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Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________

Commission file number: 001-39392

TREAN INSURANCE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-4512647
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
150 Lake Street West
Wayzata, MN 55391
(Address of principal executive offices and zip code)
 (952) 974-2200
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareTIGThe Nasdaq Global Select 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.    Yes     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒    No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," a "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes     No  
As of May 7, 2021, there were 51,148,782 shares of the registrant's common stock outstanding.


Table of Contents
TREAN INSURANCE GROUP, INC.
TABLE OF CONTENTS

2


Table of Contents
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
March 31, 2021December 31, 2020
Assets(unaudited)
Fixed maturities, at fair value (amortized cost of $369,671 and $388,409, respectively)
$378,131 $405,604 
Preferred stock, at fair value (amortized cost of $243 and $243, respectively)
237 240 
Common stock, at fair value (cost $741 and $1,554, respectively)
2,741 3,534 
Equity method investments 232 
Total investments381,109 409,610 
Cash and cash equivalents130,940 153,149 
Restricted cash5,996 4,085 
Accrued investment income2,253 2,458 
Premiums and other receivables121,740 109,217 
Income taxes receivable 1,322 
Reinsurance recoverable360,911 343,213 
Prepaid reinsurance premiums110,298 107,971 
Deferred policy acquisition cost, net5,029 1,332 
Property and equipment, net8,050 8,254 
Right of use asset5,844 6,338 
Goodwill140,640 140,640 
Intangible assets, net73,903 75,316 
Other assets9,334 6,878 
Total assets$1,356,047 $1,369,783 
Liabilities
Unpaid loss and loss adjustment expenses$485,532 $457,817 
Unearned premiums176,460 157,987 
Funds held under reinsurance agreements151,268 174,704 
Reinsurance premiums payable56,975 57,069 
Accounts payable and accrued expenses23,148 61,240 
Lease liability6,372 6,893 
Income taxes payable1,224  
Deferred tax liability10,620 12,329 
Debt31,473 31,637 
Total liabilities943,072 959,676 
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value per share (600,000,000 authorized; 51,148,782 issued and outstanding)
511 511 
Additional paid-in capital287,321 287,110 
Retained earnings119,750 112,959 
Accumulated other comprehensive income5,393 9,527 
Total stockholders' equity412,975 410,107 
Total liabilities and stockholders' equity$1,356,047 $1,369,783 
See accompanying notes to the condensed consolidated financial statements.
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Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated and Condensed Combined Statements of Operations
(in thousands, except share and per share data)
(unaudited)
Three Months Ended March 31,
20212020
Revenues
Gross written premiums$146,730 $107,859 
Increase in gross unearned premiums(18,431)(7,373)
Gross earned premiums128,299 100,486 
Ceded earned premiums(87,165)(78,027)
Net earned premiums41,134 22,459 
Net investment income1,592 3,272 
Net realized capital gains13 3,234 
Other revenue4,655 4,392 
Total revenue47,394 33,357 
Expenses
Losses and loss adjustment expenses24,881 12,934 
General and administrative expenses11,891 8,149 
Intangible asset amortization1,414 11 
Noncash stock compensation211  
Interest expense427 461 
Total expenses38,824 21,555 
Other income121 14 
Income before taxes8,691 11,816 
Income tax expense1,900 2,912 
Equity earnings in affiliates, net of tax 702 
Net income$6,791 $9,606 
Earnings per share:
Basic$0.13 $0.26 
Diluted$0.13 $0.26 
Weighted average shares outstanding:
Basic51,148,782 37,386,394 
Diluted51,179,820 37,386,394 
See accompanying notes to the condensed consolidated financial statements.
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Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated and Condensed Combined Statements of Comprehensive Income
(in thousands)
(unaudited)
Three Months Ended March 31,
20212020
Net income$6,791 $9,606 
Other comprehensive loss, net of tax:
Unrealized investment losses:
Unrealized investment losses arising during the period(5,220)(1,223)
Income tax benefit(1,096)(256)
Unrealized investment losses, net of tax(4,124)(967)
Less reclassification adjustments to:
Net realized investment gains included in net realized capital gains13 119 
Income tax expense3 26 
Total reclassifications included in net income, net of tax10 93 
Other comprehensive loss(4,134)(1,060)
Total comprehensive income$2,657 $8,546 
See accompanying notes to the condensed consolidated financial statements.
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Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated and Condensed Combined Statements of Stockholders' Equity and Redeemable Preferred Stock
For the Three Months Ended March 31, 2021 and 2020
(in thousands, except share and unit data)
(unaudited)

Common StockAdditional Paid in CapitalAccumulated Other Comprehensive Income Retained EarningsTotal Stockholders' Equity
SharesAmount
Balance at December 31, 202051,148,782 $511 $287,110 $9,527 $112,959 $410,107 
Stock compensation expense— — 211 — — 211 
Other comprehensive loss— — — (4,134)— (4,134)
Net income— — — — 6,791 6,791 
Balance at March 31, 202151,148,782 $511 $287,321 $5,393 $119,750 $412,975 




Members' Equity
Redeemable Preferred StockClass A - Non VotingClass B - VotingClass B - Non VotingClass C - Non VotingCommon StockAdditional Paid in CapitalAccumulated Other Comprehensive IncomeRetained EarningsTotal Stockholders' Equity
SharesAmountUnitsAmountUnitsAmountUnitsAmountUnitsAmountSharesAmount
Balance at December 31, 201951 $5,100 65,036,780 $65,037 5,045,215 $5,045 8,159,775 $8,160 196,588 $196  $ $17,995 $4,821 $40,361 $141,615 
Issuance of Class C units— — — — — — — — 19,659 20 — — — — — 20 
Other comprehensive loss— — — — — — — — — — — — — (1,060)— (1,060)
Net income— — — — — — — — — — — — — — 9,606 9,606 
Balance at March 31, 202051 $5,100 65,036,780 $65,037 5,045,215 $5,045 8,159,775 $8,160 216,247 $216  $ $17,995 $3,761 $49,967 $150,181 
See accompanying notes to the condensed consolidated financial statements.
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Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated and Condensed Combined Statements of Cash Flows
(in thousands)
(unaudited)
Three Months Ended March 31,
20212020
Operating activities
Net income$6,791 $9,606 
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization1,690 208 
Stock compensation211  
Net capital gains(24)(5,018)
Deferred offering costs (432)
Bond amortization and accretion588 399 
Issuance of member units as compensation 20 
Equity earnings in affiliates, net of tax (702)
Distributions from equity method investments 1,389 
Deferred income taxes(610)367 
Deferred financing costs42 25 
Changes in operating assets and liabilities:
Accrued investment income206 48 
Premiums and other receivables(12,523)(4,962)
Reinsurance recoverable on paid and unpaid losses(17,698)(6,422)
Prepaid reinsurance premiums(2,327)(3,606)
Right of use asset494 (5,721)
Other assets(6,154)(2,791)
Unpaid loss and loss adjustment expenses27,714 12,042 
Unearned premiums18,473 7,373 
Funds held under reinsurance agreements(8,869)1,358 
Reinsurance premiums payable(94)(5,522)
Accounts payable and accrued expenses(12,899)1,299 
Lease liability(521)5,926 
Income taxes payable2,546 2,544 
Net cash provided by (used in) operating activities(2,964)7,428 
Investing activities
Payments for capital expenditures(73)(504)
Proceeds from sale of equity method investment232 3,000 
Return of capital on equity method investment 115 
Purchase of investments, available for sale(37,678)(24,323)
Proceeds from investments sold, matured or repaid20,391 12,242 
Net cash used in investing activities(17,128)(9,470)
Financing activities
Principal payments on debt(206)(344)
Net cash used in financing activities(206)(344)
Net decrease in cash, cash equivalents and restricted cash(20,298)(2,386)
Cash, cash equivalents and restricted cash ‑ beginning of period157,234 76,068 
Cash, cash equivalents and restricted cash ‑ end of period$136,936 $73,682 
See accompanying notes to the condensed consolidated financial statements.
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Trean Insurance Group, Inc. and Subsidiaries
Condensed Consolidated and Condensed Combined Statements of Cash Flows
(in thousands)
(unaudited)
March 31,
Disaggregation of cash and restricted cash:20212020
Cash and cash equivalents$130,940 $70,656 
Restricted cash5,996 3,026 
Total cash, cash equivalents and restricted cash$136,936 $73,682 


Three Months Ended March 31,
Supplemental disclosure of cash flow information:20212020
Cash paid during the year for:
Interest$385 $436 
Non-cash investing and financing activity:
Right-of-use assets obtained in exchange for new operating lease liabilities2 6,261 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases615 424 

See accompanying notes to the condensed consolidated financial statements.
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Notes to the Condensed Consolidated and Condensed Combined Financial Statements

Note 1. Business and Basis of Presentation
In July 2020, Trean Insurance Group, Inc. (together with its wholly owned subsidiaries, the "Company") completed its initial public offering ("IPO") of common stock. Prior to the completion of the IPO, the Company effected the following reorganization transactions: (i) each of Trean Holdings LLC ("Trean"), an insurance services company, and BIC Holdings LLC ("BIC"), a property and casualty insurance holding company, contributed all of their respective assets and liabilities to Trean Insurance Group, Inc., a newly formed direct subsidiary of BIC, in exchange for shares of common stock in Trean Insurance Group, Inc. and (ii) upon the completion of the transfers by Trean and BIC, Trean and BIC were dissolved and distributed in-kind common shares to the pre-IPO unitholders.

For the purpose of financial statement disclosures, references to the condensed consolidated financial statements for all post-IPO periods include the accounts of Trean Insurance Group, Inc., along with its wholly owned subsidiaries, after elimination of intercompany accounts and transactions. References to the condensed consolidated financial statements for all pre-IPO periods include the condensed combined financial statements of BIC and Trean, along with their wholly owned subsidiaries, after elimination of intercompany accounts and transactions. All dollar amounts are shown in thousands, except share and per share amounts.

The Company provides products and services to the specialty insurance market. Historically, the Company has focused on specialty casualty markets that are believed to be under-served and where the Company’s expertise allows the Company to achieve higher rates, such as niche workers' compensation markets and small- to medium-sized specialty casualty insurance programs. The Company underwrites specialty-casualty insurance products both through programs where the Company partners with other organizations ("Program Partners"), and also through the Company’s own managing general agencies ("Owned MGAs"). The Company also provides Program Partners with a variety of services, including issuing carrier services, claims administration, and reinsurance brokerage from which the Company generates fee-based revenues.

The Company's wholly owned subsidiaries include (a) Benchmark Holding Company, a property and casualty insurance holding company, which owns Benchmark Insurance Company ("Benchmark"), a property and casualty insurance company domiciled in the state of Kansas, American Liberty Insurance Company ("ALIC"), a property and casualty insurance company domiciled in the state of Utah, and 7710 Insurance Company, a property and casualty insurance company domiciled in the state of South Carolina; (b) Trean Compstar Holdings, LLC, a limited liability company created originally for the purchase of Compstar Insurance Services LLC, a California-based general agency; and (c) Trean Corporation ("Trean Corp"), a reinsurance intermediary manager and a managing general agent, which consists of the following wholly owned subsidiaries: Trean Reinsurance Services, LLC, a reinsurance intermediary broker; Benchmark Administrators LLC, a claims third-party administrator; and Westcap Insurance Services, LLC, a managing general agent based in California.

The accompanying condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to the Quarterly Report on Form 10-Q under the Securities Exchange Act of 1934. Accordingly, they do not contain all of the information included in the Company's annual consolidated financial statements and notes. In the opinion of management, all adjustments (consisting of normal, recurring adjustments) necessary for a fair presentation of the Company’s condensed consolidated financial position and results of operations for the periods presented have been included. Although management believes the disclosures and information presented are adequate, these interim condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Form 10-K"). Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

Use of estimates

While preparing the condensed consolidated financial statements, the Company has made certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements, as well as reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ from those estimates. Reported amounts that require extensive use of estimates include the reserves for unpaid losses and loss adjustment expenses ("LAE"), reinsurance recoveries, investments and goodwill and other intangible assets. Except for the captions on the condensed consolidated balance sheets and condensed consolidated statements of comprehensive income, generally, the term loss(es) is used to collectively refer to both loss and LAE.
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Accounting pronouncements

Recently adopted policies

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04). This update provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. This standard is effective for the period between March 12, 2020 and December 31, 2022. The adoption of this standard did not have a material impact on the condensed consolidated financial statements.

Pending policies

The Company completed its IPO in July 2020, and is an emerging growth company as defined under federal securities laws. As such, the Company has elected to adopt pending accounting policies under the dates required for private companies. Therefore, the dates included within this section reflect the effective dates for the adoption of new accounting policies required by private companies.

In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments (ASU 2020-03). This update represents changes to clarify and improve the codification to allow for easier application by eliminating inconsistencies and providing clarification on items such as (i) the application of fair value option disclosures; (ii) the accounting for fees related to modifications of debt; and (iii) aligning the contractual term of a net investment in a lease in accordance with ASC Topic 326, Financial Instruments - Credit Losses, and the lease term determined in accordance with ASC Topic 842, Leases. The Company adopted items (i) and (ii) effective January 1, 2020 and will adopt item (iii) on January 1, 2023. Adoption of this standard has not had, and is not expected to have, a material impact on the condensed consolidated financial statements.

In January 2020, the FASB issued ASU No. 2020-01, Investments - Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivative and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323 and Topic 815 (ASU 2020-01). This update addresses the accounting for certain equity securities upon the application or discontinuation of the equity method of accounting. Further, the update addresses scope considerations for forward contracts and purchased options on certain securities. ASU 2020-01 is effective for annual periods beginning after December 15, 2021, including interim periods thereafter. The Company will adopt this standard effective January 1, 2022. Adoption of this standard is not expected to have a material impact on the condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (ASU 2016-13). This update requires financial assets measured at amortized cost to be presented at the net amount expected to be collected by means of an allowance for credit losses that runs through net income. Additionally, credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses, with the amount of the allowance limited to the amount by which the fair value is below the amortized cost. ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. The Company will adopt this standard effective January 1, 2023. The Company is currently evaluating the impact of this standard on the condensed consolidated financial statements.

Note 2. Acquisitions
7710 Insurance Company

Effective October 1, 2020, Benchmark Holding Company acquired 100% ownership of 7710 Insurance Company as well as its associated program manager and agency, 7710 Service Company, LLC and Creekwood Insurance Agency, LLC, for a purchase price of $12,140. 7710 Insurance Company underwrites workers' compensation primarily for emergency services, including firefighters and emergency medical services ("EMS"). 7710 Insurance Company focuses on reducing costs and claims through the implementation of a proprietary safety preparedness and loss control program, created and staffed by experienced firefighters and EMS professionals.

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The following table summarizes the consideration paid and the amounts of estimated fair value of the net assets acquired and liabilities assumed at the acquisition date:

Fair value of total consideration transferred$12,140 
Recognized amounts of identifiable assets acquired and liabilities assumed:
Fixed maturities895 
Cash and cash equivalents2,704 
Accrued investment income7 
Premiums and other receivables2,618 
Reinsurance recoverable5,069 
Prepaid reinsurance premiums920 
Deferred policy acquisition costs466 
Property and equipment22 
Right of use asset196 
Goodwill2,873 
Intangible assets3,299 
Other assets7,435 
Unpaid loss and loss adjustment expenses(8,117)
Unearned premiums(3,831)
Funds held under reinsurance agreements(421)
Accounts payable and accrued expenses(1,112)
Lease liability(220)
Deferred tax liabilities(394)
Debt(269)
Net assets acquired$12,140 


The assessment of fair value, the determination of the liability for unpaid loss and loss adjustment expense assumed, deferred taxes and other payables and receivables are preliminary and are based on the information that was available at the time the consolidated financial statements were prepared. Accordingly, the allocation of purchase price to intangible assets, goodwill, deferred tax assets and liabilities and the liability for unpaid loss and loss adjustment expense is preliminary and, therefore, subject to adjustment in future periods.

The Company recorded $2,873 of goodwill associated with the business combination. The goodwill recognized is attributable to the assembled workforce and the expected growth resulting from the acquisition.

The Company also recorded preliminary intangible assets totaling $3,299, which are comprised of the following:

Useful LifeBalance
Trade name15 years$458 
Customer relationships10 years2,841 
Total intangible assets$3,299 


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Compstar Holding Company LLC

Effective July 15, 2020, Trean Compstar Holdings LLC purchased the remaining 55% ownership interest in Compstar Holding Company LLC ("Compstar"), a holding company along with its wholly owned subsidiary Compstar Insurance Services, a managing general agent, by issuing 6,613,606 shares of the Company’s common stock with a market price of $15 per share on the date of acquisition. Prior to the acquisition date, the Company held a 45% ownership interest in Compstar and accounted for its investment under the equity method. The acquisition-date fair value of the Company’s previous equity interest was revalued using the market price of the shares issued as consideration for the acquisition. As a result, the fair value attributable to the Company’s previous equity interest was $81,167 and the carrying value was $11,321, and the Company therefore recorded a gain of $69,846 from the remeasurement of its previous equity interest.

The following table summarizes the consideration paid and the amounts of estimated fair value of the net assets acquired and liabilities assumed at the acquisition date. The assessment of fair value and the determination of deferred taxes and other payables and receivables are preliminary and is based on the information that was available at the time the condensed consolidated financial statements were prepared. Accordingly, the allocation of purchase price to intangible assets and to deferred tax assets and liabilities is preliminary and, therefore, subject to adjustment in future periods.

Fair value of total consideration transferred$99,204 
Previous investment in subsidiary11,321 
Fair value adjustment to prior investment69,846 
Fair value of assets acquired and liabilities assumed180,371 
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents11,891 
Premiums and other receivables3,632 
Property and equipment444 
Right of use asset1,020 
Goodwill134,428 
Intangible assets, net73,954 
Other assets184 
Accounts payable and accrued expenses(11,328)
Lease liability(1,302)
Deferred tax liabilities(12,487)
Debt(20,065)
Net assets acquired$180,371 


The Company recorded $134,428 of goodwill associated with the business combination. The goodwill recognized is attributable to the assembled workforce, the expected growth resulting from the acquisition and synergies gained through the reduction of operating expenses.

The Company also recorded intangible assets totaling $73,954, which are comprised of the following:

Useful LifeBalance
Trade name15 years$3,157 
Customer relationships14 years70,797 
Total intangible assets$73,954 

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LCTA Risk Services, Inc.

Effective April 1, 2020, Trean Corp purchased 100% of the operating assets and assumed the liabilities of LCTA Risk Services, Inc. The total purchase price was $1,400. The following table summarizes the consideration paid and the amounts of estimated fair value of the net assets acquired and liabilities assumed at the acquisition date:

Fair value of total consideration transferred$1,400 
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash and cash equivalents302 
Premiums and other receivables55 
Property and equipment63 
Goodwill517 
Intangible assets, net482 
Other assets12 
Accounts payable(17)
Income taxes payable(14)
Net assets acquired$1,400 


The Company recorded $517 of goodwill associated with the business combination. The goodwill recognized is attributable to the expected growth resulting from the acquisition and the synergies gained through the reduction of operating expenses.

Note 3. Fair Value Measurements

The Company’s financial instruments include assets and liabilities carried at fair value. The inputs to valuation techniques used to measure fair value are prioritized into a three level hierarchy. The fair value hierarchy is as follows:

Level 1: Fair values primarily based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2: Fair values primarily based on observable inputs, other than quoted prices included in Level 1, or based on prices for similar assets and liabilities.

Level 3: Fair values primarily based on valuations derived when one or more of the significant inputs are unobservable. With little or no observable market, the determination of fair value uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability.

The Company classifies the financial asset or liability by level based upon the lowest level input that is significant to the determination of the fair value. The following tables present the estimated fair value of the Company’s significant financial instruments.

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March 31, 2021
Level 1Level 2Level 3Total
Fixed maturities:
U.S. government and government securities$16,833 $175 $ $17,008 
Foreign governments 101  101 
States, territories and possessions 8,393  8,393 
Political subdivisions of states territories and possessions 30,451  30,451 
Special revenue and special assessment obligations 91,175  91,175 
Industrial and public utilities 93,289  93,289 
Commercial mortgage-backed securities 13,256  13,256 
Residential mortgage-backed securities 87,687  87,687 
Other loan-backed securities 36,419  36,419 
Hybrid securities 352  352 
Total fixed maturities16,833 361,298  378,131 
Equity securities:
Preferred stock 237  237 
Common stock 741 2,000 2,741 
Total equity securities 978 2,000 2,978 
Total investments$16,833 $362,276 $2,000 $381,109 
Funds held under reinsurance agreements 151,268  151,268 
Debt 32,175  32,175 


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December 31, 2020
Level 1Level 2Level 3Total
Fixed maturities:
U.S. government and government securities$17,471 $ $ $17,471 
Foreign governments 302  302 
States, territories and possessions 7,774  7,774 
Political subdivisions of states, territories and possessions 33,212  33,212 
Special revenue and special assessment obligations 81,714  81,714 
Industrial and public utilities 113,741  113,741 
Commercial mortgage-backed securities 18,066  18,066 
Residential mortgage-backed securities 93,017  93,017 
Other loan-backed securities 39,945  39,945 
Hybrid securities 362  362 
Total fixed maturities17,471 388,133  405,604 
Equity securities:
Preferred stock 240  240 
Common stock958 576 2,000 3,534 
Total equity securities958 816 2,000 3,774 
Total investments$18,429 $388,949 $2,000 $409,378 
Funds held under reinsurance agreements$ $174,704 $ $174,704 
Debt 32,381  32,381 


Bonds and equity securities: The Company, in conjunction with its third-party pricing service provider, uses a variety of sources to estimate the fair value of investments such as Reuters, Iboxx, PricingDirect, ICE BofAML Index, ICE Data Services, and for equities, Bloomberg. Equity securities are valued at the closing price on the exchange on which they are primarily traded as provided by a third-party pricing service. Fixed income securities are generally valued at an evaluated bid as provided by a third-party pricing service. Securities and other assets generally valued using third-party pricing services may also be valued at broker/dealer bid quotations. Values obtained from third-party pricing services can utilize several data sources for inputs such as transaction data, yield, quality, coupon rate, maturity, issue type, trading characteristics and market activity. To validate the reasonableness of the quoted prices, the Company performs various qualitative and quantitative procedures such as analysis of recent trading activity, analytical review of fair values and an evaluation of the underlying pricing methodologies. Based on these procedures, the Company did not adjust the prices or quotes from the third-party pricing service.

Funds held under reinsurance agreements: The Company holds certain investments as collateral under reinsurance contracts and values these investments consistent with its other investments using third-party pricing services. To validate the reasonableness of the quoted prices, the Company performs various qualitative and quantitative procedures such as analysis of recent activity, analytical review of fair values and an evaluation of the underlying pricing methodologies. Based on these procedures, the Company did not adjust the prices or quotes from the third-party pricing service.

Debt: The Company holds debt related to its secured credit facility. The Company has determined that the remaining balance of the debt reflected its fair value as this would represent the total amount to repay the debt.

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Note 4. Investments
The cost or amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair value of the Company's investments are as follows:

March 31, 2021
Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Fixed maturities:
U.S. government and government securities$16,796 $243 $(31)$17,008 
Foreign governments100 1  101 
States, territories and possessions8,273 163 (43)8,393 
Political subdivisions of states, territories and possessions29,770 881 (200)30,451 
Special revenue and special assessment obligations89,087 2,957 (869)91,175 
Industrial and public utilities88,996 4,422 (129)93,289 
Commercial mortgage-backed securities12,400 891 (35)13,256 
Residential mortgage-backed securities88,020 1,154 (1,487)87,687 
Other loan-backed securities35,873 570 (24)36,419 
Hybrid securities356 3 (7)352 
Total fixed maturities available for sale369,671 11,285 (2,825)378,131 
Equity securities:
Preferred stock243 1 (7)237 
Common stock741 2,000  2,741 
Total equity securities984 2,001 (7)2,978 
Total investments$370,655 $13,286 $(2,832)$381,109 


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December 31, 2020
Cost or
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Value
Fixed maturities:
U.S. government and government securities$17,135 $336 $ $17,471 
Foreign governments300 2  302 
States, territories and possessions7,500 274  7,774 
Political subdivisions of states, territories and possessions31,759 1,453  33,212 
Special revenue and special assessment obligations77,329 4,422 (37)81,714 
Industrial and public utilities107,017 6,768 (44)113,741 
Commercial mortgage-backed securities16,242 1,848 (24)18,066 
Residential mortgage-backed securities91,478 1,626 (87)93,017 
Other loan-backed securities39,293 719 (67)39,945 
Hybrid securities356 6  362 
Total fixed maturities available for sale388,409 17,454 (259)405,604 
Equity securities:
Preferred stock243  (3)240 
Common stock1,554 2,053 (73)3,534 
Total equity securities1,797 2,053 (76)3,774 
Total investments$390,206 $19,507 $(335)$409,378 


The following table illustrates the Company’s gross unrealized losses and fair value of fixed maturities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
March 31, 2021
Less Than 12 Months12 Months or MoreTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
Fixed maturities:
U.S. government and government securities$6,222 $(31)$ $ $6,222 $(31)
Foreign governments      
States, territories and possessions2,282 (43)  2,282 (43)
Political subdivisions of states, territories and possessions6,449 (200)  6,449 (200)
Special revenue and special assessment obligations28,661 (869)  28,661 (869)
Industrial and public utilities3,557 (116)986 (13)4,543 (129)
Commercial mortgage-backed securities8  987 (35)