UNICO AMERICAN CORP – 10-K/A – Management’s Discussion and Analysis of Financial Condition and Results of Operations. – InsuranceNewsNet

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Forward-looking statements


This Management's Discussion and Analysis ("MD&A") is intended to provide an
understanding of the Company's financial condition and results of operations by
focusing on changes in certain key measures from year to year. This MD&A should
be read in conjunction with the Company's consolidated financial statements and
notes thereto.  This discussion contains forward-looking statements that involve
risks and uncertainties.  The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including those discussed elsewhere in this Annual Report on
Form 10-K, particularly in Item 1A - "Risk Factors."



                                    Overview



General

Unico American Corporation is an insurance holding company. Unico's insurance
company subsidiary Crusader Insurance Company ("Crusader") underwrote commercial
property and casualty insurance. The Company's subsidiaries Unifax Insurance
Systems, Inc. ("Unifax") and American Insurance Brokers, Inc. ("AIB") provided
marketing and continues to provide various underwriting support services related
to property, casualty, health and life insurance. The Company's subsidiary
American Acceptance Company ("AAC") provided insurance premium financing, and
the Company's subsidiary Insurance Club, Inc., dba AAQHC, an Administrator")
provides membership association services. The Company's subsidiary U.S. Risk
Managers, Inc. ("U.S. Risk") provides claims adjustment services. Unico American
Corporation is referred to herein as the "Company" or "Unico" and such
references include both the corporation and its subsidiaries, all of which are
wholly owned. Unico was incorporated under the laws of Nevada in 1969.




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This overview discusses some of the relevant factors that management considers
in evaluating the Company's performance, prospects, and risks. It is not all
inclusive and is meant to be read in conjunction with the entirety of the MD&A,
the Company's Consolidated financial statements and notes thereto, and all other
items contained within this Annual Report on Form 10-K.



Total revenues for the year ended December 31, 2021, were $36,388,384 compared
to $32,560,111 for the year ended December 31, 2020, an increase of $3,828,273.
The increase in revenues was primarily due to an increase in policies written in
the Transportation line of business. The Company's net loss for the year ended
December 31, 2021 was $5,673,251 compared to net loss of $21,491,113 for the
year ended December 31, 2020, a decrease in net loss of $15,817,862. On February
12, 2021, the Company through Crusader, completed the sale of the Company's
headquarters at 26050 Mureau Road, Calabasas, California 91302, for $12,695,000,
which netted $12,028,876. The Company recognized a gain of $3,693,858 on the
sale in 2021. The large decrease in net loss from 2020 compared to 2021 was
primarily due to the substantial increase in IBNR as described in the Company's
Annual Report on Form 10-K for the year ended December 31, 2020, which generated
much of the 2020 loss. The loss in 2021 is primarily attributable to the
increases in legal fees, supervision fees, and severance payments and the
payment of retention bonuses during 2021.



In connection with the Company's previously announced review of strategic
alternatives, during the quarter ended September 30, 2021, Unico took actions to
cause Crusader to enter into runoff. In connection with its runoff, Crusader
began to cease writing new and renewal business and to wind down operations that
support the writing of insurance policies. Effective September 30, 2021,
Crusader ceased writing any new insurance policies and no longer renewed
policies subsequent to December 8, 2021. Crusader has issued notices in
accordance with the California Department of Insurance ("CA DOI") rules and
regulations of non-renewal for its existing in-force policies to terminate such
policies at the expiration of the current policy periods. Crusader continues to
provide services to existing insurance policyholders and claimants during its
runoff. Actions to wind down operations that support the writing of new
insurance policies and the issuance of renewal insurance policies began
immediately, and the servicing operations will be adjusted over time to support
business requirements including the retention of the necessary staff. In August
2021, Unico also discontinued its premium financing operations formerly
conducted through its subsidiary AAC, which activity is reflected on the
Statement of Operations under "Other insurance operations."



Continuity of exploitation

Based on Unico's current cash and short­term investments at December 31, 2021,
as well as the other factors described herein, there is substantial doubt that
Unico will have sufficient cash to meet its operating and other liquidity
requirements when they become due during the next twelve months from the date of
issuance of the accompanying consolidated financial statements.



Unico has a history of recurring losses from operations, negative cash flows
from its operating activities which may continue in the future and as an
insurance holding company, Unico does not independently generate significant
revenue, and is dependent on dividends and other cash distributions from
Crusader and its other subsidiaries to fund its operations and expenses.
Historically, Unico received dividends periodically from Crusader, but does not
expect to receive any such dividends for the foreseeable future due to
prohibitions on dividends imposed by the CA DOI pursuant to the Administration
Supervision Agreement (the " Supervision Agreement"), dated as of September 7,
2021, by and between Crusader and CA DOI and other actions by the CA DOI in its
review of the financial statements of Crusader. Any continued financial support
from Crusader will be at the discretion of the Special Examiner appointed
pursuant to the Supervision Agreement.  The CA DOI advised in April 2021, that
Crusader was prohibited from paying dividends during the year 2021 and for the
years 2022 through 2025. If the Special Examiner does not permit Crusader to
continue to provide financial support to Unico, Unico will be unable to continue
to fund its continued operations and expenses. The Special Examiner has recently
informed Crusader that the CA DOI does not intend to continue to permit Crusader
to fund certain expenses attributable to Unico's status as a public company,
including certain legal and accounting expenses without an undertaking by the
Company to repay payments made on its behalf by Crusader. The Company will have
an account payable to Crusader and Crusader will have an intercompany account
receivable due from the Company for such payments made by Crusader and
authorized by the Special Examiner. The inability of Crusader to pay certain
expenses of the Company will exacerbate Unico's lack of liquidity. Additionally,
many of the potential strategic alternatives that the Unico Board of Directors
is considering will also depend on continued financial support from Crusader to
fund transaction expenses and other costs. If Crusader is not permitted to do
so, Unico would be unable to pursue such alternatives, which may otherwise be in
the best interests of its stockholders. These circumstances raise substantial
doubt about Unico's ability to continue as a going concern. The accompanying
consolidated financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and reclassification of assets or
the amounts and classifications of liabilities that may result from the outcome
of the uncertainty of our ability to remain a going concern.




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Unico needs to improve its consolidated operating results, continue to receive
financial support from Crusader, and/or raise substantial additional capital to
continue to fund its operations.  Unico has taken actions to cause Crusader to
enter into runoff and to wind down operations that support the writing of
insurance policies. To address its liquidity concerns and meet its capital
obligations, Unico has announced a review of strategic alternatives and, with
the assistance of a financial advisor, is considering multiple alternatives,
including, but not limited to, strategic financing, further scaling back, or
eliminating some or all of its remaining business operations, expense
reductions, reorganization, merger with another entity, filing for bankruptcy or
cessation of operations.  There can be no assurances that capital will be
available when needed or that, if available, it will be obtained on terms
favorable to the Company and its stockholders, particularly in light of the
effects that the coronavirus COVID-19 pandemic has had on the capital markets
and investor sentiment. In addition, equity or debt financings may have a
dilutive effect on the holdings of Unico's existing stockholders, and debt
financings may subject Unico to restrictive covenants, operational restrictions,
and security interests in Unico's assets.  Many of these potential alternatives
will also depend on continued financial support from Crusader to fund
transaction expenses and other costs. If Unico becomes unable to continue as a
going concern, Unico may have to dispose of or liquidate its assets and might
realize significantly less than the values at which they are carried on its
consolidated financial statements. Additionally, Unico may have to write down
some or all of its capitalized assets or liquidate some or all of its
investments in gross unrealized loss position.  These actions may cause Unico's
stockholders to lose all or part of their investment in Unico's common stock.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.



On September 13, 2021, the Special Examiner advised Crusader, through its
counsel, that a deficiency existed in certain funds that Unifax is required to
maintain, in a fiduciary capacity, for Crusader's benefit. Pursuant to the
provisions of California Insurance Code Sections 1733 and 1734, Unifax is
required to hold premium payment funds received from policyholders as fiduciary
funds in trust maintained for the benefit of Crusader.  The Special Examiner
informed Crusader that the CA DOI believed that the deficiency in such fiduciary
funds was approximately $3,100,000 as of September 13, 2021. The Company
believes that as of September 30, 2021, the amount of such deficiency was
$2,452,835. In January 2022 Unico, Crusader, and Unifax agreed, with the
pre-approval of the Special Examiner, to transfer a computer system, owned by
Unico, to Crusader. Unico contributed the computer system at its book value of
$1,991,956, to Unifax, and Unifax in turn contributed the computer system to
Crusader at its book value of $1,991,956 as a direct reduction in the amount due
to Crusader which resulted in a dollar-for-dollar reduction in the premium trust
deficiency. The amount of such deficiency was $275,901 as of March 31, 2022, and
$432,900 as of May 31, 2022.



Supervision Agreement

On September 10, 2021, Crusader and the CA DOI entered into the "Supervision
Agreement", dated September 7, 2021, at the request of the CA DOI. The
Supervision Agreement was requested by the CA DOI because of the CA DOI's
expressed concerns regarding the financial stability of Crusader and the
potential effects on Crusader and Crusader's California policyholders of any
potential bankruptcy of Unico.   The Supervision Agreement among other things,
provides for the appointment by the CA DOI of a Special Examiner to provide
supervision and regulatory oversight of Crusader. The Supervision Agreement
imposes limitations on Crusader's ability to take certain actions without the
prior written consent of the California Insurance Commissioner (the
"Commissioner"), the Special Examiner, or the Special Examiner's appointed
representative. Among the actions that Crusader is prohibited from making
without such prior written consent are the following: (i) making payments,
engaging in any transaction with or entering into any agreement with, any
affiliated or otherwise related person or entity if the cost to Crusader is an
individual payment of more than $5,000 or aggregate payments of more than
$20,000; (ii) making payments, engaging in any transaction with or entering into
any agreement with, any non-affiliated or otherwise unrelated person or entity
if the cost to Crusader is an individual payment of more than $5,000 or
aggregate payments of more than $20,000; (iii) paying any dividend of any
amount; (iv) except as provided in (i) and (ii), making any payments to or on
behalf of the Company in connection with any agreement entered into between
Crusader and the Company; (v) making any loans to affiliates, officers,
directors, stockholders or third parties; (vi) incurring any debt, obligation or
liability greater than $5,000; (vii) entering into any new reinsurance contract
or treaty or amending any existing reinsurance contract or treaty; (viii) making
any material changes in management and essential staffing; (ix) increasing
salaries or benefits of officers or directors or making any preferential payment
of bonuses or other payments considered legally preferential; and (x) making any
other material changes in its normal course of operations, including but not
limited to, entering into new lines of business, making major corporate
reorganizations, or redomesticating from California. The Supervision Agreement
provides that the Special Examiner will meet with Crusader to develop a list of
recurring payments under items (i) and (ii) that may not require prior written
approval. To date, the Special Examiner has permitted Crusader to provide
significant financial support to Unico in the form of reimbursement and/or
direct payment of certain operating and other expenses, but there can be no
assurance that the Special Examiner will continue to permit Crusader to do so
under the Supervision Agreement. If the Special Examiner does not continue to
permit Crusader to financially support Unico in the future, Unico will be unable
to continue to fund its ongoing operations.



Independent investigation

In October 2021, the Audit Committee of Unico's Board of Directors retained
independent outside counsel, who in turn engaged forensic accountants to work at
their direction, to conduct an independent investigation and provide legal
advice to the Audit Committee (the "Independent Investigation"), regarding the
facts and circumstances relating to, and resulting in, the observed fiduciary
funds deficiency.  As a result of the Independent Investigation, the Company has
determined that, over a period of multiple years, (i) Unifax did not comply with
the requirements of the California Insurance Code ("CIC")  to hold premium trust
funds in separate accounts or segregate such funds in accordance with the CIC;
(ii) the funds in question were improperly transferred to an operating account
of Unifax and were subsequently transferred to a Unico operating account; and
(iii) the funds in question were utilized by Unico and its consolidated
subsidiaries for general corporate purposes.  The Independent Investigation did
not find any evidence that any of such funds had been stolen or used for
non-corporate purposes.




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Work Force Reduction

In connection with the runoff of Crusader, on October 7 and October 8, 2021, the
Company informed thirteen employees of the Company's determination to terminate
their employment, effective as of October 8, 2021 (the "October 2021 Work Force
Reduction"). Additionally, on December 16, 2021, and December 17, 2021, the
Company informed an additional twelve employees of the Company's determination
to terminate their employment, effective as of December 17, 2021 (the "December
2021 Work Force Reduction"). The terminated employees were primarily employed in
the Company's underwriting and marketing groups.  In connection with the October
2021 Work Force Reduction and the December 2021 Work Force Reduction, the
Company expects to incur total pre-tax costs of $968,139, consisting of
severance payments under the Company's existing policy. In addition, the Company
has offered retention bonuses to certain of the Company's employees that were
not subject to the October 2021 Work Force Reduction and the December 2021 Work
Force Reduction, in connection with which, depending on employee participation,
the Company expects to incur total pre-tax costs of $62,269.  The Company
implemented another retention bonus plan to certain employees and expects to
incur total pre-tax costs of $193,731 related to the plan, which will be
recognized ratably over the last three quarters of 2022. The Company may incur
additional costs in connection with the runoff of Crusader, including additional
costs associated with workforce reductions.



In 2021, the Company paid $331,331 in severance payments and $0 in retention
bonus payments. In 2022, the Company has paid $270,705 in severance payments and
$284,810 in retention bonus payments.



COVID-19[feminine]

As a result, of the ongoing COVID-19 pandemic, economic uncertainties have
arisen which can impact the fair value of investments, day-to-day administration
of the business and premium volume. While the Company does not believe it is
exposed to substantial risk from coronavirus-related claims under the insurance
policies written by Crusader, it is possible that the Company's results of
operations, financial condition and the fair value of its investment portfolio
may be adversely affected by the general economic conditions as a result of
the
pandemic.



The effects of the ongoing COVID-19 pandemic were a major contributor to the
variability in fair value of the Company's fixed income and equity investments
during the first half of 2020, however, the investment portfolio recovered in
value in subsequent quarters. The overall response to the pandemic contributed
to the recent decline in investment yields, compared to previous years, which
will cap the Company's investment portfolio's ability to generate higher levels
of investment income, absent a larger invested asset base or a change in
investment philosophy.



Crusader has received a number of coronavirus-related business interruption
claims. With the exception of one claim for which investigation is still
ongoing, all such claims were denied after the individual circumstances of each
claim were reviewed to determine whether insurance coverage applied. Like many
companies in the property casualty insurance industry, Crusader was named as
defendant in lawsuits seeking insurance coverage under the policies issued by
Crusader for alleged economic losses resulting from the shutdown or suspension
of their businesses due to the COVID-19 pandemic. Although the allegations vary,
the plaintiffs generally seek a declaration of insurance coverage, damages for
breach of contract in unspecified amounts for claim denials, interest, and
attorney fees. Some of the lawsuits also allege that the insurance claims were
denied in bad faith or otherwise in violation of state laws and seek
extra-contractual or punitive damages.



Crusader denies the allegations in these lawsuits and intends to continue to
vigorously defend them. Although the policy terms vary in general, the claims at
issue in these lawsuits were denied because the policyholder identified no
direct physical loss, such as fire or water damage, to property at the insured
premises, and the governmental orders that led to the complete or partial
shutdown of the business were not due to the existence of any direct physical
loss or damage to property in the immediate vicinity of the insured premises and
did not prohibit access to the insured premises, as required by the terms of the
insurance policies. Depending on the individual policy, additional policy terms
and conditions may also prohibit coverage, such as exclusions for pollutants,
ordinance or law, loss of use, and acts or decisions. Most of Crusader's
policies also contain an exclusion for losses caused directly or indirectly
by
"virus or bacteria."



In addition to the inherent difficulty in predicting litigation outcomes, the
COVID-19 pandemic business income coverage lawsuits present a number of
uncertainties and contingencies that are not yet known, including how many
policyholders will ultimately file claims, the number of lawsuits that will be
filed, the extent to which any class may be certified, and the size and scope of
any such classes.  The legal theories advanced by plaintiffs vary by case; many
complaints continue to be amended; several have been dismissed voluntarily and
may be refiled; and others have been dismissed by trial courts. Some early
decisions on motion filings have been appealed.




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On March 23, 2021, ten policyholders sued Crusader in a putative class action
entitled Anchors & Whales LLC et al. v. Crusader Insurance Company, Superior
Court of the State of California for the County of San Francisco
(CGC-21-590999). The action alleges that Crusader wrongly denied claims for
business interruption coverage made by bars and restaurants related to the
COVID-19 pandemic and related government orders that limited or halted
operations of bars and restaurants. The action further alleges that Crusader
acted unreasonably in denying the claims, and it seeks as damages the amounts
allegedly due as contract benefits under the insurance policies, attorneys' fees
and costs, punitive damages, and other unspecified damages. The lawsuit alleges
a putative class of all bars and restaurants in California that were insured by
Crusader for loss of business income, who made such a claim as a result of "one
or more Governmental Orders and the presence of the COVID-19 virus on the
property," and whose claim was denied by Crusader. On October 1, 2021, Crusader
was granted its motions on the pleadings without leave to amend and the lawsuit
was dismissed. On December 15, 2021, Anchors & Whales LLC filed a notice of
appeal with California Court of Appeals, 1st Appellate District, Division 2
(A164412).  The opening brief of Anchors & Whales LLC is due to be filed by
August 12, 2022.  The Company cannot predict the actions of the Court of
Appeals.



While the coronavirus pandemic is also affecting the Company's internal
operations, the Company implemented a plan at the onset of the COVID-19 pandemic
to help its operations continue effectively during the ongoing pandemic,
including processes to limit the spread of COVID-19 among employees. For
example, the Company modified its business practices in accordance with social
distancing and safety guidelines, allowing many work-from-home arrangements,
flexible work schedules, and restricted business travel. The Company's employees
are following the guidelines and approximately 75% are working from their
homes.  The Company follows governmental safety guidelines in determining when
to remove the coronavirus-related business restrictions and where and when to
request the employees working from their homes return to their workplaces for a
few days per week.  While the pandemic has created new challenges for the
Company, the Company's ability to maintain its operations, internal controls and
relationships has not been adversely affected.



Termination of reinsurance agreement

On August 31, 2021, Crusader and United Specialty Insurance Company ("USIC"),
terminated the Quota Share Reinsurance Agreement (the "Reinsurance Agreement"),
effective April 1, 2020, by and between Crusader and USIC. Pursuant to the
Reinsurance Agreement, Crusader agreed to reinsure all of USIC's liability for
policies issued by USIC and produced by Unifax, for property, general liability,
commercial multiple peril ("CMP"), liability and other miscellaneous coverages,
subject to certain maximum policy limits. Crusader's obligations under the
Reinsurance Agreement continue after termination for business in force at the
time of termination, for policies with effective dates prior to the termination
but issued after the termination date, and for policies that must be issued or
renewed as a matter of law until the expiration of the policies.



On August 31, 2021, as a result of the termination of the Reinsurance Agreement,
the Surplus Line Broker Agreement (the "Broker Agreement"), effective April 1,
2020, by and between Unifax and USIC, automatically terminated. Pursuant to the
Broker Agreement, USIC authorized Unifax to act as its broker for the purpose of
producing and administering certain specified classes of insurance policies,
which are the subject of the Reinsurance Agreement. Unifax's obligations under
the Broker Agreement continue after termination for insurance business reinsured
under the Broker Agreement. Unifax's obligations include handling and servicing
of all policies until their expiration.



On August 31, 2021, as a result of the termination of the Broker Agreement, the
Claims Administration Agreement (the "Claims Administration Agreement"),
effective April 1, 2020, by and between U.S. Risk and USIC, automatically
terminated. Pursuant to the Claims Administration Agreement, USIC appointed U.S.
Risk to adjust and settle claims on its behalf in connection with the surplus
lines policies issued by USIC in connection with the Reinsurance Agreement. Upon
termination of the Claims Administration Agreement, U.S. Risk is obligated
(unless revoked by USIC) to continue to manage claims during the runoff of
the
business reinsured.



The parties agreed to mutually terminate the Reinsurance Agreement. There were
no early termination penalties incurred as a result of the termination. The
Reinsurance Agreement provides for a minimum ceding fee, and, upon termination
of the Reinsurance Agreement, the minimum ceding fee was pro-rated to the date
of termination unless there were policies issued after the termination of the
Reinsurance Agreement. In such case, the minimum ceding fee will continue past
the termination of the Reinsurance Agreement until such time as no further
policies are issued. USIC waived any additional ceding fees payable under the
Reinsurance Agreement under the agreement to terminate that agreement.



Under the Reinsurance Agreement, Crusader was required to secure its obligations
to USIC for unearned premium reserves, if any, and loss reserves (losses
incurred and not reported and loss reported but unpaid) in a security fund,
trust agreement or letter of credit to permit USIC to receive credit for the
reinsurance ceded to Crusader by USIC. Such security was required because
Crusader is not authorized to transact insurance in Delaware, the domiciliary
state of USIC. Initially, the security required to be provided by Crusader was
150% of the unearned premium and loss reserves. USIC was permitted to request
additional security for the unearned premium and loss reserves in the event (i)
the A.M. Best rating of Crusader is at any time reduced? or (ii) the A.M. Best
rating of Crusader is at any time removed or withdrawn? or (iii) there is a
reduction the capital and policyholder surplus of Crusader by 10% or more in any
rolling 12-month period or (iv) Crusader fails to maintain its Cat excess of
loss reinsurance coverage at certain levels. As of December 31, 2021, six
securities were held as collateral with Comerica Bank & Trust, N. A.
("Comerica"), pursuant to the reinsurance trust agreement among Crusader, USIC
and Comerica to secure payment of Crusader's liabilities and performance of its
obligations under the reinsurance arrangement with USIC. The estimated fair
value and amortized cost of those securities was $8,243,758 and $8,162,053 on
December 31, 2021, respectively. The estimated aggregate fair value and
amortized cost of these securities was $7,944,916 and $7,836,756, on March 31,
2022, respectively. As of April 30, 2022, the estimated market value decreased
to $7,663,701. Such market values are used in the trust fund calculation by
USIC. The increase in the security request is a result of a decline in the
market value of the securities and an increase in the collateral from 150% to
325% because of Crusader's loss of the AM Best rating and the decline in
policyholder surplus. If Crusader fails to provide the additional security
requested by USIC, USIC may draw down the full amount of the funds in the
reinsurance trust agreement. Crusader is reviewing the request of USIC and
believes that the asserted loss reserves used in their calculation may be
incorrect. Any increase to the reinsurance trust agreement by Crusader will
require the consent of the Special Examiner. Any drawdown of the reinsurance
trust agreement by USIC may have a materially adverse effect on the financial
condition of Unico. As of December 31, 2020, one corporate security, included in
available-for-sale fixed maturities, was held as collateral with Comerica,
pursuant to the reinsurance trust agreement among Crusader, USIC and Comerica to
secure payment of Crusader's liabilities and performance of its obligations
under the reinsurance arrangement with USIC. The estimated fair value and
amortized cost of that security was $824,500 and $787,653 on December 31, 2020,
respectively.



IT System Upgrade

In 2018 the Company determined it needed to upgrade or replace its legacy IT
system, which it opted to upgrade because the cost was substantially less. The
upgrade was completed in first quarter of 2021 at a cost of approximately
$1,500,000, excluding costs of Unico's employees involved in the upgrade, due to
unexpected technical challenges. The Company started depreciating the associated
capitalized costs, including the costs of Unico's employees involved in the
upgrade, during the second quarter of 2021.



Income and income generation

The Company historically received its revenues primarily from earned premium
derived from the insurance company operations, commission and fee income
generated from the insurance agency operations, finance charges and fee income
from the premium finance operations, and investment income from cash generated
primarily from the insurance company operation.  However, in light of the runoff
of Crusader, and the cessation of the premium finance operations provided by
AAC, the Company's revenues from these sources have and will continue to decline
significantly in the future. The insurance company operation revenues generated
approximately 95.2% of consolidated revenues for the fiscal year ended December
31, 2021, compared to 93.6% of consolidated revenues for the fiscal year ended
December 31, 2020.  None of the Company's other operations is individually
material to consolidated revenues.




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Insurance Company Operation

As of December 31, 2021, Crusader was licensed as an admitted insurance carrier
in the states of Arizona, California, Nevada, Oregon, and Washington.  From 2004
until June 2014, all of Crusader's business was written in the state of
California. Crusader's business remains concentrated in California (100% and
99.9% of gross written premium, which represents written premium before cession
to reinsurers, in the years ended 2021 and 2020, respectively).  During the
years ended December 31, 2021 and 2020, 99.7% and 99.6% of Crusader's business
was CMP policies, respectively.



Crusader's total gross written premium (direct and assumed written premium
before cessions to reinsurers under reinsurance treaties), as reported on
Crusader's statutory financial statements, was produced geographically as
follows:



                                 Year ended December 31
                                  2021             2020

California                    $ 36,266,636     $ 36,618,013
Arizona                                  -           24,817
Total gross written premium   $ 36,266,636     $ 36,642,830



Crusader previously focused its business in three underwriting businesses: (1)
Transportation, (2) Mainstreet, and (3) Buildings.  The Company reorganized its
underwriting businesses for proper staffing and business focus during the first
quarter of 2021.  The former Food, Beverage and Entertainment and Garage and
Mercantile businesses became Mainstreet, and the former Apartments & Commercial
Buildings business was renamed Buildings.  The Company's Board of Directors
decided to put Crusader into run off in September 2021 and now Crusader's
business is in runoff.



Written premium is a non-GAAP financial measure that is defined, under statutory
accounting principles ("SAP"), as the contractually determined amount charged by
the insurance company to the policyholder for the effective period of the
contract based on the expectation of risk, policy benefits, and expenses
associated with the coverage provided by the terms of the policies. Written
premium is a required statutory measure. Written premium is defined under GAAP
in Accounting Standards Codification Topic 405, "Liabilities," as "premiums on
all policies an entity has issued in a period." Earned premium, the most
directly comparable GAAP measure to written premium, represents the portion of
written premium that is recognized as income in the financial statements for the
period presented and earned on a pro-rata basis over the terms of the
policies. Written premium is intended to reflect production levels and is meant
as supplemental information and not intended to replace earned premium. Such
information should be read in connection with the Company's GAAP financial
results.



The following is a reconciliation of gross written premium (direct and assumed
written premium before cessions to reinsurers under reinsurance treaties) to net
earned premium (after premium ceded to reinsurers under reinsurance treaties):



                                                Year ended December 31
                                                2021              2020

Direct written premium                      $  32,871,625     $ 36,338,800
Assumed written premium                         3,395,010          304,030

Less: premiums written ceded to reinsurers (11,551,580 ) (8,078,748 )
Net written premium

                            24,715,055       28,564,082
Change in direct unearned premium               5,407,105         (230,570 )
Change in assumed unearned premium             (1,550,080 )       (147,391 )
Change in ceded unearned premium                 (142,175 )        (17,953
)
Net earned premium                          $  28,429,905     $ 28,168,168




The Company's insurance operational underwriting profitability is defined by
pre-tax underwriting gain or loss which is calculated as net earned premium less
losses and loss adjustment expenses and policy acquisition costs.




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Crusader’s technical loss before income taxes is as follows

                                            Year ended December 31
                                            2021             2020               Change

Net written premium                     $ 24,715,055     $  28,564,082     $ (3,849,027 )
Change in net unearned premium             3,714,850          (395,914 )   

4,110,764

Net earned premium                        28,429,905        28,168,168     

261,737

Less:

Claims and claims settlement expenses 25,972,840 34,642,920

 (8,670,080 )
Policy acquisition costs                   5,442,645         4,898,807          543,838
Total underwriting expenses               31,415,485        39,541,727     

(8,126,242)
Technical loss before income tax ($2,985,580) ($11,373,559) $8,387,979



Underwriting gain or loss before income taxes is a non-GAAP financial
measure. Underwriting gain or loss before income taxes represents one measure of
the pretax profitability of the insurance company operation and is derived by
subtracting losses and loss adjustment expenses, and policy acquisition costs
from net earned premium, which are all GAAP financial measures. Management
believes disclosure of underwriting income or loss before income taxes is useful
supplemental information that helps align the reader's understanding with
management's view of Crusader's operations profitability. Each of these captions
is presented in the Consolidated Statements of Operations but is not
subtotaled.



The following is a reconciliation of Crusader’s underwriting loss before income
taxes to the Company’s pre-tax loss:

                                                            Year ended December 31
                                                            2021             2020
Underwriting loss before income taxes                   $ (2,985,580 )   $ (11,373,559 )
Insurance company operation revenues:
Net investment income                                      1,932,993       

1,988,243

Net realized investment gains (losses)                       259,912       

97,771

Net realized investment gains (losses) on real estate 3,693,858

Net unrealized capital gains on equity investments 400,862

198 266

Other income                                                 (83,043 )     

32,713

Other insurance operations revenues:
Gross commissions and fees                                 1,601,427       

1,827,263

Finance charges and fees earned                              151,920       

240,589

Other income                                                     550       

7,098

Less expenses:
Salaries and employee benefits                             3,850,568       

6,364,170

Commissions to agents/brokers                                 80,586       
    95,315
Other operating expenses                                   6,256,079         4,502,414
Loss before taxes                                       $ (5,214,334 )   $ (17,943,515 )




Unearned premiums represent premium applicable to the unexpired terms of
policies in force. The Company evaluates its unearned premiums periodically for
premium deficiencies by comparing the sum of expected claim costs, unamortized
deferred policy acquisition costs, and maintenance costs partially offset by net
investment income to related unearned premiums. To the extent that any of the
Company's programs become unprofitable, a premium deficiency reserve may be
required. The Company recognized an allowance against its deferred acquisition
costs of $1,409,654 and $0 for the years ended December 31, 2021 and 2020,
respectively.



The insurance company operation combined ratio is the sum of (1) the ratio of
net losses and loss adjustment expenses incurred (including a provision for
IBNR) to net earned premium (loss ratio) and (2) the ratio of policy acquisition
costs to net earned premium (expense ratio). If the combined ratio is below
100%, an insurance company has an underwriting profit; if it is above 100%, the
company has an underwriting loss.




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The following table shows the loss ratios, expense ratios, and combined ratios
of Crusader:



                       Year ended December 31
                        2021              2020

Loss ratio (1)                91 %           123 %
Expense ratio (2)             41 %            38 %
Combined ratio (3)           132 %           161 %



(1) Loss ratio is defined as claims and claims adjustment expenses divided by

premium earned.
(2) The expense ratio is defined as the sum of policy acquisition costs and

indirect salaries and benefits and other operating expenses

allocation to the operation of insurance companies, less the allocation of

gross commissions and fees and other income, divided by net premiums earned.

The calculation of this expense ratio is different from that used for

calculation of the statutory accounting base expense ratio.
(3) The combined ratio is defined as the sum of the loss ratio and the expense ratio. The

the combined ratio is different from the combined accounting framework

    ratio.




The following table provides an analysis of losses and loss adjustment expenses:



                                               Year ended December 31
                                                2021             2020            Change

Claims and claims adjustment expenses

Provision for insured events of current
year                                        $ 26,097,435     $ 26,683,872     $   (586,437 )
Development of insured events of prior
years                                           (124,595 )      7,959,048  

(8,083,643)

Total claims and claims adjustment expenses $25,972,840 $34,642,920

  $ (8,670,080 )




On September 24, 2021, A.M. Best Company ("A.M. Best") downgraded Crusader's
Financial Strength Rating ("FRB") to "C++" (Marginal) from "B" (Fair) and its
Long-Term Issuer Credit Rating ("Long-Term ICR") to "b" (Marginal) from "bb+"
(Fair). A.M. Best also downgraded Unico's Long-Term ICR to "ccc-" (Weak) from
"b" (Marginal). In addition, A.M. Best maintained the "under review with
negative implications" status for these Credit Ratings. On September 24, 2021,
A.M. Best's ratings reflected concerns regarding Crusader's balance sheet
strength, which A.M. Best assessed as weak, as well as its weak operating
performance, limited business profile and marginal enterprise risk
management. A.M. Best stated that, while Crusader maintains sufficient
liquidity, and its risk-adjusted capital levels remain at the strongest level,
as measured by A.M. Best's Capital Adequacy Ratio, the downgrades reflect the
lowered assessment of the balance sheet strength given the enterprise's
diminished financial flexibility and the constraints imposed on Crusader by the
CA DOI under the Supervision Agreement. The A.M Best rating was withdrawn by the
Company on September 24, 2021.



Some of Crusader's policyholders, or the lenders, landlords or clients of
Crusader's policyholders, require insurance from a company that has an A.M. Best
FSR of "A-" or higher, and the A.M. Best's changed ratings of Crusader may also
have a negative impact on Crusader's reputation. Therefore, Crusader's and
Unico's changed ratings and the ultimate withdrawal of these ratings would have
a negative impact on the Company's revenue and results of operations if
Crusader's operations were not in runoff. In addition, certain policyholders of
Crusader may have cancelled their policies because of the change in the rating
and ultimate withdrawal of these ratings. The Company cannot quantify the impact
that the rating changes or the withdrawal of the ratings have had or will have
on its revenue and results of operations.



Income from other insurance operations

The Company's revenues from "Other insurance operations" consist of commissions,
fees, investment, and other income.  Excluding investment and other income,
these operations accounted for approximately 5% and 6% of total revenues for the
years ended December 31, 2021 and 2020, respectively.



Investments

The Company generated revenues from its total invested assets of $76,205,181
(fixed maturities at amortized cost, equity securities at cost and short-term
investments at fair value) and $83,617,720 (fixed maturities at amortized cost,
equity securities at cost and short-term investments at fair value) as of
December 31, 2021 and 2020, respectively.



Net investment income (net of investment expenses) decreased $55,250 (-3%) for
the year ended December 31, 2021, as compared to the year ended December 31,
2020.  This decrease in net investment income was due primarily to a  decrease
in average invested assets and  increases in interest rates impacting the
Company's portfolio.  Average invested assets are expected to continue to
decrease in future periods because Crusader is in runoff and will be using the
investments to satisfy future claims.




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Due to the current interest rate environment, the current target effective
duration for the Company's investment portfolio is between 2.0 and 4.0 years.
As of December 31, 2021, all of the Company's investments are in U.S. Treasury
securities, corporate fixed maturity securities, agency mortgage-backed
securities, equity securities, Federal Deposit Insurance Corporation ("FDIC")
insured certificates of deposit, and short-term investments.  All of the
Company's investments, except for the certificates of deposit, are readily
marketable.  As of December 31, 2021, the weighted average maturity of the
Company's investments was approximately 6.7 years, and the effective duration
for available-for-sale investments (investments managed under the investment
guidelines) was 2.4 years.



                        Liquidity and Capital Resources


The Company prepared the accompanying consolidated financial statements on a
going concern basis, which assumes that it will realize its assets and satisfy
its liabilities in the normal course of business. Unico has a history of
recurring losses from operations, negative cash flows from its operating
activities which may continue in the future, and, as a holding company, does not
independently generate significant revenue and is dependent on dividends and
other cash distributions from Crusader and its other subsidiaries to fund its
operations and expenses. Historically, Unico generally received dividends
periodically from Crusader, but does not expect to receive any such dividends
for the foreseeable future due to prohibitions on dividends imposed by the CA
DOI pursuant to the Supervision Agreement, Crusader's decreased policyholder
surplus caused by additional underwriting losses during 2021, and the need to
preserve policyholder surplus at Crusader. Any continued financial support from
Crusader will be at the discretion of the Special Examiner appointed pursuant to
the Supervision Agreement. If the Special Examiner does not permit Crusader to
continue to provide significant financial support to Unico, Unico will be unable
to continue to fund its continued operations and expenses. The Special Examiner
has recently informed Crusader that the CA DOI does not intend to continue to
permit Crusader to fund certain expenses attributable to Unico's status as a
public company, including certain legal and accounting expenses without an
undertaking by the Company to repay payments made on its behalf by Crusader. The
Company will have an account payable to Crusader and Crusader will have an
intercompany account receivable due from the Company for such payments made by
Crusader and authorized by the Special Examiner. The inability of Crusader to
pay certain expenses of the Company will exacerbate Unico's lack of liquidity.
Additionally, many of the potential strategic alternatives that the Unico Board
of Directors is considering will also depend on continued financial support from
Crusader to fund transaction expenses and other costs.  If Crusader is not
permitted to do so, Unico would be unable to pursue such alternatives, which may
otherwise be in the best interests of its stockholders. These circumstances
raise substantial doubt about Unico's ability to continue as a going concern.
The accompanying consolidated financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that
may result from the outcome of the uncertainty of our ability to remain a going
concern.


No assurance can be given that the Company's estimate of ultimate loss and loss
adjustment expense reserves will be sufficient but based on the Company's
current loss and loss expense reserves and expected current and future payments,
the Company believes that there are no current liquidity constraints for
Crusader. However, as an insurance holding company, the Company does not
independently generate significant revenue and is dependent on dividends and
other cash distributions from Crusader and its other subsidiaries to fund its
operations and expenses. As discussed below, the Company does not expect to
receive any dividends from Crusader for the foreseeable future, and accordingly,
its financial position and ability to pay operating expenses will be adversely
impacted.



As a result of Crusader being placed into runoff, Crusader is no longer able to
generate any significant amounts of premium and the holdings of unearned premium
reserves will be depleted over time. As a result, Crusader will need to
liquidate some of its investment holdings to support its operations.
Accordingly, the size of Crusader's investment portfolio and investment income
are expected to decrease.



On December 31, 2021 and December 31, 2020, Crusader's RBC Level was less than
300% of its Authorized Control Level RBC, and its statutory accounting basis
combined ratio was in excess of 120% for the years then ended.  The RBC Level
when coupled with the statutory accounting basis combined ratio triggered
Company Action Level Events under the RBC for the years then ended.  On March
24, 2021  Crusader submitted to the CA DOI a comprehensive Risk Based Capital
Plan (the "RBC Plan") to increase the adjusted capital above 300% and to address
the actions that Crusader would take to correct the conditions that resulted in
the Company Action Level Event.  The CA DOI found the RBC Plan to be deficient
and requested that a revised RBC Plan be submitted.  On July 2, 2021, the
Company submitted a revised RBC Plan, which addressed issues raised by the CA
DOI (the "2021 Revised RBC Plan").  No action was taken by the CA DOI regarding
the 2021 Revised RBC Plan. As of December 31, 2021 a second Company Action Event
occurred. At December 31, 2021, Crusader's RBC Level was less than 300%, with a
combined ratio greater than 130%, which resulted in another Company Action Level
event (the "2022 Company Action Level Event").  As a result of the 2022 Company
Action Level Event, Crusader was required to submit another comprehensive Risk
Based Capital Plan ("2022 RBC Plan") to the CA DOI. Crusader submitted its 2022
RBC Plan on May 15, 2022.  On June 9, 2022, the CA DOI requested additional
information regarding the 2022 RBC Plan, which information is to be submitted by
July 24, 2022. The CA DOI may accept Crusader's 2022 RBC Plan to correct the
conditions that lead to the 2022 Company Action Event,  or it may request that a
revised plan be submitted, or it may take no action with respect to the 2022 RBC
Plan. After the Plans are submitted, the CA DOI may request additional changes
to the revised RBC Plan to address various corrective actions that Crusader
and/or the Company will take, including, without limitation, increasing the
capital of Crusader.  Depending on the scope and nature of any such requests
from the CA DOI, regarding the 2022 RBC Plan the Company and Crusader may not be
able to implement certain corrective actions, including the potential infusion
of capital to Crusader. The Company continues to be engaged in discussions with
the CA DOI on various strategic alternatives to address the RBC issues.




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Another liquidity risk faced by the Company is adverse development of Crusader's
loss and loss adjustment expense reserves.  Based on the Company's current loss
and loss expense reserves and expected current and future payments, the Company
believes that Crusader's loss and loss adjustment expense reserves are adequate
to address anticipated claims.  However, no assurance can be given that the
Company's estimate of ultimate loss and loss adjustment expense reserves will be
sufficient.



Crusader has a significant amount of cash, restricted cash, cash equivalents,
and investments as a result of its holdings of unearned premium reserves, its
reserves for loss and loss adjustment expense payments and its capital and
surplus.  Crusader's loss and loss adjustment expense payments are the most
significant cash flow requirement of the Company.  These payments are
continually monitored and projected to ensure that the Company has the liquidity
to cover these payments. Cash, restricted cash, and investments (at amortized
cost) of the Company at December 31, 2021, were $91,831,832 compared to
$87,575,700 at December 31, 2020.  Crusader's cash, restricted cash, and
investments were 99% and 98% of the total cash, restricted cash, and investments
(at amortized cost) held by the Company as of December 31, 2021 and 2020,
respectively.



From December 31, 2021all of the Company’s investments are in WE Treasury
securities, FDIC insured certificates of deposit, corporate with fixed maturity
securities, agency mortgage-backed securities, equity securities and short-term securities
investments. All of the Company’s investments except certificates of
deposit, are easily marketable.

The composition of the Company’s investment portfolio is as follows:

                                     December 31, 2021                 December 31, 2020
                                Amortized           Fair          Amortized           Fair
                                   Cost            Value             Cost            Value

Fixed maturities:
U.S. Treasury securities       $  6,278,764     $  6,309,805     $ 10,596,808     $ 10,832,181
Corporate securities             44,370,193       45,249,973       44,159,926       46,451,905
Agency mortgage-backed
securities                       20,569,448       20,853,627       25,314,546       26,125,608
Certificates of deposit             300,000          300,000          798,000          798,000
Total fixed maturity
investments                      71,518,405       72,713,405       80,869,280       84,207,694
Equity securities                 3,532,026        4,131,153        2,548,440        2,746,706
Short-term investments            1,154,750        1,154,750          200,000          200,000
Total investments              $ 76,205,181     $ 77,999,308     $ 83,617,720     $ 87,154,400



The short-term investments include U.S. Treasury bills and certificates of
deposit that are all highly rated and have initial maturities between three and
twelve months. Amortized costs of the short-term investments approximate their
fair values.



The Company is required to classify its debt securities into one of three
categories: held­to­maturity, available­for­sale, or trading
securities. Although part of the Company's investments in fixed maturity
securities is classified as available­for­sale and, while the Company may sell
investment securities from time to time in response to cash flow requirements,
economic, regulatory, and/or market conditions or investment securities may be
called by their issuers prior to the securities' maturity, its investment
guidelines place primary emphasis on buying and holding high­quality investments
to maturity. Historically, the Company's investment guidelines placed primary
emphasis on buying and holding high-quality investments to maturity. It is
expected the Company will sell securities to support its operations.



The Board of Directors of the Company has approved investment guidelines which
reflect the risk, balance sheet and profile of the Company.


Under the Company's investment guidelines, investments may only include U.S.
Treasury notes, U.S. government agency notes, mortgage-backed securities
(including pass through securities and collateralized mortgage obligations) that
are backed by agency and non-agency collateral, commercial mortgage-backed
securities, U.S. corporate obligations, asset backed securities (including but
not limited to credit card, automobile and home equity backed securities),
tax-exempt bonds, preferred stocks, common stocks, commercial paper, repurchase
agreements (treasuries only), mutual funds, exchange traded funds, bank
certificates of deposits and time deposits. The investment guidelines provide
for certain investment limitations in each investment category.




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Unless Crusader agrees in advance in writing, investments in the following
types of securities are prohibited:

    ·   Mortgage loans, except for mortgage-backed securities issued by an agency
        of the U.S. government.

Derivative mortgage-backed securities comprising interest only, principal

single and inverse floating rate securities.

All fixed-maturity real estate securities, except mortgage-backed securities

securities (including title deeds and secured mortgages

        obligations) that are backed by agency and non-agency collateral and
        commercial mortgage-backed securities.
    ·   Options and futures contracts.
    ·   All non-U.S. dollar denominated securities.
    ·   Any security that would not be in compliance with the regulations of
        Crusader's state of domicile.




An independent investment advisor manages Crusader's investments. The advisor's
role currently is limited to maintaining Crusader's portfolio within the
investment guidelines and providing investment accounting services to the
Company.  Through July 31, 2021, the investments were held by
Crusader's previous custodian, Union Bank Global Custody Services ("Union
Bank"). Effective August 2, 2021, the investments were held by Crusader's
current custodian, U.S. Bank, Institutional Trust and Custody ("U.S. Bank"), as
a result of the sale of the custodial business by Union Bank to U.S. Bank.



As of December 31, 2021, six securities were held as collateral with Comerica
Bank & Trust, N. A. ("Comerica"), pursuant to the reinsurance trust agreement
among Crusader, USIC and Comerica to secure payment of Crusader's liabilities
and performance of its obligations under the reinsurance arrangement with USIC.
The estimated fair value and amortized cost of those securities was $8,243,758
and $8,162,053 on December 31, 2021, respectively. As of December 31, 2020, one
corporate security, included in available-for-sale fixed maturities, was held as
collateral with Comerica, pursuant to the reinsurance trust agreement among
Crusader, USIC and Comerica to secure payment of Crusader's liabilities and
performance of its obligations under the reinsurance arrangement with USIC. The
estimated fair value and amortized cost of that security was $824,500 and
$787,653 on December 31, 2020, respectively.



On August 10, 2020, the Board authorized a share repurchase program (the "2020
Program") for up to $5,000,000 of the currently outstanding shares of the
Company's common stock. The 2020 Program was effective immediately and replaced
the Company's existing share repurchase program that was adopted by the Board on
December 19, 2008 (the "2008 Program") to acquire from time to time up to an
aggregate of 500,000 shares of the Company's common stock. The purchases under
the 2020 Program may be made from time to time in the open market, through block
trades, 10b5-1 trading plans, privately negotiated transactions or otherwise and
in accordance with applicable laws, rules and regulations. The timing and actual
number of the shares repurchased under the 2020 Program will depend on a variety
of factors including price, market conditions and corporate and regulatory
requirements. The Company intends to fund the share repurchases under the 2020
Program from cash on hand. The 2020 Program does not commit the Company to
repurchase shares of its common stock and it may be amended, suspended or
discontinued at any time. The Company repurchased its shares under the 2020
Program and 2008 Program in unsolicited transactions as follows:



                                    December 31       December 31
                                       2021              2020

2020 Program
Number of shares repurchased                  22               857

Cost of redeemed shares
Restricted to retained earnings $91 $4,071
Allocated to capital

                          10               422

Total cost of shares redeemed $101 $4,493

2008 Program
Number of shares repurchased                   -               978
Cost of shares repurchased
Allocated to retained earnings                 -     $       5,760
Allocated to capital                           -               480
Total cost of shares repurchased   $           -     $       6,240




The Company has remaining authority under the 2020 Program to repurchase up to
$4,995,406 of the currently outstanding shares of the Company's common stock as
of December 31, 2021.  The Company has retired or will retire all stock
repurchased under the 2020 Program and 2008 Program.  Effective January 2022,
the Company suspended the 2020 Program and ceased any further repurchases of its
shares from stockholders of the Company.



The Company reported $7,510,147 net cash used by operating activities for the
year ended December 31, 2021, compared to $2,436,399 net cash used by operating
activities for the year ended December 31, 2020.  Fluctuations in cash flows
from operating activities relate to changes in loss and loss adjustment expense
payments, unearned premium holdings, and the timing of the collection and the
payment of insurance-related receivables and payables.  The variability of the
Company's loss and loss adjustment expenses is due primarily to its small
population of claims, which may result in greater fluctuations in claim
frequency and/or severity.




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Crusader's statutory capital and surplus as of December 31, 2021, was
$22,494,454, a decrease of $4,399,061 (-16%) from December 31, 2020 surplus of
$26,893,515. The decrease is a result of Crusader being put into runoff and the
cessation of writing new policies in August 2021 and renewal policies on
December 8, 2021.



On each of September 14, 2020, and May 20, 2020, Crusader paid cash dividends of
$2,000,000 to Unico, its parent and sole shareholder.  These two dividends
totaling $4,000,000 were used primarily for general corporate purposes.  The
Supervision Agreement requires the CA DOI approval of all dividends effective
September 7, 2021.  No dividends were paid by Crusader to Unico in 2021 as a
result of the Supervision Agreement and other action by the CA DOI. The CA DOI
advised Crusader that no dividends may be paid by Crusader through December
31,
2025.



During the years ended December 31, 2021 and 2020, no cash dividends were
declared or issued by the Company to its stockholders.  Declaration of future
cash dividends, if any, will be subject to the Company's profitability, cash
requirements, capital requirements, and general business conditions, among other
factors.  Because of the inability of Crusader to pay dividends to the Company
for the foreseeable future, it is highly unlikely that the Company can declare
and pay dividends to its stockholders for the foreseeable future.



As a California insurance company, Crusader is obligated to pay a premium tax on
gross written premium in all states where Crusader is admitted.  Premium taxes
are deferred and amortized as the related premium is earned.  The premium tax is
in lieu of state franchise taxes and is not included in the provision for state
taxes.



                             Results of Operations



General

All comparisons made in this discussion compare the year ended December 31, 2021
to the year ended December 31, 2020. Because Crusader was placed in
runoff, some of the financial measures will not be comparable now or in the
coming.


Total revenues for the year ended December 31, 2021, were $36,388,384, an
increase of $3,828,273 (11.8%), compared to total revenues of $32,560,111 for
the year ended December 31, 2020.  For the year ended December 31, 2021, the
Company had a loss before taxes of $5,214,334 compared to loss before taxes of
$17,943,515 for the year ended December 31, 2020.  For the year ended December
31, 2021, the Company had a net loss of $5,673,251 compared to net loss of
$21,491,113 for the year ended December 31, 2020.  As a result of the runoff of
Crusader, revenues and losses in future periods will not be comparable to past
periods because Crusader ceased writing new policies in September 2021 and
ceased renewing policies in December 2021.



The increase in total revenues for the year ended December 31, 2021, compared to
the year ended December 31, 2020, was due primarily to an increase in policies
written in the Transportation Business which resulted in a net earned premium
increase of $261,737 (1%).



The decreases in loss before tax and net loss for the year ended December 31,
2021 as compared to the year ended December 31, 2020 were due primarily to a
decrease in loss and loss adjustment expense of $8,670,080 and a decrease in
salaries and employee benefits (net amount charged to operating expenses) of
$2,513,602 and the realized gain of $3,693,858 on the sale of the Calabasas
building, partially offset by increases in other operating expenses of
$1,753,665.



During the twelve months ended December 31, 2020 the Company reevaluated certain
assumptions used in its process for estimating loss and loss adjustment reserves
due to its loss experience in Crusader's Apartments & Commercial Buildings and
Transportation Business as well as changes in market conditions. This
reevaluation resulted in a $9,399,547 increase in Crusader's IBNR reserves, net
of reinsurance, which was a primary contributor to the losses and loss
adjustment expenses of $34,642,920 recognized for the twelve months ended
December 31, 2020. The absence of such a revaluation during 2021 was a primary
contributor to the decrease in losses and loss adjustment expenses for the
twelve months ended December 31, 2021.



The decrease in salaries and employee benefits (net amount charged to operating
expenses) during the twelve months ended December 31, 2021, of $2,513,602 from
$6,364,170 to $3,850,568 was due primarily to savings in salaries and reductions
in compensated absences resulting from workforce reductions. These workforce
reductions were to align staffing with the reduction in premium revenue
associated with operations being in runoff.



The increase in other operating expenses of $1,753,665 during the twelve months
ended December 31, 2021, was due primarily to increases in attorney fees, paid
rent associated with the lease back of a portion of the previously sold
Calabasas building, and increased fees for accounting services.



The decrease in income tax expense of $3,088,681 during the twelve months ended
December 31, 2021, was due primarily to an increase in the valuation allowance
related to deferred tax assets on federal net operating losses.




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The effect of inflation on the Company for the year ended December 31, 2021 was
significant. As our Company's portfolio securities are primarily comprised of
fixed income instruments, the fair value of these fixed income instruments will
typically decrease in an inflationary environment as yields increase. Also,
employee salary and employee benefits expense increases tend to be higher than
normal in inflationary times.



                                    Revenues

Crusader Premium

Crusader’s main business areas are CMP fonts. These policies
represented approximately 99.7% and 99.6% of Crusader’s total written premium
for the years ended December 31, 2021and 2020, respectively.


Gross written premium (direct and assumed written premium before cessions to
reinsurers under reinsurance treaties) reported on Crusader's statutory
financial statements decreased $376,194 (-1%) to $36,266,636 for the year ended
December 31, 2021, compared to $36,642,830 for the year ended December 31, 2020.



As a result of the runoff of Crusader, Crusader will not generate significant
levels of written premium in the future.  Crusader was obligated by regulatory
requirements to offer renewal policies to those policyholders who could not be
issued non-renewal notices immediately after the commencement of the runoff of
Crusader in September 2021 for, policies with policy renewal dates of 60 days or
less from the date Crusader went into runoff.  Accordingly, Crusader ceased
generating any renewal premium in December 2021.



written bonus

Written premium is a non-GAAP financial measure that is defined, under SAP, as
the contractually determined amount charged by the insurance company to the
policyholder for the effective period of the contract based on the expectation
of risk, policy benefits, and expenses associated with the coverage provided by
the terms of the policies. Written premium is a required statutory reporting
measure. Written premium is defined under GAAP in Accounting Standards
Codification Topic 405, "Liabilities," as "premiums on all policies an entity
has issued in a period." Earned premium, the most directly comparable GAAP
measure to written premium, represents the portion of written premium that is
recognized as income in the financial statements for the period presented and
earned on a pro-rata basis over the terms of the policies. Written premium is
intended to reflect production levels and is meant as supplemental information
and not intended to replace earned premium. Such information should be read in
connection with the Company's GAAP financial results.



Gross Earned Premium

Gross earned premium increased $3,858,792 (11%) to $40,123,661 for the year
ended December 31, 2021, compared to $36,264,869 for the year ended December 31,
2020. Historically and prior to Crusader being placed into runoff, all policies
were written on an annual basis. Earned premium represents a portion of written
premium that is recognized as income in the financial statements for the period
presented and earned daily on a pro-rata basis over the terms of the policies,
and, therefore, premiums earned in the current year are related to policies
written during both the current year and immediately preceding year. This
increase was the result of a successful marketing campaign during early 2021. As
a result of the runoff of Crusader, the gross earned premium will gradually
decrease over time.  Crusader does not expect any gross earned premium in 2023.



Ceded earned premium

Ceded earned premium (premium ceded to reinsurers under reinsurance treaties)
increased $3,597,055 (44%) to $11,693,756 for the year ended December 31, 2021,
compared to $8,096,701 for the year ended December 31, 2020.  Ceded earned
premium as a percentage of gross earned premium was 29% for the year ended
December 31, 2021, and 22% for the year ended December 31, 2020.  The increase
in the ceded earned premium as a percentage of gross earned premium for the year
ended December 31, 2021, compared to the year ended December 31, 2020, was due
primarily to the hardening reinsurance market and the Company's recent
underwriting performance.



Ceded earned premium is based on gross earned premium. Following the runoff
of Crusader, the premium earned ceded will gradually decrease over the
time. Crusader expects no earned premium ceded in 2023.


Crusader's primary excess of loss reinsurance agreements, or treaties, during
the years ended December 31, 2021 and 2020, are with Renaissance Reinsurance
U.S. Inc. & Hannover Ruck SE, both A+ rated. In calendar years 2021 and 2020,
Crusader retained a participation in its excess of loss reinsurance treaties of
0% in its 1st layer (reinsured losses between $500,000 and $1,000,000), 0% in
its 2nd layer (reinsured losses between $1,000,000 and $4,000,000), and 0% in
its clash layer (reinsured losses between $4,000,000 and $8,000,000).
Crusader's retention on losses is $500,000 under these contracts.



Crusader also has catastrophe ("CAT") reinsurance treaties from various highly
rated California authorized and California unauthorized reinsurance companies.
These reinsurance treaties help protect Crusader against losses in excess of
certain retentions from catastrophic events that may occur on property risks
which Crusader insures.  In calendar years 2021 and 2020, Crusader retained a
participation in its catastrophe excess of loss reinsurance treaties of 5% in
its 1st layer (reinsured losses between $1,000,000 and $10,000,000) and 0% in
its 2nd layer (reinsured losses between $10,000,000 and $46,000,000).
Crusader's retention on losses is $1,000,000 under these contracts.  In 2022 the
catastrophe excess of loss reinsurance treaties was reduced to $16,000,000 with
0% participation and a $1,000,000 retention. Also, Crusader has not had a single
CAT claim since 1992.



Crusader also has facultative reinsurance treaties from a highly rated
California authorized reinsurance company. Unlike the excess of loss treaties
which cover all risks underwritten by Crusader, the facultative reinsurance
treaties cover specific risks for properties with total insured values in excess
of $4,000,000, (the property coverage limit of the excess of loss treaties). In
calendar year 2020 and during the first five months of 2021, the facultative
reinsurance treaties provided coverage for reinsured losses between $4,000,000
and $8,000,000. From June 2021, the facultative reinsurance treaties had two
sections which provide coverage for reinsured losses between $4,000,000 and
$9,000,000 (Section A) and $4,000,000 and $15,000,000 (Section B) depending
on
location of the insured risk




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Crusader evaluates each of its ceded reinsurance contracts at its inception to
determine if there is a sufficient risk transfer to allow the contract to be
accounted for as reinsurance under current accounting literature. As of December
31, 2021, all such ceded contracts are accounted for as risk transfer
reinsurance.



A tabular presentation of Crusader's direct, assumed, ceded and net earned
premium is as follows:



                                                            Year ended December 31
                                                            2021              2020

Direct earned premium                                   $  38,278,730     $ 36,108,230
Assumed earned premium                                      1,844,931          156,639
Ceded earned premium                                      (11,693,756 )     (8,096,701 )
Net earned premium                                      $  28,429,905     $ 28,168,168

Ratio between the earned premium ceded and the gross earned premium
(direct and presumed earned premium)

                                29 %             22 %



Net investment income, net realized investment gains and losses and net income
Investment income, net realized investment gains and losses and net unrealized gains
Investment gains on Equity securities

Net investment income decreased $55,250 (-3%) to $1,932,993 for the year ended
December 31, 2021, compared to $1,988,243 for the year ended December 31, 2020.
This decrease in net investment income was due primarily to a decrease in
average invested assets, specifically sales of U.S. Treasury Bonds. The Company
had net realized investment gains of $259,912 and net unrealized investment
gains on equity securities of $400,862, for the year ended December 31, 2021,
compared to net realized investment gains of $97,771 and net unrealized
investment gains on equity securities of $198,266 for the year ended December
31, 2020.



Average yields on the Company's average invested assets and investment income,
excluding net realized investment gain and losses, and net unrealized investment
losses on equity securities are as follows:



                                                     Year ended December 31
                                                      2021             2020

Average invested assets (1) – at amortized cost $79,911,450 $84,307,473

Net investment income from:
Invested assets (2)                               $  1,932,538     $  1,984,548
Cash equivalents                                           455            3,695
Total investment income                           $  1,932,993     $  1,988,243
Average yield on average invested assets (3)               2.4 %           
2.4 %



(1) The average is based on the opening and closing balances of depreciated assets

cost of invested assets for each respective year.
(2) Investment income from insurance company activities included $80,887 of

investment expense for the year ended December 31, 2021compared to $133,679

for the year ended December 31, 2020.
(3) The annualized return on average invested assets does not include the investment

    income from cash equivalents.




As a result of Crusader entering into runoff, Crusader will need to liquidate
some of its investment holdings to support its operations.  Accordingly, the
size of Crusader's investment portfolio and investment income are expected
to
decrease.




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The amortized cost, estimated fair value (adjusted for YTD unrealized gains and
losses) and weighted average yield of fixed maturity investments by contractual
maturity are as follows:


Maturities by Year at December 31,        Amortized                        
  Weighted
2021                                         Cost          Fair Value       Average Yield

Due in one year                          $ 15,758,755     $ 15,875,423                2.21 %
Due after one year through five years      19,349,200       19,681,599                1.80 %
Due after five years through ten years     19,335,034       19,832,093                2.39 %
Due after ten years and beyond             17,075,416       17,324,290     
          2.35 %
Total                                    $ 71,518,405     $ 72,713,405                2.18 %



Maturities by Year at December 31,        Amortized                        
  Weighted
2020                                         Cost          Fair Value       Average Yield

Due in one year                          $ 11,064,202     $ 11,169,232                2.57 %
Due after one year through five years      30,090,910       31,260,694                2.59 %
Due after five years through ten years     18,476,051       19,806,444                2.51 %
Due after ten years and beyond             21,238,117       21,971,324     
          2.63 %
Total                                    $ 80,869,280     $ 84,207,694                2.58 %



Scheduled maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without penalties.

The weighted average maturity of the Company’s investments was approximately 6.7
years from December 31, 2021 and 8.0 years from December 31, 2020.


As of December 31, 2021, all of the Company's investments are in U.S. Treasury
securities, FDIC insured certificates of deposit, corporate fixed maturity
securities, agency mortgage-backed securities, equity securities and short-term
investments. The investments in the certificates of deposit are classified as
held-to-maturity investments, and all other fixed maturity investments are
classified as available-for-sale. All of the Company's investments, except for
the certificates of deposit, are readily marketable. The following table sets
forth the composition of the investment portfolio of the Company at the dates
indicated:



                                     December 31, 2021                 December 31, 2020
                                Amortized           Fair          Amortized           Fair
Type of Security                   Cost            Value             Cost            Value

Available-for-sale fixed
maturity investments:
U.S. Treasury securities       $  6,278,764     $  6,309,805     $ 10,596,808     $ 10,832,181
Corporate securities             44,370,193       45,249,973       44,159,926       46,451,905
Agency mortgage-backed
securities                       20,569,448       20,853,627       25,314,546       26,125,608
Held-to-maturity fixed
maturity investments:
Certificates of deposit             300,000          300,000          798,000          798,000
Total fixed maturity
investments                      71,518,405       72,713,405       80,869,280       84,207,694
Equity securities                 3,532,026        4,131,153        2,548,440        2,746,706
Short-term investments:
Short-term bonds                    954,750          954,750                -                -
Certificates of deposit             200,000          200,000          200,000          200,000
Short-term investments            1,154,750        1,154,750          200,000          200,000
Total investments              $ 76,205,181     $ 77,999,308     $ 83,617,720     $ 87,154,400



A summary of the estimated fair value, gross unrealized losses and number of
securities in a gross unrealized loss position by the period during which
securities have continuously been in this position is shown below:

                                Less than 12 Months                                     12 Months or Longer
                                      Gross                                               Gross
                   Estimated       Unrealized         Number of         Estimated      Unrealized
                   Fair Value        Losses          Securities        Fair Value        Losses        Number of Securities
December 31,
2021
U.S. Treasury
securities        $    481,875     $   (15,785 )                 1     $   476,016     $   (20,690 )                       1
Corporate
securities          13,152,240        (128,502 )                15       1,179,235         (68,006 )                       1
Agency
mortgage-backed
securities           5,086,187         (43,019 )                 8         471,479         (25,268 )                       1
Total debt
securities          18,720,302        (187,306 )                24       2,126,730        (113,964 )                       3
Equity
securities             665,100         (55,156 )                18          76,454          (4,703 )                       3
Total             $ 19,385,402     $  (242,462 )                42     $ 2,203,184     $  (118,667 )                       6





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                                Less than 12 Months                                     12 Months or Longer
                                     Gross
                   Estimated      Unrealized         Number of         Estimated        Gross Unrealized          Number of
                  Fair Value        Losses          Securities        Fair Value             Losses              Securities
December 31,
2020
U.S. Treasury
securities        $         -     $         -                   -     $         -       $               -                   -
Corporate
securities          2,101,986         (55,847 )                 2               -                       -                   -
Agency
mortgage-backed
securities          3,223,329         (22,274 )                12               -                       -                   -
Total debt
securities          5,325,315         (78,121 )                14               -                       -                   -
Equity
securities            723,346         (37,357 )                25               -                       -                   -
Total             $ 6,048,661     $  (115,478 )                39     $         -       $               -                   -



While the fair value of Company's investment portfolio at December 31, 2021 has
recovered from the declines recorded in first half of 2020 the effects of
increasing inflation and higher market interest rates could result in increased
volatility in our fixed income and equity portfolios.



The Company closely monitors its investments.  If an unrealized loss is
determined to be other-than-temporary, it is written off as a realized loss
through the Consolidated Statements of Operations.  The Company's methodology of
assessing other-than-temporary impairments is based on security-specific
analysis as of the balance sheet date and considers various factors including
the length of time to maturity and the extent to which the fair value has been
less than the cost, the financial condition, and the near-term prospects of the
issuer, and whether the debtor is current on its contractually obligated
interest and principal payments.  During the year ended December 31, 2021, two
fixed maturity corporate securities experienced a decline in market value; the
market and book value of those securities at December 31, 2021, was $2,422,354
and $2,522,241, respectively.  The unrealized losses on all securities as of
December 31, 2021, and December 31, 2020, were determined to be temporary.

Fixed-maturity securities previously held by the Company were sold and
called before the deadline as follows:

                                      December 31      December 31
                                          2021             2020

Fixed maturities securities sold
Number of securities sold                        3               15

Amortized cost of securities sold $2,194,103 $5,529,470
Earnings on sales

               $        710     $     52,053

Fixed maturities securities called
Number of securities called                     10                4

Amortized cost of securities called $7,167,178 $2,449,503
Gains (losses) made on calls ($17,758) $497

Unrealized capital gains or losses on fixed maturities are accounted for as
“Accumulated other comprehensive income”, which is a separate component
equity, net of any deferred tax effect.

Other income

Other income included in insurance company operation and other insurance
operations decreased $122,304 (-307%) to -$82,493 for year ended December 31,
2021, compared to $39,811 for the year ended December 31, 2020. The decrease in
other income during the year ended December 31, 2021, is due primarily to
decreases in policy fee income and rental income.




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Gross commissions and fees


Gross commissions and fees decreased $225,836 (-12%) to $1,601,427 for the year
ended December 31, 2021, compared to gross commissions and fees of $1,827,263
for the year ended December 31, 2020.



Comparison of gross commissions and expenses for the year ended December 31, 2021
to the year ended December 31, 2020is as follows:

                               Year ended December 31
                                2021            2020           Change

Brokerage fee income         $   820,558     $ 1,006,505     $ (185,947 )
Health insurance program         732,852         727,515          5,337
Membership and fee income         48,017          93,243        (45,226 )
Gross commissions and fees   $ 1,601,427     $ 1,827,263     $ (225,836 )




Unifax used to sell and continues to service insurance policies for Crusader and
did the same for USIC, until its contract with USIC ended on August 31, 2021.
For these brokerage services, Unifax received commissions from insurance
companies and fees from policyholders.  The commissions paid by Crusader to
Unifax are eliminated as intercompany transactions and are not reflected as
income in the consolidated financial statements.  Policy fee income received by
Unifax is related to the Crusader policies and service fee income received by
Unifax is related to the USIC policies.  For financial statement reporting
purposes, brokerage fees are earned ratably over the life of the related
insurance policy.  The unearned portion of the brokerage fees is recorded as a
liability on the Consolidated Balance Sheets under "Accrued expenses and other
liabilities."  The earned portion of the brokerage fees charged to the
policyholder by Unifax is recognized as income in the consolidated financial
statements.  Brokerage fee income for the year ended December 31, 2021,
decreased $185,947 (-19%) as compared to the year ended December 31, 2020. This
decrease in brokerage fee income in 2021 compared to 2020 was primarily the
result of a 2,125 (-39%) decrease in the number of policies issued of 3,276
during 2021 compared to 5,401 policies issued during 2020. As a result of the
runoff of Crusader, the brokerage fee income will gradually decrease over time.

The Company does not expect any brokerage income in 2023.

AIB markets health insurance in California through non-affiliated insurance
companies for individuals and groups.  For these services, AIB receives
commissions based on the premium that it writes.  Commission income for the year
ended December 31, 2021, increased $5,337 (1%) compared to the year ended
December 31, 2020. The increase in commission income is primarily a result of an
increase in a few individual policies.



In 2021, approximately 26% and 58% of the commission income from health
insurance sales was from Guardian Life Insurance Company of America dental and
group life plan programs and the Blue Shield Care Trust health and life
insurance programs, respectively. In 2020, approximately 30% and 56% of the
commission income from health insurance sales was from Guardian Life Insurance
Company of America dental and group life plan programs and the Blue Shield Care
Trust health and life insurance programs, respectively.



AAQHC is a third party administrator for contracted insurance companies and is a
membership association that provides various consumer benefits to its members,
including participation in group health care insurance policies that AAQHC
negotiates for the association.  For these services, AAQHC receives membership
and fee income from its members.  Membership and fee income for the year ended
December 31, 2021, decreased $45,226 (-49%) compared to the year ended December
31, 2020.  The decrease is a result of a decrease in administration fees from
the loss of a large group.


Finance charges and fees earned

Effective August 8, 2021, the Company decided to discontinue loan issuance
through AAC. Finance charges and fees earned consist of finance charges, late
fees, returned check fees and payment processing fees. These charges and fees
earned by AAC decreased $88,669 (-37%) to $151,920 for the year ended December
31, 2021, compared to $240,589 for the year ended December 31, 2020, due
primarily to the decision in August 2021 to discontinue AAC's premium
operations. During the year ended December 31, 2021, AAC issued 539 loans and
had 360 loans outstanding as of December 31, 2021. During the year ended
December 31, 2020, AAC issued 1,111 loans and had 821 loans outstanding as of
December 31, 2020. The average premium financed by AAC was $8,192 and $6,477in
2021 and 2020, respectively. During 2021, 66% of all Unifax generated policies
were financed and 25% of those policies were financed by AAC. During 2020, 48%
of all Unifax generated policies were financed and 43% of those policies were
financed by AAC. AAC provided premium financing only for Crusader and USIC
policies produced by Unifax in California. The number of loans issued decreased
by 572 (-51%) during 2021 when compared to 2020 as a result of the decision to
stop offering financing. The Company will continue servicing existing loans
through their expiration in June 2022.



Claims and claims adjustment expenses

Crusader's emerging loss ratios for each accident year are reviewed in detail at
the end of each quarter as part of the reserve review process. Losses and loss
adjustment expenses for the calendar years ended December 31, 2021, and 2020
were $25,972,840 and $34,642,920, respectively. Loss ratio, which is calculated
by dividing losses and loss adjustment expenses by net earned premium, was 92%
for the year ended December 31, 2021, compared to 123% for the year ended
December 31, 2020.




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Claims and claims adjustment expenses and loss ratios are as follows:

                                       Year ended December 31
                  2021         2021 Loss Ratio          2020          2020 Loss Ratio          Change

Net earned
premium       $ 28,429,905                          $ 28,168,168                           $    261,737

Losses and
loss
adjustment
expenses:
Provision
for insured
events of
current
year            26,097,435                   91 %     26,683,872                    95 %       (586,437 )
Development
of insured                                    -
events of
prior years       (124,595 )                    %      7,959,048                    28 %     (8,083,643 )
Total
losses and
loss
adjustment
expenses      $ 25,972,840                   91 %   $ 34,642,920                   123 %   $ (8,670,080 )




Some lines of insurance are commonly referred to as "long-tail" lines because of
the extended time required before claims are ultimately settled.  Lines of
insurance in which claims are settled relatively quickly are called "short-tail"
lines.  It is generally more difficult to estimate loss reserves for long-tail
lines because of the long period of time that elapses between the occurrence of
a claim and its final disposition and the difficulty of estimating the
settlement value of the claim.  Crusader's short-tail lines consist of its
property coverages, and its long-tail lines consist of its liability coverages.
However, Crusader's long-tail liability claims tend to be settled relatively
quicker than other long-tail lines not underwritten by Crusader, such as
workers' compensation, professional liability, umbrella liability, and medical
malpractice.  Since trends develop over longer periods of time on long-tail
lines of business, the Company generally gives credibility to those trends more
slowly than for short-tail or less volatile lines of business.



The difficulty in estimating the loss and loss adjustment expense reserves
contributed to favorable development of insured events of prior years in the
amount of $124,595 which Crusader experienced in 2021. Loss and loss adjustment
expenses decreased by $8,670,080 from $34,642,920 recognized for the twelve
months ended December 31, 2020, to $25,972,840 recognized for the twelve months
ended December 31, 2021.  Crusader sets loss and loss adjustment expense
reserves at each balance sheet date based upon management's best estimate of the
ultimate payments that it anticipates will be made to settle all losses incurred
and related loss adjustment expenses incurred as of that date for both reported
and unreported losses. The ultimate cost of claims is dependent upon future
events, the outcomes of which are affected by many factors. Crusader claim
reserving procedures and settlement philosophy, current and perceived social and
economic inflation, current and future court rulings and jury attitudes,
improvements in medical technology, and many other economic, scientific, legal,
political, and social factors all can have significant effects on the ultimate
costs of claims. Changes in Crusader operations and management philosophy also
may cause actual developments to vary from the past. Since the emergence and
disposition of claims are subject to uncertainties, the net amounts that will
ultimately be paid to settle claims may vary significantly from the estimated
amounts provided for in the accompanying consolidated financial statements. Any
adjustments to reserves are reflected in the operating results of the periods in
which they are made.



The $124,595 favorable development in 2021 for insured events of prior years for
the year ended December 31, 2021, was an improvement. There is an $8,083,643
difference compared to the $7,959,048 adverse development of insured events of
prior year for the year ended December 31, 2020, due primarily to increases
during the year ended December 31, 2020, in 2018 and 2019 accident year IBNR
reserves associated with the Apartments & Commercial Buildings and
Transportation Business.  The 2020 increases in IBNR were due to higher
actuarially developed ultimate incurred losses and loss adjustment expenses
primarily as a result of elevated expected claims severity.



Crusader has received a number of COVID-19 related business interruption claims.
With the exception of one claim for which the investigation is still ongoing,
all such claims were denied after the individual circumstances of each claim
were reviewed to determine whether insurance coverage applied. Like many
companies in the property casualty insurance industry, Crusader was named as
defendant in lawsuits seeking insurance coverage under the policies issued by
Crusader for alleged economic losses resulting from the shutdown or suspension
of their businesses due to COVID-19. Although the allegations vary, the
plaintiffs generally seek a declaration of insurance coverage, damages for
breach of contract in unspecified amounts for claim denials, interest, and
attorney fees. Some of the lawsuits also allege that the insurance claims were
denied in bad faith or otherwise in violation of state laws and seek
extra-contractual or punitive damages.




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Crusader has received seven claims related to civil unrest through July 8, 2022.
One claim remains open for potential subrogation. The losses and loss adjustment
expenses associated with those claims will not exceed Crusader's $500,000 excess
of loss reinsurance treaty retention



The following table details the unfavorable (favorable) development of insured events
previous years by year of occurrence is as follows:

                                                  Year ended December 31
                                         2021                               2020
                               Adverse                            Adverse
                             (Favorable)                        (Favorable)
      Accident Year          Development       % Of Total       Development       % Of Total

Prior to 2012                $    (14,558 )             12 %          (6,000 )              -
2012                               30,545              (25 %)        (27,901 )              -
2013                               52,781              (42 %)        (56,367 )             (1 )%
2014                              (82,656 )             66 %         149,181                2 %
2015                              879,441             (706 %)      1,559,422               20 %
2016                              742,832             (596 %)        663,546                8 %
2017                            1,093,186             (877 %)      1,201,175               15 %
2018                           (1,419,426 )          1,139 %       2,539,483               32 %
2019                             (408,601 )            328 %       1,872,313               24 %
2020                             (998,139 )            801 %               -                -
Total prior accident years   $   (124,595 )            100 %    $  7,894,852              100 %




At the end of each fiscal quarter, Crusader's loss and loss adjustment expense
reserves for each accident year (i.e., for all claims incurred within each year)
are re-evaluated independently by the Company's president, the Company's chief
financial officer, and by an independent consulting actuary. Generally accepted
actuarial methods, including the widely used Bornhuetter-Ferguson and loss
development methods, are employed to estimate ultimate claims costs. An
actuarial central estimate of the ultimate claims' costs and IBNR reserves is
ultimately determined by management and tested for reasonableness by the
independent consulting actuary.



Repeated and sustained underwriting losses in Crusader's Apartments & Commercial
Buildings Business and growth in Crusader's Transportation Business, a product
which is generally known for its difficulty to be underwritten profitably,
coupled with changes in the market conditions caused Crusader management to
reevaluate the assumptions used in its process for estimating loss and loss
adjustment expense reserves during the year ended December 31, 2020.  This
reevaluation and the use of updated assumptions led to higher estimates for
expected claims frequency, claims severity and ultimate incurred losses and loss
adjustment expenses during the quarterly reevaluation of the loss and loss
adjustment expense reserves as of December 31, 2020. The increase in the
ultimate incurred losses and loss adjustment expenses manifested primarily
through higher IBNR reserves for 2018, 2019, and 2020 accident year claims
pertaining to Apartments & Commercial Buildings and Transportation liability
coverages.



The variability of Crusader's losses and loss adjustment expenses for the
periods presented is primarily due to the small and diverse population of
Crusader's policyholders and claims, which may result in greater fluctuations in
claim frequency and/or severity. In addition, Crusader's reinsurance retention,
which is relatively high in relationship to its net earned premium, can result
in increased loss ratio volatility when large losses are incurred in a
relatively short period of time. Nevertheless, management believes that its
reinsurance retention is reasonable given the amount of Crusader's surplus and
its goal to minimize ceded premium.




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The preparation of the Company's consolidated financial statements requires that
Management make an estimation of certain liabilities, most significantly the
liability for unpaid losses and loss adjustment expenses.  Management makes its
best estimate of the liability for these unpaid claims costs as of the end of
each fiscal quarter.  Due to the inherent uncertainties in estimating the
Crusader's unpaid claims costs, actual loss and loss adjustment expense payments
are expected to vary, perhaps significantly, from any estimate made prior to the
settling of all claims.  Variability is inherent in establishing loss and loss
adjustment expense reserves, especially for a small insurer such as Crusader.
For any given line of insurance, accident year, or other group of claims, there
is a continuum of possible loss and loss adjustment expense reserve estimates,
each having its own unique degree of propriety or reasonableness.  Due to the
complexity and nature of the insurance claims process, there are potentially an
infinite number of reasonably likely scenarios.  Management draws on its
collective experience to judgmentally determine its best estimate.  In addition
to applying a variety of standard actuarial methods to the data, an extensive
series of diagnostic tests are applied to the resultant loss and loss adjustment
expense reserve estimates to determine management's best estimate of the unpaid
claims' liability.  The statistics reviewed for each accident year include loss
and loss adjustment expense development patterns; frequencies; severities; and
ratios of loss to premium, loss adjustment expense to premium, and loss
adjustment expense to loss.



When there is clear evidence that the actual claims costs emerged are different
than expected for any prior accident year, the claims cost estimates for that
year are revised accordingly. If the claims costs that emerge are less favorable
than initially anticipated, generally, Crusader increases its loss and loss
adjustment expense reserves immediately.  However, if the claims costs that
emerge are more favorable than initially anticipated, generally, Crusader
reduces its loss and loss adjustment expense reserves over time while it
continues to assess the validity of the observed trends based on the subsequent
emerged claim costs.



The establishment of loss and loss adjustment expense reserves is a detailed
process as there are many factors that can ultimately affect the final
settlement of a claim. Estimates are based on a variety of industry data and on
Crusader's current and historical accident year claims data, including but not
limited to reported claim counts, open claim counts, closed claim counts, closed
claim counts with payments, paid losses, paid loss adjustment expenses, case
loss reserves, case loss adjustment expense reserves, earned premiums and policy
exposures, salvage and subrogation, and unallocated loss adjustment expenses
paid. Many other factors, including changes in reinsurance, changes in pricing,
changes in policy forms and coverage, changes in underwriting and risk
selection, legislative changes, results of litigation and inflation are also
taken into account.


Provisions for claims and claims settlement expenses

Crusader's liability for unpaid loss and loss adjustment expense reserves
consists of case reserves and reserves for IBNR claims. Case reserves are
established by claims personnel based on a review of the facts known at the time
the claim is reported and are subsequently revised as more information about a
claim becomes known. IBNR is estimated using various actuarial methods and
techniques and includes (1) reserves for losses and loss adjustment expenses on
claims that have occurred but for which claims have not yet been reported to
Crusader, and (2) a provision for expected future development on case reserves
for information not currently known.



Crusader’s reserves for losses and settlement expenses are as follows:

                                  Year ended December 31
                                   2021             2020

Gross reserves:
Case reserves                  $ 29,293,117     $ 26,363,695
IBNR reserves                    53,199,557       48,529,814
Total gross reserves           $ 82,492,674     $ 74,893,509

Reserves net of reinsurance:
Case reserves                  $ 23,057,464     $ 21,027,703
IBNR reserves                    32,319,167       31,612,164
Total net reserves             $ 55,376,631     $ 52,639,867



Provisions for claims and settlement expenses before reinsurance for each of the
Crusader’s business segments are:

                                  Year ended December 31
Line of Business             2021                         2020

CMP                $ 81,303,803        98.5 %   $ 73,545,182        98.2 %
Other liability       1,122,823         1.4 %      1,283,174         1.7 %
Other                    66,048         0.1 %         65,153         0.1 %
Total              $ 82,492,674       100.0 %   $ 74,893,509       100.0 %



The Company's consolidated financial statements include estimated reserves for
both reported and unreported claims.  The Company sets these reserves at each
quarterly balance sheet date based upon management's best estimate of the
ultimate loss and loss adjustment expense payments that it anticipates will be
made to settle all reported and unreported claims.




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The following table is a roll forward of Crusader's loss and loss adjustment
expense reserves, including a reconciliation of the beginning and ending balance
sheet liability for the periods indicated:



                                                            Year ended December 31
                                                             2021             2020

Provision for unpaid claims and claims adjustment expenses
at the beginning of the year – net of reinsurance

                $ 52,639,867     $ 

40,340,625

Incurred losses and loss adjustment expenses:
Provision for insured events of current year               26,097,435      

26,683,872

Provision for insured events of prior years                  (124,595 )    

7,959,048

Total claims incurred and claims settlement expenses 25,972,840 34,642,920

Payments:

Losses and loss adjustment expenses attributable
to insured events of the current year                       8,007,546      

8,285,021

Claims and claims adjustment expenses attributable to
insured events from previous years

                              15,228,530       

14,058,657

Total payments                                             23,236,076      

22,343,678

Provision for unpaid claims and claims adjustment expenses
at year end – net of reinsurance

                        55,376,631       

52,639,867

Reinsurance recoverable on unpaid losses and loss
adjustment expenses at end of year                         27,116,043      

22,253,642

Provision for unpaid claims and claims adjustment expenses
at the end of the year by balance sheet, gross of reinsurance $82,492,674 $74,893,509

Since underwriting profit is a significant portion of income, a small percentage
a change in reserve estimates can have a material effect on the
reported income. Such changes can result from various factors,
including claims costs that emerge in a different pattern from the average
historical development patterns.


If future development ultimately differs by five percent from Crusader's 2021
net reserve, $2,768,832 would be reflected in future periods as an increase or
decrease in the development of insured events of prior years and would be
recognized in the Company's Consolidated Statements of Operations in future
periods.  If future development ultimately differs by ten percent from
Crusader's 2021 net reserve, $5,537,663 would be reflected in future periods as
an increase or decrease in the development of insured events of prior years and
would be recognized in the Company's Consolidated Statements of Operations
in
future periods.



Policy Acquisition Costs

Policy acquisition costs increased $543,838 (11%) to $5,442,645 for the year
ended December 31, 2021, compared to $4,898,807 for the year ended December 31,
2020.  Policy acquisition costs consist of commissions, premium taxes,
inspection fees, and certain other underwriting costs that are directly related
to and vary with the successful production of Crusader insurance policies.
These costs include both Crusader expenses and the allocated expenses of other
Unico subsidiaries.  Crusader's reinsurers pay Crusader a ceding commission,
which is primarily a reimbursement of the acquisition cost related to the ceded
premium.  No ceding commission is received on facultative or catastrophe ceded
premium.  Policy acquisition costs, net of ceding commission, are deferred and
amortized as the related premiums are earned.  The Company annually reevaluates
its acquisition costs to determine that costs related to successful policy
acquisition are capitalized and deferred.



Policy acquisition costs and the ratio to net earned premium are as follows:



                                             Year ended December 31
                                              2021            2020

Policy acquisition costs                   $ 5,442,645     $ 4,898,807
Ratio to net earned premium (GAAP ratio)            19 %            17 %




Policy acquisition costs increased in the year ended December 31, 2021 due to an
increase in ceded commissions. The Company recognized an allowance against its
deferred acquisition costs of $1,409,654 and $0 for the years ended December 31,
2021 and 2020, respectively.



As a result of Crusader being placed into runoff, policy acquisition costs,
which are related to production of Crusader insurance policies, are expected to
gradually decrease over time. The Company does not expect any policy acquisition
costs in 2023.




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Salaries and benefits

Total salaries and employee benefits incurred decreased $2,953,583 (-29.4%) to
$7,104,953 for the year ended December 31, 2021, compared to $10,058,536 for the
year ended December 31, 2020.



The net amount charged to operating expenses decreased $2,513,602 at $3,850,568 for
the year has ended December 31, 2021compared to $6,364,170 for the year ended
December 31, 2020.


Salaries and employee benefits incurred and charged to operating expenses are as
follows:



                                               Year ended December 31
                                                2021             2020            Change

Total salaries and employee benefits
incurred                                    $  7,104,953     $ 10,058,536     $ (2,953,583 )
Less: charged to losses and loss
adjustment expenses                           (2,118,176 )     (2,027,978 )        (90,198 )
Less: capitalized to policy acquisition
costs                                           (967,892 )     (1,383,315 )

415 423

Less: capitalized on computer system upgrade (168,317 ) (283,073 )

114,756

Net amount charged to operating expenses $3,850,568 $6,364,170

  $ (2,513,602 )




The decrease in the total salaries and employee benefits incurred for the year
ended December 31, 2021, compared to the year ended December 31, 2020, was due
primarily to workforce reductions during 2021 and costs associated with a
termination of an employment agreement with an executive during  2020.



As a result of Crusader being placed into runoff, salaries and employee benefits
are expected to decrease over time as the Company reduces its employee headcount
to adequately support the diminished operations.  The decrease in salaries and
employee benefits is expected to be partially offset by costs of severance paid
to terminated employees and retention bonuses paid to remaining employees.

Commissions to agents/brokers

Commissions to agents/brokers (not including commissions on Crusader and USIC
policies that are reflected in policy acquisition costs) are generally related
to gross commission income from the health insurance program.  Commissions to
agents and brokers decreased $14,729 (-15%) to $80,586 for the year ended
December 31, 2021, as compared to $95,315 for the year ended December 31, 2020.
This fluctuation in commissions to agents/brokers was due primarily to lower
commissions associated with loss of a large group account.



Other operating expenses

Other operating expenses increased $1,753,665 (39%) to $6,256,079 for the year
ended December 31, 2021, compared to $4,502,414 for the year ended December 31,
2020. The increase in other operating expenses for the year ended December 31,
2021, compared to the year ended December 31, 2020, was due primarily to
increases in legal fees.



Income Tax Expense/Benefit
Income tax expense was $458,917 (-9% of pre-tax loss) for the twelve months
ended December 31, 2021, and income tax expense was $3,547,598 (-20% of pre-tax
loss) for the twelve months ended December 31, 2020. The fluctuation in the
income tax rate as a percentage of pre-tax loss for the twelve months ended
December 31, 2021, when compared to the twelve months ended December 31, 2020,
is primarily due to an increase in the valuation allowance.



As of December 31, 2021, the Company had deferred tax assets of $8,584,487
generated from $40,878,510 of federal net operating loss carryforwards that will
begin to expire in 2035 and deferred tax assets of $2,509,115 generated from
state net operating loss carryforwards which expire between 2028 and 2040. In
light of the net losses that were generated in recent years, for the twelve
months ended December 31, 2021, the Company has established a valuation
allowance for the aggregate amount of the federal and state net operating losses
and other deferred tax assets in the amount of $11,939,459 that, in management's
judgment, are not more-likely-than-not to be realized. For the year ended
December 31, 2020, the Company carried a valuation allowance on deferred tax
assets generated from federal and state net operating losses and other temporary
differences in the amount of $10,557,080.



Critical accounting policies

The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
certain assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. While every effort is made to
ensure the integrity of such estimates, actual results could differ.



Management believes that the Company’s current significant accounting policies include
what follows:


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Claims and claims adjustment expenses

The preparation of the Company's consolidated financial statements requires
estimation of certain liabilities, most significantly the liability for unpaid
losses and loss adjustment expenses.  Management makes its best estimate of the
liability for these unpaid claims costs as of the end of each fiscal quarter.
Due to the inherent uncertainties in estimating the Company's unpaid claims
costs, actual loss and loss adjustment expense payments are expected to vary,
perhaps significantly, from any estimate made prior to the settling of all
claims.  Variability is inherent in establishing loss and loss adjustment
expense reserves, especially for a small insurer such as Crusader.  For any
given line of insurance, accident year, or other group of claims, there is a
continuum of possible loss and loss adjustment expense reserve estimates, each
having its own unique degree of propriety or reasonableness.  Due to the
complexity and nature of the insurance claims process, there are potentially an
infinite number of reasonably likely scenarios.  Management draws on its
collective experience to judgmentally determine its best estimate.  In addition
to applying a variety of standard actuarial methods to the data, extensive
series of diagnostic tests are applied to the resultant loss and loss adjustment
expense reserve estimates to determine management's best estimate of the unpaid
claims' liability.  Among the statistics reviewed for each accident year are
loss and loss adjustment expense development patterns; frequencies; severities;
and ratios of loss to premium, loss adjustment expense to premium, and loss
adjustment expense to loss.



When there is clear evidence that the actual claims costs emerged are different
than expected for any prior accident year, the claims cost estimates for that
year are revised accordingly. If the claims costs that emerge are less favorable
than initially anticipated, generally, the Company increases its loss and loss
adjustment expense reserves immediately. However, if the claims costs that
emerge are more favorable than initially anticipated, generally, the Company
reduces its loss and loss adjustment expense reserves over time while it
continues to assess the validity of the observed trends based on the subsequent
emerged claims costs.



Some lines of insurance are commonly referred to as "long-tail" lines because of
the extended time required before claims are ultimately settled. Lines of
insurance in which claims are settled relatively quicker are called "short-tail"
lines. It is generally more difficult to estimate loss reserves for long-tail
lines because of the long period of time that elapses between the occurrence of
a claim and its final disposition and the difficulty of estimating the
settlement value of the claim. Crusader's short-tail lines consist of its
property coverages, and its long-tail lines consist of its liability
coverages. However, compared to other long-tail liability lines that are not
underwritten by Crusader, such as workers' compensation, professional liability,
umbrella liability, and medical malpractice, Crusader's liability claims tend to
be settled relatively quicker. Since trends develop over longer periods of time
on long-tail lines of business, the Company generally gives credibility to those
trends more slowly than for short-tail or less volatile lines of business.



Prior to Crusader being placed into runoff, Crusader historically underwrote
three statutory annual statement lines of business: (1) CMP, (2) liability other
than automobile and products, and (3) fire. CMP policies comprised 99.7% and
99.6% of Crusader's 2021 and 2020 gross written premium, respectively. CMP
policies include both property and liability coverages. For all of Crusader's
coverages and lines of business, Crusader's actuarial loss and loss adjustment
expense reserving methods require assumptions that can be grouped into two key
categories: (1) expected loss and loss adjustment expense development patterns
and (2) expected loss and loss adjustment expense per premium dollar.



The Company also separates most of its businesses into smaller, homogeneous businesses
categories primarily for management’s detailed internal review of reserves and
analysis. These homogeneous categories used by the Company include various
special combinations and groupings of its lines of business, program types,
statements and covers. Some categories exclude certain items and/or other
include some items. Not all categories are defined the same. This
the analysis includes the tracking of historical claims costs and the evolution
templates separately for each of these uniquely defined categories. In general,
neither liability development schemes nor real estate development
models vary widely by category.


The establishment of loss and loss adjustment expense reserves is a detailed
process as there are many factors that can ultimately affect the final
settlement of a claim and, therefore, the reserve that is needed.  Estimates are
based on a variety of industry data and on Crusader's current and historical
accident year claims data, including but not limited to reported claim counts,
open claim counts, closed claim counts, closed claim counts with payments, paid
losses, paid loss adjustment expenses, case loss reserves, case loss adjustment
expense reserves, earned premium and policy exposures, salvage and subrogation,
and unallocated loss adjustment expenses paid.  Many other factors, including
changes in reinsurance, changes in pricing, changes in policy forms and
coverage, changes in underwriting and risk selection, legislative changes,
results of litigation and inflation are also taken into account.



At the end of each fiscal quarter, the Company's loss and loss adjustment
reserves for each accident year (i.e., for all claims incurred within each year)
are re-evaluated independently by the Company's president, the Company's chief
financial officer, and by an independent consulting actuary.  Generally accepted
actuarial methods, including the widely used Bornhuetter-Ferguson and loss
development methods, are employed to estimate ultimate claims costs.  An
actuarial central estimate of the ultimate claims' costs and IBNR reserves is
ultimately determined by management and tested for reasonableness by the
independent consulting actuary.




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Each year, management compares the actual claims costs that emerge to the claims
costs that were expected to emerge and evaluates whether any observed
significant differences are due to normal variances in the development process
that occur from time to time, particularly in an insurer the size of Crusader,
or if they are an indication that changes in the key reserve assumptions or
methodologies are appropriate.  Repeated and sustained underwriting losses in
Crusader's Apartments & Commercial Buildings Business and growth in Crusader's
Transportation Business, prior to Crusader's business being placed into runoff,
a product which is generally known for its difficulty to be underwritten
profitably, coupled with changes in the market conditions and increases in
social inflation caused Crusader management to reevaluate the assumptions used
in its process for estimating loss and loss adjustment expense reserves during
the year ended December 31, 2020.



Crusader's actuarially based loss and loss adjustment expense reserve
methodology does not include an implicit or explicit provision for uncertainty.
Insurance claims costs are inherently uncertain.  There is not a precise means
of quantifying in advance a provision for uncertainty when determining an
appropriate liability for unpaid claims costs.  Rather, the potential for claims
costs being less than estimated and the potential for claims costs being more
than estimated are considered when selecting the parameters to be used in the
application of the actuarial methods and when testing the estimates for
reasonableness.  Management believes that its recorded loss and loss adjustment
expense reserves make reasonable provision for its liability for unpaid claims
costs.


The differences between actual and expected claims costs are typically not due
to one specific factor but to a combination of many factors such as the period
of time between the initial occurrence and the final settlement of the claim,
current and perceived social and economic inflation, and many other economic,
legal, political, and social factors.  The information that management uses to
arrive at its booked reserve estimate comes from many sources within the
Company, including its accounting, claims, and underwriting departments.
Informed managerial judgment is applied throughout the reserving process.  In
addition, time can be a critical part of reserving determinations since the
longer the span between the incidence of a loss and the payment or settlement of
the claim, the more variable the ultimate settlement amount will tend to be.
Accordingly, short-tail claims, such as the emergence of property damage claims
costs, tend to be subject to less variability than the emergence of long-tail
liability claims costs.  The liability for unpaid losses and loss adjustment
expenses is based upon the accumulation of individual case estimates for losses
reported prior to the close of the accounting period plus estimates based on
experience and industry data for development of case estimates and for
unreported losses and loss adjustment expenses.  Since the emergence and
disposition of claims are subject to uncertainties, the net amounts that will
ultimately be paid to settle claims should be expected to vary, perhaps
significantly, from the estimated amounts provided for in the accompanying
consolidated financial statements.  Any adjustments to reserves are reflected in
the operating results of the periods in which they are made.  Management
believes that the aggregate reserves for losses and loss adjustment expenses are
reasonable and adequate to cover the cost of claims, both reported and
unreported.



The Company must estimate its ultimate losses and loss adjustment expenses using
a very small claim population size. At the beginning of 2021, Crusader had 492
open claim files. During 2021, 741 new claim files were opened, and 657 claim
files were closed, leaving 576 open claim files at the end of 2021.  Due to the
small size of Crusader and the related small population of claims, Crusader's
losses and loss adjustment expenses for any accident year can vary significantly
from the initial expectations.  Due to the small number of claims, changes in
claim frequency and/or severity can materially affect Crusader's reserve
estimate.  The potential variability from management's best estimate cannot be
measured from any meaningful statistical basis due to the numerous uncertainties
in the claims reserving process and the small population of claims.



At each quarterly review, actual claims costs that emerge are compared with the
claims costs that were expected to emerge during that development
period. Sometimes the previous claims costs estimate proves to have been too
high; sometimes they prove to have been too low. The fluctuation in development
of insured events of prior years' underscores the inherent uncertainty in
insurance claims costs, especially for a relatively small insurer, such as
Crusader. While the Company believes the reserves were adequate at December 31,
2021, after the reevaluation, adverse or (favorable) development may emerge
in
the future.



                                                            Year ended December 31
                                                             2021             2020

Net provisions for unpaid claims and claims adjustment
expenses at the beginning of the year

                            $ 52,639,867     $ 

40,340,625

(Favorable) adverse development of insured events of
prior years                                              $   (124,595 )   $

7,959,048

Percentage of adverse development to beginning
reserves                                                            - %             20 %





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Any adjustments to reserves are reflected in the operating results of the
periods in which they are made. Management believes that the aggregate reserves
for losses and loss adjustment expenses make reasonable provision for all unpaid
losses and loss adjustment expenses of the Company.



The changes in estimates of prior accident year incurred losses and loss
adjustment expenses were due primarily to increases in IBNR reserves associated
with the Apartments & Commercial Buildings and Transportation Business resulting
from higher estimates for expected claims frequency, claims severity and
ultimate incurred losses and loss adjustment expenses during the reevaluation of
the loss and loss adjustment expense reserves.



The Company applies judgment in determining estimates for reserves associated
with anticipated recoveries of salvage and subrogation on paid losses and loss
adjustment expenses. The company applied the same judgment in 2021 that it did
in 2020 on estimated subrogation.



                                  Reinsurance


Crusader's recoverable from reinsurers represents an estimate of the amount of
future loss and loss adjustment expense payments that will be recoverable from
Crusader's reinsurers. These estimates are based upon estimates of the ultimate
losses and loss adjustment expenses that Crusader expects to incur and the
portion of those losses that are expected to be allocable to reinsurers based
upon the terms of the reinsurance agreements. Given the uncertainty of the
ultimate amounts of losses and loss adjustment expenses, the estimates may vary
significantly from the eventual outcome. Crusader's estimate of the amounts
recoverable from reinsurers is regularly reviewed and updated by management as
new data becomes available. Crusader's assessment of the collectability of the
recorded amounts recoverable from reinsurers is based primarily upon public
financial statements and rating agency data. Any adjustments necessary are
reflected in the current operations. Crusader evaluates each of its ceded
reinsurance treaties at its inception to determine if there is sufficient risk
transfer to allow the contract to be accounted for as reinsurance under current
accounting literature. At December 31, 2021 and 2020, all such ceded contracts
are accounted for as risk transfer reinsurance.



The following tables show the impact of reinsurance on
consolidated accounts :

The effect of reinsurance on the financial position is as follows:

                                                            Year ended December 31
                                                             2021             2020

Ceded claims and recoverable claim settlement expenses
on excess of loss treaties:

Ceded case loss and loss adjustment expense reserves
recoverable                                              $  6,234,878     $

5,335,992

Ceded IBNR loss and loss adjustment expense reserves
recoverable                                                20,881,165      

16,917,650

Total ceded loss and loss adjustment expense reserves
recoverable                                              $ 27,116,043     $ 22,253,642



The effect of reinsurance on operating results is as follows:

The effect of reinsurance on earned premiums is as follows:

                                                            Year ended December 31
                                                            2021              2020

Direct earned premium                                   $  38,278,730     $ 36,108,230
Assumed earned premium                                      1,844,931          156,639
Ceded earned premium                                      (11,693,756 )     (8,096,701 )
Net premium earned                                      $  28,429,905     $ 28,168,168

Ratio between the earned premium ceded and the gross earned premium
(direct and presumed earned premium)

                                29 %             22 %





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The effect of reinsurance on losses and loss adjustment expenses is as follows:



                                                           Year ended December 31
                                                            2021              2020

Direct claims and claims settlement expenses incurred $35,218,127 $48,971,172

Claims assumed and claims settlement expenses incurred 836,622

89 204

Claims ceded and settlement expenses incurred
on excess of loss treaties:

Ceded paid losses and loss adjustment expenses            (5,219,509 )     
(6,889,668 )
Change in ceded case reserves                               (898,885 )         199,742
Change in ceded IBNR reserves                             (3,963,515 )      (7,727,530 )
Total ceded losses and loss adjustment expenses
incurred                                                 (10,081,909 )    

(14,417,456)

Net losses and claims adjustment expenses incurred $25,972,840 $34,642,920

Ceded premium and ceded losses and loss adjustment expenses are as follows:
                                                           Year ended December 31
                                                           2021              2020

Ceded earned premium                                   $  11,693,756     $   8,096,701
Ceded losses and loss adjustment expenses incurred       (10,081,909 )     (14,417,456 )
Ceded earned premium less ceded losses and loss
adjustment expenses incurred                           $   1,611,847     $  (6,320,755 )




The effect of reinsurance on cash flow is the sum of the effect of reinsurance
on the results of operations reflected above and the following changes in
reinsurance recoverable:



                                                            Year ended December 31
                                                             2021             2020

Change in reinsurance recoverable on ceded paid and
unpaid claims and claims adjustment expenses

               $ (5,152,660 )   $ (7,463,253 )



There were no claims subject to catastrophe reinsurance treaty coverage
incurred during the years ended December 31, 2021and 2020.


There have been no changes in key assumptions of estimating future ceded losses
and loss adjustment expenses. The changes in estimates of prior accident year
ceded incurred losses and loss adjustment expenses are attributed to the passage
of time and a greater amount of actual loss data available for each accident
year.


Crusader's reinsurance strategy is to protect Crusader against liabilities in
excess of certain retentions, including major or catastrophic losses that may
occur from any one or more of the property and/or casualty risks which it
insures. On an annual basis, or sooner if warranted, Crusader evaluates whether
any changes to its retention, participation, or retained limits are
necessary. Loss and loss adjustment expense reserves are determined separately
on both a direct basis and a net of reinsurance basis, and the ceded reserves
are determined by subtraction. Therefore, reinsurance recoverable is determined
in a manner consistent with the associated loss reserves. There have been no
recent changes in key assumptions underlying the estimation of loss and loss
adjustment expense reserves, and no changes are anticipated. Ceded paid losses
and loss adjustment expenses are determined by the terms of the individual
treaties. The Company continually monitors and evaluates the collectability of
reinsurance recoverable to determine if any allowance is necessary.



For years gone by December 31, 2021 and 2020, Crusader wrote 100% and 99.9%,
respectively, of its activities in the State of California. Types of
companies and coverage limits written by Crusader are not considered
difficult lines to get reinsurance. Moreover, because the main
disaster exposure comes mainly from riots and fires
earthquakes, Crusader does not foresee significant capacity limitations
cede future losses on a basis consistent with its historical results.

Investments

The Company's fixed maturity investments are classified either as
held-to-maturity or available-for-sale. Available-for-sale fixed maturity
investments are stated at fair value and held-to-maturity investments are stated
at amortized cost. Although part of the Company's investments is classified as
available­for­sale and the Company may sell investment securities from time to
time in response to cash flow requirements, economic, regulatory, and/or market
conditions or investment securities may be called by their issuers prior to the
securities' maturity, its investment guidelines place primary emphasis on buying
and holding high­quality investments to maturity. Short­term investments are
carried at cost, which approximates fair value. The Company's equity securities
allocation is intended to enhance the return of and provide diversification for
the total investment portfolio. The unrealized gains or losses from fixed
maturities are reported as "Accumulated other comprehensive income," which is a
separate component of stockholders' equity, net of any deferred tax effect.

The

net unrealized investment gains on equity securities are reported in the
Consolidated Statements of Operations.  When a decline in the value of a fixed
maturity is considered other-than-temporary, a loss is recognized in the
Consolidated Statements of Operations. Realized gains and losses are included in
the Consolidated Statements of Operations based on the specific identification
method.




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Deferred Tax Assets

The provision for federal income taxes is computed on the basis of income as
reported for financial reporting purposes. Deferred income taxes reflect the net
tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes and are measured using the enacted tax rates and laws expected to apply
to taxable income in the years in which those temporary differences are expected
to be recovered or settled. Income tax expense provisions increase or decrease
in the same period in which a change in tax rates is enacted.



At each balance sheet date, management assesses the need to establish a
valuation allowance that reduces deferred tax assets when it is
more-likely-than-not that any portion of the deferred tax asset will not be
realized. The ultimate realization of deferred tax assets is dependent upon
generating sufficient taxable income of the appropriate character within the
carryback and carryforward periods available under the tax law. Management
considers the reversal of deferred tax liabilities, projected future taxable
income of an appropriate nature and tax-planning strategies when making this
assessment. In light of the net losses that were generated in recent years, for
the twelve months ended December 31, 2021, the Company has established a
valuation allowance for the aggregate amount of the federal and state net
operating losses and other deferred tax assets in the amount of $11,939,459
that, in management's judgment, are not more-likely-than-not to be realized. For
the year ended December 31, 2020, the Company carried a valuation allowance on
deferred tax assets generated from federal and state net operating losses and
other temporary differences in the amount of $10,557,080.



Off-balance sheet arrangements

The Company has no off-balance sheet arrangements that are currently
material or reasonably likely to be material to its consolidated financial statements.
position or results of operations.

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