Atlas Financial Holdings, Inc. - FORM 10-Q - March 26, 2020

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EX-31.1 - EXHIBIT 31.1 - Atlas Financial Holdings, Inc.q22019exhibit311.htm
EX-32.2 - EXHIBIT 32.2 - Atlas Financial Holdings, Inc.q22019exhibit322.htm
EX-32.1 - EXHIBIT 32.1 - Atlas Financial Holdings, Inc.q22019exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - Atlas Financial Holdings, Inc.q22019exhibit312.htm

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:
 
COMMISSION FILE NUMBER:
June 30, 2019
 
000-54627
atlaslogonewa25.jpg
ATLAS FINANCIAL HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
 
 
CAYMAN ISLANDS
  
27-5466079

(State or other jurisdiction of
  
(I.R.S. Employer
incorporation or organization)
  
Identification No.)
 
 
953 AMERICAN LANE, 3RD FLOOR

  
60173
Schaumburg, IL
  
(Zip Code)
(Address of principal executive offices)
  
 
Registrant’s telephone number, including area code: (847) 472-6700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common, $0.003 par value per share
 
AFH
 
Nasdaq Capital Market
6.625% Senior Unsecured Notes due 2022
 
AFHBL
 
OTC Markets - Pink Sheets
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
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  þ
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  þ   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        þ
Non-Accelerated Filer ¨                            Smaller Reporting Company    þ
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  þ
There were 11,942,812 shares of the Registrant’s common stock outstanding as of September 30, 2019, all of which are ordinary voting common shares. There are no restricted voting common shares. Of the Registrant’s ordinary voting common shares outstanding, 10,341,508 shares as of September 30, 2019 were held by non-affiliates of the Registrant.
For purposes of the foregoing calculation only, the Registrant has included in the shares owned by affiliates, those shares owned by directors and officers of the Registrant, but such inclusion shall not be construed as an admission that any such person is an affiliate for any purpose.



Explanatory Note:

This Quarterly Report on Form 10-Q for Atlas Financial Holdings, Inc. (the “Company”) relates to the fiscal quarter ended June 30, 2019. As previously disclosed, the Company has been unable to previously file this quarterly report due to delays in the 2018 year end audit process. Unless otherwise noted, disclosures in this quarterly report, including disclosures regarding the Company’s financial and operating condition, are as of June 30, 2019. An overview of certain developments that occurred since June 30, 2019 is included in ‘Item 1, 2019 Developments’ and “Risk Factors - Risks Related to 2019 Developments” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. We expect to file our Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, as soon as practicable.




Atlas Financial Holdings, Inc.
Index to Quarterly Report on Form 10-Q
June 30, 2019
 
Financial Statements and Supplemental Schedules
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
I. Overview
 
 
II. Operating Results
 
 
III. Financial Condition
 
 
 
 
 
 
 
 
 
 
 





Part I. Financial Information
Item 1. Financial Statements and Supplemental Schedules
Atlas Financial Holdings, Inc.
Condensed Consolidated Statements of Financial Position
($ in ‘000s, except for share and per share data)
June 30, 2019
December 31, 2018
Assets
(unaudited)
 
Investments
 
 
Fixed income securities, available for sale, at fair value (amortized cost $91,790 and $133,213)
$
92,383

$
129,991

Equity securities, at fair value (cost $0 and $5,650)
4

5,929

Short-term investments, at cost
15,383

4,745

Other investments
21,984

25,043

Total investments
129,754

165,708

Cash and cash equivalents
54,090

34,902

Accrued investment income
507

749

Premiums receivable (net of allowance of $5,890 and $5,115)
83,009

88,596

Reinsurance recoverables on amounts paid
12,145

12,388

Reinsurance recoverables on amounts unpaid
72,229

68,771

Prepaid reinsurance premiums
55,559

36,898

Deferred policy acquisition costs
6,874

7,309

Intangible assets, net
3,560

3,755

Property and equipment, net
31,603

31,363

Other assets
11,089

19,899

Total assets
$
460,419

$
470,338

Liabilities
 
 
Claims liabilities
$
252,670

$
273,496

Unearned premium reserves
143,778

134,040

Due to reinsurers
14,214

15,849

Notes payable, net
24,367

24,255

Other liabilities and accrued expenses
19,332

16,999

Total liabilities
$
454,361

$
464,639

Commitments and contingencies (see Note 8)


Shareholders' Equity
 
 
Ordinary voting common shares, $0.003 par value, 266,666,667 shares authorized, shares issued: June 30, 2019 - 12,198,319 and December 31, 2018 - 12,192,475; shares outstanding: June 30, 2019 - 11,942,812 and December 31, 2018 - 11,936,970
$
36

$
36

Restricted voting common shares, $0.003 par value, 33,333,334 shares authorized, shares issued and outstanding: June 30, 2019 and December 31, 2018 - 0
—

—

Additional paid-in capital
202,795

202,298

Treasury stock, at cost: 255,505 shares of ordinary common voting shares at June 30, 2019 and December 31, 2018, respectively
(3,000
)
(3,000
)
Retained deficit
(194,455
)
(190,503
)
Accumulated other comprehensive income (loss), net of tax
682

(3,132
)
Total shareholders' equity
$
6,058

$
5,699

Total liabilities and shareholders' equity
$
460,419

$
470,338

 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

1

Atlas Financial Holdings, Inc.
Condensed Consolidated Statements of (Loss) Income
and Comprehensive Income
Condensed Consolidated Statements of (Loss) Income
($ in ‘000s, except for share and per share data)
Three months ended June 30,
Six months ended June 30,
 
2019
2018
2019
2018
 
(unaudited)
(unaudited)
Net premiums earned
$
43,447

$
55,359

$
91,290

$
111,251

Net investment income
699

1,167

1,852

2,131

(Loss) income from change in fair value of equity securities
(342
)
33

(274
)
(95
)
Net realized gains
600

154

680

447

Other income
133

16

593

180

Total revenue
44,537

56,729

94,141

113,914

Net claims incurred
31,236

33,809

67,626

68,855

Acquisition costs
3,650

6,680

6,712

12,656

Other underwriting expenses
12,197

8,602

22,620

17,921

Amortization of intangible assets
97

98

195

195

Interest expense
470

461

940

916

Expenses recovered pursuant to stock purchase agreements
—

—

—

(520
)
Total expenses
47,650

49,650

98,093

100,023

(Loss) income from operations before income taxes
(3,113
)
7,079

(3,952
)
13,891

Income tax expense
—

1,503

—

2,786

Net (loss) income attributable to common shareholders
$
(3,113
)
$
5,576

$
(3,952
)
$
11,105

 
 
 
 
 
Basic weighted average common shares outstanding
11,954,494

11,936,970

11,956,621

12,046,855

Earnings per common share basic
$
(0.26
)
$
0.47

$
(0.33
)
$
0.92

Diluted weighted average common shares outstanding
11,954,494

11,952,266

11,956,621

12,070,343

Earnings per common share diluted
$
(0.26
)
$
0.47

$
(0.33
)
$
0.92

 
 
 
 
 
Condensed Consolidated Statements of Comprehensive Income
Net (loss) income
$
(3,113
)
$
5,576

$
(3,952
)
$
11,105

 
 
 
 
 
Other comprehensive income (loss:)
 
 
 
 
Changes in net unrealized investment gains (losses)
425

(933
)
2,438

(3,701
)
Reclassification to net income
1,057

52

1,376

210

Effect of income taxes
—

184

—

733

Other comprehensive income (loss)
1,482

(697
)
3,814

(2,758
)
Total comprehensive (loss) income
$
(1,631
)
$
4,879

$
(138
)
$
8,347

 
 
 
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.

2

Atlas Financial Holdings, Inc.
Condensed Consolidated Statements of Shareholders’ Equity
($ in ‘000s)
Ordinary Voting Common Shares
Restricted Voting Common Shares
Additional Paid-In Capital
Treasury Stock
Retained Deficit
Accumulated Other Comprehensive Income/(Loss)
Total Share-holders’ Equity
Balance December 31, 2017
$
36

$
—

$
201,105

$
—

$
(110,535
)
$
39

$
90,645

Cumulative effect of new accounting principle in period of adoption
—

—

—

—

377

(377
)
—

Net income
—

—

—

—

11,105

—

11,105

Purchase of treasury stock
—

—

—

(3,000
)
—

—

(3,000
)
Preferred dividends paid
—

—

—

 
(333
)
—

(333
)
Other comprehensive loss
—

—

—

—

—

(2,758
)
(2,758
)
Share-based compensation
—

—

571

—

—

—

571

Other
—

—

(8
)
 
—

—

(8
)
Balance June 30, 2018 (unaudited)
$
36

$
—

$
201,668

$
(3,000
)
$
(99,386
)
$
(3,096
)
$
96,222

 
 
 
 
 
 
 
 
Balance December 31, 2018
$
36

$
—

$
202,298

$
(3,000
)
$
(190,503
)
$
(3,132
)
$
5,699

Net loss
—

—

—

—

(3,952
)
—

(3,952
)
Other comprehensive income
—

—

—

—

—

3,814

3,814

Share-based compensation
—

—

497

—

—

—

497

Balance June 30, 2019 (unaudited)
$
36

$
—

$
202,795

$
(3,000
)
$
(194,455
)
$
682

$
6,058

See accompanying Notes to Condensed Consolidated Financial Statements.

3

Atlas Financial Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
($ in ‘000s)
Six months ended June 30,
 
2019
2018
Operating activities:
(unaudited)
Net (loss) income
$
(3,952
)
$
11,105

Adjustments to reconcile net income to net cash flows used in operating activities:
Depreciation and amortization
2,185

1,365

Share-based compensation expense
497

571

Amortization of intangible assets
195

195

Deferred income taxes
—

3,082

Loss from change in fair value of equity securities
274

95

Net realized gains
(680
)
(447
)
Gain in equity of investees
(615
)
(257
)
Amortization of bond premiums and discounts
222

367

Amortization of financing costs
112

112

Net changes in operating assets and liabilities:
 
 
Accrued investment income
241

(106
)
Premiums receivable, net
5,587

(11,392
)
Due from reinsurers and prepaid reinsurance premiums
(21,876
)
(7,228
)
Deferred policy acquisition costs
435

841

Other assets
8,810

1,561

Claims liabilities
(20,826
)
(24,479
)
Unearned premium reserves
9,738

17,035

Due to reinsurers
(1,635
)
7,176

Other liabilities and accrued expenses
2,331

(4,793
)
Net cash flows used in operating activities
(18,957
)
(5,197
)
Investing activities:
 
 
Purchases of:
 
 
Fixed income securities
(7,288
)
(29,921
)
Equity securities
—

(2,350
)
Other investments
(400
)
(953
)
Short-term investments
(12,937
)
—

Property and equipment
(2,453
)
(5,282
)
Proceeds from sale and maturity of:
 
 
Fixed income securities
48,571

45,661

Equity securities
5,997

4,849

Other investments
4,355

3,626

Short-term investments
2,300

—

Net cash flows provided by investing activities
38,145

15,630

Financing activities:
 
 
Purchase of treasury stock
—

(3,000
)
Preferred dividends paid
—

(333
)
Other
—

(8
)
Net cash flows provided by (used in) financing activities
—

(3,341
)
Increase in cash position
19,188

7,092

Cash position, beginning of period
34,902

45,615

Cash position, end of period
$
54,090

$
52,707

 
 
 
Supplemental disclosure of cash information:
 
 
Cash (recovered) paid for:
 
 
Income taxes
$
(14,349
)
$
(1,724
)
Interest
828

828

See accompanying Notes to Condensed Consolidated Financial Statements.

4

Atlas Financial Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Nature of Operations and Basis of Presentation
Atlas Financial Holdings, Inc. (“Atlas” or “We” or the “Company”) commenced operations on December 31, 2010. The primary business of Atlas is underwriting commercial automobile insurance in the United States (“U.S.”), with a niche market orientation and focus on insurance for the “light” commercial automobile sector. This sector includes taxi cabs, non-emergency para-transit, limousine, livery, including certain transportation network companies (“TNC”) drivers/operators, and business autos. Automobile insurance products provide insurance coverage in three major areas: liability, accident benefits and physical damage. Liability insurance provides coverage, subject to policy terms and conditions where the insured is determined to be responsible and/or liable for an automobile accident, for the payment for injuries and property damage to third parties. Accident benefit policies or personal injury protection policies provide coverage for loss of income, medical and rehabilitation expenses for insured persons who are injured in an automobile accident, regardless of fault. Physical damage coverage subject to policy terms and conditions provides for the payment of damages to an insured automobile arising from a collision with another object or from other risks such as fire or theft. In the short run, automobile physical damage and liability coverage generally provides more predictable results than automobile accident benefit or personal injury insurance.
Atlas’ business is carried out through its “Insurance Subsidiaries”: American Country Insurance Company (“American Country”), American Service Insurance Company, Inc. (“American Service”), Gateway Insurance Company (“Gateway”), and Global Liberty Insurance Company of New York (“Global Liberty”); and other non-insurance company subsidiaries: Anchor Group Management Inc. (“AGMI”), Plainview Premium Finance Company, Inc. (“Plainview Delaware”), UBI Holdings Inc. (“UBI Holdings”) and UBI Holdings’ wholly-owned subsidiaries, optOn Digital IP Inc. (“OOIP”) and optOn Insurance Agency Inc. (“optOn” and together with OOIP and UBI Holdings, “UBI”).
The Insurance Subsidiaries distribute their insurance products through AGMI, which has contracted a network of retail independent agents. Together, the Insurance Subsidiaries are licensed to write property and casualty (“P&C”) insurance in 49 states and the District of Columbia in the U.S. Atlas’ core products are actively distributed in 42 of those states plus the District of Columbia. The Insurance Subsidiaries and the Company’s other non-insurance subsidiaries share common management and operating infrastructure. See “Explanatory Note” and “Part I, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.
Atlas’ ordinary voting common shares are listed on the NASDAQ under the symbol “AFH”.
Basis of Presentation
These statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of Atlas and the entities it controls. All significant intercompany accounts and transactions have been eliminated.
The results for the three and six months ended June 30, 2019 are not necessarily indicative of the results expected for the full calendar year.
The accompanying unaudited condensed consolidated financial statements, in accordance with Securities and Exchange Commission (“SEC”) rules for interim periods, do not include all of the information and notes required by U.S. GAAP for complete financial statements and should be read in conjunction with Atlas’ Annual Report on Form 10-K for the year ended December 31, 2018, which provides a more complete understanding of the Company’s accounting policies, financial position, operating results, business properties, and other matters. Atlas has consistently applied the same accounting policies throughout all periods presented.
Estimates and Assumptions
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and changes in estimates are recorded in the accounting period in which they are determined. The liability for unpaid claims and claims adjustment expenses and related amounts recoverable from reinsurers represent the most significant estimates in the accompanying condensed consolidated financial statements, and differences between such estimates and actual results could be material. Significant estimates in the accompanying financial statements also include the fair values of investments, deferred policy acquisition cost recoverability, and deferred tax asset valuation.

5

Seasonality
The P&C insurance business is seasonal in nature. While Atlas’ net premiums earned are generally stable from quarter to quarter, Atlas’ gross premiums written follow the common renewal dates for the “light” commercial risks that represent its core lines of business. For example, January 1 and March 1 are common taxi cab renewal dates in Illinois and New York, respectively. Our New York “excess taxi program” has an annual renewal date in the third quarter. Net underwriting results are driven mainly by the timing and nature of claims, which can vary widely.
Operating Segments
The Company operates in one business segment, the P&C insurance business.
2. New Accounting Standards
With the exception of the accounting and disclosure pronouncements discussed below, there have been no recent pronouncements or changes in pronouncements during the six months ended June 30, 2019, as compared to those described in our Annual Report on Form 10-K for the twelve months ended December 31, 2018, that are of significance or potential significance to Atlas. Pertinent Accounting Standard Updates (“ASUs”) are issued from time to time by the Financial Accounting Standards Board (“FASB”) and are adopted by the Company as they become effective. All recently issued accounting pronouncements with effective dates prior to July 1, 2019 have been adopted by the Company.
Recently Adopted
Leases
In March 2019, December 2018, July 2018 and February 2016, the FASB issued ASU 2019-01 Leases (Topic 842) Codification Improvements, ASU 2018-20 Leases (Topis 842) Narrow-Scope Improvements for Lessors, ASU 2018-11 Leases (Topic 842): Targeted Improvements and ASU 2018-10 Codification Improvements to Topic 842, Leases and ASU 2016-02, Leases (Topic 842), respectively. The provisions of these updates impact the classification criteria, disclosure requirements, and other specific transactions in lease accounting. The updates require either the use of a modified retrospective approach, which requires leases to be measured at the beginning of the earliest period presented, or the transition method, which requires entities to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the updates on January 1, 2019 using the transition method with no change to comparative periods. See ‘Part I, Item 1, Note 16, Leases, for further discussion of the future lease commitments. The adoption of these updates resulted in the recognition of both a right-of-use asset and lease liability in the amounts of approximately $2.6 million and $3.2 million, respectively. There was no impact to any of Atlas’ current financial covenants as a result of the increase to reported liabilities.
Premium Amortization on Purchased Callable Debt Securities
In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. This guidance shortens the amortization period to the earliest call date for certain purchased callable debt securities held at a premium that have explicit, noncontingent call features and are callable at a fixed price and preset date. For public entities, this guidance is effective for years beginning after December 15, 2018, including interim periods within those years. The Company adopted the update on January 1, 2019 with no impact on the Company’s consolidated financial statements because Atlas’ callable debt securities, that are held at a premium, are amortized to the earliest call date, which is consistent with current accounting treatment.

6

3. Intangible Assets
Intangible Assets by Major Asset Class
($ in ‘000s)
Economic Useful Life
Gross Carrying Amount
Accumulated Amortization
Net
As of June 30, 2019
 
 
 
 
Trade name and trademark
15 years
$
1,800

$
520

$
1,280

Customer relationship
10 years
2,700

1,160

1,540

State insurance licenses
Indefinite
740

—

740

 
 
$
5,240

$
1,680

$
3,560

 
 
 
 
 
As of December 31, 2018
 
 
 
 
Trade name and trademark
15 years
$
1,800

$
459

$
1,341

Customer relationship
10 years
2,700

1,026

1,674

State insurance licenses
Indefinite
740

—

740

 
 
$
5,240

$
1,485

$
3,755

 
 
 
 
 
4. Earnings per Share
Computations of Basic and Diluted Earnings per Common Share
($ in ‘000s, except share and per share amounts)
Three months ended June 30,
Six months ended June 30,
 
2019
2018
2019
2018
Basic
 
 
 
 
(Loss) income from operations before income taxes
$
(3,113
)
$
7,079

$
(3,952
)
$
13,891

Income tax expense
—

1,503

—

2,786

Net (loss) income attributable to common shareholders
$
(3,113
)
$
5,576

$
(3,952
)
$
11,105

Basic weighted average common shares outstanding
11,954,494

11,936,970

11,956,621

12,046,855

Earnings per common share basic
$
(0.26
)
$
0.47

$
(0.33
)
$
0.92

 
 
 
 
 
Diluted
 
 
 
 
Basic weighted average common shares outstanding
11,954,494

11,936,970

11,956,621

12,046,855

Dilutive potential ordinary shares:
 
 
 
 
Dilutive stock options outstanding
—

15,296

—

23,488

Diluted weighted average common shares outstanding
11,954,494

11,952,266

11,956,621

12,070,343

Earnings per common share diluted
$
(0.26
)
$
0.47

$
(0.33
)
$
0.92

Common shares are defined as ordinary voting common shares, restricted voting common shares and participative restricted stock units (“RSUs”). Earnings per common share diluted is computed by dividing net income by the weighted average number of common shares outstanding for each period plus the incremental number of shares added as a result of converting dilutive potential ordinary voting common shares, calculated using the treasury stock method (or, in the case of the convertible preferred shares, using the “if-converted” method).
Atlas’ dilutive potential ordinary voting common shares consist of outstanding stock options to purchase ordinary voting common shares. The effects of these convertible instruments are excluded from the computation of earnings per common share diluted in periods in which the effect would be anti-dilutive. For the three and six months ended June 30, 2019, all exercisable stock options were deemed to be anti-dilutive. For the three and six months ended June 30, 2018, all exercisable stock options were deemed to be dilutive.

7

5. Investments
Cost or Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value of Investments
($ in ‘000s)
Cost or Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Fair Value
 
June 30, 2019
 
 
 
 
Fixed income securities:
 
 
 
 
 
U.S. Treasury and other U.S. government obligations
$
20,825

$
164

$
(67
)
$
20,922

 
States, municipalities and political subdivisions
4,239

70

(5
)
4,304

 
Corporate
 
 
 
 
 
Banking/financial services
5,877

96

(2
)
5,971

 
Consumer goods
4,665

32

(5
)
4,692

 
Capital goods
1,475

51

(15
)
1,511

 
Energy
2,611

67

—

2,678

 
Telecommunications/utilities
4,891

45

(8
)
4,928

 
Health care
499

2

(48
)
453

 
Total corporate
20,018

293

(78
)
20,233

 
Mortgage-backed
 
 
 
 
 
Agency
18,229

129

(117
)
18,241

 
Commercial
14,590

241

(102
)
14,729

 
Total mortgage-backed
32,819

370

(219
)
32,970

 
Other asset-backed
13,889

69

(4
)
13,954

Total fixed income securities
$
91,790

$
966

$
(373
)
$
92,383

December 31, 2018
 
 
 
 
Fixed income securities:
 
 
 
 
 
U.S. Treasury and other U.S. government obligations
$
20,522

$
30

$
(356
)
$
20,196

 
States, municipalities and political subdivisions
8,970

19

(146
)
8,843

 
Corporate
 
 
 
 
 
Banking/financial services
13,482

9

(367
)
13,124

 
Consumer goods
10,108

1

(319
)
9,790

 
Capital goods
3,711

36

(200
)
3,547

 
Energy
7,191

—

(379
)
6,812

 
Telecommunications/utilities
8,647

1

(325
)
8,323

 
Health care
832

—

(77
)
755

 
Total corporate
43,971

47

(1,667
)
42,351

 
Mortgage-backed
 
 
 
 
 
Agency
25,778

6

(656
)
25,128

 
Commercial
20,091

105

(574
)
19,622

 
Total mortgage-backed
45,869

111

(1,230
)
44,750

 
Other asset-backed
13,881

13

(43
)
13,851

Total fixed income securities
$
133,213

$
220

$
(3,442
)
$
129,991

 
 
 
 
 
 

8

Amortized Cost and Fair Value of Fixed Income Securities by Contractual Maturity
($ in ‘000s)
Amortized Cost
Fair Value
As of June 30, 2019
One year or less
$
7,917

$
7,905

One to five years
25,267

25,448

Five to ten years
10,642

10,846

More than ten years
1,256

1,260

Total contractual maturity
45,082

45,459

Total mortgage and asset backed
46,708

46,924

Total
$
91,790

$
92,383

 
 
 
As certain securities and debentures have the right to call or prepay obligations, the actual settlement dates may differ from contractual maturity.
Atlas assesses, on a quarterly basis, whether there is evidence that a financial asset or group of financial assets is impaired. An investment is considered impaired when the fair value of the investment is less than its cost or amortized cost. When an investment is impaired, the Company must make a determination as to whether the impairment is other-than-temporary.
Management performs a quarterly analysis of Atlas’ investment holdings to determine if declines in fair value are other-than-temporary. The analysis includes some or all of the following procedures as deemed appropriate by management:
•
identifying all security holdings in unrealized loss positions that have existed for at least six months or other circumstances that management believes may impact the recoverability of the security;
•
obtaining a valuation analysis from third party investment managers regarding these holdings based on their knowledge, experience and other market-based valuation techniques;
•
reviewing the trading range of certain securities over the preceding calendar period;
•
assessing whether declines in market value are other-than-temporary for debt security holdings based on credit ratings from third party security rating agencies; and
•
determining the necessary provision for declines in market value that are considered other-than-temporary based on the analyses performed.
The risks and uncertainties inherent in the assessment methodology utilized to determine declines in market value that are other-than-temporary include, but may not be limited to, the following:
•
the opinion of professional investment managers could prove to be incorrect;
•
the past trading patterns of individual securities may not reflect future valuation trends;
•
the credit ratings assigned by independent credit rating agencies may prove to be incorrect due to unforeseen or unknown facts related to a company’s financial situation; and
•
the debt service pattern of non-investment grade securities may not reflect future debt service capabilities and may not reflect a company’s unknown underlying financial problems.
Under U.S. GAAP, with respect to an investment in an impaired debt security, other-than-temporary impairment (“OTTI”) occurs if (a) there is intent to sell the debt security, (b) it is more likely than not it will be required to sell the debt security before its anticipated recovery, or (c) it is probable that all amounts due will be unable to be collected such that the entire cost basis of the security will not be recovered. If Atlas intends to sell the debt security, or will more likely than not be required to sell the debt security before the anticipated recovery, a loss in the entire amount of the impairment is reflected in net investment gains (losses) on investments in the condensed consolidated statements of (loss) income. If Atlas determines that it is probable it will be unable to collect all amounts and Atlas has no intent to sell the debt security, a credit loss is recognized in net investment gains (losses) on investments in the condensed consolidated statements of (loss) income to the extent that the present value of expected cash flows is less than the amortized cost basis; any difference between fair value and the new amortized cost basis (net of the credit loss) is reflected in other comprehensive income, net of applicable income taxes.
For equity securities, the Company evaluates its ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Evidence considered to determine anticipated recovery are analysts’ reports on the near-term prospects of the issuer and the financial condition of the issuer or the industry, in addition to the length and extent of the market value decline. If an OTTI is identified, the equity security is adjusted to fair value through a realized loss in earnings.

9

There were no other-than-temporary impairments recorded for the three and six months ended June 30, 2019 and 2018 as a result of the OTTI analysis performed by management.
Aging of Unrealized Losses in Fixed Income Securities
($ in ‘000s)
Less Than 12 Months
 
More Than 12 Months
 
Total
 
Fair Value
Unrealized Losses
 
Fair Value
Unrealized Losses
 
Fair Value
Unrealized Losses
June 30, 2019
 
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government obligations
$
—

$
—

 
$
10,343

$
(67
)
 
$
10,343

$
(67
)
 
States, municipalities and political subdivisions
—

—

 
508

(5
)
 
508

(5
)
 
Corporate
 
 
 
 
 
 
 
 
 
Banking/financial services
—

—

 
963

(2
)
 
963

(2
)
 
Consumer goods
—

—

 
745

(5
)
 
745

(5
)
 
Capital goods
1,407

(1
)
 
308

(14
)
 
1,715

(15
)
 
Energy
—

—

 
205

—

 
205

—

 
Telecommunications/utilities
151

—

 
925

(8
)
 
1,076

(8
)
 
Health care
—

—

 
321

(48
)
 
321

(48
)
 
Total corporate
1,558

(1
)
 
3,467

(77
)
 
5,025

(78
)
 
Mortgage-backed
 
 
 
 
 
 
 
 
 
Agency
1,182

(2
)
 
8,205

(115
)
 
9,387

(117
)
 
Commercial
569

(2
)
 
6,517

(100
)
 
7,086

(102
)
 
Total mortgage-backed
1,751

(4
)
 
14,722

(215
)
 
16,473

(219
)
 
Other asset-backed
2,186

(1
)
 
614

(3
)
 
2,800

(4
)
Total fixed income securities
$
5,495

$
(6
)
 
$
29,654

$
(367
)
 
$
35,149

$
(373
)
December 31, 2018
 
 
 
 
 
 
 
 
Fixed income securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury and other U.S. government obligations
$
507

$
—

 
$
15,857

$
(356
)
 
$
16,364

$
(356
)
 
States, municipalities and political subdivisions
1,687

(27
)
 
4,875

(119
)
 
6,562

(146
)
 
Corporate
 
 
 
 
 
 
 
 
 
Banking/financial services
8,376

(235
)
 
3,861

(132
)
 
12,237

(367
)
 
Consumer goods
5,442

(176
)
 
4,132

(143
)
 
9,574

(319
)
 
Capital goods
1,727

(135
)
 
1,430

(65
)
 
3,157

(200
)
 
Energy
4,516

(295
)
 
2,296

(84
)
 
6,812

(379
)
 
Telecommunications/utilities
3,806

(99
)
 
4,259

(226
)
 
8,065

(325
)
 
Health care
127

(2
)
 
628

(75
)
 
755

(77
)
 
Total corporate
23,994

(942
)
 
16,606

(725
)
 
40,600

(1,667
)
 
Mortgage-backed
 
 
 
 
 
 
 
 
 
Agency
5,035

(72
)
 
19,210

(584
)
 
24,245

(656
)
 
Commercial
5,256

(149
)
 
11,062

(425
)
 
16,318

(574
)
 
Total mortgage-backed
10,291

(221
)
 
30,272

(1,009
)
 
40,563

(1,230
)
 
Other asset-backed
9,568

(22
)
 
1,748

(21
)
 
11,316

(43
)
Total fixed income securities
$
46,047

$
(1,212
)
 
$
69,358

$
(2,230
)
 
$
115,405

$
(3,442
)
 
 
 
 
 
 
 
 
 
 

10

As of June 30, 2019, we held 134 individual fixed income securities that were in an unrealized loss position, of which 117 individual fixed income securities were in a continuous loss position for longer than 12 months. As of December 31, 2018, we held 391 individual fixed income and equity securities that were in an unrealized loss position, of which 246 individual fixed income securities were in a continuous loss position for longer than 12 months. We did not recognize the unrealized losses in earnings on these fixed income securities for the three and six months ended June 30, 2019 or for the year ended December 31, 2018. The Company expects to monitor liquidity needs and assess the sale of fixed income assets, if required, on a regular basis.
Components of Net Investment Income
($ in ‘000s)
Three months ended June 30,
Six months ended June 30,
 
2019
2018
2019
2018
Total investment income:
 
 
 
 
   Interest income
$
836

$
1,069

$
1,762

$
2,133

   Income from other investments
140

284

750

467

Investment expenses
(277
)
(186
)
(660
)
(469
)
Net investment income
$
699

$
1,167

$
1,852

$
2,131

 
 
 
 
 
Aggregate Proceeds and Gross Realized Investment Gains and Losses
($ in ‘000s)
Three months ended June 30,
Six months ended June 30,
 
2019
2018
2019
2018
Fixed income securities:
 
 
 
 
Proceeds from sales and calls
$
26,979

$
15,402

$
39,654

$
36,357

Gross realized investment gains
359

85

379

253

Gross realized investment losses
(157
)
(236
)
(298
)
(457
)
Equities:
 
 
 
 
Proceeds from sales
$
5,136

$
3,000

$
5,997

$
4,849

Gross realized investment gains
374

290

443

636

Gross realized investment losses
(1
)
(26
)
(96
)
(26
)
Other investments:
 
 
 
 
Proceeds from sales
$
175

$
41

$
2,297

$
41

Gross realized investment gains
51

41

278

41

Total:
 
 
 
 
Proceeds from sales and calls
$
32,290

$
18,443

$
47,948

$
41,247

Gross realized investment gains
784

416

1,100

930

Gross realized investment losses
(158
)
(262
)
(394
)
(483
)
Components of Net Realized Gains (Losses)
($ in ‘000s)
Three months ended June 30,
Six months ended June 30,
 
2019
2018
2019
2018
Fixed income securities
$
202

$
(151
)
$
81

$
(204
)
Equities
373

264

347

610

Other investments
25

41

252

41

Net realized gains
$
600

$
154

$
680

$
447

 
 
 
 
 

11

Other Investments
Atlas’ other investments are comprised of collateral loans and various limited partnerships that invest in income-producing real estate, equities, or insurance linked securities. Atlas accounts for these limited partnership investments using the equity method of accounting. The carrying values of the equity method limited partnerships were $21.9 million and $24.0 million as of June 30, 2019 and December 31, 2018, respectively. The carrying value of these investments is Atlas’ share of the net book value for each limited partnership. The carrying values of the collateral loans were $93,000 and $1.0 million as of June 30, 2019 and December 31, 2018, respectively.
Equity Method Investments by Type
($ in ‘000s)
Unfunded Commitments
Carrying Value
 
June 30, 2019
June 30, 2019
December 31, 2018
Real estate
$
2,887

$
10,839

$
11,085

Insurance linked securities
—

4,047

6,694

Activist hedge funds
—

4,239

3,911

Venture capital
2,670

2,441

2,015

Other joint venture
—

325

325

Total equity method investments
$
5,557

$
21,891

$
24,030

 
 
 
 
Due to the timing of financial information of the Company’s equity method investments, certain investments are recorded on a financial reporting lag of one to three months.
The Company recognizes an impairment loss for equity method limited partnerships when evidence demonstrates that the loss is other-than-temporary. To determine if an other-than-temporary impairment has occurred, the Company evaluates whether or not the investee could sustain a level of earnings that would justify the carrying amount of the investment. Collateral loans are considered impaired when it is probable that the Company will not collect the contractual principal and interest. Valuation allowances are established for impaired loans equal to the fair value of the collateral less costs to sell or the present value of the loan’s expected future repayment cash flows discounted at the loan’s original effective interest rate. Valuation allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell or the present value of the loan’s expected future repayment cash flows. As of June 30, 2019 and December 31, 2018, the Company had no valuation allowances established for impaired equity method limited partnerships and loans.
Short-Term Investments
Atlas’ short-term investments are comprised of fixed income securities. As of June 30, 2019 and December 31, 2018, short-term investments totaled $15.4 million and $4.7 million, respectively.
Collateral Pledged
As of June 30, 2019 and December 31, 2018, bonds, cash and cash equivalents with a fair value of $15.4 million and $14.9 million, respectively, were on deposit with state and provincial regulatory authorities. Also, from time to time, the Company pledges securities to and deposits cash with third parties to collateralize liabilities incurred under its policies of reinsurance assumed and other commitments made by the Company. As of June 30, 2019 and December 31, 2018, the amounts of such pledged securities were $50.5 million and $31.3 million, respectively. Collateral pledging transactions are conducted under terms that are common and customary to standard collateral pledging and are subject to the Company’s standard risk management controls. These assets and investment income related thereto remain the property of the Company while pledged. Neither the state and/or provincial regulatory authorities nor any other third party has the right to re-pledge or sell said securities held on deposit.

12

6. Fair Value of Financial Instruments
U.S. GAAP requires certain assets and liabilities to be reported at fair value in the financial statements and provides a framework for establishing that fair value. Level 1 inputs are given the highest priority in the hierarchy, while Level 3 inputs are given the lowest priority. Assets and liabilities carried at fair value are classified in one of the following three categories based on the nature of the inputs to the valuation technique used:
Level 1
Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2
Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3
Unobservable inputs that are not corroborated by market data. These inputs reflect management’s best estimate of fair value using its own assumptions about the assumptions a market participant would use in pricing the asset or liability.
Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Atlas’ assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the placement of the asset or liability within the fair value hierarchy levels.
The following is a summary of significant valuation techniques for assets measured at fair value on a recurring basis:
Level 1
U.S. treasury and other U.S. government obligations
Comprised of certain U.S. Treasury fixed income securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that Atlas can access.
Equities
Comprised of publicly-traded common stocks. Valuation is based on unadjusted quoted prices for identical assets in active markets that Atlas can access.
Level 2
States, municipalities and political subdivisions
Comprised of U.S. States, Territories and Possessions, U.S. Political Subdivisions of States, Territories and Possessions, U.S. Special Revenue and Special Assessment Obligations. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields and credit spreads.
Corporate bonds
Comprised of investment-grade fixed income securities. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields and credit spreads.
Mortgage-backed and other asset-backed
Comprised of securities that are collateralized by mortgage obligations and other assets. The primary inputs to the valuation include quoted prices for identical assets in inactive markets or similar assets in active or inactive markets, contractual cash flows, benchmark yields, collateral performance and credit spreads.

13

Investments at Fair Value
($ in ‘000s)
Level 1
Level 2
Level 3
Total
As of June 30, 2019
 
 
 
 
Fixed income securities:
 
 
 
 
U.S. Treasury and other U.S. government obligations
$
20,922

$
—

$
—

$
20,922

States, municipalities and political subdivisions
—

4,304

—

4,304

Corporate
 
 
 
 
Banking/financial services
—

5,971

—

5,971

Consumer goods
—

4,692

—

4,692

Capital goods
—

1,511

—

1,511

Energy
—

2,678

—

2,678

Telecommunications/utilities
—

4,928

—

4,928

Health care
—

453

—

453

Total corporate
—

20,233

—

20,233

Mortgage-backed
 
 
 
 
Agency
—

18,241

—

18,241

Commercial
—

14,729

—

14,729

Total mortgage-backed
—

32,970

—

32,970

Other asset-backed
—

13,954

—

13,954

Total fixed income securities
$
20,922

$
71,461

$
—

$
92,383

Equities
4

—

—

4

Total
$
20,926

$
71,461

$
—

$
92,387

As of December 31, 2018
 
 
 
 
Fixed income securities:
 
 
 
 
U.S. Treasury and other U.S. government obligations
$
20,196

$
—

$
—

$
20,196

States, municipalities and political subdivisions
—

8,843

—

8,843

Corporate
 
 
 
 
Banking/financial services
—

13,124

—

13,124

Consumer goods
—

9,790

—

9,790

Capital goods
—

3,547

—

3,547

Energy
—

6,812

—

6,812

Telecommunications/utilities
—

8,323

—

8,323

Health care
—

755

—

755

Total corporate
—

42,351

—

42,351

Mortgage-backed
 
 
 
 
Agency
—

25,128

—

25,128

Commercial
—

19,622

—

19,622

Total mortgage-backed
—

44,750

—

44,750

Other asset-backed
—

13,851

—

13,851

Total fixed income securities
$
20,196

$
109,795

$
—

$
129,991

Equities
5,929

—

—

5,929

Total
$
26,125

$
109,795

$
—

$
135,920

 
 
 
 
 
Atlas primarily uses the services of external securities pricing vendors to obtain these values. Atlas then reviews these valuations to ensure that the values are accurately recorded and that the data inputs and valuation techniques utilized are appropriate, consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value.
Though Atlas believes the valuation methods used in determining fair value are appropriate, different methodologies or assumptions could result in a different fair value as of June 30, 2019. Management does not believe that reasonable changes to the inputs to its valuation methodology would result in a significantly higher or lower fair value measurement.

14

The Company had no fair value investments classified as Level 3 as of June 30, 2019 or December 31, 2018. There were no transfers in or out of Level 2 or Level 3 during the three and six months ended June 30, 2019 and 2018.
7. Income Taxes
Atlas’ effective tax rate was 0.0% for each of the three and six months ended June 30, 2019, 21.3% for the three months ended June 30, 2018 and 20.1% for the six months ended June 30, 2018.
Reconciliation of U.S. Statutory Marginal Income Tax Rate to the Effective Tax Rate
($ in ‘000s)
Three months ended June 30,
Six months ended June 30,
 
2019
2018
2019
2018
 
Amount
%
Amount
%
Amount
%
Amount
%
Provision for taxes at U.S. statutory marginal income tax rate
$
(654
)
21.0
 %
$
1,487

21.0
%
$
(830
)
21.0
 %
$
2,917

21.0
 %
Provision for deferred tax assets deemed unrealizable (valuation allowance)
648

(20.8
)
—

—

777

(19.7
)
—

—

Nondeductible expenses
7

(0.2
)
19

0.3

25

(0.6
)
28

0.2

Tax-exempt income
(1
)
—

(3
)
—

(3
)
0.1

(6
)
—

State tax (net of federal benefit)
—

—

—

—

—

—

(2
)
—

Stock compensation
—

—

—

—

31

(0.8
)
(42
)
(0.3
)
Nondeductible acquisition accounting adjustment
—

—

—

—

—

—

(109
)
(0.8
)
Provision for income taxes for continuing operations
$
—

—
 %
$
1,503

21.3
%
$
—

—
 %
$
2,786

20.1
 %
 
 
 
 
 
 
 
 
 
Components of Income Tax Expense (Benefit)
($ in ‘000s)
Three months ended June 30,
Six months ended June 30,
 
2019
2018
2019
2018
Current tax expense (benefit)
$
—

$
(147
)
$
—

$
(296
)
Deferred tax (benefit) expense
(648
)
1,650

(777
)
3,082

Change in deferred tax valuation allowance
648

—

777

—

Total
$
—

$
1,503

$
—

$
2,786

 
 
 
 
 
Upon the transaction forming Atlas on December 31, 2010, a yearly limitation as required by U.S. Internal Revenue Code of 1986 (as amended, “IRC”) Section 382 that applies to changes in ownership on the future utilization of Atlas’ net operating loss carryforwards was calculated. The Insurance Subsidiaries’ prior parent retained those tax assets previously attributed to the Insurance Subsidiaries, which could not be utilized by Atlas as a result of this limitation. As a result, Atlas’ ability to recognize future tax benefits associated with a portion of its deferred tax assets generated during prior years has been permanently limited to the amount determined under IRC Section 382. The result is a maximum expected net deferred tax asset that Atlas has available after the merger, which is believed more likely than not to be utilized in the future, after consideration of the valuation allowance.
On July 22, 2013, due to shareholder activity, a “triggering event” as determined under IRC Section 382 occurred. As a result, under IRC Section 382, the use of the Company’s net operating loss and other carryforwards generated prior to the “triggering event” will be limited as a result of this “ownership change” for tax purposes, which is defined as a cumulative change of more than 50% during any three-year period by shareholders owning 5% or greater portions of the Company’s shares. Due to this triggering event, the Company estimates that it will retain total tax effected federal net operating loss carryforwards (“NOLs”) of approximately $26.6 million as of June 30, 2019.

15

Components of Deferred Income Tax Assets and Liabilities
($ in ‘000s)
June 30, 2019
December 31, 2018
Gross deferred tax assets:
 
 
Losses carried forward
$
26,561

$
25,326

Claims liabilities and unearned premium reserves
5,317

5,949

Bad debts
1,093

1,009

Stock compensation
794

760

Other
184

418

Valuation allowance
(29,392
)
(29,416
)
Total gross deferred tax assets
4,557

4,046

 
 
 
Gross deferred tax liabilities:
 
 
Deferred policy acquisition costs
1,444

1,535

Investments
1,041

189

Fixed assets
1,289

1,371

Intangible assets
592

633

Other
191

318

Total gross deferred tax liabilities
4,557

4,046

Net deferred tax assets
$
—

$
—

 
 
 
Net Operating Loss Carryforward as of June 30, 2019 by Expiry
($ in ‘000s)
 
 
Year of Occurrence
Year of Expiration
Amount
2001
2021
$
5,007

2002
2022
4,317

2006
2026
7,825

2007
2027
5,131

2008
2028
1,949

2009
2029
1,949

2010
2030
1,949

2011
2031
4,166

2012
2032
9,236

2015
2035
1

2017
2037
27,313

2018
2038
47,653

2018
Indefinite
4,106

2019
2039
3,541

2019
Indefinite
2,337

Total
 
$
126,480

 
 
 
NOLs and other carryforwards generated in 2018 and 2019 are not limited by IRC Section 382.
Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which they can be utilized. When considering the extent of the valuation allowance on Atlas’ deferred tax assets, weight is given by management to both positive and negative evidence. U.S. GAAP states that a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed against deferred tax assets. Based on Atlas’ cumulative loss in recent years, Atlas has recorded a valuation allowance of $29.4 million and $29.4 million for its gross future deferred tax assets as of June 30, 2019 and December 31, 2018, respectively.

16

Atlas accounts for uncertain tax positions in accordance with the income taxes accounting guidance. Atlas has analyzed filing positions in the federal and state jurisdictions where it is required to file tax returns, as well as the open tax years in these jurisdictions. Atlas believes that its federal and state income tax filing positions and deductions will be sustained on audit and does not anticipate any adjustments that will result in a material change to its financial position. Therefore, no reserves for uncertain federal and state income tax positions have been recorded. Atlas would recognize interest and penalties related to unrecognized tax benefits as a component of the provision for federal income taxes. Atlas did not incur any federal income tax related interest income, interest expense or penalties for the three and six months ended June 30, 2019 and 2018. Tax year 2015 and years thereafter are subject to examination by the Internal Revenue Service (“IRS”).
8. Commitments and Contingencies
The Company has entered into subscription agreements to allow for participation by the Company in limited liability investments, which invest in income-producing real estate, equities and insurance linked securities. As of June 30, 2019, the unfunded commitments are $5.6 million.
In the ordinary course of its business, Atlas is involved in legal proceedings, including lawsuits, regulatory examinations and inquiries. See “Explanatory Note” and “Part I, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019 and see also “Part II, Item 1, Legal Proceedings”.
Atlas is exposed to credit risk on balances receivable from policyholders, agents and reinsurers. Credit exposure to any one individual policyholder is not material. The Company’s policies, however, are distributed by agents who may manage cash collection on its behalf pursuant to the terms of their agency agreement. Atlas has procedures to monitor and minimize its exposure to delinquent agent balances, including, but not limited to, reviewing account current statements, processing policy cancellations for non-payment and other collection efforts deemed appropriate. Atlas also has procedures to evaluate the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurers’ insolvency.
Virtually all states require insurers licensed to do business therein to bear a portion of contingent and incurred claims handling expenses and the unfunded amount of “covered” claims and unearned premium obligations of impaired or insolvent insurance companies, either up to the policy’s limit, the applicable guaranty fund covered claims obligation cap, or 100% of statutorily defined workers’ compensation benefits, subject to applicable deductibles. These obligations are funded by assessments, made on a retrospective, prospective or pre-funded basis, which are levied by guaranty associations within the state, up to prescribed limits (typically 2% of “net direct premiums written”), on all member insurers in the state on the basis of the proportionate share of the premiums written by member insurers in certain covered lines of business in which the impaired, insolvent or failed insurer was engaged.
In addition, as a condition to the ability to conduct business in certain states (and within the jurisdiction of some local governments), insurance companies are subject to or required to participate in various premium or claims based insurance-related assessments, including non-voluntary assigned risk pools, underwriting associations, workers’ compensation second-injury funds, reinsurance funds and other state insurance facilities. Atlas’ proportionate share of these various premium or claims based insurance-related assessments, including non-voluntary assigned risk pools, underwriting associations, workers’ compensation second-injury funds, reinsurance funds and other state insurance facilities is not expected to be material.

17

9. Property and Equipment
Property and Equipment Held1
($ in ‘000s)
June 30, 2019
December 31, 2018
Buildings
$
7,425

$
7,425

Land
1,840

1,840

Building improvements
9,023

9,006

Leasehold improvements
193

190

Internal use software
19,895

17,575

Computer equipment
1,906

1,821

Furniture and other office equipment
2,897

2,897

Total
$
43,179

$
40,754

Accumulated depreciation
(11,576
)
(9,391
)
Total property and equipment, net
$
31,603

$
31,363

 
 
 
1 
Excluding assets held for sale.
Depreciation expense and amortization was $1.2 million and $687,000 for the three months ended June 30, 2019 and 2018, respectively, and $2.2 million and $1.4 million for the six months ended June 30, 2019 and 2018, respectively. For the year ended December 31, 2018, depreciation expense and amortization was $2.9 million.
For the six months ended June 30, 2019, the Company capitalized $2.4 million of costs incurred, consisting primarily of external consultants and internal labor costs incurred during the application development stage for internal-use software. Substantially all of the costs incurred during the period were part of the application development stage. Amortization expense recorded for projects in the post-implementation/operation stage was $622,000 and $129,000 for the three months ended June 30, 2019 and 2018, respectively, and $1.1 million and $280,000 for the six months ended June 30, 2019 and 2018, respectively.
During 2016, Atlas purchased a building and land to serve as its new corporate headquarters to replace its former leased office space. Atlas’ Chicago area staff moved into this space in late October 2017 and occupies approximately 70,000 square feet in the building. An unrelated tenant occupies the remaining office space in the building. Rental income related to this lease agreement was $112,000 and $16,000 for the three months ended June 30, 2019 and 2018, respectively, and $223,000 and $179,000 for the six months ended June 30, 2019 and 2018, respectively. Depreciation expense related to the building and its improvements was $284,000 and $281,000 for the three months ended June 30, 2019 and 2018, respectively, and $567,000 and $542,000 for the six months ended June 30, 2019 and 2018, respectively.
Loss on disposals of fixed assets totaled $26,000 for each of the three and six months ended June 30, 2019. There were no losses on disposals of fixed assets for the three and six months ended June 30, 2018.
10. Reinsurance Ceded
As is customary in the insurance industry, Atlas reinsures portions of certain insurance policies it writes, thereby providing a greater diversification of risk and minimizing exposure on larger risks. Atlas remains contingently at risk with respect to any reinsurance ceded and would incur an additional loss if an assuming company were unable to meet its obligation under the reinsurance treaty.
Atlas monitors the financial condition of its reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. Letters of credit are maintained for any unauthorized reinsurer to cover ceded unearned premium reserves, ceded claims and claims adjustment expense reserve balances and ceded paid claims. These policies mitigate the risk of credit quality or dispute from becoming a danger to financial strength. To date, the Company has not experienced any material difficulties in collecting reinsurance recoverables.

18

Premiums Written, Premiums Earned and Amounts Related to Reinsurance
($ in ‘000s)
Three months ended June 30,
Six months ended June 30,
 
2019
2018
2019
2018
Direct premiums written
$
56,531

$
51,138

$
129,801

$
136,848

Assumed premiums written
10,713

6,221

22,841

16,100

Ceded premiums written
(40,201
)
(22,594
)
(70,275
)
(35,997
)
Net premiums written
$
27,043

$
34,765

$
82,367

$
116,951

 
 
 
 
 
Direct premiums earned
$
62,272

$
63,854

$
125,224

$
126,978

Assumed premiums earned
9,468

4,879

17,679

8,935

Ceded premiums earned
(28,293
)
(13,374
)
(51,613
)
(24,662
)
Net premiums earned
$
43,447

$
55,359

$
91,290

$
111,251

 
 
 
 
 
Ceded claims and claims adjustment expenses
$
18,764

$
3,784

$
29,089

$
12,029

Ceding commissions
6,894

3,531

14,249

7,994

During 2019, the Company received notice from General Reinsurance Corporation (“Gen Re”) that effective July 31, 2019, the XOL reinsurance coverage for American Country, American Service and Gateway (collectively, the “ASI Pool Companies”) would terminate on a cut-off basis. Additionally, effective September 30, 2019, the ASI Pool Companies’ Quota Share contract with Swiss Reinsurance America Corporation (“Swiss Re”) was terminated on a run-off basis. During 2020, the Company received notice from Gen Re that effective January 1, 2020, the XOL reinsurance coverage for Global Liberty would terminate on a run-off basis. See “Explanatory Note” and “Part I, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.
11. Claims Liabilities
Changes in the Provision for Unpaid Claims and Claims Adjustment Expenses, Net of Reinsurance Recoverables
($ in ‘000s)
Three months ended June 30,
Six months ended June 30,
 
2019
2018
2019
2018
Unpaid claims and claims adjustment expenses, beginning of period
$
264,489

$
204,742

$
273,496

$
211,648

Less: reinsurance recoverable
66,420

52,316

68,771

53,402

Net unpaid claims and claims adjustment expenses, beginning of period
198,069

152,426

204,725

158,246

 
 
 
 
 
Incurred related to:
 
 
 
 
Current year
31,038

33,588

66,334

67,488

Prior years
198

221

1,292

1,367

 
31,236

33,809

67,626

68,855

 
 
 
 
 
Paid related to:
 
 
 
 
Current year
10,829

13,499

16,263

20,800

Prior years
38,035

32,180

75,647

65,745

 
48,864

45,679

91,910

86,545

 
 
 
 
 
Net unpaid claims and claims adjustment expenses, end of period
180,441

140,556

180,441

140,556

Add: reinsurance recoverable
72,229

46,614

72,229

46,614

Unpaid claims and claims adjustment expenses, end of period
$
252,670

$
187,170

$
252,670

$
187,170

 
 
 
 
 

19

The process of establishing the estimated provision for unpaid claims and claims adjustment expenses is complex and imprecise, as it relies on the judgment and opinions of a large number of individuals, on historical precedent and trends, on prevailing legal, economic, social and regulatory trends, and on expectations as to future developments. The process of determining the provision necessarily involves risks that the actual results may deviate, perhaps substantially, from the best estimates made.
The incurred related to prior years for the three and six months ended June 30, 2019 and 2018 primarily resulted from unfavorable development on involuntary assigned risk pools and run-off commercial auto. Assigned risk pools are established by state governments to cover high-risk insureds who cannot purchase insurance through conventional means. See “Explanatory Note” and “Part I, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.
12. Share-Based Compensation
On January 6, 2011, Atlas adopted a stock option plan (“Stock Option Plan”) in order to advance the interests of Atlas by providing incentives to eligible persons defined in the plan. In the second quarter of 2013, a new equity incentive plan (“Equity Incentive Plan”) was approved by the Company’s common shareholders at the Annual General Meeting, and Atlas ceased to grant new stock options under the preceding Stock Option Plan. The Equity Incentive Plan is a securities based compensation plan, pursuant to which Atlas may issue restricted stock grants for ordinary voting common shares, restricted stock, stock grants for ordinary voting common shares, stock options and other forms of equity incentives to eligible persons as part of their compensation. The Equity Incentive Plan is considered an amendment and restatement of the Stock Option Plan, although outstanding stock options issued pursuant to the Stock Option Plan will continue to be governed by the terms of the Stock Option Plan.
Stock Options
Stock Option Activity
 
 
 
 
(prices in Canadian dollars designated with “C$” and U.S. dollars designated with “US$”
Six months ended June 30,
2019
2018

Number of Options
Weighted Average Exercise Price
Number of Options
Weighted Average Exercise Price
C$ Denominated:
 
 
 
 
Outstanding, beginning of period
27,195

C$6.00
54,390

C$6.00
Granted
—

—

—

—

Exercised
—

—

(27,195
)
C$6.00
Outstanding, end of period
27,195

C$6.00
27,195

C$6.00
 
 
 
 
 
US$ Denominated:
 
 
 
 
Outstanding, beginning of period
375,000

US$17.01
375,000

US$17.01
Granted
—

—

—

—

Exercised
—

—

—

—

Outstanding, end of period
375,000

US$17.01
375,000

US$17.01
 
 
 
 
 
There are no stock options that are exercisable as of June 30, 2019. The stock option grants outstanding have a weighted average remaining life of 4.98 years and have an intrinsic value of $0 as of June 30, 2019.
Under the Equity Incentive Plan, a director who either directly or indirectly purchases up to $100,000 of Atlas ordinary voting common stock on the open market, through the employee stock purchase plan, or via other means acceptable under this plan (see Note 13, ‘Other Employee Benefit Plans’) will receive a 3 to 1 matching grant of restricted stock grants for ordinary voting common shares (or for Canadian taxpayers, restricted stock units) based on the aggregate purchase price of ordinary voting common shares the director purchases during the 6 month period that began on June 18, 2013 and ended on December 31, 2013, or for new directors within 6 months of their initial appointment date (the “Purchase Period”). Matching share grants of 148,152 restricted stock grants for ordinary voting common shares and 37,038 restricted stock units were made on February 28, 2014 (“Grant Date”). The number of ordinary voting common shares issued on the Grant Date were determined by dividing (A) the dollar amount of the Company matching contribution due based on purchases during the Purchase Period by (B) the closing common share price of one share of Company ordinary voting common stock at close of market on June 17, 2013 (“Closing Price”), which was $8.10 per share. The restricted stock grants for ordinary voting common shares will vest 20% on each anniversary of the Grant Date, subject to the terms of the Guidelines. The matching grant will be subject to all of the terms and conditions of the Equity Incentive Plan and

20

applicable grant agreements. The matching grant award was discontinued during 2018 with no additional grants under the program since those discussed above.
On December 31, 2018, the Company awarded restricted stock unit grants for ordinary voting common shares of the Company to its external directors pursuant to a director equity award agreement dated December 31, 2018. The awards, which were approved by the Company’s Board of Directors in March 2018, were valued at $40,000 per external director (“Aggregate Award”) and were made under the Company’s Equity Incentive Plan. The number of restricted stock units awarded was determined by dividing (A) the Aggregate Award by (B) the closing price of one share of Company ordinary voting common share at the close of market on April 4, 2018, which was $10.50 per share. For new directors, the Aggregate Award is proportionate to the director’s start date and priced as of that same day. During 2018, the Company awarded 17,524 RSU grants having an aggregate grant date fair value of $179,000. The RSUs will vest 33.3% on January 1 of each year for the next three years.
On March 12, 2015, the Board of Directors of Atlas granted equity awards of (i) 200,000 restricted stock grants for ordinary voting common shares of the Company and (ii) 200,000 options to acquire ordinary voting common shares to the executive officers of the Company as part of the Company’s annual compensation process. The awards were made under the Company’s Equity Incentive Plan. The awards vest in five equal annual installments of 20%, provided that an installment shall not vest unless an annual performance target based on specific book value growth rates linked to return on equity goals is met. In the event the performance target is not met in any year, the 20% installment for such year shall not vest, but such non-vested installment shall carry forward and can become vested in future years (up to the fifth year from the date of grant), subject to achievement in a future year of the applicable performance target for such year. For the three and six months ended June 30, 2019 and 2018, no shares of either of the restricted stock grants for ordinary voting common shares or the options to acquire ordinary voting common shares vested due to not meeting annual performance targets. The Monte-Carlo simulation model was used, for both the options and restricted stock grants for ordinary voting common shares, to estimate the fair value of compensation expense as a result of the performance based component of these grants. Utilizing the Monte-Carlo simulation model, the fair values were $1.5 million and $1.9 million for the options and restricted stock grants for ordinary voting common shares, respectively. This expense will be amortized over the anticipated vesting period.
Restricted Shares
Restricted Stock Grants for Ordinary Voting Common Shares and Restricted Share Unit Activity
 
Six months ended June 30,
 
2019
2018
 
Number of Shares
Weighted Average Fair Value at Grant Date
Number of Shares
Weighted Average Fair Value at Grant Date
Non-vested, beginning of period
207,156

$
16.50

234,080

$
16.15

Granted
—

—

—

—

Vested
(28,066
)
11.79

(44,448
)
12.20

Canceled
(7,408
)
12.20

—

—

Non-vested, end of period
171,682

$
17.46

189,632

$
17.08

 
 
 
 
 
On February 21, 2019, an independent director of the Company notified Company management that they wished to cancel shares related to a February 2014 grant.
In accordance with ASC 718 (Stock-Based Compensation), Atlas has recognized share-based compensation expense on a straight-line basis over the requisite service period of the last separately vesting portion of the award. Share-based compensation expense is a component of other underwriting expenses on the statements of income and comprehensive income. Atlas recognized $187,000 and $286,000 in share-based compensation expense, including income tax expense, for the three months ended June 30, 2019 and 2018, respectively, and $497,000 and $571,000 for the six months ended June 30, 2019 and 2018, respectively. As of June 30, 2019, there was $346,000 of unrecognized total compensation expense related to restricted stock and restricted stock units for ordinary voting common shares. The expense will be amortized over a weighted average period of 11 months.

21

13. Other Employee Benefit Plans
Defined Contribution Plan
Atlas has a defined contribution 401(k) plan covering all qualified employees of Atlas and its subsidiaries. Contributions to this plan are limited based on IRS guidelines. Atlas matches 100% of the employee contribution up to 2.5% of annual earnings, plus 50% of additional contributions up to 2.5% of annual earnings, for a total maximum expense of 3.75% of annual earnings per participant. Atlas’ matching contributions are discretionary. Employees are 100% vested in their own contributions and vest in Atlas contributions based on years of service equally over 5 years with 100% vested after 5 years. Company contributions were $158,000 and $133,000 for the three months ended June 30, 2019 and 2018, respectively, and $334,000 and $280,000 for the six months ended June 30, 2019 and 2018, respectively.
Employee Stock Purchase Plan
The Atlas Employee Stock Purchase Plan (“ESPP”) encourages employee interest in the operation, growth and development of Atlas and provides an additional investment opportunity to employees. Full time and permanent part time employees working more than 30 hours per week are allowed to invest up to 7.5% of adjusted salary in Atlas ordinary voting common shares. Atlas matches 100% of the employee contribution up to 2.5% of annual earnings, plus 50% of additional contributions up to 5% of annual earnings, for a total maximum expense of 5% of annual earnings per participant. Atlas’ matching contributions are discretionary. Atlas also pays all administrative costs related to this plan. Atlas’ costs incurred related to the matching portion of the ESPP were $39,000 and $55,000 for the three months ended June 30, 2019 and 2018, respectively, and $104,000 and $120,000 for the six months ended June 30, 2019 and 2018, respectively. Share purchases pursuant to this plan are made in the open market.
14. Share Capital and Mezzanine Equity
Share Capital
Share Capital Activity
 
 
June 30, 2019
December 31, 2018
 
Shares Authorized
Shares Issued
Shares Outstanding
Amount
($ in ‘000s)
Shares Issued
Shares Outstanding
Amount
($ in ‘000s)
Ordinary voting common shares
266,666,667

12,198,319

11,942,812

$
36

12,192,475

11,936,970

$
36

Restricted voting common shares
33,333,334

—

—

—

—

—

—

Total common shares
300,000,001

12,198,319

11,942,812

$
36

12,192,475

11,936,970

$
36

 
 
 
 
 
 
 
 
There were 11,682 and 24,932 non-vested RSUs as of June 30, 2019 and December 31, 2018, respectively. These RSUs are participative and are included in the computations of earnings per common share and book value per common share for these periods.
During the six months ended June 30, 2019, the Company issued 5,842 ordinary voting common shares as a result of the vesting of RSUs. During the year ended December 31, 2018, the Company issued 7,408 ordinary voting common shares as a result of the vesting of RSUs in addition to 27,195 ordinary voting common shares and immediately canceled 6,169 shares as a result of a cashless exercise of options. There were no options exercised during the six months ended June 30, 2019.
On March 21, 2017, the Company’s Board of Directors approved a Share Repurchase Program of up to 650,000 shares of common stock. The repurchases could be made from time to time in open market transactions, privately-negotiated transactions, block purchases, or otherwise in accordance with securities laws at the discretion of the Company’s management until March 21, 2018. The Share Repurchase Program was not extended. The Company’s decisions around the timing, volume, and nature of share repurchases, and the ultimate amount of shares repurchased, was dependent on market conditions, applicable securities laws, and other factors. The Share Repurchase Program and the Board’s authorization of the program could have been modified, suspended, or discontinued at any time. During 2018, 255,505 shares were repurchased under the Share Repurchase Program.

22

Mezzanine Equity
There were no preferred shares outstanding as of June 30, 2019 and December 31, 2018.
Preferred shareholders are entitled to dividends on a cumulative basis, whether or not declared by the Board of Directors, at the rate of $0.045 per share per year (4.5%) and may be paid in cash or in additional preferred shares at the option of Atlas. In liquidation, dissolution or winding-up of Atlas, preferred shareholders receive the greater of $1.00 per share plus all declared and unpaid dividends or the amount they would receive in liquidation if the preferred shares had been converted to restricted voting common shares or ordinary voting common shares immediately prior to liquidation. Preferred shareholders are not entitled to vote.
During 2018, Atlas paid $333,000 in dividends earned on the preferred shares to the former owner of Anchor, the cumulative amount to which they were entitled through December 31, 2017, leaving no accrued or unpaid dividends.
15. Deferred Policy Acquisition Costs
Components of Deferred Policy Acquisition Costs
($ in ‘000s)
Six months ended June 30,
 
2019
2018
Balance, beginning of period
$
7,309

$
14,797

Acquisition costs deferred
6,277

11,815

Amortization charged to income
(6,712
)
(12,656
)
Balance, end of period
$
6,874

$
13,956

 
 
 
16. Leases
The Company adopted ASC 842 - Leases as of January 1, 2019, using the transition method wherein entities were allowed to initially apply the new lease standard at adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Accordingly, all periods prior to January 1, 2019 were presented in accordance with the previous ASC 840 - Leases, and no retrospective adjustments were made to the comparative periods presented. Adoption of ASC 842 resulted in an increase of operating lease right-of-use assets (“ROU”) totaling approximately $2.6 million in other assets on the condensed consolidated statements of financial positions and operating lease liabilities of approximately $3.2 million and a decrease of net deferred rent liabilities of approximately $600,000 in other liabilities and accrued expenses on the condensed consolidated statements of financial position as of January 1, 2019.
We currently lease real estate space, automobiles, and certain equipment under non-cancelable operating lease agreements. Leases with an initial term of 12 months or less, which are immaterial to the Company, are not recorded in the condensed consolidated statement of financial position. The Company has elected the practical expedient to account for each separate lease component of a contract and its associated non-lease components as a single lease component, thus causing all fixed payments to be capitalized. The Company also elected the package of practical expedients permitted within the new standard, which among other things, allows the Company to carry forward historical lease classification. Variable lease payment amounts that cannot be determined at the commencement of the lease, such as increases to lease payments based on changes in index rates or usage, are not recorded in the condensed consolidated statement of financial position.
Certain agreements include an option to extend or renew the lease term at our option. The operating lease liability includes lease payments related to options to extend or renew the lease term if the Company is reasonably certain of exercising those options. Lease payments are discounted using the implicit discount rate in the lease. If the implicit discount rate for the lease cannot be readily determined, the Company uses an estimate of its incremental borrowing rate. AFH did not have any contracts accounted for as finance leases as of June 30, 2019 or January 1, 2019.
Lease Expense
($ in ‘000s)
Three months ended June 30,
Six months ended June 30,
 
2019
2019
Operating leases
$
239

$
478

Variable lease cost
86

166

Total
$
325

$
644

 
 
 

23

Other Operating Lease Information
($ in ‘000s)
Three months ended June 30,
Six months ended June 30,
 
2019
2019
Cash paid for amounts included in the measurement of lease liabilities reported in operating cash flows
$
325

$
644

Right-of-use assets obtained in exchange for new lease liabilities
—

—

Total
$
325

$
644

 
 
 
Weighted-average remaining lease term
 
2.5 years

Weighted-average discount rate
 
3.7
%
 
 
 
The following table presents the undiscounted contractual maturities of the Company’s operating lease liability:
Contractual Operating Lease Liabilities
($ in ‘000s)
As of June 30, 2019
Remainder of 2019
$
569

2020
1,111

2021
974

2022
190

2023
14

Total lease payments
$
2,858

Impact of discounting
(175
)
Operating lease liability
$
2,683

 
 
17. Related Party Transactions
During the periods presented, a portion of the Company’s investment portfolio, which is included in “Other investments” on the Condensed Consolidated Statements of Financial Position, included investment vehicles that are considered related-party transactions. As of June 30, 2019 and December 31, 2018, these related-party transactions comprised 5.0% and 5.1%, respectively, of our investment portfolio. In these transactions, one or more of the Company’s directors or entities affiliated with such directors invest in and/or manage these vehicles. These related-party transactions are consistent with the Company’s investment guidelines and have been reviewed and approved by the Investment Committee of the Company’s Board of Directors. The Company believes that these transactions leverage investment resources that would otherwise not be available to the Company.
18. Notes Payable
On April 26, 2017, Atlas issued $25 million of five-year 6.625% senior unsecured notes and received net proceeds of approximately $23.9 million after deducting underwriting discounts and commissions and other estimated offering expenses. Interest on the senior unsecured notes is payable quarterly on each January 26, April 26, July 26 and October 26. Atlas may, at its option, beginning with the interest payment date of April 26, 2020, and on any scheduled interest payment date thereafter, redeem the senior unsecured notes, in whole or in part, at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest to, but excluding, the date of redemption. The senior unsecured notes will rank senior in right of payment to any of Atlas’ existing and future indebtedness that is by its terms expressly subordinated or junior in right of payment to the senior unsecured notes. The senior unsecured notes will rank equally in right of payment to all of Atlas’ existing and future senior indebtedness, but will be effectively subordinated to any secured indebtedness to the extent of the value of the collateral securing such secured indebtedness. In addition, the senior unsecured notes will be structurally subordinated to the indebtedness and other obligations of Atlas’ subsidiaries.

24

The senior unsecured notes were issued under an indenture and supplemental indenture that contain covenants that, among other things, limit: (i) the ability of Atlas to merge or consolidate, or lease, sell, assign or transfer all or substantially all of its assets; (ii) the ability of Atlas to sell or otherwise dispose of the equity securities of certain of its subsidiaries; (iii) the ability of certain of Atlas’ subsidiaries to issue equity securities; (iv) the ability of Atlas to permit certain of its subsidiaries to merge or consolidate, or lease, sell, assign or transfer all or substantially all of their respective assets; and (v) the ability of Atlas and its subsidiaries to incur debt secured by equity securities of certain of its subsidiaries.
Interest expense on notes payable was $470,000 and $461,000 for the three months ended June 30, 2019 and 2018, respectively, and $940,000 and $916,000 for each of the six months ended June 30, 2019 and 2018.
Notes Payable Outstanding
($ in ‘000s)
June 30, 2019
December 31, 2018
6.625% Senior Unsecured Notes due April 26, 2022
$
25,000

$
25,000

Unamortized issuance costs
(633
)
(745
)
Total notes payable
$
24,367

$
24,255

 
 
 
19. Statutory Information
As a holding company, Atlas could derive cash from its Insurance Subsidiaries generally in the form of dividends to meet its obligations, which will primarily consist of operating expense payments and debt payments. Atlas’ Insurance Subsidiaries fund their obligations primarily through premium and investment income and maturities in the securities portfolio. The Insurance Subsidiaries require regulatory approval for the return of capital, loans or advances, and, in certain circumstances, prior to the payment of dividends. In the event that dividends available to the holding company are inadequate to cover its operating expenses and debt payments, the holding company would need to raise capital, sell assets or incur future debt.
The Insurance Subsidiaries must each maintain a minimum statutory capital and surplus of $1.5 million, $2.4 million and $3.5 million under the provisions of the Illinois Insurance Code, the Missouri Insurance Code and the New York Insurance Code, respectively. Dividends may only be paid from statutory unassigned surplus, and payments may not be made if such surplus is less than a stipulated amount. The dividend restriction for the ASI Pool Companies is the greater of statutory net income or 10% of total statutory capital and surplus. The dividend restriction for Global Liberty is the lower of 10% of statutory surplus or 100% of adjusted net investment income for the preceding twelve months. See “Explanatory Note” and “Part I, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.
Statutory Net Loss and Surplus of Atlas’ Insurance Subsidiaries
($ in ‘000s)
June 30, 2019
December 31, 2018
Net income (loss) computed under statutory-basis accounting
$
3,946

$
(49,648
)
 
 
 
Combined statutory capital and surplus
$
2,425

$
14,377

 
 
 
Atlas did not declare or pay any dividends to its common shareholders during the six months ended June 30, 2019 or during the year ended December 31, 2018.

25

20. Subsequent Events
Throughout 2019, the Company has been exploring strategic alternatives, including, but not limited to, further strengthening its processes, reviewing its capital allocation and opportunities, a potential sale of the Company or certain assets, and balance sheet strengthening options with the goal of facilitating shareholder value generation. Atlas concluded that the utilization of its wholly owned managing general agency (“MGA”) operation to work with strategic external insurance and reinsurance partners will enable the Company to leverage its focus, experience and infrastructure to create value for stakeholders. The Company is working on additional arrangements with the objective of establishing MGA relationships in connection with the Company’s other lines of business as well. The Company agreed that should it choose to sell its MGA operations, 49% of the proceeds from any future sale of AGMI would be provided to the ASI Pool Companies to facilitate the rehabilitation process. There can be no assurance that any portion of the proceeds allocated to the ASI Pool Companies would be available for distribution to the Company.
During 2019, the Illinois Department of Insurance (the “Department”) placed all three of the ASI Pool Companies (after Gateway was redomesticated in Illinois) into rehabilitation with the Director of the Department as the statutory rehabilitator. While in rehabilitation, the operations of such insurance subsidiaries will be overseen by the statutory rehabilitator although Atlas continues to maintain its legal ownership of the stock of the ASI Pool Companies. Management’s overriding strategic plan continues to include a transition of business from these insurance companies to alternative markets within a reasonable period of time utilizing the existing platform of the MGA to work with strategic external insurance and reinsurance partners.
Effective August 15, 2019, no new business was written by the ASI Pool Companies, and only New York area new business was written by Global Liberty, which is focusing its resources on New York area business to leverage the subsidiary’s heritage in this large and specific market. The ASI Pool Companies and Global Liberty continued to write renewal business that met their underwriting standards during 2019. Non-renewals related to ASI Pool Companies’ insurance policies began towards the end of 2019.
On January 22, 2020, the Company announced a non-binding letter of intent with Buckle, a technology-driven financial services company, to purchase the stock of Atlas’ indirect subsidiary Gateway and its corporate charter and forty-seven (47) state insurance licenses as well as state statutory deposits, subject to regulatory and other necessary approvals, for $4.7 million plus the value of all purchased deposits, such amount to be paid to the statutory rehabilitator for the benefit of the rehabilitation estate of Gateway, with a tentative closing date in April of 2020. The Company anticipates that Buckle will engage the MGA and certain other subsidiaries of the Company to provide services to Buckle and that Buckle will lease space at the Company’s headquarters and its Melville, NY office.
The transaction will be subject to court approval and a bid process established by the statutory rehabilitator and approved by the court, and there can be no assurance that the transaction will be consummated on the terms described herein or at all.


26

Item 2. Management’s Discussion and Analysis (“MD&A”) of Results of Operations and Financial Condition
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear elsewhere in this report. In this discussion and analysis, the term “common share” refers to the summation of restricted voting common shares, ordinary voting common shares and participative restricted stock units when used to describe earnings (loss) or book value per common share. All amounts are in U.S. dollars, except for amounts preceded by “C” as Canadian dollars, share and per share amounts.
Forward-Looking Statements
In addition to the historical consolidated financial information, this report contains “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995, which may include, but are not limited to, statements with respect to estimates of future expenses, revenue and profitability; trends affecting financial condition, cash flows and results of operations; the availability and terms of additional capital; dependence on key suppliers and other strategic partners; industry trends; the competitive and regulatory environment; the successful integration of acquisitions; the impact of losing one or more senior executives or failing to attract additional key personnel; and other factors referenced in this report. Factors that could cause or contribute to these differences include those discussed below and elsewhere, particularly in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2018.
Often, but not always, forward-looking statements can be identified by the use of words such as “plans,” “expects,” “is expected,” “budget,” “scheduled,” “estimates,” “forecasts,” “intends,” “anticipates,” “believes” or variations (including negative variations) of such words and phrases, or state that certain actions, events or results “may,” “could,” “would,” “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Atlas to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include, among others, general business, economic, competitive, political, regulatory and social uncertainties.
Although Atlas has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results to differ from those anticipated, estimated or intended. Forward-looking statements contained herein are made as of the date of this report, and Atlas disclaims any obligation to update any forward-looking statements, whether as a result of new information, future events or results, or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements due to the inherent uncertainty in them.
I. Overview
We are a financial services holding company incorporated under the laws of the Cayman Islands. Our core business is the underwriting of commercial automobile insurance policies, focusing on the “light” commercial automobile sector, which is carried out through our “Insurance Subsidiaries”: American Country Insurance Company (“American Country”), American Service Insurance Company, Inc. (“American Service”), Gateway Insurance Company (“Gateway”) and Global Liberty Insurance Company of New York (“Global Liberty”) in conjunction with our wholly owned managing general agency, Anchor Group Management Inc. (“AGMI”). This sector includes taxi cabs, non-emergency para-transit, limousine, livery, including certain transportation network companies (“TNCs”) drivers/operators, and business auto. Our goal is to always be the preferred specialty insurance business in any geographic areas where our value proposition delivers benefit to all stakeholders. We are licensed to write property and casualty (“P&C”) insurance in 49 states and the District of Columbia in the United States (“U.S.”). The Insurance Subsidiaries distribute their products through a network of independent retail agents, and actively write insurance in 42 states and the District of Columbia. We embrace continuous improvement, analytics and technology as a means of building on the strong heritage our subsidiary companies cultivated in the niche markets we serve.
Since Atlas’ formation in 2010, we have disposed of non-core assets, consolidated infrastructure and placed into run-off certain non-core lines of business previously written by our Insurance Subsidiaries. Our core business is the underwriting of commercial automobile insurance policies, focusing on the “light” commercial automobile sector, which is carried out through American Country, American Service and Gateway, and Global Liberty, along with our wholly owned managing general agency, AGMI. As previously announced, certain Insurance Subsidiaries have been in rehabilitation since July 8, 2019. See “Explanatory Note” and “Part I, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.

27

Commercial Automobile
Our primary target market is made up of small to mid-size taxi, limousine, other livery, including TNC drivers/operators, and non-emergency para-transit operators. The “light” commercial automobile policies we underwrite provide coverage for lightweight commercial vehicles typically with the minimum limits prescribed by statute, municipal or other regulatory requirements. The majority of our policyholders are individual owners or small fleet operators. In certain jurisdictions like Illinois, Louisiana, Nevada and New York, we have also been successful working with larger operators who retain a meaningful amount of their own risk of loss through higher retentions, self-insurance or self-funded captive insurance entity arrangements. In these cases, we provide support in the areas of day-to-day policy administration and claims handling consistent with the value proposition we offer to all of our insureds, generally on a fee for service basis. We may also provide excess coverage above the levels of risk retained by the insureds where a better than average loss ratio is expected. Through these arrangements, we are able to effectively utilize the significant specialized operating infrastructure we maintain to generate revenue from business segments that may otherwise be more price sensitive.
The “light” commercial automobile sector is a subset of the broader commercial automobile insurance industry segment, which over the long term has been historically profitable. In more recent years the commercial automobile insurance industry has seen profitability pressure. Data compiled by S&P Global also indicates that in 2018 the total market for commercial automobile liability insurance was approximately $40.4 billion. The size of the commercial automobile insurance market can be affected significantly by many factors, such as the underwriting capacity and underwriting criteria of automobile insurance carriers and general economic conditions. Historically, the commercial automobile insurance market has been characterized by periods of excess underwriting capacity and increased price competition followed by periods of reduced underwriting capacity and higher premium rates.
We believe that operators of “light” commercial automobiles may be less likely than other business segments within the commercial automobile insurance market to take vehicles out of service, as their businesses and business reputations rely heavily on availability. Our target market has changed in recent years as a result of TNC and other trends related to mobility. The significant expansion of TNC has resulted in a reduction in taxi vehicles available to insure; however, it has increased the number of livery operators. Market research also suggests that the combined addressable markets between traditional taxi, livery and TNC companies expanded during 2018.
Other Lines of Business
Other lines of business is comprised of our surety program, Gateway’s truck and workers’ compensation programs, American Service’s non-standard personal lines business, Atlas’ workers’ compensation related to taxi, other liability, Global Liberty’s homeowners program and assigned risk pool business. All of the other lines of business are in run-off except for other liability and assigned risk pool business.
Our surety program primarily consisted of U.S. Customs bonds. We engage a former affiliate, Avalon Risk Management, to help coordinate customer service and claims handling for the surety bonds written as this program runs-off. This non-core program is 100% reinsured to an unrelated third party and has been transitioned to another carrier.
The Gateway truck and workers’ compensation programs were put into run-off during 2012. The workers’ compensation program was 100% reinsured retrospectively and prospectively to an unrelated third party. The workers’ compensation reinsurance agreement was terminated during 2017.
Non-standard automobile insurance is principally provided to individuals who do not qualify for standard automobile insurance coverage because of their payment history, driving record, place of residence, age, vehicle type or other factors. Such drivers typically represent higher than normal risks and pay higher insurance rates for comparable coverage. Consistent with Atlas’ focus on commercial automobile insurance, Atlas has transitioned away from the non-standard auto line. Our Insurance Subsidiaries ceased writing new and renewal policies of this type in 2011, and earned premium discontinued in 2012, allowing surplus and resources to be devoted to the expected growth of the commercial automobile business.
Global Liberty’s homeowners program, which is substantially reinsured, was placed into run-off prior to Atlas’ acquisition.There is a relatively small book of business, which is substantially reinsured, that is still in run-off.
Atlas’ workers’ compensation related to taxi and other liability are ancillary products that are offered only to insureds who purchase our commercial automobile insurance products. The workers’ compensation program was non-renewed in 2018 due to limited demand.
Assigned risk pools are established by state governments to cover high-risk insureds who cannot purchase insurance through conventional means.

28

Coronavirus Impact
We continue to monitor the recent outbreak of the novel coronavirus (COVID-19) on our operations. Due to the recent outbreak of the coronavirus reported in many countries worldwide, local and federal governments have issued travel advisories, canceled large scale public events and closed schools. In addition, companies have begun to cancel conferences and travel plans and require employees to work from home. Global financial markets have also experienced extreme volatility and disruptions to capital and credit markets.
Adverse events such as health-related concerns about working in our offices, the inability to travel, potential impact on our business partners and customers, and other matters affecting the general work and business environment could harm our business and delay the implementation of our business strategy. We cannot anticipate all the ways in which the current global health crisis and financial market conditions could adversely impact our business in the future.
2019 Developments
As previously disclosed, since December 31, 2018, the Company was unable to timely file its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and its Quarterly Reports on Form 10-Q for the periods ended March 31, June 30, and September 30, 2019 due to delays in the year end audit process. As a result, the Company received a number of delinquency notices from Nasdaq related to these filings as well as other matters. Nasdaq granted the Company’s request to move from the Nasdaq Global Market to the Nasdaq Capital Market and granted the Company an extension to regain compliance with its listing obligations. The Company’s ordinary shares continue to trade on the Nasdaq Capital Market, while the Company’s 6.625% Senior Unsecured Notes due 2022 moved to the OTC Pink Sheets on October 17, 2019. There can be no assurance that the Company will be able to regain compliance with Nasdaq listing requirements.
On April 29, 2019, RSM US, LLP ("RSM") was dismissed as the Corporation’s independent registered public accounting firm. At the time RSM was dismissed, the Corporation had not yet engaged a successor independent registered public accounting firm. On October 31, 2019, Baker Tilly Virchow Krause, LLP (“Baker Tilly”) was engaged as the Company’s independent registered public accounting firm to audit the Company’s financial statements commencing with the fiscal year ended December 31, 2018.
Throughout 2019, the Company has been exploring strategic alternatives, including, but not limited to, further strengthening its processes, reviewing its capital allocation and opportunities, a potential sale of the Company or certain assets, and balance sheet strengthening options with the goal of facilitating shareholder value generation. Atlas concluded that the utilization of its wholly owned MGA operation to work with strategic external insurance and reinsurance partners will enable the Company to leverage its focus, experience and infrastructure to create value for stakeholders. A definitive agreement was executed effective June 10, 2019 between Atlas and American Financial Group, Inc. (NYSE: AFG), under which Atlas will act as an underwriting manager for AFG’s National Interstate (“NATL”) subsidiary and transition new and renewal paratransit business to NATL paper for this book of business. The Company is working on additional arrangements with the objective of establishing MGA relationships in connection with the Company’s other lines of business as well. The Company agreed that should it choose to sell its MGA operations, 49% of the proceeds from any future sale of AGMI would be provided to the ASI Pool Companies to facilitate the rehabilitation process. There can be no assurance that any portion of the proceeds allocated to the ASI Pool Companies would be available for distribution to the Company.
During 2019, the Illinois Department of Insurance (the “Department”) placed all three of the ASI Pool Companies (after Gateway was redomesticated in Illinois) into rehabilitation with the Director of the Department as the statutory rehabilitator. While in rehabilitation, the operations of such insurance subsidiaries will be overseen by the statutory rehabilitator although Atlas continues to maintain its legal ownership of the stock of the ASI Pool Companies. Management’s overriding strategic plan continues to include a transition of business from these insurance companies to alternative markets within a reasonable period of time utilizing the existing platform of the MGA to work with strategic external insurance and reinsurance partners.
Effective August 15, 2019, no new business was written by the ASI Pool Companies, and only New York area new business was written by Global Liberty, which is focusing its resources on New York area business to leverage the subsidiary’s heritage in this large and specific market. The ASI Pool Companies and Global Liberty continued to write renewal business that met their underwriting standards during 2019. Non-renewals related to ASI Pool Companies’ insurance policies began towards the end of 2019.

29

On January 22, 2020, the Company announced a non-binding letter of intent with Buckle, a technology-driven financial services company, to purchase the stock of Atlas’ indirect subsidiary Gateway and its corporate charter and forty-seven (47) state insurance licenses as well as state statutory deposits, subject to regulatory and other necessary approvals, for $4.7 million plus the value of all purchased deposits, such amount to be paid to the Rehabilitator for the benefit of the rehabilitation estate of Gateway, with a tentative closing date in April of 2020. The Company anticipates that Buckle will engage the MGA and certain other subsidiaries of the Company to provide services to Buckle and that Buckle will lease space at the Company’s headquarters and its Melville, NY office.
The transaction will be subject to court approval and a bid process established by the statutory rehabilitator and approved by the court, and there can be no assurance that the transaction will be consummated on the terms described herein or at all.
The Company’s numerous Current Reports on Form 8-K and press releases since December 31, 2018 provide more detailed disclosures regarding the above events.


30

II. Operating Results
Highlights
•
Gross premiums written were $67.2 million for the three months ended June 30, 2019 compared to $57.4 million for the three months ended June 30, 2018.
•
In-force premium was $279.8 million as of June 30, 2019, an increase of 3.3% from $270.9 million as of June 30, 2018.
•
Total revenue was $44.5 million for the three months ended June 30, 2019, a decrease of 21.5% from $56.7 million for the three months ended June 30, 2018.
•
Underwriting loss was $3.7 million in second quarter 2019 compared to underwriting income of $6.2 million in second quarter 2018.
•
The combined ratio was 108.5% in second quarter 2019 compared to 88.9% in second quarter 2018.
•
Net loss was $3.1 million, or $0.26 loss per common share diluted, in second quarter 2019 compared to net income totaling $5.6 million, or $0.47 earnings per common share diluted, in second quarter 2018, representing a decrease of $0.73 or 155.4%.
•
Book value per common share was $0.51 as of June 30, 2019, compared to $0.48 and $8.06 as of December 31, 2018 and June 30, 2018, respectively.

31

Consolidated Performance
($ in ‘000s, except per share data)
Three months ended June 30,
Six months ended June 30,
 
2019
2018
2019
2018
Gross premiums written
$
67,244

$
57,359

$
152,642

$
152,948

Net premiums earned
43,447

55,359

91,290

111,251

Net claims incurred
31,236

33,809

67,626

68,855

Underwriting expense:
 
 
 
 
Acquisition costs
3,650

6,680

6,712

12,656

Share-based compensation
187

286

497

571

Expenses recovered related to stock purchase agreements
—

—

—

(520
)
Deferred policy acquisition costs amortization
140

61

11

(200
)
Other underwriting expenses
11,967

8,353

22,307

17,745

Total underwriting expenses
15,944

15,380

29,527

30,252

Underwriting (loss) income
(3,733
)
6,170

(5,863
)
12,144

Net investment income
699

1,167

1,852

2,131

(Loss) income from operating activities, before income taxes
(3,034
)
7,337

(4,011
)
14,275

Interest expense
(470
)
(461
)
(940
)
(916
)
Loss from change in fair value of equity securities
(342
)
33

(274
)
(95
)
Realized gains and other income
733

170

1,273

627

Net (loss) income before income taxes
(3,113
)
7,079

(3,952
)
13,891

Income tax expense
—

1,503

—

2,786

Net (loss) income
$
(3,113
)
$
5,576

$
(3,952
)
$
11,105

 
 
 
 
 
Key Financial Ratios1
 
 
 
 
Loss ratio
71.9
%
61.1
%
74.1
%
61.9
 %
Underwriting expense ratio:
 
 
 
 
Acquisition cost ratio
8.4

12.1

7.4

11.4

Share-based compensation ratio
0.4

0.5

0.5

0.5

Expenses recovered related to stock purchase agreements ratio
—

—

—

(0.5
)
Deferred policy acquisition costs amortization ratio
0.3

0.1

—

(0.2
)
Other underwriting expense ratio
27.5

15.1

24.4

16.0

Total underwriting expense ratio
36.6

27.8

32.3

27.2

Combined ratio
108.5
%
88.9
%
106.4
%
89.1
 %
Earnings per common share diluted
$
(0.26
)
$
0.47

$
(0.33
)
$
0.92

Book value per common share
$
0.51

$
8.06

$
0.51

$
8.06

1 
Ratios are calculated as a percentage of net premiums earned.

32

Revenues
We derive our revenues primarily from premiums from our insurance policies, MGA compensation related thereto, and income from our investment portfolio. Our underwriting approach is to price our products with the objective of generating underwriting profit for the insurance companies we own. The Company’s philosophy is to prioritize improvement in underwriting margin over top line growth. As with all P&C insurance companies, the impact of price changes and other underwriting activities is reflected in our financial results over time. Underwriting changes on our in-force policies occur as they are renewed. This cycle generally takes twelve months for our entire book of business and up to an additional twelve months to earn a full year of premium at the renewal rate.
We approach investment and capital management with the intention of supporting insurance operations by providing a stable source of income to supplement underwriting income. The goals of our investment policy are to protect capital while optimizing investment income and capital appreciation and to maintain appropriate liquidity. We follow a formal investment policy, and the Board of Directors reviews the portfolio performance at least quarterly for compliance with the established guidelines. The Investment Committee of the Board of Directors provides interim guidance and analysis with respect to asset allocation, as deemed appropriate. As a result of activities in 2019, liquidity needs related to the investment portfolio are expected to change. See “Explanatory Note” and “Part I, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.
Expenses
Net claims incurred expenses are a function of the amount and type of insurance contracts we write and of the claims experience of the underlying risks. We record net claims incurred based on an actuarial analysis of the estimated claims we expect to be reported on contracts written. We seek to establish case reserves at the probable exposure, based on our historical claims experience, and beginning in 2016, the use of claim related analytics. Our ability to estimate net claims incurred accurately at the time of pricing our contracts is a critical factor in determining our profitability. The amount reported under net claims incurred in any period includes payments in the period net of the change in the value of the reserves for net claims incurred between the beginning and the end of the period, as well as estimation of potential future trends or changes. While the Company has always relied on independent actuarial professionals and internal controls in this regard, the estimation of reserves is inherently uncertain. We are committed to continuous improvement in this area of our business. See “Explanatory Note” and “Part 1, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.
Acquisition costs consist principally of brokerage and agent commissions and, to a lesser extent, premium taxes. The brokerage and agent commissions are reduced by ceding commissions received from assuming reinsurers that represent a percentage of the premiums on insurance policies and reinsurance contracts written and vary depending upon the amount and types of contracts written.
Other underwriting expenses consist primarily of personnel related expenses (including salaries, benefits and certain costs associated with awards under our equity compensation plans, such as share-based compensation expense) and other general operating expenses. We believe that because a portion of our personnel expenses are relatively fixed in nature, changes in premium writings may impact our operating scale and operating expense ratios.
Gross Premiums Written
Gross Premiums Written by Line of Business
($ in ‘000s)
Three months ended June 30,
Six months ended June 30,
 
2019
2018
% Change
2019
2018
% Change
Commercial automobile
$
45,434

$
56,765

(20.0
)%
$
130,436

$
151,531

(13.9
)%
Other
21,810

594

3,571.7

22,206

1,417

1,467.1

Total
$
67,244

$
57,359

17.2
 %
$
152,642

$
152,948

(0.2
)%
 
 
 
 
 
 
 
Gross premiums written increased 17.2% in the three months ended June 30, 2019 compared to the three months ended June 30, 2018, primarily due to a new fronting program which is 100% ceded to an independent captive. This was offset by a reduction in our growth in our Livery/TNC lines as well as underwriting actions initiated which decreased gross premium written. Gross premiums written decreased 0.2% in the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Premiums written were consistent during the six months ended June 30, 2019, but commercial auto premium decreases in Livery/TNC and taxi lines were offset by a new fronting program that started in May 2019.

33

In-force premium was $279.8 million, $286.1 million and $274.6 million as of June 30, 2019, December 31, 2018 and June 30, 2018, respectively. The Company’s gross unearned premium reserves were $143.8 million, $134.0 million and $145.1 million as of June 30, 2019, December 31, 2018 and June 30, 2018, respectively. The decrease of in-force premium since December 31, 2018 primarily resulted from decreased premium written in the Livery/TNC and taxi lines. The increase in gross unearned premium reserves since December 31, 2018 primarily resulted from a new fronting program which started in May 2019. The slight decrease in gross unearned premium reserves since June 30, 2018 is primarily related to decreases in Livery/TNC and taxi lines offset by the fronting program.
Geographic Concentration
Gross Premiums Written by State
($ in ‘000s)
Three months ended June 30,
 
2019
2018
New York
$
31,183

46.4
%
$
16,406

28.6
%
California
11,993

17.8

11,767

20.5

Virginia
3,245

4.8

2,720

4.7

New Jersey
2,882

4.3

2,535

4.4

Louisiana
2,445

3.6

2,216

3.9

Georgia
1,468

2.2

1,395

2.4

Texas
1,340

2.0

1,881

3.3

Ohio
1,242

1.8

1,724

3.0

Arizona
832

1.2

394

0.7

South Carolina
820

1.2

996

1.7

Other
9,794

14.7

15,325

26.8

Total
$
67,244

100.0
%
$
57,359

100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross Premiums Written by State
($ in ‘000s)
Six months ended June 30,
 
2019
2018
New York
$
65,666

43.0
%
$
60,717

39.7
%
California
26,888

17.6

25,634

16.8

Virginia
6,351

4.2

4,931

3.2

New Jersey
6,318

4.1

5,290

3.5

Illinois
5,636

3.7

8,825

5.8

Louisiana
4,039

2.6

4,190

2.7

Texas
3,420

2.2

3,686

2.4

Georgia
2,939

1.9

2,862

1.9

Ohio
2,764

1.8

3,163

2.1

South Carolina
2,070

1.4

1,505

1.0

Other
26,551

17.5

32,145

20.9

Total
$
152,642

100.0
%
$
152,948

100.0
%
 
 
 
 
 
Ceded Premiums Written
Ceded premiums written is equal to premiums ceded under the terms of Atlas’ in-force reinsurance treaties. Atlas generally purchases reinsurance in an effort to limit net exposure on any one claim to a maximum amount of $500,000 with respect to commercial automobile liability claims. This Excess of Loss reinsurance is primarily secured through Gen Re. Atlas also purchases reinsurance from Gen Re in an effort to protect against awards in excess of its policy limits. Effective July 1, 2014, Atlas implemented a quota share reinsurance agreement with Swiss Re for its commercial auto and general liability lines of business (“Quota Share”) written by the ASI Pool Companies. The Quota Share agreement had an initial cession rate of 5%, which was increased to 15% effective April 1, 2015 and then was decreased to 5% effective July 1, 2016. Effective April 1, 2018, the Quota Share cession rate was increased to 30%.

34

Global Liberty has a 25% quota share reinsurance agreement with Swiss Re for its commercial auto and general liability lines of business (“Global Quota Share”). The cession rate of the Global Quota Share remained at 25% for the twelve months ended December 31, 2018 and for the six months ended June 30, 2019.
Ceded premiums written increased by 77.9% to $40.2 million and 95.2% to $70.3 million for the three and six months ended June 30, 2019, respectively, compared to $22.6 million and $36.0 million for the three and six months ended June 30, 2018, respectively, primarily due to the increase in the Quota Share cession rate for the ASI Pool Companies.
During 2019, the Company received notice from Gen Re that effective July 31, 2019, the XOL reinsurance coverage for American Country, American Service and Gateway (collectively, the “ASI Pool Companies”) would terminate on a cut-off basis. Additionally, effective September 30, 2019, the ASI Pool Companies’ Quota Share contract with Swiss Re was terminated on a run-off basis. During 2020, the Company received notice from Gen Re that effective January 1, 2020, the XOL reinsurance coverage for Global Liberty would terminate on a run-off basis. See “Explanatory Note” and “Part I, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.
Net Premiums Written
Net premiums written is equal to gross premiums written less the ceded premiums written under the terms of Atlas’ in-force reinsurance treaties. Net premiums written decreased 22.2% to $27.0 million and 29.6% to $82.4 million for the three and six months ended June 30, 2019, respectively, compared to $34.8 million and $117.0 million for the three and six months ended June 30, 2018, respectively. The change is attributed to the combined effects of the reasons cited in the ‘Gross Premiums Written’ and ‘Ceded Premiums Written’ sections above.
Net Premiums Earned
Premiums are earned ratably over the term of the underlying policy. Net premiums earned decreased 21.5% to $43.4 million in the three months ended June 30, 2019 and decreased 17.9% to $91.3 million in the six months ended June 30, 2019 compared to $55.4 million and $111.3 million for the three and six months ended June 30, 2018, respectively. The change in net premiums earned is attributed to the combined effects of the reasons cited in the ‘Gross Premiums Written’ and ‘Ceded Premiums Written’ sections above.
Net Claims Incurred
The loss ratio relating to the net claims incurred was 71.9% and 74.1% for the three and six months ended June 30, 2019, respectively, compared to 61.1% and 61.9% for the three and six months ended June 30, 2018, respectively. The loss ratio increased over both prior year periods primarily as a result of increases in year-to-date loss ratio estimates for IBNR in 2019.
Claims and Claims Adjustment Expenses Incurred, Net of Reinsurance
($ in ‘000s)
Commercial Auto Liability
Other
Total
 
Commercial Auto Liability
Other
Total
Accident Year
 
 
Three months ended June 30,
 
2019
 
2018
Current Year
$
27,240

$
3,798

$
31,038

 
$
29,603

$
3,985

$
33,588

Prior Years
(989
)
1,187

198

 
322

(101
)
221

 Total
$
26,251

$
4,985

$
31,236

 
$
29,925

$
3,884

$
33,809

 
 
 
 
 
 
 
 
 
Six months ended June 30,
 
2019
 
2018
Current Year
$
57,779

$
8,555

$
66,334

 
$
59,373

$
8,115

$
67,488

Prior Years
(958
)
2,250

1,292

 
1,227

140

1,367

 Total
$
56,821

$
10,805

$
67,626

 
$
60,600

$
8,255

$
68,855

 
 
 
 
 
 
 
 
Acquisition Costs and Other Underwriting Expenses
Acquisition costs represent commissions and taxes incurred on net premiums earned offset by ceding commission on business reinsured. As discussed further below, acquisition costs were $3.7 million for the three months ended June 30, 2019, or 8.4% of net premiums earned, as compared to $6.7 million, or 12.1%, for the three months ended June 30, 2018. For the six months ended June 30, 2019, acquisitions costs were $6.7 million, or 7.4% of net premiums earned, as compared to $12.7 million, or 11.4%, for the six months ended June 30, 2018.

35

Acquisition Cost Impact on the Combined Ratio
($ in ‘000s, percentages to net premiums earned)
Three months ended June 30,
 
2019
%
2018
%
Net premiums earned
$
43,447

100.0
 %
$
55,359

100.0
 %
Gross commissions incurred excluding contingent
8,114

18.7

7,609

13.7

Gross contingent commissions incurred
205

0.5

660

1.2

Premium and other taxes incurred
2,225

5.1

1,942

3.5

Total gross commissions and taxes incurred
10,544

24.3

10,211

18.4

Ceded commissions incurred excluding contingent
(7,182
)
(16.5
)
(2,271
)
(4.1
)
Ceded contingent commissions incurred
288

0.7

(1,260
)
(2.2
)
 Total ceded commissions incurred
(6,894
)
(15.8
)
(3,531
)
(6.3
)
Total
$
3,650

8.5
 %
$
6,680

12.1
 %
 
 
 
 
 
($ in ‘000s, percentages to net premiums earned)
Six months ended June 30,
 
2019
%
2018
%
Net premiums earned
$
91,290

100.0
 %
$
111,251

100.0
 %
Gross commissions incurred excluding profit sharing
15,623

17.1

15,168

13.6

Gross profit sharing commissions incurred
922

1.0

1,706

1.5

Premium and other taxes incurred
4,416

4.8

3,776

3.4

Total gross commissions and taxes incurred
20,961

22.9

20,650

18.5

Ceded commissions incurred excluding profit sharing
(13,483
)
(14.8
)
(5,376
)
(4.7
)
Ceded profit sharing commissions incurred
(766
)
(0.8
)
(2,618
)
(2.4
)
 Total ceded commissions incurred
(14,249
)
(15.6
)
(7,994
)
(7.1
)
Total
$
6,712

7.3
 %
$
12,656

11.4
 %
 
 
 
 
 
Total gross commissions and taxes incurred increased $333,000 and $311,000 for the three and six months ended June 30, 2019, respectively. The increase resulted from an increase in assumed commissions paid and growth in jurisdictions with higher premium tax rates while being offset by a decrease in gross commissions incurred from lower gross premiums written.
Ceded commissions incurred excluding contingent commissions decreased by $4.9 million in the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and decreased by $8.1 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018, primarily due to the increase in the Quota Share cession rate. Ceded contingent commissions incurred increased by $1.5 million in the three months ended June 30, 2019 compared to the three months ended June 30, 2018. Ceded contingent commissions incurred increased by $1.9 million for the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Ceded contingent commissions are based on loss experience. The increase in ceded contingent commissions resulted from unfavorable loss ratios on Atlas’ excess of loss reinsurance agreements.
The other underwriting expense ratio (including share-based compensation expenses and expenses incurred related to stock purchase agreements) was 28.2% and 15.7% for the three months ended June 30, 2019 and 2018, respectively. Total other underwriting expenses increased by $3.6 million in the three months ended June 30, 2019 compared to the three months ended June 30, 2018. The other underwriting expense ratio (including share-based compensation expenses and expenses incurred related to stock purchase agreements) was 24.9% and 15.8% in the six months ended June 30, 2019 and 2018, respectively. Total other underwriting expenses increased by $5.2 million in the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Increases in bad debt, depreciation, equipment, facilities expenses, professional fees, salary and benefit expenses, and costs incurred related to the corrective actions and strategic evaluation undertaken contributed to the increase in total dollars while a decrease in net premium earned contributed to the percentage increase for the three and six months ended June 30, 2019.
Also, while the Quota Share and Global Quota Share provide a ceding commission to offset underwriting expense, this commission reduces acquisition costs rather than other underwriting expenses on the statements of income and comprehensive income. With this in mind, acquisition costs, and other underwriting expenses should be examined collectively as total underwriting expenses to understand operating efficiency.
Expenses Related to Stock Purchase Agreements
Atlas did not incur or recover any expenses pursuant to the contingent adjustments of the Anchor stock purchase agreements related to the claim reserve contingency for the three and six months ended June 30, 2019. For the three and six months ended June 30, 2018, Atlas recovered $0 and $520,000, respectively of expenses pursuant to the stock purchase agreements.

36

Combined Ratio
Atlas’ combined ratio was 108.5% and 106.4% for the three and six months ended June 30, 2019, respectively, compared to 88.9% and 89.1% for the three and six months ended June 30, 2018, respectively.
Underwriting profitability, as opposed to overall profitability or net earnings, is measured by the combined ratio. The combined ratio is the sum of the claims and claims adjustment expense ratio, the acquisition cost ratio, and the underwriting expense ratio. The change in the combined ratio is attributable to the factors described in the ‘Net Premiums Earned,’ ‘Net Claims Incurred,’ and ‘Acquisition Costs and Other Underwriting Expenses’ sections above.
Net Investment Income
Net investment income is primarily comprised of interest income, dividend income, and income from other invested assets, net of investment expenses, which are comprised of investment management fees, custodial fees, and allocated salaries. Net investment income, net of investment expenses, decreased by 40.1% to $699,000 for the three months ended June 30, 2019, compared to $1.2 million for the three months ended June 30, 2018. The decrease resulted from sales of fixed income securities which reduced interest income in addition to repayment of collateral loans. Investment expenses increased by 48.9% to $277,000 for the three months ended June 30, 2019 compared to $186,000 for the three months ended June 30, 2018. The increase was a result of allocated general expenses offset by lower investment manager fees. Atlas’ investment manager fees are based on the fair market value of the underlying fixed income securities and equities. The gross annualized yield on our fixed income securities was 2.6% and 2.7% for the three months ended June 30, 2019 and 2018, respectively. The gross annualized yield on our cash and cash equivalents was 1.1% and 0.7% for the three months ended June 30, 2019 and 2018, respectively. 
Net investment income, net of investment expenses, decreased by 13.1% to $1.9 million for the six months ended June 30, 2019, compared to $2.1 million for the six months ended June 30, 2018. The decrease resulted from sales of fixed income securities which reduced interest income in addition to repayment of collateral loans. Investment expenses were $660,000 and $469,000 for the six months ended June 30, 2019 and 2018, respectively. The increase in investment expenses resulted from higher allocated general expenses offset by lower investment manager fees. Atlas’ investment manager fees are based on the fair market value of the underlying fixed income securities and equities. The gross annualized yield on our fixed income securities was 2.8% and 2.6% for the six months ended June 30, 2019 and 2018, respectively. The gross annualized yield on our cash and cash equivalents was 0.7% and 0.6% for the six months ended June 30, 2019 and 2018, respectively. 
Interest Expense
On April 26, 2017, Atlas issued $25 million of five-year 6.625% senior unsecured notes and received net proceeds of approximately $23.9 million after deducting underwriting discounts and commissions and other offering expenses. Interest expense was $470,000 and $461,000 for the three months ended June 30, 2019 and 2018, respectively, and $940,000 and $916,000 for each of the six months ended June 30, 2019 and 2018, respectively.
(Loss) Income from Change in Fair Value of Equity Securities
Beginning January 1, 2018, Atlas adopted Accounting Standards Update 2016-01, which requires changes in the unrealized market value of equities held at fair value to be recorded through net income. Atlas recorded losses of $342,000 and income of $33,000 through net income for the three months ended June 30, 2019 and 2018, respectively, related to the changes in the unrealized amounts on equities held at fair value. Atlas recorded losses of $274,000 and $95,000 through net income for the six months ended June 30, 2019 and 2018, respectively, related to the changes in unrealized amounts on equities held at fair value.
Net Realized Investment Gains
Net realized investment gains is comprised of the gains and losses from sales of investments. Net realized investment gains on sales are the result of management’s decision to sell certain securities. Net realized investment gains were $600,000 and $154,000 for the three months ended June 30, 2019 and 2018, respectively, and $680,000 and $447,000 for the six months ended June 30, 2019 and 2018, respectively. The increases were results of the timing of sales of fixed income and equity securities.
Other Income
Atlas recorded other income of $133,000 and $16,000 for the three months ended June 30, 2019 and 2018, respectively, and $593,000 and $180,000 for the six months ended June 30, 2019 and 2018, respectively. The increase resulted from interest received on federal income tax refunds in the first quarter of 2019.

37

(Loss) Income before Income Taxes
Atlas had a pre-tax loss of $3.1 million for the three months ended June 30, 2019 compared to pre-tax income of $7.1 million for the three months ended June 30, 2018, or a 144.0% decrease over the prior year’s second quarter. Atlas had a pre-tax loss of $4.0 million for the six months ended June 30, 2019 compared to pre-tax income of $13.9 million for the six months ended June 30, 2018, or a 128.5% decrease over the prior year. The change is attributed to the combined effects of the reasons cited in the ‘Net Premiums Earned,’ ‘Net Claims Incurred,’ ‘Acquisition Costs and Other Underwriting Expenses,’ ‘Net Investment Income,’ ‘Interest Expense,’ ‘Loss from Change in Fair Value of Equity Securities,’ ‘Net Realized Investment Gains’ and ‘Other Income’ sections above.
Income Taxes
Upon the transaction forming Atlas on December 31, 2010, a yearly limitation as required by IRC Section 382 that applies to changes in ownership on the future utilization of Atlas’ net operating loss carryforwards was calculated. The Insurance Subsidiaries’ prior parent retained those tax assets previously attributed to the Insurance Subsidiaries that could not be utilized by Atlas as a result of this limitation. As a result, Atlas’ ability to recognize future tax benefits associated with a portion of its deferred tax assets generated during prior years have been permanently limited to the amount determined under IRC Section 382. The result is a maximum expected net deferred tax asset, which Atlas has available after the merger and believed more-likely-than-not to be utilized in the future, after consideration of a valuation allowance.
In assessing the need for a valuation allowance, Atlas considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets.
Positive evidence evaluated when considering the need for a valuation allowance includes:
•
management’s expectations of future profit with vehicles in-force at their highest levels and steady new and renewal business;
•
anticipated ability to increase prices in core lines as the commercial auto market is firming;
•
our belief that predictive modeling in underwriting and claims should generate better priced risks that are expected to create overall profitability over time; and
•
positive growth trends in gross premiums written in each year since formation.
Negative evidence evaluated when considering the need for a valuation allowance includes:
•
net losses generated in the three most recent years; and
•
yearly limitation as required by IRC Section 382 on net operating loss carryforwards generated prior to 2013.
Net (Loss) Income and Earnings per Common Share
Atlas had a net loss of $3.1 million and $4.0 million during the three and six months ended June 30, 2019, respectively, compared to net income of $5.6 million and $11.1 million during the three and six months ended June 30, 2018, respectively. Loss per common share diluted was $0.26 and $0.33 for the three and six months ended June 30, 2019, respectively, compared to earnings per common share diluted of $0.47 and $0.92 for the three and six months ended June 30, 2018, respectively.

38

III. Financial Condition
Investments
Overview and Strategy
Atlas aligns its securities portfolio to support the liabilities and operating cash needs of the Insurance Subsidiaries, to preserve capital and to generate investment returns. Atlas invests predominantly in corporate and government bonds with a portion of the portfolio in relatively short durations that correlate with the payout patterns of Atlas’ claims liabilities. Atlas also invests opportunistically in selective direct investments with favorable return attributes. A third-party investment management firm manages Atlas’ investment portfolio pursuant to the Company’s investment policies and guidelines as approved by its Board of Directors. Atlas monitors the third-party investment manager’s performance and its compliance with both its mandate and Atlas’ investment policies and guidelines.
Atlas’ investment guidelines stress the preservation of capital, market liquidity to support payment of liabilities and the diversification of risk. With respect to fixed income securities, Atlas generally purchases securities with the expectation of holding them to their maturities; however, the securities are available for sale if liquidity needs arise. To the extent that interest rates increase or decrease, unrealized gains or losses may result. We believe that our investment philosophy and approach significantly mitigate the likelihood of such gains or losses being realized.
Carrying Value of Securities Portfolio, including Cash and Cash Equivalents
($ in ‘000s)
June 30, 2019
December 31, 2018
Fixed income securities:
 
 
 
U.S. Treasury and other U.S. government obligations
$
20,922

$
20,196

 
States, municipalities and political subdivisions
4,304

8,843

 
Corporate
 
 
 
Banking/financial services
5,971

13,124

 
Consumer goods
4,692

9,790

 
Capital goods
1,511

3,547

 
Energy
2,678

6,812

 
Telecommunications/utilities
4,928

8,323

 
Health care
453

755

 
Total corporate
20,233

42,351

 
Mortgage backed
 
 
 
Mortgage backed - agency
18,241

25,128

 
Mortgage backed - commercial
14,729

19,622

 
Total mortgage backed
32,970

44,750

 
Other asset backed
13,954

13,851

Total fixed income securities
$
92,383

$
129,991

Equities
4

5,929

Short-term investments
15,383

4,745

Other investments
21,984

25,043

Total investments
$
129,754

$
165,708

Cash and cash equivalents
54,090

34,902

Total
$
183,844

$
200,610

 
 
 
 
Portfolio Composition
Atlas held securities, short-term investments and other investments with a carrying value of $129.8 million and $165.7 million as of June 30, 2019 and December 31, 2018, respectively, which were primarily comprised of fixed income securities. The decrease resulted from the net sales of fixed income securities and equities, the repayment of two collateral loans, return of capital of certain equity method investments and changes in market values.

39

The securities held by the Insurance Subsidiaries must comply with applicable regulations that prescribe the type, quality and concentration of securities. These regulations in the various jurisdictions in which the Insurance Subsidiaries are domiciled permit investments in government, state, municipal and corporate bonds, preferred and common equities, and other high quality investments, within specified limits and subject to certain qualifications. The Company’s use of quota share reinsurance can impact the relationship between invested assets and premiums written over time as well as the desired duration of the portfolio.
See “Explanatory Note” and “Part 1, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.
Short-Term Investments
Atlas’ short-term investments are comprised of bonds and money market funds. As of June 30, 2019 and December 31, 2018, short-term investments totaled $15.4 million and $4.7 million, respectively.
Other Investments
Atlas’ other investments are comprised of collateral loans and various limited partnerships that invest in income-producing real estate, equities or insurance linked securities. Atlas accounts for these limited partnership investments using the equity method of accounting. The carrying values of these other investments were $22.0 million and $25.0 million as of June 30, 2019 and December 31, 2018, respectively. The decrease in carrying value is related to redemptions of equity method investments and changes in carrying value during the six months ended June 30, 2019. The carrying values of the equity method limited partnerships were $21.9 million and $24.0 million as of June 30, 2019 and December 31, 2018, respectively. The decrease in the carrying value of the limited partnerships was primarily due to the return of capital of certain equity method investments. The carrying value of these investments is Atlas’ share of the net book value for each limited partnership, an amount that approximates fair value. Atlas receives payments on a routine basis that approximate the income earned on one of the limited partnerships that invests in income-producing real estate. As of June 30, 2019, the carrying values of the collateral loans were approximately $93,000 versus approximately $1.0 million as of December 31, 2018.
Equity Method Investments by Type
($ in ‘000s)
Unfunded Commitments
Carrying Value
 
June 30, 2019
June 30, 2019
December 31, 2018
Real estate
$
2,887

$
10,839

$
11,085

Insurance linked securities
—

4,047

6,694

Activist hedge funds
—

4,239

3,911

Venture capital
2,670

2,441

2,015

Other joint venture
—

325

325

Total equity method investments
$
5,557

$
21,891

$
24,030

 
 
 
 
Liquidity and Cash Flow Risk
As of June 30, 2019, 36.1% of the fixed income securities, including treasury bills, bankers’ acceptances, government bonds and corporate bonds had contractual maturities of five years or less, compared to 26.1% as of December 31, 2018. Actual maturities may differ from contractual maturities, because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties. Atlas holds cash and high grade short-term assets, which, along with fixed income security maturities, management believes are sufficient for the payment of claims on a timely basis. In the event that additional cash is required to meet obligations to policyholders, Atlas believes that a high quality securities portfolio provides us with sufficient liquidity. As of June 30, 2019, the fixed income securities had a weighted average life of 3.3 years and a duration of 2.3 years, compared to a weighted average life of 4.8 years and a duration of 3.8 years as of December 31, 2018. Changes in interest rates may have a modest market value impact on the Atlas portfolio relative to longer duration portfolios. Atlas can and typically does hold bonds to maturity by matching duration with the anticipated liquidity needs.
The debt-to-equity ratio is the sum of the Company’s long-term debt and interest payable divided by total shareholders’ equity. The Company’s debt-to-equity ratio as of June 30, 2019 and December 31, 2018 was 406.8% and 430.5%, respectively. See the ‘Liquidity and Capital Resources’ subsections of the ‘Financial Condition’ section for further information.

40

Credit Risk
Credit risk is defined as the risk of financial loss due to failure of the other party to a financial instrument to discharge an obligation. Atlas is exposed to credit risk principally through its investments and balances receivable from policyholders, agents and reinsurers. It monitors concentration and credit quality risk through policies designed to limit and monitor its exposure to individual issuers or related groups (with the exception of U.S. government bonds) as well as through ongoing review of the credit ratings of issuers in the securities portfolio. Credit exposure to any one individual policyholder is not material. The Company’s insurance policies, however, are distributed by agents who may manage cash collection on its behalf pursuant to the terms of their agency agreement. Atlas has protocols to evaluate the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurers’ insolvency.
As of June 30, 2019, Atlas’ allowance for bad debt was $5.9 million, compared to $5.1 million as of December 31, 2018. The increase in the allowance for bad debt resulted from an analysis of certain past due balances during the six months ended June 30, 2019. The fixed income securities portfolio consists of predominantly investment grade securities in corporate and government bonds with 99.7% rated ‘BBB’ or better as of June 30, 2019 compared to 99.5% as of December 31, 2018.
Credit Ratings1 of Fixed Income Securities Portfolio
($ in ‘000s)
June 30, 2019
December 31, 2018
 
Fair Value
% of Total
Fair Value
% of Total
AAA/Aaa
$
29,868

32.3
%
$
38,478

29.6
%
AA/Aa
42,652

46.2

50,273

38.7

A/A
12,786

13.9

20,729

16.0

BBB/Baa
6,756

7.3

19,808

15.2

BB
321

0.3

557

0.4

B
—

—

—

—

CCC
—

—

146

0.1

Total fixed income securities
$
92,383

100.0
%
$
129,991

100.0
%
 
 
 
 
 
1 
Ratings assigned by Fitch, S&P or Moody’s Investors Service.
See “Explanatory Note” and “Part I, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.
Other-Than-Temporary Impairment
Atlas recognizes losses on securities for which a decline in market value was deemed to be other-than-temporary. Management performs a quarterly analysis of the securities holdings to determine if declines in market value are other-than-temporary. Atlas did not recognize any charges for securities impairments that were considered other-than-temporary for the three and six months ended June 30, 2019 and 2018.
The length of time securities may be held in an unrealized loss position may vary based on the opinion of the appointed investment manager and their respective analyses related to valuation and to the various credit risks that may prevent us from recapturing the principal investment. In cases of securities with a maturity date where the appointed investment manager determines that there is little or no risk of default prior to the maturity of a holding, Atlas would elect to hold the security in an unrealized loss position until the price recovers or the security matures. In situations where facts emerge that might increase the risk associated with recapture of principal, Atlas may elect to sell securities at a loss.
The total fair value of the securities in an unrealized loss position as of June 30, 2019 was $35.1 million compared to $115.4 million as of December 31, 2018. This decrease was primarily driven by a reduction in the total fixed income securities and changes in market values during the first six months of 2019. The Company expects to monitor liquidity needs and assess the sale of fixed income assets, if required, on a regular basis.
Due from Reinsurers
Atlas purchases reinsurance from third parties in order to reduce its liability on individual risks and its exposure to large claims. Reinsurance is coverage purchased by one insurance company from another for part of the risk originally underwritten by the purchasing (ceding) insurance company. The practice of ceding insurance to reinsurers allows an insurance company to reduce its exposure to claims by size, geographic area, and type of risk or on a particular policy. An effect of ceding insurance is to permit an insurance company to write additional insurance for risks in greater numbers or in larger amounts than it would otherwise insure independently, based on its statutory capital, risk tolerance and other factors.

41

Atlas generally purchases reinsurance to limit net exposure to a maximum amount on any one loss of $500,000 with respect to commercial automobile liability claims. Atlas also purchases reinsurance to protect against awards in excess of its policy limits. Atlas continually evaluates and adjusts its reinsurance needs based on business volume, mix, and supply levels. As a result, the Company has entered into the Quota Share with Swiss Re for ASI Pool Companies and the Global Quota Share with Swiss Re for Global Liberty.
Reinsurance ceded does not relieve Atlas of its ultimate liability to its insureds in the event that any reinsurer is unable to meet their obligations under its reinsurance contracts. Therefore, Atlas enters into reinsurance contracts with only those reinsurers deemed to have sufficient financial resources to provide the requested coverage. Reinsurance treaties are generally subject to cancellation by the reinsurers or Atlas on the anniversary date and are subject to renegotiation annually. Atlas regularly evaluates the financial condition of its reinsurers and monitors the concentrations of credit risk to minimize its exposure to significant claims as a result of the insolvency of a reinsurer. Atlas believes that the amounts it has recorded as reinsurance recoverables are appropriately established. Estimating amounts of reinsurance recoverables, however, is subject to various uncertainties, and the amounts ultimately recoverable may vary from amounts currently recorded. Atlas had $84.4 million recoverable from third party reinsurers (exclusive of amounts prepaid) as of June 30, 2019 as compared to $81.2 million as of December 31, 2018. The increase in the amount recoverable from third party reinsurers resulted from an increase in ceded case and IBNR reserves and the timing of the collection of amounts recoverable on paid claims.
Estimating amounts of reinsurance recoverables is also impacted by the uncertainties involved in the establishment of provisions for unpaid claims and claims adjustment expenses. As underlying reserves potentially develop, the amounts ultimately recoverable may vary from amounts currently recorded. Atlas’ reinsurance recoverables are generally unsecured. Atlas regularly evaluates its reinsurers, and the respective amounts recoverable, and an allowance for uncollectible reinsurance is provided for, if needed.
During 2019, the Company received notice from Gen Re that effective July 31, 2019, the XOL reinsurance coverage for the ASI Pool Companies would terminate on a cut-off basis. Additionally, effective September 30, 2019, the ASI Pool Companies’ Quota Share contract with Swiss Re was terminated on a run-off basis. During 2020, the Company received notice from Gen Re that effective January 1, 2020, the XOL reinsurance coverage for Global Liberty would terminate on a run-off basis. See “Explanatory Note” and “Part I, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.
Claims Liabilities
Provision for Unpaid Claims by Type, Gross of Reinsurance
($ in ‘000s)
June 30, 2019
December 31, 2018
% Change
Case reserves
$
82,197

$
78,191

5.1
 %
Incurred but Not Reported (“IBNR”)
170,473

195,305

(12.7
)
Total
$
252,670

$
273,496

(7.6
)%
 
 
 
 
Provision for Unpaid Claims by Line of Business, Gross of Reinsurance
($ in ‘000s)
June 30, 2019
December 31, 2018
% Change
Commercial automobile liability
$
243,205

$
268,728

(9.5
)%
Other1
9,465

4,768

98.5

Total
$
252,670

$
273,496

(7.6
)%
 
 
 
 
Provision for Unpaid Claims by Line of Business, Net of Reinsurance Recoverables
($ in ‘000s)
June 30, 2019
December 31, 2018
% Change
Commercial automobile liability
$
173,359

$
200,984

(13.7
)%
Other1
7,082

3,741

89.3

Total
$
180,441

$
204,725

(11.9
)%
 
 
 
 
1 
The other line of business is comprised of our surety program (currently in run-off), Gateway’s truck and workers’ compensation programs (currently in run off), American Service’s non-standard personal lines business (currently in run off), Atlas’ workers’ compensation related to taxi, other liability, Global Liberty’s homeowners program (currently in run off) and assigned risk pool business.

42

During the six months ended June 30, 2019, case reserves increased by 5.1% compared to December 31, 2018, and IBNR reserves decreased by 12.7%. The increase in case reserves was primarily due to an increase in claim features related to the three most recent accident years along with the utilization of the claims predictive model to set case reserves. The decrease in IBNR was primarily due to the settlement of claims reported on prior accident years for our commercial auto and non-voluntary assigned risk programs above established case reserves for the six months ended June 30, 2019.
Provision for Unpaid Claims, Gross of Reinsurance
($ in ‘000s)
Case Reserves
 
IBNR
Accident Year
Commercial Auto Liability
Other
Total
 
Commercial Auto Liability
Other
Total
 
As of June 30, 2019
Current Year
$
11,636

$
170

$
11,806

 
$
56,939

$
2,577

$
59,516

Prior Years
67,755

2,636

70,391

 
106,875

4,082

110,957

 Total
$
79,391

$
2,806

$
82,197

 
$
163,814

$
6,659

$
170,473

 
 
 
 
 
 
 
 
 
As of December 31, 2018
Current Year
$
47,109

$
1,210

$
48,319

 
$
107,944

$
2,782

$
110,726

Prior Years
30,039

(167
)
29,872

 
83,636

943

84,579

 Total
$
77,148

$
1,043

$
78,191

 
$
191,580

$
3,725

$
195,305

 
 
 
 
 
 
 
 
Provision for Unpaid Claims, Net of Reinsurance Recoverables
($ in ‘000s)
Case Reserves
 
IBNR
Accident Year
Commercial Auto Liability
Other
Total
 
Commercial Auto Liability
Other
Total
 
As of June 30, 2019
Current Year
$
9,862

$
111

$
9,973

 
$
40,665

$
2,556

$
43,221

Prior Years
57,584

493

58,077

 
65,248

3,922

69,170

 Total
$
67,446

$
604

$
68,050

 
$
105,913

$
6,478

$
112,391

 
 
 
 
 
 
 
 
 
As of December 31, 2018
Current Year
$
40,073

$
481

$
40,554

 
$
76,337

$
2,556

$
78,893

Prior Years
26,502

(105
)
26,397

 
58,072

809

58,881

 Total
$
66,575

$
376

$
66,951

 
$
134,409

$
3,365

$
137,774

 
 
 
 
 
 
 
 

43

Changes in the Provision for Unpaid Claims and Claims Adjustment Expenses, Net of Reinsurance Recoverables
($ in ‘000s)
Three months ended June 30,
Six months ended June 30,
 
2019
2018
2019
2018
Unpaid claims and claims adjustment expenses, beginning of period
$
264,489

$
204,742

$
273,496

$
211,648

Less: reinsurance recoverable
66,420

52,316

68,771

53,402

Net unpaid claims and claims adjustment expenses, beginning of period
198,069

152,426

204,725

158,246

 
 
 
 
 
Incurred related to:
 
 
 
 
Current year
31,038

33,588

66,334

67,488

Prior years
198

221

1,292

1,367

 
31,236

33,809

67,626

68,855

 
 
 
 
 
Paid related to:
 
 
 
 
Current year
10,829

13,499

16,263

20,800

Prior years
38,035

32,180

75,647

65,745

 
48,864

45,679

91,910

86,545

 
 
 
 
 
Net unpaid claims and claims adjustment expenses, end of period
180,441

140,556

180,441

140,556

Add: reinsurance recoverable
72,229

46,614

72,229

46,614

Unpaid claims and claims adjustment expenses, end of period
$
252,670

$
187,170

$
252,670

$
187,170

 
 
 
 
 
The process of establishing the estimated provision for unpaid claims and claims adjustment expenses is complex and imprecise, as it relies on the judgment and opinions of a large number of individuals, on historical precedent and trends, on prevailing legal, economic, social and regulatory trends and on expectations as to future developments. The process of determining the provision necessarily involves risks that the actual results may deviate, perhaps substantially, from the best estimates made. The change to the provision for unpaid claims and claims adjustment expenses is consistent with the changes in written premium. However, because the establishment of reserves is an inherently uncertain process involving estimates, current provisions may not be sufficient. Adjustments to reserves, both positive and negative, are reflected quarterly in the statement of income as estimates are updated.
The financial statements are presented on a calendar year basis for all data. Claims payments and changes in reserves, however, may be made on accidents that occurred in prior years, not solely on business that is currently insured. Calendar year claims consist of payments and reserve changes that have been recorded in the financial statements during the applicable reporting period, without regard to the period in which the accident occurred. Calendar year results do not change after the end of the applicable reporting period, even as new claim information develops. Accident year claims consist of payments and reserve changes that are assigned to the period in which the accident occurred. Accident year results will change over time as the estimates of claims change due to payments and reserve changes for all accidents that occurred during that period.
The change in incurred related to prior years for the three and six months ended June 30, 2019 and 2018 primarily resulted from unfavorable development on involuntary assigned risk pools and run-off commercial auto. The provision for unpaid claims and claims adjustment expenses decreased by 7.6% to $252.7 million as of June 30, 2019 compared to $273.5 million as of December 31, 2018 as a result of claim settlement activities on prior accident years.


44

Equity and Book Value per Common Share
Book Value per Common Share
($ in ‘000s, except for share and per share data)
June 30, 2019
December 31, 2018
Common equity
$
6,058

$
5,699

Common shares:
 
 
Common shares outstanding
11,942,812

11,936,970

Restricted stock units
11,682

24,932

Total common shares
11,954,494

11,961,902

Book value per common share outstanding
$
0.51

$
0.48

Changes to Book Value per Common Share
 
 
As of December 31, 2018
 
$
0.48

Net loss, after tax
(0.21
)
 
Loss reserve estimate change
(0.08
)
 
Change in deferred tax valuation allowance
(0.06
)
 
Loss from change in fair value of equity securities
(0.02
)
 
Realized investment gains, after tax
0.04

 
Changes in unrealized gains and losses, after tax
0.32

 
Share-based compensation
0.04

 
Year-to-date increase to book value per common share
 
0.03

As of June 30, 2019
 
$
0.51

 
 
 
 
The change to book value per common share is attributed to the combined effects of the reasons cited in the ‘Net Premiums Earned,’ ‘Net Claims Incurred,’ ‘Acquisition Costs and Other Underwriting Expenses,’ ‘Net Investment Income,’ ‘Interest Expense,’ ‘(Loss) Income from Change in Fair Value of Equity Securities,’ ‘Net Realized Investment Gains’ and ‘Other Income’ subsections of the ‘Operating Results’ section.
Liquidity and Capital Resources
Liquidity Management
The purpose of liquidity management is to ensure there is sufficient cash to meet all financial commitments and obligations as they become due. The liquidity requirements of Atlas’ business have been met primarily by funds generated from operations, asset maturities and income and other returns received on securities. Cash provided from these sources is used primarily for payment of claims, commissions and general expenses.
As a holding company, Atlas may derive cash from its subsidiaries generally in the form of dividends and in the future may charge management fees to the extent allowed by statute or other regulatory approval requirements to meet its obligations. The Insurance Subsidiaries fund their obligations primarily through premiums collected, investment income and proceeds from the sales and maturity of investments and capital contributions from their parents. Refer also to the discussion above in the ‘Investments Overview and Strategy’ section. The Insurance Subsidiaries require regulatory approval for the return of capital and, in certain circumstances, payment of dividends. In the event that dividends and management fees available to the holding company are inadequate to service its obligations, the holding company would need to raise capital, sell assets or incur debt obligations. See “Explanatory Note” and “Part I, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.
On April 26, 2017, Atlas issued $25 million of five-year 6.625% senior unsecured notes and received net proceeds of approximately $23.9 million after deducting underwriting discounts and commissions and other estimated offering expenses. Interest on the senior unsecured notes is payable quarterly on each January 26, April 26, July 26 and October 26. Atlas may, at its option, beginning with the interest payment date of April 26, 2020, and on any scheduled interest payment date thereafter, redeem the senior unsecured notes, in whole or in part, at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest to, but excluding, the date of redemption. The senior unsecured notes will rank senior in right of payment to any of Atlas’ existing and future indebtedness that is by its terms expressly subordinated or junior in right of payment to the senior unsecured notes. The senior unsecured notes will rank equally in right of payment to all of Atlas’ existing and future senior indebtedness, but will be effectively subordinated to any secured indebtedness to the extent of the value of the collateral securing such secured indebtedness.

45

In addition, the senior unsecured notes will be structurally subordinated to the indebtedness and other obligations of Atlas’ subsidiaries.
The senior unsecured notes were issued under an indenture and supplemental indenture that contain covenants that, among other things, limit: (i) the ability of Atlas to merge or consolidate, or lease, sell, assign or transfer all or substantially all of its assets; (ii) the ability of Atlas to sell or otherwise dispose of the equity securities of certain of its subsidiaries; (iii) the ability of certain of Atlas’ subsidiaries to issue equity securities; (iv) the ability of Atlas to permit certain of its subsidiaries to merge or consolidate, or lease, sell, assign or transfer all or substantially all of their respective assets; and (v) the ability of Atlas and its subsidiaries to incur debt secured by equity securities of certain of its subsidiaries.
Summary of Cash Flows
($ in ‘000s)
Six months ended June 30,
 
2019
2018
Net cash flows used in operating activities
$
(18,957
)
$
(5,197
)
Net cash flows provided by investing activities
38,145

15,630

Net cash flows used in financing activities
—

(3,341
)
Net increase in cash
$
19,188

$
7,092

 
 
 
Cash used in operations during the six months ended June 30, 2019 was $19.0 million, compared to $5.2 million during the six months ended June 30, 2018. We receive most premiums in advance of the payment of claims. Our ability to generate positive cash flows depends on the frequency and severity of claims and the timing of collection of premiums receivable and reinsurance recoverables on paid claims.
Cash provided by investing activities during the six months ended June 30, 2019 was $38.1 million and resulted from the net sales and maturities of fixed income securities, the net sales of equity securities and other investments partially offset by the purchase of short-term investments and property and equipment purchases. Sales of investments were needed to fund payments to policyholders and claimants. Cash provided by investing activities during the six months ended June 30, 2018 was $15.6 million and resulted from the net sales and maturities of fixed income securities, the net sales of equity securities and the repayment of two collateral loans, partially offset by property and equipment purchases.
Cash used in financing activities during the six months ended June 30, 2018 was primarily a result of shares repurchased under the Share Repurchase Program. On March 21, 2017, the Company’s Board of Directors approved a Share Repurchase Program of up to 650,000 shares of common stock. The repurchases could have been made from time to time in open market transactions, privately-negotiated transactions, block purchases, or otherwise in accordance with securities laws at the discretion of the Company’s management until March 21, 2018. The Share Repurchase Program was not extended. The Company’s decisions around the timing, volume, and nature of share repurchases, and the ultimate amount of shares repurchased, were dependent on market conditions, applicable securities laws, and other factors. During 2018, 255,505 shares were repurchased under this Share Repurchase Program.
Capital Resources
The Company manages capital using both regulatory capital measures and internal metrics. The Company’s capital is primarily derived from common shareholders’ equity, retained earnings (deficit) and accumulated other comprehensive income.
The Insurance Subsidiaries must each maintain a minimum statutory capital and surplus of $1.5 million, $2.4 million and $3.5 million under the provisions of the Illinois Insurance Code, the Missouri Insurance Code and the New York Insurance Code, respectively. Dividends may only be paid from statutory unassigned surplus, and payments may not be made if such surplus is less than a stipulated amount. The dividend restriction for the ASI Pool Companies is the greater of statutory net income or 10% of total statutory capital and surplus. The dividend restriction for Global Liberty is the lower of 10% of statutory surplus or 100% of adjusted net investment income for the preceding twelve months. See “Explanatory Note” and “Part I, Item 2, 2019 Developments” for certain developments with respect to the Company and the Insurance Subsidiaries during the second quarter and subsequent to June 30, 2019.
Statutory Net Loss and Surplus of Atlas’ Insurance Subsidiaries
($ in ‘000s)
June 30, 2019
December 31, 2018
Net income (loss) computed under statutory-basis accounting
$
3,946

$
(49,648
)
 
 
 
Combined statutory capital and surplus
$
2,425

$
14,377

 
 
 

46

Atlas did not declare or pay any dividends to its common shareholders during the six months ended June 30, 2019 or during the year ended December 31, 2018.
Application of Critical Accounting Policies and Estimates
There have been no material changes to the application of critical accounting estimates and policies that were discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. For a complete summary of our significant accounting policies, see the notes to the consolidated financial statements and our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of June 30, 2019 our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as such term is defined in Rule 13a-15(e) under the Exchange Act, and concluded as of the end of the period covered by this report that our disclosure controls and procedures were not effective due to failure to timely file certain periodic reports during 2019 as discussed below in connection with our internal control over financial reporting.
Timely identification of financial closing delays: As previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, through a confluence of events involving the Company’s former auditor which we do not believe could have reasonably been anticipated, the Company did not timely file its Annual Report on Form 10-K containing its audited financial statements for the year ending December 31, 2018 and, consequently, its Quarterly Reports on Form 10-Q for the quarters ending March 31, June 30, and September 30, 2019 and therefore did not have an effective internal control in place to monitor the progress of all aspects of its financial reporting close process to timely identify delays, resulting in the Company being unable to timely meet its financial reporting requirements with the SEC and Nasdaq.
The delay in the completion of the audit of the Company’s financial statements for the fiscal year ended December 31, 2018 was due to the previously disclosed disagreement with the Company’s former independent registered public accounting firm with respect to insurance reserves in certain of the Company’s insurance subsidiaries for the fiscal year ended December 31, 2018. The Company dismissed its former independent registered public accounting firm on April 29, 2019. As a result of this disagreement and termination, the audit of the Company’s financial statements for the fiscal year ended December 31, 2018 could not be completed in such time as to remain compliant with SEC and Nasdaq reporting requirements.
Remediation Plan for Material Weakness in Internal Control over Financial Reporting
With respect to the material weakness related to timely identification of financial closing delays and the resulting failure to timely file, the Company engaged another independent registered public accounting firm to complete the audit of its December 31, 2018 financial statements. The Company has also taken steps to monitor the progress of all aspects of its financial closing process including more detailed discussions as needed with its independent registered public accounting firm regarding insurance reserve calculations. The Company expects to file its delayed Quarterly Report on Form 10-Q for the period ending September 30, 2019 as soon as practicable.
Changes in Internal Control
There were no changes to our internal control over financial reporting during the fiscal quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Further, there have been no such changes since December 31, 2018 other than the action described in Remediation Plan for Material Weakness in Internal Control over Financial Reporting.


47

Part II. Other Information
Item 1. Legal Proceedings
On March 5, 2018, a complaint was filed in the U.S. District Court for the Northern District of Illinois asserting claims under the federal securities laws against the Company and two of its executive officers on behalf of a putative class of purchasers of the Company’s securities, styled Fryman v. Atlas Financial Holdings, Inc., et al., No. 1:18-cv-01640 (N.D. Ill.). Plaintiffs filed an amended complaint on July 30, 2018. Defendants filed a motion to dismiss, which was fully briefed as of December 12, 2018.  On April 1, 2019, before the Court had addressed defendants’ pending motion to dismiss, the plaintiffs filed a motion for leave to amend their complaint to include allegations relating to the Company’s press release dated March 4, 2019 disclosing a further increase in its loss reserves.  The Court subsequently granted plaintiffs leave to file a second amended complaint, which plaintiffs filed on April 9, 2019.  On June 5, 2019, before the defendants had responded to the second amended complaint, plaintiffs filed a motion for leave to file a third amended complaint to add allegations relating to developments occurring after the Company’s March 4, 2019 press release.  The Court subsequently granted the motion for leave, and plaintiffs filed the third amended complaint on June 12, 2019.  In the third amended complaint, the plaintiffs assert claims on behalf of a putative class consisting of purchasers of the Company’s securities between February 22, 2017 and April 30, 2019. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements or failing to disclose certain information regarding the adequacy of the Company’s reserves. The complaint seeks, among other remedies, unspecified damages, attorneys’ fees and other costs, equitable and/or injunctive relief, and such other relief as the court may find just and proper. Defendants filed a motion to dismiss the amended complaint on July 17, 2019, and briefing on that motion was completed on October 31, 2019. The motion remains pending before the Court. Under the federal securities laws, discovery and other proceedings automatically will be stayed during the pendency of the motion to dismiss.
In addition, in connection with our operations, we are, from time to time, named as defendants in actions for damages and costs allegedly sustained by plaintiffs in connection with claims against the insurance policies we underwrite. While it is not possible to estimate the outcome of the various proceedings at this time, such actions have generally been resolved with minimal damages or expense in excess of amounts provided, and the Company does not believe that it will incur any significant additional loss or expense in connection with such actions.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.

48

Item 6. Exhibits
10.1(1)
10.2(1)
10.3(1)
31.1
31.2
32.1
32.2
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
1 
Incorporated by reference from our Current Report on Form 8-K filed on June 13, 2019.


49

Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
Date:
March 26, 2020
Atlas Financial Holdings, Inc.
 
 
(Registrant)
 
 
 
 
 
By:
 
/s/ Paul A. Romano
 
 
 
 
Paul A. Romano
 
 
 
 
Vice President and Chief Financial Officer


50

Atlas Financial Holdings, Inc. Reports