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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2018
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements Recurring fair value measurements In accordance with fair value accounting guidance, we applied the following fair value hierarchy 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 and 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 based on the type of instrument. 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. Level 3 - Valuations derived from valuation techniques in which one or more significant inputs or value drivers are unobservable. 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, or for certain of our equity securities, independent fair market valuations provided to us. 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. Assets measured at fair value, by hierarchy level, as of September 30, 2018 and December 31, 2017 are shown in tables 8.1a and 8.1b below. The fair value of the assets is estimated using the process described above, and more fully in Note 3 - “Significant Accounting Policies” of the notes to the consolidated financial statements in our 2017 Annual Report on Form 10-K.
| Table | 8.1a |  |  |  |  |  |  |  |
Fair value hierarchy - current year |  |  | September 30, 2018
(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 |  | $ | 176,216 |  |  | $ | 29,584 |  |  | $ | 146,632 |  |  | $ | — |
| Obligations of U.S. states and political subdivisions |  | 1,734,606 |  |  | — |  |  | 1,734,529 |  |  | 77 |
| Corporate debt securities |  | 2,255,065 |  |  | — |  |  | 2,255,065 |  |  | — |
| ABS |  | 70,935 |  |  | — |  |  | 70,935 |  |  | — |
| RMBS |  | 154,963 |  |  | — |  |  | 154,963 |  |  | — |
| CMBS |  | 270,220 |  |  | — |  |  | 270,220 |  |  | — |
| CLOs |  | 307,607 |  |  | — |  |  | 307,607 |  |  | — |
| Total fixed income securities |  | 4,969,612 |  |  | 29,584 |  |  | 4,939,951 |  |  | 77 |
| Equity securities |  | 7,720 |  |  | 2,889 |  |  | — |  |  | 4,831 |
| Total investments at fair value |  | $ | 4,977,332 |  |  | $ | 32,473 |  |  | $ | 4,939,951 |  |  | $ | 4,908 |
| Real estate acquired (1) |  | $ | 12,339 |  |  | $ | — |  |  | $ | — |  |  | $ | 12,339 |
| Table | 8.1b |  |  |  |  |  |  |  |
Fair value hierarchy - prior year-end |  |  | December 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 |  | $ | 178,846 |  |  | $ | 81,598 |  |  | $ | 97,248 |  |  | $ | — |
| Obligations of U.S. states and political subdivisions |  | 2,152,524 |  |  | — |  |  | 2,152,253 |  |  | 271 |
| Corporate debt securities |  | 2,066,838 |  |  | — |  |  | 2,066,838 |  |  | — |
| ABS |  | 4,923 |  |  | — |  |  | 4,923 |  |  | — |
| RMBS |  | 181,849 |  |  | — |  |  | 181,849 |  |  | — |
| CMBS |  | 297,312 |  |  | — |  |  | 297,312 |  |  | — |
| CLOs |  | 101,023 |  |  | — |  |  | 101,023 |  |  | — |
| Total fixed income securities |  | 4,983,315 |  |  | 81,598 |  |  | 4,901,446 |  |  | 271 |
| Equity securities (2) |  | 7,246 |  |  | 2,978 |  |  | — |  |  | 4,268 |
| Total investments at fair value |  | $ | 4,990,561 |  |  | $ | 84,576 |  |  | $ | 4,901,446 |  |  | $ | 4,539 |
| Real estate acquired (1) |  | $ | 12,713 |  |  | $ | — |  |  | $ | — |  |  | $ | 12,713 |
(1) | Real estate acquired through claim settlement, which is held for sale, is reported in Other assets on the consolidated balance sheets.
(2) | Equity securities in Level 3 are carried at cost, which approximates fair value. See “Reconciliations of Level 3 assets” below for information regarding a change in presentation of amounts previously included in Level 3 Equity securities.
Reconciliations of Level 3 assets For assets measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the three and nine months ended September 30, 2018 and 2017 is shown in tables 8.2a and 8.2b and 8.3a and 8.3b below. As described in Note 2 - “New Accounting Pronouncements,” under updated guidance regarding the Recognition and Measurement of Financial Assets and Financial Liabilities which became effective on January 1, 2018, our investment in FHLB stock is no longer presented with equity securities. Prior to the updated guidance, our FHLB stock was included in our Level 3 equity securities. As shown in table 8.3a below, for the nine months ended September 30, 2018, we have transferred our FHLB stock out of Level 3 assets, and it is carried at cost, which approximates fair value, on our consolidated balance sheet in “Other invested assets” as of September 30, 2018. 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.
| Table | 8.2a |  |  |  |  |  |  |  |
Development of assets and liabilities classified within level 3 - current year quarter |  |  | Three Months Ended September 30, 2018
(In thousands) |  | Debt Securities |  | Equity Securities |  | Total Investments |  | Real Estate Acquired
Balance at June 30, 2018 |  | $ | 192 |  |  | $ | 1,168 |  |  | $ | 1,360 |  |  | $ | 13,321 |
Total realized gains (losses): |  |  |  |  |  |  |  |  |  |  |  |
| Included in earnings and reported as net realized investment gains |  | — |  |  | 3,663 |  |  | 3,663 |  |  | — |
| Included in earnings and reported as losses incurred, net |  | — |  |  | — |  |  | — |  |  | (450 | )
| Purchases |  | — |  |  | — |  |  | — |  |  | 7,979 |
| Sales |  | (115 | ) |  | — |  |  | (115 | ) |  | (8,511 | )
| Balance at September 30, 2018 |  | $ | 77 |  |  | $ | 4,831 |  |  | $ | 4,908 |  |  | $ | 12,339 |
| Table | 8.2b |  |  |  |  |  |  |  |
Development of assets and liabilities classified within level 3 - prior year quarter |  |  | Three Months Ended September 30, 2017
(In thousands) |  | Debt Securities |  | Equity Securities |  | Total Investments |  | Real Estate Acquired
Balance at June 30, 2017 |  | $ | 577 |  |  | $ | 4,268 |  |  | $ | 4,845 |  |  | $ | 10,271 |
Total realized gains (losses): |  |  |  |  |  |  |  |  |  |  |  |
| Included in earnings and reported as losses incurred, net |  | — |  |  | — |  |  | — |  |  | (592 | )
| Purchases |  | — |  |  | — |  |  | — |  |  | 8,881 |
| Sales |  | (197 | ) |  | — |  |  | (197 | ) |  | (6,832 | )
| Balance at September 30, 2017 |  | $ | 380 |  |  | $ | 4,268 |  |  | $ | 4,648 |  |  | $ | 11,728 |
| Table | 8.3a |  |  |  |  |  |  |  |
Development of assets and liabilities classified within level 3 - current year to date |  |  | Nine Months Ended September 30, 2018
(In thousands) |  | Debt Securities |  | Equity Securities |  | Total Investments |  | Real Estate Acquired
Balance at December 31, 2017 |  | $ | 271 |  |  | $ | 4,268 |  |  | $ | 4,539 |  |  | $ | 12,713 |
Transfers out of Level 3 |  | — |  |  | (3,100 | ) |  | (3,100 | ) |  | — |
| Total realized gains (losses): |  |  |  |  |  |  |  |  |  |  |  |
| Included in earnings and reported as net realized investment gains |  | — |  |  | 3,663 |  |  | 3,663 |  |  | — |
| Included in earnings and reported as losses incurred, net |  | — |  |  | — |  |  | — |  |  | (1,104 | )
| Purchases |  | — |  |  | — |  |  | — |  |  | 24,742 |
| Sales |  | (194 | ) |  | — |  |  | (194 | ) |  | (24,012 | )
| Balance at September 30, 2018 |  | $ | 77 |  |  | $ | 4,831 |  |  | $ | 4,908 |  |  | $ | 12,339 |
| Table | 8.3b |  |  |  |  |  |  |  |
Development of assets and liabilities classified within level 3 - prior year to date |  |  | Nine Months Ended September 30, 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 gains (losses): |  |  |  |  |  |  |  |  |  |  |  |
| Included in earnings and reported as losses incurred, net |  | — |  |  | — |  |  | — |  |  | (818 | )
| Purchases |  | — |  |  | — |  |  | — |  |  | 26,985 |
| Sales |  | (311 | ) |  | — |  |  | (311 | ) |  | (26,187 | )
| Balance at September 30, 2017 |  | $ | 380 |  |  | $ | 4,268 |  |  | $ | 4,648 |  |  | $ | 11,728 |
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. Table 8.4 presents the carrying value and fair value of our financial liabilities disclosed, but not carried, at fair value at September 30, 2018 and December 31, 2017. The fair values of our 5.75% Senior Notes and 9% Convertible Junior Subordinated Debentures were based on observable market prices. The fair value of the FHLB Advance was estimated using cash flows discounted at current incremental borrowing rates for similar borrowing arrangements. In all cases the fair values of the financial liabilities below are categorized as Level 2.
| Table | 8.4 |  |  |  |  |  |  |  |
Fair value measurements - liabilities |  |  | September 30, 2018 |  | December 31, 2017
(In thousands) |  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
FHLB Advance |  | $ | 155,000 |  |  | $ | 148,288 |  |  | $ | 155,000 |  |  | $ | 152,124 |
| 5.75% Senior Notes |  | 419,425 |  |  | 445,430 |  |  | 418,560 |  |  | 465,473 |
| 9% Convertible Junior Subordinated Debentures |  | 256,872 |  |  | 347,458 |  |  | 256,872 |  |  | 353,507 |
| Total financial liabilities |  | $ | 831,297 |  |  | $ | 941,176 |  |  | $ | 830,432 |  |  | $ | 971,104 |

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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 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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