Investments

3 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Investments

NOTE 9 – INVESTMENTS

A summary of investment income, net of investment expenses, is as follows:

	Three Months Ended March 31
	2018			2017
Fixed maturities	$	462,167		$	178,433
Short-term investments		7,947			33,802
Gross investment income		470,114			212,235
Less investment expenses		(25,315	)		—
Net investment income	$	444,799		$	212,235

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
March 31, 2018
Available-for-sale fixed maturities:
U.S. treasury securities	$	10,364,634	$	1,532	$	(163,509	)	$	10,202,657
Corporate securities		32,020,488		9,167		(749,591	)		31,280,064
Agency mortgage-backed securities		23,243,029		3,197		(537,533	)		22,708,693
Held-to-maturity fixed securities:
Certificates of deposits		23,848,000		—		—			23,848,000
Total fixed maturities	$	89,476,151	$	13,896	$	(1,450,633	)	$	88,039,414

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
December 31, 2017
Available-for-sale fixed maturities:
U.S. treasury securities	$	7,517,901	$	21	$	(63,697	)	$	7,454,225
Corporate securities		28,745,223		43,204		(130,787	)		28,657,640
Agency mortgage-backed securities		21,889,996		—		(152,407	)		21,737,589
Held-to-maturity fixed securities:
Certificates of deposits		28,098,000		—		—			28,098,000
Total fixed maturities	$	86,251,120	$	43,225	$	(346,891	)	$	85,947,454

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

	March 31			December 31
	2018			2017
Gross unrealized gains on fixed maturities	$	13,896		$	43,225
Gross unrealized losses on fixed maturities		(1,450,633	)		(346,891	)
Net unrealized losses on fixed maturities		(1,436,737	)		(303,666	)
Deferred federal tax benefit		301,715			63,770
Net unrealized losses, net of deferred income taxes	$	(1,135,022	)	$	(239,896	)

A summary of estimated fair value, gross unrealized losses, and number of securities 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			Number of Securities		Estimated Fair Value		Gross Unrealized Losses		Number of Securities
March 31, 2018
U.S. treasury securities	$	9,218,906	$	(163,509	)		7	$	—	$	—		—
Corporate securities		29,825,023		(749,591	)		40		—		—		—
Agency mortgage-backed securities		20,766,633		(537,533	)		17		—		—		—
Total	$	59,810,562	$	(1,450,633	)		64	$	—	$	—		—

	Less than 12 Months							12 Months or Longer
	Estimated Fair Value		Gross Unrealized Losses			Number of Securities		Estimated Fair Value		Gross Unrealized Losses		Number of Securities
December 31, 2017
U.S. treasury securities	$	7,454,204	$	(63,697	)		6	$	—	$	—		—
Corporate securities		20,335,512		(130,787	)		26		—		—		—
Agency mortgage-backed securities		21,737,589		(152,407	)		17		—		—		—
Total	$	49,527,305	$	(346,891	)		49	$	—	$	—		—

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 March 31, 2018, and December 31, 2017, 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. The Company did not sell any fixed maturities investments and there were no realized investment gains or losses during the three months ended March 31, 2018 and 2017. The unrealized gains or losses from fixed maturities are reported as “Accumulated other comprehensive income or loss,” which is a separate component of stockholders’ equity, net of any deferred tax effect.

The Company’s investment in certificates of deposit included $23,448,000 and $27,698,000 of brokered certificates of deposit as of March 31, 2018, and December 31, 2017, 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.

	March 31		December 31
	2018		2017
Certificates of deposit	$	400,000	$	400,000
Short-term investments		200,000		200,000
Total state held deposits	$	600,000	$	600,000

All the Company’s brokered and non-brokered certificates of deposit are within the FDIC insured permissible limits. Due to 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:

	March 31		December 31
	2018		2017
Custodial trust	$	946,383	$	6,275,648
U.S. treasury bills		—		1,148,395
Certificates of deposit		200,000		200,000
Commercial paper		—		499,383
Bank money market accounts		4,863,646		2,315,307
Bank savings account		1,763		1,763
Total short-term investments	$	6,011,792	$	10,440,496