UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

Form 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period EndedCommission file number
                                                                                September 30, 2017              0-5534 March 31, 2019

OR

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

For the transition period from ______ to ______

Commission file number: 0-5534


BALDWIN & LYONS, INC.PROTECTIVE INSURANCE CORPORATION
(Exact name of registrant as specified in its charter)

INDIANA
35-0160330
(State or other jurisdiction of
incorporation or organization)
35-0160330
(I.R.S. Employer
Identification Number)
111 Congressional Boulevard, Carmel, Indiana
46032
(Address of principal executive offices)
46032
(Zip Code)

Registrant's telephone number, including area code:  (317) 636-9800

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15 (d)15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    ✓_      No___No ____

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   ✓    No ____

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

Large accelerated filer ____   Accelerated filer   ✓  Non-accelerated filer ____
Smaller reporting company ____  Emerging growth company ____

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

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

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Class A Common Stock, No Par ValuePTVCAThe Nasdaq Stock Market LLC
Class B Common Stock, No Par ValuePTVCBThe Nasdaq Stock Market LLC

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of NovemberMay 1, 2017:2019:
Common Stock, No Par Value:                 Class A (voting)                                                                                                                                                    2,623,109
Common Stock, No Par Value:Class A (voting)2,615,216
Class B (non-voting)12,076,998
14,692,214
                                                            Class B (non-voting)                                                                                                                                          12,413,798
                                                                                                                                                                                                                                           15,036,907
- 1 -

PART I – FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS
Baldwin & Lyons, Inc. and Subsidiaries      
Unaudited Consolidated Balance Sheets      
(in thousands, except share data)      
       
  September 30  December 31 
  2017  2016 
Assets      
Investments:      
   Fixed maturities $489,606  $491,904 
   Equity securities  194,167   119,945 
   Limited partnerships  69,568   76,469 
   Short-term and other  1,000   1,500 
   754,341   689,818 
         
Cash and cash equivalents  68,529   62,976 
Accounts receivable  80,112   64,984 
Reinsurance recoverable  307,239   255,024 
Other assets  81,655   78,732 
Current federal income taxes recoverable  5,680   2,603 
  $1,297,556  $1,154,137 
         
Liabilities and shareholders' equity        
Reserves for losses and loss expenses $656,006  $576,330 
Reserves for unearned premiums  40,059   21,694 
Short-term borrowings  20,000   20,000 
Accounts payable and other liabilities  162,144   120,356 
Deferred federal income taxes  14,417   11,412 
   892,626   749,792 
Shareholders' equity:        
   Common stock-no par value:        
   Class A voting -- authorized 3,000,000 shares;        
      outstanding -- 2017 - 2,623,109; 2016 - 2,623,109  112   112 
   Class B non-voting -- authorized 20,000,000 shares;        
      outstanding -- 2017 - 12,413,798; 2016 - 12,460,900  530   532 
   Additional paid-in capital  54,845   54,286 
   Unrealized net gains on investments  45,488   34,051 
   Foreign exchange adjustment  (321)  (831)
   Retained earnings  304,276   316,195 
   404,930   404,345 
  $1,297,556  $1,154,137 

Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share data)

  
March 31
2019
  
December 31
2018
 
Assets      
Investments:      
Fixed income securities $671,973  $592,645 
Equity securities  68,956   66,422 
Limited partnerships  38,239   55,044 
Commercial mortgage loans  7,844   6,672 
Short-term and other  1,000   1,000 
   788,012   721,783 
         
Cash and cash equivalents  117,418   163,996 
Restricted cash and cash equivalents  15,888   6,815 
Accounts receivable  108,974   102,972 
Reinsurance recoverable  404,424   392,436 
Other assets  95,572   88,426 
Current federal income taxes recoverable  6,025   7,441 
Deferred federal income taxes  3,478   6,262 
  $1,539,791  $1,490,131 
         
Liabilities and shareholders' equity        
Reserves for losses and loss expenses $894,221  $865,339 
Reserves for unearned premiums  80,332   71,625 
Reinsurance payable  62,802   66,632 
Short-term borrowings  20,000   20,000 
Accounts payable and other liabilities  116,366   110,453 
   1,173,721   1,134,049 
Shareholders' equity:        
Common stock-no par value:        
Class A voting -- authorized 3,000,000 shares; outstanding -- 2019 - 2,615,239; 2018 - 2,615,339  112   112 
Class B non-voting -- authorized 20,000,000 shares; outstanding -- 2019 - 12,249,414; 2018 - 12,253,922  522   522 
Additional paid-in capital  55,049   54,720 
Accumulated other comprehensive income (loss)  1,416   (7,347)
Retained earnings  308,971   308,075 
   366,070   356,082 
  $1,539,791  $1,490,131 

See notes to condensed consolidated financial statements.

- 2 -


Protective Insurance Corporation and Subsidiaries
Baldwin & Lyons, Inc. and Subsidiaries            
Unaudited Consolidated Statements of Operations            
(in thousands, except per share data)            
             
  Three Months Ended  Nine Months Ended 
  September 30  September 30 
  2017  2016  2017  2016 
Revenues            
Net premiums earned $89,100  $71,235  $231,070  $206,870 
Net investment income  4,027   3,513   12,434   10,501 
Commissions and other income  1,407   1,207   3,789   4,035 
Net realized gains on investments, excluding                
impairment losses  5,982   9,576   15,603   22,023 
Total other-than-temporary impairment losses on investments  (38)  (1,844)  (69)  (4,999)
Net realized gains on investments  5,944   7,732   15,534   17,024 
   100,478   83,687   262,827   238,430 
                 
Expenses                
Losses and loss expenses incurred  60,673   56,827   181,026   138,116 
Other operating expenses  29,187   21,225   82,185   64,326 
   89,860   78,052   263,211   202,442 
Income (loss) before federal income taxes (benefits)  10,618   5,635   (384)  35,988 
Federal income taxes (benefits)  3,184   1,634   (2,231)  11,906 
Net income $7,434  $4,001  $1,847  $24,082 
                 
Per share data:                
Basic and diluted earnings $.49  $.27  $.12  $1.60 
                 
    Dividends paid to shareholders $.27  $.26  $.81  $.78 
                 
Reconciliation of shares outstanding:                
   Average shares outstanding - basic  15,089   15,084   15,084   15,068 
   Dilutive effect of share equivalents  29   -   40   16 
   Average shares outstanding - diluted  15,118   15,084   15,124   15,084 

Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share data)

  
Three Months Ended
March 31
 
  2019  2018 
Revenues      
Net premiums earned $110,013  $105,462 
Net investment income  6,232   4,636 
Commissions and other income  2,064   1,814 
Net realized gains (losses) on investments, excluding impairment losses  (39)  376 
Other-than-temporary impairment losses on investments  (260)  – 
Net unrealized gains (losses) on equity securities and limited partnership investments  6,327   (4,909)
Net realized and unrealized gains (losses) on investments  6,028   (4,533)
   124,337   107,379 
         
Expenses        
Losses and loss expenses incurred  87,122   72,298 
Other operating expenses  33,701   34,767 
   120,823   107,065 
Income before federal income tax expense (benefit)  3,514   314 
Federal income tax expense (benefit)  766   (16)
Net income $2,748  $330 
         
Per share data:        
Basic and diluted earnings $.18  $.02 
         
Dividends paid to shareholders $.10  $.28 
         
Reconciliation of shares outstanding:        
Average shares outstanding - basic  14,848   15,010 
Dilutive effect of share equivalents  30   24 
Average shares outstanding - diluted  14,878   15,034 

See notes to condensed consolidated financial statements.

- 3 -

Baldwin & Lyons, Inc. and Subsidiaries            
Unaudited Consolidated Statements of Comprehensive Income            
(in thousands)            
             
  Three Months Ended  Nine Months Ended 
  September 30  September 30 
  2017  2016  2017  2016 
             
Net income $7,434  $4,001  $1,847  $24,082 
                 
Other comprehensive income (loss), net of tax:                
Unrealized net gains (losses) on securities:                
Unrealized net gains arising during the period  4,862   4,900   15,999   7,471 
Less: reclassification adjustment for net gains                
included in net income  2,240   2,164   4,562   8,985 
   2,622   2,736   11,437   (1,514)
                 
Foreign currency translation adjustments  57   (145)  510   398 
                 
Other comprehensive income (loss)  2,679   2,591   11,947   (1,116)
                 
Comprehensive income $10,113  $6,592  $13,794  $22,966 

Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)

  
Three Months Ended
March 31
 
  2019  2018 
Net income $2,748  $330 
         
Other comprehensive income (loss), net of tax:        
Unrealized net gains (losses) on fixed income securities  8,456   (3,121)
         
Foreign currency translation adjustments  307   (223)
         
Other comprehensive income (loss)  8,763   (3,344)
         
Comprehensive income (loss) $11,511  $(3,014)

See notes to condensed consolidated financial statements.

- 4 -


Baldwin & Lyons, Inc. and Subsidiaries      
Unaudited Consolidated Statements of Cash Flows      
(in thousands)      
       
  Nine Months Ended 
  September 30 
  2017  2016 
       
Net cash provided by operating activities $55,235  $32,397 
Investing activities:        
   Purchases of available-for-sale investments  (305,130)  (310,398)
   Purchases of limited partnership interests  (897)  - 
   Proceeds from sales or maturities        
       of available-for-sale investments  257,977   286,580 
   Net sales of short-term investments  500   720 
   Distributions from limited partnerships  16,313   1,462 
   Other investing activities  (4,825)  (5,440)
Net cash used in investing activities  (36,062)  (27,076)
Financing activities:        
   Dividends paid to shareholders  (12,250)  (11,885)
   Repurchase of common shares  (1,880)  - 
Net cash used in financing activities  (14,130)  (11,885)
         
Effect of foreign exchange rates on cash and cash equivalents  510   398 
         
Increase (decrease) in cash and cash equivalents  5,553   (6,166)
Cash and cash equivalents at beginning of period  62,976   73,538 
Cash and cash equivalents at end of period $68,529  $67,372 
Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Shareholders' Equity
(in thousands)

  

Common Stock
  

Additional
  Accumulated Other       
  Class A  Class B
  Paid-in  Comprehensive  Retained    
Description Shares  Amount  Shares  Amount  Capital  Income  Earnings  Total Equity 
Balance at December 31, 2018  2,615  $112   12,254  $522  $54,720  $(7,347) $308,075  $356,082 
Net income  –   –   –   –   –   –   2,748   2,748 
Foreign currency translation adjustment, net of tax  –   –   –   –   –   307   –   307 
Change in unrealized gain (loss) on investments, net of tax  –   –   –   –   –   8,456   –   8,456 
Common stock dividends  –   –   –   –   –   –   (1,493)  (1,493)
Repurchase of common stock  –   –   (25)  (1)  (108)  –   (359)  (468)
Restricted stock grants  –   –   20   1   437   –   –   438 
Balance at March 31, 2019  2,615   $112   12,249   $522   55,049   $1,416   $308,971  $
366,070 


  

Common Stock
  

Additional
  Accumulated Other       
  Class A  Class B
  Paid-in  Comprehensive  Retained    
Description Shares  Amount  Shares  Amount  Capital  Loss  Earnings  Total Equity 
Balance at December 31, 2017  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   – 
Cumulative effect of adoption of ASU 2018-02  –   –   –   –   –   117   (117)  – 
Net income  –   –   –   –   –   –   330   330 
Foreign currency translation adjustment, net of tax  –   –   –   –   –   (223)  –   (223)
Change in unrealized gain (loss) on investments, net of tax  –   –   –   –   –   (3,121)  –   (3,121)
Common stock dividends  –   –   –   –   –   –   (4,229)  (4,229)
Repurchase of common stock  –   –   (11)  –   (45)  –   (190)  (235)
Restricted stock grants  –   –   5   –   478   –   –   478 
Balance at March 31, 2018  2,623   $112   12,418   $530   $55,511   $(2,993)  $358,651   $411,811 

See notes to condensed consolidated financial statements.

- 5 -
Protective Insurance Corporation and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

  
Three Months Ended
March 31
 
  2019  2018 
Operating activities      
Net income $2,748  $330 
Adjustments to reconcile net income to net cash provided by operating activities  8,657   7,697 
Net cash provided by operating activities  11,405   8,027 
         
Investing activities        
Purchases of fixed income and equity securities  (140,645)  (140,820)
Purchases of limited partnership interests  –   (200)
Distributions from limited partnerships  17,214   – 
Proceeds from maturities  16,776   14,021 
Proceeds from sales of fixed income securities  52,199   89,636 
Proceeds from sales of equity securities  9,169   59,757 
Purchase of insurance company-owned life insurance  –   (10,000)
Purchase of commercial mortgage loans  (1,172)  – 
Purchases of property and equipment  (797)  (1,218)
Proceeds from disposals of property and equipment  –   4 
Net cash provided by (used in) investing activities  (47,256)  11,180 
         
Financing activities        
Dividends paid to shareholders  (1,493)  (4,229)
Repurchase of common shares  (468)  (235)
Net cash used in financing activities  (1,961)  (4,464)
         
Effect of foreign exchange rates on cash and cash equivalents  307   (223)
         
Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents  (37,505)  14,520 
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period  170,811   68,713 
Cash, cash equivalents and restricted cash and cash equivalents at end of period $133,306  $83,233 

See notes to condensed consolidated financial statements.

- 6 -

Notes to Unaudited Condensed Consolidated Financial Statements
(All dollar amounts presented in these notes are in thousands, except share and per share data)

(1)  Summary of Significant Accounting PoliciesPolicies:

Description of BusinessBusiness:  :  Baldwin & Lyons, Inc.Protective Insurance Corporation (the "Company"), based in Carmel, Indiana, is a specialty property-casualty insurer providingspecializing in marketing and underwriting property, liability and workers' compensation coverage for large to small-sized trucking and public transportation fleets.fleets, as well as coverage for trucking industry independent contractors.  In addition, 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 determined that its business constituted one reportable property and casualty insurance segmentterm “Insurance Subsidiaries,” 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 the Company's chief operating decision maker when making decisions about how resources are to be allocated to the segment and assessing its performance.  The prior period segment informationused throughout this Quarterly Report on Form 10-Q was updateddocument, refers to conform to the current year presentation.Protective Insurance Company, Protective Specialty Insurance Company, Sagamore Insurance Company and B&L Insurance, Ltd.

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included.  Interim financial statements should be read in conjunction with the Company's annual audited financial statements and other disclosures included in the Company's most recent Annual Report on Form 10-K.  Operating results for interim periods are not necessarily indicative of results that may be expected for the year ending December 31, 20172019 or any other future period.

Investments: Carrying amounts for fixed maturityincome 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 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 allowance on the Company's commercial mortgage loans as of March 31, 2019.

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 that the limited partnership investeespartnerships 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 condensed consolidated statements of operations, its proportionate share of the investee's unrealized, as well as realized, investment gains or losses.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.

Realized gains and losses on disposals of investments are recorded on the trade date and are determined by specific identification of cost of investments sold and are included in income.  All fixed maturity and equityFixed income securities are considered to be available-for-sale; theavailable-for-sale. The related unrealized net gains or losses (net of applicable tax effect)effects) on fixed income securities are reflected directly in shareholders' equity. Included within available for saleavailable-for-sale fixed maturityincome securities are convertible debt securities.  A portion of the changes in the fair values of convertible debt securities areis reflected as a component of net realized gains (losses) on investments.investments, excluding impairment losses within the condensed 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.

- 6 -Effective January 1, 2018, 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 condensed 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.
Notes to Unaudited Condensed Consolidated Financial Statements (continued)

In accordance with the Financial Accounting Standards Board's ("FASB") other-than-temporary impairment guidance, if a fixed maturityincome security is in an unrealized loss position and the Company has the intent to sell the fixed maturityincome security, or it is more likely than not that the Company will have to sell the fixed maturityincome security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to net realizedother-than-temporary impairment losses on investments in the condensed consolidated statements of operations.   For impaired fixed maturityincome securities 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 Company expects that it will not fully recover the amortized cost basis, the credit component of the other-than-temporary impairment is recognized in net realizedother-than-temporary impairment losses on investments in the condensed consolidated statements of operations and the non-credit component of the other-than-temporary impairment is recognized directly in shareholders' equity (accumulated other comprehensive income).equity.

- 7 -
The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed maturityincome 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.

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 unrealized net gains or losses (netCompany does not defer acquisition costs that are not directly variable with the production of applicable tax effect) related to equity securities are reflected directly in shareholders' equity, unless a decline in valuepremium.  If it is determined to be other-than-temporary, in which casethat expected losses and deferred expenses will likely exceed the lossrelated unearned premiums, the asset representing deferred policy acquisition costs is reduced and an expense is charged against current operations to income.reflect any such premium deficiency.  In determining if and whenthe event that the expected premium deficiency exceeds deferred policy acquisition costs, an additional liability would be recorded with a decline in market value below cost is other-than-temporary, an objective analysis is made of each individual security wherecorresponding expense to current market value is less than cost.   For any equity security whereoperations for the unrealized loss exceeds 20% of original or adjusted cost, or where that decline has existed for a period of at least one year, the decline is treated as an other-than-temporary impairment.  Additionally, the Company takes into account any known subjective information in evaluating for impairment, separate from considerationamount of the Company's quantitative criteria defined above, as well as the Company's intent and ability to retain the equity security for a periodexcess premium deficiency.  Anticipated investment income is considered in determining recoverability of time sufficient to allow for such recovery in fair value.

- 7 -deferred acquisition costs.  The Company had no material contract assets, contract liabilities, or deferred contract costs recorded on its condensed consolidated balance sheet at March 31, 2019.

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

RecentRecently Adopted Accounting Pronouncements: In May 2014,February 2016, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), 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 service and fee income, other than that directly associated with insurance contracts, will be 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 quarter ending March 31, 2018. The Company has performed an evaluation of the impact this guidance will have on its results of operations, financial position and liquidity as well as a technical assessment of material customer contracts.  The Company will use the modified retrospective method upon adoption in 2018.  The Company does not expect the new standard to have a material impact on its condensed consolidated financial statements.
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 change 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. Under current guidance, changes in fair value for investments of this nature are recognized in accumulated other comprehensive income as a component of shareholders' equity. Additionally, ASU 2016-01 simplifies the impairment assessment of equity investments without readily determinable fair values; requires entities to use the exit price when estimating the fair value of financial instruments; and modifies various presentation disclosure requirements for financial instruments. ASU 2016-01 is effective for interim and annual reporting periods beginning after December 15, 2017.  The effect of this guidance will be dependent on the unrealized gains or losses associated with the Company's equity investments.  Such unrealized gains or losses will be recognized upon adoption as a cumulative-effect adjustment with future unrealized gains or losses recognized in the statement of operations.  Refer to Note 2 for unrealized gains and losses currently recognized in other comprehensive income (loss).
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or ASU 2016-02. Upon the effective date, ASU 2016-02 will supersedesuperseded the current lease guidance in ASCAccounting Standards Codification ("ASC") Topic 840, Leases.  Under the new guidance, lessees will beare 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 will beare 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.  ASU 2016-02 is effectiveThe guidance provides for interim and annual reporting periods beginning after December 15, 2018.  Early adoption is permitted, but the Company plans to adopt this ASU on January 1, 2019.  This guidance is required to be applied using 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 is currently evaluatingadopted the new guidance on January 1, 2019 utilizing the transition method allowed per ASU 2018-11, and accordingly, comparative period financial information was not adjusted for the effects thatof the new guidance. No cumulative-effect adjustment was required to the opening balance of retained earnings on the adoption date. The Company's adoption of the new standard did not have any impact on the Company's condensed consolidated statements of operations or cash flows; however, the impact of adopting the new guidance resulted in a right-of-use asset and lease liability being recorded on the condensed consolidated balance sheet as of March 31, 2019 of approximately $400, which is included within other assets and accounts payable and other liabilities. 

In July 2018, the FASB issued ASU 2016-02 willNo. 2018-09, Codification Improvements. This update provides clarification, corrects errors in and makes minor improvements to various ASC topics. Many of the amendments in this update have transition guidance with 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 adoption of this standard did not have a material impact on itsthe Company's condensed consolidated financial statements.

- 8 -Recently Issued Accounting Pronouncements: 
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
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 a current expected credit loss model for measuring expected credit losses for certain types of financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. ASU 2016-13 replaces 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 for additional disclosure requirements. ASU 2016-
132016-13 is effective for interim 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 thatthe adoption of ASU 2016-13 will have on its condensed consolidated financial statements.

In January 2017,In August 2018, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other2018-13, Fair Value Measurement (Topic 350)820): SimplifyingDisclosure Framework - Changes to the TestDisclosure Requirements for Goodwill Impairment,Fair Value Measurement, or ASU 2017-04.2018-13. This amendmentupdate removes Stepthe disclosure requirements for the amounts of and the reasons for transfers between Level 1 and Level 2 and disclosure of the goodwill impairment test under current guidance.  The new guidance requires an impairment charge to be recognizedpolicy for timing of transfers between levels. This update also removes disclosure requirements for the amount by whichvaluation processes for Level 3 fair value measurements. Additionally, this update adds disclosure requirements for the carrying amount exceeds the reporting unit'schanges in unrealized gains and losses for recurring Level 3 fair value.value measurements and quantitative information for certain unobservable inputs in Level 3 fair value measurements. ASU 2017-042018-13 is effective for interim and annual reporting periods beginning after December 15, 2020, with early adoption permitted.2019. The Company does not expectis currently evaluating the guidance toeffects the adoption of ASU 2018-13 will have a material impact on its condensed consolidated financial statements.

- 98 -
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(2)  Investments:

(2) Investments:
The following is a summary of available-for-sale securities at September 30, 2017March 31, 2019 and December 31, 2016:2018:

              Net 
     Cost or  Gross  Gross  Unrealized 
  Fair  Amortized  Unrealized  Unrealized  Gains 
  Value  Cost  Gains  Losses  (Losses) 
September 30, 2017               
Fixed maturities               
   Agency collateralized mortgage obligations  $11,017   $10,390   $636   $(9)  $627 
   Agency mortgage-backed securities  19,712   19,667   92   (47)  45 
   Asset-backed securities  50,030   48,969   1,133   (72)  1,061 
   Bank loans  24,986   24,914   182   (110)  72 
   Certificates of deposit  3,138   3,125   13   -   13 
   Collateralized mortgage obligations  7,055   6,625   470   (40)  430 
   Corporate securities  165,794   164,965   2,109   (1,280)  829 
   Mortgage-backed securities  20,643   19,534   1,508   (399)  1,109 
   Municipal obligations  102,805   102,272   744   (211)  533 
   Non-U.S. government obligations  32,942   33,399   512   (969)  (457)
   U.S. government obligations  51,484   51,766   20   (302)  (282)
      Total fixed maturities  489,606   485,626   7,419   (3,439)  3,980 
Equity securities:                    
   Consumer  41,913   19,749   22,728   (564)  22,164 
   Energy  8,168   5,454   2,795   (81)  2,714 
   Financial  42,596   29,780   13,213   (397)  12,816 
   Industrial  23,972   7,825   16,293   (146)  16,147 
   Technology  11,825   5,452   6,373   -   6,373 
   Mutual fund  58,178   55,025   3,163   (10)  3,153 
   Other  7,515   4,881   2,757   (123)  2,634 
      Total equity securities  194,167   128,166   67,322   (1,321)  66,001 
                     
      Total $683,773  $613,792  $74,741  $(4,760)  69,981 
                     
              Applicable federal income taxes   (24,493)
                     
              Net unrealized gains - net of tax  $45,488 
  
Fair
Value
  
Cost or
Amortized Cost
  
Gross
Unrealized Gains
  
Gross
Unrealized Losses
  
Net Unrealized
Gains (Losses)
 
March 31, 2019               
Fixed income securities               
Agency collateralized mortgage obligations $15,773  $15,567  $265  $(59) $206 
Agency mortgage-backed securities  41,283   40,486   849   (52)  797 
Asset-backed securities  77,307   77,890   180   (763)  (583)
Bank loans  11,284   11,372   38   (126)  (88)
Certificates of deposit  2,835   2,835   –   –   – 
Collateralized mortgage obligations  5,433   5,072   433   (72)  361 
Corporate securities  227,529   227,017   2,110   (1,598)  512 
Mortgage-backed securities  37,984   37,699   588   (303)  285 
Municipal obligations  30,357   30,056   383   (82)  301 
Non-U.S. government obligations  30,879   30,810   162   (93)  69 
U.S. government obligations  191,309   190,324   1,469   (484)  985 
Total fixed income securities $671,973  $669,128  $6,477  $(3,632) $2,845 



- 10 -
Notes to Unaudited Condensed Consolidated Financial Statements (continued)


              Net 
     Cost or  Gross  Gross  Unrealized 
  Fair  Amortized  Unrealized  Unrealized  Gains 
  Value  Cost  Gains  Losses  (Losses) 
December 31, 2016               
Fixed maturities               
   Agency collateralized mortgage obligations $6,171  $6,000  $171  $-  $171 
   Agency mortgage-backed securities  4,770   4,751   57   (38)  19 
   Asset-backed securities  45,183   45,207   458   (482)  (24)
   Bank loans  10,349   10,222   149   (22)  127 
   Certificates of deposit  3,117   3,126   -   (9)  (9)
   Collateralized mortgage obligations  9,104   9,096   290   (282)  8 
   Corporate securities  142,683   143,356   1,643   (2,316)  (673)
   Mortgage-backed securities  24,571   23,904   1,132��  (465)  667 
   Municipal obligations  129,335   130,204   391   (1,260)  (869)
   Non-U.S. government obligations  24,681   26,461   230   (2,010)  (1,780)
   U.S. government obligations  91,940   92,234   74   (368)  (294)
      Total fixed maturities  491,904   494,561   4,595   (7,252)  (2,657)
Equity securities:                    
   Consumer  32,576   15,231   17,656   (311)  17,345 
   Energy  12,842   5,641   7,203   (2)  7,201 
   Financial  31,186   22,417   8,998   (229)  8,769 
   Industrial  21,145   6,239   15,098   (192)  14,906 
   Technology  8,858   4,117   4,769   (28)  4,741 
   Mutual fund  6,995   6,930   121   (56)  65 
   Other  6,343   4,327   2,181   (165)  2,016 
      Total equity securities  119,945   64,902   56,026   (983)  55,043 
                     
      Total $611,849  $559,463  $60,621  $(8,235)  52,386 
                     
              Applicable federal income taxes   (18,335)
                     
              Net unrealized gains - net of tax  $34,051 



- 11 -
Notes to Unaudited Condensed Consolidated Financial Statements (continued)
  
Fair
Value
  
Cost or
Amortized Cost
  
Gross
Unrealized Gains
  
Gross
Unrealized Losses
  
Net Unrealized
Gains (Losses)
 
December 31, 2018               
Fixed income securities               
Agency collateralized mortgage obligations $10,687  $10,636  $145  $(94) $51 
Agency mortgage-backed securities  37,385   37,168   371   (154)  217 
Asset-backed securities  64,422   66,241   14   (1,833)  (1,819)
Bank loans  9,750   10,208   27   (485)  (458)
Certificates of deposit  2,835   2,835   –   –   – 
Collateralized mortgage obligations  5,423   5,095   376   (48)  328 
Corporate securities  190,450   196,925   127   (6,602)  (6,475)
Mortgage-backed securities  38,540   38,586   377   (423)  (46)
Municipal obligations  29,155   29,102   239   (186)  53 
Non-U.S. government obligations  25,180   25,339   6   (165)  (159)
U.S. government obligations  178,818   178,369   1,252   (803)  449 
Total fixed income securities $592,645  $600,504  $2,934  $(10,793) $(7,859)

The following table summarizes, for available-for-sale fixed maturity and equity security investmentsincome securities in an unrealized loss position at September 30, 2017March 31, 2019 and  December 31, 2016, respectively,2018, the aggregate fair value and gross unrealized loss categorized by the duration individual securities have been continuously in an unrealized loss position.

  March 31, 2019  December 31, 2018 
  
Number of
Securities
  
Fair
Value
  
Gross
Unrealized Loss
  
Number of
Securities
  
Fair
Value
  
Gross
Unrealized Loss
 
Fixed income securities:                  
12 months or less  85  $96,462  $(1,570)  275  $282,646  $(7,296)
Greater than 12 months  253   208,253   (2,062)  217   131,001   (3,497)
Total fixed income securities  338  $304,715  $(3,632)  492  $413,647  $(10,793)
                         

  September 30, 2017  December 31, 2016 
  Number of Securities  Fair Value  Gross Unrealized Loss  Number of Securities  Fair Value  Gross Unrealized Loss 
Fixed maturity securities:                  
12 months or less  325  $233,926  $(1,999)  397  $291,048  $(4,380)
Greater than 12 months  47   25,633   (1,440)  54   32,054   (2,872)
Total fixed maturities  372   259,559   (3,439)  451   323,102   (7,252)
                         
Equity securities:                        
12 months or less  36   33,213   (1,321)  35   20,698   (983)
Greater than 12 months  -   -   -   -   -   - 
Total equity securities  36   33,213   (1,321)  35   20,698   (983)
Total fixed maturity and equity securities  408  $292,772  $(4,760)  486  $343,800  $(8,235)

- 9 -

The fair value and the cost or amortized costs of fixed maturityincome investments at September 30, 2017,March 31, 2019, 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 $47,563  $47,558  $95,201  $95,347 
Excess of one year to five years  272,390   272,639   315,983   314,909 
Excess of five years to ten years  60,122   59,322   81,812   80,997 
Excess of ten years  3,486   3,338   6,630   6,233 
Contractual maturities  383,561   382,857   499,626   497,486 
Asset-backed securities  106,045   102,769   172,347   171,642 
Total $489,606  $485,626  $671,973  $669,128 
- 12 -
Notes to Unaudited Condensed Consolidated Financial Statements (continued)

Following is a summary of the components of net realized and unrealized gains (losses) on investments for the periods presented in the accompanying condensed consolidated statements of operations.


  Three Months Ended  Nine Months Ended 
  September 30  September 30 
  2017  2016  2017  2016 
Fixed maturities:            
   Gross gains $3,852  $7,496  $9,544  $9,338 
   Gross losses  (4,011)  (8,434)  (10,160)  (12,470)
      Net realized losses  (159)  (938)  (616)  (3,132)
                 
Equity securities:                
   Gross gains  4,103   5,086   8,601   21,722 
   Gross losses  (498)  (819)  (966)  (4,767)
      Net realized gains  3,605   4,267   7,635   16,955 
                 
Limited partnerships - net gain  2,498   4,403   8,515   3,201 
                 
                 
      Total net gains $5,944  $7,732  $15,534  $17,024 



Net realized gains activity for investments, as shown in the previous table, are further detailed as follows:


  Three Months Ended  Nine Months Ended 
  September 30  September 30 
  2017  2016  2017  2016 
             
Realized net gains on the disposal of securities $3,244  $3,482  $5,886  $10,649 
Mark-to-market adjustment  171   108   136   (326)
Equity in gains of limited partnership                
  investments - realized and unrealized  2,498   4,403   8,515   3,201 
Impairment:                
  Write-downs based upon objective criteria  (38)  (1,844)  (69)  (4,999)
  Recovery of prior write-downs                
    upon sale or disposal  69   1,583   1,066   8,499 
                 
Total net gains $5,944  $7,732  $15,534  $17,024 

The mark-to-market adjustments in the table above represent the changes in fair value of options embedded in convertible debt securities held by the Company.
  
Three Months Ended
March 31
 
  2019  2018 
       
Gross gains on available-for-sale fixed income securities sold during the period $3,171  $2,443 
Gross losses on available-for-sale fixed income securities sold during the period  (3,527)  (2,708)
         
Other-than-temporary impairments  (260)  – 
         
Change in value of limited partnership investments  408   (2,603)
         
Gains (losses) on equity securities:        
Realized gains on equity securities sold during the period  317   641 
Unrealized gains (losses) on equity securities held at the end of the period  5,919   (2,306)
Realized and unrealized gains (losses) on equity securities during the period  6,236   (1,665)
         
Net realized and unrealized gains (losses) on investments $6,028  $(4,533)

Shareholders' equity at September 30, 2017March 31, 2019 included approximately $30,293,$27,203, net of federal income taxes,tax expense, of reported earnings whichthat remain undistributed by limited partnerships.


- 13 -
(3)  Reinsurance:

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

At September 30, 2017, limited partnership investments included approximately $40,169 invested in two partnerships which are managed by organizations in which certain of the Company's directors are officers, directors, general partners or owners.  Each of these investments contains profit sharing agreements, pursuant to which a portion of the gains will be paid to the affiliated organizations.

The Company's limited partnerships include one investment which primarily invests in public and private equity markets in India.  The limited partnership investment's value as of September 30, 2017 and 2016 was $26,970 and $29,718, respectively.  At September 30, 2017, the Company's estimated ownership interest in this limited partnership investment was approximately 5%.  The Company's share of earnings from this limited partnership investment was $4,817 and $1,448 for the nine months ended September 30, 2017 and 2016, respectively.

The summarized financial information of the partnership in which the Company has invested is as follows:

  As of and for the 
  Nine Months Ended 
  September 30 
  2017  2016 
Total assets $517,411  $487,784 
Total partners' capital  517,411   487,784 
Net increase in partners' capital resulting from operations  95,314   23,841 


At September 30, 2017, the Company's invested assets, excluding limited partnership investments, included approximately $24,229 in portfolios managed by organizations in which certain of the Company's directors are officers, directors, general partners or owners.

(3) Reinsurance:
The following table summarizes the Company's transactions with reinsurers for the 2017three months ended March 31, 2019 and 2016 comparative periods.2018.

  2017  2016 
Three months ended September 30:      
   Premiums ceded to reinsurers $34,025  $30,996 
   Losses and loss expenses        
      ceded to reinsurers  30,531   21,237 
   Commissions from reinsurers  7,205   11,898 
         
Nine months ended September 30:        
   Premiums ceded to reinsurers $111,124  $94,331 
   Losses and loss expenses        
      ceded to reinsurers  102,401   70,081 
   Commissions from reinsurers  21,000   32,587 
  2019  2018 
Three months ended March 31:      
Premiums ceded to reinsurers $30,173  $32,442 
Losses and loss expenses ceded to reinsurers  30,789   26,661 
Commissions from reinsurers  7,233   7,880 
         

- 1410 -
Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(4)  Loss and Loss Expense Reserves:

Activity in the reserves for losses and loss expenses for the ninethree months ended September 30, 2017March 31, 2019 and 20162018 is summarized as follows.  All amounts are shown net of reinsurance, unless otherwise indicated.

 2017  2016  
Three Months Ended
March 31
 
Reserves, gross of reinsurance      
recoverable, at the beginning of the year $576,330  $513,596 
 2019  2018 
Reserves, gross of reinsurance recoverable, at the beginning of the year $865,339  $680,274 
Reinsurance recoverable on unpaid losses at the beginning of the year  251,563   211,843   375,935   308,143 
Reserves at the beginning of the year  324,767   301,753   489,404   372,131 
                
Provision for losses and loss expenses:                
Claims occurring during the current period  164,546   129,404   88,180   73,899 
Claims occurring during prior periods  16,480   8,712   (1,058)  (1,601)
Total incurred  181,026   138,116   87,122   72,298 
                
Loss and loss expense payments:                
Claims occurring during the current period  41,616   30,932   8,708   10,683 
Claims occurring during prior periods  109,616   81,427   56,747   48,655 
Total paid  151,232   112,359   65,455   59,338 
Reserves at the end of the period  354,561   327,510   511,071   385,091 
                
Reinsurance recoverable on unpaid losses at the end of the period  301,445   238,049   383,150   309,359 
Reserves, gross of reinsurance        
recoverable, at the end of the period $656,006  $565,559 
Reserves, gross of reinsurance recoverable, at the end of the period $894,221  $694,450 

The table above shows a roll-forwardreserve savings of loss and loss expense reserves from$1,058 that developed during the prior year end tothree months ended March 31, 2019 in the current balance sheet date with comparable prior year information.settlement of claims occurring on or before December 31, 2018.  Losses incurred from claims occurring during prior years reflectsreflect the development from prior accident years, 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.

The $16,480$1,058 prior accident year deficiencysavings that developed during the first ninethree months of 2017ended March 31, 2019 was largelyprimarily due to infrequent, but severe, transportation losses that occurred primarily during the first six months of 2017.  favorable loss development in workers' compensation and independent contractor coverages.  This 2017 deficiency2019 savings compares to a deficiencysavings of $8,712$1,601 for the first ninethree months of 2016 that arose due mostly to management's review of reserve positionsended March 31, 2018, which was also related to discontinued lines.favorable loss development from workers' compensation and independent contractor coverages.


- 15 -
Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(5)  Segment Information:Information:

The Company has one reportable business segment in its operations: Property and Casualty Insurance.  The property and casualty insurance segment provides multiple lines of insurance coverage primarily to fleet transportationcommercial automobile companies, as well as to independent contractors who contract with fleet transportationcommercial automobile companies.  In addition, the Company provides workers' compensation coverage for a variety of classesoperations outside the transportation industry.

The following table summarizes segment revenues for the three and nine months ended September 30, 2017March 31, 2019 and 2016:2018:

 Three Months Ended  Nine Months Ended 
 September 30  September 30 
 2017  2016  2017  2016  
Three Months Ended
March 31
 
             2019  2018 
Revenues:                  
Net premiums earned $89,100  $71,235  $231,070  $206,870  $110,013  $105,462 
Net investment income  4,027   3,513   12,434   10,501   6,232   4,636 
Net realized gains on investments  5,944   7,732   15,534   17,024 
Net realized and unrealized gains (losses) on investments  6,028   (4,533)
Commissions and other income  1,407   1,207   3,789   4,035   2,064   1,814 
Total revenues $100,478  $83,687  $262,827  $238,430  $124,337  $107,379 

- 11 -
(6)  Debt:

(6) Debt:
TheOn August 9, 2018, the Company maintainsentered into a credit agreement providing a revolving line of credit facility with a $40,000 limit, andwith the option for up to an additional $35,000 in incremental loans at the discretion of the lenders.  This credit agreement has an expiration date of September 23, 2018.August 9, 2022.  Interest on this line of credit facility is referenced to LIBORthe London Interbank Offered Rate and can be fixed for periods of up to one year at the Company's option.  Outstanding drawings on this line ofrevolving credit facility were $20,000 as of both September 30, 2017 and DecemberMarch 31, 2016.2019.  At September 30, 2017,March 31, 2019, the effective interest rate was 2.34%.  The3.59%, and the Company hashad $20,000 remaining and unused under the linerevolving credit facility as of credit at September 30, 2017.March 31, 2019.  The current outstanding borrowings were used for general corporate purposes. to repay the Company's previous line of credit.  The Company's revolving credit facility has two financial covenants, each of which were met as of March 31, 2019, requiring the Company to have a minimum U.S. generally accepted accounting principles net worth and a maximum consolidated leverage ratio of 0.35 to 1.00.


(7)  Taxes:
As of September 30, 2017, the Company's calendar years 2016, 2015 and 2014 remain subject to examination by the Internal Revenue Service.

The effective federal tax rate on consolidated income for the third quarter of 2017three months ended March 31, 2019 was 30.0%21.8% compared to 29.0%(5.1%) for the 2016 third quarter.three months ended March 31, 2018.  The effective federal income tax rate differs from the normal statutory rate primarilyin part as a result of tax-exempt investment income.  The effective tax rate for the three months ended March 31, 2018 was also impacted by the change in accounting for unrealized gains and losses on equity securities related to the Company's adoption of ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, where changes in unrealized gains and losses, and the corresponding tax effects, are now recorded in the condensed consolidated statement of operations.  The Company recorded an unrealized loss, and corresponding tax benefit, related to equity securities during the three months ended March 31, 2019.

The effective federal tax rate on consolidated income (loss) for the first nine monthsAs of 2017 was 581.0% compared to 33.1% for the 2016 period.  The significant difference between the effective rate and the normal statutory rate was the result ofMarch 31, 2019, the Company's operating loss throughcalendar years 2017, 2016 and 2015 remain subject to examination by the first nine months of 2017.

Internal Revenue Service.

- 1612 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)
(8)  Fair Value:

(8) Fair Value:
Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:

As of September 30, 2017:            
             
Description Total  Level 1  Level 2  Level 3 
             
Fixed maturities:            
Agency collateralized mortgage obligations $11,017  $-  $11,017  $- 
Agency mortgage-backed securities  19,712   -   19,712   - 
Asset-backed securities  50,030   -   50,030   - 
Bank loans  24,986   -   24,986   - 
Certificates of deposit  3,138   3,138   -   - 
Collateralized mortgage obligations  7,055   -   7,055   - 
Corporate securities  160,716   -   160,558   158 
Options embedded in convertible securities  5,078   -   5,078   - 
Mortgage-backed securities  20,643   -   20,413   230 
Municipal obligations  102,805   -   102,805   - 
Non-U.S. government obligations  32,942   -   32,942   - 
U.S. government obligations  51,484   -   51,484   - 
      Total fixed maturities  489,606   3,138   486,080   388 
Equity securities:                
Consumer  41,912   41,912   -   - 
Energy  8,168   8,168   -   - 
Financial  46,167   46,167   -   - 
Industrial  23,971   23,971   -   - 
Technology  11,826   11,826   -   - 
Mutual fund  53,528   53,528   -   - 
Other  8,595   8,595   -   - 
      Total equity securities  194,167   194,167   -   - 
Short-term  1,000   1,000   -   - 
Cash equivalents  64,153   -   64,153   - 
Total $748,926  $198,305  $550,233  $388 

As of March 31, 2019:



Description Total  Level 1  Level 2  Level 3 
Fixed income securities:            
Agency collateralized mortgage obligations $15,773  $–  $15,773  $– 
Agency mortgage-backed securities  41,283   –   41,283   – 
Asset-backed securities  77,307   –   77,307   – 
Bank loans  11,284   –   11,284   – 
Certificates of deposit  2,835   2,835   –   – 
Collateralized mortgage obligations  5,433   –   5,433   – 
Corporate securities  222,853   –   222,853   – 
Options embedded in convertible securities  4,676   –   4,676   – 
Mortgage-backed securities  37,984   –   37,984   – 
Municipal obligations  30,357   –   30,357   – 
Non-U.S. government obligations  30,879   –   30,879   – 
U.S. government obligations  191,309   –   191,309   – 
Total fixed income securities  671,973   2,835   669,138   – 
Equity securities:                
Consumer  15,862   15,862   –   – 
Energy  3,534   3,534   –   – 
Financial  24,814   24,814   –   – 
Industrial  7,412   7,412   –   – 
Technology  2,631   2,631   –   – 
Funds (e.g. mutual funds, closed end funds, ETFs)  6,324   6,324   –   – 
Other  8,379   8,379   –   – 
Total equity securities  68,956   68,956   –   – 
Short-term  1,000   1,000   –   – 
Cash equivalents  113,377   504   112,873   – 
Total $855,306  $73,295  $782,011  $– 

- 1713 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)As of December 31, 2018:


As of December 31, 2016:            
            
Description Total  Level 1  Level 2  Level 3  Total  Level 1  Level 2  Level 3 
            
Fixed maturities:            
Fixed income securities:            
Agency collateralized mortgage obligations $6,171  $-  $6,171  $-  $10,687  $–  $10,687  $– 
Agency mortgage-backed securities  4,770   -   4,770   -   37,385   –   37,385   – 
Asset-backed securities  45,183   -   37,919   7,264   64,422   –   64,422   – 
Bank loans  10,349   -   -   10,349   9,750   –   9,750   – 
Certificates of deposit  3,117   3,117   -   -   2,835   2,835   –   – 
Collateralized mortgage obligations  9,104   -   6,409   2,695   5,423   –   5,423   – 
Corporate securities  137,932   -   135,794   2,138   186,651   –   186,651   – 
Options embedded in convertible securities  4,751   -   4,751   -   3,799   –   3,799   – 
Mortgage-backed securities  24,571   -   22,206   2,365   38,540   –   38,540   – 
Municipal obligations  129,335   -   129,190   145   29,155   –   29,155   – 
Non-U.S. government obligations  24,681   -   24,419   262   25,180   –   25,180   – 
U.S. government obligations  91,940   -   91,940   -   178,818   –   178,818   – 
Total fixed maturities  491,904   3,117   463,569   25,218 
Total fixed income securities  592,645   2,835   589,810   – 
Equity securities:                                
Consumer  32,576   32,576   -   -   17,945   17,945   –   – 
Energy  12,842   12,842   -   -   3,179   3,179   –   – 
Financial  31,186   30,943   243   -   25,253   25,253   –   – 
Industrial  21,145   20,262   883   -   6,920   6,920   –   – 
Technology  8,858   8,858   -   -   2,303   2,303   –   – 
Mutual fund  6,995   -   6,995   - 
Funds (e.g. mutual funds, closed end funds, ETFs)  5,489   5,489   –   – 
Other  6,343   6,343   -   -   5,333   5,333   –   – 
Total equity securities  119,945   111,824   8,121   -   66,422   66,422   –   – 
Short-term  1,500   1,500   -   -   1,000   1,000   –   – 
Cash equivalents  59,683   -   59,683   -   156,855   –   156,855   – 
Total $673,032  $116,441  $531,373  $25,218  $816,922  $70,257  $746,665  $– 

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.


- 18 -
Notes to Unaudited Condensed Consolidated Financial Statements (continued)

The Company'sCompany did not have any Level 3 assets consist primarily of a portfolio of corporate and mortgage-backed securities.  Theat March 31, 2019 or December 31, 2018.  Level 3 assets, when present, are valued using various unobservable inputs including extrapolated data, proprietary models and indicative quotes. Transfers into Level 3 relate to securities previously classified as Level 2.  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 nine months ended September 30, 2017 and for the year ended December 31, 2016:

  2017  2016 
Beginning of period balance $25,218  $16,793 
Total gains (realized or unrealized)        
included in income  316   1,846 
Purchases  81   5,540 
Settlements  (8,950)  (8,791)
Transfers into Level 3  144   10,202 
Transfers out of Level 3  (16,421)  (372)
End of period balance $388  $25,218 

Quoted market prices are obtained whenever possible.  Where quoted market prices are not available, fair values are estimated using present value or other valuation techniques.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 no materialsignificant transfers of assets between Level 1 and Level 2 during the ninethree months ended September 30, 2017March 31, 2019 and 2016.  The transfers out of Level 3 during the third quarter of 2017 consisted mainly of bank loans, asset-backed securities and certain mortgage-backed securities and corporate securities, which were based on quoted market prices of similar securities and other observable inputs.2018.

In addition to the preceding disclosures on assets recorded at fair value in the condensed 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 condensed 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 limited partnerships and short-term borrowings.each class of financial instrument:

- 14 -
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, 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.

- 19 -
Notes to Unaudited Condensed Consolidated Financial Statements (continued)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 condensed consolidated balance sheets at September 30, 2017March 31, 2019 and December 31, 2016 are2018 is as follows:

  Carrying  Fair Value 
  Value  Level 1  Level 2  Level 3  Total 
                
September 30, 2017               
Assets:   Limited partnerships $69,568  $-  $-  $69,568  $69,568 
Liabilities:   Short-term borrowings  20,000   -   20,000   -   20,000 
                     
December 31, 2016                    
Assets:   Limited partnerships  76,469   -   -   76,469   76,469 
Liabilities:   Short-term borrowings  20,000   -   20,000   -   20,000 
  Carrying  Fair Value 
  Value  Level 1  Level 2  Level 3  Total 
March 31, 2019               
Assets:                 
Limited partnerships $38,239  $–  $–  $38,239  $38,239 
Commercial mortgage loans  7,844   –   –   7,844   7,844 
Liabilities:                      
Short-term borrowings  20,000   –   20,000   –   20,000 
                     
December 31, 2018                    
Assets:                      
Limited partnerships $55,044  $–  $–  $55,044  $55,044 
Commercial mortgage loans  6,672   –   –   6,672   6,672 
Liabilities:                      
Short-term borrowings  20,000   –   20,000   –   20,000 


(9)  Stock Based Compensation:

The Company grantsissues shares of restricted Class B restricted stockCommon Stock to the Company's outside directors, in lieu of cash,which serve as theirthe annual retainer compensation (the "annual retainer shares").  These annual retainerfor the outside directors.  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 August 31, 2017, the Company granted shares of Class B restricted stock to a new outside director, in lieu of cash, as such director's pro-rated annual retainer compensation, which shares will vest and be distributed on May 9, 2018.  The table below provides detail of the restricted stock issuances to directors for 20162018 and 2017:2019:

          Value 
          Per Share 
 Effective Number of Shares  Vesting Service on Grant 
 Date Issued  Date Period Date 
         
5/10/2016  17,677��5/10/20177/1/2016 - 6/30/2017 $24.89 
           
5/9/2017  18,183 5/9/20187/1/2017 - 6/30/2018 $24.20 
           
8/31/2017  1,257 5/9/20188/31/2017 - 6/30/2018 $21.90 


- 20 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)
Grant Date 
Number of
Shares Issued
 Vesting DateService Period 
Grant Date Fair
Value Per Share
 
5/9/2017  18,183 5/9/20187/1/2017 - 6/30/2018 $24.20 
           
8/31/2017  1,257 5/9/20188/31/2017 - 6/30/2018 $21.90 
           
2/9/2018  408 5/9/20182/9/2018 - 6/30/2018 $24.20 
           
5/8/2018  19,085 5/8/20197/1/2018 - 6/30/2019 $23.05 
           
 5/7/2019  29,536
  5/7/20207/1/2019 - 6/30/2020
 $
16.25
 

Compensation expense related to the above stock grants is recognized over the period in which the directors render services.
On February 8, 2017, the Company awarded 20,181 shares of Class B restricted stock to certain of the Company's executives under the Company's Restricted Stock Compensation Plan.   The restricted shares were granted to certain executives under the terms of the Company's Executive Incentive Bonus Plan.  The restricted shares will vest over a three-year period from the date of grant and will be distributed solely in the Company's Class B common stock.  The restricted shares were valued based on the closing price of the Company's Class B common stock on the day the award was granted.  Each share was valued at $23.80 per share, representing a total value of $480.  Non-vested restricted shares will be forfeited should an executive's employment terminate for any reason other than death, disability, or retirement as defined by the Compensation Committee of the Company's Board of Directors.

- 15 -
In May 2017, the Company's Compensation Committee granted equity-based awards. Underawards 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 ("LTIP"were granted Value Creation Incentive Plan awards (the "2017 VCIP Awards").  The 2017 VCIP Awards are performance-based equity awards that will be earned based on the final bonus amountCompany'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 March 31, 2019.

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 20172018 growth in netgross premiums earned and the 2017Company's 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.  All  No 2018 LTIP awards forAwards were earned based on the Company's named executive officers ("NEOs") will be paidperformance in restricted2018, and therefore no shares ofwere issued pursuant to the 2018 LTIP Awards.  In addition to the 2018 LTIP Awards, in March 2018 the Company's Class B common stock at the end of the 2017 annual performance period and will vest after a one year period.  All LTIP awards for non-NEOs will be paid in restricted shares of the Company's Class B common stock at the end of the 2017 annual performance period and will vest over a three year period. TheCompensation Committee also granted Value Creation Incentive Plan ("VCIP"awards (the "2018 VCIP Awards") is an equity-based award for NEO'sto certain participants under the Long-Term Incentive Plan.  The 2018 VCIP Awards are performance-based equity awards that will be earned based on athe Company's cumulative increase in operating income, as defined above, over a three-year performance period.  Each target VCIP share opportunity will be determined by a measurement of the Corporation's cumulative operating incomeperiod from January 1, 20172018 through December 31, 20192020 relative to ana cumulative operating income goal for the period set by the Compensation Committee in March 2017.  For the purpose of2018.  Any 2018 VCIP calculation, cumulative operating income is equal to income before taxes excluding net realized gains (losses) on investments.  All VCIP awardsAwards that are earned will be paid in unrestricted shares of the Company's Class B common stockCommon Stock at the end of the three-year performance period, but no later than March 15, 2020.2021.  No shares have beenare eligible to be issued under the 2018 VCIP Awards as of September 30, 2017March 31, 2019.

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, on November 13, 2018, Mr. Nichols was granted 85,000 restricted shares of the Company's Class B Common Stock (the "Stock Grant"), of which 42,500 shares will vest as of October 17, 2019; 21,250 shares will vest as of October 17, 2020, and 21,250 shares will vest as of October 17, 2021.  The Company recorded $309 of expense during the three months ended March 31, 2019 related to the Stock Grant.

In March 2019, the Company's Compensation Committee granted equity-based awards pursuant to the Long-Term Incentive Plan.  Certain participants under these plans.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 award 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 will be determined based on the Company's achievement of 2019 underwriting income compared to the plan target.  The Company's underwriting income will be calculated as income (loss) before federal income tax expense (benefit), less net realized gains (losses) on investments, less net unrealized gains (losses) on equity securities and limited partnerships, less net investment income.  The personal performance component of the 2019 LTIP Awards will be determined based on the achievement of personal goals that align with departmental and corporate objectives for 2019.  Any 2019 LTIP Awards earned will be 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 recorded $24 of expense during the three months ended March 31, 2019 related to the 2019 LTIP Awards.


(10)  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.


- 2116 -
Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(11)  Shareholders' Equity:
Changes
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 March 22, 2019, which authorized the repurchase of up to $3,500 of the Company's outstanding common shares at various pricing thresholds, in common stock outstandingaccordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934.  The Rule 10b5-1 plan expires on May 9, 2019. No duration has been placed on the Company's share repurchase program, and additional paid-in-capital are as follows: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.


                Additional 
    Class A    Class B  Paid-in 
  Shares   Amount  Shares   Amount  Capital 
Balance at December 31, 2016  2,623,109   $112   12,460,900   $532  $54,286 
   Restricted stock grants  -    -   37,858    2   919 
   Repurchase of common shares  -    -   (84,960)   (4)  (360)
Balance at September 30, 2017  2,623,109   $112   12,413,798   $530  $54,845 
During the third quarter of 2017,three months ended March 31, 2019, the Company paid $1,880$468 to repurchase 84,960100 shares of Class A and 24,858 shares of Class B common stockCommon Stock under athe share repurchase program approved by its Board of Directors on August 31, 2017.

The components of equity for the nine months ended September 30, 2017 were as follows:


  Total equity 
Balance at December 31, 2016 $404,345 
Net income  1,847 
Other comprehensive income  11,947 
Cash dividends paid to shareholders  (12,250)
Restricted stock grants  921 
Repurchase of common shares  (1,880)
Balance at September 30, 2017 $404,930 


The components of equity for the nine months ended September 30, 2016 were as follows:


  Total equity 
Balance at December 31, 2015 $394,498 
Net income  24,082 
Other comprehensive loss  (1,116)
Cash dividends paid to shareholders  (11,885)
Restricted stock grants  1,343 
Balance at September 30, 2016 $406,922 



- 22 -
Notes to Unaudited Condensed Consolidated Financial Statements (continued)program.

The following table illustrates changes in accumulated other comprehensive income by component for the ninethree months ended September 30, 2017:March 31, 2019:

     Unrealized    
     holding gains on    
  Foreign  available-for-sale    
  Currency  securities  Total 
          
Beginning balance $(831) $34,051  $33,220 
             
   Other comprehensive income            
      before reclassifications  510   15,999   16,509 
             
   Amounts reclassified from            
      accumulated other            
      comprehensive income  -   (4,562)  (4,562)
             
Net current-period other            
   comprehensive income  510   11,437   11,947 
             
Ending balance $(321) $45,488  $45,167 
  
Foreign
Currency
  
Unrealized Holding Gains (Losses) on
Available-for-sale Securities
  Total 
Beginning balance at December 31, 2018 $(1,139) $(6,208) $(7,347)
             
Other comprehensive income before reclassifications  307   7,671   7,978 
Amounts reclassified from accumulated other comprehensive income (loss)  –   785   785 
             
Net current-period other comprehensive income  307   8,456   8,763 
             
Ending balance at March 31, 2019 $(832) $2,248  $1,416 


The following table illustrates changes in accumulated other comprehensive income (loss) by component for the ninethree months ended September 30, 2016:March 31, 2018:

     Unrealized    
     holding gains on    
  Foreign  available-for-sale    
  Currency  securities  Total 
          
Beginning balance $(1,066) $38,924  $37,858 
             
   Other comprehensive income            
      before reclassifications  398   7,471   7,869 
             
   Amounts reclassified from            
      accumulated other            
      comprehensive income  -   (8,985)  (8,985)
             
Net current-period other            
   comprehensive income  398   (1,514)  (1,116)
             
Ending balance $(668) $37,410  $36,742 
  
Foreign
Currency
  
Unrealized Holding Gains (Losses) on
Available-for-sale Securities
  Total 
Beginning balance at December 31, 2017 $(309) $46,700  $46,391 
             
Cumulative effect of adoption of ASU 2016-01, net of tax  –   (46,157)  (46,157)
             
Balance at January 1, 2018  (309)  543   234 
             
Cumulative effect of adoption of ASU 2018-02  –   117   117 
Other comprehensive loss before reclassifications  (223)  (2,998)  (3,221)
Amounts reclassified from accumulated other comprehensive income (loss)  –   (123)  (123)
             
Net current-period other comprehensive loss  (223)  (3,121)  (3,344)
             
Ending balance at March 31, 2018 $(532) $(2,461) $(2,993)

(
12) Other Operating Expenses:- 17 -
During 2015,
(12)  Related Parties:

At March 31, 2019, the Company entered into a consulting contractwas invested in one limited partnership, the New Vernon India Fund, with an insurance brokerage firmaggregate estimated value of $17,313, that is managed by an organization in which aone director of the Company is CEOan executive officer and a Managing Director.owner.  The consulting contract provides for an annual feeCompany's ownership interest in this limited partnership at March 31, 2019 was 4%.  For the three months ended March 31, 2019 and 2018, the Company recorded $48 and $142 of $300 for 2017 and 2016, respectively.  fees related to the management of this limited partnership investment.

In January 2019, the Company withdrew $5,684 from the New Vernon Global Opportunity Fund, which liquidated its investment in this limited partnership.

The Company also hasutilizes the services of an investment firm of which one director of the Company is a brokerage agreementpartial owner.  These investment firms manage equity securities and fixed income portfolios with this entity.  The Company incurred commission expense in connection with insurance policies written in 2017an aggregate market value of approximately $7,899 at March 31, 2019.  Total commissions and 2016 under this brokerage agreement.  Total commission expensenet fees earned by the investment firms and affiliates on these portfolios were $5 and $27 for the three months ended September 30, 2017March 31, 2019 and 2016 was $164 and $140, respectively.  Total commission expense for the nine months ended September 30, 2017 and 2016 was $523 and $280, respectively.2018.

- 23 -

Notes to Unaudited Condensed Consolidated Financial Statements (continued)

(13)  Subsequent Events:

In April 2019, the Company withdrew $3,000 from the Arbiter Partners limited partnership, which reduced the Company's investment in this limited partnership.

On May 7, 2019, 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 June 4, 2019 to shareholders of record on May 21, 2019.

Pursuant to the Rule 10b5-1 plan entered into on March 22, 2019, the Company has evaluated subsequent events for recognition or disclosure in these condensed consolidated financial statements filed on Form 10-Q withpaid $3,031 to repurchase 23 shares of Class A and 172,416 shares of Class B Common Stock between April 1, 2019 and the Securities and Exchange Commission, and no events have occurred through the filing date of this Quarterly Report on Form 10-Q which require recognition or disclosure.10-Q.



- 2418 -

ITEM 22. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The Company specializesProtective Insurance Corporation is a property-casualty insurer specializing in marketing and underwriting insuranceproperty, liability and 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.  The Company operatesWe 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 Company determined that its business constituted one reportable property and casualty insurance segmentterm “Protective,” 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 the Company's chief operating decision maker when making decisions about how resources are to be allocated to the segment and assessing its performance.  The prior period segment informationused throughout this Quarterly Report on Form 10-Q was updatedManagement’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), refers to conformProtective Insurance Corporation, the parent company.  The terms the “Company,” “we,” “us” and “our,” as used throughout this MD&A, refer to Protective and all of its subsidiaries unless the current year presentation.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.

Liquidity and Capital Resources

The primary sources of the Company'sour 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.

The CompanyWe generally experiencesexperience positive cash flow from operations.  Premiums are collected on insurance policies in advance of the disbursement of funds infor payment of claims.  Operating costs of the Company'sour property/casualty insurance subsidiaries,Insurance Subsidiaries, other than loss and loss expense payments and commissions paid to related agency companies, generally 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.  The Company'sOur cash flow relating to premiums is significantly affected by reinsurance programs in effect, from time-to-time, whereby the Company cedeswe 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 the Companyus from itsour insureds.

On August 31, 2017, the Company'sour Board of Directors authorized the reinstatement of itsour share repurchase program for up to 2,464,209 shares of the Company'sour 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.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 March 22, 2019, we entered into a stock repurchase plan for the purpose of repurchasing up to $3.5 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 expires on May 9, 2019. The share repurchase program expiringmay 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 March 5, 2018, authorizes the repurchase of up to $17.5 millionhand. The actual number and value of the Company's outstanding common shares at various pricing thresholds.  Because repurchasesto be purchased will be subject todepend on the performance of our stock price, market volume and timing constraints, there is no assurance asother market conditions.  During the three months ended March 31, 2019, we paid $0.5 million to repurchase 100 shares of Class A and 24,858 shares of Class B Common Stock under the exact number of shares that will be repurchased, if any. share repurchase program.

- 25 -

For the first nine months of 2017, the Company produced positive cash flow from operations totaling $55.2 million, which compared to positive cash flow from operations of $32.4 million generated during the first nine months of 2016.  The increase in cash flow from the 2016 period was mainly due to higher premium volume during the first nine months of 2017.

For several years, the Company'sour investment philosophy has emphasized the purchase of short-term bonds with superiorhigh quality and liquidity.  As flat yield curves have not provided incentiveOur fixed income investment portfolio continues to lengthen maturitiesemphasize shorter-duration instruments. If there was a hypothetical increase in recent years,interest rates of 100 basis points, the Company has continuedprice of our bonds at March 31, 2019 would be expected to maintain itsfall by approximately 2.7%.  The credit quality of our fixed maturity portfolio at short-term levels.income securities remains high with a weighted average rating of AA-, including cash.  The average contractual life of the Company'sour fixed maturityincome and short-term investment portfolio increased slightly to 4.8 years during the first nine months of 2017 from 4.5was 5.5 years at March 31, 2019 and December 31, 2016.2018.  The average duration of the Company'sour fixed maturityincome portfolio remains much shorter than both the contractual maturity average and the duration of the Company'sour liabilities.  The CompanyWe also remainsremain an active participant in the equity securities market using capital which is in excess of amounts considered necessary to fund our current operations.  The long-term horizon for the Company'sour equity investments allows itus to invest in positions where ultimate value, and not short-term market fluctuation, is the primary focus.  Investments made by the Company'sour domestic property/casualty insurance subsidiariesInsurance 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.
The net
Net cash used in investing activities totaled $36.1flows from operations increased $3.4 million to $11.4 million during the three months ended March 31, 2019 compared to $8.0 million for the first ninethree months of 2017.  Thisended March 31, 2018.  The increase in operating cash flows was primarily related to higher premium volume and higher investment income during the three months ended March 31, 2019 compared to net cash usedthe same period in investing activities of $27.1 million during the 2016 period.  The increase in2018.

- 19 -
Net cash used in investing activities was $47.3 million for the resultthree months ended March 31, 2019 compared to net cash provided by investing activities of $11.2 million for the normal timingthree months ended March 31, 2018.  The $58.5 million change was primarily related to lower proceeds from sales of our equity and fixed income security investments and our purchases and sales and maturitiesof $1.2 million of commercial mortgage loans in our investment portfolio,the first quarter of 2019, partially offset by increased$17.2 million in distributions received from limited partnership investments.partnerships during the first quarter of 2019 and a $0.4 million reduction in purchases of property and equipment. Additionally, the first quarter of 2018 included the purchase of $10.0 million of company-owned life insurance, which did not recur in the first quarter of 2019.

FinancingNet cash used in financing activities for the first ninethree months of 2017ended March 31, 2019 consisted of the regular cash dividend payments to shareholders of $12.3$1.5 million ($.810.10 per share) combined with theand $0.5 million to repurchase of 84,960 shares of the Company'sour Class A and B common stock during the third quarter of 2017 for $1.9 million.Common Stock. Financing activities for the first ninethree months of 2016ended March 31, 2018 consisted solely of the regular cash dividend payments to shareholders of $11.9$4.2 million ($.780.28 per share). and $0.2 million to repurchase shares of our Class B Common Stock.

The Company maintains a revolving line of credit with a $40.0 million limit and an expiration date of September 23, 2018.  Interest on this line of credit is referenced to LIBOR and can be fixed for periods of up to one year at the Company's option.  Outstanding drawings on this line of credit were $20.0 million as of both September 30, 2017 and December 31, 2016.  At September 30, 2017, the effective interest rate was 2.34%.  The Company had $20.0 million remaining under the line of credit at September 30, 2017.  The Company's revolving line of credit has three financial covenants, all of which were met as of September 30, 2017.  The three financial covenants relate to a minimum Generally Accepted Accounting Principles ("GAAP") net worth, a minimum statutory surplus and a minimum A.M. Best rating.
The Company'sOur assets at September 30, 2017March 31, 2019 included $65.2$113.4 million of investments classified as short-termincluded within cash and cash equivalents on the condensed consolidated balance sheet that wereare readily convertible to cash without significant market penalty.  Anpenalty and an additional $48.8$95.0 million of fixed maturityincome investments will mature within the twelve-month period following September 30, 2017.  The Company believes thatmaturing in less than one year.  We believe these liquid investments, plus the expected cash flow from premium collections, are more than sufficient to provide for projected claim payments and operating cost demands.  In the event competitive conditions produce inadequate premium rates and the Company chooseswe choose to further restrict volume, the liquidity of itsour investment portfolio would permit managementus to continue 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 avoid significant cash outlays that accompany large losses.

- 26 -
Consolidated shareholders' equity is composed largely of GAAP shareholders' equityWe maintain 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 insurance subsidiaries.  As such, there are statutory restrictionslenders, which has an expiration date of August 9, 2022.  Interest on the transfer of substantial portions of this equitycredit facility is referenced to the parent company.London Interbank Offered Rate 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 March 31, 2019.  At September 30, 2017, $54.3March 31, 2019, the effective interest rate was 3.59%, and we had $20.0 million may be transferred by dividend or loanremaining under the revolving credit facility as of March 31, 2019.  The current outstanding borrowings were used to repay the parent company during the remainderprevious line of 2017 without approval by, or prior notificationcredit.  Our revolving credit facility has two financial covenants, each of which were met as of March 31, 2019, requiring us to regulatory authorities.  An additional $258.1 millionhave a minimum U.S. Generally Accepted Accounting Principles ("GAAP") net worth and a maximum consolidated leverage ratio of shareholders' equity of the Company's insurance subsidiaries could be advanced or loaned0.35 to the parent company with prior notification to, and approval from, regulatory authorities, although transfers of this size would not be practical.  The Company believes that these restrictions pose no material liquidity concerns to the Company.  The Company also believes that the financial strength and stability of the Company's insurance subsidiaries would permit access by the parent company to short-term and long-term sources of credit when needed.  The parent company had cash and marketable securities valued at $11.1 million at September 30, 2017.1.00.

NetAnnualized net premiums written by the Company's insurance subsidiariesour Insurance Subsidiaries for the first nine monthsquarter of 20172019 equaled approximately 82%120% of the combined statutory surplus of these subsidiaries, a level consistent with the increase inhigher premiums written during 2017.written.  Premium writings of up to 100% and in some cases up to 200% of surplus are generally considered acceptable by regulatory authorities.  Further, the statutory capital of each of the Company's insurance subsidiariesour Insurance Subsidiaries substantially exceeded minimum risk basedrisk-based capital requirements set by the National Association of Insurance CommissionersNAIC as of September 30, 2017.March 31, 2019.  Accordingly, the Company haswe have the ability to significantly increase itsour 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 March 31, 2019, $54.1 million may be transferred by dividend or loan to Protective during the remainder of 2019 without approval by, or prior notification to, regulatory authorities.  An additional $212.5 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 $10.1 million at March 31, 2019.



- 20 -
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 of our insurance operations and is derived by subtracting net realized and unrealized gains (losses) on investments and net investment income from income before federal income tax expense (benefit). 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 before federal income tax expense (benefit) calculated in accordance with GAAP, and other companies may define underwriting income (loss) differently.

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 commission 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.  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.

  2019  2018 
Income before federal income tax expense (benefit) $3,514  $314 
Less: Net realized and unrealized gains (losses) on investments  6,028   (4,533)
Less: Net investment income  6,232   4,636 
Underwriting income (loss) $(8,746) $211 
         
         
Ratios        
Losses and loss expenses incurred $87,122  $72,298 
Net premiums earned  110,013   105,462 
Loss ratio  79.2%  68.6%
         
Other operating expenses $33,701  $34,767 
Less: Commissions and other income  2,064   1,814 
Other operating expenses, less commissions and other income  31,637   32,953 
Net premiums earned  110,013   105,462 
Expense ratio  28.8%  31.2%
         
Combined ratio  108.0%  99.8%


- 21 -
Results of Operations

Comparison of ThirdFirst Quarter 20172019 to ThirdFirst Quarter 20162018

The following table provides information regarding premiums written and earned for the quarters ended September 30 (dollars in thousands):


  2017  2016  Change 
          
Gross Premiums Written $131,523  $101,921  $29,602 
Net Premiums Written  96,222   70,530   25,692 
Net Premiums Earned  89,100   71,235   17,865 
  2019  2018  Change  % Change 
Gross premiums written $148,893  $148,823  $70   – 
Ceded premiums written  (33,571)  (35,389)  1,818   5.1%
Net premiums written $115,322  $113,434  $1,888   1.7%
                 
Net premiums earned $110,013  $105,462  $4,551   4.3%
Net investment income  6,232   4,636   1,596   34.4%
Commissions and other income  2,064   1,814   250   13.8%
Net realized and unrealized gains (losses) on investments  6,028   (4,533)  10,561   233.0%
Total revenue  124,337   107,379         
Losses and loss expenses incurred  87,122   72,298   14,824   20.5%
Other operating expenses  33,701   34,767   (1,066)  (3.1)%
Total expenses  120,823   107,065         
Income before federal income tax expense (benefit)  3,514   314   3,200     
Federal income tax expense (benefit)  766   (16)  782     
Net income $2,748  $330  $2,418     
                 

Gross premiums written during the thirdfirst quarter of 2017 increased $29.6 million (29.0%),2019 were approximately flat, while net premiums earned increased $17.9$4.6 million (25.1%(4.3%), as compared to the same period in 2016.first quarter of 2018.  The higher gross premiums written and net premiums earned were due to increasesthe result of the changes in sales of both commercial automobile and workers' compensation products and were consistent with the Company's growth strategy.  our reinsurance structure 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.
- 27 -

Premiums ceded to reinsurers on the Company'sour insurance business averaged 26.8%22.5% of gross premiums written for the first quarter of 2019 compared to 23.8% in the first quarter of 2018.  In the third quarter of 2017, we lowered the quota share rate on our workers compensation premiums to reflect growing profitability and confidence in this book of business. We also restructured our commercial automobile reinsurance treaty, moving away from variable premium ceded rates (based on loss performance), to a flat ceding arrangement with no material changes to the economic risks taken for these products (i.e. ceded losses will decrease by a similar amount as ceded premiums).   The impacts of these changes to our reinsurance structure were partially offset by the ceding of an additional $1.6 million in commercial automobile premium from prior treaty years related to variable premium adjustment provisions in our historical reinsurance treaties.

Losses and loss expenses incurred during the first quarter of 2019 increased $14.8 million (20.5%) compared to 30.8%the first quarter of 2018, resulting in a loss ratio of 79.2% during the first quarter of 2019 compared to a loss ratio of 68.6% during the first quarter of 2018.  The loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned.  The increased losses and loss expenses and the higher loss ratio in the 2016 third quarter.
The percentagefirst quarter of premiums2019 reflected an increase in current accident year losses driven by severe commercial automobile losses, including continued emergence of severity.  This current accident year development was partially offset by prior accident year net savings of $1.1 million that developed during the three months ended March 31, 2019, primarily due to favorable loss development in workers' compensation and independent contractor coverages.  Including the impact of additional ceded to reinsurance decreased as a result of changes inpremium discussed above, the Company's reinsurance structure.total prior accident year impacts were unfavorable by $0.5 million for the three months ended March 31, 2019.

Net investment income duringfor the thirdfirst quarter of 2017 was 14.6% higher than2019 increased 34.4% to $6.2 million compared to $4.6 million for the thirdfirst quarter of 2016, due primarily to higher interest rates leading to higher reinvestment yields for short-duration fixed income securities, increased dividends and a 3.0%2018. The increase reflected an increase in average funds invested resulting from positive cash flow.flow, as well as a reallocation from equity investments held in limited partnerships into short-duration, high quality bonds.  After-tax investment income increased by 13.6%31.6% to $2.9$5.0 million during the thirdfirst quarter of 2017,2019, compared to $2.5$3.8 million during the 2016 thirdfirst quarter of 2018, reflecting the aforementioned higher interest ratesincrease in average funds invested and reinvestment yield environment.  reallocation from limited partnerships to short-duration, high quality bonds.

The thirdNet realized and unrealized gains on investments of $6.0 million during the first quarter 2017of 2019 were primarily driven by $6.0 million in unrealized gains on equity securities during the period and a $0.4 million increase in the value of our limited partnership investments, partially offset by other-than-temporary impairments on our fixed income securities of $0.3 million recognized during the period.  Comparative first quarter 2018 net realized investment gainsand unrealized losses on investments of $5.9$4.5 million resulted primarily from $3.4were driven by a $2.6 million decrease in the value of our limited partnership investments and $2.3 million in gains from trading activities and $2.5 million in gains fromunrealized losses on equity securities during the Company's investments in limited partnerships.  Comparative third quarter 2016period, partially offset by net realized investment gains were $7.7 million, consisting primarilyon sales of $4.4 million in gains reported from the Company's investments in limited partnerships and $3.3 million in gains from trading activities.securities of $0.4 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 aggregate value of limited partnerships and, as such, should not be expected to be consistent from period to period.

Losses and loss expenses incurred during the third quarter of 2017 increased $3.8 million (6.8%) compared to the 2016 third quarter, resulting in a loss ratio of 68.1%, compared to a loss ratio of 79.8% during the third quarter of 2016.  The year-over-year decrease in the loss ratio reflects a $10.1 million reserve strengthening that occurred during the third quarter of 2016.

Other operating expenses for the thirdfirst quarter of 2017 increased $8.02019 decreased $1.1 million, or 37.5%3.1%, fromto $33.7 million compared to the thirdfirst quarter of 2016.2018.  The increasedecrease was driven primarily by lower salary and benefit expense in addition to lower other operating expenses, was primarily due to increasedpartially offset by higher commission expenses as a result of increased premiums written.the mix of premium written in the first quarter of 2019.  The ratio of consolidated other operating expenses less commissions and other income to net premiums earned (the “expense ratio”) was 31.2%28.8% during the thirdfirst quarter of 20172019 compared to 28.1%31.2% for the 2016 third quarter.first quarter of 2018. The decrease in the ratio was primarily related to the leveraging effect of higher net premiums earned in the first quarter of 2019 compared to the first quarter of 2018.

- 22 -
Federal income tax expense was $0.8 million for the first quarter of 2019 compared to a federal income tax benefit of less than $0.1 million for the first quarter of 2018. The effective tax rate for the first quarter of 2019 was 21.8% compared to (5.1%) in the first quarter of 2018. The effective federal income tax rate on consolidated income forin the third quarter of 2017 was 30.0% compared to 29.0% for the 2016 third quarter.  The effective rate differscurrent year differed from the normal statutory rate primarilyin part as a result of tax-exempt investment income.  The effective tax rate for the three months ended March 31, 2018 was also impacted by the change in accounting for unrealized gains and losses on equity securities related to our adoption of ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, where changes in unrealized gains and losses, and the corresponding tax effects, are now recorded in the condensed consolidated statement of operations.

As a result of the factors mentioned above, and primarily the $10.1 million reserve strengthening that occurred during the third quarter of 2016, net income increased $3.4$2.4 million during the third quarter of 2017 as compared to the 2016 third quarter.

- 28 -
Comparison of Nine Months Ended September 30, 2017 to Nine Months Ended September 30, 2016

The following table provides information regarding premiums written and earned for the nine months ended September 30 (dollars in thousands):

  2017  2016  Change 
          
Gross Premiums Written $360,558  $298,120  $62,438 
Net Premiums Written  246,459   202,764   43,695 
Net Premiums Earned  231,070   206,870   24,200 

Gross premiums written during the first nine months of 2017 increased $62.4 million (20.9%), while net premiums earned increased $24.2 million (11.7%), as compared to the same period in 2016.  The higher premiums written and earned were due to increases in sales of both commercial automobile and workers' compensation products and were consistent with the Company's growth strategy.  The difference in the percentage change for premiums written compared to earned is 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 the Company's insurance business averaged 31.6% of gross premiums written for the 2017 period compared to 32.0% a year earlier.  The percentage of premiums ceded to reinsurance decreased as a result of changes in the Company's reinsurance structure.  The change in net premiums earned, compared to growth in gross premiums written, was a function of premium adjustment provisions in the Company's historical commercial automobile reinsurance treaties.  This historical reinsurance structure, which was revised in the current reinsurance renewal, causes an adjustment for ceded premiums when the ultimate loss estimate changes for a reinsurance treaty year.

Net investment income during the first nine months of 2017 was 18.4% higher than the first nine months of 2016 primarily due to higher interest rates leading to higher reinvestment yields for short-duration fixed income securities, increased dividends and a 6.3% increase in average funds invested resulting from positive cash flow.  After-tax investment income increased by 18.6% to $8.9$2.7 million during the first nine monthsquarter of 20172019 compared to $7.5net income of $0.3 million during the 2016 period, reflecting the aforementioned higher interest rates and reinvestment yield environment.first quarter of 2018.

Net realized investment gains
Sensitivity Analysis

Management is aware of the potential for the first nine months of 2017 totaled $15.5 million and resulted primarily from $8.5 million in gainsvariation from the Company's investmentsreserves established at any particular point in limited partnerships and $7.0 milliontime. Savings or deficiencies could develop in gains from trading activities.  Forfuture valuations of the same period of 2016, overall net realized investment gains were $17.0 million, consisting primarily of $13.8 million in gains from trading activities and $3.2 million in gains from the Company's investments in limited partnerships.  Realized investment gains and losses result from decisions regarding overall portfolio realignment as well as the sale of individual securities, including the change in aggregate value of limited partnerships and, as such, should not be expected to be consistent from period to period.

- 29 -
Lossescurrently established loss and loss expenses incurred during the first nine monthsexpense reserve estimates under a variety of 2017 increased $42.9 million (31.1%) compared to the first nine monthsreasonably possible scenarios. The majority of 2016, resulting in a loss ratio of 78.3%, compared to a loss ratio of 66.8% during the first nine months of 2016.  The year-over-year increase inour reserves for losses and loss expenses, andon a net of reinsurance basis, relate to our commercial automobile products. Perhaps the most significant example of sensitivity to variation in the key assumptions is the loss ratio was relatedselection for our commercial automobile products for policies subject to significant unfavorablecertain major reinsurance treaties.  Commercial automobile products covered by our reinsurance treaties are subject to an aggregate stop-loss provision.  Once this aggregate stop-loss level is reached, for every $100 of additional loss, experience from prior years.  A reserve deficiencywe are responsible only for our $25 retention.  The following table illustrates the financial impact of $16.5 million developed duringa further 5% or 10% increase in ultimate losses for each of the first nine months of 2017 largely due to infrequent, but severe, transportation losses that occurred primarily during the first six months of 2017.five most recent reinsurance treaty years (2014-2018) covering these commercial automobile products:

  
5% Increase in
Ultimate Loss Ratio
  
10% Increase in
Ultimate Loss Ratio
 
Gross loss expense from further strengthening current reserve position $35.3  $70.7 
Net financial loss  9.2   18.1 
         
$/share (after tax) $0.49  $0.96 


Other operating expenses for the first nine months of 2017 increased $17.9 million, or 27.8%, from the first nine months of 2016.  The increase in other operating expenses was primarily due to increased commission expenses as a result of increased premiums written.  The ratio of consolidated other operating expenses less commissions and other income to net premiums earned was 33.9% during the 2017 period compared to 29.1% for the 2016 period.Forward-Looking Information

The effective federal tax rate on consolidated income (loss) for the first nine months of 2017 was 581.0% compared to 33.1% for the 2016 period.  The significant difference between the effective rate and the normal statutory rate was the result of the Company's operating loss through the first nine months of 2017.

As a result of the factors mentioned above, and primarily the reserve strengthening that occurred during the second quarter of 2017, net income decreased $22.2 million during the first nine months of 2017 as compared to the 2016 period.


Forward-Looking Information

Any forward-looking statementsdisclosures in this report, including without limitation, statements relating toForm 10-Q contain "forward-looking statements" (within the Company's plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisionsmeaning of the Private Securities Litigation Reform Act of 1995.  1995). All statements, trend analyses and other information contained in this Form 10-Q relative to markets for our products and trends in our operations or financial results, as well as other statements including words such as "may," "target," "anticipate," "believe," "plan," "estimate," "expect," "intend," "project," and other similar expressions, constitute forward-looking statements.

Investors are cautioned that such forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.  These risksstatements, many of which are difficult to predict and uncertainties include without limitation the following:  (i) the Company's plans, strategies, objectives, expectations and intentions are subject to change at any time at the discretion of the Company;  (ii) the Company's business is highly competitive and the entrance of new competitors into or the expansion of the operations by existing competitors in the Company's markets and other changes in the market for insurance products could adversely affect the Company's plans and results of operations;  (iii) other risks and uncertainties indicated from time to time in the Company's filings with the Securities and Exchange Commission including, but not limited to, those risks set forth in Part I, Item 1A, Risk Factors, in the Company's Annual Report on Form 10-K for the year ended December 31, 2016; and (iv) other risks and factors which may begenerally beyond the control or foresight of the Company.  Readers of this reportour control.  Investors are cautioned not to place undue reliance on these forward-looking statements. Whilestatements that speak only as of the Company believesdate hereof.  Investors are also urged to carefully review and consider the assumptionsvarious disclosures made by us, which attempt to advise interested parties of the factors that affect our business, including "Risk Factors" set forth in Part I, Item 1A of our Annual Report on whichForm 10-K for the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will provefiscal year ended December 31, 2018 and our reports filed with the U.S. Securities and Exchange Commission from time to be accurate. The Company expressly disclaimstime.  Except to the extent otherwise required by federal securities laws, we do not undertake any obligation to update or revise anyrepublish revised forward-looking statements whether as a result of new information, futureto reflect events or otherwise, except as otherwise required by law.circumstances after the date hereof.


- 3023 -

Factors that could contribute to these differences include, among other things:

●general economic conditions, including weakness 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;

●our ability to obtain adequate premium rates and manage our operating strategies;

●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;

●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 II, Item 1A, "Risk Factors," of this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.  You should read that information in conjunction with this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our unaudited condensed consolidated financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Critical Accounting Policies

There have been no changes in the Company'sour critical accounting policies as disclosed in the Company'sour Annual Report on Form 10-K filed for the year ended December 31, 2016.2018.

Concentrations of Credit Risk

The Company's insurance subsidiariesOur Insurance Subsidiaries cede portions of their gross premiums to numerous reinsurers under quota share and excess of loss treaties, as well as facultative placements.  These reinsurers assume commensurate portions of the risk of loss covered by the contracts.  As losses are reported and reserved, portions of the gross losses attributable to reinsurers are established as receivable assets and losses incurred are reduced.  At September 30, 2017,March 31, 2019, amounts due from reinsurers on paid and unpaid losses were estimated to total approximately $303$383 million.  Because of the large policy limits reinsured by the Company,us, the ultimate amount of incurred but not reported losses and loss adjustment expenses attributable to reinsurers could vary significantly from the estimate provided;estimate; provided, however, absent the inability to collect from reinsurers, such variance would not result in changes in net claim losses incurred by the Company.us.

Off-Balance Sheet Arrangements

The Company hasWe have no off-balance sheet arrangements.


- 24 -
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


ThereOther than as set forth below, there have been no material changes in the Company's exposure to market risk since the disclosure in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.2018.

Interest Rate Risk
We are exposed to interest rate risk on our fixed income investments. Given the anticipated duration of our liabilities (principally insurance loss and loss expense reserves) relative to investment maturities, a 100 to 200 basis point increase in interest rates would not have a material impact on our ability to conduct daily operations or to meet our obligations and could result in significantly higher investment income in a relatively short period of time, as short-term investments and maturing bonds could be reinvested in higher yielding securities.

The table below summarizes our interest rate risk by illustrating the sensitivity of the fair value of our fixed income investments as of March 31, 2019 to selected hypothetical changes in interest rates (dollars in thousands).

  Fair Value  
Estimated Change
in Fair Value
 
200 basis point increase $634,881  $(37,092)
100 basis point increase  653,427   (18,546)
Current fair value  671,973   – 
100 basis point decrease  690,517   18,544 
200 basis point decrease  709,058   37,085 

Our selection of the range of values chosen to represent changes in interest rates should not be construed as our prediction of future market events, but rather, as an illustration of the impact of such events, should they occur.  Several other factors, including but not limited to 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, 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 above.

ITEM 4. CONTROLS AND PROCEDURES


The Company carried out an evaluation as of September 30, 2017,March 31, 2019 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 isis: (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 period covered by this report that materially affected, or is reasonably likely to materially affect, theits internal control over financial reporting.

- 3125 -
PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required with respect to this item can be found in Note 10 - Litigation, Commitments and Contingencies of Notes to Unaudited Condensed Consolidated Financial Statements contained in Part I,TEM Item 1 of this Quarterly Report on Form 10-Q and is incorporated by reference into this Part II, Item 1.

ITEM 1A. RISK FACTORS


In addition to the information set forth in this Quarterly Report on Form 10-Q and before deciding to invest in, or retain, shares of the Company's common stock, you should carefully review and consider the information contained in the Company's other reports and periodic filings that it makes with the Securities and Exchange Commission, including, without limitation, the information contained under the caption Part I, Item 1A "Risk Factors" in its Annual Report on Form 10-K for the year ended December 31, 2016.2018. Those risk factors could materially affect the Company's business, financial condition and results of operations. There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
2018.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


Issuer Purchases of Equity Securities

           Approximate dollar 
        Total number of  value of shares still 
  Total number     shares purchased  available to be purchased 
  of shares purchased  Average price paid per share  
as part of program (1)
  
under the program (000s) (1)
 
July 1 - July 31  -   -   -  $- 
August 1 - August 31  -   -   -   17,500 
September 1 - September 30  84,960  $22.12   84,960   15,620 
Total  84,960       84,960  $15,620 
  
Total Number of
Shares Purchased
  
Average Price
Paid per Share
  
Total Number of
Shares Purchased
Under the Program (1)
  
Remaining Shares
Available to be Purchased
Under the Program (1)
 
January 1 – January 31  –  $-   –   2,179,581 
February 1 – February 28  –   -   –   2,179,581 
March 1 – March 31  24,958   18.72   24,958   2,154,623 
Total  24,958       24,958     

(1) 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.  Pursuant to this share repurchase program, on September 21, 2017 the Company entered into a Rule 10b5-1 plan expiring on March 5, 2018, authorizing the repurchase of up to $17.5 million of the Company's outstanding common shares, at various pricing thresholds (the "Plan").  Because repurchases under the Plan will be subject to price, market volume and timing constraints, there is no assurance as to the exact number of shares that will be repurchased, if any.  The Company may terminate the Plan
(1)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.  Pursuant to this share repurchase program, we entered into a Rule 10b5-1 plan on March 22, 2019, which authorizes the repurchase of up to $3.5 million of our outstanding common stock, at various pricing thresholds, in accordance with guidelines specified under Rule 10b5-1 of the Exchange Act. The Rule 10b5-1 plan expires on May 9, 2019.  No duration has been placed on our share repurchase program, and we reserve the right to discontinue it at any time.   The share repurchase program 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.


- 3226 -

ITEM 6 (a)6. EXHIBITS

INDEX TO EXHIBITS

Table of Regulation S-K Item 601Exhibit No.

(31.1)Certification of CEO                 EXHIBIT 31.1
pursuant to Section 302 of the        Certification of CEO
Sarbanes-Oxley Act of 2002


(31.2)Certification of CFO                 EXHIBIT 31.2
pursuant to Section 302 of the        Certification of CFO
Sarbanes-Oxley Act of 2002


(32)Certification of CEO and CFO   EXHIBIT 32
pursuant to 18 U.S.C. 1350, as        Certification of CEO
adopted pursuant to Section 906   and CFO
of the Sarbanes-Oxley Act of 2002


(101)Exhibit No.Description
3.1
Amended and Restated Articles of Incorporation of Protective Insurance Corporation, incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed August 8, 2018.
3.2
Code of By-Laws of Protective Insurance Corporation, as amended effective February 22, 2019, incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K filed March 7, 2019.
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 Baldwin & Lyons, Inc.'sProtective Insurance Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,March 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (1) the Condensed Consolidated Balance Sheets, (2) the Condensed Consolidated Statements of Operations, (3) the Condensed Consolidated Statements of Comprehensive Income (Loss), (4) the Condensed Consolidated Statements of Cash Flows, and (5) the Notes to Unaudited Condensed Consolidated Financial Statements.




- 3327 -

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PROTECTIVE INSURANCE CORPORATION

Date May 8, 2019

By:/s/ John D. Nichols, Jr.
John D. Nichols, Jr.
Interim Chief Executive Officer & Chairman of the Board of Directors


 BALDWIN & LYONS, INC.Date May 8, 2019

By:/s/ William C. Vens
William C. Vens
Chief Financial Officer



- 28 -
Date    November 8, 2017By /s/ W. Randall Birchfield
                                                 W. Randall Birchfield,
                                        Chief Executive Officer & President






Date    November 8, 2017By /s/ William C. Vens
                                                                                                                                                        William C. Vens,
                                                                                                                                                        Chief Financial Officer




- 34 -