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 marketplace.

Level 3 -

Instruments that use non-binding broker quotes or model driven valuations that do not have observable market data.

NAV - Calculated net asset value (“NAV”) 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 the valuation method used to fair value an investment in the common stock of a real estate investment trust included in other investments as Level 3, since this investment has redemption and transfer restriction and is 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).

	September 30, 2015				December 31, 2014
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Assets:
Investments, available-for-sale	$	135,745	$	135,745	$	125,085	$	125,085
Other investments		12,087		12,087		10,530		10,530
Liabilities:
Debentures payable		40,245		20,896		40,211		19,606
Term loan from principal stockholder		29,747		31,128		-		-

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 and the term loan from principal shareholder are categorized as Level 3, since they were 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 do not purport to represent the Company’s underlying value.

The Company holds available-for-sale investments and other investments, which are carried at net asset value which approximates 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
			Quoted Prices		Significant
			in Active		Other		Significant		Proportionate
			Markets for		Observable		Unobservable		Share of
			Identical Assets		Inputs		Inputs		Net Assets
September 30, 2015	Total		(Level 1)		(Level 2)		(Level 3)		(NAV)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	13,314	$	13,314	$	—	$	—	$	—
State		703		—		703		—		—
Political subdivisions		499		—		499		—		—
Revenue and assessment		13,480		—		13,480		—		—
Corporate bonds		86,189		—		86,189		—		—
Collateralized mortgage obligations:
Agency backed		1,827		—		1,827		—		—
Non-agency backed – residential		3,670		—		3,670		—		—
Non-agency backed – commercial		2,619		—		2,619		—		—
Total fixed maturities, available-for-sale		122,301		13,314		108,987		—		—
Preferred stock, available-for-sale		1,727		1,727		—		—		—
Mutual funds, available-for-sale		11,717		11,717		—		—		—
Total investments, available-for-sale		135,745		26,758		108,987		—		—
Other investments		12,087		—		—		2,692		9,395
Cash and cash equivalents		107,207		107,207		—		—		—
Total	$	255,039	$	133,965	$	108,987	$	2,692	$	9,395

			Fair Value Measurements Using
			Quoted Prices		Significant
			in Active		Other		Significant		Proportionate
			Markets for		Observable		Unobservable		Share of
			Identical Assets		Inputs		Inputs		Net Assets
December 31, 2014	Total		(Level 1)		(Level 2)		(Level 3)		(NAV)
Fixed maturities, available-for-sale:
U.S. government and agencies	$	8,290	$	8,290	$	—	$	—	$	—
State		725		—		725		—		—
Political subdivisions		506		—		506		—		—
Revenue and assessment		16,360		—		16,360		—		—
Corporate bonds		75,119		—		75,119		—		—
Collateralized mortgage obligations:
Agency backed		4,807		—		4,807		—		—
Non-agency backed – residential		4,137		—		4,137		—		—
Non-agency backed – commercial		3,078		—		3,078		—		—
Total fixed maturities, available-for-sale		113,022		8,290		104,732		—		—
Preferred stock, available-for-sale		1,767		1,767		—		—		—
Mutual funds, available-for-sale		10,296		10,296	—			—		—
Total investments, available-for-sale		125,085		20,353		104,732		—		—
Other investment		10,530		—		—		947		9,583
Cash and cash equivalents		102,429		102,429		—		—		—
Total	$	238,044	$	122,782	$	104,732	$	947	$	9,583

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 security in the table above consists of an investment in the common stock of a real estate investment trust for which fair value has been determined using a model driven valuation that does not have observable market data. There were no transfers between Level 1 and Level 2 for the three and nine months ended September 30, 2015 and 2014. 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. Likewise, the Company reviews the Level 3 valuation model to understand the underlying factors and inputs and to validate the reasonableness of the pricing.

The following table represents the quantitative disclosure for the asset classified as Level 3 during the nine months ended September 30, 2015 (in thousands).

	Fair Value
	Measurements Using
	Significant Unobservable
	Inputs (Level 3)

	Common Stock
	at Fair Value
Balance at December 31, 2014	$	947
Gains included in net income		—
Gains included in comprehensive income		95
Investments and capital calls		1,650
Distributions received		—
Transfers into and out of Level 3		—
Balance at September 30, 2015	$	2,692