Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

Fair Value of Financial Instruments

NOTE 8 – FAIR VALUE OF FINANCIAL INSTRUMENTS

In determining the fair value of its financial instruments, the Company employs a fair value hierarchy that prioritizes the inputs for the valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price). Financial assets and financial liabilities recorded on the Condensed Consolidated Balance Sheets at fair value are categorized based on the reliability of inputs for the valuation techniques as follows:

Level 1 – Financial assets and financial liabilities whose values are based on unadjusted quoted prices in active markets for identical assets or liabilities as of the reporting date.

Level 2 – Financial assets and financial liabilities whose values are based on quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in non-active markets; or valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability as of the reporting date.

Level 3 – Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the financial assets and financial liabilities as of the reporting date.

The hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the fair value hierarchy level within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) or unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The following table presents information about the Company’s consolidated financial instruments and their estimated fair values, which are measured on a recurring basis and are allocated among the three levels within the fair value hierarchy as of September 30, 2017, and December 31, 2016:

	Level 1		Level 2		Level 3		Total
September 30, 2017
Financial instruments:
Fixed maturity securities:
U.S. treasury securities	$	9,519,063	$	—	$	—	$	9,519,063
Corporate securities		—		22,995,709		—		22,995,709
Agency mortgage-backed securities		—		15,928,123		—		15,928,123
Certificates of deposit		—		35,826,000		—		35,826,000
Total fixed maturity securities		9,519,063		74,749,832		—		84,268,895
Short-term investments		12,080,638		999,877		—		13,080,515
Total financial instruments at fair value	$	21,599,701	$	75,749,709	$	—	$	97,349,410

	Level 1		Level 2		Level 3		Total
December 31, 2016
Financial instruments:
Fixed maturity securities:
U.S. treasury securities	$	19,103,925	$	—	$	—	$	19,103,925
Certificates of deposit		—		61,280,000		—		61,280,000
Total fixed maturity securities		19,103,925		61,280,000		—		80,383,925
Short-term investments		10,204,603		—		—		10,204,603
Total financial instruments at fair value	$	29,308,528	$	61,280,000	$	—	$	90,588,528

Fair value measurements are not adjusted for transaction costs. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer. The Company did not have any transfers between Levels 1, 2 and 3 of the fair value hierarchy during the three and nine months ended September 30, 2017 and 2016.