Fair Value Measurements

Fair Value Hierarchy

The Company has categorized its assets and liabilities that are valued at fair value on a recurring basis into a three-level fair value hierarchy as defined by the FASB. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets and liabilities (Level 1) and lowest priority to unobservable inputs (Level 3). In some cases, the inputs used to measure fair value might fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy, for disclosure purposes, is determined based on the lowest level input that is significant to the fair value measurement. Assets and liabilities recorded in the consolidated balance sheets at fair value are categorized based on the inputs in the valuation techniques as follows:


Level 1.	Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market (examples include active exchange-traded equity securities and exchange-traded money market mutual funds).

Assets and liabilities measured using Level 1 inputs include exchange-traded equity securities, exchange-traded mutual funds and money market funds.


Level 2.	Assets and liabilities whose values are based on the following:


a)	Quoted prices for similar assets or liabilities in active markets;


b)	Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which trade infrequently);


c)	Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and


d)	Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full asset or liability (for example, certain mortgage loans).

The Company does not have any assets or liabilities that are measured using Level 2 inputs.


Level 3.	Assets and liabilities whose values are based on prices, or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

Liabilities measured using Level 3 inputs include liabilities for contingent purchase consideration and the deal contingent foreign exchange contract (the "FX Contract").

Valuation Techniques

Equity Securities, Money Market Funds and Mutual Funds – Level 1

Investments for which market quotations are readily available are valued at the sale price on their principal exchange or, for certain markets, official closing bid price. Money market funds are valued using a valuation technique that results in price per share at $1.00.

Contingent Purchase Consideration Liability – Level 3

Purchase consideration for some acquisitions made by the Company includes contingent consideration arrangements. These arrangements typically provide for the payment of additional consideration if earnings or revenue targets are met over periods from two to four years. The fair value of the contingent purchase consideration liability is estimated as the present value of future cash flows to be paid, based on projections of revenue and earnings and related targets of the acquired entities.

Foreign Exchange Forward Contract Liabilities - Level 3

In connection with the JLT Transaction, the Company entered into the FX Contract, to hedge the risk of appreciation of the GBP-denominated purchase price. The Company will purchase £5.2 billion at a contracted exchange rate, which is discussed in Note 11. The fair value was determined using the probability distribution approach, comparing the all in forward rate to the foreign exchange rate for possible dates the JLT Transaction is expected to close, discounted to the valuation date and adjusted for the fair value of the deal contingency feature. The fair value related to the deal contingency feature will decrease (and any unrealized loss increase or any unrealized gain decrease) as conditions to the closing are met.

The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017.



	Identical Assets (Level 1)				Observable Inputs (Level 2)				Unobservable Inputs (Level 3)				Total
(In millions)	09/30/18		12/31/17		09/30/18		12/31/17		09/30/18		12/31/17		09/30/18		12/31/17
Assets:
Financial instruments owned:
Exchange traded equity securities^(a)	$	119	$	81	$	—	$	—	$	—	$	—	$	119	$	81
Mutual funds^(a)	153		158		—		—		—		—		153		158
Money market funds^(b)	31		143		—		—		—		—		31		143
Other equity investment^(a)	—		—		8		—		—		—		8		—
Total assets measured at fair value	$	303	$	382	$	8	$	—	$	—	$	—	$	311	$	382
Fiduciary Assets:
Money market funds	$	69	$	111	$	—	$	—	$	—	$	—	$	69	$	111
Total fiduciary assets measured at fair value	$	69	$	111	$	—	$	—	$	—	$	—	$	69	$	111
Liabilities:
Contingent purchase consideration liability^(c)	$	—	$	—	$	—	$	—	$	168	$	189	$	168	$	189
FX contract^(d)	—		—		—		—		100		—		100		—
Total liabilities measured at fair value	$	—	$	—	$	—	$	—	$	268	$	189	$	268	$	189

^(a)Included in other assets in the consolidated balance sheets.

^(b) Included in cash and cash equivalents in the consolidated balance sheets.

^(c) Included in accounts payable and accrued liabilities and other liabilities in the consolidated balance sheets.

^(d) Included in accounts payable and accrued liabilities in the consolidated balance sheets.

During the nine-month period ended September 30, 2018, there were no assets or liabilities that were transferred between any of the levels.

The table below sets forth a summary of the changes in fair value of the Company’s Level 3 liabilities for the three and nine month periods ending September 30, 2018 and 2017 that represent the FX Contract and contingent consideration related to acquisitions:



	Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2018			2017			2018			2017
Balance at beginning of period,	$	185		$	203		$	189		$	241
Additions	8			2			34			36
Payments	(35		)	(42		)	(76		)	(107		)
Revaluation Impact	8			5			19			(3		)
Change in fair value of the FX contract	100			—			100			—
Other ^(a)	2			2			2			3
Balance at September 30,	$	268		$	170		$	268		$	170

^(a)Primarily reflects the impact of foreign exchange.

As set forth in the table above, based on the Company's ongoing assessment of the fair value of contingent consideration, the Company recorded a net increase in the estimated fair value of such liabilities for prior-period acquisitions of $19 million in the nine-month period ended September 30, 2018. A 5% increase in the projections used to estimate the contingent consideration would increase the liability by approximately $41 million. A 5% decrease would decrease the liability by approximately $31 million.

Long-Term Investments

The Company holds investments in certain private equity investments, public companies and private companies that are accounted for using the equity method of accounting. The carrying value of these investments was $296 million and $405 million at September 30, 2018 and December 31, 2017, respectively.

Investments Accounted For Using the Equity Method of Accounting

Investments in Public and Private Companies

Alexander Forbes: The Company owns approximately 33% of the common stock of Alexander Forbes ("AF"), a South African company listed on the Johannesburg Stock Exchange, which it purchased in 2014 for 7.50 South African Rand per share. The shares of AF have been trading below the Company’s carrying value since November of 2017, but had traded within 10% of the Company’s carrying value through much of the first quarter of 2018. In May 2018, the trading price declined to 30% to 35% below the Company’s cost and remained at the discounted level through the third quarter of 2018. The Company considered several factors in assessing the carrying value of its investment in AF, including its financial position, the near- and long-term prospects of AF and the broader South African economy and capital markets, the length of time and extent to which the market value was below cost and the Company’s intent and ability to retain the investment for a sufficient period of time to allow for anticipated recovery in market value. However, based on the duration of time and the extent to which the shares traded below their cost, the Company could not develop sufficient objective evidence to support a recovery of the price in the relatively near future. As such, the Company concluded the decline in value of the investment was other than temporary and recorded a charge of $81 million in the third quarter of 2018. As of September 30, 2018, the carrying value of the Company’s investment in AF of approximately $153 million was equal to its fair value based on the share price of 4.95 Rand per share, the closing price on September 30, 2018.

The Company has other investments in private insurance and consulting companies with a carrying value of $60 million and $63 million at September 30, 2018 and December 31, 2017, respectively.

The Company’s investment in Alexander Forbes and its other certain equity investments in insurance and consulting companies are accounted for using the equity method of accounting, the results of which are included in revenue in the consolidated statements of income and the carrying value of which is included in other assets in the consolidated balance sheets. The Company records its share of income or loss on its equity method investments on a one quarter lag.

Private Equity Investments

The Company's investments in private equity funds were $83 million and $76 million at September 30, 2018 and December 31, 2017, respectively. The carrying values of these private equity investments approximate fair value. The underlying private equity funds follow investment company accounting, where investments within the fund are carried at fair value. The Company records in earnings its proportionate share of the change in fair value of the funds on the investment income (loss) line in the consolidated statements of income. These investments are included in other assets in the consolidated balance sheets.

Other Investments

At September 30, 2018 the Company held certain equity investments with readily determinable market values of $132 million. During the first nine months of 2018, the Company recorded an investment gain of $38 million, which reflects the increase in the market value of these investments as compared to December 31, 2017. The Company also holds investments without readily determinable market values of $70 million at September 30, 2018. The Company recorded a gain of approximately $6 million, which reflects the increase in market value based on price changes from recent transactions related to such investments.