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

9 Months Ended

Sep. 30, 2016

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, 2016 and December 31, 2015 by level:

(In thousands)	Total		Level 1		Level 2		Level 3
September 30, 2016
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	554,993	$	—	$	554,993	$	—
State and municipal	4,561,715		—		4,561,715		—
Mortgage-backed securities	1,263,005		—		1,263,005		—
Asset-backed securities	2,268,861		—		2,268,676		185
Corporate	3,914,168		—		3,914,168		—
Foreign government	965,752		—		965,752		—
Total fixed maturity securities available for sale	13,528,494		—		13,528,309		185
Equity securities available for sale:
Common stocks	35,671		27,555		—		8,116
Preferred stocks	123,304		—		119,630		3,674
Total equity securities available for sale	158,975		27,555		119,630		11,790
Arbitrage trading account	602,965		320,280		282,685		—
Total	$	14,290,434	$	347,835	$	13,930,624	$	11,975
Liabilities:
Trading account securities sold but not yet purchased	$	60,959	$	60,947	$	12	$	—
December 31, 2015
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	670,419	$	—	$	670,419	$	—
State and municipal	4,460,179		—		4,460,179		—
Mortgage-backed securities	1,199,859		—		1,199,859		—
Asset-backed securities	1,705,172		—		1,704,973		199
Corporate	3,475,038		—		3,474,884		154
Foreign government	837,460		—		837,460		—
Total fixed maturity securities available for sale	12,348,127		—		12,347,774		353
Equity securities available for sale:
Common stocks	37,273		29,444		—		7,829
Preferred stocks	113,593		—		109,969		3,624
Total equity securities available for sale	150,866		29,444		109,969		11,453
Arbitrage trading account	376,697		256,914		119,607		176
Total	$	12,875,690	$	286,358	$	12,577,350	$	11,982
Liabilities:
Trading account securities sold but not yet purchased	$	37,035	$	35,559	$	1,476	$	—

There were no significant transfers between Levels 1 and 2 during the nine months ended September 30, 2016 or during the year ended December 31, 2015.

The following tables summarize changes in Level 3 assets and liabilities for the nine months ended September 30, 2016 and for the year ended December 31, 2015:

	Gains (Losses) Included in:
(In thousands)	Beginning Balance		Earnings (Losses)			Other Comprehensive Income (Loss)			Impairments			Purchases		(Sales)			Paydowns / Maturities			Transfers			Ending Balance
																				In / (Out)
Nine months ended September 30, 2016:
Assets:
Fixed maturities securities available for sale:
Asset-backed securities	$	199	$	3		$	13		$	—		$	—	$	—		$	(30	)	$	—		$	185
Corporate	154		177			—			—			—		(331		)	—			—			—
Total	353		180			13			—			—		(331		)	(30		)	—			185
Equity securities available for sale:
Common stocks	7,829		—			(478		)	—			765		—			—			—			8,116
Preferred stocks	3,624		50			—			—			—		—			—			—			3,674
Total	11,453		50			(478		)	—			765		—			—			—			11,790
Arbitrage trading account	176		(176		)	—			—			—		—			—			—			—
Total	$	11,982	$	54		$	(465	)	$	—		$	765	$	(331	)	$	(30	)	$	—		$	11,975
Year ended December 31, 2015:
Assets:
Fixed maturities securities available for sale:
Asset-backed securities	$	20,611	$	19		$	191		$	—		$	—	$	—		$	(1,820	)	$	(18,802	)	$	199
Corporate	154		—			—			—			—		—			—			—			154
Total	20,765		19			191			—			—		—			(1,820		)	(18,802		)	353
Equity securities available for sale:
Common stocks	10,741		—			(273		)	(2,331		)	—		(308		)	—			—			7,829
Preferred stocks	3,713		(89		)	—			—			—		—			—			—			3,624
Total	14,454		(89		)	(273		)	(2,331		)	—		(308		)	—			—			11,453
Arbitrage trading account	720		(799		)	—			—			72,640		(71,921		)	—			(464		)	176
Total	$	35,939	$	(869	)	$	(82	)	$	(2,331	)	$	72,640	$	(72,229	)	$	(1,820	)	$	(19,266	)	$	11,982

During the nine months ended September 30, 2016, there were no transfers out of Level 3. During the year ended December 31, 2015, five securities were transferred out of Level 3 as an observable price became available.

Fair Value of Financial Instruments

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

	September 30, 2016				December 31, 2015
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	13,616,671	$	13,636,291	$	12,444,394	$	12,462,847
Equity securities available for sale	158,975		158,975		150,866		150,866
Arbitrage trading account	602,965		602,965		376,697		376,697
Loans receivable	113,996		116,483		273,103		275,747
Cash and cash equivalents	873,064		873,064		763,631		763,631
Trading account receivables from brokers and clearing organizations	185,548		185,548		383,115		383,115
Due from broker	—		—		1,713		1,713
Liabilities:
Due to broker	101,405		101,405		—		—
Trading account securities sold but not yet purchased	60,959		60,959		37,035		37,035
Subordinated debentures	727,390		779,056		340,320		355,880
Senior notes and other debt	1,762,487		1,997,430		1,844,621		2,029,572

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.