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3. Investments
 9 Months Ended
Sep. 30, 2015
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, 2015 and December 31, 2014 are summarized as follows:

 

  September 30, 2015
                       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  $ 13,682,943    $      478,684    $       (37,619)    $                  -    $ 14,124,008    $      441,065
                       
 Corporate and other bonds                                
 Industrial and miscellaneous     43,005,459            791,305           (333,737)   (40,438)   43,422,589   417,130
                       
 Residential mortgage backed                      
 securities       4,523,275              49,488             (24,051)   -   4,548,712   25,437
 Total fixed-maturity securities       61,211,677         1,319,477           (395,407)   (40,438)   62,095,309   883,632
                       
 Equity Securities:                      
 Preferred stocks         2,859,267              23,934             (43,971)   (14,598)   2,824,632   (34,635)
 Common stocks         6,677,720            296,774           (305,834)   -   6,668,660   (9,060)
 Total equity securities       9,536,987            320,708           (349,805)   (14,598)   9,493,292   (43,695)
                       
 Total    $ 70,748,664    $   1,640,185    $     (745,212)    $       (55,036)    $ 71,588,601    $      839,937

 

  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

 

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, 2015 and December 31, 2014 is shown below:

 

  September 30, 2015   December 31, 2014
  Amortized       Amortized    
 Remaining Time to Maturity   Cost   Fair Value   Cost   Fair Value
       
 Less than one year    $   1,003,870    $   1,025,475    $      482,833    $      487,507
 One to five years       13,012,835       13,408,879       11,640,381       11,943,127
 Five to ten years       39,868,480       40,201,676       32,283,921       32,865,231
 More than 10 years         2,803,217         2,910,567         5,676,306         5,824,994
 Residential mortgage backed securities       4,523,275         4,548,712                        -                        -
 Total    $ 61,211,677    $ 62,095,309    $ 50,083,441    $ 51,120,859

 

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, 2015 and December 31, 2014 are summarized as follows:

 

  September 30, 2015
                       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  $      606,380    $      163,096    $                  -    $                  -    $      769,476    $      163,096
                       
 Political subdivisions of States,                      
 Territories and Possessions       1,416,537              58,142                        -             (46,621)         1,428,058              11,521
                       
 Corporate and other bonds                        
 Industrial and miscellaneous       3,114,281              91,875               (2,577)           (127,694)         3,075,885             (38,396)
                       
 Total  $   5,137,198    $      313,113    $         (2,577)    $     (174,315)    $   5,273,419    $      136,221

 

  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

  

Held-to-maturity 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, 2015 and December 31, 2014 is shown below:

 

  September 30, 2015   December 31, 2014
  Amortized       Amortized    
 Remaining Time to Maturity   Cost   Fair Value   Cost   Fair Value
       
 Less than one year    $                 -    $                  -    $                  -    $                  -
 One to five years            500,000            505,150                        -                        -
 Five to ten years         4,030,818         3,998,793         3,522,927         3,563,401
 More than 10 years            606,380            769,476         1,605,808         1,831,653
 Total    $   5,137,198    $   5,273,419    $   5,128,735    $   5,395,054

 

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,  
   2015    2014    2015    2014
       
 Income:                    
 Fixed-maturity securities    $      595,529    $      433,028    $   1,671,821    $   1,182,083
 Equity securities            125,379            116,683            378,084            372,901
 Cash and cash equivalents                   250                   232                   465              23,672
 Other                     -                        -                        -                   594
 Total            721,158            549,943         2,050,370         1,579,250
 Expenses:                      
 Investment expenses              71,717              86,430            200,301            285,034
 Net investment income    $      649,441    $      463,513    $   1,850,069    $   1,294,216

 

Proceeds from the sale and maturity of fixed-maturity securities were $1,680,633 and $5,092,195 for the nine months ended September 30, 2015 and 2014, respectively.

 

Proceeds from the sale of equity securities were $1,642,971 and $5,537,511 for the nine months ended September 30, 2015 and 2014, respectively.

 

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

 

   Three months ended    Nine months ended
   September 30,    September 30,
   2015    2014    2015    2014
       
 Fixed-maturity securities:              
 Gross realized gains    $               20    $        25,870    $               20    $      183,349
 Gross realized losses            (25,886)             (20,436)           (112,097)             (48,729)
           (25,866)                5,434           (112,077)            134,620
               
 Equity securities:              
 Gross realized gains            12,549              77,535              48,970            294,786
 Gross realized losses            (27,170)             (19,380)             (42,611)             (42,867)
           (14,621)              58,155                6,359            251,919
               
 Cash and short term investments (1)                     -              51,587                        -              51,587
               
 Net realized gains (losses)  $      (40,487)    $      115,176    $     (105,718)    $      438,126

 

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, 2015, there were 47 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, 2015 and 2014. 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, 2015 and December 31, 2014 as follows:

 

  September 30, 2015
  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  $      852,736    $      (37,619)              3    $                -    $                 -              -    $      852,736    $      (37,619)
                               
 Corporate and other                                                           
 bonds industrial and                              
 miscellaneous       8,963,637          (333,737)            17          450,035            (40,438)              1         9,413,672          (374,175)
                               
 Residential mortgage                              
 backed securities       1,132,899            (24,051)              5                      -                       -              -         1,132,899            (24,051)
                               
 Total fixed-maturity                              
 securities    $ 10,949,272       $    (395,407)            25       $    450,035    $      (40,438)              1    $ 11,399,307    $    (435,845)
                               
 Equity Securities:                              
 Preferred stocks    $      727,065    $      (43,971)              2    $    697,517    $      (14,598)              3    $   1,424,582    $      (58,569)
 Common stocks         3,553,900          (305,834)            16                      -                       -              -         3,553,900          (305,834)
                               
 Total equity securities  $   4,280,965    $    (349,805)            18    $    697,517    $      (14,598)              3    $   4,978,482    $    (364,403)
                               
 Total  $ 15,230,237    $    (745,212)            43    $ 1,147,552    $      (55,036)              4    $ 16,377,789    $    (800,248)

 

  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 and                              
 Possessions  $    3,013,648    $      (23,813)              9    $    126,658    $        (6,379)              1    $   3,140,306    $     (30,192)
                               
 Corporate and other                                                   
 bonds 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)