XML 20 R9.htm IDEA: XBRL DOCUMENT

3. Investments

3 Months Ended

Mar. 31, 2019

Investments [Abstract]

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, 2019 and December 31, 2018 are summarized as follows:

		March 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/(Losses)

Fixed-Maturity Securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	8,229,100			$	70,628			$	-			$	(9,784	)		$	8,289,944			$	60,844

Political subdivisions of States,
Territories and Possessions			5,688,302				117,032				-				(6,230	)			5,799,104				110,802

Corporate and other bonds
Industrial and miscellaneous			124,354,135				1,368,129				(57,955	)			(710,936	)			124,953,373				599,238

Residential mortgage and other
asset backed securities (1)			21,648,213				271,364				(95,026	)			(389,820	)			21,434,731				(213,482	)
Total		$	159,919,750			$	1,827,153			$	(152,981	)		$	(1,116,770	)		$	160,477,152			$	557,402

(1)

In 2017, KICO 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 FHBLNY credit line. As of March 31, 2019, the estimated fair value of the eligible investments was approximately $5,553,000. KICO will retain all rights regarding all securities if pledged as collateral. As of March 31, 2019, there was no outstanding balance on the FHLBNY credit line.

		December 31, 2018
		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/(Losses)

Fixed-Maturity Securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	8,222,050			$	26,331			$	(28,000	)		$	-			$	8,220,381			$	(1,669	)

Political subdivisions of States,
Territories and Possessions			6,339,540				50,903				(12,327	)			(36,508	)			6,341,608				2,068

Corporate and other bonds
Industrial and miscellaneous			119,078,698				123,740				(2,775,540	)			(676,605	)			115,750,293				(3,328,405	)

Residential mortgage and other
asset backed securities (1)			21,790,973				236,502				(231,229	)			(331,012	)			21,465,234				(325,739	)
Total		$	155,431,261			$	437,476			$	(3,047,096	)		$	(1,044,125	)		$	151,777,516			$	(3,653,745	)

(1)

In 2017, KICO 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 FHBLNY credit line. As of December 31, 2018, the estimated fair value of the eligible investments was approximately $5,116,000. KICO will retain all rights regarding all securities if pledged as collateral. As of December 31, 2018, 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, 2019 and December 31, 2018 is shown below:

		March 31, 2019								December 31, 2018
		Amortized				Estimated				Amortized				Estimated
Remaining Time to Maturity		Cost				Fair Value				Cost				Fair Value

Less than one year		$	14,232,940			$	14,242,115			$	6,742,519			$	6,738,014
One to five years			43,224,501				43,505,313				47,038,838				46,640,012
Five to ten years			77,839,224				78,416,804				76,884,505				74,290,076
More than 10 years			2,974,872				2,878,189				2,974,426				2,644,180
Residential mortgage and other asset backed securities			21,648,213				21,434,731				21,790,973				21,465,234
Total		$	159,919,750			$	160,477,152			$	155,431,261			$	151,777,516

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, estimated fair value, and gross gains and losses of investments in equity securities as of March 31, 2019 and December 31, 2018 are as follows:

		March 31, 2019
						Gross				Gross				Estimated
Category		Cost				Gains				Losses				Fair Value

Equity Securities:
Preferred stocks		$	7,882,618			$	109,135			$	(101,961	)		$	7,889,792
Common stocks and exchange
traded mutual funds			11,763,863				679,795				(669,463	)			11,774,195
Total		$	19,646,481			$	788,930			$	(771,424	)		$	19,663,987

		December 31, 2018
						Gross				Gross				Estimated
Category		Cost				Gains				Losses				Fair Value

Equity Securities:
Preferred stocks		$	6,694,754			$	-			$	(541,798	)		$	6,152,956
Common stocks and exchange
traded mutual funds			11,611,232				99,817				(1,291,389	)			10,419,660
Total		$	18,305,986			$	99,817			$	(1,833,187	)		$	16,572,616

Other Investments

The cost, estimated fair value, and gross gains of the Company’s other investments as of March 31, 2019 and December 31, 2018 are as follows:

		March 31, 2019											December 31, 2018
						Gross				Estimated								Gross				Estimated
Category		Cost				Gains				Fair Value				Cost				Gains				Fair Value

Other Investments:
Hedge fund		$	1,999,381			$	148,564			$	2,147,945			$	1,999,381			$	(144,156	)		$	1,855,225
Total		$	1,999,381			$	148,564			$	2,147,945			$	1,999,381			$	(144,156	)		$	1,855,225

Held-to-Maturity Securities

The amortized cost, estimated fair value, and unrealized gains and losses of investments in held-to-maturity fixed-maturity securities as of March 31, 2019 and December 31, 2018 are summarized as follows:

		March 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		$	729,517			$	147,522			$	(1,177	)		$	-			$	875,862			$	146,345

Political subdivisions of States,
Territories and Possessions			998,759				45,676				-				-				1,044,435				45,676

Corporate and other bonds
Industrial and miscellaneous			2,096,344				65,540				-				(5,570	)			2,156,314				59,970

Total		$	3,824,620			$	258,738			$	(1,177	)		$	(5,570	)		$	4,076,611			$	251,991

		December 31, 2018

		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		$	729,507			$	147,532			$	(3,964	)		$	-			$	873,075			$	143,568

Political subdivisions of States,
Territories and Possessions			998,803				33,862				-				-				1,032,665				33,862

Corporate and other bonds
Industrial and miscellaneous			2,494,545				38,461				(1,425	)			(10,905	)			2,520,676				26,131

Total		$	4,222,855			$	219,855			$	(5,389	)		$	(10,905	)		$	4,426,416			$	203,561

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

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, 2019 and December 31, 2018 is shown below:

		March 31, 2019								December 31, 2018
		Amortized				Estimated				Amortized				Estimated
Remaining Time to Maturity		Cost				Fair Value				Cost				Fair Value

Less than one year		$	-			$	-			$	-			$	-
One to five years		$	2,598,323			$	2,676,159				2,996,685				3,036,531
Five to ten years		$	619,780			$	646,413				619,663				635,846
More than 10 years		$	606,517			$	754,039				606,507				754,039
Total		$	3,824,620			$	4,076,611			$	4,222,855			$	4,426,416

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,
		2019				2018

Income:
Fixed-maturity securities		$	1,526,870			$	1,150,293
Equity securities			207,144				200,497
Cash and cash equivalents			40,401				73,259
Total			1,774,415				1,424,049
Expenses:
Investment expenses			150,703				40,060
Net investment income		$	1,623,712			$	1,383,989

Proceeds from the sale and redemption of fixed-maturity securities held-to-maturity were $400,000 and $-0- for the three months ended March 31, 2019 and 2018, respectively.

Proceeds from the sale or maturity of fixed-maturity securities available-for-sale were $1,505,382 and $7,891,145 for the three months ended March 31, 2019 and 2018, respectively.

Proceeds from the sale of equity securities were $246,047 and $3,378,515 for the three months ended March 31, 2019 and 2018, respectively.

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

		Three months ended
		March 31,
		2019				2018
Realized Losses

Fixed-maturity securities:
Gross realized gains		$	6,002			$	117,469
Gross realized losses			(28,433	)			(334,969	)
			(22,431	)			(217,500	)

Equity securities:
Gross realized gains			3,200				210,558
Gross realized losses			(5,961	)			(236,831	)
			(2,761	)			(26,273	)

Net realized losses			(25,192	)			(243,773	)

Unrealized Gains (Losses)

Equity securities:
Gross gains			1,767,835				-
Gross losses			-				(307,214	)
			1,767,835				(307,214	)

Other investments:
Gross gains			292,720				27,860
Gross losses			-				-
			292,720				27,860

Net unrealized gains (losses)			2,060,555				(279,354	)

Net gains (losses) on investments		$	2,035,363			$	(523,127	)

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, 2019 and December 31, 2018, there were 94 and 156 fixed-maturity securities, respectively that accounted for the gross unrealized loss. The Company determined that none of the other unrealized losses were deemed to be OTTI for its portfolio of investments for the three months ended March 31, 2019 and 2018. 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, 2019 as follows:

		March 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		$	-			$	-				-			$	3,972,480				(9,784	)			2			$	3,972,480			$	(9,784	)

Political subdivisions of States, Territories and Possessions			-				-				-				825,878				(6,230	)			2				825,878				(6,230	)

Corporate and other bonds industrial and miscellaneous			9,045,064				(57,955	)			11				40,520,044				(710,936	)			52				49,565,108				(768,891	)

Residential mortgage and other asset backed securities			2,666,892				(95,026	)			4				15,432,106				(389,820	)			23				18,098,998				(484,846	)

Total fixed-maturity securities		$	11,711,956			$	(152,981	)			15			$	60,750,508			$	(1,116,770	)			79			$	72,462,464			$	(1,269,751	)

The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at December 31, 2018 as follows:

		December 31, 2018
		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		$	4,948,530			$	(28,000	)			3			$	-			$	-				-			$	4,948,530			$	(28,000	)

Political subdivisions of States, Territories and Possessions			555,375				(12,327	)			1				1,436,242				(36,508	)			3				1,991,617				(48,835	)

Corporate and other bonds industrial and miscellaneous			81,004,459				(2,775,540	)			97				13,424,888				(676,605	)			24				94,429,347				(3,452,145	)

Residential mortgage and other asset backed securities			7,002,713				(231,229	)			9				11,928,425				(331,012	)			19				18,931,138				(562,241	)

Total fixed-maturity securities		$	93,511,077			$	(3,047,096	)			110			$	26,789,555			$	(1,044,125	)			46			$	120,300,632			$	(4,091,221	)