Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2012

Notes to Financial Statements

Fair Value of Financial Insstruments

NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS

In determining the fair value of its financial instruments, the Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Financial assets and financial liabilities recorded on the consolidated balance sheets at fair value are categorized based on the reliability of inputs to the valuation techniques as follows:

Level 1 – Financial assets and financial liabilities whose values are based on unadjusted quoted prices in active markets for identical assets.

Level 2 – Financial assets and financial liabilities whose values are based on quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in non-active markets; or valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.

Level 3 – Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the financial assets and financial liabilities.

The hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The carrying values and estimated fair values of the Company’s consolidated financial instruments as of March 31, 2012, and December 31, 2011, were as follows:

				March 31, 2012				December 31, 2011
Assets		Fair Value Level		Carrying Value		Fair Value		Carrying Value		Fair Value
	Investments		1,2	$	89,400,088	$	89,400,088	$	91,356,624	$	91,356,624
	Cash and short term investments		1	$	39,170,296	$	39,170,296	$	38,606,556	$	38,606,556
	Notes receivable		3	$	3,599,233	$	3,599,233	$	3,439,153	$	3,439,153

The estimated carrying values of the Company’s financial instruments as of March 31, 2012, and December 31, 2011, allocated among the three levels mentioned above are as follows:

		Level 1		Level 2		Level 3		Total
March 31, 2012
Available for sale:
Fixed maturities
U.S. treasury securities	$	74,324,088	$	—	$	—	$	74,324,088
Certificates of deposit		—		15,076,000		—		15,076,000
Total fixed maturities	$	74,324,088	$	15,076,000	$	—	$	89,400,088
December 31, 2011
Available for sale:
Fixed maturities
U.S. treasury securities	$	74,886,624	$	—	$	—	$	74,886,624
Certificates of deposit		—		16,470,000		—		16,470,000
Total fixed maturities	$	74,886,624	$	16,470,000	$	—	$	91,356,624

The Company’s fixed maturity investments, excluding long-term certificates of deposit, are all classified within Level 1 of the fair value hierarchy because they are valued using unadjusted quoted market prices. Long-term certificates of deposit are classified within Level 2. Fair value measurements are not adjusted for transaction costs.

The Company did not have any transfers between Levels 1, 2 and 3 of the fair value hierarchy during the three months ended March 31, 2012 and 2011.