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Investments
 12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
Note 3. Investments

The amortized cost and fair value of investments in available for sale fixed-maturity securities and equities as of December 31, 2011 and 2010 are summarized as follows:

 

   December 31, 2011 
                       Net 
   Cost or   Gross   Gross Unrealized Losses       Unrealized 
   Amortized   Unrealized   Less than 12   More than 12   Fair   Gains/ 
Category  Cost   Gains   Months   Months   Value   (Losses) 
     
Fixed-Maturity Securities:                              
U.S. Treasury securities and                              
obligations of U.S. government                              
corporations and agencies  $499,832   $50,356   $—     $—     $550,188   $50,356 
                               
Political subdivisions of States,                              
Territories and Possessions   5,868,743    301,559    —      —      6,170,302    301,559 
                               
Corporate and other bonds                              
Industrial and miscellaneous   15,846,616    338,284    (228,792)   (107,666)   15,848,442    1,826 
Total fixed-maturity securities   22,215,191    690,199    (228,792)   (107,666)   22,568,932    353,741 
                               
Equity Securities:                              
Preferred stocks   1,428,435    36,762    (76,969)   (4,893)   1,383,335    (45,100)
Common stocks   2,429,306    274,538    (21,969)   —      2,681,875    252,569 
Total equity securities   3,857,741    311,300    (98,938)   (4,893)   4,065,210    207,469 
                               
Total  $26,072,932   $1,001,499   $(327,730)  $(112,559)  $26,634,142   $561,210 

 

   December 31, 2010 
                        
    Cost or    Gross    Gross Unrealized Losses           Net
    Amortized    Unrealized    Less than 12    More than 12    Fair    Unrealized Gains/ 
Category   Cost    Gains    Months    Months    Value    (Losses) 
                               
Fixed-Maturity Securities:                              
U.S. Treasury securities and                              
obligations of U.S. government                              
corporations and agencies  $1,000,572   $42,085   $—     $—     $1,042,657   $42,085 
                               
Political subdivisions of States,                              
Territories and Possessions   7,278,663    79,791    (86,234)   (12,995)   7,259,225    (19,438)
                               
Corporate and other bonds                              
Industrial and miscellaneous   7,997,817    176,999    (137,597)   —      8,037,219    39,402 
Total fixed-maturity securities   16,277,052    298,875    (223,831)   (12,995)   16,339,101    62,049 
                               
Equity Securities:                              
Preferred stocks   824,569    29,934    (6,333)   —      848,170    23,601 
Common stocks   2,000,446    188,783    (54,364)   —      2,134,865    134,419 
Total equity securities   2,825,015    218,717    (60,697)   —      2,983,035    158,020 
                               
Total  $19,102,067   $517,592   $(284,528)  $(12,995)  $19,322,136   $220,069 

 

A summary of the amortized cost and fair value of the Company’s investments in available for sale fixed-maturity securities by contractual maturity as of December 31, 2011 and 2010 is shown below:

 

   December 31, 2011   December 31, 2010 
   Amortized       Amortized     
Remaining Time to Maturity  Cost   Fair Value   Cost   Fair Value 
         
Less than one year  $1,063,493   $1,079,924   $263,098   $253,385 
One to five years   6,899,892    7,045,774    6,868,952    6,997,694 
Five to ten years   12,547,046    12,680,441    7,132,079    7,118,405 
More than 10 years   1,704,760    1,762,793    2,012,923    1,969,617 
Total  $22,215,191   $22,568,932   $16,277,052   $16,339,101 

 

The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties.

 

Held to Maturity Securities

 

The amortized cost and fair value of investments in held to maturity fixed-maturity securities as of December 31, 2011 and 2010 are summarized as follows:

 

   December 31, 2011 
                        
    Cost or    Gross    Gross Unrealized Losses           Net
    Amortized    Unrealized    Less than 12    More than 12    Fair    Unrealized Gains/ 
Category   Cost    Gains    Months    Months    Value    (Losses) 
                               
U.S. Treasury securities  $606,234   $171,719   $—     $—     $777,953   $171,719 

 

   December 31, 2010 
                        
    Cost or    Gross    Gross Unrealized Losses           Net
    Amortized    Unrealized    Less than 12    More than 12    Fair    Unrealized Gains/ 
Category   Cost    Gains    Months    Months    Value    (Losses) 
                               
U.S. Treasury securities  $605,424   $974   $—     $—     $606,398   $974 

 

All held to maturity securities are held in trust pursuant to the New York State Department of Financial Services’ minimum funds requirement.

 

Contractual maturities of all held to maturity securities are greater than ten years.

 

Investment Income

 

Major categories of the Company’s net investment income are summarized as follows:

 

   Years ended 
   December 31, 
   2011   2010 
Income:          
Fixed-maturity securities  $748,046   $548,876 
Equity securities   168,813    150,331 
Cash and cash equivalents   5,248    5,368 
Other   11,974    13,789 
Total   934,081    718,364 
Expenses:          
Investment expenses   179,451    101,245 
Net investment income  $754,630   $617,119 

 

Proceeds from the sale and maturity of fixed-maturity securities were $3,532,245 and $3,575,293 for the years ended December 31, 2011 and 2010, respectively.

 

Proceeds from the sale of equity securities were $2,771,631 and $2,099,897 for the years ended December 31, 2011 and 2010, respectively.

 

The Company’s net realized gains and losses on investments are summarized as follows:

 

   Year ended 
   December 31, 
   2011   2010 
Fixed-maturity securities          
Gross realized gains  $190,855   $179,161 
Gross realized losses   (1,983)   (40,320)
    188,872    138,841 
           
Equity securities          
Gross realized gains   292,687    243,299 
Gross realized losses   (90,876)   (32,725)
    201,811    210,574 
           
           
Cash and short term investments (1)   133,211    —   
           
Net realized gains  $523,894   $349,415 

 

(1) Realized gain on cash and short term investments is a partial recovery from the FDIC of an amount previously written off in 2009 due to the failure of Waterfield Bank.

 

Impairment Review

 

The Company regularly reviews its fixed-maturity securities and equity securities portfolios to evaluate the necessity of recording impairment losses for other-than-temporary declines in the fair value of investments. In evaluating potential impairment, management considers, among other criteria: (i) the current fair value compared to amortized cost or cost, as appropriate; (ii) the length of time the security’s fair value has been below amortized cost or cost; (iii) specific credit issues related to the issuer such as changes in credit rating, reduction or elimination of dividends or non-payment of scheduled interest payments; (iv) management’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery in value to cost; and (v) current economic conditions.

 

OTTI losses are recorded in the condensed consolidated statement of operations and comprehensive income as net realized losses on investments and result in a permanent reduction of the cost basis of the underlying investment. The determination of OTTI is a subjective process and different judgments and assumptions could affect the timing of loss realization. There are 64 securities at December 31, 2011 that account for the gross unrealized loss. The Company determined that none of the unrealized losses were deemed to be OTTI for its portfolio of fixed maturity investments and equity securities for the years ended December 31, 2011 and 2010. Significant factors influencing the Company’s determination that unrealized losses were temporary included the magnitude of the unrealized losses in relation to each security’s cost, the nature of the investment and management’s intent and ability to retain the investment for a period of time sufficient to allow for anticipated recovery of fair value to the Company’s cost basis.

 

The Company held securities with unrealized losses representing declines that were considered temporary at December 31, 2011 and 2010 as follows:

 

   December 31, 2011 
   Less than 12 months   12 months or more   Total 
           No. of           No. of   Aggregate     
   Fair   Unrealized   Positions   Fair   Unrealized   Positions   Fair   Unrealized 
Category  Value   Losses   Held   Value   Losses   Held   Value   Losses 
     
Fixed-Maturity Securities:                                   
Corporate and other                                        
bonds industrial and                                        
miscellaneous  $4,849,378   $(228,792)   26   $1,483,425   $(107,666)   7   $6,332,803   $(336,458)
                                         
Total fixed-maturity                                        
securities  $4,849,378   $(228,792)   26   $1,483,425   $(107,666)   7   $6,332,803   $(336,458)
                                         
Equity Securities:                                        
Preferred stocks  $368,350   $(76,969)   12   $189,364     $(4,893)   5   $557,714   $(81,862)
Common stocks   397,268    (21,969)   14    —      —      —      397,268    (21,969)
                                         
Total equity securities  $765,618   $(98,938)   26   $189,364     $(4,893)   5   $954,982   $(103,831)
                                         
Total  $5,614,996   $(327,730)   52   $1,672,789   $(112,559)   12   $7,287,785   $(440,289)

 

   December 31, 2010 
   Less than 12 months   12 months or more   Total 
           No. of           No. of   Aggregate     
   Fair   Unrealized   Positions   Fair   Unrealized   Positions   Fair   Unrealized 
Category  Value   Losses   Held   Value   Losses   Held   Value   Losses 
                                 
Fixed-Maturity Securities:                            
Political subdivisions of                            
States, Territories and                                        
Possessions  $2,870,728   $(86,234)   11   $1,119,244   $(12,995)   4   $3,989,972   $(99,229)
                                         
Corporate and other                                        
bonds industrial and                                        
miscellaneous   4,113,912    (137,597)   20    —      —      —      4,113,912    (137,597)
                                         
Total fixed-maturity                                        
securities  $6,984,640   $(223,831)   31   $1,119,244   $(12,995)   4   $8,103,884   $(236,826)
                                         
Equity Securities:                                        
Preferred stocks  $363,670   $(6,333)   9   $—     $—      —     $363,670   $(6,333)
Common stocks   690,634    (54,364)   16    —      —      —      690,634    (54,364)
Total equity securities  $1,054,304   $(60,697)   25   $—     $—      —     $1,054,304   $(60,697)
                                         
Total  $8,038,944   $(284,528)   56   $1,119,244   $(12,995)   4   $9,158,188   $(297,523)