PCA was managed by Professional Third Party, LP (“PTP”), a Pennsylvania corporation, pursuant to the terms of an Attorney-in-Fact Agreement between the association and PTP. PTP provided salaries and benefit expenses of the employees, rent and other occupancy expenses, supplies, and data processing services to PCA, and paid certain expenses on behalf of PCA in exchange for 25% of gross written premium. As the attorney-in-fact, PTP had the power to direct the activities of PCA that most significantly impact PCA’s economic performance. Diversus acquired 100% of the ownership interests of PTP on June 4, 2014.
As a result of the COVID-19 pandemic, we anticipate that premiums will decrease due to policy endorsements associated with doctors electing to work part time, take a leave of absence or retire. In addition, our insureds may elect to temporarily change specialties. For example, a doctor may choose to drop from orthopedic surgery to office-only status due to the lack of elective surgeries. We have received notification for such requests from our policyholders which will go into effect on June 30, 2020.
When a claim is reported to us, our claims personnel establish a case reserve for the estimated amount of the ultimate payment to the extent it can be determined or estimated. The amount of the loss reserve for the reported claim is based primarily upon a claim-by-claim evaluation of coverage, liability, and injury severity, and any other information considered pertinent to estimating the
In addition to case reserves, we maintain reserve estimates for those that have been incurred but not reported (“IBNR”). These reserves include estimates for the future development of case reserves and claims in which case reserves have not yet been established. Some claims may not be reported for several years. As a result, the liability for unpaid losses and LAE reserves includes significant estimates for IBNR.
As discussed earlier, the estimation of Positive Insurance Company’s losses and LAE reserves is based on several actuarial methods, each of which incorporates many quantitative assumptions. The judgment of the actuary plays an important role in selecting among various loss development factors and selecting the appropriate method, or combination of methods, to use for a given policy year.
Our investment portfolio is comprised of mostly investment grade fixed maturity securities and equity securities, all of which are publicly traded. We believe the portfolio is sufficiently diversified because it does not contain any significant concentrations in single issuers other than U.S. government obligations. Our largest exposure to a single corporate issuer is $1,743,740, or less than 2% of total invested assets. In addition, we do not have a significant concentration of our investments in any single industry segment other than finance companies, which comprised approximately 22% of invested assets at December 31, 2019. Included in this industry segment are diverse financial institutions, including banks (11%) and financial service (9%) and insurance (2%) companies, with no single issuer exceeding 2% of the total investment portfolio. During the first quarter of 2020, we reduced our exposure to this industry segment by about 3%. All of our investments as of December 31, 2019 are dollar denominated.
The fair value and unrealized losses of our securities that were temporarily impaired at December 31, 2019 and 2018 are as follows:
At December 31, 2019, we had gross unrealized losses on fixed maturity securities of $52,259, compared to gross unrealized losses of $1,778,831 at December 31, 2018. Most of these unrealized losses were attributable to fluctuations in interest rates. We have not observed any evidence which would lead us to believe that the entire amortized cost basis will not be recovered.
We use the asset and liability method of accounting for income taxes. Deferred income taxes arise from the recognition of temporary differences between financial statement carrying amounts and the tax bases of its assets and liabilities. The effect of a change in tax rates is recognized in the period of the enactment date.
During 2018, we experienced unfavorable development primarily related to significant reserve strengthening in the 2016 and 2017 accident years for both claims-made and occurrence policies.
We are required to participate in the Pennsylvania Property and Casualty Insurance Guaranty Association (“PIGA”), which was formed to pay claims on policies issued by insolvent Pennsylvania domiciled property and casualty insurers. Each Pennsylvania domiciled property and casualty insurer pays PIGA an annual assessment based on its premiums written in Pennsylvania.
At the holding company level, our primary sources of liquidity are dividends and tax payments received from Positive Insurance Company and capital raising activities. We utilize cash to pay debt obligations, taxes to the federal government, and corporate expenses. At December 31, 2019, we had $16,843,126 of cash and short-term investments at our holding company which we believe, combined with our other capital sources, will continue to provide us with sufficient funds to meet our foreseeable ongoing expenses and other obligations.
To the shareholders and the board of directors of Positive Physicians Holdings, Inc.:
The following table provides a reconciliation of our beginning and ending unpaid loss and loss adjustment expense (“LAE”) reserve balances for the years ended December 31, 2019 and 2018.
Deferred income taxes are provided for temporary differences between the consolidated and combined financial statements and the tax basis of the Company’s assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. At December 31, 2019 and 2018, the Company’s deferred income taxes consisted of the following: