Fair value measurements

3 Months Ended

Mar. 31, 2014

Fair value measurements

NOTE 3

Fair value measurements. The Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal, or most advantageous, market for the asset or liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurements and Disclosures Topic establishes a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs when possible. The three levels of inputs used to measure fair value are as follows:

• Level 1 – quoted prices in active markets for identical assets or liabilities;

• Level 2 – observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data; and

• Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair values of the assets or liabilities, including certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of March 31, 2014, financial instruments measured at fair value on a recurring basis are summarized below:

	Level 1		Level 2		Fair value measurements
	($000 omitted)
Investments available-for-sale:
Debt securities:
Municipal		—		58,111		58,111
Corporate		—		302,852		302,852
Foreign		—		161,192		161,192
U.S. Government		—		15,112		15,112
Equity securities		21,300		—		21,300
		21,300		537,267		558,567

As of December 31, 2013, financial instruments measured at fair value on a recurring basis are summarized below:

	Level 1		Level 2		Fair value measurements
	($000 omitted)
Investments available-for-sale:
Debt securities:
Municipal		—		47,252		47,252
Corporate		—		291,832		291,832
Foreign		—		162,367		162,367
U.S. Government		—		15,197		15,197
Equity securities		20,695		—		20,695
		20,695		516,648		537,343

As of March 31, 2014, Level 1 financial instruments consist of equity securities. Level 2 financial instruments consist of municipal, governmental and corporate bonds, both U.S. and foreign. In accordance with the Company’s policies and guidelines, which incorporate relevant statutory requirements, the Company’s third party, registered investment manager invests only in securities rated as investment grade or higher by the major rating services, where observable valuation inputs are significant. All municipal, foreign, and U.S. Government bonds are valued using a third-party pricing service, and the corporate bonds are valued using the market approach, which includes three to ten inputs from relevant market sources, including Financial Industry Regulatory Authority’s (FINRA) Trade Reporting and Compliance Engine (TRACE) and independent broker/dealer quotes, bids and offerings, as well as other relevant market data, such as securities with similar characteristics (i.e. sector, rating, maturity, etc.). Broker/dealer quotes, bids and offerings mentioned above are gathered (typically three to ten) and a consensus risk premium spread (credit spread) over risk-free Treasury yields is developed from the inputs obtained, which is then used to calculate the resulting fair value.