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 or those that are estimated based on an ownership interest to which a proportionate share of net assets is attributed.

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. The Company also categorizes valuation methods used to fair value its investments in limited partnerships as Level 3, since these investments have redemption and transfer restrictions and are therefore not readily marketable.

Fair Value of Financial Instruments

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


	December 31, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Investments, available-for-sale	$	130,248	$	130,248	$	139,046	$	139,046
Limited partnership interests		7,513		7,513		—		—
Liabilities:
Debentures payable		40,301		15,006		40,261		12,723

The fair values as presented represent the Company’s best estimates and may not be substantiated by comparisons to independent markets. The fair value of the debentures payable is categorized as Level 3, since it was based on current market rates offered for debt with similar risks and maturities an unobservable input categorized 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 does not purport to represent the Company’s underlying value.

The Company holds available-for-sale investments and limited partnership interests, which are carried at either net asset value or under the equity method which approximate 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).


	Total		Fair Value Measurements Using
December 31, 2013	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	$	12,485	$	12,485	$	—	$	—
State		736		—		736		—
Political subdivisions		612		—		612		—
Revenue and assessment		14,658		—		14,658		—
Corporate bonds		73,325		—		73,325		—
Collateralized mortgage obligations:
Agency backed		7,514		—		7,514		—
Non-agency backed – residential		4,660		—		4,660		—
Non-agency backed – commercial		3,943		—		3,943		—
Redeemable preferred stocks		1,578		1,578		—		—

Total fixed maturities, available-for-sale		119,511		14,063		105,448		—
Mutual fund, available-for-sale		10,737		10,737		—		—

Total investments, available-for-sale		130,248		24,800		105,448		—
Limited partnership interests		7,513		—		—		7,513
Cash and cash equivalents		72,033		72,033		—		—

Total	$	209,794	$	96,833	$	105,448	$	7,513


	Total		Fair Value Measurements Using
December 31, 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	$	12,110	$	12,110	$	—	$	—
State		4,111		—		4,111		—
Political subdivisions		790		—		790		—
Revenue and assessment		17,996		—		17,996		—
Corporate bonds		71,537		—		71,537		—
Collateralized mortgage obligations:
Agency backed		11,870		—		11,870		—
Non-agency backed – residential		5,472		—		5,472		—
Non-agency backed – commercial		5,109		—		5,109		—
Redeemable preferred stock		1,718		1,718		—		—

Total fixed maturities, available-for-sale		130,713		13,828		116,885		—
Mutual funds, available-for-sale		8,333		8,333		—		—

Total investments, available-for-sale		139,046		22,161		116,885		—
Cash and cash equivalents		59,104		59,104		—		—

Total	$	198,150	$	81,265	$	116,885	$	—

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. The Level 3 classified securities in the table above consist of limited partnership interests for which fair value is estimated based on the Company’s ownership interest in partners’ capital. There were no transfers between Level 1 and Level 2 for years ended December 31, 2013 and 2012. The Company’s policy is to recognize transfers between levels at the end of the reporting period based on specific identification. 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 December 31, 2012 and 2011 and June 30, 2011, nor any transfers into or out of Level 3 during these periods. The following table represents the quantitative disclosure for those assets classified as Level 3 during the year ended December 31, 2013 (in thousands).


	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Limited partnership interests carried at					Total
	Net asset value			Equity method		Total
Balance at December 31, 2012	$	—		$	—	$	—
Gains or losses (realized or unrealized) included in net income (loss)		200			199		399
Investments and capital calls		3,139			4,000		7,139
Distributions received		(25	)		—		(25	)
Transfers into and out of Level 3		—			—		—

Balance at December 31, 2013	$	3,314		$	4,199	$	7,513