MÉDECINS POSITIFS: Discussion et analyse par la direction de la situation financière et des résultats d'exploitation. (formulaire 10-Q)

The following discussion is intended to provide a more comprehensive review of
Positive Physicians Holdings, Inc. ("PPHI") and its wholly owned subsidiary's
(collectively referred to as the "Company," which also may be referred to as
"we" or "us") operating results and financial condition than can be obtained
from reading the Financial Statements alone. The discussion should be read in
conjunction with the Unaudited Consolidated Financial Statements and the notes
thereto included in "Part I. Item 1. Financial Statements" of the Company. Some
of the information contained in this discussion and analysis or set forth
elsewhere in this Quarterly Report on Form 10-Q constitutes forward-looking
information that involves risk and uncertainties. We also recommend you read
Management's Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K for the year ended December 31,


Positive Physicians Holdings, Inc. is a Pennsylvania domiciled holding company,
which was incorporated on May 1, 2018 for the purpose of acquiring three
Pennsylvania based reciprocal insurance exchanges: Positive Physicians Insurance
Exchange ("PPIX"), Professional Casualty Association ("PCA"), and Physicians'
Insurance Program Exchange ("PIPE"). In connection with the completion of PPHI's
initial public offering, PPIX, PCA, and PIPE converted from reciprocal insurance
exchanges into stock insurance companies.

As part of the conversions, on March 27, 2019, PPIX merged with and into PPIX
Conversion Corp., PCA merged with and into PCA Conversion Corp., and PIPE merged
with and into PIPE Conversion Corp. Accordingly, PPIX, PCA, and PIPE no longer
exist. Immediately thereafter, PCA Conversion Corp. and PIPE Conversion Corp.
merged with and into PPIX Conversion Corp., which then changed its name to
Positive Physicians Insurance Company ("Positive Insurance Company") and became
our single insurance company subsidiary and successor to PPIX, PCA, and
PIPE. PPHI had minimal assets and liabilities and had not engaged in any
operations prior to March 27, 2019.

Positive Insurance Company writes medical malpractice insurance for healthcare
providers practicing in Pennsylvania, New Jersey, Ohio, Delaware, Maryland,
South Carolina, and Michigan. Diversus Management, LLC ("Diversus Management")
manages and administers essentially all of the operations of Positive Insurance
Company under the terms of a management agreement. Diversus Management is a
wholly owned subsidiary of Diversus, Inc. ("Diversus"). Pursuant to the terms of
the agreement, effective March 27, 2019, Diversus Management provides such
administrative services to Positive Insurance Company in exchange for fees based
upon a percentage of Positive Insurance Company's gross written premiums, less
return premiums. Diversus Management may also earn quarterly performance
management fees based on Positive Insurance Company's combined ratio and net
earned premiums. Positive Insurance Company remains responsible for all
underwriting decisions and the payment of all claims and claims related expenses
incurred under policies issued by Positive Insurance Company and for all sales
commissions paid to producers.

Positive Insurance Company underwrites medical professional liability coverage
for physicians, their corporations, medical groups, clinics and allied
healthcare providers. Medical professional liability insurance ("MPLI") protects
physicians and other health care providers against liabilities arising from the
rendering of, or failure to render, professional medical services. We offer
claims-made coverage, claims-made plus, and occurrence-based policies as well as
tail coverage in Pennsylvania, New Jersey, Ohio, Delaware, Maryland, South
Carolina, and Michigan. Our policies include coverage for the cost of defending
claims. Claims-made policies provide coverage to the policyholder for claims
reported during the period of coverage. We offer extended reporting
endorsements, or tails, to cover claims reported after the policy
expires. Occurrence-based policies provide coverage to the policyholders for all
losses incurred during the policy coverage year regardless of when the claims
are reported. Although we generate a majority of our premiums from individual
and small group practices, we also insure several major physician groups.

Conditions et tendances du marché

The MPLI industry is affected by recurring industry cycles known as "hard" and
"soft" markets. A soft market is characterized by intense competition, resulting
in lower pricing in order to compete for business. A hard market, generally
considered a beneficial industry trend, is characterized by reduced competition
that results in higher pricing. From approximately 2001 until approximately
2007, the Pennsylvania MPLI market experienced a hard market cycle. This
resulted in the creation of several alternative MPLI providers, such as PPIX,
PCA, and PIPE.

The MPLI market began to experience a soft market cycle around the second
quarter of 2008, due primarily to the large rate increases taken over the
previous six years. The soft market continued and was facilitated by the
restructuring of the healthcare industry, partially as a result of the
Affordable Care Act. This resulted in significant price competition, as the
number of medical professionals practicing independent of hospitals or large
professional groups began to decline. According to a study prepared by the
National Association of Insurance Commissioners, MPLI direct premiums written
declined by 24.0% on a national basis from 2006 to 2018 and declined by 14.6% in
Pennsylvania and 33.0% in New Jersey during this same time period. This resulted
in lower direct premiums written and lower operating profits for many MPLI



The soft market cycle troughed in 2012, and since then, national loss payouts,
on average, have steadily increased through 2019. As a result, underwriting
criteria in the MPLI industry has started to become more stringent, with
opportunities for improved pricing, and we believe the market cycle has
transitioned to a hard market. At Positive Insurance Company, beginning in April
2020 our renewal book of business has begun to experience price increases of
2.5% through reduced credits, a development which we expect to continue and
extend through our policy renewals in 2020. We are also seeing rate increases
take place by other carriers in many of the states in which we write business.

In addition to pricing increases, we intend to achieve further premium growth
with our expansion into new states. Positive Insurance Company was admitted into
Texas in November 2019 and is currently in the process of obtaining approval on
premium rates before we can begin writing business there. We are also currently
in the process of obtaining licenses to write business in the states of
California, Florida and Georgia.

Effets du COVID-19

Our operations and business have experienced disruptions due to the conditions
surrounding the COVID-19 pandemic spreading throughout the United States. These
disruptions include, but are not limited to, office closures and difficulties in
maintaining operational continuance during remote operations required by
illness, social quarantining, and work from home orders that were in force. Our
management has devoted substantial time and attention to assessing the potential
impact of COVID-19 and those events on our operations and financial position and
developing operational and financial plans to address those matters.

As a result of the COVID-19 pandemic, we have seen premium decreases due to
policy endorsements associated with doctors electing to work part time, take a
leave of absence or retire. In addition, some of our insureds have elected to
temporarily change their areas of practice and/or specialties. For example, a
doctor may choose to drop from orthopedic surgery to office-only status due to
the lack of elective surgeries. We have received notification for such requests
from our policyholders which went into effect on June 30, 2020 and necessary
reimbursements or credits against future payments have been applied. During the
second quarter, we recorded approximately $160,000 in return premium
adjustments, or reductions in direct premiums written, associated with these
policy endorsements.

In terms of collections, prior to the pandemic, our policy was to cancel any
insurance policies for which premiums had not been received within 60 days
subsequent to policy effective date, with notice of intent to cancel sent to the
insured after 30 days post-inception date, or post-payment due date. As a result
of COVID-19, we have updated this policy and suspended cancellations of
insurance contracts resulting from non-payment of premium and deferred payments
until June 30, 2020 for invoices due after April 1, 2020. The amount of premium
payment deferrals is approximately $950,000. Also, due to this change in policy,
we recorded an allowance for uncollectible premium of approximately $150,000 at
June 30, 2020 based on the aging of outstanding premiums receivable. Dependent
upon the extent to which our policyholders' own businesses have been impacted by
the pandemic, our collection of premiums against current in-force policies could
be significantly impacted.

With respect to claims, our policyholder base mainly consists of physicians,
their corporations and medical groups. During the COVID-19 pandemic, on-site
visits to doctors have declined and been replaced by an increase in
telehealth/virtual office visits. Since the COVID-19 pandemic resulted in
government-issued work from home orders, although we have seen the number of new
claims reported during the second quarter decline, it is unclear if this is from
the closure of courts during this period of time or due to other factors. In
general, our expectation is that the frequency of new claims reported regarding
medical rendered during this time period will decrease. As to actual claims
relating to COVID-19 exposures, we anticipate that the number of claims will be
minimal. Unless some unforeseen fact pattern is established, we expect that the
difficulty of establishing the source of a COVID-19 exposure, as well as the
heroic efforts of healthcare providers, will serve to make such claims
unattractive to both patients and their counsel. We do not anticipate our loss
and LAE ratios to be impacted. However, this view could change in the future
depending on the duration of the pandemic and if the lower frequency of new
claims reported becomes a trend.

Principaux éléments de revenus et de dépenses

Compagnie d'assurance positive tire ses revenus principalement des primes nettes
gagné, revenu de placement net et gains (pertes) nets réalisés et non réalisés
des investissements.

Net premiums earned

Les primes brutes émises sont égales aux primes directes et assumées avant l'effet
de réassurance cédée. Les primes nettes émises correspondent à la différence entre les
primes émises et primes cédées ou payées aux réassureurs (primes cédées



Premiums earned are the earned portion of net premiums written. Gross premiums
written include all premiums recorded by an insurance company during a specified
policy period. Insurance premiums on MPLI policies are recognized in proportion
to the underlying risk insured and are earned ratably over the duration of the
policies. At the end of each accounting period, the portion of the premiums that
is not yet earned is included in unearned premiums and recognized as revenue in
subsequent periods over the remaining term of the policy. The policies written
by Positive Insurance Company typically have a term of twelve months. Thus, for
example, for a policy that is written on July 1, 2020, one-half of the premiums
would be earned in 2020 and the other half would be earned in 2021.

Revenu net de placement et gains (pertes) nets réalisés et non réalisés

We invest our surplus and the funds supporting our insurance liabilities
(including unearned premiums and unpaid loss and loss adjustment expenses) in
cash, cash equivalents, short-term investments, and equity and debt
securities. Investment income includes interest and dividends earned. We
recognize realized gains when invested assets are sold for an amount greater
than their cost or amortized cost (in the case of fixed maturity securities) and
recognize realized losses when investment securities are written down as a
result of other-than-temporary-impairment or sold for an amount less than their
cost or amortized cost, as applicable. Realized gains and losses on sales of
fixed maturity and equity securities and other investments and unrealized
holding gains and losses on equity securities and other investments are included
in realized investment gains (losses), net. Our portfolio of investment
securities is managed by our outside investment manager, who has discretion to
buy and sell securities in accordance with the investment policy approved by
Positive Insurance Company's Board of Directors.

Pertes et frais de règlement des sinistres

Losses and loss adjustment expenses ("LAE") represent the largest expense item
and include: (1) claim payments made, (2) estimates for future claim payments
and changes in those estimates for prior periods, and (3) costs associated with
investigating, defending and adjusting claims, including legal fees.

Autres frais de souscription

Expenses incurred to underwrite risks include policy acquisition costs and
underwriting and administrative expenses. Policy acquisition costs consist of
commission expenses, premium taxes, and certain other underwriting expenses that
vary with and are primarily related to the writing and acquisition of new and
renewal business. These policy acquisition costs are deferred and amortized over
the effective period of the related insurance policies. Underwriting and
administrative expenses consist of salaries, rent, office supplies,
depreciation, and all other operating expenses not otherwise classified
separately, and payments to bureaus and assessments of statistical agencies for
policy service and administration items such as rating manuals, rating plans and
experience data.

Income taxes

We use the asset and liability method of accounting for income taxes. Deferred
income taxes arise from the recognition of temporary differences between
financial statement carrying amounts and the tax bases of our assets and
liabilities. A valuation allowance is provided when it is more likely than not
that some portion of the deferred tax asset will not be realized. The effect of
a change in tax rates is recognized in the period of the enactment date.

Principales mesures financières

We evaluate our insurance operations by monitoring certain key measures of
growth and profitability. Some of these measurements are "non-GAAP" financial
measurements under Securities and Exchange Commission rules and regulations. We
utilize certain non-GAAP financial performance measures that are widely used in
the property and casualty insurance industry and that we believe are valuable in
managing our business and for comparison to our peers. These financial
performance measures are the loss and LAE ratio, expense ratio, combined ratio,
underwriting income (loss), and operating income (loss).

We measure growth by monitoring changes in gross premiums written and net
premiums written, and measure underwriting profitability by examining losses and
LAE, underwriting expenses and combined ratios. We also measure profitability by
examining underwriting income (loss) and operating income (loss).

Ratio de perte et LAE

The loss and LAE ratio is the ratio (expressed as a percentage) of losses and
loss adjustment expenses incurred to premiums earned. Positive Insurance Company
measures the loss and LAE ratio on a policy year and calendar year loss basis to
measure underwriting profitability. A policy year loss and LAE ratio measures
losses and loss adjustment expenses for insured events occurring in a particular
year, regardless of when they are reported, as a percentage of premiums earned
during that year. A calendar year loss and LAE ratio measures losses and loss
adjustment expenses for insured events occurring during a particular year and
the change in loss reserves from prior policy years as a percentage of premiums
earned during that year.


Taux de dépenses

The expense ratio is the ratio (expressed as a percentage) of other underwriting
expenses (attributable to insurance operations) to premiums earned, and measures
our operational efficiency in producing, underwriting and administering the
Company's insurance business.

Ratio combiné

The combined ratio is a measure of property and casualty underwriting
performance. The combined ratio computed on a GAAP basis is equal to the sum of
losses and loss adjustment expenses and other underwriting expenses, all divided
by net premiums earned. If the combined ratio is below 100%, we are making an
underwriting profit. If our combined ratio is at or above 100%, we are not
profitable without investment income and may not be profitable if investment
income is insufficient.

Underwriting income (loss)

Le résultat technique mesure la rentabilité avant impôt de l'assurance
opérations. Il est obtenu en soustrayant les pertes et les frais de règlement des sinistres et
autres frais de souscription provenant des primes acquises.

Bénéfice (perte) d'exploitation

Operating income (loss) measures the profitability of business operations. We
define it as GAAP net income (loss) excluding net realized investment gains and
losses, net of tax. Net realized investment activity is excluded because net
realized investment gains and losses are unpredictable and not necessarily
indicative of current operating fundamentals or future performance of the
business operations. Operating income is a non-GAAP measure which is important
for an understanding of our overall results of operations. However, it does not
replace net income (loss) as the GAAP measure of our consolidated results of
operations, nor should it be viewed as a substitute for measures determined in
accordance with GAAP.

                             RESULTS OF OPERATIONS

Our results of operations are influenced by factors affecting the MPLI industry,
in general. The operating results of the United States MPLI industry are subject
to significant variations due to competition, changes in regulation, rising
medical expenses, judicial trends, fluctuations in interest rates, and other
changes in the investment environment.

Our premium levels and underwriting results have been, and continue to be,
influenced by market conditions. Pricing in the MPLI industry historically has
been cyclical. During a soft market cycle, price competition is more significant
than during a hard market cycle which makes it difficult to attract and retain
properly priced MPLI business. As previously discussed, the markets in which we
operate, and the national MPLI markets, were in a prolonged period of a soft
market cycle. However, we are seeing price increases with our policy renewals in
2020 and we believe the market is hardening. Therefore, it is generally likely
that insurers will be able to increase their rates or profit margins, as market
conditions continue to improve. A hard market typically has a positive effect on
premium growth, which can include absolute increases in premiums written.

We reported net income of $358,063 for the second quarter of 2020, compared to a
net loss of $560,947 for the second quarter of 2019. The improvement for second
quarter in 2020 is due to better underwriting results and additional realized
investment gains. For the first six months, we had net losses of $764,640 in the
current year, compared to $469,158 in prior year. The year-to-date results
reflect realized investment losses in 2020, compared to gains in 2019, mainly
due to fluctuations in the unrealized position on our equity securities, which
was largely offset by improved underwriting results in 2020.

For the second quarter, operating losses were $30,570 in 2020, compared to
$698,105 in 2019. For the first six months, we had operating income of $398,620
in the current year, compared to an operating loss of $1,279,121 last year. The
increases in our operating results for both periods, compared to prior year,
largely reflect improvement in our underwriting profitability.

Total revenues were $5,840,208 in the second quarter of 2020, compared to
$6,267,859 for the same period last year. Total revenues were $9,326,794 for the
first six months of 2020, compared to $13,238,973 for the first half of
2019. The decline in revenues during the first six months of 2020, compared to
the first six months in 2019, primarily reflects unrealized losses on equity
securities recognized in current year in contrast to unrealized gains recorded
in prior year. The decreases for both the second quarter and first six months of
2020, compared to the same periods in 2019, also reflect lower net premiums



Les principales composantes du chiffre d'affaires consolidé et du résultat avant impôt pour la
trois et six mois terminés 30 juin 2020 et 2019 sont les suivants:

                                                 Three Months Ended                  Six Months Ended
                                                      June 30,                           June 30,
                                             2020                 2019             2020             2019
Net premiums earned                       $ 4,699,722$  5,327,994$  9,384,432$ 10,819,201
Net investment income                         648,546              766,247        1,414,843        1,394,503
Realized investment gains (losses), net       491,940              173,618       (1,472,481 )      1,025,269
Total revenues                              5,840,208            6,267,859        9,326,794       13,238,973
Losses and loss adjustment expenses         3,195,811            4,267,440        6,381,414        7,589,116
Other underwriting expenses                 2,352,947            2,785,060        4,691,851        6,285,437
Interest expense                                1,260                  413            1,855            1,779
Total expenses                              5,550,018            7,052,913       11,075,120       13,876,332
Income (loss) before income taxes             290,190             (785,054 )     (1,748,326 )       (637,359 )
Income tax benefit                            (67,873 )           (224,107 )       (983,686 )       (168,201 )
Net income (loss)                         $   358,063$   (560,947 )$   (764,640 )$   (469,158 )
Underwriting loss (1)                     $  (223,400 )$ (1,159,770 )$   (502,598 )$ (2,290,214 )
Operating income (loss)                   $   (30,570 )       $   (698,105 

) 398 620 $(1 279 121 $)

(1) La perte de souscription exclut les frais de holding de 625 600 $ et 564 700 $

pour les trois mois terminés 30 juin 2020 et 2019, et 1 186 200 dollars et

765 100 $ pour les six mois terminés 30 juin 2020 et 2019, respectivement.

Primes émises et primes acquises

Les variations comparatives des primes émises et des primes acquises pour les trois
mois terminés 30 juin 2020 et 2019 sont reflétés dans le tableau ci-dessous.

                                                       Three Months Ended
                                                            June 30,
                                              2020            2019          % Change
    Premiums written:
    Direct                                 $ 3,515,340$ 3,783,325           -7.1 %
    Ceded                                    2,176,966         648,254          235.8 %

Primes émises, nettes de réassurance 1 338 374 $3 135 071 $

    -57.3 %
    Premiums earned:
    Direct                                 $ 5,164,623$ 6,075,535          -15.0 %
    Ceded                                      464,901         747,541          -37.8 %

Primes acquises, nettes de réassurance 4 699 722 $5 327 994 $

    -11.8 %

Les variations comparatives des primes émises et des primes acquises pour les six
mois terminés 30 juin 2020 et 2019 sont reflétés dans le tableau ci-dessous.

                                                        Six Months Ended
                                                            June 30,
                                              2020             2019          % Change
   Premiums written:
   Direct                                 $ 11,233,852$ 11,980,842           -6.2 %
   Ceded                                     2,423,445        2,600,731           -6.8 %

Primes émises, nettes de réassurance 8 810 407 $9 380 111 $

      -6.1 %
   Premiums earned:
   Direct                                 $ 11,066,071$ 12,428,915          -11.0 %
   Ceded                                     1,681,639        1,609,714            4.5 %

Primes acquises, nettes de réassurance 9 384 432 $10 819 201 $

     -13.3 %


La baisse des primes directes souscrites au cours des six premiers mois de 2020,
par rapport à la même période en 2019, est principalement due au non-renouvellement
les polices de l’année précédente qui ne répondaient pas à nos critères de souscription. Dans
De plus, les diminutions au deuxième trimestre et au premier semestre de 2020 étaient
impacté par les ajustements de prime de retour associés aux avenants de police
liée à la pandémie COVID-19.

Ceded premiums written significantly increased during the second quarter of
2020, compared to the second quarter last year, as our ceded premiums are
written based on direct premiums earned during the term of our reinsurance
agreement. In 2020, our reinsurance agreement renewed on April 1st, whereas in
2019, our reinsurance contract renewed on March 27th. As a result, the amount of
direct premiums subject to our calculation of ceded premiums written was much
greater during the second quarter of 2020. The decrease in ceded premiums
written during the first six months of 2020, compared to the same period in
2019, correlates with the decline in direct premiums written.

Revenu net de placement

Le tableau suivant présente notre trésorerie moyenne et nos actifs investis et
revenus de placement pour les périodes déclarées:

                                                               Six Months Ended
                                                                   June 30,
                                                            2020              2019
Average cash and invested assets                        $ 125,279,381     $ 

112 326 218

Net investment income                                       1,414,843       

1 394 503

Annualized return on average cash and invested assets            2.26 %            2.48 %

Net investment income for the first six months of 2020 was $1,414,843, compared
to $1,394,503 for the first six months of 2019. The average monthly net
investment income increased modestly from $232,000 during the first six months
last year to $236,000 during the same period this year.

The increase in net investment income primarily reflects the increase in our
cash and invested asset positions, due to proceeds from the initial public
offering stock issuance on March 27, 2019, partially offset by lower investment
yields in the current year.

Gains (pertes) d'investissement réalisés, nets

Gains (pertes) nets de placement réalisés pour les trois et six mois terminés juin
30, 2020
et 2019 sont les suivants:

                                              Three Months Ended              Six Months Ended
                                                   June 30,                       June 30,
                                             2020           2019            2020            2019
Total gain (loss) on sales of
investments                                $ 254,802$ (144,998 )$     49,364$  (179,944 )
Unrealized gain (loss) on equity             237,138        318,616
securities and other investments                                          (1,521,845 )     1,205,213
Total net realized investment gains
(losses)                                   $ 491,940$  173,618$ (1,472,481 )$ 1,025,269

The unrealized loss on equity securities during the first six months of 2020
primarily reflects the market volatility associated with the COVID-19
pandemic. During the second quarter, we sold the majority of these equity
holdings for a modest net realized gain following a partial recovery in
corresponding fair values. Our fixed maturity investments are available-for-sale
because we may, from time to time, make sales of securities that are not
impaired, consistent with our investment goals and policies.

Pertes et frais de règlement des sinistres

Les composantes des ratios combinés GAAP étaient les suivantes:

                                   Three Months Ended          Six Months Ended
                                        June 30,                   June 30,
                                    2020          2019         2020         2019
            Loss and LAE ratio         68.0 %       80.1 %        68.0 %      70.1 %
            Expense ratio (1)          36.8 %       41.7 %        37.4 %      51.0 %
            Combined ratio            104.8 %      121.8 %       105.4 %     121.1 %

(1) Le ratio de frais exclut les frais de la holding de 625 600 $ et 564 700 $ pour

les trois mois terminés 30 juin 2020 et 2019, et 1 186 200 dollars et 765 100 $

    for the six months ended June 30, 2020 and 2019, respectively.


The decrease in the loss and LAE ratios for the second quarter and first six
months of 2020, compared to the same periods in 2019, primarily reflects a lower
loss and LAE estimate for the current policy year.

The MPLI line of business is prone to variability in the loss reserving process
due to the extended period of time during which claims can be made and the
subsequent time required to settle those claims. Adjustments to our original
estimates resulting from claims are not made until the period in which there is
reasonable evidence that an adjustment to the reserve is appropriate.

Autres frais de souscription

Other underwriting expenses, including changes in deferred acquisition costs,
decreased to $2,352,947 for the second quarter of 2020, compared to $2,785,060
for the second quarter of 2019, and decreased to $4,691,851 during the first six
months of 2020, compared to $6,285,437 for the same period in 2019. Positive
Insurance Company pays a management fee to Diversus Management which is equal to
a percentage of premiums written. This percentage was reduced from 25% to 12%,
effective March 27, 2019. Positive Insurance Company also incurred $371,000 in
initial public offering and conversion costs during the first half of 2019,
mainly in the first quarter, which are included in other underwriting
expenses. These expense reductions during the first six months of 2020 were
partially offset by the amortization of the prepaid management fee which was not
incurred in the first quarter last year.

La diminution des autres frais de souscription depuis le début du trimestre est
principalement en raison d'un amortissement moindre des frais d'acquisition reportés
l'année en cours, qui reflète la réduction de l'année précédente des frais de gestion
pourcentage indiqué ci-dessus.

Impôt sur le revenu (prestation)

The provision for income taxes for the three and six months ended June 30, 2020
resulted in income tax benefits of $67,873 and $983,686, respectively, compared
to income tax benefits of $224,107 and $168,201 for the same periods in
2019. The Company's effective tax rate for both years was 21%.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and
Economic Security Act ("CARES Act") into law. The CARES Act includes certain
income tax-related law changes that have a material effect on our deferred
income taxes. The most significant effect on our deferred income taxes is due to
changes in the federal net operating loss ("NOL") carryback provisions which
allow us to carryback NOLs originating in 2018 and 2019 to prior tax years with
corporate income tax rates of 34% (as opposed to forward to future tax years
with corporate income tax rates of 21%). As a result of this legislation, during
the first six months of 2020, we significantly reduced our NOL balance by
$2,969,550, or $623,606 tax-effected, and recorded additional federal income tax
refunds of $1,205,964, which resulted in an income tax benefit of $582,358.

Loss Reserves

Les tableaux suivants présentent des cas et des réserves engagées mais non déclarées de
Compagnie d'assurance positive pertes et frais de règlement des sinistres au 30 juin
et 31 décembre 2019.

As of June 30, 2020

                                                     Case             IBNR            Total
                                                   Reserves         Reserves         Reserves
Medical professional liability                   $ 34,648,805$ 21,437,061$ 56,085,866
Total net reserves                                 34,648,805       21,437,061       56,085,866
Reinsurance recoverables on unpaid claims           2,498,603        4,925,855        7,424,458
Gross reserves                                   $ 37,147,408$ 26,362,916$ 63,510,324

As of December 31, 2019

                                                     Case             IBNR            Total
                                                   Reserves         Reserves         Reserves
Medical professional liability                   $ 30,126,567$ 25,966,273$ 56,092,840
Total net reserves                                 30,126,567       25,966,273       56,092,840
Reinsurance recoverables on unpaid claims           1,894,670        5,620,465        7,515,135
Gross reserves                                   $ 32,021,237$ 31,586,738$ 63,607,975

The estimation of Positive Insurance Company's reserves is based on several
actuarial methods, each of which incorporates many quantitative assumptions. The
judgment of the independent actuary plays an important role in selecting among
various loss development factors and selecting the appropriate method, or
combination of methods, to use for a given policy year.




Liquidity is a measure of an entity's ability to secure sufficient cash to meet
its contractual obligations and operating needs. Our insurance operations
generate cash by writing policies and collecting premiums. The cash generated is
used to pay losses and LAE as well as other underwriting expenses. Any excess
cash is invested and earns investment income.

We maintain investment and reinsurance programs that are intended to provide
sufficient funds to meet our obligations without forced sales of investments. As
such, our investment portfolio contains a high degree of liquidity, with
relatively short-term and highly liquid assets, to ensure the availability of
funds and to meet the demands of claim settlements and operating expenses. We
also have an Investment Committee which meets regularly to discuss cash flow
projections and our short-term cash needs as well as asset allocation within our
investment portfolio.

Furthermore, liquidity requirements are met primarily through operating cash
flows and by maintaining a portfolio with maturities that reflect our estimates
of future cash flow requirements. Our investment strategy includes setting
guidelines for asset quality standards, allocating assets among investment types
and issuers, and other relevant criteria for our portfolio. In addition,
invested asset cash flows, which include both current interest income received
and investment maturities, are structured to consider projected liability cash
flows of loss reserve payouts that are based on actuarial models. Property and
casualty claim demands are somewhat unpredictable in nature and require
liquidity from the underlying invested assets. Our invested assets are
structured to emphasize current investment income while maintaining appropriate
portfolio quality and diversity.

Flux de trésorerie pour les six mois terminés 30 juin 2020 et 2019 étaient les suivants:

                                                               Six Months Ended
                                                                   June 30,
                                                            2020             2019
Cash flows used in operating activities                 $ (1,251,338 )$ (14,367,325 )
Cash flows provided by investing activities                3,163,016        

1 286 084

Flux de trésorerie (utilisés dans) provenant des activités de financement (32.168) 33.543.464
Augmentation nette de la trésorerie et des équivalents de trésorerie

               $  1,879,510$  20,462,223

Cash flows from operating activities improved during the first six months of
2020, compared to prior year, primarily attributable to the payment of the
$10,000,000 prepaid management fee to Diversus in 2019. Cash flows from
investing activities increased in the first six months of 2020, compared to
prior year, mainly due to additional sales of equity securities in the current
year. The decrease in cash flows from financing activities in 2020 reflects
proceeds of $33,574,401 received from the initial public offering stock issuance
in March 2019.

At the holding company level, our primary sources of liquidity are dividends and
tax payments received from Positive Insurance Company and capital raising
activities. We utilize cash to pay debt obligations, taxes to the federal
government, and corporate expenses. At June 30, 2020, we had $15,824,903 of cash
and short-term investments at our holding company which we believe, combined
with our other capital sources, will continue to provide us with sufficient
funds to meet our foreseeable ongoing expenses and other obligations.

Our insurance subsidiary, Positive Insurance Company, is restricted by the
insurance laws and regulations of the Commonwealth of Pennsylvania as to the
amount of dividends or other distributions it may pay to the holding company. In
considering future dividend policy, Positive Insurance Company will consider,
among other things, applicable regulatory constraints. At June 30, 2020,
Positive Insurance Company had statutory surplus of $39,027,224.

An order by the Pennsylvania Insurance Department approving the conversions of
PPIX, PCA, and PIPE prohibits the declaration or payment of any dividend, return
of capital, or other distribution by PPHI to Insurance Capital Group, LLC and
Enstar Holdings (US) LLC, the two principal stockholders of PPHI, or any other
shareholder without the prior approval of the Pennsylvania Insurance Department,
for a period of three years following the effective date of the
conversions. Additionally, by the order of the Pennsylvania Insurance
Department, Positive Insurance Company cannot pay a dividend to PPHI for a
period of three years following the effective date of the conversions without
the approval of the Pennsylvania Insurance Department.

Prior to its payment of any dividend, Positive Insurance Company will be
required to provide notice of the dividend to the Pennsylvania Insurance
Department. This notice must be provided to the Pennsylvania Insurance
Department 30 days prior to the payment of an extraordinary dividend and 10 days
prior to the payment of an ordinary dividend. The Pennsylvania Insurance
Department has the power to limit or prohibit dividends if Positive Insurance
Company is in violation of any law or regulation. These restrictions or any
subsequently imposed restrictions may affect our future liquidity.



Arrangements hors bilan

The Company had no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, results of
operations, liquidity, capital expenditures, or capital reserves.


Our investment portfolio is invested primarily in publicly traded, investment
grade, fixed maturity securities with an average credit quality of A as rated by
nationally recognized credit rating agencies. The portfolio is externally
managed by independent, professional investment managers and is broadly
diversified across sectors and issuers. Exposures are aggregated, monitored, and
actively managed by our Investment Committee. We also have an investment policy
statement which requires managers to maintain highly diversified exposures to
individual issuers and closely monitor compliance with portfolio guidelines.

We have structured our investment portfolio to provide an appropriate matching
of maturities with anticipated claims payments. The fair values of these
investments are subject to fluctuation in interest rates. If we decide or are
required in the future to sell securities in a rising interest rate environment,
then we would expect to incur losses from such sales. As of June 30, 2020, the
average duration of our fixed maturity security investments that support the
insurance reserves was approximately was 2.7 years, while the duration of our
insurance reserves was slightly lower, reflecting our decision to maintain
longer asset duration in order to enhance overall yield, while maintaining a
high overall credit quality. We estimate that a 100 basis points (bps) increase
in interest rates would reduce the valuation of our fixed maturity portfolio by
$3,622,658 at June 30, 2020.

Le tableau suivant présente la juste valeur et le coût / coût amorti de notre
titres disponibles à la vente à échéance fixe et titres de participation:

                                                   June 30, 2020                     December 31, 2019
                                                              Amortized                           Amortized
                                            Fair Value        Cost/Cost        Fair Value         Cost/Cost
U.S. government                            $  11,547,057$ 11,359,661$  10,751,562$  10,689,829
States, territories, and possessions           1,148,378        1,088,928         1,143,023         1,096,638
Subdivisions of states, territories, and
possessions                                   12,778,686       12,290,490        12,822,865        12,440,863
Industrial and miscellaneous                  76,043,585       72,558,805        71,030,592        69,445,114
Total fixed maturity securities              101,517,706       97,297,884        95,748,042        93,672,444
Equity securities                                260,915          628,256         7,756,966         6,602,462
                                           $ 101,778,621$ 97,926,140$ 103,505,008$ 100,274,906

The fair value of our investment portfolio increased during the second quarter
of 2020, primarily due to unrealized appreciation in our fixed maturity
securities, mainly corporate bonds, which resulted from declining interest
rates. We also sold the majority of our equity securities during the second
quarter for a modest net realized gain in order to de-risk our consolidated
balance sheet. The total net unrealized gain on our investment portfolio at June
30, 2020 was $3,852,481, or nearly 4% of the amortized cost or cost basis,
compared to an overall net unrealized gain of $3,230,102 at December 31, 2019.

Mouvements depuis le début de l'année de la position de gain (perte) non réalisée de notre
l'échéance et les titres de participation sont les suivants:

                                                   June 30, 2020       December 31, 2019       YTD Change
Fixed maturity securities:
Unrealized gains                                  $     4,446,149     $         2,127,857     $  2,318,292
Unrealized losses                                        (226,327 )               (52,259 )       (174,068 )
Net fixed maturity securities unrealized gains          4,219,822               2,075,598        2,144,224
Equity securities:
Unrealized gains                                                -               1,493,581       (1,493,581 )
Unrealized losses                                        (367,341 )              (339,077 )        (28,264 )
Net equity securities unrealized (losses) gains          (367,341 )             1,154,504       (1,521,845 )
Net unrealized gain                               $     3,852,481     $         3,230,102     $    622,379


For our fixed maturity securities that were temporarily impaired at June 30,
2020 and December 31, 2019, the length of time that such securities were in an
unrealized loss position, as measured by their month-end fair value, are as

                                         Less than 12 months              12 months or longer                     Total
                                        Fair          Unrealized         Fair          Unrealized         Fair          Unrealized
Description of securities               Value           Losses           Value           Losses           Value           Losses
June 30, 2020:
U.S. government                      $ 3,670,584$        945$   444,584$     17,156$ 4,115,168$     18,101
States, territories, and
possessions                                    -                -               -                -               -                -
Subdivisions of states,
territories, and possessions                   -                -          68,379            6,946          68,379            6,946
Industrial and miscellaneous           4,947,932          201,280               -                -       4,947,932          201,280
Total fixed maturity securities      $ 8,618,516$    202,225$   512,963$     24,102$ 9,131,479$    226,327

                                          Less than 12 months              12 months or longer                      Total
                                         Fair          Unrealized         Fair          Unrealized          Fair          Unrealized
Description of securities                Value           Losses           Value           Losses           Value            Losses
December 31, 2019:
U.S. government                       $ 2,628,516$      8,227$ 4,061,077$     30,263$  6,689,593$     38,490
States, territories, and
possessions                                     -                -               -                -                -                -
Subdivisions of states,
territories, and possessions                    -                -          93,000            7,470           93,000            7,470
Industrial and miscellaneous            4,773,607            5,934         350,922              365        5,124,529            6,299

Total des titres à échéance fixe 7 402 123 $14 161 $4 504 999 $38 098 $11 907 122 $52 259 $

At June 30, 2020, we had gross unrealized losses on fixed maturity securities of
$226,327, compared to gross unrealized losses on fixed maturity securities of
$52,259 at December 31, 2019. The increase in gross unrealized losses during the
first six months of 2020 was attributable to increases in interest rates, mainly
associated with our holdings in certain corporate bonds. We have not observed
any evidence which would lead us to believe that the entire amortized cost basis
will not be recovered.

                                 OTHER MATTERS

Comparaison des résultats SAP et GAAP

Results presented in accordance with GAAP vary in certain respects from results
presented in accordance with statutory accounting practices prescribed or
permitted by the Pennsylvania Insurance Department (collectively
"SAP"). Prescribed SAP includes state laws, regulations and general
administrative rules, as well as a variety of National Association of Insurance
Commissioners publications. Permitted SAP encompasses all accounting practices
that are not prescribed. Our domestic insurance subsidiary uses SAP to prepare
various financial reports for use by insurance regulators.

Conseils comptables récents

Se reporter à la note 4 des états financiers consolidés non audités pour
informations concernant les directives comptables récentes.

Méthodes comptables critiques

As of June 30, 2020, there were no material changes to our critical accounting
estimates. For a full discussion of our critical accounting estimates, refer to
Item 7 in our 2019 Form 10-K.



This report may contain forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995 with respect to the Company's business,
financial condition and results of operations and the plans and objectives of
its management. Forward-looking statements can generally be identified by use of
forward-looking terminology such as "may," "will," "plan," "expect," "intend,"
"anticipate," and "believe." These forward-looking statements may include
estimates, assumptions or projections and are based on currently available
financial, industry, competitive and economic data and our current operating
plans. All forward-looking statements are subject to risks and uncertainties,
including risks regarding the effects and duration of the COVID-19 pandemic,
that could cause actual results to differ materially from those expressed or
implied by the forward-looking statements.

The effect of the COVID-19 pandemic on our operations could have a material
adverse effect on our business, financial condition, results of operations, or
cash flows. The World Health Organization has declared the outbreak of COVID-19,
which began in December 2019, a pandemic and the U.S. federal government has
declared it a national emergency. Our business and operations could be
materially and adversely affected by the effects of COVID-19. The global spread
of COVID-19 has already created significant volatility, uncertainty and economic
disruption in the markets in which we operate. Governments, public institutions,
and other organizations in countries and localities where cases of COVID-19 have
been detected are taking certain emergency measures to mitigate its spread,
including implementing travel restrictions and closing factories, schools,
public buildings, and businesses. While the full impact of this outbreak is not
yet known, we are closely monitoring the spread of COVID-19 and continually
assessing its potential effects on our business.

As a result of the restrictions put in place to address COVID-19 and the related
economic downturn, the Company has experienced business disruptions including,
but not limited to, office closures and difficulties in maintaining operational
continuance during remote operations required by illness, social quarantining,
and work from home orders that were in force. The extent to which our results
continue to be affected by COVID-19 will largely depend on future developments
which cannot be accurately predicted, including the duration and scope of the
pandemic, governmental and business responses to the pandemic and the impact on
the global economy. While these factors are uncertain, the COVID-19 pandemic or
the perception of its effects could continue to have a material adverse effect
on our business, financial condition, results of operations, or cash flows.

D'autres facteurs qui pourraient faire en sorte que les résultats réels diffèrent sensiblement de ceux
les déclarations prospectives comprennent, sans s'y limiter:

• l'impact potentiel de fraudes, d'erreurs opérationnelles, de dysfonctionnements du système, ou

incidents de cybersécurité;

• les conditions du marché financier, y compris, mais sans s'y limiter, les changements

les taux d'intérêt et les marchés boursiers entraînant une réduction des investissements

gains de revenu ou d'investissement et réduction de la valeur de notre investissement


• les conditions économiques futures du marché sur lequel nous sommes concurrentiels sont moins

favorable que prévu;

• l'effet de l'action législative, judiciaire, économique, démographique et réglementaire

les événements dans les juridictions où nous exerçons nos activités;

• notre capacité à mettre en œuvre avec succès les étapes d'optimisation de l'entreprise

portefeuille, garantir l'efficacité du capital et améliorer le rendement des investissements;

• les risques liés à la gestion du capital pour le compte des investisseurs;

• notre capacité à pénétrer de nouveaux marchés avec succès et à capitaliser sur la croissance

opportunités soit par des acquisitions soit par l'expansion de notre producteur


• le succès avec lequel nos courtiers vendent nos produits et notre capacité à

percevoir les paiements de nos assurés;

• une concurrence accrue, y compris notamment l'intensification de

la concurrence par les prix, l'entrée de nouveaux concurrents et le développement de nouveaux

produits par des concurrents nouveaux ou existants, entraînant une réduction du

la demande pour nos produits;

• notre concentration en assurance responsabilité civile professionnelle médicale, ce qui

nous sommes particulièrement sensibles aux changements défavorables dans ce segment de l'industrie;

• les changements des conditions économiques générales, y compris l'inflation, le chômage,

taux d'intérêt et autres facteurs;

• estimations et adéquation des réserves pour pertes et tendances des pertes et pertes

frais d'ajustement;

• les modifications des conditions de couverture requises par les lois des États, y compris des


• notre incapacité à obtenir l'approbation réglementaire ou à mettre en œuvre la prime

        rate increases;


• l'insuffisance des primes que nous facturons pour nous indemniser des pertes subies;

  • the effectiveness of our risk management loss limitation methods;

• notre capacité à obtenir une couverture de réassurance à des prix raisonnables ou

des conditions qui nous protègent adéquatement et pour percevoir les montants que nous pensons

        are entitled to under such reinsurance;

  • our ability to attract and retain qualified management personnel;

• dépendance de notre relation avec Gestion Diversus, LLC et le

les frais de gestion en vertu de notre accord avec eux;

• l'impact potentiel sur notre résultat net déclaré qui pourrait

de l'adoption des futures normes comptables publiées par le

        Accounting Standards Board or other standard-setting bodies;

    •   unanticipated changes in industry trends and ratings assigned by
        nationally recognized rating organizations;

• les exigences statutaires qui limitent notre capacité à recevoir des dividendes de

notre filiale d'assurance;

• l'impact des résultats futurs sur la recouvrabilité de notre actif d'impôt différé;

  • adverse litigation or arbitration results; and

• les modifications défavorables des lois, règlements ou règles applicables

les sociétés holding d'assurance et les compagnies d'assurance, y compris

questions comptables, limitations des niveaux de primes, augmentations du minimum

capital et réserves, autres exigences de viabilité financière et changements

qui affectent le coût ou la demande de nos produits.

You should not place undue reliance on any forward-looking statements that we
make. All forward-looking statements made in this Form 10-Q reflect our views on
the date of this report. Forward-looking statements are not generally required
to be publicly revised as circumstances change and we do not intend to update
the forward-looking statements in this Form 10-Q to reflect circumstances after
the date of this report or to reflect the occurrence of unanticipated events.


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