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 will be permitted to issue new and renewal
professional liability policies on behalf of C&F with effective dates no later
than
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 is 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.
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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
Three months ended
We recorded net loss of
compared to a net income of
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 first quarter of 2022 were
net premiums earned during the quarter ended
to 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.
For the quarters ended
under the Agency Agreements of
of
written under the Agency Agreements during the first quarter of 2022 compared to
the first quarter of 2021, which is primarily attributed to the decrease in
premiums written under the C&F agency agreement.
We recorded net investment income of
compared to
investment income was attributable to a decrease in interest earned on short
term investments and cash and cash equivalents as the result of the
2021
and equity securities. 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 quarter ended
compared to the 1% yield earned for the quarter ended
We recorded net realized and unrealized gains on investments of
quarter ended
The decrease is attributed to the
entire investment in fixed income securities and equity securities.
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For the quarter 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
to
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 first quarter of 2022 and 2021 were 0% and 12.4% of the net premiums
earned under the Reinsurance Agreement of
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
of 2022 compared to
decreased directors expenses due to the discontinued 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 and (iii) decreased sub commission expenses resulting from
a decrease in sub produced premiums.
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 March 31, 2022
Reinsurance Insurance
and Corporate Segment Total
Revenues $ 29 $ 777,505 $ 777,537
Total expenses 171,402 816,396 987,798
Segment income (171,373 ) (38,888 ) (210,261 )
Identifiable assets - 848,547 848,547
As of and for the Three Months Ended March 31, 2021
Reinsurance Insurance
Segment Segment Total
Revenues $ 2,171,668 $ 1,033,735 $ 3,205,403
Total losses and expenses 1,871,283 989,973 2,861,256
Segment income 300,385 43,762 344,147
Identifiable assets - 1,042,693 1,042,693
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.
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 to C&F and other cedants under Agency Agreements and expenses accrued
relating largely to professional fees. The balance decreased from
22.5%. This balance fluctuates due to the timing of the premium payments to C&F
and payments of professional fees.
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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
24.2%. The net decrease resulted primarily from cash outflows associated with
the funding of our day-to-day operations.
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
Ltd.
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 first quarter of 2022. Since we began paying
dividends in 1995, our original shareholders have received
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.
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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