Investments

6 Months Ended

Jun. 30, 2021

Investments [Abstract]

Investments

Note 3 – Investments

Available for Sale Securities – Fixed Maturity Securities

The Company’s insurance subsidiary is regulated by insurance statutes and regulations as to the type of investments they are permitted to make, and the amount of funds that may be used for any one type of investment.

Investments in available for sale securities are summarized as follows:

June 30, 2021	Original or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Investments available for sale:
Fixed maturities
U.S. Government and govt. agencies and authorities	$	23,274,044	$	683,042	$	0	$	23,957,086
U.S. special revenue and assessments		11,546,895		1,013,220		0		12,560,115
All other corporate bonds		96,264,646		13,468,218		0		109,732,864
	$	131,085,585	$	15,164,480	$	0	$	146,250,065

December 31, 2020	Original or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Investments available for sale:
Fixed maturities
U.S. Government and govt. agencies and authorities	$	36,285,535	$	1,186,999	$	0		$	37,472,534
U.S. special revenue and assessments		11,556,980		1,382,164		0			12,939,144
All other corporate bonds		98,175,349		17,604,617		(411,647	)		115,368,319
	$	146,017,864	$	20,173,780	$	(411,647	)	$	165,779,997

The amortized cost and estimated market value of debt securities at June 30, 2021, by contractual maturity, is shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Fixed Maturities Available for Sale June 30, 2021	Amortized Cost		Fair Value
Due in one year or less	$	13,537,448	$	13,702,990
Due after one year through five years		42,747,908		45,774,071
Due after five years through ten years		25,688,722		29,045,145
Due after ten years		22,246,160		25,789,400
Fixed maturities with no single maturity date		26,865,347		31,938,459
Total	$	131,085,585	$	146,250,065

The fair value of investments with sustained gross unrealized losses are as follows:

June 30, 2021	Less than 12 months					12 months or longer				Total
	Fair value			Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
All other corporate bonds		$	0		0		0		0		0		$	0
Total fixed maturities		$	0		0		0		0		0		$	0

December 31, 2020	Less than 12 months						12 months or longer					Total
	Fair value			Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
All other corporate bonds		$	4,937		(63	)		0		(411,584	)		4,937		$	(411,647	)
Total fixed maturities		$	4,937		(63	)		0		(411,584	)		4,937		$	(411,647	)

Additional information regarding investments in an unrealized loss position is as follows:

	Less than 12 months		12 months or longer		Total
As of June 30, 2021
Fixed maturities		0		0		0
As of December 31, 2020
Fixed maturities		1		1		2

Substantially all of the unrealized losses on fixed maturities at December 31, 2020 are attributable to changes in market interest rates and general disruptions in the credit market subsequent to purchase.  The Company does not currently intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position.  Based upon the Company’s expected continuation of receipt of contractually required principal and interest payments and its intent and ability to retain the securities until price recovery, as well as the Company’s evaluation of other relevant factors, the Company deems these securities to be temporarily impaired as of  December 31, 2020.

Net Investment Gains (Losses)

The following table presents net investment gains (losses) and the change in net unrealized gains (losses) on investments. 

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
Realized gains:
Sales of fixed maturities	$	34,236		$	11,732		$	34,236		$	403,215
Sales of equity securities		3,006,835			646,351			3,019,207			988,558
Sales of real estate		1,247,193			0			1,383,252			0
Other		0			0			0			0
Total realized gains		4,288,264			658,083			4,436,695			1,391,773
Realized losses:
Sales of fixed maturities		0			(64,992	)		0			(64,992	)
Sales of equity securities		(803	)		(2,571,937	)		(4,188	)		(3,422,627	)
Sales of real estate		0			0			0			0
Other-than-temporary impairments		(411,584	)		0			(411,584	)		0
Other		0			0			0			0
Total realized losses		(412,387	)		(2,636,929	)		(415,772	)		(3,487,619	)
Net realized investment gains (losses)		3,875,877			(1,978,846	)		4,020,923			(2,095,846	)
Change in fair value of equity securities:
Change in fair value of equity securities held at the end of the period		195,136			16,704,460			20,375,015			(688,477	)
Change in fair value of equity securities		195,136			16,704,460			20,375,015			(688,477	)
Net investment gains (losses)	$	4,071,013		$	14,725,614		$	24,395,938		$	(2,784,323	)
Change in net unrealized gains (losses) on available-for-sale investments included in other comprehensive income:
Fixed maturities	$	2,505,067		$	6,595,986		$	(4,975,001	)	$	8,068,851
Net increase (decrease)	$	2,505,067		$	6,595,986		$	(4,975,001	)	$	8,068,851

Other-Than-Temporary Impairments

The Company regularly reviews its investment securities for factors that may indicate that a decline in fair value of an investment is other than temporary.  The factors considered by Management in its regular review to identify and recognize other-than-temporary impairment losses on fixed maturities include, but are not limited to: the length of time and extent to which the fair value has been less than cost; the Company’s intent to sell, or be required to sell, the debt security before the anticipated recovery of its remaining amortized cost basis; the financial condition and near-term prospects of the issuer; adverse changes in ratings announced by one or more rating agencies; subordinated credit support, whether the issuer of a debt security has remained current on principal and interest payments; current expected cash flows; whether the decline in fair value appears to be issuer specific or, alternatively, a reflection of general market or industry conditions, including the effect of changes in market interest rates.  If the Company intends to sell a debt security, or it is more likely than not that it would be required to sell a debt security before the recovery of its amortized cost basis, the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date would be recognized by a charge to other-than-temporary losses in the Condensed Consolidated Statements of Operations.

Management regularly reviews its real estate portfolio in comparison to appraisal valuations and current market conditions for indications of other-than-temporary impairments. If a decline in value is judged by Management to be other-than-temporary, a loss is recognized by a charge to other-than-temporary impairment losses in the Condensed Consolidated Statements of Operations.

The Company recognized an other-than-temporary impairment of $(411,584) on one fixed maturity security during the second quarter of 2021.  The other-than-temporary impairment was recognized due to the length of time the investment remained in an unrealized loss position. The Company did not recognize any other-than-temporary impairments during the six month period ended June 30, 2020.

Cost Method Investments

The Company held equity investments with an aggregate cost of $14,543,343 and $14,389,189 at June 30, 2021 and December 31, 2020, respectively.  These equity investments were not reported at fair value because it is not practicable to estimate their fair values due to insufficient information being available. Management did not identify any events or changes in circumstances that might have a significant adverse effect on the reported value of those investments.  Based on Management’s evaluation of the expected cash flow of the investments, and the Company’s ability and intent to hold the investments for a reasonable period of time, the Company does not deem an other-than-temporary impairment necessary at June 30, 2021.

Trading Securities

Securities designated as trading securities are reported at fair value, with gains or losses resulting from changes in fair value recognized in net investment income on the Condensed Consolidated Statements of Operations.  Trading securities include exchange-traded equities and exchange-traded options.  Trading securities carried as liabilities are securities sold short. A gain, limited to the price at which the security was sold short, or a loss, potentially unlimited in size, will be recognized upon the termination of the short sale.  The fair value of derivatives included in trading security assets and trading security liabilities as of June 30, 2021 was $0 and $675, respectively. The fair value of derivatives included in trading security assets and trading security liabilities as of  December 31, 2020 was $0 and $12,219, respectively.  Earnings from trading securities are classified in cash flows from operating activities. The derivatives held by the Company are for income generation purposes only.

Trading revenue charged to net investment income from trading securities was:

	Three Months Ended
	June 30,
	2021		2020
Net unrealized gains (losses)	$	950	$	0
Net realized gains (losses)		18,304		0
Net unrealized and realized gains (losses)	$	19,254	$	0

	Six Months Ended
	June 30,
	2021			2020
Net unrealized gains (losses)	$	(1,784	)	$	0
Net realized gains (losses)		7,350			0
Net unrealized and realized gains (losses)	$	5,566		$	0

Mortgage Loans

The Company, from time to time, acquires mortgage loans through participation agreements with FSNB.  FSNB has been able to provide the Company with additional expertise and experience in underwriting commercial and residential mortgage loans, which provide more attractive yields than the traditional bond market.  The Company is able to receive participations from FSNB for three primary reasons:  1) FSNB has already reached its maximum lending limit to a single borrower, but the borrower is still considered a suitable risk; 2) the interest rate on a particular loan may be fixed for a long period that is more suitable for UG given its asset-liability structure; and 3) FSNB’s loan growth might at times outpace its deposit growth, resulting in FSNB participating such excess loan growth rather than turning customers away.  For originated loans, the Company’s Management is responsible for the final approval of such loans after evaluation.  Before a new loan is issued, the applicant is subject to certain criteria set forth by Company Management to ensure quality control.  These criteria include, but are not limited to, a credit report, personal financial information such as outstanding debt, sources of income, and personal equity.  Once the loan is approved, the Company directly funds the loan to the borrower.  The Company bears all risk of loss associated with the terms of the mortgage with the borrower.

During the six months ended June 30, 2021 and 2020, the Company acquired $747,941 and $5,098,138 in mortgage loans, respectively.  FSNB services the majority of the Company’s mortgage loan portfolio.  The Company pays FSNB a 0.25% servicing fee on these loans and a one-time fee at loan origination of 0.50% of the original loan cost to cover costs incurred by FSNB relating to the processing and establishment of the loan.

During 2021 and 2020, the maximum and minimum lending rates for mortgage loans were:

	2021						2020
	Maximum rate			Minimum rate			Maximum rate			Minimum rate
Farm Loans		5.00	%		4.50	%		4.50	%		4.50	%
Commercial Loans		5.25	%		4.10	%		5.25	%		4.24	%
Residential Loans		4.95	%		4.95	%		4.95	%		4.95	%

Most mortgage loans are first position loans.  Loans issued are generally limited to no more than 80% of the appraised value of the property.

The Company has in place a monitoring system to provide Management with information regarding potential troubled loans.  Letters are sent to each mortgagee when the loan becomes 30 days or more delinquent.  Management is provided with a monthly listing of loans that are 60 days or more past due along with a brief description of what steps are being taken to resolve the delinquency.  All loans 90 days or more past due are placed on a non-performing status and classified as delinquent loans.  Quarterly, coinciding with external financial reporting, the Company reviews each delinquent loan and determines how each delinquent loan should be classified.  Management believes the current internal controls surrounding the mortgage loan selection process provide a quality portfolio with minimal risk of foreclosure and/or negative financial impact.

Changes in the current economy could have a negative impact on the loans, including the financial stability of the borrowers, the borrowers’ ability to pay or to refinance, the value of the property held as collateral and the ability to find purchasers at favorable prices.  Interest accruals are analyzed based on the likelihood of repayment.  In no event will interest continue to accrue when accrued interest along with the outstanding principal exceeds the net realizable value of the property.  The Company does not utilize a specified number of days delinquent to cause an automatic non-accrual status.

A mortgage loan reserve is established and adjusted based on Management’s quarterly analysis of the portfolio and any deterioration in value of the underlying property which would reduce the net realizable value of the property below its current carrying value.  The mortgage loan reserve was $0 at June 30, 2021 and December 31, 2020.

The following table summarizes the mortgage loan holdings of the Company for the periods ended:

	June 30, 2021		December 31, 2020
In good standing	$	11,905,187	$	18,704,351
Overdue interest over 90 days		2,080,773		2,098,014
Total mortgage loans	$	13,985,960	$	20,802,365

Investment Real Estate

Real estate held-for-investment is stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis for financial reporting purposes using estimated useful lives of 3 to 30 years. The Company periodically reviews its real estate held-for-investment for impairment and tests for recoverability whenever events or changes in circumstances indicate the carrying value may not be recoverable. During the six months ended June 30, 2021, no impairments were recognized on the investment real estate.

Note 4 - Fair Value Measurements of the Condensed Consolidated Financial Statements provides further information regarding the fair value of financial instruments that are not measured at fair value. The investment real estate owned by the Company is included in this portion of the Note 4 - Fair Value Measurements disclosure.

The following table provides an allocation of the Company’s investment real estate by type:

	June 30, 2021		December 31, 2020
Raw land	$	11,050,401	$	11,727,103
Commercial		2,710,224		3,530,064
Residential		3,279,519		2,797,648
Land, minerals and royalty interests		18,258,702		20,031,576
Total investment real estate	$	35,298,846	$	38,086,391

The Company’s investment real estate portfolio includes ownership in oil and gas royalties. As of June 30, 2021 and December 31, 2020, investments in oil and gas royalties represented 52% and 48%, respectively, of the total investment real estate portfolio.  See Note 9 – Concentrations of Credit Risk of the Condensed Consolidated Financial Statements for additional information regarding the allocation of the oil and gas investment real estate holdings by industry type.

Gains and losses recognized on the disposition of the properties are recorded as realized gains and losses in the Condensed Consolidated Statements of Operations. During the six months ended  June 30, 2021 and 2020, the Company acquired $1,402,593 and $0 of investment real estate, respectively.

Notes Receivable

Notes receivable represent collateral loans and promissory notes issued by the Company and are reported at their unpaid principal balances, adjusted for valuation allowances. Valuation allowances are established for impaired loans when it is probable that contractual principal and interest will not be collected. The valuation allowance as of  June 30, 2021 and December 31, 2020 was $0. Interest accruals are analyzed based on the likelihood of repayment.  The Company does not utilize a specified number of days delinquent to cause an automatic non-accrual status. During the six months ended June 30, 2021 and 2020 the Company acquired  $6,000,000 and $3,500,000 of notes receivable, respectively.

Before a new note is issued, the applicant is subject to certain criteria set forth by Company Management to ensure quality control.  Once the note is approved, the Company directly funds the note to the borrower. Several of the notes have participation agreements in place, whereas the Company has reduced its investment in the note receivable by participating a portion of the note to a third party.

Similar to the mortgage loans, FSNB services several of the notes receivable. The Company, and the participants in the notes, share in the risk of loss associated with the terms of the note with the borrower, based upon their ownership percentage in the note.  The Company has in place a monitoring system to provide Management with information regarding potential troubled loans. 

Short-Term Investments

Short-term investments have remaining maturities exceeding three months and under 12 months at the time of purchase and are stated at amortized cost, which approximates fair value. The short-term investments consist of United States Treasury securities.

During the six months ended June 30, 2021 and 2020, the Company acquired $0 and $7,890,228, respectively, in short-term investments.