AMERINST INSURANCE GROUP LTD – 10-K – Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's discussion and analysis of financial condition and results of
operations ("MD&A") provides supplemental information, which sets forth
management's views of the major factors that have affected our financial
condition and results of operations that should be read in conjunction with our
consolidated financial statements and notes thereto included in this Form 10-K.
The MD&A is divided into subsections entitled "Business Overview," "Critical
Accounting Policies," "Results of Operations," "Fair Value of Investments,"
"Liquidity and Capital Resources" and "Losses and Loss Adjustment Expenses."



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                 CAUTION CONCERNING FORWARD-LOOKING STATEMENTS



This Annual Report on Form 10-K, including this MD&A section, contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include, among
others, statements about our beliefs, plans, objectives, goals, expectations,
estimates and intentions that are subject to significant risks and uncertainties
and are subject to change based on various factors, many of which are beyond our
control. The words "may," "could," "should," "would," "believe," "anticipate,"
"estimate," "expect," "intend," "plan," "target," "goal," and similar
expressions are intended to identify forward-looking statements.



All forward-looking statements, by their nature, are subject to risks and
uncertainties. Our actual future results may differ materially from those set
forth in our forward-looking statements. Please see the Introductory Note and
Item 1A "Risk Factors" of this Form 10-K for a discussion of factors that could
cause our actual results to differ materially from those in the forward-looking
statements. However, the risk factors listed in Item 1A "Risk Factors" or
discussed in this Form 10-K should not be construed as exhaustive and should be
read in conjunction with other cautionary statements that are included herein.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect our management's analysis only as of the date they are
made. We undertake no obligation to release publicly the results of any future
revisions we may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

The following discussion addresses our financial condition and results of
operations for the periods and as of the dates indicated.

Business Overview



We are an insurance holding company based in Bermuda owned primarily by
accounting firms, persons associated with accounting firms, and individual CPA
practitioners. We were formed in response to concerns about the pricing and
availability of accountants' professional liability insurance in a difficult or
"hard" market. Our mission is to provide insurance protection for professional
service firms and engage in investment activities. Through Protexure, we act as
an agent for C&F for the purposes of soliciting, underwriting, quoting, binding,
issuing, cancelling, non-renewing and endorsing accountants' professional
liability and lawyers' professional liability insurance coverage in 42 states of
the United States and the District of Columbia. Prior to October 2020, Protexure
had acted as an agent for C&F for all aforementioned business in all 50 states
of the United States and the District of Columbia.In October 2021, C&F and
Protexure signed an addendum to the C&F Agency Agreement which terminates the
C&F Agency Agreement effective March 31, 2022.  Under the terms of the signed
addendum, Protexure will be permitted to issue new and renewal professional
liability policies on C&F paper with effective dates no later than March 31,
2022. Effective January 1, 2022, Protexure entered into an agency agreement with
Amwins Specialty Casualty Solutions, LLC. on behalf of ISMIE Mutual Insurance
Company. Protexure will transition the lawyers and accountants' professional
liability previously written with C&F to ISMIE under the ISMIE Agency Agreement.



AmerInst has two reportable segments: (1) reinsurance activity, which had
included investments and other activities, and (2) insurance activity, which
offered professional liability solutions to professional service firms. See Note
14, Segment Information, of the notes to the consolidated financial statements
contained in Item 8 of this annual report on Form 10-K for financial information
concerning these segments.



Our reinsurance segment had revenues of $3,213,768 for the year ended
December 31, 2021 and $10,463,588 for the year ended December 31, 2020. Total
losses and expenses for this segment were $4,013,676 for the year ended
December 31, 2021 and $27,498,921 for the year ended December 31, 2020. This
resulted in a segment loss of $799,908 and $17,035,333 for the years ended
December 31, 2021 and 2020, respectively. In 2021 the reinsurance segment of the
business ceased operations.



Our insurance segment had revenues of $3,405,122 for the year ended December 31,
2021 and $5,702,708 for the year ended December 31, 2020. Operating and
management expenses were $4,199,245 for the year ended December 31, 2021 and
$3,259,590 for the year ended December 31, 2020. This resulted in segment (loss)
income of $(794,123) and $2,443,118 for the years ended December 31, 2021 and
2020, respectively.

Our results of operations for the years ended December 31, 2021 and December 31,
2020 are discussed in greater detail below.

We operate our business with no material long-term debt, no purchase
obligations, and no off-balance sheet arrangements required to be disclosed
under applicable rules of the SEC. Our access to operating cash flows is
primarily through the payment of dividends from our subsidiaries.

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Critical Accounting Policies



Basis of Presentation



The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The major estimates reflected
in our financial statements include but are not limited to the liability for
loss and loss adjustment expenses and other than temporary impairment of
investments.

Unpaid Losses and Loss Adjustment Expense Reserves

As a result of the commutation agreements noted above under Reinsurance
Agreements and Historical Relationship with CAMICO the Companies unpaid losses
and loss adjustment expenses reserves are $0. The amount that we recorded as our
liability for loss and loss adjustment expenses was a major determinant of net
income each year. As discussed in more detail below under the heading "Losses
and Loss Adjustment Expenses," the amount that we have reserved is based on
actuarial estimates which were prepared as of December 31, 2020. Based on data
received from the ceding companies (the insurance companies whose policies we
reinsure), our independent actuary produces a range of estimates with a "low,"
"central" and "high" estimate of the loss and loss adjustment expenses. As of
December 31, 2020, the range of actuarially determined liability for loss and
loss adjustment expense reserves was as follows: the low estimate was
$17.9 million, the high estimate was $24.4 million, and the central estimate was
$20.9 million. Due to concerns about the severity and volatility of the type of
business we reinsure and the length of time that it takes for claims to be
reported and ultimately settled, we selected reserves of $20,936,677 as of
December 31, 2020, which is marginally greater than the central estimate of our
independent actuary.

Other than Temporary Impairment of Investments

Declines in the fair value of fixed income investments below cost are evaluated
for other than temporary impairment losses. The evaluation for other than
temporary impairment losses is a quantitative and qualitative process which is
subject to risks and uncertainties in the determination of whether declines in
the fair value of fixed income investments are other than temporary. The risks
and uncertainties include our intent and ability to hold the security, changes
in general economic conditions, the issuer's financial condition or near-term
recovery prospects, and the effects of changes in interest rates. Our accounting
policy requires that a decline in the value of a fixed income security below its
cost basis be assessed to determine if the decline is other than temporary. If
so, the fixed income security is deemed to be impaired, and a charge is recorded
in net realized losses equal to the difference between the fair value and the
cost basis of the fixed income security. The fair value of the impaired fixed
income investment becomes its new cost basis.



Income Taxes



Our U.S. subsidiary operates in jurisdictions where they are subject to
taxation. Current and deferred income taxes are charged or credited to net
income based upon enacted tax laws and rates applicable in the relevant
jurisdiction in the period in which the tax becomes accruable or realizable.
Deferred income taxes are provided for all temporary differences between the
bases of assets and liabilities used in the financial statements and those used
in the various jurisdictional tax returns. When our assessment indicates that it
is more likely than not that all or some portion of deferred income tax assets
will not be realized, a valuation allowance is recorded against the deferred tax
assets.



We recognize a tax benefit relating to uncertain tax positions only where the
position is more likely than not to be sustained assuming examination by tax
authorities. A liability is recognized for any tax benefit (along with any
interest and penalty, if applicable) claimed in a tax return in excess of the
amount allowed to be recognized.



Results of Operations

Year ended December 31, 2021 compared to year ended December 31, 2020

We recorded a net loss of $1,594,031 for the year ended December 31, 2021
compared to a net loss of $14,592,215 for the same period in 2020. The decrease
in net loss was mainly attributable to (i) the decrease in loss and loss
adjustment expenses of $17,378,004 - from $18,856,370 for the year ended
December 31, 2020 to $1,478,366 for the year ended December 31, 2021. (ii) the
increase in net realized and unrealized gains on investments of $2,191,209 -
from a $1,764,276 loss for the year ended December 31, 2020 to a $426,933 gain
for the year ended December 31, 2021 and (iii) the decrease in operating and
management expenses of $776,965 - from $5,543,889 for the year ended December
31, 2020 to $4,766,924 for the year ended December 31, 2021, as discussed below.
The increase in net income was partially offset by a decrease in commission
income of $2,293,601 - from $5,698,299 for the year ended December 31, 2020 to
$3,404,698 for the year ended December 31, 2021, as also discussed below.



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Our net premiums earned for the year ended December 31, 2021 were $2,581,408
compared to $11,848,463 for the year ended December 31, 2020, a decrease of
$9,267,055 or 78.2%. Our net premiums earned were attributable to cessions from
C&F under the Reinsurance Agreement. As noted above, the Company entered into
the Commutation Agreement with C&F effective March 31, 2021. Therefore, no
premiums subsequent to that date were ceded to the company. Our net premium
earned for the year ended December 31, 2021 represents our net premiums earned
during the three months ended March 31, 2021. Our net premium earned for the
year ended December 31, 2020 represents our net premiums earned during that
entire year.



During the year ended December 31, 2021 and 2020, we recorded commission income
under the C&F Agency Agreement of $3,404,698 and $5,698,299, respectively, a
decrease of $2,293,601 or 40.3%. This decrease resulted from the lower volume of
premiums written under the C&F Agency Agreement during the year ended December
31, 2021 compared to the year ended December 31, 2020, which is primarily
attributable to an October 2020 notice from C&F to cease writing business in
eight states under the C&F Agency Agreement.



We recorded net investment income of $205,851 during the year ended December 31,
2021 compared to $383,810 for the year ended December 31, 2020. The decrease in
net investment income was mainly attributable to a decrease in dividend income
and interest income from a reduced holdings of equity securities and fixed
income securities in our investment portfolio, respectively, during the year
ended December 31, 2021 compared to the same period in 2020. In September 2021,
the Company liquidated its entire investment in fixed income securities and
equity securities as a measure to fund its commitment under the Commutation
Agreement. The decrease in net investment income was partially offset by a
decrease in investment expenses during the year ended December 31, 2021 compared
to the same period in 2020 as a result of a decrease in investment management
fees, which is attributable to the aforementioned decrease in equity and fixed
income securities held in our investment portfolio. The annualized investment
yield, calculated as total interest and dividends divided by the net average
amount of total investments and cash and cash equivalents, was 1.2% for the year
ended December 31, 2021, compared to the 1.1% yield earned for the year ended
December 31, 2020.



We recorded net realized and unrealized gains on investments of $426,933 during
the year ended December 31, 2021 compared to net realized and unrealized losses
on investments of $1,764,276 during the year ended December 31, 2020, an
increase of $2,191,209 or 124.2%. In September 2021, the Company liquidated its
entire investment in fixed income securities to fund the commitment to C&F under
the Commutation Agreement. A $343,350 net gain was realized on the sale of these
investments. The year ended December 31, 2020 was significantly impacted by the
unfavorable market conditions experienced during the period, which was
attributable to the impact of the COVID-19 coronavirus pandemic on the worldwide
economy.

The composition of the investment portfolio at December 31, 2021 and 2020 was as
follows:

                                                  2021      2020
U.S. government agency securities                     0 %      13 %
Obligations of state and political subdivisions       0        52
Corporate debt securities                             0        35
Equity securities                                     0         0

                                                      0 %     100 %




Our losses and loss adjustment expenses for the year ended December 31, 2021
were $1,478,366 compared to $18,856,370 for the year ended December 31, 2020, a
decrease of $17,378,004 or 92.2%. For the year ended December 31, 2021, we
derived our loss and loss adjustment expenses (i) by multiplying our estimated
loss ratio of 64.0% and the net premiums earned under the Reinsurance Agreement
through March 31, 2021 of $2,581,408, which is the effective date of the
Commutation Agreement, (ii) the recording of a $147,377 gain under the
Commutation Agreement and (iii) the recording of a $26,398 gain under the
commutation of the reinsurance contract between CAMICO and AMIC, Ltd. The
significant amount of loss and loss adjustment expenses recorded for the year
ended December 31, 2020 was attributable to higher than expected loss emergence
on the Company's lawyers' book of business in accident years 2017, 2018 and
2019.



We recorded policy acquisition costs of $1,405,774 during the year ended
December 31, 2021 compared to $5,369,752 for the same period in 2020. Policy
acquisition costs, which are primarily ceding commissions paid to the ceding
insurer, are established as a percentage of premiums earned; therefore, any
increase or decrease in premiums earned will result in a similar increase or
decrease in policy acquisition costs, subject to any premium deficiency. The
policy acquisition costs recorded during the year ended December 31, 2021
represents the net of (i) $955,122, being 37% of the
net premiums earned under the Reinsurance Agreement as at March 31, 2021 of
$2,581,408, which is the effective date of the Commutation Agreement and (ii)
the reversal of the established premium deficiency reserve as at December 31,
2020 of $985,876 and the reversal of the remaining deferred policy acquisition
cost balance of $1,436,528, with both reversals being attributed to the
Commutation Agreement. The policy acquisition costs recorded during the year
ended December 31, 2020 represented of (i) $4,383,876, being 37% of the net
premiums earned under the Reinsurance Agreement as at December 31, 2021 of
$11,848,463 and (ii) a premium deficiency reserve established at December 31,
2020 in the amount of $985,876.



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We incurred operating and management expenses of $4,766,924 during the year
ended December 31, 2021 compared to $5,543,889 for the same period in 2020, a
decrease of $776,965 or 14.0%. The decrease was primarily attributable to
(i) decreased board and committee meetings related expenses due to the reduction
in physical meetings held during the year ended December 31, 2021 as the result
of travel restrictions imposed in relation to COVID-19, (ii) decreased salaries
and related costs associated with Protexure's reduction in personnel during 2021
and 2020 in its effort to reduce overall costs and (iii) decreased net
commissions paid to outside brokers in association with the C&F Agency Agreement
as a result lower volume of premiums obtained from outside brokers during the
year ended December 31, 2021 compared to the same period in 2020.



We recorded income tax expense of $561,857 for the year ended December 31, 2021
compared to $988,500 tax expense for the year ended December 31, 2020. At
December 31, 2021 and 2020, we recorded an income tax recovery and expense as
the result of changes in Protexure's deferred tax asset position during the
year, which was primarily attributable to Protexure's usage of its loss
carryforward from prior years plus its state income taxes for the current year.
See Note 6 to our financial statements included in this Annual Report on Form
10-K for additional details.



Fair Value of Investments



During September 2021, the Company liquidated its entire investment in fixed
income securities and equity securities in order to fund its commitment under
the Commutation Agreement, as discussed further in Management's Discussion and
Analysis of Financial Condition and Results of Operations.



The following tables show the fair value of our investments in accordance with
Financial Accounting Standards Board ("FASB") Accounting Standards Codification
("ASC") 820, "Fair Value Measurements and Disclosures" as of December 31, 2021
and 2020.



                                                                                   Fair value measurement using:
                                                            Quoted prices
                                                              in active              Significant other                  Significant
                          Carrying        Total fair           markets               observable inputs              unobservable inputs
                           amount            value            (Level 1)                  (Level 2)                       (Level 3)
December 31, 2021
U.S. government
agency securities       $          -     $           -     $             -         $                    -         $                     -
Obligations of U.S.
state and political
subdivisions                       -                 -                                                  -
Corporate debt
securities                         -                 -                                                  -
Total fixed maturity
investments                        -                 -
Equity securities                  -                 -
Total equity
securities                         -                 -
Total investments       $          -     $           -     $             -         $                    -         $                     -




                                                                              Fair value measurement using:
                                                           Quoted prices
                                                             in active           Significant other            Significant
                          Carrying        Total fair          markets            observable inputs        unobservable inputs
                           amount           value            (Level 1)               (Level 2)                 (Level 3)
December 31, 2020
U.S. government
agency securities       $  2,591,162     $  2,591,162     $             -       $         2,591,162     $                     -
Obligations of U.S.
state and political
subdivisions              10,495,237       10,495,237                                    10,495,237
Corporate debt
securities                 7,257,728        7,257,728                                     7,257,728
Total fixed maturity
investments               20,344,127       20,344,127
Equity securities                  -                -
Total equity
securities                         -                -
Total investments       $ 20,344,127     $ 20,344,127     $             -  

    $        20,344,127     $                     -




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Our fixed income portfolio was invested in accordance with a written Investment
Policy Statement adopted by our Board of Directors. We engaged professional
advisors to manage day-to-day investment matters under the oversight of our
Investment Committee.

Our fixed income portfolio was managed with the target objectives of achieving
an annualized rate of return for the trailing 5-year period of 250 basis points
over the Consumer Price Index, and total returns commensurate with Merrill
Lynch's U.S. Domestic Index. Our overall fixed income portfolio was required to
have at least an "A" S&P rating, an "A2" Moody's rating or an equivalent rating
from comparable rating agencies.



Our equity securities were managed by two external large cap value advisors. Our
investment approach was to focus on increasing the fair market value of our
equity securities by investing in companies that may or may not be paying a
dividend but whose market values may increase over time. Some of the key factors
we considered in a prospective company to invest in included the discount to
value and the quality of the management team. Our equity portfolios were managed
with the target objectives of achieving an annualized rate of return over a
trailing 3-year to 5-year period of 400 basis points over the Consumer Price
Index, total returns at least equal to representative benchmarks such as the
various S&P indices, and a ranking in the top half of the universe of other
actively managed equity funds with similar objectives and risk profiles.

In September 2021, the Company liquidated its fixed income portfolios as a
measure to fund its commitment under the Commutation Agreement with C&F.

Fair Value of Investments



Under existing U.S. GAAP, we were required to recognize certain assets at their
fair value in our consolidated balance sheets. This included our fixed maturity
investments and equity securities. In accordance with the Fair Value
Measurements and Disclosures Topic of Financial Accounting Standards Board's
Accounting Standards Codification ("ASC") 820, fair value is defined as the
price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. ASC
820 establishes a three-level valuation hierarchy for disclosure of fair value
measurements. The valuation hierarchy is based upon whether the inputs to the
valuation of an asset or liability are observable or unobservable in the market
at the measurement date, with quoted market prices being the highest level
(Level 1) and unobservable inputs being the lowest level (Level 3). A fair value
measurement will fall within the level of the hierarchy based on the inputs that
are significant to determining such measurement. The three levels are defined as
follows:

• Level 1: Observable inputs to the valuation methodology that are quoted prices

    (unadjusted) for identical assets or liabilities in active markets.

• Level 2: Observable inputs to the valuation methodology other than quoted

market prices (unadjusted) for identical assets or liabilities in active

markets. Level 2 inputs include quoted prices for similar assets and

liabilities in active markets, quoted prices for identical assets and

liabilities in markets that are not active and inputs other than quoted prices

that are observable for the asset or liability, either directly or indirectly,

    for substantially the full term of the asset or liability.

• Level 3: Inputs to the valuation methodology that are unobservable for the

    asset or liability.




At each measurement date, we estimated the fair value of the security using
various valuation techniques. We utilized, to the extent available, quoted
market prices in active markets or observable market inputs in estimating the
fair value of our investments. When quoted market prices or observable market
inputs are not available, we utilized valuation techniques that rely on
unobservable inputs to estimate the fair value of investments. The following
describes the valuation techniques we used to determine the fair value of
investments held as of December 31, 2020 and what level within the fair value
hierarchy each valuation technique resides:

• U.S. government agency securities: Comprised primarily of bonds issued by the

Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, Federal

Farm Credit Bank and the Federal National Mortgage Association. The fair

values of U.S. government agency securities were priced using the spread above

the risk-free U.S. Treasury yield curve. As the yields for the risk-free U.S.

Treasury yield curve were observable market inputs, the fair values of U.S.

government agency securities were classified as Level 2 in the fair value

    hierarchy. AmerInst considers a liquid market to exist for these types of
    securities held. Broker quotes are not used for fair value pricing.




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• Obligations of state and political subdivisions: Comprised of fixed income

obligations of state and local governmental municipalities. The fair values of

these securities were based on quotes and current market spread relationships,

and were classified as Level 2 in the fair value hierarchy. AmerInst

considered a liquid market to exist for these types of securities held. Broker

    quotes were not used for fair value pricing.

• Corporate debt securities: Comprised of bonds issued by corporations. The fair

values of these securities were based on quotes and current market spread

relationships, and were classified as Level 2 in the fair value hierarchy.

AmerInst considered a liquid market to exist for these types of securities

    held. Broker quotes were not used for fair value pricing.

• Equity securities, at fair value: Comprised primarily of investments in the

common stock of publicly traded companies in the U.S. All of the Company's

equities were classified as Level 1 in the fair value hierarchy. The Company

had received prices based on closing exchange prices from independent pricing

    sources to measure fair values for the equities.




While we obtained pricing from independent pricing services, management was
ultimately responsible for determining the fair value measurements for all
securities. To ensure fair value measurement was applied consistently and in
accordance with U.S. GAAP, we periodically updated our understanding of the
pricing methodologies used by the independent pricing services. We also
undertook further analysis with respect to prices we believed may not be
representative of fair value under current market conditions. Our review process
included, but is not limited to: (i) initial and ongoing evaluation of the
pricing methodologies and valuation models used by outside parties to calculate
fair value; (ii) quantitative analysis; (iii) a review of multiple quotes
obtained in the pricing process and the range of resulting fair values for each
security, if available; and (iv) randomly selecting purchased or sold securities
and comparing the executed prices to the fair value estimates provided by the
independent pricing sources.



There have been no material changes to our valuation techniques from what was
used as of December 31, 2020. Since the fair value of a security was an estimate
of what a willing buyer would pay for such security if we had sold it, we did
not know the ultimate value of our securities until they were sold. We believe
the valuation techniques utilized provided us with a reasonable estimate of the
price that would be received if we were to sell our assets or transfer our
liabilities in an orderly market transaction between participants at the
measurement date.



As of December 31, 2021, our total investments were $0 compared to $20,344,127
at December 31, 2020. In September 2021, the Company liquidated its entire
investment in fixed income securities and equity securities to fund its
commitment under the Commutation. The cash and cash equivalents balance
decreased from $5,732,110 at December 31, 2020 to $3,477,714 at December 31,
2021, a decrease of $2,254,396 or 39.3%. This decrease resulted primarily from
cash outflows associated with the funding of our day-to-day operations. The
restricted cash and cash equivalents balance decreased from $4,964,126 at
December 31, 2020 to $0 at December 31, 2021, a decrease of $4,964,126 or 100%.
This decrease resulted from the payment in October 2021 of the obligation
pursuant to the Commutation Agreement. The ratio of cash and investments to
total liabilities at December 31, 2021 was 1.22:1, compared to a ratio of .96:1
at December 31, 2020. Total cash and investments decreased from $31,040,363 at
December 31, 2020 to $3,477,714 at December 31, 2021, a decrease of $27,562,649
or 88.8%. The net decrease derived primarily from the liquidation of its entire
investment portfolio in September 2021.

Other than Temporary Impairment

The Company assessed whether declines in the fair value of its fixed maturity
investments classified as available-for-sale represent impairments that are
other-than-temporary by reviewing each fixed maturity investment that is
impaired and (1) determined if the Company had the intent to sell the fixed
maturity investment or if it was more likely than not that the Company will be
required to sell the fixed maturity investment before its anticipated recovery;
and (2) assessed whether a credit loss existed, that is, where the Company
expected that the present value of the cash flows expected to be collected from
the fixed maturity investment are less than the amortized cost basis of the
investment.



In evaluating credit losses, the Company considered a variety of factors in the
assessment of a fixed maturity investment including: (1) the time period during
which there has been a significant decline below cost; (2) the extent of the
decline below cost and par; (3) the potential for the fixed maturity investment
to recover in value; (4) an analysis of the financial condition of the issuer;
(5) the rating of the issuer; and (6) failure of the issuer of the fixed
maturity investment to make scheduled interest or principal payments.



If we concluded a fixed income investment was other-than-temporarily impaired,
we wrote down the amortized cost of the security to fair value, with a charge to
net realized investment gains (losses) in the Consolidated Statement of
Operations. Gross unrealized losses on the investment portfolio as of December
31, 2021 and December 31, 2020, relating to none and three fixed maturity
securities, amounted to $0 and $2,053, respectively. The unrealized losses on
these available for sale fixed maturity securities were not as a result of
credit, collateral or structural issues.



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Liquidity and Capital Resources

Our cash needs consist of i) settlement of expenses, (ii) funding day-to-day
operations. Our management expects that our unrestricted cash balance will be
sufficient to meet our cash needs to fund our day-to-day operations over the
next twelve-month period.



The assumed reinsurance balances receivable represents the current assumed
premiums receivable less commissions payable to C&F. As of December 31, 2021,
the balance was $0 compared to $2,221,664 as of December 31, 2020. The decrease
in assumed reinsurance balance in 2021 to $0 was due to the commutation of C&F
business.



The assumed reinsurance payable represents current reinsurance losses payable to
the fronting carriers. As of December 31, 2021, the balance was $0 compared to
$3,175,098 as of December 31, 2020. The decrease in assumed reinsurance payable
in 2021 to $0 was due to the commutation of C&F business.



Deferred policy acquisition costs, which represent the deferral of ceding
commission expense related to premiums not yet earned, decreased from $724,509
at December 31, 2020 to $0 at December 31, 2021. The decrease in deferred policy
acquisition costs in 2021 was due to the commutation of C&F business.



Prepaid expenses and other assets were $1,091,815 at December 31, 2021, a
decrease of $384,372 from $1,476,187 at December 31, 2020. The balance primarily
related to (1) prepaid directors' and officers' liability insurance costs,
(2) prepaid professional fees and (3) premiums due to Protexure under the C&F
Agency Agreement. This balance fluctuates due to the timing of the prepayments
and to the timing of the premium receipts by Protexure.



Accrued expenses and other liabilities primarily represent premiums payable by
Protexure to C&F and other cedants under  Agency Agreements and expenses accrued
relating largely to professional fees. The balance decreased from $3,689,620 at
December 31, 2020 to $2,860,876 at December 31, 2021, a decrease of $828,744 or
22.5%. This balance fluctuates due to the timing of the premium payments to C&F
and payments of professional fees.



During 2021 and 2020, we paid no ordinary cash dividends as a measure to
preserve the Company's capital base. Since we began paying dividends in 1995,
our original shareholders have received approximately $22.87 in cumulative
dividends per share. Dividend payments are subject to the Board of Directors'
continuing evaluation of our level of surplus compared to our capacity to accept
more business. No dividends were paid during 2021 as a measure to preserve the
Company's capital bases, as referred to above.



Our ability to pay dividends to our shareholders and to pay our operating
expenses is dependent on cash dividends from our subsidiaries. AMIC Ltd.'s
ability to pay dividends to AmerInst is subject to the provisions of the Bermuda
insurance and companies laws and the requirement to provide the ceding companies
with collateral. Under the Companies Act, AMIC Ltd. would be prohibited from
declaring or paying a dividend if such payment would reduce the realizable value
of its assets to an amount less than the aggregate value of its liabilities,
issued share capital, and share premium accounts. In addition, AMIC Ltd. must be
able to pay its liabilities as they become due in the ordinary course of its
business, and fund its collateral obligations to ceded companies, after the
payment of a dividend. The payment of such dividends by AMIC Ltd. to us is also
limited under Bermuda law by the Insurance Act and Related Regulations which
require that AMIC Ltd. maintain minimum levels of solvency and liquidity as
described above. For the years ended December 31, 2021 and 2020 these
requirements have been met as follows:



                             Statutory
                         Capital & Surplus                  Relevant Assets
                      Minimum          Actual          Minimum           Actual
December 31, 2021   $ 1,000,000     $ 13,589,876     $          -     $    619,096
December 31, 2020   $ 3,140,502     $ 24,746,999     $ 21,550,831     $ 28,678,753




At December 31, 2021, approximately $.6 million was available for the
declaration of dividends by AMIC Ltd. to us. Management expects that any
dividend AMIC, Ltd. declares to us over the next twelve-month time period will
be utilized entirely by us to fund our day-to-day operations. Therefore, as of
December 31, 2021, no amount was available for the declaration of dividends by
us to our shareholders.



The BMA has authorized AMIC Ltd. to purchase our common shares from shareholders
who have died or retired from the practice of public accounting and on a
negotiated basis. Through March 1, 2022, AMIC Ltd. had purchased 232,979 common
shares from shareholders who had died or retired for a total purchase price of
$6,653,703. From time to time, AMIC Ltd. has also purchased shares in privately
negotiated transactions. Through that date, AMIC Ltd. had purchased an
additional 75,069 common shares in such privately negotiated transactions for a
total purchase price of $1,109,025.



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Losses and Loss Adjustment Expenses

The consolidated financial statements include our estimated liability for unpaid
losses and loss adjustment expenses ("LAE") for our insurance operations. LAE is
determined utilizing both case-basis evaluations and actuarial projections,
which together represent an estimate of the ultimate net cost of all unpaid
losses and LAE incurred through December 31 of each year. These estimates are
subject to the effect of trends in future claim development. The estimates are
continually reviewed and, as experience develops and new information becomes
known, the liability is adjusted as appropriate, and reflected in current
financial reports. The anticipated effect of inflation is implicitly considered
when estimating liabilities for losses and LAE. Future average claim development
is projected based on historical trends adjusted for anticipated changes in
underwriting standards, policy provisions and general economic trends. These
anticipated trends are monitored based on actual developments and are modified
as necessary.

An actuarial review and projection was performed for us by our independent
actuary as of December 31, 2020. We review the actuarial estimates throughout
the year for the possible impact on our financial position.

Loss reserves relate to accountants' and attorneys' professional liability from
C&F programs, and were calculated under the methodologies described below.
During 2020, losses emerged at levels significantly greater than expectations.
The adverse development is likely attributable to changes in case reserving
practices that led to material increases in average case reserves, and was
possibly exacerbated by social inflation and delays in legal resolutions due to
the COVID-19 pandemic. Note that fourth quarter experience was more in line with
expectations.



C&F was a new program for us in 2010. The program provides professional
liability coverage to accountants and lawyers. To calculate the policy year
ultimate losses and allocated loss adjustment expenses for C&F, the actuary
applied paid and incurred loss development, paid and incurred
Bornhuetter-Ferguson, and paid and incurred Cape Cod methods to the actual C&F
experience as of September 30, 2020, separately for accountants and lawyers
experience. Policy year ultimate losses are projected to December 31, 2020 on a
combined accountants and lawyers experience basis by reviewing the actual loss
emergence in the 4th calendar quarter of 2020 compared to the expected emergence
implied by the paid and incurred loss development patterns selected as of
September 30, 2020. In the calculations, the actuary relied on company and
industry benchmark loss and allocated loss adjustment expense development
patterns. The a priori loss and allocated loss adjustment expense ratios used in
the Bornhuetter-Ferguson method calculations were selected based on our unpaid
claim liability review of C&F experience as of December 31, 2020. Low and high
scenario ultimate loss and allocated loss adjustment expense estimates were
selected by the actuary based on sensitivity testing of results of the C&F
actuarial analysis to reasonable alternative assumptions.



Inflation



The impact of inflation on the insurance industry differs significantly from
that of other industries where large portions of total resources are invested in
fixed assets, such as property, plant and equipment. Assets and liabilities of
insurance companies, like other financial institutions, are virtually all
monetary in nature, and therefore are primarily impacted by interest rates
rather than changing prices. While the general level of inflation underlies most
interest rates, interest rates react more to changes in the expected rate of
inflation and to changes in monetary and fiscal policy. Therefore, we do not
believe that inflation has materially impacted our results of operations.