Fair Value Measurements |
15. FAIR VALUE MEASUREMENTS For a description of how we estimate fair value, see Note 1 in our 2011 consolidated financial statements. The following tables present our assets and liabilities measured at fair value on a recurring basis. Included in the tables are investment securities primarily supporting obligations to annuitants and policyholders in our run-off insurance operations, supporting obligations to holders of GICs in Trinity (which ceased issuing new investment contracts beginning in the first quarter of 2010), investment securities held at our treasury operations and investments held in our CLL business collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries. Such securities are mainly investment grade. | | | | | | | Netting | | | (In millions) | Level 1 | (a) | Level 2 | (a) | Level 3 | | adjustment | (b) | Net balance | | | | | | | | | | | | | | | | June 30, 2012 | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | Investment securities | | | | | | | | | | | | | | | Debt | | | | | | | | | | | | | | | U.S. corporate | $ | 0 | | $ | 21,298 | | $ | 3,372 | | $ | 0 | | $ | 24,670 | State and municipal | | 0 | | | 3,688 | | | 81 | | | 0 | | | 3,769 | Residential mortgage-backed | | 0 | | | 2,340 | | | 97 | | | 0 | | | 2,437 | Commercial mortgage-backed | | 0 | | | 3,051 | | | 0 | | | 0 | | | 3,051 | Asset-backed(c) | | 0 | | | 825 | | | 4,304 | | | 0 | | | 5,129 | Corporate – non-U.S. | | 72 | | | 1,129 | | | 1,363 | | | 0 | | | 2,564 | Government – non-U.S. | | 874 | | | 974 | | | 51 | | | 0 | | | 1,899 | U.S. government and federal agency | | 0 | | | 3,241 | | | 261 | | | 0 | | | 3,502 | Retained interests | | 0 | | | 0 | | | 31 | | | 0 | | | 31 | Equity | | | | | | | | | | | | | | | Available-for-sale | | 591 | | | 14 | | | 14 | | | 0 | | | 619 | Trading | | 260 | | | 0 | | | 0 | | | 0 | | | 260 | Derivatives(d) | | 0 | | | 12,861 | | | 362 | | | (6,942) | | | 6,281 | Other(e) | | 62 | | | 0 | | | 785 | | | 0 | | | 847 | Total | $ | 1,859 | | $ | 49,421 | | $ | 10,721 | | $ | (6,942) | | $ | 55,059 | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | Derivatives | $ | 0 | | $ | 4,809 | | $ | 16 | | $ | (3,804) | | $ | 1,021 | Other(f) | | 0 | | | 895 | | | 0 | | | 0 | | | 895 | Total | $ | 0 | | $ | 5,704 | | $ | 16 | | $ | (3,804) | | $ | 1,916 | | | | | | | | | | | | | | | | December 31, 2011 | | | | | | | | | | | | | | | Assets | | | | | | | | | | | | | | | Investment securities | | | | | | | | | | | | | | | Debt | | | | | | | | | | | | | | | U.S. corporate | $ | 0 | | $ | 20,535 | | $ | 3,235 | | $ | 0 | | $ | 23,770 | State and municipal | | 0 | | | 3,157 | | | 77 | | | 0 | | | 3,234 | Residential mortgage-backed | | 0 | | | 2,568 | | | 41 | | | 0 | | | 2,609 | Commercial mortgage-backed | | 0 | | | 2,824 | | | 4 | | | 0 | | | 2,828 | Asset-backed(c) | | 0 | | | 930 | | | 4,040 | | | 0 | | | 4,970 | Corporate – non-U.S. | | 71 | | | 1,058 | | | 1,204 | | | 0 | | | 2,333 | Government – non-U.S. | | 1,003 | | | 1,444 | | | 84 | | | 0 | | | 2,531 | U.S. government and federal agency | | 0 | | | 3,805 | | | 253 | | | 0 | | | 4,058 | Retained interests | | 0 | | | 0 | | | 35 | | | 0 | | | 35 | Equity | | | | | | | | | | | | | | | Available-for-sale | | 730 | | | 18 | | | 17 | | | 0 | | | 765 | Trading | | 241 | | | 0 | | | 0 | | | 0 | | | 241 | Derivatives(d) | | 0 | | | 15,252 | | | 393 | | | (5,604) | | | 10,041 | Other(e) | | 0 | | | 0 | | | 817 | | | 0 | | | 817 | Total | $ | 2,045 | | $ | 51,591 | | $ | 10,200 | | $ | (5,604) | | $ | 58,232 | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | Derivatives | $ | 0 | | $ | 5,010 | | $ | 27 | | $ | (4,308) | | $ | 729 | Other(f) | | 0 | | | 863 | | | 0 | | | 0 | | | 863 | Total | $ | 0 | | $ | 5,873 | | $ | 27 | | $ | (4,308) | | $ | 1,592 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) There were no securities transferred between Level 1 and Level 2 during the six months ended June 30, 2012. (b) The netting of derivative receivables and payables is permitted when a legally enforceable master netting agreement exists and when collateral is posted to us. (c) Includes investments in our CLL business in asset-backed securities collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries. (d) The fair value of derivatives included an adjustment for non-performance risk. The cumulative adjustment was a loss of $23 million and $13 million at June 30, 2012 and December 31, 2011, respectively. See Note 16 for additional information on the composition of our derivative portfolio. (e) Included private equity investments and loans designated under the fair value option. (f) Primarily represented the liability associated with certain of our deferred incentive compensation plans. The following tables present the changes in Level 3 instruments measured on a recurring basis for the three and six months ended June 30, 2012 and 2011, respectively. The majority of our Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in shareowners' equity. Changes in Level 3 Instruments for the Three Months Ended June 30, 2012 | | | | | | | | | | | | | | | | | | | | | | Net | | (In millions) | | | | | | | | | | | | | | | | | | | | | change in | | | | | | | Net realized/ | | | | | | | | | | | | | | | | unrealized | | | | | | Net | | unrealized | | | | | | | | | | | | | | | | | | | | | gains | | | | | realized/ | | gains (losses) | | | | | | | | | | | | | | | | (losses) | | | | | unrealized | | included in | | | | | | | | | | | | | | | | relating to | | | Balance | | gains | | accumulated | | | | | | | | | | | | | Balance | | | instruments | | | at | | (losses) | | other | | | | | | | | Transfers | | Transfers | | at | | | still held at | | | April 1, | | included | | comprehensive | | | | | | | | | into | | out of | | June 30, | | | June 30, | | | 2012 | | in earnings | (a) | income | | Purchases | | Sales | | Settlements | | Level 3 | (b) | Level 3 | (b) | 2012 | | | 2012 | (c) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. corporate | $ | 3,252 | | $ | 33 | | $ | (72) | | $ | 119 | | $ | (40) | | $ | (31) | | $ | 116 | | $ | (5) | | $ | 3,372 | | | $ | 0 | | State and municipal | | 79 | | | 0 | | | 1 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 81 | | | | 0 | | Residential | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | mortgage-backed | | 107 | | | 0 | | | 0 | | | 0 | | | 0 | | | (2) | | | 1 | | | (9) | | | 97 | | | | 0 | | Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | mortgage-backed | | 1 | | | 0 | | | 0 | | | 0 | | | (1) | | | 0 | | | 0 | | | 0 | | | 0 | | | | 0 | | Asset-backed | | 4,404 | | | 7 | | | (89) | | | 57 | | | (75) | | | 0 | | | 0 | | | 0 | | | 4,304 | | | | 0 | | Corporate – non-U.S. | | 1,249 | | | (3) | | | (63) | | | 306 | | | 0 | | | (52) | | | 9 | | | (83) | | | 1,363 | | | | 0 | | Government | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | – non-U.S. | | 52 | | | 0 | | | 0 | | | 13 | | | (1) | | | (13) | | | 0 | | | 0 | | | 51 | | | | 0 | | U.S. government and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | federal agency | | 260 | | | 0 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 261 | | | | 0 | | Retained interests | | 34 | | | 0 | | | (4) | | | 4 | | | (2) | | | (1) | | | 0 | | | 0 | | | 31 | | | | 0 | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale | | 15 | | | 0 | | | (1) | | | 3 | | | (4) | | | 1 | | | 0 | | | 0 | | | 14 | | | | 0 | | Derivatives(d)(e) | | 321 | | | 30 | | | (2) | | | 23 | | | (3) | | | (16) | | | (1) | | | (4) | | | 348 | | | | 39 | | Other | | 816 | | | 27 | | | (13) | | | 40 | | | (35) | | | 0 | | | 0 | | | (50) | | | 785 | | | | 29 | | Total | $ | 10,590 | | $ | 94 | | $ | (242) | | $ | 566 | | $ | (161) | | $ | (114) | | $ | 125 | | $ | (151) | | $ | 10,707 | | | $ | 68 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(a) Earnings effects are primarily included in the “GECC revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of Earnings. (b) Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity. (c) Represented the amount of unrealized gains or losses for the period included in earnings. (d) Represented derivative assets net of derivative liabilities and included cash accruals of $2 million not reflected in the fair value hierarchy table. (e) Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Note 16. Changes in Level 3 Instruments for the Three Months Ended June 30, 2011 | | | | | | | | | | | | | | | | | | | | | | Net | | (In millions) | | | | | | | | | | | | | | | | | | | | | change in | | | | | | | Net realized/ | | | | | | | | | | | | | | | | unrealized | | | | | | Net | | unrealized | | | | | | | | | | | | | | | | | | | | | gains | | | | | realized/ | | gains (losses) | | | | | | | | | | | | | | | | (losses) | | | | | unrealized | | included in | | | | | | | | | | | | | | | | relating to | | | Balance | | gains | | accumulated | | | | | | | | | | | | | Balance | | | instruments | | | at | | (losses) | | other | | | | | | | | Transfers | | Transfers | | at | | | still held at | | | April 1, | | included | | comprehensive | | | | | | | | | into | | out of | | June 30, | | | June 30, | | | 2011 | | in earnings | (a) | income | | Purchases | | Sales | | Settlements | | Level 3 | (b) | Level 3 | (b) | 2011 | | | 2011 | (c) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. corporate | $ | 3,120 | | $ | 14 | | $ | 3 | | $ | 30 | | $ | (41) | | $ | (29) | | $ | 0 | | $ | 0 | | $ | 3,097 | | | $ | 0 | | State and municipal | | 210 | | | 0 | | | 0 | | | 0 | | | 0 | | | (1) | | | 0 | | | 0 | | | 209 | | | | 0 | | Residential | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | mortgage-backed | | 118 | | | 0 | | | (2) | | | 1 | | | 0 | | | 0 | | | 0 | | | (72) | | | 45 | | | | 0 | | Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | mortgage-backed | | 11 | | | 0 | | | 1 | | | (1) | | | 0 | | | 0 | | | 0 | | | (4) | | | 7 | | | | 0 | | Asset-backed | | 2,826 | | | (3) | | | (19) | | | 409 | | | (43) | | | (1) | | | 0 | | | (37) | | | 3,132 | | | | 0 | | Corporate – non-U.S. | | 1,479 | | | (1) | | | 28 | | | 0 | | | 0 | | | (31) | | | 62 | | | 0 | | | 1,537 | | | | 0 | | Government | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | – non-U.S. | | 162 | | | (16) | | | 8 | | | 13 | | | 0 | | | 0 | | | 107 | | | 0 | | | 274 | | | | 0 | | U.S. government and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | federal agency | | 201 | | | 0 | | | 23 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 224 | | | | 0 | | Retained interests | | 52 | | | 1 | | | (4) | | | 0 | | | (2) | | | (2) | | | 0 | | | 0 | | | 45 | | | | 0 | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale | | 21 | | | 0 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 22 | | | | 0 | | Derivatives(d)(e) | | 272 | | | 29 | | | 0 | | | 1 | | | 0 | | | (5) | | | 0 | | | 0 | | | 297 | | | | 4 | | Other | | 987 | | | 43 | | | 12 | | | 112 | | | 0 | | | (5) | | | 0 | | | 0 | | | 1,149 | | | | 39 | | Total | $ | 9,459 | | $ | 67 | | $ | 51 | | $ | 565 | | $ | (86) | | $ | (74) | | $ | 169 | | $ | (113) | | $ | 10,038 | | | $ | 43 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
- Earnings effects are primarily included in the “GECC revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of Earnings.
- Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.
- Represented the amount of unrealized gains or losses for the period included in earnings.
- Represented derivative assets net of derivative liabilities and included cash accruals of $7 million not reflected in the fair value hierarchy table.
- Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Note 16.
Changes in Level 3 Instruments for the Six Months Ended June 30, 2012 | | | | | | | Net | | | | | | | | | | | | | | | Net | | (In millions) | | | | | realized/ | | | | | | | | | | | | | | | | change in | | | | | | | unrealized | | | | | | | | | | | | | | | | unrealized | | | | | | Net | | gains | | | | | | | | | | | | | | | | | | | | | gains | | | | | realized/ | | | (losses) | | | | | | | | | | | | | | | | (losses) | | | | | unrealized | | included in | | | | | | | | | | | | | | | | relating to | | | Balance | | gains | | accumulated | | | | | | | | | | | | | Balance | | | instruments | | | at | | (losses) | | other | | | | | | | | | Transfers | | Transfers | | at | | | still held at | | | January 1, | | included | | comprehensive | | | | | | | | | into | | out of | | June 30, | | | June 30, | | | 2012 | | in earnings | (a) | income | | Purchases | | Sales | | Settlements | | Level 3 | (b) | Level 3 | (b) | 2012 | | | 2012 | (c) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. corporate | $ | 3,235 | | $ | 59 | | $ | (34) | | $ | 132 | | $ | (71) | | $ | (47) | | $ | 116 | | $ | (18) | | $ | 3,372 | | | $ | 0 | | State and municipal | | 77 | | | 0 | | | 3 | | | 1 | | | 0 | | | 0 | | | 0 | | | 0 | | | 81 | | | | 0 | | Residential | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | mortgage-backed | | 41 | | | (3) | | | 3 | | | 0 | | | 0 | | | (3) | | | 69 | | | (10) | | | 97 | | | | 0 | | Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | mortgage-backed | | 4 | | | 0 | | | 0 | | | 0 | | | (1) | | | 0 | | | 0 | | | (3) | | | 0 | | | | 0 | | Asset-backed | | 4,040 | | | 3 | | | (47) | | | 398 | | | (106) | | | 0 | | | 16 | | | 0 | | | 4,304 | | | | 0 | | Corporate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | – non-U.S. | | 1,204 | | | (12) | | | (3) | | | 316 | | | 0 | | | (78) | | | 23 | | | (87) | | | 1,363 | | | | 0 | | Government | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | – non-U.S. | | 84 | | | (34) | | | 35 | | | 65 | | | (72) | | | (27) | | | 0 | | | 0 | | | 51 | | | | 0 | | U.S. government and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | federal agency | | 253 | | | 0 | | | 8 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 261 | | | | 0 | | Retained interests | | 35 | | | 0 | | | (8) | | | 9 | | | (3) | | | (2) | | | 0 | | | 0 | | | 31 | | | | 0 | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale | | 17 | | | 0 | | | (2) | | | 3 | | | (4) | | | 0 | | | 0 | | | 0 | | | 14 | | | | 0 | | Derivatives(d)(e) | | 369 | | | 30 | | | (1) | | | 21 | | | (3) | | | (18) | | | (1) | | | (49) | | | 348 | | | | 32 | | Other | | 817 | | | 32 | | | (13) | | | 41 | | | (42) | | | 0 | | | 0 | | | (50) | | | 785 | | | | 34 | | Total | $ | 10,176 | | $ | 75 | | $ | (59) | | $ | 986 | | $ | (302) | | $ | (175) | | $ | 223 | | $ | (217) | | $ | 10,707 | | | $ | 66 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
- Earnings effects are primarily included in the “GECC revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of Earnings.
- Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.
- Represented the amount of unrealized gains or losses for the period included in earnings.
- Represented derivative assets net of derivative liabilities and included cash accruals of $2 million not reflected in the fair value hierarchy table.
- Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Note 16.
Changes in Level 3 Instruments for the Six Months Ended June 30, 2011 | | | | | | | Net | | | | | | | | | | | | | | | Net | | (In millions) | | | | | realized/ | | | | | | | | | | | | | | | | change in | | | | | | | unrealized | | | | | | | | | | | | | | | | unrealized | | | | | | Net | | gains | | | | | | | | | | | | | | | | | | | | | gains | | | | | realized/ | | | (losses) | | | | | | | | | | | | | | | | (losses) | | | | | unrealized | | included in | | | | | | | | | | | | | | | | relating to | | | Balance | | gains | | accumulated | | | | | | | | | | | | | Balance | | | instruments | | | at | | (losses) | | other | | | | | | | | | Transfers | | Transfers | | at | | | still held at | | | January 1, | | included | | comprehensive | | | | | | | | | into | | out of | | June 30, | | | June 30, | | | 2011 | | in earnings | (a) | income | | Purchases | | Sales | | Settlements | | Level 3 | (b) | Level 3 | (b) | 2011 | | | 2011 | (c) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Debt | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | U.S. corporate | $ | 3,199 | | $ | 101 | | $ | (20) | | $ | 75 | | $ | (155) | | $ | (103) | | $ | 0 | | $ | 0 | | $ | 3,097 | | | $ | 0 | | State and municipal | | 225 | | | 0 | | | (5) | | | 4 | | | 0 | | | (4) | | | 0 | | | (11) | | | 209 | | | | 0 | | Residential | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | mortgage-backed | | 66 | | | 0 | | | 1 | | | 2 | | | (4) | | | (1) | | | 71 | | | (90) | | | 45 | | | | 0 | | Commercial | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | mortgage-backed | | 49 | | | 0 | | | 1 | | | 6 | | | 0 | | | 0 | | | 3 | | | (52) | | | 7 | | | | 0 | | Asset-backed | | 2,540 | | | 0 | | | 55 | | | 780 | | | (152) | | | (11) | | | 1 | | | (81) | | | 3,132 | | | | 0 | | Corporate | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | – non-U.S. | | 1,486 | | | (28) | | | 82 | | | 12 | | | (28) | | | (60) | | | 73 | | | 0 | | | 1,537 | | | | 0 | | Government | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | – non-U.S. | | 156 | | | (16) | | | 14 | | | 13 | | | 0 | | | 0 | | | 107 | | | 0 | | | 274 | | | | 0 | | U.S. government and | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | federal agency | | 210 | | | 0 | | | 14 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 224 | | | | 0 | | Retained interests | | 39 | | | (18) | | | 30 | | | 0 | | | (3) | | | (3) | | | 0 | | | 0 | | | 45 | | | | 0 | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Available-for-sale | | 24 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1 | | | (3) | | | 22 | | | | 0 | | Derivatives(d)(e) | | 265 | | | 57 | | | 4 | | | 5 | | | 0 | | | (190) | | | 150 | | | 6 | | | 297 | | | | 35 | | Other | | 906 | | | 102 | | | 28 | | | 118 | | | 0 | | | (5) | | | 0 | | | 0 | | | 1,149 | | | | 96 | | Total | $ | 9,165 | | $ | 198 | | $ | 204 | | $ | 1,015 | | $ | (342) | | $ | (377) | | $ | 406 | | $ | (231) | | $ | 10,038 | | | $ | 131 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
- Earnings effects are primarily included in the “GECC revenues from services” and “Interest and other financial charges” captions in the Condensed Statement of Earnings.
- Transfers in and out of Level 3 are considered to occur at the beginning of the period. Transfers out of Level 3 were a result of increased use of quotes from independent pricing vendors based on recent trading activity.
- Represented the amount of unrealized gains or losses for the period included in earnings.
- Represented derivative assets net of derivative liabilities and included cash accruals of $7 million not reflected in the fair value hierarchy table.
- Gains (losses) included in net realized/unrealized gains (losses) included in earnings were offset by the earnings effects from the underlying items that were economically hedged. See Note 16.
Non-Recurring Fair Value Measurements The following table represents non-recurring fair value amounts (as measured at the time of the adjustment) for those assets remeasured to fair value on a non-recurring basis during the fiscal year and still held at June 30, 2012 and December 31, 2011. These assets can include loans and long-lived assets that have been reduced to fair value when they are held for sale, impaired loans that have been reduced based on the fair value of the underlying collateral, cost and equity method investments and long-lived assets that are written down to fair value when they are impaired and the remeasurement of retained investments in formerly consolidated subsidiaries upon a change in control that results in deconsolidation of a subsidiary, if we sell a controlling interest and retain a noncontrolling stake in the entity. Assets that are written down to fair value when impaired and retained investments are not subsequently adjusted to fair value unless further impairment occurs. | Remeasured during | | Remeasured during | | the six months ended | | the year ended | | June 30, 2012 | | December 31, 2011 | (In millions) | Level 2 | | Level 3 | | Level 2 | | Level 3 | | | | | | | | | | | | | Financing receivables and loans held for sale | $ | 171 | | $ | 2,731 | | $ | 158 | | $ | 5,159 | Cost and equity method investments(a) | | 0 | | | 266 | | | 0 | | | 403 | Long-lived assets, including real estate | | 326 | | | 2,014 | | | 1,343 | | | 3,282 | Total | $ | 497 | | $ | 5,011 | | $ | 1,501 | | $ | 8,844 | | | | | | | | | | | | | | | | | | | | | | | | |
(a) Includes the fair value of private equity and real estate funds included in Level 3 of $57 million and $123 million at June 30, 2012 and December 31, 2011, respectively. The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at June 30, 2012 and 2011. | Three months ended June 30 | | Six months ended June 30 | (In millions) | 2012 | | 2011 | | 2012 | | 2011 | | | | | | | | | | | | | Financing receivables and loans held for sale | $ | (105) | | $ | (263) | | $ | (211) | | $ | (570) | Cost and equity method investments(a) | | (38) | | | (127) | | | (58) | | | (176) | Long-lived assets, including real estate(b) | | (107) | | | (343) | | | (247) | | | (863) | Total | $ | (250) | | $ | (733) | | $ | (516) | | $ | (1,609) | | | | | | | | | | | | | | | | | | | | | | | | |
(a) Includes fair value adjustments associated with private equity and real estate funds of $(1) million and $(8) million in the three months ended June 30, 2012 and 2011, respectively, and $(2) million and $(13) million in the six months ended June 30, 2012 and 2011, respectively. (b) Includes impairments related to real estate equity properties and investments recorded in other costs and expenses of $6 million and $339 million in the three months ended June 30, 2012 and 2011, respectively, and $56 million and $776 million in the six months ended June 30, 2012 and 2011, respectively. Level 3 Measurements The following table presents information relating to the significant unobservable inputs of our Level 3 recurring and non-recurring measurements. | | | | | | | | | | | | Fair value at | | | | | | Range | | | June 30, | | Valuation | | Unobservable | | (weighted | (Dollars in millions) | | 2012 | | technique | | inputs | | average) | | | | | | | | | | | Recurring fair value measurements | | | | | | | | | | | | | | | | | | | | Investment securities | | | | | | | | | | | | | | | | | | | | Debt | | | | | | | | | | | | | | | | | | | | U.S. corporate | | $ | 1,547 | | Income approach | | Discount rate(a) | | 2.0%-24.9% (10.6%) | | | | | | | | | | | Asset-backed | | | 4,259 | | Income approach | | Discount rate(a) | | 1.6%-13.3% (4.2%) | | | | | | | | | | | Corporate Non-U.S. | | | 912 | | Income approach | | Discount rate(a) | | 1.3%-30.2% (8.3%) | | | | | | | | | | | Other financial assets | | | 367 | | Market comparables | | Weighted average cost of capital | | 7.6X-8.3X (8.3X) | | | | | | | | | | | | | | 275 | | Market comparables | | EBITDA multiple | | 9.3X-11.7X (9.4X) | | | | | | | | | | | Non-recurring fair value measurements | | | | | | | | | | | | | | | | | | | | Financing receivables and loans held for sale | | $ | 1,828 | | Income approach | | Capitalization rate(b) | | 5.4%-11.5% (8.2%) | | | | | | | | | | | Cost and equity method investments | | | 119 | | Income approach | | Capitalization rate(b) | | 7.0%-9.3% (8.3%) | | | | | | | | | | | Long-lived assets, including real estate | | | 441 | | Income approach | | Capitalization rate(b) | | 4.8%-11.0% (7.4%) | | | | | | | | | | | | | | | | | | | | |
- Discount rates are determined based on inputs that market participants would use when pricing investments, including credit and liquidity risk. An increase in the discount rate would result in a decrease in the fair value.
- Represents the rate of return on net operating income which is considered acceptable for an investor and is used to determine a property's capitalized value. An increase in the capitalization rate would result in a decrease in the fair value.
Other Level 3 recurring fair value measurements of $3,097 million and non-recurring measurements of $2,110 million are valued using non-binding broker quotes or other third-party sources. For a description of our process to evaluate third-party pricing servicers, see Note 1 in our 2011 consolidated financial statements. Other recurring fair value measurements of $248 million and non-recurring fair value measurements of $513 million were individually insignificant and utilize a number of different unobservable inputs not subject to meaningful aggregation. |