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3. Investments
 12 Months Ended
Dec. 31, 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 December 31, 2014 and December 31, 2013 are summarized as follows:

 

    December 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)  
       
 Fixed-Maturity Securities:                                    
 Political subdivisions of States,                                    
 Territories and Possessions   $ 13,862,141     $ 412,490     $ (23,813 )   $ (6,379 )   $ 14,244,439     $ 382,298  
                                                 
 Corporate and other bonds                                                
 Industrial and miscellaneous     36,221,300       803,440       (118,092 )     (30,228 )     36,876,420       655,120  
 Total fixed-maturity securities     50,083,441       1,215,930       (141,905 )     (36,607 )     51,120,859       1,037,418  
                                                 
 Equity Securities:                                                
 Preferred stocks     3,172,632       19,180       (2,647 )     (62,886 )     3,126,280       (46,352 )
 Common stocks     4,448,677       444,950       -       (2,177 )     4,891,449       442,772  
 Total equity securities     7,621,309       464,130       (2,647 )     (65,063 )     8,017,729       396,420  
                                                 
 Total   $ 57,704,750     $ 1,680,060     $ (144,552 )   $ (101,670 )   $ 59,138,588     $ 1,433,838  

 

    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 December 31, 2014 and 2013 is shown below:

 

    December 31, 2014     December 31, 2013  
    Amortized           Amortized        
 Remaining Time to Maturity   Cost     Fair Value     Cost     Fair Value  
             
 Less than one year   $ 482,833     $ 487,507     $ 758,281     $ 768,954  
 One to five years     11,640,381       11,943,127       9,025,386       9,466,973  
 Five to ten years     32,283,921       32,865,231       14,070,003       14,114,271  
 More than 10 years     5,676,306       5,824,994       4,226,232       4,085,824  
 Total   $ 50,083,441     $ 51,120,859     $ 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 December 31, 2014 and 2013 are summarized as follows:

 

    December 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   $ 606,353     $ 183,200     $ -     $ -     $ 789,553     $ 183,200  
                                                 
 Political subdivisions of States,                                                
 Territories and Possessions     1,413,303       49,981       -       (12,247 )     1,451,037       37,734  
                                                 
 Corporate and other bonds                                                
 Industrial and miscellaneous     3,109,079       98,306       (52,921 )     -       3,154,464       45,385  
                                                 
 Total   $ 5,128,735     $ 331,487     $ (52,921)   $ (12,247)   $ 5,395,054     $ 266,319  

  

    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 December 31, 2014 and 2013 is shown below:

 

    December 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     3,522,927       3,563,401       1,793,344       1,772,208  
 More than 10 years     1,605,808       1,831,653       606,138       653,053  
 Total   $ 5,128,735     $ 5,395,054     $ 2,399,482     $ 2,425,261  

 

Investment Income

 

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

 

    Year ended  
    December 31,  
    2014     2013  
             
 Income:            
 Fixed-maturity securities   $ 1,665,534     $ 1,018,857  
 Equity securities     483,175       390,818  
 Cash and cash equivalents     23,750       41  
 Other     (481 )     16,507  
 Total     2,171,978       1,426,223  
 Expenses:                
 Investment expenses     372,210       256,172  
 Net investment income   $ 1,799,768     $ 1,170,051  

 

Proceeds from the sale and maturity of fixed-maturity securities were $6,823,015 and $5,850,770 for the years ended December 31, 2014 and 2013, respectively.

 

Proceeds from the sale of equity securities were $7,970,324 and $4,868,193 for the years ended December 31, 2014 and 2013, respectively.

 

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

 

    Year ended  
    December 31,  
    2014     2013  
             
 Fixed-maturity securities:            
 Gross realized gains   $ 323,455     $ 237,886  
 Gross realized losses     (48,729 )     (73,910 )
      274,726       163,976  
                 
 Equity securities:                
 Gross realized gains     497,023       551,912  
 Gross realized losses     (116,309 )     (140,096 )
      380,714       411,816  
                 
 Cash and short term investments (1)     51,587       -  
                 
 Net realized gains   $ 707,027     $ 575,792  

 

(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 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 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 December 31, 2014, there were 35 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 years ended December 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 December 31, 2014 and 2013 as follows:

 

    December 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 andPossessions   $ 3,013,648     $ (23,813 )     9     $ 126,658     $ (6,379 )     1     $ 3,140,306     $ (30,192 )
                                                                 
Corporate and otherbonds industrial and miscellaneous     6,325,579       (118,092 )     15       714,640       (30,228 )     2       7,040,219       (148,320 )
                                                                 
Total fixed-maturity securities   $ 9,339,227     $ (141,905 )     24     $ 841,298     $ (36,607 )     3     $ 10,180,525     $ (178,512 )
                                                                 
 Equity Securities:                                                                
 Preferred stocks   $ 656,325     $ (2,647 )     1     $ 1,448,376     $ (62,886 )     6     $ 2,104,701     $ (65,533 )
 Common stocks     -       -       -       267,000       (2,177 )     1       267,000       (2,177 )
                                                                 
 Total equity securities   $ 656,325     $ (2,647 )     1     $ 1,715,376     $ (65,063 )     7     $ 2,371,701     $ (67,710 )
                                                                 
 Total   $ 9,995,552     $ (144,552)     25     $ 2,556,674     $ (101,670)     10     $ 12,552,226     $ (246,222)

 

    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 andPossessions   $ 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)