3. Investments

9 Months Ended

Sep. 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 September 30, 2013 and December 31, 2012 are summarized as follows:

	September 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	$	6,389,133	$	185,758	$	(73,124	)	$	(3,833	)	$	6,497,934	$	108,801
Corporate and other bonds
Industrial and miscellaneous		18,464,057		599,438		(207,697	)		(2,309	)		18,853,489		389,432
Total fixed-maturity securities		24,853,190		785,196		(280,821	)		(6,142	)		25,351,423		498,233
Equity Securities:
Preferred stocks		2,917,202		2,378		(263,351	)		-			2,656,229		(260,973	)
Common stocks		3,758,464		461,387		(86,356	)		-			4,133,495		375,031
Total equity securities		6,675,666		463,765		(349,707	)		-			6,789,724		114,058
Total	$	31,528,856	$	1,248,961	$	(630,528	)	$	(6,142	)	$	32,141,147	$	612,291

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

	September 30, 2013				December 31, 2012
	Amortized				Amortized
Remaining Time to Maturity	Cost		Fair Value		Cost		Fair Value
	(unaudited)
Less than one year	$	1,012,528	$	1,027,959	$	546,952	$	560,162
One to five years		8,510,310		8,936,702		9,031,248		9,569,943
Five to ten years		11,577,308		11,714,251		12,605,798		13,306,033
More than 10 years		3,753,044		3,672,511		2,663,099		2,745,800
Total	$	24,853,190	$	25,351,423	$	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 September 30, 2013 and December 31, 2012 are summarized as follows:

	September 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	$	606,310	$	69,719	$	-		$	-	$	676,029	$	69,719
Political subdivisions of States,
Territories and Possessions		207,665		-		(2,935	)		-		204,730		(2,935)
Corporate and other bonds
Industrial and miscellaneous		634,823		8,934		-			-		643,757		8,934
Total	$	1,448,798	$	78,653	$	(2,935	)	$	-	$	1,524,516	$	75,718

	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

U.S. Treasury securities included in held-to-maturity securities are held in trust pursuant to the New York State Department of Financial Services’ minimum funds requirement.

A summary of the amortized cost and fair value of the Company’s investments in held-to-maturity securities by contractual maturity as of September 30, 2013 and December 31, 2012 is shown below:

	September 30, 2013				December 31, 2012
	Amortized				Amortized
Remaining Time to Maturity	Cost		Fair Value		Cost		Fair Value
	(unaudited)
Less than one year	$	-	$	-	$	-	$	-
One to five years		-		-		-		-
Five to ten years		842,488		848,487		-		-
More than 10 years		606,310		676,029		606,281		779,026
Total	$	1,448,798	$	1,524,516	$	606,281	$	779,026

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,
	2013			2012		2013		2012
	(unaudited)					(unaudited)
Income:
Fixed-maturity securities	$	241,286		$	249,315	$	736,298	$	710,585
Equity securities		117,916			49,279		297,760		197,518
Cash and cash equivalents		1			25		30		84
Other		(1,066	)		2		10,751		6
Total		358,137			298,621		1,044,839		908,193
Expenses:
Investment expenses		63,789			56,462		192,173		168,638
Net investment income	$	294,348		$	242,159	$	852,666	$	739,555

Proceeds from the sale and maturity of fixed-maturity securities were $5,274,520 and $2,766,758 for the nine months ended September 30, 2013 and 2012, respectively.

Proceeds from the sale of equity securities were $3,747,729 and $1,001,247 for the nine months ended September 30, 2013 and 2012, 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,
	2013			2012			2013			2012
	(unaudited)						(unaudited)
Fixed-maturity securities:
Gross realized gains	$	56,669		$	60,349		$	237,886		$	153,695
Gross realized losses		-			-			(56,471	)		(52,600	)
		56,669			60,349			181,415			101,095
Equity securities:
Gross realized gains		79,593			7,735			369,582			40,019
Gross realized losses		(41,806	)		(2,098	)		(101,523	)		(29,568	)
		37,787			5,637			268,059			10,451
Net realized gains	$	94,456		$	65,986		$	449,474		$	111,546

Impairment Review

Impairment of investment securities results in a charge to operations when a market decline below cost is deemed to be other-than-temporary. 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. Other-than-temporary impairment (“OTTI”) losses result in a permanent reduction of the cost basis of the underlying investment.

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. At September 30, 2013, there were 42 securities 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, 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 September 30, 2013 and December 31, 2012 as follows:

	September 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:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies	$	-	$	-			-	$	-	$	-			-	$	-	$	-
Political subdivisions of
States, Territories and
Possessions		1,372,233		(73,124	)		5		36,263		(3,833	)		1		1,408,496		(76,957	)
Corporate and other
bonds industrial and
miscellaneous		4,771,560		(207,697	)		17		302,423		(2,309	)		1		5,073,983		(210,006	)
Total fixed-maturity
securities	$	6,143,793	$	(280,821	)		22	$	338,686	$	(6,142	)		2	$	6,482,479	$	(286,963	)
Equity Securities:
Preferred stocks	$	2,345,104	$	(263,351	)		10	$	-	$	-			-	$	2,345,104	$	(263,351	)
Common stocks		1,503,495		(86,356	)		8		-		-			-		1,503,495		(86,356	)
Total equity securities	$	3,848,599	$	(349,707	)		18	$	-	$	-			-	$	3,848,599	$	(349,707	)
Total	$	9,992,392	$	(630,528	)		40	$	338,686	$	(6,142	)		2	$	10,331,078	$	(636,670	)

	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	)