Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2017

Carrying Value and Estimated Fair Value of Consolidated Financial Instruments

The following table presents the carrying value and estimated fair value of Alleghany’s consolidated financial instruments as of September 30, 2017 and December 31, 2016:


	September 30, 2017				December 31, 2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
	($ in millions)
Assets
Investments (excluding equity method investments and loans)⁽¹⁾	$	17,590.2	$	17,590.2	$	16,899.2	$	16,899.2

Liabilities
Senior Notes and other debt⁽²⁾	$	1,486.4	$	1,655.5	$	1,476.5	$	1,584.3

(1)

This table includes 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 commercial mortgage loans that are carried at unpaid principal balance. The fair value of short-term investments approximates amortized cost. The fair value of all other categories of investments is discussed below.

(2)	See Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2016 Form 10-K for additional information on the senior notes and other debt.

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

The following tables present Alleghany’s financial instruments measured at fair value and the level of the fair value hierarchy of inputs used as of September 30, 2017 and December 31, 2016:


	Level 1		Level 2		Level 3		Total
	($ in millions)
As of September 30, 2017
Equity securities:
Common stock	$	3,815.2	$	0.5	$	0.9	$	3,816.6
Preferred stock		-		-		5.0		5.0

Total equity securities		3,815.2		0.5		5.9		3,821.6


Debt securities:
U.S. Government obligations		-		1,020.7		-		1,020.7
Municipal bonds		-		4,131.7		-		4,131.7
Foreign government obligations		-		1,136.2		4.7		1,140.9
U.S. corporate bonds		-		2,202.2		278.8		2,481.0
Foreign corporate bonds		-		1,254.3		39.9		1,294.2
Mortgage and asset-backed securities:
Residential mortgage-backed securities (“RMBS”)⁽¹⁾		-		948.8		5.4		954.2
Commercial mortgage-backed securities (“CMBS”)		-		505.5		11.4		516.9
Other asset-backed securities⁽²⁾		-		490.3		1,182.5		1,672.8

Total debt securities		-		11,689.7		1,522.7		13,212.4
Short-term investments		-		547.8		-		547.8
Other invested assets⁽³⁾		-		-		8.4		8.4

Total investments (excluding equity method investments and loans)	$	3,815.2	$	12,238.0	$	1,537.0	$	17,590.2


Senior Notes and other debt	$	-	$	1,553.0	$	102.5	$	1,655.5

	Level 1		Level 2		Level 3		Total
	($ in millions)
As of December 31, 2016
Equity securities:
Common stock	$	3,105.2	$	-	$	4.3	$	3,109.5
Preferred stock		-		-		-		-

Total equity securities		3,105.2		-		4.3		3,109.5


Debt securities:
U.S. Government obligations		-		1,243.3		-		1,243.3
Municipal bonds		-		4,185.8		-		4,185.8
Foreign government obligations		-		1,047.1		-		1,047.1
U.S. corporate bonds		-		2,120.2		72.9		2,193.1
Foreign corporate bonds		-		1,088.4		0.4		1,088.8
Mortgage and asset-backed securities:
RMBS⁽¹⁾		-		994.5		5.9		1,000.4
CMBS		-		730.5		4.3		734.8
Other asset-backed securities⁽²⁾		-		586.1		903.8		1,489.9

Total debt securities		-		11,995.9		987.3		12,983.2
Short-term investments		-		778.4		-		778.4
Other invested assets⁽³⁾		-		-		28.1		28.1

Total investments (excluding equity method investments and loans)	$	3,105.2	$	12,774.3	$	1,019.7	$	16,899.2


Senior Notes and other debt	$	-	$	1,491.5	$	92.8	$	1,584.3

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

(2)	Includes $1,146.2 million and $903.8 million of collateralized loan obligations as of September 30, 2017 and December 31, 2016, respectively.

(3)	Includes partnership and non-marketable equity investments accounted for on an AFS basis, and excludes investments accounted for using the equity method.

Reconciliations of Changes in Level Three Assets Measured at Fair Value

The following tables present reconciliations of the changes during the nine months ended September 30, 2017 and 2016 in Level 3 assets measured at fair value:


	Equity Securities				Debt Securities
											Mortgage and asset-backed
Nine Months Ended September 30, 2017	Common Stock		Preferred Stock		Foreign Government Obligations		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, 2017	$	4.3	$	-	$	-	$	72.9	$	0.4	$	5.9	$	4.3	$	903.8	$	28.1	$	1,019.7
Net realized/unrealized gains (losses) included in:
Net earnings⁽²⁾		0.2		(0.2)		-		(0.2)		-		0.2		-		3.9		10.8		14.7
Other comprehensive income		-		0.2		-		3.2		0.8		0.3		0.1		15.0		(8.9)		10.7
Purchases		-		5.6		4.7		220.4		38.6		-		9.6		746.7		-		1,025.6
Sales		(2.6)		(0.6)		-		(10.2)		(0.2)		-		(2.2)		(59.5)		(21.6)		(96.9)
Issuances		-		-		-		-		-		-		-		-		-		-
Settlements		-		-		-		(6.3)		-		(1.0)		(0.4)		(427.4)		-		(435.1)
Transfers into Level 3		1.4		-		-		3.8		0.3		-		-		-		-		5.5
Transfers out of Level 3		(2.4)		-		-		(4.8)		-		-		-		-		-		(7.2)

Balance as of September 30, 2017	$	0.9	$	5.0	$	4.7	$	278.8	$	39.9	$	5.4	$	11.4	$	1,182.5	$	8.4	$	1,537.0


			Debt Securities
							Mortgage and asset-backed
Nine Months Ended September 30, 2016	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, 2016	$	-	$	49.8	$	-	$	14.9	$	20.2	$	953.0	$	29.9	$	1,067.8
Net realized/unrealized gains (losses) included in:
Net earnings⁽²⁾		(0.1)		(0.5)		-		0.3		(0.1)		2.2		4.2		6.0
Other comprehensive income		1.8		1.4		-		(0.7)		0.8		25.1		(2.9)		25.5
Purchases		2.2		39.4		-		-		-		32.1		-		73.7
Sales		-		(14.5)		-		(7.0)		(8.2)		(70.7)		(4.2)		(104.6)
Issuances		-		-		-		-		-		-		-		-
Settlements		-		(1.7)		-		(1.5)		(0.5)		(33.6)		-		(37.3)
Transfers into Level 3		1.0		5.5		1.9		-		-		-		-		8.4
Transfers out of Level 3		-		(5.1)		-		-		-		-		(0.3)		(5.4)

Balance as of September 30, 2016	$	4.9	$	74.3	$	1.9	$	6.0	$	12.2	$	908.1	$	26.7	$	1,034.1

(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 assets still held as of September 30, 2017 and 2016.

- 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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