Fair Value Measurements

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 12 – Fair Value Measurements

Certain of the Company’s assets are carried at fair value.  Fair value is defined as the price 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.

The Company categorizes its assets and liabilities carried at fair value using a three-level hierarchy for fair value measurements that distinguishes between market participant assumptions developed based on market data obtained from sources independent of the Company (observable inputs) and the Company’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs).  The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available.  The hierarchy level assigned to the assets and liabilities is based on management’s assessment of the transparency and reliability of the inputs used to estimate the fair values at the measurement date.  The three hierarchy levels are defined as follows:

Level 1—Valuations based on unadjusted quoted market prices in active markets for identical assets or liabilities.

Level 2—Valuations based on observable inputs (other than Level 1 prices), such as quoted prices for similar assets or liabilities at the measurement date; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly.

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement and involve management judgment.

If the inputs used to measure fair value fall into different levels of the fair value hierarchy, the hierarchy level assigned is based upon the lowest level of input that is significant to the fair value measurement.

Assets measured at fair value on a recurring basis

The valuation techniques and inputs used by the Company to estimate the fair value of assets measured on a recurring basis are summarized as follows:

Debt securities

The fair values of debt securities were based on the market values obtained from independent pricing services that were evaluated using pricing models that vary by asset class and incorporate available trade, bid and other market information and price quotes from well-established, independent broker-dealers.  The independent pricing services monitor market indicators, industry and economic events, and for broker-quoted only securities, obtain quotes from market makers or broker-dealers that they recognize to be market participants.  The pricing services utilize the market approach in determining the fair values of the debt securities held by the Company.  The Company obtains an understanding of the valuation models and assumptions utilized by the services and has controls in place to determine that the values provided represent fair values.  The Company’s validation procedures include comparing prices received from the pricing services to quotes received from other third-party sources for certain securities with market prices that are readily verifiable.  If the price comparison results in differences over a predefined threshold, the Company will assess the reasonableness of the changes relative to prior periods given the prevailing market conditions and assess changes in the issuers’ credit worthiness, performance of any underlying collateral and prices of the instrument relative to similar issuances.  To date, the Company has not made any material adjustments to the fair value measurements provided by the pricing services.

Typical inputs and assumptions to pricing models used to value the Company’s debt securities include, but are not limited to, benchmark yields, reported trades, broker-dealer quotes, credit spreads, credit ratings, bond insurance (if applicable), benchmark securities, bids, offers, reference data and industry and economic events.  For mortgage-backed securities, inputs and assumptions may also include the structure of issuance, characteristics of the issuer, collateral attributes and prepayment speeds.

Equity securities

The fair values of equity securities, including preferred and common stocks, were based on quoted market prices for identical assets that are readily and regularly available in an active market.

The following tables present the fair values of the Company’s assets, measured on a recurring basis, as of March 31, 2021 and December 31, 2020:

(in thousands)	Total		Level 1		Level 2		Level 3
March 31, 2021
Debt securities:
U.S. Treasury bonds	$	156,117	$	—	$	156,117	$	—
Municipal bonds		1,453,618		—		1,453,618		—
Foreign government bonds		205,292		—		205,292		—
Governmental agency bonds		303,505		—		303,505		—
Governmental agency mortgage-backed securities		4,015,850		—		4,015,850		—
U.S. corporate debt securities		660,334		—		660,334		—
Foreign corporate debt securities		416,782		—		416,782		—
		7,211,498		—		7,211,498		—
Equity securities:
Preferred stocks		20,920		20,920		—		—
Common stocks		398,686		398,686		—		—
		419,606		419,606		—		—
Total assets	$	7,631,104	$	419,606	$	7,211,498	$	—

(in thousands)	Total		Level 1		Level 2		Level 3
December 31, 2020
Debt securities:
U.S. Treasury bonds	$	80,846	$	—	$	80,846	$	—
Municipal bonds		1,248,808		—		1,248,808		—
Foreign government bonds		199,530		—		199,530		—
Governmental agency bonds		263,922		—		263,922		—
Governmental agency mortgage-backed securities		3,474,618		—		3,474,618		—
U.S. corporate debt securities		680,697		—		680,697		—
Foreign corporate debt securities		406,401		—		406,401		—
		6,354,822		—		6,354,822		—
Equity securities:
Preferred stocks		19,479		19,479		—		—
Common stocks		444,647		444,647		—		—
		464,126		464,126		—		—
Total assets	$	6,818,948	$	464,126	$	6,354,822	$	—

There were no transfers between Levels 1, 2 and 3 during the three months ended March 31, 2021 and 2020.

Financial instruments not measured at fair value

In estimating the fair values of its financial instruments not measured at fair value, the Company used the following methods and assumptions:

Cash and cash equivalents

The carrying amount for cash and cash equivalents approximates fair value due to the short-term maturity of these investments.

Deposits with banks

The fair value of deposits with banks is estimated based on rates currently offered for deposits of similar remaining maturities, where applicable.

Notes receivable, net

The fair value of notes receivable, net is estimated based on current market rates offered for notes with similar maturities and credit quality.

Secured financings receivable

The carrying amount of secured financings receivable approximates fair value due to the short-term nature of these assets.

Secured financings payable

The carrying amount of secured financings payable approximates fair value due to the short-term nature of these liabilities.

Notes and contracts payable

The fair value of notes and contracts payable is estimated based on current rates offered for debt of similar remaining maturities.

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments not measured at fair value as of March 31, 2021 and December 31, 2020:

	Carrying		Estimated fair value
(in thousands)	Amount		Total		Level 1		Level 2		Level 3
March 31, 2021
Assets:
Cash and cash equivalents	$	2,026,024	$	2,026,024	$	2,026,024	$	—	$	—
Deposits with banks	$	45,359	$	45,947	$	6,092	$	39,855	$	—
Notes receivable, net	$	39,355	$	39,613	$	—	$	—	$	39,613
Secured financings receivable	$	745,813	$	745,813	$	—	$	745,813	$	—
Liabilities:
Secured financings payable	$	645,530	$	645,530	$	—	$	645,530	$	—
Notes and contracts payable	$	1,009,447	$	1,102,170	$	—	$	1,096,598	$	5,572

	Carrying		Estimated fair value
(in thousands)	Amount		Total		Level 1		Level 2		Level 3
December 31, 2020
Assets:
Cash and cash equivalents	$	1,275,466	$	1,275,466	$	1,275,466	$	—	$	—
Deposits with banks	$	45,856	$	45,947	$	6,092	$	39,855	$	—
Notes receivable, net	$	29,912	$	30,279	$	—	$	—	$	30,279
Secured financings receivable	$	748,312	$	748,312	$	—	$	748,312	$	—
Liabilities:
Secured financings payable	$	516,155	$	516,155	$	—	$	516,155	$	—
Notes and contracts payable	$	1,010,756	$	1,131,356	$	—	$	1,125,128	$	6,228