Investments

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Investments

NOTE 8 – INVESTMENTS

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

	Three Months Ended September 30						Nine Months Ended September 30
	2019			2018			2019			2018
Fixed maturities	$	532,307		$	498,656		$	1,626,843		$	1,430,323
Short-term investments and cash equivalents		16,811			14,284			53,278			33,872
Gross investment income		549,118			512,940			1,680,121			1,464,195
Less: investment expenses		(31,007	)		(25,381	)		(98,627	)		(79,231	)
Net investment income	$	518,111		$	487,559		$	1,581,494		$	1,384,964

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, 2019
Available-for-sale fixed maturities:
U.S. treasury securities	$	15,091,142	$	144,814	$	(5,979	)	$	15,229,977
Corporate securities		41,959,625		1,104,193		(2,388	)		43,061,430
Agency mortgage-backed securities		23,549,194		280,259		(3,056	)		23,826,397
Held-to-maturity fixed securities:
Certificates of deposits		2,292,000		—		—			2,292,000
Total fixed maturities	$	82,891,961	$	1,529,266	$	(11,423	)	$	84,409,804

	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 is shown below:

	September 30			December 31
	2019			2018
Gross unrealized gains on fixed maturities	$	1,529,266		$	74,248
Gross unrealized losses on fixed maturities		(11,423	)		(1,466,699	)
Net unrealized gains (losses) on fixed maturities		1,517,843			(1,392,451	)
Deferred federal tax benefit (expense)		(318,746	)		292,415
Net unrealized gains (losses), net of deferred income taxes	$	1,199,097		$	(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
September 30, 2019
U.S. treasury securities	$	1,093,984	$	(1,351	)		1	$	1,998,768	$	(4,628	)		2
Corporate securities		498,404		(1,596	)		1		1,698,824		(792	)		2
Agency mortgage-backed securities		3,085,390		(3,056	)		3		—		—			—
Total	$	4,677,778	$	(6,003	)		5	$	3,697,592	$	(5,420	)		4

	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, performed by the Company’s independent investment advisor, 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, 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 did not sell or have any calls of investment securities and there were no realized investment gains or losses during the three months ended September 30, 2019. The Company had one call of an investment security during the three months ended September 30, 2018 and realized a net investment gain of $11 on this call. The Company sold three securities, with amortized cost of $2,997,098, and had one call of an investment security during the nine months ended September 30, 2019. The Company realized net investment losses of $12,661 on these sales and call for the nine months ended September 30, 2019. The Company had two calls of investment securities during the nine months ended September 30, 2018 and realized net investment gains of $148 on these calls. The Company did not sell any investment securities during the three and nine months ended September 30, 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 was $2,292,000 and $7,126,000 as of September 30, 2019, and December 31, 2018, respectively. All of the Company’s certificates of deposit are within the FDIC insured permissible limits. Due to the nature of the Company’s business, certain bank accounts may exceed FDIC insured permissible limits.

The following securities from three 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 insurance in California and for admission to transact insurance business in the state of Nevada.

	September 30		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

Short-term investments have an initial maturity of one year or less and consist of the following:

	September 30		December 31
	2019		2018
U.S. treasury bills	$	—	$	4,490,954
Certificate of deposit		200,000		200,000
Total short-term investments	$	200,000	$	4,690,954