3. Premium Finance Contracts, Related Receivable and Allowance for Credit Losses

Premium Finance Contracts and Related Receivable represent monthly payments due on insurance premium finance contracts. The Company finances insurance policies over periods from three to eleven months for businesses and consumers who make an initial down payment of, on average, 25 percent of the insurance policy amounts. The entire amount of the contract is recorded including amounts due for finance charges and services charges. These receivables are reported net of unearned interest for financial statements purposes. Upon cancellation of an insurance premium finance contract, the unearned premium on the contract becomes due from the insurance carrier. The Company segregates its Premium Finance Contracts Receivable into three segments for reporting and allowance calculation purposes. The segments are (1) Due from Insured and (2) Due from Insurance Carrier. Amounts due from agents represent balances related to (1) an agent’s unearned commission due to a policy cancellation and (2) down payments collected by the agents on behalf of the insured, which are due to us.

At March 31, 2026 and December 31, 2025, premium finance contract and agents’ receivable consists of the following:

The allowance for credit losses at March 31, 2025 and December 31, 2024 are as follows:

Activity in the allowance for credit losses for the three months ended March 31, 2026 and the year ended December 31, 2025 are as follows:

The Company maintains an allowance that includes the expected write-offs of principal and interest. Provisions and write-offs per the note disclosures above are displayed at gross amounts, which include provisions and write-offs of both principal and unearned interest. The write-offs are allocated between the principal (i.e. provision for credit losses) and interest (i.e. contra-revenue) on the income statement. The following table shows a reconciliation between the total provision per this note and provision for credit losses on the consolidated statement of operations:

The aging analyses of contract receivables as of March 31, 2026 and December 31, 2025 are as follows:

Inactive agent receivables are defined as agent receivables that have not changed in at least three months, which pose a greater risk of credit losses. Agent inactivity is used by management as a credit quality indicator in evaluating receivables. The analysis of active and inactive agents as of March 31, 2026 and December 31, 2025 are as follows: