Fair Value Disclosures [Text Block]

6 Months Ended

Jun. 30, 2020

Notes

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, 2020
		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities	$	-	$	134,745	$	-	$	134,745
CMOs - residential		-		5,245		-		5,245
US Government obligations		-		51,438		-		51,438
GSEs		-		5,815		-		5,815
States and political subdivisions		-		180,262		1,433		181,695
Foreign government obligations		-		5,307		-		5,307
Total fixed maturities		-		382,812		1,433		384,245
Equity securities:
Common stocks		2,558		-		-		2,558
Nonredeemable preferred stocks		891		-		-		891
Total equity securities		3,449		-		-		3,449
Total Financial Assets	$	3,449	$	382,812	$	1,433	$	387,694

		December 31, 2019
		Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities	$	-	$	162,023	$	-	$	162,023
CMOs - residential		-		5,382		-		5,382
US Government obligations		-		50,549		-		50,549
GSEs		-		6,123		-		6,123
States and political subdivisions		-		152,479		1,529		154,008
Foreign government obligations		-		6,889		-		6,889
Total fixed maturities		-		383,445		1,529		384,974
Equity securities:
Common stocks		2,864		-		-		2,864
Nonredeemable preferred stocks		883		-		-		883
Total equity securities		3,747		-		-		3,747
Total Financial Assets	$	3,747	$	383,445	$	1,529	$	388,721

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,
		2020				2019
		States and		Total		States and		Total
		Political		Level 3		Political		Level 3
		Subdivisions		Assets		Subdivisions		Assets
Beginning balance	$	1,481	$	1,481	$	1,664	$	1,664
Increases (decreases) recognized in earnings:
Net investment gains		-		-		-		-
Gains (losses) included in other
comprehensive income (loss):
Net unrealized gains (losses)		(6)		(6)		(6)		(6)
Repayments and amortization of
fixed maturities		(42)		(42)		(38)		(38)
Balance at end of period	$	1,433	$	1,433	$	1,620	$	1,620

		Six Months Ended June 30,
		2020				2019
		States and		Total		States and		Total
		Political		Level 3		Political		Level 3
		Subdivisions		Assets		Subdivisions		Assets
Beginning balance	$	1,529	$	1,529	$	1,709	$	1,709
Increases (decreases) recognized in earnings:
Net investment gains		-		-		-		-
Gains (losses) included in other
comprehensive income (loss):
Net unrealized gains (losses)		(12)		(12)		(14)		(14)
Repayments and amortization of
fixed maturities		(84)		(84)		(75)		(75)
Balance at end of period	$	1,433	$	1,433	$	1,620	$	1,620

Included in unrealized gains (losses) on available-for-sale securities, pre-tax, on the Condensed Consolidated Statement of Comprehensive Income for the three months and six months ended June 30, 2020 are $(6,000) and $(12,000), respectively, of unrealized gains(losses) attributable to the change in unrealized gains (losses) related to Level 3 securities held at June 30, 2020.

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, 2020						December 31, 2019
		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	$	1,149	$	-	$	1,149	$	50	$	-	$	50
Securities purchased under
agreements to resell		101,417		-		101,417		107,157		-		107,157
FINANCIAL LIABILITIES:
Funds on deposit	$	-	$	141,641	$	141,597	$	-	$	141,010	$	140,951
Other policyholders’ funds		-		11,646		11,646		-		12,049		12,049

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:

Securities purchased under agreements to resell

Securities purchased under agreements to resell are carried at the amounts at which the securities will be subsequently resold, which approximates fair value.

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.

Other Policyholders’ Funds

Other policyholders’ funds are primarily credited with current market interest rates resulting in a fair value which approximates the carrying amount.