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3. Investments
 6 Months Ended
Jun. 30, 2013
Notes to Financial Statements  
3. Investments

Available-for-Sale Securities

 

The amortized cost and fair value of investments in available-for-sale fixed-maturity securities and equity securities as of June 30, 2013 and December 31, 2012 are summarized as follows:

 

    June 30, 2013  
                                  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   $ 5,192,989     $ 164,220     $ (80,990 )   $ (11,909 )   $ 5,264,309     $ 71,320  
                                                 
Corporate and other bonds                                                
Industrial and miscellaneous     16,781,196       598,017       (247,662 )     -       17,131,552       350,356  
Total fixed-maturity securities     21,974,185       762,237       (328,652 )     (11,909 )     22,395,861       421,676  
                                                 
Equity Securities:                                                
Preferred stocks     3,493,001       9,239       (89,440 )     -       3,412,800       (80,201 )
Common stocks     3,382,847       434,290       (39,522 )     -       3,777,615       394,768  
Total equity securities     6,875,848       443,529       (128,962 )     -       7,190,415       314,567  
                                                 
Total   $ 28,850,033     $ 1,205,766     $ (457,614 )   $ (11,909 )   $ 29,586,276     $ 736,243  

 

    December 31, 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)  
                                     
Fixed-Maturity Securities:                                    
Political subdivisions of States,                                    
Territories and Possessions   $ 5,219,092     $ 257,298     $ (1,574 )   $ -     $ 5,474,816     $ 255,724  
                                                 
Corporate and other bonds                                                
Industrial and miscellaneous     19,628,005       1,123,392       (43,553 )     (722 )     20,707,122       1,079,117  
Total fixed-maturity securities     24,847,097       1,380,690       (45,127 )     (722 )     26,181,938       1,334,841  
                                                 
Equity Securities:                                                
Preferred stocks     1,475,965       19,512       (11,130 )     -       1,484,347       8,382  
Common stocks     3,598,012       353,782       (145,899 )     -       3,805,895       207,883  
Total equity securities     5,073,977       373,294       (157,029 )     -       5,290,242       216,265  
                                                 
Total   $ 29,921,074     $ 1,753,984     $ (202,156 )   $ (722 )   $ 31,472,180     $ 1,551,106  

 

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 June 30, 2013 and December 31, 2012 is shown below:

 

    June 30, 2013     December 31, 2012  
    Amortized           Amortized        
Remaining Time to Maturity   Cost     Fair Value     Cost     Fair Value  
    (unaudited)        
Less than one year   $ 522,532     $ 515,556     $ 546,952     $ 560,162  
One to five years     8,029,987       8,396,602       9,031,248       9,569,943  
Five to ten years     10,436,021       10,612,222       12,605,798       13,306,033  
More than 10 years     2,985,645       2,871,481       2,663,099       2,745,800  
Total   $ 21,974,185     $ 22,395,861     $ 24,847,097     $ 26,181,938  

 

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 June 30, 2013 and December 31, 2012 are summarized as follows:

 

    June 30, 2013  
                                  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   $ 606,292     $ 95,771     $ -     $ -     $ 702,063     $ 95,771  

 

    December 31, 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)  
                                                 
U.S. Treasury securities   $ 606,281     $ 172,745     $ -     $ -     $ 779,026     $ 172,745  

 

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     Six months ended  
    June 30,     June 30,  
    2013     2012     2013     2012  
    (unaudited)     (unaudited)  
Income:                        
Fixed-maturity securities   $ 234,977     $ 226,777     $ 495,012     $ 461,270  
Equity securities     93,389       62,310       179,844       148,239  
Cash and cash equivalents     -       (1,347 )     29       59  
Other     11,817       2       11,817       4  
Total     340,183       287,742       686,702       609,572  
Expenses:                                
Investment expenses     65,152       57,863       128,384       112,176  
Net investment income   $ 275,031     $ 229,879     $ 558,318     $ 497,396  

 

Proceeds from the sale and maturity of fixed-maturity securities were $4,557,745 and $1,837,698 for the six months ended June 30, 2013 and 2012, respectively.

 

Proceeds from the sale of equity securities were $2,727,084 and $559,993 for the six months ended June 30, 2013 and 2012, respectively.

 

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

 

    Three months ended     Six months ended  
    June 30,     June 30,  
    2013     2012     2013     2012  
    (unaudited)     (unaudited)  
Fixed-maturity securities:                        
Gross realized gains   $ 104,241     $ 55,004     $ 181,217     $ 95,150  
Gross realized losses     (56,471 )     (54,404 )     (56,471 )     (54,404 )
      47,770       600       124,746       40,746  
                                 
Equity securities:                                
Gross realized gains     218,204       25,215       289,989       32,284  
Gross realized losses     (16,081 )     (19,655 )     (59,717 )     (27,470 )
      202,123       5,560       230,272       4,814  
                                 
Net realized gains   $ 249,893     $ 6,160     $ 355,018     $ 45,560  

 

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 Statements of Income 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 46 securities at June 30, 2013 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 six months ended June 30, 2013 and 2012. 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 an 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 June 30, 2013 and December 31, 2012 as follows:

 

    June 30, 2013  
    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   $ 1,065,409     $ (80,990 )     5     $ 254,051     $ (11,909 )     3     $ 1,319,460     $ (92,899 )
                                                                 
Corporate and other                                                                
bonds industrial and                                                                
miscellaneous     4,921,387       (247,662 )     24       -       -       -       4,921,387       (247,662 )
                                                                 
Total fixed-maturity                                                                
securities   $ 5,986,796     $ (328,652 )     29     $ 254,051     $ (11,909 )     3     $ 6,240,847     $ (340,561 )
                                                                 
Equity Securities:                                                                
Preferred stocks   $ 2,704,500     $ (89,440 )     10     $ -     $ -       -     $ 2,704,500     $ (89,440 )
Common stocks     577,170       (39,522 )     4       -       -       -       577,170       (39,522 )
                                                                 
Total equity securities   $ 3,281,670     $ (128,962 )     14     $ -     $ -       -     $ 3,281,670     $ (128,962 )
                                                                 
Total   $ 9,268,466     $ (457,614 )     43     $ 254,051     $ (11,909 )     3     $ 9,522,517     $ (469,523 )

 

 

   December 31, 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  
                                                 
Fixed-Maturity Securities:                                            
Political subdivisions of                                            
States, Territories and                                                
Possessions   $ 202,798     $ (1,574 )     1     $ -     $ -       -     $ 202,798     $ (1,574 )
                                                                 
Corporate and other                                                                
bonds industrial and                                                                
miscellaneous     4,025,551       (43,553 )     19       128,125       (722 )     1       4,153,676       (44,275 )
                                                                 
Total fixed-maturity                                                                
securities   $ 4,228,349     $ (45,127 )     20     $ 128,125     $ (722 )     1     $ 4,356,474     $ (45,849 )
                                                                 
Equity Securities:                                                                
Preferred stocks   $ 387,925     $ (11,130 )     3     $ -     $ -       -     $ 387,925     $ (11,130 )
Common stocks     1,536,860       (145,899 )     9       -       -       -       1,536,860       (145,899 )
                                                                 
Total equity securities   $ 1,924,785     $ (157,029 )     12     $ -     $ -       -     $ 1,924,785     $ (157,029 )
                                                                 
Total   $ 6,153,134     $ (202,156 )     32     $ 128,125     $ (722 )     1     $ 6,281,259     $ (202,878 )