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Fair Value Measurements
6 Months Ended
Jun. 30, 2013
Assets, Fair Value Disclosure [Abstract]  
Fair Value Measurements
Fair Value Measurements
The Company’s fixed maturity and equity securities available for sale and its arbitrage 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 June 30, 2013 and December 31, 2012 by Level:
 
(In thousands)
Total
 
Level 1
 
Level 2
 
Level 3
June 30, 2013
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Fixed maturity securities available for sale:
 
 
 
 
 
 
 
U.S. government and agency
$
844,102

 
$

 
$
844,102

 
$

State and municipal
4,147,252

 

 
4,147,252

 

Mortgage-backed securities
1,559,753

 

 
1,559,753

 

Corporate
3,860,862

 

 
3,809,941

 
50,921

Foreign
1,121,459

 

 
1,121,459

 

Total fixed maturity securities available for sale
11,533,428

 

 
11,482,507

 
50,921

Equity securities:
 
 
 
 
 
 
 
Common stocks
330,636

 
329,398

 

 
1,238

Preferred stocks
104,205

 

 
100,428

 
3,777

Total equity securities
434,841

 
329,398

 
100,428

 
5,015

Arbitrage trading account
680,713

 
179,841

 
500,789

 
83

Total
$
12,648,982

 
$
509,239

 
$
12,083,724

 
$
56,019

Liabilities:
 
 
 
 
 
 
 
Securities sold but not yet purchased
$
171,990

 
$
117,636

 
$
54,354

 
$

December 31, 2012
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Fixed maturity securities available for sale:
 
 
 
 
 
 
 
U.S. government and agency
$
898,463

 
$

 
$
898,463

 
$

State and municipal
4,768,519

 

 
4,768,519

 

Mortgage-backed securities
1,715,697

 

 
1,715,697

 

Corporate
3,346,719

 

 
3,287,654

 
59,065

Foreign
1,111,607

 

 
1,111,607

 

Total fixed maturity securities available for sale
11,841,005

 

 
11,781,940

 
59,065

Equity securities:
 
 
 
 
 
 
 
Common stocks
282,066

 
280,658

 

 
1,408

Preferred stocks
93,956

 

 
93,335

 
621

Total equity securities
376,022

 
280,658

 
93,335

 
2,029

Arbitrage trading account
329,077

 
233,603

 
94,546

 
928

Total
$
12,546,104

 
$
514,261

 
$
11,969,821

 
$
62,022

Liabilities:
 
 
 
 
 
 
 
Securities sold but not yet purchased
$
121,487

 
$
114,909

 
$
6,558

 
$
20


There were no significant transfers between Levels 1 and 2 during the six months ended June 30, 2013 or during the year ended December 31, 2012.







The following tables summarize changes in Level 3 assets and liabilities for the six months ended June 30, 2013 and for the year ended December 31, 2012:
 
  
 
 
Gains (Losses) Included in
 
 
(In thousands)
Beginning
Balance
 
Earnings
 
Other
Comprehensive
Income
 
Purchases
 
(Sales)
 
Maturities
 
Transfer in
 
Ending
Balance
Six months ended June 30, 2013:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
$
59,065

 
$
(64
)
 
$
(867
)
 
$
84

 
$
(2,577
)
 
$
(4,720
)
 
$

 
$
50,921

Total
59,065

 
(64
)
 
(867
)
 
84

 
(2,577
)
 
(4,720
)
 

 
50,921

Equity securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
1,408

 

 

 

 
(170
)
 

 

 
1,238

Preferred stocks
621

 
(274
)
 

 
3,430

 

 

 

 
3,777

Total
2,029

 
(274
)
 

 
3,430

 
(170
)
 

 

 
5,015

Arbitrage trading account
928

 
(815
)
 

 
824

 
(854
)
 

 

 
83

Total
$
62,022

 
$
(1,153
)
 
$
(867
)
 
$
4,338

 
$
(3,601
)
 
$
(4,720
)
 
$

 
$
56,019

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities sold but not yet purchased
$
20

 
$
(4
)
 
$

 
$
4

 
$
(20
)
 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Year ended December 31, 2012:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate
$
67,828

 
$
(1,497
)
 
$
9,622

 
$
283

 
$

 
$
(17,171
)
 
$

 
$
59,065

Total
67,828

 
(1,497
)
 
9,622

 
283

 

 
(17,171
)
 

 
59,065

Equity securities available for sale:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stocks
1,559

 

 

 

 
(151
)
 

 

 
1,408

Preferred stocks
12,303

 
1,126

 
(1,737
)
 

 
(11,071
)
 

 

 
621

Total
13,862

 
1,126

 
(1,737
)
 

 
(11,222
)
 

 

 
2,029

Arbitrage trading account
851

 
(3,534
)
 
3,570

 

 
(52
)
 

 
93

 
928

Total
$
82,541

 
$
(3,905
)
 
$
11,455

 
$
283

 
$
(11,274
)
 
$
(17,171
)
 
$
93

 
$
62,022

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities sold but not yet purchased
$
21

 
$
(1
)
 
$

 
$

 
$

 
$

 
$

 
$
20


There were no significant transfers in or out of Level 3 during the six months ended June 30, 2013 or during the year ended December 31, 2012.
Fair Value of Financial Instruments
The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments:
 
  
June 30, 2013
 
December 31, 2012
(In thousands)
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
Assets:
 
 
 
 
 
 
 
Fixed maturity securities
$
11,635,178

 
$
11,652,382

 
$
11,943,956

 
$
11,968,376

Equity securities available for sale
434,841

 
434,841

 
376,022

 
376,022

Arbitrage trading account
680,713

 
680,713

 
329,077

 
329,077

Loans receivable
359,177

 
363,942

 
401,961

 
406,443

Cash and cash equivalents
658,839

 
658,839

 
905,670

 
905,670

Trading account receivables from brokers and clearing organizations
144,150

 
144,150

 
446,873

 
446,873

Due from broker
8,901

 
8,901

 
14,449

 
14,449

Liabilities:
 
 
 
 
 
 
 
Trading account securities sold but not yet purchased
171,990

 
171,990

 
121,487

 
121,487

Junior subordinated debentures
339,614

 
327,040

 
243,206

 
252,000

Senior notes and other debt
1,695,986

 
1,889,098

 
1,871,535

 
2,190,173


The estimated fair values of the Company’s fixed maturity securities, equity securities available for sale and arbitrage trading account securities are based on various valuation techniques that rely on fair value measurements as described in Note 16 above. The fair value of loans receivable are estimated by using current institutional purchaser yield requirements for loans with similar credit characteristics, which is considered a Level 2 input. The fair value of the senior notes and other debt and the junior subordinated debentures is based on spreads for similar securities, which is considered a Level 2 input.