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Fair Value Disclosures [Text Block]

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures

Note 5.Fair Value Disclosures

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.

Fixed maturities available-for-sale:

Fixed maturities available-for-sale included in Level 2 are comprised of our portfolio of government securities, agency mortgage-backed securities, corporate fixed income securities, foreign government obligations, collateralized mortgage obligations, municipals and GSEs that were priced with observable market inputs. Level 3 debt securities consist of municipal tax credit strips. The valuation method used to determine the fair value of municipal tax credit strips is the present value of the remaining future tax credits (at the original issue discount rate) as presented in the redemption tables in the Municipal Prospectuses. This original issue discount is accreted into income on a constant yield basis over the term of the debt instrument. Further, we retain independent pricing vendors to assist in valuing certain instruments.

Equity securities:

Equity securities included in Level 1 are equity securities with quoted market prices.

The following tables present our financial assets measured at fair value on a recurring basis for the periods indicated (in thousands):

		June 30, 2018
		Level 1			Level 2		Level 3		Total

FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities	$	`-`		$	`181,964`	$	`-`	$	`181,964`
CMOs - residential		`-`			`6,127`		`-`		`6,127`
US Government obligations		`-`			`55,452`		`-`		`55,452`
Agency MBS - residential		`-`			`8`		`-`		`8`
GSEs		`-`			`9,435`		`-`		`9,435`
States and political subdivisions		`-`			`171,233`		`1,794`		`173,027`
Foreign government obligations		`-`			`4,027`		`-`		`4,027`
Redeemable preferred stocks		`10,037`			`-`		`-`		`10,037`
Total fixed maturities		`10,037`			`428,246`		`1,794`		`440,077`

Equity securities:
Common stocks		`4,749`			`-`		`-`		`4,749`
Nonredeemable preferred stocks		`513`			`-`		`-`		`513`
Total equity securities		`5,262`			`-`		`-`		`5,262`

Total Financial Assets	$	`15,299`		$	`428,246`	$	`1,794`	$	`445,339`

		December 31, 2017
		Level 1			Level 2		Level 3		Total

FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities	$	`-`		$	`146,447`	$	`-`	$	`146,447`
CMOs - residential		`-`			`6,677`		`-`		`6,677`
US Government obligations		`-`			`85,114`		`-`		`85,114`
Agency MBS - residential		`-`			`14`		`-`		`14`
GSEs		`-`			`9,682`		`-`		`9,682`
States and political subdivisions		`-`			`177,767`		`1,876`		`179,643`
Foreign government obligations		`-`			`4,150`		`-`		`4,150`
Redeemable preferred stocks		`10,185`			`-`		`-`		`10,185`
Total fixed maturities		`10,185`			`429,851`		`1,876`		`441,912`

Equity securities:
Common stocks		`2,490`			`-`		`-`		`2,490`
Nonredeemable preferred stocks		`3,630`			`-`		`-`		`3,630`
Total equity securities		`6,120`			`-`		`-`		`6,120`

Total Financial Assets	$	`16,305`		$	`429,851`	$	`1,876`	$	`448,032`

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. 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. The Company did not transfer any securities between Level 1, Level 2 or Level 3 in either 2018 or 2017.

The following table presents the changes in fair value of our Level 3 financial assets for the periods indicated (in thousands):

		Three Months Ended June 30,
		2018				2017
		States and		Total		States and		Total
		Political		Level 3		Political		Level 3
		Subdivisions		Assets		Subdivisions		Assets

Beginning balance	$	`1,836`	$	`1,836`	$	`1,995`	$	`1,995`

Increases (decreases) recognized in earnings:
Net investment gains		`-`		`-`		`-`		`-`

Gains (losses) included in other
comprehensive income (loss):
Net unrealized gains (losses)		`(8)`		`(8)`		`(9)`		`(9)`

Repayments and amortization of
fixed maturities		`(34)`		`(34)`		`(30)`		`(30)`
Sales		`-`		`-`		`-`		`-`

Balance at end of period	$	`1,794`	$	`1,794`	$	`1,956`	$	`1,956`

		Six Months Ended June 30,
		2018				2017
		States and		Total		States and		Total
		Political		Level 3		Political		Level 3
		Subdivisions		Assets		Subdivisions		Assets

Beginning balance	$	`1,876`	$	`1,876`	$	`2,033`	$	`2,033`

Increases (decreases) recognized in earnings:
Net investment gains		`-`		`-`		`-`		`-`

Gains (losses) included in other
comprehensive income (loss):
Net unrealized gains (losses)		`(15)`		`(15)`		`(18)`		`(18)`

Repayments and amortization of
fixed maturities		`(67)`		`(67)`		`(59)`		`(59)`
Sales		`-`		`-`		`-`		`-`

Balance at end of period	$	`1,794`	$	`1,794`	$	`1,956`	$	`1,956`

The following table provides carrying values, fair values and classification in the fair value hierarchy of the Company’s financial instruments, that are not carried at fair value but are subject to fair value disclosure requirements, for the periods indicated (in thousands):

June 30, 2018

December 31, 2017

Level 1

Level 2

Level 1

Level 2

Fair

Fair

Carrying

Fair

Fair

Carrying

Value

Value

Value

Value

Value

Value

FINANCIAL ASSETS:

Short-term investments

$

50

$

-

$

50

$

50

$

-

$

50

FINANCIAL LIABILITIES:

Funds on deposit

$

-

$

142,703

$

142,564

$

-

$

143,702

$

143,537

The following methods and assumptions were used to estimate the fair value of the financial instruments that are not carried at fair value in the Condensed Consolidated Financial Statements:

Short-term Investments

Investments with original maturities of 91 days to one year are considered short-term investments and are carried at cost, which approximates fair value.

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.

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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