Investments

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Investments

NOTE 8 – INVESTMENTS

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

	Three Months Ended March 31
	2019			2018
Fixed maturities	$	543,695		$	462,167
Short-term investments and cash equivalents		26,561			7,947
Gross investment income		570,256			470,114
Less investment expenses		(37,619	)		(25,315	)
Net investment income	$	532,637		$	444,799

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
March 31, 2019
Available-for-sale fixed maturities:
U.S. treasury securities	$	16,760,924	$	35,356	$	(73,903	)	$	16,722,377
Corporate securities		41,893,331		265,109		(187,933	)		41,970,507
Agency mortgage-backed securities		22,192,903		49,701		(245,482	)		21,997,122
Held-to-maturity fixed securities:
Certificates of deposits		5,878,000		—		—			5,878,000
Total fixed maturities	$	86,725,158	$	350,166	$	(507,318	)	$	86,568,006

	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 securities:
Certificates of deposits		7,126,000		—		—			7,126,000
Total fixed maturities	$	85,428,588	$	74,248	$	(1,466,699	)	$	84,036,137

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:

	March 31			December 31
	2019			2018
Gross unrealized gains on fixed maturities	$	350,166		$	74,248
Gross unrealized losses on fixed maturities		(507,318	)		(1,466,699	)
Net unrealized losses on fixed maturities		(157,152	)		(1,392,451	)
Deferred federal tax benefit		33,001			292,415
Net unrealized losses, net of deferred income taxes	$	(124,151	)	$	(1,100,036	)

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
March 31, 2019
U.S. treasury securities	$	—	$	—		—	$	9,842,591	$	(73,903	)		7
Corporate securities		—		—		—		25,079,280		(187,933	)		32
Agency mortgage-backed securities		—		—		—		16,815,741		(245,482	)		15
Total	$	—	$	—		—	$	51,737,612	$	(507,318	)		54

	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

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 March 31, 2019, and December 31, 2018, 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, regulatory, and/or market conditions or investment securities may be called by their issuers prior to the securities’ maturity. The Company sold one security prior to maturity during the three months ended March 31, 2019. This security had amortized cost of $498,994. The Company realized a net investment loss of $8,149 on this sale for the three months ended March 31, 2019. The Company had no sales or calls of investment securities during the three months ended March 31, 2018. 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 $5,478,000 and $6,726,000 of brokered certificates of deposit as of March 31, 2019, and December 31, 2018, 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”).

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.

	March 31		December 31
	2019		2018
Certificates of deposit	$	200,000	$	200,000
Short-term investments		200,000		200,000
Total state held deposits	$	400,000	$	400,000

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:

	March 31		December 31
	2019		2018
U.S. treasury bills	$	496,792	$	4,490,954
Certificates of deposit		200,000		200,000
Total short-term investments	$	696,792	$	4,690,954