Disclosures About Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2024

Disclosures about Fair Value of Financial Instruments

Disclosures About Fair Value of Financial Instruments

Cash. The carrying amount approximates fair value.

Investment securities, mortgage loan and private loan investments, and short-term investments. See Note 3, “Investments,” for additional information.

Premiums receivable and reinsurance recoverables on paid losses. The carrying value of current receivables and reinsurance recoverables on paid losses approximates fair value due to short-term nature.

Debt. At September 30, 2024 and December 31, 2023, the fair value of our debt instruments is determined using both Level 1 and Level 2 inputs, as previously defined in Note 3, “Investments.”

We receive fair value prices for similar financial instruments being traded in active markets. These prices are determined using observable market information such as publicly traded quoted prices, and trading prices for similar financial instruments actively being traded in the current market. We have reviewed the processes used by third-party providers for pricing these instruments and have determined that they result in fair values consistent with GAAP requirements. In addition, we review these prices for reasonableness, and have not adjusted any prices received from the third-party providers as of September 30, 2024 and December 31, 2023. A description of the valuation techniques we use to measure these liabilities at fair value is as follows:

Senior Unsecured Fixed Rate Notes Level 1:

•Our senior unsecured fixed rate notes are valued using Level 1 inputs. For these securities, we obtain fair value measurements from a third-party pricing service using quoted prices (unadjusted) in active markets at the reporting date.

Junior Subordinated Debentures Level 2:

•Our trust preferred debentures and subordinated debentures are typically valued using Level 2 inputs. For these securities, we obtain fair value measurements using quoted prices for similar securities being traded in active markets at the reporting date, as our specific debt instruments are less frequently traded.

A summary of our financial instruments whose carrying value did not equal fair value is shown below:


	September 30, 2024				December 31, 2023
(in millions)	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Junior subordinated debentures:
Trust preferred debentures	$	161.7	$	172.7	$	160.8	$	165.9
Subordinated debentures	81.0		84.9		80.4		83.3
Total junior subordinated debentures	242.7		257.6		241.2		249.2
Senior unsecured fixed rate notes	128.7		130.4		128.0		132.7

	$	371.4	$	388.0	$	369.2	$	381.9

Based on an analysis of the inputs, our financial instruments measured at fair value for disclosure purposes have been categorized as follows:


	Fair Value Measurements at Reporting Date Using
(in millions)	September 30, 2024		Level 1 (1)		Level 2 (2)		Level 3 (3)
Junior subordinated debentures:
Trust preferred debentures	$	172.7	$	—	$	172.7	$	—
Subordinated debentures	84.9		—		84.9		—
Total junior subordinated debentures	257.6		—		257.6		—
Senior unsecured fixed rate notes	130.4		130.4		—		—

	$	388.0	$	130.4	$	257.6	$	—

(1) Quoted prices in active markets for identical assets

(2) Significant other observable inputs

(3) Significant unobservable inputs


	Fair Value Measurements at Reporting Date Using
(in millions)	December 31, 2023		Level 1 (1)		Level 2 (2)		Level 3 (3)
Junior subordinated debentures:
Trust preferred debentures	$	165.9	$	—	$	165.9	$	—
Subordinated debentures	83.3		—		83.3		—
Total junior subordinated debentures	249.2		—		249.2		—
Senior unsecured fixed rate notes	132.7		132.7		—		—

	$	381.9	$	132.7	$	249.2	$	—

(1) Quoted prices in active markets for identical assets

(2) Significant other observable inputs

(3) Significant unobservable inputs

- 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

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+ Details

Argo Group International Holdings, Inc. 10-Q