Fair Value of Financial Instruments (Tables)

12 Months Ended

Dec. 31, 2018

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 December 31, 2018 and 2017:

	December 31, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value
	($ in millions)
Assets
Investments (excluding equity method investments and loans)(1)	$	$$16,291.3	$	$$16,291.3	$	$$17,406.5	$	$$17,406.5
Liabilities
Senior Notes and other debt(2)	$	1,669.0	$	1,795.5	$	1,484.9	$	1,614.6

(1) This table includes 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 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 December 31, 2018 and 2017:

	Level 1		Level 2		Level 3		Total
	($ in millions)
As of December 31, 2018
Equity securities:
Common stock	$	3,563.9	$	3.5	$	-	$	3,567.4
Preferred stock		-		-		5.4		5.4
Total equity securities		3,563.9		3.5		5.4		3,572.8
Debt securities:
U.S. Government obligations		-		1,022.4		-		1,022.4
Municipal bonds		-		2,214.7		-		2,214.7
Foreign government obligations		-		947.9		-		947.9
U.S. corporate bonds		-		1,959.6		425.7		2,385.3
Foreign corporate bonds		-		1,226.4		126.9		1,353.3
Mortgage and asset-backed securities:
RMBS(1)		-		1,387.9		-		1,387.9
CMBS		-		533.3		-		533.3
Other asset-backed securities(2)		-		712.3		1,266.9		1,979.2
Total debt securities		-		10,004.5		1,819.5		11,824.0
Short-term investments		-		893.8		-		893.8
Other invested assets(3)		-		-		0.7		0.7
Total investments (excluding equity method investments and loans)	$	3,563.9	$	10,901.8	$	1,825.6	$	16,291.3
Senior Notes and other debt	$	-	$	1,510.5	$	285.0	$	1,795.5
	Level 1		Level 2		Level 3		Total
	($ in millions)
As of December 31, 2017
Equity securities:
Common stock	$	4,090.7	$	3.8	$	-	$	4,094.5
Preferred stock		-		3.1		1.9		5.0
Total equity securities		4,090.7		6.9		1.9		4,099.5
Debt securities:
U.S. Government obligations		-		948.0		-		948.0
Municipal bonds		-		3,682.1		-		3,682.1
Foreign government obligations		-		1,006.6		-		1,006.6
U.S. corporate bonds		-		2,173.0		260.0		2,433.0
Foreign corporate bonds		-		1,424.6		75.2		1,499.8
Mortgage and asset-backed securities:
RMBS(1)		-		833.8		161.8		995.6
CMBS		-		550.1		1.6		551.7
Other asset-backed securities(2)		-		503.3		1,101.3		1,604.6
Total debt securities		-		11,121.5		1,599.9		12,721.4
Short-term investments		-		578.1		-		578.1
Other invested assets(3)		-		-		7.5		7.5
Total investments (excluding equity method investments and loans)	$	4,090.7	$	11,706.5	$	1,609.3	$	17,406.5
Senior Notes and other debt	$	-	$	1,513.6	$	101.0	$	1,614.6

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

(2) Includes $1,266.9 million and $1,101.3 million of collateralized loan obligations as of December 31, 2018 and 2017, respectively.

(3) Includes partnership and non-marketable equity investments accounted for at fair value, 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 2018 and 2017 in Level 3 assets measured at fair value:

			Debt Securities
							Mortgage and asset-backed
Year Ended December 31, 2018	Preferred 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, 2018	$	1.9	$	260.0	$	75.2	$	161.8	$	1.6	$	1,101.3	$	7.5	$	1,609.3
Net realized/unrealized gains (losses) included in:
Net earnings(2)		-		(0.9)		(0.1)		(0.3)		-		1.6		1.2		1.5
Other comprehensive income (loss)		(2.7)		(11.5)		(2.9)		(5.3)		-		(42.3)		(4.2)		(68.9)
Purchases		2.0		182.3		58.9		-		-		846.3		-		1,089.5
Sales		(0.1)		-		-		-		-		(65.0)		(5.7)		(70.8)
Issuances		-		-		-		-		-		-		-		-
Settlements		-		(4.8)		(4.0)		(5.6)		-		(564.0)		-		(578.4)
Transfers into Level 3		4.3		1.9		-		-		-		-		58.8		65.0
Transfers out of Level 3		-		(1.3)		(0.2)		(150.6)		(1.6)		(11.0)		(56.9)		(221.6)
Balance as of December 31, 2018	$	5.4	$	425.7	$	126.9	$	-	$	-	$	1,266.9	$	0.7	$	1,825.6

	Equity Securities				Debt Securities
											Mortgage and asset-backed
Year Ended December 31, 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)		0.1		(0.2)		-		(0.6)		(1.5)		0.3		-		4.0		10.2		12.3
Other comprehensive income		-		0.2		-		2.6		0.4		1.2		0.1		16.8		(9.3)		12.0
Purchases		-		5.6		4.8		252.3		79.3		161.1		11.2		906.9		-		1,421.2
Sales		(2.6)		(0.6)		-		(41.2)		(0.6)		-		(11.8)		(114.4)		(21.5)		(192.7)
Issuances		-		-		-		-		-		-		-		-		-		-
Settlements		-		-		-		(8.5)		(0.9)		(1.4)		(0.5)		(579.6)		-		(590.9)
Transfers into Level 3		1.4		-		-		3.8		0.3		-		-		-		-		5.5
Transfers out of Level 3		(3.2)		(3.1)		(4.8)		(21.3)		(2.2)		(5.3)		(1.7)		(36.2)		-		(77.8)
Balance as of December 31, 2017	$	-	$	1.9	$	-	$	260.0	$	75.2	$	161.8	$	1.6	$	1,101.3	$	7.5	$	1,609.3

(1) Includes partnership and non-marketable equity investments accounted for at fair value.

(2) There were no OTTI losses recorded in net earnings related to Level 3 instruments still held as of December 31, 2018 and 2017.