8. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount and the estimated fair value of the Company's financial instruments is summarized below.

	Carrying		Estimated
	amount		fair value
September 30, 2011
Assets:
Fixed maturity securities held-to-maturity:
Residential mortgage-backed	$	317,279	$	364,994
Total fixed maturity securities held-to-maturity		317,279		364,994

Fixed maturity securities available-for-sale:
U.S. treasury		4,994,179		4,994,179
U.S. government-sponsored agencies		157,038,965		157,038,965
Obligations of states and political subdivisions		402,711,288		402,711,288
Commercial mortgage-backed		99,894,618		99,894,618
Residential mortgage-backed		22,873,568		22,873,568
Other asset-backed		12,917,284		12,917,284
Corporate		252,326,467		252,326,467
Total fixed maturity securities available-for-sale		952,756,369		952,756,369

Equity securities available-for-sale:
Common stocks:
Financial services		8,622,787		8,622,787
Information technology		15,589,751		15,589,751
Healthcare		13,315,396		13,315,396
Consumer staples		7,337,752		7,337,752
Consumer discretionary		13,240,568		13,240,568
Energy		17,119,365		17,119,365
Industrials		6,984,769		6,984,769
Other		9,818,207		9,818,207
Non-redeemable preferred stocks		7,299,200		7,299,200
Total equity securities available-for-sale		99,327,795		99,327,795

Short-term investments		66,257,086		66,257,086
Other long-term investments		18,352		18,352

Liabilities:
Surplus notes		25,000,000		26,191,794

	Carrying		Estimated
	amount		fair value
December 31,2010
Assets:
Fixed maturity securities held-to-maturity:
Residential mortgage-backed	$	340,803	$	389,679
Total fixed maturity securities held-to-maturity		340,803		389,679

Fixed maturity securities available-for-sale:
U.S. treasury		4,801,766		4,801,766
U.S. government-sponsored agencies		168,072,840		168,072,840
Obligations of states and political subdivisions		390,932,504		390,932,504
Commercial mortgage-backed		93,222,219		93,222,219
Residential mortgage-backed		34,285,838		34,285,838
Other asset-backed		13,100,849		13,100,849
Corporate		237,121,010		237,121,010
Total fixed maturity securities available-for-sale		941,537,026		941,537,026

Equity securities available-for-sale:
Common stocks:
Financial services		11,246,421		11,246,421
Information technology		17,350,652		17,350,652
Healthcare		12,785,689		12,785,689
Consumer staples		7,784,286		7,784,286
Consumer discretionary		12,162,474		12,162,474
Energy		9,381,310		9,381,310
Industrials		7,466,153		7,466,153
Other		14,630,005		14,630,005
Non-redeemable preferred stocks		8,331,992		8,331,992
Total equity securities available-for-sale		101,138,982		101,138,982

Short-term investments		36,616,111		36,616,111
Other long-term investments		29,827		29,827

Liabilities:
Surplus notes		25,000,000		23,893,033

The estimated fair value of fixed maturity securities, equity securities and short-term investments is based on quoted market prices, where available. In cases where quoted market prices are not available, fair values are based on a variety of valuation techniques depending on the type of security.

Other long-term investments, consisting primarily of holdings in limited partnerships and limited liability companies, are valued by the various fund managers. In management's opinion, these values reflect fair value at September 30, 2011 and December 31, 2010.

The fair value of the surplus notes is estimated using discounted cash flow analysis based on what the Company's current incremental borrowing rate would be for similar debt obligations.

Fair value is defined as 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. The following fair value hierarchy prioritizes inputs to valuation techniques used to measure fair value:

Level 1 - Unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

Level 2 - Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

Level 3 - Prices or valuation techniques that require significant unobservable inputs. The unobservable inputs may reflect the Company's own judgments about the assumptions that market participants would use.

The Company uses an independent pricing source to obtain the estimated fair value of a majority of its securities. The fair value is based on quoted market prices, where available. This is typically the case for equity securities and short-term investments, which are accordingly classified as Level 1 fair value measurements. In cases where quoted market prices are not available, fair value is based on a variety of valuation techniques depending on the type of security. Many of the fixed maturity securities in the Company's portfolio do not trade on a daily basis; however, observable inputs are utilized in their valuations, and these securities are therefore classified as Level 2 fair value measurements. Following is a brief description of the various pricing techniques used for different asset classes.

●

U.S. Treasury securities (including bonds, notes, and bills) are priced according to a number of live data sources, including active market makers and inter-dealer brokers. Prices from these sources are reviewed based on the sources' historical accuracy for individual issues and maturity ranges.

●

U.S. government-sponsored agencies and corporate securities (including fixed-rate corporate bonds and medium-term notes) are priced by determining a bullet (non-call) spread scale for each issuer for maturities going out to forty years. These spreads represent credit risk and are obtained from the new issue market, secondary trading, and dealer quotes. An option adjusted spread model is incorporated to adjust spreads of issues that have early redemption features. The final spread is then added to the U.S. Treasury curve. For notes with odd coupon payment dates, a cash discounting yield/price routine calculates prices from final yields.

●

Obligations of states and political subdivisions are priced by tracking and analyzing actively quoted issues and trades reported by the Municipal Securities Rulemaking Board (MSRB). Municipal bonds with similar characteristics are grouped together into market sectors, and internal yield curves are constructed daily for these sectors. Individual bond evaluations are extrapolated from these sectors, with the ability to make individual spread adjustments for attributes such as discounts, premiums, alternative minimum tax, and/or whether or not the bond is callable.

●

Mortgage-backed securities are priced with models using spreads and other information solicited from Wall Street buy- and sell-side sources, including primary and secondary dealers, portfolio managers, and research analysts, to produce pricing for each tranche. To determine a tranche's price, first the cash flow for each tranche is generated (using consensus prepayment speed assumptions including, as appropriate, a proprietary prepayment projection based on historical statistics of the underlying collateral), then a benchmark yield is determined (in relation to the U.S. Treasury curve for the maturity corresponding to the tranche's average life estimate), and finally collateral performance and tranche level attributes are incorporated to adjust the benchmark yield to determine the tranche-specific spread. This is then used to discount the cash flows to generate the price. When cash flows or other security structure or market information is not available to appropriately price a security, broker quotes may be used with a zero spread bid-side valuation, resulting in the same values for the mean and ask prices.

On a quarterly basis, the Company receives from its independent pricing service a list of fixed maturity securities, if any, that were priced solely from broker quotes. Since this is not an observable input, any fixed maturity security in the Company's portfolio that is on this list is classified as a Level 3 fair value measurement. At September 30, 2011, the Company did not hold any fixed maturity securities that were priced solely from broker quotes.

A small number of the Company's securities are not priced by the independent pricing service. One is an equity security that is reported as a Level 3 fair value measurement at September 30, 2011 and December 31, 2010, since no reliable observable inputs are used in its valuation. This equity security continues to be reported at the fair value obtained from the Securities Valuation Office (SVO) of the National Association of Insurance Commissioners (NAIC). The SVO establishes a per share price for this security based on an annual review of that company's financial statements. This review is typically performed during the second quarter, and resulted in a fair value for the shares held by the Company of $2,246 at September 30, 2011 and $2,130 at December 31, 2010. The other securities not priced by the Company's independent pricing service at September 30, 2011 are two fixed maturity securities (three fixed maturity securities were not priced by the Company's independent pricing service at December 31, 2010). These fixed maturity securities are classified as Level 2 fair value measurements and are carried at aggregate fair values of $10,039,266 at September 30, 2011 and $12,914,542 at December 31, 2010. The fair values for these fixed maturity securities were obtained from the Company's investment custodian using independent pricing services which utilize similar pricing techniques as the Company's independent pricing service.

The estimated fair values obtained from the independent pricing sources are reviewed by the Company for reasonableness, and any discrepancies are investigated for final valuation. This includes comparing valuations from the independent pricing source, the Company's investment custodian and the SVO. From these comparisons, material variances are identified and resolved to determine the final valuations used in the financial statements.

The Company's fixed maturity and equity securities available-for-sale, as well as short-term investments, are measured at fair value on a recurring basis. No assets or liabilities are currently measured at fair value on a non-recurring basis. Presented in the table below are the Company's assets that are measured at fair value on a recurring basis, as of September 30, 2011 and December 31, 2010.

			Fair value measurements at September 30, 2011 using
Description	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Fixed maturity securities available-for-sale:
U.S. treasury	$	4,994,179	$	-	$	4,994,179	$	-
U.S. government-sponsored agencies		157,038,965		-		157,038,965		-
Obligations of states and political subdivisions		402,711,288		-		402,711,288		-
Commercial mortgage-backed		99,894,618		-		99,894,618		-
Residential mortgage-backed		22,873,568		-		22,873,568		-
Other asset-backed		12,917,284		-		12,917,284		-
Corporate		252,326,467		-		252,326,467		-
Total fixed maturity securities available-for-		952,756,369		-		952,756,369		-

Equity securities available-for-sale:
Common stocks:
Financial services		8,622,787		8,620,541		-		2,246
Information technology		15,589,751		15,589,751		-		-
Healthcare		13,315,396		13,315,396		-		-
Consumer staples		7,337,752		7,337,752		-		-
Consumer discretionary		13,240,568		13,240,568		-		-
Energy		17,119,365		17,119,365		-		-
Industrials		6,984,769		6,984,769		-		-
Other		9,818,207		9,818,207		-		-
Non-redeemable preferred stocks		7,299,200		7,299,200		-		-
Total equity securities available-for-		99,327,795		99,325,549		-		2,246

Short-term investments		66,257,086		66,257,086		-		-
	$	1,118,341,250	$	165,582,635	$	952,756,369	$	2,246

			Fair value measurements at December 31, 2010 using
Description	Total		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Fixed maturity securities available-for-sale:
U.S. treasury	$	4,801,766	$	-	$	4,801,766	$	-
U.S. government-sponsored agencies		168,072,840		-		168,072,840		-
Obligations of states and political subdivisions		390,932,504		-		390,932,504		-
Commercial mortgage-backed		93,222,219		-		93,222,219		-
Residential mortgage-backed		34,285,838		-		34,285,838		-
Other asset-backed		13,100,849		-		13,100,849		-
Corporate		237,121,010		-		237,121,010		-
Total fixed maturity securities available-for-		941,537,026		-		941,537,026		-

Equity securities available-for-sale:
Common stocks:
Financial services		11,246,421		11,244,291		-		2,130
Information technology		17,350,652		17,350,652		-		-
Healthcare		12,785,689		12,785,689		-		-
Consumer staples		7,784,286		7,784,286		-		-
Consumer discretionary		12,162,474		12,162,474		-		-
Energy		9,381,310		9,381,310		-		-
Industrials		7,466,153		7,466,153		-		-
Other		14,630,005		14,630,005		-		-
Non-redeemable preferred stocks		8,331,992		8,331,992		-		-
Total equity securities available-for-sale		101,138,982		101,136,852		-		2,130

Short-term investments		36,616,111		36,616,111		-		-
	$	1,079,292,119	$	137,752,963	$	941,537,026	$	2,130

Presented in the table below is a reconciliation of the assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months and nine months ended September 30, 2011 and 2010. Any unrealized gains or losses on these securities are recognized in other comprehensive income. Any gains or losses from disposals or impairments of these securities are reported as realized investment gains or losses in net income.

	Fair value measurements using significant unobservable inputs (Level 3)
Three months ended September 30, 2011	Equity securities available-for-sale, financial services		Total
Balance at June 30, 2011	$	2,246	$	2,246
Total unrealized gains included in other comprehensive income		-		-
Balance at September 30, 2011	$	2,246	$	2,246

Nine months ended September 30, 2011
Balance at December 31, 2010	$	2,130	$	2,130
Total unrealized gains included in other comprehensive income		116		116
Balance at September 30, 2011	$	2,246	$	2,246


	Fair value measurements using significant unobservable inputs (Level 3)
Three months ended September 30, 2010	Equity securities available-for-sale, financial services		Total
Balance at June 30, 2010	$	2,130	$	2,130

Total unrealized gains included in other comprehensive income		-		-
Balance at September 30, 2010	$	2,130	$	2,130

Nine months ended September 30, 2010
Balance at December 31, 2009	$	2,014	$	2,014

Total unrealized gains included in other comprehensive income		116		116
Balance at September 30, 2010	$	2,130	$	2,130

There were no transfers into or out of Levels 1 or 2 during the three months or nine months ended September 30, 2011 or 2010. It is the Company's policy to recognize transfers between levels at the beginning of the reporting period.

- 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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