4. Fair Value Measurements

3 Months Ended

Mar. 31, 2016

Notes to Financial Statements

4. Fair Value Measurements

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation technique used by the Company to fair value its financial instruments is the market approach which uses prices and other relevant information generated by market transactions involving identical or comparable assets.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets or liabilities fall within different levels of the hierarchy, the classification is based on the lowest level input that is significant to the fair value measurement of the asset or liability. Classification of assets and liabilities within the hierarchy considers the markets in which the assets and liabilities are traded, including during period of market disruption, and the reliability and transparency of the assumptions used to determine fair value. The hierarchy requires the use of observable market data when available. The levels of the hierarchy and those investments included in each are as follows:

Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets. Included are those investments traded on an active exchange, such as the NASDAQ Global Select Market, U.S. Treasury securities and obligations of U.S. government agencies, together with corporate debt securities that are generally investment grade.

Level 2—Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.  Municipal and corporate bonds, and residential mortgage-backed securities, that are traded in less active markets are classified as Level 2.  These securities are valued using market price quotations for recently executed transactions.

Level 3—Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement. Material assumptions and factors considered in pricing investment securities and other assets may include appraisals, projected cash flows, market clearing activity or liquidity circumstances in the security or similar securities that may have occurred since the prior pricing period.

The availability of observable inputs varies and is affected by a wide variety of factors. When the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment. The degree of judgment exercised by management in determining fair value is greatest for investments categorized as Level 3. For investments in this category, the Company considers prices and inputs that are current as of the measurement date. In periods of market dislocation, as characterized by current market conditions, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause a security to be reclassified between levels.

The Company’s investments are allocated among pricing input levels at March 31, 2016 and December 31, 2015 as follows:

	March 31, 2016
($ in thousands)	Level 1		Level 2		Level 3		Total
Fixed-maturity securities available-for-sale
Political subdivisions of States, Territories and Possessions	$	—	$	10,694,241	$	—	$	10,694,241
Corporate and other bonds industrial and miscellaneous		39,440,630		6,905,088		—		46,345,718
Residential mortgage backed securities		—		16,190,057		—		16,190,057
Total fixed maturities		39,440,630		33,789,386		—		73,230,016
Equity securities		10,025,750		—		—		10,025,750
Total investments	$	49,466,380	$	33,789,386	$	—	$	83,255,766

	December 31, 2015
($ in thousands)	Level 1		Level 2		Level 3		Total
Fixed-maturity securities available-for-sale
Political subdivisions of States, Territories and Possessions	$	—	$	12,555,098	$	—	$	12,555,098
Corporate and other bonds industrial and miscellaneous		37,964,006		6,992,462		—		44,956,468
Residential mortgage backed securities		—		4,990,498		—		4,990,498
Total fixed maturities		37,964,006		24,538,058		—		62,502,064
Equity securities		9,204,270		—		—		9,204,270
Total investments	$	47,168,276	$	24,538,058	$	—	$	71,706,334