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 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

(Exact name of registrant as specified in its charter)

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

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, 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 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). Yes           No ____

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

Large accelerated filer ____    Accelerated filer        Non-accelerated filer ____

Small Reporting Company ____

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of November 1, 2015:

  Common Stock, No Par Value:

Class A (voting)                                                                                       2,623,109

Class B (nonvoting)                                                                               12,397,628

Index to Exhibits located on page 26.

PART I – FINANCIAL INFORMATION

 

See notes to condensed consolidated financial statements.

      See notes to condensed consolidated financial statements.

 

   

 

See notes to condensed consolidated financial statements.

 

See notes to condensed consolidated financial statements.

Notes to Condensed Unaudited Consolidated Financial Statements

(All dollar amounts presented in these notes are in thousands, except per share data)

(1) Summary of Significant Accounting Policies

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.  Operating results for the interim periods are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. 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 Form 10-K.

Investments: Carrying amounts for fixed maturity 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). 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 that the limited partnership investees 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 consolidated statements of operations, its proportionate share of the investee's unrealized as well as realized investment gains or losses.

Other investments, if any, are carried at either fair value or cost, depending on the nature of the investment.  Short-term investments are carried at cost which approximates their fair values.

Realized gains and losses on disposals of investments are determined by specific identification of the cost of investments sold and are included in income.  All fixed maturity and equity securities are considered to be available for sale; the related unrealized net gains or losses (net of applicable tax effect) are reflected directly in shareholders' equity.  Included within available for sale fixed maturity securities are insurance-linked securities and convertible debt securities.  The changes in fair values of insurance-linked securities and portions of the changes in fair values of convertible debt securities are reflected as a component of net realized gains (losses) on investments.

Notes to Condensed Unaudited Consolidated Financial Statements (continued)

With respect to other–than-temporary impairment of investments, if a fixed maturity security is in an unrealized loss position and the Company has the intent to sell the fixed maturity security, or it is more likely than not that the Company will have to sell the fixed maturity security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to net realized losses on investments in the consolidated statements of income.   For impaired fixed maturity securities that the Company does not intend to sell or 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 net realized losses on investments in the consolidated statements of income and the non-credit component of the other-than-temporary impairment is recognized directly in shareholders' equity (accumulated other comprehensive income).

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 maturity security.  Furthermore, unrealized losses caused by non-credit related factors related to fixed maturity securities for which the Company expects to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive income.

The unrealized net gains or losses (net of applicable tax effect) related to equity securities are reflected directly in shareholders' equity, unless a decline in value is determined to be other-than-temporary, in which case the loss is charged to income. In determining if and when a decline in market value below cost is other-than-temporary, an objective analysis is made of each individual security where current market value is less than cost.  For any equity security where the unrealized loss exceeds 20% of original or adjusted cost, and where that decline has existed for a period of at least six months, the decline is treated as an other-than-temporary impairment, subject to an evaluation as to possible future recovery.  Additionally, the Company takes into account any known subjective information in evaluating for impairment without consideration to the Company's quantitative criteria defined above.

Recent Accounting Pronouncements: In May 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2015-09, Disclosures about Short-Duration Contracts, and this new guidance will enhance disclosures about an entity's insurance liabilities. This guidance will provide additional information about unpaid claims and claim development, including supplemental disaggregated incurred and paid claim data.  Under the guidance, enhanced disclosures on claim frequency and reserving methodologies are required. The guidance is effective for annual periods beginning after December 15, 2015 and for interim periods beginning after December 15, 2016, however early adoption is permitted. We have not yet adopted the guidance and the adoption of this guidance is not expected to have a material impact on presentation of data in the consolidated financial statements.

Notes to Condensed Unaudited Consolidated Financial Statements (continued)

(2) Investments:

The following is a summary of available-for-sale securities at September 30, 2015 and December 31, 2014:

 

 

 

Notes to Condensed Unaudited Consolidated Financial Statements (continued)

The following table summarizes, for fixed maturity and equity security investments in an unrealized loss position at September 30, 2015 and December 31, 2014, respectively, the aggregate fair value and gross unrealized loss categorized by the duration those securities have been continuously in an unrealized loss position.

 

The fair value and the cost or amortized costs of fixed maturity investments at September 30, 2015, 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.

Notes to Condensed Unaudited Consolidated Financial Statements (continued)

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

Net realized gains activity for investments, as shown in the previous table, are further detailed as follows:

The mark-to-market adjustments in the table above represent the changes in fair value of (1) options embedded in convertible debt securities and (2) insurance-linked securities held by the Company.

Notes to Condensed Unaudited Consolidated Financial Statements (continued)

The income from limited partnerships for the quarter and year-to-date periods ending September 30, 2015 includes an estimated $9,335 and $8,280 of net unrealized losses respectively, reported to the Company as part of the underlying assets of the various limited partnerships.  The value of limited partnerships at September 30, 2015 includes approximately $4,967 of accumulated net unrealized gains reported to the Company as part of the underlying assets of the various limited partnerships. Shareholders' equity at September 30, 2015 includes approximately $26,236, net of federal income taxes, of reported earnings which remain undistributed by limited partnerships.

As of September 30, 2015, the Company had committed funds totaling $17,000 to two separate borrowers related to bridge loan agreements.  The Company retains possession of these funds which will only be loaned in the unlikely event that long-term financing is unavailable to the counter party in the market.

(3) Reinsurance:

The following table summarizes the Company's transactions with reinsurers for the 2015 and 2014 comparative periods.

(4) Reportable Segments:

The Company has two reportable business segments in its operations:  Property and Casualty Insurance and Reinsurance.

The Property and Casualty Insurance segment provides multiple line insurance coverage primarily to fleet transportation companies as well as to independent contractors who contract with fleet transportation companies. In addition, the Company provides private passenger automobile products to individuals, workers' compensation coverage to small businesses and professional liability products on a selective basis.

The Reinsurance segment currently accepts professional liability cessions from other insurance companies.  From 1992 until July 1, 2014, the Reinsurance segment accepted property cessions

 

Notes to Condensed Unaudited Consolidated Financial Statements (continued)

from other insurance companies and retrocessions from reinsurance companies, principally reinsuring against catastrophes.  Final exposure to property catastrophe losses expired on June 30, 2015.

The following table provides certain revenue and profit and loss information for each reportable segment. All amounts presented are computed based upon U.S. generally accepted accounting principles.  Segment profit for Property and Casualty Insurance includes the direct marketing agency operations conducted by the parent company for this segment and is computed after elimination of inter-company commissions.

The following table reconciles reportable segment income to the Company's consolidated income before federal income taxes.

Segment profit includes both net premiums earned and fees and other income associated with the business conducted by the segment.

Management does not identify or allocate assets to reportable segments when evaluating segment performance and depreciation expense is not material for any of the reportable segments.

 

 

Notes to Condensed Unaudited Consolidated Financial Statements (continued)

(5) Debt:

The Company maintains a revolving line of credit with a $40,000 limit and an expiration date of September 23, 2018.  Interest on this line of credit is referenced to LIBOR and can be fixed for periods of up to one year at the Company's option.  Outstanding drawings on this line of credit were $20,000 as of both September 30, 2015 and December 31, 2014.  At September 30, 2015, the effective interest rate was 1.30%.  The Company has $20,000 remaining unused under the line of credit at September 30, 2015. 

(6) Taxes:

As of September 30, 2015, the Company's calendar years 2012 through 2014 remain subject to examination by the IRS.  The effective federal income tax rate differs from the normal statutory rate primarily as a result of tax-exempt investment income.

(Space Intentionally Left Blank)

Notes to Condensed Unaudited Consolidated Financial Statements (continued)

(7) Fair Value:

Assets and liabilities recorded at fair value in the 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:

Notes to Condensed Unaudited Consolidated Financial Statements (continued)

Level inputs, as defined by FASB Fair Value Measurements, are as follows:

 

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 following methods, assumptions and inputs were used to determine the fair value of each class of the following assets recorded at fair value in the consolidated balance sheets:

Cash equivalents: Cash equivalents primarily consist of highly rated money market funds purchased at par value with specified yield rates. Due to underlying assets of these funds, we designate all cash equivalents as Level 2.

Fixed maturities: Fair values of fixed maturities are based on quoted market prices, where available. These fair values are obtained primarily from third party pricing services, which generally use Level 2 inputs for the determination of fair value to facilitate fair value measurements and disclosures.  For securities not actively traded, the third party pricing services may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, credit spreads, default rates and prepayment speeds.  The Level 3 assets consist of a portfolio of corporate convertible bonds and commercial mortgage-backed securities.  The assets are valued using various unobservable inputs including extrapolated data, proprietary models and indicative quotes.

Equity securities: Fair values of equity securities are designated as Level 1 and are based on quoted market prices.

Notes to Condensed Unaudited Consolidated Financial Statements (continued)

A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows for the nine months ended September 30, 2015 and for the year ended December 31, 2014:

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, 2015 and 2014.

In addition to the preceding disclosures on assets recorded at fair value in the 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 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 reserves for losses and loss expenses are excluded from the fair value disclosures.  Therefore, the fair value amounts cannot be aggregated to determine the Company's underlying economic value.

The carrying amounts reported in the consolidated balance sheets for cash, accounts receivables, reinsurance recoverable, notes receivable, accounts payable and accrued expenses, income taxes receivable or payable and unearned premiums approximate fair value because of the short-term nature of these items.  These assets and liabilities are not included in the table below.

The following methods, assumptions and inputs were used to estimate the fair value of each class of financial instrument:

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, and, therefore, the Company's carrying value of limited partnerships approximates fair value.  As these investments are not actively traded and there are limitations on distributions and the corresponding inputs are based on data provided by the investees, they are classified as Level 3.

 

 

 

Notes to Condensed Unaudited Consolidated Financial Statements (continued)

Short-term borrowings: The fair value of our 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 us 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 consolidated balance sheets at September 30, 2015 and December 31, 2014 are as follows:

(8) Restricted Stock:

The Company grants shares of class B restricted stock to the Company's outside directors, in lieu of cash, as their annual retainer compensation.  The shares are distributed on the vesting date, one year following the date of grant, and have had an aggregate total value of $440 and $480 for the 2014 and 2015 annual periods presented, respectively.  The table below provides detail of the stock issuances for 2014 and 2015:

Compensation expense related to the above stock grant is recognized over the period in which the directors render services.

Effective February 4, 2015, the Company issued 36,646 shares of class B restricted stock to certain of the Company's executives as a portion of compensation under the Company's 2014 Executive Incentive Bonus Plan.  The restricted shares will vest ratably over a three year period from the date of grant with acceleration for retirement eligible recipients in accordance with the non-substantive post-grant date vesting clause per Accounting Standards Codification 715, Compensation-Retirement Benefits.  Restricted stock was valued based on the closing price of the stock on the day the award was granted.  Each share was valued at $23.29 per share

 

 

Notes to Condensed Unaudited Consolidated Financial Statements (continued)

representing a total value of $853. Non-vested restricted shares will be forfeited should an executive's employment terminate for any reason other than death, disability, or retirement as defined by the 2014 Executive Incentive Bonus Plan.

(9) Litigation, Commitments and Contingencies:

In the ordinary, regular and routine course of their business, the Company and its insurance subsidiaries are frequently involved in various matters of litigation relating principally to claims for insurance coverage provided. No currently pending matter is deemed by management to be material to the Company.

(10) Accumulated Other Comprehensive Income:

The following table illustrates changes in accumulated other comprehensive income by component for the nine months ending September 30, 2015:

(11) Subsequent Events:

We have evaluated subsequent events for recognition or disclosure in the consolidated financial statements filed on Form 10-Q with the SEC and no events have occurred during the period which require recognition or disclosure.

              AND RESULTS OF OPERATIONS

The Company generally experiences positive cash flow from operations resulting from the fact that premiums are collected on insurance policies in advance of the disbursement of funds in payment of claims.  Operating costs of the property/casualty insurance subsidiaries, other than loss and loss expense payments and commissions paid to related agency companies, generally average less than one-third of premiums earned and the remaining amount is available for investment for varying periods of time pending the settlement of claims relating to the insurance coverage provided. The Company's cash flow relating to premiums is significantly affected by reinsurance programs in effect from time-to-time whereby the Company cedes both premium and risk to other insurance and reinsurance companies.  These programs vary significantly among products and certain contracts call for reinsurance payment patterns which do not coincide with the collection of premium by the Company from its insureds.

For the first nine months of 2015, the Company produced positive cash flow from operations totaling $30.8 million, level with positive cash flow from operations of $31.1 million generated during the first nine months of 2014 with the small difference reflective of normal variances in the timing and amount of loss, LAE and other operating expense payments.  The Company has achieved positive cash flow in 23 of the past 25 quarters averaging $11.7 million per quarter.

The Company's investment philosophy has emphasized the purchase of relatively short-term instruments with maximum quality and liquidity. The average life of the Company's fixed income (bond and short-term investment) portfolio, using contractual maturities applied to par value, was 4.7 years at September 30, 2015, and the effective duration of the portfolio was 1.9 years, both of which are shorter than the average life of the Company's liabilities.

Financing activity for the first nine months of 2015 consisted solely of the regular cash dividend payments to shareholders of $11.3 million ($.75 per share).

The Company's assets at September 30, 2015 included $62.1 million in investments classified as cash equivalents that were readily convertible to cash without significant market penalty.  An additional $76.5 million of fixed maturity investments (at par) will mature within the twelve-month period following September 30, 2015.  The Company believes that these liquid investments are more than sufficient to provide for projected claim payments and operating cost demands without consideration of expected future positive cash flows.

Consolidated shareholders' equity is composed largely of GAAP shareholders' equity of the insurance subsidiaries. As such, there are statutory restrictions on the transfer of substantial portions of this equity to the parent company.  At September 30, 2015, $49.4 million may be transferred by dividend or loan to the parent company during the remainder of 2015 without approval by, or prior notification to, regulatory authorities. An additional $243.4 million of shareholder's equity of the insurance subsidiaries could, theoretically, be advanced or loaned to the parent company with prior notification to, and approval from, regulatory authorities, although transfers of this size would not be practical.  The Company believes that these restrictions pose no material liquidity concerns to the Company.  The Company also believes that the financial strength and stability of the subsidiaries would permit ready access by the parent company to short-term and long-term sources of credit.  The parent company had cash and marketable securities valued at $13.9 million at September 30, 2015.

 

 

The Company's annualized net premiums written to surplus ratio, a common industry metric to measure surplus leverage, for the first nine months of 2015 was approximately 65%.  Regulatory guidelines generally allow for a ratio of between 100% and 300% of surplus, depending on the lines of business written.  Accordingly, the Company could increase net premium writings significantly with no need to raise additional capital to satisfy regulatory requirements. Further, the insurance subsidiaries' individual capital levels are several times higher than the minimum amounts designated by the National Association of Insurance Commissioners.

Direct and assumed premiums written during the third quarter of 2015 increased $1.4 million (1.4%), while net premiums earned decreased $0.5 million (0.8%), as compared to the same period of 2014.  The Company's Property and Casualty Insurance segment reported an increase in premium written of 9.4% and an increase in earned premiums of 6.6%, reflecting higher premium from the Company's core fleet transportation products, partially offset by the continued planned reduction in professional liability volume.  The Reinsurance segment reported a decrease in premium written of 66.1% and a decrease in premium earned of 47.9% reflecting the completion of the Company's planned withdrawal from property catastrophe reinsurance.  The difference in the percentage changes for premium written compared to earned is reflective of the normal differences in the financial statement recognition of earned premium compared to written as well as the differences in reinsurance ceding rates on the mix of business in force.  The following table provides information regarding premiums written and earned for each segment for the quarters ended September 30 (dollars in thousands):

Premium ceded to reinsurers on insurance business produced by the Property and Casualty Insurance segment averaged 35.7% of premium written for the current quarter compared to 33.4% in the 2014 third quarter, with the increase associated principally with changes in relative premium earned volume for certain products.  There have been no material changes in the terms of major reinsurance treaties since 2014.

Net investment income, before tax, during the third quarter of 2015 was 45.4% higher than the third quarter of 2014 due primarily to increased pre-tax yields on the Company's fixed maturity securities resulting from redeployment of assets from lower yielding issues and from higher dividend yields on the equity securities portfolio.  Overall investment portfolio after-tax income increased 34.5% compared to the 2014 third quarter while average invested funds increased 1%.

The third quarter 2015 net realized investment losses of $2.1 million resulted primarily from $6.3 million in losses reported from limited partnerships and $3.4 million in losses related to impairment allowances on energy industry bonds, partially offset by $8.0 million in realized gains from direct trading activities.  Comparative third quarter 2014 overall net realized investment gains were $0.7 million, consisting primarily of $2.2 million in gains from direct trading activities, partially offset by $1.1 million in losses from limited partnerships.  Realized investment gains and losses result from decisions regarding the sale of individual securities and the change in the aggregate value of limited partnerships and, as such, should not be expected to be consistent from period to period.

Losses and loss expenses incurred during the third quarter of 2015 decreased $3.5 million (9.0%).  The loss ratios for each segment were as follows:

The decrease in loss ratio for the Property and Casualty Insurance segment primarily relates to more favorable loss activity in the Company's core fleet transportation and professional liability products.  The lower Reinsurance segment loss ratio reflects property reinsurance losses reported during the third quarter of 2014 associated with Midwest storm losses which elevated that quarter's ratio.

Other operating expenses, for the third quarter of 2015, decreased $2.5 million, or 10.8%, from the third quarter of 2014.  The ratio of consolidated other operating expenses to operating revenue was 30.7% during the third quarter of 2015 compared to 33.3% for the 2014 third quarter. The lower expense ratios are reflective of higher ceding commissions from reinsurers and the termination of business which carried higher acquisition costs.

The effective federal tax rate on consolidated income for the third quarter of 2015 was 33.0%.  The effective rate differs from the normal statutory rate primarily as a result of tax-exempt investment income.

 

 

As a result of the factors mentioned above, and primarily the decrease in loss and loss expenses and other operating expenses, net income increased $2.0 million during the third quarter of 2015 as compared to the 2014 period.

Direct and assumed premiums written during the first nine months of 2015 increased $1.3 million (0.5%), while net premiums earned increased $4.6 million (2.4%), as compared to the same period of 2014. The Company's Property and Casualty Insurance segment reported an increase in premium written of 7.4% and an increase in earned premiums of 10.1%, reflecting higher premium from the Company's fleet transportation products. The Reinsurance segment reported a decrease in premium written of 56.6% and a decrease in premium earned of 40.9% reflecting the Company's continued planned withdrawal from property catastrophe reinsurance.  The difference in the percentage changes for premium written compared to earned is reflective of the normal differences in the recognition of earned premium compared to written as well as the differences in reinsurance ceding rates on the mix of business in force.  The following table provides information regarding premiums written and earned for each segment for the nine months ended September 30 (dollars in thousands):

Premium ceded to reinsurers on insurance business produced by the Property and Casualty Insurance segment averaged 35.0% of premium written for the current year period compared to 35.5% a year earlier, with the minor decrease associated principally with changes in the mix of premium earned.  There were no material differences in the terms of major reinsurance treaties between the periods.

Net investment income, before tax, during the first nine months of 2015 was 35.2% higher than the first nine months of 2014 for the same reasons mentioned in the quarterly comparison. Overall investment portfolio after-tax income increased 29.3% compared to the 2014 period while average invested funds increased 1%.

 

 

Net realized investment gains for the first nine months of 2015 totaled $0.5 million and resulted primarily from $7.5 million in gains from direct trading activities, substantially offset by $2.1 million in losses from limited partnership activity and $4.3 million in losses related to impairment allowances, as mentioned in the quarterly comparison.  For the same period of 2014, overall net realized investment gains were $12.8 million, consisting primarily of $7.2 million in gains from limited partnerships and $5.8 million in gains from direct trading activities.  Realized investment gains and losses result from decisions regarding the sale of individual securities and the change in total value of limited partnerships and, as such, should not be expected to be consistent from period to period.

Losses and loss expenses incurred during the first nine months of 2015 decreased $4.4 million (3.7%). The loss ratios for each segment were as follows:

The decrease in loss ratio for the Property and Casualty Insurance segment primarily relates to more favorable loss activity in the Company's core fleet transportation and professional liability products.  The lower Reinsurance segment loss ratio reflects the second quarter 2014 storm losses which elevated that period's ratio while the first nine months of 2015 experienced no significant property losses.

Other operating expenses, for the first nine months of 2015, increased $0.7 million, or 1.1%, from the first nine months of 2014.  The ratio of consolidated other operating expenses to operating revenue was 32.4% during the 2015 period compared to 32.5% for the 2014 period.

The effective federal tax rate on consolidated income for the first nine months of 2015 was 32.7%. The effective rate differs from the normal statutory rate primarily as a result of tax-exempt investment income.

As a result of the factors mentioned above, and primarily the difference in realized investment gains and losses, net income decreased $1.7 million as compared to the 2014 period.

Any forward-looking statements in this report, including without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties including without limitation the following: (i) the Company's plans, strategies, objectives, expectations and intentions are subject to change at any time at the discretion of the Company;  (ii) the Company's business is highly competitive and the entrance of new competitors into or the expansion of the operations by existing competitors in the Company's markets and other changes in the market for insurance products could adversely affect the Company's plans and results of operations; (iii) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission; and (iv) other risks and factors which may be beyond the control or foresight of the Company.  Readers are     encouraged to review the Company's annual report for its full statement regarding forward-looking information.

 

 

There have been no changes in the Company's critical accounting policies as disclosed in the Form 10-K filed for the year ended December 31, 2014.

The insurance subsidiaries cede portions of their gross premiums to numerous reinsurers under quota share and excess of loss treaties as well as facultative placements.  These reinsurers assume commensurate portions of the risk of loss covered by the contracts.  As losses are reported and reserved, portions of the gross losses attributable to reinsurers are established as receivable assets and losses incurred are reduced.  At September 30, 2015, amounts due from reinsurers on paid and unpaid losses, are estimated to total approximately $220 million.  Of this total, approximately $90 million (41%) represents the Company's provision for incurred but not reported losses and loss adjustment expenses attributable to reinsurers.  Because of the large policy limits reinsured by the Company, the ultimate amount of incurred but not reported losses and loss adjustment expenses attributable to reinsurers could vary significantly from the estimate provided; however, absent the inability to collect from reinsurers, such variance would not result in changes in net claim losses incurred by the Company.

At September 30, 2015, limited partnership investments include approximately $45.1 million consisting of two partnerships which are managed by organizations in which certain of the Company's directors are officers, directors, general partners or owners.  Each of these investments contains profit sharing agreements to the affiliated organizations.

At September 30, 2015, invested assets other than limited partnerships include approximately $59.0 million in portfolios managed by organizations in which certain of the Company's directors are officers, directors, general partners or owners.

There have been no material changes in our exposure to market risk since the disclosure in our Form 10-K for the year ended December 31, 2014.

 

 

The Company carried out an evaluation as of December 31, 2014, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures as defined in Rule 13a-15(e) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, the "Exchange Act". Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in timely alerting the Company to material information required to be disclosed in reports under the Exchange Act. In addition, based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective in ensuring that information required to be disclosed in reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. The Company noted no change in internal control over financial reporting that occurred during the last fiscal quarter that materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.