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Fair Value Measurement | 6 Months Ended
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Jun. 30, 2012
Fair Value Measurement [Abstract] |
Fair Value Measurement | Note 6 - Fair Value Measurement Valuation of Financial Assets and Liabilities The FASB has established a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value of financial assets and liabilities, such as securities. This hierarchy categorizes the inputs into three broad levels as follows. Level 1 inputs to the valuation methodology are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs to the valuation methodology 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 fair value using quoted active market prices and money market mutual funds valued at transacted amounts The Level 2 category includes fixed maturity investments such as corporate bonds, U.S. government and agency bonds and municipal bonds. Their fair value is principally based on market values obtained from a third party pricing service. Factors that are used in determining their 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 the 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 Accounting Standards Codification ("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, 2012 and December 31, 2011, 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 were classified as Level 2 because the third party pricing service from which the Company has obtained fair values for these instruments uses valuation models which use observable market inputs in addition to traded 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 rate securities ("ARS") because quoted prices were unavailable due to the failure of auctions. Some of the inputs to this model are unobservable in the market and are significant—therefore, the Company utilizes another third party pricing service to assist in the determination of the fair market value of these securities on a quarterly basis. That service uses a proprietary valuation model that considers factors such as: 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 following table summarizes some key assumptions the service used to determine fair value as of June 30, 2012 and December 31, 2011:
| 2012 |  | 2011 |
Cumulative probability of earning maximum rate until maturity | 0.0-0.2 | % | 0.0-0.1 | %
Cumulative probability of principal returned prior to maturity | 95.8-98.6% |  | 95.4-98.7% |
Cumulative probability of default at some future point | 1.4-4.2 | % | 1.3-4.6 | %
Liquidity risk premium | 4.0-4.5 | % | 4.5-5.0 | %
Significant increases or decreases in any of the inputs in isolation would result in significant changes to the fair value measurement. Generally, increases in default probabilities and liquidity risk premiums lower the fair market value while increases in principal being returned and earning maximum rates increase fair market values. Based upon these inputs and assumptions, the pricing service provides a range of values to the Company for its ARS. The Company records the fair value based on the midpoint of the range. The Company believes that the midpoint valuation is the most reasonable estimate of fair value. On a quarterly basis, review of the valuation is performed by the Company with significant changes in quarter over quarter values compared with changes to the current economic environment. In 2012 and 2011, the difference in the low and high values of the ranges was between approximately three and four percent of the carrying value of the Company's ARS. The Company's ARS portfolio is comprised entirely of investment grade student loan ARS. The par value of these securities was $4,000,000 and $5,000,000 as of June 30, 2012 and December 31, 2011, respectively, with approximately 75.2% and 79.6% as of June 30, 2012 and December 31, 2011, respectively, guaranteed by the U.S. Department of Education. The following table presents, by level, investments carried at fair value measured on a recurring basis as of June 30, 2012 and December 31, 2011. The table does not include cash on hand and also does not include assets which are measured at historical cost or any basis other than fair value.
As of June 30, 2012 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Short-term investments | $ | 8,420,944 | $ | - | $ | - | $ | 8,420,944
Equity securities |  |  |  |  |  |  |  |
Common stock and nonredeemable preferred stock |  | 25,961,611 |  | - |  | - |  | 25,961,611
Fixed maturities |  |  |  |  |  |  |  |
Obligations of states and political subdivisions* |  | - |  | 64,433,570 |  | 932,900 |  | 65,366,470
Corporate debt securities* |  | - |  | 20,479,972 |  | 2,765,200 |  | 23,245,172
Total | $ | 34,382,555 | $ | 84,913,542 | $ | 3,698,100 | $ | 122,994,197
As of December 31, 2011 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Short-term investments | $ | 14,112,262 | $ | - | $ | - | $ | 14,112,262
Equity securities |  |  |  |  |  |  |  |
Common stock and nonredeemable preferred stock |  | 22,549,975 |  | - |  | - |  | 22,549,975
Fixed maturities |  |  |  |  |  |  |  |
Obligations of states and political subdivisions* |  | - |  | 67,612,793 |  | 1,834,700 |  | 69,447,493
Corporate debt securities* |  | - |  | 13,242,172 |  | 2,717,700 |  | 15,959,872
Total | $ | 36,662,237 | $ | 80,854,965 | $ | 4,552,400 | $ | 122,069,602
*Denotes fair market value obtained from pricing services. There were no transfers into or out of Levels 1 and 2 during the period. To help ensure that fair value determinations are consistent with ASC 820 fair value measurements, 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 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 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 fair value of the cost basis investment was estimated based on estimated market values. 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. Contingent liabilities The fair value of the contingent liability was estimated based on the discounted value of the future cash flows. The carrying amounts and fair values of these financial instruments (please note investments are disclosed in a previous table) as of June 30, 2012 and December 31, 2011 are presented in the following table:
As of June 30, 2012: |  |  |  |  |  |  |  |  |  |
Financial Assets | Carrying Value | Estimated Fair Value | Level 1 | Level 2 | Level 3
Cash | $ | 17,457,651 | $ | 17,457,651 | $ | 17,457,651 | $ | - | $ | -
Cost-basis investments |  | 1,714,073 |  | 2,088,372 |  | - |  | - |  | 1,714,073
Accrued dividends and interest |  | 1,136,981 |  | 1,136,981 |  | 1,136,981 |  | - |  | -
Total | $ | 20,308,705 | $ | 20,683,004 | $ | 18,594,632 | $ | - | $ | 1,714,073
Financial Liabilities |  |  |  |  |  |  |  |  |  |
Contingent liability | $ | 691,250 | $ | 691,250 | $ | - | $ | - | $ | 691,250
Total | $ | 691,250 | $ | 691,250 | $ | - | $ | - | $ | 691,250
As of December 31, 2011: |  |  |  |  |  |  |  |  |  |
Financial Assets | Carrying Value | Estimated Fair Value | Level 1 | Level 2 | Level 3
Cash | $ | 18,042,258 | $ | 18,042,258 | $ | 18,042,258 | $ | - | $ | -
Cost-basis investments |  | 1,303,887 |  | 1,688,262 |  | - |  | - |  | 1,303,887
Accrued dividends and interest |  | 1,108,156 |  | 1,108,156 |  | 1,108,156 |  | - |  | -
Total | $ | 20,454,301 | $ | 20,838,676 | $ | 19,150,414 | $ | - | $ | 1,303,887
The following table presents a reconciliation of the Company's assets, which are all ARS securities, at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2012 and the year ended December 31, 2011:
Changes in fair value during the period ended: |  | 2012 |  |  | 2011 |
Beginning balance at January 1 | $ | 4,552,400 |  | $ | 5,472,244 |
Redemptions and sales |  | (1,000,000 | ) |  | (900,000 | )
Realized gain - included in realized gain on investments |  | 40,057 |  |  | 43,199 |
Realized loss - included in realized gain on investments |  | - |  |  | (101,861 | )
Unrealized gain - included in other comprehensive income |  | 105,643 |  |  | 38,818 |
Ending balance, net | $ | 3,698,100 |  | $ | 4,552,400 |
The following table presents a reconciliation of the Company's liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2012 and the year ended December 31, 2011:
Changes in fair value during the period ended: |  | 2012 |  | 2011
Beginning balance at January 1 | $ | - | $ | -
Addition of contingent liability |  | 691,250 |  | -
Ending balance, net | $ | 691,250 | $ | -
Certain cost method investments are measured at estimated fair value on a non-recurring basis, such as investments that are impaired during the period and recorded at estimated fair value in the Consolidated Financial Statements as of June 30, 2012 and December 31, 2011. There were no assets valued at fair market value on a non-recurring basis as of June 30, 2012. The following table summarizes the corresponding estimated fair value hierarchy of such investments at December 31, 2011 and the related impairments recognized.
December 31, 2011 | Valuation Method | Impaired | Level 1 | Level 2 | Level 3 | Total at Estimated Fair Value | Impairment Losses
Cost method investments | Fair Value | Yes | $ | - | $ | - | $ | 58,281 | $ | 58,281 | $ | (28,904 | )
Other assets | Fair Value | Yes |  | - |  | - |  | 17,000 |  | 17,000 |  | (15,500 | )
Total cost method |  |  |  |  |  |  |  |  |  |  |  |  |
investments and other |  |  |  |  |  |  |  |  |  |  |  |  |
assets |  |  | $ | - | $ | - | $ | 75,281 | $ | 75,281 | $ | (44,404 | )

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13504-108611 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15C, 15D -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 133 -Paragraph 44A, 44B -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 15A -Subparagraph a-d -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. 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Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=7491637&loc=d3e13433-108611 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 159 -Paragraph 17-22, 27, 28 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. 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Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32, 33, 34 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 11: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=7578670&loc=d3e19207-110258 Reference 12: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 13: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 + Details
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