Fair Value Of Financial Instruments Fair Value of Financial Instruments (Notes)

9 Months Ended

Sep. 30, 2015

Fair Value Disclosures [Abstract]

Fair Value Disclosures

Fair Value Measurements

The Company’s fixed maturity and equity securities classified as 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, as follows:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.  

Level 2 - Quoted prices for similar assets or valuations based on inputs that are observable.

Level 3 - Estimates of fair value based on internal pricing methodologies using unobservable inputs. Unobservable inputs are only used to measure fair value to the extent that observable inputs are not available.

Substantially all of the Company’s fixed maturity securities were priced by independent pricing services. The prices provided by the independent pricing services are estimated based on observable market data in active markets utilizing pricing models and processes, which may include benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, sector groupings, matrix pricing and reference data. The pricing services may prioritize inputs differently on any given day for any security based on market conditions, and not all inputs are available for each security evaluation on any given day. The pricing services used by the Company have indicated that they will only produce an estimate of fair value if objectively verifiable information is available. The determination of whether markets are active or inactive is based upon the volume and level of activity for a particular asset class. The Company reviews the prices provided by pricing services for reasonableness and periodically performs independent price tests of a sample of securities to ensure proper valuation.

If prices from independent pricing services are not available for fixed maturity securities, the Company estimates the fair value. For Level 2 securities, the Company utilizes pricing models and processes which may include benchmark yields, sector groupings, matrix pricing, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, bids, offers and reference data. Where broker quotes are used, the Company generally requests two or more quotes and sets a price within the range of quotes received based on its assessment of the credibility of the quote and its own evaluation of the security. The Company generally does not adjust quotes received from brokers. 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.

For Level 3 securities, the Company generally uses a discounted cash flow model to estimate the fair value of fixed maturity securities. The cash flow models are based upon assumptions as to prevailing credit spreads, interest rate and interest rate volatility, time to maturity and subordination levels. Projected cash flows are discounted at rates that are adjusted to reflect illiquidity, where appropriate.

The following tables present the assets and liabilities measured at fair value, on a recurring basis, as of September 30, 2015 and December 31, 2014 by level:

(In thousands)	Total		Level 1		Level 2		Level 3
September 30, 2015
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	672,968	$	—	$	672,968	$	—
State and municipal	4,423,757		—		4,423,757		—
Mortgage-backed securities	1,127,624		—		1,127,624		—
Corporate	5,158,211		—		5,158,057		154
Foreign government	884,669		—		884,669		—
Total fixed maturity securities available for sale	12,267,229		—		12,267,075		154
Equity securities available for sale:
Common stocks	42,128		33,709		—		8,419
Preferred stocks	135,749		—		132,125		3,624
Total equity securities available for sale	177,877		33,709		132,125		12,043
Arbitrage trading account	351,179		226,115		124,464		600
Total	$	12,796,285	$	259,824	$	12,523,664	$	12,797
Liabilities:
Securities sold but not yet purchased	$	33,360	$	33,336	$	24	$	—
December 31, 2014
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	803,388	$	—	$	803,388	$	—
State and municipal	4,362,996		—		4,362,996		—
Mortgage-backed securities	1,295,636		—		1,295,636		—
Corporate	5,200,137		—		5,179,372		20,765
Foreign government	941,826		—		941,826		—
Total fixed maturity securities available for sale	12,603,983		—		12,583,218		20,765
Equity securities available for sale:
Common stocks	76,346		65,605		—		10,741
Preferred stocks	94,645		—		90,932		3,713
Total equity securities available for sale	170,991		65,605		90,932		14,454
Arbitrage trading account	450,648		295,047		154,881		720
Total	$	13,225,622	$	360,652	$	12,829,031	$	35,939
Liabilities:
Securities sold but not yet purchased	$	106,079	$	106,074	$	5	$	—

There were no significant transfers between Levels 1 and 2 during the nine months ended September 30, 2015 or during the year ended December 31, 2014.

The following tables summarize changes in Level 3 assets and liabilities for the nine months ended September 30, 2015 and for the year ended December 31, 2014:

	Gains (Losses) Included in:
(In thousands)	Beginning Balance		Earnings			Other Comprehensive Income			Impairments			Purchases		(Sales)			Paydowns / Maturities			Transfers			Ending Balance
																				In / (Out)
Nine months ended September 30, 2015
Assets:
Fixed maturities available for sale:
Corporate	$	20,765	$	15		$	180		$	—		$	—	$	—		$	(1,673	)	$	(19,133	)	$	154
Total	20,765		15			180			—			—		—			(1,673		)	(19,133		)	154
Equity securities available for sale:
Common stocks	10,741		—			9			(2,331		)	—		—			—			—			8,419
Preferred stocks	3,713		(89		)	—			—			—		—			—			—			3,624
Total	14,454		(89		)	9			(2,331		)	—		—			—			—			12,043
Arbitrage trading account	720		(375		)	—			—			72,640		(71,921		)	—			(464		)	600
Total	$	35,939	$	(449	)	$	189		$	(2,331	)	$	72,640	$	(71,921	)	$	(1,673	)	$	(19,597	)	$	12,797
Liabilities:
Securities sold but not yet purchased	$	—	$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	—
Year ended December 31, 2014:
Assets:
Fixed maturities available for sale:
Corporate	$	42,864	$	47		$	(3,711	)	$	—		$	238	$	(15,244	)	$	(3,429	)	$	—		$	20,765
Total	42,864		47			(3,711		)	—			238		(15,244		)	(3,429		)	—			20,765
Equity securities available for sale:
Common stocks	1,238		—			(911		)	—			11,343		(929		)	—			—			10,741
Preferred stocks	3,752		(17		)	—			—			3,430		(3,452		)	—			—			3,713
Total	4,990		(17		)	(911		)	—			14,773		(4,381		)	—			—			14,454
Arbitrage trading account	1,780		2,274			—			—			4,942		(14,073		)	—			5,797			720
Total	$	49,634	$	2,304		$	(4,622	)	$	—		$	19,953	$	(33,698	)	$	(3,429	)	$	5,797		$	35,939
Liabilities:
Securities sold but not yet purchased	$	—	$	(20	)	$	—		$	—		$	31	$	(11	)	$	—		$	—		$	—

During the nine months ended September 30, 2015, five securities were transferred out of Level 3 where an observable price was available. During the year ended December 31, 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.

Fair Value of Financial Instruments

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

	September 30, 2015				December 31, 2014
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	12,368,319	$	12,386,845	$	12,705,160	$	12,725,806
Equity securities available for sale	177,877		177,877		170,991		170,991
Arbitrage trading account	351,179		351,179		450,648		450,648
Loans receivable	286,273		289,061		322,012		325,219
Cash and cash equivalents	879,934		879,934		674,441		674,441
Trading account receivables from brokers and clearing organizations	401,941		401,941		371,034		371,034
Liabilities:
Due to broker	64,343		64,343		23,133		23,133
Trading account securities sold but not yet purchased	33,360		33,360		106,079		106,079
Subordinated debentures	340,255		343,000		340,060		332,640
Senior notes and other debt	1,838,965		2,047,134		2,115,527		2,344,292

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 subordinated debentures is based on spreads for similar securities, which is considered a Level 2 input.