Note 2 - Investments

9 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

2. INVESTMENTS

During September 2021, the Company liquidated its entire investment in fixed income securities and equity securities in order to fund its commitment under the Commutation Agreement, as discussed further in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The cost or amortized cost, gross unrealized holding gains and losses, and estimated fair value of the Company’s fixed maturity investments, by major security type, and equity securities as of September 30, 2021 and December 31, 2020 are as follows:

	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2021
Fixed maturity investments:
U.S. government agency securities	$	—	$	—	$	—	$	—
Obligations of U.S. states and political subdivisions		—		—		—		—
Corporate debt securities		—		—		—		—
Total fixed maturity investments		—		—		—		—
Equity securities		—		—		—		—
Total equity securities		—		—		—		—
Total investments	$	—	$	—	$	—	$	—

	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2020
Fixed maturity investments:
U.S. government agency securities	$	2,551,741	$	39,421	$	—		$	2,591,162
Obligations of U.S. states and political subdivisions		10,157,542		337,695		—			10,495,237
Corporate debt securities		7,051,948		207,833		(2,053	)		7,257,728
Total fixed maturity investments		19,761,231		584,949		(2,053	)		20,344,127
Total equity securities		—		—		—			—
Total investments	$	19,761,231	$	584,949	$	(2,053	)	$	20,344,127

The following tables summarize the Company’s fixed maturity and equity securities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:

12 months or greater

Less than 12 months

Total

Estimated Fair Value

Unrealized Losses

Estimated Fair Value

Unrealized Losses

Estimated Fair Value

Unrealized Losses

September 30, 2021

Fixed maturity investments:

U.S. government agency securities

$

—

$

—

$

—

$

—

$

—

$

—

Obligations of states and political subdivisions

—

—

—

—

—

—

Corporate debt securities

—

—

—

—

—

—

Total fixed maturity investments

—

—

—

—

—

—

Equity securities

—

—

—

—

—

—

Total equity securities

—

—

—

—

—

—

Total investments

$

—

$

—

$

—

$

—

$

—

$

—

	12 months or greater				Less than 12 months					Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
December 31, 2020
Fixed maturity investments:
U.S. government agency securities	$	—	$	—	$	—	$	—		$	—	$	—
Obligations of states and political subdivisions		—		—		—		—			—		—
Corporate debt securities		—		—		789,106		(2,053	)		789,106		(2,053	)
Total fixed maturity investments		—		—		789,106		(2,053	)		789,106		(2,053	)
Equity securities		—		—		—		—			—		—
Total equity securities		—		—		—		—			—		—
Total investments	$	—	$	—	$	789,106	$	(2,053	)	$	789,106	$	(2,053	)

As of September 30, 2021 and December 31, 2020, there were none and three fixed income securities in an unrealized loss position with an estimated fair value of $0 and $789,106, respectively. As of September 30, 2021 and December 31, 2020, none of these fixed income securities had been in an unrealized loss position for 12 months or greater, respectively. As of September 30, 2021 and December 31, 2020, none of the fixed income securities were considered to be other than temporarily impaired. The Company had the intent to hold these fixed income securities and it was not more likely than not that the Company would have been required to sell these fixed income securities before their fair values recovered above the adjusted cost. The unrealized losses from these fixed income securities were not a result of credit, collateral or structural issues.

Other-Than-Temporary Impairment Process

The Company assessed whether declines in the fair value of its fixed maturity investments classified as available-for-sale represent impairments that are other-than-temporary by reviewing each fixed maturity investment that is impaired and (1) determined if the Company had the intent to sell the fixed maturity investment or if it was more likely than not that the Company will be required to sell the fixed maturity investment before its anticipated recovery; and (2) assessed whether a credit loss existed, that is, where the Company expected that the present value of the cash flows expected to be collected from the fixed maturity investment are less than the amortized cost basis of the investment.

In evaluating credit losses, the Company considered a variety of factors in the assessment of a fixed maturity investment including: (1) the time period during which there has been a significant decline below cost; (2) the extent of the decline below cost and par; (3) the potential for the fixed maturity investment to recover in value; (4) an analysis of the financial condition of the issuer; (5) the rating of the issuer; and (6) failure of the issuer of the fixed maturity investment to make scheduled interest or principal payments.

If we concluded a fixed income investment was other-than-temporarily impaired, we wrote down the amortized cost of the security to fair value, with a charge to net realized investment gains (losses) in the Consolidated Statement of Operations. Gross unrealized losses on the investment portfolio as of September 30, 2021 and December 31, 2020, relating to none and three fixed maturity securities, amounted to $0 and $2,053, respectively. The unrealized losses on these available for sale fixed maturity securities were not as a result of credit, collateral or structural issues. During the nine months and three months ended September 30, 2021, no other-than-temporary impairment charges were recorded.

Fair Value of Investments

Under existing U.S. GAAP, we were required to recognize certain assets at their fair value in our consolidated balance sheets. This included our fixed maturity investments and equity securities. In accordance with the Fair Value Measurements and Disclosures Topic of Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon whether the inputs to the valuation of an asset or liability are observable or unobservable in the market at the measurement date, with quoted market prices being the highest level (Level 1) and unobservable inputs being the lowest level (Level 3). A fair value measurement will fall within the level of the hierarchy based on the inputs that are significant to determining such measurement. The three levels are defined as follows:

•  Level 1: Observable inputs to the valuation methodology that are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•  Level 2: Observable inputs to the valuation methodology other than quoted market prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

•  Level 3: Inputs to the valuation methodology that are unobservable for the asset or liability.

At each measurement date, we estimated the fair value of the security using various valuation techniques. We utilized, to the extent available, quoted market prices in active markets or observable market inputs in estimating the fair value of our investments. When quoted market prices or observable market inputs are not available, we utilized valuation techniques that rely on unobservable inputs to estimate the fair value of investments. The following describes the valuation techniques we used to determine the fair value of investments held as of September 30, 2021 and December 31, 2020 and what level within the fair value hierarchy each valuation technique resides:

•  U.S. government agency securities: Comprised primarily of bonds issued by the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, Federal Farm Credit Bank and the Federal National Mortgage Association. The fair values of U.S. government agency securities were priced using the spread above the risk-free U.S. Treasury yield curve. As the yields for the risk-free U.S. Treasury yield curve were observable market inputs, the fair values of U.S. government agency securities were classified as Level 2 in the fair value hierarchy. AmerInst considers a liquid market to exist for these types of securities held. Broker quotes are not used for fair value pricing.

•  Obligations of state and political subdivisions: Comprised of fixed income obligations of state and local governmental municipalities. The fair values of these securities were based on quotes and current market spread relationships, and were classified as Level 2 in the fair value hierarchy. AmerInst considered a liquid market to exist for these types of securities held. Broker quotes were not used for fair value pricing.

•  Corporate debt securities: Comprised of bonds issued by corporations. The fair values of these securities were based on quotes and current market spread relationships, and were classified as Level 2 in the fair value hierarchy. AmerInst considered a liquid market to exist for these types of securities held. Broker quotes were not used for fair value pricing.

•  Equity securities, at fair value: Comprised primarily of investments in the common stock of publicly traded companies in the U.S. All of the Company’s equities were classified as Level 1 in the fair value hierarchy. The Company had received prices based on closing exchange prices from independent pricing sources to measure fair values for the equities.

While we obtained pricing from independent pricing services, management was ultimately responsible for determining the fair value measurements for all securities. To ensure fair value measurement was applied consistently and in accordance with U.S. GAAP, we periodically updated our understanding of the pricing methodologies used by the independent pricing services. We also undertook further analysis with respect to prices we believe may not be representative of fair value under current market conditions. Our review process includer, but is not limited to: (i) initial and ongoing evaluation of the pricing methodologies and valuation models used by outside parties to calculate fair value; (ii) quantitative analysis; (iii) a review of multiple quotes obtained in the pricing process and the range of resulting fair values for each security, if available; and (iv) randomly selecting purchased or sold securities and comparing the executed prices to the fair value estimates provided by the independent pricing sources.

There have been no material changes to our valuation techniques from what was used as of December 31, 2020. Since the fair value of a security was an estimate of what a willing buyer would pay for such security if we had sold it, we did not know the ultimate value of our securities until they were sold. We believe the valuation techniques utilized provided us with a reasonable estimate of the price that would be received if we were to sell our assets or transfer our liabilities in an orderly market transaction between participants at the measurement date. The following tables show the fair value of the Company’s investments in accordance with ASC 820 as of September 30, 2021 and December 31, 2020:

					Fair value measurement using:
	Carrying amount		Total fair value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
September 30, 2021
U.S. government agency securities	$	—	$	—	$	—	$	—	$	—
Obligations of U.S. state and political subdivisions		—		—				—
Corporate debt securities		—		—				—
Total fixed maturity investments		—		—
Equity securities		—		—		—
Total equity securities		—		—
Total investments	$	—	$	—	$	—	$	—	$	—

					Fair value measurement using:
	Carrying amount		Total fair value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
December 31, 2020
U.S. government agency securities	$	2,591,162	$	2,591,162	$	—	$	2,591,162	$	—
Obligations of U.S. state and political subdivisions		10,495,237		10,495,237				10,495,237
Corporate debt securities		7,257,728		7,257,728				7,257,728
Total fixed maturity investments		20,344,127		20,344,127
Equity securities		—		—
Total equity securities		—		—
Total investments	$	20,344,127	$	20,344,127	$	—	$	20,344,127	$	—

There were no transfers between Levels 1 and 2 during the nine months ended September 30, 2021 and the year ended December 31, 2020.

Contractual Maturities

The cost or amortized cost and estimated fair value of fixed maturity investments as of September 30, 2021 and December 31, 2020 by contractual maturity are shown below. Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations without penalties.

	Amortized Cost		Estimated Fair Value
September 30, 2021
Due in one year or less	$	—	$	—
Due after one year through five years		—		—
Due after five years through ten years		—		—
Due after ten years		—		—
Total	$	—	$	—

	Amortized Cost		Estimated Fair Value
December 31, 2020
Due in one year or less	$	2,623,260	$	2,637,533
Due after one year through five years		12,982,049		13,388,495
Due after five years through ten years		3,700,157		3,843,880
Due after ten years		455,765		474,219
Total	$	19,761,231	$	20,344,127

Information on sales and maturity of investments and net unrealized gains (losses) on equity investments during the nine months ended September 30, 2021 and 2020 are as follows:

	September 30, 2021			September 30, 2020
Total proceeds on sales of available-for-sale securities	$	1,684,014		$	14,941,147
Proceeds from redemptions of fixed maturity investments		21,650,652			3,082,081
Total proceeds from maturities of fixed maturity investments		2,336,000			1,705,000
Gross gains on sales		499,859			4,346,483
Gross losses on sales		(72,926	)		(1,635,113	)
Net unrealized (losses) gains on equity investments		—			(4,475,670	)
Total	$	426,933		$	(1,764,300	)

Information on sales and maturity of investments and net unrealized gains (losses) on equity investments during the three months ended September 30, 2021 and 2020 are as follows:

	September 30, 2021			September 30, 2020
Total proceeds on sales of available-for-sale securities	$	1,684,014		$	12.856,984
Proceeds from redemptions of fixed maturity investments		21,047,547			(17,931	)
Total proceeds from maturities of fixed maturity investments		—			500,000
Gross gains on sales		499,859			3,516,795
Gross losses on sales		(72,926	)		(1,250,195	)
Net unrealized (losses) gains on equity investments		(82,081	)		(1,278,038	)
Total	$	344,852		$	988,562

Net Investment Income

Major categories of net investment income during the nine months ended September 30, 2021 and 2020 are summarized as follows:

	September 30, 2021			September 30, 2020
Interest earned:
Fixed maturity investments	$	234,601		$	262,200
Short term investments and cash and cash equivalents		7,237			10,859
Dividends earned		13,170			131,045
Investment expenses		(50,384	)		(95,825	)
Net investment income	$	204,624		$	308,279

Major categories of net investment income during the three months ended September 30, 2021 and 2020 are summarized as follows:

	September 30, 2021			September 30, 2020
Interest earned:
Fixed maturity investments	$	66,412		$	85,634
Short term investments and cash and cash equivalents		2,965			578
Dividends earned		6,381			43,060
Investment expenses		(17,865	)		(29,828	)
Net investment income	$	57,893		$	99,444