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3. Investments
 3 Months Ended
Mar. 31, 2014
Notes to Financial Statements  
3. Investments

Note 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 March 31, 2014 and December 31, 2013 are summarized as follows:

 

     March 31, 2014  
    Cost or     Gross     Gross Unrealized Losses     Net
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   $ 11,199,284     $ 257,295     $ (25,457 )   $ (35,326 )   $ 11,395,796     $ 196,512  
                                                 
Corporate and other bonds                                                
Industrial and miscellaneous     25,068,588       724,043       (62,730 )     (37,845 )     25,692,056       623,468  
Total fixed-maturity securities     36,267,872       981,338       (88,187 )     (73,171 )     37,087,852       819,980  
                                                 
Equity Securities:                                                
Preferred stocks     3,159,917       6,756       (68,114 )     (58,228 )     3,040,331       (119,586 )
Common stocks     5,030,738       463,402       (20,945 )     -       5,473,195       442,457  
Total equity securities     8,190,655       470,158       (89,059 )     (58,228 )     8,513,526       322,871  
                                                 
Total   $ 44,458,527     $ 1,451,496     $ (177,246 )   $ (131,399 )   $ 45,601,378     $ 1,142,851  
                                                 


  

 

    December 31, 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)  
                                     
Fixed-Maturity Securities:                                
Political subdivisions of States,                          
Territories and Possessions   $ 7,000,222     $ 162,616     $ (49,491 )   $ (45,140 )   $ 7,068,207     $ 67,985  
                                                 
Corporate and other bonds                                                
Industrial and miscellaneous     21,079,680       569,139       (179,810 )     (101,194 )     21,367,815       288,135  
Total fixed-maturity securities     28,079,902       731,755       (229,301 )     (146,334 )     28,436,022       356,120  
                                                 
Equity Securities:                                                
Preferred stocks     2,899,301       2,503       (251,525 )     (62,551 )     2,587,728       (311,573 )
Common stocks     3,791,037       470,606       (38,785 )     (13,913 )     4,208,945       417,908  
Total equity securities     6,690,338       473,109       (290,310 )     (76,464 )     6,796,673       106,335  
                                                 
Total   $ 34,770,240     $ 1,204,864     $ (519,611 )   $ (222,798 )   $ 35,232,695     $ 462,455  
                                                 

 

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 March 31, 2014 and December 31, 2013 is shown below:

 

    March 31, 2014     December 31, 2013  
    Amortized           Amortized        
 Remaining Time to Maturity   Cost     Fair Value     Cost     Fair Value  
                         
 Less than one year   $ 745,401     $ 760,948     $ 758,281     $ 768,954  
 One to five years     8,424,752       8,843,711       9,025,386       9,466,973  
 Five to ten years     20,629,510       20,997,899       14,070,003       14,114,271  
 More than 10 years     6,468,209       6,485,294       4,226,232       4,085,824  
 Total   $ 36,267,872     $ 37,087,852     $ 28,079,902     $ 28,436,022  

 

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 March 31, 2014 and December 31, 2013 are summarized as follows:

 

    March 31, 2014
                                  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   $ 606,327     $ 84,612     $ -     $ -     $ 690,939     $ 84,612  
                                                 
Political subdivisions of States,                                        
Territories and Possessions     1,410,299       -       (3,437 )     -       1,406,862       (3,437 )
                                                 
Corporate and other bonds                                          
Industrial and miscellaneous     1,952,709       51,586       -       -       2,004,295       51,586  
                                                 
Total   $ 3,969,335     $ 136,198     $ (3,437 )   $ -     $ 4,102,096     $ 132,761  
                                                 

 

 

    December 31, 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)  
                                     
                                     
U.S. Treasury securities   $ 606,138     $ 46,915     $ -     $ -     $ 653,053     $ 46,915  
                                                 
Political subdivisions of States,                                        
Territories and Possessions     208,697       -       (25,359 )     -       183,338       (25,359 )
                                                 
Corporate and other bonds                                          
Industrial and miscellaneous     1,584,647       4,223       -       -       1,588,870       4,223  
                                                 
Total   $ 2,399,482     $ 51,138     $ (25,359 )   $ -     $ 2,425,261     $ 25,779  

 

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 March 31, 2014 and December 31, 2013 is shown below:

 

 

    March 31, 2014     December 31, 2013  
    Amortized           Amortized        
 Remaining Time to Maturity   Cost     Fair Value     Cost     Fair Value  
                         
 Less than one year   $ -     $ -     $ -     $ -  
 One to five years     -       -       -       -  
 Five to ten years     2,162,433       2,206,448       1,793,344       1,772,208  
 More than 10 years     1,806,902       1,895,648       606,138       653,053  
 Total   $ 3,969,335     $ 4,102,096     $ 2,399,482     $ 2,425,261  

 


Investment Income

 

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

 

    Three months ended  
    March 31,  
    2014     2013  
             
 Income:            
 Fixed-maturity securities   $ 342,918     $ 260,035  
 Equity securities     114,513       86,455  
 Cash and cash equivalents     20,619       29  
 Total     478,050       346,519  
 Expenses:                
 Investment expenses     99,262       63,232  
 Net investment income   $ 378,788     $ 283,287  

 

Proceeds from the sale and maturity of fixed-maturity securities were $2,176,834 and $1,522,781 for the three months ended March 31, 2014 and 2013, respectively.

 

Proceeds from the sale of equity securities were $1,287,326 and $945,053 for the three months ended March 31, 2014 and 2013, respectively.

 

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

 

    Three months ended  
    March 31,  
    2014     2013  
             
Fixed-maturity securities:        
Gross realized gains   $ 89,256     $ 76,976  
Gross realized losses     (26,399 )     -  
      62,857       76,976  
                 
Equity securities:                
Gross realized gains     136,059       71,785  
Gross realized losses     (10,568 )     (43,636 )
      125,491       28,149  
                 
                 
Net realized gains   $ 188,348     $ 105,125  
                 

Impairment Review

 

Impairment of investment securities results in a charge to operations when a market decline to 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, in accordance with GAAP, management considers whether (i) the Company does not have the intent to sell a debt security prior to recovery and (ii) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired unless there is a credit loss.  When the Company does not intend to sell the security and it is more likely than not that the Company will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an Other-than-temporary impairment (“OTTI”) of a debt security in earnings and the remaining portion in other comprehensive income.  The credit loss component recognized in earnings is identified as the amount of principal cash flows not expected to be received over the remaining term of the security as projected based on cash flow projections.  For held-to-maturity debt securities, the amount of OTTI recorded in other comprehensive income for the noncredit portion of a previous OTTI is amortized prospectively over the remaining life of the security on the basis of timing of future estimated cash flows of the security.

 

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 March 31, 2014, there were 39 securities that accounted 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 three months ended March 31, 2014 and 2013. 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 March 31, 2014 and December 31, 2013 as follows:

 

    March 31, 2014  
    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   $ 2,669,178     $ (25,457 )     9     $ 772,206     $ (35,326 )     2     $ 3,441,384     $ (60,783 )
                                                                 
Corporate and other                                                          
bonds industrial and                                                          
miscellaneous     4,378,126       (62,730 )     13       1,036,070       (37,845 )     4       5,414,196       (100,575 )
                                                                 
Total fixed-maturity                                                          
securities   $ 7,047,304     $ (88,187 )     22     $ 1,808,276     $ (73,171 )     6     $ 8,855,580     $ (161,358 )
                                                                 
Equity Securities:                                                                
Preferred stocks   $ 1,443,956     $ (68,114 )     6     $ 646,300     $ (58,228 )     3     $ 2,090,256     $ (126,342 )
Common stocks     418,425       (20,945 )     2       -       -       -       418,425       (20,945 )
                                                                 
Total equity securities   $ 1,862,381     $ (89,059 )     8     $ 646,300     $ (58,228 )     3     $ 2,508,681     $ (147,287 )
                                                                 
Total   $ 8,909,685     $ (177,246 )     30     $ 2,454,576     $ (131,399 )     9     $ 11,364,261     $ (308,645 )
                                                                 

 

 

    December 31, 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  
                                                 
Fixed-Maturity Securities:                                            
Political subdivisions of                                            
States, Territories and                                            
Possessions   $ 2,015,437     $ (49,491 )     6     $ 415,866     $ (45,140 )     2     $ 2,431,303     $ (94,631 )
                                                                 
Corporate and other                                                          
bonds industrial and                                                          
miscellaneous     6,447,605       (179,810 )     24       1,430,377       (101,194 )     5       7,877,982       (281,004 )
                                                                 
Total fixed-maturity                                                          
securities   $ 8,463,042     $ (229,301 )     30     $ 1,846,243     $ (146,334 )     7     $ 10,309,285     $ (375,635 )
                                                                 
Equity Securities:                                                                
Preferred stocks   $ 1,835,958     $ (251,525 )     8     $ 444,100     $ (62,551 )     2     $ 2,280,058     $ (314,076 )
Common stocks     879,525       (38,785 )     4       145,625       (13,913 )     1       1,025,150       (52,698 )
                                                                 
Total equity securities   $ 2,715,483     $ (290,310 )     12     $ 589,725     $ (76,464 )     3     $ 3,305,208     $ (366,774 )
                                                                 
Total   $ 11,178,525     $ (519,611 )     42     $ 2,435,968     $ (222,798 )     10     $ 13,614,493     $ (742,409 )