Note 4 - Fair Value Measurements

9 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Fair Value Disclosures [Text Block]

Note 4. 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:

● 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.

● 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.

● 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: Fair values of available for sale fixed maturity securities are provided by a third party pricing service. The pricing service uses a variety of sources to determine fair value of securities. The Company’s fixed maturity securities are highly liquid, which allows for a high percentage of the portfolio to be priced through pricing sources.

Equity securities: Fair values for equity securities are also provided by a third party pricing service and are derived from active trading on national market exchanges.

Embedded derivative: The fair value of the reinsurance related assets represents the Company’s allocation of the fair value of the corresponding derivative instruments used in the hedge.  The fair value of the underlying assets for the embedded derivative is generally based upon market observable inputs with industry standard valuation techniques. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered Level 3 in the fair value hierarchy. The Company’s utilization of a credit-valuation adjustment did not have a material effect on the change in fair value of the embedded derivatives for the three and nine months ended September 30, 2024 and September 30, 2023.

The table below presents the amounts of assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023:

	September 30, 2024
	Total		Level 1		Level 2		Level 3
	(unaudited)
Fixed maturities:
US Treasury securities	$	742,712	$	742,712	$	-	$	-
Corporate bonds		17,914,873		-		17,745,273		169,600
Municipal bonds		4,738,839		-		4,738,839		-
Redeemable preferred stock		2,449,490		-		2,449,490		-
Term loans		16,582,752		-		-		16,582,752
Mortgage backed and asset backed securities		36,435,396		-		36,101,646		333,750
Total fixed maturities		78,864,062		742,712		61,035,248		17,086,102
Equities:
Common stock		2,351,171		2,230,271		120,900		-
Preferred stock		1,583,227		-		1,583,227		-
Total equities		3,934,398		2,230,271		1,704,127		-
Other invested assets		2,803,831		-		-		2,803,831
Reinsurance contract allocated hedge		151,249		-		-		151,249
Limited partnership interests		415,721		-		-		415,721
Total	$	86,169,261	$	2,972,983	$	62,739,375	$	20,456,903

	December 31, 2023
	Total		Level 1		Level 2		Level 3
Fixed maturities:
US Treasury securities	$	724,668	$	724,668	$	-	$	-
Corporate bonds		17,813,362		-		17,643,762		169,600
Municipal bonds		5,636,093		-		5,636,093		-
Redeemable preferred stock		3,305,569		-		3,305,569		-
Term loans		17,052,420		-		-		17,052,420
Mortgage backed and asset backed securities		29,977,408		-		29,489,908		487,500
Total fixed maturities		74,509,520		724,668		56,075,332		17,709,520
Equities:
Common stock		2,116,356		2,017,756		98,600		-
Preferred stock		1,469,529		-		1,469,529		-
Total equities		3,585,885		2,017,756		1,568,129		-
Other invested assets		2,239,683		-		-		2,239,683
Reinsurance contract allocated hedge		673,681		-		-		673,681
Limited partnership interests		389,827		-		-		389,827
Total	$	81,398,596	$	2,742,424	$	57,643,461	$	21,012,711

The reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows:

			Mortgage						Other
For the Nine Months Ended September 30, 2024	Corporate		Backed			Term			Invested
(unaudited)	Bonds		Securities			Loans			Assets
Fair value, beginning of period	$	169,600	$	487,500		$	17,052,420		$	2,239,683
Principal payment		-		-			(3,793,088	)		(39,431	)
Acquisition		-		-			2,975,890			165,197
Investment related gains (losses), net		-		(153,750	)		347,530			438,382
Fair value, end of period	$	169,600	$	333,750		$	16,582,752		$	2,803,831

			Mortgage					Other
For the Three Months Ended September 30, 2024	Corporate		Backed		Term			Invested
(unaudited)	Bonds		Securities		Loans			Assets
Fair value, beginnig of period	$	169,600	$	333,750	$	17,393,363		$	2,628,726
Principal payment		-		-		(1,115,386	)		(33,626	)
Acquisition		-		-		97,865			84,329
Investment related gains (losses), net		-		-		206,910			124,402
Fair value, end of period	$	169,600	$	333,750	$	16,582,752		$	2,803,831

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 on the previous page. 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.

Investment income due and accrued: The carrying amounts approximate fair value because of the short maturity of these instruments.

Mortgage loans on real estate:  Mortgage loans are carried at their unpaid principal value as that is considered the fair market values for these loans.  The fair values of mortgage loans on real estate are calculated using discounted expected cash flows using competitive market interest rates currently being offered for similar loans.  The inputs utilized to determine fair value of all mortgage loans are unobservable market data (competitive market interest rates); therefore, fair value of mortgage loans falls into Level 3 in the fair value hierarchy.

Limited partnership interests: Limited partnership interests are carried at net asset value which approximates fair value.

Reinsurance contract allocated hedge: The carrying value of funds withheld at interest approximates fair value as funds are specifically identified in the agreement. The fair value of the specified funds is based on the fair value of the underlying assets that are held by the ceding company.  The ceding company uses a variety of sources and pricing methodologies, which are not transparent to the Company and may include significant unobservable inputs to value the securities held in distinct portfolios, therefore the valuation of these funds withheld assets are considered Level 3 in the fair value hierarchy.

Policy loans: Policy loans are stated at unpaid principal balances. As these loans are fully collateralized by the cash surrender value of the underlying insurance policies, the carrying value of the policy loans approximates their fair value.

Federal Home Loan Bank Advances: FHLB advances are stated at the outstanding principal balances and the carrying value approximates fair value.

Policyholder deposits in deposit-type contracts: The fair value for policyholder deposits deposit-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach.  Cash flows are projected using actuarial assumptions and discounted to the valuation date using risk-free rates adjusted for credit risk and the nonperformance risk of the liabilities.

The estimated fair values of the Company’s financial assets and liabilities at September 30, 2024 and December 31, 2023 are as follows:

	September 30, 2024
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(unaudited)
Financial Assets:
Cash and cash equivalents	$	4,492,006	$	4,492,006	$	4,492,006	$	-	$	-
Mortgage loans on real estate		25,662,587		25,662,587		-		-		25,662,587
Limited partnership interests		415,721		415,721		-		-		415,721
Investment income due and accrued		995,105		995,105		-		-		995,105
Reinsurance contract allocated hedge		151,249		151,249		-		-		151,249
Policy loans		30,978		30,978		-		-		30,978
Total Financial Assets (excluding available for sale investments)	$	31,747,646	$	31,747,646	$	4,492,006	$	-	$	27,255,640
Financial Liabilities:
Federal Home Loan Bank advance	$	1,000,000	$	1,000,000	$	-	$	-	$	1,000,000
Policyholder deposits in deposit-type contracts		78,637,567		66,128,718		-		-		66,128,718
Total Financial Liabilities	$	79,637,567	$	67,128,718	$	-	$	-	$	67,128,718

	December 31, 2023
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	8,982,138	$	8,982,138	$	8,982,138	$	-	$	-
Mortgage loans on real estate		19,617,253		19,617,253		-		-		19,617,253
Limited partnership interests		221,426		221,426		-		-		221,426
Investment income due and accrued		1,878,620		1,878,620		-		-		1,878,620
Reinsurance contract allocated hedge		673,681		673,681		-		-		673,681
Policy loans		26,132		26,132		-		-		26,132
Total Financial Assets (excluding available for sale investments)	$	31,399,250	$	31,399,250	$	8,982,138	$	-	$	22,417,112
Financial Liabilities:
Federal Home Loan Bank advance	$	1,000,000	$	1,000,000	$	-	$	-	$	1,000,000
Policyholder deposits in deposit-type contracts		78,063,888		67,401,118		-		-		67,401,118
Total Financial Liabilities	$	79,063,888	$	68,401,118	$	-	$	-	$	68,401,118