Note N – 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 carrying amounts reported in the consolidated balance sheets for cash, accounts receivables, reinsurance recoverable, notes receivable, accounts payable and accrued expenses, income taxes payable, short term borrowings and unearned income approximate fair value because of the short term nature of these items. The following tables summarize fair value measurements by level for assets measured at fair value on a recurring basis:

As of December 31, 2015:

Description	Total		Level 1		Level 2		Level 3

Fixed maturities:
U.S. government obligations	$	103,245	$	-	$	103,245	$	-
Residential mortgage-backed securities		4,776		-		4,776		-
Commercial mortgage-backed securities		30,595		-		29,226		1,369
State and municipal obligations		110,578		-		110,578		-
Corporate securities		161,630		-		146,488		15,142
Options embedded in convertible securities		2,395		-		2,395		-
Foreign government obligations		23,965		-		23,683		282
Total fixed maturities		437,184		-		420,391		16,793
Equity securities:
Financial institutions		21,694		21,694		-		-
Industrial & miscellaneous		123,804		123,804		-		-
Total equity securities		145,498		145,498		-		-
Short term		2,220		2,220		-		-
Cash equivalents		69,517		-		69,517		-
Total	$	654,419	$	147,718	$	489,908	$	16,793

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		-
Total	$	676,191	$	165,073	$	498,910	$	12,208

Level inputs, as defined by the FASB guidance, 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 Level 3 assets consist of a portfolio of corporate convertible bonds, commercial mortgage-backed securities and a limited amount of foreign government obligations. The assets are valued using various unobservable inputs including extrapolated data, proprietary models and indicative quotes. Transfers into Level 3 during 2015 and 2014 relate to securities previously classified as Level 2. 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 years ended December 31:

	2015			2014
Beginning of period balance	$	12,208		$	-
Total gains or losses (realized)
included in income		(104	)		-
Purchases		2,284			-
Settlements		(8,068	)		-
Transfers into Level 3		11,586			12,208
Transfers out of Level 3		(1,113	)		-
End of period balance	$	16,793		$	12,208

Quoted market prices are obtained whenever possible. Where quoted market prices are not available, fair values are estimated using present value or other valuation techniques. These techniques are significantly affected by our assumptions, including discount rates and estimates of future cash flows. Potential taxes and other transaction costs have not been considered in estimating fair values.

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 2015.

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 policy reserve liabilities are excluded from the fair value disclosures. Therefore, the fair value amounts cannot be aggregated to determine the underlying economic value to the Company.

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 sheet at December 31, 2015 and 2014 is as follows:

2015:	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total
Assets:
Limited partnerships	$	75,458	$	-	$	-	$	75,458	$	75,458

Liabilities:
Short-term borrowings		20,000		-		20,000		-		20,000

2014:
Assets:
Limited partnerships	$	81,230	$	-	$	-	$	81,230	$	81,230

Liabilities:
Short-term borrowings		20,000		-		20,000		-		20,000