Investments

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Investments

NOTE 9 – INVESTMENTS

A summary of investment income, net of investment expenses, and net realized gains and losses is as follows:

	Three Months Ended June 30					Six Months Ended June 30
	2017			2016		2017			2016
Fixed maturities	$	245,331		$	180,828	$	423,764		$	358,665
Short-term investments		43,977			31,622		77,779			65,876
Gross investment income		289,308			212,450		501,543			424,541
Less investment expenses		(25,250	)		—		(25,250	)		—
Net investment income		264,058			212,450		476,293			424,541
Net realized gains (losses)		155			—		155			(1,278	)
Net investment income, realized gains and losses	$	264,213		$	212,450	$	476,448		$	423,263

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
June 30, 2017
Available for sale:
Fixed maturities
Certificates of deposit	$	45,162,000	$	—	$	—		$	45,162,000
U.S. treasury securities		11,604,622		680		(4,270	)		11,601,032
Corporate securities		15,913,043		31,057		(2,078	)		15,942,022
Agency mortgage-backed securities		11,198,332		2,021		(31,283	)		11,169,070
Total fixed maturities	$	83,877,997	$	33,758	$	(37,631	)	$	83,874,124

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2016
Available for sale:
Fixed maturities
Certificates of deposit	$	61,280,000	$	—	$	—		$	61,280,000
U.S. treasury securities		19,091,842		14,205		(2,122	)		19,103,925
Total fixed maturities	$	80,371,842	$	14,205	$	(2,122	)	$	80,383,925

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

	June 30			December 31
	2017			2016
Gross unrealized gains of fixed maturities	$	33,758		$	14,205
Gross unrealized (losses) of fixed maturities		(37,631	)		(2,122	)
Net unrealized gains (losses) on investments		(3,873	)		12,083
Deferred federal tax (expense) benefit		1,317			(4,108	)
Net unrealized gains (losses), net of deferred income taxes	$	(2,556	)	$	7,975

At June 30, 2017, the Company had ten fixed maturity securities with an unrealized loss of $37,197 for a continuous period of less than 12 months and one fixed maturity security with an unrealized loss of $434 for a continuous period of more than 12 months. At December 31, 2016, the Company had no fixed maturity securities with gross unrealized losses for a continuous period of less than 12 months and three fixed maturity securities with gross unrealized losses of $2,122 for a continuous period of more than 12 months.

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 Condensed 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 unrealized losses as of June 30, 2017, and December 31, 2016, were determined to be temporary.

Although the Company does not intend to sell its fixed maturity investments prior to maturity, the Company may sell investment securities from time to time in response to cash flow requirements, economic and/or market conditions. During the three and six months ended June 30, 2017, the Company sold three fixed maturity investments and realized a net investment gain of $155 on the sales. The Company sold three certificates of deposit during the six months ended June 30, 2016, and realized an investment loss of $1,278 on the sales; the Company did not sell any securities during the three months ended June 30, 2016. 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 Company’s investment in certificates of deposit included $45,012,000 and $60,780,000 of brokered certificates of deposit as of June 30, 2017, and December 31, 2016, respectively. Brokered certificates of deposit provide the safety and security of a certificate of deposit 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 certificate of deposit investments are insured by the Federal Deposit Insurance Corporation (“FDIC”). Brokered certificates of deposit 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 certificates of deposit 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 certificates of deposit are within the FDIC insured permissible limits.

The following securities from four different banks 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 to transact insurance business in the state of Nevada:

	June 30		December 31
	2017		2016
Certificates of deposit	$	500,000	$	500,000
Short-term investments		100,000		100,000
Total state held deposits	$	600,000	$	600,000

All the Company’s brokered and non-brokered certificates of deposit 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 have an initial maturity of one year or less and consist of the following:

	June 30		December 31
	2017		2016
U.S. treasury money market fund	$	1,038,729	$	8,542,292
U.S. treasury bills		1,848,938		—
Short-term bonds		999,725		—
Certificates of deposit		350,000		1,098,000
Bank money market accounts		853,619		562,548
Bank savings accounts		1,763		1,763
Total short-term investments	$	5,092,774	$	10,204,603