Note 4 - Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2016

Available for sale securities, trading securities and certain other assets are recorded at fair value. All changes in the fair value of trading securities and certain other assets are included in our condensed consolidated statements of operations. All changes in the fair value of available for sale securities are recorded in AOCI. There were no significant changes to our fair value methodologies during the nine months ended September 30, 2016.

In accordance with GAAP, we established a three-level valuation hierarchy for disclosure of fair value measurements based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level I measurements) and the lowest priority to unobservable inputs (Level III measurements). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the measurement in its entirety. The three levels of the fair value hierarchy are defined below:


Level I	— Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;


Level II	— Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities; and


Level III	— Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. Level III inputs are used to measure fair value only to the extent that observable inputs are not available.

The level of market activity used to determine the fair value hierarchy is based on the availability of observable inputs market participants would use to price an asset or a liability, including market value price observations. We provide a qualitative description of the valuation techniques and inputs used for Level II recurring and non-recurring fair value measurements in our audited annual financial statements as of December 31, 2015. For a complete understanding of the valuation techniques and inputs used as of September 30, 2016, these unaudited condensed consolidated financial statements should be read in conjunction with the audited annual financial statements and notes thereto included in our 2015 Form 10-K.

The following is a list of assets that are measured at fair value by hierarchy level as of September 30, 2016:



(In thousands)	Level I		Level II		Level III		Total
Assets at Fair Value
Investment Portfolio:
U.S. government and agency securities	$	152,805	$	—	$	—	$	152,805
State and municipal obligations	—		384,609		—		384,609
Money market instruments	587,628		—		—		587,628
Corporate bonds and notes	—		1,909,060		—		1,909,060
RMBS	—		433,474		—		433,474
CMBS	—		556,250		—		556,250
Other ABS	—		450,853		—		450,853
Foreign government and agency securities	—		41,627		—		41,627
Equity securities	—		830		500		1,330
Other investments (1)	—		46,319		500		46,819
Total Investments at Fair Value (2)	740,433		3,823,022		1,000		4,564,455
Total Assets at Fair Value	$	740,433	$	3,823,022	$	1,000	$	4,564,455

______________________


(1)	Comprising short-term certificates of deposit and commercial paper, included within Level II, and private convertible notes, included within Level III.


(2)	Does not include certain other invested assets ($1.3 million), primarily invested in limited partnerships, accounted for as cost-method investments and not measured at fair value.

At September 30, 2016, total Level III assets of $1.0 million accounted for less than 0.1% of total assets measured at fair value. Within other investments is a Level III investment which was purchased during the three months ended June 30, 2016, and there were no related gains or losses recorded during the quarter. Within equity securities is a Level III investment which was purchased during the three months ended June 30, 2015, and there were no related gains or losses recorded during the quarter. There were no Level III liabilities at September 30, 2016.

The following is a list of assets that are measured at fair value by hierarchy level as of December 31, 2015:



(In thousands)	Level I		Level II		Level III		Total
Assets at Fair Value
Investment Portfolio:
U.S. government and agency securities	$	670,328	$	8,000	$	—	$	678,328
State and municipal obligations	—		341,845		—		341,845
Money market instruments	443,272		—		—		443,272
Corporate bonds and notes	—		1,383,186		—		1,383,186
RMBS	—		297,097		—		297,097
CMBS	—		544,588		—		544,588
Other ABS	—		371,625		—		371,625
Foreign government and agency securities	—		37,576		—		37,576
Equity securities	74,930		25,016		500		100,446
Other investments (1)	—		99,009		—		99,009
Total Investments at Fair Value (2)	1,188,530		3,107,942		500		4,296,972
Total Assets at Fair Value	$	1,188,530	$	3,107,942	$	500	$	4,296,972

______________________


(1)	Comprising short-term certificates of deposit and commercial paper.


(2)	Does not include certain other invested assets ($1.7 million), primarily invested in limited partnerships, accounted for as cost-method investments and not measured at fair value.

At December 31, 2015, total Level III assets of $0.5 million accounted for less than 0.1% of total assets measured at fair value. This investment was purchased during the three months ended June 30, 2015, and there were no related gains or losses recorded during the year ended December 31, 2015. There were no Level III liabilities at December 31, 2015.

There were no transfers between Level I and Level II for the three and nine months ended September 30, 2016 and 2015. There were also no transfers involving Level III assets or liabilities for the three and nine months ended September 30, 2016 and 2015.

Other Fair Value Disclosure

The carrying value and estimated fair value of other selected assets and liabilities not carried at fair value on our condensed consolidated balance sheets were as follows as of the dates indicated:



	September 30, 2016				December 31, 2015
(In thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets:
Other invested assets	$	1,293	$	3,692	$	1,714	$	4,901
Liabilities:
Long-term debt	1,067,666		1,195,740		1,219,454		1,414,875

- 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