Company Quick10K Filing
Quick10K
Protective Insurance
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$15.90 15 $234
10-Q 2019-09-30 Quarter: 2019-09-30
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
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
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-11-12 Officers
8-K 2019-11-05 Earnings, Exhibits
8-K 2019-09-16 Officers, Regulation FD, Exhibits
8-K 2019-08-06 Earnings, Exhibits
8-K 2019-06-06 Officers
8-K 2019-05-21 Officers, Amend Bylaw, Regulation FD, Exhibits
8-K 2019-05-13 Shareholder Vote
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-02-26 Amend Bylaw
8-K 2019-02-26 Earnings, Exhibits
8-K 2019-02-05 Other Events, Exhibits
8-K 2018-11-13 Amend Bylaw
8-K 2018-10-19 Officers, Other Events, Exhibits
8-K 2018-09-30 Earnings, Exhibits
8-K 2018-08-22 Officers, Exhibits
8-K 2018-08-13 Other Events
8-K 2018-08-01 Amend Bylaw, Other Events, Exhibits
8-K 2018-07-26 Officers
8-K 2018-06-30 Earnings, Exhibits
8-K 2018-06-26 Officers
8-K 2018-06-14 Amend Bylaw, Exhibits
8-K 2018-06-11 Officers, Exhibits
8-K 2018-05-10 Officers, Shareholder Vote, Exhibits
8-K 2018-02-15 Officers, Exhibits
CINF Cincinnati Financial 18,393
MKL Markel 15,734
AHL Aspen Insurance Holdings 2,473
NMIH NMI Holdings 1,879
JRVR James River Group Holdings 1,465
UVE Universal Insurance Holdings 914
AMBC Ambac 805
HALL Hallmark Financial Services 308
CNFR Conifer Holdings 32
OXBR Oxbridge RE Holdings 6
PTVCA 2019-09-30
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 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-10.1 exhibit101.htm
EX-10.2 exhibit102.htm
EX-31.1 exhibit311.htm
EX-31.2 exhibit312.htm
EX-32 exhibit32.htm

Protective Insurance Earnings 2019-09-30

PTVCA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 form10q.htm FORM 10-Q  

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
Form 10-Q

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

For the Quarterly Period Ended September 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: 0-5534


PROTECTIVE INSURANCE CORPORATION
(Exact name of registrant as specified in its charter)

INDIANA
 
35-0160330
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
     
111 Congressional Boulevard, Carmel, Indiana
 
46032
(Address of principal executive offices)
 
(Zip Code)

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

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes          No ____

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No ____

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ____   Accelerated filer        Non-accelerated filer ____  Smaller reporting company ____                 Emerging growth company ____

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ____  No    ✓_

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

Common Stock, No Par Value:
Class A (voting)
 
2,608,294
 
 
Class B (non-voting)
 
11,722,917
 
     
14,331,211
 


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share data)

   
September 30
2019
   
December 31
2018
 
Assets
           
Investments:
           
Fixed income securities
 
$
757,841
   
$
592,645
 
Equity securities
   
72,837
     
66,422
 
Limited partnerships
   
22,645
     
55,044
 
Commercial mortgage loans
   
9,418
     
6,672
 
Short-term and other
   
1,000
     
1,000
 
     
863,741
     
721,783
 
                 
Cash and cash equivalents
   
85,777
     
163,996
 
Restricted cash and cash equivalents
   
22,410
     
6,815
 
Accounts receivable
   
105,801
     
102,972
 
Reinsurance recoverable
   
418,031
     
392,436
 
Other assets
   
93,756
     
88,426
 
Current federal income taxes recoverable
   
4,267
     
7,441
 
Deferred federal income taxes
   
2,984
     
6,262
 
         Total Assets
 
$
1,596,767
   
$
1,490,131
 
                 
Liabilities and shareholders' equity
               
Reserves for losses and loss expenses
 
$
960,695
   
$
865,339
 
Reserves for unearned premiums
   
76,329
     
71,625
 
Reinsurance payable
   
55,225
     
66,632
 
Short-term borrowings
   
20,000
     
20,000
 
Accounts payable and other liabilities
   
121,088
     
110,453
 
     Total Liabilities
   
1,233,337
     
1,134,049
 
                 
Shareholders' equity:
               
Common stock-no par value:
               
Class A voting -- authorized 3,000,000 shares; outstanding -- 2019 - 2,608,819; 2018 - 2,615,339
   
112
     
112
 
Class B non-voting -- authorized 20,000,000 shares; outstanding -- 2019 - 11,738,578; 2018 - 12,253,922
   
501
     
522
 
Additional paid-in capital
   
53,670
     
54,720
 
Accumulated other comprehensive income (loss)
   
9,594
     
(7,347
)
Retained earnings
   
299,553
     
308,075
 
     Total Shareholders' Equity
   
363,430
     
356,082
 
         Total Liabilities and Shareholders' Equity
 
$
1,596,767
   
$
1,490,131
 

See notes to condensed consolidated financial statements.

- 2 -


Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share data)

   
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
   
2019
   
2018
   
2019
   
2018
 
Revenues
                       
Net premiums earned
 
$
110,288
   
$
96,807
   
$
335,931
   
$
314,209
 
Net investment income
   
6,703
     
5,578
     
19,434
     
16,010
 
Commissions and other income
   
2,716
     
3,413
     
6,761
     
7,488
 
    Net realized gains on investments, excluding impairment losses
   
1,199
     
449
     
1,872
     
1,740
 
    Other-than-temporary impairment losses on investments
   
(58
)
   
     
(404
)
   
 
    Net unrealized gains (losses) on equity securities and limited partnership investments
   
(1,016
)
   
1,924
     
7,573
     
(7,335
)
Net realized and unrealized gains (losses) on investments
   
125
     
2,373
     
9,041
     
(5,595
)
     
119,832
     
108,171
     
371,167
     
332,112
 
                                 
Expenses
                               
Losses and loss expenses incurred
   
84,781
     
94,540
     
262,336
     
244,327
 
Other operating expenses
   
36,070
     
29,200
     
104,386
     
99,984
 
     
120,851
     
123,740
     
366,722
     
344,311
 
Income (loss) before federal income tax expense (benefit)
   
(1,019
)
   
(15,569
)
   
4,445
     
(12,199
)
Federal income tax expense (benefit)
   
(312
)
   
(3,244
)
   
869
     
(2,691
)
Net income (loss)
 
$
(707
)
 
$
(12,325
)
 
$
3,576
   
$
(9,508
)
                                 
Per share data:
                               
Basic and diluted earnings (loss)
 
$
(.05
)
 
$
(.82
)
 
$
.24
   
$
(.63
)
                                 
Reconciliation of shares outstanding:
                               
Average shares outstanding - basic
   
14,361
     
14,969
     
14,607
     
14,998
 
Dilutive effect of share equivalents
   
-
     
-
     
77
     
-
 
Average shares outstanding - diluted
   
14,361
     
14,969
     
14,684
     
14,998
 

See notes to condensed consolidated financial statements.

- 3 -


Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)

   
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
   
2019
   
2018
   
2019
   
2018
 
Net income (loss)
 
$
(707
)
 
$
(12,325
)
 
$
3,576
   
$
(9,508
)
                                 
Other comprehensive income (loss), net of tax:
                               
   Unrealized net gains (losses) on fixed income securities
   
1,566
     
(1,151
)
   
16,539
     
(6,298
)
                                 
Foreign currency translation adjustments
   
(189
)
   
202
     
402
     
(209
)
                                 
Other comprehensive income (loss)
   
1,377
     
(949
)
   
16,941
     
(6,507
)
                                 
Comprehensive income (loss)
 
$
670
   
$
(13,274
)
 
$
20,517
   
$
(16,015
)

See notes to condensed consolidated financial statements.

- 4 -


Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Shareholders' Equity
(in thousands)

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


 
 
Common Stock
   
Additional
   
Accumulated Other
             
 
 
Class A
   
Class B
   
Paid-in
   
Comprehensive
   
Retained
   
Total
 
Description
 
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
Earnings
   
Equity
 
Balance at June 30, 2019
   
2,612
   
$
112
     
11,932
   
$
509
   
$
54,065
   
$
8,217
   
$
304,513
   
$
367,416
 
Net loss
   
     
     
     
     
     
     
(707
)
   
(707
)
Foreign currency translation adjustment, net of tax
   
     
     
     
     
     
(189
)
   
     
(189
)
Change in unrealized gain (loss) on investments, net of tax
   
     
     
     
     
     
1,566
     
     
1,566
 
Common stock dividends
   
     
     
     
     
     
     
(1,442
)
   
(1,442
)
Repurchase of common stock
   
(3
)
   
     
(224
)
   
(9
)
   
(976
)
   
     
(2,811
)
   
(3,796
)
Restricted stock grants
   
     
     
31
     
1
     
581
     
     
     
582
 
Balance at September 30, 2019
   
2,609
   
$
112
     
11,739
   
$
501
   
$
53,670
   
$
9,594
   
$
299,553
   
$
363,430
 


See notes to condensed consolidated financial statements.

- 5 -


Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Shareholders' Equity
(in thousands)

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


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


See notes to condensed consolidated financial statements.

- 6 -


Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

   
Nine Months Ended
September 30
 
   
2019
   
2018
 
Operating activities
           
Net income (loss)
 
$
3,576
   
$
(9,508
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
   
58,746
     
69,878
 
Net cash provided by operating activities
   
62,322
     
60,370
 
                 
Investing activities
               
Purchases of fixed income and equity securities
   
(342,299
)
   
(330,217
)
Purchases of limited partnership interests
   
     
(450
)
Distributions from limited partnerships
   
33,395
     
369
 
Proceeds from maturities
   
64,536
     
46,620
 
Proceeds from sales of fixed income securities
   
118,725
     
181,867
 
Proceeds from sales of equity securities
   
19,408
     
117,692
 
Purchase of insurance company-owned life insurance
   
     
(10,000
)
Purchase of commercial mortgage loans
   
(2,746
)
   
 
Purchases of property and equipment
   
(1,659
)
   
(4,360
)
Proceeds from disposals of property and equipment
   
4
     
8
 
Net cash provided by (used in) investing activities
   
(110,636
)
   
1,529
 
                 
Financing activities
               
Dividends paid to shareholders
   
(4,429
)
   
(12,652
)
Repurchase of common shares
   
(10,283
)
   
(2,620
)
Net cash used in financing activities
   
(14,712
)
   
(15,272
)
                 
Effect of foreign exchange rates on cash and cash equivalents
   
402
     
(209
)
                 
Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents
   
(62,624
)
   
46,418
 
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period
   
170,811
     
68,713
 
Cash, cash equivalents and restricted cash and cash equivalents at end of period
 
$
108,187
   
$
115,131
 

See notes to condensed consolidated financial statements.

- 7 -


Notes to Unaudited Condensed Consolidated Financial Statements
(All dollar amounts presented in these notes are in thousands, except share and per share data)

(1)  Summary of Significant Accounting Policies:

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

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

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

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

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

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

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

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

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

- 8 -

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

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

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

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

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

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

- 9 -

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

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

- 10 -

(2)  Investments:

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

   
Fair
Value
   
Cost or
Amortized Cost
   
Gross
Unrealized Gains
   
Gross
Unrealized Losses
   
Net Unrealized
Gains (Losses)
 
September 30, 2019
                             
Fixed income securities
                             
Agency collateralized mortgage obligations
 
$
14,426
   
$
13,911
   
$
518
   
$
(3
)
 
$
515
 
Agency mortgage-backed securities
   
51,246
     
49,567
     
1,691
     
(12
)
   
1,679
 
Asset-backed securities
   
99,295
     
99,834
     
580
     
(1,119
)
   
(539
)
Bank loans
   
14,625
     
14,871
     
54
     
(300
)
   
(246
)
Certificates of deposit
   
2,835
     
2,835
     
     
     
 
Collateralized mortgage obligations
   
5,718
     
5,234
     
571
     
(87
)
   
484
 
Corporate securities
   
267,223
     
261,191
     
6,858
     
(826
)
   
6,032
 
Mortgage-backed securities
   
47,381
     
46,235
     
1,290
     
(144
)
   
1,146
 
Municipal obligations
   
32,986
     
32,280
     
755
     
(49
)
   
706
 
Non-U.S. government obligations
   
24,068
     
23,705
     
364
     
(1
)
   
363
 
U.S. government obligations
   
198,038
     
195,099
     
3,326
     
(387
)
   
2,939
 
Total fixed income securities
 
$
757,841
   
$
744,762
   
$
16,007
   
$
(2,928
)
 
$
13,079
 

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

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

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


- 11 -

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

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

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

   
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
   
2019
   
2018
   
2019
   
2018
 
Gross gains on available-for-sale fixed income securities sold during the period
 
$
2,407
   
$
2,690
   
$
9,710
   
$
8,824
 
Gross losses on available-for-sale fixed income securities sold during the period
   
(2,728
)
   
(2,743
)
   
(9,409
)
   
(8,539
)
                                 
Other-than-temporary impairments
   
(58
)
   
     
(404
)
   
 
                                 
Change in value of limited partnership investments
   
278
     
(1,073
)
   
1,000
     
(6,518
)
                                 
Gains on equity securities:
                               
Realized gains on equity securities sold during the period
   
1,520
     
502
     
1,571
     
1,455
 
Unrealized gains (losses) on equity securities held at the end of the period
   
(1,294
)
   
2,997
     
6,573
     
(817
)
Realized and unrealized gains on equity securities during the period
   
226
     
3,499
     
8,144
     
638
 
                                 
Net realized and unrealized gains (losses) on investments
 
$
125
   
$
2,373
   
$
9,041
   
$
(5,595
)

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


(3)  Reinsurance:

The following table summarizes the Company's transactions with reinsurers for the 2019 and 2018 comparative periods.

   
2019
   
2018
 
Three months ended September 30:
           
Premiums ceded to reinsurers
 
$
29,957
   
$
39,318
 
Losses and loss expenses ceded to reinsurers
   
27,228
     
44,015
 
Commissions from reinsurers
   
7,820
     
5,986
 
                 
Nine months ended September 30:
               
Premiums ceded to reinsurers
 
$
92,556
   
$
100,560
 
Losses and loss expenses ceded to reinsurers
   
86,876
     
92,651
 
Commissions from reinsurers
   
23,229
     
20,309
 
                 

- 12 -

(4)  Loss and Loss Expense Reserves:

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

   
Nine Months Ended
 
   
September 30
 
   
2019
   
2018
 
Reserves, gross of reinsurance recoverable, at the beginning of the year
 
$
865,339
   
$
680,274
 
Reinsurance recoverable on unpaid losses at the beginning of the year
   
375,935
     
308,143
 
Reserves at the beginning of the year
   
489,404
     
372,131
 
                 
Provision for losses and loss expenses:
               
Claims occurring during the current period
   
263,925
     
229,644
 
Claims occurring during prior periods
   
(1,589
)
   
14,683
 
Total incurred
   
262,336
     
244,327
 
                 
Loss and loss expense payments:
               
Claims occurring during the current period
   
53,836
     
49,510
 
Claims occurring during prior periods
   
133,196
     
123,167
 
Total paid
   
187,032
     
172,677
 
Reserves at the end of the period
   
564,708
     
443,781
 
                 
Reinsurance recoverable on unpaid losses at the end of the period
   
395,987
     
334,056
 
Reserves, gross of reinsurance recoverable, at the end of the period
 
$
960,695
   
$
777,837
 

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


(5)  Segment Information:

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

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

   
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
   
2019
   
2018
   
2019
   
2018
 
Revenues:
                       
Net premiums earned
 
$
110,288
   
$
96,807
   
$
335,931
   
$
314,209
 
Net investment income
   
6,703
     
5,578
     
19,434
     
16,010
 
Net realized and unrealized gains (losses) on investments
   
125
     
2,373
     
9,041
     
(5,595
)
Commissions and other income
   
2,716
     
3,413
     
6,761
     
7,488
 
Total revenues
 
$
119,832
   
$
108,171
   
$
371,167
   
$
332,112
 

- 13 -

(6)  Debt:

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


(7)  Taxes:

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

The effective federal tax rate on consolidated loss for the three months ended September 30, 2019 was 30.6% compared to 20.8% for the three months ended September 30, 2018.  The effective federal tax rate on consolidated income for the nine months ended September 30, 2019 was 19.6% compared to 22.1% on consolidated loss for the nine months ended September 30, 2018.  The lower pre-tax loss for the three months ended September 30, 2019 as well as the relatively low amount of pre-tax income for the nine months ended September 30, 2019 make these interim period effective tax rates less comparable year over year.  The difference in the effective federal income tax rate from the normal statutory rate was primarily related to the effects of tax-exempt investment income and the dividends received deduction. 

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

- 14 -

(8)  Fair Value:

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

As of September 30, 2019:

Description
 
Total
   
Level 1
   
Level 2
   
Level 3
 
Fixed income securities:
                       
Agency collateralized mortgage obligations
 
$
14,426
   
$
   
$
14,426
   
$
 
Agency mortgage-backed securities
   
51,246
     
     
51,246
     
 
Asset-backed securities
   
99,295
     
     
99,295
     
 
Bank loans
   
14,625
     
     
14,625
     
 
Certificates of deposit
   
2,835
     
2,835
     
     
 
Collateralized mortgage obligations
   
5,718
     
     
5,718
     
 
Corporate securities
   
262,656
     
     
262,656
     
 
Options embedded in convertible securities
   
4,567
     
     
4,567
     
 
Mortgage-backed securities
   
47,381
     
     
47,381
     
 
Municipal obligations
   
32,986
     
     
32,986
     
 
Non-U.S. government obligations
   
24,068
     
     
24,068
     
 
U.S. government obligations
   
198,038
     
     
198,038
     
 
Total fixed income securities
   
757,841
     
2,835
     
755,006
     
 
Equity securities:
                               
Consumer
   
15,387
     
15,387
     
     
 
Energy
   
3,010
     
3,010
     
     
 
Financial
   
29,829
     
29,829
     
     
 
Industrial
   
4,488
     
4,488
     
     
 
Technology
   
2,609
     
2,609
     
     
 
Funds (e.g. mutual funds, closed end funds, ETFs)
   
9,438
     
9,438
     
     
 
Other
   
8,076
     
8,076
     
     
 
Total equity securities
   
72,837
     
72,837
     
     
 
Short-term investments
   
1,000
     
1,000
     
     
 
Cash equivalents
   
78,072
     
     
78,072
     
 
Total
 
$
909,750
   
$
76,672
   
$
833,078
   
$
 

- 15 -

As of December 31, 2018:

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

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

Level Input:
 
Input Definition:
     
Level 1
 
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
     
Level 2
 
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.
     
Level 3
 
Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.

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

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

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

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

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

- 16 -

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

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

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

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

   
Carrying
   
Fair Value
 
   
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
 
September 30, 2019
                             
Assets:  
                             
Limited partnerships
 
$
22,645
   
$
   
$
   
$
22,645
   
$
22,645
 
Commercial mortgage loans
   
9,418
     
     
     
9,418
     
9,418
 
Liabilities:  
                                       
Short-term borrowings
   
20,000
     
     
20,000
     
     
20,000
 
                                         
December 31, 2018
                                       
Assets:  
                                       
Limited partnerships
 
$
55,044
   
$
   
$
   
$
55,044
   
$
55,044
 
Commercial mortgage loans
   
6,672
     
     
     
6,672
     
6,672
 
Liabilities:  
                                       
Short-term borrowings
   
20,000
     
     
20,000
     
     
20,000
 


(9)  Stock-Based Compensation:

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

Grant Date
 
Number of
Shares Issued
 
Vesting Date
Service Period
 
Grant Date Fair
Value Per Share
 
5/9/2017
   
18,183
 
5/9/2018
7/1/2017 - 6/30/2018
 
$
24.20
 
                     
8/31/2017
   
1,257
 
5/9/2018
8/31/2017 - 6/30/2018
 
$
21.90
 
                     
2/9/2018
   
408
 
5/9/2018
2/9/2018 - 6/30/2018
 
$
24.20
 
                     
5/8/2018
   
19,085
 
5/8/2019
7/1/2018 - 6/30/2019
 
$
23.05
 
                     
5/7/2019
   
29,536
 
5/7/2020
7/1/2019 - 6/30/2020
 
$
16.25
 
                     
5/17/2019
   
3,591
 
5/7/2020
7/1/2019 - 6/30/2020
 
$
16.25