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Fair Value Measurements

3 Months Ended

Mar. 31, 2023

The financial assets in our investment portfolio are primarily measured at fair value as disclosed on the Consolidated Balance Sheets. The following table presents the carrying amounts and fair values of our financial liabilities as of March 31, 2023, and December 31, 2022:


	March 31, 2023			December 31, 2022
($ in thousands)	Carrying Amount		Fair Value	Carrying Amount	Fair Value
Financial Liabilities







Long-term debt:
7.25% Senior Notes	$	49,923	54,209	49,921	51,705
6.70% Senior Notes	99,547		104,484	99,542	99,264

5.375% Senior Notes	294,448		278,321	294,424	258,459
3.03% borrowings from FHLBI	60,000		57,724	60,000	57,175
Subtotal long-term debt	503,918		494,738	503,887	466,603
Unamortized debt issuance costs	(2,871)			(2,929)
Finance lease obligations	3,103			3,718
Total long-term debt	$	504,150		504,676

For discussion regarding the fair value techniques of our financial instruments, refer to Note 2. "Summary of Significant Accounting Policies" in Item 8. "Financial Statements and Supplementary Data." of our 2022 Annual Report.

The following tables provide quantitative disclosures of our financial assets that were measured and recorded at fair value at March 31, 2023, and December 31, 2022:


March 31, 2023			Fair Value Measurements Using
($ in thousands)	Assets Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets/ Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Description
Measured on a recurring basis:
AFS fixed income securities:
U.S. government and government agencies	$	343,370	193,922	149,448	—
Foreign government	9,887		—	9,887	—
Obligations of states and political subdivisions	682,083		—	675,209	6,874
Corporate securities	2,447,950		—	2,236,365	211,585
CLO and other ABS	1,530,135		—	1,350,377	179,758
RMBS	1,301,656		—	1,301,656	—
CMBS	649,435		—	646,199	3,236
Total AFS fixed income securities	6,964,516		193,922	6,369,141	401,453
Equity securities:
Common stock1	130,460		21,969	—	628
Preferred stock	1,715		1,715	—	—
Total equity securities	132,175		23,684	—	628
Short-term investments	302,750		299,543	3,207	—
Total assets measured at fair value	$	7,399,441	517,149	6,372,348	402,081


December 31, 2022			Fair Value Measurements Using
($ in thousands)	Assets Measured at Fair Value		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Description
Measured on a recurring basis:
AFS fixed income securities:
U.S. government and government agencies	$	189,239	109,240	79,999	—
Foreign government	9,608		—	9,608	—
Obligations of states and political subdivisions	918,018		—	911,357	6,661
Corporate securities	2,335,025		—	2,147,045	187,980
CLO and other ABS	1,485,973		—	1,332,631	153,342
RMBS	1,059,832		—	1,059,832	—
CMBS	614,412		—	614,037	375
Total AFS fixed income securities	6,612,107		109,240	6,154,509	348,358
Equity securities:
Common stock1	160,355		55,846	—	897
Preferred stock	1,645		1,645	—	—
Total equity securities	162,000		57,491	—	897
Short-term investments	440,456		418,199	22,257	—
Total assets measured at fair value	$	7,214,563	584,930	6,176,766	349,255

1Investments amounting to $107.9 million at March 31, 2023, and $103.6 million at December 31, 2022, were measured at fair value using the net asset value per share (or its practical expedient) and have not been classified in the fair value hierarchy. These investments are not redeemable and the timing of liquidations of the underlying assets is unknown at each reporting period. The fair value amounts in this table are intended to permit reconciliation of the fair value hierarchy to total assets measured at fair value.

The following tables provide a summary of Level 3 changes in First Quarter 2023 and First Quarter 2022:


Quarter Ended March 31, 2023
($ in thousands)	Obligations of States and Political Subdivisions		Corporate Securities	CLO and Other ABS	CMBS	Common Stock	Total
Fair value, December 31, 2022	$	6,661	187,980	153,342	375	897	349,255
Total net gains (losses) for the period included in:
Other comprehensive income (loss) ("OCI")	152		2,405	696	17	—	3,270
Net realized and unrealized gains (losses)	61		72	(73)	—	(269)	(209)
Net investment income earned	—		12	(32)	(1)	—	(21)
Purchases	—		24,799	13,403	—	—	38,202
Sales	—		—	—	—	—	—
Issuances	—		—	—	—	—	—
Settlements	—		(4,044)	(1,192)	(3)	—	(5,239)
Transfers into Level 3	—		361	14,148	2,848	—	17,357
Transfers out of Level 3	—		—	(534)	—	—	(534)
Fair value, March 31, 2023	$	6,874	211,585	179,758	3,236	628	402,081

Change in unrealized gains (losses) for the period included in earnings for assets held at period end	61		72	(73)	—	(269)	(209)
Change in unrealized gains (losses) for the period included in OCI for assets held at period end	152		2,405	696	17	—	3,270


Quarter Ended March 31, 2022
($ in thousands)	Obligation of state and Political Subdivisions		Corporate Securities	CLO and Other ABS	RMBS	CMBS	Total
Fair value, December 31, 2021	$	7,745	114,127	124,909	245	4,256	251,282
Total net gains (losses) for the period included in:
OCI	(343)		(6,529)	(4,335)	(17)	(415)	(11,639)
Net realized and unrealized gains (losses)	(157)		(1,809)	(472)	—	(7)	(2,445)
Net investment income earned	—		4	15	—	47	66
Purchases	—		2,964	27,033	—	—	29,997
Sales	—		—	—	—	—	—
Issuances	—		—	—	—	—	—
Settlements	—		(69)	(136)	(11)	(11)	(227)
Transfers into Level 3	—		17,055	—	—	—	17,055
Transfers out of Level 3	—		(2,941)	(16,096)	(217)	(3,431)	(22,685)
Fair value, March 31, 2022	$	7,245	122,802	130,918	—	439	261,404

Change in unrealized gains (losses) for the period included in earnings for assets held at period end	(157)		(1,809)	(472)	—	(7)	(2,445)
Change in unrealized gains (losses) for the period included in OCI for assets held at period end	(343)		(6,529)	(4,335)	(17)	(415)	(11,639)

The following tables present quantitative information about the significant unobservable inputs used in the fair value measurements of Level 3 assets at March 31, 2023, and December 31, 2022:

March 31, 2023

($ in thousands)

Assets Measured at Fair Value

Valuation Techniques

Unobservable Inputs

Range

Weighted Average

Internal valuations:

Corporate securities

95,499

Discounted Cash Flow

Illiquidity Spread

(4.4)% - 5.3%

1.6%

CLO and other ABS

66,234

Discounted Cash Flow

Illiquidity Spread

0.01% - 19.6%

2.8%

Total internal valuations

161,733

Other1

240,348

Total Level 3 securities

402,081

December 31, 2022

($ in thousands)

Assets Measured at Fair Value

Valuation Techniques

Unobservable Inputs

Range

Weighted Average

Internal valuations:

Corporate securities

81,867

Discounted Cash Flow

Illiquidity Spread

(4.4)% - 5.3%

1.3%

CLO and other ABS

59,452

Discounted Cash Flow

Illiquidity Spread

0.01% - 19.6%

2.5%

Total internal valuations

141,319

Other1

207,936

Total Level 3 securities

349,255

1Other is comprised of broker quotes or other third-party pricing for which there is a lack of transparency into the inputs used to develop the valuations. The quantitative details of these unobservable inputs are neither provided to us, nor reasonably available to us, and therefore are not included in the tables above.

For the securities in the tables above valued using a discounted cash flow analysis, we apply an illiquidity spread in our determination of fair value. An increase in this assumption would result in a lower fair value measurement.

The following tables provide quantitative information about our financial assets and liabilities that were not measured at fair value, but were disclosed as such at March 31, 2023, and December 31, 2022:


March 31, 2023			Fair Value Measurements Using
($ in thousands)	Assets/ Liabilities Disclosed at Fair Value		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:


Corporate securities	23,522		—	23,522	—


Total HTM fixed income securities	$	23,522	—	23,522	—

CMLs	$	147,540	—	—	147,540

Financial Liabilities











Long-term debt:
7.25% Senior Notes	$	54,209	—	54,209	—
6.70% Senior Notes	104,484		—	104,484	—
5.375% Senior Notes	278,321		—	278,321	—



3.03% borrowings from FHLBI	57,724		—	57,724	—
Total long-term debt	$	494,738	—	494,738	—


December 31, 2022			Fair Value Measurements Using
($ in thousands)	Assets/ Liabilities Disclosed at Fair Value		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:

Obligations of states and political subdivisions	$	3,405	—	3,405	—
Corporate securities	26,432		—	26,432	—


Total HTM fixed income securities	$	29,837	—	29,837	—

CMLs	$	139,243	—	—	139,243

Financial Liabilities





Long-term debt:
7.25% Senior Notes	$	51,705	—	51,705	—
6.70% Senior Notes	99,264		—	99,264	—
5.375% Senior Notes	258,459		—	258,459	—
3.03% borrowings from FHLBI	57,175		—	57,175	—
Total long-term debt	$	466,603	—	466,603	—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial 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 entity 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 risks 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.

+ References + Details