3. Investments

6 Months Ended

Jun. 30, 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 June 30, 2014 and December 31, 2013 are summarized as follows:

	June 30, 2014
					Gross Unrealized Losses								Net
	Cost or Amortized		Gross Unrealized		Less than 12			More than 12			Fair		Unrealized Gains/
Category	Cost		Gains		Months			Months			Value		(Losses)
Fixed-Maturity Securities:
Political subdivisions of States,
Territories and Possessions	$	12,413,225	$	348,720	$	(18,529	)	$	(15,108	)	$	12,728,308	$	315,083
Corporate and other bonds
Industrial and miscellaneous		27,882,438		1,021,295		(11,736	)		(24,794	)		28,867,203		984,765
Total fixed-maturity securities		40,295,663		1,370,015		(30,265	)		(39,902	)		41,595,511		1,299,848
Equity Securities:
Preferred stocks		3,340,238		28,311		-			(75,147	)		3,293,402		(46,836	)
Common stocks		5,483,251		643,486		(17,328	)		-			6,109,409		626,158
Total equity securities		8,823,489		671,797		(17,328	)		(75,147	)		9,402,811		579,322
Total	$	49,119,152	$	2,041,812	$	(47,593	)	$	(115,049	)	$	50,998,322	$	1,879,170

	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 June 30, 2014 and December 31, 2013 is shown below:

	June 30, 2014				December 31, 2013
	Amortized				Amortized
Remaining Time to Maturity	Cost		Fair Value		Cost		Fair Value
Less than one year	$	983,007	$	993,669	$	758,281	$	768,954
One to five years		8,305,030		8,763,953		9,025,386		9,466,973
Five to ten years		24,537,824		25,232,851		14,070,003		14,114,271
More than 10 years		6,469,802		6,605,038		4,226,232		4,085,824
Total	$	40,295,663	$	41,595,511	$	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 June 30, 2014 and December 31, 2013 are summarized as follows:

	June 30, 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	$	606,336	$	112,010	$	-		$	-	$	718,346	$	112,010
Political subdivisions of States,
Territories and Possessions		1,411,268		28,847		(12,999	)		-		1,427,116		15,848
Corporate and other bonds
Industrial and miscellaneous		2,604,268		87,657		(8,122	)		-		2,683,803		79,535
Total	$	4,621,872	$	228,514	$	(21,121	)	$	-	$	4,829,265	$	207,393

	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 June 30, 2014 and December 31, 2013 is shown below:

	June 30, 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		2,815,030		2,881,566		1,793,344		1,772,208
More than 10 years		1,806,842		1,947,699		606,138		653,053
Total	$	4,621,872	$	4,829,265	$	2,399,482	$	2,425,261

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,
	2014		2013		2014		2013
Income:
Fixed-maturity securities	$	406,137	$	234,977	$	749,055	$	495,012
Equity securities		141,705		93,389		256,218		179,844
Cash and cash equivalents		2,821		-		23,440		29
Other		594		11,817		594		11,817
Total		551,257		340,183		1,029,307		686,702
Expenses:
Investment expenses		99,342		65,152		198,604		128,384
Net investment income	$	451,915	$	275,031	$	830,703	$	558,318

Proceeds from the sale and maturity of fixed-maturity securities were $3,643,499 and $4,557,745 for the six months ended June 30, 2014 and 2013, respectively.

Proceeds from the sale of equity securities were $3,417,605 and $2,727,084 for the six months ended June 30, 2014 and 2013, respectively.

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

	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Fixed-maturity securities:
Gross realized gains	$	68,223		$	104,241		$	157,479		$	181,217
Gross realized losses		(1,894	)		(56,471	)		(28,293	)		(56,471	)
		66,329			47,770			129,186			124,746
Equity securities:
Gross realized gains		81,192			218,204			217,251			289,989
Gross realized losses		(12,919	)		(16,081	)		(23,487	)		(59,717	)
		68,273			202,123			193,764			230,272
Net realized gains	$	134,602		$	249,893		$	322,950		$	355,018

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, GAAP specifies (i) if 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 June 30, 2014, there were 23 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 securities and equity securities for the six months ended June 30, 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 June 30, 2014 and December 31, 2013 as follows:

	June 30, 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	$	1,479,948	$	(18,529	)		5	$	534,874	$	(15,108	)		2	$	2,014,822	$	(33,637	)
Corporate and other
bonds industrial and
miscellaneous		2,027,606		(11,736	)		5		778,210		(24,794	)		3		2,805,816		(36,530	)
Total fixed-maturity
securities	$	3,507,554	$	(30,265	)		10	$	1,313,084	$	(39,902	)		5	$	4,820,638	$	(70,167	)
Equity Securities:
Preferred stocks	$	-	$	-			-	$	1,635,873	$	(75,147	)		6	$	1,635,873	$	(75,147	)
Common stocks		621,830		(17,328	)		2		-		-			-		621,830		(17,328	)
Total equity securities	$	621,830	$	(17,328	)		2	$	1,635,873	$	(75,147	)		6	$	2,257,703	$	(92,475	)
Total	$	4,129,384	$	(47,593	)		12	$	2,948,957	$	(115,049	)		11	$	7,078,341	$	(162,642	)

	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	)