5. Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2013

Notes to Financial Statements

5. Fair Value of Financial Instruments

GAAP requires all entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized in the balance sheet, for which it is practicable to estimate fair value. The Company uses the following methods and assumptions in estimating its fair value disclosures for financial instruments:

Equity securities and fixed income securities available-for-sale: Fair value disclosures for these investments are included in “Note 3 - Investments.”

Cash and cash equivalents: The carrying values of cash and cash equivalents approximate their fair values because of the short-term nature of these instruments.

Premiums receivable, reinsurance receivables: The carrying values reported in the accompanying condensed consolidated balance sheets for these financial instruments approximate their fair values due to the short term nature of the assets.

Real Estate: The fair value of the land and building included in property and equipment, which is used in the Company’s operations, approximates the carrying value. The fair value was based on an appraisal prepared using the sales comparison approach, and accordingly the real estate is a Level 3 asset under the fair value hierarchy.

Reinsurance balances payable: The carrying value reported in the condensed consolidated balance sheets for these financial instruments approximates fair value.

Notes payable (including related parties): The Company estimates that the carrying amount of notes payable approximates fair value because of the recently negotiated interest rates based on term of the loan, risk and guaranty.

The estimated fair values of the Company’s financial instruments are as follows:

	September 30, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(unaudited)
Fixed-maturity investments held to maturity	$	1,448,798	$	1,524,516	$	606,281	$	779,026
Cash and cash equivalents		4,186,660		4,186,660		2,240,012		2,240,012
Premiums receivable		8,202,728		8,202,728		7,766,825		7,766,825
Reinsurance receivables		36,124,555		36,124,555		38,902,782		38,902,782
Real estate, net of accumulated depreciation		1,789,737		1,816,122		1,696,924		1,720,000
Reinsurance balances payable		3,217,230		3,217,230		1,820,527		1,820,527
Advance payments from catastrophe reinsurers		-		-		7,358,391		7,358,391
Notes payable (including related parties)		957,000		957,000		1,197,000		1,197,000