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Note 4 - Investments

9 Months Ended

Sep. 30, 2024

4.	Investments

The following table details investments by major investment category, other than investments in related parties, at September 30, 2024 and December 31, 2023 (in thousands):

	*September 30, 2024*				*December 31, 2023*
			*Cost/Amortized*				*Cost/Amortized*
	*Fair Value*		*Cost, Net*		*Fair Value*		*Cost, Net*
U.S. government and agency securities, held-to-maturity ⁽¹⁾	$	2,070	$	2,075	$	3,086	$	3,122
Investment in limited partnership, at net asset value ⁽²⁾		2,035		2,035		1,280		1,280
Total investments	$	4,105	$	4,110	$	4,366	$	4,402

(1)

Our held-to-maturity investment portfolio is reported at amortized cost, net of valuation allowance. All securities within the portfolio are rated AA+ by Standard & Poor’s Rating Services (“S&P”).

(2)

As of September 30, 2024, there are no unfunded commitments related to the investment in limited partnership. This limited partnership invests in property catastrophe risk through customized reinsurance solutions. The underlying assets of the limited partnership are one year or less in duration and the Company’s proceeds may be redeemed or reinvested annually. Changes in net asset value of the investment in limited partnership are included in Net investment income on the Company’s Unaudited Consolidated Statements of Operations.

Held-to-Maturity

The following tables provide the amortized cost, gross unrealized investment gains (losses), and fair value of the Company’s held-to-maturity securities as of September 30, 2024 and December 31, 2023 (in thousands):

	*September 30, 2024*
			*Gross*		*Gross*
	*Amortized*		*Unrealized*		*Unrealized*
	*Costs*		*Gains*		*Losses*			*Fair Value*
U.S. government and agency securities, held-to-maturity	$	2,075	$	-	$	(5	)	$	2,070

	*December 31, 2023*
			*Gross*		*Gross*
	*Amortized*		*Unrealized*		*Unrealized*
	*Costs*		*Gains*		*Losses*			*Fair Value*
U.S. government and agency securities, held-to-maturity	$	3,122	$	-	$	(36	)	$	3,086

The table below summarizes our fixed-income securities at September 30, 2024 (dollars in thousands) by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturities of those obligations.

	*Amortized*		*Percent of*					*Percent*
	*Cost*		*Total*			*Fair Value*		*of Total*
Due in one year or less	$	2,075		100.0	%	$	2,070		100.0	%
Total	$	2,075		100.0	%	$	2,070		100.0	%

Fair value measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on our Unaudited Consolidated Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:

Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we can access.

Level 2: Assets and liabilities whose values are based on the following:

a. Quoted prices for similar assets or liabilities in active markets;

b. Quoted prices for identical or similar assets or liabilities in markets that are not active; or

c. Valuation models whose inputs are observable, directly, or indirectly, for substantially the full term of the asset or liability.

Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the assets and liabilities.

Where available, we estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the New York Stock Exchange, Nasdaq and NYSE American. For securities for which quoted prices in active markets are unavailable, we use a third-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable.

Our fixed-income securities are classified as held-to-maturity and are reported at amortized cost as of September 30, 2024 and December 31, 2023. The Company performs ongoing impairment evaluations, and we did not record any current expected credit losses during the three or nine months ended September 30, 2024 and 2023, as U.S. government and agency securities are assumed to have no risk of non-payment.

The disclosed fair value of our fixed-income securities is initially calculated by a third-party pricing service. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed-income and other securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial information. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector and, where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience.

The following tables present fair value, by valuation hierarchy, and carrying value of the financial instruments not measured at fair value for which fair value is disclosed as of September 30, 2024 and December 31, 2023 (in thousands):

	*September 30, 2024*
							*Total Fair*		*Carrying*
	*Level 1*		*Level 2*		*Level 3*		*Value*		Value ⁽¹⁾
U.S. government and agency securities, held-to-maturity	$	-	$	2,070	$	-	$	2,070	$	2,075

	*December 31, 2023*
							*Total Fair*		*Carrying*
	*Level 1*		*Level 2*		*Level 3*		*Value*		Value ⁽¹⁾
U.S. government and agency securities, held-to-maturity	$	-	$	3,086	$	-	$	3,086	$	3,122

(1)

The carrying value measurements in the tables above do not equal Investments on our Unaudited Consolidated Balance Sheets as they exclude the Company's investment in limited partnership carried at NAV (as defined below) as a practical expedient.

The Company has elected the practical expedient for fair value for its investment in limited partnership which is estimated based on our share of the net asset value (“NAV”) of the limited partnership, as provided by the independent fund administrator. The Company’s share of the NAV represents the Company’s proportionate interest in the members’ equity of the limited partnership.

The Company’s investments in related parties are accounted for either under the equity method of accounting or, where they do not meet the criteria of accounting under the equity method, under the cost adjusted for market observable events less impairment method. For information about the Company’s investments in related parties, refer to Note 3, Investments in Related Parties.

Net investment income

Net investment income for the three and nine months ended September 30, 2024 and 2023 is detailed below (in thousands):

	*For the Three Months Ended*						*For the Nine Months Ended*
	*September 30, 2024*			*September 30, 2023*			*September 30, 2024*			*September 30, 2023*

Interest on:
Cash equivalents	$	70		$	83		$	273		$	227
Fixed income securities		35			37			88			112
Dividends on investment in HC Series B Stock		-			256			256			769
Change in NAV of investment in limited partnership		222			214			273			214
Less: Investment expense		(2	)		(2	)		(4	)		(4	)
Net investment income	$	325		$	588		$	886		$	1,318