Fair Value Measurements

9 Months Ended

Sep. 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 September 30, 2013 and December 31, 2012 by Level:

(In thousands)	Total		Level 1		Level 2		Level 3
September 30, 2013
Assets:
Fixed maturity securities available for sale:
U.S. government and agency	$	825,059	$	—	$	825,059	$	—
State and municipal	4,118,137		—		4,118,137		—
Mortgage-backed securities	1,493,465		—		1,493,465		—
Corporate	3,900,472		—		3,854,455		46,017
Foreign	1,173,364		—		1,173,364		—
Total fixed maturity securities available for sale	11,510,497		—		11,464,480		46,017
Equity securities:
Common stocks	238,542		237,303		—		1,239
Preferred stocks	100,365		—		96,593		3,772
Total equity securities	338,907		237,303		96,593		5,011
Arbitrage trading account	619,881		252,832		366,862		187
Total	$	12,469,285	$	490,135	$	11,927,935	$	51,215
Liabilities:
Securities sold but not yet purchased	$	88,489	$	88,482	$	7	$	—
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 nine months ended September 30, 2013 or during the year ended December 31, 2012.

The following tables summarize changes in Level 3 assets and liabilities for the nine months ended September 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
Nine months ended September 30, 2013:
Assets:
Fixed maturities available for sale:
Corporate	$	59,065	$	608		$	(137	)	$	127	$	(3,767	)	$	(9,879	)	$	—	$	46,017
Total	59,065		608			(137		)	127		(3,767		)	(9,879		)	—		46,017
Equity securities available for sale:
Common stocks	1,408		—			—			—		(169		)	—			—		1,239
Preferred stocks	621		(279		)	—			3,430		—			—			—		3,772
Total	2,029		(279		)	—			3,430		(169		)	—			—		5,011
Arbitrage trading account	928		(712		)	—			824		(853		)	—			—		187
Total	$	62,022	$	(383	)	$	(137	)	$	4,381	$	(4,789	)	$	(9,879	)	$	—	$	51,215
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 nine months ended September 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:

	September 30, 2013				December 31, 2012
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	11,612,047	$	11,628,850	$	11,943,956	$	11,968,376
Equity securities available for sale	338,907		338,907		376,022		376,022
Arbitrage trading account	619,881		619,881		329,077		329,077
Loans receivable	411,851		417,323		401,961		406,443
Cash and cash equivalents	966,326		966,326		905,670		905,670
Trading account receivables from brokers and clearing organizations	123,320		123,320		446,873		446,873
Due from broker	24,890		24,890		14,449		14,449
Liabilities:
Trading account securities sold but not yet purchased	88,489		88,489		121,487		121,487
Junior subordinated debentures	339,772		302,540		243,206		252,000
Senior notes and other debt	1,696,461		1,887,751		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.