v2.4.0.6
Fair Value Measurements
 6 Months Ended
Jun. 30, 2012
Fair Value, by Balance Sheet Grouping, Methodology and Assumptions [Abstract]  
Fair Value Measurements
Fair Value Measurements
The fair value of the Company’s financial assets and liabilities is determined in accordance with the fair value hierarchy. The fair value of the Company’s Level 1 financial assets consist mainly of investments in equity and fixed-income mutual funds that are quoted daily. Level 2 financial assets consist of Government National Mortgage Association (GNMA) and other U.S. government agency securities that are single issuer pools that are valued based on current market data for the specific issue owned or pools of similar securities. Level 3 financial assets primarily consist of senior note obligations issued by SIVs. The Company had no Level 3 financial liabilities at June 30, 2012 or December 31, 2011. There were no transfers of financial assets between levels within the fair value hierarchy during the six months ended June 30, 2012.
Valuation of GNMA and Other U.S. Government Agency Securities
All of the Company's GNMA and other U.S. government agency securities are held in accounts at well-established financial institutions that utilize the services of independent pricing vendors. These vendors utilize evaluated and industry accepted pricing models that vary by asset class and incorporate available trade, bid and other market information to determine the fair value of the securities. The market inputs normally used for evaluations of securities, listed in approximate order of priority, include: benchmark yields, reported trade, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. The Company records the securities at the prices provided by the independent pricing vendor without adjustment.
Valuation of SIV Securities
The underlying collateral of the SIV securities is mainly comprised of asset-backed securities and collateralized debt obligations. The Company utilizes the services of an independent firm that specializes in securities valuations to assist in determining the fair value of the SIV security owned. Given the lack of any reliable market data on the SIV security, the firm utilized a valuation model that employs a net asset approach which considers the value of the underlying collateral of the SIV security to determine its fair value. Management evaluated the value received from the firm and considered other information, such as the existence of any current market activity, to determine the fair value of the SIV securities. As a result of this evaluation, the Company utilized the fair value of the SIV security without adjustment as provided by the independent valuation firm.
The model used by the independent valuation firm to determine the fair value of the SIV security attempts to value the underlying collateral of the SIV security through the use of industry accepted and proprietary valuation techniques and models. This approach combines advanced analytics with real-time market information that incorporate structural and fundamental analysis, collateral characteristics and recent market developments. Each security that makes up the underlying collateral is specifically identified by its CUSIP or ISIN number and is analyzed by using observable collateral characteristics and credit statistics in order to project future performance and expected cash flows for each individual security. The projected cash flows incorporate assumptions and expectations based upon the foregoing analysis of the collateral characteristics such as, but not limited to, default probabilities, recovery rates, prepayment speeds and loss severities. Expected future cash flows are discounted at an appropriate yield derived from the individual security, structural and collateral characteristics, trading levels and other available market data. Different modeling techniques and associated inputs and assumptions may be used to project future cash flows for each security depending upon the asset classification of that individual security (i.e. residential mortgage-backed security, commercial mortgage-backed security, collateralized debt obligations, etc.). The aggregate value of the discounted cash flows of the underlying collateral is compared to the total remaining par value of the collateral to determine the expected recovery price, or fair value, of the remaining note obligations. Other factors may be considered that are specific to the SIV security that may affect the fair value of the SIV security.
Management may also consider, when available, price quotes from brokers and dealers. If a price quote is available, management will compare this number to the fair value derived from the valuation model of the independent firm giving consideration to other market factors and risk premiums. Given the lack of any significant trading activity for the SIV security owned by the Company, management believes that market prices may not represent the implied fair value of the SIV security owned by the Company.
In the event a market transaction does exist for a SIV security, management evaluates the publicly available information surrounding the transaction in order to assess if the price used represents the fair value for the SIV security. In management’s opinion, the current market for the SIV security does not represent any orderly and efficient market.
The fair value of certain financial assets and liabilities of the Company was determined using the following inputs:
 
 
At June 30, 2012
 
Fair Value Measurements at Reporting Date Using
Assets
Total
 
Quoted Prices
in
Active  Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Equity available-for-sale securities
$
12,453

 
$
12,453

 
$
—

 
$
—

Fixed income available-for-sale securities
68,785

 
—

 
68,785

 
—

Fixed income securities owned
21,057

 
—

 
21,057

 
—

Trading securities
53,253

 
3,865

 
—

 
49,388

 
$
155,548

 
$
16,318

 
$
89,842

 
$
49,388

 
 
At December 31, 2011
 
Fair Value Measurements at Reporting Date Using
Assets
Total
 
Quoted Prices
in
Active  Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Equity available-for-sale securities
$
8,010

 
$
8,010

 
$
—

 
$
—

Fixed income available-for-sale securities
74,998

 
—

 
74,998

 
—

Fixed income securities owned
20,949

 
—

 
20,949

 
—

Trading securities
56,325

 
3,702

 
—

 
52,623

 
$
160,282

 
$
11,712

 
$
95,947

 
$
52,623



The table below presents a reconciliation for all assets and liabilities of the Company measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period from January 1, 2012 to June 30, 2012:
 
 
Trading Securities
Balance, January 1, 2012
$
52,623

Purchases
—

Issuances
—

Principal prepayments and settlements
(7,176
)
Sales
—

Total gains or (losses) (realized/unrealized):
 
Included in earnings
3,941

Included in other comprehensive income
—

Transfers in and out of Level 3
—

Balance, June 30, 2012
$
49,388

The table below presents a reconciliation for all assets and liabilities of the Company measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period from January 1, 2011 to June 30, 2011:
 
 
Trading Securities
Balance, January 1, 2011
$
100,645

Purchases
—

Issuances
—

Principal prepayments and settlements
(10,806
)
Sales
(34,706
)
Total gains or (losses) (realized/unrealized):
 
Included in earnings
4,920

Included in other comprehensive income
—

Transfers in and out of Level 3
—

Balance, June 30, 2011
$
60,053