ICC Holdings, Inc.
Annual Report 2016

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549_______________________________FORM 10-K_______________________________(Mark One)☒☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016or☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For transition period from to .Commission File Number: 333-214081ICC Holdings, Inc.(Exact name of registrant as specified in its charter)_______________________________Pennsylvania(State or other jurisdiction ofincorporation or organization) 81-3359409(I.R.S. EmployerIdentification No.) 225 20th Street, Rock Island, Illinois(Address of principal executive offices) 61201(Zip Code) (309) 793-1700(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: ​ Common Stock, par value $0.01 per shareTitle of each class The NASDAQ Stock Market, LLCName of exchange on which registeredSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐☐ No ☒☒Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐☐ No ☒☒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 of1934 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 suchfiling requirements for the past 90 days. Yes ☒☒ No ☐☐Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for suchshorter period that the Registrant was required to submit and post such files). Yes ☒☒ No ☐☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not becontained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10‑K. ☒☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer ☐☐Accelerated filer ☐☐Non-accelerated filer ☐☐ (Do not check if a smaller reporting company)Smaller reporting company ☒☒Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐☐ No ☒☒As of June 30, 2016, the last business day of the Registrant’s most recently completed second fiscal quarter, there was no established public market forthe Registrant’s common stock. The Registrant therefore cannot calculate the aggregate market value of its voting and non-voting common equity heldby non-affiliates as of such date. The Registrant’s Common Stock began trading on The NASDAQ Stock Market, LLC on March 23,2017.The number of shares of the registrant’s common stock outstanding as of March 28,2017 was 3,500,000.DOCUMENTS INCORPORATED BY REFERENCE:Portions of the definitive Proxy Statement for our 2017 Annual Meeting of Shareholders which is to be filed within 120 days after the end of the fiscalyear ended December 31, 2016, are incorporated by reference into Part III of this Form 10-K, to the extent described in Part III. Table of Contents Table of ContentsPage PART IItem 1.Business3 Item 1A.Risk Factors22 Item 1B.Unresolved Staff Comments33 Item 2.Properties33 Item 3.Legal Proceedings33 Item 3A.Forward-Looking Information34 Item 4.Mine Safety Disclosures35 PART IIItem 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities36 Item 6.Selected Financial Data37 Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations39 Item 7A.Quantitative and Qualitative Disclosures about Market Risk59 Item 8.Financial Statements and Supplementary Data61 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure93 Item 9A.Controls and Procedures93 Item 9B.Other Information93 PART IIIItems 10-14.93 PART IVItem 15.Exhibits, Financial Statement Schedules94 ​Signatures 95 ​Exhibit Index 96 ~ 2 ~ Table of Contents Item 1. BusinessOverviewICC Holdings, Inc. is a Pennsylvania corporation that was organized in 2016. ICC Holdings, Inc. was formed so that it couldacquire all of the capital stock of Illinois Casualty Company (ICC) in a mutual-to-stock conversion. Prior to the conversion, ICCHoldings, Inc did not engage in any operations. After the conversion, ICC Holdings, Inc’s primary assets are the outstandingcapital stock of ICC, the outstanding membership interests of ICC Realty, LLC and a portion of the net proceeds from the stockoffering completed in connection with the mustual-to-stock conversion. As of December 31, 2016, ICC was the ultimate reportingentity and the financial statements herein are for that entity.As used in this Form 10-K, references to “the Company,” “we,” “us,” and “our” refer to the consolidated group. On a stand-alone basis ICC Holdings, Inc is referred to as the “Parent Company.” The consolidated group consists of the holding company,ICC Holdings, Inc., an operating insurance company, ICC, and ICC’s three wholly-owned subsidiaries, Beverage InsuranceAgency, Inc., an inactive insurance agency, Estrella Innovative Solutions, Inc., an outsourcing company, and ICC Realty, LLC, areal estate services and holding company. ICC is an Illinois insurance company.We are a regional, multi-line property and casualty insurance company focusing exclusively on the food and beverageindustry. During 2016, we had $51.0 million in direct written premiums.We primarily market our products through a network of approximately 140 independent agents in Illinois, Iowa, Indiana,Minnesota, Missouri, Ohio and Wisconsin. ICC has been assigned a “B++” (Good) financial strength rating by A.M. BestCompany, Inc. (A.M. Best), which is the fifth highest out of fifteen possible ratings. ICC’s most recent evaluation by A.M. Bestoccurred on March 28, 2017, when A.M. Best affirmed its Financial Strength Rating (FSR) of “B++” and Issuer Credit Rating (ICR)of “bbb” (Good). The outlook of the FSR is stable, while the outlook of the Long-Term ICR remains positive. A.M. Best alsoassigned a Long-Term ICR of “bb” to ICC Holdings, Inc. The outlook assigned to the Credit Rating of the Company is positive.For over 66 years, ICC has specialized in providing customized insurance products and aggressive claims defense forcustomers exclusively in the food and beverage industry.ICC was founded as an inter-insurance exchange in 1950 based upon the recognition that establishments serving alcoholrequire unique insurance protection. Beginning in 1998, we expanded the scope of our product offerings beyond liquor liability toinclude property, general liability, umbrella, and workers compensation coverage. Our goal was to meet the full range of businessinsurance needs of our clients in the food and beverage industry.In 1999, ICC recognized the significant need to automate. Upon determining available commercial software was inadequate tomeet our long-term vision, we contracted the development of an integrated platform to handle agency, policy, and vendormanagement. Introduced in 2001, the first module successfully improved productivity and reporting capabilities. We built on thatsuccess by adding document imaging, claims, billing, and risk management modules. As it has grown, our informationmanagement system has provided us with a unique and comprehensive ability to automate processes, track and examine risk traits,and monitor claims development. As a result, ICC has constructed and leveraged a multi-variant pricing algorithm that allows us tobetter segment our business in order to more effectively price to actual exposure.ICC mutualized in 2004 and began to expand its territory geographically within the Midwest. We are an admitted carrier innine states: Colorado, Illinois, Iowa, Indiana, Minnesota, Michigan, Missouri, Ohio and Wisconsin. We currently issue policies inseven states, including Ohio where we began writing policies in the third quarter of 2016, and expect to begin writing premium inMichigan as early as 2018. As we expanded our territory and product lines over the last 66 years, we have maintained our focusand commitment to the food and beverage industry. As a result, we have developed unsurpassed expertise in our niche, particularlywithin the areas of underwriting, loss control, and claims management. ICC continues to leverage that experience into the ongoingdevelopment of innovative insurance products and services uniquely tailored to the food and beverage industry.ICC is subject to examination and comprehensive regulation by the Illinois Department of Insurance. See Item 1. Business —Regulation.Our executive offices are located at 225 20th Street, Rock Island, Illinois 61201, and our phone number is (309) 793-1700.Our web site address is www.ilcasco.com. Information contained on our website is not incorporated by reference into this AnnualReport on Form 10-K and such information should not be considered to be part of this Annual Report on Form 10-K. ~ 3 ~ Table of Contents Our Business StrategiesWe believe that our mission is to deliver expertly crafted insurance products and services for the food and beverage industry.Accordingly, we believe that this focus positions us to write profitable business in both hard insurance markets (where industrycapital is constricted, competition is low, and premium rates are rising) and soft insurance markets (where industry capital is rising,competition is high and premium rates are falling). As part of our business process, we have developed our business strategy andfocus using the following guiding principles to reflect the essence of who ICC aspires to be:·we endeavor to return value to our stakeholders in the form of strong financial performance and sustained surplus growth;·we conduct our business with the highest ethics and unquestionable integrity;·we recognize and reward the commitment of all of our associates who make ICC a success, by challenging our associates,by valuing them and recognizing their contribution, while cultivating a mutually supporting culture;·we believe that an independent agency system is mutually beneficial to both the agent and ICC because of the drive todeliver the highest quality products at competitive prices;·customer service, which is understanding and meeting the needs and expectations of our policyholders and agents, is atthe fundamental core of our existence;·we believe we can succeed in the marketplace given our unique understanding of the food and beverage industry,offering customized products and aggressively defending our insureds;·we focus on innovation, which drives our efficiency, quality and effectiveness;·we identify worthy causes to support with our corporate and associate resources and promote good corporate citizenship;and·we strive to improve our products and processes through intelligent investment in talent and technology that meets ourexacting needs and those of our customers.In order to effectuate our mission and guiding principles, we have identified the following core strategies to achieve our long-term success:·design and market commercial property and casualty products customized for the food and beverage industry, throughour in-depth knowledge and research of the industry;·pursue deliberate geographic expansion;·Provide and market comprehensive policies with flexible a la carte options;·foster true partnerships with independent agents who have a significant presence in the food and beverage industry andan appreciation for ICC’s commitment and expertise to obtain optimal market share in the food and beverage industry;·leverage business intelligence to maximize performance, increase operational efficiency, and price our products forsustained profitability;·implement an investment strategy that maximizes return within acceptable risk tolerances;·promote a culture of excellence that encourages teamwork and contributes to talent retention and development; and·maintain a robust and comprehensive enterprise risk management program, focused on upside optimization and downsidemitigation.Competitive Growth StrategiesTechnology – We believe that existing and developing technology and information systems are and will continue to impactthe insurance industry’s use of risk analysis in the underwriting process, provide tools for reduction of claims, and modernize theclaims handling process. As part of our focus, we have internally developed a completely integrated policy management system.This system allows us to leverage loss control data for predictive analytics in both the claims and underwriting areas. For example,in the underwriting area, we create pricing models taking into account the unique characteristics of our customers, with industry-specific variables such as latest hour of close, type and frequency of on-site entertainment, and average alcoholic beverage pricing.We also have achieved better efficiency by moving to a more paperless organization and integrate off-site employees in ourclaims, underwriting, accounting, loss control and IT development areas. We intend to remain a leader in the industry in utilizingtechnology and data analysis to price our coverage based on the risk assumed, reduce accidents and provide prompt claimsresponse. ~ 4 ~ Table of Contents Industry Expertise – We have been providing the food and beverage industry with insurance products and services since 1950.By leveraging our experience, we better understand our customers and their needs, which allows us to better price our products andservices and defend claims aggressively and economically, using the experience of our in-house Legal Department and anestablished network of specialized defense attorneys. As a result, we are the endorsed carrier for the Missouri RestaurantAssociation, the Indiana Restaurant Association, the Illinois Licensed Beverage Association and the Minnesota LicensedBeverage Association. We also provide insurance agents continuing education on industry topics, such as liquor liability, kitchenfire prevention and alcohol server training. For policyholders serving liquor, we provide certified alcohol server training as avalue-added service and risk elimination/mitigation tool. Our associates are also regular panel speakers at local and nationalclaims conferences.Enterprise Risk Management – As part of our effort to grow responsibly, we have put in place a cross-functional, multi-dimensional enterprise risk management program. The program is focused on financial, organization, operational, tactical, marketand legal risks and managed at three different levels: the enterprise risk committee of our board of directors, our internal enterpriserisk management committee and our internal audit committee. The focus of the enterprise risk committee of our board of directorsis on oversight, top tier risk, emerging risks, and risk optimization. The internal enterprise risk committee is comprised of oursenior management team, which is focused on conducting a review of all risks attendant to ICC at least annually; rating triagedrisks for severity, frequency, and control; completing risk control reports for stress testing, risk tolerance, and mitigation plans;measuring and monitoring risk on an ongoing basis; and tying enterprise risk management to individual performance evaluationsand compensation. Our internal audit function focuses on policy and procedure compliance and mitigation plans.Growth StrategiesWhile we have established a significant market share in our existing territories, we believe that there is still opportunity forgrowth within our existing footprint. We will continue to seek out insurance agency partners who have a commitment to our nicheand an ability to sell the value represented by our products. Our long-term growth plan also involved expanding geographicallyinto states where we believe current insurance laws provide an attractive market within our niche for our existing products andservices. Current state expansion plans include Colorado, Kansas, and Michigan. Additionally, we are currently evaluatingexpansion into Arizona, Massachusetts, Oregon, Pennsylvania, and Tennessee. We will consider geographic expansionopportunities that allow us to leverage existing agency relationships whose footprints overlap our own. Growth opportunities willalways be carefully evaluated with long term profitability at the forefront of the decision making process.Although we do not have any current plans or intent to expand or grow our business by acquisition, we will consideropportunities that are presented to us. The completion of this offering will supply additional capital needed to supportsubstantially increased premium volume, which we expect to result from the implementation of these growth strategies.Reaction to Market CyclesMany insurance companies sporadically target businesses within our niche; however, a relatively small number make a long-term commitment to the niche through changing insurance market cycles. When the insurance market is “hard” and premiumgrowth is achievable in less specialized segments, many carriers exit this niche. Large and diversified insurance carriers have theability to shift their focus and resources to less challenging areas. When market conditions “soften,” those same carriers oftenaggressively move back into our niche for premium growth. Because we specialize in the niche, we do not shift resources to othermarket segments. Therefore, the Company generally maintains pricing stability throughout market cycles by relying on our strongloss control, underwriting, and claims expertise and our customer service commitment. We react to market cycles by adjusting ourappetite for risks based on pricing and cycle conditions, but we maintain a consistent commitment to the food and beverageindustry. Due to the relatively small number of insurance companies that make a long-term commitment to this niche, theinsurance market does not fluctuate to the same extent as the insurance market for the general commercial market. ~ 5 ~ Table of Contents Our ChallengesOur business faces significant challenges that can impede our goal of growing our business while realizing operating profits,including the following:Estimating Our Loss Reserves.We maintain loss reserves to cover our estimated ultimate liability for unpaid losses and settlement expenses for reported andunreported claims incurred as of the end of each accounting period. These reserves represent management’s estimates of what theultimate settlement and administration of claims will cost. Pursuant to applicable insurance regulations, these reserves arereviewed by an independent actuary on at least an annual basis. Setting reserves is inherently uncertain and there can be noassurance that current or future reserves will prove adequate. If our loss reserves are inadequate, it will have an unfavorable impacton our results. See Item 1. Business — Losses and Settlement Expense for a summary of the favorable and unfavorabledevelopments in our loss reserves in the previous 10-year period. Reliance on Independent Agents.Our product is distributed through a contracted network of independent insurance agents. Independent agents are typicallycontracted with a number of insurance carriers. The producers within an agency will determine which product is most appropriateto recommend to their client or prospective client. The agency will select a product based on a variety of factors such as: premium;coverage; service including billing and claims; agency compensation and agency/company relationship. Establishing andmaintaining long term financially successful agency relationships is very important to the long term success of a company.Maintaining Our Financial Strength Ratings.In March 2017, A.M. Best affirmed ICC’s financial strength rating of “B++” positive outlook. A key to achieving our goal ofsignificant growth in our premiums written, is obtaining an A.M. Best rating of “A-” or better. Increasing our capitalization andmaintaining strong operating performance, are significant rating components reviewed by A.M. Best. This is combined with areview of various other rating requirements. If we are not able to increase our rating or if A.M. Best downgrades our rating, it islikely that we will not be able to compete as effectively and our ability to sell insurance policies could decline. As a result, ourfinancial results would be adversely affected. A.M. Best reviews our rating approximately once per year.Attracting, Developing and Retaining Experienced Personnel.To sustain our growth as a property and casualty insurance company operating in a specialty niche market, we must continueto attract, develop and retain management, marketing, distribution, underwriting, customer service, and claims personnel withexpertise in the products we offer. The loss of key personnel, or our inability to recruit, develop and retain additional qualifiedpersonnel, could materially and adversely affect our business, growth and profitability.Competitive StrengthsOur opportunity for growth is driven by our competitive strengths, which include the following:Use of Data and Metrics to Improve our Underwriting Results.Our analysis of data available through both governmental and other industry resources, combined with our internal data, driveour underwriting and pricing decisions. We have developed a multi-variant risk grading system and pricing algorithm thatcombines both objective and subjective inputs that drive both whether to provide coverage and pricing. This information helps usavoid providing coverage to higher risk insureds while improving our overall risk profile. Every risk we insure is inspected withinthe first 60 days of policy binding, which permits us to cancel the policy if we determine that the insured is not an acceptable riskor pricing is inadequate. Each inspection consists of an extensive risk profile questionnaire as well as between 25 to 100 picturesof the insured’s place of business. We believe this approach reduces claims frequency. ~ 6 ~ Table of Contents Focus on niche food and beverage business.We target niche markets within the food and beverage industry that support adequate pricing and believe we are able to adaptto changing market needs ahead of our competitors through our strategic focus. We develop and deliver specialty insuranceproducts priced to meet our customers’ needs and strive to generate consistent underwriting profit. We believe that our extensiveexperience and expertise specific to underwriting and claims management in the food and beverage industry will allow continuedloss ratio improvement in 2017 and going forward. The Company is committed to retaining this underwriting and claim handlingexpertise as a core competency as the volume of business increases.Strong market presence with name recognition and long-standing producer relationships.We have been writing insurance for the food and beverage industry in Illinois since 1950. Approximately 36.9% of currenttotal premium is written in Illinois.Great care is taken in building the ICC brand in all states of operation and the Company holds significant market share innearly all states serviced. ICC acknowledges that each state, each agency and each customer is unique. A commitment to quality ofproduct and services is universally important and recognized.Scalable operations positioned for growth.We are focused on automation and operating efficiencies across its core functional areas. We have consistently increasedpremium per full time equivalent employee for five consecutive years and are positioned to continue that trend with currentgrowth plans. We believe we are well-positioned in both terms of personnel and systems to increase written premiums and toexpand into new geographic markets with better than industry level profitability using the efficient operating infrastructure wehave developed over the last few years.Experienced management team.We are managed by an experienced group of executives led by Arron K. Sutherland, our President and Chief ExecutiveOfficer. Mr. Sutherland has served in his current position since June 2010, joined ICC in 2006 and has worked in the insuranceindustry for over 20 years. Michael R. Smith, our Vice President – Chief Financial Officer, has served with ICC since 2011. Mr.Smith has more than 20 years of experience in the financial services industry, including 15 years with insurance organizations.Howard J. Beck, our Vice President – Chief Underwriting Officer, has been with ICC since 2004 and has over 24 years ofunderwriting experience. Norman D. Schmeichel, our Vice President – Chief Information Officer, has served with ICC since 2002.Mr. Schmeichel has more than 20 years’ experience in information technologies and 14 years’ experience in the insuranceindustry. Additionally, Julia B. Suiter, our Chief Legal Officer, has served with ICC since 2009 and has over 20 years’ experiencein insurance defense and contract law. Rickey Plunkett, our Director of Claims, has served with ICC since 2010 and has over 35years of experience in the claims field. Kathleen S. Springer, our Director of Human Resources, has served with ICC since 2008 andhas over 20 years’ experience in benefits, compensation, and talent acquisition and more than 8 years’ experience in the insuranceindustry. As a group, our executive officers have on average more than 20 years’ experience in the property and casualty insuranceindustry.ProductsICC has specialized in the food and beverage industry since 1950. Our product language is based on Insurance ServicesOffices (ISO) forms, which is an industry standard, but tailored to the specific needs of our clients. We began by writing liquorliability or dram shop insurance and that remains a prominent line of business today. Commercial property and liability are writtenin a single policy as a business owners policy (BOP). ICC also writes workers compensation and commercial umbrella policieswhich are written as complementary lines to the BOP and liquor liability and are not offered on a stand-alone basis. As ofDecember 31, 2016, ICC writes 4,863 BOP policies, 4,683 liquor liability policies, 1,742 worker’s compensation policies and1,187 commercial umbrella policies. 90.5% of BOP policies and 89.7% of liquor liability policies are for either restaurants ortaverns. While we do not currently write commercial auto insurance, we do insure risks associated with the delivery of food orbeverage. Marketing and DistributionOur commercial insurance product is sold by over 140 independent insurance agents in Illinois, Iowa, Indiana, Minnesota,Missouri, Ohio and Wisconsin. These agencies access multiple insurance companies and are typically established businesses in thecommunities in which they operate. We view these agents as our primary customers because they are in a position to recommendeither our insurance products or those of a competitor to their customers. We consider our relationships with these agencies to be acore strength of the Company. ~ 7 ~ Table of Contents We manage our producers through quarterly business reviews utilizing various internally generated reports. Our quantitativeagency review (QAR) measures each agency on a variety of weighted metrics and ranks them from high to low. The measurement isupdated on a weekly basis and is available for all company employees’ review.For the year ended December 31, 2016, only two of our producers were responsible for more than 5% of our direct premiumswritten and our top 10 producers accounted for approximately 37.5% of direct premiums written.Our agency partners are supported by our Marketing Department. These representatives also identify and train new agents. Weconduct regularly scheduled webinars for agents as well as onsite training on company products and services. These includetechnical training about our products as well as sales training to effectively market our products. We also offer our agents industryspecific training that qualifies for continuing education credit for state insurance license requirements.Agents are compensated through a fixed base commission with an opportunity for profit sharing depending on the producer’spremiums written and profitability. Agents receive commission as a percentage of premiums (generally 15% for most lines, exceptworker’s compensation policies which are generally at 7.5%) as their primary compensation from us. We offer a contingentcompensation plan as an incentive for producers to place high-quality business with us and to support our loss control efforts. Webelieve that the contingent compensation paid to our producers is comparable with those offered by other insurance companiesand is designed to reward agents for growth and profitability.Our marketing efforts are also supported by our Claims, Litigation, Billing, Underwriting and Loss Control Departments. Asindustry specialists, we are able to offer expertise in all interactions with agents and/or policyholders. For example, our claimsphilosophy is to provide prompt and efficient service and claims processing, resulting in a positive experience for both the agentsand policyholders. We take an aggressive, defense-oriented position on third party liability claims which is recognized andappreciated by our policyholders. We believe that these positive experiences result in higher policyholder retention and createnew business opportunities for our agents. While we rely on our agents for front line distribution and customer support,underwriting, billing, loss control and claim handling responsibilities are retained by us. Many of our agents have had directrelationships with us for a number of years.Underwriting, Risk Assessment and PricingOur underwriting philosophy is aimed at consistently generating profits through sound risk selection, stringent loss controland pricing discipline. One key element in sound risk selection is our use of risk characteristic metrics. Through 66 years offocused underwriting, we have identified predictive metrics of data that many other insurance companies do not recognize ormeasure. Use of these metrics allows us to more effectively price risks, thereby improving our profitability and allowing us tocompete favorably with other insurance carriers. We also are very active in leveraging our onsite loss control inspections. Anexample would be the monitoring of kitchen fire suppression systems servicing to reduce kitchen fire losses.Our philosophy is to understand our industry and be disciplined in our underwriting efforts. We will not compromiseprofitability for top line growth.Our competitive strategy in underwriting is:·Maximize the use of available information acquired through a wide variety of industry resources.·Allow our internal metrics and rating to establish risk pricing and use sound underwriting judgement for risk selectionand pricing modification.·Utilize our risk grading system, which combines both objective and subjective inputs, to quantify desirability of risks andimprove our overall risk profile.·Physically inspect every new insured within the first 60 days of policy binding with our in-house loss controlrepresentatives. Our inspection consists of an extensive risk profile questionnaire and includes 25 to 100 electronicphotos of the insured’s place of business. Inspections that demonstrate that a risk is not desirable is a basis for revokingcoverage.·Provide very high-quality service to our agents and insureds by responding quickly and effectively to informationrequests and policy submissions. Treat our agents as partners and have the same expectation of them.Our Underwriting Department works in teams with each agent assigned to one of three teams. We underwrite our accounts byevaluating each risk with consistently applied standards. Each policy undergoes a thorough evaluation process prior to everyrenewal. ~ 8 ~ Table of Contents Our underwriting staff of 24 employees has an average of 12 years of insurance industry experience. Howard J. Beck, our VicePresident – Chief Underwriting Officer, has been with ICC since 2004 and has over 27 years of insurance experience with 20 yearsof property and casualty underwriting experience.We strive to be disciplined in our pricing by pursuing targeted rate changes to continually improve our underwritingprofitability while still being able to attract and retain profitable customers. Our pricing reviews involve evaluating our claimsexperience, loss trends, data acquired from inspections, applications and other data sources to identify characteristics that drive thefrequency and severity of our claims. These results drive changes to rates and rating metrics as well as understanding what portionsof our business are most profitable.This knowledge and analysis enables us to price risks accurately, improve account retention, and drive profitable newbusiness.Claims and Litigation ManagementOur claims team supports our underwriting strategy by working to provide a timely, good faith claims handling response toour policyholders. Claims excellence is achieved by timely investigation and handling of claims, settlement of meritorious claimsfor equitable amounts, maintenance of adequate case reserves, and control of claims loss settlement expenses.Claims on insurance policies are received directly from the insured or through our independent agents. Our ClaimsDepartment supports our producer relationship strategy by working to provide a consistently responsive level of claim service toour policyholders.Rickey Plunkett, our Director of Claims, supervises a staff of 16 employees with considerable years of experience inprocessing property and casualty insurance claims. Mr. Plunkett joined ICC in 2010 and has over 30 years of experience in claimsmanagement.Julia B. Suiter, our Chief Legal Officer, supervises a staff of three employees, two of whom are also attorneys. Ms. Suiter joinedICC in 2009 and has been practicing law both in-house and in private practice for 24 years.TechnologyOur technology efforts are focused on supporting our strategy of differentiating ourselves from our competitors through use ofdata mining, business intelligence solutions, and data analysis to determine profitability of new and existing business and to betterprice risks that we underwrite.We have streamlined internal processes to achieve operational efficiencies through the implementation of a policy and claimimaging and workflow system. This system provides online access to electronic copies of policies, quotes, inspections, and anyother correspondence enabling our associates to quickly and efficiently underwrite policies and adjust claims as well as respond toour producers’ inquiries.Since the system integrates all aspects of the policy life cycle, from underwriting to billing to claims, we are able to betterautomate all internal workflows through electronic routing thus lowering costs and providing better service to our customers. Thissystem allows us to leverage loss control data for predictive analytics in both the claims and underwriting areas. For example, inthe underwriting area, we can create pricing models taking into account the unique characteristics of our customers, such asneighborhoods, entertainment on site and average alcoholic beverage pricing.We have implemented best in class virus or malware protections while still enabling our employees to work from any location.We are tested on a periodic basis to ensure our protections are sufficient.We have the ability to scale since we are almost entirely a paperless organization. This allows us to integrate off-siteemployees just as if they are in the office. We intend to remain a leader in the industry by utilizing technology and data analysis toprice our coverage based on the risk assumed and to both reduce accidents and provide a prompt response to claims.As part of our disaster recovery program, we utilize a third party backup system to provide a complete copy of our productionsystems at an off-site location that is updated on a daily basis. We also have a generator that will allow the home office to operatein the event that power or access to our headquarters is disrupted. We test this disaster recovery plan bi-annually as well ascontinually expand its capabilities to eliminate business interruption to the best of our ability. ~ 9 ~ Table of Contents ReinsuranceIn accordance with insurance industry practice, we reinsure a portion of our exposure and pay to the reinsurers a portion of thepremiums received on all policies reinsured. Insurance policies written by us are reinsured with other insurance companiesprincipally to:·reduce net liability on individual risks;·mitigate the effect of individual loss occurrences (including catastrophic losses);·stabilize underwriting results;·decrease leverage; and·increase our underwriting capacity.Reinsurance can be facultative or treaty. Under facultative reinsurance, each policy or portion of a risk is reinsuredindividually. Under treaty reinsurance, an agreed-upon portion of a class of business is automatically reinsured. Reinsurance alsocan be classified as quota share reinsurance, pro rata reinsurance or excess of loss reinsurance. Under quota share reinsurance andpro rata reinsurance, the insurance company issuing the policy cedes a percentage of its insurance liability to the reinsurer inexchange for a like percentage of premiums, less a ceding commission. The company issuing the policy in turn recovers from thereinsurer the reinsurer’s share of all loss and settlement expenses incurred on those risks. Under excess of loss reinsurance, aninsurer limits its liability to all or a particular portion of the amount in excess of a predetermined deductible or retention.Regardless of type, reinsurance does not legally discharge the insurance company issuing the policy from primary liability for thefull amount due under the reinsured policies. However, the assuming reinsurer is obligated to reimburse the company issuing thepolicy to the extent of the coverage ceded.We determine the amount and scope of reinsurance coverage to purchase each year based on a number of factors. These factorsinclude the evaluation of the risks accepted, consultations with reinsurance intermediates and a review of market conditions,including the availability and pricing of reinsurance. A primary factor in the selection of reinsurers from whom we purchasereinsurance is their financial strength. Our reinsurance arrangements are generally renegotiated annually. We expect a 3.1%increase in spend for our 2017 reinsurance contracts. For the year ended December 31, 2016, we ceded to reinsurers $8.1 million ofwritten premiums, compared to $7.8 million of written premiums for the year ended December 31, 2015. Of the $8.1 million spenton 2016 reinsurance premiums, $0.6 was from new contracts. Without the new contracts, 2016 spend would have been $7.5million, or a decrease of 3.8%. The chart below illustrates the 2017 reinsurance coverage under our excess of loss treaty for individual liability and propertyrisks (with the defined terms listed below the chart): ~ 10 ~ Table of Contents Term Meaning1 @ x% “1” refers to the number of times that we reinstate the coverage. The number prior to the “%” signindicates the overall cost to us when reinstating coverage. Aggregate Catastrophe An aggregate catastrophe treaty is a reinsurance cover designed to help us manage the effects ofmultiple extreme weather events on our results. Basket Coverage Excess liability insurance that attaches once retained losses for several lines of coverage (e.g.,Workers compensation, Business Owners Liability, or Liquor Liability) reach a certain specifiedlevel. If we have one loss occurrence with $500,000 incurred on both a workers compensation claimand a liquor liability claim, this coverage limits our retention to $500,000 and not $500,000 perclaim. Casualty For this chart, this refers to our liquor liability, business owners liability, workers compensation andany umbrella policies. Free & Unlimited This refers to the number and cost of reinstating the reinsurance coverage. With this wording, eachseparate loss occurrences above the retention will be covered by the treaty. Inures Our Workers Compensation Reinsurance contracts are first applied to reduce the loss subject to theCasualty XOL contract and are said to inure to the benefit of the Casualty XOL contract. MAOL This reinsurance sublimit puts a cap on the maximum loss any one life/claimant can contribute tothe reinsurance recoverable. Per Risk Reinsurance in which the reinsurance limit and our loss retention apply “per risk,” rather than peraccident, per event, or in the aggregate. Retention The amount of loss and settlement expense retained by us either per occurrence on casualty losses orper risk on property claims WC This is short for Workers Compensation. XOL This is short for Excess of Loss reinsurance coverage. xs This is short for Excess. For example, our Property per Risk tower has three separate contractsproviding coverage. The top layer in that tower provides $7.0 million coverage for each risk withlosses in excess of $5.0 million.We retain the first $500,000 of workers compensation losses. Losses in excess of the $500,000 are covered under our workerscompensation excess of loss program (WC XOL Tower) up to $1.0 million. Losses above the $1.0 million are then covered underthe second workers compensation treaty through $10.0 million. Above $10.0 million, losses would fall back to the casualty towerfor an additional $5.5 million of coverage per employee. Losses above $15.5 million are covered under a new workerscompensation cover that provides $10.0 million in excess of $15.5 million. We purchased a new cover that provideds $25.0million of coverage in excess of $25.5 million for four direct policies issued by the Company.Casualty risks (Casualty XOL Tower) (business owners property, liability, liquor liability, umbrella) are covered for $10.5million in loss above a $500,000 retention for each loss occurrence.Property per risk excess of loss program (Property Per Risk XOL Tower) provides coverage above our $350,000 retention up to$12.0 million on a treaty basis and facultative for a few risks above that to their full limits.Property catastrophe reinsurance (Section A Property Cat Occurrence) provides coverage in any one event for $10.0 million ofloss in excess of our $500,000 retention.We also have aggregate catastrophe protection (Section B Aggregate Catastrophe) in the event that catastrophe losses retainedby us exceeds $1.5 million in such year. This program allows us to aggregate storms losses where losses exceed $50,000 but fallbelow the $500,000 occurrence retention.The insolvency or inability of any reinsurer to meet its obligations to us could have a material adverse effect on our results ofoperations or financial condition. Our reinsurance providers, the majority of whom are longstanding partners who understand ourbusiness, are all carefully selected with the help of our reinsurance broker. We monitor the solvency of reinsurers through regularreview of their financial statements and, if available, their A.M. Best ratings. All of our reinsurance partners have at least an “A-”rating from A.M. Best. According to A.M. Best, companies with a rating of “A-” or better “have an excellent ability to meet theirongoing obligations to policyholders.” ~ 11 ~ Table of Contents The following table sets forth the largest amounts of loss and loss expenses recoverable from reinsurers as of December 31,2016: Losses and SettlementExpense RecoverablePercentage ofOn Unpaid Claims(In thousands)TotalA.M. BestReinsurance Company(In thousands)RecoverableRatingEverest Reinsurance Company$3,128 25.8% A+Partner Reinsurance Company2,026 16.7% A+Aspen Insurance UK Ltd1,973 16.3% AHannover Ruckversicherungs1,934 16.0% A+Toa Reinsurance Company1,504 12.4% A+Swiss Reinsurance1,039 8.6% A+Platinum Underwriters874 7.2% AEndurance612 5.0% AAllied World Reinsurance588 4.9% ALloyd's Syndicate Number 43529 0.2% A+All other reinsurers including anticipatedsubrogation(1,592)-13.1%A- or betterTotal$12,115 100.0% Losses and Settlement Expense ReservesWe are required by applicable insurance laws and regulations to maintain reserves for payment of loss and settlementexpenses. These reserves are established for both reported claims and for claims incurred but not reported (IBNR), arising from thepolicies we have issued. The laws and regulations require that provision be made for the ultimate cost of those claims withoutregard to how long it takes to settle them or the time value of money. The determination of reserves involves actuarial andstatistical projections of what we expect to be the cost of the ultimate settlement and administration of such claims. The reservesare set based on facts and circumstances then known, estimates of future trends in claims severity, and other variable factors such asinflation and changing judicial theories of liability.Estimating the ultimate liability for losses and settlement expense is an inherently uncertain process. Therefore, the reserve forlosses and settlement expense does not represent an exact calculation of that liability. Our reserve policy recognizes thisuncertainty by maintaining reserves at a level providing for the possibility of adverse development relative to the estimationprocess. We do not discount our reserves to recognize the time value of money.When a claim is reported to us, our claims personnel establish a “case reserve” for the estimated amount of the ultimatepayment. This estimate reflects an informed judgment based upon general insurance reserving practices and on the experience andknowledge of our claims staff. In estimating the appropriate reserve, our claims staff considers the nature and value of the specificclaim, the severity of injury or damage, and the policy provisions relating to the type of loss. Case reserves are adjusted by ourclaims staff as more information becomes available. It is our policy to resolve each claim as expeditiously as possible.We maintain IBNR reserves to provide for already incurred claims that have not yet been reported and developments onreported claims. The IBNR reserve is determined by estimating our ultimate net liability for both reported and IBNR claims andthen subtracting the case reserves and paid loss and settlement expnse for reported claims.Each quarter, we compute our estimated ultimate liability using principles and procedures applicable to the lines of businesswritten. However, because the establishment of loss reserves is an inherently uncertain process, we cannot provide assurance thatultimate losses will not exceed the established loss reserves. Adjustments in aggregate reserves, if any, are reflected in theoperating results of the period during which such adjustments are made. ~ 12 ~ Table of Contents The following table provides information about open claims, reserves, and paid loss and settlement expense by business lineon a direct basis only:As of and for the year ended December 31, 2016(In millions, except open claims count)OpenClaims Total Reserves1 Case Reserves IBNR Reserves Paid Losses andSettlementExpenseCommercial Multi-Peril (non-liability portion)147$ 3.84$ 3.95$ (0.11)$ 8.33Commercial Multi-Peril (liability portion)43922.66 12.84 9.82 7.95 Workers Compensation2108.50 4.15 4.36 3.43 Other Liability - occurrence17717.37 6.56 10.81 5.83 Grand Total973$ 52.37$ 27.49$ 24.88$ 25.541 Assumed reserves of $0.45 million are excluded from the Total Gross Reserves. Workers Compensation ($0.42 million assumedreserve) and Umbrella Liability ($0.03 million assumed reserve) are the only lines of business that have assumed reserves.The following table provides a reconciliation of beginning and ending unpaid losses and settlement expense reserve balancesfor the years ended December 31, 2016 and 2015, prepared in accordance with GAAP.(In thousands)20162015Unpaid losses and settlement expense - beginning of the period:Gross$61,056 $64,617 Less: Ceded19,158 25,822 Net41,898 38,795 Increase (decrease) in incurred losses and settlement expense:Current year25,620 24,293 Prior years(1,275)(493)Total incurred24,345 23,800 Deduct: Loss and settlement expense payments for claims incurred:Current year7,649 6,466 Prior years17,892 14,231 Total paid25,541 20,697 Net unpaid losses and settlement expense - end of the period40,702 41,898 Plus: Reinsurance recoverable on unpaid losses12,115 19,158 Gross unpaid losses and settlement expense - end of the period$52,817 $61,056 The estimation process for determining the liability for unpaid losses and settlement expense inherently results in adjustmentseach year for claims incurred (but not paid) in preceding years. Negative amounts reported for claims incurred related to prior yearsare a result of claims being settled for amounts less than originally estimated (favorable development). Positive amounts reportedfor claims incurred related to prior years are a result of claims being settled for amounts greater than originally estimated(unfavorable or adverse development).Reconciliation of Reserve for Loss and Settlement ExpensesThe following table shows the development of our reserves for unpaid loss and settlement expense from 2007 through 2016on a GAAP basis. The top line of the table shows the liabilities at the balance sheet date, including losses incurred but not yetreported. The upper portion of the table shows the cumulative amounts subsequently paid as of successive years with respect to theliability. The lower portion of the table shows the reestimated amount of the previously recorded liability based on experience asof the end of each succeeding year. The estimates change as more information becomes known about the frequency and severity ofclaims for individual years. The redundancy (deficiency) exists when the reestimated liability for each reporting period is less(greater) than the prior liability estimate. The “cumulative redundancy (deficiency)” depicted in the table, for any particularcalendar year, represents the aggregate change in the initial estimates over all subsequent calendar years.Gross deficiencies and redundancies may be significantly more or less than net deficiencies and redundancies due to thenature and extent of applicable reinsurance. ~ 13 ~ Table of Contents As noted in the table below, since 2007 the Company has consistently selected initial ultimate loss picks that have proven tobe redundant over time.Year Ended December 31,(In thousands)2007200820092010201120122013201420152016Liability for unpaid loss and settlementexpense, net of reinsurance recoverable$33,393 $40,040 $39,932 $37,708 $36,204 $35,976 $36,340 $38,795 $41,898 $40,702 Cumulative amount of liability paidthrough: One year later10,115 10,740 11,878 12,926 12,194 12,226 12,442 14,156 17,892 Two years later16,146 19,865 21,240 22,003 21,128 20,870 22,678 27,092 —Three years later22,419 25,914 27,712 28,749 27,235 27,520 30,071 — —Four years later25,498 30,217 31,840 32,561 31,167 32,086 — — —Five years later27,696 32,210 34,044 34,429 33,183 — — — —Six years later28,720 33,544 35,179 35,563 — — — — —Seven years later29,184 34,352 35,923 — — — — — —Eight years later29,460 34,888 — — — — — — —Nine years later29,791 — — — — — — — —Liability estimated after:One year later33,441 37,860 38,222 36,699 35,553 35,151 36,698 38,305 40,623 Two years later32,242 37,709 37,212 36,840 35,763 35,545 36,210 39,813 —Three years later32,156 36,205 37,239 37,170 36,083 35,418 36,914 — —Four years later30,950 35,857 37,099 37,211 35,544 36,215 — — —Five years later30,654 35,349 36,689 36,627 35,377 — — — —Six years later30,194 35,111 36,445 36,645 — — — — —Seven years later30,059 35,201 36,632 — — — — — —Eight years later30,120 35,309 — — — — — — —Nine years later30,118 — — — — — — — —Cumulative total redundancy(deficiency) Gross liability - end of year50,207 59,039 58,295 56,012 51,432 54,623 57,334 64,618 61,054 52,817 Reinsurance recoverable16,814 18,999 18,363 18,304 15,228 18,647 20,994 25,823 19,156 12,115 Net liability - end of year33,393 40,040 39,932 37,708 36,204 35,976 36,340 38,795 41,898 40,702 Gross reestimated liability - latest42,847 49,792 54,228 57,315 54,278 58,018 59,072 67,392 60,573 Reestimated reinsurance recoverables -latest 12,729 14,483 17,596 20,670 18,901 21,803 22,158 27,579 19,950 Net reestimated liability - latest30,118 35,309 36,632 36,645 35,377 36,215 36,914 39,813 40,623 Gross cumulative redundancy (deficiency)3,275 4,731 3,300 1,063 827 (239)(574)(1,018)1,275 InvestmentsOur investments in debt and equity securities are classified as available for sale and are carried at fair value with unrealizedgains and losses reflected as a component of equity net of taxes. The goal of our investment activities is to complement andsupport our overall mission. As such, the investment portfolio’s goal is to maximize after-tax investment income and priceappreciation while maintaining the portfolio’s target risk profile.An important component of our operating results has been the return on invested assets. Our investment objectives are (i) topreserve and grow capital and surplus, in order to improve our competitive position and allow for expansion of insuranceoperations; (ii) to ensure sufficient cash flow and liquidity to fund expected liability payments and otherwise support ourunderwriting strategy; (iii) to provide a reasonable and stable level of income; and (iv) to maintain a portfolio which will assist inattaining the highest possible rating from A.M. Best. See Item 7. Management’s Discussion and Analysis of Financial Conditionand Results of Operations —Quantitative and Qualitative Information about Market Risk. In addition to any investments prohibited by the insurance laws and regulations of Illinois and any other applicable states, ourinvestment policy prohibits the following investments and investing activities:·short sales;·purchase of securities on margin;·hedge funds; ~ 14 ~ Table of Contents ·derivatives;·investment in commodities;·mortgage derivatives such as inverse floaters, interest only strips and principal only strips;·options, puts and futures contracts;·private placements;·non-U.S. dollar denominated securities;·any security that would not be in compliance with the regulations of the Illinois Department of Insurance.Our board of directors developed our investment policy and reviews the policy periodically. Exceptions to prohibitionsdiscussed above are allowed with express written authority of the board of directors investment committee, but under nocircumstance may such exception exceed 5% of our invested assets.Our investment portfolio is managed by an independent third party firm.The following table sets forth information concerning our investments in available for sale securities.20162015(In thousands)Cost or AmortizedCost Estimated FairValue Cost or AmortizedCost Estimated FairValueFixed maturity securities:U.S. treasury$1,244 $1,241 $1,243 $1,233 MBS/ABS/CMBS19,751 19,677 17,949 18,011 Corporate27,594 28,345 29,537 29,595 Municipal14,340 14,871 15,266 16,356 Total fixed maturity securities62,929 64,134 63,995 65,195 Equity securities:Common Equity/ETF securities16,312 6,983 9,282 8,885 Preferred Stocks2,925 2,798 — —Total equity securities9,237 9,781 9,282 8,885 Total AFS securities$72,166 $73,915 $73,277 $74,080 1 Equity securities consist of exchange traded funds (ETF)The following table summarizes the distribution of our portfolio of fixed maturity investments as a percentage of totalestimated fair value based on credit ratings assigned by Standard & Poor’s Corporation (S&P):20162015Rating1 Estimate FairValue(In thousands) Percent ofTotal2 Estimate FairValue(In thousands) Percent ofTotal2AAA$9,235 14.4% $6,585 10.1% AA24,820 38.7% 27,447 42.1% A17,893 27.9% 20,471 31.4% BBB10,069 15.7% 10,692 16.4% BB2,116 3.3% —0.0% Total$64,134 100% $65,195 100.0% 1The ratings set forth in this table are based on the ratings assigned by S&P. If S&P’s ratings were unavailable, the equivalent ratings supplied byMoody’s Investor Service, Fitch Investors Service, Inc. or the NAIC were used where available.2Represents percent of fair value for classification as a percent of the total portfolio. ~ 15 ~ Table of Contents The table below sets forth the maturity profile of our debt securities December 31, 2016. Expected maturities could differ fromcontractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepaymentpenalties. (In thousands)Amortized CostEstimated FairValue1Less than one year$2,518 $ 2,526One through five years15,961 16,292 Five through ten years15,996 16,753 Greater than ten years8,703 8,886 MBS/ABS19,751 19,677 Total debt securities$62,929 $ 64,1341Debt securities are carried at fair value in our financials statementsAt December 31, 2016, the average maturity of our fixed maturity investment portfolio was 6.71 years and the averageduration was 4.87 years. As a result, the fair value of our investments may fluctuate significantly in response to changes in interestrates. In addition, we may experience investment losses to the extent our liquidity needs require the disposition of fixed maturitysecurities in unfavorable interest rate environments.We use quoted values and other data provided by independent pricing services as inputs in our process for determining fairvalues of our investments. The pricing services cover substantially all of the securities in our portfolio for which publicly quotedvalues are not available. The pricing services’ evaluations represent an exit price, a good faith opinion as to what a buyer in themarketplace would pay for a security in a current sale. The pricing is based on observable inputs either directly or indirectly, suchas quoted prices in markets that are active, quoted prices for similar securities at the measurement date, or other inputs that areobservable.Our independent third party investment manager provides us with pricing information that they obtain from independentpricing services, to determine the fair value of our fixed maturity securities. After performing a detailed review of the informationobtained from the pricing service, limited adjustments may be made by the manager to the values provided.Our average cash and invested assets, net investment income and return on average cash and invested assets for the yearsended December 31, 2016 and 2015 were as follows:(In thousands)20162015Average cash and invested assets$78,660 $74,869 Net investment income1,968 1,333 Return on average cash and invested assets2.5% 1.8% A.M. Best RatingA.M. Best Company, Inc. (“A.M. Best”) rates insurance companies based on factors of concern to policyholders. A.M. Bestcurrently assigns a “B++” (Good) rating to ICC. This rating is the fifth highest out of 15 rating classifications. The latest ratingevaluation by A.M. Best occurred on February 23, 2016. According to the A.M. Best guidelines, companies rated “B++” areconsidered by A.M. Best to have “a good ability to meet their ongoing insurance obligations.” The rating evaluates the claimspaying ability of a company, and is not a recommendation on the merits of an investment in our common stock.In evaluating a company’s financial and operating performance, A.M. Best reviews:·the company’s profitability, leverage and liquidity;·its book of business;·the adequacy and soundness of its reinsurance;·the quality and estimated fair value of its assets;·the adequacy of its reserves and surplus;·its capital structure;·the experience and competence of its management; and·its marketing presence. ~ 16 ~ Table of Contents In its ratings report on ICC, A.M. Best stated that ICC’s rating reflected ICC’s improved operating results and risk-adjustedcapitalization over the past five years, the ability of current management to continue to improve rates and grow premium whilemaintaining a slow growing policy count, ICC’s combined ratios trending in a positive direction with results under 100% for2014, 2015, and 2016, traction gained with respect to expense initiatives, strength in loss reserves with redundancies on both anaccident and calendar year basis and strong underwriting expertise and a long-standing position within the food and beverageindustry in the Midwest. These factors were somewhat offset by ICC’s overall weak operating return measures. Althoughunderwriting results are improving, the past five years have fluctuated. A.M. Best has affirmed ICC’s outlook as positive. CompetitionGiven our exclusive focus on providing insurance products and services for the food and beverage industry, the marketconditions for our business and, accordingly, our competition, varies geographically based upon the states in which we operateand also by the segment of the food and beverage industry (e.g., bars versus fine dining). In the most competitive states in whichwe operate (Illinois, Indiana and Wisconsin), our primary competitors are insurance companies with products targeting the foodand beverage industry, such as Society Mutual Insurance Company in all three states, as well as Badger Mutual InsuranceCompany, Wilson Mutual Insurance Company and West Bend Mutual Insurance Company in Wisconsin. In other jurisdictions,such as Iowa and Minnesota, we compete with both the carriers with products identified above (such as Badger Mutual InsuranceCompany, Wilson Mutual Insurance Company and Founders Insurance Company) and excess and surplus line insurancecompanies (such as Scottsdale Insurance Company and Lloyd’s of London). In other jurisdictions, like Missouri, our primarycompetitors are larger regional and national insurance companies without a focus on the food and beverage industry (such asAllied Insurance Company, Auto-Owners Insurance Company and Travelers Insurance Company) and excess and surplus lineinsurance companies (such as EverGuard Insurance Services, Inc. and Lloyd’s of London). When evaluating the franchise and finedining segment of the food and beverage industry, we compete with national insurance carriers, such as Allied InsuranceCompany, Travelers Insurance Company and The Hartford Insurance Company.Despite significant competition, we believe we continue to maintain strong market share.Number of Eating andDrinking Places in 2015Number of Locations Insuredby ICC at December 31,2016Approximate MarketShare (%)Illinois27,1892,73610.1%Iowa6,1291,29621.1%Indiana11,6205935.1%Michigan116,110N/AN/AMinnesota9,7099229.5%Missouri10,9031,0309.4%Ohio222,023310.1%Wisconsin12,1702622.2%Total115,8536,8705.9%Total (w/o MI)99,7436,8706.9%Source: National Restaurant Association; ICC1We expect to begin writing premium in Michigan as early as 20182We began accepting business in Ohio in August 2016EmployeesAs of December 31, 2016, we had 91 full-time equivalent employees. None of these employees are covered by a collectivebargaining agreement, and we believe that our employee relations are good. ~ 17 ~ Table of Contents RegulationGeneralWe are subject to extensive regulation, particularly at the state level. The method, extent and substance of such regulationvaries by state, but generally has its source in statutes and regulations that establish standards and requirements for conducting thebusiness of insurance and that delegate regulatory authority to state insurance regulatory agencies. In general, such regulation isintended for the protection of those who purchase or use insurance products, not the companies that write the policies. These lawsand regulations have a significant impact on our business and relate to a wide variety of matters including accounting methods,agent and company licensure, claims procedures, corporate governance, examinations, investing practices, policy forms, pricing,trade practices, reserve adequacy and underwriting standards.State insurance laws and regulations require ICC to file financial statements with state insurance departments everywhere itdoes business, and the operations of ICC and its accounts are subject to examination by those departments at any time. ICCprepares statutory financial statements in accordance with accounting practices and procedures prescribed or permitted by thesedepartments.Premium rate regulation varies greatly among jurisdictions and lines of insurance. In most states in which our subsidiarieswrite insurance, premium rates for the various lines of insurance are subject to either prior approval or limited review uponimplementation. States require rates for property-casualty insurance that are adequate, not excessive, and not unfairlydiscriminatory.Many jurisdictions have laws and regulations that limit an insurer’s ability to withdraw from a particular market. For example,states may limit an insurer’s ability to cancel or non-renew policies. Laws and regulations that limit cancellation and non-renewalmay restrict our ability to exit unprofitable marketplaces in a timely manner.ExaminationsExaminations are conducted by the Illinois Department of Insurance every three to five years. The Illinois Department ofInsurance’s last examination of ICC was in February 2012 covering the period from 2007-2011. The examination did not result inany adjustments to our financial position. In addition, there were no substantive qualitative matters indicated in the examinationreport that had a material adverse impact on our operations. NAIC Risk-Based Capital RequirementsIn addition to state-imposed insurance laws and regulations, the NAIC has adopted risk-based capital requirements that requireinsurance companies to calculate and report information under a risk-based formula. These risk-based capital requirements attemptto measure statutory capital and surplus needs based on the risks in a company’s mix of products and investment portfolio. Underthe formula, a company first determines its “authorized control level” risk-based capital. This authorized control level takes intoaccount (i) the risk with respect to the insurer’s assets; (ii) the risk of adverse insurance experience with respect to the insurer’sliabilities and obligations, (iii) the interest rate risk with respect to the insurer’s business; and (iv) all other business risks and suchother relevant risks as are set forth in the risk-based capital instructions. A company’s “total adjusted capital” is the sum ofstatutory capital and surplus and such other items as the risk-based capital instructions may provide. The formula is designed toallow state insurance regulators to identify weakly capitalized companies.The requirements provide for four different levels of regulatory attention. The “company action level” is triggered if acompany’s total adjusted capital is less than 2.0 times its authorized control level but greater than or equal to 1.5 times itsauthorized control level. At the company action level, the company must submit a comprehensive plan to the regulatory authoritythat discusses proposed corrective actions to improve the capital position. The “regulatory action level” is triggered if acompany’s total adjusted capital is less than 1.5 times but greater than or equal to 1.0 times its authorized control level. At theregulatory action level, the regulatory authority will perform a special examination of the company and issue an order specifyingcorrective actions that must be followed. The “authorized control level” is triggered if a company’s total adjusted capital is lessthan 1.0 times but greater than or equal to 0.7 times its authorized control level; at this level the regulatory authority may takeaction it deems necessary, including placing the company under regulatory control. The “mandatory control level” is triggered if acompany’s total adjusted capital is less than 0.7 times its authorized control level; at this level the regulatory authority ismandated to place the company under its control. The capital levels of ICC have never triggered any of these regulatory capitallevels. We cannot provide assurance, however, that the capital requirements applicable to ICC will not increase in the future. ~ 18 ~ Table of Contents NAIC RatiosThe NAIC also has developed a set of 13 financial ratios referred to as the Insurance Regulatory Information System (IRIS). Onthe basis of statutory financial statements filed with state insurance regulators, the NAIC annually calculates these IRIS ratios toassist state insurance regulators in monitoring the financial condition of insurance companies. The NAIC has established anacceptable range for each of the IRIS financial ratios. If four or more of its IRIS ratios fall outside the range deemed acceptable bythe NAIC, an insurance company may receive inquiries from individual state insurance departments. During each of the yearsended December 31, 2016, 2015 and 2014, ICC did not receive inquiries from regulators on results for any of the IRIS tests.Enterprise Risk AssessmentIn 2012, the NAIC adopted the NAIC Amendments. The NAIC Amendments, when adopted by the various states, are designedto respond to perceived gaps in the regulation of insurance holding company systems in the United States. One of the majorchanges is a requirement that an insurance holding company system’s ultimate controlling person submit annually to its lead stateinsurance regulator an “enterprise risk report” that identifies activities, circumstances or events involving one or more affiliates ofan insurer that, if not remedied properly, are likely to have a material adverse effect upon the financial condition or liquidity of theinsurer or its insurance holding company system as a whole. Other changes include requiring a controlling person to submit priornotice to its domiciliary insurance regulator of its divestiture of control, having detailed minimum requirements for cost sharingand management agreements between an insurer and its affiliates and expanding of the agreements between an insurer and itsaffiliates to be filed with its domiciliary insurance regulator. In addition, in 2012 the NAIC adopted the Own Risk SolvencyAssessment (ORSA) Model Act. The ORSA Model Act, when adopted by the various states, will require an insurance holdingcompany system’s chief risk officer to submit at least annually to its lead state insurance regulator a confidential internalassessment appropriate to the nature, scale and complexity of an insurer, conducted by that insurer of the material and relevantrisks identified by the insurer associated with an insurer’s current business plan and the sufficiency of capital resources to supportthose risks. Although ICC is exempt from ORSA because of its size, we intend to incorporate those elements of ORSA that webelieve constitute “best practices” into its annual internal enterprise risk assessment.Market Conduct RegulationState insurance laws and regulations include numerous provisions governing trade practices and the marketplace activities ofinsurers, including provisions governing the form and content of disclosure to consumers, illustrations, advertising, sales practicesand complaint handling. State regulatory authorities generally enforce these provisions through periodic market conductexaminations.Property and Casualty RegulationOur property and casualty operations are subject to rate and policy form approval, as well as laws and regulations covering arange of trade and claim settlement practices. State insurance regulatory authorities have broad discretion in approving an insurer’sproposed rates. The extent to which a state restricts underwriting and pricing of a line of business may adversely affect an insurer’sability to operate that business profitably in that state on a consistent basis.State insurance laws and regulations require us to participate in mandatory property-liability “shared market,” “pooling” orsimilar arrangements that provide certain types of insurance coverage to individuals or others who otherwise are unable topurchase coverage voluntarily provided by private insurers. Shared market mechanisms include assigned risk plans and fair accessto insurance requirement or “FAIR” plans. In addition, some states require insurers to participate in reinsurance pools for claimsthat exceed specified amounts. Our participation in these mandatory shared market or pooling mechanisms generally is related tothe amount of our direct writings for the type of coverage written by the specific arrangement in the applicable state. We cannotpredict the financial impact of our participation in these arrangements. See Item 7. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.Guaranty Fund LawsAll states have guaranty fund laws under which insurers doing business in the state can be assessed to fund policyholderliabilities of insolvent insurance companies. Under these laws, an insurer is subject to assessment depending upon its market sharein the state of a given line of business. For the years ended December 31, 2016 and 2015, we recovered $49,000 and incurred$77,000, respectively, in assessments pursuant to state insurance guaranty association laws. We establish reserves relating toinsurance companies that are subject to insolvency proceedings when we are notified of assessments by the guaranty associations.We cannot predict the amount and timing of any future assessments on ICC under these laws. See Item 7. Management’sDiscussion and Analysis of Financial Condition and Results of Operations. ~ 19 ~ Table of Contents Federal RegulationThe U.S. federal government generally has not directly regulated the insurance industry except for certain areas of the market,such as insurance for flood, nuclear and terrorism risks. However, the federal government has undertaken initiatives or consideredlegislation in several areas that may impact the insurance industry, including tort reform, corporate governance and the taxation ofreinsurance companies. The Dodd-Frank Act established the Federal Insurance Office which is authorized to study, monitor andreport to Congress on the insurance industry and to recommend that the Financial Stability Oversight Council designate an insureras an entity posing risks to the U.S. financial stability in the event of the insurer’s material financial distress or failure. In December2013, the Federal Insurance Office issued a report on alternatives to modernize and improve the system of insurance regulation inthe United States, including by increasing national uniformity through either a federal charter or effective action by the states.Changes to federal legislation and administrative policies in several areas, including changes in federal taxation, can alsosignificantly impact the insurance industry and us.Sarbanes-Oxley Act of 2002Enacted in 2002, the stated goals of the Sarbanes-Oxley Act of 2002, or SOX, are to increase corporate responsibility, toprovide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors byimproving the accuracy and reliability of corporate disclosures pursuant to the securities laws. We became subject to most of theprovisions of the SOX immediately after completion of the mutual-to-stock conversion. The SOX includes very specific disclosure requirements and corporate governance rules and requires the SEC and securitiesexchanges to adopt extensive additional disclosure, corporate governance and other related regulations.Terrorism Risk Insurance Act of 2002In January 2015, Congress passed the Terrorism Risk Insurance Program Reauthorization Act of 2015, which amended andextended the Terrorism Insurance Program through December 31, 2020. Under this law, coverage provided by an insurer for lossescaused by certified acts of terrorism is partially reimbursed by the United States under a formula under which the government pays85% of covered terrorism losses exceeding a prescribed deductible. Under the new law, the government’s percentage ofcompensation for losses will be reduced during each program year by 1% until it equals 80%. The act limits an insurer’s exposureto certified terrorist acts (as defined by the act) to the prescribed deductible amount. The insurance industry’s aggregate deductible(currently $27.5 billion) will increase by $2 billion per calendar year until it equals $37.5 billion. Each insurer’s deductible iscapped at 20% of the insurer’s direct earned premium for commercial property and casualty policies. Coverage under the act mustbe offered to all property, casualty and surety insureds.The new law also amended the Gramm-Leach-Bliley Act to establish the National Association of Registered Agents andBrokers as a nonprofit corporation with the purpose of prescribing licensing and producer qualification requirements andconditions on a multi-state basis.PrivacyAs mandated by the Gramm-Leach-Bliley Act, states continue to promulgate and refine laws and regulations that requirefinancial institutions, including insurance companies, to take steps to protect the privacy of certain consumer and customerinformation relating to products or services primarily for personal, family or household purposes. A recent NAIC initiative thataffected the insurance industry was the adoption in 2000 of the Privacy of Consumer Financial and Health Information ModelRegulation, which assisted states in promulgating regulations to comply with the Gramm-Leach-Bliley Act. In 2002, to furtherfacilitate the implementation of the Gramm-Leach-Bliley Act, the NAIC adopted the Standards for Safeguarding CustomerInformation Model Regulation. Several states have now adopted similar provisions regarding the safeguarding of customerinformation. We have implemented procedures to comply with the Gramm-Leach-Bliley Act’s related privacy requirements.OFACThe Treasury Department’s Office of Foreign Asset Control (OFAC) maintains a list of “Specifically Designated Nationals andBlocked Persons” (the SDN List). The SDN List identifies persons and entities that the government believes are associated withterrorists, rogue nations or drug traffickers. OFAC’s regulations prohibit insurers, among others, from doing business with personsor entities on the SDN List. If the insurer finds and confirms a match, the insurer must take steps to block or reject the transaction,notify the affected person and file a report with OFAC. ~ 20 ~ Table of Contents JOBS ActWe are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), andwe may take advantage of certain exemptions from various reporting requirements that are applicable to other public companiesthat are not emerging growth companies, such as reduced public company reporting, accounting and corporate governancerequirements. We currently avail ourselves of the reduced disclosure obligations regarding executive compensation.Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transitionperiod provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words,an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwiseapply to private companies. We have taken advantage of the extended transition period provided by Section 107 of the JOBS Act.We decided to comply with the effective dates for financial accounting standards applicable to emerging growth companies at alater date in compliance with the requirements in Sections 107(b)(2) and (3) of the JOBS Act. Such decision is irrevocable.We will remain an “emerging growth company” for up to five years following our IPO, or until the earliest of (i) the last day ofthe first fiscal year in which our annual gross revenue exceeds $1 billion, (ii) the date that we become a “large accelerated filer” asdefined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if themarket value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our mostrecently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debtduring the preceding three year period.In addition, as an emerging growth company, we are exempt from Section 14A (a) and (b) of the Securities Exchange Act of1934, which require shareholder approval of executive compensation and golden parachutes.DividendsIllinois law sets the maximum amount of dividends that may be paid by ICC during any twelve-month period after notice to,but without prior approval of, the Illinois Department of Insurance. This amount cannot exceed the greater of 10% of the insurancecompany’s surplus as regards policyholders as reported on the most recent annual statement filed with the Illinois Department ofInsurance, or the insurance company’s statutory net income for the period covered by the annual statement as reported on suchstatement. As of December 31, 2016, the amount available for payment of dividends by ICC in 2017 without the prior approval ofthe Illinois Department of Insurance is approximately $3.4 million. “Extraordinary dividends” in excess of the foregoinglimitations may only be paid with prior notice to, and approval of, the Illinois Department of Insurance. See Item 7. ManagementDiscussion and Analysis – Liquidity and Capital Resources. Holding Company LawsMost states have enacted legislation that regulates insurance holding company systems. Each insurance company in a holdingcompany system is required to register with the insurance supervisory agency of its state of domicile and furnish certaininformation. This includes information concerning the operations of companies within the holding company group that maymaterially affect the operations, management or financial condition of the insurers within the group. Pursuant to these laws, theIllinois Department of Insurance requires disclosure of material transactions involving ICC and its affiliates, and requires priornotice and/or approval of certain transactions, such as “extraordinary dividends” distributed by ICC. Under these laws, the IllinoisDepartment of Insurance also has the right to examine us at any time.All transactions within our consolidated group affecting ICC must be fair and equitable. Notice of certain material transactionsbetween ICC and any person or entity in our holding company system will be required to be given to the Illinois Department ofInsurance. Certain transactions cannot be completed without the prior approval of the Illinois Department of Insurance.Approval of the state insurance commissioner is required prior to any transaction affecting the control of an insurer domiciledin that state. In Illinois, the acquisition of 10% or more of the outstanding voting securities of an insurer or its holding company ispresumed to be a change in control. Illinois law also prohibits any person or entity from (i) making a tender offer for, or a request orinvitation for tenders of, or seeking to acquire or acquiring any voting security of a Illinois insurer if, after the acquisition, theperson or entity would be in control of the insurer, or (ii) effecting or attempting to effect an acquisition of control of or mergerwith a Illinois insurer, unless the offer, request, invitation, acquisition, effectuation or attempt has received the prior approval ofthe Illinois Department of Insurance. ~ 21 ~ Table of Contents Item 1A. Risk FactorsIn addition to all other information contained in this Annual Report on Form 10-K, a potential investor should carefullyconsider the following risk factors in deciding whether to purchase our common stock.Risks Related to Our BusinessA reduction in our A.M. Best rating could affect our ability to write new business or renew our existing business.Ratings assigned by A.M. Best are an important factor influencing the competitive position of insurance companies. A.M.Best ratings, which are reviewed at least annually, represent independent opinions of financial strength and ability to meetobligations to policyholders and are not directed toward the protection of investors. Therefore, our A.M. Best rating should not berelied upon as a basis for an investment decision to purchase our common stock.ICC holds a financial strength rating of “B++” (Good) by A.M. Best, the fifth highest rating out of 15 rating classifications.Our most recent evaluation by A.M. Best occurred on March 28, 2017, when A.M. Best affirmed its outlook as positive for ICC’sissuer credit rating, and affirmed its financial strength rating of “B++” and issuer credit rating of “bbb” (Good). Financial strengthratings are used by producers and customers as a means of assessing the financial strength and quality of insurers. Issuer creditratings is an opinion by A.M. Best of an entity’s ability to meet its ongoing financial obligations. If our financial positiondeteriorates, we may not maintain our favorable financial strength and issuer credit ratings from A.M. Best. A downgrade of ourrating could severely limit or prevent us from writing desirable business or from renewing our existing business. In addition, adowngrade could negatively affect our ability to implement our strategy. See Item 1. Business — A.M. Best Rating. Our food and beverage customers have been the target of claims and lawsuits. Proceedings of this nature, if successful, couldresult in our payment of substantial costs and damages.Occasionally, patrons of our food and beverage industry insured customers file complaints or lawsuits against our insuredsalleging a variety of claims arising in the ordinary course of their business, including personal injury claims, contract claims andclaims alleging violations of federal and state laws. In addition, certain of our insured customers who serve alcohol are subject tostate “dram shop” or similar laws that generally allow a person to sue our customer if that person was injured by a legallyintoxicated person who was wrongfully served alcoholic beverages by our customer. A number of these lawsuits in the food andbeverage industry have resulted in the payment of substantial damages by us on behalf of our insureds.Additionally, states have, from time to time, explored lowering the blood alcohol content levels for criminal statutes related todriving under the influence or similar laws, removing or increasing caps for liability with respect to injuries by a legallyintoxicated person, or preventing or limiting rate changes by insurance companies.Regardless of whether any claims against our customers are valid or whether they are liable, claims may be expensive todefend and may result in significant liabilities. Defense costs, even for unfounded claims, or a judgment or other liability in excessof our reinsurance limits for any claims or any adverse publicity resulting from claims could adversely affect our business, resultsof operations and financial condition.Our strategy for growing our business may not be profitable.Over the past several years, we have made, and our current plans are to continue to make, investments in our lines of business,and we have increased expenses in order to, among other things, strengthen our product offerings and service capabilities, expandinto new geographic areas, improve technology and our operating models, build expertise in our personnel, and expand ourdistribution capabilities, with the ultimate goal of achieving significant, sustained growth. The ability to achieve significantprofitable premium growth in order to earn adequate returns on such investments and expenses, and to grow further withoutproportionate increases in expenses, is an important part of our current strategy. There can be no assurance that we will besuccessful at profitably growing our business, or that we will not alter our current strategy due to changes in our markets or aninability to successfully maintain acceptable margins on new business or for other reasons, in which case premiums written andearned, operating income and net book value could be adversely affected. ~ 22 ~ Table of Contents Our investment performance may suffer as a result of adverse capital market developments, which may affect our financialresults and ability to conduct business.We invest the premiums we receive from policyholders until cash is needed to pay insured claims or other expenses. We hadnet realized investment gains of $37,000 and $81,000 for the years ended December 31, 2016 and Decemeber 2015, respectively.Our investments will be subject to a variety of investment risks, including risks relating to general economic conditions, marketvolatility, interest rate fluctuations, liquidity risk and credit risk. An unexpected increase in the volume or severity of claims mayforce us to liquidate securities, which may cause us to incur capital losses. If we do not structure the duration of our investments tomatch our insurance liabilities, we may be forced to liquidate investments prior to maturity at a significant loss to cover suchpayments. Investment losses could significantly decrease our asset base and statutory surplus, thereby affecting our ability toconduct business. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations —Quantitative and Qualitative Information About Market Risk. The geographic distribution of our business exposes us to significant natural disasters, which may negatively affect ourfinancial and operating results.For the year ended December 31, 2016, approximately 36.9% of our direct premiums written originated from business writtenin Illinois, and therefore, we have a greater exposure to catastrophic or other significant natural or man-made losses in thatgeographic region. The incidence and severity of such events are inherently unpredictable. In recent years, changing climateconditions have increased the unpredictability, severity and frequency of tornados, hurricanes, and other storms.States and regulators from time to time have taken action that has the effect of limiting the ability of insurers to manage theserisks, such as prohibiting insurers from reducing exposures or withdrawing from catastrophe-prone areas, or mandating that insurersparticipate in residual markets. Our ability or willingness to manage our exposure to these risks may be limited due toconsiderations of public policy, the evolving political environment, or social responsibilities. We may choose to write business incatastrophe-prone geographic areas that we might not otherwise write for strategic purposes, such as improving our access to otherunderwriting opportunities.Our ability to properly estimate reserves related to tornados and storms can be affected by the inability to access portions ofthe impacted areas, the complexity of factors contributing to the losses, the legal and regulatory uncertainties, and the nature of theinformation available to establish the reserves. These complex factors include, but are not limited to the following:·determining whether damages were caused by flooding versus wind;·evaluating general liability and pollution exposures;·the impact of increased demand for products and services necessary to repair or rebuild damaged properties;·infrastructure disruption;·fraud;·the effect of mold damage;·business interruption costs; and·reinsurance collectability.The estimates related to catastrophes are adjusted as actual claims are filed and additional information becomes available.This adjustment could reduce income during the period in which the adjustment is made, which could have a material adverseimpact on our financial condition and results of operations.Large-scale natural disasters may have a material adverse effect on our business, financial condition and results ofoperations.The Midwest has historically been at a relatively high risk of natural disasters such as tornados, blizzards and flooding. If theMidwest were to experience a large-scale natural disaster, claims incurred would likely increase and our insured’s properties mayincur substantial damage, which could have a material adverse effect on our business, financial condition and results of operations. ~ 23 ~ Table of Contents Our results may fluctuate as a result of many factors, including cyclical changes in the insurance industry, which may lead toreduced premium volume.Results of companies in the insurance industry, and particularly the property and casualty insurance industry, historicallyhave been subject to significant fluctuations and uncertainties. The industry’s profitability can be affected significantly by:·rising levels of actual costs that are not known by companies at the time they price their products;·volatile and unpredictable developments, including man-made and natural catastrophes;·changes in reserves resulting from the general claims and legal environments as different types of claims arise and judicialinterpretations relating to the scope of insurers’ liability develop; and·fluctuations in interest rates, inflationary pressures and other changes in the investment environment, which affect returnson invested capital and may impact the ultimate payout of losses.Historically, the financial performance of the insurance industry has fluctuated in cyclical periods of low premium rates andexcess underwriting capacity resulting from increased competition (a so-called “soft market”), followed by periods of highpremium rates and a shortage of underwriting capacity resulting from decreased competition (a so-called “hard market”).Fluctuations in underwriting capacity, demand and competition, and the impact on our business of the other factors identifiedabove, could have a negative impact on our results of operations and financial condition.Because estimating future losses is difficult and uncertain, if our actual losses exceed our loss reserves, our operating resultsmay be adversely affected.We maintain reserves to cover amounts we estimate will be needed to pay for insured losses and for the expenses necessary tosettle claims. Estimating loss and loss expense reserves is a difficult and complex process involving many variables and subjectivejudgments. We regularly review our reserve estimate protocols and our overall amount of reserves. We review historical data andconsider the impact of various factors such as:·trends in claim frequency and severity;·information regarding each claim for losses;·legislative enactments, judicial decisions and legal developments regarding damages; and·trends in general economic conditions, including inflation.Our actual losses could exceed our reserves. If we determine that our loss reserves are inadequate, we will have to increasethem. This adjustment would reduce income during the period in which the adjustment is made, which could have a materialadverse impact on our financial condition and results of operations. Such adjustments to loss reserve estimates are referred to as“loss development.” If existing loss reserves exceed the revised estimate, it is referred to as positive loss development. Negativeloss development occurs when the revised estimate of expected losses with respect to a calendar year exceed existing loss reserves.For additional information, see Item 1. Business — Loss and Settlement Expense Reserves. If our reinsurers do not pay our claims in accordance with our reinsurance agreements, we may incur losses.We are subject to loss and credit risk with respect to the reinsurers with whom we deal because buying reinsurance does notrelieve us of our liability to policyholders. If our reinsurers are not capable of fulfilling their financial obligations to us, ourinsurance losses would increase. For the year ended December 31, 2016, we ceded 15.8% of our gross written premiums to ourreinsurers. We secure reinsurance coverage from a number of reinsurers. The lowest A.M. Best rating issued to any of our reinsurersis “A-” (Excellent), which is the fourth highest of fifteen ratings. See Item 1. Business — Reinsurance. ~ 24 ~ Table of Contents The property and casualty insurance market in which we operate is highly competitive, which limits our ability to increasepremiums for our products and recruit new producers.Competition in the property and casualty insurance business is based on many factors. These factors include the perceivedfinancial strength of the insurer, premiums charged, policy terms and conditions, services provided, reputation, financial ratingsassigned by independent rating agencies and the experience of the insurer in the line of insurance to be written. We compete withstock insurance companies, mutual companies, local cooperatives and other underwriting organizations. Many of thesecompetitors have substantially greater financial, technical and operating resources than we have. Many of the lines of insurance wewrite are subject to significant price competition. If our competitors price their products aggressively, our ability to grow or renewour business may be adversely affected. We pay producers on a commission basis to produce business. Some of our competitorsmay offer higher commissions or insurance at lower premium rates through the use of salaried personnel or other distributionmethods that do not rely on independent agents. Increased competition could adversely affect our ability to attract and retainbusiness and thereby reduce our profits from operations.Our results of operations may be adversely affected by any loss of business from key producers.Our products are primarily marketed by independent agents. Other insurance companies compete with us for the services andallegiance of these producers. These producers may choose to direct business to our competitors, or may direct less desirable risksto us. We had two producers that were responsible for more than 5% of our direct premiums written. One producer accounted for$2.8 million or approximately 5.5% while the other producer accounted for $2.6 million or 5.1% of our direct premiums written in2016. No other producer accounted for more than 5% of our 2016 direct premiums written. If we experience a significant decreasein business from, or lose entirely, our largest producers, it would have a material adverse effect on us. Our revenues may fluctuate with our investment results and changes in interest rates.Our investment portfolio contains a significant amount of fixed income securities. The fair values of these invested assetsfluctuate depending upon economic conditions, particularly changes in interest rates. We may not be able to prevent or minimizethe negative impact of interest rate changes. Additionally, unforeseen circumstances may force us to sell certain of our investedassets at a time when their fair values are less than their original cost, resulting in realized capital losses, which would reduce ournet income.Proposals to federally regulate the insurance business could affect our business.Currently, the U.S. federal government does not directly regulate the insurance business. However, federal legislation andadministrative policies in several areas can significantly and adversely affect insurance companies. These areas include financialservices regulation, securities regulation, pension regulation, privacy, tort reform legislation and taxation. In addition, variousforms of direct federal regulation of insurance have been proposed. These proposals generally would maintain state-basedregulation of insurance, but would affect state regulation of certain aspects of the insurance business, including rates, producer andcompany licensing, and market conduct examinations. We cannot predict whether any of these proposals will be adopted, or whatimpact, if any, such proposals or, if enacted, such laws may have on our business, financial condition or results of operations.If we fail to comply with insurance industry regulations, or if those regulations become more burdensome, we may not be ableto operate profitably.We are regulated by the Illinois Department of Insurance, as well as, to a more limited extent, the federal government and theinsurance departments of other states in which we do business. For the year ended December 31, 2016, approximately 36.9% ofour direct premiums written originated from business written in Illinois. Therefore, the cancellation or suspension of our license inIllinois, as a result of any failure to comply with the applicable insurance laws and regulations, may negatively impact ouroperating results.Most insurance regulations are designed to protect the interests of policyholders rather than shareholders and other investors.These regulations relate to, among other things:·approval of policy forms and premium rates;·standards of solvency, including establishing requirements for minimum capital and surplus, and for risk-based capital; ~ 25 ~ Table of Contents ·classifying assets as admissible for purposes of determining solvency and compliance with minimum capital and surplusrequirements;·licensing of insurers and their producers;·advertising and marketing practices;·restrictions on the nature, quality and concentration of investments;·assessments by guaranty associations and mandatory pooling arrangements;·restrictions on the ability to pay dividends;·restrictions on transactions between affiliated companies;·restrictions on the size of risks insurable under a single policy;·requiring deposits for the benefit of policyholders;·requiring certain methods of accounting;·periodic examinations of our operations and finances;·claims practices;·prescribing the form and content of reports of financial condition required to be filed; and·requiring reserves for unearned premiums, losses and other purposes.The Illinois Department of Insurance also conducts periodic examinations of the affairs of insurance companies and requiresthe filing of annual and other reports relating to financial condition, holding company issues and other matters. These regulatoryrequirements may adversely affect or inhibit our ability to achieve some or all of our business objectives. Our last examination bythe Illinois Department of Insurance was in February 2012.In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, includingthe violation of regulations. Further, changes in the level of regulation of the insurance industry or changes in laws or regulationsthemselves or interpretations by regulatory authorities could adversely affect our ability to operate our business.Our ability to manage our exposure to underwriting risks depends on the availability and cost of reinsurance coverage.Reinsurance is the practice of transferring part of an insurance company’s liability and premium under an insurance policy toanother insurance company. We use reinsurance arrangements to limit and manage the amount of risk we retain, to stabilize ourunderwriting results and to increase our underwriting capacity. The availability and cost of reinsurance are subject to currentmarket conditions and may vary significantly over time. Any decrease in the amount of our reinsurance will increase our risk ofloss. We may be unable to maintain our desired reinsurance coverage or to obtain other reinsurance coverage in adequate amountsand at favorable rates. If we are unable to renew our expiring coverage or obtain new coverage, it will be difficult for us to manageour underwriting risks and operate our business profitably.It is also possible that the losses we experience on risks we have reinsured will exceed the coverage limits on the reinsurance.If the amount of our reinsurance coverage is insufficient, our insurance losses could increase substantially.We could be adversely affected by the loss of our existing management or key employees.The success of our business is dependent, to a large extent, on our ability to attract and retain key employees, in particular oursenior officers. Our business may be adversely affected if labor market conditions make it difficult for us to replace our current keyofficers with individuals having equivalent qualifications and experience at compensation levels competitive for our industry. Inparticular, because of the shortage of experienced underwriters and claims personnel who have experience or training in the liquorliability sector of the insurance industry, replacing key employees in that line of our business could be challenging. Our keyofficers include: Arron K. Sutherland, our President and Chief Executive Officer, Michael R. Smith, our Vice President – ChiefFinancial Officer, Norman D. Schmeichel, our Vice President – Chief Information Officer, Howard J. Beck, our Vice President – Chief Underwriting Officer, Julia B. Suiter, our Chief Legal Officer, Rickey Plunkett, our Director of Claims, and Kathleen S.Springer, our Director of Human Resources. These key officers have an average of more than 20 years of experience in the propertyand casualty insurance industry. ~ 26 ~ Table of Contents We do not have agreements not to compete or employment agreements with our employees, except for our employmentagreement with Mr. Sutherland and change in control agreements with certain officers, including Messrs. Smith, Schmeichel, Beck,and Plunkett and Mesdames Suiter and Springer. Each of our employment agreement with Mr. Sutherland and change in controlagreements has change of control provisions that provide for certain payments and the continuation of certain benefits in the eventsuch officer is terminated without cause or such officer voluntarily quits for good reason after a change in control.Losses resulting from political instability, acts of war or terrorism may negatively affect our financial and operating results.Numerous classes of business are exposed to terrorism related catastrophic risks. The frequency, number and severity of theselosses are unpredictable. As a result, we have changed our underwriting protocols to address terrorism and the limited availabilityof terrorism reinsurance. However, given the uncertainty of the potential threats, we cannot be sure that we have addressed all thepossibilities.The Terrorism Risk Insurance Act of 2002, as extended by the Terrorism Risk Insurance Program Reauthorization Act of 2015,is effective through December 31, 2020. Prior to the act, insurance coverage by private insurers for losses (other than workers’compensation) arising out of acts of terrorism was severely limited. The act provides, among other things, that all licensed insurersmust offer coverage on most commercial lines of business for acts of terrorism. Losses arising out of acts of terrorism that arecertified as such by the Secretary of the Treasury of the United States and that exceed $120 million for calendar year 2016 will bereimbursed by the federal government subject to a limit of $100 billion in any year, which loss trigger increases each year by $20million until it reaches $200 million in 2020 and any calendar year thereafter. Each insurance company is responsible for adeductible equal to 20% of its direct earned premiums in the previous calendar year. For 2016, our deductible is approximately$9.5 million. For losses in excess of the deductible, the federal government will reimburse 84% of the insurer’s loss, up to theinsurer’s proportionate share of the $100 billion. Such reimbursement percentage will be reduced by one percentage point eachyear until it reaches 80%. Notwithstanding the protection provided by reinsurance and the Terrorism Risk Insurance Act of 2002, the risk of severelosses to us from acts of terrorism has not been eliminated. Our reinsurance contracts include various limitations or exclusionslimiting the reinsurers’ obligation to cover losses caused by acts of terrorism. Accordingly, events constituting acts of terrorismmay not be covered by, or may exceed the capacity of, our reinsurance and could adversely affect our business and financialcondition.We could be adversely affected by any interruption to our ability to conduct business at our current location.Our business operations could be substantially interrupted by flooding, snow, ice, and other weather-related incidents, or fromfire, power loss, telecommunications failures, terrorism, or other such events. In such an event, we may not have sufficientredundant facilities to cover a loss or failure in all aspects of our business operations and to restart our business operations in atimely manner. Any damage caused by such a failure or loss may cause interruptions in our business operations that may adverselyaffect our service levels and business. See Item 1. Business — Technology.Changes in accounting standards issued by the Financial Accounting Standards Board (FASB) or other standard-settingbodies may adversely affect our consolidated financial statements.Our consolidated financial statements are subject to the application of GAAP, which is periodically revised and/or expanded.Accordingly, we are required to adopt new or revised accounting standards from time to time issued by recognized authoritativebodies, including the FASB. It is possible that future changes we are required to adopt could change the current accountingtreatment that we apply to our consolidated financial statements and that such changes could have a material effect on ourfinancial condition and results of operations. ~ 27 ~ Table of Contents Assessments and premium surcharges for state guaranty funds, second injury funds and other mandatory poolingarrangements may reduce our profitability.Most states require insurance companies licensed to do business in their state to participate in guaranty funds, which requirethe insurance companies to bear a portion of the unfunded obligations of impaired, insolvent or failed insurance companies. Theseobligations are funded by assessments, which are expected to continue in the future. State guaranty associations levy assessments,up to prescribed limits, on all member insurance companies in the state based on their proportionate share of premiums written inthe lines of business in which the impaired, insolvent or failed insurance companies are engaged. Accordingly, the assessmentslevied on us may increase as we increase our written premiums. Some states also have laws that establish second injury funds toreimburse insurers and employers for claims paid to injured employees for aggravation of prior conditions or injuries. These fundsare supported by either assessments or premium surcharges based on incurred losses. See Item 1. Business — Regulation.In addition, as a condition to conducting business in some states, insurance companies are required to participate in residualmarket programs to provide insurance to those who cannot procure coverage from an insurance carrier on a negotiated basis.Insurance companies generally can fulfill their residual market obligations by, among other things, participating in a reinsurancepool where the results of all policies provided through the pool are shared by the participating insurance companies. Although weprice our insurance to account for our potential obligations under these pooling arrangements, we may not be able to accuratelyestimate our liability for these obligations. Accordingly, mandatory pooling arrangements may cause a decrease in our profits. AtDecember 31, 2016, we participated in mandatory pooling arrangements in three states. As we write policies in new states thathave mandatory pooling arrangements, we will be required to participate in additional pooling arrangements. Further, theimpairment, insolvency or failure of other insurance companies in these pooling arrangements would likely increase the liabilityfor other members in the pool. The effect of assessments and premium surcharges or increases in such assessments or surchargescould reduce our profitability in any given period or limit our ability to grow our business. See Item 7. Management’s Discussionand Analysis of Financial Condition and Results of Operations.Risk Factors Related to our Recent Initial Public Offering and Ownership of Our Common Stock A small number of shareholders collectively own a substantial portion of our common stock and voting power, and, because ofrestrictions on their ability to buy or sell our shares, our public float will be limited.Collectively, the three investors purchasing shares from us pursuant to investment agreements (the Clinton-Flood Purchasers,Rock Island Investors, LLC and Tuscarora Wayne) own or exercise voting and investment control of 1.4 million of our shares, or40% of our outstanding common stock. Pursuant to their respective purchase agreement, each investor has agreed to, among otherthings, vote as recommended by our board of directors (subject to limited exceptions), agree to a standstill provision, includingfrom purchasing shares of our common stock except as provided by a contractual preemptive right, for up to seven years, agreed torestrictions on their respective ability to sell their shares of our common stock.If and for so long as an investor beneficially owns two percent (2.0%) or more of the shares of our common stock and astandstill termination event has not occurred, the investor shall generally vote and cause to be voted all shares of common stockbeneficially owned by such investor (a) for persons nominated and recommended by ICC Holdings’ Board of Directors for electionas directors of ICC Holdings’ Board of Directors and against any person nominated for election as a director by any other personor entity, and (b) as directed or recommended by ICC Holdings’ Board of Directors with respect to any proposal presented at anymeeting of ICC Holdings’ shareholders, including, but not limited to (i) the entire slate of directors recommended for election bythe ICC Holdings’ Board of Directors to the shareholders of ICC Holdings at any meeting of ICC Holdings’ shareholders at whichany directors are elected, (ii) any shareholder proposal submitted for a vote at any meeting of ICC Holdings’ shareholders, and (iii)any proposal submitted by ICC Holdings for a vote at any meeting of ICC Holdings’ shareholders relating (A) to the appointmentof ICC Holdings’ accountants, or (B) an equity compensation plan of ICC Holdings and/or any material revisions thereto. Thisprovision may have the effect of entrenching our board of directors and management team and may deprive a shareholder of theopportunity to sell shares to potential acquirers at a premium over prevailing prices. As a result, other shareholders may beprevented from affecting matters involving our company, including:·the composition of our board of directors and, through it, any determination with respect to our business direction andpolicies, including the appointment and removal of officers;·any determinations with respect to mergers or other business combinations;·our acquisition or disposition of assets; and·our corporate financing activities. ~ 28 ~ Table of Contents Furthermore, this concentration of voting power could have the effect of delaying, deterring or preventing a change of controlor other business combination that might otherwise be beneficial to our shareholders. This significant concentration of shareownership may also adversely affect the trading price for our common stock because investors may perceive disadvantages inowning stock in a company that is controlled by a small number of shareholders.In addition, these investors are restricted from buying or selling shares of our common stock pursuant to their respectiveinvestment agreements and, in some cases, by restrictions under applicable securities laws. For three years following the closing,each of the investors are generally prohibited from selling any shares of our common stock. Beginning on the third anniversary ofthe closing date, subject to our right of first refusal in favor of us, each investor could sell no more than six and one-quarter percent(6-1/4%) of the number of shares purchased at the closing of the offering every ninety days. Upon the occurrence of a death ordisability of R. Kevin Clinton, no more than six and one-quarter percent (6-1/4%) of the number of shares purchased at the closingof the offering by R. Kevin Clinton and certain other purchasers who together purchased 600,000 shares of our common stockevery ninety days by their trusts, estate or spouse could be sold beginning, unless an earlier date has been approved by a majorityof the members of our board of directors other than R. Kevin Clinton or his replacement on our board of directors, (a) one yearfollowing such occurrence, if such event occurs during the first year following the closing date, (b) six months following suchoccurrence, if such event occurs during the second year following the closing date, or (c) following such occurrence, if such eventoccurs during the third year following the closing date. Until the expiration of the standstill provision discussed below, eachinvestor is restricted from buying any shares of our common stock other than those acquired pursuant to their respectiveinvestment agreements and pursuant to their respective preemptive right thereunder. As a result, the liquidity of our common stockrelative to what it would have been had these shares been purchased by other investors may be reduced.For so long as an investor beneficially owns two percent (2.0%) or more of the issued and outstanding shares of our commonstock, these standstill provisions will continue until the earliest of (a) the seventh anniversary of the closing of the offering, or (b)the date on which ICC Holdings includes a balance sheet in a filing with the SEC in which its “adjusted shareholders’ equity” atthe end of such fiscal quarter is less than 85% of the “starting shareholders’ equity”. We received gross proceeds of $35.0 millionin the offering, using information as of December 31, 2016 as the starting shareholders’ equity, the adjusted shareholders equitywould have to be $9.5 million lower in order to trigger a termination of the standstill provisions. Following the expiration of thestandstill and other provisions, if these investors retain their ownership levels, such investors together may be able to exhibitsignificant control over us and our management and will have significant influence over matters requiring shareholder approval,including future amendments to our amended and restated articles of incorporation or other significant or extraordinarytransactions. The interests of these investors may differ from the interests of our other shareholders with respect to certain matters.Our ESOP and stock-based incentive plan will increase our costs, which will reduce our income.Our ESOP purchased 10.0% of the shares of common stock sold in the offering with funds borrowed from us prior to theexpiration of the offering. The cost of acquiring the shares of common stock for the ESOP, and therefore the amount of the loan was$3.5 million. The loan will be repaid over a fifteen year period. We will record annual employee stock ownership plan expense inan amount equal to the fair value of the shares of common stock committed to be released to employees under the ESOP for eachyear. If shares of our common stock appreciate in value over time, compensation expense relating to the employee stock ownershipplan will increase.Our board of directors intends to adopt a stock-based incentive plan that we will submit to our shareholders for approval.Under this plan, we may award participants restricted shares of our common stock, restricted stock units denominated in shares ofour common stock, or options to purchase shares of our common stock. Restricted stock and restricted stock unit awards will bemade at no cost to the participants. Restricted stock units are payable in shares of common stock or in cash in the discretion of thecompensation committee. The number of shares of common stock that may be issued pursuant to restricted stock and restrictedstock unit awards (to the extent that such restricted stock unit awards are not paid in cash) or upon exercise of stock option awardsunder the stock-based incentive plan may not exceed 10% and 4%, respectively, of the total number of shares sold in the offering. ~ 29 ~ Table of Contents The costs associated with the grant of restricted stock awarded under the stock-based incentive plan will be recognized andexpensed over the vesting period of the award at the fair market value of the shares on the date they are awarded. If the restrictedshares of common stock to be awarded under the plan are repurchased in the open market (rather than issued directly from ourauthorized but unissued shares of common stock) and cost the same as the purchase price in the offering, the reduction toshareholders’ equity due to the plan will be $3.5 million. To the extent we repurchase such shares in the open market and the priceof such shares exceeds the offering price of $10.00 per share, the reduction to shareholders’ equity would exceed the rangedescribed above. Conversely, to the extent the price of such shares is below the offering price of $10.00 per share, the reduction toshareholders’ equity would be less than the range described above. The costs associated with the grant of restricted stock unitawards to be settled in cash will similarly be recognized and expensed over their vesting period at the fair market value of theshares on the date they are awarded. However, unlike awards of restricted stock, the fair market value will be remeasured on aquarterly basis until the award vests or is otherwise settled. Therefore, in addition to reducing our net income by recording thiscompensation and benefit expense, increases in our stock price will increase this expense for restricted stock unit awards settled incash, thereby further reducing our net income.Finally, accounting rules require companies to recognize as compensation expense the award-date fair value of stock options.This compensation expense will be recognized over the appropriate service period. When we record an expense for the award ofoptions using the fair value method, we will incur significant compensation and benefits expense, which will reduce our netincome.The implementation of the stock-based incentive plan may dilute an individual shareholder’s percentage ownership interestand may also result in downward pressure on the price of our stock.The proposed stock-based incentive plan will be funded through either open market purchases or from the issuance ofauthorized but unissued shares. In the event that authorized but unissued shares are used to fund restricted stock or restricted stockunit awards and the exercise of stock option awards under the plan in an amount equal to 10% and 4%, respectively, of the sharesissued in a midpoint offering, shareholders would experience a reduction in ownership interest of approximately 12.3%. Inaddition, the number of shares of common stock available for issuance pursuant to restricted stock or restricted stock unit awardsand upon exercise of stock option awards following the approval of our stock-based incentive plan may be perceived by themarket as having a dilutive effect, which could lead to a decrease in the price of our common stock.The valuation of our common stock in the recent initial public offering is not necessarily indicative of the future price of ourcommon stock, and the price of our common stock may decline. There can be no assurance that shares of our common stock will be able to be sold in the market at or above the $10.00 pershare initial offering price in the future. The final aggregate purchase price of our common stock in the offering was based upon anindependent appraisal. The appraisal is not intended, and should not be construed, as a recommendation of any kind as to theadvisability of purchasing shares of common stock. The valuation is based on estimates of a number of matters, all of which aresubject to change from time to time. See “The Conversion and Offering — The Valuation” in our final prospectus filed with theSEC on February 13, 2017 for the factors considered by Feldman Financial in determining the appraisal.The price of shares of our common stock may decline for many reasons, some of which are beyond our control, includingamong others:·Capital market conditions generally;·quarterly variations in our results of operations;·changes in expectations as to our future results of operations, including financial estimates by securities analysts andinvestors;·announcements by third parties of claims against us;·changes in law and regulation;·results of operations that vary from those expected by investors; and·future sales of shares of our common stock.In addition, the stock market routinely experiences substantial price and volume fluctuations that sometimes have beenunrelated or disproportionate to the operating performance of companies. As a result, the trading price of shares of our commonstock may be below the initial public offering price, and a shareholder may not be able to sell shares at or above the price paid topurchase them. ~ 30 ~ Table of Contents Statutory provisions and our articles and bylaws may discourage takeover attempts on the Company that shareholders maybelieve are in their best interests or that might result in a substantial profit to them. We are subject to provisions of Pennsylvania corporate law and Illinois insurance law that hinder a change of control. Illinoislaw requires the Illinois Department of Insurance’s prior approval of a change of control of an insurance holding company. UnderIllinois law, the acquisition of 10% or more of the outstanding voting stock of an insurer or its holding company is presumed to bea change in control. Approval by the Illinois Department of Insurance may be withheld even if the transaction would be in theshareholders’ best interest if the Illinois Department of Insurance determines that the transaction would be detrimental topolicyholders.Our articles of incorporation and bylaws also contain provisions that may discourage a change in control. These provisionsinclude:·a prohibition on a person, including a group acting in concert, from acquiring voting control of more than 10% of ouroutstanding stock without prior approval of the board of directors;·a classified board of directors divided into three classes serving for successive terms of three years each;·the prohibition of cumulative voting in the election of directors;·the requirement that nominations for the election of directors made by shareholders and any shareholder proposals forinclusion on the agenda at any annual meeting must be made by notice (in writing) delivered or mailed to us not less than90 days prior to the meeting;·the prohibition of shareholders’ action without a meeting and of shareholders’ right to call a special meeting;·unless otherwise waived by the board of directors, to be elected as a director, a person must be a shareholder of ICCHoldings, Inc. for the lesser of one year or the time that has elapsed since the completion of the conversion;·the requirement imposing a mandatory tender offering requirement on a shareholder that has a combined voting power of25% or more of the votes that our shareholders are entitled to cast;·the requirement that certain provisions of our articles of incorporation can only be amended by an affirmative vote ofshareholders entitled to cast at least 80% of all votes that shareholders are entitled to cast, unless approved by anaffirmative vote of at least 80% of the members of the board of directors; and·the requirement that certain provisions of our bylaws can only be amended by an affirmative vote of shareholders entitledto cast at least 66 2/3%, or in certain cases 80%, of all votes that shareholders are entitled to cast.These provisions may serve to entrench management and may discourage a takeover attempt that a shareholder may considerto be in his or her best interest or in which the shareholder would receive a substantial premium over the current market price.These provisions may make it extremely difficult for any one person, entity or group of affiliated persons or entities to acquirevoting control of the Company, with the result that it may be extremely difficult to bring about a change in the board of directorsor management. Some of these provisions also may perpetuate present management because of the additional time required tocause a change in the control of the board. Other provisions make it difficult for shareholders owning less than a majority of thevoting stock to be able to elect even a single director.We have broad discretion over the use of the net proceeds that we retain from the offering.Although we expect to use part of the net proceeds of the offering to potentially make open market purchases of our shares forour stock incentive plan, our management has a broad discretion with respect to the use of the net proceeds that are contributed toICC. Except as specified above, we expect to use the net proceeds for general corporate purposes, which may include, among otherthings, purchasing investment securities and further expanding our insurance operations.If ICC is not sufficiently profitable, our ability to pay dividends will be limited.We are a separate entity with no operations of our own other than holding the stock of ICC. We depend primarily on dividendspaid by ICC and any proceeds from the offering that are not contributed to ICC to pay the debt service on our existing loans and toprovide funds for the payment of dividends. Following the acquisition of ICC Realty, LLC from ICC by ICC Holdings, we mayreceive distributions from ICC Realty, LLC. We will receive dividends only after all of ICC’s obligations and regulatoryrequirements with the Illinois Department of Insurance have been satisfied. During any twelve-month period, the amount ofdividends paid by ICC to us, without the prior approval of the Illinois Department of Insurance, may not exceed the greater of 10%of ICC’s surplus as regards policyholders as reported on its most recent annual statement filed with the Illinois Department ofInsurance or ICC’s statutory net income as reported on such statement. We presently do not intend to pay dividends to ourshareholders. If ICC is not sufficiently profitable, our ability to pay dividends in the future will be limited. ~ 31 ~ Table of Contents Compliance with the requirements of the Securities Exchange Act and the Sarbanes-Oxley Act could result in higher operatingcosts and adversely affect our results of operations.With the completion of our initial public offering, we are now subject to the periodic reporting, proxy solicitation, insidertrading prohibitions and other obligations imposed under the Securities Exchange Act. In addition, certain of the provisions of theSarbanes-Oxley Act became applicable to us at the completion of the offering. Compliance with these requirements will increaseour legal, accounting and other compliance costs and the cost of directors and officer’s liability insurance, and will requiremanagement to devote substantial time and effort to ensure initial and ongoing compliance with these obligations. A keycomponent of compliance under the Exchange Act is to produce quarterly and annual financial reports within prescribed timeperiods after the close of our fiscal year and each fiscal quarter. Historically, we have not been required to prepare such financialreports within these time periods. Failure to satisfy these reporting requirements may result in delisting of our common stock bythe NASDAQ Capital Market, and inquiries from or sanctions by the SEC. Moreover, the provision of the Sarbanes-Oxley Act thatrequires public companies to review and report on the adequacy of their internal controls over financial reporting may beapplicable to us in 2022. We expect these rules, regulations and requirements to significantly increase our accounting, legal,compliance and other costs and to make some activities more time-consuming and costly. We also will need to hire additionalaccounting, legal, compliance and administrative staff with experience working for public companies. We may be unable to hiresuch additional staff on terms that are favorable to us, or at all. In addition, such additional staff may not be able to provide suchservices at levels sufficient to comply with these requirements. Moreover, the rules that became applicable to us as a publiccompany could make it more difficult and expensive for us to attract and retain qualified members of our board of directors andqualified executive officers. We also anticipate that these rules will make it more expensive for us to obtain directors’ and officers’insurance, and we may be required to incur substantially higher costs to obtain such coverage. If we fail to predict these costsaccurately or to manage these costs effectively, our operating results could be adversely affected.Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act couldhave a material adverse effect on our ability to accurately report our financial results or prevent fraud.Upon completion of the offering, we became a public reporting company. The federal securities laws and regulations of theExchange Act and the Sarbanes-Oxley Act require that we file annual, quarterly and current reports, that we maintain effectivedisclosure controls and procedures and internal controls over financial reporting and that we certify the adequacy of our internalcontrols and procedures. Before this offering, we and our independent registered public accounting firm did not, and were notrequired to, perform an evaluation of our internal controls over financial reporting in accordance with the provisions of theSarbanes-Oxley Act.Our high price-to-earnings ratio may cause our stock to trade at less than $10 per share in the secondary market obtained inthe offering.Because of our relatively low returns on equity in recent reporting periods, the price-to-earnings ratio of our shares may besubstantially higher than our peers after completion of our initial public offering. This may result in our shares trading in thesecondary market after completion of the offering at less than the $10 per share offering price.If we fail to maintain the necessary requirements to be listed on the NASDAQ Capital Market, the price and liquidity of ourstock may be adversely affected.In order to remain listed on the NASDAQ Capital Market, we must meet certain minimum requirements for our shareholders’equity, net income, the market value and number of publicly held shares, the number of shareholders, and the market price of ourstock. In addition, we must have up to four market makers making a market in our stock under certain continued listing standards. Delisting from the NASDAQ Capital Market may adversely affect the market price for our stock and reduce the liquidity of ourcommon stock, and therefore, make it more difficult for a shareholder to sell our stock. For more information regarding the reducedliquidity as a result of our agreements with the investors, see Item 1A. Risk Factors—Risks Related to the Ownership of OurCommon Stock — A small number of shareholders will collectively own a substantial portion of our common stock and votingpower, and, because of restrictions on their ability to buy or sell our shares, our public float will be limited. Item 1B. Unresolved Staff CommentsNone. ~ 32 ~ Table of Contents Item 2. PropertiesOur headquarters are located at 225 20th Street, Rock Island, Illinois. We own this approximately 24,000 square foot facility.We also own and operate investment property comprising of 35 apartment rental units located in Rock Island and Moline, Illinois. Item 3. Legal ProceedingsWe are a party to litigation in the normal course of business. Based upon information presently available to us, we do notconsider any litigation to be material. However, given the uncertainties attendant to litigation, we cannot provide assurance thatour results of operations and financial condition will not be materially adversely affected by any litigation. ~ 33 ~ Table of Contents Item 3A. Forward-Looking Information The Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a safe harbor for forward-looking statementsmade by or on behalf of ICC Holdings, Inc. ICC Holdings, Inc. and its representatives may, from time to time, make written orverbal forward-looking statements, including statements contained in ICC Holdings, Inc.'s filings with the Securities andExchange Commission (SEC) and its reports to shareholders. Generally, the inclusion of the words “anticipates,” “believe,”“estimate,” “expect,” “future,” “intend,” “estimate,” “may,” “plans,” “seek”, “will,” or the negative of such terms and similarexpressions identify statements that constitute “forward-looking statements” within the meaning of Section 27A of the SecuritiesAct of 1933 and Section 21E of the Securities Exchange Act of 1934 and that are intended to come within the safe harborprotection provided by those sections. All statements addressing operating performance, events, or developments that ICCHoldings, Inc. expects or anticipates will occur in the future, including statements relating to sales growth, earnings or earnings pershare growth, and market share, as well as statements expressing optimism or pessimism about future operating results, are forward-looking statements within the meaning of the Reform Act. The forward-looking statements are and will be based on management’sthen-current beliefs and assumptions regarding future events and operating performance and on information currently available tomanagement, and are applicable only as of the dates of such statements.Forward-looking statements involve risks, uncertainties and assumptions, including, among other things, the factors discussedunder the heading “Item 1A. Risk Factors” and those listed below. Although we do not make forward-looking statements unless webelieve we have a reasonable basis for doing so, we cannot guarantee their accuracy. Actual results may differ materially fromthose expressed in these forward-looking statements due to a number of uncertainties and risks, including the risks described inthis Annual Report on Form 10-K and other unforeseen risks. Readers should not put undue reliance on any forward-lookingstatements. These statements speak only as of the date of this Annual Report on Form 10-K, even if subsequently made availableby us on our website or otherwise, and we undertake no obligation to update or revise these statements to reflect events orcircumstances occurring after the date of this Annual Report on Form 10-K.All of these factors are difficult to predict and many are beyond our control. These important factors include those discussed underItem 1A. Risk Factors and those listed below:·the potential impact of fraud, operational errors, systems malfunctions, or cybersecurity incidents;·future economic conditions in the markets in which we compete that are less favorable than expected;·our ability to expand geographically;·the effects of weather-related and other catastrophic events;·the effect of legislative, judicial, economic, demographic and regulatory events in the jurisdictions where we do business,especially changes with respect to laws, regulations and judicial decisions relating to liquor liability;·our ability to enter new markets successfully and capitalize on growth opportunities either through acquisitions or theexpansion of our producer network;·financial market conditions, including, but not limited to, changes in interest rates and the stock markets causing areduction of investment income or investment gains and a reduction in the value of our investment portfolio;·heightened competition, including specifically the intensification of price competition, the entry of new competitors andthe development of new products by new or existing competitors, resulting in a reduction in the demand for our products;·the impact of acts of terrorism and acts of war;·the effects of terrorist related insurance legislation and laws;·changes in general economic conditions, including inflation, unemployment, interest rates and other factors;·the cost, availability and collectability of reinsurance;·estimates and adequacy of loss reserves and trends in loss and settlement expenses;·changes in the coverage terms selected by insurance customers, including higher limits;·our inability to obtain regulatory approval of, or to implement, premium rate increases;·our ability to obtain reinsurance coverage at reasonable prices or on terms that adequately protect us;·the potential impact on our reported net income that could result from the adoption of future auditing or accountingstandards issued by the Public Company Accounting Oversight Board or the Financial Accounting Standards Board orother standard-setting bodies;·unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations; ~ 34 ~ Table of Contents ·adverse litigation or arbitration results; and·adverse changes in applicable laws, regulations or rules governing insurance holding companies and insurancecompanies, and environmental, tax or accounting matters including limitations on premium levels, increases in minimumcapital and reserves, and other financial viability requirements, and changes that affect the cost of, or demand for ourproducts.Because forward-looking information is subject to various risks and uncertainties, actual results may differ materially from thatexpressed or implied by the forward-looking information.ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING INFORMATION ATTRIBUTABLE TO ICC HOLDINGS, INCOR ANY PERSON ACTING ON OUR BEHALF IS EXPRESSLY QUALIFIED IN ITS ENTIRETY BY THE CAUTIONARYSTATEMENTS CONTAINED OR REFERRED TO IN THIS SECTION. Item 4. Mine Safety DisclosuresNot applicable. ~ 35 ~ Table of Contents Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesIn March 2017, the Company completed its IPO. The Company’s common stock trades on the NASDAQ Capital Market underthe symbol “ICCH.” As of March 28, 2017, there were approximately 450 registered holders of the Company’s common stock.Use of Proceeds from Initial Public Offering of Common StockThe Registration Statement on Form S-1 (File No. 333-214081) for the IPO of our common stock was declared effective by theSEC on February 14, 2017. There has been no material change in the planned use of proceeds from our initial public offering asdescribed in our final prospectus filed with the SEC on February 13, 2017, pursuant to Rule 424(b)(4). ~ 36 ~ Table of Contents Item 6. Selected Financial DataThe following table sets forth selected financial data for ICC prior to the offering. The selected statements of operations andexpenses data for each of the years ended December 31, 2016 and 2015 and the selected balance sheet data as of December 31,2016 and 2015 are derived from the audited consolidated financial statements of ICC and its subsidiaries contained herein. Thisdata should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and our financial statements and the related notes thereto included elsewhere in this report.We evaluate our insurance operations by monitoring certain key measures of growth and profitability. In addition to GAAPmeasures, we utilize certain non-GAAP financial measures that we believe are valuable in managing our business and for providingcomparisons to our peers. These non-GAAP measures are loss and settlement expense ratios, expense ratios and combined ratios,written premiums, and net written premiums to statutory surplus ratio.These historical results are not necessarily indicative of future results.The selected historical financial data of ICC Holdings, Inc. have not been presented as ICC Holdings, Inc. is a newlyincorporated entity, has had no business transactions or activities to date and had no assets or liabilities during the periodspresented in this section.At or for the years ended December 31,(In thousands)201620152014Statement of Earnings Data:Direct premiums written$51,031 $49,047 $46,340 Net premiums written$43,227 $41,631 $41,077 Net premiums earned$42,611 $40,220 $38,121 Net investment income1,968 1,333 1,141 Net realized investment gains37 81 459 Other income255 189 112 Consolidated revenue$44,871 $41,823 $39,833 Expenses:Losses and settlement expenses$24,345 $23,801 $22,748 Amortization of deferred acquisition costs7,125 6,814 6,821 Underwriting and administrative expense8,724 7,742 7,501 Other operating expenses690 450 398 Total expenses$40,884 $38,806 $37,469 Earnings before income taxes$3,987 $3,017 $2,364 Income tax expense1,177 862 779 Net earnings$2,810 $2,155 $1,585 ~ 37 ~ Table of Contents At or for the years ended December 31,(In thousands)201620152014Balance Sheet Data:Total investments, cash and cash equivalents$80,499 $76,821 $72,917 Premiums receivable, net of allowance17,479 15,638 14,522 Reinsurance receivable12,115 19,535 25,855 Total assets122,160 123,373 123,428 Unpaid loss and settlemeent expenses52,817 61,056 64,617 Unearned premiums24,778 23,948 22,498 Total liabilities88,560 93,208 94,393 Equity33,600 30,166 29,035 Non-GAAP Ratios:Losses and settlement expense ratio157.13% 59.18% 59.67% Expense ratio237.19% 36.19% 37.57% Combined ratio394.32% 95.37% 97.24% Return on average equity8.81% 7.28% 5.74% Statutory Data:Statutory net income (loss)$3,446 $1,849 $1,381 Statutory surplus29,957 26,856 25,193 Ratio of net premiums written to statutory surplus4144.30% 155.02% 163.05% 1Calculated by dividing loss and settlement expenses by net premiums earned.2Calculated by dividing amortization of deferred policy acquisition costs and underwriting andadministrative expenses by net premiums earned.3The sum of the losses and settlement expense ratio and the expense ratio. A combined ratio of under 100%indicates an underwriting profit. A combined ratio over 100% indicates an underwriting loss. ~ 38 ~ Table of Contents Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe following discussion and analysis of our financial condition and results of operations should be read in conjunction withthe financial statements and accompanying notes included elsewhere in this Form 10-K. Some of the information contained in thisdiscussion and analysis or set forth elsewhere in this Form 10-K constitutes forward-looking information that involves risks anduncertainties. Please see Item 3A. Forward-Looking Information and Item 1A. Risk Factors for more information. Please see Item1A. Risk Factors for a discussion of important factors that could cause actual results to differ materially from the results described,or implied by, the forward-looking statements contained herein.OverviewICC is a regional property and casualty insurance company incorporated in Illinois and focused exclusively on the food andbeverage industry. On the effective date of the conversion, ICC became a wholly owned subsidiary of ICC Holdings, Inc. Theconsolidated financial statements of ICC prior to the conversion will become the consolidated financial statements of ICCHoldings, Inc. upon completion of the conversion.For the year ended December 31, 2016, we had direct written premium of $51.0 million, net premiums earned of $42.6 million,and net income of $2.8 million. For the year ended December 31, 2015, we had direct premiums written of $49.0 million, netpremiums earned of $40.2 million, and net income of $2.2 million. At December 31, 2016, we had total assets of $122.2 millionand equity of $33.6 million. At December 31, 2015 we had total assets of $123.4 million and equity of $30.2 million.We are an “emerging growth company” as defined in the JOBS Act, and we may take advantage of certain exemptions fromvarious reporting requirements that are applicable to other public companies that are not “emerging growth companies” including,but not limited to: not required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; exemptions fromthe requirements of holding an annual non-binding advisory vote on executive compensation and nonbinding stockholderapproval of any golden parachute payments not previously approved.In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of theextended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accountingstandards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until thosestandards would otherwise apply to private companies. We have taken advantage of the extended transition period provided bySection 107 of the JOBS Act. We decided to comply with the effective dates for financial accounting standards applicable toemerging growth companies at a later date in compliance with the requirements in Sections 107(b)(2) and (3) of the JOBS Act.Such decision is irrevocable. Principal Revenue and Expense ItemsWe derive our revenue primarily from premiums earned, net investment income and net realized gains (losses) frominvestments.Gross and net premiums writtenGross premiums written is equal to direct and assumed premiums before the effect of ceded reinsurance. Net premiums writtenis the difference between gross premiums written and premiums ceded or paid to reinsurers (ceded premiums written).Premiums earnedPremiums earned is the earned portion of our net premiums written. Gross premiums written include all premiums recorded byan insurance company during a specified policy period. Insurance premiums on property and casualty insurance contracts arerecognized in proportion to the underlying risk insured and are earned ratably over the duration of the policies. At the end of eachaccounting period, the portion of the premiums that is not yet earned is included in unearned premiums and is realized as revenuein subsequent periods over the remaining term of the policy. Our policies typically have a term of twelve months. Thus, forexample, for a policy that is written on July 1, 2016, one-half of the premiums would be earned in 2016 and the other half wouldbe earned in 2017. ~ 39 ~ Table of Contents Net investment income and net realized gains (losses) on investmentsWe invest our surplus and the funds supporting our insurance liabilities (including unearned premiums and unpaid loss andsettlement expenses) in cash, cash equivalents, equities, fixed maturity securities and real estate. Investment income includesinterest and dividends earned on invested assets. Net realized gains and losses on invested assets are reported separately from netinvestment income. We recognize realized gains when invested assets are sold for an amount greater than their cost or amortizedcost (in the case of fixed maturity securities) and recognize realized losses when investment securities are written down as a resultof an other than temporary impairment or sold for an amount less than their cost or amortized cost, as applicable. Our portfolio ofinvestment securities is managed by an independent third party and manager specializing in the insurance industry.ICC’s expenses consist primarily of:Loss and settlement expenseLoss and settlement expenses represent the largest expense item and include: (1) claim payments made, (2) estimates for futureclaim payments and changes in those estimates for prior periods, and (3) costs associated with investigating, defending andadjusting claims.Amortization of deferred policy acquisition costs and underwriting and administrative expensesExpenses incurred to underwrite risks are referred to as policy acquisition expenses. Variable policy acquisition costs consistof commission expenses, premium taxes and certain other underwriting expenses that vary with and are primarily related to thewriting and acquisition of new and renewal business. These policy acquisition costs are deferred and amortized over the effectiveperiod of the related insurance policies. Fixed policy acquisition costs, referred to herein as underwriting and administrativeexpenses are expensed as incurred. These costs include salaries, rent, office supplies, depreciation and all other operating expensesnot otherwise classified separately.Income taxesWe use the asset and liability method of accounting for income taxes. Deferred income taxes arise from the recognition oftemporary differences between financial statement carrying amounts and the tax bases of our assets and liabilities. A valuationallowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The effect of achange in tax rates is recognized in the period of the enactment date. Key Financial MeasuresWe evaluate our insurance operations by monitoring certain key measures of growth and profitability. In addition toreviewing our financial performance based on results determined in accordance with generally accepted accounting principles inthe United States (GAAP), we utilize certain non-GAAP financial measures that we believe are valuable in managing our businessand for comparison to our peers. These non-GAAP measures are combined ratio, written premiums, underwriting income, the lossand settlement expense ratio, the expense ratio, the ratio of net written premiums to statutory surplus and return on average equity.We measure growth by monitoring changes in gross premiums written and net premiums written. We measure underwritingprofitability by examining losses and settlement expense, underwriting expense and combined ratios. We also measureprofitability by examining underwriting income (loss) and net income (loss).Loss and settlement expense ratioThe loss and settlement expense ratio is the ratio (expressed as a percentage) of loss and settlement expenses incurred topremiums earned. We measure the loss ratio on an accident year and calendar year loss basis to measure underwriting profitability.An accident year loss ratio measures loss and settlment expenses for insured events occurring in a particular year, regardless ofwhen they are reported, as a percentage of premiums earned during that year. A calendar year loss ratio measures loss andsettlement expense for insured events occurring during a particular year and the change in loss reserves from prior accident years asa percentage of premiums earned during that year. ~ 40 ~ Table of Contents Expense ratioThe underwriting expense ratio is the ratio (expressed as a percentage) of amortization of deferred policy acquisition costs andnet underwriting and administrative expenses (attributable to insurance operations) to premiums earned, and measures ouroperational efficiency in producing, underwriting and administering our insurance business.GAAP combined ratioOur GAAP combined ratio is the sum of the loss and settlement expense ratio and the expense ratio and measures our overallunderwriting profit. If the GAAP combined ratio is below 100%, we are making an underwriting profit. If our combined ratio is ator above 100%, we are not profitable without investment income and may not be profitable if investment income is insufficient.Net premiums written to statutory surplus ratioThe net premiums written to statutory surplus ratio represents the ratio of net premiums written, after reinsurance ceded, tostatutory surplus. This ratio measures our exposure to pricing errors in our current book of business. The higher the ratio, thegreater the impact on surplus should pricing prove inadequate.Underwriting income (loss)Underwriting income (loss) measures the pre-tax profitability of our insurance operations. It is derived by subtracting loss andsettlement expense, amortization of deferred policy acquisition costs, and underwriting and administrative expenses from earnedpremiums. Each of these items is presented as a caption in our statements of earnings.Net earnings (loss) and return on average equityWe use net earnings (loss) to measure our profit and return on average equity to measure our effectiveness in utilizing equityto generate net income. In determining return on average equity for a given year, net earnings (loss) is divided by the average ofthe beginning and ending equity for that year. Critical Accounting PoliciesGeneralThe preparation of financial statements in accordance with GAAP requires both the use of estimates and judgment relative tothe application of appropriate accounting policies. We are required to make estimates and assumptions in certain circumstancesthat affect amounts reported in our financial statements and related footnotes. We evaluate these estimates and assumptions on anon-going basis based on historical developments, market conditions, industry trends and other information that we believe to bereasonable under the circumstances. There can be no assurance that actual results will conform to our estimates and assumptionsand that reported results of operations will not be materially adversely affected by the need to make accounting adjustments toreflect changes in these estimates and assumptions from time to time. We believe the following policies are the most sensitive toestimates and judgments.InvestmentsThe Company classifies its investments in all debt and equity securities as available-for-sale.Available-for-Sale Securities—Debt and equity securities are classified as available-for-sale and reported at fair value.Unrealized gains and losses on these securities are excluded from net earnings but are recorded as a separate component ofcomprehensive earnings and policyholders’ equity, net of deferred income taxes.Other Than Temporary Impairment—Under current accounting standards, an OTTI write-down of debt securities, where fairvalue is below amortized cost, is triggered by circumstances where (1) an entity has the intent to sell a security, (2) it is more likelythan not that the entity will be required to sell the security before recovery of its amortized cost basis or (3) the entity does notexpect to recover the entire amortized cost basis of the security. If an entity intends to sell a security or if it is more likely than notthe entity will be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the differencebetween the security’s amortized cost and its fair value. If an entity does not intend to sell the security or it is not more likely thannot that it will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing thecredit loss, which is recognized in earnings, and the amount related to all other ~ 41 ~ Table of Contents factors, which is recognized in other comprehensive income. Impairment losses result in a reduction of the underlying investment’scost basis.The Company regularly evaluates its fixed income and equity securities using both quantitative and qualitative criteria todetermine impairment losses for other-than-temporary declines in the fair value of the investments. The following are the keyfactors for determining if a security is other-than-temporarily impaired:·The extent to which the fair value is less than cost,·The assessment of significant adverse changes to the cash flows on a fixed income investment,·The occurrence of a discrete credit event resulting in the issuer defaulting on a material obligation, the issuer seekingprotection from creditors under the bankruptcy laws, the issuer proposing a voluntary reorganization under whichcreditors are asked to exchange their claims for cash or securities having a fair value substantially lower than par value,·The probability that the Company will recover the entire amortized cost basis of the fixed income securities prior tomaturity,·The ability and intent to hold fixed income securities until maturity or·For equity securities, the expectation of recovery to cost within a reasonable period of time.Quantitative and qualitative criteria are considered during this process to varying degrees depending on the sector theanalysis is being performed:Corporates—The Company performs a qualitative evaluation of holdings that fall below the price threshold. The analysisbegins with an opinion of industry and competitive position. This includes an assessment of factors that enable the profit structureof the business (e.g., reserve profile for exploration and production companies), competitive advantage (e.g., distribution system),management strategy, and an analysis of trends in return on invested capital. Analysts may also review other factors to determinewhether an impairment exists including liquidity, asset value cash flow generation, and industry multiples.Municipals—The Company analyzes the screened impairment candidates on a quantitative and qualitative basis. Thisincludes an assessment of the factors that may be contributing to the unrealized loss and whether the recovery value is greater orless than current market value.Structured Securities—The “stated assumptions” analytic approach relies on actual 6-month average collateral performancemeasures (voluntary prepayment rate, gross default rate, and loss severity) sourced through third party data providers or remittancereports. The analysis applies the stated assumptions throughout the remaining term of the transaction using forecasted cash flows,which are then applied through the transaction structure (reflecting the priority of payments and performance triggers) to determinewhether there is a loss to the security (“Loss to Tranche”). For securities or sectors for which no actual loss or minimal loss has beenobserved (certain Prime Residential Mortgage Backed Securities (RMBS) and Commercial Mortgage Backed Securities (CMBS),for example), sector-based assumptions are applied or an alternative quantitative or qualitative analysis is performed.Property Held for Investment—Property held for investment purposes is initially recorded at the purchase price, which isgenerally fair value, and is subsequently reported at cost less accumulated depreciation. Buildings are depreciated on a straight-line bases over the estimated useful lives of the building, which we estimate to be 39 years. Income from property held forinvestment is reported as net investment incomeInvestment Income—Interest on fixed maturities and short-term investments is credited to earnings on an accrual basis.Premiums and discounts are amortized or accreted over the lives of the related fixed maturities. Dividends on equity securities arecredited to earnings on the ex-dividend date. Realized gains and losses on disposition of investments are based on specificidentification of the investments sold on the settlement date, which does not differ significantly from trade date accounting.Cash and Cash EquivalentsCash consists of uninvested balances in bank accounts. Cash equivalents consist of investments with original maturities of 90days or less, primarily AAA-rated prime and government money market funds. Cash equivalents are carried at cost, whichapproximates fair value. The Company has not experienced losses on these instruments. ~ 42 ~ Table of Contents Loss and Settlement Expense ReservesWe maintain reserves for the payment of claims (incurred losses) and expenses related to adjusting those claims (losssettlement expenses). Our loss reserves consist of case reserves, which are reserves for claims that have been reported to us, losssettlement expense reserve, which includes all defense and litigation-related expenses, whether internal or external to us, andreserves for claims that have been incurred but have not yet been reported or for case reserve deficiencies or redundancies (IBNR).When a claim is reported to us, our claims personnel establish a case reserve for the estimated amount of the ultimate payment.The amount of the loss reserve for the reported claim is based primarily upon a claim-by-claim evaluation of coverage, liability,injury severity or scope of property damage, and any other information considered pertinent to estimating the exposure presentedby the claim. Each claim is settled individually based upon its merits, and some claims may take years to settle, especially if legalaction is involved. Case reserves are reviewed on a regular basis and are updated as new data becomes available.In addition to case reserves, we maintain an estimate of reserves for loss and settlement expenses incurred but not reported.Some claims may not be reported for several years. As a result, the liability for unpaid loss and settlement expense reservesincludes significant estimates for IBNR.We utilize an independent actuary to assist with the estimation of our loss and settlement expense reserves bi-annually. Thisactuary prepares estimates of the ultimate liability for unpaid losses and settlement expenses based on established actuarialmethods described below. Our management reviews these estimates and supplements the actuarial analysis with information notfully incorporated into the actuarially based estimate, such as changes in the external business environment and changes ininternal company processes and strategy. We may adjust the actuarial estimates based on this supplemental information in order toarrive at the amount recorded in the financial statements.Reserving MethodsIn developing our loss and settlement expense reserve estimates, we relied upon five widely used and accepted loss reservingmethods (described below). Based on the deemed predictive qualities of each of the applied methods, we selected estimatedultimates by year in order to determine our reserve estimates. Our estimates can be considered actuarial central estimates, whichmeans that they represent an expected value over the range of reasonably possible outcomes.Loss Development Methods (Paid and Incurred Loss and Settlement Expense)—Loss development ultimates are determinedby multiplying current reported values by cumulative loss development factors. Incremental loss development factors aredetermined by analyzing historical development of losses and assuming that future development will mimic historical.Cumulative development factors are calculated from the selection of incremental factors.This method is also applied to incurred settlement expense to incurred loss ratios and paid settlement expense to paid lossratios to estimate ultimate settlement expense. Loss development methods are particularly appropriate when historical loss development patterns have been relatively stableand can be predicted with reasonable accuracy.Expected Loss Ratio Method— The expected loss ratio method applies a selected ultimate loss ratio to premium to determineultimate losses and settlement expenses. Expected loss ratios for 2007 and prior were selected based on the results of the lossdevelopment methods discussed above, industry experience, actual loss experience of ICC to date and general industry conditions.Beginning with 2008, expected loss ratios have been calculated based on the prior expected loss ratios, rate changes and losstrend.Bornhuetter-Ferguson (B-F) Methods (Paid and Incurred Loss)—The Loss Development Methods rely heavily on data as ofthe most recent evaluation date, and a relatively small swing in early reported (or paid) losses may result in a large swing in theultimate loss projections. Therefore, other methods may also be considered.The B-F Methods offer a blend of stability and responsiveness by estimating ultimate losses as a weighted combination of anexpected loss estimate and current loss data. The weight applied to the expected loss estimate is based on the appropriatecumulative loss development factor from the Loss Development Methods. This percentage is multiplied by expected losses todetermine expected future development. This estimate of future loss development is then added to losses as of the currentevaluation date to project ultimate losses. ~ 43 ~ Table of Contents A&OE Method—During 2012, we began to implement a new approach to reserving for unpaid Adjusting & Other Expenses(A&OE). This method is referred to as the “Wendy Johnson Method” where historical A&OE payments are measured againstcertain claim units to develop an average rate for projecting into future years. These claim units are defined as a means ofmeasuring the overall level of claim activity in a year as follows:Units =2 x (Newly Reported Claims in Year X) +(Number of Claims Open at Start of Year X)Future A&OE costs are projected by inflating the selected average A&OE per unit rate, 1.0% annually, against future unitscalculated by claims runoff patterns.Range of EstimatesIn addition to our actuarial central estimate, we have also developed a range of estimates. This range is not designed torepresent minimum or maximum possible outcomes. It is developed to represent low and high ends for a reasonable range ofexpected outcomes given the selection of alternative, but reasonable assumptions. Actual results may fall outside of this range.High and low net reserve estimates were developed by stressing our expected loss ratio and loss development factor selections.By applying a factor to increase (and decrease) these assumptions, we developed high (and low) ultimate loss and settlementexpense estimates. These estimates, along with paid and incurred loss information, result in a range of reserves. The gross reserverange is based on selected percentages which produce a range which is slightly wider than the net range.We estimate IBNR reserves by first deriving an actuarially based estimate of the ultimate cost of total loss and settlementexpenses incurred by line of business as of the financial statement date. We then reduce the estimated ultimate loss and settlementexpenses by loss and settlement expense payments and case reserves carried as of the financial statement date. The actuariallydetermined estimate is based upon indications from one of the above actuarial methodologies or uses a weighted average of theseresults. The specific method used to estimate the ultimate losses for individual lines of business, or individual accident yearswithin a line of business, will vary depending on the judgment of the actuary as to what is the most appropriate method for a lineof business’ unique characteristics. Finally, we consider other factors that impact reserves that are not fully incorporated in theactuarially based estimate, such as changes in the external business environment and changes in internal company processes andstrategy.The process of estimating loss reserves involves a high degree of judgment and is subject to a number of variables. Thesevariables can be affected by both internal and external events, such as changes in claims handling procedures, economic inflation,legal trends, and legislative changes, among others. The impact of many of these items on ultimate costs for claims and claimadjustment expenses is difficult to estimate. Loss reserve estimation difficulties also differ significantly by line of business due todifferences in claim complexity, the volume of claims, the potential severity of individual claims, the determination of occurrencedate for a claim, and reporting lags (the time between the occurrence of the policyholder event and when it is actually reported tothe insurer). Informed judgment is applied throughout the process, including the application of various individual experiences andexpertise to multiple sets of data and analyses. We continually refine our loss reserve estimates in a regular ongoing process ashistorical loss experience develops and additional claims are reported and settled. We consider all significant facts andcircumstances known at the time loss reserves are established.Due to the inherent uncertainty underlying loss reserve estimates, final resolution of the estimated liability for loss andsettlement expenses may be higher or lower than the related loss reserves at the reporting date. Therefore, actual paid losses, asclaims are settled in the future, may be materially higher or lower in amount than current loss reserves. We reflect adjustments toloss reserves in the results of operations in the period the estimates are changed.We accrue liabilities for unpaid loss and settlment expenses based upon estimates of the ultimate amount payable.Policy Acquisition CostsThe Company defers commissions, premium taxes, and certain other costs that are incrementally or directly related to thesuccessful acquisition of new or renewal insurance contracts. Acquisition-related costs may be deemed ineligible for deferral whenthey are based on contingent or performance criteria beyond the basic acquisition of the insurance contract or when efforts toobtain or renew the insurance contract are unsuccessful. All eligible costs are capitalized and charged to expense in proportion topremium revenue recognized. The method followed in computing deferred policy acquisition costs limits the amount of suchdeferred costs to their estimated realizable value. This deferral methodology applies to both gross and ceded premiums andacquisition costs. ~ 44 ~ Table of Contents PremiumsPremiums are recognized ratably over the term of the contracts, net of ceded reinsurance. Unearned premiums represent theportion of premiums written relative to the unexpired terms of coverage. Unearned premiums are calculated on a daily pro ratabasis.ReinsuranceCeded unearned premiums and reinsurance balances recoverable on paid and unpaid losses and settlement expenses arereported separately as assets instead of being netted with the related liabilities, since reinsurance does not relieve us of our legalliability to our policyholders.Quarterly, the Company monitors the financial condition of its reinsurers. The Company’s monitoring efforts include, but arenot limited to, the review of annual summarized financial data and analysis of the credit risk associated with reinsurance balancesrecoverable by monitoring the A.M. Best and Standard & Poor’s (S&P) ratings. In addition, the Company subjects its reinsurancerecoverables to detailed recoverable tests, including an analysis based on average default by A.M. Best rating. Based upon thereview and testing, the Company’s policy is to charge to earnings, in the form of an allowance, an estimate of unrecoverableamounts from reinsurers. This allowance is reviewed on an ongoing basis to ensure that the amount makes a reasonable provisionfor reinsurance balances that the Company may be unable to recover.Income TaxesThe Company files a consolidated federal income tax return. Federal income taxes are accounted for using the asset andliability method under which deferred income taxes are recognized for the tax consequences of “temporary differences” byapplying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts andthe tax bases of existing assets and liabilities, operating losses and tax credit carry forwards. The effect on deferred taxes for achange in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by avaluation allowance if it is more likely than not all or some of the deferred tax assets will not be realized.The Company considers uncertainties in income taxes and recognizes those in its financial statements as required. As it relatesto uncertainties in income taxes, unrecognized tax benefits, including interest and penalty accruals, are not considered material tothe consolidated financial statements. Also, no tax uncertainties are expected to result in significant increases or decreases tounrecognized tax benefits within the next 12-month period. Penalties and interest related to income tax uncertainties, should theyoccur, would be included in income tax expense in the period in which they are incurred.As an insurance company, the Company is subject to minimal state income tax liabilities. On a state basis, since the majorityof income is from insurance operations, the Company pays premium taxes in lieu of state income tax. Premium taxes are acomponent of policy acquisition costs and calculated as a percentage of gross premiums written.Comprehensive EarningsComprehensive earnings include net earnings plus unrealized gains/losses on available-for-sale investment securities, net oftax. In reporting the components of comprehensive earnings on a net basis in the statement of earnings, the Company used a 34%tax rate. Results of OperationsOur results of operations are influenced by factors affecting the property and casualty insurance industry in general. Theoperating results of the United States property and casualty insurance industry are subject to significant variations due tocompetition, weather, catastrophic events, regulation, general economic conditions, judicial trends, fluctuations in interest ratesand other changes in the investment environment.Our premium growth and underwriting results have been, and continue to be, influenced by market conditions. Pricing in theproperty and casualty insurance industry historically has been cyclical. During a soft market cycle, price competition is moresignificant than during a hard market cycle and makes it difficult to attract and retain properly priced commercial business. A hardmarket typically has a positive effect on premium growth. ~ 45 ~ Table of Contents The major components of operating revenues and net earnings (loss) are as follows:Years ended December 31,(In thousands)20162015RevenuesTotal premiums earned$42,611 $40,220 Investment income, net of investment expense1,968 1,333 Realized investment gains (losses), net37 81 Other income255 189 Total revenues$44,871 $41,823 Summarized components of net earnings (loss)Underwriting income$2,417 $1,864 Investment income, net of investment expense1,968 1,333 Realized investment gains, net37 81 Other income255 189 General corporate expenses464 314 Interest expense226 136 Earnings, before income taxes3,987 3,017 Income tax expense1,177 862 Net earnings$2,810 $2,155 Total other comprehensive earnings (loss)624 (1,024)Comprehensive earnings$3,434 $1,131 Year Ended December 31, 2016 Compared to Year Ended December 31, 2015PremiumsDirect premiums written increased by $2.0 million, or 4.0%, primarily from organic growth from 2015 to 2016, while netwritten premium was essentially flat, growing by $1.6, or 3.8%, during the same period. Net premiums earned grew by $2.4 million,or 5.9%, for the year ended December 31, 2016 as compared to 2015 primarily due to increased organic growth and lower levels ofpremium ceded to reinsurance. For the year ended December 31, 2016, we ceded to reinsurers $7.9 million of earned premiums, compared to $7.7 million ofearned premiums for the year ended December 31, 2015. Ceded earned premiums as a percent of direct premiums written were15.5% in 2016, and 15.7% in 2015. This favorable, slight decrease is a result of an overall softer reinsurance market pricing.Premiums are earned ratably over the term of the policy whereas written premiums are reflected on the effective date of thepolicy.Other incomeSubstantially all other income is derived from policies we write and represents additional charges to policyholders for servicesoutside of the premium charge, such as installment billing or policy issuance costs. Other income grew by $66,000, or 34.9%, in2016 as compared to 2015 primarily as a result of the growth in premium volume. ~ 46 ~ Table of Contents Unpaid Losses and Settlement ExpensesThe following table details our unpaid losses and settlement expenses. (In thousands)20162015Unpaid losses and settlement expense - beginning of the period:Gross$61,056 $64,617 Less: Ceded19,158 25,822 Net41,898 38,795 Increase (decrease) in incurred losses and settlement expense:Current year25,620 24,293 Prior years(1,275)(493)Total incurred24,345 23,800 Deduct: Loss and settlement expense payments for claims incurred:Current year7,649 6,466 Prior years17,892 14,231 Total paid25,541 20,697 Net unpaid losses and settlement expense - end of the period40,702 41,898 Plus: Reinsurance recoverable on unpaid losses12,115 19,158 Gross unpaid losses and settlement expense - end of the period$52,817 $61,056 Differences from the initial reserve estimates emerged as changes in the ultimate loss estimates as those estimates were updatedthrough the reserve analysis process. The recognition of the changes in initial reserve estimates occurred over time as claims werereported, initial case reserves were established, initial reserves were reviewed in light of additional information and ultimatepayments were made on the collective set of claims incurred as of that evaluation date. The new information on the ultimatesettlement value of claims is updated until all claims in a defined set are settled. As a small specialty insurer with a niche productportfolio, our experience will ordinarily exhibit fluctuations from period to period. While management attempts to identify andreact to systematic changes in the loss environment, management must also consider the volume of experience directly availableto us and interpret any particular period’s indications with a realistic technical understanding of the reliability of thoseobservations.For calendar year 2016, we experienced favorable development relative to prior years’ reserve estimates in the casualty line ofbusiness primarily from the 2015 accident year. Liquor Liability and Workers’ Compensation were the largest contributors to thefavorable development, partially offset by adverse development in BOP Liability.For calendar year 2015, the Company experienced favorable development relative to prior years’ reserve estimates in itsproperty line of business primarily from the 2014 accident year. This was partially offset by adverse development in the casualtyline of business in Liquor Liability, with approximately 89.4% of the development coming from this business.Policy Acquisition Costs and Expense RatioPolicy acquisition costs are costs we incur to issue policies, which include commissions, premium taxes, underwriting reports,and underwriter compensation costs. The Company offsets the direct commissions it pays with ceded commissions it receives fromreinsurers. Policy acquisition costs were increased by $1.3 million, or 8.9%. Our expense ratio is calculated by dividing the sum of policy acquisition costs and operating expenses by net earnedpremiums. We use the expense ratio to evaluate the operating efficiency of our consolidated operations. Costs that cannot bereadily identifiable as a direct cost of a product line remain in Corporate and Other.Our expense ratio increased 100 basis points from 36.2% to 37.2% for the year ended December 31, 2016 as compared to2015, due primarily to the increased cost of our self-funded healthcare plan as well as costs related to increased use of temporaryemployees for projectes related to our mutual-to-stock conversion. As our earned premiums grow year-over-year on an expensestructure that is less variable to premium volume, we expect this trend to continue in the near future, but at a slower pace. ~ 47 ~ Table of Contents General Corporate ExpensesGeneral corporate expenses consist primarily of occupancy costs, such as rent and utilities. These costs are largely fixed and,therefore, do not vary significantly with premium volume but do vary with the Company’s changes in properties held forinvestment. Accordingly, our general corporate expenses increased by $150,000, or 47.8%, in 2016 as compared to 2015.Investment IncomeOur investment portfolio consisted of 86.8% and 88.0% of readily marketable, investment-grade fixed-maturity securities as ofDecember 31, 2016 and 2015, respectively. The remainder of the portfolio is comprised of rental real estate, highly liquidexchange traded funds, and preferred stock. Net investment income is primarily comprised of interest earned and dividends paid onthese securities and rental income on investment real estate, net of related investment expenses, and excludes realized gains andlosses.Net investment income increased by $635,000 for the year ended December 31, 2016 as compared to 2015, primarily from thegrowth of the investment portfolio. Average invested assets for 2016 were $78.7 million compared to $74.9 million for 2015, anincrease of $3.8 million, or 5.1%. The increase in the portfolio was primarily due to net cash provided by operating activities of$4.6 million. For additional information, see Item 1. Business — Investments above.Interest ExpenseInterest expense increased to $226,000 for the year ended December 31, 2016 from $136,000 for the year ended December 31,2015. This 66.2% increase year over year reflects the Company’s financing of certain assets under financial sales-leasebacktransactions in September 2015, again in March of 2016 and most recently from a debt agreement in September 2016. TheCompany does not anticipate expanding these borrowings over the next twelve months.Income Tax ExpenseWe reported an income tax expense of $1.2 million in 2016, as compared to an income tax expense of $862,000 in 2015. Theincome tax expense increase for 2016 relates to an increase in earnings before income taxes in 2016 compared to 2015. The Company has not established a valuation allowance against any of the net deferred tax assets. ~ 48 ~ Table of Contents Financial PositionThe major components of our assets and liabilities are as follows:December 31,(In thousands)20162015AssetsInvestments and cash:Available for sale securities, at fair valueFixed maturity securities (amortized cost - $62,929 at 12/31/2016$64,134 $65,195 and $63,995 at 12/31/2015)Equity securities (cost - $6,312 at 12/31/2016 and $9,282 at 12/31/2015)6,983 8,885 Preferred Stocks (cost - $2,925 at12/31/2016 and $0 at 12/31/2015)2,798 —Property held for investment, at cost, net of accumulated depreciation of2,207 561 $51 at 12/31/2016 and $3 at 12/31/2015Cash and cash equivalents4,377 2,180 Total investments and cash80,499 76,821 Accrued investment income524 581 Premiums and reinsurance balances receivable, net of allowances for17,480 15,638 uncollectible amounts of $50 at 12/31/2016 and $100 at 12/31/2015Ceded unearned premiums271 57 Reinsurance balances recoverable on unpaid losses and settlement12,115 19,535 expenses, net of allowances for uncollectible amounts of$0 at 12/31/2016 and 12/31/2015Current federal income taxes149 773 Net deferred federal income taxes888 1,401 Deferred policy acquisition costs, net4,163 3,983 Property and equipment, at cost, net of accumulated depreciation of3,720 3,680 $4,308 at 12/31/2016 and $3,553 at 12/31/2015Other assets2,351 905 Total assets$122,160 $123,374 Liabilities and EquityLiabilities:Unpaid losses and settlement expenses$52,817 $61,056 Unearned premiums24,778 23,948 Reinsurance balances payable110 —Corporate debt3,787 3,274 Accrued expenses4,827 4,096 Other liabilities2,241 834 Total liabilities88,560 93,208 Equity:Accumulated other comprehensive earnings, net of tax1,154 530 Retained earnings32,446 29,636 Total equity33,600 30,166 Total liabilities and equity$122,160 $123,374 ~ 49 ~ Table of Contents Unpaid Losses and Settlement ExpenseOur reserves for unpaid loss and settlement expense are summarized below:December 31,(In thousands)20162015Case reserves$20,171 $23,139 IBNR reserves20,531 18,759 Net unpaid losses and settlement expense40,702 41,898 Reinsurance recoverable on unpaid loss and settlement expense12,115 19,158 Reserves for unpaid loss and settlement expense$52,817 $61,056 Actuarial RangesThe selection of the ultimate loss is based on information unique to each line of business and accident year and the judgmentand expertise of our actuary and management.The following table provides case and IBNR reserves for losses and settlement expenses as of December 31, 2016 and 2015.As of December 31, 2016 Actuarially DetermindedRange of Estimates(In thousands)Case Reserves IBNR Reserves Total Reserves Low HighCommercial liability$15,627 $14,655 $30,282 Property2,652 4,036 6,688 Other1,892 1,840 3,732 Total net reserves20,171 20,531 40,702 $36,178 $41,107 Reinsurance recoverables7,595 4,520 12,115 9,431 12,637 Gross reserves$27,766 $25,051 $52,817 $45,609 $53,744 As of December 31, 2015Actuarially DetermindedRange of Estimates(In thousands)Case Reserves IBNR Reserves Total Reserves Low HighCommercial liability$17,713 $13,850 $31,563 Property1,984 1,295 3,279 Other3,443 3,613 7,056 Total net reserves23,140 18,758 41,898 $37,725 $42,886 Reinsurance recoverables10,230 8,928 19,158 13,773 17,799 Gross reserves$33,370 $27,686 $61,056 $51,498 $60,685 Our actuary determined a range of reasonable reserve estimates which reflect the uncertainty inherent in the loss reserveprocess. This range does not represent the range of all possible outcomes. We believe that the actuarially-determined rangesrepresent reasonably likely changes in the loss and settlement expense estimates, however actual results could differ significantlyfrom these estimates. The range was determined by line of business and accident year after a review of the output generated by thevarious actuarial methods utilized. The actuary reviewed the variance around the select loss reserve estimates for each of theactuarial methods and selected reasonable low and high estimates based on his knowledge and judgment. In making thesejudgments the actuary typically assumed, based on his experience, that the larger the reserve the less volatility and that propertyreserves would exhibit less volatility than casualty reserves. In addition, when selecting these low and high estimates, the actuaryconsidered:·historical industry development experience in our business line;·historical company development experience;·the impact of court decisions on insurance coverage issues, which can impact the ultimate cost of settling claims; ~ 50 ~ Table of Contents ·changes in our internal claims processing policies and procedures; and·trends and risks in claim costs, such as risk that medical cost inflation could increase.Our actuary is required to exercise a considerable degree of judgment in the evaluation of all of these and other factors in theanalysis of our loss and settlement expense reserves, and related range of anticipated losses. Because of the level of uncertaintyimpacting the estimation process, it is reasonably possible that different actuaries would arrive at different conclusions. Themethod of determining the reserve range has not changed and the reserve range generated by our actuary is consistent with theobserved development of our loss reserves over the last few years.The width of the range in reserves arises primarily because specific losses may not be known and reported for some period andthe ultimate losses paid and settlement expenses incurred with respect to known losses may be larger than currently estimated. Theultimate frequency or severity of these claims can be very different than the assumptions we used in our estimation of ultimatereserves for these exposures.Specifically, the following factors could impact the frequency and severity of claims, and therefore, the ultimate amount ofloss and settlement expense paid:·the rate of increase in labor costs, medical costs, and material costs that underlie insured risks;·development of risk associated with our expanding producer relationships and our growth in new states or states where wecurrently have small market share; and·impact of changes in laws or regulations.The estimation process for determining the liability for unpaid loss and settlement expense inherently results in adjustmentseach year for claims incurred (but not paid) in preceding years. Negative amounts reported for claims incurred related to prior yearsare a result of claims being settled for amounts less than originally estimated (favorable development). Positive amounts reportedfor claims incurred related to prior years are a result of claims being settled for amounts greater than originally estimated(unfavorable development). For the years ended December 31, 2016 and 2015, we experienced favorable development of $1.3million and $0.5 million, respectively.Potential for variability in our reserves is evidenced by this development. As further illustration of reserve variability, weinitially estimated unpaid loss and settlement expense net of reinsurance at the end of 2015 at $41.9 million. As of December 31,2016, that reserve was re-estimated at $40.6 million, which is $1.3 million, or 3.1%, lower than the initial estimate. As discussed earlier, the estimation of our reserves is based on several actuarial methods, each of which incorporates manyquantitative assumptions. The judgment of the actuary plays an important role in selecting among various loss developmentfactors and selecting the appropriate method, or combination of methods, to use for a given accident year. The ranges presentedabove represent the expected variability around the actuarially determined central estimate. The total range around our actuariallydetermined estimate varies from (1.9)% to 11.5%. As shown in the table below, since 2011 the variance in our originally estimatedaccident year loss reserves has ranged from (4.0%) deficient to 12.0% redundant as of December 31, 2016.Recent Variabilities of Incurred Losses and Settlement Expense, Net of ReinsuranceAccident Year Data(In thousands)20112012201320142015As originally estimated $19,420 $19,276 $22,064 $22,267 $24,293 As estimated at December 31, 201618,290 19,185 21,589 23,156 21,374 Net cumulative redundancy (deficiency)$1,130 $91 $475 $(889)$2,919 % redundancy (deficiency)5.8% 0.5% 2.2% (4.0)%12.0% ~ 51 ~ Table of Contents The table below summarizes the impact on equity, net of tax, from changes in estimates of net unpaid loss and settlementexpense: December 31,20162015(In thousands)Aggregate Lossand SettlementReservePercentageChange inEquityAggregate Lossand SettlementReservePercentageChange inEquityReserve Range for Unpaid Losses and SettlementExpenseLow End$36,178 8.9% $37,725 9.1% Recorded40,702 0.0% 41,898 0.0% High End41,107 (0.8)%42,886 (2.2)%If the net loss and settlement expense reserves were recorded at the high end of the actuarially-determined range as ofDecemeber 31, 2016, the loss and settlement expense reserves would increase by $405,000 before taxes. This increase in reserveswould have the effect of decreasing net income and equity as of December 31, 2016 by $267,000. If the loss and settlementexpense reserves were recorded at the low end of the actuarially-determined range, the net loss and settlement expense reserves atDecember 31, 2016 would be reduced by $4.5 million with corresponding increases in net income and equity of $3.0 million.InvestmentsOur fixed maturity and equity securities investments are classified as available-for-sale and carried at estimated fair value asdetermined by management based upon quoted market prices or a recognized pricing service at the reporting date for those orsimilar investments. Changes in unrealized investment gains or losses on our investments, net of applicable income taxes, arereflected directly in equity as a component of comprehensive income (loss) and, accordingly, have no effect on net income (loss).Investment income is recognized when earned, and capital gains and losses are recognized when investments are sold, or other-than-temporarily impaired.The fair value and unrealized losses for our securities that were temporarily impaired are as follows: December 31, 2016Less than 12 Months12 Months or LongerTotal(In thousands)Fair ValueUnrealizedLossesFair ValueUnrealizedLossesFair ValueUnrealizedLossesU.S. Treasury$994 $(6)$ —$ —$994 $(6)MBS/ABS/CMBS10,713 (257)323 (1)11,036 (258)Corporate5,476 (76)984 (15)6,460 (91)Municipal2,995 (135) — —2,995 (135)Total fixed maturities20,178 (474)1,307 (17)21,485 (491)Common equity/ETF securities — —446 (34)446 (34)Preferred stocks2,328 (132) — —2,328 (132)Total temporarily impaired securities$22,506 $(606)$1,753 $(50)$24,259 $(656) ~ 52 ~ Table of Contents December 31, 2015Less than 12 Months12 Months or LongerTotal(In thousands)Fair ValueUnrealizedLossesFair ValueUnrealizedLossesFair ValueUnrealizedLossesU.S. Treasury$1,233 $(10)$ —$ —$1,233 $(10)MBS/ABS/CMBS9,405 (126)729 (18)10,134 (144)Corporate11,205 (480)1,263 (42)12,468 (522)Total fixed maturities21,843 (616)1,992 (60)23,835 (676)Common equity/ETF securities398 (31)3,222 (387)3,620 (418)Preferred stocks — — — — — —Total temporarily impaired securities$22,241 $(647)$5,214 $(447)$27,455 $(1,094)The unrealized losses as of December 31, 2016 and 2015 were primarily related to changes in the interest rateenvironment. Fair values of interest rate sensitive instruments may be affected by increases and decreases in prevailing interestrates which generally translate, respectively, into decreases and increases in fair values of fixed maturity investments. The fairvalues of interest rate sensitive instruments also may be affected by the credit worthiness of the issuer, prepayment options, relativevalues of other investments, the liquidity of the instrument, and other general market conditions.We monitor our investment portfolio and review securities that have experienced a decline in fair value below cost to evaluatewhether the decline is other than temporary. When assessing whether the amortized cost basis of the security will be recovered, wecompare the present value of the cash flows likely to be collected, based on an evaluation of all available information relevant tothe collectability of the security, to the amortized cost basis of the security. The shortfall of the present value of the cash flowsexpected to be collected in relation to the amortized cost basis is referred to as the “credit loss.” If there is a credit loss, theimpairment is considered to be other-than-temporary. If we identify that an other-than-temporary impairment loss has occurred, wethen determine whether we intend to sell the security, or if it is more likely than not that we will be required to sell the securityprior to recovering the amortized cost basis less any current-period credit losses. If we determine that we do not intend to sell, andit is not more likely than not that we will be required to sell the security, the amount of the impairment loss related to the creditloss will be recorded in earnings, and the remaining portion of the other-than-temporary impairment loss will be recognized inother comprehensive income (loss), net of tax. If we determine that we intend to sell the security, or that it is more likely than notthat we will be required to sell the security prior to recovering its amortized cost basis less any current-period credit losses, the fullamount of the other-than-temporary impairment will be recognized in earnings.For the year ended December 31, 2016, the Company incurred $0.2 million of OTTI losses on two securities that wereimpaired and subsequently sold during the last three months of 2016. During 2015 the Company did not recognize anyimpairment losses. Adverse investment market conditions, or poor operating results of underlying investments, could result inimpairment charges in the future.We use quoted values and other data provided by independent pricing services in our process for determining fair values ofour investments. The evaluations of such pricing services represent an exit price and a good faith opinion as to what a buyer in themarketplace would pay for a security in a current sale. This pricing service provides us with one quote per instrument. For fixedmaturity securities that have quoted prices in active markets, market quotations are provided. For fixed maturity securities that donot trade on a daily basis, the independent pricing service prepares estimates of fair value using a wide array of observable inputsincluding relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing.The observable market inputs that our independent pricing service utilizes may include (listed in order of priority for use)benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, marketbids/offers, and other reference data on markets, industry, and the economy. Additionally, the independent pricing service uses anoption adjusted spread model to develop prepayment and interest rate scenarios. The pricing service did not use broker quotes indetermining fair values of our investments.Should the independent pricing service be unable to provide a fair value estimate, we would attempt to obtain a non-bindingfair value estimate from a number of broker-dealers and review this estimate in conjunction with a fair value estimate reported byan independent business news service or other sources. In instances where only one broker-dealer provides a fair value for a fixedmaturity security, we use that estimate. In instances where we are able to obtain fair value estimates from more than one broker-dealer, we would review the range of estimates and would select the most appropriate value based on the facts and circumstances.Should neither the independent pricing service nor a broker-dealer provide a fair value estimate, we would develop a fairvalue estimate based on cash flow analyses and other valuation techniques that utilize certain unobservable inputs. Accordingly,we would classify such a security as a Level 3 investment. ~ 53 ~ Table of Contents The fair value estimates of our investments provided by the independent pricing service at December 31, 2016 and December31, 2015, respectively, were utilized, among other resources, in reaching a conclusion as to the fair value of our investments.Management reviews the reasonableness of the pricing provided by the independent pricing service by employing variousanalytical procedures. We review all securities to identify recent downgrades, significant changes in pricing, and pricinganomalies on individual securities relative to other similar securities. This will include looking for relative consistency acrosssecurities in common sectors, durations, and credit ratings. This review will also include all fixed maturity securities rated lowerthan “A” by Moody’s or S&P. If, after this review, management does not believe the pricing for any security is a reasonableestimate of fair value, then it will seek to resolve the discrepancy through discussions with the pricing service. In our review we didnot identify any such discrepancies for the years ended December 31, 2016 and 2015, and no adjustments were made to theestimates provided by the pricing service. The classification within the fair value hierarchy of Accounting Standards Codification(ASC) Topic 820, Fair Value Measurement, is then confirmed based on the final conclusions from the pricing review.Deferred Policy Acquisition CostsCertain acquisition costs consisting of direct and ceded commissions, premium taxes and certain other direct underwritingexpenses that vary with and are primarily related to the production of business are deferred and amortized over the effective periodof the related insurance policies as the underlying policy premiums are earned. At December 31, 2016 and 2015, deferredacquisition costs and the related unearned premium reserves were as follows: December 31,20162015Deferred acquisition costs$4,163 $3,983 Unearned premium reserves24,778 23,948 The method followed in computing deferred acquisition costs limits the amount of deferred costs to their estimated realizablevalue, which gives effect to the premium to be earned, related investment income, loss and settlement expenses, and certain othercosts expected to be incurred as the premium is earned. Future changes in estimates, the most significant of which is expected lossand settlement expenses, may require adjustments to deferred policy acquisition costs. If the estimation of net realizable valueindicates that the deferred acquisition costs are not recoverable, they would be written off.Income TaxesWe use the asset and liability method of accounting for income taxes. Deferred income taxes arise from the recognition oftemporary differences between financial statement carrying amounts and the tax bases of our assets and liabilities. A valuationallowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. The effect of achange in tax rates is recognized in the period of the enactment date.We had net deferred tax assets of $0.9 million and $1.4 million at December 31, 2016 and 2015, respectively. A valuationallowance is required to be established for any portion of the deferred tax asset for which we believe it is more likely than not thatit will not be realized. At December 31, 2016 and 2015, we had no valuation allowance with respect to our deferred tax asset.We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets.These judgments require us to make projections of future taxable income. The judgments and estimates we make in determiningour deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factorschange. Any reduction in estimated future taxable income may require us to record an additional valuation allowance against ourdeferred tax assets.As of December 31, 2016 and 2015, we had no material unrecognized tax benefits or accrued interest and penalties. Federaltax years 2013 through 2015 are open for examination. The tax return related to the year ended December 31, 2016 has not yetbeen filed.Other Assets As of December 31, 2016 and 2015, other assets totaled $2.4 million and $0.9 million, respectively. Deferred stock offeringand conversion expenses account for $1.3 million of the increase. ~ 54 ~ Table of Contents Outstanding DebtAs of December 31, 2016 and 2015, outstanding debt balances totaled $3.8 million and $3.3 million, respectively. On August31, 2016, surplus notes, with an initial par value of $250,000 and remaining outstanding principal of $71,000 as of such date,matured. We incurred interest expense for the years ended December 31, 2016 and 2015 of $226,000 and $136,000, respectively.The average interest rate on debt in was 5.0% in 2016 compared to 4.8% in 2015. The debt balance is comprised of surplus notes,leasehold obligations, debt obligations, home office mortgage, and our revolving line of credit.Surplus NotesWe had $1.85 million and $1.9 million of surplus notes issued, for cash, and outstanding as of December 31, 2016 and 2015,respectively. Payment of principal and interest on all surplus notes requires specific approval by the Illinois Department ofInsurance. Our obligation to pay principal and interest on surplus notes is subordinate to the insurance claims of policyholders ofICC in accordance with terms of Section 56 of the Illinois Insurance Code.Subject to the approval of the Director of Insurance of the State of Illinois and the applicable provisions of the IllinoisInsurance Code, the noteholder had the right at the time of a stock conversion of ICC, upon not less than thirty (30) days’ writtennotice to us, to convert all or any portion of the outstanding principal amount of the note into shares of our common stock.Additional information regarding each surplus note follows:​PrincipalTotalUnapproved​Par ValueCarryingand/orPrincipalPrincipal​Interest(Face AmountValue ofInterest Paidand/orand/orDate ofDate IssuedRateof Notes)NoteCurrent YearInterest PaidInterestMaturity12/31/20035.35% 1,600,000 1,600,000 85,600 1,116,800 —12/31/20337/15/20047.00% 410,000 250,000 17,500 461,207 —7/15/20348/31/20047.00% 250,000 —72,857 413,161 —8/31/20162,260,000 1,850,000 175,957 1,991,168 —Note holders are entitled to 1/28th of the principal each year. To date, the note holders of the surplus notes maturing onDecember 31, 2033 and July 15, 2034 have elected to waive principal repayment. The terms of the note allow for the conversion toequity should the company convert from a mutual insurance company to a stock insurance company.Leasehold ObligationsWe entered into a sale leaseback arrangement in 2016 that is accounted for as a capital lease. Under the agreement, the thirdparty finance company purchased electronic data processing software and titled vehicles which are leased to us. These assetsremain on our books due to provisions within the agreement that trigger capital lease accounting. To secure the lowest ratepossible of 4.7%, we pledged bonds totaling $0.8 million during 2016, bringing the total pledged to $1.8 million and $0.9 millionas of December 31, 2016 and 2015, respectively. There was no gain or loss recognized as part of this transaction. Lease paymentstotaled $454,000 and $64,000 for the years ended Decemeber 31, 2016 and 2015, respectively. The term of the electronic dataprocessing lease is 48 months and the term of the titled vehicles lease is 36 months. The outstanding lease obligation at December31, 2016, was $1.2 million and was included in corporate debt on the consolidated balance sheet.Future minimum lease payments for the five succeeding years as of December 31, 2016 are:YearAmount2017$501,972 2018501,972 2019361,374 202030,190 Totalpayments1,395,508 Less: Interest portion167,967 Totaloustandingleaseobligation$1,227,541 ~ 55 ~ Table of Contents Debt ObligationAdditionally, the Company entered into two debt agreements in 2016; one agreement for $500,000 and another debtagreement for $75,000. The terms of the loans are 36 months, but the Company has the option to prepay after 12 months. The loansbear interest at 4.7%. Interest paid for the twelve months ended December 31, 2016 and 2015 was $8,146 and $0, respectively.Home Office MortgageWe maintain a mortgage on our home office. Interest is charged at a fixed rate of 2.6% and the loan matures in 2017. Thebuilding is used as collateral to secure the loan. The loan balance at year end 2016 and 2015 was $184,000 and $492,000,respectively. The interest paid on the loan in 2016 was $9,000 and $17,000 in 2015.Payments due subsequent to December 31, 2016 are summarized below:YearAmount2017$185,395 Less: Interest portion25000 1,605 Totaloutstandingmortgageobligation$183,790 Revolving Line of CreditWe maintain a revolving line of credit with American Bank & Trust, which permits borrowing up to an aggregate principalamount of $2.0 million. This facility was entered into during 2013 and is renewed annually with a current expiration of August 1,2017. The line of credit is priced at 30 day LIBOR plus 2% with a floor of 3.5%. Interest paid on the line of credit in 2016 wasimmaterial. There are no financial covenants governing this agreement. For the years ended December 31, 2016 and 2015, noamounts were outstanding on this facility.For information regarding our reinsurance program, investment portfolio, unpaid losses and settlement information, see Item 1.Business. ESOPIn connection with the offering, the ESOP purchased 350,000 shares, or 10.0% of the common stock issued. The Companyborrowed $3.5 million at an interest rate of 3.65% to fund the purchase of these shares and will make annual contributions to theESOP sufficient to repay that loan.Stock-based Incentive PlanUnder the stock-based incentive plan, we may issue a total number of shares equal to 14% of the shares of common stock thatare issued in the offering. Of this amount, an amount equal to 10% of the shares of common stock issued in the offering may beused to make restricted stock and stock-settled restricted stock unit awards and 4% of the shares of common stock issued in theoffering may be used to award stock options under the stock-based incentive plan. The grant-date fair value of any common stockused for restricted stock and restricted stock unit awards will represent unearned compensation. As we accrue compensationexpense to reflect the vesting of such shares, unearned compensation will be reduced accordingly. We will also computecompensation expense at the time stock options are awarded based on the fair value of such options on the date they are granted.This compensation expense will be recognized over the appropriate service period. Implementation of the stock-based incentiveplan is subject to shareholder approval. Liquidity and Capital ResourcesWe generate sufficient funds from our operations and maintain a high degree of liquidity in our investment portfolio to meetthe demands of claim settlements and operating expenses. The primary sources of funds are premium collections, investmentearnings and maturing investments.We maintain investment and reinsurance programs that are intended to provide sufficient funds to meet our obligationswithout forced sales of investments. We maintain a portion of our investment portfolio in relatively short-term and highly liquidassets to ensure the availability of funds. ~ 56 ~ Table of Contents Upon completion of the offering, we became subject to the proxy solicitation, periodic reporting, insider trading prohibitionsand other requirements of the Exchange Act and to most of the provisions of the Sarbanes-Oxley Act of 2002. We estimate that thecost of initial compliance with the requirements of the Sarbanes-Oxley Act will be approximately $300,000 and that compliancewith the ongoing requirements of the Exchange Act and the Sarbanes-Oxley Act will result in an increase of approximately$200,000 in our annual operating expenses.Cash flows from continuing operations for the years ended December 31, 2016 and 2015 were as follows:Years ended December 31,(In thousands)20162015Net cash provided by operating activities$4,592 $5,745 Net cash used in investing activities(1,602)(5,195)Net cash (used in) provided by financing activities(792)488 Net increase (decrease) in cash and cash equivalents$2,198 $1,038 ICC Holdings, Inc’s principal source of liquidity will be dividend payments and other fees received from ICC and ICC Realty,LLC. ICC is restricted by the insurance laws of Illinois as to the amount of dividends or other distributions it may pay to us. UnderIllinois law, there is a maximum amount that may be paid by ICC during any twelve-month period. ICC may pay dividends to usafter notice to, but without prior approval of the Illinois Department of Insurance in an amount “not to exceed” the greater of (i)10% of the surplus as regards policyholders of ICC as reported on its most recent annual statement filed with the IllinoisDepartment of Insurance, or (ii) the statutory net income of ICC for the period covered by such annual statement. Dividends inexcess of this amount are considered “extraordinary” and are subject to the approval of the Illinois Department of Insurance.The amount available for payment of dividends from ICC in 2017 without the prior approval of the Illinois Department ofInsurance is approximately $3.4 million based upon the insurance company’s 2016 annual statement. Prior to its payment of anydividend, ICC is required to provide notice of the dividend to the Illinois Department of Insurance. This notice must be providedto the Illinois Department of Insurance 30 days prior to the payment of an extraordinary dividend and 10 days prior to the paymentof an ordinary dividend. The Illinois Department of Insurance has the power to limit or prohibit dividend payments if ICC is inviolation of any law or regulation. These restrictions or any subsequently imposed restrictions may affect our future liquidity.The following table summarizes, as of December 31, 2016, our future payments under contractual obligations and estimatedclaims and claims related payments for continuing operations. Payments due by period(In thousands)TotalLess than 1year1-3 years3-5 yearsMore than 5yearsEstimated gross loss and settlment expensepayments$52,817 $20,863 $20,704 $7,130 $4,120 Operating lease obligations79 44 35 — —Total$52,896 $20,906 $20,739 $7,130 $4,120 The timing of the amounts of the gross loss and settlement expense payments is an estimate based on historical experience andthe expectations of future payment patterns. However, the timing of these payments may vary from the amounts stated above. Off-Balance Sheet ArrangementsWe have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financialcondition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capitalreserves. Recent Accounting PronouncementsIn August 2016, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016 15,Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments. The guidance addresses eight specific cashflow issues with the objective of reducing existing diversity in practice. The new guidance is effective beginning after December15, 2018, and it is not expected to have a material impact on the Company’s cash flows. ~ 57 ~ Table of Contents In June 2016, the FASB issued ASU No. 2016 13, Financial Instruments Credit Losses. The guidance affects the recognition ofexpected credit losses. Credit losses relating to available for sale securities will be recorded through an allowance for credit losses.The amendments will be applied to fiscal years beginning after December 15, 2020 and early adoption is permitted as of fiscalyears beginning after December 15, 2018. The effect of applying the new guidance on accounting for credit losses has not yet beendetermined.In February 2016, FASB issued ASU No. 2016 02, Leases, which will supersede the current lease requirements in ASC 840.The ASU requires lessees to recognize a right of use asset and related lease liability for all leases, with a limited exception for shortterm leases. Leases will be classified as either finance or operating, with the classification affecting the pattern of expenserecognition in the statement of operations. Currently, leases are classified as either capital or operating, with only capital leasesrecognized on the balance sheet. The reporting of lease related expenses in the statements of operations and cash flows will begenerally consistent with the current guidance. The new lease guidance will be effective for the Company’s year ending December31, 2020 and will be applied using a modified retrospective transition method to the beginning of the earliest period presented.The effect of applying the new lease guidance on the consolidated financial statements is expected to be minimal due to currentand future lease obligations being immaterial.In January 2016, FASB issued ASU No. 2016 01, Financial Instruments Overall: Recognition and Measurement of FinancialAssets and Financial Liabilities. The guidance affects the accounting for equity investments, financial liabilities under the fairvalue option, and the presentation and disclosure requirements of financial instruments. The amendments will be applied to fiscalyears beginning after December 15, 2018. Early adoption is permitted for the accounting guidance on financial liabilities underthe fair value option. The Company will make a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscalyear of adoption. The primary impact this guidance will have on our financial statements relates to recognizing changes in the fairvalue of equity securities through the statement of earnings. The impact to our statement of earnings will vary depending upon thelevel of volatility in the performance of the securities held in our equity portfolio and the overall market.In May 2015, FASB issued ASU No. 2015-09, Disclosure about Short-Duration Contracts. The guidance addresses enhanceddisclosure requirements for insurers relating to short-duration insurance contract claims and the unpaid claims liability rollforwardfor long and short-duration contracts. This ASU is effective for annual reporting periods beginning after December 15, 2015, andfor interim periods after December 15, 2016. Early adoption is permitted. The Company has adopted this ASU for the year endedDecember 31, 2017 and while disclosures will be increased, management does not believe adoption will have a material effect onthe Company’s financial statements.In May 2014, FASB issued ASU No. 2014 09, Revenue from Contracts with Customers (Topic 606), which will supersede thecurrent revenue recognition requirements in Topic 605, Revenue Recognition. The ASU is based on the principle that revenue isrecognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entityexpects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature,amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments andchanges in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The new guidance will be effectivefor the Company’s year ending December 31, 2019. The effect of applying this on the consolidated financial statements is notexpected to have a material impact. ~ 58 ~ Table of Contents Item 7A. Quantitative and Qualitative Information about Market RiskMarket RiskMarket risk is the risk that we will incur losses due to adverse changes in the fair value of financial instruments. We haveexposure to three principal types of market risk through our investment activities: interest rate risk, credit risk and equity risk. Ourprimary market risk exposure is to changes in interest rates. We have not entered, and do not plan to enter, into any derivativefinancial instruments for hedging, trading or speculative purposes.Interest Rate RiskInterest rate risk is the risk that we will incur economic losses due to adverse changes in interest rates. Our exposure to interestrate changes primarily results from our significant holdings of fixed rate investments. Fluctuations in interest rates have a directimpact on the fair value of these securities.The average maturity of the debt securities in our investment portfolio at December 31, 2016, was 6.71 years. Our debtsecurities investments include U.S. government bonds, securities issued by government agencies, obligations of state and localgovernments and governmental authorities, and corporate bonds, most of which are exposed to changes in prevailing interest ratesand which may experience moderate fluctuations in fair value resulting from changes in interest rates. We carry these investmentsas available for sale. This allows us to manage our exposure to risks associated with interest rate fluctuations through active reviewof our investment portfolio by our management and board of directors and consultation with our third party investment manager.Fluctuations in near-term interest rates could have an impact on our results of operations and cash flows. Certain of thesesecurities may have call features. In a declining interest rate environment these securities may be called by their issuer andreplaced with securities bearing lower interest rates. If we are required to sell these securities in a rising interest rate environmentwe may recognize losses.As a general matter, we attempt to match the durations of our assets with the durations of our liabilities. Our investmentobjectives include maintaining adequate liquidity to meet our operational needs, optimizing our after-tax investment income, andour after-tax total return, all of which are subject to our tolerance for risk.The table below shows the interest rate sensitivity of our fixed maturity investments measured in terms of fair value (which isequal to the carrying value for all of our investment securities that are subject to interest rate changes):December 31, 2016Hypothetical Change in Interest Rates (In thousands)Estimated Change inFair ValueFair Value200 basis point increase$(5,746)$58,388 100 basis point increase(2,950)61,184 No change —64,134 100 basis point decrease2,931 67,065 200 basis point decrease5,246 69,380 Credit RiskCredit risk is the potential economic loss principally arising from adverse changes in the financial condition of a specific debtissuer. We address this risk by investing primarily in fixed maturity securities that are rated investment grade and at least 70% ofour investment securities must be rated at least “A” by Moody’s or an equivalent rating quality. We also independently, andthrough our independent third party investment manager, monitor the financial condition of all of the issuers of fixed maturitysecurities in the portfolio. To limit our exposure to risk, we employ diversification rules that limit the credit exposure to any singleissuer or asset class.Equity RiskEquity price risk is the risk that we will incur economic losses due to adverse changes in equity prices. ~ 59 ~ Table of Contents Impact of InflationInflation increases our customers’ needs for property and casualty insurance coverage due to the increase in the value of theproperty covered and any potential liability exposure. Inflation also increases claims incurred by property and casualty insurers asproperty repairs, replacements and medical expenses increase. These cost increases reduce profit margins to the extent that rateincreases are not implemented on an adequate and timely basis. We establish property and casualty insurance premiums levelsbefore the amount of loss and loss expenses, or the extent to which inflation may impact these expenses, are known. Therefore, weattempt to anticipate the potential impact of inflation when establishing rates. Because inflation has remained relatively low inrecent years, financial results have not been significantly affected by it. ~ 60 ~ Table of Contents Item 8. Financial Statements and Supplementary DataIndex to Financial Statements ​Report of Independent Accounting Firm62 Financial Statements ​Consolidated Balance Sheets (As of December 31, 2016 and 2015)63 ​Consolidated Statements of Earnings and Comprehensive Earnings (Years ended December 31, 2016 and 2015)64 ​Consolidated Statements of Policyholders’ Equity (Years ended December 31, 2016 and 2015)65 ​Consolidated Statements of Cash Flows (Years ended December 31, 2016 and 2015)66 ​Notes to Consolidated Financial Statements67 ​Supplemental Report of Independent Accounting Firm 88 ​Schedules to Consolidated Financial Statements 89 ~ 61 ~ Table of Contents Report of Independent Registered Public Accounting FirmAudit Committee, Board of Directors and PolicyholdersIllinois Casualty CompanyRock Island, IllinoisWe have audited the accompanying consolidated balance sheets of Illinois Casualty Company as of December 31, 2016 and 2015,and the related consolidated statements of earnings and comprehensive earnings, policyholders’ equity and cash flows for each ofthe years then ended. The Company's management is responsible for these financial statements. Our responsibility is to express anopinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (UnitedStates). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financialstatements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of itsinternal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basisfor designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion onthe effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our auditsalso included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positionof Illinois Casualty Company as of December 31, 2016, and 2015, and the results of its operations and its cash flows for each of theyears then ended, in conformity with accounting principles generally accepted in the United States of America.BKD, LLPCincinnati, OhioMarch 31, 2017 ~ 62 ~ Table of Contents Illinois Casualty Company and Subsidiaries Consolidated Balance SheetsDecember 31,20162015AssetsInvestments and cash:Available for sale securities, at fair valueFixed maturity securities (amortized cost - $62,929,091 at$64,134,023 $65,195,308 12/31/2016 and $63,994,827 at 12/31/2015)Common equity securities (cost - $6,311,708 at6,982,547 8,884,951 12/31/2016 and $9,282,252 at 12/31/2015)Preferred stocks (cost - $2,925,434 at2,798,413 —12/31/2016 and $0 at 12/31/2015)Property held for investment, at cost, net of accumulated depreciation of2,207,424 561,051 $50,948 at 12/31/2016 and $3,155 at 12/31/2015Cash and cash equivalents4,376,847 2,179,511 Total investments and cash80,499,254 76,820,821 Accrued investment income524,156 580,786 Premiums and reinsurance balances receivable, net of allowances for17,479,487 15,637,909 uncollectible amounts of $50,000 at 12/31/2016 and $100,000 at 12/31/2015Ceded unearned premiums270,751 57,304 Reinsurance balances recoverable on unpaid losses and settlement12,114,998 19,535,058 expenses, net of allowances for uncollectible amounts of$0 at 12/31/2016 and 12/31/2015Current federal income taxes149,252 773,206 Net deferred federal income taxes888,254 1,400,652 Deferred policy acquisition costs, net4,162,927 3,982,734 Property and equipment, at cost, net of accumulated depreciation of3,719,535 3,680,048 $4,308,246 at 12/31/2016 and $3,553,073 at 12/31/2015Other assets2,351,347 904,864 Total assets$122,159,961 $123,373,382 Liabilities and EquityLiabilities:Unpaid losses and settlement expenses$52,817,254 $61,055,626 Unearned premiums24,777,712 23,948,476 Reinsurance balances payable109,790 —Corporate debt3,786,950 3,273,560 Accrued expenses4,827,042 4,096,190 Other liabilities2,241,003 833,795 Total liabilities88,559,751 93,207,647 Equity:Accumulated other comprehensive earnings, net of tax1,154,175 530,097 Retained earnings32,446,035 29,635,638 Total equity33,600,210 30,165,735 Total liabilities and equity$122,159,961 $123,373,382 See accompanying notes to consolidated financial statements. ~ 63 ~ Table of Contents Illinois Casualty Company and Subsidiaries Consolidated Statements of Earnings and Comprehensive EarningsYears ended December 31,20162015Net premiums earned$42,611,365 $40,219,861 Net investment income1,967,938 1,332,520 Net realized investment gains249,923 80,527 Other-than-temporary impairment charges(212,731) —Other income254,447 189,902 Consolidated revenues44,870,942 41,822,810 Losses and settlement expenses24,344,551 23,800,514 Policy acquisition costs15,848,547 14,555,411 Interest expense on debt226,095 136,295 General corporate expenses464,383 314,120 Total expenses40,883,576 38,806,340 Earnings before income taxes3,987,366 3,016,470 Income tax expense:Current986,066 461,567 Deferred190,903 400,175 Total income tax expense1,176,969 861,742 Net earnings$2,810,397 $2,154,728 Other comprehensive earnings (loss), net of taxUnrealized gains and losses on investments:Unrealized holding gains (losses) arising during the period,net of income tax expense of $334,139 in 2016and income tax (benefit) of $(500,057) in 2015$648,625 $(970,699)Reclassification adjustment for (gains) included in netincome, net of income tax expense of $12,645 in 2016and expense of $27,379 in 2015(24,547)(53,148)Total other comprehensive earnings (loss)624,078 (1,023,847)Comprehensive earnings$3,434,475 $1,130,881 See accompanying notes to consolidated financial statements. ~ 64 ~ Table of Contents Illinois Casualty Company and SubsidiariesConsolidated Statements of Policyholders’ EquityRetainedearningsAccumulatedothercomprehensiveearningsTotal equityBalance, January 1, 2015$27,480,910 $1,553,944 $29,034,854 Net earnings2,154,728 2,154,728 Other comprehensive loss, net of tax(1,023,847)(1,023,847)Balance, December 31, 201529,635,638 530,097 30,165,735 Net earnings2,810,397 2,810,397 Other comprehensive earnings, net of tax624,078 624,078 Balance, December 31, 2016$32,446,035 $1,154,175 $33,600,210 See accompanying notes to consolidated financial statements. ~ 65 ~ Table of Contents Illinois Casualty Company and SubsidiariesConsolidated Statements of Cash FlowsYears ended December 31,20162015Cash flows from operating activities:Net earnings$2,810,397 $2,154,728 Adjustments to reconcile net earnings to net cash providedby operating activitiesNet realized investment gains(249,923)(80,527)Other-than-temporary impairment charges212,731 —Depreciation817,774 505,555 Deferred income tax190,903 400,175 Amortization of bond premium and discount246,470 278,496 Change in:Accrued investment income56,630 (41,768)Premiums and reinsurance balances receivable (net)(1,841,578)(1,116,020)Reinsurance balances payable109,790 —Ceded unearned premium(213,447)(39,452)Reinsurance balances recoverable on unpaid losses7,420,060 6,319,975 Deferred policy acquisition costs(180,193)(182,190)Accrued expenses730,852 350,415 Unpaid losses and settlement expenses(8,238,372)(3,561,384)Unearned premiums829,236 1,450,871 Current federal income tax623,954 (488,433)Other1,266,466 (205,914)Net cash provided by operating activities4,591,750 5,744,527 Cash flows from investing activities:Purchases of:Fixed income, available-for-sale(10,410,051)(13,319,250)Common equity/ETF securities, available-for-sale(1,897,147)(221,233)Preferred stock, available-for-sale(3,036,468) —Property and equipment(856,504)(644,805)Property held for investment(1,703,690)(561,051)Proceeds from sales, maturities and calls of:Fixed income, available-for-sale11,437,484 9,486,713 Common equity/ETF securities, available-for-sale4,708,756 —Preferred stock, available-for-sale98,998 —Property and equipment47,036 65,104 Property held for investment9,524 Net cash used in investing activities(1,602,062)(5,194,522)Cash flows from financing activities:Proceeds from loan575,000 Proceeds from sale leaseback777,643 911,527 Repayments of borrowed funds(839,254)(423,677)Demutualization and initial public offering costs(1,305,741) —Net cash (used in) provided by financing activities(792,352)487,850 Net increase in cash2,197,336 1,037,855 Cash and cash equivalents at beginning of year2,179,511 1,141,656 Cash and cash equivalents at end of year$4,376,847 $2,179,511 Supplemental information:Federal income tax paid$300,000 $950,000 Interest paid$225,964 $136,506 See accompanying notes to consolidated financial statements. ~ 66 ~ Table of Contents Notes to Consolidated Financial Statements1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESA. DESCRIPTION OF BUSINESSICC Holdings, Inc. is a Pennsylvania corporation that was organized in 2016. ICC Holdings, Inc. was formed so that it couldacquire all of the capital stock of Illinois Casualty Company (ICC) in the mutual-to-stock conversion. Prior to the conversion onMarch 30, 2017, ICC Holdings, Inc did not engage in any operations. After the conversion, ICC Holdings, Inc’s primary assets arethe outstanding capital stock of ICC, the outstanding membership interests of ICC Realty, LLC and a portion of the net proceedsfrom the stock offering completed in connection with the mutual-to-stock conversion. These financial statements presented hereinare for ICC, as it was the ultimate reporting entity as of December 31, 2016.As used in this Form 10-K, references to “the Company,” “we,” “us,” and “our” refer to the consolidated group. On a stand-alone basis ICC Holdings, Inc is referred to as the “Parent Company.” The consolidated group consists of the holding company,ICC Holdings, Inc., an operating insurance company, ICC, and ICC’s three wholly-owned subsidiaries, Beverage InsuranceAgency, Inc., an inactive insurance agency, Estrella Innovative Solutions, Inc., an outsourcing company, and ICC Realty, LLC, areal estate services and holding company. ICC is an Illinois insurance company.We are a specialty insurance carrier primarily underwriting commercial multi-peril, liquor liability, workers’ compensation,and umbrella liability coverages for the food and beverage industry through our subsidiary insurance company, ICC. ICC writesbusiness in Illinois, Iowa, Indiana, Minnesota, Missouri, Wisconsin, and Ohio and markets through independent agents.Approximately 36.9% and 35.7% of the premium is written in Illinois for the years ended December 31, 2016 and 2015,respectively. The Company has three wholly owned subsidiaries, Beverage Insurance Agency, Estrella Innovative Solutions, Inc.,and ICC Realty, LLC.; however the Company operates as a single segment.B. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATIONThe accompanying consolidated financial statements were prepared in conformity with U.S. generally accepted accountingprinciples (GAAP), which differ in some respects from those followed in reports to insurance regulatory authorities. Theconsolidated financial statements include the accounts of our subsidiaries. All significant intercompany balances and transactionshave been eliminated.In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect thereported amounts of assets and liabilities as of the date of the balance sheet, revenues and expenses for the periods then ended, andthe accompanying notes to the financial statements. Such estimates and assumptions could change in the future as moreinformation becomes known which could impact the amounts reported and disclose herein. The most significant of these amountsis the liability for unpaid losses and settlement expenses. Other estimates include investment valuation and other than temporaryimpairments (OTTIs), the collectability of reinsurance balances, recoverability of deferred tax assets, and deferred policyacquisition costs. These estimates and assumptions are based on management’s best estimates and judgment. Managementevaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the currenteconomic environment, which management believes to be reasonable under the circumstances. Management adjusts suchestimates and assumptions when facts and circumstances dictate. Although recorded estimates are supported by actuarialcomputations and other supportive data, the estimates are ultimately based on expectations of future events. As future events andtheir effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in thoseestimates resulting from continuing changes in the economic environment will be reflected in the consolidated financialstatements in future periods.C. INVESTMENTS:The Company classifies its investments in all debt and equity securities as available-for-sale.AVAILABLE-FOR-SALE SECURITIESDebt and equity securities are classified as available-for-sale (AFS) and reported at fair value. Unrealized gains and losses onthese securities are excluded from net earnings but are recorded as a separate component of comprehensive earnings andshareholders’ equity, net of deferred income taxes. ~ 67 ~ Table of Contents OTHER THAN TEMPORARY IMPAIRMENTUnder current accounting standards, an OTTI write-down of debt securities, where fair value is below amortized cost, istriggered by circumstances where (1) an entity has the intent to sell a security, (2) it is more likely than not that the entity will berequired to sell the security before recovery of its amortized cost basis or (3) the entity does not expect to recover the entireamortized cost basis of the security. If an entity intends to sell a security in a loss position or if it is more likely than not the entitywill be required to sell the security before recovery, an OTTI write-down is recognized in earnings equal to the difference betweenthe security’s amortized cost and its fair value. If an entity does not intend to sell the security or it is not more likely than not thatit will be required to sell the security before recovery, the OTTI write-down is separated into an amount representing the credit loss,which is recognized in earnings, and the amount related to all other factors, which is recognized in other comprehensive income.Impairment losses result in a reduction of the underlying investment’s cost basis.The Company regularly evaluates its fixed income and equity securities using both quantitative and qualitative criteria todetermine impairment losses for other-than-temporary declines in the fair value of the investments. The following are the keyfactors for determining if a security is other-than-temporarily impaired as follows:·The extent to which the fair value is less than cost, ·The assessment of significant adverse changes to the cash flows on a fixed income investment, ·The occurrence of a discrete credit event resulting in the issuer defaulting on a material obligation, the issuer seekingprotection from creditors under the bankruptcy laws, the issuer proposing a voluntary reorganization under whichcreditors are asked to exchange their claims for cash or securities having a fair value substantially lower than par value, ·The probability that the Company will recover the entire amortized cost basis of the fixed income securities prior tomaturity, ·The ability and intent to hold fixed income securities until maturity or ·For equity securities, the expectation of recovery to cost within a reasonable period of time. Quantitative and qualitative criteria are considered during this process to varying degrees depending on the sector theanalysis is being performed as follows:CorporatesThe Company performs a qualitative evaluation of holdings that fall below the price threshold. The analysis begins with anopinion of industry and competitive position. This includes an assessment of factors that enable the profit structure of the business(e.g., reserve profile for exploration and production companies), competitive advantage (e.g., distribution system), managementstrategy, and an analysis of trends in return on invested capital. Analysts may also review other factors to determine whether animpairment exists including liquidity, asset value cash flow generation, and industry multiples.MunicipalsThe Company analyzes the screened impairment candidates on a quantitative and qualitative basis. This includes anassessment of the factors that may be contributing to the unrealized loss and whether the recovery value is greater or less thancurrent market value.Structured SecuritiesThe “stated assumptions” analytic approach relies on actual 6-month average collateral performance measures (voluntaryprepayment rate, gross default rate, and loss severity) sourced through third party data providers or remittance reports. The analysisapplies the stated assumptions throughout the remaining term of the transaction using forecasted cashflows, which are then appliedthrough the transaction structure (reflecting the priority of payments and performance triggers) to determine whether there is a lossto the security (“Loss to Tranche”). For securities or sectors for which no actual loss or minimal loss has been observed (certainPrime Residential Mortgage Backed Securities (RMBS) and Commercial Mortgage Backed Securities (CMBS), for example),sector-based assumptions are applied or an alternative quantitative or qualitative analysis is performed. ~ 68 ~ Table of Contents Investment IncomeInterest on fixed maturities and short-term investments is credited to earnings on an accrual basis. Premiums and discounts areamortized or accreted over the lives of the related fixed maturities. Dividends on equity securities are credited to earnings on theex-dividend date. Realized gains and losses on disposition of investments are based on specific identification of the investmentssold on the settlement date, which does not differ significantly from trade date accounting.D. PROPERTY HELD FOR INVESTMENTProperty held for investment purposes is initially recorded at the purchase price, which is generally fair value, and issubsequently reported at cost less accumulated depreciation. Buildings are depreciated on a straight-line bases over the estimateduseful lives of the building, which we estimate to be 39 years. Income from property held for investment is reported as netinvestment income.E. CASH AND CASH EQUIVALENTSCash consists of uninvested balances in bank accounts. Cash equivalents consist of investments with original maturities of 90days or less, primarily AAA-rated prime and government money market funds. Cash equivalents are carried at cost, whichapproximates fair value. The Company has not experienced losses on these instruments.F. REINSURANCECeded unearned premiums and reinsurance balances recoverable on paid and unpaid losses and settlement expenses arereported separately as assets instead of being netted with the related liabilities, since reinsurance does not relieve us of our legalliability to our policyholders.Quarterly, the Company monitors the financial condition of its reinsurers. The Company’s monitoring efforts include, but arenot limited to, the review of annual summarized financial data and analysis of the credit risk associated with reinsurance balancesrecoverable by monitoring the A.M. Best and Standard & Poor’s (S&P) ratings. In addition, the Company subjects its reinsurancerecoverables to detailed recoverable tests, including an analysis based on average default by A.M. Best rating. Based upon thereview and testing, the Company’s policy is to charge to earnings, in the form of an allowance, an estimate of unrecoverableamounts from reinsurers. This allowance is reviewed on an ongoing basis to ensure that the amount makes a reasonable provisionfor reinsurance balances that the Company may be unable to recover.G. POLICY ACQUISITION COSTSThe Company defers commissions, premium taxes, and certain other costs that are incrementally or directly related to thesuccessful acquisition of new or renewal insurance contracts. Acquisition-related costs may be deemed ineligible for deferral whenthey are based on contingent or performance criteria beyond the basic acquisition of the insurance contract or when efforts toobtain or renew the insurance contract are unsuccessful. All eligible costs are capitalized and charged to expense in proportion topremium revenue recognized. The method followed in computing deferred policy acquisition costs limits the amount of suchdeferred costs to their estimated realizable value. This deferral methodology applies to both gross and ceded premiums andacquisition costs. ~ 69 ~ Table of Contents H. PROPERTY AND EQUIPMENTProperty and equipment are presented at cost, less accumulated depreciation, and are depreciated using accelerated methodsfor financial statement purposes for a period based on their economic life. Computer equipment is depreciated over 3 years andequipment over a range of 5 to 7 years. Buildings are depreciated over 39 years and related improvements over 15 years. Annually,the Company reviews the major asset classes held for impairment. For the years ended December 31, 2016 and 2015, the Companyrecognized no impairments. Property and equipment are summarized as follows:December 31,20162015Automobiles$668,794 $460,790 Furniture and fixtures516,318 474,213 Computer equipment and software3,151,676 2,690,705 Home office3,690,994 3,607,413 Total cost8,027,782 7,233,121 Accumulated depreciation(4,308,246)(3,553,073)Net property and equipment$3,719,535 $3,680,048 I. UNPAID LOSSES AND SETTLEMENT EXPENSESThe liability for unpaid losses and settlement expenses represents estimates of amounts needed to pay reported and unreportedclaims and related expenses. The estimates are based on certain actuarial and other assumptions related to the ultimate cost tosettle such claims. Such assumptions are subject to occasional changes due to evolving economic, social, and political conditions.All estimates are periodically reviewed and, as experience develops and new information becomes known, the reserves are adjustedas necessary. Such adjustments are reflected in the results of operations in the period in which they are determined. Due to theinherent uncertainty in estimating reserves for losses and settlement expenses, there can be no assurance that the ultimate liabilitywill not exceed recorded amounts. If actual liabilities do exceed recorded amounts, there will be an adverse effect. Based on thecurrent assumptions used in estimating reserves, we believe that our overall reserve levels at December 31, 2016, make areasonable provision to meet our future obligations. See Note 7 – Unpaid Losses and Settlement Expenses for further discussion.J. PREMIUMSPremiums are recognized ratably over the term of the contracts, net of ceded reinsurance. Unearned premiums represent theportion of premiums written relative to the unexpired terms of coverage. Unearned premiums are calculated on a daily pro ratabasis.K. GENERAL CORPORATE EXPENSEGeneral corporate expenses consist primarily of real estate and occupancy costs, such as utilities and maintenance. These costsdo not vary significantly with premium volume but rather with square footage of real estate owned.L. INCOME TAXESThe Company files a consolidated federal income tax return. Federal income taxes are accounted for using the asset andliability method under which deferred income taxes are recognized for the tax consequences of “temporary differences” byapplying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts andthe tax bases of existing assets and liabilities, operating losses and tax credit carry forwards. The effect on deferred taxes for achange in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by avaluation allowance if it is more likely than not all or some of the deferred tax assets will not be realized.The Company considers uncertainties in income taxes and recognizes those in its financial statements as required. As it relatesto uncertainties in income taxes, unrecognized tax benefits, including interest and penalty accruals, are not considered material tothe consolidated financial statements. Also, no tax uncertainties are expected to result in significant increases or decreases tounrecognized tax benefits within the next 12-month period. Penalties and interest related to income tax uncertainties, should theyoccur, would be included in income tax expense in the period in which they are incurred. ~ 70 ~ Table of Contents ICC is subject to minimal state income tax liabilities. On a state basis, since the majority of income is from insuranceoperations, the Company pays premium taxes in lieu of state income tax. Premium taxes are a component of policy acquisitioncosts and calculated as a percentage of gross premiums written.M. COMPREHENSIVE EARNINGSComprehensive earnings include net earnings plus unrealized gains/losses on available-for-sale investment securities, net oftax. In reporting the components of comprehensive earnings on a net basis in the statement of earnings, the Company used a 34%tax rate. Other comprehensive earnings (loss), as shown in the consolidated statements of earnings and comprehensive earnings, isnet of tax expense (benefit) of $346,785 and $(472,678) for 2016 and 2015, respectively.The following table provides the reclassifications out of accumulated other comprehensive income for the periods presented: Amounts Reclassified fromAccumulated Other Comprehensive IncomeDetails about Accumulated Other Twelve-Months Ended December 31, Affected Line Item in the StatementComprehensive Earnings Component 2016 2015 where Net Earnings is PresentedUnrealized gains on AFS investments: $(249,923) $(80,527) Net realized investment gains 212,731 — Other-than-temporary impairment charges 12,645 27,379 Income tax expenseTotal reclassification adjustment $(24,547) $(53,148) Net of taxN. PROSPECTIVE ACCOUNTING STANDARDSThe dates presented below, represent the implementation dates for publicly traded entities. The Company’s status as anEmerging Growth Company could delay the required adoption of each of these standards.Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15) – This guidanceaddresses eight specific cash flow issues with the objective of reducing existing diversity in practice. The new guidance iseffective beginning after December 15, 2018, and it is not expected to have a material impact on the Company’s cash flows.Financial Instruments Credit Losses (ASU 2016-13) – This guidance affects the recognition of expected credit losses. Creditlosses relating to available for sale securities will be recorded through an allowance for credit losses. The amendments will beapplied to fiscal years beginning after December 15, 2019, and early adoption is permitted as of fiscal years beginning afterDecember 15, 2018. The effect of applying the new guidance on accounting for credit losses has not yet been determined. Leases (ASU 2016-02) – This update will supersede the current lease requirements in ASC 840. The ASU requires lessees torecognize a right of use asset and related lease liability for all leases, with a limited exception for short term leases. Leases will beclassified as either finance or operating, with the classification affecting the pattern of expense recognition in the statement ofoperations. Currently, leases are classified as either capital or operating, with only capital leases recognized on the balance sheet.The reporting of lease related expenses in the statements of operations and cash flows will be generally consistent with the currentguidance. The new lease guidance will be effective for the Company’s year ending December 31, 2020 and will be applied using amodified retrospective transition method to the beginning of the earliest period presented. The effect of applying the new leaseguidance on the consolidated financial statements is expected to be minimal due to current and future lease obligations beingimmaterial.Financial Instruments – Recognition and Measurement (ASU 2016-01) – This guidance affects the accounting for equityinvestments, financial liabilities under the fair value option, and the presentation and disclosure requirements of financialinstruments. The amendments will be applied to fiscal years beginning after December 15, 2018. Early adoption is permitted forthe accounting guidance on financial liabilities under the fair value option. The Company will make a cumulative-effectadjustment to the balance sheet as of the beginning of the fiscal year of adoption. The primary impact this guidance will have onour financial statements relates to recognizing changes in the fair value of equity securities through the statement of earnings. Theimpact to our statement of earnings will vary depending upon the level of volatility in the performance of the securities held in ourequity portfolio and the overall market. ~ 71 ~ Table of Contents Short-Duration Contracts Disclosures (ASU 2015-09) – This guidance addresses enhanced disclosure requirements forinsurers relating to short-duration insurance contract claims and the unpaid claims liability rollforward for long and short-durationcontracts. This ASU is effective for annual reporting periods beginning after December 15, 2015, and for interim periods afterDecember 15, 2016. Early adoption is permitted. As an emerging growth company, the Company is permitted to and intends todefer adoption until required for private entities. The Company will adopt this ASU for the year ended December 31, 2017 andwhile disclosures will be increased, management does not believe adoption will have a material effect on the Company’s financialstatements.Revenue Recognition (ASU 2014-09) This will supersede the current revenue recognition requirements in Topic 605,Revenue Recognition. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services tocustomers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods orservices. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flowsarising from customer contracts, including significant judgments and changes in judgments and assets recognized from costsincurred to obtain or fulfill a contract. The new guidance will be effective for the Company’s year ending December 31, 2019. Theeffect of applying this on the consolidated financial statements is not expected to have a material impact as the Company’sprimary revenue is derived from insurance contracts which are excluded from the scope of ASU 2014-09.O. RISKS AND UNCERTAINTIES:Certain risks and uncertainties are inherent to day-to-day operations and to the process of preparing the Company’sconsolidated financial statements. The more significant risks and uncertainties, as well as the Company’s attempt to mitigate,quantify, and minimize such risks, are presented below and throughout the notes to the consolidated financial statements.Catastrophe ExposuresThe Company’s insurance coverages include exposure to catastrophic events. All catastrophe exposures are monitored byquantifying exposed policy limits in each region and by using computer-assisted modeling techniques. Additionally, theCompany limits its risk to such catastrophes through restraining the total policy limits written in each region and by purchasingreinsurance. The Company’s major catastrophe exposure is to losses caused by tornado and hail to commercial propertiesthroughout the Midwest. The catastrophe reinsurance treaty renewed on January 1, 2016, and the Company had protection of $9.5 million in excess of$500,000 first-dollar retention for both of the years ended December 31, 2016 and 2015. The catastrophe program is activelymanaged to keep net retention in line with risk tolerances and to optimize the risk/return trade off. ReinsuranceReinsurance does not discharge the Company from its primary liability to policyholders, and to the extent that a reinsurer isunable to meet its obligations, the Company would be liable. On a quarterly basis, the financial condition of prospective andexisting reinsurers is monitored. As a result, the Company purchases reinsurance from a number of financially strong reinsurers.Accordingly, no allowance for reinsurance balances deemed uncollectible has been made. See Note 6 –Reinsurance for furtherdiscussion.Investment RiskThe investment portfolio is subject to market, credit, and interest rate risks. The equity portfolio will fluctuate withmovements in the overall stock market. While the equity portfolio has been constructed to have lower downside risk than themarket, the portfolio is sensitive to movements in the market. The bond portfolio is affected by interest rate changes andmovement in credit spreads. The Company attempts to mitigate its interest rate and credit risks by constructing a well-diversifiedportfolio with high-quality securities with varied maturities. Downturns in the financial markets could have a negative effect onthe portfolio. However, the Company attempts to manage this risk through asset allocation, duration, and security selection. ~ 72 ~ Table of Contents Liquidity RiskLiquidity is essential to the Company’s business and a key component of the concept of asset-liability matching. TheCompany’s liquidity may be impaired by an inability to collect premium receivable or reinsurance recoverable balances in atimely manner, an inability to sell assets or redeem investments, unforeseen outflows of cash or large claim payments, or aninability to access debt. Liquidity risk may arise due to circumstances that the Company may be unable to control, such as ageneral market disruption, an operational problem that affects third parties or the Company, or even by the perception amongmarket participants that the Company, or other market participants, are experiencing greater liquidity risk.The Company’s A.M. Best rating is important to its liquidity. A reduction in credit ratings could adversely affect theCompany’s liquidity and competitive position, by increasing borrowing costs or limiting access to the capital markets.External FactorsThe Company is highly regulated by the state of Illinois and by the states in which it underwrites business. Such regulations,among other things, limit the amount of dividends, impose restrictions on the amount and types of investments, and regulates ratesinsurers may charge for various coverages. The Company is also subject to insolvency and guarantee fund assessments for variousprograms designed to ensure policyholder indemnification. Assessments are generally accrued during the period in which itbecomes probable that a liability has been incurred from an insolvency and the amount of the related assessment can be reasonablyestimated.The National Association of Insurance Commissioners (NAIC) has developed Property/Casualty Risk-Based Capital (RBC)standards that relate an insurer’s reported statutory surplus to the risks inherent in its overall operations. The RBC formula uses thestatutory annual statement to calculate the minimum indicated capital level to support asset (investment and credit) risk andunderwriting (loss reserves, premiums written and unearned premium) risk. The NAIC model law calls for various levels ofregulatory action based on the magnitude of an indicated RBC capital deficiency, if any. As of December 31, 2016, the Companydetermined that its capital levels are well in excess of the minimum capital requirements for all RBC action levels and that itscapital levels are sufficient to support the level of risk inherent in its operations. See Note 10 – Statutory Information andDividend Restrictions for further discussion of statutory information and related insurance regulatory restrictions.In addition, ratings are a critical factor in establishing the competitive position of insurance companies. The Company is ratedby A.M. Best. This rating reflects their opinion of the insurance company’s financial strength, operating performance, strategicposition, and ability to meet its obligations to policyholders.P. RECLASSIFICATIONSCertain reclassifications have been made to the 2015 financial statements to conform to the 2016 financial statementpresentation. These reclassifications had no effect on net earnings. 2. INVESTMENTSNET INVESTMENT INCOME A summary of net investment income for the years ended December 31, 2016 and 2015 is as follows:20162015AFS, fixed maturity securities$2,050,205 $2,014,504 Investment property348,393 20,055 AFS, equity securities372,151 312,751 Cash and short-term investments17,189 11,351 Investment revenue2,787,938 2,358,661 Less investment expenses(820,000)(1,026,141)Net investment income$1,967,938 $1,332,520 ~ 73 ~ Table of Contents INVESTMENT RELATED GAINS (LOSSES)The following is a summary of the proceeds from sales, maturities, and calls of AFS securities and the related gross realizedgains and losses, excluding OTTI, for the years ended December 31, 2016 and 2015.Net realizedProceedsGainsLossesgain2016Fixed maturity securities$11,437,484 $216,803 $(3,737)$213,066 Common equity/ETF securities4,708,756 73,186 (26,287)46,899 Preferred stocks98,998 —(10,042)(10,042)2015Fixed maturity securities$9,486,713 $80,527 $ —$80,527 The amortized cost and estimated fair value of fixed income AFS securities at December 31, 2016, are shown by contractualmaturity below.Amortized CostFair ValueDue in one year or less$2,517,549 $2,525,754 Due after one year through five years15,961,679 16,291,691 Due after five years through 10 years15,995,789 16,753,674 Due after 10 years8,702,937 8,885,704 Asset and mortgage backed securities without a specific due date19,751,137 19,677,200 Total fixed maturity securities$62,929,091 $64,134,023 Expected maturities may differ from contractual maturities due to call provisions on some existing securities. The netunrealized appreciation of AFS fixed income and equity securities totaled $1,748,750 and $803,180 at December 31, 2016 and2015, respectively. In addition, the following table is a schedule of amortized costs and estimated fair values of investments in fixed maturity andequity securities as of December 31, 2016 and 2015:​Cost orGross UnrealizedAmortized CostFair ValueGainsLosses2016Fixed maturity securities:U.S. treasury$1,244,542 $1,241,125 $2,527 $(5,944)MBS/ABS/CMBS19,751,138 19,677,200 183,175 (257,113)Corporate27,593,568 28,344,907 842,782 (91,443)Municipal14,339,843 14,870,791 665,790 (134,842)Total fixed maturity securities62,929,091 64,134,023 1,694,274 (489,342)Equity securities:Common equity/ETF securities16,311,708 6,982,547 704,768 (33,929)Preferred stocks2,925,434 2,798,413 5,425 (132,446)Total equity securities9,237,142 9,780,960 710,193 (166,375)Total AFS securities$72,166,233 $73,914,983 $2,404,467 $(655,717) ~ 74 ~ Table of Contents ​Cost orGross UnrealizedAmortized CostFair ValueGainsLosses2015Fixed maturity securities:U.S. treasury$1,242,679 $1,233,023 $ —$(9,656)MBS/ABS/CMBS17,948,856 18,010,566 205,253 (143,543)Corporate29,537,101 29,595,269 580,469 (522,301)Municipal15,266,191 16,356,450 1,090,259 —Total fixed maturity securities63,994,827 65,195,308 1,875,981 (675,500)Common Equity/ETF securities19,282,252 8,884,951 21,200 (418,501)Total AFS securities$73,277,079 $74,080,259 $1,897,181 $(1,094,001)1Equity securities consist of exchange traded funds (ETF) made up of Dividends Select, the S&P 500, and one bond ETF. MORTGAGE-BACKED, COMMERCIAL MORTGAGE-BACKED AND ASSET-BACKED SECURITIESAll of the Company’s collateralized securities carry an average credit rating of AA+ by one or more major rating agency andcontinue to pay according to contractual terms. Included within MBS/ABS/CMBS are residential mortgage backed securities withfair values of $10,288,405 and $9,201,791 and commercial mortgage backed securities of $7,600,109 and $6,874,455 at December31, 2016 and 2015, respectively. CORPORATE BONDSNet unrealized gains in the corporate bond portfolio increased $693,171 in 2016 from a gain of $58,168 in 2015 to a gain of$751,339 in 2016 as interest rates decreased during the year. This increase was due to corporate spreads tightening throughout theyear. Of particular interest, the risk premiums associated with energy sector holdings (which comprise about 19% of the corporateportfolio) decrease substantially in the second half of the year as oil prices rallied from a low of about $30/barrel to end the year at$55/barrel. The corporate bond portfolio has an overall rating of A+. MUNICIPAL BONDSAs of December 31, 2016 and 2015, municipal bonds totaled $14,870,791 and $16,356,450, respectively with net unrealizedgains of $530,948 and $1,090,259, respectively. Unlike corporates, municipal spreads widened in 2016 especially after the U.S.Presidential election. As of December 31, 2016, approximately 13% of the municipal fixed income securities in the investmentportfolio were general obligations of state and local governments, 44% were revenue based, 34% were pre-refunded, and theremaining 9% were taxable. The municipal bond portfolio has an overall rating of AA.EQUITY SECURITIESThe equity portfolio consists of ETFs and preferred stock. Net unrealized gains in the equity portfolio increased $949,119 anddecreased $487,516 in 2016 and 2015, respectively. Given the intent to hold and expectation of recovery to cost within areasonable period of time, the Company does not consider any of its equities to be other-than-temporarily impaired. ~ 75 ~ Table of Contents UNREALIZED LOSSES ON AFS SECURITIESThe following table is also used as part of the impairment analysis and displays the total value of securities that were in anunrealized loss position as of December 31, 2016 and 2015. The table segregates the securities based on type, noting the fair value,cost (or amortized cost), and unrealized loss on each category of investment as well as in total. The table further classifies thesecurities based on the length of time they have been in an unrealized loss position.December 31, 2016December 31, 201512 Mos12 Mos< 12 Mos.& GreaterTotal< 12 Mos.& GreaterTotalU.S. TreasuryFair value$993,576 $ —$993,576 $1,233,023 $ —$1,233,023 Cost or Amortized cost999,520 —999,520 1,242,679 —1,242,679 Unrealized Loss(5,944) —(5,944)(9,656) —(9,656)MBS/ABS/CMBSFair value10,712,987 322,641 11,035,628 9,404,729 728,591 10,133,320 Cost or Amortized cost10,968,840 323,901 11,292,741 9,530,244 746,619 10,276,863 Unrealized Loss(255,853)(1,260)(257,113)(125,515)(18,028)(143,543)CorporateFair value5,476,442 984,115 6,460,557 11,205,004 1,263,357 12,468,361 Cost or Amortized cost5,552,624 999,376 6,552,000 11,685,419 1,305,243 12,990,662 Unrealized Loss(76,182)(15,261)(91,443)(480,415)(41,886)(522,301)MunicipalFair value2,995,362 —2,995,362 — — —Cost or Amortized cost3,130,204 —3,130,204 — — —Unrealized Loss(134,842) —(134,842) — — —Subtotal, fixed incomeFair value20,178,367 1,306,756 21,485,123 21,842,756 1,991,948 23,834,704 Cost or Amortized cost20,651,188 1,323,277 21,974,465 22,458,342 2,051,862 24,510,204 Unrealized Loss(472,821)(16,521)(489,342)(615,586)(59,914)(675,500)Common Equity SecuritiesFair value —445,872 445,872 398,194 3,222,192 3,620,386 Cost or Amortized cost —479,801 479,801 429,530 3,609,357 4,038,887 Unrealized Loss —(33,929)(33,929)(31,336)(387,165)(418,501)Preferred StockFair value2,328,345 —2,328,345 — — —Cost or Amortized cost2,460,791 —2,460,791 — — —Unrealized Loss(132,446) —(132,446) — — —TotalFair value22,506,712 1,752,628 24,259,340 22,240,950 5,214,140 27,455,090 Cost or amortized cost23,111,979 1,803,078 24,915,057 22,887,872 5,661,219 28,549,091 Unrealized Loss$(605,267)$(50,450)$(655,717)$(646,922)$(447,079)$(1,094,001)As of December 31, 2016 and 2015, the Company held 21 equity securities that were in unrealized loss positions. The totalunrealized loss on these securities in 2016 and 2015 was $166,375 and $418,501, respectively. ~ 76 ~ Table of Contents The fixed income portfolio contained 58 securities in an unrealized loss position as of December 31, 2016. Of these 58securities, 4 have been in an unrealized loss position for 12 consecutive months or longer and represent $16,521 in unrealizedlosses. All fixed income securities in the investment portfolio continue to pay the expected coupon payments under thecontractual terms of the securities. Credit-related impairments on fixed income securities that we do not plan to sell, and for whichwe are not more likely than not to be required to sell, are recognized in net earnings. Any non-credit related impairment isrecognized in comprehensive earnings. Based on management’s analysis, the fixed income portfolio is of a high credit quality andit is believed it will recover the amortized cost basis of the fixed income securities. Management monitors the credit quality of thefixed income investments to assess if it is probable that the Company will receive its contractual or estimated cash flows in theform of principal and interest.For the year ended Decemeber 31, 2016, the Company recognized in net earnings $212,731 of OTTI losses on two securitiesthat were impaired and subsequently sold during the last three months of 2016. During 2015, the Company did not recognize anyimpairment losses. For all fixed income securities at a loss at December 31, 2016, management believes it is probable that theCompany will receive all contractual payments in the form of principal and interest. In addition, the Company is not required to,nor does it intend to sell these investments prior to recovering the entire amortized cost basis of each security, which may bematurity. Management does not consider these investments to be other-than-temporarily impaired at December 31, 2016. Basedon management’s analysis, it was concluded that the securities in an unrealized loss position were not other-than-temporarilyimpaired at December 31, 2016, and 2015. As required by law, certain fixed maturity investments amounting to $2,958,297 and $2,950,105 at December 31, 2016 and2015, respectively, were on deposit with either regulatory authorities or banks. In addition, $1,808,523 and $947,554 was pledgedas of December 31, 2016 and 2015, respectively, as part of a capital lease arrangement.PROPERTY HELD FOR INVESTMENTIn 2016, investment property comprised of 35 apartment rental units located in Rock Island and Moline, Illinois. Propertyheld for investment is net of accumulated depreciation of $50,948 and $3,155 as of December 31, 2016, and 2015, respectively.Related depreciation expense was $47,793 and $3,155 for the years ended December 31, 2016, and 2015, respectively. 3. FAIR VALUE DISCLOSURESFair value is defined as the price in the principal market that would be received for an asset to facilitate an orderly transactionbetween market participants on the measurement date. We determined the fair value of certain financial instruments based on theirunderlying characteristics and relevant transactions in the marketplace. GAAP guidance requires an entity to maximize the use ofobservable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance also describes threelevels of inputs that may be used to measure fair value.The following are the levels of the fair value hierarchy and a brief description of the type of valuation inputs that are used toestablish each level:· Level 1 is applied to valuations based on readily available, unadjusted quoted prices in active markets foridentical assets.· Level 2 is applied to valuations based upon quoted prices for similar assets in active markets, quoted prices foridentical or similar assets in inactive markets; or valuations based on models where the significant inputs areobservable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroboratedby observable market data.· Level 3 is applied to valuations that are derived from techniques in which one or more of the significant inputsare unobservable. Financial assets are classified based upon the lowest level of significant input that is used todetermine fair value.As a part of the process to determine fair value, management utilizes widely recognized, third-party pricing sources todetermine fair values. Management has obtained an understanding of the third-party pricing sources’ valuation methodologies andinputs. The following is a description of the valuation techniques used for financial assets that are measured at fair value,including the general classification of such assets pursuant to the fair value hierarchy. ~ 77 ~ Table of Contents Corporate, Agencies, and Municipal Bonds—The pricing vendor employs a multi-dimensional model which uses standardinputs including (listed in order of priority for use) benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers and other reference data. The pricing vendor also monitors marketindicators, as well as industry and economic events. All bonds valued using these techniques are classified as Level 2. AllCorporate, Agencies, and Municipal securities are deemed Level 2.Mortgage-backed Securities (MBS)/Collateralized Mortgage Obligations (CMO) and Asset-backed Securities (ABS)—Thepricing vendor evaluation methodology includes principally interest rate movements and new issue data. Evaluation of thetranches (non-volatile, volatile, or credit sensitivity) is based on the pricing vendors’ interpretation of accepted modeling andpricing conventions. This information is then used to determine the cash flows for each tranche, benchmark yields, pre-paymentassumptions and to incorporate collateral performance. To evaluate CMO volatility, an option adjusted spread model is used incombination with models that simulate interest rate paths to determine market price information. This process allows the pricingvendor to obtain evaluations of a broad universe of securities in a way that reflects changes in yield curve, index rates, impliedvolatility, mortgage rates, and recent trade activity. MBS/CMO and ABS with corroborated and observable inputs are classified asLevel 2. All MBS/CMO and ABS holdings are deemed Level 2.U.S. Treasury Bonds and Common Equity/ETF Securities—U.S. treasury bonds and exchange traded equities have readilyobservable price levels and are classified as Level 1 (fair value based on quoted market prices). All common stock holdings aredeemed Level 1.Preferred Stock—Preferred stocks do not have readily observable prices, but do have quoted prices for similar assets orliabilities in active markets; quoted prices for identical or similar assets in markets that are not active; and inputs other than quotedprices are classificed as Level 2. All preferred stock holdings are deemed Level 2.Due to the relatively short-term nature of cash, cash equivalents, and the mortgage on the home office, their carrying amountsare reasonable estimates of fair value. The surplus notes, leasehold obligations, and debt obligations reported under Note 5–Debt,are carried at face value and given that there is no readily available market for these to trade in, management believes that facevalue accurately reflects fair value. Cash and cash equivalents are classified as Level 1 of the hierarchy. The mortgage on the homeoffice and the surplus notes are carried at Level 2 of the hierarchy.Assets measured at fair value on a recurring basis as of December 31, 2016, are as summarized below:Significant​Quoted in ActiveOtherSignificant​Markets forObservableUnobservable​Identical AssetsInputsInputs(Level 1)(Level 2)(Level 3)TotalAFS securitiesFixed maturity securitiesU.S. treasury$1,241,125 $ —$ —$1,241,125 MBS/ABS/CMBS —19,677,200 —19,677,200 Corporate —28,344,907 —28,344,907 Municipal —14,870,791 —14,870,791 Total fixed maturity securities1,241,125 62,892,898 —64,134,023 Equity securitiesCommon equity/ETF securities16,982,547 — —6,982,547 Preferred stocks —2,798,413 —2,798,413 Total equity securities6,982,547 2,798,413 —9,780,960 Total AFS securities$8,223,672 $65,691,311 $ —$73,914,983 ~ 78 ~ Table of Contents Assets measured at fair value on a recurring basis as of December 31, 2015, are as summarized below:Significant​Quoted in ActiveOtherSignificant​Markets forObservableUnobservable​Identical AssetsInputsInputs(Level 1)(Level 2)(Level 3)TotalAFS securitiesFixed maturity securitiesU.S. treasury$1,233,023 $ —$ —$1,233,023 MBS/ABS/CMBS —18,010,566 —18,010,566 Corporate —29,595,269 —29,595,269 Municipal —16,356,450 —16,356,450 Total fixed maturity securities1,233,023 63,962,285 —65,195,308 Common equity/ETF securities18,884,951 — —8,884,951 Total AFS seuciriteis$10,117,974 $63,962,285 $ —$74,080,259 As noted in the previous tables, the Company did not have any assets measured at fair value on a recurring basis usingsignificant unobservable inputs (Level 3) as of December 31, 2016 and 2015. Additionally, there were no securities transferred inor out of levels 1 or 2 during the years ended December 31, 2016 and 2015. 4. POLICY ACQUISITION COSTSPolicy acquisition costs deferred and amortized to income for the years ended December 31 are summarized as follows:20162015Deferred policy acquisition costs (DAC), beginning of year$ 3,982,734$ 3,800,544Deferred:Direct commission7,156,434 6,885,761 Premium taxes723,067 620,726 Ceding commissions(959,451)(851,412)Underwriting384,814 341,006 Net deferred7,304,865 6,996,082 Amortized7,124,672 6,813,891 DAC, end of year$ 4,162,927$ 3,982,734Policy acquisition costs:Amortized to expense$ 7,124,672$ 6,813,891Period costs:Contingent commission1,826,944 1,528,651 Other underwriting expenses6,896,931 6,212,869 Total policy acquisition costs$ 15,848,547$ 14,555,411 5. DEBTAs of December 31, 2016 and 2015, outstanding debt balances totaled $3,786,950 and $3,273,560, respectively. TheCompany incurred interest expense for the years ended December 31, 2016 and 2015 of $226,095 and $136,295, respectively. Theaverage rate on debt was 5.0% in 2016 compared to 4.5% in 2015. The debt balance is comprised of the following:Surplus NotesThe Company has $1,850,000 and $1,921,428 of surplus notes issued, for cash, and outstanding as of December 31, 2016 and2015, respectively. Payment of principal and interest on all surplus notes requires specific approval by the Illinois Department ofInsurance. The Company’s obligation to pay principal and interest on surplus notes is subordinate to the insurance claims ofpolicyholders of the Company in accordance with terms of Section 56 of the Illinois Insurance Code. ~ 79 ~ Table of Contents Subject to the approval of the Director of Insurance of the State of Illinois and the applicable provisions of the IllinoisInsurance Code, the noteholder shall have the right at the time of a stock conversion of the Company, upon not less than thirty(30) days’ written notice to the Company, to convert all or any portion of the outstanding principal amount of the note intocommon shares of the Company.Additional information regarding each surplus note follows:​PrincipalTotalUnapproved​Par ValueCarryingand/orPrincipalPrincipal​Interest(Face AmountValue ofInterest Paidand/orand/orDate ofDate IssuedRateof Notes)NoteCurrent YearInterest PaidInterestMaturity12/31/20035.35% 1,600,000 1,600,000 85,600 1,116,800 —12/31/20337/15/20047.00% 410,000 250,000 17,500 461,207 —7/15/20348/31/20047.00% 250,000 —72,857 413,161 —8/31/20162,260,000 1,850,000 175,957 1,991,168 —Note holders are entitled to 1/28th of the principal each year. To date, the note holders of the surplus notes maturing on12/31/2033 and 7/15/2034 have elected to waive principal repayment. The terms of the note allow for the conversion to equityshould the company convert from a mutual insurance company to a stock insurance company.Leasehold ObligationsThe Company entered into a sale leaseback arrangement in 2016 that is accounted for as a capital lease. Under the agreement,BofI Federal Bank purchased electronic data processing software, vehicles, and other assets which are leased to the Company.These assets remain on the Company’s books due to provisions within the agreement that trigger capital lease accounting. Tosecure the lowest rate possible of 4.7%, the Company pledged additional bonds totaling $860,969 during 2016, bringing the totalpledged to $1,808,523 and $947,554 as of December 31, 2016 and 2015, respectively. There was no gain or loss recognized as partof this transaction. Lease payments totaled $438,593 and $64,182 for the years ended December 31, 2016 and 2015, respectively.The term of the electronic data processing lease is 48 months and the term of the titled vehicles lease is 36 months. Theoutstanding lease obligation at December 31, 2016, was $1,227,541 compared to $859,818 at Decemeber 31, 2015.Future minimum lease payments for the four succeeding years as of December 31, 2016 are:YearAmount2017$501,972 2018501,972 2019361,374 202030,190 Totalpayments1,395,508 Less: Interest portion167,967 Totaloustandingleaseobligation$1,227,541 Debt ObligationAdditionally, the Company entered into two debt agreements in 2016; one agreement for $500,000 and another debtagreement for $75,000. The terms of the loans are 36 months, but the Company has the option to prepay the $500,000 loan after 12months. The total balance of debt agreements at year end 2016 and 2015 was $525,620 and $0, respectively. The loans bearinterest at 4.7%. Interest paid for the twelve months ended December 31, 2016 and 2015 was $8,146 and $0, respectively.Home Office MortgageThe Company maintains a mortgage on its home office. Interest is charged at a fixed rate of 2.6% and the loan matures in2017. The building is used as collateral to secure the loan. The loan balance at year end 2016 and 2015 was $183,790 and$492,315, respectively. The interest paid on the loan in 2016 was $9,163 and $17,153 in 2015. ~ 80 ~ Table of Contents Payment due subsequent to December 31, 2016 are summarized below:YearAmount2017$185,395 Less: Interest portion25000 1,605 Totaloutstandingmortgageobligation$183,790 Revolving Line of CreditWe maintain a revolving line of credit with American Bank & Trust, which permits borrowing up to an aggregate principalamount of $2.0 million. This facility was entered into during 2013 and is renewed annually with a current expiration of August 1,2017. The line of credit is priced at 30 day LIBOR plus 2% with a floor of 3.5%. Interest paid on the line of credit in 2016 wasimmaterial. There are no financial covenants governing this agreement. For the years ended December 31, 2016 and 2015, noamounts were outstanding on this facility. 6. REINSURANCEIn the ordinary course of business, the Company assumes and cedes premiums and selected insured risks with other insurancecompanies, known as reinsurance. A large portion of the reinsurance is put into effect under contracts known as treaties and, insome instances, by negotiation on each individual risk (known as facultative reinsurance). In addition, there are several types oftreaties including quota share, excess of loss and catastrophe reinsurance contracts that protect against losses over stipulatedamounts arising from any one occurrence or event. The arrangements allow the Company to pursue greater diversification ofbusiness and serve to limit the maximum net loss to a single event, such as a catastrophe. Through the quantification of exposedpolicy limits in each region and the extensive use of computer-assisted modeling techniques, management monitors theconcentration of risks exposed to catastrophic events.Through the purchase of reinsurance, the Company also generally limits its net loss on any individual risk to a maximum of$500,000, although certain treaties contain an annual aggregate deductible before reinsurance applies.Premiums, written and earned, along with losses and settlement expenses incurred for the years ended December 31 aresummarized as follows:20162015WRITTENDirect$51,031,003 $49,047,060 Reinsurance assumed307,597 346,280 Reinsurance ceded(8,111,446)(7,762,059)Net$43,227,154 $41,631,281 EARNEDDirect$50,190,888 $47,616,234 Reinsurance assumed318,476 326,234 Reinsurance ceded(7,898,000)(7,722,607)Net$42,611,365 $40,219,861 LOSSES AND SETTLEMENT EXPENSES INCURREDDirect$33,388,283 $28,462,833 Reinsurance assumed149,719 220,831 Reinsurance ceded(9,193,451)(4,883,150)Net$24,344,551 $23,800,514 The reinsurance assumed business consists of assigned risk pools, which require the Company to participate in certainworkers’ compensation and other liability pools, as a result of their licensure and premium writings in the various states in which itdoes business.At December 31, 2016 and 2015, the Company had prepaid reinsurance premiums and recoverables on paid and unpaid lossesand settlement expenses totaling $12,114,998 and $19,158,224, respectively. More than 98% of the Company’s reinsurancerecoverables are due from companies with financial strength ratings of “A” or better by A.M. Best. ~ 81 ~ Table of Contents The following table displays net reinsurance balances recoverable, after consideration of collateral, from the Company’s top10 reinsurers as of December 31, 2016. These reinsurers all have financial strength ratings of “A” or better by A.M. Best. Alsoshown are the amounts of written premium ceded to these reinsurers during the calendar year 2016.Net ReinsurerCededA.M. BestS & PExposure as ofPercent ofPremiumsPercent of(In thousands)RatingRatingDecember 31, 2016TotalWrittenTotalEverest Reinsurance CompanyA+A+3,327 23.4% 1,875 23.1% Partner Reinsurance CompanyAA+2,431 17.1% 548 6.8% Hannover RuckversicherungsA+AA-2,099 14.8% 969 11.9% Aspen Insurance UK LtdAA2,030 14.3% 1,090 13.4% Toa Reinsurance CompanyA+A+1,798 12.6% —0.0% Platinum UnderwritersAA-1,109 7.8% —0.0% Swiss ReinsuranceA+AA-1,068 7.5% 571 7.0% EnduranceAA637 4.5% 818 10.1% Allied World ReinsuranceAA607 4.3% 896 11.0% Lloyd's Syndicate Number 1880AA+116 0.8% 233 2.9% All other reinsurers including anticipatedsubrogation (994) -7.0% 1,111 13.7% 14,228 100.0% 8,111 100.0% Ceded unearned premiums and reinsurance balances recoverable on paid losses and settlement expenses are reportedseparately as an asset, rather than being netted with the related liability, since reinsurance does not relieve the Company of itsliability to policyholders. Such balances are subject to the credit risk associated with the individual reinsurer. On a quarterly basis,the financial condition of the Company’s reinsurers is monitored. As part of the monitoring efforts, management reviews annualsummarized financial data and publically available information. The credit risk associated with the reinsurance balancesrecoverable is analyze by monitoring the A.M. Best and S&P ratings of the reinsurers. In addition, the Company subjects itsreinsurance recoverables to detailed recoverability tests, including one based on average default by A.M. Best rating.Once regulatory action (such as receivership, finding of insolvency, order of conservation or order of liquidation) is takenagainst a reinsurer, the paid and unpaid recoverable for the reinsurer are specifically identified and written off through the use ofthe allowance for estimated unrecoverable amounts from reinsurers. When such a balance is written off, it is done in full. TheCompany then re-evaluates the remaining allowance and determines whether the balance is sufficient as detailed above, and ifneeded, an additional allowance is recognized and income charged. The Company had no allowance recorded related touncollectible amounts on paid and unpaid recoverables at December 31, 2016 and 2015. The Company has no receivables with adue date that extends beyond 90 days from the date of billing that are not included in the allowance for uncollectible amounts. ~ 82 ~ Table of Contents 7. UNPAID LOSSES AND SETTLEMENT EXPENSESThe following table is a reconciliation of the Company’s unpaid losses and settlement expenses for the years 2016 and 2015.(In thousands)20162015Unpaid losses and settlement expense - beginning of the period:Gross$61,056 $64,617 Less: Ceded19,158 25,822 Net41,898 38,795 Increase (decrease) in incurred losses and settlement expense:Current year25,620 24,293 Prior years(1,275)(493)Total incurred24,345 23,800 Deduct: Loss and settlement expense payments for claims incurred:Current year7,649 6,466 Prior years17,892 14,231 Total paid25,541 20,697 Net unpaid losses and settlement expense - end of the period40,702 $41,898 Plus: Reinsurance recoverable on unpaid losses12,115 19,158 Gross unpaid losses and settlement expense - end of the period$52,817 $61,056 (In thousands)20162015Supplemental ceded unpaid losses and settlement expense at end of year disclosure:Reinsurance balances recoverable on unpaid losses and settlement expenses,net of allowances for uncollectible amounts of $0 in 2016 and $0 in 2015$12,115 $19,535 Less : Reinsurance balances payable —377 Reinsurance recoverable on unpaid losses$12,115 $19,158 Differences from the initial reserve estimates emerged as changes in the ultimate loss estimates as those estimates were updatedthrough the reserve analysis process. The recognition of the changes in initial reserve estimates occurred over time as claims werereported, initial case reserves were established, initial reserves were reviewed in light of additional information and ultimatepayments were made on the collective set of claims incurred as of that evaluation date. The new information on the ultimatesettlement value of claims is updated until all claims in a defined set are settled. As a small specialty insurer with a niche productportfolio, the Company’s experience will ordinarily exhibit fluctuations from period to period. While management attempts toidentify and react to systematic changes in the loss environment, they must also consider the volume of experience directlyavailable to the Company and interpret any particular period’s indications with a realistic technical understanding of thereliability of those observations.A discussion of significant components of reserve development for the two most recent calendar years follows:2016The Company experienced favorable development relative to prior years’ reserve estimates in its casualty line of businessprimarily from the 2015 accident year. Liquor Liability and Workers’ Compensation were the largest contributors to the favorabledevelopment, partially offset by adverse development in Business Liability.2015For calendar year 2015, the Company experienced favorable development relative to prior years’ reserve estimates in itsproperty line of business primarily from the 2014 accident year. This was partially offset by adverse development in the casualtyline of business in Liquor Liability, with approximately 89.4% of the development coming from this business. ~ 83 ~ Table of Contents 8. INCOME TAXESThe tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred taxliabilities are summarized as follows:December 31,20162015Deferred tax assets:Tax discounting of claim reserves$730,161 $830,440 Unearned premium reserve1,710,498 1,660,239 AMT credit carryforward —166,535 Deferred compensation356,650 275,992 Provision for uncollectible accounts17,000 34,000 Property and equipment837 —Other88,393 478,386 Deferred tax assets before allowance2,903,539 3,445,592 Less valuation allowance — —Total deferred tax assets$2,903,539 $3,445,592 Deferred tax liabilities:Net unrealized appreciation of securities$594,575 $273,080 Deferred policy acquisition costs1,415,395 1,354,130 Property and equipment —23,271 Other5,315 394,459 Total deferred tax liabilities2,015,285 2,044,940 Net deferred tax asset$888,254 $1,400,652 Income tax expense attributable to income from operations for the years ended December 31, 2016 and 2015, differed from theamounts computed by applying the U.S. federal tax rate of 34% to pretax income from continuing operations as demonstrated inthe following table:Years ended December 31,20162015Provision for income taxes at the statutory federal tax rates$1,355,704 $1,025,600 Increase (reduction) in taxes resulting from:Dividends received deduction(36,414) —Tax-exempt interest income(163,011)(174,808)15% proration of tax exempt interest29,914 26,222 Officer life insurance, net(1,292)3,474 Nondeductible expenses47,766 35,313 Prior year true-ups and other(55,698)(54,059)Total$1,176,969 $861,742 The Company’s effective tax rate was 29.5% and 28.6% for 2016 and 2015, respectively. Effective rates are dependent uponcomponents of pretax earnings and the related tax effects.The Company has recorded its deferred tax assets and liabilities using the statutory federal tax rate of 34%. Managementbelieves it is more likely than not that all deferred tax assets will be recovered given the carry back availability as well as theresults of future operations, which will generate sufficient taxable income to realize the deferred tax asset. In addition, it isbelieved that when these deferred items reverse in future years, taxable income will be taxed at an effective rate of 34%. Federal and state income taxes paid in 2016 and 2015 amounted to $300,000 and $950,000, respectively. As of December 31,2016, the Company does not have any capital or operating loss carryforwards. Periods still subject to Internal Revenue Service(IRS) audit include 2013 through current year. There are currently no open tax exams. ~ 84 ~ Table of Contents 9. EMPLOYEE BENEFITS401(K) AND BONUS AND INCENTIVE PLANSThe Company maintains a 401(k) and bonus and incentive plans covering executives, managers, and associates. Excludingthe 401(k), at the CEO’s discretion, funding of these plans is primarily dependent upon reaching predetermined levels of combinedratio, growth in statutory surplus, growth in direct written premium, and overall renewal retention ratios. Bonuses are earned as theCompany generates earnings in excess of this required return. While some management incentive plans may be affected somewhatby other performance factors, the larger influence of corporate performance ensures that the interests of the executives, managers,and associates corresponds with those of the stakeholders.The 401(k) plan offers a matching percentage up to 4% of eligible compensation, as well as a profit sharing percentage of eachemployee’s compensation. Participants are 100% vested in the matching percentage and vest at a rate of 25% per year for theprofit sharing distribution. Additionally, bonuses may be awarded to executives, managers, and associates through companyincentive plans, provided certain financial or operational goals are met. Annual expenses for these incentive plans totaled$724,965 and $776,390 for 2016 and 2015, respectively.DEFERRED COMPENSATIONIn November 2012, the Company entered into a deferred compensation agreement with an executive of the Company. Theagreement requires the Company to make payments to the executive beginning at retirement (age 62). In the event of separation ofservice without cause prior to age 62, benefits under this agreement vest 25% in November 2017, 50% in November 2022, 75% inNovember 2027, and 100% on January 1, 2032. In the event of death prior to retirement, benefits become fully vested and arepayable to the executive’s beneficiaries. Using a discount rate of 4.14%, the fully vested obligation under the agreement wouldtotal approximately $1,610,932 on January 1, 2032. As of December 31, 2016 and 2015, the accrued liability related to thisagreement totaled $153,409 and $173,676, respectively. The Company’s recognized $20,267 of benefit and $68,000 of expense in2016 and 2015, respectively. 10. STATUTORY INFORMATION AND DIVIDEND RESTRICTIONSThe statutory financial statements of ICC are presented on the basis of accounting practices prescribed or permitted by theIllinois Department of Insurance, which has adopted the National Association of Insurance Commissioners (NAIC) statutoryaccounting practices as the basis of its statutory accounting practices. ICC did not use any permitted statutory accountingpractices that differ from NAIC prescribed statutory accounting practices. In converting from statutory to GAAP, typicaladjustments include deferral of policy acquisition costs, the inclusion of statutory non-admitted assets and the inclusion of netunrealized holding gains or losses in equity relating to AFS investment securities, and the reclassification of surplus notes fromequity to debt.The NAIC has Risk-based capital (RBC) requirements that require insurance companies to calculate and report informationunder a risk-based formula, which measures statutory capital and surplus needs based upon a regulatory definition of risk relativeto the company’s balance sheet and mix of products. As of December 31, 2016 and 2015, ICC had RBC amounts in excess of theauthorized control level RBC, as defined by the NAIC. ICC had an authorized control level RBC of $6,314,396 and $6,175,978 asof December 31, 2016 and 2015, respectively, compared to actual statutory capital and surplus of $29,957,250 and $26,855,678,respectively, for these same periods.Year-end statutory surplus for 2016 and 2015 presented in the table below includes $51,207 and $115 of Estrella InnovativeSolutions, LLC common stock (cost basis of $270,078 and $170,078) held by ICC. This investment is eliminated in the GAAPconsolidated financial statements.The following table includes selected information for our insurance subsidiary: As of and years ended December 31,20162015Net income, statutory basis$3,445,706 $1,849,291 Consolidated surplus, statutory basis$29,957,250 $26,855,678 ~ 85 ~ Table of Contents No Illinois domiciled company may pay any extraordinary dividend or make any other extraordinary distribution to itssecurity holders until: (a) 30 days after the Director has received notice of the declaration thereof and has not within such perioddisapproved the payment, or (b) the Director approves such payment within the 30-day period. For purposes of this subsection, anextraordinary dividend or distribution is any dividend or distribution of cash or other property whose fair market value, togetherwith that of other dividends or distributions, made within the period of 12 consecutive months ending on the date on which theproposed dividend is scheduled for payment or distribution exceeds the greater of: (a) 10% of the company’s surplus as regardspolicyholders as of the 31st day of December next preceding, or (b) the net income of the company for the 12-month period endingthe 31st day of December next preceding, but does not include pro rata distributions of any class of the company’s own securities.The Company did not pay any dividends to security holders in 2016 or 2015. It did however, make cash dividend payments inthe amount of $1,838 and $1,452 in 2016 and 2015, respectively, to Wisconsin policyholders in accordance with policycontractual obligations. 11. RELATED PARTYMr. John R. Klockau, a director of the Company, holds two surplus note from the Company totaling $1,150,000. The first noteis for $1,000,000 and bears interest at 5.35%. The second note is for $150,000 and bears interest at 7.00%. Mr. Klockau was paidinterest in the amount of $64,000 in both 2016 and 2015. Additionally, Mr. Klockau is a claims consultant and was paid $12,944and $14,011 in 2016 and 2015, respectively, related to his services to the Company.Mr. Scott T. Burgess is a director of the Company and a Senior Managing Director of Griffin Financial Group. Mr. Burgess waspaid $2,190 and $2,284 in 2016 and 2015, respectively. Griffin Financial Group was paid $9,910 and $75,000 in 2016 and 2015,respectively. Griffin and Stevens & Lee are affiliated. Stevens & Lee is a full-service law firm that was paid $630,125 and $0 as ofDecember 31, 2016 and 2015, respectively.Mr. Dan Porters is a director of the Company and the Chairman and CEO of Management Resource Group, Ltd (MRG). MRGwas paid $4,900 and $0 in 2016 and 2015, respectively. 12. COMMITMENTS AND CONTINGENT LIABILITIESThe Company is party to numerous claims, losses, and litigation matters that arise in the normal course of business. Many ofsuch claims, losses, or litigation matters involve claims under policies that the Company underwrites as an insurer. Managementbelieves that the resolution of these claims and losses will not have a material adverse effect on the Company’s financialcondition, results of operations, or cash flows.The Company has operating lease obligations related to managing the business. Minimum future rental payments under non-cancellable agreements are as follows: YearPayments2017$43,532 201818,257 201916,736 2020 —2021 —Total$78,525 Rent expense totaled $3,643 and $32,457 in 2016 and 2015, respectively. 13. SUBSEQUENT EVENTSSubsequent events have been evaluated through the date the financial statements were issued.On February 1, 2017, the Illinois Department of Insurance approved the Company’s Plan of Conversion filing to convert froma mutual to a stock insurance company.On February 7, 2017, the Company received preliminary approval for expansion into the state of Colorado. On March 20,2017, we received our license to write business in the state of Kansas. ~ 86 ~ Table of Contents On February 14, 2017, the SEC approved the Company's initial public offering. As of March 15, 2017, the Company receivedcommon stock orders for an amount in excess of the offering range referenced in the prospectus. The plan of conversion wasapproved by ICC policyholders at a special meeting on March 17, 2017. Simultaneously, surplus notes totaling $1.65 million wereconverted into 165,000 shares of the Company’s common stock. Included in the conversion of surplus notes, John R. Klockau, adirector of the Company, converted $1.15 million in exchange for 115,000 shares of the Company’s common stock. John R.Klockau received a payment for interest on the surplus note of $12,975. The Company’s offering closed on March 24, 2017, andon March 28, 2017, the Company’s stocks began trading on the NASDAQ Capital Market under the “ICCH” ticker. The Companypaid $978,150 of underwriting fees to Griffin Financial Group, LLC. Proceeds received from the offering totaled $3.5 million.Upon closing of the offering, R. Kevin Clinton became a member of our Board of Directors on March 24, 2017.On March 28, 2017, the Company borrowed $3.5 million from American Bank & Trust at an interest rate of 3.65%. Our line ofcredit was decreased from $2.0 million to $1.75 million. Additionally, we pledged the ESOP shares and $1.5 million in trust assets. ~ 87 ~ Table of Contents Report of Independent Registered Public Accounting Firm on Financial Statement SchedulesAudit Committee, Board of Directors and PolicyholdersIllinois Casualty CompanyRock Island, IllinoisIn connection with our audit of the consolidated financial statements of Illinois Casualty Company for each of the two years in theperiod ended December 31, 2016, we have also audited Schedules III, IV, V, and VI on pages 89 through 92. These financialstatement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statement schedules based on our audits of the basic financial statements. The schedules are presented for purposes ofcomplying with the Securities and Exchange Commission's rules and regulations and are not a required part of the consolidatedfinancial statements.In our opinion, the financial statement schedules referred to above, when considered in relation to the basic consolidated financialstatements taken as a whole, present fairly, in all material respects, the information required to be included therein.BKD, LLP/s/ BKD, LLPCincinnati, OhioMarch 31, 2017 ~ 88 ~ Table of Contents ILLINOIS CASUALTY COMPANY AND SUBSIDIARIESSchedule III — Supplemental Insurance InformationYears ended December 31, 2016 and 2015 Future policybenefits, losses,Other policyDeferred policyclaims and lossUnearnedand benefitsNet premiums(In thousands)acquisition costsexpensespremiumspayableearnedDecember 31, 2016Commercial Business$4,163 $52,817 $24,778 $110 $42,611 Total$4,163 $52,817 $24,778 $110 $42,611 December 31, 2015Commercial Business$3,983 $61,056 $23,948 $ —$40,220 Total$3,983 $61,056 $23,948 $ —$40,220 Benefits, claims,losses andNet investmentsettlementAmortizationOther operatingNet premiums(In thousands)incomeexpensesof DACexpenseswrittenDecember 31, 2016Commercial Business$1,968 $24,345 $7,125 $9,414 $43,227 Total$1,968 $24,345 $7,125 $9,414 $43,227 December 31, 2015Commercial Business$1,333 $23,801 $6,814 $8,192 $41,631 Total$1,333 $23,801 $6,814 $8,192 $41,631 See accompanying notes to consolidated financial statements and report of independent registered public accounting firm. ~ 89 ~ Table of Contents ILLINOIS CASUALTY COMPANY AND SUBSIDIARIESSchedule IV — ReinsuranceYears ended December 31, 2016 and 2015(In thousands)Ceded toAssumed FromPercentage ofPremiumsGrossOtherOtherAmountEarnedAmountCompaniesCompaniesNet AmountAssumed to Net2016$50,191 $7,898 $318 $42,611 0.7% 2015$47,616 $7,723 $326 $40,220 0.8% See accompanying notes to consolidated financial statements and report of independent registered public accounting firm. ~ 90 ~ Table of Contents ILLINOIS CASUALTY COMPANY AND SUBSIDIARIES Schedule V — Allowance for Uncollectible Premiums and Other ReceivablesYears ended December 31, 2016 and 2015(In thousands) 20162015Beginning balance$100 $50 Additions —50 Deletion(50) —Ending balance$50 $100 See accompanying notes to consolidated financial statements and report of independent registered public accounting firm. ~ 91 ~ Table of Contents ILLINOIS CASUALTY COMPANY AND SUBSIDIARIESSchedule VI — Supplemental InformationYears ended December 31, 2016 and 2015DeferredReserve forpolicyLosses andDiscount ifNetacquisitionsettlementany deductedUnearnedNet earnedinvestment(In thousands)costsexpensesfrom reservespremiumpremiumsincome2016$4,163 $52,817 $—$24,778 $42,611 $1,968 2015$3,983 $61,056 $—$23,948 $40,220 $1,333 Paid lossesLosses and settlmentandexpenses incurred related toAmortizationsettlementNet written(In thousands)Current yearPrior yearof DACexpensespremiums2016$25,620 $(1,275)$7,125 $(25,541)$43,227 2015$24,293 $(493)$6,814 $(20,697)$41,631 See accompanying notes to consolidated financial statements and report of independent registered public accounting firm. ~ 92 ~ Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone. Item 9A. Controls and ProceduresA control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Further, the design of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all controlsystems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within theCompany have been detected.Disclosure Controls and ProceduresThe Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that required information is recorded,processed, summarized and reported within the required timeframe as specified in the SEC’s rules and forms of the SEC. Ourdisclosure controls and procedures are also designed to ensure that information required to be disclosed is accumulated andcommunicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, to allow timelydecisions regarding required disclosure.Our management, with the participation of the Chief Executive Officer and the Chief Financial Officer, evaluated theeffectiveness of our disclosure controls and procedures at December 31, 2016. Based on this evaluation, the Chief ExecutiveOfficer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective, at the reasonableassurance level, as of December 31, 2016. Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act)during the year ended December 31, 2016 that have materially affected, or are reasonably likely to materially affect, theCompany’s internal control over financial reporting.Management's Report on Internal Control Over Financial Reporting and Attestation Report of the Registered PublicAccounting FirmThis Annual Report does not include a report of management's assessment regarding internal control over financial reporting oran attestation report of our independent registered public accounting firm due to a transition period established by the rules of theSEC for newly public companies. Item 9B. Other InformationNone. PART III Items 10 to 14Items 10 through 14 (inclusive) of this Part III are not included herein because the Company will file a definitive Proxy Statementwith the SEC that will include the information required by such Items, and such information is incorporated herein by reference.The Company’s Proxy Statement will be filed with the SEC and delivered to stockholders in connection with the Annual Meetingof Shareholders to be held on May 23, 2017, and the information under the following captions is included in such incorporationby reference: “Directors, Executive Officers and Corporate Governance,” “Executive Compensation,” “Security Ownership ofCertain Beneficial Owners and Management and Related Stockholder Matters,” “Certain Relationships and Related Transactions,and Director Independence,” and “Principal Accounting Fees and Services.” ~ 93 ~ Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules(a)(1-2) See Item 8 for Consolidated Financials Statements and Schedules included in this report.(3) Exhibits. See Exhibit Index on page 94.(b)Exhibits. See Exhibit Index on page 94.(c)Financial Statement Schedules. See Financial Statement Schedules on pages 86-89. ~ 94 ~  ICC HOLDINGS, INC. By: /s/ Arron K. Sutherland Arron K. Sutherland, President andChief Executive OfficerTable of Contents SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned, thereunto duly authorized. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the followingpersons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date/s/ Arron K. SutherlandArron K. Sutherland President and Chief Executive Officer(Principal Executive Officer) March 31, 2017 /s/ Joel K. HerifordJoel K. Heriford Director March 31, 2017Gerald J. Pepping Director March 31, 2017/s/ Mark J. SchwabMark J. Schwab Director March 31, 2017/s/ Scott T. BurgessScott T. Burgess Director March 31, 2017James R. Dingman Director March 31, 2017/s/ John R. KlockauJohn R. Klockau Director March 31, 2017/s/ Daniel H. PortesDaniel H. Portes Director March 31, 2017/s/ Christine C. SchmittChristine C. Schmitt Director March 31, 2017/s/ Michael R. SmithMichael R. Smith Chief Financial Officer (Principal Financial andAccounting Officer) March 31, 2017 ~ 95 ~ Table of Contents EXHIBIT INDEXExhibitNumberDescription1.1 Form of Agency Agreement among ICC Holdings, Inc., Illinois Casualty Company and Griffin Financial Group,LLC (incorporated by reference to Exhibit 1.1 to Amendment No. 1 to the Registrant’s Registration Statement onForm S-1 (File No. 333-214081) filed on November 7, 2016)2.1 Plan of Conversion from mutual to stock form of Illinois Casualty Company, dated as of February 16, 2016, asamended and restated November 14, 2016 (incorporated by reference to Exhibit 2.1 to Amendment No. 2 to theRegistrant’s Registration Statement on Form S-1 (File No. 333-214081) filed on December 23, 2016)3.1 Form of Amended and Restated Articles of Incorporation of ICC Holdings, Inc. (incorporated by reference toExhibit 3.1 to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-214081)filed on December 23, 2016)3.2 Form of Amended and Restated Bylaws of ICC Holdings, Inc. (incorporated by reference to Exhibit 3.2 toAmendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-214081) filed onDecember 23, 2016)4.1 Form of certificate evidencing shares of common stock of ICC Holdings, Inc. (incorporated by reference to Exhibit4.1 to Amendment No. 2 to the Registrant’s Registration Statement on Form S-1 (File No. 333-214081) filed onDecember 23, 2016)10.1 Employment Agreement among ICC Holdings, Inc., Illinois Casualty Company and Arron K. Sutherland(incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Registrant’s Registration Statement on FormS-1 (File No. 333-214081) filed on November 7, 2016)10.2 Form of Change of Control Agreement among ICC Holdings, Inc., Illinois Casualty Company and an employee(incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Registrant’s Registration Statement on FormS-1 (File No. 333-214081) filed on November 7, 2016)10.3 ICC Holdings, Inc. Employee Stock Ownership Plan (incorporated by reference to Exhibit 10.3 to Amendment No.1 to the Registrant’s Registration Statement on Form S-1 (File No. 333-214081) filed on November 7, 2016)10.4 Purchase Agreement among ICC Holdings, Inc., Illinois Casualty Company, and certain investors, including R.Kevin Clinton (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement on Form S-1(File No. 333-214081) filed on October 13, 2016)10.5 Purchase Agreement among ICC Holdings, Inc., Illinois Casualty Company, and Rock Island Investors, LLC(incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement on Form S-1 (File No. 333-214081) filed on October 13, 2016)10.6 Purchase Agreement among ICC Holdings, Inc., Illinois Casualty Company, and Tuscarora Wayne (incorporated byreference to Exhibit 10.6 to the Registrant’s Registration Statement on Form S-1 (File No. 333-214081) filed onOctober 13, 2016)10.7 Illinois Casualty Company Profit Sharing Cash Bonus Program (incorporated by reference to Exhibit 10.7 to theRegistrant’s Registration Statement on Form S-1 (File No. 333-214081) filed on October 13, 2016)10.8 Property Per Risk First and Second Excess of Loss Reinsurance Contract between Illinois Casualty Company andcertain reinsurers (incorporated by reference to Exhibit 10.8 to Amendment No. 3 to the Registrant’s RegistrationStatement on Form S-1 (File No. 333-214081) filed on February 1, 2017)10.9 Combined Property Catastrophe and Aggregate Catastrophe First and Second Excess of Loss Reinsurance Contractbetween Illinois Casualty Company and certain reinsurers (incorporated by reference to Exhibit 10.9 toAmendment No. 3 to the Registrant’s Registration Statement on Form S-1 (File No. 333-214081) filed on February1, 2017)10.1 Casualty Excess of Loss Reinsurance Contract between Illinois Casualty Company and certain reinsurers(incorporated by reference to Exhibit 10.10 to Amendment No. 3 to the Registrant’s Registration Statement onForm S-1 (File No. 333-214081) filed on February 1, 2017)10.11 Property Facultative Per Risk Excess of Loss Reinsurance Contract between Illinois Casualty Company and certainreinsurers (incorporated by reference to Exhibit 10.11 to Amendment No. 3 to the Registrant’s RegistrationStatement on Form S-1 (File No. 333-214081) filed on February 1, 2017)10.12 Cyber Protection Insurance Quota Share Reinsurance Contract between Illinois Casualty Company and certainreinsurers (incorporated by reference to Exhibit 10.12 to Amendment No. 3 to the Registrant’s RegistrationStatement on Form S-1 (File No. 333-214081) filed on February 1, 2017) ~ 96 ~ Table of Contents 10.13 Workers Compensation First, Second, and Third Excess of Loss Reinsurance Contract between Illinois CasualtyCompany and certain reinsurers (incorporated by reference to Exhibit 10.13 to Amendment No. 3 to theRegistrant’s Registration Statement on Form S-1 (File No. 333-214081) filed on February 1, 2017)21.1 Subsidiaries of ICC Holdings, Inc. (incorporated by reference to Exhibit 21.1 to the Registrant’s RegistrationStatement on Form S-1 (File No. 333-214081) filed on October 13, 2016)23.1 Consent of BKD, LLP31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of200232.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of2002 ~ 97 ~Consent of Independent Registered Public Accounting FirmAudit Committee, Board of Directors and StockholdersICC Holdings, Inc.Rock Island, IllinoisWe consent to the incorporation by reference in the registration statement of ICC Holdings, Inc. on FormS-1 (No. 333-214081) of our reports dated March 31, 2017, on our audits of the consolidated financialstatements of ICC Holdings, Inc. as of December 31, 2016 and 2015, and for the years ended December31, 2016 and 2015, which is included in the Annual Report on Form 10-K. /s/ BKD, LLP Cincinnati, OhioMarch 31, 2017Exhibit 31.1CHIEF EXECUTIVE OFFICER’S 302 CERTIFICATION I, Arron K. Sutherland, certify that:1.I have reviewed this Annual Report on Form 10-K of ICC Holdings, Inc. for the year ended December 31, 2016;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, 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, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared;(b)Intentionally omitted.(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board ofDirectors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarizeand report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role inthe registrant’s internal control over financial reporting.Date: March 31, 2017/s/ Arron K. SutherlandArron K. SutherlandChief Executive Officer(principal executive officer)Exhibit 31.2CHIEF FINANCIAL OFFICER’S 302 CERTIFICATION I, Michael R. Smith, certify that: 1.I have reviewed this Annual Report on Form 10-K of ICC Holdings, Inc. for the year ended December 31, 2016;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state amaterial fact necessary to make the statements made, in light of the circumstances under which such statements weremade, 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, fairlypresent in all material respects the financial condition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controlsand procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to bedesigned under our supervision, to ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities, particularly during the period inwhich this report is being prepared;(b)Intentionally omitted.(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period coveredby this report based on such evaluation; and(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurredduring the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annualreport) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controlover financial reporting; and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internalcontrol over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board ofDirectors (or persons performing the equivalent functions): (a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarizeand report financial information; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role inthe registrant’s internal control over financial reporting. Date: March 31, 2017 /s/ Michael R. SmithMichael R. SmithChief Financial Officer(principal financial officer)Exhibit 32.1 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of ICC Holdings, Inc. (the “Company”) on Form 10-K for the year endedDecember 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Arron K.Sutherland, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906of 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;and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results ofoperations of the Company. Date: March 31, 2017 /s/Arron K. SutherlandArron K. SutherlandChief Executive OfficerExhibit 32.2 CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of ICC Holdings, Inc. (the “Company”) on Form 10-K for the year endedDecember 31, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, MichaelR. Smith, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 ofthe 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;and2.The information contained in the Report fairly presents, in all material respects, the financial condition and resultsof operations of the Company. Date: March 31, 2017 /s/ Michael R. SmithMichael R. SmithChief Financial Officer

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