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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2011
Fair Value Measurements [Abstract] |
Fair Value Measurements | 3. Fair Value Measurements 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 98% of its portfolio from an independent pricing service. For approximately 2% 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 December 31, 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 December 31, 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, including ARS, 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. Collateralized debt obligations/Partnership interest in a private credit fund: Valued based on underlying debt/credit instruments and the appropriate benchmark spread for similar assets in active markets; taking into consideration unobservable inputs related to liquidity assumptions. The Company's 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 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 December 31, 2011 and 2010, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:
|  | December 31, 2011 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
|  | (Amounts in thousands) |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government bonds and agencies |  | $ | 14,298 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 14,298 |
Municipal securities |  |  | 0 |  |  |  | 2,271,275 |  |  |  | 0 |  |  |  | 2,271,275 |
Mortgage-backed securities |  |  | 0 |  |  |  | 37,371 |  |  |  | 0 |  |  |  | 37,371 |
Corporate securities |  |  | 0 |  |  |  | 75,142 |  |  |  | 0 |  |  |  | 75,142 |
Collateralized debt obligations |  |  | 0 |  |  |  | 0 |  |  |  | 47,503 |  |  |  | 47,503 |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Public utilities |  |  | 26,342 |  |  |  | 0 |  |  |  | 0 |  |  |  | 26,342 |
Banks, trusts and insurance companies |  |  | 16,027 |  |  |  | 0 |  |  |  | 0 |  |  |  | 16,027 |
Industrial and other |  |  | 316,592 |  |  |  | 0 |  |  |  | 0 |  |  |  | 316,592 |
Non-redeemable preferred stock |  |  | 0 |  |  |  | 11,419 |  |  |  | 0 |  |  |  | 11,419 |
Partnership interest in a private credit fund |  |  | 0 |  |  |  | 0 |  |  |  | 10,008 |  |  |  | 10,008 |
Short-term bonds |  |  | 0 |  |  |  | 9,011 |  |  |  | 0 |  |  |  | 9,011 |
Money market instruments |  |  | 227,433 |  |  |  | 0 |  |  |  | 0 |  |  |  | 227,433 |
Total assets at fair value |  | $ | 600,692 |  |  | $ | 2,404,218 |  |  | $ | 57,511 |  |  | $ | 3,062,421 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity contracts |  | $ | 655 |  |  | $ | 0 |  |  | $ | 0 |  |  | $ | 655 |
Interest rate swap agreements |  |  | 0 |  |  |  | 670 |  |  |  | 0 |  |  |  | 670 |
Total liabilities at fair value |  | $ | 655 |  |  | $ | 670 |  |  | $ | 0 |  |  | $ | 1,325 |
|  | 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 table presents a summary of changes in fair value of Level 3 financial assets and financial liabilities held at fair value at December 31:
|  | 2011 |  |  | 2010 |
|  | Municipal Securities |  |  | Collateralized Debt Obligations |  |  | Partnership Interest in a Private Credit Fund |  |  | Municipal Securities |  |  | Collateralized Debt Obligations |
|  | (Amounts in thousands) |
Beginning Balance |  | $ | 1,624 |  |  | $ | 55,692 |  |  | $ | 0 |  |  | $ | 3,322 |  |  | $ | 47,473 |
Realized gains (losses) included in earnings |  |  | 39 |  |  |  | (9,300 | ) |  |  | 8 |  |  |  | (108 | ) |  |  | 13,388 |
Purchase |  |  | 0 |  |  |  | 0 |  |  |  | 10,000 |  |  |  | 0 |  |  |  | 0 |
Sales |  |  | (1,663 | ) |  |  | 0 |  |  |  | 0 |  |  |  | (1,590 | ) |  |  | 0 |
Issuances |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |  |  |  | 0 |
Settlements |  |  | 0 |  |  |  | 1,111 |  |  |  | 0 |  |  |  | 0 |  |  |  | (5,169 | )
Ending Balance |  | $ | 0 |  |  | $ | 47,503 |  |  | $ | 10,008 |  |  | $ | 1,624 |  |  | $ | 55,692 |
The amount of total (losses) gains for the period included in earnings attributable to assets still held at December 31 |  | $ | 0 |  |  | $ | (8,189 | ) |  | $ | 8 |  |  | $ | (83 | ) |  | $ | 12,810 |
There were no transfers between Levels 1, 2, and 3 of the fair value hierarchy in 2011 and 2010. There were $10 million and $0 increases in Level 3 financial assets in 2011 and 2010, respectively, which include the use of unobservable inputs related to liquidity assumptions. At December 31, 2011, the Company did not have any nonrecurring measurements of nonfinancial assets or nonfinancial liabilities.

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- Definition Tabular disclosure of the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) 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 or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), 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); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods. Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19279-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 32 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 33 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 107 -Paragraph 10 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 157 -Paragraph 6 -Footnote 4 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19190-110258 + Details
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