•We filed and were approved for a New Hampshire automobile rate increase of 4.5%, which was effective November 1, 2013.
We did not have any recoveries from our primary catastrophe reinsurance treaties during the three-year period ended December 31, 2013 because there was no individual catastrophe for which our losses exceeded our retention under the treaties.
In 2008, the Commissioner issued a series of decisions to introduce what she termed "managed competition" to Massachusetts automobile insurance premium rates and in doing so replaced the fixed and established regime with a prior approval rate review process, governed by regulations that set
These decisions removed many of the factors that had historically distinguished the Massachusetts private passenger automobile insurance market from the market in other states. However, certain of the historically unique factors have not been eliminated, including compulsory insurance, affinity group marketing, and the prominence of independent agents.
Our results are reported in accordance with GAAP, which differ from amounts reported in accordance with statutory accounting principles ("SAP") as prescribed by insurance regulatory authorities, which in general reflect a liquidating, rather than going concern concept of accounting. Specifically, under GAAP:
•The differing treatment of income and expense items results in a corresponding difference in federal income tax expense. Changes in deferred income taxes are reflected as an item of
income tax benefit or expense, rather than recorded directly to surplus as regards policyholders, as required by SAP. Admittance testing may result in a charge to unassigned surplus for non-admitted portions of deferred tax assets. Under GAAP reporting, a valuation allowance may be recorded against the deferred tax asset and reflected as an expense.
The property and casualty insurance industry uses the combined ratio as a measure of underwriting profitability. The combined ratio is the sum of the loss ratio (losses and loss adjustment expenses incurred as a percent of net earned premiums) plus the expense ratio (underwriting and other expenses as a percent of net earned premiums, calculated on a GAAP basis). The combined ratio reflects only underwriting results and does not include income from investments or finance and other service income. Underwriting profitability is subject to significant fluctuations due to competition, catastrophic events, weather, economic and social conditions, and other factors.
Our GAAP insurance ratios are presented in the following table for the periods indicated.
Grants made under the Incentive Plan during the years 2009 through 2013 were as follows.
(5)The shares represent awards granted to non-executive employees and vest ratable over a five-year service period.
Direct Written Premiums. Direct written premiums for the year ended December 31, 2013 increased by $35,460, or 5.1%, to $731,680 from $696,220 for the comparable 2012 period. The 2013 increases occurred primarily in our homeowners , commercial automobile and personal automobile business lines which experienced increases of 4.5%, 0.9%, and 2.5%, respectively, in average written premium per exposure. Written exposures decreased slightly by 0.3% in our personal automobile line and increased by 10.9% and 5.7% in our commercial automobile and homeowners lines, respectively. The increase in homeowners exposures is primarily the result of our pricing strategy of offering account discounts to policyholders who insure both an automobile and home with us.
Net Earned Premiums. Net earned premiums for the year ended December 31, 2013 increased by $39,401, or 6.1%, to $681,870 from $642,469 for the comparable 2012 period. The 2013 increase was primarily due to the factors that increased direct written premiums.
Net Investment Income. Net investment income for the year ended December 31, 2013 increased by $2,184, or 5.3%, to $43,054 from $40,870 for the comparable 2012 period. Net effective annual yield on the investment portfolio was 3.7% for both the years ended December 31, 2013 and 2012. Our duration was 4.0 years at December 31, 2013, up from 3.6 years at December 31, 2012.
(3)Our investment portfolio included 220 securities in an unrealized loss position at December 31, 2013.
The following table shows our insured investment securities that are backed by financial guarantors including pre-refunded securities as of December 31, 2013. We do not have any direct investment holdings in a financial guarantee insurance company.
Finance and Other Service Income. Finance and other service income includes revenues from premium installment charges, which we recognize when earned, and other miscellaneous income and fees. Finance and other service income increased by $130, or 0.7%, to $18,683 for the year ended December 31, 2013 from $18,553 for the comparable 2012 period.
Interest Expenses. Interest expense was $89 and $88 for the years ended December 31, 2013 and 2012, respectively. The credit facility commitment fee included in interest expense was $75 for each of the years ended December 31, 2013 and 2012.
Income Tax Expense. Our effective tax rates were 30.0% and 28.7% for the years ended December 31, 2013 and 2012, respectively. These effective rates were lower than the statutory rate of 35.0% primarily due to adjustments for tax-exempt investment income.
Direct Written Premiums. Direct written premiums for the year ended December 31, 2012 increased by $46,958, or 7.2%, to $696,220 from $649,262 for the comparable 2011 period. The 2012 increase occurred primarily in our personal automobile and homeowners lines, which experienced increases of 4.9% and 4.1%, respectively, in average written premium per exposure. Written exposures remained constant in our personal automobile line and increased by 7.2% and 12.5% in our homeowners line and commercial automobile line, respectively. The increase in homeowners exposures is primarily the result of our pricing strategy of offering account discounts to policyholders who insure both an automobile and home with us.
Net Written Premiums. Net written premiums for the year ended December 31, 2012 increased by $43,626, or 7.0%, to $663,942 from $620,316 for 2011.The 2012 increase was primarily due to the factors that increased direct written premiums.
Net Investment Income. Net investment income for the year ended December 31, 2012 increased by $1,810, or 4.6%, to $40,870 from $39,060 for the comparable 2011 period. Net effective annual yield on the investment portfolio increased to 3.7% for the year ended December 31, 2012 from 3.6% for the comparable 2011 period. Our duration was 3.6 years at December 31, 2012, up from 3.7 years at December 31, 2011.
Net Realized Gains (Losses) on Investments. Net realized gains on investments were $1,975 for the year ended December 31, 2012 compared to $4,360 for the comparable 2011 period.
The composition of our fixed income security portfolio by Moody's rating was as follows.
As of December 31, 2012, we held insured investment securities of approximately $116,171, which represented approximately 9.8% of our total investment. Approximately $48,741 of these securities are pre-refunded, meaning that funds have been set aside in escrow to satisfy the future interest and principal obligations of the bond.
The following table shows our insured investment securities that are backed by financial guarantors including pre-refunded securities as of December 31, 2012. We do not have any direct investment holdings in a financial guarantee insurance company.
Of the $1,358 gross unrealized losses as of December 31, 2012, $17 relates to obligations of U.S. Treasuries, states and political subdivisions. The remaining $1,341 of gross unrealized losses relates primarily to holdings of investment grade asset-backed, corporate, other fixed maturity and equity securities.
For information regarding fair value measurements of our investment portfolio, refer to Item 8 - Financial Statements and Supplementary Data, Note 14, Fair Value Measurements, of this Form 10-K.
Finance and Other Service Income. Finance and other service income includes revenues from premium installment charges, which we recognize when earned, and other miscellaneous income and fees. Finance and other service income increased by $183 or 1.0% to $18,553 for the year ended December 31, 2012 from $18,370 for the comparable 2011 period.
Losses and Loss Adjustment Expenses. Losses and loss adjustment expenses incurred for year ended December 31, 2012 decreased by $44,423, or 9.5%, to $422,217 from $466,640 for the comparable 2011 period. Our GAAP loss ratio for the year ended December 31, 2012 decreased to 65.7% from 78.0% for the comparable 2011 period. Included in pre-tax results for the year ended December 31, 2012 is approximately $10,332 attributable to catastrophic weather event losses sustained throughout the year compared to $61,384 for the comparable 2011 period. Our GAAP loss ratio excluding loss adjustment expenses for the year ended December 31, 2012 decreased to 56.8% from 68.6% for the comparable 2011 period. The total prior year favorable development included in pre-tax results for the year ended December 31, 2012 was $17,310 compared to $36,683 for the comparable 2011 period.
Interest Expenses. Interest expense for the years ended December 31, 2012 and 2011 was $88. The credit facility commitment fee included in interest expense was $75 for each of the years ended December 31, 2012 and 2011.
Net Income. Net income for the year ended December 31, 2012 was $57,404 compared to $13,702 for the comparable 2011 period. This increase was primarily attributable to the decrease in losses and loss adjustment expenses, as discussed above.
Net cash provided by operating activities was $110,861, $104,311, and $39,475 during the years ended December 31, 2013, 2012, and 2011, respectively. Our operations typically generate positive cash flows from operations as most premiums are received in advance of the time when claim and benefit payments are required. These positive operating cash flows are expected to continue to meet our liquidity requirements.
The Insurance Subsidiaries maintain a high degree of liquidity within their respective investment portfolios in fixed maturity and short-term investments. In recent years, global financial markets experienced unprecedented and challenging conditions, including a tightening in the availability of credit, the failure of several large financial institutions and concerns about the creditworthiness of the sovereign debt of several European and other countries. We believe that recent and ongoing government actions, including The Emergency Economic Stabilization Act of 2008, the 2009 American Recovery and Reinvestment Act and other U.S. and global government programs and the quality of the assets we hold will allow us to realize these securities' anticipated long-term economic value. Furthermore, as of December 31, 2013, we had the intent and ability to retain such investments for the period of time anticipated to allow for this expected recovery in fair value. We do not anticipate the need to sell these securities to meet the Insurance Subsidiaries cash requirements. We expect the Insurance Subsidiaries to generate sufficient operating cash to meet all short-term and long-term cash requirements. However, there can be no assurance that unforeseen business needs or other items will not occur causing us to have to sell securities before their values fully recover; thereby causing us to recognize additional impairment charges in that time period.
On February 14, 2014, our Board approved and declared a quarterly cash dividend on our common stock of $0.60 per share to be paid on March 14, 2014 to shareholders of record on March 3, 2014. We plan to continue to declare and pay quarterly cash dividends in 2014, depending on our financial position and the regularity of our cash flows.
Management determines our loss and LAE reserves estimate based upon the analysis of our actuaries. A reasonable estimate is derived by selecting a point estimate within a range of indications as
calculated by our actuaries using generally accepted actuarial techniques. The key assumption in most actuarial analysis is that past patterns of frequency and severity will repeat in the future, unless a significant change in the factors described above takes place. Our key factors and resulting assumptions are the ultimate frequency and severity of claims, based upon the most recent ten years of claims reported to the Company, and the data CAR reports to us to calculate our share of the residual market, as of the date of the applicable balance sheet. For each accident year and each coverage within a line of business our actuaries calculate the ultimate losses incurred. Our total reserves are the difference between the ultimate losses incurred and the cumulative loss and loss adjustment payments made to date. Our IBNR reserves are calculated as the difference between our total reserves and the outstanding case reserves at the end of the accounting period. To determine ultimate losses, our actuaries calculate a range of indications and select a point estimation using such actuarial techniques as:
•Incurred Loss Indications: This method projects ultimate loss estimates based upon extrapolations of historic incurred loss trends. This method tends to be used on long tail lines of business such as automobile liability and homeowner's liability.
Such techniques assume that past experience, adjusted for the effects of current developments and anticipated trends, is an appropriate basis for predicting our ultimate losses, total reserves and resulting IBNR reserves. It is possible that the final outcome may fall above or below these amounts as a result of a number of factors, including immature data, sparse data, or significant growth in a line of business. Using these methodologies our actuaries established a range of reasonably possible estimations for net reserves of approximately $364,146 to $401,265 as of December 31, 2013 compared to a range of $347,618 to $379,385 as of December 31, 2012. In general, the low and high values of the ranges represent reasonable minimum and maximum values of the indications based on the techniques described above. Our selected point estimate of net loss and LAE reserves based upon the analysis of our actuaries was $394,668 as of December 31, 2013 compared to $371,657 as of December 31, 2012 .
The following table presents our total net reserves and the corresponding case reserves and IBNR reserves for each line of business as of December 31, 2013 and December 31, 2012.
At December 31, 2013 and 2012, our total IBNR reserves for our private passenger automobile line of business were comprised of $(25,196) and $(25,826) related to estimated ultimate decreases in
the case reserves, including anticipated recoveries (i.e. salvage and subrogation), and $23,284 and $23,172 related to our estimation for not yet reported losses, respectively.
reserves by 1 percentage-point. A 1 percentage-point change in both our key assumptions would change estimated reserves within a range of plus or minus 2 percentage-points.
The decreases in prior years reserves during the years ended December 31, 2013, 2012 and 2011 resulted from re-estimations of prior year ultimate loss and LAE liabilities. The 2013 decrease is primarily composed of reductions of $23,938, in our retained automobile reserves and $4,740 in our retained homeowners reserves. The 2012 decrease is primarily composed of reductions of $17,879 in our retained automobile reserves. The 2011 decrease is primarily composed of reductions of $28,302 in our retained automobile reserves and $4,921 in our retained homeowners reserves.
The following table presents information by line of business for prior year development of our net reserves for losses and LAE for the year ended December 31, 2013.
The following table presents information by line of business for prior year development of reserves assumed from residual markets for losses and LAE for the year ended December 31, 2013.
Our private passenger automobile line of business prior year reserves decreased by $21,090 for the year ended December 31, 2013. The decrease was primarily due to improved retained private passenger results of $18,116 for the accident years 2007 through 2012. The improved retained private passenger results were primarily due to fewer IBNR claims than previously estimated and better than previously estimated severity on our established bodily injury and property damage case reserves.
Our retained homeowners line of business prior year reserves decreased by $4,740 for the year ended December 31, 2013 due primarily to re-estimation of 2010 and 2009 catastrophe losses.
Amounts included in accounts receivable represent premiums as well as finance charges, the majority of which are both billed on a monthly installment basis. Accounts receivable are stated net of allowances for doubtful accounts. At December 31, 2013 and 2012, these allowances were $456 and $635, respectively. Uncollected premium balances over ninety days past due are written off.
Amounts that vary with and are primarily related to the successful acquisition of a new or renewal insurance contract, principally commissions and premium taxes, are deferred and amortized ratably over the effective period of the policies. All other acquisition expenses are expensed as incurred. Deferred policy acquisition costs are reviewed to determine if they are recoverable from future income, and if not, are charged to expense. Future investment income attributable to related premiums is not taken into account in measuring the recoverability of the carrying value of this asset. Amortization of acquisition costs in the amount of $126,201, $118,850, and $110,795 was charged to underwriting expenses for the years ended 2013, 2012 and 2011, respectively.
Property, equipment, leasehold improvements, and software are carried at cost less accumulated depreciation. Depreciation is provided using the straight-line or accelerated method over the estimated useful lives of the related assets, which range from 3 to 10 years. Amortization of leasehold improvements is provided using the straight-line method over the term of the lease. The costs of computer software developed or obtained for internal use are capitalized and amortized over the
The Company and its subsidiaries file a consolidated U.S. federal income tax return. The method of allocation among members of the consolidated group is subject to a written agreement approved by the Board of Directors (the "Board"). The consolidated tax liability is allocated on the basis of the members' proportionate contribution to consolidated taxable income.
Deferred income taxes are generally recognized when assets and liabilities have different values for financial statement and tax reporting purposes, and for other temporary taxable and deductible differences as defined by Accounting Standards Codification ("ASC") 740, Income Taxes. A valuation
ASC 718, Share Based Compensation, requires the Company to measure and recognize the cost of employee services received in exchange for an award of equity instruments. Under the provisions of ASC 718, share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the equity grant).
As permitted by ASC 718, the Company elected the modified prospective transition method. Under the modified prospective transition method, (i) compensation expense for share-based awards granted prior to January 1, 2006 is recognized over the remaining service period using the compensation cost calculated for pro forma disclosure purposes as adjusted to incorporate forfeiture assumptions, and (ii) compensation expense for all share-based awards granted subsequent to December 31, 2005 is based on the grant date fair value estimated in accordance with the provisions of ASC 718.
In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires entities to present in either a single note or parenthetically on the face of the financial statements, the effect of significant amounts reclassified from each component of accumulated other comprehensive income based on its source and the income statement line items affected by the reclassification. Items not required to be reclassified to net income in their entirety are cross referenced to a related footnote for additional information. The ASU is effective for interim and annual periods beginning after December 15, 2012. The impact of adoption was not material to the Company's consolidated financial condition and results of operations.
The gross unrealized gains and losses on investments in fixed maturity securities, including redeemable preferred stocks that have characteristics of fixed maturities, and equity securities, including interests in mutual funds, were as follows for the periods indicated.
(1)Residential mortgage-backed securities consists primarily of obligations of U.S. Government agencies including collateralized mortgage obligations issued, guaranteed and/or insured by the following issuers: Government National Mortgage Association (GNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA) and the Federal Home Loan Bank (FHLB).
(3)The Company's investment portfolio included 220 and 75 securities in an unrealized loss position at December 31, 2013 and December 31, 2012, respectively.
ASC 320, Investments-Debt and Equity Securities requires entities to separate an OTTI of a debt security into two components when there are credit related losses associated with the impaired debt security for which the Company asserts that it does not have the intent to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis.
Under ASC 320, the amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other factors is recorded as a component of other comprehensive income (loss). In instances where no credit loss exists but it is more likely than not that the Company will have to sell the debt security prior to the anticipated recovery, the decline in market value below amortized cost is recognized as an OTTI in earnings. In periods after the recognition of an OTTI on debt securities, the Company accounts for such securities as if they had been purchased on the measurement date of the OTTI at an amortized cost basis equal to the previous amortized cost basis less the OTTI recognized in earnings. For debt securities for which OTTI was recognized in earnings, the difference between the new amortized cost basis and the cash flows expected to be collected will be accreted or amortized into net investment income.
The unrealized losses in the Company's fixed income and equity portfolio as of December 31, 2013 were reviewed for potential other-than-temporary asset impairments. The Company held no securities at December 31, 2013 with a material (20% or greater) unrealized loss for four or more consecutive quarters. Specific qualitative analysis was also performed for any additional securities appearing on the Company's "Watch List," if any. Qualitative analysis considered such factors as the financial condition and the near term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal payments, changes to the rating of the security by a rating agency and the historical volatility of the fair value of the security.
The qualitative analysis performed by the Company concluded that the unrealized losses recorded on the investment portfolio at December 31, 2013 resulted from fluctuations in market interest rates and other temporary market conditions as opposed to fundamental changes in the credit quality of the issuers of such securities. Therefore, decreases in fair values of the Company's securities are viewed as being temporary.
The Company sponsors the Safety Insurance Company 401(k) qualified defined contribution retirement plan (the "Retirement Plan"). The Retirement Plan is available to all eligible employees of the Company. An employee must be 21 years of age to be eligible to participate in the Retirement Plan and is allowed to contribute on a pre-tax basis up to the maximum allowed under federal law. The Retirement Plan is administered by the Company and is subject to the provisions of the Employee Retirement Income Security Act of 1974. At the close of each Retirement Plan year, the Company makes a matching contribution equal to 100% of the amount each participant contributed during the plan year from their total pay, up to a maximum amount of 8% of the participant's base salary, to those participants who have contributed to the Retirement Plan and were employed on the last day of
Long-term incentive compensation is provided under the Company's 2002 Management Omnibus Incentive Plan ("the Incentive Plan") which provides for a variety of stock-based compensation awards, including nonqualified stock options, incentive stock options, stock appreciation rights and restricted stock ("RS") awards. The maximum number of shares of common stock with respect to which awards may be granted is 2,500,000. Shares of stock covered by an award under the Incentive Plan that are forfeited will again be available for issuance in connection with future grants of awards under the plan. At December 31, 2013, there were 531,862 shares available for future grant. The Board of Directors and the Compensation Committee intend to issue more awards under the Incentive Plan in the future.
Service-based restricted stock awarded to employees in the form of unvested shares is recorded at the market value of the Company's common stock on the grant date and amortized ratably as expense over the requisite service period. Service-based restricted stock awards generally vest over a three-year period and unrestrict 30% on the first and second anniversaries of the grant date and 40% on the third anniversary of the grant date, except for non-executive employees' restricted stock awards which vest ratable over a five-year service period and independent directors' stock awards which vest immediately. Independent directors' stock awards cannot be sold, assigned, pledged, or otherwise transferred, encumbered or disposed of until the recipient is no longer a member of the Board of Directors.
All of the Company's restricted stock awards are issued as incentive compensation and are equity classified.
The following tables summarize restricted stock and performance-based restricted stock activity under the Incentive Plan.
per annum. Interest only is payable prior to maturity. The Credit Agreement has a maturity date of August 14, 2018.
The Company had no amounts outstanding on its credit facility at December 31, 2013 or 2012. The credit facility commitment fee included in interest expenses was computed at a rate of 0.25% per annum on the $30,000 commitment at December 31, 2013 and 2012.
At the end of each period, the reserves were re-estimated for all prior accident years. The Company's prior year reserves decreased by $28,889, $17,310, and $36,683 for the years ended 2013, 2012, and 2011, respectively, and resulted from re-estimations of prior years ultimate loss and LAE liabilities. The decrease in prior year reserves during 2013 was primarily composed of a reduction in the Company's retained automobile and retained homeowners reserves. The decrease in prior year reserves during 2012 was primarily composed of a reduction in the Company's retained automobile reserves, partially offset by an increase in reserves of homeowners and all other lines of business. The decrease in prior year reserves during 2011 was primarily composed of reductions in the Company's retained automobile reserves.
The Company adopted the provisions of ASC 740, Income Taxes on January 1, 2007. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 requires that the Company determine whether the benefits of its tax positions have a more likely than not chance of being sustained upon audit based upon the technical merits of the tax position. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company believes that the positions taken on its
income tax returns for open tax years will be sustained upon examination by the IRS. Therefore, the Company has not recorded a liability under ASC 740.
As of December 31, 2013 , the Company was no longer subject to examination of its U.S. federal tax returns for years prior to 2010. The Company's U.S. federal tax return for the year ended December 31, 2011 is currently under examination by the IRS.
The Insurance Subsidiaries are subject to various regulatory restrictions that limit the maximum amount of dividends available to be paid to their parent without prior approval of the Commonwealth of Massachusetts Commissioner of Insurance (the "Commissioner"). Massachusetts statute limits the dividends an insurer may pay in any twelve month period, without the prior permission of the Commissioner, to the greater of (i) 10% of the insurer's surplus as of the preceding December 31 or (ii) the insurer's net income for the twelve-month period ending the preceding December 31, in each case determined in accordance with statutory accounting practices. Our insurance company subsidiaries may not declare an "extraordinary dividend" (defined as any dividend or distribution that, together with other distributions made within the preceding twelve months, exceeds the limits established by Massachusetts statute) until thirty days after the Commissioner has received notice of the intended dividend and has not objected. As historically administered by the Commissioner, this provision requires the Commissioner's prior approval of an extraordinary dividend. Under Massachusetts law, an insurer may pay cash dividends only from its unassigned funds, also known as earned surplus, and the insurer's remaining surplus must be both reasonable in relation to its outstanding liabilities and adequate to its financial needs. At year-end 2013, the statutory surplus of Safety Insurance was $627,993 and its net income for 2013 was $53,078. As a result, a maximum of $62,799 is available in 2014 for such dividends without prior approval of the Commissioner. During the year ended December 31, 2013, Safety Insurance recorded dividends to Safety of $36,114. As result of this Massachusetts statute, the Insurance Subsidiaries had restricted net assets in the amount of $565,194 at December 31, 2013.
The NAIC has adopted a formula and model law to implement risk-based capital requirements for most property and casualty insurance companies, which are designed to determine minimum capital requirements and to raise the level of protection that statutory surplus provides for policyholder obligations. Under Massachusetts law, insurers having less total adjusted capital than that required by the risk-based capital calculation will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. The risk-based capital law provides for four levels of regulatory action. The extent of regulatory intervention and action increases as the level of total adjusted capital to risk-based capital falls. As of December 31, 2013, the Insurance Subsidiaries had total adjusted capital of $627,993, which is in excess of amounts requiring company or regulatory action at any prescribed risk-based capital action level. Minimum statutory capital and surplus, or company action level risk-based capital, was $90,613 at December 31, 2013.
The Company's Level 1 securities consist of equity securities whose values are based on quoted prices in active markets for identical assets. The Company's Level 2 securities are comprised of available-for-sale fixed maturity securities whose fair value was determined using observable market inputs. The Company's Level 3 security, is a real estate investment trust equity investment whose fair value is determined using the trust's net asset value obtained from its audited financial statements; however, the Company is required to submit a request 45 days before quarter end to dispose of the security. Fair values for securities for which quoted market prices were unavailable were estimated based upon reference to observable inputs such as benchmark interest rates, market comparables, and
With the exception of the REIT which is categorized as a Level 3 security, the Company's entire available-for-sale portfolio was priced based upon quoted market prices or other observable inputs as of December 31, 2013. There were no significant changes to the valuation process during the year ended December 31, 2013. As of December 31, 2013 and 2012, no quotes or prices obtained were adjusted by management. All broker quotes obtained were non-binding.
At December 31, 2013 and 2012, investments in fixed maturities and equity securities classified as available-for-sale had a fair value which equaled carrying value of $1,196,828 and $1,188,353, respectively. At December 31, 2013 and 2012, we held no short-term investments. The carrying values of cash and cash equivalents and investment income accrued approximate fair value.
The following tables summarize the Company's total fair value measurements for available-for-sale investments for the periods indicated.
There were no transfers between Level 1 and Level 2 during the years ended December 31, 2013 or 2012.