Protective Insurance Corp (Form: 10-Q, Received: 11/06/2019 17:29:42)

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 September 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 November 5, 2019:

Common Stock, No Par Value:	Class A (voting)	2,608,294
	Class B (non-voting)	11,722,917
		14,331,211

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share data)

	September 30 2019		December 31 2018
Assets
Investments:
Fixed income securities	$	757,841	$	592,645
Equity securities		72,837		66,422
Limited partnerships		22,645		55,044
Commercial mortgage loans		9,418		6,672
Short-term and other		1,000		1,000
		863,741		721,783

Cash and cash equivalents		85,777		163,996
Restricted cash and cash equivalents		22,410		6,815
Accounts receivable		105,801		102,972
Reinsurance recoverable		418,031		392,436
Other assets		93,756		88,426
Current federal income taxes recoverable		4,267		7,441
Deferred federal income taxes		2,984		6,262
Total Assets	$	1,596,767	$	1,490,131

Liabilities and shareholders' equity
Reserves for losses and loss expenses	$	960,695	$	865,339
Reserves for unearned premiums		76,329		71,625
Reinsurance payable		55,225		66,632
Short-term borrowings		20,000		20,000
Accounts payable and other liabilities		121,088		110,453
Total Liabilities		1,233,337		1,134,049

Shareholders' equity:
Common stock-no par value:
Class A voting -- authorized 3,000,000 shares; outstanding -- 2019 - 2,608,819; 2018 - 2,615,339		112		112
Class B non-voting -- authorized 20,000,000 shares; outstanding -- 2019 - 11,738,578; 2018 - 12,253,922		501		522
Additional paid-in capital		53,670		54,720
Accumulated other comprehensive income (loss)		9,594		(7,347	)
Retained earnings		299,553		308,075
Total Shareholders' Equity		363,430		356,082
Total Liabilities and Shareholders' Equity	$	1,596,767	$	1,490,131

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Operations

(in thousands, except per share data)

	Three Months Ended September 30						Nine Months Ended September 30
	2019			2018			2019			2018
Revenues
Net premiums earned	$	110,288		$	96,807		$	335,931		$	314,209
Net investment income		6,703			5,578			19,434			16,010
Commissions and other income		2,716			3,413			6,761			7,488
Net realized gains on investments, excluding impairment losses		1,199			449			1,872			1,740
Other-than-temporary impairment losses on investments		(58	)		–			(404	)		–
Net unrealized gains (losses) on equity securities and limited partnership investments		(1,016	)		1,924			7,573			(7,335	)
Net realized and unrealized gains (losses) on investments		125			2,373			9,041			(5,595	)
		119,832			108,171			371,167			332,112

Expenses
Losses and loss expenses incurred		84,781			94,540			262,336			244,327
Other operating expenses		36,070			29,200			104,386			99,984
		120,851			123,740			366,722			344,311
Income (loss) before federal income tax expense (benefit)		(1,019	)		(15,569	)		4,445			(12,199	)
Federal income tax expense (benefit)		(312	)		(3,244	)		869			(2,691	)
Net income (loss)	$	(707	)	$	(12,325	)	$	3,576		$	(9,508	)

Per share data:
Basic and diluted earnings (loss)	$	(.05	)	$	(.82	)	$	.24		$	(.63	)

Reconciliation of shares outstanding:
Average shares outstanding - basic		14,361			14,969			14,607			14,998
Dilutive effect of share equivalents		-			-			77			-
Average shares outstanding - diluted		14,361			14,969			14,684			14,998

See notes to condensed consolidated financial statements.

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Protective Insurance Corporation and Subsidiaries

Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	Three Months Ended September 30						Nine Months Ended September 30
	2019			2018			2019		2018
Net income (loss)	$	(707	)	$	(12,325	)	$	3,576	$	(9,508	)

Other comprehensive income (loss), net of tax:
Unrealized net gains (losses) on fixed income securities		1,566			(1,151	)		16,539		(6,298	)

Foreign currency translation adjustments		(189	)		202			402		(209	)

Other comprehensive income (loss)		1,377			(949	)		16,941		(6,507	)

Comprehensive income (loss)	$	670		$	(13,274	)	$	20,517	$	(16,015	)

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		–			–		–			–			–			–			3,576			3,576
Foreign currency translation adjustment, net of tax		–			–		–			–			–			402			–			402
Change in unrealized gain (loss) on investments, net of tax		–			–		–			–			–			16,539			–			16,539
Common stock dividends		–			–		–			–			–			–			(4,429	)		(4,429	)
Repurchase of common stock		(6	)		–		(595	)		(24	)		(2,590	)		–			(7,669	)		(10,283	)
Restricted stock grants		–			–		80			3			1,540			––			–			1,543
Balance at September 30, 2019		2,609		$	112		11,739		$	501		$	53,670		$	9,594		$	299,553		$	363,430

	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 June 30, 2019		2,612		$	112		11,932		$	509		$	54,065		$	8,217		$	304,513		$	367,416
Net loss		–			–		–			–			–			–			(707	)		(707	)
Foreign currency translation adjustment, net of tax		–			–		–			–			–			(189	)		–			(189	)
Change in unrealized gain (loss) on investments, net of tax		–			–		–			–			–			1,566			–			1,566
Common stock dividends		–			–		–			–			–			–			(1,442	)		(1,442	)
Repurchase of common stock		(3	)		–		(224	)		(9	)		(976	)		–			(2,811	)		(3,796	)
Restricted stock grants		–			–		31			1			581			–			–			582
Balance at September 30, 2019		2,609		$	112		11,739		$	501		$	53,670		$	9,594		$	299,553		$	363,430

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 loss		–		–		–			–			–			–			(9,508	)		(9,508	)
Foreign currency translation adjustment, net of tax		–		–		–			–			–			(209	)		–			(209	)
Change in unrealized gain (loss) on investments, net of tax		–		–		–			–			–			(6,298	)		–			(6,298	)
Common stock dividends		–		–		–			–			–			–			(12,652	)		(12,652	)
Repurchase of common stock		–		–		(112	)		(5	)		(484	)		–			(2,131	)		(2,620	)
Restricted stock grants		–		–		13			–			521			–			–			521
Balance at September 30, 2018		2,623	$	112		12,325		$	525		$	55,115		$	(6,156	)	$	338,449		$	388,045

	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 June 30, 2018		2,623	$	112		12,380		$	528		$	55,745		$	(5,207	)	$	356,057		$	407,235
Net loss		–		–		–			–			–			–			(12,325	)		(12,325	)
Foreign currency translation adjustment, net of tax		–		–		–			–			–			202			–			202
Change in unrealized gain (loss) on investments, net of tax		–		–		–			–			–			(1,151	)		–			(1,151	)
Common stock dividends		–		–		–			–			–			–			(4,196	)		(4,196	)
Repurchase of common stock		–		–		(58	)		(3	)		(250	)		–			(1,087	)		(1,340	)
Restricted stock grants		–		–		3			–			(380	)		–			–			(380	)
Balance at September 30, 2018		2,623	$	112		12,325		$	525		$	55,115		$	(6,156	)	$	338,449		$	388,045

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)

	Nine Months Ended September 30
	2019			2018
Operating activities
Net income (loss)	$	3,576		$	(9,508	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities		58,746			69,878
Net cash provided by operating activities		62,322			60,370

Investing activities
Purchases of fixed income and equity securities		(342,299	)		(330,217	)
Purchases of limited partnership interests		–			(450	)
Distributions from limited partnerships		33,395			369
Proceeds from maturities		64,536			46,620
Proceeds from sales of fixed income securities		118,725			181,867
Proceeds from sales of equity securities		19,408			117,692
Purchase of insurance company-owned life insurance		–			(10,000	)
Purchase of commercial mortgage loans		(2,746	)		–
Purchases of property and equipment		(1,659	)		(4,360	)
Proceeds from disposals of property and equipment		4			8
Net cash provided by (used in) investing activities		(110,636	)		1,529

Financing activities
Dividends paid to shareholders		(4,429	)		(12,652	)
Repurchase of common shares		(10,283	)		(2,620	)
Net cash used in financing activities		(14,712	)		(15,272	)

Effect of foreign exchange rates on cash and cash equivalents		402			(209	)

Increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents		(62,624	)		46,418
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	$	108,187		$	115,131

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 September 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 September 30, 2019.

Recently Adopted Accounting Pronouncements: In January 2016, the FASB issued Accounting Standards Update ("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. Unrealized gains or losses on equity securities are now 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 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 September 30, 2019, each of approximately $210, 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 reduced federal corporate income tax rate in the U.S. Tax Cuts and Jobs Act of 2017, 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 new 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 does not expect ASU 2018-13 to have a material impact 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 (CECL) model for measuring expected credit losses for certain types of financial instruments held at the reporting date requiring significant judgment in application based on historical experience, current conditions and reasonable supportable forecasts, but is not prescriptive about certain aspects of estimating expected losses. This update will have an impact on our available-for-sale fixed income portfolio, recoverable reinsurance balances, commercial mortgage loans and accounts receivable balances. ASU 2016-13 replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale fixed income securities to be recognized through an allowance for credit losses through which amounts can be reversed, rather than through an irreversible write-down of the cost, 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 guidance will be adopted using a modified retrospective approach through a cumulative-effect adjustment to the opening balance of retained earnings at the date of adoption and a prospective transition approach for fixed income securities for which an other-than-temporary impairment had been recognized before the adoption date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the date of adoption. The Company is currently gathering data and 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 September 30, 2019 and December 31, 2018:

	Fair Value		Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Net Unrealized Gains (Losses)
September 30, 2019
Fixed income securities
Agency collateralized mortgage obligations	$	14,426	$	13,911	$	518	$	(3	)	$	515
Agency mortgage-backed securities		51,246		49,567		1,691		(12	)		1,679
Asset-backed securities		99,295		99,834		580		(1,119	)		(539	)
Bank loans		14,625		14,871		54		(300	)		(246	)
Certificates of deposit		2,835		2,835		–		–			–
Collateralized mortgage obligations		5,718		5,234		571		(87	)		484
Corporate securities		267,223		261,191		6,858		(826	)		6,032
Mortgage-backed securities		47,381		46,235		1,290		(144	)		1,146
Municipal obligations		32,986		32,280		755		(49	)		706
Non-U.S. government obligations		24,068		23,705		364		(1	)		363
U.S. government obligations		198,038		195,099		3,326		(387	)		2,939
Total fixed income securities	$	757,841	$	744,762	$	16,007	$	(2,928	)	$	13,079

	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 September 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.

	September 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		97	$	106,943	$	(2,097	)		275	$	282,646	$	(7,296	)
Greater than 12 months		86		58,053		(831	)		217		131,001		(3,497	)
Total fixed income securities		183	$	164,996	$	(2,928	)		492	$	413,647	$	(10,793	)

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The fair value and the cost or amortized costs of fixed income investments at September 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	$	67,076	$	67,008
Excess of one year to five years		336,640		330,035
Excess of five years to ten years		129,362		126,528
Excess of ten years		12,416		11,645
Contractual maturities		545,494		535,216
Asset-backed securities		212,347		209,546
Total	$	757,841	$	744,762

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

	Three Months Ended September 30						Nine Months Ended September 30
	2019			2018			2019			2018
Gross gains on available-for-sale fixed income securities sold during the period	$	2,407		$	2,690		$	9,710		$	8,824
Gross losses on available-for-sale fixed income securities sold during the period		(2,728	)		(2,743	)		(9,409	)		(8,539	)

Other-than-temporary impairments		(58	)		–			(404	)		–

Change in value of limited partnership investments		278			(1,073	)		1,000			(6,518	)

Gains on equity securities:
Realized gains on equity securities sold during the period		1,520			502			1,571			1,455
Unrealized gains (losses) on equity securities held at the end of the period		(1,294	)		2,997			6,573			(817	)
Realized and unrealized gains on equity securities during the period		226			3,499			8,144			638

Net realized and unrealized gains (losses) on investments	$	125		$	2,373		$	9,041		$	(5,595	)

Shareholders' equity at September 30, 2019 included approximately $16,035, 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 September 30:
Premiums ceded to reinsurers	$	29,957	$	39,318
Losses and loss expenses ceded to reinsurers		27,228		44,015
Commissions from reinsurers		7,820		5,986

Nine months ended September 30:
Premiums ceded to reinsurers	$	92,556	$	100,560
Losses and loss expenses ceded to reinsurers		86,876		92,651
Commissions from reinsurers		23,229		20,309

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(4) Loss and Loss Expense Reserves:

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

	Nine Months Ended
	September 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		263,925			229,644
Claims occurring during prior periods		(1,589	)		14,683
Total incurred		262,336			244,327

Loss and loss expense payments:
Claims occurring during the current period		53,836			49,510
Claims occurring during prior periods		133,196			123,167
Total paid		187,032			172,677
Reserves at the end of the period		564,708			443,781

Reinsurance recoverable on unpaid losses at the end of the period		395,987			334,056
Reserves, gross of reinsurance recoverable, at the end of the period	$	960,695		$	777,837

The $1,589 prior accident year favorable development during the nine months ended September 30, 2019 was primarily due to favorable loss development in workers' compensation and independent contractor coverages. This savings compares to a prior accident year deficiency of $14,683 for the nine months ended September 30, 2018, which related to unfavorable loss development in commercial automobile coverages. 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.

(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 nine months ended September 30, 2019 and 2018:

	Three Months Ended September 30				Nine Months Ended September 30
	2019		2018		2019		2018
Revenues:
Net premiums earned	$	110,288	$	96,807	$	335,931	$	314,209
Net investment income		6,703		5,578		19,434		16,010
Net realized and unrealized gains (losses) on investments		125		2,373		9,041		(5,595	)
Commissions and other income		2,716		3,413		6,761		7,488
Total revenues	$	119,832	$	108,171	$	371,167	$	332,112

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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 September 30, 2019. At September 30, 2019, the effective interest rate was 3.14%, 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 September 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 Company uses the estimated annual effective tax rate method for calculating its tax provision in interim periods, which represents the Company’s best estimate of the effective tax rate expected for the full year based on projected annual taxable income (loss). The effective tax rate can fluctuate throughout the year because estimates used in the quarterly tax provision are updated as more information becomes available throughout the year.

The effective federal tax rate on consolidated loss for the three months ended September 30, 2019 was 30.6% compared to 20.8% for the three months ended September 30, 2018. The effective federal tax rate on consolidated income for the nine months ended September 30, 2019 was 19.6% compared to 22.1% on consolidated loss for the nine months ended September 30, 2018. The lower pre-tax loss for the three months ended September 30, 2019 as well as the relatively low amount of pre-tax income for the nine months ended September 30, 2019 make these interim period effective tax rates less comparable year over year. The difference in the effective federal income tax rate from the normal statutory rate was primarily related to the effects of tax-exempt investment income and the dividends received deduction.

As of September 30, 2019, the Company's calendar years 2017 and 2016 remain 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 September 30, 2019:

Description	Total		Level 1		Level 2		Level 3
Fixed income securities:
Agency collateralized mortgage obligations	$	14,426	$	–	$	14,426	$	–
Agency mortgage-backed securities		51,246		–		51,246		–
Asset-backed securities		99,295		–		99,295		–
Bank loans		14,625		–		14,625		–
Certificates of deposit		2,835		2,835		–		–
Collateralized mortgage obligations		5,718		–		5,718		–
Corporate securities		262,656		–		262,656		–
Options embedded in convertible securities		4,567		–		4,567		–
Mortgage-backed securities		47,381		–		47,381		–
Municipal obligations		32,986		–		32,986		–
Non-U.S. government obligations		24,068		–		24,068		–
U.S. government obligations		198,038		–		198,038		–
Total fixed income securities		757,841		2,835		755,006		–
Equity securities:
Consumer		15,387		15,387		–		–
Energy		3,010		3,010		–		–
Financial		29,829		29,829		–		–
Industrial		4,488		4,488		–		–
Technology		2,609		2,609		–		–
Funds (e.g. mutual funds, closed end funds, ETFs)		9,438		9,438		–		–
Other		8,076		8,076		–		–
Total equity securities		72,837		72,837		–		–
Short-term investments		1,000		1,000		–		–
Cash equivalents		78,072		–		78,072		–
Total	$	909,750	$	76,672	$	833,078	$	–

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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 investments		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 September 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 nine months ended September 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 September 30, 2019 and December 31, 2018 is as follows:

	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total
September 30, 2019
Assets:
Limited partnerships	$	22,645	$	–	$	–	$	22,645	$	22,645
Commercial mortgage loans		9,418		–		–		9,418		9,418
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 part of 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 September 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. In addition to the 2018 LTIP Awards, in March 2018 the Company's Compensation Committee also granted Value Creation Incentive Plan awards (the "2018 VCIP Awards") to certain participants under the Long-Term Incentive Plan. The 2018 VCIP Awards are performance-based equity awards that will be earned based on the Company's cumulative operating income, as defined above, over a three-year performance period from January 1, 2018 through December 31, 2020 relative to 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 September 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 vested 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 $844 of expense during the nine months ended September 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 $107 of expense during the nine months ended September 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 $122 of expense during the nine months ended September 30, 2019 related to the Edgecliffe-Johnson Stock Grant.

(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, other than as noted below.

- 18 -

Personnel Staffing Group Litigation

In July 2019, Protective Insurance Company (“Protective”) was named as a defendant in an action brought by a former insured, Personnel Staffing Group d/b/a MVP Staffing (“PSG”), in the U.S. District Court for the Central District of California alleging that Protective had breached its workers’ compensation insurance policy and had breached the duties of good faith and fair dealing. Protective 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. In August 2019, Protective filed a motion to dismiss or stay the action, which is pending. The Company intends to vigorously defend these claims; however, the ultimate outcome cannot be presently determined.

In August 2019, Protective filed a lawsuit against PSG in Marion County Superior Court, in Indianapolis, Indiana alleging breach of contract, breach of the parties' collateral agreement, breach of the parties' indemnity agreement, and seeking a declaratory judgment regarding PSG’s ongoing obligation to fund its ongoing claim deductible obligations and adequately collateralize Protective’s current and ongoing claims exposure pursuant to terms of the parties' agreements. In October 2019, Protective amended the complaint to include allegations of misrepresentation as to source of coverage, negligent misrepresentation, fraud and racketeering and seeking injunctive relief. Pursuant to the terms of the workers’ compensation policies, Protective has a duty to adjust and pay claims arising under the policies regardless of whether PSG makes payments to Protective for deductible obligations under the policies. Under its contractual obligations to Protective, 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 Protective’s current open case reserves on workers’ compensation claims arising under the policies.

As of September 30, 2019, Protective had approximately $6,800 in deductible receivables on claims arising under PSG’s workers’ compensation policies and had exhausted all collateral provided by PSG. Protective continues to pay claims settlements under the policies without reimbursement from PSG. For the past six months, the average monthly deductible invoices have been $1,600. PSG’s estimated ultimate obligation under the agreements is approximately $43,000 as of September 30, 2019 (inclusive of the $6,800 in deductible receivables noted above). At September 30, 2019, based on the Company's assessment that PSG will continue to operate as a business and that the terms of the agreement with PSG will be legally enforceable, the Company believes that it will fully collect all current and future amounts due from PSG relating to this matter and, therefore, has not recorded a provision for any potential loss. In the event that PSG files bankruptcy or that the agreements are found to be unenforceable, Protective will likely incur a charge up to the then-estimated amount of PSG’s ultimate obligation.

The Company will also include this matter when assessing the impact of adopting the accounting guidance under the new credit losses standard discussed in Note 1.

(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 6, 2019, 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 between August 6, 2019 and August 6, 2020 may not exceed $25,000, including a limit of up to $6,250 per quarter. Pursuant to this share repurchase program, the Company entered into a Rule 10b5-1 plan on September 23, 2019 (the "Rule 10b5-1 Plan"), which authorized the repurchase of up to $625 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 November 7, 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 nine months ended September 30, 2019, the Company paid $10,283 to repurchase 6,520 shares of Class A and 595,326 shares of Class B Common Stock under the share repurchase program.

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The following table illustrates changes in accumulated other comprehensive income (loss) by component for the nine months ended September 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		402			16,588			16,990
Amounts reclassified from accumulated other comprehensive income (loss)		–			(49	)		(49	)

Net current-period other comprehensive income		402			16,539			16,941

Ending balance at September 30, 2019	$	(737	)	$	10,331		$	9,594

The following table illustrates changes in accumulated other comprehensive income (loss) by component for the nine months ended September 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		(209	)		(4,815	)		(5,024	)
Amounts reclassified from accumulated other comprehensive income (loss)		–			(1,483	)		(1,483	)

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

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

(12) Related Parties:

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 $8,885 at September 30, 2019. Total commissions and net fees earned by this investment firm and its affiliates on these portfolios were $12 and $81 for the nine months ended September 30, 2019 and 2018.

(13) Subsequent Events:

On November 5, 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 December 3, 2019 to shareholders of record on November 19, 2019.

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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 6, 2019, 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 between August 6, 2019 and August 6, 2020 may not exceed $25.0 million, including a limit of up to $6.25 million per quarter. The repurchases may be made in the open market or through privately negotiated transactions, from time-to-time, and in accordance with applicable laws, rules and regulations. On September 23, 2019, we entered into a stock repurchase plan for the purpose of repurchasing up to $0.6 million of shares of our common stock, at various pricing thresholds, in accordance with guidelines specified under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Rule 10b5-1 Plan"). The Rule 10b5-1 Plan was established pursuant to, and as part of, our share repurchase program and permits shares to be repurchased in accordance with pre-determined criteria when repurchases would otherwise be prohibited, such as during self-imposed blackout periods, or under insider trading laws. The Rule 10b5-1 Plan expires on November 7, 2019. The share repurchase program may be amended, suspended or discontinued at any time and does not commit us to repurchase any shares of our common stock. We have funded, and intend to continue to fund, the share repurchase program from cash on hand. The actual number and value of the shares to be purchased will depend on the performance of our stock price, market volume and other market conditions. During the nine months ended September 30, 2019, we paid $10.3 million to repurchase 6,520 shares of Class A and 595,326 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 September 30, 2019 would be expected to decrease by approximately 2.6%. 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 6.7 years at September 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 that primarily focus on ultimate value, and not short-term market fluctuation. 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 $1.9 million to $62.3 million during the nine months ended September 30, 2019 compared to $60.4 million for the nine months ended September 30, 2018. The increase in operating cash flows was primarily related to higher premium volume as well as higher investment income during the nine months ended September 30, 2019 compared to the same period in 2018.

Net cash used in investing activities was $110.6 million for the nine months ended September 30, 2019 compared to cash provided by investing activities of $1.5 million for the nine months ended September 30, 2018. The $112.1 million change was primarily due to the increased investment of cash and cash equivalent investments into fixed income securities during the 2019 period. We also received an additional $33.0 million from limited partnership investments, which were reinvested into fixed income securities during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, we reallocated a large portion of our equity portfolio to fixed income securities, however the total amount invested was relatively stable. Additionally, during 2018, we purchased $10.0 million of company-owned life insurance, which did not recur in 2019.

Net cash used in financing activities for the nine months ended September 30, 2019 consisted of regular cash dividend payments to shareholders of $4.4 million ($0.30 per share) and $10.3 million to repurchase shares of our Class A and B Common Stock. Financing activities for the nine months ended September 30, 2018 consisted of regular cash dividend payments to shareholders of $12.7 million ($0.84 per share) and $2.6 million to repurchase shares of our Class A and B Common Stock.

Our assets at September 30, 2019 included $78.1 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 $67.1 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 September 30, 2019. At September 30, 2019, the effective interest rate was 3.14% 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 September 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 third quarter of 2019 equaled approximately 122% of the combined statutory surplus of these subsidiaries. According to the NAIC, acceptable ranges for the ratio of net premiums written to statutory surplus include results of up to 300%. This ratio is designed to measure our ability to absorb above-average losses and our financial strength. Additionally, the statutory capital of each of our Insurance Subsidiaries substantially exceeded minimum risk-based capital requirements set by the NAIC as of September 30, 2019. As a result, we have the ability to 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 September 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 $215.3 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 $6.4 million at September 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						Nine Months Ended
	September 30						September 30
(dollars in thousands)	2019			2018			2019			2018
Income (loss) before federal income tax expense (benefit)	$	(1,019	)	$	(15,569	)	$	4,445		$	(12,199	)
Less: Net realized and unrealized gains (losses) on investments		125			2,373			9,041			(5,595	)
Less: Net investment income		6,703			5,578			19,434			16,010
Underwriting loss	$	(7,847	)	$	(23,520	)	$	(24,030	)	$	(22,614	)


Ratios
Losses and loss expenses incurred	$	84,781		$	94,540		$	262,336		$	244,327
Net premiums earned		110,288			96,807			335,931			314,209
Loss ratio		76.9	%		97.7	%		78.1	%		77.8	%

Other operating expenses	$	36,070		$	29,200		$	104,386		$	99,984
Less: Commissions and other income		2,716			3,413			6,761			7,488
Other operating expenses, less commissions and other income		33,354			25,787			97,625			92,496
Net premiums earned		110,288			96,807			335,931			314,209
Expense ratio		30.2	%		26.6	%		29.1	%		29.4	%

Combined ratio		107.1	%		124.3	%		107.2	%		107.2	%

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Results of Operations

Comparison of Third Quarter 2019 to Third Quarter 2018 (in thousands)

	2019			2018			Change			% Change
Gross premiums written	$	137,145		$	138,699		$	(1,554	)		(1.1	)%
Ceded premiums written		(27,853	)		(41,685	)		13,832			(33.2	)%
Net premiums written	$	109,292		$	97,014		$	12,278			12.7	%

Net premiums earned	$	110,288		$	96,807		$	13,481			13.9	%
Net investment income		6,703			5,578			1,125			20.2	%
Commissions and other income		2,716			3,413			(697	)		(20.4	)%
Net realized and unrealized gains on investments		125			2,373			(2,248	)		94.7	%
Total revenue		119,832			108,171
Losses and loss expenses incurred		84,781			94,540			(9,759	)		(10.3	)%
Other operating expenses		36,070			29,200			6,870			23.5	%
Total expenses		120,851			123,740
Loss before federal income tax benefit		(1,019	)		(15,569	)		14,550
Federal income tax benefit		(312	)		(3,244	)		2,932
Net loss	$	(707	)	$	(12,325	)	$	11,618

Gross premiums written during the third quarter of 2019 decreased $1.6 million (1.1%), while net premiums earned increased $13.5 million (13.9%), as compared to the third quarter of 2018. The higher net premiums earned in the third quarter of 2019 were primarily the result of lower premiums ceded in the current quarter when compared to the same period in 2018, as discussed below. 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.

Premiums ceded to reinsurers on our insurance business averaged 20.3% of gross premiums written for the third quarter of 2019 compared to 30.1% in the third quarter of 2018. The decrease in premiums ceded was primarily due to our reserve strengthening during the third quarter of 2018 that resulted in ceding an additional $13.8 million in premium from prior treaty years related to the variable premium adjustment provisions in our historical reinsurance treaties, which did not recur in 2019. This was partially offset by higher gross premiums written in our workers' compensation coverages, which carry a higher reinsurance ceding rate, in the third quarter of 2019 compared to the third quarter of 2018.

Losses and loss expenses incurred during the third quarter of 2019 decreased $9.8 million (10.3%) compared to the third quarter of 2018, resulting in a loss ratio of 76.9% during the third quarter of 2019 compared to a loss ratio of 97.7% during the third quarter of 2018. The loss ratio is calculated as the percentage of losses and loss expenses incurred to net premiums earned. The higher losses and loss expenses and higher loss ratio in the third quarter of 2018 reflected reserve strengthening of $16.4 million related to unfavorable prior accident year loss development in commercial automobile coverages as a result of increased claim severity due to a more challenging litigation environment and an increase in the time to settle claims. The third quarter of 2019 loss ratio reflected an increase in losses driven by severe commercial automobile claims, including continued emergence of severity as well as $0.1 million of adverse prior accident year development.

Net investment income for the third quarter of 2019 increased 20.2% to $6.7 million compared to $5.6 million for the third quarter of 2018. The increase reflected an increase in average funds invested resulting from positive cash flow, as well as the continued reallocation from equity investments in limited partnerships and cash and cash equivalent investments into short-duration, high-quality bonds.

Net realized and unrealized gains on investments of $0.1 million during the third quarter of 2019 were primarily driven by net realized gains on sales of securities, excluding impairment losses, of $1.2 million and a $0.3 million increase in the value of our limited partnership investments, partially offset by $1.3 million in unrealized losses on equity securities during the period and other-than-temporary impairments on our fixed income securities of $0.1 million recognized during the period. Comparative third quarter 2018 net realized and unrealized losses on investments of $2.4 million were primarily driven by $3.0 million in unrealized gains on equity securities and net realized gains on sales of fixed income and equity securities, excluding impairment losses, of $0.5 million during the period, partially offset by a $1.1 million decrease in the value of our limited partnership investments. 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 third quarter of 2019 increased $6.9 million, or 23.5%, to $36.1 million compared to the third quarter of 2018. The increase was driven primarily by higher salary and benefit expenses and higher commission expenses as a result of the mix of premium written during the third quarter of 2019. Additionally, other operating expenses for the third quarter of 2019 included charges of $1.6 million related to severance and new hire costs as well as bad debt expense, which we do not expect to recur. The expense ratio was 30.2% during the third quarter of 2019 compared to 26.6% for the third quarter of 2018. The increase in the expense ratio was primarily related to the higher salary and benefit expenses and higher commission expenses noted above.

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Federal income tax benefit was $0.3 million for the third quarter of 2019 compared to $3.2 million for the third quarter of 2018. The effective tax rate for the third quarter of 2019 was a 30.6% tax benefit compared to a 20.8% tax benefit in the third quarter of 2018. The lower pre-tax loss for the three months ended September 30, 2019 made these interim period effective tax rates less comparable. 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 and the dividends received deduction. The effective tax rate can fluctuate throughout the year because estimates used in the quarterly tax provision are updated as more information becomes available throughout the year.

As a result of the factors mentioned above, net loss improved $11.6 million to a loss of $0.7 million during the third quarter of 2019 compared to a net loss of $12.3 million during the third quarter of 2018.

Comparison of Nine Months Ended September 30, 2019 to Nine Months Ended September 30, 2018 (in thousands)

	2019			2018			Change			% Change
Gross premiums written	$	433,191		$	429,792		$	3,399			0.8	%
Ceded premiums written		(92,882	)		(105,090	)		12,208			(11.6	)%
Net premiums written	$	340,309		$	324,702		$	15,607			4.8	%

Net premiums earned	$	335,931		$	314,209		$	21,722			6.9	%
Net investment income		19,434			16,010			3,424			21.4	%
Commissions and other income		6,761			7,488			(727	)		(9.7	)%
Net realized and unrealized gains (losses) on investments		9,041			(5,595	)		14,636			261.6	%
Total revenue		371,167			332,112
Losses and loss expenses incurred		262,336			244,327			18,009			7.4	%
Other operating expenses		104,386			99,984			4,402			4.4	%
Total expenses		366,722			344,311
Income (loss) before federal income tax expense (benefit)		4,445			(12,199	)		16,644
Federal income tax expense (benefit)		869			(2,691	)		3,560
Net income (loss)	$	3,576		$	(9,508	)	$	13,084

Gross premiums written during the nine months ended September 30, 2019 increased $3.4 million (0.8%), while net premiums earned increased $21.7 million (6.9%), as compared to the same period in 2018. The higher net premiums earned in the nine months ended September 30, 2019 were primarily the result of lower premiums ceded in the current period when compared to the same period in 2018, as discussed below. 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.

Premiums ceded to reinsurers on our insurance business averaged 21.4% of gross premiums written for the nine months ended September 30, 2019 compared to 24.5% for the same period of 2018. The decrease in premiums ceded was primarily due to our reserve strengthening during the nine months ended September 30, 2018 that resulted in ceding an additional $16.4 million in premium from prior treaty years related to the variable premium adjustment provisions in our historical reinsurance treaties, compared to the ceding of an additional $1.6 million in commercial automobile premium from prior treaty years related to the same adjustment provisions during the nine months ended September 30, 2019. Additionally, during the nine months ended September 30, 2019, we had higher gross premiums written in workers' compensation coverages, which carry a higher reinsurance ceding rate.

Losses and loss expenses incurred during the nine months ended September 30, 2019 increased $18.0 million (7.4%) compared to the same period of 2018, resulting in a loss ratio of 78.1% for the period. This compares to a loss ratio of 77.8% 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 nine months ended September 30, 2019 reflected an increase in losses driven by severe commercial automobile claims, including continued emergence of severity. This loss development was partially offset by prior accident year net savings of $1.6 million that developed during the nine months ended September 30, 2019, primarily due to favorable loss development in workers' compensation and independent contractor coverages. Including the impact of the additional $1.6 million ceded premium discussed above, the total prior accident year impacts offset each other for the nine months ended September 30, 2019. Losses and loss expenses for the nine months ended September 30, 2018 reflected reserve strengthening of $14.7 million related to unfavorable prior accident year loss development in commercial automobile coverages.

Net investment income for the nine months ended September 30, 2019 increased 21.4% to $19.4 million compared to $16.0 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 in limited partnerships and cash and cash equivalent investments into short-duration, high-quality bonds.

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Net realized and unrealized gains on investments of $9.0 million during the nine months ended September 30, 2019 were primarily driven by $6.6 million in unrealized gains on equity securities during the period, net realized gains on sales of securities, excluding impairment losses, of $1.9 million and a $1.0 million increase in the value of our limited partnership investments, partially offset by other-than-temporary impairments on our fixed income securities of $0.4 million recognized during the period. In the comparative nine month period ended September 30, 2018, net realized and unrealized losses on investments of $5.6 million were driven by a $6.5 million decrease in the value of our limited partnership investments and $0.8 million in unrealized losses on equity securities, excluding impairment losses, during the period, partially offset by net realized gains on sales of fixed income and equity securities of $1.7 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 nine months ended September 30, 2019 increased $4.4 million, or 4.4%, to $104.4 million compared to $100.0 million for the same period of 2018. The increase was driven primarily by higher commission expenses as a result of the mix of premium written and higher salary and benefit expenses during the nine months ended September 30, 2019. The expense ratio was 29.1% during the nine months ended September 30, 2019 compared to 29.4% 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 nine months ended September 30, 2019 compared to the same period of 2018.

Federal income tax expense was $0.9 million for the nine months ended September 30, 2019 compared to federal income tax benefit of $2.7 million for the same period of 2018. The effective tax rate for the nine months ended September 30, 2019 was a 19.6% expense compared to a 22.1% benefit in the same period of 2018. The relatively low amount of pre-tax income for the nine months ended September 30, 2019 made these interim period effective tax rates less comparable. 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 and the dividends received deduction. The effective tax rate can fluctuate throughout the year because estimates used in the quarterly tax provision are updated as more information becomes available throughout the year.

As a result of the factors mentioned above, net income increased $13.1 million to $3.6 million during the nine months ended September 30, 2019 compared to net loss of $9.5 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 only responsible 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	$	45.5	$	90.9
Net financial loss		11.8		23.1

$/share (after tax)	$	0.64	$	1.25

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;

●

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 September 30, 2019, amounts due from reinsurers on paid and unpaid losses were estimated to total approximately $396 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 this 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 September 30, 2019 to selected hypothetical changes in interest rates (dollars in thousands).

	Fair Value		Estimated Change in Fair Value
200 basis point increase	$	714,048	$	(43,793	)
100 basis point increase		735,945		(21,896	)
Current fair value		757,841		–
100 basis point decrease		779,737		21,896
200 basis point decrease		801,634		43,793

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 September 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⁾
July 1 – July 31		124,151	$	16.90		124,151		1,681,349
August 1 – August 31		60,585		16.31		60,585		1,620,764
September 1 – September 30		43,029		16.49		43,029		1,577,735
Total		227,765				227,765

⁽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, incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed August 7, 2019.

10.1		Offer Letter, dated September 6, 2019, between the Company and John R. Barnett

10.2		Non-Compete, Severance and Confidentiality Agreement, dated effective as of October 1, 2019, between the Company and John R. Barnett

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 September 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 November 6, 2019

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

Date November 6, 2019

By:	/s/ John R. Barnett
	John R. Barnett
	Chief Financial Officer

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September 6, 2019

John Barnett

1042 Cantwell Place

Spring Hill, TN 37174

Dear John,

It is my pleasure to extend the following offer of employment to you on behalf of Protective Insurance. We are impressed with your accomplishments and feel your background and experience will be mutually beneficial for our present needs and your professional growth. Your first day of employment will be October 1, 2019.

Title: Chief Financial Officer. The position will report to Jeremy Johnson, Chief Executive Officer.

Salary: $385,000.00/year paid bi-weekly installments. All employees are reviewed annually at the beginning of every year.

Short Term Incentive Plan Bonus: The short-term incentive plan target bonus is 40%% of salary and is based on a combination of company and personal performance (80% company and 20% personal). Your guaranteed bonus for 2019 will be $75,000 and will be paid in March 2020.

Long Term Incentive Plan Bonus: The long-term incentive plan target bonus is 30% of salary and is based on a combination of company and personal performance (80% company and 20% personal). The first year bonus is prorated for the number of full calendar months employed. Based on your annual salary and proposed start date, the long-term incentive bonus for 2019 would be targeted at approximately $29,118, paid in March 2020.

Total Potential 2020 Compensation:

Salary $385,000

STIP Bonus $154,000 (target)

LTIP Bonus $115,500 (target)

Total $654,500

Relocation Payment

$100,000 subject to applicable withholding and deductions. The cash relocation package will be payable in a lump sum in accordance with the Company’s first regular payroll after your start date and is repayable in accordance to the terms of the Non-Compete, Severance & Confidentiality Agreement.

Sign-On Bonus

$120,000 (one-time) cash, subject to applicable withholding and deductions, will be payable in a lump sum in accordance with the Company’s first regular payroll after your start date.

Restricted Stock:

$200,000 worth of restricted shares of the Company’s Class B Common Stock which are scheduled to vest over a three-year period in accordance with the terms outlined in the Non-Compete, Severance & Confidentiality Agreement and/or the award agreement.

Cobra Subsidy: $5,600 (one-time) subject to applicable withholding and deductions.

Benefits: The standard health, life, disability and dental insurance programs are available the first of the month following your start date. Employee contribution to payment for benefit plans is determined annually. The Company’s open enrollment period will begin in December for coverage beginning January 1, 2020.

You will be eligible to contribute to our 401(k) plan and receive Company matching as early as December 1, 2019. The Company match is 100% of the first 3% and 50% of the next 2%, up to a maximum of 4% of your salary. An additional profit sharing match of 4% of salary is also contributed. The overall maximum Company contribution is 8% of your salary. The 401(k) plan is subject to annual review as determined by the Board of Directors.

Please respond to this offer with your signature. We are looking forward to your acceptance of our offer and request that you respond no later than September 9, 2019. Note that this offer is contingent upon the completion of a successful background check. If you have any questions, please contact me at 317/800-3981 or via email at djohnson@protectiveinsurance.com

_______________________ ___________

Name Date

Sincerely,

Deborah B. Johnson

Chief Human Resources Officer

NON-COMPETE, SEVERANCE & CONFIDENTIALITY AGREEMENT

THIS AGREEMENT, effective as of October 1, 2019 (the "Effective Date") by and between Protective Insurance Corporation, an Indiana corporation (together with its successors and assigns, the "Company"), and John Barnett (the "Executive");

WITNESSETH:

WHEREAS, the Company desires to employ the Executive as its Chief Financial Officer; and

WHEREAS, the Executive desires to accept employment with the Company, subject to the terms and provisions of this Agreement.

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which is mutually acknowledged, the Company and the Executive (collectively, the "Parties") agree as follows:

1. Definitions. Capitalized terms not otherwise defined herein shall have the meanings set forth in Exhibit A.

2. Term. The "Term" of this Agreement is the period during which the Executive is employed by the Company, beginning on the Effective Date, and the date on which his employment ends is referred to in this Agreement as the "Separation Date." The parties agree that the Executive shall continue to be employed by the Company on an at-will basis during the Term which means that he may terminate his employment at any time for any or no reason, and that the Company may terminate his employment at any time for any or no reason.

3. Positions, Duties and Location.

(a) During the Term, the Executive shall serve as the Chief Financial Officer of the Company (“CFO"). The Executive shall (i) have all authorities, duties and responsibilities customarily exercised by a chief financial officer serving at an entity of the size and nature of the Company and the Company's Subsidiaries (as applicable); and (ii) have such additional duties and responsibilities, consistent with the foregoing, as may from time to time be assigned by the Chief Executive Officer (CEO). In his capacity as CFO, the Executive shall report directly to the CEO. The terms and conditions of this Agreement shall remain in full force and effect regardless of whether additional titles or roles currently held by the Executive (either for the Company or any of its Subsidiaries) change by reason of position elimination, reassignment, removal, or otherwise.

(b) During the Term, the Executive shall devote substantially all of his business time and efforts to the business and affairs of the Company.

(c) During the Term, the Executive's principal office, and principal place of employment, shall be in Carmel, Indiana, or within 40 miles thereof; provided, however, that the Executive understands and agrees that he will be required to travel from time to time for business reasons.

4. Compensation. The Executive’s compensation shall be reviewed no less frequently than annually by the Compensation Committee of the Board of Directors and may be modified in the sole discretion of the Company.

5. Relocation/Temporary Housing Expenses. Pursuant to the offer of employment, the Company shall pay Executive a cash relocation package equal to $100,000, subject to applicable withholding and deductions. The cash relocation package will be payable in a lump sum in accordance with the Company’s first regular payroll after the Effective Date. If, prior to April 1, 2020, the Executive’s employment hereunder is terminated by the Company for Cause or by the Executive without Good Reason, then the Executive shall repay to the Company the full $100,000 amount of the relocation package.

6. Stock Grant. Pursuant to the offer of employment, the Executive shall receive $200,000 worth of restricted shares of the Company’s Class B Common Stock (the “Stock Grant’) under the Company’s Long-Term Incentive Plan. The Stock Grant shall vest subject to the Executive’s continuing employment according to the following schedule unless otherwise provided within this Agreement or the applicable award agreement: (i) 40% of the shares shall vest as of December 31, 2020; (ii) 30% of the shares shall vest as of December 31, 2021; and (iii) the remaining 30% of the shares will vest as of December 31, 2022. The Executive shall be eligible to receive all dividends earned on the shares during the applicable vesting period. The actual number of shares granted will be determined based on the stock price on the date of the Stock Grant, which shall be within seven (7) days of the Effective Date of this Agreement.

7. Termination of Employment. The Company may terminate the Executive's employment at any time, and for any reason. The Executive may terminate the Executive's employment hereunder at any time, and for any reason, by delivering written notice to the CEO. During any such notice period, the Company reserves the right to suspend any or all of the Executive's access, duties or responsibilities and limit the Executive's communications with any customers, suppliers, agents, or employee of the Company, as the Company determines in its sole discretion. Upon any termination of employment, the Executive shall be entitled to receive (1) payment of any Base Salary earned but unpaid through the Termination Date, and (2) any vested amounts or benefits required to be paid in accordance with the terms of any applicable plan, program, agreement, corporate governance document or other arrangement of the Company and its Affiliates.

(a) Termination Without Cause or Resignation for Good Reason. Subject to the terms and conditions of this Agreement, in the event that the Executive’s employment hereunder is terminated due to his resignation for Good Reason or the Executive’s employment hereunder is terminated by the Company other than for Cause, the Executive shall receive:

(i) an amount, payable in cash equal to his annualized Base Salary in effect as of the Termination Date, plus his Target STIP plus his Target LTIP bonuses applicable to the year in which the Separation Date occurs;

(ii) full vesting for any unvested restricted stock, restricted stock unit award, or any other award granted under the LTIP (the vesting described in this clause (iii) being the “Award Vesting”); and

(iii) if the Executive timely elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), the Company shall provide the Executive with a reimbursement of the premiums associated with the continuation of his medical, dental and vision benefits under COBRA for a period equal to the earliest of (1) twelve (12) months following the Termination Date, (2) the date the Executive first becomes eligible to receive health benefits under another employer-provided plan or (3) the date the Executive is no longer eligible for continuation benefits under COBRA. Notwithstanding the forgoing, if the Company’s making payments under this Section 7(a)(iii) would violate the nondiscrimination rules applicable to non-grandfathered plans under the Affordable Care Act or any successor law (the “ACA”), or result in the imposition of penalties under the ACA and the related regulations and guidance promulgated thereunder, the Parties agree to reform this Section 7(a)(iii) in a manner as is necessary to comply with the ACA.

(b) Change in Control. Subject to the terms and conditions of this Agreement, in the event that (i) the Executive's employment hereunder is terminated (x) by the Company without Cause and in anticipation of a Change in Control to be effectuated within one hundred twenty (120) days prior to the Termination Date or (y) by either Party on or before the twenty-four (24) month anniversary of the occurrence of a Change of Control, then Executive shall receive the benefits included under Section 7(a) (relating to terminations without Cause or resignation for Good Reason).

(c) No Mitigation; No Offset. In the event of any termination of the Executive's employment hereunder, the Executive shall be under no obligation to seek other employment or otherwise mitigate the obligations of the Company under this Agreement, and there shall be no offset against amounts or benefits due the Executive under this Agreement or otherwise on account of (x) any Claim that the Company may have against him except for any outstanding loans to the extent then due and payable by him to the Company or (y) any remuneration or other benefit earned or received by the Executive after such termination. There shall also be no reduction of, or offset against, any amount due under any provision of this Agreement by any amount due under any other provision of this Agreement. Any amounts due under this Section 8 are considered to be reasonable by the Company and are not in the nature of a penalty.

(d) General Waiver and Release. The Executive shall not be entitled to the payments and benefits described in Section 7(a) or 7(b) unless (x) he first timely executes and delivers the Company's standard mutual release of claims (the " Release"), within the time period set forth in the Release, containing a general waiver and release of the Company and its employees, officers, directors, owners and members from any and all claims, obligations and liabilities of any kind whatsoever, including those arising from or in connection with the Executive’s employment or termination of employment with the Company or this Agreement (including, without limitation, civil rights claims) and (y) such Release has become irrevocable by him in accordance with its terms.

8. Section 280G Parachute Payment.

(a) If (i) the aggregate of all amounts and benefits due to the Executive, under this Agreement or under any Company plan, program, agreement or arrangement, would, if received by the Executive in full and valued under Section 280G of the Code, constitute "parachute payments" as such term is defined in and under Section 280G of the Code (collectively, "280G Benefits"), and if (ii) such aggregate would, if reduced by all federal, state and local taxes applicable thereto, including the excise tax imposed pursuant to Section 4999 of the Code, be less than the amount the Executive would receive, after all taxes, if the Executive received aggregate 280G Benefits equal (as valued under Section 280G of the Code) to only three times the Executive's "base amount", as defined in and under Section 280G of the Code, less $1.00, then (iii) such cash 280G Benefits (in reverse order of maturity, to the extent that the reduction of such cash 280G Benefits can achieve the intended result) shall be reduced or eliminated to the extent necessary so that the 280G Benefits received by the Executive will not constitute parachute payments. The determinations with respect to this Section 8(a) shall be made by an independent auditor (the "Auditor") paid by the Company. The Auditor shall be the Company's regular independent auditor unless the Executive reasonably objects to the use of that firm, in which event the Auditor will be a nationally recognized firm chosen by the Parties.

(b) It is possible that after the determinations and selections made pursuant to Section 8(a) the Executive will receive 280G Benefits that are, in the aggregate, either more or less than the amount provided under Section 8(a) (hereafter referred to as an "Excess Payment" or "Underpayment", respectively). If it is established, pursuant to a final determination of a court or an Internal Revenue Service proceeding that has been finally and conclusively resolved, that an Excess Payment has been made, such Excess Payment shall be deemed for all purposes to be a loan to the Executive made on the date the Executive received the Excess Payment and the Executive shall promptly repay the Excess Payment to the Company, together with interest on the Excess Payment at the applicable federal rate (as defined in and under Section 1274(d) of the Code) from the date of the Executive's receipt of such Excess Payment until the date of such repayment. In the event that it is determined (x) by arbitration pursuant to Section 13, (y) by a court or (z) by the Auditor upon request by any of the Parties, that an Underpayment has occurred, the Company shall promptly pay an amount equal to the Underpayment to the Executive, together with interest on such amount at the applicable federal rate from the date such amount would have been paid to the Executive had the provisions of Section 8(a) not been applied until the date of payment.

9. Indemnification. If the Executive is made a party, is threatened to be made a party, or reasonably anticipates being made a party, to any Proceeding by reason of the fact that he is or was a director, officer, member, employee, agent, manager, trustee, consultant or representative of the Company or any of its Affiliates or is or was serving at the request of the Company or any of its Affiliates, or in connection with his service hereunder, as a director, officer, member, employee, agent, manager, trustee, consultant or representative of another Person, or if any Claim is made, is threatened to be made, or is reasonably anticipated to be made, that arises out of or relates to the Executive's service in any of the foregoing capacities, then the Executive shall promptly be indemnified and held harmless (and advanced expenses) to the fullest extent permitted or authorized by the Certificate of Incorporation or Bylaws of the Company.

10. Restrictive Covenants.

(a) Confidentiality. The Executive acknowledges and agrees that he shall maintain the confidentiality of this Agreement and shall not disclose it to any other employee of the Company or other person; provided, however, he may disclose it to his spouse and/or legal counsel or as required by law and he may disclose or discuss any items of this Agreement which the Company has disclosed in its annual proxy statement filed in accordance with applicable law.

The Executive acknowledges and agrees that the Confidential Information, and all physical embodiments thereof, are valuable, special and unique assets of the business of the Company and its Subsidiaries (the "Company Group") and have been developed by the Company Group at considerable time and expense. Such Confidential Information is the sole property of the Company Group and the Executive has no individual right or ownership interest in any of the Confidential Information. The Executive further acknowledges that access to Confidential Information will be needed in connection with the performance of his duties and responsibilities during his employment with the Company. Therefore, the Executive agrees that, except as necessary in regard to his assigned duties and responsibilities with the Company, he shall hold in confidence all Confidential Information and will not reproduce, use, distribute, disclose, publish, or otherwise disseminate any Confidential Information, in whole or in part, and will take no action causing, or fail to take any reasonable action necessary to prevent causing, any Confidential Information to lose its character as Confidential Information, nor willfully make use of such information for his/her own purposes or for the benefit of any person, firm, corporation, association, or other entity (except the Company Group) under any circumstances.

Notwithstanding the above, the Executive may disclose Confidential Information pursuant to a court order, subpoena, or other legal process, provided that, at least ten (10) days (or such lesser period as is practicable given the terms of any order, subpoena or other legal process) in advance of any legal disclosure, he shall furnish the Company with a copy of the judicial or administrative order requiring that such information be disclosed together with a written description of the information to be disclosed (which description shall be in sufficient detail to allow the Company to determine the nature and scope of the information proposed to be disclosed), and the Executive agrees to cooperate with the Company Group to deliver the minimum amount of information necessary to comply with such order.

Executive agrees to maintain in trust, as the Company's property, all documents, information and Confidential Information, both in tangible and intangible form, concerning the Company's Business or the Executive's role for the Company. The Executive agrees to return to the Company all documents or other property belonging to the Company, including any and all copies thereof (whether in tangible or intangible form) in the possession or under the control of the Executive upon separation of employment or at any other time upon request of the Company.

The provisions of this Section 10(a) shall apply to Confidential Information during the Term and at all times thereafter, and shall survive the termination of the Executive's employment. This Agreement supplements and does not supersede Executive's obligations under all statute(s) and common law(s) that protect the Company's trade secrets and/or property. However, nothing in this Agreement or elsewhere shall prohibit the Executive from making disclosures of Confidential Information (w) when requested to do so by a governmental or quasi-governmental agency with apparent jurisdiction, or when disclosure is protected by law (e.g., by whistleblower statutes), (x) in the course of any proceeding under Section 10(c) or 13 of this Agreement, (y) in confidence to an attorney for the purpose of securing legal advice, or (z) retaining (for personal use only) copies of documents relating to his personal rights, obligations and tax liabilities.

(b) Unless otherwise determined by the Board in writing, the Executive shall not, for his own benefit or the benefit of any other Person, without the prior written consent of the Company and other than in connection with his services hereunder during the Term:

(i) During the Term and for a period of twelve (12) months thereafter, serve as an executive officer of any Competitor, or in any other position with a Competitor in which the executive would provide services or perform duties in competition with the Company;

(ii) During the Term and for a period of twelve (12) months thereafter, personally solicit, aid in the solicitation of, induce or otherwise encourage (whether directly or indirectly) any individual who is or was, at the time of such encouragement or within the six (6) months prior to such encouragement, employed as an executive, highly-compensated employee, or managerial/supervisory employee of the Company or a Subsidiary, to cease such employment or interfere in any way with the relationship between the Company or a Subsidiary and such employee; or

(iii) During the Term and for a period of twelve (12) months thereafter, directly or indirectly solicit, aid in the solicitation of, induce, or otherwise encourage (whether directly or indirectly) any Customer for the purpose of (a) selling Competitive Services or Products to such Person in competition with the Company or (b) inducing such Person to cancel, transfer or cease doing their business with the Company; provided, that the restrictions set forth in clauses (i), (ii) and (iii) of this Section 11(b) shall immediately expire in the event that the Company, or any of its Affiliates, shall have materially breached, on or after the Termination Date, any of their material obligations to the Executive under this Agreement or otherwise, which breach shall have continued uncured for ten (10) days after the Executive has given written notice requesting cure.

(c) The Executive acknowledges and agrees that the business of the Company is highly competitive, and that the restrictions contained in this Section 10 are reasonable and necessary to protect the Company's legitimate business interests. The Executive further acknowledges that any actual or prospective breach may irreparably cause damage to the Company for which money damages may not be adequate. Therefore, in the event of any actual or threatened breach by the Executive of any of the provisions of Section 10(a) or 10(b) above, the Company shall each be entitled to seek, through arbitration in accordance with Section 13 or from any court with jurisdiction over the matter and the Executive, temporary, preliminary and permanent equitable/injunctive relief restraining the Executive from violating such provision and to seek money damages, together with any and all other remedies available under applicable law.

(d) The Executive agrees that he will not make or cause to be made any oral or written statements that defame or disparage the Company, its policies or programs, or its past or present officers, directors, employees, agents, or business associates, including but not limited to its past or present suppliers or vendors, or take any actions that are harmful to the business affairs of the Company or its employees. Similarly, Company, as to its Board of Directors and executive management employees only, will not make or cause to be made any oral or written statements that defame or disparage the Executive or take any actions that are harmful to his business affairs.

(e) The purpose of this Section 10, among other things, is to protect the Company from unfair or inappropriate competition, to protect its confidential information and trade secrets, and to prevent competitors from raiding employees of the Company. If the scope or enforcement of this Section 10 is ever disputed, a court, arbitrator or other trier of fact may modify and enforce its provisions to the extent it believes is lawful and appropriate. If any provision of this Section 10 is construed to be invalid, illegal or unenforceable, then the remaining provisions therein shall not be affected thereby and shall be enforceable without regard thereto.

11. Assignability; Binding Nature.

(a) This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors, heirs (in the case of the Executive) and assigns.

(b) No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights and obligations may be assigned or transferred pursuant to a merger, consolidation or other combination in which the Company is not the continuing entity, or a sale or liquidation of all or substantially all of the business and assets of the Company. In the event of any merger, consolidation, other combination, sale of business and assets, or liquidation as described in the preceding sentence, the Company shall use its best reasonable efforts to cause such assignee or transferee to promptly and expressly assume the liabilities, obligations and duties of the Company hereunder.

(c) No rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than his rights to compensation and benefits, which may be transferred only by will or by operation of law, or as otherwise provided in Section 18(e).

12. Representations.

(a) The Company represents and warrants that (i) it is fully authorized by action of its Board (and of any other Person or body whose action is required) to enter into this Agreement and to perform its obligations under this Agreement, (ii) the execution, delivery and performance of this Agreement by it does not violate any applicable law, regulation, order, judgment or decree or any agreement, arrangement, plan or corporate governance document to which it is a party or by which it is bound, and (iii) upon the execution and delivery of this Agreement by the Parties, this Agreement shall be its valid and binding obligation, enforceable against the Company in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally.

(b) The Executive represents and warrants that (i) the delivery and performance of this Agreement by him does not violate any law or regulation applicable to the Executive, (ii) delivery and performance of this Agreement by him does not violate any applicable order, judgment or decree or any agreement to which the Executive is a party or by which he is bound and (iii) upon the execution and delivery of this Agreement by the Parties, this Agreement shall be a valid and binding obligation of the Executive, enforceable against him in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally.

13. Resolution of Disputes. Any dispute, controversy, or claim arising out of or relating to this Agreement, any other agreement between the Executive and the Company or its Affiliates, the Executive's employment with the Company, or any termination thereof shall (except to the extent otherwise provided in Section 10(c) with respect to certain requests for injunctive relief) be resolved by binding confidential arbitration, to be held in Indianapolis, Indiana, in accordance with the Commercial Arbitration Rules (and not the National Rules for Resolution of Employment Disputes) of the American Arbitration Association and this Section 13b. This Agreement is intended to benefit and bind certain third party non-signatories. The interpretation and enforcement of this provision shall be governed exclusively by the Federal Arbitration Act. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.

14. Tax Matters. Notwithstanding anything anywhere to the contrary, this Agreement is intended to be interpreted and applied so that the payment and the benefits set forth herein shall either be exempt from the requirements of Section 409A of the Code or any regulations or guidance thereunder ("Section 409A") or shall comply with the requirements of Section 409A. To the extent that any amounts payable in accordance with this Agreement are subject to Section 409A, this Agreement shall be interpreted and administered in such a way as to comply with Section 409A to the maximum extent possible. Notwithstanding anything anywhere to the contrary, if the Executive is a "specified employee" (within the meaning of Section 409A), any payments or arrangements due upon a termination of the Executive's employment under any arrangement that constitutes a "deferral of compensation" (within the meaning of Section 409A), and which do not otherwise qualify under the exemptions under Treas. Reg. Section 1.409A, shall be delayed and paid or provided on the earlier of (i) the date which is six months after the Executive's "separation from service" (as such term is defined in Section 409A) for any reason other than death, and (ii) the date of the Executive's death. Each series of payments under this Agreement or otherwise shall be treated as separate payments for purposes of Section 409A. "Termination of employment," "resignation" or words of similar import, as used in this Agreement shall mean with respect to any payments subject to Section 409A, the Executive's "separation from service" as defined by Section 409A. If any payment subject to Section 409A is contingent on the delivery of a release by the Executive and could occur in either of two calendar years, the payment will occur in the second calendar year. To the extent that reimbursements or other in-kind benefits under this Agreement constitute "nonqualified deferred compensation" subject to Section 409A, (x) all such expenses or other reimbursements hereunder shall be paid on or prior to the last day of the taxable year following the taxable year in which such expenses were incurred by the Executive, (y) no such reimbursement, expenses eligible for reimbursement, or in-kind benefits provided in any taxable year shall in any way affect the expenses eligible for reimbursement, or in-kind benefits to provided, in any other taxable year, and (z) the Executive's right to such reimbursement or in-kind benefits shall not be subject to liquidation or exchange for any other benefit. Nothing in this Agreement shall be construed as a guarantee of any particular tax treatment to the Executive. The Executive shall be solely responsible for the tax consequences with respect to all amounts payable under this Agreement, and in no event shall the Company have any responsibility or liability if this Agreement does not meet any applicable requirements of Section 409A.

15. Notices. Any notice, consent, demand, request, or other communication given to a Person in connection with this Agreement shall be in writing and shall be deemed to have been given to such Person (x) when delivered personally to such Person, (y) provided that a written acknowledgment of receipt is obtained, five (5) days after being sent by prepaid certified or registered mail, or two days after being sent by a nationally recognized overnight courier, to the address (if any) specified below for such Person (or to such other address as such Person shall have specified by ten days' advance notice given in accordance with this Section 15), or (z), on the first business day after it is sent by portable document format ("pdf") to the email address set forth below (or to such other email address as shall have specified by ten days' advance notice given in accordance with this Section 15).

If to the Company: Protective Insurance Corporation

111 Congressional Blvd., Suite 500

Carmel, IN 46032

Attention: General Counsel

Email: swignall@protectiveinsurance.com

If to the Executive:

The address of the Executive’s principal residence (or his personal email address) as it appears in the Company’s records, with a copy to him (during the Term) at the Company’s office in Carmel, IN.

16. Recoupment/Clawback. Notwithstanding any other provisions in this Agreement to the contrary, any incentive-based compensation, or any other compensation, paid to the Executive pursuant to this Agreement or any other agreement or arrangement with the Company or any of its affiliates, which may be subject to recovery under any law, government regulation, or stock exchange listing requirement, as may be amended from time to time, will be subject to such deductions and clawback as may be required to be made pursuant to such law, government regulation, or stock exchange listing requirement (either in existence on the Effective Date or adopted thereafter), as may be amended from time to time, to the extent reasonably required by any such law, government regulation, or stock exchange listing requirement, as determined by the Board in its sole and absolute discretion.

17. Miscellaneous.

(a) Entire Agreement. This Agreement contains the entire understanding and agreement among the Parties concerning the subject matter hereof and supersedes in its entirety, as of the Effective Date, any prior agreement (written or oral) between the Executive and the Company with respect to its subject matter.

(b) Amendment or Waiver. No provision in this Agreement may be amended unless such amendment is set forth in a writing that expressly refers to the provision of this Agreement that is being amended and that is signed by the Executive and by an authorized officer of the Company. No waiver by any Party of any breach of any condition or provision contained in this Agreement shall be deemed a waiver of any similar or dissimilar condition or provision at the same or any prior or subsequent time. To be effective, any waiver must be set forth in a writing signed by the waiving Party.

(c) Inconsistencies. In the event of any inconsistency between any provision of this Agreement and any provision of any company plan, program, agreement or arrangement, the provisions of this Agreement shall control unless the Executive otherwise agrees in a writing that expressly refers to the provision of this Agreement whose control he is waiving.

(d) Headings. The headings of the Sections and sub-sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.

(e) Survivorship. Except as otherwise set forth in this Agreement, the respective rights and obligations of the Parties hereunder shall survive any termination of the Executive's employment.

(f) Severability. To the extent that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, in whole or in part, the remaining provisions of this Agreement shall remain in full force and effect so as to achieve the intentions of the Parties, as set forth in this Agreement, to the maximum extent possible.

(g) Withholding Taxes. The Company may withhold from any amount or benefit payable under this Agreement taxes that it is required to withhold pursuant to any applicable law or regulation.

(h) Cooperation. During the Term and thereafter, the Executive agrees to cooperate with the Company and be available to the Company with respect to continuing and/or future matters related to his employment with the Company (if occurring after termination of employment, to the extent not interfering with the Executive's other business endeavors or personal commitments), whether such matters are business-related, legal, regulatory or otherwise (including, without limitation, the Executive appearing at the Company's request to give testimony without requiring service of a subpoena or other legal process, volunteering to the Company all pertinent information and turning over to the Company all relevant documents which are or may come into the Executive's possession). Following the Term, the Company shall reimburse the Executive for all reasonable out of pocket expenses incurred by the Executive in rendering such services that are approved by the Company.

(i) Governing Law. This Agreement shall be governed, construed, performed and enforced in accordance with its express terms, and otherwise in accordance with the laws of the State of Indiana, without reference to principles of conflict of laws.

(j) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall be deemed to be one and the same instrument. Signatures delivered by facsimile (including, without limitation, by "pdf") shall be effective for all purposes.

[signature page follows]

IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first set forth above.

Protective Insurance Corporation

By: _________________________

Name: Jeremy D. Edgecliffe-Johnson

Title: Chief Executive Officer

The Executive

_______________________________

John Barnett

EXHIBIT A

DEFINITIONS

(a) "Affiliate" of a Person shall mean any Person that directly or indirectly controls, is controlled by, or is under common control with, such Person.

(b) “Agreement” shall mean this Employment Agreement, which includes for all purposes its Exhibits.

(i) the Executive commits, is convicted of, or pleads guilty or nolo contendere to, any crime;

(ii) the Executive's perpetration of an act of fraud, embezzlement, theft or any other material violation of law that occurs in the course of the Executive's employment with the Company;

(iii) the Executive's intentional damage to the assets of the Company or any of its Affiliates;

(iv) the Executive's intentional and material disclosure of Confidential Information contrary to this Agreement or any agreements between the Executive and the Company or any of its Affiliates;

(v) the Executive's material breach of his obligations under this Agreement or any agreement between the Executive and the Company or any of its Affiliates;

(vi) the Executive's engagement in any competitive activity which would constitute a breach of the Executive's duty of loyalty or of his obligations under this Agreement or any agreement between the Executive and the Company or any of its Affiliates;

(vii) the Executive's material breach of any of the Company's written policies;

(viii) the Executive's willful and continued failure to substantially perform his duties under this Agreement (other than as a result of incapacity due to physical or mental illness);

(ix) any regulatory agency recommends or determines that Executive is ineligible, unauthorized, or unfit to hold any director or officer position with the Company or any of its subsidiaries or Affiliates; or

(x) any misconduct or omission by the Executive that is materially injurious to the business or financial reputation of the Company or any of its Affiliates.

For purposes of determining whether an event of Cause has occurred, an act, or a failure to act, shall not be deemed willful or intentional, as those terms are defined herein, unless it is done, or omitted to be done, by the Executive in bad faith or without a reasonable belief that his action or omission was in the best interest of the Company. "Cause" also includes any of the above grounds for dismissal regardless of whether the Company learns of it before or after terminating the Executive's employment.

(d) “Change in Control” shall mean the occurrence of any of the following events:

(i) Any Person (as defined below)acquires ownership of the Class A Common Stock that, together with Class A Common Stock previously held by the acquirer, constitutes more than fifty percent (50%) of the total market value or Voting Securities of the Company's outstanding stock If any Person is considered to own more than fifty percent (50%) of the total market value or Voting Securities of the Company's outstanding stock, the acquisition of additional stock by the same Person does not cause such a change in ownership. An increase in the percentage of stock owned by any Person as a result of a transaction in which the Company acquires its stock in exchange for property, is treated as an acquisition of stock;

(ii) Any Person acquires ownership of the Company's stock possessing at least thirty percent (30%) of the Company's Voting Securities;

(iii) The Company combines with another entity and is the surviving entity, or (y) all or substantially all of the assets or business of the Company is disposed of pursuant to a sale, merger, consolidation, liquidation, dissolution or other transaction or series of transactions (each of (x) and (y) being a "Triggering Event") unless the holders of Voting Securities of the Company immediately prior to such Triggering Event own, directly or indirectly, more than two-thirds of the Voting Securities (measured both by number of Voting Securities and by voting power) of (1) in the case of a combination in which the Company is the surviving entity, the surviving entity and (2) in any other case, the entity (if any) that succeeds to all or substantially all of the Company's business and assets; or

(iv) Any Person acquires (assets from a corporation that have a total gross fair market value equal to at least forty percent (40%) of the total gross fair market value of all the Company's assets immediately prior to the acquisition or acquisitions. Gross fair market value means the value of the Company's assets, or the value of the assets being disposed of, without regard to any liabilities associated with these assets.

In determining whether a Change of Control occurs, the attribution rules of Code Section 318 apply to determine stock ownership. For purposes of the definition of Change of Control, a "Person" shall mean any person, entity or "group" within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended, except that such term shall not include (a) the Company or any of its subsidiaries, (b) a trustee or other fiduciary holding securities under an employee benefit plan of any member of the Company Group, (c) an underwriter temporarily holding securities pursuant to an offering of such securities or (d) an entity owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of shares of the Company.

(e) “Claim” shall include, without limitation, any claim, demand, request, investigation, dispute, controversy, threat, discovery request, or request for testimony or information.

(f) "Code" shall mean the Internal Revenue Code of 1986, as amended. Any reference to a particular section of the Code shall include any provision that modifies, replaces or supersedes such section.

(g) "Competitive Services or Products" shall mean those products offered by or in development by the Company, as provided in a list of Competitive Services and Products to be provided to Executive no later than seven (7) days after the Effective Date, which list may be updated during the Term by the Company.

(h) "Competitor" shall mean any existing or newly-formed Person or entity, including divisions or subsidiaries thereof that offers, markets or administers Competitive Products or Services, in any geographic area in which the Company offers such products or services.

(i) "Confidential Information" shall mean all confidential or proprietary information developed or used by the Company or its Affiliates relating to their business, operations, employees, customers, suppliers or distributors including, but not limited to: confidential or proprietary customer lists, purchase orders, financial data, pricing information and price lists; confidential or proprietary business plans and market strategies and arrangements; confidential or proprietary books, records, manuals, advertising materials, catalogues, correspondence, mailing lists, production data, sales materials, sales records, purchasing materials, purchasing records, personnel records and quality control records; confidential or proprietary trademarks, copyrights and patents, and applications therefor; trade secrets; confidential or proprietary inventions, processes, procedures, research records, market surveys and marketing know-how; and confidential or proprietary technical papers, software, computer programs, data bases and documentation thereof, including but not limited to source codes, algorithms, processes, formulae and flow charts. The term "Confidential Information" shall not include any document, record, data compilation, or other information that (x) has previously been disclosed to the public, or is in the public domain, other than as a result of the Executive's breach of Section 10(a), or (y) is known or generally available to the public or within any trade or industry of the Company or any of its Affiliates.

(j) "Customer" shall mean any Person to whom the Company or a Subsidiary sold or distributed products or services during the two years prior to the Termination Date, and any prospective customer who the Company has provided a proposal for products or services at the time of Termination (or within the prior six (6) month period).

(k) “Good Reason” shall mean, for purposes of this Agreement, the occurrence of any of the following events without the Executive's prior written consent:

(i) any material diminution in the Executive's responsibilities or authorities; or any material change in the Executive’s reporting structure; or

(ii) any relocation of the Executive's principal office, or principal place of employment, to a location that is more than 40 miles from its location in Carmel, Indiana; provided, however, that no event or condition described in sub clauses (i) or (ii) above shall constitute Good Reason unless (A) the Executive gives the Company written notice of his objection to such event or condition within 90 days following the occurrence of such event or condition, (B) such event or condition is not corrected, in all material respects, by the Company within 30 days following the Company’s receipt of such notice (or if such event or condition is not susceptible to correction within such 30-day period, the Company has taken all reasonable steps within such 30-day period to correct such event or condition) and (C) the Executive resigns from his employment with the Company not more than 30 days following the expiration of the 30-day period described in the foregoing clause (B).

(iii) Individuals who are Continuing Independent Directors cease for any reason to constitute a 1/2 majority of the independent members of the Board;

“Continuing Independent Director” means an individual (i) who is as of the Effective Date, an independent director of the Company, or (ii) who becomes an independent director of the Company after the Effective Date and whose initial election, or nomination for election by the Company’s shareholders, was vetted and recommended by the Nominating & Governance Committee and approved by at least a 1/2 majority of the then Continuing Independent Directors, but excluding, for the purposes of this clause (ii), an individual whose initial assumption of office occurs as a result of an actual or threatened proxy contest relating to the election of directors.

(l) "Person" shall mean any individual, corporation, partnership, limited liability company, joint venture, trust, estate, board, committee, agency, body, employee benefit plan, or other person or entity.

(m) "Proceeding" shall include, without limitation, any actual, threatened or reasonably anticipated action, suit or proceeding, whether civil, criminal, administrative, investigative, appellate, formal, informal or other.

(n) “Pro-Rata STIP” shall mean an amount equal to the product obtained by multiplying (x) the aggregate amount of the Target STIP that the Executive would have been eligible to receive for the calendar year in which his employment hereunder terminated, if his employment hereunder had continued times (y) a fraction, the numerator of which is 365 minus the number of days remaining in such year after the Termination Date and the denominator of which is 365. Any Pro-Rata STIP shall be paid in a cash lump sum by the sixty-fifth (65^th) day following the Termination Date.

(o) “Pro-Rata LTIP” shall mean an amount equal to the product obtained by multiplying (x) the aggregate amount of the Target LTIP that the Executive would have been eligible for the calendar year in which his employment hereunder terminated, if his employment hereunder had continued times (y) a fraction, the numerator of which is 365 minus the number of days remaining in such year after the Termination Date and the denominator of which is 365. Any Pro-Rata LTIP shall be paid in a cash lump sum by the sixty-fifth (65^th) day following the Termination Date.

(p) "Subsidiary" shall mean any entity for which the Company owns a majority of the entity's Voting Securities.

(q) "Voting Securities" shall mean issued and outstanding securities of any class or classes having general voting power, under ordinary circumstances in the absence of contingencies, to elect, the members of the board of directors (or similar governing body) of the issuer.

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(s) 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 ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

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(s) 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 functions):

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: November 6, 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, John R. Barnett, 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(s) 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 functions):

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: November 6, 2019

/s/ John R. Barnett
John R. Barnett
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 September 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 John R. Barnett, 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:

(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: November 6, 2019

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


/s/ John R. Barnett
John R. Barnett
Chief Financial Officer