(8) Fair Value:

Assets and liabilities recorded at fair value in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:

As of September 30, 2018:

Description	Total		Level 1		Level 2		Level 3
Fixed maturities:
Agency collateralized mortgage obligations	$	10,471	$	–	$	10,471	$	–
Agency mortgage-backed securities		36,181		–		36,181		–
Asset-backed securities		53,881		–		53,881		–
Bank loans		17,067		–		17,067		–
Certificates of deposit		3,126		3,126		–		–
Collateralized mortgage obligations		5,131		–		5,131		–
Corporate securities		193,325		–		193,325		–
Options embedded in convertible securities		5,373		–		5,373		–
Mortgage-backed securities		32,790		–		29,162		3,628
Municipal obligations		30,594		–		30,594		–
Non-U.S. government obligations		39,750		–		39,750		–
U.S. government obligations		163,272		–		163,272		–
Total fixed maturities		590,961		3,126		584,207		3,628
Equity securities:
Consumer		25,632		25,632		–		–
Energy		6,438		6,438		–		–
Financial		39,917		39,917		–		–
Industrial		12,011		12,011		–		–
Technology		3,657		3,657		–		–
Funds (e.g. mutual funds, closed end funds, ETFs)		9,587		9,587		–		–
Other		11,857		11,857		–		–
Total equity securities		109,099		109,099		–		–
Short-term		1,000		1,000		–		–
Cash equivalents		104,662		–		104,662		–
Total	$	805,722	$	113,225	$	688,869	$	3,628

As of December 31, 2017:

Description	Total		Level 1		Level 2		Level 3
Fixed maturities:
Agency collateralized mortgage obligations	$	16,586	$	–	$	16,586	$	–
Agency mortgage-backed securities		27,075		–		27,075		–
Asset-backed securities		43,469		–		43,469		–
Bank loans		19,488		–		19,488		–
Certificates of deposit		3,135		3,135		–		–
Collateralized mortgage obligations		6,492		–		6,492		–
Corporate securities		193,058		–		193,058		–
Options embedded in convertible securities		5,291		–		5,291		–
Mortgage-backed securities		24,204		–		24,204		–
Municipal obligations		96,650		–		96,650		–
Non-U.S. government obligations		37,394		–		37,394		–
U.S. government obligations		49,011		–		49,011		–
Total fixed maturities		521,853		3,135		518,718		–
Equity securities:
Consumer		46,578		46,578		–		–
Energy		10,278		10,278		–		–
Financial		45,470		45,470		–		–
Industrial		25,402		25,402		–		–
Technology		13,061		13,061		–		–
Funds (e.g. mutual funds, closed end funds, ETFs)		50,291		45,276		5,015		–
Other		10,683		10,683		–		–
Total equity securities		201,763		196,748		5,015		–
Short-term		1,000		1,000		–		–
Cash equivalents		59,173		–		59,173		–
Total	$	783,789	$	200,883	$	582,906	$	–

Level inputs, as defined by the FASB guidance, are as follows:

Level Input:		Input Definition:

Level 1		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

Level 2		Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.

Level 3		Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The Company's Level 3 assets consist primarily of a portfolio of commercial mortgage-backed securities. The assets are valued using various unobservable inputs including extrapolated data, proprietary models and indicative quotes. A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows for the nine months ended September 30, 2018 and for the year ended December 31, 2017:

	2018		2017
Beginning of period balance	$	–	$	25,218
Total gains or losses (realized) included in income		–		406
Purchases		3,628		81
Settlements		–		(9,123)
Transfers into Level 3		–		144
Transfers out of Level 3		–		(16,726)
End of period balance	$	3,628	$	–

Quoted market prices are obtained whenever possible. Where quoted market prices are not available, fair values are estimated using broker/dealer quotes for specific securities. These techniques are significantly affected by the Company's assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs have not been considered in estimating fair values.

Transfers between levels, if any, are recorded as of the beginning of the reporting period. There were no significant transfers of assets between Level 1 and Level 2 during the nine months ended September 30, 2018 and 2017.

In addition to the preceding disclosures on assets recorded at fair value in the condensed consolidated balance sheets, FASB guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in the condensed consolidated balance sheets.

Non-financial instruments such as real estate, property and equipment, other assets, deferred income taxes and intangible assets, and certain financial instruments such as policy reserve liabilities are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to determine the underlying economic value of the Company. The following methods, assumptions and inputs were used to estimate the fair value of each class of financial instrument.

Limited partnerships: The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to carry the investment at its proportionate share of the limited partnership's equity. The underlying assets of the Company's investments in limited partnerships are carried primarily at fair value, and, therefore, the Company's carrying value of limited partnerships approximates fair value. As these investments are not actively traded and the corresponding inputs are based on data provided by the investees, they are classified as Level 3.

Short-term borrowings: The fair value of the Company's short-term borrowings is based on quoted market prices for the same or similar debt, or, if no quoted market prices are available, on the current market interest rates available to the Company for debt of similar terms and remaining maturities.

A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company's condensed consolidated balance sheets at September 30, 2018 and December 31, 2017 is as follows:

	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total
September 30, 2018
Assets: Limited partnerships	$	64,369	$	–	$	–	$	64,369	$	64,369
Liabilities: Short-term borrowings		20,000		–		20,000		–		20,000

December 31, 2017
Assets: Limited partnerships		70,806		–		–		70,806		70,806
Liabilities: Short-term borrowings		20,000		–		20,000		–		20,000