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Investments

3 Months Ended

Mar. 31, 2021

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 March 31, 2021 and December 31, 2020 are summarized as follows:

		March 31, 2021
		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		$	2,014,895			$	19,785			$	-			$	-			$	2,034,680			$	19,785
Political subdivisions of States, Territories and Possessions			8,606,088				173,655				(86,507	)			-				8,693,236				87,148
Corporate and other bonds Industrial and miscellaneous			104,774,373				7,791,664				(78,069	)			-				112,487,968				7,713,595
Residential mortgage and other asset backed securities (1)			23,904,337				566,540				(8,225	)			(92,731	)			24,369,921				465,584
Total		$	139,299,693			$	8,551,644			$	(172,801	)		$	(92,731	)		$	147,585,805			$	8,286,112

(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 March 31, 2021, the estimated fair value of the eligible investments was approximately $10,962,000. KICO will retain all rights regarding all securities if pledged as collateral. As of March 31, 2021, there was no outstanding balance on the FHLBNY credit line.

		December 31, 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		$	3,020,710			$	29,190			$	-			$	-			$	3,049,900			$	29,190
Political subdivisions of States, Territories and Possessions			5,287,561				355,541				-				-				5,643,102				355,541
Corporate and other bonds Industrial and miscellaneous			108,573,422				11,634,123				(13,216	)			-				120,194,329				11,620,907
Residential mortgage and other asset backed securities (1)			28,163,891				617,368				(7,371	)			(111,947	)			28,661,941				498,050
Total		$	145,045,584			$	12,636,222			$	(20,587	)		$	(111,947	)		$	157,549,272			$	12,503,688

(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 7). The eligible collateral would be pledged to FHLBNY if KICO draws an advance from the FHLBNY credit line. As of December 31, 2020, the estimated fair value of the eligible investments was approximately $11,391,000. KICO will retain all rights regarding all securities if pledged as collateral. As of December 31, 2020, 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, 2021 and December 31, 2020 is shown below:

		March 31, 2021								December 31, 2020
		Amortized				Estimated				Amortized				Estimated
Remaining Time to Maturity		Cost				Fair Value				Cost				Fair Value
Less than one year		$	9,079,054			$	9,181,876			$	8,559,005			$	8,668,064
One to five years			43,059,233				46,164,289				44,137,567				47,745,430
Five to ten years			51,273,291				55,781,784				55,508,712				63,159,775
More than 10 years			11,983,778				12,087,935				8,676,409				9,314,062
Residential mortgage and other asset backed securities			23,904,337				24,369,921				28,163,891				28,661,941
Total		$	139,299,693			$	147,585,805			$	145,045,584			$	157,549,272

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 March 31, 2021 and December 31, 2020 are as follows:

						March 31, 2021
						Gross				Gross				Estimated
Category		Cost				Gains				Losses				Fair Value
Equity Securities:
Preferred stocks		$	19,827,370			$	1,207,776			$	(221,142	)		$	20,814,004
Common stocks, mutual funds, and exchange traded funds			12,823,973				1,810,617				(17,791	)			14,616,799
Total		$	32,651,343			$	3,018,393			$	(238,933	)		$	35,430,803

		December 31, 2020
						Gross				Gross				Estimated
Category		Cost				Gains				Losses				Fair Value
Equity Securities:
Preferred stocks		$	18,097,942			$	853,277			$	(426,942	)		$	18,524,277
Common stocks, mutual funds, and exchange traded funds			14,473,224				1,820,512				(404,700	)			15,889,036
Total		$	32,571,166			$	2,673,789			$	(831,642	)		$	34,413,313

Other Investments

The cost and estimated fair value of, and gross gains on, the Company’s other investments as of March 31, 2021 and December 31, 2020 are as follows:

		March 31, 2021												December 31, 2020
						Gross				Estimated								Gross				Estimated
Category		Cost				Gains				Fair Value				Cost				Gains				Fair Value
Other Investments:
Hedge fund		$	3,999,381			$	2,199,209			$	6,198,590			$	1,999,381			$	1,369,245			$	3,368,626
Real estate limited partnership			150,000				-				150,000				150,000				-				150,000
Total		$	4,149,381			$	2,199,209			$	6,348,590			$	2,149,381			$	1,369,245			$	3,518,626

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 March 31, 2021 and December 31, 2020 are summarized as follows:

		March 31, 2021
		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		$	729,606			$	210,129			$	-			$	-			$	939,735			$	210,129
Political subdivisions of States, Territories and Possessions			998,382				42,508				-				-				1,040,890				42,508
Exchange traded debt			1,812,762				28,106				(5,897	)			-				1,834,971				22,209
Corporate and other bonds Industrial and miscellaneous			5,640,036				242,695				(134,272	)			-				5,748,459				108,423
Total		$	9,180,786			$	523,438			$	(140,169	)		$	-			$	9,564,055			$	383,269

		December 31, 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		$	729,595			$	319,714			$	-			$	-			$	1,049,309			$	319,714
Political subdivisions of States, Territories and Possessions			998,428				50,917				-				-				1,049,345				50,917
Corporate and other bonds Industrial and miscellaneous			5,640,792				455,378				-				-				6,096,170				455,378
Total		$	7,368,815			$	826,009			$	-			$	-			$	8,194,824			$	826,009

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, 2021 and December 31, 2020 is shown below:

		March 31, 2021								December 31, 2020
		Amortized				Estimated				Amortized				Estimated
Remaining Time to Maturity		Cost				Fair Value				Cost				Fair Value
Less than one year		$	500,639			$	512,985			$	-			$	-
One to five years			2,098,011				2,244,083				2,598,193				2,777,936
Five to ten years			1,505,366				1,639,444				1,502,603				1,727,316
More than 10 years			5,076,770				5,167,543				3,268,019				3,689,572
Total		$	9,180,786			$	9,564,055			$	7,368,815			$	8,194,824

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,
		2021				2020
Income:
Fixed-maturity securities		$	1,491,127			$	1,447,938
Equity securities			357,311				253,073
Cash and cash equivalents			924				44,223
Total			1,849,362				1,745,234
Expenses:
Investment expenses			66,166				79,390
Net investment income		$	1,783,196			$	1,665,844

Proceeds from the sale and redemption of fixed-maturity securities held-to-maturity were $-0- for the three months ended March 31, 2021 and 2020.

Proceeds from the sale or maturity of fixed-maturity securities available-for-sale were $11,548,405 and $10,553,818 for the three months ended March 31, 2021 and 2020, respectively.

Proceeds from the sale of equity securities were $6,433,262 and $5,518,428 for the three months ended March 31, 2021 and 2020, respectively.

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

		Three months ended
		March 31,
		2021				2020
Realized Gains (Losses)
Fixed-maturity securities:
Gross realized gains		$	410,311			$	204,225
Gross realized losses			(15,986	)			(32,342	)
			394,325				171,883
Equity securities:
Gross realized gains			933,122				316,513
Gross realized losses			(200,213	)			(213,815	)
			732,909				102,698
Net realized gains			1,127,234				274,581
Unrealized Gains (Losses)
Equity securities:
Gross gains			1,003,209				-
Gross losses			-				(6,121,608	)
			1,003,209				(6,121,608	)
Other investments:
Gross gains			829,964				-
Gross losses			-				(597,391	)
			829,964				(597,391	)
Net unrealized gains (losses)			1,833,173				(6,718,999	)
Net gains (losses) on investments		$	2,960,407			$	(6,444,418	)

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 based on cash flow projections. For held-to-maturity fixed-maturity 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 based on timing of future estimated cash flows of the security.

OTTI losses are recorded in the 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, 2021 and December 31, 2020, there were 20 and 16 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 three months ended March 31, 2021 and 2020. 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 March 31, 2021 as follows:

		March 31, 2021
		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			4,236,366				(86,507	)			3				-				-				-				4,236,366				(86,507	)
Corporate and other bonds industrial and
miscellaneous			4,991,204				(78,069	)			3				-				-				-				4,991,204				(78,069	)
Residential mortgage and other
asset backed securities			3,512,982				(8,225	)			4				3,477,111				(92,731	)			10				6,990,093				(100,956	)
Total fixed-maturity
securities		$	12,740,552			$	(172,801	)			10			$	3,477,111			$	(92,731	)			10			$	16,217,663			$	(265,532	)

The Company held available-for-sale securities with unrealized losses representing declines that were considered temporary at December 31, 2020 as follows:

		December 31, 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			1,006,901				(13,216	)			1				-				-				-				1,006,901				(13,216	)
Residential mortgage and other
asset backed securities			6,137,522				(7,371	)			5				3,735,732				(111,947	)			10				9,873,254				(119,318	)
Total fixed-maturity securities		$	7,144,423			$	(20,587	)			6			$	3,735,732			$	(111,947	)			10			$	10,880,155			$	(132,534	)

X

- Definition

Tabular disclosure of investment income, including, but not limited to, interest and dividend income and amortization of discount (premium) derived from debt and equity securities. Excludes realized and unrealized gain (loss) on investments.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section S99
-Paragraph 2
-Subparagraph (SX 210.5-03.9)
-URI http://asc.fasb.org/extlink&oid=116634182&loc=SL114868664-224227

Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 944
-SubTopic 220
-Section S99
-Paragraph 1
-Subparagraph (SX 210.7-04.2)
-URI http://asc.fasb.org/extlink&oid=116637232&loc=SL114874131-224263

Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section S99
-Paragraph 2
-Subparagraph (SX 210.5-03.7(a),(b))
-URI http://asc.fasb.org/extlink&oid=116634182&loc=SL114868664-224227

Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 220
-SubTopic 10
-Section S99
-Paragraph 2
-Subparagraph (SX 210.5-03.8)
-URI http://asc.fasb.org/extlink&oid=116634182&loc=SL114868664-224227

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- References

No definition available.

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