SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Unico American Corporation is an insurance holding company that underwrites property and casualty insurance through its insurance company subsidiary; provides property, casualty, and health insurance through its agency subsidiaries; and provides insurance premium financing and membership association services through its other subsidiaries. Unico American Corporation is referred to herein as the "Company" or "Unico" and such references include both the corporation and its subsidiaries, all of which are wholly owned. Unico was incorporated under the laws of Nevada in 1969.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Unico American Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10‑Q and Rule 8-03 of Regulation S-X for smaller reporting companies. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. Quarterly condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes in the Company’s 2020 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

Going Concern

The Company prepared its condensed consolidated financial statements on a going concern basis, which assumes that the Company will realize its assets and satisfy its liabilities in the normal course of business. Unico  has a history of recurring losses from operations, negative cash flows from its operating activities which may continue in the future, and, as a holding company, is dependent on dividends from Crusader Insurance Company ("Crusader") and its other subsidiaries to fund its operations and expenses.  Unico does not expect to receive dividends from Crusader, to fund its operations and expenses for the foreseeable future due to Crusader's decreased policyholder surplus caused by additional underwriting losses during 2021, and the need to preserve policyholder surplus at Crusader, as discussed further in Note 10.  These circumstances raise substantial doubt about Unico's ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and reclassification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of Unico's ability to continue as a going concern.

Based on Unico's current cash and short‑term investments at June 30, 2021, and in light of its expectation that it will not receive dividends from Crusader for the foreseeable future, there is substantial doubt that Unico will have sufficient cash to meet its operating and other liquidity requirements when they become due during the next 12 months from the date of issuance of the accompanying condensed consolidated financial statements.

Crusader, Unico's principal operating subsidiary, is not itself in a position where there is substantial doubt about its ability to continue as a going concern for the next 12 months and intends to continue to operate in the ordinary course, but any negative consequences that Unico experiences may disrupt or otherwise adversely affect Crusader.

Unico needs to improve its operating results and/or raise substantial additional capital to continue to fund its operations, and to successfully execute its current operating plan.  To meet its capital obligations, Unico is considering multiple alternatives, including, but not limited to, strategic financing, reevaluation of its planned operations, delaying, scaling back, or eliminating some or all of its business operations, expense reduction, reorganization, merger with another entity, or cessation of operations.  There can be no assurances that capital will be available when needed or that, if available, it will be obtained on terms favorable to the Company and its stockholders, particularly in light of the effects that the COVID-19 pandemic has recently had on the capital markets and investor sentiment. In addition, equity or debt financings may have a dilutive effect on the holdings of Unico's existing stockholders, and debt financings may subject Unico to restrictive covenants, operational restrictions and security interests in Unico’s assets.  If Unico becomes unable to continue as a going concern, Unico may have to dispose of or liquidate its assets, or put its operating units into runoff, and might realize significantly less than the values at which they are carried on its condensed consolidated financial statements.  Additionally, Unico may have to write down some or all of its capitalized assets or liquidate some or all of its investments in gross unrealized loss position.  These actions may cause Unico’s stockholders to lose all or part of their investment in Unico's common stock.  The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Use of Estimates in the Preparation of the Financial Statements

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect its reported amounts of assets and liabilities and its disclosure of any contingent assets and liabilities at the date of its financial statements, as well as its reported amounts of revenues and expenses during the reporting period. The most significant assumptions in the preparation of these condensed consolidated financial statements relate to losses and loss adjustment expenses. While every effort is made to ensure the integrity of such estimates, actual results may differ.

Fair Value of Financial Instruments

The Company employs a fair value hierarchy that prioritizes the inputs for valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Financial assets and financial liabilities recorded on the Condensed Consolidated Balance Sheets at fair value are categorized based on the reliability of inputs for the valuation techniques. (See Note 7.)

The Company has used the following methods and assumptions in estimating its fair value disclosures for instruments carried at fair value:

· Available-for-sale fixed securities, equity securities, and short-term investments – Fair values are obtained from widely accepted third party vendors.

Cash Equivalents

Cash equivalents are comprised of highly liquid investments with initial maturity of 90 days or less. Cash equivalents include, but not limited to, custodial trust, bank money market and savings accounts.

Concentration of Risks

As of June 30, 2021, the Company’s subsidiary, Crusader Insurance Company (“Crusader”) was licensed as an admitted insurance carrier in the states of Arizona, California, Nevada, Oregon, and Washington. From 2004 until September 2014, all of Crusader’s business was written in the state of California. Crusader’s business remains concentrated in California (100% of gross written premium during the three and six months ended June 30, 2021 and 99.9% of gross written premium during the three and six months ended June 30, 2020). During the three and six months ended June 30, 2021, approximately 99.8% and 99.6%, respectively of Crusader’s business was commercial multiple peril (“CMP”) policies. During the three and six months ended June 30, 2020, approximately 99.5% of Crusader’s business was commercial multiple peril (“CMP”) policies.