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Investments

9 Months Ended

Sep. 30, 2020

Investments

3. Investments

Note 3 - Investments

Fixed-Maturity Securities

The amortized cost, estimated fair value, and unrealized gains and losses on investments in fixed-maturity securities classified as available-for-sale as of September 30, 2020 and December 31, 2019 are summarized as follows:

		September 30, 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

Fixed-Maturity Securities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies		$	3,026,477			$	42,853			$	-			$	-			$	3,069,330			$	42,853

Political subdivisions of States,
Territories and Possessions			5,593,778				322,297				-				-				5,916,075				322,297

Corporate and other bonds
Industrial and miscellaneous			112,504,206				10,698,206				(1,654	)			-				123,200,758				10,696,552

Residential mortgage and other
asset backed securities (1)			24,002,398				535,772				(38,491	)			(147,253	)			24,352,426				350,028
Total		$	145,126,859			$	11,599,128			$	(40,145	)		$	(147,253	)		$	156,538,589			$	11,411,730

(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 September 30, 2020, the estimated fair value of the eligible investments was approximately $6,685,000. KICO will retain all rights regarding all securities if pledged as collateral. As of September 30, 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

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 September 30, 2020 and December 31, 2019 is shown below:

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 September 30, 2020 and December 31, 2019 are as follows:

		September 30, 2020
						Gross				Gross
						Unrealized				Unrealized				Estimated
Category		Cost				Gains				Losses				Fair Value

Equity Securities:
Preferred stocks		$	14,260,019			$	325,070			$	(339,125	)		$	14,245,964
Common stocks, mutual funds, and exchange traded funds			16,040,820				777,813				(1,441,330	)			15,377,303
Total		$	30,300,839			$	1,102,883			$	(1,780,455	)		$	29,623,267

		December 31, 2019
						Gross				Gross
						Unrealized				Unrealized				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

Other Investments

The cost and estimated fair value of, and gross unrealized gains on, the Company’s other investments as of September 30, 2020 and December 31, 2019 are as follows:

		September 30, 2020												December 31, 2019
						Gross												Gross
						Unrealized				Estimated								Unrealized				Estimated
Category		Cost				Gains				Fair Value				Cost				Gains				Fair Value

Other Investments:
Hedge fund		$	1,999,381			$	829,697			$	2,829,078			$	1,999,381			$	585,532			$	2,584,913
Total		$	1,999,381			$	829,697			$	2,829,078			$	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 September 30, 2020 and December 31, 2019 are summarized as follows:

		September 30, 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		$	729,583			$	162,442			$	-			$	-			$	892,025			$	162,442

Political subdivisions of States,
Territories and Possessions			998,480				56,700				-				-				1,055,180				56,700

Corporate and other bonds
Industrial and miscellaneous			5,641,545				334,412				(23,858	)			-				5,952,099				310,554

Total		$	7,369,608			$	553,554			$	(23,858	)		$	-			$	7,899,304			$	529,696

		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

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, 2020 and December 31, 2019 is shown below:

		September 30, 2020								December 31, 2019
		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			2,597,739				2,793,089				2,099,268				2,215,640
Five to ten years			1,499,837				1,710,586				620,134				655,923
More than 10 years			3,272,032				3,395,629				606,550				754,039
Total		$	7,369,608			$	7,899,304			$	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								Nine months ended
		September 30,								September 30,
		2020				2019				2020				2019

Income:
Fixed-maturity securities		$	1,264,633			$	1,499,135			$	4,106,404			$	4,500,346
Equity securities			290,834				253,594				787,702				666,247
Cash and cash equivalents			1,834				75,253				89,993				288,334
Total			1,557,301				1,827,982				4,984,099				5,454,927
Expenses:
Investment expenses			63,215				(28,571	)			212,163				254,893
Net investment income		$	1,494,086			$	1,856,553			$	4,771,936			$	5,200,034

Proceeds from the sale and redemption of fixed-maturity securities held-to-maturity were $500,000and $400,000 for the nine months ended September 30, 2020 and 2019, respectively.

Proceeds from the sale or maturity of fixed-maturity securities available-for-sale were $29,666,158 and $9,835,464 for the nine months ended September 30, 2020 and 2019, respectively.

Proceeds from the sale of equity securities were $8,103,697 and $2,941,492 for the nine months ended September 30, 2020 and 2019, respectively.

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

		Three months ended								Nine months ended
		September 30,								September 30,
		2020				2019				2020				2019
Realized Gains (Losses)		-

Fixed-maturity securities:
Gross realized gains		$	714,162			$	10			$	967,573			$	10,954
Gross realized losses			(107,193	)			(46,851	)			(304,118	)			(92,591	)
			606,969				(46,841	)			560,696				(81,637	)

Equity securities:
Gross realized gains			199,439				38,477				644,111				83,737
Gross realized losses			(209,069	)			-				(449,916	)			(56,859	)
			(9,630	)			38,477				194,195				26,878

Net realized (losses) gains			597,339				(8,364	)			857,650				(54,759	)

Unrealized Gains (Losses)

Equity securities:
Gross gains			1,223,779				916,496				-				3,196,260
Gross losses			-				-				(2,740,489	)			-
			1,223,779				916,496				(2,740,489	)			3,196,260

Other investments:
Gross gains			286,758				90,030				244,165				570,679
Gross losses			-				-				-				-
			286,758				90,030				244,165				570,679

Net unrealized gains (losses)			1,510,537				1,006,526				(2,496,324	)			3,766,939

Net gains (losses) on investments		$	2,107,876			$	998,162			$	(1,638,674	)		$	3,712,180

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. 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, 2020 and December 31, 2019, there were 19 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 nine months ended September 30, 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 September 30, 2020 as follows:

		September 30, 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			522,450				(1,654	)			1				-				-				-				522,450				(1,654	)

Residential mortgage and other
asset backed securities			4,003,377				(38,491	)			6				5,020,026				(147,253	)			12				9,023,403				(185,744	)

Total fixed-maturity
securities		$	4,525,827			$	(40,145	)			7			$	5,020,026			$	(147,253	)			12			$	9,545,853			$	(187,398	)

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	)