Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2013

Fair Value of Financial Instruments [Abstract]

Fair Value of Financial Instruments

FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value amounts represent estimates of the consideration that would currently be agreed upon between knowledgeable, willing parties who are under no compulsion to act. Fair value is best evidenced by quoted bid or ask price, as appropriate, in an active market. Where bid or ask prices are not available, such as in an illiquid or inactive market, the closing price of the most recent transaction of that instrument subject to appropriate adjustments as required is used. Where quoted market prices are not available, the quoted prices of similar financial instruments or valuation models with observable market based inputs are used to estimate the fair value. These valuation models may use multiple observable market inputs, including observable interest rates, foreign exchange rates, index levels, credit spreads, equity prices, counterparty credit quality, corresponding market volatility levels and option volatilities. Minimal management judgment is required for fair values calculated using quoted market prices or observable market inputs for models. Greater subjectivity is required when making valuation adjustments for financial instruments in inactive markets or when using models where observable parameters do not exist. Also, the calculation of estimated fair value is based on market conditions at a specific point in time and may not be reflective of future fair values. For the Company's financial instruments carried at cost or amortized cost, the book value is not adjusted to reflect increases or decreases in fair value due to market fluctuations, including those due to interest rate changes, as it is the Company's intention to hold them until there is a recovery of fair value, which may be to maturity.

The Company classifies its investments in fixed maturities and equity investments as available-for-sale and reports these investments at fair value. The Company's LROC preferred units, senior unsecured debentures and subordinated debt are measured and reported at fair value.

Fair values of equity investments are considered to approximate quoted market values based on the latest bid prices in active markets. Fair values of fixed maturities for which no active market exists are derived from quoted market prices of similar instruments or other third-party evidence.

The fair value of the LROC preferred units is based on quoted market prices, and the fair value of the subordinated debt is estimated using an internal model based on significant market observable inputs. The fair values of senior unsecured debentures, for which no active market exists, are derived from quoted market prices of similar instruments or other third-party evidence.

The Company employs a fair value hierarchy to categorize the inputs it uses in valuation techniques to measure the fair value. The extent of use of quoted market prices (Level 1), valuation models using observable market information (Level 2) and internal models without observable market information (Level 3) in the valuation of the Company's financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012 was as follows:

(in thousands)					March 31, 2013
			Fair Value Measurements at the End of the Reporting Period Using
	Total		Quoted Prices in Active Markets for Identical Assets(Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring fair value measurements
Assets:
Fixed maturities:
U.S. government, government agencies and authorities	$	22,645	$	—	$	22,645	$	—
Canadian government	4,029		—		4,029		—
States municipalities and political subdivisions	7,320		—		7,320		—
Mortgage-backed	651		—		651		—
Asset-backed securities and collateralized mortgage obligations	160		—		160		—
Corporate	36,205		—		36,205		—
Total fixed maturities	$	71,010	$	—	$	71,010	$	—
Equity investments	3,304		3,304		—		—
Other investments	2,000		—		2,000		—
Short-term investments	586		—		586		—
Total assets	$	76,900	$	3,304	$	73,596	$	—
Liabilities:
LROC preferred units	$	14,903	$	14,903	$	—	$	—
Senior unsecured debentures	25,888		—		25,888		—
Subordinated debt	28,781		—		28,781		—
Total liabilities	$	69,572	$	14,903	$	54,669	$	—

(in thousands)					December 31, 2012
			Fair Value Measurements at the End of the Reporting Period Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Recurring fair value measurements
Assets:
Fixed maturities:
U.S. government, government agencies and authorities	$	24,915	$	—	$	24,915	$	—
Canadian government	3,782		—		3,782		—
States municipalities and political subdivisions	7,345		—		7,345		—
Mortgage-backed	5,043		—		5,043		—
Asset-backed securities and collateralized mortgage obligations	1,092		—		1,092		—
Corporate	37,357		—		37,357		—
Total fixed maturities	$	79,534	$	—	$	79,534	$	—
Equity investments	3,548		3,548		—		—
Other investments	2,000		—		2,000		—
Short-term investments	585		—		585		—
Total assets	$	85,667	$	3,548	$	82,119	$	—
Liabilities:
LROC preferred units	$	13,655	$	13,655	$	—	$	—
Senior unsecured debentures	23,730		—		23,730		—
Subordinated debt	23,774		—		23,774		—
Total liabilities	$	61,159	$	13,655	$	47,504	$	—