Fair value is 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. We hold available-for-sale fixed maturity securities, which are carried at fair value. We also report our equity securities at fair value with changes reported through the consolidated statements of operations and comprehensive income (loss).

Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are required to be classified and disclosed in one of the following three categories:


•	Level 1 - Quoted prices for identical instruments in active markets.


•	Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active and model-derived valuations whose inputs or whose significant value drivers are observable.


•	Level 3 - Instruments whose significant value drivers are unobservable.

Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as U.S. Treasury securities and actively traded mutual fund and stock investments.

Level 2 includes those financial instruments that are valued by independent pricing services or broker quotes. These models are primarily industry-standard models that consider various inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying financial instruments. 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. Financial instruments in this category primarily include corporate securities, U.S. Government-sponsored enterprise securities, municipal securities and certain mortgage and asset-backed securities.

Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker prices utilizing significant inputs not based on or corroborated by readily available market information. Real estate held for sale is included in this category. There were no securities in this category as of or during the years ended December 31, 2019 and 2018.

The following tables set forth our assets that are measured at fair value on a recurring basis as of the dates indicated.



December 31, 2019 (In thousands)	Level 1		Level 2	Level 3	Total Fair Value
Financial assets:
Fixed maturities available-for-sale:
U.S. Treasury and U.S. Government-sponsored enterprises	$	11,348	4,530	—	15,878
States and political subdivisions	—		536,284	—	536,284
Corporate	52		650,036	—	650,088
Commercial mortgage-backed	—		1,100	—	1,100
Residential mortgage-backed	—		130,287	—	130,287
Asset-backed	—		44,203	—	44,203
Foreign governments	—		119	—	119
Total fixed maturities available-for-sale	11,400		1,366,559	—	1,377,959

Equity securities:
Stock mutual funds	3,274		—	—	3,274
Bond mutual funds	12,311		—	—	12,311
Common stock	134		—	—	134
Non-redeemable preferred stock	314		—	—	314
Total equity securities	16,033		—	—	16,033
Total financial assets	$	27,433	1,366,559	—	1,393,992



December 31, 2018 (In thousands)	Level 1		Level 2	Level 3	Total Fair Value
Financial assets:
Fixed maturities available-for-sale:
U.S. Treasury and U.S. Government-sponsored enterprises	$	11,274	4,280	—	15,554
States and political subdivisions	—		720,115	—	720,115
Corporate	47		381,749	—	381,796
Commercial mortgage-backed	—		40,014	—	40,014
Residential mortgage-backed	—		68,684	—	68,684
Asset-backed	—		4,757	—	4,757
Foreign governments	—		119	—	119
Total fixed maturities	11,321		1,219,718	—	1,231,039

Equity securities:
Stock mutual funds	2,906		—	—	2,906
Bond mutual funds	11,774		—	—	11,774
Common stock	94		—	—	94
Non-redeemable preferred stock	294		—	—	294
Total equity securities	15,068		—	—	15,068
Total financial assets	$	26,389	1,219,718	—	1,246,107

FINANCIAL INSTRUMENTS VALUATION

Fixed maturity securities, available-for-sale. At December 31, 2019, the fixed maturities, valued using a third-party pricing source, totaled $1.4 billion for Level 2 assets and comprised 98.0% of total reported fair value. Fair values for Level 3 assets are based upon unadjusted broker quotes that are non-binding. The Level 1 and Level 2 valuations are reviewed and updated quarterly through random testing by comparisons to separate pricing models, other third-party pricing services, and back tested to recent trades. In addition, we obtain information annually relative to the third-party pricing models and review model parameters for reasonableness. For the period ended December 31, 2019, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third-party prices were changed from the values received.

Equity securities. Fair values of these securities are provided by a third-party pricing service and based upon quoted market price and are classified as Level 1 assets.

We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets. Such reclassifications, if any, are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur. There were no transfers in or out of Level 3 during the years ended December 31, 2019 and 2018.

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE

Estimates of fair values are made at a specific point in time, based on relevant market prices and information about the financial instruments. The estimated fair values of financial instruments presented below are not necessarily indicative of the amounts the Company might realize in actual market transactions. The carrying amount and fair value for the financial assets and liabilities on the consolidated financial statements not otherwise disclosed for the periods indicated were as follows:



	December 31, 2019			December 31, 2018
(In thousands)	Carrying Value		Fair Value	Carrying Value	Fair Value
Financial assets:
Policy loans	$	82,005	82,005	80,825	80,825
Mortgage loans	177		210	186	222
Short-term investments	1,301		1,301	7,865	7,865
Cash and cash equivalents	46,205		46,205	45,492	45,492
Financial liabilities:
Annuities - investment contracts	$	56,878	60,667	56,658	55,977

Policy loans. Policy loans had a weighted average annual interest rate of 7.7% at both December 31, 2019 and 2018 and no specified maturity dates. The aggregate fair value of policy loans approximates the carrying value reflected on the consolidated financial statements. These loans typically carry an interest rate that corresponds to the crediting rate applied to the related policy and contract reserves. Policy loans are an integral part of the life insurance policies we have in force; therefore, they cannot be valued separately and are not marketable. As a result, the fair value of policy loans approximates the carrying value and policy loans are considered Level 3 assets in the fair value hierarchy.

Mortgage loans. Other long-term investments include mortgage loans, which are secured principally by residential properties. Weighted average interest rates for these loans were approximately 6.4% and 6.6% per year as of December 31, 2019 and 2018, respectively, with maturities ranging from 19 to 23 years. Management estimated the fair value using an annual interest rate of 6.25% at both December 31, 2019 and 2018. Our mortgage loans are considered Level 3 assets in the fair value hierarchy.

The following table summarizes the carrying amounts of other long-term investments not carried at fair market value.



December 31, 2019	Carrying Value
(in thousands)	Carrying Value
Other long-term investments:
FHLB common stock	$	187
Mortgage loans	177
All other investments	21
Total other long-term investments	$	385

Other. The fair value of short-term investments and cash and cash equivalents approximate carrying value and are characterized as Level 1 assets in the fair value hierarchy.

Annuity liabilities. The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 instruments, was estimated at December 31, 2019 and 2018 using discounted cash flows based upon spot rates ranging from 1.67% to 3.02% and 2.70% to 3.8%, respectively, based upon swap rates adjusted for various risk adjustments. The fair value of liabilities under all insurance contracts are taken into consideration in the overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.