Company Quick10K Filing
Quick10K
EMC Insurance Group
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$32.22 22 $696
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
8-K 2019-02-07 Earnings, Regulation FD, Exhibits
8-K 2019-01-18 Regulation FD, Exhibits
8-K 2019-01-08 Other Events, Exhibits
8-K 2018-12-12 Enter Agreement
8-K 2018-11-15 Other Events, Exhibits
8-K 2018-11-07 Earnings, Regulation FD, Exhibits
8-K 2018-11-05 Regulation FD, Exhibits
8-K 2018-10-30 Regulation FD, Exhibits
8-K 2018-10-29 Regulation FD, Exhibits
8-K 2018-10-05 Regulation FD, Exhibits
8-K 2018-08-28 Regulation FD, Exhibits
8-K 2018-08-23 Regulation FD, Exhibits
8-K 2018-08-07 Earnings, Regulation FD, Exhibits
8-K 2018-07-26 Regulation FD, Exhibits
8-K 2018-06-28 Regulation FD, Exhibits
8-K 2018-05-22 Regulation FD, Exhibits
8-K 2018-05-16 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-04-16 Regulation FD, Exhibits
8-K 2018-03-15 Regulation FD, Exhibits
8-K 2018-03-02 Enter Agreement, Regulation FD, Exhibits
8-K 2018-02-08 Earnings, Regulation FD, Exhibits
8-K 2018-02-05 Enter Agreement
8-K 2018-01-30 Regulation FD, Exhibits
8-K 2018-01-08 Regulation FD, Exhibits
8-K 2018-01-02 Enter Agreement, Exhibits
CINF Cincinnati Financial
THG Hanover Insurance Group
ESNT Essent Group
MCY Mercury General
HMN Horace Mann Educators
UVE Universal Insurance Holdings
AFH Atlas Financial Holdings
ICCH ICC Holdings
OXBR Oxbridge RE Holdings
HGH Hartford Financial Services Group
EMCI 2018-09-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 a2018930ex311.htm
EX-31.2 a2018930ex312.htm
EX-32.1 a2018930ex321.htm
EX-32.2 a2018930ex322.htm

EMC Insurance Group Earnings 2018-09-30

EMCI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a201893010q.htm 10-Q Document

emcgrouplogoa03.jpg

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o
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: 0-10956
EMC INSURANCE GROUP INC.
(Exact name of registrant as specified in its charter)
Iowa
 
42-6234555
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
717 Mulberry Street, Des Moines, Iowa
 
50309
(Address of principal executive offices)
 
(Zip Code)
(515) 345-2902
(Registrant’s telephone number, including area code)
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. ý  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). ý  Yes    o  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.
o
Large accelerated filer
ý
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
 
(Do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o  Yes    ý  No
As of October 31, 2018, there were 21,611,374 shares of common stock, $1.00 par value, issued and outstanding.



TABLE OF CONTENTS




PART I.
FINANCIAL INFORMATION

ITEM 1.
FINANCIAL STATEMENTS

EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
September 30, 
 2018
 
December 31, 
 2017
($ in thousands, except share and per share amounts)
 
(Unaudited)
 

ASSETS
 
 
 
 
Investments:
 
 
 
 
Fixed maturity securities available-for-sale, at fair value (amortized cost $1,264,975 and $1,253,166)
 
$
1,248,072

 
$
1,275,016

Equity investments, at fair value (cost $155,734 and $144,274)
 
238,768

 
228,115

Equity investments, at alternative measurement of cost less impairments
 
1,200

 

Other long-term investments
 
17,818

 
13,648

Short-term investments
 
33,717

 
23,613

Total investments
 
1,539,575

 
1,540,392

 
 
 
 
 
Cash
 
302

 
347

Reinsurance receivables due from affiliate
 
33,448

 
31,650

Prepaid reinsurance premiums due from affiliate
 
12,470

 
12,789

Deferred policy acquisition costs (affiliated $47,323 and $40,848)
 
47,653

 
41,114

Amounts due from affiliate to settle inter-company transaction balances
 
8,067

 

Prepaid pension and postretirement benefits due from affiliate
 
22,769

 
20,683

Accrued investment income
 
11,714

 
11,286

Amounts receivable under reverse repurchase agreements
 
16,500

 
16,500

Accounts receivable
 
1,103

 
1,604

Income taxes recoverable
 
1,531

 

Goodwill
 
942

 
942

Other assets (affiliated $4,706 and $4,423)
 
5,028

 
4,633

Total assets
 
$
1,701,102

 
$
1,681,940

All affiliated balances presented above are the result of related party transactions with Employers Mutual.

See accompanying Notes to Consolidated Financial Statements.

3


EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
 
September 30, 
 2018
 
December 31, 
 2017
($ in thousands, except share and per share amounts)
 
(Unaudited)
 

LIABILITIES
 
 
 
 
Losses and settlement expenses (affiliated $756,751 and $726,413)
 
$
761,581

 
$
732,612

Unearned premiums (affiliated $291,464 and $256,434)
 
292,983

 
257,797

Other policyholders' funds (all affiliated)
 
9,145

 
10,013

Surplus notes payable to affiliate
 
25,000

 
25,000

Amounts due affiliate to settle inter-company transaction balances
 

 
367

Pension benefits payable to affiliate
 
4,111

 
4,185

Income taxes payable
 

 
544

Deferred income taxes
 
7,090

 
15,020

Other liabilities (affiliated $26,440 and $27,520)
 
26,584

 
32,556

Total liabilities
 
1,126,494

 
1,078,094

 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
Common stock, $1 par value, authorized 30,000,000 shares; issued and outstanding, 21,575,286 shares in 2018 and 21,455,545 shares in 2017
 
21,575

 
21,455

Additional paid-in capital
 
127,520

 
124,556

Accumulated other comprehensive income (loss)
 
(15,082
)
 
83,384

Retained earnings
 
440,595

 
374,451

Total stockholders' equity
 
574,608

 
603,846

Total liabilities and stockholders' equity
 
$
1,701,102

 
$
1,681,940

All affiliated balances presented above are the result of related party transactions with Employers Mutual.

See accompanying Notes to Consolidated Financial Statements.


4


EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
 
Three months ended 
 September 30,
($ in thousands, except share and per share amounts)
 
2018
 
2017
REVENUES
 
 
 
 
Premiums earned (affiliated $162,422 and $154,451)
 
$
163,708

 
$
155,190

Net investment income
 
11,951

 
11,501

Net realized investment gains (losses) and, beginning in 2018, change in unrealized investment gains on equity investments
 
11,135

 
(594
)
Other income (affiliated $2,239 and $1,248)
 
2,331

 
1,099

Total revenues
 
189,125

 
167,196

 
 
 
 
 
LOSSES AND EXPENSES
 
 
 
 
Losses and settlement expenses (affiliated $109,040 and $116,908)
 
111,277

 
119,576

Dividends to policyholders (all affiliated)
 
2,654

 
46

Amortization of deferred policy acquisition costs (affiliated $28,395 and $26,177)
 
28,783

 
26,430

Other underwriting expenses (affiliated $20,925 and $20,798)
 
20,924

 
20,799

Interest expense (all affiliated)
 
170

 
84

Other expenses (affiliated $477 and $442)
 
873

 
701

Total losses and expenses
 
164,681

 
167,636

Income (loss) before income tax expense (benefit)
 
24,444

 
(440
)
 
 
 
 
 
INCOME TAX EXPENSE (BENEFIT)
 
 
 
 
Current
 
3,584

 
(2,197
)
Deferred
 
1,712

 
1,011

Total income tax expense (benefit)
 
5,296

 
(1,186
)
Net income
 
$
19,148

 
$
746

 
 
 
 
 
Net income per common share - basic and diluted
 
$
0.89

 
$
0.03

 
 
 
 
 
Dividend per common share
 
$
0.22

 
$
0.21

 
 
 
 
 
Average number of common shares outstanding - basic and diluted
 
21,556,557

 
21,356,588

All affiliated balances presented above are the result of related party transactions with Employers Mutual.

See accompanying Notes to Consolidated Financial Statements.


5


EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

 
 
Nine months ended September 30,
($ in thousands, except share and per share amounts)
 
2018
 
2017
REVENUES
 
 
 
 
Premiums earned (affiliated $473,382, and $446,522)
 
$
477,440

 
$
449,514

Net investment income
 
35,100

 
33,679

Net realized investment gains (losses) and, beginning in 2018, change in unrealized investment gains on equity investments
 
(118
)
 
2,166

Other income (affiliated $6,402 and $3,484)
 
6,719

 
3,000

Total revenues
 
519,141

 
488,359

 
 
 
 
 
LOSSES AND EXPENSES
 
 
 
 
Losses and settlement expenses (affiliated $338,729 and $318,902)
 
340,996

 
323,089

Dividends to policyholders (all affiliated)
 
7,160

 
5,184

Amortization of deferred policy acquisition costs (affiliated $84,434 and $79,957)
 
85,504

 
80,774

Other underwriting expenses (affiliated $66,303 and $61,637)
 
66,230

 
61,566

Interest expense (all affiliated)
 
483

 
253

Other expenses (affiliated $1,461 and $1,423)
 
2,574

 
2,264

Total losses and expenses
 
502,947

 
473,130

Income (loss) before income tax expense (benefit)
 
16,194

 
15,229

 
 
 
 
 
INCOME TAX EXPENSE (BENEFIT)
 
 
 
 
Current
 
1,479

 
1,918

Deferred
 
638

 
257

Total income tax expense (benefit)
 
2,117

 
2,175

Net income
 
$
14,077

 
$
13,054

 
 
 
 
 
Net income per common share - basic and diluted
 
$
0.65

 
$
0.61

 
 
 
 
 
Dividend per common share
 
$
0.66

 
$
0.63

 
 
 
 
 
Average number of common shares outstanding - basic and diluted
 
21,529,394

 
21,295,882

All affiliated balances presented above are the result of related party transactions with Employers Mutual.

See accompanying Notes to Consolidated Financial Statements.



6


EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
Three months ended 
 September 30,
($ in thousands)
 
2018
 
2017
Net income
 
$
19,148

 
$
746

 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
Unrealized holding gains (losses) on investment securities not reflected in net income, net of deferred income tax expense (benefit) of $(2,488) and $2,951
 
(9,357
)
 
5,481

Reclassification adjustment for net realized investment (gains) losses included in net income, net of income tax (expense) benefit of $202 and $(141)
 
758

 
(264
)
Reclassification adjustment for amounts amortized into net periodic pension and postretirement benefit income, net of deferred income tax expense of $(143) and $(146):
 
 
 
 
Net actuarial loss
 
84

 
240

Prior service credit
 
(623
)
 
(511
)
Total reclassification adjustment associated with affiliate's pension and postretirement benefit plans
 
(539
)
 
(271
)
 
 
 
 
 
Other comprehensive income (loss)
 
(9,138
)
 
4,946

 
 
 
 
 
Total comprehensive income (loss)
 
$
10,010

 
$
5,692

 
 
Nine months ended 
 September 30,
($ in thousands)
 
2018
 
2017
Net income
 
$
14,077

 
$
13,054

 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
Unrealized holding gains (losses) on investment securities not reflected in net income, net of deferred income tax expense (benefit) of $(9,544) and $12,632
 
(35,903
)
 
23,460

Reclassification adjustment for net realized investment (gains) losses included in net income, net of income tax (expense) benefit of $1,406 and $(2,368)
 
5,288

 
(4,399
)
Reclassification adjustment for amounts amortized into net periodic pension and postretirement benefit income, net of deferred income tax expense of $(430) and $(439):
 
 
 
 
Net actuarial loss
 
250

 
719

Prior service credit
 
(1,867
)
 
(1,535
)
Total reclassification adjustment associated with affiliate's pension and postretirement benefit plans
 
(1,617
)
 
(816
)
 
 
 
 
 
Other comprehensive income (loss)
 
(32,232
)
 
18,245

 
 
 
 
 
Total comprehensive income (loss)
 
$
(18,155
)
 
$
31,299

All affiliated balances presented above are the result of related party transactions with Employers Mutual.

See accompanying Notes to Consolidated Financial Statements.


7


EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

($ in thousands, except per share amounts)
 
Common
stock
 
Additional
paid-in capital
 
Accumulated
other
comprehensive
income (loss)
 
Retained
earnings
 
Total
stockholders'
equity
Balance at December 31, 2017
 
$
21,455

 
$
124,556

 
$
83,384

 
$
374,451

 
$
603,846

Cumulative adjustment for adoption of financial instruments recognition and measurement changes
 


 


 
(66,234
)
 
66,234

 

Issuance of common stock through stock plans
 
176

 
4,302

 
 

 
 

 
4,478

Repurchase of common stock
 
(56
)
 
(1,399
)
 
 

 
 

 
(1,455
)
Increase resulting from stock-based compensation expense
 
 

 
61

 
 

 
 

 
61

Other comprehensive income (loss)
 
 

 
 

 
(32,232
)
 
 

 
(32,232
)
Net income
 
 

 
 

 
 

 
14,077

 
14,077

Dividends paid to public stockholders ($0.66 per share)
 
 

 
 

 
 

 
(6,398
)
 
(6,398
)
Dividends paid to affiliate ($0.66 per share)
 
 

 
 

 
 

 
(7,769
)
 
(7,769
)
Balance at September 30, 2018
 
$
21,575

 
$
127,520

 
$
(15,082
)
 
$
440,595

 
$
574,608


($ in thousands, except per share amounts)
 
Common
stock
 
Additional
paid-in capital
 
Accumulated
other
comprehensive
income (loss)
 
Retained
earnings
 
Total
stockholders'
equity
Balance at December 31, 2016
 
$
21,223

 
$
119,054

 
$
46,081

 
$
366,984

 
$
553,342

Issuance of common stock through stock plans
 
225

 
5,328

 
 

 
 

 
5,553

Repurchase of common stock
 
(68
)
 
(1,790
)
 
 

 
 

 
(1,858
)
Increase resulting from stock-based compensation expense
 
 

 
48

 
 

 
 

 
48

Other comprehensive income (loss)
 
 

 
 

 
18,245

 
 

 
18,245

Net income
 
 

 
 

 
 

 
13,054

 
13,054

Dividends paid to public stockholders ($0.63 per share)
 
 

 
 

 
 

 
(5,906
)
 
(5,906
)
Dividends paid to affiliate ($0.63 per share)
 
 

 
 

 
 

 
(7,416
)
 
(7,416
)
Balance at September 30, 2017
 
$
21,380

 
$
122,640

 
$
64,326

 
$
366,716

 
$
575,062

All affiliated balances presented above are the result of related party transactions with Employers Mutual.

See accompanying Notes to Consolidated Financial Statements.



8


EMC INSURANCE GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
Nine months ended 
 September 30,
($ in thousands)
 
2018
 
2017
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
14,077

 
$
13,054

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Losses and settlement expenses (affiliated $30,338 and $35,368)
 
28,969

 
35,929

Unearned premiums (affiliated $35,030 and $37,373)
 
35,186

 
37,558

Other policyholders' funds due to affiliate
 
(868
)
 
(3,221
)
Amounts due to/from affiliate to settle inter-company transaction balances
 
(8,434
)
 
(15,432
)
Net pension and postretirement benefits due from affiliate
 
(4,207
)
 
(638
)
Reinsurance receivables due from affiliate
 
(1,798
)
 
(4,753
)
Prepaid reinsurance premiums due from affiliate
 
319

 
(6,450
)
Commissions payable (affiliated $(2,190) and $(2,309))
 
(2,121
)
 
(2,318
)
Deferred policy acquisition costs (affiliated $(6,475) and $(3,176))
 
(6,539
)
 
(3,171
)
Accrued investment income
 
(428
)
 
(913
)
Current income tax
 
(2,075
)
 
(6,209
)
Deferred income tax
 
638

 
257

Net realized investment gains (losses) and, beginning in 2018, change in unrealized investment gains on equity investments
 
118

 
(2,166
)
Other, net (affiliated $888 and $(1,545))
 
7,859

 
8,596

Total adjustments to reconcile net income to net cash provided by operating activities
 
46,619

 
37,069

Net cash provided by operating activities
 
60,696

 
50,123

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Purchases of fixed maturity securities available-for-sale
 
(248,571
)
 
(174,579
)
Disposals of fixed maturity securities available-for-sale
 
218,525

 
121,463

Purchases of equity investments
 
(57,558
)
 
(43,868
)
Disposals of equity investments
 
52,052

 
49,595

Purchases of other long-term investments
 
(7,305
)
 
(12,231
)
Disposals of other long-term investments
 
3,364

 
1,304

Net (purchases) disposals of short-term investments
 
(10,104
)
 
14,415

Net receipts under reverse repurchase agreements
 

 
3,500

Net cash used in investing activities
 
(49,597
)
 
(40,401
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Issuance of common stock through affiliate’s stock plans
 
4,478

 
5,553

Repurchase of common stock
 
(1,455
)
 
(1,858
)
Dividends paid to stockholders (affiliated $(7,769) and $(7,416))
 
(14,167
)
 
(13,322
)
Net cash used in financing activities
 
(11,144
)
 
(9,627
)
NET INCREASE (DECREASE) IN CASH
 
(45
)
 
95

Cash at the beginning of the year
 
347

 
307

Cash at the end of the quarter
 
$
302

 
$
402

All affiliated balances presented above are the result of related party transactions with Employers Mutual.
See accompanying Notes to Consolidated Financial Statements.

9


EMC INSURANCE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.
BASIS OF PRESENTATION
EMC Insurance Group Inc., a majority owned subsidiary of Employers Mutual Casualty Company (Employers Mutual), is an insurance holding company with operations in property and casualty insurance and reinsurance.  The Company writes property and casualty insurance in both commercial and personal lines of insurance, with a focus on medium-sized commercial accounts.  The term “Company” is used interchangeably to describe EMC Insurance Group Inc. (Parent Company only) and EMC Insurance Group Inc. and its subsidiaries.
The accompanying unaudited consolidated financial statements have been prepared on the basis of U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.  The Company has evaluated all subsequent events through the date the financial statements were issued.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the interim financial statements have been included.  The results of operations for the interim periods reported are not necessarily indicative of results to be expected for the year.  The consolidated balance sheet at December 31, 2017 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements.
In reading these financial statements, reference should be made to the Company’s 2017 Form 10-K or the 2017 Annual Report to Stockholders for more detailed footnote information.

Accounting Pronouncements Adopted
In January 2016, the Financial Accounting Standards Board (FASB) updated its guidance related to Financial Instruments-Overall Subtopic 825-10 of the Accounting Standards CodificationTM (Codification or ASC).  The objective of this update is to enhance the reporting model for financial instruments to provide financial statement users with more decision-useful information. The major change in reporting from this update is a requirement that equity investments (excluding those accounted for under the equity method of accounting or those that are consolidated) be measured at fair value, with changes in fair value recognized in net income. Equity investments that do not have a readily determinable fair value may be measured at estimated fair value or cost less impairment. All of the Company's common and preferred stock equity investments were already measured at fair value, as they were classified as available-for-sale with changes in fair value recognized in other comprehensive income (excludes those investments that were consolidated and those that were accounted for under the equity method of accounting). The Company adopted this guidance on January 1, 2018, recording a cumulative-effect adjustment that moved $66.2 million from accumulated other comprehensive income to retained earnings, which is the amount of net unrealized investment gains on available-for-sale equity securities as of December 31, 2017, net of deferred income taxes. Management uses the equity method of accounting for a few holdings in privately placed common and non-redeemable convertible preferred stock investments in start-up technology companies with ties to the insurance industry, as well as for an investment company limited partnership in which the Company has a minor ownership interest (these investments are classified as other long-term investments). In connection with the adoption of this new guidance, beginning January 1, 2018, the equity adjustments for these investments are being reported as realized investment gains and losses from other long-term investments, rather than net investment income.

10


In March 2017, the FASB issued updated guidance in Compensation-Retirement Benefits Topic 715 of the ASC. The objective of this update is to improve the presentation of net periodic pension and postretirement benefit costs by disaggregating the components of these expenses (disclosing the service cost component separately from the other components) for income statement reporting, if a subtotal of income from operations is presented. The Company does not report a subtotal of income from operations in its financial statements. Also included in this update is a prohibition against including components of the net periodic pension and postretirement benefit costs, other than the service cost component, in any capitalized assets. In conjunction with the adoption of this updated guidance, management elected to report all components of net periodic pension and postretirement benefit income, other than the service cost component, as other income in the consolidated statements of income. The service cost component continues to be reported in other underwriting expenses. This change in reporting was applied retrospectively for comparison purposes and did not impact the net income amounts reported, as other income and other underwriting expenses increased by the same amount ($1.9 million and $1.3 million for the three months and $5.6 million and $3.8 million for the nine months ended September 30, 2018 and 2017, respectively). The prohibition against including net periodic pension and postretirement benefit costs, other than the service cost component, in capitalized assets was adopted prospectively on January 1, 2018. The impact of the exclusion of these costs from capitalized assets resulted in a negligible impact on the deferred policy acquisition cost asset calculation at September 30, 2018 compared to that which would have been calculated previously.
In August 2018, the FASB issued updated guidance related to Fair Value Measurement Topic 820 of the ASC. The objective of this update is to improve the effectiveness of disclosures in the notes to financial statements as part of the FASB's disclosure framework project. As it relates to the Company's footnote disclosures, this update removes disclosure of the amount of, and reasons for, transfers between Level 1 and Level 2 of the fair value hierarchy, as well as the policy for timing of transfers between levels, but adds disclosure of the amount of unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements still held at the end of the reporting period. The Company adopted these disclosure modifications during the third quarter of 2018.

2.
TRANSACTIONS WITH AFFILIATES
An inter-company reinsurance program is in place between the Company's insurance subsidiaries in the property and casualty insurance segment and Employers Mutual. This reinsurance program is intended to reduce the volatility of the Company's quarterly results caused by excessive catastrophe and storm losses, and provide protection from both the frequency and severity of such losses. The reinsurance program consists of two semi-annual aggregate catastrophe excess of loss treaties. The first treaty is effective from January 1, 2018 through June 30, 2018, and has a retention of $22.0 million and a limit of $24.0 million. The total cost of this treaty is approximately $6.0 million. The second treaty is effective from July 1, 2018 through December 31, 2018, and has a retention of $15.0 million and a limit of $12.0 million. The total cost of this treaty is approximately $1.4 million. The terms of these treaties were the same in 2017, with the exception of the retention amount contained in the treaty covering the first half of the year, which was $20.0 million. Losses and settlement expenses ceded to Employers Mutual under the inter-company reinsurance program totaled $2.4 million and $3.2 million for the three and nine months ended September 30, 2018, respectively, compared to $3.5 million and $20.1 million for the same periods in 2017. All catastrophe and storm losses assumed by the property and casualty insurance subsidiaries (net of applicable reinsurance recoveries from external reinsurance protections purchased by the pool participants) are subject to the terms of these treaties, and there is no co-participation provision.
An inter-company reinsurance program is also in place between the Company's reinsurance subsidiary and Employers Mutual. The reinsurance program consists of two treaties. The first is a per occurrence catastrophe excess of loss treaty with a retention of $10.0 million, a limit of $10.0 million, 20 percent co-participation, and no reinstatement. The total cost of this treaty is approximately $1.6 million. The second is an annual aggregate catastrophe excess of loss treaty with a retention of $20.0 million, a limit of $100.0 million, and 20 percent co-participation. The total cost of this treaty is approximately $3.6 million. Any losses recovered under the per occurrence treaty inure to the benefit of the aggregate treaty, and only catastrophic events with total losses greater than $500,000 are subject to the terms of the aggregate treaty. The terms of the program were the same in 2017 with the exception of the costs, which were $1.7 million for the per occurrence treaty and $3.2 million for the annual aggregate treaty. Losses and settlement expenses ceded to Employers Mutual under the inter-company reinsurance program totaled a negative $1.9 million and a negative $2.4 million for the three and nine months ended September 30, 2018, respectively, compared to $9.0 million and $9.0 million for the three and nine months ended September 30, 2017 respectively. The negative amounts reported for the three and nine months ended September 30, 2018 reflect Industry Loss Warranty recoveries associated with 2017 catastrophes. The reinsurance segment retains 20 percent of these recoveries under the co-participation provision, with the remainder ceded to Employers Mutual.


11


3.
REINSURANCE
The effect of reinsurance on premiums written and earned, and losses and settlement expenses incurred, for the three and nine months ended September 30, 2018 and 2017 is presented below.  The classification of the assumed and ceded reinsurance amounts between affiliates and nonaffiliates is based on the participants in the underlying reinsurance agreements, and is intended to provide an understanding of the actual source of the reinsurance activities.  This presentation differs from the classifications used in the consolidated financial statements, where all amounts flowing through the pooling and quota share agreements and inter-company reinsurance programs with Employers Mutual are reported as “affiliated” balances.

 
 
Three months ended September 30, 2018
($ in thousands)
 
Property and
casualty
insurance
 
Reinsurance
 
Total
Premiums written
 
 
 
 
 
 
Direct
 
$
126,737

 
$

 
$
126,737

Assumed from nonaffiliates
 
1,138

 
42,211

 
43,349

Assumed from affiliates
 
159,648

 

 
159,648

Ceded to nonaffiliates
 
(7,309
)
 
(1,001
)
 
(8,310
)
Ceded to affiliates
 
(127,427
)
 
(1,312
)
 
(128,739
)
Net premiums written
 
$
152,787

 
$
39,898

 
$
192,685

 
 
 
 
 
 
 
Premiums earned
 
 
 
 
 
 
Direct
 
$
100,850

 
$

 
$
100,850

Assumed from nonaffiliates
 
1,017

 
41,128

 
42,145

Assumed from affiliates
 
133,781

 

 
133,781

Ceded to nonaffiliates
 
(7,895
)
 
(2,321
)
 
(10,216
)
Ceded to affiliates
 
(101,540
)
 
(1,312
)
 
(102,852
)
Net premiums earned
 
$
126,213

 
$
37,495

 
$
163,708

 
 
 
 
 
 
 
Losses and settlement expenses incurred
 
 
 
 
 
 
Direct
 
$
51,606

 
$

 
$
51,606

Assumed from nonaffiliates
 
1,039

 
31,378

 
32,417

Assumed from affiliates
 
87,992

 
311

 
88,303

Ceded to nonaffiliates
 
(5,205
)
 
(3,774
)
 
(8,979
)
Ceded to affiliates
 
(53,997
)
 
1,927

 
(52,070
)
Net losses and settlement expenses incurred
 
$
81,435

 
$
29,842

 
$
111,277


12


 
 
Three months ended September 30, 2017
($ in thousands)
 
Property and
casualty
insurance
 
Reinsurance
 
Total
Premiums written
 
 
 
 
 
 
Direct
 
$
122,665

 
$

 
$
122,665

Assumed from nonaffiliates
 
1,333

 
38,955

 
40,288

Assumed from affiliates
 
153,900

 

 
153,900

Ceded to nonaffiliates
 
(10,532
)
 
(1,220
)
 
(11,752
)
Ceded to affiliates
 
(123,355
)
 
(1,212
)
 
(124,567
)
Net premiums written
 
$
144,011

 
$
36,523

 
$
180,534

 
 
 
 
 
 
 
Premiums earned
 
 
 
 
 
 
Direct
 
$
96,547

 
$

 
$
96,547

Assumed from nonaffiliates
 
1,225

 
38,463

 
39,688

Assumed from affiliates
 
128,325

 

 
128,325

Ceded to nonaffiliates
 
(8,388
)
 
(2,533
)
 
(10,921
)
Ceded to affiliates
 
(97,237
)
 
(1,212
)
 
(98,449
)
Net premiums earned
 
$
120,472

 
$
34,718

 
$
155,190

 
 
 
 
 
 
 
Losses and settlement expenses incurred
 
 
 
 
 
 
Direct
 
$
62,745

 
$

 
$
62,745

Assumed from nonaffiliates
 
961

 
57,268

 
58,229

Assumed from affiliates
 
81,047

 
277

 
81,324

Ceded to nonaffiliates
 
(4,435
)
 
(3,039
)
 
(7,474
)
Ceded to affiliates
 
(66,279
)
 
(8,969
)
 
(75,248
)
Net losses and settlement expenses incurred
 
$
74,039

 
$
45,537

 
$
119,576


13


 
 
Nine months ended September 30, 2018
($ in thousands)
 
Property and
casualty
insurance
 
Reinsurance
 
Total
Premiums written
 
 
 
 
 
 
Direct
 
$
325,360

 
$

 
$
325,360

Assumed from nonaffiliates
 
3,440

 
122,564

 
126,004

Assumed from affiliates
 
430,699

 

 
430,699

Ceded to nonaffiliates
 
(23,232
)
 
(9,015
)
 
(32,247
)
Ceded to affiliates
 
(332,010
)
 
(3,937
)
 
(335,947
)
Net premiums written
 
$
404,257

 
$
109,612

 
$
513,869

 
 
 
 
 
 
 
Premiums earned
 
 
 
 
 
 
Direct
 
$
295,606

 
$

 
$
295,606

Assumed from nonaffiliates
 
3,319

 
122,577

 
125,896

Assumed from affiliates
 
394,697

 

 
394,697

Ceded to nonaffiliates
 
(25,026
)
 
(7,540
)
 
(32,566
)
Ceded to affiliates
 
(302,256
)
 
(3,937
)
 
(306,193
)
Net premiums earned
 
$
366,340

 
$
111,100

 
$
477,440

 
 
 
 
 
 
 
Losses and settlement expenses incurred
 
 
 
 
 
 
Direct
 
$
165,962

 
$

 
$
165,962

Assumed from nonaffiliates
 
2,801

 
84,846

 
87,647

Assumed from affiliates
 
269,672

 
908

 
270,580

Ceded to nonaffiliates
 
(10,107
)
 
(6,338
)
 
(16,445
)
Ceded to affiliates
 
(169,137
)
 
2,389

 
(166,748
)
Net losses and settlement expenses incurred
 
$
259,191

 
$
81,805

 
$
340,996


14


 
 
Nine months ended September 30, 2017
($ in thousands)
 
Property and
casualty
insurance
 
Reinsurance
 
Total
Premiums written
 
 
 
 
 
 
Direct
 
$
312,809

 
$

 
$
312,809

Assumed from nonaffiliates
 
3,542

 
108,056

 
111,598

Assumed from affiliates
 
415,426

 

 
415,426

Ceded to nonaffiliates
 
(27,109
)
 
(9,074
)
 
(36,183
)
Ceded to affiliates
 
(319,459
)
 
(3,637
)
 
(323,096
)
Net premiums written
 
$
385,209

 
$
95,345

 
$
480,554

 
 
 
 
 
 
 
Premiums earned
 
 
 
 
 
 
Direct
 
$
287,821

 
$

 
$
287,821

Assumed from nonaffiliates
 
3,370

 
110,563

 
113,933

Assumed from affiliates
 
375,601

 

 
375,601

Ceded to nonaffiliates
 
(22,014
)
 
(7,719
)
 
(29,733
)
Ceded to affiliates
 
(294,471
)
 
(3,637
)
 
(298,108
)
Net premiums earned
 
$
350,307

 
$
99,207

 
$
449,514

 
 
 
 
 
 
 
Losses and settlement expenses incurred
 
 
 
 
 
 
Direct
 
$
198,317

 
$

 
$
198,317

Assumed from nonaffiliates
 
2,406

 
104,685

 
107,091

Assumed from affiliates
 
258,169

 
942

 
259,111

Ceded to nonaffiliates
 
(9,400
)
 
(4,626
)
 
(14,026
)
Ceded to affiliates
 
(218,425
)
 
(8,979
)
 
(227,404
)
Net losses and settlement expenses incurred
 
$
231,067

 
$
92,022

 
$
323,089


Individual lines in the above tables are defined as follows:
“Direct” represents business produced by the property and casualty insurance subsidiaries.
“Assumed from nonaffiliates” for the property and casualty insurance subsidiaries represents their aggregate 30 percent pool participation percentage of involuntary business assumed by the pool participants pursuant to state law. For the reinsurance subsidiary, this line represents the reinsurance business assumed through the quota share agreement (including “fronting” activities initiated by Employers Mutual) and the business assumed outside the quota share agreement.
“Assumed from affiliates” for the property and casualty insurance subsidiaries represents their aggregate 30 percent pool participation percentage of all the pool members’ direct business.  The amounts reported under the caption “Losses and settlement expenses incurred” also include claim-related services provided by Employers Mutual that are allocated to the property and casualty insurance subsidiaries and the reinsurance subsidiary.
“Ceded to nonaffiliates” for the property and casualty insurance subsidiaries represents their aggregate 30 percent pool participation percentage of 1) the amounts ceded to nonaffiliated reinsurance companies in accordance with the terms of the reinsurance agreements providing protection to the pool and each of its participants, and 2) the amounts ceded on a mandatory basis to state organizations in connection with various programs.  For the reinsurance subsidiary, this line includes 1) reinsurance business that is ceded to other insurance companies in connection with “fronting” activities initiated by Employers Mutual, and 2) amounts ceded in connection with the purchase of additional reinsurance protection in peak exposure territories from external parties.
“Ceded to affiliates” for the property and casualty insurance subsidiaries represents the cession of their direct business to Employers Mutual under the terms of the pooling agreement and amounts ceded to Employers Mutual under the terms of the inter-company reinsurance program.  For the reinsurance subsidiary this line represents amounts ceded to Employers Mutual under the terms of the inter-company reinsurance program.

15


4.
LIABILITY FOR LOSSES AND SETTLEMENT EXPENSES
The following table sets forth a reconciliation of beginning and ending reserves for losses and settlement expenses of the Company.  Amounts presented are on a net basis, with a reconciliation of beginning and ending reserves to the gross amounts presented in the consolidated financial statements.
 
 
Nine months ended September 30,
($ in thousands)
 
2018
 
2017
Gross reserves at beginning of year
 
$
732,612

 
$
690,532

Re-valuation due to foreign currency exchange rates
 
525

 
(1,913
)
Less ceded reserves at beginning of year
 
30,923

 
20,664

Net reserves at beginning of year
 
701,164

 
671,781

 
 
 
 
 
Incurred losses and settlement expenses related to:
 
 

 
 

Current year
 
352,992

 
340,706

Prior years
 
(11,996
)
 
(17,617
)
Total incurred losses and settlement expenses
 
340,996

 
323,089

 
 
 
 
 
Paid losses and settlement expenses related to:
 
 

 
 

Current year
 
119,399

 
120,053

Prior years
 
193,673

 
173,986

Total paid losses and settlement expenses
 
313,072

 
294,039

 
 
 
 
 
Net reserves at end of period
 
729,088

 
700,831

Plus ceded reserves at end of period
 
32,661

 
25,348

Re-valuation due to foreign currency exchange rates
 
(168
)
 
282

Gross reserves at end of period
 
$
761,581

 
$
726,461


There is an inherent amount of uncertainty involved in the establishment of insurance liabilities.  This uncertainty is greatest in the current and more recent accident years because a smaller percentage of the expected ultimate claims have been reported, adjusted and settled compared to more mature accident years.  As the carried reserves for these accident years run off, the overall expectation is that, more often than not, favorable development will occur.  However, there is also the possibility that the ultimate settlement of liabilities associated with these accident years will show adverse development, and such adverse development could be substantial.
Changes in reserve estimates are reflected in net income in the year such changes are recorded.  Following is an analysis of the reserve development the Company experienced during the nine months ended September 30, 2018 and 2017.  Care should be exercised when attempting to analyze the financial impact of the reported development amounts because, as noted above, the overall expectation is that, more often than not, favorable development will occur as the prior accident years’ reserves run off.


16


2018 Development
For the property and casualty insurance segment, the September 30, 2018 estimate of loss and settlement expense reserves for accident years 2017 and prior decreased $12.5 million from the estimate at December 31, 2017.  This decrease represents 2.5 percent of the December 31, 2017 gross carried reserves and is primarily attributed to decreases in the ultimate loss and settlement expense ratios for several accident years in the other liability, commercial auto liability, surety bonds and personal auto liability lines of business. Favorable development in the other liability line of business was driven by a reduction in the expected ultimate loss and settlement expense ratios for accident years 2013 and 2015, although the ultimate settlement expense ratios for several prior years were reduced slightly as well. The ultimate loss and settlement expense ratios in the commercial auto liability line of business for accident years 2014 through 2017 were decreased as ultimate claim severities are projected to be better than initially expected. The workers' compensation, commercial property, auto physical damage and homeowners lines of business all experienced adverse development. The adverse development in the workers' compensation line of business is the result of an increase in the accident year 2017 ultimate loss and settlement expense ratio due to an initial underestimate of both ultimate frequency and severity, largely attributed to winter related slip and fall claims.
For the reinsurance segment, the September 30, 2018 estimate of loss and settlement expense reserves for accident years 2017 and prior increased $493,000 from the estimate at December 31, 2017.  This increase represents 0.2 percent of the December 31, 2017 gross carried reserves and is primarily attributed to reserve strengthening mainly in the casualty and multiline excess and pro rata contracts for accident years 2007, 2012, 2014, 2015 and 2017. This adverse development was partially offset by favorable development from Industry Loss Warranty recoveries on 2017 catastrophes.

2017 Development
For the property and casualty insurance segment, the September 30, 2017 estimate of loss and settlement expense reserves for accident years 2016 and prior decreased $15.6 million from the estimate at December 31, 2016.  This decrease represented 3.2 percent of the December 31, 2016 gross carried reserves and was primarily attributed to reductions in prior year ultimate loss ratios for every line of business except commercial auto liability. The other liability line of business was the largest contributor to favorable development. The ultimate loss ratios for this line were decreased slightly for most accident years from 2003 through 2016 due to declines in expected ultimate claim frequency and/or severity. Due to increases in projected ultimate claim frequency and severity, the ultimate loss ratios in the commercial auto line of business were increased for accident years 2013 through 2016, producing adverse reserve development for that line of business. Included in the development amount is adverse development experienced in the other liability line of business stemming from the settlement of claims for past and future legal fess and losses on a multi-year asbestos exposure associated with a former insured, and a slight strengthening of remaining reserves.
For the reinsurance segment, the September 30, 2017 estimate of loss and settlement expense reserves for accident years 2016 and prior increased $2.1 million from the estimate at December 31, 2016.  This increase represented 1.0 percent of the December 31, 2016 gross carried reserves and was primarily attributed to prior year reserve releases in the per risk excess, property/casualty global excess and property/casualty global pro rata contract types.

5.
SEGMENT INFORMATION
The Company’s operations consist of a property and casualty insurance segment and a reinsurance segment.  The property and casualty insurance segment writes both commercial and personal lines of insurance, with a focus on medium-sized commercial accounts.  The reinsurance segment provides reinsurance for other insurers and reinsurers.  The segments are managed separately due to differences in the insurance products sold and the business environments in which they operate. Management evaluates the performance of its insurance segments using financial measurements based on Statutory Accounting Principles (SAP) instead of GAAP. Such measures include premiums written, premiums earned, statutory underwriting profit (loss), and investment results, as well as loss and loss adjustment expense ratios, trade underwriting expense ratios, and combined ratios.

17


Summarized financial information for the Company’s segments is as follows:
Three months ended September 30, 2018
 
Property and
casualty
insurance
 
Reinsurance
 
Parent
company
 
Consolidated
($ in thousands)
 
 
 
 
Premiums earned
 
$
126,213

 
$
37,495

 
$

 
$
163,708

 
 
 
 
 
 
 
 
 
Underwriting profit (loss):
 
 
 
 
 
 
 
 
SAP underwriting profit (loss)
 
138

 
(844
)
 

 
(706
)
GAAP adjustments
 
378

 
398

 

 
776

GAAP underwriting profit (loss)
 
516

 
(446
)
 

 
70

 
 
 
 
 
 
 
 
 
Net investment income
 
8,514

 
3,423

 
14

 
11,951

Net realized investment gains (losses) and, beginning in 2018, change in unrealized investment gains on equity investments
 
6,760

 
4,476

 
(101
)
 
11,135

Other income (loss)
 
2,184

 
147

 

 
2,331

Interest expense
 
170

 

 

 
170

Other expenses
 
282

 

 
591

 
873

Income (loss) before income tax expense (benefit)
 
$
17,522

 
$
7,600

 
$
(678
)
 
$
24,444


Three months ended September 30, 2017
 
Property and
casualty
insurance
 
Reinsurance
 
Parent
company
 
Consolidated
($ in thousands)
 
 
 
 
Premiums earned
 
$
120,472

 
$
34,718

 
$

 
$
155,190

 
 
 
 
 
 
 
 
 
Underwriting profit (loss):
 
 
 
 
 
 
 
 
SAP underwriting profit (loss)
 
1,927

 
(18,364
)
 

 
(16,437
)
GAAP adjustments
 
4,582

 
194

 

 
4,776

GAAP underwriting profit (loss)
 
6,509

 
(18,170
)
 

 
(11,661
)
 
 
 
 
 
 
 
 
 
Net investment income
 
8,252

 
3,237

 
12

 
11,501

Net realized investment gains (losses) and, beginning in 2018, change in unrealized investment gains on equity investments
 
(108
)
 
(486
)
 

 
(594
)
Other income (loss)
 
1,457

 
(358
)
 

 
1,099

Interest expense
 
84

 

 

 
84

Other expenses
 
170

 

 
531

 
701

Income (loss) before income tax expense (benefit)
 
$
15,856

 
$
(15,777
)
 
$
(519
)
 
$
(440
)

18


Nine months ended September 30, 2018
 
Property and
casualty
insurance
 
Reinsurance
 
Parent
company
 
Consolidated
($ in thousands)
 
 
 
 
Premiums earned
 
$
366,340

 
$
111,100

 
$

 
$
477,440

 
 
 
 
 
 
 
 
 
Underwriting profit (loss):
 
 
 
 
 
 
 
 
SAP underwriting profit (loss)
 
(29,082
)
 
4,426

 

 
(24,656
)
GAAP adjustments
 
2,561

 
(355
)
 

 
2,206

GAAP underwriting profit (loss)
 
(26,521
)
 
4,071

 

 
(22,450
)
 
 
 
 
 
 
 
 
 
Net investment income
 
25,072

 
10,001

 
27

 
35,100

Net realized investment gains (losses) and, beginning in 2018, change in unrealized investment gains on equity investments
 
(1,225
)
 
1,208

 
(101
)
 
(118
)
Other income (loss)
 
6,330

 
389

 

 
6,719

Interest expense
 
483

 

 

 
483

Other expenses
 
759

 

 
1,815

 
2,574

Income (loss) before income tax expense (benefit)
 
$
2,414

 
$
15,669

 
$
(1,889
)
 
$
16,194

 
 
 
 
 
 
 
 
 
Assets
 
$
1,212,964

 
$
481,047

 
$
574,885

 
$
2,268,896

Eliminations
 

 

 
(564,796
)
 
(564,796
)
Reclassifications
 
(2,880
)
 

 
(118
)
 
(2,998
)
Total assets
 
$
1,210,084

 
$
481,047

 
$
9,971

 
$
1,701,102

Nine months ended September 30, 2017
 
Property and
casualty
insurance
 
Reinsurance
 
Parent
company
 
Consolidated
($ in thousands)
 
 
 
 
Premiums earned
 
$
350,307

 
$
99,207

 
$

 
$
449,514

 
 
 
 
 
 
 
 
 
Underwriting profit (loss):
 
 
 
 
 
 
 
 
SAP underwriting profit (loss)
 
(9,559
)
 
(14,899
)
 

 
(24,458
)
GAAP adjustments
 
4,301

 
(942
)
 

 
3,359

GAAP underwriting profit (loss)
 
(5,258
)
 
(15,841
)
 

 
(21,099
)
 
 
 
 
 
 
 
 
 
Net investment income
 
24,225

 
9,421

 
33

 
33,679

Net realized investment gains (losses) and, beginning in 2018, change in unrealized investment gains on equity investments
 
3,033

 
(867
)
 

 
2,166

Other income (loss)
 
4,457

 
(1,457
)
 

 
3,000

Interest expense
 
253

 

 

 
253

Other expenses
 
580

 

 
1,684

 
2,264

Income (loss) before income tax expense (benefit)
 
$
25,624

 
$
(8,744
)
 
$
(1,651
)
 
$
15,229

 
 
 
 
 
 
 
 
 
Year ended December 31, 2017
 
 
 
 
 
 
 
 
Assets
 
$
1,200,636

 
$
484,678

 
$
604,105

 
$
2,289,419

Eliminations
 

 

 
(599,036
)
 
(599,036
)
Reclassifications
 
(1,393
)
 
(6,273
)
 
(777
)
 
(8,443
)
Total assets
 
$
1,199,243

 
$
478,405

 
$
4,292

 
$
1,681,940


19


The following table displays the premiums earned for the property and casualty insurance segment and the reinsurance segment for the three and nine months ended September 30, 2018 and 2017, by line of insurance.
 
 
Three months ended September 30,
 
Nine months ended September 30,
($ in thousands)
 
2018
 
2017
 
2018
 
2017
Property and casualty insurance
 
 
 
 
 
 
 
 
Commercial lines:
 
 
 
 
 
 
 
 
Automobile
 
$
32,851

 
$
30,229

 
$
95,155

 
$
87,275

Property
 
25,271

 
27,980

 
79,059

 
79,551

Workers' compensation
 
24,249

 
25,373

 
74,380

 
75,419

Other liability
 
31,399

 
24,996

 
81,952

 
73,378

Other
 
2,368

 
2,203

 
6,782

 
6,509

Total commercial lines
 
116,138

 
110,781

 
337,328

 
322,132

 
 
 
 
 
 
 
 
 
Personal lines
 
10,075

 
9,691

 
29,012

 
28,175

Total property and casualty insurance
 
$
126,213

 
$
120,472

 
$
366,340

 
$
350,307

 
 
 
 
 
 
 
 
 
Reinsurance
 
 
 
 
 
 
 
 
Pro rata reinsurance
 
$
10,484

 
$
10,730

 
$
33,627

 
$
33,181

Excess of loss reinsurance
 
27,011

 
23,988

 
77,473

 
66,026

Total reinsurance
 
$
37,495

 
$
34,718

 
$
111,100

 
$
99,207

 
 
 
 
 
 
 
 
 
Consolidated
 
$
163,708

 
$
155,190

 
$
477,440

 
$
449,514


6.
INCOME TAXES
The actual income tax expense (benefit) for the three and nine months ended September 30, 2018 and 2017 differed from the “expected” income tax expense (benefit) for those periods (computed by applying the United States federal corporate tax rates of 21 percent during 2018 and 35 percent during 2017 to income (loss) before income tax) as follows:
 
 
Three months ended 
 September 30,
 
Nine months ended 
 September 30,
($ in thousands)
 
2018
 
2017
 
2018
 
2017
Computed "expected" income tax expense (benefit)
 
$
5,134

 
$
(154
)
 
$
3,401

 
$
5,330

Increases (decreases) in tax resulting from:
 
 
 
 
 
 
 
 
Incremental benefit of net operating loss carry back
 
839

 

 

 

Tax-exempt interest income
 
(290
)
 
(656
)
 
(897
)
 
(2,122
)
Dividends received deduction
 
(126
)
 
(294
)
 
(400
)
 
(948
)
Proration of tax-exempt interest and dividends received deduction
 
104

 
142

 
324

 
460

Other, net
 
(365
)
 
(224
)
 
(311
)
 
(545
)
Total income tax expense (benefit)
 
$
5,296

 
$
(1,186
)
 
$
2,117

 
$
2,175



20


Pursuant to Staff Accounting Bulletin No. 118 issued by the Securities Exchange Commission, the Company made reasonable estimates of the effects the Tax Cuts and Jobs Act of 2017 (TCJA) had on deferred income tax assets and liabilities at December 31, 2017. For items where the Company could not make a reasonable estimate, primarily loss reserve discounting, the Company used existing accounting guidance and the provisions of the tax laws that were in place prior to the enactment. Beginning in the first quarter of 2018, the Company is using estimated industry discount factors until further guidance and updated discount factors are released by the Internal Revenue Service (IRS). The Company continues to wait on updated guidance from the IRS to complete its analysis of the effects of the TCJA.
The Company had no provision for uncertain income tax positions at September 30, 2018 or December 31, 2017.  The Company recognized no interest expense or other penalties related to U.S. federal or state income taxes during the three or nine months ended September 30, 2018 or 2017.  It is the Company’s accounting policy to reflect income tax penalties as other expense, and interest as interest expense.
The Company files a U.S. federal income tax return, along with various state income tax returns.  The Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for years before 2015.