, Bermuda | HMGX | |
| (Address of Principal Executive Offices) | (Zip Code) | |
(441) 295-6015
(Telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ | |||
| Emerging Growth Company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of The Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). YES ☐ NO ☒.
Securities registered pursuant to Section 12(b) of the Act: None.
As of MayNovember 1, 2020, the Registrant had 995,253 common shares, $1.00 par value per share, outstanding.
Introductory Note
Caution Concerning Forward-Looking Statements
Certain statements contained in this Form10-Q, or otherwise made by our officers, including statements related to our future performance, our outlook for our businesses and respective markets, projections, statements of our management’s plans or objectives, forecasts of market trends and other matters, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and contain information relating to us that is based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. The words “expect,” “believe,” “may,” “could,” “should,” “would,” “estimate,” “anticipate,” “intend,” “plan,” “target,” “goal” and similar expressions as they relate to us or our management are intended to identify forward-looking statements. Such statements reflect our management’s current views with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those reflected in any forward-looking statements. Our actual future results may differ materially from those set forth in our forward-looking statements. Factors that might cause such actual results to differ materially from those reflected in any forward-looking statements include, but are not limited to the factors discussed in detail in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Form10-Q, as well as:
the magnitude and duration of theCOVID-19 pandemic and its impact on the global economy,and local economies, financial and insurance market conditions and our business, results of operations and financial condition;
actual losses and loss expenses exceeding our loss reserves and increases in loss reserves, which are necessarily based on the actuarial and statistical projections of ultimate losses;
our ability to comply with Bermuda statutory liquidity requirements may be adversely impacted by increases in loss reserves;
changes in the amount of professional liability business accepted by our insurance company partners;
adequacy of our risk management and loss limitation methods;
our ability to generate increased revenues and positive earnings in future periods;
the occurrence of catastrophic events with a frequency or severity exceeding our expectations;
a worsening global economic market and changing rates of inflation and other economic conditions;
subjection of ournon-U.S. companies to regulation and/or taxation in the United States;
a decrease in the level of demand for professional liability insurance and reinsurance or an increase in the supply of professional liability insurance and reinsurance capacity;
our ability to meet the performance goals and metrics set forth in our business plan without a significant depletion of our cash resources while maintaining sufficient capital levels and liquidity levels;
the effects of security breaches, cyber-attacks or computer viruses that may affect our computer systems or those of our customers, third-party managers and service providers;
increased competitive pressures, including the consolidation and increased globalization of reinsurance providers;
actual losses and loss expenses exceeding our loss reserves, which are necessarily based on the actuarial and statistical projections of ultimate losses;
increased or decreased rate pressure on premiums;
adequacy of our risk management and loss limitation methods;
the successful integration of businesses we may acquire or new business ventures we may start;
acts of terrorism, political unrest, outbreak of war and other hostilities or othernon-forecasted and unpredictable events;
changes in Bermuda law or regulation or the political stability of Bermuda;
compliance with and changes in the legal or regulatory environments in which we operate; and
other risks, including those risks identified in any of our other filings with the Securities and Exchange Commission.
The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our management’s analysis only as of the date they are made. We undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
2
Part I—FINANCIAL INFORMATION
| Item 1. | Financial Statements. |
AMERINST INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, expressed in U.S. dollars)
| As of March 31, 2020 | As of December 31, 2019 | As of September 30, 2020 | As of December 31, 2019 | |||||||||||||
ASSETS | ||||||||||||||||
Investments: | ||||||||||||||||
Fixed maturity investments, at fair value (amortized cost $16,013,453 and $15,564,687) | $ | 16,345,857 | $ | 15,668,317 | ||||||||||||
Equity securities, at fair value (cost $10,464,969 and $10,889,683) | 9,907,745 | 15,365,299 | ||||||||||||||
Fixed maturity investments, at fair value (amortized cost $16,322,794 and $15,564,687) | $ | 16,909,494 | $ | 15,668,317 | ||||||||||||
Equity securities, at fair value (cost $0 and $10,889,683) | — | 15,365,299 | ||||||||||||||
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TOTAL INVESTMENTS | 26,253,602 | 31,033,616 | 16,909,494 | 31,033,616 | ||||||||||||
Cash and cash equivalents | 6,036,355 | 6,589,810 | 10,795,173 | 6,589,810 | ||||||||||||
Restricted cash and cash equivalents | 856,185 | 1,169,805 | 4,328,910 | 1,169,805 | ||||||||||||
Assumed reinsurance premiums receivable | 3,314,072 | 5,695,847 | 2,830,194 | 5,695,847 | ||||||||||||
Accrued investment income | 135,313 | 104,935 | 136,062 | 104,935 | ||||||||||||
Property and equipment | 1,162,243 | 1,105,513 | 1,107,040 | 1,105,513 | ||||||||||||
Deferred income taxes | 2,503,000 | 2,564,000 | 2,440,000 | 2,564,000 | ||||||||||||
Deferred policy acquisition costs | 2,235,859 | 1,964,052 | 1,174,491 | 1,964,052 | ||||||||||||
Prepaid expenses and other assets | 1,967,850 | 2,019,622 | 1,924,327 | 2,019,622 | ||||||||||||
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TOTAL ASSETS | $ | 44,464,479 | $ | 52,247,200 | $ | 41,645,691 | $ | 52,247,200 | ||||||||
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LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
LIABILITIES | ||||||||||||||||
Unpaid losses and loss adjustment expenses | $ | 15,616,998 | $ | 13,966,044 | $ | 18,952,917 | $ | 13,966,044 | ||||||||
Unearned premiums | 6,042,849 | 5,308,398 | 5,301,755 | 5,308,398 | ||||||||||||
Assumed reinsurance payable | 1,226,326 | 6,756,177 | 2,701,177 | 6,756,177 | ||||||||||||
Accrued expenses and other liabilities | 5,490,463 | 5,873,130 | 5,159,635 | 5,873,130 | ||||||||||||
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TOTAL LIABILITIES | $ | 28,376,636 | $ | 31,903,749 | $ | 32,115,484 | $ | 31,903,749 | ||||||||
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COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
SHAREHOLDERS’ EQUITY | ||||||||||||||||
Common shares, $1 par value, 2020 and 2019: 2,000,000 shares authorized, 995,253 issued and outstanding | $ | 995,253 | $ | 995,253 | $ | 995,253 | $ | 995,253 | ||||||||
Additionalpaid-in-capital | 6,453,821 | 6,465,776 | 6,454,626 | 6,465,776 | ||||||||||||
Retained earnings | 17,364,812 | 21,842,409 | 10,552,075 | 21,842,409 | ||||||||||||
Accumulated other comprehensive income (loss) | 332,404 | 103,630 | ||||||||||||||
Accumulated other comprehensive income | 586,700 | 103,630 | ||||||||||||||
Shares held by Subsidiary (369,576 and 369,576 shares) at cost | (9,058,447 | ) | (9,063,617 | ) | (9,058,447 | ) | (9,063,617 | ) | ||||||||
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TOTAL SHAREHOLDERS’ EQUITY | 16,087,843 | 20,343,451 | 9,530,207 | 20,343,451 | ||||||||||||
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 44,464,479 | $ | 52,247,200 | $ | 41,645,691 | $ | 52,247,200 | ||||||||
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See the accompanying notes to the unaudited condensed consolidated financial statements.
3
AMERINST INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS, COMPREHENSIVE (LOSS) INCOME
AND RETAINED EARNINGS
(Unaudited, expressed in U.S. dollars)
| Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | Three Months Ended September 30, 2020 | Three Months Ended September 30, 2019 | |||||||||||||||||||
REVENUE | ||||||||||||||||||||||||
Net premiums earned | $ | 2,579,616 | $ | 2,463,583 | $ | 8,947,710 | $ | 8,141,526 | $ | 3,437,196 | $ | 2,815,917 | ||||||||||||
Commission income | 1,637,601 | 1,555,804 | 4,542,478 | 4,395,855 | 1,437,181 | 1,450,367 | ||||||||||||||||||
Net investment income | 111,811 | 123,042 | 308,279 | 355,143 | 99,444 | 125,491 | ||||||||||||||||||
Net realized and unrealized (loss) gain on investments | (4,377,990 | ) | 1,747,325 | |||||||||||||||||||||
Net realized and unrealized (losses) gains on investments | (1,764,300 | ) | 2,595,789 | 988,562 | 72,492 | |||||||||||||||||||
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TOTAL REVENUE | (48,962 | ) | 5,889,754 | 12,034,167 | 15,488,313 | 5,962,383 | 4,464,267 | |||||||||||||||||
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LOSSES AND EXPENSES | ||||||||||||||||||||||||
Losses and loss adjustment expenses | 1,650,954 | 1,576,693 | 14,078,405 | 5,210,575 | 10,551,676 | 1,802,187 | ||||||||||||||||||
Policy acquisition costs | 954,397 | 911,708 | 4,097,754 | 3,012,548 | 2,058,923 | 1,041,890 | ||||||||||||||||||
Operating and management expenses | 1,762,284 | 1,731,642 | 5,019,124 | 5,138,604 | 1,592,813 | 1,636,073 | ||||||||||||||||||
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TOTAL LOSSES AND EXPENSES | 4,367,635 | 4,220,043 | 23,195,283 | 13,361,727 | 14,203,412 | 4,480,150 | ||||||||||||||||||
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NET (LOSS) INCOME BEFORE TAX | $ | (4,416,597 | ) | $ | 1,669,711 | (11,161,116 | ) | 2,126,586 | (8,241,029 | ) | (15,883 | ) | ||||||||||||
Income tax (benefit) expense | 129,218 | (32,032 | ) | 36,963 | 6,654 | |||||||||||||||||||
NET (LOSS) INCOME AFTER TAX | $ | (11,290,334 | ) | $ | 2,158,618 | $ | (8,277,992 | ) | $ | (22,537 | ) | |||||||||||||
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Income tax expense | 61,000 | — | ||||||||||||||||||||||
NET (LOSS) INCOME AFTER TAX | $ | (4,477,597 | ) | $ | 1,669,711 | |||||||||||||||||||
OTHER COMPREHENSIVE INCOME | ||||||||||||||||||||||||
Net unrealized holding gains (losses) arising during the period | 311,235 | 140,409 | ||||||||||||||||||||||
Reclassification adjustment for (gains) included in net (loss) income | (82,461 | ) | — | |||||||||||||||||||||
Net unrealized holding gains arising during the period | 565,531 | 335,102 | 47,914 | 68,341 | ||||||||||||||||||||
Reclassification adjustment for gains included in net income | (82,461 | ) | — | — | — | |||||||||||||||||||
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OTHER COMPREHENSIVE INCOME | 228,774 | 140,409 | 483,070 | 335,102 | 47,914 | 68,341 | ||||||||||||||||||
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COMPREHENSIVE (LOSS) INCOME | $ | (4,248,823 | ) | $ | 1,810,120 | $ | (10,807,264 | ) | $ | 2,493,720 | $ | (8,230,078 | ) | $ | 45,804 | |||||||||
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RETAINED EARNINGS, BEGINNING OF PERIOD | $ | 21,842,409 | $ | 19,725,581 | $ | 21,842,409 | $ | 19,725,581 | $ | 18,830,067 | $ | 21,581,045 | ||||||||||||
Net (loss) income | (4,477,597 | ) | 1,669,711 | (11,290,334 | ) | 2,158,618 | (8,277,992 | ) | (22,537 | ) | ||||||||||||||
Dividends | — | — | — | (325,691 | ) | — | — | |||||||||||||||||
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RETAINED EARNINGS, END OF PERIOD | 17,364,812 | 21,395,292 | $ | 10,552,075 | $ | 21,558,508 | $ | 10,552,075 | $ | 21,558,508 | ||||||||||||||
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Per share amounts | ||||||||||||||||||||||||
Net (loss) income per share | ||||||||||||||||||||||||
Basic | $ | (7.16 | ) | $ | 2.65 | $ | (18.04 | ) | $ | 3.41 | $ | (13.23 | ) | $ | (0.04 | ) | ||||||||
Diluted | $ | (7.16 | ) | $ | 2.64 | $ | (18.04 | ) | $ | 3.40 | $ | (13.23 | ) | $ | (0.04 | ) | ||||||||
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Dividends | $ | — | $ | — | $ | — | $ | 0.50 | $ | — | $ | 0.00 | ||||||||||||
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Weighted average number of shares outstanding for the entire period | ||||||||||||||||||||||||
Basic | 625,677 | 630,055 | 625,677 | 631,721 | 625,677 | 632,554 | ||||||||||||||||||
Diluted | 625,677 | 632,143 | 625,677 | 634,276 | 625,677 | 632,554 | ||||||||||||||||||
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See the accompanying notes to the unaudited condensed consolidated financial statements.
4
AMERINST INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited, expressed in U.S. dollars)
As of March 31,September 30, 2020
| Common Shares | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Losses) | Shares Held by Subsidiary | Total Shareholders’ Equity | Common Shares | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Losses) | Shares Held by Subsidiary | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||
BALANCE AT JANUARY 1, 2020 | $ | 995,253 | $ | 6,465,776 | $ | 21,842,409 | $ | 103,630 | $ | (9,063,617 | ) | $ | 20,343,451 | $ | 995,253 | $ | 6,465,776 | $ | 21,842,409 | $ | 103,630 | $ | (9,063,617 | ) | $ | 20,343,451 | ||||||||||||||||||||||
Net loss | — | — | (4,477,597 | ) | — | — | (4,477,597 | ) | — | — | (4,477,597 | ) | — | — | (4,477,597 | ) | ||||||||||||||||||||||||||||||||
Stock option awards expense | — | (11,955 | ) | — | — | — | �� | (11,955 | ) | — | (11,955 | ) | — | — | — | (11,955 | ) | |||||||||||||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gains on securities, net of reclassification adjustment | — | — | — | 228,774 | — | 228,774 | — | — | — | 228,774 | — | 228,774 | ||||||||||||||||||||||||||||||||||||
Purchase of shares by subsidiary, net | — | — | — | — | 5,170 | 5,170 | — | — | — | — | 5,170 | 5,170 | ||||||||||||||||||||||||||||||||||||
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BALANCE AT MARCH 31, 2020 | $ | 995,253 | $ | 6,453,821 | $ | 17,364,812 | $ | 332,404 | $ | (9,058,447 | ) | $ | 16,087,843 | $ | 995,253 | $ | 6,453,821 | $ | 17,364,812 | $ | 332,404 | $ | (9,058,447 | ) | $ | 16,087,843 | ||||||||||||||||||||||
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As of March 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common Shares | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Losses) | Shares Held by Subsidiary | Total Shareholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||
BALANCE AT JANUARY 1, 2019 | $ | 995,253 | $ | 6,393,730 | $ | 19,725,581 | $ | (218,348 | ) | $ | (8,941,051 | ) | $ | 17,955,165 | ||||||||||||||||||||||||||||||||||
Net income | — | — | 1,669,711 | — | — | 1,669,711 | — | — | 1,465,255 | — | — | 1,465,255 | ||||||||||||||||||||||||||||||||||||
Stock option awards expense | — | 805 | — | — | — | 805 | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gains on securities, net of reclassification adjustment | — | — | — | 140,409 | — | 140,409 | — | — | — | 206,382 | — | 206,382 | ||||||||||||||||||||||||||||||||||||
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BALANCE AT MARCH 31, 2019 | $ | 995,253 | $ | 6,393,730 | $ | 21,395,292 | $ | (77,939 | ) | $ | (8,941,051 | ) | $ | 19,765,285 | ||||||||||||||||||||||||||||||||||
BALANCE AT JUNE 30, 2020 | $ | 995,253 | $ | 6,454,626 | $ | 18,830,067 | $ | 538,786 | $ | (9,058,447 | ) | $ | 17,760,285 | |||||||||||||||||||||||||||||||||||
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Net loss | — | — | (8,277,992 | ) | — | — | (8,277,992 | ) | ||||||||||||||||||||||||||||||||||||||||
Stock option awards expense | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized gains on securities, net of reclassification adjustment | — | — | — | 47,914 | — | 47,914 | ||||||||||||||||||||||||||||||||||||||||||
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BALANCE AT SEPTEMBER 30, 2020 | $ | 995,253 | $ | 6,454,626 | $ | 10,552,075 | $ | 586,700 | $ | (9,058,447 | ) | $ | 9,530,207 | |||||||||||||||||||||||||||||||||||
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See the accompanying notes to the unaudited condensed consolidated financial statements.
5
AMERINST INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited, expressed in U.S. dollars)
As of September 30, 2019
| Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||
OPERATING ACTIVITIES | ||||||||
Net Cash used in Operating Activities | $ | (1,436,662 | ) | $ | (201,373 | ) | ||
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INVESTING ACTIVITIES | ||||||||
Purchases of property and equipment | (49,932 | ) | (275,837 | ) | ||||
Purchases ofavailable-for-sale securities | (3,990,249 | ) | (740,164 | ) | ||||
Proceeds from sales ofavailable-for-sale securities | 1,567,518 | 175,704 | ||||||
Proceeds from redemptions of fixed maturity investments | 1,832,080 | — | ||||||
Proceeds from maturities of fixed maturity investments | 1,205,000 | 1,250,000 | ||||||
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Net Cash provided by Investing Activities | 564,417 | 409,703 | ||||||
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FINANCING ACTIVITIES | ||||||||
Purchase of shares by subsidiary, net | 5,170 | — | ||||||
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Net Cash provided by Financing Activities | 5,170 | — | ||||||
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NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | (867,075 | ) | 208,330 | |||||
CASH, CASH EQUIVALENTS AND RESTRCITED CASH AT BEGINNING OF PERIOD | $ | 7,759,615 | $ | 5,971,046 | ||||
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CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 6,892,540 | $ | 6,179,376 | ||||
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| Common Shares | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Losses) | Shares Held by Subsidiary | Total Shareholders’ Equity | |||||||||||||||||||
BALANCE AT JANUARY 1, 2019 | $ | 995,253 | $ | 6,393,730 | $ | 19,725,581 | $ | (218,348 | ) | $ | (8,941,051 | ) | $ | 17,955,165 | ||||||||||
Net income | — | — | 1,669,711 | — | — | 1,669,711 | ||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||
Unrealized gains on securities, net of reclassification adjustment | — | — | — | 140,409 | — | 140,409 | ||||||||||||||||||
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BALANCE AT MARCH 31, 2019 | $ | 995,253 | $ | 6,393,730 | $ | 21,395,292 | $ | (77,939 | ) | $ | (8,941,051 | ) | $ | 19,765,285 | ||||||||||
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Net income | — | — | 511,444 | — | — | 511,444 | ||||||||||||||||||
Issuance of stock option awards | — | 32,266 | — | — | — | 32,266 | ||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||
Unrealized gain on securities, net of reclassification adjustment | — | — | — | 126,352 | — | 126,352 | ||||||||||||||||||
Issuance of shares by subsidiary, net | — | — | — | — | 70,000 | 70,000 | ||||||||||||||||||
Dividends ($0.50 per share) | — | — | (325,691 | ) | — | — | (325,691 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BALANCE AT JUNE 30, 2019 | $ | 995,253 | $ | 6,425,996 | $ | 21,581,045 | $ | 48,413 | $ | (8,871,051 | ) | $ | 20,179,656 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net loss | — | — | (22,537 | ) | — | — | (22,537 | ) | ||||||||||||||||
Issuance of stock option awards | — | 18,040 | — | — | — | 18,040 | ||||||||||||||||||
Other comprehensive income | ||||||||||||||||||||||||
Unrealized gain on securities, net of reclassification adjustment | — | — | — | 68,341 | — | 68,341 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BALANCE AT SEPTEMBER 30, 2019 | $ | 995,253 | $ | 6,444,036 | $ | 21,558,508 | $ | 116,754 | $ | (8,871,051 | ) | $ | 20,243,500 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
6
AMERINST INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, expressed in U.S. dollars)
| Nine Months Ended September 30, 2020 | Nine Months Ended September 30, 2019 | |||||||
OPERATING ACTIVITIES | ||||||||
Net Cash (used in) provided by Operating Activities | $ | (5,225,829 | ) | $ | 1,603,447 | |||
|
|
|
| |||||
INVESTING ACTIVITIES | ||||||||
Purchases of property and equipment | (199,728 | ) | (434,250 | ) | ||||
Purchases of available-for-sale securities | (6,943,373 | ) | (5,492,708 | ) | ||||
Proceeds from sales of available-for-sale securities | 14,941,147 | 2,232,592 | ||||||
Proceeds from redemptions of fixed maturity investments | 3,082,081 | 265,000 | ||||||
Proceeds from maturities of fixed maturity investments | 1,705,000 | 3,090,000 | ||||||
|
|
|
| |||||
Net Cash provided by (used in) Investing Activities | 12,585,127 | (339,366 | ) | |||||
|
|
|
| |||||
FINANCING ACTIVITIES | ||||||||
Dividends paid | — | (325,691 | ) | |||||
Purchase of shares by subsidiary, net | 5,170 | — | ||||||
|
|
|
| |||||
Net Cash provided by (used in) Financing Activities | 5,170 | (325,691 | ) | |||||
|
|
|
| |||||
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 7,364,468 | 938,390 | ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | $ | 7,759,615 | $ | 5,971,046 | ||||
|
|
|
| |||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 15,124,083 | $ | 6,909,436 | ||||
|
|
|
| |||||
See the accompanying notes to the unaudited condensed consolidated financial statements.
7
AMERINST INSURANCE GROUP, LTD.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31,September 30, 2020
1. BASIS OF PREPARATION AND CONSOLIDATION
The condensed consolidated financial statements included herein have been prepared by AmerInst Insurance Group, Ltd. (“AmerInst”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). These financial statements reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations as of the end of and for the periods presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany transactions and balances have been eliminated on consolidation. These statements are condensed and do not incorporate all the information required under U.S. GAAP to be included in a full set of financial statements. In these notes, the terms “we”, “us”, “our” or the “Company” refer to AmerInst and its subsidiaries. These condensed statements should be read in conjunction with the audited consolidated financial statements at and for the year ended December 31, 2019 and notes thereto, included in AmerInst’s Annual Report on Form10-K for the year then ended.
New Accounting Pronouncements
New Accounting Standards Adopted in 2020
No new accounting standards adopted in 2020.
Accounting Standards Not Yet Adopted
Financial Instruments Credit Losses-Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU2016-13, which amends the guidance on impairment of financial instruments and significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU will replace the existing “incurred loss” approach, with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances foravailable-for-sale debt securities rather than reduce the carrying amount under the existing other-than temporary-impairment model. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. The Company’s insurance premium balances receivables are also more significant financial assets within the scope of ASU2016-13. The guidance requires financial assets to be presented at the net amount expected to be collected. The tentative effective date for the ASU is January 1, 2023. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
7
2. INVESTMENTS
The cost or amortized cost, gross unrealized holding gains and losses, and estimated fair value of the Company’s fixed maturity investments, by major security type, and equity securities as of March 31,September 30, 2020 and December 31, 2019 are as follows:
| Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||||||||
March 31, 2020 | ||||||||||||||||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||||||||||||||
Fixed maturity investments: | ||||||||||||||||||||||||||||||||
U.S. government agency securities | $ | 3,081,758 | $ | 52,833 | $ | — | $ | 3,134,591 | $ | 2,331,829 | $ | 49,599 | $ | — | $ | 2,381,428 | ||||||||||||||||
Obligations of U.S. states and political subdivisions | 5,545,656 | 202,873 | — | 5,748,529 | 7,118,592 | 312,371 | — | 7,430,963 | ||||||||||||||||||||||||
Corporate debt securities | 7,386,039 | 93,391 | (16,693 | ) | 7,462,737 | 6,872,373 | 224,730 | — | 7,097,103 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total fixed maturity investments | 16,013,453 | 349,097 | (16,693 | ) | 16,345,857 | 16,322,794 | 586,700 | — | 16,909,494 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Equity securities | 10,464,969 | 1,914,250 | (2,471,474 | ) | 9,907,745 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total equity securities | 10,464,969 | 1,914,250 | (2,471,474 | ) | 9,907,745 | — | — | — | — | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Total investments | $ | 26,478,422 | $ | 2,263,347 | $ (2,488,167) | $ | 26,253,602 | $ | 16,322,794 | $ | 586,700 | $ | — | $ | 16,909,494 | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
| Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||
Fixed maturity investments: | ||||||||||||||||||||||||||||||||
U.S. government agency securities | $ | 4,731,181 | $ | 38,524 | $ | (1,086 | ) | $ | 4,768,619 | |||||||||||||||||||||||
Obligations of U.S. states and political subdivisions | 3,188,217 | 29,521 | (5,936 | ) | 3,211,802 | |||||||||||||||||||||||||||
Corporate debt securities | 7,645,289 | 45,080 | (2,473 | ) | 7,687,896 | |||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total fixed maturity investments | 15,564,687 | 113,125 | (9,495 | ) | 15,668,317 | |||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Equity securities | 10,889,683 | 4,854,179 | (378,563 | ) | 15,365,299 | |||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total equity securities | 10,889,683 | 4,854,179 | (378,563 | ) | 15,365,299 | |||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total investments | $ | 26,454,370 | $ | 4,967,304 | $ | (388,058 | ) | $ | 31,033,616 | |||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
8
| Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
December 31, 2019 | ||||||||||||||||
Fixed maturity investments: | ||||||||||||||||
U.S. government agency securities | $ | 4,731,181 | $ | 38,524 | $ | (1,086 | ) | $ | 4,768,619 | |||||||
Obligations of U.S. states and political subdivisions | 3,188,217 | 29,521 | (5,936 | ) | 3,211,802 | |||||||||||
Corporate debt securities | 7,645,289 | 45,080 | (2,473 | ) | 7,687,896 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total fixed maturity investments | 15,564,687 | 113,125 | (9,495 | ) | 15,668,317 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Equity securities | 10,889,683 | 4,854,179 | (378,563 | ) | 15,365,299 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total equity securities | 10,889,683 | 4,854,179 | (378,563 | ) | 15,365,299 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total investments | $ | 26,454,370 | $ | 4,967,304 | $ | (388,058 | ) | $ | 31,033,616 | |||||||
|
|
|
|
|
|
|
| |||||||||
The following tables summarize the Company’s fixed maturity and equity securities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:
| 12 months or greater | Less than 12 months | Total | ||||||||||||||||||||||
| Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | |||||||||||||||||||
March 31, 2020 | ||||||||||||||||||||||||
Fixed maturity investments: | ||||||||||||||||||||||||
U.S. government agency securities | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Obligations of states and political subdivisions | — | — | — | — | — | — | ||||||||||||||||||
Corporate debt securities | 734,545 | (8,079 | ) | 819,759 | (8,614 | ) | 1,554,304 | (16,693 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total fixed maturity investments | 734,545 | (8,079 | ) | 819,759 | (8,614 | ) | 1,554,304 | (16,693 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Equity securities | 945,987 | (768,989 | ) | 4,113,355 | (1,702,485 | ) | 5,059,342 | (2,471,474 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total equity securities | 945,987 | (768,989 | ) | 4,113,355 | (1,702,485 | ) | 5,059,342 | (2,471,474 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total investments | $ | 1,680,532 | $ | (777,068 | ) | $ | 4,933,114 | $ (1,711,099) | $ | 6,613,646 | $ | (2,488,167 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
| 12 months or greater | Less than 12 months | Total | ||||||||||||||||||||||
| Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | |||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||||||
Fixed maturity investments: | ||||||||||||||||||||||||
U.S. government agency securities | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
Obligations of states and political subdivisions | — | — | — | — | — | — | ||||||||||||||||||
Corporate debt securities | — | — | — | — | — | — | ||||||||||||||||||
Total fixed maturity investments | — | — | — | — | — | — | ||||||||||||||||||
Equity securities | — | — | — | — | — | — | ||||||||||||||||||
Total equity securities | — | — | — | — | — | — | ||||||||||||||||||
Total investments | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||
8
| 12 months or greater | Less than 12 months | Total | 12 months or greater | Less than 12 months | Total | |||||||||||||||||||||||||||||||||||||||||||
| Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | Estimated Fair Value | Unrealized Losses | |||||||||||||||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
Fixed maturity investments: | ||||||||||||||||||||||||||||||||||||||||||||||||
U.S. government agency securities | $ | — | $ | — | $ | 1,528,838 | $ | (1,086 | ) | $ | 1,528,838 | $ | (1,086 | ) | $ | — | $ | — | $ | 1,528,838 | $ | (1,086 | ) | $ | 1,528,838 | $ | (1,086 | ) | ||||||||||||||||||||
Obligations of states and political subdivisions | — | — | 601,053 | (5,936 | ) | 601,053 | (5,936 | ) | — | — | 601,053 | (5,936 | ) | 601,053 | (5,936 | ) | ||||||||||||||||||||||||||||||||
Corporate debt securities | 743,360 | (2,473 | ) | — | — | 743,360 | (2,473 | ) | 743,360 | (2,473 | ) | — | — | 743,360 | (2,473 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total fixed maturity investments | 743,360 | (2,473 | ) | 2,129,891 | (7,022 | ) | 2,873,251 | (9,495 | ) | 743,360 | (2,473 | ) | 2,129,891 | (7,022 | ) | 2,873,251 | (9,495 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Equity securities | 336,321 | (119,313 | ) | 1,496,152 | (259,250 | ) | 1,832,473 | (378,563 | ) | 336,321 | (119,313 | ) | 1,496,152 | (259,250 | ) | 1,832,473 | (378,563 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total equity securities | 336,321 | (119,313 | ) | 1,496,152 | (259,250 | ) | 1,832,473 | (378,563 | ) | 336,321 | (119,313 | ) | 1,496,152 | (259,250 | ) | 1,832,473 | (378,563 | ) | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total investments | $ | 1,079,681 | $ | (121,786 | ) | $ | 3,626,043 | $ | (266,272 | ) | $ | 4,705,724 | $ | (388,058 | ) | $ | 1,079,681 | $ | (121,786 | ) | $ | 3,626,043 | $ | (266,272 | ) | $ | 4,705,724 | $ | (388,058 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
As of March 31,September 30, 2020 and December 31, 2019, there were fourzero and eight fixed income securities in an unrealized loss position with an estimated fair value of $1,554,304$0 and $2,873,251, respectively. As of March 31,September 30, 2020 and December 31, 2019, twonone and two of these fixed income securities had been in an unrealized loss position for 12 months or greater, respectively. As of March 31,September 30, 2020 and December 31, 2019, none of the fixed income securities were considered to be other than-temporarily-impaired. The Company has the intent to hold these fixed income securities and it is not more likely than not that the Company will be required to sell these fixed income securities before their fair values recover above the adjusted cost. The unrealized losses from these fixed income securities were not a result of credit, collateral or structural issuesissues.
9
Other-Than-Temporary Impairment Process
The Company assesses whether declines in the fair value of its fixed maturity investments classified asavailable-for-sale represent impairments that are other-than-temporary by reviewing each fixed maturity investment that is impaired and (1) determining if the Company has the intent to sell the fixed maturity investment or if it is more likely than not that the Company will be required to sell the fixed maturity investment before its anticipated recovery; and (2) assessing whether a credit loss exists, that is, where the Company expects that the present value of the cash flows expected to be collected from the fixed maturity investment are less than the amortized cost basis of the investment.
The Company had no planned sales of its fixed maturity investments classified asavailable-for-sale that were in an unrealized loss position at March 31,September 30, 2020. In assessing whether it is more likely than not that the Company will be required to sell a fixed maturity investment before its anticipated recovery, the Company considers various factors including its future cash flow requirements, legal and regulatory requirements, the level of its cash, cash equivalents, short term investments and fixed maturity investments available for sale in an unrealized gain position, and other relevant factors.
In evaluating credit losses, the Company considers a variety of factors in the assessment of a fixed maturity investment including: (1) the time period during which there has been a significant decline below cost; (2) the extent of the decline below cost and par; (3) the potential for the fixed maturity investment to recover in value; (4) an analysis of the financial condition of the issuer; (5) the rating of the issuer; and (6) failure of the issuer of the fixed maturity investment to make scheduled interest or principal payments.
If we conclude a fixed income investment is other-than-temporarily impaired, we write down the amortized cost of the security to fair value, with a charge to net realized investment gains (losses) in the Consolidated Statement of Operations. Gross unrealized losses on the investment portfolio as of March 31,September 30, 2020 and December 31, 2019, relating to 4zero and 8eight fixed maturity securities, amounted to $16,693$0 and $9,495, respectively. The unrealized losses on these available for sale fixed maturity securities were not as a result of credit, collateral or structural issues. During the nine months and three months ended March 31,September 30, 2020, no other-than-temporary impairment charges were recorded.
9
Fair Value of Investments
Under existing U.S. GAAP, we are required to recognize certain assets at their fair value in our consolidated balance sheets. This includes our fixed maturity investments and equity securities. In accordance with the Fair Value Measurements and Disclosures Topic of Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon whether the inputs to the valuation of an asset or liability are observable or unobservable in the market at the measurement date, with quoted market prices being the highest level (Level 1) and unobservable inputs being the lowest level (Level 3). A fair value measurement will fall within the level of the hierarchy based on the inputs that are significant to determining such measurement. The three levels are defined as follows:
Level 1: Observable inputs to the valuation methodology that are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2: Observable inputs to the valuation methodology other than quoted market prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Inputs to the valuation methodology that are unobservable for the asset or liability.
At each measurement date, we estimate the fair value of the security using various valuation techniques. We utilize, to the extent available, quoted market prices in active markets or observable market inputs in estimating the fair value of our investments. When quoted market prices or observable market inputs are not available, we utilize valuation techniques that rely on unobservable inputs to estimate the fair value of investments. The following describes the valuation techniques we used to determine the fair value of investments held as of March 31,September 30, 2020 and December 31, 2019 and what level within the fair value hierarchy each valuation technique resides:
U.S. government agency securities: Comprised primarily of bonds issued by the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, Federal Farm Credit Bank and the Federal National Mortgage Association. The fair values of U.S. government agency securities are priced using the spread above the risk-free U.S. Treasury yield curve. As the yields for the risk-free U.S. Treasury yield curve are observable market inputs, the fair values of U.S. government agency securities are classified as Level 2 in the fair value hierarchy. AmerInst considers a liquid market to exist for these types of securities held. Broker quotes are not used for fair value pricing.
10
Obligations of state and political subdivisions: Comprised of fixed income obligations of state and local governmental municipalities. The fair values of these securities are based on quotes and current market spread relationships, and are classified as Level 2 in the fair value hierarchy. AmerInst considers a liquid market to exist for these types of securities held. Broker quotes are not used for fair value pricing.
Corporate debt securities: Comprised of bonds issued by corporations. The fair values of these securities are based on quotes and current market spread relationships, and are classified as Level 2 in the fair value hierarchy. AmerInst considers a liquid market to exist for these types of securities held. Broker quotes are not used for fair value pricing.
Equity securities, at fair value: Comprised primarily of investments in the common stock of publicly traded companies in the U.S. All of the Company’s equities arewere classified as Level 1 in the fair value hierarchy. The Company receiveshad received prices based on closing exchange prices from independent pricing sources to measure fair values for the equities.
In September 2020, the Company liquidated its equity securities portfolios.
While we obtain pricing from independent pricing services, management is ultimately responsible for determining the fair value measurements for all securities. To ensure fair value measurement is applied consistently and in accordance with U.S. GAAP, we periodically update our understanding of the pricing methodologies used by the independent pricing services. We also undertake further analysis with respect to prices we believe may not be representative of fair value under current market conditions. Our review process includes, but is not limited to: (i) initial and ongoing evaluation of the pricing methodologies and valuation models used by outside parties to calculate fair value; (ii) quantitative analysis; (iii) a review of multiple quotes obtained in the pricing process and the range of resulting fair values for each security, if available, and (iv) randomly selecting purchased or sold securities and comparing the executed prices to the fair value estimates provided by the independent pricing sources.
There have been no material changes to our valuation techniques from what was used as of December 31, 2019. Since the fair value of a security is an estimate of what a willing buyer would pay for such security if we sold it, we cannot know the ultimate value of our securities until they are sold. We believe the valuation techniques utilized provide us with a reasonable estimate of the price that would be received if we were to sell our assets or transfer our liabilities in an orderly market transaction between participants at the
10
measurement date. The following tables show the fair value of the Company’s investments in accordance with ASC 820 as of March 31,September 30, 2020 and December 31, 2019:
| Carrying amount | Total fair value | Fair value measurement using: | Carrying amount | Total fair value | Fair value measurement using: | |||||||||||||||||||||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||||||||||||||||||||||||
March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||
September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||
U.S. government agency securities | $ | 3,134,591 | $ | 3,134,591 | $ | — | $ | 3,134,591 | $ | — | $ | 2,381,428 | $ | 2,381,428 | $ | — | $ | 2,381,428 | $ | — | ||||||||||||||||||||
Obligations of U.S. state and political subdivisions | 5,748,529 | 5,748,529 | 5,748,529 | 7,430,963 | 7,430,963 | 7,430,963 | ||||||||||||||||||||||||||||||||||
Corporate debt securities | 7,462,737 | 7,462,737 | 7,462,737 | 7,097,103 | 7,097,103 | 7,097,103 | ||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total fixed maturity investments | 16,345,857 | 16,345,857 | 16,909,494 | 16,909,494 | ||||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||
Equity securities | 9,907,745 | 9,907,745 | 9,907,745 | — | — | |||||||||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||||||
Total equity securities | 9,907,745 | 9,907,745 | — | — | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total investments | $ | 26,253,602 | $ | 26,253,602 | $ | 9,907,745 | $ | 16,345,857 | $ | — | $ | 16,909,494 | $ | 16,909,494 | $ | — | $ | 16,909,494 | $ | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||
| Carrying amount | Total fair value | Fair value measurement using: | ||||||||||||||||||||||||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||
U.S. government agency securities | $ | 4,768,619 | $ | 4,768,619 | $ | — | $ | 4,768,619 | $ | — | ||||||||||||||||||||||||||||||
Obligations of U.S. state and political subdivisions | 3,211,802 | 3,211,802 | 3,211,802 | |||||||||||||||||||||||||||||||||||||
Corporate debt securities | 7,687,896 | 7,687,896 | 7,687,896 | |||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
Total fixed maturity investments | 15,668,317 | 15,668,317 | ||||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
Equity securities | 15,365,299 | 15,365,299 | 15,365,299 | |||||||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||
Total equity securities | 15,365,299 | 15,365,299 | ||||||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total investments | $ | 31,033,616 | $ | 31,033,616 | $ | 15,365,299 | $ | 15,668,317 | $ | — | ||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
11
| Carrying amount | Total fair value | Fair value measurement using: | ||||||||||||||||||
| Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||
U.S. government agency securities | $ | 4,768,619 | $ | 4,768,619 | $ | — | $ | 4,768,619 | $ | — | ||||||||||
Obligations of U.S. state and political subdivisions | 3,211,802 | 3,211,802 | 3,211,802 | |||||||||||||||||
Corporate debt securities | 7,687,896 | 7,687,896 | 7,687,896 | |||||||||||||||||
|
|
|
| |||||||||||||||||
Total fixed maturity investments | 15,668,317 | 15,668,317 | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Equity securities | 15,365,299 | 15,365,299 | 15,365,299 | |||||||||||||||||
|
|
|
| |||||||||||||||||
Total equity securities | 15,365,299 | 15,365,299 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total investments | $ | 31,033,616 | $ | 31,033,616 | $ | 15,365,299 | $ | 15,668,317 | $ | — | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
There were no transfers between Levels 1 and 2 during the threenine months ended March 31,September 30, 2020 and the year ended December 31, 2019.
11
Contractual Maturities
The cost or amortized cost and estimated fair value of fixed maturity investments as of March 31,September 30, 2020 and December 31, 2019 by contractual maturity are shown below. Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations without penalties.
| Amortized Cost | Estimated Fair Value | Amortized Cost | Estimated Fair Value | |||||||||||||
March 31, 2020 | ||||||||||||||||
September 30, 2020 | ||||||||||||||||
Due in one year or less | $ | 2,328,010 | $ | 2,336,269 | $ | 3,174,356 | $ | 3,196,828 | ||||||||
Due after one year through five years | 11,861,975 | 12,085,899 | 10,919,495 | 11,331,133 | ||||||||||||
Due after five years through ten years | 1,360,640 | 1,445,480 | 1,770,808 | 1,902,272 | ||||||||||||
Due after ten years | 462,828 | 478,209 | 458,135 | 479,261 | ||||||||||||
|
|
|
| |||||||||||||
Total | $ | 16,013,453 | $ | 16,345,857 | $ | 16,322,794 | $ | 16,909,494 | ||||||||
|
|
|
| |||||||||||||
| Amortized Cost | Estimated Fair Value | |||||||||||||||
December 31, 2019 | ||||||||||||||||
Due in one year or less | $ | 2,539,709 | $ | 2,542,229 | ||||||||||||
Due after one year through five years | 12,518,738 | 12,619,593 | ||||||||||||||
Due after five years through ten years | 506,240 | 506,495 | ||||||||||||||
|
| |||||||||||||||
Total | $ | 15,564,687 | $ | 15,668,317 | ||||||||||||
|
| |||||||||||||||
| Amortized Cost | Estimated Fair Value | |||||||
December 31, 2019 | ||||||||
Due in one year or less | $ | 2,539,709 | $ | 2,542,229 | ||||
Due after one year through five years | 12,518,738 | 12,619,593 | ||||||
Due after five years through ten years | 506,240 | 506,495 | ||||||
|
|
|
| |||||
Total | $ | 15,564,687 | $ | 15,668,317 | ||||
|
|
|
| |||||
Information on sales and maturity of investments and net unrealized gains (losses) on equity investments during the nine months ended September 30, 2020 and 2019 are as follows:
| September 30, 2020 | September 30, 2019 | |||||||
Total proceeds on sales of available-for-sale securities | $ | 14,941,147 | $ | 2,232,592 | ||||
Proceeds from redemptions of fixed maturity investments | 3,082,081 | 265,000 | ||||||
Total proceeds from maturities of fixed maturity investments | 1,705,000 | 3,090,000 | ||||||
Gross gains on sales | 4,346,483 | 570,563 | ||||||
Gross losses on sales | (1,635,113 | ) | (586,028 | ) | ||||
Net unrealized (losses) gains on equity investments | (4,475,670 | ) | 2,611,254 | |||||
|
|
|
| |||||
Total | $ | (1,764,300 | ) | $ | 2,595,789 | |||
|
|
|
| |||||
12
Information on sales and maturity of investments and net unrealized gains (losses) on equity investments during the three months ended March 31,September 30, 2020 and 2019 are as follows:
| March 31, 2020 | March 31, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||
Total proceeds on sales ofavailable-for-sale securities | $ | 1,567,518 | $ | 175,704 | $ | 12,856,948 | $ | 429,866 | ||||||||
Total proceeds from redemptions of fixed maturity investments | 1,832,080 | — | ||||||||||||||
Proceeds from redemptions of fixed maturity investments | (17,931 | ) | 265,000 | |||||||||||||
Total proceeds from maturities of fixed maturity investments | 1,205,000 | 1,250,000 | 500,000 | 840,000 | ||||||||||||
Gross gains on sales | 823,322 | 38,068 | 3,516,795 | 47,828 | ||||||||||||
Gross losses on sales | (168,473 | ) | (12,546 | ) | (1,250,195 | ) | (492,424 | ) | ||||||||
Net unrealized gains (losses) on equity investments | (5,032,839 | ) | 1,721,803 | |||||||||||||
Net unrealized (losses) gains movements | (1,278,038 | ) | 517,088 | |||||||||||||
|
|
|
| |||||||||||||
Total | $ | (4,377,990 | ) | $ | 1,747,325 | $ | 988,562 | $ | 72,492 | |||||||
|
|
|
| |||||||||||||
Net Investment Income
Major categories of net investment income during the threenine months ended March 31,September 30, 2020 and 2019 are summarized as follows:
| March 31, 2020 | March 31, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||
Interest earned: | ||||||||||||||||
Fixed maturity investments | $ | 89,273 | $ | 84,023 | $ | 262,200 | $ | 263,575 | ||||||||
Short term investments and cash and cash equivalents | 8,010 | 17,600 | 10,859 | 55,362 | ||||||||||||
Dividends earned | 42,732 | 47,477 | 131,045 | 138,543 | ||||||||||||
Investment expenses | (28,204 | ) | (26,058 | ) | (95,825 | ) | (102,337 | ) | ||||||||
|
|
|
| |||||||||||||
Net investment income | $ | 111,811 | $ | 123,042 | $ | 308,279 | $ | 355,143 | ||||||||
|
|
|
| |||||||||||||
Major categories of net investment income during the three months ended September 30, 2020 and 2019 are summarized as follows:
| September 30, 2020 | September 30, 2019 | |||||||
Interest earned: | ||||||||
Fixed maturity investments | $ | 85,634 | $ | 91,690 | ||||
Short term investments and cash and cash equivalents | 578 | 19,488 | ||||||
Dividends earned | 43,060 | 44,571 | ||||||
Investment expenses | (29,828 | ) | (30,258 | ) | ||||
|
|
|
| |||||
Net investment income | $ | 99,444 | $ | 125,491 | ||||
|
|
|
| |||||
1213
3. LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES
The following table presents a reconciliation of the beginning and ending balances for the liability for unpaid losses and loss adjustment expenses for the threenine months ended March 31,September 30, 2020 and 2019:
| March 31, 2020 | March 31, 2019 | September 30, 2020 | September 30, 2019 | |||||||||||||
Liability—beginning of year | $ | 13,966,044 | $ | 12,989,260 | $ | 13,966,044 | $ | 12,989,260 | ||||||||
Incurred related to: | ||||||||||||||||
Current year | 1,650,954 | 1,576,693 | 4,989,087 | 5,210,575 | ||||||||||||
Prior years | — | — | 9,089,318 | — | ||||||||||||
|
|
|
| |||||||||||||
Total incurred | 1,650,954 | 1,576,693 | 14,078,405 | 5,210,575 | ||||||||||||
|
|
|
| |||||||||||||
Paid related to: | ||||||||||||||||
Current year | — | — | (1,392,687 | ) | (94,416 | ) | ||||||||||
Prior years | — | — | (7,698,845 | ) | (2,308,015 | ) | ||||||||||
|
|
|
| |||||||||||||
Total paid | — | — | (9,091,532 | ) | (2,402,431 | ) | ||||||||||
|
|
|
| |||||||||||||
Liability—end of year | $ | 15,616,998 | $ | 14,565,953 | $ | 18,952,917 | $ | 15,797,403 | ||||||||
|
|
|
| |||||||||||||
As incurreda result of the change in estimates of insured events in prior years, the provision for losses forand loss adjustment expenses increased by $9,089,318 during the threenine months ended March 31,September 30, 2020. The unfavorable development during the nine months ended September 30, 2020 are derived by multiplying our estimatedwas primarily due to higher than expected loss ratioemergence on the Company’s lawyers’ book of 64.0%business in accident years 2017, 2018 and the net premiums earned, as stated in Results of Operations below, all incurred losses are assumed to be current year losses.2019.
4. SEGMENT INFORMATION
AmerInst has two reportable segments: (1) reinsurance activity, which also includes investments and other activities, and (2) insurance activity, which offers professional liability solutions to professional service firms under the Agency Agreement with C&F, as defined in the “Overview” section below.
The tables below summarize the results of our reportable segments as of and for the threenine months ended March 31,September 30, 2020 and 2019.
| As of and for the Three Months Ended March 31, 2020 | As of and for the Nine Months Ended September 30, 2020 | |||||||||||||||||||||||
| Reinsurance Segment | Insurance Segment | Total | Reinsurance Segment | Insurance Segment | Total | |||||||||||||||||||
Revenues | $ | (1,689,893 | ) | $ | 1,640,931 | $ | (48,962 | ) | $ | 7,487,683 | $ | 4,546,484 | $ | 12,034,167 | ||||||||||
Total losses and expenses | 2,936,443 | 1,492,192 | 4,428,635 | 19,062,602 | 4,261,899 | 23,324,501 | ||||||||||||||||||
Segment (loss) income | (4,626,336 | ) | 148,739 | (4,477,597 | ) | (11,574,919 | ) | 284,585 | (11,290,334 | ) | ||||||||||||||
Identifiable assets | — | 1,162,243 | 1,162,243 | — | 1,107,040 | 1,107,040 | ||||||||||||||||||
| As of and for the Three Months Ended March 31, 2019 | ||||||||||||||||||||||||
| Reinsurance Segment | Reinsurance Segment | Total | ||||||||||||||||||||||
Revenues | $ | 4,321,441 | $ | 1,568,313 | $ | 5,889,754 | ||||||||||||||||||
Total losses and expenses | 2,833,661 | 1,386,382 | 4,220,043 | |||||||||||||||||||||
Segment income | 1,487,780 | 181,931 | 1,669,711 | |||||||||||||||||||||
Identifiable assets | — | 980,139 | 980,139 | |||||||||||||||||||||
| As of and for the Nine Months Ended September 30, 2019 | ||||||||||||
| Reinsurance Segment | Reinsurance Segment | Reinsurance Segment | ||||||||||
Revenues | $ | 11,053,834 | $ | 4,434,479 | $ | 15,488,313 | ||||||
Total losses and expenses | 9,241,760 | 4,087,935 | 13,329,695 | |||||||||
Segment income | 1,812,074 | 346,544 | 2,158,618 | |||||||||
Identifiable assets | — | 983,448 | 983,448 | |||||||||
14
The tables below summarize the results of our reportable segments as of and for the three months ended September 30, 2020 and 2019.
| As of and for the Three Months Ended September 30, 2020 | ||||||||||||
| Reinsurance Segment | Insurance Segment | Total | ||||||||||
Revenues | $ | 4,524,821 | $ | 1,437,562 | $ | 5,962,383 | ||||||
Total losses and expenses | 12,872,084 | 1,368,291 | 14,240,375 | |||||||||
Segment (loss) income | (8,347,263 | ) | 69,271 | (8,277,992 | ) | |||||||
Identifiable assets | — | 1,107,040 | 1,107,040 | |||||||||
| As of and for the Three Months Ended September 30, 2019 | ||||||||||||
| Reinsurance Segment | Reinsurance Segment | Reinsurance Segment | ||||||||||
Revenues | $ | 3,001,278 | $ | 1,462,998 | $ | 4,464,267 | ||||||
Total losses and expenses | 3,120,582 | 1,366,222 | 4,486,804 | |||||||||
Segment (loss) income | (119,304 | ) | 96,767 | (22,537 | ) | |||||||
Identifiable assets | — | 983,448 | 983,448 | |||||||||
5. STOCK COMPENSATION
Phantom Shares:
Protexure Insurance Agency, Inc. (“Protexure”), a subsidiary of AmerInst, has employment agreements with three key members of senior management, which grant them phantom shares of the Company. Under these agreements, these employees were initially granted an aggregate of 63,765 phantom shares of the Company on the date of their employment, subject to certain vesting requirements. The phantom shares are eligible for phantom dividends payable at the same rate as regular dividends on the Company’s common shares. The phantom dividends may be used only to purchase additional phantom shares with the purchase price of such phantom shares being the net book value of the Company’s actual common shares as of the end of the previous quarter. During the nine months and three months ended March 31,September 30, 2020, no phantom shares were granted. 76,403 phantom shares were outstanding at March 31,September 30, 2020 and December 31, 2019.
13
For these three employees, the phantom shares initially granted, as well as any additional shares granted from dividends declared, vested on January 1, 2015. The liability payable to each of these employees under the phantom share agreements is equal to the value of the phantom shares based on the net book value of the Company’s actual common shares at the end of the previous quarter less the value of phantom shares initially granted and is payable in cash upon (i) the participant’s death, termination of employment due to disability, retirement at or after age 65 or resignation for good reason, (ii) termination of the participant by the Company without cause, (iii) termination by Participant without good reason or (iv) change in control.
The liability relating to these phantom shares is recalculated quarterly based on the net book value of our common shares at the end of each quarter. As a result of the overall decrease in the net book value of our common shares since the grant dates, we have not recorded any liability relating to these phantom shares at March 31,September 30, 2020.
Stock Option Plan:
The Company has a nonqualified stock option plan to advance the development, growth and financial condition of the Company. This plan provides incentives through participation in the appreciation of its common stock in order to secure, retain and motivate directors and employees and align such person’s interests with those of its shareholders. A total of 100,000 shares are authorized under the stock option plan.
15
A summary of the status of the stock option plan as of March 31,September 30, 2020 is as follows:
| Vested Shares | Weighted Average Exercise Price Per Share | Non-vested Shares | Weighted Average Exercise Price Per Share | Total Shares | Weighted Average Exercise Price Per Share | Vested Shares | Weighted Average Exercise Price Per Share | Non-vested Shares | Weighted Average Exercise Price Per Share | Total Shares | Weighted Average Exercise Price Per Share | |||||||||||||||||||||||||||||||||||||
Outstanding—January 1, 2020 | 16,400 | $ | 28.34 | 28,600 | $ | 28.65 | 45,000 | $ | 28.54 | 16,400 | $ | 28.34 | 28,600 | $ | 28.65 | 45,000 | $ | 28.54 | ||||||||||||||||||||||||||||||
Granted | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Forfeited | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Exercised | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Vested | 8,400 | 28.42 | (8,400 | ) | 28.42 | — | — | 8,400 | 28.42 | (8,400 | ) | 28.42 | — | — | ||||||||||||||||||||||||||||||||||
Outstanding—March 31, 2020 | 24,800 | $ | 28.37 | 20,200 | $ | 28.74 | 45,000 | $ | 28.54 | |||||||||||||||||||||||||||||||||||||||
Outstanding—September 30, 2020 | 24,800 | $ | 28.37 | 20,200 | $ | 28.74 | 45,000 | $ | 28.54 | |||||||||||||||||||||||||||||||||||||||
Options exercisable at year end | — | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Weighted average fair value of options per share granted during the year | — | — | $ | — | — | $ | — | — | — | — | $ | — | — | $ | — | — | ||||||||||||||||||||||||||||||||
Remaining contractual life (years) | 3.0 | 3.1 | 3.0 | 2.4 | 2.6 | 2.5 | ||||||||||||||||||||||||||||||||||||||||||
A summary of the status of the stock option plan as of December 31, 2019 is as follows:
| Vested Shares | Weighted Average Exercise Price Per Share | Non-vested Shares | Weighted Average Exercise Price Per Share | Total Shares | Weighted Average Exercise Price Per Share | |||||||||||||||||||
Outstanding—January 1, 2019 | 7,000 | $ | 27.99 | 40,000 | $ | 28.71 | 47,000 | $ | 28.60 | |||||||||||||||
Granted | — | — | — | — | — | — | ||||||||||||||||||
Forfeited | — | — | (2,000 | ) | 30.14 | (2,000 | ) | 30.14 | ||||||||||||||||
Exercised | — | — | — | — | — | — | ||||||||||||||||||
Vested | 9,400 | 28.60 | (9,400 | ) | 28.60 | — | — | |||||||||||||||||
Outstanding—December 31, 2019 | 16,400 | $ | 28.34 | 28,600 | $ | 28.65 | 45,000 | $ | 28.54 | |||||||||||||||
Options exercisable at year end | — | — | — | — | — | — | ||||||||||||||||||
Weighted average fair value of options per share granted during the year | — | — | $ | — | — | $ | — | — | ||||||||||||||||
Remaining contractual life (years) | 3.2 | 3.3 | 3.3 | |||||||||||||||||||||
The Company accounts for these options in accordance with GAAP, which requires that the fair value of the equity awards be recognized as compensation expense over the period during which the employee is required to provide service in exchange for such an award. The Company is amortizing compensation expense over the vesting period, or five years. The Company recognized $(11,955)$(11,150) and $72,046 of compensation expense for stock options for the threenine months ended March 31,September 30, 2020 and for the year ended December 31, 2019, respectively.
6. SUBSEQUENT EVENT
14
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Management’s discussion and analysis (“MD&A”) provides supplemental information, which sets forth the major factors that have affected our financial condition and results of operation and should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Form10-Q.
Certain statements contained in this Form10-Q, including this MD&A section, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, and contain information relating to us that is based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. The words “expect,” “believe,” “may,” “could,” “should,” “would,” “estimate,” “anticipate,” “intend,” “plan,” “target,” “goal” and similar expressions as they relate to us or our management are intended to identify forward-looking statements.
16
All forward-looking statements, by their nature, are subject to risks and uncertainties. Our actual future results may differ materially from those set forth in our forward-looking statements. Please see the Introductory Note and Item 1A “Risk Factors” of our 2019 Annual Report on Form10-K, as updated in our subsequent quarterly reports filed on Form10-Q, and in our other filings made from time to time with the Commission after the date of this report for a discussion of factors that could cause our actual results to differ materially from those in the forward-looking statements. However, the risk factors listed in Item 1A “Risk Factors” of our 2019 Annual Report on Form10-K or discussed in this Quarterly Report on Form10-Q should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our management’s analysis only as of the date they are made. We undertake no obligation to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
The following discussion addresses our financial condition and results of operations for the periods and as of the dates indicated.
OVERVIEW
Unless otherwise indicated by the context in this quarterly report, we refer to AmerInst Insurance Group, Ltd. and its subsidiaries as the “Company,” “AmerInst,” “we” or “us.” “AMIC Ltd.” means AmerInst’s wholly owned subsidiary, AmerInst Insurance Company, Ltd. “Protexure” means Protexure Insurance Agency, Inc., a Delaware corporation and wholly owned subsidiary of AmerInst Mezco, Ltd. which is a wholly owned subsidiary of AmerInst. “Investco” means AmerInst Investment Company, Ltd., a wholly owned subsidiary of AMIC Ltd. Our principal offices are c/o Citadel Management Bermuda Limited, 25 Church Street, Continental Building, P.O. Box HM 1601, Hamilton, Bermuda, HM GX.
AmerInst Insurance Group, Ltd. is a Bermuda holding company formed in 1998 that provides insurance protection for professional service firms and engages in investment activities. AmerInst has two reportable segments: (1) reinsurance activity, which includes investments and other activities, and (2) insurance activity, which offers professional liability solutions to professional service firms. The revenues of the reinsurance activity reportable segment and the insurance activity reportable segment were $(1,689,893)$7,487,683 and $1,640,931,$4,546,484, respectively, for the threenine months ended March 31,September 30, 2020 compared to $4,321,441$11,053,834 and $1,568,313,$4,434,479, respectively, for the threenine months ended March 31,September 30, 2019. The revenues for both reportable segments were derived from business operations in the United States other than interest income on bank accounts maintained in Bermuda.
Entry into Agency Agreement
On September 25, 2009, Protexure entered into an agency agreement (the “Agency Agreement”) with The North River Insurance Company, United States Fire Insurance Company, Crum & Forster Indemnity Company, Crum and Forster Insurance Company, and Crum & Forster Specialty Insurance Company (collectively, “C&F”) pursuant to which C&F appointed Protexure as its exclusive agent for the purposes of soliciting, underwriting, quoting, binding, issuing, cancelling,non-renewing and endorsing accountants’ professional liability and lawyers’ professional liability insurance coverage in all 50 states of the United States and the District of Columbia. The initial term of the Agency Agreement was for four years with automaticone-year renewals thereafter. The Agency Agreement automatically renewed on September 25, 2019.2020.
In October 2020, C&F advised us to cease writing business in eight states under the Agency Agreement. We are currently in discussions with alternative carriers to write policies impacted by this directive.
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Entry into Reinsurance Agreement
We conduct our reinsurance business through AMIC Ltd., our subsidiary, which is a registered insurer in Bermuda. On September 25, 2009, AMIC Ltd. entered into a professional liability quota share agreement with C&F (the “Reinsurance Agreement”) pursuant to which C&F agreed to cede, and AMIC Ltd. agreed to accept as reinsurance, a 50% quota share of C&F’s liability under insurance written by Protexure on behalf of C&F and classified by C&F as accountants’ professional liability and lawyers’ professional liability, subject to AMIC Ltd.’s surplus limitations. Policies written by insurers other than C&F are not subject to the 50% quota share reinsurance to AMIC Ltd. The term of the Reinsurance Agreement is continuous and may be terminated by either party upon at least 120 days’ prior written notice to the other party.
Third-party Managers and Service Providers
Citadel Management Bermuda Limited provides theday-to-day services necessary for the administration of our business. Our agreement with Citadel Management Bermuda Limited renewed for one year beginning January 1, 2020 and ending December 31, 2020. Mr. Thomas R. McMahon, our Treasurer and Chief Financial Officer, is a shareholder,an officer, director and employee of Citadel Management Bermuda Limited.
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The Country Club Bank of Kansas City, Missouri, provides portfolio management of fixed-income securities and directs our investments pursuant to guidelines approved by us. Harris Associates L.P. and Tower Wealth Managers, Inc. provide discretionary investment advice with respect to our equity investments. We have retained Oliver Wyman, an independent casualty actuarial consulting firm, to render advice regarding actuarial matters.
Outlook
During the first quarter ofnine months ended September 30, 2020, worldwide social and economic activity became severely impacted by the spread and threat ofCOVID-19. Actions to minimize risk to those employed with Protexure and those employed with our management company in Bermuda, Citadel Management Bermuda Limited, have been taken, including restricting travel and instituting extensive work-from-home protocols. This leveraged our existing operational contingency plans at every level of the organization, which ensured business process and control continuity. These actions have helped prevent major disruption to our clients and operations.
There was no significant impact on our insurance premiums and losses induring the first quarternine months ended September 30, 2020 relating to theCOVID-19 global pandemic nor do we anticipate, at this time, that this global catastrophic event will have a significant impact on our insurance premiums and losses in future quarters due to the types of insurance products we offer and our client base of professional service firms, among other factors. With regard to investments, our investment portfolios that holdheld equity securities incurred significant negative valuation adjustments during the first quarter of 2020 as spreads widened and perceived risks elevated. Thiselevated as was reflected in first quarter financial results. AsDuring the second and third quarters of April 30, 2020, our investment portfolio had improvedpartially recovered as markets responded to unprecedented monetary and fiscal stimulus in the U.S. and around the world. We expect there will be continued volatility forIn September 2020, the remainder ofCompany liquidated its equity securities portfolios as a measure to preserve its capital base. The Company plans to reinvest the year.proceeds from these liquidations in fixed income securities as market conditions permit.
The Company will continue to evaluate the impact ofCOVID-19 on its operations over the coming quarters.
RESULTS OF OPERATIONS
ThreeNine months ended March 31,September 30, 2020 compared to threenine months ended March 31,September 30, 2019
We recorded a net loss of $4,477,597$11,290,334 for the threenine months ended March 31,September 30, 2020 compared to net income of $1,669,711$2,158,618 for the same period in 2019. The decrease in net income was mainly attributable to the decrease in net realized and unrealized gains on investments of $6,125,315$4,360,089 – from a $1,747,325 gain of $2,595,789 for the threenine months ended March 31,September 30, 2019 to a $4,377,990$1,764,300 loss for the threenine months ended March 31,September 30, 2020, which is due to unfavorable market conditions attributable to the impact of theCOVID-19 coronavirus pandemic on the worldwide economy.economy and to the increase in loss and loss adjustment expenses of $8,867,830 – from $5,210,575 for the nine months ended September 30, 2019 to $14,078,405 for the nine months ended September 30, 2020, which is due to higher than expected loss emergence on the Company’s lawyers’ book of business in accident years 2017, 2018 and 2019. This was partially offset by the increase in commission income of $81,797$146,623 – from $1,555,804$4,395,855 for the threenine months ended March 31,September 30, 2019 to $1,637,601$4,542,478 for the threenine months ended March 31,September 30, 2020 as a result of a higher volume of premiums written under the Agency Agreement.
Our net premiums earned for the nine months ended September 30, 2020 were $8,947,710 compared to $8,141,526 for the nine months ended September 30, 2019, an increase of $806,184 or 9.9%. The net premiums earned for the nine months ended September 30, 2020 and 2019 were attributable to cessions from C&F under the Reinsurance Agreement. The increase in net premiums earned under the Reinsurance Agreement during the first nine months of 2020 compared to the same period in 2019 resulted from increased cessions from C&F in 2020, arising from a higher level of underwriting activity under the Agency Agreement due to the continued marketing of the program by Protexure which resulted in greater penetration in targeted markets.
During the nine months ended September 30, 2020 and 2019, we recorded commission income under the Agency Agreement of $4,542,478 and $4,395,855, respectively, an increase of $146,623 or 3.3%. This increase resulted from a higher volume of premiums written under the Agency Agreement in 2020 due to the continued marketing of the program by Protexure which resulted in greater penetration in the targeted markets.
We recorded net investment income of 308,279 for the nine months ended September 30, 2020 compared to $355,143 for the nine months ended September 30, 2019. The decrease in net investment income was attributable to a decrease in interest earned on short term investments and cash and cash equivalents as the result of lower interest rates in place during the first nine months of 2020 compared to the same period in 2019. The annualized investment yield, calculated as total interest and dividends divided by the net average amount of total investments and cash and cash equivalents, was 1.2% for the nine months ended September 30, 2020, compared to the 1.3% yield earned for the nine months ended September 30, 2019.
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We recorded a net realized and unrealized loss on investments of $1,764,300 during the nine months ended September 30, 2020 compared to net realized gains of $2,595,789 during the nine months ended September 30, 2019, a decrease of $4,360,089 or 168%. The decrease was primarily related to the decrease in the fair value of our equity investments during the nine months ended September 30, 2020, due to unfavorable market conditions attributable to the impact of the COVID-19 coronavirus pandemic on the worldwide economy. During the first quarter of 2020, were $2,579,616our investment portfolios that hold equity securities incurred significant negative valuation adjustments as spreads widened and perceived risks elevated as was reflected in first quarter financial results. During the second and third quarters of 2020, our investment portfolio partially recovered as markets responded to unprecedented monetary and fiscal stimulus in the U.S. and around the world. In September 2020, the Company liquidated its equity securities portfolios as a measure to preserve its capital base.
Our losses and loss adjustment expenses increased by 170.2% to $14.078,405 for the nine months ended September 30, 2020 from $5,210,575 for the nine months ended September 30, 2019. The increase in loss and loss adjustment expenses was due to higher than expected loss emergence on the Company’s lawyers’ book of business in accident years 2017, 2018 and 2019.
We recorded policy acquisition costs of $4,097,754 for the nine months ended September 30, 2020 compared to $2,463,583$3,012,548 for the firstsame period in 2019. Policy acquisition costs, which are primarily ceding commissions paid to the ceding insurer, are established as a percentage of premiums earned. Therefore, any increase or decrease in premiums earned will result in a similar increase or decrease in policy acquisition costs. The policy acquisition costs recorded during the nine months ended September 30, 2020 and 2019 were 45.8% and 37% of the net premiums earned under the Reinsurance Agreement of $8,947,710 and $8,141,526, respectively. The increase to the percentage applied to net premiums earned during the nine months ending September 30, 2020 was attributable to the recording of a premium deficiency reserve in September 2020 in the amount of $787,159. This reserve was recorded as management believes that the Company’s unearned premium position at September 30, 2020 may not be sufficient to meet future expected claims and expenses, as a result of recent adverse claim activity, as discussed above.
We expensed operating and management expenses of $5,019,124 for the nine months ended September 30, 2020 compared to $5,138,604 for the same period in 2019, a decrease of $119,480 or 2.3%. The decrease was primarily attributable to decreased board and committee meetings related expenses due to the reduction in physical meetings held during the second and third quarters as the result of travel restrictions imposed in relation to COVID-19.
The tables below summarize the results of the following AmerInst reportable segments: (1) reinsurance activity, which also includes investments and other activities, and (2) insurance activity, which offers professional liability solutions to professional service firms under the Agency Agreement with C&F.
| As of and for the Nine Months Ended September 30, 2020 | ||||||||||||
| Reinsurance Segment | Insurance Segment | Total | ||||||||||
Revenues | $ | 7,487,683 | $ | 4,546,484 | $ | 12,034,167 | ||||||
Total losses and expenses | 19,062,602 | 4,261,899 | 23,324,501 | |||||||||
Segment (loss) income | (11,574,919 | ) | 284,585 | (11,290,334 | ) | |||||||
Identifiable assets | — | 1,107,040 | 1,107,040 | |||||||||
| As of and for the Nine Months Ended September 30, 2019 | ||||||||||||
| Reinsurance Segment | Reinsurance Segment | Reinsurance Segment | ||||||||||
Revenues | $ | 11,053,834 | $ | 4,434,479 | $ | 15,488,313 | ||||||
Total losses and expenses | 9,241,760 | 4,087,935 | 13,329,695 | |||||||||
Segment income | 1,812,074 | 346,544 | 2,158,618 | |||||||||
Identifiable assets | — | 983,448 | 983,448 | |||||||||
Three months ended September 30, 2020 compared to three months ended September 30, 2019
We recorded a net loss of $8,277,992 for the three months ended September 30, 2020 compared to a net loss of $22,537 for the same period in 2019. The decrease in net income was mainly attributable to the increase in loss and loss adjustment expenses of $8,749,489 from $1,802,187 for the three months ended September 30, 2019 to $10,551,676 for the three months ended September 30, 2020, which is due to higher than expected loss emergence on the Company’s lawyers book of business in accident years 2017, 2018 and 2019. This was partially offset by the increase in the fair value of our equity investments during the three months ended September 30, 2020 due to favorable market conditions attributable to the unprecedented monetary and fiscal stimulus in the U.S. and around the world to counter the negative impact of the COVID-19 coronavirus pandemic on the worldwide economy.
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Our net premiums earned for the third quarter of 2020 were $3,437,196 compared to $2,815,917 for the third quarter of 2019, an increase of $116,033$621,279 or 4.7%22.1%. The net premiums earned during the quarters ended March 31,September 30, 2020 and 2019 were attributable to cessions from C&F under the Reinsurance Agreement. The increased cessions arose from a higher level of underwriting activity under the Agency Agreement during 2020 due to the continued marketing of the program by Protexure, which resulted in increased penetration in targeted markets.
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For the quarters ended March 31,September 30, 2020 and 2019, we recorded commission income under the Agency Agreement of $1,637,601$1,437,181 and $1,555,804,$1,450,367, respectively, an increasea marginal decrease of $81,797$13,186 or 5.3%.9%. This increasedecrease resulted from a highermarginally lower volume of premiums written under the Agency Agreement induring the third quarter of 2020 as referredcompared to above.the third quarter of 2019.
We recorded net investment income of $111,811$99,444 for the quarter ended March 31,September 30, 2020 compared to $123,042,$125,491, for the quarter ended March 31,September 30, 2019. The decrease in net investment income was attributable to certain higher yielding equity securities helda decrease in our investment portfoliointerest earned on short term investments and cash and cash equivalents as the result of lower interest rates in place during the firstthird quarter of 20192020 compared to the same period in 2020.2019. The annualized investment yield, calculated as total interest and dividends divided by the net average amount of total investments and cash and cash equivalents, was 1.2% for the quarter ended March 31,September 30, 2020, compared to the 1.4%1.3% yield earned for the quarter ended March 31,September 30, 2019.
We recorded net realized and unrealized lossesgains on investments of $4,377,990$988,562 during the quarter ended March 31,September 30, 2020 compared to net realized and unrealized gains of $1,747,325$72,492 during the quarter ended March 31,September 30, 2019, a decreasean increase of $6,125,315$916,070 or 350.6%1,263.7%. The decreaseincrease was primarily related to the decreaseincrease in the fair value of our equity investments of $5,032,840 during the quarter ended March 31,September 30, 2020, due to unfavorablefavorable market conditions attributable to the unprecedented monetary and fiscal stimulus in the U.S. and around the world to counter the negative impact of theCOVID-19 coronavirus pandemic on the worldwide economy. In late September 2020, the Company liquidated its equity securities portfolios as a measure to preserve its capital base.
For the quarter ended March 31, 2020, we recorded lossOur losses and loss adjustment expenses of $1,650,954 derivedincreased by multiplying our estimated loss ratio of 64.0% and485.5% to $10,551,676 for the net premiums earned underthree months ended September 30, 2020 from $1,082,187 for the Reinsurance Agreement of $2,579,616. For the quarterthree months ended March 31, 2019, we recorded loss and loss adjustment expenses of $1,576,693 derived by multiplying our estimated loss ratio of 64.0% and the net premiums earned under the Reinsurance Agreement of $2,463,583.September 30, 2019. The increase in loss and loss adjustment expenseexpenses was due to an increasehigher than expected loss emergence on the Company’s lawyers’ book of business in net premiums earned during the first three months of 2020 compared to the corresponding period inaccident years 2017, 2018 and 2019.
We recorded policy acquisition costs of $954,397$2,058,923 in the firstthird quarter of 2020 compared to $911,708$1,041,890 for the same period in 2019. Policy acquisition costs, which are primarily ceding commissions paid to the ceding insurer, are established as a percentage of premiums earned; therefore, any increase or decrease in premiums earned will result in a similar increase or decrease in policy acquisition costs. The policy acquisition costs recorded during the firstthird quarter of 2020 and 2019 were 59.9% and 37% of the net premiums earned under the Reinsurance Agreement of $2,579,616$3,437,196 and $2,463,583,$2,815,917, respectively. The increase to the percentage applied to net premiums earned during the third quarter of 2020 was attributable to the recording of a premium deficiency reserve in September 2020 in the amount of $787,159. This reserve was recorded as management believes that the Company’s unearned premium position at September 30, 2020 may not be sufficient to meet future expected claims and expenses, as a result of recent adverse claim activity, as discussed above.
We incurred operating and management expenses of $1,762,284$1,592,813 in the firstthird quarter of 2020 compared to $1,731,642$1,636,073 for the same period in 2019, an increasea decrease of $30,642$43,260 or 1.8%2.6%. The increasedecrease was primarily attributable to increased net commissions paiddecreased board and committee meetings related expenses due to outside brokersthe reduction in association withphysical meetings held during the Agency Agreementthird quarter as athe result of higher volume of premiums obtained from outside brokers during 2020 comparedtravel restrictions imposed in relation to 2019.COVID-19.
The tables below summarize the results of the following AmerInst reportable segments: (1) reinsurance activity, which also includes investments and other activities, and (2) insurance activity, which offers professional liability solutions to professional service firms under the Agency Agreement with C&F.
| As of and for the Three Months Ended March 31, 2020 | As of and for the Three Months Ended September 30, 2020 | |||||||||||||||||||||||
| Reinsurance Segment | Insurance Segment | Total | Reinsurance Segment | Insurance Segment | Total | |||||||||||||||||||
Revenues | $ | (1,689,893 | ) | $ | 1,640,931 | $ | (48,962 | ) | $ | 4,524,821 | $ | 1,437,562 | $ | 5,962,383 | ||||||||||
Total losses and expenses | 2,936,443 | 1,492,192 | 4,428,635 | 12,872,084 | 1,368,291 | 14,240,375 | ||||||||||||||||||
Segment (loss) income | (4,626,336 | ) | 148,739 | (4,477,597 | ) | (8,347,263 | ) | 69,271 | (8,277,992 | ) | ||||||||||||||
Identifiable assets | — | 1,162,243 | 1,162,243 | — | 1,107,040 | 1,107,040 | ||||||||||||||||||
| As of and for the Three Months Ended March 31, 2019 | ||||||||||||||||||||||||
| Reinsurance Segment | Reinsurance Segment | Total | ||||||||||||||||||||||
Revenues | $ | 4,321,441 | $ | 1,568,313 | $ | 5,889,754 | ||||||||||||||||||
Total losses and expenses | 2,833,661 | 1,386,382 | 4,220,043 | |||||||||||||||||||||
Segment income | 1,487,780 | 181,931 | 1,669,711 | |||||||||||||||||||||
Identifiable assets | — | 980,139 | 980,139 | |||||||||||||||||||||
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| As of and for the Three Months Ended September 30, 2019 | ||||||||||||
| Reinsurance Segment | Reinsurance Segment | Reinsurance Segment | ||||||||||
Revenues | $ | 3,001,278 | $ | 1,462,998 | $ | 4,464,267 | ||||||
Total losses and expenses | 3,120,582 | 1,366,222 | 4,486,804 | |||||||||
Segment (loss) income | (119,304 | ) | 96,767 | (22,537 | ) | |||||||
Identifiable assets | — | 983,448 | 983,448 | |||||||||
FINANCIAL CONDITION
As of March 31,September 30, 2020, our total investments were $26,253,602,$16,909,494, a decrease of $4,780,014$14,124,122 or 15.4%45.4%, from $31,033,616 at December 31, 2019. This decrease was primarily due to the decrease in the fair value of certainCompany’s decision to liquidate its equity securities portfolios in September 2020 as a result of unfavorable market conditions attributablemeasure to the impact of theCOVID-19 coronavirus pandemic on the worldwide economy.preserve its capital base. The cash and cash equivalents balance decreasedincreased from $6,589,810 at December 31, 2019 to $6,036,355$10,795,173 at March 31,September 30, 2020, a decreasean increase of $553,455$4,205,363 or 8.4%. The amount of cash63.8%, and cash equivalents varies depending on the maturities of fixed term investments and the level of funds invested in money market funds. The restricted cash and cash equivalents balance decreasedincreased from $1,169,805 at December 31, 2019 to $856,185$4,328,910 at March 31,September 30, 2020, a decreasean increase of $313,620$3,159,105 or 26.8%270.1%. The decrease wasThese increases were primarily due to the timingdeposit of sales and maturities of investments held as restricted cash at March 31, 2020 that have not been reinvested.the proceeds in relation to the aforementioned equity security portfolio liquidations, partially offset by net losses paid under the Reinsurance Agreement during the nine months ended September 30, 2020. The ratio of cash, total investments and other invested assets to total liabilities at March 31,September 30, 2020 was 1.17:1.25:1, compared to a ratio of 1.22:1 at December 31, 2019.
The assumed reinsurance balances receivable represents the current assumed premiums receivable from the fronting carriers. As of March 31,September 30, 2020, the balance was $3,314,072$2,830,194 compared to $5,695,847 as of December 31, 2019. This balance fluctuates due to the timing of the net premium received from C&F under the Reinsurance Agreement.
The assumed reinsurance payable represents current reinsurance losses payable and commissions payable to the fronting carriers. As of March 31,September 30, 2020, the balance was $1,226,326$2,701,177 compared to $6,756,177 as of December 31, 2019. This balance fluctuates due to the timing of losses reported to us.
Deferred policy acquisition costs, which represent the deferral of ceding commission expense related to premiums not yet earned, increaseddecreased from $1,964,052 at December 31, 2019 to $2,235,859 at March 31,$1,174,491at September 30, 2020. The increasedecrease in deferred policy acquisition costs in 2020 was due to the increasedecrease in both net premiums written and unearned premiums assumed under the Reinsurance Agreement compared to the prior year. The ceding commission rate underyear and to the Reinsurance Agreement is 37%.recording of a premium deficiency reserve in September 2020 in the amount of $787,159. This reserve was recorded as management believes that the Company’s unearned premium position at September 30, 2020 may not be sufficient to meet future expected claims and expenses, as a result of recent adverse claim activity, as discussed above.
Prepaid expenses and other assets were $1,967,850$1,924,327 at March 31,September 30, 2020 compared to $2,019,622 as of December 31, 2019. The balance primarily relates to (1) prepaid directors’ and officers’ liability insurance costs, (2) the directors’ prepaid annual retainer, (3) prepaid professional fees and (4) premiums due to Protexure under the Agency Agreement. This balance fluctuates due to the timing of the prepayments and to the timing of the premium receipts by Protexure.
Accrued expenses and other liabilities primarily represent premiums payable by Protexure to C&F under the Agency Agreement and expenses accrued relating largely to professional fees. The balance decreased from $5,873,130 at December 31, 2019 to $5,490,463$5,159,635 at March 31,September 30, 2020, a decrease of $382,667$713,495 or 6.5%12.1%. This balance fluctuates due to the timing of the premium payments to C&F and payments of professional fees.
LIQUIDITY AND CAPITAL RESOURCES
Our cash needs consist of settlement of losses and expenses under our reinsurance treaties and fundingday-to-day operations. In continuing the implementation of our business plan, our management expects to meet these cash needs from cash flows arising from our investment portfolio. Because substantially all of our assets are marketable securities, we expect that we will have sufficient flexibility to provide for unbudgeted cash needs that may arise from time to time without resorting to borrowing, subject to Bermuda statutory limitations as discussed in our 2019 Annual Report on Form10-K.
Total cash, investments and other invested assets decreased from $38,793,231 at December 31, 2019 to $33,146,142$32,033,577 at March 31,September 30, 2020, a decrease of $5,647,089$6,759,654 or 14.6%17.4%. The net decrease resulted primarily from the decrease in the fair value of certain equity securities as a result of unfavorable market conditions attributable to the impact of theCOVID-19 coronavirus pandemic on the worldwide economy.economy and to net losses paid under the Reinsurance Agreement. In September 2020, the Company liquidated its equity securities portfolios as a measure to preserve its capital base.
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The Bermuda Monetary Authority has authorized Investco to purchase our common shares, on a negotiated basis, from shareholders who have died or retired from the practice of public accounting. During the threenine months ended March 31,September 30, 2020, no such transactions occurred. From inception through March 31,September 30, 2020, Investco had repurchased 224,538 common shares from shareholders who had died or retired for a total purchase price of $6,379,286. From time to time, Investco has also purchased shares in privately negotiated transactions. From inception through March 31,September 30, 2020, Investco had purchased an additional 75,069 common shares in such privately negotiated transactions for a total purchase price of $1,109,025. During the threenine months ended March 31,September 30, 2020, no such transactions occurred.
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Cash Dividends
We paid no dividends during the first quarter ofnine months ended September 30, 2020. Since we began paying dividends in 1995, our original shareholders have received $22.87 in cumulative dividends per share. When measured by a total rate of return calculation, this has resulted in an effective annual rate of return of approximately 8.2% from our inception, based on a per share purchase price of $8.33 paid by the original shareholders, and using an unaudited net book value of $25.71 per share as of March 31, 2020. Although we have paid cash dividends on a regular basis in the past, the declaration and payment of cash dividends in the future will be at the discretion of our board of directors, subject to the requirements of applicable law, and will depend on, among other things, our financial condition, results of operations, current and anticipated cash needs and other factors that our board of directors considers relevant.
OFF-BALANCE SHEET ARRANGEMENTS
The Company is not a party to anyoff-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form10-K for the year ended December 31, 2019 and is incorporated herein by reference.
We have identified accounting for the liability for losses and loss adjustment expenses as our most critical accounting policy and estimate in that it is important to the portrayal of our financial condition and results, and it requires our subjective and complex judgment as a result of the need to make estimates about the effects of matters that are inherently uncertain. This accounting policy, including the nature of the estimates and types of assumptions used, are described throughout this Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form10-K for the year ended December 31, 2019.
Available Information
We file annual, quarterly, and current reports, proxy statements and other information with the Commission. You may read any public document we file with the Commission at the Commission’s public reference room at 100 F Street, NE, Washington, DC 20549. Please call the Commission at1-800-SEC-0330 for information on the public reference room. The Commission maintains an internet site that contains annual, quarterly, and current reports, proxy and information statements and other information that issuers (including AmerInst) file electronically with the Commission. The Commission’s internet site iswww.sec.gov.
Our internet site iswww.amerinst.bm. We make available free of charge through our internet site our annual report onForm 10-K, quarterly reports on Form10-Q, current reports on Form8-K and any amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Commission. We also make available, through our internet site, via links to the Commission’s internet site, statements of beneficial ownership of our equity securities filed by our directors, officers, 10% or greater shareholders and others under Section 16 of the Securities Exchange Act. In addition, we post onwww.amerinst.bm our Memorandum of Association, ourBye-Laws, our Statement of Share Ownership Policy, Charters for our Audit Committee and Governance and Nominations Committee, as well as our Code of Business Conduct and Ethics. You can request a copy of these documents, excluding exhibits, at no cost, by writing or telephoning us c/o Citadel Management Bermuda Limited, 25 Church Street, Continental Building, P.O. Box HM 1601 Hamilton, Bermuda HM GX, Attention: Investor Relations(441) 295-6015. The information on our internet site is not incorporated by reference into this report.
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| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Not applicable.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As of March 31,September 30, 2020, the end of the period covered by this Form10-Q, our management, including our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined inRule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer each concluded that as of March 31,September 30, 2020, the end of the period covered by this Form10-Q, we maintained effective disclosure controls and procedures.
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Changes in Internal Control over Financial Reporting
Our management, including our Principal Executive Officer and Principal Financial Officer, has reviewed our internal control over financial reporting (as defined in Rule13a-15(f) under the Securities Exchange Act of 1934). There have been no changes in our internal control over financial reporting during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II—OTHER INFORMATION
| Item 1. | Legal Proceedings |
We are party to various legal proceedings generally arising in the normal course of our business. While any proceeding contains an element of uncertainty, we do not believe that the eventual outcome of any litigation or arbitration proceeding to which we are presently a party will have a material adverse effect on our financial condition or business. Pursuant to our insurance and reinsurance agreements, disputes are generally required to be finally settled by arbitration.
| Item 1A. | Risk Factors |
In addition to the other information set forth in this Quarterly Report on Form10-Q, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our 2019 Annual Report on Form10-K, as updated in our subsequent quarterly reports. The risks described in our 2019 Annual Report on Form10-K and our subsequent quarterly reports are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
COVID-19, the Effects of Global Actions Taken to Contain its Spread, and its Economic and Societal Impact Could Adversely Impact Our Businesses, Assets and Financial Performance.
TheCOVID-19 pandemic is causing significant disruption to public health, the global economy, financial markets, and commercial, social and community activity generally. The pandemic has had and will have a significant effect on our company’s business operations and may negatively affect our future financial performance. We may experience higher levels of loss and claims activity, and our premiums written and earned could also be adversely affected by a suppression of global commercial activity. Financial conditions resulting from the pandemic may also have a negative effect on the value and quality of the assets we hold within our portfolio of invested assets, thereby adversely affecting our investment income and increasing our credit and related risk.
Governmental, Regulatory and Judicial Actions in Response to theCOVID-19 Pandemic May Adversely Affect Our Financial Performance and Our Ability to Conduct Our Businesses as We Have Historically.
Insurance and financial regulators may attempt to impose new obligations on insurers in connection with the pandemic that could materially affect our business or profitability, including any retroactive change to the terms of existing insurance contracts. In addition, there is a risk that novel litigation theories, in conjunction with a diverse range of potential jury and judicial venues across many jurisdictions, could give rise to unforeseen pandemic related liability.
The Disruption and Other Effects Caused byCOVID-19 Could Adversely Impact the Efficiency and Productivity of Our Business Operations, Which Could Increase our Expenses and Adversely Affect our Financial Performance and Results.
To protect our employees and in response to the global and regional restrictions on interpersonal contact and travel because of theCOVID-19 pandemic, much of our employees and service providers are working remotely. While we have continued to conduct our business effectively, there is no assurance that our ability to continue to function in this new environment will not be adversely affected by an extended period of limited access to our or our service providers’ offices or by other developments such as an extended disruption in the telecommunications and internet infrastructure that support our remote work capability.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
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| Item 3. | Defaults Upon Senior Securities. |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
| Item 5. | Other Information |
None.
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| Item 6. | Exhibits |
(a) Exhibits
Exhibit Number | Description | |
| 31.1 | Certification of Stuart H. Grayston pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Thomas R. McMahon pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of Stuart H. Grayston pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of Thomas R. McMahon pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: | AMERINST INSURANCE GROUP, LTD. | |||
(Registrant) | ||||
By: | /s/ | |||
Stuart H. Grayston | ||||
| President (Principal Executive Officer, duly authorized to sign this Report in such capacity and on behalf of the Registrant) | ||||
By: | /s/ | |||
Thomas R. McMahon | ||||
| Chief Financial Officer (Principal Financial Officer, duly authorized to sign this Report in such capacity and on behalf of the Registrant) | ||||
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