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Fair Values of Financial Instruments | 9 Months Ended
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Sep. 30, 2019
Fair Values of Financial Instruments [Abstract] |
Fair Values of Financial Instruments |
Note 4. | Fair Values of Financial Instruments
The estimated fair values have been determined by the Company using available market information from various market sources and appropriate valuation methodologies as of the respective dates. However, considerable judgment is necessary to interpret market data and to develop the estimates of fair value. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, the estimates presented herein are not necessarily indicative of the amounts which the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The following describes the fair value hierarchy and provides information as to the extent to which the Company uses fair value to measure the value of its financial instruments and information about the inputs used to value those financial instruments. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels.
Level 1 | Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. The Company’s financial instruments valued using Level 1 criteria include cash equivalents, U.S. Treasury securities and exchange traded common stocks.
Level 2 | Observable inputs, other than quoted prices included in Level 1, for an asset or liability or prices for similar assets or liabilities. The Company’s financial instruments valued using Level 2 criteria include significantly most of its fixed maturities, which consist of U.S. Government securities, obligations of states and political subdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks. In determining fair value measurements of its fixed maturities and non-redeemable preferred stocks using Level 2 criteria, the Company utilizes data from outside sources, including nationally recognized pricing services and broker/dealers. Prices for the majority of the Company’s Level 2 fixed maturities and non-redeemable preferred stocks were determined using unadjusted prices received from pricing services that utilize a matrix pricing concept, which is a mathematical technique used widely in the industry to value debt securities based on various relationships to other benchmark quoted prices.
Level 3 | Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Fair value is based on criteria that use assumptions or other data that are not readily observable from objective sources. The Company’s financial instruments valued using Level 3 criteria consist of a limited number of fixed maturities. As of September 30, 2019 and December 31, 2018, the value of the Company’s fixed maturities valued using Level 3 criteria was $1,220 and $1,066, respectively. The use of different criteria or assumptions regarding data may have yielded materially different valuations.
As of September 30, 2019, financial instruments carried at fair value were measured on a recurring basis as summarized below:
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturities |  | $ | 11,233 |  |  | $ | 205,064 |  |  | $ | 1,220 | (1) |  | $ | 217,517 |
Equity securities |  |  | 16,921 |  |  |  | 2,586 | (1) |  |  | — |  |  |  | 19,507 |
Cash equivalents |  |  | 29,132 |  |  |  | — |  |  |  | — |  |  |  | 29,132 |
Total |  | $ | 57,286 |  |  | $ | 207,650 |  |  | $ | 1,220 |  |  | $ | 266,156 |
| (1) | All underlying securities are financial services industry related.
As of December 31, 2018, financial instruments carried at fair value were measured on a recurring basis as summarized below:
|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Total |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturities |  | $ | 11,413 |  |  | $ | 197,907 |  |  | $ | 1,066 | (1) |  | $ | 210,386 |
Equity securities |  |  | 16,398 |  |  |  | 4,360 | (1) |  |  | — |  |  |  | 20,758 |
Cash equivalents |  |  | 8,250 |  |  |  | — |  |  |  | — |  |  |  | 8,250 |
Total |  | $ | 36,061 |  |  | $ | 202,267 |  |  | $ | 1,066 |  |  | $ | 239,394 |
| (1) | All underlying securities are financial services industry related.
The following tables provide a roll-forward of the Company’s financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three month and nine month periods ended September 30, 2019 and 2018.
|  | Fixed Maturities |
Balance, December 31, 2018 |  | $ | 1,066 |
Total unrealized gains included in other comprehensive loss |  |  | 49 |
Balance, March 31, 2019 |  |  | 1,115 |
Total unrealized gains included in other comprehensive income |  |  | 59 |
Balance, June 30, 2019 |  |  | 1,174 |
Total unrealized gains included in other comprehensive income |  |  | 46 |
Balance, September 30, 2019 |  | $ | 1,220 |
|  | Fixed Maturities |
Balance, December 31, 2017 |  | $ | 1,369 |
Total unrealized losses included in other comprehensive loss |  |  | (30 | )
Balance, March 31, 2018 |  |  | 1,339 |
Total unrealized gains included in other comprehensive loss |  |  | 7 |
Balance, June 30, 2018 |  |  | 1,346 |
Total realized gains included in earnings |  |  | 208 |
Total unrealized losses included in other comprehensive loss |  |  | (53 | )
Settlements |  |  | (483 | )
Balance, September 30, 2018 |  | $ | 1,018 |
The Company’s fixed maturities valued using Level 3 inputs consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies that are not actively traded. There are no assumed prepayments and/or default probability assumptions as a majority of these instruments contain certain U.S. government agency strips to support repayment of the principal. Other qualitative and quantitative information received from the original underwriter of the pooled offerings is also considered, as applicable. The following table sets forth the carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of September 30, 2019 and December 31, 2018.
|  |  |  |  | September 30, 2019 |  |  | December 31, 2018 |
|  | Level in Fair Value Hierarchy (1) |  |  | Carrying Amount |  |  | Estimated Fair Value |  |  | Carrying Amount |  |  | Estimated Fair Value |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | Level 1 |  |  | $ | 36,013 |  |  | $ | 36,013 |  |  | $ | 12,630 |  |  | $ | 12,630 |
Fixed maturities |  |  | (1 | ) |  |  | 217,517 |  |  |  | 217,517 |  |  |  | 210,386 |  |  |  | 210,386 |
Equity securities |  |  | (1 | ) |  |  | 19,507 |  |  |  | 19,507 |  |  |  | 20,758 |  |  |  | 20,758 |
Other invested assets |  | Level 3 |  |  |  | 7,103 |  |  |  | 7,103 |  |  |  | 7,424 |  |  |  | 7,424 |
Policy loans |  | Level 2 |  |  |  | 1,989 |  |  |  | 1,989 |  |  |  | 2,085 |  |  |  | 2,085 |
Real estate |  | Level 2 |  |  |  | 38 |  |  |  | 38 |  |  |  | 38 |  |  |  | 38 |
Investment in unconsolidated trusts |  | Level 2 |  |  |  | 1,238 |  |  |  | 1,238 |  |  |  | 1,238 |  |  |  | 1,238 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Junior subordinated debentures, net |  | Level 2 |  |  |  | 33,738 |  |  |  | 33,738 |  |  |  | 33,738 |  |  |  | 33,738 |
| (1) | See the aforementioned information for a description of the fair value hierarchy as well as a disclosure of levels for classes of these financial assets.
There have not been any transfers between Level 1, Level 2 and Level 3 during the periods presented in these condensed consolidated financial statements.

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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