Note 6 — Fair Value Measurements

The Company records and discloses certain financial assets at their estimated fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:


Level 1	—	Unadjusted quoted prices in active markets for identical assets;

Level 2	—	Other inputs that are observable for the asset and the liability, either directly or indirectly such as quoted prices for identical assets and liabilities that are not observable throughout the full term; and

Level 3	—	Inputs that are unobservable.

Valuation Methodology

Cash and cash equivalents

Cash and cash equivalents primarily consist of money-market funds. Their carrying value approximates fair value due to the short maturity and high liquidity of these funds.

Available-for-sale securities

Estimated fair values of the Company’s available-for-sale securities are determined in accordance with U.S. GAAP, using valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair values are generally measured using quoted prices in active markets for identical securities or other inputs that are observable either directly or indirectly, such as quoted prices for similar securities. In those instances where observable inputs are not available, fair values are measured using unobservable inputs. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the security and are developed based on the best information available in the circumstances. Fair value estimates derived from unobservable inputs are significantly affected by the assumptions used, including the discount rates and the estimated amounts and timing of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and are not necessarily indicative of the amounts that would be realized in a current market exchange.

The estimated fair values for securities that do not trade on a daily basis are determined by management, utilizing prices obtained from an independent pricing service and information provided by brokers. Management reviews the assumptions and methods utilized by the pricing service and then compares the relevant data and pricing to broker-provided data. The Company gains assurance of the overall reasonableness and consistent application of the assumptions and methodologies and compliance with accounting standards for fair value determination through ongoing monitoring of the reported fair values.

ADC Arrangement Classified as Real Estate Investment

As described in Note 3 — “Investments” under ADC Arrangement, the ADC Arrangement represented a financing agreement with a purchase option between Greenleaf Capital and a property developer. Based on the characteristics of this ADC Arrangement which were similar to those of an investment, combined with the expected residual profit being greater than 50%, the arrangement was included in real estate investments at its carrying value in the consolidated balance sheet as of December 31, 2015. Projected future cash inflows at maturity were discounted using a prevailing borrowing rate to estimate its fair value that relies on Level 3 inputs. This ADC Arrangement was terminated at the time the Company exercised the purchase option to acquire the related property in August 2016.

Limited Partnership Investments

As described in Note 3 — “Investments” under Limited Partnership Investments, the Company has interests in limited partnerships which are private equity funds. Pursuant to U.S. GAAP, these funds are required to use fair value accounting; therefore, the estimated fair value approximates the carrying value of these funds.

Long-term debt

Long-term debt includes the Company’s 8% senior notes due 2020, 3.875% convertible senior notes due 2019 and two promissory notes due through 2036. The 8% senior notes trade on the New York Stock Exchange. The estimated fair value of the 8% senior notes is based on the closing market price at each balance sheet date. The 3.875% convertible senior notes were sold in a private offering. The fair values of the 3.875% convertible senior notes and the promissory notes are estimated using a discounted cash flow method that relies on Level 3 inputs.

Assets Measured at Estimated Fair Value on a Recurring Basis

The following table presents information about the Company’s financial assets measured at estimated fair value on a recurring basis. The table indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value as of September 30, 2016 and December 31, 2015:


	Fair Value Measurements Using
	(Level 1)		(Level 2)		(Level 3)		Total
*As of September 30, 2016*
Financial Assets:
Cash and cash equivalents	$	291,880	$	—	$	—	$	291,880

Fixed-maturity securities:
U.S. Treasury and U.S. government agencies		440		—		—		440
Corporate bonds		76,264		984		—		77,248
State, municipalities, and political subdivisions		—		79,767		—		79,767
Exchange-traded debt		12,316		—		—		12,316
Redeemable preferred stock		245		—		—		245

Total fixed-maturity securities		89,265		80,751		—		170,016
Equity securities		51,460		—		—		51,460

Total available-for-sale securities		140,725		80,751		—		221,476

Total	$	432,605	$	80,751	$	—	$	513,356


	Fair Value Measurements Using
	(Level 1)		(Level 2)		(Level 3)		Total
*As of December 31, 2015*
Financial Assets:
Cash and cash equivalents	$	267,738	$	—	$	—	$	267,738

Fixed-maturity securities:
U.S. Treasury and U.S. government agencies		113		—		—		113
Corporate bonds		36,836		983		—		37,819
State, municipalities, and political subdivisions		—		77,324		—		77,324
Exchange-traded debt		9,429		—		—		9,429
Redeemable preferred stock		324		—		—		324

Total fixed-maturity securities		46,702		78,307		—		125,009
Equity securities		48,237		—		—		48,237

Total available-for-sale securities		94,939		78,307		—		173,246

Total	$	362,677	$	78,307	$	—	$	440,984

Assets and Liabilities Carried at Other Than Fair Value

The following tables present fair value information for assets and liabilities that are carried on the balance sheet at amounts other than fair value as of September 30, 2016 and December 31, 2015.


	Carrying		Fair Value Measurements Using						Estimated
	Value		(Level 1)		(Level 2)		(Level 3)		Fair Value
*As of September 30, 2016*
Financial Assets:
Limited partnership investments	$	28,226	$	—	$	—	$	28,226	$	28,226
Financial Liabilities:
Long-term debt:
8% Senior notes	$	39,392	$	—	$	41,989	$	—	$	41,989
3.875% Convertible senior notes		81,170		—		—		84,561		84,561
4% Promissory note		8,771		—		—		8,854		8,854
3.75% Promissory note		8,839		—		—		8,671		8,671

Total long-term debt	$	138,172	$	—	$	41,989	$	102,086	$	144,075


	Carrying		Fair Value Measurements Using						Estimated
	Value		(Level 1)		(Level 2)		(Level 3)		Fair Value
*As of December 31, 2015*
Financial Assets:
Limited partnership investments	$	23,930	$	—	$	—	$	23,930	$	23,930
ADC Arrangement classified as real estate investment	$	10,200	$	—	$	—	$	10,140	$	10,140
Financial Liabilities:
Long-term debt:
8% Senior notes	$	39,231	$	—	$	41,103	$	—	$	41,103
3.875% Convertible senior notes		90,198		—		—		92,782		92,782

Total long-term debt	$	129,429	$	—	$	41,103	$	92,782	$	133,885