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INVESTMENTS

9 Months Ended

Sep. 30, 2022

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