Fair Value (Tables)

12 Months Ended

Dec. 31, 2018

Schedule of Fair Value Measurements on a Recurring Basis by Asset Class and Level of Input



	At December 31, 2017
	Fair value measurements using:
(in thousands)	Total		Quoted prices in active markets for identical assets Level 1		Observable inputs Level 2		Unobservable inputs Level 3
Available-for-sale securities:
U.S. Treasury	$	11,734	$	0	$	11,734	$	0
States & political subdivisions	259,264		0		259,264		0
Foreign government securities	503		0		503		0
Corporate debt securities	346,523		0		338,644		7,879
Residential mortgage-backed securities	25,571		0		25,571		0
Commercial mortgage-backed securities	32,804		0		32,804		0
Collateralized debt obligations	58,034		0		55,834		2,200
Other debt securities	11,528		0		11,528		0
Total fixed maturities	745,961		0		735,882		10,079
Nonredeemable preferred stock - financial services sector	11,659		2,015		9,644		0
Nonredeemable preferred stock - utilities sector	1,093		0		1,093		0
Total available-for-sale securities	758,713		2,015		746,619		10,079
Other limited partnership investments ⁽²⁾	4,816		—		—		—
Total	$	763,529	$	2,015	$	746,619	$	10,079


(1)	In the fourth quarter of 2018, we began selling off our municipal bonds as part of a portfolio rebalancing. We intend to sell the remaining municipal bonds in the first half of 2019. We have currently invested proceeds from these sales in short-term U.S. Treasuries.

(2)

The limited partnership investment measured at fair value represents one real estate fund included on the balance sheet as a limited partnership investment reported under the fair value option using the net asset value practical expedient. These amounts are not required to be categorized in the fair value hierarchy. The investment can never be redeemed with the fund. Instead, distributions are received when liquidation of the underlying assets of the fund occurs. The fair value of this investment is based on the net asset value (NAV) information provided by the general partner. Fair value is based on our proportionate share of the NAV based on the most recent partners' capital statements received from the general partner, which is generally one quarter prior to our balance sheet date. These values are then analyzed to determine if the NAV represents fair value at our balance sheet date, with adjustment being made where appropriate. We consider observable market data and perform a review validating the appropriateness of the NAV at each balance sheet date. During the years ended December 31, 2018 and 2017, no contributions were made and distributions totaling $1.2 million and $0.5 million, respectively, were received from this investment. There were no unfunded commitments related to the investment as of December 31, 2018 and 2017. In 2018, the one remaining real estate fund was in the process of liquidating the underlying assets. Liquidation of the fund was completed in January 2019.

The following tables present our fair value measurements on a recurring basis by asset class and level of input:



	At December 31, 2018
	Fair value measurements using:
(in thousands)	Total		Quoted prices in active markets for identical assets Level 1		Observable inputs Level 2		Unobservable inputs Level 3
Available-for-sale securities:
U.S. Treasury ⁽¹⁾	$	208,412	$	0	$	208,412	$	0
States & political subdivisions ⁽¹⁾	159,023		0		159,023		0
Corporate debt securities	249,947		0		237,370		12,577
Residential mortgage-backed securities	4,609		0		4,609		0
Commercial mortgage-backed securities	46,515		0		46,515		0
Collateralized debt obligations	64,239		0		64,239		0
Other debt securities	15,778		0		15,778		0
Total available-for-sale securities	748,523		0		735,946		12,577
Equity securities
Nonredeemable preferred stock - financial services sector	11,853		1,809		10,044		0
Total equity securities	11,853		1,809		10,044		0
Other limited partnership investments ⁽²⁾	3,206		—		—		—
Total	$	763,582	$	1,809	$	745,990	$	12,577

Schedule of Roll Forward of Level 3 Fair Value Measurements on a Recurring Basis

Level 3 Assets – Year-to-Date Change:



(in thousands)	Beginning balance at December 31, 2016		Included in earnings⁽¹⁾			Included in other comprehensive income			Purchases		Sales			Transfers into Level 3⁽²⁾		Transfers out of Level 3⁽²⁾			Ending balance at December 31, 2017
Available-for-sale securities:
Corporate debt securities	$	9,352	$	(85	)	$	(41	)	$	4,954	$	(5,411	)	$	11,196	$	(12,086	)	$	7,879
Collateralized debt obligations	0		0			0			2,200		0			0		0			2,200
Total Level 3 available-for-sale securities	$	9,352	$	(85	)	$	(41	)	$	7,154	$	(5,411	)	$	11,196	$	(12,086	)	$	10,079


(1)	These amounts are reported in the Statements of Operations as net investment income and net realized investment gains (losses) for each of the periods presented above.


(2)	Transfers into and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs.

The change in unrealized gains or losses included in other comprehensive income related to Level 3 securities held at the reporting date is as follows for the years ended December 31:



(in thousands)	2018			2017		2016
Available-for-sale securities:
Corporate debt securities	$	(554	)	$	—	$	—
Net unrealized losses on Level 3 securities held at reporting date	$	(554	)	$	—	$	—

Level 3 Assets – Year-to-Date Change:



(in thousands)	Beginning balance at December 31, 2017		Included in earnings⁽¹⁾		Included in other comprehensive income			Purchases		Sales			Transfers into Level 3⁽²⁾		Transfers out of Level 3⁽²⁾			Ending balance at December 31, 2018
Available-for-sale securities:
Corporate debt securities	$	7,879	$	6	$	(312	)	$	5,550	$	(2,854	)	$	18,232	$	(15,924	)	$	12,577
Collateralized debt obligations	2,200		0		10			905		0			0		(3,115		)	0
Total Level 3 available-for-sale securities	$	10,079	$	6	$	(302	)	$	6,455	$	(2,854	)	$	18,232	$	(19,039	)	$	12,577

Schedule of Fair Value Measurements on a Recurring Basis by Pricing Source

The following table presents our fair value measurements on a recurring basis by pricing source:



(in thousands)	At December 31, 2018
	Total		Level 1		Level 2		Level 3 ⁽¹⁾
Available-for-sale securities:
Priced via pricing services	$	748,480	$	0	$	735,946	$	12,534
Priced via market comparables/broker quotes	43		0		0		43
Total available-for-sale securities	748,523		0		735,946		12,577
Equity securities priced via pricing services	11,853		1,809		10,044		0
Other limited partnership investments priced via unobservable inputs ⁽²⁾	3,206		—		—		—
Total	$	763,582	$	1,809	$	745,990	$	12,577


(1)	Securities classified as Level 3 were priced using non-binding broker quotes.


(2)	Represents one real estate fund included on the Statements of Financial Position as limited partnership investments that is reported under the fair value option using the NAV practical expedient. These amounts are not required to be categorized in the fair value hierarchy.

Schedule of Carrying Value and Fair Value Estimates of Level 3 Financial Instruments

The following table presents the carrying values and fair value measurements, which are categorized as Level 3 in the fair value hierarchy, of financial instruments disclosed, but not carried at fair value:



	At December 31, 2018				At December 31, 2017
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Agent loans ⁽¹⁾	$	58,006	$	54,110	$	21,849	$	21,849
Long-term borrowings	99,730		94,057		74,728		72,424


(1)	The fair value of agent loans approximates carrying value at December 31, 2017.