Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

(4) Fair Value Measurements

Our financial instruments include assets and liabilities carried at fair value, as well as assets and liabilities carried at cost or amortized cost but disclosed at fair value in our financial statements. 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 ofU.S. Treasuries, money market funds,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 maturity securities, which consist of U.S. government agency securities, municipal bonds, corporate debt securities, bank loans, and mortgage-backed and asset-backed securities. Level 2 also includes certificates of deposit and other interest-bearing deposits at banks, which we report as short-term investments, and a forward contract, which hedges our net investment in a Euro-functional currency foreign subsidiary. 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 approximately99% 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 managers 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 at period end. Based on these procedures, we did not adjust the prices or quotes provided by our independent pricing services or third party investment managers as of September 30, 2012 or December 31, 2011.

Our Level 2 financial instruments also include our notes payable. We determine the fair value of our 6.30% Senior Notes based on quoted prices, but the market is inactive. The fair value of borrowings under our Revolving Loan Facility approximates the carrying amount because interest is based on 30-day LIBOR plus a margin.

Our Level 3 securities include certain fixed maturity securities and an insurance contract that we account for as a derivative and classify in other assets. 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.

The following tables present the fair value of our financial instruments that were carried or disclosed at fair value. Unless indicated, these items were carried at fair value on our consolidated balance sheet.

		Level 1		Level 2		Level 3		Total
September 30, 2012
Fixed maturity securities – available for sale
	U.S. government and government agency securities	$	193,051	$	38,985	$	0	$	232,036
	Fixed maturity securities of states, municipalities and
	political subdivisions		0		1,079,175		0		1,079,175
	Special purpose revenue bonds of states, municipalities
	and political subdivisions		0		2,076,017		0		2,076,017
	Corporate securities		0		1,217,145		162		1,217,307
	Residential mortgage-backed securities		0		841,542		0		841,542
	Commercial mortgage-backed securities		0		524,100		0		524,100
	Asset-backed securities		0		47,724		0		47,724
	Foreign government securities		0		297,464		0		297,464
	Total fixed maturity securities – available for sale		193,051		6,122,152		162		6,315,365
Equity securities – available for sale			202,864		0		0		202,864
Short-term investments*			81,947		78,191		0		160,138
Other investments			34,044		0		0		34,044
Other assets			0		0		206		206
	Total assets measured at fair value	$	511,906	$	6,200,343	$	368	$	6,712,617
Notes payable*		$	0	$	595,804	$	0	$	595,804
Accounts payable and accrued liabilities – forward contract			0		1,705		0		1,705
	Total liabilities measured at fair value	$	0	$	597,509	$	0	$	597,509

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*Carried at cost or amortized cost on our consolidated balance sheet.

		Level 1		Level 2		Level 3		Total
December 31, 2011
Fixed maturity securities – available for sale
	U.S. government and government agency securities	$	201,582	$	94,097	$	0	$	295,679
	Fixed maturity securities of states, municipalities and
	political subdivisions		0		1,085,341		0		1,085,341
	Special purpose revenue bonds of states, municipalities
	and political subdivisions		0		1,863,888		0		1,863,888
	Corporate securities		0		846,178		155		846,333
	Residential mortgage-backed securities		0		1,100,086		0		1,100,086
	Commercial mortgage-backed securities		0		256,124		0		256,124
	Asset-backed securities		0		33,731		1,015		34,746
	Foreign government securities		0		236,637		0		236,637
	Total fixed maturity securities – available for sale		201,582		5,516,082		1,170		5,718,834
Fixed maturity securities – held to maturity*			0		163,136		0		163,136
Short-term investments*			67,288		66,629		0		133,917
Other investments			35,720		0		0		35,720
Other assets			0		0		1,516		1,516
	Total assets measured at fair value	$	304,590	$	5,745,847	$	2,686	$	6,053,123
Notes payable*		$	-	$	505,671	$	-	$	505,671

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*Carried at cost or amortized cost on our consolidated balance sheet.

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

	2012						2011
	Fixed						Fixed
	income		Other				income		Other
	securities		assets		Total		securities		assets		Total
Balance at beginning of year	$	1,170	$	1,516	$	2,686	$	1,438	$	857	$	2,295
Net gains (losses)		2		215		217		(13)		263		250
Sales		0		0		0		(144)		0		(144)
Transfers out of Level 3		(1,015)		0		(1,015)		0		0		0
Balance at March 31		157		1,731		1,888		1,281		1,120		2,401
Net gains (losses)		2		116		118		18		122		140
Sales		0		0		0		(55)		0		(55)
Balance at June 30		159		1,847		2,006		1,244		1,242		2,486
Settlements		0		(1,863)		(1,863)		0		0		0
Net gains (losses)		3		222		225		17		131		148
Sales		0		0		0		(43)		0		(43)
Balance at September 30	$	162	$	206	$	368	$	1,218	$	1,373	$	2,591

We transferred an investment from Level 3 to Level 2 in the first quarter of 2012 because we were able to determine its fair value using inputs based on observable market data in the period transferred.There were no transfers between Level 1, Level 2 or Level 3 in the second andthird quarters of 2012 or the firstnine months of 2011.