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Fair Value Measurements

3 Months Ended

Mar. 31, 2024

FAIR VALUE MEASUREMENTS

Fair value is 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. We hold AFS fixed maturity securities, which are carried at fair value with changes in fair value reported through other comprehensive income (loss). We also report our equity securities and certain other long-term investments at fair value with changes in fair value reported through the consolidated statements of operations and comprehensive income (loss).

Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of

observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are required to be classified and disclosed in one of the following three categories:

•Level 1 - Quoted prices for identical instruments in active markets.

•Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or whose significant value drivers are observable.

•Level 3 - Instruments whose significant value drivers are unobservable.

Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as U.S. Treasury securities and actively traded mutual fund and stock investments.

Level 2 includes those financial instruments that are valued by independent pricing services or broker quotes. These pricing models are primarily industry-standard models that consider various inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying financial instruments. All significant inputs are observable or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include corporate securities, U.S. Government-sponsored enterprise securities, securities issued by states and political subdivisions and certain mortgage and asset-backed securities.

Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker prices utilizing significant inputs not based on or corroborated by readily available market information. We have no investments in this category.

The following tables set forth our assets measured at fair value on a recurring basis as of the dates indicated.


March 31, 2024	Level 1		Level 2	Level 3	Total Fair Value
(In thousands)
Financial assets:
Fixed maturity securities, available-for-sale:
U.S. Treasury and U.S. Government-sponsored enterprises	$	5,974	3,596	—	9,570
States and political subdivisions	—		285,055	—	285,055
Corporate	46		789,399	—	789,445
Commercial mortgage-backed	—		272	—	272
Residential mortgage-backed	—		94,848	—	94,848
Asset-backed	—		54,858	—	54,858

Total fixed maturity securities, available-for-sale	6,020		1,228,028	—	1,234,048

Equity securities:

Bond mutual funds	739		—	—	739
Common stock	664		—	—	664
Non-redeemable preferred stock	7		—	—	7
Non-redeemable preferred stock fund	4,009		—	—	4,009
Total equity securities	5,419		—	—	5,419
Other long-term investments (1)	—		—	—	84,853
Total financial assets	$	11,439	1,228,028	—	1,324,320

(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.


December 31, 2023	Level 1		Level 2	Level 3	Total Fair Value
(In thousands)
Financial assets:
Fixed maturity securities, available-for-sale:
U.S. Treasury and U.S. Government-sponsored enterprises	$	6,062	3,653	—	9,715
States and political subdivisions	—		287,231	—	287,231
Corporate	43		787,564	—	787,607
Commercial mortgage-backed	—		171	—	171
Residential mortgage-backed	—		97,123	—	97,123
Asset-backed	—		57,134	—	57,134

Total fixed maturity securities, available-for-sale	6,105		1,232,876	—	1,238,981

Equity securities:

Bond mutual funds	740		—	—	740
Common stock	665		—	—	665
Non-redeemable preferred stock	7		—	—	7
Non-redeemable preferred stock fund	3,870		—	—	3,870
Total equity securities	5,282		—	—	5,282
Other long-term investments (1)	—		—	—	82,460
Total financial assets	$	11,387	1,232,876	—	1,326,723
(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheets.

FINANCIAL INSTRUMENTS VALUATION

FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE

Fixed maturity securities, available-for-sale. At March 31, 2024, fixed maturity securities, valued using a third-party pricing source, totaled $1.2 billion for Level 2 assets and comprised 92.7% of total reported fair value of our financial assets. The Level 1 and Level 2 valuations are reviewed and updated quarterly through testing by comparisons to separate pricing models, other third-party pricing services, and back tested to recent trades. In addition, we obtain information annually relative to the third-party pricing models and review model parameters for reasonableness. There were no Level 3 assets at March 31, 2024. As of March 31, 2024, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third-party prices were changed from the values received.

Equity securities. Our equity securities are classified as Level 1 assets as their fair values are based upon quoted market prices.

Limited partnerships. The Company considers the net asset value ("NAV") to represent the value of the investment fund and is measured by the total value of assets minus the total value of liabilities. The following table includes information related to our investments in limited partnerships that calculate NAV per share. For these investments, which are measured at fair value on a recurring basis, we use the NAV per share to measure fair value. The Company recognized net investment related gains of $1.3 million and losses of $0.6 million on limited partnerships

held for the three months ended March 31, 2024 and March 31, 2023, respectively. These investments are included in other long-term investments on the consolidated balance sheets.


		March 31, 2024				December 31, 2023
(In thousands, except for years)		Fair Value Using NAV Per Share		Unfunded Commit- ments	Range (In years)	Fair Value Using NAV Per Share		Unfunded Commit- ments	Range (In years)
	Description
Limited partnerships:
Middle market	Investments in privately-originated, performing senior secured debt primarily in North America-based companies	$	35,648	3,452	3	$	34,858	3,452	4
Global equity fund	Investments in common stocks of U.S., international developed and emerging markets with a focus on long-term capital growth	11,056		—	0	10,345		—	0

Late-stage growth	Investments in private late-stage, established companies seeking capital to accelerate growth prior to an IPO or sale	21,116		12,861	4 to 6	20,524		14,271	4 to 6
Infrastructure	Investments in climate infrastructure assets, focusing on renewable power generation in wind and solar energy	17,033		9,367	9 to 11	16,733		9,576	10
Total limited partnerships		$	84,853	25,680		$	82,460	27,299

The majority of our limited partnership investments are not redeemable because distributions from the funds will be received when the underlying investments of the funds are liquidated. The life spans indicated above may be shortened or extended at the fund manager's discretion, typically in one or two-year increments. The global equity fund is redeemable monthly.

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE

Estimates of fair values are made at a specific point in time, based on relevant market prices and information about the financial instruments. The estimated fair values of financial instruments presented below are not necessarily indicative of the amounts the Company might realize in actual market transactions.

The carrying amount and fair value for the financial assets and liabilities on the consolidated financial statements not otherwise disclosed for the periods indicated were as follows:


	March 31, 2024			December 31, 2023
(In thousands)	Carrying Value		Fair Value	Carrying Value	Fair Value

Financial assets:
Policy loans	$	75,274	75,274	75,359	75,359

Residential mortgage loan	39		40	42	42

Cash and cash equivalents	23,242		23,242	26,997	26,997
Financial liabilities:
Annuity - investment contracts	67,518		61,576	67,690	63,283

Policy loans. Policy loans had a weighted average annual interest rate of 7.7% at both March 31, 2024 and December 31, 2023 and no specified maturity dates. The aggregate fair value of policy loans approximates the carrying value reflected on the consolidated balance sheets. Policy loans are an integral part of the life insurance policies we have in force, cannot be valued separately and are not marketable. Therefore, the fair value of policy loans approximates the carrying value and policy loans are considered Level 3 assets in the fair value hierarchy.

Residential mortgage loan. The mortgage loan is secured by a residential property. The interest rate for this loan was 7.0% at both March 31, 2024 and December 31, 2023. At March 31, 2024, the remaining loan matures in four years. Management estimated the fair value using an annual interest rate of 6.25% at both March 31, 2024 and December 31, 2023. Our mortgage loan is considered a Level 3 asset in the fair value hierarchy and is included in other long-term investments on the consolidated balance sheets.

Cash and cash equivalents. The fair value of cash and cash equivalents approximates carrying value and are characterized as Level 1 assets in the fair value hierarchy.

Annuity liabilities. The fair value of the Company's liabilities under annuity contracts, which are considered Level 3 liabilities, was estimated at March 31, 2024 and December 31, 2023 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 4.13% to 4.63% and 3.80% to 4.50%, respectively. The fair value of liabilities under all insurance contracts are taken into consideration in the overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.

Other long-term investments. Financial instruments included in other long-term investments are classified in various levels of the fair value hierarchy. The following table summarizes the carrying amounts of these investments.


Carrying Value (In thousands)	March 31, 2024		December 31, 2023
Other long-term investments:
Limited partnerships	$	84,853	82,460
FHLB common stock	204		202
Mortgage loans	39		42
All other investments	22		21
Total other long-term investments	$	85,118	82,725

We are a member of the Federal Home Loan Bank ("FHLB") of Dallas and such membership requires members to own stock in the FHLB. Our FHLB stock is carried at amortized cost, which approximates fair value.

- 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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