Fair Value Measurements

6 Months Ended

Jun. 30, 2024

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 June 30, 2024 and December 31, 2023 by level:


(In thousands)	Total		Level 1		Level 2		Level 3
June 30, 2024
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	1,822,376	$	—	$	1,822,376	$	—
State and municipal	2,539,267		—		2,539,267		—
Mortgage-backed	2,592,994		—		2,592,994		—
Asset-backed	4,014,446		—		4,014,446		—
Corporate	8,412,420		—		8,412,420		—
Foreign government	1,657,609		—		1,657,609		—
Total fixed maturity securities available for sale	21,039,112		—		21,039,112		—
Equity securities:
Common stocks	696,555		693,294		1,116		2,145
Preferred stocks	381,537		—		377,901		3,636
Total equity securities	1,078,092		693,294		379,017		5,781
Arbitrage trading account	1,221,861		1,061,891		156,377		3,593
Total	$	23,339,065	$	1,755,185	$	21,574,506	$	9,374
Liabilities:
Trading account securities sold but not yet purchased	$	81,273	$	81,273	$	—	$	—


December 31, 2023
Assets:
Fixed maturity securities available for sale:
U.S. government and government agency	$	1,716,731	$	—	$	1,716,731	$	—
State and municipal	2,634,422		—		2,634,422		—
Mortgage-backed	2,266,455		—		2,266,455		—
Asset-backed	4,187,040		—		4,187,040		—
Corporate	7,654,059		—		7,654,059		—
Foreign government	1,666,229		—		1,666,229		—
Total fixed maturity securities available for sale	20,124,936		—		20,124,936		—
Equity securities:
Common stocks	838,054		835,338		1,158		1,558
Preferred stocks	252,293		—		248,598		3,695
Total equity securities	1,090,347		835,338		249,756		5,253
Arbitrage trading account	938,049		546,110		388,167		3,772
Total	$	22,153,332	$	1,381,448	$	20,762,859	$	9,025
Liabilities:
Trading account securities sold but not yet purchased	$	9,357	$	9,357	$	—	$	—

The following tables summarize changes in Level 3 assets and liabilities for the six months ended June 30, 2024 and for the year ended December 31, 2023:


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

Six Months Ended June 30, 2024
Assets:




Equity securities:
Common stocks	$	1,558	$	715	$	—	$	—	$	—	$	(128)	$	—	$	—	$	2,145
Preferred stocks	3,695		(2)		—		—		—		(57)		—		—		3,636
Total	5,253		713		—		—		—		(185)		—		—		5,781
Arbitrage trading account	3,772		(178)		—		—		—		(38)		—		37		3,593
Total	$	9,025	$	535	$	—	$	—	$	—	$	(223)	$	—	$	37	$	9,374



Year Ended December 31, 2023
Assets:




Equity securities:
Common stocks	$	2,599	$	(1,041)	$	—	$	—	$	—	$	—	$	—	$	—	$	1,558
Preferred stocks	11,299		(3)		—		(7,601)		—		—		—		—		3,695
Total	13,898		(1,044)		—		(7,601)		—		—		—		—		5,253
Arbitrage trading account	3,590		117		—		—		—		—		—		65		3,772
Total	$	17,488	$	(927)	$	—	$	(7,601)	$	—	$	—	$	—	$	65	$	9,025

For both the six months ended June 30, 2024 and the year ended December 31, 2023, one security within the arbitrage trading account portfolio that no longer had a publicly traded price was transferred into Level 3.

Fair Value of Financial Instruments

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


	June 30, 2024				December 31, 2023
(In thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets:
Fixed maturity securities	$	21,082,676	$	21,084,502	$	20,178,308	$	20,181,547
Equity securities	1,078,092		1,078,092		1,090,347		1,090,347
Arbitrage trading account	1,221,861		1,221,861		938,049		938,049
Loans receivable	349,325		349,310		201,271		198,244
Cash and cash equivalents	1,580,270		1,580,270		1,363,195		1,363,195
Trading account receivables from brokers and clearing organizations	40,705		40,705		303,614		303,614
Due from broker	—		—		36,747		36,747
Liabilities:
Due to broker	128,563		128,563		—		—

Trading account securities sold but not yet purchased	81,273		81,273		9,357		9,357
Senior notes and other debt	1,828,422		1,422,506		1,827,951		1,480,076
Subordinated debentures	1,009,449		825,344		1,009,090		929,598

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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