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, 2017:

Description	Total		Level 1		Level 2		Level 3

Fixed maturities:
Agency collateralized mortgage obligations	$	16,586	$	-	$	16,586	$	-
Agency mortgage-backed securities		27,075		-		27,075		-
Asset-backed securities		43,469		-		43,469		-
Bank loans		19,488		-		19,488		-
Certificates of deposit		3,135		3,135		-		-
Collateralized mortgage obligations		6,492		-		6,492		-
Corporate securities		193,058		-		193,058		-
Options embedded in convertible securities		5,291		-		5,291		-
Mortgage-backed securities		24,204		-		24,204		-
Municipal obligations		96,650		-		96,650		-
Non-U.S. government obligations		37,394		-		37,394		-
U.S. government obligations		49,011		-		49,011		-
Total fixed maturities		521,853		3,135		518,718		-
Equity securities:
Consumer		46,578		46,578		-		-
Energy		10,278		10,278		-		-
Financial		45,470		45,470		-		-
Industrial		25,402		25,402		-		-
Technology		13,061		13,061		-		-
Funds (e.g. mutual funds, closed end funds, ETFs)		50,291		45,276		5,015		-
Other		10,683		10,683		-		-
Total equity securities		201,763		196,748		5,015		-
Short term		1,000		1,000		-		-
Cash equivalents		59,173		-		59,173		-
Total	$	783,789	$	200,883	$	582,906	$	-

As of December 31, 2016:

Description	Total		Level 1		Level 2		Level 3

Fixed maturities:
Agency collateralized mortgage obligations	$	6,171	$	-	$	6,171	$	-
Agency mortgage-backed securities		4,770		-		4,770		-
Asset-backed securities		45,183		-		37,919		7,264
Bank loans		10,349		-		-		10,349
Certificates of deposit		3,117		3,117		-		-
Collateralized mortgage obligations		9,104		-		6,409		2,695
Corporate securities		137,932		-		135,794		2,138
Options embedded in convertible securities		4,751		-		4,751		-
Mortgage-backed securities		24,571		-		22,206		2,365
Municipal obligations		129,335		-		129,190		145
Non-U.S. government obligations		24,681		-		24,419		262
U.S. government obligations		91,940		-		91,940		-
Total fixed maturities		491,904		3,117		463,569		25,218
Equity securities:
Consumer		32,576		32,576		-		-
Energy		12,842		12,842		-		-
Financial		31,186		30,943		243		-
Industrial		21,145		20,262		883		-
Technology		8,858		8,858		-		-
Funds (e.g. mutual funds, closed end funds, ETFs)		6,995		-		6,995		-
Other		6,343		6,343		-		-
Total equity securities		119,945		111,824		8,121		-
Short term		1,500		1,500		-		-
Cash equivalents		59,683		-		59,683		-
Total	$	673,032	$	116,441	$	531,373	$	25,218

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 Company does not have any Level 3 fair value assets at December 31, 2017. Transfers into Level 3 during 2017 and 2016 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:

	2017			2016
Beginning of period balance	$	25,218		$	16,793
Total gains or losses (realized)
included in income		406			1,846
Purchases		81			5,540
Settlements		(9,123	)		(8,791	)
Transfers into Level 3		144			10,202
Transfers out of Level 3		(16,726	)		(372	)
End of period balance	$	-		$	25,218

Quoted market prices are obtained whenever possible. Where quoted market prices are not available, fair values are estimated using broker/dealer quotes for specific securities. 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 2017. The transfers out of Level 3 during 2017 consisted mainly of bank loans, asset-backed securities and certain mortgage-backed securities and corporate securities, and were the result of changes in the availability of market observable inputs.

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 of 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, 2017 and 2016 is as follows:

2017:	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total
Assets:
Limited partnerships	$	70,806	$	-	$	-	$	70,806	$	70,806

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

2016:
Assets:
Limited partnerships	$	76,469	$	-	$	-	$	76,469	$	76,469

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