| Closing Price ($) | Shares Out (MM) | Market Cap ($MM) |
| $0.00 | 45 | $3,877 |
| 8-K | 2019-11-13 | Other Events, Exhibits |
| 8-K | 2019-08-21 | Accountant, Exhibits |
| 8-K | 2019-08-14 | Other Events, Exhibits |
| 8-K | 2019-07-18 | Regulation FD, Exhibits |
| 8-K | 2019-07-17 | Earnings, Exhibits |
| 8-K | 2019-06-10 | Officers |
| 8-K | 2019-05-02 | Shareholder Vote, Other Events, Exhibits |
| 8-K | 2019-05-02 | Officers, Exhibits |
| 8-K | 2019-04-18 | Regulation FD, Exhibits |
| 8-K | 2019-04-17 | Earnings, Exhibits |
| 8-K | 2019-02-07 | Other Events, Exhibits |
| 8-K | 2019-01-24 | Regulation FD, Exhibits |
| 8-K | 2019-01-23 | Earnings, Exhibits |
| 8-K | 2018-11-08 | Other Events, Exhibits |
| 8-K | 2018-11-08 | Code of Ethics |
| 8-K | 2018-10-18 | Regulation FD, Exhibits |
| 8-K | 2018-10-17 | Earnings, Exhibits |
| 8-K | 2018-08-15 | Other Events, Exhibits |
| 8-K | 2018-08-15 | Other Events, Exhibits |
| 8-K | 2018-08-14 | Officers, Exhibits |
| 8-K | 2018-07-19 | Regulation FD, Exhibits |
| 8-K | 2018-07-18 | Earnings, Exhibits |
| 8-K | 2018-05-24 | Enter Agreement, Off-BS Arrangement, Exhibits |
| 8-K | 2018-05-03 | Shareholder Vote, Other Events, Exhibits |
| 8-K | 2018-05-03 | Shareholder Vote, Other Events, Exhibits |
| 8-K | 2018-04-19 | Regulation FD, Exhibits |
| 8-K | 2018-04-18 | Earnings, Exhibits |
| 8-K | 2018-02-08 | Other Events, Exhibits |
| 8-K | 2018-01-25 | Regulation FD, Exhibits |
| 8-K | 2018-01-24 | Earnings, Exhibits |
| 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 3. Defaults Upon Senior Securities - Not Applicable. Item 4.Mine Safety Disclosures - Not Applicable. Item 5.Other Information - Not Applicable. |
| EX-31.1 | rli-20190930ex31100f390.htm |
| EX-31.2 | rli-20190930ex31244accf.htm |
| EX-32.1 | rli-20190930ex32170e6e4.htm |
| EX-32.2 | rli-20190930ex322c8147c.htm |
| Balance Sheet | Income Statement | Cash Flow |
|---|---|---|
| Comparables ($MM TTM) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Ticker | M Cap | Assets | Liab | Rev | G Profit | Net Inc | EBITDA | EV | G Margin | EV/EBITDA | ROA |
| AXS | 5,046 | 25,870 | 20,304 | 3,877 | 0 | 152 | 241 | 3,952 | 0% | 16.4 | 1% |
| MTG | 5,036 | 6,056 | 2,020 | 1,160 | 0 | 659 | 880 | 5,643 | 0% | 6.4 | 11% |
| RDN | 4,834 | 6,592 | 2,809 | 1,421 | 1,318 | 620 | 849 | 4,755 | 93% | 5.6 | 9% |
| ESNT | 4,820 | 3,540 | 836 | 791 | 0 | 509 | 606 | 5,020 | 0% | 8.3 | 14% |
| SIGI | 4,547 | 8,576 | 6,516 | 2,715 | 0 | 241 | 322 | 5,164 | 0% | 16.1 | 3% |
| AGO | 4,405 | 13,581 | 6,859 | 949 | 0 | 445 | 607 | 5,444 | 0% | 9.0 | 3% |
| RLI | 3,877 | 3,375 | 2,415 | 915 | 0 | 125 | 144 | 4,001 | 0% | 27.7 | 4% |
| ESGR | 3,689 | 18,225 | 13,262 | 2,012 | 0 | 491 | 572 | 3,662 | 0% | 6.4 | 3% |
| WTM | 3,433 | 3,752 | 744 | 767 | 75 | 178 | 236 | 3,513 | 10% | 14.9 | 5% |
| MCY | 3,399 | 5,717 | 3,949 | 2,896 | 1,993 | 196 | 278 | 3,158 | 69% | 11.4 | 3% |
13
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
(Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
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.
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).
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.
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 14, 2019, the number of shares outstanding of the registrant’s Common Stock was
Table of Contents
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RLI Corp. and Subsidiaries
Condensed Consolidated Statements of Earnings and Comprehensive Earnings
(Unaudited)
For the Three-Month Periods | For the Nine-Month Periods | |||||||||||
Ended September 30, | Ended September 30, | |||||||||||
(in thousands, except per share data) | 2019 | 2018 | 2019 | 2018 | ||||||||
Net premiums earned |
| $ | |
| $ | | $ | | $ | | ||
Net investment income |
| |
| |
| |
| | ||||
Net realized gains |
| |
| |
| |
| | ||||
Other-than-temporary impairment (OTTI) losses on investments | - | ( | - | ( | ||||||||
Net unrealized gains (losses) on equity securities | | | | ( | ||||||||
Consolidated revenue | $ | | $ | | $ | | $ | | ||||
Losses and settlement expenses |
| |
| |
| |
| | ||||
Policy acquisition costs |
| |
| |
| |
| | ||||
Insurance operating expenses |
| |
| |
| |
| | ||||
Interest expense on debt |
| |
| |
| |
| | ||||
General corporate expenses |
| |
| |
| |
| | ||||
Total expenses | $ | | $ | | $ | | $ | | ||||
Equity in earnings of unconsolidated investees |
| |
| |
| |
| | ||||
Earnings before income taxes | $ | | $ | | $ | | $ | | ||||
Income tax expense |
| |
| |
| |
| | ||||
Net earnings |
| $ | |
| $ | | $ | | $ | | ||
Other comprehensive earnings (loss), net of tax |
| |
| ( |
| |
| ( | ||||
Comprehensive earnings |
| $ | |
| $ | | $ | | $ | | ||
Earnings per share: | ||||||||||||
Basic: | ||||||||||||
Basic net earnings per share |
| $ | |
| $ | | $ | | $ | | ||
Basic comprehensive earnings per share |
| $ | |
| $ | | $ | | $ | | ||
Diluted: | ||||||||||||
Diluted net earnings per share |
| $ | |
| $ | | $ | | $ | | ||
Diluted comprehensive earnings per share |
| $ | |
| $ | | $ | | $ | | ||
Weighted average number of common shares outstanding: | ||||||||||||
Basic |
| |
| |
| |
| | ||||
Diluted |
| |
| |
| |
| | ||||
Cash dividends paid per common share |
| $ | |
| $ | | $ | | $ | | ||
See accompanying notes to the unaudited condensed consolidated interim financial statements.
3
RLI Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
September 30, | December 31, | |||||
(in thousands, except share data) |
| 2019 |
| 2018 | ||
ASSETS |
|
| ||||
Investments and cash: | ||||||
Fixed income: | ||||||
Available-for-sale, at fair value (amortized cost - $ |
| $ | |
| $ | |
Equity securities, at fair value (cost - $ |
| |
| | ||
Short-term investments, at cost which approximates fair value |
| |
| | ||
Other invested assets | | | ||||
Cash |
| |
| | ||
Total investments and cash | $ | | $ | | ||
Accrued investment income |
| |
| | ||
Premiums and reinsurance balances receivable, net of allowances for uncollectible amounts of $ |
| |
| | ||
Ceded unearned premium |
| |
| | ||
Reinsurance balances recoverable on unpaid losses and settlement expenses, net of allowances for uncollectible amounts of $ |
| |
| | ||
Deferred policy acquisition costs |
| |
| | ||
Property and equipment, at cost, net of accumulated depreciation of $ |
| |
| | ||
Investment in unconsolidated investees |
| |
| | ||
Goodwill and intangibles |
| |
| | ||
Other assets |
| |
| | ||
TOTAL ASSETS |
| $ | |
| $ | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||
Liabilities | ||||||
Unpaid losses and settlement expenses |
| $ | |
| $ | |
Unearned premiums |
| |
| | ||
Reinsurance balances payable |
| |
| | ||
Funds held |
| |
| | ||
Income taxes-deferred |
| |
| | ||
Bonds payable, long-term debt |
| |
| | ||
Accrued expenses |
| |
| | ||
Other liabilities |
| |
| | ||
TOTAL LIABILITIES |
| $ | |
| $ | |
Shareholders’ Equity | ||||||
Common stock ($ | ||||||
( | ||||||
( | $ | | $ | | ||
Paid-in capital |
| |
| | ||
Accumulated other comprehensive earnings (loss) |
| |
| ( | ||
Retained earnings |
| |
| | ||
Deferred compensation |
| |
| | ||
Less: Treasury shares at cost | ||||||
( |
| ( |
| ( | ||
TOTAL SHAREHOLDERS’ EQUITY | $ | | $ | | ||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | |
| $ | |
See accompanying notes to the unaudited condensed consolidated interim financial statements.
4
RLI Corp. and Subsidiaries
Condensed Consolidated Statements of Shareholders’ Equity
(Unaudited)
|
|
|
|
| Accumulated |
|
|
|
| |||||||||||||||
Total | Other | |||||||||||||||||||||||
Common | Shareholders’ | Common | Paid-in | Comprehensive | Retained | Deferred | Treasury | |||||||||||||||||
(in thousands, except share and per share data) | Shares | Equity | Stock | Capital | Earnings (Loss) | Earnings | Compensation | Shares at Cost | ||||||||||||||||
Balance, January 1, 2018 |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | ||||||||
Cumulative-effect adjustment from ASU 2016-01 and 2018-02 | — | | — | — | ( | | — | — | ||||||||||||||||
Net earnings |
| — | | — | — | — | | — | — | |||||||||||||||
Other comprehensive earnings (loss), net of tax |
| — |
| ( |
| — |
| — |
| ( |
| — |
| — |
| — | ||||||||
Deferred compensation |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| | ||||||||
Share-based compensation |
| |
| |
| |
| |
| — |
| — |
| — |
| — | ||||||||
Dividends and dividend equivalents ($ |
| — |
| ( |
| — |
| — |
| — |
| ( |
| — |
| — | ||||||||
Balance, March 31, 2018 |
| | $ | | $ | | $ | | $ | ( | $ | | $ | | $ | ( | ||||||||
Par value conversion from $ | — | — | ( | | — | — | — | — | ||||||||||||||||
Net earnings |
| — | | — | — | — | | — | — | |||||||||||||||
Other comprehensive earnings (loss), net of tax |
| — |
| ( |
| — |
| — |
| ( |
| — |
| — |
| — | ||||||||
Deferred compensation |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| | ||||||||
Share-based compensation |
| |
| |
| |
| |
| — |
| — |
| — |
| — | ||||||||
Dividends and dividend equivalents ($ |
| — |
| ( |
| — |
| — |
| — |
| ( |
| — |
| — | ||||||||
Balance, June 30, 2018 |
| | $ | | $ | | $ | | $ | ( | $ | | $ | | $ | ( | ||||||||
Net earnings |
| — | | — | — | — | | — | — | |||||||||||||||
Other comprehensive earnings (loss), net of tax |
| — |
| ( |
| — |
| — |
| ( |
| — |
| — |
| — | ||||||||
Deferred compensation |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| | ||||||||
Share-based compensation |
| |
| |
| |
| |
| — |
| — |
| — |
| — | ||||||||
Dividends and dividend equivalents ($ |
| — |
| ( |
| — |
| — |
| — |
| ( |
| — |
| — | ||||||||
Balance, September 30, 2018 |
| | $ | | $ | | $ | | $ | ( | $ | | $ | | $ | ( | ||||||||
|
|
|
|
| Accumulated |
|
|
| ||||||||||||||||
Total | Other |
| ||||||||||||||||||||||
Common | Shareholders’ | Common | Paid-in | Comprehensive | Retained | Deferred | Treasury |
| ||||||||||||||||
(in thousands, except share and per share data) | Shares | Equity | Stock | Capital | Earnings (Loss) | Earnings | Compensation | Shares at Cost |
| |||||||||||||||
Balance, January 1, 2019 |
| | $ | | $ | | $ | | $ | ( | $ | | $ | | $ | ( | ||||||||
Net earnings |
| — | | — | — | — | | — | — | |||||||||||||||
Other comprehensive earnings (loss), net of tax |
| — |
| |
| — |
| — |
| |
| — |
| — |
| — | ||||||||
Deferred compensation |
| — |
| — |
| — |
| — |
| — |
| — |
| ( |
| | ||||||||
Share-based compensation |
| |
| |
| |
| |
| — |
| — |
| — |
| — | ||||||||
Dividends and dividend equivalents ($ |
| — |
| ( |
| — |
| — |
| — |
| ( |
| — |
| — | ||||||||
Balance, March 31, 2019 |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | ||||||||
Net earnings |
| — | | — | — | — | | — | — | |||||||||||||||
Other comprehensive earnings (loss), net of tax |
| — |
| |
| — |
| — |
| |
| — |
| — |
| — | ||||||||
Deferred compensation |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| ( | ||||||||
Share-based compensation |
| |
| |
| |
| |
| — |
| — |
| — |
| — | ||||||||
Dividends and dividend equivalents ($ |
| — |
| ( |
| — |
| — |
| — |
| ( |
| — |
| — | ||||||||
Balance, June 30, 2019 |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | ||||||||
Net earnings |
| — | | — | — | — | | — | — | |||||||||||||||
Other comprehensive earnings (loss), net of tax |
| — |
| |
| — |
| — |
| |
| — |
| — |
| — | ||||||||
Deferred compensation |
| — |
| — |
| — |
| — |
| — |
| — |
| |
| ( | ||||||||
Share-based compensation |
| |
| |
| |
| |
| — |
| — |
| — |
| — | ||||||||
Dividends and dividend equivalents ($ |
| — |
| ( |
| — |
| — |
| — |
| ( |
| — |
| — | ||||||||
Balance, September 30, 2019 |
| | $ | | $ | | $ | | $ | | $ | | $ | | $ | ( | ||||||||
See accompanying notes to the unaudited condensed consolidated interim financial statements.
5
RLI Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine-Month Periods | ||||||
Ended September 30, | ||||||
(in thousands) | 2019 | 2018 | ||||
Net cash provided by operating activities |
| $ | |
| $ | |
Cash Flows from Investing Activities | ||||||
Investments purchased | $ | ( | $ | ( | ||
Investments sold |
| |
| | ||
Investments called or matured |
| |
| | ||
Net change in short-term investments |
| |
| ( | ||
Net property and equipment purchased |
| ( |
| ( | ||
Other | | | ||||
Net cash used in investing activities |
| $ | ( |
| $ | ( |
Cash Flows from Financing Activities | ||||||
Cash dividends paid |
| $ | ( |
| $ | ( |
Proceeds from stock option exercises |
| |
| | ||
Net cash used in financing activities |
| $ | ( |
| $ | ( |
Net increase in cash | $ | | $ | | ||
Cash at the beginning of the period | $ | | $ | | ||
Cash at September 30 |
| $ | |
| $ | |
See accompanying notes to the unaudited condensed consolidated interim financial statements.
6
NOTES TO UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. DESCRIPTION OF BUSINESS
RLI Corp. (the Company) is an insurance holding company that was organized in 1965. As reported in previous SEC filings, RLI Corp. changed its state of incorporation from the State of Illinois to the State of Delaware on May 4, 2018 (the Reincorporation). The Reincorporation was effected by merging RLI Corp., an Illinois corporation (RLI Illinois) into RLI Corp., a Delaware corporation (RLI Delaware). Each outstanding share of RLI Illinois common stock, which had a par value of $
B. BASIS OF PRESENTATION
The unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) for interim financial reporting and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. As such, these unaudited condensed consolidated interim financial statements should be read in conjunction with our 2018 Annual Report on Form 10-K. Management believes that the disclosures are adequate to make the information presented not misleading, and all normal and recurring adjustments necessary to present fairly the financial position at September 30, 2019 and the results of operations of RLI Corp. and subsidiaries for all periods presented have been made. The results of operations for any interim period are not necessarily indicative of the operating results for a full year. Certain reclassifications were made to 2018 to conform to the classifications used in the current year.
The preparation of the unaudited condensed consolidated interim financial statements requires management to make estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated interim financial statements and the reported amounts of revenue and expenses during the period. These estimates are inherently subject to change and actual results could differ significantly from these estimates.
C. ADOPTED ACCOUNTING STANDARDS
ASU 2016-02, Leases (Topic 842)
ASU 2016-02 was issued to improve the financial reporting of leasing transactions. Under previous guidance for lessees, leases were only included on the balance sheet if certain criteria, classifying the agreement as a capital lease, were met. This update requires the recognition of a right-of-use asset and a corresponding lease liability, discounted to the present value, for all leases that extend beyond 12 months. For operating leases, the asset and liability are expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability is recognized separately from the amortization of the right-of-use asset in the statement of earnings and the repayment of the principal portion of the lease liability is classified as a financing activity while the interest component is included in the operating section of the statement of cash flows.
We adopted ASU 2016-02, ASU 2018-10 Codification Improvements to Topic 842: Leases and ASU 2018-11 Leases (Topic 842): Targeted Improvements on January 1, 2019. We applied the standards using the alternative transition method provided by ASU 2018-11 under which leases were recognized at the date of adoption and a cumulative-effect adjustment to the opening balance of retained earnings would have been recognized in the period of adoption. As the standard did not have an impact on our net earnings, no adjustment to the opening balance of retained earnings was required. As of September 30, 2019, $
7
ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities
Under previous guidance, the amortization period for callable debt securities held at a premium was generally the contractual life of the instrument. However, if an entity had a large number of similar loans, it could consider estimates of future principal prepayments. For those who chose not to incorporate an estimate of future prepayments, ASU 2017-08 shortens the amortization period for premium on debt securities to the earliest call date, rather than the maturity date, to align the amortization method with how the securities are quoted, priced and traded. After the earliest call date, if the call option is not exercised, the entity shall reset the effective yield using the payment terms of the debt security. Any excess of the amortized cost basis over the amount payable will be amortized to the next call date or to maturity if there are no other call dates. The method of accounting for a discount does not change and will continue to be amortized over the life of the bond.
We adopted ASU 2017-08 on January 1, 2019 using a modified-retrospective approach. As we had been incorporating estimates of future principal prepayments when calculating the effective yield for bonds carrying a premium under the old guidance, the adoption of this update did not have a material impact on our financial statements.
ASU 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
ASU 2018-07 was issued to simplify the accounting for share-based transactions by expanding the scope of Topic 718 from only being applicable to share-based payments to employees to include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions will be measured by estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. We adopted ASU 2018-07 on January 1, 2019. Our long-term incentive plan limits the awards of share-based payments to employees and directors of the Company. As our share-based compensation expense to nonemployee directors was $
D. PROSPECTIVE ACCOUNTING STANDARDS
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
ASU 2016-13 was issued to provide more decision-useful information about the expected credit losses on financial instruments. Current GAAP delays the recognition of credit losses until it is probable a loss has been incurred. The update will require a financial asset measured at amortized cost, including reinsurance balances recoverable, to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net earnings. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses. However, the amendments would limit the amount of the allowance to the amount by which fair value is below amortized cost. The measurement of credit losses on available-for-sale securities is similar under current GAAP, but the update requires the use of the allowance account through which amounts can be reversed, rather than through an irreversible write-down.
This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018. Upon adoption, the update will be applied using the modified-retrospective approach, by which a cumulative-effect adjustment will be made to retained earnings as of the beginning of the first reporting period in which the guidance is effective. This update will have the most impact on our available-for-sale fixed income portfolio and reinsurance balances recoverable. However, as our fixed income portfolio is weighted towards higher rated bonds (
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement
ASU 2018-13 modifies the disclosure requirements for assets and liabilities measured at fair value. The requirements to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels and the valuation processes for Level 3 fair value measurements have all been removed. However, the changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period must be disclosed along with the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements (or other quantitative information if it is more
8
reasonable). Finally, for investments measured at net asset value, the requirements have been modified so that the timing of liquidation and the date when restrictions from redemption might lapse are only disclosed if the investee has communicated the timing to the entity or announced the timing publicly.
This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. As the amendments are only disclosure related and we do not currently have any assets or liabilities that are measured based on Level 3 inputs, our financial statements will not be materially impacted by this update.
ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract
ASU 2018-15 requires a customer in a cloud computing arrangement (i.e. hosting arrangement) that is a service contract to follow the internal-use software guidance to determine which implementation costs to capitalize as assets or expense as incurred. Relevant implementation costs in the development stage are capitalized, while costs incurred during the preliminary project and post-implementation stages are expensed as the activities are performed. Capitalized costs are expensed over the term of the hosting arrangement. This ASU is effective for annual and interim reporting periods beginning after December 15, 2019. Early adoption is permitted. This update can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently evaluating how the adoption of this ASU will affect our financial statements.
E. INTANGIBLE ASSETS
Goodwill and intangible assets totaled $
Goodwill and Intangible Assets | September 30, | December 31, | ||||
(in thousands) | 2019 | 2018 | ||||
Goodwill | ||||||
Energy surety | $ | | $ | | ||
Miscellaneous and contract surety | | | ||||
Small commercial | | | ||||
Total goodwill | $ | | $ | | ||
Intangibles | ||||||
State insurance licenses | $ | | $ | | ||
Definite-lived intangibles, net of accumulated amortization of $ | | | ||||
Total intangibles | $ | | $ | | ||