Fair Value

9 Months Ended

Sep. 30, 2012

Fair Value [Abstract]

Fair Value

4.  FAIR VALUE

The Company's fixed maturity and equity securities are primarily managed by third party investment asset managers.  The investment asset managers obtain prices from nationally recognized pricing services.   These services seek to utilize market data and observations in their evaluation process.  They use pricing applications that vary by asset class and incorporate available market information and when fixed maturity securities do not trade on a daily basis the services will apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing.  In addition, they use model processes, such as the Option Adjusted Spread model to develop prepayment and interest rate scenarios for securities that have prepayment features.

In limited instances where prices are not provided by pricing services or in rare instances when a manager may not agree with the pricing service, price quotes on a non-binding basis are obtained from investment brokers.  The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers.  In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices.  In addition, the Company continually performs analytical reviews of price changes and tests the prices on a random basis to an independent pricing source.   No material variances were noted during these price validation procedures.  In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value.  The Company made no such adjustments at September 30, 2012 and December 31, 2011.

The Company internally manages a small public equity portfolio which had a fair value at September 30, 2012 of $52,009 thousand and all prices were obtained from publically published sources.

Equity securities in U.S. denominated currency are categorized as Level 1, Quoted Prices in Active Markets for Identical Assets, since the securities are actively traded on an exchange and prices are based on quoted prices from the exchange.  Equity securities traded on foreign exchanges are categorized as Level 2 due to potential foreign exchange adjustments to fair or market value.

Fixed maturity securities are generally categorized as Level 2, Significant Other Observable Inputs, since a particular security may not have traded but the pricing services are able to use valuation models with observable market inputs such as interest rate yield curves and prices for similar fixed maturity securities in terms of issuer, maturity and seniority. Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk) are categorized as Level 3, Significant Unobservable Inputs.  These securities include broker priced securities.

As of September 30, 2012 and December 31, 2011, all Level 3 fixed maturity securities, were priced using single non-binding broker quotes since prices for these securities were not provided by normal pricing service companies.  The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the quotes.  The prices received from brokers are reviewed for reasonableness by our asset managers and management.

Other invested assets, at fair value, are categorized as Level 1, Quoted Prices in Active Markets for Identical Assets, since the securities are shares of the Company's parent, which are actively traded on an exchange and the price is based on a quoted price.

The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value) as of the period indicated:

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	September 30, 2012		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	78,595	$	-	$	78,595	$	-
Obligations of U.S. States and political subdivisions		1,366,329		-		1,366,329		-
Corporate securities		1,401,228		-		1,401,228		-
Asset-backed securities		50,923		-		43,331		7,592
Mortgage-backed securities
Commercial		53,007		-		53,007		-
Agency residential		575,168		-		575,168		-
Non-agency residential		2,480		-		2,475		5
Foreign government securities		812,688		-		812,688		-
Foreign corporate securities		985,700		-		980,754		4,946
Total fixed maturities, market value		5,326,118		-		5,313,575		12,543
Fixed maturities, fair value		52,217		-		52,217		-
Equity securities, market value		13		13		-		-
Equity securities, fair value		1,247,445		1,113,526		133,919		-
Other invested assets, fair value		1,039,648		1,039,648		-		-

There wer no transfers between Level 1 and Level 2 for the three and nine months ended September 30, 2012.

The following table presents the fair value measurement levels for all assets, which the Company has recorded at fair value (fair and market value) as of the period indicated:

			Fair Value Measurement Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Inputs		Inputs
(Dollars in thousands)	December 31, 2011		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	79,539	$	-	$	79,539	$	-
Obligations of U.S. States and political subdivisions		1,660,905		-		1,660,905		-
Corporate securities		1,228,235		-		1,228,235		-
Asset-backed securities		45,103		-		29,057		16,046
Mortgage-backed securities
Commercial		47,874		-		47,874		-
Agency residential		543,393		-		543,393		-
Non-agency residential		24,289		-		24,282		7
Foreign government securities		788,649		-		788,649		-
Foreign corporate securities		689,041		-		686,505		2,536
Total fixed maturities, market value		5,107,028		-		5,088,439		18,589
Fixed maturities, fair value		113,606		-		113,606		-
Equity securities, market value		10		10		-		-
Equity securities, fair value		1,207,053		1,090,959		116,094		-
Other invested assets, fair value		817,352		817,352		-		-

The following tables present the activity under Level 3, fair value measurements using significant unobservable inputs by asset type, for the periods indicated:

	Three Months Ended September 30, 2012												Nine Months Ended September 30, 2012
	Asset-backed			Foreign			Non-agency						Asset-backed			Foreign			Non-agency
(Dollars in thousands)	Securities			Corporate			RMBS			Total			Securities			Corporate			RMBS			Total
Beginning balance	$	8,996		$	7,383		$	5		$	16,384		$	16,046		$	2,536		$	7		$	18,589
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)		56			(14	)		1			43			111			(33	)		3			81
Included in other comprehensive income (loss)		390			275			-			665			728			387			(2	)		1,113
Purchases, issuances and settlements		(61	)		(576	)		(1	)		(638	)		4,407			6,640			(3	)		11,044
Transfers in and/or (out) of Level 3		(1,789	)		(2,122	)		-			(3,911	)		(13,700	)		(4,584	)		-			(18,284	)
Ending balance	$	7,592		$	4,946		$	5		$	12,543		$	7,592		$	4,946		$	5		$	12,543
The amount of total gains or losses for the period included
in earnings (or changes in net assets) attributable to the
change in unrealized gains or losses relating to assets
still held at the reporting date	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
(Some amounts may not reconcile due to rounding.)

	Three Months Ended September 30, 2011												Nine Months Ended September 30, 2011
	Asset-backed			Foreign			Non-agency						Asset-backed			Foreign			Non-agency
(Dollars in thousands)	Securities			Corporate			RMBS			Total			Securities			Corporate			RMBS			Total
Beginning balance	$	2,466		$	-		$	381		$	2,847		$	961		$	3,635		$	458		$	5,054
Total gains or (losses) (realized/unrealized)
Included in earnings (or changes in net assets)		16			(3	)		(39	)		(26	)		80			(3	)		10			87
Included in other comprehensive income (loss)		(122	)		(25	)		102			(45	)		(269	)		(25	)		54			(240	)
Purchases, issuances and settlements		(19	)		2,586			(88	)		2,479			37			2,586			(166	)		2,457
Transfers in and/or (out) of Level 3		(27	)		-			(349	)		(376	)		1,505			(3,635	)		(349	)		(2,479	)
Ending balance	$	2,314		$	2,558		$	7		$	4,879		$	2,314		$	2,558		$	7		$	4,879
The amount of total gains or losses for the period included
in earnings (or changes in net assets) attributable to the
change in unrealized gains or losses relating to assets
still held at the reporting date	$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-
(Some amounts may not reconcile due to rounding.)