Note 3 - Fair Value Measurements

6 Months Ended

Jun. 30, 2016

Note 3. Fair Value Measurements

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. The Company uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

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Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement rate.

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Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The Company’s Level 2 assets and liabilities include fixed maturity securities with quoted prices that are traded less frequently than exchange-traded instruments or assets and liabilities whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. Government and agency mortgage-backed debt securities and corporate debt securities.

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Level 3 inputs are unobservable for the asset or liability and reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Investments, available for sale

: Investments in securities that are classified as available for sale are recorded at fair value utilizing Level 1 and Level 2 measurements.

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

The following table presents the amounts of assets measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015:

	June 30, 2016 (unaudited)
	Total		Level 1		Level 2		Level 3
Available for sale:
Fixed maturities:
US Treasury securities	$	314,850	$	314,850	$	-	$	-
Corporate bonds		3,036,388		-		3,036,388		-
Municipal bonds		2,714,017		-		2,714,017		-
Mortgage backed and asset backed securities		3,690,008		-		3,690,008		-
Total fixed maturities		9,755,263		314,850		9,440,413		-
Equities:
Equities		4,203,541		4,203,541		-		-
Other equity investments		213,846		213,846		-		-
Total equities		4,417,387		4,417,387		-		-
Total	$	14,172,650	$	4,732,237	$	9,440,413	$	-

	Decmeber 31, 2015
	Total		Level 1		Level 2		Level 3
Available for sale:
Fixed maturities:
US Treasury securities	$	426,316	$	426,316	$	-	$	-
Corporate bonds		2,911,553		-		2,911,553		-
Municipal bonds		1,744,137		-		1,744,137		-
Mortgage backed and asset backed securities		3,049,113		-		3,049,113		-
Total fixed maturities		8,131,119		426,316		7,704,803		-
Equities:
Equities		3,430,054		3,430,054		-		-
Other equity investments		174,214		174,214		-		-
Total equities		3,604,268		3,604,268		-		-
Total	$	11,735,387	$	4,030,584	$	7,704,803	$	-

The Company discloses the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The estimated fair value approximates carrying value for accrued interest. The methodologies for other financial assets and financial liabilities are discussed below:

Cash and cash equivalents

: The carrying amounts approximate fair value because of the short maturity of these instruments.

Policyholder deposits in deposit-type contracts

: Policyholder deposits in investment type contracts have fair value estimated based upon the actuarial assumptions of the underlying product.

The estimated fair values of the Company’s financial assets and liabilities at June 30, 2016 and December 31, 2015 are as follows:

	June 30, 2016				December 31, 2015
	(unaudited)
	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets:
Cash and cash equivalents	$	3,535,682	$	3,535,682	$	2,466,526	$	2,466,526
Investments, at fair value		14,172,650		14,172,650		11,735,387		11,735,387
Total Financial Assets	$	17,708,332	$	17,708,332	$	14,201,913	$	14,201,913

Financial Liabilities:
Policyholder deposits in deposit-type contracts	$	2,402,115	$	2,406,919	$	1,573,988	$	1,406,724
Total Financial Liabilities	$	2,402,115	$	2,406,919	$	1,573,988	$	1,406,724

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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