This excerpt taken from the ALL 10-Q filed Nov 6, 2008.
Corporate privately placed: Valued based on nonbinding 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 nonmarket 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 nonbinding 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 Companys internal ratings are primarily consistent with the NAIC ratings which are generally updated annually.