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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2022

Basis of fair value measurement:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices for similar assets or liabilities in active markets or quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

Certain assets and liabilities are measured at fair value in the condensed consolidated financial statements or have fair values disclosed in the notes to the condensed consolidated financial statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by GAAP.

For a description of the methods and assumptions that are used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument see Note 5 to the audited consolidated financial statements included in our 2021 Form 10-K.

The following tables set forth our fair value measurements as of June 30, 2022 and December 31, 2021, for assets measured at fair value on a recurring basis (in thousands):


	June 30, 2022
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	303,745	$	61,483	$	—	$	365,228
Fixed maturity securities, available for sale:
U.S. government and agency obligations	865,957		26,543		—		892,500
Corporate obligations	—		489,793		—		489,793
State and municipal obligations	—		16,470		—		16,470
Certificates of deposit	—		16,113		—		16,113
Mortgage-backed securities	—		139,272		—		139,272
Asset-backed securities	—		71,454				71,454
Other	—		378		—		378
Total fixed maturity securities, available for sale:	865,957		760,023		—		1,625,980
Equity securities	63,200		—		—		63,200
Total assets at fair value	$	1,232,902	$	821,506	$	—	$	2,054,408
Liabilities
Contingent consideration	$	—	$	—	$	1,495	$	1,495


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	192,063	$	250	$	—	$	192,313
Fixed maturity securities, available for sale:
U.S. government and agency obligations	220,801		89,194		—		309,995
Corporate obligations	2,323		310,864		—		313,187
State and municipal obligations	—		16,117		—		16,117
Certificates of deposit	—		18,752		—		18,752
Mortgage-backed securities	2,404		36,150		—		38,554
Other	—		42,872		—		42,872
Total fixed maturity securities, available for sale:	225,528		513,949		—		739,477
Equity securities	120,364		—		—		120,364
Total assets at fair value	$	537,955	$	514,199	$	—	$	1,052,154
Liabilities
Contingent consideration	$	—	$	—	$	1,495	$	1,495

The following tables set forth the Company’s fair value measurements as of June 30, 2022 and December 31, 2021, for certain financial instruments not measured at fair value on a recurring basis (in thousands):


	June 30, 2022
	Level 1		Level 2		Level 3		Total
Cash equivalents, held to maturity	$	25,957	$	—	$	—	$	25,957
Fixed maturity securities, held to maturity:
U.S. government and agency obligations	4,978		—		—		4,978
Certificates of deposit	—		1,447		—		1,447
Total held to maturity	$	30,935	$	1,447	$	—	$	32,382


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Cash equivalents, held to maturity	$	310	$	—	$	—	$	310
Fixed maturity securities, held to maturity:
U.S. government and agency obligations	7,732		—		—		7,732
Certificates of deposit	—		1,447		—		1,447
Total held to maturity	$	8,042	$	1,447	$	—	$	9,489

There have been no transfers of assets or liabilities into or out of Level 3 of the fair value hierarchy. The contingent consideration liability related to the acquisition of AssociatesMD Medical Group, Inc. is measured using Level 3 inputs based on a formulaic multiple of forecasted 2023 EBITDA per the terms of the purchase agreement discounted back to net present

value. The following table presents the changes in fair value of the contingent consideration liability for the six months ended June 30, 2022 and year ended December 31, 2021 (in thousands):


	2022		2021
Balance at beginning of period	$	1,495	$	5,716
Change in fair value of contingent consideration	—		(4,221)
Balance at end of period	$	1,495	$	1,495

The carrying amounts reported on the Condensed Consolidated Balance Sheets for other current financial assets and liabilities approximate fair value due to their short-term nature. These assets and liabilities are not included in the tables above.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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