Fair Value Measurements

9 Months Ended

Sep. 30, 2021

Fair Value Measurements

Fair Value Measurements

3. Fair Value Measurements

Fair value is defined as the price that the Company would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment.

The three-tier hierarchy of inputs is summarized in the three broad levels listed below:

Level 1—Unadjusted quoted prices are available in active markets for identical investments as of the reporting date.

Level 2—Pricing inputs are quoted prices for similar investments in active markets; quoted prices for identical or similar investments in inactive markets; or valuations based on models where the significant inputs are observable or can be corroborated by observable market data.

Level 3—Pricing inputs into models are unobservable for the investment. The unobservable inputs require significant management judgment or estimation.

To measure fair value, the Company obtains quoted market prices for its investment securities from its outside investment managers. If a quoted market price is not available, the Company uses prices of similar securities. The fair values obtained from the outside investment managers are reviewed for reasonableness and any discrepancies are investigated for final valuation.

The fair value of the Company’s investments in fixed maturity securities is estimated using relevant inputs, including available market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. An Option Adjusted Spread model is also used to develop prepayment and interest rate scenarios. Industry standard models are used to analyze and value securities with embedded options or prepayment sensitivities. These fair value measurements are estimated based on observable, objectively verifiable market information rather than market quotes. Therefore, these investments are classified and disclosed in Level 2 of the hierarchy.

The following tables present the hierarchy for financial assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020.

September 30, 2021	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Fixed maturity securities
U.S. Governments	$	—	$	19,311	$	—	$	19,311
States, territories, and possessions		—		6,401		—		6,401
Political subdivisions		—		1,588		—		1,588
Special revenue excluding mortgage/asset-backed securities		—		44,430		—		44,430
Corporate and other		—		255,100		—		255,100
Mortgage/asset-backed securities		—		81,216		—		81,216
Equity securities		17,358		—		—		17,358
Cash, cash equivalents, and restricted cash		41,634		—		—		41,634
Total assets	$	58,992	$	408,046	$	—	$	467,038

December 31, 2020	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Fixed maturity securities
U.S. Governments	$	—	$	17,059	$	—	$	17,059
States, territories, and possessions		—		6,636		—		6,636
Political subdivisions		—		2,152		—		2,152
Special revenue excluding mortgage/asset-backed securities		—		41,227		—		41,227
Corporate and other		—		245,360		—		245,360
Mortgage/asset-backed securities		—		85,553		—		85,553
Equity securities		24,322		—		—		24,322
Cash, cash equivalents, and restricted cash		33,786		—		—		33,786
Total assets	$	58,108	$	397,987	$	—	$	456,095

The carrying amounts of financial assets and liabilities reported in the accompanying condensed consolidated balance sheet including cash and cash equivalents, restricted cash, receivables, reinsurance recoverable, and accounts payable and other accrued liabilities approximate fair value due to their short term-maturity.

Transfers between Level 3 and Level 2 securities result from changes in the availability of market observable inputs and are recorded at the beginning of the reporting period. As of September 30, 2021 and December 31, 2020, the Company had no fixed income securities classified as Level 3.