Fair Value Measurements

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The Company’s financial instruments include assets and liabilities carried at fair value, as well as assets and liabilities carried at cost or amortized cost but disclosed at fair value in its consolidated financial statements. In determining fair value, the market approach is generally applied, which uses prices and other relevant data based on market transactions involving identical or comparable assets and liabilities.

The Company uses data primarily provided by third-party investment managers or pricing vendors to determine the fair value of its investments. Periodic analyses are performed on prices received from third parties to determine whether the prices are reasonable estimates of fair value. The analyses include a review of month-to-month price fluctuations and, as needed, a comparison of pricing services’ valuations to other pricing services’ valuations for the identical security.

The Company classifies its financial instruments into the following three-level hierarchy:

Level 1 - Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement

date.

Level 2 - Inputs are other than quoted prices included in Level 1 that are observable for the asset or liability through

corroboration with market data at the measurement date.

Level 3 - Unobservable inputs that reflect management’s best estimate of what market participants would use in

pricing the asset or liability at the measurement date.

The following methods and assumptions were used in estimating the fair value disclosures for financial instruments in the accompanying consolidated financial statements and in these notes:

U.S. government securities, mutual funds and common stock

The Company uses unadjusted quoted prices for identical instruments in an active exchange to measure fair value which represent Level 1 inputs.

Preferred stocks, municipal securities, corporate securities and miscellaneous

The Company uses a pricing model that utilizes market-based inputs such as trades in an illiquid market for a particular security or trades in active markets for securities with similar characteristics. The model considers other inputs such as benchmark yields, issuer spreads, security terms and conditions, and other market data. These represent Level 2 fair value inputs.

Commercial mortgage-backed securities, residential mortgage-backed securities and other asset-backed securities

The Company uses a pricing model that utilizes market-based inputs that may include dealer quotes, market spreads, and yield curves. It may evaluate individual tranches in a security by determining cash flows using the security’s terms and conditions, collateral performance, credit information benchmark yields and estimated prepayments. These represent Level 2 fair value inputs.

Mortgage loans

Mortgage loans have variable interest rates and are collateralized by real property. The Company determines fair value of mortgage loans using the income approach utilizing inputs that are observable and unobservable (Level 3). The unobservable input consists of the spread applied to a prime rate used to discount cash flows. The spread represents the incremental cost of capital based on the borrower’s ability to make future payments and the value of the collateral relative to the loan balance and is subject to judgement and uncertainty.

The following table sets forth the range and weighted average, weighted by relative fair value, of the spread as of June 30, 2024 and December 31, 2023:

	June 30, 2024		December 31, 2023
High	9.75	%	9.50	%
Low	3.60	%	3.25	%
Weighted average	7.49	%	7.05	%

The following tables set forth the Company’s investments within the fair value hierarchy at June 30, 2024 and December 31, 2023:

June 30, 2024
($ in thousands)	Level 1		Level 2		Level 3		Total
Fixed maturity securities, available-for-sale:
U.S. government securities	$	35,568	$	—	$	—	$	35,568
Corporate securities and miscellaneous	—		436,382		—		436,382
Municipal securities	—		94,274		—		94,274
Residential mortgage-backed securities	—		347,302		—		347,302
Commercial mortgage-backed securities	—		46,307		—		46,307
Other asset-backed securities	—		240,440		—		240,440
Total fixed maturity securities, available-for-sale	35,568		1,164,705		—		1,200,273
Fixed maturity securities, held-to-maturity:
Other asset-backed securities	—		—		38,640		38,640
Total fixed maturity securities, held-to-maturity	—		—		38,640		38,640
Equity securities:
Common stocks	69,439		—		—		69,439
Preferred stocks	—		3,177		—		3,177
Mutual funds	40,207		—		—		40,207
Total equity securities	109,646		3,177		—		112,823
Mortgage loans	—		—		43,670		43,670
Short-term investments	215,041		—		—		215,041
Total	$	360,255	$	1,167,882	$	82,310	$	1,610,447

December 31, 2023
($ in thousands)	Level 1		Level 2		Level 3		Total
Fixed maturity securities, available-for-sale:
U.S. government securities	$	44,166	$	—	$	—	$	44,166
Corporate securities and miscellaneous	—		383,420		—		383,420
Municipal securities	—		92,778		—		92,778
Residential mortgage-backed securities	—		281,626		—		281,626
Commercial mortgage-backed securities	—		29,934		—		29,934
Other asset-backed securities	—		185,727		—		185,727
Total fixed maturity securities, available-for-sale	44,166		973,485		—		1,017,651
Fixed maturity securities, held-to-maturity:
Other asset-backed securities	—		—		41,017		41,017
Total fixed maturity securities, held-to-maturity:	—		—		41,017		41,017
Equity securities:
Common stocks	67,425		—		—		67,425
Preferred stocks	—		7,358		—		7,358
Mutual funds	43,466		—		—		43,466
Total equity securities	110,891		7,358		—		118,249
Mortgage loans	—		—		50,070		50,070
Short-term investments	270,226		—		—		270,226
Total	$	425,283	$	980,843	$	91,087	$	1,497,213

The following tables set forth the changes in the fair value of instruments carried at fair value with a Level 3 measurement during the six months ended June 30, 2024 and 2023:

($ in thousands)	Mortgage Loans
Balance at December 31, 2023	$	50,070
Total gains for the period recognized in net investment (losses) gains	971
Issuances	187
Settlements	(6,919)
Balance at March 31, 2024	$	44,309
Total gains for the period recognized in net investment (losses) gains attributable to the change in unrealized gains or losses relating to assets held as of period end	$	952
Total gains for the period recognized in net investment (losses) gains	(1,030)
Issuances	449
Settlements	(58)
Balance at June 30, 2024	$	43,670
Total losses for the period recognized in net investment (losses) gains attributable to the change in unrealized gains or losses relating to assets held as of period end	$	(1,031)

($ in thousands)	Mortgage Loans
Balance at December 31, 2022	$	52,842
Total gains for the period recognized in net investment (losses) gains	22
Issuances	892
Settlements	(11,421)
Balance at March 31, 2023	$	42,335
Total losses for the period recognized in net investment (losses) gains attributable to the change in unrealized gains or losses relating to assets held as of period end	$	(14)
Total losses for the period recognized in net investment (losses) gains	(21)
Issuances	30
Settlements	(9,582)
Balance at June 30, 2023	$	32,762
Total gains for the period recognized in net investment (losses) gains attributable to the change in unrealized gains or losses relating to assets held as of period end	$	3

The Company measures certain assets, including investments in indirect loans and loan collateral, equity method investments and other invested assets, at fair value on a nonrecurring basis only when they are deemed to be impaired.

In addition to the preceding disclosures on assets and liabilities recorded at fair value in the consolidated balance sheets, the Company is also required to disclose the fair values of certain other financial instruments for which it is practicable to estimate fair value. Estimated fair value amounts, defined as the quoted market price of a financial instrument, have been determined using available market information and other appropriate valuation methodologies. However, considerable judgements are required in developing the estimates of fair value where quoted market prices are not available. Accordingly, these estimates are not necessarily indicative of the amounts that could be realized in a current market exchange. The use of different market assumptions or estimating methodologies may have an effect on the estimated fair value amounts.

The following methods and assumptions were used in estimating the fair value disclosures of other financial instruments:

Fixed maturity securities, held-to-maturity: Fixed maturity securities, held-to-maturity consists of senior and junior notes with target rates of return. As of June 30, 2024, the Company determined the fair value of these instruments using the income approach utilizing inputs that are unobservable (Level 3).

Notes payable: The carrying value approximates the estimated fair value for notes payable as the notes payable accrue interest at current market rates plus a spread. The Company determines fair value using the income approach utilizing inputs that are observable (Level 2).

Subordinated debt: Subordinated debt consists of two debt instruments, the Junior Subordinated Interest Debentures, due September 15, 2036, and Unsecured Subordinated Notes, due May 24, 2039. The carrying value of the Junior Subordinated Interest Debentures approximates the estimated fair value as the instrument accrues interest at current market rates plus a spread. Unsecured Subordinated Notes have a fixed interest rate. The Company determines the fair value of these instruments using the income approach utilizing inputs that are observable (Level 2).

The following table sets forth the Company’s carrying and fair values of notes payable and subordinated debt as of June 30, 2024 and December 31, 2023:

	June 30, 2024				December 31, 2023
($ in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Notes payable
Revolving credit facility	$	100,000	$	100,000	$	50,000	$	50,000
Notes payable	$	100,000	$	100,000	$	50,000	$	50,000
Subordinated debt
Junior subordinated interest debentures	$	—	$	—	$	59,186	$	59,794
Unsecured subordinated notes	18,936		20,731		19,504		21,378
Subordinated debt, net of debt issuance costs	$	18,936	$	20,731	$	78,690	$	81,172

Other financial instruments qualify as insurance-related products and are specifically exempted from fair value disclosure requirements.