Fair Value Measurements

3 Months Ended

Mar. 31, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 12 - Fair Value Measurements

The Company classifies its investments in Fixed Maturities and Equity Securities as available for sale and reports these investments at fair value. The Company classifies certain investments in mutual funds included in Other Investments as trading securities and reports these investments at fair value. The Company has no material liabilities that are measured and reported at fair value.

The valuation of assets measured at fair value in the Company’s Condensed Consolidated Balance Sheet at March 31, 2012 is summarized below:

	Fair Value Measurements
(Dollars in Millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	133.1	$	341.3	$	—	$	474.4
States and Political Subdivisions	—		1,825.4		—		1,825.4
Corporate Securities:
Bonds and Notes	—		2,142.3		259.2		2,401.5
Redeemable Preferred Stocks	—		75.1		6.3		81.4
Mortgage and Asset-backed	—		4.7		0.3		5.0
Total Investments in Fixed Maturities	133.1		4,388.8		265.8		4,787.7
Equity Securities:
Preferred Stocks:
Finance, Insurance and Real Estate	—		97.4		—		97.4
Other Industries	—		15.2		6.0		21.2
Common Stocks:
Manufacturing	80.2		5.2		1.7		87.1
Other Industries	45.1		—		4.6		49.7
Other Equity Interests:
Exchange Traded Funds	67.7		—		—		67.7
Limited Liability Companies and Limited Partnerships	—		—		106.5		106.5
Total Investments in Equity Securities	193.0		117.8		118.8		429.6
Other Investments:
Trading Securities	4.6		—		—		4.6
Total	$	330.7	$	4,506.6	$	384.6	$	5,221.9

Note 12 - Fair Value Measurements (continued)

The valuation of assets measured at fair value in the Company’s Condensed Consolidated Balance Sheet at December 31, 2011 is summarized below:

	Fair Value Measurements
(Dollars in Millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	153.6	$	338.1	$	—	$	491.7
States and Political Subdivisions	—		1,852.6		—		1,852.6
Corporate Securities:
Bonds and Notes	—		2,107.2		235.1		2,342.3
Redeemable Preferred Stocks	—		75.6		6.1		81.7
Mortgage and Asset-backed	—		4.8		0.3		5.1
Total Investments in Fixed Maturities	153.6		4,378.3		241.5		4,773.4
Equity Securities:
Preferred Stocks:
Finance, Insurance and Real Estate	—		86.7		—		86.7
Other Industries	—		14.9		5.6		20.5
Common Stocks:
Manufacturing	74.7		5.0		3.7		83.4
Other Industries	42.8		—		4.2		47.0
Other Equity Interests:
Exchange Traded Funds	66.6		—		—		66.6
Limited Liability Companies and Limited Partnerships	—		—		93.1		93.1
Total Investments in Equity Securities	184.1		106.6		106.6		397.3
Other Investments:
Trading Securities	4.4		—		—		4.4
Total	$	342.1	$	4,484.9	$	348.1	$	5,175.1

The Company’s investments in Fixed Maturities that are classified as Level 1 in the two preceding tables primarily consist of U.S. Treasury Bonds and Notes. The Company’s investments in Equity Securities that are classified as Level 1 in the two preceding tables consist of either investments in publicly-traded common stocks or exchange traded funds. The Company’s investments in Fixed Maturities that are classified as Level 2 in the two preceding tables primarily consist of investments in corporate bonds and redeemable preferred stocks, states and political subdivisions, and bonds and mortgage-backed securities of U.S. government agencies. The Company’s investments in Equity Securities that are classified as Level 2 in the two preceding tables primarily consist of investments in preferred stocks. The Company uses a leading, nationally recognized provider of market data and analytics to price the vast majority of the Company’s Level 2 measurements. The provider utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information. Because many fixed maturity securities do not trade on a daily basis, the provider’s evaluated pricing applications apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing to prepare evaluations. In addition, the provider uses model processes to develop prepayment and interest rate scenarios. The pricing provider’s models and processes also take into account market convention. For each asset class, teams of its evaluators gather information from market sources and integrate relevant credit information, perceived market movements and sector

Note 12 - Fair Value Measurements (continued)

news into the evaluated pricing applications and models. The Company generally validates the measurements obtained from its primary pricing provider by comparing them with measurements obtained from one additional pricing provider that provides either prices from recent market transactions or quotes in inactive markets or evaluations based on its own proprietary models.

The Company investigates significant differences related to the values provided. On completion of its investigation, management exercises judgment to determine the price selected and whether adjustments, if any, to the price obtained from the Company’s primary pricing provider would warrant classification of the price as Level 3. In instances where a measurement cannot be obtained from either pricing provider, the Company generally will evaluate bid prices from one or more binding quotes obtained from market makers to value investments in inactive markets and classified by the Company as Level 2. The Company generally classifies securities when it receives non-binding quotes or indications as Level 3 securities unless the Company can validate the quote or indication against recent transactions in the market. For securities classified as Level 3, the Company either uses valuations provided by third party fund managers, third party appraisers, the Company’s own internal valuations or net asset values provided for Limited Liability Companies and Limited Partnerships. These valuations typically employ valuation techniques, including earnings multiples based on comparable public securities, comparable market yields as well as industry specific non-earnings based multiples or discounted cash flow models. Valuations classified as Level 3 by the Company generally consist of investments in various private placement securities of non-rated entities. In rare cases, if the private placement security has only been outstanding for a short amount of time, the Company, after considering the initial assumptions used in acquiring an investment, considers the original purchase price as representative of the fair value.

The majority of Investments in Fixed Maturities that are classified as Level 3 are priced using a market yield approach. A market yield approach uses a risk free rate plus a credit spread depending on the underlying credit profile of the security. For floating rate securities, the risk free rate used in the market yield is the contractual floating rate of the security. For each individual security, the Company or the Company’s third party appraiser gathers information from market sources, relevant credit information, perceived market movements and sector news and determines an appropriate market yield for each security. The market yield selected is then used to discount the future cash flows of the security to determine the fair value. The Company separately evaluates market yields based upon asset class to assess the reasonableness of the recorded fair value. For Investments in Fixed Maturities that are classified as Level 3, the two primary asset classes are senior debt and junior debt. Senior debt includes those securities that receive first priority in a liquidation and junior debt includes any fixed maturity security with other than first priority in a liquidation.

The table below presents quantitative information about the significant unobservable inputs utilized by the Company in determining fair value for most of the Investments in Fixed Maturities and classified as Level 3.

(Dollars in Millions)	Unobservable Input	Total Fair Value		Range of Unobservable Inputs			Weighted Average Market Yield
Senior Debt	Market Yield	$	104.2	1.3%	-	15.0%	6.6	%
Junior Debt	Market Yield	$	132.6	8.6%	-	21.5%	14.5	%

For Investments in Fixed Maturities, an increase in the market yield used in the fair value of a security will decrease the fair value of the security whereas a decrease in the market yield will increase the fair value of a security although the fair value increase is generally limited to par for callable securities.

At March 31, 2012, the Company had unfunded commitments to invest an additional $90.6 million in certain private equity and mezzanine debt funds that will be included in Other Equity Interests.

Note 12 - Fair Value Measurements (continued)

Information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the three months endedMarch 31, 2012 is presented below:

	Fixed Maturities							Equity Securities
(Dollars in Millions)	Corporate Bonds and Notes			Redeemable Preferred Stocks		Mortgage and Asset- backed		Preferred and Common Stocks			Other Equity Interests			Total
Balance at Beginning of Period	$	235.1		$	6.1	$	0.3	$	13.5		$	93.1		$	348.1
Total Gains (Losses):
Included in Condensed Consolidated Statement of Income	0.1			—		—		3.2			0.3			3.6
Included in Other Comprehensive Income	0.9			0.2		—		(1.2		)	1.1			1.0
Purchases	44.8			—		—		0.5			16.0			61.3
Settlements	(16.2		)	—		—		—			(4.0		)	(20.2		)
Sales	(0.3		)	—		—		(3.7		)	—			(4.0		)
Transfers into Level 3 from Level 2	0.9			—		—		—			—			0.9
Transfers out of Level 3 into Level 2	(6.1		)	—		—		—			—			(6.1		)
Balance at End of Period	$	259.2		$	6.3	$	0.3	$	12.3		$	106.5		$	384.6

The Company’s policy is to recognize transfers between levels as of the end of the reporting period. There were no transfers between Levels 1 and 2 or Levels 1 and 3 for the three months endedMarch 31, 2012. The transfers into and out of Level 3 were due to changes in the availability of market observable inputs.

Information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the three months endedMarch 31, 2011 is presented below:

	Fixed Maturities							Equity Securities
(Dollars in Millions)	Corporate Bonds and Notes			Redeemable Preferred Stocks		Mortgage and Asset- backed		Preferred and Common Stocks			Other Equity Interests			Total
Balance at Beginning of Period	$	146.2		$	4.5	$	0.4	$	14.7		$	75.2		$	241.0
Total Gains (Losses):
Included in Condensed Consolidated Statement of Income	—			—		—		1.5			—			1.5
Included in Other Comprehensive Income	1.2			0.9		—		(2.3		)	(2.3		)	(2.5		)
Purchases	32.4			—		—		0.3			7.5			40.2
Settlements	(11.1		)	—		—		—			(5.8		)	(16.9		)
Sales	(0.5		)	—		—		(2.4		)	—			(2.9		)
Balance at End of Period	$	168.2		$	5.4	$	0.4	$	11.8		$	74.6		$	260.4

There were no transfers into or out of Levels 1, 2 or 3 for the three months endedMarch 31, 2011.

The fair value of notes payable is estimated using quoted prices for similar liabilities in markets that are not active. The inputs used in the valuation are considered Level 2 measurements.