Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Carrying Values and Estimated Fair Values of Consolidated Financial Instruments

The carrying values and estimated fair values of Alleghany’s consolidated financial instruments as of June 30, 2013 and December 31, 2012 were as follows:


	June 30, 2013				December 31, 2012
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions)
*Assets*
Investments (excluding equity method investments)⁽¹⁾	$	17,794.8	$	17,794.8	$	17,831.8	$	17,831.8

*Liabilities*
Senior Notes⁽²⁾	$	1,803.0	$	1,911.5	$	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 Consolidated Financial Statements set forth in Part II, Item 8 of the 2012 10-K for additional information.

Financial Instruments Measured at Fair Value and Level of Fair Value Hierarchy of Inputs

Alleghany’s financial instruments measured at fair value and the level of the fair value hierarchy of inputs used as of June 30, 2013 and December 31, 2012 were as follows:


	Level 1		Level 2		Level 3		Total
	(in millions)
As of June 30, 2013
Equity securities:
Common stock⁽¹⁾	$	1,827.5	$	—	$	—	$	1,827.5
Preferred stock		—		—		—		—

Total equity securities		1,827.5		—		—		1,827.5

Debt securities:
U.S. Government obligations		—		441.9		—		441.9
Municipal bonds		—		6,364.2		—		6,364.2
Foreign government obligations		—		836.6		—		836.6
U.S. corporate bonds		—		2,685.5		5.6		2,691.1
Foreign corporate bonds		—		1,886.2		—		1,886.2
Mortgage and asset-backed securities:
Residential mortgage-backed securities (“RMBS”)⁽²⁾		—		1,378.0		80.7		1,458.7
Commercial mortgage-backed securities (“CMBS”)		—		751.9		77.9		829.8
Other asset-backed securities		—		434.0		1.6		435.6

Total debt securities		—		14,778.3		165.8		14,944.1
Short-term investments		—		884.4		—		884.4
Other invested assets (excluding equity method investments)⁽³⁾		—		—		138.8		138.8

Total investments (excluding equity method investments)	$	1,827.5	$	15,662.7	$	304.6	$	17,794.8


Senior Notes	$	—	$	1,911.5	$	—	$	1,911.5


	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 $1,827.5 million and $1,424.0 million of fair value as of June 30, 2013 and December 31, 2012, respectively, $568.0 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.

Reconciliations of Changes in Level Three Assets Measured at Fair Value

The following table presents a reconciliation of the changes during the six months ended June 30, 2013 in Level 3 assets measured at fair value:


	Debt Securities
				Mortgage and asset-backed
Six Months Ended June 30, 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			0.3			0.1			0.2			—			0.9
Other comprehensive income		(0.6	)		4.0			(1.7	)		(0.5	)		2.2			3.4
Purchases		—			—			9.8			—			100.0			109.8
Sales		(23.8	)		—			(0.7	)		—			—			(24.5	)
Issuances		—			—			—			—			—			—
Settlements		(0.7	)		(4.5	)		(5.8	)		(4.3	)		(5.7	)		(21.0	)
Transfers into Level 3⁽³⁾		—			21.3			0.1			0.3			—			21.7
Transfers out of Level 3		—			—			—			—			—			—

Balance as of June 30, 2013	$	5.6		$	80.7		$	77.9		$	1.6		$	138.8		$	304.6

(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 June 30, 2013.

(3)	Principally due to a decrease in observable inputs related to the valuation of such securities.

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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- Definition

Tabular disclosure of the fair value measurement of assets using significant unobservable inputs (Level 3), a reconciliation of the beginning and ending balances, separately presenting changes during the period attributable to the following: (1) total gains or losses for the period (realized and unrealized), segregating those gains or losses included in earnings (or changes in net assets) and gains or losses recognized in other comprehensive income (loss), 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); (2) purchases, sales, issues, and settlements (each type disclosed separately); and (3) transfers in and transfers out of Level 3 (for example, transfers due to changes in the observability of significant inputs), by class of asset.

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- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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