Note 3. Disclosures About Fair Value of Financial Instruments

The estimated fair values have been determined by the Company using available market information from various market sources and appropriate valuation methodologies as of the respective dates. However, considerable judgment is necessary to interpret market data and to develop the estimates of fair value. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, the estimates presented herein are not necessarily indicative of the amounts which the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.

The following describes the fair value hierarchy and provides information as to the extent to which the Company uses fair value to measure the value of its financial instruments and information about the inputs used to value those financial instruments. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad levels.

Level 1

Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. The Company’s financial instruments valued using Level 1 criteria include cash equivalents and exchange traded common stocks.

Level 2

Observable inputs, other than quoted prices included in Level 1, for an asset or liability or prices for similar assets or liabilities. The Company’s financial instruments valued using Level 2 criteria include significantly most of its fixed maturities, which consist of U.S. Treasury securities, U.S. Government securities, obligations of states and political subdivisions, and certain corporate fixed maturities, as well as its non-redeemable preferred stocks. In determining fair value measurements of its fixed maturities and non-redeemable preferred stocks using Level 2 criteria, the Company utilizes data from outside sources, including nationally recognized pricing services and broker/dealers. Prices for the majority of the Company’s Level 2 fixed maturities and non-redeemable preferred stocks were determined using unadjusted prices received from pricing services that utilize models where the significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data.

Level 3

Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Fair value is based on criteria that use assumptions or other data that are not readily observable from objective sources. The Company’s financial instruments valued using Level 3 criteria consist of a limited number of fixed maturities. The use of different criteria or assumptions regarding data may have yielded materially different valuations.

Recurring Fair Value Measurements

Cash Equivalents. The carrying amount approximates fair value due to the short-term nature of the instruments.

Fixed Maturities and Common and Non-Redeemable Preferred Stocks. The carrying amount is determined in accordance with methods prescribed by the NAIC, which do not differ materially from publicly quoted market prices. Certain fixed maturities do not have publicly quoted values and consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies. They are not actively traded and valuation techniques used to measure fair value are based on future estimated cash flows discounted at reasonable estimated rates of interest. Other qualitative and quantitative information received from the original underwriter of the pooled offerings is also considered, as applicable.

Nonrecurring Fair Value Measurements

Non-publicly Traded Invested Assets. The fair value of investments in certain limited partnerships which are included in other invested assets on the consolidated balance sheet were determined by officers of those limited partnerships.

Policy Loans. Policy loans, which are categorized as Level 2 fair value measurements, are carried at the unpaid principal balances.

Junior Subordinated Debentures. The fair value is estimated based on observable interest rates and yields for debt instruments having similar characteristics.

As of December 31, 2019, financial instruments carried at fair value were measured on a recurring basis as summarized below:

Assets:	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Fixed maturities	$	-	$	232,472	$	-	$	232,472
Equity securities		22,922		-		-		22,922
Cash equivalents		7,173		-		-		7,173
Total	$	30,095	$	232,472	$	-	$	262,567

As of December 31, 2018, financial instruments carried at fair value were measured on a recurring basis as summarized below:

Assets:	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Total
Fixed maturities	$	11,413	$	197,907		$	1,066	⁽¹⁾	$	210,386
Equity securities		16,398		4,360	⁽¹⁾		-			20,758
Cash equivalents		8,250		-			-			8,250
Total	$	36,061	$	202,267		$	1,066		$	239,394

⁽¹⁾

All underlying securities are financial service industry related.

The following is a roll-forward of the Company’s fixed maturities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from January 1, 2018 to December 31, 2019.

	Fixed Maturities
Balance, January 1, 2018	$	1,369
Total realized gains included in earnings		208
Total unrealized losses included in other comprehensive loss		(28	)
Settlements		(483	)
Balance, December 31, 2018		1,066
Total transferred out of level 3		(1,066	)
Balance, December 31, 2019	$	-

The Company’s fixed maturities valued using Level 3 inputs consist solely of issuances of pooled debt obligations of multiple, smaller financial services companies that are not actively traded. There are no assumed prepayments and/or default probability assumptions as a majority of these instruments contain certain U.S. government agency strips to support repayment of the principal. Other qualitative and quantitative information received from the original underwriter of the pooled offerings is also considered, as applicable. Transfers out of Level 3 during 2019 were the result of valuing those securities using Level 2 criteria.

The following table sets forth the carrying amount, estimated fair value and level within the fair value hierarchy of the Company’s financial instruments as of December 31, 2019 and 2018.

		2019				2018
	Level in Fair Value Hierarchy ⁽¹⁾	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Cash and cash equivalents	Level 1	$	12,893	$	12,893	$	12,630	$	12,630
Fixed maturities	⁽¹⁾		232,472		232,472		210,386		210,386
Equity securities	⁽¹⁾		22,922		22,922		20,758		20,758
Other invested assets	Level 3		9,960		9,960		7,424		7,424
Policy loans	Level 2		2,007		2,007		2,085		2,085
Real estate	Level 2		38		38		38		38
Investments in unconsolidated trusts	Level 2		1,238		1,238		1,238		1,238

Liabilities:
Junior Subordinated Debentures, net	Level 2		33,738		35,977		33,738		33,738

⁽¹⁾

See the aforementioned information for a description of the fair value hierarchy as well as a disclosure of levels for classes of these financial assets.