Note 7 Fair Value

3 Months Ended

Mar. 31, 2012

Fair Value Measures and Disclosures

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.

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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.

  The following tables present our financial assets and liabilities measured at fair value on a recurring basis, at March 31, 2012 and December 31, 2011, respectively (in thousands):

March 31, 2012
				Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Fixed maturities available-for-sale:
	Corporate securities		$	-	$	345,715	$	-	$	345,715
	CMOs - residential			-		13,448		13,350		26,798
	CMOs - commercial			-		-		533		533
	US Government obligations			-		22,294		-		22,294
	Agency MBS - residential			-		542		-		542
	GSEs			-		60,743		-		60,743
	States and political subdivisions			-		257,541		2,643		260,184
		Total fixed maturities		-		700,283		16,526		716,809
Equity securities available-for-sale:
	Common stocks			3,080		-		-		3,080
	Preferred stocks - perpetual			16,755		-		-		16,755
	Preferred stocks - with maturities			9,628		-		-		9,628
		Total equity securities		29,463		-		-		29,463
Trading securities:
	Common stocks			6,851		-		-		6,851
		Total trading securities		6,851		-		-		6,851
		Total Financial Assets	$	36,314	$	700,283	$	16,526	$	753,123
FINANCIAL LIABILITIES:
		Interest rate swap	$	-	$	530	$	-	$	530

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December 31, 2011
				Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Fixed maturities available-for-sale:
	Corporate securities		$	-	$	323,140	$	-	$	323,140
	CMOs - residential			-		14,648		22,127		36,775
	CMOs - commercial			-		-		538		538
	US Government obligations			-		166,582		-		166,582
	Agency MBS - residential			-		585		-		585
	GSEs			-		59,851		-		59,851
	States and political subdivisions			-		255,402		-		255,402
		Total fixed maturities		-		820,208		22,665		842,873
Equity securities available-for-sale:
	Common stocks			6,699		-		-		6,699
	Preferred stocks - perpetual			21,738		-		-		21,738
	Preferred stocks - with maturities			9,104		-		-		9,104
		Total equity securities		37,541		-		-		37,541
		Total Financial Assets	$	37,541	$	820,208	$	22,665	$	880,414
FINANCIAL LIABILITIES:
	Interest rate swap		$	-	$	494	$	-	$	494

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 March 31, 2012, 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 March 31, 2012. 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 2012. The changes in the carrying value of Level 3 assets and liabilities for the three months ended March 31, 2012 are summarized as follows (in thousands):

					March 31, 2012
					CMOs
									States and Political
					Residential		Commercial		Subdivisions		Total
Beginning balance				$	22,127	$	538	$	-	$	22,665
Purchases of securities					-		-		2,135		2,135
Gains(losses) included in earnings:
			Net realized investment losses		(1,212)		-		-		(1,212)
			Other-than-temporary impairments		(83)		-		-		(83)
Net unrealized gains (losses) included in
		accumulated other comprehensive loss			671		(5)		496		1,162
Sales of securities					(7,087)		-		-		(7,087)
Repayments and amortization of
	fixed maturities				(1,065)		-		11		(1,054)
Balance at end of period				$	13,351	$	533	$	2,642	$	16,526

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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 included in level 2 of the fair value hierarchy 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. Both types of funds on deposit are included in level 2 of the fair value hierarchy.

(C)

Debt

The fair value of debt with variable interest rates approximates its carrying amount and is included in level 2 of the fair value hierarchy.

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

				March  31, 2012				December 31, 2011
				Carrying		Fair		Carrying		Fair
				Amount		Value		Amount		Value
				(In thousands)
FINANCIAL ASSETS:
	Policy loans		$	22,951	$	29,342	$	23,109	$	29,511
FINANCIAL
	LIABILITIES:
	Funds on deposit		$	421,796	$	424,596	$	417,310	$	418,823
	Debt and junior
		subordinated debt
		securities	$	48,146	$	48,146	$	48,146	$	48,146

  The following tables present the categorization by level of the fair value hierarchy for items above that are not carried at fair value in the Condensed Consolidated Financial Statements, at March 31, 2012 and December 31, 2011, respectively (in thousands):

March 31, 2012
					Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
	Policy loans			$	-	$	29,342	$	-	$	29,342
FINANCIAL LIABILITIES:
		Funds on deposit		$	-	$	424,596	$	-	$	424,596
		Debt and junior subordinated
			debt securities	$	-	$	48,146	$	-	$	48,146

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December 31, 2011
					Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
	Policy loans			$	-	$	29,511	$	-	$	29,511
FINANCIAL LIABILITIES:
		Funds on deposit		$	-	$	418,823	$	-	$	418,823
		Debt and junior subordinated
			debt securities	$	-	$	48,146	$	-	$	48,146