Investments

9 Months Ended

Sep. 30, 2018

Notes to Financial Statements

Investments

NOTE 9 – INVESTMENTS

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

	Three Months Ended September 30						Nine Months Ended September 30
	2018			2017			2018			2017
Fixed maturities	$	498,656		$	323,023		$	1,430,323		$	746,787
Short-term investments and cash equivalents		14,284			(13,335	)		33,872			64,444
Gross investment income		512,940			309,688			1,464,195			811,231
Less: investment expenses		(25,381	)		(196	)		(79,231	)		(25,446	)
Net investment income		487,559			309,492			1,384,964			785,785
Net realized gains		11			373			148			528
Net investment income and realized gains	$	487,570		$	309,865		$	1,385,112		$	786,313

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, 2018
Available-for-sale fixed maturities:
U.S. treasury securities	$	14,259,817	$	55	$	(265,833	)	$	13,994,039
Corporate securities		38,084,034		4,655		(996,668	)		37,092,021
Agency mortgage-backed securities		22,525,470		—		(755,423	)		21,770,047
Held-to-maturity fixed securities:
Certificates of deposits		14,864,000		—		—			14,864,000
Total fixed maturities	$	89,733,321	$	4,710	$	(2,017,924	)	$	87,720,107

	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 securities:
Certificates of deposits		28,098,000		—		—			28,098,000
Total fixed maturities	$	86,251,120	$	43,225	$	(346,891	)	$	85,947,454

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

	September 30			December 31
	2018			2017
Gross unrealized gains on fixed maturities	$	4,710		$	43,225
Gross unrealized losses on fixed maturities		(2,017,924	)		(346,891	)
Net unrealized losses on fixed maturities		(2,013,214	)		(303,666	)
Deferred federal tax benefit		422,775			63,770
Net unrealized losses, net of deferred income taxes	$	(1,590,439	)	$	(239,896	)

A summary of estimated fair value, gross unrealized losses, and number of securities 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			Number of Securities		Estimated Fair Value		Gross Unrealized Losses			Number of Securities
September 30, 2018
U.S. treasury securities	$	9,007,849	$	(122,653	)		11	$	4,189,941	$	(143,180	)		3
Corporate securities		25,387,401		(730,699	)		38		8,966,787		(265,969	)		10
Agency mortgage-backed securities		6,575,550		(124,950	)		9		15,194,497		(630,473	)		12
Total	$	40,970,800	$	(978,302	)		58	$	28,351,225	$	(1,039,622	)		25

	Less than 12 Months							12 Months or Longer
	Estimated Fair Value		Gross Unrealized Losses			Number of Securities		Estimated Fair Value		Gross Unrealized Losses		Number of Securities
December 31, 2017
U.S. treasury securities	$	7,454,204	$	(63,697	)		6	$	—	$	—		—
Corporate securities		20,335,512		(130,787	)		26		—		—		—
Agency mortgage-backed securities		21,737,589		(152,407	)		17		—		—		—
Total	$	49,527,305	$	(346,891	)		49	$	—	$	—		—

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 September 30, 2018, and December 31, 2017, 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 had realized gains of $11 and $148 for the three and nine months ended September 30, 2018, compared to realized gains of $373 and $528 for the three and nine months ended September 30, 2017. The unrealized gains or losses from fixed maturities are reported as “Accumulated other comprehensive income or loss,” which is a separate component of stockholders’ equity, net of any deferred tax effect.

The Company’s investment in certificates of deposit included $14,464,000 and $27,698,000 of brokered certificates of deposit as of September 30, 2018, and December 31, 2017, 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 were 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 in the name of Union Bank as Custodian for the benefit of the Company, and are FDIC insured within permissible limits.

The following certificates of deposit 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.

	September 30		December 31
	2018		2017
Long-term certificates of deposit	$	400,000	$	400,000
Short-term certificates of deposit		200,000		200,000
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 between three and twelve months and consist of the following:

	September 30		December 31
	2018		2017
Certificates of deposit	$	200,000	$	200,000
U.S. treasury bills		—		1,148,395
Commercial paper		—		499,383
Total short-term investments	$	200,000	$	1,847,778