Note 11 - Fair Value Measurements

The Company classifies its investments in Fixed Maturities and Equity Securities as available for sale and reports these investments at fair value. The Company has elected the fair value option method of accounting for investments in certain hedge funds and, accordingly, reports these investments at fair value. The Company classifies certain investments in mutual funds included in Other Investments as trading securities and reports these investments at fair value. The Company has no material liabilities that are measured and reported at fair value.

Certain investments that are measured at fair value using the net asset value practical expedient are not required to be classified using the fair value hierarchy, but are presented in the following two tables to permit reconciliation of the fair value hierarchy to the amounts presented in the Condensed Consolidated Balance Sheet. The valuation of assets measured at fair value in the Company’s Condensed Consolidated Balance Sheet at September 30, 2016 is summarized below.



	Fair Value Measurements
(Dollars in Millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Measured at Net Asset Value		Total Fair Value
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	129.4	$	180.9	$	—	$	—	$	310.3
States and Political Subdivisions	—		1,658.5		4.1		—		1,662.6
Foreign Governments	—		3.6		—		—		3.6
Corporate Securities:
Bonds and Notes	—		2,627.3		442.0		—		3,069.3
Redeemable Preferred Stocks	—		—		0.9		—		0.9
Collateralized Loan Obligations	—		10.1		111.3		—		121.4
Other Mortgage- and Asset-backed	—		2.0		—		—		2.0
Total Investments in Fixed Maturities	129.4		4,482.4		558.3		—		5,170.1
Equity Securities:
Preferred Stocks:
Finance, Insurance and Real Estate	—		77.7		5.3		—		83.0
Other Industries	—		11.8		13.7		—		25.5
Common Stocks:
Finance, Insurance and Real Estate	15.7		8.6		—		—		24.3
Other Industries	0.3		0.5		12.0		—		12.8
Other Equity Interests:
Exchange Traded Funds	151.3		—		—		—		151.3
Limited Liability Companies and Limited Partnerships	—		—		39.0		169.0		208.0
Total Investments in Equity Securities	167.3		98.6		70.0		169.0		504.9
Fair Value Option Investments:
Limited Liability Companies and Limited Partnerships Hedge Funds	—		—		—		126.1		126.1
Other Investments:
Trading Securities	5.2		—		—		—		5.2
Total	$	301.9	$	4,581.0	$	628.3	$	295.1	$	5,806.3

At September 30, 2016, the Company had unfunded commitments to invest an additional $126.0 million in certain limited liability investment companies and limited partnerships that will be included in Other Equity Interests when funded.

Note 11 - Fair Value Measurements (continued)

The valuation of assets measured at fair value in the Company’s Condensed Consolidated Balance Sheet at December 31, 2015 is summarized below.



	Fair Value Measurements
(Dollars in Millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Measured at Net Asset Value		Total Fair Value
Fixed Maturities:
U.S. Government and Government Agencies and Authorities	$	124.9	$	195.7	$	—	$	—	$	320.6
States and Political Subdivisions	—		1,622.6		—		—		1,622.6
Corporate Securities:
Bonds and Notes	—		2,376.5		436.3		—		2,812.8
Redeemable Preferred Stocks	—		—		3.8		—		3.8
Collateralized Loan Obligations	—		—		87.3		—		87.3
Other Mortgage- and Asset-backed	—		1.4		3.8		—		5.2
Total Investments in Fixed Maturities	124.9		4,196.2		531.2		—		4,852.3
Equity Securities:
Preferred Stocks:
Finance, Insurance and Real Estate	—		79.8		5.1		—		84.9
Other Industries	—		6.2		12.8		—		19.0
Common Stocks:
Finance, Insurance and Real Estate	16.6		6.6		—		—		23.2
Other Industries	0.6		0.8		12.1		—		13.5
Other Equity Interests:
Exchange Traded Funds	177.1		—		—		—		177.1
Limited Liability Companies and Limited Partnerships	—		—		45.6		159.9		205.5
Total Investments in Equity Securities	194.3		93.4		75.6		159.9		523.2
Fair Value Option Investments:
Limited Liability Companies and Limited Partnership Hedge Funds	—		—		—		164.5		164.5
Other Investments:
Trading Securities	4.7		—		—		—		4.7
Total	$	323.9	$	4,289.6	$	606.8	$	324.4	$	5,544.7

The Company’s investments in Fixed Maturities that are classified as Level 1 in the two preceding tables primarily consist of U.S. Treasury Bonds and Notes. The Company’s investments in Equity Securities that are classified as Level 1 in the two preceding tables consist of either investments in publicly-traded common stocks or exchange traded funds. The Company’s investments in Fixed Maturities that are classified as Level 2 in the two preceding tables primarily consist of investments in corporate bonds, obligations of states and political subdivisions, and bonds and mortgage-backed securities of U.S. government agencies. The Company’s investments in Equity Securities that are classified as Level 2 in the two preceding tables primarily

Note 11 - Fair Value Measurements (continued)

consist of investments in preferred stocks. The Company uses a leading, nationally recognized provider of market data and analytics to price the vast majority of the Company’s Level 2 measurements. The provider utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information. Because many fixed maturity securities do not trade on a daily basis, the provider’s evaluated pricing applications apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing to prepare evaluations. In addition, the provider uses model processes to develop prepayment and interest rate scenarios. The pricing provider’s models and processes also take into account market convention. For each asset class, teams of its evaluators gather information from market sources and integrate relevant credit information, perceived market movements and sector news into the evaluated pricing applications and models. The Company generally validates the measurements obtained from its primary pricing provider by comparing them with measurements obtained from one additional pricing provider that provides either prices from recent market transactions, quotes in inactive markets or evaluations based on its own proprietary models.

The Company investigates significant differences related to the values provided. On completion of its investigation, management exercises judgment to determine the price selected and whether adjustments, if any, to the price obtained from the Company’s primary pricing provider would warrant classification of the price as Level 3. In instances where a measurement cannot be obtained from either pricing provider, the Company generally will evaluate bid prices from one or more binding quotes obtained from market makers to value investments in inactive markets and classified by the Company as Level 2. The Company generally classifies securities when it receives non-binding quotes or indications as Level 3 securities unless the Company can validate the quote or indication against recent transactions in the market.

The Company’s Investments in Fixed Maturities that are classified as Level 3 in the two preceding tables primarily consist of privately placed securities not rated by a Nationally Recognized Statistical Rating Organization and are priced primarily using a market yield approach. A market yield approach uses a risk-free rate plus a credit spread depending on the underlying credit profile of the security. For floating rate securities, the risk-free rate used in the market yield is the contractual floating rate of the security. For each individual security, the Company or the Company’s third party appraiser gathers information from market sources, relevant credit information, perceived market movements and sector news and determines an appropriate market yield for each security. The market yield selected is then used to discount the estimated future cash flows of the security to determine the fair value. The Company separately evaluates market yields based upon asset class to assess the reasonableness of the recorded fair value. For non-investment-grade Investments in Fixed Maturities that are classified as Level 3, the two primary asset classes are senior debt and junior debt. Senior debt includes those securities that receive first priority in a liquidation and junior debt includes any fixed maturity security with other than first priority in a liquidation.

The table below presents quantitative information about the significant unobservable inputs utilized by the Company in determining fair values for fixed maturity investments in corporate securities classified as Level 3 at September 30, 2016.



(Dollars in Millions)	Unobservable Input	Total Fair Value		Range of Unobservable Inputs					Weighted-average Yield
Investment-grade	Market Yield	$	102.1	2.4	%	-	4.7	%	3.2	%
Non-investment-grade:
Senior Debt	Market Yield	145.1		4.3		-	19.3		10.2
Junior Debt	Market Yield	184.9		8.8		-	26.0		13.3
Collateralized Loan Obligations	Market Yield	111.3		3.6		-	9.6		6.3
Other	Various	10.8
Total Level 3 Fixed Maturity Investments in Corporate Securities		$	554.2

Note 11 - Fair Value Measurements (continued)



(Dollars in Millions)	Unobservable Input	Total Fair Value		Range of Unobservable Inputs					Weighted-average Yield
Investment-grade	Market Yield	$	98.7	2.6	%	-	6.9	%	4.4	%
Non-investment-grade:
Senior Debt	Market Yield	114.2		5.9		-	15.3		10.4
Junior Debt	Market Yield	216.3		8.2		-	26.2		13.6
Collateralized Loan Obligations	Market Yield	87.3		3.1		-	10.8		6.1
Other Debt	Various	14.7
Total Level 3 Fixed Maturity Investments in Corporate Securities		$	531.2

For an investment in a fixed maturity security, an increase in the yield used to determine the fair value of the security will decrease the fair value of the security. A decrease in the yield used to determine fair value will increase the fair value of the security, but the fair value increase is generally limited to par, unless callable at a premium, if the security is currently callable.

The Company’s other investments that are classified as Level 3 primarily consist of Limited Liability Companies and Limited Partnerships, but also certain Preferred Stocks and Common Stocks. The Company either uses valuations provided by third party fund managers or third party appraisers, or that are generated internally. These valuations typically employ various valuation techniques commonly used in the industry, including earnings multiples based on comparable public securities, industry-specific non-earnings based multiples, market yields based on comparable public securities and discounted cash flow models.

Information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the nine months ended September 30, 2016 is presented below.



	Fixed Maturities														Equity Securities
(Dollars in Millions)	Corporate Bonds and Notes			States and Political Sub-divisions		Redeemable Preferred Stocks			Collateralized Loan Obligations			Other Mortgage- and Asset- backed			Preferred and Common Stocks			Other Equity Interests			Total
Balance at Beginning of Period	$	436.3		$	—	$	3.8		$	87.3		$	3.8		$	30.0		$	45.6		$	606.8
Total Gains (Losses):
Included in Condensed Consolidated Statement of Operations	(15.8		)	—		—			(0.2		)	0.4			0.5			(0.7		)	(15.8		)
Included in Other Comprehensive Income (Loss)	2.4			—		—			3.0			(0.4		)	3.5			(3.4		)	5.1
Purchases	148.3			—		—			33.2			—			0.2			2.1			183.8
Settlements	(34.9		)	—		(2.9		)	—			(3.0		)	—			—			(40.8		)
Sales	(79.3		)	—		—			(1.9		)	—			(3.2		)	(4.6		)	(89.0		)
Transfers into Level 3	—			4.1		—			—			—			—			—			4.1
Transfers out of Level 3	(15.0		)	—		—			(10.1		)	(0.8		)	—			—			(25.9		)
Balance at End of Period	$	442.0		$	4.1	$	0.9		$	111.3		$	—		$	31.0		$	39.0		$	628.3

Note 11 - Fair Value Measurements (continued)

Information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the three months ended September 30, 2016 is presented below.



	Fixed Maturities														Equity Securities
(Dollars in Millions)	Corporate Bonds and Notes			States and Political Sub- divisions		Redeemable Preferred Stocks			Collateralized Loan Obligations			Other Mortgage- and Asset- backed			Preferred and Common Stocks			Other Equity Interests			Total
Balance at Beginning of Period	$	459.4		$	—	$	2.9		$	102.2		$	3.7		$	31.4		$	47.2		$	646.8
Total Gains (Losses):
Included in Condensed Consolidated Statement of Operations	(7.0		)	—		—			0.1			0.4			1.4			—			(5.1		)
Included in Other Comprehensive Income (Loss)	(0.9		)	—		0.4			5.2			(0.4		)	1.0			(6.2		)	(0.9		)
Purchases	60.1			—		—			13.9			—			0.1			0.1			74.2
Settlements	(20.6		)	—		(2.4		)	—			(2.9		)	—			—			(25.9		)
Sales	(34.0		)	—		—			—			—			(2.9		)	(2.1		)	(39.0		)
Transfers into Level 3	—			4.1		—			—			—			—			—			4.1
Transfers out of Level 3	(15.0		)	—		—			(10.1		)	(0.8		)	—			—			(25.9		)
Balance at End of Period	$	442.0		$	4.1	$	0.9		$	111.3		$	—		$	31.0		$	39.0		$	628.3

The Company’s policy is to recognize transfers between levels as of the end of the reporting period. There were no transfers between levels 1 and 2 or Levels 1 and 3 for the nine and three months ended September 30, 2016. All transfers into or out of Level 3 for the nine and three months ended September 30, 2016 were due to changes in the availability of market observable inputs.

Information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the nine months ended September 30, 2015 is presented below.



	Fixed Maturities												Equity Securities
(Dollars in Millions)	Corporate Bonds and Notes			Redeemable Preferred Stocks			Collateralized Loan Obligations			Other Mortgage- and Asset- backed			Preferred and Common Stocks			Other Equity Interests			Total
Balance at Beginning of Period	$	360.6		$	6.7		$	64.4		$	3.9		$	38.8		$	44.0		$	518.4
Total Gains (Losses):
Included in Condensed Consolidated Statement of Operations	(3.5		)	(1.3		)	0.5			—			(1.2		)	(0.6		)	(6.1		)
Included in Other Comprehensive Income (Loss)	(3.4		)	(0.6		)	(0.3		)	—			1.6			(0.8		)	(3.5		)
Purchases	184.7			—			24.7			1.3			7.2			5.2			223.1
Settlements	(35.2		)	(0.3		)	(7.5		)	(0.1		)	(0.5		)	(0.5		)	(44.1		)
Sales	(62.4		)	—			(7.5		)	(1.2		)	(1.8		)	—			(72.9		)
Transfers into Level 3	—			—			—			—			0.8			—			0.8
Transfers out of Level 3	(12.3		)	—			—			—			(8.4		)	—			(20.7		)
Balance at End of Period	$	428.5		$	4.5		$	74.3		$	3.9		$	36.5		$	47.3		$	595.0

Note 11 - Fair Value Measurements (continued)

Information by security type pertaining to the changes in the fair value of the Company’s investments classified as Level 3 for the three months ended September 30, 2015 is presented below.



	Fixed Maturities												Equity Securities
(Dollars in Millions)	Corporate Bonds and Notes			Redeemable Preferred Stocks			Collateralized Loan Obligations			Other Mortgage- and Asset- backed			Preferred and Common Stocks			Other Equity Interests			Total
Balance at Beginning of Period	$	406.6		$	5.4		$	70.4		$	4.0		$	37.7		$	47.4		$	571.5
Total Gains (Losses):
Included in Condensed Consolidated Statement of Operations	(0.4		)	(0.8		)	0.1			—			—			0.5			(0.6		)
Included in Other Comprehensive Income (Loss)	(2.0		)	—			(1.5		)	(0.1		)	(0.6		)	(1.8		)	(6.0		)
Purchases	59.4			—			5.3			—			0.2			1.7			66.6
Settlements	(28.3		)	(0.1		)	—			—			(0.2		)	(0.5		)	(29.1		)
Sales	(6.8		)	—			—			—			(0.6		)	—			(7.4		)
Balance at End of Period	$	428.5		$	4.5		$	74.3		$	3.9		$	36.5		$	47.3		$	595.0

There were no transfers between Levels 1 and 2 or Levels 1 and 3 for the nine and three months ended September 30, 2015. All transfers into or out of Level 3 for the nine months ended September 30, 2015 were due to changes in the availability of market observable inputs. There were no transfers into or out of Level 3 for the three months ended September 30, 2015.

The fair value of Debt is estimated using quoted prices for similar liabilities in markets that are not active. The inputs

used in the valuation are considered Level 2 measurements. The fair value of Short-term Investments is estimated using inputs that are considered either Level 1 or Level 2 measurements.