Investments

3 Months Ended

Mar. 31, 2020

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
	2020			2019
Fixed maturities	$	542,407		$	543,695
Equity securities		1,442			—
Short-term investments and cash equivalents		11,724			26,561
Gross investment income		555,573			570,256
Less investment expenses		(34,879	)		(37,619	)
Net investment income		520,694			532,637
Net realized investment gains (losses)		1,114			(8,149	)
Net unrealized investment losses on equity securities		(44,800	)		—
Net investment income, realized investment gains (losses) and unrealized investment losses on equity securities	$	477,008		$	524,488

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, 2020
Available-for-sale fixed maturities:
U.S. Treasury securities	$	14,519,461	$	383,445	$	—		$	14,902,906
Corporate securities		42,936,116		792,504		(553,522	)		43,175,098
Agency mortgage-backed securities		24,358,811		668,201		(173,067	)		24,853,945
Held-to-maturity fixed securities:
Certificates of deposits		798,000		—		—			798,000
Total fixed maturities	$	82,612,388	$	1,844,150	$	(726,589	)	$	83,729,949

	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 securities:
Certificates of deposits		798,000		—		—			798,000
Total fixed maturities	$	82,800,411	$	1,500,333	$	(3,034	)	$	84,297,710

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
	2020			2019
Gross unrealized gains on fixed maturities	$	1,844,150		$	1,500,333
Gross unrealized losses on fixed maturities		(726,589	)		(3,034	)
Net unrealized gains on fixed maturities		1,117,561			1,497,299
Deferred federal tax expense		(234,688	)		(314,433	)
Net unrealized gains, net of deferred income taxes	$	882,873		$	1,182,866

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, 2020
Corporate securities		8,840,514		(553,522	)		16		—		—		—
Agency mortgage-backed securities		3,758,080		(173,067	)		7		—		—		—
Total	$	12,598,594	$	(726,589	)		23	$	—	$	—		—

	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

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. During the three months ended March 31, 2020, one fixed maturity corporate security experienced a significant decline in market value; the market and book value of that security at March 31, 2020, was $459,000 and $912,681, respectively. The unrealized losses on all securities as of March 31, 2020, and December 31, 2019, 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, 2020. This security had amortized cost of $601,316. The Company realized a net investment gain of $1,114 on this sale for the three months ended March 31, 2020. 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 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 started investing in common stock equity securities during the three months ended March 31, 2020. The Company’s common stock allocation is intended to enhance the return of and provide diversification for the total investment portfolio. At March 31, 2020, less than 1% of the total investment portfolio at fair value was held in equity securities. A summary of equity securities is shown below:

	March 31			December 31
	2020			2019
Cost	$	502,484		$	—
Unrealized loss		(44,800	)		—
Fair market value of equity securities	$	457,684		$	—

The primary cause for the decrease in fair value of the Company’s equity securities portfolio for the three months ended March 31, 2020 was overall decline in equity markets during the period.

The Company’s common stock allocation is intended to enhance the return of and provide diversification for the total portfolio. At March 31, 2020, less than 1% of the total investment portfolio at fair value was held in equity securities.

The Company’s investment in certificates of deposit included $598,000 of brokered certificates of deposit as of March 31, 2020 and December 2019. 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 to transact insurance business in the state of Nevada.

	March 31		December 31
	2020		2019
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
	2020		2019
U.S. Treasury bills	$	1,998,017	$	1,996,815
Certificates of deposit		200,000		200,000
Total short-term investments	$	2,198,017	$	2,196,815