Fair Value

3 Months Ended

Mar. 31, 2013

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 March 31, 2013 and December 31, 2012.

The Company internally manages a small public equity portfolio which had a fair value at March 31, 2013 of $75,956 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 March 31, 2013 and December 31, 2012, 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 the third party asset managers and the Company.

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)	March 31, 2013		(Level 1)		(Level 2)		(Level 3)
Assets:
Fixed maturities, market value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations	$	75,937	$	-	$	75,937	$	-
Obligations of U.S. States and political subdivisions		1,169,539		-		1,169,539		-
Corporate securities		1,651,871		-		1,651,871		-
Asset-backed securities		49,127		-		44,441		4,686
Mortgage-backed securities
Commercial		52,259		-		52,259		-
Agency residential		764,616		-		764,616		-
Non-agency residential		1,473		-		1,468		5
Foreign government securities		766,501		-		766,501		-
Foreign corporate securities		1,080,140		-		1,078,348		1,792
Total fixed maturities, market value		5,611,463		-		5,604,980		6,483
Fixed maturities, fair value		36,127		-		36,127		-
Equity securities, market value		15		15		-		-
Equity securities, fair value		1,330,699		1,192,549		138,150		-
Other invested assets, fair value		1,262,235		1,262,235		-		-

There were no transfers between Level 1 and Level 2 for the three months ended March 31, 2013.

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, 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	$	78,190	$	-	$	78,190	$	-
Obligations of U.S. States and political subdivisions		1,291,963		-		1,291,963		-
Corporate securities		1,564,852		-		1,564,852		-
Asset-backed securities		46,487		-		41,638		4,849
Mortgage-backed securities
Commercial		52,624		-		52,624		-
Agency residential		683,722		-		654,324		29,398
Non-agency residential		2,329		-		2,324		5
Foreign government securities		780,003		-		780,003		-
Foreign corporate securities		1,031,240		-		1,019,819		11,421
Total fixed maturities, market value		5,531,410		-		5,485,737		45,673
Fixed maturities, fair value		41,470		-		41,470		-
Equity securities, market value		13		13		-		-
Equity securities, fair value		1,199,848		1,059,288		140,560		-
Other invested assets, fair value		1,068,711		1,068,711		-		-

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

	Three Months Ended March 31, 2013														Three Months Ended March 31, 2012
	Asset-backed			Foreign			Non-agency		Agency						Asset-backed			Foreign			Non-agency
(Dollars in thousands)	Securities			Corporate			RMBS		RMBS			Total			Securities			Corporate			RMBS			Total
Beginning balance	$	4,849		$	11,421		$	5	$	29,398		$	45,673		$	16,046		$	2,536		$	7		$	18,589
Total gains or (losses) (realized/unrealized)
Included in earnings		(99	)		(2	)		-		-			(101	)		55			(3	)		1			53
Included in other comprehensive income (loss)		(190	)		(124	)		-		-			(314	)		332			125			(1	)		456
Purchases, issuances and settlements		126			750			-		-			876			2,675			2,461			(1	)		5,135
Transfers in and/or (out) of Level 3		-			(10,253	)		-		(29,398	)		(39,651	)		(6,352	)		-			-			(6,352	)
Ending balance	$	4,686		$	1,792		$	5	$	-		$	6,483		$	12,756		$	5,119		$	6		$	17,881
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.)