INVESTMENTS

9 Months Ended

Sep. 30, 2022

INVESTMENTS

INVESTMENTS

NOTE 8 – INVESTMENTS

A summary of investment income, net realized gains (losses), and net unrealized investment gains (losses) on equity securities is as follows:

	Three Months Ended September 30						Nine Months Ended September 30
Investment income:	2022			2021			2022			2021
Fixed maturities	$	329,948		$	440,961		$	1,054,816		$	1,513,099
Equity securities		8,306			24,009			62,952			66,783
Short-term investments and cash equivalents		8,001			1,129			13,691			1,851
Gross investment income		346,255			466,099			1,131,459			1,581,733
Less investment expenses		(109,277	)		(38,855	)		(183,903	)		(110,887	)
Net investment income		236,978			427,244			947,556			1,470,846
Net realized investment gains (losses)		259,563			57,173			(210,503	)		3,912,840
Intent-to-sell impairments		(4,447,570	)		-			(4,447,570	)		-
Net unrealized investment gains (losses) on equity securities		-			(147,722	)		-			18,559
Net investment income, realized gains, and unrealized investment gains	$	(3,951,029	)	$	336,695		$	(3,710,517	)	$	5,402,245

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

			Gross		Gross		Estimated
			Unrealized		Realized		Fair
September 30, 2022	Cost1		Gains		Losses		Value
Available-for-sale fixed maturities:
U.S. Treasury securities	$	3,177,903	$	-	$	-	$	3,177,903
Corporate securities		28,908,704		-		-		28,908,704
Agency mortgage-backed securities		15,033,988		-		-		15,033,988
Total Available-for-sale fixed maturities		47,120,595		-		-		47,120,595
Held-to-maturity fixed securities:
Certificates of deposits		300,000		-		-		300,000
Total fixed maturities	$	47,420,595	$	-	$	-	$	47,420,595

(1) On September 30, 2022, the Company recorded an intent-to-sell impairment loss of $4,447,570 on its fixed maturities, available-for-sale portfolio and a new cost basis for these securities was established. 

			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
December 31, 2021	Cost		Gains		Losses			Value
Available-for-sale fixed maturities:
U.S. Treasury securities	$	6,278,764	$	67,516	$	(36,475	)	$	6,309,805
Corporate securities		44,370,193		1,076,288		(196,508	)		45,249,973
Agency mortgage-backed securities		20,569,448		352,466		(68,287	)		20,853,627
Total Available-for-sale fixed maturities		71,218,405		1,496,270		(301,270	)		72,413,405
Held-to-maturity fixed securities:
Certificates of deposits		300,000		-		-			300,000
Total fixed maturities	$	71,518,405	$	1,496,270	$	(301,270	)	$	72,713,405

As of September 30, 2022 and December 31, 2021, five securities and six securities, respectively, were held as collateral with Comerica Bank & Trust, N. A. (“Comerica”), pursuant to the Reinsurance Trust Agreement among Crusader, United Insurance Company (“USIC”), and Comerica (the “Reinsurance Trust Agreement”) to secure payment of Crusader’s liabilities and performance of its obligations under the Reinsurance Agreement with USIC described in Note 9, Unpaid Losses and Loss Adjustment Expenses, Termination of Reinsurance Arrangement below. The estimated fair value and amortized cost of those securities was $7,612,474 and $7,612,474 and $8,243,758 and $8,162,053 on September 30, 2022 and December 31, 2021 respectively.

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:

	September 30		December 31
	2022		2021
Gross unrealized gains on fixed maturities	$	-	$	1,496,270
Gross unrealized losses on fixed maturities		-		(301,270	)
Net unrealized gains on fixed maturities		-		1,195,000
Deferred federal tax expense		-		(250,950	)
Net unrealized gains, net of deferred income taxes	$	-	$	944,050

The amortized cost, estimated fair value (net of unrealized gains and losses) and weighted average yield of fixed maturity investments by contractual maturity are as follows:

					Weighted
					Average
Maturities by Year at September 30, 2022	Cost(1)		Fair Value		Yield
Due in one year	$	11,732,546	$	11,732,546		1.82	%
Due after one year through five years		12,343,370		12,343,370		2.68	%
Due after five years through ten years		12,586,173		12,586,173		2.50	%
Due after ten years and beyond		10,758,506		10,758,506		2.75	%
Total	$	47,420,595	$	47,420,595		2.45	%

(1) On September 30, 2022, the Company recorded an intent-to-sell impairment loss of $4,447,570 on fixed maturities, available-for-sale portfolio and a new cost basis for these securities was established.

					Weighted
	Amortized				Average
Maturities by Year at December 31, 2021	Cost		Fair Value		Yield
Due in one year	$	15,758,755	$	15,875,423		2.21	%
Due after one year through five years		19,349,200		19,681,599		1.80	%
Due after five years through ten years		19,335,034		19,832,093		2.39	%
Due after ten years and beyond		17,075,416		17,324,290		2.35	%
Total	$	71,518,405	$	72,713,405		2.18	%

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties. The weighted average maturity of the Company’s fixed maturity investments was approximately 3.1 years as of September 30, 2022 and approximately 6.7 years as of December 31, 2021.

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 as of September 30, 2022 is not necessary as all securities were marked to their fair market value and a new cost basis established: therefore, there is no unrealized amount.  The following table is as of December 31, 2021:

	Less than 12 Months								12 Months or Longer
			Gross			Number				Gross			Number
	Estimated		Unrealized			of		Estimated		Unrealized			of
December 31, 2021	Fair Value		Losses			Securities		Fair Value		Losses			Securities
U.S. Treasury Securities	$	481,875	$	(15,785	)		1	$	476,016		(20,690	)		1
Corporate securities		13,152,240		(128,502	)		15		1,179,235		(68,006	)		1
Agency mortgage-backed securities		5,086,187		(43,019	)		8		471,479		(25,268	)		1
Total debt securities		18,720,302		(187,306	)		24		2,126,730		(113,964	)		3
Equity securities		665,100		(55,156	)		18		76,454		(4,703	)		3
Total	$	19,385,402	$	(242,462	)		42	$	2,203,184	$	(118,667	)		6

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 Company will record an "intent-to-sell impairment" as a reduction to the amortized cost of fixed maturities, Available-For-Sale in an unrealized loss position if the Company intends to sell or it is more likely than not that the Company will be required to sell the fixed maturity before a recovery in value. A corresponding charge is recorded in net realized losses equal to the difference between the fair value and the amortized cost basis of the fixed maturity before recognizing the impairment.  For the three and nine months ended September 30, 2022, the Company recorded an intent-to-sell impairment loss of $4,447,570 as a reduction to the amortized cost of fixed maturities, available-for-sale.  The unrealized losses on all securities as of December 31, 2021 were determined to be temporary.

The Company may sell investment securities from time to time in response to cash flow requirements, economic, regulatory, and/or market conditions or investment securities may be called by their issuers prior to the securities’ maturity. The fixed maturity securities previously held by the Company were sold and called prior to maturity as follows:

	Three Months Ended September 30					Nine Months Ended September 30
	2022			2021		2022			2021
Fixed maturities securities sold
Number of securities sold		2			-		2			3
Amortized cost of sold securities	$	1,492,890		$	-	$	1,492,890		$	2,193,393
Realized (losses) gains on sales	$	(13,132	)	$	-	$	(13,132	)	$	710
Fixed maturities securities called
Number of securities called		-			4		7			7
Amortized cost of called securities	$	-		$	2,929,834	$	4,194,899		$	5,323,613
Realized gains (losses) on calls	$	-		$	166	$	101		$	(18,613	)

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 equity securities allocation was intended to enhance the return of and provide diversification for the total investment portfolio. All equity securities owned by the Company were sold in 2022. A summary of equity securities is shown below:

	September 30		December 31
	2022		2021
Cost	$	-	$	3,532,026
Unrealized gains		-		599,127
Estimated fair value of equity securities	$	-	$	4,131,153

The Company’s investment in certificates of deposit was $300,000 as of September 30, 2022 and December 31, 2021.

The following securities 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 and are reported here at their fair market value.

			(Restated)
	September 30		December 31
	2022		2021
California	$	407,765	$	511,289
Nevada		295,938		302,344
Total state held deposits	$	703,703	$	813,633

All the Company’s brokered and non-brokered certificates of deposit are within the Federal Deposit Insurance Corporation (“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
	2022		2021
Short-term bonds	$	-	$	954,750
Certificates of deposit		100,000		200,000
Total short-term investments	$	100,000	$	1,154,750