þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 63-1020300 | |
(State or Other Jurisdiction of Incorporation or Organization) | (IRS Employer Identification No.) | |
661 East Davis Street Elba, Alabama | 36323 | |
(Address of principal executive offices) | (Zip-Code) |
PART I. FINANCIAL INFORMATION | |||
Page No. | |||
Item 1. Financial Statements | |||
Condensed Consolidated Balance Sheets | |||
Condensed Consolidated Statements of Income (Loss) (Unaudited) | |||
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) | |||
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) | |||
Condensed Consolidated Statements of Cash Flows (Unaudited) | |||
Notes to Condensed Consolidated Financial Statements (Unaudited) | |||
Review Report of Independent Registered Public Accounting Firm | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||
Item 3. Quantitative and Qualitative Disclosures about Market Risk | |||
Item 4. Controls and Procedures | |||
PART II. OTHER INFORMATION | |||
Item 1. Legal Proceedings | |||
Item 1A. Risk Factors | |||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |||
Item 3. Defaults Upon Senior Securities | |||
Item 4. Mine Safety Disclosures | |||
Item 5. Other Information | |||
Item 6. Exhibits | |||
SIGNATURES | |||
▪ | The insurance industry is highly competitive, and the Company encounters significant competition in all lines of business from other insurance companies. Many of the competing companies have more abundant financial resources than the Company. |
▪ | Insurance is a highly regulated industry. It is possible that legislation may be enacted, which would have an adverse effect on the Company's business. |
▪ | The Company is subject to regulation by state governments for each of the states in which it conducts business. The Company cannot predict the subject of any future regulatory initiative(s) or its (their) impact on the Company's business. |
▪ | The Company is rated by various insurance rating agencies. If a rating is downgraded from its current level by one of these agencies, sales of the Company's products and stock price could be adversely impacted. |
▪ | The Company's financial results are adversely affected by increases in policy claims received by the Company. While a manageable risk, this fluctuation is often unpredictable. |
▪ | The Company's investments are subject to a variety of risks. Investments are subject to defaults and changes in market value. Market value can be affected by changes in interest rates, market performance and the economy. |
▪ | The Company mitigates risk associated with life policies through implementing effective underwriting and reinsurance strategies. These factors mitigate, not eliminate, risk related to mortality and morbidity exposure. The Company has established reserves for claims and future policy benefits based on amounts determined by independent actuaries. There is no assurance that these estimated reserves will prove to be sufficient or that the Company will not incur claims exceeding reserves, which could result in operating losses and loss of capital. |
▪ | The Company mitigates risk associated with property and casualty policies through implementing effective underwriting and reinsurance strategies. The Company obtains reinsurance which increases underwriting capacity and limits the risk associated with policy claims. The Company is subject to credit risk with regard to reinsurers as reinsurance does not alleviate the Company's liability to its insured's for the ceded risks. The Company utilizes a third-party to develop a reinsurance treaty with reinsurers who are reliable and financially stable. However, there is no guarantee that booked reinsurance recoverable will actually be recovered. A reinsurer's insolvency or inability to make payments due could have a material adverse impact on the financial condition of the Company. |
▪ | The Company's ability to continue to pay dividends to shareholders is contingent upon profitability and capital adequacy of the insurance subsidiaries. The insurance subsidiaries operate under regulatory restrictions that could limit the ability to fund future dividend payments of the Company. An adverse event or series of events could materially impact the ability of the insurance subsidiaries to fund future dividends, and consequently, the Board of Directors would have to suspend the declaration of dividends to shareholders. |
▪ | The Company is subject to the risk of adverse settlements or judgments resulting from litigation of contested claims. It is difficult to predict or quantify the expected results of litigation because the outcome depends on decisions of the court and jury that are based on facts and legal arguments presented at the trial. |
June 30, 2013 | December 31, 2012 | |||||||
ASSETS | (UNAUDITED) | |||||||
Investments | ||||||||
Fixed maturities held-to-maturity, at amortized cost (estimated fair value: 2013 - $1,199; 2012 - $1,609) | $ | 1,137 | $ | 1,502 | ||||
Fixed maturities available-for-sale, at estimated fair value (cost: 2013 - $74,575; 2012 -$71,678) | 76,360 | 76,294 | ||||||
Equity securities available-for-sale, at estimated fair value (cost: 2013 - $2,466; 2012 - $3,191) | 4,275 | 5,132 | ||||||
Trading securities | 19 | 40 | ||||||
Mortgage loans on real estate, at cost | 379 | 383 | ||||||
Investment real estate, at book value | 5,550 | 5,757 | ||||||
Policy loans | 1,359 | 1,317 | ||||||
Company owned life insurance | 5,783 | 5,931 | ||||||
Other invested assets | 3,650 | 3,777 | ||||||
Total Investments | 98,512 | 100,133 | ||||||
Cash | 3,841 | 6,779 | ||||||
Accrued investment income | 812 | 788 | ||||||
Policy receivables and agents' balances, net | 11,290 | 9,006 | ||||||
Reinsurance recoverable | 1,533 | 1,541 | ||||||
Deferred policy acquisition costs | 9,044 | 9,097 | ||||||
Property and equipment, net | 2,258 | 2,392 | ||||||
Deferred income tax asset | 6,465 | 4,997 | ||||||
Other assets | 1,161 | 983 | ||||||
Total Assets | $ | 134,916 | $ | 135,716 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Property and casualty benefit and loss reserves | $ | 9,738 | $ | 11,214 | ||||
Accident and health benefit and loss reserves | 2,361 | 2,341 | ||||||
Life and annuity benefit and loss reserves | 30,044 | 30,041 | ||||||
Unearned premiums | 28,187 | 25,777 | ||||||
Policy and contract claims | 716 | 995 | ||||||
Other policyholder funds | 1,422 | 1,417 | ||||||
Short-term notes payable and current portion of long-term debt | 1,367 | 1,292 | ||||||
Long-term debt | 25,639 | 25,339 | ||||||
Accrued income taxes | 416 | 296 | ||||||
Other liabilities | 5,745 | 6,777 | ||||||
Total Liabilities | 105,635 | 105,489 | ||||||
Contingencies | ||||||||
Shareholders' equity | ||||||||
Common stock | 2,494 | 2,467 | ||||||
Additional paid-in capital | 5,147 | 4,951 | ||||||
Accumulated other comprehensive income | 1,723 | 3,325 | ||||||
Retained earnings | 19,917 | 19,484 | ||||||
Total Shareholders' Equity | 29,281 | 30,227 | ||||||
Total Liabilities and Shareholders' Equity | $ | 134,916 | $ | 135,716 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
REVENUES | |||||||||||||||
Net premiums earned | $ | 13,038 | $ | 12,533 | $ | 25,972 | $ | 26,029 | |||||||
Net investment income | 728 | 1,066 | 1,812 | 2,201 | |||||||||||
Net realized investment gains | 1,030 | 865 | 1,057 | 1,071 | |||||||||||
Other income | 145 | 193 | 317 | 390 | |||||||||||
Total Revenues | 14,941 | 14,657 | 29,158 | 29,691 | |||||||||||
EXPENSES | |||||||||||||||
Policyholder benefits and settlement expenses | 8,260 | 7,976 | 17,811 | 15,821 | |||||||||||
Amortization of deferred policy acquisition costs | 923 | 915 | 1,865 | 1,731 | |||||||||||
Commissions | 1,486 | 2,018 | 3,468 | 3,974 | |||||||||||
General and administrative expenses | 2,201 | 1,835 | 4,043 | 4,323 | |||||||||||
Litigation settlement and defense costs | — | 12,670 | — | 13,259 | |||||||||||
Taxes, licenses and fees | 474 | 438 | 960 | 930 | |||||||||||
Interest expense | 435 | 288 | 877 | 580 | |||||||||||
Total Expenses | 13,779 | 26,140 | 29,024 | 40,618 | |||||||||||
Income (Loss) Before Income Taxes | 1,162 | (11,483 | ) | 134 | (10,927 | ) | |||||||||
INCOME TAX EXPENSE (BENEFIT) | |||||||||||||||
Current | 88 | 145 | 220 | 173 | |||||||||||
Deferred | 109 | (4,322 | ) | (642 | ) | (4,325 | ) | ||||||||
197 | (4,177 | ) | (422 | ) | (4,152 | ) | |||||||||
Net Income (Loss) | $ | 965 | $ | (7,306 | ) | $ | 556 | $ | (6,775 | ) | |||||
INCOME (LOSS) PER COMMON SHARE | $ | 0.39 | $ | (2.96 | ) | $ | 0.23 | $ | (2.75 | ) | |||||
DIVIDENDS DECLARED PER SHARE | $ | 0.025 | $ | 0.10 | $ | 0.05 | $ | 0.20 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Net income (loss) | $ | 965 | $ | (7,306 | ) | $ | 556 | $ | (6,775 | ) | |||||
Other comprehensive loss, net of tax | |||||||||||||||
Changes in: | |||||||||||||||
Unrealized gains (losses) on securities, net of reclassification adjustment of $698 and $704 for the six months ended 2013 and 2012, respectively and $680 and $568 for the three months ended 2013 and 2012, respectively | (2,482 | ) | (201 | ) | (1,956 | ) | 76 | ||||||||
Unrealized gain (loss) on interest rate swap | 302 | (244 | ) | 354 | (159 | ) | |||||||||
Other comprehensive loss, net of tax | (2,180 | ) | (445 | ) | (1,602 | ) | (83 | ) | |||||||
Comprehensive loss | $ | (1,215 | ) | $ | (7,751 | ) | $ | (1,046 | ) | $ | (6,858 | ) |
Total | Retained Earnings | Accumulated Other Comprehensive Income | Common Stock | Additional Paid-in Capital | |||||||||||||||
Balance at December 31, 2012 | $ | 30,227 | $ | 19,484 | $ | 3,325 | $ | 2,467 | $ | 4,951 | |||||||||
Net income for the six months ended June 30, 2013 | 556 | 556 | |||||||||||||||||
Other comprehensive loss (net of tax) | (1,602 | ) | (1,602 | ) | |||||||||||||||
Common stock issued | 27 | 27 | |||||||||||||||||
Additional paid-in capital | 196 | 196 | |||||||||||||||||
Cash dividends | (123 | ) | (123 | ) | |||||||||||||||
Balance at June 30, 2013 (UNAUDITED): | $ | 29,281 | $ | 19,917 | $ | 1,723 | $ | 2,494 | $ | 5,147 |
Six months ended June 30, | |||||||
2013 | 2012 | ||||||
Cash Flows from Operating Activities | |||||||
Net income (loss) | $ | 556 | $ | (6,775 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||
Depreciation expense and amortization/accretion, net | 398 | 286 | |||||
Increase in cash surrender value of company owned life insurance | 148 | (171 | ) | ||||
Net realized gains on investments | (1,057 | ) | (1,071 | ) | |||
Deferred income taxes | (642 | ) | (4,325 | ) | |||
Amortization of deferred policy acquisition costs | 1,865 | 1,731 | |||||
Changes in assets and liabilities: | |||||||
Change in accrued investment income | (24 | ) | (70 | ) | |||
Change in reinsurance recoverable | 8 | 818 | |||||
Policy acquisition costs deferred | (1,812 | ) | (1,876 | ) | |||
Change in accrued income taxes/recoverable | 120 | 173 | |||||
Change in net policy liabilities and claims | (1,614 | ) | (1,376 | ) | |||
Change in other assets/liabilities, net | (587 | ) | (345 | ) | |||
Change in litigation settlement | — | 13,000 | |||||
Other, net | 233 | 18 | |||||
Net cash provided by (used in) operating activities | (2,408 | ) | 17 | ||||
Cash Flows from Investing Activities | |||||||
Purchase of: | |||||||
Available-for-sale securities | (9,619 | ) | (15,195 | ) | |||
Trading securities and short-term investments | — | (40 | ) | ||||
Real estate held for investment | — | (32 | ) | ||||
Property and equipment | (67 | ) | (161 | ) | |||
Proceeds from sale or maturities of: | |||||||
Held-to-maturity securities | 364 | 994 | |||||
Available-for-sale securities | 8,319 | 17,572 | |||||
Trading securities and short-term investments | — | 83 | |||||
Real estate held for investment | 207 | — | |||||
Property and equipment | 6 | 6 | |||||
Other invested assets, net | 3 | 41 | |||||
Net cash provided by (used in) investing activities | (787 | ) | 3,268 | ||||
Cash Flows from Financing Activities | |||||||
Change in other policyholder funds | 5 | 21 | |||||
Increase in long-term debt | 300 | — | |||||
Change in short-term notes payable | 75 | 140 | |||||
Dividends paid | (123 | ) | (494 | ) | |||
Net cash provided by (used in) financing activities | 257 | (333 | ) | ||||
Net change in cash and cash equivalents | (2,938 | ) | 2,952 | ||||
Cash and cash equivalents, beginning of year | 6,779 | 3,393 | |||||
Cash and cash equivalents, end of period | $ | 3,841 | $ | 6,345 |
• | Securities Held-to-Maturity. Bonds, notes and redeemable preferred stock for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts which are recognized in interest income using methods which approximate level yields over the period to maturity. |
• | Securities Available-for-Sale. Bonds, notes, common stock and non-redeemable preferred stock, not classified as either held-to-maturity or trading, are reported at fair value and adjusted for other-than-temporary declines in fair value. |
• | Trading Securities. Trading securities are classified as such on the balance sheet and reported at fair value. |
• | the Company has the intent to sell the security |
• | it is more likely-than-not that the Company will be required to sell the security before recovery of its amortized cost basis |
• | the Company does not expect to recover the entire amortized cost basis of the security. |
• | Fixed income security fair values are based on quoted market prices when available. If not available, fair values are based on values obtained from investment brokers and independent pricing services. |
• | Equity security fair values are based on quoted market prices. |
• | Multiple observable inputs are not available for some of our investments, primarily private placements and limited partnerships. Management values these investments either using non-binding broker quotes or pricing models that utilize market based assumptions that have limited observable inputs. These investments compose less than 1% of total assets. |
Available-for-sale securities: | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Corporate debt securities | $ | 34,281 | $ | 1,704 | $ | 417 | $ | 35,568 | ||||||||
Trust preferred securities | 538 | 6 | — | 544 | ||||||||||||
Mortgage backed securities | 8,765 | 94 | 318 | 8,541 | ||||||||||||
Private label mortgage backed securities | 6,206 | 180 | 10 | 6,376 | ||||||||||||
Obligations of states and political subdivisions | 16,908 | 742 | 128 | 17,522 | ||||||||||||
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | 7,877 | 159 | 227 | 7,809 | ||||||||||||
Total fixed maturities | 74,575 | 2,885 | 1,100 | 76,360 | ||||||||||||
Equity securities | 2,466 | 2,238 | 429 | 4,275 | ||||||||||||
Total | $ | 77,041 | $ | 5,123 | $ | 1,529 | $ | 80,635 |
Held-to-maturity securities: | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Mortgage backed securities | $ | 870 | $ | 53 | $ | — | $ | 923 | ||||||||
Obligations of states and political subdivisions | 145 | 1 | — | 146 | ||||||||||||
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | 122 | 8 | — | 130 | ||||||||||||
Total | $ | 1,137 | $ | 62 | $ | — | $ | 1,199 |
Available-for-sale securities: | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Corporate debt securities | $ | 31,387 | $ | 2,430 | $ | 80 | $ | 33,737 | ||||||||
Trust preferred securities | 537 | 50 | — | 587 | ||||||||||||
Mortgage backed securities | 8,595 | 175 | 85 | 8,685 | ||||||||||||
Private label mortgage backed securities | 7,679 | 294 | 9 | 7,964 | ||||||||||||
Obligations of states and political subdivisions | 16,160 | 1,359 | 3 | 17,516 | ||||||||||||
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | 7,320 | 487 | 2 | 7,805 | ||||||||||||
Total fixed maturities | 71,678 | 4,795 | 179 | 76,294 | ||||||||||||
Equity securities | 3,191 | 2,398 | 457 | 5,132 | ||||||||||||
Total | $ | 74,869 | $ | 7,193 | $ | 636 | $ | 81,426 |
Held-to-maturity securities: | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
Mortgage backed securities | $ | 1,194 | $ | 91 | $ | — | $ | 1,285 | ||||||||
Obligations of states and political subdivisions | 145 | 2 | — | 147 | ||||||||||||
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | 163 | 14 | — | 177 | ||||||||||||
Total | $ | 1,502 | $ | 107 | $ | — | $ | 1,609 |
(Dollars in Thousands) | ||||||||
Amortized Cost | Fair Value | |||||||
Available-for-sale securities: | ||||||||
Due in one year or less | $ | 1,695 | $ | 1,737 | ||||
Due after one year through five years | 14,867 | 15,990 | ||||||
Due after five years through ten years | 24,381 | 24,823 | ||||||
Due after ten years | 33,632 | 33,810 | ||||||
Total | $ | 74,575 | $ | 76,360 | ||||
Held-to-maturity securities: | ||||||||
Due in one year or less | $ | — | $ | — | ||||
Due after one year through five years | 445 | 465 | ||||||
Due after five years through ten years | 27 | 28 | ||||||
Due after ten years | 665 | 706 | ||||||
Total | $ | 1,137 | $ | 1,199 |
Less than 12 months | 12 months or longer | Total | |||||||||||||||||||||||||
June 30, 2013 | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Total Securities in a Loss Position | ||||||||||||||||||||
Fixed maturities | |||||||||||||||||||||||||||
Corporate debt securities | $ | 10,246 | $ | 380 | $ | 974 | $ | 37 | $ | 11,220 | $ | 417 | 25 | ||||||||||||||
Mortgage backed securities | 4,608 | 287 | 856 | 31 | 5,464 | 318 | 16 | ||||||||||||||||||||
Private label mortgage backed securities | 498 | 10 | — | — | 498 | 10 | 3 | ||||||||||||||||||||
Obligations of state and political subdivisions | 2,824 | 113 | 342 | 15 | 3,166 | 128 | 9 | ||||||||||||||||||||
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | 3,925 | 178 | 449 | 49 | 4,374 | 227 | 8 | ||||||||||||||||||||
Equity securities | — | — | 857 | 429 | 857 | 429 | 1 | ||||||||||||||||||||
$ | 22,101 | $ | 968 | $ | 3,478 | $ | 561 | $ | 25,579 | $ | 1,529 | 62 |
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||||
December 31, 2012 | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Total Securities in a Loss Position | |||||||||||||||||||
Fixed maturities | ||||||||||||||||||||||||||
Corporate debt securities | $ | 2,226 | $ | 31 | $ | 963 | $ | 49 | $ | 3,189 | $ | 80 | 7 | |||||||||||||
Mortgage backed securities | 2,904 | 77 | 165 | 8 | 3,069 | 85 | 8 | |||||||||||||||||||
Private label mortgage backed securities | 206 | 8 | 65 | 1 | 271 | 9 | 2 | |||||||||||||||||||
Obligations of state and political subdivisions | 356 | 3 | — | — | 356 | 3 | 1 | |||||||||||||||||||
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | 495 | 2 | — | — | 495 | 2 | 1 | |||||||||||||||||||
Equity securities | — | — | 829 | 457 | 829 | 457 | 1 | |||||||||||||||||||
$ | 6,187 | $ | 121 | $ | 2,022 | $ | 515 | $ | 8,209 | $ | 636 | 20 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Fixed maturities | $ | 815 | $ | 879 | $ | 1,640 | $ | 1,762 | |||||||
Equity securities | 45 | 54 | 73 | 112 | |||||||||||
Mortgage loans on real estate | 6 | 8 | 13 | 13 | |||||||||||
Investment real estate | 41 | 11 | 81 | 22 | |||||||||||
Policy loans | 26 | 21 | 50 | 46 | |||||||||||
Company owned life insurance change in surrender value | (198 | ) | 54 | (148 | ) | 171 | |||||||||
Other, principally short-term investments | 50 | 89 | 208 | 177 | |||||||||||
785 | 1,116 | 1,917 | 2,303 | ||||||||||||
Less: Investment expenses | 57 | 50 | 105 | 102 | |||||||||||
Net investment income | $ | 728 | $ | 1,066 | $ | 1,812 | $ | 2,201 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||||
Fixed maturities | $ | 102 | $ | 55 | $ | 127 | $ | 128 | |||||||
Equity securities | 928 | 734 | 928 | 734 | |||||||||||
Trading securities | — | — | — | 2 | |||||||||||
Other, principally real estate | — | 76 | 2 | 207 | |||||||||||
Other-than-temporary impairments | — | — | — | — | |||||||||||
Net realized investment gains | $ | 1,030 | $ | 865 | $ | 1,057 | $ | 1,071 |
June 30, 2013 | December 31, 2012 | ||||||
(UNAUDITED) | |||||||
Net change in unrealized appreciation on available-for-sale securities before deferred tax | $ | (2,963 | ) | $ | (153 | ) | |
Deferred income tax | 1,007 | 52 | |||||
Net change in unrealized appreciation on available-for-sale securities | $ | (1,956 | ) | $ | (101 | ) |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Financial Assets | ||||||||||||||||
Fixed maturities available-for-sale | ||||||||||||||||
Corporate debt securities | $ | 35,568 | $ | — | $ | 35,568 | $ | — | ||||||||
Trust preferred securities | 544 | — | 544 | — | ||||||||||||
Mortgage backed securities | 8,541 | — | 8,541 | — | ||||||||||||
Private label mortgage backed securities | 6,376 | — | 6,376 | — | ||||||||||||
Obligations of states and political subdivisions | 17,522 | — | 17,522 | — | ||||||||||||
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | 7,809 | 7,809 | — | — | ||||||||||||
Trading securities | 19 | 19 | — | — | ||||||||||||
Equity securities available-for-sale | 4,275 | 3,418 | — | 857 | ||||||||||||
Total Financial Assets | $ | 80,654 | $ | 11,246 | $ | 68,551 | $ | 857 | ||||||||
Financial Liabilities | ||||||||||||||||
Interest rate swap | $ | 984 | $ | — | $ | — | $ | 984 | ||||||||
Total Financial Liabilities | $ | 984 | $ | — | $ | — | $ | 984 |
For the six months ended June 30, 2013 (unaudited) | Equity Securities Available-for-Sale | Interest Rate Swap | ||||||
Beginning balance | $ | 829 | $ | (1,521 | ) | |||
Total gains or losses (realized and unrealized): | ||||||||
Included in earnings | — | — | ||||||
Included in other comprehensive income | 28 | 537 | ||||||
Purchases: | — | — | ||||||
Sales: | — | — | ||||||
Issuances: | — | — | ||||||
Settlements: | — | — | ||||||
Transfers in/(out) of Level 3 | — | — | ||||||
Ending balance | $ | 857 | $ | (984 | ) | |||
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held as of June 30, 2013: | $ | — | $ | — |
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Description | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Financial Assets | ||||||||||||||||
Fixed maturities available-for-sale | ||||||||||||||||
Corporate debt securities | $ | 33,737 | $ | — | $ | 33,737 | $ | — | ||||||||
Trust preferred securities | 587 | — | 587 | — | ||||||||||||
Mortgage backed securities | 8,685 | — | 8,685 | — | ||||||||||||
Private label mortgage backed securities | 7,964 | — | 7,964 | — | ||||||||||||
Obligations of states and political subdivisions | 17,516 | — | 17,516 | — | ||||||||||||
U.S. Treasury securities and obligations of U.S. Government corporations and agencies | 7,805 | 7,805 | — | — | ||||||||||||
Trading securities | 40 | 40 | — | — | ||||||||||||
Equity securities available-for-sale | 5,132 | 4,303 | — | 829 | ||||||||||||
Total Financial Assets | $ | 81,466 | $ | 12,148 | $ | 68,489 | $ | 829 | ||||||||
Financial Liabilities | ||||||||||||||||
Interest rate swap | $ | 1,521 | $ | — | $ | — | $ | 1,521 | ||||||||
Total Financial Liabilities | $ | 1,521 | $ | — | $ | — | $ | 1,521 |
For the year ended December 31, 2012 | Equity Securities Available-for-Sale | Interest Rate Swap | ||||||
Beginning balance | $ | 642 | $ | (1,196 | ) | |||
Total gains or losses (realized and unrealized): | ||||||||
Included in earnings | — | — | ||||||
Included in other comprehensive income | 44 | (325 | ) | |||||
Purchases: | 143 | — | ||||||
Sales: | — | — | ||||||
Issuances: | — | — | ||||||
Settlements: | — | — | ||||||
Transfers in/(out) of Level 3 | — | — | ||||||
Ending balance | $ | 829 | $ | (1,521 | ) | |||
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held as of December 31, 2012: | $ | — | $ | — |
June 30, 2013 | December 31, 2012 | |||||||||||||||
(UNAUDITED) | ||||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | |||||||||||||
Assets and related instruments | ||||||||||||||||
Mortgage loans | $ | 379 | $ | 379 | $ | 383 | $ | 383 | ||||||||
Policy loans | 1,359 | 1,359 | 1,317 | 1,317 | ||||||||||||
Company owned life insurance | 5,783 | 5,783 | 5,931 | 5,931 | ||||||||||||
Other invested assets | 3,650 | 3,650 | 3,777 | 3,777 | ||||||||||||
Liabilities and related instruments | ||||||||||||||||
Other policyholder funds | 1,422 | 1,422 | 1,417 | 1,417 | ||||||||||||
Short-term notes payable and current portion of long-term debt | 1,367 | 1,367 | 1,292 | 1,292 | ||||||||||||
Long-term debt | 25,639 | 25,639 | 25,339 | 25,339 |
June 30, 2013 | December 31, 2012 | ||||||
(UNAUDITED) | |||||||
Building and improvements | $ | 3,185 | $ | 3,185 | |||
Electronic data processing equipment | 1,832 | 1,814 | |||||
Furniture and fixtures | 904 | 912 | |||||
5,921 | 5,911 | ||||||
Less accumulated depreciation | 3,663 | 3,519 | |||||
$ | 2,258 | $ | 2,392 |
June 30, 2013 | December 31, 2012 | |||||||
(UNAUDITED) | ||||||||
General expenses | $ | 1,293 | $ | 1,211 | ||||
Unearned premiums | 1,915 | 1,751 | ||||||
Claims liabilities | 440 | 243 | ||||||
Litigation settlement | 3,570 | 3,570 | ||||||
AMT credit | 246 | 246 | ||||||
NOL carryforward | 2,873 | 2,711 | ||||||
Other-than-temporary impairments on securities owned | 164 | 164 | ||||||
Unrealized loss on interest rate swaps | 335 | 518 | ||||||
Deferred tax assets | 10,836 | 10,414 | ||||||
Trading securities | — | (1 | ) | |||||
Depreciation | (77 | ) | (94 | ) | ||||
Deferred policy acquisition costs | (3,074 | ) | (3,093 | ) | ||||
Unrealized gains on securities available-for-sale | (1,220 | ) | (2,229 | ) | ||||
Deferred tax liabilities | (4,371 | ) | (5,417 | ) | ||||
Net deferred tax asset | $ | 6,465 | $ | 4,997 |
Six months ended June 30, | ||||||||
2013 | 2012 | |||||||
(UNAUDITED) | ||||||||
Deferred policy acquisition costs | $ | (19 | ) | $ | 49 | |||
Other-than-temporary impairments | — | 27 | ||||||
Trading securities | (1 | ) | — | |||||
Unearned premiums | (164 | ) | (113 | ) | ||||
General expenses | (82 | ) | (61 | ) | ||||
Depreciation | (17 | ) | (24 | ) | ||||
Claim liabilities | (197 | ) | 22 | |||||
Litigation settlement | — | (3,995 | ) | |||||
NOL carryforward | (162 | ) | (230 | ) | ||||
Deferred income tax benefit | $ | (642 | ) | $ | (4,325 | ) |
Six months ended June 30, | ||||||
2013 | 2012 | |||||
Federal income tax rate applied to pre-tax income/loss | 34.0 | % | 34.0 | % | ||
Dividends received deduction and tax-exempt interest | (48.2 | )% | 0.8 | % | ||
Company owned life insurance | 37.7 | % | 0.5 | % | ||
Small life deduction | (197.3 | )% | 2.1 | % | ||
Life reserve tax adjustment | (147.4 | )% | — | % | ||
Other, net | 6.2 | % | 0.6 | % | ||
Effective federal income tax rate | (315.0 | )% | 38.0 | % |
(Dollars in thousands) | ||||||||
2013 | 2012 | |||||||
(UNAUDITED) | ||||||||
Line of credit with variable interest rate equal to the Wall Street Journal (WSJ) prime rate, subject to a 5.0% floor; maturity January 2014. Interest payments due quarterly. Unsecured. | $ | 200 | $ | 125 | ||||
Current portion of installment note payable due November 2013 with variable interest rate equal to the WSJ prime rate plus 1%; Unsecured | 1,167 | 1,167 | ||||||
$ | 1,367 | $ | 1,292 |
(Dollars in thousands) | ||||||||
2013 | 2012 | |||||||
(UNAUDITED) | ||||||||
Line of credit with variable interest rate equal to the WSJ prime rate, subject to a 4.5% floor; maturity September 2017. Interest payments due monthly. Secured. | $ | 3,934 | $ | 3,634 | ||||
Long term portion of installment note with variable interest rate equal to the WSJ prime rate plus 1% and adjustable each November; maturity November 2021. Interest payable annually with principal payable in equal annual installments. Next principal installment on long term portion due November 2014. Unsecured. | 9,333 | 9,333 | ||||||
Subordinated debentures issued on December 15, 2005 with fixed interest rate of 8.83% each distribution period thereafter until December 15, 2015 when the coupon rate shall equal the 3-Month LIBOR plus 3.75% applied to the outstanding principal; maturity December 2035. Interest payments due quarterly. All may be redeemed at any time following the tenth anniversary of issuance. Unsecured. | 9,279 | 9,279 | ||||||
Subordinated debentures issued on June 21, 2007 with a floating interest rate equal to the 3-Month LIBOR plus 3.40% applied to the outstanding principal; maturity June 15, 2037. Interest payments due quarterly. All may be redeemed at any time following the fifth anniversary of issuance. Unsecured. | 3,093 | 3,093 | ||||||
$ | 25,639 | $ | 25,339 |
Layer | Reinsurers' Limits of Liability |
First Layer | 100% of $6,000,000 in excess of $4,000,000 |
Second Layer | 100% of $7,500,000 in excess of $10,000,000 |
Third Layer | 100% of $25,000,000 in excess of $17,500,000 |
Fourth Layer | 100% of $30,000,000 in excess of $42,500,000 |
Three months ended June 30, 2013 | Three months ended June 30, 2012 | ||||||||||||||
Written | Earned | Written | Earned | ||||||||||||
Direct | $ | 15,619 | $ | 13,568 | $ | 15,325 | $ | 13,210 | |||||||
Assumed | — | — | — | — | |||||||||||
Ceded | (2,188 | ) | (2,192 | ) | (2,416 | ) | (2,396 | ) | |||||||
Net | $ | 13,431 | $ | 11,376 | $ | 12,909 | $ | 10,814 | |||||||
Six months ended June 30, 2013 | Six months ended June 30, 2012 | ||||||||||||||
Written | Earned | Written | Earned | ||||||||||||
Direct | $ | 29,099 | $ | 26,895 | $ | 28,291 | $ | 26,617 | |||||||
Assumed | — | — | — | — | |||||||||||
Ceded | (4,320 | ) | (4,331 | ) | (4,071 | ) | (4,059 | ) | |||||||
Net | $ | 24,779 | $ | 22,564 | $ | 24,220 | $ | 22,558 |
Three months ended June 30, 2013 | Three months ended June 30, 2012 | ||||||||||||||
Written | Earned | Written | Earned | ||||||||||||
Direct | $ | 1,621 | $ | 1,673 | $ | 1,718 | $ | 1,734 | |||||||
Assumed | — | — | — | — | |||||||||||
Ceded | (11 | ) | (11 | ) | (15 | ) | (15 | ) | |||||||
Net | $ | 1,610 | $ | 1,662 | $ | 1,703 | $ | 1,719 | |||||||
Six months ended June 30, 2013 | Six months ended June 30, 2012 | ||||||||||||||
Written | Earned | Written | Earned | ||||||||||||
Direct | $ | 3,283 | $ | 3,438 | $ | 3,412 | $ | 3,506 | |||||||
Assumed | — | — | — | — | |||||||||||
Ceded | (30 | ) | (30 | ) | (35 | ) | (35 | ) | |||||||
Net | $ | 3,253 | $ | 3,408 | $ | 3,377 | $ | 3,471 |
June 30, 2013 | December 31, 2012 | ||||||||||||||||
Authorized | Issued | Outstanding | Authorized | Issued | Outstanding | ||||||||||||
Preferred Stock, $1 par value | 500,000 | — | — | 500,000 | — | — | |||||||||||
Class A Common Stock, $1 par value | 2,000,000 | — | — | 2,000,000 | — | — | |||||||||||
Common Stock, $1 par value | 3,000,000 | 2,494,480 | 2,494,480 | 3,000,000 | 2,466,600 | 2,466,600 |
Gains and Losses on Cash Flow Hedges | Unrealized Gains and Losses on Available-for-Sale Securities | Total | |||||||||
Beginning balance | $ | (1,003 | ) | $ | 4,328 | $ | 3,325 | ||||
Other comprehensive income before reclassifications | 354 | (1,597 | ) | (1,243 | ) | ||||||
Amounts reclassified from accumulated other comprehensive income | — | (359 | ) | (359 | ) | ||||||
Net current period other comprehensive income | 354 | (1,956 | ) | (1,602 | ) | ||||||
Ending balance | $ | (649 | ) | $ | 2,372 | $ | 1,723 |
Details about Accumulated Other Comprehensive Income Components | Amounts Reclassified from Accumulated Other Comprehensive Income | Affected Line Item in the Statement Where Net Income is Presented | ||||
Unrealized Gains and Losses on Available-for-Sale Securities | $ | 1,057 | Net realized investment gains | |||
1,057 | Total before tax | |||||
(359 | ) | Tax (expense) or benefit | ||||
$ | 698 | Net of Tax | ||||
Three months ended June 30, 2013 | Total | P&C Insurance Operations | Life Insurance Operations | Non-Insurance Operations | |||||||||||
REVENUE | |||||||||||||||
Net premiums earned | $ | 13,038 | $ | 11,376 | $ | 1,662 | $ | — | |||||||
Net investment income | 728 | 219 | 490 | 19 | |||||||||||
Net realized investment gains | 1,030 | 1,028 | 2 | — | |||||||||||
Other income | 145 | 145 | — | — | |||||||||||
14,941 | 12,768 | 2,154 | 19 | ||||||||||||
BENEFITS AND EXPENSES | |||||||||||||||
Policyholder benefits paid | 8,260 | 7,076 | 1,184 | — | |||||||||||
Amortization of deferred policy acquisition costs | 923 | 638 | 285 | — | |||||||||||
Commissions | 1,486 | 1,396 | 90 | — | |||||||||||
General and administrative expenses | 2,201 | 1,363 | 549 | 289 | |||||||||||
Taxes, licenses and fees | 474 | 423 | 51 | — | |||||||||||
Interest expense | 435 | — | 17 | 418 | |||||||||||
13,779 | 10,896 | 2,176 | 707 | ||||||||||||
Income (Loss) Before Income Taxes | $ | 1,162 | $ | 1,872 | $ | (22 | ) | $ | (688 | ) |
Three months ended June 30, 2012 | Total | P&C Insurance Operations | Life Insurance Operations | Non-Insurance Operations | |||||||||||
REVENUE | |||||||||||||||
Net premiums earned | $ | 12,533 | $ | 10,814 | $ | 1,719 | $ | — | |||||||
Net investment income | 1,066 | 529 | 520 | 17 | |||||||||||
Net realized investment gains | 865 | 75 | 790 | — | |||||||||||
Other income | 193 | 192 | 1 | — | |||||||||||
14,657 | 11,610 | 3,030 | 17 | ||||||||||||
BENEFITS AND EXPENSES | |||||||||||||||
Policyholder benefits paid | 7,976 | 6,763 | 1,213 | — | |||||||||||
Amortization of deferred policy acquisition costs | 915 | 686 | 229 | — | |||||||||||
Commissions | 2,018 | 1,908 | 110 | — | |||||||||||
General and administrative expenses | 1,835 | 1,111 | 644 | 80 | |||||||||||
Litigation settlement and defense costs | 12,670 | — | — | 12,670 | |||||||||||
Taxes, licenses and fees | 438 | 385 | 53 | — | |||||||||||
Interest expense | 288 | — | 35 | 253 | |||||||||||
26,140 | 10,853 | 2,284 | 13,003 | ||||||||||||
Income (Loss) Before Income Taxes | $ | (11,483 | ) | $ | 757 | $ | 746 | $ | (12,986 | ) |
Six months ended June 30, 2013 | Total | P&C Insurance Operations | Life Insurance Operations | Non-Insurance Operations | |||||||||||
REVENUE | |||||||||||||||
Net premiums earned | $ | 25,972 | $ | 22,564 | $ | 3,408 | $ | — | |||||||
Net investment income | 1,812 | 696 | 1,078 | 38 | |||||||||||
Net realized investment gains | 1,057 | 1,030 | 27 | — | |||||||||||
Other income | 317 | 315 | 2 | — | |||||||||||
29,158 | 24,605 | 4,515 | 38 | ||||||||||||
BENEFITS AND EXPENSES | |||||||||||||||
Policyholder benefits paid | 17,811 | 15,629 | 2,182 | — | |||||||||||
Amortization of deferred policy acquisition costs | 1,865 | 1,299 | 566 | — | |||||||||||
Commissions | 3,468 | 3,282 | 186 | — | |||||||||||
General and administrative expenses | 4,043 | 2,608 | 990 | 445 | |||||||||||
Taxes, licenses and fees | 960 | 835 | 125 | — | |||||||||||
Interest expense | 877 | — | 38 | 839 | |||||||||||
29,024 | 23,653 | 4,087 | 1,284 | ||||||||||||
Income (Loss) Before Income Taxes | $ | 134 | $ | 952 | $ | 428 | $ | (1,246 | ) |
Six months ended June 30, 2012 | Total | P&C Insurance Operations | Life Insurance Operations | Non-Insurance Operations | |||||||||||
REVENUE | |||||||||||||||
Net premiums earned | $ | 26,029 | $ | 22,558 | $ | 3,471 | $ | — | |||||||
Net investment income | 2,201 | 1,140 | 1,028 | 33 | |||||||||||
Net realized investment gains | 1,071 | 207 | 862 | 2 | |||||||||||
Other income | 390 | 388 | 2 | — | |||||||||||
29,691 | 24,293 | 5,363 | 35 | ||||||||||||
BENEFITS AND EXPENSES | |||||||||||||||
Policyholder benefits paid | 15,821 | 13,176 | 2,645 | — | |||||||||||
Amortization of deferred policy acquisition costs | 1,731 | 1,403 | 328 | — | |||||||||||
Commissions | 3,974 | 3,735 | 239 | — | |||||||||||
General and administrative expenses | 4,323 | 2,940 | 1,092 | 291 | |||||||||||
Litigation settlement and defense costs | 13,259 | — | — | 13,259 | |||||||||||
Taxes, licenses and fees | 930 | 815 | 115 | — | |||||||||||
Interest expense | 580 | — | 37 | 543 | |||||||||||
40,618 | 22,069 | 4,456 | 14,093 | ||||||||||||
Income (Loss) Before Income Taxes | $ | (10,927 | ) | $ | 2,224 | $ | 907 | $ | (14,058 | ) |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Life, accident and health operations premiums written: | ||||||||||||||||
Traditional life insurance | $ | 1,184 | $ | 1,263 | $ | 2,402 | $ | 2,493 | ||||||||
Accident and health insurance | 437 | 455 | 881 | 919 | ||||||||||||
Total life, accident and health | 1,621 | 1,718 | 3,283 | 3,412 | ||||||||||||
Property and Casualty operations premiums written: | ||||||||||||||||
Dwelling fire & extended coverage | 8,406 | 7,825 | 15,965 | 14,752 | ||||||||||||
Homeowners (Including mobile homeowners) | 6,756 | 6,745 | 12,177 | 12,232 | ||||||||||||
Ocean marine | (17 | ) | 363 | 75 | 447 | |||||||||||
Other liability | 474 | 409 | 882 | 766 | ||||||||||||
Private passenger auto liability | — | (12 | ) | — | 57 | |||||||||||
Commercial auto liability | — | — | — | 6 | ||||||||||||
Auto physical damage | — | (5 | ) | — | 31 | |||||||||||
Total property and casualty | 15,619 | 15,325 | 29,099 | 28,291 | ||||||||||||
Gross premiums written | 17,240 | 17,043 | 32,382 | 31,703 | ||||||||||||
Reinsurance premium ceded | (2,199 | ) | (2,431 | ) | (4,350 | ) | (4,106 | ) | ||||||||
Net premiums written | $ | 15,041 | $ | 14,612 | $ | 28,032 | $ | 27,597 |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Life, accident and health operations premiums earned: | ||||||||||||||||
Traditional life insurance | $ | 1,240 | $ | 1,285 | $ | 2,556 | $ | 2,593 | ||||||||
Accident and health insurance | 433 | 449 | 882 | 913 | ||||||||||||
Total life, accident and health | 1,673 | 1,734 | 3,438 | 3,506 | ||||||||||||
Property and Casualty operations premiums earned: | ||||||||||||||||
Dwelling fire & extended coverage | 7,256 | 6,665 | 14,274 | 13,212 | ||||||||||||
Homeowners (Including mobile homeowners) | 5,652 | 5,790 | 11,333 | 11,694 | ||||||||||||
Ocean marine | 269 | 275 | 524 | 543 | ||||||||||||
Other liability | 391 | 343 | 764 | 683 | ||||||||||||
Private passenger auto liability | — | 93 | — | 328 | ||||||||||||
Commercial auto liability | — | — | — | 6 | ||||||||||||
Auto physical damage | — | 44 | — | 151 | ||||||||||||
Total property and casualty | 13,568 | 13,210 | 26,895 | 26,617 | ||||||||||||
Gross premiums earned | 15,241 | 14,944 | 30,333 | 30,123 | ||||||||||||
Reinsurance premium ceded | (2,203 | ) | (2,411 | ) | (4,361 | ) | (4,094 | ) | ||||||||
Net premiums earned | $ | 13,038 | $ | 12,533 | $ | 25,972 | $ | 26,029 |
/s/ Warren Averett, LLC | |
Birmingham, Alabama | |
August 14, 2013 |
Three months ended June 30, | Percent | ||||||||||
2013 | 2012 | increase (decrease) | |||||||||
Life, accident and health operations: | |||||||||||
Traditional life insurance | $ | 1,240 | $ | 1,285 | (3.5 | )% | |||||
Accident and health insurance | 433 | 449 | (3.6 | )% | |||||||
Total life, accident and health | 1,673 | 1,734 | (3.5 | )% | |||||||
Property and Casualty operations: | |||||||||||
Dwelling fire & extended coverage | 7,256 | 6,665 | 8.9 | % | |||||||
Homeowners (Including mobile homeowners) | 5,652 | 5,790 | (2.4 | )% | |||||||
Ocean marine | 269 | 275 | (2.2 | )% | |||||||
Other liability | 391 | 343 | 14.0 | % | |||||||
Private passenger auto liability | — | 93 | (100.0 | )% | |||||||
Auto physical damage | — | 44 | (100.0 | )% | |||||||
Total property and casualty | 13,568 | 13,210 | 2.7 | % | |||||||
Gross premiums earned | 15,241 | 14,944 | 2.0 | % | |||||||
Reinsurance premium ceded | (2,203 | ) | (2,411 | ) | (8.6 | )% | |||||
Net premiums earned | $ | 13,038 | $ | 12,533 | 4.0 | % |
Three months ended June 30, 2013 | Three months ended June 30, 2012 | |||||||||||||||
Reported Losses & LAE | Claim Count | Reported Losses & LAE | Claim Count | |||||||||||||
Cat event | Cat event | |||||||||||||||
Cat 14 | $ | 198,000 | 52 | Cat 65 | $ | 28,000 | 3 | |||||||||
Cat 15 | 146,000 | 44 | Cat 67 | 118,000 | 52 | |||||||||||
Cat 91 | 6,000 | 2 | Cat 69 | 3,000 | 1 | |||||||||||
Cat 92 | 13,000 | 5 | Cat 71 | 10,000 | 1 | |||||||||||
Cat 93 | 1,074,000 | 361 | Cat 72 | 7,000 | 5 | |||||||||||
Cat 95 | 27,000 | 6 | Cat 73 | 5,000 | 1 | |||||||||||
Cat 99 | 34,000 | 9 | ||||||||||||||
$ | 1,498,000 | 479 | $ | 171,000 | 63 | |||||||||||
Non-cat wind & hail | $ | 2,309,000 | 788 | Non-cat wind & hail | $ | 2,489,000 | 907 |
Six months ended June 30, | Percent | ||||||||||
2013 | 2012 | increase (decrease) | |||||||||
Life, accident and health operations: | |||||||||||
Traditional life insurance | $ | 2,556 | $ | 2,593 | (1.4 | )% | |||||
Accident and health insurance | 882 | 913 | (3.4 | )% | |||||||
Total life, accident and health | 3,438 | 3,506 | (1.9 | )% | |||||||
Property and Casualty operations: | |||||||||||
Dwelling fire & extended coverage | 14,274 | 13,212 | 8.0 | % | |||||||
Homeowners (Including mobile homeowners) | 11,333 | 11,694 | (3.1 | )% | |||||||
Ocean marine | 524 | 543 | (3.5 | )% | |||||||
Other liability | 764 | 683 | 11.9 | % | |||||||
Private passenger auto liability | — | 328 | (100.0 | )% | |||||||
Commercial auto liability | — | 6 | (100.0 | )% | |||||||
Auto physical damage | — | 151 | (100.0 | )% | |||||||
Total property and casualty | 26,895 | 26,617 | 1.0 | % | |||||||
Gross premiums earned | 30,333 | 30,123 | (0.9 | )% | |||||||
Reinsurance premium ceded | (4,361 | ) | (4,094 | ) | 6.5 | % | |||||
Total earned premium revenue | $ | 25,972 | $ | 26,029 | (0.2 | )% |
Six months ended June 30, 2013 | Six months ended June 30, 2012 | |||||||||||||||
Reported Losses & LAE | Claim Count | Reported Losses & LAE | Claim Count | |||||||||||||
Cat event | Cat event | |||||||||||||||
Cat 14 | $ | 198,000 | 52 | Cat 65 | $ | 182,000 | 47 | |||||||||
Cat 15 | 146,000 | 44 | Cat 67 | 444,000 | 149 | |||||||||||
Cat 91 | 234,000 | 46 | Cat 69 | 3,000 | 1 | |||||||||||
Cat 92 | 102,000 | 25 | Cat 71 | 10,000 | 1 | |||||||||||
Cat 93 | 2,335,000 | 681 | Cat 72 | 7,000 | 5 | |||||||||||
Cat 95 | 27,000 | 6 | Cat 73 | 5,000 | 1 | |||||||||||
Cat 99 | 34,000 | 9 | ||||||||||||||
$ | 3,076,000 | 863 | $ | 651,000 | 204 | |||||||||||
Non-cat wind & hail | $ | 4,451,000 | 1,544 | Non-cat wind & hail | $ | 3,988,000 | 1,475 |
Maturity | Available- for-Sale | Held-to-Maturity | Total | Percentage of Total | ||||||||||
Maturity in less than 1 year | $ | 1,695 | $ | — | $ | 1,695 | 2.24 | % | ||||||
Maturity in 1-5 years | 14,867 | 445 | 15,312 | 20.22 | % | |||||||||
Maturity in 5-10 years | 24,381 | 27 | 24,408 | 32.24 | % | |||||||||
Maturity after 10 years | 33,632 | 665 | 34,297 | 45.30 | % | |||||||||
$ | 74,575 | $ | 1,137 | $ | 75,712 | 100.00 | % |
• | In late 2011, we discontinued both our private passenger and commercial automobile programs. These two programs accounted for approximately 6% of net written premium in 2011, down from nearly 10% in 2010 but had produced significant underwriting losses over the last five years. Due to a combination of reduced capital levels and a view that it would take some time to achieve underwriting profitability, we made the decision to discontinue the program in order to reduce surplus strain and underwriting leverage in the P&C subsidiaries. The final in-force policies in this program expired in mid-2012. |
• | We have incurred substantial losses from catastrophe events over the past seven years. These events have driven up catastrophe reinsurance cost and forced our catastrophe reinsurance deductible up from $2 million in 2005 to $4 million in our 2013 renewal. As our cat retention has increased, we have attempted to achieve higher margins in our insurance rate structure in order to compensate for the additional risk of the higher catastrophe reinsurance retention but with limited success due to regulatory constraints primarily because this additional retention was not a "hard dollar" cost in our rate structure. So, since we were limited in our ability to increase margins for this additional retained risk and due to the capital erosion incurred in 2011, in the second quarter of 2012, we placed additional reinsurance cover in the form of reinsurance premium protection (RPP). The RPP cover will serve to reduce our risk from a major catastrophe and strengthen our capital position. The effect of adding this additional RPP cover is to reduce our modeled 100 year event net cost (net of reinsurance recoveries) from approximately $9 million (pretax) to an estimated $4.5 million (pretax). A 100 year event is defined as an event that has approximately a 1% probability of occurring in a given year. This additional cover added $700,000 to our cat reinsurance cost in the first six months of 2013. |
Fixed Income Portfolio Market Risk Shock Analysis at June 30, 2013 | ||||||||||
Data Category | Down 200 | Down 100 | Base Case | Up 100 | Up 200 | |||||
Percent Change | 9.46 | 4.87 | — | (5.09) | (10.13) | |||||
Market Price | 114.20 | 109.41 | 104.33 | 99.03 | 93.77 |
31.1 | Certification Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 | Certification Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 | Certification Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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 |
Date of Report | Date Filed | Description | ||
April 12, 2013 | April 15, 2013 | Press release, dated April 15, 2013, issued by The National Security Group, Inc. | ||
April 14, 2013 | April 15, 2013 | Item 5.02 and Item 9.01 - announcement of the resignation of L. Brunson White, member of the Audit Committee | ||
April 24, 2013 | April 24, 2013 | Item 5.02 - announcement of the appointment of Mickey L. Murdock to serve on the Audit Committee | ||
May 15, 2013 | May 15, 2013 | Press release, dated May 15, 2013, issued by The National Security Group, Inc. | ||
May 17, 2013 | May 21, 2013 | Item 5.07 - announcement of annual meeting voting results | ||
/s/ Brian R. McLeod | /s/ William L. Brunson, Jr. | |
Brian R. McLeod | William L. Brunson, Jr. | |
Chief Financial Officer and Treasurer | President, Chief Executive Officer and Director |
Dated: | August 14, 2013 |
/s/ William L. Brunson, Jr. | |
William L. Brunson, Jr. | |
President and Chief Executive Officer |
Dated: | August 14, 2013 |
/s/ Brian R. McLeod | |
Brian R. McLeod | |
Chief Financial Officer |
Date: August 14, 2013 | |||
/s/ William L. Brunson, Jr. | /s/ Brian R. McLeod | ||
Name: William L. Brunson, Jr. Title: Chief Executive Officer | Name: Brian R. McLeod, CPA Title: Chief Financial Officer |
Employee Benefit Plans
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6 Months Ended |
---|---|
Jun. 30, 2013
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Compensation and Retirement Disclosure [Abstract] | |
Employee Benefit Plans | EMPLOYEE BENEFIT PLANS The Company and its subsidiaries have an established retirement savings plan (401K Plan). All full-time employees are eligible to participate, and all employer contributions are fully vested for employees who have completed 1,000 hours of service in the year of contribution. Company matching contributions for the three months ended June 30, 2013 and 2012 amounted to $49,000 and $52,000, respectively. Company matching contributions for the six months ended June 30, 2013 and 2012 amounted to $97,000 and $102,000, respectively. The Company contributes dollar-for-dollar matching contributions up to 5% of compensation subject to government limitations. In January 2006, the Company established a non-qualified plan under which directors are allowed to defer all or a portion of directors' fees into various investment options. The supplemental executive retirement plan (SERP) became effective March 1, 2008 and covers named executive officers with the Company contributing 15% of executive compensation to the plan. Contributions to the plan are fully vested upon the earlier of death, disability, change in control, or ten years of participation in the plan. Costs for amounts credited of the non-qualified deferred compensation plans for the three months ended June 30, 2013 and 2012 amounted to approximately $37,000 and $4,000, respectively. Costs for amounts credited of the non-qualified deferred compensation plans for the six months ended June 30, 2013 and 2012 amounted to approximately $113,000 and $87,000, respectively. The Company and its subsidiaries established an Employee Stock Ownership Plan (ESOP) in January 2010, to enable its eligible employees to acquire a proprietary interest in the Company's common stock and to provide retirement and other benefits to such employees. The Company incurred $50,000 in costs related to the ESOP during the first six months of 2013. No costs were incurred during the first six months of 2012 related to the ESOP. |
Property and Equipment (Details) (USD $)
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6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2013
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Dec. 31, 2012
|
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Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | $ 5,921,000 | $ 5,911,000 |
Less accumulated depreciation | 3,663,000 | 3,519,000 |
Property and equipment, net | 2,258,000 | 2,392,000 |
Depreciation expense | 201,000 | 433,000 |
Building and improvements [Member]
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Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | 3,185,000 | 3,185,000 |
Electronic Data Processing Equipment [Member]
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||
Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | 1,832,000 | 1,814,000 |
Furniture and Fixtures [Member]
|
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Property, Plant and Equipment [Line Items] | ||
Property and equipment, gross | $ 904,000 | $ 912,000 |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
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REVENUES | ||||
Net premiums earned | $ 13,038 | $ 12,533 | $ 25,972 | $ 26,029 |
Net investment income | 728 | 1,066 | 1,812 | 2,201 |
Net realized investment gains | 1,030 | 865 | 1,057 | 1,071 |
Other income | 145 | 193 | 317 | 390 |
Total Revenues | 14,941 | 14,657 | 29,158 | 29,691 |
EXPENSES | ||||
Policyholder benefits and settlement expenses | 8,260 | 7,976 | 17,811 | 15,821 |
Amortization of deferred policy acquisition costs | 923 | 915 | 1,865 | 1,731 |
Commissions | 1,486 | 2,018 | 3,468 | 3,974 |
General and administrative expenses | 2,201 | 1,835 | 4,043 | 4,323 |
Litigation settlement and defense costs | 0 | 12,670 | 0 | 13,259 |
Taxes, licenses and fees | 474 | 438 | 960 | 930 |
Interest expense | 435 | 288 | 877 | 580 |
Total expenses | 13,779 | 26,140 | 29,024 | 40,618 |
Income (Loss) Before Income Taxes | 1,162 | (11,483) | 134 | (10,927) |
INCOME TAX EXPENSE (BENEFIT) | ||||
Current | 88 | 145 | 220 | 173 |
Deferred | 109 | (4,322) | (642) | (4,325) |
Total income tax expense (benefit) | 197 | (4,177) | (422) | (4,152) |
Net income (loss) | $ 965 | $ (7,306) | $ 556 | $ (6,775) |
INCOME (LOSS) PER COMMON SHARE | $ 0.39 | $ (2.96) | $ 0.23 | $ (2.75) |
DIVIDENDS DECLARED PER SHARE | $ 0.025 | $ 0.10 | $ 0.05 | $ 0.20 |
Variable Interest Entities
|
6 Months Ended |
---|---|
Jun. 30, 2013
|
|
Variable Interest Entities [Abstract] | |
Variable Interest Entities | VARIABLE INTEREST ENTITIES The Company holds a passive interest in a limited partnership that is considered to be a Variable Interest Entity (VIE) under the provisions of FIN 46(R). The Company is not the primary beneficiary of the entity and is not required to consolidate under FIN 46(R). The entity is a private placement investment fund formed for the purpose of investing in private equity investments. The Company owns less than 1% of the limited partnership. The carrying value of the investment totals $325,000 and is included as a component of Other Invested Assets in the accompanying condensed consolidated balance sheets. In December 2005, the Company formed National Security Capital Trust I, a statutory trust created under the Delaware Statutory Trust Act, for the sole purpose of issuing, in private placement transactions, $9,000,000 of trust preferred securities (TPS) and using the proceeds thereof, together with the equity proceeds received from the Company in the initial formation of the Trust, to purchase $9,279,000 of variable rate subordinated debentures issued by the Company. The Company owns all voting securities of the Trust and the subordinated debentures are the sole assets of the Trust. The Trust will meet the obligations of the TPS with the interest and principal paid on the subordinated debentures. The Company received net proceeds from the TPS transactions, after commissions and other costs of issuance, of $9,005,000. The Company also holds all the voting securities issued by the Trust and such trusts are considered to be VIE's. The Trust is not consolidated because the Company is not the primary beneficiary of the trust. The Subordinated Debentures, disclosed in Note 7, are reported in the accompanying Consolidated Balance Sheets as a component of long-term debt. The Company's equity investments in the Trust total $279,000 and are included in Other Assets in the accompanying condensed consolidated balance sheets. In June 2007, the Company formed National Security Capital Trust II for the sole purpose of issuing, in private placement transactions, $3,000,000 of trust preferred securities (TPS) and using the proceeds thereof, together with the equity proceeds received from the Company in the initial formation of the Trust, to purchase $3,093,000 unsecured junior subordinated deferrable interest debentures. The Company owns all voting securities of the Trust and the subordinated debentures are the sole assets of the Trust. The Trust will meet the obligations of the TPS with the interest and principal paid on the subordinated debentures. The Company received net proceeds from the TPS transactions, after commissions and other costs of issuance, of $2,995,000. The Company also holds all the voting securities issued by the Trust and such trusts are considered to be VIE's. The Trust is not consolidated because the Company is not the primary beneficiary of the Trust. The Subordinated Debentures, disclosed in Note 7, are reported in the accompanying condensed consolidated balance sheets as a component of long-term debt. The Company's equity investments in the Trust total $93,000 and are included in Other Assets in the accompanying condensed consolidated balance sheets. |
Subsequent Events
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6 Months Ended |
---|---|
Jun. 30, 2013
|
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Subsequent Events [Abstract] | |
Subsequent Events | SUBSEQUENT EVENTS Management has evaluated subsequent events and their potential effects on these condensed consolidated financial statements. |
Income Taxes (Schedule of Income Tax Effects of Changes in Temporary Differences) (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
Dec. 31, 2012
|
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Income Tax Disclosure [Abstract] | |||||
Deferred policy acquisition costs | $ (19) | $ 49 | |||
Other-than-temporary impairments | 0 | 27 | |||
Trading securities | (1) | 0 | |||
Unearned premiums | (164) | (113) | |||
General expenses | (82) | (61) | |||
Depreciation | (17) | (24) | |||
Claim liabilities | (197) | 22 | |||
Income Tax Effects of Changes in Temporary Differences, Litigation Settlement | (3,995) | 0 | |||
NOL carryforward | (162) | (230) | |||
Deferred income tax (benefit) expense | $ 109 | $ (4,322) | $ (642) | $ (4,325) |
Regulatory Requirements and Dividend Restrictions
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6 Months Ended |
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Jun. 30, 2013
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Regulatory Requirements and Dividend Restrictions [Abstract] | |
Regulatory Requirements and Dividend Restrictions | REGULATORY REQUIREMENTS AND DIVIDEND RESTRICTIONS The Company is dependent on dividends from its insurance subsidiaries to fund operations and payment of shareholder dividends. Dividend payments from the insurance subsidiaries are subject to regulatory review/approval and statutory limitations. The statutory limitations are outlined as follows: The amount of dividends paid from NSIC to the Company in any year may not exceed, without prior approval of regulatory authorities, the greater of 10% of statutory surplus as of the end of the preceding year, or the statutory net gain from operations for the preceding year. At December 31, 2012, NSIC's retained earnings unrestricted for the payment of dividends in the next twelve months amounted to $1,034,000. NSFC is similarly restricted in the amount of dividends payable to the Company; dividends may not exceed the greater of 10% of statutory surplus as of the end of the preceding year, or net income for the preceding year. At December 31, 2012, NSFC's retained earnings unrestricted for the payment of dividends in the next twelve months amounted to $2,468,000. The payment of any subsidiary dividend requires prior notice to the regulatory authorities who may disallow the dividend if, in their judgment, payment of the dividend would have an adverse effect on the surplus of the subsidiary. At June 30, 2013, securities with market values of $3,583,000 ($3,785,000 at December 31, 2012) were deposited with various states pursuant to statutory requirements. |
Investments (Schedule of Unrealized Appreciation) (Details) (USD $)
In Thousands, unless otherwise specified |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2013
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Dec. 31, 2012
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Investments [Abstract] | ||
Net change in unrealized appreciation on available-for-sale securities before deferred tax | $ (2,963) | $ (153) |
Deferred income tax | 1,007 | 52 |
Net change in unrealized appreciation on available-for-sale securities | $ (1,956) | $ (101) |
Income Taxes (Schedule of Effective Income Tax Rate Reconciliation) (Details)
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6 Months Ended | |
---|---|---|
Jun. 30, 2013
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Jun. 30, 2012
|
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Income Tax Disclosure [Abstract] | ||
Federal income tax rate applied to pre-tax income/loss | 34.00% | 34.00% |
Dividends received deduction and tax-exempt interest | (48.20%) | 0.80% |
Company owned life insurance | 37.70% | 0.50% |
Small life deduction | (197.30%) | 2.10% |
Effective Income Tax Rate Reconciliation, Life Tax Reserve Adjustment | (147.40%) | 0.00% |
Other, net | 6.20% | 0.60% |
Effective federal income tax rate | (315.00%) | 38.00% |
Significant Accounting Policies (Advertising) (Details) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
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Jun. 30, 2012
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Jun. 30, 2013
|
Jun. 30, 2012
|
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Accounting Policies [Abstract] | ||||
Advertising expense | $ 31,000 | $ 28,000 | $ 84,000 | $ 61,000 |
Fair Value of Financial Assets and Financial Liabilities (Tables)
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Jun. 30, 2013
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis | Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 are summarized in the following table by the type of inputs applicable to the fair value measurements (in thousands):
Financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2013 are summarized in the following table by the type of inputs applicable to the fair value measurements (unaudited) (in thousands):
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Schedule of Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation | The table below presents a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2012 (in thousands):
The table below presents a reconciliation for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2013 (in thousands):
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Schedule of Fair Value, by Balance Sheet Grouping | The carrying amount and estimate fair value of the Company’s financial instruments as of June 30, 2013 and December 31, 2012 are as follows (in thousands):
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Investments (Tables)
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Jun. 30, 2013
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Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Amortized Cost and Aggregate Fair Values of Investments in Available-for-Sale Securities | The amortized cost and aggregate fair values of investments in available-for-sale securities as of December 31, 2012 are as follows:
The amortized cost and aggregate fair values of investments in available-for-sale securities as of June 30, 2013 are as follows:
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Schedule of Amortized Cost and Aggregate Fair Values of Investments in Held-to-Maturity Securities | The amortized cost and aggregate fair values of investments in held-to-maturity securities as of June 30, 2013 are as follows:
The amortized cost and aggregate fair values of investments in held-to-maturity securities as of December 31, 2012 are as follows:
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Amortized Cost and Aggregate Fair Value of Debt Securities, by Contractual Maturity | The amortized cost and aggregate fair value of debt securities at June 30, 2013, by contractual maturity, are presented in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
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Schedule of Securities Available-for-Sale with Unrealized Losses | A summary of securities available-for-sale with unrealized losses as of June 30, 2013, along with the related fair value, aggregated by the length of time that investments have been in a continuous unrealized loss position, is as follows:
A summary of securities available-for-sale with unrealized losses as of December 31, 2012, along with the related fair value, aggregated by the length of time that investments have been in a continuous unrealized loss position, is as follows:
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Summary of Major Categories of Investment Income | Major categories of investment income are summarized as follows (dollars in thousands):
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Realized Investments Gains (Losses) | Major categories of investment gains and losses are summarized as follows (dollars in thousands):
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Net Change in Unrealized Appreciation | An analysis of the net change in unrealized appreciation on available-for-sale securities follows (dollars in thousands):
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Segments (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information, by Segment | Premium revenues and operating income by industry segment for the three and six months ended June 30, 2013 and 2012 are summarized below (dollars in thousands):
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Schedule of Gross and Net Premiums Written | The following table presents the Company’s gross and net premiums written for the property and casualty segment and the life and accident and health segment for the three and six months ended June 30, 2013 and 2012, respectively:
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Schedule of Gross and Net Premiums Earned | The following table presents the Company’s gross and net premiums earned for the property and casualty segment and the life and accident and health segment for the three and six months ended June 30, 2013 and 2012, respectively:
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Variable Interest Entities (Details) (USD $)
|
1 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2013
|
Dec. 31, 2005
Trust Preferred Security Offering, 2005 [Member]
|
Jun. 30, 2007
Trust Preferred Security Offering, 2007 [Member]
|
Jun. 30, 2007
Trust Preferred Security Offering, 2007 [Member]
Unsecured Debt [Member]
|
Jun. 30, 2013
Maximum [Member]
|
|
Variable Interest Entity [Line Items] | |||||
Limited partnership, percent owned | 1.00% | ||||
Carrying amount of investments | $ 325,000 | ||||
Payments to acquire trust preferred securities | 9,000,000 | 3,000,000 | |||
Subordinated debt | 9,279,000 | 3,093,000 | |||
Proceeds from issuance of trust preferred securities | 9,005,000 | 2,995,000 | |||
Equity investment | $ 279,000 | $ 93,000 |
Fair Value of Financial Assets and Financial Liabilities (Narrative) (Details) (USD $)
|
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Fair Value Disclosures [Abstract] | ||
Fair value measurements of assets | $ 857,000 | |
Fair value measurements of liabilities | 984,000 | |
Assets or liabilities measured at fair values on a nonrecurring basis | $ 0 | $ 0 |
Reinsurance (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2013
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Reinsurance Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Reinsurance | Reinsurance coverage is maintained in four layers as follows:
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Schedule Of Reinsurance Premiums For Insurance Companies | The effect of reinsurance on premiums written and earned in the life segment is as follows (dollars in thousands):
The effect of reinsurance on premiums written and earned in the property and casualty segment is as follows (dollars in thousands):
|
Regulatory Requirements and Dividend Restrictions (Details) (USD $)
|
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Statutory Accounting Practices [Line Items] | ||
Assets held by insurance regulators | $ 3,583,000 | $ 3,785,000 |
Life Insurance Segment [Member]
|
||
Statutory Accounting Practices [Line Items] | ||
Statutory amount available for dividend payments | 1,034,000 | |
Property, Liability and Casualty Insurance Segment [Member]
|
||
Statutory Accounting Practices [Line Items] | ||
Statutory amount available for dividend payments | $ 2,468,000 |
Segments (Schedule of Gross and Net Premiums Earned) (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Property and Casualty operations premiums earned: | ||||
Gross premiums earned | $ 15,241 | $ 14,944 | $ 30,333 | $ 30,123 |
Reinsurance premium ceded | (2,203) | (2,411) | (4,361) | (4,094) |
Net premiums earned | 13,038 | 12,533 | 25,972 | 26,029 |
Life Insurance Segment [Member]
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Life, accident and health operations premiums earned: | ||||
Traditional life insurance | 1,240 | 1,285 | 2,556 | 2,593 |
Accident and health insurance | 433 | 449 | 882 | 913 |
Total life, accident and health | 1,673 | 1,734 | 3,438 | 3,506 |
Property and Casualty operations premiums earned: | ||||
Net premiums earned | 1,662 | 1,719 | 3,408 | 3,471 |
Consolidated Property and Casualty Insurance Entity [Member]
|
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Property and Casualty operations premiums earned: | ||||
Dwelling fire & extended coverage | 7,256 | 6,665 | 14,274 | 13,212 |
Homeowners (Including mobile homeowners) | 5,652 | 5,790 | 11,333 | 11,694 |
Ocean marine | 269 | 275 | 524 | 543 |
Other liability | 391 | 343 | 764 | 683 |
Private passenger auto liability | 0 | 93 | 0 | 328 |
Commercial auto liability | 0 | 0 | 0 | 6 |
Auto physical damage | 0 | 44 | 0 | 151 |
Total property and casualty | 13,568 | 13,210 | 26,895 | 26,617 |
Net premiums earned | $ 11,376 | $ 10,814 | $ 22,564 | $ 22,558 |
Employee Benefit Plans (Details) (USD $)
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3 Months Ended | 6 Months Ended | 12 Months Ended | 3 Months Ended | 6 Months Ended | 12 Months Ended | 61 Months Ended | |||
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Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
hours
|
Jun. 30, 2012
|
Dec. 31, 2012
|
Jun. 30, 2013
Non-Qualified Deferred Compensation Plans [Member]
|
Jun. 30, 2012
Non-Qualified Deferred Compensation Plans [Member]
|
Jun. 30, 2013
Non-Qualified Deferred Compensation Plans [Member]
|
Dec. 31, 2012
Non-Qualified Deferred Compensation Plans [Member]
|
Mar. 31, 2013
Executive Offisers [Member]
|
|
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items] | ||||||||||
Minimum hours of service completed in year of contribution | 1,000 | |||||||||
Matching contribution | $ 49,000 | $ 52,000 | $ 97,000 | $ 102,000 | ||||||
Employer matching contribution, percent | 5.00% | 15.00% | ||||||||
Deferred compensation arrangement | 37,000 | 4,000 | 113,000 | 87,000 | ||||||
Cash contributions to ESOP | $ 0 | $ 0 |
Investments (Held-to-Maturity Securities) (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Schedule of Held-to-maturity Securities [Line Items] | ||
Amortized Cost | $ 1,137 | $ 1,502 |
Gross Unrecognized Gains | 62 | 107 |
Gross Unrecognized Losses | 0 | 0 |
Fair Value | 1,199 | 1,609 |
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
|
||
Schedule of Held-to-maturity Securities [Line Items] | ||
Amortized Cost | 870 | 1,194 |
Gross Unrecognized Gains | 53 | 91 |
Gross Unrecognized Losses | 0 | 0 |
Fair Value | 923 | 1,285 |
US States and Political Subdivisions Debt Securities [Member]
|
||
Schedule of Held-to-maturity Securities [Line Items] | ||
Amortized Cost | 145 | 145 |
Gross Unrecognized Gains | 1 | 2 |
Gross Unrecognized Losses | 0 | 0 |
Fair Value | 146 | 147 |
US Treasury Securities [Member]
|
||
Schedule of Held-to-maturity Securities [Line Items] | ||
Amortized Cost | 122 | 163 |
Gross Unrecognized Gains | 8 | 14 |
Gross Unrecognized Losses | 0 | 0 |
Fair Value | $ 130 | $ 177 |
Segments (Narrative) (Details)
|
6 Months Ended |
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Jun. 30, 2013
Segments
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|
Segment Reporting [Abstract] | |
Number of operating segments | 1 |
Significant Accounting Policies (Policies)
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6 Months Ended | ||||||||||||||||||||||||
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Jun. 30, 2013
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Accounting Policies [Abstract] | |||||||||||||||||||||||||
Principles of Consolidation and Basis of Presentation | The accompanying condensed consolidated financial statements include the accounts of The National Security Group, Inc. (the Company) and its wholly-owned subsidiaries: National Security Insurance Company (NSIC), National Security Fire and Casualty Company (NSFC) and NATSCO, Inc. (NATSCO). NSFC includes a wholly-owned subsidiary - Omega One Insurance Company (Omega). In the opinion of Management, the unaudited financial statements presented herein include all accruals necessary to present fairly the Company’s financial position at June 30, 2013, and the results of operations, cash flows and changes in shareholders’ equity for the interim periods ended June 30, 2013 and 2012, in conformity with accounting principles generally accepted in the United States. All significant intercompany transactions and accounts have been eliminated. The condensed consolidated financial statements of the Company presented herein have not been audited by independent auditors, except for the Consolidated Balance Sheet at December 31, 2012. | ||||||||||||||||||||||||
Description of Business | NSIC is licensed in the states of Alabama, Florida, Georgia, Mississippi, South Carolina, Tennessee and Texas and was organized in 1947 to provide life and burial insurance policies to the home service market. Business is now produced by both company and independent agents. Primary products include ordinary life, accident and health, supplemental hospital, and cancer insurance products. NSFC is licensed in Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, Oklahoma, South Carolina, Tennessee and West Virginia. In addition, NSFC operates on a surplus lines basis in Louisiana, Missouri, and Texas. NSFC operates in various property and casualty lines, the most significant of which are: dwelling property fire and extended coverage, homeowners and mobile homeowners. Omega is licensed in the states of Alabama and Louisiana. Omega operates in the property and casualty homeowners line of business. The Company is incorporated under the laws of the State of Delaware. Its common stock is traded on the NASDAQ Global Market under the ticker symbol NSEC. Pursuant to the regulations of the United States Securities and Exchange Commission (SEC), the Company is considered a “Smaller Reporting Company” as defined by SEC Rule 12b-2 of the Exchange Act. The Company has elected to comply with the scaled disclosure requirements of Regulation S-K and only two years of financial statements are included herein. | ||||||||||||||||||||||||
Use of Estimates | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in these consolidated financial statements are reserves for future policy benefits, liabilities for losses and loss adjustment expenses, reinsurance recoverable asset on associated loss and loss adjustment expense liabilities, deferred policy acquisition costs, deferred income tax assets and liabilities, assessments of other-than-temporary impairments on investments and accruals for contingencies. Actual results could differ from those estimates. | ||||||||||||||||||||||||
Investments | The Company's securities are classified as follows:
Unrealized gains and losses on investments, net of tax, on securities available-for-sale are reflected directly in shareholders' equity as a component of accumulated other comprehensive income (loss), and accordingly, have no effect on operating results until realized. Changes in fair value of trading securities are recognized in net income. Realized gains and losses on the sale of investments available-for-sale are determined using the specific-identification method and include write downs on available-for-sale investments considered to have other-than-temporary declines in market value. When a fixed maturity security has a decline in value, where fair value is below amortized cost, an other-than-temporary impairment (OTTI) is triggered in circumstances where:
If the Company intends to sell the security or if it is more-likely-than-not the Company will be required to sell the security before recovery, an OTTI is recognized as a realized loss in the income statement equal to the difference between the security's amortized cost and its fair value. If the Company does not intend to sell the security or it is not more-likely-than not that the Company will be required to sell the security before recovery, the OTTI is separated into an amount representing the credit loss, which is recognized as a realized loss in the statement of operations, and the amount related to all other factors, which is recognized in other comprehensive income. When an equity security has a decline in value, where fair value is below cost, that is deemed to be other-than-temporary, the Company reduces the book value of the security to its current fair value, recognizing the decline as a realized loss in the statement of operations. Any future increases in the market value of investments written down are reflected as changes in unrealized gains as part of accumulated other comprehensive income within shareholders' equity. Interest on fixed income securities is credited to income as it accrues on the principal amounts outstanding adjusted for amortization of premiums and accretion of discounts computed utilizing the effective interest rate method. Premiums and discounts on mortgage backed securities are amortized or accreted using anticipated prepayments with changes in anticipated prepayments accounted for prospectively. The model used to determine anticipated prepayment assumptions for mortgage backed securities uses separate home sale, refinancing, curtailment and pay-off assumptions derived from a variety of industry sources. Mortgage backed security valuations are subject to prospective adjustments in yield due to changes in prepayment assumptions. The utilization of the prospective method will result in a recalculated effective yield that will equate the carrying amount of the investment to the present value of the projected future cash flows. The recalculated yield is used to accrue income on investments for subsequent periods. Mortgage loans and policy loans are stated at the unpaid principal balance of such loans, net of any related allowance for uncollectible amounts. Investment real estate is reported at cost, less allowances for depreciation computed on the straight-line basis. Investment real estate consists primarily of timberland and undeveloped commercial real estate. Real estate is carried at cost. Other investments consist primarily of investments in notes and equity investments in limited liability companies. The Company has no influence or control over the operating or financial policies of the investee limited liability companies, and consequently, these investments are accounted for using the cost method. The Company owns life insurance (COLI) contracts on certain management and supervisory employees each having a face amount of approximately $2,000,000. The Company's original investment in company owned life insurance was $5,000,000. The primary purpose of the program is to offset future employee benefit expenses through earnings on the cash value of the policies. The Company is the owner and principal beneficiary of these policies. The life insurance contracts are carried at their current cash surrender value. Cash surrender value at June 30, 2013 and December 31, 2012 was $5,783,000 and $5,931,000, respectively. Changes in cash surrender values are included in investment income in the current period. The change in surrender value included in earnings for the three-month periods ended June 30, 2013 and 2012 was a decline of $198,000 and an increase of $54,000, respectively. The change in surrender value included in earnings for the six-month periods ended June 30, 2013 and 2012 was a decline of $148,000 and an increase of $171,000, respectively. Death proceeds from the contracts are recorded when the proceeds become payable under the terms of the policy. There were no proceeds received from the COLI during 2013 or 2012. Cash and short-term investments are carried at cost, which approximates market value. Investments with other-than-temporary impairment in value are written down to estimated realizable values and losses recognized in the determination of operating results. The fair value of the investment becomes its new cost basis. | ||||||||||||||||||||||||
Fair Value of Financial Instruments | The Company uses the following methods and assumptions to estimate fair values: Investments
Receivables and reinsurance recoverable - The carrying amounts reported approximate fair value. Interest rate swaps - The estimated fair value of the interest rate swaps is based on valuations received from financial institution counterparties. Trust preferred securities obligations and line of credit obligations - The carrying amounts reported for these instruments are equal to the principal balance outstanding and approximate their fair value. Fixed maturities available-for-sale — The fair values of the Company’s public fixed maturity securities are generally based on prices obtained from independent pricing services. Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. Trading securities — Trading securities consist primarily of mutual funds whose fair values are determined consistent with similar instruments described above under “Fixed Maturities” and below under “Equity Securities.” Equity securities — Equity securities consist principally of investments in common and preferred stock of publicly traded companies and privately traded securities. The fair values of our publicly traded equity securities are based on quoted market prices in active markets for identical assets and are classified within Level 1 in the fair value hierarchy. Estimated fair values for our privately traded equity securities require a substantial level of judgment. Privately traded equity securities are classified within Level 3. Interest rate swaps — Interest rate swaps are recorded at fair value either as assets, within other assets or as liabilities, within other liabilities. The fair values of our interest rate swaps are provided by a third party broker and are classified within Level 3. Our available-for-sale securities consists of fixed maturity and equity securities which are recorded at fair value in the accompanying consolidated balance sheets. The change in the fair value of these investments, unless deemed to be other-than-temporarily impaired, is recorded as a component of other comprehensive income. We are permitted to elect to measure financial instruments and certain other items at fair value, with the change in fair value recorded in earnings. We elected not to measure any eligible items using the fair value option. Accounting standards define fair value as the price that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework to make the measurement of fair value more consistent and comparable. In determining fair value, we primarily use prices and other relevant information generated by market transactions involving identical or comparable assets. The Company categorizes assets and liabilities carried at their fair value based upon a fair value hierarchy: Level 1 – Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. Level 1 assets and liabilities consist of money market fund deposits and certain of our marketable debt and equity instruments, including equity instruments offsetting deferred compensation, that are traded in an active market with sufficient volume and frequency of transactions. Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets include certain of our marketable debt and equity instruments with quoted market prices that are traded in less active markets or priced using a quoted market price for similar instruments. Level 2 assets also include marketable equity instruments with security-specific restrictions that would transfer to the buyer, marketable debt instruments priced using indicator prices which represent non-binding market consensus prices that can be corroborated by observable market quotes, as well as derivative contracts and debt instruments priced using inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Marketable debt instruments in this category generally include commercial paper, bank time deposits, repurchase agreements for fixed-income instruments, and a majority of floating-rate notes, corporate bonds, and municipal bonds. Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities. Level 3 assets and liabilities include marketable debt instruments, non-marketable equity investments, derivative contracts, and company issued debt whose values are determined using inputs that are both unobservable and significant to the values of the instruments being measured. Level 3 assets also include marketable debt instruments that are priced using indicator prices that we were unable to corroborate with observable market quotes. Marketable debt instruments in this category generally include asset-backed securities and certain of our floating-rate notes, corporate bonds, and municipal bonds. The following methods and assumptions were used to estimate fair value of each class of financial instrument for which it is practical to estimate that value: Cash and cash equivalents — the carrying amount is a reasonable estimate of fair value. Mortgage loans — the carrying amount is a reasonable estimate of fair value due to the restrictive nature and limited marketability of the mortgage notes. Policy loans — the carrying amount is a reasonable estimate of fair value. Company owned life insurance — the carrying amount is a reasonable estimate of fair value. Other invested assets — the carrying amount is a reasonable estimate of fair value. Other policyholder funds — the carrying amount is a reasonable estimate of fair value. Debt — the carrying amount is a reasonable estimate of fair value. | ||||||||||||||||||||||||
Policy Receivables | Receivable balances are reported at unpaid balances, less a provision for credit losses. |
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Accounts Receivable | Accounts receivable are reported at net realizable value. Management determines the allowance for doubtful accounts based on historical losses and current economic conditions. On a continuing basis, management analyzes delinquent receivables, and once these receivables are determined to be uncollectible, they are written off through a charge against an existing allowance account or against earnings. |
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Property and Equipment | Property and equipment is carried at cost less accumulated depreciation and includes expenditures that substantially increase the useful lives of existing property and equipment. Significant costs incurred for internally developed software are capitalized and amortized over estimated useful lives of 3 years. Maintenance, repairs, and minor renovations are charged to expense as incurred. Upon sale or retirement of property and equipment, the costs and related accumulated depreciation are eliminated from the respective account and the resulting gain or loss is included in the results of operations. The Company provides for depreciation of property and equipment using the straight-line method designed to amortize costs over estimated useful lives. Estimated useful lives range up to 40 years for buildings and from 3-10 years for electronic data processing equipment and furniture and fixtures. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. | ||||||||||||||||||||||||
Statement of Cash Flows | For purposes of reporting cash flows, cash includes cash-on-hand, demand deposits with banks and overnight investments. |
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Premium Revenue | Life insurance premiums are recognized as revenues when due. Property and casualty insurance premiums include direct writings plus reinsurance assumed less reinsurance ceded and are recognized on a pro rata basis over the terms of the policies. Unearned premiums represent that portion of direct premiums written that are applicable to the unexpired terms of policies in force and is reported as a liability. Prepaid reinsurance premiums represent the unexpired portion of premiums ceded to reinsurers and are reported as an asset. |
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Deferred Policy Acquisition Costs | The costs of acquiring new insurance business are deferred and amortized over the lives of the policies. Deferred costs include commissions, premium taxes, other agency compensation and expenses, and other underwriting expenses directly related to the level of new business produced. Acquisition costs relating to life contracts are amortized over the premium paying period of the contracts, or the first renewal period of term policies, if earlier. Assumptions utilized in amortization are consistent with those utilized in computing policy liabilities. The method of computing the deferred policy acquisition costs for property and casualty policies limits the amount deferred to a percentage of related unearned premiums. | ||||||||||||||||||||||||
Earnings Per Share | Earnings per share of common stock is based on the weighted average number of shares outstanding during each year. The adjusted weighted average shares outstanding were 2,467,062 in 2013 and 2,466,600 in 2012. |
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Reinsurance | The Company's insurance operations re-insure certain risks in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and effect business-sharing arrangements. See Note 10 for additional information regarding the Company's reinsurance practices. Amounts recoverable from re-insurers are estimated in a manner consistent with the claim liability associated with the underlying insurance policies. Amounts paid for prospective reinsurance contracts are reported as prepaid reinsurance premiums and amortized over the remaining contract period. In the normal course of business, NSIC seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to reinsurance companies under excess coverage contracts. NSIC retains a maximum of $50,000 of coverage per individual life. The cost of reinsurance is amortized over the contract period of the reinsurance. The Company's insurance operations utilize reinsurance in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and effect business-sharing arrangements. Life reinsurance is accomplished through yearly renewable term coverage. Property and casualty reinsurance is placed on both a quota-share and excess of loss basis. Reinsurance ceded arrangements do not discharge the insurance subsidiaries as the primary insurer, except for cases involving a novation. Failure of re-insurers to honor their obligations could result in losses to the insurance subsidiaries. The insurance subsidiaries evaluate the financial conditions of their reinsurance companies and monitor concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the companies to minimize their exposure to significant losses from reinsurance insolvencies. In the normal course of business, NSFC seeks to reduce the loss that may arise from catastrophes or other individually significant large loss events that cause unfavorable underwriting results by re-insuring certain levels of risk in various areas of exposure with reinsurance companies. NSFC maintains a catastrophe reinsurance agreement to cover losses from catastrophic events, primarily hurricanes. | ||||||||||||||||||||||||
Income Taxes | The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes arise from the recognition of temporary differences between financial statement carrying amounts and the tax bases of the Company's assets and liabilities and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The effect of a change in tax rates is recognized in the period the new rate is enacted. The Company evaluates all tax positions taken on its U.S. federal income tax return. No material uncertainties exist for any tax positions taken by the Company. The Company recognizes tax-related interest and penalties as a component of tax expense. Net deferred tax liabilities are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of the enacted tax laws. | ||||||||||||||||||||||||
Contingencies | Liabilities for loss contingencies arising from, but not limited to, litigation, claims, assessments, fines and penalties are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Significant attorney fees are estimated and recorded when incurred. |
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Reclassifications | Certain 2012 amounts have been reclassified from the prior year consolidated financial statements to conform to the 2013 presentation. |
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Advertising | The Company expenses advertising costs as incurred. Advertising costs charged to expense were $31,000 for the three months ended June 30, 2013 ($28,000 for the three months ended June 30, 2012). Advertising costs charged to expense were $84,000 for the six months ended June 30, 2013 ($61,000 for the six months ended June 30, 2012). Advertising cost consists primarily of agent convention expense and print media. | ||||||||||||||||||||||||
Concentration of Credit Risk | The Company maintains cash balances which are generally held in non-interest bearing demand deposit accounts. Through December 31, 2012, these balances were insured by the FDIC with no balance limits. On January 1, 2013, $250,000 per account balance limits were reinstated. At June 30, 2013, the net amount exceeding FDIC insured limits was $2,347,000 at one financial institution. The Company has not experienced any losses in such accounts. Management of the Company reviews financial information of the financial institution on a quarterly basis and believes the Company is not exposed to any significant credit risk on cash and cash equivalents. Policy receivables are reported at unpaid balances. Policy receivables are generally offset by associated unearned premium liabilities and are not subject to significant credit risk. Receivables from agents, less provision for credit losses, are composed of balances due from independent agents. At June 30, 2013, the single largest balance due from one agent totaled $1,485,000. Reinsurance contracts do not relieve the Company of its obligations to policyholders. A failure of a reinsurer to meet their obligation could result in losses to the insurance subsidiaries. Allowances for losses are established if amounts are believed to be uncollectible. At June 30, 2013 and December 31, 2012, no amounts were deemed uncollectible. The Company, at least annually, evaluates the financial condition of all reinsurers and evaluates any potential concentrations of credit risk. At June 30, 2013, management does not believe the Company is exposed to any significant credit risk related to its reinsurance program. | ||||||||||||||||||||||||
Recently Adopted Accounting Standards | Recently Adopted Accounting StandardsDisclosures about Offsetting Assets and Liabilities for Financial Instruments and Derivative InstrumentsIn December 2011, the FASB issued guidance requiring expanded disclosures, including both gross and net information, for financial instruments and derivative instruments that are either offset in the reporting entity's financial statements or those that are subject to an enforceable master netting arrangement or similar agreement. The Company adopted the new guidance on January 1, 2013 and applied it retrospectively. The guidance impacts disclosures only and will have no impact on the Company's results of operations or financial position. The Company does not have any derivative instruments subject to master netting arrangements at June 30, 2013.In February 2013, the FASB issued an accounting standards update that requires additional disclosures for reclassification adjustments from accumulated other comprehensive income (AOCI). These additional disclosures include changes in AOCI balances by component and significant items reclassified out of AOCI. These disclosures must be presented either on the face of the affected financial statement or in the notes to the financial statements. The disclosures are effective beginning in the first quarter of 2013 and are to be provided on a prospective basis. These disclosures are presented in Note 12. Intangibles-Goodwill and OtherIn July 2012, the FASB issued guidance related to impairment of indefinite-lived intangible assets other than goodwill. The new guidance allows an entity to first make a qualitative assessment of whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount before applying the quantitative impairment test. An entity is required to perform the quantitative test only if it determines that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. The Company adopted this guidance January 1, 2013. No interim testing was required as of June 30, 2013, and we do not expect a material effect on results of operations or financial position following annual testing. | ||||||||||||||||||||||||
Variable Interest Entities | The Company holds a passive interest in a limited partnership that is considered to be a Variable Interest Entity (VIE) under the provisions of FIN 46(R). The Company is not the primary beneficiary of the entity and is not required to consolidate under FIN 46(R). The entity is a private placement investment fund formed for the purpose of investing in private equity investments. The Company owns less than 1% of the limited partnership. The carrying value of the investment totals $325,000 and is included as a component of Other Invested Assets in the accompanying condensed consolidated balance sheets. | ||||||||||||||||||||||||
Marketable Securities | For securities in an unrealized loss position, the Company assesses whether the Company has the intent to sell the security or more-likely-than-not will be required to sell the security before the anticipated recovery. If either of these conditions is met, the Company is required to recognize an other-than-temporary impairment with the entire unrealized loss reported in earnings. For securities in an unrealized loss position that do not meet these conditions, the Company assesses whether the impairment of a security is other-than-temporary. If the impairment is determined to be other-than-temporary, the Company is required to separate the other-than-temporary impairments into two components: the amount representing the credit loss and the amount related to all other factors. The credit loss is the portion of the amortized book value in excess of the net present value of the projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. The credit loss component of other-than-temporary impairments is reported in earnings, whereas the amount relating to factors other than credit losses are recorded in other comprehensive income, net of taxes. In evaluating whether or not the equity loss positions were other-than-temporary impairments, Management evaluated financial information on each company and where available, reviewed analyst reports from at least two independent sources. | ||||||||||||||||||||||||
Derivatives | The Company is exposed to certain risks in the normal course of its business operations. The primary risk that is managed through the use of derivatives is interest rate risk on floating rate borrowings. This risk is managed through the use of interest rate swap agreements which are designated as cash flow hedges. For cash flow hedges, the effective portion of the gain or loss on the interest rate swap is included as a component of other comprehensive income and reclassified into earnings in the same period during which the hedged transaction is recognized in earnings. The Company does not hold or issue derivatives that are not designated as hedging instruments. We use dollar offset at the hedge's inception and for each reporting period thereafter to assess whether the derivative used in a hedging transaction is expected to be, and has been, effective in offsetting changes in the fair value of the hedged item. Since inception, no portion of the hedged item has been deemed ineffective. For all hedges, we discontinue hedge accounting if it is determined that a derivative is not expected to be, or has ceased to be, effective as a hedge. The swap liability is reported as a component of other liabilities on the condensed consolidated balance sheets. | ||||||||||||||||||||||||
Segments | The Company’s life and accident and health operations comprise the second business segment. The life and accident and health insurance segment consists of two lines of business: traditional life insurance and accident and health insurance. The Company’s property and casualty insurance operations comprise one business segment. The property and casualty insurance segment consists of seven lines of business: dwelling fire and extended coverage, homeowners (including mobile homeowners), ocean marine, other liability, private passenger auto liability, commercial auto liability and auto physical damage. |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (Parenthetical) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2013
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Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
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Statement of Other Comprehensive Income [Abstract] | ||||
Unrealized gains (losses) on securities, net of reclassification adjustment | $ 680 | $ 568 | $ 698 | $ 704 |
Investments
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Jun. 30, 2013
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Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | INVESTMENTS The amortized cost and aggregate fair values of investments in available-for-sale securities as of June 30, 2013 are as follows:
The amortized cost and aggregate fair values of investments in held-to-maturity securities as of June 30, 2013 are as follows:
The amortized cost and aggregate fair values of investments in available-for-sale securities as of December 31, 2012 are as follows:
The amortized cost and aggregate fair values of investments in held-to-maturity securities as of December 31, 2012 are as follows:
The amortized cost and aggregate fair value of debt securities at June 30, 2013, by contractual maturity, are presented in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
A summary of securities available-for-sale with unrealized losses as of June 30, 2013, along with the related fair value, aggregated by the length of time that investments have been in a continuous unrealized loss position, is as follows:
A summary of securities available-for-sale with unrealized losses as of December 31, 2012, along with the related fair value, aggregated by the length of time that investments have been in a continuous unrealized loss position, is as follows:
There were no securities held-to-maturity with unrealized losses as of June 30, 2013 and December 31, 2012. The Company conducts periodic reviews to identify and evaluate securities in an unrealized loss position in order to identify other-than-temporary impairments. For securities in an unrealized loss position, the Company assesses whether the Company has the intent to sell the security or more-likely-than-not will be required to sell the security before the anticipated recovery. If either of these conditions is met, the Company is required to recognize an other-than-temporary impairment with the entire unrealized loss reported in earnings. For securities in an unrealized loss position that do not meet these conditions, the Company assesses whether the impairment of a security is other-than-temporary. If the impairment is determined to be other-than-temporary, the Company is required to separate the other-than-temporary impairments into two components: the amount representing the credit loss and the amount related to all other factors. The credit loss is the portion of the amortized book value in excess of the net present value of the projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. The credit loss component of other-than-temporary impairments is reported in earnings, whereas the amount relating to factors other than credit losses are recorded in other comprehensive income, net of taxes. Management has evaluated each security in a significant unrealized loss position. The Company has no material exposure to sub-prime mortgage loans and less than 4% of the fixed income investment portfolio is rated below investment grade. In evaluating whether or not the equity loss positions were other-than-temporary impairments, Management evaluated financial information on each company and where available, reviewed analyst reports from at least two independent sources. Based on a review of the available financial information, the prospect for future earnings of each company and consideration of the Company’s intent and ability to hold the securities until market values recovered, it was determined that the securities in an accumulated loss position in the portfolio were temporary impairments. For the six months ended June 30, 2013, the Company realized no additional other-than-temporary impairments. The single largest accumulated loss not realized as an impairment was in the equity portfolio and totaled $429,000. The second largest loss position was in the bond portfolio and totaled $56,000. The third largest loss position was in the bond portfolio and totaled $52,000. For the year ended December 31, 2012, the Company realized $87,000 in other-than-temporary impairments. The single largest accumulated loss not realized as an impairment was in the equity portfolio and totaled $457,000. The second largest loss position was in the bond portfolio and totaled $39,000. The third largest loss position was in the bond portfolio and totaled $27,000. Major categories of investment income are summarized as follows (dollars in thousands):
Major categories of investment gains and losses are summarized as follows (dollars in thousands):
An analysis of the net change in unrealized appreciation on available-for-sale securities follows (dollars in thousands):
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Supplemental Cash Flow Information (Details) (USD $)
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6 Months Ended | 12 Months Ended |
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Jun. 30, 2013
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Dec. 31, 2012
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Supplemental Cash Flows, Noncash Transactions [Line Items] | ||
Interest paid | $ 649,000 | $ 589,000 |
Income taxes paid | 100,000 | 0 |
Increase in additional paid-in capital | 196,000 | |
Directors [Member]
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Supplemental Cash Flows, Noncash Transactions [Line Items] | ||
Non-cash transaction, common stock issued | $ 27,000 |
Significant Accounting Policies
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Jun. 30, 2013
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||
Significant Accounting Policies | Principles of Consolidation and Basis of Presentation The accompanying condensed consolidated financial statements include the accounts of The National Security Group, Inc. (the Company) and its wholly-owned subsidiaries: National Security Insurance Company (NSIC), National Security Fire and Casualty Company (NSFC) and NATSCO, Inc. (NATSCO). NSFC includes a wholly-owned subsidiary - Omega One Insurance Company (Omega). In the opinion of Management, the unaudited financial statements presented herein include all accruals necessary to present fairly the Company’s financial position at June 30, 2013, and the results of operations, cash flows and changes in shareholders’ equity for the interim periods ended June 30, 2013 and 2012, in conformity with accounting principles generally accepted in the United States. All significant intercompany transactions and accounts have been eliminated. The condensed consolidated financial statements of the Company presented herein have not been audited by independent auditors, except for the Consolidated Balance Sheet at December 31, 2012. Financial statements and notes to condensed consolidated financial statements included in this Form 10-Q report should be read in conjunction with the Company’s 2012 Form 10-K report, as certain notes and other pertinent information have been abbreviated or omitted in this report. Financial results for the three-month and six-month period ended June 30, 2013 are not necessarily indicative of future results. Description of Business NSIC is licensed in the states of Alabama, Florida, Georgia, Mississippi, South Carolina, Tennessee and Texas and was organized in 1947 to provide life and burial insurance policies to the home service market. Business is now produced by both company and independent agents. Primary products include ordinary life, accident and health, supplemental hospital, and cancer insurance products. NSFC is licensed in Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, Oklahoma, South Carolina, Tennessee and West Virginia. In addition, NSFC operates on a surplus lines basis in Louisiana, Missouri, and Texas. NSFC operates in various property and casualty lines, the most significant of which are: dwelling property fire and extended coverage, homeowners and mobile homeowners. Omega is licensed in the states of Alabama and Louisiana. Omega operates in the property and casualty homeowners line of business. The Company is incorporated under the laws of the State of Delaware. Its common stock is traded on the NASDAQ Global Market under the ticker symbol NSEC. Pursuant to the regulations of the United States Securities and Exchange Commission (SEC), the Company is considered a “Smaller Reporting Company” as defined by SEC Rule 12b-2 of the Exchange Act. The Company has elected to comply with the scaled disclosure requirements of Regulation S-K and only two years of financial statements are included herein. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in these consolidated financial statements are reserves for future policy benefits, liabilities for losses and loss adjustment expenses, reinsurance recoverable asset on associated loss and loss adjustment expense liabilities, deferred policy acquisition costs, deferred income tax assets and liabilities, assessments of other-than-temporary impairments on investments and accruals for contingencies. Actual results could differ from those estimates. Investments The Company's securities are classified as follows:
Unrealized gains and losses on investments, net of tax, on securities available-for-sale are reflected directly in shareholders' equity as a component of accumulated other comprehensive income (loss), and accordingly, have no effect on operating results until realized. Changes in fair value of trading securities are recognized in net income. Realized gains and losses on the sale of investments available-for-sale are determined using the specific-identification method and include write downs on available-for-sale investments considered to have other-than-temporary declines in market value. When a fixed maturity security has a decline in value, where fair value is below amortized cost, an other-than-temporary impairment (OTTI) is triggered in circumstances where:
If the Company intends to sell the security or if it is more-likely-than-not the Company will be required to sell the security before recovery, an OTTI is recognized as a realized loss in the income statement equal to the difference between the security's amortized cost and its fair value. If the Company does not intend to sell the security or it is not more-likely-than not that the Company will be required to sell the security before recovery, the OTTI is separated into an amount representing the credit loss, which is recognized as a realized loss in the statement of operations, and the amount related to all other factors, which is recognized in other comprehensive income. When an equity security has a decline in value, where fair value is below cost, that is deemed to be other-than-temporary, the Company reduces the book value of the security to its current fair value, recognizing the decline as a realized loss in the statement of operations. Any future increases in the market value of investments written down are reflected as changes in unrealized gains as part of accumulated other comprehensive income within shareholders' equity. Interest on fixed income securities is credited to income as it accrues on the principal amounts outstanding adjusted for amortization of premiums and accretion of discounts computed utilizing the effective interest rate method. Premiums and discounts on mortgage backed securities are amortized or accreted using anticipated prepayments with changes in anticipated prepayments accounted for prospectively. The model used to determine anticipated prepayment assumptions for mortgage backed securities uses separate home sale, refinancing, curtailment and pay-off assumptions derived from a variety of industry sources. Mortgage backed security valuations are subject to prospective adjustments in yield due to changes in prepayment assumptions. The utilization of the prospective method will result in a recalculated effective yield that will equate the carrying amount of the investment to the present value of the projected future cash flows. The recalculated yield is used to accrue income on investments for subsequent periods. Mortgage loans and policy loans are stated at the unpaid principal balance of such loans, net of any related allowance for uncollectible amounts. Investment real estate is reported at cost, less allowances for depreciation computed on the straight-line basis. Investment real estate consists primarily of timberland and undeveloped commercial real estate. Real estate is carried at cost. Other investments consist primarily of investments in notes and equity investments in limited liability companies. The Company has no influence or control over the operating or financial policies of the investee limited liability companies, and consequently, these investments are accounted for using the cost method. The Company owns life insurance (COLI) contracts on certain management and supervisory employees each having a face amount of approximately $2,000,000. The Company's original investment in company owned life insurance was $5,000,000. The primary purpose of the program is to offset future employee benefit expenses through earnings on the cash value of the policies. The Company is the owner and principal beneficiary of these policies. The life insurance contracts are carried at their current cash surrender value. Cash surrender value at June 30, 2013 and December 31, 2012 was $5,783,000 and $5,931,000, respectively. Changes in cash surrender values are included in investment income in the current period. The change in surrender value included in earnings for the three-month periods ended June 30, 2013 and 2012 was a decline of $198,000 and an increase of $54,000, respectively. The change in surrender value included in earnings for the six-month periods ended June 30, 2013 and 2012 was a decline of $148,000 and an increase of $171,000, respectively. Death proceeds from the contracts are recorded when the proceeds become payable under the terms of the policy. There were no proceeds received from the COLI during 2013 or 2012. Cash and short-term investments are carried at cost, which approximates market value. Investments with other-than-temporary impairment in value are written down to estimated realizable values and losses recognized in the determination of operating results. The fair value of the investment becomes its new cost basis. Fair Values of Financial Instruments The Company uses the following methods and assumptions to estimate fair values: Investments
Receivables and reinsurance recoverable - The carrying amounts reported approximate fair value. Interest rate swaps - The estimated fair value of the interest rate swaps is based on valuations received from financial institution counterparties. Trust preferred securities obligations and line of credit obligations - The carrying amounts reported for these instruments are equal to the principal balance outstanding and approximate their fair value. Policy Receivables Receivable balances are reported at unpaid balances, less a provision for credit losses. Accounts Receivable Accounts receivable are reported at net realizable value. Management determines the allowance for doubtful accounts based on historical losses and current economic conditions. On a continuing basis, management analyzes delinquent receivables, and once these receivables are determined to be uncollectible, they are written off through a charge against an existing allowance account or against earnings. Property and Equipment Property and equipment is carried at cost less accumulated depreciation and includes expenditures that substantially increase the useful lives of existing property and equipment. Significant costs incurred for internally developed software are capitalized and amortized over estimated useful lives of 3 years. Maintenance, repairs, and minor renovations are charged to expense as incurred. Upon sale or retirement of property and equipment, the costs and related accumulated depreciation are eliminated from the respective account and the resulting gain or loss is included in the results of operations. The Company provides for depreciation of property and equipment using the straight-line method designed to amortize costs over estimated useful lives. Estimated useful lives range up to 40 years for buildings and from 3-10 years for electronic data processing equipment and furniture and fixtures. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Statement of Cash Flows For purposes of reporting cash flows, cash includes cash-on-hand, demand deposits with banks and overnight investments. Premium Revenue Life insurance premiums are recognized as revenues when due. Property and casualty insurance premiums include direct writings plus reinsurance assumed less reinsurance ceded and are recognized on a pro rata basis over the terms of the policies. Unearned premiums represent that portion of direct premiums written that are applicable to the unexpired terms of policies in force and is reported as a liability. Prepaid reinsurance premiums represent the unexpired portion of premiums ceded to reinsurers and are reported as an asset. Deferred Policy Acquisition Costs The costs of acquiring new insurance business are deferred and amortized over the lives of the policies. Deferred costs include commissions, premium taxes, other agency compensation and expenses, and other underwriting expenses directly related to the level of new business produced. Acquisition costs relating to life contracts are amortized over the premium paying period of the contracts, or the first renewal period of term policies, if earlier. Assumptions utilized in amortization are consistent with those utilized in computing policy liabilities. The method of computing the deferred policy acquisition costs for property and casualty policies limits the amount deferred to a percentage of related unearned premiums. Earnings Per Share Earnings per share of common stock is based on the weighted average number of shares outstanding during each year. The adjusted weighted average shares outstanding were 2,467,062 in 2013 and 2,466,600 in 2012. Reinsurance The Company's insurance operations re-insure certain risks in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and effect business-sharing arrangements. See Note 10 for additional information regarding the Company's reinsurance practices. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes arise from the recognition of temporary differences between financial statement carrying amounts and the tax bases of the Company's assets and liabilities and operating loss carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The effect of a change in tax rates is recognized in the period the new rate is enacted. The Company evaluates all tax positions taken on its U.S. federal income tax return. No material uncertainties exist for any tax positions taken by the Company. Contingencies Liabilities for loss contingencies arising from, but not limited to, litigation, claims, assessments, fines and penalties are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Significant attorney fees are estimated and recorded when incurred. Reclassifications Certain 2012 amounts have been reclassified from the prior year consolidated financial statements to conform to the 2013 presentation. Advertising The Company expenses advertising costs as incurred. Advertising costs charged to expense were $31,000 for the three months ended June 30, 2013 ($28,000 for the three months ended June 30, 2012). Advertising costs charged to expense were $84,000 for the six months ended June 30, 2013 ($61,000 for the six months ended June 30, 2012). Advertising cost consists primarily of agent convention expense and print media. Concentration of Credit Risk The Company maintains cash balances which are generally held in non-interest bearing demand deposit accounts. Through December 31, 2012, these balances were insured by the FDIC with no balance limits. On January 1, 2013, $250,000 per account balance limits were reinstated. At June 30, 2013, the net amount exceeding FDIC insured limits was $2,347,000 at one financial institution. The Company has not experienced any losses in such accounts. Management of the Company reviews financial information of the financial institution on a quarterly basis and believes the Company is not exposed to any significant credit risk on cash and cash equivalents. Policy receivables are reported at unpaid balances. Policy receivables are generally offset by associated unearned premium liabilities and are not subject to significant credit risk. Receivables from agents, less provision for credit losses, are composed of balances due from independent agents. At June 30, 2013, the single largest balance due from one agent totaled $1,485,000. Reinsurance contracts do not relieve the Company of its obligations to policyholders. A failure of a reinsurer to meet their obligation could result in losses to the insurance subsidiaries. Allowances for losses are established if amounts are believed to be uncollectible. At June 30, 2013 and December 31, 2012, no amounts were deemed uncollectible. The Company, at least annually, evaluates the financial condition of all reinsurers and evaluates any potential concentrations of credit risk. At June 30, 2013, management does not believe the Company is exposed to any significant credit risk related to its reinsurance program. Recently Adopted Accounting Standards Disclosures about Offsetting Assets and Liabilities for Financial Instruments and Derivative Instruments In December 2011, the FASB issued guidance requiring expanded disclosures, including both gross and net information, for financial instruments and derivative instruments that are either offset in the reporting entity's financial statements or those that are subject to an enforceable master netting arrangement or similar agreement. The Company adopted the new guidance on January 1, 2013 and applied it retrospectively. The guidance impacts disclosures only and will have no impact on the Company's results of operations or financial position. The Company does not have any derivative instruments subject to master netting arrangements at June 30, 2013. In February 2013, the FASB issued an accounting standards update that requires additional disclosures for reclassification adjustments from accumulated other comprehensive income (AOCI). These additional disclosures include changes in AOCI balances by component and significant items reclassified out of AOCI. These disclosures must be presented either on the face of the affected financial statement or in the notes to the financial statements. The disclosures are effective beginning in the first quarter of 2013 and are to be provided on a prospective basis. These disclosures are presented in Note 12. Intangibles-Goodwill and Other In July 2012, the FASB issued guidance related to impairment of indefinite-lived intangible assets other than goodwill. The new guidance allows an entity to first make a qualitative assessment of whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount before applying the quantitative impairment test. An entity is required to perform the quantitative test only if it determines that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. The Company adopted this guidance January 1, 2013. No interim testing was required as of June 30, 2013, and we do not expect a material effect on results of operations or financial position following annual testing. |
Investments (Narrative) (Details) (USD $)
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6 Months Ended | 12 Months Ended |
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Jun. 30, 2013
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Dec. 31, 2012
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Gain (Loss) on Investments [Line Items] | ||
Held-to-maturity securities, unrealized losses | $ 0 | $ 0 |
Other-than-temporary impairments, available-for-sale securities | 0 | 87,000 |
Single largest loss position | 429,000 | 457,000 |
Second largest loss position | 56,000 | 39,000 |
Third largest loss position | $ 52,000 | $ 27,000 |
Maximum [Member]
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Gain (Loss) on Investments [Line Items] | ||
Percent of investment portfolio below investment grade | 4.00% |
Property and Equipment (Tables)
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Jun. 30, 2013
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Property and Equipment | Major categories of property and equipment are summarized as follows (dollars in thousands):
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Shareholders' Equity (Tables)
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Stockholders' Equity Note [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock by Class | The table below provides information regarding the Company's preferred and common stock as of June 30, 2013 and December 31, 2012:
On June 28, 2013, 27,880 shares of common stock were issued to directors as compensation under the 2009 Equity Incentive Plan previously approved by shareholders. |
Segments (Schedule of Gross and Net Premiums Written) (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2013
|
Jun. 30, 2012
|
Jun. 30, 2013
|
Jun. 30, 2012
|
|
Property and Casualty operations premiums written: | ||||
Gross premiums written | $ 17,240 | $ 17,043 | $ 32,382 | $ 31,703 |
Reinsurance premium ceded | (2,199) | (2,431) | (4,350) | (4,106) |
Net premiums written | 15,041 | 14,612 | 28,032 | 27,597 |
Life Insurance Segment [Member]
|
||||
Life, accident and health operations premiums written: | ||||
Traditional life insurance | 1,184 | 1,263 | 2,402 | 2,493 |
Accident and health insurance | 437 | 455 | 881 | 919 |
Total life, accident and health | 1,621 | 1,718 | 3,283 | 3,412 |
Consolidated Property and Casualty Insurance Entity [Member]
|
||||
Property and Casualty operations premiums written: | ||||
Dwelling fire & extended coverage | 8,406 | 7,825 | 15,965 | 14,752 |
Homeowners (Including mobile homeowners) | 6,756 | 6,745 | 12,177 | 12,232 |
Ocean marine | (17) | 363 | 75 | 447 |
Other liability | 474 | 409 | 882 | 766 |
Private passenger auto liability | 0 | (12) | 0 | 57 |
Commercial auto liability | 0 | 0 | 0 | 6 |
Auto physical damage | 0 | (5) | 0 | 31 |
Total property and casualty | $ 15,619 | $ 15,325 | $ 29,099 | $ 28,291 |
Significant Accounting Policies (Earnings Per Share) (Details)
|
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2013
|
Dec. 31, 2012
|
|
Accounting Policies [Abstract] | ||
Weighted average number of shares outstanding | 2,467,062 | 2,466,600 |
Income Taxes (Deferred Tax Assets and Liabilities) (Details) (USD $)
In Thousands, unless otherwise specified |
Jun. 30, 2013
|
Dec. 31, 2012
|
---|---|---|
Income Tax Disclosure [Abstract] | ||
General expenses | $ 1,293 | $ 1,211 |
Unearned premiums | 1,915 | 1,751 |
Claims liabilities | 440 | 243 |
Litigation settlement | 3,570 | 3,570 |
AMT Credit | 246 | 246 |
NOL carryforward | 2,873 | 2,711 |
Other-than-temporary impairments on securities owned | 164 | 164 |
Unrealized loss on interest rate swaps | 335 | 518 |
Deferred tax assets | 10,836 | 10,414 |
Trading securities | 0 | (1) |
Depreciation | (77) | (94) |
Deferred policy acquisition costs | (3,074) | (3,093) |
Unrealized gains on securities available-for-sale | (1,220) | (2,229) |
Deferred tax liabilities | (4,371) | (5,417) |
Net deferred tax asset | $ 6,465 | $ 4,997 |