Investments

12 Months Ended

Dec. 31, 2012

Notes to Financial Statements

Investments

NOTE 3 – INVESTMENTS

A summary of net investment and related income is as follows:

	Year ended December 31
	2012		2011		2010
Fixed maturities	$	1,469,706	$	2,890,473	$	3,467,801
Short-term investments		59,269		8,152		25,129
Total investment income	$	1,528,975	$	2,898,625	$	3,492,930

The amortized cost and estimated fair value of fixed maturity investments at December 31, 2012, by contractual maturity are as follows. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

		Amortized Cost		Estimated Fair Value
Due in one year or less	$	30,894,211	$	31,078,002
Due after one year through five years		2,550,000		2,550,000
Total fixed maturities	$	33,444,211	$	33,628,002

The amortized cost and estimated fair values of investments in fixed maturities by categories are as follows:

		Amortized Cost		Gross Unrealized Gains	Gross Unrealized Losses		Estimated Fair Value
December 31, 2012
Available for sale:
Fixed maturities
Certificates of deposit	$	10,090,000		—	—	$	10,090,000
U.S. treasury securities		23,354,211	$	183,791	—		23,538,002
Total fixed maturities	$	33,444,211	$	183,791	—	$	33,628,002
December 31, 2011
Available for sale:
Fixed maturities
Certificates of deposit	$	16,470,000		—	—	$	16,470,000
U.S. treasury securities		73,432,677	$	1,453,947	—		74,886,624
Total fixed maturities	$	89,902,677	$	1,453,947	—	$	91,356,624

A summary of the unrealized appreciation (depreciation) on investments carried at fair value and the applicable deferred federal income taxes are shown below:

	Year ended December 31
	2012			2011
Gross unrealized appreciation of fixed maturities	$	183,791		$	1,453,947
Gross unrealized (depreciation) of fixed maturities		—			—
Net unrealized appreciation on investments		183,791			1,453,947
Deferred federal tax expense		(62,489	)		(494,343	)
Net unrealized appreciation, net of deferred income taxes	$	121,302		$	959,604

At December 31, 2012 and 2011, the Company had no fixed maturity investments with a gross unrealized loss.

The Company monitors its investments closely. 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. The Company does not have the intent to sell its fixed maturity investments and it is not likely that the Company would be required to sell any of its fixed maturity investments prior to recovery of its amortized costs. The Company did not sell any fixed maturity investments in the years ended December 31, 2012, 2011 or 2010.

The Company’s investment in Certificates of Deposit (CDs) included $9,490,000 and $15,870,000 of brokered CDs as of December 31, 2012 and 2011, respectively. Brokered CDs provide the safety and security of a CD combined with the convenience gained by one-stop shopping for rates at various institutions. This allows the Company to spread its investments across multiple institutions so that all of its CD investments are insured by the Federal Deposit Insurance Corporation (FDIC). Brokered CDs are purchased through UnionBanc Investment Services, LLC, a registered broker-dealer, investment advisor, member of FINRA/SIPC, and a subsidiary of Union Bank, N.A. Brokered CDs are a direct obligation of the issuing depository institution, are bank products of the issuing depository institution, are held in the name of Union Bank as Custodian for the benefit of the Company, and are FDIC insured within permissible limits. All the Company’s brokered CDs are within the FDIC insured permissible limits. As of December 31, 2012 and 2011, the Company’s remaining CDs totaling $600,000 are from four different banks and represent statutory deposits that are assigned to and held by the California State Treasurer and the Insurance Commissioner of the State of Nevada. These deposits are required for writing certain lines of business in California and for admission in the state of Nevada. All the Company’s brokered and non-brokered CDs are within the FDIC insured permissible limits.

Short-term investments have an initial maturity of one year or less and consist of the following:

	Year ended December 31
	2012		2011
U.S. treasury bills	$	78,776,954	$	30,288,668
U.S. treasury money market fund		3,494,729		6,802,126
Bank money market accounts		3,982,804		1,046,813
Bank savings accounts		1,762		1,862
Total short-term investments	$	86,256,249	$	38,139,469