Note 7 Fair Value Disclosures of Financial Instruments

3 Months Ended

Sep. 30, 2011

Disclosure Text Block [Abstract]

Note 7 Fair Value Disclosures of Financial Instruments

Note 7.                        Fair Value Disclosures of Financial Instruments

For all financial and non-financial assets and liabilities accounted for at fair value on a recurring basis, the Company utilizes valuation techniques based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market expectations. These two types of inputs create the following fair value hierarchy:

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 are observable or whose significant value drivers are observable.

Level 3 - Instruments where significant value drivers are unobservable.

The following section describes the valuation methodologies we use to measure different assets at fair value.

Investments in fixed maturities and equity securities:

Available-for-sale securities included in Level 1 are equities with quoted market prices. Level 2 is primarily comprised of our portfolio of government securities, agency mortgage-backed securities, corporate fixed income securities, collateralized mortgage obligations, municipals, GSEs and certain preferred stocks that were priced with observable market inputs. Level 3 securities consist of CMO securities, primarily Alt-A mortgages.  For these securities, we use industry-standard pricing methodologies, including discounted cash flow models, whose inputs are based on management’s assumptions and available market information. Further we retain independent pricing vendors to assist in valuing certain instruments.

Interest rate swap:

The financial liability included in Level 2 consists of an interest rate swap on IHC debt.  It is valued using market observable inputs including market price, interest rate, and volatility within a Black Scholes model.

  The following tables present our financial assets and liabilities measured at fair value on a recurring basis, at September 30, 2011 and December 31, 2010, respectively (in thousands):

September 30, 2011
				Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Fixed maturities available-for-sale:
	Corporate securities		$	-	$	358,019	$	-	$	358,019
	CMOs - residential			-		18,780		23,444		42,224
	CMOs - commercial			-		-		544		544
	US Government obligations			-		13,165		-		13,165
	Agency MBS - residential			-		9,122		-		9,122
	GSEs			-		75,478		-		75,478
	States and political subdivisions			-		324,214		-		324,214
		Total fixed maturities		-		798,778		23,988		822,766
Equity securities available-for-sale:
	Common stocks			7,491		-		-		7,491
	Preferred stocks - perpetual			19,446		-		-		19,446
	Preferred stocks - with maturities			16,621		-		-		16,621
		Total equity securities		43,558		-		-		43,558
		Total	$	43,558	$	798,778	$	23,988	$	866,324
FINANCIAL LIABILITIES:
	Interest rate swap		$	-	$	589	$	-	$	589

December 31, 2010
				Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Fixed maturities available-for-sale:
	Corporate securities		$	-	$	271,995	$	-	$	271,995
	CMOs - residential			-		26,187		37,457		63,644
	CMOs - commercial			-		-		808		808
	US Government obligations			-		16,968		-		16,968
	Agency MBS - residential			-		10,224		-		10,224
	GSEs			-		70,527		-		70,527
	States and political subdivisions			-		359,490		-		359,490
		Total fixed maturities		-		755,391		38,265		793,656
Equity securities available-for-sale:
	Common stocks			4,669		-		-		4,669
	Preferred stocks - perpetual			32,280		-		-		32,280
	Preferred stocks - with maturities			11,124		-		-		11,124
		Total equity securities		48,073		-		-		48,073
Total			$	48,073	$	755,391	$	38,265	$	841,729

It is the Company’s policy to recognize transfers of assets and liabilities between levels of the fair value hierarchy at the end of a reporting period. At September 30, 2011, there were no transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy. No securities were transferred out of Level 2 and into the Level 3 category at September 30, 2011. The Company does not transfer out of Level 3 and into Level 2 until such time as observable inputs become available and reliable or the range of available independent prices narrow. No securities were transferred out of the Level 3 category in 2011. The changes in the carrying value of Level 3 assets and liabilities for the nine months ended September 30, 2011 are summarized as follows (in thousands):

				September 30, 2011
				CMOs
				Residential		Commercial		Total
Beginning balance			$	37,457	$	808	$	38,265
Gains(losses) included in earnings:
		Net realized investment losses		(16)		-		(16)
		Other-than-temporary impairments		(575)		-		(575)
Net unrealized gains (losses) included in
	accumulated other comprehensive income			(830)		(264)		(1,094)
Non-credit portion of other-than-temporary impairments
		included in other comprehensive income		(278)		-		(278)
Sales of securities				(9,196)		-		(9,196)
Repayments and amortization of fixed maturities				(3,118)		-		(3,118)
Balance at end of period			$	23,444	$	544	$	23,988

The following methods and assumptions were used to estimate the fair value of financial instruments not disclosed elsewhere in the Notes to Condensed Consolidated Financial Statements:

(A)       Policy Loans

The fair value of policy loans is estimated by projecting aggregate loan cash flows to the end of the expected lifetime period of the life insurance business at the average policy loan rates, and discounting them at a current market interest rate.

(B)Funds on Deposit

            The Company has two types of funds on deposit. The first type is credited with a current market interest rate, resulting in a fair value which approximates the carrying amount. The second type carries fixed interest rates which are higher than current market interest rates. The fair value of these deposits was estimated by discounting the payments using current market interest rates. The Company's universal life policies are also credited with current market interest rates, resulting in a fair value which approximates the carrying amount.

(C)       Debt

The fair value of debt with variable interest rates approximates its carrying amount. The fair value of fixed rate debt is estimated by discounting the cash flows using current market interest rates.

The estimated fair values of financial instruments not disclosed elsewhere in the Notes to Condensed Consolidated Financial Statements are as follows:

				September 30, 2011				December 31, 2010
				Carrying		Fair		Carrying		Fair
				Amount		Value		Amount		Value
				(In thousands)
FINANCIAL ASSETS:
	Policy loans		$	23,104	$	28,168	$	23,216	$	28,298
FINANCIAL
	LIABILITIES:
	Funds on deposit		$	416,017	$	418,751	$	406,366	$	411,036
	Debt and junior
		subordinated debt
		securities		48,146		48,146		45,646		45,646