Investments in Securities and Fair Value

The aggregate estimated fair value, gross unrealized holding gains, gross unrealized holding losses, and amortized cost for securities by major security type at December 31 were as follows:



December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities, available-for-sale, at fair value:
General obligations of U.S. states, territories and political subdivisions	$	35,215,247	$	1,527,794	$	19,542	$	36,723,499
Issuer obligations of U.S. states, territories and political subdivisions special revenue	46,707,033		2,405,725		55,502		49,057,256
Corporate debt securities	21,576,641		823,133		71,339		22,328,435
Auction rate securities	922,129		16,971		—		939,100
Total	$	104,421,050	$	4,773,623	$	146,383	$	109,048,290
Equity securities, available-for-sale, at fair value:
Common stocks and nonredeemable preferred stocks	$	24,128,753	$	15,225,459	$	99,231	$	39,254,981
Total	$	24,128,753	$	15,225,459	$	99,231	$	39,254,981
Short-term investments:
Money market funds and certificates of deposit	$	2,576,993	$	—	$	—	$	2,576,993
Total	$	2,576,993	$	—	$	—	$	2,576,993



December 31, 2013	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Fixed maturities, available-for-sale, at fair value:
General obligations of U.S. states, territories and political subdivisions	$	38,449,309	$	1,922,862	$	184,351	$	40,187,820
Issuer obligations of U.S. states, territories and political subdivisions special revenue	30,874,571		1,234,130		204,800		31,903,901
Corporate debt securities	17,736,608		789,840		108,456		18,417,992
Auction rate securities	919,672		16,028		—		935,700
Total	$	87,980,160	$	3,962,860	$	497,607	$	91,445,413
Equity securities, available-for sale, at fair value:
Common stocks and nonredeemable preferred stocks	$	22,200,369	$	14,052,780	$	109,084	$	36,144,065
Total	$	22,200,369	$	14,052,780	$	109,084	$	36,144,065
Short-term investments:
Money market funds and certificates of deposit	$	7,926,373	$	—	$	—	$	7,926,373
Total	$	7,926,373	$	—	$	—	$	7,926,373

The special revenue category for both periods presented includes over 30 individual bonds with revenue sources from a variety of industry sectors.

The scheduled maturities of fixed maturity securities at December 31, 2014 were as follows:



	Available-for-Sale
	Amortized Cost		Fair Value
Due in one year or less	$	13,682,264	$	13,844,384
Due after one year through five years	52,358,705		54,918,427
Due five years through ten years	36,385,776		37,703,640
Due after ten years	1,994,305		2,581,839
Total	$	104,421,050	$	109,048,290

Earnings on investments for the years ended December 31 were as follows:



	2014		2013		2012
Fixed maturities	$	3,282,810	$	2,997,901	$	3,154,131
Equity securities	973,419		890,917		815,674
Invested cash and other short-term investments	3,202		5,754		10,576
Miscellaneous interest	70		36		30
Investment income	$	4,259,501	$	3,894,608	$	3,980,411

Gross realized gains and losses on sales of investments for the years ended December 31 are summarized as follows:



	2014			2013			2012
Gross realized gains:
General obligations of U.S. states, territories and political subdivisions	$	—		$	—		$	250
Corporate debt securities	6,670			—			52,396
Common stocks and nonredeemable preferred stocks	1,021,463			369,673			450,461
Auction rate securities	—			—			211,061
Total	1,028,133			369,673			714,168
Gross realized losses:
Common stocks and nonredeemable preferred stocks	(509,854		)	(180,169		)	(91,975		)
Other than temporary impairment of securities	(14,542		)	—			(93,436		)
Total	(524,396		)	(180,169		)	(185,411		)
Net realized gain	$	503,737		$	189,504		$	528,757
Net realized (loss) gain on other investments:
Impairments of other assets and investments	$	(10,062	)	$	(34,070	)	$	(6,504	)
Net gain on other assets and investments	45,288			48,946			543,986
Net loss on other assets and investments	(270,669		)	(8,580		)	—
Total	$	(235,443	)	$	6,296		$	537,482
Net realized gain on investments	$	268,294		$	195,800		$	1,066,239

Realized gains and losses are determined on the specific identification method.

The following table presents the gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous loss position at December 31, 2014 and 2013:



	Less than 12 Months					12 Months or Longer					Total
December 31, 2014	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
General obligations of U.S. states, territories and political subdivisions	$	2,113,194	$	(19,542	)	$	—	$	—		$	2,113,194	$	(19,542	)
Issuer obligations of U.S. states, territories and political subdivisions special revenue	3,946,977		(13,453		)	1,182,390		(42,049		)	5,129,367		(55,502		)
Corporate debt securities	6,924,430		(71,339		)	—		—			6,924,430		(71,339		)
Total fixed maturity securities	$	12,984,601	$	(104,334	)	$	1,182,390	$	(42,049	)	$	14,166,991	$	(146,383	)
Equity securities	930,208		(71,669		)	141,280		(27,562		)	1,071,488		(99,231		)
Total temporarily impaired securities	$	13,914,809	$	(176,003	)	$	1,323,670	$	(69,611	)	$	15,238,479	$	(245,614	)



December 31, 2013
General obligations of U.S. states, territories and political subdivisions	$	4,198,012	$	(184,351	)	$	—	$	—		$	4,198,012	$	(184,351	)
Issuer obligations of U.S. states, territories and political subdivisions special revenue	11,010,093		(204,800		)	—		—			11,010,093		(204,800		)
Corporate debt securities	5,942,570		(108,456		)	—		—			5,942,570		(108,456		)
Total fixed maturity securities	$	21,150,675	$	(497,607	)	$	—	$	—		$	21,150,675	$	(497,607	)
Equity securities	2,035,971		(72,998		)	244,929		(36,086		)	2,280,900		(109,084		)
Total temporarily impaired securities	$	23,186,646	$	(570,605	)	$	244,929	$	(36,086	)	$	23,431,575	$	(606,691	)

As of December 31, 2014, the Company held $14,166,991 in fixed maturity securities with unrealized losses of $146,383. As of December 31, 2013, the Company held $21,150,675 in fixed maturity securities with unrealized losses of $497,607. The decline in fair value of the fixed maturity securities can be attributed primarily to changes in market interest rates and changes in credit spreads over Treasury securities. Because the Company does not have the intent to sell these securities and likely will not be compelled to sell them before it can recover its cost basis, the Company does not consider these investments to be other-than-temporarily impaired.

As of December 31, 2014, the Company held $1,071,488 in equity securities with unrealized losses of $99,231. As of December 31, 2013, the Company held $2,280,900 in equity securities with unrealized losses of $109,084. The unrealized losses related to holdings of equity securities were caused by market changes that the Company considers to be temporary. Since the Company has the intent and ability to hold these equity income securities until a recovery of fair value, the Company does not consider these investments other-than-temporarily impaired.

Factors considered in determining whether a loss is temporary include the length of time and extent to which fair value has been below cost, the financial condition and prospects of the issuer (including credit ratings and analyst reports) and macro-economic changes. A total of 25 and 26 securities had unrealized losses at December 31, 2014 and December 31, 2013, respectively. Reviews of the values of securities are inherently uncertain and the value of the investment may not fully recover, or may decline in future periods resulting in a realized loss. During 2014, the Company recorded other-than-temporary impairment charges in the amount of $14,542 related to securities. During 2013, the Company did not record any other-than-temporary impairment charges related to securities. During 2012, the Company recorded other-than-temporary impairment charges in the amount of $93,436 related to securities. Other-than-temporary impairment charges are included in net realized gain on investments in the Consolidated Statements of Income.

Valuation of Financial Assets and Liabilities

The FASB has established a valuation hierarchy for disclosure of the inputs used to measure fair value of financial assets and liabilities, such as securities. This hierarchy categorizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.

A financial instrument’s classification within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement—consequently, if there are multiple significant valuation inputs that are categorized in different levels of the hierarchy, the instrument’s hierarchy level is the lowest level (with Level 3 being the lowest level) within which any significant input falls.

Debt and Equity Securities

The Level 1 category includes equity securities that are measured at fair value using quoted active market prices.

The Level 2 category includes fixed maturity investments such as corporate bonds, U.S. government and agency bonds and municipal bonds. Fair value is principally based on market values obtained from a third party pricing service. Factors that are used in determining fair market value include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. The Company receives one quote per security from a third party pricing service, although as discussed below, the Company does consult other pricing resources when confirming that the prices it obtains reflect the fair values of the instruments in accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures. Generally, quotes obtained from the pricing service for instruments classified as Level 2 are not adjusted and are not binding. As of December 31, 2014 and December 31, 2013, the Company did not adjust any Level 2 fair values.

A number of the Company’s investment grade corporate bonds are frequently traded in active markets, and trading prices are consequently available for these securities. However, these securities are classified as Level 2 because the pricing service from which the Company has obtained fair values for these instruments uses valuation models which use observable market inputs in addition to trading prices. Substantially all of the input assumptions used in the service’s model are observable in the marketplace or can be derived or supported by observable market data.

The Level 3 category only includes the Company’s investments in student loan auction rate securities (“ARS”) because quoted prices are unavailable due to the failure of auctions. The Company’s ARS portfolio is comprised entirely of investment grade student loan ARS. The par value of these securities was $1,000,000 as of December 31, 2014 and December 31, 2013, with approximately 97.0% as of December 31, 2014 and December 31, 2013, guaranteed by the U.S. Department of Education.

Some of the inputs to ARS valuation are unobservable in the market and are significant; therefore, the Company utilizes another third party pricing service to assist in the determination of the fair market value of these securities. This service uses a proprietary valuation model that considers factors such as the following: the financial standing of the issuer; reported prices and the extent of public trading in similar financial instruments of the issuer or comparable companies; the ability of the issuer to obtain required financing; changes in the economic conditions affecting the issuer; pricing by other dealers in similar securities; time to maturity; and interest rates. The following table summarizes key assumptions the service used to determine fair value as of December 31, 2014 and 2013:



	2014	2013
Cumulative probability of earning maximum rate until maturity	—%	—%
Cumulative probability of principle returned prior to maturity	95.2%	95.6%
Cumulative probability of default at some future point	4.8%	4.4%

Significant increases or decreases in any of the inputs in isolation could result in significant changes to the fair value measurement. Generally, increases in default probabilities and liquidity risk premiums lower the fair market value while increases in principal being returned and earning maximum rates increase fair market values.

Based upon these inputs and assumptions, the pricing service provides a range of values to the Company for its ARS. The Company records the fair value based on the midpoint of the range and believes that this valuation is the most reasonable estimate of fair value. In 2014 and 2013, the difference in the low and high values of the ranges was approximately one and four percent of the carrying value of the Company’s ARS.

The following table presents, by level, the financial assets carried at fair value measured on a recurring basis as of December 31, 2014 and 2013. The table does not include cash on hand and also does not include assets which are measured at historical cost or any basis other than fair value. Level 3 assets are comprised solely of ARS.



As of December 31, 2014	Level 1		Level 2		Level 3		Total
Short-term investments	$	2,576,993	$	—	$	—	$	2,576,993
Equity securities:
Common stocks and nonredeemable preferred stock	39,254,981		—		—		39,254,981
Fixed maturities:
Obligations of U.S. states, territories and political subdivisions*	—		85,780,755		—		85,780,755
Corporate debt securities*	—		22,328,435		939,100		23,267,535
Total	$	41,831,974	$	108,109,190	$	939,100	$	150,880,264



As of December 31, 2013	Level 1		Level 2		Level 3		Total
Short-term investments	$	7,926,373	$	—	$	—	$	7,926,373
Equity securities:
Common stocks and nonredeemable preferred stock	36,144,065		—		—		36,144,065
Fixed maturities:
Obligations of U.S. states, territories and political subdivisions*	—		72,091,721		—		72,091,721
Corporate debt securities*	—		18,417,992		935,700		19,353,692
Total	$	44,070,438	$	90,509,713	$	935,700	$	135,515,851

*Denotes fair market value obtained from pricing services.

There were no transfers into or out of Levels 1 and 2 during the period.

To help ensure that fair value determinations are consistent with FASB ASC 820, prices from our pricing services go through multiple review processes to ensure appropriate pricing. Pricing procedures and inputs used to price each security include, but are not limited to, the following: unadjusted quoted market prices for identical securities such as stock market closing prices; non-binding quoted prices for identical securities in markets that are not active; interest rates; yield curves observable at commonly quoted intervals; volatility; prepayment speeds; loss severity; credit risks and default rates. The Company reviews the procedures and inputs used by its pricing services and verifies a sample of the services’ quotes by comparing them to respective values obtained from other pricing resources. In the event the Company disagrees with a price provided by its pricing services, the respective service reevaluates the price to corroborate the market information and then reviews inputs to the evaluation in light of potentially new market data. The Company believes that these processes and inputs result in appropriate classifications and fair values consistent with ASC 820.

Other Financial Instruments

The Company uses various financial instruments in the normal course of its business. In the measurement of the fair value of certain financial instruments, other valuation techniques were utilized if quoted market prices were not available. These derived fair value estimates are significantly affected by the assumptions used. Additionally, ASC 820 excludes from its scope certain financial instruments including those related to insurance contracts, pension and other postretirement benefits, and equity method investments.

In estimating the fair value of the financial instruments presented, the Company used the following methods and assumptions:

Cash and cash equivalents

The carrying amount for cash and cash equivalents is a reasonable estimate of fair value due to the short-term maturity of these investments.

Cost-basis investments

The estimated fair value of cost-basis investments is calculated from the book value of the underlying entities, which is not materially different from the fair value of the underlying entity. These items are included in other investments in the Consolidated Balance Sheets.

Accrued dividends and interest

The carrying amount for accrued dividends and interest is a reasonable estimate of fair value due to the short-term maturity of these assets.

Contingent consideration

The fair value of the contingent consideration was estimated based on the discounted value of the future cash flows. Contingent consideration consists of additional monies the Company may become obligated to pay based on the future performance of a business the Company acquired, as discussed in Note 17. This item is included in accounts payable and accrued liabilities in the Consolidated Balance Sheets.

The carrying amounts and fair values of these financial instruments (please note investments are disclosed in a previous table) as of December 31, 2014 and 2013 are presented in the following table:



As of December 31, 2014
Financial Assets	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	15,826,515	$	15,826,515	$	15,826,515	$	—	$	—
Cost-basis investments	2,516,608		2,675,817		—		—		2,675,817
Accrued dividends and interest	1,063,837		1,063,837		1,063,837		—		—
Total	$	19,406,960	$	19,566,169	$	16,890,352	$	—	$	2,675,817



As of December 31, 2013
Financial Assets	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	23,626,761	$	23,626,761	$	23,626,761	$	—	$	—
Cost-basis investments	1,927,429		2,069,302		—		—		2,069,302
Accrued dividends and interest	1,006,698		1,006,698		1,006,698		—		—
Total	$	26,560,888	$	26,702,761	$	24,633,459	$	—	$	2,069,302

Financial Liabilities
Contingent consideration	$	341,250	$	341,250	$	—	$	—	$	341,250
Total	$	341,250	$	341,250	$	—	$	—	$	341,250

The following table presents a reconciliation of the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3), which are all ARS securities, for the twelve months ended December 31, 2014 and 2013:



Changes in fair value during the year ended December 31:	2014		2013
Beginning balance at January 1	$	935,700	$	932,200
Redemptions and sales	—		—
Realized gain – included in net realized gain on investments	—		—
Realized loss – included in net realized gain on investments	—		—
Unrealized gain - included in other comprehensive income	3,400		3,500
Ending balance at December 31	$	939,100	$	935,700

The following table presents a reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3), consisting solely of contingent acquisition consideration, for the twelve months ended December 31, 2014 and 2013:



Changes in fair value during the period ended:	2014			2013
Beginning balance at January 1	$	341,250		$	691,250
Addition of contingent consideration	—			—
Payment for contingent consideration	(341,250		)	(350,000		)
Ending balance, net	$	—		$	341,250

Certain cost-basis investments are measured at estimated fair value on a non-recurring basis, such as investments that are determined to be other-than temporarily impaired during the period and recorded at estimated fair value in the Consolidated Financial Statements as of December 31, 2014 and 2013. The following table summarizes the corresponding estimated fair value hierarchy of such investments at December 31, 2014 and 2013 and the related impairments recognized:



December 31, 2014	Valuation Method	Impaired	Level 1		Level 2		Level 3		Total at Estimated Fair Value		Impairment Losses
Cost-basis investments	Fair Value	Yes	$	—	$	—	$	22,682	$	22,682	$	(10,062	)
Total cost-basis investments and other assets			$	—	$	—	$	22,682	$	22,682	$	(10,062	)



December 31, 2013	Valuation Method	Impaired	Level 1		Level 2		Level 3		Total at Estimated Fair Value		Impairment Losses
Cost-basis investments	Fair Value	Yes	$	—	$	—	$	32,744	$	32,744	$	(34,070	)
Total cost-basis investments and other assets			$	—	$	—	$	32,744	$	32,744	$	(34,070	)