Investments and Estimated Fair Value

Investments in Securities

The aggregate estimated fair value, gross unrealized holding gains, gross unrealized holding losses and cost or amortized cost for securities by major security type are as follows:



As of June 30, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities, available-for-sale, at fair value:
General obligations of U.S. states, territories and political subdivisions	$	33,490,433	$	1,456,384	$	—	$	34,946,817
Special revenue issuer obligations of U.S. states, territories and political subdivisions	56,437,628		4,490,430		678		60,927,380
Corporate debt securities	16,836,147		961,889		—		17,798,036
Total	$	106,764,208	$	6,908,703	$	678	$	113,672,233
Equity securities, available-for-sale, at fair value:
Common stocks	$	23,998,522	$	15,057,993	$	94,610	$	38,961,905
Total	$	23,998,522	$	15,057,993	$	94,610	$	38,961,905
Short-term investments:
Money market funds and certificates of deposit	$	2,665,302	$	—	$	—	$	2,665,302
Total	$	2,665,302	$	—	$	—	$	2,665,302



As of December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities, available-for-sale, at fair value:
General obligations of U.S. states, territories and political subdivisions	$	31,883,439	$	987,595	$	11,734	$	32,859,300
Special revenue issuer obligations of U.S. states, territories and political subdivisions	52,202,815		2,604,152		26,127		54,780,840
Corporate debt securities	17,004,985		539,832		58,473		17,486,344
Auction rate securities	924,587		15,313		—		939,900
Total	$	102,015,826	$	4,146,892	$	96,334	$	106,066,384
Equity securities, available-for-sale, at fair value:
Common stocks and nonredeemable preferred stocks	$	23,855,873	$	13,785,968	$	128,377	$	37,513,464
Total	$	23,855,873	$	13,785,968	$	128,377	$	37,513,464
Short-term investments:
Money market funds and certificates of deposit	$	6,865,406	$	—	$	—	$	6,865,406
Total	$	6,865,406	$	—	$	—	$	6,865,406

The special revenue category for both periods presented includes approximately 50 individual bonds with revenue sources from a variety of municipal sectors.

The scheduled maturities of fixed maturity securities at June 30, 2016 were as follows:



	Available-for-Sale
	Amortized Cost		Fair Value
Due in one year or less	$	22,144,063	$	22,385,064
Due after one year through five years	35,145,286		37,191,882
Due five years through ten years	47,484,081		51,467,938
Due after ten years	1,990,778		2,627,349
Total	$	106,764,208	$	113,672,233

Realized gains and losses on investments for the six-month periods ended June 30 are summarized as follows:



	2016			2015
Gross realized gains from securities:
Special revenue issuer obligations of U.S. states, territories and political subdivisions	$	160		$	—
Corporate debt securities	20			999
Common stocks and nonredeemable preferred stocks	282,454			944,564
Auction rate securities	74,996			—
Total	$	357,630		$	945,563
Gross realized losses from securities:
General obligations of U.S. states, territories and political subdivisions	$	—		$	(12,319	)
Special revenue issuer obligations of U.S. states, territories and political subdivisions	(1,085		)	(398		)
Common stocks and nonredeemable preferred stocks	(116,953		)	(834		)
Other-than-temporary impairment of securities	(115,238		)	(11,149		)
Total	$	(233,276	)	$	(24,700	)
Net realized gain from securities	$	124,354		$	920,863
Net realized gain on other investments:
Gains on other investments	$	10,648		$	19,104
Total	$	10,648		$	19,104
Net realized gain on investments	$	135,002		$	939,967

Realized gains and losses are determined on the specific identification method.

The following table presents the gross unrealized losses on investment securities and the fair value of the securities, aggregated by investment category and length of time that individual securities have been in a continuous loss position at June 30, 2016 and December 31, 2015:



	Less than 12 Months					12 Months or Longer					Total
As of June 30, 2016	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
General obligations of U.S. states, territories and political subdivisions	$	—	$	—		$	—	$	—		$	—	$	—
Special revenue issuer obligations of U.S. states, territories and political subdivisions	884,083		(678		)	—		—			884,083		(678		)
Corporate debt securities	—		—			—		—			—		—
Total fixed income securities	$	884,083	$	(678	)	$	—	$	—		$	884,083	$	(678	)
Equity securities	$	1,138,863	$	(77,707	)	$	269,035	$	(16,903	)	$	1,407,898	$	(94,610	)
Total temporarily impaired securities	$	2,022,946	$	(78,385	)	$	269,035	$	(16,903	)	$	2,291,981	$	(95,288	)



	Less than 12 Months					12 Months or Longer					Total
As of December 31, 2015	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
General obligations of U.S. states, territories and political subdivisions	$	1,758,345	$	(11,734	)	$	—	$	—		$	1,758,345	$	(11,734	)
Special revenue issuer obligations of U.S. states, territories and political subdivisions	1,672,217		(5,139		)	1,183,963		(20,989		)	2,856,180		(26,128		)
Corporate debt securities	6,981,275		(58,472		)	—		—			6,981,275		(58,472		)
Total fixed income securities	$	10,411,837	$	(75,345	)	$	1,183,963	$	(20,989	)	$	11,595,800	$	(96,334	)
Equity securities	$	5,533,667	$	(128,377	)	$	—	$	—		$	5,533,667	$	(128,377	)
Total temporarily impaired securities	$	15,945,504	$	(203,722	)	$	1,183,963	$	(20,989	)	$	17,129,467	$	(224,711	)

As of June 30, 2016, the Company held $884,083 in fixed maturity securities with unrealized losses of $678. As of December 31, 2015, the Company held $11,595,800 in fixed maturity securities with unrealized losses of $96,334. The decline in fair value of the fixed maturity securities can be attributed primarily to changes in market interest rates and changes in credit spreads over Treasury securities. Because the Company does not have the intent to sell these securities and will likely not be compelled to sell them before it can recover its cost basis, the Company does not consider these investments to be other-than-temporarily impaired.

As of June 30, 2016, the Company held $1,407,898 in equity securities with unrealized losses of $94,610. As of December 31, 2015, the Company held $5,533,667 in equity securities with unrealized losses of $128,377. The unrealized losses related to holdings of equity securities were caused by market changes that the Company considers to be temporary. Since the Company has the intent and ability to hold these equity securities until a recovery of fair value, the Company does not consider these investments other-than-temporarily impaired.

Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been below cost, the financial condition and prospects of the issuer (including credit ratings and analyst reports) and macro-economic changes. A total of 7 and 30 securities had unrealized losses at June 30, 2016 and December 31, 2015, respectively. Reviews of the values of securities are inherently uncertain and the value of the investment may not fully recover, or may decline in future periods resulting in a realized loss. The Company recorded other-than-temporary impairment charges for debt and equity investments in the amount of $115,238 for the six-month period ended June 30, 2016 and $11,149 for the six-month period ended June 30, 2015. Other-than-temporary impairment charges are included in net realized gain on investments in the Consolidated Statements of Income.

Variable Interest Entities

The Company holds investments in VIEs that are not consolidated in the Company's financial statements as the Company is not the primary beneficiary. These entities are considered VIEs as the equity investors at risk, including the Company, do not have the power over the activities that most significantly impact the economic performance of the entities; this power resides with a third-party general partner or managing member that cannot be removed except for cause. The following table sets forth details about the Company's variable interest investments in VIEs, which are structured either as limited partnerships ("LPs") or limited liability companies ("LLCs"), as of June 30, 2016:



Type of Investment	Balance Sheet Classification	Carrying Value		Estimated Fair Value		Maximum Potential Loss (a)
Tax credit LPs	Other investments	$	1,072,261	$	1,072,261	$	1,325,000
Real estate LLCs or LPs	Other investments	3,360,151		3,298,444		6,350,000
Small business investment LPs	Other investments	2,490,953		1,893,348		5,400,000
Total		$	6,923,365	$	6,264,053	$	13,075,000



(a)		Maximum potential loss is calculated as the total investment in the LLC or LP including any capital commitments that may have not yet been called. The Company is not exposed to any loss beyond the total commitment of its investment.

Valuation of Financial Assets and Liabilities

The FASB has established a valuation hierarchy for disclosure of the inputs used to measure estimated fair value of financial assets and liabilities, such as securities. This hierarchy categorizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.

A financial instrument’s classification within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement – consequently, if there are multiple significant valuation inputs that are categorized in different levels of the hierarchy, the instrument’s hierarchy level is the lowest level (with Level 3 being the lowest level) within which any significant input falls.

Debt and Equity Securities

The Level 1 category includes equity securities that are measured at estimated fair value using quoted active market prices.

The Level 2 category includes fixed maturity investments such as corporate bonds, U.S. government and agency bonds and municipal bonds. Estimated fair value is principally based on market values obtained from a third party pricing service. Factors that are used in determining estimated fair market value include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. The Company receives one quote per security from a third party pricing service, although as discussed below, the Company does consult other pricing resources when confirming that the prices it obtains reflect the fair values of the instruments in accordance with ASC 820, Fair Value Measurements and Disclosures. Generally, quotes obtained from the pricing service for instruments classified as Level 2 are not adjusted and are not binding. As of June 30, 2016 and December 31, 2015, the Company did not adjust any Level 2 fair values.

A number of the Company’s investment grade corporate bonds are frequently traded in active markets, and trading prices are consequently available for these securities. However, these securities are classified as Level 2 because the pricing service from which the Company has obtained estimated fair values for these instruments uses valuation models that use observable market inputs in addition to trading prices. Substantially all of the input assumptions used in the service’s model are observable in the marketplace or can be derived or supported by observable market data.

The Level 3 category only includes the Company's investments in student loan auction securities ("ARS") because quoted prices are unavailable due to failed auctions. The Company’s ARS portfolio, which was comprised entirely of an investment grade student loan ARS, was sold during the first quarter of 2016. The par value of this security was $1,000,000 as of December 31, 2015, with approximately 97.0% guaranteed by the U.S. Department of Education.

Some of the inputs to ARS valuation are unobservable in the market and are significant; therefore, the Company utilized another third party pricing service to assist in the determination of the estimated fair market value of these securities. This service used a proprietary valuation model that considered factors such as the following: the financial standing of the issuer; reported prices and the extent of public trading in similar financial instruments of the issuer or comparable companies; the ability of the issuer to obtain required financing; changes in the economic conditions affecting the issuer; pricing by other dealers in similar securities; time to maturity; and interest rates. The pricing service provided a range of values to the Company for its ARS. The Company recorded the estimated fair value based on the midpoint of the range and believes that this valuation is the most reasonable estimate of fair value. In 2015, the difference in the low and high values of the ranges was approximately one to four percent of the carrying value of the Company’s ARS.

The following table presents, by level, the financial assets carried at estimated fair value measured on a recurring basis as of June 30, 2016 and December 31, 2015. The table does not include cash on hand and also does not include assets that are measured at historical cost or any basis other than fair value. Level 3 assets are comprised solely of ARS.



As of June 30, 2016	Level 1		Level 2		Level 3		Total
Short-term investments	$	2,665,302	$	—	$	—	$	2,665,302
Equity securities:
Common stock	38,961,905		—		—		38,961,905
Fixed maturities:
Obligations of U.S. states, territories and political subdivisions*	—		95,874,197		—		95,874,197
Corporate debt securities*	—		17,798,036		—		17,798,036
Total	$	41,627,207	$	113,672,233	$	—	$	155,299,440



As of December 31, 2015	Level 1		Level 2		Level 3		Total
Short-term investments	$	6,865,406	$	—	$	—	$	6,865,406
Equity securities:
Common stock	37,513,464		—		—		37,513,464
Fixed maturities:
Obligations of U.S. states, territories and political subdivisions*	—		87,640,140		—		87,640,140
Corporate debt securities*	—		17,486,344		939,900		18,426,244
Total	$	44,378,870	$	105,126,484	$	939,900	$	150,445,254

*Denotes fair market value obtained from pricing services.

There were no transfers into or out of Levels 1, 2 or 3 during the period.

To help ensure that fair value determinations are consistent with ASC 820, prices from our pricing services go through multiple review processes to ensure appropriate pricing. Pricing procedures and inputs used to price each security include, but are not limited to, the following: unadjusted quoted market prices for identical securities such as stock market closing prices; non-binding quoted prices for identical securities in markets that are not active; interest rates; yield curves observable at commonly quoted intervals; volatility; prepayment speeds; loss severity; credit risks and default rates. The Company reviews the procedures and inputs used by its pricing services, and verifies a sample of the services’ quotes by comparing them to values obtained from other pricing resources. In the event the Company disagrees with a price provided by its pricing services, the respective service reevaluates the price to corroborate the market information and then reviews inputs to the evaluation in light of potentially new market data. The Company believes that these processes and inputs result in appropriate classifications and fair values consistent with ASC 820.

Other Financial Instruments

The Company uses various financial instruments in the normal course of its business. In the measurement of the estimated fair value of certain financial instruments, other valuation techniques were utilized if quoted market prices were not available. These derived fair value estimates are significantly affected by the assumptions used. Additionally, ASC 820 excludes from its scope certain financial instruments, including those related to insurance contracts, pension and other postretirement benefits, and equity method investments.

In estimating the fair value of the financial instruments presented, the Company used the following methods and assumptions:

Cash and cash equivalents

The carrying amount for cash and cash equivalents is a reasonable estimate of fair value due to the short-term maturity of these investments.

Cost-basis investments

The estimated fair value of cost-basis investments is calculated from the book value of the underlying entities, which is not materially different from the fair value of the underlying entity. These items are included in other investments in the Consolidated Balance Sheets.

Accrued dividends and interest

The carrying amount for accrued dividends and interest is a reasonable estimate of fair value due to the short-term maturity of these assets.

The carrying amounts and estimated fair values of other financial instruments (see previous table for investments carried at estimated fair value) as of June 30, 2016 and December 31, 2015 are presented in the following table:



As of June 30, 2016	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash	$	22,619,643	$	22,619,643	$	22,619,643	$	—	$	—
Cost-basis investments	3,514,919		4,063,813		—		—		4,063,813
Accrued dividends and interest	1,067,546		1,067,546		1,067,546		—		—
Total	$	27,202,108	$	27,751,002	$	23,687,189	$	—	$	4,063,813



As of December 31, 2015	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash	$	21,790,068	$	21,790,068	$	21,790,068	$	—	$	—
Cost-basis investments	3,588,314		3,684,020		—		—		3,684,020
Accrued dividends and interest	1,004,126		1,004,126		1,004,126		—		—
Total	$	26,382,508	$	26,478,214	$	22,794,194	$	—	$	3,684,020

The following table presents a reconciliation of the Company’s assets measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3), which are all ARS securities, for the period ended June 30, 2016 and the year ended December 31, 2015:



Changes in fair value during the period ended:	2016			2015
Beginning balance at January 1	$	939,900		$	939,100
Redemptions and sales	(1,000,000		)	—
Realized gain – included in net realized gain on investments	74,996			—
Unrealized (loss) gain – included in other comprehensive income (loss)	(14,896		)	800
Ending balance, net	$	—		$	939,900

Certain cost-basis investments are measured at estimated fair value on a non-recurring basis, such as investments that are determined to be other-than-temporarily impaired during the period and recorded at estimated fair value in the Consolidated Financial Statements as of June 30, 2016 and December 31, 2015. The following table summarizes the corresponding estimated fair value hierarchy of such investments at June 30, 2016 and December 31, 2015 and the related impairments recognized:

As of June 30, 2016

Valuation

Method

Impaired

Level 1

Level 2

Level 3

Total at

Estimated

Fair

Value

Impairment

Losses

Cost-basis investments

Fair Value

—

Total cost-basis investments

—



As of December 31, 2015	Valuation Method	Impaired	Level 1		Level 2		Level 3		Total at Estimated Fair Value		Impairment Losses
Cost-basis investments	Fair Value	Yes	$	—	$	—	$	163,350	$	163,350	$	(233,069	)
Total cost-basis investments			$	—	$	—	$	163,350	$	163,350	$	(233,069	)