Investments

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Investments

NOTE 9 – INVESTMENTS

A summary of investment income, net of investment expenses, and net realized gains and losses is as follows:

	Three Months Ended September 30					Nine Months Ended September 30
	2017			2016		2017			2016
Fixed maturities	$	323,023		$	196,327	$	746,787		$	554,992
Short-term investments		(13,335	)		38,243		64,444			104,119
Gross investment income		309,688			234,570		811,231			659,111
Less investment expenses		(196	)		—		(25,446	)		—
Net investment income		309,492			234,570		785,785			659,111
Net realized gains (losses)		373			—		528			(1,278	)
Net investment income, realized gains and losses	$	309,865		$	234,570	$	786,313		$	657,833

The amortized cost and estimated fair values of investments in fixed maturities by category are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
September 30, 2017
Available for sale:
Fixed maturities
Certificates of deposit	$	35,826,000	$	—	$	—		$	35,826,000
U.S. treasury securities		9,528,210		248		(9,395	)		9,519,063
Corporate securities		22,983,627		49,063		(36,981	)		22,995,709
Agency mortgage-backed securities		15,941,512		3,754		(17,143	)		15,928,123
Total fixed maturities	$	84,279,349	$	53,065	$	(63,519	)	$	84,268,895

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2016
Available for sale:
Fixed maturities
Certificates of deposit	$	61,280,000	$	—	$	—		$	61,280,000
U.S. treasury securities		19,091,842		14,205		(2,122	)		19,103,925
Total fixed maturities	$	80,371,842	$	14,205	$	(2,122	)	$	80,383,925

A summary of the unrealized gains (losses) on investments carried at fair value and the applicable deferred federal income taxes is shown below:

	September 30			December 31
	2017			2016
Gross unrealized gains of fixed maturities	$	53,065		$	14,205
Gross unrealized (losses) of fixed maturities		(63,519	)		(2,122	)
Net unrealized gains (losses) on investments		(10,454	)		12,083
Deferred federal tax (expense) benefit		3,554			(4,108	)
Net unrealized gains (losses), net of deferred income taxes	$	(6,900	)	$	7,975

A summary of estimated fair value and gross unrealized losses in a gross unrealized loss position by the length of time in which the securities have continually been in that position is shown below:

	Less than 12 Months					12 Months or Longer
	Estimated Fair Value		Gross Unrealized Losses			Estimated Fair Value		Gross Unrealized Losses
September 30, 2017:
U.S. treasury securities	$	9,519,063	$	(9,395	)	$	—	$	—
Corporate securities		9,731,038		(36,981	)		—		—
Agency mortgage-backed securities		12,973,738		(17,143	)		—		—
Total	$	32,223,839	$	(63,519	)	$	—	$	—

	Less than 12 Months				12 Months or Longer
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
December 31, 2016:
U.S. treasury securities	$	—	$	—	$	9,097,285	$	(2,122	)
Total	$	—	$	—	$	9,097,285	$	(2,122	)

The Company closely monitors its investments. If an unrealized loss is determined to be other-than-temporary, it is written off as a realized loss through the Condensed Consolidated Statements of Operations. The Company’s methodology of assessing other-than-temporary impairments is based on security-specific analysis as of the balance sheet date and considers various factors including the length of time to maturity and the extent to which the fair value has been less than the cost, the financial condition and the near-term prospects of the issuer, and whether the debtor is current on its contractually obligated interest and principal payments. The unrealized losses as of September 30, 2017, and December 31, 2016, were determined to be temporary.

Although the Company does not intend to sell its fixed maturity investments prior to maturity, the Company may sell investment securities from time to time in response to cash flow requirements, economic and/or market conditions. During the three months ended September 30, 2017, the Company sold two fixed maturity investments and realized a net investment gain of $373 on the sales. During the nine months ended September 30, 2017, the Company sold four fixed maturity investments and realized a net investment gain of $528 on the sales. The Company sold three certificates of deposit during the nine months ended September 30, 2016, and realized an investment loss of $1,278 on the sales; the Company did not sell any securities during the three months ended September 30, 2016. Unrealized gains or losses from fixed maturities are reported as “Accumulated other comprehensive income,” which is a separate component of stockholders’ equity, net of any deferred tax effect.

The Company’s investment in certificates of deposit included $35,426,000 and $60,780,000 of brokered certificates of deposit as of September 30, 2017, and December 31, 2016, respectively. Brokered certificates of deposit provide the safety and security of a certificate of deposit combined with the convenience gained by one-stop shopping for rates at various institutions. This allows the Company to spread its investments across multiple institutions so that all of its certificate of deposit investments are insured by the Federal Deposit Insurance Corporation (“FDIC”). Brokered certificates of deposit are purchased through UnionBanc Investment Services, LLC, a registered broker-dealer, investment advisor, member of FINRA/SIPC, and a subsidiary of Union Bank, N.A. Brokered certificates of deposit are a direct obligation of the issuing depository institution, are bank products of the issuing depository institution, are held in the name of Union Bank as Custodian for the benefit of the Company, and are FDIC insured within permissible limits. All the Company’s brokered certificates of deposit are within the FDIC insured permissible limits.

The following securities from four different banks represent statutory deposits that are assigned to and held by the California State Treasurer and the Insurance Commissioner of the State of Nevada. These deposits are required for writing certain lines of business in California and for admission to transact insurance business in the state of Nevada:

	September 30		December 31
	2017		2016
Certificates of deposit	$	400,000	$	500,000
Short-term investments		200,000		100,000
Total state held deposits	$	600,000	$	600,000

All of the Company’s brokered and non-brokered certificates of deposit are within the FDIC insured permissible limits. Due to the nature of the Company’s business, certain bank accounts may exceed FDIC insured permissible limits.

Short-term investments have an initial maturity of one year or less and consist of the following:

	September 30		December 31
	2017		2016
U.S. treasury money market fund	$	6,673,261	$	8,542,292
U.S. treasury bills		1,174,217		—
Short-term bonds		999,877		—
Certificates of deposit		200,000		1,098,000
Commercial paper		998,570		—
Bank money market accounts		3,032,827		562,548
Bank savings accounts		1,763		1,763
Total short-term investments	$	13,080,515	$	10,204,603