Investments (Tables)

6 Months Ended

Jun. 30, 2011

Estimated Carrying Values and Fair Values of Consolidated Financial Instruments

The estimated carrying values and fair values of Alleghany’s consolidated financial instruments as of June 30, 2011 and December 31, 2010 were as follows (in millions):


	June 30, 2011				December 31, 2010
	Carrying Value		Fair Value		Carrying Value		Fair Value
*Assets*
Investments (excluding equity method investments)*	$	4,726.9	$	4,726.9	$	4,622.7	$	4,622.7
*Liabilities*
Senior Notes**	$	299.0	$	308.9	$	298.9	$	291.8

This table includes available-for-sale investments (securities as well as partnership investments carried at fair value that are included in other invested assets). This table excludes investments accounted for using the equity method (Homesite, ORX and other investments) and certain loans receivable that are carried at cost, all of which are included in other invested assets. The fair value of short-term investments approximates amortized cost. The fair value of all other categories of investments is discussed below.

**	See Note 7 to the Notes to the Consolidated Financial Statements set forth in Item 8 of the 2010 10-K.

Estimated Fair Value of Financial Instruments

The estimated fair values of Alleghany’s financial instruments as of June 30, 2011 and December 31, 2010 allocated among the three levels set forth above were as follows (in millions):


	Level 1		Level 2		Level 3		Total
As of June 30, 2011
Equity securities:
Common stock(1)	$	1,642.1	$	—	$	—	$	1,642.1
Preferred stock		—		—		—		—
Debt securities:
U.S. Government obligations		271.9		30.5		—		302.4
Mortgage and asset-backed securities(2)		—		1,006.3		—		1,006.3
States, municipalities and political subdivision bonds		—		1,000.6		—		1,000.6
Foreign bonds		—		90.3		—		90.3
Corporate bonds and other		—		395.6		—		395.6

		271.9		2,523.3		—		2,795.2

Short-term investments		87.4		175.0		—		262.4
Other invested assets(3)		—		—		27.2		27.2

Investments (excluding equity method investments)	$	2,001.4	$	2,698.3	$	27.2	$	4,726.9

Senior Notes	$	—	$	308.9	$	—	$	308.9

As of December 31, 2010
Equity securities:
Common stock(1)	$	1,500.7	$	—	$	—	$	1,500.7
Preferred stock		—		—		—		—
Debt securities:
U.S. Government obligations		307.3		30.5		—		337.8
Mortgage and asset-backed securities(2)		—		866.5		—		866.5
States, municipalities and political subdivision bonds		—		1,068.5		—		1,068.5
Foreign bonds		—		114.2		—		114.2
Corporate bonds and other		—		445.4		—		445.4

		307.3		2,525.1		—		2,832.4

Short-term investments		86.4		178.4		—		264.8
Other invested assets(3)		—		—		24.8		24.8

Investments (excluding equity method investments)	$	1,894.4	$	2,703.5	$	24.8	$	4,622.7

Senior Notes	$	—	$	291.8	$	—	$	291.8

(1)	Of the $1,642.1 million of fair value as of June 30, 2011, $1,024.9 million related to certain energy sector businesses. Of the $1,500.7 million of fair value as of December 31, 2010, $1,004.8 million related to certain energy sector businesses.

(2)

Of the $1,006.3 million of fair value as of June 30, 2011, $549.9 million related to residential mortgage-backed securities (“RMBS”), $190.5 million related to commercial mortgage-backed securities (“CMBS”) and $265.9 million related to other asset-backed securities. Of the $866.5 million of fair value as of December 31, 2010, $499.9 million related to RMBS, $173.4 million related to CMBS and $193.2 million related to other asset-backed securities.

(3)	Level 3 securities consist of partnership investments. The carrying value of partnership investments of $27.2 million increased by $2.4 million from the December 31, 2010 carrying value of $24.8 million, due primarily to an increase in estimated fair value during the period.

Available-for-Sale Securities

Available-for-sale securities as of June 30, 2011 and December 31, 2010 are summarized as follows (in millions):


	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of June 30, 2011
Equity securities:
Common stock(1)	$	1,406.5	$	252.1	$	(16.5	)	$	1,642.1
Preferred stock		—		—		—			—
Debt securities:
U.S. Government obligations		298.4		4.4		(0.4	)		302.4
Mortgage and asset-backed securities(2)		971.4		38.8		(3.9	)		1,006.3
States, municipalities and political subdivision bonds		965.9		37.8		(3.1	)		1,000.6
Foreign bonds		88.5		2.5		(0.7	)		90.3
Corporate bonds and other		382.6		14.1		(1.1	)		395.6

		2,706.8		97.6		(9.2	)		2,795.2

Short-term investments		262.4		—		—			262.4

	$	4,375.7	$	349.7	$	(25.7	)	$	4,699.7

*Industry Segment*
AIHL insurance group	$	3,818.5	$	249.0	$	(25.7	)	$	4,041.8
Corporate activities		557.2		100.7		—			657.9

	$	4,375.7	$	349.7	$	(25.7	)	$	4,699.7


	Amortized Cost or Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
As of December 31, 2010
Equity securities:
Common stock(1)	$	1,310.0	$	196.3	$	(5.6	)	$	1,500.7
Preferred stock		—		—		—			—
Debt securities:
U.S. Government obligations		334.4		4.6		(1.2	)		337.8
Mortgage and asset-backed securities(2)		841.0		31.8		(6.3	)		866.5
States, municipalities and political subdivision bonds		1,058.1		25.4		(15.0	)		1,068.5
Foreign bonds		112.7		2.4		(0.9	)		114.2
Corporate bonds and other		431.9		14.9		(1.4	)		445.4

		2,778.1		79.1		(24.8	)		2,832.4

Short-term investments		264.8		—		—			264.8

	$	4,352.9	$	275.4	$	(30.4	)	$	4,597.9

*Industry Segment*
AIHL insurance group	$	3,760.3	$	232.7	$	(30.4	)	$	3,962.6
Corporate activities		592.6		42.7		—			635.3

	$	4,352.9	$	275.4	$	(30.4	)	$	4,597.9

(1)	Of the $1,642.1 million of fair value as of June 30, 2011, $1,024.9 million related to certain energy sector businesses. Of the $1,500.7 million of fair value as of December 31, 2010, $1,004.8 million related to certain energy sector businesses.

(2)

Of the $1,006.3 million of fair value as of June 30, 2011, $549.9 million related to RMBS, $190.5 million related to CMBS and $265.9 million related to other asset-backed securities. Of the $866.5 million of fair value as of December 31, 2010, $499.9 million related to RMBS, $173.4 million related to CMBS and $193.2 million related to other asset-backed securities.

Amortized Cost and Estimated Fair Value of Debt securities by Contractual Maturity

The amortized cost and estimated fair value of debt securities as of June 30, 2011 by contractual maturity are shown below (in millions). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized Cost		Fair Value
Short-term investments due in one year or less	$	262.4	$	262.4

Mortgage and asset-backed securities		971.4		1,006.3

Debt securities
One year or less		241.1		244.2
Over one through five years		540.7		561.6
Over five through ten years		569.7		594.0
Over ten years		383.9		389.1

Equity securities		1,406.5		1,642.1

	$	4,375.7	$	4,699.7

Amounts of Gross Realized Capital Gains and Gross Realized Capital Losses of Available-for-Sale Securities (Primarily, Equity Securities)

The amounts of gross realized capital gains and gross realized capital losses of available-for-sale securities (primarily, equity securities) for the six months ended June 30, 2011 and June 30, 2010 were:


	Six Months Ended June 30,
	2011			2010
	(in millions)
Gross realized gains	$	48.5		$	64.1
Gross realized losses		(7.3	)		(4.3	)

Net realized gains	$	41.2		$	59.8

Gross Unrealized Investment Losses and Related Fair Value for Debt Securities and Equity Securities

Such gross unrealized investment losses and related fair values for debt securities and equity securities as of June 30, 2011 and December 31, 2010, were as follows (in millions):


	2011				2010
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Debt securities:
U.S. Government obligations
Less than 12 months	$	34.7	$	0.4	$	49.7	$	1.2
More than 12 months		—		—		—		—
Mortgage and asset-backed securities
Less than 12 months		102.6		0.9		170.8		2.8
More than 12 months		32.4		3.0		39.5		3.5
States, municipalities and political subdivision bonds
Less than 12 months		197.2		2.6		349.1		14.4
More than 12 months		6.7		0.5		7.7		0.6
Foreign bonds
Less than 12 months		15.7		0.7		45.2		0.9
More than 12 months		—		—		—		—
Corporate bonds and other
Less than 12 months		56.5		1.1		63.1		1.4
More than 12 months		—		—		—		—

Total debt securities
Less than 12 months		406.7		5.7		677.9		20.7
More than 12 months		39.1		3.5		47.2		4.1

Equity securities — Common Stock
Less than 12 months		287.9		16.5		139.5		5.6
More than 12 months		—		—		—		—

Equity securities — Preferred Stock
Less than 12 months		—		—		—		—
More than 12 months		—		—		—		—

Total temporarily impaired securities
Less than 12 months		694.6		22.2		817.4		26.3
More than 12 months		39.1		3.5		47.2		4.1

Total	$	733.7	$	25.7	$	864.6	$	30.4

- Definition

Tabular disclosure of available-for-sale securities which consist of all investments in certain debt and equity securities neither classified as trading or held-to-maturity securities. A debt security represents a creditor relationship with an enterprise. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt.

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- Definition

Tabular disclosure of the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments, assets, and liabilities. Such certain disclosures about the financial instruments, assets, and liabilities include: (1) the fair value of the required items together with their carrying amounts (as appropriate) and (2) the methodology and assumptions used in developing such estimates of fair value.

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- Definition

Tabular disclosure of the fair value measurement of assets and liabilities which includes [financial] instruments measured at fair value that are classified in stockholders' equity. Such assets and liabilities may be measured on a recurring or nonrecurring basis. The disclosures which may be required or desired include: (1) for assets and liabilities measured on a recurring basis, disclosure may include: (a) the fair value measurements at the reporting date; (b) the level within the fair value hierarchy in which the fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3); (c) for fair value measurements using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (i) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets), and a description of where those gains or losses included in earnings (or changes in net assets) are reported in the statement of income (or activities); (ii) purchases, sales, issuances, and settlements (net); (iii) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs); (d) the amount of the total gains or losses for the period in subparagraph (c) (i) above included in earnings (or changes in net assets) that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date and a description of where those unrealized gains or losses are reported in the statement of income (or activities); (e) the valuation technique(s) used to measure fair value and a discussion of changes in valuation techniques, if any, during the period and (2) for assets and liabilities that are measured at fair value on a nonrecurring basis (for example, impaired assets) disclosure may include, in addition to (a) above: (a) the reasons for the fair value measurements recorded; (b) the same as (b) above; (c) for fair value measurements using significant unobservable inputs (Level 3), a description of the inputs and the information used to develop the inputs; and (d) the valuation technique(s) used to measure fair value and a discussion of changes, if any, in the valuation technique(s) used to measure similar assets and/or liabilities in prior periods. Where the quoted price in an active market for the identical liability is not available, the Level 1 input is the quoted price of an identical liability when traded as an asset.

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