Fair Value Of Financial Instruments

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Of Financial Instruments

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 as of December 31, 2019 and 2018 by level:

(In thousands)	Total		Level 1		Level 2		Level 3
December 31, 2019
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	786,931	$	—	$	786,931	$	—
State and municipal	3,895,632		—		3,895,632		—
Mortgage-backed securities	1,625,594		—		1,625,594		—
Asset-backed securities	2,790,630		—		2,790,630		—
Corporate	4,156,415		—		4,156,415		—
Foreign government	847,076		—		847,076		—
Total fixed maturity securities available for sale	14,102,278		—		14,102,278		—
Equity securities:
Common stocks	166,805		157,752		—		9,053
Preferred stocks	313,815		—		307,310		6,505
Total equity securities	480,620		157,752		307,310		15,558
Arbitrage trading account	400,809		381,061		19,748		—
Total	$	14,983,707	$	538,813	$	14,429,336	$	15,558
Liabilities:
Trading account securities sold but not yet purchased	$	36,143	$	36,143	$	—	$	—
December 31, 2018
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	702,240	$	—	$	702,240	$	—
State and municipal	3,872,598		—		3,872,598		—
Mortgage-backed securities	1,594,546		—		1,594,546		—
Asset-backed securities	2,438,747		—		2,438,648		99
Corporate	4,111,311		—		4,111,311		—
Foreign government	808,735		—		808,735		—
Total fixed maturity securities available for sale	13,528,177		—		13,528,078		99
Equity securities:
Common stocks	98,192		89,596		—		8,596
Preferred stocks	180,814		—		176,869		3,945
Total equity securities	279,006		89,596		176,869		12,541
Arbitrage trading account	452,548		353,335		81,905		17,308
Total	$	14,259,731	$	442,931	$	13,786,852	$	29,948
Liabilities:
Trading account securities sold but not yet purchased	$	38,120	$	37,327	$	—	$	793

The following tables summarize changes in Level 3 assets and liabilities for the years ended December 31, 2019 and 2018:

	Gains (Losses) Included in:
(In thousands)	Beginning Balance		Earnings (Losses)			Other Comprehensive Income (Losses)		Impairments		Purchases		Sales			Paydowns/Maturities		Transfers In / Out		Ending Balance
Year ended December 31, 2019
Assets:
Fixed maturity securities available for sale:
Asset-backed securities	$	99	$	(26	)	$	61	$	—	$	—	$	(134	)	$	—	$	—	$	—
Total	99		(26		)	61		—		—		(134		)	—		—		—
Equity securities:
Common stocks	8,596		2,005					—		—		(1,548		)	—		—		9,053
Preferred stocks	3,945		(42		)	—		—		2,602		—			—		—		6,505
Total	12,541		1,963			—		—		2,602		(1,548		)	—		—		15,558
Arbitrage trading account	17,308		(8,731		)	—		—		14,767		(38,233		)	—		14,889		—
Total	$	29,948	$	(6,794	)	$	61	$	—	$	17,369	$	(39,915	)	$	—	$	14,889	$	15,558
Liabilities:
Trading account securities sold but not yet purchased	$	793	$	133		$	—	$	—	$	7,609	$	(8,535	)	$	—	$	—	$	—
Year ended December 31, 2018
Assets:
Fixed maturity securities available for sale:
Asset-backed securities	$	172	$	(2	)	$	46	$	—	$	—	$	(117	)	$	—	$	—	$	99
Total	172		(2		)	46		—		—		(117		)	—		—		99
Equity securities:
Common stocks	9,370		(548		)			—		—		(227		)	—		1		8,596
Preferred stocks	10,843		100			—		—				(6,998		)	—		—		3,945
Total	20,213		(448		)	—		—		—		(7,225		)	—		1		12,541
Arbitrage trading account	—		(6		)	—		—		11,523		(11		)	—		5,802		17,308
Total	$	20,385	$	(456	)	$	46	$	—	$	11,523	$	(7,353	)	$	—	$	5,803	$	29,948
Liabilities:
Trading account securities sold but not yet purchased	$	—	$	(67	)	$	—	$	—	$	860	$	—		$	—	$	—	$	793

For the year ended December 31, 2019, there were two common stocks transferred into Level 3 in the arbitrage trading account where publicly traded prices were no longer available, and both were sold by year end. For the year ended December 31, 2018, one common stock in the arbitrage trading account was transferred into Level 3 and one common stock was transferred out of Level 3. In the case of the transfer into Level 3, a publicly traded price was no longer available and in the case of the transfer out, a publicly traded 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 as of December 31, 2019 and 2018:

	2019				2018
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	14,180,961	$	14,194,955	$	13,606,812	$	13,619,620
Equity securities	480,620		480,620		279,006		279,006
Arbitrage trading account	400,809		400,809		452,548		452,548
Loans receivable	91,799		94,613		94,813		97,073
Cash and cash equivalents	1,023,710		1,023,710		817,602		817,602
Trading accounts receivable from brokers and clearing organizations	423,543		423,543		347,228		347,228
Liabilities:
Due to broker	27,116		27,116		20,144		20,144
Trading account securities sold but not yet purchased	36,143		36,143		38,120		38,120
Senior notes and other debt	1,427,575		1,582,290		1,882,028		1,968,996
Subordinated debentures	1,198,704		1,274,088		907,491		840,002

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 12 above. The fair value of loans receivable is 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.