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Fair Value
6 Months Ended
Jun. 30, 2013
Fair Value [Abstract]  
Fair Value
(7) Fair Value:
 
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:
 

As of June 30, 2013:
            
              
Description
 
Total
  
Level 1
  
Level 2
  
Level 3
 
             
U.S. government obligations
 $68,021  $68,021  $-  $- 
Residential mortgage-backed securities
  16,535   -   16,535   - 
Commercial mortgage-backed securities
  25,391   -   25,391   - 
State and municipal obligations
  113,251   -   113,251   - 
Corporate securities
  131,826   -   124,605   7,221 
Options embedded in convertible securities
  2,137   -   2,137   - 
Foreign government obligations
  21,942   -   21,942   - 
      Total fixed maturities
  379,103   68,021   303,861   7,221 
Equity securities
  120,946   120,946   -   - 
Short term
  4,226   4,226   -   - 
Cash equivalents
  111,781   -   111,781   - 
   $616,056  $193,193  $415,642  $7,221 


As of December 31, 2012:
            
              
Description
 
Total
  
Level 1
  
Level 2
  
Level 3
 
             
U.S. government obligations
 $70,742  $70,742  $-  $- 
Residential mortgage-backed securities
  25,040   -   25,040   - 
Commercial mortgage-backed securities
  11,828   -   11,828   - 
State and municipal obligations
  194,865   -   194,865   - 
Corporate securities
  118,945   -   107,263   11,682 
Options embedded in convertible securities
  1,651   -   1,651   - 
Foreign government obligations
  22,598   -   22,598   - 
      Total fixed maturities
  445,669   70,742   363,245   11,682 
Equity securities
  107,582   107,582   -   - 
Short term
  4,201   4,201   -   - 
Cash equivalents
  64,450   -   64,450   - 
   $621,902  $182,525  $427,695  $11,682 


Level inputs, as defined by FASB Fair Value Measurements, are as follows:

Level Input:
  
Input Definition:
     
Level 1
  
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
     
Level 2
  
Inputs other than quoted prices included in Level 1 that are observable for the asset or liability through corroboration with market data at the measurement date.
     
Level 3
  
Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.


The following methods, assumptions and inputs were used to determine the fair value of each class of the following assets recorded at fair value in the consolidated balance sheets:

Cash equivalents:  Cash equivalents primarily consist of highly rated money market funds purchased at par value with specified yield rates. Due to underlying assets of these funds, we designate all cash equivalents as Level 2.

Fixed maturities: Fair values of fixed maturities are based on quoted market prices, where available. These fair values are obtained primarily from third party pricing services, which generally use Level 1 or Level 2 inputs for the determination of fair value to facilitate fair value measurements and disclosures. U.S. government obligations represent Level 1 securities, while Level 2 securities primarily include corporate securities, states and municipal obligations, foreign government obligations, and mortgage-backed securities. For securities not actively traded, the third party pricing services may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, broker quotes, benchmark yields, credit spreads, default rates and prepayment speeds.

Equity securities: Fair values of equity securities are designated as Level 1 and are based on quoted market prices.

 
The Level 3 assets consist of an investment portfolio of insurance-linked securities.  The insurance-linked securities are valued using the average of estimated market quotes from multiple insurance-linked securities brokers.  The broker quotes include Level 3 inputs which are significant to the valuation of the insurance-linked securities and typically vary by 0-3% from each other. There were no Level 3 sales, no transfers into Level 3 and no transfers out of Level 3 during 2013 or 2012.  A reconciliation of the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs is as follows for the six months ended June 30, 2013 and for the year ended December 31, 2012:
   
2013
  
2012
 
Beginning of period balance
 $11,682  $17,050 
Net realized and unrealized gain included in
        
earnings or changes in net assets
  602   1,653 
Purchases
  1,000   400 
Settlements
  (6,063)  (7,421)
End of period balance
 $7,221  $11,682 

 
There were no transfers of assets between Level 1 and Level 2 during the six months ended June 30, 2013 and 2012.  Transfers between levels, if any, are recorded as of the beginning of the reporting period.

In addition to the preceding disclosures on assets recorded at fair value in the consolidated balance sheets, FASB guidance also requires the disclosure of fair values for certain other financial instruments for which it is practicable to estimate fair value, whether or not such values are recognized in the consolidated balance sheets.

Non-financial instruments such as real estate, property and equipment, other assets, deferred income taxes and intangible assets, and certain financial instruments such as reserves for losses and loss expenses are excluded from the fair value disclosures.  Therefore, the fair value amounts cannot be aggregated to determine the Company’s underlying economic value.

The carrying amounts reported in the consolidated balance sheets for cash, accounts receivables, reinsurance recoverable, notes receivable, accounts payable and accrued expenses, income taxes receivable or payable and unearned premiums approximate fair value because of the short term nature of these items.  These assets and liabilities are not included in the table below.

The following methods, assumptions and inputs were used to estimate the fair value of each class of financial instrument:

Limited partnerships: The Company accounts for investments in limited partnerships using the equity method of accounting, which requires an investor in a limited partnership to carry the investment at its proportionate share of the limited partnership’s equity.   The underlying assets of the Company’s investments in limited partnerships are typically carried at fair value, and, therefore, the Company’s carrying value of limited partnerships approximates fair value.  As these investments are not actively traded and the corresponding inputs are based on data provided by the investees, they are classified as Level 3.

Short-term borrowings: The fair value of our short-term borrowings is based on quoted market prices for the same or similar debt, or, if no quoted market prices are available, on the current market interest rates available to us for debt of similar terms and remaining maturities.
 
A summary of the carrying value and fair value by level of financial instruments not recorded at fair value on the Company’s consolidated balance sheets at June 30, 2013 and December 31, 2012 are as follows:
 

   
Carrying
  
Fair Value
 
   
Value
  
Level 1
  
Level 2
  
Level 3
  
Total
 
                
June 30, 2013
               
Assets:   Limited partnerships
 $60,474  $-  $-  $60,474  $60,474 
Liabilities:   Short-term borrowings
  10,000   -   10,000   -   10,000 
                      
December 31, 2012
                    
Assets:   Limited partnerships
  59,954   -   -   59,954   59,954 
Liabilities:   Short-term borrowings
  10,000   -   10,000   -   10,000