5. Fair Value Measurement

The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date using the exit price. Accordingly, when market observable data is not readily available, the Company's own assumptions are set to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date. Assets and liabilities recorded on the consolidated balance sheets at fair value are categorized based on the level of judgment associated with inputs used to measure their fair value and the level of market price observability, as follows:


*Level 1*		Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date.

*Level 2*		Pricing inputs are other than quoted prices in active markets, which are based on the following: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in non-active markets; or • Either directly or indirectly observable inputs as of the reporting date.

*Level 3*		Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation.

In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3). The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.

The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer.

Summary of Significant Valuation Techniques for Financial Assets and Financial Liabilities

The Company's fair value measurements are based on a combination of the market approach and the income approach. The market approach utilizes market transaction data for the same or similar instruments. The income approach is based on a discounted cash flow methodology, where expected cash flows are discounted to present value.

The Company obtained unadjusted fair values on approximately 99% of its portfolio from an independent pricing service. For approximately 1% of its portfolio, the Company obtained specific unadjusted broker quotes from at least one knowledgeable outside security broker to determine the fair value as of September 30, 2011.

Level 1 Measurements - Fair values of financial assets and financial liabilities are obtained from an independent pricing service, and are based on unadjusted quoted prices for identical assets or liabilities in active markets. Additional pricing services and closing exchange values are used as a comparison to ensure that realistic fair values are used in pricing the investment portfolio.

U.S. government bonds and agencies: Valued using unadjusted quoted market prices for identical assets in active markets.

Common stock: Comprised of actively traded, exchange listed U.S. and international equity securities and valued based on unadjusted quoted prices for identical assets in active markets.

Money market instruments: Valued based on unadjusted quoted prices for identical assets.

Equity contracts: Comprised of free-standing exchange listed derivatives that are actively traded and valued based on quoted prices for identical instruments in active markets.

Level 2 Measurements - Fair values of financial assets and financial liabilities are obtained from an independent pricing service or outside brokers, and are based on prices for similar assets or liabilities in active markets or valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. Additional pricing services are used as a comparison to ensure reliable fair values are used in pricing the investment portfolio.

Municipal securities: Valued based on models or matrices using inputs such as quoted prices for identical or similar assets in active markets.

Mortgage-backed securities: Comprised of securities that are collateralized by residential mortgage loans and valued based on models or matrices using multiple observable inputs, such as benchmark yields, reported trades and broker/dealer quotes, for identical or similar assets in active markets. At September 30, 2011 and December 31, 2010, the Company had no holdings in commercial mortgage-backed securities.

Corporate securities/Short-term bonds: Valued based on a multi-dimensional model using multiple observable inputs, such as benchmark yields, reported trades, broker/dealer quotes and issue spreads, for identical or similar assets in active markets.

Non-redeemable preferred stock: Valued based on observable inputs, such as underlying and common stock of same issuer and appropriate spread over a comparable U.S. Treasury security, for identical or similar assets in active markets.

Interest rate swap agreements: Valued based on models using inputs, such as interest rate yield curves, observable for substantially the full term of the contract.

Level 3 Measurements - Fair values of financial assets are based on inputs that are both unobservable and significant to the overall fair value measurement, including any items in which the evaluated prices obtained elsewhere were deemed to be of a distressed trading level.

Municipal securities: Comprised of certain distressed municipal securities for which valuation is based on models that are widely accepted in the financial services industry and require projections of future cash flows that are not market observable. Included in this category are auction rate securities ("ARS").

Collateralized debt obligations: Valued based on underlying debt instruments and the appropriate benchmark spread for similar assets in active markets, taking into consideration unobservable inputs related to liquidity assumptions.

The Company's total financial instruments at fair value are reflected in the consolidated balance sheets on a trade-date basis. Related unrealized gains or losses are recognized in net realized investment (losses) gains in the consolidated statements of operations. Fair value measurements are not adjusted for transaction costs.

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:


	September 30, 2011
	Level 1		Level 2		Level 3		Total
	(Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies	$	14,257	$	0	$	0	$	14,257
Municipal securities		0		2,290,330		0		2,290,330
Mortgage-backed securities		0		41,172		0		41,172
Corporate securities		0		77,231		0		77,231
Collateralized debt obligations		0		0		43,867		43,867
Equity securities:
Common stock:
Public utilities		24,549		0		0		24,549
Banks, trusts and insurance companies		14,736		0		0		14,736
Industrial and other		270,991		0		0		270,991
Non-redeemable preferred stock		0		11,571		0		11,571
Short-term bonds		0		11,139		0		11,139
Money market instruments		237,712		0		0		237,712
Equity contracts		6		0		0		6

Total assets at fair value	$	562,251	$	2,431,443	$	43,867	$	3,037,561

Liabilities
Equity contracts	$	625	$	0	$	0	$	625
Interest rate swap agreements		0		1,348		0		1,348

Total liabilities at fair value	$	625	$	1,348	$	0	$	1,973

	December 31, 2010
	Level 1		Level 2		Level 3		Total
	(Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies	$	8,805	$	0	$	0	$	8,805
Municipal securities		0		2,433,589		1,624		2,435,213
Mortgage-backed securities		0		57,367		0		57,367
Corporate securities		0		95,203		0		95,203
Collateralized debt obligations		0		0		55,692		55,692
Equity securities:
Common stock:
Public utilities		27,214		0		0		27,214
Banks, trusts and insurance companies		20,521		0		0		20,521
Industrial and other		302,103		0		0		302,103
Non-redeemable preferred stock		0		9,768		0		9,768
Short-term bonds		0		17,043		0		17,043
Money market instruments		126,328		0		0		126,328
Interest rate swap agreements		0		4,240		0		4,240

Total assets at fair value	$	484,971	$	2,617,210	$	57,316	$	3,159,497

Liabilities
Equity contracts	$	2,776	$	0	$	0	$	2,776
Interest rate swap agreements		0		3,042		0		3,042

Total liabilities at fair value	$	2,776	$	3,042	$	0	$	5,818

The following tables present a summary of changes in fair value of Level 3 financial assets and financial liabilities held at fair value at September 30, 2011 and 2010.


	Three Months Ended September 30,
	2011						2010
	Municipal Securities			Collateralized Debt Obligations			Municipal Securities			Collateralized Debt Obligations
	(Amounts in thousands)
Beginning Balance	$	0		$	55,724		$	1,357		$	47,585
Realized (losses) gains included in earnings		0			(11,857	)		(3	)		4,859
Purchase		0			0			0			0
Sales		0			0			0			0
Issuances		0			0			0			0
Settlements		0			0			0			(578	)

Ending Balance	$	0		$	43,867		$	1,354		$	51,866

The amount of total (losses) gains for the period included in earnings attributable to assets still held at September 30	$	0		$	(11,857	)	$	(3	)	$	4,281


	Nine Months Ended September 30,
	2011						2010
	Municipal Securities			Collateralized Debt Obligations			Municipal Securities			Collateralized Debt Obligations
	(Amounts in thousands)
Beginning Balance	$	1,624		$	55,692		$	3,322		$	47,473
Realized gains (losses) included in earnings		39			(12,936	)		(378	)		9,562
Purchase		0			0			0			0
Sales		(1,663	)		0			(1,590)			0
Issuances		0			0			0			0
Settlements		0			1,111			0			(5,169	)

Ending Balance	$	0		$	43,867		$	1,354		$	51,866

The amount of total (losses) gains for the period included in earnings attributable to assets still held at September 30	$	0		$	(11,825	)	$	(353	)	$	8,983

There were no transfers between Levels 1, 2, and 3 of the fair value hierarchy during the nine months ended September 30, 2011 and 2010.

At September 30, 2011, the Company did not have any nonrecurring measurements of nonfinancial assets or nonfinancial liabilities.