Investments

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Investments

NOTE 4 – INVESTMENTS

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

	Year ended December 31
	2017			2016
Fixed maturities (1)	$	1,281,984		$	862,783
Short-term investments		55,907			18,363
Gross investment income		1,337,891			881,146
Less investment expenses		(47,824	)		—
Net investment income		1,290,067			881,146
Net realized gains (losses)		528			(1,278	)
Net investment income, realized gains and losses	$	1,290,595		$	879,868

(1) Investment income from fixed maturities included $133,160 and $113,394 of interest on the restricted cash for the years ended December 31, 2017 and 2016, respectively.

The amortized cost and estimated fair value of fixed maturity investments at December 31, 2017, by contractual maturity are as follows:

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	21,272,019	$	21,271,851
Due after one year through five years		32,213,970		32,052,025
Due after five years and beyond		32,765,131		32,623,578
Total fixed maturities	$	86,251,120	$	85,947,454

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

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
December 31, 2017
Available-for-sale fixed maturities:
U.S. treasury securities	$	7,517,901	$	21	$	(63,697	)	$	7,454,225
Corporate securities		28,745,223		43,204		(130,787	)		28,657,640
Agency mortgage-backed securities		21,889,996		—		(152,407	)		21,737,589
Held-to-maturity fixed maturities:
Certificates of deposit		28,098,000		—		—			28,098,000
Total fixed maturities	$	86,251,120	$	43,225	$	(346,891	)	$	85,947,454
December 31, 2016
Available-for-sale fixed maturities:
U.S. treasury securities	$	19,091,842	$	14,205	$	(2,122	)	$	19,103,925
Held-to-maturity fixed maturities:
Certificates of deposit		61,280,000		—		—			61,280,000
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 is shown below:

	Year ended December 31
	2017			2016
Gross unrealized gains of fixed maturities	$	43,225		$	14,205
Gross unrealized (losses) of fixed maturities		(346,891	)		(2,122	)
Net unrealized (losses) gains on investments		(303,666	)		12,083
Deferred federal tax benefit (expense)		63,770			(4,108	)
Net unrealized (losses) gains, net of deferred income taxes	$	(239,896	)	$	7,975

A summary of estimated fair value and gross unrealized losses in a gross unrealized loss position by the length of time in which the securities have continually been in that position is shown below:

	Less than 12 Months					12 Months or Longer
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
December 31, 2017
U.S. treasury securities	$	7,454,225	$	(63,697	)	$	—	$	—
Corporate securities		20,335,512		(130,787	)		—		—
Agency mortgage-backed securities		21,737,589		(152,407	)		—		—
Total	$	49,527,326	$	(346,891	)	$	—	$	—

	Less than 12 Months				12 Months or Longer
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
December 31, 2016
U.S. treasury securities	$	—	$	—	$	9,097,285	$	(2,122	)
Total	$	—	$	—	$	9,097,285	$	(2,122	)

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 unrealized losses as of December 31, 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. The Company sold two securities prior to their maturity during the year ended December 31, 2017. These securities had amortized cost of $1,141,338. The Company realized a net investment gain of $554 on these sales for the year ended December 31, 2017. Proceeds of the sales of these securities were used for general corporate purposes. The Company sold three securities prior to their maturity during the year ended December 31, 2016. These securities had amortized cost of $746,000. The Company realized a net investment loss of $1,278 on these sales for the year ended December 31, 2016. Proceeds of the sales of these securities were used for general corporate purposes.

The Company’s investment in certificates of deposit included $27,698,000 and $60,780,000 of brokered certificates of deposit as of December 31, 2017 and 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 certificates of deposit 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 MUFG 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 by Union Bank Global Custody Services for the benefit of the Company, and are FDIC insured within 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 in the state of Nevada.

	Year ended December 31
	2017		2016
Certificates of deposit	$	400,000	$	500,000
Short-term investments		200,000		100,000
Total state held deposits	$	600,000	$	600,000

All of 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:

	Year ended December 31
	2017		2016
U.S. treasury bills	$	1,148,395	$	—
U.S. treasury money market fund		—		8,542,292
Custodial trust		6,275,648		—
Certificates of deposit		200,000		1,098,000
Commercial paper		499,383		—
Bank money market accounts		2,315,307		562,548
Bank savings accounts		1,763		1,763
Total short-term investments	$	10,440,496	$	10,204,603