AMERINST INSURANCE GROUP LTD – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's discussion and analysis ("MD&A") provides supplemental information,
which sets forth the major factors that have affected our financial condition
and results of operation and should be read in conjunction with our condensed
consolidated financial statements and notes thereto included in this Form 10-Q.
Certain statements contained in this Form 10-Q, including this MD&A section, are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, and contain information relating to us that is
based on the beliefs of our management as well as assumptions made by, and
information currently available to, our management. The words "expect,"
"believe," "may," "could," "should," "would," "estimate," "anticipate,"
"intend," "plan," "target," "goal" and similar expressions as they relate to us
or our management are intended to identify forward-looking statements.
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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 our 2021 Annual Report on Form 10-K, as updated in our
subsequent quarterly reports filed on Form 10-Q, and in our other filings made
from time to time with the Commission after the date of this report 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" of our 2021 Annual Report on Form 10-K or discussed in
this Quarterly Report on Form 10-Q 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.
OVERVIEW
Unless otherwise indicated by the context in this quarterly report, we refer to
"AmerInst," "we" or "us." "
Inc.
which is a wholly owned subsidiary of AmerInst. Our principal offices are c/o
Box HM 1601,
provides insurance protection for professional service firms. AmerInst has two
reportable segments: (1) reinsurance and corporate, previously called the
reinsurance segment, through which the company provided reinsurance under the
now commuted reinsurance agreements, conducted investment operations and
conducts other corporate activities and (2) insurance activity, through which
the Company offers professional liability solutions to professional service
firms under the Agency Agreements. The revenues of the reinsurance and corporate
activity reportable segment and the insurance activity reportable segment were
compared to
business operations in
accounts maintained in
Agency Agreements with C&F and ISMIE
On
Agency Agreement") with
Insurance Company
Company
pursuant to which C&F appointed Protexure as its exclusive agent for the
purposes of soliciting, underwriting, quoting, binding, issuing, cancelling,
non-renewing and endorsing accountants' professional liability and lawyers'
professional liability insurance coverage in all 50 states of
and the
for four years with automatic one-year renewals thereafter. The C&F Agency
Agreement automatically renewed on
In 2021, C&F and Protexure signed an addendum to the C&F Agency Agreement which
terminates the C&F Agency Agreement effective
of the addendum, Protexure was permitted to issue new and renewal professional
liability policies on behalf of C&F with effective dates no later than
2022
Effective
Agreement (the "ISMIE Agency Agreement") with
Solutions, LLC
("ISMIE"). Protexure will transition the lawyers and accountants' professional
liability policies previously written with C&F to ISMIE. Certain policies will
also be written by the
the ISMIE Agency Agreement are referred to herein as, collectively, the "Agency
Agreements."
Reinsurance Agreement
We previously conducted reinsurance business through
which was a registered insurer in
entered into a professional liability quota share agreement with C&F (the
"Reinsurance Agreement") pursuant to which C&F agreed to cede, and
agreed to accept as reinsurance, a 50% quota share of C&F's liability under
insurance written by Protexure on behalf of C&F and classified by C&F as
accountants' professional liability and lawyers' professional liability, subject
to
were not subject to the 50% quota share reinsurance to
Reinsurance Agreement was continuous and could be terminated by either party
upon at least 120 days' prior written notice to the other party. Following the
commutation of all of AMIC's reinsurance business and the decision by the
Company's board of directors not to resume reinsurance operations through AMIC,
the Company made an application to the BMA to cancel AMIC's insurance license.
Effective
the
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During the third quarter of 2021,
Commutation Agreement, which became effective as of
and AMIC Ltd.
respective past, present and future obligations and liabilities, known and
unknown, under the Reinsurance Agreement. In accordance with the C&F
Commutation Agreement, in full satisfaction of
future obligations and liabilities under the Reinsurance Agreement, an aggregate
sum of
Historical Relationship with CAMICO
From
contract with
writer of accountants' professional liability business.
We decided not to renew the CAMICO contract and permitted the contract to expire
pursuant to its terms on
related to coverage through
During the first quarter of 2022,
Commutation Agreement, which became effective
and AMIC Ltd.
respective past, present and future obligations and liabilities, known and
unknown under the reinsurance contract between
accordance with the CAMICO Commutation Agreement, in full satisfaction of
Ltd.'s
contract between
CAMICO to
Third-party Managers and Service Providers
the administration of our business. Our agreement with
Limited
2022
officer, director, and employee of
RESULTS OF OPERATIONS
Six months ended
We recorded net loss of
to a net income of
income is due primarily to a reduction in earned premium, partially offset by
reductions in losses and loss expenses and policy acquisition costs; a reduction
in commission income; and reductions in net investment income and net realized
and unrealized gains on investments, partially offset by a reduction in
operating and management expenses
Our net premiums earned for the six months ended
to
net premiums earned during the quarter ended
cessions from C&F under the Reinsurance Agreement. The Company entered into the
C&F Commutation Agreement with C&F effective
subsequent to that date were ceded pursuant to the Reinsurance Agreement.
During the six-month period ended
income under the Agency Agreements of
decrease of
premiums written under the Agency Agreements during the six-month period
30, 2022
the decrease in premiums written under the C&F agency agreement.
We recorded net investment income of
2022
in net investment income was primarily as the result of the
liquidation of the Company's entire investment in fixed income securities and
equity securities and also a decrease in interest earned on short term
investments and cash and cash equivalents. 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 0% for the six-months ended
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We recorded net realized and unrealized gains on investments of
six-month period ended
gains of
the Company's entire investment in fixed income securities and equity
securities.
For the six months ended
expenses of
adjustment expenses of
ratio of 64.0% and the net premiums earned under the Reinsurance Agreement of
commutation of business under the reinsurance agreements.
We recorded policy acquisition costs of
compared to
which are primarily ceding commissions paid to the ceding insurer, are
established as a percentage of premiums earned. The policy acquisition costs
recorded during the six-month period
the net premiums earned under the Reinsurance Agreement of
respectively. The decrease in policy acquisition costs was attributable to the
decrease in premiums earned, which was due to the commutation of business under
the reinsurance agreements.
We incurred operating and management expenses of
period
decrease of
decreased director's expenses due to the elimination of retainers paid to
directors as a part of compensation (ii) decreased salaries and related costs
associated with Protexure's reduction in personnel during 2022 and 2021in its
effort to reduce overall costs (iii) decreased sub commission expenses resulting
from a decrease in sub produced premiums and (iv) reduction in fees to
third-party managers and service providers.
The tables below summarize the results of the following AmerInst reportable segments: (1) reinsurance and corporate, previously called the reinsurance segment, through which the company provided reinsurance under the now commuted reinsurance agreements, conducted investment operations and conducts other corporate activities and (2) insurance activity, through which the Company offers professional liability solutions to professional service firms under the Agency Agreements. As of and for the Six Months Ended June 30, 2022 Reinsurance Insurance and Corporate Segment Total Revenues $ 50$ 1,253,346 $ 1,253,396 Total expenses 322,149 1,542,162 1,864,311 Segment loss (322,099 ) (288,816 ) (610,915 ) Identifiable assets - 785,680 785,680 As of and for the Six Months Ended June 30, 2021 Reinsurance Insurance Segment Segment Total Revenues$ 4,547,677 $ 1,847,982 $ 6,395,659 Total losses and expenses 4,257,668 1,885,922 6,144,590 Segment income (loss) 289,009 (37,940 ) 251,069 Identifiable assets - 999,337 999,337
Three months ended
We recorded net loss of
compared to a net loss of
decrease in net income is due primarily to a reduction in earned premium,
partially offset by reductions in losses and loss expenses and policy
acquisition costs; a reduction in commission income; and reductions in net
investment income and net realized and unrealized gains on investments,
partially offset by a reduction in operating and management expenses
Our net premiums earned for the three months ended
compared to
100%. The net premiums earned during the quarter ended
attributable to cessions from C&F under the Reinsurance Agreement. The Company
entered into the C&F Commutation Agreement with C&F effective
and no premiums subsequent to that date were ceded pursuant to the Reinsurance
Agreement.
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During the three-month period ended
commission income under the Agency Agreements of
respectively, a decrease of
lower volume of premiums written under the Agency Agreements during the
three-month period
primarily attributed to the decrease in premiums as a result of the termination
of the C&F agency agreement.
We recorded net investment income of
2022
decrease in net investment income was primarily as the result of the
2021
and equity securities and also a decrease in interest earned on short term
investments and cash and cash equivalents. 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 0% for the three-months
ended
We recorded net realized and unrealized gains on investments of
three-month period ended
gains of
of
of the Company's entire investment in fixed income securities and equity
securities.
For the three months ended
expenses of
adjustment expenses of
ratio of 64.0% and the net premiums earned under the Reinsurance Agreement of
commutation of business under the reinsurance agreements.
We recorded policy acquisition costs of
30, 2022
costs, which are primarily ceding commissions paid to the ceding insurer, are
established as a percentage of premiums earned. The policy acquisition costs
recorded during the three-month period
the net premiums earned under the Reinsurance Agreement of
respectively. The decrease in policy acquisition costs was attributable to the
decrease in premiums earned, which was due to the commutation of business under
the reinsurance agreements.
We incurred operating and management expenses of
period
decrease of
decreased director's expenses due to the elimination of retainers paid to
directors as a part of compensation (ii) decreased salaries and related costs
associated with Protexure's reduction in personnel during 2022 and 2021in its
effort to reduce overall costs (iii) decreased sub commission expenses resulting
from a decrease in sub produced premiums and (iv) reduction in fees to
third-party managers and service providers.
The tables below summarize the results of the following AmerInst reportable segments: (1) reinsurance and corporate, previously called the reinsurance segment, through which the company provided reinsurance under the now commuted reinsurance agreements, conducted investment operations and conducts other corporate activities and (2) insurance activity, through which the Company offers professional liability solutions to professional service firms under the Agency Agreements. As of and for the Three Months Ended June 30, 2022 Reinsurance Insurance and Corporate Segment Total Revenues $ 21$ 475,838 $ 475,859 Total expenses 150,747 725,766 876,513 Segment loss (150,726 ) (249,928 ) (400,654 ) Identifiable assets - 785,680 785,680 16
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As of and for the Three Months Ended June 30, 2021 Reinsurance Insurance and Corporate Segment Total Revenues$ 2,376,009 $ 814,247 $ 3,190,256 Total expenses 2,387,385 895,949 3,283,334 Segment loss (11,376 ) (81,702 ) (93,078 ) Identifiable assets - 999,337 999,337 FINANCIAL CONDITION
The cash and cash equivalents balance decreased from
2021
decrease resulted primarily from cash outflows associated with the funding of
our day-to-day operations and settlement of accrued liabilities.
Prepaid expenses and other assets were
directors' and officers' liability insurance costs, (2) prepaid professional
fees and (3) premiums due to Protexure under the Agency Agreements. This balance
fluctuates due to the timing of the prepayments and the receipt of premiums by
Protexure.
Accrued expenses and other liabilities primarily represent premiums payable by
Protexure cedants under Agency Agreements and expenses accrued relating largely
to professional fees. The balance decreased from
to
fluctuates due to the timing of the premium payments to C&F and payments of
professional fees.
LIQUIDITY AND CAPITAL RESOURCES
Our cash needs consist of i) settling expenses and (ii) funding day-to-day
operations. Our management expects that our unrestricted cash balance will be
sufficient to meet our cash needs and fund our day-to-day operations over the
next twelve-month period.
Total cash, investments and other invested assets decreased from
38.1%. The net decrease resulted primarily from cash outflows associated with
the funding of our day-to-day operations and settlement of accrued liabilities.
The Company continues to receive approval from ISMIE to write in additional
states for lawyers and accountants and thus the Company is confident it will be
able to convert C&F expiring business and business expiring with other companies
to ISMIE throughout the remainder of 2022. In addition, the Company has
appointed four new brokers during the second quarter of 2022 to expand their
distribution in ISMIE approved states to increase new business opportunities.
The
shares, on a negotiated basis, from shareholders who have died or retired from
the practice of public accounting. From its inception through
or retired at an aggregate purchase price of
ended
has also purchased shares in privately negotiated transactions. From its
inception through
common shares in such privately negotiated transactions at an aggregate purchase
price of
transactions occurred.
Cash Dividends
We paid no dividends during the six-month period
paying dividends in 1995, our original shareholders have received
cumulative dividends per share. Although we have paid cash dividends on a
regular basis in the past, the declaration and payment of cash dividends in the
future will be at the discretion of our board of directors, subject to the
requirements of applicable law, and will depend on, among other things, our
financial condition, results of operations, current and anticipated cash needs
and other factors that our board of directors considers relevant.
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CRITICAL ACCOUNTING POLICIES
Our critical accounting policies are discussed in Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in our
Annual Report on Form 10-K for the year ended
incorporated herein by reference. Due to the commutation agreements "Unpaid
Losses and Loss Adjustment Expense Reserves" and "Other than Temporary
Impairment of Investments" are no longer considered critical accounting
policies.
Available Information
We file annual, quarterly, and current reports, proxy statements and other
information with the Commission. You may read any public document we file with
the Commission at the Commission's public reference room at
information on the public reference room. The Commission maintains an internet
site that contains annual, quarterly, and current reports, proxy and information
statements and other information that issuers (including AmerInst) file
electronically with the Commission. The Commission's internet site is
www.sec.gov.
Our internet site is www.amerinst.bm. We make available free of charge through
our internet site our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and any amendments to those reports filed or
furnished pursuant to the Securities Exchange Act of 1934, as soon as reasonably
practicable after such material is electronically filed with, or furnished to,
the Commission. We also make available, through our internet site, via links to
the Commission's internet site, statements of beneficial ownership of our equity
securities filed by our directors, officers, 10% or greater shareholders and
others under Section 16 of the Securities Exchange Act. In addition, we post on
www.amerinst.bm our Memorandum of Association, our Bye-Laws, our Statement of
Share Ownership Policy, Charters for our Audit Committee and
Nominations Committee
can request a copy of these documents, excluding exhibits, at no cost, by
writing or telephoning us c/o
Street
Attention: Investor Relations (441) 295-2185. The information on our internet
site is not incorporated by reference into this report.
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