Note 6 - Fair Value Measurements

3 Months Ended

Mar. 31, 2012

Fair Value Measures and Disclosures

Fair Value Disclosures [Text Block]

6.             Fair Value Measurements

For all financial and non-financial instruments 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 financial instruments at fair value.

Investments in fixed maturities and equity securities

Available-for-sale securities included in Level 1 are equity securities with quoted market prices.  Level 2 is primarily comprised of our portfolio of corporate fixed income securities, government agency mortgage-backed securities, government sponsored enterprises, certain CMO securities, municipals and certain preferred stocks that were priced with observable market inputs.  Level 3 securities consist of certain CMO securities, primarily Alt-A mortgages.  For these securities, we use industry-standard pricing methodologies, including discounted cash flow models, whose inputs are based on management’s assumptions and available market information. Further, we retain independent pricing vendors to assist in valuing certain instruments.

The following tables present our financial assets measured at fair value on a recurring basis at March 31, 2012 and December 31, 2011, respectively (in thousands):

						March 31, 2012
						Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities					$	-	$	30,450	$	-	$	30,450
CMO - residential						-		924		397		1,321
CMO – commercial						-		-		213		213
States, municipalities and political
	subdivisions					-		8,997		-		8,997
U.S. Government						-		6,984		-		6,984
GSE						-		9,416		-		9,416
MBS - residential						-		207		-		207
			Total fixed maturities			-		56,978		610		57,588
Equity securities available-for-sale:
Preferred stock with maturities						326		-		-		326
Preferred stock without maturities						3,068		-		-		3,068
			Total equity securities			3,394		-		-		3,394
Trading securities:
		Common Stock				1,022		-		-		1,022
				Total trading securities		1,022		-		-		1,022
Total financial assets					$	4,416	$	56,978	$	610	$	62,004

				December 31, 2011
				Level 1		Level 2		Level 3		Total
FINANCIAL ASSETS:
Fixed maturities available-for-sale:
Corporate securities			$	-	$	30,475	$	-	$	30,475
CMO - residential				-		1,024		864		1,888
CMO – commercial				-		-		215		215
States, municipalities and political
	subdivisions			-		9,367		-		9,367
U.S. Government				-		6,291		-		6,291
GSE				-		8,983		-		8,983
MBS				-		212		-		212
		Total fixed maturities		-		56,352		1,079		57,431
Equity securities available-for-sale:
Common stock				851		-		-		851
Preferred stock with maturities				308		-		-		308
Preferred stock without maturities				3,072		-		-		3,072
		Total equity securities		4,231		-		-		4,231
Total financial assets			$	4,231	$	56,352	$	1,079	$	61,662

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.  For the three months ending March 31, 2012, there were no transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy.  No securities were transferred out of the Level 2 and into the Level 3 category as a result of limited or inactive markets during the first three months of 2012.  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.  No securities were transferred out of the Level 3 category in the first three months of 2012.  The changes in the carrying value of Level 3 assets and liabilities for the three months ended March 31, 2012 are summarized as follows (in thousands):

			CMOs
			Residential		Commercial		Total
Balance, December 31, 2011		$	864	$	215	$	1,079
Sales of securities			(432)		-		(432)
Repayments of fixed maturities			(39)		-		(39)
Net realized
	investment losses		(41)		-		(41)
Net unrealized gain (loss)
	included in accumulated
	other comprehensive income		45		(2)		43
Balance, March 31, 2012		$	397	$	213	$	610