Investments

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Investments

NOTE 4 – INVESTMENTS

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

	Year ended December 31
	2018			2017
Fixed maturities (1)	$	1,956,963		$	1,281,984
Short-term investments and cash equivalents		65,042			55,907
Gross investment income		2,022,005			1,337,891
Less investment expenses		(114,232	)		(47,824	)
Net investment income		1,907,773			1,290,067
Net realized gains		148			528
Net investment income and realized gains	$	1,907,921		$	1,290,595

(1) Investment income from fixed maturities included $0 and $133,160 of interest on the restricted cash for the years ended December 31, 2018 and 2017, respectively.

The amortized cost and estimated fair value of fixed maturity investments at December 31, 2018, by contractual maturity are as follows:

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	9,326,886	$	9,311,678
Due after one year through five years		43,821,970		43,211,883
Due after five years through ten years		15,876,016		15,497,513
Due after ten years and beyond		16,403,716		16,015,063
Total fixed maturities	$	85,428,588	$	84,036,137

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, 2018
Available-for-sale fixed maturities:
U.S. treasury securities	$	16,746,832	$	16,069	$	(143,282	)	$	16,619,619
Corporate securities		40,804,425		50,422		(851,124	)		40,003,723
Agency mortgage-backed securities		20,751,331		7,757		(472,293	)		20,286,795
Held-to-maturity fixed maturities:
Certificates of deposit		7,126,000		—		—			7,126,000
Total fixed maturities	$	85,428,588	$	74,248	$	(1,466,699	)	$	84,036,137
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

 A summary of the unrealized gains (losses) on investments carried at fair value and the applicable deferred federal income taxes is as follows:

	Year ended December 31
	2018			2017
Gross unrealized gains of fixed maturities	$	74,248		$	43,225
Gross unrealized losses of fixed maturities		(1,466,699	)		(346,891	)
Net unrealized losses on investments		(1,392,451	)		(303,666	)
Deferred federal tax benefit		292,415			63,770
Net unrealized losses, net of deferred income taxes	$	(1,100,036	)	$	(239,896	)

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			Number of Securities		Estimated Fair Value		Gross Unrealized Losses			Number of Securities
December 31, 2018
U.S. treasury securities	$	1,760,491	$	(20,181	)		2	$	8,496,069	$	(123,101	)		6
Corporate securities		10,878,381		(272,515	)		17		21,189,487		(578,609	)		27
Agency mortgage-backed securities		—		—			—		17,034,086		(472,293	)		15
Total	$	12,638,872	$	(292,696	)		19	$	46,719,642	$	(1,174,003	)		48

	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 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, 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, or investment securities may be called by their issuers prior to the securities’ maturity. Two securities were called prior to their maturity during the year ended December 31, 2018. These securities had amortized cost of $1,269,852. The Company realized a net investment gain of $148 on these calls for the year ended December 31, 2018. Proceeds of the call of these securities were used for general corporate purposes. 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’s investment in certificates of deposit included $6,726,000 and $27,698,000 of brokered certificates of deposit as of December 31, 2018 and 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 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
	2018		2017
Certificates of deposit	$	200,000	$	400,000
Short-term investments		200,000		200,000
Total state held deposits	$	400,000	$	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
	2018		2017
U.S. treasury bills	$	4,490,954	$	1,148,395
Certificates of deposit		200,000		200,000
Commercial paper		—		499,383
Total short-term investments	$	4,690,954	$	1,847,778