XML 136 R15.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value Measurements
 6 Months Ended
Jun. 30, 2013
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
The following table presents the carrying amounts and estimated fair values of our financial instruments as of June 30, 2013 and December 31, 2012:
 
 
June 30, 2013
 
December 31, 2012
($ in thousands)
 
Carrying Amount
 
Fair
Value
 
Carrying Amount
 
Fair
Value
Financial Assets
 
 

 
 

 
 

 
 

Fixed maturity securities:
 
 

 
 

 
 

 
 

HTM
 
$
479,507

 
507,625

 
554,069

 
594,661

AFS
 
3,419,811

 
3,419,811

 
3,296,013

 
3,296,013

Equity securities, AFS
 
172,064

 
172,064

 
151,382

 
151,382

Short-term investments
 
186,499

 
186,499

 
214,479

 
214,479

Receivable for proceeds related to sale of Selective HR Solution (“Selective HR”)
 
—

 
—

 
2,705

 
2,705

Financial Liabilities
 
 

 
 

 
 

 
 

Notes payable:
 
 

 
 

 
 

 
 

2.90% borrowings from FHLBI
 
13,000

 
13,451

 
13,000

 
13,595

1.25% borrowings from FHLBI
 
45,000

 
44,927

 
45,000

 
45,590

7.50% Junior Notes
 
—

 
—

 
100,000

 
101,480

6.70% Senior Notes
 
99,486

 
109,000

 
99,475

 
107,707

7.25% Senior Notes
 
49,914

 
52,994

 
49,912

 
52,689

5.875% Senior Notes
 
185,000

 
170,644

 
—

 
—

Total notes payable
 
$
392,400

 
391,016

 
307,387

 
321,061


 
The fair values of our financial assets and liabilities are generated using various valuation techniques and are placed into the fair value hierarchy considering the following: (i) the highest priority is given to quoted prices in active markets for identical assets (Level 1); (ii) the next highest priority is given to quoted prices in markets that are not active or inputs that are observable either directly or indirectly, including quoted prices for similar assets in markets that are not active and other inputs that can be derived principally from, or corroborated by, observable market data for substantially the full term of the assets (Level 2); and (iii) the lowest priority is given to unobservable inputs supported by little or no market activity and that reflect our assumptions about the exit price, including assumptions that market participants would use in pricing the asset (Level 3). An asset or liability's classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. Transfers between levels in the fair value hierarchy are recognized at the end of the reporting period.

For a discussion of the techniques used to value the majority of our financial assets and liabilities, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2012 Annual Report. The 5.875% Senior Notes were valued based on a quoted market price (Level 1). The fair value at June 30, 2013 of the 6.70% Senior Notes due November 1, 2035 is based on a matrix pricing model prepared by an external pricing service due to the availability and nature of the pricing at the valuation date (Level 2).

The following tables provide quantitative disclosures of our financial assets that were measured at fair value at June 30, 2013 and December 31, 2012:
 
June 30, 2013
 
 
 
Fair Value Measurements Using
($ in thousands)
 
Assets
 Measured at
 Fair Value
 at 6/30/13
 
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:
 
 

 
 

 
 

 
 

AFS:
 
 
 
 
 
 
 
 
U.S. government and government agencies
 
$
177,994

 
48,236

 
129,758

 
—

Foreign government
 
29,670

 
—

 
29,670

 
—

Obligations of states and political subdivisions
 
894,318

 
—

 
894,318

 
—

Corporate securities
 
1,523,971

 
—

 
1,523,971

 
—

ABS
 
155,426

 
—

 
155,426

 
—

CMBS
 
135,584

 
—

 
133,953

 
1,631

RMBS
 
502,848

 
—

 
502,848

 
—

Total AFS fixed maturity securities
 
3,419,811

 
48,236

 
3,369,944

 
1,631

Equity securities
 
172,064

 
169,164

 
—

 
2,900

Short-term investments
 
186,499

 
186,499

 
—

 
—

 
 
 
 
 
 
 
 
 
Measured on a non-recurring basis:
 
 
 
 
 
 
 
 
ABS, HTM2
 
335

 
—

 
335

 
—

Total assets
 
$
3,778,709

 
403,899

 
3,370,279

 
4,531


1
There were no transfers of securities between Level 1 and Level 2.
2 
As of June 30, 2013, as the result of our OTTI analysis, we impaired one ABS HTM security down to fair value, which is typically not carried at fair value.
 
December 31, 2012
 
 
 
Fair Value Measurements Using
($ in thousands)
 
Assets
 Measured at
Fair Value
at 12/31/12
 
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:
 
 

 
 

 
 

 
 

AFS:
 
 
 
 
 
 
 
 
U.S. government and government agencies
 
$
259,092

 
115,861

 
123,442

 
19,789

Foreign government
 
30,229

 
—

 
30,229

 
—

Obligations of states and political subdivisions
 
818,024

 
—

 
818,024

 
—

Corporate securities
 
1,450,247

 
—

 
1,447,301

 
2,946

ABS
 
128,640

 
—

 
122,572

 
6,068

CMBS
 
137,119

 
—

 
129,957

 
7,162

RMBS
 
472,662

 
—

 
472,662

 
—

Total AFS fixed maturity securities
 
3,296,013

 
115,861

 
3,144,187

 
35,965

Equity securities
 
151,382

 
147,775

 
—

 
3,607

Short-term investments
 
214,479

 
214,479

 
—

 
—

Receivable for proceeds related to sale of Selective HR
 
2,705

 
—

 
—

 
2,705

Total assets
 
$
3,664,579

 
478,115

 
3,144,187

 
42,277

1 
There were no transfers of securities between Level 1 and Level 2.

 
The following tables provide a summary of the changes in the fair value of securities measured using Level 3 inputs and related quantitative information for the periods ended June 30, 2013 and December 31, 2012:

Six Months 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($ in thousands)
 
Government
 
Corporate
 
ABS
 
CMBS
 
Equity
 
Receivable for
Proceeds
Related to Sale
of Selective HR
 
Total
Fair value, December 31, 2012
 
$
19,789

 
2,946

 
6,068

 
7,162

 
3,607

 
2,705

 
42,277

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

 
 

 
 
 
 

 
 
 
 

 
 
OCI1
 
(537
)
 
(7
)
 
(266
)
 
684

 
3,935

 
—

 
3,809

Net income2,3
 
(76
)
 
—

 
—

 
351

 
—

 
(1,480
)
 
(1,205
)
Purchases
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Sales
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Issuances
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Settlements
 
(1,847
)
 
(168
)
 
—

 
(1,581
)
 
—

 
(225
)
 
(3,821
)
Transfers into Level 3
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Transfers out of Level 3
 
(17,329
)
 
(2,771
)
 
(5,802
)
 
(4,985
)
 
(4,642
)
 
(1,000
)
 
(36,529
)
Fair value, June 30, 2013
 
$
—

 
—

 
—

 
1,631

 
2,900

 
—

 
4,531

1 Amounts are reported in “Unrealized holding (losses) gains arising during period” on the Consolidated Statements of Comprehensive Income.
2 Amounts are reported in “Net realized gains” for realized gains and “Net investment income earned” for amortization of securities on the Consolidated Statements of Income.
3 For the receivable related to the sale of Selective HR, amounts in “Loss on disposal of discontinued operations, net of tax” relate to an impairment charge and amounts in “Other income” relate to interest accretion on the Consolidated Statements of Income.

December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
 
 
 
($ in thousands)
 
Government
 
Corporate
 
ABS
 
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
 
(22
)
 
185

 
68

 
858

 
—

 
—

 
1,089

Net income2,3
 
(193
)
 
—

 
—

 
(51
)
 
—

 
244

 
—

Purchases
 
—

 
—

 
7,300

 
5,611

 
—

 
—

 
12,911

Sales
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Issuances
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Settlements
 
(1,737
)
 
(630
)
 
—

 
(624
)
 
—

 
(751
)
 
(3,742
)
Transfers into Level 3
 
—

 
788

 
—

 
8,247

 
3,607

 
—

 
12,642

Transfers out of Level 3
 
—

 
—

 
(1,300
)
 
(7,233
)
 
—

 
—

 
(8,533
)
Fair value, December 31, 2012
 
$
19,789

 
2,946

 
6,068

 
7,162

 
3,607

 
2,705

 
42,277


1 Amounts are reported in “Unrealized holding gains arising during period” on the Consolidated Statements of Comprehensive Income in our 2012 Annual Report.
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 in our 2012 Annual Report.
3 Amounts are reported in “Other income” for the receivable related to the sale of Selective HR on the Consolidated Statements of Income in our 2012 Annual Report and are related to interest accretion on the receivable.

As discussed in Note 2. "Summary of Significant Accounting Policies," in Item 8. "Financial Statements and Supplementary Data." in our 2012 Annual Report, the fair value of our Level 3 fixed maturity securities is typically obtained through non-binding broker quotes based on unobservable inputs, which we review for reasonableness. At June 30, 2013 and December 31, 2012, fixed maturity securities with aggregate fair values of $1.6 million and $36.0 million, respectively, were measured using Level 3 inputs primarily due to the availability and nature of the pricing used at the valuation dates.

During Six Months 2013, fixed maturity securities with a fair value of $30.9 million were transferred out of Level 3 due to the availability of Level 2 pricing at June 30, 2013 that was not available previously.

In 2012, fixed maturity securities with a fair value of $9.0 million were transferred into Level 3 during the year. These transfers were primarily related to securities that had been previously priced using Level 2 inputs, but due to the availability and nature of the pricing used at the valuation dates, were priced using Level 3 inputs at December 31, 2012. In addition, certain of these transfers related to securities that had previously been classified as HTM, and therefore not measured at fair value, for which available pricing at December 31, 2012 used Level 3 inputs. Securities with a fair value of $8.5 million were transferred out of Level 3 due to the availability of Level 2 pricing at December 31, 2012 that was not available previously.
  
Equity securities with fair values of $2.9 million and $3.6 million were measured using Level 3 inputs at June 30, 2013 and December 31, 2012, respectively. During 2012, two non-publicly traded equity securities were transferred into Level 3 due to the nature of the quotes used at the valuation date. One of these securities was transferred out of Level 3 and into Level 2 at March 31, 2013, as the pricing as of that date was based on a quoted price in an inactive market. This security was subsequently sold in Second Quarter 2013 for an amount that approximated the March 31, 2013 value. At each reporting date, we review the fair values on the remaining Level 3 security for reasonableness.

At December 31, 2012, the receivable related to the sale of Selective HR was contingent on the purchaser's ability to retain business subsequent to the sale. At that time, the fair value of this receivable was measured using unobservable inputs, the most significant of which was our assumption regarding the retention of business. In Six Months 2013, we reached an agreement with the purchaser to settle this receivable for an aggregate of $1.0 million, which was paid in two installments. As a result, the receivable was transferred out of Level 3 and we have subsequently received the $1.0 million. See Note 12. "Discontinued Operations" of this Form 10-Q for a discussion of the impairment charge that was recorded on this receivable in the first quarter of 2013.


   


The following tables provide quantitative information regarding our financial assets and liabilities that were disclosed at fair value at June 30, 2013 and December 31, 2012:
June 30, 2013
 
 
 
Fair Value Measurements Using
($ in thousands)
 
Assets/
Liabilities
Disclosed at
Fair Value at 6/30/2013
 
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
 
$
5,658

 
—

 
5,658

 
—

Obligations of states and political subdivisions
 
446,893

 
—

 
446,893

 
—

Corporate securities
 
38,881

 
—

 
38,881

 
—

ABS
 
6,245

 
—

 
5,049

 
1,196

CMBS
 
9,613

 
—

 
9,613

 
—

Total HTM fixed maturity securities
 
$
507,290

 
—

 
506,094

 
1,196

Financial Liabilities
 
 

 
 

 
 

 
 

Notes payable:
 
 

 
 

 
 

 
 

2.90% borrowings from FHLBI
 
$
13,451

 
—

 
13,451

 
—

1.25% borrowings from FHLBI
 
44,927

 
—

 
44,927

 
—

6.70% Senior Notes
 
109,000

 
—

 
109,000

 
—

7.25% Senior Notes
 
52,994

 
—

 
52,994

 
—

5.875% Senior Notes
 
170,644

 
170,644

 
—

 
—

Total notes payable
 
$
391,016

 
170,644

 
220,372

 
—

December 31, 2012
 
 
 
Fair Value Measurements Using
($ in thousands)
 
Assets/
Liabilities
Disclosed at
Fair Value at 12/31/2012
 
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
 
$
5,871

 
—

 
5,871

 
—

Obligations of states and political subdivisions
 
526,922

 
—

 
526,922

 
—

Corporate securities
 
42,121

 
—

 
37,289

 
4,832

ABS
 
7,097

 
—

 
5,698

 
1,399

CMBS
 
12,650

 
—

 
12,650

 
—

Total HTM fixed maturity securities
 
$
594,661

 
—

 
588,430

 
6,231

Financial Liabilities
 
 

 
 
 
 
 
 
Notes payable:
 
 

 
 
 
 
 
 
2.90% borrowings from FHLBI
 
$
13,595

 
—

 
13,595

 
—

1.25% borrowings from FHLBI
 
45,590

 
—

 
45,590

 
—

7.50% Junior Notes
 
101,480

 
101,480

 
—

 
—

6.70% Senior Notes
 
107,707

 
107,707

 
—

 
—

7.25% Senior Notes
 
52,689

 
—

 
52,689

 
—

Total notes payable
 
$
321,061

 
209,187

 
111,874

 
—