We use fair value measurements to record fair value of certain assets and liabilities and to estimate fair value of financial instruments not recorded at fair value but required to be disclosed at fair value. Certain financial instruments, particularly policyholder liabilities other than investment-type insurance contracts, are excluded from these fair value disclosure requirements.

The carrying value and estimated fair value of financial instruments were as follows:

	December 31, 2011						December 31, 2010

	Carrying amount			Fair value			Carrying amount			Fair value
	(in millions)
Assets (liabilities)
Fixed maturities, available-for-sale	$	49,006.7		$	49,006.7		$	48,636.3		$	48,636.3
Fixed maturities, trading		971.7			971.7			1,120.3			1,120.3
Equity securities, available-for-sale		77.1			77.1			169.9			169.9
Equity securities, trading		404.8			404.8			316.9			316.9
Mortgage loans		10,727.2			11,223.4			11,125.1			11,197.8
Policy loans		885.1			1,114.2			903.9			1,012.1
Other investments		381.1			381.1			311.3			311.3
Cash and cash equivalents		2,833.9			2,833.9			1,877.4			1,877.4
Derivative assets		1,171.1			1,171.1			1,083.2			1,083.2
Separate account assets		71,364.4			71,364.4			69,555.3			69,555.3
Investment-type insurance contracts		(32,604.3	)		(32,429.8	)		(32,720.1	)		(32,828.6	)
Short-term debt		(105.2	)		(105.2	)		(107.9	)		(107.9	)
Long-term debt		(1,564.8	)		(1,750.7	)		(1,583.7	)		(1,756.3	)
Separate account liabilities		(64,016.2	)		(62,906.9	)		(62,681.4	)		(61,594.1	)
Derivative liabilities		(1,527.3	)		(1,527.3	)		(1,274.5	)		(1,274.5	)
Bank deposits		(2,142.8	)		(2,150.2	)		(2,161.2	)		(2,172.9	)
Cash collateral payable		(234.0	)		(234.0	)		(236.0	)		(236.0	)
Other liabilities		(225.3	)		(225.3	)		(250.3	)		(250.3	)

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels.

The following discussion describes the valuation methodologies and inputs used for assets and liabilities measured at fair value on a recurring basis or disclosed at fair value. The techniques utilized in estimating the fair values of financial instruments are reliant on the assumptions used. Care should be exercised in deriving conclusions about our business, its value or financial position based on the fair value information of financial instruments presented below.

Fair value estimates are made based on available market information and judgments about the financial instrument at a specific point in time. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. We validate prices through an investment analyst review process, which includes validation through direct interaction with external sources, review of recent trade activity or use of internal models. In circumstances where broker quotes are used to value an instrument, we generally receive one non-binding quote. Broker quotes are validated through an investment analyst review process, which includes validation through direct interaction with external sources and use of internal models or other relevant information. We did not make any significant changes to our valuation processes during 2011.

Fixed maturities include bonds, ABS, redeemable preferred stock and certain nonredeemable preferred stock. When available, the fair value of fixed maturities is based on quoted prices of identical assets in active markets. These are reflected in Level 1 and primarily include U.S. Treasury bonds and actively traded redeemable corporate preferred securities.

When quoted prices of identical assets in active markets are not available, our first priority is to obtain prices from third party pricing vendors. We have regular interaction with these vendors to ensure we understand their pricing methodologies and to confirm they are utilizing observable market information. Their methodologies vary by asset class and include inputs such as estimated cash flows, benchmark yields, reported trades, broker quotes, credit quality, industry events and economic events. Fixed maturities with validated prices from pricing services, which includes the majority of our public fixed maturities in all asset classes, are generally reflected in Level 2. Also included in Level 2 are corporate bonds where quoted market prices are not available, for which a matrix pricing valuation approach is used. In this approach, securities are grouped into pricing categories that vary by sector, rating and average life. Each pricing category is assigned a risk spread based on studies of observable public market data from the investment professionals assigned to specific security classes. The expected cash flows of the security are then discounted back at the current Treasury curve plus the appropriate risk spread. Although the matrix valuation approach provides a fair valuation of each pricing category, the valuation of an individual security within each pricing category may actually be impacted by company specific factors.

If we are unable to price a fixed maturity security using prices from third party pricing vendors or other sources specific to the asset class, we may obtain a broker quote or utilize an internal pricing model specific to the asset utilizing relevant market information, to the extent available, which are reflected in Level 3 and can include fixed maturities across all asset classes. As of December 31, 2011, less than 1% of our fixed maturities were valued using internal pricing models, which were classified as Level 3 assets accordingly.

The primary inputs, by asset class, for valuations of the majority of our Level 2 investments from third party pricing vendors or our internal pricing valuation approach are described below.

U.S. Government and Agencies/Non-U.S. Governments. Inputs include recently executed market transactions, interest rate yield curves, maturity dates, market price quotations and credit spreads relating to similar instruments.

State and Political Subdivisions. Inputs include Municipal Securities Rulemaking Board reported trades, U.S. Treasury and other benchmark curves, material event notices, new issue data and obligor credit ratings.

Corporate. Inputs include recently executed transactions, market price quotations, benchmark yields, issuer spreads and observations of equity and credit default swap curves related to the issuer. For private placement corporate securities valued through the matrix valuation approach inputs include the current U.S. Treasury curve and risk spreads based on sector, rating and average life of the issuance.

RMBS, CMBS, CDOs and Other Debt Obligations. Inputs include cash flows, priority of the tranche in the capital structure, expected time to maturity for the specific tranche, reinvestment period remaining and performance of the underlying collateral including prepayments, defaults, deferrals, loss severity of defaulted collateral and, for RMBS, prepayment speed assumptions. Other inputs include market indices and recently executed market transactions.

Equity securities include mutual funds, common stock and nonredeemable preferred stock. Fair values of equity securities are determined using quoted prices in active markets for identical assets when available, which are reflected in Level 1. When quoted prices are not available, we may utilize internal valuation methodologies appropriate for the specific asset that use observable inputs such as underlying share prices, which are reflected in Level 2. Fair values might also be determined using broker quotes or through the use of internal models or analysis that incorporate significant assumptions deemed appropriate given the circumstances and consistent with what other market participants would use when pricing such securities, which are reflected in Level 3.

Mortgage loans are not measured at fair value on a recurring basis. Fair values of commercial and residential mortgage loans are primarily determined by discounting the expected cash flows at current treasury rates plus an applicable risk spread, which reflects credit quality and maturity of the loans. The risk spread is based on market clearing levels for loans with comparable credit quality, maturities and risk. The fair value of mortgage loans may also be based on the fair value of the underlying real estate collateral less cost to sell, which is estimated using appraised values.

Policy loans are not measured at fair value on a recurring basis. Fair values of policy loans are estimated by discounting expected cash flows using a risk-free rate based on the U.S. Treasury curve.

The fair values of exchange-traded derivatives are determined through quoted market prices, which are reflected in Level 1. Exchange-traded derivatives include interest rate and equity futures that are settled daily such that their fair value is not reflected in the consolidated statements of financial position. The fair values of over-the-counter derivative instruments are determined using either pricing valuation models that utilize market observable inputs or broker quotes. The majority of our over-the-counter derivatives are valued with models that use market observable inputs, which are reflected in Level 2. Significant inputs include contractual terms, interest rates, currency exchange rates, credit spread curves, equity prices, and volatilities. These valuation models consider projected discounted cash flows, relevant swap curves, and appropriate implied volatilities. Certain over-the-counter derivatives utilize unobservable market data, primarily independent broker quotes that are nonbinding quotes based on models that do not reflect the result of market transactions, which are reflected in Level 3.

Our derivative contracts are generally documented under ISDA Master Agreements, which provide for legally enforceable set-off and close-out netting of exposures to specific counterparties. Collateral arrangements are bilateral and based on current ratings of each entity. We utilize the LIBOR interest rate curve to value our positions, which includes a credit spread. This credit spread incorporates an appropriate level of nonperformance risk into our valuations given the current ratings of our counterparties, as well as the collateral agreements in place. Counterparty credit risk is routinely monitored to ensure our adjustment for non-performance risk is appropriate.

Interest Rate Contracts. We use discounted cash flow valuation techniques to determine the fair value of interest rate swaps using observable swap curves as the inputs. These are reflected in Level 2. In addition, we have a limited number of complex inflation-linked interest rate swaps and interest rate collars that are valued using broker quotes. These are reflected in Level 3. We use option pricing models to determine the fair value of swaptions using observable swap interest rate curves and observable implied volatilities as inputs.

Foreign Exchange Contracts. We use discounted cash flow valuation techniques that utilize observable swap curves and exchange rates as the inputs to determine the fair value of foreign currency swaps. These are reflected in Level 2. In addition, we have a limited number of non-standard currency swaps that are valued using broker quotes. These are reflected within Level 3. Currency forwards are valued using observable market inputs, including forward currency exchange rates. These are reflected in Level 2.

Equity Contracts. We use an option pricing model using observable implied volatilities, dividend yields, index prices and swap curves as the inputs to determine the fair value of equity options. These are reflected in Level 2. In addition, we have a limited number of total return swaps that are valued based on the observable quoted price of the underlying equity index. These are reflected in Level 2.

Credit Contracts. We use either the ISDA Credit Default Swap Standard discounted cash flow model that utilizes observable default probabilities and recovery rates as inputs or broker prices to determine the fair value of credit default swaps. These are reflected in Level 3.

Other investments reported at fair value primarily include seed money investments, for which the fair value is determined using the net asset value of the fund. The net asset value of the fund represents the price at which we feel we would be able to initiate a transaction. Seed money investments in mutual funds for which the net asset value is published are reflected in Level 1. Seed money investments in mutual funds or other investment funds in markets that do not have a published net asset value are reflected in Level 2.

Other investments reported at fair value also include commercial mortgage loans of consolidated VIEs for which the fair value option was elected, which are reflected in Level 3. Fair value of these commercial mortgage loans is computed utilizing a discount rate based on the current market. The market discount rate is then adjusted based on various factors that differentiate it from our pool of loans.

The carrying amounts of other assets classified as other investments in the accompanying consolidated statements of financial position, which are not measured at fair value on a recurring basis, approximate their fair values.

Certain cash equivalents are reported at fair value on a recurring basis and include money market instruments and other short-term investments with maturities of less than three months. Fair values of these cash equivalents may be determined using public quotations, when available, which are reflected in Level 1. When public quotations are not available, because of the highly liquid nature of these assets, carrying amounts may be used to approximate fair values, which are reflected in Level 2.

The carrying amounts of cash and cash equivalents that are not reported at fair value on a recurring basis approximate their fair value.

Separate account assets include equity securities, debt securities and derivative instruments, for which fair values are determined as previously described, and are reflected in Level 1, Level 2 and Level 3. Separate account assets also include commercial mortgage loans, for which the fair value is estimated by discounting the expected total cash flows using market rates that are applicable to the yield, credit quality and maturity of the loans. The market clearing spreads vary based on mortgage type, weighted average life, rating and liquidity. These are reflected in Level 3. Finally, separate account assets include real estate, for which the fair value is estimated using discounted cash flow valuation models that utilize public real estate market data inputs such as transaction prices, market rents, vacancy levels, leasing absorption, market cap rates and discount rates. In addition, each property is appraised annually by an independent appraiser. The real estate within the separate accounts is reflected in Level 3.

Cash collateral payable is not measured at fair value on a recurring basis. The carrying amount of the payable associated with our obligation to return cash collateral received under derivative credit support annex (collateral) agreements approximate its fair value.

Investment-type insurance contracts are not measured at fair value on a recurring basis. The fair values of our reserves and liabilities for investment-type insurance contracts are estimated using discounted cash flow analyses based on current interest rates, including non-performance risk, being offered for similar contracts with maturities consistent with those remaining for the investment-type contracts being valued. Investment-type insurance contracts include insurance, annuity and other policy contracts that do not involve significant mortality or morbidity risk and are only a portion of the policyholder liabilities appearing in the consolidated statements of financial position. Insurance contracts include insurance, annuity and other policy contracts that do involve significant mortality or morbidity risk. The fair values for our insurance contracts, other than investment-type contracts, are not required to be disclosed.

Certain annuity contracts and other investment-type insurance contracts include embedded derivatives that have been bifurcated from the host contract and that are measured at fair value on a recurring basis, which are reflected in Level 3. The key assumptions for calculating the fair value of the embedded derivative liabilities are market assumptions (such as equity market returns, interest rate levels, market volatility and correlations) and policyholder behavior assumptions (such as lapse, mortality, utilization and withdrawal patterns). They are valued using a combination of historical data and actuarial judgment. Stochastic models are used to value the embedded derivatives that incorporate a spread reflecting our own creditworthiness and risk margins.

The assumption for our own non-performance risk for investment-type insurance contracts and any embedded derivatives bifurcated from certain annuity and investment-type insurance contracts is based on the current market credit spreads for debt-like instruments that we have issued and are available in the market.

Short-term debt is not measured at fair value on a recurring basis. The carrying amount of short-term debt approximates its fair value because of the relatively short time between origination of the debt instrument and its maturity.

Long-term debt is not measured at fair value on a recurring basis. Fair values for debt issues are estimated using discounted cash flow analysis based on our incremental borrowing rate for similar borrowing arrangements.

Separate account liabilities are not measured at fair value on a recurring basis. Fair values of separate account liabilities, excluding insurance-related elements, are estimated based on market assumptions around what a potential acquirer would pay for the associated block of business, including both the separate account assets and liabilities. As the applicable separate account assets are already reflected at fair value, any adjustment to the fair value of the block is an assumed adjustment to the separate account liabilities. To compute fair value, the separate account liabilities are originally set to equal separate account assets because these are pass-through contracts. The separate account liabilities are reduced by the amount of future fees expected to be collected that are intended to offset upfront acquisition costs already incurred that a potential acquirer would not have to pay. The estimated future fees are adjusted by an adverse deviation discount and the amount is then discounted at a risk-free rate as measured by the yield on U.S. Treasury securities at maturities aligned with the estimated timing of fee collection.

Bank deposits are not measured at fair value on a recurring basis. The fair value of deposits of our Principal Bank subsidiary with no stated maturity, such as demand deposits, savings, and interest-bearing demand accounts, is equal to the amount payable on demand (i.e., their carrying amounts). The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount is estimated using the rates currently offered for deposits of similar remaining maturities.

Certain obligations reported in other liabilities include embedded derivatives to deliver underlying securities of structured investments to third parties. The fair value of the embedded derivatives is calculated based on the value of the underlying securities that are valued based on prices obtained from third party pricing vendors as utilized and described in our discussion of how fair value is determined for fixed maturities, which are reflected in Level 2.

Additionally, obligations of consolidated VIEs for which the fair value option was elected are included in other liabilities. These obligations are valued either based on prices obtained from third party pricing vendors as utilized and described in our discussion of how fair value is determined for fixed maturities, which are reflected in Level 2, or broker quotes, which are reflected in Level 3.

Assets and liabilities measured at fair value on a recurring basis are summarized below.

	As of December 31, 2011

	Assets / (liabilities) measured at fair value			Fair value hierarchy level
	Assets / (liabilities) measured at fair value			Level 1		Level 2			Level 3
	(in millions)
Assets
Fixed maturities, available-for-sale:
U.S. government and agencies	$	805.1		$	57.5	$	747.6		$	—
Non-U.S. governments		1,096.7			—		1,073.8			22.9
States and political subdivisions		2,882.7			—		2,882.7			—
Corporate		33,556.5			87.5		33,172.0			297.0
Residential mortgage-backed securities		3,343.0			—		3,343.0			—
Commercial mortgage-backed securities		3,413.7			—		3,413.7			—
Collateralized debt obligations		338.8			—		236.3			102.5
Other debt obligations		3,570.2			—		3,542.9			27.3

Total fixed maturities, available-for-sale		49,006.7			145.0		48,412.0			449.7
Fixed maturities, trading		971.7			199.6		551.3			220.8
Equity securities, available-for-sale		77.1			56.5		2.6			18.0
Equity securities, trading		404.8			291.6		113.2			—
Derivative assets (1)		1,171.1			—		1,110.9			60.2
Other investments (2)		213.3			17.6		98.2			97.5
Cash equivalents (3)		1,659.8			677.3		982.5			—

Sub-total excluding separate account assets		53,504.5			1,387.6		51,270.7			846.2
Separate account assets		71,364.4			49,477.1		17,689.1			4,198.2

Total assets	$	124,868.9		$	50,864.7	$	68,959.8		$	5,044.4

Liabilities
Investment-type insurance contracts (4)	$	(195.8	)	$	—	$	—		$	(195.8	)
Derivative liabilities (1)		(1,527.3	)		—		(1,350.2	)		(177.1	)
Other liabilities (4)		(225.3	)		—		(201.1	)		(24.2	)

Total liabilities	$	(1,948.4	)	$	—	$	(1,551.3	)	$	(397.1	)

Net assets (liabilities)	$	122,920.5		$	50,864.7	$	67,408.5		$	4,647.3

	As of December 31, 2010

	Assets / (liabilities) measured at fair value			Fair value hierarchy level
	Assets / (liabilities) measured at fair value			Level 1		Level 2			Level 3
	(in millions)
Assets
Fixed maturities, available-for-sale:
U.S. government and agencies	$	769.3		$	229.6	$	539.7		$	—
Non-U.S. governments		872.6			—		848.1			24.5
States and political subdivisions		2,656.4			—		2,656.4			—
Corporate		33,892.5			95.4		33,245.0			552.1
Residential mortgage-backed securities		3,196.2			—		3,196.2			—
Commercial mortgage-backed securities		3,842.2			—		3,826.0			16.2
Collateralized debt obligations		293.0			—		183.7			109.3
Other debt obligations		3,114.1			—		3,025.3			88.8

Total fixed maturities, available-for-sale		48,636.3			325.0		47,520.4			790.9
Fixed maturities, trading		1,120.3			159.8		691.4			269.1
Equity securities, available-for-sale		169.9			124.1		2.6			43.2
Equity securities, trading		316.9			212.9		104.0			—
Derivative assets (1)		1,083.2			—		1,049.9			33.3
Other investments (2)		210.7			14.1		68.3			128.3
Cash equivalents (3)		1,247.2			217.3		1,029.9			—

Sub-total excluding separate account assets		52,784.5			1,053.2		50,466.5			1,264.8
Separate account assets		69,555.3			51,012.9		14,770.9			3,771.5

Total assets	$	122,339.8		$	52,066.1	$	65,237.4		$	5,036.3

Liabilities
Investment-type insurance contracts (4)	$	(6.6	)	$	—	$	—		$	(6.6	)
Derivative liabilities (1)		(1,274.5	)		—		(1,093.0	)		(181.5	)
Other liabilities (4)		(250.3	)		—		(93.5	)		(156.8	)

Total liabilities	$	(1,531.4	)	$	—	$	(1,186.5	)	$	(344.9	)

Net assets (liabilities)	$	120,808.4		$	52,066.1	$	64,050.9		$	4,691.4

The reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are summarized as follows:

	For the year ended December 31, 2011

	For the year ended December 31, 2011																				Changes in unrealized gains (losses) included in net income relating to positions still held (1)
	Beginning asset/ (liability) balance as of December 31, 2010			Total realized/unrealized gains (losses)						Purchases, sales, issuances and settlements (5)								Ending asset/ (liability) balance as of December 31, 2011
				Included in net income (1)			Included in other comprehensive income			Purchases, sales, issuances and settlements (5)			Transfers into Level 3		Transfers out of Level 3			Ending asset/ (liability) balance as of December 31, 2011
	(in millions)
Assets
Fixed maturities, available-for-sale:
Non-U.S. governments	$	24.5		$	0.2		$	—		$	(1.8	)	$	—	$	—		$	22.9		$	0.1
Corporate		552.1			(10.8	)		(20.8	)		(42.7	)		103.2		(284.0	)		297.0			(6.1	)
Commercial mortgage-backed securities		16.2			(3.7	)		5.1			(10.5	)		—		(7.1	)		—			—
Collateralized debt obligations		109.3			(19.6	)		13.8			0.3			—		(1.3	)		102.5			(9.3	)
Other debt obligations		88.8			0.1			(1.1	)		(30.5	)		9.0		(39.0	)		27.3			—

Total fixed maturities, available-for-sale		790.9			(33.8	)		(3.0	)		(85.2	)		112.2		(331.4	)		449.7			(15.3	)
Fixed maturities, trading		269.1			(16.6	)		—			(27.2	)		20.5		(25.0	)		220.8			(15.8	)
Equity securities, available-for-sale		43.2			(6.1	)		12.0			(28.0	)		13.0		(16.1	)		18.0			(4.5	)
Derivative assets		33.3			37.8			(0.1	)		(10.8	)		—		—			60.2			33.4
Other investments		128.3			(2.5	)		—			(28.3	)		—		—			97.5			(2.6	)
Separate account assets (2)		3,771.5			406.6			—			88.9			13.5		(82.3	)		4,198.2			400.9
Liabilities
Investment-type insurance contracts		(6.6	)		(206.3	)		—			17.1			—		—			(195.8	)		(206.6	)
Derivative liabilities		(181.5	)		(11.4	)		0.2			15.6			—		—			(177.1	)		(8.6	)
Other liabilities (3)		(156.8	)		(1.2	)		13.4			(15.9	)		—		136.3			(24.2	)		(1.1	)

	For the year ended December 31, 2010

				Total realized/unrealized gains (losses)																	Changes in unrealized gains (losses) included in net income relating to positions still held (1)
	Beginning asset/ (liability) balance as of December 31, 2009			Total realized/unrealized gains (losses)						Purchases, sales, issuances and settlements (4)								Ending asset/ (liability) balance as of December 31, 2010
				Included in net income (1)			Included in other comprehensive income			Purchases, sales, issuances and settlements (4)			Transfers into Level 3		Transfers out of Level 3			Ending asset/ (liability) balance as of December 31, 2010
	(in millions)
Assets
Fixed maturities, available-for-sale:
Non-U.S. governments	$	16.1		$	(0.1	)	$	0.1		$	8.4		$	—	$	—		$	24.5		$	(0.1	)
State and political subdivisions		11.5			—			1.0			—			11.5		(24.0	)		—			—
Corporate		737.3			0.7			26.9			(193.2	)		152.2		(171.8	)		552.1			(2.2	)
Commercial mortgage-backed securities		34.3			(0.1	)		1.0			11.2			—		(30.2	)		16.2			(0.1	)
Collateralized debt obligations		296.8			(14.9	)		40.0			(125.2	)		0.9		(88.3	)		109.3			(1.9	)
Other debt obligations		76.6			—			4.5			36.9			32.9		(62.1	)		88.8			—

Total fixed maturities, available-for-sale		1,172.6			(14.4	)		73.5			(261.9	)		197.5		(376.4	)		790.9			(4.3	)
Fixed maturities, trading		63.5			13.5			—			194.1			—		(2.0	)		269.1			13.2
Equity securities, available-for-sale		71.7			2.6			(8.2	)		(21.4	)		0.1		(1.6	)		43.2			3.3
Derivative assets		54.4			(18.3	)		(0.1	)		(2.7	)		—		—			33.3			(17.1	)
Other investments		—			25.9			—			102.4			—		—			128.3			25.9
Separate account assets (2)		4,120.7			304.0			(0.4	)		(564.2	)		28.5		(117.1	)		3,771.5			249.0
Liabilities
Investment-type insurance contracts		(23.6	)		(8.2	)		—			25.2			—		—			(6.6	)		(8.6	)
Derivative liabilities		(93.7	)		9.9			(1.4	)		(96.3	)		—		—			(181.5	)		8.0
Other liabilities (3)		(89.1	)		9.3			(28.3	)		(48.7	)		—		—			(156.8	)		2.3

	For the year ended December 31, 2009

	For the year ended December 31, 2009																		Changes in unrealized gains (losses) included in net income relating to positions still held (1)
	Beginning asset/ (liability) balance as of December 31, 2008			Total realized/unrealized gains (losses)												Ending asset/ (liability) balance as of December 31, 2009
				Total realized/unrealized gains (losses)						Purchases, sales, issuances and settlements
				Included in net income (1)			Included in other comprehensive income			Purchases, sales, issuances and settlements			Transfers in (out) of Level 3
	(in millions)
Assets
Fixed maturities, available-for-sale:
Non-U.S. governments	$	45.3		$	(10.3	)	$	2.4		$	(21.3	)	$	—		$	16.1		$	(0.1	)
State and political subdivisions		—			—			1.3			—			10.2			11.5			—
Corporate		750.9			(26.7	)		160.6			(348.3	)		200.8			737.3			(32.2	)
Commercial mortgage-backed securities		58.0			(0.3	)		9.8			(12.1	)		(21.1	)		34.3			—
Collateralized debt obligations		236.8			(63.9	)		150.4			(10.6	)		(15.9	)		296.8			(63.5	)
Other debt obligations		82.0			(2.1	)		17.4			25.9			(46.6	)		76.6			—

Total fixed maturities, available-for-sale		1,173.0			(103.3	)		341.9			(366.4	)		127.4			1,172.6			(95.8	)
Fixed maturities, trading		60.7			13.0			—			—			(10.2	)		63.5			13.1
Equity securities, available-for-sale		56.2			(0.2	)		30.3			(43.7	)		29.1			71.7			(2.0	)
Derivative assets		100.7			(43.6	)		(0.2	)		(2.5	)		—			54.4			(30.5	)
Separate account assets (2)		6,042.3			(1,601.5	)		—			(291.6	)		(28.5	)		4,120.7			(1,488.3	)
Liabilities
Investment-type insurance contracts		(60.2	)		10.8			—			25.8			—			(23.6	)		10.8
Derivative liabilities		(266.9	)		141.4			7.2			24.6			—			(93.7	)		88.8
Other liabilities (3)		(103.8	)		—			33.2			(18.5	)		—			(89.1	)		—

(1): Both realized gains (losses) and mark-to-market unrealized gains (losses) are generally reported in net realized capital gains (losses) within the consolidated statements of operations. Realized and unrealized gains (losses) on certain fixed maturities, trading and certain derivatives used in relation to certain trading portfolios are reported in net investment income within the consolidated statements of operations.
(2): Gains and losses for separate account assets do not impact net income as the change in value of separate account assets is offset by a change in value of separate account liabilities. Foreign currency translation adjustments related to the Principal International segment separate account assets are recorded in AOCI and are offset by foreign currency translation adjustments of the corresponding separate account liabilities.
(3): Certain embedded derivatives reported in other liabilities are part of a cash flow hedge, with the effective portion of the unrealized gains (losses) recorded in AOCI.
(4): As a result of our implementation of new authoritative guidance related to the accounting for VIEs effective January 1, 2010, certain previously unconsolidated VIEs were consolidated and certain previously consolidated VIEs were deconsolidated. The fair value of the Level 3 assets and liabilities of the newly consolidated and deconsolidated VIEs is primarily included in fixed maturities, trading; other investments; derivative liabilities and other liabilities. As a result of our implementation of new authoritative guidance related to the accounting for embedded credit derivatives effective July 1, 2010, we reclassified certain fixed maturities from available-for-sale to trading.
(5): Gross purchases, sales, issuances and settlements were:

	For the year ended December 31, 2011

	Purchases			Sales			Issuances		Settlements			Net purchases, sales, issuances and settlements
	(in millions)
Assets
Fixed maturities, available-for-sale:
Non-U.S. governments	$	3.6		$	(5.4	)	$	—	$	—		$	(1.8	)
Corporate		21.2			(25.6	)		—		(38.3	)		(42.7	)
Commercial mortgage-backed securities		—			(10.5	)		—		—			(10.5	)
Collateralized debt obligations		1.3			(0.4	)		—		(0.6	)		0.3
Other debt obligations		—			—			—		(30.5	)		(30.5	)

Total fixed maturities, available-for-sale		26.1			(41.9	)		—		(69.4	)		(85.2	)
Fixed maturities, trading		10.0			(8.7	)		—		(28.5	)		(27.2	)
Equity securities, available-for-sale		0.3			(28.3	)		—		—			(28.0	)
Derivative assets		19.0			(29.8	)		—		—			(10.8	)
Other investments		—			—			—		(28.3	)		(28.3	)
Separate account assets		342.7			(191.8	)		—		(62.0	)		88.9
Liabilities
Investment-type insurance contracts		—			—			9.2		7.9			17.1
Derivative liabilities		(12.1	)		27.7			—		—			15.6
Other liabilities		(2.1	)		—			—		(13.8	)		(15.9	)

Transfers between fair value hierarchy levels are recognized at the beginning of the reporting period.

Assets transferred into Level 3 during 2011, 2010 and 2009 were $159.2 million, $226.1 million and $531.9 million, respectively. The majority of assets transferred into Level 3 primarily include those assets for which we are now unable to obtain pricing from a recognized third party pricing vendor and, to a lesser extent, assets added to our "watch list" that were previously priced using a matrix pricing valuation approach that may no longer be relevant when applied to asset-specific situations.

Assets transferred out of Level 3 during 2011, 2010 and 2009 were $454.8 million, $497.1 million and $414.1 million, respectively, and liabilities transferred out of Level 3 during 2011 were $136.3 million. The majority of assets that transferred out of Level 3 and the liabilities that transferred out of Level 3 include those for which we are now able to obtain pricing from a recognized third party pricing vendor.

We had significant transfers of separate account assets between Level 1 and Level 2, primarily related to foreign equity securities. When these securities are valued at the local close price of the exchange where the assets traded, they are reflected in Level 1. When events materially affecting the value occur between the close of the local exchange and the New York Stock Exchange, we use adjusted prices determined by a third party pricing vendor to update the foreign market closing prices and the fair value is reflected in Level 2. During 2011 and 2010, $2,796.1 million and $6,600.6 million, respectively, of separate account assets transferred out of Level 2 into Level 1. During 2011 and 2010, $3,595.9 million and $3,128.3 million, respectively, of separate account assets transferred out of Level 1 into Level 2.

Other transfers into and out of Level 2 during 2011 and 2010 primarily included those that transferred out of and into Level 3, respectively.

Certain assets are measured at fair value on a nonrecurring basis. During 2011, mortgage loans had been marked to fair value of $206.0 million. The net impact of impairments and improvements in estimated fair value of previously impaired loans resulted in a net loss of $27.7 million that was recorded in net realized capital gains (losses) as part of the mortgage loan valuation allowance. These collateral-dependent mortgage loans are a Level 3 fair value measurement, as fair value is based on the fair value of the underlying real estate collateral, which is estimated using appraised values that involve at least one significant unobservable input.

During 2011, certain mortgage servicing rights had been marked to fair value of $4.4 million. The net impact of impairments and subsequent improvements in estimated fair value of previously impaired mortgage servicing rights resulted in a net loss of $1.1 million that was recorded in operating expenses. These mortgage servicing rights are a Level 3 fair value measurement, as fair value is determined by calculating the present value of the future servicing cash flows from the underlying mortgage loans.

During 2010, certain mortgage loans had been impaired or written down to fair value of $250.7 million. The impairments resulted in a loss of $79.6 million that was recorded in net realized capital gains (losses) as part of the mortgage loan valuation allowance. These collateral-dependent mortgage loans are a Level 3 fair value measurement, as fair value is based on the fair value of the underlying real estate collateral, which is estimated using appraised values that involve significant unobservable inputs.

During 2010, certain real estate had been written down to fair value of $1.4 million. This write down resulted in a loss of $0.3 million that was recorded in net realized capital gains (losses). This is a Level 3 fair value measurement, as the fair value of real estate is estimated using appraised values that involve significant unobservable inputs.

During 2010, certain mortgage servicing rights had been written down to fair value of $1.0 million, resulting in a charge of $0.6 million that was recorded in operating expenses. These mortgage servicing rights are a Level 3 fair value measurement, as fair value is determined by calculating the present value of the future servicing cash flows from the underlying mortgage loans.

During 2010, we impaired goodwill and finite lived intangible assets. See Note 2, Goodwill and Other Intangible Assets, for further details.

During 2009, certain mortgage loans had been written down to fair value of $3.9 million. This write down resulted in a loss of $8.0 million that was recorded in net realized capital gains (losses). These collateral-dependent mortgage loans are a Level 3 fair value measurement, as fair value is based on the fair value of the underlying real estate collateral, which is estimated using appraised values that involve significant unobservable inputs.

During 2009, certain real estate had been written down to fair value of $0.9 million. This write down resulted in a loss of $0.8 million that was recorded in net realized capital gains (losses). This is a Level 3 fair value measurement, as the fair value of the real estate is estimated using appraised values that involve significant unobservable inputs.

During 2009, a customer-based intangible asset that resulted from our acquisition of WM Advisors, Inc. had been written down to fair value of $19.1 million. The cash flows associated with this intangible are credited to an outside party. As a result, a long-term debt obligation that we assumed with the purchase of WM Advisors, Inc. was also written down to a fair value of $19.1 million. There was no impact to our consolidated statement of operations, as both of these write-downs are reported in operating expenses. This is a Level 3 fair value measurement, as the fair value is determined by calculating the present value of future cash flows that are expected to emerge from the customer-based intangible asset.

As a result of our implementation of new authoritative guidance related to the accounting for VIEs effective January 1, 2010, we elected fair value accounting for certain assets and liabilities of newly consolidated VIEs for which it was not practicable for us to determine the carrying value. The fair value option was elected for commercial mortgage loans reported with other investments and obligations reported with other liabilities in the consolidated statements of financial position. The changes in fair value of these items are reported in net realized capital gains (losses) on the consolidated statements of operations.

The fair value and aggregate contractual principal amounts of commercial mortgage loans for which the fair value option has been elected were $97.5 million and $96.1 million as of December 31, 2011, and $128.3 million and $124.4 million as of December 31, 2010, respectively. The change in fair value of the loans resulted in a $(2.6) million and $25.9 million pre-tax gain (loss) for the year ended December 31, 2011 and 2010, respectively, none of which related to instrument-specific credit risk. None of these loans were more than 90 days past due or in nonaccrual status. Interest income on these commercial mortgage loans is included in net investment income on the consolidated statements of operations and is recorded based on the effective interest rates as determined at the closing of the loan. For the years ended December 31, 2011 and 2010, we recorded $8.6 million and $10.5 million, respectively, of interest income on these commercial mortgage loans.

The fair value and aggregate unpaid principal amounts of obligations for which the fair value option has been elected were $88.4 million and $169.8 million as of December 31, 2011, and $114.5 million and $186.5 million as of December 31, 2010, respectively. For the years ended December 31, 2011 and 2010, the change in fair value of the obligations resulted in a $1.2 million and $(2.9) million pre-tax gain (loss), which includes a pre-tax gain (loss) of $(1.1) million and $3.0 million related to instrument-specific credit risk that is estimated based on credit spreads and quality ratings, respectively. Interest expense recorded on these obligations is included in operating expenses on the consolidated statements of operations and was $6.7 million and $8.9 million for the years ended December 31, 2011 and 2010, respectively.