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Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2022
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments Fair Value of Financial InstrumentsThe Company maximizes the use of observable inputs and minimizes the use of unobservable inputs to the extent possible to
measure a financial instrument’s fair value. Observable inputs reflect the assumptions market participants would use in pricing an asset or liability, and are affected by the type of product, whether the product is traded on an active exchange or in the secondary market, as well as current market conditions. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Fair value is estimated by applying the hierarchy discussed in Note (2) Summary of Significant Accounting Policies of our Annual Report on Form 10-K which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3 of the fair value hierarchy.

The Company’s fair value measurements are based primarily on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable financial instruments. Sources of inputs to the market approach include third-party pricing services, independent broker quotations and pricing matrices. Management analyzes the third-party valuation methodologies and its related inputs to perform assessments to determine the appropriate level within the fair value hierarchy and to assess reliability of values. Further, management has a process in place to review all changes in fair value that occurred during each measurement period. Any discrepancies or unusual observations are followed through to resolution through the source of the pricing as well as utilizing comparisons, if applicable, to alternate pricing sources.

The Company utilizes observable and unobservable inputs within its valuation methodologies. Observable inputs may include: benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers and reference data. In addition, specific issuer information and other market data is used. Broker quotes are obtained from sources recognized to be market participants. Unobservable inputs may include: expected cash flow streams, default rates, supply and demand considerations and market volatility.

Available for Sale Securities, at fair value

The fair values of AFS securities are based on prices provided by an independent pricing service and a third-party investment manager. The Company obtains an understanding of the methods, models and inputs used by the independent pricing service and the third-party investment manager by analyzing the investment manager-provided pricing report.

The following details the methods and assumptions used to estimate the fair value of each class of AFS securities and the applicable level each security falls within the fair value hierarchy:

U.S. Treasury Securities, Obligations of U.S. Government Authorities and Agencies, Obligations of State and Political Subdivisions, Corporate Securities, Asset Backed Securities, and Obligations of Foreign Governments: Fair values were obtained from an independent pricing service and a third-party investment manager. The prices provided by the independent pricing service and third-party investment manager are based on quoted market prices, when available, non-binding broker quotes, or matrix pricing and fall under Level 2 or Level 3 in the fair value hierarchy.

Certificates of Deposit: The estimated fair value of certificates of deposit approximate carrying value and fall under Level 1 of the fair value hierarchy.

Equity Securities

The fair values of publicly traded common and preferred equity securities and exchange traded funds (“ETFs”) are obtained from market value quotations provided by an independent pricing service and fall under Level 1 in the fair value hierarchy. The fair values of non-publicly traded common and preferred stocks are based on prices derived from multiples of comparable public companies and fall under Level 3 in the fair value hierarchy.
Loans, at fair value

Corporate Loans: These loans are comprised of middle market loans and bank loans and are generally classified under either Level 2 or Level 3 in the fair value hierarchy. To determine fair value, the Company uses quoted prices, including those provided from pricing vendors, which provide coverage of secondary market participants, where available. The values represent a composite of mark-to-market bid/offer prices. In certain circumstances, the Company will make its own determination of fair value of loans based on internal models and other unobservable inputs.

Mortgage Loans Held for Sale: Mortgage loans held for sale are generally classified under Level 2 in the fair value hierarchy and fair value is based upon forward sales contracts with third-party investors, including estimated loan costs.

Derivative Assets and Liabilities

Derivatives for our mortgage business are primarily comprised of IRLCs, forward delivery contracts and TBA mortgage backed securities. The fair value of these instruments is based upon valuation pricing models, which represent the amount the Company would expect to receive or pay at the balance sheet date to exit the position. Our mortgage origination subsidiaries issue IRLCs to their customers, which are carried at estimated fair value on the Company’s condensed consolidated balance sheets. The estimated fair values of these commitments are generally calculated by reference to the value of the underlying loan associated with the IRLC net of costs to produce and an expected pull through assumption. The fair values of these commitments generally fall under Level 3 in the fair value hierarchy. Our mortgage origination subsidiaries manage their exposure by entering into forward delivery commitments with loan investors. For loans not locked with investors under a forward delivery commitment, the Company enters into hedge instruments, primarily TBAs, to protect against movements in interest rates. The fair values of TBA mortgage backed securities and forward delivery contracts generally fall under Level 2 in the fair value hierarchy.

The remaining derivatives are generally comprised of a combination of swaps, options and short positions, which are generally classified as Level 2 in the fair value hierarchy. In addition, the Fortegra Additional Warrant (Warburg) is a derivative liability and classified as Level 3 in the fair value hierarchy. See Note (17) Stockholders’ Equity for additional information regarding the Fortegra Additional Warrant.

Corporate Bonds

Corporate bonds are generally classified under Level 2 in the fair value hierarchy and fair value is provided by a third-party investment manager, based on quoted market prices. We perform internal price verification procedures monthly to ensure that the prices provided are reasonable.

Trade Claims

Trade claims represent unsecured claims of bankrupt companies and are generally classified under Level 3 in the fair value hierarchy. The fair value is determined using valuation methodologies that consider a range of factors, including but not limited to the price at which the investment was acquired, the nature of the investment, local market conditions, current and projected operating performance, and financing transactions subsequent to the acquisition of the investment. The inputs are intended to reflect the assumptions a market participant would use in pricing the asset or liability.

Securities Sold, Not Yet Purchased

Securities sold, not yet purchased are generally classified under Level 1 or Level 2 in the fair value hierarchy, based on the leveling of the securities sold short, and fair value is provided by a third-party investment manager, based on quoted market prices. We perform internal price verification procedures monthly to ensure that the prices provided are reasonable.

Mortgage Servicing Rights

Mortgage servicing rights are classified under Level 3 in the fair value hierarchy and fair value is provided by a third-party valuation service. Various observable and unobservable inputs are used to determine fair value, including discount rate, cost to service and weighted average prepayment speed.
The following tables present the Company’s fair value hierarchies for financial assets and liabilities, measured on a recurring basis:
As of September 30, 2022
Quoted prices in active markets
Level 1		 Other significant
 observable inputs
 Level 2 		 Significant unobservable inputs
Level 3		Fair value
Assets:
Available for sale securities, at fair value:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$— $356,759 $— $356,759 
Obligations of state and political subdivisions— 49,301 — 49,301 
Obligations of foreign governments— 2,349 — 2,349 
Certificates of deposit1,357 — — 1,357 
Asset backed securities— 15,982 220 16,202 
Corporate securities— 158,113 — 158,113 
Total available for sale securities, at fair value1,357 582,504 220 584,081 
Loans, at fair value:
Corporate loans— 2,455 10,129 12,584 
Mortgage loans held for sale— 58,200 — 58,200 
Total loans, at fair value— 60,655 10,129 70,784 
Equity securities:
Invesque19,190 — — 19,190 
Fixed income ETFs52,078 — — 52,078 
Other equity securities7,238 — 6,597 13,835 
Total equity securities78,506 — 6,597 85,103 
Other investments, at fair value:
Corporate bonds— 41,494 — 41,494 
Derivative assets17 6,232 1,505 7,754 
Other— — 324 324 
Total other investments, at fair value17 47,726 1,829 49,572 
Mortgage servicing rights (1)
— — 41,912 41,912 
Total$79,880 $690,885 $60,687 $831,452 
Liabilities: (2)
Securities sold, not yet purchased$14,578 $36,660 $— $51,238 
Derivative liabilities— 7,715 — 7,715 
Fortegra Additional Warrants (Warburg)— — 6,230 6,230 
Contingent consideration payable— — 2,871 2,871 
Total$14,578 $44,375 $9,101 $68,054 
(1)    Included in other assets.
(2)    Included in other liabilities and accrued expenses.
As of December 31, 2021
Quoted
prices in
active
markets
Level 1		 Other significant
 observable inputs
 Level 2 		 Significant unobservable inputs
Level 3		Fair value
Assets:
Available for sale securities, at fair value:
U.S. Treasury securities and obligations of U.S. government authorities and agencies$— $351,178 $— $351,178 
Obligations of state and political subdivisions— 58,660 — 58,660 
Obligations of foreign governments— 2,590 — 2,590 
Certificates of deposit2,696 — — 2,696 
Asset backed securities— 16,832 615 17,447 
Corporate securities— 144,877 — 144,877 
Total available for sale securities, at fair value2,696 574,137 615 577,448 
Loans, at fair value:
Corporate loans— 5,002 2,097 7,099 
Mortgage loans held for sale— 98,484 — 98,484 
Total loans, at fair value— 103,486 2,097 105,583 
Equity securities:
Invesque34,814 — — 34,814 
Fixed income ETFs53,154 — — 53,154 
Other equity securities49,309 — 1,206 50,515 
Total equity securities137,277 — 1,206 138,483 
Other investments, at fair value:
Corporate bonds— 38,965 — 38,965 
Derivative assets113 569 7,514 8,196 
Trade claims— — 19,737 19,737 
Other— — 441 441 
Total other investments, at fair value113 39,534 27,692 67,339 
Mortgage servicing rights (1)
— — 29,833 29,833 
Total$140,086 $717,157 $61,443 $918,686 
Liabilities: (2)
Securities sold, not yet purchased$242 $— $— $242 
Derivative liabilities — 2,141 — 2,141 
Contingent consideration payable— — 200 200 
Total$242 $2,141 $200 $2,583 
(1) Included in other assets.
(2) Included in other liabilities and accrued expenses.
Transfers between Level 2 and 3 were a result of subjecting third-party pricing on assets to various liquidity, depth, bid-ask spread and benchmarking criteria as well as assessing the availability of observable inputs affecting their fair valuation.

The following table presents additional information about assets that are measured at fair value on a recurring basis for which the Company has utilized Level 3 inputs to determine fair value for the following periods:    
For the Nine Months Ended
September 30,
20222021
Balance at January 1,$61,443 $33,455 
 Net realized and unrealized gains or losses included in:
Earnings8,572 12,664 
OCI305 (178)
Origination of IRLCs42,722 84,034 
Purchases— 15,336 
Sales and repayments(3,802)(11,382)
Conversions to mortgage loans held for sale(48,731)(83,976)
Settlement of trade claims(19,169)— 
Exchange of bonds for term loans12,243 — 
Exchange of trade receivables for equity securities7,104 — 
Balance at September 30,
$60,687 $49,953 
Changes in unrealized gains (losses) included in earnings related to assets still held at period end(5,171)$2,298 
Changes in unrealized gains (losses) included in OCI related to assets still held at period end$(395)$(178)
The following table presents the range and weighted average (WA) used to develop significant unobservable inputs for the fair value measurements of Level 3 assets and liabilities.
As ofAs of
September 30,
2022		December 31,
2021		Valuation technique
Unobservable input(s)
September 30,
2022		December 31,
2021
AssetsFair valueRange
WA (1)
Range
WA (1)
IRLCs$1,505 $7,514 Internal modelPull through rate55%to95%66%55%to95%66%
Mortgage servicing rights41,912 29,833 External modelDiscount rate9%to14%9%10%to12%9%
Cost to service$65to$80$71$65to$80$71
Prepayment speed 5%to84%9%5%to100%15%
Trade claims— 19,737 Internal modelPlan projected recovery rateN/A15%to18%17%
Equity securities6,549 — Internal modelForecast EBITDAR$728,000to$1,039,000N/AN/A
Corporate loans and related receivables10,129 — Internal modelEBITDA$188,000N/AN/A
Total$60,095 $57,084 
Liabilities
Fortegra Additional Warrants (Warburg)$6,230 $— External modelDiscount rate3%to5%3.3%N/A
Implied Equity Volatility40%to50%45%
Contingent consideration payable - ITC2,671 — Cash Flow modelForecast Cash EBITDA$2,500to$4,000N/AN/A
Cash Flow modelForecast Underwriting EBITDA$—to$2,000N/AN/A
Contingent consideration payable - Smart AutoCare200 200 Cash Flow modelForecast Cash EBITDA$20,000to$30,000N/A$20,000to$30,000N/A
Actuarial analysisAssumed Claim Liabilities $55,000$55,000
Total$9,101 $200 
(1)    Unobservable inputs were weighted by the relative fair value of the instruments.
The following table presents the carrying amounts and estimated fair values of financial assets and liabilities that are not recorded at fair value and their respective levels within the fair value hierarchy:
As of September 30, 2022As of December 31, 2021
Level within
fair value
hierarchy		Fair valueCarrying valueLevel within
fair value
hierarchy		Fair valueCarrying value
Assets:
Debentures (1)
2$24,961 $24,961 2$21,057 $21,057 
Notes receivable, net2114,091 114,091 289,788 89,788 
Total assets$139,052 $139,052 $110,845 $110,845 
Liabilities:
Debt, net3$270,731 $273,856 3$419,599 $403,193 
Total liabilities$270,731 $273,856 $419,599 $403,193 
(1)    Included in other investments.

Debentures: Since interest rates on debentures are at current market rates for similar credit risks, the carrying amount approximates fair value. These values are net of allowance for doubtful accounts.

Notes Receivable, net: To the extent that carrying amounts differ from fair value, fair value is determined based on contractual cash flows discounted at market rates for similar credits. Categorized under Level 2 in the fair value hierarchy. See Note (7) Notes and Accounts Receivable, net.

Debt: The carrying value, which approximates fair value of LIBOR based debt, represents the total debt balance at face value excluding the unamortized discount. The fair value of the Junior subordinated notes is determined based on dealer quotes. Categorized under Level 3 in the fair value hierarchy.

Additionally, the following financial assets and liabilities on the condensed consolidated balance sheets are not carried at fair value, but whose carrying amounts approximate their fair value:

Cash and Cash Equivalents: The carrying amounts of cash and cash equivalents are carried at cost which approximates fair value. Categorized under Level 1 in the fair value hierarchy.

Accounts and Premiums Receivable, net, Retrospective Commissions Receivable and Other Receivables: The carrying amounts approximate fair value since no interest rate is charged on these short duration assets. Categorized under Level 2 in the fair value hierarchy. See Note (7) Notes and Accounts Receivable, net.
Due from Brokers, Dealers, and Trustees and Due to Brokers, Dealers and Trustees: The carrying amounts are included in other assets and other liabilities and accrued expenses and approximate their fair value due to their short term nature. Categorized under Level 2 in the fair value hierarchy.