The following tables present the amortized cost and the fair value of AFS securities as of June 30, 2022 and December 31, 2021:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for Credit Losses			Fair Value
	($ in millions)
As of June 30, 2022
Debt securities:
U.S. Government obligations	$	1,637.2	$	0.7	$	(99.4	)	$	—		$	1,538.5
Municipal bonds		2,764.1		13.9		(151.2	)		—			2,626.8
Foreign government obligations		790.3		0.2		(46.3	)		—			744.2
U.S. corporate bonds		3,414.6		6.7		(256.6	)		(7.5	)		3,157.2
Foreign corporate bonds		1,180.1		0.2		(94.0	)		(1.2	)		1,085.1
Mortgage and asset-backed securities:
RMBS		1,837.3		3.9		(172.5	)		—			1,668.7
CMBS		980.9		0.1		(55.3	)		—			925.7
Other asset-backed securities(1)		3,090.0		0.8		(185.7	)		—			2,905.1
Total debt securities		15,694.5		26.5		(1,061.0	)		(8.7	)		14,651.3
Short-term investments		1,624.4		—		—			—			1,624.4
Total investments	$	17,318.9	$	26.5	$	(1,061.0	)	$	(8.7	)	$	16,275.7


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Allowance for Credit Losses			Fair Value
	($ in millions)
As of December 31, 2021
Debt securities:
U.S. Government obligations	$	2,039.7	$	27.9	$	(16.9	)	$	—		$	2,050.7
Municipal bonds		2,412.7		127.3		(4.1	)		—			2,535.9
Foreign government obligations		850.8		12.0		(7.9	)		—			854.9
U.S. corporate bonds		3,336.9		159.2		(18.3	)		(0.5	)		3,477.3
Foreign corporate bonds		1,216.6		19.9		(9.6	)		—			1,226.9
Mortgage and asset-backed securities:
RMBS		1,993.6		37.2		(21.8	)		—			2,009.0
CMBS		879.8		28.3		(2.2	)		—			905.9
Other asset-backed securities(1)		2,997.0		22.0		(18.0	)		—			3,001.0
Total debt securities		15,727.1		433.8		(98.8	)		(0.5	)		16,061.6
Short-term investments		1,142.3		—		—			—			1,142.3
Total investments	$	16,869.4	$	433.8	$	(98.8	)	$	(0.5	)	$	17,203.9

(1)

Includes $1,229.6 million and $1,320.4 million of collateralized loan obligations as of June 30, 2022 and December 31, 2021, respectively.

The proceeds from sales of equity securities were $0.1 billion and $0.1 billion for the three months ended June 30, 2022 and 2021, respectively, and $0.3 billion and $0.4 billion for the six months ended June 30, 2022 and 2021, respectively.

The proceeds from sales of debt securities were $0.2 billion and $1.2 billion for the three months ended June 30, 2022 and 2021, respectively, and $1.0 billion and $2.4 billion for the six months ended June 30, 2022 and 2021, respectively.

Realized capital gains for the three and six months ended June 30, 2022 and 2021 primarily reflect the sale of debt securities and certain foreign exchange impacts. The following table presents amounts of gross realized capital gains and gross realized capital losses for the three and six months ended June 30, 2022 and 2021:

Gross realized loss amounts exclude change in allowance for credit losses on AFS securities, as discussed below.

Alleghany holds its debt securities as AFS and, as such, these securities are recorded at fair value. Credit losses on AFS securities are recorded through an allowance for credit losses. Changes in the allowance for credit losses are recorded for (or as a reversal of) credit losses on AFS securities. Any portion of a decline in fair value related to a debt security that is believed to arise from factors other than credit is recorded as a component of other comprehensive income rather than charged against earnings.

Alleghany continually monitors the difference between amortized cost and the estimated fair value of its debt investments. The analysis of a security’s decline in value is performed in its functional currency. Debt securities in an unrealized loss position are evaluated for credit losses if they meet any of the following criteria: (i) they are trading at a discount of at least 20 percent to amortized cost and have a credit rating below investment grade or are not rated; (ii) there has been a negative credit or news event with respect to the issuer that could indicate the existence of a credit loss; or (iii) Alleghany intends to sell, or it is more likely than not that Alleghany will sell, the debt security before recovery of its amortized cost basis.

If Alleghany intends to sell, or it is more likely than not that Alleghany will sell, a debt security before recovery of its amortized cost basis, the total amount of the unrealized loss position is recognized as a credit loss in earnings. To the extent that a debt security that is in an unrealized loss position is not impaired based on the preceding, Alleghany will consider a debt security to be impaired when it believes it to be probable that Alleghany will not be able to collect the entire amortized cost basis. For debt securities in an unrealized loss position that are being evaluated for potential impairment as of the end of each quarter, Alleghany develops a best estimate of the present value of expected cash flows. If the results of the cash flow analysis indicate that Alleghany will not recover the full amount of its amortized cost basis in the debt security, Alleghany records a credit loss in earnings equal to the difference between the present value of expected cash flows and the amortized cost basis of the debt security. If applicable, the difference between the total unrealized loss position on the debt security and the total loss recognized in earnings is the non-credit related portion, which is recorded as a component of other comprehensive income.

In developing the cash flow analyses for debt securities, Alleghany considers various factors for the different categories of debt securities. For municipal bonds, Alleghany takes into account the taxing power of the issuer, source of revenue, credit risk and enhancements and pre-refunding. For mortgage and asset-backed securities, Alleghany discounts its best estimate of future cash flows at an effective rate equal to the original effective yield of the security or, in the case of floating rate securities, at the current coupon. Alleghany’s models include assumptions about prepayment speeds, default and delinquency rates, underlying collateral (if any), credit ratings, credit enhancements and other observable market data. For corporate bonds, Alleghany reviews business prospects, credit ratings and available information from asset managers and rating agencies for individual securities.

Change in allowance for credit losses on AFS securities in the first six months of 2022 reflects $8.2 million unrealized losses primarily on certain corporate bonds that experienced a decline in creditworthiness and for which Alleghany lacked the intent to hold such bonds for a period of time sufficient to allow for an anticipated recovery. Of the $8.2 million of change in allowance for credit losses on AFS securities, $7.6 million were incurred in the second quarter of 2022.

Change in allowance for credit losses on AFS securities in the first six months of 2021 primarily reflects a $2.2 million reduction of credit losses on AFS securities primarily from the sale of debt securities. Of the $2.2 million of change in allowance for credit losses on AFS securities, $0.2 million were incurred in the second quarter of 2021.

The gross unrealized investment losses for debt securities as of June 30, 2022 were deemed to be temporary, based on, among other factors: (i) the relative magnitude to which the fair value of these investments had been below cost were not indicative of a credit loss; (ii) the absence of compelling evidence that would cause Alleghany to call into question the financial condition or near-term business prospects of the issuer of the security; and (iii) Alleghany’s ability and intent to hold the security for a period of time sufficient to allow for any anticipated recovery.

Alleghany’s methodology for assessing credit losses contains inherent risks and uncertainties which could include, but are not limited to, incorrect assumptions about financial condition, liquidity or future prospects, inadequacy of any underlying collateral and unfavorable changes in economic conditions or social trends, interest rates or credit ratings.

Alleghany’s consolidated investment portfolio consists mainly of highly rated and liquid debt and equity securities listed on national securities exchanges. The overall credit quality of the debt securities portfolio is measured using the lowest rating of three large, reputable rating agencies. In this regard, the overall weighted-average credit quality rating of Alleghany’s debt securities portfolio as of June 30, 2022 and December 31, 2021, was AA-. Although a portion of Alleghany’s debt securities, which consists predominantly of municipal bonds, is insured by third-party financial guaranty insurance companies, the impact of such insurance was not significant to the debt securities’ credit quality rating as of June 30, 2022.

The following table presents the ratings of Alleghany’s debt securities as of June 30, 2022:


	Ratings as of June 30, 2022
	AAA / Aaa			AA / Aa			A			BBB / Baa			Below BBB / Baa or Not Rated(1)			Total
	($ in millions)
U.S. Government obligations	$	1.3		$	1,537.2		$	—		$	—		$	—		$	1,538.5
Municipal bonds		293.2			1,759.1			490.3			76.3			7.9			2,626.8
Foreign government obligations		325.5			345.7			72.0			1.0			—			744.2
U.S. corporate bonds		12.9			142.4			1,437.5			1,249.1			315.3			3,157.2
Foreign corporate bonds		142.6			59.5			514.0			336.6			32.4			1,085.1
Mortgage and asset-backed securities:
RMBS		5.3			1,657.5			0.4			0.7			4.8			1,668.7
CMBS		373.8			352.3			169.7			29.8			0.1			925.7
Other asset-backed securities		1,383.9			611.6			454.7			389.9			65.0			2,905.1
Total debt securities	$	2,538.5		$	6,465.3		$	3,138.6		$	2,083.4		$	425.5		$	14,651.3
Percentage of debt securities, before allowance for credit losses		17.3	%		44.1	%		21.5	%		14.2	%		2.9	%		100.0	%

(1)

Consists of $124.4 million of securities rated BB / Ba, $173.7 million of securities rated B, $21.2 million of securities rated CCC, $0.5 million of securities rated CC, $2.9 million of securities rated below CC and $102.8 million of not rated securities.

The following tables present gross unrealized losses and related fair values for Alleghany’s AFS securities before an allowance for credit losses, grouped by duration of time in a continuous unrealized loss position, as of June 30, 2022 and December 31, 2021:


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	($ in millions)
As of June 30, 2022
Debt securities:
U.S. Government obligations	$	1,285.4	$	82.8	$	240.7	$	16.6	$	1,526.1	$	99.4
Municipal bonds		1,543.9		146.8		24.0		4.4		1,567.9		151.2
Foreign government obligations		572.4		31.3		130.2		15.0		702.6		46.3
U.S. corporate bonds		2,569.2		208.8		187.9		47.8		2,757.1		256.6
Foreign corporate bonds		914.6		78.1		102.4		15.9		1,017.0		94.0
Mortgage and asset-backed securities:
RMBS		1,137.1		92.9		506.8		79.6		1,643.9		172.5
CMBS		853.8		51.1		33.8		4.2		887.6		55.3
Other asset-backed securities		2,210.9		148.6		618.5		37.1		2,829.4		185.7
Total temporarily impaired securities	$	11,087.3	$	840.4	$	1,844.3	$	220.6	$	12,931.6	$	1,061.0


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	($ in millions)
As of December 31, 2021
Debt securities:
U.S. Government obligations	$	1,196.3	$	11.1	$	122.1	$	5.8	$	1,318.4	$	16.9
Municipal bonds		267.3		4.0		2.8		0.1		270.1		4.1
Foreign government obligations		350.0		5.3		73.2		2.6		423.2		7.9
U.S. corporate bonds		814.2		12.4		79.3		5.9		893.5		18.3
Foreign corporate bonds		460.6		8.3		34.6		1.3		495.2		9.6
Mortgage and asset-backed securities:
RMBS		1,072.8		20.5		50.7		1.3		1,123.5		21.8
CMBS		197.8		0.6		40.9		1.6		238.7		2.2
Other asset-backed securities		1,609.9		13.2		291.5		4.8		1,901.4		18.0
Total temporarily impaired securities	$	5,968.9	$	75.4	$	695.1	$	23.4	$	6,664.0	$	98.8

As of June 30, 2022, Alleghany held a total of 4,159, debt securities that were in an unrealized loss position, of which 522 securities were in an unrealized loss position continuously for 12 months or more. The unrealized losses associated with these debt securities consisted of losses related primarily to RMBS, U.S. corporate bonds and other asset-backed securities.

In December 2012, TransRe obtained an ownership interest in Pillar Capital Holdings Limited (“Pillar Holdings”), a Bermuda- based insurance asset manager focused on collateralized reinsurance and catastrophe insurance-linked securities. Additionally, TransRe and, to a lesser extent, AIHL invested in limited partnership funds managed by Pillar Holdings (the “Funds”). The objective of the Funds is to create portfolios with attractive risk-reward characteristics and low correlation with other asset classes, using the extensive reinsurance and capital market experience of the principals of Pillar Holdings. Alleghany has concluded that both Pillar Holdings and the Funds (collectively, the “Pillar Investments”) represent variable interest entities and that Alleghany is not the primary beneficiary, as it does not have the ability to direct the activities that most significantly impact each entity’s economic performance. Therefore, the Pillar Investments are not consolidated and are accounted for under the equity method of accounting. Alleghany’s potential maximum loss in the Pillar Investments is limited to its cumulative net investment. As of June 30, 2022 and December 31, 2021, Alleghany’s carrying value in the Pillar Investments, as determined under the equity method of accounting, was $158.8 million and $156.4 million, respectively, which is reported as a component of other invested assets and is net of returns of capital received from the Pillar Investments.

As of June 30, 2022 and December 31, 2021, the carrying value of Alleghany’s commercial mortgage loan portfolio was $451.4 million and $475.9 million, respectively, representing the unpaid principal balance on the loans, less allowance for credit losses. The estimated fair value of the commercial mortgage loan portfolio approximated carrying value as of June 30, 2022 and December 31, 2021. The commercial mortgage loan portfolio consists primarily of first mortgages on commercial properties in major metropolitan areas in the U.S. The loans earn interest at fixed- and floating-rates, and mature in two to ten years from loan origination. As of June 30, 2022, the vast majority of loans in Alleghany’s portfolio were originated in the 2016 through 2019 years.

The principal amounts of the loans were no more than approximately two-thirds of the property’s appraised value at the time the loans were made and the estimated fair value of underlying collateral was approximately double that of the commercial mortgage loan portfolio carrying value as of June 30, 2022. Fair value estimates of underlying collateral are updated on a rolling basis at least annually, with a portion of the portfolio updated each quarter. As of June 30, 2022, there was no loan in default or in arrears.

The following table presents a rollforward of Alleghany’s allowance for credit losses on commercial mortgage loans for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,					Six Months Ended June 30,
	2022		2021			2022		2021
	($ in millions)
Allowance for Credit Losses
Beginning balance	$	0.4	$	1.6		$	0.2	$	1.4
Provision for credit losses		0.7		(1.0	)		0.9		(0.8	)
Charge-offs		—		—			—		—
Recoveries		—		—			—		—
Ending balance	$	1.1	$	0.6		$	1.1	$	0.6