NOTE 4. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures equity securities at fair value on a recurring basis such as, redeemable preferred stock, nonredeemable preferred stock and common stock of domestic corporations which are measured using quoted prices in active markets for identical assets and as such, are represented Level 1 inputs.

For the Company’s investments in U.S. government securities that do not have prices in active markets, agency securities, state and municipal governments, and corporate bonds, the Company obtains the fair values from its third-party valuation service and we evaluate the relevant inputs, assumptions, methodologies and conclusions associated with such valuations. The valuation service calculates prices for the Company’s investments in the aforementioned security types on a month-end basis by using several matrix-pricing methodologies that incorporate inputs from various sources. The model the valuation service uses to price U.S. government securities and securities of states and municipalities incorporates inputs from active market makers and inter-dealer brokers. To price corporate bonds and agency securities, the valuation service calculates non-call yield spreads on all issuers, uses option-adjusted yield spreads to account for any early redemption features, then adds final spreads to the U.S. Treasury curve as of quarter end. The inputs the valuation service uses in their calculations are not quoted prices in active markets, but are observable inputs, and therefore represent Level 2 inputs.

The following table presents information about the Company’s assets measured at fair value on a recurring basis. The Company assesses the levels for the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Company’s accounting policy regarding the recognitions of transfers between levels of the fair value hierarchy. At June 30, 2018 and December 31, 2017, there were no transfers in or out of Level 1, 2, and 3.

June 30, 2018	Total		Level 1		Level 2		Level 3
	(in thousands)
Fixed maturities investments:
U.S. government and agency securities	$	29,670	$	351	$	29,319	$	—
States, municipalities and political subdivisions		62,090		—		62,090		—
Special revenue		269,292		—		269,292		—
Industrial and miscellaneous		143,203		—		143,203		—
Redeemable preferred stocks		4,666		4,666		—		—
Total fixed maturities investments	$	508,921	$	5,017	$	503,904	$	—
Nonredeemable preferred stocks		13,435		13,435		—		—
Equity securities		2,523		2,523		—		—
Total equity securities	$	15,958	$	15,958	$	—	$	—
Total investments	$	524,879	$	20,975	$	503,904	$	—

December 31, 2017	Total		Level 1		Level 2		Level 3
	(in thousands)
Fixed maturities investments:
U.S. government and agency securities	$	38,880	$	359	$	38,521	$	—
States, municipalities and political subdivisions		76,411		—		76,411		—
Special revenue		267,677		—		267,677		—
Industrial and miscellaneous		162,128		—		162,128		—
Redeemable preferred stocks		4,700		—		4,700		—
Total fixed maturities investments	$	549,796	$	359	$	549,437	$	—
Nonredeemable preferred stocks		14,324		14,324		—		—
Equity securities		2,893		2,893		—		—
Total equity securities	$	17,217	$	17,217	$	—	$	—
Total investments	$	567,013	$	17,576	$	549,437	$	—