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Fair Value Measurements | 6 Months Ended
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Jun. 30, 2021
Fair Value Disclosures [Abstract] |
Fair Value Measurements |
9 - | Fair Value Measurements
We account for financial assets using a framework that establishes a hierarchy that ranks the quality and reliability of the inputs, or assumptions, we use in the determination of fair value, and we classify financial assets and liabilities carried at fair value in one of the following three categories: Level 1 – quoted prices in active markets for identical assets and liabilities; Level 2 – directly or indirectly observable inputs other than Level 1 quoted prices; and Level 3 – unobservable inputs not corroborated by market data. For investments that have quoted market prices in active markets, we use the quoted market price as fair value and include these investments in Level 1 of the fair value hierarchy. We classify publicly-traded equity securities as Level 1. When quoted market prices in active markets are not available, we base fair values on quoted market prices of comparable instruments or price estimates we obtain from independent pricing services and include these investments in Level 2 of the fair value hierarchy. We classify our fixed maturity investments as Level 2. Our fixed maturity investments consist of U.S. Treasury securities and obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, corporate securities and mortgage-backed securities. We present our investments in available-for-sale fixed maturity and equity securities at estimated fair value. The estimated fair value of a security may differ from the amount that could be realized if we sold the security in a forced transaction. In addition, the valuation of fixed maturity investments is more subjective when markets are less liquid, increasing the potential that the estimated fair value does not reflect the price at which an actual transaction would occur. We utilize nationally recognized independent pricing services to estimate fair values or obtain market quotations for substantially all of our fixed maturity and equity investments. These pricing services utilize market quotations for fixed maturity and equity securities that have quoted prices in active markets. For fixed maturity securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements based predominantly on observable market inputs. The pricing services do not use broker quotes in determining the fair values of our investments. Our investment personnel review the estimates of fair value the pricing services provide to verify that the estimates we obtain from the pricing services are representative of fair values based upon our investment personnel’s general knowledge of the market, their research findings related to unusual fluctuations in value and their comparison of such values to execution prices for similar securities. Our investment personnel regularly monitor the market, current trading ranges for similar securities and the pricing of specific investments. Our investment personnel review all pricing estimates that we receive from the pricing services against their expectations with respect to pricing based on fair market curves, security ratings, interest rates, security types and recent trading activity. Our investment personnel periodically review documentation with respect to the pricing services’ pricing methodology that they obtain to determine if the primary pricing sources, market inputs and pricing frequency for various security types are reasonable. At June 30, 2021, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. In our review of the estimates the pricing services provided at June 30, 2021, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided. We present our cash and short-term investments at estimated fair value. We classify these items as Level 1. The carrying values we report in our balance sheet for premium receivables and reinsurance receivables and payables for premiums and paid losses and loss expenses approximate their fair values. The carrying amounts we report in our balance sheets for our subordinated debentures and borrowings under lines of credit approximate their fair values. We classify these items as Level 3. We evaluate our assets and liabilities to determine the appropriate level at which to classify them for each reporting period. The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at June 30, 2021:
|  | Fair Value Measurements Using
|  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
|  | (in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies |  | $ | 22,326 |  |  | $ | — |  |  | $ | 22,326 |  |  | $ | — |
Obligations of states and political subdivisions |  |  | 61,713 |  |  |  | — |  |  |  | 61,713 |  |  |  | — |
Corporate securities |  |  | 211,076 |  |  |  | — |  |  |  | 211,076 |  |  |  | — |
Mortgage-backed securities |  |  | 227,465 |  |  |  | — |  |  |  | 227,465 |  |  |  | — |
Equity securities |  |  | 72,757 |  |  |  | 70,467 |  |  |  | 2,290 |  |  |  | — |
Total investments in the fair value hierarchy |  | $ | 595,337 |  |  | $ | 70,467 |  |  | $ | 524,870 |  |  | $ | — |
The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2020:
|  | Fair Value Measurements Using
|  | Fair Value |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3)
|  | (in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies |  | $ | 47,815 |  |  | $ | — |  |  | $ | 47,815 |  |  | $ | — |
Obligations of states and political subdivisions |  |  | 68,965 |  |  |  | — |  |  |  | 68,965 |  |  |  | — |
Corporate securities |  |  | 212,708 |  |  |  | — |  |  |  | 212,708 |  |  |  | — |
Mortgage-backed securities |  |  | 225,648 |  |  |  | — |  |  |  | 225,648 |  |  |  | — |
Equity securities |  |  | 58,556 |  |  |  | 54,152 |  |  |  | 4,404 |  |  |  | — |
Totals |  | $ | 613,692 |  |  | $ | 54,152 |  |  | $ | 559,540 |  |  | $ | — |

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- 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 Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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