XML 22 R13.htm IDEA: XBRL DOCUMENT

Fair Value

3 Months Ended

Mar. 31, 2022

Financial instruments carried at fair value

Our available-for-sale and equity securities are recorded at fair value, which is the price that would be received to sell the asset in an orderly transaction between willing market participants as of the measurement date.

Valuation techniques used to derive the fair value of our available-for-sale and equity securities are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources. Unobservable inputs reflect our own assumptions regarding fair market value for these securities. Financial instruments are categorized based upon the following characteristics or inputs to the valuation techniques:

•Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

•Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

•Level 3 – Unobservable inputs for the asset or liability.

Estimates of fair values for our investment portfolio are obtained primarily from a nationally recognized pricing service. Our Level 1 securities are valued using an exchange traded price provided by the pricing service. Pricing service valuations for Level 2 securities include multiple verifiable, observable inputs including benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data. Pricing service valuations for Level 3 securities are based upon proprietary models and are used when observable inputs are not available or in illiquid markets.

Although virtually all of our prices are obtained from third party sources, we also perform internal pricing reviews, including evaluating the methodology and inputs used to ensure that we determine the proper classification level of the financial instrument and reviewing securities with price changes that vary significantly from current market conditions or independent price sources. Price variances are investigated and corroborated by market data and transaction volumes. We have reviewed the pricing methodologies of our pricing service as well as other observable inputs and believe that the prices adequately consider market activity in determining fair value.

In limited circumstances we adjust the price received from the pricing service when, in our judgment, a better reflection of fair value is available based upon corroborating information and our knowledge and monitoring of market conditions such as a disparity in price of comparable securities and/or non-binding broker quotes. In other circumstances, certain securities are internally priced because prices are not provided by the pricing service.

When a price from the pricing service is not available, values are determined by obtaining broker/dealer quotes and/or market comparables. When available, we obtain multiple quotes for the same security. The ultimate value for these securities is determined based upon our best estimate of fair value using corroborating market information. As of March 31, 2022, nearly all of our available-for-sale and equity securities were priced using a third party pricing service.

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


	March 31, 2022
(in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities:




Corporate debt securities	$	577,724	$	0	$	566,797	$	10,927
Collateralized debt obligations	101,297		0		101,297		0
Commercial mortgage-backed securities	81,101		0		70,504		10,597
Residential mortgage-backed securities	143,815		0		143,603		212
Other debt securities	18,444		0		18,444		0
U.S. Treasury	939		0		939		0
Total available-for-sale securities	923,320		0		901,584		21,736
Equity securities:
Financial services sector	61,917		632		59,268		2,017
Utilities sector	6,886		0		6,886		0
Energy sector	6,177		12		6,165		0
Consumer sector	3,089		0		3,089		0


Total equity securities	78,069		644		75,408		2,017
Total	$	1,001,389	$	644	$	976,992	$	23,753


	December 31, 2021
(in thousands)	Total		Level 1		Level 2		Level 3
Available-for-sale securities:




Corporate debt securities	$	573,165	$	0	$	567,909	$	5,256
Collateralized debt obligations	115,462		0		115,462		0
Commercial mortgage-backed securities	89,324		0		73,596		15,728
Residential mortgage-backed securities	139,922		0		131,108		8,814
Other debt securities	23,920		0		23,920		0
U.S. Treasury	4,292		0		4,292		0
Total available-for-sale securities	946,085		0		916,287		29,798
Equity securities:
Financial services sector	71,722		1,624		68,015		2,083
Utilities sector	6,259		0		6,259		0
Energy sector	6,448		10		6,438		0
Consumer sector	3,314		0		3,314		0


Total equity securities	87,743		1,634		84,026		2,083
Total	$	1,033,828	$	1,634	$	1,000,313	$	31,881

We review the fair value hierarchy classifications each reporting period. Transfers between hierarchy levels may occur due to changes in available market observable inputs.

Level 3 Assets – Year-to-Date Change:


(in thousands)	Beginning balance at December 31, 2021		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 March 31, 2022
Available-for-sale securities:
Corporate debt securities	$	5,256	$	13	$	(55)	$	3,984	$	(508)	$	3,549	$	(1,312)	$	10,927

Commercial mortgage-backed securities	15,728		(116)		(839)		0		(500)		1,460		(5,136)		10,597
Residential mortgage-backed securities	8,814		25		(336)		0		(2,755)		0		(5,536)		212

Total available-for-sale securities	29,798		(78)		(1,230)		3,984		(3,763)		5,009		(11,984)		21,736
Equity securities	2,083		(66)		0		0		0		0		0		2,017
Total Level 3 securities	$	31,881	$	(144)	$	(1,230)	$	3,984	$	(3,763)	$	5,009	$	(11,984)	$	23,753

Level 3 Assets – Year-to-Date Change:


(in thousands)	Beginning balance at December 31, 2020		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 March 31, 2021
Available-for-sale securities:
Corporate debt securities	$	5,825	$	6	$	42	$	782	$	(370)	$	1,202	$	(2,027)	$	5,460

Commercial mortgage-backed securities	19,462		(95)		(437)		2,265		(5)		1,230		(6,179)		16,241
Residential mortgage-backed securities	937		(3)		(1)		0		(252)		0		(208)		473
Other debt securities	0		0		2		528		(9)		0		0		521
Total available-for-sale securities	26,224		(92)		(394)		3,575		(636)		2,432		(8,414)		22,695
Equity securities	0		0		0		0		0		1,090		0		1,090
Total Level 3 securities	$	26,224	$	(92)	$	(394)	$	3,575	$	(636)	$	3,522	$	(8,414)	$	23,785

(1)These amounts are reported as net investment income and net realized and unrealized 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.

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:



	March 31, 2022				December 31, 2021
(in thousands)	Carrying value		Fair value		Carrying value		Fair value

Agent loans (1)	$	69,342	$	64,826	$	66,368	$	68,957
Long-term borrowings (2)	93,546		93,294		94,070		103,981

(1)The discount rate used to calculate fair value at March 31, 2022 is reflective of an increase in the BB+ financial yield curve.

(2)The discount rate used to calculate fair value at March 31, 2022 is reflective of an increase in U.S. Treasury bond yields.

- 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