Fair Value Measurement

The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value of a financial instrument is the amount 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 using the exit price. Accordingly, when market observable data is not readily available, the Company’s own assumptions are set to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date. Assets and liabilities recorded on the consolidated balance sheets at fair value are categorized based on the level of judgment associated with inputs used to measure their fair value and the level of market price observability, as follows:



Level 1	Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date.

Level 2	Pricing inputs are other than quoted prices in active markets, which are based on the following: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in non-active markets; or • Either directly or indirectly observable inputs as of the reporting date.
Level 3	Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation.

In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.

The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer.

Summary of Significant Valuation Techniques for Financial Assets and Financial Liabilities

The Company’s fair value measurements are based on the market approach, which utilizes market transaction data for the same or similar instruments.

The Company obtained unadjusted fair values on approximately 97% of its portfolio from an independent pricing service. For approximately 3% of its portfolio, classified as Level 3, the Company obtained specific unadjusted broker quotes based on net fund value and, less significantly, unobservable inputs from at least one knowledgeable outside security broker to determine the fair value as of June 30, 2012.

Level 1 Measurements - Fair values of financial assets and financial liabilities are obtained from an independent pricing service, and are based on unadjusted quoted prices for identical assets or liabilities in active markets. Additional pricing services and closing exchange values are used as a comparison to ensure that reasonable fair values are used in pricing the investment portfolio.

U.S. government bonds and agencies: Valued using unadjusted quoted market prices for identical assets in active markets.

Common stock: Comprised of actively traded, exchange listed U.S. and international equity securities and valued based on unadjusted quoted prices for identical assets in active markets.

Money market instruments: Valued based on unadjusted quoted prices for identical assets.

Equity contracts: Comprised of free-standing exchange listed derivatives that are actively traded and valued based on quoted prices for identical instruments in active markets.

Level 2 Measurements - Fair values of financial assets and financial liabilities are obtained from an independent pricing service or outside brokers, and are based on prices for similar assets or liabilities in active markets or valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. Additional pricing services are used as a comparison to ensure reliable fair values are used in pricing the investment portfolio.

Municipal securities: Valued based on models or matrices using inputs such as quoted prices for identical or similar assets in active markets.

Mortgage-backed securities: Comprised of securities that are collateralized by residential mortgage loans and valued based on models or matrices using multiple observable inputs, such as benchmark yields, reported trades and broker/dealer quotes, for identical or similar assets in active markets. At June 30, 2012 and December 31, 2011, the Company had no holdings in commercial mortgage-backed securities.

Corporate securities/Short-term bonds: Valued based on a multi-dimensional model using multiple observable inputs, such as benchmark yields, reported trades, broker/dealer quotes and issue spreads, for identical or similar assets in active markets.

Non-redeemable preferred stock: Valued based on observable inputs, such as underlying and common stock of same issuer and appropriate spread over a comparable U.S. Treasury security, for identical or similar assets in active markets.

Interest rate swap agreements: Valued based on models using inputs, such as interest rate yield curves, observable for substantially the full term of the contract.

Level 3 Measurements - Fair values of financial assets are based on inputs that are both unobservable and significant to the overall fair value measurement, including any items in which the evaluated prices obtained elsewhere were deemed to be of a distressed trading level.

Collateralized debt obligations/Partnership interest in a private credit fund: Valued based on underlying debt/credit instruments and the appropriate benchmark spread for similar assets in active markets; taking into consideration unobservable inputs related to liquidity assumptions.

The Company’s total financial instruments at fair value are reflected in the consolidated balance sheets on a trade-date basis. Related unrealized gains or losses are recognized in net realized investment gains in the consolidated statements of operations. Fair value measurements are not adjusted for transaction costs.

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2012 and December 31, 2011, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:



	June 30, 2012
	Level 1		Level 2		Level 3		Total
	(Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies	$	12,553	$	0	$	0	$	12,553
Municipal securities	0		2,265,322		0		2,265,322
Mortgage-backed securities	0		30,887		0		30,887
Corporate securities	0		102,550		0		102,550
Collateralized debt obligations	0		0		76,325		76,325
Equity securities:
Common stock:
Public utilities	68,991		0		0		68,991
Banks, trusts and insurance companies	18,483		0		0		18,483
Energy and other	336,438		0		0		336,438
Non-redeemable preferred stock	0		11,225		0		11,225
Partnership interest in a private credit fund	0		0		11,030		11,030
Short-term bonds	0		40,792		0		40,792
Money market instruments	138,534		0		0		138,534
Total assets at fair value	$	574,999	$	2,450,776	$	87,355	$	3,113,130
Liabilities
Equity contracts	$	643	$	0	$	0	$	643
Interest rate swap agreements	0		399		0		399
Total liabilities at fair value	$	643	$	399	$	0	$	1,042



	December 31, 2011
	Level 1		Level 2		Level 3		Total
	(Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies	$	14,298	$	0	$	0	$	14,298
Municipal securities	0		2,271,275		0		2,271,275
Mortgage-backed securities	0		37,371		0		37,371
Corporate securities	0		75,142		0		75,142
Collateralized debt obligations	0		0		47,503		47,503
Equity securities:
Common stock:
Public utilities	26,342		0		0		26,342
Banks, trusts and insurance companies	16,027		0		0		16,027
Energy and other	316,592		0		0		316,592
Non-redeemable preferred stock	0		11,419		0		11,419
Partnership interest in a private credit fund	0		0		10,008		10,008
Short-term bonds	0		9,011		0		9,011
Money market instruments	227,433		0		0		227,433
Total assets at fair value	$	600,692	$	2,404,218	$	57,511	$	3,062,421
Liabilities
Equity contracts	$	655	$	0	$	0	$	655
Interest rate swap agreements	0		670		0		670
Total liabilities at fair value	$	655	$	670	$	0	$	1,325

The following tables present a summary of changes in fair value of Level 3 financial assets and financial liabilities held at fair value at June 30, 2012 and 2011.



	Three Months Ended June 30,
	2012							2011
	Municipal Securities		Collateralized Debt Obligations			Partnership Interest in a Private Credit Fund		Municipal Securities		Collateralized Debt Obligations
	(Amounts in thousands)
Beginning Balance	$	0	$	52,983		$	10,510	$	0	$	58,408
Realized (losses) gains included in earnings	0		(1,658		)	520		0		(2,684		)
Purchase	0		25,000			0		0		0
Ending Balance	$	0	$	76,325		$	11,030	$	0	$	55,724
The amount of total (losses) gains for the period included in earnings attributable to assets still held at June 30	$	0	$	(1,658	)	$	520	$	0	$	(2,684	)



	Six Months Ended June 30,
	2012						2011
	Municipal Securities		Collateralized Debt Obligations		Partnership Interest in a Private Credit Fund		Municipal Securities			Collateralized Debt Obligations
	(Amounts in thousands)
Beginning Balance	$	0	$	47,503	$	10,008	$	1,624		$	55,692
Realized gains included in earnings	0		3,822		1,022		39			32
Purchase	0		25,000		0		0			0
Sales	0		0		0		(1,663		)	0
Ending Balance	$	0	$	76,325	$	11,030	$	—		$	55,724
The amount of total gains for the period included in earnings attributable to assets still held at June 30	$	0	$	3,822	$	1,022	$	0		$	32

There were no transfers between Levels 1, 2, and 3 of the fair value hierarchy during the six months ended June 30, 2012 and 2011.

At June 30, 2012, the Company did not have any nonrecurring measurements of nonfinancial assets or nonfinancial liabilities.