Annual Report 2011 - SNL Financial

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Annual Report 2011 - SNL Financial

Investments

Fixed Income Securities

The Company’s investments in fixed income securities are classified as available-for-sale and are carried at estimated

fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), net of tax. The

estimated fair value of the Company’s fixed income securities are based on prices obtained from an independent pricing

service. Prices obtained from the independent pricing service are determined based on quoted market prices or, in the

absence of quoted market prices, dealer quotes or matrix pricing, all of which are based on observable market-based inputs

when available. Management has controls in place to validate the reasonableness of fair values provided by the independent

pricing service, including testing the fair value of a sample of securities on a quarterly basis by comparing fair values from

different pricing sources. Adverse credit market conditions have caused some markets to become relatively illiquid, thus

reducing the availability of certain data used by the independent pricing services and dealers.

Premiums or discounts are amortized using the effective interest method. Realized gains or losses are based on

amortized cost and are computed using the specific identification method. The Company monitors its fixed income securities

for unrealized losses that appear to be other-than-temporary. A fixed income security is considered to be other-thantemporarily

impaired when the security’s fair value is less than its amortized cost basis and 1) the Company intends to sell

the security, 2) it is more likely than not that the Company will be required to sell the security before recovery of the

security’s amortized cost basis, or 3) the Company believes it will be unable to recover the entire amortized cost basis of the

security (i.e., a credit loss has occurred). When the Company determines a credit loss has been incurred, but the Company

does not intend to sell the security and it is not more likely than not that the Company will be required to sell the security

before recovery of the security’s amortized cost basis, the portion of the other-than-temporary impairment that is credit

related is recorded as a realized loss in the consolidated statements of operations and comprehensive income (loss), and the

portion of the other-than-temporary impairment that is not credit related is included in other comprehensive income (loss).

Any subsequent increase in the fixed income security’s estimated fair value would be reported as an unrealized gain.

As a result of adopting new accounting guidance related to the recognition and presentation of other-than-temporary

investment impairments in 2009, the Company recorded a cumulative effect adjustment that increased retained earnings by

$685 and decreased accumulated other comprehensive income (loss), net by $445, resulting in an increase to shareholders’

equity of $240. The increase in shareholders’ equity reflects the reversal of a prior period deferred tax valuation allowance,

of which $240 was applied to the retained earnings cumulative effect adjustment.

Convertible Bond Securities

The Company’s investments in convertible bond securities are considered hybrid financial instruments and are carried at

estimated fair value, with changes in estimated fair value reported as a realized gain or loss in the consolidated statement of

operations and comprehensive income (loss).

Equity Securities

The Company’s investments in equity securities, which consist primarily of index and exchange-traded mutual funds,

are classified as available-for-sale and are carried at estimated fair value, with unrealized gains and losses reported in

accumulated other comprehensive income (loss), net of tax. The estimated fair value of equity securities is determined based

on quoted market prices obtained from an independent pricing service.

Realized gains or losses are based on cost and are computed using the specific identification method. The Company

monitors its equity securities for unrealized losses that appear to be other-than-temporary. An equity security is considered

impaired when one of the following conditions exist: 1) an equity security’s market value is less than 80% of its cost for a

continuous period of 6 months, 2) an equity security’s market value is less than 50% of its cost, regardless of the amount of

time the security’s market value has been below cost, and 3) an equity security’s market value has been less than cost for a

continuous period of 12 months or more, regardless of the magnitude of the decline in market value. Any subsequent increase

in the equity security’s estimated fair value would be reported as an unrealized gain. Equity securities that are in an

unrealized loss position, but do not meet the above quantitative thresholds are evaluated to determine if the decline in market

value is other than temporary.

Other Long-Term Investments

Other long-term investments consist of investments in limited partnerships. Investments in limited partnerships are

reported in the consolidated financial statements using the equity method. The carrying value of the Company’s limited

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