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The pricing data and market quotes we obtain from outside sources, including third party pricing services, are
reviewed internally for reasonableness. If a fair value appears unreasonable, we will re-examine the inputs and assess the
reasonableness of the pricing data with the vendor. Additionally, we may compare the inputs to relevant market indices
and other performance measurements. The output of this analysis is presented to the Company's Valuation and
Classifications Subcommittee, or VCS. Based on the analysis provided to the VCS, the valuation is confirmed or may be
revised if there is evidence of a more appropriate estimate of fair value based on available market data. We have
performed verification of the inputs and calculations in any valuation models to confirm that the valuations represent
reasonable estimates of fair value.
The fixed maturities classified as Level 3 consist of securities for which there are limited or no observable valuation
inputs. For Level 3 securities that are investment grade, we estimate the fair value of these securities by obtaining non-
binding broker quotes from a limited number of brokers. These brokers base their quotes on a combination of their
knowledge of the current pricing environment and market conditions. We consider these inputs to be unobservable. For
Level 3 investments that are below-investment-grade securities, we consider a variety of significant valuation inputs in the
valuation process, including forward exchange rates, yen swap rates, dollar swap rates, interest rate volatilities, credit
spread data on specific issuers, assumed default and default recovery rates, and certain probability assumptions. In
obtaining these valuation inputs, we have determined that certain pricing assumptions and data used by our pricing
sources are difficult to validate or corroborate by the market and/or appear to be internally developed rather than
observed in or corroborated by the market. The use of these unobservable valuation inputs causes more subjectivity in
the valuation process for these securities.
For the periods presented, we have not adjusted the quotes or prices we obtain from the pricing services and brokers
we use.
The following tables present the pricing sources for the fair values of our fixed maturities, perpetual securities, and
equity securities as of December 31.
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