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Fair Value
 9 Months Ended
Sep. 30, 2021
Fair Value [Abstract]  
Fair Value

5. FAIR VALUE

 

GAAP guidance regarding fair value measurements address how companies should measure fair value when they are required to use fair value measures for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement, with Level 1 being the highest priority and Level 3 being the lowest priority.

 

The levels in the hierarchy are defined as follows:

 

Level 1:Inputs to the valuation methodology are observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in an active market;

 

Level 2:Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument;

 

Level 3:Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The Company’s fixed maturity and equity securities are primarily managed by third party investment asset managers. The investment asset managers managing publicly traded securities 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.

 

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. At September 30, 2021, $1,803.0 million of fixed maturities, market value were fair valued using unobservable inputs. The majority of these fixed maturities were valued by investment managers’ valuation committees and many of these fair values were substantiated by valuations from independent third parties. The Company has procedures in place to evaluate these independent third party valuations. At December 31, 2020, $1,330.2 million of fixed maturities, market value were fair valued using unobservable inputs.

 

The Company internally manages a public equity portfolio which had a fair value at September 30, 2021 and December 31, 2020 of $1,253.9 million and $784.7 million, respectively, and all prices were obtained from publicly published sources.

 

Equity securities denominated in U.S. currency with quoted prices in active markets for identical assets are categorized as Level 1 since the quoted prices are directly observable. Equity securities traded on foreign exchanges are categorized as Level 2 due to the added input of a foreign exchange conversion rate to determine fair or market value. The Company uses foreign currency exchange rates published by nationally recognized sources.

 

All categories of fixed maturity securities listed in the tables below are generally categorized as Level 2, 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. For foreign government securities and foreign corporate securities, the fair values provided by the third party pricing services in local currencies, and where applicable, are converted to U.S. dollars using currency exchange rates from nationally recognized sources.

 

In addition to the valuations from investment managers, some of the fixed maturities with fair values categorized as Level 3 result when prices are not available from the nationally recognized pricing services. The asset managers may obtain non-binding price quotes for the securities from brokers. 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. If the broker quotes are for foreign denominated securities, the quotes are converted to U.S. dollars using currency exchange rates from nationally recognized sources. In limited circumstances when broker prices are not available for private placements, the Company will value the securities using comparable market information or receive fair values from investment managers.

 

The composition and valuation inputs for the presented fixed maturities categories Level 1 and Level 2 are as follows:

 

• U.S. Treasury securities and obligations of U.S. government agencies and corporations are primarily comprised of U.S. Treasury bonds and the fair value is based on observable market inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields;

 

• Obligations of U.S. states and political subdivisions are comprised of state and municipal bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;

 

• Corporate securities are primarily comprised of U.S. corporate and public utility bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;

 

• Asset-backed and mortgage-backed securities fair values are based on observable inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using observable inputs such as prepayment speeds, collateral performance and default spreads;

 

• Foreign government securities are comprised of global non-U.S. sovereign bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source;

 

• Foreign corporate securities are comprised of global non-U.S. corporate bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source.

 

The following table presents the fair value measurement levels for all assets and liabilities, which the Company has recorded at fair value (fair and market value) as of the periods 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, 2021

 

(Level 1)

 

(Level 2)

 

(Level 3)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities, market value

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies and corporations

 

$

1,362,822

 

$

-

 

$

1,362,822

 

$

-

Obligations of U.S. States and political subdivisions

 

 

608,375

 

 

-

 

 

608,375

 

 

-

Corporate securities

 

 

7,494,241

 

 

-

 

 

6,700,200

 

 

794,041

Asset-backed securities

 

 

3,305,252

 

 

-

 

 

2,301,183

 

 

1,004,069

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

1,087,870

 

 

-

 

 

1,087,870

 

 

-

Agency residential

 

 

2,246,001

 

 

-

 

 

2,246,001

 

 

-

Non-agency residential

 

 

7,306

 

 

-

 

 

7,306

 

 

-

Foreign government securities

 

 

1,455,145

 

 

-

 

 

1,455,145

 

 

-

Foreign corporate securities

 

 

4,056,107

 

 

-

 

 

4,051,232

 

 

4,875

Total fixed maturities, market value

 

 

21,623,119

 

 

-

 

 

19,820,134

 

 

1,802,985

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities, fair value

 

 

1,523,595

 

 

1,451,271

 

 

72,324

 

 

-

 

 

 

 

 

 

Fair Value Measurement Using:

 

 

 

 

 

Quoted Prices

 

 

 

 

 

 

 

 

 

 

 

in Active

 

Significant

 

 

 

 

 

 

 

 

Markets for

 

Other

 

Significant

 

 

 

 

 

Identical

 

Observable

 

Unobservable

 

 

 

 

 

Assets

 

Inputs

 

Inputs

(Dollars in thousands)

 

December 31, 2020

 

(Level 1)

 

(Level 2)

 

(Level 3)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturities, market value

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities and obligations of

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agencies and corporations

 

$

1,367,106

 

$

-

 

$

1,367,106

 

$

-

Obligations of U.S. States and political subdivisions

 

 

577,295

 

 

-

 

 

577,295

 

 

-

Corporate securities

 

 

7,149,026

 

 

-

 

 

6,447,534

 

 

701,492

Asset-backed securities

 

 

2,565,802

 

 

-

 

 

1,942,769

 

 

623,033

Mortgage-backed securities

 

 

 

 

 

 

 

 

 

 

 

 

Commercial

 

 

990,303

 

 

-

 

 

990,303

 

 

-

Agency residential

 

 

2,267,739

 

 

-

 

 

2,267,739

 

 

-

Non-agency residential

 

 

5,194

 

 

-

 

 

5,194

 

 

-

Foreign government securities

 

 

1,645,375

 

 

-

 

 

1,645,375

 

 

-

Foreign corporate securities

 

 

3,472,333

 

 

-

 

 

3,466,634

 

 

5,699

Total fixed maturities, market value

 

 

20,040,173

 

 

-

 

 

18,709,949

 

 

1,330,224

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities, fair value

 

 

1,472,236

 

 

1,368,704

 

 

103,532

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

In addition, $266.3 million and $224.7 million of investments within other invested assets on the consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively, are not included within the fair value hierarchy tables as the assets are measured at NAV as a practical expedient to determine fair value.

 

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

 

 

 

Total Fixed Maturities, Market Value

 

 

Three Months Ended September 30, 2021

 

Nine Months Ended September 30, 2021

 

 

Corporate

 

Asset-Backed

 

Foreign

 

 

 

 

Corporate

 

Asset-Backed

 

Foreign

 

 

 

(Dollars in thousands)

 

Securities

 

Securities

 

Corporate

 

Total

 

Securities

 

Securities

 

Corporate

 

Total

Beginning balance fixed maturities at market value

 

$

705,571

 

$

815,276

 

$

4,887

 

$

1,525,734

 

$

701,492

 

$

623,033

 

$

5,699

 

$

1,330,224

Total gains or (losses) (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

3,184

 

 

(3,292)

 

 

33

 

 

(75)

 

 

(12,366)

 

 

(7,254)

 

 

173

 

 

(19,447)

Included in other comprehensive income (loss)

 

 

(1,311)

 

 

(381)

 

 

(34)

 

 

(1,726)

 

 

6,107

 

 

4,094

 

 

(70)

 

 

10,131

Purchases, issuances and settlements

 

 

86,597

 

 

192,466

 

 

(12)

 

 

279,051

 

 

98,808

 

 

384,196

 

 

(928)

 

 

482,076

Transfers in and/or (out) of Level 3

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

Ending balance

 

$

794,041

 

$

1,004,069

 

$

4,875

 

$

1,802,984

 

$

794,041

 

$

1,004,069

 

$

4,875

 

$

1,802,984

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

761

 

$

(2,764)

 

$

-

 

$

(2,003)

 

$

(16,518)

 

$

(7,679)

 

$

-

 

$

(24,197)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding.)

 

 

 

 

 

 

 

 

 

 

 

 

Total Fixed Maturities, Market Value

 

 

 

Three Months Ended September 30, 2020

 

 

Nine Months Ended September 30, 2020

 

 

Corporate

 

Asset-Backed

 

Foreign

 

 

 

 

Corporate

 

Asset-Backed

 

Foreign

 

 

 

(Dollars in thousands)

 

Securities

 

Securities

 

Corporate

 

Total

 

Securities

 

Securities

 

Corporate

 

Total

Beginning balance fixed maturities at market value

 

$

721,834

 

$

295,730

 

$

6,274

 

$

1,023,838

 

$

617,588

 

$

153,641

 

$

1,750

 

$

772,979

Total gains or (losses) (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

362

 

 

457

 

 

26

 

 

845

 

 

(100)

 

 

582

 

 

(71)

 

 

411

Included in other comprehensive income (loss)

 

 

(992)

 

 

5,028

 

 

126

 

 

4,162

 

 

(4,898)

 

 

7,238

 

 

86

 

 

2,426

Purchases, issuances and settlements

 

 

(1,349)

 

 

103,574

 

 

139

 

 

102,364

 

 

112,060

 

 

243,328

 

 

3,823

 

 

359,211

Transfers in and/or (out) of Level 3

 

 

4,189

 

 

-

 

 

(863)

 

 

3,326

 

 

(606)

 

 

-

 

 

114

 

 

(492)

Ending balance

 

$

724,044

 

$

404,789

 

$

5,702

 

$

1,134,535

 

$

724,044

 

$

404,789

 

$

5,702

 

$

1,134,535

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

-

 

$

-

 

$

-

 

$

-

 

$

(539)

 

$

-

 

$

-

 

$

(539)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding.)

 

 

Total Fixed Maturities, Fair Value

 

 

Three Months Ended September 30, 2020

 

Nine Months Ended September 30, 2020

 

 

Foreign

 

 

 

 

Foreign

 

 

 

(Dollars in thousands)

 

Corporate

 

Total

 

Corporate

 

Total

Beginning balance fixed maturities at market value

 

$

4,431

 

$

4,431

 

$

5,826

 

$

5,826

Total gains or (losses) (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

 

Included in earnings

 

 

1,371

 

 

1,371

 

 

(24)

 

 

(24)

Included in other comprehensive income (loss)

 

 

-

 

 

-

 

 

-

 

 

-

Purchases, issuances and settlements

 

 

(2,054)

 

 

(2,054)

 

 

(2,054)

 

 

(2,054)

Transfers in and/or (out) of Level 3

 

 

-

 

 

-

 

 

-

 

 

-

Ending balance

 

$

3,748

 

$

3,748

 

$

3,748

 

$

3,748

 

 

 

 

 

 

 

 

 

 

 

 

 

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.)

 There were no net transfers to/(from) level 3, fair value measurements using significant unobservable inputs for fixed maturities, market value for the three and nine months ended September 30, 2021, respectively. The net transfers to/(from) level 3, fair value measurements using significant unobservable inputs for fixed maturities, market value were $3.3 million and ($0.5) million for the three and nine months ended September 30, 2020, respectively. The net transfers of $3.3 million during the three months ended September 30, 2020 were previously priced by a recognized pricing service and were subsequently priced using investment managers as of September 30, 2020. The net transfers of ($0.5) million during the nine months ended September 30, 2020 were related to securities that were previously priced using investment managers and were subsequently priced by a recognized pricing service as of September 30, 2020.

 

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

 

Three Months Ended

 

Nine Months Ended

 

September 30,

 

September 30,

(Dollars in thousands)

2021

 

2020

 

2021

 

2020

Common Stock

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

$

-

 

$

9,877

 

$

-

 

$

-

Total (gains) or losses (realized/unrealized)

 

 

 

 

 

 

 

 

 

 

 

Included in earnings

 

-

 

 

-

 

 

-

 

 

-

Included in other comprehensive income (loss)

 

-

 

 

-

 

 

-

 

 

-

Purchases, issuances and settlements

 

-

 

 

-

 

 

-

 

 

9,877

Transfers in and/or (out) of Level 3

 

-

 

 

(9,877)

 

 

-

 

 

(9,877)

Balance, end of period

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

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 liabilities still held at the reporting date

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

(Some amounts may not reconcile due to rounding.)

The net transfers to/(from) level 3, fair value measurements using significant unobservable inputs for equity securities, fair value were ($9.9) million for both the three and nine months ended September 30, 2020. The transfers of ($9.9) million during both the three and nine months ended September 30, 2020, were related to preferred stock in a private entity purchased during the second quarter of 2020 which was priced at cost as of June 30, 2020 and was subsequently priced based upon the book value of the underlying private entity as of September 30, 2020.