(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 March 31, 2015:

Description	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. government obligations	$	112,820	$	-	$	112,820	$	-
Residential mortgage-backed securities		6,066		-		6,066		-
Commercial mortgage-backed securities		34,465		-		34,007		458
State and municipal obligations		116,612		-		116,612		-
Corporate securities		152,093		-		139,249		12,844
Options embedded in convertible securities		2,755		-		2,755		-
Foreign government obligations		25,632		-		25,632		-
Total fixed maturities		450,443		-		437,141		13,302
Equity securities:
Financial institutions		24,144		24,144		-		-
Industrial & miscellaneous		138,447		138,447		-		-
Total equity securities		162,591		162,591		-		-
Short term		2,968		2,968		-		-
Cash equivalents		46,384		-		46,384		-
	$	662,386	$	165,559	$	483,525	$	13,302

As of December 31, 2014:

Description	Total		Level 1		Level 2		Level 3
Fixed maturities:
U.S. government obligations	$	101,094	$	-	$	101,094	$	-
Residential mortgage-backed securities		6,066		-		6,066		-
Commercial mortgage-backed securities		36,440		-		36,440		-
State and municipal obligations		113,777		-		113,777		-
Corporate securities		164,068		-		151,860		12,208
Options embedded in convertible securities		2,898		-		2,898		-
Foreign government obligations		27,466		-		27,466		-
Total fixed maturities		451,809		-		439,601		12,208
Equity securities:
Financial institutions		25,343		25,343		-		-
Industrial & miscellaneous		136,764		136,764		-		-
Total equity securities		162,107		162,107		-		-
Short term		2,966		2,966		-		-
Cash equivalents		59,309		-		59,309		-
	$	676,191	$	165,073	$	498,910	$	12,208

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. 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. The Level 3 assets consist of a portfolio of corporate convertible bonds and commercial mortgage-backed securities. The assets are valued using various unobservable inputs including extrapolated data, proprietary models and indicative quotes.

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

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 three months ended March 31, 2015 and for the year ended December 31, 2014:

	2015		2014
Beginning of period balance	$	12,208	$	-
Total gains or losses (realized or unrealized)
included in income		66		-
Purchases		1,002		-
Settlements		-		-
Transfers into level 3		26		12,208
End of period balance	$	13,302	$	12,208

Transfers between levels, if any, are recorded as of the beginning of the reporting period. There were no significant transfers of assets between Level 1 and Level 2 during the three months ended March 31, 2015 and 2014.

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 carried primarily 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 March 31, 2015 and December 31, 2014 are as follows:

	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total

March 31, 2015
Assets: Limited partnerships	$	84,569	$	-	$	-	$	84,569	$	84,569
Liabilities: Short-term borrowings		20,000		-		20,000		-		20,000

December 31, 2014
Assets: Limited partnerships		81,230		-		-		81,230		81,230
Liabilities: Short-term borrowings		20,000		-		20,000		-		20,000