13. INVESTMENT IN AFFILIATES 14. FAIR VALUE OF FINANCIAL INSTRUMENTS As a result of the acquisition of Financial Guaranty, the Company owns a 46.0% interest in Credit-Based Asset Servicing and Securitization LLC (“C-BASS”) and a 45.5% interest in Sherman Financial Group LLC (“Sherman”). C-BASS is engaged in the purchasing, servicing and/or securitization of special assets, including sub-performing/non-performing and seller-financed residential mortgages, real estate and subordinated residential mortgage-based securities. Sherman conducts a business that focuses on purchasing and servicing delinquent unsecured consumer assets. At December 31, 2001, C-BASS had total assets of $1,290,425,000 and total liabilities of $1,005,907,000. C-BASS had net income for 2001 of $86,481,000. At December 31, 2001, Sherman had total assets of $287,826,297 and total liabilities of $203,051,815. Sherman had net income for 2001 of $10,624,267. The Company owns a 36.5% interest in EIC Corporation Ltd. (“Exporters”), an insurance holding company which, through its wholly-owned insurance subsidiary licensed in Bermuda, insures foreign trade receivables. At December 31, 2001, Exporters had total assets of $168,924,333 and total liabilities of $114,239,333. Exporters had a loss for 2001 of $2,240,000. The Company accounts for its investment in these affiliates in accordance with the equity method of accounting as the control of these affiliates does not rest with the Company and since  the other shareholders have substantial participating rights. The fair value of a financial instrument is the current amount that would be exchanged between two willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices available. In those cases,  fair values are based on estimates using present value or other valuation methodologies. Accordingly, the estimates presented  Long-Term Debt – The fair value is estimated based  on the quoted market prices for the same or similar issue or on the current rates offered to the Company for debt of the same remaining maturities. Reserve for Losses – The carrying amount is a reasonable estimate of the fair value. Unearned Premiums – In the mortgage insurance business, as the majority of the premiums received are cash basis, the fair value is assumed to equal the book value. The fair value of unearned premiums in the financial guaranty insurance business, net of prepaid reinsurance premiums,  is based on the estimated cost of entering into a cession of the entire portfolio with third-party reinsurers under current market conditions, adjusted for ceding commissions based on current market rates. Other Invested Assets – The fair value of other invested assets, residential mortgage-backed securities, is based on the present value of the estimated net future cash flows, including annual distributions and net cash proceeds from the exercise of call rights, using relevant market information. Short-Term Investments – Fair values of short-term investments are assumed to equal cost. Trading Securities – The fair values of trading securities are based on quoted market prices, dealer quotes or estimates using quoted market prices for similar securities. Fixed Maturity Securities – The fair values of fixed maturity securities and equity securities, are based on quoted market prices or dealer quotes. For investments that are not publicly traded, management has made estimates of fair value that consider investees’ financial results, conditions and prospects, and the values of comparable public companies. herein are not necessarily indicative of the amount the Company could realize in a current market exchange. The use of different market assumptions or estimation methodologies could have  a material effect on the estimated fair value amounts. Redeemable Preferred Stock – The redeemable preferred stock is valued at the redemption value at the mandatory redemption date. December 31 2001 2000 Carrying  Estimated Carrying Estimated Amount Fair Value Amount Fair Value Assets: Fixed  maturity securities $3,129,718 $3,149,482 $1,654,633 $1,675,834 Trading  Securities 21,659 21,659 — — Short-term  investments 210,788 210,788 95,824 95,824 Other invested  assets 7,310 7,310 — — Liabilities: Unearned  premiums 513,932 456,018 77,241 77,241 Reserve for losses 588,643 588,643 390,021 390,021 Long-term  debt 324,076 346,333 — — Redeemable  preferred  stock 40,000 40,000 40,000 40,000 > 37 (1) Diluted net income per share and average shares outstanding per SFAS No. 128, “Earnings Per Share.” See note 1. (2) Net income per share is computed independently for each period presented. Consequently, the sum of the quarters may not equal the total net income per share for the year. (3) All share and per share amounts have been restated to reflect a 2-for-1 stock split in 2001. See note 1.