2. INVESTMENTS

The cost or amortized cost, gross unrealized holding gains and losses, and estimated fair value of the Company's fixed maturity investments, by major security type, and equity securities as of September 30, 2012 and December 31, 2011 are as follows:


		Cost or		Gross		Gross
		Amortized		Unrealized		Unrealized			Estimated
		Cost		Gains		Losses			Fair Value
As of September 30, 2012
Fixed maturity investments:
U.S. government agency securities	$	446,591	$	18,466	$	—		$	465,057
Obligations of states and political subdivisions		7,078,407		345,447		(13,252	)		7,410,602
Corporate debt securities		328,503		17,856		—			346,359
Total fixed maturity investments		7,853,501		381,769		(13,252	)		8,222,018
Equity securities*		6,212,486		5,181,647		—			11,394,133
Hedge fund		1,000,000		446,519		—			1,446,519
Total equity securities		7,212,486		5,628,166		—			12,840,652
Total investments	$	15,065,987	$	6,009,935	$	(13,252	)	$	21,062,670


		Cost or		Gross		Gross
		Amortized		Unrealized		Unrealized			Estimated
		Cost		Gains		Losses			Fair Value
As of December 31, 2011
Fixed maturity investments:
U.S. government agency securities	$	1,446,223	$	7,882	$	—		$	1,454,105
Obligations of states and political subdivisions		8,135,268		531,523		(1,257	)		8,665,534
Corporate debt securities		333,024		—		(3,816	)		329,208
Total fixed maturity investments		9,914,515		539,405		(5,073	)		10,448,847
Equity securities*		6,574,686		4,360,802		(34,718	)		10,900,770
Hedge fund		1,000,000		395,933		—			1,395,933
Total equity securities		7,574,686		4,756,735		(34,718	)		12,296,703
Total investments	$	17,489,201	$	5,296,140	$	(39,791	)	$	22,745,550

* The Company's equity securities are managed by an external large cap value advisor. Our investment approach is to focus on increasing the fair market value of our equity securities by investing in companies that may or may not be paying a dividend but whose market values may increase over time. Some of the key factors we consider in a prospective company to invest in include the discount to value and the quality of the management team.

The following tables summarize the Company's fixed maturity and equity securities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:


	12 months or greater				Less than 12 months					Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
As of September 30, 2012
Fixed maturity investments:
U.S. government agency securities	$	—	$	—	$	—	$	—		$	—	$	—
Obligations of states and political subdivisions		—		—		1,168,797		(13,252	)		1,168,797		(13,252	)
Corporate debt securities		—		—		—		—			—		—
Total fixed maturity investments		—		—		1,168,797		(13,252	)		1,168,797		(13,252	)
Equity securities		—		—		—		—			—		—
Hedge fund		—		—		—		—			—		—
Total equity securities		—		—		—		—			—		—
Total investments	$	—	$	—	$	1,168,797	$	(13,252	)	$	1,168,797	$	(13,252	)


	12 months or greater				Less than 12 months					Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses
As of December 31, 2011
Fixed maturity investments:
U.S. government agency securities	$	—	$	—	$	—	$	—		$	—	$	—
Obligations of states and political subdivisions		—		—		200,046		(1,257	)		200,046		(1,257	)
Corporate debt securities		—		—		329,208		(3,816	)		329,208		(3,816	)
Total fixed maturity investments		—		—		529,254		(5,073	)		529,254		(5,073	)
Equity securities		—		—		864,871		(34,718	)		864,871		(34,718	)
Hedge fund		—		—		—		—			—		—
Total equity securities		—		—		864,871		(34,718	)		864,871		(34,718	)
Total investments	$	—	$	—	$	1,394,125	$	(39,791	)	$	1,394,125	$	(39,791	)

As of September 30, 2012 and December 31, 2011, there were four securities in an unrealized loss position with an estimated fair value of $1,168,797 and $1,394,125, respectively. Of these securities, none had been in an unrealized loss position for 12 months or greater. As of September 30, 2012 and December 31, 2011, none of these securities were considered to be other-than-temporarily impaired. The Company has no intent to sell and it is not more likely than not that the Company will be required to sell these securities before their fair values recover above the adjusted cost. The unrealized losses from these securities were not as a result of credit, collateral or structural issues.

Other-Than-Temporary Impairment Process

The Company assesses whether declines in the fair value of its fixed maturity investments classified as available-for-sale represent impairments that are other-than-temporary by reviewing each fixed maturity investment that is impaired and (1) determining if the Company has the intent to sell the fixed maturity investment or if it is more likely than not that the Company will be required to sell the fixed maturity investment before its anticipated recovery; and (2) assessing whether a credit loss exists, that is, where the Company expects that the present value of the cash flows expected to be collected from the fixed maturity investment are less than the amortized cost basis of the investment.

The Company had no planned sales of its fixed maturity investments classified as available-for-sale that were in an unrealized loss position at September 30, 2012. In assessing whether it is more likely than not that the Company will be required to sell a fixed maturity investment before its anticipated recovery, the Company considers various factors including its future cash flow requirements, legal and regulatory requirements, the level of its cash, cash equivalents, short term investments and fixed maturity investments available for sale in an unrealized gain position, and other relevant factors. For the nine months ended September 30, 2012, the Company did not recognize any other-than-temporary impairments due to required sales.

In evaluating credit losses, the Company considers a variety of factors in the assessment of a fixed maturity investment including: (1) the time period during which there has been a significant decline below cost; (2) the extent of the decline below cost and par; (3) the potential for the fixed maturity investment to recover in value; (4) an analysis of the financial condition of the issuer; (5) the rating of the issuer; and (6) failure of the issuer of the fixed maturity investment to make scheduled interest or principal payments.

If we conclude a security is other-than-temporarily impaired, we write down the amortized cost of the security to fair value, with a charge to net realized investment gains (losses) in the Consolidated Statement of Operations. Gross unrealized losses on the investment portfolio as of September 30, 2012 and December 31, 2011, relating to four and two fixed maturity securities and none and two equity securities, amounted to $13,252 and $39,791, respectively. This decrease was attributable to equity securities which we determined were not other than temporarily impaired based on the process described above. The unrealized losses on these available for sale fixed maturity securities were not as a result of credit, collateral or structural issues. During the nine months and three months ended September 30, 2012, the Company recorded a total other-than-temporary impairment charge of $198,579 and $32,968 on three equity securities and one equity security, respectively, as a result of the decline in fair value below cost. During the nine months and three months ended September 30, 2011, the Company recorded a total other-than-temporary impairment charge of $152,450 on two equity securities, as a result of the decline in fair value below cost.

Fair Value of Investments

Under existing U.S. GAAP, we are required to recognize certain assets at their fair value in our consolidated balance sheets. This includes our fixed maturity investments and equity securities. In accordance with the Fair Value Measurements and Disclosures Topic of FASB's Accounting Standards Codification ("ASC") 820, fair value is defined as the price 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. ASC 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon whether the inputs to the valuation of an asset or liability are observable or unobservable in the market at the measurement date, with quoted market prices being the highest level (Level 1) and unobservable inputs being the lowest level (Level 3). A fair value measurement will fall within the level of the hierarchy based on the input that is significant to determining such measurement. The three levels are defined as follows:

• Level 1: Observable inputs to the valuation methodology that are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2: Observable inputs to the valuation methodology other than quoted market prices (unadjusted) for identical assets or liabilities in active markets. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active and inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

• Level 3: Inputs to the valuation methodology that are unobservable for the asset or liability.

At each measurement date, we estimate the fair value of the security using various valuation techniques. We utilize, to the extent available, quoted market prices in active markets or observable market inputs in estimating the fair value of our investments. When quoted market prices or observable market inputs are not available, we utilize valuation techniques that rely on unobservable inputs to estimate the fair value of investments. The following describes the valuation techniques we used to determine the fair value of investments held as of September 30, 2012 and what level within the fair value hierarchy each valuation technique resides:

U.S. government agency securities: Comprised primarily of bonds issued by the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, Federal Farm Credit Bank and the Federal National Mortgage Association. The fair values of U.S. government agency securities are priced using the spread above the risk-free U.S. Treasury yield curve. As the yields for the risk-free U.S. Treasury yield curve are observable market inputs, the fair values of U.S. government agency securities are included in the Level 2 fair value hierarchy. AmerInst considers a liquid market to exist for these types of securities held. Broker quotes are not used for fair value pricing.
Obligations of state and political subdivisions: Comprised of fixed income obligations of state and local governmental municipalities. The fair values of these securities are based on quotes and current market spread relationships, and are included in the Level 2 fair value hierarchy. AmerInst considers a liquid market to exist for these types of securities held.
Broker quotes are not used for fair value pricing.
Corporate debt securities: Comprised of bonds issued by corporations. The fair values of these securities are based on quotes and current market spread relationships, and are included in the Level 2 fair value hierarchy. AmerInst considers a liquid market to exist for these types of securities held. Broker quotes are not used for fair value pricing.
Equity securities, at fair value: Comprised primarily of investments in the common stock of publicly traded companies in the U.S. All of the Company's equities are included in the Level 1 fair value hierarchy. The Company receives prices based on closing exchange prices from independent pricing sources to measure fair values for the equities.
Hedge fund: Comprised of a hedge fund whose objective is to seek attractive long-term returns with lower volatility by investing in a range of diversified investment strategies. The fund invests in a diversified pool of hedge fund managers, generally across six different strategies: long/short equities, long/short credit, macro, multi-strategy opportunistic, event- driven, and portfolio hedge. The fair value of the hedge fund is based on the net asset value of the fund as reported by the external fund manager. The use of net asset value as an estimate of the fair value for investments in certain entities that calculate net asset value is a permitted practical expedient. The fair value of our hedge fund is included in the Level 3 fair value hierarchy.

To validate prices, we complete quantitative analyses to compare the performance of the above investments to the performance of appropriate benchmarks, with significant differences identified and investigated.

There have been no material changes to any of our valuation techniques from what was used as of December 31, 2011. Since the fair value of a security is an estimate of what a willing buyer would pay for our asset if we sold it, we will not know the ultimate value of our securities until they are sold. We believe the valuation techniques utilized provide us with a reasonable estimate of the price that would be received to sell our assets or transfer our liabilities in an orderly market transaction between participants at the measurement date. The following tables show the fair value of the Company's investments in accordance with ASC 820 as of September 30, 2012 and December 31, 2011:


					Fair value measurement using:
	Carrying amount		Total fair value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
As of September 30, 2012
U.S. government agency securities	$	465,057	$	465,057	$	—	$	465,057	$	—
Obligations of state and political subdivisions		7,410,602		7,410,602				7,410,602
Corporate debt securities		346,359		346,359				346,359
Total fixed maturity investments		8,222,018		8,222,018
Equity securities (excluding the hedge fund)		11,394,133		11,394,133		11,394,133
Hedge fund		1,446,519		1,446,519						1,446,519
Total equity securities		12,840,652		12,840,652
Total investments	$	21,062,670	$	21,062,670	$	11,394,133	$	8,222,018	$	1,446,519


					Fair value measurement using:
	Carrying amount		Total fair value		Quoted prices in active markets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
As of December 31, 2011
U.S. government agency securities	$	1,454,105	$	1,454,105	$	—	$	1,454,105	$	—
Obligations of state and political subdivisions		8,665,534		8,665,534				8,665,534
Corporate debt securities		329,208		329,208				329,208
Total fixed maturity investments		10,448,847		10,448,847
Equity securities (excluding the hedge fund)		10,900,770		10,900,770		10,900,770
Hedge fund		1,395,933		1,395,933						1,395,933
Total equity securities		12,296,703		12,296,703
Total investments	$	22,745,550	$	22,745,550	$	10,900,770	$	10,448,847	$	1,395,933

There were no transfers between Levels 1 and 2 during the nine months ended September 30, 2012 and the year ended December 31, 2011.

The following table presents a reconciliation of the beginning and ending balance of investments measured at fair value on a recurring basis using significant unobservable (Level 3) inputs for the nine months ended September 30, 2012 and 2011:


	Hedge Fund Investment Nine Months ended
		September 30,		September 30,
		2012		2011
Balance classified as Level 3, beginning of period	$	1,395,933	$	1,484,884
Total gains or losses included in earnings:		—		—
Net realized gains		—		—
Change in fair value of hedge fund investment		50,586		(47,218	)
Purchases		—		—
Sales		—		—
Transfers in and/or out of Level 3		—		—
Ending balance, end of period	$	1,446,519	$	1,437,666

There were no transfers into or from the Level 3 category during the nine months ended September 30, 2012 and 2011.


	Hedge Fund Investment Three Months ended
		September 30,		September 30,
		2012		2011
Balance classified as Level 3, beginning of period	$	1,432,621	$	1,506,409
Total gains or losses included in earnings:		—		—
Net realized gains		—		—
Change in fair value of hedge fund investment		13,898		(68,743	)
Purchases		—		—
Sales		—		—
Transfers in and/or out of Level 3		—		—
Ending balance, end of period	$	1,446,519	$	1,437,666

There were no transfers into or from the Level 3 category during the three months ended September 30, 2012 and 2011.

The cost or amortized cost and estimated fair value of fixed maturity investments as of September 30, 2012 and December 31, 2011 by contractual maturity are shown below. Expected maturities may differ from contractual maturities as borrowers may have the right to call or prepay obligations without penalties.


		Amortized		Estimated
		Cost		Fair Value
As of September 30, 2012
Due in one year or less	$	1,587,212	$	1,610,417
Due after one year through five years		3,413,787		3,629,319
Due after five years through ten years		2,852,502		2,982,282
Due after ten years		—		—
Total	$	7,853,501	$	8,222,018


		Amortized		Estimated
		Cost		Fair Value
As of December 31, 2011
Due in one year or less	$	510,949	$	516,938
Due after one year through five years		5,885,709		6,210,596
Due after five years through ten years		3,517,857		3,721,313
Due after ten years		—		—
Total	$	9,914,515	$	10,448,847

Information on sales and maturities of investments during the nine months ended September 30, 2012 and 2011 are as follows:


		September 30,			September 30,
		2012			2011
Total proceeds on sales of available-for-sale securities	$	4,996,671		$	4,338,292
Proceeds from redemptions of fixed maturity investments		1,000,000			—
Total proceeds from maturities of fixed maturity investments		200,000			500,000
Gross gains on sales		1,304,878			1,565,380
Gross losses on sales		—			(12,138	)
Impairment losses		(198,579	)		(152,450	)

Information on sales and maturities of investments during the three months ended September 30, 2012 and 2011 are as follows:


		September 30,			September 30,
		2012			2011
Total proceeds on sales of available-for-sale securities	$	3,482,839		$	1,290,697
Proceeds from redemptions of fixed maturity investments		500,000			—
Total proceeds from maturities of fixed maturity investments		—			—
Gross gains on sales		527,239			249,241
Gross losses on sales		—			(12,138	)
Impairment losses		(32,968	)		(152,450	)

Major categories of net interest and dividend income during the nine months ended September 30, 2012 and 2011 are summarized as follows:


		September 30,			September 30,
		2012			2011
Interest earned:
Fixed maturity investments	$	259,794		$	258,828
Cash and cash equivalents		463			259
Dividends earned		135,611			155,994
Investment expenses		(96,612	)		(106,128	)
Net investment income	$	299,256		$	308,953

Major categories of net interest and dividend income during the three months ended September 30, 2012 and 2011 are summarized as follows:


		September 30,			September 30,
		2012			2011
Interest earned:
Fixed maturity investments	$	85,439		$	84,581
Cash and cash equivalents		138			69
Dividends earned		38,314			46,012
Investment expenses		(31,755	)		(34,534	)
Net investment income	$	92,136		$	96,128