Note 5 - Fair Value of Financial Instruments (Note)

3 Months Ended

Sep. 30, 2020

For discussion of our valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 5 of Notes to Consolidated Financial Statements in our 2019 Form 10-K.

The following is a list of assets that are measured at fair value by hierarchy level as of September 30, 2020:


(In thousands)	Level I		Level II		Total
Assets at fair value
Investments:
Fixed-maturities available for sale:
U.S. government and agency securities	$	157,407	$	29,494	$	186,901
State and municipal obligations	—		159,975		159,975
Corporate bonds and notes	—		2,898,357		2,898,357
RMBS	—		850,113		850,113
CMBS	—		718,962		718,962
Other ABS	—		809,388		809,388
Foreign government and agency securities	—		5,296		5,296

Total fixed-maturities available for sale	157,407		5,471,585		5,628,992

Trading securities:

State and municipal obligations	—		120,547		120,547

Corporate bonds and notes	—		122,858		122,858
RMBS	—		13,930		13,930
CMBS	—		34,315		34,315



Total trading securities	—		291,650		291,650

Equity securities	84,255		7,062		91,317

Short-term investments:
U.S. government and agency securities	29,716		—		29,716
State and municipal obligations	—		26,973		26,973
Money market instruments	232,105		—		232,105
Corporate bonds and notes	—		106,013		106,013




Other investments (1)	—		172,339		172,339
Total short-term investments	261,821		305,325		567,146

Total investments at fair value (2)	503,483		6,075,622		6,579,105

Other:
Loaned securities: (3)

Corporate bonds and notes	—		13,932		13,932

Equity securities	43,990		—		43,990
Total assets at fair value (2)	$	547,473	$	6,089,554	$	6,637,027

______________________

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

(2)Does not include other invested assets of $2.5 million that are primarily invested in limited partnership investments valued using the net asset value as a practical expedient and $3.0 million invested in a private convertible promissory note.

(3)Securities loaned to third-party borrowers under securities lending agreements are classified as other assets in our condensed consolidated balance sheets. See Note 6 for more information.

The following is a list of assets that are measured at fair value by hierarchy level as of December 31, 2019:


(In thousands)	Level I		Level II		Total
Assets at fair value
Investments:
Fixed-maturities available for sale:
U.S. government and agency securities	$	143,884	$	35,700	$	179,584
State and municipal obligations	—		119,994		119,994
Corporate bonds and notes	—		2,237,611		2,237,611
RMBS	—		779,354		779,354
CMBS	—		608,015		608,015
Other ABS	—		759,129		759,129
Foreign government and agency securities	—		5,224		5,224

Total fixed-maturities available for sale	143,884		4,545,027		4,688,911

Trading securities:

State and municipal obligations	—		118,949		118,949

Corporate bonds and notes	—		147,232		147,232
RMBS	—		16,180		16,180
CMBS	—		34,789		34,789



Total trading securities	—		317,150		317,150

Equity securities	124,009		6,212		130,221

Short-term investments:
U.S. government and agency securities	127,152		—		127,152
State and municipal obligations	—		21,475		21,475
Money market instruments	202,461		—		202,461
Corporate bonds and notes	—		20,298		20,298




Other investments (1)	—		147,007		147,007
Total short-term investments	329,613		188,780		518,393

Total investments at fair value (2)	597,506		5,057,169		5,654,675

Other:
Loaned securities: (3)
U.S. government and agency securities	35,309		—		35,309
Corporate bonds and notes	—		3,669		3,669

Equity securities	27,464		—		27,464
Total assets at fair value (2)	$	660,279	$	5,060,838	$	5,721,117

______________________

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

(2)Does not include other invested assets of $2.6 million that are primarily invested in limited partnership investments valued using the net asset value as a practical expedient and $1.5 million invested in a private convertible promissory note.

(3)Securities loaned to third-party borrowers under securities lending agreements are classified as other assets in our condensed consolidated balance sheets. See Note 6 for more information.

At September 30, 2020 and December 31, 2019, we had a Level III asset of $5.5 million and $0.4 million, respectively, measured at fair value, included in other assets in our condensed consolidated balance sheets. The Level III asset represents the embedded derivatives associated with mortgage insurance-linked notes transactions in connection with our Excess-of-Loss

Program, as described in Note 8. The total fair value of the embedded derivatives at September 30, 2020 and December 31, 2019 consists of impacts related to the fair value accounting for derivatives associated with our reinsurance contracts and the related fluctuations from period to period. The estimated fair value related to our embedded derivatives reflects the present value impact of the future variation in premiums we will pay, and includes significant unobservable inputs associated with LIBOR rates and the yield on investments held by trust.

There were no investment transfers to or from Level III for the three and nine months ended September 30, 2020 or the year ended December 31, 2019. Except for the activity related to the embedded derivatives described above, activity related to Level III assets and liabilities (including realized and unrealized gains and losses, purchases, sales, issuances, settlements and transfers) was immaterial for the three and nine months ended September 30, 2020 and the year ended December 31, 2019.

Other Fair Value Disclosure

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


	September 30, 2020				December 31, 2019
(In thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Liabilities:
Senior notes	$	1,404,759	$	1,450,590	$	887,110	$	949,500
FHLB advances	141,058		144,280		134,875		135,997

The fair value of our senior notes is estimated based on their quoted market prices. The fair value of our FHLB advances is estimated based on expected cash flows for similar borrowings. These liabilities are categorized in Level II of the fair value hierarchy. See Note 12 for further information on our senior notes and FHLB advances.

- 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.

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