FAIR VALUE OF FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2022

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

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 for the 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 Condensed Consolidated Balance Sheets at fair value are categorized based on the reliability of inputs for 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 or liabilities as of the reporting date.

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 as of the reporting date.

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 as of the reporting date.

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. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) or unobservable (Level 3). 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 following table presents information about the Company’s financial instruments and their estimated fair values, which are measured on a recurring basis, and are allocated among the three levels within the fair value hierarchy as of March 31, 2022, and December 31, 2021:

	Level 1		Level 2		Level 3		Total
March 31, 2022
Financial instruments:
Available-for-sale fixed maturities:
U.S. Treasury securities	$	5,692,831	$	-	$	-	$	5,692,831
Corporate securities		-		41,620,142		-		41,620,142
Agency mortgage-backed securities		-		18,531,691		-		18,531,691
Held-to-maturity securities
Certificates of deposits				300,000				300,000
Equity securities		4,030,888		-		-		4,030,888
Short-term investments		1,051,230	-			-		1,051,230
Total financial instruments at fair value	$	10,774,949	$	60,451,833	$	-	$	71,226,782
December 31, 2021
Financial instruments:
Available-for-sale fixed maturities:
U.S. Treasury securities	$	6,309,805	$	-	$	-	$	6,309,805
Corporate securities	-			45,249,973		-		45,249,973
Agency mortgage-backed securities	-			20,853,627		-		20,853,627
Held-to-maturity securities
Certificates of deposits				300,000				300,000
Equity securities		4,131,153		-		-		4,131,153
Short-term investments		1,154,750		-		-		1,154,750
Total financial instruments at fair value	$	11,595,708		66,403,600	$	-	$	77,999,308

Fair value measurements are not adjusted for transaction costs. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer. 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, 2022 and 2021.

As a result of the spread of possible new COVID-19 variants, Russia’s invasion of Ukraine, the war between Russia and Ukraine, and the rapid pace of inflation in the U.S., economic uncertainties have arisen which can impact the fair value of investments, and day-to-day administration of the business. While the Company does not believe it is exposed to substantial risk from coronavirus-related claims under the insurance policies written by Crusader, it is possible that the fair value of its investment portfolio may be adversely affected by the general economic uncertainties.