5. Fair Value

Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction between market participants. We determine fair value based on the following fair value hierarchy:

Level 1 – Unadjusted quoted prices for identical assets or liabilities in an active market.

Level 2 – Quoted prices for inactive markets or valuation techniques that require observable direct or indirect inputs for substantially the full term of the asset or liability. Level 2 inputs include the following:


•	Quoted prices for similar assets or liabilities in active markets,


•	Observable inputs other than quoted market prices, and


•	Observable inputs derived principally from market data through correlation or other means.

Level 3 – Prices or valuation techniques with unobservable inputs significant to the overall fair value estimate. These valuations use critical assumptions not readily available to market participants. Level 3 valuations are based on market standard valuation methodologies, including discounted cash flows, matrix pricing or other similar techniques.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the instrument's fair value measurement.

We use a number of valuation sources to determine fair values. Valuation sources can include quoted market prices; third-party commercial pricing services; third-party brokers; industry-standard, vendor modeling software that uses market observable inputs; and other internal modeling techniques based on projected cash flows. We periodically review the assumptions and inputs of third-party commercial pricing services through internal valuation price variance reviews, comparisons to internal pricing models, back testing to recent trades, or monitoring trading volumes.

The following represents the hierarchy for our assets and liabilities measured at fair value on a recurring basis:



	September 30, 2017
(In millions)	Total		NAV¹		Level 1		Level 2		Level 3
Assets
AFS securities
Fixed maturity securities
U.S. government and agencies	$	58	$	—	$	26	$	32	$	—
U.S. state, municipal and political subdivisions	1,145		—		—		1,145		—
Foreign governments	2,589		—		—		2,589		—
Corporate	34,458		—		—		33,989		469
CLO	4,996		—		—		4,800		196
ABS	3,900		—		—		2,521		1,379
CMBS	1,890		—		—		1,803		87
RMBS	9,480		—		—		9,158		322
Total AFS fixed maturity securities	58,516		—		26		56,037		2,453
Equity securities	318		—		114		199		5
Total AFS securities	58,834		—		140		56,236		2,458
Trading securities
Fixed maturity securities
U.S. government and agencies	3		—		3		—		—
U.S. state, municipal and political subdivisions	137		—		—		120		17
Corporate	1,475		—		—		1,475		—
CLO	29		—		—		8		21
ABS	90		—		—		90		—
CMBS	59		—		—		59		—
RMBS	418		—		—		317		101
Total trading fixed maturity securities	2,211		—		3		2,069		139
Equity securities	498		—		—		498		—
Total trading securities	2,709		—		3		2,567		139
Mortgage loans	42		—		—		—		42
Investment funds	127		127		—		—		—
Funds withheld at interest – embedded derivative	303		—		—		—		303
Derivative assets	1,982		—		8		1,974		—
Short-term investments	108		—		39		69		—
Cash and cash equivalents	3,607		—		3,607		—		—
Restricted cash	100		—		100		—		—
Investments in related parties
AFS, fixed maturity securities
CLO	356		—		—		346		10
ABS	53		—		—		53		—
Total AFS securities – related party	409		—		—		399		10
Trading securities, CLO	140		—		—		49		91
Investment funds	27		27		—		—		—
Short-term investments	8		—		—		—		8
Reinsurance recoverable	1,783		—		—		—		1,783
Total assets measured at fair value	$	70,179	$	154	$	3,897	$	61,294	$	4,834
									(Continued)



	September 30, 2017
(In millions)	Total		NAV¹		Level 1		Level 2		Level 3
Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	6,652	$	—	$	—	$	—	$	6,652
Universal life benefits	957		—		—		—		957
Unit-linked contracts	472		—		—		472		—
Future policy benefits
AmerUs Closed Block	1,616		—		—		—		1,616
ILICO Closed Block and life benefits	811		—		—		—		811
Derivative liabilities	92		—		1		85		6
Funds withheld liability – embedded derivative	18		—		—		18		—
Total liabilities measured at fair value	$	10,618	$	—	$	1	$	575	$	10,042

¹ Investments measured at NAV as a practical expedient in determining fair value have not been classified in the fair value hierarchy.
									(Concluded)



	December 31, 2016
(In millions)	Total		NAV¹		Level 1		Level 2		Level 3
Assets
AFS securities
Fixed maturity securities
U.S. government and agencies	$	60	$	—	$	29	$	31	$	—
U.S. state, municipal and political subdivisions	1,140		—		—		1,135		5
Foreign governments	2,235		—		—		2,221		14
Corporate	30,020		—		—		29,650		370
CLO	4,822		—		—		4,664		158
ABS	2,936		—		—		1,776		1,160
CMBS	1,847		—		—		1,695		152
RMBS	8,973		—		—		8,956		17
Total AFS fixed maturity securities	52,033		—		29		50,128		1,876
Equity securities	353		—		79		269		5
Total AFS securities	52,386		—		108		50,397		1,881
Trading securities
Fixed maturity securities
U.S. government and agencies	3		—		3		—		—
U.S. state, municipal and political subdivisions	137		—		—		120		17
Corporate	1,423		—		—		1,423		—
CLO	43		—		—		—		43
ABS	82		—		—		82		—
CMBS	81		—		—		81		—
RMBS	387		—		—		291		96
Total trading fixed maturity securities	2,156		—		3		1,997		156
Equity securities	425		—		—		425		—
Total trading securities	2,581		—		3		2,422		156
									(Continued)



	December 31, 2016
(In millions)	Total		NAV¹		Level 1		Level 2		Level 3
Mortgage loans	44		—		—		—		44
Investment funds	99		99		—		—		—
Funds withheld at interest – embedded derivative	140		—		—		—		140
Derivative assets	1,370		—		9		1,361		—
Short-term investments	189		—		19		170		—
Cash and cash equivalents	2,445		—		2,445		—		—
Restricted cash	57		—		57		—		—
Investments in related parties
AFS, fixed maturity securities
CLO	279		—		—		279		—
ABS	56		—		—		—		56
Total AFS fixed maturity securities	335		—		—		279		56
AFS, equity securities	20		—		20		—		—
Total AFS securities – related party	355		—		20		279		56
Trading securities, CLO	195		—		—		—		195
Reinsurance recoverable	1,692		—		—		—		1,692
Total assets measured at fair value	$	61,553	$	99	$	2,661	$	54,629	$	4,164
Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	5,283	$	—	$	—	$	—	$	5,283
Universal life benefits	883		—		—		—		883
Unit-linked contracts	408		—		—		408		—
Future policy benefits
AmerUs Closed Block	1,606		—		—		—		1,606
ILICO Closed Block and life benefits	794		—		—		—		794
Derivative liabilities	40		—		—		33		7
Funds withheld liability – embedded derivative	6		—		—		6		—
Total liabilities measured at fair value	$	9,020	$	—	$	—	$	447	$	8,573

¹ Investments measured at NAV as a practical expedient in determining fair value have not been classified in the fair value hierarchy.
									(Concluded)

Refer to Note 4 – Variable Interest Entities for fair value disclosures associated with consolidated VIEs.

Fair Value Valuation Methods—We used the following valuation methods and assumptions to estimate fair value:

AFS and trading securities

Fixed maturity – We obtain the fair value for most marketable securities without an active market from several commercial pricing services. These are classified as Level 2 assets. The pricing services incorporate a variety of market observable information in their valuation techniques, including benchmark yields, trading activity, credit quality, issuer spreads, bids, offers and other reference data. This category typically includes U.S. and non-U.S. corporate bonds, U.S. agency and government guaranteed securities, ABS, CMBS and RMBS.

We value privately placed fixed maturity securities based on the credit quality and duration of comparable marketable securities, which may be securities of another issuer with similar characteristics. In some instances, we use a matrix-based pricing model. These models consider the current level of risk-free interest rates, corporate spreads, credit quality of the issuer and cash flow characteristics of the security. We also consider additional factors such as net worth of the borrower, value of collateral, capital structure of the borrower, presence of guarantees and our evaluation of the borrower's ability to compete in its relevant market. Privately placed fixed maturity securities are classified as Level 2 or 3.

Equity securities – Fair values of publicly traded equity securities are based on quoted market prices and classified as Level 1. Other equity securities, typically private equities or equity securities not traded on an exchange, we value based on other sources, such as commercial pricing services or brokers and are classified as Level 2 or 3.

Mortgage loans – Mortgage loans for which we have elected the fair value option or those held for sale are carried at fair value. We estimate fair value on a monthly basis using discounted cash flow analysis and rates being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. The discounted cash flow model uses unobservable inputs, including estimates of discount rates and loan prepayments. Mortgage loans are classified as Level 3.

Funds withheld (embedded derivative) – We estimate the fair value of the embedded derivative based on the change in the fair value of the assets supporting the funds withheld payable under the combined coinsurance, modco and coinsurance funds withheld reinsurance agreements. As a result, the fair value of the embedded derivative is classified as Level 2 or 3 based on the valuation methods used for the assets held in trust supporting the reinsurance agreements.

Derivatives – Derivative contracts can be exchange traded or over-the-counter. Exchange-traded derivatives typically fall within Level 1 of the fair value hierarchy depending on trading activity. Over-the-counter derivatives are valued using valuation models or an income approach using third-party broker valuations. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, prepayment rates and correlation of the inputs. We consider and incorporate counterparty credit risk in the valuation process through counterparty credit rating requirements and monitoring of overall exposure. We also evaluate and include our own nonperformance risk in valuing derivatives. The majority of our derivatives trade in liquid markets; therefore, we can verify model inputs and model selection does not involve significant management judgment. These are typically classified within Level 2 of the fair value hierarchy.

Cash and cash equivalents – The carrying amount for cash equals fair value. We estimate the fair value for cash equivalents based on quoted market prices. These assets are classified as Level 1.

Interest sensitive contract liabilities (embedded derivative) – Embedded derivatives related to interest sensitive contract liabilities with fixed indexed annuity products are classified as Level 3. The valuations include significant unobservable inputs associated with economic assumptions and actuarial assumptions for policyholder behavior.

Unit-linked contracts – Unit-linked contracts are valued based on the fair value of the investments supporting the contract. The underlying investments are trading securities comprised primarily of mutual funds. The valuations of these are based on quoted market prices for similar assets and are classified as Level 2, resulting in a corresponding classification for the unit-linked contracts.

AmerUs Closed Block – We elected the fair value option for the future policy benefits liability in the AmerUs Closed Block. Our valuation technique is to set the fair value of policyholder liabilities equal to the fair value of assets. There is an additional component which captures the fair value of the open block's cost to hold capital in excess of existing liabilities on the closed block. This component uses a present value of future cash flows, which includes investment earnings and policyholder liability movements. Unobservable inputs include estimates for these items. The target surplus as a percentage of statutory reserves is 3.85% based on the statutory risk-based capital ratio applicable to this block of business. The AmerUs Closed Block policyholder liabilities and any corresponding reinsurance recoverable are classified as Level 3.

ILICO Closed Block – We elected the fair value option for the ILICO Closed Block. Our valuation technique is to set the fair value of policyholder liabilities equal to the fair value of assets. There is an additional component which captures the fair value of the open block's obligations to the closed block business. This component uses the present value of future cash flows. The cash flows include commissions, administrative expenses, reinsurance premiums and benefits, and an explicit cost of capital. Unobservable inputs include estimates for these items. The explicit cost of capital assumption is 9% of required capital, post tax. A margin of 8.94% is included in the discount rates to reflect the business risk. An additional 0.25% is included to reflect non-performance risk. The ILICO Closed Block policyholder liabilities and corresponding reinsurance recoverable are classified as Level 3.

Universal life liabilities and other life benefits – We elected the fair value option for certain blocks of universal and other life business ceded to Global Atlantic Financial Group Limited (together with its subsidiaries, Global Atlantic). We use a present value of liability cash flows. Unobservable inputs include estimates of mortality, persistency, expenses, premium payments and a risk margin used in the discount rates that reflects the riskiness of the business. The risk margin was 0.09%. These universal life policyholder liabilities and corresponding reinsurance recoverable are classified as Level 3.

Fair Value Option—The following represents the gains (losses) recorded for instruments for which we have elected the fair value option:



	Three months ended September 30,						Nine months ended September 30,
(In millions)	2017			2016			2017			2016
Trading securities	$	(1	)	$	28		$	45		$	93
Mortgage loans	(1		)	(1		)	(1		)	(1		)
Investment funds	5			4			19			4
Future policy benefits	5			(28		)	(10		)	(129		)
Total gains (losses)	$	8		$	3		$	53		$	(33	)

Gains and losses on trading securities are recorded in investment related gains (losses) on the condensed consolidated statements of income. For fair value option mortgage loans, we record interest income in net investment income and subsequent changes in fair value in investment related gains (losses) on the condensed consolidated statements of income. Gains and losses related to investment funds, including related party investment funds, are recorded in net investment income on the condensed consolidated statements of income. We record the change in fair value of future policy benefits to future policy and other policy benefits on the condensed consolidated statements of income.

The following summarizes information for fair value option mortgage loans:



(In millions)	September 30, 2017		December 31, 2016
Unpaid principal balance	$	40	$	42
Mark to fair value	2		2
Fair value	$	42	$	44

There were no fair value option mortgage loans 90 days or more past due as of September 30, 2017 and December 31, 2016.

Transfers Between Levels—Transfers into Level 3 generally represent securities that were valued using pricing sources which, due to changing market conditions, were less observable than in prior periods as indicated by the increased volatility, which was reflected in vendor prices obtained for individual securities. Additionally, changes in pricing sources also led to securities transferring into Level 3.

Transfers out of Level 3 generally represent securities that were valued using pricing sources which, due to changing market conditions, were more observable than in prior periods as indicated by decreased volatility, which was reflected in vendor prices obtained for individual securities. Additionally, changes in pricing sources also led to securities transferring into Level 2.

Transfers into or out of any level are assumed to occur at the end of the period. For the three and nine months ended September 30, 2017 and 2016, there were no transfers between Level 1 and Level 2.

Level 3 Financial Instruments—The following is a reconciliation for all Level 3 assets and liabilities measured at fair value on a recurring basis:



	Three months ended September 30, 2017
				Total realized and unrealized gains (losses)									Transfers
(In millions)	Beginning Balance			Included in income			Included in OCI			Purchases, issuances, sales and settlements, net			In		(Out)			Ending Balance			Total gains (losses) included in earnings¹
Assets
AFS securities
Fixed maturity
Foreign governments	$	14		$	—		$	—		$	—		$	—	$	(14	)	$	—		$	—
Corporate	452			5			—			(13		)	37		(12		)	469			—
CLO	81			—			1			47			86		(19		)	196			—
ABS	1,093			3			1			240			83		(41		)	1,379			—
CMBS	122			1			(1		)	(18		)	26		(43		)	87			—
RMBS	312			1			13			(11		)	14		(7		)	322			—
Equity securities	6			(1)			—			—			—		—			5			—
Trading securities
Fixed maturity
U.S. state, municipal and political subdivisions	17			—			—			—			—		—			17			—
CLO	22			(4		)	—			—			11		(8		)	21			(3		)
RMBS	100			(2		)	—			4			15		(16		)	101			3
Mortgage loans	43			(1		)	—			—			—		—			42			(1		)
Funds withheld at interest – embedded derivative	279			24			—			—			—		—			303			—
Investments in related parties
AFS securities, fixed maturity, CLO	—			—			—			10			—		—			10			—
Trading securities, CLO	123			3			—			(24		)	19		(30		)	91			2
Short-term investments	28			—			—			(20		)	—		—			8			—
Reinsurance recoverable	1,782			1			—			—			—		—			1,783			—
Total Level 3 assets	$	4,474		$	30		$	14		$	215		$	291	$	(190	)	$	4,834		$	1

Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	(6,207	)	$	(344	)	$	—		$	(101	)	$	—	$	—		$	(6,652	)	$	—
Universal life benefits	(954		)	(3		)	—			—			—		—			(957		)	—
Future policy benefits
AmerUs Closed Block	(1,621		)	5			—			—			—		—			(1,616		)	—
ILICO Closed Block and life benefits	(812		)	1			—			—			—		—			(811		)	—
Derivative liabilities	(6		)	—			—			—			—		—			(6		)	—
Total Level 3 liabilities	$	(9,600	)	$	(341	)	$	—		$	(101	)	$	—	$	—		$	(10,042	)	$	—

¹ Related to instruments held at end of period.



	Three months ended September 30, 2016
				Total realized and unrealized gains (losses)								Transfers
(In millions)	Beginning balance			Included in income			Included in OCI		Purchases, issuances, sales and settlements, net			In		Out			Ending balance			Total gains (losses) included in earnings¹
Assets
AFS securities
Fixed maturity
U.S. state, municipal and political subdivisions	$	—		$	—		$	—	$	—		$	5	$	—		$	5		$	—
Foreign governments	16			—			—		(1		)	—		—			15			—
Corporate	402			1			1		24			3		(89		)	342			—
CLO	285			1			15		4			11		(193		)	123			—
ABS	1,238			3			11		30			—		(188		)	1,094			—
CMBS	80			—			3		4			—		—			87			—
RMBS	—			—			—		—			—		—			—			—
Equity securities	10			—			(1)		(4		)	—		—			5			—
Trading securities
Fixed maturity
U.S. state, municipal and political subdivisions	17			—			—		—			—		—			17			—
Corporate	1			—			—		—			—		(1		)	—			—
CLO	104			(1		)	—		(44		)	—		—			59			4
ABS	89			(2		)	—		—			—		—			87			—
RMBS	122			(4		)	—		16			—		(6		)	128			(1		)
Mortgage loans	45			—			—		—			—		—			45			—
Funds withheld at interest – embedded derivative	122			83			—		—			—		—			205			—
Investments in related parties
AFS securities
Fixed maturity
CLO	—			—			—		—			—		—			—			—
ABS	58			—			—		(1		)	—		—			57			—
Trading securities, CLO	211			—			—		—			—		(22		)	189			7
Reinsurance recoverable	1,898			(20		)	—		—			—		—			1,878			—
Total Level 3 assets	$	4,698		$	61		$	29	$	28		$	19	$	(499	)	$	4,336		$	10

Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	(4,807	)	$	(243	)	$	—	$	(209	)	$	—	$	—		$	(5,259	)	$	—
Universal life benefits	(1,059		)	9			—		—			—		—			(1,050		)	—
Future policy benefits
AmerUs Closed Block	(1,682		)	(28		)	—		—			—		—			(1,710		)	—
ILICO Closed Block and life benefits	(823		)	11			—		—			—		—			(812		)	—
Derivative liabilities	(8		)	—			—		—			—		—			(8		)	—
Total Level 3 liabilities	$	(8,379	)	$	(251	)	$	—	$	(209	)	$	—	$	—		$	(8,839	)	$	—

¹Related to instruments held at end of period.



	Nine months ended September 30, 2017
				Total realized and unrealized gains (losses)									Transfers
(In millions)	Beginning Balance			Included in income			Included in OCI			Purchases, issuances, sales and settlements, net			In		(Out)			Ending Balance			Total gains (losses) included in earnings¹
Assets
AFS securities
Fixed maturity
U.S. state, municipal and political subdivisions	$	5		$	17		$	(1	)	$	(21	)	$	—	$	—		$	—		$	—
Foreign governments	14			—			—			—			—		(14		)	—			—
Corporate	370			10			10			107			23		(51		)	469			—
CLO	158			1			9			40			53		(65		)	196			—
ABS	1,160			11			18			237			6		(53		)	1,379			—
CMBS	152			1			(4		)	28			—		(90		)	87			—
RMBS	17			1			1			12			300		(9		)	322			—
Equity securities	5			(1)			1			—			—		—			5			—
Trading securities
Fixed maturity
U.S. state, municipal and political subdivisions	17			—			—			—			—		—			17			—
CLO	43			(2		)	—			(12		)	—		(8		)	21			1
RMBS	96			(11		)	—			26			7		(17		)	101			2
Mortgage loans	44			(1		)	—			(1		)	—		—			42			(1		)
Funds withheld at interest – embedded derivative	140			163			—			—			—		—			303			—
Investments in related parties
AFS securities
Fixed maturity
CLO	—			—			—			10			—		—			10			—
ABS	56			—			2			(5		)	—		(53		)	—			—
Trading securities, CLO	195			(3		)	—			(52		)	—		(49		)	91			(1		)
Short-term investments	—			—			—			8			—		—			8			—
Reinsurance recoverable	1,692			91			—			—			—		—			1,783			—
Total Level 3 assets	$	4,164		$	277		$	36		$	377		$	389	$	(409	)	$	4,834		$	1

Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	(5,283	)	$	(1,077	)	$	—		$	(292	)	$	—	$	—		$	(6,652	)	$	—
Universal life benefits	(883		)	(74		)	—			—			—		—			(957		)	—
Future policy benefits
AmerUs Closed Block	(1,606		)	(10		)	—			—			—		—			(1,616		)	—
ILICO Closed Block and life benefits	(794		)	(17		)	—			—			—		—			(811		)	—
Derivative liabilities	(7		)	1			—			—			—		—			(6		)	1
Total Level 3 liabilities	$	(8,573	)	$	(1,177	)	$	—		$	(292	)	$	—	$	—		$	(10,042	)	$	1

¹ Related to instruments held at end of period.



	Nine months ended September 30, 2016
				Total realized and unrealized gains (losses)									Transfers
(In millions)	Beginning balance			Included in income			Included in OCI			Purchases, issuances, sales and settlements, net			In		Out			Ending balance			Total gains (losses) included in earnings¹
Assets
AFS securities
Fixed maturity
U.S. state, municipal and political subdivisions	$	—		$	—		$	—		$	—		$	5	$	—		$	5		$	—
Foreign governments	17			1			(1		)	(2		)	—		—			15			—
Corporate	636			4			27			(71		)	4		(258		)	342			—
CLO	517			3			38			7			10		(452		)	123			—
ABS	1,813			78			(7		)	(755		)	103		(138		)	1,094			—
CMBS	67			1			3			10			53		(47		)	87			—
RMBS	758			3			16			(249		)	—		(528		)	—			—
Equity securities	9			—			—			(4		)	—		—			5			—
Trading securities
Fixed maturity
U.S. state, municipal and political subdivisions	17			—			—			—			—		—			17			—
Corporate	16			—			—			(4		)	—		(12		)	—			5
CLO	108			(4		)	—			(45		)	—		—			59			8
ABS	98			(11		)	—			—			—		—			87			—
RMBS	29			(7		)	—			111			—		(5		)	128			1
Mortgage loans	48			—			—			(3		)	—		—			45			—
Funds withheld at interest – embedded derivative	36			169			—			—			—		—			205			—
Investments in related parties
AFS securities
Fixed maturity
CLO	7			—			—			—			—		(7		)	—			—
ABS	60			—			—			(3		)	—		—			57			—
Trading securities, CLO	191			(23		)	—			17			26		(22		)	189			21
Reinsurance recoverable	2,377			(499		)	—			—			—		—			1,878			—
Total Level 3 assets	$	6,804		$	(285	)	$	76		$	(991	)	$	201	$	(1,469	)	$	4,336		$	35

Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	(4,464	)	$	(390	)	$	—		$	(405	)	$	—	$	—		$	(5,259	)	$	—
Universal life benefits	(1,464		)	414			—			—			—		—			(1,050		)	—
Future policy benefits
AmerUs Closed Block	(1,581		)	(129		)	—			—			—		—			(1,710		)	—
ILICO Closed Block and life benefits	(897		)	85			—			—			—		—			(812		)	—
Derivative liabilities	(7		)	(1		)	—			—			—		—			(8		)	—
Total Level 3 liabilities	$	(8,413	)	$	(21	)	$	—		$	(405	)	$	—	$	—		$	(8,839	)	$	—

¹Related to instruments held at end of period.

The following represents the gross components of purchases, issuances, sales and settlements, net, shown above:



	Three months ended September 30, 2017
(In millions)	Purchases		Issuances			Sales			Settlements			Purchases, issuances, sales and settlements, net
Assets
AFS securities
Fixed maturity
Corporate	$	27	$	—		$	(36	)	$	(4	)	$	(13	)
CLO	72		—			—			(25		)	47
ABS	275		—			—			(35		)	240
CMBS	—		—			(18		)	—			(18		)
RMBS	—		—			—			(11		)	(11		)
Trading securities, fixed maturity, RMBS	4		—			—			—			4
Investments in related parties
AFS securities, fixed maturity, CLO	10		—			—			—			10
Trading securities, CLO	—		—			(24		)	—			(24		)
Short-term investments	8		—			—			(28		)	(20		)
Total Level 3 assets	$	396	$	—		$	(78	)	$	(103	)	$	215

Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	—	$	(142	)	$	—		$	41		$	(101	)
Total Level 3 liabilities	$	—	$	(142	)	$	—		$	41		$	(101	)



	Three months ended September 30, 2016
(In millions)	Purchases		Issuances			Sales			Settlements			Purchases, issuances, sales and settlements, net
Assets
AFS securities
Fixed maturity
Foreign governments	$	—	$	—		$	—		$	(1	)	$	(1	)
Corporate	25		—			—			(1		)	24
CLO	12		—			—			(8		)	4
ABS	60		—			—			(30		)	30
CMBS	4		—			—			—			4
Equity securities	—		—			(4		)	—			(4		)
Trading securities
Fixed maturity
CLO	—		—			(44		)	—			(44		)
RMBS	16		—			—			—			16
Investments in related parties
AFS securities, fixed maturity, ABS	—		—			—			(1		)	(1		)
Total Level 3 assets	$	117	$	—		$	(48	)	$	(41	)	$	28

Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	—	$	(244	)	$	—		$	35		$	(209	)
Total Level 3 liabilities	$	—	$	(244	)	$	—		$	35		$	(209	)



	Nine months ended September 30, 2017
(In millions)	Purchases		Issuances			Sales			Settlements			Purchases, issuances, sales and settlements, net
Assets
AFS securities
Fixed maturity
U.S. state, municipal and political subdivisions	$	—	$	—		$	—		$	(21	)	$	(21	)
Corporate	152		—			(37		)	(8		)	107
CLO	83		—			(2		)	(41		)	40
ABS	495		—			—			(258		)	237
CMBS	29		—			—			(1		)	28
RMBS	14		—			—			(2		)	12
Trading securities
Fixed maturity
CLO	4		—			(16		)	—			(12		)
RMBS	26		—			—			—			26
Mortgage loans	—		—			—			(1		)	(1		)
Investments in related parties
AFS securities
Fixed maturity
CLO	10		—			—			—			10
ABS	5		—			—			(10		)	(5		)
Trading securities, CLO	—		—			(52		)	—			(52		)
Short-term investments	37		—			—			(29		)	8
Total Level 3 assets	$	855	$	—		$	(107	)	$	(371	)	$	377

Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	—	$	(412	)	$	—		$	120		$	(292	)
Total Level 3 liabilities	$	—	$	(412	)	$	—		$	120		$	(292	)



	Nine months ended September 30, 2016
(In millions)	Purchases		Issuances			Sales			Settlements			Purchases, issuances, sales and settlements, net
Assets
AFS securities
Fixed maturity
Foreign governments	$	—	$	—		$	—		$	(2	)	$	(2	)
Corporate	47		—			(55		)	(63		)	(71		)
CLO	24		—			(9		)	(8		)	7
ABS	102		—			—			(857		)	(755		)
CMBS	10		—			—			—			10
RMBS	—		—			—			(249		)	(249		)
Equity securities	—		—			(4		)	—			(4		)
Trading securities
Fixed maturity
Corporate	—		—			(4		)	—			(4		)
CLO	—		—			(45		)	—			(45		)
RMBS	111		—			—			—			111
Mortgage loans	—		—			—			(3		)	(3		)
Investments in related parties
AFS securities, fixed maturity, ABS	—		—			—			(3		)	(3		)
Trading securities, CLO	33		—			(16		)	—			17
Total Level 3 assets	$	327	$	—		$	(133	)	$	(1,185	)	$	(991	)

Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	—	$	(517	)	$	—		$	112		$	(405	)
Total Level 3 liabilities	$	—	$	(517	)	$	—		$	112		$	(405	)

Significant Unobservable Inputs—Significant unobservable inputs occur when we could not obtain or corroborate the quantitative detail of the inputs. This applies to AFS securities, trading securities, mortgage loans and certain derivatives, as well as embedded derivatives in liabilities. Additional significant unobservable inputs are described below.

Fixed maturity securities – For certain fixed maturity securities, internal models are used to calculate the fair value. We use a discounted cash flow approach. The discount rate is the significant unobservable input due to the determined credit spread being internally developed, illiquid, or as a result of other adjustments made to the base rate. The base rate represents a market comparable rate for securities with similar characteristics. As of September 30, 2017, discounts ranged from 2% to 6%. This excludes assets for which significant unobservable inputs are not developed internally, primarily consisting of broker quotes.

Interest sensitive contract liabilities – embedded derivative – Significant unobservable inputs we use in the fixed indexed annuities embedded derivative of the interest sensitive contract liabilities valuation include:

Non-performance risk – For contracts we issue, we use the credit spread from the U.S. treasury curve based on our public credit rating as of the valuation date. This represents our credit risk for use in the estimate of the fair value of embedded derivatives. For contracts reinsured through funds withheld reinsurance, the cedant company holds collateral against its exposure; therefore, immaterial non-performance risk is ascribed to these contracts.


2.	Option budget – We assume future hedge costs in the derivative's fair value estimate. The level of option budgets determines the future costs of the options and impacts future policyholder account value growth.


3.	Policyholder behavior – We regularly review the lapse and withdrawal assumptions (surrender rate). These are based on our initial pricing assumptions updated for actual experience. Actual experience may be limited for recently issued products.

The following summarizes the unobservable inputs for the embedded derivatives of fixed indexed annuities:



	September 30, 2017
(In millions, except for percentages)	Fair value		Valuation technique	Unobservable inputs	Input/range of inputs				Impact of an increase in the input on fair value
Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives	$	6,652	Option budget method	Non-performance risk	0.3	%	–	1.3%	Decrease
				Option budget	0.7	%	–	3.7%	Increase
				Surrender rate	0.0	%	–	19.6%	Decrease



	December 31, 2016
(In millions, except for percentages)	Fair value		Valuation technique	Unobservable inputs	Input/range of inputs				Impact of an increase in the input on fair value
Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives	$	5,283	Option budget method	Non-performance risk	0.7	%	–	1.5%	Decrease
				Option budget	0.8	%	–	3.8%	Increase
				Surrender rate	0.0	%	–	16.3%	Decrease

Fair Value of Financial Instruments Not Carried at Fair Value—The following represents our financial instruments not carried at fair value on the condensed consolidated balance sheets:



		September 30, 2017				December 31, 2016
(In millions)	Fair Value Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Assets
Mortgage loans	3	$	6,403	$	6,568	$	5,426	$	5,560
Investment funds	NAV¹	620		620		590		590
Policy loans	2	571		571		602		602
Funds withheld at interest	3	6,661		6,661		6,398		6,398
Other investments	3	77		77		81		81
Investments in related parties
Investment funds	NAV¹	1,303		1,303		1,198		1,198
Other investments	3	238		260		237		262
Total assets not carried at fair value		$	15,873	$	16,060	$	14,532	$	14,691
Liabilities
Interest sensitive contract liabilities	3	$	31,328	$	30,932	$	27,628	$	26,930
Funds withheld liability	2	376		376		374		374
Total liabilities not carried at fair value		$	31,704	$	31,308	$	28,002	$	27,304

¹ Investments measured at NAV as a practical expedient in determining fair value have not been classified in the fair value hierarchy.

We estimate the fair value for financial instruments not carried at fair value using the same methods and assumptions as those we carry at fair value. The financial instruments presented above are reported at carrying value on the condensed consolidated balance sheets; however, in the case of policy loans, funds withheld at interest and liability, and other investments, the carrying amount approximates fair value.

Investment in related parties – Other investments – The fair value of related party other investments is determined using a discounted cash flow model using discount rates for similar investments.

Interest sensitive contract liabilities – The carrying and fair value of interest sensitive contract liabilities above includes fixed indexed and traditional fixed annuities without mortality or morbidity risks, funding agreements and payout annuities without life contingencies. The embedded derivatives within fixed indexed annuities without mortality or morbidity risks are excluded, as they are carried at fair value. The valuation of these investment contracts is based on discounted cash flow methodologies using significant unobservable inputs. The estimated fair value is determined using current market risk-free interest rates, adding a spread to reflect our nonperformance risk and subtracting a risk margin to reflect uncertainty inherent in the projected cash flows.