Fair Value Measurements

The following table presents the carrying amounts and estimated fair values of our financial instruments as of December 31, 2014 and 2013:



	December 31, 2014			December 31, 2013
($ in thousands)	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Financial Assets
Fixed income securities:
HTM	$	318,137	333,961	392,879	416,981
AFS	4,066,122		4,066,122	3,715,536	3,715,536
Equity securities, AFS	191,400		191,400	192,771	192,771
Short-term investments	131,972		131,972	174,251	174,251
Financial Liabilities
Notes payable:
2.90% borrowings from FHLBI	—		—	13,000	13,319
1.25% borrowings from FHLBI	45,000		45,244	45,000	45,259
7.25% Senior Notes	49,896		59,181	49,916	50,887
6.70% Senior Notes	99,401		114,845	99,498	98,247
5.875% Senior Notes	185,000		185,000	185,000	146,298
Total notes payable	$	379,297	404,270	392,414	354,010

For discussion regarding the fair value techniques of our financial instruments, 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, 2014 and 2013:



December 31, 2014			Fair Value Measurements Using
($ in thousands)	Assets Measured at Fair Value 12/31/14		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	$	124,130	53,199	70,931	—
Foreign government	27,831		—	27,831	—
Obligations of states and political subdivisions	1,246,264		—	1,246,264	—
Corporate securities	1,799,806		—	1,799,806	—
ABS	177,224		—	177,224	—
CMBS	179,593		—	179,593	—
RMBS	511,274		—	511,274	—
Total fixed income securities	4,066,122		53,199	4,012,923	—
Equity securities	191,400		188,500	—	2,900
Total AFS securities	4,257,522		241,699	4,012,923	2,900
Short-term investments	131,972		131,972	—	—
Total assets	$	4,389,494	373,671	4,012,923	2,900



December 31, 2013			Fair Value Measurements Using
($ in thousands)	Assets Measured at Fair Value 12/31/13		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	$	173,375	52,153	121,222	—
Foreign government	30,615		—	30,615	—
Obligations of states and political subdivisions	951,624		—	951,624	—
Corporate securities	1,734,883		—	1,734,883	—
ABS	140,896		—	140,896	—
CMBS	171,284		—	171,284	—
RMBS	512,859		—	512,859	—
Total fixed income securities	3,715,536		52,153	3,663,383	—
Equity securities	192,771		189,871	—	2,900
Total AFS securities	3,908,307		242,024	3,663,383	2,900
Short-term investments	174,251		174,251	—	—
Total assets	$	4,082,558	416,275	3,663,383	2,900

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

There were no changes in the fair value of securities measured using Level 3 prices during 2014. The following

table provides a summary of these changes during 2013:



2013
($ in thousands)	Government			Corporate		ABS		CMBS		Equity		Receivable for Proceeds Related to Sale of Selective HR Solutions ("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	)	(74	)	772		3,935		—		4,089
Net income^2,3	(76		)	—		—		361		—		(1,480	)	(1,195	)
Purchases	—			—		—		—		—		—		—
Sales	—			—		—		—		—		—		—
Issuances	—			—		—		—		—		—		—
Settlements	(1,847		)	(168	)	—		(2,420	)	—		(225	)	(4,660	)
Transfers into Level 3	—			—		—		—		—		—		—
Transfers out of Level 3	(17,329		)	(2,771	)	(5,994	)	(5,875	)	(4,642	)	(1,000	)	(37,611	)
Fair value, December 31, 2013	$	—		—		—		—		2,900		—		2,900

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

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

³For 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.

As discussed in Note 2. "Summary of Significant Accounting Policies," in this Form 10-K, the fair value of our Level 3 fixed income securities are typically obtained through non-binding broker quotes, which we review for reasonableness. At December 31, 2014 and December 31, 2013, there were no fixed income securities that were measured using Level 3 inputs. However, during 2013, securities with a fair value of $32.0 million were transferred out of Level 3 due to the availability of Level 2 pricing at December 31, 2013 that was not available previously.

Equity securities with a fair value of $2.9 million were measured using Level 3 inputs at December 31, 2014 and at

December 31, 2013. An equity security with a fair value of $4.6 million was transferred out of Level 3 during 2013 due to the availability of Level 2 pricing at the date of transfer. This security was subsequently sold for an amount that approximated the value at the transfer date. In addition, the receivable related to the sale of Selective HR was settled during 2013 and as a result was transferred out of Level 3.

The following tables provide quantitative information regarding our financial assets and liabilities that were disclosed at fair value at December 31, 2014 and 2013:



December 31, 2014			Fair Value Measurements Using
($ in thousands)	Assets/Liabilities Disclosed at Fair Value 12/31/2014		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	$	5,394	—	5,394	—
Obligations of states and political subdivisions	299,132		—	299,132	—
Corporate securities	21,422		—	21,422	—
ABS	2,823		—	2,823	—
CMBS	5,190		—	5,190	—
Total HTM fixed income securities	$	333,961	—	333,961	—
Financial Liabilities
Notes payable:
1.25% borrowings from FHLBI	45,244		—	45,244	—
7.25% Senior Notes	59,181		—	59,181	—
6.70% Senior Notes	114,845		—	114,845	—
5.875% Senior Notes	185,000		185,000	—	—
Total notes payable	$	404,270	185,000	219,270	$	—



December 31, 2013			Fair Value Measurements Using
($ in thousands)	Assets/Liabilities Disclosed at Fair Value 12/31/2013		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	$	5,591	—	5,591	—
Obligations of states and political subdivisions	369,756		—	369,756	—
Corporate securities	30,274		—	30,274	—
ABS	3,415		—	3,415	—
CMBS	7,945		—	7,945	—
Total HTM fixed income securities	$	416,981	—	416,981	—
Financial Liabilities
Notes payable:
2.90% borrowings from FHLBI	13,319		—	13,319	—
1.25% borrowings from FHLBI	45,259		—	45,259	—
7.25% Senior Notes	50,887		—	50,887	—
6.70% Senior Notes	98,247		—	98,247	—
5.875% Senior Notes	146,298		146,298	—	—
Total notes payable	$	354,010	146,298	207,712	—