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4. Fair Value Measurements
 12 Months Ended
Dec. 31, 2019
Fair Value Measurement Inputs and Valuation Techniques [Abstract]  
4. Fair Value Measurements

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation technique used by the Company to estimate the fair value of its financial instruments is the market approach, which uses prices and other relevant information generated by market transactions involving identical or comparable assets.

 

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets or liabilities fall within different levels of the hierarchy, the classification is based on the lowest level input that is significant to the fair value measurement of the asset or liability. Classification of assets and liabilities within the hierarchy considers the markets in which the assets and liabilities are traded, including during period of market disruption, and the reliability and transparency of the assumptions used to determine fair value. The hierarchy requires the use of observable market data when available. The levels of the hierarchy and those investments included in each are as follows:

 

Level 1—Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets. Included are those investments traded on an active exchange, such as the Nasdaq Global Select Market, U.S. Treasury securities and obligations of U.S. government agencies, together with corporate debt securities that are generally investment grade.

 

Level 2—Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.  Municipal and corporate bonds, and residential mortgage-backed securities, that are traded in less active markets are classified as Level 2.  These securities are valued using market price quotations for recently executed transactions.

 

Level 3—Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement. Material assumptions and factors considered in pricing investment securities and other assets may include appraisals, projected cash flows, market clearing activity or liquidity circumstances in the security or similar securities that may have occurred since the prior pricing period.

 

The availability of observable inputs varies and is affected by a wide variety of factors. When the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment. The degree of judgment exercised by management in determining fair value is greatest for investments categorized as Level 3. For investments in this category, the Company considers prices and inputs that are current as of the measurement date. In periods of market dislocation, as characterized by current market conditions, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause a security to be reclassified between levels.

 

The Company’s investments measured at fair value on a recurring basis are allocated among fair value levels at December 31, 2019 and 2018 as follows:

 

    December 31, 2019  
     Level 1      Level 2      Level 3      Total  
       
 Fixed-maturity securities available-for-sale                        
 U.S. Treasury securities                        
 and obligations of U.S.                        
 government corporations                        
 and agencies   $ 7,061,100     $ -     $ -     $ 7,061,100  
                                 
 Political subdivisions of                                
 States, Territories and                                
 Possessions     -       9,321,812       -       9,321,812  
                                 
 Corporate and other                                
 bonds industrial and                                
 miscellaneous     123,010,772       2,611,267       -       125,622,039  
                                 
 Residential mortgage backed securities     -       26,231,230       -       26,231,230  
 Total fixed maturities     130,071,872       38,164,309       -       168,236,181  
 Equity securities     24,661,382       -       -       24,661,382  
 Total investments   $ 154,733,254     $ 38,164,309     $ -     $ 192,897,563  

 

 

    December 31, 2018  
     Level 1      Level 2      Level 3      Total  
       
 Fixed-maturity securities available-for-sale                        
 U.S. Treasury securities                        
 and obligations of U.S.                        
 government corporations                        
 and agencies   $ 8,220,381     $ -     $ -     $ 8,220,381  
                                 
 Political subdivisions of                                
 States, Territories and                                
 Possessions     -       6,341,608       -       6,341,608  
                                 
 Corporate and other                                
 bonds industrial and                                
 miscellaneous     112,076,270       3,674,023       -       115,750,293  
                                 
 Residential mortgage backed securities     -       21,465,234       -       21,465,234  
 Total fixed maturities     120,296,651       31,480,865       -       151,777,516  
 Equity securities     16,572,616       -       -       16,572,616  
 Total investments   $ 136,869,267     $ 31,480,865     $ -     $ 168,350,132  

 

 

Pursuant to ASC 820 “Fair Value Measurement” (“ASC 820”) an entity is permitted, as a practical expedient, to estimate the fair value of an investment within the scope of ASC 820 using the NAV per share (or its equivalent) of the investment. The following table sets forth the Company’s investment in a hedge fund measured at NAV per share (or its equivalent) as of December 31, 2019 and 2018. The Company measures this investment at fair value on a recurring basis. Fair value using NAV per share is as follows as of the dates indicated:

 

Category

   December 31, 2019     December 31, 2018  
             
 Other Investments:            
 Hedge fund   $ 2,584,913     $ 1,855,225  
 Total   $ 2,584,913     $ 1,855,225  

 

The investment is generally redeemable with at least 45 days prior written notice. The hedge fund investment is accounted for as a limited partnership by the Company. Revenue is earned based upon the Company’s allocated share of the partnership's changes in unrealized gains and losses to its partners. Such amounts have been recorded in the accompanying consolidated statements of operations and comprehensive income (loss) within net gains (losses) on investments.

 

The estimated fair value and the level of the fair value hierarchy of the Company’s long-term debt as of December 31, 2019 and 2018, which is not measured at fair value is as follows:

 

    December 31, 2019  
     Level 1      Level 2      Level 3      Total  
 Long-term debt      
                         
 Senior Notes due 2022   $ -     $ 27,313,994     $ -     $ 27,313,994  
                                 

 

 

    December 31, 2018  
     Level 1      Level 2      Level 3      Total  
 Long-term debt      
                         
 Senior Notes due 2022   $ -     $ 28,521,734     $ -     $ 28,521,734  
                                 

 

The fair value of long-term debt is estimated based on observable market prices when available. When observable market prices are not available, the fair values of debt are based on observable market prices of comparable instruments adjusted for differences between the observed instruments and the instruments being valued or is estimated using discounted cash flow analyses, based on current incremental borrowing rates for similar types of borrowing arrangements.