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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2012

The Carrying Amounts and Estimated Fair Values of Financial Instruments



	June 30, 2012			December 31, 2011
($ in thousands)	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Financial Assets
Fixed maturity securities:
HTM	$	643,501	687,981	712,348	758,043
AFS	3,123,006		3,123,006	2,897,373	2,897,373
Equity securities, AFS	148,117		148,117	157,355	157,355
Short-term investments	135,823		135,823	217,044	217,044
Receivable for proceeds related to sale of Selective HR Solutions (“Selective HR”)	2,894		2,894	3,212	3,212
Financial Liabilities
Notes payable:
7.25% Senior Notes	49,910		59,534	49,908	51,111
6.70% Senior Notes	99,463		112,569	99,452	113,195
7.50% Junior Notes	100,000		100,880	100,000	100,360
2.90% borrowings from FHLBI	13,000		13,683	13,000	13,759
1.25% borrowings from FHLBI	45,000		45,121	45,000	44,629
Total notes payable	$	307,373	331,787	307,360	323,054

Quantitative Disclosures of Our Financial Assets That Were Measured At Fair Value



June 30, 2012			Fair Value Measurements Using
($ in thousands)	Assets Measured at Fair Value at 6/30/12		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)¹	Significant Other Observable Inputs (Level 2)¹	Significant Unobservable Inputs (Level 3)
Description
Measured on a recurring basis:
U.S. government and government agencies²	$	287,996	129,555	138,275	20,166
Foreign government	42,782		—	42,782	—
Obligations of states and political subdivisions	736,501		—	736,501	—
Corporate securities	1,348,747		—	1,345,676	3,071
ABS	94,809		—	94,809	—
CMBS	118,043		—	113,368	4,675
RMBS	494,128		—	494,128	—
Total AFS fixed maturity securities	3,123,006		129,555	2,965,539	27,912
Equity securities	148,117		144,510	—	3,607
Short-term investments	135,823		135,823	—	—
Receivable for proceeds related to sale of Selective HR	2,894		—	—	2,894
Total assets	$	3,409,840	409,888	2,965,539	34,413



December 31, 2011			Fair Value Measurements Using
($ in thousands)	Assets Measured at Fair Value at 12/31/11		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)¹	Significant Other Observable Inputs (Level 2)¹	Significant Unobservable Inputs (Level 3)
Description
Measured on a recurring basis:
U.S. government and government agencies²	$	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


¹	There were no transfers of securities between Level 1 and Level 2 in Six Months 2012 and in Six Months 2011.


²	U.S. government includes corporate securities fully guaranteed by the FDIC.

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 income^2,3	—		—	(322	)	(638	)	(960	)
Purchases	—		—	—		—		—
Sales	—		—	—		—		—
Issuances	—		—	—		—		—
Settlements	—		—	(16	)	(1,152	)	(1,168	)
Transfers into Level 3	21,741		2,603	—		—		24,344
Transfers out of Level 3	—		—	—		—		—
Fair value, December 31, 2011	$	21,741	2,603	354		3,212		27,910

¹Amounts are reported in “Other net unrealized gains on investment securities, net of deferred income tax” on the Consolidated Statements of Stockholders’ Equity in our 2011 Annual Report.

²Amounts 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 in our 2011 Annual Report.

³Amounts 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” related to charges to reduce the fair value of our receivable, and amounts in “Other income” related to interest accretion on the receivable in our 2011 Annual Report.



Six Months 2012
($ in thousands)	Government			Corporate		CMBS	Equity	Receivable for Proceeds Related to Sale of Selective HR		Total
Fair value, December 31, 2011	$	21,741		2,603		354	—	3,212		27,910
Total net (losses) gains for the period included in:
OCI¹	270			107		128	—	—		505
Net income^2,3	(107		)	—		—	—	127		20
Purchases	—			—		—	—	—		—
Sales	—			—		—	—	—		—
Issuances	—			—		—	—	—		—
Settlements	(1,738		)	(427	)	—	—	(445	)	(2,610	)
Transfers into Level 3	—			788		4,193	3,607	—		8,588
Transfers out of Level 3	—			—		—	—	—		—
Fair value, June 30, 2012	$	20,166		3,071		4,675	3,607	2,894		34,413

¹Amounts are reported in “Unrealized holding gains arising during period” on the Consolidated Statements of Comprehensive Income.

²Amounts are reported in “Net realized gains (losses)” for realized gains and losses and “Net investment income earned” for amortization of securities on the Consolidated Statements of Income.

³Amounts are reported in “Other income” for the receivable related to the sale of Selective HR on the Consolidated Statements of Income, and are related to interest accretion on the receivable.

Quantitative Information of Our Financial Assets and Liabilities That Were Disclosed at Fair Value



June 30, 2012			Fair Value Measurements Using
($ in thousands)	Assets/ Liabilities Disclosed at Fair Value at 6/30/12		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Financial Assets
HTM:
Foreign government	$	5,439	—	5,439	—
Obligations of states and political subdivisions	599,286		—	599,286	—
Corporate securities	61,977		—	57,049	4,928
ABS	7,537		—	5,945	1,592
CMBS	13,742		—	13,742	—
Total HTM fixed maturity securities	$	687,981	—	681,461	6,520
Financial Liabilities
Notes payable:
7.25% Senior Notes	$	59,534	59,534	—	—
6.70% Senior Notes	112,569		112,569	—	—
7.50% Junior Notes	100,880		100,880	—	—
2.90% borrowings from FHLBI	13,683		—	13,683	—
1.25% borrowings from FHLBI	45,121		—	45,121	—
Total notes payable	$	331,787	272,983	58,804	—

- Definition

Tabular disclosure of assets, including [financial] instruments measured at fair value that are classified in stockholders' equity, if any, by class that are measured at fair value on a recurring and/or nonrecurring basis. The disclosures contemplated herein include the fair value measurements at the reporting date by the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3).

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- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income, and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (2) purchases, sales, issuances, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of 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 certain disclosures about the financial instruments, assets, and liabilities include: (1) the fair value of the required items together with their carrying amounts (as appropriate) and (2) the methodology and assumptions used in developing such estimates of fair value.

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