10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 10-Q

  (Mark One)

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

or      

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to          .

Commission File Number 0-18649

The National Security Group, Inc.

(Exact name of registrant as specified in its charter)

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)

Registrant’s Telephone Number including Area Code (334) 897-2273

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	NSEC	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    þ Yes    o No

1

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer     o                         Accelerated filer          ☐ 

Non-accelerated filer      þ                         Smaller reporting company      ☑

                                    Emerging growth company     ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     o

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

Class	Outstanding May 14, 2021
Common Stock $1.00 par value	2,530,370 shares

2

THE NATIONAL SECURITY GROUP, INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
			Page No.
	Item 1.  Financial Statements
		Condensed Consolidated Balance Sheets (UNAUDITED EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)	5
		Condensed Consolidated Statements of Operations (UNAUDITED)	6
		Condensed Consolidated Statements of Comprehensive Income (Loss) (UNAUDITED)	7
		Condensed Consolidated Statements of Changes in Shareholders’ Equity (UNAUDITED)	8
		Condensed Consolidated Statements of Cash Flows (UNAUDITED)	9
		Notes to Condensed Consolidated Financial Statements (UNAUDITED EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)	10
		Report of Independent Registered Public Accounting Firm	31
	Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations		32
	Item 3.  Quantitative and Qualitative Disclosures about Market Risk		43
	Item 4.  Controls and Procedures		44
PART II. OTHER INFORMATION
	Item 1.    Legal Proceedings		45
	Item 1A. Risk Factors		45
	Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of                Equity Securities		45
	Item 3.    Defaults Upon Senior Securities		45
	Item 4. Mine Safety Disclosures		45
	Item 5.    Other Information		45
	Item 6.    Exhibits		45
SIGNATURE			46

3

Cautionary Statement Regarding Forward-Looking Statements

Any statement contained in this report which is not a historical fact, or which might otherwise be considered an opinion or projection concerning the Company or its business, whether expressed or implied, is meant as and should be considered a forward-looking statement as that term is defined in the Private Securities Litigation Reform Act of 1995. The following report contains forward-looking statements that are not strictly historical and that involve risks and uncertainties. Such statements include any statements containing the words “expect,” “plan,” “estimate,” “anticipate” or other words of a similar nature. Management cautions investors about forward-looking statements. Forward-looking statements involve certain evaluation criteria, such as risks, uncertainties, estimates, and/or assumptions made by individuals informed of the Company and industries in which we operate. Any variation in the preceding evaluation criteria could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, without limitation, the following:

▪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. Company insurance rates are also subject to approval by state insurance departments in each of these states. We are often limited in the level of rate increases we can obtain.

▪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 can be adversely affected by increases in frequency and severity of policy claims. While a generally manageable risk, frequency and severity can cause significant earnings volatility. Increased claims frequency is typically driven by increases in severe weather outbreaks while severity can be driven by inflation, increased claims settlement cost and litigation related expenses.

▪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 from catastrophe events. 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, along with liquidity at the holding company level. 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.

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PART I

Item 1. Financial Statements

THE NATIONAL SECURITY GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

($ in thousands)	March 31, 2021		December 31, 2020
ASSETS	(UNAUDITED)
Investments
Fixed maturities held-to-maturity, at amortized cost (estimated fair value: 2021 -       $835; 2020 - $946)	$	768	$	873
Fixed maturities available-for-sale, at estimated fair value (cost: 2021 -       $84,380; 2020 - $76,241)	87,469		81,399
Equity securities, at estimated fair value (cost: 2021 - $1,761; 2020 - $1,918)	4,596		4,750
Trading securities	176		169
Receivable for securities sold	45		3
Mortgage loans on real estate, at cost	144		145
Investment real estate, at book value	2,934		2,934
Policy loans	1,811		1,846
Company owned life insurance	4,941		4,998
Other invested assets	1,921		2,033
Total Investments	104,805		99,150
Cash and cash equivalents	17,242		19,887
Accrued investment income	680		575
Policy receivables and agents' balances, net	13,733		12,345
Reinsurance recoverable	3,017		6,874
Deferred policy acquisition costs	7,384		7,408
Property and equipment, net	1,551		1,572
Income tax recoverable	1,343		1,311
Deferred income tax asset, net	776		706
Other assets	1,044		712
Total Assets	$	151,575	$	150,540
LIABILITIES AND SHAREHOLDERS' EQUITY
Property and casualty benefit and loss reserves	$	9,509	$	10,177
Accident and health benefit and loss reserves	4,151		4,144
Life and annuity benefit and loss reserves	34,708		34,731
Unearned premiums	33,161		31,166
Policy and contract claims	1,222		1,309
Other policyholder funds	1,353		1,342
Short-term notes payable and current portion of long-term debt	500		500
Long-term debt	13,180		13,177
Other liabilities	9,001		8,628
Total Liabilities	106,785		105,174
Contingencies
Shareholders' equity
Common stock	2,533		2,533
Additional paid-in capital	5,626		5,626
Accumulated other comprehensive income	2,439		3,585
Retained earnings	34,235		33,665
Treasury stock, at cost	(43)		(43)
Total Shareholders' Equity	44,790		45,366
Total Liabilities and Shareholders' Equity	$	151,575	$	150,540

The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

5

THE NATIONAL SECURITY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

($ in thousands, except per share)	Three months ended March 31,
	2021		2020
REVENUES
Net premiums earned	$	15,062	$	14,955
Net investment income	804		964
Investment gains (losses)	310		(990)
Other income	136		145
Total Revenues	16,312		15,074
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits and settlement expenses	9,303		10,583
Amortization of deferred policy acquisition costs	971		1,065
Commissions	2,136		2,075
General and administrative expenses	2,304		1,394
Taxes, licenses and fees	536		721
Interest expense	138		261
Total Benefits, Losses and Expenses	15,388		16,099
Income (Loss) Before Income Taxes	924		(1,025)
INCOME TAX EXPENSE (BENEFIT)
Current	(32)		(53)
Deferred	234		(112)
	202		(165)
Net Income (Loss)	$	722	$	(860)
INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED	$	0.29	$	(0.34)
DIVIDENDS DECLARED PER SHARE	$	0.06	$	0.06

The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

6

THE NATIONAL SECURITY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

($ in thousands)	Three months ended March 31,
	2021		2020
Net income (loss)	$	722	$	(860)
Other comprehensive income (loss), net of tax
Changes in:
Unrealized losses on securities, net of reclassification adjustment of $— and $(92) for 2021 and 2020, respectively	(1,635)		(1,940)
Unrealized gain (loss) on interest rate swap	489		(545)
Other comprehensive loss, net of tax	(1,146)		(2,485)
Comprehensive loss	$	(424)	$	(3,345)

The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

7

THE NATIONAL SECURITY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

($ in thousands)	Total		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock		Additional Paid-in Capital		Treasury Stock
Balance at December 31, 2020	$	45,366	$	33,665	$	3,585	$	2,533	$	5,626	$	(43)
Comprehensive loss:
Net income for March 31, 2021	722		722		—		—		—		—
Other comprehensive loss (net of tax)	(1,146)		—		(1,146)		—		—		—
Cash dividends	(152)		(152)		—		—		—		—
Balance at March 31, 2021	$	44,790	$	34,235	$	2,439	$	2,533	$	5,626	$	(43)

($ in thousands)	Total		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock		Additional Paid-in Capital		Treasury Stock
Balance at December 31, 2019	$	53,461	$	42,891	$	2,443	$	2,532	$	5,602	$	(7)
Common stock reacquired	(6)		—		—		—		—		(6)
Comprehensive loss:
Net loss for March 31, 2020	(860)		(860)		—		—		—		—
Other comprehensive loss (net of tax)	(2,485)		—		(2,485)		—		—		—
Cash dividends	(152)		(152)		—		—		—		—
Balance at March 31, 2020	$	49,958	$	41,879	$	(42)	$	2,532	$	5,602	$	(13)

The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

8

THE NATIONAL SECURITY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

($ in thousands)	Three months ended March 31,
	2021		2020
Cash Flows from Operating Activities
Net income (loss)	$	722	$	(860)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense and amortization/accretion, net	51		69
Net (gains) losses on investments	(310)		990
Deferred income taxes	234		(112)
Amortization of deferred policy acquisition costs	971		1,065
Changes in assets and liabilities:
Change in receivable for securities sold	(42)		54
Change in accrued investment income	(105)		(50)
Change in reinsurance recoverable	3,857		—
Policy acquisition costs deferred	(947)		(924)
Change in accrued income taxes	(32)		(53)
Change in net policy liabilities and claims	(168)		(306)
Change in other assets/liabilities, net	742		(800)
Other, net	3		(1)
Net cash provided by (used in) operating activities	4,976		(928)
Cash Flows from Investing Activities
Purchase of:
Available-for-sale securities	(12,645)		(9,926)
Property and equipment	(3)		(25)
Proceeds from sale or maturities of:
Held-to-maturity securities	101		45
Available-for-sale securities	5,031		5,076
Real estate held for investment	—		2
Other invested assets, net	36		(17)
Net cash used in investing activities	(7,480)		(4,845)
Cash Flows from Financing Activities
Change in other policyholder funds	11		(15)
Dividends paid	(152)		(152)
Net cash used in financing activities	(141)		(167)
Net change in cash and cash equivalents	(2,645)		(5,940)
Cash and cash equivalents, beginning of period	19,887		11,809
Cash and cash equivalents, end of period	$	17,242	$	5,869

The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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Table of Contents

THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

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).  The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).  In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the condensed consolidated financial statements have been included. All significant intercompany transactions and accounts have been eliminated in the condensed consolidated financial statements. The financial information presented herein should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which includes information and disclosures not presented herein.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in these condensed consolidated financial statements are reserves for future life insurance policy benefits, liabilities for losses and loss adjustment expenses, reinsurance recoverable associated with 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 the estimates used in preparing these condensed consolidated financial statements.

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 2,530,370 at March 31, 2021 and 2,530,783 at March 31, 2020. The Company did not have any dilutive securities as of March 31, 2021 and 2020.

Concentration of Credit Risk

The Company maintains cash balances which are generally held in non-interest bearing demand deposit accounts subject to FDIC insured limits of $250,000 per entity. At March 31, 2021, the net amount exceeding FDIC insured limits was $6,813,000 at three financial institutions. The Company has not experienced any losses in such accounts. Management of the Company reviews financial information of financial institutions 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 March 31, 2021, the single largest balance due from one agent totaled $497,000.

Reinsurance contracts do not relieve the Company of its obligations to policyholders. A failure of a reinsurer to meet its obligation could result in losses to the insurance subsidiaries. Allowances for losses on reinsurance recoverables are established if amounts are believed to be uncollectible. At March 31, 2021 and December 31, 2020, 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 March 31, 2021, management does not believe the Company is exposed to any significant credit risk related to its reinsurance program.

Accounting Changes Not Yet Adopted

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (FASB) issued guidance that provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the

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Table of Contents

THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The Company has exposure to LIBOR based financial instruments through its subordinated debentures. The contracts with respect to these borrowings contain alternative reference rates that would automatically take effect upon the phasing out of LIBOR and would not materially change the liability exposure. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is evaluating the optional expedients and exceptions in the guidance but does not expect the adoption of this guidance to have a material impact on its financial position or results of operations.

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued guidance to improve the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The guidance improves timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to discount future cash flows. The guidance will simplify and improve accounting for certain market-based options or guarantees associated with deposit type contracts and simplify the amortization of deferred policy acquisition costs. The guidance also introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures. The guidance is effective for fiscal years beginning after December 15, 2024 and interim periods within those fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance. Due to the nature and extent of the changes required to the Company’s life insurance operations, the adoption of this standard is expected to have a material impact on the consolidated financial statements.

Financial Instruments - Credit Losses

In June 2016, the FASB issued guidance that replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The FASB released additional guidance in November 2018 that provides scope clarification. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those years. The Company does not expect the adoption to have a material impact on its financial position or results of operations.

Recently Adopted Accounting Standards

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued guidance to simplify the accounting for income taxes. The guidance removes certain exceptions to general principles in the income tax guidance and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020. The Company adopted this guidance on January 1, 2021. The adoption of this guidance did not have a material impact on its financial position or results of operations.

NOTE 2 – VARIABLE INTEREST ENTITIES

The Company holds passive interests in limited partnerships that are considered to be Variable Interest Entities (VIE) under the provisions of ASC 810 Consolidation. The Company is not the primary beneficiary of the entities and is not required to consolidate under ASC 810. The entities are private placement investment funds formed for the purpose of investing in private equity investments. The Company owns less than 1% of the limited partnerships. The carrying value of the investments totals $472,000 at March 31, 2021 ($460,000 at December 31, 2020) 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

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

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 $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 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 of 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.

NOTE 3 – INVESTMENTS

Our investment in available-for-sale securities, which are reported at fair value, includes fixed maturity securities and equity securities. Net unrealized gains or losses on fixed maturities are reported after-tax as a component of other comprehensive income. Changes in fair value of equity securities are reported in investment gains/losses as a component of net income.

The amortized cost and aggregate fair values of investments in available-for-sale securities as of March 31, 2021 are as follows:

($ in thousands) Available-for-sale securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government corporations and agencies	$	5,861	$	251	$	72	$	6,040
Agency mortgage backed securities	19,979		598		219		20,358
Asset backed securities	8,199		158		19		8,338
Private label mortgage backed securities	1,795		42		19		1,818
Corporate bonds	41,212		2,814		320		43,706
States, municipalities and political subdivisions	7,334		96		221		7,209
Total Fixed Maturities	84,380		3,959		870		87,469
Equity securities	1,761		2,835		—		4,596
Total	$	86,141	$	6,794	$	870	$	92,065

The amortized cost and aggregate fair values of investments in held-to-maturity securities as of March 31, 2021 are as follows:

($ in thousands) Held-to-maturity securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Agency mortgage backed securities	$	768	$	67	$	—	$	835
Total	$	768	$	67	$	—	$	835

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

The amortized cost and aggregate fair values of investments in available-for-sale securities as of December 31, 2020 are as follows:

($ in thousands) Available-for-sale securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government corporations and agencies	$	4,300	$	323	$	9	$	4,614
Agency mortgage backed securities	19,773		919		63		20,629
Asset backed securities	8,233		137		27		8,343
Private label mortgage backed securities	1,418		50		55		1,413
Corporate bonds	35,930		3,771		50		39,651
States, municipalities and political subdivisions	6,587		189		27		6,749
Total Fixed Maturities	76,241		5,389		231		81,399
Equity securities	1,918		2,832		—		4,750
Total	$	78,159	$	8,221	$	231	$	86,149

The amortized cost and aggregate fair values of investments in held-to-maturity securities as of December 31, 2020 are as follows:

($ in thousands) Held-to-maturity securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Agency mortgage backed securities	$	873	$	73	$	—	$	946
Total	$	873	$	73	$	—	$	946

The amortized cost and aggregate fair value of debt securities at March 31, 2021, by contractual maturity, are presented in the following table.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

($ in thousands)	Amortized Cost		Fair Value
Available-for-sale securities:
Due after one year through five years	$	21,645	$	22,766
Due after five years through ten years	23,899		24,934
Due after ten years	38,836		39,769
Total	$	84,380	$	87,469
Held-to-maturity securities:
Due after one year through five years	$	15	$	15
Due after five years through ten years	3		4
Due after ten years	750		816
Total	$	768	$	835

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

A summary of securities available-for-sale with unrealized losses as of March 31, 2021, 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:

($ in thousands)	Less than 12 months				12 months or longer				Total
March 31, 2021	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Total Securities in a Loss Position
U.S. Government corporations and agencies	$	2,167	$	72	$	—	$	—	$	2,167	$	72	3
Agency mortgage backed securities	7,295		216		1		3		7,296		219		16
Asset backed securities	3,788		19		—		—		3,788		19		5
Private label mortgage backed securities	—		—		832		19		832		19		1
Corporate bonds	6,497		319		499		1		6,996		320		13
States, municipalities and political subdivisions	3,516		221		—		—		3,516		221		5
	$	23,263	$	847	$	1,332	$	23	$	24,595	$	870	43

There were no securities held-to-maturity with unrealized losses as of March 31, 2021.

A summary of securities available-for-sale with unrealized losses as of December 31, 2020, 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:

($ in thousands)	Less than 12 months				12 months or longer				Total
December 31, 2020	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Total Securities in a Loss Position
U.S. Government corporations and agencies	$	666	$	9	$	—	$	—	$	666	$	9	1
Agency mortgage backed securities	2,264		56		2		7		2,266		63		8
Asset backed securities	1,737		27		—		—		1,737		27		2
Private label mortgage backed securities	891		55		—		—		891		55		1
Corporate bonds	2,467		45		495		5		2,962		50		5
States, municipalities and political subdivisions	1,713		27		—		—		1,713		27		3
	$	9,738	$	219	$	497	$	12	$	10,235	$	231	20

There were no securities held-to-maturity with unrealized losses as of December 31, 2020.

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

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

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 in the fixed maturity investment portfolio. The Company has no material exposure to sub-prime mortgage loans and approximately 6% of the fixed income investment portfolio is rated below investment grade.  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 three months ended March 31, 2021, the Company realized no other-than-temporary impairments. For the year ended December 31, 2020, the Company realized $180,000 other-than-temporary impairments. At March 31, 2021, the three largest losses not realized as an impairment in the fixed maturity portfolio totaled $104,000, $80,000 and $75,000. After evaluation by management, it was determined that each of these losses were driven by changes in market interest rates. Management currently has the intent and ability to hold these investments until recovery so no other-than-temporary impairments were recognized. At December 31, 2020, the three largest losses not realized as an impairment in the fixed maturity portfolio totaled $55,000, $37,000 and $27,000.

Major categories of investment income are summarized as follows:

($ in thousands)	Three months ended March 31,
	2021		2020
Fixed maturities	$	757	$	916
Equity securities	49		41
Mortgage loans on real estate	2		2
Investment real estate	—		1
Policy loans	34		36
Other	2		4
	844		1,000
Less: Investment expenses	40		36
Net investment income	$	804	$	964

Major categories of investment gains and losses are summarized as follows:

($ in thousands)	Three months ended March 31,
	2021		2020
Realized gains on fixed maturities	$	—	$	121
Realized gains (losses) on equity securities	357		(25)
Gains on trading securities	7		—
Change in fair value of equity securities	3		(599)
Change in surrender value of company owned life insurance	(57)		(251)
Other gains principally real estate	—		2
Other-than-temporary impairments	—		(238)
Net investment gains (losses)	$	310	$	(990)

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

An analysis of the net change in unrealized gains (losses) on available-for-sale securities follows:

($ in thousands)	March 31, 2021		March 31, 2020
Fixed maturities	$	(2,069)	$	(2,456)
Deferred income tax	434		516
Change in net unrealized gains on available-for-sale securities	$	(1,635)	$	(1,940)

NOTE 4 – FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

Our available-for-sale securities consists of fixed maturity and equity securities which are recorded at fair value in the accompanying condensed consolidated balance sheets.  

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 with 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 floating-rate notes, corporate bonds, and municipal bonds.

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

Assets/Liabilities Measured at Fair Value on a Recurring Basis

Financial assets measured at fair value on a recurring basis as of March 31, 2021 are summarized in the following table by the type of inputs applicable to the fair value measurements:

($ in thousands)	Fair Value Measurements at Reporting Date Using
Description	Total		Level 1		Level 2		Level 3
Financial Assets
Fixed maturities available-for-sale
U.S. Government corporations and agencies	$	6,040	$	6,040	$	—	$	—
Agency mortgage backed securities	20,358		13,514		6,844		—
Asset backed securities	8,338		3,167		5,171		—
Corporate bonds	43,706		—		43,706		—
Private label asset backed securities	1,818		832		986		—
States, municipalities and political subdivisions	7,209		—		7,209		—
Trading securities	176		176		—		—
Equity securities	4,596		3,100		—		1,496
Total Financial Assets	$	92,241	$	26,829	$	63,916	$	1,496

The methods and assumptions the Company uses to estimate the fair value of assets and liabilities measured at fair value on a recurring basis are summarized below.

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 quoted market prices in active markets for identical assets are reflected within Level 1 while 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.

As of March 31, 2021, Level 3 fair value measurements of assets include $1,496,000 of equity securities in a local community bank whose value is based on an evaluation of the financial statements of the entity. The Company does not develop the unobservable inputs used in measuring fair value.

As of March 31, 2021, there were no liabilities with Level 3 fair value measurements. In 2020, liabilities with Level 3 fair value measurements included various interest rate swap agreements whose value was based on analysis provided by a third party that utilizes financial modeling tools and assumptions on interest and other factors. The Company does not develop the unobservable inputs used in measuring fair value. Additional information regarding the interest rate swap agreements is provided in Note 7.

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

The table below presents a reconciliation for all assets and for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2021:

($ in thousands) For the three months ended March 31, 2021	Equity Securities		Interest Rate Swap
Beginning balance	$	1,502	$	(619)
Total gains or losses (realized and unrealized):
Included in earnings	(6)		—
Included in other comprehensive income	—		619
Purchases:	—		—
Sales:	—		—
Issuances:	—		—
Settlements:	—		—
Transfers in/(out) of Level 3	—		—
Ending balance	$	1,496	$	—
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 March 31, 2021:	$	(6)	$	—

For the three months ended March 31, 2021, there were no assets or liabilities measured at fair values on a nonrecurring basis.

Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 are summarized in the following table by the type of inputs applicable to the fair value measurements:

($ in thousands)	Fair Value Measurements at Reporting Date Using
Description	Total		Level 1		Level 2		Level 3
Financial Assets
Fixed maturities available-for-sale
U.S. Government corporations and agencies	$	4,614	$	4,614	$	—	$	—
Agency mortgage backed securities	20,629		12,044		8,585		—
Asset backed securities	8,343		2,343		6,000		—
Corporate bonds	39,651		—		39,651		—
Private label asset backed securities	1,413		891		522		—
States, municipalities and political subdivisions	6,749		—		6,749		—
Trading securities	169		169		—		—
Equity securities available-for-sale	4,750		3,248		—		1,502
Total Financial Assets	$	86,318	$	23,309	$	61,507	$	1,502
Financial Liabilities
Interest rate swap	$	(619)	$	—	$	—	$	(619)
Total Financial Liabilities	$	(619)	$	—	$	—	$	(619)

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

The table below presents a reconciliation for all assets and for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2020:

($ in thousands) For the year ended December 31, 2020	Equity Securities Available-for-Sale		Interest Rate Swap
Beginning balance	$	1,315	$	(65)
Total gains or losses (realized and unrealized):
Included in earnings	187		—
Included in other comprehensive income	—		(554)
Purchases:	—		—
Sales:	—		—
Issuances:	—		—
Settlements:	—		—
Transfers in/(out) of Level 3	—		—
Ending balance	$	1,502	$	(619)
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, 2020:	$	187	$	—

For the year ended December 31, 2020, there were no assets or liabilities measured at fair values on a nonrecurring basis.

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.  See Note 7 for additional information about the interest rate swap agreements.

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.

Fixed maturities held-to-maturity — the carrying amount is amortized cost; the fair values of the Company’s public fixed maturity securities that are classified as held-to-maturity are generally based on prices obtained from independent pricing services.

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.

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

The carrying amount and estimated fair value of the Company’s financial instruments as of March 31, 2021 and December 31, 2020 are as follows:

($ in thousands)	March 31, 2021				December 31, 2020
Assets and related instruments	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Held-to-maturity securities	$	768	$	835	$	873	$	946
Mortgage loans	144		144		145		145
Policy loans	1,811		1,811		1,846		1,846
Company owned life insurance	4,941		4,941		4,998		4,998
Other invested assets	1,921		1,921		2,033		2,033
Liabilities and related instruments
Other policyholder funds	1,353		1,353		1,342		1,342
Short-term notes payable and current portion of long-term debt	500		500		500		500
Long-term debt	13,180		13,180		13,177		13,177

NOTE 5 – PROPERTY AND EQUIPMENT

Major categories of property and equipment are summarized as follows:

($ in thousands)	March 31, 2021		December 31, 2020
Building and improvements	$	3,491	$	3,491
Electronic data processing equipment	1,502		1,498
Furniture and fixtures	483		483
	5,476		5,472
Less accumulated depreciation	3,925		3,900
Property and equipment, net	$	1,551	$	1,572

Depreciation expense for the three months ended March 31, 2021 was $24,000 ($109,000 for the year ended December 31, 2020).

NOTE 6 – INCOME TAXES

The Company recognizes tax-related interest and penalties as a component of tax expense.  The Company files income tax returns in the U.S. federal jurisdiction and various states.  The Company is not subject to examinations by authorities related to its U.S. federal or state income tax filings for years prior to 2015. Tax returns have been filed through the year 2019.

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. Management believes that, based on its historical pattern of taxable income, the Company will produce sufficient income in the future to realize its deferred tax assets. The Company recognized net deferred tax asset positions of $776,000 at March 31, 2021 and $706,000 at December 31, 2020.

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

The tax effect of significant differences representing deferred tax assets and liabilities are as follows:

($ in thousands)	As of March 31,  2021		As of December 31,  2020
General expenses	$	1,456	$	1,448
Unearned premiums	1,395		1,313
Claims liabilities	685		698
NOL carryforward	296		632
Impairment on real estate owned	147		147
Unrealized loss on interest rate swaps	—		130
Deferred tax assets	3,979		4,368
Unrealized gains on trading securities	(1)		(3)
Depreciation	(93)		(95)
Deferred policy acquisition costs	(1,551)		(1,555)
Pre-1984 policyholder surplus account	(314)		(331)
Unrealized gains on securities available-for-sale	(649)		(1,083)
Unrealized gains on equity securities	(595)		(595)
Deferred tax liabilities	(3,203)		(3,662)
Net deferred tax asset	$	776	$	706

The appropriate income tax effects of changes in temporary differences are as follows:

($ in thousands)	Three months ended March 31,
	2021		2020
Deferred policy acquisition costs	$	(4)	$	(30)
Other-than-temporary impairments	—		(40)
Trading securities	(2)		(6)
Unearned premiums	(82)		(30)
General expenses	(8)		108
Depreciation	(2)		(2)
Claims liabilities	13		30
Impact of repeal of special provision on pre-1984 policyholder surplus	(17)		(16)
NOL carryforward	336		—
Unrealized gains (losses) on equity securities	—		(126)
Deferred income tax expense (benefit)	$	234	$	(112)

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

Total income tax expense (benefit) varies from amounts computed by applying current federal income tax rates to income or loss before income taxes.  The reasons for these differences and the approximate tax effects are as follows:

	Three months ended March 31,
	2021		2020
Federal income tax rate applied to pre-tax income (loss)	21.0	%	21.0	%
Dividends received deduction and tax-exempt interest	(0.3)	%	0.3	%
Company owned life insurance	1.3	%	(5.1)	%
Other, net	(0.1)	%	(0.1)	%
Effective federal income tax rate	21.9	%	16.1	%

NOTE 7 – NOTES PAYABLE AND LONG-TERM DEBT

Short-term debt and current portion of long-term debt consisted of the following as of March 31, 2021 and December 31, 2020:

($ in thousands)	March 31,		December 31,
	2021		2020
Current portion of installment note payable due in November with variable interest rate equal to the WSJ prime rate plus 0.5%, with a 4.75% floor. Unsecured.	$	500	$	500
	$	500	$	500

Long-term debt consisted of the following as of March 31, 2021 and December 31, 2020:

($ in thousands)	March 31,		December 31,
	2021		2020
Promissory note with variable interest rate equal to the WSJ prime rate plus 0.5%, with a 4.75% floor; maturity November 2023. Annual installment payments beginning November 2020. Unsecured.	$	1,000	$	1,000
Subordinated debentures issued on December 15, 2005 with floating rate interest equal to 3-Month LIBOR plus 375 basis points; net of $138,000 in debt issuance cost ($140,000 in 2020); maturity December 15, 2035.  Interest payable quarterly.  Redeemable prior to maturity. Unsecured.	9,141		9,139
Subordinated debentures issued on June 21, 2007 with floating rate interest equal to 3-Month LIBOR plus 340 basis points; net of $54,000 in debt issuance cost ($55,000 in 2020); maturity June 15, 2037. Interest payable quarterly.  Redeemable prior to maturity. Unsecured.	3,039		3,038
	$	13,180	$	13,177

On February 26, 2020, the Company entered into a forward swap effective March 16, 2020, with a notional amount of $3,000,000 and designated the swap as a hedge against changes in cash flows attributable to changes in the benchmark interest rate (LIBOR) associated with the subordinated debentures issued June 21, 2007. Quarterly, commencing June 15, 2020, under the terms of the forward swap, the Company pays interest at a fixed rate of 4.93% until March 15, 2030. On February 26, 2020, the Company entered into a forward swap with a notional amount of $9,000,000 effective March 16, 2020, which hedges against changes in cash flows following the termination of the fixed rate period. Quarterly, commencing June 15, 2020 under the terms of the forward swap, the Company pays interest at a fixed rate of 5.28% until March 15, 2030. These swaps were terminated on March 22, 2021. At December 31, 2020, the swaps had fair values of $155,000 (liability) and $464,000 (liability), respectively,

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

for a total liability of $619,000. The December 31, 2020 swap liability is reported as a component of other liabilities on the condensed consolidated balance sheets.  A net valuation gain of $489,000 (net of tax) is included in accumulated other comprehensive income related to the swap agreements at March 31, 2021.  A net valuation loss of $438,000 (net of tax) was included in accumulated other comprehensive income related to the swap at December 31, 2020.

The Company’s interest rate swaps included provisions requiring the Company to post collateral when the derivative is in a net liability position.  At December 31, 2020, the Company had securities on deposit with fair market values of $957,000 (all of which was posted as collateral).

NOTE 8 – POLICY AND CLAIM RESERVES

The Company regularly updates its reserve estimates as new information becomes available and events occur that may impact the resolution of unsettled claims. Reserve estimation can be an inherently uncertain process and reserve estimates can be revised up or down depending on changes in circumstances. Changes in prior years' reserve estimates are reflected in the results of operations in the year such changes are determined.

The following table is a reconciliation of beginning and ending property and casualty reserve balances for claims and claim adjustment expense:

($ in thousands)	Three months ended March 31,
	2021		2020
Summary of claims and claim adjustment expense reserves
Balance, beginning of year	$	10,177	$	7,199
Less reinsurance recoverable on unpaid losses	3,321		249
Net balances at beginning of year	6,856		6,950
Net losses:
Provision for claims and claim adjustment expenses for claims arising in current year	9,034		9,622
Estimated claims and claim adjustment expenses for claims arising in prior years	(1,078)		(32)
Total increases	7,956		9,590
Claims and claim adjustment expense payments for claims arising in:
Current year	5,280		6,856
Prior years	2,416		3,460
Total payments	7,696		10,316
Net balance at end of period	7,116		6,224
Plus reinsurance recoverable on unpaid losses	2,393		241
Claims and claim adjustment expense reserves at end of period	$	9,509	$	6,465

Claims and claim adjustment expense reserves before reinsurance recoverable at March 31, 2021 were up compared to the same period last year due to an increase in hurricane activity in the third and fourth quarter of 2020. The most significant event contributing to remaining claim reserves at December 31, 2020 was Hurricane Zeta which occurred in late October. The estimate for claims arising in prior years was reduced $1,098,000 in 2021 (reduced $32,000 in 2020) due to favorable loss development during the year on claims arising in prior years.

Accident and Health Claim Reserves

The Company, through its life insurance subsidiary, underwrites a limited number of short duration accident and health contracts. These claims are typically settled in three years or less and the reserve for unpaid claims totaled $450,000 at March 31, 2021 ($426,000 at December 31, 2020). These claims are a component of policy and contract claims which totaled $1,222,000 at March 31, 2021 ($1,309,000 at December 31, 2020).

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

NOTE 9 – REINSURANCE

The Company's insurance operations utilize reinsurance in the risk management process in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and effect business-sharing arrangements. Life reinsurance is placed through yearly renewable term coverage. Property and casualty reinsurance is placed on an excess of loss basis to cover losses from catastrophe events. Reinsurance contracts do not relieve the insurance subsidiaries of the obligation indemnify policyholders with respect to the underlying insurance contracts. Failure of re-insurers to honor their obligations could result in credit related 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 or have adverse impacts on regulatory capital levels 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 and tropical storms.

Under the catastrophe reinsurance program, the Company retains the first $4,000,000 in losses from the first catastrophe event and $2,000,000 from a second catastrophe event.  

Catastrophe reinsurance coverage is maintained in three layers as follows:

Layer	Reinsurers' Limits of Liability
First Layer	100% of $13,500,000 in excess of $4,000,000 retention
Second Layer	100% of $25,000,000 in excess of $17,500,000
Third Layer	100% of $30,000,000 in excess of $42,500,000
Catastrophe Aggregate	100% of $2,000,000 in excess of $2,000,000 aggregate annual deductible

Each reinsurance layer covers events occurring from January 1 through December 31 of the contract year.  All significant reinsurance companies under the program carry A.M. Best ratings of A- (Excellent) or higher, or equivalent ratings.

The Company's catastrophe reinsurance contract allows for one reinstatement. The Company maintains reinstatement premium protection (RPP) to cover reinstatement premiums incurred. The RPP further reduces risk from a major catastrophe and serves to protect the Company's capital position by reducing the modeled 100 year event net cost.

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.  Cost is amortized over the reinsurance contract period.

At March 31, 2021, the largest reinsurance recoverable of a single reinsurer was $269,000 ($1,263,000 at December 31, 2020). Amounts reported as ceded incurred losses were related to development of losses from prior year catastrophes.

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

NOTE 10 – 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 March 31, 2021 amounted to $46,000 (also $46,000 in 2020). The Company contributes dollar-for-dollar matching contributions up to 5% of compensation subject to government limits.

The Company established a non-qualified deferred compensation plan under which Company directors are allowed to defer all or a portion of directors' fees into various investment options. A supplemental executive retirement plan (SERP) 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 related to the non-qualified deferred compensation plans for the three months ended March 31, 2021 and 2020 amounted to an approximate increase of $24,000 and a decrease of $361,000 in employee benefit related expenses, respectively.

The Company and its subsidiaries established an Employee Stock Ownership Plan (ESOP) in January 2010, to enable eligible employees to acquire a proprietary interest in the Company's common stock and to provide retirement and other benefits to such employees. There were no contributions during the three months ended March 31, 2021 and contributions of $100,000 were made during the three months ended March 31, 2020. All contributions were made in cash for purchase of Company shares in the open market. The Company has not allocated newly issued shares directly to the plan and the plan has no debt.

NOTE 11 – SHAREHOLDERS' EQUITY

During the three months ended March 31, 2021 and year ended December 31, 2020, changes in shareholders' equity consisted of net income of $722,000 and a net loss of $8,619,000, respectively; dividends paid of $152,000 in 2021 and $607,000 in 2020; an other comprehensive loss of $1,146,000 in 2021 and other comprehensive income of $1,142,000 in 2020; common stock issued of $25,000 in 2020; and the purchase of treasury shares of $36,000 in 2020.  Other comprehensive income consisted of changes in accumulated unrealized gains/losses on securities available-for-sale and changes in accumulated unrealized losses on interest rate swaps.

Preferred Stock

Preferred Stock may be issued in one or more series as shall from time to time be determined and authorized by the Board of Directors. The directors may make specific provisions regarding (a) the voting rights, if any (b) whether such dividends are to be cumulative or noncumulative (c) the redemption provisions, if any (d) participating rights, if any (e) any sinking fund or other retirement provisions (f) dividend rates (g) the number of shares of such series and (h) liquidation preference. There is currently no Preferred Stock issued or outstanding.

Common Stock

The holders of the Class A Common Stock will have one-twentieth of one vote per share, and the holders of the common stock will have one vote per share. There is currently no Class A Common Stock issued or outstanding.

In the event of any liquidation, dissolution or distribution of the assets of the Company remaining after the payments to the holders of the Preferred Stock of the full preferential amounts to which they may be entitled as provided in the resolution or resolutions creating any series thereof, the remaining assets of the Company shall be divided and distributed among the holders of both classes of common stock, except as may otherwise be provided in any such resolution or resolutions.

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

The table below provides information regarding the Company's preferred and common stock as of March 31, 2021 and December 31, 2020:

	March 31, 2021
	Authorized	Issued	Treasury	Outstanding
Preferred Stock, $1 par value	500,000	—	—	—
Class A Common Stock, $1 par value	2,000,000	—	—	—
Common Stock, $1 par value	3,000,000	2,533,315	2,945	2,530,370

	December 31, 2020
	Authorized	Issued	Treasury	Outstanding
Preferred Stock, $1 par value	500,000	—	—	—
Class A Common Stock, $1 par value	2,000,000	—	—	—
Common Stock, $1 par value	3,000,000	2,533,315	2,945	2,530,370

Treasury Stock

Treasury stock may be purchased pursuant to the share repurchase plan authorized by the Board of Directors in May 2020. Effective June 1, 2020, the Board authorized the repurchase of up to $500,000 of the Company's outstanding common stock. The plan expires May 31, 2021.

During the three months ended March 31, 2021, the Company repurchased no shares of common stock. During the year ended December 31, 2020, the Company purchased 2,509 shares of common stock which were placed in treasury stock.

NOTE 12 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) ("AOCI") includes certain items that are reported directly within a separate component of shareholders' equity. The following table presents changes in AOCI balances:

($ in thousands)	Three months ended March 31,
	2021		2020
Unrealized Gains (Losses) on Cash Flow Hedges
Balance at beginning of period	$	(489)	$	(51)
Other comprehensive income (loss) for period:
Other comprehensive gain (loss) before reclassifications	489		(545)
Net current period other comprehensive income (loss)	489		(545)
Balance at end of period	$	—	$	(596)
Unrealized Gains (Losses) on Available-for-Sale Securities
Balance at beginning of period	$	4,074	$	2,494
Other comprehensive loss for period:
Other comprehensive loss before reclassifications	(1,635)		(2,032)
Amounts reclassified from accumulated other comprehensive loss	—		92
Net current period other comprehensive loss	(1,635)		(1,940)
Balance at end of period	$	2,439	$	554
Total Accumulated Other Comprehensive Income (Loss) at end of period	$	2,439	$	(42)

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

The following table presents the amounts reclassified out of AOCI for the three months ended March 31, 2021:

($ in thousands) 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	$	—	Net investment gains
	—		Total before tax
	—		Tax (expense) or benefit
	$	—	Net of Tax

The following table presents the amounts reclassified out of AOCI for the three months ended March 31, 2020:

($ in thousands) 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	$	(117)	Net investment losses
	(117)		Total before tax
	25		Tax (expense) or benefit
	$	(92)	Net of Tax

NOTE 13 – SEGMENTS

The Company’s property and casualty insurance operations comprise one business segment. The property and casualty insurance segment primarily underwrites home insurance coverage with primary lines of business consisting of dwelling fire and extended coverage, homeowners (including mobile homeowners) and other liability. 

Management organizes the business utilizing a niche strategy focusing on lower valued dwellings and older homes that can be difficult to insure in the standard insurance market.  Our chief decision makers (Chief Executive Officer, Chief Financial Officer and subsidiary President) review results and operating plans making decisions on resource allocations on a company-wide basis.  The Company’s products are primarily produced through independent agents within the states in which we operate.  

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 supplemental accident and health insurance.

Total assets by industry segment at March 31, 2021 and December 31, 2020 are summarized below:

($ in thousands) Assets by industry segment	Total		P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations
March 31, 2021	$	151,575	$	87,641	$	58,208	$	5,726
December 31, 2020	$	150,540	$	85,375	$	59,394	$	5,771

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

Net income (loss) by business segment for the three months ended March 31, 2021 and 2020 is summarized below:

($ in thousands) Three months ended March 31, 2021	P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations		Inter- company Eliminations		Total
REVENUES
Net premiums earned	$	13,672	$	1,390	$	—	$	—	$	15,062
Net investment income	305		622		12		(135)		804
Investment gains	101		203		6		—		310
Other income	136		204		240		(444)		136
	14,214		2,419		258		(579)		16,312
BENEFITS AND EXPENSES
Policyholder benefits paid	7,956		1,447		—		(100)		9,303
Amortization of deferred policy acquisition costs	687		284		—		—		971
Commissions	2,059		77		—		—		2,136
General and administrative expenses	2,071		402		310		(479)		2,304
Taxes, licenses and fees	449		87		—		—		536
Interest expense	—		10		128		—		138
	13,222		2,307		438		(579)		15,388
Income (Loss) Before Income Taxes	992		112		(180)		—		924
INCOME TAX EXPENSE (BENEFIT)	220		23		(41)		—		202
Net Income (Loss)	$	772	$	89	$	(139)	$	—	$	722

($ in thousands) Three months ended March 31, 2020	P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations		Inter-company Eliminations		Total
REVENUES
Net premiums earned	$	13,522	$	1,433	$	—	$	—	$	14,955
Net investment income	425		663		11		(135)		964
Investment losses	(438)		(527)		(25)		—		(990)
Other income	145		258		231		(489)		145
	13,654		1,827		217		(624)		15,074
BENEFITS AND EXPENSES
Policyholder benefits paid	9,591		1,138		—		(146)		10,583
Amortization of deferred policy acquisition costs	681		384		—		—		1,065
Commissions	1,990		85		—		—		2,075
General and administrative expenses	1,821		400		(349)		(478)		1,394
Taxes, licenses and fees	619		102		—		—		721
Interest expense	—		9		252		—		261
	14,702		2,118		(97)		(624)		16,099
Income (Loss) Before Income Taxes	(1,048)		(291)		314		—		(1,025)
INCOME TAX EXPENSE (BENEFIT)	(168)		(62)		65		—		(165)
Net Income (Loss)	$	(880)	$	(229)	$	249	$	—	$	(860)

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

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 months ended March 31, 2021 and 2020, respectively:

($ in thousands)	Three months ended March 31,
	2021		2020
Life, accident and health operations premiums written:
Traditional life insurance	$	1,018	$	1,058
Accident and health insurance	392		407
Gross life, accident and health	1,410		1,465
Reinsurance premium ceded	(43)		(35)
Net life, accident and health premiums written	$	1,367	$	1,430
Property and Casualty operations premiums written:
Dwelling fire & extended coverage	$	11,863	$	10,252
Homeowners (Including mobile homeowners)	5,027		4,835
Other liability	534		579
Gross property and casualty	17,424		15,666
Reinsurance premium ceded	(2,405)		(1,765)
Net property and casualty written	$	15,019	$	13,901
Consolidated gross premiums written	$	18,834	$	17,131
Reinsurance premium ceded	(2,448)		(1,800)
Consolidated net premiums written	$	16,386	$	15,331

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 months ended March 31, 2021 and 2020, respectively:

($ in thousands)	Three months ended March 31,
	2021		2020
Life, accident and health operations premiums earned:
Traditional life insurance	$	1,042	$	1,066
Accident and health insurance	391		402
Gross life, accident and health	1,433		1,468
Reinsurance premium ceded	(43)		(35)
Net life, accident and health premiums earned	$	1,390	$	1,433
Property and Casualty operations premiums earned:
Dwelling fire & extended coverage	$	10,178	$	9,652
Homeowners (Including mobile homeowners)	5,362		5,081
Other liability	537		554
Gross property and casualty	16,077		15,287
Reinsurance premium ceded	(2,405)		(1,765)
Net property and casualty earned	$	13,672	$	13,522
Consolidated gross premiums earned	$	17,510	$	16,755
Reinsurance premium ceded	(2,448)		(1,800)
Consolidated net premiums earned	$	15,062	$	14,955

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2020 AMOUNTS)

NOTE 14 – CONTINGENCIES

In the ordinary course of business, the Company and its subsidiaries are routinely a defendant in or party to pending or threatened legal actions and proceedings related to the conduct of their insurance operations. These suits can involve alleged breaches of contracts, torts, including bad faith and fraud claims based on alleged wrongful or fraudulent acts of the Company's subsidiaries, and other miscellaneous causes of action. It is inherently difficult to predict the outcome of such matters, particularly when the claimant seeks very large or indeterminate damages or when the matters present novel legal theories or involve multiple parties. An accrued liability is established when loss contingencies are both probable and estimable. However, there is potential loss exposure in excess of any accrued amounts. The Company monitors pending matters for further development that could affect the amount of the accrued liability.

The Company's property & casualty subsidiaries had one longstanding action remaining in Texas filed in the aftermath of Hurricane Ike which was favorably resolved in the second quarter of 2020 with no material impact on these consolidated financial statements.

The Company maintains loss and loss adjustment expense reserves on litigated claims that occur in the routine course of business in the insurance operations of the subsidiaries. These reserves are included in the liability for benefit and loss reserves on the balance sheet and include estimates for associated legal costs for individual claims. In addition the Company has a current accrual of $625,000 for legal expenses and third party claimant settlement cost. There are no individual actions not accrued that are deemed material by management based upon an evaluation of information presently available.

NOTE 15 – SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest during the three months ended March 31, 2021 was $169,000 ($248,000 in 2020). There was no cash received or paid from income taxes during the three months ended March 31, 2021. There was no cash received or paid from income taxes during the three months ended March 31, 2020.

NOTE 16 – SUBSEQUENT EVENTS

Management has evaluated subsequent events and their potential effects on these condensed consolidated financial statements through the filing date of this Form 10-Q.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

of The National Security Group, Inc.

Results of Review of Interim Financial Information

We have reviewed the condensed consolidated balance sheet of The National Security Group, Inc. (the Company) as of March 31, 2021, and the related condensed consolidated statements of operations, comprehensive loss, changes in shareholders’ equity and cash flows for the three-month periods ended March 31, 2021 and 2020, and the related notes (collectively referred to as the interim financial statements). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2020, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 19, 2021, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

Basis for Review Results

These interim financial statements are the responsibility of the Company’s management. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

/s/ Warren Averett, LLC

Birmingham, Alabama

May 14, 2021

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of The National Security Group, Inc. (referred to in this document as "we", "our", "us", "Company" or "NSEC") and its subsidiaries. We are a “smaller reporting company” under Securities and Exchange Commission (SEC) regulations and therefore qualify for the scaled disclosure of smaller reporting companies. In general, the same information is required to be disclosed in the management discussion and analysis by smaller reporting companies except that the discussion need only cover the latest two year period and disclosures relating to contractual obligations are not required. In accordance with the scaled disclosure requirements, this discussion covers the three-month periods ended March 31, 2021 and 2020 and should be read in conjunction with the Consolidated Financial Statements and Notes which accompany this report. The financial information presented herein should also be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which includes information and disclosures not presented herein. Please refer to our note regarding forward-looking statements on page 4 of this report.

The National Security Group, Inc. operates in ten states with 63.4% of total premium revenue generated in the states of Alabama, Georgia and Mississippi.  We operate in two business segments summarized as follows:

•The Property and Casualty (P&C) segment is the most significant segment, accounting for 91.8% of gross earned premium in the first quarter of 2021.  The P&C segment operates in the states of Alabama, Arkansas, Georgia, Louisiana, Mississippi, Oklahoma, South Carolina, and Tennessee.  

•The Life segment accounted for 8.2% of gross premium revenue in 2021. The Life segment is licensed to underwrite life and accident and health insurance in Alabama, Florida, Georgia, Mississippi, South Carolina, Tennessee and Texas.

The P&C segment operations are conducted through National Security Fire & Casualty Company (NSFC), a wholly owned subsidiary of the Company organized in 1959, and Omega One Insurance Company (Omega), a wholly owned subsidiary of NSFC organized in 1992. Omega produces no direct written premium and is authorized to underwrite lines of business similar to NSFC; therefore, all references to NSFC or P&C segment in the remainder of this discussion will include the insurance operations of both NSFC and Omega.

The Life segment operations are conducted through National Security Insurance Company (NSIC), a wholly owned subsidiary of the Company organized in 1947. All references to NSIC or life segment in the remainder of this management discussion and analysis will refer to the combined life, accident and health insurance operations.

Our income is principally derived from net underwriting profits and investment income.  Net underwriting profit is principally derived from earned premiums received less claims paid, sales commissions to agents, costs of underwriting and insurance taxes and fees.  Investment income includes interest and dividend income and gains and losses on investment holdings.

All of the insurance subsidiaries are Alabama domiciled insurance companies; therefore, the Alabama Department of Insurance is the primary insurance regulator.  However, each subsidiary is subject to regulation by the respective insurance regulators of each state in which it is licensed to transact business.  Insurance rates charged by each of the insurance subsidiaries are typically subject to review and approval by the insurance department for the respective state in which the rates will apply.

All of our insurance companies have been assigned ratings by A.M. Best Co (Best).  On April 29, 2021, A.M. Best affirmed the Financial Strength Rating (FSR) of B++ (Good) and the Long-Term Issuer Credit Rating (Long-Term ICR) of "bbb" of NSFC. In addition, A.M. Best affirmed the FSR of B+ (Good) and Long-Term ICR of "bbb-" of Omega. The A.M. Best outlook for the ratings was revised from "stable" to "negative" for NSFC and Omega. A.M. Best affirmed the FSR of B++ (Good) and the Long-Term ICR to "bbb" for NSIC. The outlook for the ratings of NSIC was revised from "stable" to "negative". A.M. Best also affirmed the Long-Term ICR of "bb" of the parent holding company, NSEC, with a revised outlook from "stable" to "negative".

The property and casualty subsidiaries have been assigned ratings by Demotech, Inc. On March 30, 2021, Demotech affirmed a Financial Stability Rating of A (Exceptional) for both NSFC and Omega.

32

The earnings in the property and casualty segment have seasonal volatility due to severe storm activity resulting in incurred losses and loss adjustment expenses from hurricane, tornado, wind and hail related insurance claims. These storm systems or other natural disasters are generally classified as catastrophes (referred to as "catastrophe" or "cat" events/losses throughout the remainder of this document) by Property Claim Service (PCS) when an individual event causes $25 million or more in industry wide direct insured losses and affect a significant number of policyholders and insurers.

Information in this discussion is presented in whole dollars rounded to the nearest thousand, except for per share information. Tabular amounts are presented in thousands.

Summary

For the three months ended March 31, 2021, the Company had net income of $722,000, $0.29 income per share, compared to a net loss of $860,000, $0.34 loss per share, for the three months ended March 31, 2020; a quarter over quarter improvement of $1,582,000. Pretax income from operations for the first quarter of 2021 totaled $614,000 compared to a pretax loss from operations of $35,000 in the first quarter of 2020. Results for the first quarter of 2021 were positively impacted by a $1,280,000 decrease in claims and was the primary reason for the $649,000 improvement in pretax income from operations in the first quarter of 2021, compared to the same period in 2020.

For the three months ended March 31, 2021, the Company had investment gains of $310,000 compared to an investment loss of $990,000 for the three months ended March 31, 2020. A primary reason for the increase in first quarter 2021 investment gains, compared to first quarter 2020 investment losses was realized gains on the sale of equity securities totaling $357,000 compared to realized losses on the sale of equity securities totaling $25,000 last year. In addition, an increase in market value of our equity investments held for sale totaled $3,000, in the first quarter of 2021, compared to a decline in market value of equity investments held for sale of $599,000, in the first quarter of 2020.

The Company ended the first quarter of 2021 with claims totaling $9,303,000 compared to $10,583,000 for the same period last year. The P&C segment was the primary source of the decrease with overall claims down $1,280,000 in first quarter 2021 compared to first quarter of 2020. The primary component of the decline was claims reported from weather related events which declined $833,000, in the first quarter of 2021, compared to the same period last year. In addition, reported fire losses were down $270,000 in the first quarter of 2021 compared to the first quarter of 2020.

33

Financial results for the three months ended March 31, 2021 and 2020, based on U.S generally accepted accounting principles, were as follows:

Unaudited Consolidated Financial Summary	Three months ended March 31,
($ in thousands, except per share)	2021		2020
Gross premiums written	$	18,834	$	17,131
Net premiums written	$	16,386	$	15,331
Net premiums earned	$	15,062	$	14,955
Net investment income	804		964
Net investment gains (losses)	310		(990)
Other income	136		145
Total Revenues	16,312		15,074
Policyholder benefits and settlement expenses	9,303		10,583
Amortization of deferred policy acquisition costs	971		1,065
Commissions	2,136		2,075
General and administrative expenses	2,304		1,394
Taxes, licenses and fees	536		721
Interest expense	138		261
Total Benefits, Losses and Expenses	15,388		16,099
Income (Loss) Before Income Taxes	924		(1,025)
Income tax expense (benefit)	202		(165)
Net Income (Loss)	$	722	$	(860)
Income (Loss) Per Common Share	$	0.29	$	(0.34)
Reconciliation of Net Income (Loss) to non-GAAP Measurement
Net income (loss)	$	722	$	(860)
Income tax expense (benefit)	202		(165)
Investment (gains) losses, net	(310)		990
Pretax Income (Loss) From Operations	$	614	$	(35)

We provide a reconciliation of net income to the non-GAAP measurement "pretax income (loss) from operations". The purpose of this reconciliation is to provide investors with information routinely utilized by management in analyzing and comparing the performance of our insurance operations between periods. This information reflects the financial performance of our insurance operations without the impact of investment gains/losses. We typically invest in equity securities with a long-term view. Short-term volatility due to changes in market value of equity securities held for sale, along with realized investment gains/losses on both fixed maturity and equity investments, can mask both the positive or negative performance of our insurance operations from period to period.

Three-month period ended March 31, 2021 compared to three-month period ended March 31, 2020

Premium Revenue:

For the three months ended March 31, 2021, net premiums earned were up $107,000 at $15,062,000 compared to $14,955,000 during the same period last year. The increase in premium revenue was primarily driven by an increase in net earned premium, in the P&C segment, of $150,000 or 1.1%. The increase in P&C segment net earned premium was primarily attributable to a 5.5% increase in gross earned premium in our homeowners program coupled with a 5.4% increase in gross earned premium in our dwelling fire program. The increase in P&C segment gross earned premium was partially offset by a 36.3% increase in reinsurance premium ceded due to an increase in reinsurance costs related to our 2021 catastrophe reinsurance contract renewal. We are implementing rate increases across all of our property insurance offerings to offset the cost of this increase in catastrophe reinsurance.

Gross written premium increased significantly in the first quarter of 2021 compared to the same period last year. Gross written premium for the three months ended March 31, 2021 was $18,834,000 compared to $17,131,000 for

34

the same period last year, an increase of 9.9%. The primary factor contributing to the increase in gross written premium is a re-underwriting project in our P&C subsidiary which began during the fourth quarter of 2020 for policy renewals beginning in January 2021. In order to mitigate the impact of an increase in average claim cost due to inflation associated with increasing cost of home repairs and construction materials, we are currently re-underwriting our book of P&C business. We are placing particular focus on adequacy of property valuation to better reflect an increase in our average claim cost due to increases in repair cost. Through this process of re-underwriting, we will work through substantially all of our annual policy renewals by December 31, 2021. The renewal rate on policies renewing in the first quarter of 2021 was 92.5%, which is in line with our five year average renewal rate. While our policy risk count as of March 31, 2021 is down approximately 3.7% compared to March 31, 2020, P&C segment gross written premium is up 11.2% for the three months ended March 31, 2021 compared to the same period last year reflecting a higher average premium per policy. With the current expanded re-underwriting process just taking effect with first quarter 2021 policy renewals, this increase in written premium is expected to lead to increased earned premium in subsequent quarters of 2021 as the project ramps up.

In addition to the re-underwriting project, we have implemented multiple rate increases to help offset the 29.4% increase in reinsurance costs we incurred with the 2021 renewal of our catastrophe reinsurance. We have focused on implementing rate increases in the states and programs most impacted by the increase in catastrophe reinsurance cost, primarily states with costal/hurricane exposure. With the rising costs of reinsurance taking effect on January 1, 2021, we have worked diligently to incorporate these increases into our rate filings as quickly as possible in 2021. We currently anticipate the completion and implementation of current year rate filings for most of our states and programs by mid-year 2021 with increases taking effect at each annual policy renewal over the subsequent twelve months of renewals in each program.

Investment Gains (Losses):

Investment gains, for the three months ended March 31, 2021, were $310,000 compared to investment losses of $990,000 for the same period last year. The primary reason for the investment gain, in the first quarter of 2021, was a gain on equity securities of $357,000 compared to a loss on equity securities of $25,000 for the same period last year. For the three months ended March 31, 2021, the market value of our equity investments increased $3,000 compared to a decrease in market value of equity investments of $599,000 for the same period last year. Partially offsetting the first quarter of 2021 investment gains was a decrease in value of COLI investments totaling $57,000 compared to a decrease of $251,000 for the same period last year. Investment losses in the first quarter of 2020 were also impacted by other-than-temporary impairments (OTTI) on investment securities of $238,000 while no OTTI was incurred for the three months ended March 31, 2021.

Net Income (Loss):

For the three months ended March 31, 2021, the Company had net income of $722,000, $0.29 income per share, compared to a net loss of $860,000, $0.34 loss per share, for the same period last year. The primary reasons for the first quarter 2021 net income, compared to the first quarter 2020 net loss, was a decrease in property and casualty insured losses coupled with an increase in P&C segment earned premium. The reduction in weather related claims in the P&C segment through March 31, 2021, compared to March 31, 2020, was the primary reason for the decline in claims. The increase in P&C subsidiary premium was primarily driven by the re-underwriting project and rate filing increases discussed previously.

Pretax Income (Loss) from Operations:

For the three months ended March 31, 2021, our pretax income from operations was $614,000 compared to a pretax loss from operations of $35,000 for the three months ended March 31, 2020; an increase of $649,000. As discussed above, a decrease in both weather related claim activity and fire losses in our P&C segment coupled with an increase in premium in our P&C segment were the primary reasons for the income from operations in the first quarter of 2021, compared to the same period last year.

P&C Segment Combined Ratio:

The P&C segment ended the first quarter of 2021 with a GAAP basis combined ratio of 95.8%. Reported catastrophe losses totaled $1,736,000 and added 12.6 percentage points to the combined ratio. In comparison, the P&C segment ended the first quarter of 2020 with a GAAP basis combined ratio of 107.6% with $2,252,000 in reported catastrophe losses increasing the combined ratio by 16.5 percentage points. Non-catastrophe wind and hail losses were down $317,000 for the three months ended March 31, 2021 compared to the same period in 2020. Reported non-catastrophe wind and hail losses, in the first quarter of 2021, totaled $1,293,000 and added 9.4 percentage points to the first quarter 2021 combined ratio. In comparison, non-catastrophe wind and hail losses reported in the first quarter of 2020 totaled $1,610,000 and added 11.8 percentage points to the first quarter 2020

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combined ratio. In addition, reported fire losses were down $270,000 during the first quarter of 2021 compared to the first quarter of 2020. Reported fire losses totaled $3,270,000, for the three months ended March 31, 2021, and added 23.7 percentage points to the 2021 combined ratio. In comparison, in the first quarter of 2020, reported fire losses totaled $3,540,000 and added 25.9 percentage points to the 2020 combined ratio.

Overview - Balance Sheet highlights at March 31, 2021 compared to December 31, 2020

Selected Balance Sheet Highlights	March 31, 2021		December 31, 2020
($ in thousands, except per share)	Unaudited
Invested Assets	$	104,805	$	99,150
Cash	$	17,242	$	19,887
Total Assets	$	151,575	$	150,540
Policy Liabilities	$	84,104	$	82,869
Total Debt	$	13,680	$	13,677
Accumulated Other Comprehensive Income	$	2,439	$	3,585
Shareholders' Equity	$	44,790	$	45,366
Book Value Per Share	$	17.70	$	17.93

Invested Assets:

Invested assets at March 31, 2021 were $104,805,000 compared to $99,150,000 at December 31, 2020; an increase of 5.7%. The increase in invested assets was primarily due to an increase in new investments of positive cash flow from operations and partial re-investment of December 31, 2020 available cash. This was offset by a decline, primarily in market value of available-for-sale fixed maturity investments, of $2,069,000. This decline in market value of fixed maturity investments was primarily driven by an increase in intermediate and long-term market interest rates during the quarter.

Cash:

The Company, primarily through its insurance subsidiaries, had $17,242,000 in cash and cash equivalents at March 31, 2021, compared to $19,887,000 at December 31, 2020. Cash decreased $2,645,000 in the first quarter of 2021 primarily due to the purchase of available-for-sale fixed maturity securities in our P&C subsidiary investment portfolio.

Total Assets:

Total assets at March 31, 2021 were $151,575,000 compared to $150,540,000 at December 31, 2020. Positive cash flow from insurance operations contributed to an increase in purchases of fixed maturity securities. Due to an increase in market interest rates, fixed maturity investments classified as available-for-sale decreased in market value, partially offsetting the increase in new investments in the first quarter of 2021.

Policy Liabilities:

Policy related liabilities were $84,104,000 at March 31, 2021, compared to $82,869,000 at December 31, 2020; an increase of $1,235,000 or 1.5%. The primary reason for the increase in policy liabilities was a $1,995,000 increase in P&C segment unearned premium, in the first quarter of 2021, compared to 2020. The increase in unearned premium was primarily driven by an 11.2% quarter over quarter increase in P&C segment gross written premium in the first quarter of 2021. This increase in gross written premium was primarily due to the impact of increased average policy premium as we began re-underwriting our P&C in-force policies starting with January 1, 2021 renewals.

Debt Outstanding:

Total debt was comparable at March 31, 2021 at $13,680,000 compared to $13,677,000 at December 31, 2020. Our debt is held at the holding company level.

Shareholders' Equity:

Shareholders' equity as of March 31, 2021 was $44,790,000, down $576,000, compared to December 31, 2020 Shareholders' equity of $45,366,000. Book value per share was $17.70 at March 31, 2021, compared to $17.93 per share at December 31, 2020; a decline of 1.3% or $0.23 per share. The primary factors contributing to the decrease in both book value per share and Shareholders' equity were a decrease in accumulated other

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comprehensive income of $1,146,000 and shareholder dividends paid of $152,000. Partially offsetting these decreases was net income of $722,000.

Three Months Ended March 31, 2021 compared to Three Months Ended March 31, 2020

Premium Revenue:

The table below provides earned premium revenue by segment for the three months ended March 31, 2021 and 2020:

($ in thousands)	Three months ended March 31,				Percent
	2021		2020		increase (decrease)
Life, accident and health segment premiums earned:
Traditional life insurance	$	1,042	$	1,066	(2.3)	%
Accident and health insurance	391		402		(2.7)	%
Gross life, accident and health	1,433		1,468		(2.4)	%
Reinsurance premium ceded	(43)		(35)		22.9	%
Net life, accident and health premiums earned	$	1,390	$	1,433	(3.0)	%
Property and Casualty segment premiums earned:
Dwelling fire & extended coverage	$	10,178	$	9,652	5.4	%
Homeowners (Including mobile homeowners)	5,362		5,081		5.5	%
Other liability	537		554		(3.1)	%
Gross property and casualty premium earned	16,077		15,287		5.2	%
Reinsurance premium ceded	(2,405)		(1,765)		36.3	%
Net property and casualty premiums earned	$	13,672	$	13,522	1.1	%
Consolidated gross premiums earned	$	17,510	$	16,755	4.5	%
Reinsurance premium ceded	(2,448)		(1,800)		36.0	%
Consolidated net premiums earned	$	15,062	$	14,955	0.7	%

Consolidated net premium earned was up 0.7% for the quarter ended March 31, 2021, at $15,062,000 compared to $14,955,000 for the same period last year. The increase in net premium earned was due to a 1.1% increase in net premium earned in the P&C segment. The increase in P&C segment net earned premium was primarily attributable to a 5.5% increase in gross earned premium in our homeowners program coupled with a 5.4% increase in gross earned premium in our dwelling fire program. The primary reasons for the increase in P&C segment net earned premium were the re-underwriting project whereby we are re-underwriting our P&C property business during 2021 and the implementation of rate increases across all of our programs. Gross earned premium was offset by a 36.3% increase in reinsurance premium ceded primarily attributable to an increase in reinsurance cost related to our 2021 catastrophe reinsurance contract renewal.

The Company maintains catastrophe reinsurance coverage to mitigate loss exposure from catastrophic events. With our 2021 catastrophe contract placement, our single event catastrophe retention remained unchanged from the prior year at $4 million. In our 2021 contract, we maintained our underlying catastrophe aggregate coverage of $2 million in excess of $2 million with a $2 million aggregate annual deductible. This aggregate coverage effectively lowers our second event retention to $2 million. The catastrophe aggregate cover also has two reinstatements. Also unchanged from last year, we maintain primary catastrophe excess reinsurance covering incurred claims of a single catastrophe event up to $72.5 million. Our primary catastrophe excess reinsurance has a reinstatement provision for one event and covers the cost of a second event up to the same $72.5 million upper limit. In our reinsurance structure, management attempts to limit the impact on pretax earnings of a single modeled 100 year cat event to no more than $4 million (net of reinsurance). It is noted, however, that hurricane models are subject to significant risk and are only a tool to estimate the impact of catastrophe events. The Company also has risk associated with multiple catastrophe events, such as those experienced in 2020, that individually may not exceed our $4 million retention and would not be covered under our catastrophe reinsurance contract. To mitigate the

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impact of these smaller events, we added an additional reinstatement to our catastrophe aggregate coverage for 2021.

To summarize our catastrophe reinsurance structure, under the catastrophe reinsurance program in 2021, the Company retains the first $4 million in losses from a first event (exceeding $4 million in insured losses) and $2 million in losses from a second event.  

Reinsurance coverage is maintained in three layers as follows:

Layer	Reinsurers' Limits of Liability
First Layer	100% of $13,500,000 in excess of $4,000,000 retention
Second Layer	100% of $25,000,000 in excess of $17,500,000
Third Layer	100% of $30,000,000 in excess of $42,500,000
Catastrophe Aggregate	100% of $2,000,000 in excess of $2,000,000

We purchase reinstatement premium protection on our primary catastrophe excess reinsurance (layers one through three above) for one reinstatement. Our catastrophe aggregate coverage is subject to a $2 million aggregate annual deductible and has a contract provision for two reinstatements. Additional details regarding the structure of our 2021 catastrophe reinsurance program can be found in Note 9 to the Condensed Consolidated Financial Statements.

Investment Income:

The table below provides the major categories of investment income, primarily dividend and interest income, for the three months ended March 31, 2021 and 2020:

($ in thousands)	Three months ended March 31,
	2021		2020
Fixed maturities	$	757	$	916
Equity securities	49		41
Mortgage loans on real estate	2		2
Investment real estate	—		1
Policy loans	34		36
Other	2		4
	844		1,000
Less: Investment expenses	40		36
Net investment income	$	804	$	964

For the three months ended March 31, 2021, net investment income was $804,000 compared to $964,000 for the same period in 2020; a decrease of $160,000 or 16.6%. A combination of a decline in our invested assets due to increased catastrophe claim frequency throughout 2020, coupled with lower reinvestment yields on fixed maturity investments, our investment income declined in 2021. While reinvestment rates remain low, investment income should increase moderately on a quarter over quarter basis as we reinvest our current cash balances.

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Investment Gains (Losses):

The table below provides investment gains and losses for the three months ended March 31, 2021 and 2020:

($ in thousands)	Three months ended March 31,
	2021		2020
Realized gains on fixed maturities	$	—	$	121
Realized gains (losses) on equity securities	357		(25)
Gains on trading securities	7		—
Change in fair value of equity securities	3		(599)
Change in surrender value of company owned life insurance	(57)		(251)
Other losses principally real estate	—		2
Other-than-temporary impairments	—		(238)
Net investment gains (losses)	$	310	$	(990)

Net investment gains, for the three months ended March 31, 2021, were $310,000 compared to net investment losses of $990,000 for the same period in 2020; an increase of $1,300,000. A primary reason for the increase in first quarter 2021 investment gains, compared to first quarter 2020 investment losses, was realized gains on the sale of equity securities totaling $357,000 compared to realized losses on equity securities totaling $25,000. In addition, an increase in market value of our equity investments totaled $3,000, in the first quarter of 2021, compared to a decline in market value of equity investments of $599,000, in the first quarter of 2020.

Other Income:

Other income was comparable at $136,000 for the three months ended March 31, 2021, compared to $145,000 for the same period last year; a decrease of $9,000. Other income consists primarily of fees related to the issuance of our property insurance policies as well as other miscellaneous income. While gross written premium increased, the decline in fees is due to the moderate decline in in-force P&C policy count in the first quarter of 2021 compared to last year.

Policyholder Benefits:

Policyholder claim related expenses totaled $9,303,000 for the first quarter of 2021, compared to $10,583,000 for the same period last year; an improvement of $1,280,000 or 12.1%. Claims as a percentage of premium earned was 61.8% in the first quarter of 2021 compared to 70.8% in the first quarter of 2020. The primary reason for the decrease in claims was an $833,000 decrease in P&C segment reported weather related claims coupled with a decrease in reported fire claims totaling $270,000.

Weather related losses consistently create the most significant variability in our loss and loss adjustment expense payments from year to year in our P&C segment. The following table provides a recap of P&C segment gross reported losses and LAE by catastrophe event and non-catastrophe wind and hail losses and LAE for the three-month periods ended March 31, 2021 and 2020:

For the three months ended March 31, 2021				For the three months ended March 31, 2020
($ in thousands) Catastrophe event	Reported Losses & LAE		Claim Count	Catastrophe event	Reported Losses & LAE		Claim Count
Cat 2113 (Jan 25-26)	$	132	6	Cat 2012 (Jan 10-12)	$	1,334	310
Cat 2117 (Feb 16-20)	760		196	Cat 2014 (Feb 5-8)	630		157
Cat 2120 (Mar 15-19)	282		66	Cat 2016 (Mar 2-4)	261		61
Cat 2122 (Mar 24-26)	494		85
Misc cats less than $100k	68		16	Misc cats less than $100k	27		10
Total Cat Losses	$	1,736	369	Total Cat Losses	$	2,252	538
Non-Cat Wind & Hail	$	1,293	294	Non-Cat Wind & Hail	$	1,610	414

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During the first quarter of 2021, the P&C segment was impacted by six catastrophe events producing 369 policyholder claims totaling $1,736,000. In comparison, the P&C segment was impacted by five catastrophe events during the first quarter of 2020 from 538 claims totaling $2,252,000. During 2021, the P&C segment had reported losses from Cat 2117 (winter storm) totaling $760,000 from 196 claims. This cat event accounted for 43.8% of total reported losses from cat events during the first quarter of 2021 and added 5.5 percentage points to the first quarter 2021 P&C segment loss ratio. During 2020, the P&C segment had reported losses from Cat 2012 (tornado/wind losses) totaling $1,334,000 from 310 claims. This cat event accounted for 59.2% of total reported losses from cat events during the first quarter of 2020 and added 9.8 percentage points to the first quarter 2020 P&C segment loss ratio. Claims reported from all first quarter 2021 cat events contributed 12.6 percentage points to the first quarter 2021 P&C segment loss ratio. Claims reported from all first quarter 2020 cat events contributed 16.5 percentage points to the first quarter 2020 P&C segment loss ratio.

Non-catastrophe wind and hail claims reported in the first quarter of 2021 totaled $1,293,000 compared to non-catastrophe wind and hail claims reported in the first quarter of 2020 totaling $1,610,000; a decrease of $317,000. During the first quarter of 2021, the P&C segment had 294 non-cat wind and hail claims reported (an average of $4,400 per claim) compared to 414 non-cat wind and hail claims reported during the first quarter of 2020 (an average of $3,900 per claim). Non-cat wind and hail claims reported during the first quarter of 2021 accounted for 16.3% of total P&C segment incurred losses in the current year and added 9.4 percentage points to the 2021 P&C segment combined ratio. Non-cat wind and hail claims reported during the first quarter of 2020 accounted for 16.8% of total P&C segment incurred losses in 2020 and added 11.8 percentage points to the 2020 P&C segment combined ratio.

Reported fire losses in the first quarter of 2021 were down $270,000 or 7.6% compared to fire losses reported during the first quarter of 2020. The P&C segment had 120 fire losses reported in the first quarter of 2021 totaling $3,270,000 compared to 106 claims reported in the first quarter of 2020 totaling $3,540,000. The average cost per claim was $27,300 for fire losses reported in the first quarter of 2021 compared to $33,400 for fire losses reported in the first quarter of 2020. Fire losses reported during the first quarter of 2021 added 23.7 percentage points to the P&C segment combined ratio while fire losses reported during the first quarter of 2020 added 25.9 percentage points to the P&C segment combined ratio.

Policy Acquisition Cost (Commissions and Amortization of Deferred Acquisition Cost):

For the three months ended March 31, 2021, policy acquisition costs were $3,107,000 compared to $3,140,000 for the same period last year; a decrease of $33,000. Policy acquisition costs consist of amortization of previously capitalized distribution costs and current commission payments to agents. As a percentage of premium revenue, policy acquisition costs were comparable at 20.6% in the first quarter of 2021 compared to 21.0% for the same period last year.

General Expenses:

General and administrative expenses were $2,304,000 in the first quarter of 2021, compared to $1,394,000 for the same period last year. As a percent of earned premium, general and administrative expenses were 15.3% and 9.3% at March 31, 2021 and 2020, respectively. Prior year general and administrative expenses were lower than normal levels due to a decline in value of SERP and deferred compensation related liabilities of $434,000, with a corresponding decline in general expenses. This decline was driven by a pandemic related decline in the value of underlying investment options in the plans. For the quarter ending March 31, 2021, we had an increase in a litigation accrual of $125,000. We also had an increase in accounting, actuarial and consulting fees totaling $117,000 and additional expenses directly associated with re-underwriting our P&C business of $74,000. Deferred compensation plan expenses totaled $246,000 for the quarter ending March 31, 2021. We expect general expenses to moderate in the second half of 2021 as much of the increase in early 2021 is associated with the acceleration of P&C rate filings to reflect the increase in cost of our 2021 catastrophe reinsurance and upfront cost associated with our re-underwriting project.

Taxes, Licenses and Fees:

For the quarter ended March 31, 2021, insurance taxes, licenses and fees were $536,000 compared to $721,000 for the same period last year. As a percent of earned premium, insurance taxes, licenses and fees were 3.6% in the first quarter of 2021 and 4.8% in the first quarter of 2020. The $185,000 decrease in the first quarter 2021, compared to the first quarter of 2020, was primarily related to a credit received totaling $155,000 which reduced tax expense in the current year.

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Interest Expense:

Interest expense was $138,000 for the three months ended March 31, 2021, compared to $261,000 for the three months ended March 31, 2020. A reduction in total debt outstanding and a decrease in interest on long-term debt over the past twelve months was the primary factor contributing to the $123,000 decrease.

Income Taxes (Benefits):

For the three months ended March 31, 2021, the Company had income before income taxes of $924,000 compared to loss before income taxes of $1,025,000 for the same period last year. The $202,000 tax expense for the first quarter of 2021 consisted of current tax benefit of $32,000 and deferred tax expense of $234,000. The $165,000 tax benefit for the first quarter of 2020 consisted of current tax benefit of $53,000 and deferred tax benefit of $112,000. The effective tax rate for the first quarter of 2021 was 21.9% compared to 16.1% for the first quarter of 2020.

Net Income (Loss):

The Company ended the first quarter of 2021 with net income of $722,000 compared to a net loss of $860,000 for the same period last year. The primary factors contributing to the $1,582,000 increase was the $1,300,000 increase in first quarter 2021 investment gains coupled with the $1,280,000 decrease in policyholder benefits and settlement expenses, primarily in the P&C segment, discussed in detail in the preceding commentary in this discussion.

Liquidity and Capital Resources:

Due to regulatory restrictions, the majority of the Company's cash is required to be invested primarily in investment-grade securities to provide protection for policyholders. The liabilities of the property and casualty insurance subsidiaries are of various terms, and therefore, those subsidiaries invest in securities with various effective maturities spread over periods usually not exceeding 10 years with an average portfolio duration typically of less than 5 years. The liabilities of the life insurance subsidiary are typically of a longer duration, and therefore, a higher percentage of securities in the life insurance subsidiary are invested for periods exceeding 10 years.

The liquidity requirements for the Company are primarily met by funds generated from operations of the life insurance and property and casualty insurance subsidiaries. All operations and virtually all investments are maintained by the insurance subsidiaries. Premium and investment income as well as maturities and sales of invested assets provide the primary sources of cash for both the life and property/casualty businesses, while applications of cash are applied by both businesses to the payment of policy benefits, the cost of acquiring new business (principally commissions), operating expenses, purchases of new investments, and in the case of life insurance, policy loans.

Virtually all invested assets of the Company are held in the insurance subsidiaries. As of March 31, 2021, the contractual maturity schedule for all bonds and notes held by the Company, stated at amortized cost, was as follows:

($ in thousands)                  Maturity	Available- for-Sale		Held-to-Maturity		Total		Percentage of Total
Maturity in 1-5 years	$	21,645	$	15	$	21,660	25.44	%
Maturity in 5-10 years	23,899		3		23,902		28.07	%
Maturity after 10 years	38,836		750		39,586		46.49	%
	$	84,380	$	768	$	85,148	100.00	%

It should be noted that the above table represents maturities based on stated/contractual maturity. Due to call and prepayment features inherent in some fixed maturity securities, actual repayment, or effective maturities, will differ from stated maturities. The Company routinely evaluates the impact of changing interest rates on the projected maturities of bonds in the portfolio and actively manages the portfolio in order to minimize the impact of interest rate risk. However, due to other factors, both regulatory and those associated with good investment management practices associated with asset/liability matching, we do have exposure to changes in market values of securities due to changes in interest rates. Currently, a 100 basis point immediate increase in interest rates would generate approximately a $4,425,000, or 5.1%, decline in the market value of fixed maturity investments. Alternatively, a 100 basis point decrease in interest rates will generate approximately $4,346,000, or 5.0%, increase in market value of fixed income investments. Management has attempted, to the extent possible, to reduce risk in a rising rate environment. However, due to asset/liability matching requirements, particularly in the life subsidiary portfolio, interest rate risk can not be eliminated and exposure to market volatility can cause some variability in our

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accumulated other comprehensive income, total return on investments, total shareholders' equity and book value per share.

At March 31, 2021, the Company had aggregate equity capital, unrealized investment gains (net of income taxes) and retained earnings of $44,790,000, down $576,000, compared to $45,366,000 at December 31, 2020.  During the three months ended March 31, 2021, shareholders' equity was increased by a net income of $722,000, decreased by a comprehensive loss due to changes in value of fixed maturity securities of $1,635,000 and increased by a comprehensive gain of $489,000 related to change in value of interest rate swaps. Equity was also reduced by cash dividends paid totaling $152,000.

As discussed above, changing interest rates can have a significant impact on the market value of fixed maturity investments. Fixed maturity securities classified as available-for-sale increase the liquidity resources of the Company as they can be sold at any time to pay claims or meet other Company obligations. However, these securities are required to be carried at market value with net of tax change in accumulated unrealized gains and losses directly impacting shareholder's equity. While the increase in interest rates causes near term declines in the value of fixed income securities, we are able to reap the benefit of reinvesting at higher rates as current fixed income investments are called, amortized (mortgage backed securities) or reach contractual maturity. Over the next twelve months, based on cash flow projection modeling that considers such factors as anticipated principal payments on mortgage backed securities, likelihood of call provisions being enacted and regular contractual maturities, we expect approximately 4.7% of our current fixed income portfolio to be reinvested or otherwise available to meet Company obligations.

The Company, primarily through its insurance subsidiaries, had $17,242,000 in cash and cash equivalents at March 31, 2021, compared to $5,869,000 at March 31, 2020. Cash provided by operating activities increased cash by $4,976,000 during the three months ended March 31, 2021. The increase in cash from operating activities was primarily related to reinsurance recoveries on paid losses related to 2020 hurricane events and net income for the period. Cash used in operating activities decreased cash by $928,000 for the three months ended March 31, 2020. The decrease in cash from operating activities was primarily driven reductions in various liabilities. Net cash used in investing activities totaled $7,480,000 for the three months ended March 31, 2021, compared to $4,845,000 in 2020. The decrease in cash from investing activities during the three months ended March 31, 2021 was related to reinvestment of cash on hand from maturities of fixed maturity securities and reinsurance recoveries. Net cash used in investing activities in 2020 was primarily related to the purchase of available-for-sale fixed maturity securities. Net cash used in financing activities totaled $141,000 for the three months ended March 31, 2021, compared to $167,000 for the same period last year. During the three months ended March 31, 2021, the Company paid $152,000 in dividends to shareholders.

The Holding Company had $3,066,000 in cash at March 31, 2021. The Holding Company primarily relies on cash from subsidiaries to meet its obligations, including payment of dividends to shareholders along with interest and principal on outstanding debt. Currently the Holding Company has adequate liquidity on hand to meet its anticipated obligations through at least the next 18 months without additional dividend payments from subsidiaries. Cash and cash equivalents held by subsidiaries at March 31, 2021 totaled $14,176,000.

The Company had a total of $13,180,000 of long-term debt outstanding as of March 31, 2021, compared to $13,177,000 at December 31, 2020, which includes $12,372,000 in trust preferred securities issued by the Company in addition to the installment note. Current year and prior year amounts were reduced by the unamortized portion of the placement fees associated with the issuance of the trust preferred securities, $192,000 and $195,000, respectively.

The ability of the Company to meet its commitments for timely payment of claims and other expenses depends, in addition to current cash flow, on the liquidity of its investments. The Company has limited exposure to below investment grade fixed income investments, which might be especially subject to liquidity limitations due to thinly traded markets.

The Company's liquidity requirements are primarily met by funds provided from operations of the insurance subsidiaries. The Company receives funds from its subsidiaries through payment of dividends, management fees, reimbursements for federal income taxes and reimbursement of expenses incurred at the corporate level for the subsidiaries.  These funds are used to pay stockholder dividends, principal and interest on debt, corporate administrative expenses, federal income taxes, and for funding investments in the subsidiaries. The Company has no separate source of revenue other than dividends and fees from the insurance subsidiaries. Also, dividends from

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the insurance subsidiaries are subject to regulatory restrictions and, therefore, are limited depending on capital levels and earnings of the subsidiaries.

Our insurance subsidiaries are the primary source of dividends to the holding company. Consideration of insurance subsidiary growth opportunities, regulatory capital adequacy, rating agency impact and holding company debt reduction, among other items, are factors that influence our subsidiary dividend requirements. While we have made significant progress in recent years, continued strengthening capital levels in the insurance subsidiaries and reduction of debt remains a top priority. However, a decline in combined regulatory capital in our insurance subsidiaries in 2020, primarily due to increased catastrophe loss frequency in our P&C subsidiary, will limit our ability to prepay any debt obligations beyond what is required for over the next two years.

Dividends paid to the holding company from the insurance subsidiaries are subject to regulatory restrictions and prior approval of the Alabama Department of Insurance. As disclosed in Note 12 to the audited Consolidated Financial Statements included in our 2020 Annual Report on Form 10-K, the amount that The National Security Group's insurance subsidiaries can transfer in the form of dividends to the parent company during 2021 is statutorily limited to $1,168,000 in the life insurance subsidiary and $3,650,000 in the property/casualty insurance subsidiary. Dividends are limited to the greater of net income (operating income for life subsidiary) or 10% of statutory capital, and regulators consider dividends paid within the preceding twelve months when calculating the available dividend capacity. Therefore, all of the above referenced dividend capacity will not be available for consideration of payment until dividends paid in the preceding twelve months have been considered on a rolling basis. The Company also has to continuously evaluate other factors such as subsidiary operating performance, subsidiary capital requirements and potential impact by rating agencies in making decisions on how much capital can be released from insurance subsidiaries for payment of dividends to the holding company. These factors are considered along with the goal of growing year over year statutory surplus in the subsidiaries, and these considerations along with potential adverse impacts on regulatory surplus, will likely lead to dividend payments to the holding company substantially below the above referenced regulatory maximums. The Company did not receive any dividends from its subsidiaries during the three months ended March 31, 2021. Due to a decline in combined statutory surplus in our subsidiaries during 2020, the result of increased in catastrophe losses in the P&C segment, we do not expect to pay any dividends from the insurance subsidiaries during 2021 as our primary focus will be on organic growth of statutory surplus.

The Company’s subsidiaries require cash in order to fund policy acquisition costs, claims, other policy benefits, interest expense, general expenses, and dividends to the Company.  Premium and investment income, as well as maturities, calls, and sales of invested assets, provide the primary sources of cash for both subsidiaries.  A significant portion of the Company’s investment portfolio, which is held by the insurance subsidiaries, consists of readily marketable securities, which can be sold for cash.

The Company continues to monitor liquidity and subsidiary capital closely. Despite periods with challenging weather patterns in the property and casualty subsidiaries over the past five years, the insurance subsidiaries are well capitalized. However, further strengthening of subsidiary capital and improvement in P&C underwriting profitability are top priorities for Company management.

Except as discussed above, the Company is unaware of any known trends, events, or uncertainties reasonably likely to have a material effect on its liquidity, capital resources, or operations.  Additionally, the Company has not been made aware of any recommendations of regulatory authorities, which if implemented, would have such an effect.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Under smaller reporting company rules we are not required to disclose information required under Item 7A. However, in order to provide information to our investors, we have elected to provide information related to market risk.

The Company's primary objectives in managing its investment portfolio are to maximize investment income and total investment returns while minimizing overall credit risk. Investment strategies are developed based on many factors including changes in interest rates, overall market conditions, underwriting results, regulatory requirements and tax position. Investment decisions are made by management and reviewed by the Board of Directors. Market risk represents the potential for loss due to adverse changes in fair value of securities. The three potential risks related

43

to the Company's fixed maturity portfolio are interest rate risk, prepayment risk and default risk. The primary risk related to the Company's equity portfolio is equity price risk.

Since the Company's assets and liabilities are largely monetary in nature, the Company's financial position and earnings are subject to risks resulting from changes in interest rates at varying maturities, changes in spreads over U.S. Treasuries on new investment opportunities and changes in the yield curve and equity pricing risks.

The Company is exposed to equity price risk on its equity securities. The Company holds common stock with a fair value of $4,596,000. Our portfolio has historically been highly correlated to the S&P 500 with regard to market risk. Based on an evaluation of the historical risk measure of our portfolio relative to the S&P 500, if the market value of the S&P 500 Index decreased 10% from its March 31, 2021 value, the fair value of the Company's common stock investments would decrease by approximately $460,000.

Certain fixed interest rate market risk sensitive instruments may not give rise to incremental income or loss during the period illustrated but may be subject to changes in fair values. Note 4 in the Condensed Consolidated Financial Statements present additional disclosures concerning fair values of Financial Assets and Financial Liabilities and are incorporated by reference herein.

The Company limits the extent of its market risk by purchasing securities that are backed by entities considered to be financially stable, the majority of the assets are issued by U.S. government sponsored entities or corporate entities with debt considered to be "investment grade".

The Company's investment approach in the equity markets is based primarily on a fundamental analysis of value. This approach requires the investment committee to invest in well managed, primarily dividend paying companies, which have a low debt to capital ratio, above average return on capital for a sustained period of time, and low volatility rating (beta) relative to the market. The dividends provide a steady cash flow to help pay current claim liabilities, and it has been the Company's experience that by following this investment strategy, long-term investment results have been superior to those offered by bonds, while keeping the risk of loss of capital to a minimum relative to the overall equity market.

As for shifts in investment allocations, the Company has used improved cash flows from insurance operations to increase allocations to fixed maturity securities in order to limit volatility of statutory capital of the insurance subsidiaries.

It should be noted that the impact of the COVID-19 pandemic has added a new element of uncertainty surrounding market risk in our investment portfolio. While we are optimistic that the direct risk due to COVID-19 is waning, the extent of short and long term economic damage and political policy resulting from the pandemic remains unclear. The increased risk associated with the COVID-19 pandemic continues to be difficult to quantify due to these uncertainties.

Item 4. Controls and Procedures

Our management carried out an evaluation, with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of March 31, 2021. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

There has not been any change in our internal control over financial reporting in connection with the evaluation required by Rule 13A-15(d) under the Exchange Act that occurred during the three months ended March 31, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

44

Table of Contents

Part II

Item 1. Legal Proceedings

Please refer to Note 14 to the Condensed Consolidated Financial Statements included herein, and the 2020 Annual Report filed on Form 10-K.

Item 1A. Risk Factors

There has been no material change in risk factors previously disclosed under Item 1A. of the Company’s Annual Report for 2020 on Form 10-K. Risks related to the COVID-19 pandemic continue to evolve. Additional commentary is included in Part I, Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 3. - Quantitative and Qualitative Disclosures About Market Risk.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities

None

Item 3.  Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information    

None

Item 6.   Exhibits

a.  Exhibits

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

b. During the last fiscal quarter of the period covered by this Report, the Company filed the following Current

Reports on Form 8-K:

Date of Report	Date Filed	Description
January 22, 2021	January 25, 2021	Press release, dated January 25, 2021, issued by The National Security Group, Inc.
February 26, 2021	February 26, 2021	Press release, dated February 26, 2021, issued by The National Security Group, Inc.

45

Table of Contents

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

THE NATIONAL SECURITY GROUP, INC.

/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

Date: May 14, 2021

46

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, William L. Brunson, Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The National Security Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2021

/s/ William L. Brunson, Jr.

William L. Brunson, Jr.

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Brian R. McLeod, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of The National Security Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2021

/s/ Brian R. McLeod

Brian R. McLeod

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. § 1350, the undersigned officer of the National Security Group, Inc. (the “Company”), hereby certifies, to such officer’s knowledge, that the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2021 (the “Report”) fully complies with the requirements of Section 13(a) or 15 (d), as applicable, of the Securities Exchange Act of 1934 and the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 14, 2021
/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

XML

Cover Page - shares	3 Months Ended
	Mar. 31, 2021	May 14, 2021
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2021
Document Transition Report	false
Entity File Number	0-18649
Entity Registrant Name	National Security Group, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	63-1020300
Entity Address, Address Line One	661 East Davis Street
Entity Address, City or Town	Elba,
Entity Address, State or Province	AL
Entity Address, Postal Zip Code	36323
City Area Code	334
Local Phone Number	897-2273
Title of 12(b) Security	Common Stock, par value $1.00 per share
Trading Symbol	NSEC
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		2,530,370
Entity Central Index Key	0000865058
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Investments
Fixed maturities held-to-maturity, at amortized cost (estimated fair value: 2021 - $835; 2020 - $946)	$ 768	$ 873
Fixed maturities available-for-sale, at estimated fair value (cost: 2021 - $84,380; 2020 - $76,241)	87,469	81,399
Equity securities, at estimated fair value (cost: 2021 - $1,761; 2020 - $1,918)	4,596	4,750
Trading securities	176	169
Receivable for securities sold	45	3
Mortgage loans on real estate, at cost	144	145
Investment real estate, at book value	2,934	2,934
Policy loans	1,811	1,846
Company owned life insurance	4,941	4,998
Other invested assets	1,921	2,033
Total Investments	104,805	99,150
Cash and cash equivalents	17,242	19,887
Accrued investment income	680	575
Policy receivables and agents' balances, net	13,733	12,345
Reinsurance recoverable	3,017	6,874
Deferred policy acquisition costs	7,384	7,408
Property and equipment, net	1,551	1,572
Income tax recoverable	1,343	1,311
Deferred income tax asset, net	776	706
Other assets	1,044	712
Total Assets	151,575	150,540
LIABILITIES AND SHAREHOLDERS' EQUITY
Property and casualty benefit and loss reserves	9,509	10,177
Accident and health benefit and loss reserves	4,151	4,144
Life and annuity benefit and loss reserves	34,708	34,731
Unearned premiums	33,161	31,166
Policy and contract claims	1,222	1,309
Other policyholder funds	1,353	1,342
Short-term notes payable and current portion of long-term debt	500	500
Long-term debt	13,180	13,177
Other liabilities	9,001	8,628
Total Liabilities	106,785	105,174
Contingencies
Shareholders' equity
Common stock	2,533	2,533
Additional paid-in capital	5,626	5,626
Accumulated other comprehensive income	2,439	3,585
Retained earnings	34,235	33,665
Treasury stock, at cost	(43)	(43)
Total Shareholders' Equity	44,790	45,366
Total Liabilities and Shareholders' Equity	$ 151,575	$ 150,540

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Investments
Fixed maturities held-to-maturity, at estimated fair value	$ 835	$ 946
Fixed maturities available-for-sale, at cost	84,380	76,241
Equity securities, at cost	$ 1,761	$ 1,918

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
REVENUES
Net premiums earned	$ 15,062	$ 14,955
Net investment income	804	964
Investment gains (losses)	310	(990)
Other income	136	145
Total Revenues	16,312	15,074
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits and settlement expenses	9,303	10,583
Amortization of deferred policy acquisition costs	971	1,065
Commissions	2,136	2,075
General and administrative expenses	2,304	1,394
Taxes, licenses and fees	536	721
Interest expense	138	261
Total Benefits, Losses and Expenses	15,388	16,099
Income (Loss) Before Income Taxes	924	(1,025)
INCOME TAX EXPENSE (BENEFIT)
Current	(32)	(53)
Deferred	234	(112)
Total income tax expense	202	(165)
Net Income (Loss)	$ 722	$ (860)
INCOME (LOSS) PER COMMON SHARE BASIC (in dollars per share)	$ 0.29	$ (0.34)
INCOME (LOSS) PER COMMON SHARE DILUTED (in dollars per share)	0.29	(0.34)
DIVIDENDS DECLARED PER SHARE (in dollars per share)	$ 0.06	$ 0.06

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ 722	$ (860)
Other comprehensive income (loss), net of tax
Unrealized losses on securities, net of reclassification adjustment of $— and $(92) for 2021 and 2020, respectively	(1,635)	(1,940)
Unrealized gain (loss) on interest rate swap	489	(545)
Other comprehensive loss, net of tax	(1,146)	(2,485)
Comprehensive loss	$ (424)	$ (3,345)

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Statement of Comprehensive Income [Abstract]
Reclassification adjustment	$ 0	$ (92)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY - USD ($) $ in Thousands	Total	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Common Stock	Additional Paid-in Capital	Treasury Stock
Balance at Dec. 31, 2019	$ 53,461	$ 42,891	$ 2,443	$ 2,532	$ 5,602	$ (7)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Common stock reacquired	(6)					(6)
Comprehensive income (loss):
Net income (loss)	(860)	(860)
Other comprehensive loss (net of tax)	(2,485)		(2,485)
Cash dividends	(152)	(152)
Balance at Mar. 31, 2020	49,958	41,879	(42)	2,532	5,602	(13)
Balance at Dec. 31, 2019	53,461	42,891	2,443	2,532	5,602	(7)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Common stock reacquired	(36)
Comprehensive income (loss):
Net income (loss)	(8,619)
Other comprehensive loss (net of tax)	1,142
Cash dividends	(607)
Balance at Dec. 31, 2020	45,366	33,665	3,585	2,533	5,626	(43)
Comprehensive income (loss):
Net income (loss)	722	722
Other comprehensive loss (net of tax)	(1,146)		(1,146)
Cash dividends	(152)	(152)
Balance at Mar. 31, 2021	$ 44,790	$ 34,235	$ 2,439	$ 2,533	$ 5,626	$ (43)

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Cash Flows from Operating Activities
Net income (loss)	$ 722	$ (860)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense and amortization/accretion, net	51	69
Net (gains) losses on investments	(310)	990
Deferred income taxes	234	(112)
Amortization of deferred policy acquisition costs	971	1,065
Changes in assets and liabilities:
Change in receivable for securities sold	(42)	54
Change in accrued investment income	(105)	(50)
Change in reinsurance recoverable	3,857	0
Policy acquisition costs deferred	(947)	(924)
Change in accrued income taxes	(32)	(53)
Change in net policy liabilities and claims	(168)	(306)
Change in other assets/liabilities, net	742	(800)
Other, net	3	(1)
Net cash provided by (used in) operating activities	4,976	(928)
Cash Flows from Investing Activities
Available-for-sale securities	(12,645)	(9,926)
Property and equipment	(3)	(25)
Held-to-maturity securities	101	45
Available-for-sale securities	5,031	5,076
Real estate held for investment	0	2
Other invested assets, net	36	(17)
Net cash used in investing activities	(7,480)	(4,845)
Cash Flows from Financing Activities
Change in other policyholder funds	11	(15)
Dividends paid	(152)	(152)
Net cash used in financing activities	(141)	(167)
Net change in cash and cash equivalents	(2,645)	(5,940)
Cash and cash equivalents, beginning of period	19,887	11,809
Cash and cash equivalents, end of period	$ 17,242	$ 5,869

XML

SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

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).  The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).  In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the condensed consolidated financial statements have been included. All significant intercompany transactions and accounts have been eliminated in the condensed consolidated financial statements. The financial information presented herein should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which includes information and disclosures not presented herein.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in these condensed consolidated financial statements are reserves for future life insurance policy benefits, liabilities for losses and loss adjustment expenses, reinsurance recoverable associated with 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 the estimates used in preparing these condensed consolidated financial statements.

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 2,530,370 at March 31, 2021 and 2,530,783 at March 31, 2020. The Company did not have any dilutive securities as of March 31, 2021 and 2020.

Concentration of Credit Risk

The Company maintains cash balances which are generally held in non-interest bearing demand deposit accounts subject to FDIC insured limits of $250,000 per entity. At March 31, 2021, the net amount exceeding FDIC insured limits was $6,813,000 at three financial institutions. The Company has not experienced any losses in such accounts. Management of the Company reviews financial information of financial institutions 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 March 31, 2021, the single largest balance due from one agent totaled $497,000.

Reinsurance contracts do not relieve the Company of its obligations to policyholders. A failure of a reinsurer to meet its obligation could result in losses to the insurance subsidiaries. Allowances for losses on reinsurance recoverables are established if amounts are believed to be uncollectible. At March 31, 2021 and December 31, 2020, 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 March 31, 2021, management does not believe the Company is exposed to any significant credit risk related to its reinsurance program.

Accounting Changes Not Yet Adopted

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (FASB) issued guidance that provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the

financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The Company has exposure to LIBOR based financial instruments through its subordinated debentures. The contracts with respect to these borrowings contain alternative reference rates that would automatically take effect upon the phasing out of LIBOR and would not materially change the liability exposure. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is evaluating the optional expedients and exceptions in the guidance but does not expect the adoption of this guidance to have a material impact on its financial position or results of operations.

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued guidance to improve the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The guidance improves timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to discount future cash flows. The guidance will simplify and improve accounting for certain market-based options or guarantees associated with deposit type contracts and simplify the amortization of deferred policy acquisition costs. The guidance also introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures. The guidance is effective for fiscal years beginning after December 15, 2024 and interim periods within those fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance. Due to the nature and extent of the changes required to the Company’s life insurance operations, the adoption of this standard is expected to have a material impact on the consolidated financial statements.

Financial Instruments - Credit Losses

In June 2016, the FASB issued guidance that replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The FASB released additional guidance in November 2018 that provides scope clarification. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those years. The Company does not expect the adoption to have a material impact on its financial position or results of operations.

Recently Adopted Accounting Standards

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued guidance to simplify the accounting for income taxes. The guidance removes certain exceptions to general principles in the income tax guidance and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020. The Company adopted this guidance on January 1, 2021. The adoption of this guidance did not have a material impact on its financial position or results of operations.

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VARIABLE INTEREST ENTITIES

3 Months Ended

Mar. 31, 2021

Variable Interest Entities [Abstract]

VARIABLE INTEREST ENTITIES

VARIABLE INTEREST ENTITIES

The Company holds passive interests in limited partnerships that are considered to be Variable Interest Entities (VIE) under the provisions of ASC 810 Consolidation. The Company is not the primary beneficiary of the entities and is not required to consolidate under ASC 810. The entities are private placement investment funds formed for the purpose of investing in private equity investments. The Company owns less than 1% of the limited partnerships. The carrying value of the investments totals $472,000 at March 31, 2021 ($460,000 at December 31, 2020) 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 condensed 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 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 of 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.

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INVESTMENTS

3 Months Ended

Mar. 31, 2020

Investments [Abstract]

INVESTMENTS

INVESTMENTS

Our investment in available-for-sale securities, which are reported at fair value, includes fixed maturity securities and equity securities. Net unrealized gains or losses on fixed maturities are reported after-tax as a component of other comprehensive income. Changes in fair value of equity securities are reported in investment gains/losses as a component of net income.

The amortized cost and aggregate fair values of investments in available-for-sale securities as of March 31, 2021 are as follows:

($ in thousands) Available-for-sale securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government corporations and agencies	$	5,861	$	251	$	72	$	6,040
Agency mortgage backed securities	19,979		598		219		20,358
Asset backed securities	8,199		158		19		8,338
Private label mortgage backed securities	1,795		42		19		1,818
Corporate bonds	41,212		2,814		320		43,706
States, municipalities and political subdivisions	7,334		96		221		7,209
Total Fixed Maturities	84,380		3,959		870		87,469
Equity securities	1,761		2,835		—		4,596
Total	$	86,141	$	6,794	$	870	$	92,065

The amortized cost and aggregate fair values of investments in held-to-maturity securities as of March 31, 2021 are as follows:

($ in thousands) Held-to-maturity securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Agency mortgage backed securities	$	768	$	67	$	—	$	835
Total	$	768	$	67	$	—	$	835

The amortized cost and aggregate fair values of investments in available-for-sale securities as of December 31, 2020 are as follows:

($ in thousands) Available-for-sale securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government corporations and agencies	$	4,300	$	323	$	9	$	4,614
Agency mortgage backed securities	19,773		919		63		20,629
Asset backed securities	8,233		137		27		8,343
Private label mortgage backed securities	1,418		50		55		1,413
Corporate bonds	35,930		3,771		50		39,651
States, municipalities and political subdivisions	6,587		189		27		6,749
Total Fixed Maturities	76,241		5,389		231		81,399
Equity securities	1,918		2,832		—		4,750
Total	$	78,159	$	8,221	$	231	$	86,149

The amortized cost and aggregate fair values of investments in held-to-maturity securities as of December 31, 2020 are as follows:

($ in thousands) Held-to-maturity securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Agency mortgage backed securities	$	873	$	73	$	—	$	946
Total	$	873	$	73	$	—	$	946

The amortized cost and aggregate fair value of debt securities at March 31, 2021, by contractual maturity, are presented in the following table.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

($ in thousands)	Amortized Cost		Fair Value
Available-for-sale securities:
Due after one year through five years	$	21,645	$	22,766
Due after five years through ten years	23,899		24,934
Due after ten years	38,836		39,769
Total	$	84,380	$	87,469
Held-to-maturity securities:
Due after one year through five years	$	15	$	15
Due after five years through ten years	3		4
Due after ten years	750		816
Total	$	768	$	835

A summary of securities available-for-sale with unrealized losses as of March 31, 2021, 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:

($ in thousands)	Less than 12 months				12 months or longer				Total
March 31, 2021	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Total Securities in a Loss Position
U.S. Government corporations and agencies	$	2,167	$	72	$	—	$	—	$	2,167	$	72	3
Agency mortgage backed securities	7,295		216		1		3		7,296		219		16
Asset backed securities	3,788		19		—		—		3,788		19		5
Private label mortgage backed securities	—		—		832		19		832		19		1
Corporate bonds	6,497		319		499		1		6,996		320		13
States, municipalities and political subdivisions	3,516		221		—		—		3,516		221		5
	$	23,263	$	847	$	1,332	$	23	$	24,595	$	870	43

There were no securities held-to-maturity with unrealized losses as of March 31, 2021.

A summary of securities available-for-sale with unrealized losses as of December 31, 2020, 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:

($ in thousands)	Less than 12 months				12 months or longer				Total
December 31, 2020	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Total Securities in a Loss Position
U.S. Government corporations and agencies	$	666	$	9	$	—	$	—	$	666	$	9	1
Agency mortgage backed securities	2,264		56		2		7		2,266		63		8
Asset backed securities	1,737		27		—		—		1,737		27		2
Private label mortgage backed securities	891		55		—		—		891		55		1
Corporate bonds	2,467		45		495		5		2,962		50		5
States, municipalities and political subdivisions	1,713		27		—		—		1,713		27		3
	$	9,738	$	219	$	497	$	12	$	10,235	$	231	20

There were no securities held-to-maturity with unrealized losses as of December 31, 2020.

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 in the fixed maturity investment portfolio. The Company has no material exposure to sub-prime mortgage loans and approximately 6% of the fixed income investment portfolio is rated below investment grade.  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 three months ended March 31, 2021, the Company realized no other-than-temporary impairments. For the year ended December 31, 2020, the Company realized $180,000 other-than-temporary impairments. At March 31, 2021, the three largest losses not realized as an impairment in the fixed maturity portfolio totaled $104,000, $80,000 and $75,000. After evaluation by management, it was determined that each of these losses were driven by changes in market interest rates. Management currently has the intent and ability to hold these investments until recovery so no other-than-temporary impairments were recognized. At December 31, 2020, the three largest losses not realized as an impairment in the fixed maturity portfolio totaled $55,000, $37,000 and $27,000.

Major categories of investment income are summarized as follows:

($ in thousands)	Three months ended March 31,
	2021		2020
Fixed maturities	$	757	$	916
Equity securities	49		41
Mortgage loans on real estate	2		2
Investment real estate	—		1
Policy loans	34		36
Other	2		4
	844		1,000
Less: Investment expenses	40		36
Net investment income	$	804	$	964

Major categories of investment gains and losses are summarized as follows:

($ in thousands)	Three months ended March 31,
	2021		2020
Realized gains on fixed maturities	$	—	$	121
Realized gains (losses) on equity securities	357		(25)
Gains on trading securities	7		—
Change in fair value of equity securities	3		(599)
Change in surrender value of company owned life insurance	(57)		(251)
Other gains principally real estate	—		2
Other-than-temporary impairments	—		(238)
Net investment gains (losses)	$	310	$	(990)

An analysis of the net change in unrealized gains (losses) on available-for-sale securities follows:

($ in thousands)	March 31, 2021		March 31, 2020
Fixed maturities	$	(2,069)	$	(2,456)
Deferred income tax	434		516
Change in net unrealized gains on available-for-sale securities	$	(1,635)	$	(1,940)

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FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

Our available-for-sale securities consists of fixed maturity and equity securities which are recorded at fair value in the accompanying condensed consolidated balance sheets.  

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 with 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 floating-rate notes, corporate bonds, and municipal bonds.

Assets/Liabilities Measured at Fair Value on a Recurring Basis

Financial assets measured at fair value on a recurring basis as of March 31, 2021 are summarized in the following table by the type of inputs applicable to the fair value measurements:

($ in thousands)	Fair Value Measurements at Reporting Date Using
Description	Total		Level 1		Level 2		Level 3
Financial Assets
Fixed maturities available-for-sale
U.S. Government corporations and agencies	$	6,040	$	6,040	$	—	$	—
Agency mortgage backed securities	20,358		13,514		6,844		—
Asset backed securities	8,338		3,167		5,171		—
Corporate bonds	43,706		—		43,706		—
Private label asset backed securities	1,818		832		986		—
States, municipalities and political subdivisions	7,209		—		7,209		—
Trading securities	176		176		—		—
Equity securities	4,596		3,100		—		1,496
Total Financial Assets	$	92,241	$	26,829	$	63,916	$	1,496

The methods and assumptions the Company uses to estimate the fair value of assets and liabilities measured at fair value on a recurring basis are summarized below.

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 quoted market prices in active markets for identical assets are reflected within Level 1 while 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.

As of March 31, 2021, Level 3 fair value measurements of assets include $1,496,000 of equity securities in a local community bank whose value is based on an evaluation of the financial statements of the entity. The Company does not develop the unobservable inputs used in measuring fair value.

As of March 31, 2021, there were no liabilities with Level 3 fair value measurements. In 2020, liabilities with Level 3 fair value measurements included various interest rate swap agreements whose value was based on analysis provided by a third party that utilizes financial modeling tools and assumptions on interest and other factors. The Company does not develop the unobservable inputs used in measuring fair value. Additional information regarding the interest rate swap agreements is provided in Note 7.

The table below presents a reconciliation for all assets and for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2021:

($ in thousands) For the three months ended March 31, 2021	Equity Securities		Interest Rate Swap
Beginning balance	$	1,502	$	(619)
Total gains or losses (realized and unrealized):
Included in earnings	(6)		—
Included in other comprehensive income	—		619
Purchases:	—		—
Sales:	—		—
Issuances:	—		—
Settlements:	—		—
Transfers in/(out) of Level 3	—		—
Ending balance	$	1,496	$	—
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 March 31, 2021:	$	(6)	$	—

For the three months ended March 31, 2021, there were no assets or liabilities measured at fair values on a nonrecurring basis.

Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 are summarized in the following table by the type of inputs applicable to the fair value measurements:

($ in thousands)	Fair Value Measurements at Reporting Date Using
Description	Total		Level 1		Level 2		Level 3
Financial Assets
Fixed maturities available-for-sale
U.S. Government corporations and agencies	$	4,614	$	4,614	$	—	$	—
Agency mortgage backed securities	20,629		12,044		8,585		—
Asset backed securities	8,343		2,343		6,000		—
Corporate bonds	39,651		—		39,651		—
Private label asset backed securities	1,413		891		522		—
States, municipalities and political subdivisions	6,749		—		6,749		—
Trading securities	169		169		—		—
Equity securities available-for-sale	4,750		3,248		—		1,502
Total Financial Assets	$	86,318	$	23,309	$	61,507	$	1,502
Financial Liabilities
Interest rate swap	$	(619)	$	—	$	—	$	(619)
Total Financial Liabilities	$	(619)	$	—	$	—	$	(619)

The table below presents a reconciliation for all assets and for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2020:

($ in thousands) For the year ended December 31, 2020	Equity Securities Available-for-Sale		Interest Rate Swap
Beginning balance	$	1,315	$	(65)
Total gains or losses (realized and unrealized):
Included in earnings	187		—
Included in other comprehensive income	—		(554)
Purchases:	—		—
Sales:	—		—
Issuances:	—		—
Settlements:	—		—
Transfers in/(out) of Level 3	—		—
Ending balance	$	1,502	$	(619)
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, 2020:	$	187	$	—

For the year ended December 31, 2020, there were no assets or liabilities measured at fair values on a nonrecurring basis.

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.  See Note 7 for additional information about the interest rate swap agreements.

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.

Fixed maturities held-to-maturity — the carrying amount is amortized cost; the fair values of the Company’s public fixed maturity securities that are classified as held-to-maturity are generally based on prices obtained from independent pricing services.

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.

The carrying amount and estimated fair value of the Company’s financial instruments as of March 31, 2021 and December 31, 2020 are as follows:

($ in thousands)	March 31, 2021				December 31, 2020
Assets and related instruments	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Held-to-maturity securities	$	768	$	835	$	873	$	946
Mortgage loans	144		144		145		145
Policy loans	1,811		1,811		1,846		1,846
Company owned life insurance	4,941		4,941		4,998		4,998
Other invested assets	1,921		1,921		2,033		2,033
Liabilities and related instruments
Other policyholder funds	1,353		1,353		1,342		1,342
Short-term notes payable and current portion of long-term debt	500		500		500		500
Long-term debt	13,180		13,180		13,177		13,177

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PROPERTY AND EQUIPMENT

3 Months Ended

Mar. 31, 2021

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT

Major categories of property and equipment are summarized as follows:

($ in thousands)	March 31, 2021		December 31, 2020
Building and improvements	$	3,491	$	3,491
Electronic data processing equipment	1,502		1,498
Furniture and fixtures	483		483
	5,476		5,472
Less accumulated depreciation	3,925		3,900
Property and equipment, net	$	1,551	$	1,572

Depreciation expense for the three months ended March 31, 2021 was $24,000 ($109,000 for the year ended December 31, 2020).

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INCOME TAXES

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company recognizes tax-related interest and penalties as a component of tax expense.  The Company files income tax returns in the U.S. federal jurisdiction and various states.  The Company is not subject to examinations by authorities related to its U.S. federal or state income tax filings for years prior to 2015. Tax returns have been filed through the year 2019.

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. Management believes that, based on its historical pattern of taxable income, the Company will produce sufficient income in the future to realize its deferred tax assets. The Company recognized net deferred tax asset positions of $776,000 at March 31, 2021 and $706,000 at December 31, 2020.

The tax effect of significant differences representing deferred tax assets and liabilities are as follows:

($ in thousands)	As of March 31,  2021		As of December 31,  2020
General expenses	$	1,456	$	1,448
Unearned premiums	1,395		1,313
Claims liabilities	685		698
NOL carryforward	296		632
Impairment on real estate owned	147		147
Unrealized loss on interest rate swaps	—		130
Deferred tax assets	3,979		4,368
Unrealized gains on trading securities	(1)		(3)
Depreciation	(93)		(95)
Deferred policy acquisition costs	(1,551)		(1,555)
Pre-1984 policyholder surplus account	(314)		(331)
Unrealized gains on securities available-for-sale	(649)		(1,083)
Unrealized gains on equity securities	(595)		(595)
Deferred tax liabilities	(3,203)		(3,662)
Net deferred tax asset	$	776	$	706

The appropriate income tax effects of changes in temporary differences are as follows:

($ in thousands)	Three months ended March 31,
	2021		2020
Deferred policy acquisition costs	$	(4)	$	(30)
Other-than-temporary impairments	—		(40)
Trading securities	(2)		(6)
Unearned premiums	(82)		(30)
General expenses	(8)		108
Depreciation	(2)		(2)
Claims liabilities	13		30
Impact of repeal of special provision on pre-1984 policyholder surplus	(17)		(16)
NOL carryforward	336		—
Unrealized gains (losses) on equity securities	—		(126)
Deferred income tax expense (benefit)	$	234	$	(112)

Total income tax expense (benefit) varies from amounts computed by applying current federal income tax rates to income or loss before income taxes.  The reasons for these differences and the approximate tax effects are as follows:

	Three months ended March 31,
	2021		2020
Federal income tax rate applied to pre-tax income (loss)	21.0	%	21.0	%
Dividends received deduction and tax-exempt interest	(0.3)	%	0.3	%
Company owned life insurance	1.3	%	(5.1)	%
Other, net	(0.1)	%	(0.1)	%
Effective federal income tax rate	21.9	%	16.1	%

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NOTES PAYABLE AND LONG-TERM DEBT

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

NOTES PAYABLE AND LONG-TERM DEBT

NOTES PAYABLE AND LONG-TERM DEBT

Short-term debt and current portion of long-term debt consisted of the following as of March 31, 2021 and December 31, 2020:

($ in thousands)	March 31,		December 31,
	2021		2020
Current portion of installment note payable due in November with variable interest rate equal to the WSJ prime rate plus 0.5%, with a 4.75% floor. Unsecured.	$	500	$	500
	$	500	$	500

Long-term debt consisted of the following as of March 31, 2021 and December 31, 2020:

($ in thousands)	March 31,		December 31,
	2021		2020
Promissory note with variable interest rate equal to the WSJ prime rate plus 0.5%, with a 4.75% floor; maturity November 2023. Annual installment payments beginning November 2020. Unsecured.	$	1,000	$	1,000
Subordinated debentures issued on December 15, 2005 with floating rate interest equal to 3-Month LIBOR plus 375 basis points; net of $138,000 in debt issuance cost ($140,000 in 2020); maturity December 15, 2035.  Interest payable quarterly.  Redeemable prior to maturity. Unsecured.	9,141		9,139
Subordinated debentures issued on June 21, 2007 with floating rate interest equal to 3-Month LIBOR plus 340 basis points; net of $54,000 in debt issuance cost ($55,000 in 2020); maturity June 15, 2037. Interest payable quarterly.  Redeemable prior to maturity. Unsecured.	3,039		3,038
	$	13,180	$	13,177

On February 26, 2020, the Company entered into a forward swap effective March 16, 2020, with a notional amount of $3,000,000 and designated the swap as a hedge against changes in cash flows attributable to changes in the benchmark interest rate (LIBOR) associated with the subordinated debentures issued June 21, 2007. Quarterly, commencing June 15, 2020, under the terms of the forward swap, the Company pays interest at a fixed rate of 4.93% until March 15, 2030. On February 26, 2020, the Company entered into a forward swap with a notional amount of $9,000,000 effective March 16, 2020, which hedges against changes in cash flows following the termination of the fixed rate period. Quarterly, commencing June 15, 2020 under the terms of the forward swap, the Company pays interest at a fixed rate of 5.28% until March 15, 2030. These swaps were terminated on March 22, 2021. At December 31, 2020, the swaps had fair values of $155,000 (liability) and $464,000 (liability), respectively,

for a total liability of $619,000. The December 31, 2020 swap liability is reported as a component of other liabilities on the condensed consolidated balance sheets.  A net valuation gain of $489,000 (net of tax) is included in accumulated other comprehensive income related to the swap agreements at March 31, 2021.  A net valuation loss of $438,000 (net of tax) was included in accumulated other comprehensive income related to the swap at December 31, 2020. The Company’s interest rate swaps included provisions requiring the Company to post collateral when the derivative is in a net liability position.  At December 31, 2020, the Company had securities on deposit with fair market values of $957,000 (all of which was posted as collateral).

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POLICY AND CLAIM RESERVES

3 Months Ended

Mar. 31, 2021

Insurance [Abstract]

POLICY AND CLAIM RESERVES

POLICY AND CLAIM RESERVES

The Company regularly updates its reserve estimates as new information becomes available and events occur that may impact the resolution of unsettled claims. Reserve estimation can be an inherently uncertain process and reserve estimates can be revised up or down depending on changes in circumstances. Changes in prior years' reserve estimates are reflected in the results of operations in the year such changes are determined.

The following table is a reconciliation of beginning and ending property and casualty reserve balances for claims and claim adjustment expense:

($ in thousands)	Three months ended March 31,
	2021		2020
Summary of claims and claim adjustment expense reserves
Balance, beginning of year	$	10,177	$	7,199
Less reinsurance recoverable on unpaid losses	3,321		249
Net balances at beginning of year	6,856		6,950
Net losses:
Provision for claims and claim adjustment expenses for claims arising in current year	9,034		9,622
Estimated claims and claim adjustment expenses for claims arising in prior years	(1,078)		(32)
Total increases	7,956		9,590
Claims and claim adjustment expense payments for claims arising in:
Current year	5,280		6,856
Prior years	2,416		3,460
Total payments	7,696		10,316
Net balance at end of period	7,116		6,224
Plus reinsurance recoverable on unpaid losses	2,393		241
Claims and claim adjustment expense reserves at end of period	$	9,509	$	6,465

Claims and claim adjustment expense reserves before reinsurance recoverable at March 31, 2021 were up compared to the same period last year due to an increase in hurricane activity in the third and fourth quarter of 2020. The most significant event contributing to remaining claim reserves at December 31, 2020 was Hurricane Zeta which occurred in late October. The estimate for claims arising in prior years was reduced $1,098,000 in 2021 (reduced $32,000 in 2020) due to favorable loss development during the year on claims arising in prior years.

Accident and Health Claim Reserves

The Company, through its life insurance subsidiary, underwrites a limited number of short duration accident and health contracts. These claims are typically settled in three years or less and the reserve for unpaid claims totaled $450,000 at March 31, 2021 ($426,000 at December 31, 2020). These claims are a component of policy and contract claims which totaled $1,222,000 at March 31, 2021 ($1,309,000 at December 31, 2020).

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REINSURANCE

3 Months Ended

Mar. 31, 2021

Reinsurance Disclosures [Abstract]

REINSURANCE

REINSURANCE

The Company's insurance operations utilize reinsurance in the risk management process in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and effect business-sharing arrangements. Life reinsurance is placed through yearly renewable term coverage. Property and casualty reinsurance is placed on an excess of loss basis to cover losses from catastrophe events. Reinsurance contracts do not relieve the insurance subsidiaries of the obligation indemnify policyholders with respect to the underlying insurance contracts. Failure of re-insurers to honor their obligations could result in credit related 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 or have adverse impacts on regulatory capital levels 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 and tropical storms.

Under the catastrophe reinsurance program, the Company retains the first $4,000,000 in losses from the first catastrophe event and $2,000,000 from a second catastrophe event.  

Catastrophe reinsurance coverage is maintained in three layers as follows:

Layer	Reinsurers' Limits of Liability
First Layer	100% of $13,500,000 in excess of $4,000,000 retention
Second Layer	100% of $25,000,000 in excess of $17,500,000
Third Layer	100% of $30,000,000 in excess of $42,500,000
Catastrophe Aggregate	100% of $2,000,000 in excess of $2,000,000 aggregate annual deductible

Each reinsurance layer covers events occurring from January 1 through December 31 of the contract year.  All significant reinsurance companies under the program carry A.M. Best ratings of A- (Excellent) or higher, or equivalent ratings.

The Company's catastrophe reinsurance contract allows for one reinstatement. The Company maintains reinstatement premium protection (RPP) to cover reinstatement premiums incurred. The RPP further reduces risk from a major catastrophe and serves to protect the Company's capital position by reducing the modeled 100 year event net cost.

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.  Cost is amortized over the reinsurance contract period.

At March 31, 2021, the largest reinsurance recoverable of a single reinsurer was $269,000 ($1,263,000 at December 31, 2020). Amounts reported as ceded incurred losses were related to development of losses from prior year catastrophes.

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EMPLOYEE BENEFIT PLANS

3 Months Ended

Mar. 31, 2021

Retirement Benefits [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 March 31, 2021 amounted to $46,000 (also $46,000 in 2020). The Company contributes dollar-for-dollar matching contributions up to 5% of compensation subject to government limits.

The Company established a non-qualified deferred compensation plan under which Company directors are allowed to defer all or a portion of directors' fees into various investment options. A supplemental executive retirement plan (SERP) 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 related to the non-qualified deferred compensation plans for the three months ended March 31, 2021 and 2020 amounted to an approximate increase of $24,000 and a decrease of $361,000 in employee benefit related expenses, respectively.

The Company and its subsidiaries established an Employee Stock Ownership Plan (ESOP) in January 2010, to enable eligible employees to acquire a proprietary interest in the Company's common stock and to provide retirement and other benefits to such employees. There were no contributions during the three months ended March 31, 2021 and contributions of $100,000 were made during the three months ended March 31, 2020. All contributions were made in cash for purchase of Company shares in the open market. The Company has not allocated newly issued shares directly to the plan and the plan has no debt.

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SHAREHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2021

Stockholders' Equity Note [Abstract]

SHAREHOLDERS' EQUITY

SHAREHOLDERS' EQUITY

During the three months ended March 31, 2021 and year ended December 31, 2020, changes in shareholders' equity consisted of net income of $722,000 and a net loss of $8,619,000, respectively; dividends paid of $152,000 in 2021 and $607,000 in 2020; an other comprehensive loss of $1,146,000 in 2021 and other comprehensive income of $1,142,000 in 2020; common stock issued of $25,000 in 2020; and the purchase of treasury shares of $36,000 in 2020.  Other comprehensive income consisted of changes in accumulated unrealized gains/losses on securities available-for-sale and changes in accumulated unrealized losses on interest rate swaps.

Preferred Stock

Preferred Stock may be issued in one or more series as shall from time to time be determined and authorized by the Board of Directors. The directors may make specific provisions regarding (a) the voting rights, if any (b) whether such dividends are to be cumulative or noncumulative (c) the redemption provisions, if any (d) participating rights, if any (e) any sinking fund or other retirement provisions (f) dividend rates (g) the number of shares of such series and (h) liquidation preference. There is currently no Preferred Stock issued or outstanding.

Common Stock

The holders of the Class A Common Stock will have one-twentieth of one vote per share, and the holders of the common stock will have one vote per share. There is currently no Class A Common Stock issued or outstanding.

In the event of any liquidation, dissolution or distribution of the assets of the Company remaining after the payments to the holders of the Preferred Stock of the full preferential amounts to which they may be entitled as provided in the resolution or resolutions creating any series thereof, the remaining assets of the Company shall be divided and distributed among the holders of both classes of common stock, except as may otherwise be provided in any such resolution or resolutions.

The table below provides information regarding the Company's preferred and common stock as of March 31, 2021 and December 31, 2020:

	March 31, 2021
	Authorized	Issued	Treasury	Outstanding
Preferred Stock, $1 par value	500,000	—	—	—
Class A Common Stock, $1 par value	2,000,000	—	—	—
Common Stock, $1 par value	3,000,000	2,533,315	2,945	2,530,370

	December 31, 2020
	Authorized	Issued	Treasury	Outstanding
Preferred Stock, $1 par value	500,000	—	—	—
Class A Common Stock, $1 par value	2,000,000	—	—	—
Common Stock, $1 par value	3,000,000	2,533,315	2,945	2,530,370

Treasury Stock

Treasury stock may be purchased pursuant to the share repurchase plan authorized by the Board of Directors in May 2020. Effective June 1, 2020, the Board authorized the repurchase of up to $500,000 of the Company's outstanding common stock. The plan expires May 31, 2021.

During the three months ended March 31, 2021, the Company repurchased no shares of common stock. During the year ended December 31, 2020, the Company purchased 2,509 shares of common stock which were placed in treasury stock.

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

3 Months Ended

Mar. 31, 2021

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) ("AOCI") includes certain items that are reported directly within a separate component of shareholders' equity. The following table presents changes in AOCI balances:

($ in thousands)	Three months ended March 31,
	2021		2020
Unrealized Gains (Losses) on Cash Flow Hedges
Balance at beginning of period	$	(489)	$	(51)
Other comprehensive income (loss) for period:
Other comprehensive gain (loss) before reclassifications	489		(545)
Net current period other comprehensive income (loss)	489		(545)
Balance at end of period	$	—	$	(596)
Unrealized Gains (Losses) on Available-for-Sale Securities
Balance at beginning of period	$	4,074	$	2,494
Other comprehensive loss for period:
Other comprehensive loss before reclassifications	(1,635)		(2,032)
Amounts reclassified from accumulated other comprehensive loss	—		92
Net current period other comprehensive loss	(1,635)		(1,940)
Balance at end of period	$	2,439	$	554
Total Accumulated Other Comprehensive Income (Loss) at end of period	$	2,439	$	(42)

The following table presents the amounts reclassified out of AOCI for the three months ended March 31, 2021:

($ in thousands) 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	$	—	Net investment gains
	—		Total before tax
	—		Tax (expense) or benefit
	$	—	Net of Tax

The following table presents the amounts reclassified out of AOCI for the three months ended March 31, 2020:

($ in thousands) 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	$	(117)	Net investment losses
	(117)		Total before tax
	25		Tax (expense) or benefit
	$	(92)	Net of Tax

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SEGMENTS

3 Months Ended

Mar. 31, 2021

Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract]

SEGMENTS

SEGMENTS

The Company’s property and casualty insurance operations comprise one business segment. The property and casualty insurance segment primarily underwrites home insurance coverage with primary lines of business consisting of dwelling fire and extended coverage, homeowners (including mobile homeowners) and other liability. 

Management organizes the business utilizing a niche strategy focusing on lower valued dwellings and older homes that can be difficult to insure in the standard insurance market.  Our chief decision makers (Chief Executive Officer, Chief Financial Officer and subsidiary President) review results and operating plans making decisions on resource allocations on a company-wide basis.  The Company’s products are primarily produced through independent agents within the states in which we operate.  

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 supplemental accident and health insurance.

Total assets by industry segment at March 31, 2021 and December 31, 2020 are summarized below:

($ in thousands) Assets by industry segment	Total		P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations
March 31, 2021	$	151,575	$	87,641	$	58,208	$	5,726
December 31, 2020	$	150,540	$	85,375	$	59,394	$	5,771

Net income (loss) by business segment for the three months ended March 31, 2021 and 2020 is summarized below:

($ in thousands) Three months ended March 31, 2021	P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations		Inter- company Eliminations		Total
REVENUES
Net premiums earned	$	13,672	$	1,390	$	—	$	—	$	15,062
Net investment income	305		622		12		(135)		804
Investment gains	101		203		6		—		310
Other income	136		204		240		(444)		136
	14,214		2,419		258		(579)		16,312
BENEFITS AND EXPENSES
Policyholder benefits paid	7,956		1,447		—		(100)		9,303
Amortization of deferred policy acquisition costs	687		284		—		—		971
Commissions	2,059		77		—		—		2,136
General and administrative expenses	2,071		402		310		(479)		2,304
Taxes, licenses and fees	449		87		—		—		536
Interest expense	—		10		128		—		138
	13,222		2,307		438		(579)		15,388
Income (Loss) Before Income Taxes	992		112		(180)		—		924
INCOME TAX EXPENSE (BENEFIT)	220		23		(41)		—		202
Net Income (Loss)	$	772	$	89	$	(139)	$	—	$	722

($ in thousands) Three months ended March 31, 2020	P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations		Inter-company Eliminations		Total
REVENUES
Net premiums earned	$	13,522	$	1,433	$	—	$	—	$	14,955
Net investment income	425		663		11		(135)		964
Investment losses	(438)		(527)		(25)		—		(990)
Other income	145		258		231		(489)		145
	13,654		1,827		217		(624)		15,074
BENEFITS AND EXPENSES
Policyholder benefits paid	9,591		1,138		—		(146)		10,583
Amortization of deferred policy acquisition costs	681		384		—		—		1,065
Commissions	1,990		85		—		—		2,075
General and administrative expenses	1,821		400		(349)		(478)		1,394
Taxes, licenses and fees	619		102		—		—		721
Interest expense	—		9		252		—		261
	14,702		2,118		(97)		(624)		16,099
Income (Loss) Before Income Taxes	(1,048)		(291)		314		—		(1,025)
INCOME TAX EXPENSE (BENEFIT)	(168)		(62)		65		—		(165)
Net Income (Loss)	$	(880)	$	(229)	$	249	$	—	$	(860)

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 months ended March 31, 2021 and 2020, respectively:

($ in thousands)	Three months ended March 31,
	2021		2020
Life, accident and health operations premiums written:
Traditional life insurance	$	1,018	$	1,058
Accident and health insurance	392		407
Gross life, accident and health	1,410		1,465
Reinsurance premium ceded	(43)		(35)
Net life, accident and health premiums written	$	1,367	$	1,430
Property and Casualty operations premiums written:
Dwelling fire & extended coverage	$	11,863	$	10,252
Homeowners (Including mobile homeowners)	5,027		4,835
Other liability	534		579
Gross property and casualty	17,424		15,666
Reinsurance premium ceded	(2,405)		(1,765)
Net property and casualty written	$	15,019	$	13,901
Consolidated gross premiums written	$	18,834	$	17,131
Reinsurance premium ceded	(2,448)		(1,800)
Consolidated net premiums written	$	16,386	$	15,331

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 months ended March 31, 2021 and 2020, respectively:

($ in thousands)	Three months ended March 31,
	2021		2020
Life, accident and health operations premiums earned:
Traditional life insurance	$	1,042	$	1,066
Accident and health insurance	391		402
Gross life, accident and health	1,433		1,468
Reinsurance premium ceded	(43)		(35)
Net life, accident and health premiums earned	$	1,390	$	1,433
Property and Casualty operations premiums earned:
Dwelling fire & extended coverage	$	10,178	$	9,652
Homeowners (Including mobile homeowners)	5,362		5,081
Other liability	537		554
Gross property and casualty	16,077		15,287
Reinsurance premium ceded	(2,405)		(1,765)
Net property and casualty earned	$	13,672	$	13,522
Consolidated gross premiums earned	$	17,510	$	16,755
Reinsurance premium ceded	(2,448)		(1,800)
Consolidated net premiums earned	$	15,062	$	14,955

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CONTINGENCIES

3 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

CONTINGENCIES

CONTINGENCIES

In the ordinary course of business, the Company and its subsidiaries are routinely a defendant in or party to pending or threatened legal actions and proceedings related to the conduct of their insurance operations. These suits can involve alleged breaches of contracts, torts, including bad faith and fraud claims based on alleged wrongful or fraudulent acts of the Company's subsidiaries, and other miscellaneous causes of action. It is inherently difficult to predict the outcome of such matters, particularly when the claimant seeks very large or indeterminate damages or when the matters present novel legal theories or involve multiple parties. An accrued liability is established when loss contingencies are both probable and estimable. However, there is potential loss exposure in excess of any accrued amounts. The Company monitors pending matters for further development that could affect the amount of the accrued liability.

The Company's property & casualty subsidiaries had one longstanding action remaining in Texas filed in the aftermath of Hurricane Ike which was favorably resolved in the second quarter of 2020 with no material impact on these consolidated financial statements.

The Company maintains loss and loss adjustment expense reserves on litigated claims that occur in the routine course of business in the insurance operations of the subsidiaries. These reserves are included in the liability for benefit and loss reserves on the balance sheet and include estimates for associated legal costs for individual claims. In addition the Company has a current accrual of $625,000 for legal expenses and third party claimant settlement cost. There are no individual actions not accrued that are deemed material by management based upon an evaluation of information presently available.

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SUPPLEMENTAL CASH FLOW INFORMATION	3 Months Ended
	Mar. 31, 2021
Supplemental Cash Flow Elements [Abstract]
SUPPLEMENTAL CASH FLOW INFORMATION	SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest during the three months ended March 31, 2021 was $169,000 ($248,000 in 2020). There was no cash received or paid from income taxes during the three months ended March 31, 2021. There was no cash received or paid from income taxes during the three months ended March 31, 2020.

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SUBSEQUENT EVENTS	3 Months Ended
	Mar. 31, 2021
Subsequent Events [Abstract]
SUBSEQUENT EVENTS	SUBSEQUENT EVENTS Management has evaluated subsequent events and their potential effects on these condensed consolidated financial statements through the filing date of this Form 10-Q.

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

Principles of Consolidation

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).  The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP).  In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the condensed consolidated financial statements have been included. All significant intercompany transactions and accounts have been eliminated in the condensed consolidated financial statements.

Basis of Presentation

The financial information presented herein should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which includes information and disclosures not presented herein.

Use of Estimates

The preparation of financial statements in conformity with GAAP 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in these condensed consolidated financial statements are reserves for future life insurance policy benefits, liabilities for losses and loss adjustment expenses, reinsurance recoverable associated with 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 the estimates used in preparing these condensed consolidated financial statements.

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 2,530,370 at March 31, 2021 and 2,530,783 at March 31, 2020. The Company did not have any dilutive securities as of March 31, 2021 and 2020.

Concentration of Credit Risk

The Company maintains cash balances which are generally held in non-interest bearing demand deposit accounts subject to FDIC insured limits of $250,000 per entity. At March 31, 2021, the net amount exceeding FDIC insured limits was $6,813,000 at three financial institutions. The Company has not experienced any losses in such accounts. Management of the Company reviews financial information of financial institutions 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 March 31, 2021, the single largest balance due from one agent totaled $497,000.

Reinsurance contracts do not relieve the Company of its obligations to policyholders. A failure of a reinsurer to meet its obligation could result in losses to the insurance subsidiaries. Allowances for losses on reinsurance recoverables are established if amounts are believed to be uncollectible. At March 31, 2021 and December 31, 2020, 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 March 31, 2021, management does not believe the Company is exposed to any significant credit risk related to its reinsurance program.

Accounting Changes Not Yet Adopted and Recently Adopted Accounting Standards

Accounting Changes Not Yet Adopted

Reference Rate Reform

In March 2020, the Financial Accounting Standards Board (FASB) issued guidance that provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the

financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The Company has exposure to LIBOR based financial instruments through its subordinated debentures. The contracts with respect to these borrowings contain alternative reference rates that would automatically take effect upon the phasing out of LIBOR and would not materially change the liability exposure. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is evaluating the optional expedients and exceptions in the guidance but does not expect the adoption of this guidance to have a material impact on its financial position or results of operations.

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued guidance to improve the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The guidance improves timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to discount future cash flows. The guidance will simplify and improve accounting for certain market-based options or guarantees associated with deposit type contracts and simplify the amortization of deferred policy acquisition costs. The guidance also introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures. The guidance is effective for fiscal years beginning after December 15, 2024 and interim periods within those fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company is currently evaluating the impact of this new guidance. Due to the nature and extent of the changes required to the Company’s life insurance operations, the adoption of this standard is expected to have a material impact on the consolidated financial statements.

Financial Instruments - Credit Losses

In June 2016, the FASB issued guidance that replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The FASB released additional guidance in November 2018 that provides scope clarification. This guidance is effective for fiscal years beginning after December 15, 2022, including interim periods within those years. The Company does not expect the adoption to have a material impact on its financial position or results of operations.

Recently Adopted Accounting Standards

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued guidance to simplify the accounting for income taxes. The guidance removes certain exceptions to general principles in the income tax guidance and amends existing guidance to improve consistent application. The guidance is effective for fiscal years beginning after December 15, 2020. The Company adopted this guidance on January 1, 2021. The adoption of this guidance did not have a material impact on its financial position or results of operations.

Variable Interest Entities

The Company holds passive interests in limited partnerships that are considered to be Variable Interest Entities (VIE) under the provisions of ASC 810 Consolidation. The Company is not the primary beneficiary of the entities and is not required to consolidate under ASC 810. The entities are private placement investment funds formed for the purpose of investing in private equity investments. The Company owns less than 1% of the limited partnerships. The carrying value of the investments totals $472,000 at March 31, 2021 ($460,000 at December 31, 2020) 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.

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.  The December 31, 2020 swap liability is reported as a component of other liabilities on the condensed consolidated balance sheets.

Fair Values of Financial Instruments

Our available-for-sale securities consists of fixed maturity and equity securities which are recorded at fair value in the accompanying condensed consolidated balance sheets.  

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 with 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 floating-rate notes, corporate bonds, and municipal bonds.

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 quoted market prices in active markets for identical assets are reflected within Level 1 while 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.

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.

Fixed maturities held-to-maturity — the carrying amount is amortized cost; the fair values of the Company’s public fixed maturity securities that are classified as held-to-maturity are generally based on prices obtained from independent pricing services.

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.

Reinsurance

The Company's insurance operations utilize reinsurance in the risk management process in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and effect business-sharing arrangements. Life reinsurance is placed through yearly renewable term coverage. Property and casualty reinsurance is placed on an excess of loss basis to cover losses from catastrophe events. Reinsurance contracts do not relieve the insurance subsidiaries of the obligation indemnify policyholders with respect to the underlying insurance contracts. Failure of re-insurers to honor their obligations could result in credit related 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 or have adverse impacts on regulatory capital levels 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 and tropical stormsAmounts 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.  Cost is amortized over the reinsurance contract period.

Business Segment

The Company’s property and casualty insurance operations comprise one business segment. The property and casualty insurance segment primarily underwrites home insurance coverage with primary lines of business consisting of dwelling fire and extended coverage, homeowners (including mobile homeowners) and other liability. 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 supplemental accident and health insurance.

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INVESTMENTS (Tables)

3 Months Ended

Mar. 31, 2021

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 March 31, 2021 are as follows:

($ in thousands) Available-for-sale securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government corporations and agencies	$	5,861	$	251	$	72	$	6,040
Agency mortgage backed securities	19,979		598		219		20,358
Asset backed securities	8,199		158		19		8,338
Private label mortgage backed securities	1,795		42		19		1,818
Corporate bonds	41,212		2,814		320		43,706
States, municipalities and political subdivisions	7,334		96		221		7,209
Total Fixed Maturities	84,380		3,959		870		87,469
Equity securities	1,761		2,835		—		4,596
Total	$	86,141	$	6,794	$	870	$	92,065

The amortized cost and aggregate fair values of investments in available-for-sale securities as of December 31, 2020 are as follows:

($ in thousands) Available-for-sale securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government corporations and agencies	$	4,300	$	323	$	9	$	4,614
Agency mortgage backed securities	19,773		919		63		20,629
Asset backed securities	8,233		137		27		8,343
Private label mortgage backed securities	1,418		50		55		1,413
Corporate bonds	35,930		3,771		50		39,651
States, municipalities and political subdivisions	6,587		189		27		6,749
Total Fixed Maturities	76,241		5,389		231		81,399
Equity securities	1,918		2,832		—		4,750
Total	$	78,159	$	8,221	$	231	$	86,149

Schedule of Held-to-Maturity Securities

The amortized cost and aggregate fair values of investments in held-to-maturity securities as of March 31, 2021 are as follows:

($ in thousands) Held-to-maturity securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Agency mortgage backed securities	$	768	$	67	$	—	$	835
Total	$	768	$	67	$	—	$	835

The amortized cost and aggregate fair values of investments in held-to-maturity securities as of December 31, 2020 are as follows:

($ in thousands) Held-to-maturity securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Agency mortgage backed securities	$	873	$	73	$	—	$	946
Total	$	873	$	73	$	—	$	946

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 March 31, 2021, by contractual maturity, are presented in the following table.  Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

($ in thousands)	Amortized Cost		Fair Value
Available-for-sale securities:
Due after one year through five years	$	21,645	$	22,766
Due after five years through ten years	23,899		24,934
Due after ten years	38,836		39,769
Total	$	84,380	$	87,469
Held-to-maturity securities:
Due after one year through five years	$	15	$	15
Due after five years through ten years	3		4
Due after ten years	750		816
Total	$	768	$	835

Schedule of Securities with Unrealized Losses

A summary of securities available-for-sale with unrealized losses as of March 31, 2021, 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:

($ in thousands)	Less than 12 months				12 months or longer				Total
March 31, 2021	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Total Securities in a Loss Position
U.S. Government corporations and agencies	$	2,167	$	72	$	—	$	—	$	2,167	$	72	3
Agency mortgage backed securities	7,295		216		1		3		7,296		219		16
Asset backed securities	3,788		19		—		—		3,788		19		5
Private label mortgage backed securities	—		—		832		19		832		19		1
Corporate bonds	6,497		319		499		1		6,996		320		13
States, municipalities and political subdivisions	3,516		221		—		—		3,516		221		5
	$	23,263	$	847	$	1,332	$	23	$	24,595	$	870	43

There were no securities held-to-maturity with unrealized losses as of March 31, 2021.

A summary of securities available-for-sale with unrealized losses as of December 31, 2020, 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:

($ in thousands)	Less than 12 months				12 months or longer				Total
December 31, 2020	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Total Securities in a Loss Position
U.S. Government corporations and agencies	$	666	$	9	$	—	$	—	$	666	$	9	1
Agency mortgage backed securities	2,264		56		2		7		2,266		63		8
Asset backed securities	1,737		27		—		—		1,737		27		2
Private label mortgage backed securities	891		55		—		—		891		55		1
Corporate bonds	2,467		45		495		5		2,962		50		5
States, municipalities and political subdivisions	1,713		27		—		—		1,713		27		3
	$	9,738	$	219	$	497	$	12	$	10,235	$	231	20

There were no securities held-to-maturity with unrealized losses as of December 31, 2020.

Summary of Major Categories of Investment Income

Major categories of investment income are summarized as follows:

($ in thousands)	Three months ended March 31,
	2021		2020
Fixed maturities	$	757	$	916
Equity securities	49		41
Mortgage loans on real estate	2		2
Investment real estate	—		1
Policy loans	34		36
Other	2		4
	844		1,000
Less: Investment expenses	40		36
Net investment income	$	804	$	964

Schedule of Realized Investments Gains (Losses)

Major categories of investment gains and losses are summarized as follows:

($ in thousands)	Three months ended March 31,
	2021		2020
Realized gains on fixed maturities	$	—	$	121
Realized gains (losses) on equity securities	357		(25)
Gains on trading securities	7		—
Change in fair value of equity securities	3		(599)
Change in surrender value of company owned life insurance	(57)		(251)
Other gains principally real estate	—		2
Other-than-temporary impairments	—		(238)
Net investment gains (losses)	$	310	$	(990)

Schedule of Net Change in Unrealized Appreciation

An analysis of the net change in unrealized gains (losses) on available-for-sale securities follows:

($ in thousands)	March 31, 2021		March 31, 2020
Fixed maturities	$	(2,069)	$	(2,456)
Deferred income tax	434		516
Change in net unrealized gains on available-for-sale securities	$	(1,635)	$	(1,940)

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FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

Financial assets measured at fair value on a recurring basis as of March 31, 2021 are summarized in the following table by the type of inputs applicable to the fair value measurements:

($ in thousands)	Fair Value Measurements at Reporting Date Using
Description	Total		Level 1		Level 2		Level 3
Financial Assets
Fixed maturities available-for-sale
U.S. Government corporations and agencies	$	6,040	$	6,040	$	—	$	—
Agency mortgage backed securities	20,358		13,514		6,844		—
Asset backed securities	8,338		3,167		5,171		—
Corporate bonds	43,706		—		43,706		—
Private label asset backed securities	1,818		832		986		—
States, municipalities and political subdivisions	7,209		—		7,209		—
Trading securities	176		176		—		—
Equity securities	4,596		3,100		—		1,496
Total Financial Assets	$	92,241	$	26,829	$	63,916	$	1,496

Financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 are summarized in the following table by the type of inputs applicable to the fair value measurements:

($ in thousands)	Fair Value Measurements at Reporting Date Using
Description	Total		Level 1		Level 2		Level 3
Financial Assets
Fixed maturities available-for-sale
U.S. Government corporations and agencies	$	4,614	$	4,614	$	—	$	—
Agency mortgage backed securities	20,629		12,044		8,585		—
Asset backed securities	8,343		2,343		6,000		—
Corporate bonds	39,651		—		39,651		—
Private label asset backed securities	1,413		891		522		—
States, municipalities and political subdivisions	6,749		—		6,749		—
Trading securities	169		169		—		—
Equity securities available-for-sale	4,750		3,248		—		1,502
Total Financial Assets	$	86,318	$	23,309	$	61,507	$	1,502
Financial Liabilities
Interest rate swap	$	(619)	$	—	$	—	$	(619)
Total Financial Liabilities	$	(619)	$	—	$	—	$	(619)

Schedule of Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The table below presents a reconciliation for all assets and for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended March 31, 2021:

($ in thousands) For the three months ended March 31, 2021	Equity Securities		Interest Rate Swap
Beginning balance	$	1,502	$	(619)
Total gains or losses (realized and unrealized):
Included in earnings	(6)		—
Included in other comprehensive income	—		619
Purchases:	—		—
Sales:	—		—
Issuances:	—		—
Settlements:	—		—
Transfers in/(out) of Level 3	—		—
Ending balance	$	1,496	$	—
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 March 31, 2021:	$	(6)	$	—

The table below presents a reconciliation for all assets and for all liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31, 2020:

($ in thousands) For the year ended December 31, 2020	Equity Securities Available-for-Sale		Interest Rate Swap
Beginning balance	$	1,315	$	(65)
Total gains or losses (realized and unrealized):
Included in earnings	187		—
Included in other comprehensive income	—		(554)
Purchases:	—		—
Sales:	—		—
Issuances:	—		—
Settlements:	—		—
Transfers in/(out) of Level 3	—		—
Ending balance	$	1,502	$	(619)
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, 2020:	$	187	$	—

Schedule of Fair Value, by Balance Sheet Grouping

The carrying amount and estimated fair value of the Company’s financial instruments as of March 31, 2021 and December 31, 2020 are as follows:

($ in thousands)	March 31, 2021				December 31, 2020
Assets and related instruments	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Held-to-maturity securities	$	768	$	835	$	873	$	946
Mortgage loans	144		144		145		145
Policy loans	1,811		1,811		1,846		1,846
Company owned life insurance	4,941		4,941		4,998		4,998
Other invested assets	1,921		1,921		2,033		2,033
Liabilities and related instruments
Other policyholder funds	1,353		1,353		1,342		1,342
Short-term notes payable and current portion of long-term debt	500		500		500		500
Long-term debt	13,180		13,180		13,177		13,177

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PROPERTY AND EQUIPMENT (Tables)

3 Months Ended

Mar. 31, 2021

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

Major categories of property and equipment are summarized as follows:

($ in thousands)	March 31, 2021		December 31, 2020
Building and improvements	$	3,491	$	3,491
Electronic data processing equipment	1,502		1,498
Furniture and fixtures	483		483
	5,476		5,472
Less accumulated depreciation	3,925		3,900
Property and equipment, net	$	1,551	$	1,572

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INCOME TAXES (Tables)

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

Schedule of Deferred Tax Assets and Liabilities

The tax effect of significant differences representing deferred tax assets and liabilities are as follows:

($ in thousands)	As of March 31,  2021		As of December 31,  2020
General expenses	$	1,456	$	1,448
Unearned premiums	1,395		1,313
Claims liabilities	685		698
NOL carryforward	296		632
Impairment on real estate owned	147		147
Unrealized loss on interest rate swaps	—		130
Deferred tax assets	3,979		4,368
Unrealized gains on trading securities	(1)		(3)
Depreciation	(93)		(95)
Deferred policy acquisition costs	(1,551)		(1,555)
Pre-1984 policyholder surplus account	(314)		(331)
Unrealized gains on securities available-for-sale	(649)		(1,083)
Unrealized gains on equity securities	(595)		(595)
Deferred tax liabilities	(3,203)		(3,662)
Net deferred tax asset	$	776	$	706

Changes in Temporary Differences in Federal Income Tax

The appropriate income tax effects of changes in temporary differences are as follows:

($ in thousands)	Three months ended March 31,
	2021		2020
Deferred policy acquisition costs	$	(4)	$	(30)
Other-than-temporary impairments	—		(40)
Trading securities	(2)		(6)
Unearned premiums	(82)		(30)
General expenses	(8)		108
Depreciation	(2)		(2)
Claims liabilities	13		30
Impact of repeal of special provision on pre-1984 policyholder surplus	(17)		(16)
NOL carryforward	336		—
Unrealized gains (losses) on equity securities	—		(126)
Deferred income tax expense (benefit)	$	234	$	(112)

Schedule of Effective Income Tax Rate Reconciliation

Total income tax expense (benefit) varies from amounts computed by applying current federal income tax rates to income or loss before income taxes.  The reasons for these differences and the approximate tax effects are as follows:

	Three months ended March 31,
	2021		2020
Federal income tax rate applied to pre-tax income (loss)	21.0	%	21.0	%
Dividends received deduction and tax-exempt interest	(0.3)	%	0.3	%
Company owned life insurance	1.3	%	(5.1)	%
Other, net	(0.1)	%	(0.1)	%
Effective federal income tax rate	21.9	%	16.1	%

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NOTES PAYABLE AND LONG-TERM DEBT (Tables)

3 Months Ended

Mar. 31, 2021

Debt Disclosure [Abstract]

Schedule of Short-term Debt

Short-term debt and current portion of long-term debt consisted of the following as of March 31, 2021 and December 31, 2020:

($ in thousands)	March 31,		December 31,
	2021		2020
Current portion of installment note payable due in November with variable interest rate equal to the WSJ prime rate plus 0.5%, with a 4.75% floor. Unsecured.	$	500	$	500
	$	500	$	500

Schedule of Long-term Debt Instruments

Long-term debt consisted of the following as of March 31, 2021 and December 31, 2020:

($ in thousands)	March 31,		December 31,
	2021		2020
Promissory note with variable interest rate equal to the WSJ prime rate plus 0.5%, with a 4.75% floor; maturity November 2023. Annual installment payments beginning November 2020. Unsecured.	$	1,000	$	1,000
Subordinated debentures issued on December 15, 2005 with floating rate interest equal to 3-Month LIBOR plus 375 basis points; net of $138,000 in debt issuance cost ($140,000 in 2020); maturity December 15, 2035.  Interest payable quarterly.  Redeemable prior to maturity. Unsecured.	9,141		9,139
Subordinated debentures issued on June 21, 2007 with floating rate interest equal to 3-Month LIBOR plus 340 basis points; net of $54,000 in debt issuance cost ($55,000 in 2020); maturity June 15, 2037. Interest payable quarterly.  Redeemable prior to maturity. Unsecured.	3,039		3,038
	$	13,180	$	13,177

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POLICY AND CLAIM RESERVES (Tables)

3 Months Ended

Mar. 31, 2021

Insurance [Abstract]

Reconciliation of Policy and Claim Reserves

The following table is a reconciliation of beginning and ending property and casualty reserve balances for claims and claim adjustment expense:

($ in thousands)	Three months ended March 31,
	2021		2020
Summary of claims and claim adjustment expense reserves
Balance, beginning of year	$	10,177	$	7,199
Less reinsurance recoverable on unpaid losses	3,321		249
Net balances at beginning of year	6,856		6,950
Net losses:
Provision for claims and claim adjustment expenses for claims arising in current year	9,034		9,622
Estimated claims and claim adjustment expenses for claims arising in prior years	(1,078)		(32)
Total increases	7,956		9,590
Claims and claim adjustment expense payments for claims arising in:
Current year	5,280		6,856
Prior years	2,416		3,460
Total payments	7,696		10,316
Net balance at end of period	7,116		6,224
Plus reinsurance recoverable on unpaid losses	2,393		241
Claims and claim adjustment expense reserves at end of period	$	9,509	$	6,465

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REINSURANCE (Tables)

3 Months Ended

Mar. 31, 2021

Reinsurance Disclosures [Abstract]

Schedule of Reinsurance

Catastrophe reinsurance coverage is maintained in three layers as follows:

Layer	Reinsurers' Limits of Liability
First Layer	100% of $13,500,000 in excess of $4,000,000 retention
Second Layer	100% of $25,000,000 in excess of $17,500,000
Third Layer	100% of $30,000,000 in excess of $42,500,000
Catastrophe Aggregate	100% of $2,000,000 in excess of $2,000,000 aggregate annual deductible

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SHAREHOLDERS' EQUITY (Tables)

3 Months Ended

Mar. 31, 2021

Stockholders' Equity Note [Abstract]

Schedule of Stock by Class

The table below provides information regarding the Company's preferred and common stock as of March 31, 2021 and December 31, 2020:

	March 31, 2021
	Authorized	Issued	Treasury	Outstanding
Preferred Stock, $1 par value	500,000	—	—	—
Class A Common Stock, $1 par value	2,000,000	—	—	—
Common Stock, $1 par value	3,000,000	2,533,315	2,945	2,530,370

	December 31, 2020
	Authorized	Issued	Treasury	Outstanding
Preferred Stock, $1 par value	500,000	—	—	—
Class A Common Stock, $1 par value	2,000,000	—	—	—
Common Stock, $1 par value	3,000,000	2,533,315	2,945	2,530,370

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables)

3 Months Ended

Mar. 31, 2021

Equity [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss)

The following table presents changes in AOCI balances:

($ in thousands)	Three months ended March 31,
	2021		2020
Unrealized Gains (Losses) on Cash Flow Hedges
Balance at beginning of period	$	(489)	$	(51)
Other comprehensive income (loss) for period:
Other comprehensive gain (loss) before reclassifications	489		(545)
Net current period other comprehensive income (loss)	489		(545)
Balance at end of period	$	—	$	(596)
Unrealized Gains (Losses) on Available-for-Sale Securities
Balance at beginning of period	$	4,074	$	2,494
Other comprehensive loss for period:
Other comprehensive loss before reclassifications	(1,635)		(2,032)
Amounts reclassified from accumulated other comprehensive loss	—		92
Net current period other comprehensive loss	(1,635)		(1,940)
Balance at end of period	$	2,439	$	554
Total Accumulated Other Comprehensive Income (Loss) at end of period	$	2,439	$	(42)

Reclassification out of Accumulated Other Comprehensive Income

The following table presents the amounts reclassified out of AOCI for the three months ended March 31, 2021:

($ in thousands) 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	$	—	Net investment gains
	—		Total before tax
	—		Tax (expense) or benefit
	$	—	Net of Tax

The following table presents the amounts reclassified out of AOCI for the three months ended March 31, 2020:

($ in thousands) 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	$	(117)	Net investment losses
	(117)		Total before tax
	25		Tax (expense) or benefit
	$	(92)	Net of Tax

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SEGMENTS (Tables)

3 Months Ended

Mar. 31, 2021

Segment Reporting, Disclosure of Entity's Reportable Segments [Abstract]

Schedule of Segment Reporting Information, by Segment

Total assets by industry segment at March 31, 2021 and December 31, 2020 are summarized below:

($ in thousands) Assets by industry segment	Total		P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations
March 31, 2021	$	151,575	$	87,641	$	58,208	$	5,726
December 31, 2020	$	150,540	$	85,375	$	59,394	$	5,771

Net income (loss) by business segment for the three months ended March 31, 2021 and 2020 is summarized below:

($ in thousands) Three months ended March 31, 2021	P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations		Inter- company Eliminations		Total
REVENUES
Net premiums earned	$	13,672	$	1,390	$	—	$	—	$	15,062
Net investment income	305		622		12		(135)		804
Investment gains	101		203		6		—		310
Other income	136		204		240		(444)		136
	14,214		2,419		258		(579)		16,312
BENEFITS AND EXPENSES
Policyholder benefits paid	7,956		1,447		—		(100)		9,303
Amortization of deferred policy acquisition costs	687		284		—		—		971
Commissions	2,059		77		—		—		2,136
General and administrative expenses	2,071		402		310		(479)		2,304
Taxes, licenses and fees	449		87		—		—		536
Interest expense	—		10		128		—		138
	13,222		2,307		438		(579)		15,388
Income (Loss) Before Income Taxes	992		112		(180)		—		924
INCOME TAX EXPENSE (BENEFIT)	220		23		(41)		—		202
Net Income (Loss)	$	772	$	89	$	(139)	$	—	$	722

($ in thousands) Three months ended March 31, 2020	P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations		Inter-company Eliminations		Total
REVENUES
Net premiums earned	$	13,522	$	1,433	$	—	$	—	$	14,955
Net investment income	425		663		11		(135)		964
Investment losses	(438)		(527)		(25)		—		(990)
Other income	145		258		231		(489)		145
	13,654		1,827		217		(624)		15,074
BENEFITS AND EXPENSES
Policyholder benefits paid	9,591		1,138		—		(146)		10,583
Amortization of deferred policy acquisition costs	681		384		—		—		1,065
Commissions	1,990		85		—		—		2,075
General and administrative expenses	1,821		400		(349)		(478)		1,394
Taxes, licenses and fees	619		102		—		—		721
Interest expense	—		9		252		—		261
	14,702		2,118		(97)		(624)		16,099
Income (Loss) Before Income Taxes	(1,048)		(291)		314		—		(1,025)
INCOME TAX EXPENSE (BENEFIT)	(168)		(62)		65		—		(165)
Net Income (Loss)	$	(880)	$	(229)	$	249	$	—	$	(860)

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 months ended March 31, 2021 and 2020, respectively:

($ in thousands)	Three months ended March 31,
	2021		2020
Life, accident and health operations premiums written:
Traditional life insurance	$	1,018	$	1,058
Accident and health insurance	392		407
Gross life, accident and health	1,410		1,465
Reinsurance premium ceded	(43)		(35)
Net life, accident and health premiums written	$	1,367	$	1,430
Property and Casualty operations premiums written:
Dwelling fire & extended coverage	$	11,863	$	10,252
Homeowners (Including mobile homeowners)	5,027		4,835
Other liability	534		579
Gross property and casualty	17,424		15,666
Reinsurance premium ceded	(2,405)		(1,765)
Net property and casualty written	$	15,019	$	13,901
Consolidated gross premiums written	$	18,834	$	17,131
Reinsurance premium ceded	(2,448)		(1,800)
Consolidated net premiums written	$	16,386	$	15,331

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 months ended March 31, 2021 and 2020, respectively:

($ in thousands)	Three months ended March 31,
	2021		2020
Life, accident and health operations premiums earned:
Traditional life insurance	$	1,042	$	1,066
Accident and health insurance	391		402
Gross life, accident and health	1,433		1,468
Reinsurance premium ceded	(43)		(35)
Net life, accident and health premiums earned	$	1,390	$	1,433
Property and Casualty operations premiums earned:
Dwelling fire & extended coverage	$	10,178	$	9,652
Homeowners (Including mobile homeowners)	5,362		5,081
Other liability	537		554
Gross property and casualty	16,077		15,287
Reinsurance premium ceded	(2,405)		(1,765)
Net property and casualty earned	$	13,672	$	13,522
Consolidated gross premiums earned	$	17,510	$	16,755
Reinsurance premium ceded	(2,448)		(1,800)
Consolidated net premiums earned	$	15,062	$	14,955

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SIGNIFICANT ACCOUNTING POLICIES (Earnings Per Share, Concentration of Credit Risk) (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Accounting Policies [Abstract]
Weighted average number of shares outstanding	2,530,370	2,530,783
Antidilutive securities excluded from computation of earnings per share (in shares)	0	0
Cash, uninsured amount	$ 6,813,000
Allowance for credit loss on reinsurance recoverable	0		$ 0
Concentration Risk [Line Items]
Policy receivables and agents' balances, net	13,733,000		$ 12,345,000
Single Largest Agent Balance Due
Concentration Risk [Line Items]
Policy receivables and agents' balances, net	$ 497,000

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VARIABLE INTEREST ENTITIES (Details) - USD ($) $ in Thousands	1 Months Ended		3 Months Ended
	Jun. 30, 2007	Dec. 31, 2005	Mar. 31, 2021	Dec. 31, 2020
Variable Interest Entity [Line Items]
Investments			$ 104,805	$ 99,150
Variable Interest Entity, Not Primary Beneficiary
Variable Interest Entity [Line Items]
Investments			$ 472	$ 460
Variable Interest Entity, Not Primary Beneficiary | Maximum
Variable Interest Entity [Line Items]
Limited partnership, percent owned			1.00%
Trust Preferred Security Offering, 2005
Variable Interest Entity [Line Items]
Payments to acquire trust preferred securities		$ 9,000
Subordinated debt		9,279
Proceeds from issuance of trust preferred securities		9,005
Equity investment		$ 279
Trust Preferred Security Offering, 2007
Variable Interest Entity [Line Items]
Payments to acquire trust preferred securities	$ 3,000
Proceeds from issuance of trust preferred securities	2,995
Equity investment	93
Trust Preferred Security Offering, 2007 | Unsecured Debt
Variable Interest Entity [Line Items]
Subordinated debt	$ 3,093

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INVESTMENTS (Narrative) (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Gain (Loss) on Securities [Line Items]
Held-to-maturity securities, unrealized losses	$ 0	$ 0
Other-than-temporary impairments, available-for-sale securities	0	180,000
Single largest loss position	104,000	55,000
Second largest loss position	80,000	37,000
Third largest loss position	$ 75,000	$ 27,000
Maximum
Gain (Loss) on Securities [Line Items]
Percent of investment portfolio below investment grade	6.00%

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INVESTMENTS (Available-for-Sale Securities) (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Amortized Cost	$ 84,380	$ 76,241
Fixed maturities, Gross Unrealized Gains	3,959	5,389
Fixed maturities, Gross Unrealized Losses	870	231
Fixed maturities, Fair Value	87,469	81,399
Equity securities, Amortized Cost	1,761	1,918
Equity securities, Gross Unrealized Gains	2,835	2,832
Equity securities, Gross Unrealized Losses	0	0
Equity securities, Fair Value	4,596	4,750
Amortized Cost	86,141	78,159
Gross Unrealized Gains	6,794	8,221
Gross Unrealized Losses	870	231
Fair Value	92,065	86,149
U.S. Government corporations and agencies
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Amortized Cost	5,861	4,300
Fixed maturities, Gross Unrealized Gains	251	323
Fixed maturities, Gross Unrealized Losses	72	9
Fixed maturities, Fair Value	6,040	4,614
Agency mortgage backed securities
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Amortized Cost	19,979	19,773
Fixed maturities, Gross Unrealized Gains	598	919
Fixed maturities, Gross Unrealized Losses	219	63
Fixed maturities, Fair Value	20,358	20,629
Asset backed securities
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Amortized Cost	8,199	8,233
Fixed maturities, Gross Unrealized Gains	158	137
Fixed maturities, Gross Unrealized Losses	19	27
Fixed maturities, Fair Value	8,338	8,343
Private label mortgage backed securities
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Amortized Cost	1,795	1,418
Fixed maturities, Gross Unrealized Gains	42	50
Fixed maturities, Gross Unrealized Losses	19	55
Fixed maturities, Fair Value	1,818	1,413
Corporate bonds
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Amortized Cost	41,212	35,930
Fixed maturities, Gross Unrealized Gains	2,814	3,771
Fixed maturities, Gross Unrealized Losses	320	50
Fixed maturities, Fair Value	43,706	39,651
States, municipalities and political subdivisions
Debt Securities, Available-for-sale [Line Items]
Fixed maturities, Amortized Cost	7,334	6,587
Fixed maturities, Gross Unrealized Gains	96	189
Fixed maturities, Gross Unrealized Losses	221	27
Fixed maturities, Fair Value	$ 7,209	$ 6,749

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INVESTMENTS (Held-to-Maturity Securities) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	$ 768,000	$ 873,000
Held-to-maturity securities, unrealized gains	67,000	73,000
Held-to-maturity securities, unrealized losses	0	0
Fair Value	835,000	946,000
Agency mortgage backed securities
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	768,000	873,000
Held-to-maturity securities, unrealized gains	67,000	73,000
Held-to-maturity securities, unrealized losses	0	0
Fair Value	$ 835,000	$ 946,000

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INVESTMENTS (Amortized Cost and Aggregate Fair Value of Debt Securities, by Contractual Maturity) (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Investments [Abstract]
Available-for-sale Securities, Due after one year through five years, Amortized Cost	$ 21,645
Available-for-sale Securities, Due after one year through five years, Fair Value	22,766
Available-for-sale Securities, Due after five years through ten years, Amortized Cost	23,899
Available-for-sale Securities, Due after five years through ten years, Fair Value	24,934
Available-for-sale Securities, Due after ten years, Amortized Cost	38,836
Available-for-sale Securities, Due after ten years, Fair Value	39,769
Fixed maturities, Amortized Cost	84,380	$ 76,241
Available-for-sale Securities, Fair Value	87,469
Held-to-maturity Securities, Due after one year through five years, Amortized Cost	15
Held-to-maturity Securities, Due after one year through five years, Fair Value	15
Held-to-maturity Securities, Due after five years through ten years, Amortized Cost	3
Held-to-maturity Securities, Due after five years through ten years, Fair Value	4
Held-to-maturity Securities, Due after ten years, Amortized Cost	750
Held-to-maturity Securities, Due after ten years, Fair Value	816
Held-to-maturity Securities, Amortized Cost	768	873
Debt Securities, Held-to-maturity, Fair Value	$ 835	$ 946

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INVESTMENTS (Schedule of Continuous Losses) (Details) $ in Thousands	Mar. 31, 2021 USD ($)	Dec. 31, 2020 USD ($)
Debt Securities, Available-for-sale [Line Items]
Less than 12 Months, Fair Value	$ 23,263	$ 9,738
Less than 12 Months, Gross Unrealized Losses	847	219
12 Months or Longer, Fair Value	1,332	497
12 Months or Longer, Gross Unrealized Losses	23	12
Total Fair Value	24,595	10,235
Total Gross Unrealized Losses	$ 870	$ 231
Total Securities in a Loss Position	43	20
U.S. Government corporations and agencies
Debt Securities, Available-for-sale [Line Items]
Less than 12 Months, Fair Value	$ 2,167	$ 666
Less than 12 Months, Gross Unrealized Losses	72	9
12 Months or Longer, Fair Value	0	0
12 Months or Longer, Gross Unrealized Losses	0	0
Total Fair Value	2,167	666
Total Gross Unrealized Losses	$ 72	$ 9
Total Securities in a Loss Position	3	1
Agency mortgage backed securities
Debt Securities, Available-for-sale [Line Items]
Less than 12 Months, Fair Value	$ 7,295	$ 2,264
Less than 12 Months, Gross Unrealized Losses	216	56
12 Months or Longer, Fair Value	1	2
12 Months or Longer, Gross Unrealized Losses	3	7
Total Fair Value	7,296	2,266
Total Gross Unrealized Losses	$ 219	$ 63
Total Securities in a Loss Position	16	8
Asset backed securities
Debt Securities, Available-for-sale [Line Items]
Less than 12 Months, Fair Value	$ 3,788	$ 1,737
Less than 12 Months, Gross Unrealized Losses	19	27
12 Months or Longer, Fair Value	0	0
12 Months or Longer, Gross Unrealized Losses	0	0
Total Fair Value	3,788	1,737
Total Gross Unrealized Losses	$ 19	$ 27
Total Securities in a Loss Position	5	2
Private label mortgage backed securities
Debt Securities, Available-for-sale [Line Items]
Less than 12 Months, Fair Value	$ 0	$ 891
Less than 12 Months, Gross Unrealized Losses	0	55
12 Months or Longer, Fair Value	832	0
12 Months or Longer, Gross Unrealized Losses	19	0
Total Fair Value	832	891
Total Gross Unrealized Losses	$ 19	$ 55
Total Securities in a Loss Position	1	1
Corporate bonds
Debt Securities, Available-for-sale [Line Items]
Less than 12 Months, Fair Value	$ 6,497	$ 2,467
Less than 12 Months, Gross Unrealized Losses	319	45
12 Months or Longer, Fair Value	499	495
12 Months or Longer, Gross Unrealized Losses	1	5
Total Fair Value	6,996	2,962
Total Gross Unrealized Losses	$ 320	$ 50
Total Securities in a Loss Position	13	5
States, municipalities and political subdivisions
Debt Securities, Available-for-sale [Line Items]
Less than 12 Months, Fair Value	$ 3,516	$ 1,713
Less than 12 Months, Gross Unrealized Losses	221	27
12 Months or Longer, Fair Value	0	0
12 Months or Longer, Gross Unrealized Losses	0	0
Total Fair Value	3,516	1,713
Total Gross Unrealized Losses	$ 221	$ 27
Total Securities in a Loss Position	5	3

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INVESTMENTS (Major Categories of Investment Income) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Gross investment income	$ 844	$ 1,000
Less: Investment expenses	40	36
Net investment income	804	964
Fixed maturities
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Gross investment income	757	916
Equity securities
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Gross investment income	49	41
Mortgage loans on real estate
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Gross investment income	2	2
Investment real estate
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Gross investment income	0	1
Policy loans
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Gross investment income	34	36
Other
SEC Schedule, 12-15, Insurance Companies, Summary of Investments, Other than Investments in Related Parties [Line Items]
Gross investment income	$ 2	$ 4

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INVESTMENTS (Major Categories of Investment Gains and Losses) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Gain (Loss) on Securities [Line Items]
Investment gains (losses)	$ 310	$ (990)
Gains on trading securities	7	0
Other-than-temporary impairments	0	238
Realized gains on fixed maturities
Gain (Loss) on Securities [Line Items]
Investment gains (losses)	0	121
Change in fair value of equity securities
Gain (Loss) on Securities [Line Items]
Investment gains (losses)	3	(599)
Change in surrender value of company owned life insurance
Gain (Loss) on Securities [Line Items]
Investment gains (losses)	(57)	(251)
Other gains principally real estate
Gain (Loss) on Securities [Line Items]
Investment gains (losses)	0	2
Equity securities
Gain (Loss) on Securities [Line Items]
Investment gains (losses)	$ 357	$ (25)

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INVESTMENTS (Schedule of Unrealized Appreciation) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Investments [Abstract]
Fixed maturities	$ (2,069)	$ (2,456)
Deferred income tax	434	516
Change in net unrealized gains on available-for-sale securities	$ (1,635)	$ (1,940)

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FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Narrative) (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Fair Value Disclosures [Abstract]
Fair value measurements of assets	$ 1,496,000
Fair value measurements of liabilities	0
Nonrecurring Basis
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, fair value	0	$ 0
Liabilities, fair value	$ 0	$ 0

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FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Assets/Liabilities Measured at Fair Value on a Recurring Basis) (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	$ 87,469	$ 81,399
Equity securities	4,596	4,750
Recurring Basis
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading securities	176	169
Equity securities	4,596	4,750
Total Financial Assets	92,241	86,318
Total Financial Liabilities		(619)
Recurring Basis | Financial Liabilities | Interest rate swap
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Financial Liabilities		(619)
Recurring Basis | U.S. Government corporations and agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	6,040	4,614
Recurring Basis | Agency mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	20,358	20,629
Recurring Basis | Asset backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	8,338	8,343
Recurring Basis | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	43,706	39,651
Recurring Basis | Private label mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	1,818	1,413
Recurring Basis | States, municipalities and political subdivisions
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	7,209	6,749
Recurring Basis | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading securities	176	169
Equity securities	3,100	3,248
Total Financial Assets	26,829	23,309
Total Financial Liabilities		0
Recurring Basis | Level 1 | Financial Liabilities | Interest rate swap
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Financial Liabilities		0
Recurring Basis | Level 1 | U.S. Government corporations and agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	6,040	4,614
Recurring Basis | Level 1 | Agency mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	13,514	12,044
Recurring Basis | Level 1 | Asset backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	3,167	2,343
Recurring Basis | Level 1 | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	0	0
Recurring Basis | Level 1 | Private label mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	832	891
Recurring Basis | Level 1 | States, municipalities and political subdivisions
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	0	0
Recurring Basis | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading securities	0	0
Equity securities	0	0
Total Financial Assets	63,916	61,507
Total Financial Liabilities		0
Recurring Basis | Level 2 | Financial Liabilities | Interest rate swap
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Financial Liabilities		0
Recurring Basis | Level 2 | U.S. Government corporations and agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	0	0
Recurring Basis | Level 2 | Agency mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	6,844	8,585
Recurring Basis | Level 2 | Asset backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	5,171	6,000
Recurring Basis | Level 2 | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	43,706	39,651
Recurring Basis | Level 2 | Private label mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	986	522
Recurring Basis | Level 2 | States, municipalities and political subdivisions
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	7,209	6,749
Recurring Basis | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Trading securities	0	0
Equity securities	1,496	1,502
Total Financial Assets	1,496	1,502
Total Financial Liabilities		(619)
Recurring Basis | Level 3 | Financial Liabilities | Interest rate swap
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Financial Liabilities		(619)
Recurring Basis | Level 3 | U.S. Government corporations and agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	0	0
Recurring Basis | Level 3 | Agency mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	0	0
Recurring Basis | Level 3 | Asset backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	0	0
Recurring Basis | Level 3 | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	0	0
Recurring Basis | Level 3 | Private label mortgage backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	0	0
Recurring Basis | Level 3 | States, municipalities and political subdivisions
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fixed maturities, Fair Value	$ 0	$ 0

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FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Level 3 Reconciliation) (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Equity Securities
Ending balance	$ 1,496
Interest Rate Swap
Ending balance	0
Recurring Basis | Interest rate swap
Interest Rate Swap
Beginning balance	(619)	$ (65)
Included in earnings	0	0
Included in other comprehensive income	619	(554)
Purchases:	0	0
Sales:	0	0
Issuances:	0	0
Settlements:	0	0
Transfers in/(out) of Level 3	0	0
Ending balance	0	(619)
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	0	0
Recurring Basis | Total Fixed Maturities
Equity Securities
Beginning balance:	1,502	1,315
Included in earnings	(6)	187
Included in other comprehensive income	0	0
Purchases:	0	0
Sales:	0	0
Issuances:	0	0
Settlements:	0	0
Transfers in/(out) of Level 3	0	0
Ending balance	1,496	1,502
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	$ (6)	$ 187

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FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (Fair Value of Assets and Liabilities) (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Other policyholder funds
Liabilities and Related Instruments [Abstract]
Carrying Value, Liabilities	$ 1,353	$ 1,342
Estimated Fair Value, Liabilities	1,353	1,342
Short-term notes payable and current portion of long-term debt
Liabilities and Related Instruments [Abstract]
Carrying Value, Liabilities	500	500
Estimated Fair Value, Liabilities	500	500
Long-term debt
Liabilities and Related Instruments [Abstract]
Carrying Value, Liabilities	13,180	13,177
Estimated Fair Value, Liabilities	13,180	13,177
Held-to-maturity securities
Assets and Related Instruments [Abstract]
Carrying Value, Assets	768	873
Estimated Fair Value, Assets	835	946
Mortgage loans on real estate
Assets and Related Instruments [Abstract]
Carrying Value, Assets	144	145
Estimated Fair Value, Assets	144	145
Policy loans
Assets and Related Instruments [Abstract]
Carrying Value, Assets	1,811	1,846
Estimated Fair Value, Assets	1,811	1,846
Company owned life insurance
Assets and Related Instruments [Abstract]
Carrying Value, Assets	4,941	4,998
Estimated Fair Value, Assets	4,941	4,998
Other invested assets
Assets and Related Instruments [Abstract]
Carrying Value, Assets	1,921	2,033
Estimated Fair Value, Assets	$ 1,921	$ 2,033

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PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 5,476	$ 5,472
Less accumulated depreciation	3,925	3,900
Property and equipment, net	1,551	1,572
Depreciation expense	24	109
Building and improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	3,491	3,491
Electronic data processing equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	1,502	1,498
Furniture and fixtures
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 483	$ 483

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INCOME TAXES (Narrative) (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Income Tax Disclosure [Abstract]
Deferred income tax asset	$ 776	$ 706

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INCOME TAXES (Deferred Tax Assets and Liabilities) (Details) - USD ($) $ in Thousands	Mar. 31, 2021	Dec. 31, 2020
Income Tax Disclosure [Abstract]
General expenses	$ 1,456	$ 1,448
Unearned premiums	1,395	1,313
Claims liabilities	685	698
NOL carryforward	296	632
Impairment on real estate owned	147	147
Unrealized loss on interest rate swaps	0	130
Deferred tax assets	3,979	4,368
Unrealized losses on trading securities	(1)	(3)
Depreciation	(93)	(95)
Deferred policy acquisition costs	(1,551)	(1,555)
Pre-1984 policyholder surplus account	(314)	(331)
Unrealized gains on securities available-for-sale	(649)	(1,083)
Unrealized gains on equity securities	(595)	(595)
Deferred tax liabilities	(3,203)	(3,662)
Net deferred tax asset	$ 776	$ 706

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INCOME TAXES (Schedule of Income Tax Effects of Changes in Temporary Differences) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Tax Disclosure [Abstract]
Deferred policy acquisition costs	$ (4)	$ (30)
Other-than-temporary impairments	0	(40)
Trading securities	(2)	(6)
Unearned premiums	(82)	(30)
General expenses	(8)	108
Depreciation	(2)	(2)
Claims liabilities	13	30
Impact of repeal of special provision on pre-1984 policyholder surplus	(17)	(16)
NOL carryforward	336	0
Unrealized gains (losses) on equity securities	0	(126)
Deferred income tax expense (benefit)	$ 234	$ (112)

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INCOME TAXES (Schedule of Effective Income Tax Rate Reconciliation) (Details)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Tax Disclosure [Abstract]
Federal income tax rate applied to pre-tax income (loss)	21.00%	21.00%
Dividends received deduction and tax-exempt interest	(0.30%)	0.30%
Company owned life insurance	1.30%	(5.10%)
Other, net	(0.10%)	(0.10%)
Effective federal income tax rate	21.90%	16.10%

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NOTES PAYABLE AND LONG-TERM DEBT (Short-Term Debt) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Short-term Debt [Line Items]
Short-term notes payable and current portion of long-term debt	$ 500	$ 500
Notes Payable to Banks | Unsecured Debt
Short-term Debt [Line Items]
Interest rate description	WSJ
Basis spread on variable rate	0.50%
Floor	4.75%
Short-term notes payable and current portion of long-term debt	$ 500	$ 500

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NOTES PAYABLE AND LONG-TERM DEBT (Schedule of Long-Term Debt) (Details) - USD ($) $ in Thousands			3 Months Ended
	Jun. 21, 2007	Dec. 15, 2005	Mar. 31, 2021	Dec. 31, 2020
Debt Instrument [Line Items]
Long-term debt			$ 13,180	$ 13,177
Unsecured Debt | Promissory Note
Debt Instrument [Line Items]
Interest rate description			WSJ
Basis spread on variable rate			0.50%
Floor			4.75%
Long-term debt			$ 1,000	1,000
Unsecured Debt | Trust Preferred Security Offering, 2005
Debt Instrument [Line Items]
Debt issuance costs, net			138	140
Long-term debt			9,141	9,139
Unsecured Debt | Trust Preferred Security Offering, 2005 | Three-month LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate		3.75%
Unsecured Debt | Trust Preferred Security Offering, 2007
Debt Instrument [Line Items]
Debt issuance costs, net			54	55
Long-term debt			$ 3,039	$ 3,038
Unsecured Debt | Trust Preferred Security Offering, 2007 | Three-month LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate	3.40%

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NOTES PAYABLE AND LONG-TERM DEBT (Narrative) (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020	Feb. 26, 2020
Debt Instrument [Line Items]
Cash flow hedge, derivative instrument liabilities at fair value			$ 619,000
Unrealized gain (loss) on interest rate swap	$ 489,000	$ (545,000)	438,000
Securities on deposit			957,000
Collateral Pledged [Member]
Debt Instrument [Line Items]
Available-for-sale securities pledged as collateral			957,000
Interest rate swap
Debt Instrument [Line Items]
Derivative, notional amount				$ 3,000,000
Derivative, fixed interest rate				4.93%
Cash flow hedge, liability at fair value			155,000
Interest rate swap
Debt Instrument [Line Items]
Derivative, notional amount				$ 9,000,000
Derivative, fixed interest rate				5.28%
Cash flow hedge, liability at fair value			$ 464,000

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POLICY AND CLAIM RESERVES (Property and Casualty Reserve) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Liability for Unpaid Claims and Claims Adjustment Expense [Roll Forward]
Less reinsurance recoverable on unpaid losses	$ 6,874
Net losses:
Estimated claims and claim adjustment expenses for claims arising in prior years	(1,098)	$ (32)
Claims and claim adjustment expense payments for claims arising in:
Plus reinsurance recoverable on unpaid losses	3,017
Consolidated Property and Casualty Insurance Entity
Liability for Unpaid Claims and Claims Adjustment Expense [Roll Forward]
Balance, beginning of year	10,177	7,199
Less reinsurance recoverable on unpaid losses	3,321	249
Net balances at beginning of year	6,856	6,950
Net losses:
Provision for claims and claim adjustment expenses for claims arising in current year	9,034	9,622
Estimated claims and claim adjustment expenses for claims arising in prior years	(1,078)	(32)
Total increases	7,956	9,590
Claims and claim adjustment expense payments for claims arising in:
Current year	5,280	6,856
Prior years	2,416	3,460
Total payments	7,696	10,316
Net balances at end of period	7,116	6,224
Plus reinsurance recoverable on unpaid losses	2,393	241
Claims and claim adjustment expense reserves at end of period	$ 9,509	$ 6,465

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POLICY AND CLAIM RESERVES (Narrative) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Insurance [Abstract]
Estimated claims and claim adjustment expenses for claims arising in prior years	$ 1,098	$ 32
Reserve for unpaid claims	450		$ 426
Policy and contract claims	$ 1,222		$ 1,309

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REINSURANCE (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020
Reinsurance Maintained by Layers [Line Items]
Life insurance policy reinsurance limit	$ 50,000
Reinsurance recoverable	3,017,000	$ 6,874,000
Single Reinsurer
Reinsurance Maintained by Layers [Line Items]
Reinsurance recoverable	269,000	$ 1,263,000
First Layer
Reinsurance Maintained by Layers [Line Items]
Catastrophe reinsurance retention	$ 4,000,000
Percent of reinsured losses covered by layer	100.00%
Covered losses	$ 13,500,000
Second Layer
Reinsurance Maintained by Layers [Line Items]
Percent of reinsured losses covered by layer	100.00%
Covered losses	$ 25,000,000
Reinsurer's limit of liability	$ 17,500,000
Third Layer
Reinsurance Maintained by Layers [Line Items]
Percent of reinsured losses covered by layer	100.00%
Covered losses	$ 30,000,000
Reinsurer's limit of liability	42,500,000
Catastrophe Aggregate
Reinsurance Maintained by Layers [Line Items]
Catastrophe reinsurance retention	$ 2,000,000
Percent of reinsured losses covered by layer	100.00%
Covered losses	$ 2,000,000
First Catastrophe Event
Reinsurance Maintained by Layers [Line Items]
Catastrophe reinsurance retention	4,000,000
Second Catastrophe Event
Reinsurance Maintained by Layers [Line Items]
Catastrophe reinsurance retention	$ 2,000,000

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EMPLOYEE BENEFIT PLANS (Details)	3 Months Ended
	Mar. 31, 2021 USD ($) hours	Mar. 31, 2020 USD ($)
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Minimum hours of service completed in year of contribution | hours	1,000
Matching contribution	$ 46,000	$ 46,000
Employer matching contribution, percent	5.00%
Cash contributions to ESOP	$ 0	100,000
ESOP debt structure	0
Non-Qualified Deferred Compensation Plans
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Increase (decrease) in deferred compensation arrangement	$ 24,000	$ (361,000)
Executive Officers
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Employer matching contribution, percent	15.00%

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SHAREHOLDERS' EQUITY (Narrative) (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020	Jun. 01, 2020
Stockholders' Equity Note [Abstract]
Net income (loss)	$ 722,000	$ (860,000)	$ (8,619,000)
Dividends paid	(152,000)	(152,000)	(607,000)
Other comprehensive income, net of tax	$ (1,146,000)	(2,485,000)	1,142,000
Common stock issued			25,000
Treasury stock acquired		$ 6,000	$ 36,000
Shares of common stock repurchased and placed in treasury (in shares)	0		2,509
Maximum
Deferred Compensation Arrangement with Individual, Excluding Share-based Payments and Postretirement Benefits [Line Items]
Stock repurchase program, authorized amount				$ 500,000

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SHAREHOLDERS' EQUITY (Preferred and Common Stock) (Details) - $ / shares	Mar. 31, 2021	Dec. 31, 2020
Class of Stock [Line Items]
Preferred stock, par value	$ 1	$ 1
Preferred stock, shares authorized (in shares)	500,000	500,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value	$ 1	$ 1
Common stock, shares authorized (in shares)	3,000,000	3,000,000
Common stock, shares issued (in shares)	2,533,315	2,533,315
Treasury (in shares)	2,945	2,945
Common stock, shares outstanding (in shares)	2,530,370	2,530,370
Class A Common Stock
Class of Stock [Line Items]
Common stock, par value	$ 1	$ 1
Common stock, shares authorized (in shares)	2,000,000	2,000,000
Common stock, shares issued (in shares)	0	0
Common stock, shares outstanding (in shares)	0	0

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Changes in AOCI) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	$ 3,585
Other comprehensive loss, net of tax	(1,146)	$ (2,485)	$ 1,142
Ending balance	2,439	(42)	3,585
Unrealized Gains (Losses) on Cash Flow Hedges
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	(489)	(51)	(51)
Other comprehensive gain (loss) before reclassifications	489	(545)
Other comprehensive loss, net of tax	489	(545)
Ending balance	0	(596)	(489)
Unrealized Gains (Losses) on Available-for-Sale Securities
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Beginning balance	4,074	2,494	2,494
Other comprehensive gain (loss) before reclassifications	(1,635)	(2,032)
Amounts reclassified from accumulated other comprehensive loss	0	92
Other comprehensive loss, net of tax	(1,635)	(1,940)
Ending balance	$ 2,439	$ 554	$ 4,074

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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Amounts reclassified out of AOCI) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
Investment gains (losses)	$ 310	$ (990)
Tax (expense) or benefit	(202)	165
Net Income (Loss)	722	(860)	$ (8,619)
Amounts Reclassified from Accumulated Other Comprehensive Income | Unrealized Gains (Losses) on Available-for-Sale Securities
Reclassification out of Accumulated Other Comprehensive Income [Line Items]
Investment gains (losses)	0	(117)
Total before tax	0	(117)
Tax (expense) or benefit	0	25
Net Income (Loss)	$ 0	$ (92)

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SEGMENTS (Narrative) (Details)	3 Months Ended
	Mar. 31, 2021 Segments
Segment Reporting [Abstract]
Number of operating segments	1

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SEGMENTS (Schedule of Segment Reporting Information, by Segment) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Segment Reporting Information [Line Items]
Assets	$ 151,575		$ 150,540
Net premiums earned	15,062	$ 14,955
Net investment income	804	964
Investment gains (losses)	310	(990)
Other income	136	145
Total Revenues	16,312	15,074
Policyholder benefits paid	9,303	10,583
Amortization of deferred policy acquisition costs	971	1,065
Commissions	2,136	2,075
General and administrative expenses	2,304	1,394
Taxes, licenses and fees	536	721
Interest expense	138	261
Total Benefits, Losses and Expenses	15,388	16,099
Income (Loss) Before Income Taxes	924	(1,025)
Total income tax expense	202	(165)
Net Income (Loss)	722	(860)	(8,619)
Inter- company Eliminations
Segment Reporting Information [Line Items]
Net premiums earned	0	0
Net investment income	(135)	(135)
Investment gains (losses)	0	0
Other income	(444)	(489)
Total Revenues	(579)	(624)
Policyholder benefits paid	(100)	(146)
Amortization of deferred policy acquisition costs	0	0
Commissions	0	0
General and administrative expenses	(479)	(478)
Taxes, licenses and fees	0	0
Interest expense	0	0
Total Benefits, Losses and Expenses	(579)	(624)
Income (Loss) Before Income Taxes	0	0
Total income tax expense	0	0
Net Income (Loss)	0	0
P&C Insurance Operations
Segment Reporting Information [Line Items]
Assets	87,641		85,375
Net premiums earned	13,672	13,522
Net investment income	305	425
Investment gains (losses)	101	(438)
Other income	136	145
Total Revenues	14,214	13,654
Policyholder benefits paid	7,956	9,591
Amortization of deferred policy acquisition costs	687	681
Commissions	2,059	1,990
General and administrative expenses	2,071	1,821
Taxes, licenses and fees	449	619
Interest expense	0	0
Total Benefits, Losses and Expenses	13,222	14,702
Income (Loss) Before Income Taxes	992	(1,048)
Total income tax expense	220	(168)
Net Income (Loss)	772	(880)
Life Insurance Operations
Segment Reporting Information [Line Items]
Assets	58,208		59,394
Net premiums earned	1,390	1,433
Net investment income	622	663
Investment gains (losses)	203	(527)
Other income	204	258
Total Revenues	2,419	1,827
Policyholder benefits paid	1,447	1,138
Amortization of deferred policy acquisition costs	284	384
Commissions	77	85
General and administrative expenses	402	400
Taxes, licenses and fees	87	102
Interest expense	10	9
Total Benefits, Losses and Expenses	2,307	2,118
Income (Loss) Before Income Taxes	112	(291)
Total income tax expense	23	(62)
Net Income (Loss)	89	(229)
Non-Insurance Operations
Segment Reporting Information [Line Items]
Assets	5,726		$ 5,771
Net premiums earned	0	0
Net investment income	12	11
Investment gains (losses)	6	(25)
Other income	240	231
Total Revenues	258	217
Policyholder benefits paid	0	0
Amortization of deferred policy acquisition costs	0	0
Commissions	0	0
General and administrative expenses	310	(349)
Taxes, licenses and fees	0	0
Interest expense	128	252
Total Benefits, Losses and Expenses	438	(97)
Income (Loss) Before Income Taxes	(180)	314
Total income tax expense	(41)	65
Net Income (Loss)	$ (139)	$ 249

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SEGMENTS (Schedule of Gross and Net Premiums Written) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Segment Reporting Information [Line Items]
Gross premiums written	$ 18,834	$ 17,131
Reinsurance premium ceded	(2,448)	(1,800)
Net premiums written	16,386	15,331
Life Insurance Operations
Segment Reporting Information [Line Items]
Gross premiums written	1,410	1,465
Reinsurance premium ceded	(43)	(35)
Net premiums written	1,367	1,430
Life Insurance Operations | Traditional life insurance
Segment Reporting Information [Line Items]
Gross premiums written	1,018	1,058
Life Insurance Operations | Accident and health insurance
Segment Reporting Information [Line Items]
Gross premiums written	392	407
P&C Insurance Operations
Segment Reporting Information [Line Items]
Gross premiums written	17,424	15,666
Reinsurance premium ceded	(2,405)	(1,765)
Net premiums written	15,019	13,901
P&C Insurance Operations | Dwelling fire & extended coverage
Segment Reporting Information [Line Items]
Gross premiums written	11,863	10,252
P&C Insurance Operations | Homeowners (Including mobile homeowners)
Segment Reporting Information [Line Items]
Gross premiums written	5,027	4,835
P&C Insurance Operations | Other liability
Segment Reporting Information [Line Items]
Gross premiums written	$ 534	$ 579

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SEGMENTS (Schedule of Gross and Net Premiums Earned) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Segment Reporting Information [Line Items]
Gross premiums earned	$ 17,510	$ 16,755
Reinsurance premium ceded	(2,448)	(1,800)
Net premiums earned	15,062	14,955
Life Insurance Operations
Segment Reporting Information [Line Items]
Gross premiums earned	1,433	1,468
Reinsurance premium ceded	(43)	(35)
Net premiums earned	1,390	1,433
Life Insurance Operations | Traditional life insurance
Segment Reporting Information [Line Items]
Gross premiums earned	1,042	1,066
Life Insurance Operations | Accident and health insurance
Segment Reporting Information [Line Items]
Gross premiums earned	391	402
P&C Insurance Operations
Segment Reporting Information [Line Items]
Gross premiums earned	16,077	15,287
Reinsurance premium ceded	(2,405)	(1,765)
Net premiums earned	13,672	13,522
P&C Insurance Operations | Dwelling fire & extended coverage
Segment Reporting Information [Line Items]
Gross premiums earned	10,178	9,652
P&C Insurance Operations | Homeowners (Including mobile homeowners)
Segment Reporting Information [Line Items]
Gross premiums earned	5,362	5,081
P&C Insurance Operations | Other liability
Segment Reporting Information [Line Items]
Gross premiums earned	$ 537	$ 554

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CONTINGENCIES (Details) $ in Thousands	Mar. 31, 2021 USD ($) claim
Commitments and Contingencies Disclosure [Abstract]
Current accruals for legal fees | $	$ 625
Hurricane | Texas
Loss Contingencies [Line Items]
Pending claims, number | claim	1

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SUPPLEMENTAL CASH FLOW INFORMATION (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Supplemental Cash Flow Elements [Abstract]
Interest paid	$ 169,000	$ 248,000
Income taxes (received) paid	$ 0	$ 0
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Increase in equity			$ 25,000