Fair Value of Financial Instruments

The Company’s consolidated assets and liabilities measured at fair value are summarized according to the hierarchy previously described as follows:



	June 30, 2014
	Level 1		Level 2		Level 3		Fair Value
Assets (a)
Cash and cash equivalents (b)	$	1,455.9	$	—	$	—	$	1,455.9
Contingent purchase price reduction receivable	—		—		41.5		41.5
Derivatives:
Foreign exchange forward agreements	—		0.9		—		0.9
Commodity swap and option agreements	—		1.4		—		1.4
Call options and futures contracts	—		324.7		—		324.7
Fixed maturity securities, available-for-sale:
Asset-backed securities	—		1,731.8		5.9		1,737.7
Commercial mortgage-backed securities	—		526.3		83.9		610.2
Corporates	—		9,552.6		745.2		10,297.8
Hybrids	—		481.6		—		481.6
Municipals	—		1,219.2		36.5		1,255.7
Agency residential mortgage-backed securities	—		99.5		—		99.5
Non-agency residential mortgage-backed securities	—		1,874.1		—		1,874.1
U.S. Government	209.4		201.1		—		410.5
Equity securities:
Available-for-sale	50.0		607.4		6.0		663.4
Trading	97.3		—		—		97.3
Other invested assets	—		2.1		11.6		13.7
Funds withheld receivable	—		158.5		—		158.5
Total financial assets	$	1,812.6	$	16,781.2	$	930.6	$	19,524.4

Liabilities (a)
Derivatives:
FIA embedded derivatives, included in contractholder funds	$	—	$	—	$	1,864.5	$	1,864.5
Front Street future policyholder benefit liability	—		—		154.9		154.9
Foreign exchange forward agreements	—		5.6		—		5.6
Commodity swap and option agreements	—		4.3		—		4.3
Interest rate contracts	—		1.9		—		1.9
Total financial liabilities	$	—	$	11.8	$	2,019.4	$	2,031.2



	September 30, 2013
	Level 1		Level 2		Level 3		Fair Value
Assets (a)
Cash and cash equivalents (b)	$	1,899.7	$	—	$	—	$	1,899.7
Contingent purchase price reduction receivable	—		—		41.0		41.0
Derivatives:
Foreign exchange forward agreements	—		1.8		—		1.8
Commodity swap and option agreements	—		4.1		—		4.1
Call options and futures contracts	—		221.8		—		221.8
Fixed maturity securities, available-for-sale:
Asset-backed securities	—		1,518.1		5.0		1,523.1
Commercial mortgage-backed securities	—		448.7		5.7		454.4
Corporates	—		8,957.2		461.1		9,418.3
Hybrids	—		428.8				428.8
Municipals	—		1,007.0		—		1,007.0
Agency residential mortgage-backed securities	—		98.6		—		98.6
Non-agency residential mortgage-backed securities	—		1,368.0		—		1,368.0
U.S. Government	790.9		210.9		—		1,001.8
Equity securities:
Available-for-sale	—		271.0		—		271.0
Trading	70.8		—		10.7		81.5
Total financial assets	$	2,761.4	$	14,536.0	$	523.5	$	17,820.9

Liabilities (a)
Derivatives:
FIA embedded derivatives, included in contractholder funds	$	—	$	—	$	1,544.4	$	1,544.4
Futures contracts	—		1.0		—		1.0
Foreign exchange forward agreements	—		10.0		—		10.0
Commodity swap and option agreements	—		2.4		—		2.4
Equity conversion feature of preferred stock	—		—		330.8		330.8
Total financial liabilities	$	—	$	13.4	$	1,875.2	$	1,888.6


(a)	The carrying amounts of trade receivables, accounts payable, accrued investment income and portions of other insurance liabilities approximate fair value due to their short duration and, accordingly, they are not presented in the tables above.


(b)	The fair values of cash equivalents and equity investments set forth above are generally based on quoted or observed market prices.

Valuation Methodologies

Fixed Maturity Securities, Equity Securities and Other Invested Assets

FGL measures the fair value of its securities based on assumptions used by market participants in pricing the security. The appropriate valuation methodology is selected based on the specific characteristics of the fixed maturity or equity security, and FGL will then consistently apply the valuation methodology to measure the security’s fair value. FGL’s fair value measurement is based on a market approach, which utilizes prices and other relevant information generated by market transactions involving identical or comparable securities. Sources of inputs to the market approach include a third-party pricing service, independent broker quotations or pricing matrices. FGL uses observable and unobservable inputs in its valuation methodologies. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data. In addition, market indicators and industry and economic events are monitored and further market data will be acquired when certain thresholds are met. For certain security types, additional inputs may be used, or some of the inputs described above may not be applicable. The significant unobservable input used to estimate the fair value measurement of certain available-for-sale equity securities using the market-approach valuation technique, is yields for comparable securities. Increases (decreases) in such yields, respectively, would result in lower or higher fair value measurements. For broker-quoted only securities, quotes from market makers or broker-dealers are obtained from sources recognized to be market participants. Management believes the broker quotes are prices at which trades could be executed based on historical trades executed at broker-quoted or slightly higher prices.

FGL did not adjust prices received from third parties as of June 30, 2014 and September 30, 2013. However, FGL does analyze the third-party valuation methodologies and its related inputs to perform assessments to determine the appropriate level within the fair value hierarchy.

Fair value of FGL's available-for-sale embedded derivative, included in "Other invested assets", is based on an unobservable input, the net asset value of the AnchorPath fund at the balance sheet date. The available-for-sale embedded derivative is similar to a call option on the net asset value of the AnchorPath fund with a strike price of zero since FGL will not be required to make any additional payments at maturity of the fund-linked note in order to receive the net asset value of the AnchorPath fund on the maturity date. Therefore, the Black Scholes model returns the net asset value of the AnchorPath fund as the fair value of the call option regardless of the values used for the other inputs to the option pricing model. The net asset value of the AnchorPath fund is provided by the fund manager at the end of each calendar month and represents the value an investor would receive if it withdrew its investment on the balance sheet date. Therefore, the key unobservable input used in the Black Scholes model is the value of the AnchorPath fund. As the value of the AnchorPath fund increases or decreases, the fair value of the embedded derivative will increase or decrease.

Funds Withheld Receivables and Future Policy Holder Benefits Reserve

Front Street Re (Delaware) Ltd. and its subsidiaries ("Front Street") elected to apply the Fair Value Option to account for its Funds Withheld Receivables and Future Policy Holder Benefits Reserve related to its assumed reinsurance. Front Street measures fair value of the Funds Withheld Receivables based on the fair values of the securities in the underlying funds withheld portfolio held in trust by the cedant. Front Street uses a discounted cash flows approach to measure the fair value of the Future Policy Holder Benefits Reserve. The cash flows associated with future policy benefits are generated using best estimate assumptions (plus a risk margin, where applicable) and are consistent with market prices, where available. Risk margins are typically applied to non-observable, non-hedgeable market inputs such as long term volatility, mortality, morbidity, lapse, etc.

Derivative Financial Instruments

The fair value of derivative assets and liabilities is based upon valuation pricing models, which represents what FGL would expect to receive or pay at the balance sheet date if it canceled the options, entered into offsetting positions, or exercised the options. Fair values for these instruments are determined externally by an independent consulting firm using market-observable inputs, including interest rates, yield curve volatilities, and other factors. The fair value of the embedded derivatives in FGL’s FIA products are derived using market indices, pricing assumptions and historical data. The fair value of futures contracts represents the cumulative unsettled variation margin (open trade equity, net of cash settlements).

Compass evaluates derivative assets and liabilities in accordance with master netting agreements with the derivative counterparties, but reports them on a gross basis on the Condensed Consolidated Balance Sheets. Net derivative asset values are determined primarily by quoted futures prices and utilization of the counterparties’ credit-adjusted risk-free rate curves and net derivative liabilities are determined by utilization of a credit-adjusted risk-free rate curve. The credit-adjusted risk-free rates of Compass’ counterparties are based on an independent market-quoted credit default swap rate curve for the counterparties’ debt plus the London Interbank Offered Rate (“LIBOR”) curve as of the end of the reporting period. Compass’ credit-adjusted risk-free rate is based on its cost of debt plus the LIBOR curve as of the end of the reporting period.

Compass’ oil derivatives are swap contracts for notional Bbls of oil at fixed NYMEX West Texas Intermediate (“WTI”) oil prices. The asset and liability values attributable to oil derivatives as of the end of the reporting period are based on (i) the contracted notional volumes, (ii) independent active NYMEX futures price quotes for WTI oil, and (iii) the applicable estimated credit-adjusted risk-free rate curve, as described above.

Compass’ natural gas derivatives are swap contracts for notional Mmbtus of natural gas at posted price indexes, including NYMEX Henry Hub (“HH”) swap contracts. The asset and liability values attributable to natural gas derivatives as of the end of the reporting period are based on (i) the contracted notional volumes, (ii) independent active NYMEX futures price quotes for HH for natural gas swaps, and (iii) the applicable credit-adjusted risk-free rate curve, as described above.

Quantitative information regarding significant unobservable inputs used for recurring Level 3 fair value measurements of financial instruments carried at fair value as of June 30, 2014 and September 30, 2013 are as follows:



			Fair Value at				Range (Weighted average)
Assets	Valuation Technique	Unobservable Input(s)	June 30, 2014		September 30, 2013		June 30, 2014	September 30, 2013
Contingent purchase price reduction receivable	Discounted cash flow	Probability of collection	$	41.5	$	41.0	88% - 96% (92%)	88% - 96% (92%)
		Expected term					7.5 months	9 months
		Discount rate					1%	1%
		Credit insurance risk premium					12%	11%
Asset-backed securities	Broker-quoted	Offered quotes	5.9		5.0		102%	103%
Commercial mortgage-backed securities	Broker-quoted	Offered quotes	83.9		5.7		104% - 121% (119%)	96%
Corporates	Broker-quoted	Offered quotes	653.5		404.5		62% - 121% (100%)	0% - 113% (90%)
Corporates	Matrix Pricing	Quoted prices	91.7		56.6		96% - 142% (102%)	90% - 131% (97%)
Municipal	Broker-quoted	Offered quotes	36.5		—		117%	—
Equity	Broker-quoted	Offered quotes	6.0		—		100%	—
	Option Pricing	Risk-adjusted rate	—		10.7			25.0%
		Risk-free discount factor						0.999
		Risk-adjusted discount factor						0.995
		Upward movement factor (Mu)						1.1
		Downward movement factor (Md)						0.9
		Probability of upward movement (Pu)						48.6%
		Probability of downward movement (Pd)						51.4%
Other invested assets	Black Scholes model	Net asset value of AnchorPath fund	11.6		—		100%	—
Total			$	930.6	$	523.5

Liabilities
FIA embedded derivatives, included in contractholder funds	Discounted cash flow	Market value of option	$	1,864.5	$	1,544.4	0% - 48% (4%)	0% - 38% (4%)
		SWAP rates					2% - 3% (2%)	2% - 3% (2%)
		Mortality multiplier					80%	80%
		Surrender rates					0.50% - 75% (7%)	0.50% - 75% (7%)
		Non-performance spread					0.25%	0.25%



			Fair Value at				Range (Weighted average)
Liabilities	Valuation Technique	Unobservable Input(s)	June 30, 2014		September 30, 2013		June 30, 2014	September 30, 2013
Front Street future policyholder benefit liability	Discounted cash flow	Non-performance risk spread	154.9		—		0.50% - 1.50%	—
		Risk margin to reflect uncertainty					0.5%	—
Equity conversion feature of preferred stock	Monte Carlo simulation / Option model	Annualized volatility of equity	—		330.8		—	42%
		Discount yield					—	11.0%
		Non-cash accretion rate					—	0%
		Calibration adjustment					—	0% - 1.0% (0.3%)
Total			$	2,019.4	$	1,875.2

The significant unobservable inputs used in the fair value measurement of the contingent purchase price reduction receivable are the probability of collection depending on the outcomes of litigation and regulatory action, the expected term until payment, discount rate and the credit insurance risk premium. Generally, an increase in the assumptions for the expected term, discount rate and credit insurance risk premium would decrease the fair value of the contingent purchase price receivable. An increase in the probability of collection would increase the fair value of the contingent purchase price reduction receivable.

The significant unobservable inputs used in the fair value measurement of the equity investment are revenue multiple and probability of the transaction closing. Significant increases (decreases) in the revenue multiple and the probability of transaction closing would result in a higher (lower) fair value measurement. Generally, a change in any one unobservable input would not result in a change in any other unobservable input.

The significant unobservable inputs used in the fair value measurement of FIA embedded derivatives included in contractholder funds are market value of option, interest swap rates, mortality multiplier, surrender rates, and non-performance spread. The mortality multiplier at June 30, 2014 and September 30, 2013, is based on the 2000 and 1983 annuity tables, respectively, and assumes the contractholder population is 50% female and 50% male. Significant increases (decreases) in the market value of option in isolation would result in a higher (lower) fair value measurement. Significant increases (decreases) in interest swap rates, mortality multiplier, surrender rates, or non-performance spread in isolation would result in a lower (higher) fair value measurement. Generally, a change in any one unobservable input would not result in a change in any other unobservable input.

The significant unobservable inputs used in the fair value measurement of the equity conversion feature of the Company’s Preferred Stock are annualized volatility of the market value of the Company’s listed shares of common stock, the discount yield as of the valuation date, a calibration factor to the issued date fair value of the Preferred Stock and the forecasted non-cash accretion rate. Significant increases (decreases) in any of the inputs in isolation would result in a significantly higher (lower) fair value measurement. Generally, an increase in the assumptions used for the volatility and discount yield assumptions would increase the fair value of the equity conversion feature of Preferred Stock, and maintaining a higher forecasted non-cash accretion rate, would also increase the fair value of the equity conversion feature of Preferred Stock. A decrease in the calibration factor would result in an increase in the fair value of the equity conversion feature of Preferred Stock.

The significant unobservable inputs used in the fair value measurement of the Front Street future policyholder benefit liability are non-performance risk spread and risk spread to reflect uncertainty. Significant increases (decreases) in non-performance risk spread and risk margin to reflect uncertainty would result in a lower (higher) fair value measurement.

The following tables summarize changes to the Company’s financial instruments carried at fair value and classified within Level 3 of the fair value hierarchy for the three and nine months ended June 30, 2014 and June 30, 2013. This summary excludes any impact of amortization of VOBA and DAC. The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.



	Three months ended June 30, 2014
	Balance at Beginning of Period		Total Gains (Losses)													Net transfer In (Out) of Level 3 (a)			Balance at End of Period
	Balance at Beginning of Period		Included in Earnings			Included in AOCI		Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Assets
Contingent purchase price reduction receivable	$	41.5	$	—		$	—	$	—	$	—		$	—		$	—		$	41.5
Fixed maturity securities available-for-sale:
Asset-backed securities	10.7		—			—		—		—			—			(4.8		)	5.9
Commercial mortgage-backed securities	—		—			0.1		83.8		—			—			—			83.9
Corporates	657.0		—			14.4		88.9		(1.0		)	—			(14.1		)	745.2
Municipals	35.6		—			0.9		—		—			—			—			36.5
Equity securities - trading	10.8		1.2			—		1.5		—			(13.5		)	—			—
Equity securities - available-for-sale	—		—			0.5		5.5		—			—			—			6.0
Other invested assets	—		0.3			—		11.3		—			—			—			11.6
Total assets at fair value	$	755.6	$	1.5		$	15.9	$	191.0	$	(1.0	)	$	(13.5	)	$	(18.9	)	$	930.6

	Balance at Beginning of Period		Total (Gains) Losses													Net transfer In (Out) of Level 3			Balance at End of Period
	Balance at Beginning of Period		Included in Earnings			Included in AOCI		Purchases		Sales			Settlements			Net transfer In (Out) of Level 3			Balance at End of Period
Liabilities
FIA embedded derivatives, included in contractholder funds	$	1,718.7	$	145.8		$	—	$	—	$	—		$	—		$	—		$	1,864.5
Front Street future policyholder benefit liability	151.0		5.1			—		—		—			(1.2		)	—			154.9
Equity conversion feature of preferred stock	364.8		(38.0		)	—		—		—			(326.8		)	—			—
Total liabilities at fair value	$	2,234.5	$	112.9		$	—	$	—	$	—		$	(328.0	)	$	—		$	2,019.4


(a)	This includes a $6.0 transfer to asset-backed securities from commercial mortgage-backed securities, the remaining transfers were from level 3 to level 2.



	Nine months ended June 30, 2014
	Balance at Beginning of Period		Total Gains (Losses)													Net transfer In (Out) of Level 3 (a)			Balance at End of Period
	Balance at Beginning of Period		Included in Earnings		Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Assets
Contingent purchase price reduction receivable	$	41.0	$	0.5	$	—		$	—	$	—		$	—		$	—		$	41.5
Fixed maturity securities available-for-sale:
Asset-backed securities	5.0		—		(0.3		)	5.0		—			—			(3.8		)	5.9
Commercial mortgage-backed securities	5.7		—		0.4			83.8		—			—			(6.0		)	83.9
Corporates	461.1		—		18.4			283.2		(1.0		)	(2.4		)	(14.1		)	745.2
Municipals	—		—		1.5			35.0		—			—			—			36.5
Equity securities - trading	10.7		1.3		—			1.5		—			(13.5		)	—			—
Equity securities - available-for-sale	—		—		0.5			5.5		—			—			—			6.0
Other invested assets	—		0.3		—			11.3		—			—			—			11.6
Total assets at fair value	$	523.5	$	2.1	$	20.5		$	425.3	$	(1.0	)	$	(15.9	)	$	(23.9	)	$	930.6

	Balance at Beginning of Period		Total (Gains) Losses													Net transfer In (Out) of Level 3			Balance at End of Period
	Balance at Beginning of Period		Included in Earnings		Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3			Balance at End of Period
Liabilities
FIA embedded derivatives, included in contractholder funds	$	1,544.4	$	320.1	$	—		$	—	$	—		$	—		$	—		$	1,864.5
Front Street future policyholder benefit liability	—		8.1		—			150.6		—			(3.8		)	—			154.9
Equity conversion feature of preferred stock	330.8		12.7		—			—		—			(343.5		)	—			—
Total liabilities at fair value	$	1,875.2	$	340.9	$	—		$	150.6	$	—		$	(347.3	)	$	—		$	2,019.4


(a)	This includes a $6.0 transfer to asset-backed securities from commercial mortgage-backed securities, the remaining transfers were from level 3 to level 2.



	Three months ended June 30, 2013
	Balance at Beginning of Period		Total Gains (Losses)													Net transfer In (Out) of Level 3 (a)		Balance at End of Period
	Balance at Beginning of Period		Included in Earnings			Included in AOCI			Purchases		Sales		Settlements			Net transfer In (Out) of Level 3 (a)		Balance at End of Period
Assets
Contingent purchase price reduction receivable	$	41.0	$	—		$	—		$	—	$	—	$	—		$	—	$	41.0
Fixed maturity securities available-for-sale:
Asset-backed securities	5.3		—			(0.1		)	—		—		(0.1		)	—		5.1
Commercial mortgage-backed securities	6.2		—			(0.3		)	—		—		—			—		5.9
Corporates	356.5		—			(12.0		)	106.2		—		(11.7		)	—		439.0
Equity securities available-for-sale	10.0		—			1.6			0.1		—		—			—		11.7
Total assets at fair value	$	419.0	$	—		$	(10.8	)	$	106.3	$	—	$	(11.8	)	$	—	$	502.7

	Balance at Beginning of Period		Total (Gains) Losses													Net transfer In (Out) of Level 3 (a)		Balance at End of Period
	Balance at Beginning of Period		Included in Earnings			Included in AOCI			Purchases		Sales		Settlements			Net transfer In (Out) of Level 3 (a)		Balance at End of Period
Liabilities
FIA embedded derivatives, included in contractholder funds	$	1,639.6	$	(53.7	)	$	—		$	—	$	—	$	—		$	—	$	1,585.9
Equity conversion feature of preferred stock	202.7		(52.6		)	—			—		—		(2.8		)	—		147.3
Total liabilities at fair value	$	1,842.3	$	(106.3	)	$	—		$	—	$	—	$	(2.8	)	$	—	$	1,733.2


(a)	The net transfers in and out of Level 3 during the three months ended June 30, 2013 were exclusively to or from Level 2.



	Nine months ended June 30, 2013
	Balance at Beginning of Period		Total Gains (Losses)														Net transfer In (Out) of Level 3 (a)			Balance at End of Period
	Balance at Beginning of Period		Included in Earnings			Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Assets
Contingent purchase price reduction receivable	$	41.0	$	—		$	—		$	—	$	—		$	—		$	—		$	41.0
Fixed maturity securities available-for-sale:
Asset-backed securities	15.9		—			(0.2		)	—		—			(0.1		)	(10.5		)	5.1
Commercial mortgage-backed securities	5.0		—			(0.1		)	1.0		—			—			—			5.9
Corporates	135.3		(0.3		)	(10.8		)	383.6		(9.6		)	(25.4		)	(33.8		)	439.0
Hybrids	8.8		—			(0.1		)	—		—			—			(8.7		)	—
Equity securities available-for-sale	—		—			1.6			10.1		—			—			—			11.7
Total assets at fair value	$	206.0	$	(0.3	)	$	(9.6	)	$	394.7	$	(9.6	)	$	(25.5	)	$	(53.0	)	$	502.7

	Balance at Beginning of Period		Total (Gains) Losses														Net transfer In (Out) of Level 3 (a)			Balance at End of Period
	Balance at Beginning of Period		Included in Earnings			Included in AOCI			Purchases		Sales			Settlements			Net transfer In (Out) of Level 3 (a)			Balance at End of Period
Liabilities
FIA embedded derivatives, included in contractholder funds	$	1,550.8	$	35.1		$	—		$	—	$	—		$	—		$	—		$	1,585.9
Equity conversion feature of preferred stock	232.0		(81.9		)	—			—		—			(2.8		)	—			147.3
Total liabilities at fair value	$	1,782.8	$	(46.8	)	$	—		$	—	$	—		$	(2.8	)	$	—		$	1,733.2


(a)	The net transfers in and out of Level 3 during the nine months ended June 30, 2013 were exclusively to or from Level 2.

FGL reviews the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets or liabilities. Such reclassifications are reported as transfers in and out of Level 3, or between other levels, at the beginning fair value for the reporting period in which the changes occur. There were no transfers between Level 1 and Level 2 for the three and nine months ended June 30, 2014. FGL transferred $79.3 U.S. Government securities from Level 1 into Level 2 for the three and nine months ended June 30, 2013 reflecting the level of market activity in these instruments.

Primary market issuance and secondary market activity for certain asset-backed, hybrid and corporate securities during the three and nine months ended June 30, 2014 and June 30, 2013 increased the market observable inputs used to establish fair values for similar securities. These factors, along with more consistent pricing from third-party sources, resulted in FGL concluding that there is sufficient trading activity in similar instruments to support classifying these securities as Level 2 as of June 30, 2014 and June 30, 2013. Accordingly, FGL’s assessment resulted in net transfers out of Level 3 of $18.9 and $23.9 related to asset-backed securities and corporate securities during the three and nine months ended June 30, 2014 and of $0.0 and $53.0 related to asset-backed, corporate and hybrid securities during the three and nine months ended June 30, 2013, respectively.

Non-Recurring Fair Value Measurements

Goodwill, intangible assets and other long-lived assets are tested annually or if an event occurs that indicates an impairment loss may have been incurred using fair value measurements with unobservable inputs (Level 3).

Financial Assets and Liabilities Not Measured at Fair Value

The carrying amount, estimated fair value and the level of the fair value hierarchy of the Company’s financial instrument assets and liabilities which are not measured at fair value on the Consolidated Balance Sheets are summarized as follows:



	June 30, 2014
	Level 1		Level 2		Level 3		Fair Value		Carrying Amount
Assets (a)
Other invested assets	$	—	$	—	$	160.6	$	160.6	$	160.6
Asset-based loans	—		—		724.3		724.3		724.3
Total financial assets	$	—	$	—	$	884.9	$	884.9	$	884.9

Liabilities (a)
Total debt (b)	$	—	$	5,526.1	$	—	$	5,526.1	$	5,303.4
Investment contracts, included in contractholder funds	—		—		12,891.5		12,891.5		14,353.4
Total financial liabilities	$	—	$	5,526.1	$	12,891.5	$	18,417.6	$	19,656.8



	September 30, 2013
	Level 1		Level 2		Level 3		Estimated Fair Value		Carrying Amount
Assets (a)
Other invested assets	$	—	$	—	$	31.2	$	31.2	$	31.2
Asset-based loans	—		—		560.4		560.4		560.4
Total financial assets	$	—	$	—	$	591.6	$	591.6	$	591.6

Liabilities (a)
Total debt (b)	$	—	$	4,773.2	$	—	$	4,773.2	$	4,896.1
Redeemable preferred stock, excluding equity conversion feature	—		—		377.1		377.1		329.4
Investment contracts, included in contractholder funds	—		—		12,378.6		12,378.6		13,703.8
Total financial liabilities	$	—	$	4,773.2	$	12,755.7	$	17,528.9	$	18,929.3


(a)	The carrying amounts of trade receivables, accounts payable, accrued investment income and portions of other insurance liabilities approximate fair value due to their short duration and, accordingly, they are not presented in the tables above.


(b)	The fair values of debt set forth above are generally based on quoted or observed market prices.

Valuation Methodology

Investment contracts include deferred annuities, FIAs, indexed universal life ("IUL") and immediate annuities. The fair values of deferred annuity, FIAs, and IUL contracts are based on their cash surrender value (i.e. the cost FGL would incur to extinguish the liability) as these contracts are generally issued without an annuitization date. The fair value of immediate annuities contracts is derived by calculating a new fair value interest rate using the updated yield curve and treasury spreads as of the respective reporting date. At June 30, 2014 and September 30, 2013, this resulted in lower fair value reserves relative to the carrying value. FGL is not required to and has not estimated the fair value of the liabilities under contracts that involve significant mortality or morbidity risks, as these liabilities fall within the definition of insurance contracts that are exceptions from financial instruments that require disclosure of fair value.

The fair value of the Preferred Stock, excluding the equity conversion feature, is derived under the same model and using the same inputs and assumptions, as is used to determine the fair value of the equity conversion feature of said redeemable preferred stock, as is discussed in the disclosures pertaining to financial instruments measured at fair value above.

The fair value of the asset-based loans originated by Salus approximate their carrying value. Such loans carry a variable rate that are typically revolving in nature and are collateralized by the borrower's assets.