UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

☒	QUARTERLY REPORT ~~PRUSUANT~~PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September~~June 30, ~~2018~~2019

☐	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

PROTECTIVE INSURANCE CORPORATION

(Exact name of registrant as specified in its charter)

INDIANA		35-0160330
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

111 Congressional Boulevard, Carmel, Indiana		46032
(Address of principal executive offices)		(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)

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 Value	PTVCA	The Nasdaq Stock Market LLC
Class B Common Stock, No Par Value	PTVCB	The Nasdaq Stock Market LLC

Indicate by check mark whether the ~~registrant~~registrant: (1) has filed all reports required to be filed by Section 13 or 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 ____

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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 ✓_

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of ~~November 1, 2018:~~August 6, 2019:

Common Stock, No Par Value:	Class A (voting)	~~2,617,659~~2,612,288
	Class B (non-voting)	~~12,261,262~~11,779,483
		~~14,878,921~~14,391,771

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share data)

	September 30 2018		December 31 2017		June 30 2019		December 31 2018
Assets
Investments:
Fixed maturities	$	590,961	$	521,853
Fixed income securities					$	737,148	$	592,645
Equity securities		109,099		201,763		74,555		66,422
Limited partnerships		64,369		70,806		35,535		55,044
Commercial mortgage loans						8,884		6,672
Short-term and other		1,000		1,000		1,000		1,000
		765,429		795,422		857,122		721,783

Cash and cash equivalents		108,993		64,680		80,772		163,996
Restricted cash and cash equivalents		6,138		4,033		16,333		6,815
Accounts receivable		113,386		87,551		111,573		102,972
Reinsurance recoverable		350,647		318,331		410,445		392,436
Other assets		94,906		80,061		87,425		88,426
Current federal income taxes recoverable		7,531		6,938		4,599		7,441
Deferred federal income taxes						2,757		6,262
	$	1,447,030	$	1,357,016	$	1,571,026	$	1,490,131

Liabilities and shareholders' equity
Reserves for losses and loss expenses	$	777,837	$	680,274	$	933,463	$	865,339
Reserves for unearned premiums		68,108		53,085		79,429		71,625
Reinsurance payable						59,313		66,632
Short-term borrowings		20,000		20,000		20,000		20,000
Accounts payable and other liabilities		191,953		170,488		111,405		110,453
Deferred federal income taxes		1,087		14,358
		1,058,985		938,205		1,203,610		1,134,049
Shareholders' equity:
Common stock-no par value:
Class A voting -- authorized 3,000,000 shares; outstanding -- 2018 - 2,622,809; 2017 - 2,623,109		112		112
Class B non-voting -- authorized 20,000,000 shares; outstanding -- 2018 - 12,323,845; 2017 - 12,423,518		526		530
Class A voting -- authorized 3,000,000 shares; outstanding -- 2019 - 2,612,446; 2018 - 2,615,339						112		112
Class B non-voting -- authorized 20,000,000 shares; outstanding -- 2019 - 11,932,076; 2018 - 12,253,922						509		522
Additional paid-in capital		55,115		55,078		54,065		54,720
Unrealized net gains (losses) on investments		(5,638)		46,700
Foreign exchange adjustment		(518)		(309)
Accumulated other comprehensive income (loss)						8,217		(7,347	)
Retained earnings		338,448		316,700		304,513		308,075
		388,045		418,811		367,416		356,082
	$	1,447,030	$	1,357,016	$	1,571,026	$	1,490,131

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share data)

	Three Months Ended September 30				Nine Months Ended September 30				Three Months Ended June 30						Six Months Ended June 30
	2018		2017		2018		2017		2019			2018			2019			2018
Revenues
Net premiums earned	$	96,807	$	89,100	$	314,209	$	231,070	$	115,631		$	111,940		$	225,644		$	217,402
Net investment income		5,578		4,027		16,010		12,434		6,500			5,796			12,732			10,432
Commissions and other income		3,413		1,407		7,488		3,789		1,978			2,263			4,043			4,076
Net realized gains on investments, excluding impairment losses		449		3,484		1,740		7,088		713			915			673			1,290
Other-than-temporary impairment losses on investments		–		(38)		–		(69)		(86	)		–			(346	)		–
Net unrealized gains (losses) on equity securities and limited partnership investments		1,924		2,498		(7,335)		8,515		2,262			(4,350	)		8,589			(9,258	)
Net realized and unrealized gains (losses) on investments		2,373		5,944		(5,595)		15,534		2,889			(3,435	)		8,916			(7,968	)
		108,171		100,478		332,112		262,827		126,998			116,564			251,335			223,942

Expenses
Losses and loss expenses incurred		94,540		60,673		244,327		181,026		90,433			77,488			177,555			149,787
Other operating expenses		29,200		29,187		99,984		82,185		34,615			36,019			68,316			70,784
		123,740		89,860		344,311		263,211		125,048			113,507			245,871			220,571
Income (loss) before federal income tax expense (benefit)		(15,569)		10,618		(12,199)		(384)
Federal income tax expense (benefit)		(3,244)		3,184		(2,691)		(2,231)
Net income (loss)	$	(12,325)	$	7,434	$	(9,508)	$	1,847
Income before federal income tax expense										1,950			3,057			5,464			3,371
Federal income tax expense										415			570			1,181			554
Net income									$	1,535		$	2,487		$	4,283		$	2,817

Per share data:
Basic and diluted earnings (loss)	$	(.82)	$	.49	$	(.63)	$	.12
Basic and diluted earnings									$	.11		$	.17		$	.28		$	.19

Dividends paid to shareholders	$	.28	$	.27	$	.84	$	.81	$	.10		$	.28		$	.20		$	.56

Reconciliation of shares outstanding:
Average shares outstanding - basic		14,969		15,089		14,998		15,084		14,616			15,014			14,731			15,012
Dilutive effect of share equivalents		-		29		-		40		63			9			60			9
Average shares outstanding - diluted		14,969		15,118		14,998		15,124		14,679			15,023			14,791			15,021

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	Three Months Ended September 30				Nine Months Ended September 30				Three Months Ended June 30					Six Months Ended June 30
	2018		2017		2018		2017		2019		2018			2019		2018
Net income (loss)	$	(12,325)	$	7,434	$	(9,508)	$	1,847
Net income									$	1,535	$	2,487		$	4,283	$	2,817

Other comprehensive income (loss), net of tax:
Unrealized net gains (losses) on fixed income securities:
Unrealized net gains (losses) arising during the period		(766)		4,862		(4,815)		15,999
Less: reclassification adjustment for net gains included in net income (loss)		385		2,240		1,483		4,562
		(1,151)		2,622		(6,298)		11,437
Unrealized net gains (losses) on fixed income securities										6,517		(2,026	)		14,973		(5,147	)

Foreign currency translation adjustments		202		57		(209)		510		284		(188	)		591		(411	)

Other comprehensive income (loss)		(949)		2,679		(6,507)		11,947		6,801		(2,214	)		15,564		(5,558	)

Comprehensive income (loss)	$	(13,274)	$	10,113	$	(16,015)	$	13,794	$	8,336	$	273		$	19,847	$	(2,741	)

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of ~~Cash Flows~~Shareholders' Equity

(in thousands)

Nine Months Ended
September 30
2018 2017
Operating activities
Net income (loss) $ (9,508) $ 1,847
Adjustments to reconcile net income to net cash provided by operating activities 69,878 53,388
Net cash provided by operating activities 60,370 55,235

Investing activities
Purchases of fixed maturities and equity securities (330,217) (305,130)
Purchases of limited partnership interests (450) (897)
Distributions from limited partnerships 369 16,313
Proceeds from maturities 46,620 84,170
Proceeds from sales of fixed maturities 181,867 141,574
Proceeds from sales of equity securities 117,692 32,233
Net sales of short-term investments — 500
Purchase of insurance company-owned life insurance (10,000) —
Purchases of property and equipment (4,360) (5,405)
Proceeds from disposals of property and equipment 8 580
Net cash provided by (used in) investing activities 1,529 (36,062)

Financing activities
Dividends paid to shareholders (12,652) (12,250)
Repurchase of common shares (2,620) (1,880)
Net cash used in financing activities (15,272) (14,130)

Effect of foreign exchange rates on cash and cash equivalents (209) 510

Increase in cash, cash equivalents and restricted cash 46,418 5,553
Cash, cash equivalents and restricted cash at beginning of period 68,713 62,976
Cash, cash equivalents and restricted cash at end of period $ 115,131 $ 68,529

	Common Stock											Additional			Accumulated Other
	Class A					Class B						Paid-in			Comprehensive			Retained			Total
Description	Shares			Amount		Shares			Amount			Capital			Income (Loss)			Earnings			Equity
Balance at December 31, 2018		2,615		$	112		12,254		$	522		$	54,720		$	(7,347	)	$	308,075		$	356,082
Net income		–			–		–			–			–			–			4,283			4,283
Foreign currency translation adjustment, net of tax		–			–		–			–			–			591			–			591
Change in unrealized gain (loss) on investments, net of tax		–			–		–			–			–			14,973			–			14,973
Common stock dividends		–			–		–			–			–			–			(2,987	)		(2,987	)
Repurchase of common stock		(3	)		–		(371	)		(15	)		(1,614	)		–			(4,858	)		(6,487	)
Restricted stock grants		–			–		49			2			959			––			–			961
Balance at June 30, 2019		2,612		$	112		11,932		$	509		$	54,065		$	8,217		$	304,513		$	367,416

	Common Stock											Additional			Accumulated Other
	Class A					Class B						Paid-in			Comprehensive		Retained			Total
Description	Shares			Amount		Shares			Amount			Capital			Income		Earnings			Equity
Balance at March 31, 2019		2,615		$	112		12,249		$	522		$	55,049		$	1,416	$	308,971		$	366,070
Net income		–			–		–			–			–			–		1,535			1,535
Foreign currency translation adjustment, net of tax		–			–		–			–			–			284		–			284
Change in unrealized gain (loss) on investments, net of tax		–			–		–			–			–			6,517		–			6,517
Common stock dividends		–			–		–			–			–			–		(1,494	)		(1,494	)
Repurchase of common stock		(3	)		–		(346	)		(15	)		(1,506	)		–		(4,499	)		(6,020	)
Restricted stock grants		–			–		29			2			522			–		–			524
Balance at June 30, 2019		2,612		$	112		11,932		$	509		$	54,065		$	8,217	$	304,513		$	367,416

See notes to condensed consolidated financial statements.

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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			Total
Description	Shares		Amount		Shares			Amount			Capital			Income (Loss)			Earnings			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 (Note 1)		–		–		–			–			–			(46,157	)		46,157			–
Cumulative effect of adoption of ASU 2018-02 (Note 1)		–		–		–			–			–			117			(117	)		–
Net income		–		–		–			–			–			–			2,817			2,817
Foreign currency translation adjustment, net of tax		–		–		–			–			–			(411	)		–			(411	)
Change in unrealized gain (loss) on investments, net of tax		–		–		–			–			–			(5,147	)		–			(5,147	)
Common stock dividends		–		–		–			–			–			–			(8,456	)		(8,456	)
Repurchase of common stock		–		–		(54	)		(2	)		(234	)		–			(1,044	)		(1,280	)
Restricted stock grants		–		–		10			–			901			–			–			901
Balance at June 30, 2018		2,623	$	112		12,380		$	528		$	55,745		$	(5,207	)	$	356,057		$	407,235

	Common Stock										Additional			Accumulated Other
	Class A				Class B						Paid-in			Comprehensive			Retained			Total
Description	Shares		Amount		Shares			Amount			Capital			Loss			Earnings			Equity
Balance at March 31, 2018		2,623	$	112		12,418		$	530		$	55,511		$	(2,993	)	$	358,651		$	411,811
Net income		–		–		–			–			–			–			2,487			2,487
Foreign currency translation adjustment, net of tax		–		–		–			–			–			(188	)		–			(188	)
Change in unrealized gain (loss) on investments, net of tax		–		–		–			–			–			(2,026	)		–			(2,026	)
Common stock dividends		–		–		–			–			–			–			(4,227	)		(4,227	)
Repurchase of common stock		–		–		(43	)		(2	)		(188	)		–			(854	)		(1,044	)
Restricted stock grants		–		–		5			–			422			–			–			422
Balance at June 30, 2018		2,623	$	112		12,380		$	528		$	55,745		$	(5,207	)	$	356,057		$	407,235

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	Six Months Ended June 30
	2019			2018
Operating activities
Net income	$	4,283		$	2,817
Adjustments to reconcile net income to net cash provided by operating activities		34,113			21,857
Net cash provided by operating activities		38,396			24,674

Investing activities
Purchases of fixed income and equity securities		(245,099	)		(215,226	)
Purchases of limited partnership interests		–			(450	)
Distributions from limited partnerships		20,231			369
Proceeds from maturities		38,917			37,590
Proceeds from sales of fixed income securities		71,839			102,408
Proceeds from sales of equity securities		14,449			87,557
Purchase of insurance company-owned life insurance		–			(10,000	)
Purchase of commercial mortgage loans		(2,213	)		–
Purchases of property and equipment		(1,346	)		(2,691	)
Proceeds from disposals of property and equipment		3			8
Net cash used in investing activities		(103,219	)		(435	)

Financing activities
Dividends paid to shareholders		(2,987	)		(8,456	)
Repurchase of common shares		(6,487	)		(1,280	)
Net cash used in financing activities		(9,474	)		(9,736	)

Effect of foreign exchange rates on cash and cash equivalents		591			(411	)

Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents		(73,706	)		14,092
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	$	97,105		$	82,805

See notes to condensed consolidated financial statements.

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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 Policies:

Description of Business: Protective Insurance Corporation ~~(formerly Baldwin & Lyons, Inc.)~~ (the "Company"), based in Carmel, Indiana, is a property-casualty insurer specializing in marketing and underwriting property, liability and ~~workers~~workers' compensation coverage for trucking and public transportation 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.

~~Effective August 1, 2018, the Company changed its name~~The term “Insurance Subsidiaries,” as used throughout this document, refers to Protective Insurance ~~Corporation to better align its operational~~Company, Protective Specialty Insurance Company, Sagamore Insurance Company and ~~market identities to reflect its position within the transportation and workers' compensation insurance industry.~~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, ~~2018~~2019 or any other future period.

Investments: Carrying amounts for fixed ~~maturity~~income securities represent fair value and are based on quoted market prices, where available, or broker/dealer quotes for specific securities where quoted market prices are not available. Equity securities are carried at quoted market prices (fair value). Commercial mortgage loans are carried primarily at amortized cost along with a valuation 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 June 30, 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 the limited partnerships include both realized and unrealized investment gains or losses in the determination of net income or loss, then the Company would also recognize, through its condensed consolidated statements of operations, its proportionate share of the investee's unrealized, as well as realized, investment gains or losses within net unrealized gains (losses) on equity securities and limited partnership investments.

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

~~Realized gains and losses on disposals of investments are recorded on the trade date and are determined by the specific identification of the cost of investments sold and are included in income.~~

Fixed ~~maturity~~income securities are considered to be available-for-sale. The related unrealized net gains or losses (net of applicable tax effects) on fixed ~~maturity~~income securities are reflected directly in shareholders' equity. Included within available-for-sale fixed ~~maturity~~income securities are convertible debt securities. A portion of the changes in the fair values of convertible debt securities is reflected as a component of net realized gains on investments, excluding impairment losses within the condensed consolidated statements of operations. ~~Equity~~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 on investments, excluding impairment losses.

Effective January 1, 2018, the Company adopted new accounting guidance that requires equity securities to be 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 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.

In accordance with the Financial Accounting Standards Board's ("FASB") other-than-temporary impairment guidance, if a fixed ~~maturity~~income security is in an unrealized loss position and the Company has the intent to sell the fixed ~~maturity~~income security, or it is more likely than not that the Company will have to sell the fixed ~~maturity~~income security before recovery of its amortized cost basis, the decline in value is deemed to be other-than-temporary and is recorded to other-than-temporary impairment losses on investments in the condensed consolidated statements of operations. For impaired fixed ~~maturity~~income 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 other-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.

- 8 -

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 ~~maturity~~income security. The net present value is calculated by discounting the Company's best estimate of projected future cash flows at the appropriate effective interest rate.

Recognition of Revenue ~~Recognition:~~and Costs: ~~For our non-fully-insured contracts, we~~Premiums are earned over the period for which insurance protection is provided. A reserve for unearned premiums, computed by the daily pro-rata method, is established to reflect amounts applicable to subsequent accounting periods. Commissions to unaffiliated companies and premium taxes applicable to unearned premiums are deferred and expensed as the related premiums are earned. The Company does not defer acquisition costs that are not directly variable with the production of premiums. If it is determined that expected losses and deferred expenses will likely exceed the related unearned premiums, the asset representing deferred policy acquisition costs is reduced and an expense is charged against current operations to reflect any such premium deficiency. In the event that the expected premium deficiency exceeds deferred policy acquisition costs, an additional liability would be recorded with a corresponding expense to current operations for the amount of the excess premium deficiency. Anticipated investment income is considered in determining recoverability of deferred acquisition costs. The Company had no material contract assets, contract liabilities, or deferred contract costs recorded on ~~our~~its condensed consolidated balance sheet at ~~September~~June 30, 2018. For the three and nine months ended September 30, 2018, revenue recognized from performance obligations related to prior periods, such as due to changes in transaction price, was not material. For contracts that have an original expected duration of greater than one year, revenue expected to be recognized in future periods related to unfulfilled contractual performance obligations and contracts with variable consideration related to undelivered performance obligations was not material as of September 30, 2018.2019.

~~- 6 -~~

Recently Adopted Accounting Pronouncements: In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09, as amended by subsequently issued ASUs, to clarify the principles for recognizing revenue. While insurance contracts are not within the scope of this updated guidance, the Company's commission and fee income, other than that directly associated with insurance contracts, is subject to this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to the first quarter of 2018. The Company adopted the new guidance as of January 1, 2018. The adoption of the new guidance did not have a material impact on the Company's 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 changed the accounting for non-consolidated equity investments that are not accounted for under the equity method of accounting by requiring changes in fair value to be recognized in income. Previously, the Company's equity securities were classified as available-for-sale and changes in fair value were recognized in accumulated other comprehensive income (loss) as a component of shareholders' equity. ~~ASU 2016-01 became effective for interim and annual reporting periods beginning after December 15, 2017.~~ The Company adopted ~~the new guidance~~ASU 2016-01 as of January 1, 2018 using the modified retrospective approach and recorded a cumulative-effect adjustment to reclassify unrealized gains on equity securities of $71,012 ($46,157, net of tax) from other comprehensive income (loss) to retained earnings within the ~~current period condensed~~ consolidated balance ~~sheet.~~sheet as of December 31, 2018. Going forward, unrealized gains or losses on equity securities will be recognized in the ~~condensed~~ consolidated statements of operations within net unrealized gains (losses) on equity securities and limited partnership investments.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, or ASU 2016-15. This update addresses the presentation and classification on the statement of cash flows for eight specific items, with the objective of reducing existing diversity in practice in how certain cash receipts and cash payments are presented and classified. ASU 2016-15 became effective for interim and annual reporting periods beginning after December 15, 2017. The Company adopted the new guidance as of January 1, 2018. The adoption of the new guidance did not have a material impact on the Company's condensed consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This update amends Accounting Standards Codification ("ASC") Topic 230 to add and clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The guidance requires entities to show the changes in the total of cash, cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. The guidance was applied retrospectively and is effective for annual periods beginning after December 15, 2017, and interim periods within those years. The Company adopted the new guidance as of January 1, 2018 and reclassified $4.0 million of restricted cash as of December 31, 2017 to the beginning cash balance within the condensed consolidated statement of cash flows. The adoption of the new guidance did not have a material impact on the Company's condensed consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). This ASU allows for the option to reclassify, from accumulated other comprehensive income (loss) to retained earnings, stranded tax effects resulting from the newly enacted federal corporate income tax rate in the Tax Cuts and Jobs Act of 2017 (the "U.S. Tax Act"), which was enacted on December 22, 2017. The legislation included a reduction to the corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. The amount of the reclassification would be the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate. ASU 2018-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the new guidance in the first quarter of 2018 and recorded a cumulative-effect adjustment to reclassify the tax effects on fixed maturity investments of $117 from other comprehensive income (loss) to retained earnings within the current period condensed consolidated balance sheet.

~~- 7 -~~

~~Recently Issued Accounting Pronouncements:~~ In February 2016, the FASB issued ~~ASU~~Accounting Standards Update ("ASU") No. 2016-02, Leases (Topic 842), or ASU 2016-02. ~~Upon the effective date,~~ ASU 2016-02 ~~will supersede~~superseded the ~~current~~prior lease guidance in ~~ASC~~Accounting Standards Codification ("ASC") Topic 840, Leases. Under the new guidance, lessees ~~will be~~are required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees ~~will be~~are required to recognize a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The guidance provides for a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, or ASU 2018-11, which ~~provides~~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. ~~These ASUs are~~ ~~effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted.~~ The Company ~~does~~adopted the new guidance on January 1, 2019 utilizing the transition method allowed per ASU 2018-11, and accordingly, comparative period financial information was not ~~expect~~adjusted for the effects of the new guidance. No cumulative-effect adjustment was required to the opening balance of retained earnings on the adoption date. The Company's adoption of ~~ASU 2016-02 to~~the new standard did not have ~~a material~~any impact on the Company's condensed consolidated ~~financial statements.~~statements of operations or cash flows; however, the impact of adopting the new guidance resulted in a right-of-use asset and a lease liability being recorded on the condensed consolidated balance sheet as of June 30, 2019 of approximately $300, which are included within other assets and accounts payable and other liabilities.

In ~~June 2016,~~February 2018, the FASB issued ASU ~~No. 2016-13, Financial Instruments~~2018-02, Income Statement - ~~Credit Losses~~Reporting Comprehensive Income (Topic ~~326): Measurement of Credit Losses on Financial Instruments, or~~220). This ASU ~~2016-13. This update introduces a current expected credit loss model~~allows 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~~option to reclassify, from accumulated other comprehensive income (loss) to retained earnings, stranded tax effects resulting from 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 reductionsnewly enacted federal corporate income tax rate in the ~~amortized cost~~U.S. Tax Cuts and Jobs Act of 2017 (the "U.S. Tax Act"), which was enacted on December 22, 2017. The legislation included a reduction to the corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. The amount of the ~~securities,~~reclassification was the difference between the historical corporate income tax rate and provides for additional disclosure requirements. ASU 2016-13 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 newly enacted 21 percent corporate income tax rate. The Company ~~is currently evaluating~~adopted the ~~effects the adoption of ASU 2016-13 will have on its consolidated financial statements.~~

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, or ASU 2017-04. This amendment removes Step 2 of the goodwill impairment test under current guidance. The new guidance ~~requires an impairment charge~~in the first quarter of 2018 and recorded a cumulative-effect adjustment to ~~be recognized for~~reclassify the ~~amount by which~~tax effects on fixed income investments of $117 from other comprehensive income (loss) to retained earnings within the ~~carrying amount exceeds the reporting unit's fair value. ASU 2017-04 is effective for interim and annual reporting periods beginning after~~consolidated balance sheet as of December ~~15, 2020, with early adoption permitted. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.~~31, 2018.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements. This update provides clarification, corrects errors in and makes minor improvements to ~~the ASC within~~ 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 ~~are~~were effective upon issuance of this update. The ~~Company will adopt amendments as they become applicable. The Company has determined~~adoption of this standard did not have a material impact on the ~~impact of these improvements will not be material to its~~Company's consolidated financial statements.

n- 9 -

Recently Issued Accounting Pronouncements: In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. This update removes the disclosure requirements for the amounts of and the reasons for transfers between Level 1 and Level 2 and disclosure of the policy for timing of transfers between levels. This update also removes disclosure requirements for the valuation processes for Level 3 fair value measurements. Additionally, this update adds disclosure requirements for the changes in unrealized gains and losses for recurring Level 3 fair value measurements and quantitative information for certain unobservable inputs in Level 3 fair value measurements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019. The Company is currently evaluating the effects the adoption of ASU 2018-13 will have on its consolidated financial statements.

In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. These updates provide an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost and provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, and have the same effective date and transition requirements as ASU 2016-13. ASU 2016-13 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 2016-13 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 the adoption of ASU 2016-13 will have on its consolidated financial statements.

- 810 -

(2) Investments:

The following is a summary of available-for-sale securities at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017:~~2018:

	Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Net Unrealized Gains (Losses)		Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gains (Losses)
September 30, 2018 ¹
Fixed maturities
June 30, 2019
Fixed income securities
Agency collateralized mortgage obligations	$	10,471	$	10,499	$	183	$	(211)	$	(28)	$	15,730	$	15,384	$	352	$	(6	)	$	346
Agency mortgage-backed securities		36,181		37,179		6		(1,004)		(998)		41,031		39,609		1,438		(16	)		1,422
Asset-backed securities		53,881		53,603		533		(255)		278		94,880		94,847		539		(506	)		33
Bank loans		17,067		16,923		166		(22)		144		16,074		16,279		60		(265	)		(205	)
Certificates of deposit		3,126		3,123		3		–		3		2,835		2,835		–		–			–
Collateralized mortgage obligations		5,131		4,755		405		(29)		376		6,165		5,686		549		(70	)		479
Corporate securities		198,698		202,977		315		(4,594)		(4,279)		256,318		251,977		5,185		(844	)		4,341
Mortgage-backed securities		32,790		32,360		807		(377)		430		42,506		41,706		946		(146	)		800
Municipal obligations		30,594		30,602		279		(287)		(8)		32,834		32,177		688		(31	)		657
Non-U.S. government obligations		39,750		40,947		180		(1,377)		(1,197)		31,378		31,064		326		(12	)		314
U.S. government obligations		163,272		165,130		6		(1,864)		(1,858)		197,397		194,489		3,092		(184	)		2,908
Total fixed maturities	$	590,961	$	598,098	$	2,883	$	(10,020)	$	(7,137)
Total fixed income securities											$	737,148	$	726,053	$	13,175	$	(2,080	)	$	11,095

Fair
Value

Cost or
Amortized Cost

Gross
Unrealized Gains

Gross
Unrealized Losses

Net Unrealized
Gains (Losses)
December 31, 2017 ¹

Fixed maturities
Agency collateralized mortgage obligations $ 16,586 $ 15,839 $ 818 $ (71) $ 747
Agency mortgage-backed securities 27,075 27,180 47 (152) (105)
Asset-backed securities 43,469 42,861 749 (141) 608
Bank loans 19,488 19,271 266 (49) 217
Certificates of deposit 3,135 3,124 11 – 11
Collateralized mortgage obligations 6,492 6,079 451 (38) 413
Corporate securities 198,349 198,419 1,602 (1,672) (70)
Mortgage-backed securities 24,204 23,656 933 (385) 548
Municipal obligations 96,650 97,059 322 (731) (409)
Non-U.S. government obligations 37,394 37,971 475 (1,052) (577)
U.S. government obligations 49,011 49,558 – (547) (547)
Total fixed maturities 521,853 521,017 5,674 (4,838) 836
Equity securities:
Consumer 46,578 23,565 24,031 (1,018) 23,013
Energy 10,278 6,763 3,602 (87) 3,515
Financial 45,470 31,859 13,937 (326) 13,611
Industrial 25,402 8,949 16,793 (340) 16,453
Technology 13,061 5,768 7,401 (108) 7,293
Funds (e.g. mutual funds, closed end funds, ETFs) 50,291 46,177 4,153 (39) 4,114
Other 10,683 7,670 3,313 (300) 3,013
Total equity securities 201,763 130,751 73,230 (2,218) 71,012

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

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

~~- 9 -~~

	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 ~~maturities in an unrealized loss position at September 30, 2018 and available-for-sale fixed maturities and equity~~income securities in an unrealized loss position at June 30, 2019 and December 31, ~~2017, respectively,~~2018, the aggregate fair value and gross unrealized loss categorized by the duration individual securities have been continuously in an unrealized loss position.

September 30, 2018 December 31, 2017

Number of
Securities

Fair
Value

Gross
Unrealized Loss

Number of
Securities

Fair
Value

Gross
Unrealized Loss
Fixed maturity securities:
12 months or less 486 $ 431,601 $ (7,330) 459 $ 313,421 $ (2,683)
Greater than 12 months 135 81,091 (2,690) 112 75,638 (2,155)
Total fixed maturities 621 512,692 (10,020) 571 389,059 (4,838)

Equity securities ¹:

12 months or less – – – 65 46,654 (2,218)
Greater than 12 months – – – – – –
Total equity securities – – – 65 46,654 (2,218)
Total fixed maturity and equity securities 621 $ 512,692 $ (10,020) 636 $ 435,713 $ (7,056)

	June 30, 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		81	$	76,363	$	(1,166	)		275	$	282,646	$	(7,296	)
Greater than 12 months		149		95,614		(914	)		217		131,001		(3,497	)
Total fixed income securities		230	$	171,977	$	(2,080	)		492	$	413,647	$	(10,793	)

- 11 -

The fair value and the cost or amortized costs of fixed ~~maturity~~income investments at ~~September~~June 30, ~~2018,~~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	$	47,012	$	47,538	$	99,531	$	99,574
Excess of one year to five years		298,807		303,274		342,358		336,988
Excess of five years to ten years		104,228		106,384		89,596		87,051
Excess of ten years		2,460		2,506		11,517		10,894
Contractual maturities		452,507		459,702		543,002		534,507
Asset-backed securities		138,454		138,396		194,146		191,546
Total	$	590,961	$	598,098	$	737,148	$	726,053

~~- 10 -~~

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
September 30

Nine Months Ended
September 30
2018 2017 2018 2017
Gross gains on available-for-sale investments sold during the period:
Fixed maturities $ 2,690 $ 3,852 $ 8,824 $ 9,544
Equity securities ¹
– 4,103 – 8,601
Total gains 2,690 7,955 8,824 18,145

Gross losses on available-for-sale investments sold during the period:
Fixed maturities $ (2,743) (3,973) $ (8,539) (10,112)
Equity securities ¹
– (498) – (945)
Total losses (2,743) (4,471) (8,539) (11,057)

Other-than-temporary impairments – (38) – (69)

Change in value of limited partnership investments (1,073) 2,498 (6,518) 8,515

Gains (losses) on equity securities:
Realized gains on equity securities sold during the period ²
502 – 1,455 –
Unrealized gains (losses) on equity securities held at the end of the period 2,997 – (817) –
Realized and unrealized losses on equity securities held at the end of the period 3,499 – 638 –

Net realized and unrealized gains (losses) on investments $ 2,373 $ 5,944 $ (5,595) $ 15,534

During the three and nine months ended September 30, 2018, the Company sold $30,135 and $117,692 in equity securities, resulting in realized gains of $5,721 and $50,848, respectively. The majority of these gains were included in unrealized gains within other comprehensive income at December 31, 2017 and, as a result of the adoption of ASU 2016-01, were reclassified to retained earnings as of January 1, 2018 and were therefore not recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2018.

	Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Gross gains on available-for-sale fixed income securities sold during the period	$	4,132		$	3,691		$	7,303		$	6,134
Gross losses on available-for-sale fixed income securities sold during the period		(3,154	)		(3,088	)		(6,681	)		(5,796	)

Other-than-temporary impairments		(86	)		–			(346	)		–

Change in value of limited partnership investments		314			(2,842	)		722			(5,445	)

Gains (losses) on equity securities:
Realized gains (losses) on equity securities sold during the period		(265	)		312			51			953
Unrealized gains (losses) on equity securities held at the end of the period		1,948			(1,508	)		7,867			(3,814	)
Realized and unrealized gains (losses) on equity securities during the period		1,683			(1,196	)		7,918			(2,861	)

Net realized and unrealized gains (losses) on investments	$	2,889		$	(3,435	)	$	8,916		$	(7,968	)

Shareholders' equity at ~~September~~June 30, ~~2018~~2019 included approximately ~~$34,787,~~$25,071, net of federal income tax expense, of reported earnings that remain undistributed by limited partnerships.

(3) Reinsurance:

The following table summarizes the Company's transactions with reinsurers for the ~~2018~~2019 and ~~2017~~2018 comparative periods.

	2018		2017		2019		2018
Three months ended September 30:
Three months ended June 30:
Premiums ceded to reinsurers	$	39,318	$	34,025	$	32,425	$	28,800
Losses and loss expenses ceded to reinsurers		44,015		30,531		28,859		21,975
Commissions from reinsurers		5,986		7,205		8,176		6,443

Nine months ended September 30:
Six months ended June 30:
Premiums ceded to reinsurers	$	100,560	$	111,124	$	62,598	$	61,241
Losses and loss expenses ceded to reinsurers		92,651		102,401		59,648		48,636
Commissions from reinsurers		20,309		21,000		15,410		14,323

- 1112 -

(4) Loss and Loss Expense Reserves:

Activity in the reserves for losses and loss expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 is summarized as follows. All amounts are shown net of reinsurance, unless otherwise indicated.

					Six Months Ended
					June 30
	2018		2017		2019			2018
Reserves, gross of reinsurance recoverable, at the beginning of the year	$	680,274	$	576,330	$	865,339		$	680,274
Reinsurance recoverable on unpaid losses at the beginning of the year		308,143		251,563		375,935			308,143
Reserves at the beginning of the year		372,131		324,767		489,404			372,131

Provision for losses and loss expenses:
Claims occurring during the current period		229,644		164,546		179,211			151,462
Claims occurring during prior periods		14,683		16,480		(1,656	)		(1,675	)
Total incurred		244,327		181,026		177,555			149,787

Loss and loss expense payments:
Claims occurring during the current period		49,510		41,616		30,573			28,903
Claims occurring during prior periods		123,167		109,616		92,822			88,965
Total paid		172,677		151,232		123,395			117,868
Reserves at the end of the period		443,781		354,561		543,564			404,050

Reinsurance recoverable on unpaid losses at the end of the period		334,056		301,445		389,899			312,231
Reserves, gross of reinsurance recoverable, at the end of the period	$	777,837	$	656,006	$	933,463		$	716,281

The table above shows a ~~roll-forward~~reserve savings of ~~loss and loss expense reserves from~~$1,656 that developed during the ~~prior year end to~~six months ended June 30, 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 reflect 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 ~~$14,683~~$1,656 prior accident year ~~deficiency~~savings that developed during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~largely~~primarily due to ~~unfavorable~~favorable loss development in ~~commercial automobile~~workers' compensation and independent contractor coverages. This ~~unfavorable loss development was the result of increased claim severity due to a more challenging litigation environment, as well as an increase in the time to settle claims. This 2018 deficiency~~savings compares to a ~~deficiency~~savings of ~~$16,480~~$1,675 for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, which was also related to ~~unfavorable~~favorable loss development from ~~commercial automobile coverages, particularly from infrequent, but severe, transportation loss events that occurred primarily during the first six months of 2017.~~workers' compensation and independent contractor coverages.

(5) Segment 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 transportation~~commercial automobile companies, as well as to independent contractors who contract with ~~fleet transportation~~commercial automobile companies. In addition, the Company provides workers' compensation coverage for a variety of ~~classes~~operations outside the transportation industry.

The following table summarizes segment revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017:~~2018:

	Three Months Ended September 30				Nine Months Ended September 30				Three Months Ended June 30					Six Months Ended June 30
	2018		2017		2018		2017		2019		2018			2019		2018
Revenues:
Net premiums earned	$	96,807	$	89,100	$	314,209	$	231,070	$	115,631	$	111,940		$	225,644	$	217,402
Net investment income		5,578		4,027		16,010		12,434		6,500		5,796			12,732		10,432
Net realized and unrealized gains (losses) on investments		2,373		5,944		(5,595)		15,534		2,889		(3,435	)		8,916		(7,968	)
Commissions and other income		3,413		1,407		7,488		3,789		1,978		2,263			4,043		4,076
Total revenues	$	108,171	$	100,478	$	332,112	$	262,827	$	126,998	$	116,564		$	251,335	$	223,942

- 1213 -

(6) Debt:

On August 9, 2018, the Company entered into a credit agreement providing a revolving credit facility with a $40,000 limit, with the option for up to an additional $35,000 in incremental loans at the discretion of the lenders. This credit agreement ~~which~~ has an expiration date of August 9, ~~2022, replaced the Company's revolving line of credit that was to expire on September 23, 2018.~~2022. Interest on this revolving credit facility is referenced to ~~LIBOR~~the London Interbank Offered Rate and can be fixed for periods of up to one year at the Company's option. Outstanding drawings on this revolving credit facility were $20,000 as of ~~September~~June 30, ~~2018.~~2019. At ~~September~~June 30, ~~2018,~~2019, the effective interest rate was ~~3.31%,~~3.50% and the Company had $20,000 remaining under the revolving credit ~~facility as of September 30, 2018.~~facility. The current outstanding borrowings were used 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 ~~September~~June 30, ~~2018, requiring~~2019. These covenants require the Company to have a minimum ~~Generally Accepted Accounting Principles ("GAAP")~~U.S. generally accepted accounting principles net worth and a maximum consolidated leverage ratio of 0.35 to 1.00.

(7) Taxes:

On December 22, 2017, the Tax Cut and Jobs Act of 2017 (the "U.S. Tax Act") was signed into law. The U.S. Tax Act lowered the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018.

The effective federal tax rate on consolidated ~~loss for the three months ended September 30, 2018 was 20.8% compared to 30.0% on consolidated~~ income for the three months ended ~~September~~June 30, ~~2017.~~2019 was 21.3% compared to 18.6% for the three months ended June 30, 2018. The effective federal tax rate on consolidated income for the six months ended June 30, 2019 was 21.6% compared to 16.4% for the six months ended June 30, 2018. The effective federal income tax rate differs from the normal statutory rate primarily as a result of tax-exempt investment income. ~~The decrease also reflects~~For the ~~reduced federal corporate~~three and six months ended June 30, 2019, the Company had lower tax-exempt income when compared to the same periods in 2018, primarily due to the reduction of tax ~~rate~~exempt municipal securities within the Company's investment portfolio in the current year as well as a ~~result of the enactment of the U.S. Tax Act~~decrease in ~~December 2017.~~

~~The effective federal tax rate on consolidated loss~~dividend income, which provides a deduction for the nine months ended September 30, 2018 was 22.1% compared to 581.0% on consolidated loss for the nine months ended September 30, 2017. The effective federal income tax rate differs from the normal statutory rate primarily as a result of tax-exempt investment income. The decrease also reflects the reduced federal corporate income tax rate as a result of the enactment of the U.S. Tax Act in December 2017. The prior year rate reflected the timing of the Company's net income and loss throughout the year, with the third quarter of 2017 reflecting a recovery of the net loss recorded in the second quarter of 2017.

The Company continues to analyze the different aspects of the U.S. Tax Act, which could potentially affect the provisional estimates that were recorded at December 31, 2017 for the transition adjustment for loss discounting. There have been no changestaxes, related to the ~~provisional amounts recorded in~~reallocation of equity securities to fixed income securities within the fourth quarter of 2017 associated with the U.S. Tax Act, as guidance has not yet been finalized by the Internal Revenue Service. Accounting for the tax effects of the enactment of the U.S. Tax Act will be completed in the fourth quarter ofCompany’s investment portfolio throughout 2018.

~~During the nine months ended September 30, 2018, the Company paid $9,500 in~~ ~~cash taxes.~~ As of ~~September~~June 30, ~~2018,~~2019, the Company's calendar years 2017, 2016 and 2015 ~~remain~~remain subject to examination by the Internal Revenue Service.

- 1314 -

(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~~June 30, ~~2018:~~2019:

Description	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Fixed maturities:
Fixed income securities:
Agency collateralized mortgage obligations	$	10,471	$	–	$	10,471	$	–	$	15,730	$	–	$	15,730	$	–
Agency mortgage-backed securities		36,181		–		36,181		–		41,031		–		41,031		–
Asset-backed securities		53,881		–		53,881		–		94,880		–		94,880		–
Bank loans		17,067		–		17,067		–		16,074		–		16,074		–
Certificates of deposit		3,126		3,126		–		–		2,835		2,835		–		–
Collateralized mortgage obligations		5,131		–		5,131		–		6,165		–		6,165		–
Corporate securities		193,325		–		193,325		–		251,394		–		251,394		–
Options embedded in convertible securities		5,373		–		5,373		–		4,924		–		4,924		–
Mortgage-backed securities		32,790		–		29,162		3,628		42,506		–		42,506		–
Municipal obligations		30,594		–		30,594		–		32,834		–		32,834		–
Non-U.S. government obligations		39,750		–		39,750		–		31,378		–		31,378		–
U.S. government obligations		163,272		–		163,272		–		197,397		–		197,397		–
Total fixed maturities		590,961		3,126		584,207		3,628
Total fixed income securities										737,148		2,835		734,313		–
Equity securities:
Consumer		25,632		25,632		–		–		17,125		17,125		–		–
Energy		6,438		6,438		–		–		3,340		3,340		–		–
Financial		39,917		39,917		–		–		29,117		29,117		–		–
Industrial		12,011		12,011		–		–		4,176		4,176		–		–
Technology		3,657		3,657		–		–		2,414		2,414		–		–
Funds (e.g. mutual funds, closed end funds, ETFs)		9,587		9,587		–		–		9,796		9,796		–		–
Other		11,857		11,857		–		–		8,587		8,587		–		–
Total equity securities		109,099		109,099		–		–		74,555		74,555		–		–
Short-term		1,000		1,000		–		–		1,000		1,000		–		–
Cash equivalents		104,662		–		104,662		–		76,967		–		76,967		–
Total	$	805,722	$	113,225	$	688,869	$	3,628	$	889,670	$	78,390	$	811,280	$	–

- 1415 -

As of December 31, ~~2017:~~2018:

Description	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
Fixed maturities:
Fixed income securities:
Agency collateralized mortgage obligations	$	16,586	$	–	$	16,586	$	–	$	10,687	$	–	$	10,687	$	–
Agency mortgage-backed securities		27,075		–		27,075		–		37,385		–		37,385		–
Asset-backed securities		43,469		–		43,469		–		64,422		–		64,422		–
Bank loans		19,488		–		19,488		–		9,750		–		9,750		–
Certificates of deposit		3,135		3,135		–		–		2,835		2,835		–		–
Collateralized mortgage obligations		6,492		–		6,492		–		5,423		–		5,423		–
Corporate securities		193,058		–		193,058		–		186,651		–		186,651		–
Options embedded in convertible securities		5,291		–		5,291		–		3,799		–		3,799		–
Mortgage-backed securities		24,204		–		24,204		–		38,540		–		38,540		–
Municipal obligations		96,650		–		96,650		–		29,155		–		29,155		–
Non-U.S. government obligations		37,394		–		37,394		–		25,180		–		25,180		–
U.S. government obligations		49,011		–		49,011		–		178,818		–		178,818		–
Total fixed maturities		521,853		3,135		518,718		–
Total fixed income securities										592,645		2,835		589,810		–
Equity securities:
Consumer		46,578		46,578		–		–		17,945		17,945		–		–
Energy		10,278		10,278		–		–		3,179		3,179		–		–
Financial		45,470		45,470		–		–		25,253		25,253		–		–
Industrial		25,402		25,402		–		–		6,920		6,920		–		–
Technology		13,061		13,061		–		–		2,303		2,303		–		–
Funds (e.g. mutual funds, closed end funds, ETFs)		50,291		45,276		5,015		–		5,489		5,489		–		–
Other		10,683		10,683		–		–		5,333		5,333		–		–
Total equity securities		201,763		196,748		5,015		–		66,422		66,422		–		–
Short-term		1,000		1,000		–		–		1,000		1,000		–		–
Cash equivalents		59,173		–		59,173		–		156,855		–		156,855		–
Total	$	783,789	$	200,883	$	582,906	$	–	$	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.

The ~~Company's~~Company did not have any Level 3 assets ~~consist primarily of a portfolio of commercial mortgage-backed securities. The~~at June 30, 2019 or December 31, 2018. Level 3 assets, when present, are valued using various unobservable inputs including extrapolated data, proprietary models and indicative quotes. A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows for the nine months ended September 30, 2018 and for the year ended December 31, 2017:

2018 2017
Beginning of period balance $ – $ 25,218
Total gains or losses (realized) included in income – 406
Purchases 3,628 81
Settlements – (9,123)
Transfers into Level 3 – 144
Transfers out of Level 3 – (16,726)
End of period balance $ 3,628 $ –

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

~~- 15 -~~

Transfers between levels, if any, are recorded as of the beginning of the reporting period. There were no significant transfers of assets between Level 1 and Level 2 during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~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 each class of financial ~~instrument.~~instrument:

- 16 -

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

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

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

A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company's condensed consolidated balance sheets at ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 is as follows:

Carrying Fair Value
Value Level 1 Level 2 Level 3 Total
September 30, 2018
Assets:   Limited partnerships $ 64,369 $ – $ – $ 64,369 $ 64,369
Liabilities:   Short-term borrowings 20,000 – 20,000 – 20,000

December 31, 2017
Assets:   Limited partnerships 70,806 – – 70,806 70,806
Liabilities:   Short-term borrowings 20,000 – 20,000 – 20,000

	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total
June 30, 2019
Assets:
Limited partnerships	$	35,535	$	–	$	–	$	35,535	$	35,535
Commercial mortgage loans		8,884		–		–		8,884		8,884
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~~Stock-Based Compensation:

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

Grant Date	Number of Shares Issued	Vesting Date	Service Period	Grant Date Fair Value Per Share		Number of Shares Issued		Vesting Date	Service Period	Grant Date Fair Value Per Share
5/9/2017	18,183	5/9/2018	7/1/2017 - 6/30/2018	$	24.20		18,183	5/9/2018	7/1/2017 - 6/30/2018	$	24.20

8/31/2017	1,257	5/9/2018	8/31/2017 - 6/30/2018	$	21.90		1,257	5/9/2018	8/31/2017 - 6/30/2018	$	21.90

2/9/2018	408	5/9/2018	2/9/2018 - 6/30/2018	$	24.20		408	5/9/2018	2/9/2018 - 6/30/2018	$	24.20

5/8/2018	19,085	5/8/2019	7/1/2018 - 6/30/2019	$	23.05		19,085	5/8/2019	7/1/2018 - 6/30/2019	$	23.05

5/7/2019							29,536	5/7/2020	7/1/2019 - 6/30/2020	$	16.25

5/17/2019							3,591	5/7/2020	7/1/2019 - 6/30/2020	$	16.25

5/22/2019							3,541	5/7/2020	7/1/2019 - 6/30/2020	$	16.25

- 17 -

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

~~- 16 -~~

In May 2017, the Company's Compensation Committee granted equity-based awards pursuant to the Company's Long-Term Incentive Plan (the "Long-Term Incentive Plan"), which was approved by the Company's shareholders at the 2017 Annual Meeting of Shareholders. Certain participants under the Long-Term Incentive Plan were granted performance-based equity awards (the "2017 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 2017 growth in net premiums earned and the Company's 2017 combined ratio. The combined ratio is calculated as a ratio of (A) losses and loss expenses incurred, plus other operating expenses, less commission and other income to (B) net premiums earned. No 2017 LTIP Awards were earned based on the Company's performance in 2017, and therefore no shares were issued pursuant to the 2017 LTIP Awards. In addition to the 2017 LTIP Awards, in May 2017 the Company's Compensation Committee also granted Value Creation Incentive Plan awards (the "2017 VCIP Awards") ~~to certain participants under the Long-Term Incentive Plan.~~. The 2017 VCIP Awards are performance-based equity awards that will be earned based on the Company's cumulative operating income over a three-year performance period from January 1, 2017 through December 31, 2019 relative to ana 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~~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 ~~September~~June 30, ~~2018.~~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~~Common Stock earned pursuant to such ~~award~~awards determined by applying a performance matrix consisting of a measurement of the combined results of the Company's 2018 growth in gross premiums earned and the Company's 2018 combined ratio. The combined ratio is calculated as ~~defined above. Any~~a ratio of (A) losses and loss expenses incurred, plus other operating expenses, less commission and other income to (B) net premiums earned. No 2018 LTIP Awards were earned bybased on the Company's ~~named executive officers ("NEOs") will be paid~~performance in 2018, and therefore no shares ~~of restricted Class B common stock at the end of~~were issued pursuant to the 2018 ~~annual performance period and will vest one year from the date of issue. Any 2018~~ LTIP Awards earned by non-NEOs will be paid in shares of restricted Class B common stock at the end of the 2018 annual performance period and will vest ratably over a three-year period from the date of issue. InAwards. In addition to the 2018 LTIP Awards, in March 2018 the Company's Compensation Committee also granted Value Creation Incentive Plan awards (the "2018 VCIP Awards") to certain participants under the Long-Term Incentive Plan. The 2018 VCIP Awards are performance-based equity awards that will be earned based on the Company's cumulative operating income, as defined above, over a three-year performance period from January 1, 2018 through December 31, 2020 relative to ana cumulative operating income goal for the period set by the Compensation Committee in March 2018. Any 2018 VCIP Awards that are earned will be paid in unrestricted shares of the Company's Class B ~~common stock~~Common Stock at the end of the three-year performance period, but no later than March 15, 2021. No shares are eligible to be issued under the 2018 VCIP Awards as of June 30, 2019.

On November 13, 2018, the Company entered into an employment agreement with its Interim Chief Executive Officer, John D. Nichols, Jr. Pursuant to the terms of this employment agreement, on November 13, 2018, Mr. Nichols was granted 85,000 restricted shares of the Company's Class B Common Stock (the "Nichols 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 ~~$103~~$559 of expense during the six months ended June 30, 2019 related to ~~these~~the Nichols Stock Grant.

In March 2019, 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 "2019 LTIP Awards"), with the number of shares of Class B Common Stock earned pursuant to such awards determined by applying a performance matrix consisting of a corporate performance component as well as a personal performance component. The corporate performance component of the 2019 LTIP Awards 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 $51 of expense during the ~~nine~~six months ended ~~September~~June 30, ~~2018.~~2019 related to the 2019 LTIP Awards.

On May 22, 2019, the Company entered into an employment agreement with its new Chief Executive Officer, Jeremy D. Edgecliffe-Johnson. Pursuant to the terms of this employment agreement, on May 22, 2019, Mr. Edgecliffe-Johnson was granted 70,000 restricted shares of the Company's Class B Common Stock (the "Edgecliffe-Johnson Stock Grant"), of which 35,000 shares will vest as of June 1, 2022, 21,000 shares will vest as of June 1, 2023, and 14,000 shares will vest as of June 1, 2024. The Company recorded $36 of expense during the six months ended June 30, 2019 related to the Edgecliffe-Johnson Stock Grant.

- 18 -

(10) Litigation, Commitments and Contingencies:

In the ordinary, regular and routine course of their business, the Company and its ~~insurance subsidiaries~~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.

Personnel Staffing Group Litigation

In July 2019, Protective Insurance Company (“PIC”) was named as a defendant in a California action brought by former insured, Personnel Staffing Group d/b/a MVP Staffing (“PSG”) alleging breach of PIC’s workers’ compensation insurance policy and breach of the duties of good faith and fair dealing. PIC provided workers’ compensation insurance to PSG from January 1, 2017 through June 30, 2018, which was subject to a $500 per claim deductible to be paid by PSG. No specific damages were included in the complaint. The Company intends to vigorously defend these claims; however, the ultimate outcome cannot be presently determined.

In August 2019, PIC filed its own lawsuit against PSG in Marion County, Indiana alleging breach of contract, breach of the parties collateral agreement, breach of the parties indemnity agreement, and seeking declaratory judgment regarding PSG’s ongoing obligation to fund its ongoing claims deductible obligations and adequately collateralize PIC’s current and ongoing claims exposure, pursuant to the parties agreements. Pursuant to the terms of the workers’ compensation policies, PIC has a duty to adjust and pay claims arising under the policies as they develop regardless of whether PSG fulfills its deductible obligations. Under its contractual obligations to PIC, PSG is required to maintain a “loss fund” for the payment of claims, the balance of which is to remain at or above $4,000; in addition, PSG is required to provide collateral in an amount equal to 110% of PIC’s current open case reserves on workers’ compensation claims arising under PSG’s policies.

As of June 30, 2019, PIC had approximately $20,000 in open case reserves within PSG’s $500 deductible, in addition to $1,800 in deductible receivables on claims arising under PSG’s workers’ compensation policies and had exhausted all collateral provided by PSG. Continued claims development is anticipated to be consistent with similar lines of workers’ compensation as described in the Company’s 2018 Annual Report on Form 10-K and therefore, PSG’s ultimate obligations to PIC under the agreements is estimated to be approximately $40,000 as of June 30, 2019 (inclusive of the $20,000 in open case reserves and $1,800 in deductible receivable amounts noted above). At June 30, 2019, the Company believes that it will fully collect all future amounts due from PSG relating to this contingency and therefore has not recorded a provision for any potential asset impairment.

(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. As of June 30, 2019, the Company has repurchased $9,293 under the share repurchase program. Pursuant to this share repurchase program, the Company entered into a Rule 10b5-1 plan on June 21, 2019, which authorized the repurchase of up to $4,000 of the Company's outstanding Common Stock at various pricing thresholds, in ~~common stock outstanding~~accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934. The Rule 10b5-1 plan expires on August 8, 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.

Class A Class B Additional
Shares Amount Shares Amount Paid-in Capital
Balance at December 31, 2017 2,623,109 $ 112 12,423,518 $ 530 $ 55,078
Restricted stock grants – – 12,502 1 521
Repurchase of common shares (300) – (112,175) (5) (484)
Balance at September 30, 2018 2,622,809 $ 112 12,323,845 $ 526 $ 55,115

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, the Company paid ~~$2,620~~$6,487 to repurchase ~~300~~2,893 shares of Class A and ~~112,175~~371,188 shares of Class B ~~common stock~~Common Stock under athe share repurchase ~~program approved by its Board of Directors on August 31, 2017 and reaffirmed on August 7, 2018.~~program.

~~- 17 -~~

~~The change in equity for the nine months ended September 30, 2018 was as follows:~~

Total Equity
Balance at December 31, 2017 $ 418,811
Net loss (9,508)
Other comprehensive loss (6,507)
Cash dividends paid to shareholders (12,652)
Restricted stock grants 521
Repurchase of common shares (2,620)
Balance at September 30, 2018 $ 388,045

~~The change in equity for the nine months ended September 30, 2017 was 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 (12,249)
Restricted stock grants 920
Repurchase of common shares (1,880)
Balance at September 30, 2017 $ $ 404,930

The following table illustrates changes in accumulated other comprehensive income (loss) by component for the ~~nine~~six months ended ~~September~~June 30, ~~2018:~~2019:

Foreign
Currency

Unrealized Holding Gains 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 (209) (4,815) (5,024)
Amounts reclassified from accumulated other comprehensive income (loss) – (1,483) (1,483)

Net current-period other comprehensive loss (209) (6,298) (6,507)

Ending balance at September 30, 2018 $ (518) $ (5,638) $ (6,156)

	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		591			14,758			15,349
Amounts reclassified from accumulated other comprehensive income (loss)		–			215			215

Net current-period other comprehensive income		591			14,973			15,564

Ending balance at June 30, 2019	$	(548	)	$	8,765		$	8,217

- 19 -

The following table illustrates changes in accumulated other comprehensive income (loss) by component for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2018:

Foreign
Currency

Unrealized Holding Gains on
Available-for-sale 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, 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		(411	)		(4,050	)		(4,461	)
Amounts reclassified from accumulated other comprehensive income (loss)		–			(1,097	)		(1,097	)

Net current-period other comprehensive loss		(411	)		(5,147	)		(5,558	)

Ending balance at June 30, 2018	$	(720	)	$	(4,487	)	$	(5,207	)

~~- 18 -~~

(12) Related Parties:

~~The~~At June 30, 2019, the Company ~~has~~was invested in ~~three~~one limited ~~partnerships~~partnership, the New Vernon India Fund, with an aggregate estimated value of ~~$39,190 at September 30, 2018~~$17,489, that ~~are~~is managed by ~~organizations~~an organization in which one director of the Company is an executive officer and owner. The Company's ownership interest in ~~these~~this limited ~~partnerships~~partnership at ~~September~~June 30, ~~2018~~2019 was ~~6% for New Vernon India Fund, 37% for New Vernon Global Opportunity Fund and 27% for New Vernon Global Opportunity Fund II.~~4%. For the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, the Company recorded ~~$479~~$125 and ~~$553~~$275 of fees related to the management of ~~these~~this limited partnership ~~investments.~~investment.

The Company utilizes the services of an investment firm of which one director of the Company is a partial owner. ~~These~~This investment ~~firms manage~~firm manages equity securities and fixed ~~maturity~~income portfolios held by the Company with an aggregate market value of approximately ~~$24,871~~$8,601 at ~~September~~June 30, ~~2018.~~2019. Total commissions and net fees earned by ~~the~~this investment ~~firms~~firm and its affiliates on these portfolios were ~~$81~~$12 and ~~$70~~$54 for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017.~~2018.

(13) Subsequent Events:

In July 2019, the Company withdrew $11,127 from the Arbiter Partners LP, a limited partnership, which liquidated the Company's investment in this limited partnership.

On ~~November~~August 6, ~~2018,~~2019, the Company's Board of Directors ~~of Protective Insurance Corporation~~ declared a regular quarterly dividend of ~~$0.28~~$0.10 per share on the Company's Class A and Class B Common Stock. The dividend per share will be payable ~~December 4, 2018~~September 3, 2019 to shareholders of record on ~~November~~August 20, ~~2018.~~2019.

Pursuant to the Rule 10b5-1 plan entered into on June 21, 2019, the Company paid $2,565 to repurchase 158 shares of Class A and 152,593 shares of Class B Common Stock between July 1, 2019 and the date of this Quarterly Report on Form 10-Q.

- 1920 -

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

~~Effective August 1, 2018, we changed our name~~The term “Protective,” as used throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), refers to Protective Insurance Corporation, the parent company. The terms the “Company,” “we,” “us” and “our,” as used throughout this MD&A, refer to ~~better align our operational~~Protective and ~~market identities~~all of its subsidiaries, unless the context clearly indicates otherwise. The term “Insurance Subsidiaries,” as used throughout this MD&A, refers to ~~reflect our position within the transportation~~Protective Insurance Company, Protective Specialty Insurance Company, Sagamore Insurance Company and ~~workers' compensation insurance industry.~~

Effective January 1, 2018, we adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01, using a cumulative-effect adjustment of $71,012 ($46,157, net of tax). This adjustment moved our historical unrealized gains and losses, net of tax, on our equity portfolio from accumulated other comprehensive income (loss) to retained earnings, but had no impact on overall shareholders' equity. In addition, for 2018 and forward, the change in fair value for equity securities is required to be recognized in net earnings rather than in other comprehensive income (loss). The impact to our statements of operations will vary depending upon the level of volatility in the performance of the securities held in our equity portfolio and the overall market.

~~On December 22, 2017, the Tax Cut and Jobs Act of 2017 (the "U.S. Tax Act") was signed into law. The U.S. Tax Act lowered the U.S. corporate income rate from 35% to 21% effective January 1, 2018.~~

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

Liquidity and Capital Resources

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

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

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.~~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. As of June 30, 2019 we have repurchased $9.3 million under the share repurchase program reaffirmed on August 7, 2018. The repurchases may be made in the open market or through privately negotiated transactions, from time-to-time, and in accordance with applicable laws, rules and regulations. On ~~September 24, 2018,~~June 21, 2019, we entered into a stock repurchase plan for the purpose of repurchasing up to ~~$12.0~~$4.0 million of shares of our common stock, at various pricing thresholds, in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Rule 10b5-1 Plan"). The Rule 10b5-1 Plan was established pursuant to, and as part of, our share repurchase program and permits shares to be repurchased in accordance with pre-determined criteria when repurchases would otherwise be prohibited, such as during self-imposed blackout periods, or under insider trading laws. The Rule 10b5-1 plan expires on ~~November~~August 8, ~~2018.~~2019. Pursuant to the Rule 10b5-1 plan, we paid $2.6 million to repurchase 158 shares of Class A and 152,593 shares of Class B Common Stock between July 1, 2019 and the date of this Quarterly Report on Form 10-Q. The share repurchase program may be amended, suspended or discontinued at any time and does not commit us to repurchase any shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand. The actual number and value of the shares to be purchased will depend on the performance of our stock price, market volume and other market conditions. During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we paid ~~$2.6~~$6.5 million to repurchase ~~300~~2,893 shares of Class A and ~~112,175~~371,188 shares of Class B ~~common stock~~Common Stock under the share repurchase program.

~~- 20 -~~

For several years, our investment philosophy has emphasized the purchase of short-term bonds with high quality and liquidity. Our fixed income investment portfolio continues to emphasize shorter-duration instruments. If there was a hypothetical increase in interest rates of 100 basis points, the price of our ~~bonds~~fixed income portfolio, including cash, at ~~September~~June 30, ~~2018~~2019 would be expected to fall by approximately ~~2.9%~~2.2%. The credit quality of our fixed income securities remains high with a weighted average rating of AA-, including cash. The average contractual life of our fixed ~~maturity~~income and short-term investment portfolio ~~increased slightly to 5.1~~was 5.9 years at ~~September~~June 30, ~~2018 compared to 4.9~~2019 and 5.5 years at December 31, ~~2017.~~2018. The average duration of our fixed ~~maturity~~income portfolio remains ~~much~~ shorter than ~~both~~ the ~~contractual maturity~~ average ~~and the~~ duration of our liabilities. We also remain an active participant in the equity securities market, using capital in excess of amounts considered necessary to fund our current operations. The long-term horizon for our equity investments allows us to invest in positions where ultimate value, and not short-term market fluctuation, is the primary focus. Investments made by our domestic property/casualty ~~insurance subsidiaries~~Insurance Subsidiaries are regulated by guidelines promulgated by the National Association of Insurance Commissioners (the "NAIC"), which are designed to provide protection for both policyholders and shareholders.

- 21 -

Net cash flows from operations increased ~~$5.2~~$13.7 million to ~~$60.4~~$38.4 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$55.2~~$24.7 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The increase in operating cash flows was ~~mainly due~~primarily related to higher premium volume and higher investment income during the ~~nine~~six months ended ~~September~~June 30, 2019 compared to the same period in 2018.

Net cash ~~provided by~~used in investing activities was ~~$1.5~~$103.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~net~~$0.4 million for the six months ended June 30, 2018. The $102.8 million increase in cash used in investing activities ~~of $36.1 million for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2017. The $37.6 million change~~2019 was primarily ~~related to higher~~the result of a decrease in proceeds from sales of our equity and fixed income ~~investments. These higher proceeds from sales were partially offset by lower proceeds from maturities~~securities of $103.7 million compared to the six months ended June 30, 2018, when we reallocated our equity portfolio to fixed income ~~securities, increased~~securities. We also had higher purchases of equity and fixed income ~~investments~~securities of $29.9 million and ~~lower~~an additional investment of $2.2 million in commercial mortgage loans in the first half of 2019, partially offset by $19.9 million of higher distributions received from limited partnerships during the ~~nine months ended September 30,~~first half of 2019 and a $1.3 million reduction in purchases of property and equipment. Additionally, the first half of 2018 ~~in addition to~~included the purchase of $10.0 million of company-owned life insurance, which did not recur in the first ~~quarter~~half of ~~2018.~~2019.

Net cash used in financing activities for the ~~nine~~six months ended ~~September~~June 30, 2019 consisted of regular cash dividend payments to shareholders of $3.0 million ($0.20 per share) and $6.5 million to repurchase shares of our Class A and B Common Stock. Financing activities for the six months ended June 30, 2018 consisted of regular cash dividend payments to shareholders of ~~$12.7~~$8.5 million ($~~0.84~~0.56 per share) and ~~$2.6~~$1.3 million to repurchase shares of our Class ~~A and~~ B common stock. Financing activities for the nine months ended September 30, 2017 consisted of regular cash dividend payments to shareholders of $12.3 million ($0.81 per share) combined with the repurchase of 84,960 shares of the Company's Class B common stock during the third quarter of 2017 for $1.9 million.Common Stock.

Our assets at ~~September~~June 30, ~~2018~~2019 included ~~$104.7~~$77.0 million of investments included within cash and cash equivalents on the condensed consolidated balance ~~sheets~~sheet that are readily convertible to cash without market penalty and an additional ~~$47.0~~$99.5 million of fixed ~~maturity~~income investments maturing in less than one year. We believe these liquid investments, plus the expected cash flow from premium collections, are sufficient to provide for projected claim payments and operating cost demands. In the event competitive conditions produce inadequate premium rates and we choose to further restrict volume, the liquidity of our investment portfolio would permit us 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.

We maintained a revolving line of credit with a $40.0 million limit that had an expiration date of September 23, 2018. Interest on this line of credit was referenced to LIBOR and could be fixed for periods of up to one year at our option. Outstanding drawings on this line of credit were $20.0 million at December 31, 2017. On August 9, 2018, we entered into a credit agreement providingmaintain a revolving credit facility with a $40.0 million limit, with the option for up to an additional $35.0 million in incremental loans at the discretion of the ~~lenders. This credit agreement,~~lenders, which has an expiration date of August 9, ~~2022, replaced our line of credit that was to expire on September 23, 2018.~~2022. Interest on this revolving credit facility is referenced to ~~LIBOR~~the London Interbank Offered Rate 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 ~~September~~June 30, ~~2018.~~2019. At ~~September~~June 30, ~~2018,~~2019, the effective interest rate was ~~3.31%,~~3.50% and we had $20.0 million remaining under the revolving credit ~~facility as of September 30, 2018.~~facility. The current outstanding borrowings were used to repay ~~the~~our previous line of credit. Our revolving credit facility has two financial covenants, each of which were met as of ~~September~~June 30, ~~2018, requiring~~2019. These covenants require us to have a minimum ~~Generally Accepted Accounting Principles~~U.S. generally accepted accounting principles ("GAAP") net worth and a maximum consolidated leverage ratio of 0.35 to 1.00.

Annualized net premiums written by our ~~insurance subsidiaries~~Insurance Subsidiaries for the ~~third~~second quarter of ~~2018~~2019 equaled approximately ~~104.3%~~124% of the combined statutory surplus of these subsidiaries, a level consistent with higher premiums 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 our ~~insurance subsidiaries~~Insurance Subsidiaries substantially exceeded minimum ~~risk based~~risk-based capital requirements set by the NAIC as of ~~September~~June 30, ~~2018.~~2019. Accordingly, we have the ability to significantly increase our business without seeking additional capital to meet regulatory guidelines.

Consolidated shareholders' equity is composed largely of GAAP shareholders' equity of our ~~insurance subsidiaries.~~Insurance Subsidiaries. As such, there are statutory restrictions on the transfer of substantial portions of this equity to ~~the parent company.~~Protective. At ~~September~~June 30, ~~2018, $74.1~~2019, $37.1 million may be transferred by dividend or loan to ~~the parent company~~Protective during the remainder of ~~2018~~2019 without approval by, or prior notification to, regulatory authorities. An additional ~~$234.7~~$216.2 million of shareholders' equity of our ~~insurance subsidiaries~~Insurance Subsidiaries could be advanced or loaned to ~~the parent company~~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 tofor us. We also believe the financial strength and stability of our ~~insurance subsidiaries~~Insurance Subsidiaries would permit access by ~~the parent company~~Protective to short-term and long-term sources of credit when needed. ~~The parent company~~Protective had cash and marketable securities valued at ~~$10.8~~$12.1 million at ~~September~~June 30, ~~2018.~~2019.

- 2122 -

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 commissions and other income, to net premiums earned, or our combined ratio, are measures of our profitability that we believe increase the period-to-period comparability of our operational results. 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.

	Three Months Ended						Six Months Ended
	June 30						June 30
	2019			2018			2019			2018
Income before federal income tax expense	$	1,950		$	3,057		$	5,464		$	3,371
Less: Net realized and unrealized gains (losses) on investments		2,889			(3,435	)		8,916			(7,968	)
Less: Net investment income		6,500			5,796			12,732			10,432
Underwriting income (loss)	$	(7,439	)	$	696		$	(16,184	)	$	907


Ratios
Losses and loss expenses incurred	$	90,433		$	77,488		$	177,555		$	149,787
Net premiums earned		115,631			111,940			225,644			217,402
Loss ratio		78.2	%		69.2	%		78.7	%		68.9	%

Other operating expenses	$	34,615		$	36,019		$	68,316		$	70,784
Less: Commissions and other income		1,978			2,263			4,043			4,076
Other operating expenses, less commissions and other income		32,637			33,756			64,273			66,708
Net premiums earned		115,631			111,940			225,644			217,402
Expense ratio		28.2	%		30.2	%		28.5	%		30.7	%

Combined ratio		106.4	%		99.4	%		107.2	%		99.6	%

- 23 -

Results of Operations

Comparison of ~~Third~~Second Quarter ~~2018~~2019 to ~~Third~~Second Quarter ~~2017~~2018

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

2018 2017 Change
Gross Premiums Written $ 138,699 $ 131,523 $ 7,176
Net Premiums Written 97,014 96,222 792
Net Premiums Earned 96,807 89,100 7,707

	2019			2018			Change			% Change
Gross premiums written	$	147,152		$	142,270		$	4,882			3.4	%
Ceded premiums written		(31,457	)		(28,016	)		(3,441	)		12.3	%
Net premiums written	$	115,695		$	114,254		$	1,441			1.3	%

Net premiums earned	$	115,631		$	111,940		$	3,691			3.3	%
Net investment income		6,500			5,796			704			12.1	%
Commissions and other income		1,978			2,263			(285	)		(12.6	)%
Net realized and unrealized gains (losses) on investments		2,889			(3,435	)		6,324			184.1	%
Total revenue		126,998			116,564
Losses and loss expenses incurred		90,433			77,488			12,945			16.7	%
Other operating expenses		34,615			36,019			(1,404	)		(3.9	)%
Total expenses		125,048			113,507
Income before federal income tax expense		1,950			3,057			(1,107	)
Federal income tax expense		415			570			(155	)
Net income	$	1,535		$	2,487		$	(952	)

Gross premiums written during the ~~third~~second quarter of ~~2018~~2019 increased ~~$7.2~~$4.9 million ~~(5.5%~~(3.4%), while net premiums earned increased ~~$7.7~~$3.7 million ~~(8.6%~~(3.3%), as compared to the ~~third~~second quarter of ~~2017.~~2018. The higher ~~gross premiums written and~~ net premiums earned were the result of ~~continued~~ growth in ~~our commercial automobile and~~ workers' compensation products in both our retail and program distribution channels. 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.business.

Premiums ceded to reinsurers on our insurance business averaged ~~30.1%~~21.4% of gross premiums written for the ~~third~~second quarter of ~~2018~~2019 compared to ~~26.8%~~19.7% in the ~~third~~second quarter of ~~2017.~~2018. The increase in premiums ceded reflected the differences in reinsurance ceding rates on the mix of our business in-force. During the ~~third~~second quarter of ~~2018,~~2019, we had ~~reserve strengthening as discussed below that resulted in ceding an additional $13.8 million in premium from prior treaty years related to the variable premium adjustment provisions~~higher gross premiums written in our ~~historical~~workers' compensation coverages, which carry a higher reinsurance treaties. Our historical commercial automobile reinsurance treaties, which were revised in the past two reinsurance renewals, cause an adjustment to premiums ceded when the ultimate loss estimate changes for a reinsurance treaty year.

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). These recent changes to our reinsurance treaties partially offset the additional premium ceded under our historical reinsurance treaties related to the loss development and reserve strengthening recorded in the third quarter of 2018.rate.

Losses and loss expenses incurred during the ~~third~~second quarter of ~~2018~~2019 increased ~~$33.9~~$12.9 million ~~(55.8%~~(16.7%) compared to the ~~third~~second quarter of ~~2017,~~2018, resulting in a loss ratio of ~~97.7%~~78.2% during the ~~third~~second quarter of ~~2018~~2019 compared to a loss ratio of ~~68.1%~~69.2% during the ~~third~~second quarter of ~~2017.~~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 ~~third~~second quarter of ~~2018~~2019 reflected ~~reserve strengthening~~an increase in current accident year losses driven by severe commercial automobile claims, including continued emergence of ~~$16.4 million related to unfavorable~~severity. This current accident year development was partially offset by prior accident year net savings of $0.6 million that developed during the three months ended June 30, 2019, primarily due to favorable loss development in ~~commercial automobile~~workers' compensation and independent contractor coverages. ~~This unfavorable loss development was the result of increased claim severity due to a more challenging litigation environment, as well as an increase in the time to settle claims.~~

Net investment income for the ~~third~~second quarter of ~~2018~~2019 increased ~~38.5%~~12.1% to ~~$5.6~~$6.5 million compared to ~~$4.0~~$5.8 million for the ~~third~~second quarter of ~~2017.~~2018. The increase reflected an increase in average funds invested resulting from positive cash flow, as well as ~~higher interest rates, which led to higher reinvestment yields for our~~a reallocation from equity investments held in limited partnerships into short-duration, ~~fixed income portfolio.~~high-quality bonds. After-tax investment income increased by ~~55.2%~~10.6% to ~~$4.5~~$5.2 million during the ~~third~~second quarter of 2019, compared to $4.7 million during the second quarter of 2018, ~~compared to $2.9 million during the third quarter of 2017,~~ reflecting the aforementioned ~~higher interest rates~~increase in average funds invested and ~~reinvestment yield environment in addition~~reallocation from limited partnerships to ~~the lower tax rate as a result of the U.S. Tax Act.~~short-duration, high- quality bonds.

Net realized and unrealized gains on investments of ~~$2.4~~$2.9 million during the ~~third~~second quarter of ~~2018~~2019 were primarily driven by ~~$3.0~~$2.0 million in unrealized gains on equity securities during the period, ~~which are now recorded in the condensed consolidated statements of operations in conjunction with our adoption of ASU 2016-01 and~~ net realized gains on sales of ~~fixed income~~securities, excluding impairment losses, of $0.7 million and ~~equity securities~~a $0.3 million increase in the value of ~~$0.5 million,~~our limited partnership investments, partially offset by other-than-temporary impairments on our fixed income securities of $0.1 million recognized during the period. Comparative second quarter 2018 net realized and unrealized losses on investments of $3.4 million were driven by a ~~$1.1~~$2.8 million decrease in the value of our limited partnership ~~investments. During the third quarter of 2018, we sold $30.1~~investments and $1.5 million in unrealized losses on equity securities ~~resulting in a realized gain of $5.7 million. The majority of this gain was included in unrealized gains within other comprehensive income (loss) at December 31, 2017 and, as a result of~~during the adoption of ASU 2016-01, was reclassified to retained earnings as of January 1, 2018 and not recognized in the condensed consolidated statements of operations for the third quarter of 2018. These equity sales further solidified the conservative nature of our high quality, short-duration investment portfolio; opportunistically utilized the new lower corporate tax rate of 21%, which was beneficial given the low tax basis of many of these equity positions; and were accretive to income, given the increase in yields at the shorter end of the yield curve. Comparative third quarter 2017 net realized investment gains were $5.9 million, consisting primarily of $3.4 million inperiod, partially offset by net realized gains ~~from~~on sales of securities, ~~and $2.5 million in gains reported from our investments in limited partnerships.~~excluding impairment losses, of $0.9 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 the aggregate value of limited partnerships and, as such, should not be expected to be consistent from period to period.

~~- 22 -~~

Other operating expenses for the ~~third~~second quarter of ~~2018 were flat~~2019 decreased $1.4 million, or 3.9%, to $34.6 million compared to the ~~third~~second quarter of ~~2017. Higher commission expenses as a result of increased premiums written were offset~~2018. The decrease was driven primarily by lower salary and benefit expense in addition to lower other operating expenses, partially offset by higher commission expenses as a result of the ~~third~~mix of premium written in the second quarter of ~~2018.~~2019. The ratio of consolidated other operating expenses, less commissions and other income, to net premiums earned (the “expense ratio”) was ~~26.6%~~28.2% during the ~~third~~second quarter of ~~2018~~2019 compared to ~~31.2%~~30.2% for the ~~2017 third quarter.~~second quarter of 2018. The decrease in the expense ratio was primarily related to the leveraging effect of higher net premiums earned ~~and increased ceding commission income from prior year contingent reinsurance contracts, which has the effect of reducing expenses~~ in the ~~third~~second quarter of ~~2018~~2019 compared to the ~~third~~second quarter of ~~2017.~~2018.

~~Income~~

- 24 -

Federal income tax ~~benefit~~expense was ~~$3.2~~$0.4 million for the ~~third~~second quarter of ~~2018~~2019 compared to anfederal income tax expense of ~~$3.2~~$0.6 million for the ~~third~~second quarter of ~~2017.~~2018. The effective tax rate for the ~~third~~second quarter of ~~2018~~2019 was ~~a 20.8% tax benefit~~21.3% compared to ~~a 30.0% tax expense~~18.6% in the ~~third~~second quarter of ~~2017.~~2018. The effective federal income tax rate in the current year differed from the normal statutory rate primarily as a result of tax-exempt investment income. ~~The year-over-year decrease also reflected~~For the ~~reduced federal corporate~~three months ended June 30, 2019, we had lower tax-exempt income when compared to the same period in 2018, primarily due to the reduction of tax ~~rate~~exempt municipal securities within our investment portfolio in the current year as well as a ~~result~~decrease in dividend income, which provides a deduction for taxes, related to the reallocation of ~~the enactment of the U.S. Tax Act in December 2017. We continue~~equity securities to ~~analyze the different aspects of the U.S. Tax Act, which could potentially affect the provisional estimates that were recorded at December 31, 2017.~~fixed income securities within our investment portfolio throughout 2018.

As a result of the factors mentioned above, net income decreased ~~$19.8~~$1.0 million to $1.5 million during the ~~third~~second quarter of ~~2018 as~~2019 compared to net income of $2.5 million during the ~~third~~second quarter of ~~2017.~~2018.

Comparison of ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019 to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018

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

2018 2017 Change
Gross Premiums Written $ 429,792 $ 360,558 $ 69,234
Net Premiums Written 324,702 246,459 78,243
Net Premiums Earned 314,209 231,070 83,139

	2019			2018			Change			% Change
Gross premiums written	$	296,045		$	291,093		$	4,952			1.7	%
Ceded premiums written		(65,028	)		(63,405	)		(1,623	)		2.6	%
Net premiums written	$	231,017		$	227,688		$	3,329			1.5	%

Net premiums earned	$	225,644		$	217,402		$	8,242			3.8	%
Net investment income		12,732			10,432			2,300			22.0	%
Commissions and other income		4,043			4,076			(33	)		(0.8	)%
Net realized and unrealized gains (losses) on investments		8,916			(7,968	)		16,884			211.9	%
Total revenue		251,335			223,942
Losses and loss expenses incurred		177,555			149,787			27,768			18.5	%
Other operating expenses		68,316			70,784			(2,468	)		(3.5	)%
Total expenses		245,871			220,571
Income before federal income tax expense		5,464			3,371			2,093
Federal income tax expense		1,181			554			627
Net income	$	4,283		$	2,817		$	1,466

Gross premiums written during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 increased ~~$69.2~~$5.0 million ~~(19.2%~~(1.7%), while net premiums earned increased ~~$83.1~~$8.2 million ~~(36.0%~~(3.8%), as compared to the same period in ~~2017.~~2018. The higher ~~gross premiums written and~~ net premiums earned were the result of ~~continued~~the changes in our reinsurance structure discussed below in addition to growth in ~~our commercial automobile and~~ workers' compensation ~~products in both our retail and program distribution channels.~~business. The difference in the percentage change for premiums written compared to earned was reflective of the normal differences in the financial statement recognition of earned premiums compared to written, as well as differences in reinsurance ceding rates on the mix of business ~~in-force.~~in-force described below.

Premiums ceded to reinsurers on our insurance business averaged ~~24.5%~~22.0% of gross premiums written for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~31.6%~~21.8% for the same period of ~~2017.~~2018. The ~~percentage~~increase for the 2019 period reflected the ceding of ~~premiums ceded~~an additional $1.6 million in commercial automobile premium from prior treaty years related to ~~reinsurance decreased as a result of changes~~variable premium adjustment provisions in our historical reinsurance ~~structure. In~~treaties. Additionally, during the first half of 2019, we had higher gross premiums written in workers' compensation coverages, which carry a higher reinsurance ceding rate. These increases were offset by changes made to our reinsurance structure in the third quarter of 2017, when we lowered the quota share rate on our ~~workers~~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 impact of these changes to our reinsurance structure were partially offset by reserve strengthening in the nine months ended September 30, 2018 that resulted in ceding an additional $16.4 million in premium from prior treaty years related to variable premium adjustment provisions in our historical reinsurance treaties. Our historical commercial automobile reinsurance treaties cause an adjustment to premiums ceded when the ultimate loss estimate changes for a reinsurance treaty year.

Losses and loss expenses incurred during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 increased ~~$63.3~~$27.8 million ~~(35.0%~~(18.5%) compared to the same period of ~~2017. The~~2018, resulting in a loss ratio ~~however, decreased to 77.8%~~of 78.7% for the ~~nine months ended September 30, 2018, compared~~period. This compares to a loss ratio of ~~78.3%~~68.9% during the same period of ~~2017.~~2018. The loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned. The ~~slight decrease in the loss ratio reflected higher net premiums earned in the nine months ended September 30, 2018. The~~ increased losses and loss expenses and the higher loss ratio in the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 reflected ~~reserve adjustments~~an increase in current accident year losses driven by severe commercial automobile claims, including continued emergence of ~~$14.7 million related to unfavorable~~severity. This current accident year development was partially offset by prior accident year net savings of $1.7 million that developed during the six months ended June 30, 2019, primarily due to favorable loss development in ~~commercial automobile~~workers' compensation and independent contractor coverages. ~~This unfavorable loss development was~~Including the ~~result~~impact of ~~increased claim severity due to a more challenging litigation environment, as well as an increase in~~additional ceded premium discussed above, the ~~time to settle claims. The nine months ended September 30, 2017 loss ratio also reflected a $16.5 million reserve strengthening related to~~total prior accident year deficiencies that developed as a result of unfavorable loss development from commercial automobile coverages, particularly from infrequent, but severe, transportation loss events that occurred primarily duringimpacts were favorable by $0.1 million for the ~~first~~ six months ~~of 2017.~~ended June 30, 2019.

Net investment income for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 increased ~~28.8%~~22.0% to ~~$16.0~~$12.7 million compared to ~~$12.4~~$10.4 million in the same period of ~~2017.~~2018. The increase reflected an increase in average funds invested resulting from positive cash flow, as well as ~~higher interest rates, which led to higher reinvestment yields for our~~a reallocation from equity investments held in limited partnerships into short-duration, ~~fixed income portfolio.~~high-quality bonds. After-tax investment income increased by ~~44.9%~~21.4% to ~~$12.9~~$10.2 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, compared to ~~$8.9~~$8.4 million during the same period of ~~2017,~~2018, reflecting the aforementioned ~~higher interest rates~~increase in average funds invested and ~~reinvestment yield environment.~~reallocation from limited partnerships to short-duration, high-quality bonds.

- 2325 -

Net realized and unrealized gains on investments of $8.9 million during the six months ended June 30, 2019 were primarily driven by $7.9 million in unrealized gains on equity securities during the period, a $0.7 million increase in the value of our limited partnership investments and net realized gains on sales of securities, excluding impairment losses, of $0.6 million, partially offset by other-than-temporary impairments on our fixed income securities of $0.3 million recognized during the period. Comparative six months ended June 30, 2018 net realized and unrealized losses on investments of ~~$5.6~~$8.0 million ~~during the nine months ended September 30, 2018~~ were driven by a ~~$6.5~~$5.5 million decrease in the value of our limited partnership investments and ~~$0.8~~$3.8 million in unrealized losses on equity securities, excluding impairment losses, during the period, ~~which are now recorded in the condensed consolidated statements of operations in conjunction with our adoption of ASU 2016-01. These losses were~~ partially offset by net realized gains on sales of ~~fixed income and equity~~ securities of ~~$1.7 million during the nine months ended September 30, 2018. During the nine months ended September 30, 2018, we sold $117.7 million in equity securities resulting in a realized gain of $50.8~~$1.3 million. The majority of this gain was included in unrealized gains within other comprehensive income (loss) at December 31, 2017 and, as a result of the adoption of ASU 2016-01, was reclassified to retained earnings as of January 1, 2018 and not recognized in the condensed consolidated statements of operations for the nine months ended September 30, 2018. Comparative nine months ended September 30, 2017 net realized investment gains were $15.5 million, consisting primarily of $8.5 million in gains reported from our investments in limited partnerships and $7.0 million in net realized gains from sales of securities. Realized investment gains and losses result from decisions regarding overall portfolio realignment as well as the sale of individual securities, including the change in the aggregate value of limited partnerships and, as such, should not be expected to be consistent from period to period.

Other operating expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2018 increased $17.8~~2019 decreased $2.5 million, or ~~21.7%~~3.5%, to $68.3 million compared to $70.8 million for the same period of 2018. The decrease was driven primarily by lower salary and benefit expense in addition to lower other operating expenses, partially offset by higher commission expenses as a result of the mix of premium written in the six months ended June 30, 2019. The expense ratio was 28.5% during the six months ended June 30, 2019 compared to 30.7% for the same period of 2018. The decrease in the expense ratio was primarily related to the leveraging effect of higher net premiums earned in the six months ended June 30, 2019 compared to the same period of 2017. The increase in other operating expenses was primarily due to increased commission expenses as a result of increased premiums written and higher salary and benefit expense. The ratio of consolidated other operating expenses less commissions and other income to net premiums earned was 29.4% during the nine months ended September 30, 2018 compared to 33.9% for the same period of 2017. The decrease in the ratio was primarily related to higher net premiums earned and increased ceding commission income from prior year contingent reinsurance contracts, which has the effect of reducing expenses in the nine months ended September 30, 2018 compared to the same period of 2017.2018.

~~Income~~Federal income tax ~~benefit~~expense was ~~$2.7~~$1.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 compared to ~~$2.2~~$0.6 million for the same period of ~~2017.~~2018. The effective tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 was ~~22.1%~~21.6% compared to ~~581.0%~~16.4% in the same period of ~~2017.~~2018. The effective federal income tax rate in the current year differed from the normal statutory rate primarily as a result of tax-exempt investment income. ~~The year-over-year decrease also reflected~~For the ~~reduced federal corporate~~six months ended June 30, 2019, we had lower tax-exempt income when compared to the same period in 2018, primarily due to the reduction of tax ~~rate~~exempt municipal securities within our investment portfolio in the current year as well as a ~~result~~decrease in dividend income, which provides a deduction for taxes, related to the reallocation of ~~the enactment of the U.S. Tax Act in December 2017. The prior year rate reflected the timing of~~equity securities to fixed income securities within our ~~net income and loss~~investment portfolio throughout the year, with the third quarter of 2017 reflecting a recovery of the net loss recorded in the second quarter of 2017. We continue to analyze the different aspects of the U.S. Tax Act, which could potentially affect the provisional estimates that were recorded at December 31, 2017.2018.

As a result of the factors mentioned above, net income ~~decreased $11.4~~increased $1.5 million to $4.3 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018 as~~2019 compared to net income of $2.8 million during the same period of ~~2017.~~2018.

Sensitivity Analysis

Management is aware of the potential for variation from the reserves established at any particular point in time. Savings or deficiencies could develop in future valuations of the currently established loss and loss expense reserve estimates under a variety of reasonably possible scenarios. The majority of our reserves for losses and loss expenses, on 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 selection for our commercial automobile products for policies subject to certain major reinsurance treaties.

Commercial ~~auto~~automobile products covered by our reinsurance treaties from July-2013 through June-2019 are subject to an aggregate stop-loss provision. Once this aggregate stop-loss level is reached, for every $100 of additional loss, ~~the Company is~~we are responsible only for ~~$25.~~our $25 retention. The following table illustrates the benefit of these reinsurance treaties, as the net financial ~~impact~~loss to us of a further ~~5% or 10%~~ increase in ultimate losses for each of the ~~five~~six most recent reinsurance treaty years ~~(2013-2017)~~(2013-2018) covering these commercial ~~auto products:~~automobile products, is only about 25% of the gross loss:

		5% Increase in Ultimate Loss Ratio		10% Increase in Ultimate Loss Ratio	5% Increase in Ultimate Loss Ratio		10% Increase in Ultimate Loss Ratio
Gross loss expense	$	32.1	$	64.2
Gross loss expense from further strengthening current reserve position					$	42.6	$	85.2
Net financial loss		10.1		18.2		10.7		21.3

$/share (after tax)	$	0.54	$	0.96	$	0.57	$	1.14

Commercial automobile products covered by our reinsurance treaty from July-2019 through June-2020 are also subject to an aggregate stop-loss provision. Once the aggregate stop-loss level is reached, for every $100 of additional loss, we are responsible for our $65 retention. This increase in our retention compared to recent years, reflects both: (1) our decision to buy less reinsurance, due to a higher cost of reinsurance for the 2019 treaty-year, and (2) our confidence in profitability improvements given rate increases we are receiving on our commercial automobile products.

- 2426 -

Forward-Looking Information

The disclosures in this Form 10-Q contain "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 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, many of which are difficult to predict and generally beyond our control. Investors are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Investors are also urged to carefully review and consider the various 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 ~~the Company's~~our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017~~2018 and our reports filed with the U.S. Securities and Exchange Commission from time to time. Except to the extent otherwise required by federal securities laws, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof.

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 ~~growth strategy;~~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;~~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;~~employees and to successfully complete our 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, ~~2017.~~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.

- 27 -

Critical Accounting Policies

There have been no changes in our critical accounting policies as disclosed in our Annual Report on Form 10-K filed for the year ended December 31, ~~2017.~~2018.

Concentrations of Credit Risk

Our ~~insurance subsidiaries~~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~~June 30, ~~2018,~~2019, amounts due from reinsurers on paid and unpaid losses were estimated to total approximately ~~$334~~$390 million. Because of the large policy limits reinsured by us, the ultimate amount of incurred but not reported losses and loss adjustment expenses attributable to reinsurers could vary significantly from the estimate; provided, however, absent the inability to collect from reinsurers, such variance would not result in changes in net claim losses incurred by us.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

- 2528 -

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Other 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, ~~2017.~~2018.

Interest Rate Risk

We are exposed to interest rate risk on our fixed ~~maturity~~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 very quickly.~~securities.

The table below summarizes our interest rate risk by illustrating the sensitivity of the fair value of our fixed ~~maturity~~income investments as of ~~September~~June 30, ~~2018~~2019 to selected hypothetical changes in interest rates (dollars in thousands).

	Fair Value		Estimated Change in Fair Value		Fair Value		Estimated Change in Fair Value
200 basis point increase	$	553,314	$	(37,647)	$	702,383	$	(34,765	)
100 basis point increase		572,136		(18,825)		719,203		(17,945	)
Current fair value		590,961		–		737,148		–
100 basis point decrease		609,654		18,693		755,094		17,946
200 basis point decrease		628,428		37,467		771,913		34,765

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 ~~maturity~~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~~June 30, ~~2018~~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 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, its internal control over financial reporting.

- 2629 -

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, 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, ~~2017.~~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, ~~2017.~~2018.

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

Issuer Purchases of Equity Securities

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⁾
July 1 – July 31 8,373 $ 23.27 8,373 2,316,491
August 1 – August 31 23,261 22.99 23,261 2,293,230
September 1 – September 30 26,456 23.05 26,456 2,266,774
Total 58,090 58,090

	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⁾
April 1 – April 30		172,439	$	17.52		172,439		1,982,184
May 1 – May 31		86,082		16.60		86,082		1,896,102
June 1 – June 30		90,602		17.33		90,602		1,805,500
Total		349,123				349,123

⁽¹⁾

On August 31, 2017, ~~the Company's~~our Board of Directors authorized the reinstatement of ~~its~~our share repurchase program for up to 2,464,209 shares of ~~the Company's~~our Class A or Class B ~~common stock.~~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~~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, ~~the Company~~we entered into a Rule 10b5-1 plan on ~~September 24, 2018,~~June 21, 2019, which authorizes the repurchase of up to ~~$12.0~~$4.0 million of ~~the Company's~~our outstanding common ~~shares,~~stock, at various pricing ~~thresholds.~~thresholds, in accordance with guidelines specified under Rule 10b5-1 of the Exchange Act. The Rule 10b5-1 plan expires on August 8, 2019. No duration has been placed on ~~the Company's~~our share repurchase program, and ~~the Company reserves~~we reserve the right to amend, suspend or 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.

- 2730 -

ITEM 6. EXHIBITS

INDEX TO EXHIBITS

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 ~~10.1~~		Code of By-Laws of Protective Insurance Corporation, as amended effective ~~August 1, 2018, incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed August 1, 2018.~~May 17, 2019.

10.1		Employment Agreement, ~~dated~~effective as of ~~August 16, 2018,~~May 22, 2019, by and between the Company and ~~W. Randall Birchfield,~~Jeremy D. Edgecliffe-Johnson, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed ~~August~~May 22, ~~2018.~~2019.

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

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

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

101		The following materials from Protective Insurance Corporation's Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2018,~~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 Shareholders' Equity, (5) the Condensed Consolidated Statements of Cash Flows, and ~~(5)~~(6) the Notes to Unaudited Condensed Consolidated Financial Statements.

- 2831 -

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 ~~November~~August 7, ~~2018~~2019

By:	/s/ ~~John~~Jeremy D. ~~Nichols~~Edgecliffe-Johnson
	~~John~~ Jeremy D. ~~Nichols~~Edgecliffe-Johnson
	~~Interim~~ Chief Executive Officer ~~& Chairman of the Board of Directors~~

Date ~~November~~August 7, ~~2018~~2019

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

- 2932 -

	September 30, 2018						December 31, 2017
	Number of Securities		Fair Value		Gross Unrealized Loss		Number of Securities		Fair Value		Gross Unrealized Loss
Fixed maturity securities:
12 months or less		486	$	431,601	$	(7,330)		459	$	313,421	$	(2,683)
Greater than 12 months		135		81,091		(2,690)		112		75,638		(2,155)
Total fixed maturities		621		512,692		(10,020)		571		389,059		(4,838)

Equity securities ¹:
12 months or less		–		–		–		65		46,654		(2,218)
Greater than 12 months		–		–		–		–		–		–
Total equity securities		–		–		–		65		46,654		(2,218)
Total fixed maturity and equity securities		621	$	512,692	$	(10,020)		636	$	435,713	$	(7,056)

	2018		2017
Beginning of period balance	$	–	$	25,218
Total gains or losses (realized) included in income		–		406
Purchases		3,628		81
Settlements		–		(9,123)
Transfers into Level 3		–		144
Transfers out of Level 3		–		(16,726)
End of period balance	$	3,628	$	–

	Total Equity
Balance at December 31, 2017	$	418,811
Net loss		(9,508)
Other comprehensive loss		(6,507)
Cash dividends paid to shareholders		(12,652)
Restricted stock grants		521
Repurchase of common shares		(2,620)
Balance at September 30, 2018	$	388,045

	Total Equity
Balance at December 31, 2016	$	404,345
Net income		1,847
Other comprehensive income		11,947
Cash dividends paid to shareholders		(12,249)
Restricted stock grants		920
Repurchase of common shares		(1,880)
Balance at September 30, 2017	$	$ 404,930

	Foreign Currency		Unrealized Holding Gains 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		(209)		(4,815)		(5,024)
Amounts reclassified from accumulated other comprehensive income (loss)		–		(1,483)		(1,483)

Net current-period other comprehensive loss		(209)		(6,298)		(6,507)

Ending balance at September 30, 2018	$	(518)	$	(5,638)	$	(6,156)