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This excerpt taken from the ALL 10-Q filed Nov 6, 2008. Corporate
privately placed: Valued based on non–binding broker quotes and
models that are widely accepted in the
financial services industry and use internally assigned credit ratings as
inputs and instrument specific inputs. Instrument
specific inputs used in internal fair value determinations include coupon rate,
weighted average life, sector of the issuer and call provisions. Privately placed securities are categorized
as Level 3 as a result of the
significance of non–market
observable inputs. The $10.7 billion of
privately placed fixed income securities included in Level 3 primarily comprise
$9.0 billion valued using an internal model and $1.5 billion valued using non–binding broker quotes. The internally modeled securities are valued
based on internal ratings, which are not observable in the market. Multiple internal ratings comprise a National
Association of Insurance Commissioners (“NAIC”) rating category and when used in the internal model provide a more
refined determination of fair value. The
Company’s internal ratings are primarily consistent with the NAIC ratings which
are generally updated annually.
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