Fair Value Measurements

6 Months Ended

Jun. 30, 2011

NOTE 7. Fair Value Measurements

The following table presents the carrying amounts and estimated fair values of our financial instruments as of June 30, 2011 and December 31, 2010:


		June 30, 2011		December 31, 2010
		Carrying	Fair	Carrying	Fair
($ in thousands)		Amount	Value	Amount	Value
Financial Assets
Fixed maturity securities:
HTM	$	1,070,578	1,120,977	1,214,324	1,256,294
AFS		2,525,237	2,525,237	2,342,742	2,342,742
Equity securities, AFS		136,577	136,577	69,636	69,636
Short-term investments		142,809	142,809	161,155	161,155
Receivable for proceeds related to sale of Selective
HR Solutions ("Selective HR")		4,531	4,531	5,002	5,002
Financial Liabilities
Notes payable:
7.25% Senior Notes		49,906	55,699	49,904	55,190
6.70% Senior Notes		99,440	98,250	99,429	90,097
7.50% Junior Notes		100,000	100,400	100,000	99,840
2.90% borrowings from FHLBI		13,000	13,620	13,000	13,389
Total notes payable	$	262,346	267,969	262,333	258,516

There have been no significant changes to the techniques used to value our financial instruments during Six Months 2011. For a discussion regarding these techniques, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." in our 2010 Annual Report. For discussion of the sale of Selective HR, refer to Note 14. "Discontinued Operations" of this Form 10-Q.

The following tables provide quantitative disclosures of our financial assets that were measured at fair value at June 30, 2011 and December 31, 2010:


June 30, 2011			Fair Value Measurements Using
				Quoted Prices in
		Assets		Active Markets for	Significant Other	Significant
		Measured at		Identical Assets/	Observable	Unobservable
		Fair Value		Liabilities	Inputs	Inputs
($ in thousands)		at 6/30/11		(Level 1)	(Level 2)	(Level 3)
Description
Measured on a recurring basis:
U.S. government and government agencies¹	$	296,931		99,101	197,830	-
Foreign government		30,100		-	30,100	-
Obligations of states and political subdivisions		542,616		-	542,616	-
Corporate securities		1,078,503		-	1,078,503	-
ABS		78,205		-	78,205	-
CMBS		109,124		-	108,683	441
RMBS		389,758		-	389,758	-
Total AFS fixed maturity securities		2,525,237		99,101	2,425,695	441
Equity securities		136,577		136,577	-	-
Short-term investments		142,809		142,809	-	-
Receivable for proceeds related to sale of Selective HR		4,531		-	-	4,531
Total financial assets measured on a recurring basis	$	2,809,154		378,487	2,425,695	4,972


December 31, 2010			Fair Value Measurements Using
				Quoted Prices in
		Assets		Active Markets for	Significant Other	Significant
		Measured at		Identical Assets/	Observable	Unobservable
		Fair Value		Liabilities	Inputs	Inputs
($ in thousands)		at 12/31/10		(Level 1)	(Level 2)	(Level 3)
Description
Measured on a recurring basis:
U.S. government and government agencies¹	$	320,529		105,317	215,212	-
Foreign government		18,966		-	18,966	-
Obligations of states and political subdivisions		533,897		-	533,897	-
Corporate securities		993,725		-	993,725	-
ABS		48,733		-	48,733	-
CMBS		104,475		-	104,290	185
RMBS		322,417		-	322,417	-
Total AFS fixed maturity securities		2,342,742		105,317	2,237,240	185
Equity securities		69,636		69,636	-	-
Short-term investments		161,155		161,155	-	-
Receivable for proceeds related to sale of Selective HR		5,002		-	-	5,002
Total financial assets measured on a recurring basis	$	2,578,535		336,108	2,237,240	5,187

¹ U.S. government includes corporate securities fully guaranteed by the FDIC.

The following tables provide a summary of the changes in fair value of securities using Level 3 inputs. The transfers of the CMBS, AFS securities in 2010 between levels in the fair value hierarchy were driven primarily by the availability and nature of the broker quotes used at the valuation dates:

Six Months 2011 ($ in thousands)		CMBS, AFS	Receivable for Proceeds Related to Sale of Selective HR	Total

Fair value, December 31, 2010	$	185	5,002	5,187
Total net gains (losses) for the period included in:
OCI¹		440	-	440
Net income²		(179)	199	20
Purchases		-	-	-
Sales		-	-	-
Issuances		-	-	-
Settlements		(5)	(670)	(675)
Net transfers in and/or out of Level 3		-	-	-
Fair value, June 30, 2011	$	441	4,531	4,972

2010 ($ in thousands)		ABS, AFS	CMBS, AFS	Receivable for Proceeds Related to Sale of Selective HR	Total

Fair Value, December 31, 2009	$	-	-	12,300	12,300
Total net (losses) gains for the period included in:
OCI¹		(22)	1,862	-	1,840
Net income^2,3		-	41	(5,460)	(5,419)
Purchases, sales, issuances, and settlements (net)		2,737	(148)	(1,838)	751
Net transfers in and/or out of Level 3		(2,715)	(1,570)	-	(4,285)
Fair value, December 31, 2010	$	-	185	5,002	5,187

¹	Amounts are reported in "Other net unrealized gains on investment securities, net of deferred income tax" on the Consolidated Statements of Stockholders' Equity.
²	Amounts are reported in "Net realized investment gains (losses)" for the ABS and CMBS securities and "Other income" for the receivable related to the sale of Selective HR on the Consolidated Statements of Income.
³	Amounts are reported in "Loss on disposal of discontinued operations, net of tax" for the receivable related to sale of Selective HR on the Consolidated Statements of Income.

- Definition

This item represents the complete disclosure regarding the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, 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 Company 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 risk is 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.

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