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Fair Value Measurements | 12 Months Ended
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Dec. 31, 2015
Fair Value Disclosures [Abstract] |
Fair Value Measurements | Fair Value Measurements a) Fair Values of Financial Instruments ASC 825, "Disclosure About Fair Value of Financial Instruments", requires all entities to disclose the fair value of their financial instruments, both assets and liabilities recognized and not recognized in the balance sheet, for which it is practicable to estimate fair value. The following describes the valuation techniques used by the Company to determine the fair value of financial instruments held at December 31, 2015. U.S. government and U.S. government agencies — Bonds issued by the U.S. Treasury, the Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, Government National Mortgage Association and the Federal National Mortgage Association. The fair values of U.S. treasury bonds are based on quoted market prices in active markets, and are included in the Level 1 fair value hierarchy. We believe the market for U.S. treasury bonds is an actively traded market given the high level of daily trading volume. The fair values of U.S. government agency bonds are determined using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency bonds are included in the Level 2 fair value hierarchy. Non-U.S. government and supranational bonds — These securities are generally priced by independent pricing services. The Pricing Service may use current market trades for securities with similar quality, maturity and coupon. If no such trades are available, the Pricing Service typically uses analytical models which may incorporate spreads, interest rate data and market/sector news. As the significant inputs used to price non-U.S. government and supranational bonds are observable market inputs, the fair values of non-U.S. government and supranational bonds are included in the Level 2 fair value hierarchy. Asset-backed securities — Comprise CMBS and CLO originated by a variety of financial institutions. These securities are priced by independent pricing services and brokers. The pricing provider applies dealer quotes and other available trade information, prepayment speeds, yield curves and credit spreads to the valuation. As the significant inputs used to price the CMBS and CLO are observable market inputs, the fair value of the CMBS and CLO is included in the Level 2 fair value hierarchy. Corporate bonds — Bonds issued by corporations that on acquisition are rated BBB-/Baa3 or higher. These securities are generally priced by independent pricing services. The spreads are sourced from broker/dealers, trade prices and the new issue market. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers. As the significant inputs used to price corporate bonds are observable market inputs, the fair values of corporate bonds are included in the Level 2 fair value hierarchy. Municipal bonds — Bonds issued by U.S. state and municipality entities or agencies. The fair values of municipal bonds are generally priced by independent pricing services. The pricing services typically use spreads obtained from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the municipal bonds are observable market inputs, municipal bonds are classified within Level 2. Short-term investments — Primarily commercial paper issued by corporations, all with maturities greater than 90 days and less than one year at the date of purchase. The fair values of these short-term investments are priced by independent pricing services, using market pricing and other observable market inputs for the same or similar securities obtained from a number of industry standard data providers. As the significant inputs used to price the commercial paper securities are observable market inputs, commercial paper securities are classified within Level 2. Other investments — Includes both quoted and unquoted investments. The fair value of our quoted equity investment is obtained from the Pricing Service, reflecting the closing price quoted for the final trading day of the period and is classified within Level 1. Unquoted other investments comprise investments in limited partnerships and an investment in preference shares of a start-up insurance producer. The fair values of the limited partnerships are determined by the fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals, and as such, the fair values are included in the Level 3 fair value hierarchy. The fair value of the investment in preference shares of a start-up insurance producer was determined using recent private market transactions and as such, the fair value is included in the Level 3 fair value hierarchy. Reinsurance balances receivable — The carrying values reported in the accompanying consolidated balance sheets for these financial instruments approximate their fair value due to short term nature of the assets. Loan to related party — The carrying value reported in the accompanying consolidated balance sheets for this financial instrument approximates its fair value. Senior notes — The amount reported in the accompanying consolidated balance sheets for these financial instruments represents the carrying value of the notes. The fair values are based on quoted prices of identical instruments in inactive markets and as such, are included in the Level 2 hierarchy. 5. Fair Value Measurements (continued) b) Fair Value Hierarchy The Company’s estimates of fair value for financial assets and financial liabilities are based on the framework established in ASC 820. The framework is based on the inputs used in valuation and gives the highest priority to quoted prices in active markets and requires that observable inputs be used in the valuations when available. The disclosure of fair value estimates in the ASC 820 hierarchy is based on whether the significant inputs into the valuation are observable. In determining the level of the hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted quoted prices in active markets and the lowest priority to unobservable inputs that reflect the Company’s significant market assumptions. At December 31, 2015 and 2014, we classified our financial instruments measured at fair value on a recurring basis in the following valuation hierarchy:
December 31, 2015 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total Fair Value
AFS fixed maturities |  |  |  |  |  |  |  |
U.S. treasury bonds |  | $ | 6,010 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,010 |
U.S. agency bonds – mortgage-backed |  | — |  |  | 1,476,991 |  |  | — |  |  | 1,476,991 |
U.S. agency bonds – other |  | — |  |  | 24,311 |  |  | — |  |  | 24,311 |
Non-U.S. government and supranational bonds |  | — |  |  | 30,544 |  |  | — |  |  | 30,544 |
Asset-backed securities |  | — |  |  | 165,804 |  |  | — |  |  | 165,804 |
Corporate bonds |  | — |  |  | 1,739,668 |  |  | — |  |  | 1,739,668 |
Municipal bonds |  | — |  |  | 64,760 |  |  | — |  |  | 64,760 |
Other investments |  | 4,905 |  |  | — |  |  | 6,907 |  |  | 11,812 |
Total |  | $ | 10,915 |  |  | $ | 3,502,078 |  |  | $ | 6,907 |  |  | $ | 3,519,900 |
As a percentage of total assets |  | 0.2 | % |  | 61.3 | % |  | 0.1 | % |  | 61.6 | %
December 31, 2014 |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Total Fair Value
AFS fixed maturities |  |  |  |  |  |  |  |
U.S. treasury bonds |  | $ | 9,360 |  |  | $ | — |  |  | $ | — |  |  | $ | 9,360 |
U.S. agency bonds – mortgage-backed |  | — |  |  | 1,322,443 |  |  | — |  |  | 1,322,443 |
U.S. agency bonds – other |  | — |  |  | 7,988 |  |  | — |  |  | 7,988 |
Non-U.S. government and supranational bonds |  | — |  |  | 51,643 |  |  | — |  |  | 51,643 |
Asset-backed securities |  | — |  |  | 54,780 |  |  | — |  |  | 54,780 |
Corporate bonds |  | — |  |  | 1,895,379 |  |  | — |  |  | 1,895,379 |
Municipal bonds |  | — |  |  | 65,819 |  |  | — |  |  | 65,819 |
Short-term investments |  | — |  |  | 49,492 |  |  | — |  |  | 49,492 |
Other investments |  | 5,990 |  |  | — |  |  | 6,581 |  |  | 12,571 |
Total |  | $ | 15,350 |  |  | $ | 3,447,544 |  |  | $ | 6,581 |  |  | $ | 3,469,475 |
As a percentage of total assets |  | 0.3 | % |  | 66.8 | % |  | 0.1 | % |  | 67.2 | %
The Company utilized a Pricing Service to estimate fair value measurements for approximately 99.9% of its fixed maturities at December 31, 2015 and 2014, respectively. The Pricing Service utilizes market quotations for fixed maturity securities that have quoted market prices in active markets. Since fixed maturities other than U.S. treasury bonds generally do not trade on a daily basis, the Pricing Service prepares estimates of fair value measurements using relevant market data, benchmark curves, sector groupings and matrix pricing and these have been classified as Level 2. 5. Fair Value Measurements (continued) At December 31, 2015 and 2014, 0.1%, respectively, of the fixed maturities are valued using the market approach. At those dates, a total of two securities and one security, respectively, or approximately $4,943 and $5,016, respectively, of Level 2 fixed maturities, were priced using a quotation from a broker and/or custodian as opposed to the Pricing Service due to lack of information available. At December 31, 2015 and 2014, we have not adjusted any pricing provided to us based on the review performed by our investment managers. The Company utilized a Pricing Service to estimate fair value measurement for the quoted equity investment reflecting the closing price quoted for the final trading day of the period and is included in Level 1. For the unquoted other investments, the Company has $5,907 or 0.1% of its investment portfolio in limited partnerships where the fair value estimate is determined by the fund manager based on recent filings, operating results, balance sheet stability, growth, other business and market sector fundamentals and an investment of $1,000 in preference shares of a start-up insurance producer, the fair value of which was determined using recent private market transactions. Due to the significant unobservable inputs in these valuations, the Company includes the estimate of the fair value of the unquoted investments as Level 3. There have not been any transfers between Level 1 and Level 2 during the periods represented by these Consolidated Financial Statements. During the year ended December 31, 2014, there was a transfer from Level 3 to Level 1 following a private placement investment made by the Company which began trading on NASDAQ following a resale registration statement coming into effect. At December 31, 2015 and 2014, this investment is included within Level 1 of the fair value hierarchy. c) Level 3 Financial Instruments The Company has determined that its investments in Level 3 securities are not material to its financial position or results of operations. The following table presents changes in Level 3 of our financial instruments measured at fair value on a recurring basis for the years ended December 31, 2015 and 2014:
|  | For the Year Ended December 31,
Other investments: |  | 2015 |  | 2014
Balance at beginning of period |  | $ | 6,581 |  |  | $ | 5,092 |
Total realized gains – included in net realized gains on investment |  | 192 |  |  | 439 |
Total realized losses – included in net realized gains on investment |  | — |  |  | — |
Change in total unrealized gains – included in other comprehensive income (loss) |  | 373 |  |  | 1,139 |
Change in total unrealized losses – included in other comprehensive income (loss) |  | — |  |  | — |
Purchases |  | 217 |  |  | 6,698 |
Sales and redemptions |  | (456 | ) |  | (797 | )
Transfers into Level 3 |  | — |  |  | — |
Transfers out of Level 3 |  | — |  |  | (5,990 | )
Balance at end of period |  | $ | 6,907 |  |  | $ | 6,581 |
Level 3 gains (losses) included in net income attributable to the change in unrealized gains (losses) relating to assets held at the reporting date |  | $ | — |  |  | $ | — |
5. Fair Value Measurements (continued) (d) Financial Instruments not measured at Fair Value The following table presents the fair value and carrying value of the financial instruments not measured at fair value:
|  | December 31, 2015 |  | December 31, 2014
|  | Carrying Value |  | Fair Value |  | Carrying Value |  | Fair Value
Financial Assets |  |  |  |  |  |  |  |
HTM - corporate bonds |  | $ | 607,843 |  |  | $ | 598,975 |  |  | $ | — |  |  | $ | — |
Total financial assets |  | $ | 607,843 |  |  | $ | 598,975 |  |  | $ | — |  |  | $ | — |
Financial Liabilities |  |  |  |  |  |  |  |
MHNA - 8.25% |  | $ | 107,500 |  |  | $ | 110,424 |  |  | $ | 107,500 |  |  | $ | 113,391 |
MHNB - 8.00% |  | 100,000 |  |  | 105,328 |  |  | 100,000 |  |  | 106,320 |
MHNC - 7.75% |  | 152,500 |  |  | 165,456 |  |  | 152,500 |  |  | 162,016 |
Total financial liabilities |  | $ | 360,000 |  |  | $ | 381,208 |  |  | $ | 360,000 |  |  | $ | 381,727 |

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=36462937&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=35750535&loc=d3e13433-108611 + Details
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