Fair Value Measurements

The fair value of the Company’s financial assets and liabilities is determined in accordance with the fair value hierarchy. The fair value of the Company’s Level 1 financial assets consist mainly of investments in equities and mutual funds that are quoted daily. Level 2 financial assets consist of Government National Mortgage Association (GNMA) mortgage-backed pass-through certificates, Federal Home Loan Bank (FHLB) and other U.S. government agency short-term notes and investment grade commercial paper. The Company's Level 3 financial assets primarily consisted of senior note obligations issued by SIVs. In November 2012, the Company sold its remaining SIV security, the Gryphon senior note, and recognized a gain of $5,322 from the sale. As of December 31, 2012, the Company no longer owns any SIV securities.

The Company had no Level 3 financial liabilities at December 31, 2012 or 2011. There were no transfers of financial assets between levels within the fair value hierarchy during 2012 or 2011.

Valuation of GNMA, Other U.S. Government Agency Securities and Investment Grade Commercial Paper

All of the Company's investments in GNMA, other U.S. government agency securities and investment grade commercial paper are held in accounts at well-established financial institutions. The Company's selection of a financial institution for the purpose of purchasing securities considered a number of various factors including, but not limited to, securities pricing policies and procedures utilized by that financial institution. Each financial institution utilizes the services of independent pricing vendors. These vendors utilize evaluated and industry accepted pricing models that vary by asset class and incorporate available trade, bid and other market information to determine the fair value of the securities. The market inputs, listed in approximate order of priority, include: benchmark yields, reported trade, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. The Company evaluated the information regarding the pricing methodologies and processes utilized by the independent pricing vendors during the selection process of the financial institution. The Company analyzed this information for the purpose of classifying the securities into the appropriate level within the fair value hierarchy and to ensure that each pricing model for each asset class provided the fair value of those specific securities in accordance with generally accepted accounting principles. The Company continually monitors the price of each security for any unanticipated deviations from the previously quoted price or deviations from anticipated changes in a security's price based upon an assessment of market factors and other factors relative to a specific issue expected to affect a security's price. In the event a security price changed in excess of management's pre-established tolerance levels, additional analysis is conducted which may include the comparison of the security's price as determined by other independent pricing vendors. The Company's investments in GNMA, other U.S. government agency securities and investment grade commercial paper have been recorded at the prices provided by the independent pricing vendor without adjustment.

Valuation of SIV Securities

The underlying collateral of the SIV securities is mainly comprised of asset-backed securities and collateralized debt obligations. The Company utilizes the services of an independent firm that specializes in securities valuations to assist in determining the fair value of the SIV security owned. The Company's selection of the independent valuation firm was based upon a review of their modeling techniques and assumptions utilized within their models for each asset class rather than at a specific security level. Management also considered the reputation of the valuation firm and their expertise associated with SIV securities and other types of illiquid securities. Finally, management confirmed prior to selection of the valuation firm that the estimated fair value conformed to generally accepted accounting principles. On a quarterly basis, management evaluates a detailed description of the modeling techniques and types of inputs used for each major asset class which is reviewed to ensure consistent application since the initial selection of the valuation firm. Additionally, management receives the estimated fair value of each individual security that comprises the underlying collateral which is compared to the previous quarter's estimated fair value to identify and discuss significant fluctuations with the valuation firm.

The model used by the independent valuation firm to determine the fair value of the SIV security attempts to value the underlying collateral of the SIV security through the use of industry accepted and proprietary valuation techniques and models. This approach combines advanced analytics with real-time market information that incorporate structural and fundamental analysis, collateral characteristics and recent market developments. Each security that makes up the underlying collateral is specifically identified by its CUSIP or ISIN number and is analyzed by using observable collateral characteristics and credit statistics in order to project future performance and expected cash flows for each individual security. The projected cash flows incorporate assumptions and expectations based upon the foregoing analysis of the collateral characteristics such as, but not limited to, default probabilities, recovery rates, prepayment speeds and loss severities. Expected future cash flows are discounted at an appropriate yield derived from the individual security, structural and collateral characteristics, trading levels and other available market data. Different modeling techniques and associated inputs and assumptions may be used to project future cash flows for each security depending upon the asset classification of that individual security (i.e. residential mortgage-backed security, commercial mortgage-backed security, collateralized debt obligations, etc.). The aggregate value of the discounted cash flows of the underlying collateral is compared to the total remaining par value of the collateral to determine the expected recovery price, or fair value, of the remaining note obligations. Other factors may be considered that are specific to the SIV security that may affect the fair value of the SIV security.

Management also considered, when available, price quotes from brokers and dealers. If a price quote was available, management compared this number to the fair value derived from the valuation model of the independent firm giving consideration to other market factors and risk premiums. In the event a market transaction did exist for a SIV security, management evaluated the publicly available information surrounding the transaction in order to assess if the price used represented the fair value for the SIV security. Given the lack of any significant trading activity for the SIV security owned by the Company, management concluded that market prices did not represent the security's implied fair value.

The fair value of certain financial assets and liabilities of the Company was determined using the following inputs:



			December 31, 2012
			Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Equity available-for-sale securities	$	15,926	$	15,926	$	—	$	—
Fixed-income available-for-sale securities	59,943		—		59,943		—
Fixed income securities owned	20,088		—		20,088		—
Trading securities	5,909		4,706		—		1,203
	$	101,866	$	20,632	$	80,031	$	1,203



			December 31, 2011
			Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Equity available-for-sale securities	$	8,010	$	8,010	$	—	$	—
Fixed-income available-for-sale securities	74,998		—		74,998		—
Fixed income securities owned	20,949		—		20,949		—
Trading securities	56,325		3,702		—		52,623
	$	160,282	$	11,712	$	95,947	$	52,623

The table below presents a reconciliation for all assets and liabilities of the Company measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period from January 1, 2011 to December 31, 2012:



	Trading Securities
Balance, January 1, 2011	$	100,645
Purchases	1,215
Issuances	—
Principal prepayments and settlements	(17,921		)
Sales	(34,706		)
Total gains or (losses) (realized/unrealized):
Included in earnings	3,390
Included in other comprehensive income	—
Transfers in and out of Level 3	—
Balance, December 31, 2011	$	52,623
Purchases	13
Issuances	—
Principal prepayments and settlements	(10,728		)
Sales	(53,920		)
Total gains or (losses) (realized/unrealized):
Included in earnings	13,215
Included in other comprehensive income	—
Transfers in and out of Level 3	—
Balance, December 31, 2012	$	1,203