UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended~~September 30, 2017~~March 31, 2019or

[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ~~_____~~____ to ~~_____~~____.

Commission File No.000-03978

UNICO AMERICAN CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

~~Nevada 95-2583928~~

Nevada	95-2583928
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

26050 Mureau Road, Calabasas, California	91302
(Address of Principal Executive Offices)	(Zip Code)

~~(State or Other Jurisdiction of (I.R.S. Employee~~

~~Incorporation or Organization) Identification No.)~~

~~26050 Mureau Road, Calabasas, California 91302~~

~~(Address of Principal Executive Offices) (Zip Code)~~

Registrant's telephone number, including area code:(818) 591-9800

~~(Registrant's Telephone Number, Including Area Code)~~

No Change

(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	Name of each exchange on which registered
Common Stock, No Par Value	UNAM	Nasdaq Global Market

Indicate by check mark whether the 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.

YesX No __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesX 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 companyX Emerging growth company__

(Do not check if a smaller reporting 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 NoX

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable ~~date~~.date.

Class	Outstanding at ~~November 13, 2017~~May 15, 2019
Common Stock, no par value per share	~~5,307,133~~5,306,964

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UNICO AMERICAN CORPORATION

INDEX TO FORM 10-Q

		Page No.

Cautionary Note Regarding Forward-Looking Statements	3
	3
Part I-Financial Information			4

Item 1. Financial Statements	4
	4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
	15
Item 3. Quantitative and Qualitative Disclosures About Market Risk	30
	26
Item 4. Controls and Procedures	30
	26
Part II-Other Information	31
	27
Item 1. Legal Proceedings	31
	27
Item 1A. Risk Factors	31
	27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31
	27
Item 3. Defaults Upon Senior Securities	31
	27
Item 4. Mine Safety Disclosures	31
	27
Item 5. Other Information	31
	28
Item 6. Exhibits	31
	28
S~~ignatures~~Signatures	32		28

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

~~Certain~~This Form 10-Q, and the documents incorporated by reference in this document, our press releases and oral statements made from time to time by us or on our behalf, may contain “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended (or “the Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (or “the Exchange Act”). In this context, forward-looking statements are not historical facts and include statements about our plans, objectives, beliefs and expectations. Forward-looking statements include statements preceded by, followed by, or that include the words “believes,” “expects,” “anticipates,” “seeks,” “plans,” “estimates,” “intends,” “projects,” “targets,” “should,” “could,” “may,” “will,” “can,” “can have,” “likely,” the negatives thereof or similar words and expressions. These forward-looking statements are contained ~~herein,~~throughout this Form 10-Q, including, but not limited to, statements found in ~~the sections entitled “Legal Proceedings” and~~Part I – Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”, are forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995 and Unico American Corporation (the “Company”) intends that such forward-looking~~Operations.”

Forward-looking statements are ~~subject to the safe harbors created thereby.~~only predictions and are not guarantees of future performance. These statements which may be identified by words or phrases such as “anticipate,” “appear,” “believe,” “estimate,” “expect,” “intend,” “plan,” “predict,” “will,” “may,” “likely,” “future,” “should,” “could,” and “would” and similar words, are intended to identify forward-looking statements. In addition, any statements that refer to projections of the Company’s future financial performance, trends in its businesses, or other characterizations of future events or circumstances are forward-looking statements.

~~The forward-looking statements included herein~~ are based on current expectations and assumptions involving judgments about, among other things, future economic, competitive and market conditions and future business decisions, all of ~~the Company’s management based on available information~~which are difficult or impossible to predict accurately and ~~involve certain risks and uncertainties,~~ many of which are beyond our control. These predictions are also affected by known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from those expressed or implied by any forward-looking statement. Many of these factors are beyond our ability to control or predict. Our actual results could differ materially from the ~~control~~results contemplated by these forward-looking statements due to a number of factors. Such factors include, but are not limited to, the ~~Company. Such~~following:

failure to meet minimum capital and surplus requirements;

vulnerability to significant catastrophic property loss;

a change in accounting standards issued by the Financial Accounting Standards Board;

ability to adjust claims accurately;

insufficiency of loss and loss adjustment expense reserves to cover future losses;

changes in federal or state tax laws;

ability to realize deferred tax assets;

ability to accurately underwrite risks and charge adequate premium;

ability to obtain reinsurance or collect from reinsurers and or losses in excess of reinsurance limits;

extensive regulation and legislative changes;

reliance on subsidiaries to satisfy obligations;

downgrade in financial strength rating by A.M. Best;

changes in interest rates;

investments subject to credit, prepayment and other risks;

geographic concentration;

reliance on independent insurance agents and brokers;

insufficient reserve for doubtful accounts;

litigation;

enforceability of exclusions and limitations in policies;

reliance on information technology systems;

ability to prevent or detect acts of fraud with disclosure controls and procedures;

change in general economic conditions;

dependence on key personnel;

ability to attract, develop and retain employees and maintain appropriate staffing levels;

insolvency, financial difficulties, or default in performance of obligations by parties with significant contracts or relationships;

ability to effectively compete;

maximization of long-term value and no focus on short-term earnings expectations;

control by a small number of shareholders;

limited trading of stock;

failure to maintain effective system of internal controls; and

difficulty in effecting a change of control or sale of any subsidiaries.

Please see Part I - Item 1A – “Risk Factors” in the Company’s 2018 Annual Report on Form 10-K as filed with the U.S. Securities and ~~uncertainties~~Exchange Commission (“SEC”), as well as other documents we file with the SEC from time-to-time, for other important factors that could cause our actual results to differ materially from ~~those anticipated by~~our current expectations and from the forward-looking statements discussed herein. Because of these and other risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. ~~Factors that could cause actual results to differ materially include, among others: failure to meet minimum capital~~In addition, these statements speak only as of the date of this Form 10-Q and, surplus requirements; vulnerability to significant catastrophic property loss; a change in accounting standards issued by the Financial Accounting Standards Board; required adoption of International Financial Reporting Standards; ability to adjust claims accurately; insufficiency of loss and loss adjustment expense reserves to cover future losses; ability to realize deferred tax assets; ability to accurately underwrite risks and charge adequate premium; ability to obtain reinsurance or collect from reinsurers; extensive regulation and legislative changes; reliance on subsidiaries to satisfy obligations; downgrade in financial strength rating by AM Best; intense competition; changes in interest rates; investments subject to credit, prepayment and other risks; geographic concentration; reliance on independent insurance agents and brokers; insufficient reserve for doubtful accounts; litigation; enforceability of exclusions and limitations in policies; reliance on information technology systems; ability to prevent or detect acts of fraud with disclosure controls and procedures; change in general economic conditions; dependence on key personnel; ability to attract, develop and retain employees and maintain appropriate staffing levels; insolvency, financial difficulties, or default in performance of obligations by parties with significant contracts or relationships; implementation of new computer software; ability to effectively compete; maximization of long-term value and no focus on short-term earnings expectations; control by a small number of shareholders; failure to maintain effective system of internal controls; difficulty in effecting a change of control or sale of any subsidiaries; and losses in excess of reinsurance limits. Exceptexcept as may be required by law, ~~the Company undertakes~~we undertake no obligation to revise or update publicly any forward-looking statements ~~to reflect new information or events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.~~

for any reason.

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PART 1I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30 December 31
2017 2016
(Unaudited)
ASSETS
Investments
Available-for-sale:
Fixed maturities, at fair value (amortized cost: $84,279,349 at September 30, 2017, and $80,371,842 at December 31, 2016) $ 84,268,895 $ 80,383,925
Short-term investments, at fair value 13,080,515 10,204,603
Total Investments 97,349,410 90,588,528
Cash and restricted cash 230,376 13,496,379
Accrued investment income 435,706 185,916
Receivables, net 6,046,875 6,008,083
Reinsurance recoverable:
Paid losses and loss adjustment expenses 1,692,142 260,744
Unpaid losses and loss adjustment expenses 11,890,854 9,520,970
Deferred policy acquisition costs 4,230,832 4,432,299
Property and equipment, net 10,117,563 10,282,532
Deferred income taxes 1,231,499 1,177,346
Other assets 4,853,239 2,269,408
Total Assets $ 138,078,496 $ 138,222,205

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Unpaid losses and loss adjustment expenses $ 53,066,515 $ 47,055,787
Unearned premiums 19,472,136 19,374,740
Advance premium and premium deposits 429,560 224,055
Accrued expenses and other liabilities 2,155,975 2,660,983
Total Liabilities $ 75,124,186 $ 69,315,565

Commitments and contingencies

STOCKHOLDERS' EQUITY
Common stock, no par value – authorized 10,000,000 shares; 5,307,133 shares issued and outstanding at September 30, 2017, and December 31, 2016 $ 3,772,872 $ 3,761,320
Accumulated other comprehensive income (loss) (6,900 ) 7,975
Retained earnings 59,188,338 65,137,345
Total Stockholders’ Equity $ 62,954,310 $ 68,906,640

Total Liabilities and Stockholders' Equity $ 138,078,496 $ 138,222,205

	March 31			December 31
	2019			2018
		(Unaudited)
ASSETS
Investments
Available-for-sale:
Fixed maturities, at fair value (amortized cost : $80,847,158 a March 31, 2019, and $78,302,588at December 31, 2018)	$	80,690,006		$	76,910,137
Held-to-maturity:
Fixed maturities, at amortized cost (fair value: $5,878,000 at March 31, 2019, and $7,126,000 at December 31, 2018)		5,878,000			7,126,000
Short-term investments, at fair value		696,792			4,690,954
Total Investments		87,264,798			88,727,091
Cash and cash equivalents		3,646,134			4,917,762
Accrued investment income		510,897			393,782
Receivables, net		4,270,133			3,933,068
Reinsurance recoverable:
Paid losses and loss adjustment expenses		987,019			(1,319	)
Unpaid losses and loss adjustment expenses		11,679,320			9,531,602
Deferred policy acquisition costs		3,570,780			3,489,728
Property and equipment, net		9,788,819			9,692,325
Deferred income taxes		4,265,529			4,375,484
Other assets		206,160			557,443
Total Assets	$	126,189,589		$	125,616,966

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Unpaid losses and loss adjustment expenses	$	51,332,871		$	51,657,155
Unearned premiums		16,526,366			15,964,589
Advance premium and premium deposits		342,963			234,442
Accrued expenses and other liabilities		1,767,156			1,845,358
Total Liabilities	$	69,969,356		$	69,701,544

Commitments and contingencies

STOCKHOLDERS' EQUITY
Common stock, no par value – authorized 10,000,000 shares; 5,307,103, shares issued and outstanding at March 31, 2019 and December 31, 2018	$	3,772,857		$	3,772,857
Accumulated other comprehensive loss		(124,151	)		(1,100,036	)
Retained earnings		52,571,527			53,242,601
Total Stockholders’ Equity	$	56,220,233		$	55,915,422

Total Liabilities and Stockholders' Equity	$	126,189,589		$	125,616,966

See notes to condensed consolidated financial statements (unaudited).

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UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

Three Months Ended Nine Months Ended
September 30 September 30
2017 2016 2017 2016
REVENUES
Insurance company operation:
Net earned premium $ 8,168,252 $ 7,980,930 $ 24,309,101 $ 23,271,296
Net investment income 309,405 234,495 785,579 658,839
Net realized investment gains (losses) 373 — 528 (1,278 )
Other income 108,169 66,147 243,642 201,425
Total Insurance Company Operation 8,586,199 8,281,572 25,338,850 24,130,282

Other insurance operations:
Gross commissions and fees 685,288 697,245 2,097,916 2,063,429
Investment income 87 75 206 272
Finance fees earned 21,814 18,450 58,155 50,667
Other income 1 1,000 65 6,002
Total Revenues 9,293,389 8,998,342 27,495,192 26,250,652

EXPENSES
Losses and loss adjustment expenses 9,917,896 8,038,100 24,351,751 17,982,351
Policy acquisition costs 1,854,212 1,741,499 4,943,350 5,142,250
Salaries and employee benefits 1,221,182 1,318,622 4,534,550 3,980,055
Commissions to agents/brokers 39,737 40,324 126,620 121,379
Other operating expenses 695,587 826,519 2,592,318 2,052,771
Total Expenses 13,728,614 11,965,064 36,548,589 29,278,806

Loss before taxes (4,435,225 ) (2,966,722 ) (9,053,397 ) (3,028,154 )
Income tax benefit 1,507,976 1,013,225 3,104,390 1,026,700
Net Loss $ (2,927,249 ) $ (1,953,497 ) $ (5,949,007 ) $ (2,001,454 )

PER SHARE DATA:
Basic
Loss per share $ (0.55 ) $ (0.37 ) $ (1.12 ) $ (0.38 )
Weighted average shares 5,307,133 5,307,133 5,307,133 5,307,881
Diluted
Loss per share $ (0.55 ) $ (0.37 ) $ (1.12 ) $ (0.38 )
Weighted average shares 5,307,133 5,307,133 5,307,133 5,307,881

	Three Months Ended
	March 31
	2019			2018
REVENUES
Insurance company operation:
Net earned premium	$	6,264,150		$	7,681,628
Investment income		532,630			444,702
Net realized investments losses		(8,149	)		—
Other income (loss)		(260,700	)		55,689
Total Insurance Company Operation		6,527,931			8,182,019

Other insurance operations:
Gross commissions and fees		547,445			606,657
Investment income		7			97
Finance charges and fees earned		49,373			18,097
Other income		10,718			21
Total Revenues		7,135,474			8,806,891

EXPENSES
Losses and loss adjustment expenses		5,154,443			7,801,757
Policy acquisition costs		1,086,713			1,621,505
Salaries and employee benefits		1,027,849			1,288,078
Commissions to agents/brokers		50,121			41,339
Other operating expenses		628,080			866,143
Total Expenses		7,947,206			11,618,822

Loss before taxes		(811,732	)		(2,811,931	)
Income tax benefit		140,658			604,680
Net Loss	$	(671,074	)	$	(2,207,251	)



PER SHARE DATA:
Basic
Loss Per Share	$	(0.13	)	$	(0.42	)
Weighted Average Shares		5,307,103			5,307,133

Diluted
Loss Per Share	$	(0.13	)	$	(0.42	)
Weighted Average Shares		5,307,103			5,307,133

See notes to condensed consolidated financial statements (unaudited).

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UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~INCOME (LOSS)

(UNAUDITED)

Three Months Ended Nine Months Ended
September 30 September 30
2017 2016 2017 2016

Net loss $ (2,927,249 ) $ (1,953,497 ) $ (5,949,007 ) $ (2,001,454 )
Other changes in comprehensive loss:
Changes in net unrealized gains (losses) on securities classified as available-for-sale arising during the period (6,581 ) (21,186 ) (22,537 ) 82,614
Income tax benefit (expense) related to changes in unrealized gains on securities classified as available-for-sale arising during the period 2,238 7,203 7,662 (28,089 )
Comprehensive Loss $ (2,931,592 ) $ (1,967,480 ) $ (5,963,882 ) $ (1,946,929 )

	Three Months Ended
	March 31
	2019			2018

Net loss	$	(671,074	)	$	(2,207,251	)
Changes in unrealized gains (losses) on securities classified as available-for-sale arising during the period, net of income tax		969,448			(895,126	)
Comprehensive Income (Loss)	$	298,374		$	(3,102,377	)

See notes to condensed consolidated financial statements (unaudited).

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UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

Nine Months Ended
September 30
2017 2016
Cash flows from operating activities:
Net loss $ (5,949,007 ) $ (2,001,454 )
Adjustments to reconcile net loss to net cash from operations:
Depreciation and amortization 386,250 361,490
Bond amortization, net (533,123 ) (12,897 )
Bad debt expense 15,534 385
Non-cash stock based compensation 11,552 17,328
Realized investment (gains) losses (528 ) 1,278
Changes in assets and liabilities:
Net receivables and accrued investment income (304,116 ) (726,376 )
Reinsurance recoverable (3,801,282 ) 237,404
Deferred policy acquisition costs 201,467 (313,431 )
Other assets 478,373 698,737
Unpaid losses and loss adjustment expenses 6,010,728 727,884
Unearned premium 97,396 1,322,906
Advance premium and premium deposits 205,505 277,193
Accrued expenses and other liabilities (505,008 ) 330,730
Income taxes current/deferred (3,108,695 ) (1,037,537 )
Net Cash Used by Operating Activities (6,794,954 ) (116,360 )

Cash flows from investing activities:
Purchase of fixed maturity investments (44,321,953 ) (12,032,000 )
Proceeds from maturity of fixed maturity investments 39,354,000 10,894,000
Proceeds from sale of fixed maturity investments 1,594,097 744,722
Net (increase) decrease in short-term investments (2,875,912 ) 7,466,195
Additions to property and equipment (221,281 ) (536,584 )
Net Cash (Used by) Provided by Investing Activities (6,471,049 ) 6,536,333

Cash flows from financing activities:
Repurchase of common stock —   (89,582 )
Net Cash Used by Financing Activities —   (89,582 )

Net (decrease) increase in cash and restricted cash (13,266,003 ) 6,330,391
Cash and restricted cash at beginning of period 13,496,379 8,258,673
Cash and Restricted Cash at End of Period $ 230,376 $ 14,589,064

Supplemental cash flow information
Cash paid during the period for:
Interest —   —
Income taxes $ 8,800 $ 8,774

	Three Months Ended
	March 31
	2019			2018
Cash flows from operating activities:
Net loss	$	(671,074	)	$	(2,207,251	)
Adjustments to reconcile net loss to net cash from operations:
Depreciation and amortization		135,027			140,202
Bond amortization, net		6,880			98,269
Bad debt expense		2,739			128
Net realized investment losses		8,149			—
Changes in assets and liabilities:
Net receivables and accrued investment income		(456,919	)		533,963
Reinsurance recoverable		(3,136,056	)		(3,589,663	)
Deferred policy acquisition costs		(81,052	)		224,155
Other assets		351,282			34,429
Unpaid losses and loss adjustment expenses		(324,284	)		4,837,012
Unearned premiums		561,777			(713,923	)
Advance premium and premium deposits		108,521			101,379
Accrued expenses and other liabilities		(78,202	)		(430,537	)
Income taxes current/deferred		(149,458	)		(607,446	)
Net Cash Used by Operating Activities		(3,722,670	)		(1,579,283	)

Cash flows from investing activities:
Purchase of fixed maturity investments		(3,573,566	)		(8,160,736	)
Proceeds from maturity of fixed maturity investments		1,779,271			4,837,436
Proceeds from sale or call of fixed maturity investments		482,696			—
Net decrease in short-term investments		3,994,162			1,647,778
Additions to property and equipment		(231,521	)		(37,739	)
Net Cash Provided (Used) by Investing Activities		2,451,042			(1,713,261	)

Cash flows from financing activities:
Net Cash Used by Financing Activities		—			—

Net decrease in cash and cash equivalents		(1,271,628	)		(3,292,544	)
Cash and cash equivalents at beginning of period		4,917,762			9,366,944
Cash and Cash Equivalents at End of Period	$	3,646,134		$	6,074,400

Supplemental cash flow information
Cash paid during the period for:
Interest		—			—
Income taxes	$	8,800			—

See notes to condensed consolidated financial statements (unaudited).

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UNICO AMERICAN CORPORATION

AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~SEPTEMBER 30, 2017~~MARCH 31, 2019

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Unico American Corporation is an insurance holding company that underwrites property and casualty insurance through its insurance company subsidiary; provides property, casualty, and health insurance through its agency subsidiaries; and provides insurance premium financing and membership association services through its other subsidiaries. Unico American Corporation is referred to herein as the "Company" or "Unico" and such references include both the corporation and its subsidiaries, all of which are wholly owned. Unico was incorporated under the laws of Nevada in 1969.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Unico American Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 8-03 of Regulation S-X for smaller reporting companies. Accordingly, the ~~condensed consolidated~~ financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2019. Quarterly financial statements should be read in conjunction with the consolidated financial statements and related notes in the Company’s 2018 Annual Report on Form 10-K ~~for the year ended December 31, 2016,~~ as filed with the Securities and Exchange Commission. Certain reclassifications have been made to prior period amounts to conform to ~~the~~ current ~~quarter’s~~quarter presentation.

Use of Estimates in the Preparation of the Financial Statements

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect its reported amounts of assets and liabilities and its disclosure of any contingent assets and liabilities at the date of its financial statements, as well as its reported amounts of revenues and expenses during the reporting period. The most significant assumptions in the preparation of these condensed consolidated financial statements relate to losses and loss adjustment expenses. While every effort is made to ensure the integrity of such estimates, actual results may differ.

Fair Value of Financial Instruments

The Company employs a fair value hierarchy that prioritizes the inputs for valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Financial assets and financial liabilities recorded on the Condensed Consolidated Balance Sheets at fair value are categorized based on the reliability of inputs for the valuation techniques. (See Note 8.7.)

The Company has used the following methods and assumptions in estimating its fair value ~~disclosures:~~disclosures for instruments carried at fair value:

~~Fixed maturities:~~Short-term investments and investment securities, excluding long-term certificates of deposit – Fair values are obtained from widely accepted third party vendors.

~~Investment securities, excluding long-term certificates of deposit – Fair values are obtained from a national quotation service.~~

~~Long-term certificates of deposit – The carrying amounts reported in the Condensed Consolidated Balance Sheets for these instruments approximate their fair values.~~

The Company has used the following methods and assumptions for estimating fair value for other financial instruments not carried at fair value:

Cash and ~~restricted~~ cash ~~and short-term investments –~~equivalents– The carrying amounts reported in the Condensed Consolidated Balance Sheets approximate their fair values given the short-term nature of these instruments.

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Long-term certificates of deposit – The carrying amounts reported in the Condensed Consolidated Balance Sheets for these instruments are at amortized cost which approximates their fair value

Receivables, net – The carrying amounts reported in the Condensed Consolidated Balance Sheets approximate their fair values given the short-term nature of these instruments.

Accrued expenses and other liabilities – The carrying amounts reported in the Condensed Consolidated Balance Sheets approximate the fair values given the short-term nature of these instruments.

Cash Equivalents

Cash equivalents are comprised of highly liquid investments with initial maturity of 90 days or less. Cash equivalents include, but not limited to, custodial trust, bank money market and savings accounts.

NOTE 2 – REPURCHASE OF COMMON STOCK – EFFECTS ON STOCKHOLDERS’ EQUITY

On December 19, 2008, the Board of Directors authorized a stock repurchase program to acquire from time to time up to an aggregate of 500,000 shares of the Company’s common stock. This program has no expiration date and may be terminated by the Board of Directors at any time. As of ~~September 30, 2017,~~March 31, 2019, and December 31, ~~2016,~~2018, the Company had remaining authority under the 2008 program to repurchase up to an aggregate of ~~188,655~~188,625 shares of its common stock. The 2008 program is the only program under which there is authority to repurchase shares of the Company’s common stock. The Company did not repurchase any stock during the three ~~or nine~~ months ended September 30, 2017. The Company repurchased 8,812 shares of stock during the nine months ended September 30, 2016, in unsolicited transactions at a cost of $89,582 of which $4,331 was allocated to capitalMarch 31, 2019 and ~~$85,251 was allocated to retained earnings; the Company did not repurchase any stock during the three months ended September 30, 2016.~~2018. The Company has retired ~~and intends to~~or will retire all ~~repurchased~~ stock ~~as applicable.~~repurchased.

NOTE 3 – LOSS PER SHARE

The following table represents the reconciliation of the Company's basic loss per share and diluted loss per share computations reported on the Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016:~~2018:

	Three Months Ended						Nine Months Ended
	September 30						September 30						Three Months Ended March 31
	2017			2016			2017			2016			2019			2018
Basic Loss Per Share
Net loss	$	(2,927,249	)	$	(1,953,497	)	$	(5,949,007	)	$	(2,001,454	)	$	(671,074	)	$	(2,207,251	)

Weighted average shares outstanding		5,307,133			5,307,133			5,307,133			5,307,881			5,307,103			5,307,133

Basic loss per share	$	(0.55	)	$	(0.37	)	$	(1.12	)	$	(0.38	)	$	(0.13	)	$	(0.42	)

Diluted Loss Per Share
Diluted Loss per Share
Net loss	$	(2,927,249	)	$	(1,953,497	)	$	(5,949,007	)	$	(2,001,454	)	$	(671,074	)	$	(2,207,251	)

Weighted average shares outstanding		5,307,133			5,307,133			5,307,133			5,307,881			5,307,103			5,307,133
Effect of dilutive securities		—			—			—			—
Diluted shares outstanding		5,307,133			5,307,133			5,307,133			5,307,881			5,307,103			5,307,133

Diluted loss per share	$	(0.55	)	$	(0.37	)	$	(1.12	)	$	(0.38	)	$	(0.13	)	$	(0.42	)

Basic earnings per share exclude the impact of common share equivalents and are based upon the weighted average common shares outstanding. Diluted earnings per share utilize the average market price per share when applying the treasury stock method in determining common share dilution. When outstanding stock options are dilutive, they are treated as common share equivalents for purposes of computing diluted earnings per share and represent the difference between basic and diluted weighted average shares outstanding. In loss periods, stock options are excluded from the calculation of diluted loss per share, as the inclusion of stock options would have an anti-dilutive effect. As of September 30, 2017 and 2016, the Company had 0 and 222 common share equivalents that were excluded in the three months diluted loss per share calculation, respectively, and 0 and 530 common share equivalents that were excluded in the nine months diluted loss per share calculation, respectively.

NOTE 4 – RECENTLY ISSUED ACCOUNTING STANDARDS

Recently adopted standards

In May ~~2017,~~2014, the ~~Financial Accounting Standards Board ("FASB")~~FASB issued ~~Accounting Standards Update ("ASU") 2017-09, "Compensation - Stock Compensation~~ASU 2014-09, “Revenue from Contracts with Customers (Topic ~~718), Scope~~606).” The core principal of ~~Modification Accounting."~~ ASU ~~2017-09 provides guidance about~~2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which ~~changes~~the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the transaction price for a contract is allocated among separately identifiable performance obligations and a portion of the transaction price is recognized as revenue when the associated performance obligation has been completed or transferred to the ~~terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.~~customer. The Company adopted ASU ~~2017-09 will be~~2014-09 effective ~~for the Company beginning~~ January 1, ~~2018, with early~~2018. The adoption ~~permitted. The Company does~~of ASU 2014-09 did not ~~anticipate that ASU 2017-09 will~~ have a material impact to the Consolidated Statement of Operations and the Consolidated Balance Sheet.

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In February 2016, the FASB issued ASU 2016-02 “Leases.” ASU 2016-02 requires lessees to recognize on ~~its consolidated financial statements~~the balance sheet the assets and ~~related disclosures.~~liabilities for the rights and obligations created by all leases, including those historically accounted for as operating leases. The Company adopted ASU 2016-02 effective January 1, 2019. The adoption of ASU 2016-02 did not have a material impact to the Consolidated Statement of Operations and the Consolidated Balance Sheet.

Standards not yet adopted

In June 2016, the FASB issued ASU 2016-13 “Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 replaces the current incurred loss methodology for recognizing credit losses with a current expected credit loss model, which requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 also requires enhanced disclosures for better understanding of significant estimates and judgments used in estimating credit losses. The Company is currently evaluating the effect ASU 2016-13 will have on the Company's consolidated financial statements, but expects the primary changes to be (i) the use of the expected credit loss model for its premium receivables and reinsurance recoverables and (ii) the presentation of credit losses within the available-for-sale fixed maturities portfolio through an allowance method rather than as a direct write-down. ASU 2016-13 will become effective for fiscal years beginning after December 31, ~~2019, but provides for an early adoption for fiscal years beginning after December 31, 2018. The Company has not determined when it will adopt ASU 2016-13.~~

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In February 2016, the FASB issued ASU 2016-02 “Leases.” This ASU requires lessees to recognize on the balance sheet the assets and liabilities for the rights and obligations created by all leases, including those historically accounted for as operating leases. The Company is currently evaluating the effect ASU 2016-02 will have on the Company's consolidated financial statements. The guidance is effective for interim and annual periods beginning after December 31, 2018, and will be applied under a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18 “Statement of Cash Flows: Restricted Cash.” This ASU requires that a statement of cash flows explains the change during the period of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The Company early adopted this ASU as of December 31, 2016, and this ASU was applied using a retrospective approach for each period presented. Upon adoption of this ASU, the Company's consolidated statements of cash flows included restricted cash in the beginning-of-period and end-of-period total amounts for cash and restricted cash. This ASU did not have a material impact on the Company’s consolidated financial statements, but this ASU required additional disclosures in “Note 10 – Cash and Restricted Cash” to these condensed consolidated financial statements.

In May 2015, the FASB issued ASU 2015-09 “Disclosures About Short-Duration Contracts.” The objective of this ASU is to increase transparency about significant estimates in unpaid losses and loss adjustment expenses and provide additional information about the amount, timing and uncertainty of cash flows related to unpaid losses and loss adjustment expenses. ASU 2015-09 also requires entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for loss and loss expense reserves, including reasons for the change and the effects on the financial statements. ASU 2015-09 also requires entities to disclose a roll forward of the liability of loss and loss expense reserves for annual and interim reporting periods. The effective date of ASU 2015-09 was for annual reporting periods beginning after December 15, 2015, and interim reporting periods beginning after December 15, 2016. The Company adopted this ASU as of December 31, 2016. This ASU did not have a material impact on the Company’s consolidated financial statements, but this ASU required additional disclosures in “Note 11 – Unpaid Losses and Loss Adjustment Expenses” to these condensed consolidated financial statements.2019.

NOTE 5 – ACCOUNTING FOR ~~INCOME~~ TAXES

The Company and its wholly owned subsidiaries file consolidated federal and state income tax returns. Pursuant to a tax allocation agreement, the Company’s subsidiaries, Crusader Insurance Company (“Crusader”) and American Acceptance Corporation (“AAC”), are allocated taxes or tax credits in the case of losses, at current corporate rates based on their own taxable income or loss. The Company files income tax returns under U.S. federal and various state jurisdictions. The Company is subject to examination by U.S. federal income tax authorities for tax returns filed starting at taxable year ~~2013~~2015 and California state income tax authorities for tax returns filed starting at taxable year ~~2012.~~2014. There are no ongoing examinations of income tax returns by federal or state tax authorities.

As of ~~September 30, 2017,~~March 31, 2019, and December 31, ~~2016,~~2018, the Company had no unrecognized tax benefits or ~~liabilities. In addition, the Company~~liabilities and, therefore, had not accrued interest and penalties related to unrecognized tax benefits or liabilities. However, if interest and penalties would need to be accrued related to unrecognized tax benefits or liabilities, such amounts would be recognized as a component of federal income tax expense.

As a California based insurance company, Crusader is obligated to pay a premium tax on gross premiums written in all states ~~in which~~that Crusader is admitted. Premium taxes are deferred and amortized as the related premiums are earned. The premium tax is in lieu of state franchise taxes and is not included in the provision for state taxes.

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NOTE 6 – PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

	September 30			December 31			March 31			December 31
	2017			2016			2019			2018

Building and leasehold improvements located in Calabasas, California	$	8,352,180		$	8,339,807		$	8,398,275		$	8,398,275
Furniture, fixtures and equipment		2,707,211			2,673,670
Furniture, fixtures, and equipment								2,064,737			2,063,549
Computer software		344,544			169,177			363,016			363,016
Accumulated depreciation and amortization		(3,073,857	)		(2,687,607	)		(3,186,532	)		(3,051,505	)
Computer software under development								361,838			131,505
Land located in Calabasas, California		1,787,485			1,787,485			1,787,485			1,787,485
Property and equipment, net	$	10,117,563		$	10,282,532		$	9,788,819		$	9,692,325

Depreciation on the Calabasas building, owned by Crusader, is computed using the straight line method over 39 years. Depreciation on furniture, fixtures, and equipment in the Calabasas building is computed using the straight line method over 3 to 15 years. Amortization of leasehold improvements in the Calabasas building is being computed using the shorter of the useful life of the leasehold improvements or the remaining years of the lease.

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Depreciation and amortization expense on all property and equipment for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019 and 2018 was ~~$121,540~~$135,027 and ~~$386,250, respectively, and for the three and nine months ended September 30, 2016, was $121,577 and $361,490,~~$140,202, respectively.

For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019 and 2018, the Calabasas building has generated rental revenue from non-affiliated tenants in the amount of ~~$83,257~~$42,230 and ~~$198,902,~~$85,906, respectively, ~~and for the three and nine months ended September 30, 2016, rental revenue from non-affiliated tenants in the amount of $55,099 and $171,133, respectively. This rental revenue~~which is included in “Other income” from insurance company operation in the Company’s Condensed Consolidated Statements of Operations.

~~The~~For the three months ended March 31, 2019 and 2018, the Calabasas building ~~has~~ incurred operating expenses (including depreciation) in the amount of ~~$201,701~~$156,789 and ~~$549,295 for the three and nine months ended September 30, 2017,~~$187,904, respectively, ~~and $207,401 and $543,638 for the three and nine months ended September 30, 2016, respectively. These operating expenses~~which are included in “Other operating expenses” in the Company’s Condensed Consolidated Statements of Operations.

The total square footage of the Calabasas building is 46,884, including common areas. As of ~~September 30, 2017, 14,481~~March 31, 2019, 5,092 square feet of the Calabasas building was leased to non-affiliated ~~entities. As of September 30, 2017, the Calabasas building~~entities and 9,389 square feet was ~~fully occupied.~~vacant and available to be leased to non-affiliated entities.

The Company capitalizes certain computer software costs purchased from outside vendors for internal ~~use.~~use or incurred internally to upgrade the existing systems. These costs also include configuration and customization activities, coding, testing and installation. Training costs and maintenance are expensed as incurred, while upgrade and enhancements are capitalized if it is probable that such expenditure will result in additional functionality. The capitalized costs are not depreciated until the software is placed into production. On January 1, 2017, the Company placed its new general ledger system into production. Accordingly, the capitalized costs associated with this system were moved from “Computer software under development” to “Computer software,” and the Company began depreciating these costs.

~~NOTE 7 – SEGMENT REPORTING~~

Accounting Standards Codification (“ASC”) Topic 280, “Segment Reporting,” establishes standards for the way information about operating segments is reported in financial statements. The Company has identified its insurance company operation as its primary reporting segment. Revenues from this segment comprised 92% of total revenues for each of the three and nine months ended September 30, 2017, and the three and nine months ended September 30, 2016. The Company’s remaining operations constitute a variety of specialty insurance services, each with unique characteristics and individually insignificant to total revenues.

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~~Revenues, loss before income taxes, and assets by segment are as follows:~~

Three Months Ended Nine Months Ended
September 30 September 30
2017 2016 2017 2016
Revenues
Insurance company operation $ 8,586,199 $ 8,281,572 $ 25,338,850 $ 24,130,282

Other insurance operations 3,346,184 3,367,469 10,311,036 10,108,721
Intersegment eliminations (1) (2,638,994 ) (2,650,699 ) (8,154,694 ) (7,988,351 )
Total other insurance operations 707,190 716,770 2,156,342 2,120,370

Total revenues $ 9,293,389 $ 8,998,342 $ 27,495,192 $ 26,250,652

Loss Before Income Taxes
Insurance company operation $ (3,917,854 ) $ (2,414,571 ) $ (7,328,672 ) $ (1,856,083 )
Other insurance operations (517,371 ) (552,151 ) (1,724,725 ) (1,172,071 )
Total loss before income taxes $ (4,435,225 ) $ (2,966,722 ) $ (9,053,397 ) $ (3,028,154 )

September 30 December 31
2017 2016
Assets
Insurance company operation $ 127,140,004 $ 124,325,620
Intersegment eliminations (2) (4,514,427 ) (1,579,820 )
Total insurance company operation 122,625,577 122,745,800
Other insurance operations 15,452,919 15,476,405
Total assets $ 138,078,496 $ 138,222,205

~~(1)~~

Intersegment revenue eliminations reflect rents paid by Unico to Crusader for space leased in the Calabasas building and commissions paid by Crusader to Unifax Insurance Systems, Inc. (“Unifax”), a wholly owned subsidiary of Unico.

~~(2)~~

~~Intersegment asset eliminations reflect the elimination of Crusader receivables from Unifax and Unifax payables to Crusader.~~

NOTE 87 – FAIR VALUE OF FINANCIAL INSTRUMENTS

In determining the fair value of its financial instruments, the Company employs a fair value hierarchy that prioritizes the inputs for the valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Financial assets and financial liabilities recorded on the Condensed Consolidated Balance Sheets at fair value are categorized based on the reliability of inputs for the valuation techniques as follows:

Level 1 – Financial assets and financial liabilities whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities as of the reporting date.

Level 2 – Financial assets and financial liabilities whose values are based on quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in non-active markets; or valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability as of the reporting date.

Level 3 – Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the financial assets and financial liabilities as of the reporting date.

The hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy ~~level~~ within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) or unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

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The following table presents information about the Company’s consolidated financial instruments and their estimated fair values, which are measured on a recurring basis, and are allocated among the three levels within the fair value hierarchy as of ~~September 30, 2017,~~March 31, 2019, and December 31, ~~2016:~~2018:

Level 1 Level 2 Level 3 Total
September 30, 2017
Financial instruments:
Fixed maturity securities:
U.S. treasury securities $ 9,519,063 $ —   $ —   $ 9,519,063
Corporate securities —   22,995,709 —   22,995,709
Agency mortgage-backed securities —   15,928,123 —   15,928,123
Certificates of deposit —   35,826,000 —   35,826,000
Total fixed maturity securities 9,519,063 74,749,832 —   84,268,895
Short-term investments 12,080,638 999,877 —   13,080,515
Total financial instruments at fair value $ 21,599,701 $ 75,749,709 $ —   $ 97,349,410

Level 1 Level 2 Level 3 Total
December 31, 2016
Financial instruments:
Fixed maturity securities:
U.S. treasury securities $ 19,103,925 $ —   $ —   $ 19,103,925
Certificates of deposit —   61,280,000 —   61,280,000
Total fixed maturity securities 19,103,925 61,280,000 —   80,383,925
Short-term investments 10,204,603 —   —   10,204,603
Total financial instruments at fair value $ 29,308,528 $ 61,280,000 $ —   $ 90,588,528

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	Level 1		Level 2		Level 3		Total
March 31, 2019
Financial instruments:
Available-for-sale fixed maturities:
U.S. treasury securities	$	16,722,377	$	—	$	—	$	16,722,377
Corporate securities		—		41,970,507		—		41,970,507
Agency mortgage backed securities		—		21,997,122		—		21,997,122
Short-term investments		696,792		—		—		696,792
Total financial instruments at fair value	$	17,419,169	$	63,967,629	$	—	$	81,386,798


December 31, 2018
Financial instruments:
Available-for-sale fixed maturities:
U.S. treasury securities	$	16,619,619	$	—	$	—	$	16,619,619
Corporate securities		—		40,003,723		—		40,003,723
Agency mortgage backed securities		—		20,286,795		—		20,286,795
Short-term investments		4,690,954		—		—		4,690,954
Total financial instruments at fair value	$	21,310,573	$	60,290,518	$	—	$	81,601,091

Fair value measurements are not adjusted for transaction costs. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer. The Company did not have any transfers between Levels 1, 2, and 3 of the fair value hierarchy during the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016.~~2018.

NOTE 98 – INVESTMENTS

A summary of investment income, net of investment expenses, ~~and net realized gains and losses~~ is as follows:

Three Months Ended
September 30 Nine Months Ended
September 30
2017 2016 2017 2016

Fixed maturities $ 323,023 $ 196,327 $ 746,787 $ 554,992
Short-term investments (13,335 ) 38,243 64,444 104,119
Gross investment income 309,688 234,570 811,231 659,111
Less investment expenses (196 ) — (25,446 ) —
Net investment income 309,492 234,570 785,785 659,111
Net realized gains (losses) 373 — 528 (1,278 )
Net investment income, realized gains and losses $ 309,865 $ 234,570 $ 786,313 $ 657,833

	Three Months Ended March 31
	2019			2018

Fixed maturities	$	543,695		$	462,167
Short-term investments and cash equivalents		26,561			7,947
Gross investment income		570,256			470,114
Less investment expenses		(37,619	)		(25,315	)
Net investment income	$	532,637		$	444,799

The amortized cost and estimated fair values of investments in fixed maturities by category are as follows:

Amortized
Cost

Gross
Unrealized
Gains

Gross
UnrealizedLosses

Estimated
Fair
Value
September 30, 2017
Available for sale:
Fixed maturities:
Certificates of deposit $ 35,826,000 $ — $ — $ 35,826,000
U.S. treasury securities 9,528,210 248 (9,395 ) 9,519,063
Corporate securities 22,983,627 49,063 (36,981 ) 22,995,709
Agency mortgage-backed securities 15,941,512 3,754 (17,143 ) 15,928,123
Total fixed maturities $ 84,279,349 $ 53,065 $ (63,519 ) $ 84,268,895

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
March 31, 2019
Available-for-sale fixed maturities:
U.S. treasury securities	$	16,760,924	$	35,356	$	(73,903	)	$	16,722,377
Corporate securities		41,893,331		265,109		(187,933	)		41,970,507
Agency mortgage-backed securities		22,192,903		49,701		(245,482	)		21,997,122
Held-to-maturity fixed securities:
Certificates of deposits		5,878,000		—		—			5,878,000
Total fixed maturities	$	86,725,158	$	350,166	$	(507,318	)	$	86,568,006

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Amortized
Cost

Gross
Unrealized
Gains

Gross
UnrealizedLosses

Estimated
Fair
Value
December 31, 2016
Available for sale:
Fixed maturities:
Certificates of deposit $ 61,280,000 $ — $ — $ 61,280,000
U.S. treasury securities 19,091,842 14,205 (2,122 ) 19,103,925
Total fixed maturities $ 80,371,842 $ 14,205 $ (2,122 ) $ 80,383,925

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2018
Available-for-sale fixed maturities:
U.S. treasury securities	$	16,746,832	$	16,069	$	(143,282	)	$	16,619,619
Corporate securities		40,804,425		50,422		(851,124	)		40,003,723
Agency mortgage-backed securities		20,751,331		7,757		(472,293	)		20,286,795
Held-to-maturity fixed securities:
Certificates of deposits		7,126,000		—		—			7,126,000
Total fixed maturities	$	85,428,588	$	74,248	$	(1,466,699	)	$	84,036,137

A summary of the unrealized gains (losses) on investments in fixed maturities carried at fair value and the applicable deferred federal income taxes isare shown below:

September 30 December 31
2017 2016

Gross unrealized gains of fixed maturities $ 53,065 $ 14,205
Gross unrealized (losses) of fixed maturities (63,519 ) (2,122 )
Net unrealized gains (losses) on investments (10,454 ) 12,083
Deferred federal tax (expense) benefit 3,554 (4,108 )
Net unrealized gains (losses), net of deferred income taxes $ (6,900 ) $ 7,975

	March 31			December 31
	2019			2018

Gross unrealized gains on fixed maturities	$	350,166		$	74,248
Gross unrealized losses on fixed maturities		(507,318	)		(1,466,699	)
Net unrealized losses on fixed maturities		(157,152	)		(1,392,451	)
Deferred federal tax benefit		33,001			292,415
Net unrealized losses, net of deferred income taxes	$	(124,151	)	$	(1,100,036	)

A summary of estimated fair value, ~~and~~ gross unrealized losses, and number of securities in a gross unrealized loss position by the length of time in which the securities have continually been in that position is shown below:

	Less than 12 Months					12 Months or Longer				Less than 12 Months						12 Months or Longer
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Number of Securities		Estimated Fair Value		Gross Unrealized Losses			Number of Securities
September 30, 2017:
March 31, 2019
U.S. treasury securities	$	9,519,063	$	(9,395	)	$	—	$	—	$	—	$	—		—	$	9,842,591	$	(73,903	)		7
Corporate securities		9,731,038		(36,981	)		—		—		—		—		—		25,079,280		(187,933	)		32
Agency mortgage-backed securities		12,973,738		(17,143	)		—		—		—		—		—		16,815,741		(245,482	)		15
Total	$	32,223,839	$	(63,519	)	$	—	$	—	$	—	$	—		—	$	51,737,612	$	(507,318	)		54

	Less than 12 Months				12 Months or Longer					Less than 12 Months							12 Months or Longer
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Number of Securities		Estimated Fair Value		Gross Unrealized Losses			Number of Securities
December 31, 2016:
December 31, 2018
U.S. treasury securities	$	—	$	—	$	9,097,285	$	(2,122	)	$	1,760,491	$	(20,181	)		2	$	8,496,069	$	(123,101	)		6
Corporate securities											10,878,381		(272,515	)		17		21,189,487		(578,609	)		27
Agency mortgage-backed securities											—		—			—		17,034,086		(472,293	)		15
Total	$	—	$	—	$	9,097,285	$	(2,122	)	$	12,638,872	$	(292,696	)		19	$	46,719,642	$	(1,174,003	)		48

The Company closely monitors its investments. If an unrealized loss is determined to be other-than-temporary, it is written off as a realized loss through the Condensed Consolidated Statements of Operations. The Company’s methodology of assessing other-than-temporary impairments is based on security-specific analysis as of the balance sheet date and considers various factors including the length of time to maturity and the extent to which the fair value has been less than the cost, the financial condition and the near-term prospects of the issuer, and whether the debtor is current on its contractually obligated interest and principal payments. The unrealized losses as of ~~September 30, 2017,~~March 31, 2019, and December 31, ~~2016,~~2018, were determined to be temporary.

Although the Company does not intend to sell its fixed maturity investments prior to maturity, the Company may sell investment securities from time to time in response to cash flow requirements, economic, regulatory, and/or market ~~conditions. During~~conditions or investment securities may be called by their issuers prior to the securities’ maturity. The Company sold one security prior to maturity during the three months ended ~~September 30, 2017, the~~March 31, 2019. This security had amortized cost of $498,994. The Company ~~sold two fixed maturity investments and~~ realized a net investment ~~gain~~loss of ~~$373~~$8,149 on this sale for the ~~sales. During the nine~~three months ended ~~September 30, 2017, the Company sold four fixed maturity investments and realized a net investment gain of $528 on the sales.~~March 31, 2019. The Company ~~sold three certificates~~had no sales or calls of ~~deposit during the nine months ended September 30, 2016, and realized an~~ investment ~~loss of $1,278 on the sales; the Company did not sell any~~ securities during the three months ended ~~September 30, 2016. Unrealized~~March 31, 2018. The unrealized gains or losses from fixed maturities are reported as “Accumulated other comprehensive income or loss,” which is a separate component of stockholders’ equity, net of any deferred tax effect.

1413 of 3228

The Company’s investment in certificates of deposit included ~~$35,426,000~~$5,478,000 and ~~$60,780,000~~$6,726,000 of brokered certificates of deposit as of ~~September 30, 2017,~~March 31, 2019, and December 31, ~~2016,~~2018, respectively. Brokered certificates of deposit provide the safety and security of a certificate of deposit combined with the convenience gained by one-stop shopping for rates at various institutions. This allows the Company to spread its investments across multiple institutions so that all of its certificate of deposit investments are insured by the Federal Deposit Insurance Corporation (“FDIC”). Brokered certificates of deposit are purchased through UnionBanc Investment Services, LLC, a registered broker-dealer, investment advisor, member of FINRA/SIPC, and a subsidiary of Union Bank, N.A. Brokered certificates of deposit are a direct obligation of the issuing depository institution, are bank products of the issuing depository institution, are held in the name of Union Bank as Custodian for the benefit of the Company, and are FDIC insured within permissible limits. All the Company’s brokered certificates of deposit are within the FDIC insured permissible limits.

The following securities from four different banks represent statutory deposits that are assigned to and held by the California State Treasurer and the Insurance Commissioner of the State of Nevada. These deposits are required for writing certain lines of business in California and for admission to transact insurance business in the state of ~~Nevada:~~Nevada.

	September 30		December 31		March 31		December 31
	2017		2016		2019		2018

Certificates of deposit	$	400,000	$	500,000	$	200,000	$	200,000
Short-term investments		200,000		100,000		200,000		200,000
Total state held deposits	$	600,000	$	600,000	$	400,000	$	400,000

All of the Company’s brokered and non-brokered certificates of deposit are within the FDIC insured permissible limits. Due to ~~the~~ nature of the Company’s business, certain bank accounts may exceed FDIC insured permissible limits.

Short-term investments have an initial maturity of one year or less and consist of the following:

September 30 December 31
2017 2016

U.S. treasury money market fund $ 6,673,261 $ 8,542,292
U.S. treasury bills 1,174,217 —
Short-term bonds 999,877 —
Certificates of deposit 200,000 1,098,000
Commercial paper
998,570 —
Bank money market accounts 3,032,827 562,548
Bank savings accounts 1,763 1,763
Total short-term investments $ 13,080,515 $ 10,204,603

~~NOTE 10 – CASH AND RESTRICTED CASH~~

The following table provides a reconciliation of cash and restricted cash reported within the Condensed Consolidated Balance Sheets to the amounts shown in the Condensed Consolidated Statements of Cash Flows:

September 30 December 31
2017 2016

Cash $ 230,376 $ 122,586
Restricted cash — 13,373,793
Cash and restricted cash $ 230,376 $ 13,496,379

~~The restricted cash was represented by two cash deposits placed by Crusader~~with the Los Angeles Superior Court in lieu of appeal bonds. In December 2015, a judgment was finalized on a Crusader policy liability claim. Crusader appealed the judgment. As a part of the appeal, Crusader deposited $7,924,178 in cash with the Los Angeles Superior Court on December 28, 2015, in lieu of an appeal bond. This cash deposit was required to appeal the judgment. In March 2016, an additional judgment for plaintiff’s attorney fees and costs on this Crusader policy liability claim was finalized. Crusader appealed this additional judgment. That additional appeal required an additional $5,449,615 cash deposit, which was made on March 21, 2016, in lieu of an appeal bond. In September 2017, the two judgments were settled between the parties thereto for a total of $7,000,000 which was paid from the two deposits, and the remaining funds on deposit with the Los Angeles Superior Court for the two appeals in the amount of $6,373,793 were returned to Crusader and were invested in fixed maturities and short-term investments.

~~15 of 32~~

	March 31		December 31
	2019		2018

U.S. treasury bills	$	496,792	$	4,490,954
Certificates of deposit		200,000		200,000
Total short-term investments	$	696,792	$	4,690,954

NOTE 119 – UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

The following table provides an analysis of Crusader’s loss and loss adjustment expense reserves, including a reconciliation of the beginning and ending balance sheet liability for the periods indicated:

	Nine Months Ended September 30				Three Months Ended March 31
	2017		2016		2019		2018

Reserve for unpaid losses and loss adjustment expenses at January 1 – gross of reinsurance	$	47,055,787	$	49,093,571	$	51,657,155	$	49,076,991
Less reinsurance recoverable on unpaid losses and loss adjustment expenses		9,520,970		9,636,961		9,531,602		8,393,550
Reserve for unpaid losses and loss adjustment expenses at January 1 – net of reinsurance		37,534,817		39,456,610		42,125,553		40,683,441

Incurred losses and loss adjustment expenses:
Provision for insured events of current year		18,046,953		17,119,210		4,550,888		6,009,138
Development of insured events of prior years		6,304,798		863,141		603,555		1,792,619
Total incurred losses and loss adjustment expenses		24,351,751		17,982,351		5,154,443		7,801,757

Loss and loss adjustment expense payments:
Attributable to insured events of the current year		4,375,729		4,783,251		1,158,426		1,388,589
Attributable to insured events of prior years		16,335,178		12,487,969		6,468,019		4,752,912
Total payments		20,710,907		17,271,220		7,626,445		6,141,501

Reserve for unpaid losses and loss adjustment expenses at September 30 – net of reinsurance		41,175,661		40,167,741
Reserve for unpaid losses and loss adjustment expenses at March 31 – net of reinsurance						39,653,551		42,343,697
Reinsurance recoverable on unpaid losses and loss adjustment expenses		11,890,854		9,653,714		11,679,320		11,570,306
Reserve for unpaid losses and loss adjustment expenses at September 30 – gross of reinsurance	$	53,066,515	$	49,821,455
Reserve for unpaid losses and loss adjustment expenses at March 31 – gross of reinsurance					$	51,332,871	$	53,914,003

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Some lines of insurance are commonly referred to as "long-tail" lines because of the extended time required before claims are ultimately settled. Lines of insurance in which claims are settled relatively quickly are called "short-tail" lines. It is generally more difficult to estimate loss reserves for long-tail lines because of the long period of time that elapses between the occurrence of a claim and its final disposition and the difficulty of estimating the settlement value of the claim. Crusader’s short-tail lines consist of its property coverages, and its long-tail lines consist of its liability coverages. However, Crusader’s long-tail liability claims tend to be settled relatively quicker than other long-tail lines not underwritten by Crusader, such as workers’ compensation, professional liability, umbrella liability, and medical malpractice. Since trends develop over longer periods of time on long-tail lines of business, the Company generally gives credibility to those trends more slowly than for short-tail or less volatile lines of business.

The $927,743 increase in the provision for insured events of current year for the nine months ended September 30, 2017, compared to the provision for insured events of current year for the nine months ended September 30, 2016, was due primarily to an aberrational increase in the frequency and severity of accident year 2017 short-tail property claims during the three months ended March 31, 2017.

The $5,441,657 increase in the development of insured events of prior years for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, was primarily due to higher than expected severity of long-tail assault and battery liability claims in accident years 2011, 2014, and 2016 associated with Crusader’s Food, Beverage and Entertainment program. The Company believes the increase in the severity for these claims as compared to prior periods is due to relatively recent social, legal, and economic changes. The development on the accident year 2011 was due primarily to $1,497,499 in additional losses and loss adjustment expenses incurred due to the September 2017 $7,000,000 settlement (see Note 12). The developments on the accident years 2014 and 2016 were due primarily to the unexpected increase in the severity of existing assault and battery claims. As a result of the foregoing losses and loss adjustment expenses and the observed trend of increasing severity of assault and battery claims, the Company decided to significantly curtail or entirely exclude coverage for risks of assault and battery covered through the Food, Beverage and Entertainment program.

~~16 of 32~~

NOTE 1210 – CONTINGENCIES

The Company, by virtue of the nature of the business conducted by it, becomes involved in numerous legal proceedings as either plaintiff or defendant. From time to time, the Company is required toresort to legal proceedings against vendors providing services to the Company or againstcustomers or their agentsto enforce collection of premiums, commissions, or fees. These routine items of litigation do not materially affect the Company and are handled on a routine basis by the Company through its counsel.

The Company establishes reserves for lawsuits, regulatory actions, and other contingencies for which the Company is able to estimate its potential exposure and believes a loss is probable. For loss contingencies believed to be reasonably possible, the Company discloses the nature of the loss contingency, an estimate of the possible loss, a range of loss, or a statement that such an estimate cannot be made.

Likewise, the Company is sometimes named as a cross-defendant in litigation, which is principally directed against an insured who was issued a policy of insurance directly or indirectly through the Company. Incidental actions related to disputes concerning the issuance or non-issuance of individual policies are sometimes brought by customers or others. These items are also handled on a routine basis by counsel, and they do not generally affect the operations of the Company. Management is confident that the ultimate outcome of pending litigation should not have an adverse effect on the Company's consolidated results of operations or financial position. The Company vigorously defends itself unless a reasonable settlement appears appropriate.

In December 2015, a judgment was finalized on a Crusader policy liability claim. Crusader appealed the judgment. As a part of the appeal, Crusader deposited $7,924,178 in cash in lieu of an appeal bond with the Los Angeles Superior Court on December 28, 2015. This cash deposit was required to appeal the judgment. In March 2016, an additional judgment for plaintiff’s attorney fees and costs on this Crusader policy liability claim was finalized. Crusader appealed this additional judgment. That additional appeal required an additional cash deposit in lieu of an appeal bond of $5,449,615. The additional cash deposit was made on March 21, 2016. In September 2017, the two judgments were settled between the parties thereto for a total of $7,000,000 which was paid from the two deposits, and the remaining funds on deposit with the Los Angeles Superior Court for the two appeals were returned to Crusader.

One of the Company’s agents, which the Company appointed in 2008 to assist in expanding its Transportation program, failed to pay the net premium and policy fees due to Unifax, the exclusive general agent for Crusader. The agent was initially late in paying its February 2009 production that was due to Unifax on April 15, 2009. In May 2009, as a result of the agent’s failure to timely pay its balance due to Unifax, the Company terminated its agency agreement and assumed ownership and control of that agent’s policy expirations written with the Company. The Company subsequently commenced legal proceedings against the agent corporation, its three principals (who personally guaranteed the agent’s obligations) and another individual for the recovery of the balance due and any related recovery costs incurred. All related recovery costs have been expensed as incurred. The agent corporation and two of its principals filed bankruptcy. The corporation was adjudicated bankrupt. The Company obtained judgments, non-dischargeable in bankruptcy, for the full amount due from the two principals who filed bankruptcy. The other principal stipulated to a judgment of $1,200,000. The claim against the fourth individual was resolved. The Company collected $0 during the three and nine months ended September 30, 2017 and 2016. As of September 30, 2017, and December 31, 2016, the agent’s balance due to Unifax was $1,181,272. As of September 30, 2017, and December 31, 2016, the Company’s bad debt reserve associated with this matter was $1,181,272 which represents 100% of the balance due to Unifax. Although the receivable is fully reserved for financial reporting purposes at September 30, 2017, the Company continues to pursue collection of the judgments from the three principals.

NOTE 1311 – SUBSEQUENT EVENTS

In October 2017, a number of wildfires burned through several Northern California counties. The Company has received three claims related to these fires and began adjusting them. As of the date of this report, the Company believes these three claims will not materially and adversely impact the~~Company's consolidated financial statements. Due to the recent nature and scale of these events, however, it is difficult to estimate ultimate losses related to the wildfires and their potential impact on the Company’sconsolidated financial statements and related disclosures~~.

On ~~October 24, 2017,~~May 13, 2019, Crusader issued a cash dividend of ~~$3,000,000~~$2,000,000 to Unico, its parent and sole shareholder. This dividend was used primarily for general corporate purposes. Based on Crusader’s statutory surplus for the year ended December 31, ~~2016,~~2018, the maximum dividend that could be made by Crusader to Unico without prior regulatory approval in ~~2017~~2019 is ~~$5,912,044.~~$5,014,826.

~~17 of 32~~

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

OVERVIEW

General

Unico American Corporation, referred to herein as the "Company” or “Unico," is an insurance holding ~~company that~~company. Currently, the Company’s subsidiary Crusader Insurance Company (“Crusader”) underwrites commercial property and casualty insurance, ~~through its insurance company subsidiary; provides~~the Company’s subsidiaries Unifax Insurance Systems, Inc. (“Unifax”) and American Insurance Brokers, Inc. (“AIB”) provide marketing and various underwriting support services related to property, casualty, health and life insurance, ~~through its agency subsidiaries;~~the Company’s subsidiary American Acceptance Company (“AAC”) provides insurance premium ~~financing;~~financing, and the Company’s subsidiary Insurance Club, Inc., dba AAQHC (“AAQHC”), an Administrator provides membership association services.

Total revenues for the three months ended ~~September 30, 2017, were $9,293,389~~March 31, 2019, was $7,135,474 compared to ~~$8,998,342~~$8,806,891 for the three months ended ~~September 30, 2016, an increase~~March 31, 2018, a decrease of ~~$295,047 (3%). Total revenues for the nine months ended September 30, 2017, were $27,495,192 compared to $26,250,652 for the nine months ended September 30, 2016, an increase of $1,244,540 (5%~~$1,671,417 (19%). The Company had a net loss of ~~$2,927,249~~$671,074 for the three months ended ~~September 30, 2017,~~March 31, 2019, compared to a net loss of ~~$1,953,497~~$2,207,251 for the three months ended ~~September 30, 2016, an increase of $973,752 (50%). The Company had~~March 31, 2018, a decrease in net loss of ~~$5,949,007 for the nine months ended September 30, 2017, compared to a net loss of $2,001,454 for the nine months ended September 30, 2016, an increase of $3,947,553 (197%).~~

In December 2015, a judgment was finalized on a Crusader Insurance Company (“Crusader”, a wholly owned subsidiary of the Company) policy liability claim. In March 2016, an additional judgment for plaintiff’s attorney fees and costs on this Crusader policy liability claim was finalized. In September 2017, the two judgments were settled between the parties thereto for a total of $7,000,000.As a result of this settlement, the Company incurred $1,422,499 and $1,497,499 in additional losses and loss adjustment expenses during the three and nine months ended September 30, 2017, respectively.$1,536,177.

This overview discusses some of the relevant ~~material~~ factors that management considers in evaluating the Company's performance, prospects, and risks. ~~This discussion should~~It is not all inclusive and is meant to be read in conjunction with the ~~Company’s Annual Report on Form 10-K for~~entirety of the ~~year ended December 31, 2016, including management’s~~management discussion and analysis, ~~of financial condition and results of operations and~~ the Company's consolidated financial statements and notes thereto, and all other items contained within the Company’s 2018 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

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The Company’s financial performance has suffered in recent years, and the Company has reported net losses for each fiscal year beginning with the year ended December 31, 2015. While losses in recent years have been driven primarily by losses from Crusader’s policies and its high loss ratios, management believes that other contributing factors include (1) flat or declining revenues due to intense competition, (2) the somewhat-fixed nature of many of the Company’s expenses relative to flat or declining revenues, (3) the failure to have replaced or upgraded the Company’s legacy IT system in order to process Crusader’s smaller premium accounts more efficiently, and (4) the failure to have shifted focus to larger premium accounts and fee-for-service operations.

In 2018, the Company determined that the cost to replace its legacy IT system would be between $4 million and $8 million, and the installation of such a system would take between two to four years; so, recognizing that any corresponding benefit from such an investment would be significantly speculative and not accretive to earnings in the short term, the Company opted for a much less expensive upgrade to its legacy system, an upgrade that offers more certain and immediate benefits. That system upgrade is expected to be completed by the end of 2019. While working to bring Crusader’s loss ratios back into line with historical expectations, and to improve its sales in the markets that it historically serves, the Company’s other subsidiaries are working to generate new sources of revenue on a fee-for-service basis. For example, the Unifax operations are preparing to transact admitted and non-admitted business with non-affiliated insurers; and the Company is working to re-activate its US Risk Managers, Inc. subsidiary so it can provide claims adjustment services to non-affiliated insurers and self-insurers. The Company cannot predict the outcome of such endeavors but believes them to have a reasonable likelihood of long-term success.

Revenue and Income Generation

The Company receives its revenues primarily from earned premium derived from the insurance company ~~operation,~~operations, commission and fee income generated from the insurance agency ~~operation,~~operations, finance charges and fee income from the premium finance ~~operation,~~operations, and investment income from cash generated primarily from the insurance company operation. The insurance company operation generated approximately ~~92%~~91% and 93% of ~~total~~consolidated revenues for ~~each of~~ the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019 and ~~the three and nine months ended September 30, 2016.~~2018, respectively. The Company’s remaining operations constitute a variety of specialty insurance services, each with unique characteristics and individually not material to ~~total~~consolidated revenues.

Insurance Company Operation

As of ~~September 30, 2017,~~March 31, 2019, Crusader was licensed as an admitted insurance carrier in the states of Arizona, California, Nevada, Oregon, and Washington. From 2004 until September 2014, all of Crusader’s business was written in the state of California. Crusader ~~began writing~~ business remains concentrated in California (99.8% and 99.7% of direct written premium (before reinsurance ceded) during the ~~states of Arizona~~three months ended March 31, 2019 and ~~Washington in September 2014 and May 2017, respectively.~~

In October 2016, A.M. Best Company reaffirmed Crusader’s financial strength rating of A- (Excellent) and a rating outlook of “stable.” In addition, in October 2016, A.M. Best Company assigned Crusader an Issuer Credit Rating of a- (Excellent)2018, respectively).

The property and casualty insurance business is cyclical in nature. The conditions of a soft market include premium rates that are stable or falling and insurance is readily available. Contrarily, “hard market” conditions occur during periods in which premium rates rise and coverage may be more difficult to find. The Company believes that the California property and casualty insurance market is intensely competitive but relatively stable.

~~18 of 32~~

Crusader’s total direct written premium (direct written premium before premium ceded to reinsurers), as reported on Crusader’s statutory financial statements, was produced geographically as follows:

	Three Months Ended September 30							Nine Months Ended September 30							Three Months Ended March 31
	2017		2016		(Decrease)			2017		2016		Increase (Decrease)			2019			2018		Decrease

California	$	9,428,307	$	9,639,380	$	(211,073	)	$	29,273,828	$	28,972,217	$	301,611		$	8,515,555		$	8,626,671	$	(111,116	)
Arizona		17,898		27,666		(9,768	)		107,716		148,195		(40,479	)		14,775			29,472		(14,697	)
Washington		—		—		—			6,444		—		6,444			(1,149	)		—		(1,149	)
Total direct written premium	$	9,446,205	$	9,667,046	$	(220,841	)	$	29,387,988	$	29,120,412	$	267,576		$	8,529,181		$	8,656,143	$	(126,962	)

Crusader believes that it can grow its sales and profitability through improved specialization and sales incentives. Crusader currently focuses in four underwriting verticals: (1) Transportation, (2) Food, Beverage & Entertainment, (3) Garage & Mercantile, and (4) Apartments & Commercial Buildings. Crusader also is evaluating the possibility of expanding its operations geographically, on an admitted or non-admitted basis, so as to offer similar products in other states, but the timing of any such expansion is not yet determined.

Written premium is a financial measure that is defined, under the statutory accounting practices prescribed or permitted by the California Department of Insurance, as the contractually determined amount charged by the insurance company to the policyholder for the effective period of the contract based on the expectation of risk, policy benefits, and expenses associated with the coverage provided by the terms of the policies. Written premium is a required statutory measure. Written premium is defined under GAAP in Accounting Standards Codification Topic 405, “Liabilities,” as “premiums on all policies an entity has issued in a period.” Earned premium represents the portion of written premium that is recognized as income in the financial statements for the period presented and earned on a pro-rata basis over the terms of the policies.

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The following is a reconciliation of net written premium ~~(direct written~~to net earned premium ~~after~~(after premium ceded to reinsurers) ~~to net earned premium:~~:

	Three Months Ended September 30					Nine Months Ended September 30						Three Months Ended March 31
	2017		2016			2017			2016			2019			2018

Net written premium	$	7,754,793	$	8,120,565		$	24,380,186		$	24,580,923		$	6,845,491		$	6,904,312
Change in direct unearned premium		404,454		(137,144	)		(97,396	)		(1,322,897	)		(561,777	)		713,923
Change in ceded unearned premium		9,005		(2,491	)		26,311			13,270			(19,564	)		63,393
Net earned premium	$	8,168,252	$	7,980,930		$	24,309,101		$	23,271,296		$	6,264,150		$	7,681,628

The insurance company operation underwriting profitability is defined by pre-tax underwriting ~~profit,~~gain, which is calculated as net earned premium less losses and loss adjustment expenses and policy acquisition costs.

Crusader’s underwriting ~~profit~~gain (loss) before income taxes is as follows:

																			Three Months Ended March 31
	Three Months Ended September 30									Nine Months Ended September 30															Increase
	2017			2016			Increase (Decrease)			2017			2016			Increase (Decrease)			2019			2018			(Decrease)

Net written premium	$	7,754,793		$	8,120,565		$	(365,772	)	$	24,380,186		$	24,580,923		$	(200,737	)	$	6,845,491		$	6,904,312		$	(58,821	)
Change in net unearned premium		413,459			(139,635	)		553,094			(71,085	)		(1,309,627	)		1,238,542			(581,341	)		777,316			(1,358,657	)
Net earned premium		8,168,252			7,980,930			187,322			24,309,101			23,271,296			1,037,805			6,264,150			7,681,628			(1,417,478	)
Less:
Losses and loss adjustment expenses		9,917,896			8,038,100			1,879,796			24,351,751			17,982,351			6,369,400			5,154,443			7,801,757			(2,647,314	)
Policy acquisition costs		1,854,212			1,741,499			112,713			4,943,350			5,142,250			(198,900	)		1,086,713			1,621,505			(534,792	)
Total underwriting expenses		11,772,108			9,779,599			1,992,509			29,295,101			23,124,601			6,170,500			6,241,156			9,423,262			(3,182,106	)
Underwriting profit (loss) (before income taxes)	$	(3,603,856	)	$	(1,798,669	)	$	(1,805,187	)	$	(4,986,000	)	$	146,695		$	(5,132,695	)
Underwriting gain (loss) before income taxes																			$	22,994		$	(1,741,634	)	$	(1,764,628	)

Underwriting gain or loss before income taxes is a non-GAAP financial measure. Underwriting gain or loss before income taxes represents one measure of the pretax profitability of the insurance company operation and is derived by subtracting losses and loss adjustment expenses, and policy acquisition costs from net earned premium, which are all GAAP financial measures. Management believes disclosure of underwriting income or loss before income taxes is useful supplemental information that helps align the reader’s understanding with management’s view of insurance company operations profitability. Each of these captions is presented in the Condensed Consolidated Statements of Operations but is not subtotaled.

~~Crusader~~

The following is a reconciliation of Crusader’s underwriting gain (loss) before income taxes to the Company’s loss before taxes:

	Three Months Ended March 31
	2019			2018

Underwriting gain (loss) before income taxes	$	22,994		$	(1,741,634	)
Insurance company operation revenues:
Investment income		532,630			444,702
Net realized investment losses		(8,149	)		—
Other income (loss)		(260,700	)		55,689
Other insurance operations revenues:
Gross commissions and fees		547,445			606,657
Investment income		7			97
Finance charges and fees earned		49,373			18,097
Other income		10,718			21
Less expenses:
Salaries and employee benefits		1,027,849			1,288,078
Commissions to agents/brokers		50,121			41,339
Other operating expenses		628,080			866,143
Loss before taxes	$	(811,732	)	$	(2,811,931	)

The Company evaluates its unearned premiums periodically for premium deficiencies by comparing the sum of expected claim costs, unamortized deferred policy acquisition costs, and maintenance costs partially offset by net investment income to related unearned premiums. To the extent that any of ~~Crusader’s~~the Company’s programs become unprofitable, a premium deficiency reserve may be required. ~~During the three months ended September 30, 2017, Crusader established a $150,000 premium deficiency reserve; Crusader~~The Company did not carry ~~such~~a premium deficiency reserve ~~prior to the three months ended September 30, 2017.~~as of March 31, 2019 and 2018.

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The following table provides an analysis of ~~the~~ losses and loss adjustment expenses:

Three Months Ended
September 30 Nine Months Ended
September 30
2017 2016 Increase
(Decrease) 2017 2016 Increase
Losses and loss adjustment expenses:
Provision for insured events of current year $ 5,982,245 $ 6,792,115 $ (809,870 ) $ 18,046,953 $ 17,119,210 $ 927,743
Development of insured events of prior years 3,935,651 1,245,985 2,689,666 6,304,798 863,141 5,441,657
Total losses and loss adjustment expenses $ 9,917,896 $ 8,038,100 $ 1,879,796 $ 24,351,751 $ 17,982,351 $ 6,369,400

	Three Months Ended March 31
	2019		2018		Decrease

Losses and loss adjustment expenses:
Provision for insured events of current year	$	4,550,888	$	6,009,138	$	(1,458,250	)
Development of insured events of prior years		603,555		1,792,619		(1,189,064	)
Total losses and loss adjustment expenses	$	5,154,443	$	7,801,757	$	(2,647,314	)

Losses and loss adjustment expenses were ~~121% and 100%~~82% of net earned premium for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~101% and 77%~~102% of net earned premium for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018. For further analysis, refer to “Results of Operations.”

On January 17, 2019, the A.M. Best Company downgraded Crusader’s Financial Strength Rating to “B++” (Good) from “A-” (Excellent) and the Long-Term Issuer Credit Rating to “bbb+” from “a-”. The outlook of the Financial Strength Rating has been revised to stable from negative while the outlook of the Long-Term Issuer Credit Rating remains negative. The rating downgrades reflect a revision in A.M. Best’s assessment of the company’s operating performance to adequate from strong. Some of Crusader’s policyholders, or the lenders, landlords or clients of Crusader’s policyholders, require insurance from a company that has an A.M. Best Company rating of “A-” or higher; also, the A.M. Best Company’s changed rating of Crusader may have a negative impact on Crusader’s reputation; therefore, Crusader’s changed rating may have a negative impact on some of the Company’s revenue. The Company cannot quantify the impact that the rating change will have on its revenue, and the Company cannot determine when Crusader might regain the “A-” rating from the A.M. Best Company. The Company does not expect Crusader to regain the A.M. Best Company “A-” rating prior to January of 2021.

The property and casualty insurance business is cyclical in nature. The conditions of a “soft market” include premium rates that are stable or falling and insurance is readily available. Contrarily, “hard market” conditions occur during periods in which premium rates rise and coverage may be more difficult to find. The Company believes that the California property and casualty insurance market is relatively mature and intensely competitive, with different products in different stages of the soft/hard market cycle at any given time.

Revenues from Other Insurance Operations

The Company’s revenues from other insurance operations consist of commissions, fees, investment and other income. Excluding investment and other income, these operations accounted for approximately 8%7% and 9% of total revenues in ~~each of~~ the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019 and ~~the three and nine months ended September 30, 2016.~~2018, respectively.

Investments ~~and Liquidity~~

The Company generated revenues from its total invested assets of ~~$97,359,864~~$87,431,950 (at amortized cost) and ~~$90,782,232~~$89,676,151 (at amortized cost) as of ~~September 30, 2017~~March 31, 2019 and 2016, respectively, and from two cash deposits placed with the Los Angeles Superior Court by Crusader in lieu of appeal bonds. These two deposits, totaling $13,373,793, were made on December 28, 2015, for $7,924,178, and on March 21, 2016, for $5,449,615, and their respective balances were included in “Cash and restricted cash” on the Condensed Consolidated Balance Sheets and were not a part of the total invested assets as of December 31, 2016. In September 2017, two judgments associated with the two deposits in lieu of appeal bonds were settled for a total of $7,000,000 which was paid from the two deposits, and the remaining funds on deposit with the Los Angeles Superior Court were returned to Crusader.2018, respectively.

Net investment income (net of investment expenses) included in insurance company operation and other insurance operations revenue increased ~~$74,922 (32%) and $126,674 (19%~~$87,838 (20%) to ~~$309,492 and $785,785~~$532,637 for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~$234,570 and $659,111~~$444,799 for the three ~~and nine~~ months ended ~~September 30, 2016, respectively. The~~March 31, 2018.This increase in net investment income was due primarily ~~a result of~~to an increase in the ~~Company’s annualized~~ yield on average invested assets to 1.2% and 1.1% for the three and nine months ended September 30, 2017, respectively, from 1.0% and 0.9% for the three and nine months ended September 30, 2016, respectively (as defined in “Results of Operations”).assets.

The increase in the annualized yield on average invested assets is primarily a result of a decrease in lower yielding short-term investments and an increase in higher yielding fixed maturity investments as a result of investment into new classes of fixed maturity securities. Due to the current interest rate environment, athe current target effective duration for the Company’s investment portfolio is between 3.25 and 4.75 years. As of ~~September 30, 2017,~~March 31, 2019, all of the Company’s investments are in U.S. treasury securities, corporate fixed maturity securities, agency mortgage-backed securities, Federal Deposit Insurance Corporation (“FDIC”) insured certificates of deposit, money market funds, and a savings account. The Company’s investments in U.S treasury securities, corporate fixed maturity securities, agency mortgage-backed securities, and money market funds are readily marketable. As of ~~September 30, 2017,~~March 31, 2019, the weighted average maturity of the Company’s investments was approximately ~~2.7~~6.7 years, and the effective duration for available-for-sale investments (investments managed under the investment guidelines) was 3.18 years.

~~Liquidity and Capital Resources~~LIQUIDITY AND CAPITAL RESOURCES

Crusader has a significant amount of cash as a result of its holdings of unearned premium reserves, its reserves for loss and loss adjustment expense payments, ~~restricted cash,~~ and its capital and surplus. Crusader's loss and loss adjustment expense payments are the most significant cash flow requirement of the Company. These payments are continually monitored and projected to ensure that the Company has the liquidity to cover these payments without the need to liquidate its investments. Cash, ~~restricted~~ cash equivalents, and investments (at amortized cost) of the Company at ~~September 30, 2017,~~March 31, 2019, were ~~$97,590,240~~$91,068,084 compared to ~~$104,072,824~~$95,037,304 at December 31, ~~2016.~~2018. The decrease in cash, cash equivalents, and investments (at amortized cost) from December 31, 2018, to March 31, 2019, was due primarily to timing of loss and loss adjustment expense payments. Crusader's cash, ~~restricted~~ cash equivalents, and investments were ~~94%~~99% and 98% of the total cash and investments (at amortized cost) held by the Company as of ~~September 30, 2017,~~March 31, 2019, and December 31, ~~2016.~~2018, respectively.

2018 of 3228

As of March 31, 2019 all of the Company’s investments are in U.S. treasury securities, FDIC insured certificates of deposit, corporate fixed maturity securities, agency mortgage-backed securities, and short-term investments. All of the Company’s investments, except for the certificates of deposit, are readily marketable. The Company’s investments, at amortized cost, were as follows:

September 30 December 31
2017 2016
Fixed maturities:
Certificates of deposit $ 35,826,000 $ 61,280,000
U.S. treasury securities 9,528,210 19,091,842
Corporate securities 22,983,627 —
Agency mortgage-backed securities 15,941,512 —
Total fixed maturities 84,279,349 80,371,842
Short-term investments 13,080,515 10,204,603
Total investments $ 97,359,864 $ 90,576,445

~~The increase in total investments from December 31, 2016, to September 30, 2017, is due to receipt of funds previously held on deposit with the Los Angeles Superior Court.~~

	March 31		December 31
	2019		2018

Fixed maturities:
Certificates of deposit	$	5,878,000	$	7,126,000
U.S. treasury securities		16,760,924		16,746,832
Corporate securities		41,893,331		40,804,425
Agency mortgage-backed securities		22,192,903		20,751,331
Total fixed maturities		86,725,158		85,428,588
Short-term investments		696,792		4,690,954
Total investments	$	87,421,950	$	90,119,542

The short-term investments include U.S. treasury bills ~~a U.S. treasury money market fund, short-term bonds,~~and certificates of deposit ~~bank money market accounts, and a bank savings account~~ that are all highly rated and ~~redeemable within one year.~~have initial maturity between three and twelve months. Amortized costs of the short-term investments approximate their fair values.

The Company is required to classify its investmentsecurities into one of three categories: held-to-maturity, available-for-sale, or trading securities.Although ~~all~~part of the Company's ~~investment~~investments in fixed maturity securities ~~are~~is classified as available-for-sale and, whilethe Company may sell investment securities from time to time in response to economic, regulatory, and market conditions, its investment guidelines place primary emphasis on buying and holding high-quality investments to maturity.

For a period beginning prior to fiscal 2015 and ending on March 24, 2017, the Company’s investment guidelines on equity securities limited investments in equity securities to an aggregate maximum of $2,000,000. The Company’s investment guidelines on fixed maturities limited those investments to high-grade obligations with a maximum term of eight years. The maximum investment authorized in any one issuer was $2,000,000. This dollar limitation excluded bond premiums paid in excess of par value and U.S. government or U.S. government guaranteed issues. When the Company invested in fixed maturity municipal securities, preference was given to issues that are pre-refunded and secured by U.S. treasury securities. The short-term investments were either U.S. government obligations, FDIC insured, or are in an institution with a Moody's rating of at least P2 and/or a Standard & Poor's rating of A1. All of the Company's fixed maturity investment securities were rated, readily marketable, and could be liquidated without any materially adverse financial impact.

~~On March 24, 2017, the~~ Company’s Board of Directors approved ~~new~~ investment ~~guidelines. Those~~ guidelines are similar to what the Company believes are general investment guidelines used by Crusader’s peers.

Under the ~~new~~Company’s investment guidelines, investments may only include U.S. treasury notes, U.S. government agency notes, mortgage-backed securities (including pass through securities and collateralized mortgage obligations) that are backed by agency and non-agency collateral, commercial mortgage-backed securities, U.S. corporate obligations, asset backed securities, (including but not limited to credit card, automobile and home equity backed securities), tax-exempt bonds, preferred stocks, common stocks, commercial paper, repurchase agreements (treasuries only), mutual funds, exchange traded funds, bank certificates of deposits and time deposits. The ~~new~~ investment guidelines provide for certain investment limitations in each investment category.

Unless agreed to in advance in writing by Crusader, investments in the following types of securities are prohibited:

	•		Mortgage loans, except for mortgage backed securities issued by an agency of the U.S. government.
	•		Derivative mortgage-backed securities including interest only, principal only and inverse floating rate securities.
	•		All fixed maturity real estate securities, except mortgage-backed securities (including pass through securities and collateralized mortgage obligations) that are backed by agency and non-agency collateral and commercial mortgage-backed securities.
	•		Options and futures contracts.
	•		All non-U.S. dollar denominated securities.
	•		Any security that would not be in compliance with the regulations of Crusader’s state of domicile.

~~21 of 32~~

~~Historically, the Company managed Crusader’s investments in-house. Effective April 1, 2017, an~~An outside investment advisor ~~began managing~~manages Crusader’s investments. The advisor’s role currently is limited to maintaining Crusader’s portfolio within the new investment guidelines and providing investment accounting services to the Company. The investments ~~will~~ continue to be held by Crusader’s current custodian, Union Bank Global Custody Services.

19 of 28

The Company reported ~~$6,794,954~~$3,722,670 net cash used by operating activities for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, compared to ~~$117,638~~$1,579,283 net cash used by operating activities for the ~~nine~~three months ended ~~September 30, 2016. The change in cash flows from operating activities is primarily attributable to the increase in loss and loss adjustment expense payments. Other fluctuations~~March 31, 2018. Fluctuations in cash flows from operating activities relate to changes in loss and loss adjustment expense payments, unearned premium holdings, and the timing of the collection and the payment of insurance-related receivables and payables. The variability of the Company’s losses and loss adjustment expenses is primarily due to its small population of claims which may result in greater fluctuations in claim frequency and/or severity. Although the Condensed Consolidated Statements of Cash Flows reflect net cash used by operating activities, the Company does not anticipate future liquidity problems, and the Company believes ~~that~~ it continues to be well capitalized and adequately reserved.

While material capital expenditures may be funded through borrowings, the Company believes that its cash and short-term investments at ~~September 30, 2017,~~March 31, 2019,net ofstatutory deposits of ~~$600,000,~~$710,000, and California insurance company statutory dividend restrictions applicable to Crusader, plus the cash to be generated from operations, should be sufficient to meet its operating requirements during the next 12 months without the necessity of borrowing funds. ~~Trust restrictions on cash and short-term investments were $1,050,321 at September 30, 2017.~~

~~Results of Operations~~RESULTS OF OPERATIONS

All comparisons made in this discussion are comparing the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, to the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2018, unless otherwise indicated.

For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, total revenues were ~~$9,293,389 and $27,495,192, respectively, an increase~~$7,135,474, a decrease of ~~$295,047 (3%~~$1,671,417 (19%) ~~and $1,244,540 (5%),~~ compared to total revenues of ~~$8,998,342 and $26,250,652~~$8,806,891 for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018. For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, the Company had a loss before taxes of ~~$4,435,225 and $9,053,397, respectively, an increase~~$811,732 a decrease of ~~$1,468,503 (49%~~$2,000,199 (71%) ~~and $6,025,243 (199%),~~ compared to loss before taxes of ~~$2,966,722 and $3,028,154~~$2,811,931 for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018. For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, the Company had a net loss of ~~$2,927,249 and $5,949,007, respectively, an increase~~$671,074, a decrease of ~~$973,752 (50%~~$1,536,177 (70%) ~~and $3,947,553 (197%),~~ compared to net loss of ~~$1,953,497 and $2,001,454 for the three and nine months ended September 30, 2016, respectively.~~

~~The increase in revenues of $295,047 (3%)~~$2,207,251 for the three months ended ~~September 30, 2017,~~March 31, 2018.

The decrease in revenues of $1,671,417 for the three months ended March 31, 2019, when compared to March 31, 2018, was primarily due to a decrease in net earned premium of $1,417,478 (18%) and a $310,098 decrease in Crusader’s share of California FAIR Plan equity during the three months ended March 31, 2019, compared a $44,761 decrease during the three months ended March 31, 2018.

The decrease in loss before tax of $2,000,199 for the three months ended March 31, 2019, compared to the three months ended ~~September 30, 2016,~~March 31, 2018, was due primarily to ~~an increase~~a decrease in net earned premium of $187,322 (2%). The increase in revenues of $1,244,540 (5%) for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, was due primarily to an increase in net earned premium of $1,037,805 (4%).

~~The increase in loss before tax of $1,468,503 (49%) for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, was due primarily to the increase in loss~~losses and loss adjustment expenses of ~~$1,879,796 (23%~~$2,647,314 (34%) ~~partially offset by the increase~~, a decrease in ~~net earned premium~~policy acquisition costs of ~~$187,322 (2%~~$534,792 (33%), a decrease in salaries and employee benefits of $260,229 (20%) and ~~the~~a decrease in other operating expenses of $130,933 (16%). The increase in loss before tax of $6,025,243 (199%) for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, was due primarily to the increase in loss and loss adjustment expenses of $6,369,400 (35%$238,063 (27%), ~~the increase in salaries and employee benefits of $554,495 (14%), and the increase in other operating expenses of $539,547 (26%)~~ partially offset by the ~~increase~~decrease in ~~net earned premium~~revenues of ~~$1,037,805 (4%~~$1,671,417 (19%).

~~22 of 32~~

Written premium

Written premium is a required statutory measure. Direct written premium (written premium before reinsurance) reported on Crusader’s statutory financial statements decreased ~~$220,841 (2%) and $267,576~~$126,962 (1%) to ~~$9,446,205 and $29,387,988~~$8,529,181 for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~$9,667,046 and $29,120,412~~$8,656,143 for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018.

The property casualty insurance marketplace continues to be intensely competitive. While Crusader attempts to meet such competition with competitive prices, its emphasis is on service, innovation, promotion, and distribution. Crusader believes that rate adequacy is more important than premium growth and that underwriting profit (net earned premium less losses and loss adjustment expenses and policy acquisition costs) is its primary goal. As a result, in November 2016, Crusader filed for rate increases on several programs with the California Department of Insurance; those increases were approved on May 15, 2017, and implemented during the three months ended June 30, 2017. The purpose of the rate increases is to generate higher net earned premium to offset increases in losses and loss adjustment expenses.

Crusader believes that it can grow its sales and profitability ~~by continuing to focus upon five areas of its operations:~~through improved specialization and sales incentives, currently focused in four underwriting verticals: (1) ~~product development,~~Transportation, (2) ~~improved service to retail brokers,~~Food, Beverage & Entertainment, (3) ~~appointment of captive~~Garage & Mercantile, and ~~independent retail agents,~~ (4) geographical expansion, and (5) use of alternative marketing channels. While the Company’s policy administration system continues to support the Company’s existing operations, the Company believes it would realize more competitive parity with respect to product and service by switching or upgrading to a web-based platform. The Company is currently evaluating its alternatives.Apartments & Commercial Buildings.

~~Earned~~

20 of 28

Direct earned premium(

Direct earned premium (earned premium before reinsurance) ~~increased $320,748 (3%~~decreased $1,402,662 (15%) to ~~$9,850,659 and $1,493,078 (5%) to $29,290,593~~$7,967,404 for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~$9,529,911 and $27,797,515~~$9,370,066 for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018. The Company writes annual policies. Earned premium represents a portion of written premium that is recognized as income in the financial statements for the period presented and earned daily on a pro-rata basis over the terms of the policies, and, therefore, ~~earns~~premiums earned in the current year are related to policies written during both the current year and immediately preceding year. The decrease in direct earned premium was due primarily to a decrease in direct written premium ~~ratably over the one-year policy term.~~in 2018.

Ceded earned premium

Ceded earned premium (premium ceded to reinsurers under reinsurance treaties) increased ~~$133,434 (9%~~$14,815 (1%) to ~~$1,682,407 and $455,273 (10%) to $4,981,492~~$1,703,254 for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~$1,548,981 and $4,526,219~~$1,688,438 for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018. Ceded earned premium as a percentage of direct earned premium was ~~17%~~21% and 18% for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019 and ~~16%~~2018, respectively. The increase in the ceded earned premium as a percentage of direct earned premium for the three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2019, compared to the three months ended March 31, 2018, was due primarily to higher rates on Crusader’s excess of loss reinsurance treaties.

Reinsurance treaties are generally structured in layers, with different negotiated economic terms and retention of participation, or liability, in each layer. In calendar ~~years 2017~~year 2019, Crusader will retain a participation in its excess of loss reinsurance treaties of 0% in its 1^st layer (reinsured losses between $500,000 and ~~2016,~~$1,000,000), 0% in its 2^nd layer (reinsured losses between $1,000,000 and $4,000,000), and 0% in its property and casualty clash treaty. In calendar year 2018, Crusader retained a participation in its excess of loss reinsurance treaties of 5% ~~and 10%, respectively,~~ in its 1^st layer ~~($500,000 in excess of $500,000)~~(reinsured losses between $500,000 and $1,000,000), 0% in its 2^nd layer ~~($2,000,000 in excess of $1,000,000)~~(reinsured losses between $1,000,000 and $4,000,000), and 0% in its property and casualty clash treaty.

Crusader also has catastrophe reinsurance treaties from various highly rated California authorized and California unauthorized reinsurance companies. These reinsurance treaties help protect Crusader against losses in excess of certain retentions from catastrophic events that may occur on property risks which Crusader insures. In calendar years ~~2017~~2019 and ~~2016,~~2018, Crusader retained a participation in its catastrophe excess of loss reinsurance treaties of 5% in its 1^st layer ~~($9,000,000 in excess of $1,000,000)~~(reinsured losses between $1,000,000 and $10,000,000) and 0% in its 2^nd layer ~~($36,000,000 in excess of $10,000,000)~~(reinsured losses between $10,000,000 and $46,000,000).

The Company evaluates each of its ceded reinsurance contracts at its inception to determine if there is a sufficient risk transfer to allow the contract to be accounted for as reinsurance under ~~GAAP.~~current accounting literature. As of ~~September 30, 2017,~~March 31, 2019, all such ceded contracts are accounted for as risk transfer reinsurance.

~~Crusader’s direct, ceded and net earned premium are as follows:~~

Three Months Ended
September 30 Nine Months Ended
September 30
2017 2016 Increase 2017 2016 Increase

Direct earned premium $ 9,850,659 $ 9,529,911 $ 320,748 $ 29,290,593 $ 27,797,515 $ 1,493,078
Ceded earned premium 1,682,407 1,548,981 133,426 4,981,492 4,526,219 455,273
Net earned premium $ 8,168,252 $ 7,980,930 $ 187,322 $ 24,309,101 $ 23,271,296 $ 1,037,805
Ratio of ceded earned premium to direct earned premium 17 % 16 % 17 % 16 %

Net investment income~~included in insurance company operation and other insurance operations revenues,~~

Net investment income increased ~~$74,922 (32%~~$87,838 (20%) to ~~$309,492 and $126,674 (19%) to $785,785~~$532,637 for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~$234,570 and $659,111~~$444,799 for the three ~~and nine~~ months ended September 30, 2016, respectively. The Company had realized gains of $373 and $528 for the three and nine months ended September 30, 2017, respectively, compared to no realized gains or losses and $1,278 in realized losses for the three and nine months ended September 30, 2016, respectively.

~~23 of 32~~

~~The~~March 31, 2018. This increase in ~~net~~ investment income was due primarily ~~a result of an~~to increase in the ~~Company’s annualized~~ yield on average invested ~~assets to 1.2% and 1.1%~~assets. The Company realized a net investment loss of $8,149 on a sale of an investment security for the three ~~and nine~~ months ended ~~September 30, 2017, respectively, from 1.0% and 0.9% for~~March 31, 2019. The Company had no sales or calls of investment securities during the three ~~and nine~~ months ended September 30, 2016. The increase in the annualized yield on average invested assets is primarily a result of a decrease in lower yielding short-term investments and an increase in higher yielding fixed maturity investments and a result of investment into new classes of fixed maturity securities.March 31, 2018.

Net investment income, excluding net realized investment losses, and average annualized yields on the Company’s average invested assets are as follows:

	Three Months Ended September 30						Nine Months Ended September 30						Three Months Ended March 31
	2017			2016			2017			2016			2019			2018

Average invested assets (1) - at amortized cost	$	95,364,954		$	92,050,184		$	92,024,640		$	94,312,881		$	88,770,746		$	88,887,525
Net investment income:
Insurance company operation (2)	$	309,405		$	234,495		$	785,579		$	658,839		$	532,630		$	444,702
Other insurance operations		87			75			206			272			7			97
Total investment income	$	309,492		$	234,570		$	785,785		$	659,111		$	532,637		$	444,799
Annualized yield on average invested assets ~~(3)~~		1.2	%		1.0	%		1.1	%		0.9	%		2.4	%		2.0	%

(1)

The average is based on the beginning and ending balance of the amortized cost of the invested assets for each respective period.

(2)

Investment income from insurance company operation included $37,619 of investment expense for the three months ended March 31, 2019, compared to $25,315 of investment expense for the three months ended March 31, 2018.

~~(1) The average is based on the beginning and ending balances~~21 of ~~the amortized cost of the invested assets for each respective period.~~28

(2) Net investment income from insurance company operation included $25,745 of interest on the cash deposits in lieu of appeal bonds for the three and nine months ended September 30, 2017, respectively, compared to $25,745 and $50,745 for the three and nine months ended September 30, 2016, respectively. Investment income from insurance company operation included $25,250 of investment expense for the three and nine months ended September 30, 2017, compared to $0 for the three and nine months ended September 30, 2016.

~~(3) Annualized yield on average invested assets did not include the interest on the cash deposits in lieu of appeal bonds.~~

The par value, amortized cost, estimated market value and weighted average yield of fixed maturity investments by contractual maturity are as follows:

	Par Value		Amortized Cost		Fair Value		Weighted Average Yield

Maturities by Year at March 31, 2019:
Due in one year	$	8,080,000	$	8,079,327	$	8,072,790		1.4	%
Due after one year through five years		46,573,000		46,507,768		46,472,915		2.5	%
Due after five years through ten years		15,568,816		15,651,310		15,710,993		3.2	%
Due after ten years and beyond		16,055,199		16,486,753		16,311,308		2.8	%
Total	$	86,277,015	$	86,725,158	$	86,568,006		2.6	%

Par Value
Amortized Cost

Fair Value

Weighted Average Yield
Maturities by year at September 30, 2017:
Due in one year or less $ 26,362,000 $ 26,361,291 $ 26,361,159 1.0 %
Due after one year through five years 31,489,000 31,524,443 31,530,644 1.7 %
Due after five years through ten years 25,903,384 26,393,615 26,377,092 2.6 %
Total $ 83,754,384 $ 84,279,349 $ 84,268,895 1.8 %

	Par Value		Amortized Cost		Fair Value		Weighted Average Yield			Par Value		Amortized Cost		Fair Value		Weighted Average Yield
Maturities by year at December 31, 2016:
Due in one year or less	$	52,282,000	$	52,273,745	$	52,286,222		0.8	%

Maturities by Year at December 31, 2018:
Due in one year										$	9,328,000	$	9,326,886	$	9,311,678		1.3	%
Due after one year through five years		28,098,000		28,098,097		28,097,703		1.1	%		43,893,000		43,821,970		43,211,883		2.5	%
Due after five years through ten years		—		—		—		—			15,788,408		15,876,016		15,497,513		3.2	%
Due after ten years and beyond											15,964,156		16,403,716		16,015,063		2.8	%
Total	$	80,380,000	$	80,371,842	$	80,383,925		0.9	%	$	84,973,564	$	85,428,588	$	84,036,137		2.5	%

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

The weighted average maturity of the Company’s fixed maturity investments was ~~2.7 and 1.0~~6.7 years as of ~~September 30, 2017,~~March 31, 2019, and ~~December~~6.8 years as of March 31, 2016, respectively. Due to the current interest rate environment, the current target effective duration for the Company’s investment portfolio is between 3.25 and 4.75 years. As of September 30, 2017, and December 31, 2016, the Company’s investment portfolio effective duration was below the target.2018.

~~24 of 32~~

Less than 12 Months 12 Months or Longer

Estimated
Fair Value

Gross
Unrealized Losses

Estimated
Fair Value

Gross
Unrealized Losses
September 30, 2017:
U.S. treasury securities $ 9,519,063 $ (9,395 ) $ —   $ —
Corporate securities 9,731,038 (36,981 ) —   —
Agency mortgage-backed securities 12,973,738 (17,143 ) —   —
Total $ 32,223,839 $ (63,519 ) $ —   $ —

	Less than 12 Months						12 Months or Longer
	Estimated Fair Value		Gross Unrealized Losses		Number of Securities		Estimated Fair Value		Gross Unrealized Losses			Number of Securities
March 31, 2019
U.S. treasury securities	$	—	$	—		—	$	9,842,591	$	(73,903	)		7
Corporate securities		—		—		—		25,079,280		(187,933	)		32
Agency mortgage-backed securities		—		—		—		16,815,741		(245,482	)		15
Total	$	—	$	—		—	$	51,737,612	$	(507,318	)		54

	Less than 12 Months				12 Months or Longer					Less than 12 Months							12 Months or Longer
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses			Number of Securities		Estimated Fair Value		Gross Unrealized Losses			Number of Securities
December 31, 2016:
December 31, 2018
U.S. treasury securities	$	—	$	—	$	9,097,285	$	(2,122	)	$	1,760,491	$	(20,181	)		2	$	8,496,069	$	(123,101	)		6
Corporate securities											10,878,381		(272,515	)		17		21,189,487		(578,609	)		27
Agency mortgage-backed securities											—		—			—		17,034,086		(472,293	)		15
Total	$	—	$	—	$	9,097,285	$	(2,122	)	$	12,638,872	$	(292,696	)		19	$	46,719,642	$	(1,174,003	)		48

Although the Company does not intend to sell its fixed maturity investments prior to maturity, the Company may sell investment securities from time to time in response to cash flow requirements, economic, regulatory, and/or market conditions. ~~During~~The Company realized a net investment loss of $8,149 on a sale of an investment security for the three months ended ~~September 30, 2017,~~March 31, 2019. The Company had no sales or calls of investment securities during the ~~Company sold two fixed maturity investments and realized a net investment gain of $373 on the sales. During the nine~~three months ended ~~September 30, 2017, the Company sold four fixed maturity investments and realized a net investment gain of $528 on the sales. Unrealized~~March 31, 2018. The unrealized gains or losses from fixed maturities are reported as “Accumulated other comprehensive income or loss,” which is a separate component of stockholders’ equity, net of any deferred tax effect.

22 of 28

Other ~~Income,~~income

Other income included in ~~insurance company operation~~Insurance Company Revenues and ~~other insurance operations revenues, increased $41,023 (61%~~Other Insurance Operations decreased $305,692 (549%) to ~~$108,170 and $36,280 (17%) to $243,707~~$(249,982) for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~$67,147 and $207,427~~$55,710 for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018. The ~~increases~~decrease in other income is due primarily to a $310,098 decrease in Crusader’s share of California FAIR Plan equity during the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, compared toa $44,761 decrease during the three ~~and nine~~ months ended ~~September 30, 2016, are due primarily to higher rent resulting from higher occupancy of the Calabasas building.~~March 31, 2018.

Gross commissions and fees

Gross commissions and fees decreased ~~$11,957 (2%~~$59,212 (10%) to ~~$685,288 and increased $34,487 (2%) to $2,097,916~~$547,445 for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~$697,245~~gross commissions and ~~$2,063,429~~fees of $606,657 for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018.

The changes in gross commission and fee income for the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, as compared to the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2018, are as follows:

Three Months Ended
September 30 Nine Months Ended
September 30
Increase Increase
2017 2016 (Decrease) 2017 2016 (Decrease)

Policy fee income $ 403,624 $ 418,301 $ (14,677 ) $ 1,218,214 $ 1,260,808 $ (42,594 )
Health insurance program 264,336 259,776 4,560 822,242 734,487 87,755
Membership and fee income 17,328 19,168 (1,840 ) 53,084 59,315 (6,231 )
Daily automobile rental insurance program contingent commission — — — 4,376 8,819 (4,443 )
Total $ 685,288 $ 697,245 $ (11,957 ) $ 2,097,916 $ 2,063,429 $ 34,487

~~25 of 32~~

	Three Months Ended March 31
					Increase
	2019		2018		(Decrease)

Policy fee income	$	298,701	$	380,920	$	(82,219	)
Health insurance program		234,822		209,407		25,415
Membership and fee income		13,922		16,330		(2,408	)
Total	$	547,445	$	606,657	$	(59,212	)

Unifax ~~Insurance Systems, Inc. (“Unifax”), a wholly owned subsidiary of the Company,~~ sells and services insurance policies for Crusader. The commissions paid by Crusader to Unifax are eliminated as intercompany transactions and are not reflected as income in the condensed consolidated financial statements. Unifax also receives non-refundable policy fee income that is directly related to the Crusader policies it sells. For financial statement reporting purposes, policy fees are earned ratably over the life of the related insurance policy. The unearned portion of the policy fee is recorded as a liability on the Condensed Consolidated Balance Sheets under “Accrued expenses and other liabilities.” The earned portion of the policy fee charged to the policyholder by Unifax is recognized as income in the condensed consolidated financial statements. Policy fee income decreased ~~$14,677 (4%) and $42,594 (3%~~$82,219 (22%) in the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to the three ~~and nine~~ months ended ~~September 30, 2016,~~March 31, 2018, due primarily to reduction in policy counts.

~~American Insurance Brokers, Inc. (“AIB”), a wholly owned subsidiary of the Company,~~AIB markets health insurance in California through non-affiliated insurance companies for individuals and groups. For these services, AIB receives commission based on the premiums that it writes. Commission income increased ~~$4,560 (2%) and increased $87,755~~$25,415 (12%) in the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to the three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2018. The increase in commission income reported in the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, when compared to the prior year period, is primarily a result of ~~a cumulative~~an increase in commission ~~correction of $68,971 by the non-affiliated insurance carriers received during the three months ended March 31, 2017.~~income on group health and life premiums.

~~Insurance Club, Inc., dba~~ AAQHC ~~An Administrator (“AAQHC”), a wholly owned subsidiary of the Company,~~ is a third party administrator for contracted insurance companies and is a membership association that provides various consumer benefits to its members, including participation in group health care insurance policies that AAQHC negotiates for the association. For these services, AAQHC receives membership and fee income from its members. Membership and fee income decreased ~~$1,840 (10%~~$2,408 (15%) ~~and $6,231 (11%) in~~for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to the three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2018. This decrease is primarily a result of a decrease in the number of ~~individual members.~~association members enrolled in AAQHC.

~~The daily automobile rental insurance program was produced by Bedford Insurance Services, Inc. (“Bedford”), a wholly owned subsidiary~~Finance charges and fees earned

Finance charges and fees earned consist of the Company. Bedford received commission income from non-affiliated insurance companies based on written premium and continues to receive contingent commission on previous business written. The Company no longer actively markets this program.

~~Finance fees earned~~ ~~consist of~~finance charges, late fees, returned check fees and payment processing fees. These charges and fees earned by ~~American Acceptance Corporation (“AAC”), a wholly owned subsidiary of the Company,~~AAC increased ~~$3,364 (18%~~$31,276 (173%) to ~~$21,814 and $7,488 (15%) to $58,155~~$49,373 for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~$18,450 and $50,667 for the three and nine months ended September 30, 2016, respectively. The increases~~$18,097 in fees earned during the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2018. AAC issued 473 loans and had 1,445 loans outstanding during the three months ended March 31, 2019, compared to 660 loans issued and 2,071 loans outstanding during the three ~~and nine~~ months ended September 30, 2016, are primarily a result of more late fees earned during the current periods compared to the prior year periods. During the three and nine months ended September 30, 2017, AAC issued 743 and 2,276 loans, respectively, and had 2,295 loans outstanding as of September 30, 2017. During the three and nine months ended September 30, 2016, AAC issued 783 and 2,405 loans, respectively, and had 2,435 loans outstanding as of September 30, 2016.March 31, 2018. AAC provides premium financing only for Crusader policies produced by Unifax in California. From July 2010 to March 1, 2018, AAC ~~reduced the interest rate charged~~offered 0% financing on premiums financed to 0% beginning July 20, 2010, and, therefore, did not earn any finance charges during the three and nine months ended September 30, 2017 and 2016. This reduction in the interest rate charged was initiated in an effort to increase the sales of existing renewal and new business writtenpolicies produced by Unifax for Crusader. ~~Due~~Effective March 1, 2018, the annual percentage rate charged by AAC on new loans increased to 4.99% from 0%. The Company believes the ~~low~~new interest rate ~~environment, the cost of money to provide this incentive~~ is competitive and will not ~~material. The Company monitors the cost of providing this incentive and depending~~have a negative impact on ~~the cost/benefit determination, can continue to offer it or withdraw it at any time.~~its business.

Losses and loss adjustment expenses

2623 of 3228

Loss ratio is calculated by dividing losses and loss adjustment expenses by net earned premium. Losses and loss adjustment expenses and loss ratios are as follows:

Three Months Ended September 30

2017

2017 Loss Ratio

2016

2016 Loss Ratio

Increase
(Decrease)

Net earned premium $ 8,168,292 $ 7,980,930 $ 187,362

Losses and loss adjustment expenses:
Provision for insured events of current year 5,982,245 73 % 6,792,115 85 % (809,870 )
Development of insured events of prior years 3,935,651 48 % 1,245,985 16 % 2,689,666
Total losses and loss adjustment expenses $ 9,917,896 121 % $ 8,038,100 101 % $ 1,879,796

Nine Months Ended September 30
2017 2017 Loss Ratio 2016 2016 Loss Ratio Increase

Net earned premium $ 24,309,101 $ 23,271,296 $ 1,037,805

Losses and loss adjustment expenses:
Provision for insured events of current year 18,046,953 74 % 17,119,210 74 % 927,743
Development of insured events of prior years 6,304,798 26 % 863,141 3 % 5,441,657
Total losses and loss adjustment expenses $ 24,351,751 100 % $ 17,982,351 77 % $ 6,369,400

	Three Months Ended March 31
	2019		2019 Loss Ratio			2018		2018 Loss Ratio			Decrease

Net earned premium	$	6,264,150				$	7,681,628				$	(1,417,478	)
Losses and loss adjustment expenses:
Provision for insured events of current year		4,550,888		72	%		6,009,138		78	%		(1,458,250	)
Development of insured events of prior years		603,555		10	%		1,792,619		24	%		(1,189,064	)
Total losses and loss adjustment expenses	$	5,154,443		82	%	$	7,801,757		102	%	$	(2,647,314	)

The ~~$927,743 increase in the~~$4,550,888 provision for insured events of current year for the ~~nine~~three months ended ~~September 30, 2017, compared to~~March 31, 2019, was $1,458,250 lower than the $6,009,138 provision for insured events of current year for the ~~nine~~three months ended ~~September 30, 2016, was~~March 31, 2018, due primarily to ~~an aberrational increase in the frequency~~lower case incurred losses and ~~severity of accident year 2017 short-tail property~~loss adjustment expenses on long-tail liability claims during the three months ended March 31, ~~2017.~~2019.

The ~~$2,689,666 and $5,441,657 increases in the~~$603,555 development of insured events of prior years for the three ~~and nine~~ months ended ~~September 30, 2017, respectively, compared to~~March 31, 2019, was $1,189,064 lower than the three and nine months ended September 30, 2016, were primarily due to higher than expected severity of long-tail assault and battery liability claims in accident years 2011, 2014, and 2016 associated with Crusader’s Food, Beverage and Entertainment program. The Company believes the increase in the severity$1,792,619 for these claims as compared to prior periods is due to relatively recent social, legal, and economic changes. For the three and nine months ended September 30, 2017, the development on the accident year 2011 was due primarily to $1,422,499 and $1,497,499 in additional losses and loss adjustment expenses incurred, respectively, due to the September 2017 $7,000,000 settlement. For the three and nine months ended September 30, 2017, the development on the accident year 2014 was due primarily to the unexpected increase in the severity of existing assault and battery claims. For the three months ended ~~September 30, 2017, the development on the accident year 2016 was~~March 31, 2018, due primarily to ~~a $580,329 increase in~~lower incurred but not reported (“IBNR”) reserves for the Food, Beverage and Entertainment program; total IBNR reserves increase for all accident years for the Food, Beverage and Entertainment program was $1,323,665 for the three months ended September 30, 2017. For the nine months ended September 30, 2017, the development on the accident year 2016 was due primarily to the unexpected increase in the severity of existing assault and battery claims. As a result of the foregoing losses and loss adjustment expenses ~~and~~on long-tail liability claims during the observed trend of increasing severity of assault and battery claims, the Company decided to significantly curtail or entirely exclude coverage for risks of assault and battery covered through the Food, Beverage and Entertainment program.three months ended March 31, 2019.

While it is difficult to estimate the adequacy of loss and loss adjustment expense reserves, historically, the Company was able to establish sufficient loss and loss adjustment expense reserves to mitigate adverse prior accident year developments.

~~27 of 32~~

The following table breaks out adverse (favorable) development from total losses and loss adjustment expenses quarterly since ~~January 1, 2014:~~March 31, 2017:

Provision for Insured
Events of Current Year

Adverse (Favorable) Development of
Insured Events of Prior Years

Total Losses and Loss
Adjustment Expenses
Three Months Ended:
September 30, 2017 $ 5,982,245 $ 3,935,651 $ 9,917,896
June 30, 2017 5,567,142 341,532 5,908,674
March 31, 2017 6,497,566 2,027,615 8,525,181
December 31, 2016 5,731,198 (886,671 ) 4,844,527
September 30, 2016 6,792,115 1,245,985 8,038,100
June 30, 2016 5,603,427 (744,670 ) 4,858,757
March 31, 2016 4,723,668 361,826 5,085,494
December 31, 2015 5,125,146 164,230 5,289,376
September 30, 2015 5,195,943 (849,426 ) 4,346,517
June 30, 2015 5,280,840 (647,324 ) 4,633,516
March 31, 2015 6,005,699 (1,111,792 ) 4,893,907
December 31, 2014 4,473,359 (552,836 ) 3,920,523
September 30, 2014 4,686,287 (529,807 ) 4,156,480
June 30, 2014 4,455,943 (808,178 ) 3,647,765
March 31, 2014 4,310,293 (1,417,943 ) 2,892,350

		Provision for Insured Events of Current Year		Adverse Development of Insured Events of Prior Years		Total Losses and LossAdjustment Expenses

Three Months Ended:
March 31, 2019	$	4,550,888	$	603,555	$	5,154,443
December 31, 2018		5,134,166		53,997		5,188,163
September 30, 2018		4,840,242		798,378		5,638,620
June 30, 2018		4,652,240		276,963		4,929,203
March 31, 2018		6,009,138		1,792,619		7,801,757
December 31, 2017		5,330,275		808,481		6,138,756
September 30, 2017		5,982,245		3,935,651		9,917,896
June 30, 2017		5,567,142		341,532		5,908,674
March 31, 2017		6,497,566		2,027,615		8,525,181

The variability of Crusader’s losses and loss adjustment expenses for the periods presented is primarily due ~~primarily~~ to ~~Crusader’s~~the small and diverse population of Crusader’s policyholders and claims, ~~population,~~ which may result in greater fluctuations in claim frequency and/or severity. In addition, Crusader’s reinsurance retention, which is relatively high in relationship to its net earned premium, can result in increased loss ratio volatility when large losses are incurred in a relatively short period of time. Nevertheless, management believes that its reinsurance retention is reasonable given the amount of Crusader’s surplus and its goal to minimize ceded premium.

24 of 28

The preparation of the Company’s consolidated financial statements requires estimation of certain liabilities, most significantly the liability for unpaid losses and loss adjustment expenses. Management makes its best estimate of the liability for these unpaid claims costs as of the end of each fiscal quarter. Due to the inherent uncertainties in estimating the Company’s unpaid claims costs, actual loss and loss adjustment expense payments are expected to vary, perhaps significantly, from any estimate made prior to the settling of all claims. Variability is inherent in establishing loss and loss adjustment expense reserves, especially for a small insurer ~~like~~such as Crusader. For any given line of insurance, accident year, or other group of claims, there is a continuum of possible loss and loss adjustment expense reserve estimates, each having its own unique degree of propriety or reasonableness. Due to the complexity and nature of the insurance claims process, there are potentially an infinite number of reasonably likely scenarios. Management draws on its collective experience to judgmentally determine its best estimate. In addition to applying a variety of standard actuarial methods to the data, an extensive series of diagnostic tests are applied to the resultant loss and loss adjustment expense reserve estimates to determine management’s best estimate of the unpaid claims liability. Among the statistics reviewed for each accident year are: loss and loss adjustment expense development patterns; frequencies; severities; and ratios of loss to premium, loss adjustment expense to premium, and loss adjustment expense to loss.

When there is clear evidence that the actual claims costs ~~that have~~ emerged are different than expected for any prior accident year, the claims cost estimates for that year are revised accordingly. If the claims costs that emerge are less favorable than initially anticipated, generally, the Company increases its loss and loss adjustment expense reserves immediately. However, if the claims costs that emerge are more favorable than initially anticipated, generally, the Company reduces its loss and loss adjustment expense reserves over time while it continues to assess the validity of the observed trends based on the subsequent emerged claim costs.

The establishment of loss and loss adjustment expense reserves is a detailed process as there are many factors that can ultimately affect the final settlement of a claim. Estimates are based on a variety of industry data and on the Company’s current and historical accident year claims data, including but not limited to reported claim counts, open claim counts, closed claim counts, closed claim counts with payments, paid losses, paid loss adjustment expenses, case loss reserves, case loss adjustment expense reserves, earned premiums and policy exposures, salvage and subrogation, and unallocated loss adjustment expenses paid. Many other factors, including changes in reinsurance, changes in pricing, changes in policy forms and coverage, changes in underwriting and risk selection, legislative changes, results of litigation and inflation are also taken into account.

~~28 of 32~~

At the end of each fiscal quarter, the Company’s loss and loss adjustment expense reserves for each accident year (i.e., for all claims incurred within each year) are re-evaluated independently by the Company’s president, the Company’s chief financial officer, and by an independent consulting actuary. Generally accepted actuarial methods, including the widely used Bornhuetter-Ferguson and loss development methods, are employed to estimate ultimate claims costs. An actuarial central estimate of the ultimate claims costs and ~~incurred but not reported losses~~IBNR reserves is ultimately determined by management and tested for reasonableness by the independent consulting actuary.

Policy acquisition costs

Policy acquisition costs consist of commissions, premium taxes, inspection fees, and certain other underwriting costs that are directly related to and vary with the successful production of Crusader insurance policies. These ~~policy acquisition~~ costs include both Crusader expenses and the allocated expenses of other Unico subsidiaries. Crusader's reinsurers pay Crusader a ceding commission, which is primarily a reimbursement of the acquisition cost related to the ceded premium. ~~Ceding commission is received on excess of loss ceded premium, and no~~No ceding commission is received on facultative or catastrophe ceded premium. Policy acquisition costs, net of ceding commission, are deferred and amortized as the related premiums are earned. The Company annually reevaluates its ~~policy~~ acquisition costs to determine that costs related to successful policy acquisition are capitalized and deferred. These policy acquisition costs were approximately 23% and 20% of net earned premium for the three and nine months ended September 30, 2017, respectively, compared to 22% for the three and nine months ended September 30, 2016. The policy acquisition costs increased in the three months ended September 30, 2017 as compared to the three months ended September 30, 2016, due primarily to the $150,000 premium deficiency reserve. The policy acquisition costs decreased in the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, due primarily to lower commission expense as a result of the loss experience and higher ceding commission due to an increase in premiums written for the nine months ended September 30, 2017.

~~The policy~~Policy acquisition costs and the ratio to net earned premium are as follows:

	Three Months Ended September 30								Nine Months Ended September 30									Three Months Ended March 31
	2017			2016			Increase		2017			2016			(Decrease)			2019			2018			(Decrease)

Policy acquisition costs	$	1,854,212		$	1,741,499		$	112,713	$	4,943,350		$	5,142,250		$	(198,900	)	$	1,086,713		$	1,621,505		$	(534,792	)
Ratio to net earned premium (GAAP ratio)		23	%		22	%				20	%		22	%					17	%		21	%

Policy acquisition costs decreased during the three months ended March 31, 2019, as compared to the three months ended March 31, 2018, due primarily to the decrease in premium.

25 of 28

Salaries and employee benefits

Salaries and employee benefits decreased ~~$97,440 (7%~~$260,229 (20%) to ~~$1,221,182 and increased $554,495 (14%) to $4,534,550~~$1,027,849 for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~$1,318,622 and $3,980,055~~$1,288,078 for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018.

Salaries and employee benefits incurred and charged to operating expenses are as follows:

Three Months Ended
September 30

2017

2016

Increase
(Decrease)

Total salaries and employee benefits incurred $ 1,910,494 $ 1,999,588 $ (89,094 )
Less: charged to losses and loss adjustment expenses (353,555 ) (291,711 ) (61,844 )
Less: capitalized to policy acquisition costs (335,757 ) (389,255 ) 53,498
Net amount charged to operating expenses $ 1,221,182 $ 1,318,622 $ (97,440 )

	Nine Months Ended September 30									Three Months Ended March 31
	2017			2016			Increase (Decrease)			2019			2018			Increase (Decrease)

Total salaries and employee benefits incurred	$	6,528,380		$	6,024,572		$	503,808		$	1,831,860		$	2,092,704		$	(260,844	)
Less: charged to losses and loss adjustment expenses		(979,256	)		(861,293	)		(117,963	)		(495,028	)		(430,146	)		64,882
Less: capitalized to policy acquisition costs		(1,014,574	)		(1,183,224	)		168,650			(308,983	)		(374,480	)		(65,497	)
Net amount charged to operating expenses	$	4,534,550		$	3,980,055		$	554,495		$	1,027,849		$	1,288,078		$	(260,229	)

The decrease in the total salaries and employee benefits incurred for the three months ended ~~September 30, 2017,~~March 31, 2019, compared to the three months ended September 30, 2016, was due primarily lower benefits costs associated with group medical plans and the Unico American Corporation Profit Sharing Plan. The increase in salaries and employee benefits incurred for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016,March 31, 2018, was due primarily to ~~costs associated with~~ a ~~termination of an employment agreement with an employee; there are no such agreements for any other employees other than those agreements disclosed~~decrease in the ~~Company’s Annual Report on Form 10-K~~average number of support personnel for the ~~year~~three months ended ~~December~~March 31, ~~2016.~~2019 compared to the three months ended March 31, 2018.

~~29 of 32~~

Commissions to agents/brokers ~~decreased $587 (1%~~

Commissions to agents/brokers increased $8,782 (21%) to ~~$39,737 and increased $5,241 (4%) to $126,620~~$50,121 for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~$40,324 and $121,379~~$41,339 for the three ~~and nine~~ months ended ~~September 30, 2016.~~March 31, 2018. The ~~decrease~~increase in commissions to agents/brokers for the three months ended ~~September 30, 2017,~~March 31, 2019, compared to the three months ended ~~September 30, 2016,~~March 31, 2018, was due primarily to timing of payment receipts. The increase in other operating expenses for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, was due primarily to the increase in the health insurance commission income.

Other operating expenses

Other operating expenses decreased ~~$130,932 (16%~~$238,063 (27%) to ~~$695,587 and increased $539,547 (26%) to $2,592,318~~$628,080 for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~$826,519 and $2,052,771~~$866,143 for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018. The decrease in other operating expenses for the three months ended ~~September 30, 2017,~~March 31, 2019, compared to the three months ended ~~September 30, 2016,~~March 31, 2018, was due ~~primarily~~ to lower costs ~~incurred to review strategic alternatives~~of acquiring new employees and potential opportunities. The increase in other operating expenses for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, is related primarily to fees associated with the California Departmenta number of Insurance financial examination of Crusader and consulting expenses. The financial examination, as reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, has been completed, but the results have not been made public by the California Department of Insurance. Management does not anticipate the financial examination findings will have material impact on Crusader’s operations or financial statements.various insignificant fluctuations.

Income tax benefit ~~increased $494,751 (49%~~

Income tax benefits decreased $464,022 (77%) to ~~$1,507,976 (34% of pre-tax income) and $2,077,690 (202%) to $3,104,390 (34%~~$140,658 (17% of pre-tax loss) for the three ~~and nine~~ months ended ~~September 30, 2017, respectively, compared to~~March 31, 2019, from an income tax benefit of ~~$1,013,225 (34%~~$604,680 (22% of pre-tax ~~income) and $1,026,700 (34% of pre-tax income)~~loss) for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018. The ~~increases~~decrease in income tax benefit ~~for~~during the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2019, when compared to ~~the~~ three ~~and nine~~ months ended ~~September 30, 2016, were~~March 31, 2018, was primarily due ~~primarily~~ to ~~higher~~the decrease in loss before tax ~~during the 2017 reporting periods compared to 2016. The income tax provision is primarily related to income before taxes.~~of $2,000,199. The calculated tax rate for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, consisted of a federal tax benefit rate of ~~34%~~21% and a state income tax ~~expense~~benefit rate of ~~approximately 0.5%~~0.8%. The calculated tax rate for the ~~nine~~three months ended ~~September 30, 2016, consisted~~March 31, 2018, was comprised of a calculated federal tax benefit rate of ~~34%~~approximately 21% while the calculated state tax expense rate was approximately 0.8%. The Company increased its valuation allowance related to deferred tax assets on federal net operating losses by $43,000 during the three months ended March, 31, 2019, thus making the effective tax rate 17%.

~~Off-Balance Sheet Arrangements~~OFF-BALANCE SHEET ARRANGEMENTS

During the periods presented, there were no off-balance sheet transactions, unconditional purchase obligations or similar instruments and the Company was not a guarantor of any other entities’ debt or other financial obligations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s Condensed Consolidated Balance Sheets include a substantial amount of invested assets whose fair values are subject to various market risk exposures including interest rate risk and equity price risk.

The ~~Company’s invested assets consist~~Company is currently a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K. The Company has elected to comply with the ~~following:~~

September 30
2017

December 31
2016

Increase
(Decrease)

Fixed maturity bonds (at amortized value) $ 48,453,349 $ 19,091,842 $ 29,361,507
Short-term cash investments (at cost) 13,080,515 10,204,603 2,875,912
Certificates of deposit - over 1 year (at cost) 35,826,000 61,280,000 (25,454,000 )
Total invested assets $ 97,359,864 $ 90,576,445 $ 6,783,419

~~There have been no material changes in~~scaled disclosure requirements applicable to smaller reporting companies and has therefore omitted the ~~composition~~information required under Item 305 of ~~the Company’s invested assets or market risk exposures since the end of the preceding fiscal year end.~~Regulation S-K.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation was carried out by the Company's management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of ~~September 30, 2017,~~March 31, 2019, as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective as of ~~September 30, 2017.~~March 31, 2019.

26 of 28

During the period covered by this report, there has been no change in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 under the Securities Exchange Act of 1934 that has materially affected or is reasonably likely to materially affect the Company's internal control over financial reporting.

~~30 of 32~~

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company and its subsidiaries are named from time to time as defendants in various legal actions that are incidental to its business, including those which arise out of or are related to the handling of claims made in connection with Crusader’s insurance policies. The Company establishes reserves for certain claims-related lawsuits, regulatory actions and other contingencies when the Company believes a loss is probable and is able to estimate its potential exposure. While actual losses may differ from the amounts recorded and such matters are subject to many uncertainties and outcomes that are not predictable with assurance, the Company is not aware of any currently pending or threatened legal or regulatory proceedings that, either individually or in the aggregate, it anticipates will have a material adverse effect on its consolidated financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS

As addressed in Item 5 to Part II of this Form 10-Q, the Company is no longer a “Controlled Company” as defined in the Nasdaq Stock Market (“Nasdaq”) Listing Rules. As a result, the risk factor titled “The Company may lose its ‘Controlled Company’ status” is no longer applicable. In addition, the risk factor titled “The Company is controlled by a small number of shareholders who will be able to exert significant influence over matters requiring shareholder approval” is revised as follows:

The Company is controlled by a small number of shareholders who will be able to exert significant influence over matters requiring shareholder approval.

A small number of holders of the Company’s stock own a majority of the voting power of the Company.

Accordingly, those holders have the ability to exert significant influence on the outcome of corporate actions the Company requiring shareholder approval, including the election of directors, change of control transactions or any other significant corporate transactions. This concentration of ownership may conflict with the interests of the Company’s other shareholders.

Crusader is a participant in various underwriting pools and programs which have legal power to levy assessments to Crusader.

As an admitted insurer in several states, Crusader is obligated to participate in various underwriting pools and programs run at federal and state levels. Examples include, but not limited to, a program established by the Terrorism Risk Insurance Act of 2002 within the Department of the Treasury, California Assigned Risk Plan, California FAIR Plan, and California Insurance Guarantee Association. These underwriting pools and programs have legal powers to assets their participants for net losses sustained in these underwriting pools and programs operations. Such assessments could have an adverse effect on the Company's financial condition and results of operations.

There were no other material changes from risk factors as previously disclosed in the Company’s Form 10-K for the year ended December 31, ~~2016,~~2018, in response to Item 1A to Part I of Form ~~10-K, and in the Company’s Form 10-Q for the quarter ended June 30, 2017, in response to Item 1A to Part II of Form 10-Q.~~10-K.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

27 of 28

ITEM 5. OTHER INFORMATION

~~None.~~On April 15, 2019, the voting agreement among Messrs. Erwin Cheldin, Cary L. Cheldin, and George C. Gilpatrick, who hold approximately 50.2% of the voting power of the Company, expired and was not replaced. As a result, the Company is no longer a “Controlled Company” as defined in the Nasdaq Listing Rules. Effective April 15, 2019, and subject to phase-in periods, the Company is no longer exempt from the requirements of the Nasdaq Listing Rules requiring that (i) the Company have a majority of independent directors on the Board of Directors, (ii) the Compensation Committee be composed solely of independent directors, (iii) the Compensation Committee have a written charter, (iv) the compensation of the executive officers be determined by a majority of the independent directors or a compensation committee comprised solely of independent directors, and (v) director nominees be elected or recommended either by a majority of the independent directors or a nominating committee comprised solely of independent directors.

ITEM 6. EXHIBITS

31.1

~~Certificate~~Certification of Chief Executive Officer pursuant to Rule 13a-14(a) ~~or Rule 15d-14(a), as adopted pursuant to Section 302 of~~under the ~~Sarbanes-Oxley~~Securities Exchange Act of ~~2002.~~1934.

31.2

~~Certificate~~Certification of Chief Financial Officer pursuant to Rule 13a-14(a) ~~or Rule 15d-14(a), as adopted pursuant to Section 302 of~~under the ~~Sarbanes-Oxley~~Securities Exchange Act of ~~2002.~~1934.

32.1

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

32.2

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

101

The following information from the Quarterly Report on Form 10-Q for the fiscal quarter ended ~~September 30, 2017,~~March 31, 2019, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Comprehensive ~~Income (Loss);~~Loss; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Condensed Notes to Unaudited Condensed Consolidated Financial ~~Statements (Unaudited).~~Statements.*

*XBRL information is furnished and deemed not filed as part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act and otherwise is not subject to liability under these sections.

~~31 of 32~~

~~SIGNATURES~~

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.

UNICO AMERICAN CORPORATION

Date: ~~November 13, 2017~~May 15, 2019 By:/s/ CARY L. CHELDIN

Cary L. Cheldin

Chairman of the Board, President and Chief

Executive Officer,

~~(Principal~~ (Principal Executive Officer)

Date: ~~November 13, 2017~~May 15, 2019 By:/s/ MICHAEL BUDNITSKY

Michael Budnitsky

Treasurer, ~~and~~ Chief Financial Officer and Secretary, (Principal

~~(Principal~~ Accounting and Principal Financial Officer)

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	Amortized Cost		Gross Unrealized Gains		Gross UnrealizedLosses			Estimated Fair Value
September 30, 2017
Available for sale:
Fixed maturities:
Certificates of deposit	$	35,826,000	$	—	$	—		$	35,826,000
U.S. treasury securities		9,528,210		248		(9,395	)		9,519,063
Corporate securities		22,983,627		49,063		(36,981	)		22,995,709
Agency mortgage-backed securities		15,941,512		3,754		(17,143	)		15,928,123
Total fixed maturities	$	84,279,349	$	53,065	$	(63,519	)	$	84,268,895

	Three Months Ended September 30
	2017		2017 Loss Ratio			2016		2016 Loss Ratio			Increase (Decrease)

Net earned premium	$	8,168,292				$	7,980,930				$	187,362

Losses and loss adjustment expenses:
Provision for insured events of current year		5,982,245		73	%		6,792,115		85	%		(809,870	)
Development of insured events of prior years		3,935,651		48	%		1,245,985		16	%		2,689,666
Total losses and loss adjustment expenses	$	9,917,896		121	%	$	8,038,100		101	%	$	1,879,796

	Nine Months Ended September 30
	2017		2017 Loss Ratio			2016		2016 Loss Ratio			Increase

Net earned premium	$	24,309,101				$	23,271,296				$	1,037,805

Losses and loss adjustment expenses:
Provision for insured events of current year		18,046,953		74	%		17,119,210		74	%		927,743
Development of insured events of prior years		6,304,798		26	%		863,141		3	%		5,441,657
Total losses and loss adjustment expenses	$	24,351,751		100	%	$	17,982,351		77	%	$	6,369,400

	Provision for Insured Events of Current Year		Adverse (Favorable) Development of Insured Events of Prior Years			Total Losses and Loss Adjustment Expenses
Three Months Ended:
September 30, 2017	$	5,982,245	$	3,935,651		$	9,917,896
June 30, 2017		5,567,142		341,532			5,908,674
March 31, 2017		6,497,566		2,027,615			8,525,181
December 31, 2016		5,731,198		(886,671	)		4,844,527
September 30, 2016		6,792,115		1,245,985			8,038,100
June 30, 2016		5,603,427		(744,670	)		4,858,757
March 31, 2016		4,723,668		361,826			5,085,494
December 31, 2015		5,125,146		164,230			5,289,376
September 30, 2015		5,195,943		(849,426	)		4,346,517
June 30, 2015		5,280,840		(647,324	)		4,633,516
March 31, 2015		6,005,699		(1,111,792	)		4,893,907
December 31, 2014		4,473,359		(552,836	)		3,920,523
September 30, 2014		4,686,287		(529,807	)		4,156,480
June 30, 2014		4,455,943		(808,178	)		3,647,765
March 31, 2014		4,310,293		(1,417,943	)		2,892,350

	September 30 2017		December 31 2016		Increase (Decrease)

Fixed maturity bonds (at amortized value)	$	48,453,349	$	19,091,842	$	29,361,507
Short-term cash investments (at cost)		13,080,515		10,204,603		2,875,912
Certificates of deposit - over 1 year (at cost)		35,826,000		61,280,000		(25,454,000	)
Total invested assets	$	97,359,864	$	90,576,445	$	6,783,419