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Fair Value Measurements | 3 Months Ended
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Mar. 31, 2017
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements The authoritative guidance around fair value established a framework for measuring fair value. Fair value is disclosed using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value and includes Levels 1, 2, and 3. To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized by the independent pricing sources including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including data published in market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation. Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. This model combines all inputs to arrive at a value assigned to each security. Quality controls are performed by the independent pricing sources throughout this process, which include reviewing tolerance reports, trading information, data changes, and directional moves compared to market moves. In addition, on a quarterly basis, we perform quality controls over values received from the pricing sources which also include reviewing tolerance reports, trading information, data changes, and directional moves compared to market moves. We have not made any adjustments to the prices obtained from the independent pricing sources. In accordance with fair value accounting guidance, we applied the following fair value hierarchy in order to measure fair value for assets and liabilities: Level 1 - Quoted prices for identical instruments in active markets that we can access. Financial assets utilizing Level 1 inputs primarily include U.S. Treasury securities, equity securities. Level 2 - Quoted prices for similar instruments in active markets that we can access; quoted prices for identical or similar instruments in markets that are not active; and inputs, other than quoted prices, that are observable in the marketplace for the instrument. The observable inputs are used in valuation models to calculate the fair value of the instruments. Financial assets utilizing Level 2 inputs primarily include obligations of U.S. government corporations and agencies, corporate bonds, mortgage-backed securities, asset-backed securities, and most municipal bonds. The independent pricing sources utilize these approaches to determine the fair value of the instruments in Level 2 of the fair value hierarchy based on type of instrument: Corporate Debt & U.S. Government and Agency Bonds are evaluated by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the evaluation process. Obligations of U.S. States & Political Subdivisions are evaluated by tracking, capturing, and analyzing quotes for active issues and trades reported via the Municipal Securities Rulemaking Board records. Daily briefings and reviews of current economic conditions, trading levels, spread relationships, and the slope of the yield curve provide further data for evaluation. Residential Mortgage-Backed Securities (“RMBS) are evaluated by monitoring interest rate movements, and other pertinent data daily. Incoming market data is enriched to derive spread, yield and/or price data as appropriate, enabling known data points to be extrapolated for valuation application across a range of related securities. Commercial Mortgage-Backed Securities (“CMBS”) are evaluated using valuation techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including quoted prices for similar assets, benchmark yield curves and market corroborated inputs. Evaluation utilizes regular reviews of the inputs for securities covered, including executed trades, broker quotes, credit information, collateral attributes and/or cash flow waterfall as applicable. Asset-Backed Securities (“ABS”) are evaluated using spreads and other information solicited from market buy- and sell-side sources, including primary and secondary dealers, portfolio managers, and research analysts. Cash flows are generated for each tranche, benchmark yields are determined, and deal collateral performance and tranche level attributes including trade activity, bids, and offer are applied, resulting in tranche-specific prices. Collateralized loan obligations ("CLO") are evaluated by manager rating, seniority in the capital structure, assumptions about prepayment, default and recovery and their impact on cash flow generation. Loan level net asset values are determined and aggregated for tranches and as a final step, prices are checked against available recent trade activity. Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or value drivers are unobservable or from par values for equity securities restricted in their ability to be redeemed or sold. The inputs used to derive the fair value of Level 3 securities reflect our own assumptions about the assumptions a market participant would use in pricing an asset or liability. Financial assets utilizing Level 3 inputs primarily include equity securities that can only be redeemed or sold at their par value and only to the security issuer and a state premium tax credit investment. The state premium tax credit investment has an average maturity of less than 2 years, a credit rating of AAA, and its balance reflects its remaining scheduled payments discounted at an average annual rate of 7.1%. Our non-financial assets that are classified as Level 3 securities consist of real estate acquired through claim settlement. The fair value of real estate acquired is the lower of our acquisition cost or a percentage of the appraised value. The percentage applied to the appraised value is based upon our historical sales experience adjusted for current trends. Fair value measurements for assets measured at fair value included the following as of March 31, 2017 and December 31, 2016:
March 31, 2017
(In thousands) |  | Total Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies |  | $ | 60,818 |  |  | $ | 12,431 |  |  | $ | 48,387 |  |  | $ | — |
Obligations of U.S. states and political subdivisions |  | 2,168,450 |  |  | — |  |  | 2,167,767 |  |  | 683 |
Corporate debt securities |  | 1,747,340 |  |  | — |  |  | 1,747,340 |  |  | — |
ABS |  | 37,117 |  |  | — |  |  | 37,117 |  |  | — |
RMBS |  | 212,909 |  |  | — |  |  | 212,909 |  |  | — |
CMBS |  | 294,117 |  |  | — |  |  | 294,117 |  |  | — |
CLOs |  | 121,368 |  |  | — |  |  | 121,368 |  |  | — |
Total debt securities |  | 4,642,119 |  |  | 12,431 |  |  | 4,629,005 |  |  | 683 |
Equity securities (1) |  | 7,162 |  |  | 2,894 |  |  |  |  |  | 4,268 |
Total investment portfolio |  | $ | 4,649,281 |  |  | $ | 15,325 |  |  | $ | 4,629,005 |  |  | $ | 4,951 |
Real estate acquired (2) |  | $ | 10,730 |  |  | $ | — |  |  | $ | — |  |  | $ | 10,730 |
(1) | Equity securities in Level 3 are carried at cost, which approximates fair value.
(2) | Real estate acquired through claim settlement, which is held for sale, is reported in Other assets on the consolidated balance sheets.
December 31, 2016
(In thousands) |  | Total Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies |  | $ | 73,530 |  |  | $ | 30,690 |  |  | $ | 42,840 |  |  | $ | — |
Obligations of U.S. states and political subdivisions |  | 2,143,016 |  |  | — |  |  | 2,142,325 |  |  | 691 |
Corporate debt securities |  | 1,743,910 |  |  | — |  |  | 1,743,910 |  |  | — |
ABS |  | 59,565 |  |  | — |  |  | 59,565 |  |  | — |
RMBS |  | 224,209 |  |  | — |  |  | 224,209 |  |  | — |
CMBS |  | 319,817 |  |  | — |  |  | 319,817 |  |  | — |
CLOs |  | 121,175 |  |  | — |  |  | 121,175 |  |  | — |
Total debt securities |  | 4,685,222 |  |  | 30,690 |  |  | 4,653,841 |  |  | 691 |
Equity securities (1) |  | 7,128 |  |  | 2,860 |  |  | — |  |  | 4,268 |
Total investment portfolio |  | $ | 4,692,350 |  |  | $ | 33,550 |  |  | $ | 4,653,841 |  |  | $ | 4,959 |
Real estate acquired (2) |  | $ | 11,748 |  |  | $ | — |  |  | $ | — |  |  | $ | 11,748 |
(1) | Equity securities in Level 3 are carried at cost, which approximates fair value.
(2) | Real estate acquired through claim settlement, which is held for sale, is reported in Other assets on the consolidated balance sheets.
For assets measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the three months ended March 31, 2017 and 2016 is shown in the following tables. There were no transfers into or out of Level 3 in those periods and there were no losses included in earnings for those periods attributable to the change in unrealized losses on assets still held at the end of the applicable period.
Three Months Ended March 31, 2017
(In thousands) |  | Debt Securities |  | Equity Securities |  | Total Investments |  | Real Estate Acquired
Balance at December 31, 2016 |  | $ | 691 |  |  | $ | 4,268 |  |  | $ | 4,959 |  |  | $ | 11,748 |
Total realized/unrealized gains (losses): |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings and reported as losses incurred, net |  | — |  |  | — |  |  | — |  |  | (163 | )
Purchases |  | — |  |  | — |  |  | — |  |  | 8,683 |
Sales |  | (8 | ) |  | — |  |  | (8 | ) |  | (9,538 | )
Balance at March 31, 2017 |  | $ | 683 |  |  | $ | 4,268 |  |  | $ | 4,951 |  |  | $ | 10,730 |
Three Months Ended March 31, 2016
(In thousands) |  | Debt Securities |  | Equity Securities |  | Total Investments |  | Real Estate Acquired
Balance at December 31, 2015 |  | $ | 1,228 |  |  | $ | 2,855 |  |  | $ | 4,083 |  |  | $ | 12,149 |
Total realized/unrealized gains (losses): |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings and reported as losses incurred, net |  | — |  |  | — |  |  | — |  |  | (293 | )
Purchases |  | — |  |  | 3,091 |  |  | 3,091 |  |  | 12,267 |
Sales |  | (36 | ) |  | (2,525 | ) |  | (2,561 | ) |  | (11,274 | )
Balance at March 31, 2016 |  | $ | 1,192 |  |  | $ | 3,421 |  |  | $ | 4,613 |  |  | $ | 12,849 |
Authoritative guidance over disclosures about the fair value of financial instruments requires additional disclosure for financial instruments not measured at fair value. Certain financial instruments, including insurance contracts, are excluded from these fair value disclosure requirements. The carrying values of cash and cash equivalents (Level 1) and accrued investment income (Level 2) approximated their fair values. Additional fair value disclosures related to our investment portfolio are included in Note 7 – “Investments.” Financial Liabilities Not Measured at Fair Value We incur financial liabilities in the normal course of our business. The following table presents the carrying value and fair value of our financial liabilities disclosed, but not carried, at fair value at March 31, 2017 and December 31, 2016. The fair values of our 5% Notes, 2% Notes, 5.75% Notes, and 9% Debentures were based on observable market prices. The fair value of the FHLB Advance was estimated using discounted cash flows on current incremental borrowing rates for similar borrowing arrangements. The fair value of the amount borrowed under our credit facility approximates its carrying value. In all cases the fair values of the financial liabilities below are categorized as Level 2.
|  | March 31, 2017 |  | December 31, 2016
(In thousands) |  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Financial liabilities: |  |  |  |  |  |  |
Revolving credit facility |  | $ | 150,000 |  |  | $ | 150,000 |  |  | n/a |  |  | n/a |
FHLB Advance |  | 155,000 |  |  | 152,757 |  |  | $ | 155,000 |  |  | $ | 151,905 |
5% Notes |  | 144,948 |  |  | 145,051 |  |  | 144,789 |  |  | 147,679 |
2% Notes |  | 204,900 |  |  | 302,165 |  |  | 204,672 |  |  | 308,605 |
5.75% Notes |  | 417,695 |  |  | 448,906 |  |  | 417,406 |  |  | 445,987 |
9% Debentures |  | 256,872 |  |  | 332,436 |  |  | 256,872 |  |  | 323,040 |
Total financial liabilities |  | $ | 1,329,415 |  |  | $ | 1,531,315 |  |  | $ | 1,178,739 |  |  | $ | 1,377,216 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=49121117&loc=d3e13433-108611 + Details
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