Fair Value

9 Months Ended

Sep. 30, 2012

Fair Value [Abstract]

Fair Value

2. Fair Value

Fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs are based on market data from independent sources, while unobservable inputs reflect the Company’s view of market assumptions in the absence of observable market information. All assets and liabilities that are carried at fair value are classified and disclosed in one of the following categories:

Level 1 -	Quoted prices in active markets for identical assets or liabilities.
Level 2 -	Quoted market prices for similar assets or liabilities in active markets; quoted prices by independent pricing services for identical or similar assets or liabilities in markets that are not active; and valuations, using models or other valuation techniques, that use observable market data. All significant inputs are observable, or derived from observable information in the marketplace, or are supported by observable levels at which transactions are executed in the market place.
Level 3 -	Instruments that use non-binding broker quotes or model driven valuations that do not have observable market data.

The Company categorizes valuation methods used in its identifiable intangible assets impairment tests as Level 3. To determine the fair value of acquired trademarks and trade names, the Company uses the relief-from-royalty method, which requires the Company to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital.

Fair Value of Financial Instruments

The carrying values and fair values of certain of the Company’s financial instruments were as follows (in thousands).

	September 30, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Investments, available-for-sale	$	126,539	$	126,539	$	172,825	$	172,825
Liabilities:
Debentures payable		41,240		11,758		41,240		14,868

The fair values as presented above represent the Company’s best estimates and may not be substantiated by comparisons to independent markets. The fair value of the debentures payable was based on current market rates offered for debt with similar risks and maturities and takes into account the Company’s own credit risk (valuation classified as Level 3). Carrying values of certain financial instruments, such as cash and cash equivalents and premiums and fees receivable, approximate fair value due to the short-term nature of the instruments and are not required to be disclosed. Therefore, the aggregate of the fair values presented in the preceding table do not purport to represent the Company’s underlying value.

The Company holds available-for-sale investments, which are carried at fair value. The following tables present the fair-value measurements for each major category of assets that are measured on a recurring basis (in thousands).

			Fair Value Measurements Using
September 30, 2012	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	18,202	$	18,202	$	—	$	—
State		4,157		—		4,157		—
Political subdivisions		795		—		795		—
Revenue and assessment		21,238		—		21,238		—
Corporate bonds		48,177		—		48,177		—
Collateralized mortgage obligations:
Agency backed		13,176		—		13,176		—
Non-agency backed – residential		5,555		—		5,555		—
Non-agency backed – commercial		5,309		—		5,309		—
Redeemable preferred stock		1,746		1,746		—		—
Total fixed maturities, available-for-sale		118,355		19,948		98,407		—
Investment in mutual fund, available-for-sale		8,184		8,184		—		—
Total investments, available-for-sale		126,539		28,132		98,407		—
Cash and cash equivalents		37,013		37,013		—		—
Total	$	163,552	$	65,145	$	98,407	$	—

			Fair Value Measurements Using
December 31, 2011	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	25,528	$	25,528	$	—	$	—
State		6,387		—		6,387		—
Political subdivisions		781		—		781		—
Revenue and assessment		25,432		—		25,432		—
Corporate bonds		77,297		—		77,297		—
Collateralized mortgage obligations:
Agency backed		18,133		—		18,133		—
Non-agency backed – residential		5,429		—		5,429		—
Non-agency backed – commercial		6,125		—		6,125		—
Redeemable preferred stock		169		169		—		—
Total fixed maturities, available-for-sale		165,281		25,697		139,584		—
Investment in mutual fund, available-for-sale		7,544		7,544		—		—
Total investments, available-for-sale		172,825		33,241		139,584		—
Cash and cash equivalents		23,751		23,751		—		—
Total	$	196,576	$	56,992	$	139,584	$	—

The fair values of the Company’s investments are determined by management after taking into consideration available sources of data. All of the portfolio valuations classified as Level 1 or Level 2 in the above tables are priced exclusively by utilizing the services of independent pricing sources using observable market data. The Level 2 classified security valuations are obtained from a single independent pricing service. There were no transfers between Level 1 and Level 2 for the three and nine months ended September 30, 2012 and 2011. The Company’s policy is to recognize transfers between levels at the end of the reporting period. The Company has not made any adjustments to the prices obtained from the independent pricing sources.

The Company has reviewed the pricing techniques and methodologies of the independent pricing service for Level 2 investments and believes that its policies adequately consider market activity, either based on specific transactions for the security valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. The Company monitored security-specific valuation trends and has made inquiries with the pricing service about material changes or the absence of expected changes to understand the underlying factors and inputs and to validate the reasonableness of the pricing.

Based on the above categorization, there were no Level 3 classified security valuations at September 30, 2012 and 2011 and December 31, 2011 and 2010, nor any transfers into or out of Level 3 during these periods.