(2)	See Note 8 to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2018 Form 10-K for additional information on the senior notes and other debt.

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 June 30, 2019 and December 31, 2018:


	Level 1		Level 2		Level 3		Total

	($ in millions)
As of June 30, 2019
Equity securities:
Common stock	$	2,285.4	$	3.3	$	-	$	2,288.7
Preferred stock		-		-		4.1		4.1
Total equity securities		2,285.4		3.3		4.1		2,292.8

Debt securities:
U.S. Government obligations		-		1,256.5		-		1,256.5
Municipal bonds		-		2,448.3		-		2,448.3
Foreign government obligations		-		783.4		-		783.4
U.S. corporate bonds		-		2,555.8		534.6		3,090.4
Foreign corporate bonds		-		1,291.2		145.9		1,437.1
Mortgage and asset-backed securities:

Residential mortgage-backed securities (“RMBS”) (1)		-		1,915.9		-		1,915.9
Commercial mortgage-backed securities (“CMBS”)		-		788.4		-		788.4

Other asset-backed securities (2)		-		1,449.9		959.7		2,409.6
Total debt securities		-		12,489.4		1,640.2		14,129.6

Short-term investments		-		1,054.8		-		1,054.8
Other invested assets (3)		-		-		0.5		0.5
Total investments (excluding equity method investments and loans)	$	2,285.4	$	13,547.5	$	1,644.8	$	17,477.7

Senior Notes and other debt	$	-	$	1,551.6	$	330.6	$	1,882.2


	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

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

(2)	Includes $952.5 million and $1,266.9 million of collateralized loan obligations as of June 30, 2019 and December 31, 2018, respectively.

(3)	Includes partnership and non-marketable equity investments accounted for at fair value, and excludes investments accounted for using the equity method.

In the three and six months ended June 30, 2019, Alleghany transferred into Level 3 $1.3 million and $16.0 million, respectively, of financial instruments, principally due to a decrease in observable inputs related to the valuation of such assets. Specifically, during the first six months of 2019, there was an increase in the weight given to

non-binding

broker quotes and, as a result, there was a corresponding decrease in quoted prices for similar assets in active markets. Of the $

16.0

million of transfers, $14.7 million related to foreign corporate bonds and $1.3 million related to U.S. corporate bonds.

In the three and six months ended June 30, 2019, Alleghany transferred out of Level 3 $13.9 million and $

14.9

million, respectively, of financial instruments, principally due to an increase in observable inputs related to the valuation of such assets. Specifically, during the first six months of 2019, there was a decrease in the weight given to

non-binding

broker quotes and, as a result, there was a corresponding increase in quoted prices for similar assets in active markets. Of the $

14.9

million of transfers, $12.1 million related to other asset-backed securities, with the remainder related to other types of debt securities.

There were no other material transfers between Levels 1, 2 or 3 in the six months ended June 30, 2019.

As further described in Note 3(h), on March 15, 2018, most of AIHL’s limited partnership interests in certain subsidiaries of Ares Management LLC (“Ares”) were converted into Ares common units. As a result of the conversion, as of March 15, 2018, $208.2 million of Ares common units, classified as equity securities, was transferred into Level 1, and $58.7 million of Ares limited partnership interests, classified as other invested assets, was transferred into Level 3. On September 24, 2018, AIHL’s remaining $56.9 million of Ares limited partnership interests were converted into Ares common units and, as a result, was transferred out of Level 3 and into Level 1.

In addition to the $58.7 million of Ares-related other invested assets transferred into Level 3, in the three and six months ended June 30, 2018, Alleghany transferred into Level 3 $1.3 million and $5.6 million, respectively, of financial instruments, principally due to a decrease in observable inputs related to the valuation of such assets, specifically, a decrease in non-binding broker quotes. Of the $

5.6

million of transfers, $4.3 million related to preferred stock, $1.2 million related to U.S. corporate bonds and $0.1 million related to other invested assets.

In the three and six months ended June 30, 2018, Alleghany transferred out of Level 3 $151.9 million and $153.5 million, respectively,

of financial instruments, principally due to an increase in observable inputs related to the valuation of such assets. Specifically, during the first six months

of 2018, there was a decrease in the weight given to

non-binding

broker quotes, and as a result, there was a corresponding increase in quoted prices for similar assets in active markets. Of the $

153.5

million of transfers, $150.6 million related to RMBS in the second quarter of 2018, $1.6 million related to CMBS in the first quarter of 2018 and $1.3 million related to U.S. corporate bonds in the second quarter of 2018.

There were no other material transfers between Levels 1, 2 or 3 in the six months ended June 30, 2018.

The following tables present reconciliations of the changes in Level 3 assets during the six months ended June 30, 2019 and 2018 measured at fair value:


				Debt Securities
										Mortgage and asset-backed
Six Months Ended June 30, 2019	Preferred Stock			U.S. Corporate Bonds			Foreign Corporate Bonds			CMBS			Other Asset- backed Securities			Other Invested Assets (1)			Total
	($ in millions)
Balance as of January 1, 2019	$	5.4		$	425.7		$	126.9		$	-		$	1,266.9		$	0.7		$	1,825.6
Net realized/unrealized gains (losses) included in:
Net earnings (2)		(1.6	)		(10.0	)		(0.1	)		-			(0.7	)		(0.2	)		(12.6	)
Other comprehensive income (loss)		-			31.3			5.4			-			20.5			(0.1	)		57.1
Purchases		0.3			90.9			13.9			0.2			56.8			0.1			162.2
Sales		-			-			(5.6	)		-			(300.2	)		-			(305.8	)
Issuances		-			-			-			-			-			-			-
Settlements		-			(3.6	)		(7.7	)		-			(71.5	)		-			(82.8	)
Transfers into Level 3		-			1.3			14.7			-			-			-			16.0
Transfers out of Level 3		-			(1.0	)		(1.6	)		(0.2	)		(12.1	)		-			(14.9	)
Balance as of June 30, 2019	$	4.1		$	534.6		$	145.9		$	-		$	959.7		$	0.5		$	1,644.8


				Debt Securities
										Mortgage and asset-backed
Six Months Ended June 30, 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)		-			-			(0.1	)		(0.3	)		-			1.0			1.1			1.7
Other comprehensive income (loss)		0.2			(6.9	)		(2.2	)		(5.3	)		-			(7.7	)		(3.5	)		(25.4	)
Purchases		-			117.3			23.8			-			-			495.1			-			636.2
Sales		(0.1	)		(2.5	)		(1.9	)		(5.6	)		-			(365.7	)		(5.6	)		(381.4	)
Issuances		-			-			-			-			-			-			-			-
Settlements		-			-			-			-			-			-			-			-
Transfers into Level 3		4.3			1.2			-			-			-			-			58.8			64.3
Transfers out of Level 3		-			(1.3	)		-			(150.6	)		(1.6	)		-			-			(153.5	)
Balance as of June 30, 2018	$	6.3		$	367.8		$	94.8		$	-		$	-		$	1,224.0		$	58.3		$	1,751.2

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

(2)	There were no other than temporary impairment (“OTTI”) losses recorded in net earnings related to Level 3 assets still held as of June 30, 2019 and 2018.

Net unrealized losses related to Level 3 assets as of June 30, 2019 and December 31, 2018 were not material.

The increase in senior notes and other debt included in Level 3 for the first six months of 2019 primarily reflects increased borrowings at

IPS and PCT to fund acquisitions and

W&W|AFCO Steel to support working capital needs.

See Note 1(c) to Notes to Consolidated Financial Statements set forth in Part II, Item 8, “Financial Statements and Supplementary Data” of the 2018 Form

10-K

for Alleghany’s accounting policy on fair value.