Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

FAIR VALUE MEASUREMENTS

5. FAIR VALUE MEASUREMENTS

     In accordance with ASC 820, the Company categorizes its investments and certain other assets and liabilities recorded at fair value into a three-level fair value hierarchy as follows:

• Level 1 — Unadjusted quoted market prices for identical assets or liabilities in active markets which are accessible by the Company.

• Level 2 — Observable prices in active markets for similar assets or liabilities. Prices for identical or similar assets or liabilities in markets which are not active. Directly observable market inputs for substantially the full term of the asset or liability, such as interest rates and yield curves at commonly quoted intervals, volatilities, prepayment speeds, default rates, and credit spreads. Market inputs that are not directly observable but are derived from or corroborated by observable market data.

• Level 3 — Unobservable inputs based on the Company’s own judgment as to assumptions a market participant would use, including inputs derived from extrapolation and interpolation that are not corroborated by observable market data.

     The Company evaluates the various types of securities in its investment portfolio to determine the appropriate level in the fair value hierarchy based upon trading activity and the observability of market inputs. The Company employs control processes to validate the reasonableness of the fair value estimates of its assets and liabilities, including those estimates based on prices and quotes obtained from independent third party sources. The Company’s procedures generally include, but are not limited to, initial and ongoing evaluation of methodologies used by independent third parties and monthly analytical reviews of the prices against current pricing trends and statistics.

     Where possible, the Company utilizes quoted market prices to measure fair value. For investments that have quoted market prices in active markets, the Company uses the quoted market price as fair value and includes these prices in the amounts disclosed in Level 1 of the hierarchy. When quoted market prices in active markets are unavailable, the Company determines fair values using various valuation techniques and models based on a range of observable market inputs including pricing models, quoted market price of publicly traded securities with similar duration and yield, time value, yield curve, prepayment speeds, default rates and discounted cash flow. In most cases, these estimates are determined based on independent third party valuation information, and the amounts are disclosed in Level 2 of the fair value hierarchy. Generally, the Company obtains a single price or quote per instrument from independent third parties to assist in establishing the fair value of these investments.

     If quoted market prices and independent third party valuation information are unavailable, the Company produces an estimate of fair value based on internally developed valuation techniques, which, depending on the level of observable market inputs, will render the fair value estimate as Level 2 or Level 3. On occasions when pricing service data is unavailable, the Company may rely on bid/ask spreads from dealers in determining the fair value. When dealer quotations are used to assist in establishing the fair value, the Company generally obtains one quote per instrument. The quotes obtained from dealers or brokers are generally non-binding. When dealer quotations are used, the Company uses the mid-mark as fair value. When broker or dealer quotations are used for valuation or price verification, greater priority is given to executable quotes. As part of the price verification process, valuations based on quotes are corroborated by comparison both to other quotes and to recent trading activity in the same or similar instruments.

     To the extent the Company determines that a price or quote is inconsistent with actual trading activity observed in that investment or similar investments, or if the Company does not think the quote is reflective of the market value for the investment, the Company will internally develop a fair value using this observable market information and disclose the occurrence of this circumstance.

     In accordance with ASC 820, the Company has categorized its available for sale securities into a three level fair value hierarchy based on the priority of inputs to the valuation techniques. The fair values of investments disclosed in Level 1 of the fair value hierarchy include money market funds and certain U.S. government securities, while the investments disclosed in Level 2 include the majority of the Company’s fixed income investments. In cases where there is limited activity or less transparency around inputs to the valuation, the Company classifies the fair value estimates within Level 3 of the fair value hierarchy.

     As of September 30, 2011, all of the Company’s investments classified within Level 2 and Level 3 of the fair value hierarchy are valued based on quotes or prices obtained from independent third parties, except for $110.8 million of “Corporate bonds and municipal” classified as Level 2, $89.7 million of “Other Bonds” classified as Level 2 and $594,000 of “Commercial-backed” investments classified as Level 3. The “Corporate bonds and municipal” investments classified as Level 2 noted above includes $105.7 million of an investment grade corporate bond issued by UnitedHealth Group Inc. that was received as consideration for the sale of the Company’s former Student Insurance Division in December 2006. The $89.7 million of “Other bonds” classified as Level 2 was received from a unit of the CIGNA Corporation as consideration for the receipt of the former Star HRG assets.

Fair Value Hierarchy on a Recurring Basis

     Assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations.

	Assets at Fair Value at September 30, 2011
	Level 1		Level 2		Level 3		Total
			(In thousands)
U.S. and U.S. Government agencies	$	4,578	$	20,106	$	—	$	24,684
Corporate bonds and municipals		—		259,179		—		259,179
Residential-backed issued by agencies		—		50,503		—		50,503
Commercial-backed issued by agencies		—		1,741		—		1,741
Residential-backed		—		303		—		303
Commercial-backed		—		12,275		594		12,869
Asset-backed		—		4,011		—		4,011
Other bonds		—		89,685		—		89,685
Other invested assets (1).		—		—		2,098		2,098
Short-term investments (2)		591,366		—		—		591,366
	$	595,944	$	437,803	$	2,692	$	1,036,439

(1)	Investments in entities that calculate net asset value per share
(2)	Amount excludes $20.0 million of short-term other investments which are not subject to fair value measurement.

	Liabilities at Fair Value at September 30, 2011
	Level 1	Level 2	Level 3		Total
		(In thousands)
Agent and employee plans	—	—		5,143		5,143

	Assets at Fair Value at December 31, 2010
	Level 1		Level 2		Level 3		Total
			(In thousands)
U.S. and U.S. Government agencies	$	4,611	$	51,655	$	—	$	56,266
Corporate bonds and municipals		—		402,883		—		402,883
Residential-backed issued by agencies		—		72,684		—		72,684
Commercial-backed issued by agencies		—		5,392		—		5,392
Residential-backed		—		2,410		—		2,410
Commercial-backed		—		44,367		916		45,283
Asset-backed		—		8,095		—		8,095
Other bonds		—		86,392		—		86,392
Other invested assets (1)		—		—		2,000		2,000
Short-term investments (2)		347,121		—		—		347,121
	$	351,732	$	673,878	$	2,916	$	1,028,526

(1)	Investments in entities that calculate net asset value per share
(2)	Amount excludes $23.9 million of short-term other investments which are not subject to fair value measurement.

	Liabilities at Fair Value at December 31, 2010
	Level 1		Level 2		Level 3		Total
			(In thousands)
Interest rate swaps	$	—	$	2,367	$	—	$	2,367
Agent and employee plans		—		—		6,238		6,238
	$	—	$	2,367	$	6,238	$	8,605

     The following is a description of the valuation methodologies used for certain assets and liabilities of the Company measured at fair value on a recurring basis, including the general classification of such assets pursuant to the valuation hierarchy.

Fixed Income Investments

          Available for sale investments

     The Company’s fixed income investments include investments in U.S. Treasury securities, U.S. Government agency bonds, corporate bonds, mortgage-backed and asset-backed securities, and municipal securities and bonds.

     The Company estimates the fair value of its U.S. Treasury securities using unadjusted quoted market prices, and accordingly, discloses these investments in Level 1 of the fair value hierarchy. The fair values of the majority of non-U.S. treasury securities held by the Company are determined based on observable market inputs provided by independent third party valuation information. The market inputs utilized in the pricing evaluation include but are not limited to, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. The Company classifies the fair value estimates based on these observable market inputs within Level 2 of the fair value hierarchy. Investments classified within Level 2 consist of U.S. government agencies bonds, corporate bonds, mortgage-backed and asset-backed securities, and municipal bonds.

     The Company also holds a fixed income commercial asset-backed investment for which it estimates the fair value using an internal pricing matrix with some unobservable inputs that are significant to the valuation. Consequently, the lack of transparency in the inputs and availability of independent third party pricing information for this investment resulted in its fair value being classified within the Level 3 of the hierarchy. As of September 30, 2011, the fair value of such commercial asset-backed security which represents approximately 0.1% of the Company’s total fixed income investments is reflected within the Level 3 of the fair value hierarchy.

Other invested assets

     The Company’s other invested assets consist of one alternative investment that owns a portfolio of collateralized debt obligation equity investments managed by a third party management group. The Company calculates the fair market value of such investment using the net asset value per share, which is determined based on unobservable inputs. Accordingly, the fair value of this asset is reflected within Level 3 of the fair value hierarchy.

     The Company has committed to fund $5.0 million to such equity investment, of which the entire amount has been funded to date. There are no redemption opportunities, and the fund will terminate when the underlying collateralized debt obligation deals mature.

Short-term investments

     The Company’s short-term investments primarily consist of a U.S. Treasury Bill and highly liquid money market funds, which are reflected within Level 1 of the fair value hierarchy.

Derivatives

     For the period ended December 31, 2010, the Company’s derivative instruments were valued utilizing valuation models that primarily use market observable inputs and are traded in the markets where quoted market prices are not readily available, and accordingly, these instruments are reflected within the Level 2 of the fair value hierarchy. As of April 11, 2011 all derivative instruments have matured.

Agent and Employee Stock Plans

     The Company accounts for its agent and certain employee stock plan liabilities based on the Company’s share price at the end of each reporting period. The Company’s share price at the end of each reporting period is based on the prevailing fair value as determined by the Company’s Board of Directors (see Note 12 of Notes to Consolidated Condensed Financial Statements). The Company largely uses unobservable inputs in deriving the fair value of its share price and the value is, therefore, reflected in Level 3 of the hierarchy.

Changes in Level 3 Assets and Liabilities

     The tables below summarize the change in balance sheet carrying values associated with Level 3 financial instruments and agent and employee stock plans for the three and nine months ended September 30, 2011.

			Changes in Level 3 Assets and Liabilities Measured at Fair Value
			For the Three Months Ended September 30, 2011
			Unrealized									Realized		Transfer
	Beginning		Gains or			Sales or						Gains or		in/(out) of		Ending
	Balance		(Losses)			Redemption			Settlements			(Losses)(1)		Level 3, Net		Balance
	(In thousands)
ASSETS
Commercial-backed	$	704	$	(11	)	$	(103	)	$	3		$	—	$	—	$	593
Other invested assets		2,648		(540	)		—			(9	)		—		—		2,099
	$	3,352	$	(551	)	$	(103	)	$	(6	)	$	—	$	—	$	2,692
LIABILITIES
Agent and employee stock plans	$	4,217	$	100		$	—		$	826		$	—	$	—	$	5,143

			Changes in Level 3 Assets and Liabilities Measured at Fair Value
			For the Nine Months Ended September 30, 2011
			Unrealized									Realized		Transfer
	Beginning		Gains or			Sales or						Gains or		in/(out) of		Ending
	Balance		(Losses)			Redemption			Settlements			(Losses)(1)		Level 3, Net		Balance
	(In thousands)
ASSETS
Commercial-backed	$	916	$	(30	)	$	(302	)	$	9		$	—	$	—	$	593
Other invested assets		2,000		116			—			(17	)		—		—		2,099
	$	2,916	$	86		$	(302	)	$	(8	)	$	—	$	—	$	2,692
LIABILITIES
Agent and employee stock plans	$	6,238	$	330		$	—		$	(1,425	)	$	—	$	—	$	5,143

     During the nine months ended September 30, 2011, the Company did not transfer securities between Level 1, Level 2 and Level 3.

Investments not reported at fair value

     Other investments consists of investments in equity investees, which are accounted for under the equity method of accounting on the Company’s consolidated condensed balance sheet at cost.