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Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 7. Fair Value Measurements

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

 

 

 

December 31, 2011

 

December 31, 2010

 

 

Carrying

 

Fair

 

Carrying

 

Fair

($ in thousands)

 

Amount

 

Value

 

Amount

 

Value

Financial Assets

 

 

 

 

 

 

 

 

Fixed maturity securities:

 

 

 

 

 

 

 

 

  HTM

$

712,348

 

758,043

 

1,214,324

 

1,256,294

  AFS

 

2,897,373

 

2,897,373

 

2,342,742

 

2,342,742

Equity securities, AFS

 

157,355

 

157,355

 

69,636

 

69,636

Short-term investments

 

217,044

 

217,044

 

161,155

 

161,155

Receivable for proceeds related to sale of Selective HR

 

3,212

 

3,212

 

5,002

 

5,002

Financial Liabilities

 

 

 

 

 

 

 

 

Notes payable:

 

 

 

 

 

 

 

 

  7.25% Senior Notes

 

49,908

 

51,111

 

49,904

 

55,190

  6.70% Senior Notes

 

99,452

 

113,195

 

99,429

 

90,097

  7.50% Junior Notes

 

100,000

 

100,360

 

100,000

 

99,840

  2.90% borrowings from FHLBI

 

13,000

 

13,759

 

13,000

 

13,389

  1.25% borrowings from FHLBI

 

45,000

 

44,629

 

-

 

-

Total notes payable

$

307,360

 

323,054

 

262,333

 

258,516

 

 

For further discussion regarding the fair value valuation techniques for our financial instruments portfolio, refer to Note 2. "Summary of Significant Accounting Policies" in this Form 10-K.

 

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

 

December 31, 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 12/31/11

 

(Level 1)

 

(Level 2)

 

(Level 3)

Description

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

U.S. government and government agencies1

$

353,796

 

126,475

 

205,580

 

21,741

Foreign government

 

34,173

 

-

 

34,173

 

-

Obligations of states and political subdivisions

 

622,659

 

-

 

622,659

 

-

Corporate securities

 

1,213,310

 

-

 

1,210,707

 

2,603

ABS

 

78,949

 

-

 

78,949

 

-

CMBS

 

112,598

 

-

 

112,244

 

354

RMBS

 

481,888

 

-

 

481,888

 

-

   Total AFS fixed maturity securities

 

2,897,373

 

126,475

 

2,746,200

 

24,698

Equity securities

 

157,355

 

157,355

 

-

 

-

Short-term investments

 

217,044

 

217,044

 

-

 

-

Receivable for proceeds related to sale of Selective HR

 

3,212

 

-

 

-

 

3,212

   Total assets

$

3,274,984

 

500,874

 

2,746,200

 

27,910

 

 

 

 

 

 

 

 

 

 

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 assets

$

2,578,535

 

336,108

 

2,237,240

 

5,187

 

 

 

 

 

 

 

 

 

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

 

 

The following table provides a summary of the changes in fair value of securities using level 3 inputs.

 

2011

 

 

($ in thousands)

 

 

 

 

Government

 

 

 

Corporate

 

 

 

CMBS

Receivable for Proceeds Related to Sale of Selective HR

 

 

 

Total

 

 

 

 

 

 

 

Fair value, December 31, 2010

$

-

-

185 

5,002 

5,187 

Total net (losses) gains for the period included in:

 

 

 

 

 

 

    OCI1

 

-

-

507 

- 

507 

    Net income2,3

 

-

-

(322)

(638)

(960)

Purchases

 

-

-

-

-

-

Sales

 

-

-

-

-

-

Issuances

 

-

-

-

-

-

Settlements

 

-

-

(16)

(1,152)

(1,168)

Net transfers in and/or out of Level 3

 

21,741

2,603

- 

- 

24,344 

Fair value, December 31, 2011

$

21,741

2,603

354 

3,212 

27,910 

 

2010

 

 

($ in thousands)

 

 

 

 

ABS

 

 

 

CMBS

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 income2,3

 

- 

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 gains (losses)" for realized gains and losses and "Net investment income earned" for amortization for the CMBS securities on the Consolidated Statements of Income.

3

Amounts are reported in either "Loss on disposal of discontinued operations, net of tax" or "Other income" for the receivable related to the sale of Selective HR on the Consolidated Statements of Income.  Amounts in "Loss on disposal of discontinued operations, net of tax" relate to charges to reduce the fair value of our receivable and amounts in "Other income" related to interest accretion on the receivable.

 

The transfers of the government and corporate securities into level 3 classification at December 31, 2011 were primarily the result of broker-priced securities being transferred from an HTM to an AFS designation in 2011. The transfers in 2010 into the level 3 classification were driven by the availability and nature of the broker quotes used at the valuation dates.