5. Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 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 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 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 at December 31, 2012 approximates fair value because of the negotiated interest rates, which are based on the terms of the loans, risk and guaranty.

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

	December 31, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
Fixed-maturity investments held to maturity	$	2,399,482	$	2,425,261	$	606,281	$	779,026
Cash and cash equivalents		19,922,506		19,922,506		2,240,012		2,240,012
Premiums receivable		7,590,074		7,590,074		7,766,825		7,766,825
Receivables- reinsurance contracts		974,989		974,989		-		-
Reinsurance receivables		38,535,814		38,535,814		38,902,782		38,902,782
Real estate, net of accumulated depreciation		1,777,942		1,816,122		1,696,924		1,720,000
Reinsurance balances payable		2,566,729		2,566,729		1,820,527		1,820,527
Advance payments from catastrophe reinsurers		-		-		7,358,391		7,358,391
Notes payable (including related parties)		-		-		1,197,000		1,197,000