Investments

12 Months Ended

Dec. 31, 2019

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
	2019			2018
Fixed maturities	$	2,162,142		$	1,956,963
Short-term investments and cash equivalents		65,656			65,042
Gross investment income		2,227,798			2,022,005
Less investment expenses		(129,842	)		(114,232	)
Net investment income		2,097,956			1,907,773
Net realized gains (losses)		(12,661	)		148
Net investment income and realized gains	$	2,085,295		$	1,907,921

The amortized cost and estimated fair value of fixed maturity investments at December 31, 2019, by contractual maturity are as follows:

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	10,063,975	$	10,087,478
Due after one year through five years		42,944,463		43,654,657
Due after five years through ten years		9,996,830		10,529,528
Due after ten years and beyond		19,795,143		20,026,047
Total fixed maturities	$	82,800,411	$	84,297,710

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, 2019
Available-for-sale fixed maturities:
U.S. Treasury securities	$	15,105,795	$	130,564	$	(1,027	)	$	15,235,332
Corporate securities		41,953,378		1,076,012		(57	)		43,029,333
Agency mortgage-backed securities		24,943,238		293,757		(1,950	)		25,235,045
Held-to-maturity fixed maturities:
Certificates of deposit		798,000		—		—			798,000
Total fixed maturities	$	82,800,411	$	1,500,333	$	(3,034	)	$	84,297,710
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

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
	2019			2018
Gross unrealized gains of fixed maturities	$	1,500,333		$	74,248
Gross unrealized losses of fixed maturities		(3,034	)		(1,466,699	)
Net unrealized gains (losses) on investments		1,497,299			(1,392,451	)
Deferred federal tax benefit (expense)		(314,433	)		292,415
Net unrealized gains (losses), net of deferred income taxes	$	1,182,866		$	(1,100,036	)

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, 2019
U.S. Treasury securities	$	1,996,562	$	(253	)		1	$	1,002,031	$	(775	)		1
Corporate securities		999,818		(56	)		1		—		—			—
Agency mortgage-backed securities		750,058		(1,950	)		2		—		—			—
Total	$	3,746,438	$	(2,259	)		4	$	1,002,031	$	(775	)		1

	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 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, 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 and/or market conditions or investment securities may be called by their issuers prior to the securities’ maturity. The Company sold three securities with amortized cost of $2,997,098, and had one call of an investment security with amortized cost of $999,982 during the year ended December 31, 2019. The Company realized net investment losses of $12,661 on these sales and call for the year ended December 31, 2019. 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.

The Company’s investment in certificates of deposit included $598,000 and $6,726,000 of brokered certificates of deposit as of December 31, 2019 and 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 business in California and for admission in the state of Nevada.

	Year ended 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:

	Year ended December 31
	2019		2018
U.S. Treasury bills	$	1,996,815	$	4,490,954
Certificates of deposit		200,000		200,000
Total short-term investments	$	2,196,815	$	4,690,954