Fair Value Measurements

12 Months Ended

Dec. 31, 2013

NOTE 14. FAIR VALUE MEASUREMENTS

For a description of how we estimate fair value, see Note 1.

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 and supporting obligations to holders of GICs in Trinity and investment securities held in our CLL business collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries.

									Netting
(In millions)	Level 1		(a)	Level 2		(a)	Level 3			adjustment	(b)	Net balance

December 31, 2013

Assets
Investment securities
Debt
U.S. corporate	$	-		$	18,788		$	2,918	$	-		$	21,706
State and municipal		-			4,193			96		-			4,289
Residential mortgage-backed		-			1,824			86		-			1,910
Commercial mortgage-backed		-			3,025			10		-			3,035
Asset-backed(c)		-			489			6,898		-			7,387
Corporate - non-U.S.		61			645			1,052		-			1,758
Government - non-U.S.		1,590			789			31		-			2,410
U.S. government and federal
agency		-			545			225		-			770
Retained interests		-			-			72		-			72
Equity
Available-for-sale		225			15			11		-			251
Trading		72			2			-		-			74
Derivatives(d)		-			7,493			170		(6,546)			1,117
Other(e)		-			-			293		-			293
Total	$	1,948		$	37,808		$	11,862	$	(6,546)		$	45,072

Liabilities
Derivatives	$	-		$	4,893		$	16	$	(4,162)		$	747
Other		-			24			-		-			24
Total	$	-		$	4,917		$	16	$	(4,162)		$	771

December 31, 2012

Assets
Investment securities
Debt
U.S. corporate	$	-		$	20,580		$	3,552	$	-		$	24,132
State and municipal		-			4,469			77		-			4,546
Residential mortgage-backed		-			2,162			100		-			2,262
Commercial mortgage-backed		-			3,088			6		-			3,094
Asset-backed(c)		-			715			5,023		-			5,738
Corporate - non-U.S.		71			1,132			1,212		-			2,415
Government - non-U.S.		702			1,019			42		-			1,763
U.S. government and federal
agency		-			3,288			277		-			3,565
Retained interests		-			-			83		-			83
Equity
Available-for-sale		569			14			13		-			596
Trading		245			-			-		-			245
Derivatives(d)		-			10,934			280		(7,657)			3,557
Other(e)		-			-			432		-			432
Total	$	1,587		$	47,401		$	11,097	$	(7,657)		$	52,428

Liabilities
Derivatives	$	-		$	3,040		$	20	$	(2,908)		$	152
Other		-			23			-		-			23
Total	$	-		$	3,063		$	20	$	(2,908)		$	175

The fair value of securities transferred between Level 1 and Level 2 was $2 million during 2013.
The netting of derivative receivables and payables (including the effects of any collateral posted or received) is permitted when a legally enforceable master netting agreement exists.
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.
The fair value of derivatives included an adjustment for non-performance risk. The cumulative adjustment was a gain (loss) of $(7) million and $(15) million at December 31, 2013 and 2012, respectively. See Note 15 for additional information on the composition of our derivative portfolio.
Included private equity investments and loans designated under the fair value option.

The following tables present the changes in Level 3 instruments measured on a recurring basis for the years ended December 31, 2013 and 2012, 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 Year Ended December 31, 2013
																						Net
(In millions)																						change in
						Net realized/																unrealized
			Net			unrealized																gains
			realized/			gains (losses)																(losses)
			unrealized			included in																relating to
			gains			accumulated																instruments
	Balance at		(losses)			other								Transfers			Transfers			Balance at		still held at
	January 1,		included in			comprehensive								into			out of			December 31,		December 31,
	2013		earnings		(a)	income		Purchases		Sales		Settlements		Level 3		(b)	Level 3		(b)	2013		2013		(c)

Investment securities
Debt
U.S. corporate	$	3,552	$	(477)		$	122	$	376	$	(423)	$	(231)	$	108		$	(109)		$	2,918	$	-
State and municipal		77		-			(7)		21		-		(5)		10			-			96		-
Residential
mortgage-backed		100		-			(5)		-		(2)		(7)		-			-			86		-
Commercial
mortgage-backed		6		-			-		-		-		(6)		10			-			10		-
Asset-backed		5,023		5			32		2,632		(4)		(795)		12			(7)			6,898		-
Corporate – non-U.S.		1,212		(103)			49		5,814		(3)		(5,874)		15			(58)			1,052		-
Government
– non-U.S.		42		1			(12)		-		-		-		-			-			31		-
U.S. government and
federal agency		277		-			(52)		-		-		-		-			-			225		-
Retained interests		83		3			1		6		-		(21)		-			-			72		-
Equity
Available-for-sale		13		-			-		-		-		-		-			(2)			11		-
Trading		-		-			-		-		-		-		-			-			-		-
Derivatives(d)(e)		262		(78)			2		(1)		-		(53)		33			(2)			163		(31)
Other		432		(94)			12		493		(542)		-		4			(12)			293		(90)
Total	$	11,079	$	(743)		$	142	$	9,341	$	(974)	$	(6,992)	$	192		$	(190)		$	11,855	$	(121)

Earnings effects are primarily included in the “Revenues from services” and “Interest” captions in the 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 $9 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 15.

Changes in Level 3 Instruments for the Year Ended December 31, 2012
																						Net
(In millions)																						change in
						Net realized/																unrealized
			Net			unrealized																gains
			realized/			gains (losses)																(losses)
			unrealized			included in																relating to
			gains			accumulated																instruments
	Balance at		(losses)			other								Transfers			Transfers			Balance at		still held at
	January 1,		included in			comprehensive								into			out of			December 31,		December 31,
	2012		earnings		(a)	income		Purchases		Sales		Settlements		Level 3		(b)	Level 3		(b)	2012		2012		(c)

Investment securities
Debt
U.S. corporate	$	3,235	$	66		$	32	$	444	$	(214)	$	(110)	$	299		$	(200)		$	3,552	$	-
State and municipal		77		-			10		16		-		(1)		78			(103)			77		-
Residential
mortgage-backed		41		(3)			1		6		-		(3)		135			(77)			100		-
Commercial
mortgage-backed		4		-			(1)		-		-		-		6			(3)			6		-
Asset-backed		4,040		1			(25)		1,490		(502)		-		25			(6)			5,023		-
Corporate – non-U.S.		1,204		(11)			19		335		(51)		(172)		24			(136)			1,212		-
Government
– non-U.S.		84		(33)			38		65		(72)		(40)		-			-			42		-
U.S. government and
federal agency		253		-			24		0		-		-		-			-			277		-
Retained interests		35		(1)			(3)		16		(6)		(12)		54			-			83		-
Equity
Available-for-sale		17		-			(1)		3		(3)		(1)		2			(4)			13		-
Trading		-		-			-		0		-		-		-			-			-		-
Derivatives(d)(e)		141		(11)			(1)		(2)		-		(39)		178			(4)			262		160
Other		388		2			2		152		(70)		-		-			(42)			432		(1)
Total	$	9,519	$	10		$	95	$	2,525	$	(918)	$	(378)	$	801		$	(575)		$	11,079	$	159

Earnings effects are primarily included in the “Revenues from services” and “Interest” captions in the 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 15.

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 December 31, 2013 and 2012. 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 the year ended December 31,
	2013				2012
(In millions)	Level 2		Level 3		Level 2		Level 3

Financing receivables and loans held for sale	$	210	$	2,986	$	366	$	4,094
Cost and equity method investments(a)		–		649		8		313
Long-lived assets, including real estate		2,050		1,085		702		2,182
Total	$	2,260	$	4,720	$	1,076	$	6,589

Includes the fair value of private equity and real estate funds included in Level 3 of $93 million and $84 million at December 31, 2013 and 2012, respectively.

The following table represents the fair value adjustments to assets measured at fair value on a non-recurring basis and still held at December 31, 2013 and 2012.

	Year ended December 31,
(In millions)	2013		2012

Financing receivables and loans held for sale	$	(361)	$	(595)
Cost and equity method investments(a)		(466)		(153)
Long-lived assets, including real estate(b)		(1,126)		(623)
Total	$	(1,953)	$	(1,371)

Includes fair value adjustments associated with private equity and real estate funds of $(10) million and $(33) million during 2013 and 2012, respectively.
Includes impairments related to real estate equity properties and investments recorded in operating and administrative expenses of $108 million and $218 million during 2013 and 2012, respectively.

Level 3 Measurements

The following table presents information relating to the significant unobservable inputs of our Level 3 recurring and non-recurring measurements.

December 31 (Dollars in millions)					Range
			Valuation	Unobservable	(weighted
2013	Fair value		technique	inputs	average)

Recurring fair value measurements

Investment securities

Debt
U.S. corporate	$	898	Income approach	Discount rate(a)	1.5%-13.3% (6.5%)

Asset-backed		6,854	Income approach	Discount rate(a)	1.2%-10.5% (3.7%)

Corporate ̶ non-U.S.		819	Income approach	Discount rate(a)	1.4%-46.0% (15.1%)

Other financial assets		288	Income approach, Market comparables	Weighted average
			Income approach, Market comparables	cost of capital	9.3%-9.3% (9.3%)

				Discount rate(a)	5.2%-5.3% (5.3%)

				EBITDA multiple	8.3X-12.5X (10.6X)
Non-recurring fair value measurements
Financing receivables and loans held for sale	$	1,937	Income approach, Business enterprise value	Capitalization rate(b)	5.5%-16.7% (8.0%)

				EBITDA multiple	4.3X-5.5X (4.8X)

				Discount rate(a)	6.6%-6.6% (6.6%)

Cost and equity method investments		100	Income approach, Market comparables	Discount rate(a)	5.7%-5.9% (5.8%)

				Capitalization rate(b)	8.5%-10.6% (10.0%)

				Weighted average
				cost of capital	9.3%-9.6% (9.4%)

				EBITDA multiple	7.1X-14.5X (11.3X)

				Revenue multiple	9.3X-12.6X (10.9X)

Long-lived assets, including real estate		691	Income approach	Capitalization rate(b)	5.4%-14.5% (7.8%)

				Discount rate(a)	4.0%-23.0% (8.8%)

2012
Recurring fair value measurements

Investment securities
Debt
U.S. corporate	$	1,652	Income approach	Discount rate(a)	1.3%-29.9% (11.1%)

Asset-backed		4,977	Income approach	Discount rate(a)	2.1%-13.1% (3.8%)

Corporate ̶ non-U.S.		865	Income approach	Discount rate(a)	1.5%-25.0% (13.2%)

Other financial assets		360	Income approach	Weighted average
				cost of capital	8.7%-10.2% (8.7%)
Non-recurring fair value measurements
Financing receivables and loans held for sale	$	2,835	Income approach, Business enterprise value	Capitalization rate(b)	3.8%-14.0% (8.0%)

				EBITDA multiple	2.0X-6.0X (4.8X)

Cost and equity method investments		72	Income approach	Capitalization rate(b)	9.2%-12.8% (12.0%)

Long-lived assets, including real estate		985	Income approach	Capitalization rate(b)	4.8%-14.6% (7.3%)

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 that 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.

At December 31, 2013 and December 31, 2012, other Level 3 recurring fair value measurements of $2,813 million and $2,990 million, respectively, and non-recurring measurements of $1,426 million and $2,412 million, respectively, 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. At December 31, 2013 and December 31, 2012, other recurring fair value measurements of $173 million and $233 million, respectively, and non-recurring fair value measurements of $566 million and $285 million, respectively, were individually insignificant and utilize a number of different unobservable inputs not subject to meaningful aggregation.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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