Note 4.

Fair Value Measurement

The fair value of our financial instruments is determined based on the following fair value hierarchy:

Level 1 – Quoted prices for identical instruments in active markets. Examples are listed equity and fixed income securities traded on an exchange. U.S. Treasury securities are reported as Level 1 and are valued based on unadjusted quoted prices for identical assets in active markets that our Company can access.

Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Examples are asset-backed and mortgage-backed securities that are similar to other asset-backed or mortgage-backed securities observed in the market. U.S. government agency securities are reported as Level 2 and are valued using yields and spreads that are observable in active markets.

Level 3 – Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. An example would be a private placement with minimal liquidity.

The following tables present, for each of the fair value hierarchy levels as defined by the accounting guidance for fair value measurements and described below, our Company’s fixed maturities and equity securities by asset class that are measured at fair value on a recurring basis, as well as the fair value of the 5.75% Senior notes due October 15, 2023 (the “Senior notes”) carried at amortized cost as of March 31, 2015 and December 31, 2014:


	March 31, 2015
amounts in thousands	Level 1		Level 2		Level 3		Total
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	80,823	$	229,566	$	—	$	310,389
States, municipalities and political subdivisions		—		547,664		—		547,664
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		—		364,468		—		364,468
Residential mortgage obligations		—		33,116		—		33,116
Asset-backed securities		—		216,475		—		216,475
Commercial mortgage-backed securities		—		231,703		—		231,703

Subtotal	$	—	$	845,762	$	—	$	845,762
Corporate bonds		—		641,410		—		641,410

Total fixed maturities	$	80,823	$	2,264,402	$	—	$	2,345,225
Equity securities		87,701		71,343		—		159,044
Short-term investments		242,553		—		—		242,553

Total assets measured at fair value	$	411,077	$	2,335,745	$	—	$	2,746,822


Senior notes	$	—	$	290,524	$	—	$	290,524

Total liabilities measured at fair value	$	—	$	290,524	$	—	$	290,524


	December 31, 2014
amounts in thousands	Level 1		Level 2		Level 3		Total
Fixed maturities:
U.S. Treasury bonds, agency bonds and foreign government bonds	$	146,904	$	251,019	$	—	$	397,923
States, municipalities and political subdivisions		—		541,007		—		541,007
Mortgage-backed and asset-backed securities:
Agency mortgage-backed securities		—		364,622		—		364,622
Residential mortgage obligations		—		34,087		—		34,087
Asset-backed securities		—		206,413		—		206,413
Commercial mortgage-backed securities		—		206,318		—		206,318

Subtotal	$	—	$	811,440	$	—	$	811,440
Corporate bonds		—		615,564		—		615,564

Total fixed maturities	$	146,904	$	2,219,030	$	—	$	2,365,934
Equity securities		127,183		57,112		—		184,295
Short-term investments		179,506		—		—		179,506

Total assets measured at fair value	$	453,593	$	2,276,142	$	—	$	2,729,735


Senior notes	$	—	$	285,710	$	—	$	285,710

Total liabilities measured at fair value	$	—	$	285,710	$	—	$	285,710

All other financial assets and liabilities including cash, premium receivables, reinsurance recoverables and reinsurance balance payables are carried at cost, which approximates fair value.

Our Company did not have any significant transfers between the Level 1 and Level 2 classifications for the three months ended March 31, 2015 and 2014.

As of March 31, 2015, our Company did not have any Level 3 assets. For the three months ended March 31, 2014, our Company had one corporate bond for $4.4 million which transferred from Level 3 to Level 2. Our Company was able to obtain a valuation in which all significant inputs to the model are observable in active markets.