Fair Value Measurements

12 Months Ended

Dec. 31, 2015

Assets measured at fair value included those listed, by hierarchy level, in the following tables as of December 31, 2015 and 2014:



December 31, 2015
(In thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	160,584	$	46,197	$	114,387	$	—
Obligations of U.S. states and political subdivisions	1,792,527		—		1,791,299		1,228
Corporate debt securities	2,004,763		—		2,004,763		—
Asset-backed securities	116,617		—		116,617		—
Residential mortgage-backed securities	257,648		—		257,648		—
Commercial mortgage-backed securities	233,491		—		233,491		—
Collateralized loan obligations	60,200		—		60,200		—
Debt securities issued by foreign sovereign governments	31,731		31,731		—		—
Total debt securities	4,657,561		77,928		4,578,405		1,228
Equity securities (1)	5,645		2,790		—		2,855
Total investments	$	4,663,206	$	80,718	$	4,578,405	$	4,083
Real estate acquired (2)	$	12,149	$	—	$	—	$	12,149



December 31, 2014
(In thousands)	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	346,775	$	188,824	$	157,951	$	—
Obligations of U.S. states and political subdivisions	855,142		—		853,296		1,846
Corporate debt securities	2,425,281		—		2,425,281		—
Asset-backed securities	286,655		—		286,655		—
Residential mortgage-backed securities	321,237		—		321,237		—
Commercial mortgage-backed securities	275,278		—		275,278		—
Collateralized loan obligations	60,076		—		60,076		—
Debt securities issued by foreign sovereign governments	39,170		39,170		—		—
Total debt securities	4,609,614		227,994		4,379,774		1,846
Equity securities (1)	3,055		2,734		—		321
Total investments	$	4,612,669	$	230,728	$	4,379,774	$	2,167
Real estate acquired (2)	$	12,658	$	—	$	—	$	12,658


(1)	Equity securities in Level 3 are carried at cost, which approximates fair value.


(2)	Real estate acquired through claim settlement, which is held for sale, is reported in other assets on the consolidated balance sheets.

For assets and liabilities measured at fair value using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances for the years ended December 31, 2015, 2014, and 2013 is shown in the following tables. There were no transfers into or out of Level 3 in those years and there we no losses included in earnings for those years attributable to the change in unrealized losses on assets still held at the end of each applicable year.



(In thousands)	Obligations of U.S. States and Political Subdivisions			Equity Securities		Total Investments			Real Estate Acquired
Balance at December 31, 2014	$	1,846		$	321	$	2,167		$	12,658
Total realized/unrealized gains (losses):
Included in earnings and reported as losses incurred, net	—			—		—			(2,322		)
Purchases	7			2,534		2,541			34,624
Sales	(625		)	—		(625		)	(32,811		)
Balance at December 31, 2015	$	1,228		$	2,855	$	4,083		$	12,149



(In thousands)	Obligations of U.S. States and Political Subdivisions			Equity Securities		Total Investments			Real Estate Acquired
Balance at December 31, 2013	$	2,423		$	321	$	2,744		$	13,280
Total realized/unrealized gains (losses):
Included in earnings and reported as losses incurred, net	—			—		—			(4,129		)
Purchases	30			—		30			42,247
Sales	(607		)	—		(607		)	(38,740		)
Balance at December 31, 2014	$	1,846		$	321	$	2,167		$	12,658



(In thousands)	Obligations of U.S. States and Political Subdivisions			Corporate Debt Securities			Equity Securities		Total Investments			Real Estate Acquired
Balance at December 31, 2012	$	3,130		$	17,114		$	321	$	20,565		$	3,463
Total realized/unrealized gains (losses):
Included in earnings and reported as realized investment gains (losses), net	—			(225		)	—		(225		)	—
Included in earnings and reported as losses incurred, net	—			—			—		—			(4,959		)
Included in other comprehensive income	—			—			—		—			—
Purchases	30			—			—		30			39,188
Sales	(737		)	(16,889		)	—		(17,626		)	(24,412		)
Balance at December 31, 2013	$	2,423		$	—		$	321	$	2,744		$	13,280

Authoritative guidance over disclosures about the fair value of financial instruments requires additional disclosure for financial instruments not measured at fair value. Certain financial instruments, including insurance contracts, are excluded from these fair value disclosure requirements. The carrying values of cash and cash equivalents (Level 1) and accrued investment income (Level 2) approximated their fair values.

As of December 31, 2015, the majority of the $4.1 million balance of Level 3 securities are equity securities that can only be redeemed or sold at their par value and only to the security issuer, with the remainder of the balance held in state premium tax credit investments. The state premium tax credit investments have an average maturity of less than 5 years and credit ratings of AA+ or higher, and their balance reflects their remaining scheduled payments discounted at an average annual rate of 7.2%. As of December 31, 2014 the majority of our Level 3 securities were state premium tax credit investments. During 2013 we sold our remaining auction rate securities.

Additional fair value disclosures related to our investment portfolio are included in Note 6 – “Investments.”

We incur financial liabilities in the normal course of our business. The following tables present the carrying value and fair value of our financial liabilities disclosed, but not carried, at fair value at December 31, 2015 and 2014. The fair values of our Senior Notes, Convertible Senior Notes and Convertible Junior Debentures were determined using available pricing for these notes, debentures, or similar instruments and they are categorized as Level 2 as described in Note 3 – “Summary of Significant Accounting Policies - Fair Value Measurements.”



(In thousands)	Par Value		Fair Value

December 31, 2015
Financial liabilities:
Convertible Senior Notes due 2017	$	333,503	$	345,616
Convertible Senior Notes due 2020	500,000		701,955
Convertible Junior Subordinated Debentures due 2063	389,522		455,067
Total financial liabilities	$	1,223,025	$	1,502,638

December 31, 2014
Financial liabilities:
Senior Notes	$	61,953	$	63,618
Convertible Senior Notes due 2017	345,000		387,997
Convertible Senior Notes due 2020	500,000		735,075
Convertible Junior Subordinated Debentures due 2063	389,522		500,201
Total financial liabilities	$	1,296,475	$	1,686,891

The Convertible Senior Notes and Convertible Junior Debentures are obligations of our holding company, MGIC Investment Corporation, and not of its subsidiaries. At December 31, 2015, we had approximately $402 million in cash and investments at our holding company. The net unrealized losses on our holding company investment portfolio were approximately $2.7 million at December 31, 2015. The modified duration of the holding company investment portfolio, excluding cash and cash equivalents, was 3.1 years at December 31, 2015.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details