Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value, Assets and Liabilities Measured on Recurring Basis [Abstract]

The Company’s fixed maturity and equity securities available for sale and its trading account securities are carried at fair value. Fair value is defined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for similar assets in active markets. Level 3 inputs are unobservable inputs for the asset or liability. Unobservable inputs may only be used to measure fair value to the extent that observable inputs are not available.

Because many fixed maturity securities do not trade on a daily basis, the Company utilizes pricing models and processes which may include benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. Market inputs used to evaluate securities include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. Quoted prices are often unavailable for recently issued securities, securities that are infrequently traded or securities that are only traded in private transactions. For publicly traded securities for which quoted prices are unavailable, the Company determines fair value based on independent broker quotations and other observable market data. For securities traded only in private negotiations, the Company determines fair value based primarily on the cost of such securities, which is adjusted to reflect prices of recent placements of securities of the same issuer, financial projections, credit quality and business developments of the issuer and other relevant information.

The following tables present the assets and liabilities measured at fair value, on a recurring basis, as of September 30, 2012 and December 31, 2011 by Level:



(Dollars in thousands)	Total		Level 1		Level 2		Level 3
September 30, 2012
Assets:
Fixed maturity securities available for sale:
U.S. government and agency	$	937,313	$	—	$	937,313	$	—
State and municipal	4,842,790		—		4,842,790		—
Mortgage-backed securities	1,669,322		—		1,669,322		—
Corporate	3,249,152		—		3,183,648		65,504
Foreign	1,090,472		—		1,090,472		—
Total fixed maturity securities available for sale	11,789,049		—		11,723,545		65,504
Equity securities available for sale:
Common stocks	324,881		323,472		—		1,409
Preferred stocks	100,441		—		97,449		2,992
Total equity securities available for sale	425,322		323,472		97,449		4,401
Arbitrage trading account	417,446		294,713		121,948		785
Total	$	12,631,817	$	618,185	$	11,942,942	$	70,690
Liabilities:
Securities sold but not yet purchased	$	149,405	$	148,301	$	1,084	$	20
December 31, 2011
Assets:
Fixed maturity securities available for sale:
U.S. government and agency	$	976,493	$	—	$	976,493	$	—
State and municipal	5,323,070		—		5,323,070		—
Mortgage-backed securities	1,584,587		—		1,584,587		—
Corporate	2,424,424		—		2,356,596		67,828
Foreign	888,354		—		888,354		—
Total fixed maturity securities available for sale	11,196,928		—		11,129,100		67,828
Equity securities available for sale:
Common stocks	319,982		318,423		—		1,559
Preferred stocks	123,457		—		111,154		12,303
Total equity securities available for sale	443,439		318,423		111,154		13,862
Arbitrage trading account	397,312		208,516		187,945		851
Total	$	12,037,679	$	526,939	$	11,428,199	$	82,541
Liabilities:
Securities sold but not yet purchased	$	62,514	$	62,493	$	—	$	21

There were no significant transfers between Levels 1 and 2 during the nine months ended September 30, 2012 or during the year ended December 31, 2011.

The following tables summarize changes in Level 3 assets and liabilities for the nine months ended September 30, 2012 and for the year ended December 31, 2011:



			Gains (Losses) Included in
(Dollars in thousands)	Beginning Balance		Earnings			Other Comprehensive Income				Purchases			(Sales)			Maturities			Transfer in		Ending Balance
For the nine months ended September 30, 2012:
Assets:
Fixed maturity securities available for sale:
Corporate	$	67,828	$	189		$	5,367			$	223		$	—		$	(8,103	)	$	—	$	65,504
Total	67,828		189			5,367				223			—			(8,103		)	—		65,504
Equity securities available for sale:
Common stocks	1,559		—			—				—			(150		)	—			—		1,409
Preferred stocks	12,303		2,095			(1,940		)		—			(9,466		)	—			—		2,992
Total	13,862		2,095			(1,940		)		—			(9,616		)	—			—		4,401
Arbitrage trading account	851		(46		)	—			—	—		—	(35		)	—			15		785
Total	$	82,541	$	2,238		$	3,427			$	223		$	(9,651	)	$	(8,103	)	$	15	$	70,690
Liabilities:
Securities sold but not yet purchased	$	21	$	(1	)	$	—			$	—		$	—		$	—		$	—	$	20

For the year ended December 31, 2011:
Assets:
Fixed maturity securities available for sale:
Corporate	$	88,063	$	(454	)	$	(870	)		$	15,271		$	(11,864	)	$	(22,318	)	$	—	$	67,828
Total	88,063		(454		)	(870		)		15,271			(11,864		)	(22,318		)	—		67,828
Equity securities available for sale:
Common stocks	1,559		—			—				—			—			—			—		1,559
Preferred stocks	89,446		28,947			(30,865		)		—			(75,225		)	—			—		12,303
Total	91,005		28,947			(30,865		)		—			(75,225		)	—			—		13,862
Arbitrage trading account	3,187		572			—				269			(3,266		)	—			89		851
Total	$	182,255	$	29,065		$	(31,735	)		$	15,540		$	(90,355	)	$	(22,318	)	$	89	$	82,541
Liabilities:
Securities sold but not yet purchased	$	—	$	40		$	—			$	67		$	(86	)	$	—		$	—	$	21

There were no significant transfers in or out of Level 3 during the nine months ended September 30, 2012 or during the year ended December 31, 2011.

- Definition

Tabular disclosure of the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods. Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 820

-SubTopic 10

-Section 50

-Paragraph 3

-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19279-110258

Reference 2: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 157

-Paragraph 32

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 157

-Paragraph 33

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 107

-Paragraph 10

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 820

-SubTopic 10

-Section 50

-Paragraph 5

-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 820

-SubTopic 10

-Section 50

-Paragraph 2

-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 157

-Paragraph 6

-Footnote 4

-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

-Topic 820

-SubTopic 10

-Section 50

-Paragraph 1

-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19190-110258

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