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3. Investments

9 Months Ended

Sep. 30, 2019

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 September 30, 2019 and December 31, 2018 are summarized as follows:

		September 30, 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		$	8,243,486			$	156,066			$	-			$	-			$	8,399,552			$	156,066

Political subdivisions of States,
Territories and Possessions			5,662,999				187,006				-				-				5,850,005				187,006

Corporate and other bonds
Industrial and miscellaneous			124,956,806				5,365,954				(33,073	)			(20,893	)			130,268,794				5,311,988

Residential mortgage and other
asset backed securities (1)			21,737,713				297,257				(19,924	)			(312,685	)			21,702,361				(35,352	)
Total		$	160,601,004			$	6,006,283			$	(52,997	)		$	(333,578	)		$	166,220,712			$	5,619,708

(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 FHLBNY credit line. As of September 30, 2019, the estimated fair value of the eligible investments was approximately $5,144,000. KICO will retain all rights regarding all securities if pledged as collateral. As of September 30, 2019, there was no outstanding balance on the FHLBNY credit line.

		December 31, 2018
																						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		$	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 FHLBNY 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 September 30, 2019 and December 31, 2018 is shown below:

		September 30, 2019								December 31, 2018
		Amortized				Estimated				Amortized				Estimated
Remaining Time to Maturity		Cost				Fair Value				Cost				Fair Value

Less than one year		$	12,273,128			$	12,322,490			$	6,742,519			$	6,738,014
One to five years			50,106,836				51,297,620				47,038,838				46,640,012
Five to ten years			74,473,145				78,850,661				76,884,505				74,290,076
More than 10 years			2,010,182				2,047,580				2,974,426				2,644,180
Residential mortgage and other asset backed securities			21,737,713				21,702,361				21,790,973				21,465,234
Total		$	160,601,004			$	166,220,712			$	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 September 30, 2019 and December 31, 2018 are as follows:

		September 30, 2019
						Gross				Gross				Estimated
Category		Cost				Gains				Losses				Fair Value

Equity Securities:
Preferred stocks		$	8,415,227			$	394,815			$	(16,042	)		$	8,794,000
Common stocks and exchange
traded mutual funds			13,655,339				1,537,211				(487,351	)			14,705,199
Total		$	22,070,566			$	1,932,026			$	(503,393	)		$	23,499,199

		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 unrealized gains and losses of the Company’s other investments as of September 30, 2019 and December 31, 2018 are as follows:

		September 30, 2019												December 31, 2018
						Gross				Estimated								Gross				Estimated
Category		Cost				Gains				Fair Value				Cost				Losses				Fair Value

Other Investments:
Hedge fund		$	1,999,381			$	426,523			$	2,425,904			$	1,999,381			$	(144,156	)		$	1,855,225
Total		$	1,999,381			$	426,523			$	2,425,904			$	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 September 30, 2019 and December 31, 2018 are summarized as follows:

		September 30, 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		$	729,539			$	153,088			$	-			$	-			$	882,627			$	153,088

Political subdivisions of States,
Territories and Possessions			998,668				50,357				-				-				1,049,025				50,357

Corporate and other bonds
Industrial and miscellaneous			2,097,298				98,434				-				-				2,195,732				98,434

Total		$	3,825,505			$	301,879			$	-			$	-			$	4,127,384			$	301,879

		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 September 30, 2019 and December 31, 2018 is shown below:

	September 30, 2019				December 31, 2018
	Amortized		Estimated		Amortized		Estimated
Remaining Time to Maturity	Cost		Fair Value		Cost		Fair Value

Less than one year	$ 623,000		$ 629,143		$ -		$ -
One to five years	$2,098,950		$2,214,947		2,996,685		3,036,531
Five to ten years	$497,016		$529,255		619,663		635,846
More than 10 years	$606,539		$754,039		606,507		754,039
Total	$ 3,825,505		$ 4,127,384		$ 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								Nine months ended
		September 30,								September 30,
		2019				2018				2019				2018

Income:
Fixed-maturity securities		$	1,499,135			$	1,386,931			$	4,500,346			$	3,898,730
Equity securities			253,594				214,498				666,247				609,086
Cash and cash equivalents			75,253				44,024				288,334				159,865
Total			1,827,982				1,645,453				5,454,927				4,667,681
Expenses:
Investment expenses			(28,571	)			43,082				254,893				124,455
Net investment income		$	1,856,553			$	1,602,371			$	5,200,034			$	4,543,226

Proceeds from the sale and redemption of fixed-maturity securities held-to-maturity were $400,000 and $624,963 for the nine months ended September 30, 2019 and 2018, respectively.

Proceeds from the sale or maturity of fixed-maturity securities available-for-sale were $9,835,464 and $17,740,260 for the nine months ended September 30, 2019 and 2018, respectively.

Proceeds from the sale of equity securities were $2,941,492 and $5,694,121 for the nine months ended September 30, 2019 and 2018, respectively.

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

		Three months ended								Nine months ended
		September 30,								September 30,
		2019				2018				2019				2018
Realized Gains (Losses)

Fixed-maturity securities:
Gross realized gains		$	10			$	4,749			$	10,954			$	116,961
Gross realized losses			(46,851	)			(77,191	)			(92,591	)			(560,418	)
			(46,841	)			(72,442	)			(81,637	)			(443,457	)

Equity securities:
Gross realized gains			38,477				121,609				83,737				436,859
Gross realized losses			-				(106,321	)			(56,859	)			(370,705	)
			38,477				15,288				26,878				66,154

Net realized losses			(8,364	)			(57,154	)			(54,759	)			(377,303	)

Unrealized Gains (Losses)

Equity securities:
Gross gains			916,496				-				3,196,260				-
Gross losses			-				288,435				-				(141,976	)
			916,496				288,435				3,196,260				(141,976	)

Other investments:
Gross gains			90,030				120,744				570,679				241,444
Gross losses			-				-				-				-
			90,030				120,744				570,679				241,444

Net unrealized gains			1,006,526				409,179				3,766,939				99,468

Net gains (losses) on investments		$	998,162			$	352,025			$	3,712,180			$	(277,835	)

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 income (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 income (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 September 30, 2019 and December 31, 2018, there were 38 and 156 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 nine months ended September 30, 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 September 30, 2019 as follows:

		September 30, 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:

and obligations of U.S.
government corporations
and agencies		$	-			$	-				-			$	-			$	-				-			$	-			$	-

Political subdivisions of
States, Territories and
Possessions			-				-				-				-				-				-				-				-

Corporate and other
bonds industrial and
miscellaneous			3,258,185				(33,073	)			6				3,170,889				(20,893	)			6				6,429,074				(53,966	)

Residential mortgage and other
asset backed securities			3,008,874				(19,924	)			3				15,596,316				(312,685	)			23				18,605,190				(332,609	)

Total fixed-maturity
securities		$	6,267,059			$	(52,997	)			9			$	18,767,205			$	(333,578	)			29			$	25,034,264			$	(386,575	)

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	)