Investments

9 Months Ended

Sep. 30, 2013

Notes to Financial Statements

Investments

NOTE 9 – INVESTMENTS

A summary of total investment income is as follows:

	Three Months Ended September 30				Nine Months Ended September 30
	2013		2012		2013		2012
Fixed maturities	$	51,006	$	284,149	$	239,167	$	1,326,250
Short-term investments		17,616		19,392		62,562		33,760
Total investment income	$	68,622	$	303,541	$	301,729	$	1,360,010

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

		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
September 30, 2013
Available for sale:
Fixed maturities
Certificates of deposit	$	6,698,000	$	—	$	—		$	6,698,000
U.S. treasury securities		7,100,353		2,170		(2,469	)		7,100,054
Total fixed maturities	$	13,798,353	$	2,170	$	(2,469	)	$	13,798,054
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

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

		September 30			December 31
		2013			2012
Gross unrealized appreciation of fixed maturities	$	2,170		$	183,791
Gross unrealized (depreciation) of fixed maturities		(2,469	)		—
Net unrealized (depreciation) appreciation on investments		(299	)		183,791
Deferred federal tax benefit (expense)		102			(62,489	)
Net unrealized (depreciation) appreciation, net of deferred income taxes	$	(197	)	$	121,302

The Company had one U.S. treasury security in an unrealized loss position for a continuous period of less than nine months as of September 30, 2013, and had no investments in an unrealized loss position at December 31, 2012.

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 during the three and nine months ended September 30, 2013 and 2012.

The Company’s investment in Certificates of Deposit (CDs) included $6,098,000 and $9,490,000 of brokered CDs as of September 30, 2013 and December 31, 2012, 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 September 30, 2013 and December 31, 2012, 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. Due to nature of the Company’s business, certain bank accounts may exceed FDIC insured permissible limits.

Short-term investments consist of the following:

		September 30, 2013		December 31, 2012
U.S. treasury bills	$	90,989,635	$	78,776,954
U.S. treasury money market fund		3,362		3,494,729
Bank money market accounts		2,327,061		3,982,804
Bank savings accounts		1,762		1,762
Total short-term investments	$	93,321,820	$	86,256,249