Investments

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Investments

NOTE 4 – INVESTMENTS

A summary of investment income, net of investment expenses, net realized gains, and net unrealized investment gains on equity securities is as follows:

	Year ended December 31
	2020			2019
Fixed maturities	$	2,068,592		$	2,162,142
Equities		28,727			—
Short-term investments and cash equivalents		24,603			65,642
Gross investment income		2,121,922			2,227,784
Less investment expenses		(133,679	)		(129,842	)
Net investment income		1,988,243			2,097,942
Net realized gains (losses)		97,771			(12,661	)
Net unrealized gains on equity securities		198,266			—
Net investment income, realized gains (losses) and unrealized gains	$	2,284,280		$	2,085,281

The amortized cost and estimated fair value of fixed maturity investments at December 31, 2020, by contractual maturity are as follows:

	Amortized Cost		Estimated Fair Value
Due in one year or less	$	11,064,202	$	11,169,232
Due after one year through five years		30,090,910		31,260,694
Due after five years through ten years		18,476,051		19,806,444
Due after ten years and beyond		21,238,117		21,971,324
Total fixed maturities	$	80,869,280	$	84,207,694

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, 2020
Available-for-sale fixed maturities:
U.S. Treasury securities	$	10,596,808	$	235,373	$	—		$	10,832,181
Corporate securities		44,159,926		2,347,826		(55,847	)		46,451,905
Agency mortgage-backed securities		25,314,546		833,336		(22,274	)		26,125,608
Held-to-maturity fixed maturities:
Certificates of deposit		798,000		—		—			798,000
Total fixed maturities	$	80,869,280	$	3,416,535	$	(78,121	)	$	84,207,694
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

As of December 31, 2020, one corporate security, included in available-for-sale fixed maturities, was held as collateral with Comerica, pursuant to the reinsurance trust agreement among Crusader, USIC and Comerica to secure payment of Crusader’s liabilities and performance of its obligations under the reinsurance arrangement with USIC. The estimated fair value and amortized cost of that security was $824,500 and $787,653 on December 31, 2020, respectively.

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
	2020			2019
Gross unrealized gains of fixed maturities	$	3,416,535		$	1,500,333
Gross unrealized losses of fixed maturities		(78,121	)		(3,034	)
Net unrealized gains on investments		3,338,414			1,497,299
Deferred federal tax expense		(701,067	)		(314,433	)
Net unrealized gains, net of deferred income taxes	$	2,637,347		$	1,182,866

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, 2020
U.S. Treasury securities	$	—	$	—			—	$	—	$	—		—
Corporate securities		2,101,986		(55,847	)		2		—		—		—
Agency mortgage-backed securities		3,223,329		(22,274	)		12		—		—		—
Total debt securities		5,325,315		(78,121	)		14		—		—		—
Equity securities		723,346		(37,357	)		25		—		—		—
Total	$	6,048,661	$	(115,478	)		39	$	—	$	—		—

	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 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, 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 and/or market conditions or investment securities may be called by their issuers prior to the securities’ maturity.

	December 31		December 31
	2020		2019
Fixed maturities securities sold
Number of securities sold		15		3
Amortized cost of sold securities	$	5,529,470	$	2,997,098
Realized gains (losses) on sales	$	52,053	$	(12,679	)
Fixed maturities securities called
Number of securities called		4		1
Amortized cost of called securities	$	2,449,503	$	999,982
Realized gains on calls	$	497	$	18

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 year ended December 31, 2020. The Company’s equity securities allocation is intended to enhance the return of and provide diversification for the total investment portfolio. A summary of equity securities is shown below:

	December 31		December 31
	2020		2019
Cost	$	2,548,440	$	—
Unrealized gain		198,266		—
Fair market value of equity securities	$	2,746,706	$	—

The Company’s investment in certificates of deposit included $598,000 of brokered certificates of deposit as of December 31, 2020 and 2019. All of the Company’s certificates of deposit are within the Federal Deposit Insurance Corporation (“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
	2020		2019
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
	2020		2019
U.S. Treasury bills	$	—	$	1,996,815
Certificates of deposit		200,000		200,000
Total short-term investments	$	200,000	$	2,196,815