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3. Investments
 9 Months Ended
Sep. 30, 2012
Text Block [Abstract]  
3. Investments

Available for Sale Securities

 

The amortized cost and fair value of investments in available for sale fixed-maturity securities and equities as of September 30, 2012 and December 31, 2011 are summarized as follows: 

 

    September 30, 2012  
                                  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)  
    (unaudited)  
 Fixed-Maturity Securities:                                    
 Political subdivisions of States,                                    
 Territories and Possessions   $ 5,568,774     $ 290,672     $ -     $ (40,055 )   $ 5,819,391     $ 250,617  
                                                 
 Corporate and other bonds                                                
 Industrial and miscellaneous     16,211,308       1,085,116       (5,348 )     (8,337 )     17,282,739       1,071,431  
 Total fixed-maturity securities     21,780,082       1,375,788       (5,348 )     (48,392 )     23,102,130       1,322,048  
                                                 
 Equity Securities:                                                
 Preferred stocks     1,453,688       44,552       (8,977 )     -       1,489,263       35,575  
 Common stocks     3,262,410       505,609       (26,389 )     -       3,741,630       479,220  
 Total equity securities     4,716,098       550,161       (35,366 )     -       5,230,893       514,795  
                                                 
 Total   $ 26,496,180     $ 1,925,949     $ (40,714 )   $ (48,392 )   $ 28,333,023     $ 1,836,843  

 

    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  

 

 

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 September 30, 2012 and December 31, 2011 is shown below:

 

    September 30, 2012     December 31, 2011  
    Amortized           Amortized        
 Remaining Time to Maturity   Cost     Fair Value     Cost     Fair Value  
    (unaudited)        
 Less than one year   $ 1,212,342     $ 1,179,180     $ 1,063,493     $ 1,079,924  
 One to five years     7,523,680       7,967,410       6,899,892       7,045,774  
 Five to ten years     11,909,521       12,760,814       12,547,046       12,680,441  
 More than 10 years     1,134,539       1,194,726       1,704,760       1,762,793  
 Total   $ 21,780,082     $ 23,102,130     $ 22,215,191     $ 22,568,932  

 

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 September 30, 2012 and December 31, 2011 are summarized as follows:

 

    September 30, 2012  
                                  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)  
    (unaudited)  
                                                 
 U.S. Treasury securities   $ 606,273     $ 185,828     $ -     $ -     $ 792,101     $ 185,828  

 

    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)  
                                                 
 U.S. Treasury securities   $ 606,234     $ 171,719     $ -     $ -     $ 777,953     $ 171,719  

 

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:

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2012     2011     2012     2011  
    (unaudited)     (unaudited)  
 Income:                        
 Fixed-maturity securities   $ 249,315     $ 170,083     $ 710,585     $ 526,583  
 Equity securities     49,279       44,089       197,518       114,387  
 Cash and cash equivalents     25       2,552       84       4,775  
 Other     2       8       6       (3,307 )
 Total     298,621       216,732       908,193       642,438  
 Expenses:                                
 Investment expenses     56,462       44,693       168,638       132,265  
 Net investment income   $ 242,159     $ 172,039     $ 739,555     $ 510,173  

 

Proceeds from the sale and maturity of fixed-maturity securities were $2,766,758 and $3,034,295 for the nine months ended September 30, 2012 and 2011, respectively.

 

Proceeds from the sale of equity securities were $1,001,247 and $1,362,700 for the nine months ended September 30, 2012 and 2011, respectively.

 

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

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2012     2011     2012     2011  
    (unaudited)     (unaudited)  
 Fixed-maturity securities:                        
 Gross realized gains   $ 60,349     $ 51,805     $ 153,695     $ 139,107  
 Gross realized losses     -       -       (52,600 )     (1,983 )
      60,349       51,805       101,095       137,124  
                                 
 Equity securities:                                
 Gross realized gains     7,735       11,558       40,019       147,375  
 Gross realized losses     (2,098 )     -       (29,568 )     (60,704 )
      5,637       11,558       10,451       86,671  
                                 
 Cash and short term investments (1)     -       133,211       -       133,211  
                                 
 Net realized gains   $ 65,986     $ 196,574     $ 111,546     $ 357,006  

 

(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 investment (“OTTI”) 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 13 securities at September 30, 2012 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 nine months ended September 30, 2012 and 2011. 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 September 30, 2012 and December 31, 2011 as follows:

 

    September 30, 2012  
    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  
    (unaudited)  
Fixed-Maturity Securities:                                            
Political subdivisions of                                            
 States, Territories and                                                
 Possessions   $ -     $ -       -     $ 764,668     $ (40,055 )     2     $ 764,668     $ (40,055 )
                                                                 
 Corporate and other                                                                
 bonds industrial and                                                                
 miscellaneous     877,005       (5,348 )     3       370,758       (8,337 )     2       1,247,763       (13,685 )
                                                                 
 Total fixed-maturity                                                                
 securities   $ 877,005     $ (5,348 )     3     $ 1,135,426     $ (48,392 )     4     $ 2,012,431     $ (53,740 )
                                                                 
 Equity Securities:                                                                
 Preferred stocks   $ 386,950     $ (8,977 )     3     $ -     $ -       -     $ 386,950     $ (8,977 )
 Common stocks     439,205       (26,389 )     3       -       -       -       439,205       (26,389 )
                                                                 
 Total equity securities   $ 826,155     $ (35,366 )     6     $ -     $ -       -     $ 826,155     $ (35,366 )
                                                                 
 Total   $ 1,703,160     $ (40,714 )     9     $ 1,135,426     $ (48,392 )     4     $ 2,838,586     $ (89,106 )

 

   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)