UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31,June 30, 2019
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-38814
Positive Physicians Holdings, Inc.
(Exact Name of Registrant as Specified in its Charter)
Pennsylvania | 83-0824448 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer |
100 Berwyn Park, Suite 220 850 Cassatt Road, Berwyn, PA | 19312 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (888) 335-5335
Securities registered pursuant to Section 12(b) of the Act.
Title of each class | Trading Symbol | Name of each exchange on which registered |
Common Stock | PPHI | The Nasdaq Stock Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ |
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| Accelerated filer | ☐ |
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Non-accelerated filer | ☐ |
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| Smaller reporting company | ☒ |
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Emerging growth company | ☒ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 24,August 12, 2019, the registrant had 3,615,500 shares of common stock, no$0.01 par value per share, outstanding.
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| Page |
PART I. | 1 | |
Item 1. | 1 | |
| 1 | |
| 2 | |
| Unaudited Consolidated Statements of Comprehensive Income (Loss) | 3 |
| 4 | |
| 5 | |
| 6 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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i
Positive Physicians Holdings, Inc.
|
| March 31, 2019 |
|
| December 31, 2018 |
|
| June 30, 2019 |
|
| December 31, 2018 |
| ||||
|
| (Unaudited) |
|
| (Unaudited Combined) |
|
| (Unaudited) |
|
| (Unaudited Combined) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale bond securities, at fair value |
| $ | 82,081,457 |
|
| $ | 85,206,669 |
|
| $ | 87,895,381 |
|
| $ | 85,206,669 |
|
Equity securities, at fair value |
|
| 8,057,004 |
|
|
| 7,267,094 |
|
|
| 7,269,058 |
|
|
| 7,267,094 |
|
Equity securities, at net asset value |
|
| 4,183,582 |
|
|
| 4,051,399 |
|
|
| 4,244,663 |
|
|
| 4,051,399 |
|
Short-term investments, at fair value |
|
| 199,622 |
|
|
| 373,949 |
|
|
| 74,760 |
|
|
| 373,949 |
|
Total investments |
|
| 94,521,665 |
|
|
| 96,899,111 |
|
|
| 99,483,862 |
|
|
| 96,899,111 |
|
Cash and cash equivalents |
|
| 29,870,265 |
|
|
| 3,903,620 |
|
|
| 24,365,843 |
|
|
| 3,903,620 |
|
Accrued investment income |
|
| 612,800 |
|
|
| 627,213 |
|
|
| 628,960 |
|
|
| 627,213 |
|
Premiums receivable |
|
| 5,925,097 |
|
|
| 6,623,172 |
|
|
| 4,522,153 |
|
|
| 6,623,172 |
|
Reinsurance recoverable |
|
| 8,207,848 |
|
|
| 7,956,043 |
|
|
| 9,640,117 |
|
|
| 7,956,043 |
|
Reinsurance premiums receivable |
|
| 1,442,868 |
|
|
| 313,632 |
| ||||||||
Income taxes recoverable |
|
| 1,297,390 |
|
|
| 1,297,757 |
|
|
| 1,297,444 |
|
|
| 1,297,757 |
|
Unearned ceded premiums |
|
| 337,395 |
|
|
| 259,747 |
|
|
| 1,564,396 |
|
|
| 573,379 |
|
Deferred acquisition costs |
|
| 4,690,104 |
|
|
| 3,985,193 |
|
|
| 3,658,457 |
|
|
| 3,985,193 |
|
Deferred income taxes |
|
| 1,276,227 |
|
|
| 1,676,091 |
|
|
| 1,223,634 |
|
|
| 1,676,091 |
|
Prepaid management fee |
|
| 10,000,000 |
|
|
| — |
|
|
| 9,642,857 |
|
|
| — |
|
Other assets |
|
| 652,936 |
|
|
| 486,615 |
|
|
| 534,645 |
|
|
| 486,615 |
|
Total assets |
| $ | 158,834,595 |
|
| $ | 124,028,194 |
|
| $ | 156,562,368 |
|
| $ | 124,028,194 |
|
Liabilities and stockholders' equity |
|
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|
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Liabilities and Stockholders' Equity |
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Liabilities |
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
| $ | 66,621,112 |
|
| $ | 68,392,333 |
|
| $ | 67,491,760 |
|
| $ | 68,392,333 |
|
Unearned premiums |
|
| 15,046,764 |
|
|
| 13,202,626 |
|
|
| 12,754,554 |
|
|
| 13,202,626 |
|
Reinsurance payable |
|
| 2,694,563 |
|
|
| 1,203,027 |
|
|
| 1,363,481 |
|
|
| 1,203,027 |
|
Accounts payable, accrued, expenses, and other liabilities |
|
| 2,137,276 |
|
|
| 3,805,354 |
|
|
| 2,222,856 |
|
|
| 3,805,354 |
|
Note payable |
|
| 112,096 |
|
|
| 127,327 |
|
|
| 96,390 |
|
|
| 127,327 |
|
Due to affiliates |
|
| 230,836 |
|
|
| 309,310 |
|
|
| 202,288 |
|
|
| 309,310 |
|
Total liabilities |
|
| 86,842,647 |
|
|
| 87,039,977 |
|
|
| 84,131,329 |
|
|
| 87,039,977 |
|
Stockholders' equity |
|
|
|
|
|
|
|
| ||||||||
Common stock, no par value 10,000,000 shares authorized; 3,615,500 shares issued and outstanding |
|
| 33,617,080 |
|
|
| — |
| ||||||||
Stockholders' Equity |
|
|
|
|
|
|
|
| ||||||||
Common stock, $0.01 par value, 10,000,000 shares authorized; 3,615,500 shares issued and outstanding |
|
| 36,155 |
|
|
| — |
| ||||||||
Additional paid-in capital |
|
| 15,882,835 |
|
|
| 15,882,835 |
|
|
| 49,421,081 |
|
|
| 15,882,835 |
|
Retained earnings |
|
| 22,427,187 |
|
|
| 22,335,398 |
|
|
| 21,866,240 |
|
|
| 22,335,398 |
|
Accumulated other comprehensive income (loss) |
|
| 64,846 |
|
|
| (1,230,016 | ) |
|
| 1,107,563 |
|
|
| (1,230,016 | ) |
Total stockholders' equity |
|
| 71,991,948 |
|
|
| 36,988,217 |
|
|
| 72,431,039 |
|
|
| 36,988,217 |
|
Total liabilities and stockholders' equity |
| $ | 158,834,595 |
|
| $ | 124,028,194 |
|
| $ | 156,562,368 |
|
| $ | 124,028,194 |
|
The accompanying notes are an integral part of these consolidated financial statements.
1
Positive Physicians Holdings, Inc.
Consolidated Statements of Operations
|
| Three Months Ended March 31, |
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| Three Months Ended June 30, |
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| Six Months Ended June 30, |
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|
| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||
|
| (Unaudited) |
|
| (Unaudited Combined) |
|
| (Unaudited) |
|
| (Unaudited Combined) |
|
| (Unaudited) |
|
| (Unaudited Combined) |
| ||||||
Revenues |
|
|
|
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|
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|
|
|
|
|
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Net premiums earned |
| $ | 5,491,207 |
|
| $ | 5,953,378 |
|
| $ | 5,327,994 |
|
| $ | 5,238,279 |
|
| $ | 10,819,201 |
|
| $ | 11,191,657 |
|
Net investment income |
|
| 1,479,907 |
|
|
| 446,242 |
|
|
| 939,865 |
|
|
| 828,041 |
|
|
| 2,419,772 |
|
|
| 1,274,283 |
|
Total revenues |
|
| 6,971,114 |
|
|
| 6,399,620 |
|
|
| 6,267,859 |
|
|
| 6,066,320 |
|
|
| 13,238,973 |
|
|
| 12,465,940 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses, net |
|
| 3,321,676 |
|
|
| 3,349,701 |
|
|
| 4,267,440 |
|
|
| 4,638,383 |
|
|
| 7,589,116 |
|
|
| 7,988,084 |
|
Other underwriting expenses |
|
| 3,500,377 |
|
|
| 3,047,590 |
|
|
| 2,785,060 |
|
|
| 2,909,821 |
|
|
| 6,285,437 |
|
|
| 5,957,411 |
|
Interest expense |
|
| 1,366 |
|
|
| 1,766 |
|
|
| 413 |
|
|
| 1,706 |
|
|
| 1,779 |
|
|
| 3,472 |
|
Total expenses |
|
| 6,823,419 |
|
|
| 6,399,057 |
|
|
| 7,052,913 |
|
|
| 7,549,910 |
|
|
| 13,876,332 |
|
|
| 13,948,967 |
|
Income before provision for income taxes |
|
| 147,695 |
|
|
| 563 |
| ||||||||||||||||
Loss before provision for income taxes |
|
| (785,054 | ) |
|
| (1,483,590 | ) |
|
| (637,359 | ) |
|
| (1,483,027 | ) | ||||||||
Provision for income taxes |
|
| 55,906 |
|
|
| (49,258 | ) |
|
| (224,107 | ) |
|
| (288,124 | ) |
|
| (168,201 | ) |
|
| (337,382 | ) |
Net income |
| $ | 91,789 |
|
| $ | 49,821 |
| ||||||||||||||||
Income per common share |
|
|
|
|
|
|
|
| ||||||||||||||||
Net loss |
| $ | (560,947 | ) |
| $ | (1,195,466 | ) |
| $ | (469,158 | ) |
| $ | (1,145,645 | ) | ||||||||
Loss per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Common stock - basic |
| $ | 0.03 |
|
| $ | — |
|
| $ | (0.16 | ) |
| $ | — |
|
| $ | (0.13 | ) |
| $ | — |
|
Common stock - diluted |
| $ | 0.03 |
|
| $ | — |
|
| $ | (0.16 | ) |
| $ | — |
|
| $ | (0.13 | ) |
| $ | — |
|
Common stock - basic and diluted |
| $ | 0.03 |
|
| $ | — |
|
| $ | (0.16 | ) |
| $ | — |
|
| $ | (0.13 | ) |
| $ | — |
|
The accompanying notes are an integral part of these consolidated financial statements.
2
Positive Physicians Holdings, Inc.
Consolidated Statements of Comprehensive Income (Loss)
|
| Three Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||
|
| (Unaudited) |
|
| (Unaudited Combined) |
|
| (Unaudited) |
|
| (Unaudited Combined) |
|
| (Unaudited) |
|
| (Unaudited Combined) |
| ||||||
Net income |
| $ | 91,789 |
|
| $ | 49,821 |
| ||||||||||||||||
Net loss |
| $ | (560,947 | ) |
| $ | (1,195,466 | ) |
| $ | (469,158 | ) |
| $ | (1,145,645 | ) | ||||||||
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) during the period, net of income tax (expense) benefit of $(344,205) and $327,842 |
|
| 1,266,592 |
|
|
| (1,242,479 | ) | ||||||||||||||||
Reclassification adjustments for losses included in net income, net of income tax benefit of $7,515 and $2,288 |
|
| 28,270 |
|
|
| 8,606 |
| ||||||||||||||||
Unrealized holding gain (loss) during the period, net of income tax (expense) benefit of $(277,179) and $57,058 for three months ended June 30, 2019 and 2018 and $(621,384) and $384,900 for six months ended June 30, 2019 and 2018, respectively |
|
| 1,042,739 |
|
|
| (209,509 | ) |
|
| 2,309,331 |
|
|
| (1,451,988 | ) | ||||||||
Reclassification adjustments for losses included in net loss, net of income tax (expense) benefit of $6 and $1,367 for three months ended June 30, 2019 and 2018 and $(7,509) and $(921) for six months ended June 30, 2019 and 2018, respectively |
|
| (22 | ) |
|
| (5,141 | ) |
|
| 28,248 |
|
|
| 3,465 |
| ||||||||
Other comprehensive income (loss) |
|
| 1,294,862 |
|
|
| (1,233,873 | ) |
|
| 1,042,717 |
|
|
| (214,650 | ) |
|
| 2,337,579 |
|
|
| (1,448,523 | ) |
Comprehensive income (loss) |
| $ | 1,386,651 |
|
| $ | (1,184,052 | ) |
| $ | 481,770 |
|
| $ | (1,410,116 | ) |
| $ | 1,868,421 |
|
| $ | (2,594,168 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
3
Positive Physicians Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
| Three Months Ended March 31, 2019 (Unaudited) |
| Six Months Ended June 30, 2019 (Unaudited) |
| ||||||||||||||||||||||||||||||||||
Common Stock |
|
| Additional Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total Equity |
| Common Stock |
|
| Additional Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total Equity |
| |||||||||||
Balance, January 1, 2019 | $ | — |
|
| $ | 15,882,835 |
|
| $ | 22,335,398 |
|
| $ | (1,230,016 | ) |
| $ | 36,988,217 |
| $ | — |
|
| $ | 15,882,835 |
|
| $ | 22,335,398 |
|
| $ | (1,230,016 | ) |
| $ | 36,988,217 |
|
Issuance of common stock |
| 33,617,080 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 33,617,080 |
|
| 36,155 |
|
|
| 33,538,246 |
|
|
| — |
|
|
| — |
|
|
| 33,574,401 |
|
Net income |
| — |
|
|
| — |
|
|
| 91,789 |
|
|
| — |
|
|
| 91,789 |
| |||||||||||||||||||
Net loss |
| — |
|
|
| — |
|
|
| (469,158 | ) |
|
| — |
|
|
| (469,158 | ) | |||||||||||||||||||
Other comprehensive income |
| — |
|
|
| — |
|
|
| — |
|
|
| 1,294,862 |
|
|
| 1,294,862 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,337,579 |
|
|
| 2,337,579 |
|
Balance, March 31, 2019 | $ | 33,617,080 |
|
| $ | 15,882,835 |
|
| $ | 22,427,187 |
|
| $ | 64,846 |
|
| $ | 71,991,948 |
| |||||||||||||||||||
Balance, June 30, 2019 | $ | 36,155 |
|
| $ | 49,421,081 |
|
| $ | 21,866,240 |
|
| $ | 1,107,563 |
|
| $ | 72,431,039 |
|
| Three Months Ended March 31, 2018 (Unaudited Combined) |
| Six Months Ended June 30, 2018 (Unaudited Combined) |
| ||||||||||||||||||||||||||||||||||
| Common Stock |
|
| Additional Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total Equity |
| Common Stock |
|
| Additional Paid-in Capital |
|
| Retained Earnings |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total Equity |
| ||||||||||
Balance, January 1, 2018 | $ | — |
|
| $ | 15,882,835 |
|
| $ | 26,319,019 |
|
| $ | 1,448,639 |
|
| $ | 43,650,493 |
| $ | — |
|
| $ | 15,882,835 |
|
| $ | 26,319,019 |
|
| $ | 1,448,639 |
|
| $ | 43,650,493 |
|
Net income |
| — |
|
|
| — |
|
|
| 49,821 |
|
|
| — |
|
|
| 49,821 |
| |||||||||||||||||||
Net loss |
| — |
|
|
| — |
|
|
| (1,145,645 | ) |
|
| — |
|
|
| (1,145,645 | ) | |||||||||||||||||||
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (1,233,873 | ) |
|
| (1,233,873 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| (1,448,523 | ) |
|
| (1,448,523 | ) |
Reclassification of unrealized gain of equity securities |
| — |
|
|
| — |
|
|
| 1,387,895 |
|
|
| (1,387,895 | ) |
|
| — |
|
| — |
|
|
| — |
|
|
| 1,387,895 |
|
|
| (1,387,895 | ) |
|
| — |
|
Balance, March 31, 2018 | $ | — |
|
| $ | 15,882,835 |
|
| $ | 27,756,735 |
|
| $ | (1,173,129 | ) |
| $ | 42,466,441 |
| |||||||||||||||||||
Balance, June 30, 2018 | $ | — |
|
| $ | 15,882,835 |
|
| $ | 26,561,269 |
|
| $ | (1,387,779 | ) |
| $ | 41,056,325 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
Positive Physicians Holdings, Inc.
Consolidated Statements of Cash Flows
|
| Three Months Ended March 31, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
|
| (Unaudited) |
|
| (Unaudited Combined) |
|
| (Unaudited) |
|
| (Unaudited Combined) |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 91,789 |
|
| $ | 49,821 |
| ||||||||
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
| ||||||||
Net loss |
| $ | (469,158 | ) |
| $ | (1,145,645 | ) | ||||||||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
| ||||||||
Deferred income taxes |
|
| 55,658 |
|
|
| 128,401 |
|
|
| (168,927 | ) |
|
| 46,421 |
|
Net realized loss (gain) on sales of investments |
|
| 34,946 |
|
|
| (12,266 | ) |
|
| 179,944 |
|
|
| (57,600 | ) |
Unrealized (gain) loss on equity securities |
|
| (886,597 | ) |
|
| 173,743 |
|
|
| (1,205,213 | ) |
|
| 34,350 |
|
Amortization of bond premiums |
|
| 55,536 |
|
|
| 66,962 |
|
|
| 113,397 |
|
|
| 131,808 |
|
Depreciation and amortization expense |
|
| 13,234 |
|
|
| 25,000 |
|
|
| 26,467 |
|
|
| 67,645 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
| 17,552 |
|
|
| (33,377 | ) |
|
| (1,747 | ) |
|
| (46,123 | ) |
Premiums receivable |
|
| 698,075 |
|
|
| 1,561,521 |
|
|
| 2,101,019 |
|
|
| 2,573,911 |
|
Reinsurance recoverable |
|
| (251,805 | ) |
|
| 293,749 |
|
|
| (1,684,074 | ) |
|
| 610,961 |
|
Reinsurance premiums receivable |
|
| (1,129,236 | ) |
|
| (1,208,837 | ) | ||||||||
Income taxes recoverable |
|
| 367 |
|
|
| (178,225 | ) |
|
| 313 |
|
|
| (384,373 | ) |
Unearned ceded premiums |
|
| (77,648 | ) |
|
| 127,777 |
|
|
| (991,017 | ) |
|
| (624,014 | ) |
Deferred acquisition costs |
|
| (704,911 | ) |
|
| (747,989 | ) |
|
| 326,736 |
|
|
| 179,575 |
|
Prepaid management fee |
|
| (10,000,000 | ) |
|
| — |
|
|
| (9,642,857 | ) |
|
| — |
|
Other assets |
|
| (179,554 | ) |
|
| (299,256 | ) |
|
| (74,497 | ) |
|
| 4,744 |
|
Losses and loss adjustment expenses |
|
| (1,771,221 | ) |
|
| 121,872 |
|
|
| (900,573 | ) |
|
| 1,041,367 |
|
Unearned premiums |
|
| 1,844,138 |
|
|
| 1,782,004 |
|
|
| (448,072 | ) |
|
| (775,197 | ) |
Reinsurance payable |
|
| 1,491,536 |
|
|
| (186,114 | ) |
|
| 160,454 |
|
|
| 91,345 |
|
Accounts payable, accrued expenses, and other liabilities |
|
| (1,668,079 | ) |
|
| (2,399,855 | ) |
|
| (1,582,498 | ) |
|
| (2,227,817 | ) |
Due to affiliates |
|
| (81,613 | ) |
|
| (476,330 | ) |
|
| (107,022 | ) |
|
| (359,458 | ) |
Net cash flows used in operating activities |
|
| (12,447,833 | ) |
|
| (1,211,399 | ) |
|
| (14,367,325 | ) |
|
| (838,100 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of bond securities |
|
| 4,803,891 |
|
|
| 6,333,409 |
|
|
| 5,993,685 |
|
|
| 12,498,839 |
|
Proceeds from sales of equity securities |
|
| 173,190 |
|
|
| 81,010 |
|
|
| 1,313,230 |
|
|
| 317,701 |
|
Purchases of bond securities |
|
| (124,967 | ) |
|
| (5,361,894 | ) |
|
| (5,786,607 | ) |
|
| (10,102,743 | ) |
Purchases of equity securities |
|
| (214,277 | ) |
|
| (239,835 | ) |
|
| (534,224 | ) |
|
| (807,781 | ) |
Net sales (purchases) of short-term investments |
|
| 174,792 |
|
|
| (699,560 | ) |
|
| 300,000 |
|
|
| (699,568 | ) |
Net cash flows provided by investing activities |
|
| 4,812,629 |
|
|
| 113,130 |
|
|
| 1,286,084 |
|
|
| 1,206,448 |
|
Cash flow from financing activities |
|
|
|
|
|
|
|
| ||||||||
Issuance of common stock |
|
| 33,617,080 |
|
|
| — |
| ||||||||
Cash flows from financing activities |
|
|
|
|
|
|
|
| ||||||||
Proceeds from issuance of common stock |
|
| 33,574,401 |
|
|
| — |
| ||||||||
Payments of notes payable |
|
| (15,231 | ) |
|
| (14,782 | ) |
|
| (30,937 | ) |
|
| (29,675 | ) |
Net cash flows provided by (used in) financing activities |
|
| 33,601,849 |
|
|
| (14,782 | ) |
|
| 33,543,464 |
|
|
| (29,675 | ) |
Net change in cash and cash equivalents |
|
| 25,966,645 |
|
|
| (1,113,051 | ) |
|
| 20,462,223 |
|
|
| 338,673 |
|
Cash and cash equivalents, at beginning of period |
|
| 3,903,620 |
|
|
| 8,196,226 |
|
|
| 3,903,620 |
|
|
| 8,196,226 |
|
Cash and cash equivalents, at end of period |
| $ | 29,870,265 |
|
| $ | 7,083,175 |
|
| $ | 24,365,843 |
|
| $ | 8,534,899 |
|
Cash paid during the period for interest |
| $ | 1,188 |
|
| $ | 1,802 |
|
| $ | 2,261 |
|
| $ | 3,523 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Positive Physicians Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
1. | Organization |
Positive Physicians Holdings, Inc. (the “Company”) is a newly formed Pennsylvania business corporation incorporated on May 1, 2018 for the purpose of acquiring three Pennsylvania based reciprocal insurance exchanges: Positive Physicians Insurance Exchange (“PPIX”), Professional Casualty Association (“PCA”), and Physicians’ Insurance Program Exchange (“PIPE”). In connection with the completion of the Company’s initial public offering, PPIX, PCA, and PIPE converted from reciprocal insurance exchanges into stock insurance companies and were merged together to form Positive Physicians Insurance Company (“Positive Insurance Company”), a wholly-owned subsidiary of the Company. The Company’s initial public offering and its acquisition of Positive Insurance Company were completed on March 27, 2019. Prior to that time, the Company had minimal assets and liabilities and had not engaged in any operations. References to Positive Insurance Company financial information in this Quarterly Report is to the financial information of PPIX, PCA, and PIPE on a consolidated basis. When used in this Quarterly Report, “we” and “our” mean PPIX, PCA, and PIPE prior to March 27, 2019, and Positive Insurance Company thereafter.
Positive Insurance Company
Positive Insurance Company writes medical malpractice insurance for healthcare providers practicing in Delaware, Maryland, Michigan, New Jersey, Ohio, Pennsylvania, and South Carolina. Diversus Management, Inc. (“Diversus Management”) manages and administers essentially all of the operations of Positive Insurance Company under the terms of a management agreement. Diversus Management is a wholly owned subsidiary of Diversus, Inc. (“Diversus”). Pursuant to the terms of the agreement effective as of March 27, 2019, Diversus Management provides such administrative services to Positive Insurance Company in exchange for fees based on a percentage of Positive Insurance Company’s gross written premiums, less return premiums. Diversus Management may also earn quarterly performance management fees based on Positive Insurance Company’s combined ratio and net earned premiums. Positive Insurance Company remains responsible for all underwriting decisions and the payment of all claims and claims related expenses incurred under policies issued by Positive Insurance Company and for all sales commissions paid to producers.
Products and Services
Positive Insurance Company underwrites medical professional liability coverage for physicians, their corporations, medical groups, clinics and allied healthcare providers. Medical professional liability insurance (“MPLI”) protects physicians and other health care providers against liabilities arising from the rendering of, or failure to render, professional medical services. We offer claims-made coverage, claims-made plus, and occurrence-based policies in Pennsylvania, New Jersey, Ohio, Delaware, Maryland, South Carolina and Michigan. Our policies include coverage for the cost of defending claims. Claims-made policies provide coverage to the policyholder for claims reported during the period of coverage. We offer extended reporting endorsements, or tails, to cover claims reported after the policy expires. Occurrence-based policies provide coverage to the policyholders for all losses incurred during the policy coverage year regardless of when the claims are reported. Although we generate a majority of our premiums from individual and small group practices, we also insure several major physician groups.
The Company accounts for its medical professional liability insurance business as a single reporting segment line of business.
Option Agreement
Upon completion of the conversions of PPIX, PCA, and PIPE and the securities offering, on March 27, 2019 the Company and Diversus entered into an option agreement whereby either party has the option to cause Diversus to merge with and become a wholly owned subsidiary of the Company. Under the terms of the agreement, the option may be exercised by either the Company or Diversus at any time (1) during the period beginning 2 years after completion of the conversions of the exchanges and ending 54 months after the completion of the conversions, or (2) if earlier than 2 years after the completion of the conversions, then such date that the majority stockholder of the Company no longer has the right to appoint a majority of the board of directors of the Company. In connection with any merger, the common stock shareholders of Diversus will receive either cash, common stock shares of the Company, or some combination thereof for their shares of Diversus’ common stock. In regards to the preferred stock shares of Diversus, they will either be paid out in cash or converted into common stock shares of Diversus as if such preferred stock shares were converted into Diversus’ common stock shares immediately prior to the effective date of the merger.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim periodthree months and six months ended March 31,June 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
Our consolidated financial statements include our accounts and those of our wholly owned subsidiary. We have eliminated all significant inter-company accounts and transactions in consolidation.
The Company was formed on May 1, 2018 and the financial statements of the Company for the period from May 1, 2018 through December 31, 2018 have been audited. The accompanying unaudited financial statements for 2018 have been prepared on a combined basis and reflect our historical financial information and results of operations of PPIX, PCA, and PIPE as if the conversions and merger took place as of January 1, 2018. Prior to the completion of the initial public offering, the Company, PPIX, PCA, and PIPE were under the common control of Diversus. Additionally, prior to March 27, 2019, the Company did not engage in substantive precombination activities, and accordingly, is not considered to be the acquirer of the net assets of Positive Insurance Company. The acquirer of these net assets is the majority stockholder of the Company. Accordingly, the accompanying unaudited financial statements do not reflect any adjustments to fair value as might have been determined had the Company accounted for the acquisition of Positive Insurance Company’s net assets as a business combination. The 2018 unaudited financial information is not necessarily indicative of the results of operations that would have been achieved if the conversions and merger had taken place at the beginning of 2018.
We recommend you read the interim consolidated financial statements we include in this Form 10-Q Report in conjunction with the financial statements and the notes to our financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2018.
3. | Summary of Significant Accounting Policies |
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and notes. Actual results could differ from these estimates and such differences could be material. The Company’s principal estimates include the liability for losses and loss adjustment expenses, deferred acquisition costs, other-than-temporary impairments of investments, and valuation of deferred tax assets.
Cash and Cash Equivalents
The Company considers cash and cash equivalents to be cash on hand and depository bank accounts with original maturities of three months or less, are readily convertible to known amounts of cash, and present insignificant risk of changes in value due to changing interest rates.
Investments
Investments in fixed maturity securities are classified as available-for-sale and are stated at fair value. Unrealized holding gains and losses, net of related tax effects, on available-for-sale fixed maturity securities are recorded directly to accumulated other comprehensive income (loss). Investments in equity securities are stated at fair value and unrealized holding gains and losses are credited or charged to net income (loss) as incurred.
We have ownership interests in four limited partnership equity hedge funds. The partnership interests are measured at fair value using the funds’ net asset values as a practical expedient. Unrealized holding gains and losses on partnership interests are credited or charged to net income (loss) as incurred. There are no unfunded commitments related to these investments. The funds’ investment strategies are short/long-term equities in financial institutions and global opportunities, long-term equity securities, and fixed maturity and equity securities in global opportunities.
Realized gains and losses on sales of equity and fixed maturity securities are recognized into income based upon the specific identification method. Interest and dividends are recognized as earned. Short-term investments are considered to be short-term, highly liquid investments that are less than one year in term to the dates of maturity at the purchase dates, and they present insignificant risk of changes in value due to changing interest rates.
The Company regularly evaluates all of its investments based on current economic conditions, credit loss experience, and other specific developments. If there is a decline in a security’s net realizable value that is other than temporary, it is considered as a realized loss and the cost basis in the security is reduced to its estimated fair value.
Other-than-temporary-impairments (“OTTI”) of fixed maturity securities are separated into credit and noncredit-related amounts when there are credit-related losses associated with the impaired fixed maturity security for which management asserts that it does not have the intent to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis. The amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other factors is recorded in other comprehensive income (loss). A credit loss is determined by assessing whether the amortized cost basis of the security will be recovered, by comparing the present value of cash flows expected to be collected from the security, computed using original yield as the discount rate, to the amortized cost basis of the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is considered to be the "credit loss."
Deferred Acquisition Costs
Certain direct acquisition costs consisting of commissions, premium taxes and certain other direct underwriting expenses that vary with and are primarily related to the production of business are deferred and amortized over the effective period of the related insurance policies as the underlying policy premiums are earned. The method followed in computing deferred acquisition costs limits the amount of deferred costs to their estimated realizable value, which gives effect to the premium to be earned, related investment income, losses and loss adjustment expenses, and certain other costs expected to be incurred as the premium is earned. Future changes in estimates, the most significant of which is expected losses and loss adjustment expenses, may require adjustments to deferred policy acquisition costs. If the estimation of net realizable value indicates that the deferred acquisition costs are not recoverable, they would be written off.
Prepaid Management Fee
Prepaid management fee consisting of costs incurred by the Positive Insurance Company to execute a new management agreement with Diversus Management is to bebeing amortized on a straight-line basis over the seven-year useful life of the agreement.
Liability for Losses and Loss Adjustment Expenses
Liability for losses and loss adjustment expenses include an amount determined from individual case estimates and loss reports and an amount, based on prior experience, actuarial assumptions and management judgments for losses incurred but not reported. Such liabilities are necessarily based on assumptions and estimates, and while management believes the amount is adequate, the ultimate liability may be in excess of or less than the amounts provided. The methods for making such estimates for establishing the resulting liabilities are continually reviewed. Estimating the ultimate cost of future losses and loss adjustment expenses is an uncertain and complex process. This estimation process is based upon the assumption that past developments are an appropriate indicator of future events and involves a variety of actuarial techniques that analyze experience, trends, and other relevant factors. The uncertainties involved with the reserving process include internal factors, such as changes in claims handling procedure, as well external factors, such as economic trends and changes in the concepts of legal liability and damage awards. Accordingly, final loss settlements may vary from the present estimates, particularly when those payments may not occur until well into the future. Adjustments to previously established reserves are reflected in the operating results of the period in which the adjustment is determined to be necessary. Such adjustments could possibly be significant, reflecting any variety of new and adverse or favorable trends. We offer extended reporting coverage at no additional charge in the event of disability, death or retirement after a policyholder reaches the age of 55 and has been a mature-claims policyholder with the Company for at least one year. An extended reporting endorsement policy reserve is required to assure that premiums are not earned prematurely. We have thisThis reserve is actuarially determined withand the balance is included in unearned premiums. premiums in the consolidated balance sheets.
We cede insurance risk to other insurance companies. This arrangement allows us to minimize the net loss potential arising from large risks. Reinsurance contracts do not relieve us of our obligation to its policyholders. Reinsurance premiums, losses, and loss adjustment expenses are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contract.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments, non-U.S. government bonds, premiums receivable, and balances recoverable from reinsurers. Non-U.S. government bonds are diversified, and no one investment accounts for greater than 5% of our invested assets. Cash and cash equivalents are deposited with financial institutions with balances that fluctuate in excess of federally insured limits. If the financial institutions were not to honor their contractual liability to us, we could incur losses. We are of the opinion that there is low risk because of the financial strength of the respective financial institutions. We are also subject to concentrations of credit risk through short-term money market investments. The credit risk related to short-term money market investments is minimized by our investing in money market funds or repurchase agreements, both secured by U.S. government securities.
No one insured accounted for over 20% of premiums receivable as of March 31,June 30, 2019 and December 31, 2018 or gross written premium for the interim periodsthree months and six months ended March 31,June 30, 2019 and 2018. We have reinsurance contracts with various reinsurers all of whom have A.M. Best ratings of A or better.
Revenue Recognition
Premiums are earned on a daily pro rata basis over the terms of the insurance policies. Unearned premium reserves are established to cover the unexpired portion of the policies in force less amounts ceded to reinsurers. For consideration received for policies with effective dates subsequent to the reporting period, the Company records an advance premium liability in lieu of written premium.
Comprehensive Income
Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale fixed maturity securities and unrealized losses related to factors other than credit on fixed maturity securities, are reported as a separate component in the equity section in the accompanying consolidated balance sheets. Such items, along with net income (loss), are components of comprehensive income (loss), and are reflected in the accompanying consolidated statements of comprehensive income (loss). Reclassifications of realized gains and losses on sales of investments out of accumulated other comprehensive income (loss) are recorded in net investment income in the accompanying consolidated statements of operations.
Income Taxes
The Company accounts for income taxes under the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the consolidated financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversal of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.
Prior to March 27, 2019, PPIX, PCA, and PIPE filed separate federal income tax returns. The Company did not recognize any interest and penalties in the accompanying consolidated statement of operations for the interim periodthree months and six months ended March 31,June 30, 2019 and the combined statement of operations for the interim periodthree months and six months ended March 31,June 30, 2018. PPIX, PCA, and PIPE remain subject to examination by the Internal Revenue Service for tax years 2015 through 2017.
Reclassification
The consolidated balance sheet of the Company as of March 31, 2019 inadvertently presented common stock at no par value per share. The consolidated balance sheet of the Company as of June 30, 2019 presents common stock at a par value of $0.01 per share. The misstatement in the balance sheet as of March 31, 2019 resulted in a reclassification of $33,580,925 from common stock to additional paid-in capital as of June 30, 2019.
As an emerging growth company, we have elected 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. The following discussion includes effective dates for both public business entities and emerging growth companies, as well as whether specific guidance may be adopted early.
Recently Adopted Accounting Pronouncements
The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) ASU 2016-01 for the interim periodyear ended MarchDecember 31, 2018. The amendments in this ASU require among other things that equity investments to be measured at fair value (excluding those equity securities measured at fair value using net asset value as a practical expedient) with changes in fair value recognized in net income, simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, eliminate the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes, require an entity to present separately in other comprehensive income the portion of the total change in the fair value of the liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments, require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the consolidated financial statements, and clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. With the adoption of ASU 2016-01, a cumulative effect of unrealized holding gains and losses on previously classified available-for-sale equity securities included in accumulated other comprehensive income at January 1, 2018 are to be reclassified to retained earnings. At January 1, 2018, unrealized holding gains in equity securities, net of tax effect, of $1,387,895 were reclassified from accumulated other comprehensive income to retained earnings for the year ended December 31, 2018.
Recently Issued Accounting Pronouncements
New accounting rules and disclosure requirements can impact the results and the comparability of the Company’s consolidated financial statements. The following recently issued accounting pronouncements are relevant to the Company’s consolidated financial statements:
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments. The amendments in this Update require a new topic to be added (Topic 326) to the Accounting Standards Codification ("ASC") and removes the thresholds that entities apply to measure credit losses on financial instruments measured at amortized cost, such as loans, trade receivables, reinsurance recoverables, off-balance-sheet credit exposures, and held-to-maturity securities. Under current GAAP, entities generally recognize credit losses when it is probable that the loss has been incurred. The guidance under ASU 2016-13 will remove all current recognition thresholds and will require entities under the new current expected credit loss ("CECL") model to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that an entity expects to collect over the instrument's contractual life. The new CECL model is based upon expected losses rather than incurred losses. Additionally, the credit loss recognition guidance for available-for-sale securities is amended and will require that credit losses on such debt securities should be recognized as an allowance for credit losses rather than a direct write-down of amortized cost balance. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. In July 2019, the FASB decided to add a project to its technical agenda to propose staggered effective dates for certain accounting standards, including ASU 2016-13. The FASB has proposed an approach that ASU 2016-13 will be effective for Public Business Entities that are SEC filers, excluding smaller reporting companies such as the Company, for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. For all other entities, including smaller reporting companies like the Company, ASU 2016-13 will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all entities, early adoption will continue to be permitted; that is, early adoption is allowed for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (that is, effective January 1, 2019, for calendar-year-end companies). The FASB is currently in the process of drafting a proposed ASU for this project to be voted upon by FASB members after a 30-day comment period. The Company is currently a smaller reporting company, and if this proposal is approved and becomes effective, the Company’s expected adoption date for ASU 2016-13 would change from fiscal years beginning after December 15, 2019 to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. At this time, we are evaluating the potential impact of ASU 2016-13 in the Company’s consolidated financial statements.
We use fair value measurements to record fair value adjustments to certain assets to determine fair value disclosures. Fixed maturity available-for-sale securities and equity securities are recorded at fair value on a recurring basis. FASB ASC Topic 820 “Fair Value Measurements and Disclosures” establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The three levels of the fair value hierarchy under ASC Topic 820 are as follows:
Level 1: | Quoted (unadjusted) prices for identical assets in active markets |
Level 2: | Quoted prices for similar assets in active markets, quoted prices for identical or similar assets in nonactive markets (few transactions, limited information, noncurrent prices, high variability over time, etc., inputs other than quoted prices that are observable for the asset (interest rates, yield curves, volatilities, default rates, etc., and inputs that are derived principally from or corroborated by other observable market data. |
Level 3: | Unobservable inputs that cannot be corroborated by observable market data. |
Under ASC Topic 820, we base fair values of assets on 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. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in FASB ASC Topic 820. Fair value measurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon our or other third-party’s estimates, are often calculated based on the characteristics of the asset, the economic and competitive environment and other such factors. Management uses its best judgment in estimating the fair value of financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts we could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period end and have not been re-evaluated or updated for purposes of the consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end. Additionally, changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future valuations.
We obtain one price for each security primarily from a third-party pricing service (“pricing service”), which generally uses quoted prices or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, non-binding broker quotes, benchmark yields, credit spreads, default rates, and prepayment speeds. Because we are responsible for the determination of fair value, we perform analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value.
In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest-level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
Amortized cost/cost, gross unrealized gains, gross unrealized losses, and fair value of fixed maturity and equity securities by major security type for the results at March 31,June 30, 2019 and December 31, 2018 are as follows:
|
| Amortized Cost/Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
|
| Amortized Cost/Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
U.S. government |
| $ | 12,495,670 |
|
| $ | 66,357 |
|
| $ | 143,202 |
|
| $ | 12,418,825 |
|
| $ | 12,131,934 |
|
| $ | 138,643 |
|
| $ | 67,944 |
|
| $ | 12,202,633 |
|
States, territories, and possessions |
|
| 1,108,127 |
|
|
| 32,091 |
|
|
| — |
|
|
| 1,140,218 |
|
|
| 1,104,357 |
|
|
| 47,057 |
|
|
| — |
|
|
| 1,151,414 |
|
Subdivisions of states, territories, and possessions |
|
| 13,188,958 |
|
|
| 257,589 |
|
|
| 21,743 |
|
|
| 13,424,804 |
|
|
| 12,897,335 |
|
|
| 343,264 |
|
|
| 13,952 |
|
|
| 13,226,647 |
|
Industrial and miscellaneous |
|
| 55,206,618 |
|
|
| 258,117 |
|
|
| 367,125 |
|
|
| 55,097,610 |
|
|
| 60,359,777 |
|
|
| 1,010,996 |
|
|
| 56,086 |
|
|
| 61,314,687 |
|
Total bonds |
|
| 81,999,373 |
|
|
| 614,154 |
|
|
| 532,070 |
|
|
| 82,081,457 |
|
|
| 86,493,403 |
|
|
| 1,539,960 |
|
|
| 137,982 |
|
|
| 87,895,381 |
|
Common stocks |
|
| 7,605,008 |
|
|
| 969,165 |
|
|
| 517,169 |
|
|
| 8,057,004 |
|
|
| 6,556,512 |
|
|
| 1,095,869 |
|
|
| 383,323 |
|
|
| 7,269,058 |
|
|
| $ | 89,604,381 |
|
| $ | 1,583,319 |
|
| $ | 1,049,239 |
|
| $ | 90,138,461 |
|
| $ | 93,049,915 |
|
| $ | 2,635,829 |
|
| $ | 521,305 |
|
| $ | 95,164,439 |
|
|
| Amortized Cost/Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
U.S. government |
| $ | 12,859,101 |
|
| $ | 87,354 |
|
| $ | 208,699 |
|
| $ | 12,737,756 |
|
States, territories, and possessions |
|
| 1,111,879 |
|
|
| 14,497 |
|
|
| 897 |
|
|
| 1,125,479 |
|
Subdivisions of states, territories, and possessions |
|
| 13,230,690 |
|
|
| 105,965 |
|
|
| 44,591 |
|
|
| 13,292,064 |
|
Industrial and miscellaneous |
|
| 59,561,984 |
|
|
| 14,030 |
|
|
| 1,524,644 |
|
|
| 58,051,370 |
|
Total bonds |
|
| 86,763,654 |
|
|
| 221,846 |
|
|
| 1,778,831 |
|
|
| 85,206,669 |
|
Common stocks |
|
| 7,568,810 |
|
|
| 524,526 |
|
|
| 826,242 |
|
|
| 7,267,094 |
|
|
| $ | 94,332,464 |
|
| $ | 746,372 |
|
| $ | 2,605,073 |
|
| $ | 92,473,763 |
|
At MarchJune 30, 2019 and December 31, 2019,2018, contractual maturities of investments in bond securities are as follows:
|
| June 30, 2019 |
|
| December 31, 2018 |
| ||||||||||||||||||
| Amortized Cost/Cost |
|
| Fair Value |
|
| Amortized Cost/Cost |
|
| Fair Value |
|
| Amortized Cost/Cost |
|
| Fair Value |
| |||||||
Due in less than one year |
| $ | 7,087,519 |
|
| $ | 7,062,550 |
|
| $ | 8,013,317 |
|
| $ | 8,000,989 |
|
| $ | 7,094,266 |
|
| $ | 6,549,872 |
|
Due after one year to five years |
|
| 50,142,445 |
|
|
| 50,134,517 |
|
|
| 54,244,377 |
|
|
| 54,950,728 |
|
|
| 50,676,297 |
|
|
| 47,892,580 |
|
Due after five years to ten years |
|
| 23,987,741 |
|
|
| 24,077,969 |
|
|
| 23,503,880 |
|
|
| 24,141,687 |
|
|
| 27,617,956 |
|
|
| 29,361,896 |
|
Due after ten years |
|
| 781,668 |
|
|
| 806,421 |
|
|
| 731,829 |
|
|
| 801,977 |
|
|
| 1,375,135 |
|
|
| 1,402,321 |
|
|
| $ | 81,999,373 |
|
| $ | 82,081,457 |
|
| $ | 86,493,403 |
|
| $ | 87,895,381 |
|
| $ | 86,763,654 |
|
| $ | 85,206,669 |
|
Realized gains and losses are determined using the specific identification method. During the interim periodsthree months and six months ended March 31,June 30, 2019 and 2018, proceeds from maturity and sales and gross realized gains and losses on securities are:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||
Proceeds |
| $ | 4,977,081 |
|
| $ | 6,414,419 |
|
| $ | 2,329,834 |
|
| $ | 6,402,122 |
|
| $ | 7,306,915 |
|
| $ | 12,816,540 |
|
Gross gains |
|
| 18,691 |
|
|
| 29,176 |
|
|
| 41,207 |
|
|
| 64,143 |
|
|
| 59,898 |
|
|
| 93,319 |
|
Gross losses |
|
| 53,637 |
|
|
| 16,910 |
|
|
| 186,205 |
|
|
| 18,809 |
|
|
| 239,842 |
|
|
| 35,719 |
|
The components of net investment income for the interim periodsthree months and six months ended March 31,June 30, 2019 and 2018 are as follows:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||
Bonds |
| $ | 565,070 |
|
| $ | 555,592 |
|
| $ | 561,161 |
|
| $ | 578,365 |
|
| $ | 1,126,231 |
|
| $ | 1,133,957 |
|
Cash and short-term investments |
|
| 20,655 |
|
|
| 12,221 |
|
|
| 154,571 |
|
|
| 17,373 |
|
|
| 177,584 |
|
|
| 29,594 |
|
Common stocks |
|
| 66,736 |
|
|
| 67,838 |
|
|
| 74,758 |
|
|
| 80,675 |
|
|
| 141,493 |
|
|
| 148,513 |
|
Limited partnerships |
|
| 1,625 |
|
|
| (2,352 | ) |
|
| — |
|
|
| 1,383 |
|
|
| 1,626 |
|
|
| (969 | ) |
Other |
|
| 9,233 |
|
|
| — |
|
|
| 6,875 |
|
|
| — |
|
|
| 13,750 |
|
|
| — |
|
Net (loss) gain on sales of investments |
|
| (34,946 | ) |
|
| 12,266 |
|
|
| (144,998 | ) |
|
| 45,334 |
|
|
| (179,944 | ) |
|
| 57,600 |
|
Unrealized gain (loss) on equity securities |
|
| 886,597 |
|
|
| (173,743 | ) |
|
| 318,616 |
|
|
| 139,393 |
|
|
| 1,205,213 |
|
|
| (34,350 | ) |
|
|
| 1,514,970 |
|
|
| 471,822 |
|
|
| 970,983 |
|
|
| 862,523 |
|
|
| 2,485,953 |
|
|
| 1,334,345 |
|
Less investment expenses |
|
| 35,063 |
|
|
| 25,580 |
|
|
| 31,118 |
|
|
| 34,482 |
|
|
| 66,181 |
|
|
| 60,062 |
|
Net investment income |
| $ | 1,479,907 |
|
| $ | 446,242 |
|
| $ | 939,865 |
|
| $ | 828,041 |
|
| $ | 2,419,772 |
|
| $ | 1,274,283 |
|
The fair value and unrealized losses of our securities that were temporarily impaired as of March 31,June 30, 2019 and December 31, 2018 are as follows:
| Less than 12 months |
|
| 12 months or longer |
|
| Total |
|
| Less than 12 months |
|
| 12 months or longer |
|
| Total |
| |||||||||||||||||||||||||||||||
Description of securities |
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| ||||||||||||
March 31, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
June 30, 2019: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
U.S. government |
| $ | 1,136,969 |
|
| $ | 1,912 |
|
| $ | 8,585,023 |
|
| $ | 141,290 |
|
| $ | 9,721,992 |
|
| $ | 143,202 |
|
| $ | 219,094 |
|
| $ | 2,033 |
|
| $ | 7,436,764 |
|
| $ | 65,911 |
|
| $ | 7,655,858 |
|
| $ | 67,944 |
|
Subdivisions of states, territories, and possessions |
|
| — |
|
|
| — |
|
|
| 919,916 |
|
|
| 21,743 |
|
|
| 919,916 |
|
|
| 21,743 |
|
|
| 254,643 |
|
|
| 29 |
|
|
| 462,923 |
|
|
| 13,923 |
|
|
| 717,566 |
|
|
| 13,952 |
|
Industrial and miscellaneous |
|
| 7,065,499 |
|
|
| 20,678 |
|
|
| 25,166,485 |
|
|
| 346,447 |
|
|
| 32,231,984 |
|
|
| 367,125 |
|
|
| 2,409,315 |
|
|
| 4,800 |
|
|
| 8,008,824 |
|
|
| 51,286 |
|
|
| 10,418,139 |
|
|
| 56,086 |
|
Total fixed maturities |
|
| 8,202,468 |
|
|
| 22,590 |
|
|
| 34,671,424 |
|
|
| 509,480 |
|
|
| 42,873,892 |
|
|
| 532,070 |
|
|
| 2,883,052 |
|
|
| 6,862 |
|
|
| 15,908,511 |
|
|
| 131,120 |
|
|
| 18,791,563 |
|
|
| 137,982 |
|
Common stocks |
|
| 1,652,463 |
|
|
| 161,262 |
|
|
| 967,701 |
|
|
| 355,907 |
|
|
| 2,620,164 |
|
|
| 517,169 |
|
|
| 932,012 |
|
|
| 73,418 |
|
|
| 917,372 |
|
|
| 309,905 |
|
|
| 1,849,384 |
|
|
| 383,323 |
|
Total temporarily impaired securities |
| $ | 9,854,931 |
|
| $ | 183,852 |
|
| $ | 35,639,125 |
|
| $ | 865,387 |
|
| $ | 45,494,056 |
|
| $ | 1,049,239 |
|
| $ | 3,815,064 |
|
| $ | 80,280 |
|
| $ | 16,825,883 |
|
| $ | 441,025 |
|
| $ | 20,640,947 |
|
| $ | 521,305 |
|
|
| Less than 12 months |
|
| 12 months or longer |
|
| Total |
| |||||||||||||||
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
|
| Fair Value |
|
| Unrealized Losses |
| |||||||
December 31, 2018: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government |
| $ | 1,757,021 |
|
| $ | 5,521 |
|
| $ | 8,858,782 |
|
| $ | 203,178 |
|
| $ | 10,615,803 |
|
| $ | 208,699 |
|
States, territories, and possessions |
|
| 410,416 |
|
|
| 897 |
|
|
| — |
|
|
| — |
|
|
| 410,416 |
|
|
| 897 |
|
Subdivisions of states, territories, and possessions |
|
| 3,138,650 |
|
|
| 11,729 |
|
|
| 1,993,170 |
|
|
| 32,862 |
|
|
| 5,131,820 |
|
|
| 44,591 |
|
Industrial and miscellaneous |
|
| 28,187,416 |
|
|
| 563,317 |
|
|
| 25,787,215 |
|
|
| 961,327 |
|
|
| 53,974,631 |
|
|
| 1,524,644 |
|
Total fixed maturities |
|
| 33,493,503 |
|
|
| 581,464 |
|
|
| 36,639,167 |
|
|
| 1,197,367 |
|
|
| 70,132,670 |
|
|
| 1,778,831 |
|
Common stocks |
|
| 2,914,528 |
|
|
| 471,382 |
|
|
| 631,297 |
|
|
| 354,860 |
|
|
| 3,545,825 |
|
|
| 826,242 |
|
Total temporarily impaired securities |
| $ | 36,408,031 |
|
| $ | 1,052,846 |
|
| $ | 37,270,464 |
|
| $ | 1,552,227 |
|
| $ | 73,678,495 |
|
| $ | 2,605,073 |
|
Fair values of interest rate sensitive instruments may be affected by increases and decreases in prevailing interest rates, which generally translate, respectively, into decreases and increases in fair values of fixed maturity investments. The fair values of interest rate sensitive instruments also may be affected by the credit worthiness of the issuer, prepayment options, relative values of other investments, the liquidity of the instrument, and other general market conditions.
We evaluated each security and took into account the severity and duration of the impairment, the current rating on the bond, and the outlook for the issuer according to independent analysts. We found that the declines in fair value are most likely attributable to increases in interest rates, and there is no evidence that the likelihood of not receiving all of the contractual cash flows as expected has changed. Our fixed maturity portfolio is managed by our investment committee in concert with an outside investment manager for investment grade bond investments. By agreement, the investment manager cannot sell any security without the consent of our investment committee if such sale will result in a net realized loss.
We monitor our investment portfolio and review securities that have experienced a decline in fair value below cost to evaluate whether the decline is other than temporary. When assessing whether the amortized cost basis of the security will be recovered, we compare the present value of the cash flows likely to be collected, based on an evaluation of all available information relevant to the collectability of the security, to the amortized cost basis of the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as the “credit loss.” If there is a credit loss, the impairment is considered to be other-than-temporary. If we identify that an other-than-temporary impairment loss has occurred, we then determine whether we intend to sell the security, or if it is more likely than not that we will be required to sell the security prior to recovering the amortized cost basis less any current-period credit losses. If we determine that we do not intend to sell, and it is not more likely than not that we will be required to sell the security, the amount of the impairment loss related to the credit loss will be recorded in earnings, and the remaining portion of the other-than-temporary impairment loss will be recognized in other comprehensive income (loss), net of tax. If we determine that we intend to sell the security, or that it is more likely than not that we will be required to sell the security prior to recovering its amortized cost basis less any current-period credit losses, the full amount of the other-than-temporary impairment will be recognized in earnings.
For the interim periodsthree months and six months ended March 31,June 30, 2019 and 2018, we determined that none of our securities were other-than-temporarily impaired. Adverse investment market conditions, or poor operating results of underlying investments, could result in impairment charges in the future.
The table below presents the level within the fair value hierarchy generally utilized by us to estimate the fair value of assets disclosed on a recurring basis at March 31,June 30, 2019:
. |
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||
| $ | 12,418,825 |
|
| $ | — |
|
| $ | 12,418,825 |
|
| $ | — |
|
| $ | 12,202,633 |
|
| $ | — |
|
| $ | 12,202,633 |
|
| $ | — |
| |
States, territories, and possessions |
|
| 1,140,218 |
|
|
| — |
|
|
| 1,140,218 |
|
|
| — |
|
|
| 1,151,414 |
|
|
| — |
|
|
| 1,151,414 |
|
|
| — |
|
Subdivisions of states, territories and possessions |
|
| 13,424,804 |
|
|
| — |
|
|
| 13,424,804 |
|
|
| — |
|
|
| 13,226,647 |
|
|
| — |
|
|
| 13,226,647 |
|
|
| — |
|
Industrial and miscellaneous |
|
| 55,097,610 |
|
|
| — |
|
|
| 55,097,610 |
|
|
| — |
|
|
| 61,314,687 |
|
|
| — |
|
|
| 61,314,687 |
|
|
| — |
|
Total bonds |
|
| 82,081,457 |
|
|
| — |
|
|
| 82,081,457 |
|
|
| — |
|
|
| 87,895,381 |
|
|
| — |
|
|
| 87,895,381 |
|
|
| — |
|
Common stocks |
|
| 8,057,004 |
|
|
| 8,057,004 |
|
|
| — |
|
|
| — |
|
|
| 7,269,058 |
|
|
| 7,269,058 |
|
|
| — |
|
|
| — |
|
|
| $ | 90,138,461 |
|
| $ | 8,057,004 |
|
| $ | 82,081,457 |
|
| $ | — |
|
| $ | 95,164,439 |
|
| $ | 7,269,058 |
|
| $ | 87,895,381 |
|
| $ | — |
|
The table below presents the level within the fair value hierarchy generally utilized by us to estimate the fair value of assets disclosed on a recurring basis at December 31, 2018:
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| |||||
| $ | 12,737,756 |
|
| $ | — |
|
| $ | 12,737,756 |
|
| $ | — |
| |
States, territories, and possessions |
|
| 1,125,479 |
|
|
| — |
|
|
| 1,125,479 |
|
|
| — |
|
Subdivisions of states, territories and possessions |
|
| 13,292,064 |
|
|
| — |
|
|
| 13,292,064 |
|
|
| — |
|
Industrial and miscellaneous |
|
| 58,051,370 |
|
|
| — |
|
|
| 58,051,370 |
|
|
| — |
|
Total bonds |
|
| 85,206,669 |
|
|
| — |
|
|
| 85,206,669 |
|
|
| — |
|
Common stocks |
|
| 7,267,094 |
|
|
| 7,267,094 |
|
|
| — |
|
|
| — |
|
|
| $ | 92,473,763 |
|
| $ | 7,267,094 |
|
| $ | 85,206,669 |
|
| $ | — |
|
At March 31,June 30, 2019 and December 31, 2018, we had ownership interests in four limited partnerships. Our partnership interests are measured at fair value using the partnerships’ net asset values as a practical expedient. At March 31,June 30, 2019, the fair value and cost
basis of these investments were $4,183,582$4,244,663 and $3,546,985,$3,550,000, respectively. At December 31, 2018, the fair value and cost basis of these investments were $4,051,399 and $3,547,687, respectively.
6. | Deferred Acquisition Costs |
The following table summarizes the components of deferred acquisition costs for the interim periodsthree months and six months ended March 31,June 30, 2019 and 2018:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| |||||||
Balance, beginning of period |
| $ | 3,985,193 |
|
| $ | 4,078,322 |
|
| $ | 4,690,104 |
|
| $ | 4,826,311 |
|
| $ | 3,985,193 |
|
| $ | 4,078,322 |
|
Amount capitalized during the period |
|
| 2,827,265 |
|
|
| 3,075,318 |
|
|
| 933,145 |
|
|
| 2,894,400 |
|
|
| 3,760,410 |
|
|
| 5,969,718 |
|
Amount amortized during the period |
|
| 2,122,354 |
|
|
| 2,327,329 |
|
|
| 1,964,792 |
|
|
| 3,821,964 |
|
|
| 4,087,146 |
|
|
| 6,149,293 |
|
Balance, end of period |
| $ | 4,690,104 |
|
| $ | 4,826,311 |
|
| $ | 3,658,457 |
|
| $ | 3,898,747 |
|
| $ | 3,658,457 |
|
| $ | 3,898,747 |
|
7. | Reinsurance |
Effective as of March 27, 2019, Positive Insurance Company entered into a new policy reinsurance agreement. Under the new agreement, we retain a portion of our exposure and pay to the reinsurers a portion of the premiums received on all policies reinsured. Insurance policies written by us are reinsured with other insurance companies principally to:
reduce net liability on individual risks;
mitigate the effect of individual loss occurrences;
stabilize underwriting results; and
increase our underwriting capacity.
Under Pennsylvania law, each insured must maintain MPLI of at least $1,000,000 for each claim and $3,000,000 of annual aggregate coverage. We provide primary insurance coverage up to $500,000 per claim and $1,500,000 of annual aggregate coverage. The Pennsylvania Medical Care Availability and Reduction of Error (“MCARE”) Fund provides coverage for any losses above $500,000 per claim up to $1,000,000. In cases where coverage under the Pennsylvania MCARE Fund does not apply, the primary insurance provides coverage up to $1,000,000 per claim and $3,000,000 of annual aggregate coverage. We retain the first $300,000 on all polices and reinsurance covers the excess up to $1,000,000 that is not covered by the Pennsylvania MCARE Fund, and cede to reinsurers claims in excess of $1,000,000.
Other states in which we write insurance require doctors to maintain certain minimum coverage and provide a fund that provides coverage for losses above a certain amount, but many states do not prescribe insurance requirements for doctors.
We offer primary coverage up to $1,000,000 for each claim and $3,000,000 of annual aggregate coverage in Delaware, Maryland, Michigan, Ohio, New Jersey, and South Carolina. We retain the first $300,000 on all polices, and reinsurance covers the excess up to $1,000,000. If an insured in New Jersey requests, additional coverage of $1,000,000, each claim, each insured, each policy can be provided and is fully ceded to the reinsurer up to a maximum aggregate liability of $2,000,000 to the reinsurer per the term of the reinsurance agreement. In South Carolina and Michigan, the policy limits are $200,000, each claim, each insured, and we retain the first $100,000 and the reinsurer covers the next $100,000.
We also purchase additional reinsurance coverage for clash, loss in excess of policy limits and extra contractual obligation claims.
Our premiums under the new reinsurance agreement is based on a percentage of our earned premiums during the term of the agreement. The agreement terminates on April 1, 2020.
Reinsurance does not legally discharge the insurance company issuing the policy from primary liability for the full amount due under the reinsured policies. However, the assuming reinsurer is obligated to reimburse the company issuing the policy to the extent of the coverage ceded. A primary factor in the selection of reinsurers from whom we purchase reinsurance is their financial strength. Our reinsurance arrangements are generally renegotiated annually. The insolvency or inability of any reinsurer to meet its obligations to us could have a material adverse effect on our results of operations or financial condition. Our reinsurance providers, the majority of whom are longstanding partners that understand our business, are all carefully selected with the help of our reinsurance broker. We monitor the solvency of reinsurers through regular review of their financial statements and, if available, their A.M. Best ratings. Hanover Re, our current reinsurance partner, has at least an “A” rating from A.M. Best. According to A.M. Best, companies with a rating of “A” or better “have an excellent ability to meet their ongoing obligations to policyholders.”
We generally do not assume risks from other insurance companies. However, we are required by statute to participate in certain residual market pools. This participation requires us to assume business for exposures that are not insured in the voluntary marketplace. We participate in these residual markets pro rata on a market share basis, and as of March 31,June 30, 2019, our participation was not material.
The effect of reinsurance on premiums written, amounts earned, and losses incurred for the interim periodsthree months and six months ended March 31,June 30, 2019 and 2018 is as follows:
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Direct |
| $ | 8,197,517 |
|
| $ | 8,548,380 |
|
| $ | 3,783,325 |
|
| $ | 3,411,489 |
|
| $ | 11,980,842 |
|
| $ | 11,959,869 |
|
Ceded |
|
| 1,952,477 |
|
|
| 1,894,058 |
|
|
| 648,254 |
|
|
| 273,366 |
|
|
| 2,600,731 |
|
|
| 2,167,424 |
|
Premiums written, net of reinsurance |
| $ | 6,245,040 |
|
| $ | 6,654,322 |
|
| $ | 3,135,071 |
|
| $ | 3,138,123 |
|
| $ | 9,380,111 |
|
| $ | 9,792,445 |
|
Premiums earned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
| $ | 6,353,380 |
|
| $ | 6,766,376 |
|
| $ | 6,075,535 |
|
| $ | 5,968,691 |
|
| $ | 12,428,915 |
|
| $ | 12,735,067 |
|
Ceded |
|
| 862,173 |
|
|
| 812,998 |
|
|
| 747,541 |
|
|
| 730,412 |
|
|
| 1,609,714 |
|
|
| 1,543,410 |
|
Premiums earned, net of reinsurance |
| $ | 5,491,207 |
|
| $ | 5,953,378 |
|
| $ | 5,327,994 |
|
| $ | 5,238,279 |
|
| $ | 10,819,201 |
|
| $ | 11,191,657 |
|
Losses and loss adjustment expenses incurred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct |
| $ | 3,911,189 |
|
| $ | 3,949,768 |
|
| $ | 6,365,077 |
|
| $ | 5,854,917 |
|
| $ | 10,276,266 |
|
| $ | 9,804,686 |
|
Ceded |
|
| 589,513 |
|
|
| 600,067 |
|
|
| 2,097,637 |
|
|
| 1,216,534 |
|
|
| 2,687,150 |
|
|
| 1,816,602 |
|
Losses and loss adjustment expenses incurred, net of reinsurance |
| $ | 3,321,676 |
|
| $ | 3,349,701 |
|
| $ | 4,267,440 |
|
| $ | 4,638,383 |
|
| $ | 7,589,116 |
|
| $ | 7,988,084 |
|
8. | Losses and Loss Adjustment Expenses |
The following tables provide a reconciliation of our beginning and ending unpaid losses and loss adjustment expense reserve balances for the interim periodssix months ended March 31,June 30, 2019 and 2018.
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
| $ | 68,392,333 |
|
| $ | 68,374,554 |
|
| $ | 68,392,333 |
|
| $ | 68,374,554 |
| |
Less: Reinsurance recoverable on liability for losses and loss adjustment expenses |
|
| 7,956,043 |
|
|
| 8,585,851 |
|
|
| 7,956,043 |
|
|
| 8,585,851 |
|
Add: Reinsurance recoverable on claims paid |
|
| 5,791 |
|
|
| 1,196,573 |
|
|
| 5,791 |
|
|
| 1,196,573 |
|
Net liability at January 1 |
|
| 60,442,081 |
|
|
| 60,985,276 |
|
|
| 60,442,081 |
|
|
| 60,985,276 |
|
Losses and loss adjustment expenses incurred, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period |
|
| 3,321,676 |
|
|
| 3,349,701 |
|
|
| 7,405,688 |
|
|
| 6,252,532 |
|
Prior periods |
|
| — |
|
|
| — |
|
|
| 183,428 |
|
|
| 1,735,552 |
|
Total incurred losses and loss adjustment expenses |
|
| 3,321,676 |
|
|
| 3,349,701 |
|
|
| 7,589,116 |
|
|
| 7,988,084 |
|
Less losses and loss adjustment expenses paid, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period |
|
| 79,592 |
|
|
| 17,060 |
|
|
| 203,366 |
|
|
| 133,579 |
|
Prior periods |
|
| 5,013,009 |
|
|
| 3,568,087 |
|
|
| 9,246,084 |
|
|
| 7,849,105 |
|
Total losses and loss adjustment expenses paid |
|
| 5,092,601 |
|
|
| 3,585,147 |
|
|
| 9,449,450 |
|
|
| 7,982,684 |
|
Net liability for liability for losses and loss adjustment expenses, at end of period |
|
| 58,671,156 |
|
|
| 60,749,830 |
| ||||||||
Net liability for losses and loss adjustment expenses, at end of period |
|
| 58,581,747 |
|
|
| 60,990,676 |
| ||||||||
Add: Reinsurance recoverable on liability for losses and loss adjustment expenses |
|
| 8,207,848 |
|
|
| 8,292,102 |
|
|
| 9,640,117 |
|
|
| 7,974,890 |
|
Less: Reinsurance recoverable on claims paid |
|
| 257,892 |
|
|
| 545,506 |
|
|
| 730,104 |
|
|
| (450,355 | ) |
Liability for losses and loss adjustment expenses, March 31 |
| $ | 66,621,112 |
|
| $ | 68,496,426 |
| ||||||||
Liability for losses and loss adjustment expenses, June 30 |
| $ | 67,491,760 |
|
| $ | 69,415,921 |
|
The liability for losses and loss adjustment expenses at March 31,June 30, 2019 and 2018 were $66,621,112$67,491,760 and $68,496,426,$69,415,921, respectively. For the interim periodssix months ended March 31,June 30, 2019 and 2018, $5,013,009$9,246,084 and $3,568,087,$7,849,105, respectively, has been paid for incurred claims attributable to insured events of prior years. Original estimates are increased or decreased, as additional information becomes known regarding individual claims. There were no favorable orDuring the six months ended June 30, 2018, we experienced an unfavorable developmentsdevelopment of $1,735,552 primarily related to significant reserve strengthening in the 2014 and 2015 years for both claims-made and occurrence policies. These increases are due to greater amount of incurred expenses than was originally estimated. During the interim periodssix months ended March 31,June 30, 2019, and 2018.we experienced an unfavorable development of $183,428 in reserve strengthening from prior years while leaving most of the incurred related to the 2019 year based upon year to date actuarial estimates.
Positive Insurance Company uses a combination of the Actual versus Expected Method, Bornhuetter-Ferguson Method, Expected Loss Ratio Method, Frequency/Severity Method, and the Loss Development Method in order to estimate its liability for losses and loss adjustment expenses. There were no significant changes in the methodologies and assumptions used to develop the liabilities for losses and loss adjustment expenses for the interim periodssix months ended March 31,June 30, 2019 and 2018.
9. | Note Payable |
On December 12, 2014, PPIX entered into a loan agreement with a financial institution with proceeds totaling $300,000 to finance the development of a new policy system. The loan is secured by the equipment purchased with the proceeds received. The loan is being repaid on a monthly basis from January 2016 through December 2020 with interest calculated on the unpaid principal balance at a rate of 4%. At March 31,June 30, 2019 and December 31, 2018, the balance of the note was $112,096$96,390 and $127,327, respectively. At March 31,June 30, 2019 and December 31, 2018, PPIX was in compliance with all loan covenants.
Future maturities of the note for the succeeding years are as follows at March 31,June 30, 2019:
10. | Income Taxes |
At March 31,June 30, 2019 and December 31, 2018, we had no unrecognized tax benefits, no accrued interest and penalties, and no significant uncertain tax positions. No interest and penalties were recognized during the periods ended March 31,June 30, 2019 and December 31, 2018.
At March 31,June 30, 2019 and December 31, 2018, we have unused net operating loss carryforwards (“NOL”) of $5,310,679$5,869,644 and $3,865,253, respectively, which will begin to expire in tax years 2038 and 2039. At March 31,June 30, 2019 and December 31, 2018, we have capital loss carryforwards of $190,526$344,510 and $164,566, respectively. Of the NOLs as of March 31,June 30, 2019, $5,310,679 are subject to limitations under Section 382 of the Internal Revenue Code. These NOLs are limited in the amount that can be utilized in any one year and may expire before they are realized. At this time, we do not expect that any of the remaining NOL carryforwards will expire before utilized. At March 31,June 30, 2019 and December 31, 2018, the Company had no other income tax related carryovers for net operating losses, alternative tax credits, or capital losses.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment. At March 31,June 30, 2019 and December 31, 2018, management determined that it is more likely than not that all of the deferred tax assets will be realized by the Company in future years. Accordingly, the Company did not record a valuation allowance against its deferred tax assets at March 31,June 30, 2019 and December 31, 2018.
11. | Related Party Transactions |
Positive Insurance Company is managed by Diversus Management. For the interim periods endedPrior to March 31,27, 2019, and 2018, Diversus Management, through former attorneys-in-fact of PPIX, PCA, and PIPE, receivedearned management fees at 25% of gross written premiums of the exchanges. Simultaneously with the acquisition of PPIX, PCA, and PIPE and the initial public offering on March 27, 2019, Positive Insurance Company and Diversus Management entered into thea new management agreement effective as of March 27, 2019 whereby Diversus Management provides administrative services to Positive Insurance Company in exchange for fees based on a percentage of Positive Insurance Company’s gross written premium, less return premium. For the three months ended June 30, 2019, Diversus Management earned management fees at 12% of gross written premiums of Positive Insurance Company. Diversus Management may also earn quarterly performance management fees based on Positive Insurance Company’s combined ratio and net earned premiums. Management fees incurred by us for the interim periodsthree months ended March 31,June 30, 2019 and 2018 were $2,049,380$530,180 and $2,137,095,$852,872, respectively, which is recorded in other underwriting expenses in the statementconsolidated statements of operations. Management fees incurred by us for the six months ended June 30, 2019 and 2018 were $2,579,559 and $2,989,967, respectively, which is recorded in other underwriting expenses in the consolidated statements of operations.
In connection with the execution of the new management agreement with Diversus Management, the Company incurred costs of $10,000,000 to execute the agreement; such costs are presented as “prepaid management fees” in the accompany consolidated balance sheet at March 31,June 30, 2019 and is to be being amortized on a straight-line basis over a period of seven years. For the three months and six months ended June 30, 2019, amortization expense was $357,143.
We have contracts with Gateway Risk Services, LLC and Andrews Outsource Solutions LLC, both of which are wholly owned subsidiaries of Diversus, under which those companies provide claims processing and risk management services to us. We incurred fees under these contracts of $399,375$408,875 and $405,975, respectively,$405,775 for the interim periodsthree months ended March 31,June 30, 2019 and 2018.2018, respectively. We incurred fees under these contracts of $808,250 and $811,750 for the six months ended June 30, 2019 and 2018, respectively. Additionally, the former attorney-in-fact of PCA earned commissions related to our gross written premium and other accounts. The attorney-in-factThese commissions were paid to Specialty Insurance Agency, LLC, a wholly owned subsidiary of Diversus, beginning March 27, 2019. There was earned commission income of $77,850$0 and $97,631$19,530 for the interim periodsthree months ended March 31,June 30, 2019 and 2018, respectively, which is recorded in other underwriting expenses in the statementconsolidated statements of operations. There was earned commission income of $77,850 and $116,470 for the six months ended June 30, 2019 and 2018, respectively, which is recorded in other underwriting expenses in the consolidated statements of operations.
The Company and Diversus entered into a loan agreement dated as of March 29, 2019 to provide a $6,000,000 credit facility to Diversus for working capital purposes. Diversus may borrow in one or more advances up to $5,500,000 under a term loan and up to $500,000 under a revolving loan. Outstanding borrowings under the credit facility will bear interest at 8%, will be unsecured, and will be subordinate to the existing senior debt and other commercial loan obligations of Diversus. The loan is to be convertible into common stock shares of Diversus at a price of $1 per share at the option of the Company. At March 31,June 30, 2019, there was no outstanding balance of the credit facility.
12. | Common Stock |
The Company is authorized to issue 10,000,000 shares of no-par$0.01 par value common stock. At December 31, 2018, there were no shares of common stock issued and outstanding. In connection with the completion of the initial public offering on March 27, 2019, 3,615,500 shares of the Company’s common stock were issued. There are no stock-based forms of compensation authorized to be issued by the Company at March 31,June 30, 2019.
The Company’s principal source of liquidity will be dividend payments from Positive Insurance Company. Positive Insurance Company is restricted by the insurance laws of Pennsylvania as to the amount of dividends or other distributions it may pay to the Company. Positive Insurance Company may pay dividends to us after notice to, but without prior approval of, the Pennsylvania Insurance Department in an amount not to exceed the greater of (i) 10% of the surplus of Positive Insurance Company as reported on its most recent annual statement filed with the Pennsylvania Insurance Department, or (ii) the statutory net income of Positive Insurance Company for the period covered by such annual statement. Dividends in excess of this amount are considered “extraordinary” and are subject to the approval of the Pennsylvania Insurance Department.
The order of the Pennsylvania Insurance Department approving the conversions of PPIX, PCA, and PIPE prohibits the declaration or payment of any dividend, return of capital, or other distribution by the Company to Insurance Capital Group, LLC and Enstar Holdings (US) LLC, the two principal stockholders of the Company, without the prior approval of the Pennsylvania Insurance Department, for a period of three years following the effective date of the conversions. Additionally, by the order of the Pennsylvania Insurance Department, Positive Insurance Company cannot pay a dividend to the Company for a period of three years following the effective date of the conversions without the approval of the Pennsylvania Insurance Department.
The amount available for payment of dividends from Positive Insurance Company after the conversions without the prior approval of the Pennsylvania Insurance Department is approximately $3.7 million based upon the statutory surplus of Positive Insurance Company. Prior to its payment of any dividend, Positive Insurance Company will be required to provide notice of the dividend to the Pennsylvania Insurance Department. This notice must be provided to the Pennsylvania Insurance Department 30 days prior to the payment of an extraordinary dividend and 10 days prior to the payment of an ordinary dividend. The Pennsylvania Insurance Department has the power to limit or prohibit dividends if Positive Insurance Company is in violation of any law or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity.
As discussed in Note 1, the conversions of PPIX, PCA, and PIPE to stock insurance companies and the simultaneous acquisition of these companies resulted in the issuance of the Company’s common stock as of March 27, 2019. The weighted average number of common shares outstanding was 3,615,500 duringfor the interim periodsthree months and six months ended March 31,June 30, 2019. For the period prior to the date of the conversions, we assumed that the net common shares issued in the initial public offering were outstanding since January 1, 2019.
The following table presents a reconciliation of the numerators and denominators we used in the basic and diluted per share computations for our common stock:
| Three Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||
Basic earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 91,789 |
|
| $ | — |
| ||||||||||||||||
Net loss |
| $ | (560,947 | ) |
| $ | — |
|
| $ | (469,158 | ) |
| $ | — |
| ||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
| 3,615,500 |
|
|
| — |
|
|
| 3,615,500 |
|
|
| — |
|
|
| 3,615,500 |
|
|
| — |
|
Basic earnings per common share |
| $ | 0.03 |
|
| $ | — |
|
| $ | (0.16 | ) |
| $ | — |
|
| $ | (0.13 | ) |
| $ | — |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion is intended to provide a more comprehensive review of the Company’s operating results and financial condition than can be obtained from reading the Financial Statements alone. The discussion should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto included in “Part I. Item 1. Financial Statements” of the Company. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q constitutes forward-looking information that involves risk and uncertainties. We also recommend you read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2018.
Overview of the Company
Positive Physicians Holdings, Inc. (“Company”) is a newly created Pennsylvania domiciled holding company formed to be the stock holding company for Positive Physicians Insurance Company (“Positive Insurance Company”) following the conversions of PPIX, PCA, and PIPE from reciprocal insurance exchanges to stock insurance companies. The Company had minimal assets and liabilities and had not engaged in any operations as of December 31, 2018.
As part of the conversions, on March 27, 2019, PPIX merged with and into PPIX Conversion Corp., PCA merged with and into PCA Conversion Corp., and PIPE merged with and into PIPE Conversion Corp. Accordingly, PPIX, PCA, and PIPE no longer exist. Immediately thereafter, PCA Conversion Corp. and PIPE Conversion Corp. merged with and into PPIX Conversion Corp., which then changed its name to Positive Insurance Company, and became our single insurance company subsidiary and successor to PPIX, PCA and PIPE.
Overview of PPIX
PPIX was an unincorporated exchange organized on April 20, 2004 and was licensed by the Commonwealth of Pennsylvania as a reciprocal insurance exchange. PPIX provided medical professional liability insurance consisting of claims-made, tail occurrence, claims made plus, and occurrence policies to its subscribers (policyholders). On October 9, 2018, Positive Physicians Captive Insurance Company, a sponsored captive insurance company (“PPCIC”), was incorporated in the State of New Jersey and became a wholly owned subsidiary of PPIX. PPCIC was licensed under the New Jersey Captive Insurance Act on October 16, 2018. PPCIC has one protected unincorporated cell, Keystone Captive Group (“Keystone”). Keystone is owned by an insured of Positive Insurance Company.
PPIX marketed its medical professional liability insurance policies direct to physicians and through independent producers to doctors and allied healthcare professionals who practice in Pennsylvania, Delaware, Maryland, New Jersey, and Ohio.
PPIX was managed by Specialty Insurance Services, LLC (“SIS”), a Pennsylvania limited liability company, pursuant to the terms of an Attorney-In-Fact Agreement between the exchange and SIS. Pursuant to the terms of the Attorney-in-Fact Agreement, as amended, SIS provided underwriting and administrative services to PPIX based on a percentage not to exceed 25.0% of gross written premiums, less return premiums. SIS, as the attorney-in-fact, had the power to direct the activities of PPIX that most significantly impact PPIX’s economic performance. Diversus acquired 100% of the ownership interests of SIS on January 1, 2017.
Overview of PCA
Professional Casualty Association was an unincorporated, reciprocal insurance association organized on April 16, 2003 and formed for the purpose of insuring its subscribers against loss due to the imposition of legal liability. PCA provided medical professional liability insurance consisting of claims-made, tail occurrence, and occurrence policies to its subscribers (policyholders). PCA was managed by Professional Third Party, LP (“PTP”) a wholly owned subsidiary of Diversus, pursuant to the terms of an Attorney-in-Fact Agreement between PCA and PTP.
PCA marketed its medical professional liability insurance policies through independent producers primarily to doctors and allied healthcare providers who practice in Pennsylvania. In November 2015, PCA was granted a license to write insurance in Michigan and began writing policies in Michigan in the fourth quarter of 2015.
PTP was a Pennsylvania corporation formed to operate as the attorney-in-fact for PCA pursuant to the terms of an agreement between PTP and PCA. Pursuant to the terms of the agreement, PTP provided salaries and benefit expenses of the employees, rent and other occupancy expenses, supplies, and data processing services to PCA and paid certain expenses on behalf of PCA in exchange for 25% of the gross written premium. PTP, as the attorney-in-fact of PCA, had the power to direct the activities of PCA that most significantly impact PCA’s economic performance by acting as the attorney-in-fact of PCA. Diversus acquired 100% of the ownership interests of PTP on June 4, 2014.
PIPE was an unincorporated exchange organized on March 14, 2005 and was licensed by the Commonwealth of Pennsylvania as a reciprocal insurance exchange. PIPE provided medical professional liability insurance consisting of claims-made, tail occurrence, and occurrence policies to its subscribers (policyholders).
PIPE marketed its medical professional liability insurance policies through independent producers to doctors and allied healthcare professionals who practice primarily in Pennsylvania.
PIPE Management was a Pennsylvania corporation formed to operate as the attorney-in-fact for PIPE pursuant to the terms of an attorney-in-fact agreement between PIPE Management and PIPE. Pursuant to the terms of the agreement, PIPE Management provided salaries and benefit expenses of the employees, rent and other occupancy expenses, supplies, and data processing services to PIPE and paid certain expenses on behalf of PIPE for 25% of gross written premium. PIPE Management, as the attorney-in-fact of PIPE, had the power to direct the activities of PIPE that most significantly impact PIPE’s economic performance. Diversus acquired 100% of the ownership interests of PIPE Management on November 23, 2015. SIS, PTP, and PIPE Management merged with and into Diversus Management in connection with the conversions.conversions on March 27, 2019.
Marketplace Conditions and Trends
The MPLI industry is affected by recurring industry cycles known as “hard” and “soft” markets. A soft cycle is characterized by intense competition resulting in lower pricing in order to compete for business. A hard market, generally considered a beneficial industry trend, is characterized by reduced competition that results in higher pricing. From approximately 2001 until approximately 2007, the Pennsylvania MPLI market experienced a hard market cycle. This resulted in the creation of several alternative MPLI providers, such as PPIX, PCA, and PIPE. The MPLI market began to experience a soft cycle around the second quarter of 2008 due primarily to the large rate increases taken over the previous six years. That soft cycle has continued and has been contributed to by the restructuring of the healthcare industry, partially as a result of the Affordable Care Act. This has resulted in significant price competition as the number of medical professionals practicing independent of hospitals or large professional groups began to decline. According to a study prepared by the National Association of Insurance Commissioners (“NAIC”), MPLI direct premiums written have declined by 25.3%24.0% on a national basis from 2006 to 20172018 and have declined by 15.9%14.6% in Pennsylvania and 32.0%33.0% in New Jersey during this same time period. This has resulted in lower direct premiums written and lower operating profits for many MPLI carriers.
Principal Revenue and Expense Items
Positive Insurance Company derives its revenue primarily from premiums earned, net investment income, and net realized gains (losses) from investments.
Gross and net premiums written
Gross premiums written is equal to direct and assumed premiums before the effect of ceded reinsurance. Net premiums written is the difference between gross premiums written and premiums ceded or paid to reinsurers (ceded premiums written).
Premiums earned
Premiums earned are the earned portion of net premiums written. Gross premiums written include all premiums recorded by an insurance company during a specified policy period. Insurance premiums on MPLI policies are recognized in proportion to the underlying risk insured and are earned ratably over the duration of the policies. At the end of each accounting period, the portion of the premiums that is not yet earned is included in unearned premiums and is realized as revenue in subsequent periods over the remaining term of the policy. The policies written by Positive Insurance Company typically have a term of twelve months. Thus, for example, for a policy that is written on July 1, 2018, one-half of the premiums would be earned in 2018 and the other half would be earned in 2019.
Net investment income and net realized gains (losses) on investments
We invest our surplus and the funds supporting our insurance liabilities (including unearned premiums and unpaid loss and loss adjustment expenses) in cash, cash equivalents, and equity and debt securities. Investment income includes interest and dividends earned and net realized gains and losses on invested assets. With the adoption of an accounting standard as of January 1, 2018, unrealized gains and losses on equity securities previously classified as available-for-sale securities are included in net investment income. Prior to 2018, unrealized gains and losses on available-for-sale equity securities were charged or credited to accumulated other comprehensive income (loss). We recognize realized gains when invested assets are sold for an amount greater than their cost or amortized cost (in the case of fixed maturity securities) and recognize realized losses when investment securities are written down as a result of an other than temporary impairment or sold for an amount less than their cost or amortized cost, as applicable. Our portfolio of investment securities is managed by our outside investment manager, who has discretion to buy and sell securities in accordance with the investment policy approved by Positive Insurance Company’s board of directors.
The Company’s expenses consist primarily of:
Losses and loss adjustment expenses
Losses and loss adjustment expenses represent the largest expense item and include: (1) claim payments made, (2) estimates for future claim payments and changes in those estimates for prior periods, and (3) costs associated with investigating, defending and adjusting claims, including legal fees.
Amortization of deferred policy acquisition costs and underwriting and administrative expenses
Expenses incurred to underwrite risks are referred to as policy acquisition expenses and underwriting and administrative expenses. Policy acquisition costs consist of commission expenses, premium taxes, and certain other underwriting expenses that vary with and are primarily related to the writing and acquisition of new and renewal business. These policy acquisition costs are deferred and amortized over the effective period of the related insurance policies. Underwriting and administrative expenses consist of salaries, rent, office supplies, depreciation and all other operating expenses not otherwise classified separately, and payments to bureaus and assessments of statistical agencies for policy service and administration items such as rating manuals, rating plans and experience data.
Income taxes
We use the asset and liability method of accounting for income taxes. Deferred income taxes arise from the recognition of temporary differences between financial statement carrying amounts and the tax bases of our assets and liabilities. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The effect of a change in tax rates is recognized in the period of the enactment date.
Key Financial Measures
We evaluate our insurance operations by monitoring certain key measures of growth and profitability. In addition to reviewing our financial performance based on results determined in accordance with GAAP, we utilize certain financial performance measures that are used in the property and casualty insurance industry and that we believe are valuable in managing our business and for comparison to our peers. These financial performance measures are the expense ratio, losses and loss adjustment expense ratio, combined ratio, and the ratio of net written premiums to statutory surplus.
We measure growth by monitoring changes in gross premiums written and net premiums written, and measure underwriting profitability by examining losses and loss adjustment expense, underwriting expense and combined ratios. We also measure profitability by examining underwriting income (loss), net income (loss), and return on equity.
Losses and loss adjustment expenses ratio
The losses and loss adjustment expenses ratio is the ratio (expressed as a percentage) of losses and loss adjustment expenses incurred to premiums earned. Positive Insurance Company measures the loss ratio on a policy year and calendar year loss basis to measure underwriting profitability. A policy year loss ratio measures losses and loss adjustment expenses for insured events occurring in a particular year, regardless of when they are reported, as a percentage of premiums earned during that year. A calendar year loss ratio measures losses and loss adjustment expenses for insured events occurring during a particular year and the change in loss reserves from prior policy years as a percentage of premiums earned during that year.
Expense ratio
The expense ratio is the ratio (expressed as a percentage) of amortization of deferred policy acquisition costs and net underwriting and administrative expenses (attributable to insurance operations) to premiums earned, and measures our operational efficiency in producing, underwriting and administering the company’s insurance business.
Combined ratio
The combined ratio is the sum of the losses and loss adjustment expenses ratio and the expense ratio and measures overall underwriting profit. If the combined ratio is below 100%, we are making an underwriting profit. If our combined ratio is at or above 100%, we are not profitable without investment income and may not be profitable if investment income is insufficient.
Net premiums written to statutory surplus ratio
The net premiums written to statutory surplus ratio represents the ratio of net premiums written, after reinsurance ceded, to statutory surplus. This ratio measures our exposure to pricing errors in our current book of business. The higher the ratio, the greater the impact on surplus should pricing prove inadequate.
Underwriting income (loss)
Underwriting income (loss) measures the pre-tax profitability of insurance operations. It is derived by subtracting losses and loss adjustment expense, amortization of deferred policy acquisition costs, and underwriting and administrative expenses from earned premiums.
Net income (loss) and return on average equity
We use net income (loss) to measure our profit and return on average equity to measure our effectiveness in utilizing equity to generate net income. In determining return on average equity for a given year, net income (loss) is divided by the average of the beginning and ending equity for that year.
Critical Accounting Policies
General
The preparation of consolidated financial statements in accordance with GAAP requires both the use of estimates and judgment relative to the application of appropriate accounting policies. We are required to make estimates and assumptions in certain circumstances that affect amounts reported in our consolidated financial statements and related footnotes. We evaluate these estimates and assumptions on an on-going basis based on historical developments, market conditions, industry trends and other information that we believe to be reasonable under the circumstances. There can be no assurance that actual results will conform to our estimates and assumptions and that reported results of operations will not be materially adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. We believe the following policies are the most sensitive to estimates and judgments.
Losses and Loss Adjustment Expenses
We maintain reserves for the payment of claims (indemnity losses) and expenses related to adjusting those claims (loss adjustment expenses). The loss reserves consist of case reserves, which are reserves for claims that have been reported to us, and reserves for claims that have been incurred but have not yet been reported (“IBNR”) and for the future development of case reserves.
When a claim is reported to Diversus Management, its claims personnel establish a case reserve for the estimated amount of the ultimate payment to the extent it can be determined or estimated. The amount of the loss reserve for the reported claim is based primarily upon a claim-by-claim evaluation of coverage, liability, and injury severity, and any other information considered pertinent to estimating the exposure presented by the claim. Each claim is contested or settled individually based upon its merits, and some claims may take years to resolve, especially if legal action is involved. Case reserves are reviewed on a regular basis and are updated as new information becomes available.
In addition to case reserves, we maintain estimates of reserves for IBNR. These reserves include estimates for the future development of case reserves. Some claims may not be reported for several years. As a result, the liability for unpaid losses and loss adjustment reserves includes significant estimates for IBNR.
We utilize an independent actuary to assist with the estimation of our losses and loss adjustment expense reserves in the third and fourth quarter of each calendar year. This independent actuary prepares estimates of the ultimate liability for unpaid losses and loss adjustment expenses based on established actuarial methods described below. Positive Insurance Company reviews these estimates and supplements the actuarial analysis with information not fully incorporated into the actuarially based estimate, such as changes in the external business environment and changes in internal company processes and strategy. Positive Insurance Company may adjust the actuarial estimates based on this supplemental information in order to arrive at the amount recorded in the consolidated financial statements.
We accrue liabilities for unpaid losses and loss adjustment expenses based upon estimates of the ultimate amount payable. We project our estimate of ultimate losses and loss adjustment expenses by using the following actuarial methodologies:
Actual versus Expected Model - The Actual versus Expected Model utilizes the actuarial point ultimate loss and defense containment cost (“DCC”) estimates as of the prior reserve review which were adjusted based on the difference between actual and expected loss development during that prior reserve review and the current evaluation to arrive at an updated actuarial point ultimate loss and DCC estimate. The method is dependent on the loss development factors used to determine the expected losses.
Bornhuetter-Ferguson Method (Paid and Incurred) - The Bornhuetter-Ferguson Method is a blended method that explicitly takes into account both actual loss development to date and expected future loss emergence. This method is applied on both a paid loss development method and an incurred loss development method. This method uses the selected loss development patterns from the two loss development methods to calculate the expected percentage of loss unpaid (or unreported). The expected future loss component of the method is calculated by multiplying earned premium for the given exposure period by a selected a priori (i.e. deductive) loss ratio. The resulting dollars are then multiplied by the expected percentage of unpaid (or unreported) loss described above. This provides an estimate of future paid (or reported) losses that is then added to actual paid (or incurred) loss data to produce estimated ultimate loss.
Expected Loss Ratio Method - The Expected Loss Ratio Method utilizes some measure of anticipated losses and does not consider actual losses. An expected loss ratio, a ratio of anticipated losses relative to some measure of exposure, is applied to that measure of exposure to determine estimated ultimate losses for each year. This method provides stability over time because the ultimate loss estimates do not change unless the exposure measure changes. This is offset by a lack of responsiveness to actual loss experience.
Frequency/Severity Method - The Frequency/Severity Method estimates ultimate losses by estimating a frequency and a severity component. For each year, the independent actuary estimates ultimate claims costs and an ultimate average severity. The independent actuary then multiplies these two estimates together. The method is useful when the claim count development pattern is more stable than the loss development pattern.
Incurred Loss Development Method - The Incurred Loss Development Method utilizes historical incurred loss (the sum of cumulative historical loss payments plus outstanding case reserves) patterns to estimate future losses. This method is often preferred over the paid method as it includes the additional information provided by the aggregation of individual case reserves. The resulting loss development factors (LDFs)(“LDF”) tend to be lower and more stable than those of the paid development method. However, the incurred development method may be affected by changes in case reserving practices and any unusually large individual claims. The actuaries produce and review several indications of ultimate loss using this method based on various LDF selections.
Positive Insurance Company estimates IBNR reserves by first deriving an actuarially based estimate of the ultimate cost of total losses and loss adjustment expenses incurred as of the financial statement date. Positive Insurance Company then reduces the estimated ultimate losses and loss adjustment expenses by losses and loss adjustment expense payments and case reserves carried as of the financial statement date. The actuarially determined estimate is based upon indications from one of the above actuarial methodologies or uses a weighted average of these results. The specific method used to estimate the ultimate losses will vary depending on the judgment of the independent actuary as to what is the most appropriate method for the MPLI business. Finally, Positive Insurance Company considers other factors that impact reserves that are not fully incorporated in the actuarially based estimate, such as changes in the external business environment and changes in internal company processes and strategy.
The process of estimating loss reserves involves a high degree of judgment and is subject to a number of variables. These variables can be affected by both internal and external events, such as changes in claims handling procedures, inflation, legal trends, and legislative changes, among others. The impact of many of these items on ultimate costs for claims and claim adjustment expenses is difficult to estimate. Loss reserve estimation is affected by the volume of claims, the potential severity of individual claims, the determination of occurrence date for a claim, and reporting lags (the time between the occurrence of the policyholder event and when it is actually reported to the insurer). Informed judgment is applied throughout the process, including the application of various individual experiences and expertise to multiple sets of data and analyses. We continually refine our loss reserve estimates in a regular ongoing process as historical loss experience develops and additional claims are reported and settled. We consider all significant facts and circumstances known at the time loss reserves are established.
Due to the inherent uncertainty underlying loss reserve estimates, final resolution of the estimated liability for losses and loss adjustment expense reserves may be higher or lower than the related loss reserves at the reporting date. Therefore, actual paid losses, as claims are settled in the future, may be materially higher or lower in amount than current loss reserves. We reflect adjustments to loss reserves in the results of operations in the period the estimates are changed.
Our independent actuary determines on an annual basis a range of reasonable reserve estimates, which reflect the uncertainty inherent in the loss reserve process. This range does not represent the range of all possible outcomes. We believe that the actuarially-determined ranges represent reasonably likely changes in the loss and loss adjustment expense estimates, however actual results could differ significantly from these estimates. The range was determined after a review of the output generated by the various actuarial methods utilized. The independent actuary reviewed the variance around the select loss reserve estimates for each of the actuarial methods and selected reasonable low and high estimates based on its knowledge and judgment. In making these judgments the independent actuary typically assumed, based on its experience, that the larger the reserve the less volatility. In addition, when selecting these low and high estimates, the independent actuary considered:
Historical industry development experience in MPLI;
Historical company development experience;
Changes in the exchange’s internal claims processing policies and procedures; and
Trends and risks in claim costs, such as risk that medical cost inflation could increase.
Our independent actuary is required to exercise a considerable degree of judgment in the evaluation of all of these and other factors in the analysis of losses and loss adjustment expenses, and related range of anticipated losses. Because of the level of uncertainty impacting the estimation process, it is reasonably possible that different actuaries would arrive at different conclusions. The method of determining the reserve range has not changed and the reserve range generated by the independent actuary is consistent with the observed development of our loss reserves over the last few years.
The width of the range in reserves arises primarily because specific losses may not be known and reported for some period and the ultimate losses paid and loss adjustment expenses incurred with respect to known losses may be larger than currently estimated. The ultimate frequency or severity of the claims can be very different than the assumptions we used in our estimation of ultimate reserves for these exposures.
Specifically, the following factors could impact the frequency and severity of claims, and therefore, the ultimate amount of losses and loss adjustment expenses paid:
The rate of increase in medical costs that underlie insured risks; and
Impact of changes in laws or regulations.
The estimation process for determining the liability for unpaid losses and loss adjustment expenses inherently results in adjustments each year for claims incurred (but not paid) in preceding years. Negative amounts reported for claims incurred related to prior years are a result of claims being settled or resolved for amounts less than originally estimated or a reduction in the estimate for unpaid losses and loss adjustment expense (favorable development). Positive amounts reported for claims incurred related to prior years are a result of claims being settled or resolved for amounts greater than originally estimated or an increase in the estimate for unpaid losses and loss adjustment expense (unfavorable development).
Actuarial Loss Reserves
Although the range of loss estimates is determined by the independent actuary, the selection of the ultimate loss is based on information unique to each policy year and the judgment and expertise of our management.
The following table provides case and IBNR reserves of Positive Insurance Company’s losses and loss adjustment expenses as of March 31,June 30, 2019 and December 31, 2018.
As of March 31,June 30, 2019 (unaudited)
(dollars in thousands) |
| Case Reserves |
|
| IBNR Reserves |
|
| Total Reserves |
|
| Case Reserves |
|
| IBNR Reserves |
|
| Total Reserves |
| ||||||
| $ | 30,351 |
|
| $ | 28,320 |
|
| $ | 58,671 |
|
| $ | 31,290 |
|
| $ | 27,292 |
|
| $ | 58,582 |
| |
Other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total net reserves |
|
| 30,351 |
|
|
| 28,320 |
|
|
| 58,671 |
|
|
| 31,290 |
|
|
| 27,292 |
|
|
| 58,582 |
|
Reinsurance recoverables |
|
| 1,614 |
|
|
| 6,336 |
|
|
| 7,950 |
|
|
| 2,281 |
|
|
| 6,629 |
|
|
| 8,910 |
|
Gross reserves |
| $ | 31,965 |
|
| $ | 34,656 |
|
| $ | 66,621 |
|
| $ | 33,571 |
|
| $ | 33,921 |
|
| $ | 67,492 |
|
As of December 31, 2018 (combined unaudited)
| Case Reserves |
|
| IBNR Reserves |
|
| Total Reserves |
| ||||
| $ | 30,741 |
|
| $ | 29,701 |
|
| $ | 60,442 |
| |
Other |
|
| — |
|
|
| — |
|
|
| — |
|
Total net reserves |
|
| 30,741 |
|
|
| 29,701 |
|
|
| 60,442 |
|
Reinsurance recoverables |
|
| 1,614 |
|
|
| 6,336 |
|
|
| 7,950 |
|
Gross reserves |
| $ | 32,355 |
|
| $ | 36,037 |
|
| $ | 68,392 |
|
As discussed earlier, the estimation of Positive Insurance Company reserves is based on several actuarial methods, each of which incorporates many quantitative assumptions. The judgment of the independent actuary plays an important role in selecting among various loss development factors and selecting the appropriate method, or combination of methods, to use for a given policy year. The ranges presented above represent the expected variability around the actuarially determined central estimate.
Investments
The fixed maturity investments are classified as available-for-sale and equity securities of Positive Insurance Company are carried at estimated fair value as determined by management based upon quoted market prices or a recognized pricing service at the reporting date for those or similar investments. Limited partnership investments are measured at fair value using net asset values of the partnerships as a practical expedient. Changes in unrealized investment gains or losses on fixed maturity available-for-sale investments, net of applicable income taxes, are reflected directly in equity as a component of comprehensive income (loss) and, accordingly, have no effect on net income (loss). Beginning withon January 1, 2018, changes in unrealized investment gains or losses on equity investments are reflected in net investment income. Investment income is recognized when earned, and capital gains and losses are recognized when investments are sold, or other-than-temporarily impaired.
Fair Value Measurements
We use fair value measurements to record fair value adjustments to certain assets to determine fair value disclosures. Fixed maturity available-for-sale securities and equity securities are recorded at fair value on a recurring basis. FASB ASC Topic 820 “Fair Value Measurements and Disclosures” (“ASC Topic 820”), establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The three levels of the fair value hierarchy under ASC Topic 820 are as follows:
Level 1: | Quoted (unadjusted) prices for identical assets in active markets |
Level 2: | Quoted prices for similar assets in active markets, quoted prices for identical or similar assets in nonactive markets (few transactions, limited information, noncurrent prices, high variability over time, etc., inputs other than quoted prices that are observable for the asset (interest rates, yield curves, volatilities, default rates, etc., and inputs that are derived principally from or corroborated by other observable market data. |
Level 3: | Unobservable inputs that cannot be corroborated by observable market data. |
Under ASC Topic 820, we base fair values of assets on 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. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in FASB ASC Topic 820. Fair value measurements for assets where there exists limited or no observable market data and, therefore, are based primarily upon our or other third-party’s estimates, are often calculated based on the characteristics of the asset, the economic and competitive environment and other such factors. Management uses its best judgment in estimating the fair value of financial instruments; however, there are inherent weaknesses in any estimation technique. Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts we could have realized in a sales transaction on the dates indicated. The estimated fair value amounts have been measured as of their respective period end and have not been re-evaluated or updated for purposes of the consolidated financial statements subsequent to those respective dates. As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end. Additionally, changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future valuations.
We obtain one price for each security primarily from a third-party pricing service (“pricing service”), which generally uses quoted prices or other observable inputs for the determination of fair value. The pricing service normally derives the security prices through recently reported trades for identical or similar securities, making adjustments through the reporting date based upon available observable market information. For securities not actively traded, the pricing service may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, non-binding broker quotes, benchmark yields, credit spreads, default rates, and prepayment speeds. Because we are responsible for the determination of fair value, we perform analyses on the prices received from the pricing service to determine whether the prices are reasonable estimates of fair value.
In instances in which the inputs used to measure fair value fall into different levels of the fair value hierarchy, the fair value measurement has been determined based on the lowest-level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
Investments
Fair values of interest rate sensitive instruments may be affected by increases and decreases in prevailing interest rates which generally translate, respectively, into decreases and increases in fair values of fixed maturity investments. The fair values of interest rate sensitive instruments also may be affected by the credit worthiness of the issuer, prepayment options, relative values of other investments, the liquidity of the instrument, and other general market conditions.
We have evaluated each security and took into account the severity and duration of the impairment, the current rating on the bond, and the outlook for the issuer according to independent analysts. We have found that the declines in fair value are most likely attributable to increases in interest rates, and there is no evidence that the likelihood of not receiving all of the contractual cash flows as expected has changed. Our fixed maturity portfolio is managed by our investment committee in concert with an outside investment manager for investment grade bond investments. By agreement, the investment manager cannot sell any security without the consent of our investment committee if such sale will result in a net realized loss.
We monitor our investment portfolio and review securities that have experienced a decline in fair value below cost to evaluate whether the decline is other than temporary. When assessing whether the amortized cost basis of the security will be recovered, we compare the present value of the cash flows likely to be collected, based on an evaluation of all available information relevant to the collectability of the security, to the amortized cost basis of the security. The shortfall of the present value of the cash flows expected to be collected in relation to the amortized cost basis is referred to as the “credit loss.” If there is a credit loss, the impairment is considered to be other-than-temporary. If we identify that an other-than-temporary impairment loss has occurred, we then determine whether we intend to sell the security, or if it is more likely than not that we will be required to sell the security prior to recovering the amortized cost basis less any current-period credit losses. If we determine that we do not intend to sell, and it is not more likely than not that we will be required to sell the security, the amount of the impairment loss related to the credit loss will be recorded in earnings, and the remaining portion of the other-than-temporary impairment loss will be recognized in other comprehensive income (loss), net of tax. If we determine that we intend to sell the security, or that it is more likely than not that we will be required to sell the security prior to recovering its amortized cost basis less any current-period credit losses, the full amount of the other-than-temporary impairment will be recognized in earnings.
For the three months and six months ended March 31,June 30, 2019 and 2018, we determined that none of our securities were other-than-temporarily impaired. Adverse investment market conditions, or poor operating results of underlying investments, could result in impairment charges in the future.
Our management reviews the reasonableness of the pricing provided by the independent pricing service by employing various analytical procedures. Our management reviews all securities to identify recent downgrades, significant changes in pricing, and pricing anomalies on individual securities relative to other similar securities. This will include looking for relative consistency across securities in common sectors, durations, and credit ratings. This review will also include all fixed maturity securities rated lower than “A” by Moody’s or S&P. If, after this review, management does not believe the pricing for any security is a reasonable estimate of fair value, then it will seek to resolve the discrepancy through discussions with the pricing service. In its review, management did not identify any such discrepancies for the three months and six months ended March 31,June 30, 2019 and 2018; accordingly, no adjustments were made to the estimates provided by the pricing service for the three months and six months ended March 31,June 30, 2019 and 2018. The classification within the fair value hierarchy of ASC 820, Fair Value Measurement, is then confirmed based on the final conclusions from the pricing review.
Deferred Policy Acquisition Costs
Certain direct acquisition costs consisting of commissions, premium taxes and certain other direct underwriting expenses that vary with and are primarily related to the production of business are deferred and amortized over the effective period of the related insurance policies as the underlying policy premiums are earned. The method followed in computing deferred acquisition costs limits the amount of deferred costs to their estimated realizable value, which gives effect to the premium to be earned, related investment income, losses and loss adjustment expenses, and certain other costs expected to be incurred as the premium is earned. Future changes in estimates, the most significant of which is expected losses and loss adjustment expenses, may require adjustments to deferred policy acquisition costs. If the estimation of net realizable value indicates that the deferred acquisition costs are not recoverable, they would be written off.
Reinsurance Recoverable
We cede reinsurance risk to other insurance companies. This arrangement allows us to reduce the net loss potential arising from large risks. Reinsurance contracts do not relieve us of our obligation to our policyholders. Reinsurance premiums, losses, and loss adjustment expenses are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contract.
Income Taxes
We use the asset and liability method of accounting for income taxes. Deferred income taxes arise from the recognition of temporary differences between financial statement carrying amounts and the tax bases of our assets and liabilities. The effect of a change in tax rates is recognized in the period of the enactment date.
We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments require us to make projections of future taxable income. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.
Deferred Tax Assets
We had gross deferred tax assets of $2.8$2.9 million and $2.8 million at March 31,June 30, 2019 and December 31, 2018, respectively. A valuation allowance is required to be established for any portion of the deferred tax asset for which we believed it is more likely than not that it will not be realized. We believe it is more likely than not that all of the deferred tax assets will be realized. Accordingly, no valuation allowance had been established at March 31,June 30, 2019 and December 31, 2018.
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. Most of the provisions of this bill affect corporate taxes paid in 2018 and beyond, including reducing the top corporate tax rate from 34% to 21%. Under GAAP, however, deferred income taxes are estimated based upon enacted tax rates as of the date of the financial statements. Accordingly, we measured our deferred income taxes at March 31,June 30, 2019 and December 31, 2018 using a tax rate of 21%.
At March 31,June 30, 2019 and December 31, 2018, we had no material unrecognized tax benefits or accrued interest and penalties. Federal tax years 2015 through 2017 are open for examination for PPIX, PCA, and PIPE.
Results of Operations
Our results of operations are influenced by factors affecting the MPLI industry in general. The operating results of the United States MPLI industry are subject to significant variations due to competition, changes in regulation, rising medical expenses, judicial trends, fluctuations in interest rates and other changes in the investment environment.
Our premium levels and underwriting results have been, and continue to be, influenced by market conditions. Pricing in the MPLI industry historically has been cyclical. During a soft market cycle, price competition is more significant than during a hard market cycle and makes it difficult to attract and retain properly priced MPLI business. The markets we operate in, and the national MPLI markets, are currently experiencing a soft market cycle. Therefore, it is generally unlikely that insurers will be able to increase their rates or profit margins. A soft market typically has a negative effect on premium growth, which can include absolute reductions in premiums written.
The major components of consolidated operating revenues and net incomeloss for the interim periodthree months and six months ended March 31,June 30, 2019 and major components of combined operating revenues and net incomeloss for the interim periodthree months and six months ended March 31,June 30, 2018 are as follows (dollars in thousands) (unaudited):
| Three Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
| $ | 5,491 |
|
| $ | 5,954 |
|
| $ | 5,328 |
|
| $ | 5,238 |
|
| $ | 10,819 |
|
| $ | 11,192 |
|
Investment income, net of investment expenses |
|
| 1,515 |
|
|
| 434 |
|
|
| 1,085 |
|
|
| 783 |
|
|
| 2,600 |
|
|
| 1,217 |
|
Realized investment (losses) gains, net |
|
| (35 | ) |
|
| 12 |
|
|
| (145 | ) |
|
| 45 |
|
|
| (180 | ) |
|
| 58 |
|
Total revenues |
|
| 6,971 |
|
|
| 6,400 |
|
|
| 6,268 |
|
|
| 6,066 |
|
|
| 13,239 |
|
|
| 12,466 |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
|
| 3,322 |
|
|
| 3,350 |
|
|
| 4,267 |
|
|
| 4,638 |
|
|
| 7,589 |
|
|
| 7,988 |
|
Underwriting expenses |
|
| 3,500 |
|
|
| 3,048 |
|
|
| 2,785 |
|
|
| 2,910 |
|
|
| 6,285 |
|
|
| 5,957 |
|
Underwriting income |
|
| 149 |
|
|
| 3 |
| ||||||||||||||||
Underwriting loss |
|
| (785 | ) |
|
| (1,482 | ) |
|
| (636 | ) |
|
| (1,480 | ) | ||||||||
Interest expense |
|
| (1 | ) |
|
| (1 | ) |
|
| (0 | ) |
|
| (2 | ) |
|
| (2 | ) |
|
| (3 | ) |
Income before income taxes |
|
| 148 |
|
|
| 2 |
| ||||||||||||||||
Income tax expense (benefit) |
|
| 56 |
|
|
| (49 | ) | ||||||||||||||||
Net income |
| $ | 92 |
|
| $ | 50 |
| ||||||||||||||||
Loss before income taxes |
|
| (785 | ) |
|
| (1,484 | ) |
|
| (637 | ) |
|
| (1,483 | ) | ||||||||
Income tax benefit |
|
| (224 | ) |
|
| (288 | ) |
|
| (168 | ) |
|
| (337 | ) | ||||||||
Net loss |
| $ | (561 | ) |
| $ | (1,195 | ) |
| $ | (469 | ) |
| $ | (1,146 | ) |
Premiums Written and Premiums Earned
Direct written premium for the three months ended March 31,June 30, 2019 was $8.2$3.8 million as compared to $8.5$3.4 million for the three months ended March 31,June 30, 2018, or a 4% decrease.10.9% increase. Ceded written premium for the three months ended March 31,June 30, 2019 was $2.0$0.6 million as compared to $1.9$0.3 million for the three months ended March 31,June 30, 2018, or a 3%137.1% increase. Direct premium earned for the three months ended March 31,June 30, 2019 was $6.4 million as compared to $6.8 million for the three months ended March 31, 2018, or a 6% decrease. Ceded premium earned for the three months ended March 31, 2019 was $0.9 million as compared to $0.8 million for the three months ended March 31, 2018, or an increase of 6%. Net earned premiums for the three months ended March 31, 2019 was $5.5$6.1 million as compared to $6.0 million for the three months ended March 31,June 30, 2018, or a 1.8% increase. Ceded premium earned for the three months ended June 30, 2019 was $0.7 million as compared to $0.7 million for the three months ended June 30, 2018. Net earned premiums for the three months ended June 30, 2019 was $5.3 million as compared to $5.2 million for the three months ended June 30, 2018, or an 8%1.7% increase.
Direct written premium for the six months ended June 30, 2019 was $12.0 million as compared to $12.0 million for the six months ended June 30, 2018. Ceded written premium for the six months ended June 30, 2019 was $2.6 million as compared to $2.2 million for the six months ended June 30, 2018, or a 20.0% increase. Direct premium earned for the six months ended June 30, 2019 was $12.4 million as compared to $12.7 million for the six months ended June 30, 2018, or a 2.4% decrease. Ceded premium earned for the six months ended June 30, 2019 was $1.6 million as compared to 1.5 million for the six months ended June 30, 2018, or an increase of 4.3%. Net earned premiums for the six months ended June 30, 2019 was $10.8 million as compared to $11.2 million for the six months ended June 30, 2018, or a 3.3% decrease.
Net Investment Income
The following table sets forth our average cash and invested assets and investment income for the reported periods (dollars in thousands) (unaudited):
|
| Three Months Ended March 31, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
Average cash and invested assets |
| $ | 112,597 |
|
| $ | 109,533 |
|
| $ | 112,326 |
|
| $ | 109,636 |
|
Net investment income, net of investment expenses |
|
| 1,515 |
|
|
| 434 |
|
|
| 2,600 |
|
|
| 1,217 |
|
Return on average cash and invested assets |
|
| 1.35 | % |
|
| 0.40 | % |
|
| 2.31 | % |
|
| 1.11 | % |
Investment Income, Net of Investment Expenses
NetInvestment income, net of investment incomeexpenses, for the three months ended March 31,June 30, 2019 was $1.5$1.1 million as compared to $0.4$0.8 million for the three months ended March 31,June 30, 2018. The average monthly net investment income increased from $145,000$261,000 during the three months ended March 31,June 30, 2018 to $505,000$362,000 during the three months ended March 31,June 30, 2019. Net investment income for the three months ended March 31,June 30, 2019 and 2018 includes unrealized gain on equity investments of $0.3 million and $0.1 million, respectively. Excluding the effects of unrealized gain on equity investments, the average monthly net investment income would have been $255,000 and $214,000 for the three months ended June 30, 2019 and 2018, respectively.
Investment income, net of investment expenses, for the six months ended June 30, 2019 was $2.6 million as compared to $1.2 million for the six months ended June 30, 2018. The average monthly net investment income increased from $203,000 during the six months ended June 30, 2018 to $433,000 during the six months ended June 30, 2019. Net investment income for the six months ended June 30, 2019 and 2018 includes unrealized gain (loss) on equity investments of $0.9$1.2 million and $(0.2) million.$(34,000), respectively. Excluding the effects of unrealized gain (loss) on equity investments, the average monthly net investment income would have been $209,000$232,000 and $203,000$208,000 and the return on average cash and invested assets would have been 0.56%1.24% and 0.55%1.14% for the threesix months ended March 31,June 30, 2019 and 2018, respectively.
Realized Investment Gains (Losses), Net
We had net realized investment gains (losses) of $(35,000)$(144,998) and $12,000$45,334 for the three months ended March 31,June 30, 2019 and 2018, respectively, and realized investment gains (losses) of $(179,944) and $57,600 for the six months ended June 30, 2019 and 2018, respectively.
Our fixed maturity investments and equity investments are available-for-sale because we may, , from time to time, make sales of securities that are not impaired, consistent with our investment goals and policies. At March 31,June 30, 2019, we had gross unrealized losses on fixed maturity securities of $532,000$137,982 as compared to gross unrealized losses on fixed maturity securities of $1,779,000$1,778,831 at December 31, 2018. Most of these unrealized losses were attributable to fluctuations in interest rates. We evaluated each security and took into account the severity and duration of the impairment, the current rating on the bond, and the outlook for the issuer according to independent analysts. We believe that the foregoing declines in fair value in our existing portfolio are most likely attributable to fluctuations in interest rates, and there is no evidence the entire amortized cost basis will not be recovered.
Underwriting Income (Loss)
As discussed above, we evaluate our insurance operations by monitoring certain key measures of growth and profitability. In addition to using GAAP based performance measurements, we also utilize certain financial performance measures that are used widely in the property and casualty insurance industry and that we believe are valuable in managing our business and for comparison to our peers. These financial performance measures are underwriting income, losses and loss adjustment expenses ratio, expense ratio, combined ratio, and net written premiums to statutory surplus ratio.
Underwriting income (loss) measures the pretax profitability of a company’s insurance business. It is derived by subtracting losses and loss adjustment expenses, amortization of deferred policy acquisition costs, and underwriting and administrative expenses from earned premiums. Each of these captions is presented in our consolidated statements of operations but not subtotaled. The sections below provide more insight into the variances in the categories of losses and loss adjustment expenses and amortization of deferred policy acquisition costs and underwriting and administrative expense, which impact underwriting profitability.
Losses and Loss Adjustment Expenses
Positive Insurance CompanyOur losses and loss adjustment expenses ratio was 60.5%80.1% for the three months ended March 31,June 30, 2019 as compared to 56.3%88.5% for the three months ended March 31,June 30, 2018. Our losses and loss adjustment expenses ratio was 70.1% for the six months ended June 30, 2019 as compared to 71.4% for the six months ended June 30, 2018. During the threesix months ended March 31,June 30, 2019 and 2018, we had no favorable orexperienced unfavorable developments.developments of $183,428 and $1,735,552, respectively.
As discussed in “Critical Accounting Policies”, the MPLI line of business is prone to variability in the loss reserving process due to the extended period of time during which claims can be made. Adjustments to our original estimates resulting from claims are not made until the period in which there is reasonable evidence that an adjustment to the reserve is appropriate.
Amortization of Deferred Policy Acquisition Costs and Underwriting and Administrative Expenses
Total underwriting and administrative expenses, including amortization of deferred policy acquisition costs, were $3.5$2.8 million for the three months ended March 31,June 30, 2019 as compared to $3.0$2.9 million for the three months ended March 31,June 30, 2018. Total underwriting and administrative expenses, including amortization of deferred policy acquisition costs, were $6.3 million for the six months ended June 30, 2019 as compared to $5.9 million for the six months ended June 30, 2018. Positive Insurance Company had $392,000$371,000 and $1,000$220,000 in initial public offering and conversion costs that were expensed in threesix months ended March 31,June 30, 2019 and 2018, respectively, and are included in other underwriting expenses. Administrative costs are directly tied to the amount of premiums written by Positive Insurance Company in a given period, because the fees payable were equal to a percentage of the premiums written.
Income (Loss) Before Income Taxes
For the three months ended March 31,June 30, 2019, the Company had pre-tax incomeloss of $147,695$(785,054) as compared to a pre-tax incomeloss of $563$(1,483,590) for the three months ended March 31,June 30, 2018. For the six months ended June 30, 2019, the Company had pre-tax loss of $(637,359) as compared to a pre-tax loss of $(1,483,027) for the six months ended June 30, 2018.
Income Tax Expense (Benefit)
The provision for income taxes for the three months ended March 31,June 30, 2019 and 2018 resulted in an income tax expense (benefit)benefit of $55,906$(224,107) and $(49,258)$(288,124), respectively. The provision for income taxes for the six months ended June 30, 2019 and 2018 resulted in an income tax benefit of $(168,201) and $(337,382), respectively. The Company’s effective tax rate for the threesix months ended March 31,June 30, 2019 and 2018 was 21%.
Net Income (Loss)
For the three months ended March 31,June 30, 2019, the Company had a net incomeloss of $91,789$(560,947) as compared to net incomeloss of $49,821$(1,195,466) for the three months ended March 31,June 30, 2018. For the six months ended June 30, 2019, the Company had a net loss of $(469,158) as compared to net loss of $(1,145,645) for the six months ended June 30, 2018.
Mandatory Assumed Reinsurance:
We are required to participate in Pennsylvania Property and Casualty Insurance Guaranty Fund (PIGA), which was formed to pay claims on policies issued by insolvent Pennsylvania domiciled property and casualty insurers. Each Pennsylvania domiciled property and casualty insurer pays PIGA an annual assessment based on its premiums written in Pennsylvania. Positive Insurance Company incurred assessment fee expense (refund) of $19,000$(5,111) and $10,000$8,703 for the three months ended March 31,June 30, 2019 and 2018, respectively, and $14,328 and $19,117 for the six months ended June 30, 2019 and 2018, respectively.
Financial Position
At March 31,June 30, 2019, the Company had total assets of $158.8$156.5 million as compared to $124.0 million at December 31, 2018. The increase in total assets of $34.8$32.5 million is primarily attributable to increases in cash and invested assets, reinsurance receivables, deferred acquisition costs,unearned ceded premiums, and prepaid management fee of $23.6$23.0 million, $1.4$1.7 million, $0.7$0.9 million, and $10.0$9.6 million, respectively, which were offset by decreases in premiums receivable, deferred acquisition costs, and deferred income taxes of $0.7$(2.1) million and $0.4$(0.3) million, and $(0.4) million, respectively.
At March 31,June 30, 2019, the Company had total liabilities of $86.8$84.1 million as compared to $87.0 million at December 31, 2018. The decrease in total liabilities of $0.2$2.9 million is primarily attributable to increases in unearned premiums and reinsurance payable of $1.8 million and $1.5 million, respectively, which were offset by decreases, in liability for losses and loss adjustment expenses, unearned premiums, and accounts payable and accrued expenses of $1.8$(0.9) million, $(0.4) million, and $1.7$(1.6) million, respectively.
At March 31,June 30, 2019, the Company had total equity of $72.0$72.4 million as compared to $37.0 million at December 31, 2018. The change in equity during the three months ended March 31,June 30, 2019 is attributable to comprehensive income of $1.4$0.5 million as compared to comprehensive loss of $(1.4) million for the three months ended June 30, 2018. The change in equity during the six months ended June 30, 2019 is attributable to comprehensive income of $1.8 million and initial public offering net proceeds of $33.6 million. The change in equity during the six months ended June 30, 2018 is attributable to comprehensive loss of $(2.6) million.
Liquidity and Capital Resources
The Company generated sufficient funds from its operations and maintained a high degree of liquidity in its investment portfolio to meet the demands of claim settlements and operating expenses. The primary sources of funds were premium collections, investment earnings and maturing investments.
The Company maintained investment and reinsurance programs that are intended to provide sufficient funds to meet its obligations without forced sales of investments. The Company maintained a portion of its investment portfolio in relatively short-term and highly liquid assets to ensure the availability of funds.
Cash flows from continuing operations for the threesix months ended March 31,June 30, 2019 and 2018 were as follows (dollars in thousands):
|
| Three Months Ended March 31, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| ||||
|
| (Unaudited) |
|
| (Unaudited Combined) |
|
| (Unaudited) |
|
| (Unaudited Combined) |
| ||||
Cash flows used in operating activities |
| $ | (12,447,833 | ) |
| $ | (1,211,399 | ) |
| $ | (14,367,325 | ) |
| $ | (838,100 | ) |
Cash flows provided by investing activities |
|
| 4,812,629 |
|
|
| 113,130 |
|
|
| 1,286,084 |
|
|
| 1,206,448 |
|
Cash flows provided by (used in) financing activities |
|
| 33,601,849 |
|
|
| (14,782 | ) |
|
| 33,543,464 |
|
|
| (29,675 | ) |
Net increase (decrease) in cash and cash equivalents |
| $ | 25,966,645 |
|
| $ | (1,113,051 | ) | ||||||||
Net increase in cash and cash equivalents |
| $ | 20,462,223 |
|
| $ | 338,673 |
|
For the threesix months ended March 31,June 30, 2019, cash flows from operations were $(12.4)$(14.4) million as compared to $(1.2)$(0.8) million for the threesix months ended March 31,June 30, 2018. The greater decrease in cash flows used in operating activities for the six months ended June 30, 2019 was primarily attributable to the timing of paid losses and the payment of the $10 million prepaid management fee. For the threesix months ended March 31,June 30, 2019, cash flows from investing activities were $4.8$1.3 million as compared to $113,000$1.2 million for the threesix months ended March 31,June 30, 2018. The greater increase in cash flows from investing activities for the threesix months ended March 31,June 30, 2019 is primarily attributable to the time necessary to reinvest maturing securities. For the threesix months ended March 31,June 30, 2019, cash flows from financing activities were $33.6$33.5 million as compared to $(15,000)$(30,000) for the threesix months ended March 31,June 30, 2018. The increase in cash flows for the threesix months ended March 31,June 30, 2019 is due to initial public offering stock issuance of $33.6 million and payments of long-term debt of $(15,000)$(31,000).
The Company’s principal source of liquidity will be dividend payments from Positive Insurance Company. Positive Insurance Company will be restricted by the insurance laws of Pennsylvania as to the amount of dividends or other distributions it may pay to the Company. Positive Insurance Company may pay dividends to us after notice to, but without prior approval of, the Pennsylvania Insurance Department in an amount not to exceed the greater of (i) 10% of the surplus of Positive Insurance Company as reported on its most recent annual statement filed with the Pennsylvania Insurance Department, or (ii) the statutory net income of Positive Insurance Company for the period covered by such annual statement. Dividends in excess of this amount are considered “extraordinary” and are subject to the approval of the Pennsylvania Insurance Department.
The amount available for payment of dividends from Positive Insurance Company after the conversions without the prior approval of the Pennsylvania Insurance Department is approximately $3.7 million based upon the statutory surplus of Positive Insurance Company. Prior to its payment of any dividend, Positive Insurance Company will be required to provide notice of the dividend to the Pennsylvania Insurance Department. This notice must be provided to the Pennsylvania Insurance Department 30 days prior to the payment of an extraordinary dividend and 10 days prior to the payment of an ordinary dividend. The Pennsylvania Insurance Department has the power to limit or prohibit dividends if Positive Insurance Company is in violation of any law or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity.
The order of the Pennsylvania Insurance Department approving the conversions of PPIX, PCA, and PIPE prohibits the declaration or payment of any dividend, return of capital, or other distribution by the Company to Insurance Capital Group, LLC and Enstar Holdings (US) LLC, the two principal stockholders of the Company, without the prior approval of the Pennsylvania Insurance Department, for a period of three years following the effective date of the conversions. Additionally, by the order of the Pennsylvania Insurance Department, Positive Insurance Company cannot pay a dividend to the Company for a period of three years following the effective date of the conversions without the approval of the Pennsylvania Insurance Department.
Upon completion of the offering on March 27, 2019, the Company is a public company and is subject to the proxy solicitation, periodic reporting, insider trading and other requirements of the Exchange Act and to most of the provisions of the Sarbanes-Oxley Act of 2002. As a result, the Company anticipates incurring significant increases in expenses related to accounting and legal services that will be necessary to comply with such requirements. We estimate that the cost of initial compliance with the requirements of the Sarbanes-Oxley Act will be approximately $350,000 and that compliance with the ongoing requirements of the Exchange Act and the Sarbanes-Oxley Act will result in an increase of approximately $200,000 in annual operating expenses.
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, liquidity, capital expenditures, or capital reserves.
Quantitative and Qualitative Information about Market Risk
Market Risk
Market risk is the risk that a company will incur losses due to adverse changes in the fair value of financial instruments. We have exposure to three principal types of market risk through our investment activities: interest rate risk, credit risk and equity risk. Our primary market risk exposure is to changes in interest rates. We have not entered, and do not plan to enter, into any derivative financial instruments for hedging, trading or speculative purposes.
Interest Rate Risk
Interest rate risk is the risk that a company will incur economic losses due to adverse changes in interest rates. Our exposure to interest rate changes primarily results from our significant holdings of fixed rate investments. Fluctuations in interest rates have a direct impact on the fair value of these securities.
The average duration of the fixed maturity securities in our investment portfolio at March 31,June 30, 2019 was 3.2 years. Our fixed maturity securities investments include U.S. government bonds, securities issued by government agencies, obligations of state and local governments and governmental authorities, and corporate bonds, most of which are exposed to changes in prevailing interest rates and which may experience moderate fluctuations in fair value resulting from changes in interest rates. We carry these investments as available for sale. This allows us to manage our exposure to risks associated with interest rate fluctuations through active review of our investment portfolio by our management, our investment adviser and our board of directors.
Fluctuations in near-term interest rates could have an impact on our results of operations and cash flows. Certain of these securities may have call features. In a declining interest rate environment these securities may be called by their issuer and replaced with securities bearing lower interest rates. If we are required to sell these securities in a rising interest rate environment we may recognize losses.
As a general matter, we attempt to match the durations of our assets with the durations of our liabilities. Our investment objectives include maintaining adequate liquidity to meet our operational needs, optimizing our after-tax investment income and our after-tax total return, all of which are subject to our tolerance for risk.
The table below shows the interest rate sensitivity of our fixed maturity investments measured in terms of fair value (which is equal to the carrying value for all of our investment securities that are subject to interest rate changes) at March 31,June 30, 2019 (unaudited):
|
| Estimated Change |
|
| Fair |
|
| Estimated Change |
|
| Fair |
| ||||
Hypothetical Change in |
| in Fair Value |
|
| Value |
|
| in Fair Value |
|
| Value |
| ||||
Interest Rates |
| (Dollars in thousands) |
|
| (Dollars in thousands) |
| ||||||||||
200 basis point increase |
| $ | (5,864 | ) |
| $ | 76,218 |
|
| $ | (6,278 | ) |
| $ | 81,617 |
|
100 basis point increase |
|
| (2,929 | ) |
|
| 79,152 |
|
|
| (3,137 | ) |
|
| 84,759 |
|
No change |
|
|
|
|
|
| 82,081 |
|
|
|
|
|
|
| 87,895 |
|
100 basis point decrease |
|
| 2,913 |
|
|
| 84,995 |
|
|
| 3,120 |
|
|
| 91,016 |
|
200 basis point decrease |
|
| 5,848 |
|
|
| 87,929 |
|
|
| 6,262 |
|
|
| 94,157 |
|
Credit Risk
Credit risk is the potential economic loss principally arising from adverse changes in the financial condition of a specific debt issuer. We address this risk by investing primarily in fixed maturity securities that are rated at least “A” by Moody’s or an equivalent rating quality. We also independently, and through our outside investment manager, monitor the financial condition of all of the issuers of fixed maturity securities in the portfolio. To limit our exposure to risk, we employ diversification rules that limited the credit exposure to any single issuer or asset class.
Equity Risk
Equity price risk is the risk that we will incur economic losses on our equity securities due to adverse changes in equity prices.
Increases in the cost of medical procedures and related services can affect the losses that we may incur in connection with resolving claims under policies that we issue. These cost increases reduce profit margins to the extent that rate increases are not implemented on an adequate and timely basis. We, like all insurance companies, establish insurance premiums levels before the amount of loss and loss expenses, or the extent to which inflation may impact these expenses, are known. Therefore, we attempt to anticipate the potential impact of inflation when establishing rates. Because inflation has remained relatively low in recent years, financial results have not been significantly affected by it.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 4. Controls and Procedures.
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that required information is recorded, processed, summarized and reported within the required timeframe as specified in the SEC’s rules and forms of the SEC. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
In connection with the preparation of this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision of and with the participation of management, including the Chief Executive Officer and the Chief Financial Officer, as of March 31,June 30, 2019, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that as of March 31,June 30, 2019, our disclosure controls and procedures were effective and timely at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) identified during the firstsecond quarter of 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Positive Insurance Company is periodically subject to litigation in the normal course of its business. Based upon information presently available to us, we do not consider any litigation to be material. However, given the uncertainties attendant to litigation, we cannot assure you that our results of operations and financial condition will not be materially adversely affected by any litigation.
Not required.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable
None
Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).
Exhibit Number |
| Description |
|
|
|
3.1 |
| |
|
|
|
3.2 |
| |
|
|
|
10.1 |
| |
|
|
|
10.2 |
| |
|
|
|
10.3 |
| |
|
|
|
10.4 |
| |
|
|
|
10.5 |
| |
|
|
|
10.6 |
| |
|
|
|
10.7 |
| |
|
|
|
10.8 |
| |
|
|
|
10.9 |
| |
|
|
|
10.10 |
| |
|
|
|
10.11 |
| |
|
|
|
10.12 |
|
Exhibit Number |
| Description |
|
|
|
31.1* |
| |
|
|
|
31.2* |
| |
|
|
|
32.1* |
| |
|
|
|
32.2* |
| |
|
|
|
101.INS |
| XBRL Instance Document |
|
|
|
101.SCH |
| XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
| XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document |
* | Filed herewith. |
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.
|
| Positive Physicians Holdings, Inc. | ||
|
|
|
|
|
Date: |
| By: |
| /s/ Lewis S. Sharps, M.D. |
|
|
|
| Lewis S. Sharps, M.D. |
|
|
|
| President and Chief Executive Officer |
|
|
|
|
|
Date: |
| By: |
| /s/ Daniel A. Payne |
|
|
|
| Daniel A. Payne |
|
|
|
| Chief Financial Officer |
38
37