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3. Investments
 3 Months Ended
Mar. 31, 2020
Investments [Abstract]  
3. Investments

Fixed-Maturity Securities

 

The amortized cost, estimated fair value, and unrealized gains and losses of investments in fixed-maturity securities classified as available-for-sale as of March 31, 2020 and December 31, 2019 are summarized as follows:

 

  March 31, 2020
                        Net 
      Cost or      Gross     Gross Unrealized Losses     Estimated     Unrealized  
   Amortized     Unrealized     Less than 12     More than 12     Fair     Gains/ 
 Category    Cost     Gains     Months     Months     Value     (Losses)  
   
 Fixed-Maturity Securities:                       
 U.S. Treasury securities and                       
 obligations of U.S. government                       
 corporations and agencies   $       5,033,879    $      102,361    $                  -    $                  -    $       5,136,240    $      102,361
                       
 Political subdivisions of States,                       
 Territories and Possessions            9,139,221            275,738                        -                        -             9,414,959            275,738
                       
 Corporate and other bonds                             
 Industrial and miscellaneous        112,871,652         2,876,429        (2,258,459)                        -         113,489,622            617,970
                       
 Residential mortgage and other                       
 asset backed securities (1)          25,631,027            292,497           (938,478)        (1,145,973)           23,839,073        (1,791,954)
 Total    $   152,675,779    $   3,547,025    $  (3,196,937)    $  (1,145,973)    $   151,879,894    $     (795,885)

 

(1)KICO has placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the Federal Home Loan Bank of New York ("FHLBNY") (see Note 7). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of March 31, 2020, the estimated fair value of the eligible investments was approximately $7,287,000. KICO will retain all rights regarding all securities if pledged as collateral. As of March 31, 2020, there was no outstanding balance on the FHLBNY credit line.

 

  December 31, 2019
                        Net 
      Cost or      Gross     Gross Unrealized Losses     Estimated     Unrealized  
   Amortized     Unrealized     Less than 12     More than 12     Fair     Gains/ 
 Category    Cost     Gains     Months     Months     Value     (Losses)  
   
 Fixed-Maturity Securities:                       
 U.S. Treasury securities and                       
 obligations of U.S. government                       
 corporations and agencies   $     7,037,856    $        23,244    $                  -    $                  -    $     7,061,100    $          23,244
                       
 Political subdivisions of States,                       
 Territories and Possessions          9,151,293            181,835             (11,316)                        -           9,321,812              170,519
                       
 Corporate and other bonds                             
 Industrial and miscellaneous      119,874,573         5,777,624             (16,685)             (13,473)       125,622,039           5,747,466
                       
 Residential mortgage and other                       
 asset backed securities (1)        26,138,633            437,841             (68,793)           (276,451)         26,231,230                92,597
 Total    $ 162,202,355    $   6,420,544    $       (96,794)    $     (289,924)    $ 168,236,181    $     6,033,826

 

(1)KICO has placed certain residential mortgage backed securities as eligible collateral in a designated custodian account related to its membership in the FHLBNY (see Note 7). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of December 31, 2019, the estimated fair value of the eligible investments was approximately $7,284,000. KICO will retain all rights regarding all securities if pledged as collateral. As of December 31, 2019, there was no outstanding balance on the FHLBNY credit line.

 

A summary of the amortized cost and estimated fair value of the Company’s investments in available-for-sale fixed-maturity securities by contractual maturity as of March 31, 2020 and December 31, 2019 is shown below:

 

   March 31, 2020   December 31, 2019
  Amortized   Estimated   Amortized   Estimated
 Remaining Time to Maturity   Cost    Fair Value    Cost    Fair Value 
       
 Less than one year    $    12,900,401    $    12,937,879    $    11,986,401    $        12,025,804
 One to five years          44,309,018          44,695,085          49,715,422              51,000,025
 Five to ten years          65,324,015          66,293,522          69,850,104              74,410,275
 More than 10 years            4,511,318            4,114,335            4,511,795                4,568,847
 Residential mortgage and other asset backed securities         25,631,027          23,839,073          26,138,633              26,231,230
 Total    $  152,675,779    $  151,879,894    $  162,202,355    $      168,236,181
                

 

The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties.

 

Equity Securities

 

The cost and estimated fair value of, and gross unrealized gains and losses on, investments in equity securities as of March 31, 2020 and December 31, 2019 are as follows:

 

  March 31, 2020
      Gross   Gross      
          Unrealized     Unrealized     Estimated   
 Category    Cost     Gains     Losses     Fair Value   
   
 Equity Securities:                 
 Preferred stocks    $     7,535,068    $          7,870    $  (1,113,367)    $     6,429,571  
 Common stocks, mutual funds,                 
 and exchange traded funds        14,894,969            137,242        (3,092,889)         11,939,322  
 Total    $   22,430,037    $      145,112    $  (4,206,256)    $   18,368,893  

 

  December 31, 2019
          Gross     Gross     Estimated   
       Unrealized     Unrealized       
 Category    Cost     Gains     Losses     Fair Value   
   
 Equity Securities:                 
 Preferred stocks    $     8,374,424    $      339,257    $       (11,794)    $     8,701,887  
 Common stocks, mutual funds,                 
 and exchange traded funds        14,250,244         1,982,878           (273,627)         15,959,495  
 Total    $   22,624,668    $   2,322,135    $     (285,421)    $   24,661,382  

 

Other Investments

 

The cost and estimated fair value of, and gross unrealized gains and losses on, the Company’s other investments as of March 31, 2020 and December 31, 2019 are as follows:

 

  March 31, 2020   December 31, 2019
       Gross              Gross      
       Unrealized     Estimated         Unrealized     Estimated 
 Category    Cost     Losses     Fair Value     Cost     Gains     Fair Value 
             
 Other Investments:                       
 Hedge fund   $ 1,999,381    $     (11,859)    $ 1,987,522    $ 1,999,381    $    585,532    $   2,584,913
 Total    $ 1,999,381    $     (11,859)    $ 1,987,522    $ 1,999,381    $    585,532    $   2,584,913

 

Held-to-Maturity Securities


The cost or amortized cost and estimated fair value of, and unrealized gross gains and losses on, investments in held-to-maturity fixed-maturity securities as of March 31, 2020 and December 31, 2019 are summarized as follows:

 

   March 31, 2020
                       
      Cost or      Gross     Gross Unrealized Losses     Estimated     Net 
   Amortized     Unrealized     Less than 12     More than 12     Fair     Unrealized  
 Category    Cost     Gains     Months     Months     Value     Gains 
   
 Held-to-Maturity Securities:                       
 U.S. Treasury securities  $729,561   $162,483    $                  -    $                  -    $      892,044    $      162,483
                       
 Political subdivisions of States,                       
 Territories and Possessions           998,573              43,857                        -                        -         1,042,430              43,857
                       
 Corporate and other bonds                        
 Industrial and miscellaneous        2,098,270            106,196               (2,230)                        -         2,202,236            103,966
                       
 Total   $   3,826,404    $      312,536    $         (2,230)    $                  -    $   4,136,710    $      310,306

 

Held-to-maturity U.S. Treasury securities are held in trust pursuant to various states’ minimum funds requirements.

 

   December 31, 2019
                       
      Cost or      Gross     Gross Unrealized Losses     Estimated     Net 
   Amortized     Unrealized     Less than 12     More than 12     Fair     Unrealized  
 Category    Cost     Gains     Months     Months     Value     Gains 
   
 Held-to-Maturity Securities:                       
 U.S. Treasury securities   $      729,550    $      151,002    $                  -    $                  -    $      880,552    $      151,002
                       
 Political subdivisions of States,                       
 Territories and Possessions           998,619              51,021                        -                        -         1,049,640              51,021
                       
 Corporate and other bonds                        
 Industrial and miscellaneous        2,097,783              97,627                  (835)                        -         2,194,575              96,792
                       
 Total   $   3,825,952    $      299,650    $            (835)    $                  -    $   4,124,767    $      298,815

 

A summary of the amortized cost and estimated fair value of the Company’s investments in held-to-maturity securities by contractual maturity as of March 31, 2020 and December 31, 2019 is shown below:

 

   March 31, 2020   December 31, 2019
  Amortized   Estimated   Amortized   Estimated
 Remaining Time to Maturity   Cost    Fair Value    Cost    Fair Value 
       
 Less than one year    $        500,000    $        497,770    $        500,000    $             499,165
 One to five years           2,099,588           2,220,096           2,099,268                2,215,640
 Five to ten years              620,255              664,805              620,134                   655,923
 More than 10 years              606,561              754,039              606,550                   754,039
 Total    $     3,826,404    $     4,136,710    $     3,825,952    $          4,124,767
                

 

The actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without penalties.

 

Investment Income

 

Major categories of the Company’s net investment income are summarized as follows:

 

   Three months ended 
   March 31, 
   2020     2019 
   
 Income:             
 Fixed-maturity securities    $     1,447,938    $     1,526,870
 Equity securities              253,073              207,144
 Cash and cash equivalents                44,223                40,401
 Total           1,745,234           1,774,415
 Expenses:              
 Investment expenses                79,390              150,703
 Net investment income    $     1,665,844    $     1,623,712
          

 

Proceeds from the sale and redemption of fixed-maturity securities held-to-maturity were $-0- and $400,000 for the three months ended March 31, 2020 and 2019, respectively.

 

Proceeds from the sale or maturity of fixed-maturity securities available-for-sale were $10,553,818 and $1,505,382 for the three months ended March 31, 2020 and 2019, respectively.

 

Proceeds from the sale of equity securities were $5,518,428 and $246,047 for the three months ended March 31, 2020 and 2019, respectively.

 

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

 

   Three months ended 
   March 31, 
   2020     2019 
 Realized Gains (Losses)       
   
 Fixed-maturity securities:       
 Gross realized gains    $      204,225    $          6,002
 Gross realized losses           (32,342)             (28,433)
           171,883             (22,431)
       
 Equity securities:       
 Gross realized gains           316,513                3,200
 Gross realized losses          (213,815)               (5,961)
           102,698               (2,761)
       
 Net realized gains (losses)           274,581             (25,192)
       
 Unrealized (Losses) Gains       
       
 Equity securities:       
 Gross gains                      -         1,767,835
 Gross losses       (6,121,608)                        -
      (6,121,608)         1,767,835
       
 Other investments:       
 Gross gains                      -            292,720
 Gross losses          (597,391)                        -
         (597,391)            292,720
       
 Net unrealized (losses) gains       (6,718,999)         2,060,555
       
 Net (losses) gains on investments   $ (6,444,418)    $   2,035,363

 

Impairment Review

 

Impairment of investment securities results in a charge to operations when a market decline below cost is deemed to be other-than-temporary. The Company regularly reviews its fixed-maturity securities to evaluate the necessity of recording impairment losses for other-than-temporary declines in the estimated 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 comprehensive loss.  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 comprehensive loss 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 operations and comprehensive loss 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 March 31, 2020 and December 31, 2019, there were 80 and 39 fixed-maturity securities, respectively, 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 investments for the three months ended March 31, 2020 and 2019. 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 estimated fair value to the Company’s cost basis.

 

The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at March 31, 2020 as follows:

 

    March 31, 2020                              
      Less than 12 months             12 months or more           Total      
     Estimated            No. of      Estimated            No. of      Estimated        
     Fair      Unrealized      Positions      Fair      Unrealized      Positions      Fair      Unrealized  
 Category    Value      Losses      Held      Value      Losses      Held      Value      Losses  
                                                 
Fixed-Maturity Securities:                                                
 U.S. Treasury securities                                                
 and obligations of U.S.                                                
 government corporations                                                
 and agencies   $ -     $ -       -     $ -     $ -       -     $ -     $ -  
                                                                 
 Political subdivisions of                                                                
 States, Territories and                                                                
 Possessions     -       -       -       -       -       -       -       -  
                                                                 
 Corporate and other                                                                
 bonds industrial and                                                                
 miscellaneous     35,409,999       (2,258,459 )     50       -       -       -       35,409,999       (2,258,459 )
                                                                 
 Residential mortgage and other                                                                
 asset backed securities     6,067,674       (938,478 )     13       10,286,307       (1,145,973 )     17       16,353,981       (2,084,451 )
                                                                 
 Total fixed-maturity                                                                
 securities   $ 41,477,673     $ (3,196,937 )     63     $ 10,286,307     $ (1,145,973 )     17     $ 51,763,980     $ (4,342,910 )

 

The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at December 31, 2019 as follows:

 

   December 31, 2019
  Less than 12 months   12 months or more   Total
      Estimated         No. of     Estimated         No. of     Estimated     
   Fair        Unrealized     Positions     Fair        Unrealized     Positions     Fair     Unrealized 
 Category    Value        Losses     Held        Value        Losses     Held     Value        Losses 
   
 Fixed-Maturity Securities:                               
 U.S. Treasury securities                               
 and obligations of U.S.                               
 government corporations                               
 and agencies   $                     -    $                  -              -    $                  -    $                  -              -    $                    -    $                  -
                               
 Political subdivisions of                               
 States, Territories and                               
 Possessions           3,067,428            (11,316)              3                        -                        -              -           3,067,428            (11,316)
                               
 Corporate and other                                               
 bonds industrial and                               
 miscellaneous           3,730,478            (16,685)              7         1,300,915            (13,473)              3           5,031,393            (30,158)
                               
 Residential mortgage and other                               
 asset backed securities           5,862,636            (68,793)              5       13,534,768          (276,451)            21         19,397,404          (345,244)
                               
 Total fixed-maturity                               
 securities    $    12,660,542       $      (96,794)            15       $ 14,835,683    $    (289,924)            24    $   27,496,225    $    (386,718)