Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

(2) Fair Value Measurements

We carry financial assets and financial liabilities at fair value. In determining fair value, we generally apply the market approach, which uses prices and other relevant data based on market transactions involving identical or comparable assets and liabilities. We classify our financial instruments into the following three-level hierarchy:

• Level 1 — Inputs are based on quoted prices in active markets for identical instruments.

• Level 2 — Inputs are based on observable market data (other than quoted prices), or are derived from or corroborated by observable market data.

• Level 3 — Inputs are unobservable and not corroborated by market data.

Our Level 1 investments consist of U.S. Treasuries and equity securities traded in an active exchange market. We use unadjusted quoted prices for identical instruments to measure fair value.

Our Level 2 investments include most of our fixed income securities, which consist of U.S. government agency securities, municipal bonds, certain corporate debt securities, and certain mortgage-backed and asset-backed securities. We measure fair value for the majority of our Level 2 investments using quoted prices of securities with similar characteristics. The remaining investments are valued using pricing models or matrix pricing. The fair value measurements consider observable assumptions, including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, default rates, loss severity and other economic measures.

We use independent pricing services to assist us in determining fair value for over 99% of our Level 2 investments. The pricing services provide a single price or quote per security. We use data provided by our third party investment manager to value the remaining Level 2 investments. To validate that these quoted and modeled prices are reasonable estimates of fair value, we perform various quantitative and qualitative procedures, including: 1) evaluation of the underlying methodologies, 2) analysis of recent sales activity, 3) analytical review of our fair values against current market prices and 4) comparison of the pricing services’ fair value to other pricing services’ fair value for the same investment. No markets for our investments were judged to be inactive as of June 30, 2011 or December 31, 2010. Based on these procedures, we did not adjust the prices or quotes provided by our independent pricing services or third party investment manager as of June 30, 2011 or December 31, 2010.

Our Level 3 securities include certain fixed income securities and an insurance contract, classified in other assets, that we account for as a derivative. In the first quarter of 2010, we terminated our interest in a similar insurance contract and recognized an $8.0 million gain. We determine fair value of our Level 3 securities based on internally developed models that use assumptions or other data that are not readily observable from objective sources.

We exclude from our fair value disclosures our held to maturity investment portfolio measured at amortized cost.

The following tables present our assets that were measured at fair value at June 30, 2011 and December 31, 2010. No liabilities were measured at fair value at either balance sheet date.

	Level 1		Level 2		Level 3		Total
June 30, 2011
Fixed income securities — available for sale
U.S. government and government agency securities	$	209,016	$	154,339	$	—	$	363,355
Fixed income securities of states, municipalities and political subdivisions		—		1,047,341		—		1,047,341
Special purpose revenue bonds of states, municipalities and political subdivisions		—		1,630,380		—		1,630,380
Corporate fixed income securities		—		706,037		156		706,193
Residential mortgage-backed securities		—		1,149,598		—		1,149,598
Commercial mortgage-backed securities		—		235,732		—		235,732
Asset-backed securities		—		39,650		1,088		40,738
Foreign government securities		—		261,424		—		261,424
Total fixed income securities — available for sale		209,016		5,224,501		1,244		5,434,761
Other investments		31,742		—		—		31,742
Other assets		—		—		1,242		1,242
Total assets measured at fair value	$	240,758	$	5,224,501	$	2,486	$	5,467,745

	Level 1		Level 2		Level 3		Total
December 31, 2010
Fixed income securities — available for sale
U.S. government and government agency securities	$	148,217	$	176,050	$	—	$	324,267
Fixed income securities of states, municipalities and political subdivisions		—		1,082,057		—		1,082,057
Special purpose revenue bonds of states, municipalities and political subdivisions		—		1,628,059		—		1,628,059
Corporate fixed income securities		—		570,152		242		570,394
Residential mortgage-backed securities		—		995,108		—		995,108
Commercial mortgage-backed securities		—		145,228		—		145,228
Asset-backed securities		—		11,370		1,196		12,566
Foreign government securities		—		241,761		—		241,761
Total fixed income securities — available for sale		148,217		4,849,785		1,438		4,999,440
Other investments		5,575		—		—		5,575
Other assets		—		—		857		857
Total assets measured at fair value	$	153,792	$	4,849,785	$	2,295	$	5,005,872

The following tables present the changes in fair value of our Level 3 assets.

	2011								2010
	Fixed								Fixed
	income			Other					income			Other
	securities			assets		Total			securities			assets			Total
Balance at beginning of year	$	1,438		$	857	$	2,295		$	4,262		$	432		$	4,694
Settlements		—			—		—			—			(8,342	)		(8,342	)
Sales		(144	)		—		(144	)		(100	)		—			(100	)
Gains and (losses) — unrealized		(11	)		263		252			62			(141	)		(79	)
Gains and (losses) — realized		(2	)		—		(2	)		—			8,342			8,342
Balance at March 31		1,281			1,120		2,401			4,224			291			4,515
Sales		(55	)		—		(55	)		(395	)		—			(395	)
Gains and (losses) — unrealized		18			122		140			144			179			323
Balance at June 30	$	1,244		$	1,242	$	2,486		$	3,973		$	470		$	4,443

Unrealized gains and losses on our Level 3 fixed income securities are reported in other comprehensive income within shareholders’ equity, and unrealized gains and losses on our Level 3 other assets are reported in other operating income. There were no transfers between Level 1, Level 2 or Level 3 in the first six months of 2011 or 2010.