Fair Value Measurements Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures

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, 2014 and December 31, 2013 by level:

(In thousands)	Total		Level 1		Level 2		Level 3
September 30, 2014
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	813,034	$	—	$	813,034	$	—
State and municipal	4,180,068		—		4,180,068		—
Mortgage-backed securities	1,298,845		—		1,298,845		—
Corporate	5,041,702		—		5,017,702		24,000
Foreign government	962,911		—		962,911		—
Total fixed maturity securities available for sale	12,296,560		—		12,272,560		24,000
Equity securities available for sale:
Common stocks	79,973		68,852		—		11,121
Preferred stocks	142,051		—		138,313		3,738
Total equity securities available for sale	222,024		68,852		138,313		14,859
Arbitrage trading account	918,223		237,310		676,896		4,017
Total	$	13,436,807	$	306,162	$	13,087,769	$	42,876
Liabilities:
Securities sold but not yet purchased	$	159,537	$	159,501	$	5	$	31
December 31, 2013
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	884,859	$	—	$	884,859	$	—
State and municipal	4,218,284		—		4,218,284		—
Mortgage-backed securities	1,329,783		—		1,329,783		—
Corporate	4,202,741		—		4,159,877		42,864
Foreign government	879,857		—		879,857		—
Total fixed maturity securities available for sale	11,515,524		—		11,472,660		42,864
Equity securities available for sale:
Common stocks	160,775		159,537		—		1,238
Preferred stocks	122,563		—		118,811		3,752
Total equity securities available for sale	283,338		159,537		118,811		4,990
Arbitrage trading account	522,128		192,281		328,067		1,780
Total	$	12,320,990	$	351,818	$	11,919,538	$	49,634
Liabilities:
Securities sold but not yet purchased	$	162,278	$	162,126	$	152	$	—

There were no significant transfers between Levels 1 and 2 during the nine months ended September 30, 2014 or during the year ended December 31, 2013.

The following tables summarize changes in Level 3 assets and liabilities for the nine months ended September 30, 2014 and for the year ended December 31, 2013:

			Gains (Losses) Included in
(In thousands)	Beginning Balance		Earnings			Other Comprehensive Income			Purchases		(Sales)			Maturities			Transfer in (out)			Ending Balance
Nine months ended September 30, 2014:
Assets:
Fixed maturities available for sale:
Corporate	$	42,864	$	49		$	(1,146	)	$	84	$	(15,244	)	$	(2,607	)	$	—		$	24,000
Total	42,864		49			(1,146		)	84		(15,244		)	(2,607		)	—			24,000
Equity securities available for sale:
Common stocks	1,238		—			(531		)	11,343		(929		)	—			—			11,121
Preferred stocks	3,752		8			—			3,430		(3,452		)	—			—			3,738
Total	4,990		8			(531		)	14,773		(4,381		)	—			—			14,859
Arbitrage trading account	1,780		2,294			—			4,942		(14,063		)	—			9,064			4,017
Total	$	49,634	$	2,351		$	(1,677	)	$	19,799	$	(33,688	)	$	(2,607	)	$	9,064		$	42,876
Liabilities:
Securities sold but not yet purchased	$	—	$	—		$	—		$	31	$	—		$	—		$	—		$	31
Year ended December 31, 2013:
Assets:
Fixed maturities available for sale:
Corporate	$	59,065	$	677		$	309		$	170	$	(4,753	)	$	(12,604	)	$	—		$	42,864
Total	59,065		677			309			170		(4,753		)	(12,604		)	—			42,864
Equity securities available for sale:
Common stocks	1,408		—			—			—		(170		)	—			—			1,238
Preferred stocks	621		(299		)	—			3,430		—			—			—			3,752
Total	2,029		(299		)	—			3,430		(170		)	—			—			4,990
Arbitrage trading account	928		1,458			730			824		(853		)	—			(1,307		)	1,780
Total	$	62,022	$	1,836		$	1,039		$	4,424	$	(5,776	)	$	(12,604	)	$	(1,307	)	$	49,634
Liabilities:
Securities sold but not yet purchased	$	20	$	(4	)	$	—		$	4	$	(20	)	$	—		$	—		$	—

During the nine months ended September 30, 2014, two securities were transferred into Level 3 where the quoted prices were no longer available. One of these securities was sold during the second quarter of 2014. There were no significant transfers in or out of Level 3 during the year ended December 31, 2013.

Fair Value of Financial Instruments

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments:

	September 30, 2014				December 31, 2013
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	12,397,756	$	12,418,016	$	11,616,844	$	11,631,744
Equity securities available for sale	222,024		222,024		283,338		283,338
Arbitrage trading account	918,223		918,223		522,128		522,128
Loans receivable	343,300		346,622		343,583		346,746
Cash and cash equivalents	1,342,285		1,342,285		839,738		839,738
Trading account receivables from brokers and clearing organizations	—		—		304,936		304,936
Due from broker	—		—		17,735		17,735
Liabilities:
Due to broker	58,926		58,926		8,273		8,273
Trading account payable to brokers and clearing organizations	95,681		95,681		—		—
Trading account securities sold but not yet purchased	159,537		159,537		162,278		162,278
Junior subordinated debentures	339,995		326,480		339,800		288,540
Senior notes and other debt	2,122,030		2,341,816		1,692,442		1,861,898

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.