QBE Syndicate 2999 Annual Report and Accounts 2009

9 Other financial investments continued
c) Valuation hierarchy
The table below shows the financial instruments carried at fair value by valuation method.
Level 1 Level 2 Level 3 Total
2009 2009 2009 2009
£000 £000 £000 £000
Overseas deposits – 86,635 – 86,635
Debt securities and other fixed income securities – 1,128,311 – 1,128,311
Derivatives – 427 – 427
– 1,128,738 – 1,128,738
Notes:
Level 1 Valued using unadjusted quoted prices in active markets for identical financial instruments. This category includes listed equity shares, certain exchange-traded
derivatives, G10 government securities and certain US agency securities.
Level 2 Valued using techniques based significantly on observable market data. Instruments in this category are valued using:
a) quoted prices for similar instruments or identical instruments in markets which are not considered to be active; or
b) valuation techniques where all the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data.
The type of instruments that trade in markets that are not considered to be active, but are based on quoted market prices, broker dealer quotations, or alternative
pricing sources with reasonable levels of price transparency and those instruments valued using techniques include most government agency securities,
investment-grade corporate bonds, less liquid listed equities, state and municipal obligations, and certain money market securities and loan commitments and
most OTC derivatives.
Level 3 The syndicate has no financial instruments in level 3, which is the category where instruments have been valued using a valuation technique where at least one
input (which could have a significant effect on the instrument’s valuation) is not based on observable market data. Where inputs can be observed from market data
without undue cost and effort, the observed input is used. Otherwise, the syndicate determines a reasonable level for the input.
10 Financial risk
The activities of the syndicate expose it to financial risks such as market risk (including currency risk, cash flow and fair value interest rate risk and price
risk), credit risk and liquidity risk. The syndicate’s risk management framework recognises the unpredictability of financial markets and seeks to minimise
potential adverse effects on the financial performance of the syndicate.
The key objectives of the syndicate’s asset and liability management strategy are to ensure sufficient liquidity is maintained at all times to meet the
syndicate’s obligations, including its settlement of insurance liabilities and, within these parameters, to optimise investment returns for the syndicate.
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QBE Syndicate 2999
Annual report 2009