The following describes the valuation methodologies generally used by the independent pricing sources, or by us, to measure financial instruments at fair value, including the general classification of such financial instruments pursuant to the valuation hierarchy.

U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies: Securities with valuations derived from quoted prices for identical instruments in active markets that we can access are categorized in Level 1 of the fair value hierarchy. Securities valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information in the valuation process are categorized as Level 2 of the fair value hierarchy.

Corporate Debt Bonds are valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process. These securities are generally categorized in Level 2 of the fair value hierarchy.

Obligations of U.S. States & Political Subdivisions are valued by tracking, capturing, and analyzing quotes for active issues and trades reported via the Municipal Securities Rulemaking Board records. Daily briefings and reviews of current economic conditions, trading levels, spread relationships, and the slope of the yield curve provide further data for evaluation. These securities are generally categorized in Level 2 of the fair value hierarchy.

Residential Mortgage-Backed Securities ("RMBS") are valued by monitoring interest rate movements, and other pertinent data daily. Incoming market data is enriched to derive spread, yield and/or price data as appropriate, enabling known data points to be extrapolated for valuation application across a range of related securities. These securities are generally categorized in Level 2 of the fair value hierarchy.

Commercial Mortgage-Backed Securities ("CMBS") are valued using techniques that reflect market participants’ assumptions and maximize the use of relevant observable inputs including quoted prices for similar assets, benchmark yield curves and market corroborated inputs. Evaluation uses regular reviews of the inputs for securities covered, including executed trades, broker quotes, credit information, collateral attributes and/or cash flow waterfall as applicable. These securities are generally categorized in Level 2 of the fair value hierarchy.

Asset-Backed Securities ("ABS") are valued using spreads and other information solicited from market buy-and-sell-side sources, including primary and secondary dealers, portfolio managers, and research analysts. Cash flows are generated for each tranche, benchmark yields are determined, and deal collateral performance and tranche level attributes including trade activity, bids, and offers are applied, resulting in tranche specific prices. These securities are generally categorized in Level 2 of the fair value hierarchy.

Collateralized loan obligations ("CLOs") are valued by evaluating manager rating, seniority in the capital structure, assumptions about prepayment, default and recovery and their impact on cash flow generation. Loan level net asset values are determined and aggregated for tranches and as a final step prices are checked against available recent trade activity. These securities are generally categorized in Level 2 of the fair value hierarchy.

Foreign government debt is valued by surveying the dealer community, obtaining relevant trade data, benchmark quotes and spreads and incorporating this information into the valuation process. These securities are generally categorized in Level 2 of the fair value hierarchy.

Commercial Paper, which has an original maturity greater than 90 days, is valued using market data for comparable instruments of similar maturity and average yields. These securities are generally categorized in Level 2 of the fair value hierarchy.

•Equity securities: Consist of actively traded, exchange-listed equity securities, including exchange traded funds (“ETFs”) and Bond Mutual Funds, with valuations derived from quoted prices for identical assets in active markets that we can access. These securities are valued in Level 1 of the fair value hierarchy.

•Cash Equivalents: Consists of money market funds and treasury bills with valuations derived from quoted prices for identical assets in active markets that we can access. These securities are valued in level 1 of the fair value hierarchy. Instruments in this category valued using market data for comparable instruments are classified as level 2 in the fair value hierarchy.

Assets measured at fair value, by hierarchy level, as of June 30, 2022 and December 31, 2021 are shown in tables 8.1a and 8.1b below. The fair value of the assets is estimated using the process described above, and more fully in Note 3 - “Significant Accounting Policies” to the consolidated financial statements in our 2021 Annual Report on Form 10-K.


Assets carried at fair value by hierarchy level as of June 30, 2022
Table	8.1a
(In thousands)		Total 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		$	117,319	$	105,652	$	11,667	$	—
Obligations of U.S. states and political subdivisions		2,293,134		—		2,293,134		—
Corporate debt securities		2,375,053		—		2,375,053		—
ABS		103,268		—		103,268		—
RMBS		222,549		—		222,549		—
CMBS		266,611		—		266,611		—
CLOs		327,411		—		327,411		—
Foreign government debt		3,746		—		3,746		—
Commercial paper		3,729		—		3,729		—
Total fixed income securities		5,712,820		105,652		5,607,168		—
Equity securities		14,481		14,481		—		—
Cash equivalents		399,062		394,273		4,789		—
Total		$	6,126,363	$	514,406	$	5,611,957	$	—


Assets carried at fair value by hierarchy level as of December 31, 2021
Table	8.1b
(In thousands)		Total 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		$	133,407	$	102,153	$	31,254	$	—
Obligations of U.S. states and political subdivisions		2,534,653		—		2,534,653		—
Corporate debt securities		2,765,982		—		2,765,982		—
ABS		150,710		—		150,710		—
RMBS		309,110		—		309,110		—
CMBS		319,130		—		319,130		—
CLOs		360,939		—		360,939		—
Foreign government debt		13,650		—		13,650		—
Total fixed income securities		6,587,581		102,153		6,485,428		—
Equity securities		16,068		16,068		—		—
Cash equivalents		254,230		254,230		—		—
Total		$	6,857,879	$	372,451	$	6,485,428	$	—

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. Additional fair value disclosures related to our investment portfolio are included in Note 7 – “Investments.”

In addition to the assets carried at fair value discussed above, we have embedded derivatives carried at fair value related to our Home Re Transactions that are classified as Other liabilities or Other assets in our consolidated balance sheets. The changes in the fair value of the embedded derivatives are reported within Net gains (losses) on investments and other financial instruments on the Consolidated Statement of Operations. The estimated fair value related to our embedded derivatives reflects the present value impact of the variation in investment income on the assets held by the reinsurance trusts and the contractual reference rate on the Home Re Transactions used to calculate the reinsurance premiums we will pay. These liabilities or assets are categorized in Level 3 of the fair value hierarchy. At June 30, 2022 and December 30, 2021, the fair value of the embedded derivatives was a liability of $5.0 million and $1.8 million, respectively. (See Note 4 - "Reinsurance" for more information about our reinsurance programs.)

Real estate acquired through claim settlement is carried at fair values and is reported in “Other assets” on the consolidated balance sheet. These assets are categorized as Level 3 of the fair value hierarchy.

Other invested assets include an investment in FHLB stock that is carried at cost, which due to restrictions that require it to be redeemed or sold only to the security issuer at par value, approximates fair value. The fair value of other invested assets is categorized as Level 2.

Financial liabilities include our outstanding debt obligations. The fair values of our 5.75% and 5.25% Notes and 9% Debentures were based on observable market prices. In all cases the fair values of the financial liabilities below are categorized as Level 2.


Financial assets and liabilities not measured at fair value
Table	8.2
		June 30, 2022				December 31, 2021
(In thousands)		Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets
Other invested assets		$	850	$	850	$	3,100	$	3,100

Financial liabilities
FHLB Advance		—		—		155,000		157,585
5.75% Senior Notes		241,583		248,191		241,255		256,213
5.25% Senior Notes		640,989		583,044		640,253		686,875
9% Convertible Junior Subordinated Debentures		35,339		47,197		110,204		151,000
Total financial liabilities		$	917,911	$	878,432	$	1,146,712	$	1,251,673