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Fair Value (Tables)

12 Months Ended

Dec. 31, 2019

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

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



	December 31, 2019
	Fair value measurements using:
(in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities:
Corporate debt securities ⁽¹⁾	$	454,880	$	2,683	$	443,873	$	8,324
Residential mortgage-backed securities ⁽¹⁾	125,343		0		125,343		0
Commercial mortgage-backed securities ⁽¹⁾	67,541		0		64,220		3,321
Collateralized debt obligations ⁽¹⁾	77,856		0		77,856		0
Other debt securities	5,081		0		5,081		0
Total available-for-sale securities	730,701		2,683		716,373		11,645
Equity securities - nonredeemable preferred and common stock ⁽¹⁾
Financial services sector	53,513		14,927		38,586		0
Utilities sector	6,818		3,190		3,628		0
Communications sector	3,433		3,433		0		0
Energy sector	1,881		0		1,881		0
Other sectors	1,488		0		1,488		0
Total equity securities	67,133		21,550		45,583		0
Total	$	797,834	$	24,233	$	761,956	$	11,645



	December 31, 2018
	Fair value measurements using:
(in thousands)	Total		Level 1		Level 2		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


(1)	In 2018, we began selling off our municipal bonds as part of a portfolio rebalancing and invested proceeds in short-term U.S. Treasuries. In 2019, proceeds from sales and maturities of the remaining municipal bond portfolio and short-term U.S. Treasuries were reinvested in corporate debt, structured securities and preferred stock.

(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 (NAV) practical expedient, which is not required to be categorized in the fair value hierarchy. The fair value of this investment is based on our proportionate share of the NAV from the most recent partners' capital statements received from the general partner, which is generally one quarter prior to our balance sheet date. We consider observable market data and perform a review validating the appropriateness of the NAV at each balance sheet date. Liquidation of this fund was completed in January 2019.

Schedule of Fair Value Measurements on a Recurring Basis by Pricing Source and Quantitative and Qualitative Disclosures about Unobservable Inputs

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



	December 31, 2019
(in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities:
Pricing services	$	730,551	$	2,683	$	716,373	$	11,495
Internal modeling	150		0		0		150
Total available-for-sale securities	730,701		2,683		716,373		11,645
Equity securities priced using pricing services	67,133		21,550		45,583		0
Total	$	797,834	$	24,233	$	761,956	$	11,645

Quantitative and Qualitative Disclosures about Unobservable Inputs

The following table presents quantitative information about the significant unobservable inputs utilized in the fair value measurements of Level 3 assets. Level 3 securities where cost is the best estimate of fair value totaled $0.2 million at December 31, 2019 and are excluded from the table below. When a non-binding broker quote was the only input available, the security was classified within Level 3. The quantitative detail of the unobservable inputs is neither provided nor reasonably available to us and therefore has not been included in the table below. These investments totaled $1.3 million at December 31, 2019 and $12.6 million at December 31, 2018. The weighted average is calculated based on estimated fair value.



	December 31, 2019
(dollars in thousands)	Fair value		Valuation techniques	Unobservable input	Range (basis points)	Weighted average (basis points)	Impact of increase in input on estimated fair value

Corporate debt securities - bank loans	$	8,048	Syndicated loan model	Market residual yield ⁽¹⁾	-489 - +566	+76	Decrease
Commercial mortgage-backed securities	2,143		Relative value pricing model	Credit spread ⁽²⁾	+49 - +53	+51	Decrease


(1)	Values for bank loans classified as Level 3 are determined by our pricing vendor based on model yield curves adjusted for observable inputs. The market residual yield represents a net adjustment to the model yield curve for unobservable input factors.


(2)	Values for commercial mortgage-backed securities classified as Level 3 include adjustments to the base spread over the appropriate U.S. Treasury yield assuming no prepayments until penalty provisions have expired.

Schedule of Roll Forward of Level 3 Fair Value Measurements on a Recurring Basis and Change in Unrealized Gains or Losses in OCI Related to Level 3 Securities

Level 3 Assets – Year-to-Date Change:



(in thousands)	Beginning balance at December 31, 2018		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, 2019
Available-for-sale securities:
Corporate debt securities	$	12,577	$	10		$	146		$	2,020	$	(7,415	)	$	11,542	$	(10,556	)	$	8,324
Residential mortgage-backed securities	0		4			15			921		(32		)	0		(908		)	0
Commercial mortgage-backed securities	0		(9		)	(21		)	478		(1,068		)	7,281		(3,340		)	3,321
Collateralized debt obligations	0		0			1			2,300		0			0		(2,301		)	0
Total Level 3 available-for-sale securities	$	12,577	$	5		$	141		$	5,719	$	(8,515	)	$	18,823	$	(17,105	)	$	11,645

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


(1)	These amounts are reported 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 (loss) related to Level 3 securities held at the reporting date is as follows for the years ended December 31:



(in thousands)	2019		2018			2017
Available-for-sale securities:
Corporate debt securities	$	38	$	(554	)	$	—
Commercial mortgage-backed securities	30		—			—
Net unrealized gains (losses) on Level 3 securities held at reporting date	$	68	$	(554	)	$	—

Schedule of Financial Instruments Not Carried at Fair Value

The following table presents the carrying values and fair values of financial instruments categorized as Level 3 in the fair value hierarchy that are recorded at carrying value as of:



	December 31, 2019				December 31, 2018
(in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Agent loans	$	67,696	$	71,602	$	58,006	$	54,110
Long-term borrowings	98,080		101,888		99,730		94,057