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This excerpt taken from the ALL 10-Q filed Aug 6, 2008. Corporate
Privately Placed Securities: 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 $11.4 billion of privately placed fixed
income securities included in Level 3 comprise $9.9 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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