Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2015

Company's Invested Assets and Derivative Instruments Measured at Fair Value on Recurring Basis

The following table presents information about the Company’s invested assets and derivative instruments measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.


As of September 30, 2015	Fair Value Measurements
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Fixed maturities:
U.S. treasury and agency obligations	$	91,341	$	5,934	$	—	$	97,275
Obligations of states and political subdivisions		—		235,400		—		235,400
Mortgage-backed securities		—		188,403		—		188,403
Commercial mortgage-backed securities		—		160,076		—		160,076
Asset-backed securities		—		278,834		—		278,834
Corporate bonds		—		461,294		—		461,294
Foreign corporate bonds		—		127,603		—		127,603

Total fixed maturities		91,341		1,457,544		—		1,548,885
Common stock		106,666		—		—		106,666
Other invested assets		—		—		33,555		33,555

Total assets measured at fair value	$	198,007	$	1,457,544	$	33,555	$	1,689,106

Liabilities:
Derivative instruments	$	—	$	18,522	$	—	$	18,522

Total liabilities measured at fair value	$	—	$	18,522	$	—	$	18,522


As of December 31, 2014	Fair Value Measurements
(Dollars in thousands)	Level 1		Level 2		Level 3		Total
Assets:
Fixed maturities:
U.S. treasury and agency obligations	$	74,765	$	6,002	$	—	$	80,767
Obligations of states and political subdivisions		—		191,473		—		191,473
Mortgage-backed securities		—		208,759		—		208,759
Commercial mortgage-backed securities		—		133,158		—		133,158
Asset-backed securities		—		178,263		—		178,263
Corporate bonds		—		383,416		—		383,416
Foreign corporate bonds		—		107,639		—		107,639

Total fixed maturities		74,765		1,208,710		—		1,283,475
Common stock		122,048		—		—		122,048
Other invested assets		—		—		33,663		33,663

Total assets measured at fair value	$	196,813	$	1,208,710	$	33,663	$	1,439,186

Liabilities:
Derivative instruments	$	—	$	13,675	$	—	$	13,675

Total liabilities measured at fair value	$	—	$	13,675	$	—	$	13,675

Current Fair Value of Debt

For the Company’s material debt arrangements, the current fair value of the Company’s debt was as follows:


(Dollars in thousands)	Carrying Value		Fair Value
Margin Borrowing Facilities	$	195,787	$	195,787
7.75% Subordinated Notes due 2045 (1)		96,357		90,117

Total	$	292,144	$	285,904

(1)

As of September 30, 2015, the carrying value and fair value of the 7.75% Subordinated Notes due 2045 are net of unamortized debt issuance cost of $3.6 million.

Changes in Level 3 Investments Measured at Fair Value on a Recurring Basis

The following table presents changes in Level 3 investments measured at fair value on a recurring basis for the quarters and nine months ended September 30, 2015 and 2014:


	Quarters Ended September 30,					Nine Months Ended September 30,
(Dollars in thousands)	2015		2014			2015			2014
Beginning balance	$	31,176	$	15,034		$	33,663		$	3,489
Total gains (losses) (realized / unrealized):
Included in accumulated other comprehensive income (loss)		23		(404	)		481			(834	)
Investment Income:
Equity in Limited Partnership		106		—			1,448			—
Purchases		2,250		6,500			2,250			18,475
Distributions		—		(12	)		(4,287	)		(12	)

Ending balance	$	33,555	$	21,118		$	33,555		$	21,118

Fair Value and Future Funding Commitments Related to These Investments

The following table provides the fair value and future funding commitments related to these investments at September 30, 2015 and December 31, 2014.


	September 30, 2015				December 31, 2014
(Dollars in thousands)	Fair Value		Future Funding Commitment		Fair Value		Future Funding Commitment
Equity Fund, LP (1)	$	3,348	$	2,391	$	3,401	$	2,436
Real Estate Fund, LP (2)		—		—		—		—
European Non-Performing Loan Fund, LP (3)		30,207		21,314		30,262		20,064

Total	$	33,555	$	23,705	$	33,663	$	22,500

(1)

This limited partnership invests in companies from various business sectors whereby the partnership has acquired control of the operating business as a lead or organizing investor. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. The Company anticipates its interest in this partnership to be redeemed during the 4^th quarter of 2015.

(2)

This limited partnership invests in real estate assets through a combination of direct or indirect investments in partnerships, limited liability companies, mortgage loans, and lines of credit. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company continues to hold an investment in this limited partnership and has written the fair value down to zero.

(3)

This limited partnership invests in distressed securities and assets through senior and subordinated, secured and unsecured debt and equity, in both public and private large-cap and middle-market companies. The Company does not have the ability to sell or transfer its limited partnership interest without consent from the general partner. The Company does not have the contractual option to redeem its limited partnership interest but receives distributions based on the liquidation of the underlying assets. Based on the terms of the partnership agreement, the Company anticipates its interest in this partnership to be redeemed in 2020.