Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2015

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 September 30, 2015 and December 31, 2014 were as follows:


	September 30, 2015				December 31, 2014
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(in millions)
Assets
Investments (excluding equity method investments)⁽¹⁾	$	17,935.9	$	17,935.9	$	18,153.8	$	18,153.8

Liabilities
Senior Notes⁽²⁾	$	1,759.5	$	1,888.5	$	1,767.1	$	1,948.6

(1)

This table includes available-for-sale (“AFS”) investments (debt and equity securities as well as partnership and non-marketable equity 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. Fair value for all other categories of investments is discussed in Note 1(c) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2014 10-K.

(2)	See Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2014 10-K.

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 September 30, 2015 and December 31, 2014 were as follows:


	Level 1		Level 2		Level 3		Total
	(in millions)
As of September 30, 2015
Equity securities:
Common stock	$	3,006.0	$	6.1	$	—	$	3,012.1
Preferred stock		—		—		—		—

Total equity securities		3,006.0		6.1		—		3,012.1

Debt securities:
U.S. Government obligations		—		1,071.5		—		1,071.5
Municipal bonds		—		4,766.3		—		4,766.3
Foreign government obligations		—		919.3		—		919.3
U.S. corporate bonds		—		2,123.8		51.6		2,175.4
Foreign corporate bonds		—		1,316.0		—		1,316.0
Mortgage and asset-backed securities:
Residential mortgage-backed securities (“RMBS”)⁽¹⁾		—		1,475.3		15.9		1,491.2
Commercial mortgage-backed securities (“CMBS”)		—		1,117.0		20.9		1,137.9
Other asset-backed securities⁽²⁾		—		678.7		974.0		1,652.7

Total debt securities		—		13,467.9		1,062.4		14,530.3
Short-term investments		—		362.0		—		362.0
Other invested assets⁽³⁾		—		—		31.5		31.5

Total investments (excluding equity method investments)	$	3,006.0	$	13,836.0	$	1,093.9	$	17,935.9

Senior Notes	$	—	$	1,888.5	$	—	$	1,888.5


	Level 1		Level 2		Level 3		Total
	(in millions)
As of December 31, 2014
Equity securities:
Common stock	$	2,805.3	$	10.2	$	—	$	2,815.5
Preferred stock		—		—		—		—

Total equity securities		2,805.3		10.2		—		2,815.5

Debt securities:
U.S. Government obligations		—		541.1		—		541.1
Municipal bonds		—		5,197.5		—		5,197.5
Foreign government obligations		—		900.4		—		900.4
U.S. corporate bonds		—		2,118.1		36.7		2,154.8
Foreign corporate bonds		—		1,497.7		6.0		1,503.7
Mortgage and asset-backed securities:
RMBS⁽¹⁾		—		1,637.7		18.2		1,655.9
CMBS		—		1,102.0		23.3		1,125.3
Other asset-backed securities⁽²⁾		—		586.8		933.1		1,519.9

Total debt securities		—		13,581.3		1,017.3		14,598.6
Short-term investments		—		715.6		—		715.6
Other invested assets⁽³⁾		—		—		24.1		24.1

Total investments (excluding equity method investments)	$	2,805.3	$	14,307.1	$	1,041.4	$	18,153.8

Senior Notes	$	—	$	1,948.6	$	—	$	1,948.6

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

(2)	Includes $952.4 million and $900.7 million of collateralized loan obligations as of September 30, 2015 and December 31, 2014, respectively.

(3)	Includes partnership and non-marketable equity investments accounted for on an AFS basis, and excludes investments accounted for using the equity method and certain loans receivable that are carried at cost.

Reconciliations of Changes in Level Three Assets Measured at Fair Value

The following tables present reconciliations of the changes in Level 3 assets measured at fair value during the nine months ended September 30, 2015 and 2014:


	Debt Securities
							Mortgage and asset-backed
Nine Months Ended September 30, 2015	U.S. Corporate Bonds			Foreign Corporate Bonds			RMBS			CMBS			Other Asset- backed Securities			Other Invested Assets⁽¹⁾			Total
	(in millions)
Balance as of January 1, 2015	$	36.7		$	6.0		$	18.2		$	23.3		$	933.1		$	24.1		$	1,041.4
Net realized/unrealized gains (losses) included in:
Net earnings⁽²⁾		0.5			—			0.5			(0.3	)		2.0			0.2			2.9
Other comprehensive income		(0.8	)		0.8			(0.6	)		(1.5	)		(4.8	)		0.8			(6.1	)
Purchases		33.9			—			—			—			219.5			1.6			255.0
Sales		(1.8	)		(2.0	)		—			—			(167.9	)		(0.2	)		(171.9	)
Issuances		—			—			—			—			—			—			—
Settlements		(12.9	)		—			(2.2	)		(0.6	)		(7.9	)		—			(23.6	)
Transfers into Level 3		9.8			0.7			—			—			—			5.0			15.5
Transfers out of Level 3		(13.8	)		(5.5	)		—			—			—			—			(19.3	)

Balance as of September 30, 2015	$	51.6		$	—		$	15.9		$	20.9		$	974.0		$	31.5		$	1,093.9


			Debt Securities
									Mortgage and asset-backed
Nine Months Ended September 30, 2014	Common stock		U.S. Corporate Bonds			Foreign Corporate Bonds			RMBS			CMBS			Other Asset- backed Securities			Other Invested Assets⁽¹⁾			Total
	(in millions)
Balance as of January 1, 2014	$	—	$	27.5		$	1.0		$	78.8		$	60.8		$	258.4		$	282.0		$	708.5
Net realized/unrealized gains (losses) included in:
Net earnings⁽²⁾		—		(0.9	)		—			4.1			(0.3	)		0.5			0.2			3.6
Other comprehensive income		—		(0.3	)		—			2.5			(1.3	)		(6.9	)		1.4			(4.6	)
Purchases		4.5		21.6			2.5			—			22.0			730.5			—			781.1
Sales		—		(9.0	)		(1.2	)		(12.2	)		(3.0	)		(78.7	)		(0.2	)		(104.3	)
Issuances		—		—			—			—			—			—			—			—
Settlements		—		(7.6	)		(1.5	)		(8.3	)		(41.4	)		(11.2	)		(21.0	)		(91.0	)
Transfers into Level 3		—		15.0			0.3			—			—			29.1			—			44.4
Transfers out of Level 3		—		—			—			—			—			—			(238.1	)		(238.1	)

Balance as of September 30, 2014	$	4.5	$	46.3		$	1.1		$	64.9		$	36.8		$	921.7		$	24.3		$	1,099.6

(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 investments still held as of September 30, 2015 and 2014.