Protective Insurance Corp (Form: 10-Q, Received: 08/07/2019 16:59:01)

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 June 30, 2019

☐	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: 0-5534

PROTECTIVE INSURANCE CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ✓ No ____

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

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

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

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

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

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

Common Stock, No Par Value:	Class A (voting)	2,612,288
	Class B (non-voting)	11,779,483
		14,391,771

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share data)

	June 30 2019		December 31 2018
Assets
Investments:
Fixed income securities	$	737,148	$	592,645
Equity securities		74,555		66,422
Limited partnerships		35,535		55,044
Commercial mortgage loans		8,884		6,672
Short-term and other		1,000		1,000
		857,122		721,783

Cash and cash equivalents		80,772		163,996
Restricted cash and cash equivalents		16,333		6,815
Accounts receivable		111,573		102,972
Reinsurance recoverable		410,445		392,436
Other assets		87,425		88,426
Current federal income taxes recoverable		4,599		7,441
Deferred federal income taxes		2,757		6,262
	$	1,571,026	$	1,490,131

Liabilities and shareholders' equity
Reserves for losses and loss expenses	$	933,463	$	865,339
Reserves for unearned premiums		79,429		71,625
Reinsurance payable		59,313		66,632
Short-term borrowings		20,000		20,000
Accounts payable and other liabilities		111,405		110,453
		1,203,610		1,134,049
Shareholders' equity:
Common stock-no par value:
Class A voting -- authorized 3,000,000 shares; outstanding -- 2019 - 2,612,446; 2018 - 2,615,339		112		112
Class B non-voting -- authorized 20,000,000 shares; outstanding -- 2019 - 11,932,076; 2018 - 12,253,922		509		522
Additional paid-in capital		54,065		54,720
Accumulated other comprehensive income (loss)		8,217		(7,347	)
Retained earnings		304,513		308,075
		367,416		356,082
	$	1,571,026	$	1,490,131

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share data)

	Three Months Ended June 30						Six Months Ended June 30
	2019			2018			2019			2018
Revenues
Net premiums earned	$	115,631		$	111,940		$	225,644		$	217,402
Net investment income		6,500			5,796			12,732			10,432
Commissions and other income		1,978			2,263			4,043			4,076
Net realized gains on investments, excluding impairment losses		713			915			673			1,290
Other-than-temporary impairment losses on investments		(86	)		–			(346	)		–
Net unrealized gains (losses) on equity securities and limited partnership investments		2,262			(4,350	)		8,589			(9,258	)
Net realized and unrealized gains (losses) on investments		2,889			(3,435	)		8,916			(7,968	)
		126,998			116,564			251,335			223,942

Expenses
Losses and loss expenses incurred		90,433			77,488			177,555			149,787
Other operating expenses		34,615			36,019			68,316			70,784
		125,048			113,507			245,871			220,571
Income before federal income tax expense		1,950			3,057			5,464			3,371
Federal income tax expense		415			570			1,181			554
Net income	$	1,535		$	2,487		$	4,283		$	2,817

Per share data:
Basic and diluted earnings	$	.11		$	.17		$	.28		$	.19

Dividends paid to shareholders	$	.10		$	.28		$	.20		$	.56

Reconciliation of shares outstanding:
Average shares outstanding - basic		14,616			15,014			14,731			15,012
Dilutive effect of share equivalents		63			9			60			9
Average shares outstanding - diluted		14,679			15,023			14,791			15,021

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	Three Months Ended June 30					Six Months Ended June 30
	2019		2018			2019		2018
Net income	$	1,535	$	2,487		$	4,283	$	2,817

Other comprehensive income (loss), net of tax:
Unrealized net gains (losses) on fixed income securities		6,517		(2,026	)		14,973		(5,147	)

Foreign currency translation adjustments		284		(188	)		591		(411	)

Other comprehensive income (loss)		6,801		(2,214	)		15,564		(5,558	)

Comprehensive income (loss)	$	8,336	$	273		$	19,847	$	(2,741	)

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Shareholders' Equity

(in thousands)

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

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

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Shareholders' Equity

(in thousands)

	Common Stock										Additional			Accumulated Other
	Class A				Class B						Paid-in			Comprehensive			Retained			Total
Description	Shares		Amount		Shares			Amount			Capital			Income (Loss)			Earnings			Equity
Balance at December 31, 2017		2,623	$	112		12,424		$	530		$	55,078		$	46,391		$	316,700		$	418,811
Cumulative effect of adoption of ASU 2016-01, net of tax (Note 1)		–		–		–			–			–			(46,157	)		46,157			–
Cumulative effect of adoption of ASU 2018-02 (Note 1)		–		–		–			–			–			117			(117	)		–
Net income		–		–		–			–			–			–			2,817			2,817
Foreign currency translation adjustment, net of tax		–		–		–			–			–			(411	)		–			(411	)
Change in unrealized gain (loss) on investments, net of tax		–		–		–			–			–			(5,147	)		–			(5,147	)
Common stock dividends		–		–		–			–			–			–			(8,456	)		(8,456	)
Repurchase of common stock		–		–		(54	)		(2	)		(234	)		–			(1,044	)		(1,280	)
Restricted stock grants		–		–		10			–			901			–			–			901
Balance at June 30, 2018		2,623	$	112		12,380		$	528		$	55,745		$	(5,207	)	$	356,057		$	407,235

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

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

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

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

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

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

Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents		(73,706	)		14,092
Cash, cash equivalents and restricted cash and cash equivalents at beginning of period		170,811			68,713
Cash, cash equivalents and restricted cash and cash equivalents at end of period	$	97,105		$	82,805

See notes to condensed consolidated financial statements.

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Notes to Unaudited Condensed Consolidated Financial Statements

(All dollar amounts presented in these notes are in thousands, except share and per share data)

(1) Summary of Significant Accounting Policies:

Description of Business: Protective Insurance Corporation (the "Company"), based in Carmel, Indiana, is a property-casualty insurer specializing in marketing and underwriting property, liability and workers' compensation coverage for trucking and public transportation fleets, as well as coverage for trucking industry independent contractors. In addition, the Company offers workers' compensation coverage for a variety of operations outside the transportation industry. The Company operates as one reportable property and casualty insurance segment, offering a range of products and services, the most significant being commercial automobile and workers' compensation insurance products.

The term “Insurance Subsidiaries,” as used throughout this document, refers to Protective Insurance Company, Protective Specialty Insurance Company, Sagamore Insurance Company and B&L Insurance, Ltd.

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Interim financial statements should be read in conjunction with the Company's annual audited financial statements and other disclosures included in the Company's most recent Annual Report on Form 10-K. Operating results for interim periods are not necessarily indicative of results that may be expected for the year ending December 31, 2019 or any other future period.

Investments : Carrying amounts for fixed income securities represent fair value and are based on quoted market prices, where available, or broker/dealer quotes for specific securities where quoted market prices are not available. Equity securities are carried at quoted market prices (fair value). Commercial mortgage loans are carried primarily at amortized cost along with a valuation allowance for losses when necessary. These investments represent interests in commercial mortgage loans originated and serviced by a third party of which the Company shares, on a pro-rata basis, in all related cash flows of the underlying mortgage loans. There was no valuation allowance on the Company's commercial mortgage loans as of June 30, 2019.

The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to record its proportionate share of the limited partnership's net income. To the extent the limited partnerships include both realized and unrealized investment gains or losses in the determination of net income or loss, then the Company would also recognize, through its condensed consolidated statements of operations, its proportionate share of the investee's unrealized, as well as realized, investment gains or losses within net unrealized gains (losses) on equity securities and limited partnership investments.

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

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

Effective January 1, 2018, the Company adopted new accounting guidance that requires equity securities to be recorded at fair value, with unrealized net gains or losses reflected as a component of net unrealized gains (losses) on equity securities and limited partnership investments within the condensed consolidated statements of operations. Realized gains and losses on disposals of equity securities are recorded on the trade date and included in net realized gains on investments, excluding impairment losses. Prior to adoption of the new accounting guidance, unrealized gains and losses related to equity securities were reflected directly in shareholders’ equity unless a decline in value was determined to be other-than-temporary, in which case the loss was charged to income.

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

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The credit component of an other-than-temporary impairment is determined by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed income security. The net present value is calculated by discounting the Company's best estimate of projected future cash flows at the appropriate effective interest rate.

Recognition of Revenue and Costs: Premiums are earned over the period for which insurance protection is provided. A reserve for unearned premiums, computed by the daily pro-rata method, is established to reflect amounts applicable to subsequent accounting periods. Commissions to unaffiliated companies and premium taxes applicable to unearned premiums are deferred and expensed as the related premiums are earned. The Company does not defer acquisition costs that are not directly variable with the production of premiums. If it is determined that expected losses and deferred expenses will likely exceed the related unearned premiums, the asset representing deferred policy acquisition costs is reduced and an expense is charged against current operations to reflect any such premium deficiency. In the event that the expected premium deficiency exceeds deferred policy acquisition costs, an additional liability would be recorded with a corresponding expense to current operations for the amount of the excess premium deficiency. Anticipated investment income is considered in determining recoverability of deferred acquisition costs. The Company had no material contract assets, contract liabilities, or deferred contract costs recorded on its condensed consolidated balance sheet at June 30, 2019.

Recently Adopted Accounting Pronouncements: In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, or ASU 2016-01. The amendments in ASU 2016-01 changed the accounting for non-consolidated equity investments that are not accounted for under the equity method of accounting by requiring changes in fair value to be recognized in income. Previously, the Company's equity securities were classified as available-for-sale and changes in fair value were recognized in accumulated other comprehensive income (loss) as a component of shareholders' equity. The Company adopted ASU 2016-01 as of January 1, 2018 using the modified retrospective approach and recorded a cumulative-effect adjustment to reclassify unrealized gains on equity securities of $71,012 ($46,157, net of tax) from other comprehensive income (loss) to retained earnings within the consolidated balance sheet as of December 31, 2018. Going forward, unrealized gains or losses on equity securities will be recognized in the consolidated statements of operations within net unrealized gains (losses) on equity securities and limited partnership investments.

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

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220). This ASU allows for the option to reclassify, from accumulated other comprehensive income (loss) to retained earnings, stranded tax effects resulting from the newly enacted federal corporate income tax rate in the U.S. Tax Cuts and Jobs Act of 2017 (the "U.S. Tax Act"), which was enacted on December 22, 2017. The legislation included a reduction to the corporate income tax rate from 35 percent to 21 percent effective January 1, 2018. The amount of the reclassification was the difference between the historical corporate income tax rate and the newly enacted 21 percent corporate income tax rate. The Company adopted the new guidance in the first quarter of 2018 and recorded a cumulative-effect adjustment to reclassify the tax effects on fixed income investments of $117 from other comprehensive income (loss) to retained earnings within the consolidated balance sheet as of December 31, 2018.

In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements. This update provides clarification, corrects errors in and makes minor improvements to various ASC topics. Many of the amendments in this update have transition guidance with effective dates for annual periods beginning after December 15, 2018, and some amendments in this update do not require transition guidance and were effective upon issuance of this update. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

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

In May 2019, the FASB issued ASU No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. These updates provide an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost and provide additional clarification and implementation guidance on certain aspects of the previously issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, and have the same effective date and transition requirements as ASU 2016-13. ASU 2016-13 introduces a current expected credit loss model for measuring expected credit losses for certain types of financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. ASU 2016-13 replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities, and provides for additional disclosure requirements. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for interim and annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the effects the adoption of ASU 2016-13 will have on its consolidated financial statements.

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(2) Investments:

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

	Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gains (Losses)
June 30, 2019
Fixed income securities
Agency collateralized mortgage obligations	$	15,730	$	15,384	$	352	$	(6	)	$	346
Agency mortgage-backed securities		41,031		39,609		1,438		(16	)		1,422
Asset-backed securities		94,880		94,847		539		(506	)		33
Bank loans		16,074		16,279		60		(265	)		(205	)
Certificates of deposit		2,835		2,835		–		–			–
Collateralized mortgage obligations		6,165		5,686		549		(70	)		479
Corporate securities		256,318		251,977		5,185		(844	)		4,341
Mortgage-backed securities		42,506		41,706		946		(146	)		800
Municipal obligations		32,834		32,177		688		(31	)		657
Non-U.S. government obligations		31,378		31,064		326		(12	)		314
U.S. government obligations		197,397		194,489		3,092		(184	)		2,908
Total fixed income securities	$	737,148	$	726,053	$	13,175	$	(2,080	)	$	11,095

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

The following table summarizes, for available-for-sale fixed income securities in an unrealized loss position at June 30, 2019 and December 31, 2018, the aggregate fair value and gross unrealized loss categorized by the duration individual securities have been continuously in an unrealized loss position.

	June 30, 2019							December 31, 2018
	Number of Securities		Fair Value		Gross Unrealized Loss			Number of Securities		Fair Value		Gross Unrealized Loss
Fixed income securities:
12 months or less		81	$	76,363	$	(1,166	)		275	$	282,646	$	(7,296	)
Greater than 12 months		149		95,614		(914	)		217		131,001		(3,497	)
Total fixed income securities		230	$	171,977	$	(2,080	)		492	$	413,647	$	(10,793	)

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The fair value and the cost or amortized costs of fixed income investments at June 30, 2019, organized by contractual maturity, are shown below. Actual maturities may ultimately differ from contractual maturities because borrowers have, in some cases, the right to call or prepay obligations with or without call or prepayment penalties. Pre-refunded municipal bonds are classified based on their pre-refunded call dates.

	Fair Value		Cost or Amortized Cost
One year or less	$	99,531	$	99,574
Excess of one year to five years		342,358		336,988
Excess of five years to ten years		89,596		87,051
Excess of ten years		11,517		10,894
Contractual maturities		543,002		534,507
Asset-backed securities		194,146		191,546
Total	$	737,148	$	726,053

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

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

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

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

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

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

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

(3) Reinsurance:

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

	2019		2018
Three months ended June 30:
Premiums ceded to reinsurers	$	32,425	$	28,800
Losses and loss expenses ceded to reinsurers		28,859		21,975
Commissions from reinsurers		8,176		6,443

Six months ended June 30:
Premiums ceded to reinsurers	$	62,598	$	61,241
Losses and loss expenses ceded to reinsurers		59,648		48,636
Commissions from reinsurers		15,410		14,323

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(4) Loss and Loss Expense Reserves:

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

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

Provision for losses and loss expenses:
Claims occurring during the current period		179,211			151,462
Claims occurring during prior periods		(1,656	)		(1,675	)
Total incurred		177,555			149,787

Loss and loss expense payments:
Claims occurring during the current period		30,573			28,903
Claims occurring during prior periods		92,822			88,965
Total paid		123,395			117,868
Reserves at the end of the period		543,564			404,050

Reinsurance recoverable on unpaid losses at the end of the period		389,899			312,231
Reserves, gross of reinsurance recoverable, at the end of the period	$	933,463		$	716,281

The table above shows a reserve savings of $1,656 that developed during the six months ended June 30, 2019 in the settlement of claims occurring on or before December 31, 2018. Losses incurred from claims occurring during prior years reflect the development from prior accident years, composed of individual claim savings and deficiencies which, in the aggregate, have resulted from the settlement of claims at amounts higher or lower than previously reserved and from changes in estimates of losses incurred but not reported.

The $1,656 prior accident year savings that developed during the six months ended June 30, 2019 was primarily due to favorable loss development in workers' compensation and independent contractor coverages. This savings compares to a savings of $1,675 for the six months ended June 30, 2018, which was also related to favorable loss development from workers' compensation and independent contractor coverages.

(5) Segment Information:

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

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

	Three Months Ended June 30					Six Months Ended June 30
	2019		2018			2019		2018
Revenues:
Net premiums earned	$	115,631	$	111,940		$	225,644	$	217,402
Net investment income		6,500		5,796			12,732		10,432
Net realized and unrealized gains (losses) on investments		2,889		(3,435	)		8,916		(7,968	)
Commissions and other income		1,978		2,263			4,043		4,076
Total revenues	$	126,998	$	116,564		$	251,335	$	223,942

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(6) Debt:

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

(7) Taxes:

The effective federal tax rate on consolidated income for the three months ended June 30, 2019 was 21.3% compared to 18.6% for the three months ended June 30, 2018. The effective federal tax rate on consolidated income for the six months ended June 30, 2019 was 21.6% compared to 16.4% for the six months ended June 30, 2018. The effective federal income tax rate differs from the normal statutory rate primarily as a result of tax-exempt investment income. For the three and six months ended June 30, 2019, the Company had lower tax-exempt income when compared to the same periods in 2018, primarily due to the reduction of tax exempt municipal securities within the Company's investment portfolio in the current year as well as a decrease in dividend income, which provides a deduction for taxes, related to the reallocation of equity securities to fixed income securities within the Company’s investment portfolio throughout 2018.

As of June 30, 2019, the Company's calendar years 2017, 2016 and 2015 r emain subject to examination by the Internal Revenue Service.

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(8) Fair Value:

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

As of June 30, 2019:

Description	Total		Level 1		Level 2		Level 3
Fixed income securities:
Agency collateralized mortgage obligations	$	15,730	$	–	$	15,730	$	–
Agency mortgage-backed securities		41,031		–		41,031		–
Asset-backed securities		94,880		–		94,880		–
Bank loans		16,074		–		16,074		–
Certificates of deposit		2,835		2,835		–		–
Collateralized mortgage obligations		6,165		–		6,165		–
Corporate securities		251,394		–		251,394		–
Options embedded in convertible securities		4,924		–		4,924		–
Mortgage-backed securities		42,506		–		42,506		–
Municipal obligations		32,834		–		32,834		–
Non-U.S. government obligations		31,378		–		31,378		–
U.S. government obligations		197,397		–		197,397		–
Total fixed income securities		737,148		2,835		734,313		–
Equity securities:
Consumer		17,125		17,125		–		–
Energy		3,340		3,340		–		–
Financial		29,117		29,117		–		–
Industrial		4,176		4,176		–		–
Technology		2,414		2,414		–		–
Funds (e.g. mutual funds, closed end funds, ETFs)		9,796		9,796		–		–
Other		8,587		8,587		–		–
Total equity securities		74,555		74,555		–		–
Short-term		1,000		1,000		–		–
Cash equivalents		76,967		–		76,967		–
Total	$	889,670	$	78,390	$	811,280	$	–

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As of December 31, 2018:

Description	Total		Level 1		Level 2		Level 3
Fixed income securities:
Agency collateralized mortgage obligations	$	10,687	$	–	$	10,687	$	–
Agency mortgage-backed securities		37,385		–		37,385		–
Asset-backed securities		64,422		–		64,422		–
Bank loans		9,750		–		9,750		–
Certificates of deposit		2,835		2,835		–		–
Collateralized mortgage obligations		5,423		–		5,423		–
Corporate securities		186,651		–		186,651		–
Options embedded in convertible securities		3,799		–		3,799		–
Mortgage-backed securities		38,540		–		38,540		–
Municipal obligations		29,155		–		29,155		–
Non-U.S. government obligations		25,180		–		25,180		–
U.S. government obligations		178,818		–		178,818		–
Total fixed income securities		592,645		2,835		589,810		–
Equity securities:
Consumer		17,945		17,945		–		–
Energy		3,179		3,179		–		–
Financial		25,253		25,253		–		–
Industrial		6,920		6,920		–		–
Technology		2,303		2,303		–		–
Funds (e.g. mutual funds, closed end funds, ETFs)		5,489		5,489		–		–
Other		5,333		5,333		–		–
Total equity securities		66,422		66,422		–		–
Short-term		1,000		1,000		–		–
Cash equivalents		156,855		–		156,855		–
Total	$	816,922	$	70,257	$	746,665	$	–

Level inputs, as defined by the FASB guidance, are as follows:

Level Input:		Input Definition:

Level 1		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

Level 2		Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.

Level 3		Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The Company did not have any Level 3 assets at June 30, 2019 or December 31, 2018. Level 3 assets, when present, are valued using various unobservable inputs including extrapolated data, proprietary models and indicative quotes.

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

Transfers between levels, if any, are recorded as of the beginning of the reporting period. There were no significant transfers of assets between Level 1 and Level 2 during the six months ended June 30, 2019 and 2018.

In addition to the preceding disclosures on assets recorded at fair value in the condensed consolidated balance sheets, FASB guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in the condensed consolidated balance sheets.

Non-financial instruments such as real estate, property and equipment, other assets, deferred income taxes and intangible assets, and certain financial instruments such as policy reserve liabilities are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to determine the underlying economic value of the Company. The following methods, assumptions and inputs were used to estimate the fair value of each class of financial instrument:

- 16 -

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

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

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

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

	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total
June 30, 2019
Assets:
Limited partnerships	$	35,535	$	–	$	–	$	35,535	$	35,535
Commercial mortgage loans		8,884		–		–		8,884		8,884
Liabilities:
Short-term borrowings		20,000		–		20,000		–		20,000

December 31, 2018
Assets:
Limited partnerships	$	55,044	$	–	$	–	$	55,044	$	55,044
Commercial mortgage loans		6,672		–		–		6,672		6,672
Liabilities:
Short-term borrowings		20,000		–		20,000		–		20,000

(9) Stock-Based Compensation:

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

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

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

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

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

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

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

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

- 17 -

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

In May 2017, the Company's Compensation Committee granted equity-based awards pursuant to the Company's Long-Term Incentive Plan (the "Long-Term Incentive Plan"), which was approved by the Company's shareholders at the 2017 Annual Meeting of Shareholders. Certain participants under the Long-Term Incentive Plan were granted Value Creation Incentive Plan awards (the "2017 VCIP Awards"). The 2017 VCIP Awards are performance-based equity awards that will be earned based on the Company's cumulative operating income over a three-year performance period from January 1, 2017 through December 31, 2019 relative to a cumulative operating income goal for the period set by the Compensation Committee in March 2017. For the purpose of the 2017 VCIP Awards, cumulative operating income is equal to income before taxes excluding net realized gains (losses) on investments. Any 2017 VCIP Awards that are earned will be paid in unrestricted shares of the Company's Class B Common Stock at the end of the three-year performance period, but no later than March 15, 2020. No shares are eligible to be issued under the 2017 VCIP Awards as of June 30, 2019.

In March 2018, the Company's Compensation Committee granted equity-based awards pursuant to the Long-Term Incentive Plan. Certain participants under the Long-Term Incentive Plan were granted equity awards (the "2018 LTIP Awards"), with the number of shares of Class B Common Stock earned pursuant to such awards determined by applying a performance matrix consisting of a measurement of the combined results of the Company's 2018 growth in gross premiums earned and the Company's 2018 combined ratio. The combined ratio is calculated as a ratio of (A) losses and loss expenses incurred, plus other operating expenses, less commission and other income to (B) net premiums earned. No 2018 LTIP Awards were earned based on the Company's performance in 2018, and therefore no shares were issued pursuant to the 2018 LTIP Awards. I n addition to the 2018 LTIP Awards, in March 2018 the Company's Compensation Committee also granted Value Creation Incentive Plan awards (the "2018 VCIP Awards") to certain participants under the Long-Term Incentive Plan. The 2018 VCIP Awards are performance-based equity awards that will be earned based on the Company's cumulative operating income, as defined above, over a three-year performance period from January 1, 2018 through December 31, 2020 relative to a cumulative operating income goal for the period set by the Compensation Committee in March 2018. Any 2018 VCIP Awards that are earned will be paid in unrestricted shares of the Company's Class B Common Stock at the end of the three-year performance period, but no later than March 15, 2021. No shares are eligible to be issued under the 2018 VCIP Awards as of June 30, 2019.

On November 13, 2018, the Company entered into an employment agreement with its Interim Chief Executive Officer, John D. Nichols, Jr. Pursuant to the terms of this employment agreement, on November 13, 2018, Mr. Nichols was granted 85,000 restricted shares of the Company's Class B Common Stock (the "Nichols Stock Grant"), of which 42,500 shares will vest as of October 17, 2019; 21,250 shares will vest as of October 17, 2020, and 21,250 shares will vest as of October 17, 2021. The Company recorded $559 of expense during the six months ended June 30, 2019 related to the Nichols Stock Grant.

In March 2019, the Company's Compensation Committee granted equity-based awards pursuant to the Long-Term Incentive Plan. Certain participants under the Long-Term Incentive Plan were granted equity awards (the "2019 LTIP Awards"), with the number of shares of Class B Common Stock earned pursuant to such awards determined by applying a performance matrix consisting of a corporate performance component as well as a personal performance component. The corporate performance component of the 2019 LTIP Awards will be determined based on the Company's achievement of 2019 underwriting income compared to the plan target. The Company's underwriting income will be calculated as income (loss) before federal income tax expense (benefit), less net realized gains (losses) on investments, less net unrealized gains (losses) on equity securities and limited partnerships, less net investment income. The personal performance component of the 2019 LTIP Awards will be determined based on the achievement of personal goals that align with departmental and corporate objectives for 2019. Any 2019 LTIP Awards earned will be paid in shares of restricted Class B Common Stock in early 2020. One-third of such shares will vest annually over the three-year period beginning one year from the date of issue. The Company recorded $51 of expense during the six months ended June 30, 2019 related to the 2019 LTIP Awards.

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

- 18 -

(10) Litigation, Commitments and Contingencies:

In the ordinary, regular and routine course of their business, the Company and its Insurance Subsidiaries are frequently involved in various matters of litigation relating principally to claims for insurance coverage provided. No currently pending matter is deemed by management to be material to the Company.

Personnel Staffing Group Litigation

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

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

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

(11) Shareholders' Equity:

On August 31, 2017, the Company's Board of Directors authorized the reinstatement of its share repurchase program for up to 2,464,209 shares of the Company's Class A or Class B Common Stock. On August 7, 2018, the Company's Board of Directors reaffirmed its share repurchase program, but also provided that the aggregate dollar amount of shares of the Company's Common Stock that may be repurchased under the share repurchase program through August 8, 2019 may not exceed $25,000. As of June 30, 2019, the Company has repurchased $9,293 under the share repurchase program. Pursuant to this share repurchase program, the Company entered into a Rule 10b5-1 plan on June 21, 2019, which authorized the repurchase of up to $4,000 of the Company's outstanding Common Stock at various pricing thresholds, in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934. The Rule 10b5-1 plan expires on August 8, 2019. No duration has been placed on the Company's share repurchase program, and the Company reserves the right to amend, suspend or discontinue it at any time. The share repurchase program does not commit the Company to repurchase any shares of its Common Stock.

During the six months ended June 30, 2019, the Company paid $6,487 to repurchase 2,893 shares of Class A and 371,188 shares of Class B Common Stock under the share repurchase program.

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

	Foreign Currency			Unrealized Holding Gains (Losses) on Available-for-sale Securities			Total
Beginning balance at December 31, 2018	$	(1,139	)	$	(6,208	)	$	(7,347	)

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

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

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

- 19 -

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

	Foreign Currency			Unrealized Holding Gains (Losses) on Available-for-sale Securities			Total
Beginning balance at December 31, 2017	$	(309	)	$	46,700		$	46,391

Cumulative effect of adoption of ASU 2016-01, net of tax		–			(46,157	)		(46,157	)

Balance at January 1, 2018		(309	)		543			234

Cumulative effect of adoption of ASU 2018-02		–			117			117
Other comprehensive loss before reclassifications		(411	)		(4,050	)		(4,461	)
Amounts reclassified from accumulated other comprehensive income (loss)		–			(1,097	)		(1,097	)

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

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

(12) Related Parties:

At June 30, 2019, the Company was invested in one limited partnership, the New Vernon India Fund, with an aggregate estimated value of $17,489, that is managed by an organization in which one director of the Company is an executive officer and owner. The Company's ownership interest in this limited partnership at June 30, 2019 was 4%. For the six months ended June 30, 2019 and 2018, the Company recorded $125 and $275 of fees related to the management of this limited partnership investment.

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

( 13) Subsequent Events:

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

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

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

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

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

The term “Protective,” as used throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), refers to Protective Insurance Corporation, the parent company. The terms the “Company,” “we,” “us” and “our,” as used throughout this MD&A, refer to Protective and all of its subsidiaries, unless the context clearly indicates otherwise. The term “Insurance Subsidiaries,” as used throughout this MD&A, refers to Protective Insurance Company, Protective Specialty Insurance Company, Sagamore Insurance Company and B&L Insurance, Ltd.

Liquidity and Capital Resources

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

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

On August 31, 2017, our Board of Directors authorized the reinstatement of our share repurchase program for up to 2,464,209 shares of our Class A or Class B Common Stock. On August 7, 2018, our Board of Directors reaffirmed our share repurchase program, but also provided that the aggregate dollar amount of shares of our common stock that may be repurchased under the share repurchase program through August 8, 2019 may not exceed $25.0 million. As of June 30, 2019 we have repurchased $9.3 million under the share repurchase program reaffirmed on August 7, 2018. The repurchases may be made in the open market or through privately negotiated transactions, from time-to-time, and in accordance with applicable laws, rules and regulations. On June 21, 2019, we entered into a stock repurchase plan for the purpose of repurchasing up to $4.0 million of shares of our common stock, at various pricing thresholds, in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Rule 10b5-1 Plan"). The Rule 10b5-1 Plan was established pursuant to, and as part of, our share repurchase program and permits shares to be repurchased in accordance with pre-determined criteria when repurchases would otherwise be prohibited, such as during self-imposed blackout periods, or under insider trading laws. The Rule 10b5-1 plan expires on August 8, 2019. Pursuant to the Rule 10b5-1 plan, we paid $2.6 million to repurchase 158 shares of Class A and 152,593 shares of Class B Common Stock between July 1, 2019 and the date of this Quarterly Report on Form 10-Q. The share repurchase program may be amended, suspended or discontinued at any time and does not commit us to repurchase any shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand. The actual number and value of the shares to be purchased will depend on the performance of our stock price, market volume and other market conditions. During the six months ended June 30, 2019, we paid $6.5 million to repurchase 2,893 shares of Class A and 371,188 shares of Class B Common Stock under the share repurchase program.

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

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

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

Net cash used in financing activities for the six months ended June 30, 2019 consisted of regular cash dividend payments to shareholders of $3.0 million ($0.20 per share) and $6.5 million to repurchase shares of our Class A and B Common Stock. Financing activities for the six months ended June 30, 2018 consisted of regular cash dividend payments to shareholders of $8.5 million ($0.56 per share) and $1.3 million to repurchase shares of our Class B Common Stock.

Our assets at June 30, 2019 included $77.0 million of investments included within cash and cash equivalents on the condensed consolidated balance sheet that are readily convertible to cash without market penalty and an additional $99.5 million of fixed income investments maturing in less than one year. We believe these liquid investments, plus the expected cash flow from premium collections, are sufficient to provide for projected claim payments and operating cost demands. In the event competitive conditions produce inadequate premium rates and we choose to further restrict volume, the liquidity of our investment portfolio would permit us to continue to pay claims as settlements are reached without requiring the disposal of investments at a loss, regardless of interest rates in effect at the time. In addition, our reinsurance program is structured to avoid significant cash outlays that accompany large losses.

We maintain a revolving credit facility with a $40.0 million limit, with the option for up to an additional $35.0 million in incremental loans at the discretion of the lenders, which has an expiration date of August 9, 2022. Interest on this revolving credit facility is referenced to the London Interbank Offered Rate and can be fixed for periods of up to one year at our option. Outstanding drawings on this revolving credit facility were $20.0 million as of June 30, 2019. At June 30, 2019, the effective interest rate was 3.50% and we had $20.0 million remaining under the revolving credit facility. The current outstanding borrowings were used to repay our previous line of credit. Our revolving credit facility has two financial covenants, each of which were met as of June 30, 2019. These covenants require us to have a minimum U.S. generally accepted accounting principles ("GAAP") net worth and a maximum consolidated leverage ratio of 0.35 to 1.00.

Annualized net premiums written by our Insurance Subsidiaries for the second quarter of 2019 equaled approximately 124% of the combined statutory surplus of these subsidiaries, a level consistent with higher premiums written. Premium writings of up to 100% and in some cases up to 200% of surplus are generally considered acceptable by regulatory authorities. Further, the statutory capital of each of our Insurance Subsidiaries substantially exceeded minimum risk-based capital requirements set by the NAIC as of June 30, 2019. Accordingly, we have the ability to significantly increase our business without seeking additional capital to meet regulatory guidelines.

Consolidated shareholders' equity is composed largely of GAAP shareholders' equity of our Insurance Subsidiaries. As such, there are statutory restrictions on the transfer of substantial portions of this equity to Protective. At June 30, 2019, $37.1 million may be transferred by dividend or loan to Protective during the remainder of 2019 without approval by, or prior notification to, regulatory authorities. An additional $216.2 million of shareholders' equity of our Insurance Subsidiaries could be advanced or loaned to Protective with prior notification to, and approval from, regulatory authorities, although transfers of this size would not be practical. We believe these restrictions pose no material liquidity concerns for us. We also believe the financial strength and stability of our Insurance Subsidiaries would permit access by Protective to short-term and long-term sources of credit when needed. Protective had cash and marketable securities valued at $12.1 million at June 30, 2019.

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Non-GAAP Measures

We believe investors’ understanding of our performance is enhanced by our disclosure of underwriting income (loss), which is a measure that is not calculated in accordance with GAAP. Underwriting income (loss) represents the pre-tax profitability of our insurance operations and is derived by subtracting net realized and unrealized gains (losses) on investments and net investment income from income before federal income tax expense (benefit). We use underwriting income (loss) as an internal performance measure in the management of our operations because we believe it gives us and users of our financial information useful insight into our results of operations, our underlying business performance and our ongoing operating trends. Underwriting income (loss) should not be viewed as a substitute for income before federal income tax expense (benefit) calculated in accordance with GAAP, and other companies may define underwriting income (loss) differently.

The ratio of consolidated other operating expenses, less commissions and other income, to net premiums earned, or our expense ratio, and the ratio of losses and loss expenses incurred, plus other operating expenses, less commissions and other income, to net premiums earned, or our combined ratio, are measures of our profitability that we believe increase the period-to-period comparability of our operational results. Our management uses these ratios to evaluate performance, allocate resources and forecast future operating periods. While expense ratios and combined ratios are widely used within our industry, our use of such ratios may not be directly comparable to similarly titled measures reported by other companies.

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


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

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

Combined ratio		106.4	%		99.4	%		107.2	%		99.6	%

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Results of Operations

Comparison of Second Quarter 2019 to Second Quarter 2018

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

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

Gross premiums written during the second quarter of 2019 increased $4.9 million (3.4%), while net premiums earned increased $3.7 million (3.3%), as compared to the second quarter of 2018. The higher net premiums earned were the result of growth in workers' compensation business.

Premiums ceded to reinsurers on our insurance business averaged 21.4% of gross premiums written for the second quarter of 2019 compared to 19.7% in the second quarter of 2018. The increase in premiums ceded reflected the differences in reinsurance ceding rates on the mix of our business in-force. During the second quarter of 2019, we had higher gross premiums written in our workers' compensation coverages, which carry a higher reinsurance ceding rate.

Losses and loss expenses incurred during the second quarter of 2019 increased $12.9 million (16.7%) compared to the second quarter of 2018, resulting in a loss ratio of 78.2% during the second quarter of 2019 compared to a loss ratio of 69.2% during the second quarter of 2018. The loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned. The increased losses and loss expenses and the higher loss ratio in the second quarter of 2019 reflected an increase in current accident year losses driven by severe commercial automobile claims, including continued emergence of severity. This current accident year development was partially offset by prior accident year net savings of $0.6 million that developed during the three months ended June 30, 2019, primarily due to favorable loss development in workers' compensation and independent contractor coverages.

Net investment income for the second quarter of 2019 increased 12.1% to $6.5 million compared to $5.8 million for the second quarter of 2018. The increase reflected an increase in average funds invested resulting from positive cash flow, as well as a reallocation from equity investments held in limited partnerships into short-duration, high-quality bonds. After-tax investment income increased by 10.6% to $5.2 million during the second quarter of 2019, compared to $4.7 million during the second quarter of 2018, reflecting the aforementioned increase in average funds invested and reallocation from limited partnerships to short-duration, high- quality bonds.

Net realized and unrealized gains on investments of $2.9 million during the second quarter of 2019 were primarily driven by $2.0 million in unrealized gains on equity securities during the period, net realized gains on sales of securities, excluding impairment losses, of $0.7 million and a $0.3 million increase in the value of our limited partnership investments, partially offset by other-than-temporary impairments on our fixed income securities of $0.1 million recognized during the period. Comparative second quarter 2018 net realized and unrealized losses on investments of $3.4 million were driven by a $2.8 million decrease in the value of our limited partnership investments and $1.5 million in unrealized losses on equity securities during the period, partially offset by net realized gains on sales of securities, excluding impairment losses, of $0.9 million. Realized investment gains and losses result from decisions regarding overall portfolio realignment as well as the sale of individual securities, including the change in the aggregate value of limited partnerships and, as such, should not be expected to be consistent from period to period.

Other operating expenses for the second quarter of 2019 decreased $1.4 million, or 3.9%, to $34.6 million compared to the second quarter of 2018. The decrease was driven primarily by lower salary and benefit expense in addition to lower other operating expenses, partially offset by higher commission expenses as a result of the mix of premium written in the second quarter of 2019. The ratio of consolidated other operating expenses, less commissions and other income, to net premiums earned (the “expense ratio”) was 28.2% during the second quarter of 2019 compared to 30.2% for the second quarter of 2018. The decrease in the expense ratio was primarily related to the leveraging effect of higher net premiums earned in the second quarter of 2019 compared to the second quarter of 2018.

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Federal income tax expense was $0.4 million for the second quarter of 2019 compared to federal income tax expense of $0.6 million for the second quarter of 2018. The effective tax rate for the second quarter of 2019 was 21.3% compared to 18.6% in the second quarter of 2018. The effective federal income tax rate in the current year differed from the normal statutory rate primarily as a result of tax-exempt investment income. For the three months ended June 30, 2019, we had lower tax-exempt income when compared to the same period in 2018, primarily due to the reduction of tax exempt municipal securities within our investment portfolio in the current year as well as a decrease in dividend income, which provides a deduction for taxes, related to the reallocation of equity securities to fixed income securities within our investment portfolio throughout 2018.

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

Comparison of Six Months Ended June 30, 2019 to Six Months Ended June 30, 2018

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

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

Gross premiums written during the six months ended June 30, 2019 increased $5.0 million (1.7%), while net premiums earned increased $8.2 million (3.8%), as compared to the same period in 2018. The higher net premiums earned were the result of the changes in our reinsurance structure discussed below in addition to growth in workers' compensation business. The difference in the percentage change for premiums written compared to earned was reflective of the normal differences in the financial statement recognition of earned premiums compared to written, as well as differences in reinsurance ceding rates on the mix of business in-force described below.

Premiums ceded to reinsurers on our insurance business averaged 22.0% of gross premiums written for the six months ended June 30, 2019 compared to 21.8% for the same period of 2018. The increase for the 2019 period reflected the ceding of an additional $1.6 million in commercial automobile premium from prior treaty years related to variable premium adjustment provisions in our historical reinsurance treaties. Additionally, during the first half of 2019, we had higher gross premiums written in workers' compensation coverages, which carry a higher reinsurance ceding rate. These increases were offset by changes made to our reinsurance structure in the third quarter of 2017, when we lowered the quota share rate on our workers' compensation premiums to reflect growing profitability and confidence in this book of business. We also restructured our commercial automobile reinsurance treaty, moving away from variable premium ceded rates (based on loss performance) to a flat ceding arrangement with no material changes to the economic risks taken for these products (i.e. ceded losses will decrease by a similar amount as ceded premiums).

Losses and loss expenses incurred during the six months ended June 30, 2019 increased $27.8 million (18.5%) compared to the same period of 2018, resulting in a loss ratio of 78.7% for the period. This compares to a loss ratio of 68.9% during the same period of 2018. The loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned. The increased losses and loss expenses and the higher loss ratio in the six months ended June 30, 2019 reflected an increase in current accident year losses driven by severe commercial automobile claims, including continued emergence of severity. This current accident year development was partially offset by prior accident year net savings of $1.7 million that developed during the six months ended June 30, 2019, primarily due to favorable loss development in workers' compensation and independent contractor coverages. Including the impact of additional ceded premium discussed above, the total prior accident year impacts were favorable by $0.1 million for the six months ended June 30, 2019.

Net investment income for the six months ended June 30, 2019 increased 22.0% to $12.7 million compared to $10.4 million in the same period of 2018. The increase reflected an increase in average funds invested resulting from positive cash flow, as well as a reallocation from equity investments held in limited partnerships into short-duration, high-quality bonds. After-tax investment income increased by 21.4% to $10.2 million during the six months ended June 30, 2019, compared to $8.4 million during the same period of 2018, reflecting the aforementioned increase in average funds invested and reallocation from limited partnerships to short-duration, high-quality bonds.

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Net realized and unrealized gains on investments of $8.9 million during the six months ended June 30, 2019 were primarily driven by $7.9 million in unrealized gains on equity securities during the period, a $0.7 million increase in the value of our limited partnership investments and net realized gains on sales of securities, excluding impairment losses, of $0.6 million, partially offset by other-than-temporary impairments on our fixed income securities of $0.3 million recognized during the period. Comparative six months ended June 30, 2018 net realized and unrealized losses on investments of $8.0 million were driven by a $5.5 million decrease in the value of our limited partnership investments and $3.8 million in unrealized losses on equity securities, excluding impairment losses, during the period, partially offset by net realized gains on sales of securities of $1.3 million. Realized investment gains and losses result from decisions regarding overall portfolio realignment as well as the sale of individual securities, including the change in the aggregate value of limited partnerships and, as such, should not be expected to be consistent from period to period.

Other operating expenses for the six months ended June 30, 2019 decreased $2.5 million, or 3.5%, to $68.3 million compared to $70.8 million for the same period of 2018. The decrease was driven primarily by lower salary and benefit expense in addition to lower other operating expenses, partially offset by higher commission expenses as a result of the mix of premium written in the six months ended June 30, 2019. The expense ratio was 28.5% during the six months ended June 30, 2019 compared to 30.7% for the same period of 2018. The decrease in the expense ratio was primarily related to the leveraging effect of higher net premiums earned in the six months ended June 30, 2019 compared to the same period of 2018.

Federal income tax expense was $1.2 million for the six months ended June 30, 2019 compared to $0.6 million for the same period of 2018. The effective tax rate for the six months ended June 30, 2019 was 21.6% compared to 16.4% in the same period of 2018. The effective federal income tax rate in the current year differed from the normal statutory rate primarily as a result of tax-exempt investment income. For the six months ended June 30, 2019, we had lower tax-exempt income when compared to the same period in 2018, primarily due to the reduction of tax exempt municipal securities within our investment portfolio in the current year as well as a decrease in dividend income, which provides a deduction for taxes, related to the reallocation of equity securities to fixed income securities within our investment portfolio throughout 2018.

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

Sensitivity Analysis

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

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

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

$/share (after tax)	$	0.57	$	1.14

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

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Forward-Looking Information

The disclosures in this Form 10-Q contain "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995). All statements, trend analyses and other information contained in this Form 10-Q relative to markets for our products and trends in our operations or financial results, as well as other statements including words such as "may," "target," "anticipate," "believe," "plan," "estimate," "expect," "intend," "project," and other similar expressions, constitute forward-looking statements.

Investors are cautioned that such forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements, many of which are difficult to predict and generally beyond our control. Investors are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Investors are also urged to carefully review and consider the various disclosures made by us, which attempt to advise interested parties of the factors that affect our business, including "Risk Factors" set forth in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and our reports filed with the U.S. Securities and Exchange Commission from time to time. Except to the extent otherwise required by federal securities laws, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof.

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

●

general economic conditions, including weakness of the financial markets, prevailing interest rate levels and stock and credit market performance, which may affect or continue to affect (among other things) our ability to sell our products and to collect amounts due to us, our ability to access capital resources and the costs associated with such access to capital and the market value of our investments;

●

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

●

increasing competition in the sale of our insurance products and services resulting from the entrance of new competitors into, or the expansion of the operations of existing competitors in, our markets and our ability to retain existing customers;

●

other changes in the markets for our insurance products;

●

the impact of technological advances, including those specific to the transportation industry;

●

changes in the legal or regulatory environment, which may affect the manner in which claims are adjusted or litigated, including loss and loss adjustment expense;

●

legal or regulatory changes or actions, including those relating to the regulation of the sale, underwriting and pricing of insurance products and services and capital requirements;

●

the impact of a downgrade in our financial strength rating;

●

technology or network security disruptions or breaches;

●

adequacy of insurance reserves;

●

availability of reinsurance and ability of reinsurers to pay their obligations;

●

our ability to attract and retain qualified employees and to successfully complete our executive officer transition;

●

tax law and accounting changes; and

●

legal actions brought against us.

Some of the significant risks and uncertainties that could cause actual results to differ materially from our expectations and projections are described more fully in Part II, Item 1A, "Risk Factors," of this Quarterly Report on Form 10-Q and Part I, Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. You should read that information in conjunction with this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our unaudited condensed consolidated financial statements and related notes in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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Critical Accounting Policies

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

Concentrations of Credit Risk

Our Insurance Subsidiaries cede portions of their gross premiums to numerous reinsurers under quota share and excess of loss treaties, as well as facultative placements. These reinsurers assume commensurate portions of the risk of loss covered by the contracts. As losses are reported and reserved, portions of the gross losses attributable to reinsurers are established as receivable assets and losses incurred are reduced. At June 30, 2019, amounts due from reinsurers on paid and unpaid losses were estimated to total approximately $390 million. Because of the large policy limits reinsured by us, the ultimate amount of incurred but not reported losses and loss adjustment expenses attributable to reinsurers could vary significantly from the estimate; provided, however, absent the inability to collect from reinsurers, such variance would not result in changes in net claim losses incurred by us.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Other than as set forth below, there have been no material changes in the Company's exposure to market risk since the disclosure in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Interest Rate Risk

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

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

	Fair Value		Estimated Change in Fair Value
200 basis point increase	$	702,383	$	(34,765	)
100 basis point increase		719,203		(17,945	)
Current fair value		737,148		–
100 basis point decrease		755,094		17,946
200 basis point decrease		771,913		34,765

Our selection of the range of values chosen to represent changes in interest rates should not be construed as our prediction of future market events, but rather as an illustration of the impact of such events should they occur. Several other factors, including but not limited to the financial strength of the issuer, prepayment options, relative values of alternative investments, liquidity of the investment, currency fluctuations for non-U.S. debt holdings and other general market conditions, can impact the fair values of fixed income investments and, therefore, significant variations in market interest rates could produce quite different results from the hypothetical estimates presented above.

ITEM 4. CONTROLS AND PROCEDURES

The Company carried out an evaluation as of June 30, 2019 under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as defined in Rule 13a-15(e) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or the "Exchange Act". Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded the disclosure controls and procedures were effective in ensuring that information required to be disclosed in reports that the Company files or submits under the Exchange Act is: (a) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms; and (b) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. The Company noted no change in its internal control over financial reporting that occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

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

Issuer Purchases of Equity Securities

	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased Under the Program ⁽¹⁾		Remaining Shares Available to be Purchased Under the Program ⁽¹⁾
April 1 – April 30		172,439	$	17.52		172,439		1,982,184
May 1 – May 31		86,082		16.60		86,082		1,896,102
June 1 – June 30		90,602		17.33		90,602		1,805,500
Total		349,123				349,123

⁽¹⁾

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ITEM 6. EXHIBITS

INDEX TO EXHIBITS

Exhibit No.		Description
3.1		Amended and Restated Articles of Incorporation of Protective Insurance Corporation, incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed August 8, 2018.

3.2		Code of By-Laws of Protective Insurance Corporation, as amended effective May 17, 2019.

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

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

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

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

101		The following materials from Protective Insurance Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (1) the Condensed Consolidated Balance Sheets, (2) the Condensed Consolidated Statements of Operations, (3) the Condensed Consolidated Statements of Comprehensive Income (Loss), (4) the Condensed Consolidated Statements of Shareholders' Equity, (5) the Condensed Consolidated Statements of Cash Flows, and (6) the Notes to Unaudited Condensed Consolidated Financial Statements.

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SIGNATURES

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

PROTECTIVE INSURANCE CORPORATION

Date August 7, 2019

By:	/s/ Jeremy D. Edgecliffe-Johnson
	Jeremy D. Edgecliffe-Johnson
	Chief Executive Officer

Date August 7, 2019

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

CODE OF BY-LAWS

PROTECTIVE INSURANCE CORPORATION

Adopted: May 17, 2019

ARTICLE 1

Identification

Section 1.1. Name . The name of the Corporation is Protective Insurance Corporation (hereinafter referred to as the “Corporation”).

ARTICLE 2

Capital Stock

Section 2.1. Consideration for Shares. The Board of Directors of the Corporation may authorize shares to be issued for consideration consisting of any tangible or intangible property or benefit to the Corporation, including cash, promissory notes, services performed, contracts for services to be performed, or other securities of the Corporation.

Section 2.2. Certificates for Shares . The shares of the Corporation shall be represented in the form of stock certificates unless the Board of Directors shall by resolution provide that some or all of any class or series of stock shall be comprised of uncertificated shares. Any such resolution shall not apply to shares already represented by a stock certificate unless and until the stock certificate is surrendered to the Corporation. Notwithstanding the adoption of any resolution providing for uncertificated shares, all stock certificates of the Corporation shall be signed by the Chairman, Chief Executive Officer, President, Chief Operating Officer or an Executive Vice President and attested by the Secretary or an Assistant Secretary, certifying the number of shares owned by such shareholder and such other information as may be required by law. Where any such certificate is also signed by a transfer agent or a registrar, or both, the signatures of the officers of the Corporation may be facsimiles. The Corporation may issue and deliver any such certificate notwithstanding that any such officer who shall have signed, or whose facsimile signature shall have been imprinted on, such certificate shall have ceased to be such officer. The form of the stock certificate shall be prescribed by resolution of the Board of Directors.

Section 2.3. Record Holders . The Corporation has two classes of common shares, Class A (voting) and Class B (non-voting) shares, which shares are identical except for voting rights. The Corporation shall be entitled to treat the person in whose name any share of stock of the Corporation, or any warrant, right or option to acquire stock of the Corporation, is registered in the records of the Corporation as the owner thereof for all purposes, including, but not limited to, receiving dividends, and (as to Class A Stock only) vote as such owner, and shall not be bound to recognize any equitable or other claim to, or interest in, such share, warrant, right or option on the part of any other person, whether or not the Corporation shall have notice thereof, except as may be expressly provided otherwise by law, the Articles of Incorporation, or this Code of By-Laws. In no event shall any transferee of shares of the Corporation become a shareholder of the Corporation until express notice of the transfer shall have been received by the Corporation.

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Section 2.4. Transfer of Shares . Except as otherwise provided by law, transfers of shares of the capital stock of the Corporation shall be made only on the books of the Corporation by the record owner thereof in person, or by such owner’s legal guardian or personal representative, or by such owner’s attorney-in-fact thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation or the Corporation’s transfer agent, upon payment of any and all taxes thereon and, in the case of certificated shares, on surrender for cancellation to the Secretary of the Corporation of the certificate or certificates for such shares (except as hereinafter provided in the case of lost, destroyed or stolen certificates), properly endorsed by the holder thereof, or if such shares are uncertificated, upon receipt of proper transfer instructions from the registered owner of such shares, in each case accompanied by the proper evidence of succession, assignment or authority to transfer satisfactory to the Corporation. No restriction on the transfer or registration of transfer of shares of stock of the Corporation shall be enforceable against a holder or transferee of such shares who has no knowledge of such restriction, unless such restriction (i) is permitted by the Act and all other applicable laws, and (ii) is noted conspicuously on the front or back of the certificates for such shares, or is contained in the information statement required by the Act with respect to any shares issued without certificates.

Section 2.5. Lost, Destroyed and Stolen Certificates . The holder of any shares shall immediately notify the Corporation if a certificate therefor shall be lost, stolen, destroyed, or mutilated beyond recognition, and the Corporation may issue a new certificate or uncertificated shares in the place of any certificate theretofore issued by it which is alleged to have been lost, stolen, destroyed or mutilated beyond recognition; provided, however, that the Chief Financial Officer or Secretary may, in his discretion, require the owner of the certificate which is alleged to have been lost, stolen, destroyed or mutilated beyond recognition, or such owner’s legal representative, to (i) furnish an affidavit as to such loss, theft or destruction, (ii) give the Corporation a bond with such surety or sureties, and in such sum, as it may direct, to indemnify the Corporation and its Directors and officers against any claim that may be made against it or any of them on account of the issuance of such new certificate or uncertificated shares in place of the allegedly lost, stolen, destroyed or mutilated certificate, and/or (iii) satisfy other reasonable requirements imposed by the Board of Directors. The Chief Financial Officer or Secretary may, however, if he so chooses, refuse to issue any such new certificate or uncertificated shares except pursuant to the order of a court having jurisdiction in such matter.

ARTICLE 3

Meetings of Shareholders

Section 3.1. Annual Meeting . The annual meeting of the shareholders for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held on the first Tuesday in May of each year, or on such other date twelve (12) business days prior to or following this date as may be designated by the Board of Directors. Failure to hold the annual meeting at the designated time shall not affect the validity of any corporate action.

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Section 3.2. Special Meetings . Special meetings of the shareholders may be called by the Chief Executive Officer, Chairman, the Board of Directors, or by the holders of at least twenty-five percent (25%) of all votes entitled to be cast on any issue proposed to be considered at the proposed special meeting upon delivery to the Corporation's Secretary of one or more written demands, signed and dated, describing the purpose or purposes for which it is to be held.

Section 3.3. Place of Meetings . As provided in the Articles of Incorporation, meetings of shareholders of the Corporation shall be held at such place, within or without the State of Indiana, as may be specified in the respective calls, notice of the meeting, or waiver of notice thereof.

Section 3.4. Notice of Meetings . Written or electronic notice of each shareholders' meeting stating the date, time, and place and, for a special meeting, the purpose(s) for which the meeting is called, shall be given by the Corporation not less than ten (10) (unless a greater period of notice is required by law in a particular case) nor more than sixty (60) days prior to the date of the meeting, to each shareholder of record, to the shareholder's address as it appears on the current record of shareholders of the Corporation.

Section 3.5. Business of Shareholder Meetings . At each annual meeting, the shareholders shall elect the Directors and shall conduct only such other business as shall have been properly brought before the meeting. To be properly brought before an annual meeting, all business, including nominations of candidates for and the election of Directors, must be (a) specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a shareholder of the Corporation who (i) was a shareholder of record at the time of giving the notice provided for in this Section 3.5 or in Section 3.6 of this Code of By-Laws, as applicable, (ii) is entitled to vote at the meeting, and (iii) complied with the notice procedures set forth in this Section 3.5 or in Section 3.6 of this Code of By-Laws, as applicable.

For business other than nominations of candidates for and the election of Directors to be properly brought before an annual meeting by a shareholder pursuant to clause (c) of the preceding paragraph, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation at the principal executive office of the Corporation. To be timely, a shareholder’s notice shall be delivered not less than ninety (90) days nor more than one hundred twenty (120) days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary date, notice by the shareholder, to be timely, must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement (as defined herein) of the date of such meeting is first made.

Such shareholder’s notice shall set forth as to each matter the shareholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and any Shareholder Associated Person (as defined below) covered by clause (b)(iii) below or on whose behalf the proposal is made; (b) as to the shareholder giving the notice and any Shareholder Associated Person covered by clause (b)(iii) below or on whose behalf the proposal is made (i) the name and address of such shareholder, as they appear on the Corporation’s books, and the name and address of any Shareholder Associated Person, (ii) the class and number of shares of the Corporation which are owned beneficially or of record by such shareholder and by any Shareholder Associated Person as of the date such notice is given, (iii) any derivative positions held or beneficially held by the shareholder and by any Shareholder Associated Person and whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such shareholder or any Shareholder Associated Person with respect to the Corporation’s securities, and (iv) a representation that such shareholder intends to appear in person or by proxy at the meeting to propose such business; (c) in the event that such business includes a proposal to amend either the Articles of Incorporation or this Code of By-Laws of the Corporation, the language of the proposed amendment; and (d) if the shareholder intends to solicit proxies in support of such shareholder’s proposal, a representation to that effect.

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Notwithstanding anything in this Code of By-Laws to the contrary and not including nominations of candidates for and the election of Directors, which are governed by Section 3.6 of this Code of By-Laws, no business shall be conducted at any annual meeting except in accordance with this Section 3.5, and the Chairman or other person presiding at an annual meeting of shareholders may refuse to permit any business to be brought before an annual meeting without compliance with the foregoing procedures or if the shareholder solicits proxies in support of such shareholder’s proposal without such shareholder having made the representation required by clause (d) of the preceding paragraph of this Section 3.5. If a shareholder does not appear or send a qualified representative to present his or her proposal at such annual meeting, the Corporation need not present such proposal for a vote at such meeting, notwithstanding that proxies in respect of such vote may have been received by the Corporation.

For the purposes of this Section 3.5, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). “Shareholder Associated Person” of any shareholder means (i) any person controlling, directly or indirectly, or acting in concert with, such shareholder, (ii) any beneficial owner of shares of stock of the Corporation owned of record or beneficially by such shareholder and (iii) any person controlling, controlled by or under common control with such Shareholder Associated Person.

Notwithstanding the foregoing provisions of this Section 3.5, a shareholder seeking to include a proposal in a proxy statement that has been prepared by the Corporation to solicit proxies for an annual meeting shall comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 3.5.

In no event shall the adjournment of a meeting commence a new time period for the giving of a shareholder’s notice as described above.

Section 3.6. Notice of Shareholder Nominations . Nominations of persons for election as Directors may be made by the Board of Directors or by any shareholder who is a shareholder of record at the time of giving the notice of nomination provided for in this Section 3.6 and who is entitled to vote in the election of Directors. Any shareholder of record entitled to vote in the election of Directors at a meeting may nominate a person or persons for election as Directors only if timely written notice of such shareholder’s intent to make such nomination is given to the Secretary of the Corporation at the principal executive office of the Corporation in accordance with the procedures for bringing nominations before an annual meeting set forth in this Section 3.6. To be timely, a shareholder’s notice shall be delivered (a) with respect to an election to be held at an annual meeting of shareholders, not less than ninety (90) days nor more than one hundred twenty (120) days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty (30) days or delayed by more than sixty (60) days from such anniversary date, notice by the shareholder, to be timely, must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement (as defined in Section 3.5 of this Code of By-Laws) is first made of the date of such meeting, and (b) with respect to an election to be held at a special meeting of shareholders, not earlier than the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees to be elected at such meeting.

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Such shareholder’s notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination as they appear on the Corporation’s books, the person or persons to be nominated and the name and address of any Shareholder Associated Person (as defined in Section 3.5 of this Code of By-Laws) covered by clause (c) below or on whose behalf the nomination is made; (b) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting in such election and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) (i) the class and number of shares of the Corporation which are owned beneficially or of record by such shareholder and by any Shareholder Associated Person as of the date such notice is given and (ii) any derivative positions held or beneficially held by the shareholder and by any Shareholder Associated Person and whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares) has been made, the effect or intent of which is to mitigate loss to or manage risk or benefit of share price changes for, or to increase or decrease the voting power of, such shareholder or any Shareholder Associated Person as of the date such notice is given with respect to the Corporation’s securities; (d) a description of all arrangements or understandings between or among the shareholder, any Shareholder Associated Person, each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (e) such other information regarding each nominee proposed by such shareholder as would have been required to be disclosed in solicitations of proxies for election of Directors in an election contest (even if an election contest is not involved), or is otherwise required, in each case pursuant to Regulation 14A (or any successor provision) under the Exchange Act and the rules thereunder; (f) the consent of each nominee to serve as a Director if so elected; and (g) if the shareholder intends to solicit proxies in support of such shareholder’s nominee(s), a representation to that effect. The Corporation may require any person or persons to be nominated to furnish such other information as it may reasonably require to determine the eligibility of such person or persons to serve as a Director of the Corporation.

The Chairman or other person presiding at any meeting of shareholders to elect Directors and the Board of Directors may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure or if the shareholder solicits proxies in support of such shareholder’s nominee(s) without such shareholder having made the representation required by clause (g) of the preceding paragraph. If a shareholder does not appear or send a qualified representative to present his or her nomination at such meeting, the Corporation need not present such nomination for a vote at such meeting, notwithstanding that proxies in respect of such nomination may have been received by the Corporation.

Notwithstanding anything in this Section 3.6 to the contrary, in the event that the number of Directors to be elected to the Board of Directors of the Corporation at an annual meeting is increased and there is no public announcement naming all of the nominees for Directors or specifying the size of the increased Board of Directors made by the Corporation at least ninety (90) days prior to the first anniversary of the preceding year’s annual meeting, a shareholder’s notice required by this Section 3.6 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered not later than the close of business on the 10th day following the day on which such public announcement is first made of the date of such meeting.

Section 3.7. Addresses of Shareholders . The address of any shareholder appearing upon the records of the Corporation shall be deemed to be the same address as the latest address of such shareholder appearing on the records maintained by the transfer agent for the class of stock held by such shareholder.

Section 3.8. Waiver of Notice . Notice of any meeting may be waived in writing by any shareholder if the waiver is signed by the shareholder entitled to the notice and delivered to the Corporation for inclusion in the minutes or filing with the Corporation’s records. Attendance at any meeting, in person or by proxy, if the proxy sets forth in reasonable detail the purposes of such meeting, or participation in a meeting by remote communication in accordance with the Act (a) waives objection to lack of notice or defective notice of the meeting, unless the shareholder or his proxy at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (b) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder or his proxy objects to considering the matter when it is presented. Each shareholder who has, in the manner above provided, waived notice or objection to notice of a shareholders’ meeting shall be conclusively presumed to have been given due notice of such meeting, including the purpose or purposes thereof.

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Section 3.9. Voting at Meetings .

(a) Voting Rights . Except as may be otherwise provided in the Articles of Incorporation, every shareholder of Class A shares shall have the right at all meetings of the shareholders to one vote for each share standing in his name on the books of the Corporation on the record date for such meetings. Class B shares shall have no voting rights except as required by the Act. Only such persons shall be entitled to notice of or to vote, in person or by proxy, at any shareholders’ meeting as shall appear as shareholders upon the books of the Corporation as of such record date as the Board of Directors shall determine, which date may not be earlier than the date seventy (70) days immediately preceding the meeting. In the absence of such determination, the record date shall be the fiftieth (50th) day immediately preceding the date of such meeting. Unless otherwise provided by the Board of Directors, shareholders of record shall be determined as of the close of business on the record date.

(b) Quorum and Action . The persons owning a majority of the stock of this Corporation entitled to vote at such meeting shall constitute a quorum at any meeting of shareholders, and be capable of transacting any business thereof, except as otherwise provided by law or by the Articles of Incorporation; but if, at any meeting of the shareholders, there be less than a quorum present, a majority in interest of the shareholders present in person or by proxy may adjourn from time to time without notice other than by announcement at the meeting until the holders of the amount of stock requisite to constitute a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. If a quorum exists as to a matter to be considered at a meeting of shareholders, action on such matter (other than the election of Directors) is approved if the votes properly cast favoring the action exceed the votes properly cast opposing the action, except as the Articles of Incorporation or the Act require a greater number of affirmative votes. Directors shall be elected by a plurality of the votes properly cast.

(c) Proxies . A shareholder entitled to vote at any meeting of shareholders may vote either in person or by proxy, executed in writing by the shareholder or a duly authorized officer, Director, employee, agent or attorney-in-fact of such shareholder. (For purposes of this section, a proxy granted by any means acceptable to the Corporation, including, but not limited to, electronic means, shall be deemed “executed in writing by the shareholder”.) No proxy shall be voted at any meeting of shareholders unless the same shall be filed with the Secretary of the meeting at the commencement thereof. The general proxy of a fiduciary shall be given the same effect as the general proxy of any other shareholder. No proxies shall be valid after eleven (11) months from the date or execution unless a longer term is expressly provided therein.

Voting List. The Secretary shall make, at least five (5) business days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of each and the number of shares held by each, which list, for the period of five (5) business days prior to such meeting, shall be kept on file at the principal office of the Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such a list shall also be produced and kept open at the time and place of the meeting and shall be subject to inspection by any shareholder during the whole time of the meeting.

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Section 3.10. Conduct of Meetings. Shareholder’s meetings, including the order of business, shall be conducted in accordance with Roberts’ Rules of Order, Revised, except insofar as the Articles of Incorporation, this Code of By-Laws, or any rule adopted by the Board of Directors or shareholders may otherwise provide. The shareholders may, by affirmative vote of a majority of the shareholders in attendance at any given meeting, waive the requirement of this section. Such waiver shall not preclude any shareholder from invoking the requirements of this section at any subsequent meeting.

ARTICLE 4

The Board of Directors

Section 4.1. Duties and Qualifications. The business and affairs of the Corporation shall be managed by a Board of Directors, none of whom need be shareholders of the Corporation.

Section 4.2. Number and Terms of Office . There shall be no less than six (6) but no more than eleven (11) Directors of the Corporation, who shall be elected at each annual meeting of the shareholders, to serve for a term of one (1) year and until their successors shall be chosen and qualified, or until removal, resignation or death. If the annual meeting of the shareholders is not held at the time designated in this Code of By-Laws, such failure shall not cause any defect in the existence of the Corporation, and the Directors then in office shall hold over until their successors shall be chosen and qualified.

Section 4.3. Management and Committees .

(a) All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation managed under the direction of, its Board of Directors, subject to any limitations set forth in the Articles of Incorporation.

(b) The Board of Directors may appoint a Chairman. The Chairman shall preside, or designate a delegate to preside, at all meetings of the Board and shareholders and shall have such other powers and duties as this Code of By-Laws or the Board of Directors may prescribe.

(c) If the Chairman of the Board is not an Independent Director, the independent members of the Board of Directors shall appoint a Lead Director from among the independent members of the Board of Directors. The Lead Director shall ensure that the Board of Directors is able to carry out its responsibilities effectively and independently of both management and shareholders and shall have such other powers and duties as this Code of By-Laws or the Board of Directors may prescribe. The Lead Director shall preside at all executive sessions of independent directors. The Lead Director may also serve as Chairman of the Corporation’s Nominating and Governance Committee.

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(d) The Board of Directors may appoint one or more committees from among its members as it determines to be necessary. Each committee may have one (1) or more members, who shall serve at the pleasure of the Board of Directors. The creation of a committee and the appointment of members to it must be approved by the greater of a majority of all of the Directors in office when the action is taken, or the number of Directors required by the Articles of Incorporation or this Code of By-Laws to take action under the Act. Committees shall have such authority and duties as are specified in the charter establishing such committee, as specifically adopted by the Board of Directors.

(e) Except to the extent inconsistent with the foregoing provisions of this Section or with the resolutions of the Board of Directors creating a committee, the provisions of this Code of By-Laws which govern meetings, action without meetings, notice and waiver of notice, and voting requirements of the Board of Directors apply to each committee and its members, as if the committee constituted the full Board of Directors.

(f) One third (1/3) of the members of a committee (but in no case less than two (2) Directors) shall be necessary to constitute a quorum for the transaction of any business of the committee and the act of the majority of the Directors present at a committee meeting at which a quorum is present shall be the act of the committee, unless the act of a greater number is required by law, the Articles of Incorporation, this Code of By-Laws, or the committee’s charter.

Section 4.4. Annual and Regular Meetings . Unless otherwise agreed upon, the Board of Directors shall meet each year, immediately following the annual meeting of the shareholders, at the place where such meeting of shareholders was held, for consideration of any other business which may be brought before the meeting. No notice shall be necessary for the holding of this annual meeting.

Section 4.5. Special Meetings . Other meetings of the Board of Directors may be held regularly pursuant to a resolution of the Board to such effect or may be held upon the call of the Chief Executive Officer, the Chairman, the Lead Director, or of any two (2) members of the Board and upon twenty-four (24) hours’ notice specifying the time, place and general purposes of the meeting, given to each Director, either personally or by mail, facsimile, telephone or electronic transmission. No notice shall be necessary for any regular meeting and notice of any other meeting may be waived in writing, signed by the Director entitled to the notice and filed with the minutes or the Corporation’s records. Attendance at any such meeting shall constitute waiver of notice of such meeting. Pursuant to Indiana law, the Board of Directors is authorized to conduct meetings by any means of communication by which all Directors participating may simultaneously hear each other during the meeting. A Director participating in a meeting by this means is deemed to be present in person at the meeting.

Section 4.6. Action Without a Meeting . Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if the action is taken by all members of the Board. The action must be evidenced by one or more written consents, in one or more counterparts, describing the action taken, signed by each Director, and included in the minutes or filed with the corporate records reflecting the action taken. Electronic signatures, in accordance with the Uniform Electronic Transactions Act (IC 26-2-8), and facsimile signatures shall have the same validity and effect as original signatures. Action taken under this Section 4.6 is effective when the last Director signs the consent, unless the consent specifies a different prior or subsequent effective date, in which case the action is effective on or as of the specified date. A consent signed under this Section 4.6 shall have the same effect as a unanimous vote of all members of the Board and may be described as such in any document .

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Section 4.7. Quorum and Action . A majority of the whole Board of Directors (but in no case less than two (2) Directors) shall be necessary to constitute a quorum for the transaction of any business, except the filing of vacancies, and the act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by law, the Articles of Incorporation, or this Code of By-Laws.

Section 4.8. Vacancies . Any vacancy in the Board of Directors, including a vacancy resulting from an increase in the number of Directors, may be filled by a majority vote of all the remaining members of the Board of Directors, even if less than a quorum. The term of any Director so elected by the Board of Directors shall expire at the end of the term for which such Director’s predecessor was elected, or if the vacancy arises because of an increase in the size of the Board of Directors, at the end of the term specified at the time of election or selection .

Section 4.9. Resignation and Removal . A Director may resign at any time by delivering written notice to the Board of Directors, Chairman, Lead Director, Chief Executive Officer, or Secretary of the Corporation, which resignation shall be effective when such notice is delivered, unless such notice specifies a later effective date. Except as otherwise provided in the Act, a Director may be removed, with or without cause, by the shareholders of the Corporation as provided in the Articles of Incorporation only at a meeting of the shareholders called for the purpose of removing the Director, the notice of which shall state that the purpose or one of the purposes of the meeting shall be to remove the specified Director.

Section 4.10. Compensation of Directors . The Board of Directors is empowered and authorized to fix and determine the compensation of the Directors. Except as determined by the Board of Directors, members of the Board of Directors shall receive no compensation for acting in such capacity.

Section 4.11. Indemnification .

(a) To the extent not inconsistent with applicable law, every Eligible Person shall be indemnified by the Corporation against all Liability and reasonable Expense that may be incurred by him in connection with or resulting from any Claim, (i) if such Eligible Person is Wholly Successful with respect to the Claim, or (ii) if not Wholly Successful, then if such Eligible Person is determined, as provided in either Section 4.11(f) or 4.11(g), to have acted in good faith, in what he reasonably believed to be the best interests of the Corporation or at least not opposed to its best interests and, in addition, with respect to any criminal claim is determined to have had reasonable cause to believe that his conduct was lawful or had no reasonable cause to believe that his conduct was unlawful. The termination of any Claim, by judgment, order, settlement (whether with or without court approval), or conviction or upon a plea of guilty or of nolo contendere, or its equivalent, shall not create a presumption that an Eligible Person did not meet the standards of conduct set forth in clause (ii) of this subsection (a). The actions of an Eligible Person with respect to an employee benefit plan subject to the Employee Retirement Income Security Act of 1974 shall be deemed to have been taken in what the Eligible Person reasonably believed to be the best interests of the Corporation or at least not opposed to its best interests if the Eligible Person reasonably believed he was acting in conformity with the requirements of such Act or he reasonably believed his actions to be in the interests of the participants in or beneficiaries of the plan.

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(b) The term “Claim” as used in this Section 4.11 shall include every pending, threatened, or completed claim, action, suit, or proceeding and all appeals thereof (whether brought by or in the right of this Corporation or any other corporation or otherwise), civil, criminal, administrative, or investigative, formal or informal, in which an Eligible Person may become involved, as a party or otherwise:

(i)

by reason of his being or having been an Eligible Person, or

(ii)

by reason of any action taken or not taken by him in his capacity as an Eligible Person, whether or not he continued in such capacity at the time such Liability or Expense shall have been incurred.

(c) The term “Eligible Person” as used in this Section 4.11 shall mean every person (and the estate, heirs, and personal representatives of such person) who is or was a Director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, agent, or fiduciary of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other organization or entity, whether for profit or not. An Eligible Person shall also be considered to have been serving an employee benefit plan at the request of the Corporation if his duties to the Corporation also imposed duties on, or otherwise involved services by, him to the plan or to participants in or beneficiaries of the plan.

(d) The terms “Liability” and “Expense” as used in this Section 4.11 shall include, but shall not be limited to, counsel fees and disbursements and amounts of judgments, fines, or penalties against (including excise taxes assessed with respect to an employee benefit plan), and amounts paid in settlement by or on behalf of an Eligible Person.

(e) The term “Wholly Successful” as used in this Section 4.11 shall mean (i) termination of any claim against the Eligible Person in question without any finding of liability or guilt against him, (ii) approval by a court, with knowledge of the indemnity herein provided, of a settlement of any Claim, or (iii) the expiration of a reasonable period of time after the making or threatened making of any Claim without the institution of the same, without any payment or promise made to induce a settlement.

(f) Every Eligible Person claiming indemnification hereunder (other than one who has been Wholly Successful with respect to any Claim) shall be entitled to indemnification (i) if special independent legal counsel, which may be regular counsel of the Corporation, or other disinterested person or persons, in either case selected by the Board of Directors, whether or not a disinterested quorum exists (such counsel or person or persons being hereinafter called the “Referee”), shall deliver to the Corporation a written finding that such Eligible Person has met the standards of conduct set forth in Section 4.11(a)(ii), and (ii) if the Board of Directors, acting upon such written finding, so determines. The Board of Directors shall, if an Eligible Person is found to be entitled to indemnification pursuant to the preceding sentence, also determine the reasonableness of the Eligible Person’s Expenses. The Eligible Person claiming indemnification shall, if requested, appear before the Referee, answer questions that the Referee deems relevant and shall be given ample opportunity to present to the Referee evidence upon which the Eligible Person relies for indemnification. The Corporation shall, at the request of the Referee, make available facts, opinions, or other evidence in any way relevant to the Referee’s findings that are within the possession or control of the Corporation.

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(g) If an Eligible Person claiming indemnification pursuant to Section 4.11(f) is found not to be entitled thereto, or if the Board of Directors fails to select a Referee under Section 4.11(f) within a reasonable amount of time following a written request of an Eligible Person for the selection of a Referee, or if the Referee or the Board of Directors fails to make a determination under Section 4.11(f) within a reasonable amount of time following the selection of a Referee, the Eligible Person may apply for indemnification with respect to a Claim to a court of competent jurisdiction, including a court in which the Claim is pending against the Eligible Person. On receipt of an application, the court, after giving notice to the Corporation and giving the Corporation ample opportunity to present to the court any information or evidence relating to the claim for indemnification that the Corporation deems appropriate, may order indemnification if it determines that the Eligible Person is entitled to indemnification with respect to the Claim because such Eligible Person met the standards of conduct set forth in Section 4.11(a)(ii). If the court determines that the Eligible Person is entitled to indemnification, the court shall also determine the reasonableness of the Eligible Person’s Expenses.

(h) The rights of indemnification provided in this Section 4.11 shall be in addition to any rights to which any Eligible Person may otherwise be entitled. Irrespective of the provisions of this Section 4.11, the Board of Directors may, at any time and from time to time, (i) approve indemnification of any Eligible Person to the full extent permitted by the provisions of applicable law at the time in effect, whether on account of past or future transactions, and (ii) authorize the Corporation to purchase and maintain insurance on behalf of any Eligible Person against any Liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability.

(i) Expenses incurred by an Eligible Person with respect to any Claim may be advanced by the Corporation (by action of the Board of Directors, whether or not a disinterested quorum exists) prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the Eligible Person to repay such amount unless he is determined to be entitled to indemnification.

(j) The provisions of this Section 4.11 shall be deemed to be a contract between the Corporation and each Eligible Person, and an Eligible Person’s rights hereunder shall not be diminished or otherwise adversely affected by any repeal, amendment, or modification of this Section 4.11 that occurs subsequent to such person becoming an Eligible Person.

(k) The provisions of this Section 4.11 shall be applicable to Claims made or commenced after the adoption hereof, whether arising from acts or omissions to act occurring before or after the adoption hereof.

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ARTICLE 5

Officers of the Corporation

Section 5.1. Election, Qualification and Term of Office . The officers of the Corporation shall consist of a Chief Executive Officer (also “CEO” herein), a Chief Financial Officer (also “CFO” herein), a Secretary, and a Treasurer. The Corporation may, at the discretion of the CEO and as otherwise required by Indiana law or other required regulatory requirements or best practices, have the following officers: Chief Operating Officer (also “COO” herein), a President, one (1) or more Executive Vice Presidents, one (1) or more Senior Vice Presidents, one (1) or more Vice Presidents, and such assistant officers as the CEO shall designate. The CEO will be appointed by the Board of Directors. The CFO will be appointed jointly by both the CEO and the Board of Directors. All other officers will be appointed by the CEO. Any two (2) or more offices may be held by the same person, except the duties of the President and the Secretary shall not be performed by the same person. If required to do so by law, at the Board meeting following action by the CEO, the Board of Directors will elect each officer (other than assistant officers), as appointed by the CEO.

Section 5.2. Vacancies . Whenever any vacancies shall occur in any of the offices of the Corporation (other than CEO or CFO) for any reason, the same may be filled by the CEO.

Section 5.3. Resignation and Removal . Any officer, other than the CEO, may resign at any time by delivering notice to the Board of Directors, the Chairman, the CEO or the Secretary of the Corporation, and such resignation shall be effective upon delivery or such later date, as specified in the resignation, upon the condition that the Corporation concurs with the delayed resignation. The CEO may resign by providing notice to the Board of Directors, the Chairman, the Lead Director, or the Secretary of the Corporation. The CEO may be removed, either with or without cause, at any time by majority vote of the entire Board of Directors. Any other officer may be removed, with or without cause, at the discretion of the CEO. The resignation or removal of an officer does not affect the Corporation’s contract rights, if any, with the officer.

Section 5.4. Compensation . Each executive officer shall receive such compensation for his service as set by the Compensation Committee of the Board of Directors.

Section 5.5 The Chief Executive Officer . Subject to the general control of the Board of Directors, the Chief Executive Officer shall manage and supervise all the affairs and personnel of the Corporation and shall discharge all the usual functions of the Chief Executive Officer of a Corporation.

Section 5.6. The President: Shall perform the duties as outlined and as defined by the Board of Directors or CEO. The President shall perform the duties of the CEO in the CEO’s absence or disability, such powers granted by the CEO, or in the case of disability, as granted by the Board of Directors.

Section 5.7 Chief Operating Officer. Shall perform the duties as outlined by the Board of Directors or CEO.

Section 5.8 Chief Financial Officer . The Chief Financial Officer shall be the principal financial officer of the Corporation and shall have such powers and perform such duties as the Board of Directors or CEO may prescribe. The Chief Financial Officer is also responsible for financial planning and record keeping as well as financial reporting to the Board of Directors, Committees of the Board of Directors, senior management and various regulatory authorities.

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Section 5.9 Executive Vice Presidents . The Executive Vice Presidents shall, in the order determined by the CEO, have all the powers of and perform all the duties incumbent upon the President and/or COO during any absence or disability, assist the Board of Directors, CEO, COO and/or President in supervising the operations of the Corporation and, subject to the direction of the CEO, COO and/or President, shall manage and supervise certain operations of the Corporation.

Section 5.10 Senior Vice Presidents and Vice Presidents . The Senior Vice Presidents and Vice Presidents shall have all such other powers and duties as the CEO may prescribe.

Section 5.11 The Secretary . The Secretary shall serve at the direction of the CEO and/or President, attend all meetings of the shareholders and of the Board of Directors, and keep, or cause to be kept, in a book provided for the purpose, a true and complete record of the proceedings of such meeting, and he shall perform a like duty, when required, and/or when necessary, for all standing committees appointed by the Board of Directors. He shall attest the execution of all deeds, leases, agreements and other official documents and shall affix the corporate seal thereto. He shall attend to the giving and serving of all notices of the Corporation required by this Code of By-Laws, shall have custody of the books (except books of account), records and corporate seal of the Corporation, and in general shall perform all duties pertaining to the office of Secretary and such other duties as the CEO and/or President shall prescribe and as this Code of By-Laws or the Board of Directors may prescribe.

Section 5.12 The Treasurer . The Treasurer shall serve at the direction of the CEO and CFO and keep correct and complete records of accounts, showing accurately at all times the financial condition of the Corporation. He shall have charge and custody of, and be responsible for, all funds, notes, securities and other valuables which may from time to time come into the possession of the Corporation. He shall deposit, or cause to be deposited, all funds of the Corporation with such depositories as the CEO, President and CFO requires, or whenever required, provide a statement of the financial condition of the Corporation, and in general shall perform all duties pertaining to the office of Treasurer and such other duties as the CEO, President and CFO or this Code of By-Laws or the Board of Directors may prescribe.

Section 5.13 Assistant Officers . Such assistant officers as the officers shall from time to time designate shall have such powers and duties as the officers whom they are designated to assist shall specify and delegate to them, and such other powers and duties the CEO may prescribe. An Assistant Secretary may, in the absence or disability of the Secretary, attest the execution of all documents by the Corporation and affix the corporate seal thereto.

Section 5.14 Delegation of Authority . In case of the absence or inability to act of any officer of the Corporation, other than the CEO, the CEO may delegate for the time being the duties of such officer to any other officer or to any Director. In case of the absence or inability to act of the CEO, the Board of Directors may delegate for the time being the duties of such officer to any other officer or to any Director.

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ARTICLE 6

Execution of Documents and Other Actions on
Behalf of the Corporation

Section 6.1 Execution of Documents in the Ordinary Course of Business . Unless otherwise required by law or otherwise directed by the Board of Directors, all written contracts and agreements into which the Corporation enters in the ordinary course of its business shall be executed on behalf of the Corporation by any officer of the Corporation or by any other employee or agent of the Corporation expressly authorized by the Chairman, CEO. or the Board of Directors to execute any such documents.

Section 6.2 Execution of Documents Outside the Ordinary Course of Business. Unless otherwise required by law or otherwise directed by the Board of Directors, all deeds, mortgages, deeds of trust, notes, assignments and other instruments made by the Corporation and all written contracts and agreements entered into by the Corporation, other than those contracts and agreements entered into in the ordinary course of its business, shall be executed on behalf of the Corporation by the CEO or the CFO and, when required, attested by the Secretary or an Assistant Secretary of the Corporation. However, the Board of Directors may expressly authorize by resolution any officer, employee, or agent of the Corporation to execute any such deed, mortgage, assignment, instrument, contract or agreement on behalf of the Corporation singly and without the necessity of any additional execution or attestation by any other officer of the Corporation.

Section 6.3 Execution and Endorsement of Checks and Drafts . Unless otherwise required by law, all checks, drafts, bills of exchange and other orders for the payment of money (other than notes) by or to the Corporation shall be executed or endorsed on behalf of the Corporation by any two of the following duly elected officers of the Corporation: CEO, President, COO, CFO, Executive Vice President, Treasurer or Secretary. However, the CEO or CFO may expressly authorize in writing any one or more officers or other employees of the Corporation to execute or endorse any checks, drafts, or other orders for the payment of money on behalf of the Corporation, singly and without any additional signature, endorsement or attestation by any other officer of the Corporation.

Section 6.4 Voting of Shares Owned by the Corporation . The Board of Directors is empowered and authorized to appoint any person to vote in person or by proxy any shares of another corporation standing in the name of the Corporation at any meeting of the shareholders of such other corporation. If the Board of Directors makes no such appointment with respect to any such meeting, the shares may be voted in person or by proxy by the Chairman, or, in the absence of the Chairman, by the CEO, President, COO, any Executive Vice President, the Secretary or the Treasurer of the Corporation.

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ARTICLE 7

Miscellaneous

Section 7.1 Amendments . Subject to law and the Articles of Incorporation, the power to make, alter, amend or repeal all or any part of this Code of By-Laws is vested in the Board of Directors. The affirmative vote of a majority of all the Directors shall be necessary to affect any such changes in this Code of By-Laws.

Section 7.2 Corporate Seal . The seal of the Corporation shall be circular in form with the name of the Corporation around the top of its periphery, the word “Indiana” around the bottom of its periphery, and the word “Seal” through the center. The absence of the impression of the corporate seal from any document shall not affect in any way the validity or effect of such document.

Section 7.3 Fiscal Year . The fiscal year of the Corporation commences on the first (1 ^st ) day of January and ends on the thirty-first (31 ^st ) day of December of each year.

Section 7.4 Definitions . When used in this Code of By-Laws, the following terms shall have the meanings set forth below:

“Act” means the Indiana Business Corporation Law, as then in effect and as amended from time to time.

“Articles of Incorporation” means the Articles of Incorporation of the Corporation as then in effect and as amended from time to time.

Section 7.5 Conflicts and Inconsistencies with the Act . This Code of By-Laws constitutes “bylaws” within the meaning of, and as subject to and governed by, the Act. In the event that any provision of this Code of By-Laws is prohibited by any provision of the Act or is in direct conflict or inconsistent with any provision of the Articles of Incorporation, such provision of the Act or the Articles of Incorporation, as the case may be, shall be controlling, but such conflict or inconsistency shall not impair, nullify or otherwise affect the remaining terms and provisions of this Code of By-Laws, which shall remain in full force and effect. If any provision of this Code of By-Laws is inconsistent with, or different than, any non-mandatory provision of the Act, the provision of this Code of By-Laws shall be controlling.

Section 7.6 Construction . The headings of Articles, Sections and paragraphs in this Code of By-Laws are for descriptive purposes only and shall not control, alter, or otherwise affect the meaning, scope or intent or any provision of this Code of By-Laws. Except as expressly provided otherwise in this Code of By-Laws, any reference to an Article or Section shall mean and refer to an Article or Section of this Code of By-Laws. Except where the context of their use clearly requires a different interpretation, singular terms shall include the plural, and masculine terms shall include the feminine or neuter, and vice versa, to the extent necessary to give the defined terms or other terms used in this Code of By-Laws their proper meanings. The terms, “herein,” “hereof,” “hereunder,” “hereto,” “hereinafter,” “hereinbefore,” and similar words, wherever they appear in this Code of By-Laws, shall mean and refer to this Code of By-Laws in its entirety and not to any specific Article, Section, or paragraph of this Code of By-Laws, unless the context of their use clearly requires a different interpretation.

Section 7.7 Severability . Any provision of this Code of By-Laws, or any amendment or alteration hereof, which is determined to be in violation of the Act shall in no way render any of the remaining provisions invalid.

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Exhibit 31.1

CERTIFICATION

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, Jeremy D. Edgecliffe-Johnson, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Protective Insurance Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 7, 2019

/s/ Jeremy D. Edgecliffe-Johnson
Jeremy D. Edgecliffe-Johnson
Chief Executive Officer

Exhibit 31.2

CERTIFICATION

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, William C. Vens, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Protective Insurance Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 7, 2019

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

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Protective Insurance Corporation (the "Company") on Form 10-Q for the quarterly period ending June 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Jeremy D. Edgecliffe-Johnson, Chief Executive Officer of the Company, and William C. Vens, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 7, 2019

/s/ Jeremy D. Edgecliffe-Johnson
Jeremy D. Edgecliffe-Johnson
Chief Executive Officer


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