Fair Value Measurements

Fair Value Hierarchy

In accordance with accounting guidance for fair value measurements and disclosures, we categorized our financial instruments, based on the priority of the observable and market-based data for the valuation technique used, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest observable input that has a significant impact on fair value measurement is used. Our valuation techniques have not changed from those used at December 31, 2014, and ultimately management determines fair value. See our 2014 Annual Report on Form 10-K, Item 8, Note 3, Fair Value Measurements, Page 137, for information on characteristics and valuation techniques used in determining fair value.

Fair Value Disclosures for Assets

The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at June 30, 2015, and December 31, 2014. We do not have any material liabilities carried at fair value. There were no transfers between Level 1 and Level 2.



(In millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At June 30, 2015			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Fixed maturities, available for sale:
Corporate	$	—	$	5,559	$	18	$	5,577
States, municipalities and political subdivisions	—		3,546		1		3,547
Commercial mortgage-backed	—		283		—		283
Government-sponsored enterprises	—		244		—		244
Foreign government	—		10		—		10
Convertibles and bonds with warrants attached	—		7		—		7
United States government	7		—		—		7
Subtotal	7		9,649		19		9,675
Common equities, available for sale	4,502		—		—		4,502
Nonredeemable preferred equities, available for sale	—		230		2		232
Short-term investments	—		75		—		75
Separate accounts taxable fixed maturities	—		732		—		732
Top Hat savings plan mutual funds and common equity (included in Other assets)	20		—		—		20
Total	$	4,529	$	10,686	$	21	$	15,236
At December 31, 2014
Fixed maturities, available for sale:
Corporate	$	—	$	5,508	$	18	$	5,526
States, municipalities and political subdivisions	—		3,443		—		3,443
Commercial mortgage-backed	—		259		—		259
Government-sponsored enterprises	—		208		—		208
Foreign government	—		10		—		10
Convertibles and bonds with warrants attached	—		7		—		7
United States government	7		—		—		7
Subtotal	7		9,435		18		9,460
Common equities, available for sale	4,679		—		—		4,679
Nonredeemable preferred equities, available for sale	—		177		2		179
Separate accounts taxable fixed maturities	—		731		—		731
Top Hat savings plan mutual funds and common equity (included in Other assets)	18		—		—		18
Total	$	4,704	$	10,343	$	20	$	15,067

Each financial instrument that was deemed to have significant unobservable inputs when determining valuation is identified in the following tables by security type with a summary of changes in fair value as of June 30, 2015. Total Level 3 assets continue to be less than 1 percent of financial assets measured at fair value in the condensed consolidated balance sheets. Assets presented in the table below were valued based primarily on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of these unobservable inputs is neither provided nor reasonably available to us.

The following table provides the change in Level 3 assets for the three months ended June 30:



(Dollars in millions)	Asset fair value measurements using significant unobservable inputs (Level 3)
	Corporate fixed maturities		Commercial mortgage- backed fixed maturities			States, municipalities and political subdivisions fixed maturities		Nonredeemable preferred equities		Total
Beginning balance, March 31, 2015	$	18	$	—		$	1	$	2	$	21
Total gains or losses (realized/unrealized):
Included in net income	—		—			—		—		—
Included in other comprehensive income	—		—			—		—		—
Purchases	—		—			—		—		—
Sales	—		—			—		—		—
Transfers into Level 3	—		—			—		—		—
Transfers out of Level 3	—		—			—		—		—
Ending balance, June 30, 2015	$	18	$	—		$	1	$	2	$	21

Beginning balance, March 31, 2014	$	8	$	5		$	—	$	2	$	15
Total gains or losses (realized/unrealized):
Included in net income	—		—			—		—		—
Included in other comprehensive income	—		—			—		—		—
Purchases	—		—			—		—		—
Sales	—		—			—		—		—
Transfers into Level 3	1		—			—		—		1
Transfers out of Level 3	—		(5		)	—		—		(5		)
Ending balance, June 30, 2014	$	9	$	—		$	—	$	2	$	11

The following table provides the change in Level 3 assets for the six months ended June 30:



(Dollars in millions)	Asset fair value measurements using significant unobservable inputs (Level 3)
		Corporate fixed maturities		Commercial mortgage- backed fixed maturities			States, municipalities and political subdivisions fixed maturities		Nonredeemable preferred equities		Total
Beginning balance, January 1, 2015		$	18	$	—		$	—	$	2	$	20
Total gains or losses (realized/unrealized):
Included in net income		—		—			—		—		—
Included in other comprehensive income		—		—			—		—		—
Purchases		—		—			—		—		—
Sales		—		—			—		—		—
Transfers into Level 3		—		—			1		—		1
Transfers out of Level 3		—		—			—		—		—
Ending balance, June 30, 2015		$	18	$	—		$	1	$	2	$	21

Beginning balance, January 1, 2014		$	2	$	—		$	—	$	2	$	4
Total gains or losses (realized/unrealized):
Included in net income		—		—			—		—		—
Included in other comprehensive income		—		—			—		—		—
Purchases		—		—			—		—		—
Sales		—		—			—		—		—
Transfers into Level 3		7		5			—		—		12
Transfers out of Level 3		—		(5		)	—		—		(5		)
Ending balance, June 30, 2014		$	9	$	—		$	—	$	2	$	11

Additional disclosures for the Level 3 category are not material.

Fair Value Disclosures for Assets and Liabilities Not Carried at Fair Value

The disclosures below are presented to provide timely information about the effects of current market conditions on financial instruments that are not reported at fair value in our condensed consolidated financial statements.

This table summarizes the book value and principal amounts of our long-term debt:



(Dollars in millions)				Book value				Principal amount
				June 30,		December 31,		June 30,		December 31,
Interest rate		Year of issue		2015		2014		2015		2014
6.900	%	1998	Senior debentures, due 2028	$	28	$	28	$	28	$	28
6.920	%	2005	Senior debentures, due 2028	391		391		391		391
6.125	%	2004	Senior notes, due 2034	372		372		374		374
			Total	$	791	$	791	$	793	$	793

The following table shows fair values of our note payable and long-term debt:



(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At June 30, 2015			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Note payable	$	—	$	49	$	—	$	49
6.900% senior debentures, due 2028	—		34		—		34
6.920% senior debentures, due 2028	—		487		—		487
6.125% senior notes, due 2034	—		430		—		430
Total	$	—	$	1,000	$	—	$	1,000

At December 31, 2014
Note payable	$	—	$	49	$	—	$	49
6.900% senior debentures, due 2028	—		34		—		34
6.920% senior debentures, due 2028	—		496		—		496
6.125% senior notes, due 2034	—		449		—		449
Total	$	—	$	1,028	$	—	$	1,028

The following table shows the fair value of our life policy loans, included in other invested assets:



(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At June 30, 2015			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Life policy loans	$	—	$	—	$	41	$	41

At December 31, 2014
Life policy loans	$	—	$	—	$	39	$	39

Outstanding principal and interest for these life policy loans was $31 million at June 30, 2015, and December 31, 2014.

The following table shows fair values of our deferred annuities and structured settlements, included in life policy and investment contract reserves:



(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At June 30, 2015			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Deferred annuities	$	—	$	—	$	912	$	912
Structured settlements	—		226		—		226
Total	$	—	$	226	$	912	$	1,138

At December 31, 2014
Deferred annuities	$	—	$	—	$	897	$	897
Structured settlements	—		217		—		217
Total	$	—	$	217	$	897	$	1,114

Recorded reserves for the deferred annuities were $863 million at June 30, 2015, and December 31, 2014. Recorded reserves for the structured settlements were $179 million and $182 million at June 30, 2015, and December 31, 2014, respectively.