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3. Investments
 9 Months Ended
Sep. 30, 2014
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, 2014 and December 31, 2013 are summarized as follows:

 

    September 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)  
                                     
Fixed-Maturity Securities:                                
Political subdivisions of States,                                
Territories and Possessions   $ 13,807,507     $ 430,058     $ (38,144 )   $ (6,818 )   $ 14,192,603     $ 385,096  
                                                 
Corporate and other bonds                                                
Industrial and miscellaneous     33,140,595       823,439       (106,702 )     (51,037 )     33,806,295       665,700  
Total fixed-maturity securities     46,948,102       1,253,497       (144,846 )     (57,855 )     47,998,898       1,050,796  
                                                 
Equity Securities:                                                
Preferred stocks     3,172,632       15,581       (6,022 )     (82,377 )     3,099,814       (72,818 )
Common stocks     5,685,360       427,462       (51,892 )     -       6,060,930       375,570  
Total equity securities     8,857,992       443,043       (57,914 )     (82,377 )     9,160,744       302,752  
                                                 
Total   $ 55,806,094     $ 1,696,540     $ (202,760 )   $ (140,232 )   $ 57,159,642     $ 1,353,548  

 

 

 

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

 

    September 30, 2014     December 31, 2013  
    Amortized           Amortized        
Remaining Time to Maturity   Cost     Fair Value     Cost     Fair Value  
                         
Less than one year   $ 484,779     $ 490,726     $ 758,281     $ 768,954  
One to five years     10,288,457       10,698,522       9,025,386       9,466,973  
Five to ten years     30,053,300       30,570,369       14,070,003       14,114,271  
More than 10 years     6,121,566       6,239,281       4,226,232       4,085,824  
Total   $ 46,948,102     $ 47,998,898     $ 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 September 30, 2014 and December 31, 2013 are summarized as follows:

    September 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   $ 606,344     $ 126,344     $ -     $ -     $ 732,688     $ 126,344  
                                                 
Political subdivisions of States,                                          
Territories and Possessions     1,412,284       42,046       -       (10,068 )     1,444,262       31,978  
                                                 
Corporate and other bonds                                          
Industrial and miscellaneous     3,106,657       74,332       (23,880 )     -       3,157,106       50,449  
                                                 
Total   $ 5,125,285     $ 242,722     $ (23,880 )   $ (10,068 )   $ 5,334,056     $ 208,771  

 

    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  

 

Held-to-maturity securities U.S. Treasury 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, 2014 and December 31, 2013 is shown below:

 

    September 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     3,318,492       3,358,874       1,793,344       1,772,208  
More than 10 years     1,806,793       1,975,182       606,138       653,053  
Total   $ 5,125,285     $ 5,334,056     $ 2,399,482     $ 2,425,261  

 

 

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,  
    2014     2013     2014     2013  
                         
Income:                        
Fixed-maturity securities   $ 433,028     $ 241,286     $ 1,182,083     $ 736,298  
Equity securities     116,683       117,916       372,901       297,760  
Cash and cash equivalents     232       1       23,672       30  
Other     -       (1,066 )     594       10,751  
Total     549,943       358,137       1,579,250       1,044,839  
Expenses:                                
Investment expenses     86,430       63,789       285,034       192,173  
Net investment income   $ 463,513     $ 294,348     $ 1,294,216     $ 852,666  

 

Proceeds from the sale and maturity of fixed-maturity securities were $5,092,195 and $5,274,520 for the nine months ended September 30, 2014 and 2013, respectively.

 

Proceeds from the sale of equity securities were $5,537,511 and $3,747,729 for the nine months ended September 30, 2014 and 2013, respectively.

 

 

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

 

    Three months ended     Nine months ended  
    September 30,     September 30,  
    2014     2013     2014     2013  
                         
Fixed-maturity securities:                        
Gross realized gains   $ 25,870     $ 56,669     $ 183,349     $ 237,886  
Gross realized losses     (20,436 )     -       (48,729 )     (56,471 )
      5,434       56,669       134,620       181,415  
                                 
Equity securities:                                
Gross realized gains     77,535       79,593       294,786       369,582  
Gross realized losses     (19,380 )     (41,806 )     (42,867 )     (101,523 )
      58,155       37,787       251,919       268,059  
                                 
Cash and short term investments (1)     51,587       -       51,587       -  
                                 
Net realized gains   $ 115,176     $ 94,456     $ 438,126     $ 449,474  

 

(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

 

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 September 30, 2014, there were 38 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 nine months ended September 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 September 30, 2014 and December 31, 2013 as follows:

 

    September 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   $ 2,149,022     $ (38,144 )     7     $ 541,806     $ (6,818 )     2     $ 2,690,828     $ (44,962 )
                                                                 
Corporate and other                                                                
bonds industrial and                                                                
miscellaneous     6,040,156       (106,702 )     12       993,653       (51,037 )     3       7,033,809       (157,739 )
                                                                 
Total fixed-maturity                                                                
securities   $ 8,189,178     $ (144,846 )     19     $ 1,535,459     $ (57,855 )     5     $ 9,724,637     $ (202,701 )
                                                                 
Equity Securities:                                                                
Preferred stocks   $ 652,950     $ (6,022 )     1     $ 1,688,024     $ (82,377 )     7     $ 2,340,974     $ (88,399 )
Common stocks     1,541,225       (51,892 )     6       -       -       -       1,541,225       (51,892 )
                                                                 
Total equity securities   $ 2,194,175     $ (57,914 )     7     $ 1,688,024     $ (82,377 )     7     $ 3,882,199     $ (140,291 )
                                                                 
Total   $ 10,383,353     $ (202,760 )     26     $ 3,223,483     $ (140,232 )     12     $ 13,606,836     $ (342,992 )

 

 

    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 )