●

general economic conditions, including ~~weakness~~continued volatility of the financial markets, prevailing interest rate levels and stock and credit market performance, which may affect or continue to affect (among other things) our ability to sell our products and to collect amounts due to us, our ability to access capital resources and the costs associated with such access to capital and the market value of our investments;

●

the risks related to our proposed merger with The Progressive Corporation (“Progressive”), and Carnation Merger Sub Inc. (“Merger Sub”) described under “Proposed Merger with The Progressive Corporation” in Part I, Item 1, “Business” hereof, including:

•

the inability to complete the proposed transaction due to the failure to obtain approval by our Class A shareholders of the proposed transaction or the failure to satisfy any of the other conditions to completion of the proposed transaction, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction;

uncertainty as to the timing of completion of the proposed transaction;

the occurrence of any event, change or other circumstances that could give rise to the termination of the agreement and plan of merger;

risks related to disruption of management’s attention from our ongoing business operations due to the proposed transaction;

the effect of the announcement of the proposed transaction on our relationships with our clients, operating results and business generally; and

the outcome of any legal proceedings to the extent initiated against us, Progressive or others following the announcement of the proposed transaction;

●

the effects of the novel coronavirus ("COVID-19") pandemic and associated government actions on our operating and financial performance;

●

our ability to obtain adequate premium rates and manage our growth strategy;

●

increasing competition in the sale of our insurance products and services resulting from the entrance of new competitors into, or the expansion of the operations of existing competitors in, our markets and our ability to retain existing customers;

●

other changes in the markets for our insurance products;

●

the impact of technological advances, including those specific to the transportation industry;

●

changes in the legal or regulatory environment, which may affect the manner in which claims are adjusted or litigated, including loss and loss adjustment expense;

●

legal or regulatory changes or actions, including those relating to the regulation of the sale, underwriting and pricing of insurance products and services and capital requirements;

●

the impact of a downgrade in our financial strength rating;

●

technology or network security disruptions or breaches;

●

adequacy of insurance reserves;

●

availability of reinsurance and ability of reinsurers to pay their obligations;

●

our ability to attract and retain qualified ~~employees and to successfully complete our Chief Executive Officer transition;~~employees;

●

tax law and accounting changes; and

●

legal actions brought against us.

Some of the significant risks and uncertainties that could cause actual results to differ materially from our expectations and projections are described more fully in Part I, Item 1A, "Risk Factors" of this Annual Report on Form 10-K. You should read that information in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of this Annual Report on Form 10-K and our consolidated financial statements and related notes in Part II, Item 8 of this Annual Report on Form 10-K.

~~- 2 -~~

PART I

Item 1. BUSINESS

Protective Insurance Corporation ~~(formerly Baldwin & Lyons, Inc.)~~ (referred to herein as "Protective") was incorporated under the laws of the State of Indiana in 1930. Through its subsidiaries, Protective engages in marketing and underwriting property, liability and workers' compensation coverage for trucking and public transportation fleets, as well as coverage for trucking industry independent contractors. ~~In addition, Protective offers workers' compensation coverage for a variety of operations outside the transportation industry.~~

Protective’s principal subsidiaries are:

Protective Insurance Company (referred to herein as "Protective Insurance Co."), which is licensed by insurance authorities in all 50 states, the District of Columbia, all Canadian provinces and Puerto Rico;

Protective Specialty Insurance Company (referred to herein as "Protective Specialty"), which is currently approved for excess and surplus lines business by insurance authorities in 48 states and the District of Columbia and licensed in Indiana;

Sagamore Insurance Company (referred to herein as "Sagamore"), which is licensed by insurance authorities in 49 states and the District of Columbia and approved for excess and surplus lines business in one additional state;

B&L Brokerage Services, Inc. (referred to herein as "BLBS"), an Indiana-domiciled insurance broker licensed in all 50 states and the District of Columbia; and

B&L Insurance, Ltd. (referred to herein as "BLI"), which is domiciled and licensed in Bermuda.

Protective Insurance Co., Protective Specialty, Sagamore and BLI are collectively referred to herein as the "Insurance Subsidiaries." The ~~"Company", "we",~~"Company," "we," "us" and ~~"our",~~"our," as used herein, refer to Protective and all of its subsidiaries unless the context clearly indicates otherwise.

As is a common practice in the property and casualty insurance industry, the Insurance Subsidiaries share or "cede" portions of their gross premiums written with several non-affiliated reinsurers under excess of loss and ~~quota-share~~quota share treaties covering predetermined groups of risks and by facultative (individual policy-by-policy) placements. Reinsurance is ceded to spread the risk of loss from individual claims or groups of claims among several reinsurers and is an integral part of the Company's business.

In ~~2018,~~2020, the Insurance Subsidiaries primarily served the commercial automobile market, although the Insurance Subsidiaries continue to support previously written policies in ~~specialty~~ markets for which the Company has discontinued writing business, and these operations are in run-off. The Company expects targeted growth to ~~occur~~continue in its core business of commercial automobile and workers' compensation.

The Company ~~determined that its business constituted~~operates as one reportable property and casualty insurance ~~segment as of January 1, 2017. During 2016 and prior years, the Company had two reportable segments – property and casualty insurance and reinsurance. The Company moved to a single reportable~~ segment based on how its operating results are regularly reviewed by its chief operating decision maker when making decisions about how resources are to be allocated to the segment and assessing its performance.

Proposed Merger with The Progressive Corporation

Merger Agreement

On February 14, 2021, Protective entered into an Agreement and Plan of Merger (the “Merger Agreement”) with The Progressive Corporation, an Ohio corporation (“Progressive”), and Carnation Merger Sub Inc., an Indiana corporation and wholly-owned indirect subsidiary of Progressive (“Merger Sub”). The Merger Agreement provides for, subject to the satisfaction or waiver of specified conditions, the merger of Merger Sub with and into Protective (the “Merger”), whereupon the separate existence of Merger Sub will cease and Protective will continue as the surviving corporation and as a wholly-owned indirect subsidiary of Progressive.

Protective’s Board of Directors (the “Board”), at the unanimous recommendation of the Special Committee of the Board, unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, Protective and its shareholders, and approved, adopted and declared advisable the Merger Agreement and the transactions contemplated thereby. The Merger is expected to close prior to the end of the third quarter of 2021. At the effective time of the Merger, each issued and outstanding share of common stock, without par value, of Protective (other than each share of Protective’s common stock that is owned by Protective as treasury stock or by any subsidiary of Protective and each share of Protective’s common stock owned by Progressive, Merger Sub or any other subsidiary of Progressive immediately prior to the effective time of the Merger) will be automatically canceled and converted into the right to receive $23.30 in cash, without interest, for a total transaction value of approximately $338 million.

The Merger Agreement contains various customary representations and warranties from each of Protective, Progressive and Merger Sub. Protective has also agreed to various customary covenants, including but not limited to conducting its business in the ordinary course and not engaging in certain types of transactions during the period between the execution of the Merger Agreement and the closing of the Merger. However, the Merger Agreement permits Protective to continue to pay regular quarterly dividends not to exceed $0.10 per share of its common stock. The consummation of the Merger is subject to certain conditions, including approval of the Merger by Protective’s Class A shareholders, legal and regulatory approvals including from the Indiana Department of Insurance and the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as other customary closing conditions.

For additional information regarding the risks associated with the Merger, please see Part I, Item 1A, "Risk Factors," of this Annual Report on Form 10-K.

Voting and Support Agreement

On February 14, 2021, Protective also entered into a Voting and Support Agreement (the “Voting Agreement”) with Progressive and certain of Protective’s shareholders. The Voting Agreement requires that the Protective shareholders party to the Voting Agreement: (i) appear at the meeting of the holders of Protective’s Class A common stock to consider resolutions to approve the Merger Agreement and the Merger or otherwise cause their shares of Protective’s common stock to be counted as present for purposes of calculating a quorum, and (ii) vote their shares (a) in favor of the adoption of the Merger Agreement, the Merger and the other transactions contemplated thereby and any action reasonably requested by Progressive or the Board in furtherance of the foregoing, (b) against any action or agreement that would result in a material breach of any covenant, representation or warranty or other obligation or agreement of Protective contained in the Merger Agreement and (c) against any takeover proposal or superior proposal (provided, that if the Board changes its recommendation with respect to the Merger, any shares of Class A common stock owned by such shareholders in excess of approximately 35% of the outstanding shares of Class A common stock will be voted in the same proportion as those shares of Class A common stock voted by the holders of Protective’s Class A common stock that are not party to the Voting Agreement).

COVID-19 Impacts

Beginning in March 2020 and continuing through the date of this Annual Report on Form 10-K, the global pandemic associated with COVID-19 and related economic conditions have impacted the global economy and the Company’s results of operations. For the year ended December 31, 2020, net premiums earned within the Company’s commercial automobile products, specifically public transportation, were negatively impacted due to a reduction in miles driven, which is the basis for premiums the Company receives, as well as an overall reduction in public transportation units insured. The declines in public transportation persisted throughout the year and have continued into 2021, but we saw a recovery in the third and fourth quarters within our commercial automobile products that has continued through the date of this Annual Report on Form 10-K. However, losses and loss expenses incurred during the same period reflected favorable impacts within all commercial automobile products as a result of declines in accident frequency due to lower traffic density. In addition to these impacts on the Company’s underwriting loss, as defined below, the Company incurred net realized and unrealized losses on investments of $9.2 million for the year ended December 31, 2020, primarily due to investment losses realized as a result of the significant declines in the global financial markets experienced during the first and second quarters due to the COVID-19 pandemic. As of December 31, 2020, both the Company’s fixed income and equity security investments have recovered to a net gain position. Additionally, insurance departments throughout the country have issued bulletins and regulations urging or requiring insurers to extend grace periods for the payment of policy premiums and to refrain from canceling or non-renewing policies for the non-payment of policy premiums for policyholders adversely affected by COVID-19; however, the Company has not seen a material decrease or slowdown in premium collection to date. Our liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during 2020. For further discussion regarding the potential impacts of COVID-19 and related economic conditions on the Company’s results, see Part I, Item 1A, "Risk Factors," and Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K.

Product Lines

Commercial Automobile

The Insurance Subsidiaries provide coverage for larger companies in the motor carrier industry that retain substantial amounts of self-insurance, for independent contractors utilized by trucking companies, for medium-sized and small trucking companies on a ~~first dollar~~first-dollar or deductible basis, and for public livery concerns, principally covering fleets of commercial ~~buses and taxis.~~buses. This group of products is collectively referred to as commercial automobile. Large fleet trucking products are marketed both directly to commercial automobile clients and also through relationships with non-affiliated brokers and specialized agents. Products for small and intermediate fleets and independent contractors are marketed through relationships with non-affiliated brokers and specialized agents. In some cases, the Insurance Subsidiaries will provide customized product offerings to specific markets through partnerships with brokers or program administrators. In most cases, the Company's commercial automobile policies are written on an "occurrence" basis. This means that the Company may be liable for claims that occurred when its policy was in place with an insured, regardless of when those claims are reported to the Company, and it may take months or even years for claims to be reported to the Company.

~~- 3 -~~

The principal types of commercial automobile insurance marketed by the Insurance Subsidiaries are:

●

Commercial motor vehicle liability, physical damage and general liability insurance;

●

Workers' compensation insurance;

●

Specialized accident (medical and indemnity) insurance for independent contractors in the trucking industry;

●

Non-trucking motor vehicle liability insurance for independent contractors;

●

Fidelity and surety bonds; and

●

Inland ~~Marine~~marine insurance consisting principally of cargo insurance.

The Insurance Subsidiaries ~~also~~ perform a variety of additional services, primarily for the Company's insureds, including risk surveys and analyses, safety program design and monitoring, government compliance assistance, loss control and cost studies and research, development, and consultation in connection with new insurance programs, including development of systems to assist customers in monitoring their accident data. The Company also provides claims handling services, primarily to excess clients with self-insurance programs.

Workers' Compensation

The Insurance Subsidiaries provide workers' compensation insurance for the commercial automobile industry, primarily to employees of motor carriers or independent contractors providing services in the transportation industry. In 2017, the Company began marketing workers' compensation coverage beyond commercial automobile clients to a variety of non-transportation operations, such as light manufacturing, restaurants, retailers, and professional services on both a first-dollar and deductible basis. ~~Non-transportation workers'~~In 2019, the Company took actions to reduce exposure to workers’ compensation ~~insurance is marketed through relationships with non-affiliated brokers and specialized agents. In addition,~~coverage for non-transportation risks. While the Company has ~~developed customized~~continued to underwrite select non-transportation ~~workers'~~risks, the Company’s primary focus is underwriting workers’ compensation ~~programs, which are marketed through non-affiliated agent partners.~~ coverage for transportation risks. In most cases, the Company's workers' compensation policies are written on an "occurrence" basis. This means that the Company may be liable for claims that occurred when its policy was in place with an insured, regardless of when those claims are reported to the Company, and it may take months or even years for claims to be reported to the Company.

~~Discontinued Products~~

●

~~Reinsurance Assumptions~~

~~In the first quarter of 2016, the Company discontinued its reinsurance assumed professional liability line of products. These products are in run-off but continued earning premiums in 2017 and~~ ~~2018~~. Prior to that, the Company accepted cessions and retrocessions from selected insurance and reinsurance companies, providing reinsurance coverage for both property and casualty events. Participation in reinsurance markets fluctuated based on market conditions for these products. The Company's reinsurance assumed policies were written on both an "occurrence" basis and a "claims-made" basis. Under claims-made policies, the Company was generally only liable for claims when a policy was in place with its insured; however, the Company was potentially liable for claims reported to it, even if the claim event occurred before it had a policy in place with the insured.

●

~~Professional Liability~~

In the fourth quarter of 2016, the Company discontinued its professional liability line of products. Prior to that, the Company marketed a variety of professional liability products through wholesale and retail agents on both an admitted and surplus lines basis throughout the United States, specializing in smaller insureds. In most cases, the Company's professional liability policies were written on a "claims-made" basis.

Losses and Loss Adjustment Expenses

Losses and loss adjustment expenses incurred on average comprise approximately two-thirds of the Company's operating expenses.

The Company's consolidated balance sheets as of December 31, ~~2018~~2020 and ~~2017~~2019 set forth in Part II, Item 8 of this Annual Report on Form 10-K include the estimated liability for unpaid losses and loss adjustment expenses ("LAE") of the Insurance Subsidiaries before the application of reinsurance credits (gross reserves). The liabilities for losses and LAE are determined using case basis evaluations and statistical projections and represent estimates of the Company's ultimate exposure for all unpaid losses and LAE incurred through December 31 of each year. These estimates are subject to the effects of trends in claim severity and frequency and are continually reviewed and, as experience develops and new information becomes known, the liability is adjusted as necessary. Such adjustments, either positive or negative, are reflected in current operations as recorded.

~~- 4 -~~

The Company's reserves for losses and loss expenses are determined based on evaluations of individual reported claims and by actuarial estimation processes using historical experience, current economic information and, when necessary, available industry statistics. "Case basis" loss reserves are evaluated on an individual case-by-case basis by experienced claims adjusters using established Company guidelines and are monitored by claims management. Additionally, "bulk" reserves are established for (1) those losses which have occurred but have not yet been reported to the Company ("incurred but not reported" claims), (2) provisions for any possible deficiencies in the case reserving process and (3) the expected external and internal costs to fully settle each claim, also referred to as LAE. Common actuarial methods are employed in the establishment of bulk reserves using Company historical loss data, consideration of changes in the Company's business and study of current economic trends affecting ultimate claims costs. LAE reserves include amounts ultimately allocable to individual claims as well as amounts required for the general overhead of the claims handling operation that are not specifically allocable to individual claims. Historical analyses of the ratio of LAE to losses paid on prior closed claims and study of current economic trends affecting loss settlement costs are used to estimate the LAE reserve needs relative to the established loss reserves. Each of these reserve categories contains elements of uncertainty, which assures variability when compared to the ultimate costs to settle the underlying claims for which the reserves are established. For a more detailed discussion of the three categories of reserves, see "Loss and Loss Expense Reserves" under the caption, "Critical Accounting Policies" in Part II, Item 7, ~~"Management's~~"Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Annual Report on Form 10-K.

~~After giving effect to treaty and~~Beginning in early 2019, the Company began strategically buying facultative reinsurance ~~arrangements,~~on policies with $5.0 million limits, specifically in our excess automobile and public transportation books of business. This reinsurance coverage has served to lower the ~~Company's maximum exposure~~loss limit on a significant portion of the Company’s commercial automobile liability policies to ~~loss from~~$2.0 million for a single ~~occurrence~~occurrence. This action, coupled with the renewal of our annual aggregate deductible treaty at a 35% quota share rate, whereby once the aggregate stop-loss level is reached the Company is responsible for its 65% retention, has significantly reduced the ~~vast majority of risks insured (those with policy limits of $5 million or less) is approximately:~~

●

~~$0.25 million to $1.3 million for policies written between July 3, 2016 and July 2, 2017, and~~

●

~~$0.8 million to $4.1 million for policies written on or after July 3, 2017.~~

~~However, for certain losses (those with policy limits up~~Company’s exposure and volatility to ~~$10 million) the maximum exposure could be as high as:~~

●

~~$2.5 million for policies written between July 3, 2016 and July 2, 2017, and~~

●

~~$8.0 million for policies written on or after July 3, 2017.~~

~~The change~~large commercial automobile liability losses. In 2020, due to continued rate achievement in commercial automobile, improvements in the Company's ~~single occurrence~~mix of business and reductions to the Company's average policy loss ~~exposure described above (from a range of $0.25 million~~limits, the Company decided to ~~$2.5 million in 2016, to a range of $0.8 million to $8.0 million in 2017) is offset by a change in~~non-renew the ~~reinsurance structure~~annual aggregate deductible treaty for ~~these risks. As of~~policies written on and after July 3, ~~2017, the Company no longer utilizes sliding scale ceding premium provisions in its reinsurance arrangements for these risks, instead utilizing a flat ceding premium percentage.~~2020.

The economic exposure from a single claim occurrence remains relatively consistent year-over-year; however, under the current flat ceding premium provision, more of the economic exposure will flow through loss expense moving forward, whereas in prior periods, utilizing the sliding scale ceding premium provisions, more of the economic exposure was reflected in lower net premiums earned. For both periods discussed above, the Company has limited economic exposure for losses occurring in treaty years that have loss and allocated LAE ratios greater than approximately 83.0%.

The Company is a cedent under numerous reinsurance treaties covering its product lines. Treaties are typically written on an annual basis, each with its own renewal date. However, treaty terms may occasionally be agreed to for periods beyond one year. Treaty renewals are expected to largely continue to occur annually in the foreseeable future. Because losses from certain of the Company's products can experience delays in being reported and can take years to settle, losses reported to the Company in the current year may be covered by a number of older reinsurance treaties with higher or lower net loss exposures than those provided by current treaty provisions.

~~- 5 -~~

The table below sets forth a reconciliation of beginning and ending loss and LAE liability balances for ~~2018, 2017~~2020, 2019 and ~~2016.~~2018. This table includes reserves, net of reinsurance recoverable, to correspond with the presentation in the Company's consolidated statements of operations, but also includes a reconciliation of beginning and ending loss and LAE liability, gross of reinsurance recoverable, as presented in the Company's consolidated balance sheets. All amounts are shown net of reinsurance, unless otherwise indicated.

	2018		2017		2016
(dollars in thousands)							2020			2019			2018
Reserves, gross of reinsurance recoverable, at the beginning of the year	$	680,274	$	576,330	$	513,596	$	988,305		$	865,339		$	680,274
Reinsurance recoverable on unpaid losses at the beginning of the year		308,143		251,563		211,843		398,305			375,935			308,143
Reserves at the beginning of the year		372,131		324,767		301,753		590,000			489,404			372,131

Provision for losses and loss expenses:
Claims occurring during the current year		329,078		228,303		172,645		319,269			349,018			329,078
Claims occurring during prior years		16,786		19,215		13,836		(311	)		(550	)		16,786
Total incurred losses and loss expenses		345,864		247,518		186,481		318,958			348,468			345,864

Loss and loss expense payments:
Claims occurring during the current year		84,738		67,234		54,239		77,880			90,364			84,738
Claims occurring during prior years		143,853		132,920		109,228		165,777			157,508			143,853
Total paid		228,591		200,154		163,467		243,657			247,872			228,591
Reserves at the end of the year		489,404		372,131		324,767		665,301			590,000			489,404

Reinsurance recoverable on unpaid losses at the end of the year		375,935		308,143		251,563		424,368			398,305			375,935
Reserves, gross of reinsurance recoverable, at the end of the year	$	865,339	$	680,274	$	576,330	$	1,089,669		$	988,305		$	865,339

The reconciliation above shows the Company's estimate of net losses on ~~2017~~2019 and prior accident years is approximately ~~$16.8~~$0.3 million ~~higher~~lower at December 31, ~~2018~~2020 than was provided in loss reserves at December 31, ~~2017~~2019 (referred to as a "reserve ~~deficiency"~~savings"). This compares to a ~~$19.2~~reserve savings of $0.6 million ~~reserve deficiency~~ on prior accident years in ~~2017~~2019 and a ~~$13.8~~$16.8 million reserve deficiency reported in ~~2016~~2018 related to prior accident years.

The following table is a summary of the ~~2018~~2020 calendar year reserve ~~deficiency~~savings by accident year (dollars in thousands):

Years in Which Losses Were Incurred	Reserve at December 31, 2017		(Savings) Deficiency Recorded During 2018 ⁽¹⁾			% (Savings) Deficiency			Reserve at December 31, 2019		(Savings) Deficiency Recorded During 2020 ⁽¹⁾			% (Savings) Deficiency
2019									$	258,655	$	(1,743	)		(.7	)%
2018										158,311		4,017			2.5	%
2017	$	161,069	$	(8,902	)		(5.5	)%		65,516		(3,997	)		(6.1	)%
2016		66,652		4,259			6.4	%		21,374		392			1.8	%
2015		34,530		9,707			28.1	%		16,377		858			5.2	%
2014		30,129		11,970			39.7	%
2013		22,423		(1,382	)		(6.2	)%
2012 and prior		57,328		1,134			2.0	%
2014 and prior										69,767		162			.2	%
									$	590,000	$	(311	)		(.1	)%
	$	372,131	$	16,786			4.5	%

(1)

Consists of development on cases known at December 31, ~~2017,~~2019, losses reported which were previously unknown at December 31, ~~2017~~2019 (incurred but not reported), unallocated loss expense paid related to accident years ~~2017~~2019 and prior and changes in the reserves for incurred but not reported losses and loss expenses.

The savings shown in accident year ~~2017~~2019 in the table above ~~reflect~~reflects favorable loss development in ~~both~~ short-tail lines of business, such as physical damage and occupational accident. The deficiency shown in accident year 2018 represents deficiencies in the Company's ~~independent contractor products (including non-trucking liability, occupational accident~~commercial automobile business, specifically excess automobile and ~~workers' compensation). The deficiencies in accident years 2014-2016 are largely the result~~public transportation lines of ~~several severe transportation losses.~~business. The Company took and continues to take action in all accident years to reflect new trends in loss development for commercial automobile products that have emerged over the last ~~three~~several years. These actions ~~included~~include case reserving reviews, as well as continued actuarial product reviews, and resulted in the small reserve strengthening noted ~~during the last three years.~~in accident years 2018 and prior.

Bulk loss reserves are established to provide for potential future adverse development on cases known to the Company and for cases unknown at the reserve date. Changes in the reserves for incurred but not reported losses and loss expenses occur based upon information received on known and newly reported cases during the current year and the effect of that development on the application of standard actuarial methods used by the Company.

~~- 6 -~~

The Company continues to incorporate more recent loss development data into its loss reserving formulae; however, the dynamic nature of losses associated with the commercial automobile business, as well as the timing of settlement of large claims, increases the likelihood of variability in loss developments from period to period. While the Company's basic assumptions have remained consistent, the Company continues to update loss data to reflect changing trends, which can be expected to result in fluctuations in loss developments over time.

Management's goal is to produce an overall estimate of reserves which is sufficient and as close to expected ultimate losses as possible. The Company constantly monitors changes in trends related to the number of claims incurred relative to correlative variances with premium volume, average settlement amounts, number of claims outstanding at period ends and the average value per claim outstanding and adjusts actuarial assumptions as necessary to accommodate observed trends.

Ten-Year Historical Development Tables:

The table below presents the development of U.S. generally accepted accounting principles ("GAAP") balance sheet insurance reserves for each year-end from ~~2008~~2010 through ~~2017,~~2019, as of December 31, ~~2018,~~2020, net of all reinsurance credits.

ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT--GAAP BASIS

(Dollars in thousands)

	Year Ended December 31																												Year Ended December 31
	2008		2009		2010		2011		2012			2013			2014			2015			2016			2017			2018		2010		2011		2012			2013			2014			2015			2016			2017			2018			2019		2020
Liability for Unpaid Losses and Loss Adjustment Expenses ⁽¹⁾	$	231,633	$	203,253	$	218,629	$	290,092	$	289,236		$	288,088		$	295,583		$	301,753		$	324,767		$	372,131		$	489,404	$	218,629	$	290,092	$	289,236		$	288,088		$	295,583		$	301,753		$	324,767		$	372,131		$	489,404		$	590,000	$	665,301

Liability Reestimated as of: ⁽²⁾
One Year Later		222,049		194,430		208,933		280,217		283,673			277,734			285,521			315,589			343,982			388,917				$	208,933		280,217		283,673			277,734			285,521			315,589			343,982			388,917			488,853			589,689
Two Years Later		208,702		198,220		201,745		272,285		282,381			268,757			303,540			340,361			369,670								201,745		272,285		282,381			268,757			303,540			340,361			369,670			393,536			490,320
Three Years Later		210,562		188,110		204,243		276,525		279,685			288,862			332,175			361,791											204,243		276,525		279,685			288,862			332,175			361,791			382,982			390,951
Four Years Later		205,519		192,195		202,078		268,299		291,332			313,909			343,898														202,078		268,299		291,332			313,909			343,898			373,454			384,394
Five Years Later		208,398		187,792		198,518		275,517		298,861			313,662																	198,518		275,517		298,861			313,662			352,873			374,475
Six Years Later		205,986		181,547		200,922		276,812		299,996																				200,922		276,812		299,996			317,621			353,036
Seven Years Later		200,460		181,998		203,692		279,598																						203,692		279,598		300,450			316,504
Eight Years Later		200,808		184,122		204,769																								204,769		279,926		299,830
Nine Years Later		202,565		183,693																										205,047		278,192
Ten Years Later		201,673																												202,278

Cumulative Redundancy (Deficiency) ⁽³⁾	$	29,960	$	19,560	$	13,860	$	10,494	$	(10,760	)	$	(25,574	)	$	(48,315	)	$	(60,038	)	$	(44,903	)	$	(16,786	)			$	16,351	$	11,900	$	(10,594	)	$	(28,416	)	$	(57,453	)	$	(72,722	)	$	(59,627	)	$	(18,820	)	$	(916	)	$	311

Cumulative Amount of Liability Paid Through: ⁽⁴⁾
One Year Later	$	84,777	$	74,182	$	72,393	$	94,003	$	103,941		$	92,275		$	92,870		$	109,228		$	132,920		$	143,853				$	72,393	$	94,003	$	103,941		$	92,275		$	92,870		$	109,228		$	132,920		$	143,853		$	157,508		$	165,776
Two Years Later		120,628		107,413		109,382		156,271		162,087			159,282			166,642			195,951			217,376								109,382		156,271		162,087			159,282			166,642			195,951			217,376			220,502			243,766
Three Years Later		142,731		125,038		133,507		193,566		205,452			166,642			222,295			250,924											133,507		193,566		205,452			166,642			222,295			250,924			275,464			260,136
Four Years Later		152,679		137,460		147,462		214,873		202,803			234,158			258,576														147,462		214,873		202,803			234,158			258,576			287,311			295,576
Five Years Later		161,834		143,461		158,172		227,359		241,533			251,696																	158,172		227,359		241,533			251,696			283,107			301,159
Six Years Later		166,290		148,101		166,112		234,578		252,648																				166,112		234,578		252,648			263,194			292,069
Seven Years Later		170,126		152,375		168,524		241,383																						168,524		241,383		258,630			269,206
Eight Years Later		173,867		153,999		173,015																								173,015		246,052		262,371
Nine Years Later		174,902		157,297																										176,204		248,812
Ten Years Later		177,677																												178,577

(1)

Represents the estimated liability for unpaid losses and LAE recorded at the balance sheet date for each of the indicated years. This liability represents the estimated amount of losses and LAE for claims arising in all prior years that were unpaid at the respective balance sheet date, including incurred but not reported ("IBNR") losses, to the Company.

(2)

Represents the re-estimated amount of the previously recorded liability based on additional information available to the Company as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known about the frequency and severity of individual claims and as claims are settled and paid.

(3)	Represents the aggregate change in the estimates of each calendar year-end reserve through December 31, ~~2018.~~2020.

(4)

Represents the cumulative amount paid with respect to the previously recorded calendar year-end liability as of the end of each succeeding year. The payment patterns shown in this table demonstrate the "long-tail" nature of much of the Company's business, whereby portions of claims, principally in workers' compensation coverages, do not fully pay out for more than ten years.

~~- 7 -~~

Reserve developments for all years ended in the period 1985 through 2011 have produced redundancies as of December 31, ~~2018,~~2020, with deficiencies developing for periods from 2012 ~~forward.~~to 2018. The ~~$16.8~~$0.3 million ~~deficiency~~prior accident year savings that developed ~~through one year on~~during 2020 related to favorable loss development in the ~~2017 reserve position reflects action taken~~Company's occupational accident business, partially offset by ~~management to respond to higher than expected adverse case~~unfavorable loss development ~~as previously noted.~~in commercial automobile coverages. The deficiencies that ~~have~~ developed in the chart from 2012 through ~~2017~~2018 have been largely attributable to two main ~~themes.~~factors. First, the Company engaged in new markets between 2008 and 2013, including professional liability and property coverages concentrated in the state of Florida. These products (now discontinued) experienced significant adverse loss development in calendar years 2016 and 2017 as more information emerged and was therefore considered in the reserving process. Second, the Company has experienced increased severity in losses related to its commercial automobile transportation offerings. ~~The~~During 2020, the Company ~~is currently addressing~~continued to address the rate adequacy and customer segmentation practices of ~~this product~~commercial automobile products in response to ~~the most recent~~these adverse loss trends.

Readers should note the table above does not present accident or policy year development data, which they may be more accustomed to analyzing. Rather, this table is intended to present an evaluation of the Company's ability to establish its liability for losses and loss expenses at a given balance sheet date. In reviewing this information, it is important to understand that this method of presentation causes some development experience to be duplicated. For example, the amount of any redundancy or deficiency related to losses settled in ~~2011,~~2012, but incurred in ~~2008,~~2009, will be included in the cumulative development amount for each of the years ending December 31, ~~2008, 2009,~~2010, 2011, and ~~2010.~~2012. It is also important to note that conditions and trends that have affected development of the liability in the past may not necessarily occur in the future. Accordingly, it would not be appropriate to extrapolate future redundancies or deficiencies based on this table.

The table ~~presented~~ below presents loss development data on a gross (before consideration of reinsurance) basis for the same ~~ten year~~ten-year period December 31, ~~2008~~2010 through December 31, ~~2017,~~2019, as of December 31, ~~2018,~~2020, with a reconciliation of the data to the net amounts shown in the table above.

ANALYSIS OF LOSS AND LOSS ADJUSTMENT EXPENSE DEVELOPMENT--GAAP BASIS

(Dollars in thousands)

	Year Ended December 31																												Year Ended December 31
	2008		2009		2010		2011		2012			2013			2014			2015			2016			2017			2018		2010			2011			2012			2013			2014			2015			2016			2017			2018			2019			2020
Direct and Assumed:
Liability for Unpaid Losses and Loss Adjustment Expenses	$	389,558	$	359,030	$	344,520	$	421,556	$	455,454		$	474,470		$	506,102		$	513,596		$	576,330		$	680,274		$	865,339	$	344,520		$	421,556		$	455,454		$	474,470		$	506,102		$	513,596		$	576,330		$	680,274		$	865,339		$	988,305		$	1,089,669

Liability Reestimated as of December 31, 2018		312,965		289,679		301,700		395,271		450,713			519,189			599,457			633,660			647,807			709,523
Liability Reestimated as of December 31, 2020																														341,571			434,106			496,856			547,749			632,297			672,667			686,485			735,058			892,796			1,010,036

Cumulative Redundancy (Deficiency)	$	76,593	$	69,351	$	42,820	$	26,285	$	4,741		$	(44,719	)	$	(93,355	)	$	(120,064	)	$	(71,477	)	$	(29,249	)			$	2,949		$	(12,550	)	$	(41,402	)	$	(73,279	)	$	(126,195	)	$	(159,071	)	$	(110,155	)	$	(54,784	)	$	(27,457	)	$	(21,731	)

Ceded:
Liability for Unpaid Losses and Loss Adjustment Expenses	$	157,925	$	155,777	$	125,891	$	131,464	$	166,218		$	186,382		$	210,519		$	211,843		$	251,563		$	308,143		$	375,935	$	140,401		$	54,428		$	132,320		$	167,366		$	178,887		$	204,349		$	188,829		$	204,199		$	190,870		$	275,339		$	424,368

Liability Reestimated as of December 31, 2018		111,292		105,986		96,931		115,673		150,717			205,527			255,559			271,869			278,137			320,606
Liability Reestimated as of December 31, 2020																														153,803			78,878			163,128			212,229			247,629			290,699			239,357			240,163			217,410			297,381

Cumulative Redundancy (Deficiency)	$	46,633	$	49,791	$	28,960	$	15,791	$	15,501		$	(19,145	)	$	(45,040	)	$	(60,026	)	$	(26,574	)	$	(12,463	)			$	(13,402	)	$	(24,450	)	$	(30,808	)	$	(44,863	)	$	(68,742	)	$	(86,350	)	$	(50,528	)	$	(35,964	)	$	(26,540	)	$	(22,042	)

Net:
Liability for Unpaid Losses and Loss Adjustment Expenses	$	231,633	$	203,253	$	218,629	$	290,092	$	289,236		$	288,088		$	295,583		$	301,753		$	324,767		$	372,131		$	489,404	$	218,629		$	290,092		$	289,236		$	288,088		$	295,583		$	301,753		$	324,767		$	372,131		$	489,404		$	590,000		$	665,301

Liability Reestimated as of December 31, 2018		201,673		183,693		204,769		279,598		299,996			313,662			343,898			361,791			369,670			388,917
Liability Reestimated as of December 31, 2020																														202,278			278,192			299,830			316,504			353,036			374,475			384,394			390,951			490,320			589,689

Cumulative Redundancy (Deficiency)	$	29,960	$	19,560	$	13,860	$	10,494	$	(10,760	)	$	(25,574	)	$	(48,315	)	$	(60,038	)	$	(44,903	)	$	(16,786	)			$	16,351		$	11,900		$	(10,594	)	$	(28,416	)	$	(57,453	)	$	(72,722	)	$	(59,627	)	$	(18,820	)	$	(916	)	$	311

~~- 8 -~~

Readers are reminded the gross data presented above requires significantly more subjectivity in the estimation of IBNR and loss expense reserves because of the high limits provided by the Company to its commercial automobile and workers' compensation customers, some of which has been covered by excess of loss and facultative reinsurance. This is particularly true of excess of loss treaties in which the Company retains risk in only the lower, more predictable, layers of coverage. Accordingly, one would generally expect more variability in development on a gross basis than on a net basis. The Company's consolidated financial statements reflect its financial results net of reinsurance.

Environmental Matters:

Given that one of the Company's core businesses is insuring commercial automobile companies, on occasion claims involving a commercial automobile accident which has resulted in the spill of a pollutant are made. Certain of the Company's policies may cover these situations on the basis that they were caused by an accident that resulted in the immediate and isolated spill of a pollutant. These claims are typically reported, evaluated and fully resolved within a short period of time.

In general, establishing reserves for environmental claims, other than those associated with "sudden and accidental" losses, is subject to uncertainties that are greater than those represented by other types of claims. Factors contributing to those uncertainties include a lack of historical data, long reporting delays, uncertainty as to the number and identity of insureds with potential exposure, unresolved legal issues regarding policy coverage, and the extent and timing of any such contractual liability. Courts have reached different and sometimes inconsistent conclusions as to when the loss occurred and what policies provide coverage, what claims are covered, whether there is an insured obligation to defend, how policy limits are determined, how policy exclusions are applied and interpreted, and whether cleanup costs represent insured property damage.

Very few environmental claims have historically been reported to the Company. In addition, a review of the businesses of the Company's past and current insureds indicates that exposure to claims of an environmental nature is typically limited because the vast majority of the Company's accounts are not currently, and have not in the past been, involved in the hauling of hazardous substances. Also, the revision of the pollution exclusion in the Company's policies since 1986 ~~has, and is expected to, further limit~~limits exposure to such ~~claims from that point forward.~~claims.

The Company does not expect to have any significant environmental claims relating to asbestos exposure.

The Company's reserves for unpaid losses and loss expenses at December 31, ~~2018~~2020 did not include significant amounts for liability related to environmental damage claims. The Company does not foresee significant future exposure to environmental damage claims and accordingly has established no reserve for IBNR environmental losses at December 31, ~~2018.~~2020.

Marketing

Historically, the Insurance Subsidiaries have primarily focused their commercial automobile marketing efforts on large and ~~medium~~medium-sized trucking fleets, with their biggest market share in larger trucking fleets (over 150 power units). The largest of these fleets (over 250 power units) generally self-insure a significant portion of their risk, and self-insured retention plans are a specialty of the Company. The indemnity contract provided to such customers is designed to cover all aspects of commercial automobile liability, including third-party liability, property damage, physical damage and cargo, whether arising from vehicular accident or other casualty loss. The self-insured program is supplemented with large deductible workers' compensation policies in states which do not allow for self-insurance of this coverage. Fleets with fewer than 250 power units typically purchase full insurance coverage or retain deductibles on each claim. ~~The~~In 2020, the Company's commercial automobile offerings also include public livery risks, principally ~~large and medium-sized~~small operators of bus fleets, ~~and taxis,~~ work-related accident insurance, on a group or individual basis, to independent contractors under contract to a fleet sponsor, as well as workers' compensation coverage to employees of independent contractor fleet owners. Large fleet trucking products are marketed both directly to commercial automobile clients and also through relationships with non-affiliated brokers and specialized independent agents.

In addition, the Company offers a program of coverages for "small fleet" trucking concerns ~~(owner-operators~~with generally ~~with one~~5 to ~~six~~25 power units) and "medium fleet" trucking concerns (7 to 150 power units). Products for small and medium fleets, independent contractors, and non-trucking entities are marketed through relationships with non-affiliated brokers and specialized agents.units.

In some cases, the Company will provide specific product offerings to specialized markets through partnerships with brokers and program administrators. As the Company ~~grows,~~has grown, its distribution strategy has moved toward utilization of non-affiliated agents and brokers to place new business for small and intermediate commercial automobile (including independent contractor products) ~~and non-transportation workers' compensation.~~. In addition, the Company has developed customized commercial automobile liability and workers' compensation programs, which are marketed through non-affiliated agent partners. These customized programs can include a suite of products selected for its targeted customer base, including commercial automobile liability, general liability, non-trucking liability, cargo, occupational accident, or workers' compensation coverages.

~~- 9 -~~

~~Investments~~

Investments

The ~~Company's~~Company’s investment portfolio ~~is notionally divided between (1) funds which are considered necessary to support insurance underwriting activities~~has been de-risked over the past three years primarily by reducing the equity and ~~(2) excess capital funds. Management believes~~limited partnership investments as a percentage of the ~~funds invested in~~overall portfolio and increasing fixed income investments. The Company’s investment strategy emphasizes preservation and ~~short-term securities are more than sufficient~~growth of capital surplus. Subject to ~~cover underwriting operations while equity securities and limited partnerships are utilized to invest excess capital funds to achieve higher long-term~~achieving that objective, the Company pursues favorable risk adjusted returns. ~~The following discussion will concentrate on the different investment strategies for these two major categories.~~

At December 31, ~~2018,~~2020, the market value of the Company's consolidated investment portfolio was approximately ~~$878.6~~$1,043.7 million, consisting of fixed income securities, equity securities, investments in limited partnerships, commercial mortgage loans and short-term and other investments and ~~includes $156.9~~included $47.0 million of short-term funds classified as cash equivalents.

A comparison of the allocation of assets within the Company's consolidated investment portfolio, using market value as a basis, is as follows as of December 31:

	2018			2017			2020			2019
Fixed income securities		67.5	%		61.1	%		88.1	%		82.2	%
Short-term		0.1			0.1			0.1			0.1
Cash equivalents		17.8			6.9			4.5			6.2
Total fixed income securities and short-term		85.4			68.1
Total fixed income and short-term securities								92.7			88.5

Limited partnerships (equity basis)		6.3			8.3			0.7			2.4
Commercial mortgage loans (amortized cost basis)		0.8			0.0			1.0			1.2
Equity securities		7.5			23.6			5.6			7.9
		100.0	%		100.0	%		100.0	%		100.0	%

Fixed Income and Short-Term Investments

Fixed income and short-term securities comprised ~~85.4%~~92.7% of the market value of the Company's consolidated investment portfolio of ~~$878.6~~$1,043.7 million at December 31, ~~2018.~~2020. The fixed income portfolio is widely diversified with no concentrations in any single industry, geographic location or municipality. The largest amount invested in any single issuer was ~~$3.5~~$4.0 million (0.4% of the Company's consolidated investment portfolio). The Company's fixed income portfolio has a short duration compared to the duration of its insurance liabilities and, accordingly, the Company does not actively trade fixed income securities but typically holds such investments until maturity. Exceptions exist in instances where the underlying credit for a specific issue is deemed to be diminished. In such cases, the security will be considered for disposal prior to maturity. In addition, fixed income securities may be sold when realignment of the portfolio is considered beneficial (e.g., moving from taxable to non-taxable issues) or when valuations are considered excessive compared to alternative investments.

Approximately ~~$54.2~~$63.7 million of the Company's fixed income investments ~~(6.2%~~(6.1% of the Company's consolidated investment ~~portfolio)~~portfolio, which includes money market instruments classified as cash equivalents) consisted of non-rated bonds and bonds rated as less than investment grade by the National Association of Insurance Commissioners ("NAIC") at ~~year-end.~~year end. These investments ~~included a diversified portfolio of over 40 issuers and~~ had a ~~$5.2~~$2.2 million aggregate net unrealized ~~loss~~gain position at December 31, ~~2018.~~2020.

The market value of the consolidated fixed income portfolio included ~~$7.9 million of net unrealized losses at December 31, 2018 compared to $0.8~~$26.3 million of net unrealized gains at December 31, 2017. The Company analyzes fixed income securities for other-than-temporary impairment ("OTTI") in accordance with the Financial Accounting Standards Board OTTI guidance. As has been the Company's consistent policy, OTTI is considered for any individual issue which has sustained a decline in current market value2020 compared to $12.5 million of net unrealized gains at least 20% below original or adjusted cost, and the decline is ongoing for more than six months, regardless of the evaluation of the creditworthiness of the issuer or the specific issue. Additionally, the Company takes into account any known subjective information in evaluating for impairment without consideration of the Company's 20% threshold.December 31, 2019. The current net unrealized ~~loss~~gain on fixed income securities ~~consists~~consisted of ~~$10.8~~$4.7 million of gross unrealized losses and ~~$2.9~~$31.0 million of gross unrealized ~~gains.~~gains at December 31, 2020. The gross unrealized losses equal approximately ~~1.8%~~0.5% of the cost of all fixed income securities. See also "Critical Accounting Policies" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Annual Report on Form 10-K for additional details ofregarding the Company's investment valuation.

~~- 10 -~~

Equity Securities

Because of the large amount of high-quality fixed income investments owned, relative to the Company's loss and loss expense reserves (net of reinsurance recoverables) and other liabilities, amounts invested in equity securities are not needed to fund current operations and, accordingly, can be committed for longer periods of time. Equity securities comprised ~~7.5%~~5.6% of the market value of the Company's consolidated investment portfolio of ~~$878.6~~$1,043.7 million at December 31, ~~2018.~~2020. The Company's equity securities portfolio consists of various securities with diversification from large to small capitalization issuers and among several industries. The largest single-equity issue owned had a market value of ~~$3.2~~$3.5 million at December 31, ~~2018 (0.4%~~2020 (0.3% of the Company's consolidated investment portfolio).

Realized losses related to the sale of equity securities during 2020 recognized in the consolidated statement of operations for the year ended December 31, 2020 were $8.1 million before taxes. Net unrealized gains on equity securities held at December 31, 2020 included in the consolidated statement of operations for the year ended December 31, 2020 were $1.9 million.

An individual equity security will be disposed of when it is determined ~~by the Company's external investment managers or the Board of Directors' Investment Committee~~ that there is little potential for future appreciation or to reallocate from equity to fixed income securities. Securities are disposed of only when market conditions dictate, regardless of the impact, positively or negatively, on current period earnings.

As of January 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities or ("ASU ~~2016-01.~~2016-01"). The amendments in ASU 2016-01 changed the accounting for non-consolidated equity investments that are not accounted for under the equity method of accounting by requiring changes in fair value to be recognized in income. Previously, the Company's equity securities were classified as available-for-sale and changes in fair value were recognized in accumulated other comprehensive income (loss) as a component of shareholders' equity.

During 2018, the Company's external investment managers and the Board of Directors' Investment Committee determined that reallocation of the Company's equity portfolio would be beneficial and sold $149.2 million of its equity portfolio, resulting in a gain on sale of $51.9 million. The majority of these gains were included in unrealized gains within other comprehensive income (loss) at December 31, 2017 and, as a result of the adoption of ASU 2016-01, were reclassified to retained earnings as of January 1, 2018 and were therefore not recognized in the consolidated statement of operations for the year ended December 31, 2018. These equity sales further solidified the conservative nature of its high quality, short-duration investment portfolio; opportunistically utilized the new lower corporate tax rate of 21%, which was beneficial given the low tax basis of many of these equity positions; and were accretive to income, given the increase in yields at the shorter end of the yield curve. Realized losses related to the sale of equity securities during 2018 recognized in the consolidated statement of operations for the year ended December 31, 2018 were $3.1 million before taxes. Net unrealized losses on equity securities held at December 31, 2018 included in the consolidated statement of operations for the year ended December 31, 2018 were $9.7 million.

Limited Partnerships

The Company invests in various limited partnerships engaged in long-short equities, private equity, country-focused funds and real estate development as an alternative to direct equity investments. ~~The funds used for these investments are part of the Company's excess capital strategy.~~ At December 31, ~~2018,~~2020, the aggregate carrying value was ~~$55.0~~$7.2 million, comprising ~~6.3%~~0.7% of the market value of the Company's consolidated investment portfolio.

As a group, these investments decreased in value during ~~2018,~~2020, with the aggregate of the Company's share of such losses reported by the limited partnerships totaling approximately ~~$9.3~~$1.4 million.

The Company follows the equity method of accounting for its limited partnership investments and, accordingly, records the total change in value as a component of net unrealized gains (losses) on equity securities and limited partnership investments. Readers are cautioned that reported increases and decreases in equity value of the Company's limited partnerships can change quickly as a result of volatile market conditions. Limited partnerships also are highly illiquid investments, and the Company's ability to withdraw funds is generally subject to significant restrictions.

Investment Yields

Pre-tax net investment income ~~increased $3.9~~decreased $0.8 million, or ~~22%~~3.2%, during ~~2018,~~2020, reflecting ~~higher~~lower interest rates earned on cash and cash equivalent balances for ~~shorter duration securities, increased dividends and increased~~the year, partially offset by an increase in average funds invested ~~assets~~resulting from ~~continuing~~ positive cash flow from ~~operations.~~operations, as well as the continued reallocation from equity investments in limited partnerships and cash and cash equivalent investments into short-duration, high-quality bonds. A comparison of consolidated investment yields, before consideration of investment management expenses, is as follows:

	2018			2017			2020			2019
Before federal tax:
Investment income		3.0	%		3.2	%		2.9	%		3.3	%
Investment income plus investment gains (losses)		(0.1	)		6.2

After federal tax:
Investment income		2.7			2.3			2.8			3.3
Investment income plus investment gains (losses)		(0.6	)		5.4

See also "Results of Operations" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Annual Report on Form 10-K for additional details of the Company's investment operations.

~~- 11 -~~

Regulatory Framework

The Insurance Subsidiaries are currently subject to insurance industry regulation by each of the jurisdictions in which they are licensed. In addition, minor portions of the Insurance Subsidiaries' business are subject to regulation by Bermudian and Canadian federal and provincial authorities. As an insurance holding company, Protective is also subject to oversight from the Indiana Department of Insurance. There can be no assurance that laws and regulations will not be changed by one or more of these regulatory bodies in ways that will require the Company to modify its business models and objectives. In particular, the United States federal government continuously reviews the regulation and supervision of financial institutions, including insurance companies, as well as tax laws and regulation, which could impact the Company's operations and performance.

Additionally, changes in laws and regulations governing the insurance industry could have an impact on the Company's ability to generate historical levels of income from its insurance operations. The Company is obligated to comply with numerous complex and varied governmental regulations in order to maintain its authority to write insurance business. While the Company has continuously maintained each of its licenses without exception, failure to maintain compliance could result in governmental regulators temporarily preventing the Company from writing new business, thus having a detrimental effect on the Company. Also, the ability of the Insurance Subsidiaries to modify certain insurance rates, specifically workers' compensation rates, is heavily regulated, and such rate increases are often denied or delayed for substantial periods by regulators.

Investments made by the Company's domestic Insurance Subsidiaries are regulated by guidelines promulgated by the NAIC, which are designed to provide protection for both policyholders and shareholders. The statutory capital of each of the Insurance Subsidiaries substantially exceeds the minimum risk-based capital requirements set by the NAIC. State regulatory authorities prescribe calculations of the minimum amount of statutory capital and surplus necessary for each insurance company to remain authorized. These computations are referred to as risk-based capital requirements and are based on a number of complex factors, taking into consideration the quality and nature of assets, the historical adequacy of recorded liabilities and the specific nature of business conducted. At December 31, ~~2018,~~2020, the minimum statutory capital and surplus requirements of the Insurance Subsidiaries was ~~$117.4~~$136.5 million. Actual consolidated statutory capital and surplus at December 31, ~~2018~~2020 exceeded this requirement by ~~$278.5~~$210.9 million.

~~Employees~~Human Capital Management

Protective is committed to attracting, developing and retaining top talent in order to drive its continued success and achieve its business goals. The Company strives for a diverse and inclusive culture, which rewards performance, provides growth and development opportunities and supports employees through competitive compensation, benefits and numerous volunteer and charitable giving opportunities.

As of December 31, ~~2018,~~2020, the Company had ~~535~~approximately 490 employees working full-time.

COVID-19, Employee Safety and Wellness

Employee health and safety are top priorities. In response to the COVID-19 pandemic, the Company adopted numerous health and safety measures in accordance with best-practice safe hygiene guidelines issued by recognized health experts such as the U.S. Centers for Disease Control and Prevention (CDC) and the World Health Organization (WHO), as well as government mandates.

The Company has provided for work-from-home arrangements for employees where possible, including providing employees with the necessary equipment to effectively work from home, provides regular communication updates to its employees on COVID-19 related matters, has implemented office sanitization protocols and requires mask usage at the office and temperature and health screening prior to entering the Company's facilities.

Diversity and Inclusion

Protective is committed to fostering a work environment that values and promotes diversity and inclusion. During 2020, several Employee Resource Groups (ERGs) were created and staffed by employees with diverse backgrounds, experiences or characteristics who share a common interest in professional development, improving corporate culture and delivering sustained business results. The Company provides equal access to and participation in programs and services without regard to race, religion, color, national origin, disability, sex, sexual orientation, gender identify, stereotypes or assumptions based thereon.

Employee Engagement, Development and Training

Protective invests resources in professional development and growth as a means to encourage employee performance, motivation and retention. The Company encourages and supports the growth and development of its employees, and wherever possible, seeks to fill positions by promotion or transfer from within the organization. The Company promotes continuous learning and career development through ongoing performance and development discussions and evaluations, training programs, succession and talent pipeline planning and educational reimbursement programs. The Company provides employees with the opportunity to provide regular feedback through surveys, meetings with management and CEO-led discussions. Employees are also eligible to participate in a departmental rotation program to gain experience and knowledge about the organization.

Opportunities for continuous learning and development are available to employees through internal and external training resources, conferences and seminars. Protective offers internal online training opportunities on topics such as diversity and inclusion, health and safety, personal development, computer skills and management training courses.

Compensation and Benefits

Protective is committed to providing its employees with a competitive compensation package, which rewards performance and achievement of desired business results and personal goal attainment. The Company's compensation package consists of base pay and an ~~increase~~incentive program in which all employees are eligible to participate, health and welfare benefits and retirement contributions. The Company analyzes its compensation and benefits programs regularly to ensure they remain competitive with the market.

Health and wellness programs are provided and contribute to a productive workforce by empowering our employees to take personal responsibility for their health, safety and well-being. Employees are offered the opportunity to participate in healthcare and insurance benefits, disability insurance, health savings and flexible spending accounts, paid time off, parental leave and various wellness programs.

Community Involvement

The Company and its employees provide multi-faceted support for its communities to address needs where its employees work and live. Corporate sponsorships and employee volunteer opportunities support a wide range of ~~7 employees from the prior year-end.~~non-profits, including those that address children and youth programs, education, safety, human trafficking, housing, abuse, joblessness, blood donations and many others.

Revenue Concentration

The Company derives a significant percentage of its direct premium volume from certain FedEx Corporation subsidiaries and operating companies ("FedEx"), and from insurance coverage provided to FedEx's contracted service providers. FedEx represented approximately ~~$16.2~~$4.7 million, ~~$18.5~~$4.7 million and ~~$18.3~~$16.2 million of the Company's consolidated gross premiums written in 2020, 2019 and 2018, ~~2017 and 2016,~~ respectively. The decrease in 2019 is related to the non-renewal of certain excess coverage policies in late 2018. An additional $207.6 million, $172.8 million and $174.7 million ~~$189.4 million~~in 2020, 2019 and ~~$202.2 million in~~ 2018, ~~2017 and 2016,~~ respectively, was placed with the Company by a non-affiliated broker on behalf of contracted service providers of FedEx, but this additional business was not dependent upon the Company's direct business with FedEx.

Competition

Insurance underwriting is highly competitive. The Insurance Subsidiaries compete with other stock and mutual companies and inter-insurance exchanges (reciprocals). There are numerous insurance companies offering the lines of insurance which are currently written or may in the future be written by the Insurance Subsidiaries. Many of these companies have been in business for longer periods of time, have significantly larger volumes of business, offer more diversified lines of insurance coverage and have significantly greater financial resources than the Company. In many cases, competitors are willing to provide coverage for rates lower than those charged by the Insurance Subsidiaries. Many potential clients self-insure workers' compensation and other risks for which the Company offers coverage, and some have organized "captive" insurance companies as subsidiaries through which they insure their own operations. Some states have workers' compensation funds that preclude private companies from writing this business in those states. Federal law also authorizes the creation of "Risk Retention Groups," which may write insurance coverages similar to those offered by the Company.

The Company believes it has a competitive advantage in its major lines of business as the result of its management and staff, its service and products, its willingness to custom build insurance programs for its customers, its centralized location with ready access to skilled employees, its proprietary databases and the use of technology with respect to its insureds. ~~Accordingly,~~However, should competitors determine to "buy" market share with unprofitable rates, the Insurance Subsidiaries will generally experience a decline in business until pricing returns to profitable levels.

~~- 12 -~~

Availability of Documents

The Company is an accelerated filer as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is required, pursuant to Item 101 of Regulation S-K, to provide certain information regarding its website and the availability of certain documents filed with or furnished to the U.S. Securities and Exchange Commission (the "SEC"). The Company's Internet website is www.protectiveinsurance.com. The Company has included its Internet website address throughout this Annual Report on Form 10-K as a textual reference only. The information contained on, or accessible through, the Company's Internet website is not incorporated by reference into this Annual Report on Form 10-K.

The Company makes available, free of charge, ~~by mail or~~ through its Internet website, its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after it electronically files such material with or furnishes it to the SEC. The Company also includes on its Internet website its Code of Business Conduct and the charter of each permanent committee of its Board of Directors (the "Board"). In addition, the Company intends to disclose on its Internet website any amendments to, or waivers from, its Code of Business Conduct that are required to be publicly disclosed pursuant to rules of the SEC and the Nasdaq Stock Market LLC ("Nasdaq").

Shareholders may obtain, without charge, a copy of this Annual Report on Form 10-K, including the consolidated financial statements and schedules thereto, without the accompanying exhibits, upon written request to Protective Insurance Corporation, 111 Congressional Boulevard, Carmel, Indiana 46032, Attention: Investor Relations. A list of exhibits is included in this Annual Report on Form 10-K, and exhibits are available from the Company upon payment to the Company of the cost of furnishing the exhibits.

~~- 13 -~~16

Item 1A. RISK FACTORS

The following is a description of the risk factors that could cause our actual results to differ materially from those contained in forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by management from time to time. Such factors may have a material adverse effect on our business, financial condition and results of operations, and you should carefully consider them before deciding to invest in, or retain, shares of our common stock. These risk factors do not identify all risks that we face; our operations could also be affected by factors that are not presently known to us or that we currently consider to be immaterial to our operations. Due to risks and uncertainties, known and unknown, our past financial results may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.

OPERATIONAL RISKS

The impact of COVID-19 and related risks could materially affect our results of operations, financial position and/or liquidity.

Beginning in March 2020, the global pandemic related to COVID-19 and related economic conditions began to impact the global economy and our results of operations. A discussion of the impact of the COVID-19 pandemic on our business to date can be found in Part I, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Annual Report on Form 10-K. Because of the size and breadth of this pandemic, all of the direct and indirect consequences of COVID-19 are not yet known and may not emerge for some time. Risks presented by the ongoing effects of COVID-19 include the following:

•

Net premiums earned. We experienced an effect on our net premiums earned in the second and third quarters of 2020 primarily due to the reduction in miles driven during that time, which is the basis of premiums we receive, by our commercial automobile insureds, as well as an overall reduction in public transportation units insured. During the fourth quarter of 2020, we saw a partial recovery of premium volume when miles driven increased as a result of increased shipping around the holidays.

•

Losses and loss expenses incurred. We saw a favorable impact on our losses and loss expenses incurred in commercial automobile during 2020 as a result of declines in accident frequency due to lower traffic density, but in the future we may incur higher claim and claim adjustment expenses in certain lines of business as a result of COVID-19 due to increases in frequency and/or severity of claims. For example, we may experience elevated frequency and severity in our workers’ compensation lines related to compensable claims by workers who demonstrate that the injury or illness arose both out of and in the course of their employment. We may also experience elevated frequency and severity in our liability coverages as a result of plaintiffs’ lawyers seeking to generate COVID-19-related claim activity against our insureds. Additionally, the anticipated and unknown risks related to COVID-19 may cause additional uncertainty in the process of estimating claims and claim adjustment expense reserves. For example, the behavior of claimants and policyholders may change in unexpected ways, the disruption to the court system may impact the timing and amounts of claims settlements and the actions taken by governmental bodies, both legislative and regulatory, in reaction to COVID-19 and their related impacts are hard to predict. As a result, our estimated level of claims and claim adjustment expense reserves may change. We are also subject to credit risk in our insurance operations, which may be exacerbated in times of economic distress.

•

Investments. The volatility in the global financial markets related to COVID-19 has contributed to net realized and unrealized investment losses, primarily due to the impact of changes in fair value on our equity investments. Our corporate fixed income portfolio may be adversely impacted by ratings downgrades, increased bankruptcies and credit spread widening in distressed industries, such as energy, gaming, lodging and leisure, autos, airlines and retail. Our money market investments have been impacted by lower interest rates and may continue to be impacted by these lower rates. Our investment portfolio also includes commercial mortgage-backed securities, which could be adversely impacted by declines in real estate valuations and/or financial market disruption. Further volatility in the global financial markets due to the continuing impact of COVID-19 could result in future net realized and unrealized investment losses, including potential impairments in our fixed income portfolio. In addition, further declines in fixed income yields would result in decreases in net investment income from future investment activity, including re-investments.

•

Liquidity. Collection of premiums, deductibles or self-insured retentions from our policyholders and reinsurance recoverables from our reinsurers may become increasingly difficult. At the state level, insurance departments throughout the country have issued bulletins and regulations urging or requiring insurers to extend grace periods for the payment of policy premiums and to refrain from canceling or non-renewing policies for the non-payment of policy premiums for policyholders adversely affected by COVID-19. It is uncertain what impact these government mandates may have on our ability to recover unpaid premiums on the affected policies or what our obligations may be for the payment of claims made under policies for which we have not received premium payments.

•

Adverse Legislative and/or Regulatory Action. Federal, state and local government actions to address and contain the impact of COVID-19 may adversely affect us. A number of states have instituted, and other states are considering instituting, changes designed to effectively expand workers' compensation coverage by creating presumptions of compensability of claims for certain types of workers. Regulatory restrictions or requirements could also impact pricing, risk selection and our rights and obligations with respect to our policies and insureds, including our ability to cancel policies or our right to collect premiums.

•

Operational Disruptions and Heightened Cybersecurity Risks. Our operations could be disrupted if key members of our senior management or a significant percentage of our workforce or the workforce of our agents, brokers, suppliers or outsourcing providers are unable to continue to work because of illness, government directives or otherwise. In addition, the interruption of our or their system capabilities could result in a deterioration of our ability to write and process new and renewal business, provide customer service, pay claims in a timely manner or perform other necessary business functions. Having shifted to primarily remote working arrangements, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and capabilities. To date, we have not experienced any such operational interruptions or cybersecurity disruptions during this time.

We compete with a large number of companies in the insurance industry for underwriting revenues.

We compete with a large number of other companies in our selected lines of business. During periods of intense competition for premium, we are vulnerable to the actions of other companies who may seek to write business without what we believe to be an appropriate regard for ultimate profitability. During these times, it is very difficult to grow or maintain premium volume without sacrificing underwriting discipline and income.

Insurance underwriting is highly competitive. We compete with other stock and mutual companies and inter-insurance exchanges (reciprocals). There are numerous insurance companies offering the lines of insurance which are currently written or may in the future be written by us. Many of these companies have been in business for longer periods of time, have significantly larger volumes of business, offer more diversified lines of insurance coverage and have significantly greater financial resources than us. In many cases, competitors are willing to provide coverage for rates lower than those charged by us. Many potential clients self-insure workers' compensation and other risks for which we offer coverage, and some have organized "captive" insurance companies as subsidiaries through which they insure their own operations. Some states have workers' compensation funds that preclude private companies from writing this business in those states. Federal law also authorizes the creation of "Risk Retention Groups," which may write insurance coverages similar to those offered by us.

We may incur increased costs in competing for underwriting revenues as we seek to expand our business. Increased costs associated with attracting and writing new clients may negatively impact underwriting revenue. If we are unable to compete effectively, our underwriting revenues may decline, as well as our overall business results.

New competition could cause the supply and/or demand for insurance or reinsurance to change, which could affect our ability to price our coverages at attractive rates and thereby adversely affect our underwriting results.

~~Changes in laws~~The loss of our major sponsor program could severely impact our revenue and ~~regulations governing~~earnings potential.

We derive a significant percentage of our direct premium volume from insurance coverage provided to FedEx Ground's contracted service providers through a FedEx Ground sponsored program. The loss of this would likely materially adversely impact our revenue and earnings potential.

Technological advances, including those specific to the ~~insurance~~transportation industry, could ~~have~~present us with added competitive risks.

An increase in accident prevention technologies and the growth of autonomous or partially autonomous vehicles could reduce the amount of accidents over time and shift the liability from the owner of the vehicle to the manufacturer, which would cause automobile insurance to become a ~~negative impact on our ability to generate income from our insurance operations.~~

~~One or more~~smaller portion of our ~~Insurance Subsidiaries~~overall property and casualty insurance book of business. Innovations in telematics and the increase in usage-based information have become more important and will likely change the way premiums are ~~regulated and/~~determined in the future. These advances in technology could materially change the way products in the transportation industry are designed, priced and underwritten, and if we fail to adjust to these changes in a timely manner, our business and results of operations could be materially adversely affected.

The failure of our information technology systems and other operational systems to operate properly or ~~licensed in all 50~~disruptions or breaches of the United States, the District of Columbia, all Canadian provinces, Puerto Rico and Bermuda. We are obligated to comply with numerous complex and varied governmental regulations in order to maintain our ~~authority to write insurance business. Failure to maintain compliance~~information systems could ~~result in governmental regulators preventing us from writing new~~adversely affect our business, ~~which would have a material adverse impact on us, our~~ results of operations and ~~our~~ financial condition. ~~Further,~~

We rely upon complex and expensive information technology systems and other operational systems and on the ~~ability~~integrity and timeliness of our ~~Insurance Subsidiaries~~data to ~~adjust insurance rates~~run our businesses, service our customers and interact with policyholders, brokers and employers. The pace at which information systems must be upgraded is continually increasing, requiring an ongoing commitment of significant resources to maintain or upgrade to current standards. Our success may be impacted if we are not able to develop and expand the effectiveness of existing systems and to continue to enhance information systems that support our operations in a cost-effective manner. Our networking infrastructure and related assets may also be subject to employee errors or other unforeseen activities that could result in the disruption of business processes, network degradation and system downtime. To the extent that such disruptions occur, our business, results of operations and financial condition could be materially and adversely affected, resulting in a possible loss of business.

In addition, our daily business operations require us to retain sensitive data such as proprietary business information and data related to customers, claimants and business partners within our network infrastructure. Cybersecurity attacks and intrusion efforts are continuous and evolving. The scope and severity of risks that cyber threats present have increased dramatically, and include, but are not limited to, disruptions in systems, unauthorized release of confidential or otherwise protected information and corruption of data. Our information technology and other ~~product offerings is regulated for significant portions~~systems have been, and in the future could be, subject to physical or electronic break-ins; attempts to gain unauthorized access to data from our employees, vendors or third parties; unauthorized tampering; exploitation of weaknesses related to our vendors or other third parties; denials of service; computer viruses and other malicious software; or other cybersecurity attacks or breaches, resulting in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to our customers and business partners, or in the theft of intellectual property or proprietary information. We evaluate the adequacy of our third-party service providers’ cybersecurity measures through periodic due diligence and contractual obligations. Despite these safeguards, disruptions to and breaches of our information technology systems or providers’ are possible and may negatively impact our business.

We cannot ensure that we will be able to identify, prevent or contain the effects of any future cyber attacks or other cybersecurity incidents that bypass our security measures or disrupt our information technology systems or business. Any failure to maintain proper security, confidentiality or privacy of sensitive data residing on our information technology and other operational systems could delay or disrupt our ability to do business and ~~needed rate adjustments can be denied~~service clients, harm our reputation, require us to incur significant remediation costs, subject us to litigation, regulatory fines, a loss of customers and revenues or ~~delayed for substantial periods by regulators, which could~~otherwise have a material adverse effect on our business, results of operations and ~~our~~ financial condition.

We may be unable to attract and retain qualified employees.

We depend on our ability to attract and retain qualified executive officers, experienced underwriters, claims professionals and other skilled employees who are knowledgeable about our specialty lines of business. If we are unable to attract and retain such individuals, we may be unable to maintain our current competitive position in the specialty markets in which we operate and may be unable to achieve our growth strategy.

RISKS RELATED TO OUR PROPOSED MERGER

We may not consummate our proposed merger with Progressive within the timeframe or in the manner we anticipate, or at all, which could negatively affect our business and our stock price.

On February 14, 2021, we entered into the Merger Agreement with Progressive and Merger Sub. The Merger Agreement provides for, subject to the satisfaction or waiver of specified conditions, the merger of Merger Sub with and into Protective, whereupon the separate existence of Merger Sub shall cease and Protective shall continue as the surviving corporation and as a wholly-owned indirect subsidiary of Progressive.

Consummation of the Merger is subject to various conditions, including (i) approval by our Class A shareholders of the Merger; (ii) the receipt of required regulatory approvals, including from the Indiana Department of Insurance and the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended; (iii) the absence of any law, injunction or order preventing or prohibiting the consummation of the Merger; (iv) the accuracy of representations and warranties subject to applicable materiality standards; (v) compliance with all covenants under the Merger Agreement and (vi) the absence of a material adverse effect. There can be no assurance that approval of our Class A shareholders will be obtained, that the other conditions to the consummation of the Merger will be satisfied or waived or that other events or circumstances will not intervene to delay or result in the termination of the Merger. Subject to certain limitations, either party may terminate the Merger Agreement if the Merger is not consummated by November 14, 2021. If the Merger is not consummated, the price of our common stock may change to the extent that the current market price of our common stock may reflect an assumption that the Merger will be consummated.

Pending the consummation of the Merger, the Merger Agreement also restricts us from engaging in certain actions without Progressive’s consent, which could prevent us from pursuing opportunities that may arise prior to the effective time of the Merger. In addition, if the Merger Agreement is terminated, depending on the circumstances giving rise to termination, we may be required to pay a termination fee of approximately $13.3 million.

Our financial condition, results of operations and cash flows could be adversely impacted as a result of the proposed Merger, regardless of whether it is consummated.

The Merger may cause disruptions to our business or business relationships, which could have an adverse impact on our financial condition, results of operations and cash flows, regardless of whether the Merger is consummated. For example:

•	the attention of our management and our employees may be directed to Merger-related considerations and may be diverted from the day-to-day operations of our business;

•	our employees may experience uncertainty about their future roles with us, which might adversely affect our ability to retain and recruit key employees;

•	customers, suppliers or other parties with whom we maintain business relationships may experience uncertainty about our future and seek alternative relationships with third parties or seek to alter their business relationships with us; and

•	legal proceedings may be instituted against us, our directors and/or our officers with respect to the Merger.

In addition, we have incurred, and will continue to incur, significant costs, fees and expenses for professional services and other costs related to the Merger Agreement and the Merger, and many of these costs, fees and expenses are payable by us regardless of whether or not the Merger is consummated.

FINANCIAL AND LIQUIDITY RISKS

A material decline in our financial strength rating could adversely affect our position in the insurance market and cause a significant reduction in our premiums and earnings.

Our main insurance subsidiary, Protective Insurance Co., currently has a financial strength rating of “A” (Excellent) with a negative outlook by A.M. Best Company, Inc. ("A.M. Best"), which represents a downgrade from the “A+” (Superior) financial strength rating with a negative outlook Protective Insurance Co. had prior to November 20, 2018. In connection with the Merger announcement with Progressive, A.M. Best placed our financial strength rating under review with positive implications on February 16, 2021. Financial ratings are an important factor influencing the competitive position of insurance companies. A.M. Best ratings, which are commonly used in the insurance industry, currently range from “A++” (Superior) to “F” (In Liquidation). The objective of A.M. Best’s rating system is to provide potential policyholders and other interested parties with an expert independent opinion of an insurer’s financial strength and ability to meet ongoing obligations, including paying claims. This rating is subject to periodic review and may be revised downward, upward or revoked at the sole discretion of A.M. Best. A future downgrade by A.M. Best could result in the loss of a number of insurance contracts we write and in a substantial loss of business to other competitors, which would have a material adverse effect on our results of operations.

~~- 14 -~~

We have two classes of common stock with unequal voting rights that are effectively controlled by our principal shareholders and management, which limits other shareholders’ ability to influence our operations.

Our principal shareholders, directors and executive officers and their affiliates control approximately 50% of the outstanding shares of voting Class A Common Stock and approximately 23% of the outstanding shares of non-voting Class B Common Stock. These parties effectively control us, direct our affairs, and exert significant influence in the election of directors and approval of significant corporate transactions. The interests of these shareholders may conflict with those of other shareholders, and this concentration of voting power may limit the marketability of our stock and has the potential to delay, defer or prevent a change in control that other shareholders may believe to be in their best interests.

We are subject to credit risk relating to our ability to recover amounts due from reinsurers.

We limit our risk of loss from policies of insurance issued by our Insurance Subsidiaries through the purchase of reinsurance coverage from other insurance companies. Such reinsurance does not relieve us of our responsibility to policyholders should the reinsurers be unable to meet their obligations to us under the terms of the underlying reinsurance agreements. While we have not experienced any significant reinsurance losses for over 25 years, in the past, a small number of our less significant reinsurance carriers have experienced deteriorating financial conditions or have been downgraded by rating agencies, and provisions for potential uncollectible balances from these reinsurers have been established. If we are unable to collect the amounts due to us from reinsurers, any unreserved credit losses could adversely affect our results of operations, equity, business and insurer financial strength rating.

We may incur additional losses if our loss reserves are inadequate.

A large portion of our provision for losses recorded is composed of estimates of future loss payments to be made. Such estimates of future loss payments may prove to be inadequate. Loss and loss expense reserves represent our best estimate at a given point in time but are not an exact calculation of ultimate liability. Rather, they are complex estimates derived by utilizing a variety of reserve estimation techniques from numerous assumptions and expectations about future events, many of which are highly uncertain, such as estimates of claims severity, frequency of claims, inflation, claims handling, case reserving policies and procedures, underwriting and pricing policies, changes in the legal and regulatory environment and the lag time between the occurrence of an insured event and the time of its ultimate settlement. Many of these uncertainties are not precisely quantifiable and require significant judgment on our part. As trends in underlying claims develop, particularly in so-called “long tail” lines in which the adjudication of claims can take many years and which have seen an increase in claim severity, management is sometimes required to revise reserves. This results in a charge to our earnings in the amount of the adjusted reserves, recorded in the period the change in estimate is made. These charges can be substantial and can potentially have a material impact, either positively or negatively, on results of operations and shareholders’ equity.

~~The loss of our major customer could severely impact our revenue and earnings potential and A.M. Best rating.~~

We derive a significant percentage of our direct premium volume from FedEx, and from insurance coverage provided to FedEx’s contracted service providers. The loss of this major customer would likely materially adversely impact our revenue and earnings potential, as well as our A.M. Best rating. Insurance programs provided to FedEx and programs provided to the contracted service providers are not necessarily dependent upon one another.

Our collateral held may prove to be insufficient.

We require collateral from our large insureds covering the insureds’ obligations for self-insured retentions or deductibles related to policies of insurance provided. Should we, as surety, become responsible for such insured obligations, the collateral held may prove to be insufficient. In this regard, FedEx utilizes significant self-insured retentions and deductibles under policies of insurance provided by us. In the case of FedEx, we have determined that the financial strength of the customer is sufficient to allow for holding only partial collateral at this time. Should we become responsible for this customer’s entire self-insured retention and deductible obligations, the collateral held would be insufficient, and we would sustain a significant operating loss.

A material drop in interest rates, or disruption in the fixed income markets, could have an adverse impact on our earnings and, potentially, our financial position.

Given our significant interest-bearing investment portfolio, if interest rates materially drop or the fixed income markets are otherwise disrupted, our income from these investments could be materially reduced, which would reduce our results of operations, equity, business and insurer financial strength rating. The functioning of the fixed income markets, the values of the investments we hold and our ability to liquidate them may be adversely affected if those markets are disrupted by a change in interest rates or otherwise affected by significant negative factors, including, without limitation: local, national, or international events, such as regulatory changes, wars, or terrorist attacks; a recession, depression, or other adverse developments in either the U.S. or other economies that adversely affects the value of securities held in our portfolio; financial weakness or failure of one or more financial institutions that play a prominent role in securities markets or act as a counterparty for various financial instruments, which could further disrupt the markets; inactive markets for specific kinds of securities, or for the securities of certain issuers or in certain sectors, which could result in decreased valuations and impact our ability to sell a specific security or a group of securities at a reasonable price when desired; a significant change in inflation expectations; or the onset of deflation or stagflation.

~~- 15 -~~

Our investment portfolio is subject to market and credit risks, which could affect our financial results and ability to conduct business.

We have a large portfolio of securities and limited partnership investments which can fluctuate in value with a wide variety of market conditions. A decline in the aggregate value of the securities and limited partnership investments would result in a commensurate decline in our shareholders’ equity, either through the income statement or directly to equity. The resultant decline could, at least temporarily, materially adversely affect our results of operations, equity, business and insurer financial strength ratings.

~~Technological advances, including those specific to~~

LEGAL, REGULATORY AND PUBLIC POLICY RISKS

Changes in laws and regulations governing the ~~transportation~~insurance industry could ~~present us with added competitive risks.~~have a negative impact on our ability to generate income from our insurance operations.

~~An increase~~

One or more of our Insurance Subsidiaries are regulated and/or licensed in ~~accident prevention technologies and the growth of autonomous or partially autonomous vehicles could reduce the amount of accidents over time and shift the liability from the owner~~all 50 of the ~~vehicle~~United States, the District of Columbia, all Canadian provinces, Puerto Rico and Bermuda. We are obligated to ~~the manufacturer,~~comply with numerous complex and varied governmental regulations in order to maintain our authority to write insurance business. Failure to maintain compliance could result in governmental regulators preventing us from writing new business, which would ~~cause automobile insurance to become~~have a ~~smaller portion of~~material adverse impact on us, our overall property and casualty insurance book of business. Innovations in telematics and the increase in usage-based information have become more important and will likely change the way premiums are determined in the future. These advances in technology could materially change the way products in the transportation industry are designed, priced and underwritten, and if we fail to adjust to these changes in a timely manner, our business and results of operations could be materially adversely affected.

~~The failure of our information technology systems and other operational systems to operate properly or disruptions or breaches of our information systems could adversely affect our business,~~ results of operations and our financial condition.

~~We rely upon complex and expensive information technology systems~~ Further, the ability of our Insurance Subsidiaries to adjust insurance rates and other ~~operational systems and on the integrity and timeliness~~product offerings is regulated for significant portions of our ~~data to run our businesses, service our customers~~business, and ~~interact with policyholders, brokers and employers.~~ The pace at which information systems must be upgraded is continually increasing, requiring an ongoing commitment of significant resources to maintain or upgrade to current standards. Our success may be impacted if we are not able to develop and expand the effectiveness of existing systems and to continue to enhance information systems that support our operations in a cost-effective manner. Our networking infrastructure and related assets may also be subject to employee errors or other unforeseen activities that could result in the disruption of business processes, network degradation and system downtime. To the extent that such disruptions occur, our business, results of operations and financial condition could be materially and adversely affected, resulting in a possible loss of business.

In addition, our daily business operations require us to retain sensitive data such as proprietary business information and data related to customers, claimants and business partners within our network infrastructure. Cybersecurity attacks and intrusion efforts are continuous and evolving. The scope and severity of risks that cyber threats present have increased dramatically, and include, but are not limited to, disruptions in systems, unauthorized release of confidential or otherwise protected information and corruption of data. Our information technology and other systems could be subject to physical or electronic break-ins; attempts to gain unauthorized access to data from our employees, vendors or third parties; unauthorized tampering; exploitation of weaknesses related to our vendors or other third parties; denials of service; computer viruses and other malicious software; or other cybersecurity attacks or breaches, resulting in a failure to maintain the security, confidentiality or privacy of sensitive data, including personal information relating to our customers and business partners, or in the theft of intellectual property or proprietary information.

In September 2018, we learned of suspicious activity occurring within two employee email accounts. In response, we launched an investigation and began working with third-party forensic experts to determine the full nature and scope of this incident. A review of the impacted email accounts determined that certain types of personal information may have been accessible for a small number of individuals, ~~although no assurance~~needed rate adjustments can be ~~given that we will not identify additional information that was accessed~~denied or ~~obtained.~~ ~~We are working with the impacted clients and are in the process of notifying the individuals, and any implicated state~~delayed for substantial periods by regulators, pursuant to applicable law. We cannot ensure that we will be able to identify, prevent or contain the effects of any additional cyber attacks or other cybersecurity incidents in the future that bypass our security measures or disrupt our information technology systems or business. Any failure to maintain proper security, confidentiality or privacy of sensitive data residing on our information technology and other operational systemswhich could delay or disrupt our ability to do business and service clients, harm our reputation, require us to incur significant remediation costs, subject us to litigation, regulatory fines, a loss of customers and revenues or otherwise have a material adverse effect on our ~~business,~~ results of operations and our financial condition.

Our principal shareholders, directors and executive officers and their affiliates control approximately 49% of the outstanding shares of voting Class A Common Stock and approximately 25% of the outstanding shares of non-voting Class B Common Stock. These parties effectively control us, direct our affairs, and exert significant influence in the election of directors and approval of significant corporate transactions. The interests of these shareholders may conflict with those of other shareholders, and this concentration of voting power may limit the marketability of our stock and has the potential to delay, defer or prevent a change in control that other shareholders may believe to be in their best interests.

Legal and regulatory proceedings are unpredictable and could produce one or more unexpected verdicts against us that could materially and adversely affect our financial results for any given period.

We are currently, and from time to time have been, involved in lawsuits, regulatory inquiries and other legal proceedings arising out of the ordinary course of business. Some of these proceedings may involve matters particular to Protective or one or more of our Insurance Subsidiaries, while others may pertain to business practices in the industry in which we operate. These matters often raise difficult factual and legal issues and are subject to uncertainties and complexities. The outcomes of these matters are difficult to predict, and the amounts or ranges of potential loss at particular stages in the proceedings are in most cases difficult or impossible to ascertain. A further complication is that even where the possibility of an adverse outcome is remote under traditional legal analysis, juries sometimes substitute their subjective views in place of facts and established legal principles. Given the unpredictability of the legal and regulatory landscape in which we operate, there can be no assurance that one or more of these matters will not produce a result that could materially and adversely affect our financial results for any given period.

For information about our pending legal proceedings, see Note T, “Litigation, Commitments and Contingencies,” of the notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Changes in current accounting practices and future pronouncements may materially impact our reported financial results.

Developments in accounting practices may require us to incur considerable additional expenses to comply with such developments, particularly if we are required to prepare information relating to prior periods for comparative purposes or to apply the new requirements retroactively. The impact of changes in current accounting practices and future pronouncements cannot be predicted but may affect the calculation of net income, net equity and other historical financial statement line items that are important to users of our financial statements. Changes could also introduce significant volatility in our results of operations, equity, business and insurer financial strength rating.

~~We may be unable to attract and retain qualified employees and successfully execute our Chief Executive Officer transition.~~

Effective October 17, 2018, our Board of Directors appointed John D. “Jay” Nichols as our Interim Chief Executive Officer and Chairman of our Board of Directors and commenced a search process to identify a permanent chief executive officer as a result of the resignation of W. Randall Birchfield as our Chief Executive Officer, President and Chief Operating Officer and as a member of our Board of Directors. If we are unable to appoint a permanent chief executive officer with the desired level of experience and expertise in a timely manner, or if we encounter difficulties in this transition, our strategic planning and execution could be hindered or delayed, and our ability to attract and retain other key members of senior management could be adversely affected. Any such disruptions or uncertainties could have a material adverse effect on our results of operations, financial condition and the market price of our common stock.

~~- 16 -~~

Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. PROPERTIES

The Company owns its home office building and the adjacent real estate in Carmel, Indiana. The home office building contains a total of 181,000 square feet of usable space, and the Company currently occupies approximately 74% of this space, with a portion of the remainder being leased to non-affiliated entities on short-term leases expiring through 2023.

The Company also owns a building and the adjacent real estate in Indianapolis, approximately nine miles from its main office in Carmel. The building contains approximately 15,000 square feet of usable space, and is used primarily for off-site data storage and as a contingent back-up and disaster recovery site.

The Company's entire operations are conducted from these two facilities. The current facilities are expected to be adequate for the Company's operations for the near future.

Item 3. LEGAL PROCEEDINGS

InThe information required with respect to this item can be found in Note T, "Litigation, Commitments and Contingencies," of the ordinary, regular and routine course of its business, the Company is frequently involved in various matters of litigation relating principally to claims for insurance coverage provided. No currently pending matter is deemed by management to be materialnotes to the ~~Company or outside the ordinary course~~Consolidated Financial Statements in Part II, Item 8 of ~~business.~~this Annual Report on Form 10-K and is incorporated by reference into this Item 3.

Item 4. MINE SAFETY DISCLOSURES

Not applicable.

~~- 17 -~~

INFORMATION ABOUT OUR EXECUTIVE OFFICERS

The following summary sets forth certain information concerning the Company's executive officers as of March 8, 2020:

Name	Age	Title	Served in Such Capacity Since
Jeremy D. Edgecliffe-Johnson	50	Chief Executive Officer	2019 ⁽¹⁾
John R. Barnett	53	Chief Financial Officer	2019 ⁽²⁾
Bahr D. Omidfar	60	Chief Information Officer	2019 ⁽³⁾
Jeremy F. Goldstein	49	Executive Vice President	2017 ⁽⁴⁾
Patrick S. Schmiedt	40	Chief Underwriting Officer	2018 ⁽⁵⁾

(1)

Mr. Edgecliffe-Johnson joined the Company in May 2019 as Chief Executive Officer. Prior to joining the Company, Mr. Edgecliffe-Johnson served as President, U.S. Commercial of American International Group, Inc. (“AIG”) from February 2016 to December 2017, with responsibility for underwriting, operations, claims and distribution in the U.S., Canada, Brazil, Mexico and Puerto Rico. He served as Chief Executive Officer and President of Lexington Insurance Company, AIG’s excess and surplus lines unit, from February 2013 to December 2017. Mr. Edgecliffe-Johnson served in various executive leadership roles at AIG between 2000 and 2013, including Specialty Product Line Executive, U.S. & Canada; President of Cat Excess Liability; U.S. Executive for Energy Excess Casualty; and Regional Vice President for the Mid-Atlantic territory. Prior to joining AIG, Mr. Edgecliffe-Johnson served as a broker for Sedgwick, Inc. and Marsh, Inc.

(2)

Mr. Barnett joined the Company in September 2019 as Chief Financial Officer. Prior to joining the Company, Mr. Barnett served as Chief Financial Officer and Executive Vice President of First Acceptance Corporation, a non-standard auto insurance underwriter (“First Acceptance”), since October 2018 and served as Senior Vice President, Finance of First Acceptance from May 2007 to March 2013. Mr. Barnett’s responsibilities at First Acceptance included financial reporting, accounting, planning and analysis, investments, actuarial, and treasury operations. From March 2013 to October 2018, Mr. Barnett served as Vice President, Finance of Broadcast Music, Inc., a music rights management company. Prior to his time at First Acceptance, Mr. Barnett served in various management and manufacturing roles during his career, including as Senior Manager, Planning and Analysis of Anheuser-Busch Companies from 1999 to 2007.

(3)

Mr. Omidfar joined the Company in September 2019 as Chief Information Officer. Prior to joining the Company, Mr. Omidfar most recently served as Chief Technology Officer at CNA Financial Corporation from January 2018 to April 2019, where he developed, executed and led various initiatives, including the implementation of a new operating model; led strategic partnerships; and created a technology strategy and roadmap for the enterprise. Mr. Omidfar served in various Senior Vice President roles with Fidelity Investments, Inc. from August 2013 until January 2018, including SVP, Technology and Software Security from May 2015 to January 2018, SVP, Quality Assurance Testing and Software Security from October 2014 to April 2015 and SVP, Quality Assurance and Testing from August 2013 to September 2014. Mr. Omidfar also held roles at Rockwell Automation, Inc., Raytheon Company, Motorola, Inc., Deloitte LLP and Northrop Grumman Corporation and holds multiple certifications, including a Six Sigma Black Belt.

(4)	Mr. Goldstein was appointed Executive Vice President in November 2017. He previously served as Senior Vice President of the Company from 2015 to 2017, as Vice President from 2011 to 2015 and as Corporate Secretary from 2016 to 2018.

(5)	Mr. Schmiedt was appointed Chief Underwriting Officer in October 2018. He previously served as Senior Vice President of Underwriting from 2016 to 2018, as Vice President of Underwriting from 2015 to 2016 and as Assistant Vice President of Underwriting from 2013 to 2015.

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, ~~AND~~ RELATED STOCKHOLDER MATTERS AND ISSUER ~~PURCHASE~~PURCHASES OF EQUITY SECURITIES

Shares of the Company's Class A and Class B Common Stock are traded on Nasdaq under the symbols PTVCA and PTVCB, respectively. The Class A and Class B common shares have identical rights and privileges, except that Class B shares have no voting rights other than on matters for which Indiana law requires class voting. As of ~~February 28, 2019~~March 8, 2021, there were approximately ~~400~~28 record holders of Class A Common Stock and approximately ~~1,000~~42 record holders of Class B Common Stock.

The Company has paid quarterly cash dividends continuously since 1974. The Company paid a quarterly dividend of ~~$.28~~$0.10 per share during ~~2018.~~2020. In the first quarter of ~~2019,~~2021, the Company declared a dividend of ~~$.10~~$0.10 per share. The Company expects to continue its policy of paying regular cash dividends, although there is no assurance as to future dividends because they are dependent on future earnings, capital requirements and financial conditions and are subject to regulatory restrictions. At December 31, ~~2018, $117.4~~2020, $136.5 million, or ~~33.0%~~37.6% of shareholders' equity, represented net assets of the Company's Insurance Subsidiaries which, at that time, could not be transferred in the form of dividends, loans or advances to Protective because of minimum statutory capital requirements. However, management believes that these restrictions do not currently pose any material dividend payment concerns for the Company. The Board intends to address the subject of dividends at each of its future meetings and will consider the Company's earnings, returns on investments and its capital needs.

Period	Total number of shares purchased ⁽¹⁾		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs ⁽²⁾		Maximum number of shares that may yet be purchased under the plans or programs ⁽²⁾
October 1 - October 31, 2020		8,737	$	14.17		-		1,375,729
November 1 - November 30, 2020		-				-		1,375,729
December 1 - December 31, 2020		4,921		13.71		-		1,375,729
Total		13,658				-

~~The following table presents information regarding the Company's repurchases of its Common Stock for the periods indicated:~~

(1)	Amounts represent shares withheld by the Company in connection with employee payroll tax withholding upon the vesting of stock awards. Stock amounts in the consolidated statements of shareholders’ equity are shown net of these shares withheld.

Period

Total number of shares purchased

Average price paid per share

Total number of shares purchased as part of publicly announced plans or programs ⁽¹⁾

Maximum number of shares that may yet be purchased under the plans or programs ⁽¹⁾

October 1 - October 31, 2018 72,108 $ 22.64 72,108 2,194,666
November 1 - November 30, 2018 15,085 22.79 15,085 2,179,581
December 1 - December 31, 2018 - - - 2,179,581
Total 87,193 87,193

(2)

On August 31, 2017, our Board of Directors authorized the reinstatement of the Company's share repurchase program for up to 2,464,209 shares of its Class A or Class B Common Stock. The repurchases may be made in the open market or through privately negotiated transactions, from time-to-time, and in accordance with applicable laws, rules and regulations. The share repurchase program may be amended, suspended or discontinued at any time and does not commit the Company to repurchase any shares of its common stock. The Company has funded, and intends to continue to fund, the share repurchase program from cash on hand. No share repurchases have been made by the Company under the program since March 20, 2020. Additionally, in connection with the Merger Agreement with Progressive, the Company is prohibited from repurchasing any of its Class A or Class B Common Stock under the repurchase program.

⁽¹⁾On August 31, 2017, the Company's Board of Directors authorized the reinstatement of the Company's share repurchase program for up to 2,464,209 shares of the Company's Class A or Class B Common Stock. On August 7, 2018, the Company's Board of Directors reaffirmed the Company's share repurchase program, but also provided that the aggregate dollar amount of shares of the Company's Common Stock that may be repurchased under the share repurchase program through August 8, 2019 may not exceed $25.0 million. The repurchases may be made in the open market or through privately negotiated transactions, from time to time, and in accordance with applicable laws, rules and regulations. Pursuant to this share repurchase program, the Company entered into a Rule 10b5-1 plan on September 24, 2018, which authorized the repurchase of up to $12.0 million of the Company's outstanding common shares at various pricing thresholds, in accordance with guidelines specified under Rule 10b5-1 of the Exchange Act. The Rule 10b5-1 plan expired on November 8, 2018. No duration has been placed on the Company's share repurchase program, and the Company reserves the right to amend, suspend or discontinue it at any time. The share repurchase program does not commit the Company to repurchase any shares of its Common Stock. The Company has funded, and intends to continue to fund, the share repurchase program from cash on hand.

~~- 18 -~~

Corporate Performance

The following graph shows a five-year comparison of cumulative total return for the Company's Class B Common Stock, the Russell 2000 Index and the Company's peer group as determined by management (the "PTVCB Peer Group"). The basis of comparison is a $100 investment at December 31, ~~2013,~~2015, in each of (i) Protective, (ii) the Russell 2000 Index and (iii) the PTVCB Peer Group. All dividends are assumed to be reinvested.

	Year Ended December 31												Year Ended December 31
Index	2013		2014		2015		2016		2017		2018		2015		2016		2017		2018		2019		2020
Protective Insurance Corporation	$	100.00	$	98.17	$	95.51	$	104.38	$	103.91	$	75.93	$	100.00	$	109.25	$	108.82	$	79.54	$	78.68	$	68.98
Russell 2000 Index		100.00		104.89		100.26		121.63		139.44		124.09		100.00		121.31		139.08		123.76		155.35		186.36
PTVCB Peer Group		100.00		104.36		113.12		136.57		148.11		154.20		100.00		120.65		131.77		136.11		152.67		123.13

PTVCB Peer Group
Amerisafe, Inc.		~~HCI Group,~~Heritage Insurance Holdings, Inc.
Atlas Financial Holdings, ~~Inc.~~		~~Heritage Insurance Holdings, Inc.~~
~~Donegal Group~~ Inc.		James River Group Holdings, Ltd.
~~EMC Insurance~~Donegal Group Inc.		NMI Holdings, Inc.
Employers Holdings, Inc.		Safety Insurance Group, Inc.
FedNat Holding Company		United Insurance Holdings Corp.
Hallmark Financial Services, Inc.		Universal Insurance Holdings, Inc.
HCI Group, Inc.

~~- 19 -~~

Item 6. SELECTED FINANCIAL DATA

The table below provides selected consolidated financial data of the Company. The information has been derived from our consolidated financial statements for each of the years in the five-year period ended December 31, ~~2018.~~2020. You should read this selected consolidated financial data in conjunction with the audited consolidated financial statements and notes as of and for the year ended December 31, ~~2018~~2020 included in Part II, Item 8 "Financial Statements and Supplementary Data,", and Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Annual Report on Form 10-K.

	Year Ended December 31												Year Ended December 31
	2018			2017		2016		2015			2014		2020			2019		2018			2017		2016
	(Dollars in thousands, except per share data)												(Dollars in thousands, except per share data)
Gross premiums written	$	582,500		$	504,737	$	403,004	$	383,553		$	382,388	$	547,561		$	574,918	$	582,500		$	504,737	$	403,004

Net premiums earned		432,880			328,145		276,011		263,335			261,627		445,515			447,288		432,880			328,145		276,011

Net investment income		22,048			18,095		14,483		12,498			9,055		25,422			26,249		22,048			18,095		14,483

Net realized and unrealized gains (losses) on investments		(25,691	)		19,686		23,228		(1,261	)		14,930		(9,236	)		12,889		(25,691	)		19,686		23,228

Losses and loss expenses incurred		345,864			247,518		186,481		155,750			159,596		318,958			348,468		345,864			247,518		186,481

Net income (loss)		(34,075	)		18,323		28,945		23,283			29,717		4,463			7,347		(34,075	)		18,323		28,945

Earnings (loss) per share -- net income (loss) ⁽¹⁾		(2.28	)		1.21		1.92		1.55			1.98		0.31			0.50		(2.28	)		1.21		1.92

Cash dividends per share		1.12			1.08		1.04		1.00			1.00		0.40			0.40		1.12			1.08		1.04

Investment portfolio ⁽²⁾		878,638			854,595		749,501		729,877			757,421		1,043,704			968,205		878,638			854,595		749,501

Total assets		1,490,131			1,357,016		1,154,137		1,085,771			1,144,247		1,722,827			1,634,360		1,490,131			1,357,016		1,154,137

Shareholders' equity		356,082			418,811		404,345		394,498			399,496		363,082			364,316		356,082			418,811		404,345

Book value per share		23.95			27.83		26.81		26.25			26.67		25.43			25.51		23.95			27.83		26.81

(1)	Earnings (loss) per share are adjusted for the dilutive effect of restricted stock outstanding for ~~2014-2017.~~each year presented other than 2018.

(2)	Includes money market instruments classified as cash equivalents in the consolidated balance sheets.

~~- 20 -~~

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

Protective Insurance Corporation ~~(formerly Baldwin & Lyons, Inc.)~~ is a property-casualty insurer specializing in marketing and underwriting property, liability and ~~workers~~workers' compensation coverage for trucking and public transportation fleets, as well as coverage for trucking industry independent contractors. ~~Additionally, we offer workers' compensation coverage for a variety of operations outside the transportation industry.~~ We operate as one reportable property and casualty insurance segment, offering a range of products and services, the most significant being commercial automobile and workers' compensation insurance products.

The term “Protective,” as used throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), refers to Protective Insurance Corporation, the parent company. The terms the “Company,” “we,” “us” and ~~our,~~“our,” as used throughout this ~~M&DA,~~MD&A, refer to Protective and all of its subsidiaries, unless the context clearly indicates otherwise. The term “Insurance Subsidiaries,” as used throughout this MD&A, refers to Protective Insurance Company, Protective Specialty Insurance Company, Sagamore Insurance Company and B&L Insurance, Ltd.

Effective January 1, 2017, we determined that our business constituted one reportable property and casualty insurance segment. During 2016, we had two reportable segments – property and casualty insurance and reinsurance. We moved to a single reportable segment based on how our operating results are regularly reviewed by our chief operating decision maker when making decisions about how resources are to be allocated and assessing performance.

Effective August 1, 2018, we changed our name to Protective Insurance Corporation to better align our holding company's and Insurance Subsidiaries' identities and to reflect our position within the insurance industry.

Effective January 1, 2018, we adopted Accounting Standards Update ("ASU") 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01, resulting in a cumulative-effect adjustment of $71.0 million ($46.2 million, net of tax). This adjustment moved our historical unrealized gains and losses, net of tax, on our equity portfolio from accumulated other comprehensive income (loss) to retained earnings, but had no impact on overall shareholders' equity. In addition, for 2018 and forward, the change in fair value for equity securities is required to be recognized in net earnings rather than in other comprehensive income (loss). The impact to our consolidated statements of operations will vary depending upon the level of volatility in the performance of the securities held in our equity portfolio and the overall market.

On December 22, 2017, the U.S. Tax ~~Cut~~Cuts and Jobs Act ~~of 2017~~ (the "U.S. Tax Act") was signed into ~~law. The U.S. Tax Act~~law, which lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. As a result, we recorded a tax benefit of $9.6 million related to the remeasurement of our deferred tax assets and liabilities during the fourth quarter of 2017. As of December 31, 2017, the IRS had not yet published all of the detailed regulations resulting from the enactment of the U.S. Tax Act; therefore, while we had not completed our accounting for the tax effects, we made a reasonable estimate of the tax effects on our existing deferred tax balances at December 31, 2017. We finalized our accounting for the tax effects of the U.S. Tax Act during 2018. No material adjustments to income tax expense (benefit) were recorded during 2018.

On ~~July 13, 2018,~~September 4, 2020, A.M. Best Company, Inc. ("A.M. Best") affirmed our financial strength rating of "A+" (Superior). At the same time, A.M. Best revised its outlook to negative based on their monitoring of our growth strategy and the potential for adverse loss development in certain lines of business.

~~On November 20, 2018, A.M. Best downgraded our financial strength rating to~~ "A" (Excellent) ~~from "A+" (Superior), citing three consecutive years of material adverse loss development.~~. A.M. Best continues to categorize our balance sheet as "very strong" and our operating performance as "adequate," but its outlook remains negative. On February 16, 2021, in connection with the announced Merger Agreement discussed below, A.M. Best placed our financial strength rating under review with positive implications.

Special Committee and Contingent Sale Agreement

On May 5, 2020, the Board of Directors (the “Board”) of Protective formed a special committee of independent directors (the “Special Committee”) to evaluate a Stockholder Support and Contingent Sale Agreement (the “Contingent Sale Agreement”) entered into by and among certain prospective third party purchasers (the “Offering Parties”), certain of Protective’s shareholders and the other parties thereto (The Contingent Sale Agreement was amended and restated on August 17, 2020).

In June 2020, Protective announced that the Board determined the transactions contemplated by the Contingent Sale Agreement were not in the best interests of Protective and our stakeholders. As part of this evaluation, the Board determined that it would also recommend against the potential tender offer contemplated by the Contingent Sale Agreement if it were commenced, and that if the transactions contemplated by the Contingent Sale Agreement were consummated, it expects to take the necessary actions to redeem all or certain of the Class A shares of Protective purchased by the Offering Parties pursuant to Protective’s Code of By-laws. Protective also announced that the Special Committee of the Board was exploring, with the assistance of its independent financial and legal advisors, strategic alternatives that may be available to Protective.

During 2020, we incurred an aggregate of $2.9 million ($2.3 million, net of tax) of expenses in conjunction with the Board’s review of the Contingent Sale Agreement and the activities of the Special Committee.

Proposed Merger with The Progressive Corporation

Merger Agreement

The Board, at the unanimous recommendation of the Special Committee, unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, Protective and its shareholders, and approved, adopted and declared advisable the Merger Agreement and the transactions contemplated thereby. The Merger is expected to close prior to the end of the third quarter of 2021. At the effective time of the Merger, each issued and outstanding share of common stock, without par value, of Protective (other than each share of Protective's common stock that is owned by Protective as treasury stock or by any subsidiary of Protective and each share of Protective's common stock owned by Progressive, Merger Sub or any other subsidiary of Progressive immediately prior to the effective time of the Merger) will be automatically canceled and converted into the right to receive $23.30 in cash, without interest, for a total transaction value of approximately $338 million.

The Merger Agreement contains various customary representations and warranties from each of Protective, Progressive and Merger Sub. Protective has also agreed to various customary covenants, including but not limited to conducting its business in the ordinary course and not engaging in certain types of transactions during the period between the execution of the Merger Agreement and the closing of the Merger. However, the Merger Agreement permits Protective to continue to pay regular quarterly dividends not to exceed $0.10 per share of its common stock. The consummation of the Merger is subject to certain conditions, including approval of the Merger by Protective's Class A shareholders, legal and regulatory approvals including from the Indiana Department of Insurance and the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as other customary closing conditions.

For additional information regarding the risks associated with the Merger, please see Part I, Item 1A, "Risk Factors," of this Annual Report on Form 10-K.

Voting and Support Agreement

On February 14, 2021, Protective also entered into a Voting and Support Agreement (the “Voting Agreement”) with Progressive and certain of Protective's shareholders. The Voting Agreement requires that the Protective shareholders party to the Voting Agreement: (i) appear at the meeting of the holders of Protective's Class A common stock to consider resolutions to approve the Merger Agreement and the Merger or otherwise cause their shares of Protective's common stock to be counted as present for purposes of calculating a quorum, and (ii) vote their shares (a) in favor of the adoption of the Merger Agreement, the Merger and the other transactions contemplated thereby and any action reasonably requested by Progressive or the Board in furtherance of the foregoing, (b) against any action or agreement that would result in a material breach of any covenant, representation or warranty or other obligation or agreement of Protective contained in the Merger Agreement and (c) against any takeover proposal or superior proposal (provided, that if the Board changes its recommendation with respect to the Merger, any shares of Class A common stock owned by such shareholders in excess of approximately 35% of the outstanding shares of Class A common stock will be voted in the same proportion as those shares of Class A common stock voted by the holders of Protective's Class A common stock that are not party to the Voting Agreement).

Expected Credit Losses Standard (CECL) Adoption

On January 1, 2020, we adopted the provisions of ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 introduced a current expected credit loss ("CECL") model for measuring expected credit losses for certain types of financial instruments held at the reporting date requiring significant judgment in application based on historical experience, current conditions and reasonable supportable forecasts, but is not prescriptive about certain aspects of estimating expected losses. We adopted the guidance using a modified retrospective approach as of January 1, 2020 and recognized a cumulative effect adjustment of $15.5 million ($12.3 million net of tax), to the opening balance of retained earnings. The adjustment was primarily related to estimating credit losses on our accounts receivable balances, reinsurance recoverable balances and commercial mortgage loans at the date of adoption with $15.0 million ($11.9 million, net of tax) attributed to our ongoing litigation with Personnel Staffing Group ("PSG") discussed in Note T, "Litigation, Commitments and Contingencies," to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. During the third quarter of 2020, we performed an update to our CECL allowance calculation related to the PSG matter and recorded an additional allowance of $1.5 million ($1.2 million, net of tax). No additional allowance was recorded in the fourth quarter of 2020. This allowance is included within other operating expenses in the consolidated statement of operations for the year ended December 31, 2020.

The updated guidance in ASU 2016-13 also amended the previous other-than-temporary impairment ("OTTI") model for available-for-sale fixed income securities by requiring the recognition of impairments relating to credit losses through an allowance account and limiting the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. We adopted the guidance related to available-for-sale fixed income securities on January 1, 2020 using a prospective transition approach for available-for-sale fixed income securities that were purchased with credit deterioration or had recognized an OTTI write-down prior to the effective date. The effect of the prospective transition approach was to maintain the same amortized cost basis before and after the effective date. For those securities in an unrealized loss position where we intended to sell as of December 31, 2020, we recorded a write down to earnings of $1.8 million during the year ended December 31, 2020. We also analyzed securities in an unrealized loss position for credit losses and recorded an allowance for credit losses of $1.0 million as of December 31, 2020. We reviewed our remaining fixed income securities in an unrealized loss position as of December 31, 2020 and determined the losses were primarily the result of non-credit factors, such as the increase in market volatility due to the disruption in global financial markets as a result of the novel coronavirus ("COVID-19") pandemic and responses to it. We currently do not intend to sell nor do we expect to be required to sell these securities before recovery of their amortized cost.

COVID-19 Impacts

Beginning in March 2020 and continuing through the date of this Annual Report on Form 10-K, the global pandemic associated with COVID-19 and related economic conditions have impacted the global economy and our results of operations. For the year ended December 31, 2020, net premiums earned within our commercial automobile products, specifically public transportation, were negatively impacted due to a reduction in miles driven, which is the basis for premiums we receive, as well as an overall reduction in public transportation units insured. The declines in public transportation persisted throughout the year and have continued into 2021, but we saw a recovery in the third and fourth quarters within other commercial automobile products that has continued through the date of this Annual Report on Form 10-K. However, losses and loss expenses incurred during the same period reflected favorable impacts within all commercial automobile products as a result of declines in accident frequency due to lower traffic density. In addition to these impacts on our underwriting loss, as defined below, we incurred net realized and unrealized losses on investments of $9.2 million for the year ended December 31, 2020, primarily due to investment losses realized as a result of the significant declines in the global financial markets experienced during the first and second quarters due to the COVID-19 pandemic. As of December 31, 2020, both our fixed income and equity security investments have recovered to a net gain position. Additionally, insurance departments throughout the country have issued bulletins and regulations urging or requiring insurers to extend grace periods for the payment of policy premiums and to refrain from canceling or non-renewing policies for the non-payment of policy premiums for policyholders adversely affected by COVID-19; however, we have not seen a material decrease or slowdown in premium collection to date. Our liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during 2020. For further discussion regarding the potential impacts of COVID-19 and related economic conditions on our results, see Part I, Item 1A, "Risk Factors," of this Annual Report on Form 10-K.

Liquidity and Capital Resources

The primary sources of our liquidity are (1) funds generated from insurance operations, including net investment income, (2) proceeds from the sale of investments, and (3) proceeds from maturing investments.

We generally experience positive cash ~~flow~~flows from operations. Premiums are collected on insurance policies in advance of the disbursement of funds for payment of claims. Operating costs of our property/casualty Insurance Subsidiaries, other than loss and loss expense payments and commissions paid to related agency companies, average less than one-third of net premiums earned on a consolidated basis and the remaining amount is available for investment for varying periods of time depending on the type of insurance coverage provided and the timing of the claim payments. Because losses are often settled in periods subsequent to when they are incurred, operating cash flows may, at times, become negative as loss settlements on claim reserves established in prior years exceed current revenues. Our cash flow relating to premiums is significantly affected by reinsurance programs in effect, whereby we cede both premium and risk to other insurance and reinsurance companies. These programs vary significantly among products and certain contracts call for reinsurance payment patterns, which do not coincide with the collection of premiums by us from our insureds.

~~- 21 -~~

On August 31, 2017, our Board of Directors authorized the reinstatement of our share repurchase program for up to 2,464,209 shares of our Class A or Class B Common Stock. On August 7, 2018, our Board of Directors reaffirmed our share repurchase program, but also provided that the aggregate dollar amount of shares of our common stock that may be repurchased under the share repurchase program through August 8, 2019 may not exceed $25.0 million. The repurchases may be made in the open market or through privately negotiated transactions, from time-to-time, and in accordance with applicable laws, rules and regulations. On September 24, 2018, we entered into a stock repurchase plan for the purpose of repurchasing up to $12.0 million of shares of our common stock, at various pricing thresholds, in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Rule 10b5-1 Plan"). The Rule 10b5-1 Plan was established pursuant to, and as part of, our share repurchase program and permits shares to be repurchased in accordance with pre-determined criteria when repurchases would otherwise be prohibited, such as during self-imposed blackout periods, or under insider trading laws. The Rule 10b5-1 plan expired on November 8, 2018. The share repurchase program may be amended, suspended or discontinued at any time and does not commit us to repurchase any shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand. The actual number and value of the shares to be purchased will depend on the performance of our stock price, market volume and other market conditions. During the year ended December 31, ~~2018,~~2020, we paid ~~$4.6~~$1.8 million to repurchase ~~7,770 shares of Class A and 191,898~~126,764 shares of Class B Common Stock under the share repurchase program. No share repurchases have been made since March 20, 2020. Additionally, in connection with the Merger Agreement with Progressive discussed above, we are prohibited from repurchasing any of our Class A or Class B Common Stock under the share repurchase program.

For several years, our investment philosophy has emphasized the purchase of short-term bonds with high quality and liquidity. Our fixed income investment portfolio continues to emphasize shorter-duration instruments. If there was a hypothetical increase in interest rates of 100 basis points, the price of our ~~bonds~~fixed income portfolio, including cash, at December 31, ~~2018~~2020 would be expected to fall by approximately 2.8%. The credit quality of our fixed income securities remains high with a weighted average rating of AA-, including cash. The average contractual life of our fixed income and short-term investment portfolio ~~increased to 5.5~~was 7.1 years at December 31, ~~2018~~2020 compared to ~~4.9~~6.9 years at December 31, ~~2017.~~2019. The average duration of our fixed income portfolio remains ~~much~~ shorter than ~~both~~ the ~~contractual maturity~~ average ~~and the~~ duration of our liabilities. We also remain an active participant in the equity securities ~~market, allocating capital in excess of amounts considered necessary to fund our current operations.~~market. The long-term horizon for our equity investments allows us to invest in positions where ultimate value, and not short-term market fluctuation, is the primary focus. Investments made by our domestic property/casualty Insurance Subsidiaries are regulated by guidelines promulgated by the National Association of Insurance Commissioners (the "NAIC"), which are designed to provide protection for both policyholders and shareholders.

Net cash flows from operations increased $3.0 million to $100.7 million for 2018 from $97.7 million in 2017. The increase in operating cash flow was primarily related to higher premium volume in 2018 compared to 2017. Net cash flows from operations increased $65.3 million to $97.7 million for 2017 compared to $32.4 million in 2016. The 2017 increase in operating cash flows was related to higher premium volume in 2017 compared to 2016.

Net cash provided by ~~investing~~operating activities was ~~$23.7~~$74.9 million during 2020 compared to $86.7 million for ~~2018~~2019. The $11.8 million decrease in operating cash flows during 2020 reflected lower premium volume and lower investment income from our fixed income securities when compared to the same period of 2019. Additionally, net cash ~~used~~from operations in ~~investing~~2019 benefited from the impact of growth in premiums and the timing of related claims payments. Net cash provided by operating activities ~~of $74.3~~was $86.7 million for 2019 compared to $100.7 million in ~~2017.~~2018. The ~~$98.0~~$14.0 million ~~change~~decrease was primarily related to ~~higher proceeds from sales of fixed income~~an increase in payments for losses and ~~equity securities~~loss adjustment expenses and ~~lower purchases of equity securities and fixed income investments. These increases were~~operating expenses, partially offset by ~~lower proceeds from maturities of our fixed~~higher premium volume as well as higher investment income ~~securities and lower distributions from limited partnerships~~ during ~~2018, in addition to the purchase of $10.0 million of company-owned life insurance in the first quarter of 2018.~~ 2019.

Net cash used in investing activities was ~~$74.3~~$86.0 million for ~~2017~~2020 compared to ~~$27.4~~$151.9 million in ~~2016.~~2019. The ~~increase of $46.9~~$65.9 million ~~in cash used in investing activities~~change was primarily ~~related~~due to ~~higher purchases~~a $31.3 million decrease in the investment of ~~equity securities~~cash and cash equivalents into fixed income ~~investments and lower proceeds from sales of equity and fixed income securities. These increases were partially offset by higher distributions from limited partnership investments and~~securities, $52.0 million higher proceeds from maturities of fixed income securities and a $30.1 million increase in ~~2017.~~net proceeds from sales of equity securities, partially offset by $18.8 million less in limited partnership distributions during 2020 compared to 2019. Net cash used in investing activities was $151.9 million for 2019 compared to net cash provided by investing activities of $23.7 million in 2018. The $175.6 million change was primarily the result of a decrease in proceeds from sales of our fixed income and equity securities of $229.7 million compared to 2018. We also had higher purchases of fixed income and equity securities of $8.2 million during 2019 compared to 2018. These cash outflows were partially offset by $33.4 million in distributions received from our limited partnership investments in 2019 compared to $6.9 million in 2018 and $20.4 million higher proceeds from maturities of fixed income securities during 2019 compared to 2018. Additionally, during 2018, we purchased $10.0 million of company-owned life insurance, which did not recur in 2019.

Net cash used in financing activities for 2020 consisted of regular cash dividend payments to shareholders of $5.7 million ($0.40 per share) and $1.8 million to repurchase 126,764 shares of our Class B common stock. Financing activities for 2019 consisted of regular cash dividend payments to shareholders of $5.9 million ($0.40 per share) and $11.5 million to repurchase 677,088 shares of our Class A and Class B common stock. Financing activities for 2018 consisted of regular cash dividend payments to shareholders of $16.8 million ($1.12 per share) and $4.6 million to repurchase 199,668 shares of our ~~common stock. Financing activities for 2017 consisted of regular cash dividend payments to shareholders of $16.3 million ($1.08 per share)~~Class A and ~~$1.9 million to repurchase 84,960 shares of our~~ Class B ~~Common Stock. Financing activities for 2016 consisted solely of the regular cash dividend payments to shareholders of $15.8 million ($1.04 per share).~~common stock.

Our assets at December 31, ~~2018~~2020 included ~~$156.9~~$47.0 million of investments included within cash and cash equivalents on the consolidated balance ~~sheets~~sheet that are readily convertible to cash without market penalty and an additional ~~$45.9~~$117.0 million of fixed income investments maturing in less than one year. We believe these liquid investments, plus the expected cash flow from premium collections, are sufficient to provide for projected claim payments and operating cost demands. In the event competitive conditions produce inadequate premium rates and we choose to further restrict volume or our premiums are further restricted due to market conditions, including related to the impact of COVID-19, we believe the liquidity of our investment portfolio would permit us to continue ~~paying~~to pay claims as settlements are reached without requiring the disposal of investments at a loss, regardless of interest rates in effect at the time. ~~In addition, our reinsurance program is structured to mitigate significant cash outlays that accompany large losses.~~

~~- 22 -~~

We previously maintained a revolving line of credit with a $40.0 million limit that had an expiration date of September 23, 2018. Interest on this line of credit was referenced to the London Interbank Offered Rate ("LIBOR") and could be fixed for periods of up to one year at our option. Outstanding drawings on this line of credit were $20.0 million at December 31, 2017. On August 9, 2018, we entered into a credit agreement providingmaintain a revolving credit facility with a $40.0 million limit, with the option for up to an additional $35.0 million in incremental loans at the discretion of the ~~lenders. This credit agreement,~~lenders, which has an expiration date of August 9, ~~2022, replaced our line of credit that was to expire on September 23, 2018.~~2022. Interest on this revolving credit facility is referenced to ~~LIBOR~~the London Interbank Offered Rate ("LIBOR") and can be fixed for periods of up to one year at our option. Outstanding drawings on this revolving credit facility were $20.0 million as of December 31, ~~2018.~~2020. At December 31, ~~2018,~~2020, the effective interest rate was ~~3.61%,~~1.25% and we had $20.0 million remaining under the revolving credit facility. The current outstanding borrowings were used to repay ~~the~~our previous line of credit. Our revolving credit facility has two financial covenants, each of which were met as of December 31, ~~2018, requiring~~2020. These covenants require us to have a minimum U.S. ~~Generally Accepted Accounting Principles~~generally accepted accounting principles ("GAAP") net worth and a maximum consolidated ~~leverage~~debt to equity ratio of ~~0.35 to 1.00.~~0.35.

Annualized net premiums written by our Insurance Subsidiaries for ~~2018~~2020 equaled approximately ~~112.3%~~126.9% of the combined statutory surplus of these ~~Insurance Subsidiaries, a level consistent with higher~~subsidiaries. According to the NAIC, acceptable ranges for the ratio of net premiums ~~written. Premium writings~~written to statutory surplus include results of ~~100% and in some cases~~ up to ~~200% of surplus are generally considered acceptable by regulatory authorities. Further, the~~300%. This ratio is designed to measure our ability to absorb above-average losses and our financial strength. Additionally, the statutory capital of each of our Insurance Subsidiaries substantially exceeded minimum risk-based capital requirements set by the NAIC as of December 31, ~~2018. Accordingly,~~2020. As a result, we have the ability to ~~significantly~~ increase our business without seeking additional capital to meet regulatory guidelines.

Consolidated shareholders' equity is composed largely of GAAP shareholders' equity of our Insurance Subsidiaries. As such, there are statutory restrictions on the transfer of substantial portions of this equity to Protective. At December 31, ~~2018, $64.1~~2020, $50.6 million may be transferred by dividend or loan to Protective without approval by, or prior notification to, regulatory authorities. An additional ~~$213.1~~$151.1 million of shareholders' equity of our Insurance Subsidiaries could be advanced or loaned to Protective with prior notification to, and approval from, regulatory authorities, although transfers of this size would not be practical. We believe these restrictions pose no material liquidity concerns for us. We also believe the financial strength and stability of our Insurance Subsidiaries would permit access by Protective to short-term and long-term sources of credit when needed. Protective had cash and marketable securities valued at ~~$15.2~~$12.9 million at December 31, ~~2018.~~2020.

~~- 23 -~~

Non-GAAP Measures

We believe investors’ understanding of our performance is enhanced by our disclosure of underwriting income (loss), which is a measure that is not calculated in accordance with GAAP. Underwriting income (loss) represents the pre-tax profitability or loss of our insurance operations and is derived by subtracting net realized and unrealized gains (losses) on investments and net investment income from income (loss) before federal income tax expense (benefit). For ~~2018,~~the year ended December 31, 2020, we also ~~had a goodwill impairment charge, which has also been~~ excluded corporate charges incurred in conjunction with the Board's review of the Contingent Sale Agreement, activities of the Special Committee as well as the CECL allowance adjustment related to the PSG matter discussed above from the calculation of underwriting income (loss). For the year ended December 31, 2018 we had a goodwill impairment charge, which was excluded from the calculation of 2018 underwriting income (loss). We believe the exclusion of these charges and the CECL allowance adjustment increases the period-to-period comparability of our operational results. We use underwriting income (loss) as an internal performance measure in the management of our operations because we believe it gives us and users of our financial information useful insight into our results of operations, our underlying business performance and our ongoing operating trends. Underwriting income (loss) should not be viewed as a substitute for income (loss) before federal income tax expense (benefit) calculated in accordance with GAAP, and other companies may define underwriting income (loss) differently. ~~In addition,~~

The ratio of consolidated other operating expenses, less commissions and other income, to net premiums earned, or our expense ratio, and the ratio of losses and loss expenses incurred, plus other operating expenses, less commissions and other income, to net premiums earned, or our combined ratio, are measures of our profitability that we believe increase the period-to-period comparability of our operational results. For the year ended December 31, 2020, we also excluded the corporate charges and CECL allowance adjustment, and for the year ended December 31, 2018, we also excluded the goodwill impairment charge, ~~has been excluded~~discussed above from other operating expenses when calculating our expense ratio and our combined ratio, as these ratios are intended to depict our underlying business performance and ongoing operating trends. We ~~also~~ believe ~~that~~ the exclusion of ~~this goodwill impairment charge~~these charges and the CECL allowance adjustment improves the comparability of our expense ~~ratio~~ and ~~our~~ combined ~~ratio~~ratios with our ratios in prior years. Our management uses these ratios to evaluate performance, allocate resources and forecast future operating periods. While expense ratios and combined ratios are widely used within our industry, our use of such ratios may not be directly comparable to similarly titled measures reported by other companies.

	2018			2017			2016
(dollars in thousands)										2020			2019			2018
Income (loss) before federal income tax expense (benefit)	$	(43,872	)	$	10,122		$	43,054		$	6,363		$	8,673		$	(43,872	)
Less: Net realized and unrealized gains (losses) on investments		(25,691	)		19,686			23,228			(9,236	)		12,889			(25,691	)
Less: Net investment income		22,048			18,095			14,483			25,422			26,249			22,048
Less: Goodwill impairment charge included in other operating expenses (see below)		(3,152	)		–			–
Underwriting income (loss)	$	(37,077	)	$	(27,659	)	$	5,343
Less: Corporate charges and CECL allowance adjustment included in other operating expenses ¹											(4,422	)		–			–
Less: Goodwill impairment charge included in other operating expenses											–			–			(3,152	)
Underwriting loss										$	(5,401	)	$	(30,465	)	$	(37,077	)


Other operating expenses	$	137,177		$	113,594		$	89,462		$	143,428		$	138,456		$	137,177
Less: Corporate charges and CECL allowance adjustment ¹											4,422			–			–
Less: Goodwill impairment charge		3,152			–			–			–			–			3,152
Other operating expenses, excluding goodwill impairment charge	$	134,025		$	113,594		$	89,462
Other operating expenses, excluding corporate charges, CECL allowance adjustment and goodwill impairment charge										$	139,006		$	138,456		$	134,025


Ratios
Losses and loss expenses incurred	$	345,864		$	247,518		$	186,481		$	318,958		$	348,468		$	345,864
Net premiums earned		432,880			328,145			276,011			445,515			447,288			432,880
Loss ratio		79.9	%		75.4	%		67.6	%		71.6	%		77.9	%		79.9	%

Other operating expenses	$	137,177		$	113,594		$	89,462		$	143,428		$	138,456		$	137,177
Less: Commissions and other income		9,932			5,308			5,275			7,048			9,171			9,932
Other operating expenses, less commissions and other income		127,245			108,286			84,187			136,380			129,285			127,245
Net premiums earned		432,880			328,145			276,011			445,515			447,288			432,880
Expense ratio		29.4	%		33.0	%		30.5	%		30.6	%		28.9	%		29.4	%

Impact of corporate charges and CECL allowance adjustment ¹											(1.0	)%		–			–
Impact of goodwill impairment charge		(0.7	)%		–			–			–			0.0	%		(0.7	)%
Expense ratio, excluding goodwill impairment charge		28.7	%		33.0	%		30.5	%
Expense ratio, excluding corporate charges, CECL allowance adjustment and goodwill impairment charge											29.6	%		28.9	%		28.7	%

Combined ratio		109.3	%		108.4	%		98.1	%		102.2	%		106.8	%		109.3	%
Combined ratio, excluding goodwill impairment charge		108.6	%		108.4	%		98.1	%
Combined ratio, excluding corporate charges, CECL allowance adjustment and goodwill impairment charge											101.2	%		106.8	%		108.6	%

¹	Represents the corporate charges incurred in conjunction with the Board's review of the Contingent Sale Agreement, activities of the Special Committee and an adjustment to our CECL allowance related to the PSG litigation matter discussed above.

~~- 24 -~~

Results of Operations

~~2018~~2020 Compared to ~~2017~~2019

	2018			2017			Change			% Change			2020			2019			Change			% Change
Gross premiums written	$	582,500		$	504,737		$	77,763			15.4	%	$	547,561		$	574,918		$	(27,357	)		(4.8	)%
Ceded premiums written		(138,102	)		(151,348	)		13,246			(8.8	)%		(106,561	)		(122,676	)		16,115			(13.1	)%
Net premiums written	$	444,398		$	353,389		$	91,009			25.8	%	$	441,000		$	452,242		$	(11,242	)		(2.5	)%

Net premiums earned	$	432,880		$	328,145		$	104,735			31.9	%	$	445,515		$	447,288		$	(1,773	)		(0.4	)%
Net investment income		22,048			18,095			3,953			21.8	%		25,422			26,249			(827	)		(3.2	)%
Commissions and other income		9,932			5,308			4,624			87.1	%		7,048			9,171			(2,123	)		(23.1	)%
Net realized and unrealized gains (losses) on investments		(25,691	)		19,686			(45,377	)		(230.5	)%		(9,236	)		12,889			(22,125	)		(171.7	)%
Total revenue		439,169			371,234									468,749			495,597
Losses and loss expenses incurred		345,864			247,518			98,346			39.7	%		318,958			348,468			(29,510	)		(8.5	)%
Other operating expenses		137,177			113,594			23,583			20.8	%		143,428			138,456			4,972			3.6	%
Total expenses		483,041			361,112									462,386			486,924
Income (loss) before federal income tax benefit		(43,872	)		10,122			(53,994	)
Federal income tax benefit		(9,797	)		(8,201	)		(1,596	)
Income (loss) before federal income tax expense (benefit)														6,363			8,673			(2,310	)
Federal income tax expense (benefit)														1,900			1,326			574
Net income (loss)	$	(34,075	)	$	18,323		$	(52,398	)				$	4,463		$	7,347		$	(2,884	)

Gross premiums written for ~~2018 increased $77.8~~2020 decreased $27.4 million ~~(15.4%~~(4.8%), while net premiums earned ~~increased $104.7~~decreased $1.8 million ~~(31.9%~~(0.4%), as compared to ~~2017.~~2019. The ~~higher gross premiums written and~~lower net premiums earned in 2020 were primarily the result of ~~continued~~declines in premiums within our commercial automobile products, specifically public transportation, as a result of a reduction in miles driven, which is the basis for premiums we receive, as well as an overall reduction in public transportation units insured, both due to the impact of COVID-19. During the second half of the year, we saw a recovery in premiums within certain commercial automobile products due to a return to a more normal level of miles driven, but the declines in public transportation continued. Additionally, we experienced reduced premiums associated with lower retention rates as we continue to take actions to improve profitability, including rate increases and non-renewal of certain risks. These decreases were partially offset by rate increases, growth in existing business lines and new business policies sold mainly in our commercial automobile ~~and workers' compensation products in both our retail and program distribution channels.~~products. The difference in the percentage change for premiums written compared to earned was reflective of the normal differences in the financial statement recognition of earned premiums compared to written, as well as differences in reinsurance ceding rates on the mix of business in-force.

Premiums ceded to reinsurers on our insurance business averaged ~~23.7%~~19.5% of gross premiums written for ~~2018~~2020 compared to ~~30.0%~~21.3% for ~~2017.~~ 2019. The ~~percentage of~~decrease in premiums ceded ~~to reinsurance decreased as a~~was the result of ~~changes~~growth in our commercial automobile products, which carry a lower ceded reinsurance ~~structure. In the third quarter of 2017, we lowered the quota share rate~~percentage when compared to ceding rates on our workers' compensation ~~premiums~~products, in addition to ~~reflect growing profitability and confidence in this book~~the non-renewal of ~~business. We also restructured our commercial automobile~~the reinsurance treaty, ~~moving away from variable premium ceded rates (based on loss performance) to a flat ceding arrangement with no material changes to~~which impacted the ~~economic risks taken for these products (i.e., ceded losses will decrease by a similar amount as ceded premiums). The impact~~second half of these changes to our reinsurance structure was partially offset by reserve strengthening in 2018 that resulted in ceding an additional $17.3 million in premium from prior treaty years related to variable premium adjustment provisions in our historical reinsurance treaties. Our historical commercial automobile reinsurance treaties cause an adjustment to premiums ceded when the ultimate loss estimate changes for a reinsurance treaty year. Reserve strengthening in 2017 also resulted in ceding an additional $13.7 million in premium related to these variable premium adjustment provisions in 2017.2020, discussed below.

Losses and loss expenses incurred during ~~2018 increased $98.3~~2020 decreased $29.5 million ~~(39.7%~~(8.5%) to ~~$345.9~~$319.0 million compared to ~~$247.5~~$348.5 million in ~~2017. The~~2019, while the loss ratio ~~also increased~~decreased to ~~79.9%~~71.6% for ~~2018~~2020 compared to ~~a loss ratio of 75.4%~~77.9% for ~~2017.~~2019. The loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned. The ~~increased~~lower losses and loss expenses and lower loss ratio ~~in 2018~~for 2020 reflected ~~reserve adjustments~~the results of ~~$16.8 million related to unfavorable prior accident year loss development in commercial automobile coverages. These unfavorable loss developments were the result~~our underwriting actions, including non-renewal of ~~increased claim severity due to a more challenging litigation environment,~~unprofitable business as well as ~~an unexpected increase~~significant rate increases in ~~the time to settle claims leading to an unfavorable change in claim settlement patterns. The 2018~~commercial automobile. Additionally, losses and loss ~~ratio also~~expenses incurred reflected ~~an increase in current accident year losses driven by severe~~favorable impacts from COVID-19 within all commercial automobile ~~losses, including continued emergence of severity. The 2017 loss ratio also reflected a $19.2 million reserve strengthening related to prior accident year deficiencies that developed~~products as a result of unfavorable loss development from commercial automobile coverages, particularly from severe transportation loss events that occurred primarily during the first six months of 2017 and higher than expected loss development for discontinued lines of business.declines in accident frequency due to lower traffic density.

~~- 25 -~~

Commercial automobile products covered by our reinsurance treaties from July 3, 2013 through July 2, 2019 are subject to an unlimited aggregate stop-loss provision. Currently each of these treaty years is reserved at or above the attachment level of these treaties. For every $100 of additional loss, we are only responsible for our $25 retention under these reinsurance treaties. Commercial automobile products covered by our reinsurance treaty from July 3, 2019 through July 2, 2020 are also subject to an unlimited aggregate stop-loss provision. Once ~~this~~the aggregate stop-loss level is reached, for every $100 of additional loss, we are responsible ~~only~~ for our ~~$25 retention. The following table illustrates the financial impact of a further 5% or 10%~~$65 retention under this reinsurance treaty. This increase in ~~ultimate losses~~our retention compared to recent years reflects the combination of 1) a decreased need for ~~the five most recent~~stop-loss reinsurance ~~treaty years (2013-2017) covering these~~protection resulting from a significant decrease in our commercial automobile ~~products:~~average policy loss limits, 2) a higher cost for this coverage and 3) our confidence in profitability improvements given the limits reductions and rate increases on our commercial automobile products. In 2020, due to continued rate achievement in commercial automobile, improvements in our mix of business and reductions to our average policy loss limits, we decided to non-renew the annual aggregate deductible treaty for policies written on or after July 3, 2020.

5% Increase in Ultimate Loss Ratio 10% Increase in Ultimate Loss Ratio
Gross loss expense from further strengthening current reserve position $ 34.3 $ 68.7
Net financial loss $ 9.0 $ 17.6
$/share (after tax) $ 0.48 $ 0.94

Net investment income for ~~2018 increased 21.8%~~2020 decreased 3.2% to ~~$22.0~~$25.4 million compared to ~~$18.1~~$26.2 million for ~~2017.~~2019. The ~~increase~~decrease reflectedlower interest rates earned on cash and cash equivalent balances in 2020, partially offset by an increase in average funds invested resulting from positive cash flow from operations, as well as ~~higher interest rates, which led to higher reinvestment yields for our~~the continued reallocation from equity investments in limited partnerships and cash and cash equivalent investments into short-duration, fixed income portfolio. After-tax investment income increased by 39.4% to $17.7 million during 2018, compared to $12.7 million during 2017, reflecting the aforementioned higher interest rates and reinvestment yield environment.high-quality bonds.

Net realized and unrealized losses on investments of ~~$25.7~~$9.2 million during ~~2018~~2020 were primarily driven by ~~$9.7~~$6.8 million in ~~unrealized~~net realized losses on ~~equity~~sales of securities, ~~during the period, which are now recorded~~excluding impairment losses, $2.9 million in ~~the consolidated statements of operations in conjunction with our adoption of ASU 2016-01,~~impairments and a ~~$9.3~~$1.4 million decrease in the value of our limited partnership investments, ~~and~~partially offset by $1.9 million in unrealized gains on equity securities during the period. Comparative 2019 net realized ~~losses~~and unrealized gains on investments of $12.9 million were primarily driven by $9.3 million in unrealized gains on equity securities during the period, net realized gains on sales of securities, excluding impairment losses, of $2.5 million and a $1.6 million increase in the value of our limited partnership investments, partially offset by impairments on our fixed income ~~and equity~~ securities of ~~$6.6 million. During 2018, we sold $149.2~~$0.5 million in equity securities resulting in a gain on sale of $51.9 million. The majority of this gain was included in unrealized gains within other comprehensive income (loss) at December 31, 2017 and, as a result ofrecognized during the adoption of ASU 2016-01, was reclassified to retained earnings as of January 1, 2018 and not recognized in the consolidated statements of operations for 2018. These equity sales further solidified the conservative nature of our high quality, short-duration investment portfolio; opportunistically utilized the new lower corporate tax rate of 21%, which was beneficial given the low tax basis of many of these equity positions; and were accretive to income, given the increase in yields at the shorter end of the yield curve. Comparative 2017 net realized investment gains were $19.7 million, consisting primarily of $12.5 million in gains reported from our investments in limited partnerships and $7.4 million in net realized gains from sales of securities.period. Realized investment gains and losses result from decisions regarding overall portfolio realignment as well as the sale of individual securities, including the change in the aggregate value of limited partnerships and, as such, should not be expected to be consistent from period to period.

Other operating expenses for ~~2018~~2020 increased ~~$23.6~~$5.0 million ~~or 20.8%,~~(3.6%) to ~~$137.2~~$143.4 million compared to ~~2017. The~~$138.5 million in 2019. This increase ~~in other operating expenses~~ was primarily due to ~~increased commission expenses~~the $2.9 million of corporate charges incurred during 2020 for third party advisors to the Special Committee in connection with their review of the Contingent Sale Agreement as ~~a result of increased premiums written~~well as other strategic alternatives, as discussed above, and ~~higher salary and benefit expense and a non-cash impairment charge of $3.2~~the $1.5 million increase to the CECL allowance related to our ongoing litigation with PSG recorded in the ~~fourth~~third quarter of ~~2018 to write off our entire goodwill balance. See Note M for further discussion.~~2020, as discussed above. The ratio of consolidated other operating expenses less commissions and other income to net premiums earned (the "expense ratio") was ~~29.4%~~30.6% during ~~2018,~~2020, or ~~28.7%~~29.6% excluding the ~~impact of the goodwill impairment charge,~~corporate charges and CECL allowance adjustment discussed above, compared to ~~33.0%~~28.9% during 2019.

Federal income tax expense was $1.9 million for ~~2017.~~the year ended December 31, 2020 compared to $1.3 million for the year ended December 31, 2019. The ~~decrease~~effective tax rate on consolidated income for 2020 was 29.9% compared to 15.3% during 2019. The difference in the ~~expense ratio~~effective federal income tax rate from the normal statutory rate was primarily related to the ~~leveraging effect~~impact of ~~higher net premiums earned~~a valuation allowance on our deferred tax assets recorded in ~~2018 compared~~the current period, in addition to ~~2017.~~

Federal income tax benefit was $9.8 million for 2018 compared to income tax benefit of $8.2 million in 2017. The effective tax rate for 2018 was 22.3% compared to (81.0%) in 2017. The effective federal income tax rate in 2018 differed only slightly from the ~~normal statutory rate primarily as a result~~effects of tax-exempt investment ~~income.~~income and the dividends received deduction. In assessing the ~~fourth quarter of 2017, we recorded a benefit of $9.6 million related to the remeasurement~~valuation of deferred tax assets, ~~and liabilities pursuant~~we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or availability to carryback the losses to taxable income during the periods in which those temporary differences become deductible. We considered several factors when analyzing the need for a valuation allowance, including our current three year cumulative GAAP loss through December 31, 2020, the increase in deferred tax assets due to the ~~U.S. Tax Act, which impacted~~adoption of CECL at January 1, 2020 discussed above, the change in unrealized gains and losses and the loss of a high taxable income year from the carryback period. The three year cumulative loss limits our ~~effective federal~~ability to use projected income beyond 2020 in the analysis. As of December 31, 2020 and 2019, we had no valuation allowance. However, the application of intra-period tax ~~rate for 2017.~~allocation rules to benefits associated with deferred tax assets resulted in a charge to continuing operations as of December 31, 2020 of $1.3 million in the consolidated statement of operations, offset by a corresponding benefit in shareholders' equity within accumulated other comprehensive income (loss).

As a result of the factors discussed above, net ~~loss~~income for ~~2018~~2020 was ~~$34.1~~$4.5 million compared to net income of ~~$18.3~~$7.3 million in ~~2017,~~2019, a ~~change~~decrease of ~~$52.4~~$2.8 million.

2019 Compared to 2018

	2019			2018			Change			% Change
Gross premiums written	$	574,918		$	582,500		$	(7,582	)		(1.3	)%
Ceded premiums written		(122,676	)		(138,102	)		15,426			(11.2	)%
Net premiums written	$	452,242		$	444,398		$	7,844			1.8	%

Net premiums earned	$	447,288		$	432,880		$	14,408			3.3	%
Net investment income		26,249			22,048			4,201			19.1	%
Commissions and other income		9,171			9,932			(761	)		(7.7	)%
Net realized and unrealized gains (losses) on investments		12,889			(25,691	)		38,580			(150.2	)%
Total revenue		495,597			439,169
Losses and loss expenses incurred		348,468			345,864			2,604			0.8	%
Other operating expenses		138,456			137,177			1,279			0.9	%
Total expenses		486,924			483,041
Income (loss) before federal income tax expense (benefit)		8,673			(43,872	)		52,545
Federal income tax expense (benefit)		1,326			(9,797	)		11,123
Net income (loss)	$	7,347		$	(34,075	)	$	41,422

~~- 26 -~~

~~2017 Compared to 2016~~

2017 2016 Change % Change
Gross premiums written $ 504,737 $ 403,004 $ 101,733 25.2 %
Ceded premiums written (151,348 ) (131,252 ) (20,096 ) 15.3 %
Net premiums written $ 353,389 $ 271,752 $ 81,637 30.0 %

Net premiums earned $ 328,145 $ 276,011 $ 52,134 18.9 %
Net investment income 18,095 14,483 3,612 24.9 %
Commissions and other income 5,308 5,275 33 0.6 %
Net realized and unrealized gains (losses) on investments 19,686 23,228 (3,542 ) (15.2 )%
Total revenue 371,234 318,997
Losses and loss expenses incurred 247,518 186,481 61,037 32.7 %
Other operating expenses 113,594 89,462 24,132 27.0 %
Total expenses 361,112 275,943
Income before federal income tax expense (benefit) 10,122 43,054 (32,932 )
Federal income tax expense (benefit) (8,201 ) 14,109 (22,310 )
Net income $ 18,323 $ 28,945 $ (10,622 )

Gross premiums written for ~~2017 increased $101.7~~2019 decreased $7.6 million ~~(25.2%~~(1.3%), due to the non-renewal of unprofitable business during the year, while net premiums earned increased ~~$52.1~~$14.4 million ~~(18.9%~~(3.3%), as compared to ~~2016.~~2018. The ~~increase in net premiums written and earned was primarily due to an increase of $60.8 million in net premiums earned related to commercial automobile products and $3.7 million in~~ higher net premiums earned ~~related to workers' compensation products, which~~in 2019 were ~~consistent with our growth strategy. These increases were partially offset by $8.1 million~~primarily the result of lower premiums ~~generated by reinsurance products, reflective of our decision~~ceded when compared to ~~completely withdraw from the property catastrophe reinsurance and professional liability reinsurance markets, and a decrease of $3.9 million in premiums earned from personal automobile products.~~2018, as discussed below. The difference in the percentage change for premiums written compared to earned iswas reflective of the normal differences in the financial statement recognition of earned premiums compared to written, as well as differences in reinsurance ceding rates on the mix of business in-force.

Premiums ceded to reinsurers on our insurance business averaged ~~30.0%~~21.3% of gross premiums written for ~~2017,~~2019 compared to ~~32.6%~~23.7% for ~~2016. The percentage of premiums ceded~~2018. During 2018, we had reserve strengthening that resulted in ceding an additional $17.3 million in premium from prior treaty years related to ~~reinsurance decreased as a result of changes in our reinsurance structure in~~ the ~~third quarter of 2017. The change in net premiums earned, compared to growth in gross premiums written, was a function of~~variable premium adjustment provisions in our historical reinsurance treaties. In comparison the 2019 period reflected the ceding of only an additional $1.6 million in commercial automobile premium from prior treaty years related to variable premium adjustment provisions in our historical reinsurance treaties. This ~~historical~~was partially offset by higher gross premiums written in workers' compensation coverages, which carry a higher reinsurance ~~structure, which was revised~~ceding rate in the July 2017 reinsurance renewal, causes an adjustment for ceded premiums when the ultimate loss estimate changes for a reinsurance treaty year. This resulted in ceding an additional $13.7 million in premium in connection with our reserve strengthening in 2017.2019 compared to 2018.

Losses and loss expenses incurred during ~~2017~~2019 increased ~~$61.0~~$2.6 million ~~(32.7%~~(0.8%) ~~from $186.5~~to $348.5 million compared to $345.9 million in ~~2016~~2018, while the loss ratio decreased to ~~$247.5 million in 2017, due primarily~~77.9% for 2019 compared to ~~adverse prior accident year development~~79.9% for 2018. The loss ratio is calculated as the percentage of losses and ~~growth in~~loss expenses incurred to net premiums earned. The ~~2017~~increased losses and loss ~~ratio~~expenses incurred reflected an increase in current accident year losses driven by continued emergence of severity. This current accident year development was ~~75.4%,~~partially offset by prior accident year net savings of $0.6 million that developed during 2019, primarily due to favorable loss development in workers' compensation coverages. Including the impact of the additional $1.6 million of ceded premium discussed above, total prior accident years had an unfavorable impact of $1.0 million in 2019. Losses and loss expenses for 2018 reflected reserve adjustments of $16.8 million related to unfavorable prior accident year loss development in commercial automobile coverages. Including the impact of the additional $17.3 million of ceded premium discussed above, total prior accident years had an unfavorable impact of $34.1 million in 2018.

Commercial automobile products covered by our reinsurance treaties from July 2013 through June 2019 are subject to an unlimited aggregate stop-loss provision. Currently each of these treaty years is reserved at or above the attachment level of these treaties. For every $100 of additional loss, we are only responsible for our $25 retention. The following table illustrates the benefit of these reinsurance treaties based on select theoretical scenarios. For these theoretical scenarios, the net financial loss to the Company is approximately 25% of the gross loss.

	5% Increase in Ultimate Loss Ratio		10% Increase in Ultimate Loss Ratio
Gross loss expense from further strengthening current reserve position	$	47.2	$	94.5
Net financial loss	$	11.8	$	23.6
$/share (after tax)	$	0.64	$	1.28

Commercial automobile products covered by our reinsurance treaty from July 2019 through June 2020 are also subject to an unlimited aggregate stop-loss provision. Once the aggregate stop-loss level is reached, for every $100 of additional loss, we are responsible for our $65 retention. This increase in our retention compared to ~~67.6%~~recent years, reflects the combination of 1) a decreased need for ~~2016. The higher~~stop loss ~~ratio during 2017 was the result of adverse loss development~~reinsurance protection resulting from a significant decrease in our commercial automobile ~~related liability coverages from prior accident years. The prior year reserve deficiency~~subject limits profile, 2) a higher cost for this cover and 3) our confidence in ~~2017 increased~~profitability improvements given the ~~loss ratio for 2017 by 5.9 percentage points compared to a 5.0 percentage point increase experienced in 2016 due to the prior year reserve deficiencies in 2016. We had an overall reserve deficiency~~limits reductions and rate increases on ~~prior year claims during 2017 of $19.2 million and a $13.8 million deficiency on prior year claims during 2016.~~our commercial automobile products.

Net investment income for ~~2017~~2019 increased ~~24.9%~~19.1% to ~~$18.1~~$26.2 million compared to ~~$14.5~~$22.0 million for ~~2016, primarily due to higher interest rates leading to higher reinvestment yields for fixed income securities, increased dividends from equity securities and~~2018. The increase reflected an increase in average funds invested resulting from positive cash ~~flow. After-tax investment income of $12.7 million increased 23.0% during 2017 compared to the prior year reflecting the above factors,~~flow, as well as ~~the mix between taxable and tax-exempt investment income.~~a reallocation from equity investments held in limited partnerships into short-duration, high-quality bonds.

Net realized and unrealized gain on investments of $12.9 million during 2019 were primarily driven by $9.3 million in unrealized gains on ~~investments totaled $19.7 million in 2017 compared to $23.2 million~~equity securities during ~~2016. Direct trading~~the period, net realized gains ~~during 2017 were $8.2 million lower compared to the prior year. Other-than-temporary~~on sales of securities, excluding impairment of $0.4 million, netted with gains of $1.6 million on previously impaired available-for-sale securities that were sold in 2017, are included in the net gains stated above. Investments in limited partnerships produced gains of $12.5 million in 2017, compared to gainslosses, of $2.5 million ~~during 2016. Limited~~and a $1.6 million increase in the value of our limited partnership investments, ~~utilized~~partially offset by ~~us are primarily engaged~~other-than-temporary impairments on our fixed income securities of $0.5 million recognized during the period. Comparative 2018 net realized and unrealized losses on investments of $25.7 million were driven by $9.7 million in ~~long-short equities, private~~unrealized losses on equity ~~country-focused funds and real estate development as an alternative to direct equity investments. The aggregate~~securities during the period, a $9.3 million decrease in the value of our ~~share~~limited partnership investments and net realized losses on sales of fixed income and equity securities of $6.6 million. Realized investment gains and losses result from decisions regarding overall portfolio realignment as well as the sale of individual securities, including the change in ~~these entities represented a 16.3% appreciation in~~the aggregate value ~~for 2017, compared~~of limited partnerships and, as such, should not be expected to ~~a 3.3% increase in value for 2016.~~be consistent from period to period.

Other operating expenses for ~~2017~~2019 increased ~~$24.1~~$1.3 million ~~(27.0%~~(0.9%), to ~~$113.6~~$138.5 million ~~from $89.5 million in 2016. This~~compared to 2018. The increase was ~~due~~driven primarily ~~to an increase in~~by higher commission ~~expense~~expenses as a result of ~~the increase in premiums~~premium written mix and higher salary and ~~salary-related~~benefit expenses ~~reflective~~during 2019, partially offset by a non-cash goodwill impairment charge of ~~our increased workforce~~$3.2 million recorded in ~~response~~2018, which did not recur in 2019. The expense ratio was 28.9% during 2019, compared to the continued expansion of our products and services. Reinsurance ceded credits, included as an offset to other operating expenses, were 30.8% lower in 2017, resulting primarily from ceding a lower percentage of workers' compensation premium to reinsurers in our most recent reinsurance treaty.28.7% for 2018.

~~- 27 -~~

~~Income tax benefit was $8.2 million for 2017 compared to~~Federal income tax expense was $1.3 million for 2019 compared to a federal income tax benefit of ~~$14.1~~$9.8 million in 2016. We recorded a benefit of $9.6 million related to the remeasurement of deferred tax assets and liabilities in the fourth quarter of 2017 pursuant to the U.S. Tax Act. Our effective federal tax rate for 2017 was (81.0%) as compared to 32.8% in 2016.2018. The effective tax rate for ~~2017~~2019 was ~~affected~~15.3% compared to 22.3% in 2018. The effective federal income tax rate in 2019 differed from the normal statutory rate primarily byas a result of tax-exempt investment income and the ~~impact of the U.S. Tax Act discussed above.~~dividends received deduction.

As a result of the factors discussed above, net income for ~~2017 decreased $10.6 million to $18.3~~2019 was $7.3 million compared to ~~$28.9~~net loss of $34.1 million in ~~2016.~~2018, a change of $41.4 million.

Critical Accounting Policies

The Company's significant accounting policies that are material and/or subject to significant degrees of judgment are highlighted below.

Investment Valuation

All marketable securities are included in the Company's balance sheets at current fair market value.

Approximately ~~59%~~62% of the Company's assets are composed of investments at December 31, ~~2018.~~2020. Approximately ~~92%~~93% of these investments are publicly-traded, owned directly and have readily-ascertainable market values. The remaining 8%7% of investments are composed primarily of mortgage loans and minority interests in several limited partnerships. These mortgage loans are originated and serviced by a third party of which the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgage loans. These limited partnerships are engaged in long-short equities, private equity, country-focused funds and real estate development as an alternative to direct equity investments. These partnerships do not have readily-determinable market values themselves. Rather, the values recorded are those provided to the Company by the respective partnerships based on the underlying assets of the limited partnerships. While a substantial portion of the underlying assets are publicly-traded securities, those which are not publicly-traded have been valued by the respective limited partnerships using their experience and judgment.

Under Financial Accounting Standards Board ("FASB") guidance, if a fixed income security is in an unrealized loss position and the Company has the intent to sell the security, or it is more likely than not that the Company will have to sell the security before recovery of its amortized cost basis, the decline in value is ~~deemed to be other-than-temporary and is~~ recorded ~~to net realized gains (losses)~~within impairment losses on investments in the consolidated statements of operations. The new cost basis of the investment is the previously amortized cost basis less the impairment recognized. The new cost basis is not adjusted for any subsequent recoveries in fair value. For ~~impaired~~a fixed income ~~securities~~security that the Company does not intend to sell or in cases where it is more likely than not that the Company will not have to sell ~~such securities, but~~the security, the Company ~~expects that it will~~separates the credit loss component of the impairment from the amount related to all other factors and reports the credit loss component within net realized gains (losses) on investments, excluding impairment losses in the consolidated statements of operations. The impairment related to all other factors (non-credit factors) is reported in other comprehensive income (loss). The allowance is adjusted for any additional credit losses and subsequent recoveries. Upon recognizing a credit loss, the cost basis is not ~~fully recover~~adjusted.

The Company considers the extent to which fair value is below amortized cost in determining whether a credit-related loss exists. The Company also considers the credit quality rating of the security, focusing on those below investment grade, with emphasis on securities downgraded below investment grade. The credit loss is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the ~~credit~~fixed income security. The net present value is calculated by discounting the Company's best estimate of projected future cash flows at the appropriate effective interest rate. Additionally, the Company may conclude that a qualitative analysis is sufficient to support its conclusion that the present value of the expected cash flows equals or exceeds a security’s amortized cost.

Equity securities are recorded at fair value, with unrealized net gains or losses reflected as a component of net unrealized gains (losses) on equity securities and limited partnership investments within the ~~other-than-temporary impairment is recognized~~consolidated statements of operations. Realized gains and losses on disposals of equity securities are recorded on the trade date and included in net realized gains (losses) on investments, ~~in the consolidated statements of operations and the non-credit component of the other-than-temporary~~excluding impairment ~~is recognized directly in shareholders' equity within accumulated other comprehensive income (loss).~~losses.

In conjunction with the adoption of ASU 2016-01, unrealized gains or losses on equity securities will be recognized in the consolidated statements of operations and are no longer evaluated for other-than-temporary declines.

It is important to note that all available-for-sale securities included in the Company's consolidated financial statements are valued at current fair market values. The evaluation process for determination of other-than-temporary decline in value of investments, as described above, does not change these valuations but, rather, determines when a decline in value will be recognized in the consolidated statements of operations (other-than-temporary decline), as opposed to a charge to shareholders' equity (temporary decline). This evaluation process is subject to risks and uncertainties because it is not always clear what has caused a decline in value of an individual security or because some declines may be associated with general market conditions or economic factors, which relate to an industry in general, but not necessarily to an individual issue. The Company has attempted to minimize many of these uncertainties by adopting a largely objective evaluation process as described above. However, to the extent that certain declines in value are reported as unrealized at December 31, 2018, it is possible that future earnings charges will result should the declines in value increase or persist or should the security actually be disposed of while market values are less than cost. At December 31, 2018, the total gross unrealized loss included in the Company'sreports investment income due and accrued separately from available-for-sale fixed income ~~portfolio was approximately $10.8 million. No individual issue constituted a material amount of this total. Had this entire amount been considered other-than-temporary~~securities and has elected not to measure an allowance for credit losses for investment income due and accrued. Investment income due and accrued is written off through net realized gains (losses) on investments, excluding impairment losses at ~~December 31, 2018, there would have been no impact~~the time the issuer defaults or is expected to default on ~~total shareholders' equity or book value since the decline in value of these securities was previously recognized as a reduction to shareholders' equity.~~payments.

~~- 28 -~~

Reinsurance Recoverable

Reinsurance ceded transactions were as follows for the years ended December 31 (dollars in thousands):

	2018		2017		2016		2020		2019		2018
Reinsurance recoverable	$	392,436	$	318,331	$	255,024	$	455,564	$	432,067	$	392,436
Premium ceded (reduction to premium earned)		131,080		145,201		130,012		113,125		124,446		131,080
Losses ceded (reduction to losses incurred)		148,285		128,086		108,656		105,895		121,963		148,285
Reinsurance ceded credits (reduction to operating expenses)		23,124		23,187		33,512		24,764		25,932		23,124

A discussion of the Company's reinsurance strategies is presented in Part I, Item 1, "Business,", of this Annual Report on Form 10-K.

Amounts recoverable under the terms of reinsurance contracts comprised approximately 26% of total Company assets as of December 31, ~~2018.~~2020. In order to be able to provide the high limits required by the Company's insureds, the Company shares a significant amount of the insurance risk of the underlying contracts with various insurance entities through the use of reinsurance contracts. Some reinsurance contracts provide that a loss will be shared among the Company and its reinsurers on a predetermined pro-rata basis ("~~quota-share"~~quota share"), while other contracts provide that the Company will keep a fixed amount of the loss, similar to a deductible, with reinsurers taking all losses above this fixed amount ("excess of loss"). Some risks are covered by a combination of ~~quota-share~~quota share and excess of loss contracts. The computation of amounts due from reinsurers is based upon the terms of the various contracts and follows the underlying estimation process for loss and loss expense reserves, as described below. Accordingly, the uncertainties inherent in the loss and loss expense reserving process also affect the amounts recorded as recoverable from reinsurers. Estimation uncertainties are greatest for claims which have occurred but which have not yet been reported to the Company. Further, the high limits provided by certain of the Company's insurance policies for commercial automobile liability, workers' compensation and professional liability risks provide more variability in the estimation process than lines of business with lower coverage limits.

It should be noted, however, that a change in the estimate of amounts due from reinsurers on unpaid claims will not, in itself, result in charges or credits to losses incurred. This is because any change in estimated recovery follows the estimate of the underlying loss. Thus, it is the computation of the gross underlying loss that is critical.

As with any receivable, credit risk exists in the recoverability of reinsurance. This may be even more pronounced than in normal receivable situations since recoverable amounts are not generally due until the loss is settled which, in some cases, may be many years after the contract was written. If a reinsurer is unable, in the future, to meet its financial commitments under the terms of the contracts, the Company would be responsible to satisfy the reinsurer's portion of the loss. The financial condition of each of the Company's reinsurers is vetted upon the execution of a given treaty, and only reinsurers with superior credit ratings are utilized. However, as noted above, reinsurers are often not called upon to satisfy their obligations for several years and changes in credit worthiness can occur in the interim period. Reviews of the current financial strength of each reinsurer are made frequently and, should impairment in the ability of a reinsurer be determined to exist, current year operations would be charged in amounts sufficient to provide for the Company's additional liability. Such charges are included in other operating expenses, rather than losses and loss expenses incurred, since the inability of the Company to collect from reinsurers is a credit loss rather than a deficiency associated with the loss reserving process.

Loss and Loss Expense Reserves

The Company's reserves for losses and loss expenses ("reserves") are determined based on complex estimation processes using historical experience, current economic information and available industry statistics. The Company's claims range from routine "fender benders" to the highly complex and costly third-party bodily injury claims involving large tractor-trailer rigs. Reserving for each class of claims requires a set of assumptions based upon historical experience, knowledge of current industry trends and seasoned judgment. The high limits provided in many of the Company's policies provide for greater volatility in the reserving process for more serious claims. Court rulings, legislative actions and trends in jury awards also play a significant role in the estimation process of larger claims. The Company continuously reviews and evaluates loss developments subsequent to each measurement date and adjusts its reserve estimation assumptions, as necessary, in an effort to achieve the best possible estimate of the ultimate remaining loss costs at any point in time. Changes to previously established loss and loss expense reserve amounts are charged or credited to losses and loss expenses incurred in the accounting periods in which they are determined. See Note C, "Loss and Loss Expense Reserves," to the ~~consolidated financial statements~~Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information relating to loss and loss expense reserve development.

The Company's methods for determining loss and loss expense reserves are essentially identical for interim and annual reporting periods.

~~- 29 -~~

A detailed analysis and discussion for each of the above basic reserve categories follows:

Reserves for known losses (Case reserves)

Each known claim, regardless of complexity, is handled by a claims adjuster experienced with claims of a similar nature, and a "case" reserve appropriate for the individual loss occurrence is established. For routine "short-tail" claims, such as physical damage, the Company records an initial reserve that is based upon historical loss settlements adjusted for current trends. As information regarding the loss occurrence is gathered in the claim handling process, the initial reserve is adjusted to reflect the anticipated ultimate cost to settle the claim. For more complex claims, which can tend toward being "long-tail" in nature, an experienced claims adjuster will review the facts and circumstances surrounding the loss occurrence to make a determination of the reserve to be established. Many of the more complex claims involve litigation and necessitate an evaluation of potential jury awards, in addition to the factual information, to determine the value of each claim. Each claim is frequently monitored and the recorded reserve is increased or decreased relative to information gathered during the settlement life cycle.

Reserves for incurred but not reported losses

The Company uses both standard actuarial techniques common to most insurance companies as well as proprietary techniques developed by the Company in connection with its specialty business products. For its short-tail lines of business, the Company uses predominantly the incurred or paid loss development factor methods. The Company has found that the use of accident quarter loss development triangles, rather than those based upon accident year, are most responsive to claim settlement trends and fluctuations in premium exposure for its short-tail lines. A minimum of 12 running accident quarters is used to project the reserve necessary for incurred but not reported ("IBNR") losses for its short-tail lines.

The Company also uses the loss development factor approach for its long-tail lines of business. A minimum of 15 accident years is included in the loss development triangles used to calculate link ratios and the selected loss development factors used to determine the reserves for IBNR losses. A minimum of 20 accident years is used for long-tail workers' compensation reserve projections. Significant emphasis is placed on the use of tail factors for the Company's long-tail lines of business.

For the Company's commercial automobile risks, which are covered by regularly changing reinsurance agreements and which contain wide-ranging self-insured retentions ("SIR"), traditional actuarial methods are supplemented by other methods, as described below, in consideration of the Company's exposures to loss. In situations where the Company's reinsurance structure, the insured's SIR selections, policy volume, and other factors are changing, current accident period loss exposures may not be homogenous enough with historical loss data to allow for reliable projection of future developed losses. Therefore, the Company supplements the above-described actuarial methods with loss ratio reserving techniques developed from the Company's proprietary databases to arrive at the reserve for IBNR losses for the calendar/accident period under review. As losses for a given calendar/accident period develop with the passage of time, management evaluates such development on a monthly and quarterly basis and adjusts reserve factors, as necessary, to reflect current judgment with regard to the anticipated ultimate incurred losses. This process continues until all losses are settled for each period subject to this method.

Reserves for loss adjustment expenses

While certain of the Company's products involve case basis reserving for allocated loss adjustment expenses, the majority of such reserves are determined on a bulk basis. The Company uses historical analysis of the ratios of allocated loss adjustment expenses paid to losses paid on closed claims to arrive at the expected ultimate incurred loss adjustment expense factors applicable to each affected product. Once developed, the factors are applied to the expected ultimate incurred losses, including IBNR, on all open claims. The resulting ultimate incurred allocated loss adjustment expense is then reduced by amounts paid to date on all open claims to arrive at the reserve for allocated loss adjustment expenses to be incurred in the future for the handling of specific claims.

For those loss adjustment expenses not specific to individual claims (general claims handling expenses referred to as unallocated loss adjustment expenses), the Company uses a variation of the standard industry loss adjustment expenses paid to losses paid (net of reinsurance) ratio analysis that equally weighs paid and incurred losses to establish the necessary reserves. The selected factors are applied to 100% of IBNR reserves and to case reserves, with consideration given for that portion of loss adjustment expense already paid at the reserve measurement date. Such factors are monitored and revised, as necessary, on a quarterly basis.

~~- 30 -~~

Sensitivity Analysis - Potential impact on reserve volatility from changes in key assumptions

Management is aware of the potential for variation from the reserves established at any particular point in time. Savings or deficiencies could develop in future valuations of the currently established loss and loss expense reserve estimates under a variety of reasonably possible scenarios. The Company's reserve selections are developed to be a "best estimate" of unpaid losses at a point in time and, due to the unique nature of its exposures, particularly in the large commercial automobile excess product, ranges of reserve estimates are not established during the reserving process. However, basic assumptions that could potentially impact future volatility of the Company's valuations of current loss and loss expense reserve estimates include, but are not limited to, the following:

●

Consistency in the individual case reserving processes;

●

The selection of loss development factors in the establishment of bulk reserves for incurred but not reported losses and loss expenses;

●

Projected future loss trend; and

●

Expected loss ratios for the current book of business, particularly the Company's commercial automobile products, where the number of accounts insured, selected SIRs, policy limits and reinsurance structures may vary widely from period to period.

Under reasonably possible scenarios, it is conceivable that the Company's selected loss estimates could be 10% or more redundant or deficient. The majority of the Company's reserves for losses and loss expenses, on a net of reinsurance basis, relate to its commercial automobile products. Perhaps the most significant example of sensitivity to variation in the key assumptions is the loss ratio selection for the Company's commercial automobile products for policies subject to certain major reinsurance treaties. The following table presents the approximate impacts on gross and net loss reserves of both a hypothetical 10 percentage point and a hypothetical 20 percentage point increase or decrease in the loss factors actually utilized in the Company's reserve determination at December 31, ~~2018~~2020 for the prior ~~six~~seven treaty periods, which covers exposures earned on policies written between July 3, ~~2012~~2014 and December 31, ~~2018.~~2020. The Company's selection of the range of values presented should not be construed as the Company's prediction of future events, but rather simply an illustration of the impact of such events, should they occur.

The variation in impact from loss ratio increases and decreases is attributable to minimum and maximum premium rate factors included in the various reinsurance contracts. In between the minimum and maximum ceded premium provisions within the treaty terms, net premiums earned can be increased or decreased based on a change in loss expectation. The total impact to profitability in the same scenarios is shown below ($ in millions):

	10% Loss Ratio Increase			10% Loss Ratio Decrease			20% Loss Ratio Increase			20% Loss Ratio Decrease			10% Loss Ratio Increase			10% Loss Ratio Decrease			20% Loss Ratio Increase			20% Loss Ratio Decrease
Gross Reserves	$	72.0		$	(72.0	)	$	144.1		$	(144.1	)	$	114.2		$	(114.2	)	$	228.3		$	(220.0	)

Net Reserves	$	18.0		$	(19.5	)	$	36.0		$	(49.5	)	$	39.4		$	(40.8	)	$	78.8		$	(98.7	)
Net premiums earned	$	(0.4	)	$	16.5		$	(0.4	)	$	41.1		$	(2.9	)	$	16.6		$	(2.9	)	$	35.7
Cumulative Net Underwriting Income (Loss)	$	(18.4	)	$	36.0		$	(36.4	)	$	90.6		$	(42.3	)	$	57.4		$	(81.7	)	$	134.4

Federal Income Tax Considerations

The liability method is used in accounting for federal income taxes. Using this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The provision for deferred federal income tax is based on items of income and expense that are reported in different years in the consolidated financial statements and tax returns and are measured at the tax rate in effect in the year the difference originated.

On December 22, 2017, the U.S. Tax Act was signed into law. The U.S. Tax Act lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. GAAP requires the impact of tax legislation to be recognized in the period in which the law was enacted. As a result of the U.S. Tax Act, the Company recorded a tax benefit of $9.6 million related to the remeasurement of its deferred tax assets and liabilities during the fourth quarter of 2017. As of December 31, 2017, the IRS had not yet published all of the detailed regulations resulting from the enactment of the U.S. Tax Act; therefore, while the Company had not completed its accounting for the tax effects, it made a reasonable estimate of the tax effects on its existing deferred tax balances at December 31, 2017. The Company finalized its accounting for the tax effects of the U.S. Tax Act during 2018. No material adjustments to income tax expense (benefit) were recorded in 2018.

~~- 31 -~~

Net deferred tax ~~liabilities~~assets (liabilities) reported at December 31 are as follows (dollars in thousands):

	2018			2017			2020			2019
Total deferred tax liabilities	$	(12,906	)	$	(23,836	)	$	(15,083	)	$	(15,484	)
Total deferred tax assets		19,168			9,478			24,063			17,519
Net deferred tax assets (liabilities)	$	6,262		$	(14,358	)	$	8,980		$	2,035

Deferred tax assets at December 31, ~~2018~~2020 included approximately ~~$10.0~~$12.9 million related to the timing of deductibility of loss and loss expense reserves, the majority of which relate to policy liability discounts required by the Internal Revenue Code of 1986, as amended, which are perpetual in nature and, in the absence of the termination of the Company's business, will not, in the aggregate, reverse to a material degree in the foreseeable future. ~~$3.5~~The allowance for CECL under ASU 2016-13 represents $3.6 million of deferred tax assets, ~~are related to the results of the Company's limited partnership investments. Unearned~~while unearned premiums discount and deferred ceding commissions represent $2.3 million and ~~$1.2~~$0.5 million of deferred tax assets, respectively. An additional ~~$0.6~~$2.0 million relates to ~~impairment adjustments made to investments, as required by accounting regulations. The unrealized gains~~timing differences in the ~~Company's investment portfolios would allow for the recovery~~expensing of ~~this deferred tax at any time.~~our stock compensation plans. The balance of deferred tax assets consists of various normal operating expense accruals and is not considered to be material. As ~~a result~~ of ~~its analysis, management has determined that~~December 31, 2020 and 2019, the Company had no valuation ~~allowance is necessary at~~allowance. However, the application of intra-period tax allocation rules to benefits associated with deferred tax assets resulted in a charge to continuing operations as of December 31, ~~2018.~~2020 of $1.3 million within the consolidated statement of operations, offset by a corresponding benefit in shareholders' equity within accumulated other comprehensive income.

FASB provides guidance for recognizing and measuring uncertain tax positions and prescribes a threshold condition that a tax position must meet for any of the benefit of the uncertain tax position to be recognized in the consolidated financial statements. Based on this guidance, management regularly analyzes tax positions taken or expected to be taken in a tax return based on the threshold condition prescribed. Tax positions that do not meet or exceed this threshold condition are considered uncertain tax positions. Interest related to uncertain tax positions, if any, would be recognized in income tax expense. Penalties, if any, related to uncertain tax positions would be recorded in income tax expense (benefit).

Impact of Inflation

To the extent possible, the Company attempts to recover the impact of inflation on loss costs and operating expenses by increasing the premiums it charges. Within the commercial automobile business, a majority of the Company's accounts are charged as a percentage of an insured's gross revenue, mileage or payroll. As these charging bases increase with inflation, premium revenues are immediately increased. The remaining premium rates charged are adjustable only at periodic intervals and often require state regulatory approval. Such periodic increases in premium rates may lag far behind cost increases.

To the extent inflation influences yields on investments, the Company is also affected. The Company's short-term and fixed investment portfolios are structured in direct response to available interest rates over the yield curve. As available market interest rates fluctuate in response to the presence or absence of inflation, the yields on the Company's investments are impacted. Further, as inflation affects current market rates of return, previously committed investments might increase or decline in value depending on the type and maturity of the investment. For additional information, see Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market ~~Risk"~~,Risk," in this Annual Report on Form 10-K.

Inflation must also be considered by the Company in the creation and review of loss and loss adjustment expense reserves, as portions of these reserves are expected to be paid over extended periods of time. The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and loss adjustment expenses.

~~- 32 -~~

Contractual Obligations

The table below sets forth the amounts of the Company's contractual obligations at December 31, ~~2018.~~2020.

	Payments Due by Period										Payments Due by Period
	Total		Less than 1 year		1 - 3 Years		3 - 5 Years		More Than 5 Years		Total		Less than 1 year		1 - 3 Years		3 - 5 Years		More Than 5 Years
	(dollars in millions)										(dollars in millions)
Loss and loss expense reserves	$	865.3	$	302.9	$	285.6	$	103.8	$	173.0	$	1,089.7	$	381.4	$	359.6	$	130.8	$	217.9

Investment commitment		1.3		1.3		–		–		–		0.4		0.4		–		–		–

Operating leases		0.5		0.4		0.1		–		–		0.1		0.1		–		–		–

Borrowings		20.0		20.0		–		–		–		20.0		20.0		–		–		–

Total	$	887.1	$	324.6	$	285.7	$	103.8	$	173.0	$	1,110.2	$	401.9	$	359.6	$	130.8	$	217.9

The Company's loss and loss expense reserves do not have contractual maturity dates, and the exact timing of the payment of claims cannot be predicted with certainty. However, based upon historical payment patterns, the above table presents an estimate of when the Company might expect its direct loss and loss expense reserves (without the benefit of reinsurance recoveries) to be paid. Timing of the collection of the related reinsurance recoverable, estimated to be ~~$392.4~~$455.6 million at December 31, ~~2018,~~2020, or ~~45%~~42% of the ~~amounts~~loss and loss expense reserves presented in the above table, would approximate that of the above projected direct reserve payout but could lag behind such payments by several months in some instances.

The investment commitment in the above table relates to a maximum unfunded capital obligation for a limited partnership investment at December 31, ~~2018.~~2020. The actual call dates for such funding could vary from that presented.

Borrowings made under the Company's line of credit can be called by the lender, under certain circumstances, with short notice. The Company entered into a ~~new~~ line of credit on August 9, 2018 with an expiration date of August 9, 2022.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

~~- 33 -~~42

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company operates within the property and casualty insurance industry and, accordingly, has significant invested assets that are exposed to various market risks. These market risks relate to interest rate fluctuations, credit risks, equity security market prices and, to a lesser extent, foreign currency rate fluctuations. All of the Company's invested assets, with the exception of investments in limited partnerships and equity securities, are classified as available-for-sale.

Based on the structure of the Company's investment portfolio, one of the most significant of the four identified market risks relates to prices in the equity ~~security market.~~securities markets. Although not the largest category of the Company's invested assets, equity securities and limited partnerships, which are predominately invested in equities, have a high potential for short-term price fluctuation. The market value of the Company's equity and limited partnerships positions at December 31, ~~2018~~2020 was ~~$121.5~~$65.4 million, or approximately:

●

~~14%~~6% of the Company's consolidated investment portfolio of ~~$878.6~~$1,043.7 million; and

●

~~34%~~18% of the Company's shareholders' equity of ~~$356.1~~$363.1 million.

Funds invested in the equities ~~market~~markets are not considered to be assets necessary for the Company to conduct its daily operations and, therefore, can be committed for extended periods of time. The long-term nature of the Company's equity investments allows it to invest in positions where ultimate value, and not short-term market fluctuations, is the primary focus.

Reference is made to the discussion of limited partnership investments in "Critical Accounting Policies" in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Annual Report on Form 10-K. All of the market risks attendant to equity securities also apply to the underlying assets in these limited partnerships, and to a greater degree because of the generally more aggressive investment philosophies utilized by the limited partnerships. In addition, these investments are illiquid. There is no primary or secondary market on which these limited partnerships trade and, in most cases, the Company is prohibited from disposing of its limited partnership interests for some period of time and must seek approval from the general partner for any such disposal. Distributions of earnings from these limited partnerships are largely at the sole discretion of the general partners, and distributions are generally not received by the Company for many years after the earnings have been reported. Finally, through the application of the equity method of accounting, the Company's share of net income reported by the limited partnerships often includes significant amounts of unrealized appreciation on the underlying investments.

The Company's fixed income portfolio totaled ~~$592.6~~$919.7 million at December 31, ~~2018.~~2020. Approximately ~~35%~~28% of this portfolio is made up of U.S. Government and municipal debt securities, and the average contractual maturity of the Company's fixed ~~maturity~~income investments is approximately ~~5.5~~7.1 years with an average modified duration of approximately ~~2.6~~2.8 years. Although the Company is exposed to interest rate risk on its fixed income investments, given the anticipated duration of the Company's liabilities (principally insurance loss and loss expense reserves) relative to investment maturities, even a 100 to 200 basis point increase in interest rates would not have a material impact on the Company's ability to conduct daily operations or to meet its obligations and would, in fact, result in ~~significantly~~ higher investment income in a relatively short period of time, as short-term investments and maturing bonds could be reinvested in the higher yielding securities.

There is an inverse relationship between interest rate fluctuations and the fair value of the Company's fixed income investments. Additionally, the fair value of interest rate sensitive instruments may be affected by the financial strength of the issuer, prepayment options, relative values of alternative investments, liquidity of the investment, currency fluctuations for non-U.S. debt holdings and other general market conditions. The Company monitors its sensitivity to interest rate risk by measuring the change in fair value of its fixed income investments relative to hypothetical changes in interest rates.

The following tables present the estimated effects on the fair value of financial instruments at December 31, ~~2018~~2020 and ~~2017~~2019 that would result from an instantaneous change in yield rates of varying magnitudes on a static balance sheet to determine the effect such a change in rates would have on current fair value. The analysis presents the sensitivity of the fair value of the Company's financial instruments to selected changes in market rates and prices. The range of rates chosen reflects the Company's view of changes that the Company believes are reasonably possible over a one-year period. The Company's selection of the range of values chosen to represent changes in interest rates should not be construed as the Company's prediction of future market events, but rather, as an illustration of the impact of such events, should they occur. The equity portfolio was compared to the S&P 500 Index due to its correlation with the vast majority of the Company's current equity portfolio. The limited partnership portfolio was compared to the S&P 500 Index and ~~Indian~~the S&P BSE 500 Index due to their significant correlation with the vast majority of the Company's limited partnership portfolio. As previously indicated, several other factors can impact the fair values of fixed income investments and, therefore, significant variations in market interest rates could produce quite different results from the hypothetical estimates presented below.

~~- 34 -~~

The following tables present the estimated effects on the fair value of financial instruments at December 31, ~~2018~~2020 and ~~2017~~2019 due to an instantaneous increase in yield rates of 100 basis points and a 10% decline in the S&P 500 Index and the ~~Indian~~S&P BSE 500 Index (dollars in thousands).

			Increase (Decrease)								Increase (Decrease)
	Fair Value		Interest Rate Risk			Equity Risk			Fair Value		Interest Rate Risk			Equity Risk
2018
2020
Fixed income securities
Agency collateralized mortgage obligations									$	11,931	$	(495	)	$	–
Agency mortgage-backed securities										102,107		(2,076	)		–
Asset-backed securities										107,696		(1,703	)		–
Bank loans										11,361		(57	)		–
Collateralized mortgage obligations										5,118		(219	)		–
Corporate securities										360,241		(11,804	)		–
Mortgage-backed securities										38,056		(1,104	)		–
Municipal obligations										45,143		(2,137	)		–
Non-U.S. government obligations										30,600		(422	)		–
U.S. government obligations										207,439		(6,969	)		–
Total fixed income securities										919,692		(26,986	)		–
Equity securities:
Consumer										11,598		–			(1,160	)
Energy										1,227		–			(123	)
Financial										29,064		–			(2,906	)
Industrial										5,180		–			(518	)
Technology										2,851		–			(285	)
Other										8,249		–			(825	)
Total equity securities										58,169		–			(5,817	)
Limited partnerships										7,214		–			(494	)
Short-term										1,000		–			–
Total									$	986,075	$	(26,986	)	$	(6,311	)

2019
Fixed income securities
Agency collateralized mortgage obligations	$	10,687	$	(404	)	$	–		$	12,093	$	(414	)	$	–
Agency mortgage-backed securities		37,385		(2,012	)		–			56,280		(607	)		–
Asset-backed securities		64,422		(2,612	)		–			106,397		(691	)		–
Bank loans		9,750		(49	)		–			14,568		(73	)		–
Certificates of deposit		2,835		(48	)		–			2,835		(18	)		–
Collateralized mortgage obligations		5,423		(176	)		–			5,616		(166	)		–
Corporate securities		190,450		(5,417	)		–			281,381		(8,735	)		–
Mortgage-backed securities		38,540		(1,270	)		–			47,463		(1,682	)		–
Municipal obligations		29,155		(769	)		–			36,286		(1,618	)		–
Non-U.S. government obligations		25,180		(549	)		–			24,179		(480	)		–
U.S. government obligations		178,818		(5,864	)		–			208,440		(7,082	)		–
Total fixed income securities		592,645		(19,170	)		–			795,538		(21,566	)		–
Equity securities:
Consumer		17,945		–			(1,795	)		16,707		–			(1,671	)
Energy		3,179		–			(318	)		3,074		–			(307	)
Financial		25,253		–			(2,525	)		31,577		–			(3,158	)
Industrial		6,920		–			(692	)		4,927		–			(493	)
Technology		2,303		–			(230	)		2,817		–			(282	)
Funds (e.g. mutual funds, closed end funds, ETFs)		5,489		–			(549	)
Funds (e.g., mutual funds, closed end funds, ETFs)										9,460		–			(946	)
Other		5,333		–			(533	)		8,250		–			(825	)
Total equity securities		66,422		–			(6,642	)		76,812		–			(7,682	)
Limited partnerships		55,044		–			(4,022	)		23,292		–			(1,670	)
Short-term		1,000		–			–			1,000		–			–
Total	$	715,111	$	(19,170	)	$	(10,664	)	$	896,642	$	(21,566	)	$	(9,352	)

2017
Fixed income securities
Agency collateralized mortgage obligations	$	16,586	$	(820	)	$	–
Agency mortgage-backed securities		27,075		(1,103	)		–
Asset-backed securities		43,469		(1,381	)		–
Bank loans		19,488		(794	)		–
Certificates of deposit		3,135		(83	)		–
Collateralized mortgage obligations		6,492		(200	)		–
Corporate securities		198,349		(5,126	)		–
Mortgage-backed securities		24,204		(772	)		–
Municipal obligations		96,650		(1,861	)		–
Non-U.S. government obligations		37,394		(959	)		–
U.S. government obligations		49,011		(886	)		–
Total fixed income securities		521,853		(13,985	)		–
Equity securities:
Consumer		46,578		–			(4,658	)
Energy		10,278		–			(1,028	)
Financial		45,470		–			(4,547	)
Industrial		25,402		–			(2,540	)
Technology		13,061		–			(1,306	)
Funds (e.g. mutual funds, closed end funds, ETFs)		50,291		–			(5,029	)
Other		10,683		–			(1,068	)
Total equity securities		201,763		–			(20,176	)
Limited partnerships		70,806		–			(5,278	)
Short-term		1,000		–			–
Total	$	795,422	$	(13,985	)	$	(25,454	)

~~- 35 -~~

The following tables present the estimated effects on the fair value of financial instruments at December 31, ~~2018~~2020 and ~~2017~~2019 due to an instantaneous increase in yield rates of 150 basis points and a 15% decline in the S&P 500 Index and the ~~Indian~~S&P BSE 500 Index (dollars in thousands).

			Increase (Decrease)								Increase (Decrease)
	Fair Value		Interest Rate Risk			Equity Risk			Fair Value		Interest Rate Risk			Equity Risk
2018
2020
Fixed income securities
Agency collateralized mortgage obligations									$	11,931	$	(744	)	$	–
Agency mortgage-backed securities										102,107		(3,114	)		–
Asset-backed securities										107,696		(2,554	)		–
Bank loans										11,361		(85	)		–
Collateralized mortgage obligations										5,118		(328	)		–
Corporate securities										360,241		(17,708	)		–
Mortgage-backed securities										38,056		(1,655	)		–
Municipal obligations										45,143		(3,205	)		–
Non-U.S. government obligations										30,600		(633	)		–
U.S. government obligations										207,439		(10,454	)		–
Total fixed income securities										919,692		(40,480	)		–
Equity securities:
Consumer										11,598		–			(1,740	)
Energy										1,227		–			(184	)
Financial										29,064		–			(4,360	)
Industrial										5,180		–			(777	)
Technology										2,851		–			(428	)
Other										8,249		–			(1,237	)
Total equity securities										58,169		–			(8,726	)
Limited partnerships										7,214		–			(741	)
Short-term										1,000		–			–
Total									$	986,075	$	(40,480	)	$	(9,467	)

2019
Fixed income securities
Agency collateralized mortgage obligations	$	10,687	$	(607	)	$	–		$	12,093	$	(622	)	$	–
Agency mortgage-backed securities		37,385		(3,021	)		–			56,280		(911	)		–
Asset-backed securities		64,422		(3,917	)		–			106,397		(1,037	)		–
Bank loans		9,750		(73	)		–			14,568		(109	)		–
Certificates of deposit		2,835		(71	)		–			2,835		(27	)		–
Collateralized mortgage obligations		5,423		(263	)		–			5,616		(248	)		–
Corporate securities		190,450		(8,125	)		–			281,381		(13,103	)		–
Mortgage-backed securities		38,540		(1,904	)		–			47,463		(2,523	)		–
Municipal obligations		29,155		(1,154	)		–			36,286		(2,426	)		–
Non-U.S. government obligations		25,180		(824	)		–			24,179		(720	)		–
U.S. government obligations		178,818		(8,794	)		–			208,440		(10,623	)		–
Total fixed income securities		592,645		(28,753	)		–			795,538		(32,349	)		–
Equity securities:
Consumer		17,945		–			(2,692	)		16,707		–			(2,506	)
Energy		3,179		–			(477	)		3,074		–			(461	)
Financial		25,253		–			(3,788	)		31,577		–			(4,737	)
Industrial		6,920		–			(1,038	)		4,927		–			(739	)
Technology		2,303		–			(345	)		2,817		–			(423	)
Funds (e.g. mutual funds, closed end funds, ETFs)		5,489		–			(823	)
Funds (e.g., mutual funds, closed end funds, ETFs)										9,460		–			(1,419	)
Other		5,333		–			(800	)		8,250		–			(1,238	)
Total equity securities		66,422		–			(9,963	)		76,812		–			(11,523	)
Limited partnerships		55,044		–			(6,034	)		23,292		–			(2,506	)
Short-term		1,000		–			–			1,000		–			–
Total	$	715,111	$	(28,753	)	$	(15,997	)	$	896,642	$	(32,349	)	$	(14,029	)

2017
Fixed income securities
Agency collateralized mortgage obligations	$	16,586	$	(1,229	)	$	–
Agency mortgage-backed securities		27,075		(1,657	)		–
Asset-backed securities		43,469		(2,072	)		–
Bank loans		19,488		(1,192	)		–
Certificates of deposit		3,135		(125	)		–
Collateralized mortgage obligations		6,492		(299	)		–
Corporate securities		198,349		(7,690	)		–
Mortgage-backed securities		24,204		(1,158	)		–
Municipal obligations		96,650		(2,791	)		–
Non-U.S. government obligations		37,394		(1,438	)		–
U.S. government obligations		49,011		(1,329	)		–
Total fixed income securities		521,853		(20,980	)		–
Equity securities:
Consumer		46,578		–			(6,987	)
Energy		10,278		–			(1,542	)
Financial		45,470		–			(6,821	)
Industrial		25,402		–			(3,810	)
Technology		13,061		–			(1,959	)
Funds (e.g. mutual funds, closed end funds, ETFs)		50,291		–			(7,544	)
Other		10,683		–			(1,602	)
Total equity securities		201,763		–			(30,265	)
Limited partnerships		70,806		–			(7,916	)
Short-term		1,000		–			–
Total	$	795,422	$	(20,980	)	$	(38,181	)

~~- 36 -~~

ANNUAL REPORT ON FORM 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

YEAR ENDED DECEMBER 31, ~~2018~~2020

PROTECTIVE INSURANCE CORPORATION

CARMEL, INDIANA

~~- 37 -~~

~~Report of Independent Registered Public Accounting Firm~~

Report of Independent Registered Public Accounting FirmTo the Shareholders and the Board of Directors of Protective Insurance Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Protective Insurance Corporation and subsidiaries (the Company) as of December 31, ~~2018~~2020 and ~~2017,~~2019, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity and cash flows for each of the three years in the period ended December 31, ~~2018,~~2020, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, ~~2018~~2020 and ~~2017,~~2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2018,~~2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, ~~2018,~~2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March ~~7, 2019~~11, 2021 expressed an unqualified opinion thereon.

Adoption of ~~ASU~~Accounting Standards Update No. ~~2016-01~~2016-13

As discussed in Note A to the consolidated financial statements, the Company changed its method of accounting for the recognition and measurement of expected credit losses for certain types of financial instruments in ~~2018~~2020 due to the adoption of ~~ASU~~Accounting Standards Update No. ~~2016-01,~~ ~~Recognition and~~2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Assets and Financial Liabilities.~~Instruments. See below for a discussion of our related critical audit matter for the Personnel Staffing Group recoverable allowance.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the 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.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

~~/s/ ERNST & YOUNG LLP~~

		Valuation of Incurred but Not Reported Loss and Loss Expense Reserves

Description of the Matter		As of December 31, 2020, the liability for incurred but not reported loss and loss expense reserves, net of reinsurance (“IBNR”), represented a significant portion of the loss and loss expense reserve, net of reinsurance. As discussed in Note A and Note C to the consolidated financial statements, the carrying amount of the loss and loss expense reserve, net of reinsurance, is management’s best estimate of the ultimate liability for indemnity costs and related adjustment expense necessary to investigate and settle claims and is based upon individual case estimates for reported claims and actuarial estimates for IBNR. The estimate for IBNR is determined based on evaluations of individual reported claims and by actuarial estimation processes considering historical experience, relevant economic information, and available industry statistics. The IBNR estimate is driven by management’s expected loss ratio assumption, which is comprised of various factors, including historical payment patterns and expected future trends in claim severity and frequency. Auditing management’s best estimate of IBNR was complex and required the involvement of our actuarial specialists due to the significant measurement uncertainty associated with the estimation and high degree of subjectivity in management’s determination of the expected loss ratio assumption. Management’s expected loss ratio assumption has a significant effect on the valuation of IBNR.
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the process for estimating IBNR. These audit procedures included, among others, testing management’s review and approval controls over the expected loss ratio assumption for estimating IBNR. With the assistance of actuarial specialists, our audit procedures included, among others, an evaluation of the Company’s expected loss ratio assumption, which included a comparison of historical payment patterns, expected future trends in claim severity and frequency, and consideration of relevant economic information and other industry factors to our prior year analysis and actual current year loss activity. To evaluate the expected loss ratio assumption, we developed an independent range of reasonable reserve estimates that we compared to management’s best estimate of IBNR. We also analyzed year-to-year movements within our independently developed range. Additionally, we performed a review of the development of prior years’ reserve estimates.

		Personnel Staffing Group Recoverable Allowance

Description of the Matter		As of December 31, 2020, the Company has a recoverable due from a single customer, Personnel Staffing Group, for $47.3 million related to claims that have been paid or will be paid on behalf of Personnel Staffing Group by the Company for which the Company has recorded a $16.5 million credit impairment allowance. As discussed above and in Note A and Note T to the consolidated financial statements, the allowance amount is management’s best estimate of the ultimate credit impairment for the recoverable based on the expected timing and amount of cash flows from Personnel Staffing Group. This estimate is particularly sensitive to the default and recovery in default assumptions which have a significant impact on the allowance. These assumptions involve significant uncertainty and management judgment. Auditing management’s best estimate of the Personnel Staffing Group recoverable allowance (the allowance) required the involvement of our valuation specialists due to the significant measurement uncertainty associated with management’s estimation. The uncertainty is primarily driven by the high degree of subjectivity in management’s determination of the default and recovery in default assumptions.
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the process for estimating the allowance. These audit procedures included, among others, testing management review and approval controls over the assumptions for estimating the allowance. With the assistance of our valuation specialists, our audit procedures included, among others, reviewing contract terms between Personnel Staffing Group and the Company, reading minutes of the meetings of the committees of the board of directors, reading summaries of the lawsuits with Personnel Staffing Group, reviewing legal letters pertinent to the matter, reviewing historical bankruptcy data from similar entities within the industry, and evaluating the Company’s selection of methods used to estimate the allowance compared with those methods used in the industry for similar types of analyses. To evaluate the significant assumptions used by management, we compared the significant assumptions to industry data for entities with similar characteristics to Personnel Staffing Group and financial data specific to Personnel Staffing Group. With the assistance of the valuation specialists, we developed an independent range of reasonable allowance estimates that we compared to management’s best estimate.

We have served as the Company’s auditor since 1970.

/s/ ERNST & YOUNG LLP

Indianapolis, Indiana

March ~~7, 2019~~11, 2021

~~- 38 -~~

Consolidated Balance Sheets

Protective Insurance Corporation and Subsidiaries

(in thousands, except share data)

	December 31					December 31
	2018			2017		2020		2019
Assets
Investments:
Fixed income securities (Amortized cost: 2018, $600,504; 2017, $521,017)	$	592,645		$	521,853
Fixed income securities (Amortized cost: $894,468, $783,047; allowance for credit losses of $1,035 and $0)						$	919,692	$	795,538
Equity securities		66,422			201,763		58,169		76,812
Limited partnerships (Affiliated: 2018, $32,028; 2017, $43,586)		55,044			70,806
Commercial mortgage loans		6,672			–
Limited partnerships							7,214		23,292
Commercial mortgage loans (less allowance of $195 and $0)							10,602		11,782
Short-term and other		1,000			1,000		1,000		1,000
		721,783			795,422		996,677		908,424

Cash and cash equivalents		163,996			64,680		58,301		67,851
Restricted cash and cash equivalents		6,815			4,033		12,128		21,037
Accounts receivable--less allowance (2018, $403; 2017, $484)		102,972			87,551
Accounts receivable (less allowance of $19,960 and $2,233)							100,921		111,762
Accrued investment income		4,358			4,159		4,816		4,882
Reinsurance recoverable		392,436			318,331
Reinsurance recoverable (less allowance of $972 and $1,171)							455,564		432,067
Prepaid reinsurance premiums		6,095			4,578		11,747		5,820
Deferred policy acquisition costs		6,568			5,608		9,744		8,496
Property and equipment--less accumulated depreciation (2018, $19,531; 2017, $16,614)		46,645			47,317
Property and equipment (less accumulated depreciation of $25,959 and $20,091)							38,144		42,542
Other assets		24,760			18,399		25,805		24,566
Current federal income taxes recoverable		7,441			6,938
Current federal income taxes							0		4,878
Deferred federal income taxes		6,262			–		8,980		2,035
	$	1,490,131		$	1,357,016	$	1,722,827	$	1,634,360

Liabilities and Shareholders' Equity
Reserves:
Losses and loss expenses	$	865,339		$	680,274	$	1,089,669	$	988,305
Unearned premiums		71,625			53,085		63,731		74,810
		936,964			733,359		1,153,400		1,063,115

Reinsurance payable		66,632			62,308		76,617		65,835
Short-term borrowings		20,000			20,000		20,000		20,000
Depository liabilities		173			3,050		110		18
Accounts payable and other liabilities		110,280			105,130		108,852		121,076
Deferred federal income taxes		–			14,358
Current federal income taxes payable							766		0
		1,134,049			938,205		1,359,745		1,270,044
Shareholders' equity:
Common stock:
Class A voting -- authorized 3,000,000 shares; outstanding -- 2018 - 2,615,339; 2017 - 2,623,109 shares		112			112
Class B non-voting -- authorized 20,000,000 shares; outstanding -- 2018 - 12,253,922; 2017 - 12,423,518 shares		522			530
Class A voting -- authorized 3,000,000 shares; outstanding -- 2020 - 2,603,350; 2019 - 2,603,350 shares							111		111
Class B non-voting -- authorized 20,000,000 shares; outstanding -- 2020 - 11,674,345; 2019 - 11,675,956 shares							498		499
Additional paid-in capital		54,720			55,078		54,571		53,349
Accumulated other comprehensive income (loss)		(7,347	)		46,391
Accumulated other comprehensive income							21,759		9,369
Retained earnings		308,075			316,700		286,143		300,988
		356,082			418,811		363,082		364,316
	$	1,490,131		$	1,357,016	$	1,722,827	$	1,634,360

See notes to consolidated financial statements.

~~- 39 -~~49

Consolidated Statements of Operations

Protective Insurance Corporation and Subsidiaries

(in thousands, except per share data)

	Year Ended December 31									Year Ended December 31
	2018			2017			2016			2020			2019			2018
Revenue:
Net premiums earned	$	432,880		$	328,145		$	276,011		$	445,515		$	447,288		$	432,880
Net investment income		22,048			18,095			14,483			25,422			26,249			22,048
Commissions and other income		9,932			5,308			5,275			7,048			9,171			9,932
Net realized gains (losses) on investments, excluding impairment losses		(6,632	)		7,366			26,498			(6,876	)		2,455			(6,632	)
Other-than-temporary impairment losses on investments		(19	)		(149	)		(5,743	)
Impairment losses on investments											(2,861	)		(497	)		(19	)
Net unrealized gains (losses) on equity securities and limited partnership investments		(19,040	)		12,469			2,473			501			10,931			(19,040	)
Net realized and unrealized gains (losses) on investments		(25,691	)		19,686			23,228			(9,236	)		12,889			(25,691	)
		439,169			371,234			318,997			468,749			495,597			439,169
Expenses:
Losses and loss expenses incurred		345,864			247,518			186,481			318,958			348,468			345,864
Other operating expenses		137,177			113,594			89,462			143,428			138,456			137,177
		483,041			361,112			275,943			462,386			486,924			483,041
Income (loss) before federal income tax expense (benefit)		(43,872	)		10,122			43,054			6,363			8,673			(43,872	)

Federal income tax expense (benefit)		(9,797	)		(8,201	)		14,109			1,900			1,326			(9,797	)
Net income (loss)	$	(34,075	)	$	18,323		$	28,945		$	4,463		$	7,347		$	(34,075	)

Per share data:
Basic and diluted earnings (loss)	$	(2.28	)	$	1.21		$	1.92
Net income (loss) per share:
Basic										$	0.32		$	0.51		$	(2.28	)
Diluted										$	0.31		$	0.50		$	(2.28	)

Dividends paid to shareholders	$	$ 1.12		$	$ 1.08		$	$ 1.04
Weighted average number of shares outstanding:																��
Basic											14,140			14,521			14,965
Dilutive effect of share equivalents											130			99			n/a
Diluted											14,270			14,620			14,965

See notes to consolidated financial statements.

~~- 40 -~~50

Consolidated Statements of Comprehensive Income (Loss)

Protective Insurance Corporation and Subsidiaries

(in thousands)

	Year Ended December 31								Year Ended December 31
	2018			2017		2016			2020		2019		2018
Net income (loss)	$	(34,075	)	$	18,323	$	28,945		$	4,463	$	7,347	$	(34,075	)

Other comprehensive income (loss), net of tax:
Unrealized net gains (losses) on fixed income securities:
Unrealized net gains (losses) arising during the period		(9,680	)		17,340		8,618
Less: reclassification adjustment for net gains (losses) included in net income (loss)		(2,812	)		4,691		13,491
		(6,868	)		12,649		(4,873	)
Unrealized net gains (losses) on fixed income securities										12,141		16,071		(6,868	)

Foreign currency translation adjustments		(830	)		522		235			249		645		(830	)

Other comprehensive income (loss)		(7,698	)		13,171		(4,638	)		12,390		16,716		(7,698	)

Comprehensive income (loss)	$	(41,773	)	$	31,494	$	24,307		$	16,853	$	24,063	$	(41,773	)

See notes to consolidated financial statements.

~~- 41 -~~51

Consolidated Statements of Shareholders' Equity

Protective Insurance Corporation and Subsidiaries

(in thousands)

	Common Stock											Additional			Accumulated Other									Common Stock												Additional			Accumulated Other
	Class A					Class B						Paid-In			Comprehensive			Retained			Total			Class A						Class B						Paid-In			Comprehensive			Retained			Total
	Shares			Amount		Shares			Amount			Capital			Income (Loss)			Earnings			Equity			Shares			Amount			Shares			Amount			Capital			Income (Loss)			Earnings			Equity
Balance at January 1, 2016		2,623		$	112		12,403		$	529		$	52,946		$	37,858		$	303,053		$	394,498
Net income		–			–		–			–			–			–			28,945			28,945
Foreign currency translation adjustment, net of tax		–			–		–			–			–			235			–			235
Change in unrealized gain (loss) on investments, net of tax		–			–		–			–			–			(4,873	)		–			(4,873	)
Common stock dividends		–			–		–			–			–			–			(15,803	)		(15,803	)
Repurchase of common stock		–			–		–			–			–			–			–			–
Restricted stock grants		–			–		58			3			1,340			–			–			1,343
Balance at December 31, 2016		2,623			112		12,461			532			54,286			33,220			316,195			404,345
Net income		–			–		–			–			–			–			18,323			18,323
Foreign currency translation adjustment, net of tax		–			–		–			–			–			522			–			522
Change in unrealized gain (loss) on investments, net of tax		–			–		–			–			–			12,649			–			12,649
Common stock dividends		–			–		–			–			–			–			(16,302	)		(16,302	)
Repurchase of common stock		–			–		(85	)		(4	)		(360	)		–			(1,516	)		(1,880	)
Restricted stock grants		–			–		48			2			1,152			–			–			1,154
Balance at December 31, 2017		2,623			112		12,424			530			55,078			46,391			316,700			418,811
Balance at January 1, 2018																									2,623		$	112			12,424		$	530		$	55,078		$	46,391		$	316,700		$	418,811
Cumulative effect of adoption of ASU 2016-01, net of tax		–			–		–			–			–			(46,157	)		46,157			–			0			0			0			0			0			(46,157	)		46,157			0
Cumulative effect of adoption of ASU 2018-02		–			–		–			–			–			117			(117	)		–			0			0			0			0			0			117			(117	)		0
Net loss		–			–		–			–			–			–			(34,075	)		(34,075	)		–			0			–			0			0			0			(34,075	)		(34,075	)
Foreign currency translation adjustment, net of tax		–			–		–			–			–			(830	)		–			(830	)		–			0			–			0			0			(830	)		0			(830	)
Change in unrealized gain (loss) on investments, net of tax		–			–		–			–			–			(6,868	)		–			(6,868	)		–			0			–			0			0			(6,868	)		0			(6,868	)
Common stock dividends		–			–		–			–			–			–			(16,835	)		(16,835	)		–			0			–			0			0			0			(16,835	)		(16,835	)
Repurchase of common stock		(8	)		–		(192	)		(9	)		(832	)		–			(3,755	)		(4,596	)		(8	)		0			(192	)		(9	)		(832	)		0			(3,755	)		(4,596	)
Restricted stock grants		–			–		22			1			474			–			–			475			0			0			22			1			474			0			0			475
Balance at December 31, 2018		2,615		$	112		12,254		$	522		$	54,720		$	(7,347	)	$	308,075		$	356,082			2,615		$	112			12,254		$	522		$	54,720		$	(7,347	)	$	308,075		$	356,082
Net income																									–			0			–			0			0			0			7,347			7,347
Foreign currency translation adjustment, net of tax																									–			0			–			0			0			645			0			645
Change in unrealized gain (loss) on investments, net of tax																									–			0			–			0			0			16,071			0			16,071
Common stock dividends																									–			0			–			0			0			0			(5,857	)		(5,857	)
Repurchase of common stock																									(12	)		(1	)		(665	)		(27	)		(2,896	)		0			(8,577	)		(11,501	)
Restricted stock grants																									0			0			87			4			1,525			0			0			1,529
Balance at December 31, 2019																									2,603		$	111			11,676		$	499		$	53,349		$	9,369		$	300,988		$	364,316
Cumulative effect of adoption of ASU 2016-13, net of tax																									0			0			0			0			0			0			(12,281	)		(12,281	)
Net income																									–			0			–			0			0			0			4,463			4,463
Foreign currency translation adjustment, net of tax																									–			0			–			0			0			249			0			249
Change in unrealized gain (loss) on investments, net of tax																									–			0			–			0			0			12,141			0			12,141
Common stock dividends																									–			0			–			0			0			0			(5,813	)		(5,813	)
Repurchase of common stock																									0			0			(127	)		(5	)		(563	)		0			(1,214	)		(1,782	)
Restricted stock grants																									0			0			126			4			1,785			0			0			1,789
Balance at December 31, 2020																									2,603		$	111			11,675		$	498		$	54,571		$	21,759		$	286,143		$	363,082

See notes to consolidated financial statements.

~~- 42 -~~52

Consolidated Statements of Cash Flows

Protective Insurance Corporation and Subsidiaries

(in thousands)

	Year Ended December 31									Year Ended December 31
	2018			2017			2016			2020			2019			2018
Operating activities
Net income (loss)	$	(34,075	)	$	18,323		$	28,945		$	4,463		$	7,347		$	(34,075	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Change in accounts receivable and unearned premium		(3,904	)		2,678			(2,721	)		(9,024	)		(3,835	)		(3,904	)
Change in accrued investment income		(199	)		(278	)		108			65			(524	)		(199	)
Change in reinsurance recoverable on paid losses		956			(446	)		692			(3,799	)		(19,083	)		956
Change in losses and loss expenses reserves, net of reinsurance		117,027			47,229			23,568			75,103			100,648			117,027
Change in other assets, other liabilities and current income taxes		8,204			49,221			(8,063	)		(2,322	)		10,140			8,204
Amortization of net policy acquisition costs		54,981			47,387			18,085			55,183			55,802			54,981
Net policy acquisition costs deferred		(55,940	)		(51,824	)		(17,813	)		(56,431	)		(57,731	)		(55,940	)
Provision for deferred income tax expense (benefit)		(18,794	)		(3,866	)		2,838			(5,244	)		(51	)		(18,794	)
Bond amortization		184			1,865			3,030			(26	)		(725	)		184
Loss on sale of property and equipment		–			235			63
Depreciation		6,102			5,752			5,521			5,869			6,052			6,102
Net realized (gains) losses on investments		25,691			(19,686	)		(23,228	)
Net realized and unrealized (gains) losses on investments											9,236			(12,889	)		25,691
Compensation expense related to restricted stock		475			1,154			1,343			1,789			1,529			475
Net cash provided by operating activities		100,708			97,744			32,368			74,862			86,680			100,708

Investing activities
Purchases of fixed maturities and equity securities		(415,326	)		(436,932	)		(400,670	)
Purchases of fixed income securities and equity securities											(392,223	)		(423,544	)		(415,326	)
Purchases of limited partnership interests		(450	)		(1,097	)		–			0			0			(450	)
Distributions from limited partnerships		6,869			19,230			1,462			14,636			33,396			6,869
Proceeds from maturities		64,035			131,623			78,691			136,390			84,387			64,035
Proceeds from sales of fixed maturities		241,429			148,652			199,790
Proceeds from sales of fixed income securities											103,938			139,310			241,429
Proceeds from sales of equity securities		149,195			69,756			88,773			51,713			21,621			149,195
Net sales of short-term investments		–			500			11,258
Purchase of insurance company-owned life insurance		(10,000	)		–			–			0			0			(10,000	)
Purchase of commercial mortgage loans		(6,672	)		–			–			(555	)		(7,082	)		(6,672	)
Proceeds from commercial mortgage loans											1,539			1,972			0
Purchases of property and equipment		(5,439	)		(6,661	)		(7,725	)		(1,470	)		(1,953	)		(5,439	)
Proceeds from disposals of property and equipment		10			582			1,059			0			3			10
Net cash provided by (used in) investing activities		23,651			(74,347	)		(27,362	)		(86,032	)		(151,890	)		23,651

Financing activities
Dividends paid to shareholders		(16,835	)		(16,302	)		(15,803	)		(5,692	)		(5,857	)		(16,835	)
Repurchase of common shares		(4,596	)		(1,880	)		–			(1,782	)		(11,501	)		(4,596	)
Net cash used in financing activities		(21,431	)		(18,182	)		(15,803	)		(7,474	)		(17,358	)		(21,431	)

Effect of foreign exchange rates on cash and cash equivalents		(830	)		522			235			185			645			(830	)

Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents		102,098			5,737			(10,562	)		(18,459	)		(81,923	)		102,098
Cash, cash equivalents and restricted cash and cash equivalents at beginning of year		68,713			62,976			73,538			88,888			170,811			68,713
Cash, cash equivalents and restricted cash and cash equivalents at end of year	$	170,811		$	68,713		$	62,976		$	70,429		$	88,888		$	170,811

Supplemental Disclosures of Cash Flow Information
Cash paid for income taxes, net of refunds	$	9,500		$	–		$	10,173
Cash paid (refunds received) for income taxes										$	1,500		$	(1,186	)	$	9,500
Cash paid for interest	$	504		$	456		$	309		$	433		$	723		$	504

See notes to consolidated financial statements.

~~- 43 -~~53

Notes to Consolidated Financial Statements

Protective Insurance Corporation and Subsidiaries

(All dollars amounts presented in these notes are in thousands, except share and per share data)

Note A - Summary of Significant Accounting Policies

Description of Business: Protective Insurance Corporation ~~(formerly Baldwin & Lyons, Inc.)~~ (the "Company"), based in Carmel, Indiana, is a property-casualty insurer specializing in marketing and underwriting property, liability and workers' compensation coverage for trucking and public transportation fleets, as well as coverage for trucking industry independent contractors. ~~In addition, the~~The Company offers ~~workers' compensation coverage for a variety of operations outside the transportation industry. The Company operates as one reportable property and casualty insurance segment, offering~~ a range of products and services, the most significant being commercial automobile and workers' compensation insurance products. The Company operates as 1 reportable property and casualty insurance segment based on how its operating results are regularly reviewed by its chief operating decision maker when making decisions about how resources are allocated and assessing performance.

The term “Insurance Subsidiaries,” as used throughout ~~these notes,~~this Annual Report on Form 10-K, refers to Protective Insurance Company, Protective Specialty Insurance Company, Sagamore Insurance Company and B&L Insurance, Ltd.

Effective August 1, 2018, the Company changed its name to Protective Insurance Corporation to better align its holding company's and Insurance Subsidiaries' identities and to reflect its position within the insurance industry.

Effective January 1, 2017, the Company determined that its business constituted one reportable property and casualty insurance segment. During 2016 and prior years, the Company had two reportable segments – property and casualty insurance and reinsurance. The Company moved to a single reportable segment based on how its operating results are regularly reviewed by the Company's chief operating decision maker when making decisions about how resources are allocated and assessing performance.

Basis of Presentation: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Inter-company transactions and accounts have been eliminated in consolidation.

Use of Estimates: Preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results will differ from those estimates.

Cash and Cash Equivalents: The Company considers investments in money market funds to be cash equivalents. Carrying amounts for these instruments approximate their fair values.

Investments: Carrying amounts for fixed income securities represent fair value and are based on quoted market prices, where available, or broker/dealer quotes for specific securities where quoted market prices are not available. Equity securities are carried at quoted market prices (fair value).

Commercial mortgage loans are carried primarily at amortized cost along with ~~a valuation~~an allowance for losses when necessary. These investments represent interests in commercial mortgage loans originated and serviced by a third party of which the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgage loans. ~~There was no valuation~~The Company recorded an allowance of $195 on ~~the Company's~~its commercial mortgage loans as of December 31, ~~2018.~~ 2020 in conjunction with the adoption of the credit losses accounting standard discussed below.

The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to record its proportionate share of the limited partnership's net income. To the extent the limited partnerships include both realized and unrealized investment gains or losses in the determination of net income or loss, then the Company would also recognize, through its consolidated statements of operations, its proportionate share of the investee's unrealized, as well as realized, investment gains or losses within net unrealized gains (losses) on equity securities and limited partnership investments.

Short-term and other investments are carried at cost, which approximates their fair values.

Fixed income securities are considered to be available-for-sale. The related unrealized net gains or losses (net of applicable tax effects) on fixed income securities are reflected directly in other comprehensive income (loss) within shareholders' equity. Included within available-for-sale fixed income securities are convertible debt securities. A portion of the changes in the fair values of convertible debt securities is reflected as a component of net realized gains (losses) on investments, excluding impairment losses within the consolidated statements of operations. Realized gains and losses on disposals of fixed income securities are recorded on the trade date. Realized gains and losses on fixed income securities are determined by the specific identification of the cost of investments sold and are included in net realized gains (losses) on investments, excluding impairment losses.

~~Effective January 1, 2018, equity~~

Equity securities are recorded at fair value, with unrealized net gains or losses reflected as a component of net unrealized gains (losses) on equity securities and limited partnership investments within the consolidated statements of operations. Realized gains and losses on disposals of equity securities are recorded on the trade date and included in net realized gains (losses) on investments, excluding impairment losses. Prior to adoption of the new accounting guidance, unrealized gains and losses related to equity securities were reflected directly in shareholders’ equity unless a decline in value was determined to be other-than-temporary, in which case the loss was charged to income.

~~- 44 -~~

~~In accordance with the Financial Accounting Standards Board's ("FASB") other-than-temporary impairment guidance, if~~Investment Impairments: For a fixed income security is in an unrealized loss position ~~and~~where the Company has the intent to sell the fixed income security, or it is more likely than not that the Company will have to sell the fixed income security before recovery of its amortized cost basis, the decline in value is ~~deemed to be other-than-temporary and is~~ recorded ~~to other-than-temporary~~within impairment losses on investments in the consolidated statements of operations. The new cost basis of the investment is the previous amortized cost basis less the impairment recognized. The new cost basis is not adjusted for any subsequent recoveries in fair value.

For ~~impaired~~a fixed income ~~securities~~security that the Company does not intend to sell or in cases where it is more likely than not that the Company will not have to sell ~~such securities, but~~the security, the Company ~~expects that it will not fully recover~~separates the ~~amortized cost basis, the~~ credit loss component of the ~~other-than-temporary~~ impairment ~~is recognized in other-than-temporary~~from the amount related to all other factors and reports the credit loss component within net realized gains (losses) on investments, excluding impairment losses ~~on investments~~ in the consolidated statements of ~~operations~~operations. The impairment related to all other factors (non-credit factors) is reported in other comprehensive income (loss). The allowance is adjusted for any additional credit losses and subsequent recoveries. Upon recognizing a credit loss, the ~~non-credit component~~cost basis is not adjusted.

security, focusing on those below investment grade, with emphasis on securities downgraded below investment grade. The credit ~~component of an other-than-temporary impairment~~loss is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed income security. The net present value is calculated by discounting the Company's best estimate of projected future cash flows at the appropriate effective interest rate. Additionally, the Company may conclude that a qualitative analysis is sufficient to support its conclusion that the present value of the expected cash flows equals or exceeds a security’s amortized cost.

The Company reports investment income due and accrued separately from available-for-sale fixed income securities and has elected not to measure an allowance for credit losses for investment income due and accrued. Investment income due and accrued is written off through net realized gains (losses) on investments, excluding impairment losses at the time the issuer defaults or is expected to default on payments.

Deductible Receivables: Under certain workers’ compensation insurance contracts with deductible features, the Company is obligated to pay the claimant for the full amount of the claim. The Company is subsequently reimbursed by the policyholder for the deductible amount. These amounts are included on a net of allowance basis in the consolidated balance sheets within accounts receivable. The allowance is based upon the Company’s ongoing review of amounts outstanding, changes in policyholder credit standing, and other relevant factors. A probability-of-default methodology, which reflects current and forecasted economic conditions, is used to estimate the allowance for expected credit losses for uncollateralized deductible receivables. As of December 31, 2020, the Company recorded an allowance for expected credit losses of $16,500 ($13,035, net of tax). See Note T – Litigation, Commitments and Contingencies for further discussion.

Property and Equipment: Property and equipment are carried at cost, less accumulated depreciation. Depreciation is computed principally by the straight-line method.

Goodwill and Other Intangible Assets: Goodwill is not amortized. Rather, it is tested for impairment in accordance with FASB guidance, at the reporting-unit level. Goodwill is tested annually (during the fourth quarter) or more often if events or circumstances, such as adverse changes in the business climate, indicate there may be impairment. As a result of the impairment analysis conducted by the Company inIn the fourth quarter of 2018, the Company concluded the entire goodwill balance was impaired, resulting in an impairment loss of $3,152. See Note M for further discussion. This impairment charge is included within other operating expenses in the consolidated ~~statements~~statement of ~~operations.~~operations for the year ended December 31, 2018. Intangible assets determined to have finite lives, such as customer relationships and employment agreements, are amortized over their estimated useful lives in a manner that best reflects the economic benefits of the intangible asset. In addition, impairment testing is performed on these amortizing intangible assets if impairment indicators are noted..

Reserves for Losses and Loss Expenses: The reserves for losses and loss expenses are determined using case basis evaluations and statistical analyses and represent estimates of the ultimate cost of all reported and unreported losses which are unpaid at year-end. These reserves include estimates of future trends in claim severity and frequency and other factors which could vary as the losses are ultimately settled. While actual results will differ from such estimates, management believes that the reserves for losses and loss expenses are adequate. The estimates are continually reviewed, and as adjustments to these reserves become necessary, such adjustments are reflected in current operations.

Recognition of Revenue and Costs: Premiums are earned over the period for which insurance protection is provided. A reserve for unearned premiums ~~computed by the daily pro-rata method,~~ is established to reflect amounts applicable to subsequent accounting periods. Commissions to unaffiliated companies and premium taxes applicable to unearned premiums are deferred and expensed as the related premiums are earned. The Company does not defer acquisition costs that are not directly variable with the production of ~~premium.~~premiums. If it is determined that expected losses and deferred expenses will likely exceed the related unearned premiums, the asset representing deferred policy acquisition costs is reduced and an expense is charged against current operations to reflect any such premium deficiency. In the event that the expected premium deficiency exceeds deferred policy acquisition costs, an additional liability would be recorded with a corresponding expense to current operations for the amount of the excess premium deficiency. Anticipated investment income is considered in determining recoverability of deferred acquisition costs. The Company had no material contract assets, contract liabilities, or deferred contract costs recorded on its consolidated balance sheet at December 31, ~~2018.~~2020.

Reinsurance: Reinsurance premiums, commissions, expense reimbursements and reserves related to the Company's reinsured business are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums ceded to other insurers have been reported as a reduction of ~~premium~~premiums earned. Amounts applicable to reinsurance ceded for unearned ~~premium~~premiums and claim loss reserves have been reported as reinsurance recoverable assets. Certain reinsurance contracts provide for additional or return premiums and commissions based upon profits or losses to the reinsurer over prescribed periods. Estimates of additional or return premiums and commissions are adjusted quarterly to recognize actual loss experience to date, as well as projected loss experience applicable to the various contract periods. Estimates of reinstatement premiums onreinsurance contracts covering catastrophic events are, to the extent reasonably determinable, recorded concurrently with the related loss.

Should impairment in the ability of a reinsurer to satisfy its obligations to the Company be determined to exist, current year operations would be charged in amounts sufficient to provide for the Company's additional liability. Such charges, when incurred, are included in other operating expenses, rather than losses and loss expenses incurred, because the inability of the Company to collect from reinsurers is a credit risk rather than a deficiency associated with the loss reserving process.

~~- 45 -~~

Deferred Taxes: Deferred income tax assets and liabilities are recognized for temporary differences between the financial statement and tax return bases of assets and liabilities based on enacted tax rates and laws. The deferred tax benefits of the deferred tax assets are recognized to the extent realization of such benefits is more likely than not. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred income tax expense or benefit generally represents the net change in deferred income tax assets and liabilities during the year. Current income tax expense represents the tax liability associated with revenues and expenses currently taxable or deductible on various income tax returns for the year reported.

Restricted Stock: Shares of restricted stock vest over the vesting period from the date of grant and certain shares of restricted stock are accelerated for retirement-eligible recipients in accordance with the non-substantive, post-grant date vesting clause of Accounting Standards Codification ("ASC") Topic 715, Compensation—Retirement Benefits. Restricted stock is valued based on the closing price of the Company's Class B Common Stock on the day the award is granted. Non-vested shares of restricted stock will be forfeited should an executive's employment terminate for any reason other than death, disability, or retirement as defined by the Compensation Committee (the "Compensation Committee") of the Board of Directors (the "Board") of the Company.

Earnings (Loss) Per Share: Diluted earnings (loss) per share of common stock are based on the average number of shares of Class A and Class B Common Stock outstanding during the year, adjusted for the dilutive effect, if any, of restricted stock awards outstanding. Basic earnings (loss) per share are presented exclusive of the effect of share-based awards outstanding.

Comprehensive Income (Loss): The Company records accumulated other comprehensive income (loss) from unrealized gains and losses on available-for-sale securities and from foreign exchange adjustments as a separate component of shareholders' equity. A reclassification adjustment to other comprehensive income (loss) is made for gains or losses during the period included in net income (loss).

Fair Value Measurements: The Company provides disclosures related to recurring and non-recurring fair value measurements with separate disclosures for the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements, along with an explanation for the transfers. Additionally, separate disclosures are provided for purchases, sales, issuances and settlements on a gross basis for Level 3 fair value measurements as well as additional clarification for both the level of disaggregation reported for each class of assets or liabilities and disclosures of inputs and valuation techniques used to measure fair value for both recurring and non-recurring fair value measurements for assets and liabilities categorized as Level 2 or Level 3.

Insurance Company-Owned Life Insurance: Included within other assets on the consolidated balance ~~sheet~~sheets at December 31, ~~2018 is $10,000~~2020 and 2019 was $11,458 and $11,049 of ~~insurance~~ company-owned life insurance. The carrying value of the company-owned life insurance policies represents the cash surrender value as reported by the respective insurer, which approximates fair value.

Recently Adopted Accounting ~~Pronouncements~~

In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, as amended by subsequently issued ASUs, to clarify the principles for recognizing revenue. While insurance contracts are not within the scope of this updated guidance, the Company's commission and fee income, other than that directly associated with insurance contracts, is subject to this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to the first quarter of 2018. The Company adopted the new guidance as of January 1, 2018. The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements. The Company had no material contract assets, contract liabilities, or deferred contract costs recorded on its consolidated balance sheet at December 31, 2018.

Pronouncements:In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01. The amendments in ASU 2016-01 changed the accounting for non-consolidated equity investments that are not accounted for under the equity method of accounting by requiring changes in fair value to be recognized in income. Previously, the Company's equity securities were classified as available-for-sale and changes in fair value were recognized in accumulated other comprehensive income (loss) as a component of shareholders' equity. The Company adopted ASU 2016-01 as of January 1, 2018 using the modified retrospective approach and recorded a cumulative-effect adjustment to reclassify unrealized gains on equity securities of $71,012 ($46,157, net of tax) from other comprehensive income (loss) to retained earnings within the consolidated balance sheet as of December 31, 2018. ~~Going forward, unrealized~~Unrealized gains or losses on equity securities ~~will be~~are now recognized in the consolidated statements of operations within net unrealized gains (losses) on equity securities and limited partnership investments.

~~- 46 -~~

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, or ASU 2016-15. This update addresses the presentation and classification on the statement of cash flows for eight specific items, with the objective of reducing existing diversity in practice in how certain cash receipts and cash payments are presented and classified. The Company adopted ASU 2016-15 as of January 1, 2018. The adoption of the new guidance did not have a material impact on the Company's consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This update amends ASC Topic 230 to add and clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The guidance requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance was applied retrospectively. The Company adopted the new guidance as of January 1, 2018 and made an adjustment within net cash provided by operating activities on the consolidated statement of cash flows for the year ended December 31, 2017 to reflect $4,000 of restricted cash, which was classified within restricted cash and short-term investments on the December 31, 2017 consolidated balance sheet. The Company also changed the presentation of restricted cash and cash equivalents on its consolidated balance sheets to reflect this amount on a separate line. The adoption of the new guidance did not have an impact on the Company's consolidated statements of operations.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). This ASU allows for the option to reclassify, from accumulated other comprehensive income (loss) to retained earnings, stranded tax effects resulting from the newly enacted federal corporate income tax rate in the U.S. Tax Cuts and Jobs Act of 2017 (the "U.S. Tax Act"), which was enacted on December 22, 2017. The legislation included a reduction to the corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. The amount of the reclassification was the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate. The Company adopted the new guidance in the first quarter of 2018 and recorded a cumulative-effect adjustment to reclassify the tax effects on fixed income investments of $117 from other comprehensive income (loss) to retained earnings within the consolidated balance sheet as of December 31, 2018.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, or ASU 2017-04. This amendment removes Step 2 of the goodwill impairment test under current guidance. The new guidance requires an impairment charge to be recognized for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted. The Company adopted the new guidance in the fourth quarter of 2018 and recognized an impairment charge of $3,152 related to the impairment of goodwill. See Note M for further discussion.

~~Recently Issued Accounting Pronouncements~~

In February 2016, the FASB issued ~~ASU~~Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), or ASU 2016-02. ASU 2016-02 superseded the ~~current~~prior lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees are required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees are required to recognize a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The guidance ~~provides~~provided for a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, or ASU 2018-11, which provided adopters an additional transition method by allowing entities to initially apply ASU 2016-02, and subsequent related standards, at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the new guidance on January 1, 2019 utilizing the transition method allowed per ASU 2018-11, and accordingly, comparative period financial information ~~will~~was not be adjusted for the effects of the new guidance. No cumulative-effect adjustment was required to the opening balance of retained earnings on the adoption date. The ~~Company has substantially completed an assessment~~Company's adoption of the new ~~standard’s impact and determined the new~~ standard ~~will~~did not have ~~a material~~any impact on the Company's consolidated statements of operations or cash ~~flows; however,~~flows. As of December 31, 2020 the ~~estimated impact of adopting the new guidance will result in~~Company had a right-of-use asset and a lease liability ~~being~~ recorded onwithin the consolidated balance ~~sheets subsequent to December 31, 2018~~sheet, each of approximately ~~$400 based~~$120, which are included within other assets and accounts payable and other liabilities.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements. This update provided clarification, corrected errors in and made minor improvements to various ASC topics. Many of the amendments in this update had transition guidance with effective dates for annual periods beginning after December 15, 2018, and some amendments in this update did not require transition guidance and were effective upon issuance of this update. The adoption of this standard did not have a material impact on the ~~lease portfolio existing as of the date of this Annual Report on Form 10-K.~~ Company's consolidated financial statements.

~~- 47 -~~

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ~~This update introduces~~ASU 2016-13 introduced a current expected credit loss (CECL) model for measuring expected credit losses for certain types of financial instruments held at the reporting date requiring significant judgment in application based on historical experience, current conditions and reasonable supportable ~~forecasts. ASU 2016-13 replaces~~forecasts, but is not prescriptive about certain aspects of estimating expected losses. The guidance replaced the current incurred loss model for measuring expected credit losses ~~requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities,~~ and ~~provides~~provided for additional disclosure requirements. Subsequently, the FASB issued additional ASUs on Topic 326 that did not change the core principle of the guidance in ASU 2016-13, ~~is effective for interim~~but provided clarification and annual reporting periods beginning after December 15, 2019, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the effects the adoptionimplementation guidance on certain aspects of ASU 2016-13, and have the same effective date and transition requirements as ASU 2016-13. The Company adopted the guidance using a modified retrospective approach as of January 1, 2020 and recognized an pre-tax cumulative effect adjustment of $15,545 ($12,281, net of tax), to the opening balance of retained earnings. The adjustment was primarily related to estimating credit losses on the Company’s accounts receivable balances, reinsurance recoverable balances and commercial mortgage loans at the date of adoption with $15,000 ($11,850, net of tax) attributed to the ongoing litigation with Personnel Staffing Group ("PSG") discussed in Note T - Litigation, Commitments and Contingencies.

The updated guidance in ASU 2016-13 also amended the previous other-than-temporary impairment (“OTTI”) model for available-for-sale fixed income securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will ~~have~~no longer impact the determination of whether a credit loss exists. The Company adopted the guidance related to available-for-sale fixed income securities on ~~its consolidated financial statements.~~

~~In July 2018,~~January 1, 2020 using a prospective transition approach for available-for-sale fixed income securities that were purchased with credit deterioration or had recognized an OTTI write-down prior to the ~~FASB issued ASU No. 2018-09, Codification Improvements. This update provides clarification, corrects errors in and makes minor improvements to various ASC topics. Many~~effective date. The effect of the ~~amendments in this update have~~prospective transition ~~guidance with~~approach was to maintain the same amortized cost basis before and after the effective dates for annual periods beginning after December 15, 2018 and some amendments in this update do not require transition guidance and were effective upon issuance of this update. The Company will adopt amendments as they become applicable. The Company has determined that the impact of these improvements will not be material to its consolidated financial statements.date.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. This update ~~removes~~removed the disclosure requirements for the amounts of and the reasons for transfers between Level 1 and Level 2 and disclosure of the policy for timing of transfers between levels. This update also ~~removes~~removed disclosure requirements for the valuation processes for Level 3 fair value measurements. Additionally, this update ~~adds~~added disclosure requirements for the changes in unrealized gains and losses for recurring Level 3 fair value measurements and quantitative information for certain unobservable inputs in Level 3 fair value measurements. The Company adopted ASU 2018-13 ~~is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating~~as of January 1, 2020. As the ~~effects~~requirements of this guidance are applicable to disclosure only, the adoption of ASU 2018-13 ~~will have~~had no material impact on the Company's consolidated financial statements.

Recently Issued Accounting Pronouncements: In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12. Among other items, the amendments in ASU 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipated loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year. ASU 2019-12 removes this exception and provides that in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate. ASU 2019-12 became effective on January 1, 2021 and is not expected to have a material effect on the Company's consolidated financial statements.

~~- 48 -~~

Note B - Investments

The following is a summary of available-for-sale securities at December 31:

	Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gains (Losses)			Fair Value		Cost or Amortized Cost		Allowance for Credit Losses			Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gains (Losses)
December 31, 2018 ⁽¹⁾
December 31, 2020
Fixed income securities
Agency collateralized mortgage obligations	$	10,687	$	10,636	$	145	$	(94	)	$	51		$	11,931	$	11,448	$	0		$	483	$	0		$	483
Agency mortgage-backed securities		37,385		37,168		371		(154	)		217			102,107		99,060		0			3,062		(15	)		3,047
Asset-backed securities		64,422		66,241		14		(1,833	)		(1,819	)		107,696		108,686		0			596		(1,586	)		(990	)
Bank loans		9,750		10,208		27		(485	)		(458	)		11,361		11,590		0			128		(357	)		(229	)
Certificates of deposit		2,835		2,835		–		–			–
Collateralized mortgage obligations		5,423		5,095		376		(48	)		328			5,118		5,061		0			151		(94	)		57
Corporate securities		190,450		196,925		127		(6,602	)		(6,475	)		360,241		344,059		0			16,380		(198	)		16,182
Mortgage-backed securities		38,540		38,586		377		(423	)		(46	)		38,056		40,675		(1,035	)		659		(2,243	)		(1,584	)
Municipal obligations		29,155		29,102		239		(186	)		53			45,143		43,353		0			1,820		(30	)		1,790
Non-U.S. government obligations		25,180		25,339		6		(165	)		(159	)		30,600		29,882		0			718		0			718
U.S. government obligations		178,818		178,369		1,252		(803	)		449			207,439		200,654		0			7,000		(215	)		6,785
Total fixed income securities	$	592,645	$	600,504	$	2,934	$	(10,793	)	$	(7,859	)	$	919,692	$	894,468	$	(1,035	)	$	30,997	$	(4,738	)	$	26,259

	Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gains (Losses)			Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gains (Losses)
December 31, 2017
December 31, 2019
Fixed income securities
Agency collateralized mortgage obligations	$	16,586	$	15,839	$	818	$	(71	)	$	747		$	12,093	$	11,557	$	536	$	0		$	536
Agency mortgage-backed securities		27,075		27,180		47		(152	)		(105	)		56,280		54,286		2,005		(11	)		1,994
Asset-backed securities		43,469		42,861		749		(141	)		608			106,397		107,028		499		(1,130	)		(631	)
Bank loans		19,488		19,271		266		(49	)		217			14,568		14,932		106		(470	)		(364	)
Certificates of deposit		3,135		3,124		11		–			11			2,835		2,835		0		0			0
Collateralized mortgage obligations		6,492		6,079		451		(38	)		413			5,616		5,123		493		0			493
Corporate securities		198,349		198,419		1,602		(1,672	)		(70	)		281,381		274,340		7,492		(451	)		7,041
Mortgage-backed securities		24,204		23,656		933		(385	)		548			47,463		46,685		1,047		(269	)		778
Municipal obligations		96,650		97,059		322		(731	)		(409	)		36,286		35,749		684		(147	)		537
Non-U.S. government obligations		37,394		37,971		475		(1,052	)		(577	)		24,179		23,889		290		0			290
U.S. government obligations		49,011		49,558		–		(547	)		(547	)		208,440		206,623		2,891		(1,074	)		1,817
Total fixed income securities		521,853		521,017		5,674		(4,838	)		836		$	795,538	$	783,047	$	16,043	$	(3,552	)	$	12,491
Equity securities:
Consumer		46,578		23,565		24,031		(1,018	)		23,013
Energy		10,278		6,763		3,602		(87	)		3,515
Financial		45,470		31,859		13,937		(326	)		13,611
Industrial		25,402		8,949		16,793		(340	)		16,453
Technology		13,061		5,768		7,401		(108	)		7,293
Funds (e.g. mutual funds, closed end funds, ETFs)		50,291		46,177		4,153		(39	)		4,114
Other		10,683		7,670		3,313		(300	)		3,013
Total equity securities		201,763		130,751		73,230		(2,218	)		71,012

Total	$	723,616	$	651,768	$	78,904	$	(7,056	)	$	71,848

~~(1)~~

Effective January 1, 2018, the Company adopted ASU 2016-01 and equity securities are no longer classified as available-for-sale. Prior periods have not been restated to conform to the current presentation. See Note A – Summary of Significant Accounting Policies — Recently Adopted Accounting Pronouncements for further discussion.

~~- 49 -~~

The following table summarizes, for available-for-sale fixed ~~maturities in an unrealized loss position at December 31, 2018 and available-for-sale fixed maturities and equity~~income securities in an unrealized loss position at December 31, ~~2017, respectively,~~2020 and December 31, 2019, the aggregate fair value and gross unrealized loss categorized by the duration individual securities have been continuously in an unrealized loss position.

	2018							2017							2020							2019
	Number of Securities		Fair Value		Gross Unrealized Loss			Number of Securities		Fair Value		Gross Unrealized Loss			Number of Securities		Fair Value		Gross Unrealized Loss			Number of Securities		Fair Value		Gross Unrealized Loss
Fixed income securities:
12 months or less		275	$	282,646	$	(7,296	)		459	$	313,421	$	(2,683	)		100	$	120,630	$	(3,405	)		88	$	108,387	$	(2,452	)
Greater than 12 months		217		131,001		(3,497	)		112		75,638		(2,155	)		24		33,065		(1,333	)		69		66,860		(1,100	)
Total fixed income securities		492		413,647		(10,793	)		571		389,059		(4,838	)		124	$	153,695	$	(4,738	)		157	$	175,247	$	(3,552	)
Equity securities ⁽¹⁾:
12 months or less		–		–		–			65		46,654		(2,218	)
Greater than 12 months		–		–		–			–		–		–
Total equity securities		–		–		–			65		46,654		(2,218	)
Total		492	$	413,647	$	(10,793	)		636	$	435,713	$	(7,056	)

~~(1)~~

Unrealized losses in the Company's fixed income portfolio are generally the result of interest rate or foreign currency fluctuations. The Company does not intend to sell any fixed income securities in an unrealized loss position at December 31, 2018, and it is not more likely than not that the Company will have to sell any such fixed income security before recovery of its amortized cost basis. Accordingly, the Company does not believe any unrealized losses represent other-than-temporary impairments as of December 31, 2018.

The fair value and the cost or amortized ~~cost~~costs of fixed income investments at December 31, ~~2018,~~2020, organized by contractual maturity, are shown below. Actual maturities may ultimately differ from contractual maturities because borrowers have, in some cases, the right to call or prepay obligations with or without call or prepayment penalties. Pre-refunded municipal bonds are classified based on their pre-refunded call dates.

	Fair Value				Cost or Amortized Cost				Fair Value				Cost or Amortized Cost
One year or less	$	45,858	7.7	%	$	46,150	7.7	%	$	117,017	12.7	%	$	115,774	12.9	%
Excess of one year to five years		287,506	48.5			290,743	48.4			359,314	39.1			346,150	38.7
Excess of five years to ten years		101,605	17.1			104,571	17.4			161,700	17.6			151,446	16.9
Excess of ten years		6,641	1.2			6,410	1.1			21,871	2.4			22,264	2.6
Total contractual maturities		441,610	74.5			447,874	74.6			659,902	71.8			635,634	71.1
Asset-backed securities		151,035	25.5			152,630	25.4			259,790	28.2			258,834	28.9
Total	$	592,645	100.0	%	$	600,504	100.0		$	919,692	100.0	%	$	894,468	100.0	%

Major categories of investment income for the years ended December 31, 2020, 2019 and 2018 are summarized as follows:

	2018			2017			2016			2020			2019			2018
Interest on fixed income securities	$	19,092		$	15,340		$	13,254		$	24,874		$	24,620		$	19,092
Dividends on equity securities		4,380			4,611			3,598			1,868			2,320			4,380
Money market funds, Short-term and other		1,529			471			128			1,070			1,976			1,529
		25,001			20,422			16,980			27,812			28,916			25,001
Investment expenses		(2,953	)		(2,327	)		(2,497	)		(2,390	)		(2,667	)		(2,953	)
Net investment income	$	22,048		$	18,095		$	14,483		$	25,422		$	26,249		$	22,048

~~- 50 -~~

~~Gains~~

Following is a summary of the components of net realized and ~~losses on investments, including equity method earnings from limited partnerships,~~unrealized gains (losses) for the years ended December 31, ~~are summarized below:~~2020, 2019 and 2018:

2018 2017 2016
Gross gains on available-for-sale investments sold during the period:
Fixed income securities $ 10,807 $ 9,135 $ 11,628
Equity securities ⁽¹⁾
– 10,481 28,742
Total gains 10,807 19,616 40,370

Gross losses on available-for-sale investments sold during the period:
Fixed income securities (14,367 ) (9,882 ) (10,940 )
Equity securities ⁽¹⁾
– (2,368 ) (2,932 )
Total losses (14,367 ) (12,250 ) (13,872 )

Other-than-temporary impairments (19 ) (149 ) (5,743 )

Change in value of limited partnership investments (9,343 ) 12,469 2,473

Losses on equity securities:
Realized losses on equity securities sold during the period ⁽²⁾
(3,072 ) – –
Unrealized losses on equity securities held at the end of the period (9,697 ) – –
Realized and unrealized losses on equity securities held at the end of the period (12,769 ) – –

Net realized and unrealized gains (losses) on investments $ (25,691 ) $ 19,686 $ 23,228

	2020			2019			2018

Gross gains on available-for-sale fixed income securities during the period:	$	11,125		$	11,009		$	10,807

Gross losses on available-for-sale fixed income securities during the period:		(9,943	)		(10,492	)		(14,367	)

Impairment losses on investments		(2,861	)		(497	)		(19	)

Change in value of limited partnership investments		(1,442	)		1,644			(9,343	)

Gains (losses) on equity securities:
Realized gains (losses) on equity securities sold during the period⁽¹⁾		(8,058	)		1,938			(3,072	)
Unrealized gains (losses) on equity securities held at the end of the period		1,943			9,287			(9,697	)
Total realized and unrealized gains (losses) on equity securities		(6,115	)		11,225			(12,769	)

Net realized and unrealized gains (losses) on investments	$	(9,236	)	$	12,889		$	(25,691	)

⁽¹⁾

~~(2)~~

During 2018, the Company sold $149,195 in equity securities, resulting in a gain on sale of $51,900. The majority of these gains were included in unrealized gains within other comprehensive income (loss) at December 31, 2017 and, as a result of the adoption of ASU 2016-01, were reclassified to retained earnings as of January 1, 2018 and were therefore not recognized in the consolidated statements of operations for the year ended December 31, 2018.

As discussed in Note A, the Company adopted the provisions of the new CECL model for measuring expected credit losses for available-for-sale fixed income securities as of January 1, 2020. The updated guidance amended the previous OTTI model for available-for-sale fixed income securities by requiring the recognition of impairments relating to credit losses through an allowance account on the consolidated balance sheet with a corresponding adjustment to earnings and limiting the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. For those securities in an unrealized loss position throughout the year where the Company intended to sell the security at the balance sheet date, a write down to earnings of $1,826 was recorded during the year ended December 31, 2020. The Company also analyzed securities in an unrealized loss position for credit losses and recorded an allowance for credit losses of $1,035 as of December 31, 2020. The Company reviewed its remaining fixed income securities in an unrealized loss position as of December 31, 2020 and determined the losses were the result of non-credit factors, such as the increase in market volatility due to the disruption in global financial markets as a result of the novel coronavirus ("COVID-19") pandemic and responses to it. The Company currently does not intend to sell nor does it expect to be required to sell these securities before recovery of their amortized cost.

Gain and loss activity for fixed income ~~and equity security investments,~~securities, as shown in the previous table, includes adjustments for ~~other-than-temporary~~ impairment losses on investments for the years ended December 31, 2020, 2019 and 2018 summarized as follows:

2018 2017 2016
Cumulative charges to income at beginning of year $ 4,209 $ 5,650 $ 10,513

Writedowns based on objective and subjective criteria 19 149 5,743
Recovery of prior writedowns upon sale or disposal (3,298 ) (1,590 ) (10,606 )
Net pre-tax realized gain 3,279 1,441 4,863

Cumulative charges to income at end of year $ 930 $ 4,209 $ 5,650

	2020			2019			2018
Cumulative charges to income at beginning of year	$	889		$	930		$	4,209

Write-downs based on objective and subjective criteria		1,826			497			19
Recovery of prior write-downs upon sale or disposal		(909	)		(538	)		(3,298	)
Net pre-tax realized gain (loss)		(917	)		41			3,279

Cumulative charges to income at end of year	$	1,806		$	889		$	930

There is no primary market and only a limited secondary market for the Company's investments in limited partnerships and, in most cases, the Company is prohibited from disposing of its limited partnership interests for some period of time and generally must seek approval from the applicable general partner for any such disposal. Distributions of earnings from these partnerships are largely at the sole discretion of the general partners, and distributions are generally not received by the Company for many years after the earnings have been reported. The Company has a commitment to contribute up to an additional ~~$1,317~~$350 to a limited partnership as of December 31, ~~2018.~~2020.

~~- 51 -~~

The Company's limited partnerships include one investment which primarily invests in public and private equity markets in India. This limited partnership investment's value as of December 31, 2018 and 2017 was $26,344 and $29,817, respectively. At December 31, 2018, the Company's estimated ownership interest in this limited partnership investment was approximately 6%. The Company's share of income (losses), from both realized and unrealized appreciation (losses) from this limited partnership investment was ($3,473), $7,665 and ($1,117) in 2018, 2017 and 2016, respectively. The summarized financial information of this limited partnership investment as of and for the years ended December 31 is as follows:

2018 2017 2016
Investment income (loss) $ 4,298 $ 623 $ (5 )
Partnership expenses 6,874 2,206 2,426
Net investment loss (2,576 ) (1,583 ) (2,431 )

Realized gain on investments 12,314 8,723 7,754

Unrealized appreciation (depreciation) on investments (65,250 ) 133,807 (21,002 )

Net increase (decrease) in partners' capital resulting from operations $ (55,512 ) $ 140,947 $ (15,679 )

Total assets $ 462,058 $ 566,629 $ 448,263
Total liabilities 45,483 30,976 39,988
Total partners' capital 416,575 535,653 408,275

The Company's limited partnerships include an additional investment which primarily invests in public equity and fixed income markets. This limited partnership investment's value as of December 31, 2018 and 2017 was $14,975 and $19,380, respectively. At December 31, 2018, the Company's estimated ownership interest in this limited partnership investment was approximately 5%. The Company's share of income (losses) from both realized and unrealized appreciation (losses) from this limited partnership investment was ($4,404), $1,452 and $2,662 in 2018, 2017 and 2016, respectively. The summarized financial information of this limited partnership investment as of and for the years ended December 31 is as follows:

2018 2017 2016
Investment income $ 19,507 $ 14,524 $ 13,534
Partnership expenses 9,132 12,861 10,628
Net investment income 10,375 1,663 2,906

Realized gain (loss) on investments (37,143 ) (15,073 ) 830

Unrealized appreciation (depreciation) on investments (48,132 ) 49,847 46,685

Net increase (decrease) in partners' capital resulting from operations $ (74,900 ) $ 36,437 $ 50,421

Total assets $ 241,174 $ 354,709 $ 464,184
Total liabilities 20,020 2,000 14,555
Total partners' capital 221,154 352,709 449,629

The fair value of regulatory deposits with various insurance departments in the United States and Canada totaled ~~$87,981~~$122,896 and ~~$86,335~~$99,763 at December 31, ~~2018~~2020 and ~~2017,~~2019, respectively.

Short-term investments at December 31, ~~2018~~2020 included $1,000 in certificates of deposit issued by a Bermuda bank.

The Company's fixed income securities are over ~~90%~~93% invested in investment grade fixed income investments. The Company has no0 fixed income investments that were originally issued with guarantees by a third-party insurance company nor does the Company have any direct exposure to any guarantor at December 31, ~~2018.~~2020.

Approximately ~~$54,233~~$63,660 of fixed income investments ~~(6.2%~~(6.1% of the Company's consolidated investment portfolio, which includes money market instruments classified as cash equivalents) consists of non-rated bonds and bonds rated as less than investment grade at year-end. These investments ~~include a diversified portfolio of over 40 issuers and~~ have a ~~$5,202~~$2,230 aggregate net unrealized ~~loss~~gain position at December 31, ~~2018.~~2020.

~~- 52 -~~

Note C - Loss and Loss Expense Reserves

Activity in the reserves for losses and loss expenses for the years ended December 31, 2020, 2019 and 2018 is summarized as follows. All amounts are shown net of reinsurance, unless otherwise indicated.

	2018		2017		2016
							2020			2019			2018
Reserves, gross of reinsurance recoverable, at the beginning of the year	$	680,274	$	576,330	$	513,596	$	988,305		$	865,339		$	680,274
Reinsurance recoverable on unpaid losses at the beginning of the year		308,143		251,563		211,843		398,305			375,935			308,143
Reserves at the beginning of the year		372,131		324,767		301,753		590,000			489,404			372,131

Provision for losses and loss expenses:
Claims occurring during the current year		329,078		228,303		172,645		319,269			349,018			329,078
Claims occurring during prior years		16,786		19,215		13,836		(311	)		(550	)		16,786
Total incurred losses and loss expenses		345,864		247,518		186,481		318,958			348,468			345,864

Loss and loss expense payments:
Claims occurring during the current year		84,738		67,234		54,239		77,880			90,364			84,738
Claims occurring during prior years		143,853		132,920		109,228		165,777			157,508			143,853
Total paid		228,591		200,154		163,467		243,657			247,872			228,591
Reserves at the end of the year		489,404		372,131		324,767		665,301			590,000			489,404

Reinsurance recoverable on unpaid losses at the end of the year		375,935		308,143		251,563		424,368			398,305			375,935

Reserves, gross of reinsurance recoverable, at the end of the year	$	865,339	$	680,274	$	576,330	$	1,089,669		$	988,305		$	865,339

The table above shows that a reserve ~~deficiency~~savings of ~~$16,786~~$311 developed during ~~2018~~2020 in the settlement of claims occurring on or before December 31, ~~2017,~~2019, compared to a reserve savings of $550 in 2019 and reserve deficiencies of ~~$19,215~~$16,786 in ~~2017 and $13,836 in 2016.~~2018. The developments for each year are composed of individual claim savings and deficiencies which, in the aggregate, have resulted from the settlement of claims at amounts higher or lower than previously reserved and from changes in estimates of losses incurred but not reported as part of the normal reserving process.

The ~~$16,786~~following table reconciles the triangles presented in this note to the total (savings) / deficiency for the Company of $311 shown in the table above:

	Prior Year (Savings) / Deficiency
	2020			2019			2018
Workers' Compensation	$	1,431		$	(2,733	)	$	(9,601	)
Commercial Auto Liability		10,717			8,893			32,342
Occupational Accident		(7,467	)		688			(4,178	)
Physical Damage		(1,684	)		(4,561	)		(1,066	)
Professional Liability Assumed		189			259			2,343
Other short-duration contracts		(3,497	)		(3,096	)		(3,054	)
Total	$	(311	)	$	(550	)	$	16,786

The $311 prior accident year ~~deficiency~~savings that developed during 2020 related to favorable loss development in the Company's occupational accident business, partially offset by unfavorable loss development in commercial automobile coverages. This 2020 savings compares to savings of $550 for 2019 related to favorable loss development in the Company's workers' compensation business, and a deficiency of $16,786 for 2018 ~~primarily~~ related to unfavorable ~~loss~~ development infrom commercial automobile coverages. This unfavorable loss development was the result of increased claim severity due to a more challenging litigation environment, as well as an unexpected increase in the time to settle claims leading to an unfavorable change in claim settlement patterns. This 2018 deficiency compares to a deficiency of $19,215 for 2017, also related to unfavorable loss development from commercial automobile coverages, particularly from severe transportation loss events that occurred primarily during the first six months of 2017 and higher than expected loss development for discontinued lines of business.

~~Losses and loss expenses for 2018 also reflected an increase in current accident year losses caused by severe commercial automobile losses, including continued emergence of severity.~~

Loss reserves have been reduced by estimated salvage and subrogation recoverable of approximately ~~$7,545~~$4,000 and ~~$7,559~~$4,000 at December 31, ~~2018~~2020 and ~~2017,~~2019, respectively.

The following is information about incurred and paid claims development as of December 31, ~~2018,~~2020, net of reinsurance, as well as cumulative claim frequency and the total of ~~incurred~~‐~~but~~‐~~not~~‐incurred‐but‐not‐reported liabilities plus expected development on reported claims included within the net incurred claims amounts.

~~- 53 -~~

Workers' Compensation

																						As of December 31, 2018																									As of December 31, 2020
		Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				Total of Incurred-but-Not- Reported Liabilities Plus Expected Development on Reported Claims		Number of Reported Claims Per Year			Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				Total of Incurred-but-Not-Reported Liabilities Plus Expected Development		Number of Reported
Accident Year		For the Years Ended December 31 (2009-2017 is Supplementary Information and Unaudited)																									For the Years Ended December 31 (2011-2019 is Supplementary Information and Unaudited)																				on Reported		Claims
Accident Year		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018							2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		Claims		Per Year
2009		$	17,270	$	20,931	$	21,447	$	21,261	$	21,268	$	20,767	$	20,641	$	20,817	$	20,946	$	21,153	$	985		3,784
2010					20,644		20,111		19,400		19,300		18,849		18,344		19,195		19,541		19,819		1,098		4,223
2011							26,057		26,628		26,958		26,767		25,515		27,293		26,617		26,631		2,179		4,546		$	26,057	$	26,628	$	26,958	$	26,767	$	25,515	$	27,293	$	26,617	$	26,631	$	26,452	$	26,356	$	1,989		4,547
2012									23,965		25,544		24,887		24,485		25,616		27,020		26,775		2,824		4,481					23,965		25,544		24,887		24,485		25,616		27,020		26,775		25,508		26,397		2,327		4,484
2013											27,619		30,638		29,913		32,121		32,553		31,131		3,780		5,275							27,619		30,638		29,913		32,121		32,553		31,131		31,066		31,360		3,137		5,282
2014													36,768		36,968		34,009		33,427		31,031		4,482		5,406									36,768		36,968		34,009		33,427		31,031		31,579		31,551		3,772		5,413
2015															26,277		23,115		25,889		24,948		5,328		6,308											26,277		23,115		25,889		24,948		25,436		25,167		3,367		6,340
2016																	35,240		29,757		29,317		6,740		6,059													35,240		29,757		29,317		30,060		29,785		3,693		6,087
2017																			42,387		37,731		13,918		16,106															42,387		37,731		36,211		34,930		5,921		16,469
2018																					62,973		36,250		12,893																	62,973		61,530		62,451		13,632		14,295
2019																																												65,837		67,113		19,079		9,480
2020																																														60,204		34,084		7,550
Total	Total																			$	311,509	$	77,584			Total																			$	395,314	$	91,001

		Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance																					Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
		For the Years Ended December 31 (2009-2017 is Supplementary Information and Unaudited)																					For the Years Ended December 31 (2011-2019 is Supplementary Information and Unaudited)
Accident Year		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018			2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
2009		$	4,186	$	10,073	$	13,343	$	15,576	$	16,592	$	17,448	$	18,028	$	18,514	$	18,982	$	19,261
2010					3,974		9,134		11,963		13,845		14,966		15,835		16,590		16,789		17,062
2011							4,916		11,912		15,973		18,884		20,617		21,622		22,569		22,991		$	4,916	$	11,912	$	15,973	$	18,884	$	20,617	$	21,622	$	22,569	$	22,991	$	23,366	$	23,516
2012									4,597		11,004		14,834		17,415		18,946		20,276		21,157					4,597		11,004		14,834		17,415		18,946		20,276		21,157		21,636		21,850
2013											4,880		12,792		18,065		21,655		23,643		24,968							4,880		12,792		18,065		21,655		23,643		24,968		25,847		26,702
2014													5,328		13,665		19,075		22,387		23,968									5,328		13,665		19,075		22,387		23,968		24,714		25,507
2015															2,918		10,128		15,020		17,487											2,918		10,128		15,020		17,487		19,385		20,251
2016																	5,784		13,377		18,461													5,784		13,377		18,461		21,304		23,113
2017																			6,150		15,811															6,150		15,811		20,863		23,910
2018																					10,987																	10,987		27,862		36,794
2019																																								13,171		31,140
2020																																										10,508
Total	Total																			$	192,153	Total																			$	243,291
Outstanding liabilities prior to 2009 net of reinsurance																					12,640
Outstanding liabilities prior to 2011, net of reinsurance																						Outstanding liabilities prior to 2011, net of reinsurance																				16,836
Liabilities for claims and claims adjustment expenses, net of reinsurance	Liabilities for claims and claims adjustment expenses, net of reinsurance																			$	131,996	Liabilities for claims and claims adjustment expenses, net of reinsurance																			$	168,859

~~- 54 -~~

Commercial Liability

																						As of December 31, 2018																									As of December 31, 2020
		Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				Total of Incurred-but-Not- Reported Liabilities Plus Expected Development on Reported Claims		Number of Reported Claims Per Year			Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				Total of Incurred-but-Not-Reported Liabilities Plus Expected Development		Number of Reported
		For the Years Ended December 31 (2009-2017 is Supplementary Information and Unaudited)																									For the Years Ended December 31 (2011-2019 is Supplementary Information and Unaudited)																				on Reported		Claims
Accident Year		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018							2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		Claims		Per Year
2009		$	29,707	$	30,406	$	30,203	$	26,280	$	27,259	$	25,872	$	25,373	$	25,320	$	25,485	$	25,761	$	190		899
2010					31,124		22,161		21,899		19,139		20,300		19,764		19,377		19,081		19,985		112		2,403
2011							46,829		43,832		31,633		36,894		35,805		37,122		36,076		37,852		131		2,901		$	46,829	$	43,832	$	31,633	$	36,894	$	35,805	$	37,122	$	36,076	$	37,852	$	37,795	$	38,773	$	21		2,902
2012									49,743		54,269		49,743		51,367		48,708		51,475		51,648		135		3,130					49,743		54,269		49,743		51,367		48,708		51,475		51,648		51,962		51,830		443		3,131
2013											53,817		39,143		37,701		36,371		46,690		48,857		663		3,749							53,817		39,143		37,701		36,371		46,690		48,857		51,598		51,293		270		3,753
2014													49,971		52,254		52,483		52,964		64,372		307		3,320									49,971		52,254		52,483		52,964		64,372		70,841		72,636		1,051		3,325
2015															61,420		70,174		64,323		71,088		2,785		3,185											61,420		70,174		64,323		71,088		75,503		77,225		1,736		3,198
2016																	61,638		68,974		77,362		7,048		3,707													61,638		68,974		77,362		79,015		80,788		2,420		3,751
2017																			103,126		103,611		25,527		5,261															103,126		103,611		99,287		97,663		12,197		5,403
2018																					179,589		70,070		6,870																	179,589		177,262		186,521		29,518		8,197
2019																																												198,022		195,273		53,842		8,313
2020																																														173,878		109,654		4,410
Total	Total																			$	680,125	$	106,968			Total																			$	1,025,880	$	211,152

		Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance																					Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
		For the Years Ended December 31 (2009-2017 is Supplementary Information and Unaudited)																					For the Years Ended December 31 (2011-2019 is Supplementary Information and Unaudited)
Accident Year		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018			2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
2009		$	928	$	17,880	$	19,718	$	23,521	$	24,866	$	25,066	$	25,114	$	25,125	$	25,199	$	25,391
2010					1,649		7,166		11,635		16,052		18,627		18,517		18,866		18,662		18,791
2011							1,809		11,350		23,615		30,795		33,255		34,009		35,561		36,400		$	1,809	$	11,350	$	23,615	$	30,795	$	33,255	$	34,009	$	35,561	$	36,400	$	37,263	$	37,267
2012									3,086		23,252		32,942		45,303		47,601		50,036		50,750					3,086		23,252		32,942		45,303		47,601		50,036		50,750		50,882		50,908
2013											5,167		15,772		25,270		34,481		44,865		46,084							5,167		15,772		25,270		34,481		44,865		46,084		49,522		49,879
2014													4,023		9,046		28,393		45,075		57,692									4,023		9,046		28,393		45,075		57,692		68,392		69,183
2015															10,923		27,582		49,267		63,133											10,923		27,582		49,267		63,133		71,697		74,276
2016																	6,843		30,377		52,764													6,843		30,377		52,764		70,324		74,324
2017																			11,415		46,529															11,415		46,529		58,173		73,496
2018																					18,689																	18,689		66,575		101,803
2019																																								19,311		64,294
2020																																										13,185
Total	Total																			$	416,223	Total																			$	608,615
Outstanding liabilities prior to 2009 net of reinsurance																					4,621
Outstanding liabilities prior to 2011, net of reinsurance																						Outstanding liabilities prior to 2011, net of reinsurance																				3,433
Liabilities for claims and claims adjustment expenses, net of reinsurance	Liabilities for claims and claims adjustment expenses, net of reinsurance																			$	268,523	Liabilities for claims and claims adjustment expenses, net of reinsurance																			$	420,698

~~- 55 -~~

Professional Liability Reinsurance Assumed (in runoff)

																						As of December 31, 2018																									As of December 31, 2020
		Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				Total of Incurred-but-Not- Reported Liabilities Plus Expected Development on Reported Claims		Number of Reported Claims Per Year			Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				Total of Incurred-but-Not-Reported Liabilities Plus Expected Development		Number of Reported
Accident Year		For the Years Ended December 31 (2009-2017 is Supplementary Information and Unaudited)																									For the Years Ended December 31 (2011-2019 is Supplementary Information and Unaudited)																				on Reported		Claims
Accident Year		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018							2011		2012		2013		2014		2015		2016		2017		2018		2019		2020		Claims		Per Year
2009		$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–		N/A
2010					2,196		4,277		7,827		7,946		9,733		10,740		11,689		11,893		11,677		24		N/A
2011							10,492		8,314		9,017		9,859		10,779		12,735		12,744		12,725		116		N/A		$	10,492	$	8,314	$	9,017	$	9,859	$	10,779	$	12,735	$	12,744	$	12,725	$	13,018	$	13,228	$	219		N/A
2012									10,041		9,276		5,569		10,157		14,605		16,555		14,949		706		N/A					10,041		9,276		5,569		10,157		14,605		16,555		14,949		16,013		16,439		489		N/A
2013											14,370		13,034		11,618		17,694		23,256		22,213		1,847		N/A							14,370		13,034		11,618		17,694		23,256		22,213		23,474		23,381		1,764		N/A
2014													12,675		8,825		7,259		9,837		12,749		2,297		N/A									12,675		8,825		7,259		9,837		12,749		10,721		10,619		1,256		N/A
2015															11,638		7,859		7,147		10,422		5,422		N/A											11,638		7,859		7,147		10,422		8,753		8,404		1,959		N/A
2016																	6,368		2,482		1,522		1,035		N/A													6,368		2,482		1,522		2,993		3,090		435		N/A
2017																			–		–		–		N/A															0		0		0		0		0		N/A
2018																					–		–		N/A																	0		0		0		0		N/A
2019																																								��				0		0		0		N/A
2020																																														0		0		N/A
Total	Total																			$	86,257	$	11,447			Total																			$	75,161	$	6,122

		Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance																					Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
		For the Years Ended December 31 (2009-2017 is Supplementary Information and Unaudited)																					For the Years Ended December 31 (2011-2019 is Supplementary Information and Unaudited)
Accident Year		2009		2010		2011		2012		2013		2014		2015		2016		2017		2018			2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
2009		$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–	$	–
2010					41		729		3,505		5,844		7,758		9,904		11,132		11,334		11,334
2011							50		637		2,061		4,983		8,104		10,404		11,679		12,280		$	50	$	637	$	2,061	$	4,983	$	8,104	$	10,404	$	11,679	$	12,280	$	12,404	$	12,629
2012									103		992		2,388		5,077		8,355		11,239		13,091					103		992		2,388		5,077		8,355		11,239		13,091		13,706		14,403
2013											123		1,135		5,088		10,988		14,779		18,229							123		1,135		5,088		10,988		14,779		18,229		19,201		20,157
2014													723		761		2,241		3,999		6,627									723		761		2,241		3,999		6,627		7,732		8,890
2015															10		390		1,899		3,207											10		390		1,899		3,207		3,964		5,162
2016																	–		5		99													0		5		99		2,254		2,496
2017																			–		–															0		0		0		0
2018																					–																	0		0		0
2019																																								0		0
2020																																										0
Total	Total																			$	64,867	Total																			$	63,737
Outstanding liabilities prior to 2009 net of reinsurance																					–
Outstanding liabilities prior to 2011, net of reinsurance																						Outstanding liabilities prior to 2011, net of reinsurance																				534
Liabilities for claims and claims adjustment expenses, net of reinsurance	Liabilities for claims and claims adjustment expenses, net of reinsurance																			$	21,390	Liabilities for claims and claims adjustment expenses, net of reinsurance																			$	11,958

~~- 56 -~~

Occupational Accident

																					As of December 31, 2020 2020
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				Total of Incurred-but-Not-Reported Liabilities Plus Expected Development		Number of Reported
Accident Year	For the Years Ended December 31 (2011-2019 is Supplementary Information and Unaudited)																				on Reported		Claims
Accident Year	2011		2012		2013		2014		2015		2016		2017		2018		2018		2020		Claims		Per Year
2011	$	6,249	$	6,937	$	6,485	$	6,283	$	6,151	$	6,297	$	6,264	$	6,263	$	6,287	$	6,275	$	2		472
2012				5,272		4,168		3,908		3,758		3,585		3,566		3,551		3,773		3,758		8		380
2013						6,410		5,044		4,403		4,390		4,166		4,107		4,082		4,082		0		337
2014								5,283		4,865		4,147		4,093		4,031		4,061		4,041		38		325
2015										3,897		3,539		3,715		3,846		3,832		3,698		111		275
2016												6,729		6,312		5,847		5,965		4,894		112		704
2017														17,041		13,334		12,976		11,031		111		1,040
2018																16,365		17,053		12,147		412		892
2018																		10,498		11,134		1,469		882
2020																				12,869		2,508		772
Total																			$	73,929	$	4,771

	Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31 (2011-2019 is Supplementary Information and Unaudited)
Accident Year	2011		2012		2013		2014		2015		2016		2017		2018		2019		2020
2011	$	2,159	$	4,861	$	6,003	$	6,050	$	6,020	$	6,278	$	6,219	$	6,232	$	6,246	$	6,267
2012				1,082		2,648		3,190		3,390		3,377		3,442		3,482		3,521		3,555
2013						1,989		3,565		3,768		4,108		4,110		4,107		4,082		4,082
2014								2,000		3,685		3,861		3,909		3,948		3,968		3,968
2015										739		1,934		2,670		2,988		3,224		3,285
2016												1,596		4,388		4,818		4,807		4,785
2017														3,229		7,756		9,126		9,645
2018																5,324		9,807		10,642
2019																		4,007		7,782
2020																				4,978
Total																			$	58,989
Outstanding liabilities prior to 2011, net of reinsurance																				99
Liabilities for claims and claims adjustment expenses, net of reinsurance																			$	15,039

Physical Damage ⁽¹⁾

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

As of December 31, 2018

For the Years Ended December 31 (2016-2017 is Supplementary Information and Unaudited) Total of Incurred-but-Not-Reported Liabilities Plus Expected Development on Reported Claims
Number of Reported Claims Per Year

Accident Year 2016 2017 2018
2016 and prior $ 40,651 $ 39,477 $ 39,658 $ 5 9,619
2017 48,440 47,193 512 10,517
2018 53,726 4,221 10,186
Total $ 140,577 $ 4,738

							As of December 31, 2020
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance						Total of Incurred-but-Not- Reported Liabilities Plus		Number of
	For the Years Ended December 31 (2018-2019 is Supplementary Information and Unaudited)						Expected Development		Reported Claims
Accident Year	2018		2019		2020		on Reported Claims		Per Year
2018	$	53,726	$	50,122	$	49,767	$	22		11,151
2019		0		55,354		54,126		141		10,472
2020				0		56,602		3,233		9,130
Total					$	160,495	$	3,396

	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
	For the Years Ended December 31 (2018-2019 is Supplementary Information and Unaudited)
Accident Year	2018		2019		2020
2018	$	41,631	$	49,685	$	49,638
2019		0		44,197		53,647
2020				0		42,726
Total					$	146,011
Outstanding liabilities prior to 2018, net of reinsurance						77
Liabilities for claims and claims adjustment expenses, net of reinsurance					$	14,561

Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
For the Years Ended December 31 (2016-2017 is Supplementary Information and Unaudited)
Accident Year 2016 2017 2018
2016 and prior $ 34,114 $ 39,354 $ 39,073
2017 39,517 46,554
2018 41,631
Total $ 127,258
Outstanding liabilities prior to 2016 net of reinsurance 10
Liabilities for claims and claims adjustment expenses, net of reinsurance $ 13,329

⁽¹⁾	The majority of physical damage claims settle within a two-year period. The triangles above have been abbreviated to reflect the short-tail nature of this business.

⁽¹⁾ ~~The majority of physical damage claims settle within a two-year period. The triangles above have been abbreviated to reflect the short-tail nature of this business.~~

~~- 57 -~~

The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated balance sheet at December 31, 2020 and 2019 is as follows.

	2018		2017		2020		2019
Net outstanding liabilities
Commercial Liability	$	268,523	$	162,581	$	420,698	$	355,148
Workers' Compensation		131,996		113,751		168,859		154,409
Occupational Accident						15,039		19,840
Physical Damage		13,329		9,087		14,561		11,676
Professional Liability Assumed		21,390		28,980		11,958		16,079
Other short-duration insurance lines		33,716		39,883		10,016		10,478
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance		468,954		354,282		641,131		567,630

Reinsurance recoverable on unpaid claims
Commercial Liability		194,483		124,695		209,126		209,152
Workers' Compensation		172,869		170,394		211,421		182,908
Occupational Accident						500		1,979
Physical Damage		1,851		51		1,054		655
Other short-duration insurance lines		6,732		13,002		2,267		3,611
Reinsurance recoverable on unpaid losses at the end of the year		375,935		308,142		424,368		398,305

Unallocated claims adjustment expenses		20,450		17,850		24,170		22,370

Total gross liability for unpaid claims and claims adjustment expense	$	865,339	$	680,274	$	1,089,669	$	988,305

The following is supplementary information about average historical claims duration as of December 31, ~~2018:~~2020:

	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Supplementary Information and Unaudited)																					Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Supplementary Information and Unaudited)
Years		1		2		3		4		5		6		7		8		9		10		1	2	3	4	5	6	7	8	9	10
Commercial Liability		8.5	%	30.5	%	23.7	%	20.6	%	9.9	%	1.9	%	1.9	%	0.5	%	0.5	%	0.7	%	8.8%	25.2%	22.8%	19.8%	8.9%	5.4%	3.3%	0.8%	1.1%	0
Workers' Compensation		17.3	%	26.3	%	16.3	%	10.4	%	5.7	%	4.3	%	3.3	%	1.6	%	1.8	%	1.3	%	16.9%	26.5%	16.1%	10.1%	6.2%	3.8%	3.1%	2.0%	1.1%	0.6%
Occupational Accident																						36.2%	40.7%	11.2%	4.1%	1.0%	1.6%	(0.1)%	0.4%	0.6%	0.3%
Physical Damage		80.6	%	14.1	%	2.0	%	N/A		N/A		N/A		N/A		N/A		N/A		N/A		81.6%	16.3%	(0.4)%	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Professional Liability Assumed		1.1	%	3.6	%	13.5	%	19.0	%	18.3	%	17.8	%	11.0	%	1.7	%	–		N/A		1.4%	3.2%	11.8%	27.6%	16.9%	14.9%	9.0%	4.1%	2.6%	1.7%

Reserve methodologies for incurred but not reported losses

The Company uses both standard actuarial techniques common to most insurance companies as well as proprietary techniques developed by the Company in connection with its specialty business products. For its short-tail lines ofbusiness, the Company uses predominantly the incurred or paid loss development factor methods. The Company has found that the use of accident quarter loss development triangles, rather than those based upon accident year, are most responsive to claim settlement trends and fluctuations in premium exposure for its short-tail lines. A minimum of 12 running accident quarters is used to project the reserve necessary for incurred but not reported losses for its short-tail lines.

The Company also uses the loss development factor approach for its long-tail lines of business, including workers' compensation. A minimum of 15 accident years is included in the loss development triangles used to calculate link ratios and the selected loss development factors used to determine the reserves for incurred but not reported losses. Significant emphasis is placed on the use of tail factors for the Company's long-tail lines of business.

For the Company's commercial automobile risks, which are covered by regularly updated reinsurance agreements and which contain wide-ranging self-insured retentions ("SIR"), traditional actuarial methods are supplemented by other methods, as described below, in consideration of the Company's exposures to loss. In situations where the Company's reinsurance structure, the insured's SIR selections, policy volume, and other factors are changing, current accident period loss exposures may not be homogenous enough with historical loss data to allow for reliable projection of future developed losses. Therefore, the Company supplements the above-described actuarial methods with loss ratio reserving techniques developed from the Company's proprietary databases to arrive at the reserve for incurred but not reported losses for the calendar/accident period under review. As losses for a given calendar/accident period develop with the passage of time, management evaluates such development on a monthly and quarterly basis and adjusts reserve factors, as necessary, to reflect current judgment with regard to the anticipated ultimate incurred losses. This process continues until all losses are settled for each period subject to this method. The Company notes there is more inherent uncertainty in 2020 than normal due to COVID-19, which could lead to either favorable or unfavorable impacts to its loss development that are currently unknown.

~~- 58 -~~

Claim count methodology

The Company uses a claim event and coverage combination to estimate frequency. For example, a single claim event involving loss for physical damage of a vehicle and personal injury to a claimant would be considered two claims for purposes of the calculation of frequency. A single claim event causing personal injury to two claimants would be considered a single claim under the methodology. Due to the number of reinsurance assumed treaties entered into (and the varying structures: both quota share and excess of loss) the Company deems it impractical to collect claim frequency information related to this business and this information has not been made available to the Company.

Note D – Reinsurance

The Insurance Subsidiaries cede portions of their gross premiums written to certain other insurers under excess of loss and quota share treaties and by facultative placements. Some reinsurance contracts provide that a loss be shared among the Company and its reinsurers on a predetermined pro-rata basis ("~~quota-share"~~quota share"), while other contracts provide that the Company keep a fixed amount of the loss, similar to a deductible, with reinsurers taking all losses above this fixed amount ("excess of loss"). Reinsurance treaties with other companies permit the recovery of a portion of related direct losses. Management determines the amount of net exposure it is willing to accept generally on a product-line basis. Certain ~~historical~~ treaties covering commercial automobile risks include annual deductibles which must be exceeded before the Company can recover under the terms of the treaty. The Company retains a higher percentage of the direct premium in consideration of these deductible provisions. The Company remains liable to the extent the reinsuring companies are unable to meet their obligations under reinsurance contracts.

The Company also serves as an assuming reinsurer on treaties with direct writing insurance companies and, prior to June 30, 2015, under retrocessions from other reinsurers for catastrophic property coverages. Accordingly, for periods prior to that date, the occurrence of catastrophic events could have had a significant impact on the Company's operations. In addition, the Insurance Subsidiaries participate in certain mandatory residual market pools, which require insurance companies to provide coverages on assigned risks. The assigned risk pools allocate participation to all insurers based upon each insurer's portion of premium writings on a state or national level. Historically, the operation of these assigned risk pools has resulted in net losses being allocated to the Company, although such losses have not been material in relation to the Company's operations.

The following table summarizes the impact of reinsurance ceded and assumed on the Company's net premiums written and earned for the most recent three years:

	Premiums Written									Premiums Earned									Premiums Written									Premiums Earned
	2018			2017			2016			2018			2017			2016			2020			2019			2018			2020			2019			2018
Direct	$	581,070		$	504,033		$	395,625		$	562,364		$	470,158		$	394,679		$	546,708		$	574,181		$	581,070		$	557,795		$	570,959		$	562,364
Ceded on direct		(138,102	)		(151,348	)		(131,166	)		(131,080	)		(145,201	)		(129,926	)		(106,561	)		(122,676	)		(138,102	)		(113,125	)		(124,446	)		(131,080	)
Net direct		442,968			352,685			264,459			431,284			324,957			264,753			440,147			451,505			442,968			444,670			446,513			431,284

Assumed		1,430			704			7,379			1,596			3,188			11,344			853			737			1,430			845			775			1,596
Ceded on assumed		–			–			(86	)		–			–			(86	)		0			0			0			0			0			0
Net assumed		1,430			704			7,293			1,596			3,188			11,258			853			737			1,430			845			775			1,596

Net	$	444,398		$	353,389		$	271,752		$	432,880		$	328,145		$	276,011		$	441,000		$	452,242		$	444,398		$	445,515		$	447,288		$	432,880

Net losses and loss expenses incurred for ~~2018, 2017~~2020, 2019 and ~~2016~~2018 have been reduced by ceded reinsurance recoveries of approximately ~~$148,173, $128,086~~$105,895, $121,927 and ~~$108,656,~~$148,173, respectively. Ceded reinsurance premiums and loss recoveries for the purchase of catastrophe reinsurance coverage on the Company's net direct business were not material.

Net losses and loss expenses incurred include expenses of $432 for 2020, expenses of $193 for 2019 and a savings of $1,300 for 2018, ~~and expenses of $5,223 and $14,746 for 2017 and 2016,~~ relating to reinsurance assumed from non-affiliated insurance or reinsurance companies.

Components of reinsurance recoverable at December 31, 2020 and 2019 are as follows:

	2018		2017		2020		2019
Case unpaid losses, net of valuation allowance	$	163,011	$	119,615
Case unpaid losses, net of allowance for reinsurance					$	166,171	$	166,675
Incurred but not reported unpaid losses and loss expenses		211,805		187,163		257,225		230,459
Paid losses and loss expenses		1,250		2,206		24,133		20,334
Unearned premiums		16,370		9,347		8,035		14,599
	$	392,436	$	318,331	$	455,564	$	432,067

~~- 59 -~~

Note E - Income Taxes

On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the "U.S. Tax Act") was signed into law, which lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018. As a result, the Company recorded a tax benefit of $9,572 related to the remeasurement of its deferred tax assets and liabilities at December 31, 2017. As of December 31, 2017, the Internal Revenue Service ("IRS") had not yet published all of the detailed regulations resulting from the enactment of the U.S. Tax Act; therefore, while the Company had not completed its accounting for the tax effects, it made a reasonable estimate of the tax effects on its existing deferred tax balances at December 31, 2017. The Company finalized its accounting for the tax effects of the U.S. Tax Act during 2018. No material adjustments to income tax expense (benefit) were recorded during 2018.

The U.S. Tax Act provides for a change in the methodology employed to calculate reserves for tax purposes. Beginning January 1, 2018, a higher interest rate assumption and longer payout patterns are used to discount these reserves. In addition, companies are no longer able to elect to use their own experience to discount reserves, but instead are required to use the industry-based tables published by the IRS annually. During 2017, the Company estimated the provisional tax impacts related to the change in methodology as $1,696. During 2018, the IRS published the discount factor tables and the Company calculated the tax impact of the methodology change and recorded an updated amount for deferred tax assets and an offsetting deferred tax liability of $2,262 at December 31, 2018. The deferred tax liability was amortized into income in the amount of $323 during 2018 in accordance with the 8-year inclusion described in the U.S. Tax Act.

Deferred income taxes are calculated to account for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 2020 and 2019 are as follows:

	2018			2017		2020		2019
Deferred tax liabilities:
Unrealized gain on fixed income and equity security investments	$	4,572		$	15,086	$	8,159	$	5,327
Deferred acquisition costs		2,552			1,804		2,538		2,821
Loss and loss expense reserves		3,583			2,623		2,222		2,701
Limited partnership investments		–			3,826		0		2,587
Accelerated depreciation		690			492		669		687
Other		1,509			1,791		1,495		1,361
Total deferred tax liabilities		12,906			25,622		15,083		15,484

Deferred tax assets:
Loss and loss expense reserves		9,999			6,761		12,923		11,460
Limited partnership investments		3,498			–		822		0
Unearned premiums discount		2,321			1,837		2,339		2,529
Other-than-temporary investment declines		625			815
Impairment related investment declines							435		39
Deferred compensation		580			885		1,999		1,181
Deferred ceding commission		1,173			627		492		1,037
Allowance for credit losses							3,580		0
Other		972			339		1,473		1,273
Total deferred tax assets		19,168			11,264		24,063		17,519

Net deferred tax (assets) liabilities	$	(6,262	)	$	14,358
Net deferred tax assets						$	8,980	$	2,035

A summary of the difference between federal income tax expense (benefit) computed at the statutory rate and that reported in the consolidated financial statements as of December 31, 2020, 2019 and 2018 is as follows:

	2018			2017			2016			2020			2019			2018

Statutory federal income rate applied to pre-tax income (loss)	$	(9,213	)	$	3,543		$	15,069		$	1,336		$	1,821		$	(9,213	)
Tax effect of (deduction):
Tax-exempt investment income		(253	)		(968	)		(938	)		(239	)		(402	)		(253	)
Change in enacted tax rates		–			(9,572	)		–
Valuation allowance											1,264			0			0
Other		(331	)		(1,204	)		(22	)		(461	)		(93	)		(331	)
Federal income tax expense (benefit)	$	(9,797	)	$	(8,201	)	$	14,109		$	1,900		$	1,326		$	(9,797	)

~~- 60 -~~

Federal income tax expense (benefit) as of December 31, 2020, 2019 and 2018 consists of the following:

	2018			2017			2016		2020			2019			2018
Tax expense (benefit) on pre-tax income (loss):
Current	$	8,997		$	(4,335	)	$	11,271	$	7,144		$	1,377		$	8,997
Deferred		(18,794	)		(3,866	)		2,838		(5,244	)		(51	)		(18,794	)
	$	(9,797	)	$	(8,201	)	$	14,109	$	1,900		$	1,326		$	(9,797	)

The provision for deferred federal income taxes as of December 31, 2020, 2019 and 2018 consists of the following:

	2018			2017			2016			2020			2019			2018
Limited partnerships	$	(2,383	)	$	4,099		$	503		$	(3,409	)	$	1,143		$	(2,383	)
Discounts of loss and loss expense reserves		(2,704	)		1,315			(114	)		(1,944	)		(2,269	)		(2,704	)
Reserves - salvage and subrogation and other		427			56			(1,110	)		1			(74	)		427
Unearned premium discount		(484	)		(1,767	)		298			190			(208	)		(484	)
Deferred compensation		305			(168	)		595			(818	)		(600	)		305
Other-than-temporary investment declines		695			(127	)		2,320
Impairment related investment declines											(1,400	)		(411	)		695
Deferred acquisitions costs and ceding commission		201			1,553			(95	)		262			405			201
Change in enacted tax rates		–			(9,572	)		–
Unrealized gains / losses		(13,876	)		–			–			(59	)		1,837			(13,876	)
Valuation allowance											1,264			0			0
Other		(975	)		745			441			669			126			(975	)
Provision for deferred federal income taxes	$	(18,794	)	$	(3,866	)	$	2,838		$	(5,244	)	$	(51	)	$	(18,794	)

~~The~~In assessing the valuation of deferred tax assets, the Company considers whether it is ~~required to establish a valuation allowance for any~~more likely than not that some portion or all of the ~~gross~~ deferred tax ~~asset that management believes~~assets will not be realized. ~~Management has determined that no such~~The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income or availability to carryback the losses to taxable income during the periods in which those temporary differences become deductible. The Company considered several factors when analyzing the need for a valuation allowance, ~~is necessary at~~including the Company's current three year cumulative GAAP loss through December 31, ~~2018 or 2017.~~2020, the increase in deferred tax assets due to the adoption of CECL at January 1, 2020 discussed in Note A, the change in unrealized gains and losses and the loss of a high taxable income year from the carryback period. The three year cumulative loss limits the Company's ability to use projected income beyond 2020 in the analysis. As of December 31, 2020 and 2019, the Company had 0 valuation allowance. However, the application of intra-period tax allocation rules to benefits associated with deferred tax assets resulted in a charge to continuing operations as of December 31, 2020 of $1,264 in the consolidated statement of operations, offset by a corresponding benefit in shareholders' equity within accumulated other comprehensive income.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security Act of 2020, as amended (the “CARES Act”), was signed into law on March 27, 2020, to provide national emergency economic relief measures. The CARES Act, among other things, permits net operating loss (“NOL”) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, ~~calendar~~2019, and 2020 to be carried back to each of the five preceding taxable years ~~2017, 2016 and 2015 remain subject~~ to ~~examination by~~generate a refund of previously paid income taxes. The Company has evaluated the ~~IRS.~~impact of the CARES Act, noting it does not have a material impact.

The Company has no0 uncertain tax positions as of December 31, ~~2018~~2020 or ~~2017.~~2019. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense (benefit) and changes in such accruals would impact the Company's effective tax rate. There were no0 amounts accrued for the payment of interest at December 31, 2020, 2019 and 2018. As of December 31, 2020, calendar years 2019, 2018 and 2017 ~~and 2016.~~

remain subject to examination by the Internal Revenue Service.

Note F - Shareholders' Equity

The Company's Class A and Class B Common Stock has a stated value of approximately ~~$.04~~$0.04 per share. The Company paid a total of $5,692, or $0.40 per share, in dividends during 2020, $5,857, or $0.40 per share, during 2019 and $16,835, or $1.12 per share, ~~in dividends~~ during ~~2018, $16,302, or $1.08 per share, during 2017 and $15,803, or $1.04 per share, during 2016.~~2018.

On August 31, 2017, the Company's Board of Directors authorized the reinstatement of its share repurchase program for up to 2,464,209 shares of the Company's Class A or Class B Common Stock. On August 7, 2018, the Company's Board of Directors reaffirmed its share repurchase program, but also provided that the aggregate dollar amount of shares of the Company's Common Stock that may be repurchased under the share repurchase program through August 8, 2019 may not exceed $25,000. Pursuant to this share repurchase program, the Company entered into a Rule 10b5-1 plan on September 24, 2018, which authorized the repurchase of up to $12,000 of the Company's outstanding common shares at various pricing thresholds, in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934. The Rule 10b5-1 plan expired on November 8, 2018. No duration has been placed on the Company's share repurchase program, and the Company reserves the right to amend, suspend or discontinue it at any time. The share repurchase program does not commit the Company to repurchase any shares of its ~~Common Stock.~~common stock.

During the year ended December 31, ~~2018,~~2020, the Company paid ~~$4,596~~$1,782 to repurchase ~~7,770 shares of Class A Common Stock at an average share price of $21.58 and 191,898~~126,764 shares of Class B Common Stock at an average share price of ~~$23.07~~$14.07 under the share repurchase program. No share repurchases have been made by the Company since March 20, 2020.

~~- 61 -~~

Accumulated Other Comprehensive Income (Loss)

A reconciliation of the components of accumulated other comprehensive income (loss) at December 31, 2020 and 2019 is as follows:

	2018			2017			2020			2019
Investments:
Total unrealized gain (loss) before federal income tax expense (benefit)	$	(7,859	)	$	71,848
Total unrealized gain before federal income tax expense (benefit)							$	26,259		$	12,491
Deferred tax benefit (liability)(1)		1,651			(25,148	)		(4,255	)		(2,628	)
Net unrealized gains (losses) on investments		(6,208	)		46,700
Net unrealized gains on investments								22,004			9,863

Foreign exchange adjustment:
Total unrealized losses		(1,442	)		(475	)		(310	)		(625	)
Deferred tax benefit		303			166			65			131
Net unrealized losses on foreign exchange adjustment		(1,139	)		(309	)		(245	)		(494	)

Accumulated other comprehensive income (loss)	$	(7,347	)	$	46,391
Accumulated other comprehensive income							$	21,759		$	9,369

⁽¹⁾	Includes the $1,264 valuation allowance benefit recorded in other comprehensive income. See Note E - Income Taxes for additional information.

Details of changes in net unrealized gains (losses) on investments for the years ended December 31, 2020, 2019 and 2018 are as follows:

	2018			2017		2016			2020			2019			2018
Investments:
Pre-tax holding gains (losses) on debt and equity securities arising during period ⁽¹⁾	$	(12,253	)	$	26,677	$	13,259
Less: applicable federal income tax expense (benefit)		(2,573	)		9,337		4,641
Pre-tax holding gains (losses) on fixed income securities arising during period									$	10,501		$	19,182		$	(12,253	)
Less: applicable federal income tax expense (benefit) ⁽¹⁾										941			4,028			(2,573	)
		(9,680	)		17,340		8,618			9,560			15,154			(9,680	)

Pre-tax gains (losses) on debt and equity securities included in net income (loss) during period ⁽¹⁾		(3,560	)		7,217		20,755
Pre-tax gains (losses) on fixed income securities included in net income (loss) during period ⁽¹⁾										(3,267	)		(1,161	)		(3,560	)
Less: applicable federal income tax expense (benefit)		(748	)		2,526		7,264			(686	)		(244	)		(748	)
		(2,812	)		4,691		13,491			(2,581	)		(917	)		(2,812	)

Change in unrealized gains (losses) on investments	$	(6,868	)	$	12,649	$	(4,873	)	$	12,141		$	16,071		$	(6,868	)

⁽¹⁾	Includes the $1,264 valuation allowance benefit recorded in other comprehensive income. See Note E - Income Taxes for additional information.

⁽¹⁾Effective January 1, 2018, the Company adopted ASU 2016-01 and unrealized gains (losses) related to equity securities are no longer reflected in accumulated other comprehensive income (loss). Prior periods have not been restated to conform to the current presentation.

Note G - Other Operating Expenses

Details of other operating expenses for the years ended December 31:

	2018			2017			2016			2020			2019			2018
Amortization of gross deferred policy acquisition costs	$	78,105		$	70,574		$	51,597		$	79,947		$	81,734		$	78,105
Other underwriting expenses		46,638			37,230			41,692			66,005			59,975			46,638
Reinsurance ceded credits		(23,124	)		(23,187	)		(33,512	)		(24,764	)		(25,932	)		(23,124	)
Total underwriting expenses		101,619			84,617			59,777			121,188			115,777			101,619

Operating expenses of non-insurance companies		32,406			28,977			29,685			22,240			22,679			32,406
Goodwill impairment charge		3,152			–			–			0			0			3,152
Total other operating expenses	$	137,177		$	113,594		$	89,462		$	143,428		$	138,456		$	137,177

Note H - Employee Benefit Plans

The Company maintains a defined contribution 401(k) Employee Savings and Profit Sharing Plan (the "Plan") which covers nearly all employees. The Company's contributions are based on a set percentage and the contributions to the Plan for 2020, 2019 and 2018 ~~2017~~were $3,274, $3,213 and ~~2016 were~~ $3,486, ~~$2,797 and $2,449,~~ respectively.

~~- 62 -~~

Note I - Stock Based Compensation

In accordance with the terms of the 1981 Stock Purchase Plan (the "1981 Plan"), the Company is obligated to repurchase shares issued under the 1981 Plan, at a price equal to 90% of the book value of the shares at the end of the quarter immediately preceding the date of repurchase from one outside director. A limited number of shares have ever been repurchased under the 1981 Plan. At December 31, 2018, there were 46,875 shares of Class A Common Stock and 187,500 shares of Class B Common Stock outstanding which remain eligible for repurchase by the Company.

~~Restricted Stock:~~

The Company issues shares of restricted Class B Common Stock to the Company's outside directors ~~which serve~~ as ~~the~~part of their annual retainer ~~compensation for the outside directors.~~compensation. The shares are distributed to the outside directors on the vesting date, which, with the exception of pro-rated annual retainers granted to outside directors, is one year following the date of grant. On May 17, 2019, the Company granted shares of restricted Class B Common Stock in connection with the election of a new outside director, reflecting such director’s pro-rated annual retainer compensation, which shares vested and were distributed on May 7, 2020. Additionally, effective May 22, 2019, John D. Nichols, Jr. ceased serving as the Company's Interim Chief Executive Officer and principal executive officer, but continued to serve as Chairman of the Company's Board of Directors. On May 22, 2019, the Company granted shares of restricted Class B Common Stock to Mr. Nichols in connection with this transition, reflecting his pro-rated annual retainer compensation, which shares also vested and were distributed on May 7, 2020. The table below provides details of the restricted stock issuances to directors for ~~2018, 2017~~2020, 2019 and ~~2016:~~2018:

Grant Date	Number of Shares Issued		Vesting Date	Service Period	Grant Date Fair Value Per Share		Number of Shares Issued		Vesting Date	Service Period	Grant Date Fair Value Per Share
5/10/2016		17,677	5/10/2017	7/1/2016 - 6/30/2017	$	24.89
5/9/2017		18,183	5/9/2018	7/1/2017 - 6/30/2018	$	24.20
8/31/2017		1,257	5/9/2018	8/31/2017 - 6/30/2018	$	21.90
2/9/2018		408	5/9/2018	2/9/2018 - 6/30/2018	$	24.20		408	5/9/2018	2/9/2018 - 6/30/2018	$	24.20
5/8/2018		19,085	5/8/2019	7/1/2018 - 6/30/2019	$	23.05		19,085	5/8/2019	7/1/2018 - 6/30/2019	$	23.05
5/7/2019								29,536	5/7/2020	7/1/2019 - 6/30/2020	$	16.25
5/17/2019								3,591	5/7/2020	5/17/2019 - 6/30/2020	$	16.25
5/22/2019								3,541	5/7/2020	5/22/2019 - 6/30/2020	$	16.25
5/5/2020								42,220	5/5/2021	7/1/2020 - 6/30/2021	$	14.21

Compensation expense related to the above stock grants is recognized over the period in which the directors render the services.

Director compensation expense associated with these restricted stock grants of ~~$464, $454~~$598, $518 and ~~$460~~$464 was charged against income for the restricted stock awards granted in ~~2018, 2017~~2020, 2019 and ~~2016,~~2018, respectively.

On February 8, 2017, the Company issued 20,181 shares of restricted Class B Common Stock to certain of the Company's executives under the Company's Restricted Stock Compensation Plan. The shares of restricted stock represent a portion of the calendar year 2017 compensation earned by certain executives under the terms of the Company's Executive Incentive Bonus Plan. The shares of restricted stock will vest over a three-year period from the date of grant. The shares of restricted stock were valued based on the closing price of the Company's Class B Common Stock on February 8, 2017, the day the shares of restricted stock were granted. Each share of restricted stock was valued at $23.80 per share, representing a total value of $480. Non-vested shares of restricted stock will be forfeited should an executive's employment terminate for any reason other than death, disability or retirement, as defined by the Compensation Committee.

In ~~May 2017,~~March 2018, the Company's Compensation Committee, now known as the Compensation and Human Capital Committee (the "Committee"), granted equity-based awards pursuant to the Company's Long-Term Incentive Plan (the "Long-Term Incentive Plan")~~, which was approved by the Company's shareholders at the 2017 Annual Meeting of Shareholders.~~. Certain participants under the Long-Term Incentive Plan were granted ~~performance-based~~ equity awards (the ~~"2017~~"2018 LTIP Awards"), with the number of shares of Class B Common Stock earned pursuant to such ~~award~~awards determined by applying a performance matrix consisting of a measurement of the combined results of the Company's ~~2017~~2018 growth in ~~net~~gross premiums earned and the Company's ~~2017~~2018 combined ratio. The combined ratio is calculated as a ratio of (A) losses and loss expenses incurred, plus other operating expenses, less commission and other income to (B) net premiums earned. ~~No 2017~~NaN2018 LTIP Awards were earned based on the Company's performance in ~~2017,~~2018, and therefore no0 shares were issued pursuant to the ~~2017~~2018 LTIP Awards. In addition to the 2017 LTIP Awards, in May 2017 the Company's Compensation Committee also granted Value Creation Incentive Plan awards (the "2017 VCIP Awards") to certain participants under the Long-Term Incentive Plan. The 2017 VCIP Awards are performance-based equity awards that will be earned based on the Company's cumulative operating income over a three-year performance period from January 1, 2017 through December 31, 2019 relative to a cumulative operating income goal for the period set by the Compensation Committee in March 2017. For the purpose of the 2017 VCIP Awards, cumulative operating income is equal to income before taxes excluding net realized gains (losses) on investments. Any 2017 VCIP Awards that are earned will be paid in unrestricted shares of the Company's Class B Common Stock at the end of the three-year performance period, but no later than March 15, 2020. No shares are eligible to be issued under the 2017 VCIP Awards as of December 31, 2018.

~~- 63 -~~

In March 2018, the Company's Compensation Committee granted equity-based awards pursuant to the Long-Term Incentive Plan. Certain participants under the Long-Term Incentive Plan were granted equity awards (the "2018 LTIP Awards"), with the number of shares of Class B Common Stock earned pursuant to such award determined by applying a performance matrix consisting of a measurement of the combined results of the Company's 2018 growth in gross premiums earned and the Company's 2018 combined ratio, as defined above. No 2018 LTIP Awards were earned based on the Company's performance in 2018, and therefore no shares were issued pursuant to the 2018 LTIP Awards. InIn addition to the 2018 LTIP Awards, in March 2018 the ~~Company's Compensation~~ Committee also granted Value Creation Incentive Plan awards (the "2018 VCIP Awards") to certain participants under the Long-Term Incentive Plan. The 2018 VCIP Awards are performance-based equity awards that ~~will~~could be earned based on the Company's cumulative operating income ~~as defined above,~~ over a three-year performance period from January 1, 2018 through December 31, 2020 relative to a cumulative operating income goal for the period set by the ~~Compensation~~ Committee in March 2018. For the purpose of the 2018 VCIP Awards, cumulative operating income is equal to income before taxes excluding net realized gains (losses) on investments. Any 2018 VCIP Awards ~~that are~~ earned ~~will be~~would have been paid in unrestricted shares of the Company's Class B Common Stock at the end of the three-year performance period, but no later than March 15, 2021. NoNaN shares ~~are eligible to be issued~~were earned under the 2018 VCIP Awards ~~as of~~for the three-year performance period ended December 31, ~~2018.~~2020.

On November 13, 2018, the Company entered into an employment agreement ~~(the "Agreement")~~ with its Interim Chief Executive Officer, John D. Nichols, Jr. Pursuant to the terms of ~~the Agreement,~~this employment agreement, on November 13, 2018, Mr. Nichols was granted 85,000 restricted shares of the Company's Class B Common Stock (the ~~"Stock~~"Nichols Stock Grant"), of which 42,500 shares ~~will vest~~vested as of October 17, ~~2019;~~2019, 21,250 shares ~~will vest~~vested as of October 17, 2020, and 21,250 shares will vest as of October 17, 2021. The Company ~~recorded $140 in~~incurred $193 of expense induring the ~~fourth quarter of 2018~~year ended December 31, 2020 related to the Nichols Stock Grant.

In March 2019, the Committee granted equity-based awards pursuant to the Long-Term Incentive Plan. Certain participants under the Long-Term Incentive Plan were granted equity awards (the "2019 LTIP Awards"), with the number of shares of Class B Common Stock earned pursuant to such awards determined by applying a performance matrix consisting of a corporate performance component as well as a personal performance component. The corporate performance component of the 2019 LTIP Awards was determined based on the Company's achievement of 2019 underwriting income compared to the plan target. The Company's underwriting income was calculated as income (loss) before federal income tax expense (benefit), less net realized and unrealized gains (losses) on investments, less net investment income. The personal performance component of the 2019 LTIP Awards was determined based on the achievement of personal goals that aligned with departmental and corporate objectives for 2019. 2019 LTIP Awards earned were paid in shares of restricted Class B Common Stock in early 2020. One-third of such shares will vest annually over the three-year period beginning one year from the date of issue. The Company incurred $110 of expense during the year ended December 31, 2020 related to the 2019 LTIP Awards.

On May 22, 2019, the Company entered into an employment agreement with its new Chief Executive Officer, Jeremy D. Edgecliffe-Johnson. Pursuant to the terms of this employment agreement, on May 22, 2019, Mr. Edgecliffe-Johnson was granted 70,000 restricted shares of the Company's Class B Common Stock (the "Edgecliffe-Johnson Stock Grant"), of which 35,000 shares will vest as of June 1, 2022, 21,000 shares will vest as of June 1, 2023, and 14,000 shares will vest as of June 1, 2024. The Company incurred $240 of expense during the year ended December 31, 2020 related to the Edgecliffe-Johnson Stock Grant.

On November 5, 2019, the Board of the Company, upon the recommendation of the Committee, approved equity compensation awards to be granted to 7 members of senior management as of November 12, 2019 under the Long-Term Incentive Plan. The Board approved a total of $1,100 in grants of restricted shares of the Company’s Class B Common Stock, which will vest on January 1, 2023, subject to the recipient’s continued employment with the Company through the vesting date. The Company incurred $352 of expense during the year ended December 31, 2020 related to this grant.

On July 6, 2020, the Committee granted a total of 101,400 restricted shares of the Company's Class B Common Stock to certain members of senior management under the Long-Term Incentive Plan. These 101,400 restricted shares will vest on July 1, 2023, subject to the recipient’s continued employment with the Company through the vesting date. The Company incurred $221 of expense during the year ended December 31, 2020 related to this grant.

Note J – Segment Information

~~Effective January~~The Company has 1 ~~2017, the Company determined that~~reportable business segment in its ~~business constituted one reportable property~~operations: Property and casualty insurance segment based on how its operating results are regularly reviewed by the Company's chief operating decision maker when making decisions about how resources are allocated and assessing performance.Casualty Insurance. The property and casualty insurance segment provides multiple lines of insurance coverage primarily to commercial automobile companies, as well as to independent contractors who contract with commercial automobile companies. ~~In addition, the Company provides workers' compensation coverage for a variety of operations outside the transportation industry.~~

The following table summarizes segment revenues for the years ended December 31:

	2018			2017		2016		2020			2019		2018
Revenues:
Net premiums earned	$	432,880		$	328,145	$	276,011	$	445,515		$	447,288	$	432,880
Net investment income		22,048			18,095		14,483		25,422			26,249		22,048
Net realized and unrealized gains (losses) on investments		(25,691	)		19,686		23,228		(9,236	)		12,889		(25,691	)
Commissions and other income		9,932			5,308		5,275		7,048			9,171		9,932
Total revenues	$	439,169		$	371,234	$	318,997	$	468,749		$	495,597	$	439,169

Note K - Earnings (Loss) Per Share

The following is a reconciliation of the denominators used in the calculation of basic and diluted earnings (loss) per share for the years ended December 31:

	2018		2017		2016		2020		2019		2018
Average shares outstanding for basic earnings (loss) per share		14,964,812		15,065,216		15,071,900		14,140,178		14,520,815		14,964,812

Dilutive effect of share equivalents		–		42,220		12,108		129,806		99,118		0

Average shares outstanding for diluted earnings (loss) per share		14,964,812		15,107,436		15,084,008		14,269,984		14,619,933		14,964,812

Note L - Concentrations of Credit Risk

The Company writes policies of excess insurance attaching above SIRs and also writes policies that contain per-claim deductibles. Those losses and claims that fall within the SIR limits are obligations of the insured; however, the Company writes surety bonds in favor of various regulatory agencies guaranteeing the insureds' payment of claims within the SIR. Further, specified portions of losses and claims incurred under large deductible policies, while obligations of the Company, are contractually reimbursable to the Company from the insureds. The Company requires collateral from its insureds to serve as a source of reimbursement if the Company is obligated to pay claims within the SIR by reason of an insured's default or if the insured fails to reimburse the Company for deductible amounts paid by the Company.

Acceptable collateral may be provided in the form of letters of credit on Company-approved banks, Company-approved marketable securities or cash. ~~At December 31, 2018, the Company held collateral in the aggregate amount of $333,188.~~

~~- 64 -~~

The amount of collateral required of an insured is determined by the financial condition of the insured, the type of obligations guaranteed by the Company, estimated reserves for incurred losses within the SIR or deductible that have been reported to the insured or the Company, estimated incurred but not reported losses, and estimated losses that are expected to occur within the SIR or be deductible prior to the next collateral adjustment date. In general, the Company attempts to hold collateral equal to 100% of the ultimate losses that would be paid by or due the Company in the event of an insured's default. Periodic audits are conducted by the Company to evaluate its exposure and the collateral required. If a deficiency in collateral is noted as the result of an audit, additional collateral is requested immediately. Because collateral amounts contain numerous estimates of the Company's exposure, are adjusted only periodically and are sometimes reduced based on the superior financial condition of the insured, the amount of collateral held by the Company at a given point in time may not be sufficient to fully reimburse the Company for all ~~of its guarantees or~~ amounts due in the event of an insured's default. In that regard, the Company is not fully collateralized for the ~~guarantees made for, or the deductible amounts that may be due from,~~potential maximum exposure relating to FedEx Corporation and certain of its subsidiaries and related entities ("FedEx")~~, and in~~. However, the Company believes that an event of ~~their~~ default ~~such default may have a material adverse impact on~~in excess of the ~~Company. The Company estimates its uncollateralized exposure related to FedEx to be as much as 70% (after-tax) of shareholders' equity at December 31, 2018.~~collateralized amounts is remote.

The Company's balance sheet includes paid and estimated unpaid amounts recoverable from reinsurers under various agreements. These recoverables are only partially collateralized. The two largest ~~amount~~amounts due from an individual ~~reinsurer,~~reinsurers, net of collateral and offsets, ~~was $48,473~~were $55,097 and $46,488 at December 31, ~~2018.~~

2020.

Note M – Acquisition and Related Goodwill and Intangibles

On October 31, 2008, the Company purchased a commercial lines specialty insurance agency for a cash purchase price of $3,500. As part of the purchase, the Company recorded goodwill of $3,152 and intangible assets of $179. Accumulated amortization of intangible assets was $179 as of both December 31, ~~2018~~2020 and ~~2017.~~2019.

During the fourth quarter of 2018, the Company conducted its annual impairment review. Based on the results of that review, the Company concluded that its entire goodwill balance was impaired, resulting in an impairment loss of $3,152. The Company utilized a market approach, which considered revenue and earnings multiples of its own and comparable company information. In the analysis, the Company considered the significant decline in its stock price and the decline in overall financial performance during 2018, particularly in more recent periods, as well as the downgrade to its A.M. Best Company, Inc. rating in late 2018.

~~- 65 -~~

Note N – Fair Value

Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The carrying amounts reported in the consolidated balance sheets for cash, accounts receivables, reinsurance recoverable, accounts payable and accrued expenses, income taxes payable, short-term borrowings and unearned premiums approximate fair value because of the short-term nature of these items. The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:

As of December 31, ~~2018:~~2020:

Description	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Fixed income securities:
Agency collateralized mortgage obligations	$	10,687	$	–	$	10,687	$	–	$	11,931	$	0	$	11,931	$	0
Agency mortgage-backed securities		37,385		–		37,385		–		102,107		0		102,107		0
Asset-backed securities		64,422		–		64,422		–		107,696		0		107,696		0
Bank loans		9,750		–		9,750		–		11,361		0		11,361		0
Certificates of deposit		2,835		2,835		–		–
Collateralized mortgage obligations		5,423		–		5,423		–		5,118		0		5,118		0
Corporate securities		186,651		–		186,651		–		352,837		0		352,837		0
Options embedded in convertible securities		3,799		–		3,799		–		7,404		0		7,404		0
Mortgage-backed securities		38,540		–		38,540		–		38,056		0		38,056		0
Municipal obligations		29,155		–		29,155		–		45,143		0		45,143		0
Non-U.S. government obligations		25,180		–		25,180		–		30,600		0		30,600		0
U.S. government obligations		178,818		–		178,818		–		207,439		0		207,439		0
Total fixed income securities		592,645		2,835		589,810		–		919,692		0		919,692		0
Equity securities:
Consumer		17,945		17,945		–		–		11,598		11,598		0		0
Energy		3,179		3,179		–		–		1,227		1,227		0		0
Financial		25,253		25,253		–		–		29,064		29,064		0		0
Industrial		6,920		6,920		–		–		5,180		5,180		0		0
Technology		2,303		2,303		–		–		2,851		2,851		0		0
Funds (e.g. mutual funds, closed end funds, ETFs)		5,489		5,489		–		–
Other		5,333		5,333		–		–		8,249		8,249		0		0
Total equity securities		66,422		66,422		–		–		58,169		58,169		0		0
Short-term		1,000		1,000		–		–
Short-term investments										1,000		1,000		0		0
Cash equivalents		156,855		–		156,855		–		47,026		0		47,026		0
Total	$	816,922	$	70,257	$	746,665	$	–	$	1,025,887	$	59,169	$	966,718	$	0

~~- 66 -~~

As of December 31, ~~2017:~~2019:

Description	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Fixed income securities:
Agency collateralized mortgage obligations	$	16,586	$	–	$	16,586	$	–	$	12,093	$	0	$	12,093	$	0
Agency mortgage-backed securities		27,075		–		27,075		–		56,280		0		56,280		0
Asset-backed securities		43,469		–		43,469		–		106,397		0		106,397		0
Bank loans		19,488		–		19,488		–		14,568		0		14,568		0
Certificates of deposit		3,135		3,135		–		–		2,835		2,835		0		0
Collateralized mortgage obligations		6,492		–		6,492		–		5,616		0		5,616		0
Corporate securities		193,058		–		193,058		–		276,087		0		276,087		0
Options embedded in convertible securities		5,291		–		5,291		–		5,294		0		5,294		0
Mortgage-backed securities		24,204		–		24,204		–		47,463		0		47,463		0
Municipal obligations		96,650		–		96,650		–		36,286		0		36,286		0
Non-U.S. government obligations		37,394		–		37,394		–		24,179		0		24,179		0
U.S. government obligations		49,011		–		49,011		–		208,440		0		208,440		0
Total fixed income securities		521,853		3,135		518,718		–		795,538		2,835		792,703		0
Equity securities:
Consumer		46,578		46,578		–		–		16,707		16,707		0		0
Energy		10,278		10,278		–		–		3,074		3,074		0		0
Financial		45,470		45,470		–		–		31,577		31,577		0		0
Industrial		25,402		25,402		–		–		4,927		4,927		0		0
Technology		13,061		13,061		–		–		2,817		2,817		0		0
Funds (e.g. mutual funds, closed end funds, ETFs)		50,291		45,276		5,015		–
Funds (e.g., mutual funds, closed end funds, ETFs)										9,460		9,460		0		0
Other		10,683		10,683		–		–		8,250		8,250		0		0
Total equity securities		201,763		196,748		5,015		–		76,812		76,812		0		0
Short-term		1,000		1,000		–		–
Short-term investments										1,000		1,000		0		0
Cash equivalents		59,173		–		59,173		–		59,780		0		59,780		0
Total	$	783,789	$	200,883	$	582,906	$	–	$	933,130	$	80,647	$	852,483	$	0

Level inputs, as defined by the FASB guidance, are as follows:

Level Input:		Input Definition:
Level 1		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level 2		Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.
Level 3		Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The Company did ~~not~~0t have any Level 3 assets at December 31, ~~2018~~2020 or ~~2017.~~2019. Level 3 assets, when present, are valued using various unobservable inputs including extrapolated data, proprietary models and indicative quotes. ~~A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows for the years ended December 31:~~

2018 2017
Beginning of period balance $ – $ 25,218
Total gains or losses (realized) included in income – 406
Purchases – 81
Settlements – (9,123 )
Transfers into Level 3 – 144
Transfers out of Level 3 – (16,726 )
End of period balance $ – $ –

Quoted market prices are obtained whenever possible. Where quoted market prices are not available, fair values are estimated using broker/dealer quotes for specific securities. These techniques are significantly affected by the Company's assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs have not been considered in estimating fair values.

Transfers between levels, if any, are recorded as of the beginning of the reporting period. There were no0 significant transfers of assets between Level 1 and Level 2 during ~~2018.~~2020 or 2019.

~~- 67 -~~

In addition to the preceding disclosures on assets recorded at fair value in the consolidated balance sheets, FASB guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in the consolidated balance sheets.

Non-financial instruments such as real estate, property and equipment, other assets, deferred income taxes and intangible assets, and certain financial instruments such as policy reserve liabilities are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to determine the underlying economic value of the Company. The following methods, assumptions and inputs were used to estimate the fair value of each class of financial instrument:

Limited partnerships: The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to carry the investment at its proportionate share of the limited partnership's equity. The underlying assets of the Company's investments in limited partnerships are carried primarily at fair ~~value, and,~~value; therefore, the Company's carrying value of limited partnerships approximates fair value. As these investments are not actively traded and the corresponding inputs are based on data provided by the investees, they are classified as Level 3.

Commercial mortgage loans: Commercial mortgage loans are carried primarily at amortized cost along with a valuation allowance for losses when necessary. These investments represent interests in commercial mortgage loans originated and serviced by a third party of which the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgage loans. The fair value of the Company’s investment in these commercial mortgage loans is based on expected future cash flows discounted at the current interest rate for origination of similar quality loans, adjusted for specific loan risk. These investments are classified as Level 3.

Short-term borrowings: The fair value of the Company's short-term borrowings is based on quoted market prices for the same or similar debt, or, if no quoted market prices are available, on the current market interest rates available to the Company for debt of similar terms and remaining maturities.

A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company's consolidated balance sheets at December 31, ~~2018~~2020 and ~~2017~~2019 is as follows:

2018:	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total		Carrying		Fair Value
2020:											Value		Level 1		Level 2		Level 3		Total
Assets:
Limited partnerships	$	55,044	$	–	$	–	$	55,044	$	55,044	$	7,214	$	0	$	0	$	7,214	$	7,214
Commercial mortgage loans		6,672		–		–		6,672		6,672		10,602		0		0		11,425		11,425
Liabilities:
Short-term borrowings		20,000		–		20,000		–		20,000		20,000		0		20,000		0		20,000

2017:
2019:
Assets:
Limited partnerships	$	70,806	$	–	$	–	$	70,806	$	70,806	$	23,292	$	0	$	0	$	23,292	$	23,292
Commercial mortgage loans		–		–		–		–		–		11,782		0		0		12,068		12,068
Liabilities:
Short-term borrowings		20,000		–		20,000		–		20,000		20,000		0		20,000		0		20,000

Note O - Quarterly Results of Operations (Unaudited)

Quarterly results of operations are as follows:

	2018												2017									2020									2019
	1st			2nd			3rd			4th			1st		2nd			3rd		4th		1st			2nd		3rd		4th		1st		2nd		3rd			4th

Net premiums earned	$	105,462		$	111,940		$	96,807		$	118,671		$	73,974	$	67,996		$	89,100	$	97,075	$	109,659		$	97,730	$	117,853	$	120,273	$	110,012	$	115,631	$	110,288		$	111,357
Net investment income		4,636			5,796			5,578			6,038			3,692		4,716			4,027		5,661		7,236			6,379		5,486		6,321		6,231		6,500		6,703			6,815
Net realized and unrealized gains (losses) on investments		(4,533	)		(3,435	)		2,373			(20,096	)		6,294		3,296			5,944		4,152		(27,756	)		10,615		144		7,761		6,027		2,889		125			3,848
Losses and loss expenses incurred		72,298			77,488			94,540			101,537			48,599		71,754			60,673		66,492		81,831			68,208		84,673		84,246		87,122		90,433		84,781			86,132

Net income (loss)		330			2,487			(12,325	)		(24,567	)		6,756		(12,343	)		7,434		16,476		(22,156	)		11,367		3,281		11,971		2,748		1,535		(707	)		3,771

Net income (loss) per share	$	0.02		$	0.17		$	(0.82	)	$	(1.65	)	$	0.45	$	(0.82	)	$	0.49	$	1.10
Net income (loss) per diluted share																						$	(1.56	)	$	0.80	$	0.23	$	0.84	$	0.18	$	0.11	$	(0.05	)	$	0.26

~~- 68 -~~

Note P - Statutory

Net income of the Insurance Subsidiaries, all of which are wholly-owned, as determined in accordance with statutory accounting practices, was $3,881, $25,302 and $36,236 ~~$22,000~~for 2020, 2019 and ~~$31,647 for~~ 2018, ~~2017 and 2016,~~ respectively. Consolidated statutory capital and surplus for these Insurance Subsidiaries was ~~$395,891~~$347,489 and ~~$421,663~~$371,793 at December 31, ~~2018~~2020 and ~~2017,~~2019, respectively, of which ~~$64,134~~$50,584 may be transferred by dividend or loan to Protective during calendar year ~~2019~~2021 with proper notification to, but without approval from, regulatory authorities.

State regulatory authorities prescribe calculations of the minimum amount of statutory capital and surplus necessary for each insurance company to remain authorized. These computations are referred to as risk-based capital requirements and are based on a number of complex factors taking into consideration the quality and nature of assets, the historical adequacy of recorded liabilities and the specific nature of business conducted. At December 31, ~~2018,~~2020, the minimum statutory capital and surplus requirements of the Insurance Subsidiaries was ~~$117,426.~~$136,544. Actual consolidated statutory capital and surplus at December 31, ~~2018~~2020 exceeded this requirement by ~~$278,464.~~

$210,946.

Note Q - Leases

The Company leases certain computer and related equipment using noncancelable operating leases. Lease expense for 2020, 2019 and 2018 ~~2017~~was $135, $302 and ~~2016 was~~ $204, ~~$417 and $157,~~ respectively. At December 31, ~~2018,~~2020, future lease payments for operating leases with initial or remaining noncancelable terms of one year or more consisted of the following:

2019 $ 342
2020 114
2021 15
2022 and thereafter 1
Total minimum payments required $ 472

2021	$	103
2022		18
2023		0
2024 and thereafter		0
Total minimum payments required	$	121

The Company recorded a right-of-use asset and lease liability on the consolidated balance sheet at December 31, 2020 of $120, which are included within other assets and accounts pyable and other liabilities.

Note R – Debt

On August 9, 2018, the Company entered into a credit agreement providing a revolving credit facility with a $40,000 limit, with the option for up to an additional $35,000 in incremental loans at the discretion of the lenders. This credit agreement ~~which~~ has an expiration date of August 9, ~~2022, replaced the Company's revolving line of credit that was to expire on September 23, 2018.~~2022. Interest on this revolving credit facility is referenced to the London Interbank Offered Rate and can be fixed for periods of up to one year at the Company's option. Outstanding drawings on this revolving credit facility were $20,000 as of December 31, ~~2018.~~2020. At December 31, ~~2018,~~2020, the effective interest rate was ~~3.61%~~1.25%, and the Company had $20,000 remaining under the revolving credit facility. The current outstanding borrowings were used to repay the Company's previous line of credit. The Company's revolving credit facility has ~~two~~2 financial covenants, each of which were met as of December 31, ~~2018, requiring~~2020. These covenants require the Company to have a minimum U.S. generally accepted accounting principles net worth and a maximum consolidated ~~leverage~~debt to equity ratio of ~~0.35 to 1.00.~~0.35.

Note S - Related Parties

At December 31, 2018, the Company is invested in two limited partnerships with an aggregate estimated value of $32,028 that are managed by organizations in which one director of the Company is an executive officer and owner. The Company’s ownership interest in these limited partnerships at December 31, 2018 was 6% for the New Vernon India Fund and 37% for the New Vernon Global Opportunity Fund. During 2018, the Company withdrew $4,229 from the New Vernon Global Opportunity Fund II, which liquidated its investment in this limited partnership. The Company also withdrew $2,271 from the New Vernon Global Opportunity Fund, which reduced its investment in this limited partnership. These limited partnerships contributed to or (reduced) investment gains, net of fees, in 2018, 2017 and 2016 by ($5,059), $9,549 and ($971), respectively.

The Company utilizes the services of an investment firm of which ~~one~~1 director of the Company is a partial owner. ~~These~~This investment ~~firms manage~~firm manages equity securities and fixed income portfolios held by the Company with an aggregate market value of approximately ~~$17,065~~$7,796 at December 31, ~~2018.~~2020. Total commissions and net fees earned by ~~the~~this investment ~~firms~~firm and its affiliates on these portfolios were ~~$103, $97~~$110, $145 and ~~$207~~$103 for the years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016.~~2018.

~~- 69 -~~

Note T - Litigation, Commitments and Contingencies

In the ordinary, regular and routine course of their business, the Company and its Insurance Subsidiaries are frequently involved in various matters of litigation relating principally to claims for insurance coverage provided. No currently pending matter is deemed by management to be material to the Company, other than as noted below.

Personnel Staffing Group Litigation

In July 2019, Protective Insurance Company (“Protective”) was named as a defendant in an action brought by a former insured, Personnel Staffing Group d/b/a MVP Staffing (“PSG”), in the U.S. District Court for the Central District of California (the “California Action”) alleging that Protective had breached its workers’ compensation insurance policy and had breached the duties of good faith and fair dealing. Protective provided workers’ compensation insurance to PSG from January 1, 2017 through June 30, 2018, which was subject to a $500 per claim deductible to be paid by PSG. NaN specific damages were included in the complaint. In August 2019, Protective filed a motion to dismiss or stay the action. On April 28, 2020, Protective's motion to dismiss the California Action was granted without prejudice on grounds that Indiana is the more appropriate forum. On May 4, 2020, PSG filed a notice of appeal in the 9^th Circuit Court of Appeals, challenging the order of dismissal in the California Action.

In August 2019, Protective filed a lawsuit against PSG in Marion County Superior Court, in Indianapolis, Indiana (the “Indiana Court”) alleging breach of contract, breach of the parties' collateral agreement, breach of the parties' indemnity agreement, and seeking a declaratory judgment regarding PSG’s obligation to fund its ongoing claim deductible obligations and adequately collateralize Protective’s current and ongoing claims exposure pursuant to terms of the parties' agreements (the “Indiana Action”). In October 2019, Protective amended the complaint to include allegations of misrepresentation as to source of coverage, negligent misrepresentation, fraud and racketeering and seeking injunctive relief. In November 2019, PSG filed a motion to dismiss the Indiana Action on the basis of comity with the California Action, claiming that California was the proper forum for Protective’s claims.

In February 2020, the Indiana Court issued an order dismissing the Indiana Action without prejudice; the Indiana Court declined to rule on the legal effect of the forum selection clause in the parties’ agreements, finding that any interpretation should be addressed by the court in the California Action. Following the court's granting of Protective’s motion to dismiss in the California Action, on May 1, 2020, Protective filed a motion with the Indiana Court to re-open the Indiana Action, which was denied on September 23, 2020. On December 22, 2020, Protective moved for reconsideration of its Motion to Re-Open the Indiana Action, which the Indiana Court granted on February 5, 2021. On February 18, 2021, PSG moved for further reconsideration and for hearing, which was held on March 2, 2021. The Indiana court has taken the matter under advisement. Protective intends to vigorously pursue its claims against PSG, however, the ultimate outcome cannot be presently determined.

Pursuant to the terms of the workers’ compensation policies, Protective has a duty to adjust and pay claims arising under the policies regardless of whether PSG makes payments to Protective for deductible obligations under the policies. Under its contractual obligations to Protective, PSG is required to maintain a “loss fund” for the payment of claims, the balance of which is to remain at or above $4,000; in addition, PSG is required to provide collateral in an amount equal to 110% of Protective’s current open case reserves on workers’ compensation claims arising under the policies.

As of December 31, 2020, Protective had approximately $21,780 in receivables on claims arising under PSG’s workers’ compensation policies and had exhausted all collateral provided by PSG. Protective continues to pay claims settlements under the policies without reimbursement from PSG. For the past six months, the average monthly invoices have been approximately $740. PSG’s estimated ultimate obligation under the agreements is approximately $47,000 as of December 31, 2020 (inclusive of the $21,780 in receivables noted above). At December 31, 2020, based on the Company's assessment that PSG will continue to operate as a business and that the terms of the agreement with PSG will be legally enforceable, the Company believes that it will fully collect all current and future amounts due from PSG relating to this matter.

The Company included this matter in its assessment of the impact of adopting ASU 2016-13, the new guidance for measuring CECL, which is discussed in Note A. A probability-of-default methodology was applied to projected estimated cash flows to estimate the allowance for expected credit losses for this matter. The Company considered the delay in reimbursement for claims paid as well as probability of default assumptions when analyzing the credit loss related to this matter. As of January 1, 2020, in conjunction with the adoption of ASU 2016-13, the Company recorded an allowance for expected credit losses of $15,000 ($11,850, net of tax) as a reduction to equity. During the third quarter of 2020, the Company performed an update to its CECL allowance calculation related to the PSG matter. As noted above, there have been further delays in the litigation process, which have extended the estimated cash flow timing. As a result of these delays and an increase in the estimated ultimate obligation, the Company recorded an additional allowance of $1,500 ($1,185, net of tax) within other operating expenses in the condensed consolidated statement of operations in the third quarter of 2020. NaN additional allowance was recorded in the fourth quarter of 2020. In the event of a situation that results in no recovery from PSG, the Company would incur an estimated charge to the consolidated statement of operations of $30,500 ($24,095, net of tax), which represents the estimated ultimate obligation discussed above less the CECL allowance.

Note U – Subsequent Events

~~In January 2019, the Company withdrew $10,000 from the New Vernon India Fund limited partnership, which reduced the Company's investment in this limited partnership.~~Proposed Merger with The ~~Company also withdew $5,684 from the New Vernon Global Opportunity Fund limited partnership, which liquidated the Company's investment in this limited partnership.~~Progressive Corporation

Merger Agreement

On February ~~26, 2019,~~14, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with The Progressive Corporation, an Ohio corporation (“Progressive”), and Carnation Merger Sub Inc., an Indiana corporation and wholly-owned indirect subsidiary of Progressive (“Merger Sub”). The Merger Agreement provides for, subject to the satisfaction or waiver of specified conditions, the merger of Merger Sub with and into the Company (the “Merger”), whereupon the separate existence of Merger Sub will cease and Protective will continue as the surviving corporation and as a wholly-owned indirect subsidiary of Progressive.

The Company's Board of Directors (the "Board"), at the unanimous recommendation of ~~Protective~~the Special Committee of the Board, unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are advisable and fair to, and in the best interests of, the Company and its shareholders, and approved, adopted and declared advisable the Merger Agreement and the transactions contemplated thereby. The Merger is expected to close prior to the end of the third quarter of 2021. At the effective time of the Merger, each issued and outstanding share of common stock, without par value, of the Company (other than each share of the Company’s common stock that is owned by the Company as treasury stock or by any subsidiary of the Company and each share of the Company’s common stock owned by Progressive, Merger Sub or any other subsidiary of Progressive immediately prior to the effective time of the Merger) will be automatically canceled and converted into the right to receive $23.30 in cash, without interest for a total transaction value of approximately $338 million.

The Merger Agreement contains various customary representations and warranties from each of the Company, Progressive and Merger Sub. The Company has also agreed to various customary covenants, including but not limited to conducting its business in the ordinary course and not engaging in certain types of transactions during the period between the execution of the Merger Agreement and the closing of the Merger. However, the Merger Agreement permits the Company to continue to pay regular quarterly dividends not to exceed $0.10 per share of the Company’s common stock. The Merger is subject to certain conditions, including approval of the Merger by the Company's Class A shareholders, legal and regulatory approvals including from the Indiana Department of Insurance ~~Corporation~~and the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as well as other customary closing conditions.

Voting and Support Agreement

On February 14, 2021, the Company also entered into a Voting and Support Agreement (the “Voting Agreement”) with Progressive and certain of the Company's shareholders. The Voting Agreement requires that the Company shareholders party to the Voting Agreement: (i) appear at the meeting of the holders of the Company's Class A common stock to consider resolutions to approve the Merger Agreement and the Merger or otherwise cause their shares of the Company's common stock to be counted as present for purposes of calculating a quorum, and (ii) vote their shares (a) in favor of the adoption of the Merger Agreement, the Merger and the other transactions contemplated thereby and any action reasonably requested by Progressive or the Board in furtherance of the foregoing, (b) against any action or agreement that would result in a material breach of any covenant, representation or warranty or other obligation or agreement of the Company contained in the Merger Agreement and (c) against any takeover proposal or superior proposal (provided, that if the Board changes its recommendation with respect to the Merger, any shares of Class A common stock owned by such shareholders in excess of approximately 35% of the outstanding shares of Class A common stock will be voted in the same proportion as those shares of Class A common stock voted by the holders of the Company’s Class A common stock that are not party to the Voting Agreement).

There can be no assurance that the Merger will occur or, if it does occur, of its terms or timing. For additional information regarding the risks associated with the Merger, please see Part I, Item 1A, "Risk Factors," of this Annual Report on Form 10-K.

Dividends

On February 22, 2021, the Company's Board of Directors declared a regular quarterly dividend of $0.10 per share on the Company's Class A and Class B Common Stock. The dividend per share will be payable March ~~26, 2019~~10, 2021 to shareholders of record on March ~~12, 2019.~~5, 2021.

~~- 70 -~~

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

~~No response to this item is required.~~None.

Item 9A. CONTROLS AND PROCEDURES

The Company carried out an evaluation as of December 31, ~~2018,~~2020, under the supervision and with the participation of management, including the ~~Interim~~ Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or the "Exchange Act". Based upon that evaluation, the ~~Interim~~ Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective in ensuring that information required to be disclosed in reports that the Company files or submits under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms; and (b) accumulated and communicated to management, including the ~~Interim~~ Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. The Company noted no change in its internal control over financial reporting that occurred during the three months ended December 31, ~~2018~~2020 that materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

Management's Responsibility for Financial Statements

Management is responsible for the preparation of the Company's consolidated financial statements and related information appearing in this Annual Report on Form 10-K. Management believes that the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements reasonably present the Company's financial position and results of operations in conformity with U.S. generally accepted accounting principles. Management has included in the Company's financial statements amounts that are based upon estimates and judgments which it believes are reasonable under the circumstances.

The Audit Committee meets periodically with financial management, the internal auditors and the independent registered public accounting firm to review accounting, control, auditing and financial reporting matters.

Management's Report on Internal Control Over Financial Reporting

The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of management, including the ~~Interim~~ Chief Executive Officer and the Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on the Company's evaluation under this framework, management concluded that the Company's internal control over financial reporting was effective as of December 31, ~~2018.~~2020. The effectiveness of the Company's internal control over financial reporting as of December 31, ~~2018~~2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included herein.

~~- 71 -~~

~~Report of Independent Registered Public Accounting Firm~~

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Protective Insurance Corporation

Opinion on Internal Control over Financial Reporting

We have audited Protective Insurance Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Protective Insurance Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Protective Insurance Corporation and subsidiaries as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”) and our report dated March 11, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the 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.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ ERNST & YOUNG LLP

Indianapolis, Indiana

March 11, 2021

~~To the Shareholders and the Board of Directors of Protective Insurance Corporation~~

~~Opinion on Internal Control over Financial Reporting~~

We have audited Protective Insurance Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Protective Insurance Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Protective Insurance Corporation and subsidiaries as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”) and our report dated March 7, 2019 expressed an unqualified opinion thereon.

~~Basis for Opinion~~

~~Definition and Limitations of Internal Control over Financial Reporting~~

~~/s/ ERNST & YOUNG LLP~~

~~Indianapolis, Indiana~~

~~March 7, 2019~~

~~- 72 -~~

Item 9B. OTHER INFORMATION

None.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item concerning the Company's directors and nominees for director, Audit Committee members and financial expert(s) and concerning disclosure of delinquent filers under Section 16(a) of the Exchange Act is incorporated herein by reference from the Company's definitive Proxy Statement for its ~~2019~~2021 Annual Meeting of Shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the Company's fiscal year.

The executive officers of the Company are expected to serve until the next annual meeting of the Board of Directors or until their respective successors are elected and qualified.

The ~~following summary sets forth certain~~ information required by this Item concerning the Company's executive officers ~~as of February 28, 2019:~~is included in Part I, under "Information about our Executive Officers" in this Annual Report on Form 10-K, and is incorporated herein by reference.

~~Name~~	~~Age~~	~~Title~~	~~Served in Such Capacity Since~~
~~John D. Nichols Jr.~~	58	~~Interim Chief Executive Officer and Chairman of the Board of Directors~~	~~2018~~ ⁽¹⁾
~~William C. Vens~~	47	~~Chief Financial Officer~~	~~2016~~ ⁽²⁾
~~Matthew A. Thompson~~	54	~~Executive Vice President~~	~~2016~~ ⁽³⁾
~~Jeremy F. Goldstein~~	47	~~Executive Vice President~~	~~2017~~ ⁽⁴⁾
~~Patrick S. Schmiedt~~	38	~~Chief Underwriting Officer~~	~~2018~~ ⁽⁵⁾

~~(1)~~

Mr. Nichols was appointed Interim Chief Executive Officer and elected Chairman of the Board of Directors in October 2018. Mr. Nichols joined the Company's Board of Directors in May 2017, most recently serving as the Chairman of the Audit Committee from March 2017 until October 2018. Mr. Nichols served as Chief Executive Officer of AXIS Re, a leading reinsurer to global property and casualty insurance companies, from 2012 until February 2017. Prior to joining Axis Re, Mr. Nichols served as President of RenaissanceRe Ventures Ltd. from 2001 until 2010, where he was responsible for business development and management of joint venture and venture capital business. Mr. Nichols is also a director of Delaware North Companies and National General Holdings Corp.

~~(2)~~

Mr. Vens was elected Chief Financial Officer in August 2016. Mr. Vens joined the Company in June 2014 as Managing Director – Finance and after that served as Vice President of Strategy and Planning from June 2016 until August 2016. Prior to joining the Company, Mr. Vens served as Chief Financial Officer of HighWave Energy, Inc. from 2011 to May 2014.

~~(3)~~

~~Mr. Thompson was elected Executive Vice President in November 2016. He previously served as Senior Vice President of the Company from 2015 to 2016 and as Vice President of Sales from 2011 to 2015.~~

~~(4)~~

Mr. Goldstein was elected Executive Vice President in November 2017. He previously served as Senior Vice President of the Company from 2015 to 2017, as Vice President from 2011 to 2015 and as Corporate Secretary from 2016 to 2018.

~~(5)~~

Mr. Schmiedt was elected Chief Underwriting Officer in October 2018. He previously served as Senior Vice President of Underwriting from 2016 to 2018, as Vice President of Underwriting from 2015 to 2016 and as Assistant Vice President of Underwriting from 2013 to 2015.

Code of Conduct

The Board of Directors has adopted a Code of Business Conduct (the "Code") as our code of ethics document, which is applicable to all directors, officers at the vice president level and above, as well as certain other employees with control over accounting data. The Code incorporates our guidelines designed to deter wrongdoing and to promote honest and ethical conduct and compliance with applicable laws and regulations. The Code also incorporates our expectations of our employees that enable us to comply with applicable laws, rules and regulations and to provide accurate and timely disclosure in our filings with the SEC and other public communications.

The Code is available on our website at ~~www.protectiveinsurance.com.~~ir.protectiveinsurance.com/govdocs. The Board of Directors reviews the Code annually and approves any amendments necessary to update the Code. We intend to disclose on our website any amendments to, or waivers from, the Code that are required to be publicly disclosed pursuant to the rules of the SEC and Nasdaq. Copies can also be obtained free of charge by contacting our Investor Relations department at investors@protectiveinsurance.com or by written request to Protective Insurance Corporation, Attention: Investor Relations, 111 Congressional Blvd., Suite 500, Carmel, Indiana 46032.

~~- 73 -~~

Item 11. EXECUTIVE COMPENSATION *

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS *

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE *

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES *

* The information required by Items 11, 12, 13 and 14 is incorporated herein by reference from the Company's definitive Proxy Statement for its ~~2019~~2021 Annual Meeting of Shareholders, which will be filed with the SEC pursuant to Regulation 14A within 120 days after the end of the Company's fiscal year.

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1.

List of Financial Statements--The following consolidated financial statements of the registrant and its subsidiaries (including the Report of Independent Registered Public Accounting Firm) are submitted in Item 8 of this Annual Report on Form 10-K.

Consolidated Balance Sheets - December 31, ~~2018~~2020 and ~~2017~~2019

Consolidated Statements of Operations - Years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018

Consolidated Statements of Comprehensive Income (Loss) – Years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018

Consolidated Statements of Shareholders' Equity - Years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018

Consolidated Statements of Cash Flows - Years ended December 31, ~~2018, 2017~~2020, 2019 and ~~2016~~2018

Notes to Consolidated Financial Statements

List of Financial Statement Schedules--The following consolidated financial statement schedules of Protective Insurance Corporation and subsidiaries are included in this Annual Report on Form 10-K:

Pursuant to Article 7:

Schedule I

Summary of Investments--Other than Investments in Related Parties

Schedule II

Condensed Financial Information of Registrant

Schedule III

Supplementary Insurance Information

Schedule IV

Reinsurance

Schedule VI

Supplemental Information Concerning Property/Casualty Insurance Operations

~~Schedule I Summary of Investments--Other than Investments in Related Parties~~

~~Schedule II Condensed Financial Information of Registrant~~

~~Schedule III Supplementary Insurance Information~~

~~Schedule IV Reinsurance~~

~~Schedule VI Supplemental Information Concerning Property/Casualty Insurance Operations~~

All other schedules to the consolidated financial statements required by Article 7 and Article 5 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted.

~~- 74 -~~

3. Index to Exhibits:

INDEX TO EXHIBITS

Exhibit No.		Description
~~3.1~~2.1		Agreement and Plan of Merger, dated as of February 14, 2021, by and among the Company, The Progressive Corporation and Carnation Merger Sub Inc. (Incorporated as an exhibit by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on February 16, 2021)

3.1		Amended and Restated Articles of Incorporation of Protective Insurance Corporation (Incorporated as an exhibit by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on August 8, 2018)

3.2		Code of By-Laws of Protective Insurance Corporation, as amended ~~February 22, 2019~~

~~10.1~~		~~1981 Employee Stock Purchase Plan~~through January 3, 2021 (Incorporated as an exhibit by reference to Exhibit A3.2 to the Company's definitive Proxy Statement for its Annual Meeting held May 5, 1981) (SEC File No. 000-05534)*Company’s Current Report on Form 8-K filed on January 4, 2021)

~~10.2~~4.1		Description of the Company’s Securities Registered Under Section 12 of the Exchange Act (Incorporated as an exhibit by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 2019)

~~Baldwin & Lyons, Inc.~~10.1		Protective Insurance Corporation Restricted Stock Compensation Plan (Incorporated as an exhibit by reference to Exhibit A to the Company's definitive Proxy Statement filed on April 1, 2010 for its Annual Meeting held May 4, 2010)~~(SEC File No. 000-05534)~~*

~~10.3~~10.2		~~Baldwin & Lyons, Inc.~~Protective Insurance Corporation Annual Incentive Plan (Incorporated as an exhibit by reference to Appendix A to the Company's definitive Proxy Statement filed on April 7, 2017 for its Annual Meeting held May 9, 2017)*

~~10.4~~10.3		~~Baldwin & Lyons, Inc.~~Protective Insurance Corporation Long-Term Incentive Plan (Incorporated as an exhibit by reference to Appendix B to the Company's definitive Proxy Statement filed on April 7, 2017 for its Annual Meeting held May 9, 2017)*

~~10.5~~10.4		~~Severance, Confidentiality, Non-Competition and Non-Solicitation~~Employment Agreement, ~~dated~~effective as of May ~~10, 2018,~~22, 2019, by and between the Company and ~~W. Randall Birchfield~~Jeremy D. Edgecliffe-Johnson (Incorporated as an exhibit by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 22, 2019)*

10.5		Amendment 1 to the Employment Agreement, effective as of May 22, 2019, by and between the Company and Jeremy D. Edgecliffe-Johnson, dated as of March 31, 2020 (Incorporated as an exhibit by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on May 6, 2020)*

10.6		Amendment 2 to the Employment Agreement, effective as of May 22, 2019, by and between the Company and Jeremy D. Edgecliffe-Johnson, dated as of August 3, 2020 (Incorporated as an exhibit by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on August 5, 2020)*

10.7		Offer Letter, dated September 6, 2019, between the Company and John R. Barnett (Incorporated as an exhibit by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on ~~August 8, 2018)~~November 6, 2019)*

~~10.6~~10.8		Non-Compete, Severance and Confidentiality Agreement, dated effective as of October 1, 2019, between the Company and John R. Barnett (Incorporated as an exhibit by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on November 6, 2019)*

10.9		Confidentiality, Non-Competition, and Non-Solicitation Agreement, dated May 25, 2018, by and between the Company and Jeremy F. Goldstein (Incorporated as an exhibit by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018)*

10.10		Confidentiality, Non-Competition, and Non-Solicitation Agreement, dated July 26, 2018, by and between the Company and Patrick S. Schmiedt (Incorporated as an exhibit by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2018)*

10.11		Offer Letter, dated August 23, 2019, between the Company and Bahr D. Omidfar (Incorporated as an exhibit by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the year ended December 31, 2019)*

10.12		Non-Compete, Severance and Confidentiality Agreement, dated effective as of September 16, 2019, between the Company and Bahr D. Omidfar (Incorporated as an exhibit by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 2019)*

10.13		Severance, Confidentiality, Non-Competition and Non-Solicitation Agreement, dated June 22, 2018, by and between the Company and Matthew A. Thompson (Incorporated as an exhibit by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed on August 8, 2018)*

~~10.7~~10.14		~~Severance Pay, Release and Waiver of Rights, dated February 15, 2018, by and between the Company and Michael J. Case~~ (Incorporated as an exhibit by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on August 8, 2018)*

~~10.8~~		~~Employment Agreement, dated as of August 13, 2018, by and between the Company and W. Randall Birchfield~~ (Incorporated as an exhibit by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 22, 2018)*

~~10.9~~		Separation and Release Agreement, dated as of October 17, 2018, by and between the Company and W. Randall Birchfield*

~~10.10~~		Employment Agreement, dated as of November 13, 2018, by and between the Company and John D. Nichols, Jr. (Incorporated as an exhibit by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K/A filed on November 16, 2018)*

~~10.11~~10.15		~~Confidentiality, Non-Competition, and Non-Solicitation~~Form of November 2019 Protective Insurance Corporation Long-Term Incentive Award Agreement ~~dated May 25, 2018,~~(Incorporated as an exhibit by ~~and between~~reference to Exhibit 10.13 to the Company and Jeremy F. Goldstein* Company's Annual Report on Form 10-K for the year ended December 31, 2019)*

~~10.12~~10.16		~~Confidentiality, Non-Competition, and Non-Solicitation~~Form of Long-Term Incentive Plan Award Agreement, ~~dated July 26, 2018~~ by and between the Company and Patrick S. Schmiedt* certain Executives, dated as of July 6, 2020 (Incorporated as an exhibit by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on August 5, 2020)*

2110.17		~~Subsidiaries~~Form of ~~Protective Insurance Corporation~~ Indemnification Agreement, by and between the Company and members of the Company's Board of Directors, dated as of May 5, 2020 (Incorporated as an exhibit be reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on May 6, 2020)*

2310.18		~~Consent~~Voting and Support Agreement, dated as of ~~Ernst & Young LLP~~ February 14, 2021, by and among the Company, The Progressive Corporation and the Company's shareholders listed therein (Incorporated as an exhibit by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 16, 2021)

24 21		Subsidiaries of Protective Insurance Corporation

23		Consent of Ernst & Young LLP

24		Powers of Attorney for certain Officers and Directors

31.1		Certification of the ~~Interim~~ Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of the ~~Interim~~ Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following materials from Protective Insurance Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (1) the Consolidated Balance Sheets, (2) the Consolidated Statements of Operations, (3) the Consolidated Statements of Comprehensive Income (Loss), (4) the Consolidated Statements of Shareholders' Equity, (5) the Consolidated Statements of Cash Flows, and (6) the Notes to Consolidated Financial Statements.

104		Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)

* Indicates management contracts or compensatory plans or arrangements.

Item 16. FORM 10-K SUMMARY

None.

~~- 75 -~~87

SCHEDULE I

PROTECTIVE INSURANCE CORPORATION AND SUBSIDIARIES

SUMMARY OF INVESTMENTS

OTHER THAN INVESTMENTS IN RELATED PARTIES

(in thousands)

As of December 31, ~~2018~~2020

Type of Investment	Cost		Fair Value		Amount at Which Shown in the Consolidated Balance Sheet ⁽¹⁾		Cost		Fair Value		Amount at Which Shown in the Consolidated Balance Sheet ⁽¹⁾
Fixed Income Securities:
Bonds:
Agency collateralized mortgage obligations	$	10,636	$	10,687	$	10,687	$	11,448	$	11,931	$	11,931
Agency mortgage-backed securities		37,168		37,385		37,385		99,060		102,107		102,107
Asset-backed securities		66,241		64,422		64,422		108,686		107,696		107,696
Bank loans		10,208		9,750		9,750		11,590		11,361		11,361
Certificates of deposit		2,835		2,835		2,835
Collateralized mortgage obligations		5,095		5,423		5,423		5,061		5,118		5,118
Corporate securities		196,925		190,450		190,450		344,059		360,241		360,241
Mortgage-backed securities		38,586		38,540		38,540		40,675		38,056		38,056
Municipal obligations		29,102		29,155		29,155		43,353		45,143		45,143
Non-U.S. government obligations		25,339		25,180		25,180		29,882		30,600		30,600
U.S. government obligations		178,369		178,818		178,818		200,654		207,439		207,439
Total fixed income securities		600,504		592,645		592,645		894,468		919,692		919,692

Equity Securities:
Common Stocks:
Consumer		15,963		17,945		17,945		9,619		11,598		11,598
Energy		3,981		3,179		3,179		2,046		1,227		1,227
Financial		23,111		25,253		25,253		24,007		29,064		29,064
Industrial		3,287		6,920		6,920		4,066		5,180		5,180
Technology		1,259		2,303		2,303		1,749		2,851		2,851
Funds (e.g. mutual funds, closed end funds, ETFs)		6,797		5,489		5,489
Other		5,032		5,333		5,333		6,950		8,249		8,249
Total equity securities		59,430		66,422		66,422		48,437		58,169		58,169

Commercial mortgage loans		6,672		6,672		6,672		10,602		11,425		10,602
Short-term:
Certificates of deposit		1,000		1,000		1,000		1,000		1,000		1,000
Total short-term and other		1,000		1,000		1,000		1,000		1,000		1,000

Total investments	$	667,606	$	666,739	$	666,739	$	954,507	$	990,286	$	989,463

⁽¹⁾	Amounts presented above do not include investments of ~~$156,855~~$47,026 classified as cash and cash equivalents in the consolidated balance sheet.

~~- 76 -~~

SCHEDULE II

PROTECTIVE INSURANCE CORPORATION AND SUBSIDIARIES

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEETS - PARENT COMPANY ONLY

(in thousands)

	December 31					December 31
	2018			2017		2020		2019
Assets
Investment in subsidiaries	$	401,260		$	436,879	$	389,757	$	398,725
Due from affiliates		1,152			1,191		7,877		1,579
Investments other than subsidiaries:
Fixed income securities		22,302			22,306		23,379		23,979
Limited partnerships		215			222		206		206
		22,517			22,528		23,585		24,185
Cash and cash equivalents		15,185			26,496		12,917		7,059
Accounts receivable		2,276			6,833		7,059		5,606
Other assets		28,794			24,772		14,316		22,153
Total assets	$	471,184		$	518,699	$	455,511	$	459,307

Liabilities and shareholders' equity

Liabilities:
Premiums payable	$	22,964		$	14,046	$	16,866	$	20,238
Deposits from insureds		58,748			60,893		44,268		42,067
Short-term borrowings		20,000			20,000		20,000		20,000
Other liabilities		13,390			4,949		11,295		12,686
		115,102			99,888		92,429		94,991
Shareholders' equity:
Common stock:
Class A		112			112		111		111
Class B		522			530		498		499
Additional paid-in capital		54,720			55,078		54,571		53,349
Accumulated other comprehensive income (loss)		(7,347	)		46,391
Accumulated other comprehensive income							21,759		9,369
Retained earnings		308,075			316,700		286,143		300,988
		356,082			418,811		363,082		364,316

Total liabilities and shareholders' equity	$	471,184		$	518,699	$	455,511	$	459,307

~~- 77 -~~

SCHEDULE II

PROTECTIVE INSURANCE CORPORATION AND SUBSIDIARIES

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF ~~INCOME (LOSS)~~OPERATIONS - PARENT COMPANY ONLY

(in thousands)

	Year Ended December 31									Year Ended December 31
	2018			2017			2016			2020			2019			2018
Revenue:
Commissions and service fees	$	17,456		$	18,863		$	27,736		$	15,011		$	14,149		$	17,456
Cash dividends from subsidiaries		5,000			10,000			20,000			0			0			5,000
Net investment income		569			348			134			453			692			569
Net realized gains (losses) on investments		(192	)		308			(3	)
Net realized losses on investments											(10	)		(46	)		(192	)
Other		51			(106	)		(24	)		138			17			51
		22,884			29,413			47,843			15,592			14,812			22,884
Expenses:
Salary and related items		20,158			18,140			17,462			10,663			11,804			20,158
Other		11,724			9,686			10,808			11,048			10,386			11,724
		31,882			27,826			28,270			21,711			22,190			31,882
Income (loss) before federal income tax benefit and equity in undistributed income of subsidiaries		(8,998	)		1,587			19,573
Loss before federal income tax benefit and equity in undistributed income of subsidiaries											(6,119	)		(7,378	)		(8,998	)
Federal income tax benefit		(2,862	)		(2,971	)		(69	)		(1,333	)		(1,452	)		(2,862	)
		(6,136	)		4,558			19,642			(4,786	)		(5,926	)		(6,136	)
Equity in undistributed income of subsidiaries		(27,939	)		13,765			9,303			9,249			13,273			(27,939	)

Net income (loss)	$	(34,075	)	$	18,323		$	28,945		$	4,463		$	7,347		$	(34,075	)

~~- 78 -~~

SCHEDULE II

PROTECTIVE INSURANCE CORPORATION AND SUBSIDIARIES

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - PARENT COMPANY ONLY

(in thousands)

	Year Ended December 31								Year Ended December 31
	2018			2017		2016			2020		2019		2018
Net income (loss)	$	(34,075	)	$	18,323	$	28,945		$	4,463	$	7,347	$	(34,075	)

Other comprehensive income (loss), net of tax:
Unrealized net gains (losses) on fixed income securities:
Unrealized net gains (losses) arising during the period		(9,680	)		17,340		8,618
Less: reclassification adjustment for net gains (losses) included in net income (loss)		(2,812	)		4,691		13,491
		(6,868	)		12,649		(4,873	)
Unrealized net gains (losses) on fixed income securities										12,141		16,071		(6,868	)

Foreign currency translation adjustments		(830	)		522		235			249		645		(830	)

Other comprehensive income (loss)		(7,698	)		13,171		(4,638	)		12,390		16,716		(7,698	)

Comprehensive income (loss)	$	(41,773	)	$	31,494	$	24,307		$	16,853	$	24,063	$	(41,773	)

~~- 79 -~~

SCHEDULE II

PROTECTIVE INSURANCE CORPORATION AND SUBSIDIARIES

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF CASH FLOWS - PARENT COMPANY ONLY

(in thousands)

	Year Ended December 31									Year Ended December 31
	2018			2017			2016			2020			2019			2018
Net cash provided by operating activities	$	14,019		$	44,998		$	15,484		$	12,350		$	10,643		$	14,019

Investing activities:
Purchases of investments		(11,435	)		(21,365	)		(4,000	)		(7,795	)		(4,967	)		(11,435	)
Sales or maturities of investments		11,213			9,146			3,493			8,777			3,935			11,213
Net sales of short-term investments		–			–			2,165
Distributions from limited partnerships		–			298			–			0			1			0
Net purchases of property and equipment		(3,677	)		(3,394	)		(4,278	)		0			(380	)		(3,677	)
Net cash used in investing activities		(3,899	)		(15,315	)		(2,620	)
Net cash provided by (used in) investing activities											982			(1,411	)		(3,899	)

Financing activities:
Dividends paid to shareholders		(16,835	)		(16,302	)		(15,803	)		(5,692	)		(5,857	)		(16,835	)
Repurchase of common shares		(4,596	)		(1,880	)		–			(1,782	)		(11,501	)		(4,596	)
Net cash used in financing activities		(21,431	)		(18,182	)		(15,803	)		(7,474	)		(17,358	)		(21,431	)

Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents		(11,311	)		11,501			(2,939	)		5,858			(8,126	)		(11,311	)
Cash, cash equivalents and restricted cash and cash equivalents at beginning of year		26,496			14,995			17,934			7,059			15,185			26,496
Cash, cash equivalents and restricted cash and cash equivalents at end of year	$	15,185		$	26,496		$	14,995		$	12,917		$	7,059		$	15,185

Note to Condensed Financial Statements -- Basis of Presentation

The Company's investment in subsidiaries is stated at cost plus equity in the undistributed earnings of subsidiaries since the date of acquisition. The Company's share of net income of its subsidiaries is included in income using the equity method. These financial statements should be read in conjunction with the Company's consolidated financial statements.

Indiana		35-0160330
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

111 Congressional Boulevard, Carmel, Indiana		46032
(Address of Principal Executive Offices)		(Zip Code)

(Title of ~~class)~~ each class	Trading Symbol(s)	Name of ~~Each Exchange~~each exchange on which ~~Registered~~registered
Class A Common Stock, No Par Value	PTVCA	The Nasdaq Stock Market LLC
Class B Common Stock, No Par Value	PTVCB	The Nasdaq Stock Market LLC

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☐
	Emerging growth company ☐

Common Stock, No Par Value:	Class A (voting)	~~2,615,339~~2,603,350
	Class B (nonvoting)	~~12,234,130~~11,552,801
		~~14,849,469~~14,156,151

			Page
Part I	Item 1.	Business	4

	Item 1A.	Risk Factors	17

	Item 1B.	Unresolved Staff Comments	23

	Item 2.	Properties	23

	Item 3.	Legal Proceedings	23

	Item 4.	Mine Safety Disclosures	23

		Information About our Executive Officers	24

Part II	Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25

	Item 6.	Selected Financial Data	27

	Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

	Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	43

	Item 8.	Financial Statements and Supplementary Data	46

	Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	82

	Item 9A.	Controls and Procedures	82

	Item 9B.	Other Information	84

Part III	Item 10.	Directors, Executive Officers and Corporate Governance	84

	Item 11.	Executive Compensation	85

	Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	85

	Item 13.	Certain Relationships and Related Transactions, and Director Independence	85

	Item 14.	Principal Accountant Fees and Services	85

Part IV	Item 15.	Exhibits and Financial Statement Schedules	85

	Item 16.	Form 10-K Summary	87

	Signatures		97

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs ⁽¹⁾		Maximum number of shares that may yet be purchased under the plans or programs ⁽¹⁾
October 1 - October 31, 2018		72,108	$	22.64		72,108		2,194,666
November 1 - November 30, 2018		15,085		22.79		15,085		2,179,581
December 1 - December 31, 2018		-		-		-		2,179,581
Total		87,193				87,193

	5% Increase in Ultimate Loss Ratio		10% Increase in Ultimate Loss Ratio
Gross loss expense from further strengthening current reserve position	$	34.3	$	68.7
Net financial loss	$	9.0	$	17.6
$/share (after tax)	$	0.48	$	0.94

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance							As of December 31, 2018
For the Years Ended December 31 (2016-2017 is Supplementary Information and Unaudited)							Total of Incurred-but-Not-Reported Liabilities Plus Expected Development on Reported Claims		Number of Reported Claims Per Year
Accident Year	2016		2017		2018
2016 and prior	$	40,651	$	39,477	$	39,658	$	5		9,619
2017				48,440		47,193		512		10,517
2018						53,726		4,221		10,186
			Total		$	140,577	$	4,738

	2018		2017
Beginning of period balance	$	–	$	25,218
Total gains or losses (realized) included in income		–		406
Purchases		–		81
Settlements		–		(9,123	)
Transfers into Level 3		–		144
Transfers out of Level 3		–		(16,726	)
End of period balance	$	–	$	–

	As of December 31								Year Ended December 31												As of December 31								Year Ended December 31
Segment	Deferred Policy Acquisition Costs		Reserves for Unpaid Claims and Claim Adjustment Expenses		Unearned Premiums		Other Policy Claims and Benefits Payable		Net Premium Earned		Net Investment Income		Benefits, Claims, Losses and Settlement Expenses		Amortization of Deferred Policy Acquisition Costs		Other Operating Expenses		Net Premiums Written		Deferred Policy Acquisition Costs		Reserves for Unpaid Claims and Claim Adjustment Expenses		Unearned Premiums		Other Policy Claims and Benefits Payable		Net Premium Earned		Net Investment Income		Benefits, Claims, Losses and Settlement Expenses		Amortization of Deferred Policy Acquisition Costs		Other Operating Expenses		Net Premiums Written
											(A)		(A)				(A) (B)														(A)		(A)				(A) (B)
Property/Casualty Insurance
2020																					$	9,744	$	1,089,669	$	63,731		0	$	445,515	$	25,422	$	318,958	$	79,947	$	41,241	$	441,000

2019																						8,496		988,305		74,810		0		447,288		26,249		348,468		81,734		34,043		452,242

2018	$	6,568	$	865,339	$	71,625		–	$	432,880	$	22,048	$	345,864	$	78,105	$	23,514	$	444,398		6,568		865,339		71,625		0		432,880		22,048		345,864		78,105		23,514		444,398

2017		5,608		680,274		53,085		–		328,145		18,095		247,518		70,574		14,043		353,389

2016		1,172		576,330		21,694		–		276,011		14,483		186,481		51,597		8,180		271,752

	Direct Premiums		Ceded to Other Companies		Assumed from Other Companies		Net Amount		% of Amount Assumed to Net			Direct Premiums		Ceded to Other Companies		Assumed from Other Companies		Net Amount		% of Amount Assumed to Net
Premiums Earned -
Years Ended December 31:
2020												$	557,795	$	113,125	$	845	$	445,515		0.2	%

2019													570,959		124,446		775		447,288		0.2	%

2018	$	562,364	$	131,080	$	1,596	$	432,880		0.4	%		562,364		131,080		1,596		432,880		0.4	%

2017		470,158		145,201		3,188		328,145		1.0	%

2016		394,679		130,012		11,344		276,011		4.1	%

			Additions
Description	Balance as of Beginning of Period		Charged to Costs and Expenses		Other Additions		Deductions		Balance as of End of Period
January 1, 2018
Accounts receivable	$	484	$	29		0	$	110	$	403
Reinsurance recoverable		1,365		32		0		278		1,119
December 31, 2018		1,849		61		0		388		1,522
Accounts receivable		403		1,908		0		78		2,233
Reinsurance recoverable		1,119		52		0		0		1,171
December 31, 2019		1,522		1,960		0		78		3,404
Fixed income securities		0		1,035		0		0		1,035
Accounts receivable		2,233		1,250		0		23		3,460
Reinsurance recoverable		1,171		0		0		199		972
Deductible receivable allowance ⁽²⁾		0		16,500		0		0		16,500
Mortgage loans		0		195		0		0		195
December 31, 2020	$	3,404	$	18,980		0	$	222	$	22,162

	PROTECTIVE INSURANCE CORPORATION

March ~~7, 2019~~11, 2021	By:	/s/ ~~John~~Jeremy D. ~~Nichols, Jr.~~Edgecliffe-Johnson
		~~John~~Jeremy D. ~~Nichols, Jr.~~Edgecliffe-Johnson
		~~Interim~~ Chief Executive Officer ~~and Chairman of the Board of Directors~~

Signatures	Title	Date

/s/ ~~John~~Jeremy D. ~~Nichols, Jr.~~Edgecliffe-Johnson	~~Interim~~ Chief Executive Officer and ~~Chairman of the Board of Directors~~Director	March ~~7, 2019~~11, 2021
~~John~~Jeremy D. ~~Nichols, Jr.~~Edgecliffe-Johnson	(Principal Executive Officer)

/s/ ~~William C. Vens~~John R. Barnett	Chief Financial Officer	March ~~7, 2019~~11, 2021
~~William C. Vens~~John R. Barnett	(Principal Financial Officer and Principal Accounting Officer)

/s/ Steven J. Bensinger	Director	March ~~7, 2019~~11, 2021
Steven J. Bensinger

/s/ Stuart D. Bilton	Director	March ~~7, 2019~~11, 2021
Stuart D. Bilton

/s/ Otto N. Frenzel IV	Director	March ~~7, 2019~~11, 2021
Otto N. Frenzel IV

/s/ Stephen J. Gray	Director	March 11, 2021
Stephen J. Gray

/s/ LoriAnn Lowery-Biggers	Director	March ~~7, 2019~~11, 2021
LoriAnn Lowery-Biggers

/s/ David W. Michelson	Director	March ~~7, 2019~~11, 2021
David W. Michelson

/s/ John D. Nichols, Jr.	Director, Chairman of the Board of Directors	March 11, 2021
John D. Nichols, Jr.

/s/ James A. Porcari III	Director	March ~~7, 2019~~11, 2021
James A. Porcari III

/s/ Nathan Shapiro	Director	March ~~7, 2019~~11, 2021
Nathan Shapiro

/s/ Robert Shapiro	Director	March ~~7, 2019~~11, 2021
Robert Shapiro