Fair Values of Financial Instruments

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Values of Financial Instruments

FAIR VALUES OF FINANCIAL INSTRUMENTS

Effective January 1, 2008, the Company adopted FASB guidance which defines fair value, establishes a framework for measuring fair value under GAAP, and requires additional disclosures about fair value measurements. In compliance with this GAAP guidance, the Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three level hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded at fair value on the Condensed Consolidated Balance Sheets are categorized as follows:

Level 1: Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. These generally provide the most reliable evidence and are used to measure fair value whenever available. The Company's Level 1 assets include equity securities that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets.

Level 2: Fair value is based upon significant inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable for substantially the full term of the asset or liability through corroboration with observable market data as of the reporting date. Level 2 inputs include quoted market prices in active markets for similar assets and liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities, model-derived valuations whose inputs are observable or whose significant value drivers are observable and other observable inputs. The Company's Level 2 assets include fixed maturity debt securities (corporate and private bonds, government and agency securities, asset-backed and mortgage-backed securities), preferred stock, certain equity securities, and over-the-counter derivative contracts. The Company's Level 2 liabilities consist of certain product-related embedded derivatives. Valuations are generally obtained from third party pricing services for identical or comparable assets or determined through use of valuation methodologies using observable market inputs.

Level 3: Fair value is based on significant unobservable inputs which reflect the entity's or third party pricing service's assumptions about the assumptions market participants would use in pricing an asset or liability. The Company's Level 3 assets include certain equity securities and certain less liquid or private fixed maturity debt securities where significant valuation inputs cannot be corroborated with market observable data. The Company's Level 3 liabilities consist of share-based compensation obligations. Valuations are estimated based on non-binding broker prices or internally developed valuation models or methodologies, discounted cash flow models and other similar techniques.

The following tables set forth the Company’s assets and liabilities that are measured at fair value on a recurring basis as of the date indicated:

	September 30, 2012
	Total		Level 1	Level 2	Level 3
	(In thousands)
Debt securities, available for sale	$	2,809,062	—	2,809,062	—
Equity securities, available for sale	12,305		12,184	121	—
Derivatives, index options	87,833		—	87,833	—
Total assets	$	2,909,200	12,184	2,897,016	—
Policyholder account balances (a)	$	98,396	—	98,396	—
Other liabilities (b)	2,003		—	—	2,003
Total liabilities	$	100,399	—	98,396	2,003

During the nine months ended September 30, 2012, the Company transferred out of Level 3, equity securities available for sale, its investment in an affiliated company, Moody Bancshares. The security is held at its equity value and was transferred to other long-term investments. The Company did not make any other transfers of assets into or out of levels 1, 2 or 3 during the period reported.

	December 31, 2011
	Total		Level 1	Level 2	Level 3
	(In thousands)
Debt securities, available for sale	$	2,608,407	—	2,608,407	—
Equity securities, available for sale	16,546		8,233	195	8,118
Derivatives, index options	30,844		—	30,844	—
Total assets	$	2,655,797	8,233	2,639,446	8,118
Policyholder account balances (a)	$	47,129	—	47,129	—
Other liabilities (b)	1,647		—	—	1,647
Total liabilities	$	48,776	—	47,129	1,647

(a)  Represents the fair value of certain product-related embedded derivatives that were recorded at fair value.

(b)  Represents the liability for share-based compensation.

The following tables present, by pricing source and fair value hierarchy level, the Company’s assets that are measured at fair value on a recurring basis:

	September 30, 2012
	Total			Level 1		Level 2		Level 3
	(In thousands)
Debt securities, available for sale:
Priced by third-party vendors	$	2,809,062		—		2,809,062		—
Priced internally	—			—		—		—
Subtotal	2,809,062			—		2,809,062		—
Equity securities, available for sale:
Priced by third-party vendors	12,305			12,184		121		—
Priced internally	—			—		—		—
Subtotal	12,305			12,184		121		—
Derivatives, index options:
Priced by third-party vendors	87,833			—		87,833		—
Priced internally	—			—		—		—
Subtotal	87,833			—		87,833		—
Total	$	2,909,200		12,184		2,897,016		—
Percent of total	100.0		%	0.4	%	99.6	%	—	%

	December 31, 2011
	Total			Level 1		Level 2		Level 3
	(In thousands)
Debt securities, available for sale:
Priced by third-party vendors	$	2,608,407		—		2,608,407		—
Priced internally	—			—		—		—
Subtotal	2,608,407			—		2,608,407		—
Equity securities, available for sale:
Priced by third-party vendors	8,428			8,233		195		—
Priced internally	8,118			—		—		8,118
Subtotal	16,546			8,233		195		8,118
Derivatives, index options:
Priced by third-party vendors	30,844			—		30,844		—
Priced internally	—			—		—		—
Subtotal	30,844			—		30,844		—
Total	$	2,655,797		8,233		2,639,446		8,118
Percent of total	100.0		%	0.3	%	99.4	%	0.3	%

The following tables provide additional information about fair value measurements for which significant unobservable (Level 3) inputs were utilized to determine fair value.

	For the Three Months Ended September 30, 2012
	Debt Securities, Available for Sale		Equity Securities, Available for Sale	Total Assets	Other Liabilities
	(In thousands)
Beginning balance, July 1, 2012	$	—	—	—	2,217
Total realized and unrealized gains (losses):
Included in net income	—		—	—	(166	)
Included in other comprehensive income	—		—	—	—
Purchases, sales, issuances and settlements, net	—		—	—	(48	)
Transfers into (out of) Level 3	—		—	—	—
Balance at end of period	$	—	—	—	2,003
Amount of total gains (losses) for the period included in net income attributable to the change in unrealized gains (losses) relating to assets still held at end of period	$	—	—	—	(68	)

	For the Three Months Ended September 30, 2011
	Debt Securities, Available for Sale			Equity Securities, Available for Sale	Total Assets		Other Liabilities
	(In thousands)
Beginning balance, July 1, 2011	$	17,157		8,119	25,276		3,090
Total realized and unrealized gains (losses):
Included in net income	—			—	—		(1,375	)
Included in other comprehensive income	(1,802		)	—	(1,802	)	—
Purchases, sales, issuances and settlements, net	30			—	30		—
Transfers into (out of) Level 3	—			—	—		—
Balance at end of period	$	15,385		8,119	23,504		1,715
Amount of total gains (losses) for the period included in net income attributable to the change in unrealized gains (losses) relating to assets still held at end of period	$	—		—	—		(1,375	)

	For the Nine Months Ended September 30, 2012
	Debt Securities, Available for Sale		Equity Securities, Available for Sale		Total Assets		Other Liabilities
	(In thousands)
Beginning balance, January 1, 2012	$	—	8,118		8,118		1,647
Total realized and unrealized gains (losses):
Included in net income	—		—		—		422
Included in other comprehensive income	—		897		897		—
Purchases, sales, issuances and settlements, net	—		—		—		(66	)
Transfers into (out of) Level 3	—		(9,015	)	(9,015	)	—
Balance at end of period	$	—	—		—		2,003
Amount of total gains (losses) for the period included in net income attributable to the change in unrealized gains (losses) relating to assets still held at end of period	$	—	—		—		583

	For the Nine Months Ended September 30, 2011
	Debt Securities, Available for Sale			Equity Securities, Available for Sale	Total Assets		Other Liabilities
	(In thousands)
Beginning balance, January 1, 2011	$	18,602		7,564	26,166		4,512
Total realized and unrealized gains (losses):
Included in net income	—			—	—		(2,240	)
Included in other comprehensive income	(2,615		)	555	(2,060	)	—
Purchases, sales, issuances and settlements, net	(602		)	—	(602	)	(557	)
Transfers into (out of) Level 3	—			—	—		—
Balance at end of period	$	15,385		8,119	23,504		1,715
Amount of total gains (losses) for the period included in net income attributable to the change in unrealized gains (losses) relating to assets still held at end of period	$	—		—	—		(1,642	)

Realized gains (losses) on debt and equity securities are reported in the Condensed Consolidated Statements of Earnings as net investment gains (losses). Unrealized gains (losses) on available for sale debt and equity securities are reported as other comprehensive income (loss) within stockholders' equity of the Condensed Consolidated Balance Sheet.

The fair value hierarchy classifications are reviewed each reporting period. Reclassification of certain financial assets and liabilities may result based on changes in the observability of valuation attributes. Reclassifications are reported as transfers into and out of Level 3 at the beginning fair value for the reporting period in which the changes occur.

The carrying amounts and fair values of the Company's financial instruments are as follows:

	September 30, 2012			December 31, 2011
	Carrying Values		Fair Values	Carrying Values	Fair Values
	(In thousands)
ASSETS
Investments in debt and equity securities:
Securities held to maturity	$	5,849,916	6,414,860	5,641,909	6,082,330
Securities available for sale	2,821,367		2,821,367	2,624,953	2,624,953
Cash and short-term investments	127,945		127,945	119,290	119,290
Mortgage loans	135,776		141,013	157,460	158,958
Policy loans	74,138		74,138	74,967	74,967
Other loans	14,691		14,903	16,287	16,780
Derivatives, index options	87,833		87,833	30,844	30,844
Life interest in Libbie Shearn Moody Trust	83		12,775	330	12,775
LIABILITIES
Deferred annuity contracts	$	6,840,702	6,466,991	6,606,886	6,273,379
Immediate annuity and supplemental contracts	503,147		548,490	506,982	521,122

Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.