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3. Investments
 12 Months Ended
Dec. 31, 2019
Investments [Abstract]  
3. Investments

Available-for-Sale Securities

 

The amortized cost and estimated fair value of investments in available-for-sale fixed-maturity securities as of December 31, 2019 and December 31, 2018 are summarized as follows:

 

    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 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 9). 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.

 

    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)  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 9). 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 December 31, 2019 and 2018 is shown below:

 

    December 30, 2019         December 31, 2018  
    Amortized     Estimated     Amortized     Estimated
 Remaining Time to Maturity   Cost     Fair Value     Cost     Fair Value
                       
 Less than one year   $ 11,986,401     $ 12,025,804     $ 6,742,519     $ 6,738,014
 One to five years     49,715,422       51,000,025       47,038,838       46,640,012
 Five to ten years     69,850,104       74,410,275       76,884,505       74,290,076
 More than 10 years     4,511,795       4,568,847       2,974,426       2,644,180
 Residential mortgage and other asset backed securities     26,138,633       26,231,230       21,790,973       21,465,234
 Total   $ 162,202,355     $ 168,236,181     $ 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 December 31, 2019 and 2018 are as follows:

 

    December 31, 2019  
           Gross      Gross      Estimated  
 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  

 

 

    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, mutual funds,                                
 and exchange traded 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 and losses of the Company’s other investments as of December 31, 2019 and 2018 are as follows:

 

    December 31, 2019     December 31, 2018  
           Gross      Estimated            Gross      Estimated  
 Category    Cost      Gains      Fair Value      Cost      Losses      Fair Value  
                         
 Other Investments:                                    
 Hedge fund   $ 1,999,381     $ 585,532     $ 2,584,913     $ 1,999,381     $ (144,156 )   $ 1,855,225  
 Total   $ 1,999,381     $ 585,532     $ 2,584,913     $ 1,999,381     $ (144,156 )   $ 1,855,225  

 

 

Held-to-Maturity Securities

 

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

 

    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/(Losses)  
       
 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  

 

 

    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)  
       
 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 fund requirements.

 

A summary of the amortized cost and the estimated fair value of the Company’s investments in held-to-maturity securities by contractual maturity as of December 31, 2019 and 2018 is shown below:

 

    December 31, 2019     December 31, 2018  
    Amortized     Estimated     Amortized     Estimated  
 Remaining Time to Maturity   Cost     Fair Value     Cost     Fair Value  
             
 Less than one year   $ 500,000     $ 499,165     $ -     $ -  
 One to five years     2,099,268       2,215,640       2,996,685       3,036,531  
 Five to ten years     620,134       655,923       619,663       635,846  
 More than 10 years     606,550       754,039       606,507       754,039  
 Total   $ 3,825,952     $ 4,124,767     $ 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:

 

     Years ended  
    December 31,  
     2019      2018  
             
 Income:            
 Fixed-maturity securities   $ 5,943,889     $ 5,316,970  
 Equity securities     930,004       820,827  
 Cash and cash equivalents     337,602       219,238  
 Total     7,211,495       6,357,035  
 Expenses:                
 Investment expenses     342,149       170,787  
 Net investment income   $ 6,869,346     $ 6,186,248  

 

Proceeds from the sale and redemption of fixed-maturity securities held-to-maturity were $400,000 and $624,963 for the years ended December 31, 2019 and 2018, respectively.

 

Proceeds from the sale and maturity of fixed-maturity securities available-for-sale were $16,567,284 and $21,381,668 for the years ended December 31, 2019 and 2018, respectively.

 

Proceeds from the sale of equity securities were $5,458,953 and $9,246,840 for the years ended December 31, 2019 and 2018, respectively.

 

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

 

     Years ended  
     December 31,  
     2019      2018  
 Realized Gains (Losses)            
       
 Fixed-maturity securities:            
 Gross realized gains   $ 11,608     $ 117,186  
 Gross realized losses     (134,533 )     (618,699 )
      (122,925 )     (501,513 )
                 
 Equity securities:                
 Gross realized gains     316,924       992,012  
 Gross realized losses     (165,154 )     (584,473 )
      151,770       407,539  
                 
 Net realized gains (losses)     28,845       (93,974 )
                 
 Unrealized Gains (Losses)                

 

 

 

            
 Equity Securities:                
 Gross gains     3,832,486       -  
 Gross losses     -       (2,257,727 )
      3,832,486       (2,257,727 )
                 
 Other Investments:                
 Gross gains     729,688       -  
 Gross losses     -       (144,156 )
      729,688       (144,156 )
                 
 Net unrealized gains (losses)     4,562,174       (2,401,883 )
                 
 Net gains (losses) on investments   $ 4,591,019     $ (2,495,857 )

 

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 based on cash flow projections.  For held-to-maturity fixed-maturity securities, the amount of OTTI recorded in comprehensive income (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 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 December 31, 2019 and December 31, 2018, there were 39 and 156 fixed-maturity securities, respectively, that accounted for the gross unrealized losses. The Company determined that none of the unrealized losses were deemed to be OTTI for its portfolio of investments for the years ended December 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 hold 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 December 31, 2019 and 2018 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 )

 

 

 

    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 )