Fair Value Measurements

9 Months Ended

Sep. 30, 2023

The Company’s fixed maturity available for sale securities, equity securities 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, 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, 2023 and December 31, 2022 by level:


(In thousands)	Total		Level 1		Level 2		Level 3
September 30, 2023
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	1,467,199	$	—	$	1,467,199	$	—
State and municipal	2,670,998		—		2,670,998		—
Mortgage-backed	2,076,296		—		2,076,296		—
Asset-backed	4,087,458		—		4,087,458		—
Corporate	7,248,814		—		7,248,814		—
Foreign government	1,431,712		—		1,431,712		—
Total fixed maturity securities available for sale	18,982,477		—		18,982,477		—
Equity securities:
Common stocks	961,433		958,202		1,060		2,171
Preferred stocks	220,628		—		216,930		3,698
Total equity securities	1,182,061		958,202		217,990		5,869
Arbitrage trading account	825,049		614,995		206,536		3,518
Total	$	20,989,587	$	1,573,197	$	19,407,003	$	9,387
Liabilities:
Trading account securities sold but not yet purchased	$	7,538	$	7,538	$	—	$	—


December 31, 2022
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	892,258	$	—	$	892,258	$	—
State and municipal	2,890,098		—		2,890,098		—
Mortgage-backed	1,665,410		—		1,665,410		—
Asset-backed	3,982,773		—		3,982,773		—
Corporate	6,703,992		—		6,703,992		—
Foreign government	1,401,522		—		1,401,522		—
Total fixed maturity securities available for sale	17,536,053		—		17,536,053		—
Equity securities:
Common stocks	982,751		978,991		1,161		2,599
Preferred stocks	203,143		—		191,844		11,299
Total equity securities	1,185,894		978,991		193,005		13,898
Arbitrage trading account	944,230		822,192		118,448		3,590
Total	$	19,666,177	$	1,801,183	$	17,847,506	$	17,488
Liabilities:
Trading account securities sold but not yet purchased	$	—	$	—	$	—	$	—

The following tables summarize changes in Level 3 assets and liabilities for the nine months ended September 30, 2023 and for the year ended December 31, 2022:


Gains (Losses) Included In:
(In thousands)	Beginning Balance		Earnings (Losses)		Other Comprehensive Income (Losses)		Impairments		Purchases		Sales		Paydowns / Maturities		Transfers In / (Out)		Ending Balance

Nine Months Ended September 30, 2023
Assets:




Equity securities:
Common stocks	$	2,599	$	(428)	$	—	$	—	$	—	$	—	$	—	$	—	$	2,171
Preferred stocks	11,299		—		—		(7,601)		—		—		—		—		3,698
Total	13,898		(428)		—		(7,601)		—		—		—		—		5,869
Arbitrage trading account	3,590		(72)		—		—		—		—		—		—		3,518
Total	$	17,488	$	(500)	$	—	$	(7,601)	$	—	$	—	$	—	$	—	$	9,387



Year Ended December 31, 2022
Assets:




Equity securities:
Common stocks	$	9,294	$	(6,695)	$	—	$	—	$	—	$	—	$	—	$	—	$	2,599
Preferred stocks	11,296		3		—		—		925		(925)		—		—		11,299
Total	20,590		(6,692)		—		—		925		(925)		—		—		13,898
Arbitrage trading account	—		(179)		—		—		4,686		(917)		—		—		3,590
Total	$	20,590	$	(6,871)	$	—	$	—	$	5,611	$	(1,842)	$	—	$	—	$	17,488

For the nine months ended September 30, 2023 and for the year ended December 31, 2022, there were no securities transferred into or out of Level 3.

Fair Value of Financial Instruments

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


	September 30, 2023				December 31, 2022
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	19,035,305	$	19,037,149	$	17,587,349	$	17,591,626
Equity securities	1,182,061		1,182,061		1,185,894		1,185,894
Arbitrage trading account	825,049		825,049		944,230		944,230
Loans receivable	177,750		174,300		193,002		187,981
Cash and cash equivalents	1,646,074		1,646,074		1,449,346		1,449,346
Trading account receivables from brokers and clearing organizations	401,982		401,982		233,863		233,863
Due from broker	—		—		3,609		3,609
Liabilities:
Due to broker	5,118		5,118		—		—

Trading account securities sold but not yet purchased	7,538		7,538		—		—
Senior notes and other debt	1,828,046		1,321,014		1,828,823		1,439,188
Subordinated debentures	1,008,910		786,798		1,008,371		805,600

The estimated fair values of the Company’s fixed maturity securities, equity securities and arbitrage trading account securities are based on various valuation techniques that rely on fair value measurements as described in Note 15. 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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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