FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2012

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

3.  FAIR VALUE MEASUREMENTS

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

We determined the fair values of certain financial instruments based on the fair value hierarchy.  GAAP guidance requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  The guidance also describes three levels of inputs that may be used to measure fair value.  Financial assets are classified based upon the lowest level of significant input that is used to determine fair value.

The following are the levels of the fair value hierarchy and a brief description of the type of valuation inputs that are used to establish each level:

Pricing Level 1 is applied to valuations based on readily available, unadjusted quoted prices in active markets for identical assets. These valuations are based on quoted prices that are readily and regularly available in an active market.

Pricing Level 2 is applied to valuations based upon quoted prices for similar assets in active markets, quoted prices for identical or similar assets in inactive markets; or valuations based on models where the significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities) or can be corroborated by observable market data.

Pricing Level 3 is applied to valuations that are derived from techniques in which one or more of the significant inputs are unobservable.

As a part of management’s process to determine fair value, we utilize a widely recognized, third-party pricing source to assist our determination of fair values.  We have obtained an understanding of the third-party pricing source’s valuation methodologies and inputs.  The following is a description of the valuation techniques used for financial assets that are measured at fair value, including the general classification of such assets pursuant to the fair value hierarchy.

Corporate, Agencies, Treasuries and Municipal Bonds: The pricing vendor uses a generic model which uses standard inputs, including (listed in order of priority for use), benchmark yields, reported trades, broker/ dealer quotes, issuer spreads, two-sided markets, benchmark securities, market bids/offers and other reference data. The pricing vendor also monitors market indicators, as well as industry and economic events. Further, the model uses Option Adjusted Spread (OAS) and is a multidimensional relational model.  All bonds valued using these techniques are classified as Level 2.  All corporate, agency, treasury and municipal securities were deemed Level 2.

Mortgage-backed Securities (MBS)/Collateralized Mortgage Obligations (CMO) and Asset-backed Securities (ABS): The pricing vendor evaluation methodology includes interest rate movements, new issue data and other pertinent data. Evaluation of the tranches (non-volatile, volatile or credit sensitivity) is based on the pricing vendors’ interpretation of accepted modeling and pricing conventions. This information is then used to determine the cash flows for each tranche, benchmark yields, prepayment assumptions and to incorporate collateral performance. To evaluate CMO volatility, an OAS model is used in combination with models that simulate interest rate paths to determine market price information. This process allows the pricing vendor to obtain evaluations of a broad universe of securities in a way that reflects changes in yield curve, index rates, implied volatility, mortgage rates and recent trade activity.  MBS/CMO and ABS with corroborated, observable inputs are classified as Level 2.  All of our MBS/CMO and ABS are deemed Level 2.

Common Stock: Exchange traded equities have readily observable price levels and are classified as Level 1 (fair value based on quoted market prices).  All of our common stock holdings are deemed Level 1.

For the Level 2 securities, as a described above, we periodically conduct a review to assess the reasonableness of the fair values provided by our pricing source.  Our review consists of a two pronged approach.  First, we compare prices provided by our pricing source to those provided by an additional source.  Second, we obtain prices from securities brokers and compare them to the prices provided by our pricing source.  In both comparisons, when discrepancies are found, we compare our prices to actual reported trade data. Based on this assessment, we determined that the fair values of our Level 2 securities provided by our pricing source are reasonable.

For common stock, we receive prices from the same nationally recognized pricing source.  Prices are based on observable inputs in an active market and are therefore disclosed as Level 1.  Based on this assessment, we determined that the fair values of our Level 1 securities provided by our pricing source are reasonable.

Due to the relatively short-term nature of cash, short-term investments, accounts receivable and accounts payable, their carrying amounts are reasonable estimates of fair value.

Assets measured at fair value in the accompanying unaudited condensed consolidated interim financial statements on a recurring basis are summarized below:

	As of March 31, 2012
	Fair Value Measurements Using
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
($ in 000s)	Identical Assets		Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Trading securities
Mortgage-backed	$	—	$	—	$	—	$	—
ABS/CMO*	—		8		—		8
U.S. Government	—		—		—		—
Total trading securities	$	—	$	8	$	—	$	8
Available-for-sale securities
U.S. Agencies	$	—	$	73,431	$	—	$	73,431
Corporates	—		520,400		—		520,400
Mortgage-backed	—		267,650		—		267,650
ABS/CMO*	—		74,396		—		74,396
Non-U.S. govt. & agency	—		8,698		—		8,698
U.S. Government	—		16,074		—		16,074
States, political subdivisions and revenues	—		290,802		—		290,802
Equities	406,399		—		—		406,399
Total available-for-sale securities	$	406,399	$	1,251,451	$	—	$	1,657,850
Total	$	406,399	$	1,251,459	$	—	$	1,657,858

*Asset-backed & collateralized mortgage obligations

	As of December 31, 2011
	Fair Value Measurements Using
	Quoted Prices in		Significant Other		Significant
	Active Markets for		Observable		Unobservable
($ in 000s)	Identical Assets		Inputs		Inputs
Description	(Level 1)		(Level 2)		(Level 3)		Total
Trading securities
Corporates	$	—	$	—	$	—	$	—
Mortgage-backed	—		7		—		7
ABS/CMO*	—		—		—		—
U.S. Government	—		—		—		—
Total trading securities	$	—	$	7	$	—	$	7
Available-for-sale securities
U.S. Agencies	$	—	$	113,819	$	—	$	113,819
Corporates	—		467,100		—		467,100
Mortgage-backed	—		248,986		—		248,986
ABS/CMO*	—		56,953		—		56,953
Non-U.S. govt. & agency	—		6,697		—		6,697
U.S. Government	—		16,172		—		16,172
States, political subdivisions and revenues	—		236,590		—		236,590
Equities	388,689		—		—		388,689
Total available-for-sale securities	$	388,689	$	1,146,317	$	—	$	1,535,006
Total	$	388,689	$	1,146,324	$	—	$	1,535,013

*Asset-backed & collateralized mortgage obligations

As noted in the above table, we do not have any assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period. Additionally, there were no securities transferred in or out of levels 1 or 2 during the three-month period ended March 31, 2012.