Segment Information

9 Months Ended

Sep. 30, 2020

Segment Reporting [Abstract]

Segment Information

13. Segment Information

The Company is engaged in the sale of property and casualty insurance products and has organized its business model around three classes of insurance businesses: commercial lines, personal lines, and wholesale agency business.  Within these three businesses, the Company offers various insurance products and insurance agency services. Such insurance businesses are engaged in underwriting and marketing insurance coverages, and administering claims processing for such policies.  The Company views the commercial and personal lines segments as underwriting business (business that takes on insurance underwriting risk).  The wholesale agency business provides non-risk bearing revenue through commissions and policy fees.  The wholesale agency business increases the product options to the Company’s independent retail agents by offering both insurance products from the Insurance Company Subsidiaries as well as products offered by other insurers.  

The Company defines its operating segments as components of the business where separate financial information is available and used by the chief operating decision maker in deciding how to allocate resources to its segments and in assessing its performance. In assessing performance of its operating segments, the Company’s chief operating decision maker, the Chief Executive Officer, reviews a number of financial measures including gross written premiums, net earned premiums, losses and LAE, net of reinsurance recoveries, and other revenue and expenses. The primary measure used for making decisions about resources to be allocated to an operating segment and assessing its performance is segment underwriting gain or loss which is defined as segment revenues, consisting of net earned premiums and other income, less segment expenses, consisting of losses and LAE, policy acquisition costs and operating expenses of the operating segments. Operating expenses primarily include compensation and related benefits for personnel, policy issuance and claims systems, rent and utilities. The Company markets, distributes and sells its insurance products through its own insurance agencies and a network of independent agents. All of the Company’s insurance activities are conducted in the United States with a concentration of activity in Michigan, Florida, Texas and California. For the nine months ended September 30, 2020 and 2019 gross written premiums attributable to these four states were 49.9% and 51.1%, respectively, of the Company’s total gross written premiums.

The Agency business sells insurance products on behalf of the Company’s commercial and personal lines businesses as well as to third-party insurers.  Certain acquisition costs incurred by the commercial and personal lines businesses are reflected as commission revenue for the Agency business and are eliminated in the Eliminations category.  

In addition to the reportable operating segments, the Company maintains a Corporate category to reconcile segment results to the consolidated totals. The Corporate category includes: (i) corporate operating expenses such as salaries and related benefits of the Company’s executive management team and finance and information technology personnel, and other corporate headquarters expenses, (ii) interest expense on the Company’s debt obligations; (iii) depreciation and amortization on property and equipment, and (iv) all investment income activity. All investment income activity is reported within net investment income, net realized investment gains, and change in fair value of equity securities on the consolidated statements of operations.  The Company’s assets on the consolidated balance sheet are not allocated to the reportable segments.

The following tables present information by reportable operating segment (dollars in thousands):

Three months ended September 30, 2020	Commercial Lines			Personal Lines		Total Underwriting			Wholesale Agency			Corporate			Eliminations			Total
Gross written premiums	$	27,297		$	2,544	$	29,841		$	—		$	—		$	—		$	29,841
Net written premiums	$	22,763		$	2,280	$	25,043		$	—		$	—		$	—		$	25,043
Net earned premiums	$	20,586		$	1,641	$	22,227		$	—		$	—		$	—		$	22,227
Other income		44			42		86			2,036			43			(1,523	)		642
Segment revenue		20,630			1,683		22,313			2,036			43			(1,523	)		22,869
Losses and LAE, net		14,195			358		14,553			—			—			—			14,553
Policy acquisition costs		6,180			537		6,717			1,328			—			(1,562	)		6,483
Operating expenses		3,187			251		3,438			779			320			—			4,537
Segment expenses		23,562			1,146		24,708			2,107			320			(1,562	)		25,573
Segment gain (loss)	$	(2,932	)	$	537	$	(2,395	)	$	(71	)	$	(277	)	$	39		$	(2,704	)
Investment income													776						776
Net realized investment gains													3,316						3,316
Change in fair value of equity securities													(356	)					(356	)
Other gains													—						—
Interest expense													(723	)					(723	)
Income (loss) before equity earnings in Affiliate and income taxes	$	(2,932	)	$	537	$	(2,395	)	$	(71	)	$	2,736		$	39		$	309

Three months ended September 30, 2019	Commercial Lines			Personal Lines			Total Underwriting			Wholesale Agency		Corporate			Eliminations			Total
Gross written premiums	$	25,018		$	2,059		$	27,077		$	—	$	—		$	—		$	27,077
Net written premiums	$	22,095		$	1,711		$	23,806		$	—	$	—		$	—		$	23,806
Net earned premiums	$	21,439		$	1,336		$	22,775		$	—	$	—		$	—		$	22,775
Other income		70			33			103			2,619		47			(2,205	)		564
Segment revenue		21,509			1,369			22,878			2,619		47			(2,205	)		23,339
Losses and LAE, net		13,517			1,340			14,857			—		—			—			14,857
Policy acquisition costs		6,114			447			6,561			1,825		—			(2,233	)		6,153
Operating expenses		3,239			327			3,566			434		297			—			4,297
Segment expenses		22,870			2,114			24,984			2,259		297			(2,233	)		25,307
Segment gain (loss)	$	(1,361	)	$	(745	)	$	(2,106	)	$	360	$	(250	)	$	28		$	(1,968	)
Investment income													1,210						1,210
Net realized investment gains													390						390
Change in fair value of equity securities													(1,065	)					(1,065	)
Other gains													—						—
Interest expense													(720	)					(720	)
Income (loss) before equity earnings in Affiliate and income taxes	$	(1,361	)	$	(745	)	$	(2,106	)	$	360	$	(435	)	$	28		$	(2,153	)

Nine months ended September 30, 2020	Commercial Lines			Personal Lines		Total Underwriting			Wholesale Agency			Corporate			Eliminations			Total
Gross written premiums	$	76,341		$	6,129	$	82,470		$	—		$	—		$	—		$	82,470
Net written premiums	$	63,827		$	5,332	$	69,159		$	—		$	—		$	—		$	69,159
Net earned premiums	$	61,122		$	4,880	$	66,002		$	—		$	—		$	—		$	66,002
Other income		200			114		314			6,051			206			(4,558	)		2,013
Segment revenue		61,322			4,994		66,316			6,051			206			(4,558	)		68,015
Losses and LAE, net		38,931			1,836		40,767			—			—			—			40,767
Policy acquisition costs		18,463			1,532		19,995			3,984			—			(4,798	)		19,181
Operating expenses		9,835			798		10,633			2,420			1,388			—			14,441
Segment expenses		67,229			4,166		71,395			6,404			1,388			(4,798	)		74,389
Segment gain (loss)	$	(5,907	)	$	828	$	(5,079	)	$	(353	)	$	(1,182	)	$	240		$	(6,374	)
Investment income													2,593						2,593
Net realized investment gains													4,489						4,489
Change in fair value of equity securities													(1,866	)					(1,866	)
Other gains													260						260
Interest expense													(2,185	)					(2,185	)
Income (loss) before equity earnings in Affiliate and income taxes	$	(5,907	)	$	828	$	(5,079	)	$	(353	)	$	2,109		$	240		$	(3,083	)

Nine months ended September 30, 2019	Commercial Lines			Personal Lines			Total Underwriting			Wholesale Agency		Corporate			Eliminations			Total
Gross written premiums	$	71,061		$	5,401		$	76,462		$	—	$	—		$	—		$	76,462
Net written premiums	$	61,579		$	3,983		$	65,562		$	—	$	—		$	—		$	65,562
Net earned premiums	$	62,291		$	3,520		$	65,811		$	—	$	—		$	—		$	65,811
Other income		144			108			252			7,099		179			(5,963	)		1,567
Segment revenue		62,435			3,628			66,063			7,099		179			(5,963	)		67,378
Losses and LAE, net		38,611			5,084			43,695			—		—			—			43,695
Policy acquisition costs		17,335			1,202			18,537			4,787		—			(5,372	)		17,952
Operating expenses		9,614			867			10,481			1,572		907			—			12,960
Segment expenses		65,560			7,153			72,713			6,359		907			(5,372	)		74,607
Segment gain (loss)	$	(3,125	)	$	(3,525	)	$	(6,650	)	$	740	$	(728	)	$	(591	)	$	(7,229	)
Investment income													3,171						3,171
Net realized investment gains													1,124						1,124
Change in fair value of equity securities													(715	)					(715	)
Other gains													—						—
Interest expense													(2,155	)					(2,155	)
Income (loss) before equity earnings in Affiliate and income taxes	$	(3,125	)	$	(3,525	)	$	(6,650	)	$	740	$	697		$	(591	)	$	(5,804	)