Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2013

Fair Value of Financial Instruments

2. Fair Value of Financial Instruments

The carrying values and estimated fair values of Alleghany’s consolidated financial instruments as of March 31, 2013 and December 31, 2012 were as follows:

	March 31, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions)
Assets
Investments (excluding equity method investments)(1)	$	18,015.4	$	18,015.4	$	17,831.8	$	17,831.8
Liabilities
Senior Notes(2)	$	1,807.3	$	1,984.2	$	1,811.5	$	1,946.7

(1) This table includes available-for-sale (“AFS”) investments (debt and equity 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 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 presented below.

(2) See Note 8 to the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of the 2012 10-K for additional information.

Alleghany’s financial instruments measured at fair value and the level of the fair value hierarchy of inputs used as of March 31, 2013 and December 31, 2012 were as follows:

	Level 1		Level 2		Level 3		Total
	(in millions)
As of March 31, 2013
Equity securities:
Common stock(1)	$	2,004.9	$	—	$	—	$	2,004.9
Preferred stock		—		—		—		—
Total equity securities		2,004.9		—		—		2,004.9
Debt securities:
U.S. Government obligations		—		522.1		—		522.1
Municipal bonds		—		6,321.8		—		6,321.8
Foreign government obligations		—		821.1		—		821.1
U.S. corporate bonds		—		2,836.4		6.1		2,842.5
Foreign corporate bonds		—		1,950.1		—		1,950.1
Mortgage and asset-backed securities:
Residential mortgage-backed securities (“RMBS”)(2)		—		1,549.3		61.9		1,611.2
Commercial mortgage-backed securities (“CMBS”)		—		553.7		73.9		627.6
Other asset-backed securities		—		410.0		4.1		414.1
Total debt securities		—		14,964.5		146.0		15,110.5
Short-term investments		—		757.1		—		757.1
Other invested assets (excluding equity method investments)(3)		—		—		142.9		142.9
Total investments (excluding equity method investments)	$	2,004.9	$	15,721.6	$	288.9	$	18,015.4
Senior Notes	$	—	$	1,984.2	$	—	$	1,984.2

	Level 1		Level 2		Level 3		Total
			(in millions)
As of December 31, 2012
Equity securities:
Common stock(1)	$	1,424.0	$	—	$	—	$	1,424.0
Preferred stock		—		—		—		—
Total equity securities		1,424.0		—		—		1,424.0
Debt securities:
U.S. Government obligations		—		522.9		—		522.9
Municipal bonds		—		6,304.1		—		6,304.1
Foreign government obligations		—		816.0		—		816.0
U.S. corporate bonds		—		3,485.3		30.4		3,515.7
Foreign corporate bonds		—		2,198.5		—		2,198.5
Mortgage and asset-backed securities:
RMBS(2)		—		1,602.9		59.6		1,662.5
CMBS		—		434.0		76.1		510.1
Other asset-backed securities		—		463.8		5.9		469.7
Total debt securities		—		15,827.5		172.0		15,999.5
Short-term investments		—		366.0		—		366.0
Other invested assets (excluding equity method investments)(3)		—		—		42.3		42.3
Total investments (excluding equity method investments)	$	1,424.0	$	16,193.5	$	214.3	$	17,831.8
Senior Notes	$	—	$	1,946.7	$	—	$	1,946.7

(1) Of the $2,004.9 million and $1,424.0 million of fair value as of March 31, 2013 and December 31, 2012, respectively, $775.0 million and $542.2 million, respectively, related to certain energy sector businesses.

(2) Primarily includes government agency pass-through securities guaranteed by a government agency or government sponsored enterprise, among other types of RMBS.

(3) Includes partnership and non-marketable equity investments accounted for on an AFS basis.

In the three months ended March 31, 2013, there were no transfers among Levels 1, 2 or 3.

The following table presents a reconciliation of the changes during the three months ended March 31, 2013 in Level 3 assets measured at fair value:

	Debt Securities
				Mortgage and asset-backed
Three Months Ended March 31, 2013	U.S. Corporate Bonds			RMBS			CMBS			Other Asset- backed Securities			Other  Invested Assets(1)		Total
		(in millions)
Balance as of January 1, 2013	$	30.4		$	59.6		$	76.1		$	5.9		$	42.3	$	214.3
Net realized/unrealized gains (losses) included in:
Net earnings(2)		0.3			(0.8	)		(0.2	)		0.1			—		(0.6	)
Other comprehensive income		(0.4	)		5.2			(1.0	)		(0.4	)		0.6		4.0
Purchases		—			—			—			—			100.0		100.0
Sales		(23.8	)		—			—			—			—		(23.8	)
Issuances		—			—			—			—			—		—
Settlements		(0.4	)		(2.1	)		(1.0	)		(1.5	)		—		(5.0	)
Transfers into Level 3		—			—			—			—			—		—
Transfers out of Level 3		—			—			—			—			—		—
Balance as of March 31, 2013	$	6.1		$	61.9		$	73.9		$	4.1		$	142.9	$	288.9

(1) Includes partnership and non-marketable equity investments accounted for on an AFS basis.

(2) There were no other than temporary impairment (“OTTI”) losses recorded in net earnings related to Level 3 instruments still held as of March 31, 2013.

Net unrealized losses related to Level 3 investments as of March 31, 2013 and December 31, 2012 were not material.

See Note 1(c) to the Notes to the Consolidated Financial Statements set forth in Part II, Item 8 of the 2012 10-K for Alleghany’s accounting policy on fair value.