| FAIR VALUE |
3. FAIR VALUE
Fair Value Disclosures of Financial Instruments
The Company accounts for financial instruments at fair value or the price 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. 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 recorded at fair value are classified and disclosed in one of the following three categories:
| | • | Level 1 - Quoted market prices (unadjusted) for identical assets or liabilities in active markets is defined as a market where transactions for the financial statement occur with sufficient frequency and volume to provide pricing information on an ongoing basis, or observable inputs. |
| | • | Level 2 - Quoted market prices for similar assets or liabilities and valuations, using models or other valuation techniques using observable market data. Significant other observable that can be corroborated by observable market data; and, |
| | • | 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 classification of assets and liabilities in the fair value hierarchy is based upon the lowest level input that is significant to the fair value.
The Company’s financial instruments measured at fair value on a recurring basis and the level of the fair value hierarchy of inputs used consisted of the following: | | | | | | | | | | | | | | | | | | | | June 30, 2018 | | | Level 1 | | Level 2 | | Level 3 | | Total | | | (In thousands) | Debt securities - available-for-sale, at fair value: | | | | | | | | | United States government obligations and authorities | | $ | 56,378 |
| | $ | 50,849 |
| | $ | — |
| | $ | 107,227 |
| Obligations of states and political subdivisions | | — |
| | 24,041 |
| | — |
| | 24,041 |
| Corporate securities | | — |
| | 274,881 |
| | — |
| | 274,881 |
| International securities | | — |
| | 19,340 |
| | — |
| | 19,340 |
| Debt securities, at fair value | | 56,378 |
| | 369,111 |
| | — |
| | 425,489 |
| | | | | | | | | | Equity securities, at fair value | | 17,383 |
| | — |
| | — |
| | 17,383 |
| | | | | | | | | | Total investments, at fair value | | $ | 73,761 |
| | $ | 369,111 |
| | $ | — |
| | $ | 442,872 |
|
| | | | | | | | | | | | | | | | | | | | December 31, 2017 | | | Level 1 | | Level 2 | | Level 3 | | Total | | | (In thousands) | Debt securities - available-for-sale, at fair value: | | | | | | | | | United States government obligations and authorities | | $ | 51,219 |
| | $ | 46,918 |
| | $ | — |
| | $ | 98,137 |
| Obligations of states and political subdivisions | | — |
| | 66,266 |
| | — |
| | 66,266 |
| Corporate securities | | — |
| | 240,919 |
| | — |
| | 240,919 |
| International securities | | — |
| | 17,916 |
| | — |
| | 17,916 |
| Debt securities, at fair value | | 51,219 |
| | 372,019 |
| | — |
| | 423,238 |
| | | | | | | | | | Equity securities, at fair value | | 15,434 |
| | — |
| | — |
| | 15,434 |
| | | | | | | | | | Total investments, at fair value | | $ | 66,653 |
| | $ | 372,019 |
| | $ | — |
| | $ | 438,672 |
|
The Company’s held-to-maturity debt securities are reported on the consolidated balance sheets at amortized cost and disclosed at fair value in Note 4 below. The fair values of these securities are classified within Level 1 and Level 2 of the fair value hierarchy and consist of United States government obligations and authorities, corporate securities and international securities. The fair value of the securities classified as Level 1 was $3.9 million and $4.0 million as of June 30, 2018 and December 31, 2017, respectively. The fair value of the securities classified as Level 2 was $1.2 million and $1.3 million as of June 30, 2018 and December 31, 2017, respectively. The Company has engaged a nationally recognized third party pricing service to provide the fair values of securities in Level 2. The Company reviews the third party pricing methodologies on a quarterly basis and tests for significant differences between the market price used to value the securities and the recent sales activities.
A summary of the significant valuation techniques and market inputs for each financial instrument carried at fair value includes the following:
| | • | United States Government Obligations and Authorities - In determining the fair value for United States government securities in Level 1, the Company uses quoted prices (unadjusted) in active markets for identical or similar assets. In determining the fair value for United States government securities in Level 2, the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events. |
| | • | Obligations of States and Political Subdivisions - In determining the fair value for state and municipal securities, the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads, reference data and industry and economic events. |
| | • | Corporate and International Securities - In determining the fair value for corporate securities the Company uses the market approach utilizing primary valuation inputs including reported trades, dealer quotes for identical or similar assets in markets that are not active, benchmark yields, credit spreads (for investment grade securities), observations of equity and credit default swap curves (for high-yield corporates), reference data and industry and economic events. |
| | • | Equity Securities: In determining the fair value for equity securities in Level 1, the Company uses quoted prices (unadjusted) in active markets for identical or similar assets. |
There were no changes to the Company’s valuation methodology and the Company is not aware of any events or circumstances that would have a significant adverse effect on the carrying value of its assets and liabilities measured at fair value as of June 30, 2018 and December 31, 2017. There were no transfers between the fair value hierarchy levels during the six months ended June 30, 2018 and 2017. |